EX-99.1 2 dex991.htm EXHIBIT 99.1 Exhibit 99.1

Exhibit 99.1

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Contacts:

Media: Lauren Burk at 703-469-1004 or lburk@fbr.com

Investors: Paul Beattie at 703-312-9673 or pbeattie@fbr.com

FBR Announces Second Quarter 2006 Financial Results

ARLINGTON, Va., July 27, 2006 – Friedman, Billings, Ramsey Group, Inc. (NYSE: FBR) today announced its results for the quarter ended June 30, 2006. The company reported a net after-tax loss for the quarter of $30.2 million, or $0.18 per share (diluted), compared to after-tax earnings of $53.2 million, or $0.31 per share (diluted), for the second quarter of 2005. FBR’s net after-tax loss for the first six months of 2006 was $3.7 million, or $0.02 per share (diluted), compared to earnings of $77.7 million, or $0.46 per share (diluted), for the first six months of 2005.

The second quarter results include a non-cash $42.2 million write-down – $0.25 per share (diluted) – of certain equity investments in the firm’s merchant banking portfolio. Of this amount, $26.8 million was previously reflected as Accumulated Other Comprehensive Loss on the company’s balance sheet at March 31, 2006 and is now being recognized through the income statement. These results also reflect what was essentially a breakeven quarter for capital markets and an average balance in FBR’s mortgage securities portfolio of only $1.1 billion.

Separately, subsequent to the end of the quarter the company has recognized a net gain that is estimated to be approximately $120 million – or $0.70 per share – associated with the issuance and sale of shares in FBR Capital Markets Corporation (FBR Capital Markets), the company’s newly formed capital markets subsidiary. Book value per share as of June 30, 2006 was $7.39, and the company estimates that book value, after taking into account the FBR Capital Markets transaction, is $8.09 per share.

The company also announced a change in its dividend policy beginning in the third quarter of 2006. Going forward, the company will adopt a variable dividend policy under which dividends will be paid primarily out of current earnings generated at the real estate investment trust (REIT).

“Historically, it has always been the intent of the company to retain the earnings of its capital markets businesses,” said Eric F. Billings, FBR Chairman and Chief Executive Officer. “Having completed the FBR Capital Markets transaction, we believe it is appropriate to shift to a variable dividend policy that gives us the flexibility to maintain book value in the REIT while retaining earnings in our capital markets businesses to help fuel their growth.”

 

1

Principal Investment and Mortgage Finance

During the quarter, FBR began to redeploy capital made available by the mortgage-backed securities portfolio repositioning in the first quarter. The company expects to substantially complete this reinvestment activity in the third quarter. Additionally, First NLC (FNLC), the company’s non-conforming mortgage subsidiary, returned to profitability in the second quarter with pre-tax operating earnings of $4.7 million compared to a $4.8 million pre-tax operating loss in the previous quarter. The company expects to see improving results from principal investment and mortgage finance activities over the coming quarters.

Mortgage Portfolios

For the second quarter, FBR earned $126.4 million in interest on its mortgage investments compared to $135.1 million in the second quarter of 2005. The portfolio yield was 6.39% with a corresponding cost of funds of 5.38%. At the end of the quarter, the unpaid principal balance of the mortgage portfolio was approximately $8.6 billion.

The company’s investments in non-conforming mortgage loans averaged $6.0 billion with an average coupon of 7.23%, a one-month CPR of 33, and an ending net premium of $125.9 million, including deferred net origination costs. The net yield for the second quarter was 6.57% with a corresponding cost of funds of 5.41%. Pre-provision net interest margin totaled 92 basis points, net of 24 basis points of mortgage insurance costs.

The company’s investments in mortgage securities averaged $1.1 billion with an average coupon of 5.59%, a one-month CPR of 14.4, and an ending net premium of $14.8 million. The net yield for the second quarter was 5.43% with a corresponding cost of funds of 5.15%.

FNLC’s return to profitability was achieved in part by lowering its cost to originate to 177 basis points for the quarter ended June 30, 2006 while originating loans of $1.9 billion. This is a significant improvement from the first quarter of 2006 when FNLC’s cost to originate was 210 basis points and originations totaled $1.5 billion.

