##### 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 June 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 |  | 19,991,524 shares as of July 31, 2002
|Class B Common Stock |  | 26,375,999 shares as of July 31, 2002



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TABLE OF CONTENTS



|                              |                                                                                               |                                            |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Consolidated Financial Statements  (Unaudited)                                      
|                              |                                                                                               | Consolidated Balance Sheet                
|                              |                                                                                               | 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                                             
|PART II.                     
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 6. Reports on Form 8-K                                                                  
|                              | SIGNATURES                                                                                   



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.

FORM 10-Q


FOR THE QUARTER ENDED JUNE 30, 2002


INDEX


|                              |         |                                                                                           |                                                         |                |       |    | 
|----------------------------- | ------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------- | -------------- | ----- | -- | 
|                              |         |                                                                                           |                                                         | Page Number(s)
|                              |         |                                                                                           |                                                         |               
|Part I. FINANCIAL INFORMATION |         |                                                                                           |                                                         |               
|                              | Item 1. |                                                                                           | Financial Statements  (unaudited)                      |                |       |    | 
|                              |         | Consolidated Balance Sheets 
    June 30, 2002 and December 31, 2001                     |                                                         |                | 3     |   
|                              |         | Consolidated Statements of
    Operations 
    Three Months Ended June 30, 2002 and 2001 |                                                         |                | 4     |   
|                              |         | Six Months Ended June 30, 2002
    and 2001                                               |                                                         |                | 5     |   
|                              |         | Consolidated Statements of Cash
    Flows 
    Six Months Ended June 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20 |   
|                              | Item 3. |                                                                                           | Changes in Information about Market Risk                |                |       | 21 | 
|Part II. OTHER INFORMATION    |         |                                                                                           |                                                         |               
|                              | Item 4. |                                                                                           | Submission of Matters to a Vote of Security
    Holders |                |       | 22 | 
|                              | Item 6. |                                                                                           | Reports on Form 8-K                                     |                |       | 22 | 
|SIGNATURES                    |         |                                                                                           | 23                                                      |               

2



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PART I  FINANCIAL
INFORMATION

Item 1  Financial
Statements  (Unaudited)

FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.

CONSOLIDATED BALANCE SHEETS


(Dollars in thousands)


|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |   |         |         | 
|---------------------------------------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ----------------- | ------- | ------- |  | - | ------- | ------- | 
|                                         |                       | June 30, 2002                                                                                                                                                      |                                                | December 31, 2001
|                                         |                       |                                                                                                                                                                    |                                                |                  
|                                         |                       | (Unaudited)                                                                                                                                                        |                                                |                  
|ASSETS                                   |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       | Cash and cash equivalents                                                                                                                                          |                                                | $                 | 50,120  |         |  | $ | 46,246  |        
|                                         |                       | Receivables:                                                                                                                                                       |                                                |                   |         |         |  |   |         |        
|                                         |                       |                                                                                                                                                                    | Investment banking                             |                   |         | 4,273   |  |   |         | 3,464   | 
|                                         |                       |                                                                                                                                                                    | Asset management fees                          |                   |         | 8,129   |  |   |         | 3,604   | 
|                                         |                       |                                                                                                                                                                    | Affiliates                                     |                   |         | 2,581   |  |   |         | 2,209   | 
|                                         |                       |                                                                                                                                                                    | Other                                          |                   |         | 5,209   |  |   |         | 4,352   | 
|                                         |                       | Due from clearing broker                                                                                                                                           |                                                |                   | 76,161  |         |  |   | 44,621  |        
|                                         |                       | Marketable and trading securities, at market value                                                                                                                 |                                                |                   | 2,216   |         |  |   | 15,706  |        
|                                         |                       | Bank investment securities                                                                                                                                         |                                                |                   | 23,835  |         |  |   | 8,142   |        
|                                         |                       | Long-term investments                                                                                                                                              |                                                |                   | 145,045 |         |  |   | 119,982 |        
|                                         |                       | Bank loans, net of allowances                                                                                                                                      |                                                |                   | 14,071  |         |  |   | 12,459  |        
|                                         |                       | MMA acquired management contracts                                                                                                                                  |                                                |                   | 18,090  |         |  |   | 18,729  |        
|                                         |                       | Building, furniture, equipment, software and
    leasehold improvements, net of accumulated depreciation and
    amortization of $18,601 and $17,138, respectively |                                                |                   | 8,495   |         |  |   | 9,203   |        
|                                         |                       | Prepaid expenses and other assets                                                                                                                                  |                                                |                   | 4,007   |         |  |   | 3,241   |        
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total assets                                   |                   | $       | 362,232 |  |   | $       | 291,958 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         | Liabilities:          |                                                                                                                                                                    |                                                |                   |         |         |  |   |        
|                                         |                       | Trading account securities sold but not yet
    purchased, at market value:                                                                                        |                                                | $                 | 9,134   |         |  | $ | 13,377  |        
|                                         |                       | Accounts payable and accrued expenses                                                                                                                              |                                                |                   | 28,299  |         |  |   | 19,179  |        
|                                         |                       | Accrued compensation and benefits                                                                                                                                  |                                                |                   | 36,136  |         |  |   | 27,775  |        
|                                         |                       | Bank deposits                                                                                                                                                      |                                                |                   | 27,210  |         |  |   | 19,457  |        
|                                         |                       | Short-term loans payable                                                                                                                                           |                                                |                   | 37,128  |         |  |   | 21,165  |        
|                                         |                       | Long-term secured loan                                                                                                                                             |                                                |                   | 5,957   |         |  |   | 5,694   |        
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total liabilities                              |                   |         | 143,864 |  |   |         | 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, 24,580,804 and 23,468,403 shares
    issued, respectively                                |                                                |                   | 246     |         |  |   | 235     |        
|                                         |                       | Class B Common Stock, $0.01 par value,
    100,000,000 shares authorized, 26,375,999 and 26,946,029 shares
    issued and outstanding, respectively                |                                                |                   | 264     |         |  |   | 269     |        
|                                         |                       | Additional paid-in capital                                                                                                                                         |                                                |                   | 214,445 |         |  |   | 210,703 |        
|                                         |                       | Employee stock loan receivable (4,000,000 shares)                                                                                                                  |                                                |                   | (23,416 | )       |  |   | (22,706 | )      
|                                         |                       | Treasury stock, at cost, 617,810 and 809,462
    shares, respectively                                                                                              |                                                |                   | (4,507  | )       |  |   | (5,906  | )      
|                                         |                       | Accumulated other comprehensive income                                                                                                                             |                                                |                   | 3,765   |         |  |   | 3,226   |        
|                                         |                       | Retained earnings (accumulated deficit)                                                                                                                            |                                                |                   | 27,571  |         |  |   | (510    | )      
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total shareholders equity                     |                   |         | 218,368 |  |   |         | 185,311 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  
|                                         |                       |                                                                                                                                                                    | Total liabilities and shareholders
    equity |                   | $       | 362,232 |  |   | $       | 291,958 | 
|                                         |                       |                                                                                                                                                                    |                                                |                   |         |         |  |  

See notes to consolidated financial statements.

