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EX-31.01 - EX-31.01 - FBR & Co.fbrc-ex3101_6.htm
EX-31.02 - EX-31.02 - FBR & Co.fbrc-ex3102_9.htm
EX-32.01 - EX-32.01 - FBR & Co.fbrc-ex3201_8.htm
EX-32.02 - EX-32.02 - FBR & Co.fbrc-ex3202_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 001-33518

 

FBR & CO.

(Exact name of Registrant as specified in its charter)

 

 

Virginia

20-5164223

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

1300 North Seventeenth Street
Arlington, VA

22209

(Address of principal executive offices)

(Zip code)

(703) 312-9500

(Registrant’s telephone number including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

¨

Accelerated filer

x

 

 

 

 

Non-accelerated filer

¨

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No   x

The number of shares outstanding of the registrant’s common stock, $0.001 par value per share, as of October 30, 2015 was 7,052,085 shares.

 

 

 

 

 


FBR & CO.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2015

INDEX

 

 

Page

PART I—FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Consolidated Financial Statements and Notes—(unaudited)

 

 

Consolidated Balance Sheets—September 30, 2015 and December 31, 2014

1

 

Consolidated Statements of Operations—Three and Nine Months Ended September 30, 2015 and 2014

2

 

Consolidated Statements of Comprehensive Income (Loss)—Three and Nine Months Ended September 30, 2015 and 2014

3

 

Consolidated Statements of Changes in Shareholders’ Equity—Nine Months Ended September 30, 2015 and Year Ended  December 31, 2014

4

 

Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2015 and 2014

5

 

Notes to Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

27

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

40

Item 4.

Controls and Procedures

44

 

 

PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings

45

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

46

Item 3.

Defaults Upon Senior Securities

46

Item 4.

Mine Safety Disclosures

46

Item 5.

Other Information

46

Item 6.

Exhibits

47

 

Signature

48

 

 

 


PART I

FINANCIAL INFORMATION

 

Item 1.Financial Statements

FBR & CO.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,196

 

 

$

108,962

 

Receivables:

 

 

 

 

 

 

 

 

Securities borrowed

 

 

760,190

 

 

 

594,674

 

Due from brokers, dealers and clearing organizations

 

 

89,256

 

 

 

94,489

 

Customers

 

 

3,707

 

 

 

3,349

 

Other

 

 

7,812

 

 

 

5,227

 

Financial instruments owned, at fair value

 

 

115,660

 

 

 

166,047

 

Other investments, at cost

 

 

7,000

 

 

 

7,000

 

Goodwill and intangible assets

 

 

5,858

 

 

 

4,921

 

Furniture, equipment, software, and leasehold improvements, net of

   accumulated depreciation and amortization

 

 

15,427

 

 

 

15,388

 

Deferred tax assets, net of valuation allowance

 

 

31,654

 

 

 

28,648

 

Prepaid expenses and other assets

 

 

5,161

 

 

 

6,392

 

Total assets

 

$

1,105,921

 

 

$

1,035,097

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Securities loaned

 

$

759,364

 

 

$

595,717

 

Securities sold but not yet purchased, at fair value

 

 

82,553

 

 

 

121,310

 

Accrued compensation and benefits

 

 

19,587

 

 

 

34,571

 

Accounts payable, accrued expenses and other liabilities

 

 

21,451

 

 

 

23,093

 

Total liabilities

 

 

882,955

 

 

 

774,691

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 8)

 

 

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

 

Preferred Stock, $0.001 par value 100,000,000 authorized, none issued

   and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 75,000,000 shares authorized,

   7,075,767 and 8,388,697 shares issued and outstanding, respectively

 

 

7

 

 

 

8

 

Additional paid-in capital

 

 

266,918

 

 

 

302,720

 

Restricted stock units

 

 

35,811

 

 

 

34,353

 

Accumulated other comprehensive income, net of taxes

 

 

 

 

 

44

 

Accumulated deficit

 

 

(79,770

)

 

 

(76,719

)

Total shareholders’ equity

 

 

222,966

 

 

 

260,406

 

Total liabilities and shareholders’ equity

 

$

1,105,921

 

 

$

1,035,097

 

  

See notes to consolidated financial statements.