Merchant Banking

As of June 30, 2006, FBR made a determination in evaluating its merchant banking portfolio to recognize as “other than temporary impairments” the amounts by which the fair value of certain of its merchant banking investments were below their respective cost bases. As a result, FBR recognized a $42.2 million non-cash write-down in the value of the securities of five portfolio companies, $26.8 million of which had already been reflected in the company’s book value at the close of the first quarter of 2006. The decision to recognize the write-down relates to trading values as of June 30, 2006 and is not the result of any change in the company’s investment intent regarding these securities.

The merchant banking portfolio generated $4.1 million in dividends and $4.3 million in net realized gains during the quarter. When combined with the impairment charge, the merchant banking and long-term investments portfolio had a net loss of $34.2 million in the second quarter.

 

2

The total value of FBR’s merchant banking portfolio and other long-term investments at the end of the quarter was $255.7 million compared to $306.0 million on March 31, 2006. Of this total, $214.2 million was held in the merchant banking and long-term investments portfolio and $41.5 million was held in alternative asset investments.

FBR Capital Markets Corporation

During the second quarter, FBR formed FBR Capital Markets Corporation, a taxable subsidiary that acts as a holding company for FBR’s capital markets businesses – investment banking, institutional brokerage, research, and its asset management businesses, including FBR-sponsored mutual funds and private wealth management. In July, FBR Capital Markets Corporation sold shares of its common stock to institutional and accredited investors in a private transaction valued at $270 million, giving the newly formed subsidiary an initial market value of $960 million. FBR Group retains a beneficial 71.9% ownership interest in FBR Capital Markets, whose results will continue to be consolidated.

FBR believes this transaction will make it easier for investors to properly value what the company considers to be an exceptionally strong investment banking platform. Specifically, for two of the last three years FBR was the #1 ranked book-running manager for U.S. issuers of common stock in initial public offerings and Rule 144A offerings on a combined basis.1 FBR Capital Markets’ businesses have achieved an average annualized pre-tax return on average equity in excess of 50% over the past five calendar years.2 In addition, as part of this transaction, FBR Capital Markets has added an important strategic investor, Crestview Partners, a private equity firm founded by a group of former Goldman Sachs partners and colleagues who had served in leadership roles in the firm’s senior management and private equity business. FBR expects that Crestview, through its contribution of two board members will add great value to its business. Most importantly, this transaction provides FBR the financial resources to take advantage of market opportunities and to build out its merchant banking, trading, mergers and acquisitions, and asset management businesses consistent with its strategic plan.

In the second quarter of 2006, the three business units comprising FBR Capital Markets – equity capital markets, fixed income capital markets and asset management – generated net revenue of $91.4 million and pre-tax earnings of $0.9 million. The results by business unit were:

 

FBR Capital Markets

(in millions)

   

Pre-Tax

Income/(Loss)

  

Equity Capital Markets

    $ 5.4  

Fixed Income Capital Markets

      (1.8 )

Asset Management and Private Wealth

      (2.7 )

Total

    $ 0.9  

Equity Capital Markets

In the second quarter of 2006, FBR helped raise $1.5 billion for its clients in eight transactions, five of which it lead managed. In addition, FBR completed ten advisory assignments. Investment banking revenues for the quarter totaled $51.4 million, down from $101.2 million in the second quarter of 2005. For the first six months, FBR participated in 14 merger and acquisition and advisory assignments and helped clients raise a total of $6.8 billion in 24 capital-raising transactions – 17 of which it lead managed.

 

3

For the first six months of 2006, FBR ranked #1 in U.S. 144A common equity private placements, was the #1 book-running manager of common stock capital raises for U.S. companies with a market capitalization of $1 billion or less, and ranked #7 for initial public offerings and 144A common stock private placements combined.3

Institutional brokerage revenues for the first two quarters of 2006, net of related interest expense, rose about 27% to $64.7 million from $51.1 million in the first half of 2005. FBR continues to focus on building and extending trading relationships, particularly with middle market buy-side firms that value both the quality of FBR’s research and its trading expertise.

