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IFMI Reports First Quarter 2013 Financial Results

Comparisons to Prior Year & Prior Quarter Periods

Revenue was $14.0 million for the three months ended March 31, 2013 ($20.1 million before the Star Asia mark-to-market loss), compared to revenue of $23.4 million for the three months ended December 31, 2012, and revenue of $18.8 million for the three months ended March 31, 2012. The decrease in revenue in the first quarter of 2013, as compared to the fourth quarter of 2012, occurred across all revenue line items with net trading revenue declining by $5.1 million, and principal transactions and other revenue declining by $2.8 million. The first quarter 2013 year-over-year decrease in revenue was primarily the result of reductions in net trading revenue of $4.6 million, while the other revenue categories were essentially flat. The decline in asset management revenue from the fourth quarter of 2012 was primarily due to the scheduled conclusion of the three-year monthly services agreement payments related to the sale of the Alesco 10-17 management contracts in 2010. In the first quarter of 2013, IFMI recognized losses on its investment in Star Asia of $6.0 million, compared to losses of $3.8 million in the fourth quarter of 2012, and $5.2 million in the first quarter of 2012.

Net loss attributable to IFMI was $4.5 million, or $0.40 per diluted share, for the three months ended March 31, 2013, compared to a net income attributable to IFMI of $3.0 million, or $0.26 per diluted share, for the three months ended December 31, 2012, and net loss attributable to IFMI of $3.9 million, or $0.37 per diluted share, for the three months ended March 31, 2012. Operating expenses, excluding compensation and benefits and depreciation and amortization, declined by $1.2 million, or 14%, in the first quarter of 2013, from the fourth quarter of 2012.

Total Permanent Equity and Dividend Declaration

  • At March 31, 2013, total permanent equity was $69.6 million, as compared to $75.8 million as of December 31, 2012.
  • The Company's Board of Directors has declared a dividend of $0.02 per share. The dividend will be payable on June 7, 2013 to stockholders of record on May 24, 2013.

Conference Call

Management will hold a conference call this morning at 10:00 AM EST to discuss these results. The conference call will also be available via webcast. Interested parties can access the live webcast by clicking the webcast link on the Company's homepage at www.IFMI.com . Those wishing to listen to the conference call with operator assistance can dial (877) 686-9573 (domestic) or (706) 643-6983 (international), participant pass code 60137846, or request the IFMI earnings call. A recording of the call will be available for two weeks following the call by dialing (800) 585-8367 (domestic) or (404) 537-3406 (international), participant pass code 60137846.

About IFMI

IFMI is a financial services company specializing in credit-related fixed income investments. IFMI was founded in 1999 as an investment firm focused on small-cap banking institutions, but has grown to provide an expanding range of asset management, capital markets, and investment banking solutions to institutional investors and corporations. IFMI's primary operating segments are Capital Markets and Asset Management. The Capital Markets segment consists of credit-related fixed income sales, trading, and financing as well as new issue placements in corporate and securitized products and advisory services, operating primarily through IFMI's subsidiaries, C&Co/PrinceRidge Holdings LP and JVB Financial Holdings, LLC in the United States, and Cohen & Company Financial Limited in Europe. The Asset Management segment manages assets through collateralized debt obligations, permanent capital vehicles, and managed accounts. As of March 31, 2013, IFMI managed approximately $6.2 billion in credit-related fixed income assets in a variety of asset classes including U.S. trust preferred securities, European hybrid capital securities, Asian commercial real estate debt, and mortgage- and asset-backed securities. For more information, please visit www.IFMI.com .

Note 1: Adjusted operating income (loss) and adjusted operating income (loss) per share are non-GAAP measures of performance. Please see the discussion of non-GAAP measures of performance below. Also see the tables below for the reconciliations of non-GAAP measures of performance to their corresponding GAAP measures of performance.

Forward-looking Statements

This communication contains certain statements, estimates and forecasts with respect to future performance and events. These statements, estimates and forecasts are "forward-looking statements." In some cases, forward-looking statements can be identified by the use of forward-looking terminology such as "may," "might," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," "seek" or "continue" or the negatives thereof or variations thereon or similar terminology. All statements other than statements of historical fact included in this communication are forward-looking statements and are based on various underlying assumptions and expectations and are subject to known and unknown risks, uncertainties and assumptions, and may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied in the forward-looking statements including, but not limited to, those discussed under the heading "Risk Factors" and "Management's Discussion and Analysis of Financial Condition" in our filings with the Securities and Exchange Commission ("SEC"), which are available at the SEC's website at www.sec.gov and our website at www.IFMI.com/sec-filings . Such risk factors include the following: (a) a decline in general economic conditions or the global financial markets, (b) losses caused by financial or other problems experienced by third parties, (c) losses due to unidentified or unanticipated risks, (d) a lack of liquidity, i.e., ready access to funds for use in our businesses, (e) the ability to attract and retain personnel, (f) litigation and regulatory issues, (g) competitive pressure, (h) an inability to generate incremental income from acquired businesses, and (i) unanticipated market closures due to inclement weather or other disasters. As a result, there can be no assurance that the forward-looking statements included in this communication will prove to be accurate or correct. In light of these risks, uncertainties and assumptions, the future performance or events described in the forward-looking statements in this communication might not occur. Accordingly, you should not rely upon forward-looking statements as a prediction of actual results and we do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Cautionary Note Regarding Quarterly Financial Results

General

Due to the nature of our business, our revenue and operating results may fluctuate materially from quarter to quarter. Accordingly, revenue and net income in any particular quarter may not be indicative of future results. Further, our employee compensation arrangements are in large part incentive-based and therefore will fluctuate with revenue. The amount of compensation expense recognized in any one quarter may not be indicative of such expense in future periods. As a result, we suggest that annual results may be the most meaningful gauge for investors in evaluating our business performance.

