|X|       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES EXCHANGE ACT OF 1934

          For the quarterly period ended March 31, 1998

                                       OR

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

     For the transition period from ________ to ___________

     Commission file number: 001-13731


                     Friedman, Billings, Ramsey Group, Inc.
             (Exact name of Registrant as specified in its charter)

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

     1001 Nineteenth Street North
     Arlington, VA                            
     (Address of principal                     22209
      executive offices)                      (Zip code)

                                                            
    (Registrant's telephone number including area code)  (703) 312-9500

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

Indicate 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                13,451,421 as of April 28, 1998
Class B Common Stock                36,577,579 as of April 28, 1998




<PAGE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

                                    FORM 10-Q

                      FOR THE QUARTER ENDED MARCH 31, 1998

                                      INDEX

                                                                     Page Number
Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements - (unaudited)

         Consolidated Balance Sheets-
           December 31, 1997 and March 31, 1998                             3

         Consolidated Statements of Operations-
           Three Months Ended March 31, 1998 and 1997                       5

         Consolidated Statement of Cash Flows-
           Three Months Ended March 31, 1998 and 1997                       6

         Notes to Consolidated Financial Statements                         7

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                               15

Part II.  OTHER INFORMATION                                                24

Item 1.  Legal Proceedings                                                 24

Item 6. Exhibits and Reports on 8-K                                        25

Signatures                                                                 25

Exhibit Index                                                              25

Exhibits                                                                   25


<PAGE>

<TABLE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)

<CAPTION>

                                                                                     (Audited)       (Unaudited)
                                                                                    December 31,      March 31,
                                                                                         1997             1998
                                                                                       -------          -------
<S>                                                                                  <C>              <C>   
Assets
    Cash and cash equivalents................................................        $ 205,709        $ 139,149
    Short-term investments, at market value..................................            1,982            9,888
    Receivables:
     Investment banking......................................................            7,232            7,936
     Asset management fees...................................................            4,426            5,464
     Other...................................................................            2,465            2,170
    Due from clearing broker.................................................           15,650          196,391
    Marketable trading securities, at market value...........................           78,784           86,655
    Deferred tax asset.......................................................            2,402               --
    Long-term investments, at fair value.....................................           36,352           49,770
    Furniture, equipment and leasehold improvements, net of accumulated
       depreciation and amortization of $2,198, and $2,366, respectively.....            3,471            3,537
    Prepaid expenses and other assets........................................              854            3,406
                                                                                     ---------        ---------     
             Total assets....................................................        $ 359,327        $ 504,366
                                                                                     =========        =========


















               The  accompanying  notes  are an  integral  part of
                     these consolidated statements.
</TABLE>

<PAGE>

<TABLE>

                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS
                             (Amounts in thousands)

<CAPTION>
                                                                                          (Audited)      (Unaudited)
                                                                                         December 31,      March 31,
                                                                                            1997             1998
                                                                                           -------          -------
<S>                                                                                       <C>             <C>    

Liabilities and Shareholders' Equity

Liabilities:
     Trading account securities sold but not yet purchased, at market value......         $  16,673       $  73,716
     Due to issuer- underwriting.................................................                --         129,560
     Accounts payable and accrued expenses.......................................            30,423          25,181
     Accrued compensation and benefits...........................................            19,023          22,708
     Dividends payable...........................................................            24,000              --
     Deferred income taxes.......................................................                --           7,677
     Short-term subordinated revolving loan......................................            40,000              --
     Long-term secured loans.....................................................             2,416           2,294
     Other.......................................................................               146           1,005
                                                                                          ---------       ---------
                                                                                                

        Total liabilities........................................................           132,681         262,141
                                                                                          ---------       ---------
Commitments and contingencies (Note 9.)..........................................                --              --

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, 13,451,421 issued and outstanding.........................               135             135
     Class B Common Stock $.01 par value, 100,000,000 shares authorized,
           36,577,579 shares issued and outstanding..............................               366             366
     Additional paid-in capital..................................................           208,843         208,843
     Retained earnings...........................................................            17,302          32,881
                                                                                          ---------       ---------
                                                                                            
          Total shareholders' equity.............................................           226,646         242,225
                                                                                          ---------       ---------
          Total liabilities and shareholders' equity.............................         $ 359,327       $ 504,366
                                                                                          =========       =========









                The  accompanying  notes  are an  integral  part of
                         these consolidated statements.
</TABLE>


<PAGE>

<TABLE>

                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share data)
                                   (Unaudited)
<CAPTION>

                                                                         For the Three Months
                                                                           Ending March 31,

                                                                         1997            1998
                                                                        ------          ------
<S>                                                                   <C>             <C>   
Revenues:
   Investment banking-
     Underwriting................................................     $ 13,179        $ 47,710
     Corporate finance...........................................        8,783           3,661
   Institutional brokerage-
     Principal sales credits.....................................        6,913           9,034
     Agency commissions..........................................        2,803           3,708
   Gains and losses, net-
     Trading.....................................................       (4,353)         (5,921)
     Investment..................................................          130           3,004
                                                                           
   Asset management .............................................          813           3,169
                                                                           
   Interest and dividends........................................          776           3,619
                                                                      --------        --------
                                                                           
          Total revenues.........................................       29,044          67,984

Expenses:
     Compensation and benefits...................................       19,695          28,343
     Business development and sales support......................        2,100           4,274
     Professional services.......................................        1,285           2,532
     Clearing and brokerage fees.................................        1,017           1,343
     Occupancy and equipment.....................................          508             764
     Communications..............................................          436             826
     Interest expense............................................          724           1,659
     Other operating expenses....................................        1,017           2,507
                                                                      --------        --------
          Total expenses.........................................       26,782          42,248
                                                                      --------        --------

     Net income before taxes.....................................        2,262          25,736
     Income tax provision........................................           --          10,157
                                                                      --------        --------
     Net income..................................................      $ 2,262        $ 15,579
                                                                      ========        ========
     Basic and diluted net income per share......................      $  0.06        $   0.31
                                                                      ========        ========
     Weighted average shares outstanding.........................       40,029          50,029
                                                                      ========        ========

Pro forma statements of operations data (Note 2):
     Net income before tax.......................................      $ 2,262
     Pro forma income tax provision..............................         (905)
                                                                      --------
     Pro forma net income........................................      $ 1,357
                                                                      ========
     Pro forma basic and diluted net income per share............      $  0.03
                                                                      ========
     Weighted average shares outstanding.........................       40,029
                                                                      ========



             The  accompanying  notes  are an  integral  part of
                        these consolidated statements.
</TABLE>


<PAGE>
<TABLE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                             (Amounts in thousands)
                                   (Unaudited)
<CAPTION>

                                                                               For the Three Months
                                                                                 Ending March 31,

                                                                                 1997         1998
  <S>                                                                         <C>           <C> 

  Cash flows from operating activities:
    Net income .............................................................  $  2,262      $ 15,579
    Adjustments to reconcile net income to net cash provided by (used in)
  operating         activities--
      Income and special allocations on investments in limited partnerships.      (420)       (4,551)
      Depreciation and amortization.........................................       148           168
      Changes in operating assets:
        Receivables--
          Due to/from clearing broker.......................................     9,700      (180,741)
          Investment banking................................................       174          (704)
          Asset management fees.............................................      (194)       (1,038)
          Other.............................................................      (174)          295
        Insurance deposit...................................................       (18)          --
        Marketable trading account securities...............................    (4,289)       (7,871)
        Prepaid expenses and other assets...................................       810        (2,552)
        Deferred tax asset..................................................        --         2,402
      Changes in operating liabilities:
        Due to issuer- underwriting.........................................        --       129,560
        Due to clearing organization........................................    33,179           --
        Trading account securities sold but not yet purchased...............   (30,987)       57,043
        Repayments on short-term subordinated loans.........................        --       (40,000)
        Repayments on short-term revolving loan and line of credit..........   (16,000)          --
        Accounts payable and accrued expenses...............................    (5,886)       (5,242)
        Deferred taxes......................................................        --         7,677
        Accrued compensation and benefits...................................     6,973         3,684
        Other...............................................................        (7)          859
                                                                              --------      --------
          Net cash used in operating activities.............................    (4,729)      (25,432)
                                                                              --------      --------
  Cash flows from investment activities:
    Purchases of fixed assets...............................................      (431)         (234)
                                                                                            
