FBR Group Announces First Quarter 2007 Financial Results

ARLINGTON, Va., April 26 /PRNewswire-FirstCall/ -- Friedman, Billings, Ramsey Group, Inc. (FBR Group) today announced results for the quarter ended March 31, 2007. FBR Group reported a net after-tax loss for the quarter of $185.9 million, or $1.08 per share (diluted), compared to after-tax earnings of $26.6 million, or $0.16 per share (diluted), for the first quarter of 2006. Core book value net of Accumulated Other Comprehensive Income (AOCI) at the close of the quarter was $5.75 compared to $6.87 at the end of the fourth quarter of 2006(1).

Non-Prime Mortgage Businesses and Investments

FBR Group's loss for the first quarter was attributable to its non-prime mortgage-related businesses, of which First NLC (FNLC), FBR Group's non-prime mortgage origination subsidiary, is the principal component. During the first quarter, FNLC lost $124.2 million on an after-tax basis, a figure that includes a $36.1 million write-down of goodwill and intangible assets and $5.2 million of restructuring and other costs.

In addition, there were $21.8 million in realized losses and write-downs in the value of certain investments in non-prime mortgage companies in FBR Group's merchant banking and other long-term investment portfolio. Lastly, the company revalued its non-prime mortgage loan investment portfolio, recognizing a $34.4 million non-cash, lower-of-cost or market value write- down.

FBR Group announced in March that it is evaluating all strategic alternatives for FNLC that would reduce all of FBR Group's exposure to the non-prime sector. These include, among other alternatives, the possibility of a sale or third-party recapitalization of the business. While we cannot give any assurances with regard to the execution of a specific alternative, we intend to implement one of the alternatives during the second quarter. Further, FNLC has taken extensive steps described below to reduce the current risk in the business. Those steps, together with the implementation of any one of the alternatives under consideration, will substantially reduce FBR Group's financial risk with respect to its ownership of this business.

"This has been an extremely difficult operating environment for the entire non-prime mortgage banking industry, and it has resulted in a series of distressed sales and bankruptcies," said Eric F. Billings, Chairman and Chief Executive Officer of FBR Group. "We believe that FNLC's management has taken aggressive steps designed to limit foreseeable major risks with respect to the business."

Among the actions FNLC has taken are a substantial modification in lending guidelines and significant cost restructuring initiatives. These guideline changes are resulting in substantially lower origination volumes - from approximately $8 billion on an annualized basis in the fourth quarter of 2006 to less than $2 billion currently - and an increase in the value of loans originated. FNLC recently closed on the sale of approximately $712 million of warehouse loans, substantially reducing its unsold loan inventory since the end of the first quarter.

Mortgage Investment Portfolios

In the first quarter, FBR Group's investments in mortgages and mortgage- backed securities generated net interest income of $35.0 million, compared to $37.4 million in the fourth quarter of 2006. The average balance of these portfolios was $11.2 billion during the first quarter and yielded gross income of 6.21% with associated cost of funds of 5.18%, resulting in earned net interest income of 1.03%.

Merchant Banking

Excluding the previously mentioned realized losses and write-downs in certain of the company's investments in non-prime mortgage companies, the investment gains and dividends in FBR Group's merchant banking and other long- term investment portfolio totaled $3.4 million during the first quarter. The total value of FBR Group's merchant banking and other long-term investments at the close of the first quarter was $114.5 million.

FBR Capital Markets Initial Public Offering

In March, FBR Capital Markets Corporation (FBR Capital Markets), FBR Group's 71%-owned equity capital markets and asset management taxable REIT subsidiary, filed an S-1 registration statement with the Securities and Exchange Commission in connection with a planned initial public offering of up to 13,512,500 shares of its common stock that are beneficially owned by FBR Group and certain other selling stockholders. The net proceeds of the offering will all go to FBR Group and the other selling stockholders, if any. If all of the FBR Capital Markets shares that are being offered by FBR Group are sold in the proposed offering, FBR Group's beneficial ownership of FBR Capital Markets common stock will be reduced to 50.5%.

"It is important to note that the difficulties in the non-prime businesses have no direct impact on FBR Capital Markets, which is a separately capitalized company with $430 million in cash and no exposure to FBR Group's non-prime mortgage businesses," Mr. Billings said.

