<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 September 30, 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 October 31, 2000
----- ------------------
Common Stock, $1.00 par value 69,989,865
--------------------------------------------------------------------------------
<PAGE>
FREMONT GENERAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
--------
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999 .............. 3
Consolidated Statements of Operations
Three and Nine Months Ended September 30,
2000 and 1999 ......................................... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 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 ....................... 10
Item 3. Quantitative and Qualitative Disclosure About
Market Risk ............................................... 27
PART II - OTHER INFORMATION
Items 1-5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ............................ 28
Signatures ............................................................. 34
2
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Securities available for sale at fair value:
Fixed maturity investments (cost: 2000-$1,037,137; 1999-$1,458,721) ....... $ 972,516 $ 1,391,229
Non-redeemable preferred stock (cost: 2000-$292,748; 1999-$407,903) ....... 255,211 369,103
------------- ------------
Total securities available for sale ..................................... 1,227,727 1,760,332
Net loans receivable ........................................................ 3,230,072 3,060,984
Loans held for sale ......................................................... 385,367 294,639
Short-term investments ...................................................... 992,358 410,457
Residual interests in securitized loans - at fair value ..................... 54,679 62,959
Other investments ........................................................... 10,930 35,045
------------- ------------
TOTAL INVESTMENTS AND LOANS ............................................. 5,901,133 5,624,416
Cash ........................................................................ 69,861 65,102
Accrued investment income ................................................... 38,286 44,244
Premiums receivable and agents' balances .................................... 317,360 265,714
Reinsurance recoverable on paid losses ...................................... 40,330 19,822
Reinsurance recoverable on unpaid losses .................................... 972,283 1,049,477
Deferred policy acquisition costs ........................................... 59,040 59,198
Costs in excess of net assets acquired ...................................... 152,255 157,927
Deferred income taxes ....................................................... 369,229 243,645
Other assets ................................................................ 235,675 236,167
Assets held for discontinued operations ..................................... 211,554 249,523
------------- ------------
TOTAL ASSETS ............................................................ $ 8,367,006 $ 8,015,235
============= ============
LIABILITIES
Claims and policy liabilities:
Losses and loss adjustment expenses ....................................... $ 2,833,938 $ 2,434,757
Life insurance benefits and liabilities ................................... 94,148 118,390
Unearned premiums ......................................................... 171,410 180,583
Dividends to policyholders ................................................ 37,414 20,144
------------- ------------
TOTAL CLAIMS AND POLICY LIABILITIES ..................................... 3,136,910 2,753,874
Reinsurance premiums payable and funds withheld ............................. - 63,806
Other liabilities ........................................................... 228,287 288,017
Thrift deposits ............................................................. 3,833,021 3,423,243
Short-term debt ............................................................. - 10,000
Long-term debt .............................................................. 405,269 429,185
Liabilities of discontinued operations ...................................... 178,040 216,009
------------- ------------
TOTAL LIABILITIES ....................................................... 7,781,527 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: (2000-69,998,000 and 1999-70,039,000) ............. 69,998 70,039
Additional paid-in capital .................................................. 277,839 285,922
Retained earnings ........................................................... 272,123 533,523
Deferred compensation ....................................................... (68,078) (89,293)
Accumulated other comprehensive loss ........................................ (66,403) (69,090)
------------- ------------
TOTAL STOCKHOLDERS' EQUITY .............................................. 485,479 731,101
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................. $ 8,367,006 $ 8,015,235
============= ============
See notes to consolidated financial statements on Form 10-Q.
</TABLE>
3
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ----------- ----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
REVENUES
Property and casualty premiums earned ....................... $ 249,813 $ 207,838 $ 798,498 $ 575,813
Loan interest ............................................... 99,395 99,116 278,701 267,614
Net investment income ....................................... 39,628 40,844 123,203 129,447
Realized investment losses .................................. (2,118) (2,173) (2,357) (1,875)
Other revenue ............................................... 3,674 4,101 13,318 13,617
---------- ---------- ----------- ----------
TOTAL REVENUES .......................................... 390,392 349,726 1,211,363 984,616
EXPENSES
Losses and loss adjustment expenses ......................... 200,352 264,727 1,052,616 480,278
Policy acquisition costs .................................... 58,035 48,156 170,856 136,834
Provision for loan losses ................................... 4,762 6,906 10,167 16,780
Other operating costs and expenses .......................... 44,147 53,022 141,243 147,028
Dividends to policyholders .................................. 5,901 7,379 38,386 20,490
Interest expense ............................................ 67,972 63,952 192,929 174,490
---------- ---------- ----------- ----------
TOTAL EXPENSES .......................................... 381,169 444,142 1,606,197 975,900
---------- ---------- ----------- ----------
Income (loss) before taxes, discontinued operations
and extraordinary item .................................... 9,223 (94,416) (394,834) 8,716
Income tax expense (benefit) ................................ 2,951 (33,503) (140,272) 343
---------- ---------- ----------- ----------
Net income (loss) from continuing operations ................ 6,272 (60,913) (254,562) 8,373
Discontinued operations ..................................... - (25,000) - (25,000)
Extraordinary item .......................................... 4,664 - 6,909 -
---------- ---------- ------------ ----------
NET INCOME (LOSS) ........................................... $ 10,936 $ (85,913) $ (247,653) $ (16,627)
========== ========== ============ ==========
PER SHARE DATA
Basic:
Net income (loss) from continuing operations .............. $ 0.10 $ (0.92) $ (4.05) $ 0.13
Discontinued operations ................................... - (0.38) - (0.38)
Extraordinary item ........................................ 0.07 - 0.11 -
Net income (loss) ......................................... 0.17 (1.30) (3.94) (0.25)
Diluted:
Net income (loss) from continuing operations .............. 0.09 (0.92) (4.05) 0.12
Discontinued operations .................................. - (0.38) - (0.36)
Extraordinary item ........................................ 0.07 - 0.11 -
Net income (loss) ......................................... 0.16 (1.30) (3.94) (0.24)
Cash dividends .............................................. 0.04 0.08 0.20 0.24
Weighted average shares:
Basic ..................................................... 63,535 66,205 62,876 66,755
Diluted ................................................... 69,468 66,205 62,876 69,520
See notes to consolidated financial statements on Form 10-Q
</TABLE>
4
<PAGE>
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from continuing operations ............................... $ (254,562) $ 8,373
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by operating activities:
Change in premiums receivable and agents' balances
and reinsurance recoverable on paid losses ........................... (72,154) (44,692)
Change in accrued investment income .................................... 5,958 2,925
Change in claims and policy liabilities ................................ 503,429 (86,603)
Amortization of policy acquisition costs ............................... 170,856 136,834
Policy acquisition costs deferred ...................................... (170,698) (150,313)
Net change in residual interests in securitized loans .................. 8,280 (58,345)
Provision for deferred income taxes .................................... (127,031) 45,586
Provision for loan losses .............................................. 10,167 16,780
Provision for depreciation and amortization ............................ 35,756 32,407
Net amortization on fixed maturity investments ......................... (761) (9,158)
Realized investment losses ............................................. 2,357 1,875
Change in other assets and liabilities ................................. (134,390) (78,550)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES ................................ (22,793) (182,881)
INVESTING ACTIVITIES
Securities available for sale:
Purchases of securities .................................................. (165,698) (500,341)
Sales of securities ...................................................... 628,103 469,677
Securities matured or called ............................................. 72,738 193,249
(Increase) decrease in short-term and other investments .................... (557,786) 122,449
Loan originations and bulk purchases funded ................................ (3,303,055) (3,298,939)
Receipts from repayments of loans and bulk sales of loans .................. 3,033,072 2,140,896
Purchase of property and equipment ......................................... (13,276) (19,958)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ................................ (305,902) (892,967)
FINANCING ACTIVITIES
Proceeds from short-term debt .............................................. - 153,224
Repayments of short-term debt .............................................. (10,000) (19,467)
