-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JMoJSUf7MqBXr3MSUM7DIGYExJAZ//xinqBFRT+ffIcbOknNu9VBfhgLf9zO2OOC p/E6MbOofAq72CkeSVpyHg== 0001209028-03-000029.txt : 20030507 0001209028-03-000029.hdr.sgml : 20030507 20030507151922 ACCESSION NUMBER: 0001209028-03-000029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030507 ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030507 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRIEDMAN BILLINGS RAMSEY GROUP INC CENTRAL INDEX KEY: 0001209028 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 320045263 STATE OF INCORPORATION: VA FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-50230 FILM NUMBER: 03686166 BUSINESS ADDRESS: STREET 1: 1001 19TH STREET NORTH CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7033129500 FORMER COMPANY: FORMER CONFORMED NAME: FOREST MERGER CORP DATE OF NAME CHANGE: 20021205 8-K 1 fbr03qtr1.txt REPORT OF EARNINGS RELEASE - -------------------------------------------------------------------------------- FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported): May 7, 2003 FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. (Exact name of Registrant as specified in its charter) Virginia 32-0045263 0-50230 (State or other (I.R.S. Employer incorporation or (Commission File Number) jurisdiction of organization) Identification No.) 1001 Nineteenth Street North Arlington, VA 22209 (Address of principal executive offices) (Zip code) (703) 312-9500 (Registrant's telephone number including area code) Item 9. Regulation FD Disclosure (the following discussion is also furnished under "Item 12. Results of Operations and Financial Condition") In accordance with SEC Release No. 33-8216, the following information is furnished under "Item 12. Results of Operations and Financial Condition", and is furnished under "Item 9. Regulation FD Disclosure". 1. On May 7, 2003, Friedman, Billings, Ramsey Group, Inc. issued a press release announcing its earnings for the 1st quarter 2003. The entire text of that press release is attached hereto as Exhibit 99.1. 2. Friedman, Billings, Ramsey Group, Inc. furnishes herewith, as Exhibit 99.2, Unaudited Condensed Pro Forma Consolidated Statements of Operations for the Quarter Ended March 31, 2002. 3. Friedman, Billings, Ramsey Group, Inc. furnishes herewith, as Exhibit 99.3, a script of the prepared statements for the company's First Quarter 2003 Conference Call, May 7, 2003. Exhibit 99.1 Friedman, Billings, Ramsey Group, Inc. Press Release dated May 7, 2003. Exhibit 99.2 Unaudited Condensed Pro Forma Consolidated Statements of Operations for the Quarter Ended March 31, 2002. Exhibit 99.3 Script of the prepared statements for the company's First Quarter 2003 Earnings Conference Call, May 7, 2003. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Date: May 7, 2003 By: /s/ Emanuel J. Friedman -------------------------------- Emanuel J. Friedman Co-Chairman & Co-Chief Executive Officer EX-99. 1 3 release03qtr1.txt FIRST QUARTER 03 EARNINGS RELEASE [GRAPHIC OMITTED][GRAPHIC OMITTED] Investor Contact: Kurt Harrington 703.312.9647 or kharrington@fbr.com Media Contacts: Bob Leahy 703.312.9745 or bleahy@fbr.com or Bill Dixon 703.469.1092 or bdixon@fbr.com FBR Reports First Quarter 2003 Net Income of $5.7 Million, or $0.12 per Share (Basic); Q1 Pro Forma Earnings for the Merged Company of $31.5 Million, or $0.24 per Share (Basic) ARLINGTON, Va., May 7, 2003 - Friedman, Billings, Ramsey Group, Inc. (NYSE: FBR) today reported net income after tax of $5.7 million, or $0.12 (basic and diluted) per share on revenues of $49.5 million for the quarter ended March 31, 2003, compared to net income before extraordinary gain of $8.9 million, or $0.19 (basic and diluted) per share on revenues of $54.4 million for the first quarter of 2002. In the first quarter of 2003, the company's results reflected a $2.8 million income tax provision while in the first quarter of 2002, the company's results reflected no provision for income taxes due to operating loss carry forwards that were exhausted during 2002. Pre-tax income for the first quarter 2003 was $8.6 million, compared to $8.9 million before extraordinary gain for the first quarter 2002. On March 31, 2003, FBR completed its merger with FBR Asset Investment Corporation, forming a new company known as Friedman, Billings, Ramsey Group, Inc. Accordingly, the company also is disclosing its results on a pro forma basis, in accordance with SEC Regulation S-X, Article 11, assuming the merger had occurred on January 1, 2002. On this basis, the company reported pro forma net income after tax of $31.5 million, or $0.24 (basic), $0.23 (diluted) per share on revenues of $96.8 million for the quarter ended March 31, 2003. The merger pro forma results for the first quarter 2003 include: o merger-related expenses of $2.8 million, or $0.02 per share (basic), and o the negative impact of purchase accounting adjustments resulting from the merger, of $3.0 million, or $0.02 per share (basic). o In addition, average mortgage-backed securities (MBS) assets during the quarter were $5.7 billion at an average net interest spread of 2.30%. As of today, the company has contracted for additional MBS purchases that would result in a portfolio of approximately $7.5 billion by June 30, meeting the company's targeted asset levels. "We clearly expect that our earnings in the coming quarters will support our $0.34 quarterly dividend with the deployment of our excess capital at targeted leverage levels in the mortgage-backed portfolio," said Emanuel J. Friedman, Co-Chairman and Co-CEO. "As a result of the merger, we are already seeing a very positive impact in the second quarter in our capital markets business, especially in our success in attracting investment banking business," said Co-Chairman and Co-CEO Eric F. Billings. "As of today, we are engaged on 31 lead-managed capital raising and M&A transactions representing more than $3.5 billion of potential transaction value. In the first quarter of 2003 we completed two lead-managed transactions and five M&A transactions totaling $355 million in transaction value. We are therefore highly optimistic that our capital markets business, which was close to break-even level in the first quarter, can provide the growth and retained earnings that we expect over future quarters, in addition to the cash dividends supported primarily by the MBS portfolio." At March 31, 