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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

þ      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

For the Fiscal Year Ended December 31, 2002

Commission File Number 1-8007

Fremont General Corporation

Registrant’s Telephone Number, including Area Code:

Securities Registered Pursuant to Section 12(b) of the Act:

Common Stock, $1.00 par value

New York Stock Exchange

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed 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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter, June 28, 2002:

Common Stock, $1.00 Par Value — $197,241,000

      The number of shares outstanding of each of the issuer’s classes of common stock as of February 28, 2003:

Common Stock, $1.00 Par Value — 75,734,000 Shares

DOCUMENTS INCORPORATED BY REFERENCE:

      Portions of the proxy statement for the 2003 annual meeting of stockholders are incorporated by reference into Part III of this report.

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FREMONT GENERAL CORPORATION

ANNUAL REPORT ON FORM 10-K

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PART I

      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 currently reported results 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 or currently reported 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:

	•	the variability of general and specific economic conditions and trends;
	•	changes in, and the level of, interest rates;
	•	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;
	•	changes in the Company’s ability to originate loans, and any changes in the cost and volume of loans originated as a result;
	•	the ability to access the necessary capital resources in a cost-effective manner to fund loan originations and the condition of the whole loan sale and securitization markets;
	•	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;
	•	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;
	•	the ability of the Company’s industrial bank to generate sufficient capital to enable it to grow and to meet minimum regulatory capital requirements, and the impact of any changes in regulatory capital requirements;
	•	changes in the fair values of the Company’s assets and loans, including the value of the underlying real estate collateral;
	•	the impact of changes in the commercial and residential real estate markets, particularly in California;
	•	adverse development of, and the variability in determining, the allowance for loan losses;
	•	the ability to collect and realize the amounts outstanding, and the timing thereof, of loans and foreclosed real estate;
	•	the occurrence of catastrophic events;
	•	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;
	•	the ability of the Company to maintain cash flow sufficient for it to meet its debt service and other obligations;
	•	the consequences and cost of adverse state and federal legislation and regulations;

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	•	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;
	•	the ability of the Company to utilize the net operating loss carryforwards currently held;
	•	the impact of litigation, adverse court decisions and changes in the judicial climate;
	•	the ability of the Company to meet its contribution and other obligations as set forth in its July 2002 agreement with the California Department of Insurance regarding its discontinued insurance operations and the impact of any changes in the process of running-off the discontinued insurance operations or in enforcing its rights under the agreement; and
	•	other events, risks and uncertainties discussed elsewhere in this Form 10-K 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”) and its subsidiaries (combined “the Company”) is a financial services holding company. Fremont’s financial services’ business is consolidated within Fremont General Credit Corporation (“FGCC”), which is engaged in commercial and residential (consumer) real estate lending nationwide through its California-chartered industrial bank subsidiary, Fremont Investment & Loan (“FIL”). Fremont’s operating strategy is to continue to grow its financial services business nationwide by focusing its resources on the development and expansion of profitable lending products and strong distribution channels, as well as on controlling expenses. Certain corporate revenues and expenses, comprised primarily of investment income, interest expense and certain general and administrative expenses, are not allocated by Fremont to FGCC or to the discontinued insurance operations.

      Fremont, having experienced significant losses in recent years, decided in the fourth quarter of 2001 to discontinue its property and casualty insurance operation, which was primarily represented by the underwriting of workers’ compensation insurance policies. As a result, since the fourth quarter of 2001, the property and casualty insurance operation has been accounted for as a discontinued operation using the liquidation basis of accounting. In July 2002, Fremont executed a definitive agreement with the California Department of Insurance (“DOI”) that would allow the Company’s discontinued workers’ compensation insurance subsidiary, with the oversight of the DOI, to self-administer the run-off of policies currently in force by paying claims and operating expenses in the ordinary course of business and also preserve Fremont’s net operating loss carryforwards attributable to its discontinued workers’ compensation insurance subsidiary. The agreement also obligates Fremont to make certain additional capital contributions to its discontinued workers’ compensation insurance subsidiary. The Company, based upon the results of its year-end 2002 actuarial evaluations (which reflected adverse loss development), determined that the financial position of its discontinued insurance operations had experienced further deterioration. As a result, Fremont no longer expects that it will recover any of its investment in, or any of its potential future capital contributions to, its discontinued insurance operations and, as a result, incurred a charge for its discontinued insurance operations during the fourth quarter of 2002. Further, as a result of the restrictions in the July 2002 agreement with the DOI, the additional adverse loss development, and other actions taken by the DOI during the fourth quarter of 2002, including placing further restrictions on the discontinued insurance operation’s ability to direct the activities of the run-off of the discontinued insurance operations, the Company no longer has effective control of these operations and its activities are done at the consent and under the direction of the DOI. Accordingly, at December 31, 2002, the assets and liabilities of the discontinued insurance operations have been removed from the consolidated balance sheet of Fremont.

      The reported consolidated assets and stockholders’ equity of the Company as of December 31, 2002 were $6.67 billion and $399.0 million, respectively. The Company reported income before taxes from continuing operations of $173.7 million and net income from continuing operations of $102.2 million for the year ended December 31, 2002. Additionally, the Company recognized an after-tax charge of $77.8 million for the write-off of its investment in, and a loss accrual for certain future contributions to, its discontinued insurance

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      Fremont, a Nevada corporation, was incorporated in 1972. Its corporate office is located at 2020 Santa Monica Boulevard, Suite 600, Santa Monica, California 90404 and its phone number is (310) 315-5500. Fremont’s common stock is traded on the New York Stock Exchange under the symbol “FMT”. At December 31, 2002, the Company had approximately 1,300 employees, none of whom is represented by a collective bargaining agreement. The Company believes its relations with its employees are satisfactory. As of December 31, 2002, officers and directors of the Company, their families and the Company’s benefit plans beneficially owned approximately 36% of Fremont’s outstanding common stock.

