Arlington Asset Investment (AAIC) 8-K Second Quarter 2007 Financial Results

Contacts:

Media: Lauren Burk at 703.469.1004 or lburk@fbr.com

Investors: Paul Beattie at 703.312.9673 or pbeattie@fbr.com

FBR Group Announces

Second Quarter 2007 Financial Results

Agreement Signed on Sale, Recapitalization of First NLC Financial Services;

Company Increases Share Buyback Authorization

ARLINGTON, VA, July 26, 2007 - Friedman, Billings, Ramsey Group, Inc. (FBR Group) (NYSE: FBR) today announced results for the quarter ended June 30, 2007. The company reported net after-tax earnings of $10.7 million, or $0.06 per share (diluted), compared to a net after-tax loss of $30.2 million, or $0.18 per share (diluted), for the second quarter of 2006. FBR Group’s net after-tax loss for the first six months of 2007 was $175.2 million, or $1.01 per share (diluted), compared to a net after-tax loss of $3.7 million, or $0.02 per share (diluted) in first six months of 2006. Core book value net of Accumulated Other Comprehensive Income (AOCI) at the close of the second quarter was $5.76 compared to $5.75 at the end of the first quarter of 2007⁽¹⁾.

During the quarter, the company sold in an initial public offering 12.7 million shares of common stock of FBR Capital Markets Corporation (FBR Capital Markets) (NASDAQ: FBCM), FBR Group’s investment banking, M&A, institutional brokerage and asset management/private wealth subsidiary. This sale generated net proceeds of $200.1 million, which resulted in an after-tax gain of $61.0 million. Following the initial public offering, which took place on June 8^th, FBR continues to maintain just over a 50% beneficial ownership interest in FBR Capital Markets.

The results also reflect a $28.9 million write-down of goodwill associated with FBR Group’s ownership of First NLC Financial Services, Inc. (FNLC), the firm's wholly-owned non-prime mortgage loan origination subsidiary. FBR Group’s earnings of $10.7 million for the quarter, net of this non-cash write-down, were $39.6 million, or $0.23 per share (diluted).

Share Buyback Authorization

The company additionally announced that on July 25, 2007, FBR Group’s board of directors passed a resolution increasing an existing share buyback authorization from 14 million to 50 million shares.

1

Non-Prime Origination Businesses

On July 25, after the close of the quarter, FBR Group signed a definitive agreement with an affiliate of Sun Capital Partners that will result in a $75 million recapitalization of FNLC and a reduction FBR Group’s ownership interest in FNLC to 20%. Upon completion of the transaction, FNLC will cease to be a consolidated operating subsidiary of FBR Group and will be held, instead, as an equity investment.

“Two things are accomplished through this transaction,” said J. Rock Tonkel, Jr., President and Chief Operating Officer of FBR Group. “First, as discussed in our earlier press release today, FBR Group has substantially limited its exposure going forward as a result of FNLC’s recapitalization. The 20% ownership interest FBR Group retains will permit it to participate in FNLC’s upside potential when the mortgage market strengthens. Second, FNLC - with a $75 million cash infusion - will have liquidity to navigate through an exceptionally difficult mortgage market environment and to position itself for future growth.”

Mortgage Investment Portfolios

The company’s portfolio of mortgage-backed securities averaged $5.7 billion with an average coupon of 6.08%, a one-month CPR of 15.7, and an average net premium of $52.6 million. The net yield for the second quarter was 5.85% with a corresponding cost of funds of 5.43% for a net interest spread of .42%.

The company’s investments in non-conforming mortgage loans totaled $3.7 billion as of June 30, 2007, reflecting principal paydowns of $468 million during the quarter. As a result of net cash flows received during the quarter, the company’s equity risk relating to this portfolio, considering both the mortgage loans and related non-recourse debt, was reduced to approximately $90 million as of June 30, 2007. 

Merchant Banking and Other Long-Term Investments

The investment gains and dividends in FBR Group's merchant banking and other long- term investment portfolio totaled $1.3 million during the second quarter. The total value of FBR Group's merchant banking and other long-term investments at the close of the second quarter was $169.6 million compared to $114.5 million at the close of the first quarter. Net unrealized gains in the portfolio totaled $41.3 million at the end of the second quarter.

