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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
COMMISSION FILE NUMBER 1-8007
FREMONT GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 95-2815260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 Santa Monica Blvd.
Santa Monica, California 90404
(Address of principal executive offices)
(Zip Code)
(310) 315-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No _
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No _
Indicate the number of shares outstanding of each of the issuer's classes
of common stock:
SHARES OUTSTANDING
CLASS JULY 31, 2003
Common Stock, $1.00 par value 75,789,000
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FREMONT GENERAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE
NO.
----
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002 ....................... 3
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2003 and 2002 ......... 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002 ................... 5
Notes to Consolidated Financial Statements on Form 10-Q ..... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 14
Item 3. Quantitative and Qualitative Disclosure About Market Risk ... 28
Item 4. Controls and Procedures ..................................... 29
PART II - OTHER INFORMATION
Items 1-3. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders ......... 30
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ............................ 31
Signatures ............................................................. 35
2
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
----------- -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents .................................................. $ 590,920 $ 236,376
Investment securities available for sale at fair value ..................... 94,213 383,232
Loans receivable ........................................................... 4,097,160 3,976,695
Loans held for sale ........................................................ 2,188,274 1,673,145
Residual interests in securitized loans at fair value ...................... - 22,749
Accrued interest receivable ................................................ 29,267 28,529
Deferred income taxes ...................................................... 220,170 299,136
Other assets ............................................................... 76,886 48,794
----------- -----------
Total Assets ............................................................. $ 7,296,890 $ 6,668,656
=========== ===========
LIABILITIES
Deposits:
Savings accounts ......................................................... $ 1,066,249 $ 848,567
Money market deposit accounts ............................................ 330,342 254,857
Certificates of deposit:
Under $100,000 ......................................................... 2,332,954 2,355,571
$100,000 and over ...................................................... 1,031,567 1,086,728
----------- --------------
4,761,112 4,545,723
Federal Home Loan Bank ("FHLB") advances ................................... 1,550,000 1,175,000
Senior Notes due 2004 ...................................................... 22,358 71,560
Senior Notes due 2009 ...................................................... 188,823 188,658
Liquid Yield Option Notes due 2013 ("LYONs") ............................... 3,168 3,089
Other liabilities .......................................................... 133,225 111,095
Liability to discontinued insurance operations ............................. - 74,514
----------- --------------
Total Liabilities ........................................................ 6,658,686 6,169,639
Company-obligated mandatorily redeemable preferred securities
of subsidiary trust holding solely Company junior subordinated
debentures ("Preferred Securities") ...................................... 100,000 100,000
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share-- Authorized: 150,000,000 shares;
Issued and outstanding: (2003 - 75,785,000 and 2002 - 75,397,000) ........ 75,785 75,397
Additional paid-in capital ................................................. 292,764 288,508
Retained earnings .......................................................... 211,236 84,591
Deferred compensation ...................................................... (41,621) (49,542)
Accumulated other comprehensive income ..................................... 40 63
----------- --------------
Total Stockholders' Equity ............................................... 538,204 399,017
----------- --------------
Total Liabilities and Stockholders' Equity ............................... $ 7,296,890 $ 6,668,656
=========== ==============
See notes to consolidated financial statements on Form 10-Q.
3
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fee income on loans ............................ $ 124,389 $ 106,935 $ 243,025 $ 206,312
Interest income on investment securities .................... 1,289 1,224 3,786 2,246
--------- ---------- --------- ---------
125,678 108,159 246,811 208,558
INTEREST EXPENSE:
Deposits .................................................... 30,913 36,417 64,284 74,088
FHLB advances ............................................... 5,989 2,789 10,836 4,363
Senior Notes, LYONs, Preferred Securities and other ......... 7,040 8,760 14,750 17,824
--------- --------- --------- ---------
43,942 47,966 89,870 96,275
Net interest income ........................................... 81,736 60,193 156,941 112,283
Provision for loan losses ..................................... 27,609 20,913 50,529 36,424
--------- --------- --------- ---------
Net interest income after provision for loan losses ........... 54,127 39,280 106,412 75,859
NON-INTEREST INCOME:
Net gain (loss) on:
Whole loan sales of residential real estate loans ......... 51,740 26,394 89,472 41,235
Sale of residual interests in securitizations ............. - - 17,503 -
Whole loan sales of other loans ........................... 670 48 674 74
Extinguishment of debt .................................... (68) 1,048 25 1,928
Other ....................................................... 7,826 4,889 13,748 8,298
--------- --------- --------- ---------
60,168 32,379 121,422 51,535
NON-INTEREST EXPENSE:
Compensation ................................................ 21,334 18,765 46,568 34,407
Occupancy ................................................... 2,888 2,143 5,745 4,206
Expenses and losses on real estate owned .................... 661 3,918 3,245 5,333
Other ....................................................... 9,827 6,520 21,865 13,435
--------- --------- --------- ---------
34,710 31,346 77,423 57,381
Income before income taxes .................................... 79,585 40,313 150,411 70,013
Income tax expense ............................................ 32,798 16,775 62,048 28,418
--------- --------- --------- ---------
Net income from continuing operations ......................... 46,787 23,538 88,363 41,595
Discontinued insurance operations in regulatory
liquidation, net of tax ..................................... 44,308 - 44,308 -
--------- --------- --------- ---------
Net income .................................................... $ 91,095 $ 23,538 $ 132,671 $ 41,595
========= ========= ========= =========
PER SHARE DATA:
BASIC:
Net income from continuing operations ....................... $ 0.67 $ 0.35 $ 1.27 $ 0.63
Discontinued insurance operations in regulatory
liquidation, net of tax ................................... 0.63 - 0.64 -
--------- --------- --------- ---------
Net income .................................................. $ 1.30 $ 0.35 $ 1.91 $ 0.63
========= ========= ========= =========
DILUTED:
Net income from continuing operations ....................... $ 0.62 $ 0.33 $ 1.18 $ 0.58
Discontinued insurance operations in regulatory
liquidation, net of tax ................................... 0.58 - 0.59 -
--------- --------- --------- ---------
Net income .................................................. $ 1.20 $ 0.33 $ 1.77 $ 0.58
========= ======== ========= =========
CASH DIVIDENDS ................................................ $ 0.05 $ 0.02 $ 0.08 $ 0.04
WEIGHTED AVERAGE SHARES (IN THOUSANDS):
Basic ....................................................... 70,126 66,854 69,547 66,395
Diluted ..................................................... 75,799 72,318 75,185 71,628
See notes to consolidated financial statements on Form 10-Q.
4
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
------------------------------
2003 2002
------------ -----------
(THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES
Net income from continuing operations ..................................... $ 88,363 $ 41,595
Adjustments to reconcile net income from continuing operations to net
cash provided by operating activities:
Provision for loan losses ............................................... 50,529 36,424
Net decrease in residual interests in securitized loans ................. 22,749 11,892
Deferred income tax expense ............................................. 52,785 24,264
Depreciation and amortization ........................................... 8,991 7,111
Change in other assets and liabilities .................................. 14,214 (4,589)
------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE LOANS HELD FOR
SALE ACTIVITY ....................................................... 237,631 116,697
Originations of loans held for sale ..................................... (5,044,729) (2,473,521)
Sales of and payments from loans held for sale .......................... 4,529,600 2,169,219
------------ -----------
NET CASH (USED IN) OPERATING ACTIVITIES ............................... (277,498) (187,605)
INVESTING ACTIVITIES
Originations and advances funded for loans held for portfolio ............. (1,393,371) (1,189,832)
Payments from and sales of loans held for portfolio ....................... 1,212,295 990,922
Investment securities available for sale:
Purchases ............................................................... (362,098) (336,062)
Maturities or repayments ................................................ 651,077 329,795
Cash contributions to discontinued insurance operations ................... (6,625) (6,997)
Purchases of property and equipment ....................................... (7,809) (1,437)
------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................... 93,469 (213,611)
FINANCING ACTIVITIES
Deposits accepted, net of repayments ...................................... 215,389 148,423
FHLB advances, net of repayments .......................................... 375,000 331,000
Extinguishment of Senior Notes and LYONs .................................. (49,247) (51,936)
Dividends paid ............................................................ (5,260) (4,253)
Stock options exercised ................................................... 462 -
Decrease (increase) in deferred compensation plans ........................ 2,229 (1,466)
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................... 538,573 421,768
Increase in cash and cash equivalents ....................................... 354,544 20,552
Cash and cash equivalents at beginning of year .......................... 236,376 151,204
------------ -----------
Cash and cash equivalents at end of year .................................... $ 590,920 $ 171,756
============ ===========
See notes to consolidated financial statements on Form 10-Q.