2003, FBR's MBS portfolio, representing the aggregate of the former FBR Asset's portfolio and FBR Group's own MBS portfolio, totaled $5.0 billion at fair value and the company's corresponding repurchase agreement liabilities were $4.3 billion, resulting in leverage to allocated capital of 6.5 to 1 in the MBS portfolio. The company targets leverage of 6 to 11 times in the MBS portfolio. The weighted average annualized yield of FBR's MBS portfolio was 4.07% during the first quarter and the company's weighted average cost of financing for the mortgage-backed securities was 1.77% (including the cost of hedging) resulting in an average net interest spread of 2.30% (combining the portfolios of FBR Asset and FBR Group pre-merger). The spread in the first quarter was down slightly from FBR Asset's spread of 2.47% during the fourth quarter 2002 as a result of lower asset yields, partially offset by a lower cost of funds. Starting in mid-July 2003, approximately $3 billion of one-year interest rate swaps will expire with a cash basis funding cost of 2.15% which has been substantially replaced with funding that will expire in April 2004 with a funding cost of 1.35%. Prior to the merger, FBR Asset's MBS portfolio premium equaled 1.7%. Purchase accounting adjustments recorded at the date of the merger resulted in an increase in the premium of the MBS portfolio to 2.7%. The increased premium will be amortized against the coupon of the securities in future periods, and such amortization is also reflected in the merger pro forma. The increased premium amortization will have no impact on the cash equivalent earnings generated by the portfolio. At March 31, 2003, the company continued to maintain a low effective duration of 1.21 in its mortgage-backed securities portfolio. As of March 31, 2003 the company owned no fixed rate mortgage pools in its portfolio, and continued to own only adjustable rate mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. FBR's merchant banking portfolio, representing the aggregate of the former FBR Asset's opportunity portfolio and FBR Group's own long term investments, totaled $173.1 million, or approximately 17% of the company's equity at March 31, 2003. Of this total, $112.7 million or 65.1% represented securities of publicly traded companies and companies whose securities trade among Qualified Institutional Buyers pursuant to SEC Rule 144A. Since March 31, 2003, the market value of these merchant banking securities has increased significantly. The results of FBR's capital markets businesses (investment banking and institutional brokerage) during the first quarter 2003 reflected the poor overall equity market conditions. Nonetheless, in the investment banking business, FBR lead-managed one of only four U.S.- issuer IPOs that were executed in the first quarter. From the offering date through May 6, 2003, the offering is the best performing IPO of the year according to CommScan EquiDesk (excluding conversion transactions). In the institutional brokerage business, volumes have rebounded sharply with the improving market in the second quarter, as have investment banking activities as previously described. In the asset management business, gross assets under management (excluding FBR Asset) amounted to $2.3 billion at March 31, 2003, representing a 42% increase over the preceding 12 months. FBR had 131.6 million common shares outstanding, shareholders' equity of $1.0 billion, and book value per share of $7.69 as of March 31, 2003, compared with 46.5 million common shares outstanding, shareholders' equity of $245.2 million and book value per share of $5.28 as of December 31, 2002. Friedman, Billings, Ramsey Group, Inc. provides investment banking, institutional brokerage, asset management, and private client services through its operating subsidiaries and invests in mortgage backed securities and merchant banking opportunities. FBR focuses capital and financial expertise on six industry sectors: financial services, real estate, technology, healthcare, energy and diversified industries. FBR, headquartered in the Washington, D.C. metropolitan area, with offices in Arlington, Va. and Bethesda, Md., also has offices in Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Irvine, London, New York, Portland, San Francisco, Seattle, and Vienna. FBR has elected REIT status for tax purposes. For more information, see http://www.fbr.com. A live webcast of FBR's conference call will be available at 9 a.m. (Eastern Time) via http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=FBR. Replays of the webcast will be available afterward. The company believes that the pro forma information about the merger set forth above when read in connection with the company's GAAP financial information, can provide useful supplemental information for investors analyzing period to period comparisons of the company's results. FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share amounts) (Unaudited) Quarter ended March 31, 2003 % 2002 % REVENUES: Investment banking $17,739 35.8% $23,975 44.1% Institutional brokerage 11,288 22.8% 15,803 29.1% Asset management Base fees 7,691 15.5% 5,996 11.0% Incentive and investment income 8,264 16.7% 7,805 14.3% Technology sector investment and incentive loss (437) -0.9% (1,099) -2.0% Interest, dividends and other 4,994 10.1% 1,890 3.5% Total revenues 49,539 100.0% 54,370 100.0% EXPENSES: Compensation and benefits 24,804 50.1% 31,319 57.6% Business development and professional services 5,879 11.9% 6,412 11.8% Interest 1,646 3.3% 370 0.7% Other 8,644 17.4% 7,380 13.6% Total expenses 40,973 82.7% 45,481 83.7% Net income before income taxes and extraordinary gain 8,566 17.3% 8,889 16.3% Income tax provision 2,843 5.7% - 0.0% Net income before extraordinary gain 5,723 11.6% 8,889 16.3% Extraordinary gain - 0.0% 1,413 2.6% Net income $5,723 11.6% $10,302 18.9% Basic earnings per share before extraordinary gain $0.12 $0.19 Diluted earnings per share before extraordinary gain $0.12 $0.19 Basic earnings per share $0.12 $0.23 Diluted earnings per share $0.12 $0.22 Weighted average shares -- basic 47,047 45,663 Weighted average shares -- diluted 48,547 46,171
