FBR Asset Investment 10-Q 2002 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the quarterly period ended June 30, 2002

OR

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

For the transition period from to

Commission File Number 1-15049

FBR ASSET INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

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

Potomac Tower
1001 Nineteenth Street North
Arlington, Virginia 22209
(Address of principal executive offices)
(zip code)

(703) 469-1000
(Registrant’s telephone number
including area code)

N/A
(former name)

     Indicate by checkmark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such short period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days: Yes [X] No [   ]

     As of August 2, 2002, the latest practicable date, there were 25,054,332 shares of FBR Asset Investment Corporation’s common stock outstanding.

FBR ASSET INVESTMENT CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
INDEX

PART I. FINANCIAL INFORMATION		Page
Item 1.	Consolidated Financial Statements and Notes
	Consolidated Statements of Financial Condition as of June 30, 2002 (unaudited) and December 31, 2001		1
	Consolidated Statements of Income for the Three Months Ended June 30, 2002 and 2001(unaudited)		2
	Consolidated Statements of Income for the Six Months Ended June 30, 2002 and 2001 (unaudited)		3
	Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2002 (unaudited), and the Year Ended December 31, 2001		4
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001 (unaudited)		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		15
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		18
Item 2.	Changes in Securities and Use of Proceeds		18
Item 3.	Defaults Upon Senior Securities		18
Item 4.	Submission of Matters to Vote of Security Holders		18
Item 5.	Other Information		18
Item 6.	Exhibits and Reports on Form 8-K		19
SIGNATURE			20

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS AND NOTES

FBR ASSET INVESTMENT CORPORATION
Consolidated Statements of Financial Condition
as of June 30, 2002 (unaudited) and December 31, 2001

				June 30, 2002			December 31, 2001
				(unaudited)
ASSETS
		Mortgage-backed securities, at fair value		$	3,826,374,634		$	1,238,365,511
		Cash and cash equivalents			5,843,662			6,630,379
		Investments in equity securities, at fair value			38,358,750			61,692,660
		Notes receivable			5,000,000			8,000,000
		Interest, dividends and fees receivable			28,216,856			10,241,837
		Receivable from underwriter			189,924,894			—
		Prepaid expenses and other			83,344			194,831
			Total assets	$	4,093,802,140		$	1,325,125,218
LIABILITIES AND SHAREHOLDERS’ EQUITY
	Liabilities:
		Repurchase agreements		$	3,369,638,266		$	1,105,145,000
		Interest-rate swap			1,715,334			1,159,167
		Interest payable			4,505,883			2,177,892
		Dividends payable			23,817,915			10,645,659
		Management and incentive fees payable			3,473,081			1,117,458
		Accounts payable and accrued expenses			407,571			505,549
		Income taxes payable			130,398			473,403
		Other			76,211			35,544
			Total liabilities		3,403,764,659			1,121,259,672
	Shareholders’ Equity:
		Preferred stock, par value $.01 per share, 50,000,000 shares authorized; none issued			—			—
		Common stock, par value $.01 per share, 200,000,000 shares authorized, 25,054,332 and 8,502,527 shares issued as of June 30, 2002, and December 31, 2001, respectively			250,543			85,025
		Additional paid-in capital			664,806,645			206,916,930
		Accumulated other comprehensive income			35,663,179			15,154,257
		Retained deficit			(10,682,886	)		(18,290,666	)
			Total shareholders’ equity		690,037,481			203,865,546
			Total liabilities and shareholders’ equity	$	4,093,802,140		$	1,325,125,218

The accompanying notes are an integral part of these statements.

1

FBR ASSET INVESTMENT CORPORATION
Consolidated Statements of Income for the Three Months
Ended June 30, 2002 and 2001 (unaudited)

			Three Months Ended June 30,
			2002			2001
			(unaudited)			(unaudited)
Revenue:
	Interest		$	42,845,341		$	3,361,619
	Dividends			1,426,254			1,063,843
	Fees			283,167			1,701,828
		Total revenue		44,554,762			6,127,290
Expenses:
	Interest			14,924,371			1,769,644
	Management and incentive fees			4,815,936			485,916
	Professional fees & other			724,301			195,868
		Total expenses		20,464,608			2,451,428
Realized gain on sale of equity securities, net				7,503,434			523,364
Realized gain(loss) on sale of mortgage-backed securities, net				104,640			(175,084	)
Net income before taxes				31,698,228			4,024,142
Income tax provision				(111,010	)		—
Net income			$	31,587,218		$	4,024,142
Basic earnings per share			$	1.67		$	1.16
Diluted earnings per share			$	1.67		$	1.11
Basic weighted-average common and equivalent shares				18,892,662			3,472,527
Diluted weighted-average common and equivalent shares				18,917,066			3,617,400

The accompanying notes are an integral part of these statements.

