<PAGE>
- --------------------------------------------------------------------------------
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 March 31, 2000
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 the number of shares outstanding of each of the issuer's classes
of common stock:
Shares Outstanding
Class April 30, 2000
----- ------------------
Common Stock, $1.00 par value 70,007,094
- --------------------------------------------------------------------------------
<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999 ................... 3
Consolidated Statements of Operations
Three Months Ended March 31, 2000 and 1999 ............. 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999 ............. 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 ....................... 9
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ............................................... 22
PART II - OTHER INFORMATION
Items 1-5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ............................ 23
Signature .............................................................. 28
2
<PAGE>
<TABLE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
(Thousands of dollars)
<S> <C> <C>
Assets
Securities available for sale at fair value:
Fixed maturity investments (cost: 2000-$1,472,528; 1999-$1,458,721) ....... $ 1,405,948 $ 1,391,229
Non-redeemable preferred stock (cost: 2000-$402,845; 1999-$407,903) ....... 370,165 369,103
----------- -----------
Total securities available for sale ..................................... 1,776,113 1,760,332
Loans receivable ............................................................ 3,089,496 3,060,984
Loans held for sale ......................................................... 346,814 294,639
Short-term investments ...................................................... 385,736 410,457
Residual interests in securitized loans - at fair value ..................... 62,230 62,959
Other investments ........................................................... 12,671 35,045
----------- -----------
Total Investments and Loans ............................................. 5,673,060 5,624,416
Cash ........................................................................ 173,893 65,102
Accrued investment income ................................................... 39,209 44,244
Premiums receivable and agents' balances .................................... 281,744 265,714
Reinsurance recoverable on paid losses ...................................... 27,022 19,822
Reinsurance recoverable on unpaid losses .................................... 932,134 1,049,477
Deferred policy acquisition costs ........................................... 62,200 59,198
Costs in excess of net assets acquired ...................................... 156,094 157,927
Deferred income taxes ....................................................... 226,463 243,645
Other assets ................................................................ 240,191 236,167
Assets held for discontinued operations ..................................... 238,550 249,523
----------- -----------
Total Assets ............................................................ $ 8,050,560 $ 8,015,235
=========== ===========
Liabilities
Claims and policy liabilities:
Losses and loss adjustment expenses ....................................... $ 2,392,764 $ 2,434,757
Life insurance benefits and liabilities ................................... 115,030 118,390
Unearned premiums ......................................................... 208,514 180,583
Dividends to policyholders ................................................ 20,397 20,144
----------- -----------
Total Claims and Policy Liabilities ..................................... 2,736,705 2,753,874
Reinsurance premiums payable and funds withheld ............................. 34,863 63,806
Other liabilities ........................................................... 244,911 288,017
Thrift deposits ............................................................. 3,534,064 3,423,243
Short-term debt ............................................................. 28,000 10,000
Long-term debt .............................................................. 424,184 429,185
Liabilities of discontinued operations ...................................... 205,036 216,009
----------- -----------
Total Liabilities ....................................................... 7,207,763 7,184,134
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: 150,000,000 shares;
issued and outstanding: (2000-70,025,000 and 1999-70,039,000) ............. 70,025 70,039
Additional paid-in capital .................................................. 281,847 285,922
Retained earnings ........................................................... 537,543 533,523
Deferred compensation ....................................................... (82,099) (89,293)
Accumulated other comprehensive loss ........................................ (64,519) (69,090)
----------- -----------
Total Stockholders' Equity .............................................. 742,797 731,101
----------- -----------
Total Liabilities and Stockholders' Equity .............................. $ 8,050,560 $ 8,015,235
=========== ===========
See notes to consolidated financial statements on Form 10-Q
.
</TABLE>
3
<PAGE>
<TABLE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
(Thousands of dollars)
<S> <C> <C>
Revenues
Property and casualty premiums earned ............................... $ 259,110 $ 170,343
Loan interest ....................................................... 87,335 77,549
Net investment income ............................................... 41,449 45,320
Realized investment gains (losses) .................................. (211) 25
Other revenue ....................................................... 4,954 5,542
--------- ---------
Total Revenues .................................................... 392,637 298,779
Expenses
Losses and loss adjustment expenses ................................. 204,362 97,541
Policy acquisition costs ............................................ 58,110 43,122
Provision for loan losses ........................................... 2,033 4,126
Other operating costs and expenses .................................. 48,072 45,843
Dividends to policyholders .......................................... 6,348 6,262
Interest expense .................................................... 60,164 50,674
--------- ---------
Total Expenses ............................................... 379,089 247,568
--------- ---------
Income before taxes ................................................. 13,548 51,211
Income tax expense .................................................. 4,064 16,900
--------- ---------
Net income .......................................................... $ 9,484 $ 34,311
========= =========
Per Share Data
Net income:
Basic ............................................................. $ 0.15 $ 0.51
Diluted ........................................................... 0.14 0.49
Cash dividends ...................................................... 0.08 0.08
Weighted average shares:
Basic ............................................................. 62,120 66,880
Diluted ........................................................... 68,072 69,821
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
4
<PAGE>
<TABLE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
---------- ------------
(Thousands of dollars)
<S> <C> <C>
Operating Activities
Net income .................................................................. $ 9,484 $ 34,311
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 ........................... (23,230) (10,591)
Change in accrued investment income ..................................... 5,035 4,195
Change in claims and policy liabilities ................................. 111,704 (82,162)
Amortization of policy acquisition costs ................................ 58,110 43,122
Policy acquisition costs deferred ....................................... (61,112) (50,788)
Net change in residual interests in securitized loans ................... 729 (19,563)
Provision for deferred income taxes ..................................... 14,721 19,083
Provision for loan losses ............................................... 2,033 4,126
Provision for depreciation and amortization ............................. 10,836 10,618
Net amortization on fixed maturity investments .......................... (684) (3,669)
Realized investment (gains) losses ...................................... 211 (25)
Change in other assets and liabilities .................................. (79,913) (39,814)
----------- ------------
Net Cash Provided by (Used in) Operating Activities ................. 47,924 (91,157)
Investing Activities
Securities available for sale:
Purchases of securities ................................................. (45,962) (282,923)
Sales of securities ..................................................... 28 ,407 184,860
Securities matured or called ............................................ 9,279 100,950
(Increase) decrease in short-term and other investments ..................... 47,095 (63,915)
Loan originations and bulk purchases funded ................................. (821,989) (1,090,176)
Receipts from repayments of loans and bulk sales of loans ................... 739,269 593,879
Purchase of property and equipment .......................................... (5,130) (6,126)
----------- ------------
Net Cash Used in Investing Activities ............................... (49,031) (563,451)
Financing Activities
Proceeds from short-term debt ............................................... 18,000 246,144
Repayments of short-term debt ............................................... - (6,967)
Proceeds from long-term debt ................................................ - 435,237
Repayments of long-term debt ................................................ (3,720) (321,285)
Net increase in thrift deposits ............................................. 110,821 303,199
Annuity contract receipts ................................................... 55 88
Annuity contract withdrawals ................................................ (11,585) (8,238)
Dividends paid .............................................................. (5,465) (5,521)
Net (increase) decrease in deferred compensation plans ...................... 1,792 (5,993)
---------- ------------
Net Cash Provided by Financing Activities ........................... 109,898 636,664
---------- ------------
Increase (Decrease) in Cash ................................................. 108,791 (17,944)
Cash at beginning of year ................................................... 65,102 79,875
---------- ------------
Cash at March 31, ........................................................... $ 173,893 $ 61,931
========== ============
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, 1999. Certain 1999 amounts have been
reclassified to conform to the 2000 presentation.
NOTE B - Comprehensive Income
The components of total comprehensive income are summarized in the
following table:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
(Thousands of dollars)
<S> <C> <C>
Net income .................................................................. $ 9,484 $ 34,311
Other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of tax:
Net change in unrealized gains (losses) during the period,
net of deferred income tax expense (benefit) (2000-$2,431
and 1999-$(5,076)) .................................................... 4,516 (9,427)
Less: reclassification adjustment, net of tax deferred income
tax expense (benefit) (2000-$(30) and 1999-$868) ...................... 55 (1,611)
-------- --------
Other comprehensive income (loss) ................................... 4,571 (11,038)
-------- --------
Total comprehensive income .................................................. $ 14,055 $ 23,273
======== ========
</TABLE>
The reclassification adjustments avoid double counting net unrealized gains
(losses) included in accumulated other comprehensive income in different
periods.
Note C - Operations by Reportable Segment
The Company's businesses are managed within two reportable segments:
property and casualty insurance and financial services. Additionally, there are
certain corporate revenues and expenses, comprised primarily of investment
income, interest expense and certain general and administrative expenses, that
the Company does not allocate to its segments.
