FBR & Co (FBRC) 8-K FBR Capital Markets Reports First Quarter 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 Reports First Quarter Results

ARLINGTON, VA, April 23, 2008 - FBR Capital Markets Corporation (NASDAQ: FBCM) (FBR Capital Markets) today 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.

The first quarter results include expenses and charges – primarily severance costs, business development expenses, and a non-cash tax charge relating to past grants of restricted stock – that are higher than normal along with write-downs on merchant banking investments. These items totaled approximately $16 million, and absent these items, the company would have generated an operating profit for the first quarter. 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.

“It is during challenging market environments that the strength of our unique distribution platform and our leadership as a book-running equity capital markets firm serve us well,” said Richard J. Hendrix, President and Chief Operating Officer of FBR Capital Markets. “Difficult markets frequently yield great opportunities, and one of our key strengths is the ability to generate significant revenues from even a small number of innovative transactions. Our role as the lead placement agent and financial advisor behind the recent successful $1.35 billion private debt offering for Thornburg Mortgage is a clear demonstration of that capability.”

Capital Markets

In the first quarter, FBR Capital Markets generated investment banking revenues of $70.0 million compared to $30.6 million in the fourth quarter of 2007 and $103.7 million in the first quarter of 2007. During the first quarter of 2008, the firm raised a total of $2.9 billion in nine capital markets transactions, four of which were lead managed. During the same period, FBR Capital Markets’ merger and acquisition advisory group completed five assignments and generated revenues of $5.1 million.

In its institutional brokerage business, FBR Capital Markets posted record agency commissions and principal transactions revenue of $31.8 million in the first quarter of 2008 compared to $29.1 million in the fourth quarter of 2007 and $25.8 million in the first quarter of 2007 - a year over year increase of 23%.

In March, FBR Capital Markets acquired East Peak Advisors, LLC, a San Francisco Bay-area investment bank serving companies in the information technology sector. The East Peak acquisition is part of the strategic build-out of FBR Capital Markets’ investment banking platform and brings to the firm investment bankers with particular expertise in the wireless, internet, and technology infrastructure sectors.

Asset Management

In FBR Capital Markets’ asset management/private wealth business, base management and incentive fees were $4.6 million for the first quarter of 2008, compared to $5.6 million in the fourth quarter of 2007 and $5.6 million in the first quarter of 2007. Assets under management as of March 31, 2008 were $2.1 billion compared to $2.5 billion at the end of the fourth quarter of 2007 and $2.8 billion as of March 31, 2007.

Merchant Banking

As of March 31, 2008 FBR Capital Markets had 11 merchant banking portfolio investments with an investment value of $54.0 million, compared to $58.3 million at the close of the fourth quarter of 2007.

Looking Ahead

“In today’s markets, we are striving to strike a balance between streamlining our core businesses to be as efficient as possible while also making strategic investments to grow where opportunities present themselves,” said Eric F. Billings, Chairman and Chief Executive Officer. “We continue to look for ways to strengthen our core businesses and turn dislocations in our sectors to our advantage. We have historically performed well in difficult markets, and we are well positioned in terms of balance sheet strength and liquidity to take advantage of these circumstances.”

The firm will host an earnings conference call today, Wednesday, April 23, 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=204322&p=irol-irhome.

Replays of the webcast will be available after the call.

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*, research*, and 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 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. For a discussion of these and other risks and important factors that could affect our future results and financial condition, see "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

Financial data follows.

# # #

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

				Three Months Ended
				March 31,
	2008			%			2007		%
REVENUES:
Investment banking:
Capital raising	$	64,909			62.4	%	$	97,236		67.9	%
Advisory		5,076			4.9	%		6,458		4.5	%
Institutional brokerage:
Principal transactions		5,957			5.7	%		2,036		1.4	%
Agency commissions		25,816			24.8	%		23,776		16.6	%
Asset management:
Base management fees		4,644			4.5	%		5,528		3.9	%
Incentive allocations and fees		-			0.0	%		104		0.1	%
Interest income		2,461			2.4	%		11,114		7.8	%
Net investment (loss) income		(5,028	)		-4.8	%		1,495		1.0	%
Other		244			0.1	%		76		0.1	%
Total revenues		104,079			100.0	%		147,823		103.3	%
Interest expense		33			0.0	%		4,662		3.3	%
Revenues, net of interest expense		104,046			100.0	%		143,161		100.0	%
NON-INTEREST EXPENSES:
Compensation and benefits		70,863			68.1	%		77,791		54.3	%
Professional services		11,163			10.7	%		10,824		7.6	%
Business development		12,020			11.6	%		11,315		7.9	%
Clearing and brokerage fees		3,598			3.5	%		2,666		1.9	%
Occupancy and equipment		8,607			8.3	%		7,493		5.2	%
Communications		6,043			5.8	%		5,409		3.8	%
Other operating expenses		2,733			2.6	%		1,820		1.2	%
Total non-interest expenses		115,027			110.6	%		117,318		81.9	%
(Loss) income before income taxes		(10,981	)		-10.6	%		25,843		18.1	%
Income tax (benefit) provision		(807	)		-0.8	%		14,837		10.4	%
Net (loss) income	$	(10,174	)		-9.8	%	$	11,006		7.7	%
Basic (loss) earnings per share	$	(0.16	)				$	0.17
Diluted (loss) earnings per share	$	(0.16	)				$	0.17
Weighted average shares - basic (in thousands)		64,430						64,149
Weighted average shares - diluted (in thousands)		64,430						64,155

