UNITED STATES
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2003
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-50230
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
|
Virginia
(State or other jurisdiction of incorporation or organization) |
32-0045263 (I.R.S. Employer Identification No.) |
1001 Nineteenth Street North
(703) 312-9500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
| Title | Outstanding | |
|
Class A Common Stock
|
112,942,017 shares as of April 30, 2003 | |
|
Class B Common Stock
|
25,975,449 shares as of April 30, 2003 |
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
| Page | |||||||
| Part I. FINANCIAL INFORMATION1 | |||||||
|
Item 1.
|
Financial Statements — (unaudited)
|
||||||
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Consolidated Balance Sheets —
March 31, 2003 and December 31, 2002 |
3 | ||||||
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Consolidated Statements of
Operations —
Three Months Ended March 31, 2003 and 2002 |
4 | ||||||
|
Consolidated Statements of Changes in
Shareholders’ Equity —
Three Months Ended March 31, 2003 and Year Ended December 31, 2002 |
5 | ||||||
|
Consolidated Statements of Cash
Flows —
Three Months Ended March 31, 2003 and 2002 |
6 | ||||||
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Notes to Consolidated Financial Statements
|
7 | ||||||
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Item 2.
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
18 | |||||
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Item 3.
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Quantitative and Qualitative Disclosures about
Market Risk
|
26 | |||||
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Item 4.
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Controls and Procedures
|
28 | |||||
| Part II. OTHER INFORMATION | |||||||
|
Item 6.
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Exhibits and Reports on Form 8-K
|
29 | |||||
| SIGNATURES | 30 | ||||||
| CERTIFICATIONS | 31 | ||||||
| 1 | On March 31, 2003, Friedman, Billings, Ramsey Group, Inc. (“the Company” or “FBR”) completed its merger with FBR Asset Investment Corporation (“FBR Asset”) and one of its wholly owned subsidiaries, Forest Merger Corporation, created to effect the merger (the “merger”) of FBR and FBR Asset. The merger was accounted for as a purchase of FBR Asset by FBR Group using the purchase method of accounting. Accordingly, the consolidated balance sheet as of March 31, 2003 includes the effects of the merger and Company’s application of the purchase method of accounting. The consolidated statements of operations and cash flows for the three months ended March 31, 2003 include one day’s effects of the merger. For the period from January 1, 2003 through March 30, 2003, the Company accounted for its investment in FBR Asset using the equity method of accounting. See Note 2 to the Consolidated Financial Statements at page 7. |
2
PART I — FINANCIAL INFORMATION
Item 1 — Consolidated Financial Statements and Notes — (unaudited)
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
| March 31, 2003 | December 31, 2002 | ||||||||||
|
ASSETS
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|||||||||||
|
Cash and cash equivalents
|
$ | 93,966 | $ | 90,007 | |||||||
|
Receivables:
|
|||||||||||
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Asset management fees
|
5,968 | 13,494 | |||||||||
|
Investment banking
|
3,313 | 1,725 | |||||||||
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Affiliates
|
7,064 | 7,117 | |||||||||
|
Other
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35,054 | 5,786 | |||||||||
|
Investments:
|
|||||||||||
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Mortgage-backed securities, at fair value
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5,019,077 | 38,505 | |||||||||
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Long-term investments
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173,146 | 150,447 | |||||||||
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Trading securities, at fair value
|
9,627 | 8,298 | |||||||||
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Due from clearing broker
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— | 43,146 | |||||||||
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Bank loans, net of allowances
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14,494 | 15,052 | |||||||||
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Goodwill
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105,398 | 1,800 | |||||||||
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Management contract intangible
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17,300 | 17,629 | |||||||||
|
Building, furniture, equipment, software and
leasehold improvements, net of accumulated depreciation and
amortization of $20,747 and $20,013, respectively
|
9,214 | 9,156 | |||||||||
|
Prepaid expenses and other assets
|
7,486 | 4,023 | |||||||||
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Total assets
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$ | 5,501,107 | $ | 406,185 | |||||||
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LIABILITIES AND SHAREHOLDERS’
EQUITY
|
|||||||||||
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Liabilities:
|
|||||||||||
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Trading account securities sold but not yet
purchased, at fair value
|
$ | 152 | $ | 19,932 | |||||||
|
Repurchase agreements
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4,342,377 | 16,352 | |||||||||
|
Interest rate swaps
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10,481 | — | |||||||||
|
Accounts payable and accrued expenses
|
26,609 | 16,368 | |||||||||
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Accrued compensation and benefits
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15,357 | 41,255 | |||||||||
|
Dividends and interest payable
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14,318 | 44 | |||||||||
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Bank deposits
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54,781 | 51,215 | |||||||||
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Short-term loans payable
|
20,000 | 10,588 | |||||||||
|
Long-term collateralized loan
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5,385 | 5,266 | |||||||||
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Total liabilities
|
4,489,460 | 161,020 | |||||||||
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Commitments and contingencies (Note 11)
|
— | — | |||||||||
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Shareholders’ equity:
|
|||||||||||
|
Preferred Stock, $0.01 par value, 25,000,000 and
15,000,000 shares authorized, respectively, none issued and
outstanding
|
— | — | |||||||||
|
Class A Common Stock, $0.01 par value,
450,000,000 and 150,000,000 shares authorized, respectively,
109,600,431 and 24,480,092 shares issued and outstanding,
respectively
|
1,096 | 245 | |||||||||
|
Class B Common Stock, $0.01 par value,
100,000,000 shares authorized, 25,975,449 shares issued and
outstanding
|
260 | 260 | |||||||||
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Additional paid-in capital
|
974,082 | 211,724 | |||||||||
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Employee stock loan receivable (4,000,000 shares)
|
(24,562 | ) | (24,182 | ) | |||||||
|
Accumulated other comprehensive income, net
|
2,275 | 4,345 | |||||||||
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Retained earnings
|
58,496 | 52,773 | |||||||||
|
Total shareholders’ equity
|
1,011,647 | 245,165 | |||||||||
|
Total liabilities and shareholders’
equity
|
$ | 5,501,107 | $ | 406,185 | |||||||
See notes to consolidated financial statements.
