Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

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

SummaryQuotesChartsNewsCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector newsTweets 
The feature you requested does not exist. However, we suggest the following feature:

FBR : & CO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

share with twitter share with LinkedIn share with facebook
share via e-mail
0
03/13/2017 | 10:02pm CET

Overview

FBR & Co. is a full-service investment banking and institutional brokerage firm with a deep expertise and focus on the equity capital markets. Since the founding of certain predecessor companies, we have grown from a boutique investment bank with primary expertise in financial institutions into a full-service U.S. investment bank for middle-market companies.

Through our broker-dealer operating subsidiaries we have focused our business on providing:

• capital raising services, including underwriting and placement of public

and private equity, equity-linked and debt securities;

• financial advisory services, including M&A advisory, restructuring,

          liability management, recapitalization and strategic alternative
          analysis;

• institutional sales and trading services focused on equity securities,

as well as securities lending activities; and

• differentiated securities research focused on the core issues driving

performance of our covered companies and industry sectors.

We focus our capital markets business (investment banking and institutional brokerage) in the following industry sectors-consumer, energy and natural resources, financial institutions, healthcare, industrials, insurance, real estate, and TMT. Approximately 70% of the companies included in the S&P 500 Index conduct business in the industry sectors in which we focus. We also make investments, including merchant banking investments, with our own capital.


In June 2007 we became a publicly-traded company listed on The NASDAQ Global
Select MarketSM (NASDAQ: FBRC). We are a Virginia corporation formed in June
2006 and headquartered in Arlington, Virginia and also have offices in Boston,
Dallas, Houston, Los Angeles, New York and San Francisco. The address of our
principal executive offices is 1300 North Seventeenth Street, Arlington,
Virginia 22209. Our telephone number is (703) 312-9500.

Recent Developments


As previously disclosed in a Form 8-K filed with the SEC on February 17, 2017,
the Company signed a stock for stock merger agreement with B. Riley Financial,
Inc., a publicly traded diversified financial services company based in Los
Angeles. Pursuant to this agreement, and subject to, among other conditions,
shareholder and regulatory approvals, B. Riley Financial, Inc. will acquire the
Company. This transaction is expected to close in the second quarter of 2017.
Following completion of this merger, the Company will be a subsidiary of B.
Riley Financial, Inc.

Business Environment


While equity capital markets activity increased during the latter portion of
2016, IPO activity during 2016 was historically low.  During 2016 there were 81
small cap U.S. IPOs that successfully priced with a total dollar volume of $10.7
billion. In comparison, during 2015 and 2014 there were 126 and 197 completed
IPOs, respectively, and related dollar volumes of $16.6 billion and
$22.3 billion, respectively. New issue activity in 2016 continued to be narrow
with volume in Healthcare, Finance and Technology transactions representing a
disproportionate percentage of the IPO market. Subsequent to the U.S.
presidential election and to-date in 2017, investor optimism has led to improved
valuations and increased capital markets activity, particularly in the energy
and financial sectors. Equity trading volumes continued to trend down in 2016
compared to 2015.

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



                                       28
--------------------------------------------------------------------------------


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.

U.S. economic outlook has improved, primarily as a result of the recent U.S.
presidential election, but the outlook for growth continues to be uncertain.
Economic growth from macroeconomic policy initiatives such as reduced
regulation, tax reform, and infrastructure spending may be significant but
require legislative action in order to be implemented.  Although gross domestic
product improved markedly in the second half of 2016, overall economic growth
for 2016 continued to be below long-term trends.  The Federal Reserve raised
short-term interest rates in the fourth quarter 2016, but also reiterated that
future interest rate increases would be dependent on economic data.  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 year ended December 31, 2016, our revenues, net of interest expense,
were $98.3 million, our pre-tax loss was $27.8 million and our net loss,
reflecting a $38.3 million tax provision and a full valuation allowance against
our net deferred tax assets, was $66.0 million. This compares to 2015 revenues,
net of interest expense, of $120.4 million, pre-tax loss of $15.8 million, and
net loss of $7.5 million. The increase in our net loss for 2016 compared to 2015
was primarily due to both the tax provision recognized in 2016 and the reduction
in our total net revenues. For the year ended December 31, 2014, our revenues,
net of interest expense, were $182.1 million, our pre-tax income was
$17.4 million and our net income was $17.0 million. The decrease in our net
results in 2015 compared to 2014 was primarily due to a $44.2 million decrease
in investment banking revenue.