Proceeds from long-term debt ............................................... - 497,237
Repayments of long-term debt ............................................... (12,944) (347,285)
Net increase in thrift deposits ............................................ 409,778 1,050,996
Annuity contract receipts .................................................. 1,007 675
Annuity contract withdrawals ............................................... (44,206) (32,090)
Dividends paid ............................................................. (16,550) (16,282)
Stock options exercised .................................................... - 407
Net (increase) decrease in deferred compensation plans ..................... 6,369 (46,480)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............................ 333,454 1,240,935
------------ ------------
INCREASE IN CASH ........................................................... 4,759 165,087
Cash at beginning of year .................................................. 65,102 79,875
------------ ------------
CASH AT SEPTEMBER 30, ...................................................... $ 69,861 $ 244,962
============ ============
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 notes 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 - TOTAL COMPREHENSIVE INCOME (LOSS)
The components of total comprehensive income (loss) are summarized in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
2000 1999 2000 1999
-------- ---------- ----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Net income (loss) .............................................. $ 10,936 $ (85,913) $ (247,653) $ (16,627)
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) .................................. 6,682 (22,028) (533) (69,735)
Less: reclassification adjustment, net of tax
deferred income tax expense (benefit) .................. 6,338 341 3,220 (6,761)
--------- ---------- ---------- ---------
Other comprehensive income (loss) .................... 13,020 (21,687) 2,687 (76,496)
--------- ---------- ---------- ---------
Total comprehensive income (loss) .............................. $ 23,956 $ (107,600) $ (244,966) $ (93,123)
========= ========== ========== =========
</TABLE>
The net change in unrealized gains (losses) during the period is net of
deferred income tax expense (benefit) of $3,598,000 and $(11,678,000) for the
three months ended September 30, 2000 and 1999, respectively and $(287,000) and
$(41,190,000) for the nine months ended September 30, 2000 and 1999,
respectively. The reclassification adjustments are net of deferred income tax
expense (benefit) of $2,774,000 and $184,000 for the three months ended
September 30, 2000 and 1999, respectively and $(1,196,000) and $(3,641,000) for
the nine months ended September 30, 2000 and 1999, respectively. 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 at and for the three and nine months ended September 30,
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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ----------------------------
2000 1999 2000 1999
--------- ---------- ----------- ------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
REVENUES
Property and casualty insurance ............................. $ 281,557 $ 244,217 $ 903,632 $ 696,868
Financial services .......................................... 107,712 105,277 304,131 286,627
Unallocated corporate revenue ............................... 1,123 232 3,600 1,121
--------- ---------- ----------- ------------
Total ....................................................... 390,392 349,726 1,211,363 984,616
Intersegment:
Property and casualty insurance ............................. - 292 - 836
Unallocated corporate revenue ............................... 2,389 11,806 12,525 30,792
--------- ---------- ----------- ------------
2,389 12,098 12,525 31,628
--------- ---------- ----------- ------------
Total revenue ............................................... 392,781 361,824 1,223,888 1,016,244
Reconciling items: intersegment revenues .................... (2,389) (12,098) (12,525) (31,628)
--------- ---------- ----------- -------------
Total consolidated .......................................... $ 390,392 $ 349,726 $ 1,211,363 $ 984,616
========= ========== =========== =============
INCOME (LOSS) BEFORE TAXES, DISCONTINUED
OPERATIONS AND EXTRAORDINARY ITEM
Property and casualty insurance ............................. $ (6,379) $ (104,361) $ (432,145) $ (19,881)
Financial services .......................................... 28,131 17,417 72,033 51,085
Unallocated corporate loss .................................. (12,459) (6,402) (34,513) (19,319)
--------- ---------- ----------- -------------
Total ....................................................... 9,293 (93,346) (394,625) 11,885
Reconciling items: intercompany dividends ................... (70) (1,070) (209) (3,169)
--------- ---------- ----------- -------------
Total consolidated .......................................... $ 9,223 $ (94,416) $ (394,834) $ 8,716
========= ========== =========== =============
</TABLE>
7
<PAGE>
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share ("EPS") for the three and nine months ended September
30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------------
2000 1999 2000 1999
-------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
(NUMERATOR FOR BASIC EPS) ......................................... $ 6,272 $ (60,913) $ (254,562) $ 8,373
Effect of dilutive securities:
Liquid Yield Option Notes ("LYONs") ............................... 36 - - 114
-------- --------- ---------- ---------
Income (loss) after assumed conversions
(NUMERATOR FOR DILUTED EPS) ....................................... $ 6,308 $ (60,913) $ (254,562) $ 8,487
======== ========= ========== =========
WEIGHTED-AVERAGE SHARES
(DENOMINATOR FOR BASIC EPS) ....................................... 63,535 66,205 62,876 66,755
Effect of dilutive securities:
Restricted stock .................................................. 5,638 - - 2,083
Stock options ..................................................... - - - 276
LYONs ............................................................. 295 - - 406
-------- --------- ---------- ---------
Dilutive potential common shares .................................... 5,933 - - 2,765
-------- --------- ---------- ---------
ADJUSTED WEIGHTED-AVERAGE SHARES AND ASSUMED
CONVERSIONS (DENOMINATOR FOR DILUTED EPS) ......................... 69,468 66,205 62,876 69,520
======== ========= ========== =========
BASIC EARNINGS (LOSS) PER SHARE FROM CONTINUING
OPERATIONS ........................................................ $ 0.10 $ (0.92) $ (4.05) $ 0.13
======== ========= ========== =========
DILUTED EARNINGS (LOSS) PER SHARE FROM CONTINUING
OPERATIONS ........................................................ $ 0.09 $ (0.92) $ (4.05) $ 0.12
======== ========= ========== =========
</TABLE>
Due to the net loss from continuing operations for the three months ended
September 30, 1999 and the nine months ended September 30, 2000, dilutive
securities were excluded from the calculation of diluted earnings per share
because the effects would have been antidilutive.
NOTE E - EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT
In June and August 2000, the Company purchased $6,300,000 and $13,000,000,
respectively, par value of its 7.70% Series B Senior Notes due 2004 ("Senior
Notes"). This extinguishment of debt resulted in a gain of $2,245,000 and
$4,270,000, respectively net of deferred taxes of $1,368,000, and $2,604,000,
respectively.
In addition, in September 2000, the Company purchased an aggregate
$2,264,000 principal amount at maturity of Liquid Yield Option Notes due October
12, 2013 (Zero Coupon-Subordinated) (the "LYONs"). This extinguishment of debt
resulted in a gain of $394,000, net of deferred taxes of $240,000.
These gains are reported as an extraordinary item in the accompanying
Consolidated Statements of Operations.
8
<PAGE>
NOTE F - NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments and
Hedging Activities" which, as amended, is effective for the Company on January
1, 2001. FASB 133 requires that all derivatives and hedges be identified and
recognized as either assets or liabilities and measured at fair value.
The Company has reviewed its investment securities, loan portfolio,
insurance contracts, debt and lease agreements and has determined that it has
not entered into any derivative, hedge or other off-balance sheet arrangements.
In addition, the Company has concluded that it has not engaged in any contracts
with embedded derivative instruments. Therefore, the adoption of FASB 133, as
amended, will not have a significant effect on the Company's results of
operations and financial position.
NOTE G - SUBSEQUENT EVENTS
On November 8, 2000, the Company initiated an action to further reduce its
property and casualty insurance operation's expenses in an effort to keep
expenses in line with the expected reductions in its workers' compensation
premium writings. The expected premium reductions are a consequence of increased
operating leverage which resulted primarily from the Company's gross loss and
LAE reserve actions in the second quarter ended June 30, 2000. (See "Property
and Casualty Insurance Operation - Premiums.") The Company's actions initiated
on November 8, 2000 are expected to result in the closure of 17 of its 41
production and claims servicing offices with an expected reduction of
approximately 275 positions or 15% of its property and casualty insurance
operation work force as of September 30, 2000. Since June 30, 2000, the Company
has reduced its property and casualty insurance operation work force by
approximately 540 positions or 25% of its June 30, 2000 work force. These
actions are intended not only to reduce the Company's operations in conjunction
with the expected reductions in its premium writings, but also to take advantage
of operating efficiencies that have been developed internally and through the
outsourcing of certain claim processing functions.
9
<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") is primarily engaged in the underwriting of
workers' compensation insurance nationwide. The Company's financial services
business is currently engaged in commercial and residential real estate lending
and investments in syndicated loans (large commercial loans originated and
serviced by other financial institutions). The Company's reported assets as of
September 30, 2000 were approximately $8.4 billion.
The Company's operating strategy is to achieve business balance and
geographic diversity among its operating 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. The Company's
stock is traded on the New York Stock Exchange under the symbol "FMT."