2

FBR Capital Markets Corporation

FBR Capital Markets yesterday reported second quarter after-tax earnings of $21.8 million, or $0.34 per share (diluted), compared to after-tax earnings of $1.0 million, or $0.02 per share (diluted) in the second quarter of 2006. FBR Capital Markets contributed $12.2 million to FBR Group’s earnings for the second quarter of 2007.

FBR Capital Market's book value at the close of the quarter was $8.20 per share compared to $7.81 at the end of the first quarter of 2007. At the close of the first quarter, FBR Capital Markets had $528.3 million in equity, $471.0 million of cash, and no debt. Complete financial results and tables for FBR Capital Markets can be found at www.fbr.com.

Looking Ahead

“The sale and recapitalization of FNLC is an important step for us,” said Eric F. Billings, Chairman and Chief Executive Officer of FBR Group. “This transaction coupled with the successful completion of the FBR Capital Markets IPO and strong second quarter results meaningfully alter the character of the company, putting us once again in a position to generate significant shareholder value.”

FBR Group firm will host an earnings conference call on Thursday, July 26, 2007 at 9:00 A.M. U.S. EDT. 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)(NYSE:FBR) 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)(NASDAQ:FBCM). 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 & telecom. 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 Boca Raton, Florida. For more information, please visit 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.

3

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, interest rates, costs of borrowing, interest spreads, mortgage pre-payment speeds, 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 follow.

4

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)

	Quarter ended June 30,
	2007			%			2006			%
REVENUES:
Investment banking:
Capital raising	$	110,032			62.4	%	$	45,117			40.8	%
Advisory		6,152			3.5	%		6,281			5.7	%
Institutional brokerage:
Principal transactions		4,152			2.4	%		1,760			1.6	%
Agency commissions		28,564			16.2	%		28,492			25.8	%
Mortgage trading interest		-			0.0	%		17,143			15.5	%
Mortgage trading net investment loss		-			0.0	%		(209	)		-0.2	%
Asset management:
Base management fees		6,360			3.6	%		5,065			4.6	%
Incentive allocations and fees		116						(53	)		0.0	%
Principal investment:
Interest		152,927			86.7	%		113,613			102.7	%
Net investment loss		(3,441	)		-2.0	%		(31,290	)		-28.4	%
Dividends		883			0.6	%		4,059			3.7	%
Mortgage banking:
Interest		13,462			7.6	%		21,267			19.2	%
Net investment (loss) income		(4,031	)		-2.3	%		29,401			26.6	%
Other		4,482			2.5	%		5,465			4.9	%
Total revenues		319,658			181.2	%		246,111			222.5	%
Interest expense		143,231			81.2	%		128,189			115.9	%
Provision for loan losses		-			0.0	%		7,348			6.6	%
Revenues, net of interest expense and provision for loan losses		176,427			100.0	%		110,574			100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		106,885			60.6	%		71,732			64.9	%
Professional services		14,008			7.9	%		12,925			11.7	%
Business development		11,158			6.3	%		8,604			7.8	%
Clearing and brokerage fees		3,063			1.7	%		3,082			2.8	%
Occupancy and equipment		12,699			7.2	%		12,232			11.1	%
Communications		7,592			4.3	%		6,013			5.4	%
Other operating expenses		18,684			10.6	%		24,993			22.5	%
Goodwill impairment		28,900			16.4	%		-			0.0	%
Restructuring charges		3,862			2.2	%		-			0.0	%
Total non-interest expenses		206,851			117.2	%		139,581			126.2	%
Operating loss		(30,424	)		-17.2	%		(29,007	)		-26.2	%
OTHER INCOME:
Gain on sale of subsidiary shares		105,677			59.9	%		-			0.0	%
Net income (loss) before income taxes and minority interest		75,253			42.7	%		(29,007	)		-26.2	%
Income tax provision		55,011			31.2	%		1,240			1.1	%
Minority interest in earnings of consolidated subsidiary		9,538			5.4	%		-			0.0	%
Net income (loss)	$	10,704			6.1	%	$	(30,247	)		-27.3	%
Basic earnings (loss) per share	$	0.06					$	(0.18	)
Diluted earnings (loss) per share	$	0.06					$	(0.18	)
Weighted average shares - basic		173,256						171,294
Weighted average shares - diluted		173,256						171,294

5

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)

