-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NNzVjK35+34Ft2IZPqcEXktSkQkRqdu4l7ncdHHcHnTCzLW68nTou3nR4jCCls6B 0AUGfSzXurgA6eIOUR80nw== 0000898822-02-001439.txt : 20021204 0000898822-02-001439.hdr.sgml : 20021204 20021204091109 ACCESSION NUMBER: 0000898822-02-001439 CONFORMED SUBMISSION TYPE: 425 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20021204 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FBR ASSET INVESTMENT CORP/VA CENTRAL INDEX KEY: 0001073208 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 541873198 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 425 SEC ACT: 1934 Act SEC FILE NUMBER: 001-15049 FILM NUMBER: 02847971 BUSINESS ADDRESS: STREET 1: POTOMAC TOWER STREET 2: 1001 NINETEENTH ST NORTH CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7033129500 MAIL ADDRESS: STREET 1: POTOMAC TOWER STREET 2: 1001 NINETEENTH ST NORTH CITY: ARLINGTON STATE: VA ZIP: 22209 FORMER COMPANY: FORMER CONFORMED NAME: FBR ASSET INVESTMENT CORP DATE OF NAME CHANGE: 19990526 FORMER COMPANY: FORMER CONFORMED NAME: FBR ASSET INVESMENT CORP/VA DATE OF NAME CHANGE: 19990528 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FRIEDMAN BILLINGS RAMSEY GROUP INC CENTRAL INDEX KEY: 0001048750 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 541870350 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 425 BUSINESS ADDRESS: STREET 1: 1001 19TH STREET N CITY: ARLINGTON STATE: VA ZIP: 22209 BUSINESS PHONE: 7033129500 MAIL ADDRESS: STREET 1: 1001 NINETEENTH ST N CITY: ARLINGTON STATE: VA ZIP: 22209 425 1 pwrpointpresentdec3.txt FORM 425 Filed by Friedman, Billings, Ramsey Group, Inc. Pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Act of 1934 Subject Company: FBR Asset Investment Corporation Commission File No: 001-15049 FRIEDMAN BILLINGS RAMSEY [FBR LOGO] MERGER OF FRIEDMAN, BILLINGS, RAMSEY GROUP ("FBR GROUP") WITH FBR ASSET INVESTMENT CORPORATION ("FBR ASSET") ------------------------------------------------------- DECEMBER 2002 ------------------------------------------------------- ________________________________________________________________________________ [FBR LOGO] ________________________________________________________________________________ FORWARD LOOKING INFORMATION Statements concerning projections, future performance, developments, events, market forecasts, revenues, expenses, earnings, run rates and any other guidance on present or future periods constitute forward- looking statements. These forward-looking statements are subject to a number of factors, risks, and uncertainties that might cause actual results to differ materially from stated expectations or current circumstances. These factors include, but are not limited to, the overall environment for interest rates, repayment speeds within the mortgage-backed securities market, risk associated with equity investments, the demand for public offerings, activity in the secondary securities market, the high degree of risk associated with technology and other venture capital investments, competition for business and personnel, and general economic, political, and market conditions. Additional information concerning factors that could cause actual results to differ materially is contained in FBR Asset's Annual Report on Form 10-K and quarterly reports on Form 10-Q, and FBR Group's Annual Report on Form 10-K and quarterly reports on Form 10-Q. PROXY INFORMATION In connection with the proposed transactions, Friedman, Billings, Ramsey Group, Inc. and FBR Asset Investment Corporation will file a joint proxy statement/prospectus with the Securities and Exchange Commission. Investors and security holders are urged to carefully read the joint proxy statement/prospectus regarding the proposed transactions when it becomes available, because it will contain important information. Pro forma information contained in the following materials may be changed in the joint proxy statement/prospectus. Investors and security holders may obtain a free copy of the joint proxy statement/prospectus (when it is available) and other documents containing information about Friedman, Billings, Ramsey Group, Inc. and FBR Asset, without charge, at the SEC's web site at http://www.sec.gov. Free copies of both companies' filings may be obtained by directing a request to 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention: Investor Relations. PARTICIPANTS IN SOLICITATION FBR Group, FBR Asset and their respective directors, executive officers and other members of their management and employees may be soliciting proxies from their respective stockholders in connection with the proposed merger. Information concerning FBR Group's participants in the solicitation is set forth in FBR Group's proxy statement for its annual meeting of stockholders, filed with the SEC on May 30, 2002. Information concerning FBR Asset's participants in the solicitation is set forth in FBR Asset's proxy statement for its annual meeting of stockholders, filed with the SEC on April 23, 2002. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY Page 2 December 4, 2002 [FBR Logo] INTRODUCTION ________________________________________________________________________________ o On November 14, 2002, Friedman, Billings, Ramsey Group, Inc. (NYSE: FBR) and its existing affiliate, FBR Asset Investment Corporation (NYSE: FB) agreed to merge. o The resulting entity will continue to engage in the business activities of the two companies. The new parent company ("New FBR") will engage in principal investing activities, primarily investing in mortgage-backed securities as FBR Asset does today, and, through taxable subsidiaries, will conduct investment banking and other operating businesses as FBR Group does today. o New FBR will elect to be taxed as a REIT, and will conduct most prinicpal investment activities in the REIT, as FBR Asset had done befroe the merger. The operating businesses of FBR Group will be conducted within taxable REIT subsidiaries ("TRS"s) and will continue to pay corporate income tax like any taxable corporation. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 3 December 4, 2002 [FBR Logo] CORPORATE STRUCTURE ________________________________________________________________________________ [Graph depicting the following information:] BEFORE AFTER FBR ASSET Asset holdings conform PARENT (REIT) ----------> to REIT rules (REIT) (primarily MBS); distributes 90%+ of taxable income. FBR GROUP ----------> Operating businesses; TAXABLE REIT (TAXABLE pays tax at corporate SUBSIDIARIES CORPORATION) rates; may retain or (Taxable distribute after-tax Corporation) earnings. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 4 December 4, 2002 [FBR Logo] NEW FBR (1) ________________________________________________________________________________ o Significant Growth Opportunity within Investment Banking and Other TRS Businesses o Significant Dividend Income o Diversified Earnings Stream o Ability to Capitalize on Principal Investing Opportunities o More than 460 Employees in 16 Offices o Total Assets of More than $6 Billion; Highly Liquid Balance Sheet o Equity Capital Base of More than $1 Billion o Market Capitalization Greater than $1.2 Billion (2) o Total Shares Outstanding of Approximately 130 Million o Float Shares Greater than 100 Million (1) All data pro forma for the transaction. (2) Based on the closing price of FBR Group on November 14, 2002. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 5 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY INVESTMENT BANKING, INSTITUTIONAL BROKERAGE, ASSET MANAGEMENT Growth Businesses ________________________________________________________________________________ -------------------------------------------------------------------- DECEMBER 2002 -------------------------------------------------------------------- ________________________________________________________________________________ [FBR Logo] FBR GROUP OVERVIEW ________________________________________________________________________________ o Top Ten Lead Managing Equity Underwriter o Greater than 30% CAGR Revenue Growth o #1 Aftermarket Performance for Lead Managed Deals Since January 1, 2001 (1) o One of the Most Efficient Cost Structures in the Industry o Six Industry Focus Sectors, 460 Employees, 16 Offices o Manager of Mortgage Backed Securities and Principal Activities of FBR Asset o Positioned for Continued Growth Through Period of Industry Volatility (1) Source: CommScan LLC. For the period beginning January 1, 2001 and ending September 30, 2002, among underwriters that have closed more than five lead-managed deals. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 7 December 4, 2002 [FBR Logo] Investment Baking Rankings 1/1/02-9/30/02 ________________________________________________________________________________
Issuer Market Cap Under $1B- All Industries All Market Caps- All Industries 1/1/2002-9/30/2002 IPOs and Secondaries 1/1/2002-9/30/2002 IPOs and Secondaries LEAD MANAGER $ MILLIONS # OF DEALS LEAD MANAGER $ MILLIONS # OF DEALS 1 Credit Suisse First Boston $2,865.2 25 1 Credit Suisse First Boston $16,405.4 49 2 Merrill Lynch & Co $1,793.4 15 2 Goldman, Sachs & Co $13,103.3 25 3 Bear, Stearns & Co $1,589.2 13 3 Salomon Smith Barney Inc $10,851.5 26 4 Morgan Stanley $1,517.5 14 4 Morgan Stanley $6,817.1 26 5 Lehman Brothers $1,508.9 12 5 Merrill Lynch & Co $6,693.0 28 6 UBS Warburg LLC $1,310.7 17 6 Lehman Brothers $4,023.0 19 7 FRIEDMAN, BILLINGS, RAMSEY $1,191.7 15 (1) 7 UBS Warburg LLC $2,438.8 22 8 Goldman, Sachs & Co $1,092.4 8 8 Deutsche Bank Securities $2,276.2 13 9 Salomon Smith Barney Inc $871.9 8 9 Bear, Stearns & Co $2,202.2 16 10 Banc of America Securities $683.2 8 10 J.P. Morgan Securities Inc $2,138.9 13 11 Deutsche Bank Securities $591.1 6 11 Banc of America Securities $2,136.8 12 12 J.P. Morgan Securities $498.3 7 12 FRIEDMAN, BILLINGS, RAMSEY $1,694.2 16 (1) 13 CIBC World Markets $405.6 8 13 Thomas Weisel Partners LLC $468.1 4 14 Robertson Stephens $386.0 7 14 CIBC World