##### Table of Contents









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 [NO FEE REQUIRED]

For the quarterly period ended March 31, 2002

OR



|  |                                                                                                               
|- | --------------------------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to

Commission File Number 1-15049

FBR ASSET INVESTMENT CORPORATION

(Exact name of registrant as specified in its
charter)


|                                                                           |  |                                                   
|-------------------------------------------------------------------------- |  | --------------------------------------------------
|Virginia(State or other Jurisdiction of
    Incorporation or Organization) |  | 54-1873198(I.R.S. employer
    identification no.)

Potomac Tower

1001 Nineteenth Street North


Arlington, Virginia 22209


(Address of principal executive offices)


(zip code)


(703) 469-1000

(Registrants telephone number


including area code)


N/A

(former name)


Indicate by checkmark whether the Registrant
(i) 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 short period
that the Registrant was required to file such reports), and
(ii) has been subject to such filing requirements for the
past 90 days:
Yes x  No o

As of May 13, 2002, the latest practicable
date, there were 19,038,332 shares of FBR Asset Investment
Corporations common stock outstanding.









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TABLE OF CONTENTS



|                              |                                                                                               |                                                                                                                                                        |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Consolidated Financial Statements and Notes                                          
|                              |                                                                                               | Consolidated Statements of Financial Condition as of March 31, 2002 (unaudited) and December 31, 2001                                                 
|                              |                                                                                               | Consolidated Statements of Income for the Three Months Ended March 31, 2002 and 2001 (unaudited)                                                      
|                              |                                                                                               | Consolidated Statements of Changes in Shareholders Equity for the Three Months Ended March 31, 2002 (unaudited), and the Year Ended December 31, 2001
|                              |                                                                                               | Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001 (unaudited)                                                  
|                              |                                                                                               | Notes to Consolidated Financial Statements                                                                                                            
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3  Quantitative and Qualitative Disclosures About Market Risk                          
|PART II OTHER INFORMATION    
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 2. Changes in Securities and Use of Proceeds                                            
|                              | Item 3. Defaults Upon Senior Securities                                                      
|                              | Item 4. Submission of Matters to Vote of Security Holders                                    
|                              | Item 5. Other Information                                                                    
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                    



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION

FORM 10-Q


FOR THE QUARTER ENDED MARCH 31, 2002


INDEX


|                              |         |                                                                                                                                                                     |                                                                                           |      |   |    | 
|----------------------------- | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---- | - | -- | 
|                              |         |                                                                                                                                                                     |                                                                                           | Page
|                              |         |                                                                                                                                                                     |                                                                                           |     
|PART I. FINANCIAL INFORMATION |         |                                                                                                                                                                     |                                                                                           |     
|                              | Item 1. |                                                                                                                                                                     | Consolidated Financial Statements and Notes                                               |      |   | 1  | 
|                              |         | Consolidated Statements of Financial Condition as
    of March 31, 2002 (unaudited) and December 31, 2001                                                           |                                                                                           |      | 1 |   
|                              |         | Consolidated Statements of Income for the Three
    Months Ended March 31, 2002 and 2001 (unaudited)                                                                |                                                                                           |      | 2 |   
|                              |         | Consolidated Statements of Changes in
    Shareholders Equity for the Three Months Ended
    March 31, 2002 (unaudited), and the Year Ended
    December 31, 2001. |                                                                                           |      | 3 |   
|                              |         | Consolidated Statements of Cash Flows for the
    Three Months Ended March 31, 2002 and 2001 (unaudited)                                                            |                                                                                           |      | 4 |   
|                              |         | Notes to Consolidated Financial Statements                                                                                                                          |                                                                                           |      | 5 |   
|                              | Item 2. |                                                                                                                                                                     | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |      |   | 9  | 
|                              | Item 3. |                                                                                                                                                                     | Quantitative and Qualitative Disclosures About
    Market Risk                            |      |   | 13 | 
|PART II. OTHER INFORMATION    |         |                                                                                                                                                                     |                                                                                           |     
|                              | Item 1. |                                                                                                                                                                     | Legal Proceedings                                                                         |      |   | 16 | 
|                              | Item 2. |                                                                                                                                                                     | Changes in Securities and Use of Proceeds                                                 |      |   | 16 | 
|                              | Item 3. |                                                                                                                                                                     | Defaults Upon Senior Securities                                                           |      |   | 16 | 
|                              | Item 4. |                                                                                                                                                                     | Submission of Matters to Vote of Security Holders                                         |      |   | 16 | 
|                              | Item 5. |                                                                                                                                                                     | Other Information                                                                         |      |   | 16 | 
|                              | Item 6. |                                                                                                                                                                     | Exhibits and Reports on Form 8-K                                                          |      |   | 16 | 
|SIGNATURE                     |         |                                                                                                                                                                     | 17                                                                                        |     



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##### Table of Contents












PART I  FINANCIAL
INFORMATION

ITEM 1  FINANCIAL STATEMENTS
AND NOTES

FBR ASSET INVESTMENT CORPORATION

Consolidated Statements of Financial
Condition


as of March 31, 2002 (unaudited) and
December 31, 2001


|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |   |               |               | 
|---------------------------------------- | --------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ----------------- | ------------- | ------------- |  | - | ------------- | ------------- | 
|                                         |                       | March 31, 2002                                                                                                                                                                      |                                                | December 31, 2001
|                                         |                       |                                                                                                                                                                                     |                                                |                  
|                                         |                       | (unaudited)                                                                                                                                                                         |                                                |                  
|ASSETS                                   |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         |                       | Mortgage-backed securities, at fair value                                                                                                                                           |                                                | $                 | 2,621,313,602 |               |  | $ | 1,238,365,511 |              
|                                         |                       | Cash and cash equivalents                                                                                                                                                           |                                                |                   | 13,388,034    |               |  |   | 6,630,379     |              
|                                         |                       | Investments in equity securities, at fair value                                                                                                                                     |                                                |                   | 52,323,836    |               |  |   | 61,692,660    |              
|                                         |                       | Notes receivable                                                                                                                                                                    |                                                |                   | 3,000,000     |               |  |   | 8,000,000     |              
|                                         |                       | Interest, dividends and fees receivable                                                                                                                                             |                                                |                   | 16,781,577    |               |  |   | 10,241,837    |              
|                                         |                       | Prepaid expenses and other                                                                                                                                                          |                                                |                   | 240,315       |               |  |   | 194,831       |              
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         |                       |                                                                                                                                                                                     | Total assets                                   |                   | $             | 2,707,047,364 |  |   | $             | 1,325,125,218 | 
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         | Liabilities:          |                                                                                                                                                                                     |                                                |                   |               |               |  |   |              
|                                         |                       | Repurchase agreements                                                                                                                                                               |                                                | $                 | 2,338,032,000 |               |  | $ | 1,105,145,000 |              
|                                         |                       | Interest-rate swap                                                                                                                                                                  |                                                |                   | 971,563       |               |  |   | 1,159,167     |              
|                                         |                       | Interest payable                                                                                                                                                                    |                                                |                   | 3,003,090     |               |  |   | 2,177,892     |              
|                                         |                       | Dividends payable                                                                                                                                                                   |                                                |                   | 18,082,915    |               |  |   | 10,645,659    |              
|                                         |                       | Management and incentive fees payable                                                                                                                                               |                                                |                   | 2,227,084     |               |  |   | 1,117,458     |              
|                                         |                       | Accounts payable and accrued expenses                                                                                                                                               |                                                |                   | 357,904       |               |  |   | 505,549       |              
|                                         |                       | Income taxes payable                                                                                                                                                                |                                                |                   | 528,022       |               |  |   | 473,403       |              
|                                         |                       | Other                                                                                                                                                                               |                                                |                   | 10,655        |               |  |   | 35,544        |              
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         |                       |                                                                                                                                                                                     | Total liabilities                              |                   |               | 2,363,213,233 |  |   |               | 1,121,259,672 | 
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         | Shareholders Equity: |                                                                                                                                                                                     |                                                |                   |               |               |  |   |              
|                                         |                       | Preferred stock, par value $.01 per share,
    50,000,000 shares authorized; none issued                                                                                            |                                                |                   |              |               |  |   |              |              
|                                         |                       | Common stock, par value $.01 per share,
    200,000,000 shares authorized, 14,438,332 and 8,502,527 shares
    issued as of March 31, 2002, and December 31, 2001,
    respectively |                                                |                   | 144,383       |               |  |   | 85,025        |              
|                                         |                       | Additional paid-in capital                                                                                                                                                          |                                                |                   | 353,666,151   |               |  |   | 206,916,930   |              
|                                         |                       | Accumulated other comprehensive income                                                                                                                                              |                                                |                   | 8,475,786     |               |  |   | 15,154,257    |              
|                                         |                       | Retained deficit                                                                                                                                                                    |                                                |                   | (18,452,189   | )             |  |   | (18,290,666   | )            
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         |                       |                                                                                                                                                                                     | Total shareholders equity                     |                   |               | 343,834,131   |  |   |               | 203,865,546   | 
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  
|                                         |                       |                                                                                                                                                                                     | Total liabilities and shareholders
    equity |                   | $             | 2,707,047,364 |  |   | $             | 1,325,125,218 | 
|                                         |                       |                                                                                                                                                                                     |                                                |                   |               |               |  |  

The accompanying notes are an integral part of
these statements.