	Six Months Ended June 30,
	2007			%			2006			%
REVENUES:
Investment banking:
Capital raising	$	207,279			109.8	%	$	111,452			38.8	%
Advisory		12,610			6.7	%		9,150			3.2	%
Institutional brokerage:
Principal transactions		6,188			3.3	%		7,480			2.6	%
Agency commissions		52,382			27.7	%		51,901			18.1	%
Mortgage trading interest		-			0.0	%		34,793			12.1	%
Mortgage trading net investment loss		-			0.0	%		(1,446	)		-0.5	%
Asset management:
Base management fees		11,888			6.3	%		10,162			3.5	%
Incentive allocations and fees		220			0.1	%		955			0.3	%
Principal investment:
Interest		334,623			177.3	%		262,739			91.4	%
Net investment loss		(63,154	)		-33.5	%		(5,105	)		-1.7	%
Dividends		1,842			1.0	%		7,758			2.7	%
Mortgage banking:
Interest		39,992			21.2	%		44,380			15.4	%
Net investment (loss) income		(110,890	)		-58.7	%		40,139			14.0	%
Other		8,576			4.5	%		10,452			3.6	%
Total revenues		501,556			265.7	%		584,810			203.5	%
Interest expense		312,782			165.7	%		281,672			98.0	%
Provision for loan losses		-			0.0	%		15,740			5.5	%
Revenues, net of interest expense and provision for loan losses		188,774			100.0	%		287,398			100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		210,867			111.7	%		155,229			54.0	%
Professional services		27,862			14.8	%		27,190			9.5	%
Business development		24,927			13.2	%		22,689			7.9	%
Clearing and brokerage fees		5,764			3.1	%		5,398			1.9	%
Occupancy and equipment		25,816			13.7	%		23,474			8.2	%
Communications		14,643			7.8	%		11,620			4.0	%
Other operating expenses		50,400			26.7	%		45,970			16.0	%
Impairment of goodwill		54,752			29.0	%		-			0.0	%
Restructuring charges		19,347			10.2	%		-			0.0	%
Total non-interest expenses		434,378			230.2	%		291,570			101.5	%
Operating loss		(245,604	)		-130.2	%		(4,172	)		-1.5	%
OTHER INCOME:
Gain on sale of subsidiary shares		106,508			56.5	%		-			0.0	%
Net loss before income taxes and minority interest		(139,096	)		-73.7	%		(4,172	)		-1.5	%
Income tax provision (benefit)		23,461			12.4	%		(479	)		-0.2	%
Minority interest in earnings of consolidated subsidiary		12,617			6.7	%					0.0	%
Net loss	$	(175,174	)		-92.8	%	$	(3,693	)		-1.3	%
Basic loss per share	$	(1.01	)				$	(0.02	)
Diluted loss per share	$	(1.01	)				$	(0.02	)
Weighted average shares - basic		173,054						171,012
Weighted average shares - diluted		173,054						171,012

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FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited)

