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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
COMMISSION FILE NUMBER 1-8007
FREMONT GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 95-2815260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2020 Santa Monica Blvd.
Santa Monica, California 90404
(Address of principal executive offices)
(Zip Code)
(310) 315-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No _
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No _
Indicate the number of shares outstanding of each of the issuer's classes
of common stock:
SHARES OUTSTANDING
CLASS OCTOBER 31, 2003
Common Stock, $1.00 par value 75,937,000
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FREMONT GENERAL CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
PAGE
NO.
----
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2003 and December 31, 2002 .................. 3
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2003 and 2002 ... 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002 ............. 5
Notes to Consolidated Financial Statements on Form 10-Q ..... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................. 16
Item 3. Quantitative and Qualitative Disclosure About Market Risk ... 32
Item 4. Controls and Procedures ..................................... 33
PART II - Other Information
Items 1-5. Not applicable
Item 6. Exhibits and Reports on Form 8-K ............................ 34
Signatures ............................................................... 36
2
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2003 2002
----------- -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
ASSETS
Cash and cash equivalents .................................................. $ 707,310 $ 236,376
Investment securities available for sale at fair value ..................... 95,200 383,232
Loans held for sale - net .................................................. 3,093,788 1,673,145
Loans receivable - net ..................................................... 4,438,074 3,976,695
Mortgage servicing asset at fair value ..................................... 3,041 -
Residual interest in securitized loans at fair value ....................... 2,246 22,749
Accrued interest receivable ................................................ 35,854 28,529
Deferred income taxes ...................................................... 194,996 299,136
Other assets ............................................................... 88,797 48,794
----------- -----------
Total Assets .......................................................... $ 8,659,306 $ 6,668,656
=========== ===========
LIABILITIES
Deposits:
Savings accounts ......................................................... $ 1,159,378 $ 848,567
Money market deposit accounts ............................................ 361,600 254,857
Certificates of deposit:
Under $100,000 ......................................................... 2,337,728 2,355,571
$100,000 and over ...................................................... 2,036,414 1,086,728
----------- -----------
5,895,120 4,545,723
Warehouse line of credit - -
Federal Home Loan Bank ("FHLB") advances ................................... 1,700,000 1,175,000
Senior Notes due 2004 ...................................................... 22,367 71,560
Senior Notes due 2009 ...................................................... 188,905 188,658
Liquid Yield Option Notes due 2013 ("LYONs") ............................... 3,148 3,089
Mandatorily redeemable preferred securities of subsidiary
trust ("Preferred Securities") ........................................... 100,000
Other liabilities .......................................................... 154,028 111,095
Liability to discontinued insurance operations - 74,514
----------- -----------
Total Liabilities ..................................................... 8,063,568 6,169,639
Mandatorily redeemable preferred securities of subsidiary
trust ("Preferred Securities") 100,000
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share-- Authorized: 150,000,000 shares;
Issued and outstanding: (2003 - 75,937,000 and 2002 - 75,397,000) ........ 75,937 75,397
Additional paid-in capital ................................................. 294,413 288,508
Retained earnings .......................................................... 263,720 84,591
Deferred compensation ...................................................... (38,382) (49,542)
Accumulated other comprehensive income ..................................... 50 63
----------- -----------
Total Stockholders' Equity ............................................ 595,738 399,017
----------- -----------
Total Liabilities and Stockholders' Equity ............................ $ 8,659,306 $ 6,668,656
=========== ===========
See notes to consolidated financial statements on Form 10-Q.
3
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- -------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
INTEREST INCOME:
Interest and fee income on loans ................................. $ 137,375 $ 111,309 $ 380,400 $ 317,621
Interest income on investment securities ......................... 993 1,211 4,779 3,457
--------- --------- --------- ---------
138,368 112,520 385,179 321,078
INTEREST EXPENSE:
Deposits ......................................................... 30,402 35,721 94,686 109,809
FHLB advances .................................................... 7,084 4,630 17,920 8,993
Senior Notes, LYONs, Preferred Securities and other .............. 6,734 8,008 21,484 25,832
--------- --------- --------- --------
44,220 48,359 134,090 144,634
Net interest income ................................................ 94,148 64,161 251,089 176,444
Provision for loan losses .......................................... 29,407 33,764 79,936 70,188
--------- --------- --------- --------
Net interest income after provision for loan losses ................ 64,741 30,397 171,153 106,256
NON-INTEREST INCOME:
Net gain on:
Whole loan sales and securitizations of residential
real estate loans ............................................ 62,047 54,914 151,519 96,149
Sale of residual interests in securitizations .................. - - 17,503 -
Whole loan sales of other loans ................................ - 4 674 78
Extinguishment of debt ......................................... - 1,117 25 3,045
Other .......................................................... 6,114 3,746 19,862 12,044
--------- --------- --------- --------
68,161 59,781 189,583 111,316
NON-INTEREST EXPENSE:
Compensation ..................................................... 22,239 21,397 68,807 55,804
Occupancy ........................................................ 2,676 2,119 8,421 6,325
Expenses and losses on real estate owned ......................... 3,171 4,433 6,416 9,766
Other ............................................................ 10,344 10,046 32,209 23,481
--------- --------- --------- --------
38,430 37,995 115,853 95,376
Income before income taxes ......................................... 94,472 52,183 244,883 122,196
Income tax expense ................................................. 38,979 21,687 101,027 50,105
--------- --------- --------- --------
Net income from continuing operations .............................. 55,493 30,496 143,856 72,091
Discontinued insurance operations in regulatory
liquidation, net of tax .......................................... - - 44,308 -
--------- --------- --------- ---------
Net income ......................................................... $ 55,493 $ 30,496 $ 188,164 $ 72,091
========= ========= ========= =========
PER SHARE DATA:
BASIC:
Net income from continuing operations ............................ $ 0.79 $ 0.45 $ 2.06 $ 1.08
Discontinued insurance operations in regulatory
liquidation, net of tax ........................................ - - 0.63 -
--------- --------- --------- ---------
Net income ..................................................... $ 0.79 $ 0.45 $ 2.69 $ 1.08
========= ========= ========= =========
DILUTED:
Net income from continuing operations ............................ $ 0.73 $ 0.41 $ 1.91 $ 1.00
Discontinued insurance operations in regulatory
liquidation, net of tax ........................................ - - 0.59 -
--------- --------- --------- ---------
Net income ..................................................... $ 0.73 $ 0.41 $ 2.50 $ 1.00
========= ========= ========= =========
CASH DIVIDENDS ..................................................... $ 0.04 $ 0.02 $ 0.12 $ 0.06
WEIGHTED AVERAGE SHARES (IN THOUSANDS):
Basic ............................................................ 70,301 67,292 69,915 66,697
Diluted .......................................................... 75,915 73,967 75,440 72,416
See notes to consolidated financial statements on Form 10-Q.
4
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
2003 2002
------------ ------------
(THOUSANDS OF DOLLARS)
OPERATING ACTIVITIES
Net income from continuing operations ..................................... $ 143,856 $ 72,091
Adjustments to reconcile net income from continuing operations to net
cash used in operating activities:
Provision for loan losses .............................................. 79,936 70,188
Net decrease in residual interests in securitized loans ............... 20,503 17,464
Deferred income tax expense ........................................... 78,580 40,149
Depreciation and amortization ......................................... 14,412 13,666
Change in other assets and liabilities ................................ 34,774 12,347
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE LOANS HELD
FOR SALE ACTIVITY ................................................ 372,061 225,905
Originations of loans held for sale ................................... (8,734,080) (4,292,251)
Sales of and payments from loans held for sale ........................ 7,313,437 3,818,046
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES .............................. (1,048,582) (248,300)
INVESTING ACTIVITIES
Originations and advances funded for loans held for portfolio ............. (2,241,329) (1,554,673)
Payments from and sales of loans held for portfolio ....................... 1,672,817 1,282,377
Investment securities available for sale:
Purchases ............................................................... (363,402) (348,844)
Maturities or repayments ................................................ 651,411 330,421
Cash contributions to discontinued insurance operations ................... (6,625) (10,934)
Purchases of property and equipment ....................................... (13,615) (3,025)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .............................. (300,743) (304,678)
FINANCING ACTIVITIES
Deposits accepted, net of repayments ...................................... 1,349,397 141,910
FHLB advances, net of repayments .......................................... 525,000 511,000
Extinguishment of Senior Notes and LYONs .................................. (49,248) (74,874)
Dividends paid ............................................................ (7,506) (5,690)
Stock options exercised ................................................... 1,744 -
Decrease (increase) in deferred compensation plans ........................ 872 (120)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................... 1,820,259 572,226
Increase in cash and cash equivalents ....................................... 470,934 19,248
Cash and cash equivalents at beginning of year ............................ 236,376 151,204
------------ ------------
Cash and cash equivalents at end of period ................................ $ 707,310 $ 170,452
============ ============
See notes to consolidated financial statements on Form 10-Q.
