Filed by Friedman, Billings, Ramsey Group, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12 under the Securities Act of 1934
Subject Company: FBR Asset Investment Corporation
Commission File No: 001-15049
FRIEDMAN BILLINGS RAMSEY
[FBR LOGO]
MERGER OF
FRIEDMAN, BILLINGS, RAMSEY GROUP ("FBR GROUP")
WITH
FBR ASSET INVESTMENT CORPORATION ("FBR ASSET")
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DECEMBER 2002
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________________________________________________________________________________
[FBR LOGO]
________________________________________________________________________________
FORWARD LOOKING INFORMATION
Statements concerning projections, 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
overall environment for interest rates, repayment speeds within the
mortgage-backed securities market, risk associated with equity
investments, the demand for public offerings, activity in the secondary
securities market, the high degree of risk associated with technology
and other venture capital investments, competition for business and
personnel, and general economic, political, and market conditions.
Additional information concerning factors that could cause actual
results to differ materially is contained in FBR Asset's Annual Report
on Form 10-K and quarterly reports on Form 10-Q, and FBR Group's Annual
Report on Form 10-K and quarterly reports on Form 10-Q.
PROXY INFORMATION
In connection with the proposed transactions, Friedman, Billings,
Ramsey Group, Inc. and FBR Asset Investment Corporation will file a
joint proxy statement/prospectus with the Securities and Exchange
Commission. Investors and security holders are urged to carefully read
the joint proxy statement/prospectus regarding the proposed
transactions when it becomes available, because it will contain
important information. Pro forma information contained in the following
materials may be changed in the joint proxy statement/prospectus.
Investors and security holders may obtain a free copy of the joint
proxy statement/prospectus (when it is available) and other documents
containing information about Friedman, Billings, Ramsey Group, Inc. and
FBR Asset, without charge, at the SEC's web site at http://www.sec.gov.
Free copies of both companies' filings may be obtained by directing a
request to 1001 Nineteenth Street North, Arlington, Virginia 22209,
Attention: Investor Relations.
PARTICIPANTS IN SOLICITATION
FBR Group, FBR Asset and their respective directors, executive officers
and other members of their management and employees may be soliciting
proxies from their respective stockholders in connection with the
proposed merger. Information concerning FBR Group's participants in the
solicitation is set forth in FBR Group's proxy statement for its annual
meeting of stockholders, filed with the SEC on May 30, 2002.
Information concerning FBR Asset's participants in the solicitation is
set forth in FBR Asset's proxy statement for its annual meeting of
stockholders, filed with the SEC on April 23, 2002.
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FRIEDMAN BILLINGS RAMSEY
Page 2
December 4, 2002
[FBR Logo] INTRODUCTION
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o On November 14, 2002, Friedman, Billings, Ramsey Group, Inc. (NYSE: FBR) and
its existing affiliate, FBR Asset Investment Corporation (NYSE: FB) agreed to
merge.
o The resulting entity will continue to engage in the business activities of the
two companies. The new parent company ("New FBR") will engage in principal
investing activities, primarily investing in mortgage-backed securities as FBR
Asset does today, and, through taxable subsidiaries, will conduct investment
banking and other operating businesses as FBR Group does today.
o New FBR will elect to be taxed as a REIT, and will conduct most prinicpal
investment activities in the REIT, as FBR Asset had done befroe the merger.
The operating businesses of FBR Group will be conducted within taxable REIT
subsidiaries ("TRS"s) and will continue to pay corporate income tax like any
taxable corporation.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 3
December 4, 2002
[FBR Logo] CORPORATE STRUCTURE
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[Graph depicting the following information:]
BEFORE AFTER
FBR ASSET Asset holdings conform PARENT
(REIT) ----------> to REIT rules (REIT)
(primarily MBS);
distributes 90%+ of
taxable income.
FBR GROUP ----------> Operating businesses; TAXABLE REIT
(TAXABLE pays tax at corporate SUBSIDIARIES
CORPORATION) rates; may retain or (Taxable
distribute after-tax Corporation)
earnings.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 4
December 4, 2002
[FBR Logo] NEW FBR (1)
________________________________________________________________________________
o Significant Growth Opportunity within Investment Banking and Other TRS
Businesses
o Significant Dividend Income
o Diversified Earnings Stream
o Ability to Capitalize on Principal Investing Opportunities
o More than 460 Employees in 16 Offices
o Total Assets of More than $6 Billion; Highly Liquid Balance Sheet
o Equity Capital Base of More than $1 Billion
o Market Capitalization Greater than $1.2 Billion (2)
o Total Shares Outstanding of Approximately 130 Million
o Float Shares Greater than 100 Million
(1) All data pro forma for the transaction.