Fixed Income Capital Markets

Net revenue from FBR’s fixed income capital markets business was $3.1 million for the second quarter of 2006. The fixed income business continues to be challenged by the shape of the yield curve which flattened further and ended the second quarter inverted. This created a disincentive for investment in longer term securities, slowing the pace of underwritings and fixed income trading dramatically. During the first six months of 2006, FBR completed seven ABS underwritings – four of them lead managed – valued at $3.7 billion. FBR’s fixed income group continues to deploy capital in sectors of the mortgage-backed securities and asset-backed securities markets that offer attractive risk adjusted returns. The company is continuing to focus on and explore alternatives that will maximize the return on capital in this business.

Asset Management

Base management and incentive fees from FBR’s asset management businesses were $5.0 million for the second quarter compared to base and incentive fees of $6.1 million in the first quarter of 2006. Total assets under management were $2.3 billion as of June 30, 2006, down from $2.4 billion on March 31, 2006. Mutual fund assets currently managed by FBR Fund Advisers, Inc. totaled $1.8 billion at the end of the quarter compared to $2.2 billion at the close of the second quarter of 2005 and $1.8 billion at the close of the first quarter of 2006.

Outlook

“We are very pleased to have successfully completed our recent FBR Capital Markets transaction,” said Mr. Billings. “Having built one of the leading capital markets franchises in the United States, it was gratifying to see the enthusiasm with which the offering was received despite what was a challenging market environment. This event greatly enhances our opportunities for growth while generating meaningful value for shareholders. In looking ahead, we find ourselves fortunate to have a group of talented and dedicated employees, a knowledgeable and committed new strategic investor, and a strong capital markets platform with numerous growth opportunities.”

The firm will host an earnings conference call tomorrow morning, Friday, July 28, 2006 at 9:00 A.M. U.S. EDT. Investors wishing to listen to the earnings conference call at 9:00 A.M. U.S. EDT 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 following the call.

 

4

Friedman, Billings, Ramsey Group, Inc. provides investment banking*, institutional brokerage*, asset management, and private wealth through its operating subsidiaries and invests in mortgage-related assets and merchant banking opportunities. FBR focuses capital and financial expertise on eight industry sectors: consumer, diversified industrials, energy and natural resources, financial institutions, healthcare, insurance, real estate, and technology, media and telecommunications. FBR is headquartered in the Washington, D.C. metropolitan area with offices in Arlington, Va., Boston, Dallas, Denver, Houston, Irvine, London, New York, Phoenix, San Francisco and Seattle. Friedman, Billings, Ramsey Group, Inc. is the parent company of First NLC Financial Services, Inc., a non-conforming residential mortgage originator headquartered in Deerfield Beach, Florida. For more information, see http://www.fbr.com.

 

* Friedman, Billings, Ramsey & Co., Inc.
1 Source: Dealogic. Relates to total deal value of all common stock of U.S. issuers offered in IPOs or transactions exempt from SEC registration pursuant to rule 144A, on a combined basis. Transactions priced between 1/1/03 through 12/31/03 and 1/1/05 through 12/31/05, respectively, with apportioned credit to all book-runners. Includes only rank eligible transactions.
2 Pre-tax return on average equity as calculated for the legal entities contributed by FBR Group to the formation of FBR Capital Markets: net income before taxes / ((current year ending shareholders’ equity + prior year ending shareholders’ equity) / 2).
3 Source: Dealogic. Relates to total deal value of all common stock or common equity (stock and units combined), as noted, offered for: all U.S. issuers in transactions exempt from SEC registration pursuant to rule 144A; U.S. issuers valued at $1 billion or less in IPOs or follow-ons, including private placements; and all U.S. issuers in IPOs or transactions exempt from SEC registration pursuant to rule 144A combined, respectively. Transactions priced between 1/1/06 and 6/30/06, with apportioned credit to all book-runners. Includes only rank eligible transactions.

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.