5
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These statements have been prepared in accordance with accounting
principles generally accepted in the United States and, accordingly, adjustments
(consisting of normal accruals) have been made as management considers necessary
for fair presentations. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002. Certain 2002 amounts have
been reclassified to conform to the 2003 presentation.
NOTE B: LOANS RECEIVABLE
Loans receivable consist of commercial and residential real estate loans
and syndicated commercial loans. Commercial real estate loans, which are
primarily variable rate, represent loans secured primarily by first mortgages on
properties such as office, retail, industrial, lodging, multi-family and
commercial mixed-use properties. Commercial real estate loans are reported net
of participations to other financial institutions or investors in the amount of
$111.0 million and $93.2 million as of June 30, 2003 and December 31, 2002,
respectively. Residential real estate loans have loan terms for up to thirty
years and are generally secured by first deeds of trust on single-family
residences. Syndicated commercial loans are commercial variable rate senior
loans and are generally secured by substantially all of the assets of the
borrower.
Loans held for sale consist solely of residential real estate loans which
are aggregated prior to their sale and are carried at the lower of aggregate
amortized cost or market.
6
NOTE C: DEBT - FREMONT GENERAL CORPORATION
The debt of the holding company, Fremont General Corporation ("FGC"), is
detailed in the following table; none of the debt of FGC is guaranteed by the
Company's industrial bank, Fremont Investment & Loan ("FIL") (thousands of
dollars):
JUNE 30,
2003
---------
Senior Notes due 2004, less discount (2003 - $27) $ 22,358
Senior Notes due 2009, less discount (2003 - $1,877) 188,823
Liquid Yield Option Notes due 2013, less discount (2003 - $2,152) 3,168
---------
$ 214,349
=========
NOTE D: DEPOSITS AND FHLB ADVANCES - FREMONT INVESTMENT & LOAN
FIL funds its operations primarily through the issuance of deposits which
are insured up to certain limits by the Federal Deposit Insurance Corporation
("FDIC") and Federal Home Loan Bank ("FHLB") advances.
Certificates of deposit as of June 30, 2003 are detailed by maturity and
rates as follows (thousands of dollars):
MATURING BY WEIGHTED
AMOUNT JUNE 30, AVERAGE RATE
----------- ----------- ------------
$ 3,120,867 2004 2.34%
96,669 2005 4.10%
96,486 2006 5.44%
154 2007 3.90%
2,188 2008 4.74%
48,157 2009 5.38%
----------- ------------
$ 3,364,521 2.53%
=========== ============
Of the total certificates of deposit outstanding at June 30, 2003, $811.5
million were obtained through brokers.
7
The FHLB advances are collateralized by loans pledged to the FHLB. The
following table details the amounts due the FHLB as of June 30, 2003 by
maturities and rates (thousands of dollars):
MATURING BY WEIGHTED
AMOUNT JUNE 30, AVERAGE RATE
----------- ----------- ------------
$ 1,070,000 2004 1.92%
410,000 2005 2.61%
70,000 2006 1.53%
----------- ------------
$ 1,550,000 2.08%
=========== ============
NOTE E: INDUSTRIAL BANK REGULATORY CAPITAL
FIL is required to maintain certain capital ratios. The minimum ratios to
be well-capitalized or adequately capitalized and FIL's actual regulatory
capital and ratios as of June 30, 2003 were as follows (thousands of dollars):
TIER 1 RISK-BASED TOTAL RISK-BASED
TIER 1 LEVERAGE CAPITAL (TO RISK CAPITAL (TO RISK
(AVERAGE ASSETS) WEIGHTED ASSETS) WEIGHTED ASSETS)
------------------- ------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ----- --------- ----- --------- -----
Minimum ratios for:
Well-capitalized ....................... 5.00% 6.00% 10.00%
Adequately capitalized ................. 3.00% 4.00% 8.00%
Actual amounts and ratios:
June 30, 2003 ..........................$ 665,016 9.98% $ 665,016 12.36% $ 733,838 13.64%
NOTE F: DISCONTINUED INSURANCE OPERATIONS IN REGULATORY LIQUIDATION
In December 2002, the Company accrued a charge by setting up a reserve for
the maximum amount of its potential future cash contributions to its
discontinued workers' compensation insurance subsidiary, Fremont Indemnity
Company ("FIC"). These future contributions included both mandatory and
contingent cash contributions as per the July 2, 2002 Letter Agreement of
Run-Off and Regulatory Oversight between the California Department of Insurance,
the Company and FIC (the "Agreement"). The Agreement was included as an exhibit
to the Company's Form 8-K which was filed on July 19, 2002. At December 31,
2002, the total amount of these future potential cash contributions was $79.5
million ($74.5 million at present value), payable ratably at $13.25 million
annually over a period of six years.
During the second quarter of 2003, the Company recognized a net of tax gain
of $44,308,000 from the reversal of this reserve for potential future cash
contributions to FIC. The gain represents the total maximum amount of cash
contributions of $72,875,000 ($68,166,000 on a present value basis) that
8
remained as of June 4, 2003. Pursuant to the provisions of the Agreement, the
granting of an order of conservation prior to March 1, 2004 extinguishes the
obligation of the Company to provide any further cash contributions to FIC. The
Insurance Commissioner of the State of California sought, and was granted, an
order of conservation over FIC by the Superior Court of the State of California
for the County of Los Angeles on June 4, 2003. The conservation order
incorporates the Agreement and also provides that nothing in the order is
intended to modify any of the provisions of the Agreement. The Insurance
Commissioner of the State of California further sought, and was granted, an
order of liquidation over FIC by the Superior Court of the State of California
for the County of Los Angeles on July 2, 2003.
While the Company owns 100% of the common stock of FIC, the assets and
liabilities of FIC are excluded from the accompanying Consolidated Balance Sheet
because the Company no longer has effective control over the operation of this
subsidiary.
NOTE G: EXTINGUISHMENT OF DEBT
The Company extinguished debt that resulted in gains and losses that are
included in non-interest income in the accompanying Consolidated Statement of
Operations. Prior period gains have been reclassified from an extraordinary item
to conform to this new presentation. The amounts are summarized in the following
table:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2003 2002 2003 2002
------- -------- -------- --------
(THOUSANDS OF DOLLARS)
7.70% SENIOR NOTES DUE 2004:
Par Value of debt extinguished ................................ $ 45,000 $ 44,815 $ 49,325 $ 50,815
Pre-tax gain (loss) on extinguishment ......................... (68) 968 25 1,848
LIQUID YIELD OPTION NOTES DUE 2013 ("LYONS"):
Principal amount of debt extinguished ......................... $ - $ 2,269 $ - $ 2,269
Pre-tax gain on extinguishment ................................ - 80 - 80
9
NOTE H: TOTAL COMPREHENSIVE INCOME
The components of total comprehensive income are summarized in the
following table:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2003 2002 2003 2002
-------- -------- --------- --------
(THOUSANDS OF DOLLARS)
Net income .................................................... $ 91,095 $ 23,538 $ 132,671 $ 41,595
Other comprehensive income (loss):
Net change in unrealized gains during the period ............ 1 35 (40) (22)
Less deferred income tax (expense) benefit .................. (1) (12) 17 8
-------- -------- --------- --------
Other comprehensive income (loss) ......................... - 23 (23) (14)
-------- -------- --------- --------
Total comprehensive income .................................... $ 91,095 $ 23,561 $ 132,648 $ 41,581
======== ======== ========= ========
NOTE I: OPERATIONS BY REPORTABLE SEGMENT
The Company's business is engaged in four reportable segments: commercial
real estate; residential real estate; syndicated commercial and retail banking.
Additionally, there are certain corporate revenues and expenses, comprised
primarily of investment income, interest expense and certain general and
administrative expenses, that are not allocated to the reportable segments.
The following data for the three and six months ended June 30, 2003 and
2002 provide certain information related to the reportable segment disclosure.
Intersegment eliminations relate to the credit allocated to retail banking for
operating funds provided to the other three reportable segments.