The following table presents information for the three and nine months
ended September 30, 2000 and 1999 with respect to the Company's primary business
segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues:
Property and casualty insurance ..................... $ 281,557 $ 244,217 $ 903,632 $ 696,868
Financial services .................................. 107,712 105,277 304,131 286,627
Unallocated corporate revenue ....................... 1,123 232 3,600 1,121
---------- ---------- ----------- ---------
Total ............................................. $ 390,392 $ 349,726 $ 1,211,363 $ 984,616
========== ========== =========== =========
Income (Loss) Before Taxes, Discontinued
Operations and Extraordinary Item:
Property and casualty insurance ..................... $ (6,379) $ (104,361) $ (432,145) $ (19,881)
Financial services .................................. 28,131 17,417 72,033 51,085
Unallocated corporate loss .......................... (12,529) (7,472) (34,722) (22,488)
---------- ---------- ----------- ----------
Total ............................................. $ 9,223 $ (94,416) $ (394,834) $ 8,716
========== =========== =========== ==========
</TABLE>
The significant property and casualty insurance segment loss before taxes
in the nine months ended September 30, 2000 is predominantly the result of
increases in the Company's gross liability for loss and loss adjustment expenses
("gross loss and LAE reserves") totaling $450 million under workers'
compensation insurance policies effective in or prior to 1999, which was
recognized by the Company in the quarter ended June 30, 2000. Additionally, the
Company's property and casualty insurance segment loss before taxes in the third
quarter ended September 30, 2000 was significantly lower than the same prior
year quarter due primarily to the Company's recognition in the third quarter
ended September 30, 1999 of the adverse effect on incurred loss and LAE of a
lower than expected level of certain reinsurance recoverables than had been
actuarially predicted at the inception of certain reinsurance agreements. For a
discussion concerning the Company's reserve actions, both in the second quarter
ended June 30, 2000 and the third quarter ended September 30, 1999, see
"Property and Casualty Insurance Operation - Loss and Loss Adjustment Expense."
Additionally, in order to mitigate the adverse impact on the Company's property
and casualty insurance operation of the gross loss and LAE reserve actions
recognized in the second quarter ended June 30, 2000, the Company continues to
consider various adverse loss development reinsurance structures and other
alternatives with the requisite state insurance regulatory authorities.
10
<PAGE>
The Company also posted a higher unallocated corporate loss before taxes in
the three and nine months ended September 30, 2000 due mainly to higher interest
expense, net of affiliate interest income. (See further discussion following.)
The Company generated revenues of approximately $390 million and $1.211
billion in the three and nine months ended September 30, 2000, respectively, as
compared to $350 million and $985 million for the same respective periods ended
September 30, 1999. The increases in revenues are 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, offset partially
by lower investment income. Higher workers' compensation insurance premiums were
achieved primarily from lower reinsurance costs beginning January 1, 2000. In
addition, gross written premiums were higher in the nine months ended September
30, 2000 as compared to the same prior year period. For the three months ended
September 30, 2000 however, gross written premiums were flat as compared to the
same prior year quarter. (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. Excluding the Company's commercial finance subsidiary which was sold
in December 1999, the average loan portfolio (including loans held for sale)
grew to $3.82 billion and $3.70 billion in the three and nine months ended
September 30, 2000 from $3.39 billion and $2.92 billion in the same respective
prior year periods. (See "Financial Services Operation.") Realized investment
losses in the three and nine month periods ended September 30, 2000 were $2.1
million and $2.4 million, respectively, as compared to $2.2 million and $1.9
million for the same respective periods in 1999.
The Company posted net income (loss) from continuing operations of $6.3
million and $(254.6) million for the three and nine months ended September 30,
2000, respectively, as compared to $(60.9) million and $8.4 million for the same
respective periods in 1999. Net income (loss) for the three and nine months
ended September 30, 2000 was $10.9 million or $0.16 diluted earnings per share
and $(247.7) million or $(3.94) diluted loss per share, respectively, as
compared to $(85.9) million or $(1.30) diluted loss per share and $(16.6)
million or $(0.24) diluted loss per share for the same respective periods of
1999.
During the three and nine months ended September 30, 2000 the Company
purchased $13.0 million and $19.3 million, respectively, in principal amount of
its publicly traded 7.7% Series B Senior Notes due 2004 ("Senior Notes"), which
were originally issued by the Company pursuant to an exchange offer in the
second quarter of 1999. (See "Liquidity and Capital Resources.") The cost to the
Company was approximately $6.0 million and $8.7 million in the three and nine
months ended September 30, 2000 resulting in an extraordinary gain before taxes
of $6.9 million ($4.3 million after taxes) and $10.5 million ($6.5 million after
taxes), respectively. The after-tax gain is reported as an extraordinary item in
the accompanying Consolidated Statements of Operations.
The property and casualty insurance operation, consisting primarily of
workers' compensation insurance, posted a loss before taxes of $6.4 million and
$432.1 million for the three and nine month periods ended September 30, 2000,
respectively, as compared to $104.4 million and $19.9 million for the same
respective periods in 1999. The significant loss before taxes in the nine months
ended September 30, 2000 is due primarily to significant adjustments recognized
in the second quarter of 2000, including a $450 million increase in the
Company's gross loss and LAE reserves under workers' compensation insurance
policies effective in or prior to 1999, and to a much lesser extent, an increase
of $20 million in the Company's liability for dividends to policyholders.
Partially offsetting these losses and expenses were higher premiums recognized
in the second quarter of 2000 resulting from certain expired retrospectively
rated workers' compensation insurance policies, and lower reinsurance costs
during the nine months ended September 30, 2000 . The significant loss before
taxes in the three months ended September 30, 1999 resulted primarily from the
adverse effect on incurred loss and LAE of a lower than expected level of
certain reinsurance recoverables than had been actuarially predicted at the
inception of certain reinsurance agreements. (See "Property & Casualty Insurance
Operation - Premiums", "Loss and Loss Adjustment Expense", and "Dividends to
Policyholders.") The combined ratio for the three and nine months ended
September 30, 2000 was 114.8% and 166.1%, respectively, as compared to 163.8%
and 120.4% for the same respective periods in 1999.
The financial services operation posted income before taxes for the three
and nine months ended September 30, 2000 of $28.1 million and $72.0 million,
respectively, as compared to $17.4 million and $51.1 million for the same
respective periods in 1999. The increases in income before taxes was due
primarily to the growth in the total average loan portfolio of the Company's
thrift and loan subsidiary and, to a lesser extent, higher gains on residential
real estate whole loan sales, higher investment income, lower operating
expenses, and a lower provision for loan losses. Partially offsetting these
increases was a decrease in income before taxes due to the
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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 three and nine month periods
ended September 30, 2000 consisted primarily of investment income, while
unallocated corporate expenses consisted primarily of interest expense, net of
any affiliate interest income, and general and administrative expenses. The
unallocated corporate loss before taxes for the three and nine months ended
September 30, 2000 was $12.5 million and $34.7 million, respectively, as
compared to $7.5 million and $22.5 million for the same respective periods in
1999. The unallocated corporate loss before taxes increased significantly in the
three and nine months ended September 30, 2000 due primarily to lower affiliate
interest income from the Company's downstream holding company subsidiaries. The
lower affiliate interest income resulted from the Company's conversions on
January 1, 2000 and April 1, 2000 of approximately $154 million and $267
million, respectively, in notes receivable due from these subsidiaries to common
equity in the subsidiaries, thereby establishing capital contributions to them.
The January 1, 2000 conversion transaction affected Fremont General Credit
Corporation ("FGCC"), the downstream holding company subsidiary that holds the
Company's thrift and loan subsidiary, Fremont Investment & Loan. The April 1,
2000 conversion transaction impacted Fremont Compensation Insurance Group, Inc.
("FCIG"), which is the downstream holding company subsidiary that holds the
Company's insurance company subsidiaries. With these debt conversions, beginning
January 1, 2000, and to a larger extent April 1, 2000, the Company's unallocated
corporate interest expense is, and will continue to be, higher. After these
conversions, there is no affiliate debt due from the Company's downstream
holding company subsidiaries. (See "Liquidity and Capital Resources.")
Income tax expense (benefits) of $3.0 million and $(140.3) million for the
three and nine months ended September 30, 2000, represents effective tax rates
of 32% and 35.5%, respectively, on income (loss) before taxes and extraordinary
item of $9.2 million and $(394.8) million for the same respective periods. The
effective tax rates for both periods presented are different than the federal
enacted tax rate of 35%, due mainly to tax exempt investment income, which
either reduces the Company's taxable income or increases the Company's taxable
loss. Partially offsetting this condition are higher state income tax provisions
within the Company's financial services operation and tax exempt intangible
amortization, which is excluded from deductible expenses. As the Company is
currently in a net loss carryover condition, the entire income tax benefit in
the nine months ended September 30, 2000 has been recognized as a deferred tax
asset, which totals $369.2 million at September 30, 2000. In the Company's
opinion, the deferred tax assets will be fully realized through future taxable
income and no valuation allowance is considered necessary.