(2) Based on the closing price of FBR Group on November 14, 2002.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 5
December 4, 2002
[FBR Logo] FRIEDMAN BILLINGS RAMSEY
INVESTMENT BANKING, INSTITUTIONAL
BROKERAGE, ASSET MANAGEMENT
Growth Businesses
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DECEMBER 2002
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[FBR Logo] FBR GROUP OVERVIEW
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o Top Ten Lead Managing Equity Underwriter
o Greater than 30% CAGR Revenue Growth
o #1 Aftermarket Performance for Lead Managed Deals Since
January 1, 2001 (1)
o One of the Most Efficient Cost Structures in the Industry
o Six Industry Focus Sectors, 460 Employees, 16 Offices
o Manager of Mortgage Backed Securities and Principal
Activities of FBR Asset
o Positioned for Continued Growth Through Period of Industry
Volatility
(1) Source: CommScan LLC. For the period beginning January 1, 2001 and
ending September 30, 2002, among underwriters that have closed more than
five lead-managed deals.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 7
December 4, 2002
[FBR Logo] Investment Baking Rankings 1/1/02-9/30/02
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Issuer Market Cap Under $1B- All Industries All Market Caps- All Industries
1/1/2002-9/30/2002 IPOs and Secondaries 1/1/2002-9/30/2002 IPOs and Secondaries
LEAD MANAGER $ MILLIONS # OF DEALS LEAD MANAGER $ MILLIONS # OF DEALS
1 Credit Suisse First Boston $2,865.2 25 1 Credit Suisse First Boston $16,405.4 49
2 Merrill Lynch & Co $1,793.4 15 2 Goldman, Sachs & Co $13,103.3 25
3 Bear, Stearns & Co $1,589.2 13 3 Salomon Smith Barney Inc $10,851.5 26
4 Morgan Stanley $1,517.5 14 4 Morgan Stanley $6,817.1 26
5 Lehman Brothers $1,508.9 12 5 Merrill Lynch & Co $6,693.0 28
6 UBS Warburg LLC $1,310.7 17 6 Lehman Brothers $4,023.0 19
7 FRIEDMAN, BILLINGS, RAMSEY $1,191.7 15 (1) 7 UBS Warburg LLC $2,438.8 22
8 Goldman, Sachs & Co $1,092.4 8 8 Deutsche Bank Securities $2,276.2 13
9 Salomon Smith Barney Inc $871.9 8 9 Bear, Stearns & Co $2,202.2 16
10 Banc of America Securities $683.2 8 10 J.P. Morgan Securities Inc $2,138.9 13
11 Deutsche Bank Securities $591.1 6 11 Banc of America Securities $2,136.8 12
12 J.P. Morgan Securities $498.3 7 12 FRIEDMAN, BILLINGS, RAMSEY $1,694.2 16 (1)
13 CIBC World Markets $405.6 8 13 Thomas Weisel Partners LLC $468.1 4
14 Robertson Stephens $386.0 7 14 CIBC World Markets $405.6 8
15 Robert W. Baird & Co Inc $384.6 4 15 Robertson Stephens $386.0 7
16 U.S. Bancorp Piper Jaffray Inc $303.3 4 16 Robert W. Baird & Co Inc $384.6 4
17 Raymond James $280.4 9 17 U.S. Bancorp Piper Jaffray Inc $303.3 4
18 Jefferies & Co Inc $257.2 3 18 Wachovia Securities Inc $289.3 6
19 Wachovia Securities Inc $238.9 5 19 Raymond James $280.4 9
20 Thomas Weisel Partners LLC $217.0 3 20 Jefferies & Co Inc $257.2 3
21 Keefe, Bruyette & Woods Inc $216.6 5 21 Keefe, Bruyette & Woods Inc $216.6 5
22 TD Securities Inc $212.4 1 22 Needham & Co Inc $183.6 3
23 Needham & Co Inc $183.6 3 23 Ferris, Baker Watts Inc $165.3 3
24 Ferris, Baker Watts Inc $165.3 3 24 William Blair & Co $127.5 3
25 Legg Mason Wood Walker Inc $143.5 2 25 Morgan Keegan & Co Inc $107.7 4
(1) In addition, FBR raised more than $450 million in 144A Institutional Equity Placements. Including this $450 million, FBR
raised approximately $1.65 billion for issuers with market capitalizations under $1 billion, and $2.15 billion in total.
Source: CommScan LLC.