3



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.




CONSOLIDATED STATEMENTS OF
OPERATIONS


(Dollars in thousands, except per share
data)


(unaudited)


|                                     |                                                |                                                         |        |        |        |   |       |        |        |  
|------------------------------------ | ---------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------ | - | ----- | ------ | ------ | -
|                                     |                                                |                                                        
|                                     |                                                | Three Months Ended June 30,                            
|                                     |                                                |                                                        
|                                     |                                                | 2002                                                    |        | 2001  
|                                     |                                                |                                                         |        |       
|Revenues:                            |                                                |                                                         |        |        |        |   |       |       
|                                     | Investment banking:                            |                                                         |        |        |        |   |       |        |       
|                                     |                                                | Underwriting                                            |        | $      | 25,248 |   |       | $      | 9,414  |  
|                                     |                                                | Corporate finance                                       |        |        | 9,827  |   |       |        | 18,057 |  
|                                     |                                                | Investment gains                                        |        |        | 1,595  |   |       |        | 5,340  |  
|                                     | Institutional brokerage:                       |                                                         |        |        |        |   |       |        |       
|                                     |                                                | Principal transactions                                  |        |        | 8,372  |   |       |        | 5,383  |  
|                                     |                                                | Agency commissions                                      |        |        | 9,954  |   |       |        | 5,962  |  
|                                     | Asset management:                              |                                                         |        |        |        |   |       |        |       
|                                     |                                                | Base management fees                                    |        |        | 7,633  |   |       |        | 5,191  |  
|                                     |                                                | Incentive allocations and fees                          |        |        | 2,902  |   |       |        | 474    |  
|                                     |                                                | Net investment income                                   |        |        | 8,517  |   |       |        | 5,009  |  
|                                     |                                                | Technology sector net investment and incentive
    loss |        |        | (2,432 | ) |       |        | (1,684 | )
|                                     | Interest, dividends and other                  |                                                         |        | 1,638  |        |   |       | 2,006  |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|                                     |                                                | Total revenues                                          |        |        | 73,254 |   |       |        | 55,152 |  
|                                     |                                                |                                                         |        |        |        |   |       |       
|                                    
|Expenses:                            |                                                |                                                         |        |        |        |   |       |       
|                                     | Compensation and benefits                      |                                                         |        | 38,411 |        |   |       | 32,756 |       
|                                     | Business development and professional services |                                                         |        | 7,982  |        |   |       | 8,205  |       
|                                     | Clearing and brokerage fees                    |                                                         |        | 1,817  |        |   |       | 1,588  |       
|                                     | Occupancy and equipment                        |                                                         |        | 2,046  |        |   |       | 2,883  |       
|                                     | Communications                                 |                                                         |        | 2,187  |        |   |       | 1,498  |       
|                                     | Interest expense                               |                                                         |        | 430    |        |   |       | 334    |       
|                                     | Other operating expenses                       |                                                         |        | 2,602  |        |   |       | 2,778  |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|                                     |                                                | Total expenses                                          |        |        | 55,475 |   |       |        | 50,042 |  
|                                     |                                                |                                                         |        |        |        |   |       |       
|Net income before taxes              |                                                |                                                         | 17,779 |        |        |   | 5,110 |       
|Income tax provision                 |                                                |                                                         |       |        |        |   |      |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|Net income                           |                                                | $                                                       | 17,779 |        |        | $ | 5,110 |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|Basic earnings per share             |                                                | $                                                       | 0.39   |        |        | $ | 0.10  |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|Diluted earnings per share           |                                                | $                                                       | 0.36   |        |        | $ | 0.10  |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|                                    
|Weighted average shares outstanding: |                                                |                                                         |        |        |        |   |       |       
|                                     | Basic                                          |                                                         |        | 45,944 |        |   |       | 49,209 |       
|                                     |                                                |                                                         |        |        |        |   |       |       
|                                     | Diluted                                        |                                                         |        | 48,772 |        |   |       | 49,230 |       
|                                     |                                                |                                                         |        |        |        |   |       |       

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)


|                                                                |                                                |                                                         |        |        |         |   |        |        |        |  
|--------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------- | ------ | ------ | ------- | - | ------ | ------ | ------ | -
|                                                                |                                                |                                                        
|                                                                |                                                | Six Months Ended June 30,                              
|                                                                |                                                |                                                        
|                                                                |                                                | 2002                                                    |        | 2001  
|                                                                |                                                |                                                         |        |       
|Revenues:                                                       |                                                |                                                         |        |        |         |   |        |       
|                                                                | Investment banking:                            |                                                         |        |        |         |   |        |        |       
|                                                                |                                                | Underwriting                                            |        | $      | 37,558  |   |        | $      | 17,068 |  
|                                                                |                                                | Corporate finance                                       |        |        | 21,301  |   |        |        | 20,301 |  
|                                                                |                                                | Investment gains                                        |        |        | 1,786   |   |        |        | 5,340  |  
|                                                                | Institutional brokerage:                       |                                                         |        |        |         |   |        |        |       
|                                                                |                                                | Principal transactions                                  |        |        | 15,430  |   |        |        | 11,355 |  
|                                                                |                                                | Agency commissions                                      |        |        | 18,699  |   |        |        | 12,527 |  
|                                                                | Asset management:                              |                                                         |        |        |         |   |        |        |       
|                                                                |                                                | Base management fees                                    |        |        | 13,629  |   |        |        | 8,098  |  
|                                                                |                                                | Incentive allocations and fees                          |        |        | 4,685   |   |        |        | 842    |  
|                                                                |                                                | Net investment income                                   |        |        | 14,539  |   |        |        | 6,614  |  
|                                                                |                                                | Technology sector net investment and incentive
    loss |        |        | (3,531  | ) |        |        | (8,786 | )
|                                                                | Interest, dividends and other                  |                                                         |        | 3,528  |         |   |        | 4,246  |       
|                                                                |                                                |                                                         |        |        |         |   |        |       
|                                                                |                                                | Total revenues                                          |        |        | 127,624 |   |        |        | 77,605 |  
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Expenses:                                                       |                                                |                                                         |        |        |         |   |        |       
|                                                                | Compensation and benefits                      |                                                         |        | 69,730 |         |   |        | 49,007 |       
|                                                                | Business development and professional services |                                                         |        | 14,394 |         |   |        | 13,531 |       
|                                                                | Clearing and brokerage fees                    |                                                         |        | 2,443  |         |   |        | 3,320  |       
|                                                                | Occupancy and equipment                        |                                                         |        | 4,255  |         |   |        | 5,383  |       
|                                                                | Communications                                 |                                                         |        | 4,266  |         |   |        | 2,665  |       
|                                                                | Interest expense                               |                                                         |        | 800    |         |   |        | 415    |       
|                                                                | Other operating expenses                       |                                                         |        | 5,068  |         |   |        | 4,313  |       
|                                                                |                                                |                                                         |        |        |         |   |        |       
|                                                                |                                                | Total expenses                                          |        |        | 100,956 |   |        |        | 78,634 |  
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Net income (loss) before taxes and extraordinary
    gain       |                                                |                                                         | 26,668 |        |         |   | (1,029 | )     
|                                                                | Income tax provision                           |                                                         |        |       |         |   |        |       |       
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Net income (loss) before extraordinary
    gain                 |                                                |                                                         | 26,668 |        |         |   | (1,029 | )     
|                                                                | Extraordinary gain                             |                                                         |        | 1,413  |         |   |        |       |       
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Net income (loss)                                               |                                                | $                                                       | 28,081 |        |         | $ | (1,029 | )     
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Basic earnings (loss) per share before
    extraordinary gain   |                                                | $                                                       | 0.58   |        |         | $ | (0.02  | )     
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Diluted earnings (loss) per share before
    extraordinary gain |                                                | $                                                       | 0.56   |        |         | $ | (0.02  | )     
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Basic earnings (loss) per share                                 |                                                | $                                                       | 0.61   |        |         | $ | (0.02  | )     
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Diluted earnings (loss) per share                               |                                                | $                                                       | 0.59   |        |         | $ | (0.02  | )     
|                                                                |                                                |                                                         |        |        |         |   |        |       
|Weighted average shares outstanding:                            |                                                |                                                         |        |        |         |   |        |       
|                                                                | Basic                                          |                                                         |        | 45,804 |         |   |        | 49,298 |       
|                                                                |                                                |                                                         |        |        |         |   |        |       
|                                                                | Diluted                                        |                                                         |        | 47,500 |         |   |        | 49,298 |       
|                                                                |                                                |                                                         |        |        |         |   |        |       