10
COMMERCIAL RESIDENTIAL SYNDICATED RETAIL INTERSEGMENT TOTAL
REAL ESTATE REAL ESTATE COMMERCIAL BANKING CORPORATE ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- -------- ---------- ------------ ------------
(THOUSANDS OF DOLLARS)
Three months ended June 30, 2003
Total revenues ................. $ 77,616 $ 104,703 $ 624 $ 35,345 $ 2,645 $ (35,087) $ 185,846
Net interest income ............ 49,155 33,833 (12) 4,175 (5,415) - 81,736
Income before income taxes ..... 15,846 80,821 1,912 (2) (18,992) - 79,585
Three months ended June 30, 2002
Total revenues ................. $ 71,918 $ 64,269 $ 600 $ 41,658 $ 2,325 $ (40,232) $ 140,538
Net interest income ............ 41,896 21,100 199 3,815 (6,817) - 60,193
Income before income taxes ..... 22,656 38,432 (7,620) 1,407 (14,562) - 40,313
Six months ended June 30, 2003
Total revenues ................. $ 154,111 $ 207,837 $ 635 $ 73,300 $ 5,244 $ (72,894) $ 368,233
Net interest income ............ 96,453 62,763 (180) 8,611 (10,706) - 156,941
Income before income taxes ..... 26,163 158,506 4,142 (94) (38,306) - 150,411
Six months ended June 30, 2002
Total revenues ................. $ 143,891 $ 108,106 $ 2,007 $ 83,111 $ 4,564 $ (81,586) $ 260,093
Net interest income ............ 80,115 37,129 872 7,498 (13,331) - 112,283
Income before income taxes ..... 42,150 62,633 (8,570) 1,316 (27,516) - 70,013
11
NOTE J: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations for the three and six months ended
June 30, 2003 and 2002:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
2003 2002 2003 2002
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income from continuing operations
(numerator for basic earnings per share) ................... $ 46,787 $ 23,538 $ 88,363 $ 41,595
Effect of dilutive securities:
LYONs ...................................................... 24 31 47 63
-------- -------- -------- --------
Net income from continuing operations available to
common stockholders after assumed conversions
(numerator for diluted earnings per share) ................. $ 46,811 $ 23,569 $ 88,410 $ 41,658
======== ======== ======== ========
Weighted-average shares
(denominator for basic earnings per share) ................. 70,126 66,854 69,547 66,395
Effect of dilutive securities:
Restricted stock ........................................... 5,417 5,259 5,420 5,028
LYONs ...................................................... 205 205 205 205
Stock options .............................................. 51 - 13 -
--------- -------- -------- --------
Dilutive potential common shares ............................... 5,673 5,464 5,638 5,233
--------- -------- -------- --------
Adjusted weighted-average shares and assumed
conversions (denominator for diluted earnings per share) ... 75,799 72,318 75,185 71,628
========= ======== ======== ========
Basic earnings per share ....................................... $ 0.67 $ 0.35 $ 1.27 $ 0.63
========= ======== ======== ========
Diluted earnings per share ..................................... $ 0.62 $ 0.33 $ 1.18 $ 0.58
========= ======== ======== ========
NOTE K: NEW ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" that amends SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 148 provides alternative methods of transition to the fair value method
of accounting for stock-based employee compensation. The statement also amends
the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The Company believes that the impact of this new standard on the Company's
financial position and results of operations will be consistent with the SFAS
No. 123 pro forma disclosure.
12
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN 46 requires
certain variable interest entities to be consolidated by the primary beneficiary
of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk. FIN 46 applies immediately to variable interest entities created
after January 31, 2003 and to variable interest entities in which an enterprise
obtains an interest after that date. FIN 46 applies in the first fiscal year or
interim period beginning after June 15, 2003, to variable interest entities in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The Company does not believe the adoption of this interpretation will
have a significant impact on the Company's financial position and results of
operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" that amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The Company does
not believe the adoption of this standard will have a significant impact on the
Company's financial position and results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and to all
other instruments that exist as of the beginning of the first interim financial
reporting period beginning after June 15, 2003. The effect of SFAS No. 150 on
the Company's financial position will be the reclassification of the Company's
Preferred Securities to a liability beginning July 1, 2003. SFAS No. 150 will
not have an impact on the Company's results of operations.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report may contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements and the currently reported results are based upon the current
expectations and beliefs of Fremont General Corporation ("Fremont") and its
subsidiaries (combined "the Company") concerning future developments and their
potential effects upon the Company. These statements and the Company's results
reported herein are not guarantees of future performance or results and there
can be no assurance that actual developments and economic performance will be as
anticipated by the Company. Actual developments and/or results may differ
significantly and adversely from the Company's expected results as a result of
significant risks, uncertainties and factors beyond the Company's control (as
well as the various assumptions utilized in determining the Company's
expectations) which include, but are not limited to, the following:
o the variability of general and specific economic conditions and
trends, and changes in, and the level of, interest rates;
o the impact of competition and pricing environments on loan and deposit
products and the resulting effect upon the Company's net interest
margin and net gain on sale;
o changes in the Company's ability to originate loans, and any changes
in the cost and volume of loans originated as a result;
o the ability to access the necessary capital resources in a
cost-effective manner to fund loan originations and the condition of
the whole loan sale and securitization markets;
o the ability of the Company to sell or securitize the residential real
estate loans it originates, the pricing of existing and future loans,
and the net premiums realized upon the sale of such loans;
o the ability of the Company to sell certain of the commercial real
estate loans and foreclosed real estate in its portfolio and the net
proceeds realized upon the sale of such;
o the impact of changes in the commercial and residential real estate
markets, and changes in the fair values of the Company's assets and
loans, including the value of the underlying real estate collateral;
o the ability to collect and realize the amounts outstanding, and the
timing thereof, of loans and foreclosed real estate, and the
variability in determining the level of the allowance for loan losses;
o the effect of certain determinations or actions taken by, or the
inability to secure regulatory approvals from, the Federal Deposit
Insurance Corporation, the Department of Financial Institutions of the
State of California or other regulatory bodies on various matters;
o the ability of the Company to maintain cash flow sufficient for it to
meet its debt service and other obligations;
14
o the impact and cost of adverse state and federal legislation and
regulations, litigation, court decisions and changes in the judicial
climate;
o the ability of the Company to utilize the net operating loss
carryforwards currently held and the impact of changes in federal and
state tax laws and interpretations, including tax rate changes, and
the effect of any adverse outcomes from the resolution of issues with
taxing authorities;
o other events, risks and uncertainties discussed elsewhere in this Form
10-Q and from time to time in Fremont's other reports, press releases
and filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly update such
forward-looking statements.
GENERAL
Fremont General Corporation ("Fremont" or when combined with its
subsidiaries "the Company") is a financial services holding company. The
Company's financial services business is consolidated within Fremont General
Credit Corporation ("FGCC"), which is engaged in commercial and residential real
estate lending nationwide through its California-chartered industrial bank
subsidiary, Fremont Investment & Loan ("FIL"). Additionally, there are certain
corporate revenues and expenses, comprised primarily of investment income,
interest expense and certain general and administrative expenses, which are not
allocated by Fremont to FGCC.
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto presented under Item 1, and
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
15
RESULTS OF OPERATIONS
The Company reported net income of $91,095,000 and $132,671,000 for the
second quarter of 2003 and for the six months ended June 30, 2003, respectively.
This is compared to net income of $23,538,000 and $41,595,000 for the respective
periods in 2002. The following table presents a summary of the Company's income
before income taxes and net income for the quarterly and six month periods ended
June 30, 2003 and 2002, respectively:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
Income (loss) before income taxes:
Financial services .......................................... $ 95,536 $ 54,097 $ 183,260 $ 96,283
Unallocated corporate interest and other expenses ........... (15,951) (13,784) (32,849) (26,270)
--------- --------- ---------- ---------
Income before income taxes from continuing operations ......... 79,585 40,313 150,411 70,013
Income tax expense ............................................ (32,798) (16,775) (62,048) (28,418)
--------- --------- --------- ---------
Net income from continuing operations ......................... 46,787 23,538 88,363 41,595
Discontinued insurance operations in regulatory
liquidation, net of taxes ................................... 44,308 - 44,308 -
--------- --------- --------- ---------
Net income .................................................... $ 91,095 $ 23,538 $ 132,671 $ 41,595
========= ========= ========= =========
SECOND QUARTER OF 2003 AS COMPARED TO SECOND QUARTER OF 2002
The Company's financial services operation recorded income before taxes of
$95.5 million for the second quarter of 2003 as compared to $54.1 million for
the second quarter of 2002. This increase in financial services pre-tax income
for the second quarter of 2003, which represents a 77% increase over the results
for the second quarter of 2002, and an after tax gain of $44.3 million on the
reversal of a reserve for potential cash contributions to the Company's
discontinued workers' compensation insurance subsidiary, Fremont Indemnity
Company ("FIC"), are the primary reasons for the increase in net income during
the second quarter of 2003, offset to a lesser degree by increases in the amount
of unallocated corporate interest and other expense and in income tax expense.