Excludes Closed End Funds
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 8
December 4, 2002
[FBR Logo] FBR GROUP OVERVIEW
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THE BUSINESS OPERATED BY FBR GROUP IN THE PAST WILL CONTINUE TO BE OPERATED BY
NEW FBR THROUGH TAXABLE REIT SUBSIDIARIES
(US $ IN MILLIONS)
[Bar Graphs depicting the following information:]
INVESTMENT BANKING REVENUE (1)
Underwriting:
1999 $22.6
2000 $21.1
2001 $44.6
2002 Nine Months Annualized $82.7
Corporate Finance:
1999 $22.5
2000 $31.4
2001 $30.3
2002 Nine Months Annualized $64.1
Gains:
1999 $3.9
2000 $1.5
2001 $6.8
2002 Nine Months Annualized $5.9
Total 1999: $49.0
Total 2000: $54.0
Total 2001: $81.7
Total 2002 Nine Months Annualized: $152.6
CAGR 46.0%
SALES & TRADING REVENUE (1)
Agency:
1999 $15.0
2000 $21.1
2001 $27.1
2002 Nine Months Annualized $36.4
Principal:
1999 $22.1
2000 $32.3
2001 $24.6
2002 Nine Months Annualized $27.0
Total 1999: $37.1
Total 2000: $53.4
Total 2001: $51.7
Total 2002 Nine Months Annualized: $63.4
CAGR 19.6%
ADJUSTED ASSET MANAGEMENT REVENUE (1)
Base Management Fee:
1999 $8.4
2000 $9.0
2001 $17.9
2002 Nine Months Annualized $20.2
Incentive Income:
1999 $1.6
2000 $1.7
2001 $2.0
2002 Nine Months Annualized $.3
Total 1999: $10.0
Total 2000: $10.7
Total 2001: $19.9
Total 2002 Nine Months Annualized: $20.5
CAGR 27.1%
TOTAL ADJUSTED PRO FORMA TRS REVENUE (1) (2)
Investment Banking:
1999 $49.0
2000 $54.0
2001 $81.7
2002 Nine Months Annualized $152.6
Sales & Trading
1999 $37.1
2000 $53.4
2001 $51.7
2002 Nine Months Annualized $63.4
Asset Management
1999 $10.0
2000 $10.7
2001 $19.9
2002 Nine Months Annualized $20.5
Total 1999: $96.1
Total 2000: $118.1
Total 2001: $153.2
Total 2002 Nine Months Annualized: $236.5
CAGR 35.0%
(1) Adjusted for elimination of all revenue from and fees paid to FBR Asset
and for the elimination of technology sector net investment and incentive
gains and losses.
(2) Excludes Net Investment Income, Interest, Dividends and Other.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 9
December 4, 2002
[FBR Logo]
FRIEDMAN BILLINGS RAMSEY
PRINCIPAL INVESTING
Spread Businesses & Merchant Banking
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DECEMBER 2002
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[FBR Logo] MBS AND OTHER PRINCIPAL INVESTMENTS
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The strategy successfully employed by FBR Asset in the past will continue to
be used by New FBR
o Residential Mortgage-Backed Securities (Approximately $5.8 Billion as
of September 30, 2002)
|X| AAA rated securities - guaranteed by Freddie Mac, Fannie Mae or
Ginnie Mae
|X| Low effective duration of 1 to 2 years: limits price risk
|X| Leverage target of 8.5x debt to equity
|X| Allocation of principal equity capital: 50%-90% (long-term average
target 60%-65%)
o Merchant Banking Portfolio (approximately $100 Million as of September
30, 2002 in FBR Asset)
|X| Senior secured and mezzanine loans
|X| Preferred and common equity
|X| Direct assets
|X| Non-levered portfolio
|X| Typical hold period 12-18 months
|X| Allocation of principal equity capital: 10%-50% (long-term average
target 35%-40%)
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 11
December 4, 2002
[FBR Logo] PORTFOLIO RETURNS
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o MORTGAGE BACKED SECURITIES PORTFOLIO INVESTMENTS
ROE Model(1)
---------
Unlevered Asset Yield: 4.00%
Cost of funds: 1.35%
Spread: 2.65%
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ROE, Gross (Assumed Leverage @ 8.5x) 26.53%
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Levered Return: (2.65% * 8.5x) 22.53%
Unlevered Equity Return: 4.00%
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Gross ROE 26.53%
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o OPPORTUNITY FUND INVESTMENTS
|X| The Dollar Weighted Internal Rate of Return in FBR Asset's Opportunity
Portfolio Investments has been 30.6% (In addition, FBR Asset and
FBR Group received Investment Banking Fees)
(1) Example for illustrative purposes only, not intended to reflect
existing portfolio, historical results, or likely future results.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 12
December 4, 2002
[FBR Logo] FBR ASSET MBS PORTFOLIO
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AS OF 30-SEP-2002
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CURRENT MARKET RELEVANT
FACE VALUE % OF AVERAGE AVERAGE BOOK EFFECTIVE PREPAYMENT
SECTOR ($000) ($000) PORTFOLIO COUPON YRS. TO MAT. YIELD DURATION ASSUMPTIONS
____________________________________________________________________________________________________________
ARM 5,618,770 5,789,145 99.44% 5.27% 2.55 4.74% 1.37 30.37
Fixed 31,869 33,360 0.56% 7.00% 2.27 5.34% 1.00 56.71
TOTAL 5,650,639 5,822,505 100.00% 5.28% 2.55 4.75% 1.37 30.53
[PIE CHART DEPICTING GNMA 5%, FNMA 36% AND FHLMC 59%]
[PIE CHART DEPICTING ARM 99% AND Fixed 1%]
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 13
December 4, 2002
[FBR Logo] NET INTEREST SPREAD COMPARED TO DISCOUNT RATE
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[LINE GRAPH DEPICTING SPREAD COMPARED TO DISCOUNT RATE
"SPREAD BETWEEN CMT+225 BPS AND ONE MONTH LIBOR(%)" ON THE VERTICAL AXIS AND
"THE MONTHS OF NOVEMBER AND MAY FROM 1982 TO 2002" ON THE HORIZONTAL AXIS.