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. Financial & Statistical Supplement -- Operating Results (unaudited) (Dollars in thousands, except per share data) YTD 2003 Q-1 03 YTD 2002 Revenues Investment banking: Underwriting $8,788 $8,788 $76,556 Corporate finance 5,719 5,719 58,595 Investment gains 3,232 3,232 8,725 Institutional brokerage: Principal transactions 3,751 3,751 27,512 Agency commissions 7,537 7,537 35,672 Asset management: Base management fees 7,691 7,691 28,956 Incentive income 5,579 5,579 14,258 Net investment income (loss) 2,685 2,685 16,276 Technology sector investment and incentive income (loss) (437) (437) (5,622) Interest, dividends and other 4,994 4,994 7,275 Total revenues 49,539 49,539 268,203 Expenses Compensation and benefits 24,804 24,804 147,072 Business development & professional services 5,879 5,879 30,589 Clearing and brokerage fees 1,232 1,232 5,353 Occupancy & equipment 2,199 2,199 8,838 Communications 2,209 2,209 8,185 Interest expense 1,646 1,646 2,073 Other operating expenses 3,004 3,004 10,652 Total expenses 40,973 40,973 212,762 Net income before taxes and extraordinary gain 8,566 8,566 55,441 Income tax provision 2,843 2,843 3,035 Net income before extraordinary gain $5,723 $5,723 $52,406 Extraordinary gain - - 1,413 Income tax provision on extraordinary gain - - 536 Net income $5,723 $5,723 $53,283 Net income before taxes and extraordinary gain as a percentage of revenue 17.3% 17.3% 20.7% ROE (annualized) 3.6% 3.6% 24.8% Total shareholders' equity $1,011,647 $1,011,647 $245,165 Basic earnings per share $0.12 $0.12 $1.16 Diluted earnings per share $0.12 $0.12 $1.10 Ending shares outstanding (in thousands) 131,576 131,576 46,456 Book value per share $7.69 $7.69 $5.28 Gross assets under management (in millions) Managed accounts $818.8 $818.8 $6,538.0 Hedge & offshore funds 237.5 237.5 247.0 Mutual funds 1,196.8 1,196.8 1,188.5 Private equity funds 32.7 32.7 34.7 Technology sector funds 49.7 49.7 63.8 Total $2,335.5 $2,335.5 $8,072.0 Net assets under management (in millions) Managed accounts $82.7 $82.7 $871.5 Hedge & offshore funds 159.4 159.4 162.4 Mutual funds 1,191.6 1,191.6 1,173.3 Private equity funds 28.6 28.6 30.9 Technology sector funds 45.4 45.4 48.2 Total $1,507.7 $1,507.7 $2,286.3 Productive assets under management (in millions) Managed accounts $818.8 $818.8 $6,538.0 Hedge & offshore funds 159.4 159.4 162.4 Mutual funds 1,191.6 1,191.6 1,173.3 Private equity funds 90.9 90.9 91.2 Technology sector funds 249.2 249.2 249.0 Total $2,509.9 $2,509.9 $8,213.9 Employee count 493 493 481 Q-4 02 Q-3 02 Q-2 02 Q-1 02 Revenues Investment banking: Underwriting $8,890 $30,108 $25,248 $12,310 Corporate finance 11,119 26,175 9,827 11,474 Investment gains 4,312 2,627 1,595 191 Institutional brokerage: Principal transactions 6,339 5,743 8,372 7,058 Agency commissions 8,344 8,629 9,954 8,745 Asset management: Base management fees 8,119 7,208 7,633 5,996 Incentive income 5,291 4,282 2,902 1,783 Net investment income (loss) 4,474 (2,737) 8,517 6,022 Technology sector investment and incentive income (loss) 111 (2,202) (2,432) (1,099) Interest, dividends and other 1,868 1,879 1,638 1,890 Total revenues 58,867 81,712 73,254 54,370 Expenses Compensation and benefits 31,617 45,725 38,411 31,319 Business development & professional services 7,545 8,650 7,982 6,412 Clearing and brokerage fees 1,467 1,443 1,817 626 Occupancy & equipment 2,274 2,309 2,046 2,209 Communications 1,910 2,009 2,187 2,079 Interest expense 665 608 430 370 Other operating expenses 2,608 2,976 2,602 2,466 Total expenses 48,086 63,720 55,475 45,481 Net income before taxes and extraordinary gain 10,781 17,992 17,779 8,889 Income tax provision 692 2,343 - - Net income before extraordinary gain $10,089 $15,649 $17,779 $8,889 Extraordinary gain - - - 1,413 Income tax provision on extraordinary gain - 536 - - Net income $10,089 $15,113 $17,779 $10,302 Net income before taxes and extraordinary gain as a percentage of revenue 18.3% 22.0% 24.3% 16.3% ROE (annualized) 16.8% 26.7% 34.4% 21.7% Total shareholders' equity $245,165 $234,625 $218,368 $194,590 Basic earnings per share $0.22 $0.33 $0.39 $0.23 Diluted earnings per share $0.21 $0.31 $0.36 $0.22 Ending shares outstanding (in thousands) 46,456 46,396 46,339 45,751 Book value per share $5.28 $5.06 $4.71 $4.25 Gross assets under management (in millions) Managed accounts $6,538.0 $7,356.0 $4,152.3 $2,757.7 Hedge & offshore funds 247.0 232.3 216.0 209.2 Mutual funds 1,188.5 1,071.2 1,313.4 1,270.4 Private equity funds 34.7 41.7 46.1 46.4 Technology sector funds 63.8 54.0 56.6 60.4 Total $8,072.0 $8,755.2 $5,784.4 $4,344.1 Net assets under management (in millions) Managed accounts $871.5 $849.7 $748.5 $394.5 Hedge & offshore funds 162.4 162.9 188.5 157.7 Mutual funds 1,173.3 1,064.4 1,297.7 1,214.1 Private equity funds 30.9 40.1 45.5 45.5 Technology sector funds 48.2 48.6 52.3 55.8 Total $2,286.3 $2,165.7 $2,332.5 $1,867.6 Productive assets under management (in millions) Managed accounts $6,538.0 $7,356.0 $4,152.3 $2,757.7 Hedge & offshore funds 162.4 162.9 188.5 157.7 Mutual funds 1,173.3 1,064.4 1,297.7 1,214.1 Private equity funds 91.2 92.5 94.8 95.3 Technology sector funds 249.0 248.5 248.1 249.3 Total $8,213.9 $8,924.3 $5,981.4 $4,474.1 Employee count 481 464 445 441
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data) (Unaudited) ASSETS 31-Mar-03 31-Dec-02 Cash and cash equivalents $93,966 $90,007 Receivables 51,399 28,122 Due from clearing broker - 43,146 Investments: Mortgage-backed securities, at fair value 5,019,077 38,505 Trading securities, at market value 9,627 8,298 Long-term investments 173,146 150,447 Bank loans, net 14,494 15,052 MMA acquired management contracts 17,300 17,629 Goodwill 105,398 - Building, furniture, equipment and leasehold improvements, net 9,214 9,156 Other assets 7,486 5,823 Total assets $5,501,107 $406,185 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Trading account securities sold short, at market value $152 $19,932 Repurchase agreements 4,342,377 16,352 Interest rate swaps 10,481 - Accounts payable and accrued expenses 40,927 16,412 Accrued compensation and benefits 15,357 41,255 Bank deposits 54,781 51,215 Short-term loans payable 20,000 10,588 Long-term secured loan 5,385 5,266 Total liabilities 4,489,460 161,020 Shareholders' equity: Common stock, 137,120 and 51,024 shares, respectively 1,371 510 Additional paid-in capital 986,393 215,862 Treasury stock, at cost, 1,544 and 568 shares, respectively (12,326) (4,143) Employee stock loan receivable including accrued interest (4,000 shares) (24,562) (24,182) Accumulated other comprehensive income 2,275 4,345 Retained earnings 58,496 52,773 Total shareholders' equity 1,011,647 245,165 Total liabilities and shareholders' equity $5,501,107 $406,185 Book Value per Share $7.69 $5.28 Shares Outstanding 131,576 46,456
