ARLINGTON, Va., Oct. 23, 2014 (GLOBE NEWSWIRE) -- FBR & Co. (Nasdaq:FBRC) ("FBR" or the "Company"), a leading investment bank serving the middle market, today reported net income of $3.5 million, or $0.31 per diluted share, for the third quarter of 2014 compared to net income of $6.4 million, or $0.48 per diluted share, in the third quarter of 2013, and net income of $7.0 million, or $0.58 per diluted share, for the second quarter of 2014. For the first nine months of 2014, the Company reported net income of $16.1 million compared to net income of $84.3 million for the first nine months of 2013. Included in our net income for the first nine months of 2013 were nonrecurring items totaling $30.6 million related to the release of tax reserves and earnings from discontinued operations.
Third quarter 2014 pretax operating income was $3.3 million on $42.1 million of revenue. This compares to $3.1 million of pretax operating income on $34.1 million of revenue in the third quarter of 2013 and $9.0 million of pretax operating income on $57.1 million of revenue in the second quarter of 2014. For the first nine months of 2014, the Company's pretax operating income was $21.3 million on revenue of $153.6 million, compared to pretax operating income of $53.7 million on revenue of $219.2 million for the first nine months of 2013.
Compensation and benefits expenses were 56% of net revenue during the third quarter of 2014 and 57% year to date. Headcount was 307 at quarter end. Revenue per head on a trailing twelve month basis was $660 thousand. Non-compensation fixed expenses in the third quarter of 2014 totaled $10.0 million compared to $11.0 million in the third quarter of 2013, and $10.9 million in the prior quarter. The Company's pretax operating margin of 8% for the quarter was negatively impacted by elevated investment banking transaction related expenses. As of the end of the quarter, the Company's year-to-date pretax operating margin was 14%.
Third Quarter Overview
- Investment banking revenue was $29.3 million in the quarter compared to $19.6 million in the third quarter of 2013 and $35.8 million in the second quarter of 2014. This revenue was generated from 13 transactions representing total deal value of over $3.0 billion.
- Institutional brokerage generated net revenue of $11.9 million compared to $13.2 million in the third quarter of 2013 and $14.6 million in the second quarter of 2014. Included in these results, the Company's equity trading revenue was up 7% year-over-year in a market where the overall volume of shares traded was down 1.7%. The third quarter was our sixth consecutive quarter of year-over-year increases in equities trading revenue.
- Our effective tax rate was (6%) for the third quarter and 24% for the nine months ended September 30, 2014. The Company continues to benefit from the use of previously reserved tax assets related to capital loss carry-forwards. The Company's year-to-date tax rate reflects management's current estimate of the rate for the full year.
During the quarter we completed the acquisition of a securities lending business. The acquisition price is largely dependent on earnings generated over the first 18 months of operations; accordingly, related goodwill and intangible assets of $5.1 million included on our quarter end balance sheet reflects our best estimate of payments that will result from the terms of our purchase. This business is immediately accretive to our operating margins and earnings per share.
We successfully completed a self-tender buyback of Company shares on August 20, purchasing a total of 1.2 million shares at $28.00 per share for $33.65 million, and reduced our outstanding share count by approximately 11%. Since the beginning of 2010, the Company has repurchased 9 million shares – representing over 50% of the share count at the beginning of that timeframe. The Company has returned $166 million to shareholders through these repurchases and reduced overall shares outstanding to 9.4 million. The Company remains committed to aggressively executing capital allocation strategies that maximize long term value for shareholders. As of September 30, 2014, we have a remaining repurchase authorization of 953,654 shares which we anticipate fully utilizing over the next several quarters.
Shareholders' equity was $270.1 million as of September 30, 2014, compared to $297.9 million on June 30, 2014. As of September 30, 2014, the Company's cash balance was $122.6 million and its tangible book value per share was $28.10.
"I am pleased that even in periods with less than robust banking activity, we are now proving to be more consistent from a profitability perspective," said Richard J. Hendrix, Chairman and Chief Executive Officer of FBR. "Looking forward, our banking pipeline remains solid across each of our industry groups and, despite recent market volatility, we are optimistic about our ability to convert this pipeline into revenue in the coming quarters."
