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4-Traders Homepage  >  Equities  >  Nasdaq  >  FBR & Co    FBRC

Delayed Quote. Delayed  - 08/26 10:00:00 pm
13.49 USD   -1.82%
07/27 FBR & CO : ex-dividend day
07/14 FBR : reports 2Q loss
07/14 FBR & Co. Reports Second Quarter 2016 Financial Results
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FBR : & CO. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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08/09/2016 | 08:13pm CEST
The following discussion and analysis of the consolidated financial condition
and results of operations of FBR & Co. and its subsidiaries (collectively, "we",
"us", "our" or the "Company") should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto appearing elsewhere in
this report on Form 10-Q and the audited consolidated financial statements and
notes thereto appearing in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2015.

The discussion of the Company's consolidated financial condition and results of
operations below may contain forward-looking statements. These statements, which
reflect management's beliefs and expectations, are subject to risks and
uncertainties that may cause actual results to differ materially. For a
discussion of the risks and uncertainties that may affect the Company's future
results, please see "Forward-Looking Statements" immediately preceding Part I
of, and other items throughout, the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2015. Please also see "Risk Factors" in Part I,
Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2015.

Business Environment

During the second quarter of 2016, equity trading volumes and volatility trended
down meaningfully compared to the increased levels noted in the first quarter of
2016. Additionally, while major market indices have rallied to record highs,
capital markets activity has continued to be very weak with the U.S. IPO market
on pace to have its worst year since the financial crisis. New issue activity
continues to be extremely limited and narrow. Year-to-date volume is down in the
small cap IPO market by 60% in the first half of the year, and of those IPOs,
Healthcare and SPAC transactions continue to represent a disproportionate
percentage of the market. During the first half of 2016, there were only 37 IPOs
completed in the U.S. for a total dollar volume of approximately $7.4 billion.
This activity is significantly reduced compared to prior years and compares to
quarterly averages over the past three years of 38, 59, and 51 IPOs,
respectively, and average quarterly dollar volumes during these years of
$8.2 billion, $14.5 billion, and $14.3 billion, respectively.

Competition in our business remains intense. Large banks continue to tie lending
activity to capital markets mandates and electronic or high-frequency trading
continues to capture a significant share of trading volume. Both of these
dynamics put pressure on high-touch, idea-driven firms like FBR. Institutional
investors continue to narrow the list of broker-dealers with whom they maintain
trading relationships, leading to consolidation of smaller firms and to the need
for mid-size firms to work intensely to demonstrate relevance through quality
and scale of research offerings in order to grow relationships.

In spite of continuing stimulus from central banks worldwide, economic growth
has been sluggish, at best. Risk-free rates, including on many government bonds
and insured deposit accounts, are now at or below 0%, leaving few conventional
levers with respect to monetary policy. In the U.S., presidential election
uncertainty has added an additional layer of caution to investor decisions. In
Europe, the June vote in favor of Britain's exit from the European Union has
added to investor concerns about European growth and pushed rates down
further. Improvement in economic growth prospects and reduced anxiety over
geopolitical events will be important to reestablishing momentum in the new
issue market.

Executive Summary


For the second quarter of 2016 our revenues, net of interest expense, were
$20.9 million, our pre-tax loss was $9.2 million and our net loss was
$8.2 million. This compares to second quarter 2015 revenues, net of interest
expense, of $44.3 million, pre-tax income of $4.4 million, and net income of
$2.9 million.

The difference in our operating results in the second quarter of 2016 compared
to the second quarter of 2015 was primarily due to a $23.4 million decrease in
our total net revenues, including a $21.1 million decrease in investment banking
revenues. The reduction in investment banking revenues reflects the impact of
equity capital markets conditions during 2016, in particular the decline in the
volume of initial capital raising transactions compared to 2015. As a result of
a decrease in equity market trading volumes during the period, our second
quarter 2016 institutional brokerage and securities lending revenues decreased
to $11.6 million from $14.3 million in 2015. In addition, we recognized net
investment income, including interest and dividends, of $0.7 million in the
second quarter of 2016, compared to $0.3 million in the second quarter of 2015.

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Our total non-interest expenses in the second quarter of 2016 declined to
$30.1 million, compared to $39.9 million in the second quarter of 2015. Our
total compensation and benefits costs decreased to $16.7 million in the second
quarter of 2016 from $24.3 million in the second quarter of 2015, primarily as a
result of the lower level of revenues. In addition, non-compensation fixed
expenses during the second quarter of 2016 were $10.4 million compared to
$9.6 million in the second quarter of 2015. Non-compensation fixed expenses
during the second quarter of 2016 include $0.9 million of annual meeting costs
related to a contested proxy vote.

