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 Reports First Quarter Earnings
ARLINGTON, VA, April 24, 2008 - Friedman, Billings, Ramsey Group, Inc. (FBR Group; NYSE: FBR) today reported net after-tax earnings of $45.1 million, or $0.30 per share (diluted), for the quarter ended March 31, 2008 compared to a net after-tax loss of $185.9 million, or $1.08 per share (diluted) in the first quarter of 2007.
FBR Group ended the quarter with $667 million of consolidated total capital, including $318 million of trust preferred securities. Of this capital, $259 million was attributable to FBR Group’s 52% ownership interest in FBR Capital Markets Corporation (FBR Capital Markets) (NASDAQ: FBCM). Of the remaining $408 million in capital, FBR Group had approximately $240 million invested in cash and agency securities at the end of the first quarter. Book value net of Accumulated Other Comprehensive Income (AOCI)(1) as of March 31, 2008 was $3.02 per share compared to book value net of AOCI of $2.70 as of December 31, 2007.
The first quarter 2008 results reflect:
§ | a $73.0 million non-cash GAAP reversal of pre-bankruptcy losses relating to First NLC Financial Services (FNLC), |
§ | $3.4 million of losses related primarily to pre-bankruptcy FNLC activities, |
§ | $15.0 million of investment-related losses, including $3.6 million related to merchant banking and $10.6 million related to non-prime securities, |
§ | a $4.2 million net operating loss at FBR Group for the quarter, and |
§ | a $5.3 million loss, representing FBR Group’s proportionate share of 52%-owned FBR Capital Markets’ first quarter loss. |
The $372 million net operating loss carry-forward and the $268 million of capital loss carry-forward disclosed last quarter remain a potential future economic benefit.
1
“We benefited from low leverage and a strong liquidity position during the quarter,” said J. Rock Tonkel, Jr., President and Chief Operating Officer of FBR Group. “Going forward, we expect to benefit from the full effect of the $578 million of agency hybrid securities added during the first quarter which had a spread in excess of 225 basis points on March 31st. In addition, we have reduced operating expenses from ongoing operations by 28% from the average 2007 quarterly run-rate, and we expect additional cost reductions during the remainder of 2008.”
Mortgage Investment Portfolio
Excluding FBR Capital Markets, FBR Group's investments in mortgage-backed securities (MBS), primarily government agency securities, averaged $1.9 billion with a one-month CPR of 9.9, and an ending net premium of $13 million. The net yield on MBS for the first quarter was 4.76% with a corresponding cost of funds of 3.76% for a net spread of 1.00%. At the end of the quarter, total MBS was $2.5 billion with a yield of 4.22% and a cost of funds of 2.81% for a net spread of 1.41%.
Merchant Banking
Excluding merchant banking investments of $54.0 million at FBR Capital Markets, the total value of the merchant banking investments held by FBR Group at the close of the first quarter was $44.5 million.
Looking Ahead
“We continue to examine strategies to maximize the economic benefit that can be derived from the Company’s substantial net operating and capital loss carry-forwards,” said Eric F. Billings, Chairman and Chief Executive Officer of FBR Group. “Our balance sheet at the end of the quarter includes $408 million of long-term capital, approximately $240 million of which is in cash and highly liquid agency securities. This financial strength positions us well to manage through the current environment with a goal of growing earnings and capital and increasing shareholder value as we continue to implement our core strategy of investing in a leveraged portfolio of hybrid agency mortgage-backed securities on a hedged basis.”
FBR Capital Markets Corporation
FBR Capital Markets yesterday reported a net after-tax loss of $10.2 million, or $0.16 per share (diluted), for the quarter ended March 31, 2008, compared to net after-tax income of $11.0 million, or $0.17 per share (diluted) in the first quarter of 2007.
Net revenues for the first quarter were $104.0 million compared to net revenues of $60.7 million in the fourth quarter of 2007 and $143.2 million in first quarter of 2007. At the close of the first quarter, FBR Capital Markets had $503.0 million in equity, $313.3 million of cash, and a book value of $7.77 per share.
2
Complete financial results and tables for FBR Capital Markets can be found at www.fbr.com.