Investors wishing to listen to the earnings call at 4:15 P.M. U.S. EDT, Thursday, October 23, 2014, may do so via the Web or conference call at:
Webcast link: http://www.media-server.com/m/p/dsphcnt3
Conference call dial-in number (domestic, toll-free): 855.425.4204
Conference call dial-in number (international): 484.756.4245
Access code: 19945725
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 | Nine Months Ended | |||
| September 30, | September 30, | |||
| 2014 | 2013 | 2014 | 2013 | |
| REVENUES: | ||||
| Investment banking: | ||||
| Capital raising | $ 27,137 | $ 15,998 | $ 95,765 | $ 164,849 |
| Advisory | 2,152 | 3,616 | 5,947 | 8,092 |
| Institutional brokerage | 11,946 | 13,194 | 41,680 | 40,021 |
| Net investment income | 3,075 | 650 | 16,000 | 3,957 |
| Interest | 4,861 | 334 | 5,415 | 1,490 |
| Dividends & other | 226 | 264 | 806 | 815 |
| Total revenues | 49,397 | 34,056 | 165,613 | 219,224 |
| Interest expense | 7,300 | -- | 12,060 | -- |
| Revenues, net of interest expense | 42,097 | 34,056 | 153,553 | 219,224 |
| NON-INTEREST EXPENSES: | ||||
| Compensation and benefits | 23,771 | 17,992 | 87,141 | 122,325 |
| Professional services | 3,663 | 2,393 | 11,025 | 9,228 |
| Business development | 2,764 | 1,995 | 8,189 | 6,738 |
| Clearing and brokerage fees | 1,155 | 940 | 3,516 | 3,852 |
| Occupancy and equipment | 3,067 | 2,835 | 9,222 | 9,185 |
| Communications | 2,873 | 2,567 | 8,621 | 8,313 |
| Other operating expenses | 1,496 | 2,184 | 4,541 | 5,894 |
| Total non-interest expenses | 38,789 | 30,906 | 132,255 | 165,535 |
| Income from continuing operations before income taxes | 3,308 | 3,150 | 21,298 | 53,689 |
| Income tax (benefit) provision | (193) | 361 | 5,211 | (23,880) |
| Income from continuing operations, net of taxes | 3,501 | 2,789 | 16,087 | 77,569 |
| Income from discontinued operations, net of taxes | -- | 3,622 | -- | 6,744 |
| Net income | $ 3,501 | $ 6,411 | $ 16,087 | $ 84,313 |
| Basic earnings per share | $ 0.34 | $ 0.53 | $ 1.51 | $ 6.92 |
| Diluted earnings per share | $ 0.31 | $ 0.48 | $ 1.36 | $ 6.41 |
| Weighted average shares - basic | 10,171 | 12,137 | 10,642 | 12,180 |
| Weighted average shares - diluted | 11,419 | 13,335 | 11,798 | 13,157 |
| FBR & CO. | ||
| CONSOLIDATED BALANCE SHEETS | ||
| (Dollars in thousands, except per share amounts) | ||
| (Unaudited) | ||
| September 30, | December 31, | |
| ASSETS | 2014 | 2013 |
| Cash and cash equivalents | $ 122,586 | $ 207,973 |
| Receivables: | ||
| Securities borrowed | 578,399 | -- |
| Due from brokers, dealers and clearing organizations | 320,080 | 4,949 |
| Customers | 3,256 | 4,485 |
| Other | 3,374 | 658 |
| Financial instruments owned, at fair value | 176,862 | 144,743 |
| Other investments, at cost | 7,000 | 7,681 |
| Goodwill and intangibles | 5,070 | -- |
| Furniture, equipment and leasehold improvements, net | 8,932 | 3,286 |
| Deferred tax assets, net of valuation allowance | 25,268 | 30,893 |
| Prepaid expenses and other assets | 5,579 | 5,904 |
| Total assets | $ 1,256,406 | $ 410,572 |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||
| Liabilities: | ||
| Securities loaned | $ 581,003 | $ -- |
| Securities sold but not yet purchased, at fair value | 335,281 | 42,241 |
| Accrued compensation and benefits | 52,560 | 58,502 |
| Accounts payable, accrued expenses and other liabilities | 17,511 | 10,351 |
| Due to brokers, dealers and clearing organizations | -- | 8,701 |
| Total liabilities | 986,355 | 119,795 |
| Shareholders' equity: | ||
| Common stock | 9 | 11 |
| Additional paid-in capital | 315,600 | 362,983 |
| Restricted stock units | 32,055 | 21,487 |
| Accumulated other comprehensive income | 38 | 34 |
| Accumulated deficit | (77,651) | (93,738) |
| Total shareholders' equity | 270,051 | 290,777 |
| Total liabilities and shareholders' equity | $ 1,256,406 | $ 410,572 |
| Book Value per Share | $28.64 | $26.86 |
| Tangible Book Value per Share | $28.10 | $26.86 |
| Shares Outstanding (in thousands) | 9,430 | 10,824 |
| FBR & CO. | |||||
| Financial & Statistical Supplement - Operating Results | |||||
| (Dollars in thousands) | |||||
| (Unaudited) | |||||
| Q-3 14 | Q-2 14 | Q-1 14 | Q-4 13 | Q-3 13 | |
| Revenues, net of interest expense | $ 42,097 | $ 57,098 | $ 54,358 | $ 40,597 | $ 34,056 |
| Expenses: | |||||
| Variable | 13,214 | 22,279 | 19,763 | 10,809 | 6,587 |
| Fixed | 25,575 | 25,844 | 25,580 | 26,207 | 24,319 |
| Income from continuing operations before income taxes | 3,308 | 8,975 | 9,015 | 3,581 | 3,150 |
| Income tax (benefit) provision | (193) | 1,999 | 3,405 | (3,603) | 361 |
| Income from continuing operations, net of taxes | 3,501 | 6,976 | 5,610 | 7,184 | 2,789 |
| Income from discontinued operations, net of taxes | -- | -- | -- | 1,415 | 3,622 |
| Net income | $ 3,501 | $ 6,976 | $ 5,610 | $ 8,599 | $ 6,411 |
| Fixed expenses from continuing operations | $ 25,575 | $ 25,844 | $ 25,580 | $ 26,207 | $ 24,319 |
| Less: Non-cash expenses1 | 2,406 | 2,374 | 2,173 | 2,199 | 2,212 |
| Core fixed costs from continuing operations2 | $ 23,169 | $ 23,470 | $ 23,407 | $ 24,008 | $ 22,107 |
| Statistical Data (Continuing Operations) | |||||
| Revenues per employee (annualized) | $ 548 | $ 766 | $ 745 | $ 538 | $ 506 |
| Employee count | 307 | 298 | 292 | 302 | 269 |
| 1 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. | |||||