THE POINTS PLOTTED REPRESENT THE FOLLOWING:
1. "SPREAD BETWEEN CMT+225 BPS AND LIBOR"
2. "AVERAGE SPREAD OF 216 BPS (STANDARD DEVIATION OF 47 BPS)"
3. "DISCOUNT RATE"]
Source: Bloomberg, Federal Reserve
Note: CMT is 1 Year Constant Maturity Treasury.
For purposes of estimating spread, assumed a
margin of 225 bps.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 14
December 4, 2002
[FBR Logo] FRIEDMAN BILLINGS RAMSEY
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BUSINESS SYNERGY
The Interface Between Investment Banking and Capital
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DECEMBER 2002
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BUSINESS SYNERGY
[FBR Logo] ACCESS TO CAPITAL DRIVES INVESTMENT BANKING GROWTH
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Examples of transactions in which FBR Asset has invested, and FBR Group has
provided investment banking services.
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INVESTMENT BANKING
PERIOD INVESTMENT AMOUNT FEES
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Jul-01 Saxon Capital $9,300,000 $16,750,587
Nov-01 Quaker Coal - 707,334 (1)
Nov-01 MCG Capital 9,934,375 10,688,048
Dec-01 Anworth Mortgage 3,890,650 1,318,828
Mar-02 Oxford Finance Corp. 14,650,000(2) 3,180,000
Apr-02 Southwest Royalties 18,333,333 1,792,188
Sep-02 American Financial 40,000,001(3) 27,149,064
Realty Trust
Sep-02 AmeriCredit 35,250,000 28,522,361
Oct-02 Franklin Bank 5,580,000 4,437,533
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$136,938,360 $94,545,943
(1) Breakup fee
(2) Includes $10 million note and $4.65 million equity investment
(3) Includes $5 million Three Beaver Valley note repaid prior to the
144A offering and the subsequent $35 million equity investment,
which was made in September of 2002.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 16
December 4, 2002
BUSINESS SYNERGY
[FBR Logo] CASE STUDIES FOR USE OF CAPITAL
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American Financial Realty Southwest Royalties, Inc. AmeriCredit Corp.(ACF)
Trust
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FBR Group worked with American FBR acted as the sole manager
Financial's management team to FBR was engaged to syndicate a and placement agent for a $500
create a REIT that purchases real senior loan for Southwest Royalties, million recapitalization of
Description of estate assets from large commercial an oil and gas exploration and AmeriCredit, a sub-prime
Transaction banking institutions and subsequently production company, in an amount automobile finance company.
releases the properties back to the up to $80 million. FBR Asset FBR Asset acted as the lead
institutions or a third party and in participated as the lead, helping investor, enabling FBR to
some cases, sells the acquired to bring in two other institutions to successfully complete the
property. Prior to the 144A offering, consummate the transaction. transaction in a difficult
FBR Asset made a time critical $5 market environment.
million loan, which was repaid in 42
days, to enable REIT to acquire a key
piece of real estate. FBR Asset
subsequently acted as the lead
investor with a $35 million investment
in a $400 million dollar 144A offering
completed by FBR Group to initially
capitalize the REIT.