FBR Capital Markets Corporation First Quarter 2007 Results

FBR Capital Markets Corporation reported first quarter pre-tax earnings of $25.8 million on net revenues of $143.2 million. Excluding FASB 123R-related non-cash tax charges of $3.4 million, after-tax earnings were $14.4 million, or $0.22 per share (diluted). Net after-tax earnings for the first quarter were $11.0 million, or $0.17 cents per share (diluted), compared to net after- tax earnings of $4.8 million, or $0.10 per share (diluted), in the first quarter of 2006. The company expects to return to a normalized tax rate in the second quarter.

FBR Capital Market's book value at the close of the quarter was $7.81 per share compared to $7.57 at the end of the fourth quarter of 2006. At the close of the first quarter, FBR Capital Markets had $502 million in equity, $430 million of cash, and no funded liabilities or debt. Complete financial results for FBR Capital Markets are included in the tabular material in this release.

Equity Capital Markets

In the first quarter, FBR Capital Markets generated investment banking revenues of $103.7 million compared to $69.2 million in the first quarter of 2006 and $81.1 million in the fourth quarter of 2006. The firm raised a total of $3.0 billion in 13 capital markets transactions, including four initial public offerings. FBR Capital Markets acted as sole or joint book runner for eight of the 13 transactions and completed seven advisory assignments during the quarter.

In a very competitive market environment, FBR Capital Markets recorded agency commissions and principal transactions revenues of $25.8 million in the first quarter of 2007 compared to $29.1 million in the first quarter of 2006 and $24.7 million in the fourth quarter of 2006.

Asset Management

In FBR Capital Markets' asset management/private wealth business, asset management base fees and incentive fees were $5.6 million for the first quarter of 2007, compared to $5.5 million in the fourth quarter of 2006. During the quarter we opened two new mutual funds and reopened a fund that had been closed to new investors since October 2004. Assets under management as of March 31, 2007 were $2.8 billion compared to $2.4 billion at the end of the fourth quarter of 2006, an increase of 17%.

"Our investment banking activity was well diversified across our industry groups during the quarter," said Richard J. Hendrix, President and Chief Operating Officer of FBR Capital Markets," and our new M&A team has already had a positive impact on our business development activities. Most importantly, in support of the evolution and growth of our business, we made a series of important leadership appointments during the quarter that included the naming of co-heads of investment banking, a new head of research, a new director of human capital, and several key positions in our growing international operations."

Mr. Billings added, "We are very pleased with our capital markets businesses and the progress we have made in executing our strategic plan."

The firm will host an earnings conference call on Thursday, April 26, 2007 at 9:00 a.m. U.S. EST. Investors wishing to listen to the call may do so via the web at http://phx.corporate-ir.net/phoenix.zhtml?c=71352&p=irol-irhome. Replays of the webcast will be available after the call.

Friedman, Billings, Ramsey Group, Inc. (FBR Group) provides investment banking*, merger and acquisition advisory services*, institutional brokerage*, asset management and private wealth services through majority ownership of FBR Capital Markets Corporation (FBR Capital Markets). FBR Capital Markets focuses capital and financial expertise on eight industry sectors: consumer, diversified industrials, energy & natural resources, financial institutions, healthcare, insurance, real estate, and technology, media & telecommunications. For the benefit of its shareholders, FBR Group also invests in mortgage-related assets and merchant banking opportunities. FBR is headquartered in the Washington, D.C. metropolitan area with offices in Arlington, VA, Boston, Dallas, Houston, Irvine, London, New York, Phoenix and San Francisco. Friedman, Billings, Ramsey Group, Inc. is the parent company of First NLC Financial Services, Inc., a non-conforming residential mortgage originator headquartered in Deerfield Beach, Florida. For more information, please visit http://www.fbr.com/.

*Friedman, Billings, Ramsey & Co., Inc.

(1) Accumulated Other Comprehensive Income (AOCI) includes changes in the value of available-for-sale securities and cash flow hedges. FBR believes that such changes represent temporary market fluctuations, are not reflective of our market strategy, and, therefore, the exclusion of AOCI provides a reasonable basis for calculating returns.

Statements 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 that 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 offerings, activity in the secondary securities markets, the overall environment for interest rates, costs of borrowing, interest spreads, mortgage pre-payment speeds, the adverse impact of delinquencies, losses and declining real estate values on the non-conforming mortgage loan origination business, credit and regulatory risks associated with the business of originating, holding and securitizing non-conforming residential mortgage loans which can result in losses on these assets, sustainability of loan origination volumes and levels of origination costs, continued availability of credit facilities for the origination of mortgage loans, the ability to sell or securitize loans originated by FNLC on favorable terms or at all, deterioration in the performance of loans sold by FNLC and the related repurchase activities, 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. These and other risks are described in the Company's Annual Report and Form 10-K and quarterly reports on Form 10-Q that are available from the company and from the SEC.