PROPERTY AND CASUALTY INSURANCE OPERATION
The following table presents information for the three and nine month
periods ended September 30, 2000 and 1999 with respect to the Company's property
and casualty insurance operation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
2000 1999 2000 1999
--------- ---------- ----------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues ............................................ $ 281,557 $ 244,217 $ 903,632 $ 696,868
Expenses ............................................ 287,936 348,578 1,335,777 716,749
--------- ---------- ----------- ---------
Loss Before Taxes ................................... $ (6,379) $ (104,361) $ (432,145) $ (19,881)
========= ========== =========== =========
</TABLE>
PREMIUMS. Insurance premiums from the Company's property and casualty
insurance operations were $249.8 million and $798.5 million in the three and
nine month periods ended September 30, 2000, as compared to $207.8 million and
$575.8 million for the same respective periods in 1999. The increase in premiums
in the nine months ended September 30, 2000 is due primarily to the combined
effects of: i) an expansion in the Company's premium base through new business
development since September 30, 1999 and extending through the end of calendar
year 1999, ii) premium rate increases which the Company began implementing
during the second half of 1999 and accelerated in the nine months ended
September 30, 2000, iii) lower reinsurance costs beginning January 1, 2000, and
iv) additional premiums earned in the three months ended June 30, 2000 under
certain expired retrospectively rated workers' compensation insurance policies.
The increase in premiums in the three months ended September 30, 2000 as
compared to the same prior year period is due primarily to lower reinsurance
costs,
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offset modestly by a small decrease in gross written premium to $287.0 million
from $291.1 million for the three months ended September 30, 2000 and 1999,
respectively.
Using estimated annual premiums on policies in effect at September 30, 2000
and 1999 (referred to as "inforce premiums"), the Company's gross inforce
premiums have decreased 10% to $881.5 million at September 30, 2000 from $982.4
million at September 30, 1999. Additionally, the concentration of the Company's
gross inforce premium in California and Illinois experienced a reduction to 54%
at September 30, 2000 from 61% at September 30, 1999. As a consequence of the
Company's gross loss and LAE reserve actions in the second quarter ended June
30, 2000, the Company's operating leverage of its premium writings to its
statutory insurance surplus has increased to levels outside of industry and
statutory guidelines. The Company intends to take appropriate actions to reduce
its premium writings in order to decrease this operating leverage to be within
industry and statutory guidelines. The Company therefore expects premiums to be
lower in the future.
During the nine months ended September 30, 2000, the Company achieved
premium rate increases across all of its national geographic regions. On a
weighted average basis, these increases averaged 17.7% 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.
These actions, coupled with selective underwriting by the Company, have resulted
in a reduction of new business development in the nine months ended September
30, 2000 as compared to the same prior year period. This is evidenced by the
fact that the new business written by the Company in the nine months ended
September 30, 2000 and 1999 represented only 2.9% and 9.4% of the approximate
$4.6 billion and $3.9 billion, respectively, in estimated annual premiums
submitted to the Company for underwriting consideration. The Company's
commitment to strengthening its premium rate levels, among other things, has
also resulted in a reduction in renewal business and contributed to further
reductions in the Company's gross inforce premiums in October 2000 to $802.2
million from $1.034 billion at December 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 and until April 1, 2000, the Company's reinsurance
program assumed liability for loss and certain loss adjustment expenses in
excess of $1 million per loss occurrence (the "attachment point") and up to a
maximum of $399 million. Effective April 1, 2000, the Company purchased
additional reinsurance that lowered the attachment point to $250,000 per loss
occurrence and thereby increased the maximum reinsured under workers'
compensation insurance policies to $399.75 million per loss occurrence. For
insurance policies incepting January 1, 1998 and through December 31, 1999, the
attachment point was significantly lower at $50,000 per loss occurrence due to
these now-expired low-level reinsurance contracts. (See "Loss and Loss
Adjustment Expense.")
During the three months ended June 30, 2000, the Company recorded
approximately $44 million in additional premiums under certain expired
retrospectively rated workers' compensation insurance policies as a result of
additional loss experience under these insurance policies. Fremont Industrial
Indemnity Company (formerly Industrial Indemnity Company) ("FIIC"), which the
Company acquired in August 1997, originally underwrote the affected insurance
policies. These insurance policies expired prior to the Company's acquisition of
FIIC and are not characteristic of the Company's current policyholder base,
which is comprised mainly of small to medium size employers. Typically, the
terms of retrospectively rated insurance policies provide for additional
premiums when loss experience under the insurance policy reaches certain levels
as specified within the policy. Usually the extent of any additional premiums is
subject to a maximum limit as specified within the policy.
NET INVESTMENT INCOME. Net investment income within the property and
casualty insurance operation was $33.0 million and $104.1 million in the three
and nine months ended September 30, 2000, as compared to $36.3 million and
$115.6 million in the same respective periods in 1999. Lower investment income
was due mainly to lower average invested assets in the three and nine months
ended September 30, 2000, as compared to the same prior year periods. The lower
average invested assets resulting primarily from higher ceded reinsurance costs
in 1999 and claim payments.
LOSS AND LOSS ADJUSTMENT EXPENSE. The property and casualty insurance
operation's loss and LAE incurred was $200.4 million and $1.053 billion for the
three and nine month periods ended September 30, 2000, as compared to $264.7
million and $480.3 million for the three and nine month periods ended September
30, 1999. In addition, the ratio of these losses and LAE to property and
casualty insurance premiums earned ("loss ratio") was 80.6% and 132.3% for the
three and nine months ended September 30, 2000, respectively, versus 127.4% and
83.4% for the same respective periods in 1999. The lower loss ratio in the three
months ended September 30, 2000 as
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compared to the same prior year quarter is due primarily to an increase in the
incurred loss and LAE in the three months ended September 30, 1999 that resulted
from the adverse effect of a lower than expected level of certain reinsurance
recoverables than had been actuarially predicted at the inception of certain
reinsurance agreements. (See "Special Discussion Concerning Reinsurance
Transactions and Reserve Adjustments Recognized in 1999" following.) The
significant increase to loss and LAE incurred in the nine months ended September
30, 2000 resulted mainly from the combined effects of significant increases in
the Company's gross loss and LAE reserves under workers' compensation insurance
policies effective in or prior to 1999, which were recognized by the Company
prior to the third quarter of 2000, and lower reinsurance recoveries in the nine
months ended September 30, 2000. See further discussion following.
In the three months ended June 30, 2000, the Company increased its gross
loss and LAE reserves under workers' compensation insurance policies effective
in or prior to 1999 by $450 million. The Company's reserve action was determined
through an evaluation of several factors, including increased severity trends
observed since December 31, 1999 relating to the 1999 and prior accident years,
increased variability of actuarial indications, and increased uncertainty within
the workers' compensation industry as to the underlying causes and consequent
ultimate impact of both increases in claim severity and an acceleration in the
payment of claims.
Of the $450 million total gross loss and LAE reserve increase, $400 million
relates to loss and directly allocated loss adjustment expenses ("ALAE"), with
the remaining reserve increase of $50 million relating to that portion of the
Company's gross LAE reserves that provide for the general and administrative
costs of settling estimated claims and which are not allocated to specific
claims (referred to generally as "unallocated loss adjustment expense" or
"ULAE"). Contributing to the Company's determination to increase its gross loss
and ALAE reserves was an observed increase in the gross claim severity trend
primarily related to the 1999 accident year and to a lesser extent, 1998 and
prior accident years. At December 31, 1999, the Company had observed relative
stability in its gross loss and ALAE indications, particularly with regard to
accident years prior to 1998, as compared to its observations of reinsurance
recoveries. During the three months ended September 30, 1999 and the three
months ended December 31, 1999, the Company had recorded significant reductions
in its original estimates of reinsurance recoveries. (See "Special Discussion
Concerning Reinsurance Transactions and Reserve Adjustments Recognized in 1999"
following.) During the six months ended June 30, 2000, the Company observed that
the gross severity trend for the 1999 accident year was both higher than that
observed for the 1998 accident year, and was emerging at levels higher than what
was expected to emerge using the actuarial indications at December 31, 1999.
During this same period but to a lesser extent than the 1999 year, the Company
observed that the 1998 accident year was also emerging at levels higher than
what was actuarially predicted at December 31, 1999.