6
<PAGE>
The following data for the three months ended March 31, 2000 and 1999
provide certain information necessary for reportable segment disclosure, as well
as a reconciliation to total consolidated financial information:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
(Thousands of dollars)
<S> <C> <C>
Revenues
Property and casualty insurance ...................................... $ 295,649 $ 213,827
Financial services ................................................... 95,674 84,641
Unallocated corporate revenue ........................................ 1,314 311
--------- ---------
Total ................................................................ 392,637 298,779
Intersegment:
Property and casualty insurance ...................................... - 272
Unallocated corporate revenue ........................................ 7,746 9,177
--------- ---------
7,746 9,449
--------- ---------
Total revenue ........................................................ 400,383 308,228
Reconciling items: intersegment revenues ............................ (7,746) (9,449)
--------- ---------
Total consolidated ................................................... $ 392,637 $ 298,779
========= =========
Income (loss) before income taxes
Property and casualty insurance ...................................... $ 67 $ 42,253
Financial services ................................................... 20,830 16,446
Unallocated corporate loss ........................................... (7,279) (6,418)
--------- ---------
Total ................................................................ 13,618 52,281
Reconciling items: intercompany dividends ........................... (70) (1,070)
--------- ---------
Total consolidated ................................................... $ 13,548 $ 51,211
========= =========
</TABLE>
7
<PAGE>
NOTE D - Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
(In thousands, except
per share data)
<S> <C> <C>
Net income (numerator for basic earnings per share) ........................ $ 9,484 $ 34,311
Effect of dilutive securities:
Liquid Yield Option Notes ("LYONs") ...................................... 37 42
-------- --------
Income available to common stockholders after assumed
conversions (numerator for diluted earnings per share) ................... $ 9,521 $ 34,353
======== ========
Weighted-average shares (denominator for basic earnings
per share) ............................................................... 62,120 66,880
Effect of dilutive securities:
Restricted stock ......................................................... 5,571 2,083
Stock options ............................................................ - 408
LYONs .................................................................... 381 450
-------- --------
Dilutive potential common shares ........................................... 5,952 2,941
-------- --------
Adjusted weighted-average shares and assumed
conversions (denominator for diluted earnings per share) ................. 68,072 69,821
======== ========
Basic earnings per share ................................................... $ 0.15 $ 0.51
======== ========
Diluted earnings per share ................................................. $ 0.14 $ 0.49
======== ========
</TABLE>
For the three months ended March 31, 2000, stock options were excluded as
common stock equivalents for the calculation of diluted earnings per share
because the options were "out-of-the-money" during the period.
8
<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 ("MD&A") CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES ACT OF 1934. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE PROJECTED IN THESE FORWARD LOOKING STATEMENTS AS A RESULT OF CERTAIN
RISKS AND UNCERTAINTIES, INCLUDING THOSE FACTORS SET FORTH IN THIS MD&A SECTION
AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q.
RESULTS OF OPERATIONS
Fremont General Corporation is a nationwide insurance and financial
services holding company operating select businesses in niche markets. The
property and casualty insurance business of Fremont General Corporation and its
subsidiaries ("the Company") includes one of the largest underwriters of
workers' compensation insurance in the nation. The Company's financial services
business includes commercial and residential real estate lending, syndicated
loans and insurance premium financing. The Company's reported assets as of March
31, 2000 were $8.1 billion. Income before taxes for the first quarter ended
March 31, 2000 was $13.5 million.
The Company's business strategy includes achieving income balance and
geographic diversity among its business units in order to limit its exposure to
market and regional concentrations. The Company's business strategy also
includes growing its business through new business development and acquisitions.
The Company's stock is traded on the New York Stock Exchange under the symbol
"FMT."
The following table presents information for the first quarter ended March
31, 2000 and 1999 with respect to the Company's primary business segments.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
(Thousands of dollars)
<S> <C> <C>
Revenues:
Property and casualty insurance ..................... $ 295,649 $ 213,827
Financial services .................................. 95,674 84,641
Unallocated corporate revenue ....................... 1,314 311
--------- ---------
Total ............................................. $ 392,637 $ 298,779
========= =========
Income (Loss) Before Taxes:
Property and casualty insurance ..................... $ 67 $ 42,253
Financial services .................................. 20,830 16,446
Unallocated corporate loss .......................... (7,349) (7,488)
--------- ---------
Total ............................................. $ 13,548 $ 51,211
========= =========
</TABLE>
The Company generated revenues of approximately $393 million in the first
quarter ended March 31, 2000, as compared to $299 million for the first quarter
of 1999. The 31% increase in revenues is due mainly to higher workers'
compensation insurance premiums in the property and casualty insurance segment
and to higher loan interest in the financial services segment. Higher workers'
compensation insurance premiums were achieved primarily from new business
development after March 31, 1999 and lower reinsurance costs beginning January
1, 2000. (See "Property and Casualty Insurance Operation - Premiums.") The
increase in loan interest revenue is due mainly to an overall increase in loan
portfolio yield and to the growth in the average loan portfolio to $3.6 billion
in the three months ended March 31, 2000 from $3.4 billion in the same prior
year quarter. (See "Financial Services Operation.") Realized investment gains
(losses) in the first quarter of 2000 were $(211,000) compared to $25,000 for
the first quarter of 1999.
The Company posted net income of $9.5 million or $0.14 diluted earnings per
share for the first quarter ended March 31, 2000 as compared to $34.3 million or
$0.49 diluted earnings per share for the first quarter ended March 31, 1999.
Income before taxes for the three months ended March 31, 2000 was $13.5 million
as compared to $51.2 million for the three months ended March 31, 1999.
9
<PAGE>
The property and casualty insurance operation, consisting primarily of
workers' compensation insurance, posted income before taxes of $67,000 for the
first quarter ended March 31, 2000, as compared to $42.3 million for the same
quarter of 1999. The significant decrease in income before taxes for the three
months ended March 31, 2000 is due primarily to higher loss and loss adjustment
expenses ("LAE") incurred as a percent of insurance premiums earned, as well as
lower investment income. The higher loss and LAE incurred was due mainly to
lower reinsurance recoveries. (See "Property & Casualty Insurance Operation -
Premiums" and "-Loss and Loss Adjustment Expense.") Partially offsetting these
conditions were lower underwriting expenses due in part to a greater spread of
underwriting expenses across a larger premium base. The combined ratio for the
three months ended March 31, 2000 was 111.7%, as compared to 96.3% for the same
period in 1999.
The financial services operation posted income before taxes for the first
quarter ended March 31, 2000 of $20.8 million, as compared to $16.4 million for
the same period in 1999. The increase in income before taxes was due primarily
to the growth in the total average loan portfolio and, to a lesser extent,
higher gains on residential real estate whole loan sales and higher investment
income. Partially offsetting these increases was a decrease in income before
taxes due to the Company's sale of its commercial finance subsidiary in December
1999 to The FINOVA Group, Inc. for approximately $708 million in cash including
the refinancing and assumption of existing debt. (See "Financial Services
Operation.")
Unallocated corporate revenues during the quarter ended March 31, 2000
consisted primarily of investment income, while unallocated corporate expenses
consisted primarily of interest expense and general and administrative expenses.
The unallocated corporate loss before taxes for the quarter ended March 31, 2000
was $7.3 million, as compared to $7.5 million for the same period in 1999. The
unallocated corporate loss before taxes remained relatively flat due mainly to
the offsetting effects of higher interest expense and lower general and
administrative expenses in the first quarter of 2000 as compared to the same
quarter of the prior year. The increased interest expense is due in part to the
effects of an increase in long-term debt and interest rates pursuant to the
issuance on March 17, 1999 of $425 million of Senior Notes ("the Senior Notes")
in a private placement. The Senior Notes were subsequently exchanged for notes
registered under the Securities Act on a Form S-4 Registration Statement
effective on May 11, 1999. Net proceeds from the Senior Notes were used to repay
all indebtedness outstanding under the Company's revolving line of credit and
for general corporate purposes, including working capital. For the quarters
ended March 31, 2000 and 1999, the Senior Notes carried interest rates which
were higher than the revolving line of credit. (See "Liquidity and Capital
Resources.")
Income tax expense of $4.1 million and $16.9 million for the quarters ended
March 31, 2000 and 1999, respectively, represents effective tax rates of 30% and
33%, respectively, on income before taxes of $13.5 million and $51.2 million for
the same respective periods. The effective tax rates for both periods presented
are lower than the federal enacted tax rate of 35%, due mainly to tax exempt
investment income which reduces the Company's taxable income.
PROPERTY AND CASUALTY INSURANCE OPERATION
The following table presents information for the quarters ended March 31,
2000 and 1999 with respect to the Company's property and casualty insurance
operations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
(Thousands of dollars)
<S> <C> <C>
Revenues ............................................ $ 295,649 $ 213,827
Expenses ............................................ 295,582 171,574
--------- ---------
Income Before Taxes ................................. $ 67 $ 42,253
========= =========
</TABLE>
PREMIUMS. Insurance premiums from the Company's property and casualty
insurance operations were $259.1 million in the quarter ended March 31, 2000, as
compared to $170.3 million for the same quarter in 1999. The increase in
premiums is due primarily to the combined effects of an expansion in the
Company's premium base since March 31, 1999, lower reinsurance costs beginning
January 1, 2000, and premium rate increases which the Company began implementing
during the second half of 1999 and accelerated in the first quarter of 2000.
10
<PAGE>
Using estimated annual premiums on policies in effect at March 31, 2000 and
1999 (referred to as "inforce premiums"), the Company's inforce premiums have
grown 16% to $1.029 billion at March 31, 2000 from $885 million at March 31,
1999. This expansion in inforce premiums occurred across all of the Company's
national geographic regions. Additionally, the concentration of the Company's
inforce premium in California and Illinois experienced a reduction to 57% at
March 31, 2000 from 64% at March 31, 1999.
Beginning January 1, 2000 the Company's reinsurance costs, which are
included as a reduction to net premiums earned, were reduced significantly due
to the December 31, 1999 expiration of certain low-level reinsurance contracts
that had incepted January 1, 1998. Effective for insurance policies incepting
after December 31, 1999, the Company's current reinsurance program assumes
liability for loss and certain loss adjustment expenses in excess of $1 million
per occurrence (the "attachment point") and up to a maximum of $399 million. For
insurance policies incepting January 1, 1998 and through December 31, 1999, the
attachment point was significantly lower at $50,000 per occurrence due to these
now-expired low-level reinsurance contracts. (See "Loss and Loss Adjustment
Expense.")