Transaction 144A Private Placement Syndicated Senior Loan Follow-on Offering
Structure
Deal Size $400 Million $55 Million Over $500 Million
Investment Amount $35,000,001 $18,333,333 $35,250,000
Days Held 90+ (still in portfolio) 26 65+ (still in portfolio)
Holding Period Return 14.9% to date 2.0% 14.9% to date
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 17
December 4, 2002
[FBR Logo] FRIEDMAN BILLINGS RAMSEY
THE NEW FBR
Business Mix
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DECEMBER 2002
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[FBR Logo] NEW FBR BUSINESS MIX (1)
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____________________________________________________________________________________________________________________________________
REIT PRINCIPAL
ACTIVITIES TAXABLE SUBSIDIARIES (TRSs)
MORTGAGED MERCHANT
BACKED BANKING INVESTMENT INSTITUTIONAL ASSET
SECURITIES AND OTHER BANKING RESEARCH SALES & TRADING MANAGEMENT
$160 million 75 investment bankers 60 analysts 50 Institutional Private equity
Assets approximately of invested 6 focused industry Over 380 Brokers Hedge funds
$6 billion capital sectors companies 30 Traders & Sales Venture capital
o AAA rated o Preferred and o Financial Services under coverage Traders Equity Mutual funds
securities - common equity o Real Estate o Independence Market-maker in Fixed Income & Money
guaranteed by o Senior secured o Technology o In-depth over 470 equity Market Mutual Funds
Freddie Mac, and mezzanine o Energy company analysis and debt securities Private Client Group
Fannie Mae or loans o Diversified o Theme-driven o Covering over o Investment
Ginnie Mae o Interest in Industries industry 1,000 management
o Low effective proprietary o Healthcare coverage institutional o Restricted (144)
duration of 1 to 2: funds Top 10 lead-managing o Daily meetings accounts stock sales
limits price risk o Direct assets equity underwriter with sales force o Mutual funds o Financial
o Leverage target o Non-levered o 78 transactions o Up-to-date o Hedge funds planning/trust &
of 8.5x within portfolio with $5.6 bn in economic and o Money managers estate services
mortgage portfolio total transaction policy news o Pension funds o Credit lines
value(2) o Frequent o Hedging and
o 29 lead and sole management monetization
managed public and roadshows o Employee stock
private transactions(2) o Annual investor option management
o 34 M&A and conferences o Cash management
advisory o FBR National Bank
assignments(2) & Trust (3)
(1) All numbers are approximate as of September 30, 2002 unless otherwise
stated.
(2) For 12 months ended September 30, 2002.
(3) Member FDIC and an equal housing lender. Products offered by other FBR
subsidiaries are not FDIC insured, not offered, guaranteed, or endorsed by
FBR National Bank & Trust, and may lose value.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 19
December 4, 2002
[FBR Logo]
FRIEDMAN BILLINGS RAMSEY
_______________________________________________________________________________
THE NEW FBR
Selected Comparables
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DECEMBER 2002
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[FBR Logo]
INDEPENDENT BROKER-DEALER BUSINESS MIX
_______________________________________________________________________________
Components of Period Interest Investment Principal Fees
Gross Revenue End (1) and Banking Transactions &
Dividends and Other
Commissions
Lehman Brothers 31-Aug-02 70% 11% 19% 0%
Morgan Stanley 31-Aug-02 49% 7% 19% 25%
Merrill Lynch 27-Sep-02 46% 9% 25% 20%
Goldman Sachs 30-Aug-02 48% 12% 19% 21%
SWS Group (2) 27-Sep-02 38% 11% 38% 14%
Bear Stearns 31-Aug-02 32% 14% 51% 2%
Jefferies Group 27-Sep-02 12% 19% 66% 2%
Raymond James Financial 28-Jun-02 11% 8% 66% 14%
Stifel Financial Corp. 30-Sep-02 8% 25% 54% 13%
Legg Mason, Inc (3) 30-Sep-02 7% 7% 30% 56%
A.G. Edwards Inc.(3) 31-Aug-02 5% 11% 55% 29%
-- -- -- --
AVERAGE BROKER/DEALER 30% 12% 40% 18%
NEW FBR 2003 FORECAST 31-DEC-02 44% 30% 16% 10%
PRO FORMA (4)
(1) Results are for most recent nine month period unless stated otherwise.
(2) Most recent three month period
(3) Most recent six month period
(4) Pro forma forecast for full year ended December 31, 2003
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 21
December 4, 2002
[FBR Logo]
SELECTED COMPARABLES
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Period Market Cap (1) Compensation/ Leverage ROE (2) Indicated Price/ 2003
End ($ Millions) Net Dividend Book Estimated
Revenue (2) Yield P/E
Morgan Stanley 31-Aug-02 $45,596 45.7% 24.1x 14.0% 2.2% 2.13x 13.2x
Goldman Sachs 30-Aug-02 37,117 50.0% 18.5x 11.4% 0.6% 1.97x 16.2x
Merrill Lynch 27-Sep-02 34,058 51.7% 19.7x 11.8% 1.6% 1.53x 13.1x
Lehman Brothers 31-Aug-02 13,568 51.0% 29.8x 11.8% 0.6% 1.52x 12.8x
Bear Stearns 31-Aug-02 8,892 48.6% 31.1.x 16.5% 1.1% 1.49x 11.5x
Legg Mason, Inc (3),(4) 30-Sep-02 3,331 59.2% 5.1x 11.2% 0.9% 2.85x 16.1x
A.G. Edwards Inc. (4) 31-Aug-02 2,698 66.3% 2.4x 7.8% 1.9% 1.66x 15.9x
Raymond James Financial(5) 28-Jun-02 1,478 75.8% 7.9x 9.5% 1.2% 1.79x 17.6x
Jefferies Group 27-Sep-02 1,102 57.9% 9.6x 10.3% 0.5% 1.88x 15.3x
SWS Group (6) 27-Sep-02 218 56.3% 14.0x NA 3.1% 1.15x NA
Stifel Financial Corp. 30-Sep-02 82 68.2% 5.3x 1.9% 1.0% 0.97x NA
AVERAGE BROKER/DEALER $13,347 57.3% 15.2X 10.6% 1.3% 1.72X 14.6X
NEW FBR 2003 31-DEC-03 $1,258 (8) <44.0% 6.4X (9) 18.4% (10) 14.4% (11) 1.20X (12) 6.3X (13)
PRO FORMA FORECAST (7)
(1) Market data as of November 18, 2002
(2) Based on most recent nine month period end (annualized for ROE calculation)
unless noted otherwise
(3) Earnings forecast for fiscal year end March 2004
(4) Compensation/Net Revenue based on most recent six month period, ROE
annualized on most recent six month period
(5) Earnings forecast for fiscal year end September 2003
(6) Compensation/Net Revenue based on most recent three month period, ROE
annualized on most recent three month period
(7) Pro forma forecast for full year 2003
(8) FBR Pro Forma market cap is calculated based on the closing price on
November 14, 2002, the day prior to the date that the transaction was
announced.