1



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION




Consolidated Statements of Income for the
Three Months


Ended March 31, 2002 and 2001
(unaudited)


|                                                            |                               |                              |            |             |            |   |           |           |           | 
|----------------------------------------------------------- | ----------------------------- | ---------------------------- | ---------- | ----------- | ---------- | - | --------- | --------- | --------- | 
|                                                            |                               |                             
|                                                            |                               | Three Months Ended March 31,
|                                                            |                               |                             
|                                                            |                               | 2002                         |            | 2001       
|                                                            |                               |                              |            |            
|                                                            |                               | (unaudited)                  |            | (unaudited)
|Revenue:                                                    |                               |                              |            |             |            |   |           |          
|                                                            | Interest                      |                              | $          | 19,583,024  |            |   | $         | 2,979,453 |          
|                                                            | Dividends                     |                              |            | 537,500     |            |   |           | 200,067   |          
|                                                            | Fees                          |                              |            | 288,342     |            |   |           |          |          
|                                                            |                               |                              |            |             |            |   |           |          
|                                                            |                               | Total income                 |            |             | 20,408,866 |   |           |           | 3,179,520 | 
|                                                            |                               |                              |            |             |            |   |           |          
|Expenses:                                                   |                               |                              |            |             |            |   |           |          
|                                                            | Interest                      |                              |            | 6,634,688   |            |   |           | 1,903,944 |          
|                                                            | Management and incentive fees |                              |            | 2,847,273   |            |   |           | 332,975   |          
|                                                            | Professional fees & other     |                              |            | 183,195     |            |   |           | 249,941   |          
|                                                            |                               |                              |            |             |            |   |           |          
|                                                            |                               | Total expenses               |            |             | 9,665,156  |   |           |           | 2,486,860 | 
|                                                            |                               |                              |            |             |            |   |           |          
|Realized gain(loss) on sale of equity securities,
    net   |                               |                              | 7,214,801  |             |            |   | (19,975   | )        
|Recognized loss on available-forsale equity
    securities |                               |                              |           |             |            |   | (544,880  | )        
|                                                            |                               |                              |            |             |            |   |           |          
|Net income before taxes                                     |                               |                              | 17,958,511 |             |            |   | 127,805   |          
|                                                            |                               |                              |            |             |            |   |           |          
|Income tax provision                                        |                               |                              | (54,619    | )           |            |   |          |          
|                                                            |                               |                              |            |             |            |   |           |          
|Net income                                                  |                               | $                            | 17,903,892 |             |            | $ | 127,805   |          
|                                                            |                               |                              |            |             |            |   |           |          
|Basic earnings per share                                    |                               | $                            | 1.46       |             |            | $ | 0.04      |          
|                                                            |                               |                              |            |             |            |   |           |          
|Diluted earnings per share                                  |                               | $                            | 1.46       |             |            | $ | 0.03      |          
|                                                            |                               |                              |            |             |            |   |           |          
|Basic weighted-average common and equivalent
    shares     |                               |                              | 12,268,476 |             |            |   | 3,614,998 |          
|                                                            |                               |                              |            |             |            |   |           |          
|Diluted weighted-average common and equivalent
    shares   |                               |                              | 12,289,238 |             |            |   | 3,663,231 |          
|                                                            |                               |                              |            |             |            |   |           |          

The accompanying notes are an integral part of
these statements.

2



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION




Consolidated Statements of Changes in
Shareholders Equity


for the Three Months Ended March 31, 2002
(unaudited),


and the Year Ended December 31,
2001


|                            |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |            |  
|--------------------------- | --------------------------------------------------------------------------------- | ------ | ------- | ---------- |  | --------- | ----------- | ------------- |  | ----- | ----------- | ------------- |  | - | ---------- | ---------- | - | - | ----------- | ---------- | - | - | ---------- | ---------- | -
|                            |                                                                                   |        |         |            |  |           |             | Accumulated   |  |       |             |              
|                            |                                                                                   |        |         |            |  |           |             | Other         |  |       |             |              
|                            |                                                                                   |        |         | Additional |  | Retained  |             | Comprehensive |  |       |             | Comprehensive
|                            |                                                                                   | Common |         | Paid in    |  | Earnings  |             | Income        |  |       |             | Income       
|                            |                                                                                   | Stock  |         | Capital    |  | (Deficit) |             | (Loss)        |  | Total |             | (Loss)       
|                            |                                                                                   |        |         |            |  |           |             |               |  |       |             |              
|Balance, December 31, 2000  |                                                                                   | $      | 38,844  |            |  | $         | 107,529,063 |               |  | $     | (19,978,632 | )             |  | $ | (748,691   | )          |   | $ | 86,840,584  |            |   |   |            |           
|Issuance of common stock    |                                                                                   |        | 50,300  |            |  |           | 107,575,383 |               |  |       |            |               |  |   |           |            |   |   | 107,625,683 |            |   |   |            |           
|Repurchase of common stock  |                                                                                   |        | (4,119  | )          |  |           | (8,330,016  | )             |  |       |            |               |  |   |           |            |   |   | (8,334,135  | )          |   |   |            |           
|Options granted             |                                                                                   |        |        |            |  |           | 142,500     |               |  |       |            |               |  |   |           |            |   |   | 142,500     |            |   |   |            |           
|Net income                  |                                                                                   |        |        |            |  |           |            |               |  |       | 23,065,074  |               |  |   |           |            |   |   | 23,065,074  |            |   | $ | 23,065,074 |           
|Other comprehensive income: |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |           
|                            | Change in unrealized gain(loss) on
    available-for-sale securities              |        |         |           |  |           |             |              |  |       |             |              |  |   |            | 17,062,115 |   |   |             | 17,062,115 |   |   |            | 17,062,115 |  
|                            | Change in unrealized loss on cash flow hedge                                      |        |         |           |  |           |             |              |  |       |             |              |  |   |            | (1,159,167 | ) |   |             | (1,159,167 | ) |   |            | (1,159,167 | )
|Dividends                   |                                                                                   |        |        |            |  |           |            |               |  |       | (21,377,108 | )             |  |   |           |            |   |   | (21,377,108 | )          |   |   |           |           
|                            |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |           
|Balance, December 31, 2001  |                                                                                   |        | 85,025  |            |  |           | 206,916,930 |               |  |       | (18,290,666 | )             |  |   | 15,154,257 |            |   |   | 203,865,546 |            |   | $ | 38,968,022 |           
|                            |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |           
|Issuance of common stock    |                                                                                   |        | 59,358  |            |  |           | 146,749,221 |               |  |       |             |               |  |   |           |            |   |   | 146,808,579 |            |   |   |            |           
|Net income                  |                                                                                   |        |        |            |  |           |            |               |  |       | 17,903,892  |               |  |   |           |            |   |   | 17,903,892  |            |   | $ | 17,903,892 |           
|Other comprehensive income: |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |           
|                            | Reclassification adjustment for gains from
    disposition included in net income |        |         |           |  |           |             |              |  |       |             |              |  |   |            | (2,515,337 | ) |   |             | (2,515,337 | ) |   |            | (2,515,337 | )
|                            | Change in unrealized gain(loss) on available-for
    sale securities              |        |         |           |  |           |             |              |  |       |             |              |  |   |            | (4,350,738 | ) |   |             | (4,350,738 | ) |   |            | (4,350,738 | )
|                            | Change in unrealized loss on cash flow hedge                                      |        |         |           |  |           |             |              |  |       |             |              |  |   |            | 187,604    |   |   |             | 187,604    |   |   |            | 187,604    |  
|Dividends                   |                                                                                   |        |        |            |  |           |            |               |  |       | (18,065,415 | )             |  |   |           |            |   |   | (18,065,415 | )          |   |   |           |           
|                            |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |           
|Balance, March 31, 2002     |                                                                                   | $      | 144,383 |            |  | $         | 353,666,151 |               |  | $     | (18,452,189 | )             |  | $ | 8,475,786  |            |   | $ | 343,834,131 |            |   | $ | 11,225,421 |           
|                            |                                                                                   |        |         |            |  |           |             |               |  |       |             |               |  |   |            |            |   |   |             |            |   |   |            |           

The accompanying notes are an integral part of
these statements.