As a result of our application of the guidance in Accounting Standards
Codification ("ASC") 740, "Income Taxes" ("ASC 740") and our assessment of the
positive and negative evidence related to the realization of our deferred tax
assets, we recorded a full valuation allowance against our net deferred tax
assets as of December 31, 2016. Our assessment of this positive and negative
evidence and the potential need for a valuation allowance is a matter of
significant judgment. In reaching this conclusion to establish a full valuation
allowance as of December 31, 2016, we weighed various factors related to our
performance and financial position as well as market conditions and prospective
opportunities. We will continue to maintain a full valuation allowance against
our deferred tax assets until there is sufficient evidence to support the
reversal of all or some portion of this allowance. Realization of our deferred
tax assets will be dependent on our ability to generate future taxable income.

During 2016, investment banking revenues decreased to $50.5 million compared to
$71.1 million in 2015 and $115.3 million in 2014. The reductions in investment
banking revenues reflects the impact of equity capital markets conditions during
both 2016 and 2015, in particular the declines in the volume of initial capital
raising transactions from 2015 to 2016 and from 2014 to 2015. The reduction in
investment banking revenues year-over-year also reflects the differences in the
nature and size of the capital raising transactions completed in these periods.
We completed one sole-managed private placement in 2016 with a transaction size
of $322 million, four sole-managed private placements in 2015 with an average
transaction size of $162 million and six sole-managed private placements in 2014
with an average transaction size of $206 million.

During 2016, total non-interest expenses decreased to $126.1 million compared to
$136.2 million in 2015 and $164.8 million in 2014. This decrease was primarily a
result of the reduction in year-over-year revenues noted above which generated
lower variable expenses, including reduced compensation expenses. Our total
compensation and benefits costs decreased to $73.3 million in the year ended
December 31, 2016 from $77.5 million in the year ended December 31, 2015 and
$103.8 million in the year ended December 31, 2014, primarily as a result of the
lower levels of revenues and reductions in stock compensation costs in 2016 and
2015. Non-compensation fixed costs decreased to $38.4 million in the year ended
December 31, 2016, excluding a $1.3 million goodwill impairment charge, compared
to $41.9 million and $43.9 million in the years ended December 31, 2015 and
2014, respectively.




                                       29
--------------------------------------------------------------------------------


As of December 31, 2016 and 2015, our cash and cash equivalents were
$75.0 million and $70.1 million, respectively. In addition our financial
instruments, at fair value and investments were $32.4 million and
$101.5 million, respectively. During the year ended December 31, 2016, we
received $60.1 million from investment fund redemptions and sales of marketable
and non-public equity securities and $8.7 million from net sales of trading
account securities. During 2016, we repurchased 1.3 million shares of our common
stock for a total cost of $22.4 million.

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.

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



                                                  For the Year Ended December 31,
                                                 2016            2015          2014
    Revenues:
    Investment banking                        $    50,545      $  71,091     $ 115,255
    Institutional brokerage                        39,213         45,442        56,182

Securities lending, net interest income 8,524 7,425

2,794

    Net investment (loss) income                     (557 )        5,433   
    17,774
    Other interest expense                              -        (11,160 )     (11,677 )
    Dividends and other                               592          2,164         1,797
    Revenues, net of interest expense              98,317        120,395   
   182,125
    Non-interest expenses:
    Fixed expenses                                 91,927        100,465       104,949
    Variable expenses                              34,142         35,688        59,816
    Total non-interest expenses                   126,069        136,153   

164,765

(Loss) income before income taxes $ (27,752 ) $ (15,758 )

 $  17,360




                                       30
--------------------------------------------------------------------------------



Revenue Analysis

Our revenues consist primarily of capital raising and advisory fees in
investment banking; commissions resulting from securities transactions executed
as agent or principal and related net trading gains and losses in institutional
brokerage; interest income from securities lending; and with respect to
investing activities, net investment income, including realized and unrealized
gains or losses, and dividends from merchant banking investments and earnings
from investment funds.

Revenue from capital raising transactions is substantially dependent on the
market for public and private offerings of equity and debt securities within the
industries in which we focus our efforts. Institutional brokerage revenues from
agency commissions are dependent on the level of overall market trading volume
and penetration of our institutional client base by our research, sales, and
trading staff. Principal brokerage transactions are dependent on these same
factors and on trading volume and spreads in the securities of such companies;
net trading gains and losses are dependent on the market performance of
securities held, as well as our decisions as to the level of market exposure we
accept in these securities. Accordingly, our revenues in these areas have
fluctuated in the past, and we anticipate that they are likely to continue to
fluctuate in the future, based on these factors.