During the quarter ended March 31, 2000, the Company achieved premium rate
increases across all of its national geographic regions. On a weighted average
basis, these increases averaged 18.1% on a consolidated basis. These premium
rate increases are a continuation of efforts by the Company, which began in the
second half of 1999, to further strengthen its premium rate levels. While these
actions have resulted in a reduction of new business development in the first
quarter of 2000 as compared to the same quarter of 1999, the Company has
remained selective in its underwriting. This is evidenced by the fact that the
new business written by the Company in the quarters ended March 31, 2000 and
1999 represented only 2.8% and 13.1% of the approximate $2.0 billion and $1.4
billion, respectively, in estimated annual premiums submitted to the Company for
underwriting consideration.
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance operation was $36.5 million in the first quarter ended March
31, 2000, as compared to $43.1 million for the first quarter ended March 31,
1999. Lower invested assets resulting primarily from higher ceded reinsurance
costs and claim payments, resulted in lower average invested assets in the first
quarter ended March 31, 2000, as compared to the same prior year period.
LOSS AND LOSS ADJUSTMENT EXPENSE. The property and casualty insurance
operation's loss and LAE incurred was $205.6 million for the first quarter ended
March 31, 2000, as compared to $97.5 million for the first quarter ended March
31, 1999. In addition, the ratio of these losses and LAE to property and
casualty insurance premiums earned ("loss ratio") was 79.3% and 57.3% for the
quarters ended March 31, 2000 and 1999, respectively. The loss ratio increased
significantly in the three months ended March 31, 2000 due primarily to lower
reinsurance recoveries recognized on insurance policies which incepted in 1999
and expire in 2000, as well as lower reinsurance recoveries on insurance
policies incepting in 2000.
Effective for insurance policies incepting January 1, 2000 and after, the
Company's reinsurance limits were significantly reduced through the expiration
at December 31, 1999 of certain low-level reinsurance contracts. The reinsurance
"attachment point" was increased from $50,000 per occurrence prior to January 1,
2000 to $1 million per occurrence January 1, 2000 and after. This change in the
Company's reinsurance program has the effect of lowering the level of
reinsurance recoveries and thereby increases the Company's net incurred loss and
LAE. (See "Premiums.")
Lower reinsurance recoveries as a percent of net premiums earned ("ceded
loss ratio") were also recognized on certain net premiums earned in the first
quarter of 2000 related to insurance policies which incepted in 1999 and expire
in 2000. These insurance policies continue to be subject to the low-level
reinsurance contracts discussed previously and which expired December 31, 1999.
These lower ceded loss ratios as compared to the first quarter of 1999 were due
primarily to the combined effects of: i) lower estimates of reinsurance
recoveries under the low-level reinsurance contracts based on independent
actuarial studies performed as of June 30, 1999 and December 31, 1999; and ii) a
reduction in the number of low-level reinsurance contracts covering 1999
insurance policy exposure in 2000. This reduction resulted from the Company's
settlement of all obligations under a low level reinsurance contract with
Reliance Insurance Company. This settlement, executed February 28, 2000,
effectively terminated all obligations under the reinsurance contract December
31, 1999. (See "Special Discussion Concerning 1999 Reinsurance Transactions.")
11
<PAGE>
SPECIAL DISCUSSION CONCERNING 1999 REINSURANCE TRANSACTIONS. In 1999, the
Company's property and casualty insurance operation recorded a loss before taxes
from continuing operations of $116.2 million. This loss resulted primarily from
the combined adverse effect on incurred loss and LAE of a lower than expected
level of reinsurance recoverables than had been actuarially predicted at
inception, coupled with the Company's recognition of the settlement agreement
with Reliance Insurance Company ("Reliance") under a reinsurance treaty that was
in effect from January 1, 1998 through December 31, 1999.
With regard to the lower than expected reinsurance recoverables, in the
third and fourth quarters of 1999, the Company lowered its estimate of
reinsurance recoverables on unpaid losses for the 1998 and 1999 accident years
by approximately $147 million. This decrease was in recognition of a lower than
actuarially predicted level of incurred losses ceded under certain reinsurance
contracts that were in effect from January 1, 1998 through December 31, 1999.
These reinsurance contracts reduced the Company's net loss exposure from a
historical retention of $1 million per occurrence to $50,000 per occurrence.
Prior to entering into these reinsurance agreements, the Company had estimated
its expected gross incurred loss and LAE. Estimates of incurred loss and LAE,
net of reinsurance recoveries, were then established utilizing actuarial
indications based upon historical experience and other factors considered
appropriate to forecast incurred losses to be ceded under these reinsurance
agreements. During the third quarter of 1999 and pursuant to its regular review
of net incurred loss and LAE estimates, the Company observed a deterioration in
these net loss and LAE estimates as compared to the actuarial predictions. To
assist the Company in its determination of net loss and LAE reserve estimates,
the Company retained outside actuarial consultants who performed an independent
actuarial analysis of the Company's net loss and LAE reserves as of June 30,
1999. These actuarial indications were reaffirmed at September 30, 1999 and
further re-evaluated by independent outside actuaries at December 31, 1999,
which resulted in the Company's recognition of the deterioration in reinsurance
recoverables in the third and fourth quarters of 1999. (See "Variability of
Operating Results.") While the upward development in the Company's estimates of
net loss and LAE reserves during calendar year 1999 was comprised primarily of
adjustments to reinsurance recoverables on unpaid losses, the Company has
observed for its primary regions during 1999 relative stability in its workers'
compensation gross loss and allocated loss adjustment expense ratios derived
from the actuarial indications of reserves for loss and allocated loss
adjustment expense, gross of reinsurance recoverables.
Also contributing to the Company's loss before taxes in 1999 was the
recognition of $75 million in lower reinsurance recoverables on the 1998 and
1999 accident years pursuant to a settlement agreement entered into February 28,
2000 between the Company and Reliance under a reinsurance contract that was in
effect from January 1, 1998 through December 31, 1999. Under the settlement
agreement, the Company received approximately $102 million in cash and no longer
has any involvement with the Reliance workers' compensation reinsurance programs
brokered for Reliance by Unicover Managers, Inc. The Company evaluated the
adequacy of the expected cash settlement under the agreement with the assistance
of an independent actuarial analysis of the expected losses and allocated loss
adjustment expenses to be paid under the Reliance reinsurance contract after
December 31, 1999. A range of expected loss payments was estimated and then
discounted to a present value basis using investment yields considered
appropriate. Based on these indications, the cash settlement is within the range
of present values. The $75 million decrease in reinsurance recoverables
represents primarily the adjustment necessary to bring the estimated reinsurance
recoverables relating to the 1998 and 1999 accident years under the reinsurance
contract with Reliance to a present value basis at December 31, 1999.
The Company's property and casualty insurance operation is required to
maintain reserves to cover the Company's ultimate liability for loss and LAE
with respect to reported and unreported claims incurred as of the end of each
accounting period. 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 and LAE reserves, net of reinsurance recoverables. These reserves
do not represent an exact calculation of liabilities, but instead are estimates
involving actuarial projections at a given time of what the ultimate settlement
and administration of claims will cost, including estimates of reinsurance
recoveries associated with the estimated claims costs. These projections are
based on facts and circumstances then known, predictions of future events,
estimates of future trends in claims frequency and severity, and judicial
theories of liability, as well as other factors. The establishment of
appropriate gross loss and LAE reserves and reinsurance recoverables is an
inherently uncertain process and there can be no certainty that currently
established gross loss and LAE reserves and reinsurance recoverables will prove
to be adequate in light of subsequent actual experience. Subsequent actual
experience has resulted, and could result, in net loss and LAE reserves being
too high or too low. The Company's future loss and LAE development could require
an increase in its gross loss and LAE reserves or a decrease in its reinsurance
recoverables from prior periods, which would adversely affect the Company's
earnings in future periods.
12
<PAGE>
POLICY ACQUISITION COSTS AND OTHER OPERATING COSTS AND EXPENSES. The ratio
of policy acquisition costs and other operating costs and expenses to insurance
premiums is referred to as the expense ratio, which was 29.9% for the quarter
ended March 31, 2000, as compared to 35.3% for the same period in 1999. The
lower expense ratio for the first quarter ended March 31, 2000 was due primarily
to the increase in the premium base in the first quarter of 2000 resulting from
increases in new business development after March 31, 1999. (See "Premiums.")
VARIABILITY OF OPERATING RESULTS. The Company's profitability can be
affected significantly by many factors including competition, the severity and
frequency of claims, fluctuation in interest rates and the rate of inflation,
legislation and regulations, court decisions, the judicial climate and general
economic conditions and trends, all of which are outside of the Company's
control. In addition, the Company's results may be affected by its ability to
assess and integrate successfully the operations of acquired companies, as well
as the Company's ability to contain expenses and to implement appropriate
technological changes. Any of these factors could contribute to significant
variation in the Company's results of operations within the different aspects of
its business, or businesses taken as a whole, from quarter to quarter and from
year to year. Also, the establishment of appropriate loss and LAE reserves, net
of reinsurance recoverables, necessarily involves estimates, and reserve
adjustments have caused significant fluctuations in operating results from year
to year.
With respect to the Company's 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 insurance claims. Changes in market interest
rates can affect the amount of interest income that the Company earns on its
investment portfolio, as well as the amount of realized and unrealized gains or
losses on specific holdings within the Company's investment portfolio.
Legislative and regulatory changes can also cause the operating results of the
Company's workers' compensation insurance businesses to vary.
The Company's workers' compensation insurance business competes in a market
characterized by competition on the basis of price and service. In addition,
state regulatory changes could affect competition in the states where the
Company transacts business. Although the Company is one of the largest writers
of workers' compensation insurance in the nation, certain of its competitors are
larger and have greater resources than Fremont. The Company cannot be certain
that it will continue to maintain its market share in the future or that the
Company will be able to obtain adequate pricing for its insurance products. Over
the past several years, the Company has observed a reduction in the number of
competitors resulting from the consolidation of companies into other entities,
companies who are forced to terminate underwriting activities through regulatory
actions by state insurance authorities, as well as from companies electing to
reduce or discontinue the writing of workers' compensation insurance in certain
jurisdictions.
