<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1996
REGISTRATION NO. 333-4026
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6035 13-3778550
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
38 EAST 63RD STREET
NEW YORK, NEW YORK 10021
(212) 572-8500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GLENN P. DICKES, ESQ.
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
38 EAST 63RD STREET
NEW YORK, NEW YORK 10021
(212) 572-8500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
STACY J. KANTER, ESQ. CHRISTIE S. FLANAGAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM FIRST NATIONWIDE (PARENT) HOLDINGS INC.
919 THIRD AVENUE 200 CRESCENT COURT, SUITE 1350
NEW YORK, NEW YORK 10022 DALLAS, TEXAS 75201
(212) 735-3000 (214) 871-5131
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501 OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1
ITEM
NUMBER CAPTION LOCATION OR HEADING IN THE PROSPECTUS
- -------- ---------------------------------------------------- ----------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus.................... Outside Front Cover
2. Inside Front and Outside Back Cover Pages of
Prospectus........................................ Inside Front Cover; Outside Back Cover; Available
Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges......................... Summary; Risk Factors; Pro Forma Financial Data;
Selected Historical Financial Data
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Not Applicable
6. Dilution............................................ Not Applicable
7. Selling Securityholders............................. Not Applicable
8. Plan of Distribution................................ Outside Front Cover; The Exchange Offer; Plan of
Distribution
9. Description of Securities to be Registered.......... Outside Front Cover; Description of the Notes
10. Interests of Named Experts and Counsel.............. Legal Matters
11. Information with Respect to the Registrant.......... Outside Front Cover; Summary; Risk Factors;
Strategic Acquisitions and Dispositions; Pro Forma
Financial Data; Selected Historical Financial
Data; Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Ownership of the Common
Stock; Certain Transactions; Description of the
Notes; Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.................... Not Applicable
</TABLE>
<PAGE>
PROSPECTUS
Offer for all Outstanding 12 1/2% Senior Notes due 2003
in Exchange for 12 1/2% Senior Exchange Notes due 2003
of
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON JUNE 17, 1996, UNLESS EXTENDED
------------------------
First Nationwide (Parent) Holdings Inc., a Delaware corporation (the
'Issuer'), hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal (which together
constitute the 'Exchange Offer'), to exchange an aggregate principal amount of
up to $455,000,000 of 12 1/2% Senior Exchange Notes due 2003 (the 'New Notes')
of the Issuer, which have been registered under the Securities Act of 1933, as
amended (the 'Securities Act'), for a like principal amount of the issued and
outstanding 12 1/2% Senior Notes due 2003 (the 'Old Notes' and, with the New
Notes, the 'Notes'), of the Issuer from the holders thereof. The terms of the
New Notes are identical in all material respects to the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes
and except that, if the Exchange Offer is not consummated by September 16, 1996,
the rate per annum at which the Old Notes bear interest will be 13% per annum
from and including September 16, 1996 until but excluding the date of
consummation of the Exchange Offer. The Old Notes were issued on April 17, 1996
pursuant to an offering exempt from registration under the Securities Act.
The Notes will mature on April 15, 2003, and will bear interest at a rate of
12 1/2% per annum, payable semi-annually on April 15 and October 15 of each
year, commencing October 15, 1996. The Issuer will not be required to make any
mandatory redemption or sinking fund payments with respect to the Notes prior to
their stated maturity. The Notes will be redeemable, at the option of the
Issuer, in whole or in part, at any time on or after April 15, 2000, at the
redemption prices set forth herein plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time prior to April 15, 2000, the
Notes may be redeemed at the option of the Issuer, in whole but not in part, at
a redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of redemption, plus the Applicable Premium
(as defined herein). Upon the occurrence of a Change of Control Put Event (as
defined herein), each holder of the Notes will have the right to require the
Issuer to repurchase all or a portion of such holder's Notes at 103% of the
principal amount thereof plus accrued and unpaid interest to the date of
repurchase. See 'Description of the Notes.'
The Old Notes are, and the New Notes will be, senior unsecured obligations
of the Issuer and will rank pari passu in right of payment with all future
senior debt of the Issuer, if any is issued, and senior to all future
subordinated debt of the Issuer, if any is issued. As of the date hereof, the
only outstanding indebtedness of the Issuer is the Notes, and all of the
Issuer's consolidated liabilities (other than the Notes and certain liabilities
incurred in connection with the Offering) are liabilities of its subsidiaries.
The Issuer is a holding company, and therefore the Notes will be effectively
subordinated to (i) all existing and future liabilities, including deposits,
indebtedness and trade payables, of the Issuer's subsidiaries, including First
Nationwide Holdings Inc. ('First Nationwide Holdings') and First Nationwide
Bank, A Federal Savings Bank ('First Nationwide Bank'), a wholly owned
subsidiary of First Nationwide Holdings, and (ii) all preferred stock issued by
the Issuer's subsidiaries, including the 11 1/2% Noncumulative Perpetual
Preferred Stock of First Nationwide Bank (the 'First Nationwide Bank Preferred
Stock'). As of December 31, 1995, after giving effect to the SFFed Acquisition
(as defined herein), the Branch Sales (as defined herein), the LMUSA 1996
Purchase (as defined herein) and the FN Holdings Subordinated Notes Offering (as
defined herein), the outstanding interest-bearing liabilities, including
deposits, of such subsidiaries would have been approximately $17.1 billion, the
other outstanding liabilities of such subsidiaries, including trade payables and
accrued expenses, would have been approximately $488 million, and there would
have been approximately $301 million aggregate liquidation value of First
Nationwide Bank Preferred Stock outstanding. The aggregate amount of
indebtedness, other liabilities and preferred stock of the Issuer's subsidiaries
were not affected by the offering of the Old Notes (the 'Offering') or the
application of the net proceeds therefrom.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from April 17, 1996. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from April 17, 1996. If, however, the relevant record date for interest
payment occurs prior to the consummation of the Exchange Offer registered
holders of Old Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from April 17, 1996. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer, except
as set forth in the immediately preceding sentence. Holders of Old Notes whose
Old Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Notes otherwise payable on any interest payment date the
record date for which occurs on or after consummation of the Exchange Offer.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Agreement dated April
12, 1996 among the Issuer and the other signatories thereto (the 'Registration
Agreement'). See 'The Exchange Offer--Consequences of Exchanging Old Notes' for
a discussion of the Issuer's belief, based on interpretations by the staff of
the Securities and Exchange Commission (the 'SEC') as set forth in no action
letters issued to third parties, as to the transferability of the New Notes upon
satisfaction of certain conditions. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a period
of 180 days after the Expiration Date (as defined herein), it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See 'Plan of Distribution.'
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
will pay all the expenses incident to the Exchange Offer. Tenders of Old Notes
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. In the event the Issuer terminates the Exchange Offer and does
not accept for exchange any Old Notes, the Issuer will promptly return the Old
Notes to the holders thereof. See 'The Exchange Offer.'
------------------------
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes, or the
ability of holders of the New Notes to sell their New Notes or the price at
which such holders may be able to sell their New Notes. Bear, Stearns & Co.
Inc., Smith Barney Inc., Chase Securities Inc. and Citicorp Securities, Inc.
(the 'Initial Purchasers') have advised the Issuer that they currently intend to
make a market in the New Notes. The Initial Purchasers are not obligated to do
so, however, and any market-making with respect to the New Notes may be
discontinued at any time without notices. The Issuer does not intend to apply
for listing or quotation of the New Notes on any securities exchange or stock
market.
------------------------
SEE 'RISK FACTORS' COMMENCING ON PAGE 15 OF THIS PROSPECTUS FOR A
DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD
NOTES IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------------
The date of this Prospectus is May 15, 1996.
<PAGE>
AVAILABLE INFORMATION
The Issuer has filed with the SEC a Registration Statement on Form S-1 (the
'Registration Statement') under the Securities Act with respect to the New Notes
being offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto, to
which reference is hereby made. Any statements made in this Prospectus
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement.
The Registration Statement and the exhibits thereto may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the SEC located
at 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500
West Madison Street (Suite 1400), Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Issuer
is not currently subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'). As a result of the
Exchange Offer, the Issuer will become subject to such requirements, and in
accordance therewith will file periodic reports and other information with the
SEC. In the event the Issuer is not required to be subject to the reporting
requirements of the Exchange Act in the future the Issuer will be required under
the Indenture, between the Issuer and The Bank of New York, as trustee (the
'Trustee'), pursuant to which the Old Notes have been, and the New Notes will
be, issued (the 'Indenture'), to continue to file with the SEC, and to furnish
holders of the Notes with, the information, documents and other reports
specified in Sections 13 and 15(d) of the Exchange Act, including reports on
Forms 10-K, 10-Q and 8-K, for so long as any Notes are outstanding.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the consolidated
financial statements and the notes thereto contained elsewhere in this
Prospectus. All information regarding HFFC (as defined herein) and Home Federal
(as defined herein) was prepared solely in reliance on the periodic and other
reports filed by HFFC with the SEC pursuant to the Exchange Act and has not been
independently verified by the Issuer. An index of defined terms used in this
Prospectus (other than certain terms defined under 'Description of the Notes')
begins on page 148.
THE ISSUER
The Issuer
The Issuer is a holding company with no business operations of its own. The
Issuer's only significant asset is its ownership of 80% of the common stock of
First Nationwide Holdings, a holding company which owns all of the common stock
of First Nationwide Bank, which is the seventh largest thrift in the United
States, in terms of assets, as of June 30, 1995. As such, the Issuer's principal
business operations are conducted by First Nationwide Bank and its subsidiaries,
and its only source of cash to pay interest on and principal of the Notes is
expected to be distributions with respect to its 80% ownership interest in First
Nationwide Holdings from the net earnings generated by First Nationwide Bank,
after payment by First Nationwide Holdings of amounts due on its outstanding
indebtedness and certain other expenses.
