<PAGE>
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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 this 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 Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
SHARES OUTSTANDING
CLASS APRIL 28, 1997
- ----------------------------- ------------------
Common Stock, $1.00 par value 29,419,638
- --------------------------------------------------------------------------------
<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - Financial Information
Page No.
---------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 .............. 3
Consolidated Statements of Income
Three Months Ended March 31, 1997 and 1996 ........ 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 ........ 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 ............... 7
PART II - Other Information
Items 1-5 Not applicable
Item 6. Exhibits and Reports on Form 8-K ....................... 17
Signature ........................................................... 21
2
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 1997 - $1,050,641; 1996 - $1,004,248) ... $ 1,021,261 $ 1,005,147
Non-redeemable preferred stock (cost: 1997 - $368,911; 1996 - $351,812) ... 380,845 354,958
----------- -----------
Total securities available for sale ..................................... 1,402,106 1,360,105
Loans receivable .............................................................. 1,805,937 1,688,040
Short-term investments ........................................................ 156,910 118,582
Other investments ............................................................. 5,537 5,623
----------- -----------
TOTAL INVESTMENTS AND LOANS ............................................. 3,370,490 3,172,350
Cash .......................................................................... 50,843 55,378
Accrued investment income ..................................................... 22,201 26,794
Premiums receivable and agents' balances ...................................... 99,636 99,404
Reinsurance recoverable on paid losses ........................................ 11,702 13,173
Reinsurance recoverable on unpaid losses ...................................... 429,384 438,459
Deferred policy acquisition costs ............................................. 26,466 25,551
Costs in excess of net assets acquired ........................................ 66,439 67,287
Deferred income taxes ......................................................... 68,342 64,035
Other assets .................................................................. 86,664 79,881
Assets held for discontinued operations ....................................... 269,413 265,200
----------- -----------
TOTAL ASSETS ............................................................ $ 4,501,580 $ 4,307,512
=========== ===========
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses ........................................ $ 1,205,611 $ 1,256,345
Life insurance benefits and liabilities .................................... 197,216 202,465
Unearned premiums .......................................................... 93,973 87,422
Dividends to policyholders ................................................. 30,456 33,093
----------- -----------
TOTAL CLAIMS AND POLICY LIABILITIES ..................................... 1,527,256 1,579,325
Reinsurance premiums payable and funds withheld ............................... 4,039 4,106
Other liabilities ............................................................. 56,471 65,574
Thrift deposits ............................................................... 1,185,020 1,114,352
Short-term debt ............................................................... 180,205 16,896
Long-term debt ................................................................ 643,319 636,456
Liabilities of discontinued operations ........................................ 235,899 231,686
----------- -----------
TOTAL LIABILITIES ....................................................... 3,832,209 3,648,395
Commitments and contingencies
Company-obligated mandatorily redeemable preferred securities of
subsidiary Trust holding solely Company junior subordinated debentures ..... 100,000 100,000
STOCKHOLDERS' EQUITY
Common Stock, par value $1 per share -- Authorized: 49,500,000 shares;
issued and outstanding: (1997 - 29,419,000 and 1996 - 28,093,000) .......... 29,419 28,093
Additional paid-in capital .................................................... 188,373 168,452
Retained earnings ............................................................. 439,152 419,136
Deferred compensation ......................................................... (76,233) (59,193)
Net unrealized gain (loss) on investments, net of deferred taxes .............. (11,340) 2,629
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .............................................. 569,371 559,117
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 4,501,580 $ 4,307,512
=========== ===========
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
3
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
--------- ---------
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
REVENUES
Property and casualty premiums earned ......................... $ 115,228 $ 126,677
Net investment income ......................................... 29,777 33,777
Loan interest ................................................. 44,177 38,036
Realized investment losses .................................... (531) (661)
Other revenue ................................................. 6,084 5,804
--------- ---------
Total Revenues ........................................ 194,735 203,633
EXPENSES
Losses and loss adjustment expenses ........................... 73,097 93,677
Policy acquisition costs ...................................... 23,511 25,520
Provision for loan losses ..................................... 1,729 3,518
Other operating costs and expenses ............................ 29,800 25,533
Interest expense .............................................. 30,776 28,154
--------- ---------
Total Expenses ........................................ 158,913 176,402
--------- ---------
Income before taxes ........................................... 35,822 27,231
Income tax expense ............................................ 11,463 8,714
--------- ---------
NET INCOME .......................................... $ 24,359 $ 18,517
========= =========
PER SHARE DATA
Net income:
Primary ................................................. $ 0.87 $ 0.72
Fully diluted ........................................... 0.75 0.60
Cash dividends ............................................... 0.15 0.15
Weighted average shares:
Primary ................................................. 28,077 25,802
Fully diluted ........................................... 33,879 33,010
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
4
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income .......................................................... $ 24,359 $ 18,517
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in premiums receivable and agents' balances
and reinsurance recoverable on paid losses ................. 1,239 2,925
Change in accrued investment income ............................ 4,593 1,387
Change in claims and policy liabilities ........................ (38,639) (37,292)
Amortization of policy acquisition costs ....................... 23,511 25,520
Policy acquisition costs deferred .............................. (24,426) (25,244)
Provision for deferred income taxes ............................ 3,215 553
Provision for loan losses ...................................... 1,729 3,518
Provision for depreciation and amortization .................... 7,119 5,422
Net amortization on fixed maturity investments ................. (4,335) (6,360)
Realized investment losses ..................................... 531 661
Change in other assets and liabilities ......................... (5,519) (22,188)
----------- ----------
NET CASH USED IN OPERATING ACTIVITIES ....................... (6,623) (32,581)
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities ........................................ (1,138,265) (711,633)
Sales of securities ............................................ 1,066,262 485,579
Securities matured or called ................................... 12,315 21,149
(Increase) decrease in short-term and other investments ............. (38,242) 15,726
Loan originations and bulk purchases funded ......................... (224,559) (114,371)
Receipts from repayments of loans ................................... 104,933 142,269
Purchase of property and equipment .................................. (3,876) (2,545)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES ....................... (221,432) (163,826)
FINANCING ACTIVITIES
Proceeds from short-term debt ....................................... 159,801 74,311
Repayments of short-term debt ....................................... - (70,848)
Proceeds from long-term debt ........................................ 15,000 74,000
Repayments of long-term debt ........................................ (6,000) (38,004)
Net increase in thrift deposits ..................................... 70,668 37,836
Annuity contract receipts ........................................... 878 57,777
Annuity contract withdrawals ........................................ (5,233) (7,606)
Proceeds from sale of Preferred Securities .......................... - 100,000
Dividends paid ...................................................... (4,059) (3,325)
Stock options exercised ............................................. 12,857 975
Net increase in deferred compensation plans ......................... (20,392) (25,703)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 223,520 199,413
----------- ----------
INCREASE (DECREASE) IN CASH ......................................... (4,535) 3,006
Cash at beginning of year ........................................... 55,378 39,559
----------- ----------
CASH AT MARCH 31, ................................................... $ 50,843 $ 42,565
=========== ===========
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
5
<PAGE>
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 generally accepted
accounting principles 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 footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996. Certain 1996 amounts have been
reclassified to conform to the 1997 presentation.