The Company's workers' compensation insurance operations are concentrated
in California and Illinois, with 57% of the Company's premium inforce being
located in these two states. Because of this concentration, the Company's
financial position and results of operations have been and are expected to
continue to be influenced by general trends in the respective states' economies,
and in particular, the condition of the workers' compensation insurance market
within each state. The impact of unfavorable economic conditions, legislation
and other trends within these two states may result in greater uncertainty and
volatility in the Company's business operations and could adversely affect the
results of the Company's operations and its financial condition more than if the
Company's premium had been originated with more geographic diversification.
WORKERS' COMPENSATION REGULATION. The Company's workers' compensation
insurance operation has premiums inforce in forty-five states and the District
of Columbia. Insurance companies are subject to supervision and regulation by
the state insurance authority in each state in which they transact business.
Such supervision and regulation relate to the numerous aspects of an insurance
company's business and financial condition. The primary purpose of such
supervision and regulation is the protection of injured workers and
policyholders rather than investors or stockholders of an insurer. The Company's
multistate insurance operations require, and will continue to require,
significant resources of the Company in order to continue to comply with the
regulations of each state in which the Company transacts business.
Illinois began operating under an open rating system in 1982 and California
began operating under such a system effective January 1, 1995. Generally, in an
open rating system, workers' compensation insurance companies are provided with
advisory premium rates (expected losses and expenses) or loss costs (expected
losses only) which vary by job classification. Each insurance company sets its
base rates to reflect its particular loss experience and
13
<PAGE>
operating costs. Although insurance companies are not required to adopt such
advisory premium rates, companies in Illinois generally follow such rates.
However, insurance companies in California have, since the adoption of an open
rating system, generally set their premium rates below such advisory 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 that could be charged by an insurance carrier. The repeal of the
minimum rate law has resulted in lower premiums and profitability on the
Company's California workers' compensation insurance policies due to increased
price competition. Beginning in the second half of 1999 and continuing in the
first quarter of 2000 however, the Company observed a lessening of price
competition in its primary regions of California and Illinois. It is uncertain
however, whether the observed lessening in the competitive environment and the
Company's ability to increase premium rates will continue.
FINANCIAL SERVICES
The Company's financial services operations, which are comprised of the
results of Fremont General Credit Corporation, are principally engaged in
commercial and residential real estate lending, investing in syndicated loans
(large commercial loans originated and serviced by other financial institutions)
and insurance premium financing. Revenues consist principally of interest income
and, to a lesser extent, gains on whole loan sales, fees and other income. Prior
to the December 20, 1999 sale of the Company's commercial finance subsidiary,
the Company provided commercial finance loans, primarily secured by accounts
receivable, inventory, and machinery and equipment, to small and middle market
companies on a nationwide basis.
The following table presents information for the three month periods ended
March 31, 2000 and 1999 with respect to the Company's financial services
operations:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
(Thousands of dollars)
<S> <C> <C>
Revenues ............................................... $ 95,674 $ 84,641
Expenses ............................................... 74,844 68,195
-------- --------
Income Before Taxes .................................... $ 20,830 $ 16,446
======== ========
</TABLE>
Revenues increased 13% in the quarter ended March 31, 2000, as compared to
the same quarter in 1999, due primarily to greater loan interest revenue
attributable to a higher loan portfolio yield and to the growth in the total
average loan portfolio to $3.6 billion in the quarter ended March 31, 2000 from
$3.4 billion in the quarter ended March 31, 1999. Also contributing to the
increased revenues were gains on residential real estate whole loan sales of
$1.9 million in the first quarter of 2000 as compared to $4,000 in the same
prior year quarter. Investment income was also up at $3.6 million versus $1.7
million for the quarters ended March 31, 2000 and 1999, respectively.
Income before taxes in the financial services operation was $20.8 million
for the quarter ended March 31, 2000, as compared to $16.4 million for the same
period of 1999. The increase in income before taxes was due to the previously
described growth in the total average financial services loan portfolio, an
increase in the net yield earned on the loan portfolio, and to a lesser extent,
higher gains on residential real estate whole loan sales and higher investment
income. Partially offsetting these increases was a decrease in income before
taxes due to the previously described sale of the Company's commercial finance
subsidiary in December 1999.
14
<PAGE>
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,
---------------------------------------------------------------------------
2000 1999
------------------------------------- -----------------------------------
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 real estate loans ........ $ 2,361,277 $ 57,841 9.85% $ 1,733,562 $ 39,053 9.14%
Residential real estate loans ....... 830,619 19,698 9.54 691,887 16,115 9.45
Syndicated loans .................... 332,583 7,994 9.67 418,812 8,361 8.10
Insurance premium finance loans ..... 67,906 1,802 10.67 58,591 1,573 10.89
Commercial finance loans ............ - - - 486,086 12,448 10.39
Investments ......................... 232,677 3,591 6.21 210,594 1,944 3.74
----------- -------- ----------- --------
Total interest bearing assets ....... $ 3,825,062 $ 90,926 9.56% $ 3,599,532 $ 79,494 8.96%
=========== ======== =========== ========
Interest bearing liabilities:
Time deposits ....................... $ 2,771,843 $ 39,645 5.75% $ 1,695,369 $ 22,424 5.36%
Savings deposits .................... 681,477 8,799 5.19 563,474 6,914 4.98
Debt with banks
and other institutions ............ 5,088 75 5.93 308,950 4,219 5.54
Securitization obligation ........... - - - 678,806 9,048 5.41
Debt from affiliates ................ - - - 71,905 1,035 5.84
Other ............................... 1,808 9 2.00 1,475 7 1.92
----------- -------- ----------- --------
Total interest bearing liabilities .. $ 3,460,216 $ 48,528 5.64% $ 3,319,979 $ 43,647 5.33%
=========== ======== =========== ========
Net interest income .................... $ 42,398 $ 35,847
======== ========
Net interest yield on interest-earning
assets ............................... 4.46% 4.04%
- ---------------------------------------
(1)Annualized
(2)Average loan balances include non-acccrual loan balances
</TABLE>
The margin between the Company's interest income and cost of funds
increased in the quarter ended March 31, 2000 as compared to the quarter ended
March 31, 1999, due primarily to the combined effects of an increase in the net
yields on commercial real estate and syndicated loans, offset partially by
decreases in the net yields on residential real estate loans, as well as a
decrease in net yields resulting from the sale of the Company's commercial
finance subsidiary, which experienced net yields in excess of the total
consolidated loan portfolio net yield of 4.04% in the first quarter of 1999.
15
<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,
2000 1999
--------------------- ---------------------
% of % of
Amount Total Amount Total
------------ ----- ------------ -----
(Thousands of dollars, except percents)
<S> <C> <C> <C> <C>
Term loans:
Commercial real estate loans ................ $ 2,417,424 77% $ 2,332,880 75%
Syndicated loans ............................ 344,394 11 322,715 10
Residential real estate loans ............... 304,900 10 388,297 13
Insurance premium finance loans ............. 73,757 2 64,596 2
----------- ----- ----------- ------
Total term loans .......................... 3,140,475 100 3,108,488 100
----------- ----- ----------- ------
Revolving loans:
Syndicated loans ............................ 6,724 - 8,990 -
----------- ----- ----------- ------
Total loans ............................... 3,147,199 100 3,117,478 100
Less allowance for possible loans ............. (57,703) (2) (56,494) (2)
----------- ----- ----------- ------
Loans receivable ............................ $ 3,089,496 98% $ 3,060,984 98%
=========== ===== =========== ======
</TABLE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
Maturities at March 31, 2000
------------------------------------------------------
1 to 24 25 - 60 Over 60
Months Months Months Total
----------- --------- ----------- ----------
(Thousands of dollars)
<S> <C> <C> <C> <C>
Term loans -- variable rate ................. $ 1,183,247 $ 703,803 $ 657,032 $ 2,544,082
Term loans -- fixed rate .................... 123,611 103,365 369,417 596,393
Revolving loans -- variable rate ............ - 6,274 450 6,724
----------- --------- ----------- -----------
Total ........................... $ 1,306,858 $ 813,442 $ 1,026,899 $ 3,147,199
=========== ========= =========== ===========
</TABLE>
The Company monitors the relationship of fixed and variable rate loans and
interest bearing liabilities in order to minimize interest rate risk.
The Company originates both commercial and residential real estate loans
outside of California. The Company seeks portfolio growth outside of California
in order to achieve greater geographic diversity in its loan portfolio and
thereby lessen the Company's exposure to regional economic conditions. The total
amount of commercial and residential real estate loans outstanding on properties
located outside of California at March 31, 2000 was $1.1 billion and $377
million, respectively.