Markets $405.6 8 15 Robert W. Baird & Co Inc $384.6 4 15 Robertson Stephens $386.0 7 16 U.S. Bancorp Piper Jaffray Inc $303.3 4 16 Robert W. Baird & Co Inc $384.6 4 17 Raymond James $280.4 9 17 U.S. Bancorp Piper Jaffray Inc $303.3 4 18 Jefferies & Co Inc $257.2 3 18 Wachovia Securities Inc $289.3 6 19 Wachovia Securities Inc $238.9 5 19 Raymond James $280.4 9 20 Thomas Weisel Partners LLC $217.0 3 20 Jefferies & Co Inc $257.2 3 21 Keefe, Bruyette & Woods Inc $216.6 5 21 Keefe, Bruyette & Woods Inc $216.6 5 22 TD Securities Inc $212.4 1 22 Needham & Co Inc $183.6 3 23 Needham & Co Inc $183.6 3 23 Ferris, Baker Watts Inc $165.3 3 24 Ferris, Baker Watts Inc $165.3 3 24 William Blair & Co $127.5 3 25 Legg Mason Wood Walker Inc $143.5 2 25 Morgan Keegan & Co Inc $107.7 4 (1) In addition, FBR raised more than $450 million in 144A Institutional Equity Placements. Including this $450 million, FBR raised approximately $1.65 billion for issuers with market capitalizations under $1 billion, and $2.15 billion in total. Source: CommScan LLC. Excludes Closed End Funds
________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 8 December 4, 2002 [FBR Logo] FBR GROUP OVERVIEW ________________________________________________________________________________ THE BUSINESS OPERATED BY FBR GROUP IN THE PAST WILL CONTINUE TO BE OPERATED BY NEW FBR THROUGH TAXABLE REIT SUBSIDIARIES (US $ IN MILLIONS) [Bar Graphs depicting the following information:] INVESTMENT BANKING REVENUE (1) Underwriting: 1999 $22.6 2000 $21.1 2001 $44.6 2002 Nine Months Annualized $82.7 Corporate Finance: 1999 $22.5 2000 $31.4 2001 $30.3 2002 Nine Months Annualized $64.1 Gains: 1999 $3.9 2000 $1.5 2001 $6.8 2002 Nine Months Annualized $5.9 Total 1999: $49.0 Total 2000: $54.0 Total 2001: $81.7 Total 2002 Nine Months Annualized: $152.6 CAGR 46.0% SALES & TRADING REVENUE (1) Agency: 1999 $15.0 2000 $21.1 2001 $27.1 2002 Nine Months Annualized $36.4 Principal: 1999 $22.1 2000 $32.3 2001 $24.6 2002 Nine Months Annualized $27.0 Total 1999: $37.1 Total 2000: $53.4 Total 2001: $51.7 Total 2002 Nine Months Annualized: $63.4 CAGR 19.6% ADJUSTED ASSET MANAGEMENT REVENUE (1) Base Management Fee: 1999 $8.4 2000 $9.0 2001 $17.9 2002 Nine Months Annualized $20.2 Incentive Income: 1999 $1.6 2000 $1.7 2001 $2.0 2002 Nine Months Annualized $.3 Total 1999: $10.0 Total 2000: $10.7 Total 2001: $19.9 Total 2002 Nine Months Annualized: $20.5 CAGR 27.1% TOTAL ADJUSTED PRO FORMA TRS REVENUE (1) (2) Investment Banking: 1999 $49.0 2000 $54.0 2001 $81.7 2002 Nine Months Annualized $152.6 Sales & Trading 1999 $37.1 2000 $53.4 2001 $51.7 2002 Nine Months Annualized $63.4 Asset Management 1999 $10.0 2000 $10.7 2001 $19.9 2002 Nine Months Annualized $20.5 Total 1999: $96.1 Total 2000: $118.1 Total 2001: $153.2 Total 2002 Nine Months Annualized: $236.5 CAGR 35.0% (1) Adjusted for elimination of all revenue from and fees paid to FBR Asset and for the elimination of technology sector net investment and incentive gains and losses. (2) Excludes Net Investment Income, Interest, Dividends and Other. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 9 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY PRINCIPAL INVESTING Spread Businesses & Merchant Banking ------------------------------------------------------------------------- DECEMBER 2002 ------------------------------------------------------------------------- ________________________________________________________________________________ [FBR Logo] MBS AND OTHER PRINCIPAL INVESTMENTS ________________________________________________________________________________ The strategy successfully employed by FBR Asset in the past will continue to be used by New FBR o Residential Mortgage-Backed Securities (Approximately $5.8 Billion as of September 30, 2002) |X| AAA rated securities - guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae |X| Low effective duration of 1 to 2 years: limits price risk |X| Leverage target of 8.5x debt to equity |X| Allocation of principal equity capital: 50%-90% (long-term average target 60%-65%) o Merchant Banking Portfolio (approximately $100 Million as of September 30, 2002 in FBR Asset) |X| Senior secured and mezzanine loans |X| Preferred and common equity |X| Direct assets |X| Non-levered portfolio |X| Typical hold period 12-18 months |X| Allocation of principal equity capital: 10%-50% (long-term average target 35%-40%) ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 11 December 4, 2002 [FBR Logo] PORTFOLIO RETURNS ________________________________________________________________________________ o MORTGAGE BACKED SECURITIES PORTFOLIO INVESTMENTS ROE Model(1) --------- Unlevered Asset Yield: 4.00% Cost of funds: 1.35% Spread: 2.65% ------- ROE, Gross (Assumed Leverage @ 8.5x) 26.53% ------------------------------------------- Levered Return: (2.65% * 8.5x) 22.53% Unlevered Equity Return: 4.00% ----- Gross ROE 26.53% ------------------------------------------- o OPPORTUNITY FUND INVESTMENTS |X| The Dollar Weighted Internal Rate of Return in FBR Asset's Opportunity Portfolio Investments has been 30.6% (In addition, FBR Asset and FBR Group received Investment Banking Fees) (1) Example for illustrative purposes only, not intended to reflect existing portfolio, historical results, or likely future results. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 12 December 4, 2002 [FBR Logo] FBR ASSET MBS PORTFOLIO ________________________________________________________________________________
AS OF 30-SEP-2002 ____________________________________________________________________________________________________________ CURRENT MARKET RELEVANT FACE VALUE % OF AVERAGE AVERAGE BOOK EFFECTIVE PREPAYMENT SECTOR ($000) ($000) PORTFOLIO COUPON YRS. TO MAT. YIELD DURATION ASSUMPTIONS ____________________________________________________________________________________________________________ ARM 5,618,770 5,789,145 99.44% 5.27% 2.55 4.74% 1.37 30.37 Fixed 31,869 33,360 0.56% 7.00% 2.27 5.34% 1.00 56.71 TOTAL 5,650,639 5,822,505 100.00% 5.28% 2.55 4.75% 1.37 30.53
[PIE CHART DEPICTING GNMA 5%, FNMA 36% AND FHLMC 59%] [PIE CHART DEPICTING ARM 99% AND Fixed 1%] ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 13 December 4, 2002 [FBR Logo] NET INTEREST SPREAD COMPARED TO DISCOUNT RATE ________________________________________________________________________________ [LINE GRAPH DEPICTING SPREAD COMPARED TO DISCOUNT RATE "SPREAD BETWEEN CMT+225 BPS AND ONE MONTH LIBOR(%)" ON THE VERTICAL AXIS AND "THE MONTHS OF NOVEMBER AND MAY FROM 1982 TO 2002" ON THE HORIZONTAL AXIS. THE POINTS PLOTTED REPRESENT THE FOLLOWING: 1. "SPREAD BETWEEN CMT+225 BPS AND LIBOR" 2. "AVERAGE SPREAD OF 216 BPS (STANDARD DEVIATION OF 47 BPS)" 3. "DISCOUNT RATE"] Source: Bloomberg, Federal Reserve Note: CMT is 1 Year Constant Maturity Treasury. For purposes of estimating spread, assumed a margin of 225 bps. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 14 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY ________________________________________________________________________________ BUSINESS SYNERGY The Interface Between Investment Banking and Capital ------------------------------------------------------------------------- DECEMBER 2002 ------------------------------------------------------------------------- ________________________________________________________________________________ BUSINESS SYNERGY [FBR Logo] ACCESS TO CAPITAL DRIVES INVESTMENT BANKING GROWTH ________________________________________________________________________________ Examples of transactions in which FBR Asset has invested, and FBR Group has provided investment banking services. ----------------------------------------------------------------------- INVESTMENT BANKING PERIOD INVESTMENT AMOUNT FEES ----------------------------------------------------------------------- Jul-01 Saxon Capital $9,300,000 $16,750,587 Nov-01 Quaker Coal - 707,334 (1) Nov-01 MCG Capital 9,934,375 10,688,048 Dec-01 Anworth Mortgage 3,890,650 1,318,828 Mar-02 Oxford Finance Corp. 14,650,000(2) 3,180,000 Apr-02 Southwest Royalties 18,333,333 1,792,188 Sep-02 American Financial 40,000,001(3) 27,149,064 Realty Trust Sep-02 AmeriCredit 35,250,000 28,522,361 Oct-02 Franklin Bank 5,580,000 4,437,533 --------------------------------------- $136,938,360 $94,545,943 (1) Breakup fee (2) Includes $10 million note and $4.65 million equity investment (3) Includes $5 million Three Beaver Valley note repaid prior to the 144A offering and the subsequent $35 million equity investment, which was made in September of 2002. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 16 December 4, 2002 BUSINESS SYNERGY [FBR Logo] CASE STUDIES FOR USE OF CAPITAL ________________________________________________________________________________
American Financial Realty Southwest Royalties, Inc. AmeriCredit Corp.(ACF) Trust -------------------------------------------------------------------------------------------------------- FBR Group worked with American FBR acted as the sole manager Financial's management team to FBR was engaged to syndicate a and placement agent for a $500 create a REIT that purchases real senior loan for Southwest Royalties, million recapitalization of Description of estate assets from large commercial an oil and gas exploration and AmeriCredit, a sub-prime Transaction banking institutions and subsequently production company, in an amount automobile finance company. releases the properties back to the up to $80 million. FBR Asset FBR Asset acted as the lead institutions or a third party and in participated as the lead, helping investor, enabling FBR to some cases, sells the acquired to bring in two other institutions to successfully complete the property. Prior to the 144A offering, consummate the transaction. transaction in a difficult FBR Asset made a time critical $5 market environment. million loan, which was repaid in 42 days, to enable REIT to acquire a key piece of real estate. FBR Asset subsequently acted as the lead investor with