NOTE B --- STOCKHOLDERS' EQUITY
During the first three months of 1997, the Company purchased an aggregate
864,824 shares at an aggregate cost of approximately $26 million to fund
stock-based management and employee benefit programs.
NOTE C --- NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FASB 128"), "Earnings Per Share and Disclosure of Information about
Capital Structure" which is effective for periods ending after December 15,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary earnings per share was nil for the quarter ended March
31, 1997 but would have resulted in an increase of $0.03 per share for the
quarter ended March 31, 1996. There was no impact on fully diluted earnings per
share for these quarters.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS INCLUDING THOSE SET FORTH ELSEWHERE IN THIS QUARTERLY
REPORT ON FORM 10-Q.
RESULTS OF OPERATIONS
Fremont General Corporation is engaged domestically in select insurance and
financial services businesses. Fremont General's insurance business includes one
of the largest underwriters of workers' compensation insurance in the nation.
The Company also provides medical malpractice insurance. Fremont General's
financial services business includes commercial real estate lending, residential
real estate lending, commercial finance and premium financing. The Company's
total assets as of March 31, 1997 were $4.5 billion. The primary operating
strategy of the Company is to build upon its core business units through
acquisition opportunities and new business development. The Company's secondary
strategy is to achieve income balance and geographic diversity among its
business units in order to limit the exposure of the Company to industry, market
and regional concentrations. The Company's stock is traded on the New York Stock
Exchange under the symbol "FMT" (NYSE: FMT).
The following table presents information for the quarters ended March 31,
1997 and 1996 with respect to the Company's primary business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues:
Property and casualty ............................... $ 142,503 $ 156,004
Financial services .................................. 52,223 47,226
Corporate ........................................... 9 403
---------- ----------
Total ...................................... $ 194,735 $ 203,633
========== ==========
Income (Loss) Before Taxes:
Property and casualty ............................... $ 32,409 $ 24,963
Financial services .................................. 10,479 7,515
Corporate ........................................... (7,066) (5,247)
---------- -----------
Total ...................................... $ 35,822 $ 27,231
========== ===========
</TABLE>
The Company generated revenues of approximately $195 million for the first
quarter ended March 31, 1997, as compared to $204 million for the first quarter
of 1996. Revenues were slightly lower in the first quarter of 1997 as compared
to the same period of 1996, due primarily to lower workers' compensation
insurance premiums, offset partially by higher loan interest revenues in the
financial services segment. The lower workers' compensation insurance premiums
were due primarily to lower premiums earned in the mid-west region, particularly
Illinois. See "Property and Casualty Insurance Operations - Premiums." Higher
loan interest revenues in the financial services segment were due mainly to
significant growth in the average loan portfolios of the real estate lending and
commercial finance operations. See "Financial Services." Realized investment
losses in the first quarter ended March 31, 1997 were $531,000, compared to
$661,000, for the first quarter in 1996.
The Company posted a 32% increase in net income to $24.4 million or $0.87
per share for the first quarter of 1997, from $18.5 million or $0.72 per share
for the first quarter of 1996. Income before taxes for the first quarter
7
<PAGE>
of 1997 was $35.8 million as compared to $27.2 million for the same period of
1996, also representing an increase of 32%.
Workers' compensation insurance operations posted income before taxes of
$33.3 million for the first quarter of 1997, as compared to $25.4 million for
the first quarter of 1996. The 31% increase in income before taxes was due
primarily to the recognition of continued lower claim frequency in both the west
and mid-west regions. The combined ratio for the quarter ended March 31, 1997
was 90.2% compared to 99.5% for the same quarter of 1996.
The Company's professional medical liability, corporate and other segment
is composed principally of revenues and expenses that pertain to the Company's
professional medical liability business ("medical malpractice"), as well as
miscellaneous expenses associated with the Company's downstream property and
casualty insurance holding company, Fremont Compensation Insurance Group
("FCIG"). Medical malpractice premiums earned were $7.4 million for the first
quarter of 1997, compared to $6.9 million for the first quarter of 1996. Income
before taxes for the medical malpractice business was $905,000 for the first
quarter of 1997, compared to $923,000 for the same period of 1996. Expenses of
FCIG include interest expense on debt and other obligations of $1.5 million for
the quarter ended March 31, 1997, flat as compared to $1.5 million for the same
period in 1996. Since the operations of FCIG consist primarily of interest
expense and overhead expenses, management does not expect it to operate at a
profit.
The financial services business segment posted income before taxes for the
quarter ended March 31, 1997 of $10.5 million, up 40% as compared to $7.5
million for the same quarter of 1996. This increase was due mainly to the
general growth in the average loan portfolio. The average loan portfolio grew to
$1.79 billion in the first quarter ended March 31, 1997 from $1.52 billion in
the same period of 1996.
Corporate revenues during the quarter ended March 31, 1997 and 1996
consisted primarily of investment income, while corporate expenses consisted
primarily of interest expense and general and administrative expenses. The
corporate loss before income taxes for the first quarter of 1997 was $7.1
million as compared to $5.2 million for the same period of 1996. The increase in
the corporate loss before taxes was due primarily to lower investment income and
increased administrative expenses.
Income tax expense of $11.5 million and $8.7 million for the first quarters
ended March 31, 1997 and March 31, 1996, respectively, represent an effective
tax rate of 32.0% on respective pre-tax income of $35.8 million and $27.2
million. These effective tax rates are lower than the enacted federal income tax
rate of 35%, due primarily to tax exempt investment income which reduces the
Company's taxable income.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The following table represents information for the quarters ended March 31,
1997 and 1996 with respect to the Company's property and casualty insurance
operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues ........................................... $ 142,503 $ 156,004
Expenses ........................................... 110,094 131,041
---------- ----------
Income Before Taxes ................................ $ 32,409 $ 24,963
========== ==========
</TABLE>
Revenues from the property and casualty insurance operations consist
primarily of workers' compensation insurance premiums earned and net investment
income. Expenses are comprised mainly of loss and loss adjustment expenses,
policy acquisition costs and other operating costs and expenses.
8
<PAGE>
PREMIUMS. Premiums earned from the Company's workers' compensation
insurance operations were $107.6 million in the quarter ended March 31, 1997, as
compared to $119.4 million in the same quarter of 1996. The lower premiums were
due primarily to lower premium rates in the mid-west region. For the first
quarter ended March 31, 1997, the Company's workers' compensation insurance
premiums earned in its mid-western region, consisting primarily of Illinois,
accounted for $66.5 million, or 61.8% of the Company's total workers'
compensation insurance premiums earned. This is compared to $74.5 million, or
62.4% in premiums earned in the same period of 1996. These lower premiums earned
were due mainly to continued price competition in Illinois, where an overall
average decrease of 10.0% in advisory premium rates, which workers' compensation
insurance companies in Illinois tend to follow, became effective January 1,
1997. The Company's workers' compensation insurance premiums earned in its
western region, consisting primarily of California, accounted for $41.1 million,
or 38.2% of the Company's total workers' compensation insurance premiums earned.