    Long term investments...................................................      (531)       (8,866)
    Sale (purchase) of short-term investments...............................       (77)       (7,906)
                                                                              --------       -------
                                                                                
          Net cash used in investing activities.............................    (1,039)      (17,006)
                                                                              --------       -------
  Cash flows from financing activities:
    Repayments of long-term secured loans...................................       (81)         (122)
    Distributions...........................................................    (3,000)           --
    Capital contributions...................................................        44            --
    Dividend payments.......................................................        --       (24,000)
                                                                              --------       -------
          Net cash used in financing activities.............................    (3,037)      (24,122)
                                                                              --------       -------
  Net decrease in cash and cash equivalents.................................    (8,805)      (66,560)
  Cash and cash equivalents, beginning of period............................    20,681       205,709
                                                                              --------      --------
  Cash and cash equivalents, end of period.................................   $ 11,876      $139,149
                                                                              ========      ========


                 The  accompanying  notes  are an  integral  part of
                             these consolidated statements.

</TABLE>

<PAGE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Organization and Nature of Operations:

   Organization

     Friedman,  Billings,  Ramsey  Group,  Inc.,  a  Virginia  corporation  (the
"Company"),  is the sole parent  holding  company for three  subsidiary  holding
companies, Friedman, Billings, Ramsey Capital Markets, Inc. ("FBRCM"), Friedman,
Billings,  Ramsey Asset Management,  Inc. ("FBRAM") and FBR Holdings, Inc. FBRCM
is the parent company of Friedman,  Billings,  Ramsey & Co., Inc. ("FBRC"),  FBR
Investment  Services,  Inc. (formerly FBR Direct,  Inc.,  "FBRIS") and Friedman,
Billings,  Ramsey  International,  Limited ("FBR  International").  FBRAM is the
parent  company of Friedman,  Billings,  Ramsey  Investment  Management  Company
("FBRIM"),  FBR Offshore  Management,  Inc.  ("FBR  Offshore"),  FBR  Investment
Management  (Bermuda) Ltd. ("FBR Bermuda"),  FBR Fund Advisers,  Inc. ("FBR Fund
Advisers"),  and FBR Venture  Capital  Managers,  Inc. FBR Holdings,  Inc. is an
investment  holding company formed to make and hold long-term  investments.  The
operating subsidiaries of FBRCM and FBRAM are hereafter collectively referred to
as the "Operating Entities".

     FBRC is a member of the National  Association of Securities  Dealers,  Inc.
FBRC  acts  as  an  introducing  broker  executing  transactions  primarily  for
institutional  customers and forwards all such  transactions to clearing brokers
on a fully disclosed basis.  FBRC does  not hold funds or securities for, or owe
funds or securities to, customers.

     FBRC receives  underwriting  revenues from underwriting public offerings of
debt and equity securities.  These revenues are comprised of selling concessions
and management and underwriting  fees. FBRC also receives corporate finance fees
from private  placement  offerings and from  providing  merger and  acquisition,
financial  restructuring,  and other advisory  services.  FBRC  concentrates its
underwriting  and corporate  finance  activities  primarily on bank,  thrift and
specialty finance institutions,  technology companies and real estate investment
trusts ("REITS").

     FBRIM is a registered  investment  adviser that acts as the general partner
of investment  limited  partnerships and also manages investment  accounts.  FBR
Investments LLC ("FBR Investments") and FBR Arbitrage, LLC ("FBR Arbitrage") are
investment  holding  companies  in which  FBRIM  is the  principal  member.  FBR
Investments  and  FBR  Arbitrage  are  fully  consolidated  in  these  financial
statements.

     FBR Offshore extends asset management services to non-U.S.  investors.  FBR
Offshore is a registered investment adviser. FBR Offshore acts as the investment
adviser to the FBR  Opportunity  Fund,  Ltd. (the  "Offshore  Fund"),  a Bermuda
company formed to provide a pooled  investment  vehicle for non-U.S.  investors.
The Offshore Fund invests primarily in securities of U.S.  issuers.  FBR Bermuda
manages the Offshore Fund.

   FBR Fund  Advisers  is a  registered  investment  adviser  formed to  provide
investment advisory services to The FBR Family of Funds, an open end, investment
company, currently consisting of three series of mutual funds.


<PAGE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Organization (Continued)

     Reincorporation Merger

   In  December  1997,  Friedman,  Billings,  Ramsey  Group,  Inc.,  a  Delaware
corporation (the "Old Holding  Company") and its  subsidiaries  terminated their
status as subchapter S  corporations  and converted to subchapter C corporations
as defined  under the  Internal  Revenue Code (the  "Conversion").  Prior to the
Conversion,  the Old Holding Company declared a distribution to its shareholders
of $54 million representing  previously  undistributed  subchapter S corporation
earnings. As of December 31, 1997 $30 million of the distribution had been paid.
The Old Holding  Company was then  merged  with and into the  Company,  with the
Company as the surviving corporation. As a result of the merger, shareholders of
the Company  received 330 shares of Class B Common Stock of the Company for each
share in the Old Holding Company.

     The  effects of the  reincorporation  merger  have been  given  retroactive
application in the consolidated financial statements for all periods presented.

     Initial Public Offering

     Subsequent to the reincorporation merger, the Company issued 10,000,000 new
Class A common shares and certain  selling  shareholders  sold 1,000,000 Class A
common shares in an initial public offering (the  "Offering").  The net proceeds
to the Company from the Offering approximated $185,000,000.  Simultaneously with
the Offering,  certain  selling  shareholders  sold 2,451,421  shares of Class B
common  stock to PNC Bank Corp.  These  shares were  automatically  converted to
Class A common shares upon the sale.

     Nature of Operations

     The  Company  is  primarily  engaged  in a  single  line of  business  as a
securities   firm,   which  comprises   several  types  of  services,   such  as
underwriting,  principal  and  agency  securities  trading  transactions,  asset
management and long-term equity investing,  primarily in the United States.  The
operations  related to the Company's  foreign entities are not material to these
consolidated financial statements.

     The securities  industry generally and specifically in volatile or illiquid
markets,  is subject to numerous risks,  including the risk of losses associated
with the  underwriting,  ownership,  and trading of securities  and the risks of
reduced  revenues  in periods  of reduced  demand  for  security  offerings  and
activity in secondary  trading  markets.  Changing or negative  economic trends,
such as  inflation  or  interest  rate  volatility,  political  trends,  such as
regulatory and  legislative  changes,  and overall or specific market trends can
influence the liquidity and value of the Company's  investments,  and impact the
level of security  offerings  underwritten  by the  Company,  all of which could
adversely affect the Company's revenues and profitability.


<PAGE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


     Many  aspects  of the  Company's  business  involve  substantial  risks  of
liability.  An underwriter is exposed to substantial 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 of underwriters by issuers.  Underwriters may be held liable for
material  misstatements  or omissions of fact in a prospectus used in connection
with the  securities  being  offered or for  statements  made by its  securities
analysts or other  personnel.  While the Company has never been  subject to such
litigation, 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 also  subject  to the risk of  litigation,  including
litigation that may be without merit. As the Company intends  actively to defend
such  litigation,  significant  legal  expenses  could be  incurred.  An adverse
resolution of any future lawsuits  against the Company could  materially  affect
the Company's operating results and financial condition.