Investment Banking


Capital raising revenue consists of placement fees, underwriting discounts,
selling concessions, management fees and reimbursed expenses associated with
underwriting and placement activities of equity and debt. We act in varying
capacities in our capital raising activities, which, based on the underlying
economics of each transaction, determine our ultimate revenues from these
activities. When we are engaged as a book-running manager of an underwriting, we
generally commit greater resources, bear more risk and earn higher revenues than
if engaged as a co- or lead-manager, an underwriter (syndicate member) or a
broker-dealer included in the selling group.

Advisory revenue consists primarily of advisory fees and reimbursed expenses
associated with such activities. Advisory fees have fluctuated in the past, and
are likely to continue to fluctuate, based on the number and size of our
completed transactions.

Investment banking revenues decreased $20.6 million to $50.5 million during 2016
from $71.1 million during 2015. Our 2016 revenue level reflects the impact of
market conditions during the year, specifically, the narrow and limited nature
of initial capital raising activity industry-wide during 2016. Our investment
banking revenues in 2016 were generated from 63 client transactions representing
$5.9 billion in transaction value. Included in those transactions and
representing $17.4 million of our capital raising revenue was one sole-managed
institutional private placement. In comparison, our investment banking revenues
in 2015 were generated from 51 client transactions representing $9.3 billion in
transaction value. Included in those transactions and representing $39.7 million
of our capital raising revenue were four sole-managed institutional private
placements. Advisory revenue was $7.5 million in 2016 compared to $9.6 million
in 2015.

Investment banking revenues decreased $44.2 million to $71.1 million during 2015
from $115.3 million during 2014. Our investment banking revenues in 2015 were
generated from 51 client transactions representing $9.3 billion in transaction
value. Included in those transactions and representing $39.7 million of our
capital raising revenue were four sole-managed institutional private placements.
Our investment banking revenues in 2014 were generated from 55 client
transactions representing $11 billion in transaction value. Included in those
transactions and representing $80.4 million of our capital raising revenue were
six sole-managed institutional private placements. The reduction in investment
banking revenues in 2015 compared to 2014 reflects the differences in the
number, nature and size of the capital raising transactions completed in these
periods. Specifically, we completed four sole­managed private placements in 2015
with an average transaction size of $162 million compared to six sole­managed
private placements in 2014 with an average transaction size of $206 million.
Advisory revenue was $9.6 million in 2015 compared to $11.4 million in 2014.




                                       31
--------------------------------------------------------------------------------

Institutional Brokerage

Institutional brokerage revenues consist of commissions resulting from securities transactions executed as agent or principal and related net trading gains and losses. Gains and losses result primarily from market price fluctuations that occur while holding positions in our trading security inventory. Revenues generated from securities transactions and related commission income and expense are recorded on the trade date. Institutional brokerage revenues also include direct payments received by the Company for equity research.

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



                                              For the Year Ended December 31,
                                             2016             2015          2014
        Agency commissions                $    18,625       $  24,000     $ 30,077
        Principal transactions                 18,136          18,361       22,509
        Commissions for equity research         2,452           3,081        3,596
        Total                             $    39,213       $  45,442     $ 56,182


Our institutional brokerage revenues decreased $6.2 million to $39.2 million in
2016 from $45.4 million in 2015. This decrease reflects lower cash equity
trading volume in 2016 compared to 2015, and reduced revenues from our
convertibles and credit trading desks during 2016 as we significantly reduced
the amount of capital committed to our convertible bond inventory over the
course of 2015.

Our institutional brokerage revenues decreased $10.8 million to $45.4 million in
2015 from $56.2 million in 2014. The decrease in revenue in 2015 reflects
reduced revenues from each of our equity and convertibles trading desks during
the period. These decreases were primarily due to market conditions in 2015,
including reductions in our trading volumes, as well as reductions in our
convertible and credit trading desk positions. We significantly reduced the
amount of capital committed to our convertible bond inventory over the course of
2015.

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 years ended December 31, 2016 and 2015 we generated net interest
revenue of $8.5 million and $7.4 million, respectively, from securities lending.
The increase in this net revenue was due to both higher average balances and
increased net interest spreads on these balances. We acquired our securities
lending business in August 2014 and during the remainder of 2014, we generated
net interest revenue of $2.8 million.