Financial Services Operation

      Fremont’s financial services primary operation is the origination of commercial and sub-prime residential real estate loans on a nationwide basis. Fremont’s lending is done primarily on a senior and secured basis and it seeks to minimize credit exposure through loan underwriting that is focused upon appropriate loan to collateral valuations and cash flow coverages. Loans are originated through independent loan brokers, the Company’s own marketing representatives and referrals from various financial intermediaries and financial institutions. The financial services operation is primarily funded through deposit accounts that are insured by the Federal Deposit Insurance Corporation (“FDIC”).

      The outstanding loan portfolio of Fremont’s financial services operation has grown from $3.12 billion at December 31, 1999 to $4.14 billion at December 31, 2002. In addition, there were residential real estate loans held for sale of $1.67 billion at December 31, 2002. Fremont’s financial services operation earned $234.4 million, $138.5 million and $102.2 million in income before taxes for the years ended December 31, 2002, 2001 and 2000, respectively, on revenues (interest income and non-interest income) of $596.7 million, $482.9 million and $421.0 million for the same respective periods.

      The Company’s financial services loan portfolio, as well as the amounts of loans held for sale (which are all residential real estate loans), as of the dates indicated, are summarized in the following table by loan type.

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      The commercial real estate lending operation, as of December 31, 2002, consists of 621 loans in its loan portfolio. The Company originates commercial real estate loans nationwide through its nine regional production offices. Loan origination is primarily through independent loan brokers and, to a lesser degree, directly through its own marketing representatives. The products and capabilities of the commercial real estate lending operation are marketed through the use of trade advertising, direct marketing, newsletters and trade show attendance and sponsorship. The emphasis is on service oriented delivery highlighted by responsiveness and reliability. Loan structures are tailored to meet the needs and risk profiles of individual transactions. The commercial real estate lending philosophy is collateral focused with emphasis on selecting properties that generate stable or increasing income cash flow streams, have strong asset quality and proven sponsorship with defined business plans. Loan structures, particularly in the case of bridge loans, include hold backs for such items as funding of all renovation costs, tenant improvements, leasing commissions and interest carry until property stabilization. For some of the loans in the portfolio, the Company has received guarantees of project completion and debt service from the sponsoring entity. The commercial real estate loans originated are generally held for the Company’s own portfolio. Commercial real estate loans are reported net of participations to other financial institutions or investors in the amount of $93.2 million and $118.0 million as of December 31, 2002 and 2001, respectively. During 2002 and 2001, $22.2 million and $11.9 million of commercial real estate loans were sold through participation, respectively. Commercial real estate loan origination and funding advances volume decreased slightly to $1.78 billion in 2002 from $1.80 billion in 2001. The commercial real estate loan portfolio grew to $3.73 billion at December 31, 2002 from $3.55 billion at December 31, 2001.

      The commercial real estate loan portfolio is primarily secured by first mortgages on properties in California (47.6%) and, to a lesser degree, New York (6.8%), District of Columbia (6.7%), and Texas (6.2%). Loans were originated in 19 different states during 2002. The real estate securing these loans includes a wide variety of property types including office, retail, lodging, industrial, multi-family and mixed-use properties. The loans in the portfolio were distributed by property type as follows as of the dates indicated:

      Loans include short-term bridge facilities for the renovation and lease-up of existing properties, as well as permanent loans which generally have terms for up to five years. Loans also include construction loans, which are loans for the construction of new structures, and also for additions or alterations to existing structures that prohibit occupancy or generation of rental revenue of the property during the construction period. Loans also include longer term single tenant credit loans, however, origination of these loans substantially ceased during the first quarter of 2000. Bridge loans generally are interest-only for up to two year terms. Principal amortization for permanent loans is generally up to 25 years. Approximately 46% of the commercial real estate loan balances outstanding are bridge loans, 37% are permanent loans, 9% are construction loans and 8% are single tenant credit loans. The majority of the commercial real estate loans originated are adjustable interest rate loans based upon six-month LIBOR and an applicable margin, and generally range in loan size between

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      The commercial real estate loan portfolio contains two individual loans with outstanding balances in excess of $35 million as of December 31, 2002, the largest having an outstanding balance of $48.5 million. The largest commitment to an individual borrower as of December 31, 2002 was $56.5 million; this represents the maximum loan amount to the borrower. As of December 31, 2002, the portfolio had no concentrations by common investor or sponsor base that were in excess of $75 million in loan principal outstanding. The largest concentration is from two affiliated investment funds (affiliated by common advisor) and totals $71.7 million, comprised of three separate loans. Two of these loans, with a combined balance outstanding of $67.2 million and a combined total commitment of $76.0 million, are cross-collateralized and cross-defaulted. While the loans may have a common investor or sponsor base, each is made to a separate single asset ownership entity, which is collateralized by individual real estate projects. All three of the loans under this concentration were performing as of December 31, 2002.

      As of December 31, 2002, the average loan size was $6.0 million and the average loan-to-value ratio was 73.4%, using the most current available appraised values and current loan balances outstanding. At December 31, 2002, 16 commercial real estate loans were classified as non-accrual, totaling $70.0 million, and there were four commercial real estate properties owned, totaling $10.6 million, which were acquired through foreclosure on loans. At December 31, 2002, there were no commercial real estate loans that were 90 days or greater past due, but on accrual status; these would include any loans that are contractually past maturity, but continue to make interest payments.