3



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION




Consolidated Statements of Cash Flows for the
Three Months


Ended March 31, 2002 and 2001
(unaudited)


|                                                                                      |                                                                                       |                              |                |                |   |   |             |             |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------- | -------------- | -------------- | - | - | ----------- | ----------- | -
|                                                                                      |                                                                                       |                             
|                                                                                      |                                                                                       | Three Months Ended March 31,
|                                                                                      |                                                                                       |                             
|                                                                                      |                                                                                       | 2002                         |                | 2001          
|                                                                                      |                                                                                       |                              |                |               
|                                                                                      |                                                                                       | (unaudited)                  |                | (unaudited)   
|Cash flows from operating
    activities:                                             |                                                                                       |                              |                |                |   |   |             |            
|Net income                                                                            |                                                                                       | $                            | 17,903,892     |                |   | $ | 127,805     |            
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                       |                              |                |                |   |   |             |            
|                                                                                      | Realized and recognized gains(loss) on
    mortgage-backed and equity securities, net |                              |                | (7,214,801     | ) |   |             | 564,855     |  
|                                                                                      | Compensation expense related to stock option
    grants                               |                              |                |               |   |   |             | 142,500     |  
|                                                                                      | Premium amortization on mortgage-backed securities                                    |                              |                | 3,792,485      |   |   |             | 226,814     |  
|Changes in operating assets and liabilities:                                          |                                                                                       |                              |                |                |   |   |             |            
|                                                                                      | Dividends, interest and fees receivable                                               |                              |                | (6,539,740     | ) |   |             | 782,457     |  
|                                                                                      | Prepaid expenses and other                                                            |                              |                | (45,484        | ) |   |             | 86,395      |  
|                                                                                      | Management fees payable                                                               |                              |                | 1,109,626      |   |   |             | 117,100     |  
|                                                                                      | Accounts payable and accrued expenses                                                 |                              |                | (147,645       | ) |   |             | (116,086    | )
|                                                                                      | Interest payable                                                                      |                              |                | 825,198        |   |   |             | 293,032     |  
|                                                                                      | Income taxes payable                                                                  |                              |                | 54,619         |   |   |             |            |  
|                                                                                      | Other liabilities                                                                     |                              |                | (24,889        | ) |   |             | (56,105     | )
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|                                                                                      | Net cash provided by operating activities                                             |                              |                | 9,713,261      |   |   |             | 2,168,767   |  
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|Cash flows from investing
    activities:                                             |                                                                                       |                              |                |                |   |   |             |            
|Purchase of mortgage-backed securities                                                |                                                                                       |                              | (1,541,643,389 | )              |   |   |            |            
|Investments in equity securities                                                      |                                                                                       |                              | (4,650,000     | )              |   |   | (7,144,000  | )          
|Investments in notes receivable                                                       |                                                                                       |                              | (9,804,000     | )              |   |   | (12,000,000 | )          
|Repayment of notes receivable                                                         |                                                                                       |                              | 14,804,000     |                |   |   | 4,000,000   |            
|Proceeds from sale of equity securities                                               |                                                                                       |                              | 22,461,505     |                |   |   | 266,956     |            
|Receipt of principal payments on mortgage-backed
    securities                       |                                                                                       |                              | 146,808,858    |                |   |   | 6,859,866   |            
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|                                                                                      | Net cash used in investing activities                                                 |                              |                | (1,372,023,026 | ) |   |             | (8,017,178  | )
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|Cash flows from financing
    activities:                                             |                                                                                       |                              |                |                |   |   |             |            
|Repurchase of common stock                                                            |                                                                                       |                              |               |                |   |   | (8,334,135  | )          
|Proceeds from issuance of common stock                                                |                                                                                       |                              | 146,808,579    |                |   |   |            |            
|Proceeds from (repayments of) repurchase
    agreements, net                          |                                                                                       |                              | 1,232,887,000  |                |   |   | (7,939,000  | )          
|Dividends paid                                                                        |                                                                                       |                              | (10,628,159    | )              |   |   | (3,778,366  | )          
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|                                                                                      | Net cash provided by (used in) financing
    activities                               |                              |                | 1,369,067,420  |   |   |             | (20,051,501 | )
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|Net increase (decrease) in cash and cash
    equivalents                              |                                                                                       |                              | 6,757,655      |                |   |   | (25,899,912 | )          
|Cash and cash equivalents, beginning of the period                                    |                                                                                       |                              | 6,630,379      |                |   |   | 36,810,566  |            
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|Cash and cash equivalents, end of the period                                          |                                                                                       | $                            | 13,388,034     |                |   | $ | 10,910,654  |            
|                                                                                      |                                                                                       |                              |                |                |   |   |             |            
|Supplemental disclosure:                                                              |                                                                                       |                              |                |                |   |   |             |            
|                                                                                      | Cash payments for interest                                                            |                              | $              | 5,809,490      |   |   | $           | 1,610,912   |  

The accompanying notes are an integral part of
these statements.

4



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. Basis of Presentation

The financial statements of FBR Asset Investment
Corporation (FBR Asset or the Company)
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q. Therefore, they do not
include all information required by generally accepted
accounting principles for complete financial statements. The
interim financial statements reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the results
for the periods presented. The results of operations for interim
periods are not necessarily indicative of the results for the
entire year. These financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto for the year ended December 31, 2001 and included
on Form 10-K filed by the Company with the Securities and
Exchange Commission.

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates.

NOTE 2. Investments in Mortgage-Backed
Securities

For the three months ended March 31, 2002
and 2001, the weighted average coupon rate on the Companys
mortgage-backed securities was 5.92% and 6.92%, respectively.

The following table summarizes the Companys
mortgage-backed securities:

|                                                              |  |                |               |                   |  |   |               |  
|------------------------------------------------------------- |  | -------------- | ------------- | ----------------- |  | - | ------------- | -
|Total Mortgage Assets                                         |  | March 31, 2002 |               | December 31, 2001
|                                                              |  |                |               |                  
|Mortgage-backed securities, available-for-sale,
    principal |  | $              | 2,578,055,829 |                   |  | $ | 1,211,550,848 |  
|Unamortized net premium                                       |  |                | 49,922,179    |                   |  |   | 25,385,118    |  
|                                                              |  |                |               |                   |  |   |               |  
|Amortized cost                                                |  |                | 2,627,978,008 |                   |  |   | 1,236,935,966 |  
|Gross unrealized gains                                        |  |                | 2,488,291     |                   |  |   | 4,092,851     |  
|Gross unrealized losses                                       |  |                | (9,152,697    | )                 |  |   | (2,663,306    | )
|                                                              |  |                |               |                   |  |   |               |  
|Estimated fair value                                          |  | $              | 2,621,313,602 |                   |  | $ | 1,238,365,511 |  
|                                                              |  |                |               |                   |  |   |               |  

As of March 31, 2002 and December 31,
2001, $2.4 billion and $1.2 billion of the
mortgage-backed securities were pledged as collateral for the
repurchase agreements.

NOTE 3. Equity Investments

At March 31, 2002, FBR Assets equity
investments had an aggregate cost basis of $36.2 million, a
fair value of $52.3 million, and unrealized gains of
$16.1 million. At December 31, 2001, FBR Assets
equity investments had an aggregate cost basis of
$46.8 million, fair value of $61.7 million and
unrealized gains of $14.9 million.

5



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                    |       |                |           |                   |  |              |           |            |  |            |            |              |  |  |           |  |  |   |            |            |  |   |            |            | 
|----------------------------------- | ----- | -------------- | --------- | ----------------- |  | ------------ | --------- | ---------- |  | ---------- | ---------- | ------------ |  |  | --------- |  |  | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                                    |       |                |           |                  
|                                    |       | March 31, 2002 |           | December 31, 2001
|                                    |       |                |           |                  
|Equity Investments                  |       | Shares         |           | Cost Basis        |  | Market Value |           | Shares     |  | Cost Basis |            | Market Value
|                                    |       |                |           |                   |  |              |           |            |  |            |            |             
|Annaly Mortgage Management, Inc.    |       |                | 530,000   |                   |  | $            | 4,732,900 |            |  | $          | 8,999,400  |              |  |  | 800,000   |  |  | $ | 7,144,000  |            |  | $ | 12,800,000 |           
|Anworth Mortgage Asset Corporation  |       |                | 500,000   |                   |  |              | 3,890,625 |            |  |            | 4,775,000  |              |  |  | 500,000   |  |  |   | 3,890,625  |            |  |   | 4,550,000  |           
|Capital Automotive REIT             |       |                | N/A       |                   |  |              |          |            |  |            |           |              |  |  | 920,115   |  |  |   | 12,835,604 |            |  |   | 18,301,087 |           
|MCG Capital Corporation             |       |                | 625,000   |                   |  |              | 9,934,375 |            |  |            | 12,186,250 |              |  |  | 625,000   |  |  |   | 9,934,375  |            |  |   | 11,125,000 |           
|Oxford Financial Corp. (1)          |       |                | 500,000   |                   |  |              | 4,650,000 |            |  |            | 4,650,000  |              |  |  | N/A       |  |  |   |           |            |  |   |           |           
|Resource Asset Investment
    Trust |       |                | 344,575   |                   |  |              | 3,704,181 |            |  |            | 6,943,186  |              |  |  | 344,575   |  |  |   | 3,704,181  |            |  |   | 5,616,573  |           
|Saxon Capital Acquisition Corp. (2) |       |                | 1,000,000 |                   |  |              | 9,300,000 |            |  |            | 14,770,000 |              |  |  | 1,000,000 |  |  |   | 9,300,000  |            |  |   | 9,300,000  |           
|                                    |       |                |           |                   |  |              |           |            |  |            |            |              |  |  |           |  |  |   |            |            |  |   |            |           
|                                    | Total |                |           |                   |  |              | $         | 36,212,081 |  |            | $          | 52,323,836   |  |  |           |  |  |   | $          | 46,808,785 |  |   | $          | 61,692,660 | 
|                                    |       |                |           |                   |  |              |           |            |  |            |            |              |  |  |           |  |  |   |            |            |  |   |            |           