See "Financial Services Operation" for further discussion regarding the
financial services operation's results.
During the second quarter of 2003, the Company recognized a net of tax gain
of $44,308,000 from the reversal of its reserve for potential future cash
contributions to FIC. The gain represents the total maximum amount of cash
contributions of $72,875,000 ($68,166,000 on a present value basis) that
remained as of June 4, 2003. Pursuant to the provisions of the Agreement, the
granting of an order of conservation prior to March 1, 2004 extinguishes the
obligation of the Company to provide any
16
further cash contributions to FIC. The Insurance Commissioner of the State of
California sought, and was granted, an order of conservation over FIC by the
Superior Court of the State of California for the County of Los Angeles on June
4, 2003. The conservation order incorporates the Agreement and also provides
that nothing in the order is intended to modify any of the provisions of the
Agreement. The Insurance Commissioner of the State of California further sought,
and was granted, an order of liquidation over FIC by the Superior Court of the
State of California for the County of Los Angeles on July 2, 2003.
The unallocated corporate interest and other expense loss before taxes for
the quarter ended June 30, 2003, was $15.9 million as compared to $13.8 million
for the same quarter in 2002. While interest expense was $1.8 million lower in
the second quarter of 2003, due to lower levels of holding company debt
outstanding, than in the second quarter of 2002, incentive compensation expense
was higher by $1.1 million during the second quarter of 2003 and during the
second quarter of 2002, the gain on the extinguishment of debt was $1.1 million
higher and other operating expenses were lower primarily due to a reversal of
approximately $900,000 in amounts accrued for various expense items.
During the quarter ended June 30, 2003, the Company extinguished $45.0
million in principal amount of its publicly traded 7.70% Senior Notes due 2004
and recognized a pre-tax loss of $68,000, as compared to the extinguishment of
$44.8 million in principal amount of its 7.70% Senior Notes due 2004 with a
pre-tax gain of $1.05 million during the quarter ended June 30, 2002.
Income tax expense of $32.8 million and $16.8 million for the quarters
ended June 30, 2003 and 2002, respectively, represents effective tax rates of
41.2% and 41.6%, respectively, on income before income taxes from continuing
operations of $79.6 million and $40.3 million for the same respective periods.
The effective tax rates for both periods presented are different than the
federal enacted tax rate of 35%, due mainly to various state income tax
provisions within the Company's financial services operation.
FIRST SIX MONTHS OF 2003 AS COMPARED TO FIRST SIX MONTHS OF 2002
The Company's financial services operation recorded income before taxes of
$183.3 million for the first six months of 2003 as compared to $96.3 million for
the first six months of 2002. This represents an increase of 90% for the first
six months of 2003 over the first six months of 2002. This increase in the
financial services operation's results, coupled with the previously discussed
after tax gain of $44.3 million on the reversal of the reserve for potential
cash contributions to FIC during the
17
second quarter of 2003, offset by higher incentive compensation costs and lower
gains on the extinguishment of debt in the unallocated corporate expenses, are
the primary reasons for the increase in net income for the first six months of
2003 as compared to the first six months of 2002.
During the first six months of 2003, the Company extinguished $49.3
million in principal amount of its 7.70% Senior Notes due 2004, with a pre-tax
gain of $25,000. During the first six months of 2002, the Company extinguished
$50.8 million in principal amount of its 7.70% Senior Notes due 2004 and $2.3
million in principal amount at maturity of its LYONs, with a pre-tax gain of
$1.93 million.
Income tax expense of $62.0 million and $28.4 million for the six month
periods ended June 30, 2003 and 2002, respectively, represents effective tax
rates of 41.3% and 40.6%, respectively, on income before taxes from continuing
operations of $150.4 million and $70.0 million for the same respective periods.
The effective tax rates for both periods differ from the federal enacted tax
rate of 35% primarily due to various state income tax provisions within the
Company's financial services operation.
FINANCIAL SERVICES OPERATION
The following table summarizes the Company's financial services operation's
earnings for the respective quarters indicated:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
FINANCIAL SERVICES
Interest and fee income on loans .............................. $ 124,389 $ 106,935 $ 243,025 $ 206,312
Interest income on investment securities ...................... 1,170 980 2,316 1,703
--------- --------- --------- ---------
Total interest income ....................................... 125,559 107,915 245,341 208,015
Interest expense .............................................. 37,242 39,234 75,480 78,495
--------- --------- --------- ---------
Net interest income ......................................... 88,317 68,681 169,861 129,520
Provision for loan losses ..................................... 27,609 20,913 50,529 36,424
--------- --------- --------- ---------
Net interest income after provision for loan losses ......... 60,708 47,768 119,332 93,096
Net gain on whole loan sales of residential real estate loans . 51,740 26,394 89,472 41,235
Net gain on sale of residual interests in securitizations ..... - - 17,503 -
Other non-interest income ..................................... 8,496 4,937 14,422 8,042
Operating expenses ............................................ (25,408) (25,002) (57,469) (46,090)
--------- --------- --------- ---------
Income before income taxes .................................... $ 95,536 $ 54,097 $ 183,260 $ 96,283
========= ========= ========= =========
The Company's financial services operation recorded income before taxes of
$95.5 million for the second quarter of 2003 as compared to $54.1 million for
the first quarter of 2002. The increase in
18
income before taxes for the second quarter of 2003 represents a 77% increase
over the results for the second quarter of 2002 and is a result of significantly
increased levels of net interest income and net gain on the sale of residential
real estate loans, offset by a higher provision for loan losses. The net
interest income for the second quarter of 2003 was $88.3 million as compared to
$68.7 million for the second quarter of 2002. The increase in net interest
income is primarily a result of an increase in the net average interest-earning
assets. Average interest-earning assets increased 26% to $6.70 billion during
the second quarter of 2003, as compared to $5.30 billion during the second
quarter of 2002. The net interest income margin also increased to an annualized
5.28% for the second quarter of 2003 from 5.20% for the second quarter of 2002.
The net gain on the sale of residential real estate loans, net of reductions in
the carrying valuations of loans held for sale, increased from $26.4 million in
the second quarter of 2002 to $51.7 million for the second quarter of 2003. This
increase is primarily attributable to a significant increase in the volume of
loans sold in the two comparable quarters. A total of $2.35 billion in loans
were sold during the second quarter of 2003, as compared to loan sales of $1.27
billion during the second quarter of 2002. The net gain percentage (net gain
after allocated costs and adjustments to the carrying valuations of loans held
for sale, divided by net whole loan sales) on these sales increased from 2.07%
in the second quarter of 2002 to 2.20% in the second quarter of 2003. The
provision for loan losses increased to $27.6 million for the second quarter of
2003 as compared to $20.9 million for the second quarter of 2002. The Company's
net loans receivable (excluding loans held for sale), before the allowance for
loan losses, were approximately $4.29 billion at June 30, 2003, as compared to
$4.14 billion and $4.05 billion at December 31, 2002 and June 30, 2002,
respectively. The Company's residential real estate loans held for sale have
increased from $1.06 billion at June 30, 2002 to $2.19 billion at June 30, 2003;
this increase is reflective of a significant increase in loan production volume
- during the second quarter of 2002, residential real estate loan originations
totaled $1.54 billion as compared to $2.92 billion for the second quarter of
2003.
For the first six months of 2003, the Company's financial services
operation recorded income before taxes of $183.3 million, as compared to $96.3
million for the first six months of 2002. The increase is primarily the result
of increased net interest income and net gain on the sale of residential real
estate loans, a net gain on the sale of residual interests in three
securitizations in the amount of $17.5 million, offset by increases in the
provision for loan losses and operating expenses. Net interest income increased
during the first six months of 2003 due to an increase of 26% in average
interest-earning assets (from $5.13 billion during the first six months of 2002
to $6.48 billion during the first six months of 2003) and an increase in the net
interest income margin percentage. The net interest income margin percentage
increased from 5.09% for the first six months in 2002 to 5.28% for
19
the similar period in 2003 as a result of the Company's cost of funds decreasing
more than the yields on the Company's commercial real estate loan portfolio. The
gain on the sale of residential real estate loans increased during the first six
months of 2003 primarily as a result of significantly increased levels of loan
sales volume. The increase in loan sales volume is driven by a significant
increase in loan origination volume. During the first six months of 2003 and
2002, total loan sales were $4.53 billion and $2.17 billion, respectively, and
loan origination volume was $5.25 billion and $2.87 billion, respectively. The
provision for loan losses increased to $50.5 million for the first six months of
2003 as compared to $36.4 million for the first six months of 2002; this
increase is primarily reflective of a higher level of non-performing assets at
June 30, 2003 and a continued contraction in economic conditions. Operating
expenses increased as a result of increased loan origination volume and employee
incentive compensation.
