##### 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

For the quarterly period ended September 30,
2002

OR



|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period
from                     to

Commission file number: 001-13731

FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.

(Exact name of Registrant as specified in its
charter)


|                                                                           |  |                                                   
|-------------------------------------------------------------------------- |  | --------------------------------------------------
|Virginia(State or other jurisdiction of
    incorporation or organization) |  | 54-1837743(I.R.S. Employer
    Identification No.)

1001 Nineteenth Street North

Arlington, VA 22209


Address of principal executive offices)


(Zip code)


(703) 312-9500

(Registrants telephone number including
area code)


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days.
Yes x  No o

Indicate the number of shares outstanding of each
of the registrants classes of common stock, as of the
latest practicable date:

|                     |  |                                         
|-------------------- |  | ----------------------------------------
|Title                |  | Outstanding                             
|                     |  |                                         
|Class A Common Stock |  | 24,083,520 shares as of October 31, 2002
|Class B Common Stock |  | 26,319,599 shares as of October 31, 2002



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TABLE OF CONTENTS



|                                |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I.  FINANCIAL INFORMATION
|                                | Item 1. Consolidated Financial Statements and Notes  (Unaudited)                            
|                                |                                                                                               | Consolidated Balance Sheets               
|                                |                                                                                               | Consolidated Statements of Operations     
|                                |                                                                                               | Consolidated Statements of Cash Flows     
|                                |                                                                                               | Notes to Consolidated Financial Statements
|                                | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                | Item 3. Changes In Information About Market Risk                                             
|                                | Item 4. Controls and Procedures                                                              
|                                | Forward-Looking Statements                                                                   
|PART II -- OTHER INFORMATION   
|                                | Item 6. Reports on Form 8-K                                                                  
|                                | SIGNATURES                                                                                   
|CERTIFICATION                  
|CERTIFICATION                  



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.

FORM 10-Q


FOR THE QUARTER ENDED SEPTEMBER 30,
2002


INDEX


|                              |         |                                                                                                |                                                               |                |       |    | 
|----------------------------- | ------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------- | ----- | -- | 
|                              |         |                                                                                                |                                                               | Page Number(s)
|                              |         |                                                                                                |                                                               |               
|Part I. FINANCIAL INFORMATION |         |                                                                                                |                                                               |               
|                              | Item 1. |                                                                                                | Consolidated Financial Statements and
    Notes  (unaudited) |                |       |    | 
|                              |         | Consolidated Balance Sheets 
    September 30, 2002 and December 31, 2001                     |                                                               |                | 3     |   
|                              |         | Consolidated Statements of
    Operations 
    Three Months Ended September 30, 2002 and 2001 |                                                               |                | 4     |   
|                              |         | Nine Months Ended September 30,
    2002 and 2001                                              |                                                               |                | 5     |   
|                              |         | Consolidated Statements of Cash
    Flows 
    Nine Months Ended September 30, 2002 and 2001  |                                                               |                | 6     |   
|                              |         | Notes to Consolidated Financial Statements                                                     |                                                               |                | 714  |   
|                              | Item 2. |                                                                                                | Managements Discussion and Analysis of
    Financial         |                |       |    | 
|                              |         | Condition and Results of Operations                                                            |                                                               |                | 1521 |   
|                              | Item 3. |                                                                                                | Changes in Information about Market Risk                      |                |       | 22 | 
|                              | Item 4. |                                                                                                | Controls and Procedures                                       |                |       | 22 | 
|Part II. OTHER INFORMATION    |         |                                                                                                |                                                               |               
|                              | Item 6. |                                                                                                | Reports on Form 8-K                                           |                |       | 22 | 
|SIGNATURES                    |         |                                                                                                | 23                                                            |               
|CERTIFICATIONS                |         |                                                                                                | 2426                                                         |               

2



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PART I  FINANCIAL
INFORMATION

Item 1  Consolidated
Financial Statements and Notes  (unaudited)

FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.

CONSOLIDATED BALANCE SHEETS


(Dollars in thousands)


(Unaudited)


|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |   |         |         | 
|---------------------------------------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ----------------- | ------- | ------- |  | - | ------- | ------- | 
|                                         |                       | September 30, 2002                                                                                                                                                 |                                                | December 31, 2001
|                                         |                       |                                                                                                                                                                    |                                                |                  
|ASSETS                                   |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       | Cash and cash equivalents                                                                                                                                          |                                                | $                 | 92,068  |         |  | $ | 46,246  |        
|                                         |                       | Receivables:                                                                                                                                                       |                                                |                   |         |         |  |   |         |        
|                                         |                       |                                                                                                                                                                    | Investment banking                             |                   |         | 1,153   |  |   |         | 3,464   | 
|                                         |                       |                                                                                                                                                                    | Asset management fees                          |                   |         | 11,139  |  |   |         | 3,604   | 
|                                         |                       |                                                                                                                                                                    | Affiliates                                     |                   |         | 410     |  |   |         | 2,209   | 
|                                         |                       |                                                                                                                                                                    | Other                                          |                   |         | 5,257   |  |   |         | 4,352   | 
|                                         |                       | Due from clearing broker                                                                                                                                           |                                                |                   | 161,311 |         |  |   | 44,621  |        
|                                         |                       | Marketable and trading securities, at market value                                                                                                                 |                                                |                   | 5,188   |         |  |   | 15,706  |        
|                                         |                       | Bank investment securities                                                                                                                                         |                                                |                   | 30,370  |         |  |   | 8,142   |        
|                                         |                       | Long-term investments                                                                                                                                              |                                                |                   | 145,312 |         |  |   | 119,982 |        
|                                         |                       | Bank loans, net of allowances                                                                                                                                      |                                                |                   | 14,967  |         |  |   | 12,459  |        
|                                         |                       | MMA acquired management contracts                                                                                                                                  |                                                |                   | 17,743  |         |  |   | 18,729  |        
|                                         |                       | Building, furniture, equipment, software and
    leasehold improvements, net of accumulated depreciation and
    amortization of $19,297 and $17,138, respectively |                                                |                   | 8,967   |         |  |   | 9,203   |        
|                                         |                       | Prepaid expenses and other assets                                                                                                                                  |                                                |                   | 5,229   |         |  |   | 3,241   |        
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total assets                                   |                   | $       | 499,114 |  |   | $       | 291,958 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         | Liabilities:          |                                                                                                                                                                    |                                                |                   |         |         |  |   |        
|                                         |                       | Trading account securities sold but not yet
    purchased, at market value                                                                                         |                                                | $                 | 76,377  |         |  | $ | 13,377  |        
|                                         |                       | Accounts payable and accrued expenses                                                                                                                              |                                                |                   | 23,033  |         |  |   | 19,179  |        
|                                         |                       | Accrued compensation and benefits                                                                                                                                  |                                                |                   | 42,490  |         |  |   | 27,775  |        
|                                         |                       | Bank deposits                                                                                                                                                      |                                                |                   | 46,444  |         |  |   | 19,457  |        
|                                         |                       | Short-term loans payable                                                                                                                                           |                                                |                   | 70,051  |         |  |   | 21,165  |        
|                                         |                       | Long-term secured loan                                                                                                                                             |                                                |                   | 6,095   |         |  |   | 5,694   |        
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total liabilities                              |                   |         | 264,490 |  |   |         | 106,647 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       | Commitments and contingencies (Note 8)                                                                                                                             |                                                |                   |        |         |  |   |        |        
|                                         | Shareholders equity: |                                                                                                                                                                    |                                                |                   |         |         |  |   |        
|                                         |                       | Preferred Stock, $0.01 par value, 15,000,000
    shares authorized, none issued and outstanding                                                                    |                                                |                   |        |         |  |   |        |        
|                                         |                       | Class A Common Stock, $0.01 par value,
    150,000,000 shares authorized, 24,693,732 and 23,468,403 shares
    issued and outstanding, respectively                |                                                |                   | 247     |         |  |   | 235     |        
|                                         |                       | Class B Common Stock, $0.01 par value,
    100,000,000 shares authorized, 26,319,599 and 26,946,029 shares
    issued and outstanding, respectively                |                                                |                   | 263     |         |  |   | 269     |        
|                                         |                       | Additional paid-in capital                                                                                                                                         |                                                |                   | 215,251 |         |  |   | 210,703 |        
|                                         |                       | Employee stock loan receivable (4,000,000 shares)                                                                                                                  |                                                |                   | (23,799 | )       |  |   | (22,706 | )      
|                                         |                       | Treasury stock, at cost, 617,810 and 809,462
    shares, respectively                                                                                              |                                                |                   | (4,507  | )       |  |   | (5,906  | )      
|                                         |                       | Accumulated other comprehensive income, net                                                                                                                        |                                                |                   | 4,485   |         |  |   | 3,226   |        
|                                         |                       | Retained earnings (accumulated deficit)                                                                                                                            |                                                |                   | 42,684  |         |  |   | (510    | )      
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total shareholders equity                     |                   |         | 234,624 |  |   |         | 185,311 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total liabilities and shareholders
    equity |                   | $       | 499,114 |  |   | $       | 291,958 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  

See notes to consolidated financial statements.

3



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FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.




CONSOLIDATED STATEMENTS OF
OPERATIONS


(Dollars in thousands, except per share
data)