     The  Company's   historical  revenues  have  been  derived  primarily  from
investment  banking  transactions  in the  financial  services  and real  estate
industries and the industry  consolidation  sector. As a result of the Company's
dependence on specific industries and the consolidation  sector, any downturn in
the market for  securities in these areas could  adversely  impact the Company's
results of operations and financial condition.

     A substantial  portion of the  Company's  revenues in a year may be derived
from a small number of  underwriting  transactions  or may be  concentrated in a
particular  industry.  Revenues  derived from two unrelated  investment  banking
transactions  accounted for  approximately 38 percent of the Company's  revenues
for the three months  ended March 31, 1997.  Two  unrelated  investment  banking
transactions  accounted  for 45 percent of the  Company's  revenues in the three
months ended March 31, 1998.



2. Summary of Significant Accounting Policies:

   Basis of Presentation

     The Company's  financial  statements  have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission ("SEC") with
respect to Form 10-Q and reflect all normal recurring  adjustments which are, in
the opinion of management,  necessary for a fair presentation of the results for
the  interim  periods  presented.  All  significant  intercompany  accounts  and
transactions have been eliminated in consolidation.

     Certain  prior year amounts have been  reclassified  to conform to the 1998
presentation.

   Revenues

     Underwriting  fees are recorded as revenue at the time the  underwriting is
completed  (generally  trade  date) and the income is  reasonably  determinable.
Corporate  finance and  advisory  fees are  recorded as revenue when the related
services have been rendered and the client is contractually obligated to pay.

     Commission income and expenses are recorded on a trade date basis.

     Securities transactions of the Company are  recorded on a trade date basis.
Trading  account  securities  are valued at fair  market  value.  The  resulting
difference  between  cost and fair  market  value is  included  in  income.  Net
unrealized  gains (losses)  included in gains and losses,  trading revenues were
$2.8  million  and $3.4  million for the three  months  ended March 31, 1998 and
1997, respectively.



<PAGE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


    Net Income Per Share

     In March 1997,  the Financial  Accounting  Standards  Board issued SFAS No.
128,  "Earnings per Share." SFAS No. 128 is effective  for financial  statements
issued after December 15, 1997. SFAS No. 128 requires dual presentation of basic
and diluted income per share. Basic income per share includes no dilution and is
computed by dividing net income or loss available to common  stockholders by the
weighted-average  number of  common shares  outstanding for the period.  Diluted
income per share includes the impact of potentially dilutive options,  warrants,
or convertible  debt and convertible  preferred  equity  securities.  Options to
purchase  4,384,400  shares of common stock at $20 per share were outstanding as
of December  31, 1997 and March 31, 1998,  but were not included in  calculating
diluted  net income  per share as their  effect  would have been  anti-dilutive.
There is no  difference  between the amounts of basic and diluted net income per
share.

     In February 1998, the SEC issued Staff Accounting  Bulletin ("SAB") No. 98,
concerning  the  computation  of  earnings  per  share.  SAB 98 amends  previous
guidance  concerning  the impact of equity  interests  issued in proximity to an
initial  public  offering  on  the   computation  of  weighted   average  shares
outstanding.  SAB 98 also amends the requirements to present historical earnings
per share  information when a company converts from a non-taxable,  to a taxable
entity.  SAB 98 has been  applied  in the  accompanying  consolidated  financial
statements.

   Cash Equivalents

         As of December 31, 1997 the Company had  approximately  $80 million and
$21 million in separate  money market  mutual funds.  As of March 31, 1998,  the
Company had  approximately  $41 million and $35 million in separate money market
mutual funds. These funds primarily invest in US government obligations.

         On December  31,  1997 and March 31,  1998,  the  Company had  invested
approximately $63 million and $62 million, respectively, in overnight repurchase
agreements. The underlying collateral consists of U.S. government securities and
U.S. government agency securities. Generally, the maturity date of the Company's
repurchase  agreements is the next business day. Due to the short-term nature of
the agreements,  the Company does not take  possession of the securities,  which
are instead held at the Company's  bank from which it purchases the  securities.
The carrying  value of the  agreements  approximates  fair value  because of the
short maturity of the investments.  As a result, the Company believes that it is
not exposed to any significant risk under its overnight repurchase agreements.

     The Company  regularly  evaluates the credit quality of the  institution in
which its cash and cash equivalents are held.

    Short-Term Investments

     Short-term  investments consist primarily of U.S. Treasury  obligations and
FHLMC  guaranteed  mortgage  securities  with  original  maturities of up to six
months.

    Use of Estimates

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

<PAGE>
                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

    Compensation

      A  significant component  of  compensation  expense  relates to  incentive
bonuses. Incentive bonuses are accrued based on the contribution of key business
units using certain predefined formulas. Since the bonus determinations are also
based on aftermarket security performance and other factors,  amounts originally
accrued may not ultimately be paid. All of the Company's  compensation plans are
reviewed  and  evaluated  on a quarterly  basis.  Pursuant to this  policy,  the
Company  reduced $6.7 million of  previously  accrued  bonuses  during the three
month period ending March 31, 1998.

3.   Income Taxes:

     Through  December  20,  1997,  the  Company  and  all of  its  subsidiaries
including the Operating Entities,  with the exception of FBR Investments and FBR
Arbitrage,  which are limited liability  corporations  ("LLC"s),  FBR Bermuda (a
Bermuda Company) and FBR  International (a UK company),  had elected to be taxed
as  subchapter S  corporations  under the Internal  Revenue  Code.  Subchapter S
corporations and LLCs are not taxed on their income; rather their income or loss
pass directly through to their shareholders (or members in the case of LLCs). As
a result,  there is no provision for income taxes in these financial  statements
for the periods prior to December 20, 1997.

     The accompanying  consolidated  statements of operations  include pro forma
adjustments  for income tax  expense,  which  would have been  recorded  had the
Company  been  subject to federal  and state  corporate  income  taxes,  for all
periods presented.


4. Marketable Trading Securities Owned and Sold But Not Yet Purchased:

      Marketable  trading  securities owned and trading account  securities sold
but not yet  purchased as of December  31, 1997 and March 31,  1998,  consist of
securities at quoted market values, as stated below:

                                    (Amounts in Thousands)
                           December 31,                  March 31,
                              1997                        1998
                             ------                      ------
                                  Sold But Not              Sold But Not
                        Owned     Yet Purchased     Owned   Yet Purchased
   Corporate equities.. $ 60,298   $ 10,726       $ 68,248    $ 64,376
   Corporate bonds.....   18,485      5,947         18,407       9,340
                         -------    -------       --------    --------
                        $ 78,784   $ 16,673       $ 86,655    $ 73,716
                       =========   ========       ========    ========

            Trading  account  securities  sold but not yet  purchased  represent
obligations  of the Company to deliver the specified  security at the contracted
price,  and thereby,  creates a liability to purchase the security in the market
at   prevailing   prices.    Accordingly,    these   transactions    result   in
off-balance-sheet  risk as the Company's ultimate obligation to satisfy the sale
of securities sold but not yet purchased may exceed the amount recognized in the
consolidated balance sheets.


<PAGE>


                  FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5.   Long-Term Investments:

     Long term investments primarily include non-readily  marketable investments
in limited  investment  partnerships  and other  equity  investments,  including
privately held companies.  Long-term  investments also include illiquid warrants
for stock of corporations to which the Company has provided  investment  banking
services,  carried at nominal values. Long term investments are reported at fair
value.

   Investment Partnerships

     FBRIM is the managing partner of several investment  limited  partnerships.
All  of  these  partnerships  were  formed  for  the  purpose  of  investing  in
securities.  The  assets of these  partnerships  are  principally  comprised  of
investments in publicly traded  securities  marked to market value.  The Company
carries its  investment  in the  partnerships  at an amount  equal to the market
value of the underlying securities in the partnerships,  which approximates fair
value.

