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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, 2005

 

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   146,671,897 shares as of May 3, 2005
Class B Common Stock     24,929,599 shares as of May 3, 2005

 

Table of Contents

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

 

FORM 10-Q

 

FOR THE QUARTER ENDED MARCH 31, 2005

 

INDEX

 

         Page

Part I. FINANCIAL INFORMATION

     

Item 1.

   Financial Statements — (unaudited)     
    Consolidated Balance Sheets — March 31, 2005 and December 31, 2004    3
    Consolidated Statements of Operations — Three Months Ended March 31, 2005 and 2004    4
    Consolidated Statements of Changes in Shareholders’ Equity — Three Months Ended March 31, 2005 and Year Ended December 31, 2004    5
    Consolidated Statements of Cash Flows — Three Months Ended March 31, 2005 and 2004    6
    Notes to Consolidated Financial Statements    7

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    22

Item 3.

   Quantitative and Qualitative Disclosures about Market Risk    31

Item 4.

   Controls and Procedures    34

Part II. OTHER INFORMATION

     

Item 1.

   Legal Proceedings    35

Item 5.

   Other Information    36

Item 6.

   Exhibits    36
    Signatures    37

 

2

Table of Contents

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,
2005
     December 31,
2004
  

ASSETS

                

Cash and cash equivalents

   $ 164,435     $ 231,527  

Receivables:

                

Interest

     49,845       46,324  

Asset management fees

     8,260       7,140  

Investment banking

     9,114       10,141  

Affiliates

     7,178       7,853  

Due from servicer

     7,410       —    

Other

     10,099       3,422  

Investments:

                

Mortgage-backed securities, at fair value

     11,591,405       11,726,689  

Trading securities, at fair value

     7,761       7,744  

Long-term investments

     430,355       441,499  

Reverse repurchase agreements

     228,244       183,375  

Mortgage loans, net

     827,102       —    

Due from clearing broker

     102,651       95,247  

Goodwill

     160,525       108,013  

Intangible assets, net

     30,199       14,404  

Furniture, equipment, software and leasehold improvements, net of accumulated depreciation and amortization of $25,045 and $22,889, respectively

     30,446       18,733  

Prepaid expenses and other assets

     33,138       26,177  
   
 

Total assets

   $ 13,698,167     $ 12,928,288  
   
 

LIABILITIES AND SHAREHOLDERS’ EQUITY

                

Liabilities:

                

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

   $ 38,643     $ 17,176  

Commercial paper

     6,913,801       7,294,949  

Repurchase agreements

     4,949,038       3,467,569  

Securities purchased

     —         144,430  

Dividends payable

     58,339       65,870  

Interest payable

     11,223       5,894  

Accrued compensation and benefits

     48,025       131,218  

Accounts payable and accrued expenses

     67,636       94,288  

Long-term debt

     152,601       128,370  
   
 

Total liabilities

     12,239,306       11,349,764  
   
 

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, 146,662,647 and 143,967,205 shares issued and outstanding, respectively

     1,467       1,440  

Class B Common Stock, $0.01 par value, 100,000,000 shares authorized, 24,929,599 shares issued and outstanding

     249       249  

Additional paid-in capital

     1,533,858       1,483,640  

Employee stock loan receivable (711,343 shares)

     (4,947 )     (4,890 )

Deferred compensation

     (21,489 )     (16,863 )

Accumulated other comprehensive loss, net

     (170,432 )     (38,162 )

Retained earnings

     120,155       153,110  
   
 

Total shareholders’ equity

     1,458,861       1,578,524  
   
 

Total liabilities and shareholders’ equity

   $ 13,698,167     $ 12,928,288  
   
 

 

See notes to consolidated financial statements.

 

3

Table of Contents

FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

 

     Three Months Ended
March 31,
     2005
     2004

Revenues:

               

Investment banking:

               

Capital raising

    $ 86,813     $ 89,793

Advisory

      1,138       1,318

Institutional brokerage:

               

Principal transactions

      5,627       6,019

Agency commissions

      22,157       29,137

Asset management:

               

Base management fees

      8,468       6,535

Incentive allocations and fees

      (375 )     2,665

Principal investment:

               

Interest

      108,388       88,995

Net investment (loss)/income

      (377 )     26,609

Dividends

      3,440       972

Other

      2,496       1,316
    
 

Total revenues

      237,775       253,359

Interest expense

      74,822       32,647
    
 

Revenues, net of interest expense

      162,953       220,712
    
 

Non-Interest Expenses:

               

Compensation and benefits

      75,799       74,889

Business development

      15,438       16,538

Professional services

      13,650       10,164

Clearing and brokerage fees

      2,032       2,773

Occupancy and equipment

      5,724       2,904

Communications

      4,032       2,942

Other operating expenses

      16,294       5,973
    
 

Total non-interest expenses

      132,969       116,183
    
 

Net income before taxes

      29,984       104,529

Income tax provision

      5,572       14,890
    
 

Net income

    $ 24,412     $ 89,639
    
 

Basic earnings per share

    $ 0.15     $ 0.54
    
 

Diluted earnings per share

    $ 0.14     $ 0.54
    
 

Dividends declared per share

    $ 0.34     $ 0.34
    
 

Weighted average shares outstanding:

               

Basic

      168,320       165,107
    
 

Diluted

      169,444       167,307
    
 

 

See notes to consolidated financial statements.

 

4

Table of Contents

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,
net
    

Accumu-

lated

Other
Compre-

hensive
Income
(loss)

     Retained
Earnings
     Total
    

Compre-

hensive
Income
(loss)

  

Balances, December 31, 2003

   141,021,320   $ 1,410   25,872,099     $ 259     $ 1,443,228   $ (8,277 )   $ (2,203 )   $ 60,505     $ 59,417     $ 1,554,339          
   
 
 
 
 
 
 
 
 
 
       

Net Income

                                                           349,559       349,559     $ 349,559  

Conversion of Class B shares to Class A shares

   942,500     10   (942,500 )     (10 )                                                      

Issuance of Class A common shares

   2,003,385     20                   40,003             (14,660 )                     25,363          

Repayment of employee stock purchase and loan plan receivable

                                   3,796                               3,796          

Interest on employee stock purchase and loan plan

                             409     (409 )                                        

Other comprehensive income:

                                                                              

Net change in unrealized gain (loss) on available-for-sale investment securities (net of taxes of $1,978)

                                                   (76,392 )             (76,392 )     (76,392 )

Net change in unrealized gain (loss) on cash flow hedges

                                                   (22,275 )             (22,275 )     (22,275 )
                                                                         

Comprehensive income