a $35 million investment in a $400 million dollar 144A offering completed by FBR Group to initially capitalize the REIT. Transaction 144A Private Placement Syndicated Senior Loan Follow-on Offering Structure Deal Size $400 Million $55 Million Over $500 Million Investment Amount $35,000,001 $18,333,333 $35,250,000 Days Held 90+ (still in portfolio) 26 65+ (still in portfolio) Holding Period Return 14.9% to date 2.0% 14.9% to date - ------------------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 17 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY THE NEW FBR Business Mix --------------------------------------------------------------------------- DECEMBER 2002 --------------------------------------------------------------------------- ________________________________________________________________________________ [FBR Logo] NEW FBR BUSINESS MIX (1) ________________________________________________________________________________
____________________________________________________________________________________________________________________________________ REIT PRINCIPAL ACTIVITIES TAXABLE SUBSIDIARIES (TRSs) MORTGAGED MERCHANT BACKED BANKING INVESTMENT INSTITUTIONAL ASSET SECURITIES AND OTHER BANKING RESEARCH SALES & TRADING MANAGEMENT $160 million 75 investment bankers 60 analysts 50 Institutional Private equity Assets approximately of invested 6 focused industry Over 380 Brokers Hedge funds $6 billion capital sectors companies 30 Traders & Sales Venture capital o AAA rated o Preferred and o Financial Services under coverage Traders Equity Mutual funds securities - common equity o Real Estate o Independence Market-maker in Fixed Income & Money guaranteed by o Senior secured o Technology o In-depth over 470 equity Market Mutual Funds Freddie Mac, and mezzanine o Energy company analysis and debt securities Private Client Group Fannie Mae or loans o Diversified o Theme-driven o Covering over o Investment Ginnie Mae o Interest in Industries industry 1,000 management o Low effective proprietary o Healthcare coverage institutional o Restricted (144) duration of 1 to 2: funds Top 10 lead-managing o Daily meetings accounts stock sales limits price risk o Direct assets equity underwriter with sales force o Mutual funds o Financial o Leverage target o Non-levered o 78 transactions o Up-to-date o Hedge funds planning/trust & of 8.5x within portfolio with $5.6 bn in economic and o Money managers estate services mortgage portfolio total transaction policy news o Pension funds o Credit lines value(2) o Frequent o Hedging and o 29 lead and sole management monetization managed public and roadshows o Employee stock private transactions(2) o Annual investor option management o 34 M&A and conferences o Cash management advisory o FBR National Bank assignments(2) & Trust (3)
(1) All numbers are approximate as of September 30, 2002 unless otherwise stated. (2) For 12 months ended September 30, 2002. (3) Member FDIC and an equal housing lender. Products offered by other FBR subsidiaries are not FDIC insured, not offered, guaranteed, or endorsed by FBR National Bank & Trust, and may lose value. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 19 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY _______________________________________________________________________________ THE NEW FBR Selected Comparables -------------------------------------------------- DECEMBER 2002 -------------------------------------------------- _______________________________________________________________________________ [FBR Logo] INDEPENDENT BROKER-DEALER BUSINESS MIX _______________________________________________________________________________
Components of Period Interest Investment Principal Fees Gross Revenue End (1) and Banking Transactions & Dividends and Other Commissions Lehman Brothers 31-Aug-02 70% 11% 19% 0% Morgan Stanley 31-Aug-02 49% 7% 19% 25% Merrill Lynch 27-Sep-02 46% 9% 25% 20% Goldman Sachs 30-Aug-02 48% 12% 19% 21% SWS Group (2) 27-Sep-02 38% 11% 38% 14% Bear Stearns 31-Aug-02 32% 14% 51% 2% Jefferies Group 27-Sep-02 12% 19% 66% 2% Raymond James Financial 28-Jun-02 11% 8% 66% 14% Stifel Financial Corp. 30-Sep-02 8% 25% 54% 13% Legg Mason, Inc (3) 30-Sep-02 7% 7% 30% 56% A.G. Edwards Inc.(3) 31-Aug-02 5% 11% 55% 29% -- -- -- -- AVERAGE BROKER/DEALER 30% 12% 40% 18% NEW FBR 2003 FORECAST 31-DEC-02 44% 30% 16% 10% PRO FORMA (4)
(1) Results are for most recent nine month period unless stated otherwise. (2) Most recent three month period (3) Most recent six month period (4) Pro forma forecast for full year ended December 31, 2003 _______________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 21 December 4, 2002 [FBR Logo] SELECTED COMPARABLES _______________________________________________________________________________