   Other Long Term Investments

     The principal private company investment  consists of FBR Holdings,  Inc.'s
$25  million  investment  in  FBR  Asset  Investment  Corporation  ("FBR-REIT").
FBR-REIT  is a  privately  held real  estate  investment  trust  formed in 1997.
FBR-REIT's  primary assets as of March 31, 1998 were cash and marketable  equity
securities.  The Company  carries  its  investment  in  FBR-REIT at cost,  which
approximates fair value.

6.   Asset Management Revenue:

     Certain of the  Company's  subsidiaries  as  investment  advisers,  receive
management  fees for the  management  of the  business  and  affairs  of limited
partnerships  or  investment  companies,  based upon the amount of assets  under
management,  as well as incentive performance fees or special allocations of net
income based upon the operating  results.  As investment adviser to the Offshore
Fund,  the Company may elect on an annual  basis,  to defer receipt of its fees,
for up to  ten-years  during which the deferred  fees are an  obligation  of the
Offshore Fund and indexed to the Offshore Fund's performance.

     Incentive  performance  fees and special  allocations  are calculated on at
least an annual period,  which generally coincides with the calendar year. As of
December 31, 1997, and March 31, 1997 and 1998,  unrecorded special  allocations
were $1.5 million, $0.3 million, and $4.4 million, respectively. As the ultimate
amount of such fees and allocations may vary with future performance, these fees
and  allocations  are not recorded as revenue until such time as they become due
and payable.

7.   Borrowings:

    Subordinated Revolving Loans

     As of  December  31,  1997,  the  Company  had  three  unsecured  revolving
subordinated  loan  agreements  with its clearing broker and an affiliate of its
clearing broker. Available credit lines under these agreements were $15 million,
$15  million  and $10  million.  As of  December  31,  1997,  $40.0  million was
outstanding  with an interest rate equal to the broker call rate plus 2 percent,
or 8.5 percent.  Subsequent to December 31, 1997, the entire balance was repaid.
Borrowing  capacity  under the credit  lines  expire as follows:  $15 million in
January 1998,  $15 million in July 1998,  and $10 million in October  1998.  The
Company did not renew the line that expired in January 1998.

<PAGE>


                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Long Term Loans

     The Company has four long-term loans requiring fixed monthly  principal and
interest payments  totaling $56,058.  Each loan bears interest at an annual rate
equal to the  one-month  commercial  paper  rate,  as  published  by the Federal
Reserve  Board,  which equaled 7.97 percent at December 31, 1997.  The loans are
collateralized by certain furniture,  equipment,  and leasehold  improvements of
the Company. The loans are scheduled to be entirely repaid in June 2001, October
2001, February 2002, and October 2002, respectively.

8.   Net Capital Computation:

     FBRC is subject to the Net Capital Rule,  which requires the maintenance of
minimum net capital and requires that the ratio of aggregate indebtedness to net
capital, both as defined,  shall not exceed 15 to 1. At March 31, 1998, FBRC had
net capital of $90.9 million,  which was $79.4 million in excess of its required
net capital of $11.5 million. FBRC's aggregate indebtedness to net capital ratio
was 1.89 to 1 at March 31, 1998.

9.   Commitments and Contingencies:

   Leases

     The Company leases  premises under  long-term  lease  agreements  requiring
minimum annual rental payments with annual  adjustments  based upon increases in
the consumer price index,  plus the pass-through of certain  operating and other
costs above a base amount.

     Future minimum  aggregate annual rentals payable under these  noncancelable
leases and rentals for certain  equipment  leases for the years ending  December
31, 1998 through 2002 and the aggregate amount thereafter, are as follows:

            Year Ending December 31,                          (in Thousands)
    1998....................................................    $ 2,247
    1999....................................................      2,546
    2000....................................................      2,609
    2001....................................................      2,789
    2002....................................................      2,766
    Thereafter..............................................      2,921
                                                                -------
                                                                $15,878
                                                                =======
     
 10. Distributions:

     In  1997,  prior to its  initial  public  offering,  the  Company  declared
distributions to its shareholders totaling $72,570,582.  There were no dividends
declared in the three  months  ended  March 31,  1998.  However,  $24 million of
distributions  declared  in 1997  were paid in the  first  quarter  of 1998 to S
corporation shareholders.



<PAGE>

                     FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


11.   Shareholders' Equity

     At March 31, 1998, the Company has three stock-based compensation plans.

   1997 Stock and Incentive Compensation Plan

     Under the 1997 Stock  Incentive Plan the Company may grant  options,  stock
appreciation rights,  "performance" awards and restricted and unrestricted stock
(collectively,  the  "Awards")  to purchase up to 4.9 million  shares of Class A
Common Stock to  participants  in the 1997 Plan.  The 1997 Plan has a term of 10
years.  Options  granted under the 1997 Plan have an exercise period of up to 10
years.  The 1997 Plan  provides  for the  grant of stock  options  to  employees
(including  directors  and  officers)  and  consultants  of the  Company and its
subsidiaries.  As of December 31, 1997,  4,384,400 stock options were granted to
employees.  The options were granted at the initial public offering price of $20
per share and become  exercisable  as follows:  10 percent,  40 percent,  and 50
percent at the end of three, four, and five years, respectively. As of March 31,
1998 no options had been exercised, cancelled or had expired.  Options have been
forfeited upon the departure of employees.  The Company's Board of Directors has
authorized 5 million  additional  shares  available under this plan,  subject to
approval by the Company's  shareholders  at the June 18, 1998 annual  meeting of
the Company's shareholders.

  Director Stock Compensation Plan

     Under the Director  Stock  Compensation  Plan (the  "Director  Plan"),  the
Company  may grant  options  or stock (in lieu of  annual  director  fees) up to
100,000  shares of Class A  Common  Stock.  Options  granted under the  Director
Plan will vest upon the first anniversary of the grant and are exercisable up to
10 years  from the date of  grant.  All  options  and  stock  awarded  under the
Director Plan are nontransferable  other than by will or the laws of descent and
distribution.  There were no awards made under this plan during the three months
ended March 31, 1998.

   Employee Stock Purchase Plan

     Under  the 1997  Employee  Stock  Purchase  Plan (the  "Purchase  Plan") an
undetermined  number of  shares of Class A Common  Stock  will be  reserved  for
future issuance of stock.  The Purchase Plan will permit  eligible  employees to
purchase common stock through payroll  deductions at a price equal to 85 percent
of the lower of fair  market  value of the common  stock on the first day of the
offering period or the last day of the offering period. The plan will not result
in compensation  expense in future  periods.  As of March 31, 1998, no stock had
been purchased under the Purchase Plan.


<PAGE>



Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operation

         The  following  discussion  should  be read  in  conjunction  with  the
unaudited  Consolidated  Financial Statements as of March 31, 1998 and 1997, and
the  Notes  thereto  included   elsewhere  herein.  In  addition  to  historical
information,  the following  Management's  Discussion  and Analysis of Financial
Condition and Results of Operations  contains  forward-looking  statements  that
involve risks and uncertainties.  Such statements  include,  but are not limited
to, those relating to the effects of growth, the company's principal  investment
activities and its current equity capital  levels.  The risks and  uncertainties
relate to, among other factors: general economic and market conditions,  changes
in interest  rates,  loan  delinquency  rates,  stock market  volume and prices,
mutual  fund and 401(k) and pension  plan  inflows or  outflows,  changes in the
REIT, technology and financial services industries and other industries in which
the company is active,  changes in demand for investment  banking and securities
brokerage services,  competitive  conditions within the securities industry, the
company's ability to recruit and retain key employees, changes in the securities
and banking laws and regulations,  trading and principal investment  activities,
and  litigation.  For a more detailed  explanation  of these and other risks and
uncertainties,  refer to "Factors  Affecting the Company's  Business,  Operating
Results  and  Financial   Condition"  in  the  Company's  Form  10-K  for  1997,
incorporated herein by reference.  As a result of these risks and uncertainties,
there can be no assurance that  operating  results for any future period will be
comparable to those attained in the prior periods.