This represents a modest decrease of $3.7 million from the same period in 1996
and is due mainly to continued price competition in California, which adopted an
open rating system effective January 1, 1995. See "Variability of Operating
Results" and "Workers' Compensation Regulation."
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance operations was $27.8 million in the quarter ended March 31,
1997, as compared to $30.0 million for the quarter ended March 31, 1996. Lower
net investment income was earned in the quarter ended March 31, 1997, due
primarily to a lower average investment portfolio.
LOSS AND LOSS ADJUSTMENT EXPENSE. Workers' compensation loss and loss
adjustment expenses ("LAE") were $66.8 million and $88.0 million for the
quarters ended March 31, 1997 and 1996, respectively. In addition, the ratio of
these losses and LAE to workers' compensation insurance premiums earned ("loss
ratio") was 62.0% and 73.7% for the quarters ended March 31, 1997 and 1996,
respectively. The decrease in the loss ratio was due primarily to the
recognition of continued lower claim frequency in the Company's west and
mid-west regions.
The Company regularly reviews its reserving techniques, overall reserve
position and reinsurance. In light of present facts and current legal
interpretations, management believes that adequate provisions have been made for
loss reserves. In making this determination, management has considered its
claims experience to date, loss development history for prior accident years and
estimates of future trends of claims frequency and severity. However,
establishment of appropriate reserves is an inherently uncertain process, and
there can be no certainty that currently established reserves will prove
adequate in light of subsequent actual experience. Subsequent actual experience
has resulted and could result in loss reserves being too high or too low. Future
loss development could require reserves for prior periods to be increased, which
would adversely impact earnings in future periods.
POLICY ACQUISITION COSTS AND OTHER OPERATING COSTS AND EXPENSES. The ratio
of policy acquisition costs and other operating costs and expenses to premiums
earned is referred to as the expense ratio, which for the Company's workers'
compensation business was 28.2% for the quarter ended March 31, 1997, as
compared to 25.8% in the same quarter of 1996. The increase in this ratio was
due primarily to higher agents' commission costs and higher operating costs and
expenses.
DIVIDENDS TO POLICYHOLDERS. In the quarters ended March 31, 1997 and March
31, 1996, there were no dividends accrued. This is due primarily to the type of
workers' compensation insurance policies written by the Company. The Company's
workers' compensation insurance policies are predominately written as
non-participating, which does not include provisions for dividend consideration.
VARIABILITY OF OPERATING RESULTS. The Company's profitability can be
affected significantly by many factors including competition, the severity and
frequency of claims, interest rates, regulations, court decisions, the judicial
climate, and general economic conditions and trends, all of which are outside of
the Company's control. These factors have contributed, and in the future could
contribute, to significant variation of results of operations in different
aspects of the Company's business from quarter to quarter and year to year. With
respect to the workers' compensation insurance business, changes in economic
conditions can lead to reduced premium levels due to lower payrolls as well as
increased claims due to the tendency of workers who are laid off to submit
workers' compensation claims. Legislative and regulatory changes can also
contribute to variable operating results for
9
<PAGE>
workers' compensation insurance businesses. For example, in 1995 the Company
experienced the negative impact of lower premiums and lower profitability on the
Company's California workers' compensation business due to increased price
competition resulting from legislation enacted in California in July 1993 which,
among other things, repealed the minimum rate law effective January 1, 1995.
Additionally, price competition in Illinois continues to impact the Company's
profitability, where overall average decreases of 10.0% and 13.6% in advisory
premium rates, which workers' compensation insurance companies in Illinois tend
to follow, became effective January 1, 1997 and January 1, 1996, respectively.
See "Workers' Compensation Regulation." The Company anticipates that its results
of operations and financial condition will continue to be adversely affected by
the increased price competition which has lowered the Company's workers'
compensation insurance premiums earned in California and Illinois. Also, the
establishment of appropriate reserves necessarily involves estimates, and
reserve adjustments have caused significant fluctuations in operating results
from year to year.
WORKERS' COMPENSATION REGULATION. Illinois began operating under an open
rating system in 1982 and California began operating under such a system
effective January 1, 1995. In an open rating system, workers' compensation
companies are provided with advisory rates by job classification and each
insurance company determines its own rates based in part upon its particular
operating and loss costs. Although insurance companies are not required to adopt
such advisory premium rates, companies in Illinois generally follow such rates.
This characteristic has resulted in price competition in Illinois, where overall
average decreases in advisory premium rates of 10.0% and 13.6% became effective
January 1, 1997 and 1996, respectively. However, insurance companies in
California have, since the adoption of an open rating system, generally set
their premium rates below such advisory premium rates. Before January 1, 1995,
California operated under a minimum rate law, whereby premium rates established
by the California Department of Insurance were the minimum rates which could be
charged by an insurance carrier.
FINANCIAL SERVICES
The Company's financial services operations, which are comprised of the
results of Fremont General Credit Corporation ("FGCC"), are principally engaged
in commercial and residential real estate lending, commercial finance and
premium financing. Revenues consist primarily of interest income and, to a
lesser extent fees and other income.
The following table presents information with respect to the Company's
financial services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
---------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Revenues ........................................... $ 52,223 $ 47,226
Expenses ........................................... 41,744 39,711
---------- ----------
Income Before Taxes ................................ $ 10,479 $ 7,515
========== ==========
</TABLE>
Revenues increased 11% in the first quarter ended March 31, 1997, as
compared to the same period of 1996, due primarily to greater loan interest
revenue attributable to the significant growth in the average loan portfolio of
the commercial and residential real estate lending and commercial finance
operations to $1.8 billion in the three month period ending March 31, 1997 from
$1.5 billion in the same period of 1996.
Income before taxes in the financial services operations was $10.5 million
for the quarter ended March 31, 1997, as compared to $7.5 million for the same
quarter of 1996. The 40% increase in income before taxes in the first quarter of
1997 was due primarily to higher income before taxes in the real estate lending
operation. Contributing to this higher income before taxes were higher loan
interest revenue due to a greater average real estate loan portfolio, a higher
net interest margin, and a lower loan loss provision relative to loans
receivable, which resulted from lower loan loss experience. These conditions
were partially offset by increases in operating expenses.
10
<PAGE>
Additionally, higher income before taxes was achieved in the commercial finance
operation through a lower provision for loan losses, offset partially by a
decrease in net interest margin and an increase in operating expenses. The lower
loan loss provision occurred as the Company's results in the first quarter of
1996 were adversely impacted by a specific loan loss provision associated with
one loan in the commercial finance loan portfolio. This loan was fully
charged-off by December 31, 1996.