|    |                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Oxford Financial shares are not currently
    registered for public trading. As of March 31, 2002, the
    investment was carried at cost      
|   
|(2) | Saxon Capital shares became registered and
    publicly-traded in January 2002. As of December 31, 2001,
    the investment was carried at cost

NOTE 4. Repurchase Agreements

At March 31, 2002, the Company had
$2.3 billion outstanding under repurchase agreements with a
weighted average borrowing rate of 1.87% as of the end of the
period and a remaining weighted-average term to maturity of
40 days. For the three months ended March 31, 2002,
the weighted average borrowing rate was 1.88% and the weighted
average repurchase agreement balance was $1.3 billion. For the
three months ended March 31, 2001, the weighted average
borrowing rate was 5.90% and the weighted average repurchase
agreement balance was $130.9 million.

NOTE 5. Interest-rate Swaps

At March 31, 2002, FBR Asset was party to an
interest-rate swap agreement that matures on July 27, 2004
and has a notional amount of $50.0 million. The fair value
of the interest-rate swap agreement was $(1.0) million at
March 31, 2002, and $(1.2) million at December 31,
2001. Under this agreement the Company will pay a fixed
interest-rate of 4.97% on the notional amount and receive a
variable rate calculated based on the three-month LIBOR, which
was 2.03% at March 31, 2002.

NOTE 6. Notes Receivable

On March 30, 2001, the Company loaned
$12 million to Prime Aurora, L.L.C., a wholly-owned
subsidiary of Prime Group Realty, L.P, which is an affiliate of
Prime Group, Inc. The loan originally bore interest at a rate of
12% per annum. The Company has amended the loan agreement
with Prime Aurora and extended the Companys maturity date
seven times since the loans original maturity date in
exchange for extension fees, interest-rate increases and various
other concessions. Prime Aurora has repaid $9 million of
the loan to date, and the remaining $3 million that remains
outstanding becomes due and payable in full, together with any
accrued but unpaid interest, fees and other amounts payable
under the loan agreement, on May 31, 2002. The current
interest rate on the loan is 28% per annum. The loan is fully
secured by a first priority mortgage lien on 47.91 acres of
unimproved land in the Prime Aurora Business Park in
Aurora, Illinois and 36.33 acres of unimproved land in Dekalb
County, Illinois. The loan is subject to an unconditional
guarantee by Prime Group Realty, L.P.

6



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


NOTE 7. Income Taxes

FBR Asset has elected to be taxed as a REIT under
the Internal Revenue Code. To qualify for tax treatment as a
REIT, FBR Asset must meet certain income and asset tests and
distribution requirements. FBR Asset generally will not be
subject to federal income tax at the corporate level to the
extent that it distributes at least 90 percent of its
taxable income to its shareholders and complies with certain
other requirements. Failure to meet these requirements could
have a material adverse impact on FBR Assets results or
financial condition. Furthermore, because FBR Assets
investments include stock in other REITs, failure of those REITs
to maintain their REIT status could jeopardize FBR Assets
qualification as a REIT. During 2001, FBR asset acquired a
registered broker-dealer from FBR Group called Pegasus Capital
Corporation. In addition, FBR Asset established two other
taxable REIT subsidiaries. The income Pegasus Capital
Corporation and the other taxable REIT subsidiaries earn will
generally be taxed at normal corporate rates and will generally
not be distributed to our shareholders. During the three months
ended March 31, 2002, FBR Asset recorded $54,619 of income
tax provision from income attributable to the taxable REIT
subsidiaries.

NOTE 8. Shareholders
Equity

On January 28, 2002, the Company completed a
follow-on offering of 5,520,000 shares (including over-allotment
option) of common stock at a price of $26.50 per share. The lead
underwriter for the offering was Friedman, Billings, Ramsey
& Co., Inc. The proceeds after expenses to the company were
$138.5 million.

On March 14, 2002 the board declared a cash
dividend of $1.25 per share payable April 15, 2002, to
shareholders of record as of March 28, 2002.

As of March 31, 2002 and December 31,
2001, 66,095 and 481,900 options to purchase common stock were
outstanding. These options have terms of eight to ten years and
an exercise price of $20 per share. As a result, 20,762 shares
were included during the quarter ended March 31, 2002 to
calculate diluted earnings per share. As of March 31, 2002,
10,000 options were available for future grant.

On February 14, 2002, a subsidiary of
Friedman Billings Ramsey Group, Inc. (FBR Group)
exercised its remaining options to purchase 415,805 shares of
FBR Asset common stock for $8.3 million, or $20 per share.
FBR Group also advised FBR Asset that it has no current
intention to sell any of the shares acquired via option
exercises or any of its other shares held for investment
purposes.

NOTE 9. Subsequent Events

On April 3, 2002, the Company completed a
follow-on offering of 4,600,000 shares (including over-allotment
option) of common stock at a price of $27.90 per share. The lead
underwriter for the offering was Friedman, Billings, Ramsey
& Co., Inc. Friedman, Billings, Ramsey & Co., Inc.
earned approximately $2.8 million in underwriting fees in
the offering. The net proceeds after expenses to the company
were $121.7 million.

On April 10, 2002, the Company began trading
on the New York Stock Exchange (NYSE) under the symbol
FB.

NOTE 10. Related Party
Transactions

The Company has a management agreement with
Friedman, Billings, Ramsey Investment Management, Inc.
(FBRIM), expiring on December 17, 2002. FBRIM
performs portfolio management services on behalf of the Company.
These services include, but are not limited to, consulting with
the Company on purchase and sale opportunities, collection of
information, and submission of reports pertaining to the
Companys assets, interest-rates, and general economic
conditions, and periodic review and evaluation of the
performance of the Companys portfolio of assets.

FBRIM is entitled to a quarterly base
management fee equal to the sum of (1) 0.25 percent
per annum (adjusted to reflect a quarterly period) of the
average book value of the mortgage assets of the Company during
each calendar quarter and (2) 0.75 percent per annum
(adjusted to reflect a quarterly period) of the average book
value of the remainder of the Companys invested assets
during each calendar quarter. The

7



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Company recorded $1.1 million in management
fees during the first quarter of 2002 and $1.8 million for
the year ended December 31, 2001.

FBRIM is also entitled to receive incentive
compensation based on the performance of the Company. FBRIM is
entitled to an incentive fee calculated by reference to the
preceding 12-month period. FBRIM is entitled to an incentive fee
calculated as: Funds from operations, plus net realized gains or
losses from asset sales, less the threshold amount (all computed
on a weighted average outstanding share outstanding basis),
multiplied by 25 percent. The threshold amount is
calculated as the weighted average issuance price per share of
all shares of the Company, multiplied by a rate equal to the
ten-year U.S. Treasury rate plus five percent per annum. The
Company recorded $1.7 million in incentive fees during the
first quarter of 2002. The Company recorded $1.7 million in
incentive fees for 2001.