      Substantially all of the residential real estate loans are secured by first deeds of trust. These loans generally have principal amounts below $500,000, have maturities generally of thirty years and are underwritten in accordance with lending policies that include standards covering, among other things, collateral value, loan to value and the customer’s debt ratio and credit score. These loans generally are “hybrid” loans which have a fixed rate of interest for an initial period after origination, typically two to three years, after which the interest rate will be adjusted to a rate equal to the sum of six-month LIBOR and a margin as set forth in the mortgage note. This interest rate will then be adjusted at each six-month interval thereafter, subject to various lifetime and periodic rate caps and floors. Our residential loans are generally made to borrowers who do not satisfy the credit, documentation or other underwriting standards prescribed by conventional mortgage lenders and loan buyers, such as Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) and are commonly known as “sub-prime”. Our borrowers generally have considerable equity in the properties securing their loans, but have impaired or limited credit profiles or higher debt-to-income ratios than traditional mortgage lenders allow. Our borrowers also include individuals who, due to self-employment or other circumstances, have difficulty verifying their income through conventional means. To mitigate the higher potential for credit losses that accompanies these types of borrowers, the Company attempts to maintain underwriting standards that require more appropriate loan to collateral valuations. (See “Risk Factors.”) Residential real estate loans, secured by

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      The Company’s residential real estate portfolio and loans held for sale, as of December 31, 2002 was comprised of approximately 10,900 loans. Residential real estate loans are originated nationwide through four regional production offices. Origination is done on a wholesale basis through independent loan brokers and through internal marketing representatives. The real estate securing these loans and the residential loans held for sale, are substantially all single family residences located in California (45.0%), and to a lesser degree Florida (9.8%), Ohio (7.8%), Illinois (4.9%) and New Mexico (4.4%). The residential real estate loan portfolio, excluding loans held for sale, was $392.1 million at December 31, 2002, up from $195.6 million at December 31, 2001. This increase in loans outstanding is due to the Company’s emphasis on retaining additional residential loans on a portfolio basis during 2002.

      Origination volume increased approximately 108% to $6.94 billion in 2002 from $3.33 billion in 2001. Loans were originated in 45 different states during 2002, with the largest volume being originated in California (43.8%), Florida (9.8%) and New York (6.8%). The growth in loan originations during 2002 was the result of further penetration of existing markets and the overall growth in the national sub-prime lending market, which was positively impacted by a lower-interest rate environment.

      At December 31, 2002, the average single-family loan principal amount outstanding was approximately $154,000, and the average loan-to-value ratio for loans in the portfolio and held for sale was 76.9%, using appraised values at the time of loan origination and current balances outstanding. Approximately 90% of the loans in the portfolio and held for sale at December 31, 2002 were originated during 2002. At December 31, 2002, the Company had $12.3 million in residential real estate loans classified as non-accrual. Of the $12.3 million, $5.6 million were loans held in the portfolio and $6.7 million were loans classified as held for sale.

      The residential real estate loan disposition strategy is primarily dependent upon market conditions and pricing, and may include whole loan sales, retaining loans in its portfolio, or securitization. During 2002, $5.69 billion in residential real estate loans were sold in whole loan sales to other financial institutions. During 2002, whole loan sales to the largest two separate financial institutions represented approximately 60% of the $5.69 billion in total whole loan sales, as compared to 92% of $2.82 billion in total whole loan sales during 2001. For 2002, one institution represented approximately 38% of the volume and the other approximately 22%. (See “Risk Factors.”)

      In a whole loan sale for cash, the Company enters into an agreement to sell the loans for cash, without recourse, generally on a servicing released basis. After the sale, the Company retains no interest in the underlying loans. As part of the sale process, the Company gives customary representations and warranties regarding the characteristics and the origination process of the loans, as well as generally committing to repurchase certain loans if a payment default occurs within the first two months following the date the loan is sold.

      While the Company has primarily utilized whole loan sales as its loan disposition strategy, it may also utilize securitizations in which 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 balance sheet. During 1999, the Company entered into three securitization transactions in which it retained a residual interest in each of the securitizations, which represents the right to receive certain net future cash flows from the loans. Most of the residual interests, however, are generally restricted until senior investors and other expenses have been paid or are otherwise subordinate to investors’ interests. The Company, should it utilize securitizations in the future, would attempt to minimize the amount of residual interests that it would retain by structuring the transactions so that they included net interest margin securities (or NIMs). The usage of NIMs concurrent with or shortly after a securitization would allow the Company to receive a

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      The Company has interests in large syndicated commercial loans which are originated and serviced by other financial institutions. These loans are senior obligations of the borrowers and are secured by substantially all of the assets of the borrower and, if applicable, its subsidiaries. These loans are variable interest rate loans with rates based upon various LIBOR time periods and applicable margins. The loans are primarily in fixed-term loans, typically with maturities of approximately seven years and with the substantial portion of the loan principal amortization coming in the year of maturity. The syndicated commercial loan portfolio was $26.2 million at December 31, 2002, as compared to $113.5 million at December 31, 2001. As of December 31, 2002, the syndicated commercial loan portfolio was comprised of eight loans, of which four were classified as non-accrual with a total balance of $11.2 million. The Company ceased investing in syndicated commercial loans during 2001 due to market conditions and expects to continue the liquidation of this portfolio.

      The commercial and residential real estate lending and syndicated commercial loan activities are financed primarily through deposit accounts offered by FIL and which are insured by the FDIC (See “Industrial Bank Regulation”). FIL offers certificates of deposit and savings and money market deposit accounts (insured by the FDIC to the legal maximum) through its 17 branches in California. FIL typically offers higher interest rates to its depositors than do most full service financial institutions. At the same time, it has minimized the costs associated with its accounts by not offering traditional checking, safe deposit boxes, ATM access and other traditional retail services. Deposits totaled $4.55 billion at December 31, 2002 and are summarized as to type as follows (thousands of dollars):

      Additional financing is available to FIL from the Federal Home Loan Bank of San Francisco (“FHLB”). The financing by the FHLB is available at varying rates and terms. As of December 31, 2002, $1.38 billion was available from the FHLB, with $1.18 billion outstanding. The borrowing capacity of FIL from the FHLB varies from time to time and is dependent upon the amount and timing of loans pledged. As of February 28, 2003, the total amount available from the FHLB was $1.61 billion with $740.0 million outstanding. FIL increased the usage of its FHLB financing during 2002 to obtain favorable funding costs. FIL also has a line of credit with the Federal Reserve Bank of San Francisco, and at December 31, 2002 had a borrowing capacity of $179.4 million, with no amounts outstanding.