Another contributing factor to the Company's gross loss and ALAE reserve
actions in the three months ended June 30, 2000 was increased variability
observed among the actuarial methods evaluated by the Company at June 30, 2000.
In addition to the actuarial indications developed by the Company's retained
independent actuaries, the Company reviewed actuarial indications from other
independent actuaries and observed variability among the actuarial methods
employed and the results derived. Other than as specifically articulated by the
actuary, the Company is not able to determine with certainty the specific cause
or causes of the observed variability of actuarial indications and has reached
its own conclusions based on a review of its internal data base and a subjective
evaluation of both internal and external factors.
The Company also observed that the workers' compensation industry,
particularly in California, has experienced significant increases in claim
severity on the 1999 accident year and to a lesser extent, the 1998 accident
year. These severity increases covered both medical and indemnity costs, and
were above levels adjusted for estimated inflation. The frequency of claims,
however, has remained stable. The increasing severity on the 1999 accident year,
coupled with a continuing industry-wide acceleration in paid losses observed by
the Company over the past several years, has resulted in significant increases
in the projections of total industry-wide losses and ALAE. While certain factors
have been cited as reasons for the industry-wide severity increases and paid
loss acceleration, conclusive evidence has not been identified by the Company to
either support or refute these findings.
In addition to the previously discussed gross loss and ALAE reserve
increase, the Company strengthened its ULAE reserves by $50 million in the three
months ended June 30, 2000. Similar to the Company's observations concerning its
gross loss and ALAE reserves, the Company observed increased variability among
actuarial indications of its ULAE reserves. The Company determined its reserve
action after reviewing indications from two independent actuarial reviews, as
well as a review of both internal data and available industry information
related to claim administration costs.
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<PAGE>
Effective for workers' compensation insurance policies incepting January 1,
2000 and after, and until April 1, 2000, 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 loss occurrence prior to January 1, 2000 to $1
million per loss occurrence on January 1, 2000 and after. Effective April 1,
2000, the Company purchased additional reinsurance that lowered the attachment
point to $250,000 per loss occurrence. The Company anticipates that these
changes in the Company's reinsurance program at January 1, 2000 and April 1,
2000 will have the net effect of lowering the total amount of reinsurance
recoveries in calendar year 2000 as compared to calendar year 1999. Lower
amounts of reinsurance recoveries have been recognized in the three and nine
months ended September 30, 2000 as compared to the same prior year periods. (See
"Premiums.")
SPECIAL DISCUSSION CONCERNING REINSURANCE TRANSACTIONS AND RESERVE
ADJUSTMENTS RECOGNIZED IN 1999. For the year ended December 31, 1999 and
resulting from Company actions taken after June 30, 1999, the Company's property
and casualty insurance operation recorded a loss before taxes from continuing
operations of $116.2 million ($104.4 million loss before taxes in the three
months ended September 30, 1999). 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 contract 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 loss occurrence to $50,000 per loss
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.")
Also contributing to the Company's loss before taxes in the fourth quarter
of 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
on 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 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
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<PAGE>
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.
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. The Company's expense ratio was
31.8% and 29.0% for the three and nine months ended September 30, 2000, as
compared to 32.8% and 33.5% for the same respective periods in 1999. The
decrease in the expense ratio in the nine month period ended September 30, 2000
is due mainly to increases in the premium base resulting from both lower
reinsurance premiums ceded beginning January 1, 2000 and additional premiums
earned in the three months ended June 30, 2000 under certain expired
retrospectively rated workers' compensation insurance policies. (See
"Premiums.")
As stated previously, the Company intends to reduce its workers'
compensation premium writings in response to the increased operating leverage
that resulted primarily from the Company's gross loss and LAE reserve actions in
the second quarter ended June 30, 2000. (See "Premiums.") Consequently, the
premium base used to calculate the expense ratio is expected to decrease in the
future. Additionally, policy acquisition costs are expected to vary directly
with the intended premium decreases. Other operating costs and expenses however,
do not typically vary directly with the premium level changes. In an effort to
keep these expenses in line with its premium base, the Company has reduced its
property and casualty insurance segment work force by approximately 12% during
the third quarter ended September 30, 2000. However, the Company cannot be
certain that it will be able to continue to reduce expenses at the same rate as
its premium base decreases and thereby prevent the expense ratio from increasing
in the future. (See "Subsequent Events.")
DIVIDENDS TO POLICYHOLDERS. The Company's policyholder dividend ratio was
2.4% and 4.8% for the three and nine months ended September 30, 2000,
respectively, as compared to 3.6% and 3.5% for the same respective periods in
1999. The significant increase in the policyholder dividend ratio in the nine
month period ended September 30, 2000 is due mainly to a non-recurring
adjustment of $20 million recognized prior to the third quarter of 2000 to
increase the Company's liability for dividends to policyholders ("PHD"). The
increase in the Company's PHD liability relates to workers' compensation
insurance policies that are "participating", which obligates the Company to
consider the payment of dividends. Although the substantial majority of the
Company's workers' compensation insurance policies within its primary regions of
California and Illinois are written as "non-participating" and thereby do not
obligate the Company to consider the payment of dividends, the Company does
write "participating" business in other states. During the three months ended
June 30, 2000 and primarily for those participating insurance policies written
by the Company in its midwest and eastern regions, the Company refined its model
used in estimating its ultimate PHD liability. The majority of the Company's
participating insurance policies are written in its midwest and eastern regions.
As a result of this refinement, the Company determined that the loss experience
under these participating insurance policies was lower than previously
estimated, thereby resulting in an increase in PHD liability.
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 and regulatory
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
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<PAGE>
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 has been one of the largest
writers of workers' compensation insurance in the nation, certain of its
competitors are larger and have greater resources than Fremont. As stated
previously, the Company intends to reduce its workers' compensation premium
writings in response to the increased operating leverage that resulted primarily
from the Company's gross loss and LAE reserve actions in the second quarter
ended June 30, 2000. (See "Premiums.") Consequently, 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 approximately 54% of the Company's gross
premium inforce being located in these two states as of September 30, 2000.
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, regulatory restriction and
supervision, 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 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 nine months 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.
DISCONTINUED OPERATIONS. In the third quarter ended September 30, 1999 the
Company incurred a net loss of $25 million to recognize the contribution of
additional assets to the Company's discontinued insurance operations. The
additional assets were considered necessary as the Company observed an increase
in reported asbestos and environmental claims in excess of previous estimates.
The Company's discontinued insurance operations consist primarily of assumed
treaty and facultative reinsurance business that was discontinued between 1986
and 1991. In 1990, the Company established a management group to actively manage
the liquidation of this business. The liabilities associated with this business
are long term in duration and, therefore, the Company
17
<PAGE>
continues to be subject to claims being reported. Claims under these reinsurance
treaties include professional liability, product liability and general liability
which include environmental and asbestos claims.
FINANCIAL SERVICES OPERATION
The Company's financial services operations are principally engaged in
commercial and residential real estate lending, and investing in syndicated
loans. 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.
During the third quarter ended September 30, 2000 the Company sold
substantially all of its insurance premium finance loan portfolio and no longer
offers this loan product. This transaction allows the Company to focus its
financial services resources on its core lending products of commercial and
residential real estate loans and syndicated loans. The impact of this sale on
the Company's operating results was not material.
The following table presents information for the three and nine month
periods ended September 30, 2000 and 1999 with respect to the Company's
financial services operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Revenues ............................................. $ 107,712 $ 105,277 $ 304,131 $ 286,627
Expenses ............................................. 79,581 87,860 232,098 235,542
--------- --------- --------- ---------
Income Before Taxes .................................. $ 28,131 $ 17,417 $ 72,033 $ 51,085
========= ======== ========= =========
</TABLE>
Revenues increased 2.3% and 6.1% in the three and nine month periods ended
September 30, 2000, respectively, as compared to the same respective periods 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 of
the Company's thrift and loan subsidiary, Fremont Investment & Loan (the
"thrift"). Excluding the Company's commercial finance subsidiary which was sold
in December 1999, the average loan portfolio (including loans held for sale)
grew to $3.82 billion and $3.70 billion in the three and nine months ended
September 30, 2000 from $3.39 billion and $2.92 billion in the same respective
prior year periods. Also contributing to the increased revenues were gains on
residential real estate whole loan sales of $3.7 million and $8.6 million in the
three and nine months ended September 30, 2000 as compared to gains (losses) of
$(389,000) and $238,000 in the same respective prior year periods. Investment
income increased to $4.9 million and $12.8 million versus $2.3 million and $6.8
million for the three and nine months ended September 30, 2000 and 1999,
respectively.