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)


|                                                |                                                                                                |                           |         |         |   |   |         |         |  
|----------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                |                                                                                                |                          
|                                                |                                                                                                | Six Months Ended June 30,
|                                                |                                                                                                |                          
|                                                |                                                                                                | 2002                      |         | 2001   
|                                                |                                                                                                |                           |         |        
|Cash flows from operating
    activities:       |                                                                                                |                           |         |         |   |   |         |        
|Net income (loss)                               |                                                                                                | $                         | 28,081  |         |   | $ | (1,029  | )      
|Non-cash items included in earnings:            |                                                                                                |                           |         |         |   |   |         |        
|                                                | Incentive allocations and fees and net investment
    (income) loss from long-term investments |                           |         | (9,781  | ) |   |         | 6,108   |  
|                                                | Depreciation and amortization                                                                  |                           |         | 2,102   |   |   |         | 3,136   |  
|                                                | Extraordinary gain                                                                             |                           |         | (1,413  | ) |   |         |        |  
|                                                | Other                                                                                          |                           |         | 263     |   |   |         | 134     |  
|Changes in operating assets:                    |                                                                                                |                           |         |         |   |   |         |        
|                                                | Restricted cash                                                                                |                           |         |        |   |   |         | 6,926   |  
|                                                | Receivables:                                                                                   |                           |         |         |   |   |         |         |  
|                                                | Investment banking                                                                             |                           |         | (809    | ) |   |         | (437    | )
|                                                | Asset management fees                                                                          |                           |         | (4,525  | ) |   |         | (912    | )
|                                                | Affiliates                                                                                     |                           |         | (390    | ) |   |         | 1,341   |  
|                                                | Other                                                                                          |                           |         | 2,176   |   |   |         | 2,192   |  
|                                                | Due from clearing broker                                                                       |                           |         | (31,540 | ) |   |         | (10,309 | )
|                                                | Marketable and trading securities                                                              |                           |         | 13,490  |   |   |         | (4,094  | )
|                                                | Prepaid expenses and other assets                                                              |                           |         | (766    | ) |   |         | 340     |  
|Changes in operating liabilities:               |                                                                                                |                           |         |         |   |   |         |        
|                                                | Trading account securities sold but not yet
    purchased                                      |                           |         | (4,243  | ) |   |         | 5,870   |  
|                                                | Accounts payable and accrued expenses                                                          |                           |         | 9,120   |   |   |         | 379     |  
|                                                | Accrued compensation and benefits                                                              |                           |         | 8,361   |   |   |         | 415     |  
|                                                |                                                                                                |                           |         |         |   |   |         |        
|                                                | Net cash provided by operating activities                                                      |                           |         | 10,126  |   |   |         | 10,060  |  
|                                                |                                                                                                |                           |         |         |   |   |         |        
|Cash flows from investment
    activities:      |                                                                                                |                           |         |         |   |   |         |        
|MMA/ Rushmore acquisition, net of cash acquired |                                                                                                |                           |        |         |   |   | (17,500 | )      
|Bank investment securities, net                 |                                                                                                |                           | (15,556 | )       |   |   | 1,147   |        
|Bank loans, net of allowances                   |                                                                                                |                           | (1,612  | )       |   |   | (2,894  | )      
|Purchases of fixed assets, net                  |                                                                                                |                           | (755    | )       |   |   | (1,493  | )      
|Cost of purchases of long-term investments      |                                                                                                |                           | (29,312 | )       |   |   | (8,225  | )      
|Proceeds from sales of long-term investments    |                                                                                                |                           | 12,830  |         |   |   | 25,332  |        
|                                                |                                                                                                |                           |         |         |   |   |         |        
|                                                | Net cash used in investing activities                                                          |                           |         | (34,405 | ) |   |         | (3,633  | )
|                                                |                                                                                                |                           |         |         |   |   |         |        
|Cash flows from financing
    activities:       |                                                                                                |                           |         |         |   |   |         |        
|Repayments of long-term secured loans           |                                                                                                |                           |        |         |   |   | (310    | )      
|Borrowings (repayments) of short-term loans     |                                                                                                |                           | 15,963  |         |   |   |        |        
|Net increase (decrease) in bank deposits        |                                                                                                |                           | 7,753   |         |   |   | (5,706  | )      
|Proceeds from issuance of common stock          |                                                                                                |                           | 3,038   |         |   |   |        |        
|Issuance of treasury common stock               |                                                                                                |                           | 1,399   |         |   |   | 576     |        
|                                                |                                                                                                |                           |         |         |   |   |         |        
|                                                | Net cash provided by (used in) financing
    activities                                        |                           |         | 28,153  |   |   |         | (5,440  | )
|                                                |                                                                                                |                           |         |         |   |   |         |        
|Net increase in cash and cash equivalents       |                                                                                                |                           | 3,874   |         |   |   | 987     |        
|Cash and cash equivalents, beginning of period  |                                                                                                |                           | 46,246  |         |   |   | 52,337  |        
|                                                |                                                                                                |                           |         |         |   |   |         |        
|Cash and cash equivalents, end of period        |                                                                                                | $                         | 50,120  |         |   | $ | 53,324  |        
|                                                |                                                                                                |                           |         |         |   |   |         |        

See notes to consolidated financial statements.