16
<PAGE>
The following table describes the asset classifications, loss experience
and reserve reconciliation of the financial services operation as of or for the
periods ended as shown below:
<TABLE>
<CAPTION>
March 31,
--------------------------
2000 1999 (1)
----------- ----------
(Thousands of dollars,
except percents)
<S> <C> <C>
Non-accrual loans .......................................................... $ 43,340 $ 29,556
Accrual loans 90 days past due ............................................. 1,883 1,133
Real estate owned ("REO") .................................................. 2,667 5,095
----------- ----------
Total non-performing assets ................................................ $ 47,890 $ 35,784
=========== ==========
Beginning allowance for possible loan losses ............................... $ 56,494 $ 56,346
Provision for loan losses .................................................. 2,033 4,126
Reserves established with portfolio acquisitions ........................... - 2,544
Charge-offs:
Commercial real estate loans ............................................. 595 -
Residential real estate loans ............................................ 191 350
Syndicated loans ......................................................... - 350
Insurance premium finance loans .......................................... 55 19
Commercial finance loans ................................................. - -
----------- ----------
Total charge-offs ........................................................ 841 719
----------- ----------
Recoveries:
Commercial real estate loans ............................................. - -
Residential real estate loans ............................................ 14 19
Syndicated loans ......................................................... - -
Insurance premium finance loans .......................................... 3 9
Commercial finance loans ................................................. - 13
----------- ----------
Total recoveries ......................................................... 17 41
----------- ----------
Net charge-offs ............................................................ 824 678
----------- ----------
Ending allowance for possible loan losses .................................. $ 57,703 $ 62,338
=========== ==========
Allocation of allowance for possible loan losses:
Commercial real estate loans ............................................. $ 43,310 $ 34,887
Residential real estate loans ............................................ 8,060 9,041
Syndicated loans ......................................................... 5,635 8,466
Insurance premium finance loans .......................................... 698 457
Commercial finance loans ................................................. - 9,487
----------- ----------
Total allowance for possible loan losses ................................. $ 57,703 $ 62,338
=========== ==========
Total loans receivable ..................................................... $ 3,147,199 $ 3,373,806
Average total loans receivable ............................................. 3,592,385 3,388,938
Net charge-offs to average total loans receivable (annualized) ............. 0.09% 0.08%
Non-performing assets to total loans receivable ............................ 1.52% 1.06%
Allowance for possible loan losses to total loans receivable ............... 1.83% 1.85%
Allowance for possible loan losses to non-performing assets ................ 120.49% 174.21%
Allowance for possible loan losses to non-accrual
loans and accrual loans 90 days past due ................................. 127.60% 203.13%
__________________________
(1) Includes the Company's commercial finance subsidiary which was sold in December 31, 1999.
</TABLE>
17
<PAGE>
Although non-performing assets increased to $47.9 million at March 31, 2000
from $35.8 million at March 31, 1999, the non-performing asset level at March
31, 2000 continues to be below industry benchmarks and is not considered unusual
by the Company. The Company's net charge-offs to average total loans receivable
continues to be low at 0.09% and 0.08% (annualized) for the quarters ended March
31, 2000 and 1999, respectively. Furthermore, this continued low loan loss
experience, coupled with flat loan portfolio growth versus significant loan
portfolio growth in the quarters ended March 31, 2000 and 1999, respectively,
resulted in a lower provision for loan losses in the first quarter of 2000.
RESIDENTIAL REAL ESTATE LOAN SECURITIZATIONS. The Company's residential
real estate operation began a program in 1999 of selling loans through
securitization. In the first quarter of 1999, the Company completed one
securitization totaling approximately $415 million in residential real estate
loans. No securitizations were completed in the first quarter of 2000. At March
31, 2000 and 1999, the Company had approximately $1.25 billion and $415 million,
respectively, in residential real estate loans under securitization which are
not included in the Company's balance sheet.
In the Company's securitizations, the Company sells residential real estate
loans to a special purpose entity, which is established for the limited purpose
of purchasing the loans and issuing interest bearing securities that represent
interests in the loans. The securitization is treated as a sale and the loans
sold are removed from the Company's balance sheet. The securities issued to
third party investors are collateralized by the underlying pool of residential
real estate loans. The investors and the special purpose entity have no recourse
to the Company for failure of the residential loan borrowers to pay when due.
The Company retains a residual interest, which represents the right to receive
certain future cash flows which are generally equal to the value of the
principal and interest to be collected on the loans in excess of: (i) the
principal and interest to be paid on the securities; and (ii) various
contractual net servicing fees and other expenses. Most of the Company's
residual interests, however, are generally restricted until investors and other
expenses have been paid or otherwise are subordinate to investor's interests.
Upon completion of the securitization, the Company records its residual
interests as an asset on the balance sheet. Gains or losses on a securitization
are based on the estimated fair value of the proceeds from the sale, net of
related transaction costs and the allocated carrying value of the loans sold.
Fair value is determined by computing the net present value of the estimated
cash flows retained, using the dates that such cash flows are expected to be
released to the Company (the cash-out method), at a discount rate considered
commensurate with the risks associated with the cash flows. The amounts and
timing of the cash flows are estimated after considering various economic
factors and other factors, including prepayment speeds and delinquency, default
and loss rates. The outstanding balance of the Company's residual interests at
March 31, 2000 was $62 million. Since the value of the residual interests is
subject to substantial credit, prepayment, and interest rate risks on the loans
sold, the Company has recognized no gain on the residual interests it has
retained. This reduces the amounts of gain recognized in the current period.
However, income may be recognized in future periods if the Company's original
assumptions develop favorably. (See "Variability of Operating Results.")
VARIABILITY OF OPERATING RESULTS. During periods when economic conditions
are unfavorable, the Company's financial services businesses may not be able to
originate new loan products or maintain the credit quality of its finance
receivables at previously attained levels, both in its portfolio and for those
loans that have been securitized. This may result in increased levels of
non-performing assets and net credit losses. Changes in market interest rates,
or in the relationships between various interest rates could cause the Company's
interest margins to be reduced and may result in significant changes in the
prepayment patterns of the Company's finance receivables. These risk factors
could adversely affect the value of the Company's loans and their related
collateral, as well as, the valuation of the residual interests in the Company's
securitized loans, both of which could adversely affect the Company's results of
operations and financial condition.
The Company's financial services businesses maintain reserves for credit
losses on its portfolio of finance receivables in amounts that the Company
believes are sufficient to provide adequate protection against potential losses.
The finance receivables that the Company primarily originates, both for its
portfolio and for securitization, are generally non-conventional and
non-investment grade loans. To mitigate for the somewhat higher potential risk
of the lending that the Company is primarily engaged in and for the impact that
adverse economic developments could have on the Company's finance receivables,
the Company lends primarily on a senior and secured basis and employs a
proactive asset management approach. The Company also attempts to carefully
evaluate the underlying collateral that secures these loans and to maintain
underwriting standards that are designed to effect appropriate loan to
collateral valuations and cash flow coverages. Although the Company believes
that its consolidated level of reserves is sufficient to cover potential credit
losses, these reserves could prove to be inadequate due to unanticipated adverse
changes in economic conditions or discrete events that adversely affect specific
borrowers,
18
<PAGE>
industries or markets. Any of these changes could impair the Company's ability
to realize the expected value of the collateral securing certain of its finance
receivables or the timing of the realization thereof.
The Company's financial services businesses compete in markets that are
highly competitive and are characterized by factors that vary based upon product
and geographic region. The markets in which the Company competes are typically
characterized by a large number of competitors who compete based primarily upon
price, terms and loan structure. The Company primarily competes with banks and
mortgage and finance companies, many of which are larger and have greater
financial resources than the Company. The competitive forces of these markets
could adversely affect the Company's net finance income, loan origination volume
or net credit losses.
While the Company attempts to diversify its loan origination by geographic
region, the Company's geographic concentration of commercial and residential
real estate loans in California may subject its loan portfolio and securitized
loans to higher rates of delinquencies, defaults and losses in an economic
downturn in California than the rates experienced in loan portfolios having
greater geographic diversity. At December 31, 1999, approximately half of the
Company's commercial and residential real estate loans, both in its portfolio
and those loans that have been securitized, were collateralized by properties
located in California. Adverse events in California, such as real estate market
declines or the occurrence of natural disasters upon property located therein,
may have a more significant adverse effect upon the Company's operating results
and financial condition than if a higher percentage of its loans were
collateralized by properties located outside California.
The Company's financial services businesses include a Federal Deposit
Insurance Corporation ("FDIC") insured thrift and loan subject to supervision
and regulation by the California Department of Financial Institutions and the
FDIC. Federal and state regulations prescribe certain minimum capital
requirements and, while the Company's thrift and loan subsidiary (the "thrift")
is currently in compliance with such requirements, in the future the Company
could be required to make additional contributions to its thrift in order to
maintain compliance with such requirements. Future changes in government
regulation and policy could adversely affect the thrift and loan industry,
including the Company's thrift. Such changes in regulations and policies may
place restrictions on or make changes to the Company's lending business and
increase the costs of compliance.
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. In the property and casualty insurance operations,
the greatest interest rate risk exposure occurs where the interest rate of the
financial instrument is fixed in nature and there is a difference between the
fixed rate of the financial instrument and the market rate. The greatest
interest rate risk exposure in the financial services operations occurs when
interest rate gaps arise wherein assets are funded with liabilities having
different repricing intervals or different market indices to which the
instruments' interest rates are tied. Changes in interest rates will affect the
Company's net investment income, loan interest, interest expense and total
stockholders' equity. The objective of the Company's asset and liability
management activities is to provide the highest level of net interest income and
to seek cost effective sources of capital, while maintaining acceptable levels
of interest rate and liquidity risk. The Company has designated its entire
investment portfolio as investments that would be available for sale in response
to changing market conditions, liquidity requirements, interest rate movements
and other investment factors. The Company currently owns no significant
derivative financial instruments and, consequently, is not subject to market
risk for such off-balance sheet financial instruments. Furthermore, the Company
does not have exposure to foreign currency or commodity price risk.
For additional information regarding market risk, see the discussion set
forth under the subheadings "Property and Casualty Insurance Operations Interest
Rate Risk," "Financial Services Operations Interest Rate Risk" and "Fremont
General Corporation (Parent-only)-Interest Rate Risk" in the corresponding
Management's Discussion and Analysis in the Company's 1999 Annual Report on Form
10-K. No material changes in market risk have occurred in the quarter ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The property and casualty insurance operation must have cash and liquid
assets available to meet its obligations to policyholders in accordance with
contractual obligations, in addition to having the funds available to meet
ordinary operating costs. The operation has several sources of funds to meet its
obligations, including cash
19
<PAGE>
flow from operations, recoveries from reinsurance contracts, and investment
securities. By statute, the majority of the cash from the operation 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
loss of $99.3 million and $106.3 million at March 31, 2000 and December 31,
1999, respectively.