1


FBR & CO.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital raising

 

$

14,626

 

 

$

27,137

 

 

$

51,737

 

 

$

95,765

 

Advisory

 

 

150

 

 

 

2,152

 

 

 

5,442

 

 

 

5,947

 

Institutional brokerage

 

 

11,176

 

 

 

11,946

 

 

 

35,860

 

 

 

41,680

 

Net investment income

 

 

777

 

 

 

3,075

 

 

 

7,806

 

 

 

16,000

 

Interest

 

 

8,394

 

 

 

4,861

 

 

 

23,387

 

 

 

5,415

 

Dividends and other

 

 

168

 

 

 

226

 

 

 

631

 

 

 

806

 

Total revenues

 

 

35,291

 

 

 

49,397

 

 

 

124,863

 

 

 

165,613

 

Interest expense

 

 

9,711

 

 

 

7,300

 

 

 

27,932

 

 

 

12,060

 

Revenues, net of interest expense

 

 

25,580

 

 

 

42,097

 

 

 

96,931

 

 

 

153,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

17,604

 

 

 

23,771

 

 

 

59,835

 

 

 

87,141

 

Professional services

 

 

2,835

 

 

 

3,663

 

 

 

9,647

 

 

 

11,025

 

Business development

 

 

2,293

 

 

 

2,764

 

 

 

6,824

 

 

 

8,189

 

Clearing and brokerage fees

 

 

1,438

 

 

 

1,155

 

 

 

3,997

 

 

 

3,516

 

Occupancy and equipment

 

 

3,169

 

 

 

3,067

 

 

 

9,330

 

 

 

9,222

 

Communications

 

 

2,532

 

 

 

2,873

 

 

 

8,119

 

 

 

8,621

 

Other operating expenses

 

 

2,018

 

 

 

1,496

 

 

 

4,933

 

 

 

4,541

 

Total non-interest expenses

 

 

31,889

 

 

 

38,789

 

 

 

102,685

 

 

 

132,255

 

Income before income taxes

 

 

(6,309

)

 

 

3,308

 

 

 

(5,754

)

 

 

21,298

 

Income tax (benefit) expense

 

 

(2,881

)

 

 

(193

)

 

 

(2,703

)

 

 

5,211

 

Net (loss) income

 

$

(3,428

)

 

$

3,501

 

 

$

(3,051

)

 

$

16,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) income per share

 

$

(0.43

)

 

$

0.34

 

 

$

(0.37

)

 

$

1.51

 

Diluted (loss) income per share

 

$

(0.43

)

 

$

0.31

 

 

$

(0.37

)

 

$

1.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding (in thousands)

 

 

7,899

 

 

 

10,171

 

 

 

8,266

 

 

 

10,642

 

Diluted weighted average shares outstanding (in thousands)

 

 

7,899

 

 

 

11,419

 

 

 

8,266

 

 

 

11,798

 

Cash dividends declared per common share

 

$

 

 

$

 

 

$

0.20

 

 

$

 

 

See notes to consolidated financial statements.

 

 

2


FBR & CO.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net (loss) income

 

$

(3,428

)

 

$

3,501

 

 

$

(3,051

)

 

$

16,087

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gain on available-for-sale investment

   securities, net of taxes of $0, $(13), $28 and $3, respectively

 

 

 

 

 

(20

)

 

 

(44

)

 

 

4

 

Comprehensive (loss) income

 

$

(3,428

)

 

$

3,481

 

 

$

(3,095

)

 

$

16,091

 

 

See notes to consolidated financial statements.

 

 

3


FBR & CO.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars and shares in thousands)

(Unaudited)

 

 

 

Common

Stock Shares

 

 

Common

Stock

Amount

 

 

Additional

Paid-in

Capital

 

 

Restricted

Stock Units

 

 

Accumulated

Other

Comprehensive Income

 

 

Accumulated

Deficit

 

 

Total

 

Balances at December 31, 2013

 

 

10,545

 

 

$

11

 

 

$

362,983

 

 

$

21,487

 

 

$

34

 

 

$

(93,738

)

 

$

290,777

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,019

 

 

 

17,019

 

Issuance of common stock,

  net of forfeitures

 

 

295

 

 

 