2

FBR ASSET INVESTMENT CORPORATION
Consolidated Statements of Income for the Six Months
Ended June 30, 2002 and 2001 (unaudited)

			Six Months Ended June 30,
			2002			2001
			(unaudited)			(unaudited)
Revenue:
	Interest		$	62,428,365		$	6,341,072
	Dividends			1,963,754			1,263,910
	Fees			571,509			1,701,828
		Total revenue		64,963,628			9,306,810
Expenses:
	Interest			21,559,059			3,673,588
	Management and incentive fees			7,663,209			818,891
	Professional fees & other			907,496			445,809
		Total expenses		30,129,764			4,938,288
Realized gain on sale of equity securities, net				14,718,235			503,389
Realized gain(loss) on sale of mortgage-backed securities, net				104,640			(175,084	)
Recognized loss on available-for sale equity securities				—			(544,880	)
Net income before taxes				49,656,739			4,151,947
Income tax provision				(165,629	)		—
Net income			$	49,491,110		$	4,151,947
Basic earnings per share			$	3.17		$	1.17
Diluted earnings per share			$	3.17		$	1.14
Basic weighted-average common and equivalent shares				15,598,868			3,543,369
Diluted weighted-average common and equivalent shares				15,620,415			3,642,150

The accompanying notes are an integral part of these statements.

3

FBR ASSET INVESTMENT CORPORATION
Consolidated Statements of Changes in Shareholders’ Equity
for the Six Months Ended June 30, 2002 (unaudited),
and the Year Ended December 31, 2001

											Accumulated
											Other
					Additional			Retained			Comprehensive						Comprehensive
		Common			Paid in			Earnings			Income						Income
		Stock			Capital			(Deficit)			(Loss)			Total			(Loss)
Balance, December 31, 2000		$	38,844		$	107,529,063		$	(19,978,632	)	$	(748,691	)	$	86,840,584
Issuance of common stock			50,300			107,575,383			—			—			107,625,683
Repurchase of common stock			(4,119	)		(8,330,016	)		—			—			(8,334,135	)
Options granted			—			142,500			—			—			142,500
Net income			—			—			23,065,074			—			23,065,074		$	23,065,074
Other comprehensive income:
	Change in unrealized gain(loss) on available-for-sale securities		—			—			—			17,062,115			17,062,115			17,062,115
	Change in unrealized loss on cash flow hedge		—			—			—			(1,159,167	)		(1,159,167	)		(1,159,167	)
Dividends			—			—			(21,377,108	)		—			(21,377,108	)		—
Balance, December 31, 2001			85,025			206,916,930			(18,290,666	)		15,154,257			203,865,546		$	38,968,022
Issuance of common stock			165,518			457,889,715			—			—			458,055,233
Net income			—			—			49,491,110			—			49,491,110		$	49,491,110
Other comprehensive income:
	Reclassification adjustment for gains from disposition included in net income		—			—			—			(5,845,938	)		(5,845,938	)		(5,845,938	)
	Change in unrealized gain(loss) on available-for sale securities		—			—			—			26,911,027			26,911,027			26,911,027
	Change in unrealized loss on cash flow hedge		—			—			—			(556,167	)		(556,167	)		(556,167	)
Dividends			—			—			(41,883,330	)		—			(41,883,330	)		—
Balance, June 30, 2002		$	250,543		$	664,806,645		$	(10,682,886	)	$	35,663,179		$	690,037,481		$	70,000,032

The accompanying notes are an integral part of these statements.

4

FBR ASSET INVESTMENT CORPORATION
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2002 and 2001 (unaudited)

		Six Months Ended June 30,
		2002			2001
		(unaudited)			(unaudited)
Cash flows from operating activities:
Net income		$	49,491,110		$	4,151,947
Adjustments to reconcile net income to net cash provided by operating activities:
	Realized and recognized gains (loss) on mortgage-backed and equity securities, net		(14,822,875	)		216,575
	Compensation expense related to restricted stock and stock option grants		46,291			142,500
	Premium amortization on mortgage-backed securities		8,433,987			523,322
Changes in operating assets and liabilities:
	Dividends, interest and fees receivable		(17,975,020	)		(1,750,596	)
	Prepaid expenses and other assets		111,487			109,059
	Management and incentive fees payable		2,355,624			268,195
	Accounts payable and accrued expenses		(97,978	)		(88,749	)
	Interest payable		2,327,991			(670,490	)
	Income taxes payable		(343,005	)		—
	Other liabilities		40,667			(174,786	)
	Net cash provided by operating activities		29,568,279			2,726,977
Cash flows from investing activities:
Purchase of mortgage-backed securities			(3,050,855,120	)		(120,134,678	)
Investments in equity securities			(4,650,004	)		(7,144,000	)
Investments in notes receivable			(33,137,333	)		(12,000,000	)
Repayment of notes receivable			36,137,333			4,000,000
Proceeds from sale of equity securities			38,402,020			4,362,364
Proceeds from sale of mortgage-backed securities			161,353,087			8,304,470
Receipt of principal payments on mortgage-backed securities			318,528,781			20,603,167
	Net cash used in investing activities		(2,534,221,236	)		(102,008,677	)
Cash flows from financing activities:
Repurchase of common stock			—			(8,334,135	)
Proceeds from issuance of common stock			268,084,048			—
Proceeds from (repayments of) repurchase agreements, net			2,264,493,266			80,128,000
Dividends paid			(28,711,074	)		(5,820,177	)
	Net cash provided by financing activities		2,503,866,240			65,973,688
Net decrease in cash and cash equivalents			(786,717	)		(33,308,012	)
Cash and cash equivalents, beginning of the period			6,630,379			36,810,566
Cash and cash equivalents, end of the period		$	5,843,662		$	3,502,554
Supplemental disclosure:
	Cash payments for interest	$	19,231,068		$	4,344,078
	Cash payments for income taxes	$	508,634		$	—

The accompanying notes are an integral part of these statements.