In the second quarter of 2016, we recognized an income tax benefit of
$1.0 million and our effective tax rate was 10.7%, compared to the second
quarter of 2015 income tax provision of $1.5 million and an effective tax rate
of 34.1%. The effective tax rate for the three months ended June 30, 2016
differed from statutory tax rates primarily due to the effects of a decrease in
our forecasted annual results as of June 30, 2016 and the resulting change in
our forecasted full year effective tax rate. Our 2015 effective tax rate
differed from statutory rates primarily due to capital loss carryforwards
subject to a valuation allowance that were projected to be utilized during the
year.

For the six months ended June 30, 2016 our revenues, net of interest expense,
were $38.8 million, our pre-tax loss was $21.3 million and our net loss was
$13.7 million. This compares to six months ended June 30, 2015 revenues, net of
interest expense, of $71.4 million, pre-tax income of $0.6 million, and net
income of $0.4 million.

The difference in our operating results in the six months ended June 30, 2016
compared to the six months ended June 30, 2015 was primarily due to a
$32.6 million decrease in our total net revenues, including a $29.6 million
decrease in investment banking revenues. The reduction in investment banking
revenues reflects the impact of equity capital markets conditions during the six
months ended June 30 2016, in particular the decline in the volume of initial
capital raising transactions compared to the six months ended June 30 2015. As a
result of a decrease in equity market trading volumes during the period, our six
months ended June 30, 2016 institutional brokerage and securities lending
revenues decreased to $26.0 million from $28.0 million in the six months ended
June 30 2015. In addition, our net investment income, including interest and
dividends, in the six months ended June 30, 2016 broke even, compared to net
investment income of $0.9 million in the six months ended June 30, 2015.

Our total non-interest expenses in the six months ended June 30, 2016 declined
to $60.1 million, compared to $70.8 million in the six months ended June 30,
2015. Our total compensation and benefits costs decreased to $34.7 million in
the six months ended June 30, 2016 from $42.2 million in the six months ended
June 30, 2015, primarily as a result of the lower level of 2016 revenues. In
addition, within total expenses, non-compensation fixed expenses during the six
months ended June 30, 2016 were $20.1 million compared to $19.7 million in the
six months ended June 30, 2015.

In the six months ended June 30, 2016, we recognized an income tax benefit of
$7.6 million and our effective tax rate was 35.8%, compared to the six months
ended June 30, 2015 income tax provision of $0.2 million and an effective tax
rate of 32.1%. The effective tax rate for the six months ended June 30, 2016
differed from statutory rates primarily due to the impact of permanent
differences on our forecasted full year results, and the effects of adopting the
guidance in Accounting Standards Update 2016-09, "Compensation-Stock
Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting," ("ASU 2016-09") which requires the tax effects of share-based
awards to be treated as discrete items in the interim period in which the
windfalls or shortfalls occur. As a result of share vestings, during the six
months ended June 30, 2016, windfalls of $1.1 million were included in our
income tax benefit. Our 2015 effective tax rate differed from statutory rates
primarily due to capital loss carryforwards subject to a valuation allowance
that were projected to be utilized during the year.

At June 30, 2016, our net deferred tax assets totaled $45.6 million. Based on
our application of the guidance in ASC 740, except for a valuation allowance of
$0.3 million against state capital loss carryforwards, we have not established a
valuation allowance against our remaining deferred tax assets.

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Our assessment of the positive and negative evidence related to the realization
of these deferred tax assets and the potential need for a valuation allowance is
a matter of significant judgment. In reaching this conclusion as of June 30,
2016, we weighed various factors related to our performance and financial
position, as well as market conditions and prospective opportunities. Although
our most recent results have been negative, we also generated consistent taxable
income during consecutive periods within the prior twelve
quarters. Additionally, our expense discipline, as evidenced by our diminishing
level of fixed costs over the past three years, as well as our strong balance
sheet, position us favorably to generate taxable income when market conditions
improve. We believe that based on these factors, our forecasted operating
results and ability to generate significant capital raising revenue from a small
number of transactions, it is more likely than not that we will generate
sufficient future taxable income to realize the remaining deferred tax assets as
of June 30, 2016.