Income before taxes in the financial services operation was $28.1 million
and $72.0 million for the three and nine month periods ended September 30, 2000,
as compared to $17.4 million and $55.1 million for the same respective periods
of 1999. The increase in income before taxes was due to the previously described
growth in the thrift's total average financial services loan portfolio, an
increase in the net yield earned on the loan portfolio, higher gains on
residential real estate whole loan sales, higher investment income, lower
operating expenses, and a lower provision for loan losses. 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.
18
<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>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------------------
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 earning assets (2) :
Commercial real estate loans ................. $ 2,530,686 $ 192,829 10.18% $ 2,020,855 $ 138,438 9.16%
Residential real estate loans (3) ............ 756,859 54,836 9.68 737,837 50,120 9.08
Syndicated loans ............................. 340,530 25,062 9.83 472,247 31,586 8.94
Insurance premium finance loans .............. 71,466 5,974 11.17 59,419 4,709 10.60
Commercial finance loans ..................... - - - 525,558 42,761 10.88
Investments .................................. 261,719 12,754 6.51 177,133 6,812 5.14
----------- --------- ----------- ---------
Total interest bearing assets .............. $ 3,961,260 $ 291,455 9.83% $ 3,993,049 $ 274,426 9.19%
=========== ========= =========== =========
Interest earning liabilities:
Time deposits ................................ $ 2,918,063 $ 130,091 5.96% $ 2,006,256 $ 79,839 5.32%
Savings deposits ............................. 666,886 27,359 5.48 643,327 23,922 4.97
Debt with banks
and other institutions ..................... 5,164 248 6.41 332,657 13,791 5.54
Securitization obligation .................... - - - 590,385 23,179 5.25
Debt from affiliates ......................... - - - 113,718 5,833 6.86
Other ........................................ 2,329 36 2.06 35,707 2,403 9.00
----------- --------- ----------- ---------
Total interest earning liabilities ......... $ 3,592,442 $ 157,734 5.86% $ 3,722,050 $ 148,967 5.35%
=========== ========= =========== =========
Net interest income ............................ $ 133,721 $ 125,459
========= =========
Percent of average interest-earning assets:
Interest income .............................. 9.83% 9.19%
Interest expense ............................. 5.32% 4.99%
------- ------
Net interest margin ........................ 4.51% 4.20%
======= ======
-------------------------
<FN>
(1) Annualized
(2) Average loan balances include non-acccrual loan balances
(3) Includes loans held for sale
</FN>
</TABLE>
The margin between the Company's interest income and cost of funds
increased in the nine months ended September 30, 2000 as compared to the same
period of 1999, due primarily to an increase in the net yields on commercial
real estate and syndicated loans, offset partially by a decrease in net yields
on residential real estate loan, and a decrease in net yields resulting from the
sale of the Company's commercial finance subsidiary, which had experienced net
yields in excess of the total consolidated loan portfolio net yield of 4.20% in
the nine month period ended September 30, 1999.
19
<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>
SEPTEMBER 30, 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 ............. $ 2,695,467 82% $ 2,332,880 75%
Syndicated loans ......................... 324,530 10 322,715 10
Residential real estate loans ............ 265,387 8 388,297 13
Insurance premium finance loans .......... 2,041 - 64,596 2
----------- ----- ----------- -----
Total term loans ....................... 3,287,425 100 3,108,488 100
----------- ----- ----------- -----
Revolving loans:
Syndicated loans ......................... 5,463 - 8,990 -
----------- ----- ----------- -----
Total loans receivable (1) ............. 3,292,888 100 3,117,478 100
Less allowance for loan losses ............. (62,816) 2 (56,494) 2
----------- ----- ----------- -----
Net loans receivable ..................... $ 3,230,072 98% $ 3,060,984 98%
=========== ===== =========== =====
------------------
<FN>
(1) Total loans receivable do not include loans held for sale.
</FN>
</TABLE>
The following table illustrates the maturities of the Company's loans
receivable:
<TABLE>
<CAPTION>
MATURITIES AT SEPTEMBER 30, 2000
-------------------------------------------------------
1 TO 24 25 - 60 OVER 60
MONTHS MONTHS MONTHS TOTAL
----------- --------- --------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Term loans -- variable rate ........................ $ 1,432,483 $ 794,326 $ 524,758 $ 2,751,567
Term loans -- fixed rate ........................... 57,283 102,504 376,071 535,858
Revolving loans -- variable rate ................... - 4,880 583 5,463
----------- --------- --------- -----------
TOTAL ................................ $ 1,489,766 $ 901,710 $ 901,412 $ 3,292,888
=========== ========= ========= ===========
</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 September 30, 2000, including loans held for
sale, was $1.3 billion and $390 million, respectively.
20
<PAGE>
The following table describes the asset classifications, loss experience
and reserve reconciliation of the financial services operation as of or for the
nine month periods ended as shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
2000 1999 (1)
----------- -----------
(THOUSANDS OF DOLLARS,
EXCEPT PERCENTS)
<S> <C> <C>
Non-accrual loans ................................................ $ 55,212 $ 28,506
Real estate owned ("REO") ........................................ 7,743 9,570
----------- -----------
Total non-performing assets ...................................... $ 62,955 $ 38,076
=========== ===========
Accrual loans 90 days past due ................................... $ 2,929 $ 2,654
=========== ===========
Beginning allowance for loan losses .............................. $ 56,494 $ 56,346
Provision for loan losses ........................................ 10,167 16,780
Reserves established with portfolio acquisitions ................. - 542
Charge-offs:
Commercial real estate loans ................................... 2,915 532
Residential real estate loans .................................. 951 955
Syndicated loans ............................................... - 1,300
Insurance premium finance loans ................................ 111 75
Commercial finance loans ....................................... - 2,858
----------- -----------
Total charge-offs ............................................ 3,977 5,720
----------- -----------
Recoveries:
Commercial real estate loans ................................... 44 74
Residential real estate loans .................................. 68 52
Syndicated loans ............................................... 13 -
Insurance premium finance loans ................................ 7 15
Commercial finance loans ....................................... - 52
----------- -----------
Total recoveries ............................................. 132 193
----------- ----------
Net charge-offs .................................................. 3,845 5,527
----------- -----------
Ending allowance for loan losses ................................. $ 62,816 $ 68,141
=========== ===========
Allocation of allowance for loan losses:
Commercial real estate loans ................................... $ 50,530 $ 41,000
Residential real estate loans .................................. 6,936 7,087
Syndicated loans ............................................... 5,310 9,272
Insurance premium finance loans ................................ 40 540
Commercial finance loans ....................................... - 10,242
----------- -----------
Total allowance for loan losses .............................. $ 62,816 $ 68,141
=========== ===========
Total loans receivable before allowance for loan losses .......... $ 3,292,888 $ 3,724,288
Average total loans receivable (2) ............................... 3,699,541 3,692,840
Net charge-offs to average total loans receivable (annualized) ... 0.14% 0.20%
Non-performing assets to total loans receivable plus REO ......... 1.91% 1.02%
Allowance for loan losses to total loans receivable .............. 1.91% 1.83%
Allowance for loan losses to non-performing assets ............... 99.8% 179.0%
Allowance for loan losses to non-performing
assets and accrual loans 90 days past due ...................... 95.3% 167.3%
-------------------------
<FN>
(1) Includes the Company's commercial finance subsidiary which was sold in
December 31, 1999.
(2) Includes loans held for sale.
</FN>
</TABLE>
21
<PAGE>
Although non-performing assets increased to $63.0 million at September 30,
2000 from $38.1 million at September 30, 1999, the non-performing asset level at
September 30, 2000 continues to be within 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 0.14% and 0.20% (annualized) for
the nine months ended September 30, 2000 and 1999, respectively. Furthermore,
this continued low loan loss experience, coupled with modest loan portfolio
growth versus significant loan portfolio growth in the nine months ended
September 30, 2000 and 1999, respectively, resulted in a lower provision for
loan losses in the nine months ended September 30, 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 nine months ended September 30, 1999, the Company
completed three securitizations totaling approximately $1.4 billion in
residential real estate loans. No securitizations were completed in the nine
months ended September 30, 2000. At September 30, 2000 and 1999, the Company had
approximately $1.12 billion and $1.23 billion, 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
September 30, 2000 was $54.7 million. Since the value of the residual interests
is subject to substantial credit, prepayment, and interest rate risks on the
loans sold, the Company recognized no gain on the residual interests it
retained. However, income may be recognized in future periods if the credit,
prepayment, and interest rate risk factors develop more favorably than the
Company's original assumptions. (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. For example, the Company has recognized in
the three and nine months ended September 30, 2000 $3.8 million and $5.2
million, respectively, in losses associated with a reduction in the valuation of
its residual interests in securitized loans.