(9) Pro Forma as of 9/30/02
(10) ROE calculated using 9/30/02 equity of $1.013 billion as 2003 starting
equity and assumes retained GAAP earnings of $5.6 million at the end of
2003, resulting in average equity over the period of $1.016 billion. GAAP
Net Income for 2003 is forecast to be $187 million (see slide A-7).
(11) Indicated dividend of $1.37 over FBR Group share price of $9.50 on November
14, 2002, the day prior to the date the transaction was announced
(12) Pro Forma Book of $7.89 as of 9/30/02, which excludes the effect of
employee loans and related shares
(13) FBR Group share price of $9.50 on November 14, 2002 over Adjusted Earnings
per Share of $1.52 (see slide A-7)
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 22
December 4, 2002
[FBR Logo]
FRIEDMAN BILLINGS RAMSEY
THE NEW FBR
Conclusion
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DECEMBER 2002
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_______________________________________________________________________________
[FBR Logo]
NEW FBR (1)
_______________________________________________________________________________
o Significant Growth Opportunity within Investment Banking and
Other TRS Businesses
o Significant Dividend Income
o Diversified Earnings Stream
o Ability to Capitalize on Principal Investing Opportunities
o More than 460 Employees in 16 Offices
o Total Assets of More than $6 Billion; Highly Liquid Balance
Sheet
o Equity Capital Base of More than $1 Billion
o Market Capitalization Greater than $1.2 Billion (2)
o Total Shares Outstanding of Approximately 130 Million
o Float Shares Greater than 100 Million
(1) All data pro forma for the transaction.
(2) Based on the closing price of FBR Group on November 14, 2002.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page 24
December 4, 2002
[FBR Logo]
FRIEDMAN BILLINGS RAMSEY
_______________________________________________________________________________
APPENDIX
------------------------------------------------------------
DECEMBER 2002
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_______________________________________________________________________________
[FBR Logo]
TRANSACTION OVERVIEW
_______________________________________________________________________________
Exchange Ratio: 3.65 "New FBR" shares per FBR Asset share
Implied FBR Asset
Price per Share: (1) $34.68
Implied Aggregate
Consideration: (1),(2) $869 Million
Implied Premium to -------------------------------
Market: (1) 22% $34.68 $29.06 GAAP Book
(2.81) AOCI (2.81)AOCI
-----
Implied Multiple to $31.87 Price (0.29) Excess
Adjusted Book (ex.AOCI): (1) 1.23x paid for ------ earnings
adjusted $25.96 Adjusted
book book
------------------------------
Consideration: 100% Stock (tax-free)
Transaction Structure: o New FBR created and elects to be taxed
as a REIT
o FBR Asset to be merged into New FBR
o FBR Group to be merged into New FBR
o Operating businesses elect to become
taxable REIT subsidiaries ("TRSs")
Board Composition: FBR Group Board plus FBR Asset Board; nine
directors in total, of which seven are
outsiders; at least five are independent
directors in accordance with the
proposed guidelines
Required Approvals: FBR Group Shareholders, FBR Asset
Shareholders and regulatory approvals
Walk-Away Provisions: 10 day average FBR Group share price of
below $8.75 and above $10.55 for 10 days
prior to shareholder meetings; may be
waived
Anticipated Closing: First Quarter 2003
(1) As of November 14, 2002 - date of agreement
(2) Includes shares beneficially owned by FBR
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page A-1
December 4, 2002
[FBR Logo]
OLD STRUCTURE/TWO SEPARATE COMPANIES
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FBR GROUP FBR ASSET
[Graph Depicting Structural Information] [Graph Depicting Structural Information]
FBR Group (C Corp.) 10% of Merchant Base Fee of $11 Million FBR Asset Information Corporation
$260 Million of Capital (1) Banking Related plus Incentive Fee of (REIT)
$60 Million Projected 2003 Net Income Investment Banking $21.5 Million Projected $730 Million of Capital (2)
Fees for 2003 $125 Million Projected 2003 Income
Investment Banking, Sales & Trading,
Research Managed by FBR Investment
Management
FBR Investment Management (FBRIM) FBR Asset Taxable REIT Subsidiary
("TRS")
MBS Portfolio Management, Merchant $3 Million of Capital
Banking Investments, Other Investment
Management Pays Tax and Retains Capital
(1) Approximate as of September 30, 2002, including approximately $24 million of
employee loans