Realization of our deferred tax assets will be dependent on our ability to
generate future taxable income. However, because future events may adversely
affect our performance and our realization of forecasted results, based on the
guidance in ASC 740, a full valuation allowance against the deferred tax assets
may need to be established if we do not report improved operating results in
subsequent quarters. Recognition of such a valuation allowance would have a
material effect on our after tax results and reported financial condition. We
will continue to assess the need for such a valuation allowance at each
reporting date.

Results of Operations


We are a full-service investment banking and institutional brokerage firm with a
deep expertise and focus on the equity capital markets. Our business activities
include investment banking and institutional sales, trading and research. These
business units deliver capital raising, advisory and sales and trading services
to corporate and institutional clients. Our investment banking and institutional
brokerage businesses are focused on the consumer, energy and natural resources,
financial institutions, healthcare, industrials, insurance, real estate and TMT
sectors. Additionally, we provide securities lending services to a broad group
of banks and broker-dealers. These services include facilitating the sourcing,
borrowing and lending of equity and fixed income securities. In addition to
corporate treasury investments, from time-to-time we may also make merchant
banking investments, primarily alongside our institutional clients in selected
private transactions that we underwrite. By their nature, our business
activities are highly competitive and are subject to market conditions as well
as to the conditions affecting the companies and markets in our areas of focus.
As a result, our revenues and results are subject to significant volatility from
period to period.

During the first quarter of 2016, based on changes in our business profile since
our IPO in 2007, including significant changes in capital allocation and revenue
mix that have occurred over that time, we revised our segment reporting
structure.  Beginning with the first quarter of 2016, our investment activities
are included together with our other capital markets activities and not as a
separate reportable segment.  In making this change we considered the diminished
level of our investment balances, the relative insignificance of our
investment-related revenues compared to total revenues and the nature of the
financial information used by our Chief Operating Decision Maker ("CODM").  In
this case, as a result of changes in capital allocation, our investment assets
have decreased to represent less than 5% of total assets in 2016.
Investment-related revenues are not a significant element of our total revenues
ranging from 3% to 4% of our total revenues net of interest expense over the
past three years.  In addition to the above, while our CODM reviews
investment-related returns, there are no specific resource or overhead
allocations made to investment activities separate from the Company as a whole.

                                       24

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The following table provides a summary of our revenues and non-interest fixed and variable expenses (dollars in thousands):




                                                  Three Months Ended June 30,           Six Months Ended June 30,
                                                   2016                 2015               2016              2015
Revenues:
Investment banking                            $        8,634       $       29,728     $       12,784       $  42,403
Institutional brokerage                                9,550               12,441             21,734          24,684
Securities lending, net interest income                2,023                1,822              4,346           3,350
Net investment (loss) income                             479                3,679               (439 )         7,029
Other interest expense                                     -               (3,713 )                -          (6,910 )
Dividends and other                                      201                  299                362             795
Revenues, net of interest expense                     20,887               44,256             38,787          71,351
Non-interest expenses:
Fixed expenses                                        23,344               22,764             46,893          48,288
Variable expenses                                      6,733               17,094             13,169          22,508
Total non-interest expenses                           30,077               39,858             60,062          70,796
(Loss) income before income taxes             $       (9,190 )     $        4,398     $      (21,275 )     $     555




Revenue Analysis

Investment Banking

Investment banking revenues decreased $21.1 million to $8.6 million during the
second quarter of 2016 from $29.7 million for the second quarter of 2015. Our
2016 revenue level reflects the impact of market conditions during the period,
specifically, the narrow and limited nature of initial capital raising activity
industry-wide during the second quarter of 2016. Our investment banking revenue
in 2016 was generated from 18 client transactions representing $1.7 billion in
transaction volume. We did not complete any large sole-managed institutional
private placements during the second quarter of 2016. In comparison, our
investment banking revenue in the second quarter of 2015 was generated from 13
client transactions representing $3.8 billion in transaction volume, including
one large sole-managed institutional private placement transaction representing
$21.3 million in capital raising revenue and $308.5 million in transaction
volume. Advisory revenue was $1.8 million in the second quarter of 2016 compared
to $1.9 million in the second quarter of 2015. Reflecting the decrease in total
investment banking revenue, advisory revenue represented 21% of investment
banking revenues in the second quarter of 2016 compared to 6% in the second
quarter of 2015.