Investments


Net investment income includes net realized gains or losses on sale of equity
and debt securities, unrealized gains and losses on investments designated as
trading as well as any applicable impairment losses related to investments in
marketable and non-public equity securities. Net investment income also includes
income or loss from investment funds that we hold, reflecting changes in the net
asset values of the funds.

As of December 31, 2016 and 2015, we held $27.1 million and $87.4 million,
respectively, of investments. During the years ended December 31, 2016 and 2015,
we received $60.1 million and $41.0 million, respectively, from investment fund
redemptions and sales of marketable and non-public equity securities. In line
with the decrease in investments, net investment loss, including dividends, for
2016 was $0.1 million.



                                       32
--------------------------------------------------------------------------------


Net investment income, including dividends, for 2015 of $6.1 million decreased
$12.2 million from net investment income for 2014 of $18.3 million. Net
investment income for 2015 included $10.0 million of gains from short-sales of
U.S. Treasury securities, which were settled in the third and fourth quarters of
2015. Net investment income for 2014 included $10.5 million of gains from
short-sales of U.S. Treasury securities and $7.3 million of net gains from
investment funds and trading securities. Total investing revenues in 2015 and
2014 were offset by $11.2 million and $11.7 million, respectively, of interest
expense related to the short-sales of U.S. Treasury securities.

The following table sets forth financial data related to our operations as a percentage of revenues, net of interest expense:



                                               For the Year Ended December 31,
                                             2016              2015          2014
      Revenues:
      Investment banking:
      Capital raising                            43.8 %            51.1 %      57.0 %
      Advisory                                    7.6 %             8.0 %       6.2 %
      Subtotal                                   51.4 %            59.1 %      63.2 %
      Institutional brokerage                    39.9 %            37.7 %  
   30.8 %
      Net investment income                      -0.6 %             4.5 %       9.8 %
      Interest                                   30.5 %            26.4 %       7.2 %
      Dividends and other                         0.5 %             1.4 %       0.6 %
      Total revenues                            121.7 %           129.1 %     111.6 %
      Interest expense                           21.7 %            29.1 %      11.6 %
      Revenues, net of interest expense         100.0 %           100.0 %  

100.0 %

Non-interest expenses:

      Compensation and benefits                  74.5 %            64.3 %  
   57.0 %
      Occupancy and equipment                    12.5 %            10.5 %       7.4 %
      Professional services                      10.0 %            11.0 %       7.3 %
      Communications                              9.3 %             9.0 %       6.3 %
      Business development                        8.5 %             8.2 %       6.4 %
      Clearing and brokerage fees                 5.3 %             4.4 %  

2.6 %

      Impairment of goodwill                      1.3 %             0.0 %  

0.0 %

      Other operating expenses                    6.8 %             5.6 %  

3.5 %

      Total non-interest expenses               128.2 %           113.0 %  

90.5 %

      (Loss) income before income taxes         -28.2 %           -13.0 %  

9.5 %

Non-Interest Expenses Analysis

Comparison of the Years Ended December 31, 2016 and 2015


Total non-interest expenses decreased 7.4% to $126.1 million in 2016 from
$136.2 million in 2015. Fixed expenses decreased $8.6 million to $91.9 million
from $100.5 million and variable expenses decreased $1.5 million to
$34.2 million in 2016 from $35.7 million in 2015. The change in fixed costs
reflects a $6.4 million decrease in fixed compensation, primarily related to
reduced stock compensation costs. The change in variable costs reflects a
$2.9 million decrease in costs related to investment banking transactions due to
the overall decrease in revenues in 2016 compared to 2015.

Total compensation and benefits expenses decreased 5.4% to $73.3 million in 2016
from $77.5 million in 2015 primarily as a result of a $6.4 million decrease in
fixed compensation.  The reduction in fixed compensation was due to a
$7.1 million reduction in stock compensation costs, partially offset by a
$0.6 million increase in severance costs in 2016 compared to 2015.  Variable
compensation costs increased $2.2 million due in part to changing certain
compensation arrangements from fixed to variable. In addition, 2016 variable
compensation reflects the impact of our 2015 acquisition of MLV and the
provisions of certain employment agreements regarding



                                       33

--------------------------------------------------------------------------------


2016 and 2017 variable compensation.  As a result of the reduction in revenues
during 2016 and the impact of our fixed compensation and benefits, our
compensation and benefits expense as a percentage of net revenues increased to
75% in 2016 from 64% in 2015.