5

FBR ASSET INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

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

     The preparation of financial statements in conformity with 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. Actual results could differ from those estimates.

NOTE 2. Investments in Mortgage-Backed Securities

     For the three and six months ended June 30, 2002 and 2001, the weighted average coupon rate on the Company’s mortgage-backed securities was 5.53% and 5.72% for 2002, and 5.80% and 6.06% for 2001, respectively.

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

Total Mortgage Assets	June 30, 2002			December 31, 2001
Mortgage-backed securities, available-for-sale, principal	$	3,739,726,447		$	1,211,550,848
Unamortized net premium		59,853,424			25,385,118
Amortized cost		3,799,579,871			1,236,935,966
Gross unrealized gains		28,622,266			4,092,851
Gross unrealized losses		(1,827,503	)		(2,663,306	)
Estimated fair value	$	3,826,374,634		$	1,238,365,511

     As of June 30, 2002 and December 31, 2001, $3.7 billion and $1.2 billion of the mortgage-backed securities were pledged as collateral for the repurchase agreements.

     Commitments

     As of June 30, 2002 and subsequently, FBR Asset has made commitments to purchase $2.4 billion in hybrid ARM securities.

NOTE 3. Equity Investments

     At June 30, 2002, FBR Asset’s equity investments had an aggregate cost basis of $27.8 million, a fair value of $38.4 million, and unrealized gains of $10.6 million. At December 31, 2001, FBR Asset’s equity investments had an aggregate cost basis of $46.8 million, fair value of $61.7 million and unrealized gains of $14.9 million.

6

		June 30, 2002						December 31, 2001
Equity Investments		Shares		Cost Basis		Fair Value		Shares		Cost Basis		Fair Value
Annaly Mortgage Management, Inc.			—	$	—	$	—		800,000	$	7,144,000	$	12,800,000
Anworth Mortgage Asset Corporation			500,000		3,890,625		6,995,000		500,000		3,890,625		4,550,000
Capital Automotive REIT			—		—		—		920,115		12,835,604		18,301,087
MCG Capital Corporation			625,000		9,934,375		10,443,750		625,000		9,934,375		11,125,000
Oxford Financial Corp. (1)			500,000		4,650,000		4,650,000		—		—		—
Resource Asset Investment Trust			—		—		—		344,575		3,704,181		5,616,573
Saxon Capital Acquisition Corp. (2)			1,000,000		9,300,000		16,270,000		1,000,000		9,300,000		9,300,000
	Total			$	27,775,000	$	38,358,750			$	46,808,785	$	61,692,660

(1)	Oxford Financial shares are not currently registered for public trading. As of June 30, 2002, the investment was carried at cost.
(2)	Saxon Capital shares were registered with the SEC and began trading on the New York Stock Exchange in January 2002. As of December 31, 2001, the investment was carried at cost.

NOTE 4. Repurchase Agreements

     At June 30, 2002, the Company had $3.4 billion outstanding under repurchase agreements with a weighted average borrowing rate of 1.82% and a remaining weighted-average term to maturity of 38 days. For the three and six months ending June 30, 2002, the weighted average borrowing rate was 1.85% for both periods, and the weighted average repurchase agreement balances were $3.1 billion and $2.2 billion, respectively. For the three and six months ended June 30, 2001, the weighted average borrowing rate was 4.57% and 5.17%, and the weighted average repurchase agreement balances were $155.4 million and $143.2 million, respectively.

NOTE 5. Interest-rate Swaps

     At June 30, 2002, FBR Asset was party to an interest-rate swap agreement that matures on July 27, 2004 and has a notional amount of $50.0 million. The fair value of the interest-rate swap agreement was $ (1.7) million at June 30, 2002, and $(1.2) million at December 31, 2001. Under this agreement, the Company will pay a fixed interest rate of 4.97% on the notional amount and receive a variable rate calculated based on the three-month LIBOR, which was 1.86% at June 30, 2002.

NOTE 6. Notes Receivable

     On May 28, 2002, FBR Asset disbursed a $5,000,000 loan to First States Group, L.P. (“First States”), bearing interest at 13.00% per annum. This loan was paid in full on July 16, 2002, together with all accrued interest and a negotiated exit fee of $37,500. As of July 16, 2002, FBR Asset has no notes receivable.