Investment banking revenues decreased $29.6 million to $12.8 million during the
first six months of 2016 from $42.4 million for the first six months of 2015.
Our 2016 revenue level reflects the impact of market conditions during the
period, specifically, the narrow and limited nature of initial capital raising
activity industry-wide during the first six months of 2016. Our investment
banking revenue in 2016 was generated from 29 client transactions representing
$2.6 billion in transaction volume. We did not complete any large sole-managed
institutional private placements during the first six months of 2016. In
comparison, our investment banking revenue in the first six months of 2015 was
generated from 26 client transactions representing $6.3 billion in transaction
volume. Included in those transactions and representing $21.3 million of our
capital raising revenue was one sole-managed institutional private placement.
Advisory revenue was $3.5 million in the first six months of 2016 compared to
$5.3 million in the first six months of 2015. Reflecting the decrease in total
investment banking revenue, advisory revenue represented 27% of investment
banking revenues in the first six months of 2016 compared to 13% in the first
six months of 2015.

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Institutional Brokerage

The following table provides detail regarding the components of our institutional brokerage revenues (dollars in thousands):




                                                  Three Months Ended June 30,            Six Months Ended June 30,
                                                   2016                2015              2016                2015
Agency commissions                             $      4,815       $        6,306     $      10,880       $      12,514
Principal transactions                                4,187                5,322             9,635              10,547
Commissions for equity research                         548                  813             1,219               1,623
Total                                          $      9,550       $       12,441     $      21,734       $      24,684


Our second quarter 2016 institutional brokerage revenues decreased to
$9.6 million from $12.4 million in the second quarter of 2015. This decrease
reflects lower cash equity trading volume in the second quarter of 2016 compared
to the second quarter of 2015, and reduced revenues from our convertibles and
credit trading desks during the period as we have significantly decreased
positions on these desks since the second quarter of 2015.

For the first six months of 2016, our institutional brokerage revenues decreased
to $21.7 million from $24.7 million in the first six months of 2015. This
decrease reflects lower cash equity trading volume in the first six months of
2016 compared to the first six months of 2015, and reduced revenues from our
convertibles and credit trading desks during the period as we have significantly
decreased positions on these desks.

Securities Lending


We have an active securities borrowed and loaned business in which we borrow
securities from one party and lend them to another. Securities borrowed and
securities loaned are recorded based upon the amount of cash advanced or
received. Securities borrowed transactions facilitate the settlement process and
require us to deposit cash or other collateral with the lender. With respect to
securities loaned, we receive collateral in the form of cash. The amount of
collateral required to be deposited for securities borrowed, or received for
securities loaned, is an amount generally in excess of the market value of the
applicable securities borrowed or loaned. We monitor the market value of the
securities borrowed and loaned on a daily basis, with additional collateral
obtained or excess collateral recalled, when deemed appropriate.

During the second quarter of 2016, we generated net interest revenue of
$2.0 million from securities lending, compared to $1.8 million in the second
quarter of 2015. The increase in this net revenue was due to both higher average
balances during the second quarter of 2016 and increased net interest spreads on
these balances.

During the first six months of 2016, we generated net interest revenue of
$4.3 million from securities lending, compared to $3.4 million in the first six
months of 2015. The increase in this net revenue was due to both higher average
balances during the first six months of 2016 and increased net interest spreads
on these balances.

Investments

Net investment income for the second quarter of 2016 was $0.5 million, a
decrease of $3.2 million from net investment income for the second quarter of
2015 of $3.7 million. Net investment income for the second quarter of 2015
included $3.4 million of gains from short-sales of U.S. Treasury securities,
which were settled in the third and fourth quarters of 2015. Total investing
revenues in the second quarter of 2015 were offset by $3.7 million of interest
expense related to the short-sales of U.S. Treasury securities.

Net investment loss for the first six months of 2016 was $0.4 million, a
decrease of $7.4 million from net investment income for the first six months of
2015 of $7.0 million. Net investment income for the first six months of 2015
included $6.0 million of gains from short-sales of U.S. Treasury securities,
which were settled in the third and fourth quarters of 2015. Total investing
revenues in the first six months of 2015 were offset by $6.9 million of interest
expense related to the short-sales of U.S. Treasury securities.

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Non-Interest Expenses Analysis

Three months ended June 30, 2016 compared to the three months ended June 30, 2015


Total non-interest expenses decreased 24.6% to $30.1 million in the second
quarter of 2016 from $39.9 million in the second quarter of 2015. Variable
expenses decreased to $6.7 million in the second quarter of 2016 from
$17.1 million in the second quarter of 2015, while fixed expenses increased
$0.5 million. The change in variable costs reflects a $7.4 million decrease in
variable compensation and a $2.8 million decrease in costs related to investment
banking transactions, both due to the overall decrease in revenues in the second
quarter of 2016 compared to the second quarter of 2015. Fixed costs include
$0.9 million related to higher annual meeting expenses as a result of a
contested proxy vote offset by a decrease in fixed compensation.