Overview

     Friedman,  Billings,  Ramsey  Group,  Inc.  ("FBR" or the  "Company")  is a
holding company for Friedman,  Billings,  Ramsey Capital Markets, Inc. ("Capital
Markets  Group"),  Friedman,  Billings,  Ramsey Asset  Management,  Inc. ("Asset
Management Group") and FBR Holdings,  Inc., an investment  holding company.  The
Capital Markets Group is a holding company, whose primary subsidiary,  Friedman,
Billings,  Ramsey & Co., Inc.  ("FBRC"),  is a U.S.  investment banking firm and
securities  broker-dealer.  The Capital Markets Group's other subsidiaries,  FBR
International,  Ltd. ("FBRIL") and FBR Investment  Services,  Inc. (formerly FBR
Direct, Inc., "FBRIS"),  are also broker-dealers in targeted markets. Both FBRIL
and FBRIS were  formed  during  1997;  FBRIL has begun and FBRIS is  expected to
begin  generating  revenue  in 1998.  The  Asset  Management  Group is a holding
company whose  subsidiaries  are engaged in investment  management  and advisory
services to managed  accounts,  hedge and  offshore  funds,  private  equity and
venture capital funds, and mutual funds. The Company's  operations are primarily
in the United  States,  and the  Company  has very  limited  exposure to foreign
market activity.

         The  Company's  business  depends  primarily  on the  markets  for  the
securities of companies in selected sectors.  These markets are affected by many
of the same risks and  uncertainties  relating to the company itself  (discussed
above) as well as by other  factors  that apply to  particular  industries.  For
example,  many of the companies in the sub-prime lending sector, a subset of the
financial services industry, have experienced higher than expected delinquencies
and  prepayments  as well as  investor  concern  over the  direction  of  market
interest rates and the valuation of residual securities.  These factors have led
to depressed  market prices for some companies' stocks in this sector during the
past several months.  This market environment has tempered demand for securities
of  companies  in  this  sector,   which  in  turn   adversely   affected  FBR's
opportunities  in this  sector.  In addition,  over this same time  period,  the
Company has held significant positions of securities of companies in this sector
in connection with its market making and underwriting activities.  Consequently,
FBR has experienced direct economic losses associated with this sector which are
included in net  trading  and  investment  gains and  losses,  in the  Company's
financial statements.


<PAGE>




OPERATING GROUPS

Asset Management Group

         Revenue from the Asset  Management  Group has increased more  than 180%
from the first quarter of 1997 to 1998.  This  revenue has been derived  from an
increasing variety of investment  products,  which the Company plans to continue
to  diversify  over the next two years.  Assets  under  management  ("AUM") have
increased  33%,  from $641 million at  year-end to $854  million as of March 31,
1998.  Asset  management  revenue  consists of "base management fees" (which are
calculated based on the market value of clients' assets under  management),  and
performance  fees  or  special  (incentive  based)   allocations.   The  Company
previously included other income allocations  (including realized and unrealized
gains and losses) on its  investments  in private  investment  vehicles in asset
management  revenue,  but has  chosen to  separately  disclose  these  gains and
losses, on a net basis, beginning in the first quarter. This reclassification of
income allocations has been applied to 1997 periods for comparison purposes.

         Base  management fees  are earned on all the  Company's  AUM,  and  are
determined  based on a percentage  of the market value of net assets,  excluding
FBR's and certain other investors'  funds. The percentages used to determine the
Company's  fee vary within each  product  category.  As of March 31,  1998,  the
weighted average base management fees of the Company  approximate 1.13% annually
on the AUM. The ranges of fees charged by product category are as follows:

         Mutual funds................................0.9%
         Managed accounts (excluding FBR-REIT).......1.2%
         Private equity and venture capital..........2.0% to 2.5%
         Hedge and offshore funds....................1.0%

         In addition to the base  management  fees, the Company earns  incentive
compensation  and receives  special  allocations  on private  equity and venture
capital  funds,  hedge and  offshore  funds,  and  FBR-REIT  (which the  Company
classifies as a managed account).  The Company generally receives 20% of the net
investment  gains (if any) on the hedge and offshore fund assets.  The incentive
fees and special allocations are calculated annually every December 31. However,
the  Company  receives  initial  incentive  fees or special  allocations  on the
one-year  anniversary of each contribution.  Assets on which the Company has the
potential to earn incentive  compensation  have increased 29%, from $470 million
at year-end to $606 million as of March 31, 1998.

         The Company's investment products are significantly concentrated in the
financial services industry.  FBR's principal hedge and offshore funds had gross
performance returns ranging from 68.3% to 50.9% (53.0% to 38.1%, net of fees and
expenses) for the twelve months  ending March 31, 1998. By  comparison,  for the
twelve  month period  ending March 31, 1998,  the bank stock index (BKX) and the
S&P 500 index had performance returns (excluding  dividends) of 48.6% and 45.0%,
respectively.

         The Company has investments in its proprietary  investment  vehicles of
approximately $49.8 million as of March 31, 1998 compared to $36.4 million as of
December 31, 1997.  FBR has recorded gains of $3 million in the first quarter of
1998 on these  investments,  which  represents a total return on  investment  of
13.0% for the quarter (52% on an annualized basis). The Company will endeavor to
grow these assets under management and continue to make minority  investments in
new investment  vehicles as appropriate during 1998. During the first quarter of
1998, the Company formed a new private equity fund that will invest primarily in
companies in the financial  services  sector.  FBR has a 5% interest in this new
fund. The Company has experienced annual growth in AUM of approximately 90% over
the past five years, and through March 31, 1998.

<PAGE>



Capital Markets Group

         The Company has  historically  experienced  a seasonal  slowdown in its
investment  banking  activities  in the first  quarter  of each  year.  Although
January 1998 was very slow for investment banking,  FBR was the lead underwriter
of the first initial  public  offering in the U.S. in 1998. In addition,  during
the first  quarter of 1998,  FBR managed  four IPO's and  managed six  secondary
offerings. During the first quarter of 1998, the Company increased the number of
personnel  in the  investment  banking  group by nine  percent.  The  additional
personnel  will enable the Company to increase its focus on a number of industry
sectors that management  believes offer favorable  opportunities for FBR to gain
market share.

         During  the  first  quarter  of 1998,  FBRIL,  the  Company's  UK based
broker-dealer,   began  generating  revenue  and  operated  on  approximately  a
break-even level for the quarter. This compares with  approximately a $1 million
net loss (before  taxes) for the 7 months ending  December 31, 1997. The Company
expects that FBRIL will continue to operate at a breakeven basis in 1998.

         Institutional  brokerage  revenues  increased  31% from $9.7 million to
$12.7 million, for the quarters ending March 31, 1997 and 1998 respectively. The
Company began to  separately  disclose  principal  sales credits and net trading
gains  and  losses  in the first quarter  of 1998  (and  reclassified  1997  for
comparison  purposes).  Previously,  these  amounts were  reported on a combined
basis as principal transaction revenues. FBRC conducts market-making  activities
in more than 400  securities.  During the first  quarters  of 1997 and 1998,  in
connection  with  these  activities,  FBRC  experienced  net  trading  losses on
positions held in securities  inventories  primarily of securities for which FBR
had acted as underwriter.  FBR has an investment banking incentive  compensation
policy which takes into account the risk of trading and other losses  related to
market making activity and other  transactions  conducted to support  investment
banking  transactions.  This policy  provides for a deferral of a portion of the
incentive  compensation  payable to investment banking personnel.  Any losses or
liabilities of the Company  attributable  to capital  raising  transactions  may
result in a reduction of accrued  incentive  compensation to investment  banking
personnel.  Pursuant to this policy, the Company reduced $6.7 million of accrued
investment banking bonus compensation during the first quarter of 1998.