# # #

 

5

LOGO  

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

     Quarter ended June 30,  
     2006     %     2005    %  

REVENUES:

          

Investment banking:

          

Capital raising

    $ 45,117     40.8 %   $ 95,039    45.9 %

Advisory

      6,281     5.7 %     6,180    3.0 %

Institutional brokerage:

          

Principal transactions

      2,630     2.4 %     4,680    2.3 %

Agency commissions

      28,491     25.8 %     18,677    9.0 %

Mortgage trading interest

      17,143     15.5 %     —      0.0 %

Mortgage trading net investment loss

      (209 )   -0.2 %     —      0.0 %

Asset management:

          

Base management fees

      5,065     4.6 %     7,813    3.8 %

Incentive allocations and fees

      (53 )   0.0 %     730    0.4 %

Principal investment:

          

Interest

      113,613     102.7 %     116,724    56.3 %

Net investment (loss) income

      (32,159 )   -29.1 %     17,738    8.6 %

Dividends

      4,059     3.7 %     8,371    4.0 %

Mortgage Banking:

          

Interest

      21,267     19.2 %     18,118    8.7 %

Net investment income

      29,401     26.6 %     14,559    7.0 %

Other

      5,465     4.8 %     3,455    1.7 %
                           

Total revenues

      246,111     222.5 %     312,084    150.7 %

Interest expense

      128,189     115.9 %     103,725    50.2 %

Provision for loan losses

      7,348     6.6 %     1,138    0.5 %
                           

Revenues, net of interest expense and provision for loan losses

      110,574     100.0 %     207,221    100.0 %
                           

NON-INTEREST EXPENSES:

          

Compensation and benefits

      71,732     64.9 %     80,015    38.6 %

Professional services

      12,925     11.7 %     20,186    9.7 %

Business development

      8,604     7.8 %     11,962    5.8 %

Clearing and brokerage fees

      3,082     2.8 %     2,040    1.0 %

Occupancy and equipment

      12,232     11.2 %     8,772    4.3 %

Communications

      6,013     5.4 %     5,300    2.6 %

Other operating expenses

      24,993     22.6 %     12,540    6.1 %
                           

Total non-interest expenses

      139,581     126.4 %     140,815    68.1 %
                           

Net (loss) income before income taxes

      (29,007 )   -26.4 %     66,406    31.9 %

Income tax provision

      1,240     1.1 %     13,163    6.4 %
                           

Net (loss) income

    $ (30,247 )   -27.5 %   $ 53,243    25.5 %
                           

Basic (loss) earnings per share

    $ (0.18 )     $ 0.31   
                   

Diluted (loss) earnings per share

    $ (0.18 )     $ 0.31   
                   

Weighted average shares - basic

      171,294         169,364   
                   

Weighted average shares - diluted

      171,294         170,101   
                   

LOGO  

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

     Six Months Ended June 30,  
     2006     %     2005    %  

REVENUES:

          

Investment banking:

          

Capital raising

    $ 111,452     38.8 %   $ 181,852    49.1 %

Advisory

      9,150     3.2 %     7,318    2.0 %

Institutional brokerage:

          

Principal transactions

      9,255     3.2 %     10,307    2.8 %

Agency commissions

      51,899     18.1 %     40,834    11.0 %

Mortgage trading interest

      34,793     12.1 %     —      0.0 %

Mortgage trading net investment loss

      (1,446 )   -0.5 %     —      0.0 %

Asset management:

          

Base management fees

      10,162     3.5 %     16,281    4.4 %

Incentive allocations and fees

      955     0.3 %     355    0.1 %

Principal investment:

          

Interest

      262,739     91.5 %     215,620    58.2 %

Net investment (loss) income

      (6,878 )   -2.4 %     13,880    3.7 %

Dividends

      7,758     2.7 %     11,811    3.2 %

Mortgage Banking:

          

Interest

      44,380     15.4 %     27,610    7.5 %

Net investment income

      40,139     14.0 %     18,040    4.9 %

Other

      10,452     3.7 %     5,951    1.6 %
                           

Total revenues

      584,810     203.6 %     549,859    148.5 %

Interest expense

      281,672     98.0 %     178,547    48.2 %

Provision for loan losses

      15,740     5.6 %     1,138    0.3 %
                           

Revenues, net of interest expense and provision for loan losses

      287,398     100.0 %     370,174    100.0 %
                           

NON-INTEREST EXPENSES:

          