NOTE 7. Income Taxes

     FBR Asset has elected to be taxed as a REIT under the Internal Revenue Code. To qualify for tax treatment as a REIT, FBR Asset must meet certain income and asset tests and distribution requirements. FBR Asset generally will not be subject to federal income tax at the corporate level to the extent that it distributes at least 90 percent of its taxable income to its shareholders and complies with certain other requirements. Failure to meet these requirements could have a material adverse impact on FBR Asset’s results or financial condition. Furthermore, because FBR Asset’s investments include stock in other REITs, failure of those REITs to maintain their REIT status could jeopardize FBR Asset’s qualification as a REIT. During 2001, FBR asset acquired a registered broker-dealer in a taxable REIT subsidiary, established another taxable REIT subsidiary and created a holding company to hold the two investments. The income generated from the taxable REIT subsidiaries is taxed at normal corporate rates and will generally not be distributed to our shareholders. During the six months ended June 30, 2002, FBR Asset recorded $165,629 of income tax provision from income attributable to the taxable REIT subsidiaries.

7

NOTE 8. Shareholders’ Equity

Equity Offerings

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

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

     On June 28, 2002, the Company completed a follow-on offering of 6,000,000 shares (excluding over-allotment option) of common stock at a price of $33.35 per share. The lead underwriter for the offering was Friedman, Billings, Ramsey & Co., Inc. The net proceeds after expenses to the company of $189.9 million were received upon settlement on July 3, 2002.

Dividends

     On March 14, 2002 the Board of Directors declared a cash dividend of $1.25 per share payable April 15, 2002 to shareholders of record as of March 28, 2002, and on June 12, 2002 the Board of Directors declared a cash dividend of $1.25 per share payable July 15, 2002 to shareholders of record as of June 24, 2002.

Options

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

     As of June 30, 2002 and December 31, 2001, 66,095 and 481,900 options to purchase common stock were outstanding, respectively. These options have terms of eight to ten years and an exercise price of $20 per share. As a result, 24,404 and 21,547 shares were included during the three and six-month periods ended June 30, 2002, respectively, to calculate diluted earnings per share. On December 24, 2001, we granted 14,000 shares of restricted stock. On June 24, 2002, we granted an additional 2,000 shares of restricted stock. During 2002, we have recorded $46,291 in compensation expense related to these grants. On May 23, 2002, the shareholders approved an increase of 450,000 shares available for issuance under the stock incentive plan. As of June 30, 2002, 444,000 options were available for future grant.

NOTE 9. Subsequent Events

     On July 9, 2002, we entered into an interest rate swap agreement with Lehman Brothers Special Financing, Inc. (“Lehman”) that matures on July 11, 2003 and has a notional amount of $1 billion. Under this agreement, we pay a fixed interest rate of 2.255% and receive a variable rate calculated based on the three-month LIBOR.

     On July 10, 2002, we entered into an interest rate swap agreement with PNC Bank, National Association (“PNC”) that matures on July 12, 2003 and has a notional amount of $1 billion. Under this agreement, we pay a fixed interest rate of 2.202% and receive a variable rate calculated based on the three month LIBOR.

     On July 31, 2002, we entered into an interest rate swap agreement with Merrill Lynch Capital Services, Inc. (“Merrill”) that matures on July 31, 2003 and has a notional amount of $1 billion. Under this agreement, we pay a fixed interest rate of 1.990% and receive a variable rate calculated based on the three month LIBOR.

8

NOTE 10. Related Party Transactions

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

     FBRIM is entitled to a quarterly “base” management fee equal to the sum of (1) 0.20 percent per annum (adjusted to reflect a quarterly period) of the average book value of the mortgage assets of the Company during each calendar quarter and (2) 0.75 percent per annum (adjusted to reflect a quarterly period) of the average book value of the remainder of the Company’s invested assets during each calendar quarter. The Company recorded $3.1 million in management fees during the first six months of 2002 and $1.8 million for the year ended December 31, 2001.

     FBRIM is also entitled to receive incentive compensation based on the performance of the Company. FBRIM is entitled to an incentive fee calculated by reference to the preceding 12-month period. FBRIM is entitled to an incentive fee calculated as: Funds from operations, plus net realized gains or losses from asset sales, less the threshold amount (all computed on a weighted average outstanding share basis), multiplied by 25 percent. The threshold amount is calculated as the weighted average issuance price per share of all shares of the Company, 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 $4.5 million in incentive fees during the first six months of 2002 and $1.7 million for the year ending December 31,2001.

     FBRIM engaged Fixed Income Discount Advisory Company, Inc. (“FIDAC”) to manage the Company’s mortgage asset investment program (the “Mortgage Portfolio”) as a sub-adviser. On March 22, 2002, FBRIM terminated the sub-advisory agreement with FIDAC. The sub-advisory agreement ended on April 30, 2002.

     As of June 30, 2002, FBR Group, through various subsidiaries and affiliates, owned 2,744,700 shares or 10.95% of the outstanding common stock of the Company. As of December 31, 2001, FBR Group, through various subsidiaries and affiliates, owned 2,349,186 shares or 27.63% of the outstanding common stock of the Company.

