UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 8-K
_____________________
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event Reported): February 9, 2017
FBR & CO.
(Exact Name of Registrant as Specified in Charter)
| Virginia | 001-33518 | 20-5164223 |
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
| 1300 North Seventeenth Street, Arlington, VA 22209 |
| (Address of Principal Executive Offices) (Zip Code) |
(703) 312-9500
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
| Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: | ||
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Item 2.02. Results of Operations and Financial Condition.
On February 10, 2017, FBR & Co. (the “Company”) issued a press release announcing its earnings for the quarter ended December 31, 2016 and year-end results for 2016. A copy of the press release is furnished herewith and attached hereto as Exhibit 99.1.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
(e) Certain Awards Incentive Program
On February 9, 2017, the Compensation Committee of the Board of Directors of the Company approved the terms and conditions of an annual incentive program under which certain of the Company’s executive officers may earn annual incentive compensation for 2017 (the “2017 Incentive Compensation Program”). Under the 2017 Incentive Compensation Program, each participating officer is eligible to receive incentive bonus compensation for 2017 under the Company’s Stock Plan based on the Company’s annual revenue in 2017, subject to achievement of a minimum level of annual revenue for the year. The terms of the 2017 Incentive Compensation Program designate the percentage of annual revenue that may be paid out under the qualified performance-based awards to any individual participant, and the maximum percentage of annual revenue that may be paid out under the awards to all of the participants as a group. The amounts payable under the qualified performance-based awards may be reduced in the discretion of the Compensation Committee based on performance. Mr. Hendrix, Mr. Wright, Mr. Fishman and Mr. Slosser are eligible to participate in the annual incentive program.
Item 9.01. Financial Statements and Exhibits.
Exhibits.
99.1 FBR & Co. Press Release dated February 10, 2017
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| FBR & CO. | ||
| Date: February 10, 2017 | By: | /s/ Bradley J. Wright |
| Bradley J. Wright | ||
| Executive Vice President and Chief Financial Officer | ||
EXHIBIT INDEX
| Exhibit No. | Description of Exhibit | |
| 99.1 | Press Release, dated February 10, 2017, issued by FBR & Co. |
EXHIBIT 99.1
FBR & Co. Reports Fourth Quarter 2016 Pre-Tax Income of $5.2 Million on Net Revenues of $40.2 Million
Declares $0.20 per Share Quarterly Cash Dividend
ARLINGTON, Va., Feb. 10, 2017 (GLOBE NEWSWIRE) -- FBR & Co. (NASDAQ:FBRC) ("FBR" or the “Company"), a leading investment bank serving the middle market, today reported pre-tax income of $5.2 million on revenues of $40.2 million, and a 12.8 percent pre-tax operating margin, for the fourth quarter of 2016. This compares to a pre-tax loss of $10.0 million on revenues of $23.5 million for the fourth quarter of 2015, and a pre-tax loss of $11.6 million on revenues of $19.3 million for the third quarter of 2016. Net after-tax income for the fourth quarter of 2016 was $5.0 million, or $0.68 per diluted share, compared to a net loss of $4.4 million, or $0.59 per share, for the fourth quarter of 2015, and a net loss of $57.3 million, or $7.88 per share for the third quarter of 2016.
For the year ended December 31, 2016, the pre-tax operating loss was $27.8 million on revenues of $98.3 million, compared to a pre-tax operating loss of $15.8 million on revenues of $120.4 million for the year ended December 31, 2015. The net after-tax loss for the year ended December 31, 2016 was $66.0 million, or $8.89 per share, compared to a net after-tax loss of $7.5 million, or $0.92 per share for the year ended December 31, 2015. The increase in year-over-year net loss was primarily driven by a $38.3 million tax provision recorded in 2016 related to the establishment of a full valuation reserve against the Company’s deferred tax assets.
“In the fourth quarter we generated revenue more in line with our historical averages and our results reflected more closely our expected margins and profitability. As capital markets activity picked up in the energy sector we were able to execute a large, sole-managed offering which significantly impacted our results,” said Chairman and Chief Executive Officer, Richard J. Hendrix. “Looking forward, we have an active banking pipeline of engaged transactions and have already generated more banking revenue in first quarter than we did in any of the first three quarters of 2016.”
2016 Composition of Revenues
Investment Banking
Investment banking revenue was $28.6 million for the fourth quarter of 2016, compared to $14.0 million for the fourth quarter of 2015 and $9.2 million for the third quarter of 2016. During the quarter, FBR completed 21 client engagements representing $1.7 billion in transaction value including one large sole-managed equity private placement. This compares to 16 engagements representing $1.8 billion in transaction value for the same period in 2015, and 13 engagements representing $1.6 billion in transaction value in the third quarter of 2016.