The following table identifies the interest income, interest expense,
average interest-bearing assets and liabilities, and interest margins for the
Company's financial services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
1997 1996
------------------------------------- -------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST(1) BALANCE INTEREST COST(1)
-------------- ---------- --------- -------------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C> <C> <C>
Interest bearing assets (2):
Commercial finance, premium
finance and other loans ................. $ 637,628 $ 16,860 10.58% $ 637,448 $ 17,535 11.00%
Thrift and loan:
Cash equivalents ........................ 91,945 1,172 5.10 182,539 2,457 5.38
Investments ............................. 44,311 622 5.61 19,883 286 5.75
Commercial real estate loans ............ 872,406 20,712 9.50 715,777 17,000 9.50
Residential real estate loans ........... 280,163 6,735 9.62 176,172 4,128 9.37
Other thrift loans ...................... 1,224 39 12.75 802 18 8.98
------------- ----------- -------------- -----------
Total interest bearing assets ............ $ 1,927,677 $ 46,140 9.57% $ 1,732,621 $ 41,424 9.56%
============= =========== ============== ===========
Interest bearing liabilities:
Savings deposits ......................... $ 238,303 $ 2,924 4.91% $ 260,322 $ 3,383 5.20%
Time deposits ............................ 917,629 13,153 5.73 705,080 10,314 5.85
Commercial paper and other ............... 1,757 12 2.73 3,559 64 7.19
Securitization obligation ................ 294,353 4,395 5.97 304,258 4,700 6.18
Debt with banks .......................... 218,179 3,549 6.51 210,449 3,410 6.48
Debt from affiliates ..................... 49,772 612 4.92 58,240 719 4.94
------------- ----------- ------------- -----------
Total interest bearing liabilities ....... $ 1,719,993 $ 24,645 5.73% $ 1,541,908 $ 22,590 5.86%
============= =========== ============= ===========
Net interest income ......................... $ 21,495 $ 18,834
=========== ===========
Net yield ................................... 4.46% 4.35%
<FN>
(1) Annualized.
(2) Average loan balances include non-accrual loan balances.
</FN>
</TABLE>
The margin between the Company's interest income and cost of funds
increased in the quarter ended March 31, 1997 as compared to the quarter ended
March 31, 1996, due primarily to an increase in the yield on residential real
estate loans coupled with a lower overall cost of funds in the real estate
lending operation. Partially offsetting this was a slight decrease in the net
margins in the commercial finance lending segment due primarily to increases in
the credit quality of the commercial loan portfolio, as well as increased
competition.
11
<PAGE>
LOANS RECEIVABLE AND RESERVE ACTIVITY. The following table shows loans
receivable in the various financing categories and the percentages of the total
represented by each category:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------------------- --------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------------ ------ ------------ -----
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory loans:
Commercial finance ....................... $ 403,857 22% $ 385,734 22%
Term loans:
Thrift and loan .......................... 1,205,260 65 1,113,950 65
Commercial finance, premium finance
and other loans .......................... 235,937 13 226,103 13
------------ ------ ------------ -----
Total term loans ....................... 1,441,197 78 1,340,053 78
------------ ------ ------------ -----
Total loans ............................ 1,845,054 100 1,725,787 100
Less allowance for possible loan losses ..... 39,117 2 37,747 2
------------ ------ ------------ -----
Loans receivable ......................... $ 1,805,937 98% $ 1,688,040 98%
============ ====== ============ =====
</TABLE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT MARCH 31, 1997
--------------------------------------------------
1 TO 24 25-60 OVER 60
MONTHS MONTHS MONTHS TOTAL
----------- --------- ----------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Accounts receivable and inventory
loans -- variable rate ............... $ 403,857 $ - $ - $ 403,857
Term loans -- variable rate ............ 206,570 521,161 514,572 1,242,303
Term loans -- fixed rate ............... 99,287 57,237 42,370 198,894
---------- --------- ---------- ----------
Total .............................. $ 709,714 $ 578,398 $ 556,942 $1,845,054
========== ========= ========== ==========
</TABLE>
The Company monitors the relationship of fixed and variable rate loans and
interest bearing liabilities in order to minimize interest rate risk.
Adverse economic developments can negatively affect the Company's business
and results of operations in a number of ways. Such developments can, among
other things, reduce the demand for loans, impair the ability of borrowers to
pay loans and impair the value of the underlying collateral.
12
<PAGE>
The following table describes the asset classifications, loss experience
and reserve reconciliation of the real estate lending and commercial finance
operations as of or for the periods ended as shown below:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans .............................................. $ 22,958 $ 27,089
Accrual loans 90 days past due ................................. 1,128 1,595
Real estate owned ("REO") ...................................... 11,285 8,057
----------- -----------
Total non-performing assets .................................... $ 35,371 $ 36,741
=========== ===========
Beginning allowance for possible loan losses ................... $ 37,747 $ 31,781
Provision for loan losses ...................................... 1,729 3,518
Reserves established with portfolio acquisitions ............... - 1,830
Charge-offs:
Commercial finance, premium finance and other loans ......... 758 4,011
Thrift and Loan:
Commercial real estate .................................. 142 970
Residential real estate loans ........................... 205 -
Other thrift loans ...................................... - 95
----------- -----------
Total charge-offs ........................................... 1,105 5,076
----------- -----------
Recoveries:
Commercial finance, premium finance and other loans .......... 13 7
Thrift and Loan:
Commercial real estate .................................. 167 19
Residential real estate loans ........................... 532 35
Other thrift loans ...................................... 34 60
----------- -----------
Total recoveries ............................................ 746 121
----------- -----------
Net charge-offs ................................................ 359 4,955
----------- -----------
Ending allowance for possible loan losses ...................... $ 39,117 $ 32,174
=========== ===========
Allocation of allowance for possible loan losses:
Commercial finance, premium finance and other loans ......... $ 12,673 $ 14,366
Thrift and loan ............................................. 26,444 17,808
----------- -----------
Total allowance for possible loan losses .................... $ 39,117 $ 32,174
=========== ===========
Total loans receivable ......................................... $ 1,845,054 $ 1,499,105
Average total loans receivable ................................. $ 1,786,059 $ 1,520,177
Net charge-offs to average total loans receivable (annualized).. 0.08% 1.30%
Non-performing assets to total loans receivable ................ 1.92% 2.45%
Allowance for possible loan losses to total loans receivable ... 2.12% 2.15%
Allowance for possible loan losses to non-performing assets .... 110.59% 82.57%
Allowance for possible loan losses to non-accrual
loans and accrual loans 90 days past due .................... 162.41% 112.17%
</TABLE>
Non-performing assets decreased slightly to $35.4 million at March 31, 1997
from $36.7 million at March 31, 1996. This decrease is due primarily to a
decrease in non-accrual real estate loans, offset partially by an increase in
REO in the real estate lending operation. The decrease in non-accrual loans was
due primarily to improved loan loss experience.
The lower provision for loan losses in the quarter ended March 31, 1997 as
compared to the same quarter of the prior year, is due primarily to improved
loan loss experience in the real estate lending operation.