	For the six months ended June 30, 2007			Q-2 07			Q-1 07
Revenues
Investment banking:
Capital raising	$	207,279		$	110,032		$	97,247
Advisory		12,610			6,152			6,458
Institutional brokerage:
Principal transactions		6,188			4,152			2,036
Agency commissions		52,382			28,564			23,818
Asset management:
Base management fees		11,888			6,360			5,528
Incentive allocations and fees		220			116			104
Principal investment:
Interest		334,623			152,927			181,696
Net investment loss		(63,154	)		(3,441	)		(59,713	)
Dividends		1,842			883			959
Mortgage banking:
Interest		39,992			13,462			26,530
Net investment loss		(110,890	)		(4,031	)		(106,859	)
Other		8,576			4,482			4,094
Total revenues		501,556			319,658			181,898
Interest expense		312,782			143,231			169,551
Revenues, net of interest expense		188,774			176,427			12,347
Non-interest expenses
Compensation and benefits		210,867			106,885			103,982
Professional services		27,862			14,008			13,854
Business development		24,927			11,158			13,769
Clearing and brokerage fees		5,764			3,063			2,701
Occupancy and equipment		25,816			12,699			13,117
Communications		14,643			7,592			7,051
Other operating expenses		50,400			18,684			31,716
Impairment of goodwill		54,752			28,900			25,852
Restructuring charges		19,347			3,862			15,485
Total non-interest expenses		434,378			206,851			227,527
Operating loss		(245,604	)		(30,424	)		(215,180	)
Other Income
Gain on sale of subsidiary shares		106,508			105,677			831
Net (loss) earnings before income taxes and minority interest		(139,096	)		75,253			(214,349	)
Income tax provision (benefit)		23,461			55,011			(31,550	)
Minority interest in earnings of consolidated subsidiary		12,617			9,538			3,079
Net (loss) earnings	$	(175,174	)	$	10,704		$	(185,878	)
Net (loss) earnings before income taxes and minority interest as a percentage of net revenue		-73.7	%		42.7	%		-1736.0	%
ROE (annualized)		-32.1	%		3.9	%		-68.8	%
ROE (annualized-excluding AOCI) (1)		-32.1	%		3.9	%		-68.2	%
Total shareholders' equity	$	1,012,635		$	1,012,635		$	989,213
Total shareholders' equity, net of AOCI (1)	$	1,000,071		$	1,000,071		$	993,753
Basic loss (earnings) per share	$	(1.01	)	$	0.06		$	(1.08	)
Diluted loss (earnings) per share	$	(1.01	)	$	0.06		$	(1.08	)
Ending shares outstanding (in thousands)		173,756			173,756			172,846
Book value per share	$	5.83		$	5.83		$	5.72
Book value per share, net of AOCI (1)	$	5.76		$	5.76		$	5.75
Gross assets under management (in millions)
Managed accounts	$	291.3		$	291.3		$	258.8
Hedge & offshore funds		61.7			61.7			67.1
Mutual funds		2,482.6			2,482.6			2,412.9
Private equity and venture capital funds		33.8			33.8			41.2
Total	$	2,869.4		$	2,869.4		$	2,780.0
Net assets under management (in millions)
Managed accounts	$	291.3		$	291.3		$	258.8
Hedge & offshore funds		58.1			58.1			62.5
Mutual funds		2,474.7			2,474.7			2,406.4
Private equity and venture capital funds		32.0			32.0			38.0
Total	$	2,856.1		$	2,856.1		$	2,765.7
Employee count		2,151			2,151			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.

7

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited)

	For the year ended Decemeber 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.

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FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited) 

ASSETS	30-Jun-07			31-Dec-06
Cash and cash equivalents	$	505,940		$	189,956
Restricted cash		110			132
Receivables:
Securities sold		261,918			-
Other		168,871			217,249
Investments:
Mortgage-backed securities, at fair value		6,047,375			6,870,661
Loans held for sale, net		3,681,090			5,367,934
Long-term investments		222,086			185,492
Trading securities, at fair value		43,363			18,180
Due from clearing broker		19,621			28,999
Derivative assets, at fair value		21,728			36,875
Goodwill		108,013			162,765
Intangible assets, net		11,274			21,825
Furniture, equipment, software and leasehold improvements, net		47,963			44,111
Prepaid expenses and other assets		180,246			208,339
Total assets	$	11,319,598		$	13,352,518
LIABILITIES AND SHAREHOLDERS ’ EQUITY
Liabilities:
Trading account securities sold short but not yet purchased, at fair value	$	601		$	202
Commercial paper		3,493,212			3,971,389
Repurchase agreements		2,336,998			3,059,330
Securities purchased		27,025			-
Derivative liabilities, at fair value		4,710			44,582
Dividends payable		8,770			8,743
Interest payable		9,185			12,239
Accrued compensation and benefits		96,921			57,227
Accounts payable, accrued expenses and other liabilities		105,219			81,819
Securitization financing, net		3,645,874			4,486,046
Long-term debt		323,526			324,453
Total liabilities		10,052,041			12,046,030
Minority interest		254,922			135,443
Shareholders' equity:
Common stock, 175,327 and 174,712 shares		1,753			1,747
Additional paid-in capital		1,569,034			1,562,497
Employee stock loan receivable, 2 and 2 shares		(12	)		(12	)
Accumulated other comprehensive income (loss), net of taxes		12,564			(15,136	)
Accumulated deficit		(570,704	)		(378,051	)
Total shareholders' equity		1,012,635			1,171,045
Total liabilities and shareholders' equity	$	11,319,598		$	13,352,518

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