FBR & Co (FBRC) 8-K Third 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 Capital Markets Announces

Third Quarter 2007 Financial Results

ARLINGTON, VA, October 24, 2007 - FBR Capital Markets Corporation (NASDAQ: FBCM) (FBR Capital Markets) today reported net after-tax third quarter 2007 earnings of $0.3 million compared to an after-tax loss of $22.6 million, or $0.37 per share (diluted), in the third quarter of 2006. Net revenues for the third quarter of 2007 were $106.2 million compared to net revenues of $42.0 million in the third quarter of 2006.

For the nine months ending September 30, 2007, FBR Capital Markets earned $33.0 million after tax, or $0.51 per share (diluted), compared to an after-tax loss of $16.8 million, or $0.33 per share (diluted), for the first nine months of 2006. Net revenues for the first nine months of 2007 were $418.8 million compared to $244.0 million for the first nine months of 2006.

At the close of the third quarter, FBR Capital Markets had $527.0 million in equity, $387.1 million of cash, no debt, and its book value was $8.25 per share compared to $8.20 per share at the end of the second quarter of 2007. During the third quarter of 2007, FBR Capital Markets bought back one million shares of its common stock at an average price of $13.02 per share. On October 23, 2007, the FBR Capital Markets Board of Directors authorized the repurchase of up to an additional 5 million shares of common stock.

“The credit market disruptions in August led to a slowdown in equity capital markets activity in September, and, consequently, our investment banking and institutional brokerage revenues reflect that slowdown,” said Richard J. Hendrix, President and Chief Operating Officer of FBR Capital Markets. “Despite the softness in capital markets, we are pleased to see positive results from our investment in our merger and acquisitions business as evidenced by record quarterly and year-to-date performance. Third quarter results also reflect modestly higher expenses that are related to investments in our core capital markets franchise and in our asset management business consistent with our strategic plan.”

Equity Capital Markets

In the third quarter, FBR Capital Markets generated investment banking revenues of $66.2 million compared to $123.1 million in the second quarter of 2007 and $12.7 million in the third quarter of 2006. During the third quarter of 2007, the firm raised a total of $1.2 billion in six capital markets transactions, four of which, valued in the aggregate at $1.0 billion, were lead managed. FBR Capital Markets merger and acquisition advisory group completed 16 assignments and generated record M&A revenues of $16.5 million in the third quarter of 2007. During the first nine months of 2007, investment banking revenues were $293.0 million compared with $133.7 million in the first nine months of 2006.

In its institutional brokerage business, FBR Capital Markets recorded agency commissions and principal transactions revenue of $27.2 million in the third quarter of 2007 compared to $32.7 million in the second quarter of 2007 and $22.7 million in the third quarter of 2006. Institutional brokerage revenues for the first nine months of 2007 were $85.7 million compared to $82.0 million in the first nine months of 2006.

Asset Management

In FBR Capital Markets’ asset management/private wealth business, base management and incentive fees were $6.2 million for the third quarter of 2007, compared to $6.5 million in the second quarter of 2007 and $4.8 million in the third quarter of 2006. Assets under management as of September 30, 2007 were $2.7 billion compared to $2.9 billion at the end of the second quarter and $2.3 billion at the end of the third quarter of 2006.

Merchant Banking

As of September 30, 2007, FBR Capital Markets had 11 merchant banking portfolio investments with an aggregate initial investment value of $58.9 million. The company intends to continue to deploy capital into a diversified portfolio of merchant banking opportunities in the coming quarters.

Looking Ahead

“With net revenues for the first nine months more than 70% ahead of last year despite a challenging third quarter, we are pleased with FBR Capital Markets’ overall results,” said Eric F. Billings, Chairman and Chief Executive Officer. “We are confident in our ability to continue our strategic build-out – even in potentially difficult markets – based upon the company’s strong balance sheet, the talent and creativity of our people, and our history of innovation and focus on client needs.”

The firm will host an earnings conference call today, October 24, 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=204322&p=irol-irhome. Replays of the web cast will be available after the call.

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FBR Capital Markets Corporation (FBR Capital Markets), a majority-owned subsidiary of Friedman, Billings, Ramsey Group, Inc. (FBR), provides investment banking*, merger and acquisition advisory services*, institutional brokerage*, asset management and private wealth services. 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. FBR is headquartered in the Washington, D.C. metropolitan area with offices in Arlington, VA; Boston; Dallas; Houston; Irvine; New York; San Francisco; London, England; and Sydney, Australia. For more information, please visit www.fbrcapitalmarkets.com. 