Financial data follows (Friedman, Billings, Ramsey Group, Inc., followed by FBR Capital Markets Corporation).

### FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) Quarter ended March 31, 2007 % 2006 % ------- ------ ------- ----- REVENUES: Investment banking: Capital raising $97,247 787.6% $66,335 37.5% Advisory 6,458 52.3% 2,869 1.6% Institutional brokerage: Principal transactions 2,036 16.5% 5,720 3.2% Agency commissions 23,818 192.9% 23,409 13.2% Mortgage trading interest - 0.0% 17,650 10.0% Mortgage trading net investment loss - 0.0% (1,237) -0.7% Asset management: Base management fees 5,528 44.8% 5,097 2.9% Incentive allocations and fees 104 0.8% 1,008 0.6% Principal investment: Interest 181,696 1471.6% 149,126 84.3% Net investment (loss) income (59,713) -483.6% 26,185 14.8% Dividends 959 7.8% 3,699 2.1% Mortgage banking: Interest 26,530 214.9% 23,113 13.1% Net investment (loss) income (106,859) -865.5% 10,738 6.1% Other 4,094 33.1% 4,987 2.8% -------- ------- ------- ------ Total revenues 181,898 1473.2% 338,699 191.5% Interest expense 169,551 1373.2% 153,483 86.8% Provision for loan losses - 0.0% 8,392 4.7% -------- ------- ------- ------ Revenues, net of interest expense and provision for loan losses 12,347 100.0% 176,824 100.0% -------- ------- ------- ------ NON-INTEREST EXPENSES: Compensation and benefits 103,982 842.2% 83,497 47.2% Professional services 13,854 112.2% 14,265 8.1% Business development 13,769 111.5% 14,085 8.0% Clearing and brokerage fees 2,701 21.9% 2,316 1.3% Occupancy and equipment 13,117 106.2% 11,242 6.3% Communications 7,051 57.1% 5,607 3.2% Other operating expenses 31,716 256.9% 20,977 11.9% Impairment of goodwill 25,852 209.4% - 0.0% Restructuring charges 15,485 125.4% - 0.0% -------- ------- ------- ------ Total non-interest expenses 227,527 1842.8% 151,989 86.0% -------- ------- ------- ------ Operating (loss) income (215,180) -1742.8% 24,835 14.0% OTHER INCOME: Gain on sale of subsidiary shares 831 6.7% - 0.0% -------- ------- ------- ------ Net (loss) income before income taxes and minority interest (214,349) -1736.0% 24,835 14.0% Income tax benefit (31,550) -255.5% (1,719) -1.0% Minority interest in earnings of consolidated subsidiary 3,079 24.9% - 0.0% -------- ------- ------- ------ Net (loss) income $(185,878) -1505.4% $26,554 15.0% ======== ======= ======= ====== Basic (loss) earnings per share $(1.08) $0.16 ======== ======= Diluted (loss) earnings per share $(1.08) $0.16 ======== ======= Weighted average shares - basic 172,850 170,728 ======== ======= Weighted average shares - diluted 172,850 171,031 ======== ======= FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited) Q-1 07 -------- Revenues Investment banking: Capital raising $97,247 Advisory 6,458 Institutional brokerage: Principal transactions 2,036 Agency commissions 23,818 Asset management: Base management fees 5,528 Incentive allocations and fees 104 Principal investment: Interest 181,696 Net investment loss (59,713) Dividends 959 Mortgage banking: Interest 26,530 Net investment loss (106,859) Other 4,094 ---------- Total revenues 181,898 Interest expense 169,551 ---------- Revenues, net of interest expense 12,347 ---------- Non-interest expenses Compensation and benefits 103,982 Professional services 13,854 Business development 13,769 Clearing and brokerage fees 2,701 Occupancy and equipment 13,117 Communications 7,051 Other operating expenses 31,716 Impairment of goodwill 25,852 Restructuring charges 15,485 ---------- Total non-interest expenses 227,527 ---------- Operating loss (215,180) Other Income Gain on sale of subsidiary shares 831 ---------- Net loss before income taxes and minority interest (214,349) Income tax benefit (31,550) Minority interest in earnings of consolidated subsidiary 3,079 ---------- Net loss $(185,878) ========== Net loss before income taxes and minority interest as a percentage of net revenue -1736.0% ROE (annualized) -68.8% ROE (annualized-excluding