First Nationwide Bank
First Nationwide Bank's principal business consists of operating retail
deposit branches and originating and/or purchasing residential real estate loans
and, to a lesser extent, certain consumer loans, and is conducted primarily in
California, Florida and Texas. First Nationwide Bank also actively manages its
portfolio of commercial real estate loans acquired through acquisitions and is
active in mortgage banking and loan servicing. These operating activities are
financed principally with customer deposits, secured short-term and long-term
borrowings, collections on loans, asset sales and retained earnings. As of
December 31, 1995, First Nationwide Bank had approximately $14.6 billion in
assets and approximately $10.2 billion in deposits. As of December 31, 1995,
after giving effect to the SFFed Acquisition, the Branch Sales, the LMUSA 1996
Purchase and the FN Holdings Subordinated Notes Offering, First Nationwide Bank
would have had approximately $18.7 billion in assets and $8.6 billion in
deposits.
First Nationwide Bank is chartered as a federal stock savings bank under
the Home Owners' Loan Act ('HOLA') and regulated by the Office of Thrift
Supervision ('OTS') and the Federal Deposit Insurance Corporation ('FDIC'),
which, through the Savings Association Insurance Fund ('SAIF'), insures the
deposit accounts of First Nationwide Bank, up to applicable limits. First
Nationwide Bank is also a member of the Federal Home Loan Bank System ('FHLBS').
Business Strategy
First Nationwide Bank's business strategy is to augment its position as a
leading thrift in California, principally through a combination of selective
acquisitions of high quality assets and deposits, expansion of its mortgage
banking and servicing operations and continued increases in its operating
efficiency. The key elements of this business strategy include:
o Expanding First Nationwide Bank's retail branch network in
California through acquisitions of additional branches and other
operations. Management believes that the West Coast region, and
California in particular, offers attractive opportunities to
continue to build franchise value.
o Expanding and improving the efficiency of First Nationwide Bank's
mortgage banking operations while increasing origination of
residential loans, continuing to retain servicing on loans that it
sells and evaluating opportunities to increase its servicing
portfolio through purchases.
o Protecting the credit quality of the assets of First Nationwide Bank
through, among other things, continuing to originate single-family
loans and consumer loans in accordance with stringent underwriting
standards and actively managing its existing portfolio of commercial
real estate loans.
3
<PAGE>
o Increasing First Nationwide Bank's operating efficiency by, among
other things, expanding its customer base, increasing transaction
account volumes and reducing costs through consolidation of certain
administrative and managerial functions.
o Identifying new opportunities to serve the needs of the communities
in which First Nationwide Bank is located.
Since October 1994, First Nationwide Bank has been active in implementing
this strategy and, in connection therewith, has consummated or entered into
agreements to consummate the transactions described below. See 'Strategic
Acquisitions and Dispositions.'
o On February 1, 1996, First Nationwide Bank acquired SFFed Corp.
('SFFed') and its wholly owned subsidiary San Francisco Federal
Savings and Loan Association ('San Francisco Federal'), which, as of
December 31, 1995, had approximately $4.0 billion in assets and
approximately $2.7 billion in deposits (the 'SFFed Acquisition'). In
connection with the SFFed Acquisition, First Nationwide Holdings
issued (the 'FN Holdings Subordinated Notes Offering') $140.0
million aggregate principal amount of 9 1/8% Senior Subordinated
Notes Due 2003 (the 'FN Holdings Subordinated Notes') and
contributed the net proceeds therefrom to First Nationwide Bank as
additional paid-in capital, which augmented First Nationwide Bank's
regulatory capital to maintain its 'well capitalized' status after
the SFFed Acquisition.
o On December 19, 1995, First Nationwide Bank entered into a merger
agreement with Home Federal Financial Corporation ('HFFC') to
acquire HFFC and its wholly owned federally chartered savings
association subsidiary, Home Federal Savings and Loan Association of
San Francisco ('Home Federal'), which, as of December 31, 1995, had
approximately $718 million in assets and $625 million in deposits
and operated 15 branches in Northern California (the 'Home Federal
Acquisition').
o In April 1995, First Nationwide Bank acquired approximately $13
million in deposits located in Tiburon, California from East-West
Federal Bank, a federal savings bank (the 'Tiburon Purchase'). In
August 1995, First Nationwide Bank acquired three retail branches
located in Orange County, California with deposit accounts totalling
approximately $356 million from ITT Federal Bank, fsb (the 'ITT
Purchase'). On December 8, 1995, First Nationwide Bank consummated
the purchase of four retail branches located in Sonoma County,
California with associated deposit accounts of approximately $143.5
million from Citizens Federal Bank, a Federal Savings Bank (the
'Sonoma Purchase' and, collectively with the Tiburon Purchase and
the ITT Purchase, the 'Branch Purchases').
o From September through December of 1995, First Nationwide Bank
entered into contracts for the sale of its retail branches in Ohio,
New York, New Jersey and Michigan (collectively, the 'Branch Sales')
at prices which represent an average premium of 7.82% of the
deposits sold.
o On February 28, 1995, First Nationwide Bank (through its wholly
owned mortgage bank operating subsidiary, First Nationwide Mortgage
Corporation ('FNMC')), acquired a 1-4 unit residential mortgage loan
servicing portfolio of approximately $11.4 billion and other assets
and liabilities (the 'Maryland Acquisition').
o On October 2, 1995, FNMC purchased from Lomas Mortgage USA, Inc.
('LMUSA') a loan servicing portfolio of approximately $11.1 billion,
$2.9 billion of mortgage servicing rights ('MSRs'), which are rights
to service mortgages held by others, which MSRs are owned by third
parties who have contracted with FNMC to monitor the performance,
and consolidate the reporting, of various other servicers (a 'master
servicing portfolio') and other assets, (the 'LMUSA 1995 Purchase').
On January 31, 1996, FNMC purchased LMUSA's remaining loan servicing
portfolio which, as of December 31, 1995, totalled $14.1 billion, a
master servicing portfolio of $2.7 billion and other assets (the
'LMUSA 1996 Purchase' and, together with the LMUSA 1995 Purchase,
the 'LMUSA Purchases').
Management believes that these transactions have significantly increased
First Nationwide Bank's presence on the West Coast, providing additional
economies of scale and diversity of operations within its target California
markets. As a result of these transactions, 70% of the Bank's total deposits
will be located in California.
4
<PAGE>
Management anticipates that the SFFed Acquisition, the Branch Sales and the
Home Federal Acquisition will enable First Nationwide Bank to enhance the value
of its franchise and improve its operating efficiency through the consolidation
or elimination of duplicative back office operations and administrative and
management functions. The efficiency of a financial institution is often
measured by its efficiency ratio, which represents the ratio of noninterest
expense to net interest income and noninterest income. First Nationwide Bank has
improved its efficiency ratio from approximately 62.2% on an annualized basis
during the fourth quarter of 1994 to approximately 56.0% on an annualized basis
during the fourth quarter of 1995.
The Maryland Acquisition and the LMUSA Purchases will provide First
Nationwide Bank with the opportunity to increase its noninterest income through
fees generated from its mortgage servicing operations. First Nationwide Bank's
excess servicing capacity and existing servicing expertise enabled it to
accommodate the loan servicing portfolios acquired in these transactions without
the need for significant additional investment.
First Nationwide Bank applies stringent underwriting standards in
originating single-family residential loans and consumer loans, as well as in
evaluating acquisition opportunities. First Nationwide Bank has a specialized
credit risk management group that is charged with the development of credit
policies and performing credit risk analyses for all asset portfolios. Since
October 1994, First Nationwide Bank has also used the Put Agreement (as defined
herein) to mitigate credit losses on certain acquired assets, thereby improving
the overall credit quality of its loan portfolio.
Background
First Nationwide Bank was organized as 'First Gibraltar Bank, FSB' ('First
Gibraltar'), in December 1988 to acquire substantially all of the assets and
certain liabilities of five insolvent Texas thrifts (the 'Texas Closed Banks')
in a federally assisted transaction pursuant to an Assistance Agreement, as
amended (the 'Assistance Agreement'), by and among First Nationwide Bank, FSLIC
Resolution Fund (the 'FSLIC/RF') (as successor to the Federal Savings and Loan
Insurance Corporation (the 'FSLIC')), First Gibraltar Holdings Inc. ('First
Gibraltar Holdings') (the parent company of the Issuer) and MacAndrews & Forbes
Holdings Inc. ('MacAndrews Holdings'). On December 31, 1992, First Gibraltar
sold a substantial portion of its business operations in Oklahoma, consisting of
approximately $3 million of loans and 27 branches with $809 million in deposits
(the 'First Gibraltar Oklahoma Sale'). On February 1, 1993, First Gibraltar sold
to Bank of America Texas, N.A. and Bank of America Corporation (collectively,
'BankAmerica') $829 million in loans and 130 branches with approximately $6.9
billion in deposits (the 'First Gibraltar Texas Sale'), and First Gibraltar
changed its name to 'First Madison Bank, FSB' ('First Madison'). Following the
First Gibraltar Texas Sale, and through September 1994, First Madison's
principal business was the funding of the assets acquired from the Texas Closed
Banks (the 'Covered Assets') and the performance of its obligations under the
Assistance Agreement.