6



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##### Table of Contents



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 assumptions or critical accounting policies.
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 |        | Six Months Ended
|                            |                                                                                                                                                                | June 30,           |        | June 30,        
|                            |                                                                                                                                                                |                    |        |                 
|                            |                                                                                                                                                                | 2002               |        | 2001             |  | 2002 |       | 2001 
|                            |                                                                                                                                                                |                    |        |                  |  |      |       |      
|Net income (loss)           |                                                                                                                                                                | $                  | 17,779 |                  |  | $    | 5,110 |       |  | $ | 28,081 |     |  | $ | (1,029 | )    
|Other comprehensive income: |                                                                                                                                                                |                    |        |                  |  |      |       |       |  |   |        |     |  |   |        |      
|                            | Net change in unrealized investment gains related
    to available-for-sale securities, bank securities and investment
    in FBR Asset Investment Corporation |                    |        | 2,336            |  |      |       | 2,293 |  |   |        | 539 |  |   |        | 4,813 | 
|                            |                                                                                                                                                                |                    |        |                  |  |      |       |       |  |   |        |     |  |   |        |      
|Comprehensive income        |                                                                                                                                                                | $                  | 20,115 |                  |  | $    | 7,403 |       |  | $ | 28,620 |     |  | $ | 3,784  |      
|                            |                                                                                                                                                                |                    |        |                  |  |      |       |       |  |   |        |     |  |   |        |      



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

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.                                                                                                                                             
|
| | 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.

7



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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




| |    |                                                                                                                                                                                                                                                                                                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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):

|                                                        |                                                                     |               |         |                   |  |   |         |        | 
|------------------------------------------------------- | ------------------------------------------------------------------- | ------------- | ------- | ----------------- |  | - | ------- | ------ | 
|                                                        |                                                                     | June 30, 2002 |         | December 31, 2001
|                                                        |                                                                     |               |         |                  
|Equity method investments:                              |                                                                     |               |         |                   |  |   |         |       
|                                                        | Proprietary investment partnerships excluding
    technology sector |               | $       | 37,348            |  |   | $       | 42,619 | 
|                                                        | FBR Asset Investment Corporation                                    |               |         | 68,850            |  |   |         | 42,460 | 
|Marketable securities                                   |                                                                     |               | 4,630   |                   |  |   | 4,894   |       
|Private debt investments                                |                                                                     |               | 7,500   |                   |  |   | 7,500   |       
|Cost method investments excluding technology
    sector |                                                                     |               | 750     |                   |  |   |        |       
|Other                                                   |                                                                     |               | 1,702   |                   |  |   | 839     |       
|                                                        |                                                                     |               |         |                   |  |   |         |       
|                                                        |                                                                     |               | 120,780 |                   |  |   | 98,312  |       
|                                                        |                                                                     |               |         |                   |  |   |         |       
|Equity method investments  technology
    sector       |                                                                     |               | 16,928  |                   |  |   | 14,584  |       
|Cost method investments  technology
    sector         |                                                                     |               | 7,337   |                   |  |   | 7,086   |       
|                                                        |                                                                     |               |         |                   |  |   |         |       
|                                                        |                                                                     |               | 24,265  |                   |  |   | 21,670  |       
|                                                        |                                                                     |               |         |                   |  |   |         |       
|                                                        |                                                                     | $             | 145,045 |                   |  | $ | 119,982 |       
|                                                        |                                                                     |               |         |                   |  |   |         |       

FBR
Asset Investment Corporation (FBR-Asset)

During the quarter ended June 30, 2002, the
Company recorded $8,761 ($13,217 year to date) of net investment
income in the statement of operations for its proportionate
share (reflecting share issuances) of FBR-Assets net
income. In addition, during the quarter, the Company purchased
314,009 shares of FBR-Asset. 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 $1,363.
During the second quarter of 2002, the Company reduced its
carrying basis of FBR-Asset for declared dividends of $3,015.
During the quarter, the Company also recorded, in other
comprehensive income, $2,259 of unrealized investment gains for
its proportionate share of FBR-Assets net unrealized gains
related to available-for-sale securities. During the first six
months of 2002, the Company reduced its carrying basis of
FBR-Asset for declared dividends of $5,747. During the first
half of 2002, the Company also recorded, in other comprehensive
income, $395 of unrealized investment gains for its
proportionate share of FBR-Assets net unrealized gains
related to available-for-sale securities. As of June 30,
2002, the net unrealized gain related to FBR-Asset and included
in the Companys accumulated other comprehensive income has
increased to $3,550.

As of June 30, 2002, FBR-Assets market
value per share was $33.35, which results in the Companys
investment in FBR-Asset having a market value of $83,375
compared with the book value at which the Company carries its
investment of $68,850. The Companys investment in
FBR-Asset of $68,850 represents 47 percent of the
Companys total long-term investments and 19 percent
of the Companys total assets as of June 30, 2002. The
following table summarizes FBR-Assets statements of
financial condition and income statements (in thousands):

|                            |  |               |           |                   |  |   |           | 
|--------------------------- |  | ------------- | --------- | ----------------- |  | - | --------- | 
|                            |  |              
|                            |  | FBR-Asset    
|                            |  |              
|                            |  | June 30, 2002 |           | December 31, 2001
|                            |  |               |           |                  
|Total assets                |  | $             | 4,093,802 |                   |  | $ | 1,325,125 | 
|Total liabilities           |  |               | 3,403,765 |                   |  |   | 1,121,260 | 
|                            |  |               |           |                   |  |   |           | 
|Total equity                |  | $             | 690,037   |                   |  | $ | 203,865   | 
|                            |  |               |           |                   |  |   |           | 
|FBRs share of total equity |  | $             | 68,850    |                   |  | $ | 42,460    | 
|                            |  |               |           |                   |  |   |           | 