(unaudited)


|                                                                |                                                |                                                         |        |        |        |   |         |        |        |  
|--------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                |                                                |                                                        
|                                                                |                                                | Three Months Ended                                     
|                                                                |                                                | September 30,                                          
|                                                                |                                                |                                                        
|                                                                |                                                | 2002                                                    |        | 2001  
|                                                                |                                                |                                                         |        |       
|Revenues:                                                       |                                                |                                                         |        |        |        |   |         |       
|                                                                | Investment banking:                            |                                                         |        |        |        |   |         |        |       
|                                                                |                                                | Underwriting                                            |        | $      | 30,108 |   |         | $      | 9,857  |  
|                                                                |                                                | Corporate finance                                       |        |        | 26,175 |   |         |        | 1,153  |  
|                                                                |                                                | Investment gains                                        |        |        | 2,627  |   |         |        | 74     |  
|                                                                | Institutional brokerage:                       |                                                         |        |        |        |   |         |        |       
|                                                                |                                                | Principal transactions                                  |        |        | 5,743  |   |         |        | 4,158  |  
|                                                                |                                                | Agency commissions                                      |        |        | 8,629  |   |         |        | 5,934  |  
|                                                                | Asset management:                              |                                                         |        |        |        |   |         |        |       
|                                                                |                                                | Base management fees                                    |        |        | 7,208  |   |         |        | 5,836  |  
|                                                                |                                                | Incentive allocations and fees                          |        |        | 4,282  |   |         |        | 975    |  
|                                                                |                                                | Net investment loss                                     |        |        | (2,737 | ) |         |        | (2,780 | )
|                                                                |                                                | Technology sector net investment and incentive
    loss |        |        | (2,202 | ) |         |        | (6,592 | )
|                                                                | Interest, dividends and other                  |                                                         |        | 1,879  |        |   |         | 3,168  |       
|                                                                |                                                |                                                         |        |        |        |   |         |       
|                                                                |                                                | Total revenues                                          |        |        | 81,712 |   |         |        | 21,783 |  
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Expenses:                                                       |                                                |                                                         |        |        |        |   |         |       
|                                                                | Compensation and benefits                      |                                                         |        | 45,725 |        |   |         | 24,276 |       
|                                                                | Business development and professional services |                                                         |        | 8,650  |        |   |         | 7,639  |       
|                                                                | Clearing and brokerage fees                    |                                                         |        | 1,443  |        |   |         | 1,786  |       
|                                                                | Occupancy and equipment                        |                                                         |        | 2,309  |        |   |         | 5,742  |       
|                                                                | Communications                                 |                                                         |        | 2,009  |        |   |         | 1,555  |       
|                                                                | Interest expense                               |                                                         |        | 608    |        |   |         | 322    |       
|                                                                | Other operating expenses                       |                                                         |        | 2,976  |        |   |         | 2,853  |       
|                                                                |                                                |                                                         |        |        |        |   |         |       
|                                                                |                                                | Total expenses                                          |        |        | 63,720 |   |         |        | 44,173 |  
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Net income (loss) before taxes and
    extraordinary gain       |                                                |                                                         | 17,992 |        |        |   | (22,390 | )     
|Income tax provision                                            |                                                |                                                         | 2,343  |        |        |   |        |       
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Net income (loss) before extraordinary
    gain                 |                                                |                                                         | 15,649 |        |        |   | (22,390 | )     
|                                                                | Extraordinary gain                             |                                                         |        |       |        |   |         |       |       
|                                                                | Income tax provision on extraordinary gain     |                                                         |        | 536    |        |   |         |       |       
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Net income (loss)                                               |                                                | $                                                       | 15,113 |        |        | $ | (22,390 | )     
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Basic earnings (loss) per share before
    extraordinary gain   |                                                | $                                                       | 0.34   |        |        | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Diluted earnings (loss) per share before
    extraordinary gain |                                                | $                                                       | 0.32   |        |        | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Basic earnings (loss) per share                                 |                                                | $                                                       | 0.33   |        |        | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |        |        |   |         |       
|Diluted earnings (loss) per share                               |                                                | $                                                       | 0.31   |        |        | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |        |        |   |         |       
|                                                               
|Weighted average shares outstanding:                            |                                                |                                                         |        |        |        |   |         |       
|                                                                | Basic                                          |                                                         |        | 46,370 |        |   |         | 45,808 |       
|                                                                |                                                |                                                         |        |        |        |   |         |       
|                                                                | Diluted                                        |                                                         |        | 49,526 |        |   |         | 45,808 |       
|                                                                |                                                |                                                         |        |        |        |   |         |       

See notes to consolidated financial statements.

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FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS  (Continued)


(Amounts in thousands, except per share
data)


(unaudited)


|                                                                |                                                |                                                         |        |         |         |   |         |        |         |  
|--------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------- | ------ | ------- | ------- | - | ------- | ------ | ------- | -
|                                                                |                                                |                                                        
|                                                                |                                                | Nine months Ended                                      
|                                                                |                                                | September 30,                                          
|                                                                |                                                |                                                        
|                                                                |                                                | 2002                                                    |        | 2001   
|                                                                |                                                |                                                         |        |        
|Revenues:                                                       |                                                |                                                         |        |         |         |   |         |       
|                                                                | Investment banking:                            |                                                         |        |         |         |   |         |        |        
|                                                                |                                                | Underwriting                                            |        | $       | 67,666  |   |         | $      | 26,925  |  
|                                                                |                                                | Corporate finance                                       |        |         | 47,476  |   |         |        | 21,454  |  
|                                                                |                                                | Investment gains                                        |        |         | 4,413   |   |         |        | 5,414   |  
|                                                                | Institutional brokerage:                       |                                                         |        |         |         |   |         |        |        
|                                                                |                                                | Principal transactions                                  |        |         | 21,173  |   |         |        | 15,513  |  
|                                                                |                                                | Agency commissions                                      |        |         | 27,328  |   |         |        | 18,461  |  
|                                                                | Asset management:                              |                                                         |        |         |         |   |         |        |        
|                                                                |                                                | Base management fees                                    |        |         | 20,837  |   |         |        | 13,934  |  
|                                                                |                                                | Incentive allocations and fees                          |        |         | 8,967   |   |         |        | 1,817   |  
|                                                                |                                                | Net investment income                                   |        |         | 11,802  |   |         |        | 3,834   |  
|                                                                |                                                | Technology sector net investment and incentive
    loss |        |         | (5,733  | ) |         |        | (15,378 | )
|                                                                | Interest, dividends and other                  |                                                         |        | 5,407   |         |   |         | 7,414  |        
|                                                                |                                                |                                                         |        |         |         |   |         |       
|                                                                |                                                | Total revenues                                          |        |         | 209,336 |   |         |        | 99,388  |  
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Expenses:                                                       |                                                |                                                         |        |         |         |   |         |       
|                                                                | Compensation and benefits                      |                                                         |        | 115,455 |         |   |         | 73,283 |        
|                                                                | Business development and professional services |                                                         |        | 23,044  |         |   |         | 21,170 |        
|                                                                | Clearing and brokerage fees                    |                                                         |        | 3,886   |         |   |         | 5,106  |        
|                                                                | Occupancy and equipment                        |                                                         |        | 6,564   |         |   |         | 11,125 |        
|                                                                | Communications                                 |                                                         |        | 6,275   |         |   |         | 4,220  |        
|                                                                | Interest expense                               |                                                         |        | 1,408   |         |   |         | 737    |        
|                                                                | Other operating expenses                       |                                                         |        | 8,044   |         |   |         | 7,166  |        
|                                                                |                                                |                                                         |        |         |         |   |         |       
|                                                                |                                                | Total expenses                                          |        |         | 164,676 |   |         |        | 122,807 |  
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Net income (loss) before taxes and
    extraordinary gain       |                                                |                                                         | 44,660 |         |         |   | (23,419 | )     
|                                                                | Income tax provision                           |                                                         |        | 2,343   |         |   |         |       |        
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Net income (loss) before extraordinary
    gain                 |                                                |                                                         | 42,317 |         |         |   | (23,419 | )     
|                                                                | Extraordinary gain                             |                                                         |        | 1,413   |         |   |         |       |        
|                                                                | Income tax provision on extraordinary gain     |                                                         |        | 536     |         |   |         |       |        
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Net income (loss)                                               |                                                | $                                                       | 43,194 |         |         | $ | (23,419 | )     
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Basic earnings (loss) per share before
    extraordinary gain   |                                                | $                                                       | 0.92   |         |         | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Diluted earnings (loss) per share before
    extraordinary gain |                                                | $                                                       | 0.88   |         |         | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Basic earnings (loss) per share                                 |                                                | $                                                       | 0.94   |         |         | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Diluted earnings (loss) per share                               |                                                | $                                                       | 0.90   |         |         | $ | (0.49   | )     
|                                                                |                                                |                                                         |        |         |         |   |         |       
|Weighted average shares outstanding:                            |                                                |                                                         |        |         |         |   |         |       
|                                                                | Basic                                          |                                                         |        | 45,995  |         |   |         | 48,122 |        
|                                                                |                                                |                                                         |        |         |         |   |         |       
|                                                                | Diluted                                        |                                                         |        | 48,218  |         |   |         | 48,122 |        
|                                                                |                                                |                                                         |        |         |         |   |         |       

See notes to consolidated financial statements.

5



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FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.




CONSOLIDATED STATEMENTS OF CASH
FLOWS


(Dollars in thousands)


(unaudited)


|                                                |                                                                                                |                       |         |          |        |   |         |         |        |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------- | --------------------- | ------- | -------- | ------ | - | ------- | ------- | ------ | -
|                                                |                                                                                                |                      
|                                                |                                                                                                | Nine Months Ended    
|                                                |                                                                                                | September 30,        
|                                                |                                                                                                |                      
|                                                |                                                                                                | 2002                  |         | 2001    
|                                                |                                                                                                |                       |         |         
|Cash flows from operating
    activities:       |                                                                                                |                       |         |          |        |   |         |        
|Net income (loss)                               |                                                                                                | $                     | 43,194  |          |        | $ | (23,419 | )      
|Non-cash items included in earnings:            |                                                                                                |                       |         |          |        |   |         |        
|                                                | Incentive allocations and fees and net investment
    (income) loss from long-term investments |                       |         | (10,745  | )      |   |         | 21,124  |       
|                                                | Depreciation and amortization                                                                  |                       |         | 3,145    |        |   |         | 7,588   |       
|                                                | Extraordinary gain                                                                             |                       |         | (1,413   | )      |   |         |        |       
|                                                | Other                                                                                          |                       |         | 401      |        |   |         | 273     |       
|Changes in operating assets:                    |                                                                                                |                       |         |          |        |   |         |        
|                                                | Receivables:                                                                                   |                       |         |          |        |   |         |         |       
|                                                |                                                                                                | Investment banking    |         |          | 2,311  |   |         |         | 1,487  |  
|                                                |                                                                                                | Asset management fees |         |          | (7,535 | ) |         |         | (1,238 | )
|                                                |                                                                                                | Affiliates            |         |          | 1,799  |   |         |         | 886    |  
|                                                |                                                                                                | Other                 |         |          | 2,345  |   |         |         | 1,196  |  
|                                                | Due from clearing broker                                                                       |                       |         | (116,690 | )      |   |         | 950     |       
|                                                | Marketable and trading securities                                                              |                       |         | 10,518   |        |   |         | 4,848   |       
|                                                | Prepaid expenses and other assets                                                              |                       |         | (1,988   | )      |   |         | 680     |       
|Changes in operating liabilities:               |                                                                                                |                       |         |          |        |   |         |        
|                                                | Trading account securities sold but not yet
    purchased                                      |                       |         | 63,000   |        |   |         | 162     |       
|                                                | Accounts payable and accrued expenses                                                          |                       |         | 3,854    |        |   |         | 3,753   |       
|                                                | Accrued compensation and benefits                                                              |                       |         | 14,715   |        |   |         | (10,756 | )     
|                                                |                                                                                                |                       |         |          |        |   |         |        
|                                                | Net cash provided by operating activities                                                      |                       |         | 6,911    |        |   |         | 7,534   |       
|                                                |                                                                                                |                       |         |          |        |   |         |        
|Cash flows from investment
    activities:      |                                                                                                |                       |         |          |        |   |         |        
|MMA/ Rushmore acquisition, net of cash acquired |                                                                                                |                       |        |          |        |   | (7,760  | )      
|Bank investment securities, net                 |                                                                                                |                       | (24,528 | )        |        |   | 2,469   |        
|Bank loans, net of allowances                   |                                                                                                |                       | (2,508  | )        |        |   | (7,390  | )      
|Purchases of fixed assets, net                  |                                                                                                |                       | (1,923  | )        |        |   | (2,235  | )      
|Purchases of long-term investments              |                                                                                                |                       | (33,040 | )        |        |   |        |        
|Proceeds from sales of long-term investments    |                                                                                                |                       | 20,177  |          |        |   | 14,095  |        
|                                                |                                                                                                |                       |         |          |        |   |         |        
|                                                | Net cash used in investing activities                                                          |                       |         | (41,822  | )      |   |         | (821    | )     
|                                                |                                                                                                |                       |         |          |        |   |         |        
|Cash flows from financing
    activities:       |                                                                                                |                       |         |          |        |   |         |        
|Employee Stock Loan Program                     |                                                                                                |                       |        |          |        |   | (22,346 | )      
|Repayments of long-term secured loans           |                                                                                                |                       |        |          |        |   | (457    | )      
|Proceeds from short-term borrowings             |                                                                                                |                       | 48,886  |          |        |   |        |        
|Net increase (decrease) in bank deposits        |                                                                                                |                       | 26,987  |          |        |   | (4,404  | )      
|Proceeds from issuance of common stock          |                                                                                                |                       | 3,461   |          |        |   | 473     |        
|Proceeds from issuance of treasury common stock |                                                                                                |                       | 1,399   |          |        |   | 576     |        
|                                                |                                                                                                |                       |         |          |        |   |         |        
|                                                | Net cash provided by (used in) financing
    activities                                        |                       |         | 80,733   |        |   |         | (26,158 | )     
|                                                |                                                                                                |                       |         |          |        |   |         |        
|Net increase in cash and cash equivalents       |                                                                                                |                       | 45,822  |          |        |   | (19,445 | )      
|Cash and cash equivalents, beginning of period  |                                                                                                |                       | 46,246  |          |        |   | 52,337  |        
|                                                |                                                                                                |                       |         |          |        |   |         |        
|Cash and cash equivalents, end of period        |                                                                                                | $                     | 92,068  |          |        | $ | 32,892  |        
|                                                |                                                                                                |                       |         |          |        |   |         |        