5
FREMONT GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ON FORM 10-Q
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
These consolidated statements of Fremont General Corporation and
subsidiaries (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States and, accordingly, adjustments
(consisting of normal accruals) have been made as management considers necessary
for fair presentations. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002. Certain 2002 amounts have
been reclassified to conform to the 2003 presentation.
NOTE B: LOANS RECEIVABLE AND HELD FOR SALE
Loans receivable consist of commercial and residential real estate loans
and syndicated commercial loans. Commercial real estate loans, which are
primarily variable rate (based upon six-month LIBOR and a margin), represent
loans secured primarily by first mortgages on properties such as office, retail,
industrial, lodging, multi-family and commercial mixed-use properties. The
commercial real estate loans are comprised of permanent, bridge and construction
loans of relatively short duration (rarely more than five years in length of
term and typically shorter, such as two to three years). As of September 30,
2003, the Company had $1.16 billion in unfunded commitments under existing
bridge and construction loans and $301.7 million in unfunded commitments under
loans not yet booked. Due to the variability in the timing of the funding of
these unfunded commitments, and the extent to which they are ultimately funded,
caution should be used in attempting to use these amounts as a basis for
predicting future outstanding loan balances. Commercial real estate loans are
reported net of participations to other financial institutions or investors in
the amount of $109.4 million, $93.2 million, and $114.7 million as of September
30, 2003, December 31, 2002, and September 30, 2002, respectively. The Company's
commercial real estate loans receivable include mezzanine loans (second mortgage
loans, subordinate to the Company's senior or first mortgage loans) in the
amounts of $35.3 million, $21.8 million, and $11.9 million as of September 30,
2003, December 31, 2002, and September 30, 2002, respectively. The interest
rates charged by the Company on mezzanine loans are higher than the interest
rates on the Company's senior or first mortgage loans; however, the mezzanine
loans do carry the additional risk of a subordinated position in the borrowing
entity's capital structure.
6
Residential real estate loans receivable have loan terms for up to thirty
years and are secured by first deeds of trust on single-family residences. The
Company's residential real estate loans receivable and held for sale typically
have a significant concentration (generally 70% or above) of "hybrid" loans
which have a fixed rate of interest for an initial period (i.e. two years) after
origination, after which the interest rate is adjusted to a rate equal to the
sum of six-month LIBOR and a margin as set forth in the mortgage note. The
interest rate then adjusts at each six-month interval thereafter, subject to
various lifetime and periodic rate caps and floors. The loans are generally made
to borrowers who do not satisfy all of the credit, documentation and other
underwriting standards prescribed by conventional mortgage lenders and loan
buyers, such as Fannie Mae and Freddie Mac, and are commonly referred to as
"sub-prime". Syndicated commercial loans are variable rate senior commercial
loans and are generally secured by substantially all of the assets of the
borrower.
The following table details the net loans receivable as of September 30,
2003 (thousands of dollars):
SYNDICATED
COMMERCIAL RESIDENTIAL COMMERCIAL
REAL ESTATE REAL ESTATE LOANS AND OTHER TOTAL
----------- ----------- --------------- -----------
Loans receivable outstanding ..................................... $ 4,137,584 $ 630,327 $ 11,155 $ 4,779,066
Participations sold .............................................. (109,359) - - (109,359)
----------- --------- --------------- -----------
Loans receivable outstanding, net of participations sold ......... 4,028,225 630,327 11,155 4,669,707
Deferred origination fees and costs .............................. (30,030) 6,155 (720) (24,595)
----------- --------- --------------- -----------
Loans receivable outstanding before allowance for loan losses .... 3,998,195 636,482 10,435 4,645,112
Allowance for loan losses ........................................ (192,517) (12,453) (2,068) (207,038)
----------- --------- --------------- -----------
Loans receivable-net ............................................. $ 3,805,678 $ 624,029 $ 8,367 $ 4,438,074
=========== ========= =============== ===========
Loans held for sale consist solely of residential real estate loans
(primarily first trust deeds, but also second trust deeds) which are aggregated
prior to their sale and are carried at the lower of aggregate amortized cost or
market. Market values are based upon current market yields required by investors
for pools of similar loans. Amortized cost includes the unpaid loan principal
balance, and SFAS No. 91 costs of origination, less the net amount of fees
received from the borrower. The Company has established a valuation reserve for
its loans held for sale based upon the type of loans held and the amount of time
the loans have been held. Valuation adjustments to lower carrying values to
market are recorded in current operations as a component of the net gain or loss
on the sale of the residential real estate loans. Interest earned on loans held
for sale is recorded as interest income until the date of sale.
7
NOTE C: RESIDUAL INTEREST IN SECURITIZED LOANS AND MORTGAGE SERVICING ASSET
During the third quarter of 2003, the Company sold $561.6 million in
residential real estate loans through a securitization transaction that
incorporated the sale of a net interest margin (NIM) security. The
securitization (inclusive of the NIM) was structured to meet the requirements
of a sale of loans under SFAS No. 140 and, as a result, the loans sold were
appropriately removed from the Company's balance sheet. The Company added to its
consolidated balance sheet the cash received from the net proceeds of the
transaction, as well as a mortgage servicing asset and a residual interest in
the securitized loans. The Company services the loans in the securitization and
the mortgage servicing asset represents the discounted amount of the excess of
the estimated servicing fees to be received over the estimated costs to be
incurred in performing the servicing functions. The residual interest in the
securitized loans represents the discounted amount of the estimated future cash
flows to be received by the Company from its residual interest in the
securitization once the NIM has been paid off in full. The residual cash flows
are subject to substantial credit, prepayment and interest rate risk on the
loans sold into the securitization. The realization of the mortgage servicing
asset is subject to substantial prepayment risk, as well as the risk of
increases in the cost of performing the servicing functions. These assets are
recorded at the Company's estimate of their fair value. The Company, in
determining fair value, utilizes what it believes are appropriate prepayment,
default, loss severity, interest rate, servicing cost and discount rate
assumptions.
NOTE D: DEBT - FREMONT GENERAL CORPORATION
The debt of the holding company, Fremont General Corporation ("FGC"), is
detailed in the following table; none of the debt of FGC is guaranteed by the
Company's industrial bank, Fremont Investment & Loan ("FIL") (thousands of
dollars):
SEPTEMBER 30,
2003
---------
Senior Notes due 2004, less discount ($18) ........................... $ 22,367
Senior Notes due 2009, less discount ($1,795) ........................ 188,905
Liquid Yield Option Notes due 2013, less discount ($2,072) ........... 3,148
Mandatorily redeemable preferred securities of subsidiary
trust ("Preferred Securities") ..................................... 100,000
---------
$ 314,420
==========
The Preferred Securities represent the "Company-obligated mandatorily
redeemable preferred securities of subsidiary trust holding solely company
junior subordinated debentures" that have been reclassified to a liability in
the consolidated balance sheet at September 30, 2003 pursuant to SFAS No.
8
150, "Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity." The consolidated balance sheet at December 31, 2002 has
not been restated pursuant to this new standard.
NOTE E: DEPOSITS, FHLB ADVANCES AND WAREHOUSE LINES OF CREDIT - FREMONT
INVESTMENT & LOAN
FIL funds its operations through the issuance of deposits which are insured
up to certain limits by the Federal Deposit Insurance Corporation ("FDIC"),
Federal Home Loan Bank ("FHLB") advances and warehouse lines of credit.
Certificates of deposit as of September 30, 2003 are detailed by maturity
and rates as follows (thousands of dollars):
MATURING BY WEIGHTED
AMOUNT SEPTEMBER 30, AVERAGE RATE
----------- ------------ ------------
$ 4,133,197 2004 2.09%
96,259 2005 3.63%
94,225 2006 5.43%
108 2007 4.34%
2,196 2008 4.73%
48,157 2009 5.38%
----------- ------------
$ 4,374,142 2.23%
=========== ============
Of the total certificates of deposit outstanding at September 30, 2003,
$1.85 billion were obtained through brokers.
The FHLB advances are collateralized by loans pledged to the FHLB. The
following table details the amounts due the FHLB as of September 30, 2003 by
maturities and rates (thousands of dollars):
MATURING BY WEIGHTED
AMOUNT SEPTEMBER AVERAGE RATE
----------- ------------ ------------
$ 1,385,000 2004 1.96%
315,000 2005 1.79%
----------- ------------
$ 1,700,000 1.93%
=========== ============
FIL entered into a $500 million master loan and security agreement during
July of 2003 with Greenwich Capital Financial Products, Inc. ("Greenwich"). This
agreement, which expires in July 2004, provides secured financing solely for
FIL's residential real estate loans held for sale or securitization and contains
certain restrictive financial and other covenants, which require FIL to, among
other things, maintain certain capital and liquidity levels. As of September 30,
2003, FIL was in compliance with the
9
financial and other covenants contained in the agreement and there were no
amounts outstanding under this facility.
