-------------------------------------------------------------------------------

                                  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 JUNE 30, 2006

                                       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 001-08007

                           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.)

                             2425 OLYMPIC BOULEVARD
                         SANTA MONICA, CALIFORNIA 90404
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (310) 315-5500
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
          (Former Name or Former Address, if Changed Since Last Report)

     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 a large accelerated filer,
an accelerated  filer, or a  non-accelerated  filer (as defined in Rule 12b-2 of
the Exchange Act.):

Large Accelerated Filer [X]   Accelerated Filer [ ]    Non-Accelerated Filer [ ]

     Indicate  by check mark  whether  the  Registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act). Yes  [ ]  No [X]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock:

                                                              SHARES OUTSTANDING
            CLASS                                                JULY 31, 2006
Common Stock, $1.00 par value                                     77,861,629


--------------------------------------------------------------------------------



<PAGE>

                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES

                                      INDEX

                         PART I - FINANCIAL INFORMATION



                                                                        PAGE NO.
                                                                        --------
Item     1.   Financial Statements

                Consolidated Balance Sheets
                  June 30, 2006 (Unaudited) and December 31, 2005 ....         3

                Consolidated Statements of Income
                  Three and Six Months Ended June 30, 2006
                  and 2005 (Unaudited) ...............................         4

                Consolidated Statements of Changes in Stockholders'
                  Equity June 30, 2006 and 2005 (Unaudited) ..........         5

                Consolidated Statements of Cash Flows
                  Six Months Ended June 30, 2006 and 2005
                  (Unaudited) ........................................         6

                Consolidated Statements of Comprehensive Income
                  Three and Six Months Ended June 30, 2006 and 2005
                  (Unaudited) ........................................         7

                Notes to Consolidated Financial Statements
                  (Unaudited) ........................................         8

Item     2.   Management's Discussion and Analysis of Financial
                Condition and Results of Operations ..................        47

Item     3.   Quantitative and Qualitative Disclosures About
                Market Risk ..........................................        75

Item     4.   Controls and Procedures ................................        76


                           PART II - OTHER INFORMATION



Item     1.   Legal Proceedings ......................................        77

Item     1A.  Risk Factors ...........................................        79

Item     2.   Unregistered Sales of Equity Securities and Use
                of Proceeds ..........................................        79

Item     3.   Not applicable

Item     4.   Submission of Matters to a Vote of Security Holders.....        80

Item     5.   Not applicable

Item     6.   Exhibits ...............................................        81

Signatures    ........................................................       S-1


                                       2


<PAGE>

                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   JUNE 30,       DECEMBER 31,
                                                                                     2006             2005
                                                                                ------------      ------------
                                                                                 (UNAUDITED)
                                                                                    (THOUSANDS OF DOLLARS)
                                     ASSETS

<S>                                                                             <C>               <C>
Cash and cash equivalents ...................................................   $    567,296      $    768,643
Investment securities classified as available-for-sale at fair value ........         19,966            17,527
Federal Home Loan Bank ("FHLB") stock at cost ...............................        211,500           136,018
Loans held for sale - net ...................................................      6,072,300         5,423,109
Loans held for investment - net .............................................      5,525,020         4,603,063
Mortgage servicing rights - net .............................................         62,739            46,022
Residual interests in securitized loans at fair value .......................        107,535           170,723
Accrued interest receivable .................................................         62,139            42,123
Real estate owned ...........................................................          3,719            33,872
Premises and equipment - net ................................................         65,691            65,203
Deferred income taxes .......................................................        101,870            83,235
Other assets ................................................................         88,613            94,575
                                                                                ------------      ------------
  TOTAL ASSETS ..............................................................   $ 12,888,388      $ 11,484,113
                                                                                ============      ============


                                   LIABILITIES

Deposits:
  Savings accounts ..........................................................   $    776,832      $  1,103,993
  Money market deposit accounts .............................................        721,970           446,274
  Certificates of deposit ...................................................      8,064,155         7,051,726
                                                                                ------------      ------------
                                                                                   9,562,957         8,601,993

Warehouse lines of credit ...................................................              -                 -
Federal Home Loan Bank advances .............................................      1,305,000           949,000
Senior Notes due 2009 .......................................................        169,484           175,305
Junior Subordinated Debentures ..............................................        103,093           103,093
Other liabilities ...........................................................        311,237           297,916
                                                                                ------------      ------------
  TOTAL LIABILITIES .........................................................     11,451,771        10,127,307

Commitments and contingencies ...............................................              -                 -


                              STOCKHOLDERS' EQUITY

Preferred stock, par value $ .01 per share -- Authorized: 2,000,000
  shares; none issued .......................................................              -                 -
Common stock, par value $1 per share -- Authorized: 150,000,000
  shares; issued and outstanding: (2006 - 77,868,000 and
  2005 - 77,497,000) ........................................................         77,462            77,497
Additional paid-in capital ..................................................        327,790           341,800
Retained earnings ...........................................................      1,032,639           966,112
Deferred compensation .......................................................        (20,949)          (43,357)
Accumulated other comprehensive income ......................................         19,675            14,754
                                                                                ------------      ------------
     TOTAL STOCKHOLDERS' EQUITY .............................................      1,436,617         1,356,806
                                                                                ------------      ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................   $ 12,888,388      $ 11,484,113
                                                                                ============      ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       3

<PAGE>

                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
<CAPTION>


                                                                         THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                              JUNE 30,                     JUNE 30,
                                                                      ------------------------      -----------------------
                                                                        2006           2005           2006           2005
                                                                      --------       ---------      ---------      --------
                                                                          (THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<S>                                                                   <C>            <C>            <C>            <C>
INTEREST INCOME:
  Interest and fee income on loans:
    Residential ...................................................   $ 167,856      $ 125,763      $ 307,526      $ 236,774
    Commercial ....................................................     126,526         76,457        236,060        142,849
    Other .........................................................          92             85            179            184
                                                                      ---------      ---------      ---------      ---------
                                                                        294,474        202,305        543,765        379,807
  Interest income - other .........................................      23,134          8,645         46,713         13,067
                                                                      ---------      ---------      ---------      ---------
                                                                        317,608        210,950        590,478        392,874

INTEREST EXPENSE:
  Deposits ........................................................     106,385         62,300        197,070        111,656
  FHLB advances ...................................................      34,939         12,213         55,595         19,719
  Warehouse lines of credit .......................................       4,923          2,337          6,560          2,556
  Senior Notes ....................................................       3,464          3,651          7,010          7,301
  Junior Subordinated Debentures ..................................       2,319          2,319          4,639          4,639
  Other ...........................................................         213            168            249            289
                                                                      ---------      ---------      ---------      ---------
                                                                        152,243         82,988        271,123        146,160

Net interest income ...............................................     165,365        127,962        319,355        246,714
Provision for loan losses .........................................      11,707         (4,216)        15,588         (3,180)
                                                                      ---------      ---------      ---------      ---------
Net interest income after provision for loan losses ...............     153,658        132,178        303,767        249,894

NON-INTEREST INCOME:
  Net gain (loss) on whole loan sales and securitizations
    of residential real estate loans ..............................       8,374         91,964         (6,802)       200,324
  Loan servicing income ...........................................      23,482         15,945         44,831         29,686
  Mortgage servicing rights amortization and impairment
    provision .....................................................      (8,859)        (4,807)       (16,903)        (9,711)
  Impairment on residual assets ...................................      (5,752)          (572)        (5,752)        (1,790)
  Other ...........................................................       5,343          6,040          8,549          9,967
                                                                      ---------      ---------      ---------      ---------
                                                                         22,588        108,570         23,923        228,476

NON-INTEREST EXPENSE:
  Compensation and related ........................................      57,249         55,654        116,659        114,934
  Occupancy .......................................................       8,175          6,942         15,805         13,877
  Other ...........................................................      24,637         28,119         55,893         48,348
                                                                      ---------      ---------      ---------      ---------
                                                                         90,061         90,715        188,357        177,159

Income before income taxes ........................................      86,185        150,033        139,333        301,211
Income tax expense ................................................      34,261         59,263         55,722        120,339
                                                                      ---------      ---------      ---------      ---------

NET INCOME ........................................................   $  51,924      $  90,770      $  83,611      $ 180,872
                                                                      =========      =========      =========      =========



PER SHARE DATA:
  Basic ...........................................................   $    0.70      $    1.25      $    1.13      $    2.50
  Diluted .........................................................        0.68           1.21           1.10           2.43

CASH DIVIDENDS DECLARED PER COMMON SHARE ..........................   $    0.11      $    0.08      $    0.22      $    0.15

</TABLE>


        The accompanying notes are an integral part of these statements.


                                       4

<PAGE>

                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                         ACCUMULATED
                                                          ADDITIONAL                                       OTHER
                                                COMMON      PAID-IN       RETAINED       DEFERRED      COMPREHENSIVE
                                                 STOCK      CAPITAL       EARNINGS     COMPENSATION        INCOME         TOTAL
                                               --------   ----------    -----------    ------------    -------------   -----------
                                                                           (THOUSANDS OF DOLLARS)

<S>                                            <C>        <C>           <C>            <C>             <C>             <C>
BALANCE AT DECEMBER 31, 2004 ................. $ 77,241   $  330,328    $   663,580    $    (58,916)   $       1,415   $ 1,013,648
 Net income ..................................        -            -        180,872               -                -       180,872
 Cash dividends declared - $0.15 per share ...        -            -        (11,519)              -                -       (11,519)
 Conversion of LYONs .........................       35          559              -               -                -           594
 Retirement of common stock ..................      (34)        (174)             -             208                -             -
 Shares issued, acquired or allocated
  for employee benefit plans .................      694       15,013              -         (35,459)               -       (19,752)
 Amortization of restricted stock ............        -            -              -           9,832                -         9,832
 Shares allocated to ESOP ....................        -       (1,368)             -          25,832                -        24,464
 Change in cost of common stock
  held in trust ..............................        -            -              -          (5,632)               -        (5,632)
 Net change in unrealized gain on
  investments and residual interests,
  net of deferred taxes ......................        -            -              -               -            2,774         2,774
 Excess tax benefits relating to share-
  based payments .............................        -        2,382              -               -                -         2,382
 Other adjustments ...........................        -       (2,766)             -           2,766                -             -
                                               --------   ----------    -----------    ------------    -------------   -----------
Balance at June 30, 2005 ..................... $ 77,936   $  343,974    $   832,933    $    (61,369)   $       4,189   $ 1,197,663
                                               ========   ==========    ===========    ============    =============   ===========



BALANCE AT DECEMBER 31, 2005 ................. $ 77,497   $  341,800    $   966,112    $    (43,357)   $      14,754   $ 1,356,806
 Net income ..................................        -            -         83,611               -                -        83,611
 Cash dividends declared - $0.22 per share ...        -            -        (17,084)              -                -       (17,084)
 Reclassification of deferred compensation
  for restricted stock .......................        -      (20,902)             -          20,902                -             -
 Retirement of common stock ..................      (35)          35              -               -                -             -
 Shares issued, acquired or allocated
  for employee benefit plans .................        -         (862)             -         (20,780)               -       (21,642)
 Amortization of restricted stock ............        -        7,386              -               -                -         7,386
 Shares allocated to ESOP ....................        -       (1,370)             -          24,315                -        22,945
 Change in cost of common stock
  held in trust ..............................        -            -              -          (2,376)               -        (2,376)
 Net change in unrealized gain on
  investments and residual interests,
  net of deferred taxes ......................        -            -              -               -            4,921         4,921
 Excess tax benefits relating to share-
  based payments .............................        -        2,050              -               -                -         2,050
 Other adjustments ...........................        -         (347)             -             347                -             -
                                               --------   ----------    -----------    ------------    -------------   -----------
BALANCE AT JUNE 30, 2006 ..................... $ 77,462   $  327,790    $ 1,032,639    $    (20,949)   $      19,675   $ 1,436,617
                                               ========   ==========    ===========    ============    =============   ===========

</TABLE>


              The accompanying notes are an integral part of these statements.


                                       5

<PAGE>

                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                         SIX MONTHS ENDED
                                                                                             JUNE 30,
                                                                                --------------------------------
                                                                                     2006              2005
                                                                                -------------      -------------
                                                                                      (THOUSANDS OF DOLLARS)

<S>                                                                             <C>                <C>
OPERATING ACTIVITIES
  Net income ................................................................   $      83,611      $     180,872
  Adjustments to reconcile net income to net cash used in operating
   activities:
    Provision for loan losses ...............................................          15,588             (3,180)
    Provision for premium recapture, repurchase and valuation reserves
      of residential real estate loans held for sale ........................         125,487             39,588
    Premium refunds .........................................................         (10,998)           (10,906)
    Change in mortgage servicing rights .....................................         (33,620)           (14,027)
    Change in residual interests in securitized loans .......................          64,636             (3,752)
    Cash from residual interests in securitized loans .......................          31,592              9,892
    Provision for deferred income taxes .....................................         (21,804)            21,349
    Depreciation, amortization, accretion and impairment of retained
     interests ..............................................................           6,071             23,285
    Compensation expense related to deferred compensation plans .............           6,109             10,603
    Change in accrued interest ..............................................         (20,016)             1,999
    Change in other assets ..................................................          13,814             (2,482)
    Change in accounts payable and other liabilities ........................         (34,901)           (27,386)
                                                                                 ------------      -------------
      NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE LOANS HELD FOR
       SALE ACTIVITY ........................................................         225,569            225,855
    Originations of residential loans held for sale .........................     (18,078,063)       (17,005,351)
    Sale of and payments received from loans held for sale ..................      17,151,642         16,817,068
    Loan payments received for residential real estate loans held for
     sale ...................................................................         226,346            130,933
                                                                                -------------      -------------
      NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ...................        (474,506)           168,505


INVESTING ACTIVITIES
  Originations and advances funded for loans held for investment ............      (1,943,078)        (1,583,933)
  Payments received from and sales of loans held for investment .............       1,038,919          1,329,128
  Maturities or repayments of investment securities available-for-sale ......             127                190
  Net purchases of FHLB stock ...............................................         (75,482)           (79,157)
  Purchases of premises and equipment .......................................         (10,736)           (13,328)
                                                                                 ------------      -------------
    NET CASH USED IN INVESTING ACTIVITIES ...................................        (990,250)          (347,100)

FINANCING ACTIVITIES
  Deposits accepted, net of repayments ......................................         960,964            778,756
  FHLB repayments, net of advances ..........................................         356,000            (43,000)
  Extinguishment of Senior Notes and LYONs ..................................          (5,933)               (30)
  Dividends paid ............................................................         (16,269)           (10,691)
  Excess tax benefits related to share-based payments .......................           2,050              2,382
  Purchase of company common stock for deferred compensation plans ..........         (33,403)           (30,982)
                                                                                -------------      -------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES ...............................       1,263,409            696,435

Increase (decrease) in cash and cash equivalents ............................        (201,347)           517,840
  Cash and cash equivalents at beginning of period ..........................         768,643            904,975
                                                                                -------------      -------------
Cash and cash equivalents at end of period ..................................   $     567,296      $   1,422,815
                                                                                =============      =============
</TABLE>

         The accompanying notes are an integral part of these tatements.


                                       6

<PAGE>

                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)


<TABLE>
<CAPTION>


                                                                          THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                               JUNE 30,                 JUNE 30,
                                                                        ---------------------     ----------------------
                                                                          2006         2005         2006         2005
                                                                        --------     --------     --------     ---------
                                                                                     (THOUSANDS OF DOLLARS)

<S>                                                                     <C>          <C>          <C>          <C>
Net income ..........................................................   $ 51,924     $ 90,770     $ 83,611     $ 180,872
Other comprehensive income:
  Net change in unrealized gains (losses) during the period:
    Residual interests in securitized loans .........................     11,399        6,110        6,033         4,632
    Investment securities ...........................................         92           (1)       2,058            (9)
                                                                        --------     --------     --------     ---------
                                                                          11,491        6,109        8,091         4,623
  Less income tax expense ...........................................      4,542        2,444        3,170         1,849
                                                                        --------     --------     --------     ---------
Other comprehensive net income ......................................      6,949        3,665        4,921         2,774
                                                                        --------     --------     --------     ---------
TOTAL COMPREHENSIVE NET INCOME ......................................   $ 58,873     $ 94,435     $ 88,532     $ 183,646
                                                                        ========     ========     ========     =========
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       7

<PAGE>


                  FREMONT GENERAL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1:    BASIS OF PRESENTATION

     Fremont General Corporation ("Fremont General" or when combined with its
subsidiaries "the Company" or "we") is a financial services holding company.
Fremont General's financial services operations are consolidated within Fremont
General Credit Corporation ("FGCC"), which is engaged in commercial and
residential (consumer) real estate lending nationwide through its California
industrial bank subsidiary, Fremont Investment & Loan ("FIL"). FIL's deposits
are insured by the Federal Deposit Insurance Corporation ("FDIC") up to the
maximum legal limits.

     The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
("GAAP"). The consolidated financial statements include the accounts and
operations of Fremont General and its subsidiaries including those variable
interest entities where the Company is the primary beneficiary. All intercompany
balances and transactions have been eliminated in consolidation.

     The preparation of the consolidated financial statements in conformity with
GAAP requires management to make estimates and assumptions that materially
affect the reported amounts of assets and liabilities and the disclosure of
contingent liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from those
estimates. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for the fair presentation of the
interim financial statements have been included. The operating results for the
three and six month periods ended June 30, 2006 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2006.

     The unaudited interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2005. Certain prior period amounts have been reclassified to conform to the
current period presentation.


NOTE 2:    RECENT ACCOUNTING STANDARDS

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS No. 123(R)"). This amended standard requires all
entities to recognize compensation expense over the related vesting period in an
amount equal to the fair value of share-based payments granted to employees. The


                                       8

<PAGE>

Company adopted SFAS No. 123(R) as of January 1, 2006 on the modified
prospective basis without any significant impact on the Company's financial
position or results of operations. The primary impact of adopting SFAS No.
123(R) on the Company's financial statements was the reclassification of the
deferred compensation balance as of December 31, 2005 ($20.9 million) related to
its nonvested restricted shares to additional paid-in capital. (See Note 17)

     In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS No. 154"). SFAS No. 154 changes the requirements for the accounting and
reporting of a change in accounting principle. SFAS No. 154 requires a change in
accounting principle to be retrospectively applied as of the beginning of the
first period presented in the financial statements as if that principle had
always been used, unless it is impracticable to do so. SFAS No. 154 applies to
all voluntary changes in accounting principles as well as to changes required by
accounting pronouncements that do not include specific transaction provisions.
The Company adopted SFAS No. 154 as of January 1, 2006 without any significant
impact on the Company's financial position or results of operations.

     In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments -- an amendment of FASB Statements No. 133 and 140"
("SFAS No. 155"). SFAS No. 155 requires companies to evaluate their interests in
securitized financial assets and determine whether the interests are
freestanding derivatives or hybrid financial instruments that may be subject to
bifurcation. SFAS No. 155 provides companies with relief from having to
separately determine the fair value of an embedded derivative that would
otherwise be required to be bifurcated from its host contract in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 155 also clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives and amends SFAS No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains to a
beneficial interest other than another derivative financial instrument. SFAS No.
155 is effective for all financial instruments acquired or issued after January
1, 2007. The Company does not believe the adoption of SFAS No. 155 will have a
significant impact on the Company's financial position or results of operations.

     In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets - an amendment of FASB Statement No. 140" ("SFAS No. 156").
SFAS No. 156 requires entities to separately recognize a servicing asset or
liability when undertaking an obligation to service a financial asset under a
servicing contract in certain situations, including a transfer of the servicer's
financial assets that meets the


                                       9

<PAGE>

requirements for sale accounting. Any such servicing assets or liabilities are
required to be initially measured at fair value, if practicable.

     The Company currently values the mortgage servicing rights assets ("MSRs")
associated with its residential real estate whole loan sales and securitizations
(where servicing is retained) at the lower of cost or market. Likewise, the
Company currently calculates its gain on whole loan sales and securitizations by
allocating the carrying value of the existing held for sale loans to the assets
retained based on their relative fair values at the date of the sale or
securitization. The provisions of SFAS No. 156 may affect the future carrying
value of the MSRs as well as the Company's gain on sale and securitizations;
however, the Company does not believe the adoption of SFAS No. 156 will result
in a significant impact on its financial position or results of operations. SFAS
No. 156 is effective for the Company's fiscal year beginning January 1, 2007.

     In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" ("FIN
No. 48"). FIN No. 48 clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with SFAS No. 109,
"Accounting for Income Taxes." FIN No. 48 prescribes a two-step approach for the
recognition and measurement of a tax position taken or expected to be taken in
an entity's tax return. The first step in the evaluation of a tax position is
recognition: The Company must determine whether it is more likely than not that
a given tax position will be sustained upon examination, including resolution of
any related appeals or litigation processes, based on the technical merits of
the position. In this evaluation the Company must presume that the position will
be examined by the appropriate taxing authority that would have full knowledge
of all relevant information. The second step is measurement: A tax position
meeting the more-likely-than-not recognition threshold is recorded at the
largest amount of benefit that is greater than fifty percent likely of being
realized upon ultimate settlement. The Company is currently evaluating the
impact of adopting FIN No. 48; however, the Company does not believe the
adoption will have a significant impact on its financial position or results of
operations. FIN No. 48 is effective for the Company's fiscal year beginning
January 1, 2007.

                                       10

<PAGE>

NOTE 3:    CASH AND CASH EQUIVALENTS

     Cash and cash equivalents are summarized in the following table as of the
dates indicated:

<TABLE>
<CAPTION>
                                                                                 JUNE 30,     DECEMBER 31,
                                                                                   2006          2005
                                                                                ---------     -----------
                                                                                  (THOUSANDS OF DOLLARS)


<S>                                                                             <C>           <C>
Cash on hand ................................................................   $     271     $       239
Non-interest bearing deposits in other financial institutions ...............     141,780          98,141
FHLB shareholder transaction account ........................................      90,540         214,237
Federal Reserve account .....................................................      53,483           2,829
U.S. Government Agency money market funds ...................................     125,000         350,000
Short-term money market fund ................................................      72,114          37,242
Commercial paper ............................................................      84,108          65,955
                                                                                ---------     -----------
Total cash and cash equivalents .............................................   $ 567,296     $   768,643
                                                                                =========     ===========
</TABLE>

     The FHLB shareholder transaction account represents a short-term
interest-bearing transaction account with the Federal Home Loan Bank of
San Francisco. The Company's cash and cash equivalent balances were
unrestricted as of June 30, 2006 and December 31, 2005.


NOTE 4:    INVESTMENT SECURITIES CLASSIFIED AS AVAILABLE-FOR-SALE

     The amortized cost, unrealized gains, unrealized losses and fair value of
the Company's investment securities as of June 30, 2006 were as follows:

<TABLE>
<CAPTION>
                                                      AMORTIZED     UNREALIZED     UNREALIZED       FAIR
                                                         COST         GAINS          LOSSES        VALUE
                                                      ---------     ----------    -----------     --------
                                                                      (THOUSANDS OF DOLLARS)

<S>                                                   <C>           <C>            <C>            <C>
Mortgage-backed securities
  Agency ..........................................   $     727     $        -     $       15     $    712
  Private issue ...................................      17,173          2,081              -       19,254
                                                      ---------     ----------     ----------     --------
Total available-for-sale securities ...............   $  17,900     $    2,081     $       15     $ 19,966
                                                      =========     ==========     ==========     ========

</TABLE>


                                       11

<PAGE>

     There were no realized gains or losses on the available-for-sale securities
during the three and six months ended June 30, 2006. Unrealized gains or losses
are included in other comprehensive income. The private issue securities are
mortgage-backed securities retained from one of the Company's 2005 residential
real estate loan securitization transactions.


NOTE 5:    LOANS HELD FOR SALE

     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 cost or estimated
fair value. Estimated fair values are based upon current secondary market prices
for loans with similar coupons, maturities and credit quality.

     The Company's residential real estate loans have loan terms for up to
thirty years and are typically secured by first deeds of trust on single-family
residences. The Company's residential real estate loans held for sale typically
have a significant concentration (generally 80% or higher) of "hybrid" loans
which have a fixed rate of interest for an initial period (generally 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 initial, periodic and lifetime interest 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" or "non-prime."