The Company's property and casualty insurance subsidiaries are required in
certain states to maintain on deposit investments meeting specified standards
that have an aggregate market value equal to the Company's workers' compensation
loss reserves. At December 31, 1999, the Company had approximately $500 million
in cash and investment securities at amortized value that exceeded this
requirement.
The Company's thrift and loan subsidiary finances its lending activities
through customer deposits, which have grown to $3.5 billion at March 31, 2000
from $3.42 billion at December 31, 1999. Additionally, beginning in 1999, the
Company financed certain of its residential real estate loans through
securitization. During 1999, the Company sold approximately $1.41 billion of
residential real estate loans in three securitizations. There were no
securitizations completed in the first quarter of 2000. The thrift is also
eligible for financing through the Federal Home Loan Bank of San Francisco
("FHLB"), which financing is available at varying rates and terms. As of March
31, 2000, $482 million was available under the facility from the FHLB of which
$28 million was outstanding. In October 1999, the thrift established a warehouse
financing facility that may be used to finance certain residential real estate
loans held for sale through securitization or whole loan sale. The facility
permits secured borrowings up to $200 million with a variable interest rate of
LIBOR plus 0.375%. As of March 31, 2000, there were no borrowings under this
facility. Additionally in 1999, the thrift obtained a line of credit with the
Federal Reserve Bank of San Francisco, and at March 31, 2000 had a borrowing
capacity of $259 million, with no amounts outstanding.
As a holding company, Fremont General Corporation ("the holding company")
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
$5.5 million in each of the quarters ended March 31, 2000 and 1999. 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 dividends to the holding company. The holding
company expects that during the next few years dividends from its subsidiaries
will consist primarily of dividends from its property and casualty insurance
subsidiaries. The maximum amount available for payment of dividends by the
property and casualty insurance subsidiaries at December 31, 1999 without prior
regulatory approval is approximately $56.3 million.
On March 17, 1999, Fremont General Corporation issued $425 million of
Senior Notes consisting of $200 million of 7.70% Senior Notes due 2004 and $225
million of 7.875% Senior Notes due 2009. Net proceeds from the Senior Notes were
used to repay all indebtedness outstanding under a revolving line of credit and
for general corporate purposes, including working capital. The Senior Notes were
offered in a private placement to qualified institutional buyers and a limited
number of institutional accredited investors. The Company subsequently filed a
Registration Statement on Form S-4, which was declared effective by the
Securities and Exchange Commission on May 11, 1999, in connection with an
exchange offer by the Company and the issuance of an equal principal amount of
exchange notes upon tender of the initial $425 million of Senior Notes. The
exchange notes consist of $200 million of 7.70% Series B Senior Notes due 2004
and $225 million of 7.875% Series B Senior Notes due 2009. The form and terms of
the exchange notes are substantially identical to those of the initial notes,
except that the exchange notes have been registered under the Securities Act and
therefore, do not bear legends restricting their transfer and are not entitled
to registration rights or additional interest as did the initial notes. As of
June 11, 1999, the closing date for the exchange offer, all outstanding Senior
Notes had been exchanged for Series B Senior Notes. The exchange notes evidence
the same debt as the initial notes and both the initial notes and the exchange
notes are governed by the same indenture.
On February 28, 2000, Fremont reached an agreement with one of its
reinsurers, Reliance Insurance Company ("Reliance"), to settle all obligations
between the Company and Reliance under a contract of reinsurance which was in
effect for the period January 1, 1998 through December 31, 1999. Under the terms
of the settlement agreement, the Company received approximately $102 million in
cash on March 29, 2000 and no longer has any involvement with the Reliance
workers' compensation reinsurance programs brokered for Reliance by Unicover
Managers, Inc. In recognition of this settlement, the Company recorded a charge
to its operating results in the quarter ended December 31, 1999 of approximately
$48.8 million after taxes, consisting primarily of the adjustment
20
<PAGE>
necessary to bring the estimated unpaid reinsurance recoverables under the
reinsurance contract to a present value basis at December 31, 1999. (See
"Property and Casualty Insurance Operation.")
In December 1999, the Company discontinued its commercial finance lending
activities through the sale on December 20, 1999 of Fremont Financial
Corporation, its commercial finance subsidiary, to FINOVA Capital Corporation, a
subsidiary of The FINOVA Group, Inc. for approximately $708 million in cash
including the refinancing and assumption of existing debt.
During 1999, an aggregate $3.7 million principal amount at maturity of
Liquid Yield Option (TM) Notes due October 12, 2013 (Zero Coupon-Subordinated)
("LYONs") were converted into 141,000 shares of Fremont General Corporation's
common stock. The effect of these conversions was an increase in stockholders'
equity and a decrease in long-term debt of $1.7 million. During 1998, an
aggregate $21.0 million principal amount at maturity of LYONs were converted
into 809,000 shares of Fremont General Corporation's common stock. The effect of
the conversions was an increase in stockholders' equity and a decrease in
long-term debt of $10 million. There were no conversions of LYONs in the first
quarter ended March 31, 2000.
On March 1, 1996, Fremont General Financing I, a statutory business trust
(the "Trust") and consolidated wholly-owned subsidiary of the holding company,
sold $100 million of 9% Trust Originated Preferred SecuritiesSM ("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 holding company ("the Junior Subordinated Debentures"). 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 Fremont General
Corporation 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 are subordinate and
junior to all senior indebtedness of the holding 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 Fremont
General Corporation.
Net cash provided by (used in) operating activities was $47.9 million and
$(91.2) million in the quarters ended March 31, 2000 and 1999, respectively. The
increase in net cash provided by operating activities was due primarily to an
increase in claims and policy liabilities, net of reinsurance recoverables in
the first quarter of 2000 versus a decrease in these net liabilities in the
first quarter of 1999, and a smaller change in residual interests in securitized
loans resulting from the fact that no securitizations were completed in the
quarter ended March 31, 2000. (See "Results of Operations - Financial Services -
Residential Real Estate Loan Securitizations.") Partially offsetting these
increases in cash provided by operating activities was a decrease in net income,
an increase in premiums receivable and agents' balances resulting from the
growth in the Company's inforce premium, and a decrease in other liabilities,
net of other assets.
The increase in net claims and policy liabilities is due mainly to a
reduction in reinsurance recoverables in the first quarter of 2000 as compared
to an increase in the first quarter of 1999. The decrease in reinsurance
recoverables was due predominately to the combined effects of: i) the settlement
of all reinsurance recoverables under a low-level reinsurance contract with
Reliance Insurance Company; ii) lower reinsurance recoverables recognized on
losses under insurance policies incepting January 1, 2000 or after due to
reductions in the reinsurance limits established by the Company; and iii) lower
estimates of reinsurance recoverables recognized in the first quarter of 2000
versus the first quarter of 1999 on claims incurred under insurance policies
which are subject to the Company's low-level reinsurance contracts that expired
December 31, 1999. (See "Results of Operations - Property and Casualty Insurance
Operation - Premiums, - Loss and Loss Adjustment Expense, and - Special
Discussion Concerning 1999 Reinsurance Transactions.")
The decrease in other liabilities, net of other assets, was due mainly to a
reduction in reinsurance premium payable which resulted from a reduction in
reinsurance limits established by the Company for insurance policies incepting
January 1, 2000 or after, the settlement of amounts due the Company's
discontinued operations' subsidiaries, and to a reduction in federal income tax
balances.
Net cash used in investing activities was $49.0 million and $563.5 million
in the quarters ended March 31, 2000 and 1999, respectively. The decrease net
cash used in investing activities was due primarily to a reduction in loan
originations and bulk purchases funded, net of receipts from repayments of loans
and bulk sales of loans, as well as a decrease in short-term and other
investments in the first quarter of 2000 versus an increase in such
21
<PAGE>
investments in the first quarter of 1999. The decrease in net loan originations
is consistent with the Company's flat loan portfolio movement in the first
quarter of 2000 as compared to strong loan portfolio growth in the first quarter
of 1999. Contributing to the decrease in short-term and other investments was a
reduction in the financial services operation's liquidity investment portfolio
in the quarter ended March 31, 2000 as compared to an increase to this portfolio
in the same prior year quarter, and reductions pursuant to the Company's use of
proceeds from the December 1999 sale of the Company's commercial finance
subsidiary.
Net cash provided by financing activities was $109.9 million and $636.7
million in the quarters ended March 31, 2000 and 1999, respectively. The
decrease in net cash provided by financing activities was due mainly to the
combined effects of: i) a decrease in short-term borrowings, net of repayments,
under the thrift's financing facility with the FHLB; ii) a reduction in
long-term debt proceeds, net of repayments, which results mainly from the
Company's issuance in the first quarter of 1999 of Senior Notes; and iii) a
reduction in the growth of time deposits, which is consistent with the
previously described flat loan portfolio growth versus strong loan portfolio
growth in the quarters ended March 31, 2000 and 1999, respectively.
The amortized cost of the Company's invested assets was $2.27 billion and
$2.31 billion at March 31, 2000 and December 31, 1999, respectively. The modest
decrease in invested assets is due to the combined effects of cash requirements
within the property and property and casualty insurance operation, reductions in
the financial services operation's liquidity investment portfolio, and
reductions in short-term investments from the Company's use of proceeds from the
sale of its commercial finance subsidiary in December 1999. Partially offsetting
these decreases in invested assets was the receipt in March 1999 of
approximately $102 million from Reliance Insurance Company in settlement of all
obligations under a low-level reinsurance contract which expired December 31,
1999. (See "Results of Operations - Property and Casualty Insurance Operation -
Special Discussion 1999 Reinsurance Transactions.")
The Company's property and casualty premium to surplus ratio for the year
ended December 31, 1999 was 1.6 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 was in compliance with these standards as
of December 31, 1999.