Occupancy and equipment expenses decreased 3.1% to $12.3 million in 2016 from
$12.7 million in 2015. The decrease in occupancy costs was primarily the result
of decreases in rent and in software maintenance and license expenses. These
reductions were partially offset by increases in office operating expenses and
depreciation of leasehold improvements and office equipment related to our
September 2015 acquisition of MLV.

Professional services expenses decreased 26.3% to $9.8 million in 2016 from
$13.3 million in 2015.  During 2016, costs related to investment banking
transactions decreased $2.2 million compared to 2015 reflecting the decrease in
banking activity in 2016. In addition, professional services expenses decreased
$1.3 million primarily as a result of decreased costs related to corporate legal
and consulting costs.

Communications expenses decreased 16.5% to $9.1 million in 2016 from $10.9 million in 2015. The decrease in these expenses was primarily due to decreased costs related to data network and connectivity costs.

Business development expenses decreased 14.3% to $8.4 million in 2016 from $9.8 million in 2015. This decrease was primarily due to decreases in corporate travel and investment banking transaction costs.

Clearing and brokerage fees remained flat from 2015 to 2016.


A $1.3 million impairment of goodwill was recognized in 2016 as a result of our
annual assessment of goodwill during the third quarter. There was no comparable
charge in 2015. The impairment recorded in 2016 related to our equity capital
markets ("ECM") reporting unit and was the result of various factors, including
the significant decline in investment banking revenues during 2016, market
conditions related to investment banking and our operating losses. These factors
coupled with the extended period in which our market capitalization has been
below our carrying value resulted in the determination that the ECM reporting
unit's goodwill should be reduced to zero.

Other operating expenses remained flat at $6.7 million in 2016 and 2015. The
change in these expenses include an increase of $0.4 million related to higher
annual meeting expenses as a result of a contested proxy vote in 2016 and
intangible asset amortization as a result of our acquisition of MLV in September
2015. These increases were offset by a decrease of $0.4 million reflecting
reductions in bad debt expenses and registration fees in 2016 compared to 2015.

In 2016, we recognized a $38.3 million tax provision as a result of recording a
full valuation allowance against our net deferred tax assets. See Executive
Summary above for further information related to our 2016 tax provision. We
recognized a tax benefit of $8.3 million in 2015 and our effective tax rate in
2015 was 52.7%. This tax rate differed from statutory tax rates primarily due to
the Company's use of previously reserved tax assets related to capital loss
carryforwards.

Comparison of the Years Ended December 31, 2015 and 2014


Total non-interest expenses decreased 17.4% to $136.2 million in 2015 from
$164.8 million in 2014. Variable expenses decreased $24.1 million to
$35.7 million in 2015 from $59.8 million in 2014 and fixed expenses decreased
$4.5 million to $100.5 million from $105.0 million. The change in variable costs
reflects a $23.8 million decrease in variable compensation due to the overall
decrease in revenues in 2015 compared to 2014.

Compensation and benefits expenses decreased 25.3% to $77.5 million in 2015 from
$103.8 million in 2014 primarily as a result of a $23.8 million decrease in
variable compensation. The reduction in variable compensation was due to the
$61.7 million reduction in revenues, net of interest expense, in 2015 compared
to the prior year. This decrease was also due to a $2.5 million decrease in
fixed compensation in 2015 compared to 2014 reflecting reduced stock
compensation and the impact of lower average headcount in 2015 compared to 2014.
As a result of the reduction in revenues during 2015 and the impact of our fixed
compensation and benefits, our compensation and benefits expense as a percentage
of net revenues increased to 64% in 2015 from 57% in 2014.



                                       34

--------------------------------------------------------------------------------


Occupancy and equipment expenses decreased 5.9% to $12.7 million in 2015 from
$13.5 million in 2014. The decrease in occupancy costs reflects the impact of
the move to our new corporate headquarters in Arlington, Virginia in the fourth
quarter of 2014, partially offset by increases in costs related to software
maintenance and licenses, depreciation of leasehold improvements and office
equipment. During 2014, the Company incurred $1.1 million of non-recurring costs
related to our corporate office move, including additional rent, moving expenses
and various other expenses associated with our former corporate offices.

Professional services expenses remained flat at $13.3 million in both 2015 and
2014.  During 2015, costs related to investment banking transactions decreased
$0.3 million compared to 2014 reflecting the decrease in banking activity in
2015, partially offset by an increase in costs incurred in 2015 related to
investment banking transactions that were not completed. This decrease was
offset by a $0.3 million increase in fixed costs, reflecting the net effects of
increased corporate legal costs due to our acquisition of MLV, partially offset
by a decrease in recruiting fees.