During October of 2003, FIL entered into a $500 million master repurchase
agreement with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"). This
agreement, which also provides secured financing solely for FIL's residential
real estate loans held for sale or securitization, expires in October 2004 and
contains certain restrictive financial and other covenants that are similar to
the Greenwich facility. Neither the Greenwich or the CSFB credit facilities are
guaranteed by FGC.
NOTE F: INDUSTRIAL BANK REGULATORY CAPITAL
FIL is subject to regulatory capital guidelines as promulgated by the FDIC
and is required to maintain certain capital ratios. The minimum ratios to be
well-capitalized or adequately capitalized and FIL's actual regulatory capital
and ratios as of September 30, 2003 were as follows (thousands of dollars):
TIER 1 RISK-BASED TOTAL RISK-BASED
TIER 1 LEVERAGE CAPITAL (TO RISK CAPITAL (TO RISK
(AVERAGE ASSETS) WEIGHTED ASSETS) WEIGHTED ASSETS)
------------------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ------ --------- ----- --------- -----
Minimum ratios for:
Well-capitalized ................ 5.00% 6.00% 10.00%
Adequately capitalized .......... 3.00% 4.00% 8.00%
Actual amounts and ratios:
September 30, 2003 .............. $ 729,185 9.80% $ 729,185 11.84% $ 808,034 13.12%
NOTE G: DISCONTINUED INSURANCE OPERATIONS IN REGULATORY LIQUIDATION
In December 2002, the Company accrued a charge by setting up a reserve for
the maximum amount of its potential future cash contributions to its
discontinued workers' compensation insurance subsidiary, Fremont Indemnity
Company ("FIC"). These future contributions included both mandatory and
contingent cash contributions as per the July 2, 2002 Letter Agreement of
Run-Off and Regulatory Oversight between the California Department of Insurance,
the Company and FIC (the "Agreement"). The Agreement was included as an exhibit
to the Company's Form 8-K which was filed on July 19, 2002. At December 31,
2002, the total amount of these future potential cash contributions was $79.5
million ($74.5 million at present value), payable ratably at $13.25 million
annually over a period of six years.
During the second quarter of 2003, the Company recognized a net of tax gain
of $44,308,000 from the reversal of this reserve for potential future cash
contributions to FIC. The gain represents the total
10
maximum amount of cash contributions of $72,875,000 ($68,166,000 on a present
value basis) that remained as of June 4, 2003. Pursuant to the provisions of the
Agreement, the granting of an order of conservation prior to March 1, 2004
extinguishes the obligation of the Company to provide any further cash
contributions to FIC. The Insurance Commissioner of the State of California
sought, and was granted, an order of conservation over FIC by the Superior Court
of the State of California for the County of Los Angeles on June 4, 2003. The
conservation order incorporates the Agreement and also provides that nothing in
the order is intended to modify any of the provisions of the Agreement. The
Insurance Commissioner of the State of California further sought, and was
granted, an order of liquidation over FIC by the Superior Court of the State of
California for the County of Los Angeles on July 2, 2003.
While the Company owns 100% of the common stock of FIC, the assets and
liabilities of FIC are excluded from the accompanying Consolidated Balance Sheet
as the Company no longer has effective control over the operation of this
subsidiary.
NOTE H: EXTINGUISHMENT OF DEBT
The Company extinguished debt that resulted in gains that are included in
non-interest income in the accompanying Consolidated Statement of Operations.
The amounts are summarized in the following table:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ---------------------
2003 2002 2003 2002
--------- -------- --------- --------
(THOUSANDS OF DOLLARS)
7.70% SENIOR NOTES DUE 2004:
Par Value of debt extinguished ............................... $ - $ 23,000 $ 49,325 $ 73,815
Pre-tax gain on extinguishment ............................... - 1,117 25 2,965
LIQUID YIELD OPTION NOTES DUE 2013 ("LYONS"):
Principal amount of debt extinguished ........................ $ - $ - $ - $ 2,269
Pre-tax gain on extinguishment ............................... - - - 80
11
NOTE I: TOTAL COMPREHENSIVE INCOME
The components of total comprehensive income are summarized in the
following table:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -----------------------
2003 2002 2003 2002
-------- -------- --------- --------
(THOUSANDS OF DOLLARS)
Net income .......................................................... $ 55,493 $ 30,496 $ 188,164 $ 72,091
Other comprehensive income (loss):
Net change in unrealized gains during the period .................. 17 (25) (23) (47)
Less deferred income tax (expense) benefit ........................ (7) 9 10 17
-------- -------- --------- --------
Other comprehensive income (loss) ............................... 10 (16) (13) (30)
-------- -------- --------- --------
Total comprehensive income .......................................... $ 55,503 $ 30,480 $ 188,151 $ 72,061
======== ======== ========= ========
NOTE J: OPERATIONS BY REPORTABLE SEGMENT
The Company's business is engaged in four reportable segments: commercial
real estate; residential real estate; syndicated commercial and retail banking.
Additionally, there are certain corporate revenues and expenses, comprised
primarily of investment income, interest expense and certain general and
administrative expenses, that are not allocated to the reportable segments.
The following data for the three and nine months ended September 30, 2003
and 2002 provide certain information related to the reportable segment
disclosure. Intersegment eliminations relate to the credit allocated to retail
banking for operating funds provided to the other three reportable segments.
12
COMMERCIAL RESIDENTIAL SYNDICATED RETAIL INTERSEGMENT TOTAL
REAL ESTATE REAL ESTATE COMMERCIAL BANKING CORPORATE ELIMINATIONS CONSOLIDATED
----------- ----------- ---------- --------- --------- ------------ ------------
(THOUSANDS OF DOLLARS)
THREE MONTHS ENDED SEPTEMBER 30, 2003
Total revenues .................... $ 79,377 $ 125,638 $ 49 $ 34,780 $ 1,079 $ (34,394) $ 206,529
Net interest income ............... 53,101 41,977 (22) 3,993 (4,901) - 94,148
Income before income taxes ........ 17,565 97,142 (214) (3) (20,018) - 94,472
THREE MONTHS ENDED SEPTEMBER 30, 2002
Total revenues .................... $ 71,512 $ 97,721 $ 532 $ 39,730 $ 2,338 $ (39,532) $ 172,301
Net interest income ............... 41,914 24,118 223 3,811 (5,905) - 64,161
Income before income taxes ........ 2,702 73,022 (4,680) (4) (18,857) - 52,183
NINE MONTHS ENDED SEPTEMBER 30, 2003
Total revenues .................... $ 233,488 $ 333,475 $ 684 $ 108,080 $ 6,323 $ (107,288) $ 574,762
Net interest income ............... 149,554 104,740 (202) 12,604 (15,607) - 251,089
Income before income taxes ........ 43,728 255,648 3,928 (97) (58,324) - 244,883
NINE MONTHS ENDED SEPTEMBER 30, 2002
Total revenues .................... $ 215,403 $ 205,827 $ 2,539 $ 122,841 $ 6,902 $ (121,118) $ 432,394
Net interest income ............... 122,029 61,247 1,095 11,309 (19,236) - 176,444
Income before income taxes ........ 44,852 135,655 (13,250) 1,312 (46,373) - 122,196
NOTE K: EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations for the three and nine months
ended September 30, 2003 and 2002:
13
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
2003 2002 2003 2002
--------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income from continuing operations
(numerator for basic earnings per share) .......................... $ 55,493 $ 30,496 $ 143,856 $ 72,091
Effect of dilutive securities:
LYONs ............................................................. 23 23 70 86
-------- -------- --------- --------
Net income from continuing operations available to
common stockholders after assumed conversions
(numerator for diluted earnings per share) ........................ $ 55,516 $ 30,519 $ 143,926 $ 72,177
======== ======== ========= ========
Weighted-average shares
(denominator for basic earnings per share) ........................ 70,301 67,292 69,915 66,697
Effect of dilutive securities:
Restricted stock .................................................. 5,386 6,470 5,295 5,514
LYONs ............................................................. 202 205 204 205
Stock options ..................................................... 26 - 26 -
-------- -------- --------- --------
Dilutive potential common shares .................................... 5,614 6,675 5,525 5,719
-------- -------- --------- --------
Adjusted weighted-average shares and assumed
conversions (denominator for diluted earnings per share) .......... 75,915 73,967 75,440 72,416
======== ======== ========= ========
Basic earnings per share ............................................ $ 0.79 $ 0.45 $ 2.06 $ 1.08
======== ======== ========= ========
Diluted earnings per share .......................................... $ 0.73 $ 0.41 $ 1.91 $ 1.00
======== ======== ========= ========
NOTE L: NEW ACCOUNTING STANDARDS
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" that amends SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 148 provides alternative methods of transition to the fair value method
of accounting for stock-based employee compensation. The statement also amends
the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based compensation and the effect of the method used on reported results.