3
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
| Three Months Ended | ||||||||||
| March 31, | ||||||||||
| 2003 | 2002 | |||||||||
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Revenues:
|
||||||||||
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Investment banking:
|
||||||||||
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Underwriting
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$ | 8,788 | $ | 12,310 | ||||||
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Corporate finance
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5,719 | 11,474 | ||||||||
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Investment gains
|
3,232 | 191 | ||||||||
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Institutional brokerage:
|
||||||||||
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Principal transactions
|
3,751 | 7,058 | ||||||||
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Agency commissions
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7,537 | 8,745 | ||||||||
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Asset management:
|
||||||||||
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Base management fees
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7,691 | 5,996 | ||||||||
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Incentive allocations and fees
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5,579 | 1,783 | ||||||||
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Net investment income
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2,685 | 6,022 | ||||||||
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Technology sector net investment and incentive
loss
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(437 | ) | (1,099 | ) | ||||||
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Interest, dividends and other
|
4,994 | 1,890 | ||||||||
|
Total revenues
|
49,539 | 54,370 | ||||||||
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Expenses:
|
||||||||||
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Compensation and benefits
|
24,804 | 31,319 | ||||||||
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Business development and professional services
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5,879 | 6,412 | ||||||||
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Clearing and brokerage fees
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1,232 | 626 | ||||||||
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Occupancy and equipment
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2,199 | 2,209 | ||||||||
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Communications
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2,209 | 2,079 | ||||||||
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Interest expense
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1,646 | 370 | ||||||||
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Other operating expenses
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3,004 | 2,466 | ||||||||
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Total expenses
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40,973 | 45,481 | ||||||||
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Net income before taxes and extraordinary gain
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8,566 | 8,889 | ||||||||
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Income tax provision
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2,843 | — | ||||||||
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Net income before extraordinary gain
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5,723 | 8,889 | ||||||||
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Extraordinary gain
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— | 1,413 | ||||||||
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Income tax provision on extraordinary gain
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— | — | ||||||||
|
Net income
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$ | 5,723 | $ | 10,302 | ||||||
|
Basic earnings per share before extraordinary gain
|
$ | 0.12 | $ | 0.19 | ||||||
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Diluted earnings per share before extraordinary
gain
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$ | 0.12 | $ | 0.19 | ||||||
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Basic earnings per share
|
$ | 0.12 | $ | 0.23 | ||||||
|
Diluted earnings per share
|
$ | 0.12 | $ | 0.22 | ||||||
|
Weighted average shares outstanding:
|
||||||||||
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Basic
|
47,047 | 45,663 | ||||||||
|
Diluted
|
48,547 | 46,171 | ||||||||
See notes to consolidated financial statements.
4
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
| Accumulated | |||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | Additional | Employee | Other | Retained | ||||||||||||||||||||||||||||||||||||
| Number of | Class A | Number | Class B | Paid-In | Stock Loan | Comprehensive | Earnings | Comprehensive | |||||||||||||||||||||||||||||||||
| Shares | Amount | of Shares | Amount | Capital | Receivable | Income | (Deficit) | Total | Income | ||||||||||||||||||||||||||||||||
|
Balances, January 1, 2002
|
22,658,941 | $ | 227 | 26,946,029 | $ | 269 | $ | 204,805 | $ | (22,706 | ) | $ | 3,226 | $ | (510 | ) | $ | 185,311 | |||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | — | — | 53,283 | 53,283 | $ | 53,283 | ||||||||||||||||||||||||||||||
|
Conversion of Class B shares to Class A
shares
|
970,580 | 9 | (970,580 | ) | (9 | ) | — | — | — | — | — | ||||||||||||||||||||||||||||||
|
Issuance of Class A common shares
|
850,571 | 9 | — | — | 5,443 | — | — | — | 5,452 | ||||||||||||||||||||||||||||||||
|
Interest on employee stock purchase and loan plan
|
— | — | — | — | 1,476 | (1,476 | ) | — | — | — | |||||||||||||||||||||||||||||||
|
Other comprehensive income:
|
|||||||||||||||||||||||||||||||||||||||||
|
Change in unrealized gain (loss) on available-
for-sale investment securities, net
|
— | — | — | — | — | — | 1,119 | — | 1,119 | 1,119 | |||||||||||||||||||||||||||||||
|
Comprehensive income
|
— | — | — | — | — | — | — | — | — | $ | 54,402 | ||||||||||||||||||||||||||||||
|
Balances, December 31, 2002
|
24,480,092 | 245 | 25,975,449 | 260 | 211,724 | (24,182 | ) | 4,345 | 52,773 | 245,165 | |||||||||||||||||||||||||||||||
|
Net income
|
— | — | — | — | — | — | — | 5,723 | 5,723 | $ | 5,723 | ||||||||||||||||||||||||||||||
|
Repurchase of Class A shares
|
(976,600 | ) | (10 | ) | — | — | (8,173 | ) | — | — | — | (8,183 | ) | ||||||||||||||||||||||||||||
|
Issuance of Class A common shares
|
86,096,939 | 861 | — | — | 770,151 | — | — | — | 771,012 | ||||||||||||||||||||||||||||||||
|
Interest on employee stock purchase and loan plan
|
— | — | — | — | 380 | (380 | ) | — | — | — | |||||||||||||||||||||||||||||||
|
Other comprehensive income:
|
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