The following table shows loans receivable outstanding (excluding loans
held for sale) in the various financing categories as of the dates indicated:
JUNE 30, DECEMBER 31, JUNE 30,
2003 2002 2002
----------- ------------ ------------
(THOUSANDS OF DOLLARS)
Commercial real estate loans:
Bridge .................................................................... $ 1,800,090 $ 1,712,085 $ 1,416,973
Permanent ................................................................. 1,272,333 1,393,427 1,345,840
Construction .............................................................. 477,513 328,974 387,772
Single tenant credit ...................................................... 288,408 296,787 303,314
----------- ----------- -----------
3,838,344 3,731,273 3,453,899
Residential real estate loans - portfolio ................................... 460,237 392,061 548,660
Syndicated commercial loans ................................................. 6,958 26,216 49,177
Other - consumer loans ...................................................... 4,352 4,272 4,476
----------- ----------- -----------
4,309,891 4,153,822 4,056,212
Deferred fees and costs ..................................................... (21,626) (15,937) (9,113)
----------- ----------- -----------
Loans receivable before allowance for loan losses ....................... 4,288,265 4,137,885 4,047,099
Allowance for loan losses ................................................... (191,105) (161,190) (117,914)
----------- ----------- -----------
Loans receivable, net of allowance for loan losses ...................... $ 4,097,160 $ 3,976,695 $ 3,929,185
=========== =========== ===========
Residential real estate loans held for sale ................................. $ 2,188,274 $ 1,673,145 $ 1,059,669
=========== =========== ===========
As of June 30, 2003, approximately 41% and 10% of the Company's commercial
real estate loans outstanding were secured by properties located within
California and New York, respectively; no other state represented greater than
8% of the loan portfolio. The Company's largest single commercial real estate
loan outstanding at June 30, 2003 was $56.2 million; this loan has a total loan
commitment of $67.9 million, however, it is cross-collateralized and
cross-defaulted with another loan with the same investment fund on a related
real estate project. The combined loan principal
20
outstanding and total loan commitment of these two loans at June 30, 2003 is
$70.2 million and $81.9 million, respectively. The Company's largest net
commitment for a single loan at June 30, 2003 was $104.0 million; this
represents the maximum potential loan amount to the borrower. In addition, the
commercial real estate loan portfolio's largest concentration by common investor
or sponsor totaled $74.7 million in loan principal outstanding and $87.8 million
in total loan commitment at June 30, 2003, and is from two investment funds
(common advisor), comprised of three separate loans, each of which was
performing as of June 30, 2003.
The following table stratifies the commercial real estate portfolio by loan
amounts outstanding as of June 30, 2003 (in thousands of dollars, except
percents and number of loans):
NUMBER TOTAL LOANS
LOAN SIZE RANGE OF LOANS OUTSTANDING %
--------------------------------- -------- ----------- ----
$0 - $5 million 355 $ 703,911 18%
> $5 million - $10 million 108 789,353 21%
> $10 million - $15 million 47 582,806 15%
> $15 million - $20 million 25 416,656 11%
> $20 million - $30 million 28 700,223 18%
> $30 million - $40 million 12 402,733 10%
> $40 million - $50 million 3 133,631 4%
> $50 million 2 109,031 3%
-------- ------------ ----
580 $ 3,838,344 100%
======== ============ ====
21
The following tables identify the interest income, interest expense,
average interest-earning assets and interest-bearing liabilities, and net
interest margins for the Company's financial services operation for the periods
indicated:
THREE MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------------
2003 2002
--------------------------------------- --------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
----------- --------- -------- ----------- --------- --------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Interest-earning assets (2) :
Commercial real estate loans ....... $ 3,845,668 $ 74,379 7.76% $ 3,454,536 $ 70,971 8.24%
Residential real estate loans (3) .. 2,656,244 49,922 7.54 1,621,003 35,364 8.75
Syndicated commercial loans ........ 12,031 88 2.93 63,383 600 3.80
Investment securities .............. 190,684 1,170 2.46 160,443 980 2.45
----------- --------- -------- ----------- --------- --------
Total interest-earning asset ..... $ 6,704,627 $ 125,559 7.51% $ 5,299,365 $ 107,915 8.17%
=========== ========= ======== =========== ========= ========
Interest-bearing liabilities:
Time deposits ...................... $ 3,572,867 $ 24,197 2.72% $ 3,264,376 $ 28,693 3.53%
Savings deposits ................... 1,356,177 6,716 1.99 1,089,869 7,724 2.84
Debt with FHLB ..................... 1,005,505 5,988 2.39 457,044 2,789 2.45
Other .............................. 25,820 341 5.30 5,661 28 1.98
----------- --------- -------- ----------- --------- --------
Total interest-bearing liabilities ... $ 5,960,369 $ 37,242 2.51% $ 4,816,950 $ 39,234 3.27%
=========== ========= ======== =========== ========= ========
Net interest income .................. $ 88,317 $ 68,681
========= =========
Percent of average interest-earning
assets(1):
Interest income .................. 7.51% 8.17%
Interest expense ................. 2.23% 2.97%
--------- ---------
Net interest margin ............ 5.28 % 5.20%
========= =========
(1) Annualized.
(2) Average loan balances include non-accrual loan balances and exclude residual
interests in securitized loans.
(3) Includes loans held for sale and other consumer loans.
22
SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------------------------------
2003 2002
--------------------------------------- --------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
----------- --------- -------- ----------- --------- --------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Interest-earning assets (2) :
Commercial real estate loans ....... $ 3,797,428 $ 148,353 7.88% $ 3,478,318 $ 142,123 8.24%
Residential real estate loans (3) .. 2,481,925 94,572 7.68 1,436,958 62,245 8.74
Syndicated commercial loans ........ 17,174 100 1.17 80,103 1,944 4.89
Investment securities .............. 184,611 2,316 2.53 131,342 1,703 2.61
----------- --------- -------- ----------- --------- --------
Total interest-earning assets ...... $ 6,481,138 $ 245,341 7.63% $ 5,126,721 $ 208,015 8.18%
=========== ========= ======== =========== ========= ========
Interest-bearing liabilities:
Time deposits ...................... $ 3,615,442 $ 50,703 2.83% $ 3,230,040 $ 59,437 3.71%
Savings deposits ................... 1,284,870 13,581 2.13 1,044,413 14,650 2.83
Debt with FHLB ..................... 863,713 10,836 2.53 365,171 4,363 2.41
Other .............................. 15,114 360 4.80 4,487 45 2.02
----------- --------- ----------- --------- --------
Total interest-bearing liabilities . $ 5,779,139 $ 75,480 2.63% $ 4,644,111 $ 78,495 3.41%
=========== ========= =========== ========= ========
Net interest income .................. $ 169,861 $ 129,520
========= =========
Percent of average interest-earning
assets(1):
Interest income .................. 7.63% 8.18%
Interest expense ................. 2.35% 3.09%
--------- ---------
Net interest margin .............. 5.28% 5.09%
========= =========
(1) Annualized.
(2) Average loan balances include non-accrual loan balances and exclude residual
interests in securitized loans.
(3) Includes loans held for sale and other consumer loans.
The Company's net interest margin as a percentage of average
interest-earning assets increased to 5.28% in the second quarter of 2003 as
compared to 5.20% for the second quarter of 2002. The slight increase in the
Company's net interest margin is due primarily to higher net spreads between the
commercial real estate loan yields and the effective cost of funds employed to
fund these assets as the interest yields on deposits declined on a
quarter-to-quarter comparison more than the yields on commercial real estate
loans did. This is due in part to the presence of interest rate floors (in which
the total of the variable base rate, such as six-month LIBOR, plus the related
spread on a commercial real estate loan will not contractually drop below a
certain absolute level, such as 7%) on a significant number of the Company's
commercial real estate loans, as well as various economic and market factors.