8



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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


|                                               |  |                    |        |                  |  |      |       |      |  |   |        |  |  |   |       |  
|---------------------------------------------- |  | ------------------ | ------ | ---------------- |  | ---- | ----- | ---- |  | - | ------ |  |  | - | ----- | -
|                                               |  |                   
|                                               |  | FBR-Asset         
|                                               |  |                   
|                                               |  |                    |        |                 
|                                               |  | Three Months Ended |        | Six Months Ended
|                                               |  | June 30,           |        | June 30,        
|                                               |  |                    |        |                 
|                                               |  | 2002               |        | 2001             |  | 2002 |       | 2001
|                                               |  |                    |        |                  |  |      |       |     
|Gross revenues                                 |  | $                  | 44,555 |                  |  | $    | 6,127 |      |  | $ | 64,964 |  |  | $ | 9,307 |  
|Total expenses                                 |  |                    | 20,465 |                  |  |      | 2,451 |      |  |   | 30,130 |  |  |   | 4,938 |  
|                                               |  |                    |        |                  |  |      |       |      |  |   |        |  |  |   |       |  
|Net income before net investment income (loss) |  |                    | 24,090 |                  |  |      | 3,676 |      |  |   | 34,834 |  |  |   | 4,369 |  
|Net investment income (loss)                   |  |                    | 7,608  |                  |  |      | 348   |      |  |   | 14,823 |  |  |   | (217  | )
|                                               |  |                    |        |                  |  |      |       |      |  |   |        |  |  |   |       |  
|Net income before taxes                        |  |                    | 31,698 |                  |  |      | 4,024 |      |  |   | 49,657 |  |  |   | 4,152 |  
|Income tax provision                           |  |                    | 111    |                  |  |      |      |      |  |   | 166    |  |  |   |      |  
|                                               |  |                    |        |                  |  |      |       |      |  |   |        |  |  |   |       |  
|Net income                                     |  | $                  | 31,587 |                  |  | $    | 4,024 |      |  | $ | 49,491 |  |  | $ | 4,152 |  
|                                               |  |                    |        |                  |  |      |       |      |  |   |        |  |  |   |       |  

Available-For-Sale
Securities

As of June 30, 2002, the unrealized gains
related to available-for-sale securities have increased to $215
and 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 six months ended June 30, 2002,
the Company recorded $7,020 of executive officer compensation,
and, as of June 30, 2002, the Company has $5,530 of
executive officer compensation accrued.

5. Income Taxes:

The Company has a net operating loss
(NOL) carryforward to offset future taxable income. As of
June 30, 2002, the Company has gross NOL carryforwards of
approximately $20 million that expire through 2020. The
Company maintains a valuation allowance related to the NOL and a
net deferred tax asset. As a result of recording the valuation
allowance, based on current evidence, the Company estimates that
future income tax provisions recorded in the Consolidated
Statement of Operations will be calculated excluding
approximately $30 million in pre-tax income.

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
June 30, 2002, the broker-dealer subsidiaries had aggregate
net capital of $51.1 million, which exceeded the
requirements by $46.9 million.

9



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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


7. Earnings (Loss) Per Share:

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

|                                                                     |               |                    |        |                    |  |       |        |         |  |   |        |        |  |   |        |        | 
|-------------------------------------------------------------------- | ------------- | ------------------ | ------ | ------------------ |  | ----- | ------ | ------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                     |               |                    |        |                   
|                                                                     |               | Three Months Ended |        | Three Months Ended
|                                                                     |               | June 30, 2002      |        | June 30, 2001     
|                                                                     |               |                    |        |                   
|                                                                     |               | Basic              |        | Diluted            |  | Basic |        | Diluted
|                                                                     |               |                    |        |                    |  |       |        |        
|Weighted average shares outstanding:                                 |               |                    |        |                    |  |       |        |         |  |   |        |        |  |   |        |       
|                                                                     | Common stock  |                    |        | 45,944             |  |       |        | 45,944  |  |   |        | 49,209 |  |   |        | 49,209 | 
|                                                                     | Stock options |                    |        |                   |  |       |        | 2,828   |  |   |        |       |  |   |        | 21     | 
|                                                                     |               |                    |        |                    |  |       |        |         |  |   |        |        |  |   |        |       
|Weighted average common and common equivalent
    shares outstanding |               |                    | 45,944 |                    |  |       | 48,772 |         |  |   | 49,209 |        |  |   | 49,230 |       
|                                                                     |               |                    |        |                    |  |       |        |         |  |   |        |        |  |   |        |       
|Net earnings applicable to common stock                              |               | $                  | 17,779 |                    |  | $     | 17,779 |         |  | $ | 5,110  |        |  | $ | 5,110  |       
|                                                                     |               |                    |        |                    |  |       |        |         |  |   |        |        |  |   |        |       
|Earnings per common share                                            |               | $                  | 0.39   |                    |  | $     | 0.36   |         |  | $ | 0.10   |        |  | $ | 0.10   |       
|                                                                     |               |                    |        |                    |  |       |        |         |  |   |        |        |  |   |        |       

|                                                                     |               |                  |        |                  |  |       |        |         |  |   |        |        |  |   |        |        | 
|-------------------------------------------------------------------- | ------------- | ---------------- | ------ | ---------------- |  | ----- | ------ | ------- |  | - | ------ | ------ |  | - | ------ | ------ | 
|                                                                     |               |                  |        |                 
|                                                                     |               | Six Months Ended |        | Six Months Ended
|                                                                     |               | June 30, 2002    |        | June 30, 2001   
|                                                                     |               |                  |        |                 
|                                                                     |               | Basic            |        | Diluted          |  | Basic |        | Diluted
|                                                                     |               |                  |        |                  |  |       |        |        
|Weighted average shares outstanding:                                 |               |                  |        |                  |  |       |        |         |  |   |        |        |  |   |        |       
|                                                                     | Common stock  |                  |        | 45,804           |  |       |        | 45,804  |  |   |        | 49,298 |  |   |        | 49,298 | 
|                                                                     | Stock options |                  |        |                 |  |       |        | 1,696   |  |   |        |       |  |   |        |       | 
|                                                                     |               |                  |        |                  |  |       |        |         |  |   |        |        |  |   |        |       
|Weighted average common and common equivalent
    shares outstanding |               |                  | 45,804 |                  |  |       | 47,500 |         |  |   | 49,298 |        |  |   | 49,298 |       
|                                                                     |               |                  |        |                  |  |       |        |         |  |   |        |        |  |   |        |       
|Net earnings (loss) applicable to common
    stock                   |               | $                | 28,081 |                  |  | $     | 28,081 |         |  | $ | (1,029 | )      |  | $ | (1,029 | )     
|                                                                     |               |                  |        |                  |  |       |        |         |  |   |        |        |  |   |        |       
|Earnings (loss) per common share                                     |               | $                | 0.61   |                  |  | $     | 0.59   |         |  | $ | (0.02  | )      |  | $ | (0.02  | )     
|                                                                     |               |                  |        |                  |  |       |        |         |  |   |        |        |  |   |        |       