     The Company and its registered broker-dealer subsidiary, Pegasus Capital Corporation (“Pegasus”) entered into an agreement in August 2001 with Friedman, Billings, Ramsey & Co., Inc. (“FBR”) regarding the Company’s extension of credit to or investment in entities that are or may be FBR’s investment banking clients. During the first six months of 2002, pursuant to this agreement, the Company earned $0.6 million in fees from FBR from two investment banking transactions. Fees are recognized when the related investment banking transaction is completed. In 2001, pursuant to this agreement, the Company earned $2.9 million in fees from FBR from three investment banking transactions and one unfunded commitment.

     FBR served as lead underwriter for three follow-on public offerings by the Company during the six months ended June 30, 2002, and earned approximately $10.1 million in underwriting fees in connection with the offerings. See Note 8. Shareholders’ Equity.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward-Looking Statements

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

9

Overview

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

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

Results of Operations

Net Income

Three months ended June 30, 2002

     The Company had net income for the three months ended June 30, 2002, of $31.6 million, or $1.67 per basic and diluted share, compared to $4.0 million, or $1.16 per basic share and $1.11 per diluted share for the corresponding period in 2001. The increase is primarily due to a wider net interest rate spread on the larger base of mortgage-backed securities and realized gains on the sale of equity securities.

     For the three months ended June 30, 2002, the weighted average annual yield on the Company’s mortgage-backed securities was 4.93%. As of June 30, 2002, the Company had investments in 126 mortgage-backed securities. For the three months ended June 30, 2001, the weighted average annual yield on the Company’s mortgage-backed securities was 5.80%. As of June 30, 2001, the Company had investments in 22 mortgage-backed securities.

     The Company’s interest and dividend income increased to $44.3 million for the three months ended June 30, 2002, from $4.4 million for the three months ended June 30, 2001. The increase is primarily related to the increase in the weighted average balance of the Company’s mortgage-backed securities portfolio from $182.3 million for the three months ended June 30, 2001 to $3.4 billion for the three months ended June 30, 2002. For the three months ended June 30, 2002, the weighted average annual yield on the Company’s equity investments and promissory notes was 19.13%, compared to 14.73% for the three months ended June 30, 2001.

     For the three months ended June 30, 2002, fee income from one investment banking transaction was $0.3 million. For the three months ended June 30, 2001, fee income from one investment banking transaction was $1.7 million.

     The Company incurred interest expense of $14.9 million for the three months ended June 30, 2002. This represents 72.9% of the total expenses for the period. The Company incurred interest expense of $1.8 million for the three months ended June 30, 2001, representing 72.2% of the total expenses for that period. The $13.1 million increase in interest expense reflects the increase in weighted average borrowings under repurchase agreements to $3.1 billion from $155.4 million; partially offset by a reduction in our average borrowing rate from 4.57% to 1.85%.

     Management fees paid or accrued for the three months ended June 30, 2002, were $2.0 million compared to $218,840 for the three months ended June 30, 2001. The increase is due to a larger asset base during the three months ended June 30, 2002 compared to the same period in 2001, as the Company’s management fees are calculated based on the value of its mortgage-backed and other invested assets. During the three months ended June 30, 2002, the Company recorded as an expense $2.8 million of incentive fees, based on the performance of the Company over the preceding 12-month period, compared to $267,076 for the three months ended June 30, 2001. The increase in incentive fees can be attributed to the increase in funds from operations for the proceeding 12-month period ended June 30, 2002 of $74.2 million, from $12.2 million for the proceeding 12-month period ended June 30, 2001.

     Professional fees and other expenses consist primarily of director, legal, listing and accounting fees. Professional fees and other expenses were $724,301 for the three months ended June 30, 2002, compared to $195,868 for the three months ended June 30, 2001. The increase is mainly attributed to fees related to the Company’s listing on the New York Stock Exchange and fees for prior year re-audits.

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Six months ended June 30, 2002

     The Company had net income for the six months ended June 30, 2002, of $49.5 million, or $3.17 per basic and diluted share, compared to $4.2 million, or $1.17 per basic share and $1.14 per diluted share for the corresponding period in 2001. The increase is primarily due to a wider net interest rate spread on the larger base of mortgage-backed securities and realized gains on the sale of equity securities.

     For the six months ended June 30, 2002, the weighted average annual yield on the Company’s mortgage-backed securities was 4.92%. As of June 30, 2002, the Company had investments in 126 mortgage-backed securities. For the six months ended June 30, 2001, the weighted average annual yield on the Company’s mortgage-backed securities was 6.06%. As of June 30, 2001, the Company had investments in 22 mortgage-backed securities.

     The Company’s interest and dividend income increased to $64.4 million for the six months ended June 30, 2002, from $7.6 million for the six months ended June 30, 2001. The increase is primarily related to the increase in the weighted average balance of the Company’s mortgage-backed securities portfolio from $167.2 million for the six months ended June 30, 2001 to $2.5 billion for the six months ended June 30, 2002. For the six months ended June 30, 2002, the weighted average annual yield on the Company’s equity investments and promissory notes was 15.50%, compared to 10.18% for the six months ended June 30, 2001.

     For the six months ended June 30, 2002, fee income from two investment banking transactions was $0.6 million, compared to $1.7 million on one investment banking transaction in 2001.