See notes to consolidated financial statements.

6



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##### Table of Contents



Item 1  Consolidated
Financial Statements and Notes  (unaudited)
(Continued)


FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


(Dollars in thousands)


(unaudited)


1. Basis of Presentation:

The consolidated financial statements of
Friedman, Billings, Ramsey Group, Inc. and subsidiaries (the
Company) have been prepared in accordance with
accounting principles generally accepted in the United States of
America for interim financial information and with the
instructions to Form 10-Q. Therefore, they do not include
all information required by accounting principles generally
accepted in the United States of America 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
statement of the results for the periods presented. All
significant intercompany accounts and transactions have been
eliminated in consolidation. 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 included
on Form 10-K filed by the Company under the Securities
Exchange Act of 1934.

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America 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. There were
no changes to critical accounting policies or related
assumptions. Actual results could differ from those estimates.

Certain amounts in the consolidated financial
statements and notes for prior periods have been reclassified to
conform to the current period presentation.

2. Comprehensive Income:

The components of comprehensive income are (in
thousands):

|                                |                                                                                                                                                                                                                    |                    |        |                   |       |      |         |        |   |   |        |       |       |   |         |       | 
|------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------ | ------ | ----------------- | ----- | ---- | ------- | ------ | - | - | ------ | ----- | ----- | - | ------- | ----- | 
|                                |                                                                                                                                                                                                                    |                    |        |                  
|                                |                                                                                                                                                                                                                    | Three Months Ended |        | Nine Months Ended
|                                |                                                                                                                                                                                                                    | September 30,      |        | September 30,    
|                                |                                                                                                                                                                                                                    |                    |        |                  
|                                |                                                                                                                                                                                                                    | 2002               |        | 2001              |       | 2002 |         | 2001  
|                                |                                                                                                                                                                                                                    |                    |        |                   |       |      |         |       
|Net income (loss)               |                                                                                                                                                                                                                    | $                  | 15,113 |                   |       | $    | (22,390 | )      |   | $ | 43,194 |       |       | $ | (23,419 | )    
|                                | Net change in unrealized investment gains
    (losses) related to available-for-sale securities, net of income
    taxes                                                                                           |                    |        | (461              | ) (1) |      |         | 1,160  |   |   |        | (317  | ) (1) |   |         | 913   | 
|                                | Net change in unrealized investment gains
    (losses) related to available-for-sale securities and unrealized
    losses related to cash flow hedges in FBR Asset Investment
    Corporation, net of income taxes |                    |        | 1,181             | (2)   |      |         | (2,146 | ) |   |        | 1,576 | (2)   |   |         | 2,914 | 
|                                |                                                                                                                                                                                                                    |                    |        |                   |       |      |         |        |   |   |        |       |       |   |         |      
|Net comprehensive income (loss) |                                                                                                                                                                                                                    | $                  | 15,833 |                   |       | $    | (23,376 | )      |   | $ | 44,453 |       |       | $ | (19,592 | )    
|                                |                                                                                                                                                                                                                    |                    |        |                   |       |      |         |        |   |   |        |       |       |   |         |      



---



|    |                          
|--- | -------------------------
|(1) | Net of taxes of $56.     
|   
|(2) | Net of taxes of $(2,575).



|   |                                                                                   
|-- | ----------------------------------------------------------------------------------
|3. | Long-Term Investments, Incentive Allocations
    and Net Investment Income (Loss):

The Company records three types of asset
management revenue:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Certain of the Companys subsidiaries act as
    investment advisers and receive management fees for the
    management of proprietary investment partnerships, mutual funds
    and FBR Asset Investment Corporation (FBR-Asset),
    based upon the amount of capital committed or under management.
    This revenue is recorded in base management fees in the
    Companys statements of operations as earned.

7



---



##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)




|   |                                                                                               
|-- | ----------------------------------------------------------------------------------------------
|3. | Long-Term Investments, Incentive Allocations
    and Net Investment Income (Loss): (Continued)



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | The Company also receives incentive allocations
    based upon the operating results of the partnerships and
    incentive fees from FBR-Asset. Incentive income represents a
    share of the gains in the partnerships and FBR-Asset, and is
    recorded in incentive allocations and fees and technology sector
    net investment and incentive loss in the Companys
    statements of operations. The Company records incentive income
    from the partnerships based on when it is earned according to
    the related partnership or operating agreement.
|
| | 3. | The Company also records allocations, under the
    equity method of accounting, for its proportionate share of the
    earnings or losses of the partnerships and FBR-Asset. Income or
    loss allocations are recorded in net investment income
    (loss) and technology sector net investment and incentive
    loss in the Companys statements of operations.                                                                                                                                                                                               

Long-term investments consist of the following
(in thousands):

|                                                         |                                                                      |                    |         |                   |  |   |         |        | 
|-------------------------------------------------------- | -------------------------------------------------------------------- | ------------------ | ------- | ----------------- |  | - | ------- | ------ | 
|                                                         |                                                                      | September 30, 2002 |         | December 31, 2001
|                                                         |                                                                      |                    |         |                  
|Equity method investments:                               |                                                                      |                    |         |                   |  |   |         |       
|                                                         | Proprietary investment partnerships, excluding
    technology sector |                    | $       | 30,689            |  |   | $       | 42,619 | 
|                                                         | FBR Asset Investment Corporation                                     |                    |         | 75,556            |  |   |         | 42,460 | 
|Marketable securities                                    |                                                                      |                    | 4,031   |                   |  |   | 4,894   |       
|Private debt investments                                 |                                                                      |                    | 7,500   |                   |  |   | 7,500   |       
|Cost method investments, excluding technology
    sector |                                                                      |                    | 750     |                   |  |   |        |       
|Other                                                    |                                                                      |                    | 3,630   |                   |  |   | 839     |       
|                                                         |                                                                      |                    |         |                   |  |   |         |       
|                                                         |                                                                      |                    | 122,156 |                   |  |   | 98,312  |       
|                                                         |                                                                      |                    |         |                   |  |   |         |       
|Equity method investments  technology sector            |                                                                      |                    | 15,212  |                   |  |   | 14,584  |       
|Cost method investments  technology sector              |                                                                      |                    | 7,944   |                   |  |   | 7,086   |       
|                                                         |                                                                      |                    |         |                   |  |   |         |       
|                                                         |                                                                      |                    | 23,156  |                   |  |   | 21,670  |       
|                                                         |                                                                      |                    |         |                   |  |   |         |       
|Total long-term investments                              |                                                                      | $                  | 145,312 |                   |  | $ | 119,982 |       
|                                                         |                                                                      |                    |         |                   |  |   |         |       

FBR
Asset Investment Corporation (FBR-Asset)

During the quarter ended, and nine months ended
September 30, 2002, the Company recorded $3,588 and
$16,805, respectively, of net investment income in the
statements of operations for its proportionate share of
FBR-Assets net income. In addition, during the quarter,
the Company purchased 100,000 shares of FBR-Asset common stock.
As a result of this transaction, the Company purchased its
interest above book value which, in accordance, with Statement
of Financial Accounting Standards (SFAS)
No. 141, created goodwill of $437. During the third quarter
of 2002, the Company reduced its carrying basis of FBR-Asset for
declared dividends of $3,250. During the quarter, the Company
also recorded, in other comprehensive income, $1,181 for its
proportionate share of FBR-Assets net unrealized gains
related to available-for-sale securities and unrealized losses
on cash flow hedges. During the first nine months of 2002, the
Company reduced its carrying basis of FBR-Asset for declared
dividends of $8,987. During the first nine months of 2002, the
Company recorded, in other comprehensive income, $1,576 for its
proportionate share of FBR-Assets net unrealized gains
related to available-for-sale securities and unrealized losses
on cash flow hedges. As of September 30, 2002, the net
unrealized gain related to FBR-Asset that is included in the
Companys accumulated other comprehensive income has
increased to $4,731.