13
<PAGE>
Additionally, a lower loan loss provision occurred in the commercial finance
operation as the Company was adversely impacted in the first quarter of 1996 by
a specific loan loss provision associated with one loan in the commercial
finance loan portfolio. Substantially all of the charge-offs in the commercial
finance segment in the first quarter of 1996 were also related to this loan. The
Company's overall improved loan loss experience is evidenced by the decreases in
both the ratio of net charge-offs to average total loans receivable and the
ratio of non-performing assets to total loans receivable in the preceding table.
The Company's allowance for possible loan losses was strengthened in the first
quarter of 1997 as indicated by the increase in the ratio of the allowance for
possible loan losses to non-accrual loans and accrual loans 90 days past due to
162.41% from 112.17% at the quarters ended March 31, 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operations must have cash and liquid
assets available to meet their obligations to policyholders in accordance with
contractual obligations, in addition to having the funds available to meet
ordinary operating costs. These operations have several sources of funds to meet
their obligations, including cash flow from operations, recoveries from
reinsurance contracts and investment securities. By statute, the majority of the
cash from these operations is required to be invested in investment grade
securities to provide protection for policyholders. The Company invests in fixed
income and preferred equity securities with an objective of providing a
reasonable return while limiting credit and liquidity risk. The Company's
investment portfolio had an unrealized gain (loss) of $(17.4) million and $4.0
million at March 31, 1997 and December 31, 1996, respectively.
The Company's thrift and loan subsidiary, which is principally engaged in
real estate lending, finances its lending activities primarily through customer
deposits, which have grown to $1.185 billion at March 31, 1997 from $1.114
billion at December 31, 1996. In addition, this subsidiary is eligible for
financing through the Federal Home Loan Bank of San Francisco ("FHLB"). This
financing is available at varying rates and terms. As of March 31, 1997, $252
million was available under the facility with $30 million outstanding.
The Company's commercial finance operation funds its lending activities
primarily through its asset securitization program, an unsecured revolving line
of credit with a syndicated bank group and its capital. The asset securitization
program was established to provide a stable and cost effective source of funds
to facilitate the expansion of this business. As of March 31, 1997, an aggregate
$235 million senior series and a $30 million subordinated series of asset-backed
certificates were outstanding. The interest rate on the certificates, set
monthly, ranged from LIBOR plus 0.34% to LIBOR plus 0.95% at March 31, 1997. The
securities issued in this program have a scheduled maturity of three to five
years, but could mature earlier depending on fluctuations in outstanding
balances of loans in the portfolio and other factors. As of March 31, 1997, up
to $365 million in additional publicly offered asset-backed certificates may be
issued pursuant to a shelf registration statement to fund future growth in the
commercial finance portfolio. In February 1996, $135 million of the senior
series certificates ("Series C") were issued. The proceeds were used, in
conjunction with existing cash, to retire $200 million in Series A certificates,
which were outstanding as of December 31, 1995. In December 1995, a commercial
paper facility was established as part of the asset securitization program. This
facility, which expires in December 1998, provides for the issuance of up to
$150 million in commercial paper, dependent upon the level of assets within the
asset securitization program. As of March 31, 1997, $44 million was outstanding
under this facility. The commercial finance operation's unsecured revolving line
of credit is with a syndicated bank group that presently permits borrowings of
up to $400 million, which includes a revolving credit facility of $300 million
expiring August 1998 and a term loan of $100 million maturing 2001. The balance
outstanding at March 31, 1997 of the revolving credit facility and the term loan
was $117 million and $100 million, respectively, with a weighted average
interest rate of 5.98%. This credit line is primarily used to finance assets
which are not included in the Company's asset securitization program.
As a holding company, Fremont General pays its operating expenses, meets
its other obligations and pays stockholders' dividends from its cash on hand,
management fees paid by its subsidiaries and dividends paid by its subsidiaries.
Stockholders' dividends declared aggregated $4.3 million and $3.7 million for
the three months ended March 31, 1997 and 1996, respectively. Several of the
Company's subsidiaries are subject to certain statutory and regulatory
restrictions and various agreements, principally loan agreements, that restrict
their ability to distribute
14
<PAGE>
dividends to the Company. The Company expects that during the next few years
dividends from its subsidiaries will consist of dividends from its property and
casualty subsidiaries and dividends on preferred stock of its thrift and loan
holding company and commercial finance subsidiaries. The maximum amount
available for payment of dividends by the property and casualty subsidiaries
during 1997, without prior regulatory approval, is approximately $62.6 million.
To facilitate general corporate operations, the Company maintains a
revolving line of credit with a syndicated bank group that currently permits
borrowings of up to $200 million, of which $25 million was outstanding as of
March 31, 1997. In August 1997, this credit line converts to a term loan of up
to $100 million, with scheduled semi-annual payments through August 2001. In
addition, the Company has an externally financed loan to its Employee Stock
Ownership Plan ("ESOP") with a bank totaling $11 million. The maximum principal
amount of this loan is $15 million. The loan is due in seven equal annual
installments that commenced April 1, 1996 and is secured by certain shares of
the ESOP. The balance outstanding at March 31, 1997 was $8.6 million. The
interest and principal payments are guaranteed by the Company.
During the third quarter of 1996, an aggregate $71,243,000 principal amount
at maturity of Liquid Yield Option (TM) Notes due October 12, 2013 (Zero
Coupon-Subordinated) were converted into 1,374,000 shares of the Company's
Common Stock. The effect of the conversions was an increase in stockholders'
equity and a decrease in long-term debt of $30 million.
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the Company, sold $100
million of 9% Trust Originated Preferred Securities (SM) ("the Preferred
Securities") in a public offering. The Preferred Securities represent preferred
undivided beneficial interests in the assets of the Trust. The proceeds from the
sale of the Preferred Securities were invested in 9% Junior Subordinated
Debentures of the Company ("the Junior Subordinated Debentures"). The proceeds
from the sale of the Junior Subordinated Debentures were used to repay
approximately $50 million in revolving bank line of credit indebtedness, with
the remainder used for general corporate purposes. The $100 million Junior
Subordinated Debentures are the sole asset of the Trust. The Preferred
Securities will be redeemed upon maturity of the Junior Subordinated Debentures
in 2026, subject to the election available to the Company to extend the maturity
up to 2045, and they may be redeemed, in whole or in part, at any time on or
after March 31, 2001 and under certain specified circumstances. The Junior
Subordinated Debentures rank PARI PASSU with the Company's $300,600,000
aggregate principal amount at maturity of Liquid Yield Option(TM) Notes due
2013, and subordinate and junior to all senior indebtedness of the Company.
Payment of distributions out of cash held by the Trust, and payments on
liquidation of the Trust or the redemption of the Preferred Securities are
guaranteed by the Company.
Net cash used in operating activities of continuing operations was $6.6
million and $32.6 million for the quarter ended March 31, 1997 and 1996,
respectively. Net cash used in continuing operations decreased in the three
months ended March 31, 1997, due primarily to an increase in net income and a
reduction in the settlement of certain accrued operating expenses.