For the year ended December 31, 2016, investment banking revenue was $50.5 million compared to $71.1 million in 2015. Full year revenues were generated by 63 client engagements representing a total of $5.9 billion in transaction volume, compared to 51 client engagements representing $9.3 billion in transaction volume in 2015. The decline in year-over-year revenue primarily reflects the completion of fewer sole-managed private transactions – one in 2016, compared to four in 2015, related to the contraction in the small cap IPO market as activity declined by over 35 percent from 2015 levels.
Institutional Brokerage
Net revenue generated in institutional brokerage was $11.3 million for the fourth quarter of 2016, compared to $12.2 million for the fourth quarter of 2015 and $10.4 million for the third quarter of 2016. For the year ended December 31, 2016, net revenues generated in institutional brokerage were $47.7 million in 2016, compared to $53.5 million in 2015. This decrease in 2016 resulted from lower industry-wide cash equities trading volumes.
2016 Expenses
Non-compensation fixed expenses for the fourth quarter of 2016 totaled $9.1 million, compared to $11.7 million for the fourth quarter of 2015 and $9.2 million for the third quarter of 2016, excluding the one-time goodwill impairment charge. For the year ended December 31, 2016, non-compensation fixed expenses totaled $38.4 million, excluding the goodwill impairment charge, down eight percent compared to $41.9 million in 2015.
Compensation and benefits expense for the fourth quarter of 2016 was $22.1 million, which resulted in a more normalized compensation-to-net revenue ratio of 55 percent. This compares to $17.6 million for the fourth quarter of 2015 and $16.5 million for the third quarter of 2016. For the year ended December 31, 2016, compensation and benefits expense totaled $73.3 million, compared to $77.5 million in 2015.
Employees
At December 31, 2016, the Company had 259 full-time employees, compared to 273 at September 30, 2016 and 303 at December 31, 2015.
Share Repurchase Activity
For the year ended December 31, 2016, the Company repurchased approximately 756 thousand shares of its common stock in the open market at an aggregate price of $13.1 million, or an average of $17.34 per share. No shares were repurchased in the open market during the fourth quarter of 2016. As of December 31, 2016, the Company had 722 thousand shares remaining under its repurchase authorization.
Additionally, for the year ending December 31, 2016, FBR acquired 548 thousand shares outside of the share repurchase program as a result of netting of shares for tax withholding purposes on employee share vesting for $9.3 million.
Quarterly Dividend
The Board of Directors declared a quarterly cash dividend of $0.20 per common share to be paid March 3, 2017 to all shareholders of record as of the close of business on February 20, 2017.
Balance Sheet
As of December 31, 2016, FBR continued to maintain an unlevered and highly liquid balance sheet, with cash and cash equivalents of $75.0 million, compared to $70.1 million as of December 31, 2015. Over the last twelve months, FBR has significantly reduced its investment positions in order to fund repurchase activity and add to overall firm liquidity. The Company ended 2016 with net investment positions of approximately $27 million, down from $87 million at the end of 2015.
Shareholders’ equity as of December 31, 2016 was $117 million, and tangible book value per share was $15.51, based on 7.28 million shares outstanding, compared to shareholders’ equity of $211 million and tangible book value per share of $27.83 as of December 31, 2015. The decline in shareholders’ equity and tangible book value per share resulted from the combination of the operating loss for the year and the recording of a full valuation allowance against the Company’s deferred tax assets in 2016.
Conference Call
Investors wishing to listen to the earnings call at 9:00 A.M. U.S. EST, Friday, February 10, 2017, may do so via the Web or conference call at:
Webcast link: http://edge.media-server.com/m/p/8oq5i6qw
Conference call dial-in number (domestic, toll-free): 855.425.4204
Conference call dial-in number (international): 484.756.4245
Access code: 47777301
About FBR
FBR & Co. (Nasdaq:FBRC) provides investment banking, merger and acquisition advisory, institutional brokerage, and research services through its subsidiaries FBR Capital Markets & Co. and MLV & Co. FBR focuses capital and financial expertise on the following industry sectors: consumer; energy & natural resources; financial institutions; healthcare; insurance; industrials; real estate; and technology, media & telecom. FBR is headquartered in the Washington, D.C. metropolitan area with offices throughout the United States. For more information, please visit www.fbr.com.
