Arlington Asset Investment (AAIC) 8-K Friedman, Billings, Ramsey Group Reports

Contacts:

Media: 703.469.1004 or media@fbr.com

Investors: Kurt Harrington at 703.469.1080 or ir@fbr.com

Friedman, Billings, Ramsey Group Reports

Third Quarter Financial Results

ARLINGTON, Va., October 23, 2008 -- Friedman, Billings, Ramsey Group, Inc. (FBR Group) (NYSE: FBR) today reported a net after-tax loss of $169.0 million for the quarter ended September 30, 2008, or $1.12 per share (diluted), compared to net after-tax loss of $210.6 million, or $1.25 per share (diluted), for the third quarter of 2007. FBR Group's net after-tax loss for the first nine months of 2008 was $149.0 million, or $0.99 per share (diluted), compared to a net after-tax loss of $388.2 million, or $2.27 per share (diluted) in the first nine months of 2007.

FBR Group also announced that it has retained financial advisors to evaluate strategic alternatives for the purpose of maximizing the value of its assets and liabilities including all of its trust preferred debt. Potential strategic alternatives include the sale of the company or its assets or distribution of its assets to shareholders.

Excluding its ownership interest in FBR Capital Markets, as of September 30, 2008, FBR Group had assets of $2.3 billion including MBS of $1.7 billion and cash of $82 million, and repurchase agreements of $1.7 billion. Total tangible capital was $349 million including trust preferred debt but excluding its ownership interest in FBR Capital Markets. FBR Group’s interest in FBR Capital Markets’ tangible capital was $223 million at September 30, 2008. FBR Group’s consolidated tangible capital on September 30, 2008 was $572 million and consolidated shareholders’ equity was $268 million.

Book value net of Accumulated Other Comprehensive Income (AOCI) (1) as of September 30, 2008 was $1.81 per share compared to book value net of AOCI of $2.89 per share as of June 30, 2008. 

As of September 30, 2008, approximately $188 million of tangible capital, or $1.24 per share, was invested in cash and readily marketable agency securities. During the third quarter, $19 million of liquidations and pay-downs of capital invested in non-agency MBS securities and other investments was recovered. Remaining non-prime securities totaled $10 million at the end of the third quarter.

During the quarter and subsequent to the quarter end, FBR Group implemented a program to downsize its MBS portfolio in order to reduce exposure to deteriorating market conditions while at the same time generating additional cash to fund the extinguishment of its trust preferred debt at a significant discount to face value.

In the third quarter, the Company extinguished $6.8 million of trust preferred debt and realized a $4.1 million gain versus face value on the debt. Subsequent to quarter end, the Company extinguished an additional $38 million of trust preferred debt for a gain of $23 million leaving $273 million of trust preferred debt outstanding. Also subsequent to quarter end, the Company further reduced its MBS portfolio by $1.1 billion resulting in a net loss of $42 million after deducting the $23 million gain from the extinguishment of trust preferred debt.

After giving effect to these post-third quarter transactions, FBR Group has agency MBS of $503 million, super senior AAA MBS of $195 million, and total repurchase agreements of $568 million.

Third Quarter Highlights

The third quarter 2008 results reflect cash and non-cash items.

Operating and realized Investment Losses of $36.0 million include:

§   $1.5 million of operating cash loss at FBR Group

§   $4.1 million gain on the extinguishment of $6.8 million of trust preferred debt.

§   $23.9 million of realized investment loss related to sales of agency MBS and a hedge instrument during the quarter, of which $2.8 million was recorded in AOCI as of June 30, 2008.

§   $14.7 million of losses, net of minority interest, relating to FBR Capital Markets.

Non-Cash and Impairment Charges of $133.0 million include:

§   $129.2 million of impairment related investment losses including:

o   $119.0 million of other than temporary impairment on MBS and related hedges, of which $85.5 million was recorded in AOCI as of June 30, 2008.

o   $7.1 million of other than temporary impairment on merchant banking Investments.

o   $3.1 million related to investment partnerships and sub-prime NIMs.