Net cash used in investing activities increased to $221.4 million from
$163.8 million for the quarters ended March 31, 1997 and 1996, respectively. The
increase in net cash used in investing activities was due mainly to an increase
in loan originations, net of loan repayments, partially offset by a decrease in
investment purchases, net of sales and maturities. The increase in loan
originations is consistent with the general growth in the Company's financial
services' loan portfolio.
Net cash provided by financing activities was $223.5 million and $199.4
million for the quarters ended March 31, 1997 and 1996, respectively. Net cash
provided by financing activities increased in the quarter ended March 31, 1997,
due primarily to an increase in short-term debt proceeds, net of repayments, an
increase in thrift deposits, and a decrease in the funding of certain deferred
compensation plans, net of stock options exercised. Contributing to the increase
in short-term debt proceeds were $30 million in borrowings under the Company's
FHLB financing facility within the thrift and loan operation, an increase of $29
million in commercial paper borrowings in the commercial finance operation and
$104 million in borrowings pursuant to certain reverse repurchase agreements
within the property and casualty insurance operation. Partially offsetting these
increases in
15
<PAGE>
financing activities were decreases in annuity contract receipts, net of
contract withdrawals, and a decrease in long-term debt proceeds, net of
repayments. The decrease in annuity contract receipts is consistent with the
Company's substantial reduction in life insurance operations which occurred on
January 1, 1996. Additionally, the Company's financing activities in the first
quarter of 1996 were significantly impacted by the proceeds of $100 million from
the sale of the Preferred Securities which were issued on March 1, 1996.
The amortized cost of the Company's invested assets were $1.58 billion and
$1.48 billion at March 31, 1997 and December 31, 1996, respectively. The $102
million increase in the invested assets resulted primarily from the investing of
certain short-term debt proceeds in the Company's property and casualty
insurance operation.
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1996 was 1.2 to 1, which is within industry guidelines. The
FDIC has established certain capital and liquidity standards for its member
institutions, and the Company's thrift and loan subsidiary was in compliance
with these standards as of March 31, 1997.
The Company believes that its existing cash, its bank lines of credit,
revenues from operations and other available sources of liquidity will be
sufficient to satisfy its liquidity needs for the next several years.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FASB 128"), "Earnings Per Share and Disclosure of Information about
Capital Structure" which is effective for periods ending after December 15,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary earnings per share was nil for the quarter ended March
31, 1997 and would have resulted in an increase of $0.03 per share for the
quarter ended March 31, 1996. There was no impact on fully diluted earnings per
share for these quarters.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings.
None.
ITEM 2: Changes in Securities.
None.
ITEM 3: Defaults Upon Senior Securities.
None.
ITEM 4: Submission of Matters to a Vote of Security Holders.
None.
ITEM 5: Other Information.
None.
ITEM 6: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company,
Fremont General Corporation, the Buckeye Union Insurance Company, The
Continental Corporation and Casualty Insurance Company, dated as of
December 16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form
8-K, as of February 22, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont Compensation
Insurance Company, Fremont General Corporation, the Buckeye Union
Insurance Company, The Continental Corporation and Casualty Insurance
Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.2 to
Current Report on Form 8-K, as of February 22, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General Corporation.
(Filed as Exhibit No. 3.1 to Registration Statement on Form S-3 File
No 33-64771 which was declared effective on March 1, 1996, and
incorporated herein by reference.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont
General Corporation. (Filed as Exhibit 3.2 to Registration Statement
on Form S-3 File No. 33-64771 which was declared effective on March 1,
1996 and herein incorporated by reference.)
3.3 Amended and Restated By-Laws of Fremont General Corporation. (Filed as
Exhibit No. 3.3 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed
as Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File
Number 1-8007, and incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between
the Registrant and Bankers Trust Company. (Filed as Exhibit No. 4.4 to
Registration Statement on Form S-3 filed on October 1, 1993, and
incorporated herein by reference.)
17
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------
4.3 Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee. (Filed as
Exhibit No. 4.3 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.4 Declaration of Trust among the Registrant, the Regular Trustees and
The Chase Manhattan Bank (USA), a Delaware banking corporation, as
Delaware trustee. (Filed as Exhibit No. 4.4 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.5 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. (Filed as
Exhibit No. 4.5 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.6 Preferred Securities Guarantee Agreement between the Registrant and
The Chase Manhattan Bank, N.A., a national banking association, as
Preferred Guarantee Trustee. (Filed as Exhibit No. 4.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
4.7 Common Securities Guarantee Agreement by the Registrant. (Filed as
Exhibit No. 4.7 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.8 Form of Preferred Securities. (Included in Exhibit 4.5). (Filed as
Exhibit No. 4.8 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit 4.3).
(Filed as Exhibit No. 4.9 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.1 Fremont General Corporation Employee Stock Ownership Plan as amended.
(Filed as Exhibit No. 10.1 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.2 Amended and Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.2 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.3 Fremont General Corporation and Affiliated Companies Investment
Incentive Program as amended. (Filed as Exhibit No. 10.3 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.4(a) Trust Agreement for Investment Incentive Program. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the Fiscal
Year Ended December 31, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Program.
(Filed as Exhibit No. 10.4 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
18
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------
10.5(a) Supplemental Retirement Plan of the Company. (Filed as Exhibit No.
(10)(v) to Annual Report on Form 10-K, for the Fiscal Year Ended
December 31, 1990, Commission File Number 1-8007, and incorporated
herein by reference.)
10.5(b) Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5
to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.6 Trust Agreement for Supplemental Retirement Plan of the Company and
the Senior Supplemental Retirement Plan of The Company, as amended.
(Filed as Exhibit No. 10.6 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.7 Senior Supplemental Retirement Plan, as amended. (Filed as Exhibit No.
10.7 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8(a) Excess Benefit Plan of the Company. (Filed as Exhibit No. (10)(vi) to
Annual Report on Form 10-K, for the Fiscal Year Ended December 31,
1993, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8(b) Amendment to Excess Benefit Plan of the Company. (Filed as Exhibit No.
10.8 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8(c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No. 10.8 to
Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related agreements
of the Company. (Filed as Exhibit No. 10.9 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1996, Commission File
Number 1-8007, and incorporated herein by reference.)
10.10 1997 Stock Plan (Filed as an appendix to the definitive proxy
statement which was filed on April 11, 1997 pursuant to Schedule 14A
for the Annual Meeting of Stockholders, and incorporated herein by
reference.)
10.11(a) Long-Term Incentive Compensation Plan of the Company - Senior
Executive Plan. (Filed as Exhibit No. 10.10 (a) on Form 10-Q for the
period ended September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company (Filed as Exhibit
No. 10.10 (b) on Form 10-Q for the period ended September 30, 1996,
Commission File Number 1-8007, and incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan as amended and forms of agreement
thereunder. (Filed as Exhibit No. 4.1 to Registration Statement on
Form S-8/S-3 File No. 333-17525 which was filed on December 10, 1996,
and incorporated herein by reference.)
10.13 Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company and
Merrill Lynch Trust Company of California. (Filed as Exhibit No. 10.12
to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
19
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------
10.14 Employment Agreement between the Company and James A. McIntyre. (Filed
as Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period
ended March 31, 1994, Commission File Number 1-8007, and incorporated
herein by reference.)