As of September 30, 2002, FBR-Assets
market value per share was $31.26, which results in the
Companys investment in FBR-Asset having a market value of
$81,276 compared with the book value at which the Company
carries its investment of $75,556. The Companys investment
in FBR-Asset of $75,556 represents 52 percent of the
Companys total long-term investments and 15 percent of the
Companys total

8



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)




|   |                                                                                               
|-- | ----------------------------------------------------------------------------------------------
|3. | Long-Term Investments, Incentive Allocations
    and Net Investment Income (Loss): (Continued)

assets as of September 30, 2002. The
following table summarizes FBR-Assets statements of
financial condition and income (in thousands):

|                            |  |                    |           |                   |  |   |           | 
|--------------------------- |  | ------------------ | --------- | ----------------- |  | - | --------- | 
|                            |  |                   
|                            |  | FBR-Asset         
|                            |  |                   
|                            |  | September 30, 2002 |           | December 31, 2001
|                            |  |                    |           |                  
|Total assets                |  | $                  | 5,983,578 |                   |  | $ | 1,325,125 | 
|Total liabilities           |  |                    | 5,255,552 |                   |  |   | 1,121,260 | 
|                            |  |                    |           |                   |  |   |           | 
|Total equity                |  | $                  | 728,026   |                   |  | $ | 203,865   | 
|                            |  |                    |           |                   |  |   |           | 
|FBRs share of total equity |  | $                  | 75,556    |                   |  | $ | 42,460    | 
|                            |  |                    |           |                   |  |   |           | 

|                                        |  |                    |        |                   |  |      |       |      |  |   |         |   |  |   |        | 
|--------------------------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ----- | ---- |  | - | ------- | - |  | - | ------ | 
|                                        |  |                   
|                                        |  | FBR-Asset         
|                                        |  |                   
|                                        |  |                    |        |                  
|                                        |  | Three Months Ended |        | Nine Months Ended
|                                        |  | September 30,      |        | September 30,    
|                                        |  |                    |        |                  
|                                        |  | 2002               |        | 2001              |  | 2002 |       | 2001
|                                        |  |                    |        |                   |  |      |       |     
|Gross revenues                          |  | $                  | 62,025 |                   |  | $    | 9,582 |      |  | $ | 126,989 |   |  | $ | 18,889 | 
|Total expenses                          |  |                    | 30,069 |                   |  |      | 5,220 |      |  |   | 60,199  |   |  |   | 10,158 | 
|                                        |  |                    |        |                   |  |      |       |      |  |   |         |   |  |   |        | 
|Net income before net investment income |  |                    | 31,956 |                   |  |      | 4,362 |      |  |   | 66,790  |   |  |   | 8,731  | 
|Net investment income                   |  |                    | 4,823  |                   |  |      | 1,282 |      |  |   | 19,646  |   |  |   | 1,065  | 
|                                        |  |                    |        |                   |  |      |       |      |  |   |         |   |  |   |        | 
|Net income before taxes                 |  |                    | 36,779 |                   |  |      | 5,644 |      |  |   | 86,436  |   |  |   | 9,796  | 
|Income tax provision                    |  |                    | (2,114 | )                 |  |      |      |      |  |   | (2,280  | ) |  |   |       | 
|                                        |  |                    |        |                   |  |      |       |      |  |   |         |   |  |   |        | 
|Net income                              |  | $                  | 34,665 |                   |  | $    | 5,644 |      |  | $ | 84,156  |   |  | $ | 9,796  | 
|                                        |  |                    |        |                   |  |      |       |      |  |   |         |   |  |   |        | 

Available-For-Sale
Securities

As of September 30, 2002, $(246) of net
unrealized losses related to the Companys
available-for-sale securities are included in accumulated other
comprehensive income.

4. Executive Officer
Compensation:

During 2002, certain of the Companys
executive officers are eligible for incentive bonuses under the
Key Employee Incentive Plan (the Plan). The
incentive bonus pool is calculated as up to twenty percent of
pre-tax profits. During the quarter ended, and the nine months
ended September 30, 2002, the Company recorded $4,498 and
$11,518, respectively, of executive officer compensation, and,
as of September 30, 2002, $6,904 of this executive officer
compensation is accrued.

5. Income Taxes:

As of December 31, 2001, the Company had a
net operating loss (NOL) carryforward to offset future taxable
income. As of that date the Company had provided a full
valuation allowance against its NOL and other deferred tax
assets based upon its ongoing assessment of realizability. Based
on the Companys year-to-date operating results, its
earnings are in excess of the NOL carryforward, and based upon
current evidence and estimates, it will have earnings in excess
of its other deferred tax asset items. Consequently, all of the
deferred tax asset valuation allowance will be reversed ratably
throughout the year and recorded in the income tax provision
during the year ended December 31, 2002. Accordingly, in
the third quarter based on the current evidence and estimated
earnings for the year, the Company began providing for income
taxes and recorded an income tax provision of $2,343 (net of the
reversal of deferred tax asset valuation allowance) relating to
the net income before extraordinary gain. Additionally, in the
third quarter the company recorded an income tax provision of
$536 related to the extraordinary gain recorded in the first
quarter which was a change in estimate based upon current and
estimated earnings for the year ended December 31, 2002.
The Companys estimated tax provision is based upon its
estimated tax expense in excess of the deferred tax valuation
allowances. The

9



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)


5. Income Taxes: (Continued)

Companys effective tax rate for the quarter
and nine-month periods was 16.0 percent and
6.2 percent respectively.

6. Net Capital Requirements:

The Companys U.S. broker-dealer
subsidiaries are subject to the Securities and Exchange
Commissions Uniform Net Capital Rule (the
rule), which requires the maintenance of minimum net
capital and requires the ratio of aggregate indebtedness to net
capital, both as defined by the rule, not to exceed 15 to 1. The
Companys U.K. broker-dealer subsidiary is subject to the
net capital rules of the Financial Services Authority. As of
September 30, 2002, the broker-dealer subsidiaries had
aggregate net capital of $81,897, which exceeded the regulatory
requirements by $78,021.

7. Earnings (Loss) Per Share:

The following table presents the computations of
basic and diluted earnings per share for the three and nine
months ended September 30, 2002 and 2001:

|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |        | 
|---------------------------------------------------------------------------- | ------------- | ------------------ | ------ | ------------------ |  | ----- | ------ | ------- |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                             |               |                    |        |                   
|                                                                             |               | Three Months Ended |        | Three Months Ended
|                                                                             |               | September 30, 2002 |        | September 30, 2001
|                                                                             |               |                    |        |                   
|                                                                             |               | Basic              |        | Diluted            |  | Basic |        | Diluted
|                                                                             |               |                    |        |                    |  |       |        |        
|Weighted average shares outstanding:                                         |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|                                                                             | Common stock  |                    |        | 46,370             |  |       |        | 46,370  |  |   |         | 45,808 |  |   |         | 45,808 | 
|                                                                             | Stock options |                    |        |                   |  |       |        | 3,156   |  |   |         |       |  |   |         |       | 
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Weighted average common and common equivalent
    shares outstanding         |               |                    | 46,370 |                    |  |       | 49,526 |         |  |   | 45,808  |        |  |   | 45,808  |       
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Net earnings (loss) before extraordinary gain
    applicable to common stock |               | $                  | 15,649 |                    |  | $     | 15,649 |         |  | $ | (22,390 | )      |  | $ | (22,390 | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Earnings (loss) before extraordinary gain per
    common share               |               | $                  | 0.34   |                    |  | $     | 0.32   |         |  | $ | (0.49   | )      |  | $ | (0.49   | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Net earnings (loss) applicable to common stock                               |               | $                  | 15,113 |                    |  | $     | 15,113 |         |  | $ | (22,390 | )      |  | $ | (22,390 | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Earnings (loss) per common share                                             |               | $                  | 0.33   |                    |  | $     | 0.31   |         |  | $ | (0.49   | )      |  | $ | (0.49   | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       

|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |        | 
|---------------------------------------------------------------------------- | ------------- | ------------------ | ------ | ------------------ |  | ----- | ------ | ------- |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                             |               |                    |        |                   
|                                                                             |               | Nine Months Ended  |        | Nine Months Ended 
|                                                                             |               | September 30, 2002 |        | September 30, 2001
|                                                                             |               |                    |        |                   
|                                                                             |               | Basic              |        | Diluted            |  | Basic |        | Diluted
|                                                                             |               |                    |        |                    |  |       |        |        
|Weighted average shares outstanding:                                         |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|                                                                             | Common stock  |                    |        | 45,995             |  |       |        | 45,995  |  |   |         | 48,122 |  |   |         | 48,122 | 
|                                                                             | Stock options |                    |        |                   |  |       |        | 2,223   |  |   |         |       |  |   |         |       | 
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Weighted average common and common equivalent
    shares outstanding         |               |                    | 45,995 |                    |  |       | 48,218 |         |  |   | 48,122  |        |  |   | 48,122  |       
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Net earnings (loss) before extraordinary gain
    applicable to common stock |               | $                  | 42,317 |                    |  | $     | 42,317 |         |  | $ | (22,390 | )      |  | $ | (22,390 | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Earnings (loss) before extraordinary gain per
    common share               |               | $                  | 0.92   |                    |  | $     | 0.88   |         |  | $ | (0.49   | )      |  | $ | (0.49   | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Net earnings (loss) applicable to common
    stock                           |               | $                  | 43,194 |                    |  | $     | 43,194 |         |  | $ | (23,419 | )      |  | $ | (23,419 | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       
|Earnings (loss) per common share                                             |               | $                  | 0.94   |                    |  | $     | 0.90   |         |  | $ | (0.49   | )      |  | $ | (0.49   | )     
|                                                                             |               |                    |        |                    |  |       |        |         |  |   |         |        |  |   |         |       

As of September 30, 2002 and 2001,
respectively, 11,563,505 and 12,940,234 (both include 4,000,000
shares associated with the Employee Stock Purchase and Loan Plan
that are treated as options) options to purchase shares of
common stock were outstanding. As of September 30, 2002 and
2001, respectively,

10



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)


7. Earnings (Loss) Per Share:
(Continued)

8,362,689 and 6,751,784 of the total outstanding
options were exercisable and 2,477,900 and 12,940,234 were
anti-dilutive.

