UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2004 |
OR
| ¨ | 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.
(Exact name of Registrant as specified in its charter)
| Virginia | 54-1873198 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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)
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
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 |
142,501,695 shares as of April 28, 2004 | |
| Class B Common Stock |
25,722,099 shares as of April 28, 2004 |
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2004
INDEX
| Page | ||||
| Part I. FINANCIAL INFORMATION1 | ||||
| Item 1. | Financial Statements — (unaudited) | |||
| Consolidated Balance Sheets — March 31, 2004 and December 31, 2003 | 3 | |||
| Consolidated Statements of Operations —Three Months Ended March 31, 2004 and 2003 | 4 | |||
| Consolidated Statements of Changes in Shareholders’ Equity —Three Months Ended March 31, 2004 and Year Ended December 31, 2003 | 5 | |||
| Consolidated Statements of Cash Flows —Three Months Ended March 31, 2004 and 2003 | 6 | |||
| Notes to Consolidated Financial Statements | 7 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 22 | ||
| Item 4. | Controls and Procedures | 25 | ||
| Part II. OTHER INFORMATION | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 25 | ||
| 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 using the purchase method of accounting. For the period from January 1, 2003 through March 30, 2003, and prior periods 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.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Cash and cash equivalents |
$ | 129,235 | $ | 92,688 | ||||
| Receivables: |
||||||||
| Interest |
47,439 | 44,674 | ||||||
| Asset management fees |
6,021 | 5,517 | ||||||
| Investment banking |
9,131 | 8,464 | ||||||
| Affiliates |
2,656 | 4,861 | ||||||
| Other |
2,814 | 3,779 | ||||||
| Investments: |
||||||||
| Mortgage-backed securities, at fair value |
10,912,921 | 10,551,570 | ||||||
| Long-term investments |
409,941 | 379,002 | ||||||
| Trading securities, at fair value |
4,759 | 4,932 | ||||||
| Due from clearing broker |
126,231 | 89,940 | ||||||
| Goodwill |
108,013 | 108,013 | ||||||
| Management contract intangible |
15,381 | 16,090 | ||||||
| Building, furniture, equipment, software and leasehold improvements, net of accumulated depreciation and amortization of $25,807 and $24,853, respectively |
8,371 | 6,969 | ||||||
| Prepaid expenses and other assets |
23,594 | 17,114 | ||||||
| Total assets |
$ | 11,806,507 | $ | 11,333,613 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Liabilities: |
||||||||
| Trading account securities sold but not yet purchased, at fair value |
$ | 45,184 | $ | 9,525 | ||||
| Commercial paper |
4,736,035 | 4,397,993 | ||||||
| Repurchase agreements |
5,048,825 | 5,095,676 | ||||||
| Interest rate swaps |
11,153 | 5,366 | ||||||
| Dividends payable |
56,966 | 56,744 | ||||||
| Interest payable |
8,581 | 6,188 | ||||||
| Accounts payable and accrued expenses |
79,342 | 52,692 | ||||||
| Accrued compensation and benefits |
69,717 | 100,901 | ||||||
| Long-term debt |
65,031 | 54,189 | ||||||
| Total liabilities |
10,120,834 | 9,779,274 | ||||||
| Commitments and Contingencies (Note 10) |
||||||||
| Shareholders’ equity: |
||||||||
| Preferred Stock, $0.01 par value, 25,000,000 shares authorized, none issued and outstanding |
— | — | ||||||
| Class A Common Stock, $0.01 par value, 450,000,000 shares authorized, 141,825,470 and 141,021,320 shares issued and outstanding, respectively |
1,418 | 1,410 | ||||||
| Class B Common Stock, $0.01 par value, 100,000,000 shares authorized, 25,722,099 and 25,872,099 shares issued and outstanding, respectively |
257 | 259 | ||||||
| Additional paid-in capital |
1,469,634 | 1,443,228 | ||||||
| Employee stock loan receivable (885,959 and 1,290,198 shares) |
(5,794 | ) | (8,277 | ) | ||||
| Deferred compensation |
(17,067 | ) | (2,203 | ) | ||||
| Accumulated other comprehensive income, net |
144,934 | 60,505 | ||||||
| Retained earnings |
92,291 | 59,417 | ||||||
| Total shareholders’ equity |
1,685,673 | 1,554,339 | ||||||
| Total liabilities and shareholders’ equity |
$ | 11,806,507 | $ | 11,333,613 | ||||
See notes to consolidated financial statements.