     The following table details the loans held for sale as of the dates
indicated:

<TABLE>
<CAPTION>
                                                                                 JUNE 30,       DECEMBER 31,
                                                                                   2006            2005
                                                                                -----------     -----------
                                                                                   (THOUSANDS OF DOLLARS)

<S>                                                                             <C>             <C>
Loan principal balance:
  First trust deeds .........................................................   $ 5,445,702     $ 4,792,976
  Second trust deeds ........................................................       656,118         611,104
                                                                                -----------     -----------
                                                                                  6,101,820       5,404,080
Net deferred direct origination costs .......................................        44,913          51,782
                                                                                -----------     -----------
                                                                                  6,146,733       5,455,862
Valuation reserve ...........................................................       (74,433)        (32,753)
                                                                                -----------     -----------
Loans held for sale - net ...................................................   $ 6,072,300     $ 5,423,109
                                                                                ===========     ===========

Loans held for sale on non-accrual status ...................................   $    42,299     $    16,736
                                                                                ===========     ===========

</TABLE>

                                       12


<PAGE>

     Since most of the loans that are held for sale are sold within sixty days
of origination, the amount of loans held for sale that are classified as
non-accrual or become real estate owned, is generally small. A valuation reserve
is maintained for certain non-performing loans and other loans held for sale
based upon the Company's estimate of inherent losses. Provisions for the
valuation reserve are charged against gain (loss) on sale of loans. Activity in
the valuation reserve is summarized in the following table for the periods
indicated:

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                             JUNE 30,                   JUNE 30,
                                                                       ---------------------      -----------------------
                                                                          2006         2005          2006           2005
                                                                       ---------     --------     ---------      --------
                                                                                     (THOUSANDS OF DOLLARS)

<S>                                                                    <C>           <C>           <C>           <C>
Beginning balance ..................................................   $  48,719     $ 44,008      $ 32,753      $ 38,257
Provision ..........................................................      29,946        9,999        47,280        16,676
Discounted sales ...................................................     (32,110)      (4,535)      (49,488)       (9,224)
Charge-offs ........................................................      (3,172)      (1,283)       (4,870)       (1,977)
Transfer from repurchase reserve ...................................      31,050        6,465        48,758        10,922
                                                                       ---------     --------      --------      --------
Ending balance .....................................................   $  74,433     $ 54,654      $ 74,433      $ 54,654
                                                                       =========     ========      ========      ========
</TABLE>


     The valuation reserve is apportioned as follows as of the dates indicated:

<TABLE>
<CAPTION>

                                                                                JUNE 30,     DECEMBER 31,
                                                                                  2006          2005
                                                                                --------     -----------
                                                                                 (THOUSANDS OF DOLLARS)


<S>                                                                             <C>          <C>
First trust deeds ..........................................................    $ 28,286     $    14,512
Second trust deeds .........................................................      46,147          18,241
                                                                                --------     -----------
                                                                                $ 74,433     $    32,753
                                                                                ========     ===========
</TABLE>

     In the ordinary course of business, as the loans held for sale are sold,
the Company makes standard industry representations and warranties about the
loans. The Company may have to subsequently repurchase certain loans due to
defects that occurred in the origination of the loans. Such defects are
categorized as documentation errors, underwriting errors, or fraud. In addition,
the Company is generally required to repurchase loans from previous whole loan
sale transactions that experience first payment defaults. If there are no such
defects or early payment defaults, the Company has no commitment to repurchase
loans that it has sold. During the second quarter of 2006, the Company
repurchased a total of $159.9 million in loans, as compared to $47.7 million for
the second quarter of 2005. In addition, the Company re-priced $78.4 million and
$21.1 million in loans for the second quarter of 2006 and 2005, respectively.
Re-priced loans are loans that are subject to repurchase but which are settled
at a reduced


                                       13

<PAGE>

price. The Company maintains a reserve for the estimated losses expected to be
realized when the repurchased loans are sold; this reserve is included in other
liabilities and totaled $57.6 million and $14.6 million as of June 30, 2006 and
December 31, 2005, respectively. This reserve is based upon the expected future
repurchase trends for loans already sold in whole loan sale transactions and the
expected valuation of such loans when repurchased. At the point the loans are
repurchased, the associated reserves are transferred to the valuation reserve.
Provisions for the repurchase reserve are charged against gain (loss) on sale of
loans. The following table summarizes the activity in the repurchase reserve for
the periods indicated.

<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                              JUNE 30,                    JUNE 30,
                                                                       ----------------------      ----------------------
                                                                          2006         2005          2006          2005
                                                                       ---------     --------      ---------     --------
                                                                                     (THOUSANDS OF DOLLARS)

<S>                                                                    <C>           <C>           <C>           <C>
Beginning balance ..................................................   $  23,337     $  6,134      $  14,556     $  4,794
Provision ..........................................................      79,750       11,411        110,295       18,191
Charge-offs for loan repricing .....................................     (14,451)        (863)       (18,507)      (1,846)
Transfer to valuation allowance ....................................     (31,050)      (6,465)       (48,758)     (10,922)
                                                                       ---------     --------      ---------     --------
Ending balance .....................................................   $  57,586     $ 10,217      $  57,586     $ 10,217
                                                                       =========     ========      =========     =========
</TABLE>

     The repurchase reserve is apportioned as follows as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                JUNE 30,     DECEMBER 31,
                                                                                  2006          2005
                                                                                --------     -----------
                                                                                 (THOUSANDS OF DOLLARS)


<S>                                                                             <C>          <C>
First trust deeds ..........................................................    $ 33,824     $     8,104
Second trust deeds .........................................................      23,762           6,452
                                                                                --------     -----------
                                                                                $ 57,586     $    14,556
                                                                                ========     ===========
</TABLE>

     The Company also maintains a reserve for premium recapture that represents
the estimate of potential refunds of premiums received on previously completed
loan sales (either due to early loan prepayments or for certain loans
repurchased from prior sales) that may occur under the provisions of the various
agreements entered into for the sale of loans held for sale; this reserve
totaled $10.7 million and $4.3 million as of June 30, 2006 and December 31,
2005, respectively, and is included in other liabilities. The gross premium
percentage realized on Tier 1 loan sales and securitizations increased to 2.15%
from 1.37% for the quarters ended June 30, 2006 and December 31, 2005,
respectively. The increase in the premium recapture reserve is directionally
consistent with the increase in the gross premium percentage realized from the
prior quarter and the increased level of loan repurchases. Provisions for the
premium


                                       14

<PAGE>

recapture reserve are charged against gain (loss) on sale of loans. The
following table summarizes the activity in the premium recapture reserve for the
periods indicated:

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                               JUNE 30,                    JUNE 30,
                                                                        ---------------------      -----------------------
                                                                         2006          2005           2006         2005
                                                                       -------       --------      ---------     ---------
                                                                                      (THOUSANDS OF DOLLARS)

<S>                                                                    <C>           <C>           <C>           <C>
Beginning balance ..................................................   $  2,937      $  7,944      $   4,259     $   7,516
Provision for premium recapture on repurchased loans ...............      7,462         3,319          9,771         5,542
Provision for standard premium recapture ...........................      7,207         5,117          7,629         8,403
Refunds ............................................................     (6,945)       (5,825)       (10,998)      (10,906)
                                                                       --------      --------      ---------     ---------
Ending balance .....................................................   $ 10,661      $ 10,555      $  10,661     $  10,555
                                                                       ========      ========      =========     =========
</TABLE>

     The following table reconciles the valuation, repurchase and premium
recapture provisions to the amounts included in the Company's gain (loss) on
sale of loans for the periods indicated.

<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                              JUNE 30,                   JUNE 30,
                                                                       ---------------------     ----------------------
                                                                         2006         2005          2006         2005
                                                                       --------     --------     ----------    --------
                                                                                     (THOUSANDS OF DOLLARS)


<S>                                                                   <C>          <C>          <C>           <C>
Provision for repurchase reserve ...................................   $ 79,750     $ 11,411     $ 110,295     $ 18,191
Provision for valuation reserve ....................................     29,946        9,999        47,280       16,676
Adjust for losses on Tier II loan sales (1sts & 2nds) ..............    (26,867)      (3,225)      (40,856)      (6,405)
Adjust for premium/interest/SFAS #91 on Tier II sales ..............     (5,243)      (1,310)       (8,632)      (2,819)
Provision for premium recapture on repurchased loans ...............      7,462        3,319         9,771        5,542
Other ..............................................................       (260)        (931)         (617)      (1,861)
                                                                       --------     --------     ---------     --------
  Total provision for valuation and repurchase reserves ............   $ 84,788     $ 19,263     $ 117,241     $ 29,324
                                                                        ========    ========     =========     ========


Provision for standard premium recapture (1) .......................   $  7,207     $  5,117     $   7,629     $  8,403
Provision for loans sold at principal only .........................      5,624          740         8,698        1,724
                                                                       --------     --------     ---------     --------
  Total provision for premium recapture ............................   $ 12,831     $  5,857     $  16,327     $ 10,127
                                                                       ========     ========     =========     ========

<FN>

(1)  The standard premium recapture represents the return of premium
     on loans sold which prepay early per the terms of each whole
     loan sales agreement.
</FN>

</TABLE>


NOTE 6:    LOANS HELD FOR INVESTMENT

     Loans held for investment consists of the Company's commercial real estate
loans. Commercial real estate loans, which are primarily variable rate
(generally based upon six-month LIBOR and a margin), represent loans secured
primarily by first mortgages on properties such as multi-family (condominium),
office, retail, industrial, land development, mixed-use and lodging. The
commercial real estate loans are


                                       15

<PAGE>

primarily comprised of bridge and construction loans of relatively short
duration (rarely more than five years in length of term and often shorter, such
as two to three years).

     As of June 30, 2006, the Company had $3.99 billion in unfunded commitments
for existing loans and $916.8 million in unfunded commitments for loans not yet
booked, as compared to $3.40 billion and $410.5 million, respectively, as of
December 31, 2005. Due to the variability in the timing of the funding of these
unfunded commitments, and the extent to which they are ultimately funded, these
amounts should not generally be used 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 $178.1 million and $138.2
million as of June 30, 2006 and December 31, 2005, respectively. The Company's
commercial real estate loans also include mezzanine loans (second mortgage
loans, which are subordinate to the senior or first mortgage loans) in the
amounts of $5.8 million and $5.6 million as of June 30, 2006 and December 31,
2005, respectively.

     The geographic dispersion of the Company's commercial real estate portfolio
is as follows:

<TABLE>
<CAPTION>

                                                      JUNE 30,      DECEMBER 31,
                                                        2006            2005
                                                     --------       -----------

<S>                                                  <C>            <C>
California .......................................       21.1%             25.5%
Florida ..........................................       14.8%             11.5%
New York .........................................       11.3%             14.7%
Virginia .........................................        8.1%              6.6%
Arizona ..........................................        7.4%              6.7%
Pennsylvania .....................................        4.9%              4.0%
Maryland .........................................        4.6%              3.2%
Illinois .........................................        4.6%              4.3%
All other states .................................       23.2%             23.5%
                                                     --------       -----------
                                                        100.0%            100.0%
                                                     ========       ===========
</TABLE>

                                       16


<PAGE>

     The loans in the portfolio were distributed by property type as follows as
of the dates indicated:

<TABLE>
<CAPTION>
                                                  JUNE 30,          DECEMBER 31,
                                                    2006                2005
                                                  -------           -----------

<S>                                               <C>               <C>
Multi-family - Condominiums ...................       55%                    48%
Land Development ..............................       15%                    15%
Office ........................................       13%                    14%
Retail ........................................        7%                     7%
Commercial Mixed-Use ..........................        3%                     5%
Multi-family - Other ..........................        3%                     3%
Industrial ....................................        2%                     4%
Special Purpose ...............................        1%                     2%
Hotels & Lodging ..............................        1%                     2%
                                                  ------            -----------
                                                     100%                   100%
                                                  ======            ===========
</TABLE>


     The Company does not currently carry any residential real estate loans held
for investment. The following tables further detail the net loans held for
investment as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                 JUNE 30, 2006
                                                                    -----------------------------------------
                                                                     COMMERCIAL
                                                                    REAL ESTATE       OTHER         TOTAL
                                                                    -----------      -------      -----------
                                                                             (THOUSANDS OF DOLLARS)

<S>                                                                 <C>              <C>          <C>
Loans outstanding ...............................................   $ 5,920,909      $ 8,059      $ 5,928,968
Participations sold .............................................      (178,102)           -         (178,102)
                                                                    -----------      -------      ------------
Loans outstanding, net of participations sold ...................     5,742,807        8,059        5,750,866
Unamortized deferred origination fees and costs .................       (53,158)           -          (53,158)
                                                                    -----------      -------      -----------
Loans outstanding before allowance for loan losses ..............     5,689,649        8,059        5,697,708
Allowance for loan losses .......................................      (172,611)         (77)        (172,688)
                                                                    -----------      -------      -----------
Loans held for investment - net .................................   $ 5,517,038      $ 7,982      $ 5,525,020
                                                                    ===========      =======      ===========
</TABLE>
<TABLE>
<CAPTION>
                                                                                 DECEMBER 31, 2005
                                                                    -----------------------------------------
                                                                     COMMERCIAL
                                                                    REAL ESTATE       OTHER         TOTAL
                                                                    -----------      ---------    -----------
                                                                             (THOUSANDS OF DOLLARS)

<S>                                                                 <C>              <C>          <C>
Loans outstanding ...............................................   $ 4,940,460      $ 8,589      $ 4,949,049
Participations sold .............................................      (138,165)           -         (138,165)
                                                                    -----------      -------      -----------
Loans outstanding, net of participations sold ...................     4,802,295        8,589        4,810,884
Unamortized deferred origination fees and costs .................       (50,984)           -          (50,984)
                                                                    -----------      -------      -----------
Loans outstanding before allowance for loan losses ..............     4,751,311        8,589        4,759,900
Allowance for loan losses .......................................      (156,755)         (82)        (156,837)
                                                                    -----------      -------      -----------
Loans held for investment - net .................................   $ 4,594,556      $ 8,507      $ 4,603,063
                                                                    ===========      =======      ===========
</TABLE>


                                       17


<PAGE>

     In cases where a borrower experiences financial difficulties and the
Company makes certain concessionary modifications to contractual terms
(typically a reduction of the interest rate charged), the loan is classified as
a restructured (accruing) loan if the loan is performing in accordance with the
agreed upon modified loan terms and projected cash proceeds are deemed
sufficient to repay both principal and interest. Restructured loans are
presented as such in the period of restructure and the three subsequent
quarters. The following table sets forth information regarding the Company's
commercial real estate loans on non-accrual status and restructured loans on
accrual status.

<TABLE>
<CAPTION>
                                                                                 JUNE 30,     DECEMBER 31,
                                                                                   2006          2005
                                                                                ---------    ------------
                                                                                  (THOUSANDS OF DOLLARS)


<S>                                                                             <C>          <C>
Non-accrual commercial real estate loans held for investment ...............    $  39,379    $     29,290
                                                                                =========    ============

Restructured commercial real estate loans on accrual status ................    $       -    $     12,309
                                                                                =========    ============
</TABLE>

     The Company employs a documented and systematic methodology in determining
the adequacy of its allowance for loan losses, which assesses the risk of losses
inherent in the portfolio, and represents the Company's estimate of probable
inherent losses in the loan portfolio as of the date of the financial
statements. Establishment of the allowance for loan losses involves determining
reserves for individual loans that have been deemed impaired and for groups of
loans that are evaluated collectively. Reviews are performed to set allowance
allocations for loans that have been individually evaluated and identified as
loans which have probable losses; reserve requirements are attributable to
specific weaknesses evidenced by various factors such as a deterioration in the
quality of the collateral securing the loan, payment delinquency or other events
of default. Performing loans that currently exhibit no significant identifiable
weaknesses or impairment are evaluated on a collective basis. The allowance for
loan losses methodology incorporates management's judgment concerning the
expected effects of economic events on portfolio performance, as well as the
potential impact of concentration factors (such as property types, geographic
regions and loan sizes). While the Company's methodology utilizes historical and
other objective information, the establishment of the allowance for loan losses
is to a significant extent based upon the judgment and experience of the
Company's management. The Company believes that the allowance for loan losses is
adequate as of June 30, 2006 to cover probable losses embedded in the loan
portfolio; however, future changes in circumstances, economic conditions or
other factors, including the effect of the Company's various loan
concentrations, could cause the Company to increase or decrease the allowance
for loan losses as necessary. Activity in the allowance for loan losses is
summarized in the following table:


                                       18

<PAGE>
<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                                JUNE 30,                      JUNE 30,
                                                                       ------------------------      ------------------------
                                                                          2006           2005           2006           2005
                                                                       ---------      ---------      ---------      ---------
                                                                                       (THOUSANDS OF DOLLARS)


<S>                                                                    <C>            <C>            <C>            <C>
Beginning balance ..................................................   $ 160,789      $ 171,941      $ 156,837      $ 171,525
Provision for loan losses ..........................................      11,707         (4,216)        15,588         (3,180)
Charge-offs ........................................................           -         (8,197)             -        (12,180)
Recoveries .........................................................         192            428            263          3,791
                                                                       ---------      ---------      ---------      ---------
Ending balance .....................................................   $ 172,688      $ 159,956      $ 172,688      $ 159,956
                                                                       =========      =========      =========      =========

</TABLE>

     At June 30, 2006 and December 31, 2005, the recorded investment in loans
(excluding loans held for sale) considered to be impaired was $39.4 million and
$29.3 million, respectively, all of which were on a non-accrual basis. The
Company's policy is to consider a loan impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Evaluation of a loan's impairment is based on the present value of
expected cash flows or the fair value of the collateral, if the loan is
collateral dependent. As a result of charge-offs, these impaired loans do not
necessarily have a related specific allowance for loan loss allocated to them.
However, there were $39.4 million and $29.3 million of loans considered impaired
that have allocated specific allowances that totaled $4.3 million and $2.3
million at June 30, 2006 and December 31, 2005, respectively. The average net
investment in impaired loans held for investment was $38.6 million and $53.2
million for the three months ended June 30, 2006 and 2005, respectively.
Interest income that was recognized on the cash basis of accounting on loans
classified as impaired was $0 and $0 for the three months ended June 30, 2006
and 2005, respectively, and $0 and $35,000 for the six months ended June 30,
2006 and 2005, respectively. Interest income foregone for loans on non-accrual
status that had not performed in accordance with their original terms was $1.0
million and $1.7 million for the three months ended June 30, 2006 and 2005,
respectively and, $2.1 million and $4.3 million, for the six months ended June
30, 2006 and 2005, respectively.

     In addition to its allowance for loan losses, the Company maintains an
allowance for unfunded commercial real estate loan commitments on existing loans
and, to a lesser degree, loans not yet funded; this allowance totaled $5.3
million and $4.0 million as of June 30, 2006 and December 31, 2005,
respectively, and is included in other liabilities.


                                       19

<PAGE>


NOTE 7:    REAL ESTATE OWNED

     The Company's real estate owned ("REO") consists of property acquired
through or in lieu of foreclosure on loans secured by real estate. REO is
reported in the financial statements at the lower of cost or estimated
realizable value (net of estimated costs to sell). REO consisted of the
following types of property as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                JUNE 30,    DECEMBER 31,
                                                                                  2006          2005
                                                                                -------     -----------
                                                                                 (THOUSANDS OF DOLLARS)


<S>                                                                             <C>         <C>
Commercial real estate ......................................................   $   299     $    30,198
Residential real estate .....................................................     3,420           3,674
                                                                                -------     -----------
Real estate owned ...........................................................   $ 3,719     $    33,872
                                                                                =======     ===========
</TABLE>


NOTE 8:    MORTGAGE SERVICING RIGHTS

     At the time of securitization or sale of loans on a whole loan basis with
servicing rights retained, the Company analyzes whether the benefits of
servicing are greater than or less than adequate compensation and, as a result,
records where appropriate, a mortgage servicing rights asset or liability
("MSR"), respectively. The estimated fair value of the Company's mortgage
servicing rights at June 30, 2006 and December 31, 2005 was $68.3 million and
$57.4 million, respectively. The following tables summarize the activity in the
Company's mortgage servicing rights asset as of the periods indicated:

<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                        JUNE 30,                      JUNE 30,
                                                               -------------------------      ------------------------
                                                                 2006             2005           2006           2005
                                                               --------         --------      ---------       --------
                                                                                (THOUSANDS OF DOLLARS)

<S>                                                            <C>              <C>           <C>             <C>
Beginning balance ..........................................   $ 45,337         $ 23,196      $  46,022       $ 20,044
  Additions from securitization transactions ...............      6,933            6,391          6,933         14,027
  Loans sold - servicing retained ..........................     19,328                -         26,687              -
  Amortization .............................................     (8,859)          (5,062)       (16,903)        (9,547)
                                                               --------         --------      ---------       --------
Ending balance before valuation allowance ..................     62,739           24,525         62,739         24,524
Valuation allowance:
  Beginning balance ........................................          -           (2,462)             -         (2,042)
  Provision for temporary impairment .......................          -              255              -           (164)
                                                               --------         --------      ---------       --------
  Ending balance ...........................................          -           (2,207)             -         (2,206)
                                                               --------         --------      ---------       --------
Mortgage servicing rights - net ............................   $ 62,739         $ 22,318      $  62,739       $ 22,318
                                                               ========         ========      =========       ========


Estimated fair value .......................................   $ 68,329         $ 22,318      $  68,329       $ 22,318
                                                               ========         ========      =========       ========
</TABLE>


                                       20


<PAGE>

     The fair value of the MSRs is derived from the net positive cash flows
associated with the servicing agreements. The Company determines the fair value
of the MSRs at the time of securitization and at each reporting date by the use
of a cash flow model that incorporates prepayment speeds, discount rate and
other key assumptions management believes are consistent with assumptions other
major market participants use in valuing the MSRs.

     The key economic assumptions used in subsequently measuring the fair value
of the Company's MSRs as of the dates indicated are as follows:

<TABLE>
<CAPTION>
                                                                                JUNE 30,      DECEMBER 31,
                                                                                  2006            2005
                                                                                -------       -----------

<S>                                                                             <C>           <C>
Weighted-average life (years) ...............................................       1.4               1.6
Weighted-average annual prepayment speed ....................................      48.0%             46.9%
Weighted-average annual discount rate .......................................      15.0%             15.0%

</TABLE>

     As servicer, the Company is required to make certain advances on specific
loans it is servicing, to the extent such advances are deemed collectible by the
Company from collections related to the individual loan. The total amount
outstanding of such servicing advances was $24.6 million and $15.3 million at
June 30, 2006 and December 31, 2005, respectively, and is included in other
assets.


NOTE 9: RESIDUAL INTERESTS IN SECURITIZED LOANS

     Residual interests in loan securitizations retained by the Company are
recorded as a result of the sale of residential real estate loans through a
securitization transaction and the subsequent issuance of net interest margin
securities ("NIMs") to monetize the residual interest from the original
securitization transaction.

     Residual interests represent the discounted expected future residual cash
flows from the securitizations that inure to the Company's benefit subject to
prepayment, delinquency, net credit losses and other factors. The following
table summarizes the activity of the Company's retained residual interests:

                                       21



<PAGE>
<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED              SIX MONTHS ENDED
                                                                             JUNE 30,                       JUNE 30,
                                                                      -----------------------       -----------------------
                                                                         2006          2005           2006           2005
                                                                      ---------      --------       ---------      --------
                                                                                      (THOUSANDS OF DOLLARS)

<S>                                                                   <C>            <C>            <C>            <C>
Beginning balance at fair value ...................................   $  90,236      $ 12,449       $ 170,723      $ 15,774
Additions to residual interests ...................................      12,584         1,467          12,584         3,752
Sales of residual interests .......................................           -             -         (77,220)            -
Interest accretion ................................................      15,950         2,969          32,759         4,307
Cash received .....................................................     (16,882)       (5,639)        (31,592)       (9,892)
Fair value adjustments ............................................      11,399         6,110           6,033         4,633
Permanent impairment ..............................................      (5,752)         (572)         (5,752)       (1,790)
                                                                      ---------      --------       ---------      --------
Residual interests in securitized loans at fair value .............   $ 107,535      $ 16,784       $ 107,535      $ 16,784
                                                                      =========      ========       =========      ========
</TABLE>

     Included in the $170.7 million beginning balance of residual interests was
one "pre-NIM" residual interest with an estimated fair value of $118.3 million
from a securitization transaction completed in December 2005. The Company, in
January 2006, completed a NIM transaction of this one "pre-NIM" residual
interest, resulting in a reduction of $77.2 million in the balance of the
residual interests.