     The Company incurred interest expense of $21.6 million for the six months ended June 30, 2002. This represents 71.6% of the total expenses for the period. The Company incurred interest expense of $3.7 million for the six months ended June 30, 2001, representing 74.4% of the total expenses for that period. The $17.9 million increase in interest expense reflects the increase in weighted average borrowings under repurchase agreements to $2.2 billion from $143.2 million; partially offset by a reduction in our average borrowing rate from 5.17% to 1.85%.

     Management fees paid or accrued for the six months ended June 30, 2002, were $3.1 million compared to $423,738 for the six months ended June 30, 2001. The increase in management fees is attributed to a larger asset base used in calculating the fees for the six months ended June 30, 2002 compared to the same period in 2001. During the six months ended June 30, 2002, the Company recorded as an expense $4.6 million of incentive fees, based on the performance of the Company over the preceding 12-month period, compared to $395,153 for the six months ended June 30, 2001. The increase in incentive fees can be attributed to the increase in funds from operations for the proceeding 12-month period used to calculate the incentive fees during the six months ended June 30, 2002 as compared to the funds from operations used to calculate the incentive fees during the six months ended June 30, 2001.

     Professional fees and other expenses consist primarily of director, legal, listing and accounting fees. Professional fees and other expenses were $907,496 for the six months ending June 30, 2002, compared to $445,809 for the six months ended June 30, 2001. The increase is mainly attributed to listing fees and an increase in auditing fees.

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Mortgage-backed Securities

     The mortgage-backed securities owned at June 30, 2002 and December 31, 2001 are summarized below:

	June 30, 2002
								Weighted
								Average		Expected		Relevant
					Nominal			Life		Effective		Prepayment
Descriptive Title(1)	Face Amount		Market Value		Yield(2)			(years)		Duration		Assumptions(3)
HYBRID ARMS	$	3,539,198,277	$	3,618,265,995		4.82	%		3.02		1.21	18.50 CPR
FIXED RATE SECURITIES		200,528,170		208,108,639		5.71	%		4.41		2.33	13.50 CPR
Mortgage Portfolio Total(1)	$	3,739,726,447	$	3,826,374,634		4.87	%		3.10		1.27	18.30 CPR

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

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

Repurchase Agreements

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

     The Company had $3.4 billion outstanding under repurchase agreements with several financial institutions on June 30, 2002. The Company had $1.1 billion outstanding under repurchase agreements on December 31, 2001. At June 30, 2002, the debt-to-equity ratio, based on book values, of our portfolio of mortgage-backed securities was 7.84 to 1.

     At June 30, 2002, the weighted average remaining maturity of the Company’s borrowings was 38 days and had a weighted average cost of funds on outstanding borrowings of 1.82%.

Capital Resources and Liquidity

     Liquidity is a measurement of the Company’s ability to meet potential cash requirements including ongoing commitments to repay borrowings, fund investments, loan acquisition and lending activities, and for other general business purposes. The primary sources of funds for liquidity consist of repurchase agreements, principal and interest payments on mortgage-backed securities, dividends on

12

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

     For the six months ended June 30, 2002, the Company’s operating activities resulted in net cash flow of $29.6 million. The primary source of operating cash flow was interest on mortgage-backed securities, interest on notes receivable, fee income, and dividends. For the six months ended June 30, 2001, the Company’s operating activities provided net cash flows of $2.7 million. The increase is primarily due to an increase in income from the Company’s larger mortgage-backed security portfolio and an increase in gains from the sale of equity securities.

     For the six months ended June 30, 2002, the Company’s investing activities resulted in net cash used of $2.5 billion compared to net cash used by investing activities for the six months ended June 30, 2001, of $102.0 million. The change is primarily attributable to increased purchases of mortgage-backed securities during the first six months of 2002 compared to the similar period in 2001.

     For the six months ended June 30, 2002, net cash provided in the Company’s financing activities was $2.5 billion compared to net cash provided for the six months ended June 30, 2001, of $66.0 million. The increase in cash from financing activities is primarily attributable to an increase in borrowings under repurchase agreements used to fund mortgage-backed securities purchases and proceeds from the Company’s follow-on common stock offerings.

Equity Securities

     The value of the equity securities in the Company’s portfolio had a cost basis of $27.8 million compared to a market value of $38.4 million as of June 30, 2002. As of December 31, 2001, the value of the equity securities in the Company’s portfolio had an adjusted cost basis of $46.8 million compared to a market value of $61.7 million. Increases and declines are generally recorded as accumulated other comprehensive income in the statement of financial condition, except to the extent that declines are deemed to be other than temporary. If the Company determines that declines are other than temporary, we recognize a loss on the investment based on its current market value versus its cost basis.

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FBR ASSET INVESTMENT CORPORATION
Summary of Investments and Cash and Cash Equivalents
The following table summarizes FBR Asset’s investments as of June 30, 2002, and December 31, 2001.