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2003 (Dollars in thousands, except per share amounts) Historical Pro Forma FBR FBR Adjust- Consoli- Group Asset ments dated Revenues: Investment banking: Underwriting(Note 1a) $8,788 $- $353 $9,141 Corporate finance 5,719 - - 5,719 Investment gains 3,232 - - 3,232 Institutional brokerage: Principal transactions 3,751 - - 3,751 Agency commissions 7,537 - - 7,537 Asset management: Base management fees(Note 1b) 7,691 - (2,762) 4,929 Incentive allocations and fees (Note 1b) 5,579 - (5,617) (38) Net investment income (loss) (Note 1c) 2,685 9,599 (2,860) 9,424 Technology sector net investment and incentive loss (437) - - (437) Dividends and other(Note 1a) 1,507 388 (353) 1,542 Interest(Note 1d) 3,487 51,913 (3,417) 51,983 Total revenues 49,539 61,900 (14,656) 96,783 Interest expense(Note 1e) 1,646 21,355 (429) 22,572 Net revenues 47,893 40,545 (14,227) 74,211 Expenses: Compensation and benefits 24,804 - - 24,804 Business development and professional services 5,879 3,335 - 9,214 Clearing and brokerage fees 1,232 - - 1,232 Occupancy and equipment 2,199 - - 2,199 Communications 2,209 - - 2,209 Other operating expenses (Note 1f) 3,004 8,379 (8,379) 3,004 Total expenses 39,327 11,714 (8,379) 42,662 Net income (loss) before taxes and extraordinary gain 8,566 28,831 (5,848) 31,549 Income tax provision(Note 1g) 2,843 146 (2,989) - Net income (loss) before extraordinary gain $5,723 $28,685 $(2,859) $31,549 Basic earnings per share before extraordinary gain $0.12 $1.10 $0.24 Diluted earnings per share before extraordinary gain $0.12 $1.10 $0.23 Weighted average shares outstanding: Basic(Note 1h) 47,047 26,154 85,972 133,019 Diluted(Note 1h) 48,547 26,179 86,063 134,610
Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements for the Quarter Ended March 31, 2003 (Dollars in thousands) (1) A summary of the unaudited condensed pro forma consolidated statements of operations adjustments to effect the merger is as follows: (a) Underwriting -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to reclassify to underwriting revenue amounts paid by FBR Group to FBR Asset in connection with investment banking transactions pursuant to a fee sharing agreement between the companies of $353 for the three months ended March 31, 2003. (b) Base management fees and incentive allocations and fees - These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's base management and incentive fees earned pursuant to its management agreement with FBR Asset of $2,762 and $5,617, respectively for the three months ended March 31, 2003. (c) Net investment income -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's income derived from its equity investment in FBR Asset of $2,860 for the three months ended March 31, 2003. (d) Interest -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to record amortization of premiums created in purchase accounting due to the new cost basis of FBR Asset's mortgage-backed securities at the time of the merger of $3,417 for the three months ended March 31, 2003. The adjustments discussed above to record amortization of premiums established on FBR Asset's mortgage-backed securities have been prepared in accordance with SEC Regulation S-X - Article 11. These adjustments, however, do not correspond to the mortgage-backed securities balances during the historical periods but are reflective of amortization that would be recorded in the future considering the March 31, 2003 value of FBR Asset's mortgage-backed securities portfolio. In purchase accounting, the March 31, 2003 unrealized gain on these FBR Asset securities contained in other comprehensive income was eliminated and a new cost basis established. In this case, the unrealized gain creates a premium that will be amortized over the remaining lives of the applicable March 31, 2003 mortgage-backed securities. The adjustments in the pro forma financial statements reflect the amortization of this premium created in purchase accounting calculated based on the application of the effective interest method for recognizing interest income and includes management's assumptions with respect to prepayment speeds as of March 31, 2003 as required by SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." The total additional premium established based on the March 31, 2003 balance sheet is $46,850 and based upon prepayment speeds as of March 31, 2003 substantially all would be amortized over approximately three and a half years. (e) Interest expense -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect interest adjustments created in purchase accounting related to FBR Asset's interest rate swaps as of March 31, 2003 of $429 for the three months ended March 31, 2003. These interest rate swaps are cash flow hedges of the debt recorded on the balance sheet used to finance the mortgage-backed securities and convert a portion of the variable interest rate borrowings to a fixed interest rate. In purchase accounting, the March 31, 2003 unrealized loss on these FBR Asset derivatives of approximately $10,480 contained in other comprehensive income was eliminated. In this case, the unrealized loss created a credit balance (i.e., a day-one value of the derivatives) which is recorded as a liability on the balance sheet. The day-one value of the interest rate swaps recorded as a liability reestablishes the market rate of interest on the derivatives and reduces the fixed rate of interest expense over the remaining lives of the derivatives, which range from four months to sixteen months. These adjustments are based upon the fair value of the instruments and market rates as of March 31, 2003 using the effective interest method. (f) Other operating expenses -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate base management and incentive fees payable by FBR Asset to FBR Group. (g) Income tax provision (benefit) -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to present the tax provision of the combined entity's taxable REIT subsidiaries based on the effective tax rate of these subsidiaries during the period. (h) Basic and diluted weighted average shares outstanding -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect the conversion of historical FBR Asset shares not owned by FBR Group based on the 3.65 exchange ratio.
