The Company’s compensation and benefits as a percentage of net revenues was 66.7% (66.5% on a non-GAAP basis) for the nine months ended September 30, 2012, compared to 64.6% (63.5% on a non-GAAP basis) for the prior-year period.
Consolidated Non-Compensation Expenses (including Non-GAAP results)
Non-compensation expenses were $22.8 million for the third quarter of 2012 ($21.5 million on a non-GAAP basis), compared to $43.8 million for the second quarter of 2012 ($21.7 million on a non-GAAP basis) and $100.3 million for the third quarter of 2011 ($19.4 million on a non-GAAP basis). Included within non-compensation expenses are ClearPoint broker fees and loan processing fees of $9.4 million, $8.1 million and $8.2 million for the third quarter of 2012, second quarter of 2012 and third quarter of 2011, respectively, driven by the level of ClearPoint loan commitment volumes in each respective period.
Excluded from non-GAAP non-compensation expenses are legal, consulting and advisory fees incurred in connection with our strategic alternatives process of $1.3 million and $1.0 million for the third quarter and second quarter of 2012, respectively. In addition, goodwill and intangible asset impairment charges of $21.1 million for the second quarter of 2012 and $80.2 million for the third quarter of 2011 (and certain other costs of $0.6 million in connection with the Investment Banking realignment in the prior-year quarter) are also excluded.
Provision for Income Taxes
Third Quarter 2012
The Company’s effective income tax rate from continuing operations for the three months ended September 30, 2012 was 44.2%, resulting in an income tax benefit of approximately $2.2 million. The income tax benefit is primarily attributable to a $2.2 million increase in the net value of the deferred tax asset. Such increase is due to the Company’s ability to carry-back realizable net operating losses to prior years.
Nine Months Ended 2012
The Company’s effective income tax rate from continuing operations for the nine months ended September 30, 2012 was negative 62.5%, resulting in income tax expense of approximately $26.3 million. The abnormal tax rate differs from the federal statutory tax rate of 35% primarily due to the establishment of a valuation allowance against substantially all of the Company’s deferred tax assets (negative 75%) in the second quarter of 2012, as well as the non-deductible discrete item attributable to the write-off of goodwill (negative 20%) and tax expense associated with stock-based compensation shortfalls (negative 8%).