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
22
<PAGE>
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, 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 interest 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 September 30, 2000, 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 primary financial services business is 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 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 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 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 September 30, 2000.
23
<PAGE>
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 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 before tax of $102.2 million and $106.3 million at September
30, 2000 and December 31, 1999, respectively.
The Company's thrift and loan subsidiary finances its lending activities
through customer deposits, which have grown to $3.83 billion at September 30,
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 nine months ended September 30, 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 September 30, 2000, $534 million was available under facilities from the FHLB
with no amounts outstanding. Additionally in 1999, the thrift obtained a line of
credit with the Federal Reserve Bank of San Francisco, and at September 30, 2000
had a borrowing capacity of $206 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
$13.7 million and $16.3 million in the nine months ended September 30, 2000 and
1999, respectively. Several of the Company's subsidiaries are subject to certain
statutory and regulatory restrictions that restrict their ability to distribute
dividends to the holding company. Based on available liquidity at September 30,
2000, the Company does not currently anticipate the need for any dividends from
its subsidiaries for the remainder of the calendar year. Additionally, in August
2000 the holding company cancelled its syndicated bank line, which had permitted
borrowings of up to $225 million. The Company had no borrowings under the
facility at the date of cancellation and the size and structure of the facility
was no longer considered appropriate for the holding company's requirements. The
holding company is considering the need for a new credit facility that would
more closely address its current liquidity requirements.
On January 1, 2000 and April 1, 2000, the holding company converted
approximately $154 million and $267 million, respectively, in notes receivable
due from the Company's downstream holding company subsidiaries, FGCC and FCIG,
to common equity in the subsidiaries, thereby establishing capital contributions
to them. The January 1, 2000 conversion transaction affected FGCC, the
downstream holding company subsidiary that holds the Company's thrift and loan
subsidiary, and the April 1, 2000 conversion transaction impacted FCIG, which is
the downstream holding company subsidiary that holds the Company's insurance
company subsidiaries. Accordingly, beginning January 1, 2000, and to a larger
extent April 1, 2000, the Company's unallocated corporate interest expense is,
and will continue to be, higher. After these conversions, there is no affiliate
debt due from the Company's downstream holding company subsidiaries.
On March 17, 1999, Fremont General Corporation issued $425 million of
Senior Notes consisting of $200 million of 7.7% 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. As
of June 11, 1999, the closing date for the exchange offer, all outstanding
Senior Notes had been exchanged for Series B Senior Notes. During the three and
nine months ended September 30, 2000 the Company purchased $13.0 million and
$19.3 million, respectively, in principal amount of its 7.7% Series B Senior
Notes. The cost to the Company was approximately $6.1 million, and $8.8 million,
respectively, resulting in an extraordinary gain before taxes of $6.9 million
and $10.5 million, respectively ($4.3
24
<PAGE>
million and $6.5 million, respectively, after taxes). The after-tax gain is
reported as an extraordinary item in the accompanying Consolidated Statements of
Operations.
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 necessary to
bring the estimated unpaid reinsurance recoverables under the reinsurance
contract to a present value basis at December 31, 1999. (See "Results of
Operations - Property and Casualty Insurance Operation - Loss and Loss
Adjustment Expense.")
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 nine
months ended September 30, 2000. However, in September 2000 the Company
purchased $2.3 million aggregate principal amount of LYONs with a carrying value
of $1.2 million. The cost to the Company was approximately $500,000, resulting
in an extraordinary gain before taxes of $600,000 ($400,000 after taxes).
Net cash used in operating activities was $22.8 million and $182.9 million
in the nine months ended September 30, 2000 and 1999, respectively. The decrease
in net cash used in operating activities was due primarily to an increase in
claims and policy liabilities, net of reinsurance recoverables in the first nine
months of 2000 versus a decrease in these net liabilities in the first nine
months of 1999, and a smaller change in residual interests in securitized loans
resulting from the fact that no securitizations were completed in the nine
months ended September 30, 2000. The significant net change in residual
interests in securitized loans in the nine months ended September 30, 1999 was
due primarily to the cash used to establish such residual interests pursuant to
three securitizations completed in the nine months ended September 30, 1999.
(See "Results of Operations - Financial Services - Residential Real Estate Loan
Securitizations.") Offsetting these decreases in cash used in operating
activities were the combined effects of: i) the decrease in income from
continuing operations; ii) an increase in deferred income tax benefits; iii) an
increase in premiums receivable and agent's balances and reinsurance recoverable
on paid losses; and iv) an increase in the change in other assets and
liabilities. The increase in deferred income tax benefits results mainly from
the Company continuing to be in a net operating loss carryover position as of
September 30, 2000. As such, substantially all income tax benefits recognized by
the Company in the nine months ended September 30, 2000 were recorded to the
deferred tax accounts and served to further increase the Company's tax effect of
its net operating loss carryover established as of December 31, 1999. The
increase in premiums receivable and agent's balances and reinsurance recoverable
on paid losses included an increase in reinsurance recoverables on paid losses
under certain low level reinsurance agreements which were in effect primarily
for the 1998 and 1999 accident years. The increase in the change in other assets
and liabilities is due mainly to reductions in the Company's reinsurance costs
beginning January 1, 2000 which resulted in a significant reduction in
reinsurance premiums payable. (See "Results of Operations - Property and
Casualty Insurance Operation.")
As discussed earlier, the increase in net claims and policy liabilities is
due mainly to the $450 million gross loss and LAE reserve actions in the quarter
ended June 30, 2000. Also, to a lesser extent, this increase is attributable to
a reduction in reinsurance recoverables in the nine months ended September 30,
2000 as compared to an increase in the first nine months of 1999. (See "Results
of Operations - Property and Casualty Insurance Operation - Loss and Loss
Adjustment Expense.")
25
<PAGE>
Net cash used in investing activities was $305.9 million and $893.0 million
in the nine months ended September 30, 2000 and 1999, respectively. The decrease
in 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. The decrease in net loan originations is
consistent with the Company's lower loan portfolio growth in the nine months
ended September 30, 2000 as compared to strong loan portfolio growth in the same
period of 1999. Partially offsetting this decrease was a decrease in investment
securities sold, matured, or called, net of purchases and short-term investment
activity. This decrease was due primarily to the combined effects of an increase
in the thrift's liquidity investment portfolio in the nine months ended
September 30, 2000 versus a decrease in this portfolio in the same prior year
period, and a reduction in cash requirements within the property and casualty
insurance operation during the nine months ended September 30, 2000 resulting
from the receipt in March 2000 of approximately $102 million from Reliance 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 - Loss and Loss Adjustment Expense.") In addition, the
significant increase in short-term investments purchased, net of sales and
maturities, is due primarily to the Company's preparations for the payment of
reinsurance premiums under alternative reinsurance structures currently under
consideration by the Company.
Net cash provided by financing activities was $333.5 million and $1.24
billion for the nine months ended September 30, 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 Company's
lower loan portfolio in the nine months ended September 30, 2000 as compared to
the same prior year period. Partially offsetting these decreases is a net
increase from deferred compensation plans resulting mainly from the Company's
Common Stock buyback program initiated by the Company in July 1999. The cash
used by the Company in this buyback program decreased the net cash provided by
financing activities in the nine months ended September 30, 1999.
The amortized cost of the Company's invested assets was $2.33 billion and
$2.31 billion at September 30, 2000 and December 31, 1999, respectively. The
modest increase in invested assets is due primarily to an increase in the
financial services operation's liquidity investment portfolio and the previously
discussed receipt in March 2000 of approximately $102 million from Reliance,
offset partially by the cash requirements within the property and casualty
insurance operation.
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 September 30, 2000.
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.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133 ("FASB 133"), "Accounting for Derivative Instruments and
Hedging Activities" which, as amended, is effective for the Company on January
1, 2001. FASB 133 requires that all derivatives and hedges be identified and
recognized as either assets or liabilities and measured at fair value.