(2) Approximate as of September 30, 2002
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page A-2
December 4, 2002
[FBR Logo]
NEW FBR
TOTAL CAPITAL OF MORE THAN $1 BILLION (1), PROJ. EARNINGS OF ALMOST $200
MILLION (2)
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[Graph depicting the following information:]
New FBR (REIT)
$964 Million of Capital (1)
$174.7 Million Projected 2003 Net Income (2)
No Tax, Pays Dividends
MBS Portfolio Encompasses both the old
FBR Asset Capital and the old FBR
Group Excess Capital
Merchant Banking
FBR Taxable REIT Subsidiary
$49 Million of Capital
$23.1 Million Projected 2003 After-Tax Income
Pays Tax, Retains Capital
Investment Banking, Research, Sales &
Trading, Other Asset Management and
Customer Services
(1) Pro Forma as of September 30, 2002, excluding approximately $24 million of
employee loans
(2) Before $10.8 million amortization of excess premium resulting from purchase
accounting
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FOWARD LOOKING INFORMATION ON PAGE 2.
Page A-3
December 4, 2002
[FBR Logo] TRANSACTION SUMMARY
________________________________________________________________________________
FBR Group FBR Asset New FBR
Business Description Fast Growing Externally Principal Investing
Investment Bank Managed Mortgage and Top Ten
REIT Investment Bank
Corporate Structure C Corporation REIT REIT
Management Structure Internal External Internal
Stock for Stock Exchange 1.00 3.65 N/A
Total Shares Outstanding (1) 50.4 25.1 132.4
Estimated Fully Diluted GAAP shares (2) 48.0 25.1 130.0 (3) Former FBR Asset Share Equivalents
9/30/02 Book Value per share (4) $5.06 $29.06 $7.89 $28.80 equivalent for FBR Asset
2003 Projected EPS $1.27 $4.99 $1.52 (5) $5.55 equivalent for FBR Asset
2003 Projected Dividend None $5.00 $1.37 $5.00 equivalent for FBR Asset
Assets / Equity 2:1 8:1 6:1
Market Capitalization at 11/14/02 $475,000,000 $700,000,000 $1,257,800,000 (6)
(1) Includes 4 million employee loan shares
(2) Excludes effect of employee loans and related shares
(3) 25.1 million FBR Asset shares less 2.6 million FBR Asset shares owned by FBR
Group times 3.65 equals 82 million plus 46.4 million shares outstanding plus
estimated 1.6 million share dilution for outstanding option shares - equals
130 million shares
(4) On total shares outstanding, excluding employee loan shares, with no
dilution for option shares
(5) Adjusted EPS (see slide A-7)
(6) Pro Forma New FBR Group market capitalization based on $9.50 FBR closing
price on November 14, 2002 and 132.4 million shares outstanding
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FRIEDMAN BILLINGS RAMSEY
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Page A-4
December 4, 2002
[FBR Logo] TRANSACTION RATIONALE - FBR ASSET
________________________________________________________________________________
o Internalizes Management and Proprietary Deal Flow
o Provides Significant Growth Opportunity
o Maintains Dividend
o Achieves Accretion to Earnings while Reducing Leverage
o Improves Flexibility and Diversification - Benefit in Different
Environments
o Potential for Wider Coverage and Broader Investor Base
o Increases Potential for Stock Appreciation
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FRIEDMAN BILLINGS RAMSEY
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Page A-5
December 4, 2002
[FBR Logo] TRANSACTION RATIONALE - FBR GROUP
________________________________________________________________________________
o Accretive to Earnings and Book Value
o More Efficient Internal Access to Capital Enhances Investment
Banking Growth
o Increased Visibility and Market Presence Enhances Overall
Growth Opportunities
o Diversifies and Provides Quarter to Quarter Stability to
Revenue Stream
o Deploys Excess Capital in Tax Efficient Manner
o Current Dividend Plus Growth Provides Significant Total
Return Potential
o Potential for Wider Coverage and Broader Investor Base
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FRIEDMAN BILLINGS RAMSEY
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Page A-6
December 4, 2002
[FBR Logo] SELECTED COMPARABLES RANKED BY EQUITY
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INDEPENDENT BROKER/DEALER EQUITY CAPITAL
($ MILLIONS) PERIOD END EQUITY CAPITAL EQUITY CAPITAL
LESS GOODWILL
1 Morgan Stanley 31-Aug-02 $19,969 $21,416
2 Goldman Sachs 30-Aug-02 16,832 18,844
3 Merrill Lynch 27-Sep-02 17,978 22,299
4 Lehman Brothers 31-Aug-02 8,713 8,909
5 Bear Stearns 31-Aug-02 5,954 5,954
6 A. G. Edwards Inc. 31-Aug-02 1,627 1,627