Friedman, Billings, Ramsey Group, Inc. Long-Term Investment Matrix (Unaudited)(1) As of March 31, 2003 (Dollars in thousands) The following chart shows the allocation of Friedman, Billings, Ramsey Group, Inc.'s long-term investments, as stated on the March 31, 2003 balance sheet, by sector and by managed fund and also shows the allocation of long-term investments in publicly traded and private securities. Managed funds are categorized by the value of the majority of their investments. In addition, from time to time, FBR Group implements risk management strategies, the value of which may not be included in the balance sheet line for long-term investments. Financial Public Private Total FBR Ashton, Limited Partnership $6,514 $- $6,514 3.8% FBR Private Equity Fund, LP 543 858 1,401 0.8% FBR Future Financial Fund, LP - 1,040 1,040 0.6% FBR Financial Services Partners, LP 27 507 534 0.3% Direct investment 53,604 10,500 64,104 37.0% 60,688 12,905 73,593 42.5% Real Estate/Mortgage Direct investment 3,918 45,011 48,929 28.3% Subtotal 64,606 57,916 122,522 70.8% Technology and Biotechnology FBR Technology Venture Partners, LP(2) - 583 583 0.3% FBR Technology Venture Partners II - 1,845 1,845 1.1% FBR CoMotion Venture Capital I, LP(3) - 1,886 1,886 1.1% FBR Family of Mutual Funds 743 - 743 0.4% DDL and related direct investments 1,107 5,541 6,648 3.8% Direct investment 323 - 323 0.2% Third-party partnerships - 2,677 2,677 1.6% Other 98 797 895 0.5% 2,271 13,329 15,600 9.0% Capital Crossover Partners (third-party partnership) 12,855 - 12,855 7.4% Subtotal 15,126 13,329 28,455 16.4% Debt Direct investment(4) - 7,500 7,500 4.3% Other FBR Arbitrage, LLC 6,624 - 6,624 3.8% FBR Weston, Limited Partnership 2,560 - 2,560 1.5% FBR Pegasus Fund, LLC(5) 2,699 - 2,699 1.6% Third-party partnership 750 - 750 0.4% Other 65 1,971 2,036 1.2% 12,698 1,971 14,669 8.5% TOTALS $92,430 $80,716 $173,146 100.0%
(1) Excludes trading securities inventory. (2) Amount includes accrued Fund Manager Compensation expense ("FMC") of $79. Asset value net of FMC as of March 31, 2003 was $504. (3) Amount includes loans of $344 made by FBR Group to FBR CoMotion Venture Capital I, LP. (4) Represents private debt of one issuer with a face amount of $7,500. (5) Fund of private funds. Comprises public securities of component funds according to component fund managers. 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, interest spreads, mortgage pre-payment speeds, risks associated with merchant banking 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. ### EX-99.2 4 march2002statements.txt UNAUDITED MARCH 2002 STATEMENTS
- --------------------------------------------------------------------------------------------------------------------------- UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- FOR THE QUARTER ENDED MARCH 31, 2002 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share amounts) - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Historical Pro Forma - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- FBR FB Adjustments Consolidated - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Revenues: - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Investment banking: - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Underwriting (Note 1a) $ 12,310 $ - $ (4,016) $ 8,294 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Corporate finance (Note 1b) 11,474 - 288 11,762 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Investment gains 191 - - 191 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Institutional brokerage: - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Principal transactions (Note 1c) 7,058 - 171 7,229 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Agency commissions 8,745 - - 8,745 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Asset management: - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Base management fees (Note 1d) 5,996 - (1,149) 4,847 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Incentive allocations and fees (Note 1d) 1,783 - (1,698) 85 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Net investment income (loss) (Note 1e) 6,022 7,215 (4,456) 8,781 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Technology sector net investment and incentive loss (1,099) - - (1,099) - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Dividends and other (Note 1f) 641 826 (658) 809 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Interest (Note 1g) 1,249 19,583 (5,794) 15,038 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Total revenues 54,370 27,624 (17,312) 64,682 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Interest expense (Note 1h) 370 6,635 (6,539) 466 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Net revenues 54,000 20,989 (10,773) 64,216 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Expenses: - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Compensation and benefits (Note 1i) 31,319 - (1,187) 30,132 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Business development and professional services (Note 1i) 6,412 183 (391) 6,204 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Clearing and brokerage fees 626 - - 626 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Occupancy and equipment 2,209 - - 2,209 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Communications 2,079 - - 2,079 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Other operating expenses (Note 1j) 2,466 2,847 (2,847) 2,466 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Total expenses 45,111 3,030 (4,425) 43,716 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Net income (loss) before taxes and extraordinary gain 8,889 17,959 (6,348) 20,500 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Income tax provision (Note 1k) - 55 (55) - - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Net income (loss) before extraordinary gain $ 8,889 $ 17,904 $ (6,293) $ 20,500 - --------------------------------------------------------============--=============-=============----=============--------- - --------------------------------------------------------============--=============-=============----=============--------- Basic earnings per share before extraordinary gain $ 0.19 $ 1.46 $ 0.25 - --------------------------------------------------------============--=============------------------=============--------- - --------------------------------------------------------============--=============------------------=============--------- Diluted earnings per share before extraordinary gain $ 0.19 $ 1.46 $ 0.25 - --------------------------------------------------------============--=============------------------=============--------- - --------------------------------------------------------============--=============------------------=============--------- - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding: - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Basic (Note 1l) 45,663 12,268 37,321 82,984 - --------------------------------------------------------============--=============-=============----=============--------- - --------------------------------------------------------============--=============-=============----=============--------- Diluted (Note 1l) 46,171 12,289 37,397 83,568 - --------------------------------------------------------============--=============-=============----=============--------- - --------------------------------------------------------============--=============-=============----=============--------- - ---------------------------------------------------------------------------------------------------------------------------
Notes to Unaudited Condensed Pro Forma Consolidated Financial Statements For the Quarter Ended March 31, 2002 (Dollars in thousands) (1) A summary of the unaudited condensed pro forma consolidated statements of operations adjustments to effect the merger, prepared in accordance with SEC Regulation S-X-Article 11, is as follows: (a) Underwriting -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's revenue generated from FBR Asset's secondary offerings of $4,016 for the three months ended March 31, 2002. (b) Corporate finance -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to reclassify to corporate finance revenue amounts paid by FBR Group to FBR Asset in connection with investment banking transactions pursuant to a fee sharing agreement between the companies of $288 for the three months ended March 31, 2002. (c) Principal transactions -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's broker-dealer trading losses generated from transactions involving FBR Asset common stock of $171 for the three months ended March 31, 2002. (d) Base management fees and incentive allocations and fees -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's base management and incentive fees earned pursuant to its management agreement with FBR Asset of $1,149 and $1,698, respectively for the three months ended March 31, 2002. (e) Net investment income -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's income derived from its equity investment in FBR Asset of $4,456 for the three months ended March 31, 2002. (f) Dividends and other -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to (1) eliminate FBR Group's dividend income earned from its broker-dealer trading inventory holdings of FBR Asset of $370 for the three months ended March 31, 2002, and (2) reclassify to corporate finance revenue amounts paid by FBR Group to FBR Asset in connection with investment banking transactions pursuant to a fee sharing agreement between the companies of $288 for the three months ended March 31, 2002. (g) Interest -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to record amortization of premiums created in purchase accounting due to the new cost basis of FBR Asset's mortgage-backed securities at the time of the merger of $5,794 for the three months ended March 31, 2002. The adjustments discussed above to record amortization of premiums established on FBR Asset's mortgage-backed securities have been prepared in accordance with SEC Regulation S-X -- Article 11. These adjustments, however, do not correspond to the mortgage-backed securities balances during the historical periods but are reflective of amortization that would be recorded in the future considering the March 31, 2003 value of FBR Asset's mortgage-backed securities portfolio. In purchase accounting, the March 31, 2003 unrealized gain on these FBR Asset securities contained in other comprehensive income was eliminated and a new cost basis established. In this case, the unrealized gain creates a premium that will be amortized over the remaining lives of the applicable March 31, 2003 mortgage-backed securities. The adjustments in the pro forma financial statements reflect the amortization of this premium created in purchase accounting calculated based on the application of the effective interest method for recognizing interest income and includes management's assumptions with respect to prepayment speeds as of March 31, 2003 as required by SFAS No. 91, "Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases." The total additional premium established based on the March 31, 2003 balance sheet is $46,850 and based upon prepayment speeds as of March 31, 2003 substantially all would be amortized over approximately three and a half years. (h) Interest expense -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect interest adjustments created in purchase accounting related to FBR Asset's interest rate swaps as of March 31, 2003 of $6,539 for the three months ended March 31, 2002. These interest rate swaps are cash flow hedges of the debt recorded on the balance sheet used to finance the mortgage-backed securities and convert a portion of the variable interest rate borrowings to a fixed interest rate. In purchase accounting, the March 31, 2003 unrealized loss on these FBR Asset derivatives of approximately $10,480 contained in other comprehensive income was eliminated. In this case, the unrealized loss created a credit balance (i.e., a day-one value of the derivatives) which is recorded as a liability on the balance sheet. The day-one value of the interest rate swaps recorded as a liability reestablishes the market rate of interest on the derivatives and reduces the fixed rate of interest expense over the remaining lives of the derivatives, which range from four months to sixteen months. These adjustments are based upon the fair value of the instruments and market rates as of March 31, 2003 using the effective interest method. (i) Compensation and benefits and business development and professional services -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate FBR Group's expenses incurred