FBRIM has engaged Fixed Income Discount Advisory
Company, Inc. (FIDAC) to manage the Companys
mortgage asset investment program (the Mortgage
Portfolio) as a sub-adviser. As compensation for rendering
services, FIDAC is entitled to a sub-advisory fee based on the
average gross asset value managed by FIDAC. On March 22,
2002, FBRIM notified FIDAC that it had determined to terminate
the sub-advisory agreement with FIDAC. The decision to terminate
the sub-advisory agreement with FIDAC was based on FBRIMs
determination, after consultation with the Companys Board
of Directors, that it would be in the best interests of the
Company and its shareholders to terminate the sub-advisory
agreement in light of the increased size of the Companys
equity capital and mortgage-backed securities portfolio. The
sub-advisory agreement will end in accordance with its terms on
April 30, 2002. Concurrently with the end of the
sub-advisory agreement, FBR Asset and FBRIM have agreed to a
reduction of the management fee that the Company will be
required to pay FBRIM under the management agreement from 0.25%
to 0.20% per annum of the average book value of the
Companys Mortgage Portfolio during each calendar quarter.

As of March 31, 2002, FBR Group, through
various subsidiaries and affiliates, owned 2,723,291 shares or
18.86% of the outstanding common stock of the Company. As of
December 31, 2001, FBR Group, through various subsidiaries
and affiliates, owned 2,349,186 shares or 27.63% of the
outstanding common stock of the Company.

The Company and its registered broker-dealer
subsidiary, Pegasus Capital Corporation (Pegasus)
entered into an agreement in August 2001 with Friedman,
Billings, Ramsey & Co., Inc. (FBR) regarding the
Companys extension of credit to or investment in entities
that are or may be FBRs investment banking clients. During
the first three months of 2002, pursuant to this agreement, the
Company earned $0.3 million in fees from FBR from one
investment banking transaction. Fees are recognized when the
related investment banking transaction is completed. In 2001,
pursuant to this agreement, the Company earned $2.9 million
in fees from FBR from three investment banking transactions and
one unfunded commitment.

FBR served as lead underwriter with respect to a
follow-on public offering by the Company of 5,520,000 shares
(including over-allotment option) of common stock that was
completed on January 28, 2002. FBR earned approximately
$4.0 million in underwriting fees in the offering. See
Note 8. Shareholders Equity.

8



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##### Table of Contents



FBR ASSET INVESTMENT CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)









|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended,
including, without limitation, statements containing the words
believes, plans,
anticipates, expects and words of
similar meaning. Such forward-looking statements related to
future events and the future financial performance of the
Company involve known and unknown risks, uncertainties and other
factors which may cause the actual results, or performance and
achievements of the Company, to be materially different from the
results or achievements expressed or implied by such
forward-looking statements. The Company has filed certain of
these risk factors as Exhibit 99.01 to its Annual Report on
Form 10-K for the year ended December 31, 2001. The
Company is not obligated to update any such factors or to
reflect the impact of actual future events or developments on
such forward-looking statements.

Overview

The Company has invested, and intends to continue
investing, in whole-pool mortgage-backed securities that are
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, mortgage
loans, mortgage-backed securities, real property, and joint
ventures formed to own real property. The Company invests in
some of these assets indirectly through its investments in and
loans made to REITs and other companies.

In addition, subject to maintaining its REIT
qualification, the Company invests from time to time in non-real
estate related assets, including but not limited to, purchasing
equity securities of and making secured, mezzanine and other
loans to companies that are not involved primarily in the real
estate business or in a real estate-related business.

Results of Operations

Net
Income

The Company had net income for the three months
ended March 31, 2002, of $17.9 million, or
$1.46 per basic and diluted share, compared to $127,805, or
$0.04 per basic share and $0.03 per diluted share for
the corresponding period in 2001. The increase is primarily due
to a wider net interest-rate spread on the larger base of
mortgage-backed securities and realized gains on the sale of
equity securities.

For the three months ended March 31, 2002,
the weighted average annual yield on the Companys
mortgage-backed securities was 5.00%. As of March 31, 2002,
the Company had investments in 113 mortgage-backed
securities. For the three months ended March 31, 2001, the
weighted average annual yield on the Companys
mortgage-backed securities was 6.38%. As of March 31, 2001,
the Company had investments in 37 mortgage-backed
securities.

The Companys interest and dividend income
increased to $20.1 million for the three months ended
March 31, 2002, from $3.2 million for the three months
ended March 31, 2001. The increase is primarily related to
interest income received from the Companys mortgage-backed
securities portfolio. For the three months ended March 31,
2002, the weighted average annual yield on the Companys
equity investments and promissory notes was 11.79%, compared to
4.55% for the three months ended March 31, 2001.

For the three months ended March 31, 2002,
fee income from one investment banking transaction was
$0.3 million.

The Company incurred interest expense of
$6.6 million for the three months ended March 31,
2002. This represents 68.7% of the total expenses for the
period. The Company incurred interest expense of
$1.9 million for the three months ended March 31,
2001, representing 76.6% of the total expenses for that period.
The $4.7 million increase in interest expense reflects the
ninefold increase in weighted average borrowings under
repurchase agreements to $1.3 billion from
$130.9 million; partially, offset by a reduction in our
average borrowing rate from 5.90% to 1.88%.

Management fees paid or accrued for the three
months ended March 31, 2002, were $1.1 million
compared to $204,898 for the three months ended March 31,
2001. In addition, during the three months ended March 31,
2002, the Company recorded as an expense $1.7 million of
incentive fees, based on the performance of the Company over the
preceding 12-month period, compared to $128,077 for the three
months ended March 31, 2001.

9



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##### Table of Contents



Professional fees and other expenses consist
primarily of director, legal and accounting fees. Professional
fees and other expenses were $183,195 for the three months ended
March 31, 2002, compared to $249,941 for the three months
ended March 31, 2001.

Mortgage-backed Securities

The mortgage-backed securities owned at
March 31, 2002 and December 31, 2001 are summarized
below:

|                            |  |             |               |              |  |           |               |            |  |          |       |                |  |  |      |  |  |  |      |  |  |  |          | 
|--------------------------- |  | ----------- | ------------- | ------------ |  | --------- | ------------- | ---------- |  | -------- | ----- | -------------- |  |  | ---- |  |  |  | ---- |  |  |  | -------- | 
|                           
|March 31, 2002             
|                            |  | Weighted    |               | Expected     |  | Relevant 
|                            |  | Nominal     |               | Average Life |  | Effective |               | Prepayment
|Descriptive Title(1)        |  | Face Amount |               | Market Value |  | Yield(2)  |               | (years)    |  | Duration |       | Assumptions(3)
|                            |  |             |               |              |  |           |               |            |  |          |       |               
|FLOATING RATE CMOs(4)       |  | $           | 66,568,505    |              |  | $         | 67,676,856    |            |  |          | 2.16% |                |  |  | 8.78 |  |  |  | 0.83 |  |  |  | 19.20CPR | 
|HYBRID ARMS                 |  |             | 2,260,442,922 |              |  |           | 2,298,615,012 |            |  |          | 4.94% |                |  |  | 3.75 |  |  |  | 1.63 |  |  |  | 23.25CPR | 
|FIXED RATE SECURITIES       |  |             | 251,044,402   |              |  |           | 255,021,734   |            |  |          | 6.35% |                |  |  | 4.58 |  |  |  | 3.66 |  |  |  | 13.18CPR | 
|                            |  |             |               |              |  |           |               |            |  |          |       |                |  |  |      |  |  |  |      |  |  |  |          | 
|Mortgage Portfolio Total(1) |  | $           | 2,578,055,829 |              |  | $         | 2,621,313,602 |            |  |          | 5.00% |                |  |  | 3.96 |  |  |  | 1.81 |  |  |  | 22.15CPR | 
|                            |  |             |               |              |  |           |               |            |  |          |       |                |  |  |      |  |  |  |      |  |  |  |          | 

|                            |  |             |               |              |  |           |               |            |  |          |       |                |  |  |      |  |  |  |      |  |  |  |          | 
|--------------------------- |  | ----------- | ------------- | ------------ |  | --------- | ------------- | ---------- |  | -------- | ----- | -------------- |  |  | ---- |  |  |  | ---- |  |  |  | -------- | 
|                           
|December 31, 2001          
|                            |  | Weighted    |               | Expected     |  | Relevant 
|                            |  | Nominal     |               | Average Life |  | Effective |               | Prepayment
|Descriptive Title(1)        |  | Face Amount |               | Market Value |  | Yield(2)  |               | (years)    |  | Duration |       | Assumptions(3)
|                            |  |             |               |              |  |           |               |            |  |          |       |               
|FLOATING RATE CMOs(4)       |  | $           | 176,421,204   |              |  | $         | 180,143,735   |            |  |          | 3.34% |                |  |  | 5.86 |  |  |  | 1.21 |  |  |  | 43.14CPR | 
|HYBRID ARMS                 |  |             | 785,648,800   |              |  |           | 805,192,368   |            |  |          | 4.90% |                |  |  | 3.72 |  |  |  | 2.40 |  |  |  | 40.12CPR | 
|FIXED RATE SECURITIES       |  |             | 249,480,844   |              |  |           | 253,029,408   |            |  |          | 6.51% |                |  |  | 5.33 |  |  |  | 2.77 |  |  |  | 17.62CPR | 
|                            |  |             |               |              |  |           |               |            |  |          |       |                |  |  |      |  |  |  |      |  |  |  |          | 
|Mortgage Portfolio Total(1) |  | $           | 1,211,550,848 |              |  | $         | 1,238,365,511 |            |  |          | 5.01% |                |  |  | 4.37 |  |  |  | 2.30 |  |  |  | 35.93CPR | 
|                            |  |             |               |              |  |           |               |            |  |          |       |                |  |  |      |  |  |  |      |  |  |  |          | 