     Loans sold through securitization transactions are done so on a
non-recourse basis to off-balance sheet qualifying special-purpose entities
("QSPEs"), except for representations and warranties customary within the
mortgage banking industry. In a NIM transaction, the certificates representing
the residual interest in certain excess cash flows from the original
securitization transaction are transferred to a QSPE, which issues
interest-bearing securities. The net proceeds from the sale of these NIM
securities, along with a residual interest certificate, represent the
consideration received by the Company. The residual interest certificate
retained from a NIM transaction is subordinate to the NIM securities issued
until the NIM securities are paid in full. The residual interests retained from
the NIM transactions are classified as "available-for-sale" securities and are
measured at fair value; any unrealized gains or losses from adjustments to the
estimated fair value, net of taxes, are reported as part of accumulated other
comprehensive income, which is a separate component of stockholders' equity.
Impairment that is considered other-than-temporary is recorded as a reduction of
other non-interest income. During the second quarter of 2006, the Company
recognized permanent impairment on two of its retained residual interests due
primarily to utilization of more accurate pre-payment fee assumptions.

     In the original securitizations and NIM transactions, a two-tier structure
is utilized in which the loans are first sold to a special purpose corporation
(referred to as the Depositor), which then transfers the loans to the QSPE. The
Company's only ownership interest from its securitization transactions is
reflected in the retained residual interests from the NIM transactions of $107.5
million as detailed above.


                                       22


<PAGE>

     The following table summarizes delinquencies and credit losses as of June
30, 2006 for the loans underlying the Company's 12 outstanding securitization
transactions (thousands of dollars):

<TABLE>
<CAPTION>

<S>                                                                             <C>
Original principal amount of loans securitized ..............................   $ 11,588,533
Current principal amount of loans securitized ...............................   $  6,846,686
Current delinquent principal amount (over 60 days) ..........................   $    430,129
Inception to date credit losses (net of recoveries) .........................   $     24,368
</TABLE>

     The Company determines the estimated fair values of the residual interests
retained from the NIM transactions by discounting the expected net cash flows to
be received utilizing the cash-out method. The Company uses the forward LIBOR
curve for estimating interest rates on the adjustable rate loans and the
variable rate securities, and utilizes other assumptions (primarily for losses,
prepayment speeds and delinquencies) that management believes are consistent
with assumptions other major market participants would use to appropriately
estimate the fair value of similar residual interests. The Company continually
evaluates the various assumptions utilized in estimating the fair value of the
retained residual interests and updates them as deemed necessary based upon the
development of historical vintage data. Such residual interest valuations
remain, however, subject to volatility due to fluctuations in the performance of
the underlying collateral and in the accuracy of the assumptions utilized by the
Company.

     Key economic assumptions used in subsequently measuring the fair value of
the Company's residual interests as of the dates indicated are as follows:

<TABLE>
<CAPTION>
                                                                                JUNE 30,      DECEMBER 31,
                                                                                  2006            2005
                                                                                -------       -----------

<S>                                                                             <C>           <C>
Weighted-average life (years) ..............................................        1.5               1.6
Weighted-average annual prepayment speed ...................................       48.3%             46.0%
Weighted-average lifetime credit losses ....................................        4.5%              4.4%
Weighted-average annual discount rate ......................................       20.0%             20.0%

</TABLE>


                                       23

<PAGE>

NOTE 10:   DERIVATIVE FINANCIAL INSTRUMENTS

     The Company utilizes derivative financial instruments in connection with
its interest rate risk management activities. In accordance with its interest
rate risk strategy, the Company currently utilizes a combination of forward
sales commitments and Eurodollar futures contracts to hedge its residential real
estate loans held for sale and a certain portion of its unfunded pipeline of
conditional loan approvals. These derivatives are intended to offset the changes
in the value of the Company's loans held for sale and its unfunded conditional
loan approvals as interest rates change. The Company's forward sales commitments
represent obligations to sell loans at a specific price and date in the future;
therefore, the value of these commitments increase as interest rates increase.
Short Eurodollar futures contracts are standardized exchange-traded contracts,
the values of which are tied to spot Eurodollar rates at specified future dates.
The value of these futures contracts increase when interest rates rise.
Conversely, the value of the forward sales commitments and the short Eurodollar
positions decrease when interest rates decrease, while the related loans are
expected to increase in value. The values of the loans, the forward sales
commitments and the Eurodollar positions may not move in corresponding amounts
and time frames and may result in a negative or positive impact on earnings in
any given period. In accordance with Statement of Financial Accounting Standards
No. 133, Accounting for Derivatives and Hedging Activities, as amended and
interpreted ("SFAS No. 133"), the Company's derivative financial instruments are
reported at their fair values.

     At June 30, 2006, the Company's commitments to sell forward residential
real estate loans to third party investors in whole loan sales transactions were
approximately $3.1 billion at various rates and terms. The Company distinguishes
commitments to sell forward loans in two categories, allocated and unallocated.
At June 30, 2006, allocated and unallocated forward sale commitments notional
amounts were $2.1 billion and $1.0 billion, respectively. Allocated forward
sales commitments are contractual sales agreements whereby a specific pool of
loans is agreed upon to be sold to specific buyers at a contractually agreed
upon date and price. In accordance with SFAS No. 133, the Company may, under
certain circumstances, designate and account for its allocated forward sales
commitments as fair value hedges designated to specific pools of loans that have
been contractually agreed upon for sale; however, as of June 30, 2006, no hedges
were designated as such. Unallocated forward sales commitments are agreements
that provide a fixed price on a pool of loans not yet specified. These
commitments are treated as economic hedges (and are not currently designated as
accounting hedges) and are classified as free-standing derivatives. Changes in
the fair value of both the unallocated and allocated forward sales


                                       24

<PAGE>

commitments are reported as a component of gain (loss) on sale of residential
real estate loans and as either other assets or liabilities, as applicable.

     At June 30, 2006, the Company had a pipeline of loans in process of
approximately $1.3 billion in new residential real estate loans. The Company
does not guarantee interest rates to potential borrowers when an application is
received. Because these loans are generally subject to the potential borrower
accepting and meeting the conditions of the loan approval, the Company estimates
its effective net pipeline position at $783.0 million, as adjusted for expected
loan fallout. The Company conditionally quotes interest rates to potential
borrowers, which are then subject to adjustment by the Company if any such
conditions are not satisfied. As such, the Company ascribes no value to its
conditional loan approvals as there are no interest rate-lock commitments on the
loans.

     The Company's Eurodollar futures contracts are currently treated as
economic hedges and are not currently designated as accounting hedges and are
classified as free-standing derivatives. As of June 30, 2006, the Company had in
place short Eurodollar futures positions covering loan principal of $2.5 billion
and $330.4 million for its loans held for sale and its unfunded loan pipeline,
respectively. Eurodollar futures are utilized in an effort to offset the changes
in value related to the loan inventory and pipeline without the necessity of
restricting certain loan inventory or pipeline loans to a specific forward sale
commitment. The Company's Eurodollar futures positions are settled each day
based on their ending fair values; as such, the Company does not reflect any
asset or liability position for these derivatives. The Company records these
daily fair value changes and settlements as a component of the gain (loss) on
sale of residential real estate loans. The Company's Eurodollar futures
contracts are collateralized by maintenance of a margin account which had a
balance of $9.2 million as of June 30, 2006.

     The estimated fair values of the Company's derivatives were as follows
(included in other assets or liabilities, as applicable, in the consolidated
balance sheets) as of the dates indicated:

<TABLE>
<CAPTION>

                                                                                JUNE 30,      DECEMBER 31,
                                                                                  2006            2005
                                                                                -------       -----------
                                                                                  (THOUSANDS OF DOLLARS)

<S>                                                                             <C>           <C>
Forward sales commitments ...................................................   $ 3,769       $    (1,479)
Interest rate cap contract ..................................................         -              (340)
Other .......................................................................         -               418
                                                                                -------       -----------
                                                                                $ 3,769       $    (1,401)
                                                                               ========       ===========
</TABLE>

                                       25


<PAGE>

     The changes in fair value of the derivative instruments from the prior
period are recorded as part of the net gain (loss) on whole loan sales and
securitizations. (See Note 11)


NOTE 11:   GAIN (LOSS) ON WHOLE LOAN SALES AND SECURITIZATION OF RESIDENTIAL
           REAL ESTATE LOAN

     The Company routinely sells and securitizes its residential mortgage loans
into the secondary market. Gains or losses are recognized at the date of
settlement and when the Company has transferred control over the loans to either
a transaction-specific securitization trust or to a third-party purchaser. The
amount of gain or loss for loan sales or securitizations is based upon the
difference between the net sales proceeds received, including any retained
interests, and the allocated carrying amount of the loans (which includes the
costs directly incurred with the origination of the loans, net of origination
points and fees received, which are deferred and recognized when the loans are
sold).

     The Company maintains a valuation reserve for certain non-performing loans
and other loans held for sale based on the Company's estimate of inherent
losses. The Company also records a repurchase reserve for the estimated losses
expected to be realized for any repurchased loans when they are resold. The
provisions for both of these reserves are recorded as adjustments to the
Company's net gain (loss). The provision for premium recapture is the provision
for the return of premium on loans sold which prepay early per the terms of each
sales contract; this amount includes some interest adjustment. The following
table presents the detailed components of the net gain (loss) on whole loan
sales and securitizations:

<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED                SIX MONTHS ENDED
                                                                               JUNE 30,                         JUNE 30,
                                                                    ----------------------------     -------------------------------
                                                                       2006            2005              2006              2005
                                                                    -----------      -----------     --------------    -------------
                                                                                         (THOUSANDS OF DOLLARS)

<S>                                                                 <C>              <C>              <C>              <C>
Whole loan sales of residential real estate loans ...............   $ 8,911,454      $ 8,776,193      $ 16,169,109     $ 14,625,502
Securitizations of residential real estate loans ................       982,533          981,717           982,533        2,191,566
                                                                    -----------      -----------      ------------     ------------
Total loan sales and securitizations - net of repurchases .......   $ 9,893,987      $ 9,757,910      $ 17,151,642     $ 16,817,068
                                                                    ===========      ===========      ============     ============


Gross premium recognized on Tier I
    loan sales and securitizations ..............................   $   212,315      $   271,345      $    300,248     $    476,221
Losses on Tier II sales .........................................       (26,867)          (3,225)          (40,856)          (6,405)
                                                                    -----------      -----------      ------------     ------------
                                                                        185,448          268,120           259,392          469,816
Net gain (loss) on derivative instruments .......................         1,598          (25,573)           16,194           (8,385)
                                                                    -----------      -----------      ------------     ------------
                                                                        187,046          242,547           275,586          461,431
Net direct loan origination costs ...............................       (81,053)        (125,463)         (148,820)        (221,656)
Provision for premium recapture .................................       (12,831)          (5,857)          (16,327)         (10,127)
                                                                    -----------      -----------      ------------     ------------
                                                                         93,162          111,227           110,439          229,648
Provision for valuation and repurchase reserves .................       (84,788)         (19,263)         (117,241)         (29,324)
                                                                    -----------      -----------      ------------     ------------
Net gain (loss) on sale .........................................   $     8,374      $    91,964      $     (6,802)    $    200,324
                                                                    ===========      ===========      ============     ============
</TABLE>


                                       26

<PAGE>

     The net gain (loss) on derivative instruments included in the net gain
(loss) on whole loan sales and securitizations of residential real estate loans
consists of the following items:

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                                JUNE 30,                    JUNE 30,
                                                                        ----------------------      -----------------------
                                                                          2006          2005           2006          2005
                                                                        -------      ---------      ---------      --------
                                                                                      (THOUSANDS OF DOLLARS)

<S>                                                                     <C>          <C>             <C>           <C>
Eurodollar futures:
  Net realized gain (loss) ..........................................   $   756      $ (21,786)      $ 12,297      $ (1,254)
  Transaction expenses and other ....................................      (532)          (517)          (977)       (1,042)
                                                                        -------      ---------       --------      --------
                                                                            224        (22,303)        11,320        (2,296)
Change in fair value of:
  Forward sales commitments .........................................     1,329        (11,208)         5,247        (9,330)
  Other .............................................................        45          7,938           (373)        3,241
                                                                        -------      ---------       --------      --------
Net gain (loss) on derivative instruments ...........................   $ 1,598      $ (25,573)      $ 16,194      $ (8,385)
                                                                        =======      =========       ========      ========
</TABLE>


NOTE 12:  LOAN SERVICING INCOME

     In addition to the securitized loans that it services, the Company also
services loans sold to other financial institutions on an interim basis (until
servicing is transferred to another party) and on a to maturity basis (servicing
retained). The following table presents the components of loan servicing income
for the Company:

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                               JUNE 30,                   JUNE 30,
                                                                       ------------------------     ---------------------
                                                                         2006            2005         2006         2005
                                                                       --------       ---------     --------     --------
                                                                                       (THOUSANDS OF DOLLARS)

<S>                                                                    <C>            <C>           <C>           <C>
Servicing fee income:
  Securitization transactions ......................................   $  8,178       $  5,214      $ 16,974      $  9,593
  Interim ..........................................................      7,172          7,768        13,624        14,276
  Loans sold - servicing retained ..................................      2,565            641         3,917         1,472
Ancillary income (1) :
  Securitization transactions ......................................      1,723            927         3,489         1,774
  Interim ..........................................................        802            741         1,617         1,436
  Loans sold - servicing retained ..................................        477            140           802           321
Other:
  Securitization transactions ......................................      2,089            459         3,656           751
  Loans sold - servicing retained ..................................        476             55           752            63
                                                                       --------       --------      --------      --------
  Loan servicing income ............................................   $ 23,482       $ 15,945      $ 44,831      $ 29,686
                                                                       ========       ========      ========      ========

<FN>

(1)   Ancillary income represents all service-related contractual fees retained
      by the Company and consists primarily of late payment charges.
</FN>
</TABLE>

                                       27

<PAGE>

NOTE 13:   INCOME TAXES

     The major components of income tax expense are summarized in the following
table:

<TABLE>
<CAPTION>

                                                                         THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                               JUNE 30,                   JUNE 30,
                                                                       ----------------------     ------------------------
                                                                         2006          2005          2006           2005
                                                                       --------      --------     ---------      ---------
                                                                                     (THOUSANDS OF DOLLARS)

<S>                                                                    <C>           <C>          <C>            <C>
Federal:
  Current ..........................................................   $ 31,083      $ 39,644     $  63,869      $  79,973
  Deferred .........................................................     (2,633)        9,383       (17,024)        19,056
                                                                       --------      --------     ---------      ---------
                                                                         28,450        49,027        46,845         99,029
                                                                       --------      --------     ---------      ---------

State:
  Current ..........................................................      6,491         6,980        13,657         19,017
  Deferred .........................................................       (680)        3,256        (4,780)         2,293
                                                                       --------      --------     ---------      ---------
                                                                          5,811        10,236         8,877         21,310
                                                                       --------      --------     ---------      ---------
Total income tax expense ...........................................   $ 34,261      $ 59,263     $  55,722      $ 120,339
                                                                       ========      ========     =========      =========

</TABLE>

     The Company has accrued the expected maximum tax and interest exposure for
tax matters that are either in the process of resolution or have been identified
as having the potential for adjustment. These matters primarily consist of
issues relating to the discontinued insurance operations, the apportionment of
income to various states and the deduction of certain expenses.

                                       28

<PAGE>

     The deferred income tax balance includes the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and for income tax purposes. The components of the Company's
deferred tax assets are summarized in the following table:

<TABLE>
<CAPTION>

                                                                                 JUNE 30,      DECEMBER 31,
                                                                                   2006            2005
                                                                                ---------      -----------
                                                                                  (THOUSANDS OF DOLLARS)

<S>                                                                             <C>            <C>
Deferred tax assets:
  Mark-to-market on loans held for sale .....................................   $  44,560      $    23,355
  Allowance for loan losses .................................................      76,032           69,650
  Compensation related items ................................................      24,622           29,270
  State income and franchise taxes ..........................................       7,359           13,467
  Other - net ...............................................................         284            2,283
                                                                                ---------      -----------
    Total deferred tax assets ...............................................     152,857          138,025

Deferred tax liabilities:
  Loan origination costs ....................................................     (21,116)         (31,550)
  Mortgage servicing ........................................................     (29,871)         (23,240)
                                                                                ---------      -----------
    Total deferred tax liabilities ..........................................     (50,987)         (54,790)
                                                                                ---------      -----------
Net deferred tax asset ......................................................   $ 101,870      $    83,235
                                                                                =========      ===========
</TABLE>

     In assessing the realization of deferred income tax assets, the Company
considers whether it is more likely than not that the deferred income tax assets
will be realized. The ultimate realization of deferred income tax assets depends
on the ability to recover previously paid taxes through loss carrybacks and the
generation of future taxable income during the periods in which temporary
differences become deductible. In the Company's opinion, the deferred tax assets
will be fully realized and no valuation allowance is necessary as the Company
has the ability to generate sufficient future taxable income to realize the tax
benefits.


                                       29

<PAGE>

NOTE 14:   DEBT - FREMONT GENERAL CORPORATION

     The debt of Fremont General is detailed in the following table; none of the
Fremont General debt is guaranteed by FIL:


<TABLE>
<CAPTION>
                                                                                 JUNE 30,      DECEMBER 31,
                                                                                   2006            2005
                                                                                ---------      -----------
                                                                                  (THOUSANDS OF DOLLARS)

<S>                                                                             <C>            <C>
Senior Notes due 2009,  less discount (2006 - $796; 2005 - $975) ............   $ 169,484      $   175,305
Junior Subordinated Debentures ..............................................     103,093          103,093
                                                                                ---------      -----------
                                                                                $ 272,577      $   278,398
                                                                                =========      ===========
</TABLE>

     During the second quarter of 2006, Fremont General repurchased $3 million
par value of the 7.875% Senior Notes due 2009 with a carrying value of $3
million resulting in a pre-tax gain of $15,000. For the six months ended June
30, 2006, Fremont General repurchased $6 million par value of 7.875% Senior
Notes due 2009 with a carrying value of $6 million resulting in a pre-tax gain
of $37,000. There were no repurchases of 7.875% Senior Notes due 2009 through
the first six months of 2005.

     Fremont General's 9% Junior Subordinated Debentures are the sole asset of
Fremont General Financing I, a statutory business trust (the "Trust") and
wholly-owned subsidiary of Fremont General. The Trust issued, and has
outstanding, $100 million of 9% Trust Originated Preferred SecuritiesSM (the
"Preferred Securities") which represent preferred undivided beneficial interests
in the Trust. The Junior Subordinated Debentures are subordinate and junior to
all senior indebtedness of Fremont General. Payment of distributions out of cash
held by the Trust, and payments on liquidation of the Trust or the redemption of
the Preferred Securities are guaranteed by Fremont General to the extent that
the Trust has funds available to make such payments.

     Under FASB Interpretation No. 46 (Revised December 2003), "Consolidation of
Variable Interest Entities," Fremont General is not considered the primary
beneficiary of the Trust. Therefore, instead of the Preferred Securities, the
Junior Subordinated Debentures are reflected on the Company's balance sheets.


                                       30


<PAGE>

NOTE 15:   DEPOSITS, FHLB ADVANCES, FEDERAL RESERVE AND WAREHOUSE LINES OF
           CREDIT - FIL

     FIL utilizes the issuance of deposits, which are insured up to the maximum
legal limit by the Federal Deposit Insurance Corporation, Federal Home Loan Bank
("FHLB") advances, Federal Reserve and warehouse lines of credit in funding its
operations.

     As of June 30, 2006, the weighted-average interest rate for savings and
money market deposit accounts was 3.85% and for certificates of deposit it was
4.75%. The weighted-average interest rate for all deposits at June 30, 2006 was
4.61%.

     Certificates of deposit as of June 30, 2006 are detailed by maturity and
rates as follows:

<TABLE>


                         MATURING BY            WEIGHTED
       AMOUNT              JUNE 30,           AVERAGE RATE
    -----------          -----------          ------------
     (THOUSANDS
     OF DOLLARS)

    <C>                      <C>                     <C>
    $ 7,957,580              2007                    4.74%
         50,828              2008                    4.40%
         52,537              2009                    5.80%
            956              2010                    3.08%
          2,254              2011                    4.88%
    -----------                               -----------
    $ 8,064,155                                      4.75%
    ===========                               ===========


</TABLE>

     Of the total certificates of deposit outstanding at June 30, 2006, $1.53
billion were obtained through brokers.

     Interest expense on deposits is summarized as follows:


<TABLE>
<CAPTION>

                                                                        THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                              JUNE 30,                     JUNE 30,
                                                                      -----------------------      -------------------------
                                                                         2006          2005           2006           2005
                                                                      ---------      --------      ---------       ---------
                                                                                      (THOUSANDS OF DOLLARS)

<S>                                                                   <C>            <C>           <C>             <C>
Savings and money market deposit accounts .........................   $  14,398      $ 10,928      $  28,298       $  20,768
Certificates of deposit ...........................................      92,175        51,515        169,130          91,116
Penalties for early withdrawal ....................................        (188)         (143)          (358)           (228)
                                                                      ---------      --------      ---------       ---------
                                                                      $ 106,385      $ 62,300      $ 197,070       $ 111,656
                                                                      =========      ========      =========       =========
</TABLE>


                                       31


<PAGE>

     Total interest payments on deposits were $101.4 million and $59.9 million,
for the three months ended June 30, 2006 and 2005, respectively, and $190.3
million and $108.4 million for the six months ended June 30, 2006 and 2005,
respectively.

     FIL is a member of the FHLB system and, as such, maintains a credit line
with the FHLB of San Francisco that is based upon a percentage of its total
regulatory assets, subject to collateralization requirements and certain
collateral sub-limits. Advances are primarily collateralized by residential
loans held for sale, and to a lesser extent, by certain commercial loans held
for investment. The maximum amount of credit which the FHLB will extend varies
from time to time in accordance with their policies. FIL's maximum financing
availability, based upon its level of regulatory assets and subject to the
amount and type of collateral pledged and their respective advance rates, was
$5.07 billion as of June 30, 2006. At June 30, 2006 and December 31, 2005, FIL
had an approximate maximum borrowing capacity based upon its pledged loan
collateral of $3.32 billion and $1.99 billion, respectively, with outstanding
borrowings of $1.31 billion and $949.0 million, respectively, from the FHLB of
San Francisco. All borrowings mature within one year. FIL pledged loans with a
carrying value of $3.70 billion and $2.22 billion at June 30, 2006 and December
31, 2005, respectively, to secure the current and any future borrowings. FIL's
borrowing capacity can be used to borrow under various FHLB loan programs,
including adjustable and fixed-rate financing, for periods ranging from one day
to 30 years, with a variety of interest rate structures available. The
weighted-average interest rate on the amount outstanding at June 30, 2006 was
5.01%. The borrowing capacity has no commitment fees or cost, requires minimum
levels of investment in FHLB stock (FIL receives dividend income on its
investment in FHLB stock), can be withdrawn by the FHLB if there is any
significant change in the financial or operating condition of FIL and is
conditional upon FIL's compliance with certain agreements covering advances,
collateral maintenance, eligibility and documentation requirements. At June 30,
2006 and December 31, 2005, FIL was in compliance with all requirements of its
FHLB credit facility.

     Total interest payments on advances from the FHLB were $34.9 million and
$12.3 million, for the three months ended June 30, 2006 and 2005, respectively,
and $58.6 million and $19.7 million for the six months ended June 30, 2006 and
2005, respectively.

     FIL has a line of credit with the Federal Reserve Bank of San Francisco
("Federal Reserve") and, at June 30, 2006 and December 31, 2005, had a borrowing
capacity, based upon collateral pledged, of $392.2 million and $442.3 million,
respectively, with no outstanding borrowings at June 30, 2006 or December 31,
2005. FIL pledged loans with a carrying value of $523.0 million and $589.7
million at June 30, 2006 and December 31, 2005, respectively, to the Federal
Reserve. This line of credit may be utilized when all other


                                       32

<PAGE>

sources of funds are not reasonably available and any such advances are made
with the expectation that they will be repaid when the availability of the usual
source of funds is restored, usually the next business day.