Statements in this release concerning future performance, developments, events, market forecasts, revenues, expenses, earnings, run rates and any other guidance on present or future periods constitute forward-looking statements. These forward-looking statements are subject to a number of factors, risks and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the effect of demand for public and private securities offerings, activity in the secondary securities markets, interest rates, the risks associated with merchant banking investments, the realization of gains and losses on principal investments, available technologies, competition for business and personnel, and general economic, political and market conditions. Financial results may fluctuate substantially from quarter-to-quarter depending on the number, size and timing of completed transactions. We have experienced, and expect to experience in the future, significant variations in our revenues and results of operations and, as a result, are unlikely to achieve steady and predictable earnings on a quarterly basis. For a discussion of these and other risks and important factors that could affect FBR's future results and financial condition, see "Risk Factors" in Part I, Item 1A and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015; and other items throughout the Company's Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Financial data follows.
| FBR & CO. | |||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||||
| (Dollars in thousands, except per share amounts) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Quarter Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||
| REVENUES: | |||||||||||||||||
| Investment banking: | |||||||||||||||||
| Capital raising | $ | 24,661 | $ | 9,820 | $ | 43,092 | $ | 61,508 | |||||||||
| Advisory | 3,942 | 4,141 | 7,453 | 9,583 | |||||||||||||
| Institutional brokerage | 9,373 | 9,533 | 39,213 | 45,442 | |||||||||||||
| Interest | 6,051 | 8,387 | 29,977 | 31,774 | |||||||||||||
| Net investment income (loss) | 298 | (2,373 | ) | (557 | ) | 5,433 | |||||||||||
| Dividends & other | 25 | 1,061 | 527 | 1,692 | |||||||||||||
| Total revenues | 44,350 | 30,569 | 119,705 | 155,432 | |||||||||||||
| Interest expense | 4,140 | 7,105 | 21,388 | 35,037 | |||||||||||||
| Revenues, net of interest expense | 40,210 | 23,464 | 98,317 | 120,395 | |||||||||||||
| NON-INTEREST EXPENSES: | |||||||||||||||||
| Compensation and benefits | 22,116 | 17,628 | 73,313 | 77,463 | |||||||||||||
| Occupancy and equipment | 2,809 | 3,350 | 12,318 | 12,680 | |||||||||||||
| Professional services | 2,916 | 3,640 | 9,798 | 13,287 | |||||||||||||
| Communications | 2,112 | 2,746 | 9,119 | 10,865 | |||||||||||||
| Business development | 2,392 | 2,995 | 8,382 | 9,819 | |||||||||||||
| Clearing and brokerage fees | 1,233 | 1,331 | 5,180 | 5,328 | |||||||||||||
| Impairment of goodwill | - | - | 1,259 | - | |||||||||||||
| Other operating expenses | 1,476 | 1,778 | 6,700 | 6,711 | |||||||||||||
| Total non-interest expenses | 35,054 | 33,468 | 126,069 | 136,153 | |||||||||||||
| Income (loss) before income taxes | 5,156 | (10,004 | ) | (27,752 | ) | (15,758 | ) | ||||||||||
| Income tax provision (benefit) | 167 | (5,594 | ) | 38,252 | (8,297 | ) | |||||||||||
| Net income (loss) | $ | 4,989 | $ | (4,410 | ) | $ | (66,004 | ) | $ | (7,461 | ) | ||||||
| Basic income (loss) per share | $ | 0.69 | $ | (0.59 | ) | $ | (8.89 | ) | $ | (0.92 | ) | ||||||
| Diluted income (loss) per share | $ | 0.68 | $ | (0.59 | ) | $ | (8.89 | ) | $ | (0.92 | ) | ||||||
| Weighted average shares - basic | 7,275 | 7,482 | 7,428 | 8,069 | |||||||||||||
| Weighted average shares - diluted | 7,311 | 7,482 | 7,428 | 8,069 | |||||||||||||
| Cash dividends per common share | $ | 0.20 | $ | 0.20 | $ | 0.80 | $ | 0.40 | |||||||||
| FBR & CO. | ||||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||||
| (Dollars in thousands, except per share amounts) | ||||||||||
| (Unaudited) | ||||||||||
| December 31, | December 31, | |||||||||
| ASSETS | 2016 | 2015 | ||||||||
| Cash and cash equivalents | $ | 75,019 | $ | 70,067 | ||||||
| Receivables: | ||||||||||