Total compensation and benefits expenses decreased 31.3% to $16.7 million in the
second quarter of 2016 from $24.3 million in the second quarter of 2015. The
decrease in compensation and benefits expenses reflects the reduction in
variable compensation noted above, and is due to the lower level of revenues in
the second quarter of 2016 compared to the second quarter of 2015.

Occupancy and equipment expenses increased 3.2% to $3.2 million in the second
quarter of 2016 from $3.1 million in the second quarter of 2015. The increase in
occupancy costs was primarily the result of increases in rent and depreciation
of leasehold improvements and office equipment related to our September 2015
acquisition of MLV & Co. ("MLV"), partially offset by decreases in software
maintenance and license expenses.

Communications expenses decreased 15.4% to $2.2 million in the second quarter of 2016 from $2.6 million in the second quarter of 2015. The decrease in these expenses was primarily due to decreased costs related to data network and connectivity.


Professional services expenses decreased 38.6% to $2.7 million in the second
quarter of 2016 from $4.4 million in the second quarter of 2015. This decrease
was primarily due to a $2.4 million decrease in costs related to investment
banking transactions offset by a $0.7 million increase in corporate legal and
consulting costs primarily related to higher annual meeting expenses as a result
of a contested proxy vote.

Business development expenses decreased 11.5% to $2.3 million in the second
quarter of 2016 from $2.6 million in the second quarter of 2015. This decrease
was primarily due to a decrease in travel costs related to investment banking
transactions.

Clearing and brokerage fees remained unchanged at $1.3 million in both the
second quarter of 2016 and the second quarter of 2015. While cash equity
transaction volumes and related costs decreased in the second quarter of 2016
compared to the second quarter of 2015, increases in costs related to securities
lending transactions, as well as costs related to MLV, which was acquired in
September 2015, offset this decrease.

Other operating expenses increased 13.3% to $1.7 million in the second quarter
of 2016 from $1.5 million in the second quarter of 2015. The increase in these
expenses was primarily due to the recognition of $0.2 million of costs related
to higher annual meeting expenses as a result of a contested proxy vote.

We recognized a tax benefit of $1.0 million in the second quarter of 2016,
compared to a $1.5 million tax provision in the second quarter of 2015. Our
quarterly tax provision is determined pursuant to ASC 740, which requires using
an estimated annual effective rate based on forecasted taxable income for the
full year. Our effective tax rates for the second quarters of 2016 and 2015 were
10.7% and 34.1%, respectively.  The effective tax rate for the second quarter of
2016 differed from statutory tax rates primarily due to the effects of a
decrease in our forecasted annual results as of June 30, 2016 and the resulting
change in our forecasted full year effective tax rate. For the second quarter of
2015, our effective tax rate differed from statutory tax rates primarily due to
the effects of capital loss carryforwards subject to a valuation allowance that
were projected to be utilized during the year.

See Executive Summary above for further information related to our deferred tax assets as of June 30, 2016.



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Six months ended June 30, 2016 compared to the six months ended June 30, 2015


Total non-interest expenses decreased 15.1% to $60.1 million in the first six
months of 2016 from $70.8 million in the first six months of 2015. Variable
expenses decreased to $13.2 million in the first half of 2016 from $22.5 million
in the first half of 2015 and fixed expenses decreased $1.4 million. The change
in variable costs reflects a $5.7 million decrease in variable compensation and
a $3.5 million decrease in costs related to investment banking transactions,
both due to the overall decrease in revenues in the first six months of 2016
compared to the first six months of 2015.

Total compensation and benefits expenses decreased 17.8% to $34.7 million in the
first six months of 2016 from $42.2 million in the first six months of 2015. The
decrease in compensation and benefits expenses reflects the reduction in
variable compensation noted above, and is due to the lower level of revenues in
the first half of 2016 compared to the first half of 2015.

Occupancy and equipment expenses increased 4.8% to $6.5 million in the first six
months of 2016 from $6.2 million in the first six months of 2015. The increase
in occupancy costs was primarily the result of increases in rent and
depreciation of leasehold improvements and office equipment related to our
September 2015 acquisition of MLV, partially offset by decreases in software
maintenance and license expenses.

Communications expenses decreased 14.3% to $4.8 million in the first six months
of 2016 from $5.6 million in the first six months of 2015. The decrease in these
expenses was primarily due to decreased costs related to data network and
connectivity.