8. Commitments and
Contingencies:

Contractual Obligations

The Company has contractual obligations to make
future payments in connection with short and long-term debt and
non-cancelable lease agreements as well as uncalled capital
commitments to various investment partnerships that may be
called over the next ten years. The following table sets forth
these contractual obligations by fiscal year:

|                           |                               |      |        |        |  |      |       |       |  |      |       |            |  |       |     |       |  |   |     |       |  |   |       |       |  |   |        |        | 
|-------------------------- | ----------------------------- | ---- | ------ | ------ |  | ---- | ----- | ----- |  | ---- | ----- | ---------- |  | ----- | --- | ----- |  | - | --- | ----- |  | - | ----- | ----- |  | - | ------ | ------ | 
|                           |                               | 2002 |        | 2003   |  | 2004 |       | 2005  |  | 2006 |       | Thereafter |  | Total
|                           |                               |      |        |        |  |      |       |       |  |      |       |            |  |      
|Short-term debt(1)         |                               | $    | 69,081 |        |  | $    | 970   |       |  | $    |      |            |  | $     |    |       |  | $ |    |       |  | $ |      |       |  | $ | 70,051 |       
|Long-term debt             |                               |      |       |        |  |      |      |       |  |      | 970   |            |  |       | 970 |       |  |   | 970 |       |  |   | 4,850 |       |  |   | 7,760  |       
|Minimum rental commitments |                               |      | 1,056  |        |  |      | 3,513 |       |  |      | 1,896 |            |  |       | 541 |       |  |   | 395 |       |  |   | 1,669 |       |  |   | 9,070  |       
|Capital commitments(2)     |                               |      | 4,500  |        |  |      |      |       |  |      |      |            |  |       |    |       |  |   |    |       |  |   |      |       |  |   | 4,500  |       
|                           |                               |      |        |        |  |      |       |       |  |      |       |            |  |       |     |       |  |   |     |       |  |   |       |       |  |   |        |       
|                           | Total Contractual Obligations |      | $      | 74,637 |  |      | $     | 4,483 |  |      | $     | 2,866      |  |       | $   | 1,511 |  |   | $   | 1,365 |  |   | $     | 6,519 |  |   | $      | 91,381 | 
|                           |                               |      |        |        |  |      |       |       |  |      |       |            |  |       |     |       |  |   |     |       |  |   |       |       |  |   |        |       



---



|    |                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The short-term debt obligation in 2002 includes:
    $40,000 in the form of a subordinated loan which was repaid in
    October 2002, $16,975 of repurchase agreements, $8,040 in the
    form of a demand note that may be called at anytime, $5,009 in
    the form of a drawdown on a line-of-credit and other debt of $27.
|   
|(2) | The table above excludes $7,353 of uncalled
    capital commitments to various investment partnerships that may
    be called over the next ten years. This amount was excluded
    because the Company cannot currently determine when, if ever,
    the commitments will be called.                                         

Litigation

As of September 30, 2002, the Company is not
a defendant or plaintiff in any lawsuits or arbitrations that
are expected to have a material adverse effect on the
Companys financial condition. The Company is a defendant
in a small number of civil lawsuits and arbitrations (together
litigation) relating to its various businesses. In
addition, the Company is subject to regulatory oversight
relating to its various businesses, including examination by
regulatory bodies and requests for information relating to such
examinations. There can be no assurance that these matters will
not have a material adverse effect on the Companys
financial condition or results of operations in a future period.
However, based on managements review with counsel,
including a review of the reserves set aside for litigation,
resolution of these matters is not expected to have a material
adverse effect on the Companys financial condition or
liquidity. However, if, during any period, a potential adverse
contingency should become probable or resolved, the results of
operations in that period could be materially affected.

Many aspects of the Companys business
involve substantial risks of liability and litigation.
Underwriters, broker-dealers and investment advisers are exposed
to liability under Federal and state securities laws, other
Federal and state laws and court decisions, including decisions
with respect to underwriters liability and limitations on
indemnification, as well as with respect to the handling of
customer accounts. For example, underwriters may be held liable
for material misstatements or omissions of fact in a prospectus
used in connection with the securities being offered and
broker-dealers may be held liable for statements made by their
securities analysts or other personnel. In certain
circumstances, broker-dealers and asset managers may also be
held liable by customers and clients for losses sustained on
investments. In recent years, there has been an increasing
incidence of litigation involving the securities industry,
including class actions that seek substantial damages. The
Company is subject to the risk of litigation, including
litigation that may be without merit. As the Company intends to
actively defend such litigation, significant legal expenses
could be incurred. An adverse resolution of any future
litigation against the Company could materially affect the
Companys operating results and financial condition.

11



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)


9. Segment Information:

The Company considers its capital markets and
asset management operations to be two, separately reportable
segments. During the third and fourth quarters of 2001, the
Company significantly scaled-down the online financial services
segment and recorded impaired capitalized software costs
associated with this segment. Therefore, the online financial
services segment reported in previous periods has been combined
with the capital markets segment in 2002. The Company has
developed systems and methodologies to allocate overhead costs
to its business units and, accordingly, presents segment
information consistent with internal management reporting. There
are no significant revenue transactions between the segments.
The following table illustrates the financial information for
its segments for the periods presented (in thousands):

|                                      |                       |         |   |            |   |           |   |              |   |  |   |        |   |  |   |         |  
|------------------------------------- | --------------------- | ------- | - | ---------- | - | --------- | - | ------------ | - |  | - | ------ | - |  | - | ------- | -
|                                      |                       |         |   |            |   | Online    |   |             
|                                      |                       | Capital |   | Asset      |   | Financial |   | Consolidated
|                                      |                       | Markets |   | Management |   | Services  |   | Totals      
|                                      |                       |         |   |            |   |           |   |             
|Three Months Ended September 30, 2002 |                       |         |   |            |   |           |   |              |   |  |   |        |   |  |   |        
|                                      | Total revenues        |         | $ | 73,386     |   |           | $ | 8,326        |   |  | $ |       |   |  | $ | 81,712  |  
|                                      | Pre-tax income (loss) |         |   | 18,995     |   |           |   | (1,003       | ) |  |   |       |   |  |   | 17,992  |  
|Three Months Ended September 30, 2001 |                       |         |   |            |   |           |   |              |   |  |   |        |   |  |   |        
|                                      | Total revenues        |         |   | 22,066     |   |           |   | (358         | ) |  |   | 75     |   |  |   | 21,783  |  
|                                      | Pre-tax loss          |         |   | (9,179     | ) |           |   | (9,339       | ) |  |   | (3,872 | ) |  |   | (22,390 | )
|Nine months Ended September 30, 2002  |                       |         |   |            |   |           |   |              |   |  |   |        |   |  |   |        
|                                      | Total revenues        |         |   | 167,205    |   |           |   | 42,131       |   |  |   |       |   |  |   | 209,336 |  
|                                      | Pre-tax income        |         |   | 33,058     |   |           |   | 13,015       |   |  |   |       |   |  |   | 46,073  |  
|Nine months Ended September 30, 2001  |                       |         |   |            |   |           |   |              |   |  |   |        |   |  |   |        
|                                      | Total revenues        |         |   | 89,786     |   |           |   | 9,314        |   |  |   | 288    |   |  |   | 99,388  |  
|                                      | Pre-tax loss          |         |   | (8,068     | ) |           |   | (9,086       | ) |  |   | (6,265 | ) |  |   | (23,419 | )

10. Related Party Transactions:

FBR-Asset

As of September 30, 2002, the Company and
its affiliated entities owned 2,844,700 shares or
11.35 percent of the outstanding common stock of FBR-Asset.
As of December 31, 2001, the Company and its affiliated
entities owned 2,349,186 shares or 27.63 percent of the
outstanding common stock of FBR-Asset.

The Company has a management agreement with
FBR-Asset, expiring on December 17, 2002. The Company
performs portfolio management services on behalf of FBR-Asset.
These services include, but are not limited to, making
investment purchases and sales, collecting market information,
submitting reports pertaining to FBR-Assets assets,
interest-rates, and general economic conditions, and periodic
review and evaluation of the performance of FBR-Assets
portfolio of assets.

The Company is entitled to a quarterly
base management fee equal to the sum of
(1) 0.20 percent per annum (adjusted to reflect a
quarterly period) of the average book value of the mortgage
assets of FBR-Asset 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
FBR-Assets invested assets during each calendar quarter.
The Company recorded $2.6 million in base management fees
during the third quarter of 2002, $5.7 million during the
first nine months of 2002 and $1.8 million for the year
ended December 31, 2001.

The Company is also entitled to receive incentive
fees based on the performance of FBR-Asset. The Company is
entitled to an incentive fee calculated by reference to the
preceding four-quarters, calculated as: funds from operations,
plus net realized gains or losses from asset sales, less the
threshold amount (all computed on a weighted average share
outstanding basis), multiplied by 25 percent. The threshold
amount is calculated as the weighted average issuance price per
share of all shares of FBR-Asset, which was $25.30 at
September 30, 2002, multiplied by a rate equal to the
average of the weekly closing rate of the ten-year U.S. Treasury
during the previous 52-week period plus five percent per annum.
The Company recorded $4.2 million in incentive fees during
the third quarter of 2002, $8.7 million during the first
nine months of 2002 and $1.7 million for the year ended
December 31, 2001.

12



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)


10. Related Party Transactions:
(Continued)

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

The Company entered into an agreement in August
2001 with FBR-Asset and its registered broker-dealer subsidiary,
Pegasus Capital Corporation (Pegasus) regarding
FBR-Assets extension of credit to or investment in
entities that are or may be the Companys investment
banking clients. During the third quarter of 2002, pursuant to
this agreement, the Pegasus earned $5.6 million in fees in
connection with two investment banking transaction. During the
first nine months of 2002, pursuant to this agreement, Pegasus
earned $5.9 million in fees in connection with four investment
banking transactions. Fees are earned when the related
investment banking transaction is completed. In 2001, pursuant
to this agreement, the Company paid $2.9 million in fees to
FBR-Asset in connection with three investment banking
transactions and one unfunded commitment.

During the first nine months of 2002, the Company
earned $10.1 million in fees in its capital markets segment
in connection with the Companys broker-dealer subsidiary
underwriting three follow-on public offerings for FBR-Asset. For
the year ended December 31, 2001, the Company earned
$4.4 million in fees in its capital markets segment in
connection with one follow-on public offering for FBR-Asset.

Employee Stock Purchase and Loan
Plan

In connection with the Employee Stock Purchase
and Loan Plan, in July and August 2001, the Company issued
five-year, limited recourse promissory notes to employees with
interest accruing at 6.5 percent accreting to principal for
the remaining purchase price. The notes are collateralized by
the 5,000,000 shares of stock purchased under the plan. As of
September 30, 2002 and December 31, 2001, the balance
outstanding on these loans was $23,799 and $22,706, respectively.

Employee Bank Loans

FBR Group employees may apply for first mortgage
residential loans from the Companys wholly-owned
subsidiary FBR National Bank & Trust. As of
September 30, 2002 and December 31, 2001, the balance
of outstanding loans to employees was $6,893 and $6,444,
respectively.

11. Extraordinary Gain:

In February 2002, the Company exercised 415,805
warrants to purchase FBR-Asset common stock. As a result of this
transaction, the Companys purchase price was below its
interest in the net assets acquired, creating negative goodwill
which, in accordance with Statement of Financial Accounting
Standards (SFAS) No. 141, Business
Combinations, the Company recorded as an extraordinary
gain of $1,413 ($877 after income taxes).