         The  Company  continues  to  be  approached  by  existing  clients  and
potential new clients concerning possible capital raising transactions. However,
given the uncertainties involved in completing such transactions, the Company is
unable to predict  when or whether any such  transactions  will be  successfully
completed.



<PAGE>



RESULTS OF OPERATIONS

         Revenues

         Total  revenues  are  comprised  primarily  of  underwriting   revenue,
corporate  finance fees,  principal  sales credits,  agency  commissions,  asset
management revenue, and net gains and losses.  The Company believes that revenue
from underwriting and corporate finance is substantially dependent on the market
for public and private offerings of equity and debt securities by the  companies
in the sectors within which FBR focuses its efforts. Principal sales credits are
dependent  on Nasdaq  trading  volume  and  spreads  in the  securities  of such
companies.  Net trading gains and losses are dependent on the market performance
of securities in which the Company holds trading positions in its inventory,  as
well as on the  decisions of  management  as to the level of market  exposure to
these securities.  Accordingly,  the Company's revenues have fluctuated, and are
likely to continue to fluctuate, based on these factors.

         Underwriting  revenue  consists  of  underwriting  discounts,   selling
concessions, management fees and other underwriting fees and reimbursed expenses
associated with underwriting activities. 

         Corporate  finance  revenues are comprised of the Company's  merger and
acquisition,  private placement,  mutual thrift conversion,  and other corporate
finance advisory fees and reimbursed  expenses  associated with such activities.
Corporate finance fees have fluctuated, and are likely to continue to fluctuate,
based on the number and size of transactions,  including private placements,  by
the Company.

     Principal  sales credits  consist of revenue derived on a portion of dealer
spreads from the  securities  trading  activities of the Company as principal in
Nasdaq-listed and other  over-the-counter  ("OTC") securities,  and is primarily
derived from the Company's  activities as a market-maker.  Asthe Capital Markets
Group  underwrites new securities and adds  securities of existing  companies to
its market-maker list, principal sales credits and agency commission activity is
expected to increase.

         Agency  commissions  revenue includes revenue  resulting from executing
Nasdaq-listed  and other OTC transactions as agent, and executing trades through
a stock exchange.

         The  Company  receives asset management revenue in its capacity  as the
investment  manager  to  advisory  clients  and as  general  partner  of several
investment   partnerships.   Management  fees,  performance  fees,  and  special
allocations  on  investment  partnerships  historically  have been  earned  from
vehicles that invest  primarily in the  securities  of companies  engaged in the
financial services sector.  Incentive fees and special allocations are likely to
fluctuate  with  performance of securities in the sectors in which managed funds
invest.  In 1998,  the Company is focusing on  continuing  to grow assets  under
management at levels achieved in the past. This asset base coupled with a stable
or rising equity market (including equity of financial  services  companies) can
provide  significant  revenues  with a high  net  margin  for the  Company.  The
Company's  objective is to establish  an asset base with  sufficient  revenue to
cover the fixed cost of the Company's business.

         Expenses

       Compensation  and  benefits expense  includes base  salaries  as well  as
incentive  compensation paid  to sales,  trading,   underwriting  and  corporate
finance  professionals  and  to  executive  management.  Incentive  compensation
(other  than under the  1997  Plan, below)  varies  primarily based  on  revenue
production. Salaries, payroll taxes and employee  benefits are relatively  fixed
in nature.  During the first quarter of 1997,  the incentive  compensation  paid
to  the  top  three  of the  Company's Executive  Officers,  who also  serve  as
Directors  of the  Company,  was based primarily on gross  revenues from certain
of the Company's business lines.  In December 1997, the Company adopted the 1997
Stock & Incentive  Compensation  Plan ("1997 Plan"),  under  which the Executive
Officers  and certain other  employees  are eligible to participate  in a  bonus
pool,  based on  net income  before taxes, rather  than on  gross  revenues.  In


<PAGE>


RESULTS OF OPERATIONS

Expenses (continued)

particular,  the cash bonus payments made pursuant to the 1997 Plan will be made
from  a pool  equal to up to thirty  percent of FBR's annual  pre-tax net income
(before  annual  cash bonus payments  under the 1997  Plan).  The  pool will  be
reduced to the extent the  aggregate  compensation and benefits  expense for the
year  (including  annual cash bonus  payments under the 1997 Plan) would  exceed
fifty-five percent of revenues.  The Company's Board of Directors is responsible
for determining the percentage of pre-tax net income remunerated  under the 1997
Plan and  intends to  do so based on  quantitative  and qualitative  performance
criteria. FBR intends to review  and evaluate all of its compensation plans on a
quarterly basis.

The  following  table  sets  forth-certain  financial  data as a  percentage  of
revenues:

                                                   For the quarter
                                                   ended March 31,
                                                   1997       1998
Revenues:
Investment banking-
   Underwriting                                   45.38%     70.18%
   Corporate finance                              30.24%      5.39%
Institutional brokerage-
   Principal (OTC) sales credits                  23.80%     13.29%
   Agency commission                               9.65%      5.45%
Gains and losses, net-
   Trading                                      (14.99%)    (8.71%)
   Investment                                      0.45%      4.42%
Asset management                                   2.80%      4.66%
Interest and dividends                             2.67%      5.32%
                                              ---------------------
Total revenues                                   100.00%    100.00%

Expenses:
Compensation and benefits                         67.81%     41.69%
Brokerage and clearance                            3.50%      1.98%
Occupancy and equipment                            1.75%      1.12%
Communications                                     1.50%      1.21%
Interest                                           2.49%      2.44%
Other (1)                                         15.16%     13.70%
                                              ---------------------
Total expenses                                    92.21%     62.14%

                                              ---------------------
   Net income before taxes                         7.79%     37.86%
                                              =====================

1) Includes business promotion, investment banking and other expenses.



<PAGE>



RESULTS OF OPERATIONS

Three months ended March 31, 1998 compared to three months ended March 31, 1997

        Total  revenues  increased  134% from  $29.0  million in 1997  to  $68.0
million in 1998  due primarily  to  increased  underwriting and  net  investment
gains.

        Underwriting revenue increased 262% from $13.2 million  in 1997 to $47.7
million in 1998 and  increased  as a  percentage  of  revenues  from 45% to 70%,
respectively. This increase was due primarily to an increase in the average size
of the security  transactions  managed from $102 million in 1997 to $127 million
in 1998, and a change in the mix of capital  raising  activities from private to
public. The number of these  transactions  increased as well, from 10 in 1997 to
13 in 1998.

        Corporate  finance fees decreased 58% from $8.8 million in  1997 to $3.7
million in 1998. This decrease was due to a shift in capital raising  activities
from private  placements  to public  underwritings,  but was somewhat  offset by
increased  merger and  acquisition  activities,  which generated $0.3 million in
1997 compared to $2.1 million in 1998.

        Principal sales  credit revenue  increased 31% from $6.9 million in 1997
to $9.0 million 1998. This increase is a result of higher volumes of activity in
the Company's  Nasdaq trading  overall,  as well as increased  trading  activity
derived from the Company's  expansion of its equity sales and trading  personnel
and capabilities.

        Agency  commissions  increased  32% from $2.8  million  in 1997 to  $3.7
million  in  1998.  This  increase  was due to the  expansion  of the  Company's
institutional  listed equity  business  fostered by an increase in the number of
institutional  brokers,  as  well  as  an  increase  in  listed  equity  trading
capabilities.

        Asset management revenue increased by 290% from $0.8  million in 1997 to
$3.2 million in 1998.  The  increase was due  primarily to an increase in assets
under  management,  as  well  as an  increase  in  incentive  based  allocations
principally in the Company's  largest hedge fund,  which focuses its investments
in the financial services industry sector.