§   $3.8 million of non-cash compensation charges.

Merchant Banking

Excluding FBR Capital Markets, the total value of the merchant banking investments held by FBR Group at the end of the third quarter was $27.3 million. During the quarter, the Company recorded $7.1 million in other than temporary impairments related to merchant banking investments. No additional investments were made in the portfolio during the quarter.

FBR Capital Markets Corporation

Friedman Billings Ramsey Group, Inc. results have no effect or impact on the financial strength, performance, or ongoing operations of FBR Group’s majority owned subsidiary, FBR Capital Markets Corporation (NASDAQ:FBCM), which is a separately traded and managed public company. FBR Group does, however, consolidate FBR Capital Markets’ financial results on a proportionate basis.

FBR Capital Markets reported a net after-tax loss of $28.6 million, or $0.44 per share (diluted), for the quarter ended September 30, 2008, compared to net after-tax earnings of $0.3 million in the third quarter of 2007. For the nine months ending September 30, 2008, FBR Capital Markets reported a net loss of $64.0 million after tax, or $0.99 per share (diluted), compared to net after-tax earnings of $33.0 million, or $0.51 per share (diluted), for the first nine months of 2007. At quarter’s end, book value per share was $6.96.

FBR Capital Markets also reported a balance sheet reflecting $452 million in capital - all equity - and approximately $294 million of cash and net cash invested in floating rate securities. In line with its strategic plan and market conditions, FBR Capital Markets announced it is taking additional aggressive steps to lower break even levels. The Company plans to take maximum advantage of the adverse economic environment and dislocation in the industry and fully expects to participate in a substantial number capital raising opportunities such as the recapitalizations of financial institutions.

Looking Ahead

“These are undoubtedly the most challenging times that we have ever seen in the financial markets,” said Eric Billings, Chairman and Chief Executive Officer of FBR Group. “We believe we have taken and are continuing to take all necessary steps to position the Company to be able to patiently realize the maximum value of all of our assets and liabilities.”

Complete third quarter 2008 financial results and tables for FBR Capital Markets can be found at www.fbrcapitalmarkets.com.

Investors wishing to listen to the FBR Group earnings conference call at 9:00 A.M. U.S. EDT, October 23, 2008, 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.

(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, changes in interest rates, increased costs of borrowing, decreased interest spreads, changes in 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.

# # #

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

	Quarter Ended
	September 30,
	2008			%			2007			%
REVENUES:
Investment banking:
Capital raising	$	6,763			-6.5	%	$	49,692			-108.8	%
Advisory		5,999			-5.8	%		16,480			-36.1	%
Institutional brokerage:
Principal transactions		2,610			-2.5	%		968			-2.1	%
Agency commissions		33,813			-32.6	%		26,257			-57.5	%
Asset management:
Base management fees		3,710			-3.6	%		6,119			-13.4	%
Incentive allocations and fees		-			0.0	%		82			-0.2	%
Principal investment:
Interest		31,057			-29.9	%		115,007			-251.7	%
Net investment loss		(164,153	)		158.2	%		(131,960	)		288.8	%
Dividends		307			-0.3	%		526			-1.2	%
Mortgage banking:
Interest		-			0.0	%		7,194			-15.7	%
Net investment loss		-			0.0	%		(27,968	)		61.2	%
Other		1,548			-1.5	%		3,990			-8.6	%
Total revenues		(78,346	)		75.5	%		66,387			-145.3	%
Interest expense		25,387			-24.5	%		112,072			-245.3	%
Revenues, net of interest expense		(103,733	)		100.0	%		(45,685	)		100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		61,111			-58.9	%		80,955			-177.2	%
Professional services		10,442			-10.1	%		12,281			-26.9	%
Business development		5,262			-5.1	%		7,713			-16.9	%
Clearing and brokerage fees		3,834			-3.7	%		3,953			-8.7	%
Occupancy and equipment		8,282			-8.0	%		12,695			-27.8	%
Communications		5,773			-5.6	%		7,148			-15.6	%
Other operating expenses		6,668			-6.4	%		16,140			-35.3	%
Restructuring charges		-			0.0	%		6,172			-13.5	%
Total non-interest expenses		101,372			-97.8	%		147,057			-321.9	%
Operating loss		(205,105	)		197.8	%		(192,742	)		421.9	%
OTHER INCOME (LOSS):
Gain on reduction in long-term debt		4,078			-4.0	%		-			0.0	%
Loss on subsidiary share transactions and other losses		(4	)		0.0	%		(2,450	)		5.4	%
Loss before income taxes and minority interest		(201,031	)		193.8	%		(195,192	)		427.3	%
Income tax (benefit) provision		(18,123	)		17.5	%		15,288			-33.4	%
Minority interest in (losses) earnings of consolidated subsidiary		(13,886	)		13.4	%		165			-0.4	%
Net loss	$	(169,022	)		162.9	%	$	(210,645	)		461.1	%
Basic loss per share	$	(1.12	)				$	(1.25	)
Diluted loss per share	$	(1.12	)				$	(1.25	)
Weighted average shares - basic		151,301						167,874
Weighted average shares - diluted		151,301						167,874