On April 14, 1994, First Nationwide Bank entered into an Asset Purchase
Agreement (the 'FNB Asset Purchase Agreement') with First Nationwide Bank, A
Federal Savings Bank ('Old FNB'), an indirect subsidiary of Ford Motor Company
('Ford Motor'). On October 3, 1994, effective immediately after the close of
business on September 30, 1994, First Nationwide Bank acquired substantially all
of the assets (other than certain non-performing and other excluded assets) and
certain of the liabilities (the 'FNB Acquired Business') of Old FNB (the 'FN
Acquisition'). Effective on October 1, 1994, First Nationwide Bank changed its
name from 'First Madison Bank, FSB' to 'First Nationwide Bank, A Federal Savings
Bank.'
In connection with the FN Acquisition, First Nationwide Bank entered into a
Non-Performing Asset Sale Agreement (the 'Put Agreement') with Granite
Management and Disposition, Inc. ('Granite'), a subsidiary of Ford Motor,
pursuant to which First Nationwide Bank has the right through November 30, 1996
to require Granite to purchase up to $500 million of principally non-performing
assets acquired from Old FNB. In the event that, as of November 30, 1996, First
Nationwide Bank has not required Granite to purchase $500 million of non-
performing assets, it may require Granite to purchase any qualifying assets of
First Nationwide Bank, other than assets which previously were eligible to be
put to Granite and which First Nationwide Bank did not require Granite to
purchase, up to such $500 million maximum. At December 31, 1995, the remaining
available balance under the Put Agreement was approximately $112.4 million. Of
the approximately $220 million in non-performing assets at December 31, 1995,
approximately $13.5 million were eligible to be sold to Granite under the Put
Agreement. The Issuer expects that First Nationwide Bank will use the full
capacity available under the
5
<PAGE>
Put Agreement for such non-performing and other qualifying assets. See
'Business--Other Activities--The Put Agreement.'
First Nationwide Bank financed the FN Acquisition with: (i) a capital
contribution by First Nationwide Holdings funded with the net proceeds of (a)
the issuance of $200.0 million aggregate principal amount of First Nationwide
Holdings' 12 1/4% Senior Notes Due 2001 (the 'FN Holdings Senior Notes' and
collectively with the FN Holdings Subordinated Notes, the 'FN Holdings Notes')
and (b) the issuance of First Nationwide Holdings' class C common stock to the
Issuer, (ii) the net proceeds from the issuance of the First Nationwide Bank
Preferred Stock and (iii) existing cash and proceeds from securities sold under
agreements to repurchase.
Ownership
The Issuer is indirectly wholly owned by MacAndrews Holdings, a corporation
wholly owned through Mafco Holdings Inc. ('Mafco Holdings' and, together with
MacAndrews Holdings, 'MacAndrews & Forbes'), by Ronald O. Perelman. See
'Ownership of Common Stock.' The Issuer's principal executive offices are
located at 38 East 63rd Street, New York, New York 10021, and its telephone
number is (212) 572-8500. The Issuer was incorporated in 1994 under the laws of
the State of Delaware.
6
<PAGE>
The following sets forth a summary organizational chart of the Issuer and
its subsidiaries.
Ronald O. Perelman
|
100% |
|
Mafco Holdings Inc.
("Mafco Holdings")
|
100% |
|
MacAndrews & Forbes Holding Inc.
("MacAndrews Holdings")
|
100% |
|
Trans Network Insurance Services Inc.
("TNIS")
(formerly "First Gibraltar (Parent)
Holdings Inc.")
|
100% |
|
First Gibraltar Holdings Inc.
("First Gibraltar Holdings")
|
100% |
|
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
(the "Issuer")
|
80%* |
|
Hunter's Glen/Ford Ltd. |
("Hunter's Glen") |
| |
20%* |-------------|
|
First Nationwide Holdings Inc.
("First Nationwide Holdings")
|
100% |
|
First Nationwide Bank
A Federal Savins Bank
("First Nationwide Bank")
- ------------------
* Hunter's Glen, a limited partnership controlled by Gerald J. Ford, Chairman of
the Board, Chief Executive Officer and a director of First Nationwide Bank and
President and a director of the Issuer, owns 100% of the class B common stock
of First Nationwide Holdings, representing 20% of its voting common stock
(representing approximately 15% of the voting power of its common stock), and
the Issuer owns 100% of the class A common stock of First Nationwide Holdings,
representing 80% of its voting common stock (representing approximately 85% of
the voting power of its common stock), and 100% of the class C common stock of
First Nationwide Holdings. See 'Certain Transactions--Transactions with Mr.
Ford.'
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered........................ Up to $455,000,000 principal amount of 12 1/2% Senior Exchange Notes
due 2003, which have been registered under the Securities Act. The
terms of the New Notes and the Old Notes are identical in all
material respects, except for certain transfer restrictions and
registration rights relating to the Old Notes and except that, if the
Exchange Offer is not consummated by September 16, 1996, the rate per
annum at which the Old Notes bear interest will be 13% per annum from
and including September 16, 1996 until but excluding the date of
consummation of the Exchange Offer.
The Exchange Offer........................ The New Notes are being offered in exchange for a like principal
amount of Old Notes. The issuance of the New Notes is intended to
satisfy obligations of the Issuer contained in the Registration
Agreement. For procedures for tendering, see 'The Exchange Offer.'
Tenders, Expiration Date; Withdrawal...... The Exchange Offer will expire at 5:00 p.m., New York City time, on
June 17, 1996, or such later date and time to which it is
extended. The tender of Old Notes pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration Date. Any Old Note
not accepted for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Federal Income Tax Consequences........... The exchange pursuant to the Exchange Offer should not result in gain
or loss to the holders or the Issuer for federal income tax purposes.
See 'Certain Federal Income Tax Consequences.'
Use of Proceeds........................... There will be no proceeds to the Issuer from the exchange pursuant to
the Exchange Offer.
Exchange Agent............................ The Bank of New York is serving as exchange agent (the 'Exchange
Agent') in connection with the Exchange Offer.
</TABLE>
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuer does not currently anticipate that
it will register Old Notes under the Securities Act. See 'Description of the
Notes--Registration Rights.' Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Issuer believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any holder which is an 'affiliate' of the Issuer within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement with any person to participate in the distribution
of such New Notes. However, the Issuer does not intend to request the SEC to
8
<PAGE>
consider, and the SEC has not considered, the Exchange Offer in the context of a
no-action letter and there can be no assurance that the staff of the SEC would
make a similar determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of New Notes
and has no arrangement or understanding to participate in a distribution of New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes. See 'Plan of Distribution.' In addition, to comply with the
state securities laws, the New Notes may not be offered or sold in any state
unless they have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The offer and sale of the New Notes to 'qualified institutional buyers' (as such
term is defined under Rule 144A of the Securities Act) is generally exempt from
registration or qualification under the state securities laws. The Issuer
currently does not intend to register or qualify the sale of the New Notes in
any state where an exemption from registraiton or qualification is required and
not available. See 'The Exchange Offer--Consequences of Exchanging Old Notes'
and 'Description of the Notes--Registration Rights.'
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the Old Notes and except that, if the Exchange Offer is not
consummated by September 16, 1996, the rate per annum at which the Old Notes
bear interest will be 13% per annum from and including September 16, 1996 until
but excluding the date of consummation of the Exchange Offer. The New Notes will
bear interest from the most recent date to which interest has been paid on the
Old Notes or, if no interest has been paid on the Old Notes, from April 17,
1996. Accordingly, if the relevant record date for interest payment occurs after
the consummation of the Exchange Offer registered holders of New Notes on such
record date will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from April 17, 1996.
If, however, the relevant record date for interest payment occurs prior to the
consummation of the Exchange Offer registered holders of Old Notes on such
record date will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from April 17, 1996.
Old Notes accepted for exchange will cease to accrue interest from and after the
date of consummation of the Exchange Offer, except as set forth in the
immediately preceding sentence. Holders of Old Notes whose Old Notes are
accepted for exchange will not receive any payment in respect of interest on
such Old Notes otherwise payable on any interest payment date the record date
for which occurs on or after consummation of the Exchange Offer.
<TABLE>
<S> <C>
Securities Offered........................ Up to $455,000,000 aggregate principal amount of 12 1/2% Senior
Exchange Notes due 2003, which have been registered under the
Securities Act.
Maturity Date............................. April 15, 2003.
Interest Payment Dates.................... April 15 and October 15, of each year, commencing October 15, 1996.
Optional Redemption....................... The Notes will be redeemable, at the option of the Issuer, in whole
or in part, at any time on or after April 15, 2000, at the redemption
prices set forth herein plus accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time prior to April 15,
2000, the Notes may be redeemed at the option of the Issuer, in whole
but not in part, at an aggregate redemption price equal to the sum
of: (i) 100% of the then outstanding principal amount of the Notes;
(ii) accrued and unpaid interest to the date of redemption; and (iii)
the Applicable Premium. See 'Description of the Notes--Optional
Redemption.'
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Change of Control Put..................... Upon the occurrence of a Change of Control Put Event, each holder of
the Notes will have the right to require the Issuer to repurchase all
or a portion of such holder's Notes at a price equal to 103% of the
principal amount thereof plus accrued and unpaid interest to the date
of repurchase. The Issuer's ability to purchase the Notes may be
limited by the amount of available cash and other factors. See 'Risk
Factors--Holding Company Structure; Restrictions on Ability of
Subsidiaries to Pay Dividends,' 'Risk Factors--Indebtedness and
Ability to Pay Principal of the Notes' and 'Description of the
Notes--Change of Control Put Event.'
Ranking and Holding Company Structure..... The Old Notes are, and the New Notes will be, senior unsecured
obligations of the Issuer and will rank pari passu in right of
payment with all other future senior debt of the Issuer, if any is
issued, and senior to all future subordinated debt of the Issuer, if
any is issued.