The Company believes that its existing cash, revenues from operations and
other available sources of liquidity will be sufficient to satisfy its liquidity
needs for at least the next twelve months.
IMPACT OF YEAR 2000 READINESS
In prior years, the Company discussed the nature and progress of its Year
2000 readiness plans. In late 1999, the Company completed its remediation and
testing of those systems considered at risk for potential failure from a Year
2000 problem. As a result of its planning and implementation efforts, the
Company experienced no significant disruptions in critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. The Company expensed
approximately $5 million through December 31, 1999 in connection with
remediating its systems, of which approximately $4.5 million was expensed
through December 31, 1998. The Company is not aware of any material problems
resulting from Year 2000 issues, either with its products, its internal systems,
or the products and services of third parties. The Company will continue to
monitor its critical computer applications and those of its suppliers and
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the subheading "Market Risk" in the
Company's Management Discussion and Analysis contained in this Quarterly Report
on Form 10-Q is incorporated herein by reference.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.
None.
Item 2: Changes in Securities and Use of Proceeds.
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 and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- --------------------------------------------------------------
2.1 Stock Purchase Agreement, dated as of December 7, 1999
pertaining to the acquisition of FINOVA Capital Corporation of
all the outstanding shares of Fremont Financial Corporation
(Incorporated by reference to Exhibit No. 2.1 to Current
Report on Form 8-K, as of December 20, 1999, Commission File
Number 1-8007.)
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 (1) to the Registrant's
Form 8-A filed on March 17, 1993, 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 Registration
Statement on Form S-3 filed on October 1, 1993.)
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California 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.)
23
<PAGE>
Exhibit No. Description
----------- --------------------------------------------------------------
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 Employee Stock Ownership Plan.
(Incorporated by reference to Exhibit 10.1 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(b)* Amendment Number One to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.1(c)* Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1997, Commission
File Number 1-8007.)
10.1(d)* Amendment Number Three to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (c) to the Registrant's Quarterly Report on form
10-Q, for the period ended September 30, 1998, Commission File
Number 1-8007.)
10.1(e)* Amendment Number Four to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (d) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.2* Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. and amendment (Incorporated by
reference to Exhibit 10.2 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 and Affiliated Companies
Investment Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007.)
10.3(b)* Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Incorporated by reference to Exhibit 10.3 (b) to the
Registrant's Quarterly Report on form 10-Q, for the period
ended September 30, 1997, Commission File Number 1-8007.)
24
<PAGE>
Exhibit No. Description
----------- --------------------------------------------------------------
10.3(c)* Amendment Number Four to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K, for the Fiscal Year Ended December 31, 1997,
Commission File Number 1-8007.)
10.3(d)* Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3(d) to the Registrant's Quarterly
Report on form 10-Q, for the period ended September 30, 1998,
Commission File Number 1-8007.)
10.4(a)* Fremont General Corporation Investment Incentive Program
Trust. (Incorporated by reference to Exhibit (10)(xi) to the
Registrant's Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007.)
10.4(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.)
10.5(a)* Fremont General Corporation Supplemental Retirement Plan, as
restated January 1, 1997. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
10.5(b)* Amendment Number One to the Fremont General Corporation
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q, for the period ended March 31, 1998, Commission File
Number 1-8007.)
10.5(c)* Amendment Number Two to the Fremont General Corporation
Supplemental Retirement Plan of the Company. (Incorporated by
reference to Exhibit 10.5 (b) to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1998, Commission File Number 1-8007.)
10.6* Trust Agreement for Fremont General Corporation Supplemental
Retirement Plan and Fremont General Corporation Senior
Supplemental Retirement Plan and amendment. (Incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
10.7(a)* Fremont General Corporation Senior Supplemental Retirement
Plan, as restated January 1, 1997. (Incorporated by reference
to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
10.7(b)* First Amendment to the Fremont General Corporation Senior
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.7 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.8(a)* Fremont General Corporation Excess Benefit Plan Restated
effective as of January 1, 1997 and First Amendment dated
December 21, 1998. (Incorporated by reference to Exhibit 10.8
(a) to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1998, Commission File Number
1-8007.)
10.8(b)* Amendment to Excess Benefit Plan of Fremont General
Corporation. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
25
<PAGE>
Exhibit No. Description
----------- --------------------------------------------------------------
10.8(c)* Trust Agreement for Fremont General Corporation Excess Benefit
Plan. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.9* 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.)
10.10* The 1999 Long Term Incentive Compensation Plan of the Company.
(Incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1999, Commission File Number 1-8007.)
10.11* 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Incorporated by reference to Exhibit
4.1 to Registration Statement on Registrant's Form S-8/S-3
File 333-17525 which was filed on December 9, 1997.)
10.12(a)* Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company
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.)
10.12(b)* November 11, 1999 Amendment to Exhibit A to the Fremont
General Corporation Employee Benefits Trust ("Grantor Trust")
dated September 7, 1995 between the Company 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.)
10.13(a)* Employment Agreement between the Company 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.)
10.13(b)* First Amendment to Employment Agreement between the Company
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.)
10.13(c)* Second Amendment to Employment Agreement between the Company
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.)
10.14(a)* Employment Agreement between the Company and Louis J. Rampino
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 (a) to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.14(b)* Employment Agreement between the Company and Wayne R. Bailey
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007.)
10.15* Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
26
<PAGE>
Exhibit No. Description
----------- --------------------------------------------------------------
10.16* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies.
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(a) Amended and Restated Credit Agreement among Fremont General
Corporation, Various Lending Institutions, and The Chase
Manhattan Bank, as Administrative Agent, Dated as of August 1,
1997 and amended and restated as of June 30, 1999.
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1999.)
10.18(b) First and Second Amendments to Amended and Restated Credit
Agreement. (Incorporated by reference to Exhibit 10.18 (b) to
the Registrant's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1999, Commission File Number 1-8007.)
10.19 Credit Agreement by and among Merrill Lynch Trust Company of
California as trustee for the Fremont General Corporation
Employee Stock Ownership Trust, the Plan Committee on behalf
of the Fremont General Corporation Employee Stock Ownership
Plan, Fremont General Corporation, and First Interstate Bank
of California dated August 10, 1995. (Incorporated by
reference to Exhibit (10)(viii) to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995.)
27 Financial Data Schedule
- ----------------------------------
* Management or compensatory plans or arrangements.
With respect to long-term debt instruments, the Company undertakes to
provide copies of such agreements upon request by the Commission.
(b) Reports on Form 8-K filed during the quarterly period ended March 31,
2000:
A Current Report on Form 8-K dated December 20, 1999, and filed
January 3, 2000 reported the completion of the sale of Fremont
Financial Corporation, the commercial lending subsidiary of Fremont
General Corporation (the "Company"), to The FINOVA Group, Inc.
("FINOVA") .
The Form 8-K included pro-forma condensed consolidated financial
statements of the Company.
27
<PAGE>
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: May 12, 2000 /s/ LOUIS J. RAMPINO
----------------------------------------
Louis J. Rampino, President,
Chief Operating Officer and Director
Date: May 12, 2000 /s/ JOHN A. DONALDSON
----------------------------------------
John A. Donaldson, Senior VicePresident,
Controller and Chief Accounting Officer
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequentially
Exhibit No. Description Numbered Page
----------- -------------------------------------------------------------- -------------
<S> <C> <C>
2.1 Stock Purchase Agreement, dated as of December 7, 1999
pertaining to the acquisition of FINOVA Capital Corporation of
all the outstanding shares of Fremont Financial Corporation
(Incorporated by reference to Exhibit No. 2.1 to Current
Report on Form 8-K, as of December 20, 1999, Commission File
Number 1-8007.)
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 (1) to the Registrant's
Form 8-A filed on March 17, 1993, 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 Registration
Statement on Form S-3 filed on October 1, 1993.)
4.3 Indenture among the Registrant, the Trust and First Interstate
Bank of California, a California 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.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
----------- -------------------------------------------------------------- -------------
<S> <C> <C>
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 Employee Stock Ownership Plan.
(Incorporated by reference to Exhibit 10.1 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(b)* Amendment Number One to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.1(c)* Amendment Number Two to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1997, Commission
File Number 1-8007.)
10.1(d)* Amendment Number Three to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (c) to the Registrant's Quarterly Report on form
10-Q, for the period ended September 30, 1998, Commission File
Number 1-8007.)
10.1(e)* Amendment Number Four to the Fremont General Corporation
Employee Stock Ownership Plan. (Incorporated by reference to
Exhibit 10.1 (d) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.2* Restated Trust Agreement for Fremont General Corporation
Employee Stock Ownership Plan. and amendment (Incorporated by
reference to Exhibit 10.2 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 and Affiliated Companies
Investment Incentive Plan. (Incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K, for the fiscal
year ended December 31, 1995, Commission File Number 1-8007.)
10.3(b)* Amendments Number One, Two and Three to the Fremont General
Corporation and Affiliated Companies Investment Incentive
Plan. (Incorporated by reference to Exhibit 10.3 (b) to the
Registrant's Quarterly Report on form 10-Q, for the period
ended September 30, 1997, Commission File Number 1-8007.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
----------- -------------------------------------------------------------- -------------
<S> <C> <C>
10.3(c)* Amendment Number Four to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Annual Report
on Form 10-K, for the Fiscal Year Ended December 31, 1997,
Commission File Number 1-8007.)
10.3(d)* Amendment Number Five to the Fremont General Corporation and
Affiliated Companies Investment Incentive Plan. (Incorporated
by reference to Exhibit 10.3(d) to the Registrant's Quarterly
Report on form 10-Q, for the period ended September 30, 1998,
Commission File Number 1-8007.)
10.4(a)* Fremont General Corporation Investment Incentive Program
Trust. (Incorporated by reference to Exhibit (10)(xi) to the
Registrant's Annual Report on Form 10-K, for the Fiscal Year
Ended December 31, 1993, Commission File Number 1-8007.)