3
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | ||||||
| 2004 |
2003 | |||||
| Revenues: |
||||||
| Investment banking: |
||||||
| Underwriting |
$ | 62,774 | $ | 8,788 | ||
| Corporate finance |
28,337 | 5,719 | ||||
| Investment gains |
8,402 | 3,232 | ||||
| Institutional brokerage: |
||||||
| Principal transactions |
6,019 | 3,751 | ||||
| Agency commissions |
29,137 | 7,537 | ||||
| Asset management: |
||||||
| Base management fees |
6,535 | 7,691 | ||||
| Incentive allocations and fees |
2,665 | 5,515 | ||||
| Net investment income |
5,464 | 2,312 | ||||
| Principal investment: |
||||||
| Interest |
88,650 | — | ||||
| Realized gains, net |
12,743 | — | ||||
| Dividends |
972 | — | ||||
| Other |
1,659 | 4,994 | ||||
| Total revenues |
253,357 | 49,539 | ||||
| Interest expense |
32,066 | 1,646 | ||||
| Revenues, net of interest expense |
221,291 | 47,893 | ||||
| Non-Interest Expenses: |
||||||
| Compensation and benefits |
74,889 | 24,804 | ||||
| Business development |
16,538 | 2,974 | ||||
| Professional services |
10,164 | 2,905 | ||||
| Clearing and brokerage fees |
3,354 | 1,232 | ||||
| Occupancy and equipment |
2,904 | 2,199 | ||||
| Communications |
2,942 | 2,209 | ||||
| Other operating expenses |
5,971 | 3,004 | ||||
| Total non-interest expenses |
116,762 | 39,327 | ||||
| Net income before taxes |
104,529 | 8,566 | ||||
| Income tax provision |
14,890 | 2,843 | ||||
| Net income |
$ | 89,639 | $ | 5,723 | ||
| Basic earnings per share |
$ | 0.54 | $ | 0.12 | ||
| Diluted earnings per share |
$ | 0.54 | $ | 0.12 | ||
| Dividends declared per share |
$ | 0.34 | $ | — | ||
| Weighted average shares outstanding: |
||||||
| Basic |
165,107 | 47,047 | ||||
| Diluted |
167,307 | 48,547 | ||||
See notes to consolidated financial statements.
4
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Dollars in thousands)
(Unaudited)
| Class A Number of Shares |
Class A Amount |
Class B Number of Shares |
Class B Amount |
Additional Paid-In Capital |
Employee Stock Loan Receivable |
Deferred Compensation |
Accumulated Other Comprehensive Income |
Retained Earnings |
Total |
Comprehensive Income |
||||||||||||||||||||||||||||||||
| Balances, December 31, 2002 |
24,480,092 | $ | 245 | 25,975,449 | $ | 260 | $ | 211,724 | $ | (24,182 | ) | $ | — | $ | 4,345 | $ | 52,773 | $ | 245,165 | |||||||||||||||||||||||
| Net Income |
201,414 | 201,414 | $ | 201,414 | ||||||||||||||||||||||||||||||||||||||
| Repurchase of Class A shares |
(976,600 | ) | (10 | ) | (8,173 | ) | (8,183 | ) | ||||||||||||||||||||||||||||||||||
| Conversion of Class B shares to Class A shares |
103,350 | 1 | (103,350 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||
| Issuance of Class A common shares |
117,414,478 | 1,174 | 1,238,137 | (2,203 | ) | 1,237,108 | ||||||||||||||||||||||||||||||||||||
| Interest on employee stock purchase and loan plan |
1,540 | (1,540 | ) | |||||||||||||||||||||||||||||||||||||||
| Repayment of employee stock purchase and loan plan receivable |
17,445 | 17,445 | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on available-for-sale investment securities, net of taxes |
55,045 | 55,045 | 55,045 | |||||||||||||||||||||||||||||||||||||||
| Net change in unrealized gain (loss) on cash flow hedges |
1,115 | 1,115 | 1,115 | |||||||||||||||||||||||||||||||||||||||
| Comprehensive income |
&nb | |||||||||||||||||||||||||||||||||||||||||