Period Market Cap (1) Compensation/ Leverage ROE (2) Indicated Price/ 2003 End ($ Millions) Net Dividend Book Estimated Revenue (2) Yield P/E Morgan Stanley 31-Aug-02 $45,596 45.7% 24.1x 14.0% 2.2% 2.13x 13.2x Goldman Sachs 30-Aug-02 37,117 50.0% 18.5x 11.4% 0.6% 1.97x 16.2x Merrill Lynch 27-Sep-02 34,058 51.7% 19.7x 11.8% 1.6% 1.53x 13.1x Lehman Brothers 31-Aug-02 13,568 51.0% 29.8x 11.8% 0.6% 1.52x 12.8x Bear Stearns 31-Aug-02 8,892 48.6% 31.1.x 16.5% 1.1% 1.49x 11.5x Legg Mason, Inc (3),(4) 30-Sep-02 3,331 59.2% 5.1x 11.2% 0.9% 2.85x 16.1x A.G. Edwards Inc. (4) 31-Aug-02 2,698 66.3% 2.4x 7.8% 1.9% 1.66x 15.9x Raymond James Financial(5) 28-Jun-02 1,478 75.8% 7.9x 9.5% 1.2% 1.79x 17.6x Jefferies Group 27-Sep-02 1,102 57.9% 9.6x 10.3% 0.5% 1.88x 15.3x SWS Group (6) 27-Sep-02 218 56.3% 14.0x NA 3.1% 1.15x NA Stifel Financial Corp. 30-Sep-02 82 68.2% 5.3x 1.9% 1.0% 0.97x NA AVERAGE BROKER/DEALER $13,347 57.3% 15.2X 10.6% 1.3% 1.72X 14.6X NEW FBR 2003 31-DEC-03 $1,258 (8) <44.0% 6.4X (9) 18.4% (10) 14.4% (11) 1.20X (12) 6.3X (13) PRO FORMA FORECAST (7)
(1) Market data as of November 18, 2002 (2) Based on most recent nine month period end (annualized for ROE calculation) unless noted otherwise (3) Earnings forecast for fiscal year end March 2004 (4) Compensation/Net Revenue based on most recent six month period, ROE annualized on most recent six month period (5) Earnings forecast for fiscal year end September 2003 (6) Compensation/Net Revenue based on most recent three month period, ROE annualized on most recent three month period (7) Pro forma forecast for full year 2003 (8) FBR Pro Forma market cap is calculated based on the closing price on November 14, 2002, the day prior to the date that the transaction was announced. (9) Pro Forma as of 9/30/02 (10) ROE calculated using 9/30/02 equity of $1.013 billion as 2003 starting equity and assumes retained GAAP earnings of $5.6 million at the end of 2003, resulting in average equity over the period of $1.016 billion. GAAP Net Income for 2003 is forecast to be $187 million (see slide A-7). (11) Indicated dividend of $1.37 over FBR Group share price of $9.50 on November 14, 2002, the day prior to the date the transaction was announced (12) Pro Forma Book of $7.89 as of 9/30/02, which excludes the effect of employee loans and related shares (13) FBR Group share price of $9.50 on November 14, 2002 over Adjusted Earnings per Share of $1.52 (see slide A-7) _______________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 22 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY THE NEW FBR Conclusion ---------------------------------------------------------- DECEMBER 2002 ---------------------------------------------------------- _______________________________________________________________________________ [FBR Logo] NEW FBR (1) _______________________________________________________________________________ o Significant Growth Opportunity within Investment Banking and Other TRS Businesses o Significant Dividend Income o Diversified Earnings Stream o Ability to Capitalize on Principal Investing Opportunities o More than 460 Employees in 16 Offices o Total Assets of More than $6 Billion; Highly Liquid Balance Sheet o Equity Capital Base of More than $1 Billion o Market Capitalization Greater than $1.2 Billion (2) o Total Shares Outstanding of Approximately 130 Million o Float Shares Greater than 100 Million (1) All data pro forma for the transaction. (2) Based on the closing price of FBR Group on November 14, 2002. _______________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page 24 December 4, 2002 [FBR Logo] FRIEDMAN BILLINGS RAMSEY _______________________________________________________________________________ APPENDIX ------------------------------------------------------------ DECEMBER 2002 ------------------------------------------------------------ _______________________________________________________________________________ [FBR Logo] TRANSACTION OVERVIEW _______________________________________________________________________________ Exchange Ratio: 3.65 "New FBR" shares per FBR Asset share Implied FBR Asset Price per Share: (1) $34.68 Implied Aggregate Consideration: (1),(2) $869 Million Implied Premium to ------------------------------- Market: (1) 22% $34.68 $29.06 GAAP Book (2.81) AOCI (2.81)AOCI ----- Implied Multiple to $31.87 Price (0.29) Excess Adjusted Book (ex.AOCI): (1) 1.23x paid for ------ earnings adjusted $25.96 Adjusted book book ------------------------------ Consideration: 100% Stock (tax-free) Transaction Structure: o New FBR created and elects to be taxed as a REIT o FBR Asset to be merged into New FBR o FBR Group to be merged into New FBR o Operating businesses elect to become taxable REIT subsidiaries ("TRSs") Board Composition: FBR Group Board plus FBR Asset Board; nine directors in total, of which seven are outsiders; at least five are independent directors in accordance with the proposed guidelines Required Approvals: FBR Group Shareholders, FBR Asset Shareholders and regulatory approvals Walk-Away Provisions: 10 day average FBR Group share price of below $8.75 and above $10.55 for 10 days prior to shareholder meetings; may be waived Anticipated Closing: First Quarter 2003 (1) As of November 14, 2002 - date of agreement (2) Includes shares beneficially owned by FBR _______________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-1 December 4, 2002 [FBR Logo] OLD STRUCTURE/TWO SEPARATE COMPANIES _______________________________________________________________________________