23
The following tables report the non-performing asset classifications,
accruing loans past due 90 days or more, loan loss experience and allowance for
loan losses reconciliation of the financial services operation as of or for the
respective periods ended:
JUNE 30, DECEMBER 31, JUNE 30,
2003 2002 2002
--------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Non-accrual loans receivable:
Commercial real estate loans ..................................... $ 82,134 $ 70,031 $ 74,831
Residential real estate loans - portfolio ........................ 6,897 5,600 3,039
Residential real estate loans - held for sale .................... 5,287 6,709 10,272
Syndicated commercial loans ...................................... 6,854 11,239 7,690
Other ............................................................ - - -
--------- --------- ---------
101,172 93,579 95,832
Real estate owned ("REO"):
Commercial real estate loans ..................................... 20,962 10,598 4,999
Residential real estate loans - portfolio ........................ 602 315 794
Residential real estate loans - held for sale .................... 1,348 2,850 5,107
--------- --------- ---------
22,912 13,763 10,900
--------- --------- ---------
Total non-performing assets ("NPA") ................................ $ 124,084 $ 107,342 $ 106,732
========= ========= =========
Accruing loans past due 90 days or more:
Commercial real estate loans ..................................... $ 2,322 $ - $ 1,093
Residential real estate loans .................................... - - -
Other ............................................................ - - -
--------- --------- ---------
$ 2,322 $ - $ 1,093
========= ========= =========
NPA to total loans receivable, loans held for
sale ("HFS") and REO ............................................. 1.91% 1.84% 2.09%
Accruing loans past due 90 days or more to total
loans receivable and HFS ......................................... 0.04% 0.00% 0.02%
24
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Beginning allowance for loan losses ................ $ 175,162 $ 114,076 $ 161,190 $ 104,179
Provision for loan losses .......................... 27,609 20,913 50,529 36,424
Charge-offs:
Commercial real estate loans ..................... (11,690) (9,419) (20,312) (13,027)
Residential real estate loans - portfolio ........ (64) (22) (234) (56)
Syndicated commercial loans ...................... - (7,640) (199) (9,619)
Other ............................................ - - - -
--------- --------- --------- ---------
Total charge-offs .............................. (11,754) (17,081) (20,745) (22,702)
--------- --------- --------- ---------
Recoveries:
Commercial real estate loans ..................... - - - 1
Residential real estate loans - portfolio ........ 29 4 63 3
Syndicated commercial loans ...................... 58 - 67 -
Other ............................................ 1 2 1 9
--------- --------- --------- ---------
Total recoveries ............................... 88 6 131 13
--------- --------- --------- ---------
Net charge-offs .................................... (11,666) (17,075) (20,614) (22,689)
--------- --------- --------- ---------
Ending allowance for loan losses ................... $ 191,105 $ 117,914 $ 191,105 $ 117,914
========= ========= ========= =========
Allowance for loan losses to total
loans receivable* ................................ 4.46% 2.91% 4.46% 2.91%
Net loan charge-offs to average total
loans receivable (excluding HFS)** ............... 1.10% 1.70% 0.99% 1.15%
* At end of period indicated
** Annualized
JUNE 30, DECEMBER 31, JUNE 30,
2003 2002 2002
--------- ----------- ---------
(THOUSANDS OF DOLLARS)
Allocation of allowance for loan losses:
Commercial real estate loans ..................................... $ 180,014 $ 147,228 $ 99,817
Residential real estate loans - portfolio ........................ 9,055 7,844 15,142
Syndicated commercial loans ...................................... 2,035 6,118 2,963
Other ............................................................ 1 - (8)
--------- --------- ---------
Total allowance for loan losses ................................ $ 191,105 $ 161,190 $ 117,914
========= ========= =========
Non-performing assets increased to $124.1 million, or 1.91% of total loans
receivable, loans held for sale and real estate owned at June 30, 2003, from
$107.3 million or 1.84% at December 31, 2002 and $106.7 million or 2.09% at June
30, 2002. Accruing loans 90 days or greater past due totaled $2.3 million at
June 30, 2003. The level of non-performing assets fluctuates and specific loans
can have a material impact upon the total. During the second quarter of 2003,
there were four loans restructured as to their terms and included in accrual
status at June 30, 2003. The total loan principal outstanding under these four
loans was $36.9 million at June 30, 2003 and the Company incurred $1.6
25
million in charge-offs related to the restructuring of these four loans during
the second quarter of 2003. During the second quarter of 2002, there were six
commercial real estate loans, with a total outstanding balance of $56.8 million
at June 30, 2002, that were restructured and included in accrual status. Of the
six loans restructured during the second quarter of 2002, one (original total
balance of $4.7 million) was ultimately foreclosed upon during the fourth
quarter of 2002, and the other five (original total balance of $52.1 million)
remained on accrual status as of June 30, 2003. The Company incurred $656,000 in
charge-offs related to the restructuring of the six loans during the second
quarter of 2002.
The provision for loan losses for the second quarter of 2003 increased to
$27.6 million, as compared to $20.9 million in the second quarter of 2002. The
allowance for loan losses, as a percentage of total loans receivable, excluding
loans held for sale, increased to 4.46% as of June 30, 2003, as compared to
2.91% at June 30, 2002. The increase in the provision for loan losses during the
second quarter of 2003, as compared to the second quarter of 2002, is primarily
due to a slightly increased level of commercial real estate loan net charge-offs
in the second quarter of 2003 and a small amount of growth in the total loan
portfolio. Total net charge-offs in the second quarter of 2003 totaled $11.7
million, as compared to $17.1 million for the second quarter of 2002. The $11.7
million in net charge-offs for the second quarter of 2003 were substantially all
related to commercial real estate loans; of the $17.1 million in net charge-offs
for the second quarter of 2002, $9.4 million was related to commercial real
estate loans and $7.7 million to syndicated commercial loans. The increase in
net charge-offs for commercial real estate loans during 2003 is primarily a
reflection of the effect of a contracted economic environment.
LIQUIDITY AND CAPITAL RESOURCES
FIL finances its lending activities primarily through Federal Deposit
Insurance Corporation ("FDIC") insured customer deposits, which totaled $4.8
billion at June 30, 2003. FIL is also eligible for financing through the Federal
Home Loan Bank of San Francisco ("FHLB"), which financing is available at
various rates and terms. At June 30, 2003, FIL had borrowing availability with
the FHLB of $1.71 billion, of which $1.55 million was borrowed and outstanding.
In addition, FIL has a line of credit with the Federal Reserve Bank of San
Francisco ("FRB") with a borrowing availability of $149.3 million at June 30,
2003. There were no amounts outstanding under the line of credit with the FRB at
June 30, 2003. The FDIC has established certain capital and liquidity standards
for its member institutions, and FIL was in compliance with these standards as
of June 30, 2003. The Company
26
believes it has sufficient liquidity and capital resources to fund its financial
services operation for the foreseeable future.
As a holding company, Fremont pays its operating expenses, interest expense
and stockholders' dividends, and meets its other obligations primarily from its
cash on hand and intercompany-tax payments from FIL. Dividends of $3.8 million
and $1.4 million were paid on Fremont's common stock in the quarters ending June
30, 2003 and 2002, respectively; however, the Company can give no assurance that
future common stock dividends will be declared.
Fremont has available to it significant federal tax net operating loss
carryforwards, which may be utilized to reduce or eliminate future tax payments.
As a result, intercompany payments of federal tax obligations from FIL, which
would otherwise be payable to taxing authorities, are available for use by
Fremont for general working capital purposes, including the extinguishment of
debt. The Company currently pays various state taxes, primarily California
Franchise Taxes, as there are no significant state net operating loss
carryforwards available to it for offset. The Company has certain California
Franchise Tax issues pending resolution. The Company does not believe that the
ultimate outcome of these matters, which are expected to take several years to
resolve, will have a material effect on the Company's financial position or
liquidity.
Fremont has cash and short term investments of $80.7 million at June 30,
2003 and no debt maturities until March of 2004 and believes that, with its
other available sources of liquidity, it will have sufficient means to satisfy
its liquidity needs for at least the next twelve months.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk resulting primarily from fluctuations
in interest rates arising from balance sheet financial instruments such as
investments, loans and debt. Changes in interest rates will affect the Company's
net investment income, loan interest, net gain on the sale of residential real
estate loans, interest expense and total stockholders' equity. The level of net
gain on the sale of residential real estate loans is highly dependent upon the
level of loan origination volume and the net premium paid by the purchasers of
such loans. Both the volume and net premium, in turn, are highly dependent upon
changes in, and the level of, interest rates and other economic factors. The
Company may experience a decrease in the amount of net gain it realizes should
significant interest rate increases occur or if other economic factors have a
negative impact on the value and volume of the loans the Company originates. The
objective of the Company's asset and liability management activities is to
provide the highest level of net interest and investment income and to seek cost
effective sources of capital, while maintaining acceptable levels of interest
rate and liquidity risk.