10.15(a) Employment Agreement between the Company and Louis J. Rampino. (Filed
as Exhibit No. 10.14 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.15(b) Employment Agreement between the Company and Wayne R. Bailey. (Filed
as Exhibit No. 10.14 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.16 Management Continuity Agreement between the Company and Raymond G.
Meyers. (Filed as Exhibit No. 10.15 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.17 1996 Management Incentive Compensation Plan of the Company. (Filed as
Exhibit No. 10.16 to Quarterly Report on Form 10-Q, for the period
ended March 31, 1996, Commission File Number 1-8007, and incorporated
herein by reference.)
10.18 Continuing Compensation Plan for Retired Directors. (Filed as Exhibit
No. 10.17 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.19 Non-Employee Directors' Deferred Compensation Plan. (Filed as Exhibit
No. 10.18 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.20(a) Amended and Restated Agreement among Fremont General Corporation,
Various Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent. (Filed as Exhibit No. (10)(xiii) to Quarterly Report on Form
10-Q for the period ended September 30, 1995, Commission File Number
1-08007, and incorporated herein by reference.)
10.20(b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19 (b) to
Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.21 Keep Well Agreement, dated as of August 24, 1995 by the Company in
connection with the Credit Agreement among Fremont General
Corporation, Various Lending Institutions and the Chase Manhattan
Bank, N.A., As Agent. (Filed as Exhibit No. 10.20 to Annual Report on
Form 10-K, for the fiscal year ended December 31, 1996, Commission
File Number 1-8007, and incorporated herein by reference.)
10.22 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company
of California as trustee for the Fremont General Corporation Employee
Stock Ownership Trust. The Plan Committee (hereinafter described) on
behalf of the Fremont General Corporation Employee Stock Ownership
Plan, Fremont General Corporation, and First Interstate Bank of
California August 10, 1995. (Filed as Exhibit No. (10)(viii) to
Quarterly Report on Form 10-Q for the period ended September 30, 1995,
and incorporated herein by reference.)
(11) Statement re: Computation of per share earnings.
(27) Financial Data Schedule
(b) REPORT ON FORM 8-K. None filed during the quarter ended March 31, 1997.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FREMONT GENERAL CORPORATION
Date: May 13, 1997 /s/ LOUIS J. RAMPINO
--------------------------
Louis J. Rampino, President,
Chief Operating Officer
and Director
Date: May 13, 1997 /s/ JOHN A. DONALDSON
---------------------------
John A. Donaldson, Senior Vice
President, Controller and
Chief Accounting Officer
21
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EXHIBIT INDEX
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EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
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2.1 Stock Purchase Agreement among Fremont Compensation Insurance Company,
Fremont General Corporation, the Buckeye Union Insurance Company, The
Continental Corporation and Casualty Insurance Company, dated as of
December 16, 1994. (Filed as Exhibit No. 2.1 to Current Report on Form
8-K, as of February 22, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
2.2 Amendment No. 1 to Stock Purchase Agreement among Fremont Compensation
Insurance Company, Fremont General Corporation, the Buckeye Union
Insurance Company, The Continental Corporation and Casualty Insurance
Company, Dated as of December 16, 1994. (Filed as Exhibit No. 2.2 to
Current Report on Form 8-K, as of February 22, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
3.1 Restated Articles of Incorporation of Fremont General Corporation.
(Filed as Exhibit No. 3.1 to Registration Statement on Form S-3 File
No 33-64771 which was declared effective on March 1, 1996, and
incorporated herein by reference.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont
General Corporation. (Filed as Exhibit 3.2 to Registration Statement
on Form S-3 File No. 33-64771 which was declared effective on March 1,
1996 and herein incorporated by reference.)
3.3 Amended and Restated By-Laws of Fremont General Corporation. (Filed as
Exhibit No. 3.3 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.1 Form of Stock Certificate for Common Stock of the Registrant. (Filed
as Exhibit No. (1) Form 8-A filed on March 17, 1993, Commission File
Number 1-8007, and incorporated herein by reference.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between
the Registrant and Bankers Trust Company. (Filed as Exhibit No. 4.4 to
Registration Statement on Form S-3 filed on October 1, 1993, and
incorporated herein by reference.)
4.3 Indenture among the Registrant, the Trust and First Interstate Bank of
California, a California banking corporation, as trustee. (Filed as
Exhibit No. 4.3 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.4 Declaration of Trust among the Registrant, the Regular Trustees and
The Chase Manhattan Bank (USA), a Delaware banking corporation, as
Delaware trustee. (Filed as Exhibit No. 4.4 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1995, Commission File
Number 1-8007, and incorporated herein by reference.)
4.5 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. (Filed as
Exhibit No. 4.5 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.6 Preferred Securities Guarantee Agreement between the Registrant and
The Chase Manhattan Bank, N.A., a national banking association, as
Preferred Guarantee Trustee. (Filed as Exhibit No. 4.6 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
4.7 Common Securities Guarantee Agreement by the Registrant. (Filed as
Exhibit No. 4.7 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
4.8 Form of Preferred Securities. (Included in Exhibit 4.5). (Filed as
Exhibit No. 4.8 to Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
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4.9 Form of 9% Junior Subordinated Debenture. (Included in Exhibit 4.3).
(Filed as Exhibit No. 4.9 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.1 Fremont General Corporation Employee Stock Ownership Plan as amended.
(Filed as Exhibit No. 10.1 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.2 Amended and Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. (Filed as Exhibit No. 10.2 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.3 Fremont General Corporation and Affiliated Companies Investment
Incentive Program as amended. (Filed as Exhibit No. 10.3 to Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007, and incorporated herein by reference.)
10.4(a) Trust Agreement for Investment Incentive Program. (Filed as
Exhibit No. (10)(xi) to Annual Report on Form 10-K, for the Fiscal
Year Ended December 31, 1993, Commission File Number 1-8007, and
incorporated herein by reference.)
10.4(b) Amendment to Trust Agreement for Investment Incentive Program.
(Filed as Exhibit No. 10.4 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.5(a) Supplemental Retirement Plan of the Company. (Filed as Exhibit No.
(10)(v) to Annual Report on Form 10-K, for the Fiscal Year Ended
December 31, 1990, Commission File Number 1-8007, and incorporated
herein by reference.)
10.5(b) Amendment to Supplemental Retirement Plan. (Filed as Exhibit No. 10.5
to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.6 Trust Agreement for Supplemental Retirement Plan of the Company and
the Senior Supplemental Retirement Plan of The Company, as amended.
(Filed as Exhibit No. 10.6 to Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number 1-8007,
and incorporated herein by reference.)
10.7 Senior Supplemental Retirement Plan, as amended. (Filed as Exhibit No.
10.7 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8(a) Excess Benefit Plan of the Company. (Filed as Exhibit No. (10)(vi) to
Annual Report on Form 10-K, for the Fiscal Year Ended December 31,
1993, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8(b) Amendment to Excess Benefit Plan of the Company. (Filed as Exhibit No.