The Issuer is a holding company and therefore the Old Notes are, and
the New Notes will be, effectively subordinated to (i) all existing
and future liabilities, including deposits, indebtedness and trade
payables, of the Issuer's subsidiaries, including First Nationwide
Holdings and First Nationwide Bank and (ii) all preferred stock
issued by the Issuer's subsidiaries, including the First Nationwide
Bank Preferred Stock. The Notes will also be effectively subordinated
to the obligations of First Nationwide Holdings under the FN Tax
Sharing Agreement (as defined herein). As of December 31, 1995, after
giving effect to the the SFFed Acquisition, the Branch Sales, the
LMUSA 1996 Purchase and the FN Holdings Subordinated Notes Offering,
the outstanding interest-bearing liabilities, including deposits, of
such subsidiaries would have been approximately $17.1 billion, the
other outstanding liabilities of such subsidiaries, including trade
payables and accrued expenses, would have been approximately $488
million, and there would have been approximately $301 million
aggregate liquidation value of First Nationwide Bank Preferred Stock
outstanding. The aggregate amount of indebtedness, other liabilities
and preferred stock of the Issuer's subsidiaries were not affected by
the Offering or the application of the net proceeds therefrom. See
'Risk Factors--Holding Company Structure; Restrictions on Ability of
Subsidiaries to Pay Dividends,' 'Risk Factors--Subordination to
Subsidiary Liabilities and Preferred Stock,' 'Use of Proceeds' and
'Description of the Notes.'
Certain Covenants......................... The Indenture contains certain covenants that, among other things,
will limit: (i) the issuance of additional debt by the Issuer and its
subsidiaries, (ii) the payment of dividends on the capital stock of
the Issuer, and the redemption or repurchase of the capital stock of
the Issuer, (iii) the making of certain investments, (iv)
transactions with affiliates, (v) the creation of liens on the assets
of the Issuer, (vi) the termination or amendment of the FN Tax
Sharing Agreement, (vii) the ability of the Issuer or any subsidiary
to restrict dividends or distributions from subsidiaries, (viii)
sales or issuances of capital stock of First Nationwide Holdings,
(ix) consolidations, mergers and transfers of all or substantially
all of the Issuer's or First Nationwide
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Holdings' assets and (x) other business activities of the Issuer and
First Nationwide Holdings. All these limitations and prohibitions,
however, are subject to a number of important qualifications. See
'Description of the Notes--Certain Covenants.'
Use of Proceeds........................... The Issuer will not receive any proceeds from the Exchange Offer. The
net proceeds from the Offering were approximately $432 million, which
were distributed to the Issuer's parent, First Gibraltar Holdings,
and used to repay indebtedness of affiliates of the Issuer, other
than the Issuer or its subsidiaries. None of the net proceeds were
available to the Issuer or its subsidiaries.
Exchange Offer; Registration Rights....... Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Pursuant to the Registration Agreement, the
Issuer agreed to file, at its cost, a registration statement with
respect to the Exchange Offer. The Registration Statement of which
this Prospectus is a part constitutes the registration statement for
the Exchange Offer. See 'Description of the Notes--Registration
Rights.'
</TABLE>
RISK FACTORS
Prospective purchasers of the New Notes should consider carefully all of
the information set forth in this Prospectus and, in particular, should evaluate
the specific factors set forth under 'Risk Factors' before making a decision to
tender their Old Notes in the Exchange Offer.
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The Issuer is a holding company with no business operations of its own. The
Issuer's only significant asset is its ownership of 80% of the common stock of
First Nationwide Holdings, a holding company which owns all of the commmon stock
of First Nationwide Bank. As such, the Issuer's principal business operations
are conducted by First Nationwide Bank and its subsidiaries.
The summary historical financial data presented under the captions
'Selected Operating Data' and 'Selected Financial Data' as of and for the years
ended December 31, 1995 and 1994, have been derived from the Consolidated
Financial Statements of the Issuer. The summary pro forma financial, operating
and other data as of and for the year ended December 31, 1995 are based on (i)
the historical consolidated statement of financial condition of the Issuer at
December 31, 1995 giving effect to the SFFed Acquisition, the LMUSA 1996
Purchase, the Branch Sales, the FN Holdings Subordinated Notes Offering and the
Offering as if such transactions occurred on December 31, 1995, and (ii) the
historical consolidated statement of operations for the year ended December 31,
1995 giving effect to the SFFed Acquisition and the LMUSA Purchases
(collectively, the 'Acquisitions'), the Branch Sales, the FN Holdings
Subordinated Notes Offering and the Offering as if such transactions occurred on
January 1, 1995. The summary pro forma financial, operating and other data do
not necessarily reflect the results of operations or the financial position of
the Issuer that actually would have resulted had the Acquisitions, the Branch
Sales, the FN Holdings Subordinated Notes Offering and the Offering occurred at
the dates indicated, or project the results of operations or financial position
of the Issuer for any future date or period.
The pro forma financial data does not give effect to the redemption of the
class C common stock of First Nationwide Holdings which, at December 31, 1995,
had a redemption value of $171.1 million. The Issuer expects that such class C
common stock will be redeemed in full on or before June 1, 1996. The Branch
Purchases consummated in 1995 and the proposed Home Federal Acquisition have not
been reflected in the pro forma financial data because such transactions are not
material either individually or in the aggregate.
The following data should be read in conjunction with the Consolidated
Financial Statements of the Issuer and the notes thereto, the Consolidated
Financial Statements of the FNB Acquired Business and the notes thereto, the
Consolidated Financial Statements of SFFed and the notes thereto and the
Unaudited Pro Forma Financial Data included elsewhere in this Prospectus. See
'Pro Forma Financial Data,' 'Selected Historical Financial Data' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
ACTUAL
PRO FORMA ----------------------
1995(1) 1995 1994
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SELECTED OPERATING DATA
Interest income......................... $1,401,500 $1,075,845 $293,139
Interest expense........................ 1,094,501 734,815 199,845
Net interest income..................... 306,999 341,030 93,294
Provision for loan losses............... 48,094 37,000 6,226
Noninterest income...................... 213,068 150,973 41,158
Noninterest expense..................... 394,454 332,553 96,298
Income before taxes, extraordinary item
and minority interest................. 77,519 122,450 31,928
Income tax (benefit) expense(2)......... (61,605) (57,185) 2,558
Income before extraordinary item and
minority interest..................... 139,124 179,635 29,370
Extraordinary item: gain on early
extinguishment of FHLB advances,
net................................... 1,967 1,967 1,376
Net income before minority interest..... 141,091 181,602 30,746
Minority interest--First Nationwide Bank
preferred stock dividends............. 34,584 34,584 --
Minority interest--Hunter's Glen........ 27,262 24,554 4,259
Net income.............................. 79,245 122,464 26,487
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED
DECEMBER 31,
1995(1)(8)
------------
<S> <C>
OTHER DATA, AS ADJUSTED
Net income of First Nationwide Bank..... $237,219
Elimination of deferred tax benefit of
First Nationwide Bank(3).............. (69,000)
First Nationwide Bank preferred stock
dividends............................. (34,584)
------------
Net income of First Nationwide Bank
available to First Nationwide
Holdings, as adjusted(4).............. 133,635
Net expenses of First Nationwide
Holdings (unconsolidated)(5).......... (42,078)
------------
Net income of First Nationwide Holdings,
as adjusted(6)........................ 91,557
Minority interest--Hunter's Glen(7)..... (18,311)
------------
Cash available for distribution or loan
to Issuer(6)(7)....................... $ 73,246
------------
------------
Ratio of cash available for distribution
or loan to Issuer to interest expense
of the Issuer......................... 1.3x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
ACTUAL
PRO FORMA --------------------------
1995(9) 1995 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
SELECTED FINANCIAL DATA
Securities......................... $ 350,016 $ 350,016 $ 456,859
Mortgage-backed securities......... 3,944,315 3,002,002 3,153,812
Loans receivable, net.............. 11,521,375 8,831,018 9,966,886
Covered assets, net................ 39,349 39,349 311,603
Total assets....................... 18,731,873 14,646,245 14,683,559
Deposits........................... 8,591,559 10,241,628 9,196,656
Borrowings and securities sold
under agreements to repurchase... 8,983,595 3,362,372 4,692,469
Total liabilities.................. 18,063,504 13,883,090 14,029,957
Minority interest--preferred stock
of First Nationwide Bank......... 300,730 300,730 300,730
Minority interest--Hunter's Glen... 125,656 58,261 23,205
Stockholder's equity............... 241,983 404,155 329,667
REGULATORY CAPITAL RATIOS OF FIRST
NATIONWIDE BANK
Tangible capital................... 6.30% 5.84% 5.50%
Core capital....................... 6.30 5.84 5.50
Risk-based capital:
Core capital..................... 10.16 9.14 8.86
Total capital.................... 12.15 11.34 11.01
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED PERFORMANCE RATIOS
Return on average assets(10).......... .83% .60%
Return on average common equity(11)... 35.91 15.86
Yield on interest-earning
assets(12)......................... 7.71 6.85
Cost of interest-bearing
liabilities(13).................... 5.35 4.83
Net interest margin(14)............... 2.44 2.18
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND MINORITY INTEREST(15)
Excluding interest on deposits........ 1.2x 1.3x
Including interest on deposits........ 1.1x 1.1x
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1995 1994
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED OTHER DATA
Number of full service customer
facilities............................ 160 156
Loans serviced for others(16)........... $28,170,543 $7,475,119
Approximate number of employees......... 3,619 3,573
Non-performing assets as a percentage of
First Nationwide Bank's total
assets................................ 1.50% 1.49%
</TABLE>
- ------------------
(1) Reflects the consummation of the Acquisitions, the Branch Sales, the FN
Holdings Subordinated Notes Offering and the Offering. Pro forma net income
of First Nationwide Bank does not include the gain expected to be generated
from the Branch Sales. Such gain approximates $337 million, after tax, on a
pro forma basis. See 'Pro Forma Financial Data' and the Unaudited Pro Forma
Financial Data included elsewhere in this Prospectus.
