News Column

FBR Reports Second Quarter Financial Results

July 15, 2014

ARLINGTON, Va., July 15, 2014 (GLOBE NEWSWIRE) -- FBR & Co. (Nasdaq:FBRC) ("FBR" or the "Company"), a leading investment bank serving the middle market, today reported net income of $7.0 million, or $0.58 per diluted share, for the second quarter of 2014 compared to net income of $42.6 million, or $3.23 per diluted share in the second quarter of 2013, and net income of $5.6 million, or $0.46 per diluted share, for the first quarter of 2014. For the first half of 2014, FBR reported net income of $12.6 million, or $1.04 per diluted share, compared to net income of $77.9 million, or $5.95 per diluted share for the first half of 2013.

Second quarter 2014 pretax operating income was $9.0 million compared to $14.6 million in the second quarter of 2013 and $9.0 million in the first quarter of 2014. Net revenue for the second quarter of 2014 was $57.1 million compared to $67.2 million in the second quarter of 2013 and $54.4 million in the first quarter of 2014. Pretax operating margin was 16% for the second quarter of this year, compared to 22% in the second quarter of 2013 and 17% in the previous quarter. The Company's first half 2014 pretax operating income was $18.0 million on net revenue of $111.5 million.

Compensation and benefits expenses were 56% of net revenue during the second quarter of 2014, consistent with the second quarter of 2013 and down slightly from 58% in the first quarter of this year.  Headcount was 298 at quarter end compared with 292 last quarter. Annualized revenue per head was $766 thousand for the second quarter and $756 thousand for the first six months of the year. Non-compensation fixed expenses in the second quarter of 2014 totaled $10.9 million compared to $10.2 million in the second quarter of 2013, and $10.6 million in the prior quarter. The increase over last quarter reflects non-recurring professional services costs related to the previously announced acquisition of a securities lending business unit.

Second Quarter Overview

• Investment banking revenue was $35.8 million in the quarter compared to $52.0 million in the second quarter of 2013 and $36.6 million in the first quarter of 2014.  This revenue was generated from 16 transactions, including two large sole managed institutional private transactions and one bookrun IPO.

 • Institutional brokerage generated net revenue of $14.6 million in the quarter compared to $13.1 million in the second quarter of 2013 and $15.1 million in the first quarter of 2014. Within these results, cash equities revenue increased 2.7% quarter-over-quarter despite overall market volumes being down 12.9%, marking the third consecutive quarterly increase in equities revenue.

 • The Company generated $6.7 million in net investment income, including interest and dividends, from principal investing activities during the quarter, compared to $2.1 million in the second quarter of 2013 and $2.6 million in the first quarter of 2014.

 •FBR's effective tax rate was 22% for the second quarter and 30% for the first half of 2014. Capital gains generated year-to-date from our investing activities are allowing the Company to utilize fully reserved capital loss carry-forwards which will result in a lower full-year effective tax rate than was recognized in the first quarter of this year.

During the quarter the Company repurchased 400 thousand shares of its common stock at an average price per share of $26.19 for $10.5 million. For the first half of 2014, FBR has repurchased 662 thousand shares at an average price per share of $26.18. Since 2010, the Company has repurchased approximately 7.8 million shares, at an average price of $17.12 per share, for a total cost of $132.9 million. As of June 30, 2014, the Company had 1.0 million shares remaining under its repurchase authorization.

Shareholders' equity was $297.9 million as of June 30, 2014 which is relatively unchanged from March 31, 2014.  As of June 30, 2014, the Company's cash balance was $176.9 million and its book value per share was $28.04, up from $26.86 at the beginning of the year. 

"Our second quarter financial results were solid and for the first half of the year, the Company generated an annualized return on equity of 8.6%," said Richard J. Hendrix, Chairman and Chief Executive Officer of FBR. "In addition to those results, we have made significant progress in diversifying our banking pipeline, growing market share in equities trading, and making key hires in healthcare banking and research – all of which we expect to add to revenue and profitability in the coming quarters."

Investors wishing to listen to the earnings call at 9:00 A.M. U.S. EDT, Wednesday, July 16, 2014, may do so via the Web or conference call at:

Webcast link: http://www.media-server.com/m/p/kgj4ojke

Conference call dial-in number (domestic, toll-free): 855.425.4204

Conference call dial-in number (international): 484.756.4245

Access code: 63601687

Replays of the earnings call will be available via webcast following the call.

FBR & Co. (Nasdaq:FBRC) provides investment banking, merger and acquisition advisory, institutional brokerage, and research services through its subsidiary FBR Capital Markets & Co. FBR focuses capital and financial expertise on the following industry sectors: consumer; diversified industrials; energy & natural resources; financial institutions; healthcare; insurance; real estate; and technology, media & telecom. FBR is headquartered in the Washington, D.C. metropolitan area with offices throughout the United States. For more information, please visit www.fbr.com.

Statements in this release concerning future performance, developments, events, market forecasts, revenues, expenses, earnings, run rates and any other guidance on present or future periods constitute forward-looking statements. These forward-looking statements are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the effect of demand for public and private securities offerings, activity in the secondary securities markets, interest rates, the risks associated with merchant banking investments, the realization of gains and losses on principal investments, available technologies, competition for business and personnel, and general economic, political and market conditions. For a discussion of these and other risks and important factors that could affect FBR's future results and financial condition, see "Risk Factors" in Part I, Item 1A and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013; and other items throughout the Company's Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