FBR GROUP FBR ASSET [Graph Depicting Structural Information] [Graph Depicting Structural Information] FBR Group (C Corp.) 10% of Merchant Base Fee of $11 Million FBR Asset Information Corporation $260 Million of Capital (1) Banking Related plus Incentive Fee of (REIT) $60 Million Projected 2003 Net Income Investment Banking $21.5 Million Projected $730 Million of Capital (2) Fees for 2003 $125 Million Projected 2003 Income Investment Banking, Sales & Trading, Research Managed by FBR Investment Management FBR Investment Management (FBRIM) FBR Asset Taxable REIT Subsidiary ("TRS") MBS Portfolio Management, Merchant $3 Million of Capital Banking Investments, Other Investment Management Pays Tax and Retains Capital
(1) Approximate as of September 30, 2002, including approximately $24 million of employee loans (2) Approximate as of September 30, 2002 _______________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-2 December 4, 2002 [FBR Logo] NEW FBR TOTAL CAPITAL OF MORE THAN $1 BILLION (1), PROJ. EARNINGS OF ALMOST $200 MILLION (2) _______________________________________________________________________________ [Graph depicting the following information:] New FBR (REIT) $964 Million of Capital (1) $174.7 Million Projected 2003 Net Income (2) No Tax, Pays Dividends MBS Portfolio Encompasses both the old FBR Asset Capital and the old FBR Group Excess Capital Merchant Banking FBR Taxable REIT Subsidiary $49 Million of Capital $23.1 Million Projected 2003 After-Tax Income Pays Tax, Retains Capital Investment Banking, Research, Sales & Trading, Other Asset Management and Customer Services (1) Pro Forma as of September 30, 2002, excluding approximately $24 million of employee loans (2) Before $10.8 million amortization of excess premium resulting from purchase accounting _______________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FOWARD LOOKING INFORMATION ON PAGE 2. Page A-3 December 4, 2002 [FBR Logo] TRANSACTION SUMMARY ________________________________________________________________________________
FBR Group FBR Asset New FBR Business Description Fast Growing Externally Principal Investing Investment Bank Managed Mortgage and Top Ten REIT Investment Bank Corporate Structure C Corporation REIT REIT Management Structure Internal External Internal Stock for Stock Exchange 1.00 3.65 N/A Total Shares Outstanding (1) 50.4 25.1 132.4 Estimated Fully Diluted GAAP shares (2) 48.0 25.1 130.0 (3) Former FBR Asset Share Equivalents 9/30/02 Book Value per share (4) $5.06 $29.06 $7.89 $28.80 equivalent for FBR Asset 2003 Projected EPS $1.27 $4.99 $1.52 (5) $5.55 equivalent for FBR Asset 2003 Projected Dividend None $5.00 $1.37 $5.00 equivalent for FBR Asset Assets / Equity 2:1 8:1 6:1 Market Capitalization at 11/14/02 $475,000,000 $700,000,000 $1,257,800,000 (6)
(1) Includes 4 million employee loan shares (2) Excludes effect of employee loans and related shares (3) 25.1 million FBR Asset shares less 2.6 million FBR Asset shares owned by FBR Group times 3.65 equals 82 million plus 46.4 million shares outstanding plus estimated 1.6 million share dilution for outstanding option shares - equals 130 million shares (4) On total shares outstanding, excluding employee loan shares, with no dilution for option shares (5) Adjusted EPS (see slide A-7) (6) Pro Forma New FBR Group market capitalization based on $9.50 FBR closing price on November 14, 2002 and 132.4 million shares outstanding ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-4 December 4, 2002 [FBR Logo] TRANSACTION RATIONALE - FBR ASSET ________________________________________________________________________________ o Internalizes Management and Proprietary Deal Flow o Provides Significant Growth Opportunity o Maintains Dividend o Achieves Accretion to Earnings while Reducing Leverage o Improves Flexibility and Diversification - Benefit in Different Environments o Potential for Wider Coverage and Broader Investor Base o Increases Potential for Stock Appreciation ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-5 December 4, 2002 [FBR Logo] TRANSACTION RATIONALE - FBR GROUP ________________________________________________________________________________ o Accretive to Earnings and Book Value o More Efficient Internal Access to Capital Enhances Investment Banking Growth o Increased Visibility and Market Presence Enhances Overall Growth Opportunities o Diversifies and Provides Quarter to Quarter Stability to Revenue Stream o Deploys Excess Capital in Tax Efficient Manner o Current Dividend Plus Growth Provides Significant Total Return Potential o Potential for Wider Coverage and Broader Investor Base ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-6 December 4, 2002 [FBR Logo] SELECTED COMPARABLES RANKED BY EQUITY ________________________________________________________________________________ INDEPENDENT BROKER/DEALER EQUITY CAPITAL