			As of June 30, 2002
			Shares		Percent			Cost of
			Owned		Ownership(3)			Investment		Market Value
Mortgage-Backed Securities				—		—		$	3,799,579,871	$	3,826,374,634
Equity Investments(1)(2) Annaly Mortgage Management, Inc. (NLY)				—		—			—		—
	Anworth Mortgage Asset Corporation (ANH)			500,000		4.21	%		3,890,625		6,995,000
	Capital Automotive REIT (CARS)			—		—			—		—
	MCG Capital Corporation (MCGC)			625,000		2.00	%		9,934,375		10,443,750
	Oxford Finance Corp.(4)			500,000		9.62	%		4,650,000		4,650,000
	Resource Asset Investment Trust (RAS)			—		—			—		—
	Saxon Capital Acquisition Corp. (SAXN)			1,000,000		3.56	%		9,300,000		16,270,000
		Total Equity Investments							27,775,000		38,358,750
Promissory Notes(2) First States Group, L.P.				—		—			5,000,000		5,000,000
	Prime Group Realty, L.P.			—		—			—		—
		Total Promissory Notes							5,000,000		5,000,000
Cash and Cash Equivalents				—		—			5,843,662		5,843,662
Total Investments and Cash and Cash Equivalents				—		—		$	3,838,198,533	$	3,875,577,046

[Additional columns below]

[Continued from above table, first column(s) repeated]

			As of December 31, 2001
			Shares		Percent			Cost of
			Owned		Ownership(3)			Investment		Market Value
Mortgage-Backed Securities				—		—		$	1,236,935,966	$	1,238,365,511
Equity Investments(1)(2) Annaly Mortgage Management, Inc. (NLY)				800,000		1.36	%		7,144,000		12,800,000
	Anworth Mortgage Asset Corporation (ANH)			500,000		4.50	%		3,890,625		4,550,000
	Capital Automotive REIT (CARS)			920,115		3.54	%		12,835,604		18,301,087
	MCG Capital Corporation (MCGC)			625,000		2.21	%		9,934,375		11,125,000
	Oxford Finance Corp.(4)			—		—			—		—
	Resource Asset Investment Trust (RAS)			344,575		2.77	%		3,704,181		5,616,573
	Saxon Capital Acquisition Corp. (SAXN)			1,000,000		3.57	%		9,300,000		9,300,000
		Total Equity Investments							46,808,785		61,692,660
Promissory Notes(2) First States Group, L.P.				—		—			—		—
	Prime Group Realty, L.P.			—		—			8,000,000		8,000,000
		Total Promissory Notes							8,000,000		8,000,000
Cash and Cash Equivalents				—		—			6,630,379		6,630,379
Total Investments and Cash and Cash Equivalents				—		—		$	1,298,375,130	$	1,314,688,550

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

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ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest-rate Risk

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

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

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

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

     Changes in value are measured as percentage changes from their respective values presented in the column labeled “Value at 6/30/02.” Actual results could differ significantly from these estimates.

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

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						Value at						Value at
						June 30, 2002						June 30, 2002
						with 100 basis						with 100 basis
			Value at			point increase			Percent			point decrease			Percent
			June 30, 2002(1)			in interest-rates			Change			in interest-rates			Change
Assets
	Mortgage-backed securities		$	3,826,374,634		$	3,788,604,634			(0.99	)%	$	3,836,432,634			0.26	%
	Other			267,427,506			267,427,506						267,427,506
		Total Assets	$	4,093,802,140		$	4,056,032,140			(0.92	)%	$	4,103,860,140			0.25	%
Liabilities
	Interest-rate swap(2)		$	1,715,334		$	745,335			56.55	%	$	2,711,071			(58.05	)%
	Other			3,402,049,325			3,402,049,325						3,402,049,325
		Total Liabilities		3,403,764,659			3,402,794,660			0.03	%		3,404,760,396			(0.03	)%
Shareholders’ Equity Common stock				250,543			250,543						250,543
	Paid-in-capital			664,806,645			664,806,645						664,806,645
	Accumulated other comprehensive income (loss)			35,663,179			(1,136,822	)		(103.19	)%		44,725,442			25.41	%
Retained deficit				(10,682,886	)		(10,682,886	)					(10,682,886	)
		Total Shareholders’ Equity		690,037,481			653,597,480			(5.28	)%		699,099,744			1.31	%
		Total Liabilities and Shareholders’ Equity	$	4,093,802,140		$	4,056,032,140			(0.92	)%	$	4,103,860,140			0.25	%
Book Value per Share			$	27.54		$	26.09			(5.27	)%	$	27.90			1.31	%

(1)

Includes accrued interest.

(2)

The carrying value of the interest-rate swap in the company’s financial statements is $(1.7) million. See Note 5 to Notes to Financial Statements. The fair value of the interest-rate swap is based on quoted market prices as of June 30, 2002. As of June 30, 2002, interest payments received under the swap agreement were based on an interest-rate of 1.86% while interest payments made were based on an interest-rate of 4.97%.

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

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

Equity Price Risk

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

     While it is impossible to exactly project what factors may affect the prices of equity sectors and how much the affect might be, the table below illustrates the impact a ten percent increase and a ten percent decrease in the price of the equities held by the Company would have on the value of the total assets and the book value of the Company as of June 30, 2002.