Communications expenses decreased 5.2% to $10.9 million in 2015 from $11.5 million in 2014. The decrease in these expenses was primarily due to decreased costs related to data network and connectivity costs.

Business development expenses decreased 16.2% to $9.8 million in 2015 from $11.7 million in 2014. This decrease is primarily due to a decrease in travel costs related to business promotion and investment banking transactions.


Clearing and brokerage fees increased 10.4% to $5.3 million in 2015 from
$4.8 million in 2014. Our 2015 clearing and brokerage fees reflect increased
costs related to securities lending offset by a reduction in costs related to
equity trading.

Other operating expenses increased 6.3% to $6.7 million in 2015 from $6.3 million in 2014. The increase in these expenses was primarily due to the recognition of $0.7 million of bad debt expenses in 2015 compared to $0.2 million in 2014.


We recognized a tax benefit of $8.3 million in 2015 compared to a tax provision
of $0.3 million in 2014. The Company's effective tax rate in 2015 was 52.7%
compared to 2.0% in 2014. Our 2015 and 2014 effective tax rates differed from
statutory tax rates primarily due to the Company's use of previously reserved
tax assets related to capital loss carryforwards.

Following the criteria in ASC 740, the Company evaluates the need for a
valuation allowance against its deferred tax assets on a quarterly basis
assessing the positive and negative evidence to determine if it is more likely
than not that some or all of the deferred tax assets will be realized. As of
December 31, 2015, our net deferred assets totaled $37.8 million. Based on its
assessment as of December 31, 2015, the Company determined that a valuation
allowance of $0.3 million related to state capital loss carryforwards was
appropriate.

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 investment fund
redemptions and 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 December 31, 2016, our cash and cash equivalents totaled $75.0 million representing a net increase of $5.0 million for the year ended December 31, 2016. The increase is attributable to $56.9 million of cash provided by investing activities, partially offset by $28.4 million of cash used in financing activities and $23.5 million of cash

                                       35

--------------------------------------------------------------------------------


used in operating 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 our operating activities of $23.5 million during 2016 compares
to $19.6 million used in operating activities during 2015. This cash used by
operating activities in 2016 reflects our net operating loss for the year. The
cash used by operating activities in 2015 reflects our net operating loss for
the year and a $21.1 million decrease in our accrued compensation, partially
offset by a net decrease in our trading desk positions.

Net cash provided by investing activities of $56.9 million during 2016 compares
to $29.9 million provided by investing activities during 2015. The $56.9 million
provided in 2016 reflects $60.1 million of proceeds from sales of and
distributions from investments during 2016, partially offset by corporate
acquisitions of $1.3 million, the settlement of financial instruments sold but
not yet purchased of $1.1 million and $0.8 million related to the purchase of
furniture, equipment, software and leasehold improvements. The $29.9 million
provided in 2015 reflects $41.0 million of proceeds from sales of and
distributions from investments during 2015 and net proceeds of $13.2 million
from activity related to short sales of U.S. Treasury securities, partially
offset by investments purchased during the period of $17.6 million, corporate
acquisitions of $4.4 million and $2.3 million related to the purchase of
furniture, equipment, software and leasehold improvements.

Net cash used in financing activities of $28.4 million during 2016 compares to
net cash used in financing activities of $49.2 million during 2015. The activity
primarily represents the repurchase of 1.3 million shares and 2.0 million shares
of our common stock in 2016 and 2015, respectively. The 1.3 million of shares
repurchased during 2016 were acquired for a total cost of $22.4 million and the
2.0 million shares repurchased during 2015 were acquired for a total cost of
$48.3 million. In the second half of 2015, we initiated a quarterly dividend and
paid a total of $6.2 million and $2.9 million of total dividends during 2016 and
2015, respectively.

As of December 31, 2015, our cash and cash equivalents totaled $70.1 million
representing a net decrease of $38.9 million for the year ended December 31,
2015. The decrease is attributable to $49.2 million of cash used by financing
activities, $19.6 million of cash used by operating activities partially offset
by $29.9 million of cash provided by investing activities.

Net cash used in our operating activities of $19.6 million during 2015 compares
to $18.9 million used in operating activities during 2014. This cash used by
operating activities in 2015 reflects our net operating loss for the year and a
$21.1 million decrease in our accrued compensation, partially offset by a net
decrease in our trading desk positions. The cash used by operating activities in
2014 reflects our net operating income for the year, partially offset by a
decrease in our accrued compensation as well as a decrease in our net due to
brokers, dealers and clearing organizations.