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

Statements in this press release 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 our prospectus, which we filed with the SEC on October 5, 2007 and is available on our website (www.fbrcapitalmarkets.com) and on the SEC website (www.sec.gov).

Financial data follows.

# # #

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     FBR CAPITAL MARKETS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)

			Quarter ended September 30,
	2007		%			2006			%
REVENUES:
Investment banking:
Capital raising	$	49,691		46.8	%	$	6,852			16.3	%
Advisory		16,480		15.5	%		5,826			13.9	%
Institutional brokerage:
Principal transactions		968		0.9	%		(1,658	)		-3.9	%
Agency commissions		26,219		24.7	%		24,359			58.0	%
Mortgage trading interest		-		0.0	%		13,845			33.0	%
Mortgage trading net investment loss		-		0.0	%		(1,546	)		-3.7	%
Asset management:
Base management fees		6,119		5.8	%		4,879			11.6	%
Incentive allocations and fees		82		0.1	%		(30	)		-0.1	%
Interest income		5,223		4.9	%		8,439			20.1	%
Net investment income (loss)		1,493		1.4	%		(3,070	)		-7.3	%
Other		213		0.2	%		482			1.1	%
Total revenues		106,488		100.3	%		58,378			139.0	%
Interest expense		316		0.3	%		16,390			39.0	%
Revenues, net of interest expense		106,172		100.0	%		41,988			100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		67,035		63.1	%		46,398			110.5	%
Professional services		9,195		8.7	%		9,069			21.6	%
Business development		6,304		5.9	%		5,229			12.4	%
Clearing and brokerage fees		3,911		3.7	%		2,892			6.9	%
Occupancy and equipment		8,671		8.2	%		7,349			17.5	%
Communications		5,717		5.4	%		5,442			13.0	%
Other operating expenses		3,308		3.1	%		4,561			10.9	%
Total non-interest expenses		104,141		98.1	%		80,940			192.8	%
Net income (loss) before income taxes		2,031		1.9	%		(38,952	)		-92.8	%
Income tax provision (benefit)		1,764		1.7	%		(16,346	)		-38.9	%
Net income (loss)	$	267		0.2	%	$	(22,606	)		-53.9	%
Basic income (loss) per share	$	-				$	(0.37	)
Diluted income (loss) per share	$	-				$	(0.37	)
Weighted average shares - basic		64,122					60,283
Weighted average shares - diluted		64,185					60,283

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   FBR CAPITAL MARKETS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited)

			Nine Months Ended
			September 30,
	2007		%			2006			%
REVENUES:
Investment banking:
Capital raising	$	263,899		63.0	%	$	118,697			48.6	%
Advisory		29,090		6.9	%		14,976			6.1	%
Institutional brokerage:
Principal transactions		7,156		1.7	%		5,822			2.4	%
Agency commissions		78,521		18.7	%		76,172			31.2	%
Mortgage trading interest		-		0.0	%		48,638			19.9	%
Mortgage trading net investment loss		-		0.0	%		(2,989	)		-1.2	%
Asset management:
Base management fees		18,007		4.3	%		14,820			6.1	%
Incentive allocations and fees		302		0.1	%		924			0.4	%
Interest income		22,135		5.3	%		15,699			6.4	%
Net investment income		4,206		1.0	%		84			0.0	%
Other		754		0.3	%		2,613			1.2	%
Total revenues		424,070		101.3	%		295,456			121.1	%
Interest expense		5,252		1.3	%		51,407			21.1	%
Revenues, net of interest expense		418,818		100.0	%		244,049			100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		234,703		56.0	%		164,386			67.4	%
Professional services		32,705		7.8	%		29,903			12.3	%
Business development		27,550		6.6	%		24,314			10.0	%
Clearing and brokerage fees		9,599		2.3	%		8,211			3.4	%
Occupancy and equipment		23,980		5.7	%		22,121			9.1	%
Communications		16,931		4.0	%		15,015			6.2	%
Other operating expenses		8,834		2.2	%		10,785			4.2	%
Total non-interest expenses		354,302		84.6	%		274,735			112.6	%
Net income (loss) before income taxes		64,516		15.4	%		(30,686	)		-12.6	%
Income tax provision (benefit)		31,483		7.5	%		(13,885	)		-5.7	%
Net income (loss)	$	33,033		7.9	%	$	(16,801	)		-6.9	%
Basic earnings (loss) per share	$	0.51				$	(0.33	)
Diluted earnings (loss) per share	$	0.51				$	(0.33	)
Weighted average shares - basic		64,189					50,438
Weighted average shares - diluted		64,243					50,438