Professional services expenses decreased 36.8% to $4.3 million in the first six
months of 2016 from $6.8 million in the first six months of 2015. This decrease
was primarily due to a $2.8 million decrease in costs related to investment
banking transactions as well as reductions in fixed professional services costs
offset by a $0.7 million increase in corporate legal and consulting costs
primarily related to higher annual meeting expenses as a result of a contested
proxy vote.

Business development expenses decreased 13.3% to $3.9 million in the first six
months of 2016 from $4.5 million in the first six months of 2015. This decrease
was primarily due to a decrease in travel costs related to investment banking
transactions.

Clearing and brokerage fees remained unchanged at $2.6 million in both the first
six months of 2016 and the first six months of 2015. While cash equity
transaction volumes and related costs decreased in the first six months of 2016
compared to the first six months of 2015, increases in costs related to
securities lending transactions, as well as costs related to MLV, which was
acquired in September 2015, offset this decrease.

Other operating expenses increased 13.8% to $3.3 million in the first six months
of 2016 from $2.9 million in the first six months of 2015. The increase in these
expenses was primarily due to the recognition of $0.2 million of costs related
to higher annual meeting expenses as a result of a contested proxy vote, and
$0.1 million of bad debt expenses in the first six months of 2016; there were no
comparable bad debt expenses recognized in the first six months of 2015.

We recognized a tax benefit of $7.6 million in the first six months of 2016,
compared to a $0.2 million tax provision in the first six months of 2015. Our
quarterly tax provision is determined pursuant to ASC 740, which requires using
an estimated annual effective rate based on forecasted taxable income for the
full year. Our effective tax rates for the first six months of 2016 and 2015
were 35.8% and 32.1%, respectively. The effective tax rate for the first six
months of 2016 differed from statutory rates primarily due to the impact of
permanent differences on our forecasted full year results, and the effects of
adopting the guidance in ASU 2016-09 which requires the tax effects of
share-based awards to be treated as discrete items in the interim period in
which the windfalls or shortfalls occur. During the first six months of 2016,
windfalls of $1.1 million were included in our income tax benefit. For the first
six months of 2015, our effective tax rate differed from statutory tax rates
primarily due to the effects of capital loss carryforwards subject to a
valuation allowance that were projected to be utilized during the year.

See Executive Summary above for further information related to our deferred tax assets as of June 30, 2016.



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Liquidity and Capital Resources


Liquidity is a measurement of our ability to meet potential cash requirements
for general business purposes. Regulatory requirements applicable to our
broker-dealer subsidiaries require minimum capital levels. The primary sources
of funds for liquidity consist of existing cash balances (i.e., available liquid
capital not invested in our operating businesses), proceeds from sales of
securities, internally generated funds, dividends on equity securities that we
own, and credit provided by margin accounts, banks, clearing brokers, and
affiliates of our principal clearing broker. Potential future sources of
liquidity for us include internally generated funds, borrowing capacity through
margin accounts, corporate lines of credit and other credit facilities which we
may enter into in the future, and future issuances of common stock, preferred
stock or debt securities.

Cash Flows

As of June 30, 2016, our cash and cash equivalents totaled $51.3 million
representing a net decrease of $18.8 million for the first six months of 2016.
The decrease is attributable to cash used in operating activities of
$30.8 million, cash used in financing activities of $25.1 million, partially
offset by $37.1 million of cash provided by investing activities. Due to the
cyclical nature of our industry and the industries in which we provide services,
we maintain liquid capital to cover potential cash outflows in periods of
decreased revenues and earnings.

Net cash used in operating activities of $30.8 million during the first six
months of 2016, compares to $14.6 million of cash used in operating activities
during the first six months of 2015. The cash used in operating activities
during the first six months of 2016 primarily reflects our net operating loss
for the period and $9.0 million of cash used to reduce accrued compensation. The
cash used in operating activities during the first six months of 2015 reflects
our net operating loss for the period and $13.3 million of cash used to reduce
accrued compensation.

Net cash provided by investing activities of $37.1 million during the first six
months of 2016 compares to $5.1 million during the first six months of 2015. The
$37.1 million provided in the first six months of 2016 reflects proceeds from
hedge fund redemptions and securities sold during the period of $40.1 million,
offset partially by $1.1 million used for the settlement of financial
instruments sold short, and a $1.3 million payment against our contingent
consideration liability related to our securities lending business
acquisition. The $5.1 million provided in the first six months of 2015 reflects
proceeds from sales of, and distributions from, investments during the period of
$14.1 million offset partially by investment purchases, including $0.8 million
of investment funds and $5.9 million related to short-sales of U.S. Treasury
securities. In addition, during the first quarter of 2015 we made a $1.1 million
payment against the contingent consideration liability for the acquisition of
the securities lending business.