12. Accounting Developments:

The Company has adopted SFAS No. 141,
Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 141 provides that all business combinations initiated
after June 30, 2001

13



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)  (Continued)




12. Accounting Developments:
(Continued)


be accounted for using the purchase method. In
addition, it provides that the cost of an acquired entity should
be allocated to the assets acquired including identifiable
intangible assets, and liabilities assumed based on their
estimated fair values at the date of acquisition. The excess
cost over the fair value of the net assets acquired should be
recognized as goodwill. SFAS No. 142 provides that goodwill
is no longer amortized and the value of an identifiable
intangible asset should be amortized over its useful life,
unless the asset is determined to have an indefinite useful
life. Adoption of SFAS No. 141 and SFAS No. 142 had no
effect on the Companys financial statements.

The Company will adopt SFAS No. 143,
Accounting for Asset Retirement Obligations on
January 1, 2003. SFAS No. 143 requires that
obligations associated with the retirement of a tangible
long-lived asset be recorded as a liability when those
obligations are incurred, with the amount of the liability
initially measured at fair value. The adoption of SFAS
No. 143 is not expected to have a material effect on the
financial statements of the Company.

The Company has adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. This statement
principally deals with implementation issues of SFAS No. 121,
including developing a single accounting model for long-lived
assets to be disposed of by sale. The adoption of SFAS
No. 144 did not have a material effect on the financial
statements of the Company.

The Company will adopt SFAS No. 145,
Rescission of FASB Statements Nos. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections as of
April 2002 on January 1, 2003. This statement
primarily provides guidance for reporting gains and losses from
extinguishments of debt and sale-leaseback transactions. The
adoption of SFAS No. 145 is not expected to have a material
effect on the financial statements of the Company.

The Company will adopt SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities on January 1, 2003. This statement
addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). The adoption of SFAS No. 146 is not
expected to have a material effect on the financial statements
of the Company.

14



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##### Table of Contents






Item 2. Managements Discussion and
Analysis of Financial Condition and Results of
Operations

The following analysis of the consolidated
financial condition and results of operations of Friedman,
Billings, Ramsey Group, Inc. (the Company) should be
read in conjunction with the unaudited Consolidated Financial
Statements as of September 30, 2002 and 2001, and the Notes
thereto and the Companys 2001 Annual Report on
Form 10-K.

BUSINESS ENVIRONMENT

Our principal business activities, investment
banking (capital raising and merger and acquisition and advisory
services), institutional brokerage and asset management
(including proprietary investments), are linked to the capital
markets. In addition, our business activities are focused in the
financial services, real estate, technology, energy, healthcare
and diversified industries sectors. Historically, we have
focused on small and mid-cap stocks, although our research
coverage and associated brokerage activities increasingly
involve larger-cap stocks. By their nature, our business
activities are highly competitive and are not only subject to
general market conditions, volatile trading markets and
fluctuations in the volume of market activity, but also to the
conditions affecting the companies and markets in our areas of
focus.

During the first nine months of 2002, we
continued to experience an increase in underwriting, private
placement, M&A and advisory activity, especially in two of
our focused industry sectors: the financial institutions and
real estate sectors and, to a lesser extent, the energy,
healthcare and technology sectors. The economic slowdown that
began in the second half of 2000, however, continued to
adversely affect equity valuations and has now adversely
affected the broad equity markets. In addition, the advent of
decimal pricing in 2001 has continued to adversely affect
secondary equity market trading margins.

Our revenues and net income are subject to
substantial positive and negative fluctuations due to a variety
of factors that cannot be predicted with great certainty. These
factors include the overall condition of the economy and the
securities markets as a whole and of the sectors on which we
focus. For example, a significant portion of the performance
based or incentive revenues that we recognize from our venture
capital, private equity and other asset management activities is
based on the value of securities held by the funds we manage.
The value of these securities includes unrealized gains or
losses that may change from one period to another. The downturn
in the technology sector has adversely affected this portion of
our business and caused reductions in certain unrealized gains
in technology sector securities held by us either directly or
through funds we manage. Although, when market conditions
permit, we may take steps to realize or lock-in gains on these
securities, these securities are often illiquid and therefore,
such steps may not be possible, and the value of these
securities is subject to increased market risk.

Fluctuations in revenues and net income also
occur due to the overall level of market activity which, among
other things, affects the flow of investment dollars and the
size, number and timing of investment banking transactions. In
addition, a downturn in the level of market activity can lead to
a decrease in brokerage commissions. Therefore, net income and
revenues in any particular period may not be representative of
full-year results and may vary significantly from year to year
and from quarter to quarter.

The financial services industry continues to be
affected by an intensifying competitive environment. The
relaxation of banks barriers to entry into the securities
industry and expansion by insurance companies into traditional
brokerage products, coupled with the repeal of laws separating
commercial and investment banking activities, has changed the
number and size of companies competing for a similar customer
base, many of which have greater capital resources and
additional associated services with which to pursue these
activities.

In order to compete in this increasingly
competitive environment, we continually evaluate each of our
businesses across varying market conditions for competitiveness,
profitability and alignment with our long-term strategic
objectives, including the diversification of revenue sources. As
a result, we may choose, from time to time, to reallocate
resources based on the opportunities for profitability and
revenue growth for each of our businesses relative to our
commitment of resources.

RESULTS OF OPERATIONS

Three
months ended September 30, 2002 compared to three months
ended September 30, 2001

The Companys revenues increased 275% from
$21.8 million in 2001 to $81.7 million in 2002, primarily
due to an increase in revenues from investment banking and, to a
lesser extent, an increase in asset management and institutional
brokerage revenues.

15



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##### Table of Contents



RESULTS OF
OPERATIONS  continued




| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Three months ended September 30, 2002
    compared to three months ended September 30,
    2001  continued

Underwriting revenue increased 204% from
$9.9 million in 2001 to $30.1 million in 2002. The increase
is attributable to larger average transaction size. During the
third quarter of 2002, the Company managed three public
offerings raising $672.5 million and generating
$30.1 million in revenues. During the third quarter of
2001, the Company managed seven public offerings, raising
$525.8 million and generating $9.9 million in
revenues. The average size of underwritten transactions for
which we were a lead or co-manager increased from
$75.1 million in 2001 to $224.2 million in 2002.

Corporate finance revenue increased significantly
from $1.2 million in 2001 to $26.2 million in 2002,
primarily due to one large private placement in 2002. The
Company completed three private placements in 2002, generating
$25.2 million in revenues. This compares with one private
placement generating $1.0 million in revenues in 2001. M&A
and advisory fee revenue increased to $1.0 million in 2002 from
$0.2 million in 2001 due to an increase in the number of
deals completed. In 2002, the Company completed two M&A
transactions compared to zero in 2001.

Institutional brokerage revenue from principal
transactions (primarily client transactions in NASDAQ
securities) increased 35% from $4.2 million in 2001 to
$5.7 million in 2002. The Company believes that this
increase is due to the fact that we have continued to achieve
greater penetration of institutional accounts through broader
research coverage and sales and trading services. Net trading
gains increased from $0.4 million in 2001 to
$1.1 million in 2002.

Institutional brokerage agency commissions
increased 46% from $5.9 million in 2001 to
$8.6 million in 2002. The Company believes that this
increase was achieved by greater penetration of institutional
accounts through broader research coverage and sales and trading
services.

Asset management base management fees increased
24% from $5.8 million in 2001 to $7.2 million in 2002,
primarily due to additional fees earned as a result of the
increased size of FBR-Asset and, to a lesser extent, our other
managed vehicles.

Asset management incentive allocations and fees
increased 330% from $1.0 million in 2001 to $4.3 million in
2002. Incentive allocations in 2002 are primarily from FBR-Asset.

Asset management net investment loss decreased 2%
from $(2.8) million in 2001 to $(2.7) million in 2002. Net
investment loss in 2002 includes: $(6.3) million of net
investment loss from investments in managed vehicles offset by
$3.6 million of net investment income generated from our
investment in FBR-Asset. Net investment loss in 2001 was
primarily a result of net investment loss from investments in
managed vehicles.

Asset management technology sector net investment
and incentive loss decreased from $(6.6) million in 2001 to
$(2.2) million in 2002. Technology sector net investment and
incentive loss in 2002 was primarily from investments in venture
capital proprietary investment partnerships and other managed
vehicles and, to a lesser extent, from a third party fund that
was invested primarily in public securities. Technology sector
net investment and incentive loss in 2001 was primarily from
investments in venture capital proprietary investment
partnerships.

Unrealized gains related to our investments that
are included in accumulated other comprehensive
income in our balance sheet totaled $4.5 million as of
September 30, 2002. If and when we liquidate these or
determine that a decline in value of these investments is
other than temporary, a portion or all of the gains
or losses will be recognized as investment income (loss) in
the statement of operations during the period in which the
liquidation or determination is made. Our investment portfolio
is exposed to future downturns in the markets and private debt
and equity securities are exposed to deterioration of credit
quality, defaults and downward valuations. On a quarterly basis,
we review the valuations of our private debt and equity
investments. If and when we determine that the net realizable
value of these investments is less than our carrying value, we
will reflect the reduction as an investment loss.

Net interest, dividends, and other revenue (net
of interest expense) decreased 54% from $2.8 million in
2001 to $1.3 million in 2002, primarily due to a decrease
in earnings on invested cash primarily as a result of a decline
in interest rates coupled with increased interest expense as a
result of our short-term loans as well as interest accretion
associated with our long-term secured loan.

16



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##### Table of Contents



RESULTS OF
OPERATIONS  continued




| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Three months ended September 30, 2002
    compared to three months ended September 30,
    2001  continued

Total expenses increased 44% from
$44.2 million in 2001 to $63.7 million in 2002,
primarily due to an increase in variable compensation expense
associated with increased revenue.

Compensation and benefits expense increased 88%
from $24.3 million in 2001 to $45.7 million in 2002.
This increase was primarily due to an increase in variable
compensation associated with investment banking and
institutional brokerage, and a new executive officer
compensation plan in 2002, which is calculated as up to twenty
percent of pre-tax profits. As a percentage of revenues,
compensation and benefits expense decreased from 114% in 2001 to
56% in 2002.

Business development and professional services
increased 14% from $7.6 million in 2001 to $8.7 million in
2002, primarily due to an increase in travel and legal expenses
associated primarily with the increase in investment banking
activity and, to a lesser extent, an increase in subadvisory
fees.

Clearing and brokerage fees decreased 22% from
$1.8 million in 2001 to $1.4 million in 2002. As a
percentage of institutional brokerage revenue, clearing and
brokerage fees decreased from 18% in 2001 to 10% in 2002. This
percentage decrease is attributable to new clearing and
execution arrangements finalized in 2002.

Occupancy and equipment expense decreased 60%
from $5.7 million in 2001 to $2.3 million in 2002,
primarily due to a decrease in depreciation and amortization
expense. Depreciation and amortization expense decreased $3.4 in
2002 compared to 2001. The decline in depreciation and
amortization expense is primarily a result of the
$2.7 million accelerated write-off of capitalized fbr.com
software costs due to the Company determining such capitalized
costs were impaired and written-off during the third quarter of
2001.