|    |                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | All of the mortgage-backed securities are backed
    by pools of fixed and adjustable rate mortgages and are
    principal and/or interest paying instruments.                                                                                                                                                                                                                  
|   
|(2) | The nominal yield is the internal rate of return
    of the security based on the given market price. It is the
    single discount rate that equates a security price (inclusive of
    accrued interest) with its projected cash flows. For a mortgage
    product, it represents the yield for a given yield curve
    environment based on prepayments for that environment.
|   
|(3) | Constant Prepayment Rate (CPR). Annualized
    equivalents of single monthly mortality (SMM). CPR attempts to
    predict the percentage of principal that will prepay over the
    next 12 months based on historical principal paydowns. CPR
    is measured on 1 month, 3 month, 6 month,
    12 month, or since issue basis.                                                
|   
|(4) | CMOs are Collateralized Mortgage Obligations.                                                                                                                                                                                                                                                                                                                                   

Repurchase Agreements

To date, the Companys debt has consisted
solely of borrowings collateralized by a pledge of the
Companys mortgage-backed securities. The Company has
obtained, and believes it will be able to continue to obtain,
short-term financing in amounts and at interest-rates consistent
with the Companys financing objectives.

The Company had $2.3 billion outstanding
under repurchase agreements with several financial institutions
on March 31, 2002. The Company had $1.1 billion
outstanding under repurchase agreements on December 31,
2001. At March 31, 2002, the debt-to-equity ratio, based on
book values, of our portfolio of mortgage-backed securities was
8.06 to 1.

At March 31, 2002, the weighted average
remaining maturity of the Companys borrowings was
40 days and had a weighted average cost of funds on
outstanding borrowings of 1.87%.

Capital Resources and Liquidity

Liquidity is a measurement of the Companys
ability to meet potential cash requirements including ongoing
commitments to repay borrowings, fund investments, loan
acquisition and lending activities, and for other general
business purposes. The primary sources of funds for liquidity
consist of repurchase agreements,

10



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principal and interest payments on
mortgage-backed securities, dividends on equity securities, and
proceeds from sales of those securities. To date, proceeds from
the issuance of common stock and repurchase agreements have
provided the Company with sufficient funding for its investment
needs. Potential future sources of liquidity for the Company
include existing cash balances, borrowing capacity through
margin accounts, and future issuances of common stock, preferred
stock or debt. The Company believes that its existing cash
balances, borrowing capacity through margin accounts and
borrowing capacity under collateralized repurchase agreements
will be sufficient to meet its investment objectives and fund
operating expenses. The Company may, however, seek debt or
equity financings, in public or private transactions, to provide
capital for corporate purposes and/or strategic business
opportunities. There can be no assurance that the Company will
be able to generate sufficient funds from future operations, or
raise sufficient debt or equity on acceptable terms, to take
advantage of investment opportunities that become available.
Should the Companys needs ever exceed these sources of
liquidity, management believes the Companys
mortgage-backed and equity securities could be sold, in most
circumstances, to provide cash.


For the three months ended March 31, 2002,
the Companys operating activities resulted in net cash
flows of $9.7 million. The primary source of operating cash
flow was interest on mortgage-backed securities, interest on
notes receivable, fee income, and dividends. For the three
months ended March 31, 2001, the Companys operating
activities provided net cash flows of $2.2 million.

For the three months ended March 31, 2002,
the Companys investing activities resulted in net cash
used of $1.4 billion compared to net cash used by investing
activities for the three months ended March 31, 2001, of
$8.0 million. The change is primarily attributable to purchases
of mortgage-backed securities during the first quarter of 2002.

For the three months ended March 31, 2002,
net cash provided in the Companys financing activities was
$1.4 billion compared to net cash used for the three months
ended March 31, 2001, of $20.1 million. The increase
in cash from financing activities is primarily attributable to
an increase in borrowings under repurchase agreements used to
fund mortgage-backed securities purchases and proceeds from the
Companys January 2002 follow-on common stock offering.

Equity Securities

The value of the equity securities in the
Companys portfolio had a cost basis of $36.2 million
compared to a market value of $52.3 million as of
March 31, 2002. As of December 31, 2001, the value of
the equity securities in the Companys portfolio had an
adjusted cost basis of $46.8 million compared to a market
value of $61.7 million. Increases and declines are
generally recorded as accumulated other comprehensive income in
the statement of financial condition, except to the extent they
are deemed to be other than temporary. If the Company determines
that declines are other than temporary, it records a charge
against income for the difference between an investments
cost basis and its market value.

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FBR ASSET INVESTMENT CORPORATION

Summary of Investments and Cash and Cash
Equivalents


The following table summarizes FBR
Assets investments as of March 31, 2002, and
December 31, 2001.


|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |            |            | 
|--------------------------------------------------- | ---------------------------------------- | ------------------------ | --- | ----------------------- | --------- | ---------- | --- | ------------ | --- | ------ | ------------- | ------------ | ---------- | ---------- | ------------- | ------------ | ---------- |  | --- | --------- | --------- |  | --- | ----- | --- | - | ------------- | ---------- | ---------- | - | ------------- | ---------- | ---------- | 
|                                                    |                                          |                          |     |                        
|                                                    |                                          | As of March 31, 2002     |     | As of December 31, 2001
|                                                    |                                          |                          |     |                        
|                                                    |                                          | Shares                   |     | Percent                 |           | Cost of    |     |              |     | Shares |               | Percent      |            | Cost of    |               |             
|                                                    |                                          | Owned                    |     | Ownership               |           | Investment |     | Market Value |     | Owned  |               | Ownership(3) |            | Investment |               | Market Value
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |             
|Mortgage-Backed Securities                          |                                          |                          | N/A |                         |           |            | N/A |              |     | $      | 2,627,978,008 |              |            | $          | 2,621,313,602 |              |            |  | N/A |           |           |  | N/A |       |     | $ | 1,236,935,966 |            |            | $ | 1,238,365,511 |           
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|Equity Investments(1)(2)                            |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|                                                    | Annaly Mortgage Management, Inc. (NLY)   |                          |     | 530,000                 |           |            |     | 0.66%        |     |        |               | 4,732,900    |            |            |               | 8,999,400    |            |  |     | 800,000   |           |  |     | 1.36% |     |   |               | 7,144,000  |            |   |               | 12,800,000 |           
|                                                    | Anworth Mortgage Asset Corporation (ANH) |                          |     | 500,000                 |           |            |     | 4.24%        |     |        |               | 3,890,625    |            |            |               | 4,775,000    |            |  |     | 500,000   |           |  |     | 4.50% |     |   |               | 3,890,625  |            |   |               | 4,550,000  |           
|                                                    | Capital Automotive REIT (CARS)           |                          |     |                        |           |            |     |             |     |        |               |             |            |            |               |             |            |  |     | 920,115   |           |  |     | 3.54% |     |   |               | 12,835,604 |            |   |               | 18,301,087 |           
|                                                    | MCG Capital Corporation (MCGC)           |                          |     | 625,000                 |           |            |     | 2.21%        |     |        |               | 9,934,375    |            |            |               | 12,186,250   |            |  |     | 625,000   |           |  |     | 2.21% |     |   |               | 9,934,375  |            |   |               | 11,125,000 |           
|                                                    | Oxford Finance Corp. (4)                 |                          |     | 500,000                 |           |            |     | 9.62%        |     |        |               | 4,650,000    |            |            |               | 4,650,000    |            |  |     |          |           |  |     |      |     |   |               |           |            |   |               |           |           
|                                                    | Resource Asset Investment Trust (RAS)    |                          |     | 344,575                 |           |            |     | 2.09%        |     |        |               | 3,704,181    |            |            |               | 6,943,186    |            |  |     | 344,575   |           |  |     | 2.77% |     |   |               | 3,704,181  |            |   |               | 5,616,573  |           
|                                                    | Saxon Capital Acquisition Corp. (SAXN)   |                          |     | 1,000,000               |           |            |     | 3.57%        |     |        |               | 9,300,000    |            |            |               | 14,770,000   |            |  |     | 1,000,000 |           |  |     | 3.57% |     |   |               | 9,300,000  |            |   |               | 9,300,000  |           
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|                                                    |                                          | Total Equity Investments |     |                         | 3,499,575 |            |     |              |     |        |               |              | 36,212,081 |            |               |              | 52,323,836 |  |     |           | 4,189,690 |  |     |       |     |   |               |            | 46,808,785 |   |               |            | 61,692,660 | 
|Promissory Notes(2)                                 |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|                                                    | Prime Group Realty, L.P.                 |                          |     | N/A                     |           |            |     | N/A          |     |        |               | 3,000,000    |            |            |               | 3,000,000    |            |  |     | N/A       |           |  |     | N/A   |     |   |               | 8,000,000  |            |   |               | 8,000,000  |           
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|                                                    |                                          | Total Promissory Notes   |     |                         | N/A       |            |     |              | N/A |        |               |              | 3,000,000  |            |               |              | 3,000,000  |  |     |           | N/A       |  |     |       | N/A |   |               |            | 8,000,000  |   |               |            | 8,000,000  | 
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|Cash and Cash Equivalents                           |                                          |                          | N/A |                         |           |            | N/A |              |     |        | 13,388,034    |              |            |            | 13,388,034    |              |            |  | N/A |           |           |  | N/A |       |     |   | 6,630,379     |            |            |   | 6,630,379     |           
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           
|Total Investments and Cash and Cash
    Equivalents |                                          |                          | N/A |                         |           |            | N/A |              |     | $      | 2,680,578,123 |              |            | $          | 2,690,025,472 |              |            |  | N/A |           |           |  | N/A |       |     | $ | 1,298,375,130 |            |            | $ | 1,314,688,550 |           
|                                                    |                                          |                          |     |                         |           |            |     |              |     |        |               |              |            |            |               |              |            |  |     |           |           |  |     |       |     |   |               |            |            |   |               |           