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

	Q-1 08
Revenues
Investment banking:
Capital raising	$	64,909
Advisory		5,076
Institutional brokerage:
Principal transactions		5,957
Agency commissions		25,816
Asset management:
Base management fees		4,644
Interest		2,461
Net investment loss		(5,028	)
Other		244
Total revenues		104,079
Interest expense		33
Revenues, net of interest expense		104,046
Non-interest expenses
Compensation and benefits		70,863
Professional services		11,163
Business development		12,020
Clearing and brokerage fees		3,598
Occupancy and equipment		8,607
Communications		6,043
Other operating expenses		2,733
Total non-interest expenses		115,027
Loss before income taxes		(10,981	)
Income tax benefit		(807	)
Net loss	$	(10,174	)
Loss before income taxes
as a percentage of net revenue		-10.6	%
ROE (annualized)		-8.1	%
Total shareholders' equity	$	503,033
Basic loss per share	$	(0.16	)
Diluted loss per share	$	(0.16	)
Ending shares outstanding (in thousands)		64,765
Book value per share	$	7.77
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		707

 

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

	For the
	year ended
	December 31, 2007			Q-4 07			Q-3 07			Q-2 07			Q-1 07
Revenues
Investment banking:
Capital raising	$	289,545		$	25,646		$	49,691		$	116,972		$	97,236
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		104,633			26,112			26,219			28,526			23,776
Asset management:
Base management fees		23,549			5,542			6,119			6,360			5,528
Incentive allocations and fees		401			99			82			116			104
Interest		25,760			3,625			5,223			5,798			11,114
Net investment (loss) income		(4,497	)		(8,703	)		1,493			1,218			1,495
Other		1,290			536			213			465			76
Total revenues		484,896			60,826			106,488			169,759			147,823
Interest expense		5,337			85			316			274			4,662
Revenues, net of interest expense		479,559			60,741			106,172			169,485			143,161
Non-interest expenses
Compensation and benefits		287,752			53,049			67,035			89,877			77,791
Professional services		45,303			12,598			9,195			12,686			10,824
Business development		37,356			9,806			6,304			9,931			11,315
Clearing and brokerage fees		12,373			2,774			3,911			3,022			2,666
Occupancy and equipment		33,197			9,217			8,671			7,816			7,493
Communications		22,434			5,503			5,717			5,805			5,409
Other operating expenses		15,868			7,034			3,308			3,706			1,820
Total non-interest expenses		454,283			99,981			104,141			132,843			117,318
Net income (loss) before income taxes		25,276			(39,240	)		2,031			36,642			25,843
Income tax provision (benefit)		20,032			(11,451	)		1,764			14,882			14,837
Net income (loss)	$	5,244		$	(27,789	)	$	267		$	21,760		$	11,006
Net income (loss) before income taxes
as a percentage of net revenue		5.3	%		-64.6	%		1.9	%		21.6	%		18.1	%
ROE (annualized)		1.1	%		-22.4	%		0.2	%		17.2	%		8.9	%
Total shareholders' equity	$	506,740		$	506,740		$	527,045		$	528,341		$	501,858
Basic earnings (loss) per share	$	0.08		$	(0.43	)	$	-		$	0.34		$	0.17
Diluted earnings (loss) per share	$	0.08		$	(0.43	)	$	-		$	0.34		$	0.17
Ending shares outstanding (in thousands)		64,059			64,059			63,889			64,411			64,282
Book value per share	$	7.91		$	7.91		$	8.25		$	8.20		$	7.81
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		758			758			765			745			751

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

ASSETS	31-Mar-08			31-Dec-07
Cash and cash equivalents	$	313,305		$	383,558
Receivables		34,377			30,923
Investments:
Mortgage-backed securities, at fair value		397,500			-
Long-term investments		77,137			84,076
Trading securities, at fair value		42,675			19,057
Due from clearing broker		15,472			-
Intangible assets, net		10,147			9,837
Furniture, equipment and leasehold improvements, net		27,707			29,092
Prepaid expenses and other assets		51,696			52,189
Total assets	$	970,016		$	608,732
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Trading account securities sold short but	$	60		$	206
not yet purchased, at fair value
Repurchase agreements		377,625			-
Accrued compensation and benefits		35,142			45,432
Accounts payable, accrued expenses and other liabilities		53,636			48,778
Due to clearing broker		-			7,512
Due to affiliates		520			64
Total liabilities		466,983			101,992
Shareholders' equity:
Common stock		67			66
Additional paid-in capital		420,878			412,805
Restricted stock units		727			-
Accumulated other comprehensive (loss) income, net of taxes		(1,712	)		622
Retained earnings		83,073			93,247
Total shareholders' equity		503,033			506,740
Total liabilities and shareholders' equity	$	970,016		$	608,732