The Company believes that the impact of this new standard on the Company's
financial position and results of operations will be consistent with the SFAS
No. 123 pro forma disclosure.
14
In January 2003, the FASB issued Interpretation 46, "Consolidation of
Variable Interest Entities" ("FIN 46") that requires the consolidation of
variable-interest entities ("VIEs") if the business enterprise has a controlling
financial interest in the VIE. Also, FIN 46 requires disclosure about a VIE that
a company holds a significant interest in, but is not required to consolidate.
The implementation date of this interpretation has been deferred until December
31, 2003 for calendar year public companies that held variable interests in
entities that were acquired prior to February 1, 2003. The Company does not
believe the implementation of FIN 46 will have a significant impact on the
Company's financial position and results of operations.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report may contain "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements and the currently reported results are based upon the current
expectations and beliefs of Fremont General Corporation ("Fremont") and its
subsidiaries (combined "the Company") concerning future developments and their
potential effects upon the Company. These statements and the Company's results
reported herein are not guarantees of future performance or results and there
can be no assurance that actual developments and economic performance will be as
anticipated by the Company. Actual developments and/or results may differ
significantly and adversely from the Company's expected results as a result of
significant risks, uncertainties and factors beyond the Company's control (as
well as the various assumptions utilized in determining the Company's
expectations) which include, but are not limited to, the following:
o the variability of general and specific economic conditions and trends,
and changes in, and the level of, interest rates;
o the impact of competition and pricing environments on loan and deposit
products and the resulting effect upon the Company's net interest margin
and net gain on sale;
o changes in the Company's ability to originate loans, and any changes in
the cost and volume of loans originated as a result;
o the ability to access the necessary capital resources in a
cost-effective manner to fund loan originations, the condition of the
whole loan sale and securitization markets and the timing of sales and
securitizations;
o the ability of the Company to sell or securitize the residential real
estate loans it originates, the pricing of existing and future loans,
and the net premiums realized upon the sale of such loans;
o the ability of the Company to sell certain of the commercial real estate
loans and foreclosed real estate in its portfolio and the net proceeds
realized upon the sale of such;
o the impact of changes in the commercial and residential real estate
markets, and changes in the fair values of the Company's assets and
loans, including the value of the underlying real estate collateral;
o the ability to collect and realize the amounts outstanding, and the
timing thereof, of loans and foreclosed real estate;
o the variability in determining the level of the allowance for loan
losses and the fair value of the mortgage servicing assets and residual
interests in securitizations;
o the effect of certain determinations or actions taken by, or the
inability to secure regulatory approvals from, the Federal Deposit
Insurance Corporation, the Department of Financial Institutions of the
State of California or other regulatory bodies on various matters;
o the ability of the Company to maintain cash flow sufficient for it to
meet its debt service and other obligations;
16
o the impact and cost of adverse state and federal legislation and
regulations, litigation, court decisions and changes in the judicial
climate;
o the ability of the Company to utilize the net operating loss
carryforwards currently held and the impact of changes in federal and
state tax laws and interpretations, including tax rate changes, and the
effect of any adverse outcomes from the resolution of issues with taxing
authorities;
o other events, risks and uncertainties discussed elsewhere in this Form
10-Q and from time to time in Fremont's other reports, press releases
and filings with the Securities and Exchange Commission.
The Company undertakes no obligation to publicly update such forward-looking
statements.
GENERAL
Fremont General Corporation ("Fremont" or when combined with its
subsidiaries "the Company") is a financial services holding company. The
Company's financial services business is consolidated within Fremont General
Credit Corporation ("FGCC"), which is engaged in commercial and residential real
estate lending nationwide through its California-chartered industrial bank
subsidiary, Fremont Investment & Loan ("FIL"). Additionally, there are certain
corporate revenues and expenses, comprised primarily of investment income,
interest expense and certain general and administrative expenses, which are not
allocated by Fremont to FGCC.
This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto presented under Item 1, and
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
RESULTS OF OPERATIONS
The Company reported net income of $55,493,000 and $188,164,000 for the
third quarter and nine months ended September 30, 2003, respectively. This is
compared to net income of $30,496,000 and $72,091,000 for the respective periods
in 2002. The following table presents a summary of the Company's income before
income taxes and net income for the quarterly and nine month periods ended
September 30, 2003 and 2002, respectively:
17
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
Income (loss) before income taxes:
Financial services ............................................... $ 110,715 $ 68,045 $ 293,975 $ 164,328
Unallocated corporate interest and other expenses ................ (16,243) (15,862) (49,092) (42,132)
--------- --------- --------- --------
Income before income taxes from continuing operations .............. 94,472 52,183 244,883 122,196
Income tax expense ................................................. (38,979) (21,687) (101,027) (50,105)
--------- --------- --------- --------
Net income from continuing operations .............................. 55,493 30,496 143,856 72,091
Discontinued insurance operations in regulatory
liquidation, net of tax .......................................... - - 44,308 -
--------- --------- --------- --------
Net income ......................................................... $ 55,493 $ 30,496 $ 188,164 $ 72,091
========= ========= ========= ========
The following table summarizes the Company's financial services operation's
income before taxes for the respective periods indicated:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS)
FINANCIAL SERVICES
Interest and fee income on loans ................................... $ 137,375 $ 111,309 $ 380,400 $ 317,621
Interest income on investment securities ........................... 884 1,011 3,200 2,714
--------- --------- --------- ---------
Total interest income ........................................... 138,259 112,320 383,600 320,335
Interest expense ................................................... 38,020 40,393 113,500 118,888
--------- --------- --------- ---------
Net interest income ............................................. 100,239 71,927 270,100 201,447
Provision for loan losses .......................................... 29,407 33,764 79,936 70,188
--------- --------- --------- ---------
Net interest income after provision for loan losses ............. 70,832 38,163 190,164 131,259
Net gain on:
Whole loan sales and securitizations of residential
real estate loans .............................................. 62,047 54,914 151,519 96,149
Sale of residual interests in securitizations .................... - - 17,503 -
Other non-interest income .......................................... 6,030 3,750 20,452 11,792
Operating expenses ................................................. (28,194) (28,782) (85,663) (74,872)
--------- --------- --------- ---------
Income before income taxes ......................................... $ 110,715 $ 68,045 $ 293,975 $ 164,328
========= ========= ========= =========
THIRD QUARTER OF 2003 AS COMPARED TO THIRD QUARTER OF 2002
The Company recorded net income from continuing operations of $55.5 million
for the third quarter of 2003 as compared to $30.5 million for the third quarter
of 2002. This increase is due to an increase in the pre-tax income generated by
the Company's financial services operation.
The Company's financial services operation recorded income before taxes of
$110.7 million for the third quarter of 2003 as compared to $68.0 million for
the third quarter of 2002. The increase in income before taxes for the third
quarter of 2003 represents a 63% increase over the results for the
18
third quarter of 2002 and is primarily a result of increased levels of net
interest income and net gain on the sale of residential real estate loans, and a
lower provision for loan losses.
The following table identifies the interest income, interest expense,
average interest-earning assets and interest-bearing liabilities, and net
interest margins for the Company's financial services operation for the third
quarter of 2003 and 2002:
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
2003 2002
---------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
----------- ---------- ------- ---------- --------- -------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Interest-earning assets (2):
Commercial real estate loans ............. $ 3,942,746 $ 77,220 7.77% $ 3,522,057 $ 70,725 7.97%
Residential real estate loans (3) ........ 3,321,231 60,106 7.18 1,890,211 40,052 8.41
Syndicated commercial loans .............. 7,291 49 2.67 47,741 532 4.42
Investment securities .................... 171,132 884 2.05 158,422 1,011 2.53
----------- ---------- ------- ----------- --------- -------
Total interest-earning assets .......... $ 7,442,400 $ 138,259 7.37% $ 5,618,431 $ 112,320 7.93%
=========== ========== ======= =========== ========= =======
Interest-bearing liabilities:
Time deposits ............................ $ 3,796,110 $ 23,293 2.43% $ 3,358,064 $ 28,684 3.39%
Savings deposits ......................... 1,452,293 7,109 1.94 1,087,393 7,037 2.57
Debt with FHLB ........................... 1,368,837 7,085 2.05 612,914 4,630 3.00
Warehouse line of credit ................. 29,109 176 2.40 - - -
Other .................................... 31,636 357 4.48 8,345 42 2.00
----------- ---------- ------- ----------- --------- -------
Total interest-bearing liabilities ..... $ 6,677,985 $ 38,020 2.26% $ 5,066,716 $ 40,393 3.16%
=========== ========== ======= =========== ========= =======
Net interest income ........................ $ 100,239 $ 71,927
========== =========
Percent of average interest-earning assets(1):
Interest income .......................... 7.37% 7.93%
Interest expense ......................... 2.03% 2.85%
---------- ---------
Net interest margin .................... 5.34% 5.08%
========== =========
(1) Annualized.