As part of its residential real estate mortgage banking operations, the
Company enters into commitments to originate loans ("interest rate lock
commitments"), which represent commitments that have been extended by the
Company, generally for the period of 30 days, at a stated interest rate to its
potential borrowers. The Company determined that its interest rate lock
commitments have met the definition of derivatives under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities"; however, the
impact of the change in fair value of such derivative instruments is not
material to the Company's results of operations. Typically, the Company hedges
the risk of overall changes in the fair value for its loans held for sale
through entering into forward loan sale commitments.
Quantitative and qualitative disclosures about the Company's market risk
are included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002. There have been no material changes in such risks or in
the Company's asset and liability management activities during the six months
ended June 30, 2003.
28
ITEM 4. CONTROLS AND PROCEDURES
As of June 30, 2003, the Company evaluated the effectiveness of the design
and operation of the Company's disclosure controls and procedures. The
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"). Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of June 30, 2003. There have been no changes in the
Company's internal controls over financial reporting that occurred in the last
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial reporting.
29
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a) The Annual Meeting of Stockholders was held on May 29, 2003.
b) The following directors were elected to serve until the next Annual Meeting
of Stockholders or until their successors have been elected and qualified:
James A. McIntyre Robert F. Lewis
Wayne R. Bailey Louis J. Rampino
Thomas W. Hayes Dickinson C. Ross
c) The directors named in (b) above were elected. The results of the voting of
the 68,432,439 shares represented at the meeting are summarized in the
following table:
VOTES
FOR WITHHELD
---------- ---------
J. A. McIntyre .............. 65,419,340 3,013,099
W. R. Bailey ................ 65,430,010 3,002,429
T. W. Hayes ................. 65,300,109 3,132,330
R. F. Lewis ................. 65,281,794 3,150,645
L. J. Rampino ............... 60,383,382 8,049,057
D. C. Ross .................. 65,249,940 3,182,469
d) The appointment of the accounting firm of Ernst & Young LLP as the
Corporation's Independent Auditors was ratified. The results of the voting
of the 68,432,439 shares represented at the meeting are summarized in the
following table:
FOR AGAINST ABSTAINED
--- ------- ---------
67,329,156 847,520 255,763
30
ITEM 6: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
----------- -----------------------------------------------------------------
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q, for the period ended
June 30, 1998, Commission File Number 1-8007.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont
General Corporation. (Incorporated by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998, Commission File Number 1-8007.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.3 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 2000, Commission File Number 1-8007.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Incorporated
by reference to Exhibit 4.4 to the Registrant's Registration
Statement on Form S-3 filed on October 1, 1993, Registration
Number 33-68098.)
4.3 Indenture among the Registrant, the Trust and Bank of New York
(originated with First Interstate Bank of California), a New York
Banking Corporation, as trustee. (Incorporated by reference to
Exhibit 4.3 to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File Number
1-8007.)
4.4 Amended and Restated Declaration of Trust among the Registrant,
the Regular Trustees, The Chase Manhattan Bank (USA), a Delaware
banking corporation, as Delaware trustee, and The Chase Manhattan
Bank, N.A., a national banking association, as Institutional
Trustee. (Incorporated by reference to Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.5 Preferred Securities Guarantee Agreement between the Registrant
and The Chase Manhattan Bank, N.A., a national banking
association, as Preferred Guarantee Trustee. (Incorporated by
reference to Exhibit 4.6 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Incorporated by reference to Exhibit 4.8 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.1(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan and Amendments Number One, Two, Three
and Four. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2002, Commission File Number 1-8007.)
10.1(b) Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan (2000
restatement).
10.2(a)* Fremont General Corporation Investment Incentive Program
Trust. (Incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1993, Commission File Number 1-8007).
31
EXHIBIT
NO. DESCRIPTION
----------- -----------------------------------------------------------------
10.2(b)* Amendment to the Fremont General Corporation Investment
Incentive Program Trust. (Incorporated by reference to Exhibit
10.4 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007.)
10.3(a)* Fremont General Corporation Supplemental Executive Retirement
Plan. (Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 filed on April 9,
2001, Registration Number 333-58560.)
10.3(b)* First Amendment to the Fremont General Corporation
Supplemental Executive Retirement Plan. (Incorporated by
reference to Exhibit 10.1(b) to Quarterly Report on Form 10-Q,
for the period ended June 30, 2001, Commission File Number
1-8007.)
10.3(c)* Second and Third Amendments to the Fremont General
Corporation Supplemental Executive Retirement Plan.
(Incorporated by reference to Exhibit 10.3(c) to the
Registrant's Annual Report on Form 10-K, for the fiscal
year ended December 31, 2002, Commission File Number 1-8007.)
10.4* Fremont General Corporation 2003 Excess Benefit Plan.
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 2002, Commission File Number 1-8007).
10.5* Fremont General Corporation 2003 Excess Benefit Plan Trust
Agreement. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2002, Commission File Number 1-8007).
10.6* Fremont General Corporation Deferred Compensation Trust.
(Incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 filed on April 9, 2001,
Registration Number 333-58560.)
10.7* 1997 Stock Plan and related agreements. (Incorporated by
reference to Exhibit 10.10 to Quarterly Report on Form 10-Q, for
the period ended June 30, 1997, Commission File Number 1-8007.)
10.8* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies. (Incorporated by reference
to Exhibit 10.16 to the Registrant's Quarterly Report on Form
10-Q, for the period ended March 31, 2000, Commission File Number
1-8007).
10.9* 2002 Long Term Incentive Compensation Plan of the Registrant.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q, for the period ended September 31,
2002, Commission File Number 1-8007.)
10.10* 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Incorporated by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form S-8/S-3 filed
on December 9, 1997, Registration Number 333-17525.)
10.11(a)* Fremont General Corporation Employee Benefits Trust
Agreement ("Grantor Trust") dated September 7, 1995 between the
Registrant and Merrill Lynch Trust Company of California.
(Incorporated by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.11(b)* November 11, 1999 Amendment to Exhibit A to the Fremont
General Corporation Employee Benefits Trust ("Grantor Trust")
dated September 7, 1995 between the Registrant and Merrill Lynch
Trust Company of California. (Incorporated by reference to
Exhibit 10.13(a) to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1999, Commission File
Number 1-8007.)
10.12(a)* Employment Agreement between the Registrant and James A.
McIntyre dated January 1, 1994. (Incorporated by reference to
Exhibit (10)(i) to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1994, Commission File Number
1-8007.)
32
EXHIBIT
NO. DESCRIPTION
----------- -----------------------------------------------------------------
10.12(b)* First Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 1, 1996.
(Incorporated by reference to Exhibit 10.10 to the Registrant's
Quarterly Report on Form 10-Q, for the period ended June 30,
1997, Commission File Number 1-8007.)
10.12(c)* Second Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 8, 1997.
(Incorporated by reference to Exhibit 10.14(c) to the
Registrant's Quarterly Report on Form 10-Q, for the period ended
September 30, 1997, Commission File Number 1-8007.)
10.12(d)* Third Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 1, 2000.
(Incorporated by reference to Exhibit 10.9(d) to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2000, Commission File Number 1-8007.)
10.13* Employment Agreement between the Registrant and Louis J.
Rampino dated February 25, 2000. (Incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 2000, Commission File Number
1-8007.)
10.14* Employment Agreement between the Registrant and Wayne R. Bailey
dated February 25, 2000. (Incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 2000, Commission File Number
1-8007.)
10.15* Employment Agreement between the Registrant and Raymond G.
Meyers dated February 25, 2000. (Incorporated by reference to
Exhibit 10.16 to the Registrant's Quarterly Report on Form 10-Q,
for the period ended June 30, 2000, Commission File Number
1-8007.)
10.16* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies. (Incorporated by reference
to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 2001, Commission File
Number 1-8007.)
10.17* Continuing Compensation Plan for Retired Directors.
(Incorporated by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.18 California Department of Insurance Letter Agreement of Run-Off
and Regulatory Oversight of the Fremont Compensation Insurance
Group, Inc. Workers' Compensation Insurance Companies dated July
2, 2002. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on July 19, 2002,
Commission File Number 1-8007.)
10.19 Transition Agreement by and among Fremont Compensation Insurance
Group, Inc., Fremont Compensation Insurance Company, Fremont
Indemnity Company, Fremont Pacific Insurance Company and Amyniles
Insurance Company dated as of May 31, 2002. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed on July 19, 2002, Commission File Number 1-8007).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* Management or compensatory plans or arrangements.