Net cash provided by investing activities of $29.9 million during 2015 compares
to $16.0 million used in investing activities during 2014. The $29.9 million
provided in 2015 reflects $41.0 million of proceeds from sales of and
distributions from investments during 2015 and net proceeds of $13.2 million
from activity related to short sales of U.S. Treasury securities, partially
offset by investments purchased during the period of $17.6 million, corporate
acquisitions of $4.4 million and $2.3 million related to the purchase of
furniture, equipment, software and leasehold improvements. The net cash used in
investing activities in 2014 reflects investments purchased during the year,
including $51.7 million of investment funds and $22.7 million of trading
securities, as well as $9.5 million related to the purchase of furniture,
equipment, software and leasehold improvements. These items were partially
offset by $60.7 million of proceeds from sales of and distributions from
investments during 2014, and net proceeds of $8.3 million from activity related
to short sales of U.S. Treasury securities.

Net cash used in financing activities of $49.2 million during 2015 compares to
net cash used in financing activities of $64.1 million during 2014. The activity
primarily represents the repurchase of 2.0 million shares and 2.5 million shares
of our common stock in 2015 and 2014, respectively. The 2.0 million of shares
repurchased during 2015 were acquired for a total cost of $48.3 million and the
2.5 million shares repurchased during 2014 were acquired for a total cost of
$65.9 million.



                                       36
--------------------------------------------------------------------------------

Sources of Funding


We believe that our existing cash and cash equivalents balances (totaling
$75.0 million at December 31, 2016) comprised primarily of investments in
government 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.

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).
At December 31, 2016, we had no outstanding borrowings.

Assets and Liabilities


As of December 31, 2016, our principal assets consisted of cash and cash
equivalents, financial instruments at fair value and receivables. As of
December 31, 2016 and 2015, our liquid assets consisted primarily of cash and
cash equivalents, comprised primarily of investments in government money market
funds, of $75.0 million and $70.1 million, respectively.

The increase in our total assets to $1.0 billion as of December 31, 2016, compared to $0.9 billion as of December 31, 2015, was primarily the result of a $212.3 million increase in securities borrowed, partially offset by a $62.5 million decrease in financial instruments owned, at fair value and a $37.5 million decrease in deferred tax assets.


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 December 31, 2016 and 2015, and during the years 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 securities trades as well as cash on deposit related to securities lending.

                                       37

--------------------------------------------------------------------------------


As of December 31, 2016, we held $27.1 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 year ended December 31, 2016, we
received $52.0 million from investment fund redemptions and $8.1 million from
sales of marketable and non-public equity securities. As of December 31, 2016,
we have initiated redemptions for all of our remaining hedge fund
investments. Pursuant to the terms of these redemptions, we expect to receive
the majority of these proceeds within the next six months. The nature of the
private equity fund investments is that distributions are received through the
liquidation of the underlying assets of the fund. At December 31, 2016, it was
estimated that the majority of the private equity funds will be liquidated in
the next 18 months. The following table provides additional detail regarding our
investments as of December 31, 2016 (dollars in thousands):



                                                          Carrying Value/
                                                            Fair Value
       Investments, at fair value:
       Fixed income/credit-related hedge funds           $             709
       Multi-strategy hedge funds                                    9,569
       Private equity funds                                          5,012
       Total investment funds, at fair value                        15,290
       Marketable and non-public equity securities and
         warrants, at fair value                                    11,819
       Total investments                                 $          27,109




As of December 31, 2016, the $15.3 million of investment funds reflects
investments in five 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.

The increase in our total liabilities to $920.5 million as of December 31, 2016
compared to $722.6 million as of December 31, 2015 was primarily the result of a
$204.9 million increase in securities loaned. This increase was partially offset
by a $4.0 million decrease in accounts payable, accrued expenses and other
liabilities.

Regulatory Capital


FBRCM and MLV, our broker-dealer subsidiaries, are registered with the SEC and
are members of FINRA. As such, they are subject to the minimum net capital
requirements promulgated by the SEC. As of December 31, 2016, FBRCM had total
regulatory net capital of $54.2 million, which exceeded its required net capital
of $1.8 million by $52.4 million. MLV had total regulatory capital of
$1.5 million, which exceeded its required net capital of $0.1 million by
$1.4 million. 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 2016, we repurchased 0.8 million shares of our common stock in open
market or privately negotiated transactions at a weighted average share price of
$17.34 per share, for a total cost of $13.1 million. As of December 31, 2016, we
had a remaining authority to repurchase up to 722 thousand additional 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 2016, we purchased 0.5 million shares of common stock at
a weighted average share price of $16.95 per share for a total cost of
$9.3 million for this purpose.