(2) Income tax benefit in 1995 represents the recognition of a deferred tax
benefit of $69 million. Such benefit is offset in 1995 by federal
alternative minimum tax ('AMT') reduced, to the extent of 90%, by net
operating loss carryovers, and state tax at an assumed rate of 8%. Income
tax expense recorded in 1994 after the FN Acquisition was recorded on a
similar basis.
(3) First Nationwide Bank recognized a deferred tax benefit of $69 million in
the fourth quarter of 1995. Such benefit is not a recurring item.
(4) Represents pro forma net income of First Nationwide Bank, as adjusted, less
First Nationwide Bank preferred stock dividends. Assumes that no retention
of retained earnings is necessary in order for First Nationwide Bank to
retain its 'well capitalized' status.
(5) Represents unconsolidated net loss before minority interest of First
Nationwide Holdings (which includes interest expense on the FN Holdings
Senior Notes and other expenses of First Nationwide Holdings) and the pro
forma effect of interest expense on the FN Holdings Subordinated Notes,
excluding net income from First Nationwide Bank.
(6) The terms of the FN Holdings Indentures (as defined herein) generally limit
distributions to 75% of the consolidated net income of First Nationwide
Holdings. The FN Holdings Indentures also permit First Nationwide Holdings
to loan the remaining 25% of its consolidated net income to affiliates,
including the Issuer, provided that such loans are on an arm's length
basis. See 'Risk Factors--Holding Company Structure; Restrictions on
Ability of Subsidiaries to Pay Dividends.'
(7) Assumes that the class C common stock of First Nationwide Holdings owned by
the Issuer is redeemed in full for approximately $171.1 million, which the
Issuer expects to occur on or before June 1, 1996. Until the redemption of
the class C common stock, no dividends are payable on the class A common
stock of First Nationwide Holdings owned by the Issuer, or the class B
common stock of First Nationwide Holdings owned by Hunter's Glen.
Thereafter, the Issuer expects that distributions by First Nationwide
Holdings will be made on a pro rata basis with respect to its 80% ownership
interest and the 20% ownership interest of Hunter's Glen.
(8) Pro forma results do not reflect the impact of a possible special SAIF
assessment. See 'Pro Forma Financial Data.' The impact of this one-time
assessment would be to decrease net income of First Nationwide Bank by
approximately $44 million, which amount would reduce net income of First
Nationwide Holdings by an equivalent amount. Cash available for
distribution or loan to Issuer would be reduced by approximately $35
million. Pro forma net income reflects a 10% effective income tax rate
which may increase as net operating losses are used in full to offset
income or expire. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Provision for Federal and State Income
Taxes.'
(9) Reflects the consummation of the SFFed Acquisition, the LMUSA 1996
Purchase, the Branch Sales, the FN Holdings Subordinated Notes Offering and
the Offering. Does not give effect to the redemption of the class C common
stock of First Nationwide Holdings which, at December 31, 1995, had a
redemption value of $171.1 million. The Issuer expects that such class C
common stock will be redeemed in full on or before June 1, 1996. See 'Pro
Forma Financial Data' and the Unaudited Pro Forma Financial Data included
elsewhere in this Prospectus.
(10) Return on average assets represents net income as a percentage of average
assets.
(11) Return on average common equity represents net income available to common
stockholder as a percentage of average common equity.
(12) Yield on interest-earning assets represents interest income as a percentage
of average interest-earning assets.
(13) Cost of interest-bearing liabilities represents interest expense as a
percentage of average interest-bearing liabilities.
(14) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(15) Earnings used in computing the ratio of earnings to combined fixed charges
and minority interest consists of income before taxes, extraordinary item
and minority interest. Fixed charges consist of interest expense on
borrowings, the interest component of lease expense and, where indicated,
interest expense on deposits. Minority interest consists of First
Nationwide Bank Preferred Stock dividends and the Hunter's Glen 20%
interest in First Nationwide Holdings.
(16) Includes loans serviced by FNMC, First Nationwide Bank and FGB Realty (as
defined herein), excluding loans serviced for First Nationwide Bank by
FNMC.
14
<PAGE>
RISK FACTORS
Prospective holders of New Notes should consider carefully all of the
information set forth in this Prospectus and, in particular, should evaluate the
following risks before tendering their Old Notes in the Exchange Offer, although
the risk factors set forth below (other than '--Consequences of Failure to
Exchange and Requirements for Transfer of New Notes') are generally applicable
to the Old Notes as well as the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuer does not currently anticipate that
it will register Old Notes under the Securities Act. Based on interpretations by
the staff of the SEC, as set forth in no-action letters issued to third parties,
the Issuer believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder which is an
'affiliate' of the Issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement with any
person to participate in the distribution of such New Notes. However, the Issuer
does not intend to request the SEC to consider, and the SEC has not considered,
the Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in such other circumstances. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is an
affiliate of the Issuer, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on
the applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that, for a period
of 180 days after the Expiration Date, it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See 'Plan of
Distribution.' However, to comply with the state securities laws, the New Notes
may not be offered or sold in any state unless they have been registered or
qualified for sale in such state or an exemption from registration or
qualification is available and is complied with. The offer and sale of the New
Notes to 'qualified institutional buyers' (as such term is defined under Rule
144A of the Securities Act) is generally exempt from registration or
qualification under the state securities laws. The Issuer currently does not
intend to register or qualify the sale of the New Notes in any state where an
exemption from registration or qualification is required and not available. See
'The Exchange Offer--Consequences of Exchanging Old Notes.'
HOLDING COMPANY STRUCTURE; RESTRICTIONS ON ABILITY OF SUBSIDIARIES TO PAY
DIVIDENDS
The Issuer is a holding company with no business operations of its own. The
Issuer's only significant asset is its ownership of 80% of the common stock of
First Nationwide Holdings, a holding company which owns all of the common stock
of First Nationwide Bank. As such, the Issuer's principal business operations
are conducted by First Nationwide Bank and its subsidiaries. The Issuer's only
source of cash to pay interest on and principal of the Notes is expected to be
distributions with respect to its 80% ownership interest in First Nationwide
Holdings from the net earnings generated by First Nationwide Bank and
distributed to First Nationwide Holdings, after
15
<PAGE>
payment by First Nationwide Holdings of amounts due on the FN Holdings Notes and
certain other expenses. Until the redemption of all of the class C common stock
of First Nationwide Holdings held by the Issuer, the Issuer will receive 100% of
such distributions from First Nationwide Holdings, after which time the Issuer
expects distributions to be made on a pro rata basis with respect to its 80%
ownership interest and the 20% interest owned by Hunter's Glen. The Issuer
expects that the class C common stock, which at December 31, 1995 had a
redemption value of $171.1 million, will be redeemed in full on or before June
1, 1996. The annual interest payable on the Notes will be approximately $56.9
million. Although the Issuer expects that distributions from First Nationwide
Holdings will be sufficient to pay interest when due and the principal amount of
the Notes at maturity, distributions from First Nationwide Holdings may not be
sufficient to pay the principal amount of the Notes prior to maturity upon the
occurrence of an Event of Default (as defined herein) or to redeem or repurchase
the Notes upon a Change of Control Put Event. In addition, the Issuer may use
such distributions to make dividends, distributions or other Restricted Payments
subject to the limitations set forth in the Indenture. See 'Description of the
Notes--Certain Covenants--Limitation on Restricted Payments.' In addition, there
can be no assurance that earnings from First Nationwide Bank will be sufficient
to make distributions to First Nationwide Holdings, or that First Nationwide
Holdings will make distributions to the Issuer in amounts sufficient to enable
the Issuer to pay interest on the Notes when due or principal of the Notes at
maturity or that such distributions will be permitted by the terms of any debt
instruments of the Issuer's subsidiaries then in effect, including the FN
Holdings Notes, by the terms of any class of preferred stock issued by First
Nationwide Bank, including the Bank Preferred Stock, or under applicable federal
thrift laws or regulations.
The terms of the indenture (the 'FN Holdings Subordinated Notes Indenture')
for the FN Holdings Subordinated Notes and the indenture (the 'FN Holdings
Senior Notes Indenture' and, collectively with the FN Holdings Subordinated
Notes Indenture, the 'FN Holdings Indentures') for the FN Holdings Senior Notes
generally limit distributions (and other Restricted Payments (as defined
therein)) to 75% of the consolidated net income of First Nationwide Holdings and
require, among other things, that, in order for First Nationwide Holdings to
distribute any cash to the Issuer or otherwise make any Restricted Payment,
after giving effect to such distribution or payment, First Nationwide Bank must
be 'well capitalized' under applicable OTS regulations and the Consolidated
Common Shareholders' Equity (as defined therein) of First Nationwide Bank must
be at least equal to the Minimum Common Equity Amount (as defined therein). The
FN Holdings Indentures and the Indenture permit First Nationwide Holdings to
loan funds to any affiliate, including the Issuer, provided that the
Consolidated Common Shareholders' Equity of First Nationwide Bank be at least
equal to the Minimum Common Equity Amount and that the terms of any such loan be
on terms that would be obtainable in arm's length dealings. Subject to such
restrictions, such loans may consist of any and all funds available to First
Nationwide Holdings, whether or not such funds may be distributed (or otherwise
paid as a Restricted Payment) pursuant to the terms of the FN Holdings
Indentures. See 'Description of Other Indebtedness.'