Compensation and benefits

      155,229     54.0 %     155,814    42.1 %

Professional services

      27,190     9.5 %     33,836    9.1 %

Business development

      22,689     7.9 %     27,400    7.4 %

Clearing and brokerage fees

      5,398     1.9 %     4,072    1.1 %

Occupancy and equipment

      23,474     8.2 %     14,496    3.9 %

Communications

      11,620     4.0 %     9,332    2.5 %

Other operating expenses

      45,970     16.0 %     28,834    7.8 %
                           

Total non-interest expenses

      291,570     101.5 %     273,784    74.0 %
                           

Net (loss) income before income taxes

      (4,172 )   -1.5 %     96,390    26.0 %

Income tax (benefit) provision

      (479 )   -0.2 %     18,735    5.1 %
                           

Net (loss) income

    $ (3,693 )   -1.3 %   $ 77,655    20.9 %
                           

Basic (loss) earnings per share

    $ (0.02 )     $ 0.46   
                   

Diluted (loss) earnings per share

    $ (0.02 )     $ 0.46   
                   

Weighted average shares - basic

      171,012         168,741   
                   

Weighted average shares - diluted

      171,012         169,670   
                   

LOGO  

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, 2006		     Q-2 06     Q-1 06  

Revenues

       

Investment banking:

       

Capital raising

    $ 111,452     $ 45,117     $ 66,335  

Advisory

      9,150       6,281       2,869  

Institutional brokerage:

       

Principal transactions

      9,255       2,630       6,625  

Agency commissions

      51,899       28,491       23,408  

Mortgage trading interest

      34,793       17,143       17,650  

Mortgage trading net investment loss

      (1,446 )     (209 )     (1,237 )

Asset management:

       

Base management fees

      10,162       5,065       5,097  

Incentive allocations and fees

      955       (53 )     1,008  

Principal investment:

       

Interest

      262,739       113,613       149,126  

Net investment (loss) income

      (6,878 )     (32,159 )     25,281  

Dividends

      7,758       4,059       3,699  

Mortgage Banking:

       

Interest

      44,380       21,267       23,113  

Net investment income

      40,139       29,401       10,738  

Other

      10,452       5,465       4,987  
                        

Total revenues

      584,810       246,111       338,699  

Interest expense

      281,672       128,189       153,483  

Provision for loan losses

      15,740       7,348       8,392  
                        

Revenues, net of interest expense and provision for loan losses

      287,398       110,574       176,824  
                        

Non-interest expenses

       

Compensation and benefits

      155,229       71,732       83,497  

Professional services

      27,190       12,925       14,265  

Business development

      22,689       8,604       14,085  

Clearing and brokerage fees

      5,398       3,082       2,316  

Occupancy and equipment

      23,474       12,232       11,242  

Communications

      11,620       6,013       5,607  

Other operating expenses

      45,970       24,993       20,977  
                        

Total non-interest expenses

      291,570       139,581       151,989  
                        

Net (loss) income before income taxes

      (4,172 )     (29,007 )     24,835  

Income tax (benefit) provision

      (479 )     1,240       (1,719 )
                        

Net (loss) income

    $ (3,693 )   $ (30,247 )   $ 26,554  
                        

Net (loss) income before income taxes as a percentage of net revenue

      -1.5 %     -26.2 %     14.0 %

ROE (annualized)

      -0.6 %     -9.4 %     8.2 %

ROE (annualized-excluding AOCI) (1)

      -0.6 %     -9.5 %     8.1 %

Total shareholders’ equity

    $ 1,270,361     $ 1,270,361     $ 1,301,949  

Total shareholders’ equity, net of AOCI (1)

    $ 1,250,117     $ 1,250,117     $ 1,306,450  

Basic earnings (loss) per share

    $ (0.02 )   $ (0.18 )   $ 0.16  

Diluted earnings (loss) per share

    $ (0.02 )   $ (0.18 )   $ 0.16  

Ending shares outstanding (in thousands)

      171,812       171,812       171,236  

Book value per share

    $ 7.39     $ 7.39     $ 7.60  

Book value per share, net of AOCI (1)

    $ 7.28     $ 7.28     $ 7.63  

Gross assets under management (in millions)

       

Managed accounts

    $ 386.8     $ 386.8     $ 383.9  

Hedge & offshore funds

      125.8       125.8       136.6  

Mutual funds

      1,750.6       1,750.6       1,849.5  

Private equity and venture capital funds

      48.2       48.2       50.5  
                        

Total

    $ 2,311.4     $ 2,311.4     $ 2,420.5  
                        

Net assets under management (in millions)

       

Managed accounts

    $ 386.8     $ 386.8     $ 380.9  

Hedge & offshore funds

      116.1       116.1       125.4  

Mutual funds

      1,742.6       1,742.6       1,843.4  

Private equity and venture capital funds

      46.7       46.7       49.1  
                        

Total

    $ 2,292.2     $ 2,292.2     $ 2,398.8  
                        

Employee count

      2,651       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.