(2) Average loan balances include non-accrual loan balances and exclude residual interests in securitized loans.
(3) Includes loans held for sale and other consumer loans.
The net interest income for the third quarter of 2003 was $100.2 million as
compared to $71.9 million for the third quarter of 2002. The increase in net
interest income is primarily a result of an increase in the average
interest-earning assets. Average interest-earning assets increased 32% to $7.44
billion during the third quarter of 2003, as compared to $5.62 billion during
the third quarter of 2002. The net interest income margin also increased to an
annualized 5.34% for the third quarter of 2003 from 5.08% for the third quarter
of 2002. The increase in the Company's net interest margin is due
19
primarily to higher net spreads between the commercial real estate loan yields
and the effective cost of funds employed to fund these assets as the interest
yields on deposits declined on a quarter-to-quarter comparison more than the
yields on commercial real estate loans did. This is due in part to the presence
of interest rate floors (in which the total of the variable base rate, such as
six-month LIBOR, plus the related spread on a commercial real estate loan will
not contractually drop below a certain absolute level) on a significant number
of the Company's commercial real estate loans. The higher margin contribution
from the commercial real estate portfolio was partially offset by a compression
in the margin for residential real estate loans. The residential real estate
loans are primarily comprised of loans held for sale which were predominately
originated in or just before the quarterly periods presented; loans originated
in or before the third quarter of 2003 had lower margins than in the third
quarter of 2002 due to differing interest rate conditions.
The net gain on the sale of residential real estate loans, net of
reductions in the carrying valuations of loans held for sale, increased from
$54.9 million in the third quarter of 2002 to $62.0 million for the third
quarter of 2003. This increase is primarily attributable to a significant
increase in the volume of loans sold in the two comparable quarters, offset by a
significantly lower gross premium received on loan sales during the quarter of
2003, as compared to the third quarter of 2002. A total of $2.78 billion in
loans were sold (including loans sold via securitization) during the third
quarter of 2003, as compared to loan sales of $1.65 billion during the third
quarter of 2002. The average gross premium on loans sold during the third
quarter of 2002 was 5.26% as compared to an average of 4.32% for the third
quarter of 2003. The average gross premiums realized during the third quarter of
2002 is outside of the normal parameters expected to be experienced by the
Company; the average realized during the third quarter of 2003 is consistent
with the historical range of expected normal market conditions. Such premiums
have exhibited, and are expected to continue to exhibit, variability (often
significant) based on various economic and interest rate environments. The net
gain percentage (net gain after allocated costs and adjustments to the carrying
valuations of loans held for sale, divided by net loans sold) on these sales
decreased from 3.33% in the third quarter of 2002 to 2.23% in the third quarter
of 2003.
The provision for loan losses decreased to $29.4 million for the third
quarter of 2003 as compared to $33.8 million for the third quarter of 2002. The
moderate decrease in loss provision for the third quarter of 2003 is primarily
due to an expected higher realization on certain of the Company's non-accrual
loans and foreclosed commercial real estate properties.
20
The Company's net loans receivable (excluding loans held for sale), before
the allowance for loan losses, were approximately $4.65 billion at September 30,
2003, as compared to $4.14 billion and $4.11 billion at December 31, 2002 and
September 30, 2002, respectively. The Company's residential real estate loans
held for sale have increased from $1.23 billion at September 30, 2002 to $3.09
billion at September 30, 2003; this increase is reflective of a significant
increase in loan production volume - during the third quarter of 2002,
residential real estate loan originations totaled $1.75 billion as compared to
$3.92 billion for the third quarter of 2003.
The unallocated corporate interest and other expense loss before taxes for
the quarter ended September 30, 2003, was $16.2 million as compared to $15.9
million for the same quarter in 2002. While interest expense was $1.4 million
lower in the third quarter of 2003 (due to lower levels of holding company debt
outstanding) than in the third quarter of 2002, compensation expense was higher
by $0.8 million during the third quarter of 2003; in addition, during the third
quarter of 2002, the Company realized a gain on the extinguishment of debt of
$1.1 million.
During the third quarter of 2002, the Company extinguished $23.0 million in
principal amount of its 7.70% Senior Notes due 2004, resulting in a pre-tax gain
of $1.1 million. The Company did not extinguish any of its Senior Notes during
the third quarter of 2003.
Income tax expense of $39.0 million and $21.7 million for the quarters
ended September 30, 2003 and 2002, respectively, represents effective tax rates
of 41.3% and 41.6%, respectively, on income before income taxes from continuing
operations of $94.5 million and $52.2 million for the same respective periods.
The effective tax rates for both periods presented are different than the
federal enacted tax rate of 35%, due mainly to various state income tax
provisions within the Company's financial services operation.
FIRST NINE MONTHS OF 2003 AS COMPARED TO FIRST NINE MONTHS OF 2002
The Company recorded net income from continuing operations of $143.9
million for the first nine months of 2003 as compared to $72.1 million for the
first nine months of 2002. This represents an increase of 99% for the first nine
months of 2003 over the first nine months of 2002. This increase is due to an
increase in the Company's financial services operation's pre-tax income results.
The Company's total net income for the first nine months of 2003 was $188.2
million, which is comprised of the $143.9 million in net income from continuing
operations and an after tax gain of $44.3 million
21
(recognized during the second quarter of 2003) on the reversal of the accrual
for the potential cash contributions to the Company's discontinued insurance
operations in regulatory liquidation.
For the first nine months of 2003, the Company's financial services
operation recorded income before taxes of $294.0 million, as compared to $164.3
million for the first nine months of 2002. This increase represents a 79%
increase over the results for the first nine months of 2002. The increase is
primarily the result of increased levels of net interest income and net gain on
the sale of residential real estate loans, a net gain on the sale of residual
interests in three securitizations in the amount of $17.5 million, offset by
increases in the provision for loan losses and operating expenses.
The following table identifies the interest income, interest expense,
average interest-earning assets and interest-bearing liabilities, and net
interest margins for the Company's financial services operation for the first
nine months of 2003 and 2002:
22
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
2003 2002
---------------------------------- ---------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST (1) BALANCE INTEREST COST (1)
----------- ---------- ------- ---------- --------- -------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Interest-earning assets (2):
Commercial real estate loans ............. $ 3,846,399 $ 225,573 7.84% $ 3,492,511 $ 212,848 8.15%
Residential real estate loans (3) ........ 2,764,769 154,678 7.48 1,589,704 102,296 8.60
Syndicated commercial loans .............. 13,843 149 1.44 69,197 2,476 4.78
Investment securities .................... 180,069 3,200 2.38 139,546 2,715 2.60
----------- --------- ------- ----------- --------- -------
Total interest-earning assets .......... $ 6,805,080 $ 383,600 7.54% $ 5,290,958 $ 320,335 8.09%
=========== ========= ======= =========== ========= =======
Interest-bearing liabilities:
Time deposits ............................ $ 3,676,327 $ 73,996 2.69% $ 3,273,184 $ 88,120 3.60%
Savings deposits ......................... 1,341,291 20,690 2.06 1,058,897 21,688 2.74
Debt with FHLB ........................... 1,033,937 17,920 2.32 448,660 8,993 2.68
Warehouse line of credit ................. 9,810 176 2.40 - - -
Other .................................... 20,681 718 4.64 5,787 87 2.01
----------- --------- ------- ----------- --------- -------
Total interest-bearing liabilities ..... $ 6,082,046 $ 113,500 2.50% $ 4,786,528 $ 118,888 3.32%
=========== ========= ======= =========== ========= =======
Net interest income ........................ $ 270,100 $ 201,447
========= =========
Percent of average interest-earning assets(1):
Interest income .......................... 7.54% 8.09%
Interest expense ......................... 2.23% 3.00 %
--------- ---------
Net interest margin .................... 5.31% 5.09%
========= =========
(1) Annualized.
(2) Average loan balances include non-accrual loan balances and exclude residual interests in securitized loans.
(3) Includes loans held for sale and other consumer loans.
Net interest income for the first nine months of 2003 was $270.1 million as
compared to $201.4 million for the first nine months of 2002. The increase in
net interest income is primarily a result of an increase in the average
interest-earning assets. Average interest-earning assets increased 29% to $6.81
billion during the first nine months of 2003 from $5.29 billion for the first
nine months of 2002. The net interest income margin also increased to an
annualized 5.31% during the first nine months of 2003 as compared to 5.09%
during the first nine months of 2002. The margin expansion is a result of the
Company's cost of funds decreasing more than the yields on the Company's
commercial real estate portfolio, offset by margin compression experienced in
the residential real estate loans held for sale.
The gain on the sale of residential real estate loans increased during the
first nine months of 2003 primarily as a result of significantly increased
levels of loan sales (including loans sold via securitization). The net gain on
sale from whole loan sales and securitizations increased to $151.5
23
million during the first nine months of 2003, as compared to $96.1 million for
the same period in 2002. The increase in loan sales volume is driven by a
significant increase in loan origination volume. During the first nine months of
2003 and 2002, total loan sales were $7.31 billion and $3.82 billion,
respectively, and loan origination volume was $9.16 billion and $4.61 billion,
respectively. The average gross premium on loans sold during the first nine
months of 2003 was 4.28% as compared to 4.53% for the same period in 2002. The
net gain percentage (net gain after allocated costs and adjustments to the
carrying valuations of loans held for sale, divided by net loans sold) for the
first nine months of 2003 was 2.07% as compared to 2.52% for the first nine
months of 2002, reflecting the decrease in gross premiums realized.
The provision for loan losses increased to $79.9 million for the first nine
months of 2003 as compared to $70.2 million for the first nine months of 2002;
this increase is primarily reflective of an increasingly higher level of
commercial real estate non-performing assets during the first nine months of
2003.
During the first nine months of 2003, the Company extinguished $49.3
million in principal amount of its 7.70% Senior Notes due 2004, with a pre-tax
gain of $25,000. During the first nine months of 2002, the Company extinguished
$73.8 million in principal amount of its 7.70% Senior Notes due 2004 and $2.3
million in principal amount at maturity of its LYONs, with a pre-tax gain of
$3.0 million.
During the second quarter of 2003, the Company recognized a net of tax gain
of $44,308,000 from the reversal of its reserve for potential future cash
contributions to FIC. The gain represents the total maximum amount of cash
contributions of $72,875,000 ($68,166,000 on a present value basis) that
remained as of June 4, 2003. Pursuant to the provisions of the Agreement, the
granting of an order of conservation prior to March 1, 2004 extinguishes the
obligation of the Company to provide any further cash contributions to FIC. The
Insurance Commissioner of the State of California sought, and was granted, an
order of conservation over FIC by the Superior Court of the State of California
for the County of Los Angeles on June 4, 2003. The conservation order
incorporates the Agreement and also provides that nothing in the order is
intended to modify any of the provisions of the Agreement. The Insurance
Commissioner of the State of California further sought, and was granted, an
order of liquidation over FIC by the Superior Court of the State of California
for the County of Los Angeles on July 2, 2003.
24
Income tax expense of $101.0 million and $50.1 million for the nine month
periods ended September 30, 2003 and 2002, respectively, represents effective
tax rates of 41.3% and 41.0%, respectively, on income before taxes from
continuing operations of $244.9 million and $122.2 million for the same
respective periods. The effective tax rates for both periods differ from the
federal enacted tax rate of 35% primarily due to various state income tax
provisions within the Company's financial services operation.
LOANS RECEIVABLE AND HELD FOR SALE
The following table shows detail for the Company's loans receivable
outstanding as of the dates indicated:
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2003 2002 2002
----------- ----------- -----------
(THOUSANDS OF DOLLARS)
Commercial real estate loans:
Bridge ......................................................... $ 1,761,328 $ 1,712,085 $ 1,646,866
Permanent ...................................................... 1,352,036 1,393,427 1,358,313
Construction ................................................... 637,444 328,974 338,582
Single tenant credit ........................................... 277,417 296,787 298,970
----------- ----------- -----------
4,028,225 3,731,273 3,642,731
Residential real estate loans (first trust deeds) ................ 630,327 392,061 433,839
Syndicated commercial loans ...................................... 6,958 26,216 41,472
Other - consumer loans ........................................... 4,197 4,272 4,711
----------- ----------- -----------
4,669,707 4,153,822 4,122,753
Deferred origination fees and costs .............................. (24,595) (15,937) (13,512)
----------- ----------- -----------
Loans receivable before allowance for loan losses .............. 4,645,112 4,137,885 4,109,241
Allowance for loan losses ........................................ (207,038) (161,190) (137,629)
----------- ----------- -----------
Loans receivable, net of allowance for loan losses ............. $ 4,438,074 $ 3,976,695 $ 3,971,612
=========== =========== ===========
As of September 30, 2003, approximately 38.1% and 12.8% of the Company's
commercial real estate loans outstanding were secured by properties located
within California and New York, respectively; no other state represented greater
than 8% of the loan portfolio. The Company's continued geographic expansion has
resulted in a decline in the percentage of commercial real estate loans secured
by properties within California from 47.6% at December 31, 2002 to 38.1% as of
September 30, 2003. The Company's largest single individual commercial real
estate loan outstanding at September 30, 2003 was $68.3 million with a total
loan commitment of $73.2 million. The Company, however, has two separate loans,
which are cross-collateralized and cross-defaulted, with the same investment
fund on a related real estate project. The combined loan principal outstanding
and total loan commitment of these two loans at September 30, 2003 is $75.0
million and $81.9 million,
25
respectively. The Company's largest net commitment for a single loan at
September 30, 2003 was $104.0 million; this represents the maximum potential
loan amount to the borrower. In addition, the commercial real estate loan
portfolio's largest concentration by common investor or sponsor totaled $124.5
million in loan principal outstanding and $148.8 million in total loan
commitment at September 30, 2003, and is comprised of four separate loans, each
of which was performing as of September 30, 2003.
The following table stratifies the commercial real estate portfolio by loan
amounts outstanding as of September 30, 2003 (in thousands of dollars, except
percents and number of loans):
NUMBER TOTAL LOANS
LOAN SIZE RANGE OF LOANS OUTSTANDING %
----------------------------- -------- ----------- ---
$0 - $1 million ........................... 125 $ 26,705 1%
> $1 million - $5 million ................. 225 638,242 16%
> $5 million - $10 million ................ 105 765,441 19%
> $10 million - $15 million ............... 46 560,164 14%
> $15 million - $20 million ............... 29 484,964 12%
> $20 million - $30 million ............... 29 720,279 18%
> $30 million - $40 million ............... 14 488,572 12%
> $40 million - $50 million ............... 2 91,750 2%
> $50 million ............................. 4 252,108 6%
-------- ----------- ---
579 $ 4,028,225 100%
======== =========== ===
The following tables report the non-performing asset classifications,
accruing loans past due 90 days or more, loan loss experience and allowance for
loan losses reconciliation of the financial services operation as of or for the
respective periods ended:
26
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2003 2002 2002
------------ ------------ ------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Non-accrual loans receivable:
Commercial real estate loans .................................. $ 81,845 $ 70,031 $ 68,231
Residential real estate loans ................................. 7,246 5,600 5,328
Syndicated commercial loans ................................... 6,854 11,239 11,663
------------ ------------ ------------
95,945 86,870 85,222
Real estate owned ("REO"):
Commercial real estate loans .................................. 36,426 10,598 2,999
Residential real estate loans ................................. 856 315 425
------------ ------------ ------------
37,282 10,913 3,424
------------ ------------ ------------
Total non-performing assets ("NPA") - loans
receivable related ............................................ $ 133,227 $ 97,783 $ 88,646
============ ============ ============
NPA to total loans receivable and REO ........................... 2.85% 2.36% 2.16%
Allowance for loan losses to total loans receivable ............. 4.46% 3.90% 3.35%
Allowance for loan losses to NPA ................................ 155.4% 164.8% 155.3%
Accruing loans receivable past due 90 days or more:
Commercial real estate loans .................................. $ 6,050 $ - $ 1,093
Residential real estate loans ................................. - - -
Other ......................................................... - - 2
------------ ------------ ------------
Total accruing loans receivable past due 90 days or more ........ $ 6,050 $ - $ 1,095
============ ============ ============
27
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Beginning allowance for loan losses ................................ $ 191,105 $ 117,914 $ 161,190 $ 104,179
Provision for loan losses .......................................... 29,407 33,764 79,936 70,188
Reclass of allowance for loan commitments .......................... - (3,259) - (3,259)
Charge-offs:
Commercial real estate loans ..................................... (14,000) (7,492) (34,312) (20,519)
Residential real estate loans - portfolio ........................ (81) - (315) (57)
Syndicated commercial loans ...................................... - (4,999) (199) (14,618)
Other ............................................................ - - - -
--------- --------- --------- ---------
Total charge-offs .............................................. (14,081) (12,491) (34,826) (35,194)
--------- --------- --------- ---------
Recoveries:
Commercial real estate loans ..................................... 569 1,694 569 1,695
Residential real estate loans - portfolio ........................ 38 7 101 11
Syndicated commercial loans ...................................... - - 67 -
Other ............................................................ - - 1 9
--------- --------- --------- ---------
Total recoveries ............................................... 607 1,701 738 1,715
--------- --------- --------- ---------
Net charge-offs .................................................... (13,474) (10,790) (34,088) (33,479)
--------- --------- --------- ---------
Ending allowance for loan losses ................................... $ 207,038 $ 137,629 $ 207,038 $ 137,629
========= ========= ========= =========
Net loan charge-offs to average total loans receivable* ............ 1.19% 1.04% 1.06% 1.12%
* Annualized.