As of June 30, 2002 and 2001, respectively,
11,566,782 and 12,370,800 (includes 4,000,000 and 3,382,400
shares in 2002 and 2001, respectively, 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 June 30, 2002 and 2001, respectively,
4,129,353 and 5,671,962 of the total outstanding options were
exercisable and 2,518,575 and 12,370,800 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)              |                               | $    | 37,128 |        |  | $    | 970   |       |  | $    |      |            |  | $     |    |       |  | $ |    |       |  | $ |      |       |  | $ | 38,098 |       
|Long-term debt                  |                               |      |       |        |  |      |      |       |  |      | 970   |            |  |       | 970 |       |  |   | 970 |       |  |   | 4,850 |       |  |   | 7,760  |       
|Minimum rental commitments      |                               |      | 2,168  |        |  |      | 3,412 |       |  |      | 1,858 |            |  |       | 541 |       |  |   | 396 |       |  |   | 1,669 |       |  |   | 10,044 |       
|Uncalled capital commitments(2) |                               |      |       |        |  |      |      |       |  |      |      |            |  |       |    |       |  |   |    |       |  |   |      |       |  |   |       |       
|                                |                               |      |        |        |  |      |       |       |  |      |       |            |  |       |     |       |  |   |     |       |  |   |       |       |  |   |        |       
|                                | Total Contractual Obligations |      | $      | 39,296 |  |      | $     | 4,382 |  |      | $     | 2,828      |  |       | $   | 1,511 |  |   | $   | 1,366 |  |   | $     | 6,519 |  |   | $      | 55,902 | 
|                                |                               |      |        |        |  |      |       |       |  |      |       |            |  |       |     |       |  |   |     |       |  |   |       |       |  |   |        |       



---



|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(1) | The short-term debt obligation in 2002 includes
    $9.6 million in the form of a demand note which can be
    called at anytime.

10



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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




|    |                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The table above does not include approximately
    $11.9 million of uncalled capital commitments to various
    investment partnerships that may be called over the next ten
    years because the Company cannot currently determine when, if
    ever, the commitments will be called.

Litigation

As of June 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,
results of operations 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.

9. Segment Information:

The Company considers its capital markets and
asset management operations to be two separate reportable
segments. During the third and fourth quarters of 2001, the
Company significantly scaled-down the online financial services
segment as well as 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

11



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##### Table of Contents



FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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


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 June 30, 2002 |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 | Total revenues        |         | $ | 54,259     |  |           | $ | 18,995       |  |  | $ |       |   |  | $ | 73,254  |  
|                                 | Pre-tax income        |         |   | 10,230     |  |           |   | 7,549        |  |  |   |       |   |  |   | 17,779  |  
|Three Months Ended June 30, 2001 |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 | Total revenues        |         |   | 44,103     |  |           |   | 10,930       |  |  |   | 119    |   |  |   | 55,152  |  
|                                 | Pre-tax income (loss) |         |   | 4,108      |  |           |   | 2,147        |  |  |   | (1,145 | ) |  |   | 5,110   |  
|Six Months Ended June 30, 2002   |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 | Total revenues        |         |   | 93,819     |  |           |   | 33,805       |  |  |   |       |   |  |   | 127,624 |  
|                                 | Pre-tax income        |         |   | 14,063     |  |           |   | 14,018       |  |  |   |       |   |  |   | 28,081  |  
|Six Months Ended June 30, 2001   |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 |                       |         |   |            |  |           |   |              |  |  |   |        |   |  |   |        
|                                 | Total revenues        |         |   | 67,720     |  |           |   | 9,672        |  |  |   | 213    |   |  |   | 77,605  |  
|                                 | Pre-tax income (loss) |         |   | 1,111      |  |           |   | 253          |  |  |   | (2,393 | ) |  |   | (1,029  | )

10. Related Party Transactions:

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, consulting with
FBR-Asset on purchase and sale opportunities, collection of
information, and submission of 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 $2.0 million in base management fees
during the second quarter of 2002, $3.1 million during the
first half 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 12-month period, 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
June 30, 2002, multiplied by a rate equal to the ten-year
U.S. Treasury rate plus five percent per annum. The Company
recorded $2.8 million in incentive fees during the second
quarter of 2002, $4.5 million during the first half of 2002
and $1.7 million for the year ended December 31, 2001.

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 have 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

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FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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


0.20 percent per annum of the average book
value of FBR-Assets Mortgage Portfolio during each
calendar quarter.

As of June 30, 2002, the Company and its
affiliated entities owned 2,744,700 shares or 10.95 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 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 second quarter of 2002, pursuant to
this agreement, the Company paid $0.3 million in fees to
FBR-Asset from one investment banking transaction. During the
first half of 2002, pursuant to this agreement, the Company paid
$0.6 million in fees to FBR-Asset from two investment
banking transactions. Fees are paid 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 from three investment banking transactions and one
unfunded commitment.

During the second quarter of 2002, in connection
with the Companys broker-dealer subsidiary underwriting
two follow-on public offerings for FBR-Asset, the Company earned
$6.9 million in fees in its capital markets segment. During
the first six months of 2002, in connection with the
Companys broker-dealer subsidiary underwriting three
follow-on public offerings for FBR-Asset, the Company earned
$10.1 million in fees.

Employee Stock Purchase and Loan
Plan

In connection with the Employee Stock Purchase
and Loan Plan, the Company issued five-year, limited recourse
promissory notes to employees with interest accruing at 6.5%
accreting to principal for the remaining purchase price. The
notes are collateralized by all of the stock purchased under the
plan. As of June 30, 2002 and December 31, 2001, the
balance on these loans was $23,416 and $22,706, respectively.

Employee Bank Loans

In addition, FBR Group employees may apply for
first mortgage residential loans from FBR National Bank &
Trust. As of June 30, 2002 and December 31, 2001, the
balance of outstanding loans to employees was $6,194 and $6,444,
respectively.

11. Extraordinary Gain:

In February 2002, the Company exercised 415,805
warrants of FBR-Asset. 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.

12. Accounting Developments:

The Company 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 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.

At the end of June 2001, the Financial Accounting
Standards Board concluded deliberations and unanimously voted to
issue SFAS No. 143, Accounting for Asset Retirement
Obligations. 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. SFAS

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FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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


No. 143 will be effective for financial
statements for fiscal years beginning after June 15, 2002.
The adoption of SFAS No. 143 is not expected to have a
material effect on the financial statements of the Company.

SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets supersedes
SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of. This statement, which was effective for fiscal years
beginning after December 15, 2001, 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.

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
primarily provides guidance for reporting gains and losses from
extinguishments of debt and sale-leaseback transactions and is
effective for fiscal years beginning after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a
material effect on the financial statements of the Company.

SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities 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,
which is effective for exit or disposal activities that are
initiated after December 31, 2002, is not expected to have
a material effect on the financial statements of the Company.

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FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC.


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







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 June 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.

In the first half 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 June 30, 2002 compared to three months ended
June 30, 2001

The Companys revenues increased 33% from
$55.2 million in 2001 to $73.3 million in 2002
primarily due to an increase in revenues from asset management
and institutional brokerage and, to a lesser extent, investment
banking revenues.