as a result of FBR Asset's secondary equity offerings. (j) Other operating expenses -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to eliminate base management and incentive fees payable by FBR Asset to FBR Group. (k) Income tax provision (benefit) -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect adjustments to present the tax provision of the combined entity's taxable REIT subsidiaries based on the effective tax rate of these subsidiaries during the period. (l) Basic and diluted weighted average shares outstanding -- These balances in the unaudited condensed pro forma consolidated statements of operations reflect the conversion of historical FBR Asset shares not owned by FBR Group based on the 3.65 exchange ratio. EX-99.3 5 fbr03qtr01transcript.txt CONFERENCE CALL TRANSCRIPT Exhibit 99.3 First Quarter 2003 Friedman, Billings, Ramsey Group, Inc. Earnings Conference Call Script Wednesday, May 7, 2003 [Speaker: Kurt Harrington ] Good Morning. This is Kurt Harrington, Chief Financial Officer of Friedman, Billings, Ramsey Group, Inc. Before we begin this morning's earnings call, I would like to remind everyone that 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. These forward-looking statements 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, interest spreads, mortgage prepayment speeds, the risks associated with merchant banking investments, available technologies, competition for business and personnel, and general economic, political, and market conditions. Additional information concerning factors that could cause results to differ materially is contained in FBR Group's Annual Report on Form 10-K and quarterly reports on Form 10-Q. I would now like to turn over the call to FBR Group's Co-Chairmen and Co-Chief Executive Officers, Emanuel Friedman and Eric Billings. Also joining us this morning are Robert Smith, FBR's Chief Operating Officer, Rock Tonkel, Head of Investment Banking and Rick Hendrix, Chief Investment Officer. [New speaker: Manny Friedman] Thank you and good morning. Today we announced 1st quarter 2003 results. It was a great quarter for the company. We are very excited about the closing of our merger during the quarter. It is one of the most significant events in the history of the company. We are already seeing a major impact from the merger on our capital markets business. We are presently engaged in 31 lead managed capital raising merger and acquisition deals that represent more than $3.5 billion of potential value. To put this in context, in the latest quarter we completed two lead managed and five merger and acquisition deals worth a total of $355 million. As you can see in our release this morning our $0.34 quarterly dividend is fully supported by the balance sheet alone. For all but the last day of the quarter, our results reflect only the pre-merger FBR Group. We are therefore also providing our results on a pro forma basis for our merger with FBR Asset. In summary, our first quarter results are the following: - - $0.12 per share, which was comparable to the same quarter a year ago had we been a full taxpayer. - - $0.24 per share pro forma for the merger. Note that the pro forma results include one time merger related expenses equal to $0.02 per share and in addition the negative impact of purchase accounting adjustments equaling an additional $0.02 per share. Importantly, with the mortgage-backed portfolio at $ 5 billion on March 31st our leverage in the mortgage-backed portfolio is at the low end of our target range, and excess capital was not fully deployed, pending the merger. Subsequent to the end of the quarter, we have entered into contracts to purchase MBS that would result in a portfolio of approximately $7.5 billion by June 30th, meeting our targeted asset levels. We clearly expect that our earnings in the coming quarters will support our $0.34 dividend with the deployment of our excess capital at targeted leverage levels in the mortgage backed portfolio. Obviously, these numbers illustrate the tremendous strength of the new combined platform. The diversification resulting from the merger allows the new combined company to weather poor markets such as last quarter's, while preserving the potential for growth. Despite the pressures on the securities industry and our broker dealer operations, we are very optimistic about FBR's prospects. Going forward, the combined strength of our investment banking pipeline, which we just discussed, our continued penetration of major institutional accounts, the growth of assets under management, our continued expense discipline, and expanded capital base with a relatively unleveraged balance sheet enable us to strengthen and expand our platform through selective hiring and the prudent addition of new business. In fact, the weakness that exists in the securities industry continues to present significant opportunities for us. We have greater resources available to us - in terms of both financial capital and human capital - than ever before, at a time when there is great demand for our services from investors and issuers alike, and at a time when many of our competitors are facing unprecedented economic and regulatory pressures. Specifically, since the beginning of the year, we have hired 6 investment bankers at the vice president level or above, including 4 managing directors (in real estate, financial institutions, technology and diversified industries). We have also added 5 research analysts and 5 institutional brokers and traders. In summary, we are excited about our prospects, and reiterate the 12 month guidance for earnings and dividends provided in February. Now I would like to hand the call over to Eric Billings who will discuss the quarterly results and outlook for the balance of the year. [New Speaker: Eric Billings] Thanks Manny. I would like to speak about each of our five profit centers - mortgage backed securities, merchant banking, investment banking, institutional brokerage and asset management. We take a conservative approach when deploying capital in the mortgage backed strategy. As you have seen historically, we have consistently met and exceeded our dividend targets while maintaining in many environments lower leverage than industry levels. Preservation of capital is our guiding principal. In fact, in achieving our new asset target of $7.5 billion, the company will only have leverage of approximately 7.5x. We have