      The financial services business competes in markets that are highly competitive and are characterized by factors that vary based upon product and geographic region. The markets in which it 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, mortgage, insurance, and finance companies, many of which are larger and have greater financial resources. The competitive forces of these markets could adversely affect net interest income, loan origination volume, net loan losses or operating expenses.

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Discontinued Insurance Operations

      The Company’s discontinued insurance operations consist primarily of its property and casualty insurance segment, which was engaged in the underwriting of workers’ compensation insurance business. This business was classified as discontinued in 2001. Discontinued insurance operations also include the Company’s assumed treaty and facultative reinsurance business and its life insurance business. The Company, based upon the results of its year-end 2002 actuarial evaluations (which reflected adverse loss development), determined that the financial position of its discontinued insurance operations had experienced further deterioration. As a result, the Company no longer expects that it will recover any of its investment in, or any of its potential future capital contributions to, its discontinued insurance operations and, as a result, incurred a charge for its discontinued insurance operations during the fourth quarter of 2002. Further, as a result of the restrictions in the July 2002 agreement with the DOI, the additional adverse loss development, and other actions taken by the DOI during the fourth quarter of 2002, including placing further restrictions on the discontinued insurance operation’s ability to direct the activities of the run-off of the discontinued insurance operations, the Company no longer has effective control of these operations and its activities are done at the consent and under the direction of the DOI. Accordingly, the assets and liabilities of the discontinued insurance operations as of December 31, 2002 have been removed from the consolidated balance sheet of Fremont. No support is provided, nor do any obligations exist to do so, by FIL to the discontinued insurance operations. (See Note N of Notes to Consolidated Financial Statements)

      The assumed treaty and facultative reinsurance business was discontinued between 1986 and 1991. The liabilities associated with this business are long term in duration and, therefore, this business continues to be subject to claims being reported. Claims under these reinsurance treaties include professional liability, product liability and general liability that include asbestos and environmental claims. At the direction of the DOI in the fourth quarter of 2002, the assumed treaty and facultative reinsurance subsidiary was merged into the workers’ compensation insurance subsidiary, effective March 2003.

      Prior to January 1, 1996, Fremont offered life insurance products, including annuities, credit life and disability insurance and term life insurance for consumers, through a subsidiary. Effective December 31, 1995 and January 1, 1996, this subsidiary entered into reinsurance and assumption agreements with a reinsurer whereby assets and liabilities related to certain life insurance and annuity policies were ceded to the reinsurer. These reinsurance agreements are part of several other agreements that have collectively resulted in the discontinuation of the life insurance operation.

Industrial Bank Regulation

      FIL is subject to supervision and regulation by the Department of Financial Institutions of the State of California (“DFI”) and, as an insured depository institution, by the FDIC. Fremont is generally not directly regulated or supervised by the DFI, the FDIC, or any other bank regulatory authority, except with respect to guidelines concerning its relationship with its industrial bank subsidiary. FIL is examined on a regular basis by both agencies. At December 31, 2002, FIL was in compliance with the regulatory requirements of these agencies.

      Federal and state regulations prescribe certain minimum capital requirements and FIL is in compliance with such requirements. Federal and state regulatory authorities also have the power to prohibit or limit the payment of dividends by industrial banks. (See “Risk Factors.”)

      California Law. The industrial banking business conducted by FIL is governed by the California Revised Banking Law (“Revised Banking Law”), which became effective September 30, 2000, and the rules and regulations of the Commissioner of the DFI.

      All statutory and regulatory references to banks or commercial banks apply equally to industrial banks. An industrial bank may offer all loan and credit programs and deposit accounts that commercial banks may offer, with the significant exception that industrial banks are not authorized to offer demand deposit accounts. While FIL may not offer demand deposit accounts, it may offer negotiable orders of withdrawal accounts and money market deposit accounts.

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      Under the Revised Banking Law, maximum, unsecured loans to one borrower is limited to 15% of shareholders’ equity, allowance for loan losses, and capital notes and debentures of an industrial bank. Maximum secured and unsecured loans to one borrower is limited to 25% of shareholders’ equity, allowance for loan losses, and capital notes and debentures of an industrial bank.

      Prior approval must be obtained from the DFI before a person or entity acquires control of an industrial bank or its controlling person, i.e., the bank’s holding company. Control is defined as direct or indirect ownership or power to vote 25% of the voting stock issued by a person or to direct management or its policies. There is a presumption, however, as there is under the Federal Deposit Insurance Act, that ownership or power of over 10% or more of the voting stock is presumed to constitute control. (See “Federal Law”) In addition to filing with the FDIC, a separate letter filing must be made with the DFI for approval or to rebut the presumption.

      Under the Revised Banking Law, the DFI may take possession of an industrial bank if, among other things, the tangible shareholders’ equity is less than the greater of 3% of an industrial bank’s total assets, or $1 million. Violations of a bank’s articles of incorporation or any California law, unsafe or unauthorized conduct of business, or unsafe or unsound conditions are also grounds for taking possession and for liquidation of an industrial bank.