AOCI) (1) -68.2% Total shareholders' equity $989,213 Total shareholders' equity, net of AOCI (1) $993,753 Basic loss per share $(1.08) Diluted loss per share $(1.08) Ending shares outstanding (in thousands) 172,846 Book value per share $5.72 Book value per share, net of AOCI (1) $5.75 Gross assets under management (in millions) Managed accounts $258.8 Hedge & offshore funds 67.1 Mutual funds 2,412.9 Private equity and venture capital funds 41.2 ---------- Total $2,780.0 ========== Net assets under management (in millions) Managed accounts $258.8 Hedge & offshore funds 62.5 Mutual funds 2,406.4 Private equity and venture capital funds 38.0 ---------- Total $2,765.7 ========== Employee count 2,592 ========== (1) Accumulated Other Comprehensive Income (AOCI) includes changes in value of available-for-sale securities and cash flow hedges. We believe that such changes represent temporary market fluctuations, are not reflective of our market strategy, and therefore, exclusion of AOCI provides a reasonable basis for calculating returns. FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited) For the year ended December 31, 2006 Q-4 06 Q-3 06 Q-2 06 Q-1 06 ---------------------------------------------------------- Revenues Investment banking: Capital raising $190,187 $71,883 $6,852 $45,117 $66,335 Advisory 24,148 9,172 5,826 6,281 2,869 Institutional brokerage: Principal transactions 5,814 (8) (1,658) 1,760 5,720 Agency commissions 101,009 24,720 24,388 28,492 23,409 Mortgage trading interest 51,147 2,509 13,845 17,143 17,650 Mortgage trading net investment loss (3,301) (309) (1,546) (209) (1,237) Asset management: Base management fees 20,093 5,051 4,880 5,065 5,097 Incentive allocations and fees 1,327 403 (31) (53) 1,008 Principal investment: Interest 594,879 181,491 150,649 113,613 149,126 Net investment (loss) income (184,552) (8,826) (170,621) (31,290) 26,185 Dividends 14,551 2,043 4,750 4,059 3,699 Mortgage banking: Interest 88,662 21,806 22,476 21,267 23,113 Net investment income 83,786 27,555 16,092 29,401 10,738 Other 20,154 3,162 6,540 5,465 4,987 ---------------------------------------------------------- Total revenues 1,007,904 340,652 82,442 246,111 338,699 Interest expense 611,800 164,891 165,237 128,189 153,483 Provision for loan losses 15,740 - - 7,348 8,392 ---------------------------------------------------------- Revenues, net of interest expense and provision for loan losses 380,364 175,761 (82,795) 110,574 176,824 ---------------------------------------------------------- Non-interest expenses Compensation and benefits 309,065 84,431 69,405 71,732 83,497 Professional services 59,722 18,224 14,308 12,925 14,265 Business development 42,150 11,884 7,577 8,604 14,085 Clearing and brokerage fees 11,820 3,505 2,917 3,082 2,316 Occupancy and equipment 50,051 13,668 12,909 12,232 11,242 Communications 24,398 6,307 6,471 6,013 5,607 Other operating expenses 89,377 20,116 23,291 24,993 20,977 ---------------------------------------------------------- Total non- interest expenses 586,583 158,135 136,878 139,581 151,989 ---------------------------------------------------------- Operating (loss) income (206,219) 17,626 (219,673) (29,007) 24,835 Other Income Gain on sale of subsidiary shares 121,511 - 121,511 - - ---------------------------------------------------------- Net (loss) income before income taxes and minority interest (84,708) 17,626 (98,162) (29,007) 24,835 Income tax (benefit) provision (14,682) 11,859 (26,062) 1,240 (1,719) Minority interest in (loss) earnings of consolidated subsidiary (2,751) 1,957 (4,708) - - ---------------------------------------------------------- Net (loss) income $(67,275) $3,810 $(67,392) $(30,247) $26,554 ========================================================== Net (loss) income before income taxes and minority interest as a percentage of net revenue -22.3% 10.0% 118.6% -26.2% 14.0% ROE (annualized) -5.4% 1.3% -22.1% -9.4% 8.2% ROE (annualized- excluding AOCI)(1) -5.4% 