10.8 to Annual Report on Form 10-K, for the fiscal year ended December
31, 1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.8(c) Trust Agreement for Excess Benefit Plan. (Filed as Exhibit No. 10.8 to
Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.9 Amended Non-Qualified Stock Option Plan of 1989 and related agreements
of the Company. (Filed as Exhibit No. 10.9 to Annual Report on Form
10-K, for the fiscal year ended December 31, 1996, Commission File
Number 1-8007, and incorporated herein by reference.)
10.10 1997 Stock Plan (Filed as an appendix to the definitive proxy
statement which was filed on April 11, 1997 pursuant to Schedule 14A
for the Annual Meeting of Stockholders, and incorporated herein by
reference.)
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10.11(a) Long-Term Incentive Compensation Plan of the Company - Senior
Executive Plan. (Filed as Exhibit No. 10.10 (a) on Form 10-Q for the
period ended September 30, 1996, Commission File Number 1-8007, and
incorporated herein by reference.)
10.11(b) Long-Term Incentive Compensation Plan of the Company (Filed as Exhibit
No. 10.10 (b) on Form 10-Q for the period ended September 30, 1996,
Commission File Number 1-8007, and incorporated herein by reference.)
10.12 1995 Restricted Stock Award Plan as amended and forms of agreement
thereunder. (Filed as Exhibit No. 4.1 to Registration Statement on
Form S-8/S-3 File No. 333-17525 which was filed on December 10, 1996,
and incorporated herein by reference.)
10.13 Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company and
Merrill Lynch Trust Company of California. (Filed as Exhibit No. 10.12
to Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.14 Employment Agreement between the Company and James A. McIntyre. (Filed
as Exhibit No. (10)(i) to Quarterly Report on Form 10-Q for the period
ended March 31, 1994, Commission File Number 1-8007, and incorporated
herein by reference.)
10.15(a) Employment Agreement between the Company and Louis J. Rampino. (Filed
as Exhibit No. 10.14 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.15(b) Employment Agreement between the Company and Wayne R. Bailey. (Filed
as Exhibit No. 10.14 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007, and
incorporated herein by reference.)
10.16 Management Continuity Agreement between the Company and Raymond G.
Meyers. (Filed as Exhibit No. 10.15 to Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File Number
1-8007, and incorporated herein by reference.)
10.17 1996 Management Incentive Compensation Plan of the Company. (Filed as
Exhibit No. 10.16 to Quarterly Report on Form 10-Q, for the period
ended March 31, 1996, Commission File Number 1-8007, and incorporated
herein by reference.)
10.18 Continuing Compensation Plan for Retired Directors. (Filed as Exhibit
No. 10.17 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
10.19 Non-Employee Directors' Deferred Compensation Plan. (Filed as Exhibit
No. 10.18 to Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007, and incorporated
herein by reference.)
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NUMBER DESCRIPTION NUMBERED PAGE
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10.20(a) Amended and Restated Agreement among Fremont General Corporation,
Various Lending Institutions and the Chase Manhattan Bank, N.A., As
Agent. (Filed as Exhibit No. (10)(xiii) to Quarterly Report on Form
10-Q for the period ended September 30, 1995, Commission File Number
1-08007, and incorporated herein by reference.)
10.20(b) Amendment to Credit Agreement. (Filed as Exhibit No. 10.19 (b) to
Annual Report on Form 10-K, for the fiscal year ended December 31,
1995, Commission File Number 1-8007, and incorporated herein by
reference.)
10.21 Keep Well Agreement, dated as of August 24, 1995 by the Company in
connection with the Credit Agreement among Fremont General
Corporation, Various Lending Institutions and the Chase Manhattan
Bank, N.A., As Agent. (Filed as Exhibit No. 10.20 to Annual Report on
Form 10-K, for the fiscal year ended December 31, 1996, Commission
File Number 1-8007, and incorporated herein by reference.)
10.22 Credit Agreement $15,000,000 by and among Merrill Lynch Trust Company
of California as trustee for the Fremont General Corporation Employee
Stock Ownership Trust. The Plan Committee (hereinafter described) on
behalf of the Fremont General Corporation Employee Stock Ownership
Plan, Fremont General Corporation, and First Interstate Bank of
California August 10, 1995. (Filed as Exhibit No. (10)(viii) to
Quarterly Report on Form 10-Q for the period ended September 30, 1995,
and incorporated herein by reference.)
(11) Statement re: Computation of per share earnings.
(27) Financial Data Schedule
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Statement Re: Computation of per share earnings
Fremont General Corporation
Three Months Ended
March 31,
1997 1996
---------- ---------
(Amounts in thousands,
except per share data)
Primary:
Weighted average shares outstanding .................. 27,988 24,837
Net effect of dilutive stock options - based
on the treasury stock method using
average market price ............................... 89 965
--------- ---------
Total ................................................ 28,077 25,802
========= =========
Net income ........................................... $24,359 $18,517
========= =========
Per share amount ..................................... $0.87 $0.72
========= =========
Fully Diluted:
Weighted average shares outstanding .................. 27,988 24,837
Net effect of dilutive stock options - based
on the treasury stock method using the
quarter-end market price, if higher than
average market price ............................... 89 965
Assumed conversion of LYONs .......................... 5,802 7,208
--------- ---------
Total ................................................ 33,879 33,010
========= =========
Net income ........................................... $24,359 $18,517
Income adjustments for fully diluted computation:
Add interest expense and amortization of prepaid
expense, net of federal income tax, for assumed
conversion of LYONs .............................. 974 1,166
--------- ---------
Total ................................................ $25,333 $19,683
========= =========
Per share amount ..................................... $0.75 $0.60
========= =========
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<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000038984
<NAME> FREMONT GENERAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 1,021,261
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 380,845
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 3,370,490<F1>
<CASH> 50,843
<RECOVER-REINSURE> 11,702
<DEFERRED-ACQUISITION> 26,466
<TOTAL-ASSETS> 4,501,580
<POLICY-LOSSES> 1,402,827
<UNEARNED-PREMIUMS> 93,973
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 30,456
<NOTES-PAYABLE> 823,524
100,000
0
<COMMON> 29,419
<OTHER-SE> 539,952<F2>
<TOTAL-LIABILITY-AND-EQUITY> 4,501,580
115,228
<INVESTMENT-INCOME> 29,777
<INVESTMENT-GAINS> (531)
<OTHER-INCOME> 50,261<F3>
<BENEFITS> 73,097
<UNDERWRITING-AMORTIZATION> 23,511
<UNDERWRITING-OTHER> 6,849
<INCOME-PRETAX> 35,822
<INCOME-TAX> 11,463
<INCOME-CONTINUING> 24,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,359
<EPS-PRIMARY> 0.87
<EPS-DILUTED> 0.75
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Includes loans receivable, short-term and other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation
and Net unrealized gain (loss) on investments.
<F3>Includes Loan interest and Other revenue.
</FN>
</TABLE>