Communications expense increased 25% from
$1.6 million in 2001 to $2.0 million in 2002, primarily due
to the opening of new offices and higher levels of business.

Other operating expenses were fairly stable,
increasing 3% from $2.9 million in 2001 to $3.0 million in
2002.

The income tax provision increased from zero in
2001 to $2.3 million in 2002. As of December 31, 2001,
the Company had a net operating loss (NOL) carryforward to
offset future taxable income. As of that date the Company had
provided a full valuation allowance against its NOL and other
deferred tax assets based upon its ongoing assessment of
realizability. Based on the Companys year-to-date
operating results, its earnings are in excess of the NOL
carryforward, and based upon current evidence and estimates, it
will have earnings in excess of its other deferred tax asset
items. Consequently, all of the deferred tax asset valuation
allowance will be reversed ratably throughout the year and
recorded in the income tax provision during the year ended
December 31, 2002. Accordingly, in the third quarter based
on the current evidence and estimated earnings for the year, the
Company began providing for income taxes and recorded an income
tax provision of $2.3 million (net of the reversal of
deferred tax asset valuation allowance) relating to the net
income before extraordinary gain.

Additionally, in the third quarter the company
recorded an income tax provision of $0.5 million related to
the extraordinary gain recorded in the first quarter which was a
change in estimate based upon current and estimated earnings for
the year ended December 31, 2002.

Nine
months ended September 30, 2002 compared to nine months
ended September 30, 2001

The Companys revenues increased 111% from
$99.4 million in 2001 to $209.3 million in 2002, primarily
due to an increase in revenues from investment banking and, to a
lesser extent, an increase in asset management and institutional
brokerage revenues.

Underwriting revenue increased 152% from
$26.9 million in 2001 to $67.7 million in 2002. The
increase is attributable to more managed transactions completed
in 2002 as well as a larger average size per transaction. During
the first nine months of 2002, the Company managed 27 public
offerings, raising $3.3 billion and generating
$67.7 million in revenues. Underwriting revenue during the
first nine months of 2002 included $10.9 million in fees
associated with FBR-Assets three secondary offerings in
January, April and June 2002. During the first nine months of
2001, the Company managed fifteen public offerings, raising
$1.1 billion and

17



---



##### Table of Contents



RESULTS OF
OPERATIONS  continued




| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2002
    compared to nine months ended September 30,
    2001  continued

generating $26.9 million in revenues. The
average size of underwritten transactions for which we were a
lead or co-manager increased from $73.6 million in 2001 to
$120.5 million in 2002.

Corporate finance revenue increased 121% from
$21.5 million in 2001 to $47.5 million in 2002,
primarily due to an increase in the number of M&A and
private placement transactions completed in 2002. The Company
completed six private placements in 2002, generating
$32.1 million in revenues. Such amounts compare with three
private placements in 2001, generating $16.5 million in
revenues. M&A and advisory fee revenue increased to
$15.4 million in 2002 from $5.0 million in 2001 due to
an increase in the number of deals completed. The Company
completed 11 M&A transactions in 2002, versus six M&A
transactions completed in 2001.

Institutional brokerage revenue from principal
transactions (primarily client transactions in NASDAQ
securities) increased 37% from $15.5 million in 2001 to
$21.2 million in 2002. The Company believes that this
increase is due to the fact that we have continued to achieve
greater penetration of institutional accounts through broader
research coverage and sales and trading services. Net trading
gains were $0.7 million in 2002 compared to
$0.3 million in 2001.

Institutional brokerage agency commissions
increased 48% from $18.5 million in 2001 to $27.3 million
in 2002. The Company believes that this increase is due to the
fact that we have continued to achieve greater penetration of
institutional accounts through broader research coverage and
sales and trading services.

Asset management base management fees increased
50% from $13.9 million in 2001 to $20.8 million in
2002, primarily due to additional fees earned as a result of the
increased size of FBR-Asset and other managed vehicles and, to a
lesser extent, our acquisition of MMA/ Rushmore.

Asset management incentive allocations and fees
increased from $1.8 million in 2001 to $9.0 million in
2002. Incentive allocations in 2002 are primarily from FBR-Asset.

Asset management net investment income increased
211% from $3.8 million in 2001 to $11.8 million in
2002. Net investment income in 2002 includes: $16.8 million of
net investment income generated from our investment in FBR-Asset
(reflecting share issuances), and $0.2 million of realized
gains related to available-for-sale securities offset by $(5.0)
million of net investment loss from investments in managed
vehicles, $(0.2) million of net investment loss related to
losses on our marketable securities. Net investment income in
2001 includes: $2.1 million (net of $1.1 million of
investment loss, representing dilution associated with
FBR-Assets secondary offering in August 2001) of net
investment income generated from our investment in FBR-Asset;
$1.7 million of realized gains related to private,
mezzanine investments; and $1.4 million of net investment
income from investments in managed vehicles offset by $(1.0)
million of other than temporary unrealized
depreciation related to an available-for-sale security and
$(0.4) million of net investment loss related to losses on our
marketable securities.

In February 2002, the Company exercised 415,805
warrants to purchase FBR-Asset common stock. As a result of this
transaction, the Companys purchase price was below its
interest in the net assets acquired, creating negative goodwill
which, in accordance with SFAS No. 142, the Company
recorded as an extraordinary gain of $1.4 million.

Asset management technology sector net investment
and incentive loss decreased 63% from $(15.4) million in 2001 to
$(5.7) million in 2002 as a result of significant declines in
the value of portfolio companies of FBR Technology Ventures
Partners, L.P. (TVP I) and FBR Technology Venture
Partners II (TVP II) in 2001. Technology sector net
investment and incentive loss in 2001 was primarily from
investments in venture capital proprietary investment
partnerships, of which $(11.4) million was associated with TVP I
and TVP II. Technology sector net investment and incentive loss
in 2002 was primarily from investments in venture capital
proprietary investment partnerships and other managed vehicles,
of which $(1.6) million was associated with TVP I and TVP II,
and, to a lesser extent, from a third party fund that was
invested primarily in public securities.

Unrealized gains related to our investments that
are included in accumulated other comprehensive
income in our balance sheet totaled $4.5 million as of
September 30, 2002. If and when we liquidate these or
determine that a decline in value of these investments is
other than temporary, a portion or all of the gains
or losses will be recognized as investment income (loss) in
the statement of operations during the period in

18



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##### Table of Contents



RESULTS OF
OPERATIONS  continued




| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Nine months ended September 30, 2002
    compared to nine months ended September 30,
    2001  continued

which the liquidation or determination is made.
Our investment portfolio is exposed to future downturns in the
markets and private debt and equity securities are exposed to
deterioration of credit quality, defaults and downward
valuations. On a quarterly basis, we review the valuations of
our private debt and equity investments. If and when we
determine that the net realizable value of these investments is
less than our carrying value, we will reflect the reduction as
an investment loss.

Net interest, dividends, and other revenue (net
of interest expense) decreased 40% from $6.7 million in
2001 to $4.0 million in 2002, due to a decrease in earnings
on invested cash primarily as a result of a decline in interest
rates coupled with increased interest expense as a result of our
short-term loans as well as interest accretion associated with
our long-term secured loan.

Total expenses increased 34% from
$122.8 million in 2001 to $164.7 million in 2002,
primarily due to an increase in variable compensation expense
associated with increased revenue.

Compensation and benefits expense increased 58%
from $73.3 million in 2001 to $115.5 million in 2002.
This increase was primarily due to an increase in variable
compensation associated with investment banking and
institutional brokerage, and a new executive officer
compensation plan in 2002, which is calculated as up to twenty
percent of pre-tax profits. As a percentage of revenues,
compensation and benefits expense decreased from 74% in 2001 to
55% in 2002.

Business development and professional services
increased 8% from $21.2 million in 2001 to $23.0 million in
2002. This change was primarily due to an increase in travel and
legal expenses that was mostly caused by the increase in
investment banking activity and, to a lesser extent, increased
costs associated with our acquisition of MMA/ Rushmore in April
2001, offset by a decrease in recruiting expenses.

Clearing and brokerage fees decreased 24% from
$5.1 million in 2001 to $3.9 million in 2002. As a
percentage of institutional brokerage revenue, clearing and
brokerage fees decreased from 15% in 2001 to 8% in 2002. This
percentage decrease is attributable to new clearing and
execution arrangements finalized in 2002.

Occupancy and equipment expense decreased 41%
from $11.1 million in 2001 to $6.6 million in 2002,
primarily due to a decrease in depreciation and amortization
expense. Depreciation and amortization expense decreased $4.7 in
2002 compared to 2001. The decline in depreciation and
amortization expense is primarily a result of the
$2.7 million accelerated write-off of capitalized fbr.com
software costs due to the Company determining such capitalized
costs were impaired and written-off during the third quarter of
2001.

Communications expense increased 50% from
$4.2 million in 2001 to $6.3 million in 2002, primarily due
to the opening of new offices and increased levels of business.

Other operating expenses increased 11% from
$7.2 million in 2001 to $8.0 million in 2002, primarily due
to the opening of new offices as well as our acquisition of MMA/
Rushmore in April 2001. During 2002, the Company recorded
$1.0 million in amortization expense associated with the
MMA acquired management contracts compared to $0.7 million
in 2001.

The income tax provision increased from zero in
2001 to $2.3 million in 2002. As of December 31, 2001,
the Company had a net operating loss (NOL) carryforward to
offset future taxable income. As of that date the Company had
provided a full valuation allowance against its NOL and other
deferred tax assets based upon its ongoing assessment of
realizability. Based on the Companys year-to-date
operating results, its earnings are in excess of the NOL
carryforward, and based upon current evidence and estimates, it
will have earnings in excess of its other deferred tax asset
items. Consequently, all of the deferred tax asset valuation
allowance will be reversed ratably throughout the year and
recorded in the income tax provision during the year ended
December 31, 2002. Accordingly, in the third quarter based
on the current evidence and estimated earnings for the year, the
Company began providing for income taxes and recorded an income
tax provision of $2.3 million (net of the reversal of
deferred tax asset valuation allowance) relating to the net
income before extraordinary gain.

Additionally, in the third quarter the company
recorded an income tax provision of $0.5 million related to
the extraordinary gain recorded in the first quarter which was a
change in estimate based upon current and estimated earnings for
the year ended December 31, 2002.