1.3% -22.2% -9.5% 8.1% Total shareholders' equity $1,171,045 $1,171,045 $1,163,681 $1,270,361 $1,301,949 Total shareholders' equity, net of AOCI (1) $1,186,181 $1,186,181 $1,181,372 $1,250,117 $1,306,450 Basic (loss) earnings per share $(0.39) $0.02 $(0.39) $(0.18) $0.16 Diluted (loss) earnings per share $(0.39) $0.02 $(0.39) $(0.18) $0.16 Ending shares outstanding (in thousands) 172,759 172,759 172,506 171,812 171,236 Book value per share $6.78 $6.78 $6.75 $7.39 $7.60 Book value per share, net of AOCI (1) $6.87 $6.87 $6.85 $7.28 $7.63 Gross assets under management (in millions) Managed accounts $259.9 $259.9 $376.6 $386.8 $383.9 Hedge & offshore funds 97.5 97.5 102.1 125.8 136.6 Mutual funds 1,961.9 1,961.9 1,825.1 1,750.6 1,849.5 Private equity and venture capital funds 42.2 42.2 48.5 48.2 50.5 ---------------------------------------------------------- Total $2,361.5 $2,361.5 $2,352.3 $2,311.4 $2,420.5 ========================================================== Net assets under management (in millions) Managed accounts $259.9 $259.9 $376.6 $386.8 $380.9 Hedge & offshore funds 96.4 96.4 98.3 116.1 125.4 Mutual funds 1,954.7 1,954.7 1,817.8 1,742.6 1,843.4 Private equity and venture capital funds 40.5 40.5 46.9 46.7 49.1 ---------------------------------------------------------- Total $2,351.5 $2,351.5 $2,339.6 $2,292.2 $2,398.8 ========================================================== Employee count 3,019 3,019 2,909 2,651 2,531 ========================================================== (1) Accumulated Other Comprehensive Income (AOCI) includes changes in value of available-for-sale securities and cash flow hedges. We believe that such changes represent temporary market fluctuations, are not reflective of our market strategy, and therefore, exclusion of AOCI provides a reasonable basis for calculating returns. FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) ASSETS 31-Mar-07 31-Dec-06 ----------- ----------- Cash and cash equivalents $450,979 $189,956 Restricted cash 92 132 Receivables 227,765 217,249 Investments: Mortgage-backed securities, at fair value 5,783,273 6,870,661 Loans held for sale, net 5,169,489 5,367,934 Long-term investments 149,793 185,492 Trading securities, at fair value 22,400 18,180 Due from clearing broker 30,452 28,999 Derivative assets, at fair value 22,011 36,875 Goodwill 136,913 162,765 Intangible assets, net 11,600 21,825 Furniture, equipment, software and leasehold improvements, net 43,428 44,111 Prepaid expenses and other assets 222,088 208,339 ----------- ----------- Total assets $12,270,283 $13,352,518 =========== =========== LIABILITIES AND SHAREHOLDERS ' EQUITY Liabilities: Trading account securities sold short but not yet purchased, at fair value $759 $202 Commercial paper 3,425,432 3,971,389 Repurchase agreements 3,013,827 3,059,330 Derivative liabilities, at fair value 41,247 44,582 Dividends payable 8,736 8,743 Interest payable 14,579 12,239 Accrued compensation and benefits 48,906 57,227 Accounts payable, accrued expenses and other liabilities 160,395 81,819 Securitization financing, net 4,100,975 4,486,046 Long-term debt 323,466 324,453 ----------- ----------- Total liabilities 11,138,322 12,046,030 ----------- ----------- Minority Interest 142,748 135,443 Shareholders' equity: Common stock, 174,433 and 174,712 shares 1,744 1,747 Additional paid-in capital 1,564,671 1,562,497 Employee stock loan receivable (2 and 2 shares) (12) (12) Accumulated other comprehensive loss, net of taxes (4,540) (15,136) Accumulated deficit (572,650) (378,051) ----------- ----------- Total shareholders' equity 989,213 1,171,045 ----------- ----------- Total liabilities and shareholders' equity $12,270,283 $13,352,518 =========== =========== FBR CAPITAL MARKETS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) Quarter Ended March 31, 2007 % 2006 % ------ ----- ------ ----- REVENUES: Investment banking: Capital raising $97,236 67.9% $66,335 59.9% Advisory 6,458 4.5% 2,869 