7 NEW FBR GROUP (EST. PRO FORMA) 30-SEP-02 887 1,013
8 Raymond James Financial 28-Jun-02 738 801
9 Legg Mason, Inc 30-Sep-02 673 1,126
10 Jefferies Group 27-Sep-02 573 609
11 SWS Group 27-Sep-02 243 250
12 Stifel Financial Corp. 30-Sep-02 75 79
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FRIEDMAN BILLINGS RAMSEY
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Page A-7
December 4, 2002
[FBR Logo] NEW FBR PRO FORMA SUMMARY
________________________________________________________________________________
(US $ IN MILLIONS)
2003 FORECAST FBR GROUP FBR ASSET MERGER NEW FBR
ADJUSTMENTS
Revenues
Investment Banking $150.0 $150.0
Institutional Brokerage 82.6 82.6
Asset Management 31.4 31.4
FBR Asset 45.5 (45.5) 0.0
Interest & Other 22.0 246.5 (24.3) 244.2
________ _________ ____________ ________
Total Revenues 331.5 246.5 (69.8) 508.2
Expenses 230.4 121.5 (46.0) 305.9
________ _________ ____________ ________
Pre-Tax Income 101.1 125.0 (23.8) 202.3
Tax 40.4 0.0 (25.1) 15.3
________ _________ ____________ ________
GAAP Net Income $60.7 $125.0 (1) $1.3 $187.0
======== ========= ============ ========
Accretion of MBS mark to market purchase adjustment 10.8 10.8
Adjusted Net Income 197.8
Dividends Paid 181.4
Retained Capital 16.4
Fully Diluted Shares Outstanding 48.0 (2) 25.1 (3) 130.0 (4)
Fully Diluted GAAP Earnings Per Share $1.27 $4.99 $1.44
Fully Diluted Adjusted Earnings Per Share $1.52
(1) Assumes asset yield of 4.39% and cost of funds of 1.72%, resulting in a spread of 2.67%
(2) 50.4 million primary shares less 4.0 million shares securing employee loans in accordance with
GAAP plus an estimated 1.6 million shares from option dilution
(3) Includes 2.6 million shares owned by FBR Group
(4) 25.1 million FBR Asset shares less 2.6 million FBR Asset shares owned by FBR Group times 3.65
equals 82 million plus 48 million equals 130 million shares
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page A-8
December 4, 2002
[FBR Logo] REIT RULE GUIDE
________________________________________________________________________________
o There are four REIT tests that should be considered:
|X| 20% limitation on aggregate TRS value relative to total asset
value
|X| 25% limitation on "bad" asset value relative to total asset
value
|X| 95% gross income test
|X| 75% gross income test
o In applying all of these tests, the REIT and all of its subsidiaries
other than its TRSs generally are consolidated. The TRSs, however, are
not consolidated with the REIT for tax purposes, but instead are treated
as separate entities.
o 20% limitation on TRSs: Although a REIT may own up to 100% of the stock
and securities of one or more TRSs, the aggregate value of all TRS
equity and debt securities held by the REIT may not exceed 20% of the
total value of the REIT's gross assets. This limitation applies at the
end of each calendar quarter.
o 25% "bad" asset limitation: At least 75% of the value of the REIT's
gross assets must consist of "good" assets. TRS stock and securities
are considered "bad" assets under this test. Thus, TRS stock and
securities, along with other "bad" assets, cannot exceed 25% of the
total value of the REIT's gross assets. This limitation also applies at
the end of each calendar quarter.
o Gross income tests: Because TRSs are not consolidated with the REIT for
purposes of the income tests, income earned by the TRSs does not
directly impact the REIT's compliance with the gross income tests.
Dividends paid by a TRS to the REIT, however, do impact the gross income
tests. TRS dividends are "good" income under the 95% gross income test,
but "bad" income under the 75% gross income test, regardless of what
type of underlying income the TRS earned. The income tests apply on a
calendar year basis.
o Profits earned by TRSs do not impact the REIT's distribution requirement
unless they are paid as a dividend to the REIT. TRS dividends are
included in the REIT's taxable income for purposes of the distribution
test.
o Because a TRS is subject to corporate income tax, while a REIT is not,
there are strict rules regarding the REIT's need to deal with its TRSs
on an arm's-length basis. Significant penalties apply to any
non-arm's-length transactions between a REIT and a TRS that have the
effect of reducing the TRS's tax liability. In addition, there are
limits on the ability of a TRS to deduct interest paid to a REIT.
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FRIEDMAN BILLINGS RAMSEY
SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2.
Page A-9
December 4, 2002