constructed a portfolio with the following strengths: 1. Triple A rated agency-backed MBS securities 2. low leverage 3. low premium 4. substantially all adjustable-rate securities We believe this strategy combined with the balance provided by our merchant banking business allows us to be opportunistic and patient in deploying our mortgage-backed securities strategy to achieve very acceptable risk-adjusted returns. We manage our funding strategy by: 1. maintaining multiple counter-parties to diversify our funding resources 2. holding assets that can be financed in varying market environments 3. hedging up to two-thirds of our liabilities by locking in funding costs up to a one year term. For the first quarter, MBS assets averaged $5.74 billion at an average net spread of 230 basis points and ended the quarter at $5.0 billion. The portfolio continued to have a low duration of 1.21 at March 31, 2003 and 100% of our mortgage-backed securities were in the form of adjustable rate mortgages. As Manny mentioned, pursuant to contracts entered into during the second quarter we will have increased our assets by June 30 to approximately $7.5 billion by deploying, as we had previously stated, our excess capital. The additional $2.5 billion of mortgage-backed purchases will add substantially to earnings and comfortably support the dividend. Furthermore, starting in mid-July 2003, the company's cash cost of financing will fall by approximately 80 basis points on $3 billion of funding, which will reduce the overall cost of financing by approximately 40 basis points as the interest rate swaps expire and are replaced by new swaps that have already been executed that extend into 2004. Our merchant banking investments at March 31, 2003 equaled $173 million. During the first three months of 2003 we made 1 new merchant banking investment totaling $6.8 million in Accredited Home Lenders. Since the end of the quarter, we have seen substantial appreciation broadly throughout our mortgage-backed portfolio. Our internal discipline and strategy is to measure every merchant banking investment continuously against the returns we achieve in the mortgage backed securities portfolio. In fact, the historic FBR Asset merchant banking portfolio has achieved returns which have exceeded the outstanding returns realized in the mortgage backed securities portfolio. While the long term performance of this portfolio has historically been extremely attractive, realized results have varied from quarter to quarter. In investment banking, during Q1 2003, a break-even quarter for FBR, we lead-managed 2 underwritings and 5 M&A transactions totaling $355 million in transaction value. Among these was one of only 4 U.S. issuer IPOs completed during the quarter - Accredited Home Lenders - which has been the best performing IPO of the year. Looking forward, despite the difficult market conditions in the first part of the year, we remain very optimistic about the prospects of our investment banking business for the balance of the year. Specifically, our filed backlog includes two large IPOs totaling approximately $740 million of filed transaction value - one in diversified industries and one in real estate. More important, as of today, we are engaged on 31 lead managed capital raising and M&A transactions representing more than $3.5 billion of potential transaction value. Again, this contrasts with the seven transactions and $355 million of value that we closed in the first quarter. We believe that this is further evidence of the impact that our merger is having on our capital markets business. We are already seeing a strong positive reaction among potential middle market clients that leads us to believe that this is only the beginning of these benefits. As a result, we are reiterating the guidance that we provided in February of $150 million in expected investment banking revenue for the full year, noting as we always do that this is probably our most volatile revenue line, and the most market-dependent. In institutional brokerage, our revenue in the first quarter obviously reflected a very difficult capital market, and our slow new issue calendar. However, it is important to note that in the last 6 months we have added salespeople, traders and research analysts, bringing our total to 54 institutional brokers, 32 traders and 67 research analysts as of March 31st. The underlying potential of these new hires is indicated by the fact that our brokerage activity in April was sharply higher. Furthermore, we expect that our anticipated investment banking activity will result in considerably higher brokerage activity. We therefore have great confidence that we can achieve brokerage revenues of $78 million for the full year, consistent with our February guideline. As mentioned, we believe that this is one of the most opportune times we have seen to implement our strategy to add and upgrade our personnel in the capital markets business. At the same time, we have maintained our expense discipline and despite active hiring continue to expect our breakeven revenue levels in these two business lines - investment banking and brokerage - to remain at the $115 million level that we discussed in February. Clearly, the vacuum in the middle markets that has been created by the exit of so many investment banks, combined with our greater capital base and total resources following the merger coupled with our internal discipline, creates, we believe, the greatest opportunity for future growth of the business that we have ever seen. Finally, our asset management business continues to grow. At March 31, 2003, FBR had $2.3 billion in gross assets under management, up 42% from March 31, 2002, excluding FBR Asset. Our mutual funds continued to have excellent results during the quarter, with the five star FBR Small Cap Financial Fund providing YTD returns of 6.51% through 4/30/03, and the FBR Small Cap Value Fund providing YTD returns of 14.32% through 4/30/03. These two funds rank among the very top of their respective classes, and we believe that our portfolio managers, Dave Ellison and Chuck Akre, to be among the very finest equity portfolio managers in the United States. I would now like to open the call for any questions. [At end of Q&A] If there are no further questions, that concludes our conference call for today. Thanks everyone for joining us. We appreciate it. -----END PRIVACY-ENHANCED MESSAGE-----