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						Value at						Value at
						June 30, 2002						June 30, 2002
						with 10%						with 10%
			Value at			Increase in			Percent			Decrease in			Percent
			June 30, 2002			Price			Change			Price			Change
Assets
	Equity securities		$	38,358,750		$	42,194,625			10.00	%	$	34,522,875			(10.00	)%
	Other			4,055,443,390			4,055,443,390						4,055,443,390
		Total Assets	$	4,093,802,140		$	4,097,638,015			0.09	%	$	4,089,966,265			(0.09	)%
Liabilities			$	3,403,764,659		$	3,403,764,659					$	3,403,764,659
Shareholders’ Equity
	Common stock			250,543			250,543						250,543
	Paid-in-capital			664,806,645			664,806,645						664,806,645
	Accumulated comprehensive income			35,663,179			39,499,054			10.76	%		31,827,304			(10.76	)%
	Retained deficit			(10,682,886	)		(10,682,886	)					(10,682,886	)
	Total Shareholders’ Equity			690,037,481			693,873,356			0.56	%		686,201,606			(0.56	)%
	Total Liabilities and Shareholders’ Equity		$	4,093,802,140		$	4,097,638,015			0.09	%	$	4,089,966,265			(0.09	)%
Book value per share			$	27.54		$	27.69			0.54	%	$	27.39			(0.54	)%

     Except to the extent that the Company sells its equity investments or a decrease in market value is deemed to be other than temporary, an increase or decrease in the market value of those assets will not directly affect the Company’s earnings, however an increase or decrease in interest-rates would affect the market value of the assets owned by the companies in which the Company invests. Consequently, if those companies’ earnings are affected by changes in the market value of their assets, that could in turn impact their ability to pay dividends, which could in turn affect the Company’s earnings. If the Company had sold all of its equity investments on June 30, 2002, the Company would have realized a gain of approximately $10.6 million that would have been included in earnings.

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PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

     The Company held its Annual meeting of Shareholders on May 23, 2002, at which shareholders took the following actions:

1. The election of five directors nominated to serve until the next Annual Meeting. The results of the voting in connection with the preceding items were as follows:

	For		Against		Abstain
Emanuel J. Friedman		11,209,401		—		30,492
Eric F. Billings		11,209,401		—		30,492
Peter A. Gallagher		11,209,401		—		30,492
Stephen D. Harlan		11,209,401		—		30,492
Russel C. Lindner		11,209,401		—		30,492

2. Proposal to approve an amendment to the Company’s Articles of Incorporation to state that nothing within the Articles of Incorporation shall preclude the settlement of transactions entered into through the facilities of the New York Stock Exchange.

Votes in Favor	Votes Against		Votes Abstaining
10,752,610		475,360		11,923

3. Proposal to approve an amendment to the FBR Asset Investment Corporation Stock Incentive Plan to increase the number of shares available for issuance under the plan from 155,000 to 605,000.

Votes in Favor	Votes Against		Votes Abstaining
10,176,071		1,045,110		18,712

4. Proposal to ratify the appointment of KPMG, LLP as independent auditors for the fiscal year ended December 31, 2002.

Votes in Favor	Votes Against		Votes Abstaining
11,145,970		84,982		9,041

ITEM 5. OTHER INFORMATION

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

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits
None
(b)	Reports on Form 8-K

     1. Current Report on Form 8-K, filed on July 25, 2002, pursuant to Item 9 disclosing the Company’s operating results for the second quarter ending June 30, 2002.

     2. Current Report on Form 8-K, filed on June 28, 2002, pursuant to Item 5 disclosing (a) the Underwriter Agreement dated June 27, 2002, between the Company and the several underwriters relating to an underwritten public offering of 6,000,000 shares of the Company’s common stock and (b) the consent of KPMG LLP to the incorporation by reference in the Company’s registration statements (Nos. 333-90572 and 333-76906) on Form S-3 of KPMG LLP’s audit report for the fiscal year ended December 31, 2001.

     3. Current Report on Form 8-K, filed on May 3, 2002, pursuant to Item 9 disclosing information presented by the Company at the MicroCapital LLC Investor Conference.

     4. Current Report on Form 8-K, filed on April 24, 2002, pursuant to Item 9 disclosing the Company’s operating results for the first quarter ended March 31, 2002.

     5. Current Report on Form 8-K, filed on April 11, 2002, pursuant to Item 9 disclosing information reported by Friedman, Billings, Ramsey Group, Inc. on Form 8-K relating to a presentation made at the Sidoti & Co. Investor Conference.

     6. Current Report on Form 8-K, filed on April 5, 2002, pursuant to Item 5 disclosing the Underwriting Agreement, dated April 3, 2002, between the Company and the several underwriters relating to an underwritten public offering of 4,000,000 shares of the Company’s common stock and up to an additional 600,000 shares to cover over-allotments.

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SIGNATURE

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

FBR ASSET INVESTMENT CORPORATION
(Registrant)

By: /s/ KURT R. HARRINGTON
Kurt R. Harrington
Chief Financial Officer, Treasurer and
Principal Financial and Accounting Officer

Date: August 9, 2002

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