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Underwriting revenue increased 168% from
$9.4 million in 2001 to $25.2 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 second quarter of 2002, the Company managed 14 public
offerings raising $1.5 billion and generating
$25.2 million in revenues. Underwriting revenue during the
second quarter of 2002 included $6.9 million in fees
associated with FBR-Assets two secondary offerings in
April and June 2002. During the second quarter of 2001, the
Company managed five public offerings, raising
$391.4 million and generating $9.4 million in
revenues. The average size of underwritten transactions for
which we were a lead or co-manager increased from
$78.3 million in 2001 to $103.6 million in 2002.

Corporate finance revenue decreased 46% from
$18.1 million in 2001 to $9.8 million in 2002 due primarily
to one large private placement in 2001. The Company completed
two private placements in 2001 generating $15.5 million in
revenues compared to two private placements generating
$3.9 million in revenues in 2002. M&A and advisory fee
revenue increased from $2.6 million in 2001 to
$5.9 million in 2002 due to an increase in the number of
deals completed. In 2001, the Company completed three M&A
transactions compared to five completed transactions in 2002.

Institutional brokerage revenue from principal
transactions (primarily client transactions in Nasdaq
securities) increased 56% from $5.4 million in 2001 to
$8.4 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 $1.1 million in 2002 compared to
$0.4 million in 2001.

Institutional brokerage agency commissions
increased 67% from $6.0 million in 2001 to
$10.0 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
47% from $5.2 million in 2001 to $7.6 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 from $0.5 million in 2001 to $2.9 million in
2002. Incentive allocations in 2002 are primarily from FBR-Asset.

Asset management net investment income increased
70% from $5.0 million in 2001 to $8.5 million in 2002.
Net investment income in 2002 includes: $8.8 million of net
investment income generated from our investment in FBR-Asset
(reflecting share issuances) and $0.1 million of realized
gains related to available-for-sale securities offset by
$(0.3) million of net investment loss from investments in
managed vehicles and $(0.1) million of net investment loss
related to losses on our marketable securities. Net investment
income in 2001 includes: $3.4 million of net investment
income related to investments in our managed vehicles;
$1.7 million of realized gains related to a private,
mezzanine debt investment; and $1.6 million of net
investment income related to our investment in FBR-Asset offset
by $(1.0) million of other than temporary
unrealized depreciation related to an available-for-sale
security and $(0.7) million of net investment loss related
to losses on our marketable securities.

Asset management technology sector net investment
and incentive loss increased 44% from $(1.7) million in
2001 to $(2.4) 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 $3.8 million as of
June 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.

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Net interest, dividends, and other revenue (net
of interest expense) decreased 28% from $1.7 million in
2001 to $1.2 million in 2002 primarily due to increased
interest expense as a result of our short-term loans as well as
interest accretion associated with our long-term secured loan
and a decrease in earnings on invested cash primarily as a
result of a decline in interest rates.

Total expenses increased 11% from
$50.0 million in 2001 to $55.5 million in 2002 due
primarily to an increase in variable compensation expense
associated with increased revenue.

Compensation and benefits expense increased 17%
from $32.8 million in 2001 to $38.4 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 59% in 2001 to
52% in 2002.

Business development and professional services
decreased 3% from $8.2 million in 2001 to $8.0 million
in 2002 primarily due to a decrease in recruiting expenses
offset by an increase in travel and legal expenses associated
primarily with the increase in investment banking activity.

Clearing and brokerage fees increased 14% from
$1.6 million in 2001 to $1.8 million in 2002 as a
result of increased volume. As a percentage of institutional
brokerage revenue, clearing and brokerage fees decreased from
14% 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 29%
from $2.9 million in 2001 to $2.0 million in 2002
primarily due to a decrease in depreciation and amortization
expense. Depreciation and amortization expense
decreased $0.7 in 2002 compared to 2001. The decline in
depreciation and amortization expense is primarily a result of
amortization related to fbr.com software costs of
$0.6 million in 2001. These capitalized costs were impaired
during the third quarter of 2001 and were consequently
written-off.

Communications expense increased 46% from
$1.5 million in 2001 to $2.2 million in 2002 primarily
due to the opening of new offices and increased levels of
business.

Other operating expenses were fairly stable
decreasing 6% from $2.8 million in 2001 to
$2.6 million in 2002.

Six
months ended June 30, 2002 compared to six months ended
June 30, 2001

The Companys revenues increased 64% from
$77.6 million in 2001 to $127.6 million in 2002
primarily due to an increase in revenues from asset management
and investment banking and, to a lesser extent, institutional
brokerage revenues.

Underwriting revenue increased 120% from
$17.1 million in 2001 to $37.6 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 half of 2002, the Company managed 24 public
offerings raising $2.6 billion and generating
$37.6 million in revenues. Underwriting revenue during the
first half 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 half of 2001, the
Company managed eight public offerings, raising
$574.0 million and generating $17.1 million in
revenues. The average size of underwritten transactions for
which we were a lead or co-manager increased from
$71.2 million in 2001 to $107.5 million in 2002.

Corporate finance revenue increased 5% from
$20.3 million in 2001 to $21.3 million in 2002 due
primarily to an increase in the number of M&A and private
placement transactions completed in 2002 offset by a smaller
average size per private placement transaction in 2002, due to
one large private placement in 2001. The Company completed two
private placements generating $15.6 million in revenues in
2001 compared to three private placement generating
$7.0 million in revenues in 2002. M&A and advisory fee
revenue increased from $4.7 million in 2001 to
$14.3 million in 2002 due to an increase in the number of
deals completed. In 2001, the Company completed six M&A
transactions compared to nine completed transactions in 2002.

Institutional brokerage revenue from principal
transactions (primarily client transactions in Nasdaq
securities) increased 36% from $11.4 million in 2001 to
$15.4 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

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##### Table of Contents



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 49% from $12.5 million in 2001 to
$18.7 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.

Asset management base management fees increased
68% from $8.1 million in 2001 to $13.6 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 $0.8 million in 2001 to $4.7 million in
2002. Incentive allocations in 2002 are primarily from FBR-Asset.

Asset management net investment income increased
120% from $6.6 million in 2001 to $14.5 million in
2002. Net investment income in 2002 includes: $13.2 million of
net investment income generated from our investment in FBR-Asset
(reflecting share issuances), $1.3 million of net
investment income from investments in managed vehicles, and
$0.2 million of realized gains related to
available-for-sale securities offset by $(0.2) million of
net investment loss related to losses on our marketable
securities. Net investment income in 2001 includes:
$4.3 million of net investment income related to
investments in our managed vehicles; $1.7 million of
realized gains related to a private, mezzanine debt investment;
and $2.0 million of net investment income related to our
investment in FBR-Asset 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 of FBR-Asset. 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 60% from $(8.8) million in
2001 to $(3.5) 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
$(6.5) 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 $(1.2) 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 $3.8 million as
of June 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 29% from $3.8 million in
2001 to $2.7 million in 2002 primarily due to increased
interest expense as a result of our short-term loans as well as
interest accretion associated with our long-term secured loan
and a decrease in earnings on invested cash primarily as a
result of a decline in interest rates.