LOGO  

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

Financial & Statistical Supplement - Operating Results

(Dollars in thousands, except per share data)

(Unaudited)

 

    

For the

year ending

December 31, 2005

     Q-4 05     Q-3 05     Q-2 05     Q-1 05  
Revenues           

Investment banking:

           

Capital raising

    $ 356,753     $ 88,866     $ 86,035     $ 95,039     $ 86,813  

Advisory

      17,759       7,415       3,026       6,180       1,138  

Institutional brokerage:

           

Principal transactions

      17,950       3,788       4,348       4,680       5,627  

Agency commissions

      82,778       21,006       20,445       18,677       22,157  

Mortgage trading interest

      30,859       19,555       11,304       —         —    

Mortgage trading net investment loss

      (3,820 )     (1,419 )     (2,401 )     —         —    

Asset management:

           

Base management fees

      30,348       6,153       7,914       7,813       8,468  

Incentive allocations and fees

      1,929       742       832       730       (375 )

Principal investment:

           

Interest

      549,832       189,811       144,401       116,724       98,896  

Net investment (loss) income

      (239,754 )     (258,500 )     4,866       17,738       (3,858 )

Dividends

      36,622       16,039       8,772       8,371       3,440  

Mortgage Banking:

           

Interest

      87,958       30,965       29,383       18,118       9,492  

Net investment (loss) income

      13,741       (21,899 )     17,600       14,559       3,481  

Other

      12,351       3,024       3,376       3,455       2,496  
                                        

Total revenues

      995,306       105,546       339,901       312,084       237,775  

Interest expense

      546,313       211,393       156,373       103,725       74,822  

Provision for loan losses

      14,291       8,263       4,890       1,138       —    
                                        

Revenues, net of interest expense and provision for loan losses

      434,702       (114,110 )     178,638       207,221       162,953  
                                        

Non-interest expenses

           

Compensation and benefits

      331,492       87,330       88,348       80,015       75,799  

Professional services

      66,550       16,556       16,158       20,186       13,650  

Business development

      46,648       10,433       8,815       11,962       15,438  

Clearing and brokerage fees

      8,882       2,447       2,363       2,040       2,032  

Occupancy and equipment

      34,044       10,151       9,397       8,772       5,724  

Communications

      20,634       5,741       5,561       5,300       4,032  

Other operating expenses

      70,679       24,984       16,861       12,540       16,294  
                                        

Total non-interest expenses

      578,929       157,642       147,503       140,815       132,969  
                                        

Net (loss) income before income taxes

      (144,227 )     (271,752 )     31,135       66,406       29,984  

Income tax provision (benefit)

      26,683       (142 )     8,090       13,163       5,572  
                                        

Net (loss) income

    $ (170,910 )   $ (271,610 )   $ 23,045     $ 53,243     $ 24,412  
                                        

Net (loss) income before income taxes as a percentage of net revenue

      -33.2 %     238.1 %     17.4 %     32.0 %     18.4 %

ROE (annualized)

      -11.9 %     -80.5 %     6.3 %     14.3 %     6.4 %

ROE (annualized-excluding AOCI) (1)

      -11.7 %     -74.7 %     5.9 %     13.8 %     6.0 %

Total shareholders’ equity

    $ 1,304,170     $ 1,304,170     $ 1,394,137     $ 1,519,021     $ 1,458,861  

Total shareholders’ equity, net of AOCI (1)

    $ 1,305,147     $ 1,305,147     $ 1,603,305     $ 1,631,955     $ 1,629,293  

Basic earnings (loss) per share

    $ (1.01 )   $ (1.60 )   $ 0.14     $ 0.31     $ 0.15  

Diluted earnings (loss) per share

    $ (1.01 )   $ (1.60 )   $ 0.14     $ 0.31     $ 0.14  

Ending shares outstanding (in thousands)