The Company has reviewed its investment securities, loan portfolio,
insurance contracts, debt and lease agreements and has determined that it has
not entered into any applicable derivative, hedge or other off-balance sheet
arrangements. In addition, the Company has concluded that it has not engaged in
any applicable contracts with embedded derivative instruments. Therefore, the
adoption of FASB 133, as amended, is not expected to have a significant effect
on the Company's results of operations and financial position.
26
<PAGE>
SUBSEQUENT EVENTS
On November 8, 2000, the Company initiated an action to further reduce its
property and casualty insurance operation's expenses in an effort to keep
expenses in line with the expected reductions in its workers' compensation
premium writings. The expected premium reductions are a consequence of increased
operating leverage which resulted primarily from the Company's gross loss and
LAE reserve actions in the second quarter ended June 30, 2000. (See "Property
and Casualty Insurance Operation - Premiums.") The Company's actions initiated
on November 8, 2000 are expected to result in the closure of 17 of its 41
production and claims servicing offices with an expected reduction of
approximately 275 positions or 15% of its property and casualty insurance
operation work force as of September 30, 2000. Since June 30, 2000, the Company
has reduced its property and casualty insurance operation work force by
approximately 540 positions or 25% of its June 30, 2000 work force. These
actions are intended not only to reduce the Company's operations in conjunction
with the expected reductions in its premium writings, but also to take advantage
of operating efficiencies that have been developed internally and through the
outsourcing of certain claim processing functions.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This MD&A contains "forward looking statements" which are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The forward looking statements are based on the Company's current
expectations and beliefs concerning future developments and their potential
effects on the Company. These statements are not guarantees of future
performance and there can be no assurance that actual developments will be those
anticipated by the Company. Actual results may differ materially and adversely
from those projected as a result of significant risks, uncertainties and
assumptions that are difficult to predict, including: inability to secure
regulatory approvals or failure to otherwise consummate final terms and
conditions of certain proposed reinsurance agreements, unanticipated adverse
development of claims and the effect on loss reserves and overall financial
performance of the Company, accuracy of projected loss reserves and reinsurance
recoverables, effect of operating leverage on premium writings, the impact of
competition and pricing environments, changes in demand for the Company's
products, changes in interest rates, adverse residual interest developments
relating to securitized loans, effect of the performance of financial markets on
investment income and fair values of investments, the effect of general economic
conditions, adverse state and federal legislation and regulations, changes in
asset valuations, the effects of natural disasters and other events beyond our
control and other factors. For a more detailed discussion of risks and
uncertainties, see the Company's public filings with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly update any forward
looking statements.
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.
27
<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, Financial Statement Schedules 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.)
28
<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.)
29
<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.)
30
<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* Employment Agreement between the Company and Louis J.
Rampino dated February 25, 2000. (Incorporated by reference
to Exhibit 10.14 to the Registrant's Quarterly Report on
Form 10-Q, for the period ended June 30, 2000, Commission
File Number 1-8007.)
10.15* Employment Agreement between the Company and Wayne R. Bailey
dated February 25, 2000. (Incorporated by reference to
Exhibit 10.15 to the Registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2000, Commission File
Number 1-8007.)
10.16* Employment Agreement between the Company and Raymond G.
Meyers dated February 25, 2000. (Incorporated by reference
to Exhibit 10.16 to the Registrant's Quarterly Report on
Form 10-Q, for the period ended June 30, 2000, Commission
File Number 1-8007.)
31
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.17* Management Continuity Agreement between the Company and John
Donaldson dated April 1, 2000. (Incorporated by reference to
Exhibit 10.17 to the Registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2000, Commission File
Number 1-8007.)
10.18* Management Continuity Agreement between the Company and
Patrick E. Lamb dated April 1, 2000. (Incorporated by
reference to Exhibit 10.18 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 2000,
Commission File Number 1-8007.)
10.19* Management Continuity Agreement between the Company and Alan
Faigin dated April 1, 2000. (Incorporated by reference to
Exhibit 10.19 to the Registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2000, Commission File
Number 1-8007.)
10.20* Management Continuity Agreement between the Company and
Eugene E. McNany, Jr. dated April 1, 2000. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 2000,
Commission File Number 1-8007.)
10.21* Management Continuity Agreement among the Company, Fremont
Investment & Loan and Murray L. Zoota dated May 15, 2000.
(Incorporated by reference to Exhibit 10.21 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2000, Commission File Number 1-8007).
10.22* Management Continuity Agreement among the Company, Fremont
Investment & Loan and Gwyneth E. Colburn dated May 15, 2000.
(Incorporated by reference to Exhibit 10.22 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2000, Commission File Number 1-8007).
10.23* Management Continuity Agreement among the Company, Fremont
Investment & Loan and Kyle R. Walker dated May 15, 2000.
(Incorporated by reference to Exhibit 10.23 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2000, Commission File Number 1-8007).
10.24* Management Continuity Agreement among the Company, Fremont
Compensation Insurance Group and William B. (Brian) O'Hara
dated May 15, 2000.
10.25* Management Continuity Agreement among the Company, Fremont
Compensation Insurance Group and Ronald A. Groden dated May
15, 2000.
10.26* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies. (Incorporated by
reference to Exhibit 10.16 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended March 31, 2000,
Commission File Number 1-8007.)
10.27 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.)
10.28(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.)
10.28(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.)
32
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.29 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) Report on Form 8-K. None.
33
<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: November 14, 2000 /s/ LOUIS J. RAMPINO
-----------------------------
Louis J. Rampino, President,
Chief Operating Officer and Director
Date: November 14, 2000 /s/ JOHN A. DONALDSON
------------------------------
John A. Donaldson, Senior Vice President,
Controller and Chief Accounting Officer
34
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
----------- ------------------------------------------------------------ -------------
<C> <S> <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.)
<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.)
<PAGE>
EXHIBIT NO. DESCRIPTION
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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.)
<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* Employment Agreement between the Company and Louis J.
Rampino dated February 25, 2000. (Incorporated by reference
to Exhibit 10.14 to the Registrant's Quarterly Report on
Form 10-Q, for the period ended June 30, 2000, Commission
File Number 1-8007.)
10.15* Employment Agreement between the Company and Wayne R. Bailey
dated February 25, 2000. (Incorporated by reference to
Exhibit 10.15 to the Registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2000, Commission File
Number 1-8007.)
10.16* Employment Agreement between the Company and Raymond G.
Meyers dated February 25, 2000. (Incorporated by reference
to Exhibit 10.16 to the Registrant's Quarterly Report on
Form 10-Q, for the period ended June 30, 2000, Commission
File Number 1-8007.)
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EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.17* Management Continuity Agreement between the Company and John
Donaldson dated April 1, 2000. (Incorporated by reference to
Exhibit 10.17 to the Registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2000, Commission File
Number 1-8007.)
10.18* Management Continuity Agreement between the Company and
Patrick E. Lamb dated April 1, 2000. (Incorporated by
reference to Exhibit 10.18 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 2000,
Commission File Number 1-8007.)
10.19* Management Continuity Agreement between the Company and Alan
Faigin dated April 1, 2000. (Incorporated by reference to
Exhibit 10.19 to the Registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2000, Commission File
Number 1-8007.)
10.20* Management Continuity Agreement between the Company and
Eugene E. McNany, Jr. dated April 1, 2000. (Incorporated by
reference to Exhibit 10.20 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 2000,
Commission File Number 1-8007.)
10.21* Management Continuity Agreement among the Company, Fremont
Investment & Loan and Murray L. Zoota dated May 15, 2000.
(Incorporated by reference to Exhibit 10.21 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2000, Commission File Number 1-8007).
10.22* Management Continuity Agreement among the Company, Fremont
Investment & Loan and Gwyneth E. Colburn dated May 15, 2000.
(Incorporated by reference to Exhibit 10.22 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2000, Commission File Number 1-8007).
10.23* Management Continuity Agreement among the Company, Fremont
Investment & Loan and Kyle R. Walker dated May 15, 2000.
(Incorporated by reference to Exhibit 10.23 to the
Registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2000, Commission File Number 1-8007).
10.24* Management Continuity Agreement among the Company, Fremont
Compensation Insurance Group and William B. (Brian) O'Hara
dated May 15, 2000.
10.25* Management Continuity Agreement among the Company, Fremont
Compensation Insurance Group and Ronald A. Groden dated May
15, 2000.
10.26* Management Incentive Compensation Plan of Fremont General
Corporation and Affiliated Companies. (Incorporated by
reference to Exhibit 10.16 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended March 31, 2000,
Commission File Number 1-8007.)
10.27 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.)
10.28(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.)
10.28(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.)
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------
10.29 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
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