10.4(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.)
10.5(a)* Fremont General Corporation Supplemental Retirement Plan, as
restated January 1, 1997. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
10.5(b)* Amendment Number One to the Fremont General Corporation
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Quarterly Report on Form
10-Q, for the period ended March 31, 1998, Commission File
Number 1-8007.)
10.5(c)* Amendment Number Two to the Fremont General Corporation
Supplemental Retirement Plan of the Company. (Incorporated by
reference to Exhibit 10.5 (b) to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31,
1998, Commission File Number 1-8007.)
10.6* Trust Agreement for Fremont General Corporation Supplemental
Retirement Plan and Fremont General Corporation Senior
Supplemental Retirement Plan and amendment. (Incorporated by
reference to Exhibit 10.6 to the Registrant's Annual Report on
Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
10.7(a)* Fremont General Corporation Senior Supplemental Retirement
Plan, as restated January 1, 1997. (Incorporated by reference
to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q, for the period ended September 30, 1997, Commission File
Number 1-8007.)
10.7(b)* First Amendment to the Fremont General Corporation Senior
Supplemental Retirement Plan. (Incorporated by reference to
Exhibit 10.7 (b) to the Registrant's Annual Report on Form
10-K, for the fiscal year ended December 31, 1998, Commission
File Number 1-8007.)
10.8(a)* Fremont General Corporation Excess Benefit Plan Restated
effective as of January 1, 1997 and First Amendment dated
December 21, 1998. (Incorporated by reference to Exhibit 10.8
(a) to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1998, Commission File Number
1-8007.)
10.8(b)* Amendment to Excess Benefit Plan of Fremont General
Corporation. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
----------- -------------------------------------------------------------- -------------
<S> <C> <C>
10.8(c)* Trust Agreement for Fremont General Corporation Excess Benefit
Plan. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.9* 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.)
10.10* The 1999 Long Term Incentive Compensation Plan of the Company.
(Incorporated by reference to Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1999, Commission File Number 1-8007.)
10.11* 1995 Restricted Stock Award Plan As Amended and forms of
agreement thereunder. (Incorporated by reference to Exhibit
4.1 to Registration Statement on Registrant's Form S-8/S-3
File 333-17525 which was filed on December 9, 1997.)
10.12(a)* Fremont General Corporation Employee Benefits Trust Agreement
("Grantor Trust") dated September 7, 1995 between the Company
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.)
10.12(b)* November 11, 1999 Amendment to Exhibit A to the Fremont
General Corporation Employee Benefits Trust ("Grantor Trust")
dated September 7, 1995 between the Company 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.)
10.13(a)* Employment Agreement between the Company 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.)
10.13(b)* First Amendment to Employment Agreement between the Company
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.)
10.13(c)* Second Amendment to Employment Agreement between the Company
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.)
10.14(a)* Employment Agreement between the Company and Louis J. Rampino
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 (a) to the Registrant's Annual Report on Form 10-K, for
the fiscal year ended December 31, 1995, Commission File
Number 1-8007.)
10.14(b)* Employment Agreement between the Company and Wayne R. Bailey
dated February 8, 1996. (Incorporated by reference to Exhibit
10.14 to the Registrant's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1995, Commission File Number
1-8007.)
10.15* Management Continuity Agreement between the Company and
Raymond G. Meyers dated February 8, 1996. (Incorporated by
reference to Exhibit 10.15 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Page
----------- -------------------------------------------------------------- -------------
<S> <C> <C>
10.16* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies.
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(a) Amended and Restated Credit Agreement among Fremont General
Corporation, Various Lending Institutions, and The Chase
Manhattan Bank, as Administrative Agent, Dated as of August 1,
1997 and amended and restated as of June 30, 1999.
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1999.)
10.18(b) First and Second Amendments to Amended and Restated Credit
Agreement. (Incorporated by reference to Exhibit 10.18 (b) to
the Registrant's Annual Report on Form 10-K, for the fiscal
year ended December 31, 1999, Commission File Number 1-8007.)
10.19 Credit Agreement by and among Merrill Lynch Trust Company of
California as trustee for the Fremont General Corporation
Employee Stock Ownership Trust, the Plan Committee on behalf
of the Fremont General Corporation Employee Stock Ownership
Plan, Fremont General Corporation, and First Interstate Bank
of California dated August 10, 1995. (Incorporated by
reference to Exhibit (10)(viii) to the Registrant's Quarterly
Report on Form 10-Q for the period ended September 30, 1995.)
27 Financial Data Schedule
</TABLE>
MANAGEMENT INCENTIVE COMPENSATION PLAN
FREMONT GENERAL CORPORATION & AFFILIATED COMPANIES
PLAN OBJECTIVES
- Attract and retain key employees.
- Encourage, reinforce, and reward key employees for achieving or
exceeding specific annual pretax earnings goals.
- Uphold our long standing belief that our actions speak louder
than words, and our results speak for themselves.
The details of how you can be substantially rewarded for your contribution
to Fremont General Corporation and its affiliated companies (the "Company") are
described in this booklet. Please carefully read the following pages as they
outline the Plan.
ELIGIBILITY
- The Plan year runs from January 1 through December 31.
Participants must be actively employed by the Company and in good
standing at the end of the Plan year.
- Participants must be actively employed in an eligible position as
of June 30 for full participation in that year's Plan. Exceptions
must be approved by the Senior Vice President and Chief
Administrative Officer of Fremont General Corporation.
- Participants must achieve an individual performance rating of
"satisfactory" or better to be eligible.
- Participants must be employed and in good standing by the Company
at the time the bonus is paid.
DETERMINATION OF FUND
The bonus fund for Fremont General Corporation and its affiliated
companies is determined by the degree to which each company achieves its pretax
earnings goal established in the annual business plan. Funding of the Plan will
commence
<PAGE>
at 80% achievement of pretax earnings targets to a maximum of 120%. The bonus
fund is increased as participants become eligible during the Plan year, or
reduced as participants become ineligible for the Plan.
BONUS OPPORTUNITIES
"Target" bonus is expressed as a percentage of annualized base salary.
The personalized statement in this booklet illustrates the range (minimum,
target, and maximum) of bonus opportunity for the Plan year.
Bonuses are paid in the first quarter following the close of the Plan
year. Bonuses are subject to all applicable tax withholding and reporting
requirements then in effect.
GENERAL PROVISIONS
NEW HIRES/PROMOTIONS
New hires and promotions occurring during the Plan year must meet the
eligibility criteria to be considered an eligible participant.
TRANSFERS
In the event of a transfer, bonuses will be allocated to the Company
where the participant was employed the majority of the Plan year.
LEAVES OF ABSENCE
Bonuses are calculated based on the number of months the participant
worked in an eligible position. Participants on leaves of absence that extend
beyond ninety (90) days during the Plan year will not be eligible for full
participation. Participants on leaves of absence in excess of six (6) months
during the Plan year will be disqualified from any participation in that year's
bonus.
CORRECTIVE ACTION OR REMEDIAL PROCEDURES
If a participant engages in conduct which results in remedial procedures
and/or corrective action at or before the time a bonus is paid, or the employee
is otherwise not in good standing with the Company at such time, then,
notwithstanding any other provisions of this Plan, all or part of any unpaid
bonus may be reduced or eliminated at the sole discretion of the Company.
RETIREMENT/DISABILITY/DEATH
If a participant terminates employment for reasons of retirement,
disability, or death, the bonus will be prorated based on the number of months
the participant worked in an eligible position.
<PAGE>
TERMINATION
Termination of employment, for the purposes of this Plan, shall mean the
day the participant leaves the job, which may or may not be the last day on the
Company's payroll.
PLAN PARTICIPATION
Participation in the Plan with respect to a certain plan year is not in
and of itself to be construed as evidence of a right to participate in any
subsequent plan year. For each successive plan year, participation shall be
confirmed only by properly approved designation of the Employee as a
participant.
PLAN CHANGES AND INTERPRETATION
The Company reserves the right at its sole and absolute discretion to
revise, supplement, or discontinue all or part of this Plan at any time without
notice. All decisions of the Company in regard to interpretation and application
of the Plan shall be final and not subject for appeal or review. Furthermore,
the Plan does not constitute a contract of employment or other contractual
arrangement and nothing contained herein, nor any modifications subsequently
adopted, shall be construed to limit the rights the Company has to terminate the
Employee's employment, including the Company's right to terminate at will or
without cause or notice.
<TABLE> <S> <C>
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 1,405,948
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 370,165
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,673,060<F1>
<CASH> 173,893
<RECOVER-REINSURE> 27,022
<DEFERRED-ACQUISITION> 62,200
<TOTAL-ASSETS> 8,050,560
<POLICY-LOSSES> 2,507,794
<UNEARNED-PREMIUMS> 208,514
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 20,397
<NOTES-PAYABLE> 452,184
100,000
0
<COMMON> 70,025
<OTHER-SE> 672,772<F2>
<TOTAL-LIABILITY-AND-EQUITY> 8,050,560
259,110
<INVESTMENT-INCOME> 41,449
<INVESTMENT-GAINS> (211)
<OTHER-INCOME> 92,289<F3>
<BENEFITS> 204,362
<UNDERWRITING-AMORTIZATION> 58,110
<UNDERWRITING-OTHER> 19,301
<INCOME-PRETAX> 13,548
<INCOME-TAX> 4,064
<INCOME-CONTINUING> 9,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,484
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.14
<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, Loans held for sale, Short-term investments,
Residual interests in securitized loans and Other investments.
<F2>Sum of Additional paid-in-capital, Retained earnings, Deferred Compensation
and Accumulated other comprehensive loss.
<F3>Includes Loan interest and Other revenue.
</FN>
</TABLE>