Net cash used in financing activities of $25.1 million during the first six
months of 2016 compares to $28.3 million used during the first six months of
2015. The 2016 activity reflects the repurchase of 1.3 million shares of our
common stock for $21.9 million and dividends paid of $3.4 million. The 2015
activity primarily reflects the repurchase of 1.1 million shares of our common
stock for $28.9 million.

Sources of Funding

We believe that our existing cash and cash equivalents balances (totaling
$51.3 million at June 30, 2016) comprised primarily of investments in money
market funds investing in short-term U.S. Treasury securities, cash flows from
operations, borrowing capacity, other sources of liquidity and execution of our
financing strategies will be sufficient to meet our cash requirements. We have
obtained, and believe we will be able to continue to obtain, short-term
financing, such as margin financing and temporary subordinated financing, in
amounts and at interest rates consistent with our financing objectives. We may,
however, seek debt or equity financings, in public or private transactions, to
provide capital for corporate purposes and/or strategic business opportunities,
including possible acquisitions, joint ventures, alliances or other business
arrangements which could require substantial capital outlays. Our policy is to
evaluate strategic business opportunities, including acquisitions and
divestitures, as they arise. There can be no assurance that we will be able to
generate sufficient funds from future operations, or raise sufficient debt or
equity on acceptable terms, to take advantage of investment opportunities that
become available. Should our needs ever exceed these sources of liquidity, we
believe that many of our investments could be sold, in most circumstances, to
provide cash.

                                       29
--------------------------------------------------------------------------------
We monitor and manage our leverage and liquidity risk through various committees
and processes we have established. We assess our leverage and liquidity risk
based on considerations and assumptions of market factors, as well as factors
specific to us, including the amount of our available liquid capital (i.e., the
amount of our cash and cash equivalents not invested in our operating business).

Assets and Liabilities


As of June 30, 2016, our principal assets consisted of cash and cash
equivalents, financial instruments at fair value, receivables and investments
carried at cost. As of June 30, 2016 and December 31, 2015, our liquid assets
consisted primarily of cash and cash equivalents of $51.3 million and
$70.1 million, respectively.

The increase in our total assets to $1.2 billion as of June 30, 2016, compared
to $0.9 billion as of December 31, 2015, was primarily the result of a
$284.0 million increase in securities borrowed, partially offset by a
$47.3 million decrease in financial instruments owned, at fair value and the
$18.8 million decrease in cash noted above.

Regarding securities lending and our securities borrowed and securities loaned
balances, securities borrowed and securities loaned are recorded based upon the
amount of cash advanced or received. Securities borrowed transactions facilitate
the settlement process and require us to deposit cash or other collateral with
the lender. With respect to securities loaned, we receive collateral in the form
of cash. The amount of collateral required to be deposited for securities
borrowed, or received for securities loaned, is an amount generally in excess of
the market value of the applicable securities borrowed or loaned. We monitor the
market value of the securities borrowed and loaned on a daily basis, with
additional collateral obtained or excess collateral recalled, when deemed
appropriate. As of June 30, 2016 and December 31, 2015, and during the six
months and year then ended, respectively, all collateral received or paid was in
the form of cash.

Our due from and to brokers, dealers, and clearing organizations balances primarily represent unsettled banking and securities trades as well as cash on deposit related to securities lending.


As of June 30, 2016, we held $46.9 million of investments which primarily
consisted of investments in non-registered investment funds, marketable equity
securities, and non-public equity securities. These investments are funded in
cash and are not financed with debt. During the six months ended June 30, 2016,
we received $34.9 million from investment fund redemptions and $5.2 million from
the sale of marketable securities. We have initiated redemptions for
approximately $13 million of the fair value of the hedge funds. The following
table provides additional detail regarding our investments as of June 30, 2016
(dollars in thousands):

                                                          Carrying Value/
                                                            Fair Value
       Investments, at fair value:
       Fixed income/credit-related hedge funds           $          10,872
       Multi-strategy hedge funds                                   12,495
       Private equity funds                                          8,447
       Total investment funds, at fair value                        31,814
       Marketable and non-public equity securities and
         warrants, at fair value                                     8,505
       Total investments, at fair value                             40,319
       Investments, at cost                                          6,539
       Total investments                                 $          46,858