 

 

 

5,447

 

 

 

(3,100

)

 

 

 

 

 

 

 

 

2,347

 

Repurchase of common stock

 

 

(2,380

)

 

 

(3

)

 

 

(64,091

)

 

 

 

 

 

 

 

 

 

 

 

(64,094

)

Repurchase of common stock

   for employee tax withholding

 

 

(71

)

 

 

 

 

 

(1,823

)

 

 

 

 

 

 

 

 

 

 

 

(1,823

)

Stock compensation expense for

   options granted to purchase

   common stock

 

 

 

 

 

 

 

 

204

 

 

 

 

 

 

 

 

 

 

 

 

204

 

Issuance of restricted stock units

 

 

 

 

 

 

 

 

 

 

 

15,966

 

 

 

 

 

 

 

 

 

15,966

 

Change in unrealized gain on

   available-for-sale investment

   securities, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Balances at December 31, 2014

 

 

8,389

 

 

$

8

 

 

$

302,720

 

 

$

34,353

 

 

$

44

 

 

$

(76,719

)

 

$

260,406

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,051

)

 

 

(3,051

)

Cash dividends declared -

   common stock ($0.20 per share)

 

 

 

 

 

 

 

 

(1,920

)

 

 

 

 

 

 

 

 

 

 

 

(1,920

)

Issuance of common stock,

   net of forfeitures

 

 

367

 

 

 

 

 

 

5,913

 

 

 

(4,386

)

 

 

 

 

 

 

 

 

1,527

 

Repurchase of common stock

 

 

(1,574

)

 

 

(1

)

 

 

(37,509

)

 

 

 

 

 

 

 

 

 

 

 

(37,510

)

Repurchase of common stock

   for employee tax withholding

 

 

(106

)

 

 

 

 

 

(2,458

)

 

 

 

 

 

 

 

 

 

 

 

(2,458

)

Stock compensation expense for

   options granted to purchase

   common stock

 

 

 

 

 

 

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

172

 

Issuance of restricted stock units

 

 

 

 

 

 

 

 

 

 

 

5,844

 

 

 

 

 

 

 

 

 

5,844

 

Change in unrealized gain on

   available-for-sale investment

   securities, net of taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

 

 

 

(44

)

Balance at September 30, 2015

 

 

7,076

 

 

$

7

 

 

$

266,918

 

 

$

35,811

 

 

$

 

 

$

(79,770

)

 

$

222,966

 

 

See notes to consolidated financial statements.

 

 

4


FBR & CO.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

 

2014

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net (loss) income

$

(3,051

)

 

$

16,087

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

2,374

 

 

 

1,102

 

Deferred income taxes

 

(2,978

)

 

 

5,625

 

Net investment income from investments

 

(7,806

)

 

 

(16,000

)

Stock compensation

 

5,637

 

 

 

6,952

 

Other

 

542

 

 

 

29

 

Changes in operating assets:

 

 

 

 

 

 

 

Receivables:

 

 

 

 

 

 

 

Securities borrowed

 

(165,516

)

 

 

(578,399

)

Brokers, dealers and clearing organizations

 

5,924

 

 

 

(6,583

)

Customers

 

272

 

 

 

1,059

 

Other

 

(2,962

)

 

 

(2,288

)

Trading securities

 

46,049

 

 

 

(5,312

)

Prepaid expenses and other assets

 

1,512

 

 

 

325

 

Changes in operating liabilities:

 

 

 

 

 

 

 

Securities loaned

 

163,647

 

 

 

581,003

 

Trading account securities sold but not yet purchased

 

(37,409

)

 

 

(833

)

Accounts payable, accrued expenses and other liabilities

 

(1,790

)

 

 

1,092

 

Accrued compensation and benefits

 

(15,001

)

 

 

1,375

 

Brokers, dealers and clearing organizations

 

 

 

 

(8,701

)

Net cash used in operating activities

 

(10,556

)

 

 

(3,467

)

Cash flows from investing activities

 

 

 

 

 

 

 

Purchases of investment securities and other investments

 

(15,081

)

 

 

(70,230

)

Proceeds from sales of and distributions from investments

 

17,789

 

 

 

52,834

 

Securities sold but not yet purchased

 