The terms of the First Nationwide Bank Preferred Stock provide that First
Nationwide Bank may not declare or pay any dividends or other distributions
(other than in shares of common stock of First Nationwide Bank or other classes
of equity securities of First Nationwide Bank ranking junior to the First
Nationwide Bank Preferred Stock (collectively, 'Junior Stock')) with respect to
any Junior Stock or repurchase, redeem or otherwise acquire, or set apart funds
for the repurchase, redemption or other acquisition of any Junior Stock
(including the common stock held by First Nationwide Holdings) through a sinking
fund or otherwise, unless and until: (i) First Nationwide Bank has paid full
dividends on the First Nationwide Bank Preferred Stock for the four most recent
dividend periods, or funds have been paid over to the dividend disbursing agent
of First Nationwide Bank for payment of such dividends, and (ii) First
Nationwide Bank has declared a cash dividend on the First Nationwide Bank
Preferred Stock at the annual dividend rate for the current dividend period, and
sufficient funds have been paid over to the dividend disbursing agent of First
Nationwide Bank for the payment of a cash dividend for such current dividend
period. First Nationwide Bank is currently in compliance with both of such
requirements.
The federal thrift laws, including the regulations of the OTS, limit First
Nationwide Bank's ability to pay dividends to First Nationwide Holdings. First
Nationwide Bank generally may not declare dividends or make any other capital
distribution if, after the payment of such dividend or other distribution, it
would fall within any of the three undercapitalized categories under the prompt
corrective action standards of the Federal Deposit Insurance Corporation
Improvement Act of 1991 ('FDICIA'). Other limitations apply to First Nationwide
Bank's ability to pay dividends, the magnitude of which depends upon the extent
to which First Nationwide Bank meets its fully phased-in regulatory capital
requirements. See 'Regulation--Regulation of Federal Savings
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Banks--Capital Distribution Regulation.' In addition, the HOLA requires every
savings association subsidiary of a savings and loan holding company to give the
OTS at least 30 days' advance notice of any proposed dividends to be made on its
guarantee, permanent or other non-withdrawable stock or else such dividend will
be invalid. Further, the OTS may prohibit any capital distribution that it
determines would constitute an unsafe or unsound practice. See
'Regulation--Regulation of Federal Savings Banks--Capital Distribution
Regulation' and 'Business--Dividend Policy.'
As of December 31, 1995, First Nationwide Bank met the capital requirements
of a 'well capitalized' institution under the FDICIA prompt corrective action
standards. Although management of the Issuer expects First Nationwide Bank to
remain 'well capitalized,' there can be no assurance that First Nationwide Bank
will continue to be 'well capitalized' under applicable OTS regulations. If
First Nationwide Bank were only 'adequately capitalized,' it would not be able
to accept Brokered Deposits (as defined herein) unless it received a waiver from
the FDIC.
First Nationwide Holdings is a holding company with no business operations
of its own. If indebtedness of First Nationwide Holdings or its subsidiaries
were to be accelerated, there could be no assurance that the assets of First
Nationwide Holdings or its subsidiaries, as the case may be, would be sufficient
to repay in full borrowings under all of such debt instruments or that First
Nationwide Bank would be able to distribute funds to permit First Nationwide
Holdings to provide sufficient funds to the Issuer to enable the Issuer to pay
interest on the Notes. First Nationwide Holdings' only significant asset is all
of the common stock of First Nationwide Bank.
The Issuer expects that a substantial portion of any net earnings generated
by First Nationwide Bank, including net earnings generated as a result of sales
of assets or deposits, that are not needed to pay dividends on the First
Nationwide Bank Preferred Stock or in First Nationwide Bank's operations or to
expand its business will, subject to the limitations discussed above, be
distributed to First Nationwide Holdings. In addition to the limitations
described above, the amount of cash available to the Issuer in the form of
dividends or other distributions from First Nationwide Holdings could be reduced
by any future issuances of capital stock of First Nationwide Holdings or First
Nationwide Bank in accordance with the terms of the Indenture.
INDEBTEDNESS AND ABILITY TO PAY PRINCIPAL OF THE NOTES
At December 31, 1995, on an unconsolidated basis the Issuer had no
indebtedness outstanding, and after giving effect to the Offering, on an
unconsolidated basis the Issuer's total indebtedness would have been
approximately $450 million (net of original issue discount). See 'Consolidated
Capitalization.' At December 31, 1995, after giving effect to the issuance of
the FN Holdings Subordinated Notes and the application of the net proceeds
therefrom, First Nationwide Holdings would have had $340 million of indebtedness
outstanding on an unconsolidated basis. In addition, subject to the restrictions
imposed by the FN Holdings Indentures and the Indenture, First Nationwide
Holdings may incur additional indebtedness. See 'Description of the
Notes--Certain Covenants.'
The Issuer currently anticipates that, in order to pay the principal amount
of the Notes upon the occurrence of an Event of Default or to redeem or
repurchase the Notes upon a Change of Control Put Event or, in the event that
earnings from First Nationwide Holdings are not sufficient to make distributions
to the Issuer to enable it to pay the principal amount of the Notes at maturity,
the Issuer may be required to adopt one or more alternatives, such as borrowing
funds, selling its equity securities, or the equity securities or assets of
First Nationwide Bank, or seeking capital contributions or loans from its
affiliates. None of the affiliates of the Issuer are required to make any
capital contributions or other payments to the Issuer with respect to the
Issuer's obligations on the Notes. First Nationwide Holdings may be required to
adopt similar alternatives in order to pay the principal amount of the FN
Holdings Notes. There can be no assurance that any of the foregoing actions
could be effected on satisfactory terms, that any of the foregoing actions would
enable the Issuer to pay the principal amount of the Notes, or would enable
First Nationwide Holdings to pay the principal amount of the FN Holdings Notes,
or that any of such actions would be permitted by the terms of the Indenture,
the FN Holdings Indentures or any other debt instruments of the Issuer or the
Issuer's subsidiaries then in effect, by the terms of the First Nationwide Bank
Preferred Stock or under applicable federal thrift laws or regulations. The
events that constitute a Change of Control Put Event under the Indenture will,
with few exceptions, also permit the holders of the FN Holdings Notes to require
First Nationwide Holdings to repurchase such indebtedness.
The terms of the Indenture generally permit the Issuer to make
distributions (and other Restricted Payments) of up to 65% of the consolidated
net income of the Issuer if, after giving effect to such distribution or
payment,
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(i) First Nationwide Bank is 'well capitalized' under applicable OTS regulations
and (ii) the Consolidated Common Shareholders' Equity of First Nationwide Bank
is at least equal to the Minimum Common Equity Amount. The Issuer is able to
loan funds to its affiliates pursuant to the Indenture provided that the
Consolidated Common Shareholders' Equity of First Nationwide Bank is at least
equal to the Minimum Common Equity Amount and the terms of any such loan are on
terms that would be obtainable in arm's length dealings. Subject to such
restrictions, such loans may consist of any and all funds available to the
Issuer, whether or not such funds may be distributed (or otherwise paid as a
Restricted Payment) pursuant to the terms of the Indenture. See 'Description of
the Notes--Certain Covenants.' Accordingly, there can be no assurance that,
notwithstanding the receipt by the Issuer of sufficient funds to enable it to
pay the principal amount of the Notes at maturity, the Issuer will have funds
available to pay the principal amount of the Notes at maturity or prior to
maturity upon the occurrence of an Event of Default or to redeem or repurchase
the Notes upon a Change of Control Put Event.
SUBORDINATION TO SUBSIDIARY LIABILITIES AND PREFERRED STOCK
Any right of the Issuer and its creditors, including holders of the Notes,
to participate in the assets of any of the Issuer's subsidiaries, including
First Nationwide Holdings and First Nationwide Bank, upon any liquidation or
reorganization of any such subsidiary will be subject to the prior claims of
that subsidiary's creditors, including First Nationwide Bank's depositors and
trade creditors (except to the extent that the Issuer may itself be a creditor
of such subsidiary). Accordingly, the Notes will be effectively subordinated to
(i) all existing and future liabilities, including deposits, indebtedness and
trade payables, of the Issuer's subsidiaries, including First Nationwide
Holdings and First Nationwide Bank, and (ii) all preferred stock issued by the
Issuer's subsidiaries, including the First Nationwide Bank Preferred Stock. The
Notes will also be effectively subordinated to the obligations of First
Nationwide Holdings under the FN Tax Sharing Agreement. At December 31, 1995,
after giving effect to the SFFed Acquisition, the Branch Sales, the LMUSA 1996
Purchase and the FN Holdings Subordinated Notes Offering, the outstanding
interest-bearing liabilities, including deposits, of such subsidiaries would
have been approximately $17.1 billion, the other liabilities of such
subsidiaries, including trade payables and accrued expenses, would have been
approximately $488 million, and there would have been approximately $301 million
aggregate liquidation value of First Nationwide Bank Preferred Stock
outstanding. The aggregate amount of indebtedness, other liabilities and
preferred stock of the Issuer's subsidiaries will not be affected by the
Offering and the use of the net proceeds therefrom. See '--Use of Proceeds of
the Offering.' In the event of the liquidation or dissolution of First
Nationwide Bank, the holders of the First Nationwide Bank Preferred Stock will
have preference over the Issuer, as the indirect holder of all of the common
stock of First Nationwide Bank, with respect to the assets of First Nationwide
Bank. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity.'