      Federal Law. FIL’s deposits are insured by the FDIC to the full extent permitted by law. As an insurer of deposits, the FDIC issues regulations, conducts examinations, requires the filing of reports and generally supervises the operations of institutions to which it provides deposit insurance. The approval of the FDIC is required prior to any merger, consolidation or change in control or the establishment or relocation of any branch office of FIL. This supervision and regulation is intended primarily for the protection of the Bank Insurance Fund maintained and administered by the FDIC. Prior written notice to the FDIC is required to close a branch office. FDIC approval, however, is not required to open, relocate, or close a loan production office.

      FIL is subject to federal risk-based capital adequacy guidelines which provide a measure of capital adequacy and are intended to reflect the degree of risk associated with both on- and off-balance sheet items. Under the capital guidelines, the nominal dollar amounts of assets and the balance sheet equivalent amounts of off-balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as commercial loans. A financial institution’s risk-based capital ratio is calculated by dividing its qualifying capital by its risk-weighted assets. Financial institutions are generally expected to meet a minimum ratio of qualifying total capital to risk-weighted assets of 8%, of which at least 4% of qualifying total capital must be in the form of core capital (“Tier 1”) — common stock, noncumulative perpetual preferred stock, minority interests in equity capital accounts of consolidated subsidiaries and allowed mortgage servicing rights, less all intangible assets other than allowed mortgage servicing rights and eligible purchased credit card relationships. Supplementary capital (“Tier 2”) consists of the allowance for loan and lease losses up to 1.25% of risk-weighted assets, cumulative perpetual preferred stock, long-term preferred stock (original maturity of at least 20 years), hybrid capital instruments, term subordinated debt and intermediate term preferred stock (original average maturity of five years or more). The maximum amount of Tier 2 capital which may be recognized for risk-based capital purposes is limited to 100% of Tier 1 capital (after any deductions for disallowed intangibles and certain deferred tax assets). The aggregate amount of term subordinated debt and intermediate term preferred stock that may be treated as Tier 2 capital is limited to 50% of Tier 1 capital. Certain other limitations and restrictions also apply. As of December 31, 2002, FIL’s allowance for loan losses for Tier 2 capital was $62.3 million. At December 31, 2001, the Tier 2 capital of FIL consisted of

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      The FDIC has adopted a minimum leverage ratio which is intended to supplement risk-based capital requirements and to ensure that all financial institutions continue to maintain a minimum level of core capital. The minimum leverage capital requirement for an FDIC-insured, state non-member bank, such as FIL, shall consist of a ratio of Tier 1 capital to average total assets of not less than 3%. This minimum only applies to the most highly-rated banks that are not anticipating or experiencing any significant growth. All other FDIC-insured, state non-member banks would need to meet a minimum leverage capital ratio at least 1% to 2% above this minimum. It is improbable, however, that an institution with a 3% core capital-to-total assets ratio would be highly-rated since a strong capital position is so closely tied to the rating system. Therefore, the “minimum” leverage ratio is, for all practical purposes, significantly above 3%. The following table presents FIL’s leverage ratio (the ratio of Tier 1 capital to the quarterly average total assets) at the dates indicated:

      FIL is classified as a “well-capitalized” institution at December 31, 2002 under the regulations promulgated under the Federal Deposit Insurance Corporation Improvement Act of 1991. A “well-capitalized” institution has a total risk-based capital ratio of at least 10%, has a Tier 1 risk-based capital ratio of at least 6%, has a Tier 1 leverage ratio of at least 5%, and is not subject to any written agreement, capital directive or prompt corrective action directive issued by the FDIC under Section 8 or Section 38 of the Federal Deposit Insurance Act to meet and maintain a specific capital level for any capital measure. The total risk-based capital ratio is the ratio of qualifying total capital (Tier 1 and Tier 2) to risk-weighted assets and the Tier 1 risk-based capital ratio is the ratio of Tier 1 capital to risk-weighted assets.

      FIL’s annual FDIC insurance premiums currently are 4.62 cents per $100 of eligible domestic deposits. The insurance premium payable is subject to semi-annual adjustment. The FDIC has the authority to assess to all insured institutions collectively, additional premiums to cover losses and expenses associated with insuring deposits maintained at financial institutions and for other purposes it deems necessary. Currently the

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      Limitations on Dividends. FIL follows the limitations under the Revised Banking Law and its authorization to pay dividends is subject to provisions applicable to commercial banks, which is limited to the lesser of retained earnings or an industrial bank’s net income for its last three fiscal years, less the amount of any distributions made by an industrial bank or by any majority owned subsidiary of it to any of its shareholders during such period.

      In policy statements, the FDIC has advised insured institutions that the payment of cash dividends in excess of current earnings from operations is inappropriate and may be cause for supervisory action. Under the Financial Institutions Supervisory Act and the Financial Institutions Reform, Recovery and Enforcement Act of 1989, federal regulators also have authority to prohibit financial institutions from engaging in business practices which are considered to be unsafe or unsound. It is possible that, depending upon the financial condition of an industrial bank and other factors, such regulators could assert that the payment of dividends in some circumstances might constitute unsafe or unsound practices and could prohibit or limit the payment of dividends.

      Other Regulation. FIL is also subject to federal consumer protection laws, including the Truth In Savings Act, the Truth in Lending Act, the Community Reinvestment Act, the Real Estate Settlement Procedures Act, and the Gramm-Leach-Bliley Act with regard to privacy of consumer financial information.

      Real Estate Lending Practices. In addition to the federal Truth In Lending laws governing disclosure requirements and limitations upon residential mortgages and loans secured by a consumer’s principal dwelling, California and other states have enacted statutes which set certain restrictions on such loans, such as, limits on annual percentage interest rate thresholds, limitations on prepayment penalties, capacity to repay, prohibition against sale of certain insurance, and specific disclosures. The states’ laws are intended to curb and eliminate abusive lending practices. Several California municipalities have such laws under consideration. It is not expected that such enactments will have any material effect upon the residential real estate lending business of FIL.