| Securities borrowed | 897,343 | 685,037 | ||||||||
| Due from brokers, dealers and clearing organizations | 4,828 | 5,513 | ||||||||
| Customers | 2,805 | 1,429 | ||||||||
| Other | 4,297 | 5,895 | ||||||||
| Financial instruments owned, at fair value | 32,401 | 94,923 | ||||||||
| Other investments, at cost | - | 6,539 | ||||||||
| Goodwill and intangibles | 4,490 | 6,273 | ||||||||
| Furniture, equipment, software and leasehold improvements, net | 12,624 | 15,071 | ||||||||
| Deferred tax assets, net of valuation allowance | - | 37,497 | ||||||||
| Prepaid expenses and other assets | 4,134 | 5,172 | ||||||||
| Total assets | $ | 1,037,941 | $ | 933,416 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
| Liabilities: | ||||||||||
| Securities loaned | $ | 892,309 | $ | 687,443 | ||||||
| Financial instruments sold, not yet purchased, at fair value | - | 1,934 | ||||||||
| Accrued compensation and benefits | 12,291 | 13,325 | ||||||||
| Accounts payable, accrued expenses and other liabilities | 15,923 | 19,947 | ||||||||
| Total liabilities | 920,523 | 722,649 | ||||||||
| Shareholders' equity: | ||||||||||
| Common stock | 7 | 7 | ||||||||
| Additional paid-in capital | 252,311 | 259,011 | ||||||||
| Restricted stock units | 14,771 | 35,929 | ||||||||
| Accumulated deficit | (149,671 | ) | (84,180 | ) | ||||||
| Total shareholders' equity | 117,418 | 210,767 | ||||||||
| Total liabilities and shareholders' equity | $ | 1,037,941 | $ | 933,416 | ||||||
| Book Value per Share | $ | 16.13 | $ | 28.69 | ||||||
| Tangible Book Value per Share | $ | 15.51 | $ | 27.83 | ||||||
| Shares Outstanding (in thousands) | 7,279 | 7,347 | ||||||||
| FBR & CO. | |||||||||||||||||||||
| Financial & Statistical Supplement - Operating Results | |||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||
| Q-4 16 | Q-3 16 | Q-2 16 | Q-1 16 | Q-4 15 | |||||||||||||||||
| Revenues, net of interest expense | $ | 40,210 | $ | 19,320 | $ | 20,887 | $ | 17,900 | $ | 23,464 | |||||||||||
| Expenses: | |||||||||||||||||||||
| Variable | 14,008 | 6,964 | 6,728 | 6,436 | 7,467 | ||||||||||||||||
| Fixed | 21,046 | 23,989 | 23,349 | 23,549 | 26,001 | ||||||||||||||||
| Income (loss) before income taxes | 5,156 | (11,633 | ) | (9,190 | ) | (12,085 | ) | (10,004 | ) | ||||||||||||
| Income tax provision (benefit) | 167 | 45,698 | (982 | ) | (6,631 | ) | (5,594 | ) | |||||||||||||
| Net income (loss) | $ | 4,989 | $ | (57,331 | ) | $ | (8,208 | ) | $ | (5,454 | ) | $ | (4,410 | ) | |||||||
| Return on equity (trailing twelve months) | -40.2 | % | -44.8 | % | -10.6 | % | -4.8 | % | -3.2 | % | |||||||||||
| Fixed expenses | $ | 21,046 | $ | 23,989 | $ | 23,349 | $ | 23,549 | $ | 26,001 | |||||||||||
| Less: Non-cash expenses1 | 573 | 1,510 | 582 | - | 1,701 | ||||||||||||||||
| Core fixed costs2 | $ | 20,473 | $ | 22,479 | $ | 22,767 | $ | 23,549 | $ | 24,300 | |||||||||||
| Statistical Data | |||||||||||||||||||||
| Revenues per employee (annualized) | $ | 621 | $ | 283 | $ | 288 | $ | 249 | $ | 310 | |||||||||||
| Employee count | 259 | 273 | 290 | 287 | 303 | ||||||||||||||||
| 1 Non-cash expenses include compensation costs associated with stock-based awards, amortization of intangibles and impairment of goodwill. | |||||||||||||||||||||
| 2 Core fixed costs is a non-GAAP measurement used by management to analyze and assess the Company’s fixed operating | |||||||||||||||||||||
| costs. Management believes that this non-GAAP measurement assists investors in understanding the impact of the items noted in | |||||||||||||||||||||
| footnote 1 on the performance of the Company. | |||||||||||||||||||||
| A limitation of utilizing this non-GAAP measure is that the GAAP accounting effects of these items do in fact reflect the | |||||||||||||||||||||
| underlying financial results of the Company and these effects should not be ignored in evaluating and analyzing the | |||||||||||||||||||||
| Company's financial results. Therefore, management believes fixed expenses on a GAAP basis and core fixed costs | |||||||||||||||||||||
| on a non-GAAP basis should be considered together. | |||||||||||||||||||||
Contacts:
Media and Investors: Linda E. Eddy at 703.312.9715 or leddy@fbr.com