RESTRICTIONS IMPOSED BY TERMS OF THE ISSUER'S INDEBTEDNESS; CONSEQUENCES OF
FAILURE TO COMPLY
The terms and conditions of the Indenture and the FN Holdings Indentures
impose restrictions that affect, among other things, the ability of the Issuer
or First Nationwide Holdings, as the case may be, to incur debt, pay dividends
or make distributions, engage in a business other than holding the common stock
of First Nationwide Holdings, in the case of the Issuer, or of First Nationwide
Bank and similar banking institutions, in the case of First Nationwide Holdings,
make acquisitions, create liens, sell assets and make certain investments. The
ability of the Issuer and its subsidiaries to comply with the foregoing
provisions can be affected by events beyond their control. The breach of any of
these covenants could result in a default under one or more of the debt
instruments of the Issuer or its subsidiaries. In the event of a default under
any indebtedness of the Issuer or its subsidiaries, the holders of such
indebtedness could elect to declare all amounts outstanding under their
respective debt instruments to be due and payable. Any such declaration under a
debt instrument of the Issuer or its subsidiaries is likely to result in an
event of default under one or more of the other debt instruments of the Issuer
or its subsidiaries. If indebtedness of the Issuer or its subsidiaries were to
be accelerated, there could be no assurance that the assets of the Issuer or its
subsidiaries, as the case may be, would be sufficient to repay in full
borrowings under all of such debt instruments, including the Notes. See
'--Indebtedness and Ability to Pay Principal of the Notes,' 'Business--Sources
of Funds,' 'Description of Other Indebtedness' and 'Description of the Notes.'
USE OF PROCEEDS OF THE OFFERING
The Issuer distributed the net proceeds from the Offering to its parent,
First Gibraltar Holdings, which used such proceeds to repay indebtedness of
affiliates of the Issuer, other than the Issuer or its subsidiaries. None of the
net proceeds were available to the Issuer or its subsidiaries.
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STRATEGY
Management intends to continue the implementation of its various strategies
in order to capitalize on the strengths of First Nationwide Bank. See
'Business--Business Strategy.' The continued implementation of any of
management's strategies is subject to numerous contingencies beyond management's
control. These contingencies include general and regional economic conditions,
competition and changes in regulation and interest rates. Accordingly, no
assurance can be given that any of these strategies will prove to be effective
or that management's goals will be achieved.
ECONOMIC CONDITIONS
First Nationwide Bank's loan portfolio is concentrated in California. As a
result, the financial condition of First Nationwide Bank will be subject to
general economic conditions and, in particular, to conditions in the California
residential real estate market. Due to the slow recovery of the economy,
particularly in California's market for residential real estate, First
Nationwide Bank may find it difficult to originate a sufficient volume of
high-quality residential mortgage loans or maintain its asset quality, either of
which could negatively affect future performance. In addition, any downturn in
the economy generally, and in California in particular, could further reduce
real estate values and the volume of mortgages originated. Real estate values in
California could also be affected by earthquakes.
INTEREST RATE RISK AND CREDIT RISK
It is expected that First Nationwide Bank will continue to realize income
primarily from the differential or 'spread' between the interest earned on
loans, securities and other interest-earning assets, and interest paid on
deposits, borrowings and other interest-bearing liabilities. Net interest
spreads are affected by the difference between the maturities and repricing
characteristics of interest-earning assets and interest-bearing liabilities. In
addition, loan volume and yields are affected by market interest rates on loans,
and rising interest rates generally are associated with a lower volume of loan
originations. It is expected that a substantial majority of First Nationwide
Bank's assets will continue to be indexed to changes in market interest rates
and a substantial majority of its liabilities will continue to be short term,
which will mitigate the negative effect of a decline in yield on its assets. At
December 31, 1995, First Nationwide Bank had $10.0 billion in assets indexed to
changes in market rates and $10.9 billion in liabilities maturing or repricing
within one year. In addition, the lag in implementing repricing terms on First
Nationwide Bank's adjustable rate assets may result in a decline in net interest
income in a rising interest rate environment. There can be no assurance that
First Nationwide Bank's interest rate risk will be minimized or eliminated. In
addition, an increase in the general level of interest rates may adversely
affect the ability of certain borrowers to pay the interest on and principal of
their obligations. Accordingly, changes in levels of market interest rates could
materially adversely affect First Nationwide Bank's net interest spread, asset
quality, loan origination volume and overall results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Asset and Liability Management.'
Securities owned by First Nationwide Bank are accounted for in accordance
with Statement of Financial Accounting Standards ('SFAS') No. 115, 'Accounting
for Certain Investments in Debt and Equity Securities.' On November 15, 1995,
the Financial Accounting Standards Board ('FASB') issued a special report, 'A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities' (the 'Special Report'). The Special Report
provided all entities a one-time opportunity to reassess their ability and
intent to hold securities to maturity and allowed a one-time reclassification of
securities from held-to-maturity to securities available-for-sale without
'tainting' the remaining held-to-maturity securities. On December 29, 1995,
First Nationwide Bank reclassified $1.5 billion and $231.8 million in carrying
value of mortgage-backed securities and U.S. government and agency securities,
respectively, from the held-to-maturity to the available-for-sale portfolio,
resulting in a net after-tax increase of $18 million and $4.5 million in
stockholder's equity and minority interest--Hunter's Glen, respectively. If the
market value of these securities and mortgage-backed securities is subsequently
less than the carrying value, there will be a negative impact on consolidated
stockholder's equity for financial reporting purposes; however, there will be no
impact on First Nationwide Bank's regulatory capital.
ASSET QUALITY; SATISFACTION OF OBLIGATIONS OF GRANITE, OLD FNB AND FORD MOTOR
In the several years preceding the FN Acquisition, the FNB Acquired
Business had experienced losses stemming from increases in non-performing
assets. While First Nationwide Bank may also experience such losses, management
believes that the risk that First Nationwide Bank will suffer future adverse
effects from any
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additional deterioration of the portfolio acquired from Old FNB is minimized by
the disposition by Old FNB of non-performing assets prior to the FN Acquisition,
the retention by Old FNB of certain assets, principally non-performing or other
problem assets (with a net book value of approximately $441 million at September
30, 1994), and the right of First Nationwide Bank pursuant to the Put Agreement
to sell Granite up to $500 million of certain assets, primarily multi-family and
commercial real estate loans and residential mortgage loans with an original
principal balance greater than $250,000 (the 'Putable Assets'), which are
primarily non-performing, through November 30, 1996, less $89 million, the
amount of sales of certain non-performing assets by Old FNB to Granite during
the period from January 1, 1994 through the consummation of the FN Acquisition.
At December 31, 1995, the remaining available balance under the Put Agreement
was approximately $112.4 million. Of the approximately $220 million in
non-performing assets at December 31, 1995, approximately $13.5 million were
eligible to be sold to Granite under the Put Agreement. See 'Business--Other
Activities--The Put Agreement.'
In the event that, as of November 30, 1996, First Nationwide Bank has not
required Granite to purchase $500 million of non-performing assets, it may
require Granite to purchase any qualifying Putable Assets of First Nationwide
Bank, other than assets which previously became Putable Assets and which First
Nationwide Bank did not require Granite to purchase, up to such $500 million
maximum.
The Put Agreement will not protect First Nationwide Bank from losses: (i)
on the assets not covered by the Put Agreement or the assets covered by the Put
Agreement in excess of the coverage limits described above, (ii) on the assets
owned by First Nationwide Bank prior to the FN Acquisition, (iii) on the Putable
Assets which become non-performing and which First Nationwide Bank does not
require Granite to purchase prior to the expiration of its rights under the Put
Agreement, (iv) on the assets acquired following the FN Acquisition or (v)
incurred after November 30, 1996. See 'Business--Other Activities--The Put
Agreement.' There can be no assurance that First Nationwide Bank will not
experience losses from non-performing assets.
Pursuant to the Asset Purchase Agreement, Old FNB has agreed to indemnify
First Nationwide Bank from certain breaches of representations, warranties and
covenants. Although First Nationwide Bank believes that the obligations of
Granite under the Put Agreement and Old FNB under the Asset Purchase Agreement
are enforceable against Granite and Old FNB, respectively, and that Granite and
Old FNB will have the ability to satisfy their respective obligations under such
provisions, there can be no assurance that a court will enforce such provisions
or that Granite or Old FNB will have the ability to satisfy their respective
obligations. Ford Motor has guaranteed the obligations of Granite under the Put
Agreement and the obligations of Old FNB under the Asset Purchase Agreement.
MORTGAGE PORTFOLIO AND MSRS
At December 31, 1995, First Nationwide Bank held a 1-4 unit residential
mortgage loan portfolio of approximately $5.4 billion, and MSRs on a loan
portfolio totalling approximately $33.6 billion. First Nationwide Bank's MSRs
had a book value of $241.4 million at December 31, 1995. On January 31, 1996,
First Nationwide Bank acquired additional MSRs from LMUSA on a loan portfolio
totalling approximately $14.1 billion. A decline in long-term interest rates
generally results in an acceleration in mortgage loan prepayments, and higher
than anticipated levels of prepayments generally cause the accelerated
amortization of MSRs and generally will result in reductions in the market value
of the MSRs and in First Nationwide Bank's servicing fee income. There can be no
assurance that long-term interest rates will not decline and the rate of
mortgage loan prepayments will not exceed management's estimates, resulting in a
charge to earnings in the period of adjustment and reductions in the market
value of the MSRs and in loan servicing fee income, or that management will be
able to reinvest the cash from mortgage loan prepayments in assets earning
yields comparable to the yields on the prepaid mortgages.
COMPETITION
First Nationwide Bank experiences significant competition in both
attracting and retaining deposits and in originating real estate and consumer
loans.
First Nationwide Bank competes with other thrift institutions, commercial
banks, insurance companies, credit unions, thrift and loan associations, money
market mutual funds and brokerage firms, in attracting and retaining deposits.
Competition for deposits from large commercial banks is particularly strong.
Many of the nation's thrift institutions and many large commercial banks have a
significant number of branch offices in the areas in which First Nationwide Bank
operates.