                                       38

--------------------------------------------------------------------------------

Contractual Obligations


We have contractual obligations to make future payments in connection with
non-cancelable lease agreements and other contractual commitments as well as
uncalled capital commitments to investment partnerships that may be called over
the next two years. The following table sets forth these contractual obligations
by fiscal year (dollars in thousands):



                                                              Payments due by period
                                                 Less than                                          More than 5
                                     Total         1 year        1 - 3 years       3 - 5 years         years
Minimum rental commitments         $  33,294     $    4,775     $       7,370     $       7,023     $    14,126




These rental commitments are for operating leases of the Company. The Company
currently has no commitments associated with capital leases. The Company also
has $0.2 million of uncalled capital commitments to investment partnerships that
may be called over the next two years. The Company cannot currently determine
when, if ever, these capital commitments will be called.

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on FBR & CO
03/13 FBR : & CO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESU..
03/10 FBR : Election of Directors; Appointment of Certain Officers; Compensatory Arran..
03/10 FBR & CO. : Change in Directors or Principal Officers, Financial Statements and ..
03/02 B RILEY FINANCIAL : to Acquire FBR & Co. to Form Dynamic Financial Services Firm..
03/02 Brower Piven Commences An Investigation Into The Proposed Sale Of FBR & Co. A..
02/28 Brower Piven Commences An Investigation Into The Proposed Sale Of FBR & Co. A..
02/24 FBR & CO : Levi & Korsinsky, LLP Announces an Investigation Into Whether the Sal..
02/24 WEISSLAW LLP : FBR & Co. Acquisition May Not Be in the Best Interests of FBRC Sh..
02/21 FBR & CO. : Entry into a Material Definitive Agreement, Financial Statements and..
02/21 FBR& CO. (NYSE : FBR) Files An 8-K Other Events
More news
Sector news : Investment Banking
03/24DJGOLDMAN SACHS : Mortgage-Bond Veteran Poached by Private-Equity Firm -- Update
03/23 For Goldman Sachs, a rare pass from shareholder resolutions
03/23 Ireland finance ministry appoints bookrunners for AIB IPO
03/23DJMARKET SNAPSHOT : Stock-market Gains Accelerate As Investors Make Bets Ahead Of ..
03/23DJMARKET SNAPSHOT : Stock-market Gains Accelerate As Investors Make Bets Ahead Of ..
More sector news : Investment Banking
News from SeekingAlpha
03/10 A Profitable Microcap Trading At Less Than 10% Of Revenues, Acquisition Targe..
02/23 A 5.2% Yielder That's Poised To Benefit From Financial Deregulation And Could..
02/21 B. Riley Financial acquires FBR & Co.
02/21 FINANCIALS - TOP 5 GAINERS / LOSERS : 00 pm
02/14 FBR goes ex-dividend tomorrow
Advertisement
Financials ($)
Sales 2017 138 M
EBIT 2017 9,42 M
Net income 2017 0,28 M
Debt 2017 -
Yield 2017 -
P/E ratio 2017 -
P/E ratio 2018
Capi. / Sales 2017 0,91x
Capi. / Sales 2018 0,86x
Capitalization 125 M
More Financials
Chart FBR & CO
Duration : Period :
FBR & Co Technical Analysis Chart | FBRC | US30247C4006 | 4-Traders
Full-screen chart
Technical analysis trends FBR & CO
Short TermMid-TermLong Term
TrendsBullishBullishNeutral
Technical analysis
Income Statement Evolution
More Financials
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 1
Average target price 18,0 $
Spread / Average Target 1,7%
Consensus details
Managers
NameTitle
Richard J. Hendrix Chairman, President & Chief Executive Officer
Brad J. Wright CFO, Treasurer, EVP & Chief Administrative Officer
Thomas J. Hynes Independent Director
Richard A. Kraemer Independent Director
Art J. Reimers Lead Independent Director
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
FBR & CO36.15%125
CHINA CINDA ASSET MANA..11.43%31 198
HAITONG SECURITIES COM..-5.08%23 810
NATIONAL COMMERCIAL BA..--.--%20 589
TD AMERITRADE HOLDING ..-13.56%19 894
EVERBRIGHT SECURITIES ..-2.75%9 993
More Results