With respect to long-term debt instruments, the Registrant undertakes to
provide copies of such agreements upon request by the Commission.
33
(b) REPORTS ON FORM 8-K:
On April 29, 2003 the Company filed a Current Report on Form 8-K,
Item 9, furnishing Regulation FD Disclosure to report its results
of operations for the first quarter of 2003.
On June 2, 2003 the Company filed a Current Report on Form 8-K,
Item 5, to report that rating agency Fitch upgraded Fremont
General Corporation's senior debt rating to CCC+ (from CCC-) and
moved the outlook to "Stable".
On June 5, 2003 the Company filed a Current Report on Form 8-K,
Item 5, to report that the Superior Court of the State of
California for the County of Los Angeles, the Insurance
Commissioner of the State of California was granted an order of
conservation over Fremont Indemnity Company ("FIC").
On July 31, 2003, the Company filed a Current Report on Form 8-K,
Item 12, furnishing Regulation FD Disclosure to report its
results of operations for the second quarter of 2003.
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREMONT GENERAL CORPORATION
Date: August 13, 2003 /s/ LOUIS J. RAMPINO
----------------------------------------
Louis J. Rampino, President,
Chief Operating Officer and Director
Date: August 13, 2003 /s/ PATRICK E. LAMB
----------------------------------------
Patrick E. Lamb, Senior Vice President,
Controller and Chief Accounting Officer
(Principal Accounting Officer)
35
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
----------- -----------------------------------------------------------------
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q, for the period ended
June 30, 1998, Commission File Number 1-8007.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont
General Corporation. (Incorporated by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1998, Commission File Number 1-8007.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.3 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Incorporated by reference to Exhibit 4.1 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 2000, Commission File Number 1-8007.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company. (Incorporated
by reference to Exhibit 4.4 to the Registrant's Registration
Statement on Form S-3 filed on October 1, 1993, Registration
Number 33-68098.)
4.3 Indenture among the Registrant, the Trust and Bank of New York
(originated with First Interstate Bank of California), a New York
Banking Corporation, as trustee. (Incorporated by reference to
Exhibit 4.3 to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File Number
1-8007.)
4.4 Amended and Restated Declaration of Trust among the Registrant,
the Regular Trustees, The Chase Manhattan Bank (USA), a Delaware
banking corporation, as Delaware trustee, and The Chase Manhattan
Bank, N.A., a national banking association, as Institutional
Trustee. (Incorporated by reference to Exhibit 4.5 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.5 Preferred Securities Guarantee Agreement between the Registrant
and The Chase Manhattan Bank, N.A., a national banking
association, as Preferred Guarantee Trustee. (Incorporated by
reference to Exhibit 4.6 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Incorporated by reference to Exhibit 4.8 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.1(a) Fremont General Corporation and Affiliated Companies
Investment Incentive Plan and Amendments Number One, Two, Three
and Four. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2002, Commission File Number 1-8007.)
10.1(b) Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan (2000
restatement).
10.2(a)* Fremont General Corporation Investment Incentive Program
Trust. (Incorporated by reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1993, Commission File Number 1-8007).
EXHIBIT
NO. DESCRIPTION
----------- -----------------------------------------------------------------
10.2(b)* Amendment to the Fremont General Corporation Investment
Incentive Program Trust. (Incorporated by reference to Exhibit
10.4 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007.)
10.3(a)* Fremont General Corporation Supplemental Executive Retirement
Plan. (Incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 filed on April 9,
2001, Registration Number 333-58560.)
10.3(b)* First Amendment to the Fremont General Corporation
Supplemental Executive Retirement Plan. (Incorporated by
reference to Exhibit 10.1(b) to Quarterly Report on Form 10-Q,
for the period ended June 30, 2001, Commission File Number
1-8007.)
10.3(c)* Second and Third Amendments to the Fremont General
Corporation Supplemental Executive Retirement Plan.
(Incorporated by reference to Exhibit 10.3(c) to the
Registrant's Annual Report on Form 10-K, for the fiscal
year ended December 31, 2002, Commission File Number 1-8007.)
10.4* Fremont General Corporation 2003 Excess Benefit Plan.
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 2002, Commission File Number 1-8007).
10.5* Fremont General Corporation 2003 Excess Benefit Plan Trust
Agreement. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2002, Commission File Number 1-8007).
10.6* Fremont General Corporation Deferred Compensation Trust.
(Incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 filed on April 9, 2001,
Registration Number 333-58560.)
10.7* 1997 Stock Plan and related agreements. (Incorporated by
reference to Exhibit 10.10 to Quarterly Report on Form 10-Q, for
the period ended June 30, 1997, Commission File Number 1-8007.)
10.8* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies. (Incorporated by reference
to Exhibit 10.16 to the Registrant's Quarterly Report on Form
10-Q, for the period ended March 31, 2000, Commission File Number
1-8007).
10.9* 2002 Long Term Incentive Compensation Plan of the Registrant.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q, for the period ended September 31,
2002, Commission File Number 1-8007.)
10.10* 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Incorporated by reference to Exhibit 4.1
to the Registrant's Registration Statement on Form S-8/S-3 filed
on December 9, 1997, Registration Number 333-17525.)
10.11(a)* Fremont General Corporation Employee Benefits Trust
Agreement ("Grantor Trust") dated September 7, 1995 between the
Registrant and Merrill Lynch Trust Company of California.
(Incorporated by reference to Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.11(b)* November 11, 1999 Amendment to Exhibit A to the Fremont
General Corporation Employee Benefits Trust ("Grantor Trust")
dated September 7, 1995 between the Registrant and Merrill Lynch
Trust Company of California. (Incorporated by reference to
Exhibit 10.13(a) to the Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1999, Commission File
Number 1-8007.)
10.12(a)* Employment Agreement between the Registrant and James A.
McIntyre dated January 1, 1994. (Incorporated by reference to
Exhibit (10)(i) to the Registrant's Quarterly Report on Form 10-Q
for the period ended March 31, 1994, Commission File Number
1-8007.)
EXHIBIT
NO. DESCRIPTION
----------- -----------------------------------------------------------------
10.12(b)* First Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 1, 1996.
(Incorporated by reference to Exhibit 10.10 to the Registrant's
Quarterly Report on Form 10-Q, for the period ended June 30,
1997, Commission File Number 1-8007.)
10.12(c)* Second Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 8, 1997.
(Incorporated by reference to Exhibit 10.14(c) to the
Registrant's Quarterly Report on Form 10-Q, for the period ended
September 30, 1997, Commission File Number 1-8007.)
10.12(d)* Third Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 1, 2000.
(Incorporated by reference to Exhibit 10.9(d) to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2000, Commission File Number 1-8007.)
10.13* Employment Agreement between the Registrant and Louis J.
Rampino dated February 25, 2000. (Incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 2000, Commission File Number
1-8007.)
10.14* Employment Agreement between the Registrant and Wayne R. Bailey
dated February 25, 2000. (Incorporated by reference to Exhibit
10.11 to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 2000, Commission File Number
1-8007.)
10.15* Employment Agreement between the Registrant and Raymond G.
Meyers dated February 25, 2000. (Incorporated by reference to
Exhibit 10.16 to the Registrant's Quarterly Report on Form 10-Q,
for the period ended June 30, 2000, Commission File Number
1-8007.)
10.16* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies. (Incorporated by reference
to Exhibit 10.19 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 2001, Commission File
Number 1-8007.)
10.17 Continuing Compensation Plan for Retired Directors.
(Incorporated by reference to Exhibit 10.17 to the Registrant's
Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007.)
10.18 California Department of Insurance Letter Agreement of Run-Off
and Regulatory Oversight of the Fremont Compensation Insurance
Group, Inc. Workers' Compensation Insurance Companies dated July
2, 2002. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on July 19, 2002,
Commission File Number 1-8007.)
10.19 Transition Agreement by and among Fremont Compensation Insurance
Group, Inc., Fremont Compensation Insurance Company, Fremont
Indemnity Company, Fremont Pacific Insurance Company and Amyniles
Insurance Company dated as of May 31, 2002. (Incorporated by
reference to Exhibit 10.2 to the Registrant's Current Report on
Form 8-K filed on July 19, 2002, Commission File Number 1-8007).
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* Management or compensatory plans or arrangements.
With respect to long-term debt instruments, the Registrant undertakes to
provide copies of such agreements upon request by the Commission.