FBR Group will host an earnings conference call this morning, Thursday, April 24, 2008 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) invests in mortgage-related assets, merchant banking opportunities and is the majority owner of FBR Capital Market Corporation, a separate publicly traded company. FBR is headquartered in the Washington, D.C. metropolitan area. For more information, please visit www.fbr.com.
1Accumulated 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, 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 follows.
# # #
3
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) |
Three Months Ended March 31, | |||||||||||||
2008 | % | 2007 | % | ||||||||||
REVENUES: | |||||||||||||
Investment banking: | |||||||||||||
Capital raising | $ | 64,910 | 70.3 | % | $ | 97,247 | 787.6 | % | |||||
Advisory | 5,076 | 5.5 | % | 6,458 | 52.3 | % | |||||||
Institutional brokerage: | |||||||||||||
Principal transactions | 5,957 | 6.5 | % | 2,036 | 16.5 | % | |||||||
Agency commissions | 25,850 | 28.0 | % | 23,818 | 192.9 | % | |||||||
Asset management: | |||||||||||||
Base management fees | 4,644 | 5.0 | % | 5,528 | 44.8 | % | |||||||
Incentive allocations and fees | - | 0.0 | % | 104 | 0.8 | % | |||||||
Principal investment: | |||||||||||||
Interest | 25,914 | 28.1 | % | 181,696 | 1471.6 | % | |||||||
Net investment loss | (19,687 | ) | -21.3 | % | (59,713 | ) | -483.6 | % | |||||
Dividends | 429 | 0.5 | % | 959 | 7.8 | % | |||||||
Mortgage banking: | |||||||||||||
Interest | 36 | 0.0 | % | 26,530 | 214.9 | % | |||||||
Net investment income (loss) | 468 | 0.5 | % | (106,859 | ) | -865.5 | % | ||||||
Other | 2,335 | 2.5 | % | 4,094 | 33.1 | % | |||||||
Total revenues | 115,932 | 125.6 | % | 181,898 | 1473.2 | % | |||||||
Interest expense | 23,650 | 25.6 | % | 169,551 | 1373.2 | % | |||||||
Revenues, net of interest expense | 92,282 | 100.0 | % | 12,347 | 100.0 | % | |||||||
NON-INTEREST EXPENSES: | |||||||||||||
Compensation and benefits | 76,954 | 83.4 | % | 103,982 | 842.2 | % | |||||||
Professional services | 12,467 | 13.5 | % | 13,854 | 112.2 | % | |||||||
Business development | 12,294 | 13.3 | % | 13,769 | 111.5 | % | |||||||
Clearing and brokerage fees | 3,630 | 3.9 | % | 2,701 | 21.9 | % | |||||||
Occupancy and equipment | 9,189 | 10.0 | % | 13,117 | 106.2 | % | |||||||
Communications | 6,018 | 6.5 | % | 7,051 | 57.1 | % | |||||||
Other operating expenses | 5,384 | 5.8 | % | 31,716 | 256.8 | % | |||||||
Goodwill impairment | - | 0.0 | % | 25,852 | 209.3 | % | |||||||
Restructuring charges | - | 0.0 | % | 15,485 | 125.3 | % | |||||||
Total non-interest expenses | 125,936 | 136.4 | % | 227,527 | 1842.5 | % | |||||||
Operating loss | (33,654 | ) | -36.4 | % | (215,180 | ) | -1742.5 | % | |||||
OTHER INCOME: | |||||||||||||
Gain on disposition of subsidiary and other income | 73,037 | 79.1 | % | 831 | 6.7 | % | |||||||
Income (loss) before income taxes and minority interest | 39,383 | 42.7 | % | (214,349 | ) | -1736.0 | % | ||||||
Income tax benefit | (806 | ) | -0.9 | % | (31,550 | ) | -255.5 | % | |||||
Minority interest in (losses) earnings of consolidated subsidiary | (4,913 | ) | -5.3 | % | 3,079 | 24.9 | % | ||||||
Net income (loss) | $ | 45,102 | 48.9 | % | $ | (185,878 | ) | -1505.4 | % | ||||