      170,264       170,264       169,891       169,617       169,214  

Book value per share

    $ 7.66     $ 7.66     $ 8.21     $ 8.96     $ 8.62  

Book value per share, net of AOCI (1)

    $ 7.67     $ 7.67     $ 9.44     $ 9.62     $ 9.63  

Gross assets under management (in millions)

 

        

Managed accounts

    $ 463.4     $ 463.4     $ 437.2     $ 510.4     $ 242.4  

Hedge & offshore funds

      154.3       154.3       239.0       463.1       601.1  

Mutual funds

      1,883.3       1,883.3       2,078.1       2,185.0       2,213.9  

Private equity and venture capital funds

      56.2       56.2       42.7       41.3       69.5  
                                        

Total

    $ 2,557.2     $ 2,557.2     $ 2,797.0     $ 3,199.8     $ 3,126.9  
                                        

Net assets under management (in millions)

 

        

Managed accounts

    $ 329.5     $ 329.5     $ 255.5     $ 257.3     $ 223.0  

Hedge & offshore funds

      150.5       150.5       227.8       401.1       490.3  

Mutual funds

      1,872.8       1,872.8       2,069.9       2,176.6       2,204.2  

Private equity and venture capital funds

      46.8       46.8       39.9       37.8       66.3  
                                        

Total

    $ 2,399.6     $ 2,399.6     $ 2,593.1     $ 2,872.8     $ 2,983.8  
                                        

Employee count

      2,449       2,449       2,455       2,226       2,123  
                                        
(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.

LOGO  

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

ASSETS    30-Jun-06     31-Dec-05  

Cash and cash equivalents

    $ 75,346     $ 238,615  

Restricted cash

      5,656       6,101  

Receivables

      207,292       259,519  

Investments:

     

Mortgage-backed securities, at fair value

      3,212,655       8,002,561  

Loans held for investment, net

      5,632,519       6,841,266  

Loans held for sale, net

      879,584       963,807  

Long-term investments

      255,748       347,644  

Reverse repurchase agreements

      422,799       283,824  

Trading securities, at fair value

      1,027,084       1,032,638  

Due from clearing broker

      69,008       71,065  

Derivative assets, at fair value

      109,563       70,636  

Goodwill

      162,765       162,765  

Intangible assets, net

      23,789       26,485  

Furniture, equipment and leasehold improvements, net

      45,059       46,382  

Prepaid expenses and other assets

      83,242       82,482  
                

Total assets

    $ 12,212,109     $ 18,435,790  
                

LIABILITIES AND SHAREHOLDERS’ EQUITY

     

Liabilities:

     

Trading account securities sold short but not yet purchased, at fair value

    $ 130,561     $ 150,547  

Commercial paper

      2,105,211       6,996,950  

Repurchase agreements

      2,532,821       2,698,619  

Securities purchased

      105,448       —    

Derivative liabilities, at fair value

      39,798       31,952  

Dividends payable

      34,823       34,588  

Interest payable

      10,428       12,039  

Accrued compensation and benefits

      58,304       82,465  

Accounts payable, accrued expenses and other liabilities

      82,059       82,576  

Temporary subordinated loan payable

      —         75,000  

Securitization financing for loans held for investment, net

      5,518,098       6,642,198  

Long-term debt

      324,197       324,686  
                

Total liabilities

      10,941,748       17,131,620  
                

Shareholders’ equity:

     

Common stock, 174,132 and 172,854 shares

      1,741       1,729  

Additional paid-in capital

      1,560,669       1,547,128  

Employee stock loan receivable including accrued interest (399 and 551 shares)

      (2,999 )     (4,018 )

Deferred compensation, net

      (13,626 )     (15,602 )

Accumulated other comprehensive income (loss), net of taxes

      20,244       (977 )

Accumulated deficit

      (295,668 )     (224,090 )
                

Total shareholders’ equity

      1,270,361       1,304,170  
                

Total liabilities and shareholders’ equity

    $ 12,212,109     $ 18,435,790