INSTITUTIONAL FINANCIAL MARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
       
  Three Months Ended
  3/31/13 12/31/12 3/31/12
Revenues      
Net trading  $ 13,059  $ 18,175  $ 17,691
Asset management  4,762  5,162  4,937
New issue and advisory  995  1,997  1,077
Principal transactions and other income  (4,790)  (1,957)  (4,945)
Total revenues  14,026  23,377  18,760
Operating expenses      
Compensation and benefits  13,497  13,140  16,274
Business development, occupancy, equipment  1,455  1,825  1,174
Subscriptions, clearing, and execution  2,317  2,872  3,073
Professional services and other operating  3,519  3,746  3,051
Depreciation and amortization  310  282  391
Total operating expenses  21,098  21,865  23,963
Operating income (loss)  (7,072)  1,512  (5,203)
Non-operating income (expense)      
Interest expense, net  (1,029)  (545)  (1,215)
Gain on repurchase of debt  --   --   3
Income from equity method affiliates  1,519  2,363  516
Income (loss) before income taxes  (6,582)  3,330  (5,899)
Income tax expense (benefit)  12  (723)  (9)
Net income (loss)  (6,594)  4,053  (5,890)
Less: Net income (loss) attributable to the noncontrolling interest  (2,094)  1,092  (2,031)
Net income (loss) attributable to IFMI  $ (4,500)  $ 2,961  $ (3,859)
       
 
INSTITUTIONAL FINANCIAL MARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)
       
Earnings per share
  Three Months Ended
  3/31/13 12/31/12 3/31/12
Basic      
Net income (loss) attributable to IFMI  $ (4,500)  $ 2,961  $ (3,859)
Basic shares outstanding  11,351  10,882  10,444
Net income (loss) attributable to IFMI per share  $ (0.40)  $ 0.27  $ (0.37)
       
Fully Diluted      
Net income (loss) attributable to IFMI  $ (4,500)  $ 2,961  $ (3,859)
Net income (loss) attributable to the noncontrolling interest  (2,094)  1,092  (2,031)
Net loss (income) attributable to the noncontrolling interest that is not converted  3  (33)  129
Adjustment  (14)  349  (26)
Enterprise net income (loss)  $ (6,605)  $ 4,369  $ (5,787)
Basic shares outstanding  11,351  10,882  10,444
Unrestricted Operating LLC membership units exchangeable into IFMI shares  5,324  5,253  5,252
Additional dilutive shares  --   439  -- 
Fully diluted shares outstanding  16,675  16,574  15,696
Fully diluted net income (loss) per share  $ (0.40)  $ 0.26  $ (0.37)
 
Reconciliation of adjusted operating income (loss) to operating income (loss) and calculations of per share amounts
Operating income (loss)  $ (7,072)  $ 1,512  $ (5,203)
Noncontrolling interest portion of PrinceRidge operating loss (income)  5  (25)  194
Depreciation and amortization  310  282  391
IFMI share of incentive fees included in income from equity method investments  --   1,720  -- 
Share-based compensation  1,129  837  548
Adjusted operating income (loss) $ (5,628)  $ 4,326  $ (4,070)
Fully diluted shares outstanding  16,675  16,574  15,696
Adjusted operating income (loss) per share  $ (0.34)  $ 0.26  $ (0.26)
 
 
INSTITUTIONAL FINANCIAL MARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
     
  March 31, 2013  
  (unaudited) December 31, 2012
Assets    
Cash and cash equivalents  $ 9,775  $ 14,500
Receivables from brokers, dealers, and clearing agencies  2,445  12,253
Due from related parties  1,078  452
Other receivables  6,995  8,488
Investments - trading  158,914  176,139
Other investments, at fair value  32,638  38,323
Receivables under resale agreements  101,416  70,110
Goodwill  11,113  11,113
Other assets  11,812  9,623
Total assets  $ 336,186  $ 341,001
     
Liabilities    
Payables to brokers, dealer, and clearing agencies  $ 57,356  $ 96,211
Accounts payable and other liabilities  10,560  13,080
Accrued compensation  3,436  8,203
Trading securities sold, not yet purchased  59,778  44,167
Securities sold under agreements to repurchase  101,580  70,273
Deferred income taxes  6,595  6,603
Debt  26,788  25,847
Total liabilities  266,093  264,384
     
Temporary Equity    
Redeemable noncontrolling interest  533  829
     
Permanent Equity    
Series D voting nonconvertible preferred stock  5  5
Common stock  11  11
Additional paid-in capital  66,184  64,829
Accumulated other comprehensive loss  (767)  (495)
Accumulated deficit  (12,140)  (7,370)
Total IFMI stockholders' equity  53,293  56,980
Noncontrolling interest  16,267  18,808
Total permanent equity  69,560  75,788
Total liabilities and equity  $ 336,186  $ 341,001

Non-GAAP Measures

Adjusted operating income (loss) and adjusted operating income (loss) per diluted share

Adjusted operating income (loss) is not a financial measure recognized by GAAP. Adjusted operating income (loss) represents operating income (loss), computed in accordance with GAAP, before depreciation and amortization, share-based compensation expense, and the non-convertible non-controlling interest's share of operating income (loss), plus the Company's share of any incentive fees earned included in income from equity method affiliates. Depreciation, amortization, and share based compensation expenses that have been excluded from adjusted operating income (loss) are non-cash items. Incentive fees earned as a component of income from equity method affiliates are included so that all incentive fees earned are treated in a consistent manner as part of adjusted operating income (loss). Adjusted operating income (loss) per diluted share is calculated, by dividing adjusted operating income (loss) by diluted shares outstanding calculated in accordance with GAAP.

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