Basic earnings (loss) per share | $ | 0.30 | $ | (1.08 | ) | ||||||||
Diluted earnings (loss) per share | $ | 0.30 | $ | (1.08 | ) | ||||||||
Weighted average shares - basic (in thousands) | 150,784 | 172,850 | |||||||||||
Weighted average shares - diluted (in thousands) | 151,419 | 172,850 |
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited) |
Q-1 08 | ||||
Revenues | ||||
Investment banking: | ||||
Capital raising | $ | 64,910 | ||
Advisory | 5,076 | |||
Institutional brokerage: | ||||
Principal transactions | 5,957 | |||
Agency commissions | 25,850 | |||
Asset management: | ||||
Base management fees | 4,644 | |||
Principal investment: | ||||
Interest | 25,914 | |||
Net investment loss | (19,687 | ) | ||
Dividends | 429 | |||
Mortgage banking: | ||||
Interest | 36 | |||
Net investment income | 468 | |||
Other | 2,335 | |||
Total revenues | 115,932 | |||
Interest expense | 23,650 | |||
Revenues, net of interest expense | 92,282 | |||
Non-interest expenses | ||||
Compensation and benefits | 76,954 | |||
Professional services | 12,467 | |||
Business development | 12,294 | |||
Clearing and brokerage fees | 3,630 | |||
Occupancy and equipment | 9,189 | |||
Communications | 6,018 | |||
Other operating expenses | 5,384 | |||
Total non-interest expenses | 125,936 | |||
Operating loss | (33,654 | ) | ||
Other income | ||||
Gain on disposition of subsidiary and other income | 73,037 | |||
Net income before income taxes and minority interest | 39,383 | |||
Income tax benefit | (806 | ) | ||
Minority interest in losses of consolidated subsidiary | (4,913 | ) | ||
Net income | $ | 45,102 | ||
ROE (annualized) | 48.9 | % | ||
ROE (annualized-excluding AOCI) (1) | 41.8 | % | ||
Total shareholders' equity | $ | 344,408 | ||
Total shareholders' equity, net of AOCI (1) | $ | 455,761 | ||
Basic earnings per share | $ | 0.30 | ||
Diluted earnings per share | $ | 0.30 | ||
Ending shares outstanding (in thousands) | 150,915 | |||
Book value per share | $ | 2.28 | ||
Book value per share, net of AOCI (1) | $ | 3.02 | ||
Gross assets under management (in millions) | ||||
Managed accounts | $ | 333.9 | ||
Hedge & offshore funds | 45.1 | |||
Mutual funds | 1,702.9 | |||
Private equity and venture capital funds | 21.4 | |||
Total | $ | 2,103.3 | ||
Net assets under management (in millions) | ||||
Managed accounts | $ | 333.9 | ||
Hedge & offshore funds | 40.4 | |||
Mutual funds | 1,698.0 | |||
Private equity and venture capital funds | 20.2 | |||
Total | $ | 2,092.5 | ||
Employee count | 726 | |||
(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 twelve months ended | ||||||||||||||||
December 31, 2007 | Q-4 07 | Q-3 07 | Q-2 07 | Q-1 07 | ||||||||||||
Revenues | ||||||||||||||||
Investment banking: | ||||||||||||||||
Capital raising | $ | 282,619 | $ | 25,648 | $ | 49,692 | $ | 110,032 | $ | 97,247 | ||||||
Advisory | 34,063 | 4,973 | 16,480 | 6,152 | 6,458 | |||||||||||
Institutional brokerage: | ||||||||||||||||
Principal transactions | 10,152 | 2,996 | 968 | 4,152 | 2,036 | |||||||||||
Agency commissions | 104,792 | 26,153 | 26,257 | 28,564 | 23,818 | |||||||||||
Asset management: | ||||||||||||||||
Base management fees | 23,549 | 5,542 | 6,119 | 6,360 | 5,528 | |||||||||||
Incentive allocations and fees | 401 | 99 | 82 | 116 | 104 | |||||||||||
Principal investment: | ||||||||||||||||
Interest | 501,130 | 51,057 | 115,450 | 152,927 | 181,696 | |||||||||||
Net investment loss | (221,956 | ) | (22,327 | ) | (136,475 | ) | (3,441 | ) | (59,713 | ) | ||||||
Dividends | 3,173 | 805 | 526 | 883 | 959 | |||||||||||
Mortgage banking: | ||||||||||||||||
Interest | 51,245 | 4,059 | 7,194 | 13,462 | 26,530 | |||||||||||
Net investment loss | (222,032 | ) | (83,174 | ) | (27,968 | ) | (4,031 | ) | (106,859 | ) | ||||||
Other | 15,808 | 3,242 | 3,990 | 4,482 | 4,094 | |||||||||||
Total revenues | 582,944 | 19,073 | 62,315 | 319,658 | 181,898 | |||||||||||
Interest expense | 477,437 | 52,583 | 112,072 | 143,231 | 169,551 | |||||||||||
Revenues, net of interest expense | 105,507 | (33,510 | ) | (49,757 | ) | 176,427 | 12,347 | |||||||||
Non-interest expenses | ||||||||||||||||
Compensation and benefits | 361,355 | 69,533 | 80,955 | 106,885 | 103,982 | |||||||||||
Professional services | 55,741 | 15,598 | 12,281 | 14,008 | 13,854 | |||||||||||
Business development | 43,518 | 10,878 | 7,713 | 11,158 | 13,769 | |||||||||||
Clearing and brokerage fees | 12,514 | 2,797 | 3,953 | 3,063 | 2,701 | |||||||||||
Occupancy and equipment | 52,302 | 13,791 | 12,695 | 12,699 | 13,117 | |||||||||||
Communications | 28,690 | 6,899 | 7,148 | 7,592 | 7,051 | |||||||||||
Other operating expenses | 82,246 | 15,706 | 16,140 | 18,684 | 31,716 | |||||||||||
Impairment of goodwill | 162,765 | 108,013 | - | 28,900 | 25,852 | |||||||||||
Restructuring charges | 46,985 | 21,466 | 6,172 | 3,862 | 15,485 | |||||||||||
Total non-interest expenses | 846,116 | 264,681 | 147,057 | 206,851 | 227,527 | |||||||||||
Operating loss | (740,609 | ) | (298,191 | ) | (196,814 | ) | (30,424 | ) | (215,180 | ) | ||||||
Other income (loss) | ||||||||||||||||
Gain (loss) on sale of subsidiary shares | 104,062 | 4 | (2,450 | ) | 105,677 | 831 | ||||||||||
(Loss) income before income taxes | ||||||||||||||||
and minority interest | (636,547 | ) | (298,187 | ) | (199,264 | ) | 75,253 | (214,349 | ) | |||||||
Income tax provision (benefit) | 22,932 | (15,817 | ) | 15,288 | 55,011 | (31,550 | ) | |||||||||
Minority interest in earnings (losses) of consolidated subsidiary | 774 | (12,008 | ) | 165 | 9,538 | 3,079 | ||||||||||
Net (loss) income | $ | (660,253 | ) | $ | (270,362 | ) | $ | (214,717 | ) | $ | 10,704 | $ | (185,878 | ) | ||
ROE (annualized) | -84.4 | % | -138.2 | % | -91.9 | % | 3.9 | % | -68.8 | % | ||||||
ROE (annualized-excluding AOCI) (1) | -82.9 | % | -135.8 | % | -90.5 | % | 3.9 | % | -68.2 | % | ||||||
Total shareholders' equity | $ | 393,691 | $ | 393,691 | $ | 698,214 | $ | 1,012,635 | $ | 989,213 | ||||||
Total shareholders' equity, net of AOCI (1) | $ | 406,537 | $ | 406,537 | $ | 711,693 | $ | 1,000,071 | $ | 993,753 | ||||||
Basic (loss) earnings per share | $ | (3.95 | ) | $ | (1.77 | ) | $ | (1.28 | ) | $ | 0.06 | $ | (1.08 | ) | ||
Diluted (loss) earnings per share | $ | (3.95 | ) | $ | (1.77 | ) | $ | (1.28 | ) | $ | 0.06 | $ | (1.08 | ) | ||
Ending shares outstanding (in thousands) | 150,674 | 150,674 | 158,671 | 173,756 | 172,846 | |||||||||||
Book value per share | $ | 2.61 | $ | 2.61 | $ | 4.40 | $ | 5.83 | $ | 5.72 | ||||||
Book value per share, net of AOCI (1) | $ | 2.70 | $ | 2.70 | $ | 4.49 | $ | 5.76 | $ | 5.75 | ||||||
Gross assets under management (in millions) | ||||||||||||||||
Managed accounts | $ | 347.1 | $ | 347.1 | $ | 345.6 | $ | 291.3 | $ | 258.8 | ||||||
Hedge & offshore funds | 52.1 | 52.1 | 61.7 | 61.7 | 67.1 | |||||||||||
Mutual funds | 2,046.5 | 2,046.5 | 2,292.3 | 2,482.6 | 2,412.9 | |||||||||||
Private equity and venture capital funds | 23.8 | 23.8 | 31.3 | 33.8 | 41.2 | |||||||||||
Total | $ | 2,469.5 | $ | 2,469.5 | $ | 2,730.9 | $ | 2,869.4 | $ | 2,780.0 | ||||||
Net assets under management (in millions) | ||||||||||||||||
Managed accounts | $ | 347.1 | $ | 347.1 | $ | 345.6 | $ | 291.3 | $ | 258.8 | ||||||
Hedge & offshore funds | 50.7 | 50.7 | 58.1 | 58.1 | 62.5 | |||||||||||
Mutual funds | 2,034.6 | 2,034.6 | 2,285.1 | 2,474.7 | 2,406.4 | |||||||||||
Private equity and venture capital funds | 22.6 | 22.6 | 29.8 | 32.0 | 38.0 | |||||||||||
Total | $ | 2,455.0 | $ | 2,455.0 | $ | 2,718.6 | $ | 2,856.1 | $ | 2,765.7 | ||||||
Employee count | 1,025 | 1,025 | 1,290 | 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. |
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars and shares in thousands, except per share amounts) (Unaudited) |
ASSETS | 31-Mar-08 | 31-Dec-07 | |||||
Cash and cash equivalents | $ | 337,041 | $ | 692,360 | |||
Restricted cash | 178 | 14,166 | |||||
Receivables | 69,322 | 75,357 | |||||
Investments: | |||||||
Mortgage-backed securities, at fair value | 2,770,334 | 1,791,480 | |||||
Loans held for sale, net | - | 65,074 | |||||
Long-term investments | 145,465 | 169,274 | |||||
Trading securities, at fair value | 42,675 | 19,057 | |||||
Due from clearing broker | 15,950 | - | |||||
Derivative assets, at fair value | 1,699 | 3,514 | |||||
Intangible assets, net | 10,147 | 9,837 | |||||
Furniture, equipment, software and leasehold improvements, net | 27,742 | 30,451 | |||||
Prepaid expenses and other assets | 70,183 | 74,385 | |||||
Total assets | $ | 3,490,736 | $ | 2,944,955 | |||
LIABILITIES AND SHAREHOLDERS ’ EQUITY | |||||||
Liabilities: | |||||||
Trading account securities sold short but | $ | 60 | $ | 206 | |||
not yet purchased, at fair value | |||||||
Repurchase agreements | 2,458,550 | 1,744,377 | |||||
Derivative liabilities, at fair value | 10,937 | 3,558 | |||||
Interest payable | 2,697 | 2,991 | |||||
Accrued compensation and benefits | 38,480 | 57,000 | |||||
Accounts payable, accrued expenses and other liabilities | 69,287 | 105,456 | |||||
Due to clearing broker | - | 7,059 | |||||
Short-term loan financing | - | 63,981 | |||||
Long-term debt | 322,155 | 323,575 | |||||
Total liabilities | 2,902,166 | 2,308,203 | |||||
Minority interest | 244,162 | 243,061 | |||||
Shareholders' equity: | |||||||
Common stock, 159,505 and 151,883 shares | 1,595 | 1,519 | |||||
Additional paid-in capital | 1,472,623 | 1,468,801 | |||||
Accumulated other comprehensive loss, net of taxes | (111,353 | ) | (12,846 | ) | |||
Accumulated deficit | (1,018,457 | ) | (1,063,783 | ) | |||
Total shareholders' equity | 344,408 | 393,691 | |||||
Total liabilities and shareholders' equity | $ | 3,490,736 | $ | 2,944,955 |