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

	Nine Months Ended
	September 30,
	2008			%			2007			%
REVENUES:
Investment banking:
Capital raising	$	75,635			198.9	%	$	256,971			182.6	%
Advisory		15,267			40.2	%		29,090			20.7	%
Institutional brokerage:
Principal transactions		13,455			35.4	%		7,156			5.1	%
Agency commissions		89,581			235.6	%		78,639			55.9	%
Asset management:
Base management fees		12,507			32.9	%		18,007			12.8	%
Incentive allocations and fees		-			0.0	%		302			0.2	%
Principal investment:
Interest		83,798			220.4	%		446,258			317.1	%
Net investment loss		(188,637	)		-496.2	%		(194,102	)		-137.9	%
Dividends		994			2.6	%		2,368			1.7	%
Mortgage banking:
Interest		36			0.1	%		47,186			33.5	%
Net investment income (loss)		463			1.2	%		(138,858	)		-98.7	%
Other		5,815			15.3	%		12,566			8.9	%
Total revenues		108,914			286.4	%		565,583			401.9	%
Interest expense		70,895			186.4	%		424,854			301.9	%
Revenues, net of interest expense		38,019			100.0	%		140,729			100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		192,035			505.1	%		291,822			207.4	%
Professional services		33,401			87.9	%		40,143			28.5	%
Business development		24,368			64.1	%		32,640			23.2	%
Clearing and brokerage fees		10,857			28.6	%		9,717			6.9	%
Occupancy and equipment		26,051			68.5	%		38,511			27.4	%
Communications		18,046			47.5	%		21,791			15.5	%
Other operating expenses		19,107			50.3	%		66,540			47.3	%
Goodwill impairment		-			0.0	%		54,752			38.9	%
Restructuring charges		-			0.0	%		25,519			18.1	%
Total non-interest expenses		323,865			852.0	%		581,435			413.2	%
Operating loss		(285,846	)		-752.0	%		(440,706	)		-313.2	%
OTHER INCOME:
(Loss) gain on subsidiary share transactions		(189	)		-0.5	%		104,058			74.0	%
Gain on reduction in long-term debt		4,078			10.8	%		-			0.0	%
Gain on disposition of subsidiary and other income		73,030			192.1	%		-			0.0	%
Loss before income taxes and minority interest		(208,927	)		-549.5	%		(336,648	)		-239.2	%
Income tax (benefit) provision		(28,903	)		-76.0	%		38,749			27.5	%
Minority interest in (losses) earnings of consolidated subsidiary		(31,053	)		-81.7	%		12,782			9.1	%
Net loss	$	(148,971	)		-391.8	%	$	(388,179	)		-275.8	%
Basic loss per share	$	(0.99	)				$	(2.27	)
Diluted loss per share	$	(0.99	)				$	(2.27	)
Weighted average shares - basic		151,134						171,308
Weighted average shares - diluted		151,134						171,308