         
FBR & CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
         
  Quarter Ended

June 30,
Six Months Ended

June 30,
  2014 2013 2014 2013
REVENUES:        
Investment banking:        
Capital raising  $ 35,312  $ 49,165  $ 68,628  $ 148,851
Advisory  472  2,872  3,795  4,476
Institutional brokerage  14,643  13,122  29,734  26,827
Net investment income  9,091  1,209  12,925  3,307
Interest, dividends and other   663  874  1,134  1,707
Total revenues  60,181  67,242  116,216  185,168
Interest expense  3,083  --   4,760  -- 
Revenues, net of interest expense  57,098  67,242 111,456  185,168
         
NON-INTEREST EXPENSES:        
Compensation and benefits  32,070  37,923  63,370  104,334
Professional services  4,424  3,379  7,362  6,835
Business development   3,057  2,610  5,425  4,743
Clearing and brokerage fees   1,137  1,307  2,361  2,911
Occupancy and equipment   3,003  3,068  6,155  6,350
Communications   2,856  2,776  5,748  5,745
Other operating expenses   1,576  1,547  3,045  3,711
Total non-interest expenses  48,123  52,610 93,466  134,629
         
Income from continuing operations before income taxes  8,975  14,632 17,990  50,539
Income tax provision (benefit)  1,999  (25,700)  5,404  (24,241)
         
Income from continuing operations, net of taxes  6,976  40,332  12,586  74,780
Income from discontinued operations, net of taxes  --   2,316  --   3,122
Net income   $ 6,976  $ 42,648  $ 12,586  $ 77,902
         
         
Basic earnings per share:        
Income from continuing operations, net of taxes  $ 0.65  $ 3.32  $ 1.15  $ 6.13
Income from discontinued operations, net of taxes  --   0.19  --   0.25
Net income   $ 0.65  $ 3.51  $ 1.15  $ 6.38
         
Diluted earnings per share:        
Income from continuing operations, net of taxes  $ 0.58  $ 3.05  $ 1.04  $ 5.71
Income from discontinued operations, net of taxes  --   0.18  --   0.24
Net income   $ 0.58  $ 3.23  $ 1.04  $ 5.95
         
         
Weighted average shares - basic  10,795  12,166  10,927  12,201
Weighted average shares - diluted  11,965  13,216  12,050  13,102
     
     
FBR & CO.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
(Unaudited)
     
ASSETSJune 30,

2014
December 31,

2013
     
Cash and cash equivalents  $ 176,905  $ 207,973
Receivables:    
Due from brokers, dealers and clearing organizations  330,386  4,949
Customers  4,194  4,485
Other   1,285  658
Financial instruments owned, at fair value  190,479  144,743
Other investments, at cost  2,428  7,681
Furniture, equipment and leasehold improvements, net  5,827  3,286
Deferred tax assets, net of valuation allowance  27,356  30,893
Prepaid expenses and other assets  7,261  5,904
Total assets $ 746,121  $ 410,572
     
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
     
Liabilities:    
Securities sold but not yet purchased, at fair value  $ 361,275  $ 42,241
Accrued compensation and benefits  49,534  58,502
Accounts payable, accrued expenses and other liabilities  17,868  10,351
Due to brokers, dealers and clearing organizations  19,507  8,701
Total liabilities  448,184  119,795
     
Shareholders' equity:    
Common stock  10  11
Additional paid-in capital  349,070  362,983
Restricted stock units  29,951  21,487
Accumulated other comprehensive income, net of taxes  58  34
Accumulated deficit  (81,152)  (93,738)
Total shareholders' equity  297,937  290,777
 Total liabilities and shareholders' equity $ 746,121  $ 410,572
     
     
Book Value per Share$28.04$26.86
     
Shares Outstanding (in thousands)10,626 10,824
           
           
FBR & CO.
Financial & Statistical Supplement - Operating Results 
(Dollars in thousands)
(Unaudited)
           
 Q-2 14Q-1 14Q-4 13Q-3 13Q-2 13
Revenues, net of interest expense  $ 57,098  $ 54,358  $ 40,597  $ 34,056  $ 67,242
           
Expenses:          
Variable  22,279  19,763  10,809  6,587  29,572
Fixed  25,844  25,580  26,207  24,319  23,038
           
Income from continuing operations before income taxes  8,975  9,015  3,581  3,150  14,632
Income tax provision (benefit)  1,999  3,405  (3,603)  361  (25,700)
           
Income from continuing operations, net of taxes  6,976  5,610  7,184  2,789  40,332
Income from discontinued operations, net of taxes  --   --   1,415  3,622  2,316
Net income   $ 6,976  $ 5,610  $ 8,599  $ 6,411  $ 42,648
           
           
Fixed expenses from continuing operations  $ 25,844  $ 25,580  $ 26,207  $ 24,319  $ 23,038
Less: Non-cash expenses1  2,374  2,173  2,199  2,212  2,189
Core fixed costs from continuing operations2  $ 23,470  $ 23,407  $ 24,008  $ 22,107  $ 20,849
           
           
Statistical Data (Continuing Operations)          
Revenues per employee (annualized)  $ 766  $ 745  $ 538  $ 506  $ 1,015
           
Employee count  298  292  302  269  265
           
           
Non-cash expenses include compensation costs associated with stock-based awards.
 
2 Core fixed costs is a non-GAAP measurement used by management to analyze and assess the Company's fixed operating costs. Management believes that this non-GAAP measurement assists investors in understanding the impact of the non-cash expenses noted in footnote 1.
 
A limitation of utilizing this non-GAAP measure is that the GAAP accounting effects of these items do in fact reflect the underlying financial results of the Company and these effects should not be ignored in evaluating and analyzing the Company's financial results. Therefore, management believes fixed expenses on a GAAP basis and core fixed costs on a non-GAAP basis should be considered together. 

CONTACT: Investors: Bradley J. Wright at 703.312.9678 or bwright@fbr.com Media: Shannon Hawkins at 703.469.1190 or shawkins@fbr.com



FBR & Co.

Source: FBR & Co.


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