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
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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.
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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.
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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) | ||
| ASSETS |
June 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 14 | Q-1 14 | Q-4 13 | Q-3 13 | Q-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 |
| 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. | |||||