     FIL has established four separate warehouse lines of credit to facilitate
the funding of residential real estate loans prior to their sale or
securitization. The total funding capacity available at June 30, 2006 under the
four facilities was $3.00 billion, of which $2.25 billion was committed. There
were no amounts outstanding on any of the facilities at June 30, 2006.
Borrowings, if any, under each of the facilities are secured by loans held for
sale as pledged by FIL. Each of the facilities is subject to certain conditions,
including, but not limited to, financial and other covenants including the
maintenance of certain capital and liquidity levels. At June 30, 2006, FIL was
in compliance with all financial and other covenants related to these
facilities.


NOTE 16:   OTHER LIABILITIES

     The following table details the composition of the Company's other
liabilities as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                 JUNE 30,      DECEMBER 31,
                                                                                   2006            2005
                                                                                ---------      -----------
                                                                                  (THOUSANDS OF DOLLARS)


<S>                                                                             <C>            <C>

Premium recapture and repurchase reserves ...................................   $  68,247     $     18,815
Deferred compensation obligation ............................................      53,683           50,300
State income tax liability ..................................................      31,699           27,860
Accrued incentive compensation ..............................................      27,898           56,553
Accounts payable ............................................................      26,070           35,379
Borrower escrow collections payable .........................................      24,252           23,620
Interest payable ............................................................      22,499           18,241
Federal income tax liability ................................................      12,380          (12,586)
Accrued Employee Stock Ownership Plan expense ...............................       9,423           29,596
Borrower principal and interest due investors ...............................         732           13,209
Other .......................................................................      34,354           36,929
                                                                                ---------      -----------
Total other liabilities .....................................................   $ 311,237      $   297,916
                                                                                =========      ===========
</TABLE>

                                       33


<PAGE>

NOTE 17:   SHARE-BASED PAYMENTS

     Company stock award plans provide a long term compensation opportunity for
officers and certain key employees of the Company. Stock options and awards of
rights to purchase shares of the Company's common stock, generally in the form
of restricted stock awards may be granted under the 2006 Performance Incentive
Plan (the "2006 Plan") that was approved by the Company's stockholders on May
18, 2006. Awards were granted under the Company's stockholder approved 1997
Stock Plan (the "1997 Plan") until May 18, 2006 when the stockholders approved
the 2006 Plan. Effective as of May 18, 2006, no additional grants will be made
under the 1997 Plan. At June 30, 2006, a total of 17,451 restricted shares of
the Company's common stock were subject to outstanding awards granted and an
additional 8,808,584 shares of the Company's common stock were available for new
award grants under the 2006 Plan. At June 30, 2006, a total of 1,761,663
restricted shares of the Company's common stock were subject to outstanding
awards granted under the 1997 Plan. As of June 30, 2006, 2,861,149 shares that
had been available for awards under the 1997 Plan now are available for award
grant purposes under the 2006 Plan. As awards outstanding under the 1997 Plan
are cancelled, forfeited, or otherwise terminate without having been exercised
or having vested, they will become available for award grant purposes under the
2006 Plan. During the first six months of 2006, there were awards of 388,379
shares of restricted stock under the 1997 Plan, and awards of 17,451 shares of
restricted stock under the 2006 Plan.

     The Company also maintains the 1995 Restricted Stock Award Plan the ("1995
Plan"), which expired under its terms in November 2005. As of June 30, 2006,
there were 105,950 restricted shares of the Company's common stock subject to
outstanding awards granted. There are no shares available for grant under the
1995 Plan.

     Prior to January 1, 2006, the Company accounted for stock awards granted
under the 1997 Plan and 1995 Plan under the recognition and measurement
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and
related Interpretations ("APB No. 25"), as permitted by FASB Statement No. 123,
"Accounting for Stock-Based Compensation." Effective January 1, 2006, the
Company adopted the fair value recognition provisions of FASB Statement No.
123(R), "Share-Based Payment" ("SFAS No. 123(R)"), using the modified
prospective transition method therefore results for prior periods have not been
restated. The primary impact of adopting SFAS No. 123(R) on the Company's
financial statements was the reclassification of the deferred compensation
balance, as of December 31, 2005 ($20.9 million) related to its nonvested
restricted shares to additional paid-in capital.


                                       34

<PAGE>

STOCK OPTIONS:

     The Company also maintains the Amended 1989 Non-Qualified Stock Option Plan
(the "1989 Plan"). During the years 1989 to 1997, non-qualified stock options
were granted at exercise prices equal to the fair value of the stock on the date
of grant. Grantees vested at the rate of 25% per year beginning on the first
anniversary of the grants that expire after ten years. Stock option grants were
accounted for in accordance with the intrinsic value method and, accordingly, no
compensation expense was recognized. For the applicable years, additional
disclosure was provided regarding the pro forma effects on earnings per share
calculated as if the recognition and measurements provisions of the fair value
method had been adopted. The Company had 468,000 non-qualified option shares
outstanding and exercisable as of June 30, 2006, with an intrinsic value of $7.0
million, an exercise price of $14.94 and an expiration date of February 13,
2007. No options were granted, forfeited, expired or exercised during the first
six months of 2006. Shares issued upon option exercise may come from new shares
or existing shares held in the Company's employee benefits trust. There are no
shares available for grant under the 1989 Plan. (See Note 18)

RESTRICTED STOCK AWARDS:

     Under both APB No. 25 and SFAS No. 123(R), the Company recognizes
compensation expense related to its restricted stock awards based on the fair
value of the shares awarded as of the grant date. Compensation expense for the
restricted stock awards is recognized on a straight-line basis over the
requisite service period (generally two to ten years). The compensation expense
that has been charged against income for share-based compensation was $3.2
million and $4.2 million for the three months ended June 30, 2006 and 2005,
respectively, and $6.6 million and $8.3 million for the six months ended June
30, 2006 and 2005, respectively. The total income tax benefit recognized in the
income statement for share-based compensation arrangements was $701,000 and
$615,000 for the three months ended June 30, 2006 and 2005, respectively, and
$1.4 million and $1.1 million for the six months ended June 30, 2006 and 2005,
respectively.

     Prior to the adoption of SFAS No. 123(R), the Company reported all cash
flows resulting from the tax benefits associated with tax deductions in excess
of the compensation expense recognized for restricted stock awards as operating
cash flows in the Consolidated Statement of Cash Flows. Under SFAS No. 123(R)
the Company now reports such excess tax benefits as financing cash inflows.

     Under the Company's Executive Officer Annual Bonus Plan, which is
stockholder-approved, for the one-year period beginning January 1, 2006 through
December 31, 2006 (the "2006 Annual Plan") the


                                       35

<PAGE>

Company may grant selected officers awards of restricted shares of Company
common stock upon achievement of certain predetermined pre-tax earnings targets
for the 2006 calendar year. At the end of the one-year performance period, upon
determination of the extent to which the 2006 pre-tax earnings targets have been
achieved, participants under the 2006 Annual Plan will be paid bonuses in the
form of cash, at 100% of the amount of the cash bonus earned, plus an award of
shares of restricted common stock equal to 100% of the amount of the cash bonus
earned in accordance with the 2006 Annual Plan. The award of shares of
restricted common stock would be made pursuant to the 2006 Plan. If such
earnings targets are not met, no compensation cost is recognized and any
previously recognized compensation cost is reversed. As a result of adopting
SFAS No. 123(R), the Company accounts for these awards as liability instruments
where the service period precedes the grant date. No restricted stock awards
were granted under the 2006 Annual Plan during the first six months of 2006.

     A summary of the status of the Company's nonvested restricted stock awards
as of June 30, 2006 and changes during the six month period then ended is
presented below:

<TABLE>
<CAPTION>
                                                                                                WEIGHTED-AVERAGE
                                                                                  NUMBER           GRANT DATE
                                                                                 OF SHARES         FAIR VALUE
                                                                                -----------     ----------------

<S>                                                                             <C>             <C>
Nonvested at December 31, 2005 ..............................................     2,959,053     $          13.79
Granted .....................................................................       405,830                22.57
Vested ......................................................................    (1,444,705)               12.48
Forfeited ...................................................................       (35,114)               22.61
                                                                                -----------     ----------------
Nonvested at June 30, 2006 ..................................................     1,885,064     $          16.52
                                                                                ===========     ================
</TABLE>

     The fair value of nonvested shares is determined based on the closing trade
price of the Company's shares on the grant date as determined in accordance with
the 1997 Plan and/or the 2006 Plan. As of June 30, 2006, there was $21.9 million
of total unrecognized compensation cost related to nonvested share-based
compensation arrangements. That cost is expected to be recognized over a
weighted-average period of 2.0 years. The weighted-average grant date fair value
of the restricted stock awards granted during the six months ended June 30, 2006
and 2005 was $22.57 and $23.05, respectively. The total fair value of shares
vested was $33.6 million and $31.6 million for the six months ended June 30,
2006 and 2005, respectively.

     Awards of restricted common stock include dividend rights and
non-preferential dividends are paid on nonvested restricted shares of Company
common stock. Dividends declared on restricted stock awards granted are not
subject to vesting. Outstanding nonvested restricted shares of Company common
stock

                                       36

<PAGE>

are generally subject to accelerated vesting if there is a change in control of
the Company (as defined in the restricted stock award agreements or Employment
or Management Continuity Agreements, if applicable).


NOTE 18:   DEFERRED COMPENSATION

     The Company periodically contributes cash to an employee benefits trust
("GSOP") in order to pre-fund contributions to various employee benefit plans
(e.g., 401(K) match, Employee Stock Ownership Plan contribution, etc.). The
Company consolidates the GSOP under the provisions of Financial Accounting
Standards Board Interpretation No. 46R, "Consolidation of Variable Interest
Entities." The GSOP uses the contributed cash to acquire shares of the Company's
common stock and the shares held by the GSOP are recorded at fair value and
treated as treasury stock for purposes of calculating the Company's basic and
diluted earnings per share.

     The Company also maintains a Supplemental Executive Retirement Plan
("SERP") and Excess Benefit Plan ("EBP"); both of which are deferred
compensation plans designed to provide certain employees the ability to receive
benefits that would be otherwise lost under the Company's qualified retirement
plans due to statutory or other limits on salary deferral and matching
contributions.

     The following table details the composition of the Company's deferred
compensation balance as of the dates indicated:

<TABLE>
<CAPTION>

                                                                                  JUNE 30,    DECEMBER 31,
                                                                                   2006          2005
                                                                                --------      -----------
                                                                                  (THOUSANDS OF DOLLARS)


<S>                                                                             <C>           <C>
SERP and EBP ................................................................   $ 19,207      $    16,831
GSOP ........................................................................      1,742            5,624
Unamortized restricted stock awards .........................................          -           20,902
                                                                                --------      -----------
Total deferred compensation .................................................   $ 20,949      $    43,357
                                                                                ========      ===========
</TABLE>

     Under the provisions of SFAS No. 123(R), which the Company adopted as of
January 1, 2006, companies may no longer account for unrecognized compensation
costs related to nonvested stock awards as deferred compensation. SFAS No.
123(R) requires that any existing balance of deferred compensation as of the
adoption date be reclassified to additional paid-in capital. Because the Company
adopted SFAS No. 123(R) on the modified prospective basis, results from prior
periods have not been restated to conform to the current presentation. (See Note
17)


                                       37

<PAGE>

NOTE 19:   INDUSTRIAL BANK REGULATORY CAPITAL

     FIL is subject to various regulatory capital requirements under California
and Federal regulations. Failure to meet minimum capital requirements can result
in regulatory agencies initiating certain mandatory and possibly additional
discretionary actions that, if undertaken, could have a direct material effect
on the consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, FIL must meet specific
capital guidelines that involve quantitative measures of its assets, liabilities
and certain off-balance sheet items as calculated under regulatory accounting
practices. FIL's capital amounts, its ability to pay dividends and other
requirements and classifications are also subject to qualitative judgments by
its regulators about components, risk weightings and other factors. Banking
institutions that are experiencing or anticipating significant growth are
generally expected to maintain capital ratios above minimum levels.

     As of June 30, 2006, FIL's regulatory capital exceeded all minimum
requirements to which it is subject and the most recent notification from the
FDIC categorized FIL as "well-capitalized". To be categorized as
well-capitalized, the institution must maintain capital ratios as set forth in
the following table. There have been no conditions or events since that
notification that management believes have changed FIL's categorization as
well-capitalized. FIL's actual regulatory amounts and the related standard
regulatory minimum ratios required to qualify as well-capitalized are detailed
in the table below.


<TABLE>
<CAPTION>

                                                            JUNE 30, 2006               DECEMBER 31, 2005
                                                      -------------------------      ------------------------
                                                       MINIMUM          ACTUAL        MINIMUM          ACTUAL
                                                      REQUIRED          RATIO        REQUIRED          RATIO
                                                      --------         --------      --------         -------

<S>                                                   <C>             <C>            <C>            <C>
Tier-1 Leverage Capital ...........................       5.00%           10.97%         5.00%          12.59%
Risk-Based Capital:
  Tier-1 ..........................................       6.00%           12.64%         6.00%          14.15%
  Total ...........................................      10.00%           13.90%        10.00%          15.52%

</TABLE>

     Regulatory capital is assessed for adequacy by three measures: Tier-1
Leverage Capital, Tier-1 Risk-Based Capital and Total Risk-Based Capital. FIL's
Tier-1 Leverage Capital includes common stockholder's equity, a certain portion
of its mortgage servicing rights not includable in regulatory capital and other
adjustments. Tier-1 Leverage Capital is measured with respect to average assets
during the quarter. The Tier-1 Risk-Based Capital ratio is calculated as a
percent of risk-weighted assets at the end of the quarter. FIL's Total
Risk-Based Capital includes the allowable amount of its allowance for loan
losses (the allowable amount includable is limited to 1.25% of gross
risk-weighted assets). The Total Risk-Based Capital ratio is calculated as a
percent of risk-weighted assets at the end of the quarter.


                                       38

<PAGE>

     During the third quarter of 2005, the Company identified that its
interpretation for the calculation of risk-weighted assets was not complete.
Previously, the Company had not incorporated the unfunded portion of its
commercial real estate loan commitments into its risk-weighted assets
calculation. As of June 30, 2006, and for all prior periods presented, the
Company has included the risk-weighted effect of these unfunded commitments into
its Tier-1 Risk-Based and Total Risk-Based Capital ratios. Included in these
unfunded commitments are amounts for loan transactions for which the unfunded
portion is not currently available to the borrower based upon the level of
progress of the underlying commercial real estate project. The impact upon the
Tier-1 Risk-Based and Total Risk-Based Capital ratios in prior periods did not
change FIL's categorization as well-capitalized and there is no impact upon the
Tier-1 Leverage ratio.

     The following table details the calculation of the respective capital
amounts at FIL as of the dates indicated:

<TABLE>
<CAPTION>
                                                                                  JUNE 30,       DECEMBER 31,
                                                                                    2006             2005
                                                                                -----------      -----------
                                                                                   (THOUSANDS OF DOLLARS)

<S>                                                                             <C>               <C>
Common stockholder's equity at FIL ..........................................   $ 1,591,453       $  1,550,049
Less:
  Disallowed portion of mortgage servicing rights ...........................        (1,243)                 -
  Unrealized gains on available-for-sale securities .........................        (1,462)              (364)
                                                                                -----------       -------------
Total Tier-1 Capital ........................................................     1,588,748          1,549,685
Add: Allowable portion of the allowance for loan losses .....................       158,647            149,735
                                                                                -----------       ------------
Total Risk-Based Capital (Tier-1 and Tier-2) ................................   $ 1,747,395       $  1,699,420
                                                                                ===========       ============
</TABLE>


NOTE 20:     COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ACTIVITIES

     The Company is a defendant in a number of legal actions arising in the
ordinary course of business and from the discontinuance of the insurance
operations. Management and its legal counsel are of the opinion that the
settlement of these actions, individually or in the aggregate, will not have a
material effect on the Company's business, financial position or results of
operations.


                                       39


<PAGE>

FREMONT INDEMNITY COMPANY (IN LIQUIDATION) V. FREMONT GENERAL CORPORATION ET
AL.:

     On June 2, 2004, the State of California Insurance Commissioner John
Garamendi (the "Commissioner"), as statutory liquidator of Fremont Indemnity
Company ("Fremont Indemnity"), filed suit in Los Angeles Superior Court against
Fremont General alleging the improper utilization by Fremont General of certain
net operating loss deductions ("NOLs") allegedly belonging to its Fremont
Indemnity subsidiary (the "Fremont Indemnity case"). This complaint involves
issues that were considered resolved in an agreement among the California
Department of Insurance, Fremont Indemnity and Fremont General (the "Letter
Agreement"). The Letter Agreement, dated July 2, 2002, was executed on behalf of
the California Department of Insurance by the Honorable Harry Low, the State of
California Insurance Commissioner at that time. Fremont General has honored all
of its obligations under the Letter Agreement. On July 16, 2004, the
Commissioner filed a First Amended Complaint ("FAC") adding a cause of action
for concealment of an alleged reinsurance dispute and is seeking to rescind the
Letter Agreement.

     On January 25, 2005, Fremont General's motions to dismiss the lawsuit
brought by the Commissioner, on behalf of Fremont Indemnity, against Fremont
General were argued and heard before the Superior Court of the State of
California (the "Court"). On January 26, 2005, the Court issued its
rulings dismissing all the causes of action in the FAC without leave to amend,
except for the cause of action for alleged concealment by Fremont General of a
potential reinsurance dispute, which was dismissed with leave to amend. The
Court also found that Fremont General had properly utilized the NOLs in
accordance with the Letter Agreement. In addition, the Court rejected the
Commissioner's request for findings that Fremont General's use of the NOLs and
worthless stock deduction were voidable preferences and/or fraudulent transfers.
The Court also rejected the Commissioner's request for injunctive relief to
force Fremont General to amend its prior consolidated income tax returns to
remove and forgo the worthless stock deduction for its investment in Fremont
Indemnity.

     On May 2, 2005, the Commissioner filed a Second Amended Complaint ("SAC")
with regard to the 7th cause of action on behalf of Fremont Indemnity against
Fremont General alleging intentional misrepresentation, concealment and
promissory fraud, which induced the Commissioner to first enter into the Letter
Agreement. On July 15, 2005, the Court dismissed the SAC with 20 days leave to
amend. On August 4, 2005, the Commissioner filed a Third Amended Complaint
("TAC") again alleging intentional misrepresentation, concealment and promissory
fraud.

     On November 22, 2005, the Court dismissed the remaining cause of action in
the TAC, finding that the "Plaintiff still failed to plead any affirmative
misrepresentation which is actionable." The Court also found


                                       40

<PAGE>

that the "pleading is inadequate as to damage allegations." This ruling by the
Court dismisses the only remaining cause of action in the lawsuit originally
brought by the Commissioner on behalf of Fremont Indemnity against Fremont
General, first reported on June 17, 2004. The Commissioner has filed a Notice of
Appeal to the Court's dismissal of the complaint. The Company continues to
believe that this lawsuit is without merit.


FREMONT INDEMNITY COMPANY (IN LIQUIDATION AS SUCCESSOR IN INTEREST TO COMSTOCK
INSURANCE COMPANY) V. FREMONT GENERAL CORPORATION ET AL.:

     The Commissioner filed an additional and separate complaint against Fremont
General on behalf of Fremont Indemnity as successor in interest to Comstock
Insurance Company ("Comstock"), a former affiliate of Fremont Indemnity, which
was subsequently merged into Fremont Indemnity. This case alleged similar causes
of action regarding the usage of the NOLs as in the Fremont Indemnity case as
well as improper transactions with other insurance subsidiaries and affiliates
of Fremont Indemnity. This matter was deemed a related case to the Fremont
Indemnity case. On April 22, 2005, the Court dismissed, without leave to amend,
the entire complaint. This ruling does not address or necessarily have legal
effect on the related Fremont Indemnity case. The Commissioner has filed an
Appeal to the Court's dismissal of the complaint. The Company continues to
believe that this lawsuit is without merit.


GERLING GLOBAL REINSURANCE CORPORATION OF AMERICA V. FREMONT GENERAL CORPORATION
ET AL.:

     On July 27, 2005, Gerling Global Reinsurance Corporation of America
("Gerling") filed a lawsuit in Federal District Court (the "Court") against
Fremont General arising out of a reinsurance treaty between Gerling and Fremont
Indemnity alleging 1) Fraud/Intentional Misrepresentation and Concealment; 2)
Breach of Fiduciary Duty; 3) Willful and Wanton Misconduct; 4) Negligent
Misrepresentation; 5) Gross Negligence; 6) Tortuous Interference with Contract;
7) Unjust Enrichment; and 8) Breach of Contract for allegedly improper
underwriting practices by Fremont Indemnity during 1998 and 1999. In October
2005, Gerling filed a First Amended Complaint ("FAC") alleging 1)
Fraud/Intentional Misrepresentation and Concealment; 2) Inducement to Breach and
Breach of Fiduciary Duty and Duty of Utmost Good Faith; 3) Willful and Wanton
Misconduct; 4) Negligent Misrepresentation; 5) Gross Negligence; 6) Tortuous
Interference with Contract; 7) Unjust Enrichment; and 8) Inducement to Breach
and Breach of Contract.

     On December 12, 2005, the Company's Motion to Dismiss the FAC was argued
and heard before the Court. On December 15, the Court issued its Order
dismissing with prejudice Gerling's Third through Sixth Causes of Action, which
asserted claims for Willful and Wanton Misconduct, Negligent Misrepresentation,


                                       41

<PAGE>

Gross Negligence and Tortuous Interference with Contract, and also dismissed
with prejudice that part of Gerling's Eighth Cause of Action that alleged
Inducement to Breach of Contract. The Court also dismissed the Breach of
Contract claim, but granted Gerling leave to replead that claim.

     In January 2006, Gerling filed a Second Amended Complaint ("SAC") alleging
1) Fraud/Intentional Misrepresentation and Concealment; 2) Breach of Fiduciary
Duty and Duty of Utmost Good Faith; 3) Unjust Enrichment; and 4) Breach of
Contract. On March 6, 2006, Fremont General's Motion to Dismiss this SAC were
argued and heard before the Court. On its own motion, the Court converted the
Motion to Dismiss to a Motion for Summary Judgment and ordered that it be reset
for hearing following limited discovery on the statute of limitations issues
raised in the Motion. The Company continues to believe that this lawsuit is
without merit.

     The Company retains the right in its securitization transactions to call
the securities when the outstanding balance of loans in the securitization trust
declines to a specific level, typically 10% of the original balance. Management
expects that it may exercise its clean-up call option. The loans acquired via
the clean-up call may be then either sold or put into the Company's loan
portfolio. While it is expected that most loans acquired in a clean-up call can
be sold for gains or retained as attractive portfolio investments, a portion of
the loans are expected to be non-performing and thus, it is possible that
non-performing loans may increase temporarily between the time of the call
exercise and the disposition of the loans.


NOTE 21:   OPERATIONS BY REPORTABLE SEGMENT

     The Company manages its operations based on the types of products and
services offered by each of its strategic business units. Based on that approach
the Company has grouped its products and services into two reportable segments
-- Commercial and Residential Real Estate.

     The Commercial Real Estate segment originates its commercial real estate
loans, which are primarily bridge and construction facilities, on a nationwide
basis. These loans, which are held for investment, generate net interest income
on the difference between the rates charged on the loans and the cost of
borrowed funds.

     The Residential Real Estate segment originates non-prime or sub-prime loans
nationally through independent brokers on a wholesale basis. These loans are
then primarily sold to third party investors on a servicing-released or
servicing-retained basis, or, to a lesser extent, securitized. Net interest
income is


                                       42

<PAGE>


recognized on these loans during the period that the Company holds them for
sale. In addition, servicing income is realized on the loans that are
originated.

     Management measures and evaluates each of these segments based on total
revenues generated, net interest income and pre-tax operating results. The
results of operations include certain allocated corporate expenses as well as
interest expense charged back to the segments for the use of funds generated by
the Company's corporate and retail banking operations. Interest expense is
allocated among the residential and commercial segments using LIBOR rates
matched to the terms of the respective underlying loans plus a spread to cover
the expenses of the retail banking operations.

     Certain expenses that are centrally managed at the corporate level such as
provision for income taxes and other general corporate expenses are excluded
from the measure of segment profitability reviewed by management. The Company
has included these general corporate expenses along with the results of the
Company's retail banking operation, which does not meet the definition of a
reportable segment, in the Corporate and Retail Banking category. Historical
periods have been restated to conform to this presentation.

     Intersegment eliminations shown in the table below relate to the credit
allocated to the retail banking operations for operating funds provided to the
two reportable segments.