As of June 30, 2016, the $31.8 million of investment funds reflects investments
in 9 non-registered investment funds that are valued at net asset value ("NAV")
as determined by the fund administrators. As a practical expedient, the Company
relies on the NAV of these investments as their fair value. The NAVs that have
been provided by fund administrators are derived from the fair values of the
underlying investments as of the reporting date. Considering the general lack of
transparency necessary to conduct an independent assessment of the fair value of
the securities underlying each of the NAVs provided by the fund administrators,
our quarterly reporting process includes a number of assessment processes to
assist the Company in the evaluation of the information provided by fund
managers and fund administrators. These assessment processes include, but are
not limited to, regular review and discussion of each fund's performance with
its manager and regular evaluation of performance against applicable benchmarks.

                                       30

--------------------------------------------------------------------------------
The increase in our total liabilities to $986.8 million as of June 30, 2016
compared to $722.6 million as of December 31, 2015 was primarily the result of a
$281.3 million increase in securities loaned. This increase was partially offset
by a $10.5 million decrease in accrued compensation and benefits, and a
$4.6 million decrease in accounts payable, accrued expenses and other
liabilities.

Regulatory Capital


FBR Capital Markets & Co. ("FBRCM") and MLV, our broker-dealer subsidiaries, are
registered with the Securities and Exchange Commission ("SEC") and are members
of the Financial Industry Regulatory Authority, Inc. ("FINRA"). As such, they
are subject to the minimum net capital requirements promulgated by the SEC. As
of June 30, 2016, FBRCM had total regulatory net capital of $39.6 million, which
exceeded its required net capital of $1.1 million by $38.5 million. MLV had
total regulatory capital of $834 thousand, which exceeded its required net
capital of $100 thousand by $734 thousand. Regulatory net capital requirements
increase when the broker-dealer is involved in underwriting activities based
upon a percentage of the amount being underwritten.

Share Repurchases


During the six months ended June 30, 2016, we repurchased 728 thousand shares of
our common stock in open market or privately negotiated transactions at a
weighted average share price of $17.48 per share, for a total cost of
$12.7 million. As of June 30, 2016, we had a remaining authority to repurchase
up to 272 thousand additional shares. In July 2016, our Board of Directors
approved an increase in the Company's repurchase authorization to an aggregate
of 750 thousand shares.

We also purchase shares of our common stock from recipients of stock-based
compensation awards upon the vesting of RSU and restricted stock awards, and the
exercise of options to purchase stock, as recipients sell shares to meet their
tax obligations. During the six months ended June 30, 2016, we purchased
538 thousand shares of common stock at a weighted average share price of
$17.01 per share for a total cost of $9.2 million for this purpose.

Dividends


On July 14, 2016, our Board of Directors declared a quarterly cash dividend of
$0.20 per common share to be paid on August 26, 2016 to shareholders of record
as of the close of business on July 29, 2016. On April 26, 2016, our Board of
Directors declared a quarterly cash dividend of $0.20 per common share to be
paid on May 27, 2016 to shareholders of record as of the close of business on
May 9, 2016.

Off-Balance Sheet Arrangements

Institutional Brokerage


Through indemnification provisions in agreements with clearing organizations,
customer activities may expose us to off-balance sheet credit risk. Financial
instruments may have to be purchased or sold at prevailing market prices in the
event a customer fails to settle on a trade on its original terms or in the
event cash and securities in customer margin accounts are not sufficient to
fully cover customer obligations. We seek to manage the risks associated with
customer activities through customer screening and selection procedures as well
as through requirements on customers to maintain margin collateral in compliance
with various regulations and clearing organization policies.

© Edgar Online, source Glimpses

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Financials ($)
Sales 2016 109 M
EBIT 2016 -21,1 M
Net income 2016 -
Debt 2016 -
Yield 2016 -
P/E ratio 2016 -
P/E ratio 2017
Capi. / Sales 2016 0,86x
Capi. / Sales 2017 0,71x
Capitalization 93,4 M
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Mean consensus OUTPERFORM
Number of Analysts 1
Average target price 18,0 $
Spread / Average Target 33%
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Managers
NameTitle
Richard J. Hendrix Chairman, President & Chief Executive Officer
Brad J. Wright CFO, Treasurer, EVP & Chief Administrative Officer
Timothy Wood Chief Information Officer
Thomas J. Hynes Independent Director
Richard A. Kraemer Independent Director
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