2.6% Institutional brokerage: Principal transactions 2,036 1.4% 5,720 5.2% Agency commissions 23,776 16.6% 23,366 21.1% Mortgage trading interest - 0.0% 17,650 15.9% Mortgage trading net investment loss - 0.0% (1,234) -1.1% Asset management: Base management fees 5,528 3.9% 4,876 4.4% Incentive allocations and fees 104 0.1% 1,008 0.9% Interest income 11,114 7.8% 2,613 2.4% Net investment income 1,495 1.0% 3,046 2.8% Other 76 0.1% 1,315 1.1% -------- ------- -------- ------ Total revenues 147,823 103.3% 127,564 115.2% Interest expense 4,662 3.3% 16,862 15.2% -------- ------- -------- ------ Revenues, net of interest expense 143,161 100.0% 110,702 100.0% -------- ------- -------- ------ NON-INTEREST EXPENSES: Compensation and benefits 77,791 54.3% 63,552 57.4% Professional services 10,824 7.6% 10,004 9.0% Business development 11,315 7.9% 12,376 11.2% Clearing and brokerage fees 2,666 1.9% 2,266 2.0% Occupancy and equipment 7,493 5.2% 7,273 6.6% Communications 5,409 3.8% 4,583 4.1% Other operating expenses 1,820 1.2% 3,264 3.0% -------- ------- -------- ------ Total non-interest expenses 117,318 81.9% 103,318 93.3% -------- ------- -------- ------ Net income before income taxes 25,843 18.1% 7,384 6.7% Income tax provision 14,837 10.4% 2,566 2.3% -------- ------- -------- ------ Net income $11,006 7.7% $4,818 4.4% ======== ======= ======== ====== Basic earnings per share $0.17 $0.10 ======== ======== Diluted earnings per share $0.17 $0.10 ======== ======== Weighted average shares - basic 64,149 46,000 ======== ======== Weighted average shares - diluted 64,155 46,000 ======== ======== FBR CAPITAL MARKETS CORPORATION Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited) Q-1 07 ---------- Revenues Investment banking: Capital raising $97,236 Advisory 6,458 Institutional brokerage: Principal transactions 2,036 Agency commissions 23,776 Asset management: Base management fees 5,528 Incentive allocations and fees 104 Interest 11,114 Net investment income 1,495 Other 76 -------- Total revenues 147,823 Interest expense 4,662 -------- Revenues, net of interest expense 143,161 -------- Non-interest expenses Compensation and benefits 77,791 Professional services 10,824 Business development 11,315 Clearing and brokerage fees 2,666 Occupancy and equipment 7,493 Communications 5,409 Other operating expenses 1,820 -------- Total non-interest expenses 117,318 -------- Net income before income taxes 25,843 Income tax provision 14,837 -------- Net income $11,006 ======== Net income before income taxes as a percentage of net revenue 18.1% ROE (annualized) 8.9% Total shareholders' equity 501,858 Basic earnings per share $0.17 Diluted earnings per share $0.17 Ending shares outstanding (in thousands) 64,282 Book value per share $7.81 Gross assets under management (in millions) Managed accounts $258.8 Hedge & offshore funds 67.1 Mutual funds 2,412.9 Private equity and venture capital funds 41.2 -------- Total $2,780.0 ======== Net assets under management (in millions) Managed accounts $258.8 Hedge & offshore funds 62.5 Mutual funds 2,406.4 Private equity and venture capital funds 38.0 -------- Total $2,765.7 ======== Employee count 751 ======== FBR CAPITAL MARKETS CORPORATION Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited) For the year ended December 31, 2006 Q-4 06 Q-3 06 Q-2 06 Q-1 06 ------------------------------------------------- Revenues Investment banking: Capital raising $190,576 $71,879 $6,852 $45,510 $66,335 Advisory 24,148 9,172 5,826 6,281 2,869 Institutional brokerage: Principal transactions 5,814 (8) (1,658) 1,760 5,720 Agency commissions 100,855 24,683 24,359 28,447 23,366 Mortgage trading interest 51,148 2,510 13,845 17,143 17,650 Mortgage trading net investment loss (3,298) (309) (1,546) (209) (1,234) Asset management: Base management fees 19,871 5,051 4,879 5,065 4,876 Incentive allocations and fees 1,327 403 (30) (54) 1,008 Interest 20,934 5,235 8,439 4,647 2,613 Net investment income (loss) 3,372 3,288 (3,070) 