Risk Factors

      The Company’s profitability can be affected significantly by many factors including competition, the valuation of its loans and other assets, access to capital, funding sources, and secondary markets, the severity of loan losses, 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, results may be affected by the ability to contain expenses and to implement appropriate technological changes. The Company’s results would also be adversely impacted if the net operating loss carryforwards were not able to be utilized, either partially or entirely, or if the timing of their utilization became uncertain. Any of these factors could contribute to significant variation in the Company’s results of operations from quarter to quarter and from year to year.

      During periods when economic conditions are unfavorable, the financial services business may not be able to originate new loan products or maintain the credit quality of its finance receivables, both in its portfolio and for those loans that have been securitized, at previously attained levels. 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 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 loans (both in the portfolio and held for sale) and their related collateral, both of which could adversely affect the results of operations and financial condition. Additionally, material deterioration in the performance of the residential real estate loans that have been sold by the Company in either whole loan sales or securitizations could adversely impact the pricing and structure of such future transactions. During 2002, the Company sold approximately 60% of their whole loan sales to two financial institutions and could be adversely

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      The residential mortgage industry, in particular, is a cyclical business that generally performs better in a low interest rate environment such as the current one. The environment of historically low interest rates over the past two years has been very favorable for the Company’s origination volumes. As the industry transitions to a higher interest rate environment, the demand for residential real estate loans is expected to decrease to some degree, which could result in lower origination volumes and net gains on residential real estate loans sold. In addition, other external factors, including tax laws, the strength of various segments of the economy and demographics of our lending markets, could influence the level of demand for residential real estate loans. Gain on the sale of loans is a large component of the Company’s earnings and would be adversely impacted by a significant decrease in residential real estate loan origination volume.

      The financial services business maintains an allowance for loan losses on its portfolio of finance receivables in amounts that the Company believes is sufficient to provide adequate protection against potential losses. The finance receivables originated, both for portfolio, sale and securitization, are generally non-conventional and non-investment grade loans. To mitigate for the somewhat higher potential risk of the lending that is primarily engaged in and for the impact that adverse economic developments could have on the finance receivables, the Company lends primarily on a senior and secured basis. The Company also attempts to carefully evaluate the underlying collateral that secures these loans and to maintain underwriting standards that are designed to effect appropriate loan to collateral valuations and cash flow coverages. Although the Company believes that its level of allowance is sufficient to cover potential credit losses, the allowance 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 also originates a substantial number of larger loans, and even one problem loan could cause a sharp increase in the level of non-performing loans. A group of several large problem loans could cause the levels of non-performing loans and net-charge offs to significantly exceed historical levels previously experienced by the Company.

      The financial services business competes in markets that are highly competitive and are characterized by factors that vary based upon loan product and geographic region. The markets in which the Company competes are typically characterized by a large number of competitors who compete for loans based primarily upon price, terms and loan structure. FIL also competes for deposits to fund its operations. Competition is highly price-sensitive and competitive forces could affect FIL’s ability to source adequately priced deposits. The Company primarily competes with banks and mortgage and finance companies, many of which are larger and have greater financial resources. The competitive forces of these markets could adversely affect net finance income, net gains on loan sales, loan origination volume or net credit losses.

      While the Company attempts to diversify its loan origination by geographic region, the geographic concentration of commercial and residential real estate loans remains in California. At December 31, 2002, approximately half of the commercial and residential real estate loans in the portfolio 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 operating results and financial condition than if a higher percentage of loans were collateralized by properties located outside California.

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      FIL is subject to supervision and regulation by the DFI and the FDIC. Federal and state regulations prescribe certain minimum capital requirements and, while FIL is currently in compliance with such requirements, in the future, additional capital contributions to FIL, or other actions, may be necessary in order to maintain compliance with such requirements. Future changes in government regulation and policy could adversely affect the banking industry. 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 and sourcing deposits.

      Our sub-prime residential real estate lending business is subject to extensive laws, regulations and ordinances that establish enhanced protections and remedies for borrowers who receive such loans. Certain jurisdictions are examining the passage of further laws and rules, some of which extend beyond curbing predatory lending practices to restricting commonly accepted lending activities. While the federal government is examining rules for achieving a national standard that would create consistency among various jurisdictions, further implementation of restrictive regulatory developments could reduce our loan origination volume and could restrict, potentially significantly, the secondary market (both whole loan sales and securitization) for sub-prime residential real estate loans. Such a reduction in origination volume or a restriction in market conditions could have a material adverse impact upon the Company’s future business prospects.

      The DOI may institute various regulatory actions, effecting our discontinued insurance operations, including conservation. Should the Company’s workers’ compensation insurance subsidiaries come under regulatory conservation, or similar arrangement, this could possibly be deemed a technical event of default under the Company’s senior notes (the “Senior Notes”) outstanding. If an event of default were determined to have occurred and became effective under the Senior Notes, the outstanding principal may become due and payable. While the Company believes it to be unlikely that this would occur, if it did occur, it could have an adverse impact upon the Company.

      The Company’s principal financing needs for its operations are to fund the origination of commercial and residential real estate loans and to provide liquidity as needed for ongoing operations and obligations. The primary sources of funds to meet these needs currently include deposits, whole loan sales, advances from the FHLB and capital. The Company’s ability to attract and maintain deposits, to access the secondary markets to transact whole loan sales or securitizations of residential real estate loans, to access FHLB advances, to potentially obtain other sources of financing and to generate capital are critical to the ongoing operations of the Company. Market conditions, regulatory status and the financial condition of the Company, in particular FIL, are the primary factors governing our ability to maintain liquidity and to increase capital. Adverse developments in any of these factors could have a negative impact upon the Company.