($ MILLIONS) PERIOD END EQUITY CAPITAL EQUITY CAPITAL LESS GOODWILL 1 Morgan Stanley 31-Aug-02 $19,969 $21,416 2 Goldman Sachs 30-Aug-02 16,832 18,844 3 Merrill Lynch 27-Sep-02 17,978 22,299 4 Lehman Brothers 31-Aug-02 8,713 8,909 5 Bear Stearns 31-Aug-02 5,954 5,954 6 A. G. Edwards Inc. 31-Aug-02 1,627 1,627 7 NEW FBR GROUP (EST. PRO FORMA) 30-SEP-02 887 1,013 8 Raymond James Financial 28-Jun-02 738 801 9 Legg Mason, Inc 30-Sep-02 673 1,126 10 Jefferies Group 27-Sep-02 573 609 11 SWS Group 27-Sep-02 243 250 12 Stifel Financial Corp. 30-Sep-02 75 79
________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-7 December 4, 2002 [FBR Logo] NEW FBR PRO FORMA SUMMARY ________________________________________________________________________________
(US $ IN MILLIONS) 2003 FORECAST FBR GROUP FBR ASSET MERGER NEW FBR ADJUSTMENTS Revenues Investment Banking $150.0 $150.0 Institutional Brokerage 82.6 82.6 Asset Management 31.4 31.4 FBR Asset 45.5 (45.5) 0.0 Interest & Other 22.0 246.5 (24.3) 244.2 ________ _________ ____________ ________ Total Revenues 331.5 246.5 (69.8) 508.2 Expenses 230.4 121.5 (46.0) 305.9 ________ _________ ____________ ________ Pre-Tax Income 101.1 125.0 (23.8) 202.3 Tax 40.4 0.0 (25.1) 15.3 ________ _________ ____________ ________ GAAP Net Income $60.7 $125.0 (1) $1.3 $187.0 ======== ========= ============ ======== Accretion of MBS mark to market purchase adjustment 10.8 10.8 Adjusted Net Income 197.8 Dividends Paid 181.4 Retained Capital 16.4 Fully Diluted Shares Outstanding 48.0 (2) 25.1 (3) 130.0 (4) Fully Diluted GAAP Earnings Per Share $1.27 $4.99 $1.44 Fully Diluted Adjusted Earnings Per Share $1.52 (1) Assumes asset yield of 4.39% and cost of funds of 1.72%, resulting in a spread of 2.67% (2) 50.4 million primary shares less 4.0 million shares securing employee loans in accordance with GAAP plus an estimated 1.6 million shares from option dilution (3) Includes 2.6 million shares owned by FBR Group (4) 25.1 million FBR Asset shares less 2.6 million FBR Asset shares owned by FBR Group times 3.65 equals 82 million plus 48 million equals 130 million shares
________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-8 December 4, 2002 [FBR Logo] REIT RULE GUIDE ________________________________________________________________________________ o There are four REIT tests that should be considered: |X| 20% limitation on aggregate TRS value relative to total asset value |X| 25% limitation on "bad" asset value relative to total asset value |X| 95% gross income test |X| 75% gross income test o In applying all of these tests, the REIT and all of its subsidiaries other than its TRSs generally are consolidated. The TRSs, however, are not consolidated with the REIT for tax purposes, but instead are treated as separate entities. o 20% limitation on TRSs: Although a REIT may own up to 100% of the stock and securities of one or more TRSs, the aggregate value of all TRS equity and debt securities held by the REIT may not exceed 20% of the total value of the REIT's gross assets. This limitation applies at the end of each calendar quarter. o 25% "bad" asset limitation: At least 75% of the value of the REIT's gross assets must consist of "good" assets. TRS stock and securities are considered "bad" assets under this test. Thus, TRS stock and securities, along with other "bad" assets, cannot exceed 25% of the total value of the REIT's gross assets. This limitation also applies at the end of each calendar quarter. o Gross income tests: Because TRSs are not consolidated with the REIT for purposes of the income tests, income earned by the TRSs does not directly impact the REIT's compliance with the gross income tests. Dividends paid by a TRS to the REIT, however, do impact the gross income tests. TRS dividends are "good" income under the 95% gross income test, but "bad" income under the 75% gross income test, regardless of what type of underlying income the TRS earned. The income tests apply on a calendar year basis. o Profits earned by TRSs do not impact the REIT's distribution requirement unless they are paid as a dividend to the REIT. TRS dividends are included in the REIT's taxable income for purposes of the distribution test. o Because a TRS is subject to corporate income tax, while a REIT is not, there are strict rules regarding the REIT's need to deal with its TRSs on an arm's-length basis. Significant penalties apply to any non-arm's-length transactions between a REIT and a TRS that have the effect of reducing the TRS's tax liability. In addition, there are limits on the ability of a TRS to deduct interest paid to a REIT. ________________________________________________________________________________ FRIEDMAN BILLINGS RAMSEY SEE STATEMENT CONCERNING FORWARD LOOKING INFORMATION ON PAGE 2. Page A-9 December 4, 2002 -----END PRIVACY-ENHANCED MESSAGE-----