217,685

 

 

 

301,230

 

Settlement of securities sold but not yet purchased

 

(209,563

)

 

 

 

Due from brokers, dealers and clearing organizations

 

1,407

 

 

 

(308,548

)

Purchase of broker-dealer, net of cash acquired

 

(2,275

)

 

 

 

Purchase of securities lending business

 

(2,166

)

 

 

(1,000

)

Purchases of furniture, equipment, software, and leasehold improvements

 

(1,823

)

 

 

(6,748

)

Net cash provided by (used in) investing activities

 

5,973

 

 

 

(32,462

)

Cash flows from financing activities

 

 

 

 

 

 

 

Repurchases of common stock

 

(39,968

)

 

 

(51,059

)

Proceeds from sales of common stock

 

1,279

 

 

 

1,601

 

Dividends paid

 

(1,494

)

 

 

 

Net cash used in financing activities

 

(40,183

)

 

 

(49,458

)

Cash and cash equivalents

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(44,766

)

 

 

(85,387

)

Cash and cash equivalents, beginning of period

 

108,962

 

 

 

207,973

 

Cash and cash equivalents, end of period

$

64,196

 

 

$

122,586

 

Supplemental cash flows disclosures

 

 

 

 

 

 

 

Income tax payments

$

19

 

 

$

3,269

 

Interest payments

$

27,440

 

 

$

12,588

 

 

See notes to consolidated financial statements.

 

5


FBR & CO.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share data)

(Unaudited)

 

 

1. Basis of Presentation:

The consolidated financial statements of FBR & Co. and subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Therefore, they do not include all information required by accounting principles generally accepted in the United States of America for complete annual financial statements. The interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the results for the periods presented. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts in order to conform with the current period presentation. The results of operations for the three and nine months ended September 30, 2015 and 2014 are not necessarily indicative of the results for the entire year or any subsequent interim period. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014 (“2014 Form 10-K”).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although the Company bases its estimates and assumptions on historical experience and market information (when available) and on various other factors that it believes to be reasonable under the circumstances, management exercises significant judgment in the final determination of its estimates. Actual results may differ from those estimates.

 

 

2. Financial Instruments and Long-Term Investments:

Fair Value of Financial Instruments

The Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurement” (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3) as described below:

 

Level 1 Inputs

 — 

Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company;

 

 

 

Level 2 Inputs

 — 

Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

 

 

 

Level 3 Inputs

 — 

Unobservable inputs for the asset or liability, including significant assumptions of the Company and other market participants.

6


The Company determines fair values for the following assets and liabilities:

Equity securities, listed options and warrants—The Company classifies marketable equity securities and listed options within Level 1 of the fair value hierarchy because quoted market prices from an exchange are used to value these securities. Non-public equity securities, which primarily include securities where the Company acted as a placement agent in an offering of equity securities and where the Company facilitates over-the-counter trading activity for the securities, are classified within Level 3 of the fair value hierarchy. In determining the fair value of these securities, the Company considers enterprise value and analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity. Non-exchange traded warrants to purchase equity securities are classified as Level 3 as a Black-Scholes valuation model is used to value these securities.

U.S. government securities, convertible and fixed income debt instruments—The Company classifies U.S. government securities, including highly liquid U.S. Treasury securities within Level 1 as quoted prices are used to value these securities. Convertible and fixed income debt instruments are classified within Level 2 of the fair value hierarchy as they are valued using quoted market prices provided by a broker or dealer, or alternative pricing services that provide reasonable levels of price transparency. The Company primarily uses price quotes from one independent broker-dealer who makes markets in or is a specialist with expertise in the valuation of these financial instruments.  The Company reviews broker or pricing service quotes it receives to assess the reasonableness of the values provided; such reviews include comparison to internal pricing models and, when available, prices observed for recently executed market transactions of comparable size. Based on this assessment, at each reporting date the Company will adjust price quotes it receives if such an adjustment is determined to be appropriate.

Investment Funds—The Company invests in proprietary investment funds that are valued at net asset value (“NAV”) determined by the fund administrator. For investments in non-registered investment companies (hedge funds and private equity funds), the Company classifies these investments within Level 2 or Level 3 depending on the redemption attributes of the Company’s investment. The underlying securities held by these investment companies are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. As a practical expedient, the Company relies on the NAV of these investments as their fair value. The NAVs that have been provided by the fund administrators are derived from the fair values of the underlying investments as of the reporting date.