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

	Nine Months Ended
	September 30, 2008			Q-3 08			Q-2 08			Q-1 08
Revenues
Investment banking:
Capital raising	$	75,635		$	6,763		$	3,962		$	64,910
Advisory		15,267			5,999			4,192			5,076
Institutional brokerage:
Principal transactions		13,455			2,610			4,888			5,957
Agency commissions		89,581			33,813			29,918			25,850
Asset management:
Base management fees		12,507			3,710			4,153			4,644
Principal investment:
Interest		83,798			31,057			26,827			25,914
Net investment loss		(188,637	)		(164,153	)		(4,797	)		(19,687	)
Dividends		994			307			258			429
Mortgage banking:
Interest		36			-			-			36
Net investment income (loss)		463			-			(5	)		468
Other		5,815			1,548			1,932			2,335
Total revenues		108,914			(78,346	)		71,328			115,932
Interest expense		70,895			25,387			21,858			23,650
Revenues, net of interest expense		38,019			(103,733	)		49,470			92,282
Non-interest expenses
Compensation and benefits		192,035			61,111			53,970			76,954
Professional services		33,401			10,442			10,492			12,467
Business development		24,368			5,262			6,812			12,294
Clearing and brokerage fees		10,857			3,834			3,393			3,630
Occupancy and equipment		26,051			8,282			8,580			9,189
Communications		18,046			5,773			6,255			6,018
Other operating expenses		19,107			6,668			7,055			5,384
Total non-interest expenses		323,865			101,372			96,557			125,936
Operating loss		(285,846	)		(205,105	)		(47,087	)		(33,654	)
Other income (loss)		76,919			4,074			(192	)		73,037
(Loss) income before income taxes and minority interest		(208,927	)		(201,031	)		(47,279	)		39,383
Income tax benefit		(28,903	)		(18,123	)		(9,974	)		(806	)
Minority interest in losses of consolidated subsidiary		(31,053	)		(13,886	)		(12,254	)		(4,913	)
Net (loss) income	$	(148,971	)	$	(169,022	)	$	(25,051	)	$	45,102
ROE (annualized)		-60.0	%		-204.3	%		-27.2	%		48.9	%
ROE (annualized-excluding AOCI) (1)		-58.3	%		-198.5	%		-23.8	%		41.8	%
Total shareholders' equity	$	268,097		$	268,097		$	343,686		$	344,408
Total shareholders' equity, net of AOCI (1)	$	274,547		$	274,547		$	436,093		$	455,761
Basic (loss) earnings per share	$	(0.99	)	$	(1.12	)	$	(0.17	)	$	0.30
Diluted (loss) earnings per share	$	(0.99	)	$	(1.12	)	$	(0.17	)	$	0.30
Ending shares outstanding (in thousands)		151,352			151,352			150,989			150,915
Book value per share	$	1.77		$	1.77		$	2.28		$	2.28
Book value per share, net of AOCI (1)	$	1.81		$	1.81		$	2.89		$	3.02
Gross assets under management (in millions)
Managed accounts	$	276.8		$	276.8		$	275.7		$	333.9
Hedge & offshore funds		29.6			29.6			35.5			45.1
Mutual funds		1,433.2			1,433.2			1,553.4			1,702.9
Private equity and venture capital funds		17.2			17.2			21.1			21.4
Total	$	1,756.8		$	1,756.8		$	1,885.7		$	2,103.3
Net assets under management (in millions)
Managed accounts	$	276.8		$	276.8		$	275.7		$	333.9
Hedge & offshore funds		27.5			27.5			33.4			40.4
Mutual funds		1,427.1			1,427.1			1,533.8			1,698.0
Private equity and venture capital funds		16.2			16.2			20.2			20.2
Total	$	1,747.6		$	1,747.6		$	1,863.1		$	2,092.5
Employee count		666			666			719			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)