        Total  expenses  increased  58%  from  $26.8  million  in 1997 to  $42.2
million 1998  primarily due to the Company's  growth in number of personnel (41%
increase  in  full-time  employees  as of March 31,  1998  compared to March 31,
1997).  In addition to  personnel  increases,  the Company has been  spending an
increasing amount on business promotion and investment banking efforts.

        Compensation and benefits  expense  increased 44% from $19.7 million  in
1997 to $28.3 million in 1998.  The increase was due primarily to an increase in
the number of the Company's  personnel.  Compensation  and benefits expense as a
percentage  of total  revenues  decreased  from 68% to 42%.  This  decrease  was
attributable to a number of factors, including the change in revenue mix towards
asset  management  revenue and investment gains, and implementation  of the 1997
Plan,  which  includes  incentive   compensation  for  the  Company's  Executive
Officers.  The decrease in compensation as a percent of revenues was also due to
a reduction of accrued bonus  compensation  in the first  quarter of 1998.  This
compensation  adjustment  is  discussed  more fully in the Capital  Market Group
section on page 17 herein.  Average employee  headcount was 195 in 1997 compared
to 283 in 1998.

<PAGE>



RESULTS OF OPERATIONS

Three months ended March 31, 1998  compared to three months ended March 31, 1997
(Continued)

         Brokerage and clearance  expense  increased 32% from $1,017 thousand in
1997 to  $1,343  thousand  in 1998  due to the  increase  in sales  and  trading
activities.  As a percentage of institutional  brokerage revenue,  brokerage and
clearance expense remained constant at 10.5% in both 1997 and 1998.

         Occupancy  and  equipment  expense  increased 50% from $508 thousand in
1997 to  $764  thousand  in  1998.  The  Company  attributes  this  increase  to
additional  office leases and related  expenditures to accommodate its growth in
personnel,  and an  increase in  depreciation  expense  due to  acquisitions  of
computer and  telecommunications  equipment  and  furniture and fixtures for the
expanded staff and facilities.

         Communications expense increased 89% from $436 thousand in 1997 to $826
thousand  in  1998.   This   increase   was  due   primarily   to  increases  in
telecommunications  expenses  resulting  from  the  increase  in  employees  and
expansion of facilities in 1998, and the enhancement of network technology.

         Interest expense increased by 129% from $724 thousand in 1997 to $1,659
thousand in 1998, primarily due to increased margin interest expense, which is a
result of increased securities position levels.

         Other expenses increased 112% from $4.4 million in 1997 to $9.3 million
in 1998.  This  increase  was due  primarily  to  increased  investment  banking
activity,   increased  expenses  associated  with  expanded  office  space,  and
increased business promotion expenses.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has  historically  satisfied its  liquidity and  regulatory
capital needs through three primary sources: (1) internally generated funds; (2)
equity capital  contributions;  and (3) credit provided by the Company's  banks,
and its clearing broker and that broker's affiliates. The Company has frequently
required the use, and  reasonably  believes  that it may continue to require the
use, of temporary  subordinated  loans in  connection  with  regulatory  capital
requirements to support its underwriting activities.

         The Company  completed its initial public offering  ("IPO") in December
1997. Net proceeds from the offering were $185 million.  After the offering, the
Company  made  capital  contributions  of $73 million to FBRC,  distributed  $54
million to its S corporation shareholders, repaid $8.5 million on an outstanding
line of credit, invested  $25  million in FBR Asset  Investment  Corporation  (a
private real estate investment trust formed in December 1997,  "FBR-REIT"),  and
held the  remaining  funds in short term money  market  accounts.  FBRC used $40
million of its existing capital to repay its outstanding  subordinated loans and
retained the $73 million contributed by FBR for working capital purposes.

         The Company's  principal  assets consist of cash and cash  equivalents,
receivables from other broker dealers including its clearing broker,  securities
held for trading purposes,  short-term  investments,  and long-term investments.
Short-term   investments  are  comprised  primarily  of  FHLMC  backed  mortgage
securities with remaining maturity of less than one year. Long-term  investments
consist  primarily of investments in limited  partnerships  in which the Company
serves  as  the  general  partner  and  its  investment  in  FBR-REIT.  Although
investments  in  limited  partnerships  are  for the  most  part  illiquid,  the
underlying  investments of such  partnerships  are generally in publicly traded,
liquid debt and equity securities.

<PAGE>



 LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

        As of March 31, 1998, the Company had liquid assets consisting primarily
of cash and cash equivalents  of $139.1 million  and short term  investments  of
$9.9 million.  Cash equivalents  consist  primarily of money market mutual funds
invested in debt obligations of the U.S. government.  The Company also had $86.7
million in marketable  securities in its trading accounts.  Due to the timing of
an  underwriting  transaction  on March  31,  1998,  FBRC had a  payable  to the
investment  banking client for the proceeds of the  transaction in the amount of
$129.6 million and included in the receivable  from its clearing  organization a
corresponding amount.

       FBRC, as a  broker-dealer,  is registered with the SEC and is a member of
the NASD.  As such,  it is  subject  to the  minimum  net  capital  requirements
promulgated by the SEC. FBRC's regulatory net capital has historically  exceeded
these minimum requirements.  As of March 31, 1998, FBRC was required to maintain
minimum  regulatory net capital of  approximately  $11.5 million,  and had total
regulatory  net  capital  of  approximately  $79.4  million  in  excess  of  its
requirement.  Regulatory net capital requirements increase when FBRC is involved
in  underwriting  activities  based  upon  a  percentage  of  the  amount  being
underwritten by FBRC.

       Other  broker-dealer  subsidiaries were in compliance with all applicable
regulatory capital adequacy requirements as of March 31, 1998.

       FBR has no material long-term debt. As of March 31, 1998, the Company had
available a total of $25.0 million in two committed subordinated revolving loans
from its  clearing  broker and an  affiliate  of its  clearing  broker  that are
allowable for net capital purposes. Certain of the Company's principal employee-
shareholders  personally  guarantee  these  loans.  The loans expire in July and
October of 1998.  The  Company  will  either seek to renew these loans or obtain
alternative   financing  from  other  sources.  The  Company  characterizes  its
relationship  with its lenders as very good, and does not expect any impediments
to obtaining credit, as needed, from available sources.

       As of March 31,  1998,  the  Company  has entered  into an  agreement  to
consolidate its main office  locations,  significantly  increasing the amount of
office space to sustain its growth. The Company expects to incur expenditures in
excess of $4 million  during  1998 to acquire  the  lease,  renovate,  equip and
furnish this facility.

       The  Company  believes  that its  current  level of  equity  capital  and
committed lines of credit,  combined with funds anticipated to be generated from
operations,   is  adequate  to  meet  its  liquidity  and   regulatory   capital
requirements  associated  with its  broker-dealer  activities.  The Company may,
however, seek debt financing 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.

       The Company contantly reviews its capital needs and sources, the  cost of
capital and return on equity,  and seeks strategies to provide favorable returns
on capital. As part of its overall captial utilization strategy, the Company may
in the  future  seek to raise  additional  debt or equity  capital or may reduce
capital  through  repurchase  of its common stock.  The  Company's  policy is to
evaluate acquisition opportunities as they arise.

Risk Management

       FBR monitors its market and counterparty  risk on a daily basis through a
number of control procedures designed to identify and evaluate the various risks
to which the Company is  exposed.  FBR has  established  various  committees  to
assess and to manage  risk  associated  with its  investment  banking  and other
activities.   The   committees   review,   among  other  things,   business  and
transactional  risks  associated  with potential  clients and  engagements.  The
Company  seeks to  control  the risks  associated  with its  investment  banking
activities  by review and approval of  transactions  by the relevant  committee,
prior to accepting an engagement.