Available Information: Website Access to Periodic Reports

      Fremont’s internet website is currently under development. The Securities and Exchange Commission (“SEC”) maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically. Copies of Fremont’s Form 10-K, Form 10-Q and other EDGAR filings can be obtained directly from the SEC at http://www.sec.gov/edgar/searchedgar/companysearch.html using Fremont’s CIK 0000038984.

      Shareholders may request a free copy of our annual and quarterly reports, Form 10-K, Form 10-Q, press releases and earnings releases by calling the investor relations request line at 310/264-7442, by e-mail at [email protected] or by fax at 310/315-5593.

      The Company leases substantially all of its office facilities in various cities for its corporate and subsidiary operations. The Company considers these facilities to be adequate for its operating needs. See Note L to the

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      Fremont and its subsidiaries and affiliates are parties to various legal proceedings, which in some instances include claims for punitive damages, most of which are considered routine and incidental to their business. The Company believes that ultimate resolution or settlement of such matters will not have a material adverse effect on its consolidated financial position.

      None.

PART II

      The Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the trading symbol “FMT.” The following table sets forth the high and low sales prices of the Company’s common stock as reported as composite transactions on the NYSE and the cash dividends declared on the Company’s common stock during each quarter presented.

      On December 31, 2002, the closing sale price of the Company’s common stock on the NYSE was $4.49 per share. There were 1,992 stockholders of record as of December 31, 2002.

      The Company has paid cash dividends in every quarter since its initial public offering in 1977. While the Company intends to continue to pay dividends, the decision to do so is made quarterly by the Board of Directors and is dependent on the earnings of the Company, management’s assessment of future capital needs, and other factors.

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General

      Fremont General Corporation (“Fremont”) is a financial services holding company. Fremont’s financial services business is consolidated within Fremont General Credit Corporation (“FGCC”), which is engaged in commercial and consumer 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, that are not allocated by Fremont to FGCC or to the discontinued insurance operations.

      This discussion and analysis should be read in conjunction with the audited Consolidated Financial Statements and notes thereto presented under Item 8. and the Business section presented under Item 1.

Results of Operations

      The following table presents a summary of the Company’s income (loss) before taxes and net after tax income (loss) for the years ended December 31, 2002, 2001 and 2000:

      The financial services segment recorded income before taxes of $234.4 million for 2002, as compared to $138.5 million and $102.2 million for 2001 and 2000, respectively. The significant increase in income before taxes for 2002, as compared to 2001, is primarily related to a significant increase in gains from the whole loan sales of residential real estate loans, an approximate 18% increase in average interest-earning assets and a higher net interest margin ratio (as a percentage of average interest-earning assets). Offsetting this in 2002 was a significant increase in the provision for loan losses. The increase in income before taxes for 2001, as compared to 2000, is primarily related to a significant increase in gains from the whole loan sales of residential real estate loans and an approximate 15% increase in average interest-earning assets. Offsetting this in 2001 was a significant increase in the provision for loan losses and higher levels of loans on non-accrual status. See the “Financial Services Operation” section herein for additional detail.

      The Company, based upon the results of its year-end 2002 actuarial evaluations (which reflected adverse loss development), determined that the financial position of its discontinued insurance operations had experienced further deterioration. As a result, the Company no longer expects to recover any of its current investment in its discontinued insurance operations and that a write down of the entire amount was warranted. The Company’s net investment in its discontinued insurance operations, prior to the write down, was $45.1 million as of December 31, 2002. In addition, based on the level of financial deterioration in the discontinued insurance operations indicated at December 31, 2002, the Company also accrued a charge for all of its potential future capital contributions to its discontinued insurance operations. These future contributions include both mandatory and contingent capital contributions as per the Company’s July 2002 agreement with the California Department of Insurance (“DOI”). The total amount of these future contributions is $79.5 million and are payable ratably at $13.25 million annually for the next six years. The $79.5 million

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      The total discontinued insurance operations’ impairment charge is $119.6 million before taxes and is comprised of the write down of the $45.1 million net investment and a loss accrual of $74.5 million for the net present value of the $79.5 million in future capital contributions. The $119.6 million loss results in an after tax charge of $77.8 million which is reported separate from net income from continuing operations.

      The substantial net loss for the year ended December 31, 2000 for the discontinued insurance operations is predominantly the result of the recognition of an increase of $450 million in the gross liability for loss and loss adjustment expense (“LAE”) reserves during the quarter ended June 30, 2000, and the recognition of $267.8 million in certain charges during the quarter ended December 31, 2000 associated with the restructuring of the workers’ compensation insurance operation.

      Unallocated corporate interest and other expenses during the year ended December 31, 2002 consisted primarily of investment income revenue, offset by unallocated corporate expenses consisting primarily of interest expense and general and administrative expenses. The unallocated corporate interest and other expense loss before taxes for the year ended December 31, 2002, was $60.7 million as compared to $53.7 million and $46.5 million, for 2001 and 2000, respectively. The increase in 2002, as compared to 2001, is due primarily to increased incentive compensation expenses, and to a lesser degree, lower investment income due to a lower interest rate environment. This was offset by reductions of $4.1 million in interest expense (due to the reduced level of principal outstanding under the Company’s publicly traded 7.7% Senior Notes due 2004 and 7.875% Senior Notes due 2009 (together the “Senior Notes”)). The increase in 2001, as compared to 2000, is due primarily to decreased intercompany revenues at Fremont. Management fees (comprised of the allocation of certain costs incurred by Fremont for the rendering of various services to its subsidiaries), substantially all from the discontinued workers’ compensation insurance subsidiaries, decreased approximately $10.0 million, as the size of the workers’ compensation insurance operation was reduced and, under an agreement dated November 27, 2000 with the DOI, a significant amount of these fees were deferred, and not recognized by Fremont as income due to the uncertainty of their ultimate collection. Fremont has historically not charged applicable management fees in any significant amount to FGCC. Lower interest rates on investments resulted in investment income declining $2.0 million in 2001 from 2000. As discussed further in this paragraph, there was no affiliate interest income in 2001, compared to $5.4 million in 2000. This was offset by reductions of $6.0 million in interest expense (due to the reduced level of principal outstanding under the Senior Notes) and $4.2 million in other corporate expenses. The lower affiliate interest income resulted from the 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 FGCC, the downstream holding company subsidiary that holds the industrial bank subsidiary. The April 1, 2000 conversion transaction impacted the downstream holding company subsidiary that holds the discontinued insurance subsidiaries. With these debt conversions, beginning January 1, 2000, and to a larger extent April 1, 2000, the unallocated corporate interest expense is, and will continue to be, higher. After these conversions, there is no affiliate debt due from the downstream holding company subsidiaries. See “Liquidity and Capital Resources” for additional information.