	Year 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		497,256			50,998			115,007			152,368			178,883
Net investment loss		(216,429	)		(22,327	)		(131,960	)		(3,377	)		(58,765	)
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		584,597			19,014			66,387			319,163			180,033
Interest expense		477,437			52,583			112,072			143,231			169,551
Revenues, net of interest expense		107,160			(33,569	)		(45,685	)		175,932			10,482
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		(738,956	)		(298,250	)		(192,742	)		(30,919	)		(217,045	)
Other income (loss)		104,062			4			(2,450	)		105,677			831
(Loss) income before income taxes
and minority interest		(634,894	)		(298,246	)		(195,192	)		74,758			(216,214	)
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	$	(658,600	)	$	(270,421	)	$	(210,645	)	$	10,209		$	(187,743	)
ROE (annualized)		-84.2	%		-138.3	%		-90.2	%		3.7	%		-69.5	%
ROE (annualized-excluding AOCI) (1)		-82.7	%		-135.8	%		-88.7	%		3.7	%		-69.0	%
Total shareholders' equity	$	393,691		$	393,691		$	698,214		$	1,012,635		$	989,213
Total shareholders' equity, net of AOCI (1)	$	406,762		$	406,762		$	714,566		$	996,283		$	990,460
Basic (loss) earnings per share	$	(3.94	)	$	(1.77	)	$	(1.25	)	$	0.06		$	(1.09	)
Diluted (loss) earnings per share	$	(3.94	)	$	(1.77	)	$	(1.25	)	$	0.06		$	(1.09	)
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		$	4.50		$	5.73		$	5.73
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.
(2)	Effective January 1, 2008, the Company elected to change its method of amortizing and accreting premiums, discounts and other deferred costs on its mortgage-backed securities portfolio to the "Contractual Method", in accordance with SFAS 91. See the Company's quarterly filing filed with with the Securities and Exchange Commission for the period ending March 31, 2008 for further discussion.

 

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

ASSETS	30-Sep-08			31-Dec-07
Cash and cash equivalents	$	227,162		$	692,360
Restricted cash		172			14,166
Receivables		429,253			75,357
Investments:
Mortgage-backed securities, at fair value		2,592,379			1,791,480
Loans held for sale, net		-			65,074
Long-term investments		106,795			169,274
Trading securities, at fair value		25,092			19,057
Due from clearing broker		17,168			-
Derivative assets, at fair value		6,767			3,514
Intangible assets, net		9,372			9,837
Furniture, equipment, software and leasehold improvements, net		25,998			30,451
Prepaid expenses and other assets		65,790			74,385
Total assets	$	3,505,948		$	2,944,955
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Trading account securities sold but	$	4,601		$	206
not yet purchased, at fair value
Repurchase agreements		2,374,715			1,744,377
Securities purchased		227,191			-
Derivative liabilities, at fair value		3,788			3,558
Interest payable		4,438			5,746
Accrued compensation and benefits		39,237			57,000
Due to clearing broker		-			7,059
Accounts payable, accrued expenses and other liabilities		50,616			105,456
Short-term loan financing		-			63,981
Long-term debt		313,358			320,820
Total liabilities		3,017,944			2,308,203
Minority interest		219,907			243,061
Shareholders' equity:
Common stock, 159,360 and 151,883 shares		1,594			1,519
Additional paid-in capital		1,485,482			1,468,801
Accumulated other comprehensive loss, net of taxes		(6,450	)		(13,071	)
Accumulated deficit		(1,212,529	)		(1,063,558	)
Total shareholders' equity		268,097			393,691
Total liabilities and shareholders' equity	$	3,505,948		$	2,944,955