<PAGE>



LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)


         In  addition  to  the  risks   associated   with   investment   banking
transactions,  the Company may be exposed to significant after market risks with
these  companies,  as FBR may hold  substantial  positions in these companies as
underwriter   or  market   maker.   The  Company  often  acts  as  principal  in
customer-related  transactions in financial  instruments that expose the Company
to market risks.  The Company also engages in proprietary  trading and arbitrage
activities  and  makes  dealer  markets  in  equity  securities  and  high-yield
securities.  These  trading  activities  generally  result  in the  creation  of
inventory  positions.  Position and exposure reports are prepared and circulated
to management  of the Company on a daily basis.  The Company seeks to manage the
exposure to market risks by establishing  position limits,  and limiting its net
long or short position by selling or buying similar instruments.

         The Securities  and Exchange  Commission has  developed new market risk
disclosure  rules.  The Company is required to adopt these rules with the filing
of its annual  report on Form 10-K for  the year ended  December 31, 1998.   The
Company has  risk  management  policies and procedures  related to  its  trading
activities  designed to reduce its  exposure to market  risk.  The Company  will
adopt  additional  policies or  procedures  during 1998 that may be necessary to
meet  compliance with the new SEC rules;  however,  the Company will continue to
use other risk  management  measures,  such as trading limits and daily position
summary reports.


High Yield and Non-Investment Grade Debt Securities

         The Company  underwrites, trades, invests, and  makes markets  in high-
yield corporate debt securities. The Company also syndicates, trades and invests
in loans  to, and preferred  stock of, below investment  grade-rated  companies.
For  purposes of  this discussion,  non-investment grade  securities are defined
as securities or loans to companies rated BB+ or lower, or equivalent ratings by
recognized credit rating  agencies,  as well as non-rated  securities  or loans.
Investments in non-investment grade securities generally involve  greater  risks
than  investment grade  securities  due to the issuer's creditworthiness and the
liquidity of the market for such securities. High yield and other non-investment
grade securities are carried at market value and unrealized gains and losses for
these  securities  are  reflected in the  Company's  Consolidated  Statements of
Income.  The  Company's  portfolio of such  securities  at December 31, 1997 and
March 31, 1998,  are  included in long  positions  and have an aggregate  market
value of  approximately  $19.8  million  and $27.0  million,  respectively.  The
Company's  portfolio may, from time to time,  contain  concentrated  holdings of
selected  issues.  The Company's  largest unhedged non-investment grade position
was  $5.7 million  and  $3.5 million  at  December 31, 1997 and  March 31, 1998,
respectively.

Warrants

     In connection with certain capital raising  transactions,  FBR has received
and holds  warrants  for stock of the  issuing  corporation  exercisable  at the
corporation's  respective  offering price.  Due  to current restrictions  on the
warrants and the underlying securities, FBR carries  the warrants  at a  nominal
value  in  its  financial statements,  and will recognize any potential,  future
revenues  and profits, if any,  only when realized.  FBR  may use a  portion  of
these  warrants  as  incentive  compensation for  certain  key employees in  the
Capital Markets Group. As of April 30, 1998, FBR had received warrants in client
companies as set forth below:
<TABLE>
<CAPTION>

                                                                                 Closing Price     Expiration
                                                       Number of    Exercise      on April 30,      date of
                                                        Warrants      Price           1998          Warrants
                                                      -----------   ---------     ------------     ----------
<S>                                                     <C>            <C>             <C>           <C>

American Capital Strategies, Ltd...................       442,751      $15.00          22.6250       08/29/02
Capital Automotive REIT............................     1,277,794       15.00          15.5625       02/12/03
Consolidation Capital Corporation..................     1,130,000       20.00          22.0625       11/25/01
Local Financial Corporation........................       591,000       10.00          12.6250       09/08/02
Styling Technology Corporation.....................       101,500       12.00          22.5000       11/21/01
FBR Asset Investment Corporation...................       970,805       20.00          20.0000       12/11/07
Resource Asset Investment Trust....................       141,667       15.00          18.6250       01/08/03
</TABLE>
<PAGE>


MATTERS RELATED TO THE COMPANY'S INFORMATION SYSTEMS:

     The Company's  software and  information  systems are year 2000  compliant;
however,  the Company utilizes certain software and related  technologies of its
clearing  organization.  The Company expects that it will be indirectly affected
by the date change in the year 2000 as it relates to the systems of its clearing
organization.  The year 2000 issue  exists  because  many  computer  systems and
applications  currently use two-digit date fields to designate a year.  When the
century date change occurs,  date-sensitive systems will recognize the year 2000
as 1900, or not at all. This  inability to recognize or properly  treat the year
2000 may cause systems to process critical financial and operational information
incorrectly.  The Company's clearing  organization has a defined plan to address
and correct its year 2000 deficiencies. The Company does not expect to incur any
significant   expenditure  related  to  year  2000  problems  with  its  primary
information systems. However, any failure by the Company's clearing organization
to adequately  address the date change could have a material  adverse  effect on
the Company's financial condition and operations.

Item 3.  Changes in Information About Market Risk

         None.

Part II.  Other Information

Item 1.  Legal Proceedings


     While the Company is not currently a defendant or plaintiff in any lawsuits
or  arbitrations,  many aspects of the Company's  business  involve  substantial
risks of liability,  litigation  and  arbitration.  An underwriter is exposed to
potential  liability under federal and state  securities laws, other federal and
state  laws  and  court   decisions,   including   decisions   with  respect  to
underwriters'  liability and limitation on  indemnification  of  underwriters by
issuers.  For example, a firm that acts as an underwriter may be held liable for
material  misstatements  or omissions of fact in a prospectus used in connection
with the  securities  being  offered or for  statements  made by its  securities
analysts or other personnel.

     If  plaintiffs  in any future  suits  against the Company were to prosecute
their claims successfully, or if the Company were to settle such suits by making
significant  payments to the  plaintiffs,  the Company's  operating  results and
financial  condition  could be materially  and adversely  affected.  The Company
carries  very  limited  insurance  that may  cover  only a  portion  of any such
payments.

     In addition to these financial  costs and risks,  the defense of litigation
or arbitration may divert the efforts and attention of the Company's  management
and staff,  and the Company may incur  significant  legal  expenses in defending
such  litigation  and  arbitration.  This may be the case even with  respect  to
claims and litigation that management believes to be frivolous,  and the Company
intends to defend vigorously any frivolous claims against it. The amount of time
that management and other employees may be required to devote in connection with
the defense of litigation could be substantial and might materially divert their
attention from other responsibilities within the Company.

     The Company also may become a defendant in civil  actions and  arbitrations
arising  out  of its  other  activities  as a  broker-dealer,  as an  investment
adviser,  in other  business  activities,  or as an  employer.  There  can be no
assurance  that  substantial  payments  in  connection  with the  resolution  of
disputed claims will not occur in the future.

     In addition,  the Company's charter documents allow  indemnification of the
Company's  officers,  directors and agents to the maximum extent permitted under
Virginia law. The Company intends to enter into indemnification  agreements with
these  persons.  The  Company  has been and in the future may be the  subject of
indemnification  assertions  under these  charter  documents  or  agreements  by
officers, directors or agents of the Company who are or may become defendants in
litigation.
<PAGE>



Item 6.  Exhibits and Reports on Form 8-K

    (a)  Exhibits

         (27)       Financial Data Schedule

    (b)  Reports on Form 8-K

         None.



                                   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.

 5/14/98                          By: /s/  Eric Y. Generous
-----------                          -----------------------------------------
Date                                 Eric Y. Generous, Chief Financial Officer 
                                     (Principal Financial Officer),


 5/14/98                          By: /s/  Kurt R. Harrington
-----------                          -----------------------------------------
Date                                 Kurt R. Harrington, Treasurer 
                                     (Principal Accounting Officer),


                              EXHIBIT INDEX

Exhibit 27.01       Financial Data Schedule.

<PAGE>