19



---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES

Historically, we have satisfied our liquidity and
regulatory capital needs through three primary sources:
(1) internally generated funds; (2) equity capital
contributions; and (3) credit provided by banks, clearing
brokers, and affiliates of our principal clearing broker. We
have used, and may continue to use temporary subordinated loans
in connection with regulatory capital requirements to support
our underwriting activities. At September 30, 2002, we had
$70.1 million of short-term loans payable, of which
$17.0 million represented repurchase agreements,
$40.0 million was in the form of a subordinated loan,
$8.1 million was on margin and $5.0 million was a
drawdown on a line-of-credit. We have no long-term debt other
than acquisition related debt of $6.1 million.

Our principal assets consist of cash and cash
equivalents, receivables, securities held for trading purposes
and long-term investments. As of September 30, 2002, liquid
assets consisted primarily of cash and cash equivalents of
$92.1 million and a receivable for cash on deposit with
FBRCs clearing broker of $161.3 million, for a total
of $253.4 million. Cash equivalents consist primarily of
money market funds invested in debt obligations of the U.S.
government. We also held $5.2 million in liquid marketable
securities.

As of September 30, 2002, we had
$40.0 million outstanding under a $40.0 million
subordinated revolving loan from an affiliate of FBRCs
clearing broker that is allowable for net capital purposes and
expires August 2004. Subsequent to September 30, 2002, we
repaid the outstanding $40.0 million loan. During the
second quarter of 2002, we finalized a $20.0 million
working capital line of credit with a commercial bank. The line
of credit is secured by employee receivables and is subject to
liquidity tests. As of September 30, 2002, our borrowing
capacity under this line was $17.9 million, of which
$5.0 million was drawn down, at interest terms of LIBOR
plus 1.95 percent. The line of credit expires June 7,
2003.

Long-term investments primarily consist of our
investment in FBR-Asset, investments in managed partnerships,
including hedge, private equity and venture capital funds in
which we serve as managing partner, our investment in Capital
Crossover Partners (a partnership we do not manage),
available-for-sale securities and our investment in a long-term,
mezzanine, debt instrument of a privately held company. Although
our investments in hedge and venture capital funds and other
limited partnerships are mostly illiquid, the underlying
investments of such entities are, in the aggregate, mostly
publicly-traded, liquid equity and debt securities, some of
which may be restricted due to contractual lock-up
requirements. During the first nine months of 2002, we
redeployed approximately $10 million of capital from hedge
fund investments to FBR-Asset and Capital Crossover Partners.

We are a financial holding company (an
FHC) under the Gramm-Leach-Bliley Act of 1999, or
GLB Act, and are therefore subject to supervision, regulation
and examination by federal banking regulatory agencies.
FHCs are required to maintain capital levels in accordance
with regulatory requirements. The minimum ratio of total capital
to risk weighted assets is 8.0 percent and the minimum
ratio of tier one capital to risk weighted assets is
4.0 percent. As of September 30, 2002, we had total
and tier one capital ratios of 57.8 percent and
51.7 percent, respectively.

FBRC and FBRIS, as broker-dealers, are registered
with the Securities and Exchange Commission (SEC)
and are members of the National Association of Securities
Dealers, Inc. Additionally, FBRIL is registered with the
Financial Services Authority (FSA) of the United
Kingdom. As such, they are subject to the minimum net capital
requirements promulgated by the SEC and FSA. As of
September 30, 2002, all of our broker/dealers were required
to maintain minimum regulatory net capital of $3.9 million
and had total regulatory net capital of $81.9 million,
which was $78.0 million in excess of their requirement.
Regulatory net capital requirements increase when the
broker/dealers are involved in underwriting activities based
upon a percentage of the amount being underwritten.

On April 1, 2001, we completed the
acquisition of Money Management Associates, LP (MMA)
and Rushmore Trust and Savings, FSB (Rushmore). MMA
was a privately held investment adviser with $933.4 million
in assets under management as of March 31, 2001. Together,
MMA and Rushmore were the investment adviser, servicing agent or
administrator for more than 20 mutual funds. Upon closing,
Rushmore was re-chartered as a national bank and was named FBR
National Bank & Trust (FBR National Bank).

Quantitative measures established by regulation
to ensure capital adequacy require FBR National Bank to maintain
minimum capital levels and ratios of tangible and core capital
(defined in the regulations) to total adjusted assets (as
defined), and of total capital (as defined) to risk-weighted
assets (as defined).

20



---



##### Table of Contents



LIQUIDITY AND CAPITAL
RESOURCES  continued


Management believes, as of September 30,
2002, FBR National Bank meets all capital adequacy requirements
to which it is subject.

As of September 30, 2002, the most recent
notification from the Office of the Comptroller of Currency
(OCC) categorized FBR National Bank as
well-capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized,
FBR National Bank must maintain minimum tangible core and
risk-based ratios. There are no conditions or events since that
notification that management believes have changed FBR National
Banks well-capitalized status.

We believe that our current level of equity
capital, including funds generated from operations, are adequate
to meet our liquidity and regulatory capital requirements and
other activities. We may, however, seek debt or equity
financing, in public or private transactions, or otherwise
re-deploy assets, to provide capital for corporate purposes
and/or to fund strategic business opportunities, including
possible acquisitions, joint ventures, alliances or other
business arrangements which could require substantial capital
outlays. Our policy is to evaluate strategic business
opportunities, including acquisitions and divestitures, as they
arise.

As of September 30, 2002, we had
$11.9 million of uncalled commitments to various investment
partnerships that may be called over the next ten years.

We constantly review our capital needs and
sources, the cost of capital and return on equity, and we seek
strategies to provide favorable returns on capital. In
evaluating our anticipated capital needs and current cash
resources during 1998, our Board of Directors authorized a share
repurchase program of up to 2,500,000 shares of our
companys Class A Common Stock. Since the announcement
of this share repurchase program, we have repurchased 1,468,027
shares as of September 30, 2002, leaving 1,031,973
additional shares authorized for repurchase. Of the total shares
repurchased, 850,217 have been reissued to employees pursuant to
our Employee Stock Purchase Plan.

21



---



##### Table of Contents






Item 3. Changes In Information About
Market Risk

None.




Item 4. Controls and
Procedures

Within the 90 days prior to the filing date
of this report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Companys principal executive
officers, Emanuel J. Friedman and Eric F. Billings,
and principal financial officer, Kurt R. Harrington, of the
effectiveness of the design and operation of the Companys
disclosure controls and procedures pursuant to Rule 13a-14
under the Securities Exchange Act of 1934. Based upon that
evaluation, Emanuel J. Friedman, Eric F. Billings and
Kurt R. Harrington concluded that the Companys
disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company
(including its consolidated subsidiaries) required to be
included in the Companys periodic SEC filings.

Since the date of the evaluation, there have been
no significant changes in the Companys internal controls
or in other factors that could significantly affect these
controls.




Forward-Looking Statements

This Form 10-Q includes forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Some of the
forward-looking statements can be identified by the use of
forward-looking words such as believes,
expects, may, will,
should, seeks,
approximately, intends,
plans, estimates or
anticipates or the negative of those words or other
comparable terminology. Such statements include, but are not
limited to, those relating to the effects of growth, our
principal investment activities, levels of assets under
management and our current equity capital levels.
Forward-looking statements involve risks and uncertainties. You
should be aware that a number of important factors could cause
our actual results to differ materially from those in the
forward-looking statements. These factors include, but are not
limited to, competition among venture capital firms and the high
degree of risk associated with venture capital investments, the
effect of demand for public offerings, mutual fund and 401(k)
and pension plan inflows or outflows, volatility of the
securities markets, available technologies, government
regulation, economic conditions and competition for business and
personnel in the business areas in which we focus, fluctuating
quarterly operating results, the availability of capital to us
and risks related to online commerce. We will not necessarily
update the information presented or incorporated by reference in
this Form 10-Q if any of these forward-looking statements
turn out to be inaccurate. For a more detailed discussion of the
risks affecting our business see our Form 10-K for 2001 and
especially the section Business  Factors
Affecting Our Business, Operating Results and Financial
Condition.




PART II  OTHER
INFORMATION






Item 6. Reports on
Form 8-K




| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | October 30, 2002: Third Quarter 2002:
    Earnings Press Release, Long-Term Investment Matrix and
    conference call script
|
| |  | October 7, 2002: Interview of Robert S.
    Smith by Dow Jones & Company                                                    
|
| |  | September 13, 2002: Release announcing
    presentation at the Wall Street Forum                                            
|
| |  | September 5, 2002: Release announcing
    American Financial Realty Trust institutional placement                           

22



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##### Table of Contents






SIGNATURES

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.



| |                                           
| | ------------------------------------------
| | Friedman, Billings, Ramsey Group,
    Inc.



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

| |                                                      
| | -----------------------------------------------------
| |                                                      
| | Kurt R. Harrington                                   
| | Senior Vice President and Chief Financial
    Officer
| | (Principal Financial and Accounting
    Officer)     

Date: November 14, 2002

23



---



##### Table of Contents



CERTIFICATION

I, Emanuel J. Friedman, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Friedman, Billings, Ramsey Group, Inc.;                                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our conclusion
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                 



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date:
November 14, 2002

| |                                        
| | ---------------------------------------
| | /s/ EMANUEL J. FRIEDMAN                
| |                                        
| | Emanuel J. Friedman                    
| | Chairman and Co-Chief Executive Officer

24



---



##### Table of Contents






CERTIFICATION

I, Eric F. Billings, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Friedman, Billings, Ramsey Group, Inc.;                                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our conclusion
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                 



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date:
November 14, 2002

| |                                             
| | --------------------------------------------
| | /s/ ERIC F. BILLINGS                        
| |                                             
| | Eric F. Billings                            
| | Vice Chairman and Co-Chief Executive Officer

25



---



##### Table of Contents






CERTIFICATION

I, Kurt R. Harrington, certify that:



| |    |                                                                                                                                                                                                                                                                                                                                                   
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | I have reviewed this quarterly report on
    Form 10-Q of Friedman, Billings, Ramsey Group, Inc.;                                                                                                                                                                                                                                                 
|
| | 2. | Based on my knowledge, this quarterly report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    quarterly report;
|
| | 3. | Based on my knowledge, the financial statements,
    and other financial information included in this quarterly
    report, fairly present in all material respects the financial
    condition, results of operations and cash flows of the
    registrant as of, and for, the periods presented in this
    quarterly report;                   
|
| | 4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                             



| |    |                                                                                                                                                                                                                                                                                                                
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this quarterly report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this
    quarterly report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this quarterly report our conclusion
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                 



| |    |                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5. | The registrants other certifying officers
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



| |    |                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6. | The registrants other certifying officers
    and I have indicated in this quarterly report whether or not
    there were significant changes in internal controls or other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date:
November 14, 2002

| |                        
| | -----------------------
| | /s/ KURT R. HARRINGTON 
| |                        
| | Kurt R. Harrington     
| | Chief Financial Officer

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