                                       43

<PAGE>
<TABLE>
<CAPTION>
                                                     RESIDENTIAL     COMMERCIAL    CORPORATE AND     INTERSEGMENT        TOTAL
                                                     REAL ESTATE    REAL ESTATE    RETAIL BANKING    ELIMINATIONS     CONSOLIDATED
                                                     -----------    -----------    --------------    ------------    ------------
                                                                               (THOUSANDS OF DOLLARS)

<S>                                                  <C>            <C>            <C>               <C>             <C>
Three months ended June 30, 2006
  Net interest income .............................. $    85,088    $    65,149    $       15,128    $          -    $     165,365
  Provision for loan losses ........................           -        (11,706)               (1)              -          (11,707)
  Net gain on whole loan sales and securitizations
    of residential real estate loans ...............       8,374              -                 -               -            8,374
  Loan servicing income ............................      23,482              -                 -               -           23,482
  Mortgage servicing rights amortization and
    impairment provision ...........................      (8,859)             -                 -               -           (8,859)
  Impairment on residual assets ....................      (5,752)             -                 -               -           (5,752)
  Other non-interest income ........................       1,261          4,220              (138)              -            5,343
  Compensation and related .........................     (31,609)        (6,868)          (18,772)              -          (57,249)
  Occupancy ........................................      (4,740)          (748)           (2,687)              -           (8,175)
  Other non-interest expense .......................     (13,829)         4,953           (15,761)              -          (24,637)
  Allocations ......................................     (21,328)        (1,299)           22,627               -                -
                                                     -----------    -----------    --------------    ------------    -------------
  Income before income taxes ....................... $    32,088    $    53,701    $          396    $          -    $      86,185
                                                     ===========    ===========    ==============    ============    =============

  Total revenues ................................... $   202,401    $   130,742    $      104,426    $    (97,373)   $     340,196
                                                     ===========    ===========    ==============    ============    =============

  Total consolidated assets ........................ $ 6,275,149    $ 5,557,595    $    1,055,644    $          -    $  12,888,388
                                                     ===========    ===========    ==============    ============    =============


Three months ended June 30, 2005
  Net interest income .............................. $    71,384    $    45,687    $       10,891    $          -    $     127,962
  Provision for loan losses ........................           -          4,213                 3               -            4,216
  Net gain on whole loan sales and securitizations
    of residential real estate loans ...............      91,964              -                 -               -           91,964
  Loan servicing income ............................      15,945              -                 -               -           15,945
  Mortgage servicing rights amortization and
    impairment provision ...........................      (4,807)             -                 -               -           (4,807)
  Impairment on residual assets ....................        (572)             -                 -               -             (572)
  Other non-interest income ........................         954          4,552               534               -            6,040
  Compensation and related .........................     (25,453)        (5,898)          (24,303)              -          (55,654)
  Occupancy ........................................      (4,028)          (728)           (2,186)              -           (6,942)
  Other non-interest expense .......................     (12,047)        (2,687)          (13,385)              -          (28,119)
  Allocations ......................................     (18,101)        (1,472)           19,573               -                -
                                                     -----------     ----------    --------------    ------------    -------------
  Income (loss) before income taxes ................ $   115,239     $   43,667    $       (8,873)   $          -    $     150,033
                                                     ===========     ==========    ==============    ============    =============

  Total revenues ................................... $   232,317     $   81,007    $       77,283    $    (71,087)   $     319,520
                                                     ===========     ==========    ==============    ============    =============


  Total consolidated assets ........................ $ 5,549,942    $ 3,609,216    $    1,840,117    $          -    $  10,999,275
                                                     ===========    ===========    ==============    ============    =============
</TABLE>

                                       44

<PAGE>
<TABLE>
<CAPTION>
                                                     RESIDENTIAL     COMMERCIAL    CORPORATE AND     INTERSEGMENT        TOTAL
                                                     REAL ESTATE    REAL ESTATE    RETAIL BANKING    ELIMINATIONS     CONSOLIDATED
                                                     -----------    -----------    --------------    ------------    ------------
                                                                               (THOUSANDS OF DOLLARS)

<S>                                                  <C>            <C>            <C>               <C>             <C>
Six months ended June 30, 2006
  Net interest income .............................. $   162,586    $   124,104    $       32,665    $          -    $     319,355
  Provision for loan losses ........................           4        (15,597)                5               -          (15,588)
  Net (loss) on whole loan sales and
   securitizations of residential real estate loans       (6,802)             -                 -               -           (6,802)
  Loan servicing income ............................      44,831              -                 -               -           44,831
  Mortgage servicing rights amortization and
    impairment provision ...........................     (16,903)             -                 -               -          (16,903)
  Impairment on residual assets ....................      (5,752)             -                 -               -           (5,752)
  Other non-interest income ........................       2,246          5,741               562               -            8,549
  Compensation and related .........................     (64,379)       (13,494)          (38,786)              -         (116,659)
  Occupancy ........................................      (8,947)        (1,457)           (5,401)              -          (15,805)
  Other non-interest expense .......................     (26,261)           549           (30,181)              -          (55,893)
  Allocations ......................................     (40,633)        (2,511)           43,144               -                -
                                                     -----------    -----------    --------------    ------------    -------------
  Income before income taxes ....................... $    39,990    $    97,335    $        2,008    $          -    $     139,333
                                                     ===========    ===========    ==============    ============    =============

  Total revenues ................................... $   356,026    $   241,798    $      198,657    $   (182,080)   $     614,401
                                                     ===========    ===========    ==============    ============    =============

  Total consolidated assets ........................ $ 6,275,149    $ 5,557,595    $    1,055,644    $          -    $  12,888,388
                                                     ===========    ===========    ==============    ============    =============


Six months ended June 30, 2005
  Net interest income .............................. $   141,688    $    86,868    $       18,158    $          -    $     246,714
  Provision for loan losses ........................           1          3,173                 6               -            3,180
  Net gain on whole loan sales and
    securitizations of residential real estate loans     200,324              -                 -               -          200,324
  Loan servicing income ............................      29,686              -                 -               -           29,686
  Mortgage servicing rights amortization and
    impairment provision ...........................      (9,711)             -                 -               -           (9,711)
  Impairment on residual assets ....................      (1,790)             -                 -               -           (1,790)
  Other non-interest income ........................       1,774          7,779               414               -            9,967
  Compensation and related .........................     (60,476)       (12,561)          (41,897)              -         (114,934)
  Occupancy ........................................      (8,211)        (1,511)           (4,155)              -          (13,877)
  Other non-interest expense .......................     (22,762)        (1,043)          (24,543)              -          (48,348)
  Allocations ......................................     (21,546)        (2,134)           23,680               -                -
                                                     -----------     ----------    --------------    ------------    -------------
  Income (loss) before income taxes ................ $   248,977     $   80,571    $      (28,337)   $          -    $     301,211
                                                     ===========     ==========    ==============    ============    =============

  Total revenues ................................... $   461,551     $  150,628    $      136,972    $   (127,801)   $     621,350
                                                     ===========     ==========    ==============    ============    =============


  Total consolidated assets ........................ $ 5,549,942    $ 3,609,216    $    1,840,117    $          -    $  10,999,275
                                                     ===========    ===========    ==============    ============    =============
</TABLE>

                                       45

<PAGE>

NOTE 22:   EARNINGS PER SHARE

     Earnings per share have been computed based on the weighted-average number
of shares. The following tables set forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED           SIX MONTHS ENDED
                                                                                JUNE 30,                  JUNE 30,
                                                                        ---------------------     ------------------------
                                                                          2006         2005          2006          2005
                                                                        --------     --------      --------      ---------
                                                                                (THOUSANDS OF SHARES AND DOLLARS,
                                                                                      EXCEPT PER SHARE DATA)

<S>                                                                     <C>          <C>           <C>           <C>
Net income
  (numerator for basic earnings per share) ..........................   $ 51,924     $ 90,770      $ 83,611      $ 180,872
Effect of dilutive securities:
  LYONs .............................................................          -            4             -              8
                                                                        --------     --------      --------      ---------
Net income available to common stockholders after assumed
  conversions (numerator for diluted earnings per share) ............   $ 51,924     $ 90,774      $ 83,611      $ 180,880
                                                                        ========     ========      ========      =========

Weighted-average shares
  (denominator for basic earnings per share) ........................     74,517       72,759        74,025         72,271
Effect of dilutive securities using the treasury stock method
  for restricted stock and stock options:
    Employee benefit plans ..........................................      1,245        1,203         1,195          1,090
    Restricted stock ................................................        440        1,132           426          1,023
    Stock options ...................................................         77           87            88             97
    LYONs ...........................................................          -           33             -             34
                                                                        --------     --------      --------      ---------
Dilutive potential common shares ....................................      1,762        2,455         1,709          2,244
                                                                        --------     --------      --------      ---------
Adjusted weighted-average shares and assumed conversions
  (denominator for diluted earnings per share) ......................     76,279       75,214        75,734         74,515
                                                                        ========     ========      ========      =========

Basic earnings per share ............................................   $   0.70     $   1.25      $   1.13      $    2.50
                                                                        ========     ========      ========      =========
Diluted earnings per share ..........................................   $   0.68     $   1.21      $   1.10      $    2.43
                                                                        ========     ========      ========      =========
</TABLE>


     For additional disclosures regarding stock options and restricted stock see
Note 17.


                                       46

<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


OVERVIEW

     Fremont General Corporation ("Fremont General" or when combined with its
subsidiaries "the Company" or "we") is a holding company which is engaged in
lending operations through its indirectly wholly-owned subsidiary, Fremont
Investment & Loan ("FIL"). FIL is a California industrial bank. Fremont General
is not a "bank holding company" as defined for regulatory purposes.

     FIL has two primary lending operations, commercial and residential, both
operating on a nationwide basis. FIL's commercial real estate lending operation
includes nine regional offices and, as of June 30, 2006, had loans outstanding
in 29 states. The residential real estate lending platform originated loans from
46 states through its five regional loan production centers as of June 30, 2006.
FIL funds its lending operations primarily through deposit accounts sourced in
California that are insured up to the maximum legal limit by the Federal Deposit
Insurance Corporation ("FDIC") and, to a lesser extent, advances from the
Federal Home Loan Bank ("FHLB") of San Francisco. As such, FIL is regulated by
the FDIC and the Department of Financial Institutions of the State of California
("DFI"). FIL raises its retail deposits in California (predominately
Southern California) through a network of 21 branches and a centralized call
center. FIL will also utilize its warehouse lines of credit from time to time to
fund part of its residential real estate loan production.

     FIL's residential real estate lending operation originates first, and to a
lesser degree, second mortgage loans on a wholesale basis through a network of
independent mortgage brokers. FIL offers mortgage products that are designed for
borrowers who do not generally 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 referred to as
"non-prime" or "sub-prime". These 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 conventional mortgage lenders
allow. The borrowers also include individuals who, due to self-employment or
other circumstances, have difficulty documenting their income through
conventional means. FIL seeks to mitigate its exposure to credit risk through
underwriting standards that strive to balance appropriate loan to collateral
valuations with a borrower's credit profile. All of the residential real estate
loans that FIL originates are currently either sold in whole loan sales to
various financial institutions, or to a lesser extent, securitized and sold to
various investors. The Company has retained some of these loans as held for
investment in prior periods and may do so again in the future.

     FIL's commercial real estate lending operation provides first mortgage
financing on various types of commercial properties. The loans that FIL
originates are substantially all held for investment, with some


                                       47

<PAGE>

loans participated out to limit credit exposures. Loans are originated through
broker and borrower relationships and the borrowers are typically mid-size
developers and owners seeking a loan structure that provides limited recourse
and is short-term, providing bridge or construction financing for comprehensive
construction, renovation, conversion, repositioning and lease-up of existing or
new properties. To manage the credit risk involved in this lending, FIL is
focused on the value and quality of the collateral and the quality and
experience of the parties with whom it does business. The size of loan
commitments originated generally range from $20 million to $100 million, with
some loans for larger amounts.

     The Company's two operating lines of business are influenced by the overall
condition of the economy, in particular the interest rate environment, and
various market conditions. As a result, the Company is subject to experiencing
cyclicality in volume, gain (or loss) on the sale of loans, net interest income,
loan losses and earnings. The Company strives to manage its operations so as to
optimize operational efficiency and to maintain risks within acceptable
parameters. The Company's lending operations generate income as follows:

o    All of the residential real estate loans originated are currently sold for
     varying levels of gain or loss through whole loan sales to other financial
     institutions, and to a lesser degree, to various investors through
     securitization transactions. A held for sale valuation reserve, a loan
     repurchase reserve and a premium recapture reserve are maintained and
     adjusted through provisions (which are either an expense or a credit to
     income) that are recognized in the consolidated statements of income. Net
     interest income is recognized on these loans during the period that the
     Company holds them for sale. The Company also recognizes interest income on
     the residual interests it retains from its securitization transactions.
     Servicing income is realized on the loans sold into the Company's
     securitizations and on whole loan sales when servicing is retained, as well
     as on an interim basis for loans sold on a servicing released basis to
     other financial institutions. When servicing is retained either through a
     securitization or a whole loan sale with servicing retained, a mortgage
     servicing rights ("MSR") asset is typically established; the MSR is
     amortized to expense over the expected life of the related servicing
     income.

o    Commercial real estate loans, which are held for investment, generate net
     interest income on the difference between the rates charged on the loans
     and the cost of borrowed funds. The majority of commercial real estate
     loans originated are adjustable interest rate loans based upon six-month
     LIBOR and an applicable margin. An allowance for loan losses is maintained
     through provisions (which are either an expense or a credit to income) that
     are recognized in the consolidated statements of income.

     The principal market risks the Company faces are interest rate risk and
liquidity risk. Interest rate risk is the risk that the valuation of the
Company's interest sensitive assets and liabilities and its net interest income
will change due to changes in interest rates. Liquidity risk, which is the
ability of the Company to access the necessary funding and capital resources, in
a cost-effective manner, to fund its loan originations or to sell its loans held
for sale. Liquidity risk also entails the risk of changes in secondary market
conditions, which can negatively impact the pricing realized by the Company on
the loans it sells or

                                       48

<PAGE>

securitizes. The Company endeavors to mitigate interest rate risk by attempting
to match the rate reset (or repricing) characteristics of its assets with its
liabilities. The Company utilizes forward loan sale commitments to lock in
liquidity execution and to hedge its loans held for sale. The Company also
utilizes Eurodollar futures to hedge the interest rate risk on a portion of its
loan pipeline and its loans held for sale. Residential and commercial mortgage
lending requires significant cash to fund loan originations; the Company strives
to maintain certain liquidity levels, both in available funds and in funding
capacity, to ensure its ability to meet its funding objectives without
constraint. The Company is dependent upon the securitization market for the sale
of its residential real estate loans as it either securitizes the loans directly
or many of its whole loan buyers purchase the loans with the intent to
securitize. The secondary or securitization market is dependent upon many
factors that can change the demand and thus impact the pricing the Company
realizes on the sale of its residential real estate loans. The level of demand
and general market conditions in the secondary market can significantly effect
the level of gain or loss realized by the Company on the sale of these loans.
The objective of the interest rate and liquidity risk management activities is
to reduce the risk of operational disruption and to reduce the volatility in
income caused by changes in interest rates and market conditions; however, the
mortgage banking industry is inherently subject to income volatility due to the
effect of interest rate variations on loan production volume, loan credit
quality, premiums realized on loan sales and securitizations, and loan
prepayment patterns, which in turn affects the valuation of the Company's loans
held for sale, residual interests and MSRs, as well as the amount of loan
servicing income realized.

     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,
2005.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). The preparation of these
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. On an
on-going basis, the Company evaluates its estimates, which are based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

     The Company has identified four accounting policies as being critical
because they require more significant judgment and estimates about matters that
may differ from the estimates determined under different assumptions or
conditions. These critical accounting policies relate to the gain or loss on
whole loan sales and securitizations, allowance for loan losses, derivatives and
income taxes. The critical


                                       49

<PAGE>

accounting policies and estimates are further discussed in Management's
Discussion and Analysis in the Annual Report on Form 10-K for the fiscal year
ended December 31, 2005.


EARNINGS PERFORMANCE

     The Company reported income before income taxes of $86.2 million for the
second quarter of 2006 as compared to $150.0 million for the second quarter of
2005. For the first six months of 2006 income before income taxes totaled $139.3
million as compared to $301.2 million for the first six months of 2005. The
decrease in income before income taxes for the second quarter and first six
months of 2006 represent decreases of 42.6% and 53.7% over the results for the
second quarter and first six months of 2005, respectively. This decrease in
income during the second quarter of 2006 is primarily a result of the Company
recognizing a significantly lower gain on the sale and securitization of its
residential real estate loans and, to a lesser extent, a higher provision for
loan losses. The lower gain is a result of a lower level of gross premium being
realized on the Company's loan sales and securitizations and significant
increases in the Company's provisions for its loan valuation and repurchase
reserves; this was partially offset by the recognition of a small derivative
gain during the second quarter of 2006 as compared to a significant derivative
loss during the second quarter of 2005. This was partially offset by increased
levels of net interest income and loan servicing income.

     The Company reported net income of $51.9 million for the second quarter of
2006. This is compared to net income of $90.8 million for the second quarter of
2005. For the first six months of 2006, net income totaled $83.6 million, as
compared to $180.9 million for the first six months of 2005.


NET INTEREST INCOME

     The Company recorded net interest income for the second quarter and first
six months of 2006 of $165.4 million and $319.4 million as compared to $128.0
million and $246.7 million for the second quarter and first six months of 2005,
respectively. The increase in net interest income is primarily a result of an
increase in the level of average interest-earning assets. Total average
interest-earning assets increased 23.5% to $14.3 billion during the second
quarter of 2006, as compared to $11.6 billion during the second quarter of 2005.
This increase is primarily the result of significantly higher levels of
commercial and residential real estate loans held for investment and sale. In
addition, the Company's residual interests in securitized loans also increased
substantially; these residual interests typically realize a higher yield than
the Company's other interest-earning assets, thus positively impacting net
interest income and net interest income margin. The net interest income margin
as a percentage of average interest-earning assets increased to an annualized
4.78% for the first six months of 2006 from 4.52% for the first six months of
2005. Net interest income is impacted by the volume, mix and rate of
interest-earning assets and interest-bearing liabilities.

                                       50



<PAGE>

     The following tables identify the consolidated interest income, interest
expense, average interest-earning assets and interest-bearing liabilities, and
net interest margins, as well as an analysis of changes in net interest income
due to volume and rate changes, for the second quarter and first six months of
2006 and 2005:

<TABLE>
<CAPTION>
                                                                             THREE MONTHS ENDED JUNE 30,
                                                   ---------------------------------------------------------------------------
                                                                   2006                                     2005
                                                   ----------------------------------        ---------------------------------
                                                      AVERAGE                   YIELD/         AVERAGE                   YIELD/
                                                      BALANCE       INTEREST     COST          BALANCE       INTEREST     COST
                                                   ------------    ---------    -----        -----------    ---------    -----
                                                                         (THOUSANDS OF DOLLARS, EXCEPT PERCENTS)

<S>                                                <C>             <C>           <C>         <C>            <C>           <C>
Interest-earning assets (1):
  Commercial real estate loans .................   $  5,560,025    $ 126,526     9.13%       $  3,864,369   $  76,457     7.94%
  Residential real estate loans (2) ............      8,054,457      167,948     8.36%          6,971,662     125,849     7.24 %
  Residual interests in securitized loans ......        100,149       15,949    63.88%             18,823       2,969    63.27 %
  Cash equivalents and investment securities ...        624,129        7,185     4.62%            752,416       5,675     3.03 %
                                                   ------------    ---------    ------       ------------   ---------    -----
    Total interest-earning assets ..............   $ 14,338,760    $ 317,608     8.88%       $ 11,607,270   $ 210,950     7.29 %
                                                   ============    =========    =====        ============   =========    =====

Interest-bearing liabilities:
  Time deposits ................................   $  8,081,385    $  92,027     4.57%       $  6,510,178   $  51,396     3.17 %
  Savings deposits .............................      1,521,289       14,358     3.79%          1,640,279      10,904     2.67 %
  FHLB advances ................................      2,838,626       34,939     4.94%          1,823,463      12,213     2.69 %
  Warehouse lines of credit ....................        324,244        4,923     6.09%            230,658       2,337     4.06 %
  Senior Notes due 2009 ........................        171,994        3,464     8.06%            181,450       3,650     8.05 %
  LYONs ........................................              -            -        -                 386           7     7.27 %
  Junior Subordinated Debentures ...............        103,093        2,319     9.00%            103,093       2,320     9.00 %
  Other ........................................         24,167          213     3.54%             29,166         161     2.21 %
                                                   ------------    ---------    -----        ------------   ---------   ------
    Total interest-bearing liabilities .........   $ 13,064,798    $ 152,243     4.67%       $ 10,518,673   $  82,988     3.16 %
                                                   ============    =========    ======       ============   =========   ======

Net interest income ............................                   $ 165,365                                $ 127,962
                                                                   =========                                =========

Percent of average interest-earning assets:
  Interest income ..............................                                 8.88%                                    7.29%
  Interest expense .............................                                 4.26%                                    2.87%
                                                                                -----                                   ------
  Net interest margin ..........................                                 4.62%                                    4.42%
                                                                                =====                                   ======

<FN>

(1)  Average loan balances include non-accrual loan balances.
(2)  Includes loans held for sale and other.
</FN>
</TABLE>

                                       51



<PAGE>
<TABLE>
<CAPTION>
                                                                             SIX MONTHS ENDED JUNE 30,
                                                   --------------------------------------------------------------------------
                                                                   2006                                    2005
                                                   ----------------------------------        ---------------------------------
                                                      AVERAGE                   YIELD/         AVERAGE                   YIELD/
                                                      BALANCE       INTEREST     COST          BALANCE      INTEREST      COST
                                                   ------------     --------    -----        ------------   --------     -----
                                                                         (THOUSANDS OF DOLLARS, EXCEPT PERCENTS)

<S>                                                <C>             <C>           <C>         <C>            <C>          <C>
Interest-earning assets (1):
  Commercial real estate loans .................   $  5,297,643    $ 236,060     8.99%       $  3,743,649   $ 142,849     7.69%
  Residential real estate loans (2) ............      7,503,573      307,705     8.27%          6,601,538     236,959     7.24%
  Residual interests in securitized loans ......        102,243       32,759    64.61%             17,050       4,307    50.94%
  Cash equivalents and investment securities ...        581,601       13,954     4.84%            635,183       8,759     2.78%
                                                   ------------    ---------    -----        ------------   ---------    ------
    Total interest-earning assets ..............   $ 13,485,060    $ 590,478     8.83%       $ 10,997,420   $ 392,874     7.20%
                                                   ============    =========    =====        ============   =========    =====

Interest-bearing liabilities:
  Time deposits ................................   $  7,753,930    $ 168,836     4.39%       $  6,204,962   $  90,963     2.96%
  Savings deposits .............................      1,550,445       28,234     3.67%          1,694,871      20,693     2.46%
  FHLB advances ................................      2,383,818       55,595     4.70%          1,586,223      19,719     2.51%
  Warehouse lines of credit ....................        205,462        6,560     6.44%            115,966       2,556     4.44%
  Senior Notes due 2009 ........................        174,076        7,010     8.05%            181,450       7,301     8.05%
  LYONs ........................................              -            -        -                 480          15     6.30%
  Junior Subordinated Debentures ...............        103,093        4,639     9.00%            103,093       4,639     9.00%
  Other ........................................         23,699          249     2.12%             27,140         274     2.04%
                                                   ------------    ---------    -----        ------------   ----------   -----
    Total interest-bearing liabilities .........   $ 12,194,523    $ 271,123     4.48%       $  9,914,185   $ 146,160     2.97%
                                                   ============    =========    =====        ============   =========    =====

Net interest income ............................                   $ 319,355                                $ 246,714
                                                                   =========                                =========


Percent of average interest-earning assets:
  Interest income ..............................                                 8.83%                                    7.20%
  Interest expense .............................                                 4.05%                                    2.68%
                                                                                -----                                    -----
  Net interest margin ..........................                                 4.78%                                    4.52%
                                                                                =====                                    =====

<FN>

(1)  Average loan balances include non-accrual loan balances.
(2)  Includes loans held for sale and other.
</FN>
</TABLE>


                                       52


<PAGE>
<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED JUNE 30,                 SIX MONTHS ENDED JUNE 30,
                                                         2006 COMPARED TO 2005                      2006 COMPARED TO 2005
                                                  -------------------------------------     --------------------------------------
                                                       CHANGE DUE TO                             CHANGE DUE TO
                                                  ----------------------                    -----------------------
                                                  VOLUME (1)   RATE            TOTAL        VOLUME (1)   RATE              TOTAL
                                                  ----------------------     ---------      -----------------------      ----------
                                                                             (THOUSANDS OF DOLLARS)

<S>                                               <C>           <C>          <C>            <C>           <C>            <C>
 Cash equivalent and investment securities ....   $  (1,472)    $  2,982     $   1,510      $  (1,027)    $   6,222      $   5,195
 Loans and residual interests .................      74,093       31,055       105,148        133,485        58,924        192,409
                                                  ---------     --------     ---------      ---------     -----------     --------
 Total increase in interest income ............      72,621       34,037       106,658        132,458        65,146        197,604
                                                  ---------     --------     ---------      ---------     -----------     --------


 Time deposits ................................     (17,892)     (22,739)      (40,631)       (33,728)      (44,145)       (77,873)
 Savings deposits .............................       1,123       (4,577)       (3,454)         2,630       (10,171)        (7,541)
 FHLB advances ................................     (12,495)     (10,231)      (22,726)       (18,601)      (17,275)       (35,876)
 Warehouse lines of credit ....................      (1,421)      (1,165)       (2,586)        (2,857)       (1,147)        (4,004)
 Senior Notes due 2004 and 2009 ...............         186            -           186            291             -            291
 LYONs ........................................           7            -             7             15             -             15
 Junior Subordinated Debentures ...............           1            -             1              -             -              -
 Other ........................................          44          (96)          (52)            36           (11)            25
                                                  ---------     --------     ---------      ---------     ---------     ----------
 Total (increase) in interest expense .........     (30,447)     (38,808)      (69,255)       (52,214)      (72,749)      (124,963)
                                                  ---------     --------     ---------      ---------     ---------      ---------
 Increase / (decrease) in net interest income .   $  42,174     $ (4,771)    $  37,403      $  80,244     $  (7,603)     $  72,641
                                                  =========     ========     =========      =========     =========      =========

<FN>

(1)   Changes in rate/volume are allocated to change in volume.
</FN>
</TABLE>


NON-INTEREST INCOME

WHOLE LOAN SALES AND SECURITIZATIONS OF RESIDENTIAL REAL ESTATE LOANS

     The gain on sale of residential real estate loans decreased from $92.0
million in the second quarter of 2005 to $8.4 million for the second quarter of
2006. For the first six months of 2006 the Company realized a $6.8 million loss
on the sale of its residential real estate loans as compared to a $200.3 million
gain for the first six months of 2005. The decrease in the gain on sale during
the second quarter of 2006 and the loss on sale for the first six months of 2006
is primarily attributable to a decrease in the gross premiums received on loan
sales during the second quarter and first six months of 2006 and significantly
increased levels of provisions for loan valuation and repurchase reserves, as
compared to the second quarter and first six months of 2005. The net gain (loss)
percentage (the net gain or loss after direct costs, net gains or losses on
derivative instruments, provisions for premium recapture and valuation and
repurchase reserves, divided by net loans sold) on these sales and
securitizations decreased from 0.94% in the second quarter of 2005 to 0.10% in
the second quarter of 2006. For the first six months of 2006 the Company
realized a net loss percentage on these sales of (0.05)% as compared to a net
gain percentage of 1.19% for the first six months of 2005.

     A total of $9.9 billion in loans were sold (including loans sold via
securitization) during the second quarter of 2006, as compared to loan sales and
securitizations of $9.8 billion during the second quarter of 2005. For the first
six months of 2006, a total of $17.2 billion in loans were sold (including loans
sold via securitization), as compared to loan sales of $16.8 billion for the
first six months of 2005. The average gross premium on Tier 1 loan sales and
securitizations during the second quarter of 2006 was 2.15% as compared to an
average of 2.78% for the second quarter of 2005. For the first six months of
2006, the


                                       53


<PAGE>

average gross premium on Tier 1 loan sales and securitizations was 1.75% as
compared to an average of 2.83% for the first six months of 2005. The decrease
in gross premiums is a result of lower interest rate margins (reflecting
increased price competition in the non-prime mortgage origination market) and
secondary market conditions. In addition, pricing for second mortgages in the
secondary market continued to decline during the second quarter of 2006. The
Company's direct costs of loan origination associated with loans sold decreased
during the second quarter and first six months of 2006 to 0.81% and 0.86%,
respectively from 1.29% and 1.32% for the same periods in 2005 as a result of
lower costs incurred for broker and account executive compensation.

     The Company also reported higher provisions for valuation and repurchase
reserves for the second quarter of 2006 of $84.8 million (or 0.86%) of total net
loan sales and securitizations, as compared to $19.3 million (or 0.20%) for the
second quarter of 2005. For the first six months of 2006 the Company reported
provisions of $117.2 million (or 0.69%) of total net loan sales and
securitizations as compared to $29.3 million (or 0.17%) for the first six months
of 2005. The increased provisions for loan valuation and repurchase reserves is
primarily due to increased loan repurchase re-pricing trends from previous whole
loan sale transactions and lower secondary market values for second mortgages.
These increased loan repurchase and re-pricing levels, which have been noted
industry-wide, are primarily due to increased levels of early payment
delinquencies and a greater incidence of repurchase requests from whole loan
purchasers. The Company's loan repurchases and re-pricings increased to $238.4
million and $346.1 million for the second quarter and first six months of 2006,
respectively, as compared to $67.7 million and $143.8 million for the second
quarter and first six months of 2005, respectively. Losses realized on Tier II
loan sales increased to $26.9 million and $40.9 million for the second quarter
and first six months of 2006, respectively, from $3.2 million and $6.4 million
for the second quarter and first six months of 2005. The Company continually
evaluates the loss and repurchase frequency estimates utilized for its valuation
and repurchase reserves based upon its analysis of historical and current data
and the mix of loan characteristics.

     Given these loan repurchase and re-pricing trends, with an objective of
reducing its early payment delinquencies, the Company made modifications in its
loan origination parameters during the second quarter of 2006, including
eliminating or reducing certain higher loan-to-value products and lower FICO
bands. The Company expects to see the impact of these changes during the fourth
quarter of 2006 and the first quarter of 2007.

     The Company realized net gains of $1.6 million and $16.2 million on its
derivative instruments utilized to hedge the impact of interest rate volatility
on its residential real estate lending activities during the second quarter and
first six months of 2006, respectively. These net gains primarily resulted from
an increase in the underlying interest rate indices (primarily the two-year swap
rate) which conversely had a negative impact upon the gross loan sale premiums
realized during the same periods. These net gains are compared to net losses on
derivatives of $25.6 million and $8.4 million during the second quarter and
first six months of 2005.

                                       54

<PAGE>

     The Company's gross loan premiums, loan repurchase and valuation reserves
and the gain or loss on derivative instruments have exhibited, and are expected
to continue to exhibit, variability (often significant) based on various
economic, credit and interest rate environments, as well as on the Company's
loan sale and hedging activity levels and their timing.

     The following table provides the amounts of loans sold during the
respective periods and additional detail on the net gain (loss) on whole loan
sales and securitizations:

                                       55
<PAGE>
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                              JUNE 30,                        JUNE 30,
                                                                    ---------------------------     -----------------------------
                                                                       2006            2005             2006             2005
                                                                    -----------     -----------     ------------    -------------
                                                                                       (THOUSANDS OF DOLLARS)

<S>                                                                 <C>             <C>             <C>              <C>
Whole loan sales of residential real estate loans ...............   $ 8,911,454     $ 8,776,193     $ 16,169,109     $ 14,625,502
Securitizations of residential real estate loans ................       982,533         981,717          982,533        2,191,566
                                                                    -----------     -----------     ------------     ------------
Total loan sales and securitizations - net of repurchases .......   $ 9,893,987     $ 9,757,910     $ 17,151,642     $ 16,817,068
                                                                    ===========     ===========     ============     ============

Gross premium recognized on Tier I loan sales and securitizations   $   212,315     $   271,345     $    300,248     $    476,221
Losses on Tier II sales .........................................       (26,867)         (3,225)         (40,856)          (6,405)
                                                                    -----------     -----------     ------------     ------------
                                                                        185,448         268,120          259,392          469,816
Net gain (loss) on derivative instruments .......................         1,598         (25,573)          16,194           (8,385)
                                                                    -----------     -----------     ------------     ------------
                                                                        187,046         242,547          275,586          461,431
Net direct loan origination costs ...............................       (81,053)       (125,463)        (148,820)        (221,656)
Provision for premium recapture .................................       (12,831)         (5,857)         (16,327)         (10,127)
                                                                    ------------    -----------     ------------     ------------
                                                                         93,162         111,227          110,439          229,648
Provision for valuation and repurchase reserves .................       (84,788)        (19,263)        (117,241)         (29,324)
                                                                    -----------     -----------     ------------     ------------
     Net gain (loss) on sale ....................................   $     8,374     $    91,964     $     (6,802)    $    200,324
                                                                    ===========     ===========     ============     ============

Net gain (loss) on sale .........................................   $     8,374     $    91,964     $     (6,802)    $    200,324
Origination expenses allocated during the period
 of origination .................................................       (37,690)        (41,850)         (66,663)         (78,154)
                                                                    -----------     -----------     ------------     ------------
     Net operating gain (loss) on sale ..........................   $   (29,316)    $    50,114     $    (73,465)    $    122,170
                                                                    ===========     ===========     ============     ============

Gross premium recognized on Tier I loan sales and securitizations          2.15 %          2.78 %           1.75 %           2.83 %
Losses on Tier II sales .........................................         (0.27)%         (0.03)%          (0.24)%          (0.04)%
                                                                    -----------     -----------     ------------     ------------
                                                                           1.88 %          2.75 %           1.51 %           2.79 %
Net gain (loss) on derivative instruments .......................          0.02 %         (0.26)%           0.09 %          (0.05)%
                                                                    -----------     -----------     ------------     -------------
                                                                           1.90 %          2.49 %           1.60 %           2.74 %
Net direct loan origination costs ...............................         (0.81)%         (1.29)%          (0.86)%          (1.32)%
Provision for premium recapture .................................         (0.13)%         (0.06)%          (0.10)%          (0.06)%
                                                                    -----------     -----------     ------------     ------------
                                                                           0.96 %          1.14 %           0.64 %           1.36 %
Provision for valuation and repurchase reserves .................         (0.86)%         (0.20)%          (0.69)%          (0.17)%
                                                                    -----------     -----------     ------------     ------------
     Net gain (loss) on sale ....................................          0.10 %          0.94 %          (0.05)%           1.19 %
                                                                    ===========     ===========     ============     ============

Net gain (loss) on sale .........................................          0.10 %          0.94 %          (0.05)%           1.19 %
Origination expenses allocated during the period
 of origination .................................................         (0.38)%         (0.43)%          (0.39)%          (0.46)%
                                                                    -----------     -----------     ------------     ------------
     Net operating gain (loss) on sale ..........................         (0.28)%          0.51 %          (0.44)%           0.73 %
                                                                    ===========     ===========     ============     ============
<FN>
o    Percentages are of total loan sales and securitizations, net of repurchases, during the period indicated.
o    Tier II loans do not meet the criteria for a Tier I sale due to delinquency status, documentation issues or
     loan program exceptions for which the Company typically receives lower premiums.
o    Provision for premium recapture is the provision for the return of premium on loans sold which prepay early
     per the terms of each sales contract; includes some interest adjustment.
o    Provision for valuation and repurchase reserves represents adjustments to the valuation allowance for the
     Company's held for sale loans and adjustments to the Company's repurchase reserve for the effect of loans
     estimated to be repurchased and the related return premiums.
o    Origination expenses represent indirect expenses related to the origination of residential real estate loans
     during the period of origination and which are not deferred for GAAP. These expenses are included in non-interest
     expense in the consolidated statements of income during the period incurred. There is no directly comparable GAAP
     financial measure to "Origination expenses allocated during the period of origination", the components of which
     are calculated in accordance with GAAP.
o    Net operating gain on sale is a supplement to, and not a substitute for, the information presented in the
     consolidated statements of income as prepared in accordance with GAAP. The Company utilizes this additional
     information as part of its management of the total costs and efficiency of its loan origination platform.
     Furthermore, our definition of the indirect origination expenses may not be comparable to similarly titled measures
     reported by other companies. Because these expenses are estimates that are  based on loans sold during the current
     period utilizing actual costs from prior periods, these costs may fluctuate from period to period reflecting
     changes in the volume of loans sold, originated and the actual indirect  expenses incurred during the period of
     loan origination. The net operating gain on sale amount does not include net interest income on residential
     real estate loans held for sale or any fair value adjustments on the Company's residual interests in securitized loans.

</FN>
</TABLE>


LOAN SERVICING AND OTHER NON-INTEREST INCOME

     The components of the Company's loan servicing income, MSR amortization and
impairment and other non-interest income for the second quarter and first six
months of 2006 and 2005 are indicated in the following table:


                                       56

<PAGE>
<TABLE>
<CAPTION>
                                                             THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                   JUNE 30,                JUNE 30,
                                                          ---------------------     ----------------------
                                                            2006         2005          2006         2005
                                                          --------     --------     ---------     --------
                                                                       (THOUSANDS OF DOLLARS)

<S>                                                       <C>          <C>          <C>           <C>
Loan Servicing Income:
  Servicing fee income:
    Securitization transactions .......................   $  8,178     $  5,214     $  16,974     $  9,593
    Interim ...........................................      7,172        7,768        13,624       14,276
    Loans sold - servicing retained ...................      2,565          641         3,917        1,472
                                                          --------     --------     ---------     --------
                                                            17,915       13,623        34,515       25,341
  Ancillary income ....................................      3,002        1,808         5,908        3,531
  Other ...............................................      2,565          514         4,408          814
                                                          --------     --------     ---------     --------
                                                          $ 23,482     $ 15,945     $  44,831     $ 29,686
                                                          ========     ========     =========     ========

MSR Amortization and Impairment:
  MSR amortization ....................................   $ (8,859)    $ (5,062)    $ (16,903)    $ (9,547)
  MSR impairment provision ............................          -          255             -         (164)
                                                          --------     --------     ---------     --------
                                                          $ (8,859)    $ (4,807)    $ (16,903)    $ (9,711)
                                                          ========     ========     =========     ========

Other Non-Interest Income:
  Prepayment fees:
    Commercial real estate ............................   $  1,257     $    420     $   1,899     $  1,381
    Residential real estate ...........................        841          712         1,482        1,274
  Commercial real estate transaction fees .............      2,821        3,773         3,839        5,836
  Net gain on extinguishment of debt ..................         15            -            37            -
  All other ...........................................        409        1,135         1,292        1,476
                                                          --------     --------     ---------     --------
                                                          $  5,343     $  6,040     $   8,549     $  9,967
                                                          ========     ========     =========     ========
</TABLE>

     Loan servicing income (which is all related to residential real estate),
increased from $15.9 million in the second quarter of 2005 to $23.5 million for
the second quarter of 2006. For the first six months of 2006 loan servicing
income was $44.8 million versus $29.7 million for the first six months of 2005.
These increases were due to increased residential real estate loan origination
volume, which resulted in an increase in loan securitization activity in prior
periods and higher levels of interim servicing during the second quarter and
first six months of 2006 as compared to the second quarter and first six months
of 2005. The additional loan securitization activity also created a higher level
of MSRs, which resulted in an increase in the amortization (expense) of the MSRs
in 2006 versus 2005.

     The Company was servicing $24.9 billion in principal balance of residential
loans as of June 30, 2006 as compared to $21.0 billion as of June 30, 2005 and
reflects the increase in loan servicing volume during the prior twelve months.
The Company intends to continue to service those loans it securitizes, as well
as and continues to service some loans sold to other parties for more than on an
interim basis (servicing retained).

     The following is a breakdown of the total amount of loans outstanding being
serviced by categorization as of the dates indicated:

                                       57

<PAGE>
<TABLE>
<CAPTION>
                                                                                JUNE 30,     DECEMBER 31,
                                                                                  2006          2005
                                                                                --------     -----------
                                                                                  (MILLIONS OF DOLLARS)

<S>                                                                             <C>          <C>
Loans in securitizations ...................................................    $  6,847     $     7,381
Loans sold and servicing retained ..........................................       4,347           1,082
                                                                                --------     -----------
  Loans being serviced to maturity .........................................      11,194           8,463
Loans held for sale ........................................................       6,106           5,412
Loans sold and serviced on an interim basis ................................       7,569           8,377
                                                                                --------     -----------
                                                                                $ 24,869     $    22,252
                                                                                ========     ===========
</TABLE>


PROVISION FOR LOSSES

     For the second quarter of 2006 the Company recognized a $11.7 million
provision expense as compared to a $4.2 million credit to income for the second
quarter of 2005. For the first six months of 2006, the provision expense was
$15.6 million versus a $3.2 million credit to income for the first six months of
2005. The provision expense increase was primarily a result of the increase
between the quarters in the commercial real estate loans held for investment
partially offset by the decreased levels of net charge-offs and non-accrual and
classified (substandard) commercial real estate portfolio loans. In addition,
the Company has continued to reduce its exposure to commercial real estate loans
secured by hotel and lodging properties which have been the majority of the
non-accrual loans and net charge-offs in prior periods. The net charge-off
amounts and ratios (to average loans outstanding) for the commercial real estate
portfolio were $(192,000) or (0.01)% for the second quarter of 2006 and $7.8
million or 0.81% for the second quarter of 2005.

     For the first six months of 2006 the net charge-off amounts and ratios were
$(259,000) or (0.01)% as compared to $8.4 million or 0.45% for the first six
months of 2005. The provision for loan losses represents the current period
expense (or credit to income) associated with maintaining an appropriate
allowance for loan losses. The loan loss provision or credit for each period is
dependent upon many factors, including loan growth, net charge-offs, changes in
the composition and concentrations (geographic, industry, loan structure and
individual loan) of the loan portfolio, the number and balances of non-accrual
loans, delinquencies, the levels of restructured loans, assessment by management
of the inherent risk in the portfolio, the value of the underlying collateral on
classified loans and the general economic conditions in the commercial real
estate markets in which the Company lends. Periodic fluctuations in the
provision for loan losses and the allowance for loan losses result from
management's on-going assessment of their adequacy.


NON-INTEREST EXPENSE

     Non-interest expense decreased from $90.7 million during the second quarter
of 2005 to $90.1 million for the second quarter of 2006. Increases in legal,
professional, occupancy, and leasing and loan expense were offset by an overall
decrease in net real estate owned expenses. For the first six months of


                                       58


<PAGE>


2006, non-interest expense increased to $188.4 million as compared to $177.2
million for the first six months of 2005. The increase was the result of
increases in legal, professional, information technology and leasing and loan
expense.

     Compensation expense increased from $55.7 million and $114.9 million during
the second quarter and first six months of 2005 to $57.2 million and $116.7
million for the second quarter and first six months of 2006, respectively.
Decreases in compensation expense related to residential real estate sales
compensation were more than offset by decreases in the capitalization level of
direct loan origination costs. Overall increases in base compensation were
largely offset by decreases in incentive and benefits costs (such as management
incentive compensation, employee stock ownership, 401(K) and other related
accruals).

     Compensation and non-compensation related operating expenses are detailed
in the following tables:

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                              JUNE 30,                     JUNE 30,
                                                                      -----------------------     -------------------------
                                                                         2006          2005          2006           2005
                                                                      ---------     ---------     ----------     ----------
                                                                                     (THOUSANDS OF DOLLARS)

<S>                                                                   <C>           <C>           <C>            <C>
Compensation and related ..........................................   $  57,249     $  55,654     $  116,659     $  114,934
Occupancy .........................................................       8,175         6,942         15,805         13,877
Other .............................................................      24,637        28,119         55,893         48,348
                                                                      ---------     ---------     ----------     ----------
Total non-interest expense ........................................   $  90,061     $  90,715     $  188,357     $  177,159
                                                                      =========     =========     ==========     ==========
</TABLE>
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                              JUNE 30,                      JUNE 30,
                                                                      ----------------------      -------------------------
                                                                         2006          2005          2006           2005
                                                                      ---------     ---------     ----------     ----------
                                                                                     (THOUSANDS OF DOLLARS)

<S>                                                                   <C>           <C>           <C>            <C>
Total compensation and related ....................................   $ 119,908     $ 125,803     $  235,620     $  250,353
Deferral of loan origination costs (1) ............................     (62,659)      (70,149)      (118,961)      (135,419)
                                                                      ---------     ---------     ----------     ----------
Compensation and related ..........................................   $  57,249     $  55,654     $  116,659     $  114,934
                                                                      =========     =========     ==========     ==========

<FN>

(1)  Incremental direct costs associated with the origination of loans are deferred when incurred. For residential real
     estate loans, when the related loan is sold, the deferred costs are included as a component of net gain on sale.
</FN>
</TABLE>

     Other non-interest expense categories for the second quarter and first six
months ended June 30, 2006 and 2005 are summarized below (note that gains on the
sale of REO properties are included herein as an offset):

                                       59

<PAGE>
<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                              JUNE 30,                   JUNE 30,
                                                                       ---------------------     -----------------------
                                                                         2006         2005         2006           2005
                                                                       --------     --------     ---------     ---------
                                                                                    (THOUSANDS OF DOLLARS)


<S>                                                                    <C>          <C>          <C>           <C>
Legal, professional and other outside services .....................   $  9,542     $  7,327     $  16,279     $  12,775
Information technology .............................................      4,591        3,948         9,012         7,269
Printing, supplies and postage .....................................      4,589        3,990         8,011         7,595
Advertising and promotion ..........................................      2,243        2,740         6,161         5,442
Auto and travel ....................................................      2,351        2,137         4,435         4,267
Leasing and loan expense ...........................................      2,930        1,351         5,756         3,304
Net real estate owned expenses .....................................     (8,337)         195        (7,241)       (4,635)
Telephone ..........................................................      2,328        1,296         3,386         2,157
All other ..........................................................      4,400        5,135        10,094        10,174
                                                                       --------     --------     ---------     ---------
Total other expenses ...............................................   $ 24,637     $ 28,119     $  55,893     $  48,348
                                                                       ========     ========     =========     =========
</TABLE>


INCOME TAXES

     Income tax expense of $34.3 million and $59.3 million for the quarters
ended June 30, 2006 and 2005, represent effective tax rates of 39.8% and 39.5%,
respectively, on income before income taxes of $86.2 million and $150.0 million
for the same respective periods. For the six months ended June 30, 2006 and
2005, income tax expense of $55.7 million and $120.3 million, represent effect
tax rates of 40.0% on income before income taxes of $139.3 million and $301.2
million for the same respective periods. The effective tax rates for all periods
presented are different than the Federal enacted tax rate of 35% due mainly to
various apportioned state income tax provisions.


REVIEW OF FINANCIAL CONDITION

LOANS HELD FOR SALE

     The Company's residential real estate loans held for sale have increased to
$6.07 billion at June 30, 2006 from $5.42 billion at December 31, 2005. During
the second quarter of 2006, residential real estate loan originations totaled
$9.54 billion as compared to $9.24 billion for the second quarter of 2005.
During the first six months of 2006 residential real estate loan originations
totaled $18.08 billion as compared to $17.01 billion for the first six months of
2005. The following table details the loans held for sale as of the dates
indicated:

                                       60

<PAGE>
<TABLE>
<CAPTION>
                                                                                  JUNE 30,       DECEMBER 31,
                                                                                    2006            2005
                                                                                ------------     -----------
                                                                                   (THOUSANDS OF DOLLARS)

<S>                                                                             <C>              <C>
Loan principal balance:
  1st  trust deeds ..........................................................   $ 5,445,702      $ 4,792,976
  2nd trust deeds ...........................................................       656,118          611,104
                                                                                -----------      -----------
                                                                                  6,101,820        5,404,080
Net deferred direct origination costs .......................................        44,913           51,782
                                                                                -----------      -----------
                                                                                  6,146,733        5,455,862
Less:  Valuation reserve ....................................................       (74,433)         (32,753)
                                                                                -----------      -----------
Loans held for sale - net ...................................................   $ 6,072,300      $ 5,423,109
                                                                                ===========      ===========

Loans held for sale on non-accrual status ...................................   $    42,299      $    16,736
                                                                                ===========      ===========
</TABLE>

     During the latter half of 2005, the Company implemented pricing strategies
designed to reduce the production volume of interest-only loans, while at the
same time a 40-year amortization (due in 30 years) first mortgage product was
introduced. The interest-only loans generally provide for no principal
amortization for up to the first five years and are available on the 2/28 and
3/27 (e.g., 2 years fixed rate, then 28 years adjustable rate) products. The
second lien products are all fixed rate loans. The following tables profile the
loan origination volume for the periods indicated:


                                       61


<PAGE>
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                JUNE 30,                      JUNE 30,
                                                     ---------------------------     -----------------------------
                                                         2006           2005             2006             2005
                                                     -----------     -----------     ------------     ------------
                                                               (THOUSANDS OF DOLLARS, EXCEPT PERCENTS)

<S>                                                  <C>             <C>             <C>              <C>
Loan origination volume by lien position:
  Firsts .........................................   $ 8,659,180     $ 8,433,079     $ 16,448,837     $ 15,593,510
  Seconds ........................................       879,739         810,600        1,629,226        1,411,841
                                                     -----------     -----------     ------------     ------------
                                                     $ 9,538,919     $ 9,243,679     $ 18,078,063     $ 17,005,351
                                                     ===========     ===========     ============     ============

For first lien volume only:
  Average loan size ..............................   $   260,552     $   241,166     $    261,084     $    237,829
  Weighted-average coupon ........................          8.36%           7.15%            8.35%            7.10%
  Average bureau credit score (FICO) .............           623             624              621              623
  Average loan-to-value (LTV) ....................          80.0%          81.0%             79.9%            81.0%

  Type of product:
    ARMs:
      30 Year:
        2/28 .....................................          51.2%           85.7%            54.1%            86.1%
        3/27 .....................................           0.7%            2.9%             0.7%             2.9%
        5/25 .....................................           0.1%            0.9%             0.2%             0.9%
                                                     -----------     -----------     ------------     ------------
                                                            52.0%           89.5%            55.0%            89.9%

        40/30:
          2/28 ...................................          37.0%            0.0%            36.0%             0.0%
          3/27 ...................................           0.5%            0.0%             0.5%             0.0%
          5/25 ...................................           0.1%            0.0%             0.1%             0.0%
                                                     -----------     -----------     ------------     ------------
                                                            37.6%            0.0%            36.6%             0.0%
                                                     -----------     -----------     ------------     ------------
          Total ARMs .............................          89.6%           89.5%            91.6%            89.9%
                                                     ===========     ===========     ============     ============

    Fixed rate:
      30 Year ....................................           7.4%           10.5%             6.2%            10.1%
      40/30 ......................................           3.0%            0.0%             2.2%             0.0%
                                                     -----------     -----------     ------------     ------------
          Total fixed rate .......................          10.4%           10.5%             8.4%            10.1%
                                                     -----------     -----------     ------------     ------------
                                                           100.0%          100.0%           100.0%           100.0%
                                                     ===========     ===========     ============     ============
  Loan purpose:
    Purchase .....................................          47.9%           49.5%            46.6%            47.6%
    Refinance ....................................          52.1%           50.5%            53.4%            52.4%
                                                     -----------     -----------     ------------     ------------
                                                           100.0%          100.0%           100.0%           100.0%
                                                     ===========     ===========     ============     ============

  Documentation Type:
    Full .........................................          54.4%           61.6%            53.3%            61.5%
    Stated .......................................          44.6%           35.4%            45.7%            35.6%
    Other ........................................           1.0%            3.0%             1.0%             2.9%
                                                     -----------     -----------     ------------     ------------
                                                           100.0%          100.0%           100.0%           100.0%
                                                     ===========     ===========     ============     ============


For second lien volume only:
  Average loan size ..............................   $    66,126     $    50,751     $     65,774     $     49,102
  Weighted-average coupon ........................         11.30%           9.99%           11.16%           10.02%
  Average bureau credit score (FICO) .............           652             650              653              649
  Purpose:
    Purchase .....................................          82.2%           80.3%            80.9%            79.3%
    Refinance ....................................          17.8%           19.7%            19.1%            20.7%

</TABLE>

                                       62

<PAGE>
<TABLE>
<CAPTION>
                                                           THREE MONTHS ENDED             SIX MONTHS ENDED
                                                                JUNE 30,                      JUNE 30,
                                                     ---------------------------     -----------------------------
                                                         2006           2005             2006             2005
                                                     -----------     -----------     ------------     ------------

<S>                                                         <C>             <C>              <C>              <C>
First & Second Mortgages - Origination by
 geographic dispersion:
   California ....................................          25.4%           27.9%            25.5%            29.0%
   Florida .......................................          15.0%           10.6%            14.4%            10.2%
   New York ......................................          11.5%           11.1%            11.7%            11.0%
   Maryland ......................................           7.2%            5.5%             7.3%             5.3%
   New Jersey ....................................           6.3%            6.8%             6.8%             6.9%
   All other states ..............................          34.6%           38.1%            34.3%            37.6%
                                                     -----------     -----------     ------------     ------------
                                                           100.0%          100.0%           100.0%           100.0%
                                                     ===========     ===========     ============     ============
</TABLE>
<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                              JUNE 30,                 JUNE 30,
                                                                        -------------------      --------------------
                                                                          2006        2005         2006         2005
                                                                        -------     -------      -------      -------

<S>                                                                       <C>         <C>          <C>          <C>
Interest-only loans:
  As a percentage of first lien volume ..............................     10.90%      26.97%       10.74%       26.25%
  Average bureau credit score (FICO) ................................       645         645          645          645
  Weighted-average coupon ...........................................      7.59%       6.50%        7.61%        6.42%
  Average loan-to-value (LTV) .......................................      81.3%       81.6%        81.3%        81.7%

</TABLE>


LOANS HELD FOR INVESTMENT AND ALLOWANCE ACTIVITY

     The Company's net loans held for investment before the allowance for loan
losses was approximately $5.70 billion at June 30, 2006, as compared to $4.76
billion at December 31, 2005. The increase in the Company's loans held for
investment is a result of increased levels of loan commitment origination in
2005 and the first six months of 2006, as well as a reduction in the rate of
loan paydowns. Commercial real estate loans are reported net of participations
to other financial institutions or investors in the amount of $178.1 million and
$138.2 million as of June 30, 2006 and December 31, 2005, respectively. The
following table shows the total commercial real estate new loan commitment
volume, net of participations, for the periods indicated:


                                       63

<PAGE>
<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                               JUNE 30,                      JUNE 30,
                                                                     ---------------------------     ---------------------------
                                                                         2006            2005           2006           2005
                                                                     -----------     -----------     -----------     -----------
                                                                                       (THOUSANDS OF DOLLARS)

<S>                                                                  <C>             <C>             <C>             <C>
Senior  loans ....................................................   $ 1,445,103     $ 1,157,062     $ 2,534,002     $ 2,217,735
Mezzanine loans ..................................................             -               -               -               -
                                                                     -----------     -----------     -----------     -----------
                                                                     $ 1,445,103     $ 1,157,062     $ 2,534,002     $ 2,217,735
                                                                     ===========     ===========     ===========     ===========

Average senior loan commitment size originated ...................   $    46,616     $    28,927     $    34,712     $    29,969
                                                                     ===========     ===========     ===========     ===========
</TABLE>

     The following table shows the Company's loans held for investment in the
various financing categories and the percentages of the total represented by
each category:

<TABLE>
<CAPTION>

                                                        JUNE 30, 2006                  DECEMBER 31, 2005
                                                 --------------------------        -------------------------
                                                   AMOUNT        % OF TOTAL          AMOUNT       % OF TOTAL
                                                 -----------     ----------        ----------     ----------
                                                            (THOUSANDS OF DOLLARS, EXCEPT PERCENTS)

<S>                                              <C>                    <C>       <C>                     <C>
Commercial real estate loans:
  Construction ...............................   $ 3,446,924            60 %      $ 2,448,428             51 %
  Bridge .....................................     1,927,767            34 %        1,887,073             39 %
  Permanent ..................................       291,927             5 %          389,681              8 %
  Single tenant credit .......................        76,189             1 %           77,113              2 %
                                                 -----------     ---------        -----------     ----------
                                                   5,742,807           100 %        4,802,295            100 %
Other ........................................         8,059             0 %            8,589              0 %
                                                 -----------     ---------        -----------     ----------
                                                   5,750,866           100 %        4,810,884            100 %
Deferrred fees and costs .....................       (53,158)           (1)%          (50,984)            (1)%
Allowance for loan losses ....................      (172,688)           (3)%         (156,837)            (3)%
                                                 -----------     ---------        -----------     ----------
Loans held for investment - net ..............   $ 5,525,020            96 %      $ 4,603,063             96 %
                                                 ===========     =========        ===========     ==========
</TABLE>


     As of June 30, 2006, approximately 21.1%, 14.8% and 11.3% of the Company's
commercial real estate loans outstanding were secured by properties located
within California, Florida and New York, respectively; no other state
represented greater than 9% of the loan portfolio. The real estate securing
these loans includes a wide variety of property and project types including
multi-family, office, retail, industrial, land development, lodging and
mixed-use properties. The loans in the portfolio were distributed by property
type as follows as of the dates indicated:


                                       64

<PAGE>
<TABLE>
<CAPTION>
                                                                                JUNE 30,      DECEMBER 31,
                                                                                  2006           2005
                                                                                -------       -----------

<S>                                                                             <C>           <C>
Multi-family - Condominiums .................................................        55%               48%
Land Development ............................................................        15%               15%
Office ......................................................................        13%               14%
Retail ......................................................................         7%                7%
Commercial Mixed-Use ........................................................         3%                5%
Multi-family - Other ........................................................         3%                3%
Industrial ..................................................................         2%                4%
Hotels & Lodging ............................................................         1%                2%
Special Purpose .............................................................         1%                2%
                                                                                -------       -----------
                                                                                    100%              100%
                                                                                =======       ===========
</TABLE>

     The commercial real estate loan portfolio as of June 30, 2006, is
stratified by loan size as follows (thousands of dollars, except percents and
number of loans):

<TABLE>
<CAPTION>

                                                  TOTAL LOANS                # OF        AVERAGE
                 LOAN SIZE                        OUTSTANDING       %        LOANS      LOAN SIZE
-----------------------------------------------   -----------      ---       -----      ---------

<S>                                               <C>              <C>        <C>      <C>
   $0             - $ 1 million ...............   $     3,206        0%         69      $      46
> $1 million      - $ 5 million ...............       136,725        2%         42          3,255
> $5 million      - $10 million ...............       560,839       10%         77          7,284
> $10 million     - $15 million ...............       618,505       11%         50         12,370
> $15 million     - $20 million ...............       407,437        7%         23         17,715
> $20 million     - $30 million ...............     1,201,532       21%         50         24,031
> $30 million     - $40 million ...............     1,011,783       18%         29         34,889
> $40 million     - $50 million ...............       354,473        6%          8         44,309
> $50 million .................................     1,448,307       25%         21         68,967
                                                  ------------     ---       -----     ----------
                                                  $ 5,742,807      100%        369     $   15,563
                                                  ============     ===       =====     ==========
</TABLE>

     As of June 30, 2006, the average loan size was $15.6 million (or $19.1
million when loans under $1 million are excluded) and the average loan-to-value
ratio was approximately 73%, using the most current available appraised values
and current loan balances outstanding. The following table details the
commercial real estate loan portfolio as of June 30, 2006 by property collateral
type and as to outstanding balances and total commitment amounts:


                                       65


<PAGE>
<TABLE>
<CAPTION>
                                                                                                                   AVERAGE
                                       TOTAL LOANS            TOTAL LOAN                AVERAGE       AVERAGE      LOAN TO
      PROPERTY TYPE                    OUTSTANDING    %       COMMITMENTS    %       LOAN BALANCE    COMMITMENT   COMMITMENT %
------------------------------------   -----------   ---      -----------   ---      ------------    ----------   ------------
                                                            (THOUSANDS OF DOLLARS, EXCEPT PERCENTS)

<S>                                    <C>           <C>     <C>            <C>     <C>              <C>                    <C>
Multi-Family - Condominiums ........   $ 3,154,400    55%     $ 6,235,225    64%     $     22,531     $ 44,537               51%
Land Development ...................       876,428    15%       1,201,231    12%           16,854       23,101               73%
Office .............................       707,480    12%         862,692     9%           21,439       26,142               82%
Retail .............................       368,502     7%         593,365     6%           13,648       21,976               62%
Commercial Mixed-Use ...............       190,201     3%         330,434     3%           15,850       27,536               58%
Multi-Family - Other ...............       164,574     3%         209,107     2%            2,286        2,904               79%
Industrial .........................       127,310     3%         143,323     2%            9,094       10,237               89%
Hotels & Lodging ...................        77,235     1%          77,235     1%            8,582        8,582              100%
Special Purpose ....................        76,677     1%          77,607     1%            7,668        7,761               99%
                                       -----------   ---      -----------   ---      ------------   ----------    -------------
                                       $ 5,742,807   100%     $ 9,730,219   100%     $     15,563     $ 26,369               59%
                                       ===========   ===      ===========   ===      ============   ==========    =============
</TABLE>

     The commercial real estate loan portfolio includes 21 separate loans with
outstanding balances in excess of $50 million as of June 30, 2006. The Company's
largest single individual loan outstanding (net of participation) at June 30,
2006 was $99.0 million with a total loan commitment of $99.0 million. The
Company's largest net commitment for a single loan at June 30, 2006 was $150.0
million (with $7.1 million outstanding); this commitment represents the maximum
potential loan amount to the borrower; however, the amount available to borrow
is generally subject to certain levels of completion or other factors on the
underlying property. At June 30, 2006, the Company had two loans collateralized
by the same building property; each loan was for certain floors and purpose (one
for condominiums and one for office space). The combined total loan commitment
of the two loans was $156.6 million with a combined total outstanding loan
balance of $134.5 million. As of June 30, 2006, there were eight groups of loans
(separate loans on different properties) with common investors or equity
sponsors for which the aggregate outstanding principal balance of the separate
loans exceeded $100 million. The largest concentration is from one affiliated
investment fund and totals $168.4 million in loan principal outstanding with
$224.2 million in total loan commitment and is comprised of five separate loans.
All five of the loans under this concentration were performing as of June 30,
2006.


                                       66

<PAGE>

     The following tables provide additional information related to the
Company's commercial real estate non-accrual loans, foreclosed assets,
delinquencies, restructured loans on accrual status and accruing loans past due
90 days or more, as well as reflect the related net loss experience and
allowance for loan loss reconciliation applicable to the loans held for
investment as of and for the respective periods ended as shown below (note that
as of June 30, 2006, the delinquent loans 30 days past due is comprised of one
loan and the delinquent loans 60 days or greater past due are comprised of three
loans):

<TABLE>
<CAPTION>
                                                                                JUNE 30,      DECEMBER 31,
                                                                                  2006            2005
                                                                                --------      -----------
                                                                                  (THOUSANDS OF DOLLARS,
                                                                                     EXCEPT PERCENTS)

<S>                                                                             <C>           <C>
Commercial Real Estate:

Non-accrual loans held for investment ("HFI") ...............................   $ 39,379      $    29,290
Real estate owned / foreclosed assets .......................................        299           30,198
                                                                                --------      -----------
Total non-performing assets .................................................   $ 39,678      $    59,488
                                                                                ========      ===========

Accruing loans receivable past due 90 days or more ..........................   $      -      $         -
                                                                                ========      ===========

Restructured loans on accrual status ........................................   $      -      $    12,309
                                                                                ========      ===========


Delinquent loans 30 days past due * ........................................        1.04%            0.10%
Delinquent loans 60 days pas due or greater * ..............................        0.59%            0.80%

Non-accrual loans to total loans HFI ........................................       0.69%            0.62%
Allowance for loan losses to total loans HFI ................................       3.03%            3.29%
Allowance for loan losses to non-performing assets ..........................      435.2%           263.6%

<FN>

*   Excludes current but contractfully matured loans.
</FN>
</TABLE>


                                       67


<PAGE>
<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED JUNE 30, 2006
                                                                     ---------------------------------------------------
                                                                      COMMERCIAL     RESIDENTIAL
                                                                     REAL ESTATE     REAL ESTATE     OTHER       TOTAL
                                                                     -----------     -----------     -----     ---------
                                                                                    (THOUSANDS OF DOLLARS)


<S>                                                                  <C>             <C>             <C>       <C>
Beginning allowance for loan losses ..............................   $   160,713     $         -     $  76     $ 160,789
Provision for loan losses ........................................        11,706               -         1        11,707
Charge-offs ......................................................             -               -         -             -
Recoveries .......................................................           192               -         -           192
                                                                     -----------     -----------     -----     ---------
Ending allowance for loan losses .................................   $   172,611     $         -     $  77     $ 172,688
                                                                     ===========     ===========     =====     =========

Net recoveries ...................................................   $       192     $         -     $   -     $     192
                                                                     ===========     ===========     =====     =========

Annualized net loan charge-offs to average commercial real
  estate loans held for investment ...............................         (0.01)%
                                                                     ===========
</TABLE>
<TABLE>
<CAPTION>
                                                                               THREE MONTHS ENDED JUNE 30, 2005
                                                                     ---------------------------------------------------
                                                                      COMMERCIAL     RESIDENTIAL
                                                                     REAL ESTATE     REAL ESTATE     OTHER       TOTAL
                                                                     -----------     -----------     -----     ---------
                                                                                    (THOUSANDS OF DOLLARS)

<S>                                                                  <C>             <C>             <C>       <C>
Beginning allowance for loan losses ..............................   $   171,891     $         -     $  50     $ 171,941
Provision for loan losses ........................................        (4,213)              -        (3)       (4,216)
Charge-offs ......................................................        (8,197)              -         -        (8,197)
Recoveries .......................................................           428               -         -           428
                                                                     -----------     -----------    ------     ---------
Ending allowance for loan losses .................................   $   159,909     $         -    $   47     $ 159,956
                                                                     ===========     ===========    ======     =========
Net charge-offs ..................................................   $    (7,769)    $         -    $    -     $  (7,769)
                                                                     ===========     ===========    ======     =========

Annualized net loan charge-offs to average commercial real estate
  loans held for investment ......................................          0.81%
                                                                     ===========
</TABLE>

                                       68


<PAGE>
<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED JUNE 30, 2006
                                                                     ---------------------------------------------------
                                                                      COMMERCIAL     RESIDENTIAL
                                                                     REAL ESTATE     REAL ESTATE     OTHER       TOTAL
                                                                     -----------     -----------     -----     ---------
                                                                                    (THOUSANDS OF DOLLARS)


<S>                                                                  <C>             <C>             <C>       <C>
Beginning allowance for loan losses ..............................   $   156,755     $         -     $  82     $ 156,837
Provision for loan losses ........................................        15,597              (4)       (5)       15,588
Charge-offs ......................................................             -               -         -             -
Recoveries .......................................................           259               4         -           263
                                                                     -----------     -----------     -----     ---------
Ending allowance for loan losses .................................   $   172,611     $         -     $  77     $ 172,688
                                                                     ===========     ===========     =====     =========

Net recoveries ...................................................   $       259     $         4     $   -     $     263
                                                                     ===========     ===========     =====     =========

Annualized net loan charge-offs to average commercial real
  estate loans held for investment ...............................         (0.01)%
                                                                     ===========
</TABLE>
<TABLE>
<CAPTION>
                                                                                SIX MONTHS ENDED JUNE 30, 2005
                                                                     ---------------------------------------------------
                                                                      COMMERCIAL     RESIDENTIAL
                                                                     REAL ESTATE     REAL ESTATE     OTHER       TOTAL
                                                                     -----------     -----------     -----     ---------
                                                                                    (THOUSANDS OF DOLLARS)

<S>                                                                  <C>             <C>             <C>       <C>
Beginning allowance for loan losses ..............................   $   171,471     $         -     $  54     $ 171,525
Provision for loan losses ........................................        (3,172)             (1)       (7)       (3,180)
Charge-offs ......................................................       (12,180)              -         -       (12,180)
Recoveries .......................................................         3,790               1         -         3,791
                                                                     -----------     -----------    ------     ---------
Ending allowance for loan losses .................................   $   159,909     $         -    $   47     $ 159,956
                                                                     ===========     ===========    ======     =========
Net (charge-offs) / recoveries ...................................   $    (8,390)    $         1    $    -     $  (8,389)
                                                                     ===========     ===========    ======     =========

Annualized net loan charge-offs to average commercial real
  estate loans held for investment ...............................          0.45%
                                                                     ===========
</TABLE>

     There were four non-accrual commercial real estate loans held for
investment (the largest having a balance of $16.9 million) totaling $39.4
million, or 0.7% of the total loans held for investment, as of June 30, 2006. At
December 31, 2005, there were five non-accrual commercial real estate loans
totaling $29.3 million, or 0.6%. There were no loans on accrual status as of
June 30, 2006 or December 31, 2005, which were 90 days or more past due.

     REO related to commercial real estate loans was $299,000 at June 30, 2006,
consisting of one property, which was acquired through or in lieu of foreclosure
on loans secured by real estate. At December 31, 2005, there were seven REO
properties totaling $30.2 million. During the second quarter of 2006, the
Company sold six of its commercial real estate REO properties, realizing a gain
of $8.3 million, which is netted against other non-interest expense.

     The level of non-performing assets fluctuates and specific loans can have a
material impact upon the total. Consideration must be given that, due to the
secured nature of the Company's loans and the presence of larger-balance loans,
the classification, and the timing thereof, of an individual loan as non-


                                       69
<PAGE>

accrual or REO can have a significant impact upon the level of total
non-performing assets, without necessarily a commensurate increase in loss
exposure.

     The allowance for loan losses, as a percentage of total loans held for
investment decreased to 3.03% as of June 30, 2006, as compared to 3.29% as of
December 31, 2005. In the second quarter of 2006, the Company incurred zero net
loan charge-offs and realized $192,000 in recoveries of loan balances previously
charged-off, as compared to $7.8 million in total net charge-offs for the second
quarter of 2005. The net charge-off ratio for commercial real estate loans for
the first six months of 2006 was (0.01)% as compared to 0.45% for the first six
months of 2005. Loans secured by hotel and lodging properties represented 63%
and 86% of the total commercial real estate loans on non-accrual status as of
June 30, 2006 and December 31, 2005, respectively.


LIQUIDITY AND CAPITAL RESOURCES

     The commercial and residential real estate lending activities are financed
primarily through deposit accounts offered by FIL and which are insured by the
FDIC. FIL offers certificates of deposit and savings and money market deposit
accounts (insured by the FDIC to the legal maximum) through its 21 branches in
California. FIL minimizes the costs associated with its accounts by
not offering traditional checking, safe deposit boxes, ATM access and other
traditional retail services. Deposits totaled $9.56 billion at June 30, 2006 and
are summarized as to type as follows:

<TABLE>
<CAPTION>
                                                                       NUMBER OF         TOTAL
                                                                        ACCOUNTS        DEPOSITS
                                                                       ---------      -----------
                                                                                       (THOUSANDS
                                                                                       OF DOLLARS)

<S>                                                                       <C>         <C>
Savings and money market deposit accounts ..........................      34,695      $ 1,498,802

Certificates of deposit:
  Retail ...........................................................     136,174        6,533,710
  Brokered .........................................................         N/M        1,530,445
                                                                                      -----------
                                                                                      $ 9,562,957
                                                                                      ===========
<FN>

N/M = not meaningful.
</FN>
</TABLE>

     Additional financing is available to FIL through advances from the Federal
Home Loan Bank of San Francisco ("FHLB"). FIL maintains a credit line
with the FHLB which has a maximum financing availability that is based upon a
percentage of its regulatory assets, to which the actual borrowing capacity is
subject to collateralization and certain collateral sub-limits. The financing by
the FHLB is available at varying rates and terms. FIL's maximum financing
availability from the FHLB, based upon its level of regulatory assets, was
approximately $5.07 billion as of June 30, 2006. At June 30, 2006, FIL's actual
borrowing capacity, based upon the amount of collateral pledged and the
applicable advance rates, was $3.32 billion, with $1.31 billion


                                       70

<PAGE>

in outstanding advances. The weighted-average interest rate on the FHLB advances
outstanding at June 30, 2006 was 5.01%. The borrowing capacity of FIL from the
FHLB varies from time to time and is dependent upon the amount and timing of
loans pledged. FIL pledged loans with a carrying value of $3.70 billion at June
30, 2006 to secure current and any future borrowings. FIL also has a line of
credit with the Federal Reserve Bank of San Francisco and at June 30, 2006, had
a borrowing capacity, based upon collateral pledged, of $392.2 million, with no
amounts outstanding.

     To expand the capacity and flexibility of funding its residential real
estate loan origination volume, the Company has four "warehouse" lines of credit
with well-established financial institutions. While the Company has historically
utilized these facilities on an infrequent basis, they may be used to fund loans
prior to their sale or securitization. At June 30, 2006, these four facilities
totaled $3.00 billion in total borrowing capacity of which $2.25 billion is on a
committed basis. Borrowing availability is created under the facilities through
the pledging of residential real estate loans held for sale. There were no
amounts outstanding on any of the facilities at June 30, 2006. Each of the
facilities is subject to certain conditions, including but not limited to
financial and other covenants. The Company was in compliance with all covenants
and requirements of these facilities as of June 30, 2006. The four facilities
are summarized as follows:

o    $1 billion master repurchase facility ($500 million committed) with Goldman
     Sachs Mortgage Company expiring in February 2007, secured by certain
     residential real estate loans held for sale, interest at one-month LIBOR
     plus a margin of 0.40%.

o    $1 billion master loan and security facility ($1 billion committed) with
     Greenwich Capital Financial Products expiring in September 2006, secured by
     certain residential real estate loans held for sale, interest at one-month
     LIBOR plus a margin of 0.40%.

o    $500 million master repurchase facility ($500 million committed) with
     Credit Suisse First Boston Mortgage Capital expiring in August 2006,
     secured by certain residential real estate loans held for sale, interest at
     overnight LIBOR plus a margin of 0.35%.

o    $500 million master repurchase facility ($250 million committed) with
     Lehman Brothers Bank expiring in December 2006, secured by certain
     residential real estate loans held for sale, interest at one-month LIBOR
     plus a margin of 0.40%.


     The Company's residential loan disposition strategy is to primarily utilize
whole loan sales and, to a lesser extent, securitizations. The Company attempts
to build multiple whole loan sale relationships to achieve diversity and enhance
market liquidity. During the first six months of 2006, the Company had
transacted whole loan sales with 14 different financial institutions, the
largest institution representing 18.1% of the total whole loan sales volume
during this period.

                                       71


<PAGE>

     As a holding company, Fremont General currently pays its operating
expenses, interest expense, taxes, obligations under its various employee
benefit plans, and stockholders' dividends, and meets its other obligations
primarily from its cash on hand, dividends from Fremont General Credit
Corporation ("FGCC"), intercompany tax payments and benefit plan reimbursements
from FIL. Dividends of $8.6 million and $5.4 million were paid on Fremont
General's common stock in the quarters ended June 30, 2006 and 2005,
respectively. For the six month periods ended June 30, 2006 and 2005 dividends
of $16.3 million and $10.7 million, respectively, were paid on Fremont General
common stock; however, no assurance can be given that future common stock
dividends will be declared.

     During 2005 and 2006, FIL had transferred by dividend substantially all of
its residual interests in securitized loans to FGCC, which is an intermediate
holding company wholly-owned by Fremont General. The residual interests at FGCC
as of June 30, 2006 had an estimated fair value of $94.6 million. The retained
residual interests in securitized loans at FIL had an estimated fair value at
June 30, 2006 of $12.9 million. The purpose of these dividends was to create an
additional source of cash flow to Fremont General to the extent of cash received
from the residual interests.

     There exist certain Federal Income Tax and California Franchise Tax matters
pending resolution, of which Fremont General is not yet able to make a
determination of their ultimate liability, but does not believe that the actual
outcomes of these matters will adversely impact its liquidity. It is expected
that the final resolution of these matters may take several years.

     During the second quarter and first six months of 2006, Fremont General
purchased $3.0 million and $6.0 million (both at par value), respectively, of
its 7.875% Senior Notes due 2009; the costs were approximately $3.0 million and
$6.0 million, respectively.

     Fremont General has cash and cash equivalents of $85.2 million at June 30,
2006 and no debt maturities until March of 2009.


OFF-BALANCE SHEET ACTIVITIES

     In the second quarter of 2006, the Company continued to securitize a
certain amount of its residential real estate loans. Securitization is a process
of transforming the loans into securities, which are sold to investors. The
loans are first sold to a special purpose corporation, which then transfers them
to a qualifying special-purpose entity (a "QSPE") which is legally isolated from
the Company. The QSPE, in turn, issues interest-bearing securities, commonly
known as asset-backed securities, that are secured by the future cash flows to
be derived from the securitized loans. The QSPE uses the proceeds from the
issuance of the securities to pay the purchase price of the securitized loans.
The Company does not utilize unconsolidated special-purpose entities as a
mechanism to remove non-performing assets from the consolidated balance sheets.

                                       72

<PAGE>

     Securitization is used by the Company to provide an additional source of
liquidity. The QSPEs are not consolidated into the Company's financial
statements since they meet the criteria established by SFAS No. 140, "Accounting
for the Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities." In general, those criteria require the QSPE to be isolated and
distinct from the transferor (the Company), to be limited to permitted
activities and have defined limits on the assets it can hold and the permitted
sales, exchanges or distributions of its assets.

     The investors and the QSPEs do not have any recourse to the Company if the
cash flows generated by the securitized loans are inadequate to service the
securities issued by the QSPEs. At the close of each securitization, the Company
removes from its balance sheet the carrying value of the loans securitized and
adds to its balance sheet the estimated fair value of the assets obtained in
consideration for the loans which generally include the cash received (net of
transaction expenses), retained junior class securities (referred to as residual
interests) and mortgage servicing rights.


FORWARD LOOKING STATEMENTS

     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 our current
expectations and beliefs concerning future developments and their potential
effects upon us. These statements and our 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 us.
Actual developments and/or results may differ significantly and adversely from
our expected or currently reported results as a result of significant risks,
uncertainties and factors, often beyond our control (as well as the various
assumptions utilized in determining our expectations), and 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 in the non-prime residential lending market and
     in the commercial real estate lending market on our ability to adequately
     price, underwrite and originate our loans;
o    the impact of competition and pricing environments on loan and deposit
     products and the resulting effect upon our net interest margin and net gain
     on sale;
o    changes in our ability to originate loans, and any changes in the cost,
     credit quality and volume of loans originated as a result thereof;


                                       73

<PAGE>

o    the effectiveness of our interest risk management, including hedging, on
     our funded and unfunded loans;
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    our ability to sell or securitize the residential real estate loans we
     originate;
o    the demand for, and the pricing and valuation of, existing and future
     loans, and the net premiums realized upon the sale of such loans;
o    our ability to sell certain of the commercial real estate loans and
     foreclosed real estate in our 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 our assets and loans, including
     the value of the underlying real estate collateral;
o    the ability to effectively manage our growth in assets and volume,
     including our lending concentrations, and to maintain acceptable levels of
     credit quality;
o    the ability to collect and realize the amounts outstanding, and the timing
     thereof, of loans and foreclosed real estate; o the ability to
     appropriately estimate an adequate level for the allowance for loan losses,
     the valuation reserve for loans held for sale, the loan repurchase reserve
     and the premium recapture reserve, as well as the fair value of the
     retained mortgage servicing rights and residual interests in
     securitizations;
o    changes in various economic and other factors which influence the timing
     and ultimate realization of the cash flows supporting our estimate of fair
     value for our residual interests in securitized loans and mortgage
     servicing rights;
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    our ability to maintain cash flow sufficient for us to meet our debt
     service and other obligations;
o    the ability to maintain effective compliance with laws and regulations and
     control expenses, particularly in periods of significant growth for us;
o    the impact and cost of adverse state and federal legislation and
     regulations, litigation, court decisions and changes in the judicial
     climate;
o    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    the ability to maintain an effective system of internal and financial
     disclosure controls, and to


                                       74
<PAGE>

     identify and remediate any control deficiencies, under the requirements of
     Section 404 of the Sarbanes-Oxley Act of 2002; and

o    other events, risks and uncertainties discussed elsewhere in this Form 10-Q
     and from time to time in our other reports, press releases and filings with
     the Securities and Exchange Commission.

We undertake no obligation to publicly update such forward-looking statements.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

     The Company is subject to market risk resulting primarily from the impact
of fluctuations in interest rates upon balance sheet financial instruments such
as loans, residual interests, mortgage servicing rights, debt and derivatives.
Changes in interest rates can affect loan interest income, gains or losses on
the sale and securitization of residential real estate loans, interest expense,
loan origination volume, net investment income and total stockholders' equity.
The level of gain or loss on the sale and securitization of residential real
estate loans is highly dependent upon the level of loan origination volume, the
premium paid by the purchasers of such loans and the gain or loss realized from
hedging activities. Each of these factors, 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 gain it realizes should
significant interest rate volatility 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 asset and liability management activities is to provide an
acceptable 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. There is no exposure to foreign currency or commodity
price risk.

     The Company is subject to interest rate risk resulting from differences
between the rates on, and repricing characteristics of, interest-earning loans
held for investment (and loans held for sale) and the rates on, and repricing
characteristics of, interest-bearing liabilities used to finance these loans
such as deposits and debt. Interest rate gaps may arise when assets are funded
with liabilities having different repricing intervals or different market
indices to which the instruments' interest rate is tied and to this degree,
earnings will be sensitive to interest rate changes. Additionally, interest rate
gaps could develop between the market rate and the interest rate on loans in the
loan portfolio, which could result in borrowers' prepaying their loan
obligations. The Company attempts to match the characteristics of interest rate
sensitive assets and liabilities to minimize the effect of fluctuations in
interest rates. For the Company's financial instruments, the expected maturity
date does not necessarily reflect the net market risk exposure because certain
instruments are subject to interest rate changes before expected maturity. With
respect to the Company's residential real estate loans held for sale and its
unfunded loan pipeline, the Company


                                       75

<PAGE>

attempts to minimize its interest rate risk exposure through forward loan sale
commitments and other financial instruments, such as Eurodollar futures
contracts. These financial instruments meet the definition of a derivative under
generally accepted accounting principles and, accordingly, they are recorded in
the consolidated financial statements at fair value.

     The Company is reliant upon the secondary mortgage market for execution of
its whole loan sales and securitizations of residential real estate loans. While
the Company strives to maintain adequate levels of liquidity support and capital
to withstand certain disruptions in the secondary mortgage market, a significant
disruption or change in the level of demand could adversely impact the Company's
ability to fund, sell, securitize or finance its residential real estate loan
origination volume, leading to reduced gains (or losses) on sale and a
corresponding decrease in revenue and earnings. A deterioration in performance
of the residential real estate loans after being sold in whole loan sales and
securitizations could adversely impact the availability and pricing of such
future transactions.

     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, 2005. There have been no material changes in such risks or in
the Company's asset and liability management activities during the six months
ended June 30, 2006.


ITEM 4.  CONTROLS AND PROCEDURES

     As of June 30, 2006, 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, have concluded that the Company's disclosure controls
and procedures were effective as of June 30, 2006.

     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.

                                       76

<PAGE>
                           PART II - OTHER INFORMATION

ITEM 1:  LEGAL PROCEEDINGS


     The Company is a defendant in a number of legal actions arising in the
ordinary course of business and from the discontinuance of the insurance
operations. Management and its legal counsel are of the opinion that the
settlement of these actions, individually or in the aggregate, will not have a
material effect on the Company's business, financial position or results of
operations.


FREMONT INDEMNITY COMPANY (IN LIQUIDATION) V. FREMONT GENERAL CORPORATION ET
AL.:

     On June 2, 2004, the State of California Insurance Commissioner John
Garamendi (the "Commissioner"), as statutory liquidator of Fremont Indemnity
Company ("Fremont Indemnity"), filed suit in Los Angeles Superior Court against
Fremont General alleging the improper utilization by Fremont General of certain
net operating loss deductions ("NOLs") allegedly belonging to its Fremont
Indemnity subsidiary (the "Fremont Indemnity case"). This complaint involves
issues that were considered resolved in an agreement among the California
Department of Insurance, Fremont Indemnity and Fremont General (the "Letter
Agreement"). The Letter Agreement, dated July 2, 2002, was executed on behalf of
the California Department of Insurance by the Honorable Harry Low, the State of
California Insurance Commissioner at that time. Fremont General has honored all
of its obligations under the Letter Agreement. On July 16, 2004, the
Commissioner filed a First Amended Complaint ("FAC") adding a cause of action
for concealment of an alleged reinsurance dispute and is seeking to rescind the
Letter Agreement.

     On January 25, 2005, Fremont General's motions to dismiss the lawsuit
brought by the Commissioner, on behalf of Fremont Indemnity, against Fremont
General were argued and heard before the Superior Court of the State of
California (the "Court"). On January 26, 2005, the Court issued its rulings
dismissing all the causes of action in the FAC without leave to amend, except
for the cause of action for alleged concealment by Fremont General of a
potential reinsurance dispute, which was dismissed with leave to amend. The
Court also found that Fremont General had properly utilized the NOLs in
accordance with the Letter Agreement. In addition, the Court rejected the
Commissioner's request for findings that Fremont General's use of the NOLs and
worthless stock deduction were voidable preferences and/or fraudulent transfers.
The Court also rejected the Commissioner's request for injunctive relief to
force Fremont General to amend its prior consolidated income tax returns to
remove and forgo the worthless stock deduction for its investment in Fremont
Indemnity.

     On May 2, 2005, the Commissioner filed a Second Amended Complaint ("SAC")
with regard to the 7th cause of action on behalf of Fremont Indemnity against
Fremont General alleging intentional misrepresentation, concealment and
promissory fraud, which induced the Commissioner to first enter into the Letter
Agreement. On July 15, 2005, the Court dismissed the SAC with 20 days leave to
amend. On August 4, 2005, the Commissioner filed a Third Amended Complaint
("TAC") again alleging intentional misrepresentation, concealment and promissory
fraud.

                                       77

<PAGE>

     On November 22, 2005, the Court dismissed the remaining cause of action in
the TAC, finding that the "Plaintiff still failed to plead any affirmative
misrepresentation which is actionable." The Court also found that the "pleading
is inadequate as to damage allegations." This ruling by the Court dismisses the
only remaining cause of action in the lawsuit originally brought by the
Commissioner on behalf of Fremont Indemnity against Fremont General, first
reported on June 17, 2004. The Commissioner has filed a Notice of Appeal to the
Court's dismissal of the complaint. The Company continues to believe that this
lawsuit is without merit.


FREMONT INDEMNITY COMPANY (IN LIQUIDATION AS SUCCESSOR IN INTEREST TO COMSTOCK
INSURANCE COMPANY) V. FREMONT GENERAL CORPORATION ET AL.:

     The Commissioner filed an additional and separate complaint against Fremont
General on behalf of Fremont Indemnity as successor in interest to Comstock
Insurance Company ("Comstock"), a former affiliate of Fremont Indemnity, which
was subsequently merged into Fremont Indemnity. This case alleged similar causes
of action regarding the usage of the NOLs as in the Fremont Indemnity case as
well as improper transactions with other insurance subsidiaries and affiliates
of Fremont Indemnity. This matter was deemed a related case to the Fremont
Indemnity case. On April 22, 2005, the Court dismissed, without leave to amend,
the entire complaint. This ruling does not address or necessarily have legal
effect on the related Fremont Indemnity case. The Commissioner has filed an
Appeal to the Court's dismissal of the complaint. The Company continues to
believe that this lawsuit is without merit.


GERLING GLOBAL REINSURANCE CORPORATION OF AMERICA V. FREMONT
GENERAL CORPORATION ET AL.:

     On July 27, 2005, Gerling Global Reinsurance Corporation of America
("Gerling") filed a lawsuit in Federal District Court (the "Court") against
Fremont General arising out of a reinsurance treaty between Gerling and Fremont
Indemnity alleging 1) Fraud/Intentional Misrepresentation and Concealment; 2)
Breach of Fiduciary Duty; 3) Willful and Wanton Misconduct; 4) Negligent
Misrepresentation; 5) Gross Negligence; 6) Tortuous Interference with Contract;
7) Unjust Enrichment; and 8) Breach of Contract for allegedly improper
underwriting practices by Fremont Indemnity during 1998 and 1999. In October
2005, Gerling filed a First Amended Complaint ("FAC") alleging 1)
Fraud/Intentional Misrepresentation and Concealment; 2) Inducement to Breach and
Breach of Fiduciary Duty and Duty of Utmost Good Faith; 3) Willful and Wanton
Misconduct; 4) Negligent Misrepresentation; 5) Gross Negligence; 6) Tortuous
Interference with Contract; 7) Unjust Enrichment; and 8) Inducement to Breach
and Breach of Contract.

     On December 12, 2005, the Company's Motion to Dismiss the FAC was argued
and heard before the Court. On December 15, the Court issued its Order
dismissing with prejudice Gerling's Third through Sixth Causes of Action, which
asserted claims for Willful and Wanton Misconduct, Negligent Misrepresentation,
Gross Negligence

                                       78

<PAGE>

and Tortuous Interference with Contract, and also dismissed with prejudice that
part of Gerling's Eighth Cause of Action that alleged Inducement to Breach of
Contract. The Court also dismissed the Breach of Contract claim, but granted
Gerling leave to replead that claim.

     In January 2006, Gerling filed a Second Amended Complaint ("SAC") alleging
1) Fraud/Intentional Misrepresentation and Concealment; 2) Breach of Fiduciary
Duty and Duty of Utmost Good Faith; 3) Unjust Enrichment; and 4) Breach of
Contract. On March 6, 2006, Fremont General's Motion to Dismiss this SAC were
argued and heard before the Court. On its own motion, the Court converted the
Motion to Dismiss to a Motion for Summary Judgment and ordered that it be reset
for hearing following limited discovery on the statute of limitations issues
raised in the Motion. The Company continues to believe that this lawsuit is
without merit.


ITEM 1A:  RISK FACTORS

     We included a discussion of our Risk Factors in our Annual Report on Form
10-K for the year ended December 31, 2005. There has been no material change in
such risks during the six months ended June 30, 2006.


ITEM 2:   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

                      ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------
                                                                              (c) TOTAL NUMBER            (d) MAXIMUM NUMBER
                                        (a )TOTAL          (b) AVERAGE        OF SHARES (OR UNITS)      (OR APPROXIMATE DOLLAR
                                         NUMBER OF          PRICE PAID         PURCHASED AS PART         VALUE) OF SHARES (OR
                                          SHARES            PER SHARE             OF PUBLICLY           UNITS) THAT MAY YET BE
                                        (OR UNITS)          (OR UNIT)           ANNOUNCED PLANS          PURCHASED UNDER THE
              PERIOD                   PURCHASED (1)           (2)              OR PROGRAMS             PLANS OR PROGRAMS (3)
-----------------------------------    -------------       ------------       -------------------      -----------------------

<S>                                    <C>                 <C>                <C>                       <C>

April 1-30, 2006                               1,387         $     21.04                     1,387
------------------------------------------------------------------------------------------------------------------------------
May 1-31, 2006                                 1,012         $     22.43                     1,012
------------------------------------------------------------------------------------------------------------------------------
June 1-30, 2006                               39,238         $      2.08                    39,238
------------------------------------------------------------------------------------------------------------------------------
Total                                         41,637         $      3.21                    41,637                   2,845,885
==============================================================================================================================


<FN>

(1)  Shares of common stock acquired by the Company from participants through
     purchases of shares under certain employee benefit plans at fair value
     and/or reacquisition of shares under its restricted stock program at $0 per
     share.

(2)  Excluding the purchase of 35,114 restricted stock shares, the average price
     per share was $20.47 for the three months ended June 30, 2006. The
     restricted stock shares were reacquired at $0 per share under the terms of
     the Company's stock award plan upon termination of employment of
     participant(s) thereunder.

(3)  A repurchase program for four million shares was announced to the public on
     February 27, 2003, and a repurchase program for and an additional four
     million shares was announced to the public on May 19, 2005.

</FN>
</TABLE>

                                       79


<PAGE>

ITEM 4:    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

a)   The Annual Meeting of Stockholders was held on May 18, 2006.

b)   The following directors were elected to serve until the next Annual Meeting
     of Stockholders or until their successors have been elected and qualified:

     James A. McIntyre                            Robert F. Lewis
     Louis J. Rampino                             Russell K. Mayerfeld
     Wayne R. Bailey                              Dickinson C. Ross
     Thomas W. Hayes

c)   The results of the voting of the 72,598,301 shares represented at the
     meeting are summarized in the following table:

<TABLE>
<CAPTION>
                                                               VOTES
                                      FOR                     WITHHELD
                                   ----------                ---------
      <S>                          <C>                       <C>
      J. A.  McIntyre              70,793,786                1,804,515
      L. J.  Rampino               70,804,302                1,793,999
      W. R.  Bailey                70,800,914                1,797,387
      T. W.  Hayes                 72,113,161                  485,140
      R. F.  Lewis                 71,669,859                  928,442
      R. K.  Mayerfeld             72,127,800                  470,501
      D. C.  Ross                  71,070,682                1,527,619
</TABLE>


d)   The proposal of the 2006 Performance Incentive Plan was approved. The
     results of the voting of the 72,598,301 shares represented at the meeting
     are summarized in the following table:

                                                               BROKER
         FOR              AGAINST          ABSTAINED          NON-VOTE
      ----------         ---------         ---------         ---------

      51,987,798         9,276,414          408,247          10,925,842


e)   The appointment of the accounting firm of Ernst & Young LLP as the
     Corporation's Independent Auditors was ratified. The results of the voting
     of the 72,598,301 shares represented at the meeting are summarized in the
     following table:

         FOR              AGAINST          ABSTAINED
     ----------          ---------         ---------


     71,764,982            798,049            35,270


                                       80


<PAGE>

ITEM 6:    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(a)   Amended and Restated Bylaws 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.)

 3.3(b)   Fremont General Corporation Bylaw Amendment Adopted by the Board of
          Directors on November 20, 2003. (Incorporated by reference to Exhibit
          3.3(b) to the Registrant's Annual Report on Form 10-K, for the fiscal
          year ended December 31, 2003, Commission File Number 1-8007.)

 3.3(c)   Fremont General Corporation Bylaw Amendment Adopted by the Board of
          Directors on March 16, 2004. (Incorporated by reference to Exhibit
          3.3(c) to the Registrant's Quarterly Report on Form 10-Q, for the
          period ended June 30, 2004, 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 the 9% Junior Subordinated Debentures 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.)

 4.3      Amended and Restated Declaration of Trust with respect to the 9% Trust
          Originated Preferred Securities among the Registrant, the Regular
          Trustees, Chase Bank (USA), a Delaware banking corporation, as
          Delaware trustee, and JPMorgan Chase Bank, National 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.)

 4.4      Preferred Securities Guarantee Agreement between the Registrant JP
          Morgan Chase Bank, National 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.)

 4.5      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.)

 4.6      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      Fremont General Corporation and Affiliated Companies Investment
          Incentive Plan and Amendments One through Eight.

10.2      Fremont General Corporation 2006 Performance Incentive Plan
          (Incorporated by reference to Exhibit I of the Registrant's Definitive
          Proxy Statement on Schedule 14A filed on April 13, 2006).

10.3      Form of Restricted Stock Award Agreement (incorporated by reference
          from Exhibit 4.2 to the Registrant's Form S-8 Registration Statement
          with respect to the 2006 Performance Incentive Plan filed on May 18,
          2006, Commission File No. 1-8007).

10.4      Form of Nonqualified Stock Option Agreement (Incorporated by reference
          to the Registrant's Form S-8 Registration Statement with respect to
          the 2006 Performance Incentive Plan filed on May 18, 2006, Commission
          File Number 1-8007.)

31.1      Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
          2002.

                                       81

<PAGE>

EXHIBIT
  NO.                                  DESCRIPTION
-------   ----------------------------------------------------------------------

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.


With respect to long-term debt instruments, the Registrant undertakes to provide
copies of such agreements upon request by the Commission.



                                       82


<PAGE>



                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                       FREMONT GENERAL CORPORATION



Date: August 8, 2006                   /s/ LOUIS J. RAMPINO
                                       -------------------------------
                                       Louis J. Rampino
                                       President and Chief Executive Officer



Date: August 8, 2006                   /s/ PATRICK E. LAMB
                                       -------------------------------
                                       Patrick E. Lamb
                                       Senior Vice President, Chief Financial
                                       Officer, Chief Accounting Officer and
                                       Treasurer (Principal Accounting Officer)




                                      S-1