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2003 2002 2002
------------ ----------- ------------
(THOUSANDS OF DOLLARS)
Allocation of allowance for loan losses:
Commercial real estate loans .................................. $ 192,517 $ 147,228 $ 118,885
Residential real estate loans - portfolio ..................... 12,453 7,844 15,802
Syndicated commercial loans ................................... 2,067 6,118 2,950
Other ......................................................... 1 - (8)
------------ ----------- ------------
Total allowance for loan losses ............................. $ 207,038 $ 161,190 $ 137,629
============ =========== ============
Non-performing assets related to loans receivable were $133.2 million as
of September 30, 2003. This is 2.85% of the total loan portfolio and REO as of
September 30, 2003. This is compared to $88.6 million in total non-performing
assets as of September 30, 2002, which was 2.16% of the total loan portfolio and
REO as of that date. As of September 30, 2003, $118.3 million of the total
$133.2 million in non-performing assets were related to the commercial real
estate portfolio. The $118.3
28
million was comprised of sixteen non-accrual loans (the largest having a balance
of $25.7 million) and ten REO properties (the largest having a balance of $7.9
million). The level of non-performing assets fluctuates and individual
commercial real estate loans can have a material impact upon the total.
During the third quarter of 2003, there were eight commercial real estate
loans restructured as to their terms and included in accrual status at September
30, 2003. The total loan principal outstanding under these eight loans was $72.4
million at September 30, 2003 and the Company incurred $2.8 million in
charge-offs related to the restructuring of these loans during the third quarter
of 2003. During the third quarter of 2002, there were no loans, that were
restructured and included in accrual status.
The allowance for loan losses, as a percentage of total loans receivable,
excluding loans held for sale, increased to 4.46% as of September 30, 2003, as
compared to 3.35% at September 30, 2002. The increase in the allowance for loan
losses during the third quarter of 2003, as compared to the third quarter of
2002, is primarily due to an increased level of commercial real estate loan
non-performing assets as of September 30, 2003. Total net charge-offs in the
third quarter of 2003 totaled $13.5 million, as compared to $10.8 million for
the third quarter of 2002. The $13.5 million in net charge-offs for the third
quarter of 2003 was substantially all related to commercial real estate loans;
of the $10.8 million in net charge-offs for the third quarter of 2002, $5.8
million was related to commercial real estate loans and $5.0 million to
syndicated commercial loans. The increase in net charge-offs for commercial real
estate loans during 2003 is primarily a reflection of the effect of a contracted
economic environment.
29
The following table shows detail for the Company's residential real estate
loans held for sale as of the dates indicated (the Company does not retain any
second mortgages in its held for investment portfolio):
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2003 2002 2002
------------ ----------- ------------
(THOUSANDS OF DOLLARS, EXCEPT PERCENTS)
Residential real estate loans held for sale:
Loan principal outstanding:
First trust deeds ........................................... $ 2,921,869 $ 1,591,900 $ 1,158,186
Second trust deeds .......................................... 161,367 85,736 76,115
------------ ----------- ------------
3,083,236 1,677,636 1,234,301
Deferred origination costs ................................... 39,629 19,984 14,823
Valuation reserve ............................................ (29,077) (24,475) (19,552)
------------ ----------- ------------
Residential real estate loans held for sale - net .......... $ 3,093,788 $ 1,673,145 $ 1,229,572
============ =========== ============
Non-performing assets - residential real estate loans
held for sale ("HFS"):
Non-accrual ................................................ $ 5,957 $ 6,709 $ 5,312
REO ........................................................ 971 2,850 5,304
------------ ----------- ------------
Total non-performing assets - HFS ............................... $ 6,928 $ 9,559 $ 10,616
============ =========== ============
Non-performing assets - HFS to total HFS and HFS REO ............ 0.22% 0.57% 0.86%
Accruing loans HFS past due 90 days or more ..................... $ 113 $ - $ -
============ =========== ============
The increase in residential real estate loans held for sale is a result of
significantly increased loan origination volume. The following table details
residential real estate loan origination and sales for the respective periods
indicated (thousands of dollars):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Loan originations:
First mortgage ............................... $ 3,727,382 $ 1,635,574 $ 8,736,548 $ 4,367,813
Second mortgage .............................. 187,924 111,510 427,251 244,253
----------- ----------- ----------- -----------
$ 3,915,306 $ 1,747,084 $ 9,163,799 $ 4,612,066
=========== =========== =========== ===========
Loan sales (net of repurchases):
Whole loan ................................... $ 2,222,260 $ 1,648,827 $ 6,751,860 $ 3,818,046
Securitization ............................... 561,577 - 561,577 -
----------- ----------- ----------- -----------
$ 2,783,837 $ 1,648,827 $ 7,313,437 $ 3,818,046
=========== =========== =========== ===========
30
LIQUIDITY AND CAPITAL RESOURCES
FIL finances its lending activities primarily through Federal Deposit
Insurance Corporation ("FDIC") insured customer deposits, which totaled $5.9
billion at September 30, 2003. FIL is also eligible for financing through the
Federal Home Loan Bank of San Francisco ("FHLB"), which financing is available
based upon advance rates on certain pledged collateral and at various rates and
terms. At September 30, 2003, FIL had borrowing availability with the FHLB of
$1.94 billion, of which $1.70 billion was borrowed and outstanding. In addition,
FIL has a line of credit with the Federal Reserve Bank of San Francisco ("FRB")
with a borrowing availability of $380.2 million at September 30, 2003. There
were no amounts outstanding under the line of credit with the FRB at September
30, 2003.
FIL entered into a $500 million master loan and security agreement during
July of 2003 with Greenwich Capital Financial Products, Inc. ("Greenwich"). This
agreement, which expires in July 2004, provides secured financing solely for
FIL's residential real estate loans held for sale or securitization and contains
certain restrictive financial and other covenants, which require FIL to, among
other things, maintain certain capital and liquidity levels. As of September 30,
2003, FIL was in compliance with the financial and other covenants contained in
the agreement and there were no amounts outstanding under this facility. During
October of 2003, FIL entered into a $500 million master repurchase agreement
with Credit Suisse First Boston Mortgage Capital LLC ("CSFB"). This agreement,
which also provides secured financing solely for FIL's residential real estate
loans held for sale or securitization, expires in October 2004 and contains
certain restrictive financial and other covenants that are similar to the
Greenwich facility. These facilities are secured by these loans and the amounts
borrowed are determined by utilizing various advance rates and bear interest
based on a margin over the one-month LIBOR. An additional $500 million facility
providing similar financing is expected to be completed during the fourth
quarter of 2003 to further expand FIL's borrowing capacity.
The FDIC has established certain capital and liquidity standards for its
member institutions, and FIL was in compliance with these standards as of
September 30, 2003. The Company believes it has sufficient liquidity and capital
resources to fund its financial services operation for the foreseeable future.
31
As a holding company, Fremont pays its operating expenses, interest expense
and stockholders' dividends, and meets its other obligations primarily from its
cash on hand and intercompany tax payments from FIL. Dividends of $2.25 million
and $1.44 million were paid on Fremont's common stock in the quarters ending
September 30, 2003 and 2002, respectively; however, the Company can give no
assurance that future common stock dividends will be declared.
Fremont has available to it significant federal tax net operating loss
carryforwards, which may be utilized to reduce or eliminate future tax payments.
As a result, intercompany payments of federal tax obligations from FIL, which
would otherwise be payable to taxing authorities, are available for use by
Fremont for general working capital purposes, including the extinguishment of
debt. The Company currently pays various state taxes, primarily California
Franchise Taxes, as there are no significant state net operating loss
carryforwards available to it for offset. The Company has certain California
Franchise Tax issues pending resolution. The Company does not believe that the
ultimate outcome of these matters, which are expected to take several years to
resolve, will have a material effect on the Company's financial position or
liquidity.
Fremont has cash and short term investments of $104.5 million at September
30, 2003 and no debt maturities until March of 2004 and believes that, with its
other available sources of liquidity, it will have sufficient means to satisfy
its liquidity needs for the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk resulting primarily from fluctuations
in interest rates arising from balance sheet financial instruments such as
investments, loans and debt. Changes in interest rates will affect the Company's
net investment income, loan interest, net gain on the sale of residential real
estate loans, interest expense and total stockholders' equity. The level of net
gain on the sale of residential real estate loans is highly dependent upon the
level of loan origination volume and the net premium paid by the purchasers of
such loans. Both the volume and net premium, in turn, are highly dependent upon
changes in, and the level of, interest rates and other economic factors. The
Company may experience a decrease in the amount of net gain it realizes should
significant interest rate increases occur or if other economic factors have a
negative impact on the value and volume of the loans the Company originates. The
objective of the Company's asset and liability management activities is to
provide the highest level of net interest and investment income and to seek cost
effective sources of capital, while maintaining acceptable levels of interest
rate and liquidity risk.
32
As part of its residential real estate mortgage banking operations, the
Company enters into commitments to originate loans ("interest rate lock
commitments"), which represent commitments that have been extended by the
Company, generally for the period of 30 days, at a stated interest rate to its
potential borrowers. The Company determined that certain of its interest rate
lock commitments have met the definition of derivatives under SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities"; however, the
impact of the change in fair value of such derivative instruments is not
material to the Company's results of operations. Typically, the Company hedges
the risk of overall changes in the fair value for its loans held for sale
through entering into forward loan sale commitments.
Quantitative and qualitative disclosures about the Company's market risk
are included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002. There have been no material changes in such risks or in
the Company's asset and liability management activities during the nine months
ended September 30, 2003.
ITEM 4. CONTROLS AND PROCEDURES
As of September 30, 2003, the Company evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures. The
evaluation was performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"). Based on that evaluation, the Company's management,
including the CEO and CFO, concluded that the Company's disclosure controls and
procedures were effective as of September 30, 2003. There have been no changes
in the Company's internal controls over financial reporting that occurred in the
last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial reporting.
33
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
3.1 Restated Articles of Incorporation of Fremont General
Corporation. (Incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q, for the
period ended June 30, 1998, Commission File Number 1-8007.)
3.2 Certificate of Amendment of Articles of Incorporation of
Fremont General Corporation. (Incorporated by reference to
Exhibit 3.2 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1998, Commission File
Number 1-8007.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.1 Form of Stock Certificate for Common Stock of the
Registrant. (Incorporated by reference to Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 2000, Commission File Number 1-8007.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013
between the Registrant and Bankers Trust Company.
(Incorporated by reference to Exhibit 4.4 to the
Registrant's Registration Statement on Form S-3 filed on
October 1, 1993, Registration Number 33-68098.)
4.3 Indenture among the Registrant, the Trust and Bank of New
York (originated with First Interstate Bank of California),
a New York Banking Corporation, as trustee. (Incorporated by
reference to Exhibit 4.3 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.4 Amended and Restated Declaration of Trust among the
Registrant, the Regular Trustees, The Chase Manhattan Bank
(USA), a Delaware banking corporation, as Delaware trustee,
and The Chase Manhattan Bank, N.A., a national banking
association, as Institutional Trustee. (Incorporated by
reference to Exhibit 4.5 to the Registrant's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.5 Preferred Securities Guarantee Agreement between the
Registrant and The Chase Manhattan Bank, N.A., a national
banking association, as Preferred Guarantee Trustee.
(Incorporated by reference to Exhibit 4.6 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.6 Common Securities Guarantee Agreement by the Registrant.
(Incorporated by reference to Exhibit 4.7 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5).
(Incorporated by reference to Exhibit 4.8 to the
Registrant's Annual Report on Form 10-K, for the fiscal year
ended December 31, 1995, Commission File Number 1-8007.)
10.1* Fourth Amendment to Employment Agreement between the
Registrant and James A. McIntyre dated August 1, 2003.
10.2* Management Continuity Agreement between the Registrant and
Gwyneth E. Colburn dated August 7, 2003.
10.3* Management Continuity Agreement between the Registrant and
Alan Faigin dated August 7, 2003.
10.4* Management Continuity Agreement between the Registrant and
Marilyn I. Hauge dated August 7, 2003.
34
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------
10.5* Management Continuity Agreement between the Registrant and
Patrick E. Lamb dated August 7, 2003.
10.6* Management Continuity Agreement between the Registrant and
Kyle R. Walker dated August 7, 2003.
10.7* Management Continuity Agreement between the Registrant and
Murray L. Zoota dated August 7, 2003.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Management or compensatory plans or arrangements.
With respect to long-term debt instruments, the Registrant undertakes to provide
copies of such agreements upon request by the Commission.
(b) REPORTS ON FORM 8-K FILED DURING THE QUARTER ENDED SEPTEMBER 30,
2003:
On July 31, 2003, the Company filed a Current Report on Form 8-K, Item
12, furnishing Regulation FD Disclosure to report its results of
operations for the second quarter of 2003.
35
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 13, 2003 /s/ LOUIS J. RAMPINO
----------------------------------------
Louis J. Rampino, President,
Chief Operating Officer and Director
Date: November 13, 2003 /s/ PATRICK E. LAMB
----------------------------------------
Patrick E. Lamb, Senior Vice President,
Controller and Chief Accounting Officer
(Principal Accounting Officer)
36
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- ----- ------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 1998, Commission File
Number 1-8007.)
3.2 Certificate of Amendment of Articles of Incorporation of Fremont General
Corporation. (Incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1998, Commission File Number 1-8007.)
3.3 Amended and Restated By-Laws of Fremont General Corporation.
(Incorporated by reference to Exhibit 3.3 to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31, 1995,
Commission File Number 1-8007.)
4.1 Form of Stock Certificate for Common Stock of the Registrant.
(Incorporated by reference to Exhibit 4.1 to the Registrant's Annual
Report on Form 10-K, for the fiscal year ended December 31, 2000,
Commission File Number 1-8007.)
4.2 Indenture with respect to Liquid Yield Option Notes Due 2013 between the
Registrant and Bankers Trust Company. (Incorporated by reference to
Exhibit 4.4 to the Registrant's Registration Statement on Form S-3 filed
on October 1, 1993, Registration Number 33-68098.)
4.3 Indenture among the Registrant, the Trust and Bank of New York
(originated with First Interstate Bank of California), a New York Banking
Corporation, as trustee. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007.)
4.4 Amended and Restated Declaration of Trust among the Registrant, the
Regular Trustees, The Chase Manhattan Bank (USA), a Delaware banking
corporation, as Delaware trustee, and The Chase Manhattan Bank, N.A., a
national banking association, as Institutional Trustee. (Incorporated by
reference to Exhibit 4.5 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File Number
1-8007.)
4.5 Preferred Securities Guarantee Agreement between the Registrant and The
Chase Manhattan Bank, N.A., a national banking association, as Preferred
Guarantee Trustee. (Incorporated by reference to Exhibit 4.6 to the
Registrant's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, Commission File Number 1-8007.)
4.6 Common Securities Guarantee Agreement by the Registrant. (Incorporated by
reference to Exhibit 4.7 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File Number
1-8007.)
4.7 Form of Preferred Securities. (Included in Exhibit 4.5). (Incorporated by
reference to Exhibit 4.8 to the Registrant's Annual Report on Form 10-K,
for the fiscal year ended December 31, 1995, Commission File Number
1-8007.)
10.1* Fourth Amendment to Employment Agreement between the Registrant and James
A. McIntyre dated August 1, 2003.
10.2* Management Continuity Agreement between the Registrant and Gwyneth E.
Colburn dated August 7, 2003.
10.3* Management Continuity Agreement between the Registrant and Alan Faigin
dated August 7, 2003.
10.4* Management Continuity Agreement between the Registrant and Marilyn I.
Hauge dated August 7, 2003.
10.5* Management Continuity Agreement between the Registrant and Patrick E.
Lamb dated August 7, 2003.
10.6* Management Continuity Agreement between the Registrant and Kyle R. Walker
dated August 7, 2003.
10.7* Management Continuity Agreement between the Registrant and Murray L.
Zoota dated August 7, 2003.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Management or compensatory plans or arrangements.
With respect to long-term debt instruments, the Registrant undertakes to provide
copies of such agreements upon request by the Commission.