      During the year ended December 31, 2002, Fremont extinguished $78.9 million in principal amount of its 7.7% Senior Notes due 2004. During the year ended December 31, 2001, Fremont extinguished $8.5 million and $27.0 million, respectively, in principal amount of its 7.7% Senior Notes due 2004 and 7.875% Senior Notes due 2009. During the year ended December 31, 2000, Fremont extinguished $40.9 million and $7.3 million, respectively, in principal amount of its 7.7% Senior Notes due 2004 and 7.875% Senior Notes due

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      Income tax expense of $71.5 million, $31.6 million and $27.0 million for 2002, 2001, and 2000, represents effective tax rates of 41.2%, 37.2% and 48.5%, respectively, on income before taxes from continuing operations. The effective tax rates for the three periods presented are different than the federal enacted tax rate of 35%, due mainly to higher state income tax provisions within the financial services operation. The significant change in effective tax rates in 2000, as compared to 2002 and 2001, is a result of a decision to increase by $5.8 million an accrual for certain pending state tax issues. In 2001, $4.7 million of the accrued amount was reversed as a result of the expected favorable resolution of certain of these matters. See Note F of the Company’s consolidated financial statements for further detail on the income tax provisions and deferred tax asset.

Financial Services Operation

      The financial services operation’s income before taxes was $234.4 million for the year 2002. This is a 69% increase when compared to 2001’s income before taxes of $138.5 million. This increase in earnings is a result of the following:

	•	Net interest income increased to $278.4 million in 2002 from $203.1 million in 2001 on an increase in net interest-earning assets. Net interest-earning assets averaged $5.47 billion in 2002, up from an average of $4.62 billion in 2001. Net interest income, as a percentage of average net interest-earning assets, increased significantly in 2002 to 5.09% from 4.39% in 2001. The primary reasons for the increase in the average net interest-earning assets for 2002 were a 110% increase in the average balance of residential real estate loans (in the portfolio and held for sale combined) and an 8% increase in the average balance of commercial real estate loans in the portfolio. The increase in net interest income, as a percentage of average net interest-earning assets, is due to wider spreads between the cost of funds and the yields on commercial and the significant increase in the average residential real estate loans, which generally have wider margins than the commercial real estate loans.
	•	Net gains on the sales of residential real estate loans increased significantly from $46.2 million in 2001 to $143.0 million in 2002. This increase was due to a significant increase in the amount of loans sold and an increase in the prices realized on the sale of these loans. Loans sold in 2002 totaled

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		$5.69 billion, up from $2.82 billion in 2001. This is reflective of a significant increase in total residential real estate loans originated. During 2002, $6.94 billion in residential real estate loans were originated, as compared to $3.33 billion in 2001. Loans held for sale also increased from $755.4 million at December 31, 2001 to $1.67 billion at December 31, 2002. The gross premium on loan sales during 2002 was 4.67%, up from 4.16% in 2001. This is reflective of improved market conditions, a lower interest rate environment and increased acceptability of the loans originated by the Company.
	•	The increase in earnings in 2002 was partially offset by significantly increased provisions for loan losses. The provision for 2002 totaled $108.1 million, up from $53.4 million in 2001. The increase in the provision is due in part to an increase in the loan portfolio outstanding (excluding loans held for sale) from $3.86 billion at December 31, 2001 to $4.14 billion at December 31, 2002, but is primarily due to the Company incurring increased net loan charge-offs and non-accrual loans during 2002, and increasing its allowance for loan losses in response to its evaluation of expected, and often uncertain, future trends in general economic conditions and their impact upon the commercial real estate market in particular. Non-accrual loans in the loan portfolio (excluding loans held for sale) increased during 2002 from $75.0 million at December 31, 2001 to $86.9 million at December 31, 2002. Net loan charge-offs increased significantly to $47.8 million for 2002, as compared to $16.8 million for 2001. Of the $47.8 million in net charge-offs in 2002, $30.7 million were related to commercial real estate loans, $16.5 million to syndicated commercial loans and $0.6 million to residential real estate loans. This is compared to net loan charge-offs in 2001 of $6.9 million for commercial real estate loans, $9.3 million for syndicated commercial loans and $0.6 million to residential real estate loans. Loan charge-offs for commercial real estate increased as a result of weakened economic conditions in general. The largest individual net charge-off on a commercial real estate loan in 2002 was $4.7 million. Of the $30.7 million in total commercial real estate net loan charge-offs for 2002, approximately 32% were related to loans with properties located in California, as compared to approximately 48% of the total commercial real estate loan portfolio being secured by properties located in California. The increase in net charge-offs from the syndicated loan portfolio occurred primarily from the Company’s decision to begin to significantly downsize this business during 2001 and from the effect of economic conditions in 2002 on this portfolio.

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      The following table identifies the interest income, interest expense, average interest-earning assets and interest-bearing liabilities, and interest margins for the financial services operation: