OREANDA-NEWS. Institutional Financial Markets, Inc. (NYSE MKT:IFMI), a financial services firm specializing in fixed income markets, today reported financial results for its second quarter ended June 30, 2016. 

  • Operating income was $2.2 million for the three months ended June 30, 2016, compared to $1.3 million for the three months ended March 31, 2016, and $0.5 million for the three months ended June 30, 2015. Operating income was $3.5 million for the six months ended June 30, 2016, compared to $0.8 million for the six months ended June 30, 2015.
     
  • Net income was $1.2 million, or $0.07 per diluted share, for the three months ended June 30, 2016, compared to net income of $0.3 million, or $0.01 per diluted share, for the three months ended March 31, 2016 and net loss of $0.5 million, or $0.02 per diluted share, for the three months ended June 30, 2015. Net income was $1.5 million, or $0.08 per diluted share, for the six months ended June 30, 2016, compared to net loss of $1.2 million, or $0.06 per diluted share, for the six months ended June 30, 2015.
     
  • Revenue was $14.4 million for the three months ended June 30, 2016, compared to $13.7 million for the three months ended March 31, 2016 and $11.1 million for the three months ended June 30, 2015. Revenue was $28.1 million for the six months ended June 30, 2016, compared to $23.8 million for the six months ended June 30, 2015.
     
  • Total operating expenses were $12.2 million for the quarter ended June 30, 2016, compared to $12.5 million for the quarter ended March 31, 2016 and $10.5 million for the quarter ended June 30, 2015. Total operating expenses were $24.6 million for the six months ended June 30, 2016, compared to $23.1 million for the six months ended June 30, 2015.
     
  • Compensation as a percentage of revenue was 58% for the three months ended June 30, 2016, compared to 62% for the three months ended March 31, 2016 and 56% for the three months ended June 30, 2015. Compensation as a percentage of revenue was 60% for the six months ended June 30, 2016, compared to 58% for the six months ended June 30, 2015. The number of IFMI employees was 80 as of June 30, 2016, compared to 86 as of March 31, 2016, and 101 as of June 30, 2015.
     
  • Non-compensation operating costs, excluding depreciation and amortization, were $3.7 million for the three months ended June 30, 2016, compared to $3.8 million for the three months ended March 31, 2016 and $4.2 million for the three months ended June 30, 2015. Non-compensation operating costs, excluding depreciation and amortization, were $7.5 million for the six months ended June 30, 2016, compared to $8.9 million for the six months ended June 30, 2015, representing a decrease of 15%.

Lester Brafman, Chief Executive Officer of IFMI, said, “We are very pleased with the overall performance of our business, as disciplined execution of our strategic growth initiatives led to increases in revenue and net income over the prior quarter and prior year periods.  The US Capital Markets business continues to perform well and was able to more than offset the recent temporary non-payment of subordinated management fees in our European CLO and a mark down of our investment in EuroDekania. Looking ahead, we remain focused on growing our mortgage and SBA groups, adding revenue and growing businesses where our clients’ needs are no longer addressed by larger financial institutions. We are also pleased to further enhance shareholder value through our share repurchase program and continuing to pay a quarterly dividend.”

Stock Repurchases

During the second quarter of 2016, IFMI repurchased 68,400 shares of its common stock through open market purchases under its previously announced 10b5-1 agreement with Sandler O’Neill & Partners, L.P. for an aggregate purchase price of $63,711, which represented an average per share price of $0.93. During the first half of 2016, including the previously announced privately negotiated transactions and open market purchases in the first quarter, IFMI repurchased a total of 1,828,080 shares of its common stock for an aggregate purchase price of $2.2 million, which represented an average per share price of $1.23.

Total Equity and Dividend Declaration

  • At June 30, 2016, total equity was $45.3 million, as compared to $46.2 million as of December 31, 2015.
  • The Company’s Board of Directors has declared a dividend of $0.02 per share. The dividend will be payable on September 1, 2016, to stockholders of record on August 18, 2016. 

Sale of European Operations – Update

Although the Company believes that, given the passage of time, there is very low probability of this previously announced transaction closing, given the potential value to the Company of the proposed transaction if it were to close and based on C&Co Europe Acquisition LLC’s indication that it continues to evaluate its options, the Company has decided not to exercise its right to terminate the transaction at this time. The Company will continue to evaluate the probability of closing and its right to terminate the transaction.

Conference Call

Management will hold a conference call this morning at 10:00 a.m. Eastern Time to discuss these results. The conference call will also be available via webcast. Interested parties can access the webcast by clicking the webcast link on the Company’s website 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 55081844, or request the IFMI earnings call.  A replay 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 55081844.

About IFMI

IFMI is a financial services company specializing in fixed income markets. IFMI was founded in 1999 as an investment firm focused on small-cap banking institutions, but has grown to provide an expanding range of capital markets and asset management services. IFMI’s operating segments are Capital Markets, Principal Investing, and Asset Management. The Capital Markets segment consists of 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, J.V.B. Financial Group, LLC in the United States and Cohen & Company Financial Limited in Europe. The Principal Investing segment has historically been comprised of investments in IFMI sponsored investment vehicles, but has changed to include investments in certain non-sponsored vehicles. The Asset Management segment manages assets through collateralized debt obligations, permanent capital vehicles, and managed accounts. As of June 30, 2016, IFMI managed approximately $3.8 billion in fixed income assets in a variety of asset classes including US trust preferred securities, European hybrid capital securities, and mortgage- and asset-backed securities. As of June 30, 2016, almost all of IFMI’s assets under management, or 95.5%, were in collateralized debt obligations that IFMI manages, which were all securitized prior to 2008.

 

Cautionary Note Regarding Quarterly Financial Results

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		       Six Months Ended    
    6/30/16   3/31/16   6/30/15   6/30/16   6/30/15    
  Revenues                      
  Net trading $   11,285     $   10,202     $   6,742     $   21,487     $   14,013      
  Asset management     1,569         2,312         2,260         3,881         4,558      
  New issue and advisory     984         381         651         1,365         2,149      
  Principal transactions     56         126         580         182         978      
  Other revenue     471         714         818         1,185         2,147      
  Total revenues     14,365         13,735         11,051         28,100         23,845      
  Operating expenses                      
  Compensation and benefits     8,388         8,540         6,151         16,928         13,739      
  Business development, occupancy, equipment     651         664         824         1,315         1,642      
  Subscriptions, clearing, and execution     1,502         1,522         1,498         3,024         3,346      
  Professional services and other operating     1,542         1,663         1,840         3,205         3,865      
  Depreciation and amortization     72         82         227         154         461      
  Total operating expenses     12,155         12,471         10,540         24,626         23,053      
  Operating income (loss)     2,210         1,264         511         3,474         792      
  Non-operating income (expense)                      
  Interest expense     (992 )       (990 )       (991 )       (1,982 )       (1,967 )    
  Income (loss) before income taxes     1,218         274         (480 )       1,492         (1,175 )    
  Income tax expense (benefit)     17         10         (15 )       27         46      
  Net income (loss)     1,201         264         (465 )       1,465         (1,221 )    
  Less: Net income (loss) attributable to the noncontrolling interest     371         65         (120 )       436         (318 )    
  Net income (loss) attributable to IFMI $   830     $   199     $   (345 )   $   1,029     $   (903 )    
                         
Earnings per share  
  Basic                      
  Net income (loss) attributable to IFMI $   830     $   199     $   (345 )   $   1,029     $   (903 )    
  Basic shares outstanding     11,906         13,272         15,229         12,589         15,189      
  Net income (loss) attributable to IFMI per share $   0.07     $   0.01     $   (0.02 )   $   0.08     $   (0.06 )    
  Fully Diluted                      
  Net income (loss) attributable to IFMI $   830     $   199     $   (345 )   $   1,029     $   (903 )    
  Net income (loss) attributable to the noncontrolling interest     371         65         (120 )       436         (318 )    
  Adjustment (1)     (1 )       10         -          (2 )       2      
  Enterprise net income (loss) $   1,200     $   274     $   (465 )   $   1,463     $   (1,219 )    
  Basic shares outstanding     11,906         13,272         15,229         12,589         15,189      
  Unrestricted Operating LLC membership units exchangeable into IFMI shares     5,324         5,324         5,324         5,324         5,324      
  Additional dilutive shares     62         81         -          81         -       
  Fully diluted shares outstanding     17,292         18,677         20,553         17,994         20,513      
  Fully diluted net income (loss) per share $   0.07     $   0.01     $   (0.02 )   $   0.08     $   (0.06 )    
                         
(1) An adjustment is included for the following reasons: (a) if the non-controlling interest membership units had been converted at the beginning of the period, the Company would have incurred a higher income tax expense or realized a higher income tax benefit, as applicable; and (b) to adjust the non-controlling interest amount to be consistent with the weighted average share calculation.  
 
  INSTITUTIONAL FINANCIAL MARKETS, INC.
  CONSOLIDATED BALANCE SHEETS
  (in thousands)
             
      June 30, 2016      
      (unaudited)   December 31, 2015  
    Assets        
    Cash and cash equivalents $   7,683     $   14,115    
    Receivables from brokers, dealers, and clearing agencies     62,382         39,812    
    Due from related parties     69         77    
    Other receivables     3,489         4,079    
    Investments - trading     143,202         94,741    
    Other investments, at fair value     9,860         14,880    
    Receivables under resale agreements     345,356         128,011    
    Goodwill     7,992         7,992    
    Other assets     4,552         4,708    
    Total assets $   584,585     $   308,415    
             
    Liabilities        
    Payables to brokers, dealer, and clearing agencies $   62,832     $   55,779    
    Due to related parties     50         50    
    Accounts payable and other liabilities     3,233         3,362    
    Accrued compensation     3,821         3,612    
    Trading securities sold, not yet purchased     69,853         39,184    
    Securities sold under agreements to repurchase     366,645         127,913    
    Deferred income taxes     3,771         3,804    
    Debt     29,048         28,535    
    Total liabilities     539,253         262,239    
             
    Equity        
    Voting nonconvertible preferred stock     5         5    
    Common stock     12         13    
    Additional paid-in capital     69,308         71,570    
    Accumulated other comprehensive loss     (976 )       (939 )  
    Accumulated deficit     (30,343 )       (30,889 )  
    Total stockholders' equity     38,006         39,760    
    Noncontrolling interest     7,326         6,416    
    Total equity     45,332         46,176    
    Total liabilities and equity $   584,585     $   308,415