Fair Value Hierarchy

The following tables set forth, by level within the fair value hierarchy, financial instruments and long-term investments accounted for under ASC 820 as of September 30, 2015 and December 31, 2014. As required by ASC 820, assets and liabilities that are measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

7


Items Measured at Fair Value on a Recurring Basis 

 

 

September 30, 2015

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial instruments owned, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments held for trading activities at

   broker-dealer subsidiaries:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable and non-public equity securities

$

10,539

 

 

$

4,393

 

 

$

 

 

$

6,146

 

Convertible and fixed income debt instruments

 

1,111

 

 

 

 

 

 

1,111

 

 

 

 

 

 

11,650

 

 

 

4,393

 

 

 

1,111

 

 

 

6,146

 

Financial instruments held for investment activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Designated as trading:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable and non-public equity securities

 

14,792

 

 

 

5,584

 

 

 

 

 

 

9,208

 

Warrants

 

577

 

 

 

 

 

 

 

 

 

577

 

 

 

15,369

 

 

 

5,584

 

 

 

 

 

 

9,785

 

Investment funds

 

88,641

 

 

 

 

 

 

43,065

 

 

 

45,576

 

Total

$

115,660

 

 

$

9,977

 

 

$

44,176

 

 

$

61,507

 

Securities sold but not yet purchased, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

$

78,258

 

 

$

78,258

 

 

$

 

 

$

 

Marketable and non-public equity securities

 

4,295

 

 

 

4,295

 

 

 

 

 

 

 

Total

$

82,553

 

 

$

82,553

 

 

$

 

 

$

 

 

As of September 30, 2015, financial assets measured and reported at fair value on a recurring basis and classified within Level 3 were $61,507, or 5.6% of the Company’s total assets at that date. Regarding these Level 3 financial assets, in determining fair value, the Company analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity. The following table provides the valuation technique and unobservable inputs primarily used in assessing the value of these securities as of September 30, 2015:

 

Valuation Technique

 

Fair Value

 

 

Unobservable Input

 

Range

 

 

Weighted Average

 

Market approach

 

$

15,354

 

 

Over-the-counter trading activity

 

$0.43 - $17.50/share

 

 

$12.04

 

Black-Scholes

 

$

577

 

 

Volatility

 

30%

 

 

 

30%

 

 

 

 

 

 

 

Dividend Yield

 

0%

 

 

 

0%

 

 

 

 

 

 

 

Interest Rate

 

 

1.7%

 

 

 

1.7%

 

 

For those non-public equity securities valued using a market approach, adverse industry market conditions or events experienced by the underlying entities could result in lower over-the-counter trading prices for the securities. Such lower trading prices would result in a decline in the estimated fair value of these assets. For warrants valued using Black-Scholes, adverse industry market conditions or events experienced by the issuer could result in a lower trading price for the underlying equity security and therefore a lower value of these warrants. A reduction in the estimated volatility would also result in a lower value of the warrants. The Company assessed the reasonableness of the fair values of the non-public equity securities noted above based on its consideration of available financial data related to these issuers as well as an assessment of the nature of any over-the-counter trading activity during the period. The Company assessed the reasonableness of the fair value of the non-exchange traded warrants valued using a Black-Scholes valuation based on its consideration of the fair values of comparable exchange-traded options.

The table above excludes $45,576 of investments in 12 non-registered investment funds that are valued at NAV as determined by the fund administrators. The underlying fund investments consist primarily of corporate and asset-backed fixed income securities. 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.

8


 

 

 

December 31, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial instruments owned, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments held for trading activities at

   broker-dealer subsidiary:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable and non-public equity securities

$

14,832

 

 

$

14,758

 

 

$

 

 

$

74

 

Listed options

 

2

 

 

 

2

 

 

 

 

 

 

 

Convertible and fixed income debt instruments

 

42,864

 

 

 

 

 

 

42,864

 

 

 

 

 

 

57,698

 

 

 

14,760

 

 

 

42,864