|    |                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The symbols in parentheses next to the company
    names are the symbols of those companies on Nasdaq or a national
    securities exchange. Each of these companies is a reporting
    company under the Securities Exchange Act of 1934. Information
    is available about these companies on the SECs website,
    www.sec.gov.
|   
|(2) | FBR has underwritten or privately placed
    securities of these companies or their affiliates.                                                                                                                                                                                                                                     
|   
|(3) | Based on the most recent publicly available
    information                                                                                                                                                                                                                                                                         
|   
|(4) | Oxford is a private corporation                                                                                                                                                                                                                                                                                                     

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ITEM 3  QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk generally represents the risk of loss
through a change in realizable value that can result from a
change in the prices of equity securities, a change in the value
of financial instruments as a result of changes in
interest-rates, a change in the volatility of interest-rates or,
a change in the credit rating of an issuer. The Company is
exposed to the following market risks as a result of its
investments in mortgage-backed securities and equity
investments. None of these investments is held for trading
purposes.

Interest-rate Risk

The Company is subject to interest-rate risk as a
result of its investments in mortgage-backed securities and its
financing with repurchase agreements, all of which are
interest-rate sensitive financial instruments. The Company is
exposed to interest-rate risk that fluctuates based on changes
in the level or volatility of interest-rates and mortgage
prepayments and in the shape and slope of the yield curve. The
Company attempts to hedge a portion of its exposure to
interest-rate risk primarily through the use of interest-rate
swaps.

The Companys primary risk is related to
changes in both short and long term interest-rates, which affect
the company in several ways. As interest-rates increase, the
market value of the mortgage-backed securities may be expected
to decline, prepayment rates may be expected to go down and
durations may be expected to extend. An increase in
interest-rates is beneficial to the market value of the
Companys swap position as the cash flows from the floating
rate portion increase under this scenario. The reverse is true
for mortgage-backed securities and the swap if interest-rates
decline.

The Company records its interest-rate swap
agreements at fair value. The differential between amounts paid
and received under the swap agreements is recorded as an
adjustment to the interest expense incurred under the repurchase
agreements. In the event of early termination of a swap
agreement, a gain or loss is recorded and the company receives
or makes a payment based on the fair value of the swap agreement.

The table that follows shows the expected change
in market value for the Companys current mortgage-backed
securities and interest-rate swaps under several interest-rate
shocks. Interest-rates are defined by the U.S.
Treasury yield curve. The changes in rates are assumed to occur
instantaneously. It is further assumed that the changes in rates
occur uniformly across the yield curve and that the level of
LIBOR changes by the same amount as the yield curve. Actual
changes in market conditions are likely to be different from
these assumptions.

Changes in value are measured as percentage
changes from their respective values presented in the column
labeled Value at 3/31/02. Actual results could
differ significantly from these estimates.

The change in value of the mortgage-backed
securities also incorporates assumptions regarding prepayments,
which are based on a proprietary model. This model forecasts
prepayment speeds based, in part, on each securitys
issuing agency (Fannie Mae or Freddie Mac), coupon, age, prior
exposure to refinancing opportunities, the interest-rate
distribution of the underlying loans, and an overall analysis of
historical prepayment patterns under a variety of past
interest-rate conditions.

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|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |         |       |   
|-------------------- | ------------------------------------------------- | ---------------------------------------------- | ----------- | ----------------- | ------------- | ------- | ----------- | ----------------- | ------------- | ------- | ------ | ------- | ------ | -- | ----------- | ------------- | ------------- |  | ---- | ------- | ----- | --
|                     |                                                   |                                                |             | Value at          |               |         |             | Value at          |               |        
|                     |                                                   |                                                |             | March 31, 2002    |               |         |             | March 31, 2002    |               |        
|                     |                                                   |                                                |             | with 100 basis    |               |         |             | with 100 basis    |               |        
|                     |                                                   | Value at                                       |             | point increase    |               | Percent |             | point decrease    |               | Percent
|                     |                                                   | March 31, 2002(1)                              |             | in interest-rates |               | Change  |             | in interest-rates |               | Change 
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |        
|Assets               |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     | Mortgage-backed securities                        |                                                | $           | 2,621,313,602     |               |         | $           | 2,582,773,602     |               |         |        | (1.47   | )%     |    | $           | 2,644,747,602 |               |  |      | 0.89    | %    
|                     | Other                                             |                                                |             | 85,733,762        |               |         |             | 85,733,762        |               |         |        |         |        |    |             | 85,733,762    |               |  |      |         |      
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     |                                                   | Total Assets                                   |             | $                 | 2,707,047,364 |         |             | $                 | 2,668,507,364 |         |        |         | (1.42  | )% |             | $             | 2,730,481,364 |  |      |         | 0.87  | % 
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|Liabilities          |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     | Interest-rate swap                                |                                                | $           | 971,563           |               |         | $           | (88,222           | )             |         |        | 109.08  | %      |    | $           | 2,061,807     |               |  |      | (112.22 | )%   
|                     | Other                                             |                                                |             | 2,362,241,670     |               |         |             | 2,362,241,670     |               |         |        |         |        |    |             | 2,362,241,670 |               |  |      |         |      
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     |                                                   | Total Liabilities                              |             |                   | 2,363,213,233 |         |             |                   | 2,362,153,448 |         |        |         | 0.04   | %  |             |               | 2,364,303,477 |  |      |         | (0.05 | )%
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|Shareholders Equity |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     | Common stock                                      |                                                |             | 144,383           |               |         |             | 144,383           |               |         |        |         |        |    |             | 144,383       |               |  |      |         |      
|                     | Paid-in-capital                                   |                                                |             | 353,666,151       |               |         |             | 353,666,151       |               |         |        |         |        |    |             | 353,666,151   |               |  |      |         |      
|                     | Accumulated other comprehensive income
    (loss) |                                                |             | 8,475,786         |               |         |             | (29,004,429       | )             |         |        | (442.20 | )%     |    |             | 30,819,542    |               |  |      | 263.62  | %    
|Retained deficit     |                                                   |                                                | (18,452,189 | )                 |               |         | (18,452,189 | )                 |               |         |        |         |        |    | (18,452,189 | )             |               |  |      |        
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     |                                                   | Total Shareholders Equity                     |             |                   | 343,834,131   |         |             |                   | 306,353,916   |         |        |         | (10.90 | )% |             |               | 366,177,887   |  |      |         | 6.50  | % 
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|                     |                                                   | Total Liabilities and Shareholders
    Equity |             | $                 | 2,707,047,364 |         |             | $                 | 2,668,507,364 |         |        |         | (1.42  | )% |             | $             | 2,730,481,364 |  |      |         | 0.87  | % 
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        
|Book Value per Share |                                                   |                                                | $23.81      |                   |               |         | $21.22      |                   |               |         | (10.88 | )%      |        |    | $25.36      |               |               |  | 6.51 | %      
|                     |                                                   |                                                |             |                   |               |         |             |                   |               |         |        |         |        |    |             |               |               |  |      |        






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(2) | The carrying value of the interest-rate swap in
    the companys financial statements is $(1.0) million. See
    Note 5 to Notes to Financial Statements. The fair value of the
    interest-rate swap is based on quoted market prices as of
    March 31, 2002. As of March 31, 2002, interest
    payments received under the swap agreement were based on an
    interest-rate of 2.03% while interest payments made were based
    on an interest-rate of 4.97%.