Total expenses increased 28% from
$78.6 million in 2001 to $101.0 million in 2002 due
primarily to an increase in variable compensation expense
associated with increased revenue.

Compensation and benefits expense increased 42%
from $49.0 million in 2001 to $69.7 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 63% in 2001 to
55% in 2002.

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Business development and professional services
increased 6% from $13.5 million in 2001 to
$14.4 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,
increased costs associated with our acquisition of MMA/ Rushmore
in April 2001, offset by a decrease in recruiting expenses.

Clearing and brokerage fees decreased 26% from
$3.3 million in 2001 to $2.4 million in 2002. As a
percentage of institutional brokerage revenue, clearing and
brokerage fees decreased from 14% in 2001 to 7% in 2002. This
percentage decrease is attributable to new clearing and
execution arrangements finalized in 2002.

Occupancy and equipment expense decreased 21%
from $5.4 million in 2001 to $4.3 million in 2002
primarily due to a decrease in depreciation and amortization
expense. Depreciation and amortization expense decreased $1.2 in
2002 compared to 2001. The decline in depreciation and
amortization expense is primarily a result of amortization
related to fbr.com software costs of $1.3 million in 2001.
These capitalized costs were impaired during the third quarter
of 2001 and were consequently written-off.

Communications expense increased 60% from
$2.7 million in 2001 to $4.3 million in 2002 primarily
due to the opening of new offices and increased levels of
business.

Other operating expenses increased 18% from
$4.3 million in 2001 to $5.1 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 $0.7 million in amortization expense associated
with the MMA acquired management contracts.

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 June 30, 2002, we had
$37.1 million of short-term loans payable, of which
$17.5 million represented repurchase agreements,
$10.0 million was in the form of a subordinated loan and
$9.6 million was on margin. We have no long-term debt other
than acquisition debt of $6.0 million.

Our principal assets consist of cash and cash
equivalents, receivables, securities held for trading purposes
and long-term investments. As of June 30, 2002, liquid
assets consisted primarily of cash and cash equivalents of $50.1
million and a receivable for cash on deposit with FBRCs
clearing broker of $76.2 million, for a total of
$126.3 million. Cash equivalents consist primarily of money
market funds invested in debt obligations of the U.S.
government. We also held $2.2 million in liquid marketable
securities.

As of June 30, 2002, we had
$10.0 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.
Subsequent to June 30, 2002, we repaid the outstanding
$10.0 million loan and renewed the subordinated credit line
that expired December 2001. The new agreement expires in
August 2004. Additionally, 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
June 30, 2002, our borrowing capacity was
$9.1 million, of which none was drawn down, at interest
terms of LIBOR plus 1.95 percent. The line of credit
expires June 7, 2003.

Long-term investments consist primarily of
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 for the
most part 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
half 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

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to risk weighted assets is 4.0 percent. As
of June 30, 2002, we had total and tier one capital ratios of
73.4 percent and 66.4 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 June 30,
2002, all of our broker/dealers were required to maintain
minimum regulatory net capital of $4.2 million and had
total regulatory net capital of $51.1 million, which was
$46.9 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). Management believes, as of June 30,
2002, FBR National Bank meets all capital adequacy requirements
to which it is subject.

As of June 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 June 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 announcing the
share repurchase program, we repurchased 1,468,027 shares as of
June 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.

As of June 30, 2002, we had net operating
losses (NOL) for tax purposes of approximately
$20 million that expire through 2020. We maintain a
valuation allowance related to the NOL and a net deferred tax
asset. As a result of recording the valuation allowance, based
on current evidence, we estimate that future income tax
provisions recorded in the Consolidated Statement of Operations
will be calculated excluding approximately $30 million in
pre-tax income.

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Item 3. Changes In Information About
Market Risk

None.

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.

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OTHER INFORMATION





Item 4. Submission of Matters to a
Vote of Security Holders

The Company held its Annual Meeting of
Shareholders on June 7, 2001 at which shareholders took the
following actions:



| |    |                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------
| | 1. | The election of the five directors of the Company.                                                                       
|
| | 2. | The ratification of the appointment of
    PricewaterhouseCoopers LLP as the Companys independent
    auditors for 2002.

The results of the voting in connection with the
preceding items were as follows:

1. Election of Directors: A total of
93,912,747 votes were received for this item.

|                    |  |     |            |         |  |         |           |  |  |  |   | 
|------------------- |  | --- | ---------- | ------- |  | ------- | --------- |  |  |  | - | 
|                    |  | For |            | Against |  | Abstain
|                    |  |     |            |         |  |        
|Emanuel J. Friedman |  |     | 91,615,846 |         |  |         | 2,296,901 |  |  |  |  | 
|Eric F. Billings    |  |     | 91,615,846 |         |  |         | 2,296,901 |  |  |  |  | 
|Daniel J. Altobello |  |     | 92,819,046 |         |  |         | 1,093,701 |  |  |  |  | 
|W. Russell Ramsey   |  |     | 92,819,046 |         |  |         | 1,093,701 |  |  |  |  | 
|Wallace L. Timmeny  |  |     | 92,819,046 |         |  |         | 1,093,701 |  |  |  |  | 

2. Ratification of the Appointment of
PricewaterhouseCoopers LLP: A total of 93,912,747 votes were
received for this item.

| |  |     |            |         |  |         |         |  |  |  |       | 
| |  | --- | ---------- | ------- |  | ------- | ------- |  |  |  | ----- | 
| |  | For |            | Against |  | Abstain
| |  |     |            |         |  |        
| |  |     | 93,757,096 |         |  |         | 150,601 |  |  |  | 5,050 | 




Item 6. Reports on
Form 8-K



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | August 1, 2002: Second Quarter 2002:
    Earnings Press Release, Table of Assets Under Management and
    Long-Term Investment Matrix    
|
| |  | July 11, 2002: Press release announcing
    expected earnings for the second quarter 2002                                                
|
| |  | May 22, 2002: First Quarter 2002 Earnings
    Presentation available on FBR website and attached to 8-K                                  
|
| |  | May 2, 2002: First Quarter 2002 Earnings
    Press Release and conference call transcript                                                
|
| |  | April 23, 2002: Press release announcing
    that FBR would release first quarter 2002 results after the
    market closes on May 1, 2002
|
| |  | April 10, 2002: Material presented at the
    Sidoti & Co. Investor Conference                                                           

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PART II.


OTHER INFORMATION







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: August 14, 2002

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