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   FBR CAPITAL MARKETS CORPORATION Financial & Statistical Supplement - Operating Results (Dollars in thousands, except per share data) (Unaudited)

	For the nine months ended September 30, 2007			Q-3 07			Q-2 07			Q-1 07
Revenues
Investment banking:
Capital raising	$	263,899		$	49,691		$	116,972		$	97,236
Advisory		29,090			16,480			6,152			6,458
Institutional brokerage:
Principal transactions		7,156			968			4,152			2,036
Agency commissions		78,521			26,219			28,526			23,776
Asset management:
Base management fees		18,007			6,119			6,360			5,528
Incentive allocations and fees		302			82			116			104
Interest		22,135			5,223			5,798			11,114
Net investment income		4,206			1,493			1,218			1,495
Other		754			213			465			76
Total revenues		424,070			106,488			169,759			147,823
Interest expense		5,252			316			274			4,662
Revenues, net of interest expense		418,818			106,172			169,485			143,161
Non-interest expenses
Compensation and benefits		234,703			67,035			89,877		��	77,791
Professional services		32,705			9,195			12,686			10,824
Business development		27,550			6,304			9,931			11,315
Clearing and brokerage fees		9,599			3,911			3,022			2,666
Occupancy and equipment		23,980			8,671			7,816			7,493
Communications		16,931			5,717			5,805			5,409
Other operating expenses		8,834			3,308			3,706			1,820
Total non-interest expenses		354,302			104,141			132,843			117,318
Net income before income taxes		64,516			2,031			36,642			25,843
Income tax provision		31,483			1,764			14,882			14,837
Net income	$	33,033		$	267		$	21,760		$	11,006
Net income before income taxes
as a percentage of net revenue		15.4	%		1.9	%		21.6	%		18.1	%
ROE (annualized)		8.7	%		0.2	%		17.2	%		8.9	%
Total shareholders' equity	$	527,045		$	527,045		$	528,341		$	501,858
Basic earnings per share	$	0.51		$	-		$	0.34		$	0.17
Diluted earnings per share	$	0.51		$	-		$	0.34		$	0.17
Ending shares outstanding (in thousands)		63,889			63,889			64,411			64,282
Book value per share	$	8.25		$	8.25		$	8.20		$	7.81
Gross assets under management (in millions)
Managed accounts	$	345.6		$	345.6		$	291.3		$	258.8
Hedge & offshore funds		61.7			61.7			61.7			67.1
Mutual funds		2,292.3			2,292.3			2,482.6			2,412.9
Private equity and venture capital funds		31.3			31.3			33.8			41.2
Total	$	2,730.9		$	2,730.9		$	2,869.4		$	2,780.0
Net assets under management (in millions)
Managed accounts	$	345.6		$	345.6		$	291.3		$	258.8
Hedge & offshore funds		58.1			58.1			58.1			62.5
Mutual funds		2,285.1			2,285.1			2,474.7			2,406.4
Private equity and venture capital funds		29.8			29.8			32.0			38.0
Total	$	2,718.6		$	2,718.6		$	2,856.1		$	2,765.7
Employee count		765			765			745			751

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   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		-3.6	%		14.6	%		-92.8	%		1.0	%		6.7	%
as a percentage of net revenue
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

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   FBR CAPITAL MARKETS CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) (Unaudited)

ASSETS	30-Sep-07		31-Dec-06
Cash and cash equivalents	$	387,133	$	151,417
Receivables		25,812		43,013
Investments:
Mortgage-backed securities, at fair value		-		415,391
Long-term investments		86,188		32,343
Trading securities, at fair value		19,120		18,180
Due from clearing broker		11,263		28,691
Intangible assets, net		10,228		11,000
Furniture, equipment and leasehold improvements, net		29,442		31,222
Prepaid expenses and other assets		31,800		28,162
Total assets	$	600,986	$	759,419
LIABILITIES AND SHAREHOLDERS ’ EQUITY
Liabilities:
Trading account securities sold short but	$	10,066	$	202
not yet purchased, at fair value
Repurchase agreements		-		189,155
Accrued compensation and benefits		31,943		43,836
Accounts payable, accrued expenses and other liabilities		31,932		36,602
Due to Affiliates		-		5,236
Total liabilities		73,941		275,031
Shareholders' equity:
Common stock		66		64
Additional paid-in capital		404,665		395,778
Accumulated other comprehensive income, net of taxes		1,278		543
Retained Earnings		121,036		88,003
Total shareholders' equity		527,045		484,388
Total liabilities and shareholders' equity	$	600,986	$	759,419

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