As shown above, the portfolio generally will
benefit less from a decline in interest rates than it will be
adversely affected by a same scale increase in interest rates.
This may effectively limit an investors upside potential
in a market rally.

The value of the Companys investments in
other companies is also likely to be affected by significant
changes in interest-rates. First, many of the companies are
exposed to risks similar to those identified above as being
applicable to the Companys direct investments. Second, the
REITs in which the Company has invested tend to trade on a yield
basis. As interest-rates increase, the yield required by
investors in REITs, thrifts and other financial institutions
increases with the result that market values decline. Finally,
changes in interest-rates often affect market prices of equity
securities. Because each of the companies in which the Company
invests has its own interest-rate risk management process, it is
not feasible for us to quantify the potential impact that
interest-rate changes would have on the stock price or the
future dividend payments by any of the companies in which the
Company has invested.

Equity Price Risk

The Company is exposed to equity price risk as a
result of its investments in equity securities of REITs and
other real estate related companies. Equity price risk changes
as the volatility of equity prices changes or the values of
corresponding equity indices change.

While it is impossible to exactly project what
factors may affect the prices of equity sectors and how much the
affect might be, the table below illustrates the impact a ten
percent increase and a ten percent

14



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decrease in the price of the equities held by the
Company would have on the value of the total assets and the book
value of the Company as of March 31, 2002.


|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |        |       |   
|-------------------- | ---------------------------------------------- | -------------- | ------------- | -------------- | ------------- | ------- | ------------- | -------------- | ------------- | ------- | ----- | ------ | ----- | - | ------------- | ------------- | ------------- |  | ----- | ------ | ----- | --
|                     |                                                |                |               | Value at       |               |         |               | Value at       |               |        
|                     |                                                |                |               | March 31, 2002 |               |         |               | March 31, 2002 |               |        
|                     |                                                |                |               | with 10%       |               |         |               | with 10%       |               |        
|                     |                                                | Value at       |               | increase in    |               | Percent |               | decrease in    |               | Percent
|                     |                                                | March 31, 2002 |               | price          |               | Change  |               | price          |               | Change 
|                     |                                                |                |               |                |               |         |               |                |               |        
|Assets               |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|                     | Equity securities                              |                | $             | 52,323,836     |               |         | $             | 57,556,220     |               |         |       | 10.00% |       |   | $             | 47,091,453    |               |  |       | (10.00 | )%   
|                     | Other                                          |                |               | 2,654,723,528  |               |         |               | 2,654,723,528  |               |         |       |        |       |   |               | 2,654,723,528 |               |  |       |        |      
|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|                     |                                                | Total Assets   |               | $              | 2,707,047,364 |         |               | $              | 2,712,279,748 |         |       |        | 0.19% |   |               | $             | 2,701,814,981 |  |       |        | (0.19 | )%
|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|Liabilities          |                                                | $              | 2,363,213,233 |                |               | $       | 2,363,213,233 |                |               |         |       |        |       | $ | 2,363,213,233 |               |               |  |       |       
|Shareholders Equity |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|                     | Common stock                                   |                |               | 144,383        |               |         |               | 144,383        |               |         |       |        |       |   |               | 144,383       |               |  |       |        |      
|                     | Paid-in-capital                                |                |               | 353,666,151    |               |         |               | 353,666,151    |               |         |       |        |       |   |               | 353,666,151   |               |  |       |        |      
|                     | Accumulated comprehensive income               |                |               | 8,475,786      |               |         |               | 13,708,170     |               |         |       | 61.73% |       |   |               | 3,243,403     |               |  |       | (61.73 | )%   
|                     | Retained deficit                               |                |               | (18,452,189    | )             |         |               | (18,452,189    | )             |         |       |        |       |   |               | (18,452,189   | )             |  |       |        |      
|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|                     | Total Shareholders Equity                     |                |               | 343,834,131    |               |         |               | 349,066,515    |               |         |       | 1.52%  |       |   |               | 338,601,748   |               |  |       | (1.52  | )%   
|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|                     | Total Liabilities and Shareholders
    Equity |                | $             | 2,707,047,364  |               |         | $             | 2,712,279,748  |               |         |       | 0.19%  |       |   | $             | 2,701,814,981 |               |  |       | (0.19  | )%   
|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       
|Book value per share |                                                |                | $23.81        |                |               |         | $24.17        |                |               |         | 1.51% |        |       |   | $23.45        |               |               |  | (1.51 | )%    
|                     |                                                |                |               |                |               |         |               |                |               |         |       |        |       |   |               |               |               |  |       |       

Except to the extent that the Company sells its
equity investments or a decrease in market value is deemed to be
other than temporary, an increase or decrease in the market
value of those assets will not directly affect the
Companys earnings, however an increase or decrease in
interest-rates would affect the market value of the assets owned
by the companies in which the Company invests. Consequently, if
those companies earnings are affected by changes in the
market value of their assets, that could in turn impact their
ability to pay dividends, which could in turn affect the
Companys earnings. If the Company had sold all of its
equity investments on March 31, 2002, the company would
have realized a gain of approximately $16.1 million that
would have been included in earnings.

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##### Table of Contents






PART II

OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS

None




ITEM 2. CHANGES IN SECURITIES AND USE OF
PROCEEDS

Not applicable




ITEM 3. DEFAULTS UPON SENIOR
SECURITIES

None




ITEM 4. SUBMISSION OF MATTERS TO VOTE OF
SECURITY HOLDERS

None




ITEM 5. OTHER INFORMATION

The registrants stock became registered
under the Securities and Exchange Act of 1934 on
September 27, 1999. The common stock is listed on the New
York Stock Exchange and its symbol is FB.




ITEM 6. EXHIBITS AND REPORTS ON FORM
8-K

(a) Exhibits

None

(b) Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Current Report on Form 8-K, filed on
    May 3, 2002, pursuant to Item 9 disclosing information
    presented by the Company at the MicroCapital LLC Investor
    Conference.                                                                                                                                                                                                    
|
| | 2. Current Report on Form 8-K, filed on
    April 24, 2002, pursuant to Item 9 disclosing the
    Companys operating results for the first quarter ended
    March 31, 2002.                                                                                                                                                                                                       
|
| | 3. Current Report on Form 8-K, filed on
    April 11, 2002, pursuant to Item 9 disclosing
    information reported by Friedman, Billings, Ramsey Group, Inc.
    on Form 8-K relating to a presentation made at the Sidoti
    & Co. Investor Conference.                                                                                                                           
|
| | 4. Current Report on Form 8-K, filed on
    April 5, 2002, pursuant to Item 5 disclosing the
    Underwriting Agreement, dated April 3, 2002, between the
    Company and the several underwriters relating to an underwritten
    public offering of 4,000,000 shares of the Companys common
    stock and up to an additional 600,000 shares to cover
    over-allotments.       
|
| | 5. Current Report on Form 8-K, filed on
    March 22, 2002, pursuant to Item 5 disclosing the
    termination by the Companys manager, Friedman, Billings,
    Ramsey Investment Management, Inc., of its sub-advisory
    agreement with Fixed Income Discount Advisory Company, Inc. with
    respect to management of the Companys mortgage backed
    securities portfolio.   
|
| | 6. Current Report on Form 8-K, filed on
    March 20, 2002, pursuant to Item 4 disclosing a change
    in the Companys independent accountants.                                                                                                                                                                                                                                    
|
| | 7. Current Report on Form 8-K, filed on
    February 12, 2002, pursuant to Item 5 disclosing the
    Underwriting Agreement, dated January 28, 2002, between the
    Company and the several underwriters relating to an underwritten
    public offering of 4,800,000 shares of the Companys common
    stock and up to an additional 720,000 shares to cover
    over-allotments.
|
| | 8. Current Report on Form 8-K, filed on
    February 6, 2002, pursuant to Item 9 disclosing the
    Companys operating results for the fourth quarter and the
    fiscal year ended December 31, 2001.                                                                                                                                                                             

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##### Table of Contents






SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                                 
| | --------------------------------
| | FBR ASSET INVESTMENT CORPORATION
| | (Registrant)                    



| |     |                       
| | --- | ----------------------
| | By: | /s/ KURT R. HARRINGTON

| |                                               
| | ----------------------------------------------
| |                                               
| | Kurt R. Harrington                            
| | Chief Financial Officer, Treasurer
    and    
| | Principal Financial and Accounting
    Officer

Date: May 15, 2002

17