108 3,046 Other 3,892 1,279 482 816 1,315 ------------------------------------------------- Total revenues 418,639 123,183 58,378 109,514 127,564 Interest expense 54,543 3,136 16,390 18,155 16,862 ------------------------------------------------- Revenues, net of interest expense 364,096 120,047 41,988 91,359 110,702 ------------------------------------------------- Non-interest expenses Compensation and benefits 225,712 61,326 46,398 54,436 63,552 Professional services 43,712 13,809 9,069 10,830 10,004 Business development 33,772 9,458 5,229 6,709 12,376 Clearing and brokerage fees 11,715 3,504 2,892 3,053 2,266 Occupancy and equipment 30,039 7,918 7,349 7,499 7,273 Communications 20,039 5,024 5,442 4,990 4,583 Other operating expenses 12,219 1,434 4,561 2,960 3,264 ------------------------------------------------- Total non-interest expenses 377,208 102,473 80,940 90,477 103,318 ------------------------------------------------- Net (loss) income before income taxes (13,112) 17,574 (38,952) 882 7,384 Income tax (benefit) provision (3,271) 10,614 (16,346) (105) 2,566 ------------------------------------------------- Net (loss) income $(9,841) $6,960 $(22,606) $987 $4,818 ================================================= Net (loss) income before income taxes as a percentage of net revenue -3.6% 14.6% -92.8% 1.0% 6.7% ROE (annualized) -2.7% 7.6% -24.9% 1.6% 7.7% Total shareholders' equity 484,388 484,388 476,098 248,965 253,812 Basic (loss) earnings per share $(0.18) $0.11 $(0.37) $0.02 $0.10 Diluted (loss) earnings per share $(0.18) $0.11 $(0.37) $0.02 $0.10 Ending shares outstanding (in thousands) 64,000 64,000 64,000 46,000 46,000 Book value per share $7.57 $7.57 $7.44 $5.41 $5.52 Gross assets under management (in millions) Managed accounts $259.9 $259.9 $376.6 $386.8 $383.9 Hedge & offshore funds 97.5 97.5 102.1 125.8 136.6 Mutual funds 1,961.9 1,961.9 1,825.1 1,750.6 1,849.5 Private equity and venture capital funds 42.2 42.2 48.5 48.2 50.5 ------------------------------------------------- Total $2,361.5 $2,361.5 $2,352.3 $2,311.4 $2,420.5 ================================================= Net assets under management (in millions) Managed accounts $259.9 $259.9 $376.6 $386.8 $380.9 Hedge & offshore funds 96.4 96.4 98.3 116.1 125.4 Mutual funds 1,954.7 1,954.7 1,817.8 1,742.6 1,843.4 Private equity and venture capital funds 40.5 40.5 46.9 46.7 49.1 ------------------------------------------------- Total $2,351.5 $2,351.5 $2,339.6 $2,292.2 $2,398.8 ================================================= Employee count 702 702 702 726 752 ================================================= FBR CAPITAL MARKETS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) ASSETS 31-Mar-07 31-Dec-06 ----------- ----------- Cash and cash equivalents $430,426 $151,417 Receivables 15,462 43,013 Investments: Mortgage-backed securities, at fair value 5,961 415,391 Long-term investments 35,249 32,343 Trading securities, at fair value 22,400 18,180 Due from clearing broker 30,117 28,691 Intangible assets, net 11,600 11,000 Furniture, equipment and leasehold improvements, net 30,271 31,222 Prepaid expenses and other assets 27,244 28,162 --------- --------- Total assets $608,730 $759,419 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Trading account securities sold short but not yet purchased, at fair value $759 $202 Repurchase agreements - 189,155 Accrued compensation and benefits 39,247 43,836 Accounts payable, accrued expenses and other liabilities 66,752 36,602 Due to affiliates 114 5,236 --------- --------- Total liabilities 106,872 275,031 --------- --------- Shareholders' equity: Common stock - 64,623 and 64,000 shares 65 64 Additional paid-in capital 402,509 395,778 Accumulated other comprehensive income, net of taxes 275 543 Retained earnings 99,009 88,003 --------- --------- Total shareholders' equity 501,858 484,388 --------- --------- Total liabilities and shareholders' equity $608,730 $759,419 ========= =========