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In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks, mortgage banking companies, insurance companies, consumer
finance companies, pension funds and commercial finance companies. The primary
factors in competing for loans are the quality and extent of service to
borrowers and brokers, economic factors such as interest rates, interest rate
caps, rate adjustment provisions, loan maturities, loan-to-value ('LTV') ratios,
loan fees, and the amount of time it takes to process a loan from receipt of the
loan application to date of funding. First Nationwide Bank's future performance
is dependent on its ability to originate a sufficient volume of mortgage loans
in its local market areas and through its wholesale network and, if it is unable
to originate a sufficient volume of mortgage loans, to purchase a sufficient
quantity of high-quality mortgage-backed securities with adequate yields. There
can be no assurance that First Nationwide Bank will be able to effect such
actions on satisfactory terms.
REGULATION; SPECIAL ASSESSMENT AND OTHER LEGISLATIVE PROPOSALS REGARDING SAIF
The financial institutions industry is subject to extensive regulation,
which materially affects the business of First Nationwide Bank. Regulations to
which First Nationwide Bank, the Issuer and its parent companies are subject may
be changed at any time, and the interpretation of these regulations is also
subject to change. There can be no assurance that future changes in such
regulations or in their interpretation will not adversely affect the business of
the Issuer or First Nationwide Bank.
Congress is currently considering legislation that would, among other
things, capitalize the SAIF, which is currently undercapitalized, by imposing a
special assessment on SAIF-insured institutions, such as First Nationwide Bank.
See 'Regulation--Regulation of Federal Savings Banks--FDIC Assessments.' Based
upon preliminary FDIC estimates of the potential assessment rate, the effect on
First Nationwide Bank of the assessment, as proposed by Congress, after giving
effect to the SFFed Acquisition, the Branch Sales, the Home Federal Acquisition
and the Branch Purchases, would be a pre-tax charge in the range of $75 to $80
million ($68 to $72 million on an after-tax basis). Such an assessment would not
be expected to cause First Nationwide Bank to fail to meet the capital
requirements of a 'well capitalized' institution based upon First Nationwide
Bank's regulatory capital and asset levels as of December 31, 1995. Other
legislative proposals would combine the two deposit insurance funds of the FDIC
and merge the charters for federal savings associations and commercial banks.
Such legislation, if enacted, could have a material adverse effect on the
operations of First Nationwide Bank and the Issuer. The Issuer is unable to
predict whether, or in what form, such legislation would be enacted. See
'Regulation.'
FN TAX SHARING AGREEMENT; AVAILABILITY OF NET OPERATING LOSS CARRYOVERS
First Nationwide Bank, First Nationwide Holdings and Mafco Holdings are
parties to a tax sharing agreement (the 'FN Tax Sharing Agreement') effective as
of January 1, 1994, pursuant to which: (i) First Nationwide Bank will pay to
First Nationwide Holdings amounts equal to the taxes that First Nationwide Bank
would be required to pay if it were to file a return separately from the
affiliated group of which Mafco Holdings is the common parent (the 'Mafco
Group'), and (ii) First Nationwide Holdings will pay to Mafco Holdings amounts
equal to the taxes that First Nationwide Holdings would be required to pay if it
were to file a consolidated return on behalf of itself and First Nationwide Bank
separately from the Mafco Group. The FN Tax Sharing Agreement allows First
Nationwide Bank to take into account, in determining its liability to First
Nationwide Holdings, any net operating loss carryovers that it would have been
entitled to utilize if it had filed separate returns for each year since the
formation of First Nationwide Bank. The FN Tax Sharing Agreement also allows
First Nationwide Holdings to take into account, in determining its liability to
Mafco Holdings, any net operating losses that it would have been entitled to
utilize if it had filed a consolidated return on behalf of itself and First
Nationwide Bank for each year since the formation of First Nationwide Bank.
Accordingly, pursuant to the FN Tax Sharing Agreement, the benefits of any net
operating losses generated by First Nationwide Bank since its formation are
retained by First Nationwide Bank and First Nationwide Holdings.
First Nationwide Bank has generated significant federal income tax net
operating losses since it was organized in December 1988. This is due, in part,
to the fact that under applicable federal income tax law, the financial
assistance received by First Nationwide Bank pursuant to the Assistance
Agreement was excluded from the taxable income of First Nationwide Bank. In
addition to such tax-free financial assistance, First Nationwide Bank has been
entitled to its normal operating deductions, including interest expense and
certain losses relating to its loan portfolio. As a result, First Nationwide
Bank generated significant net operating losses for federal income
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tax purposes even though its operations were profitable. Furthermore, under the
reorganization provisions of the Internal Revenue Code of 1986, as amended (the
'Code'), First Nationwide Bank succeeded to certain net operating loss
carryovers of the Texas Closed Banks.
At December 31, 1995, if First Nationwide Holdings had filed a consolidated
tax return on behalf of itself (as common parent) and First Nationwide Bank for
each year since the formation of First Nationwide Bank, it would have had
approximately $2.6 billion of regular tax net operating losses and approximately
$992 million of AMT net operating losses, both of which First Nationwide
Holdings would have been entitled to utilize. A portion of such losses, to the
extent not previously used to offset income, would expire in the year 2002 and
in each year thereafter and would fully expire in 2007. It is expected that
under the FN Tax Sharing Agreement, First Nationwide Bank and First Nationwide
Holdings will be able to eliminate a significant portion of the amounts that
they otherwise would be required to pay to First Nationwide Holdings and Mafco
Holdings, respectively, under the FN Tax Sharing Agreement in respect of federal
income tax and, accordingly, it is not expected that First Nationwide Bank or
First Nationwide Holdings will record significant amounts of federal income tax
expense as members of the Mafco Group. Payments made by First Nationwide
Holdings under the FN Tax Sharing Agreement with the Mafco Group during the year
ended December 31, 1995 totalled $3.1 million. There were no such payments in
1994. Such payments may increase significantly at such time as the net operating
losses described above are either used in full to offset income or expire.
If for any reason First Nationwide Bank and First Nationwide Holdings were
to deconsolidate from the Mafco Group, only the amount of the net operating
losses of First Nationwide Bank and First Nationwide Holdings not already
utilized by the Mafco Group would be available to offset the taxable income of
First Nationwide Bank and First Nationwide Holdings. If for any reason First
Nationwide Bank were to deconsolidate from First Nationwide Holdings with First
Nationwide Holdings remaining a member of the Mafco Group, the net operating
losses of First Nationwide Bank not already utilized by the Mafco Group would be
available to offset the taxable income subsequently recognized by First
Nationwide Bank, but would no longer be available to offset the taxable income
of First Nationwide Holdings. At December 31, 1995, approximately 58% of such
net operating losses had been so utilized by the members of the Mafco Group. The
net operating loss carryovers are subject to review and potential disallowance,
in whole or in part, by the Internal Revenue Service (the 'IRS'). Any
disallowance of First Nationwide Bank's net operating losses may increase the
amounts that First Nationwide Bank would be required to pay to First Nationwide
Holdings under the FN Tax Sharing Agreement and that First Nationwide Holdings
would be required to pay to Mafco Holdings and would therefore decrease the
earnings of First Nationwide Bank available for distribution to First Nationwide
Holdings, and from First Nationwide Holdings to the Issuer.
TAX EFFECTS OF DIVIDEND PAYMENTS BY FIRST NATIONWIDE BANK
Dividend distributions made to First Nationwide Holdings, as the sole owner
of First Nationwide Bank's common stock, and to holders of the First Nationwide
Bank Preferred Stock, in each case in excess of First Nationwide Bank's
accumulated earnings and profits, as well as any distributions in dissolution or
in redemption or liquidation of stock, may cause First Nationwide Bank to
recognize a portion of its tax bad debt reserves as income and, accordingly,
could cause First Nationwide Bank to make payments to First Nationwide Holdings
under the FN Tax Sharing Agreement. As a result, First Nationwide Holdings may
be required to make payments to Mafco Holdings under the FN Tax Sharing
Agreement if First Nationwide Holdings has insufficient expenses and losses to
offset such income. First Nationwide Bank does not expect to generate
substantial amounts of federal taxable income (after taking into account its net
operating loss carryovers) from any recapture of its bad debt reserve.
Accordingly, the recapture of its bad debt reserve as a result of distributions
to stockholders, or of the redemption of stock, would not be expected to have a
material adverse effect on First Nationwide Bank.
TAXATION OF FIRST NATIONWIDE BANK
Under current law, First Nationwide Bank qualifies as a domestic building
and loan association for federal income tax purposes. Accordingly, First
Nationwide Bank is entitled to take its bad debts into account using the reserve
method of accounting under Section 593 of the Code. First Nationwide Bank
determines the amount of the appropriate addition to its bad debt reserves based
on the experience method of accounting of Section 593(b)(3), which is described
in Section 585(b)(2) of the Code, rather than on the percentage of taxable
income method described in Section 593(b)(2) of the Code.
22
<PAGE>
Each of the Senate and House of Representatives has passed a bill which
includes a provision that, if enacted, would repeal Section 593 of the Code. In
addition, the President has proposed tax legislation that also includes a
provision repealing Section 593 of the Code which is substantially similar to
the provision passed by Congress. If tax legislation is ultimately enacted that
includes the repeal of Section 593 of the Code, the reserve method of accounting
for bad debts would no longer be available to First Nationwide Bank. Rather,
First Nationwide Bank generally would be required to take its bad debts into
account using the specific charge-off method. Pursuant to the specific
charge-off method, First Nationwide Bank would be entitled to take its bad debts
into account in the taxable year during which such debts become wholly or
partially worthless. The repeal of Section 593 of the Code also may require a
domestic building and loan association, such as First Nationwide Bank, to
recapture a certain portion of its bad debt reserve into income under certain
circumstances, and, accordingly, could cause First Nationwide Bank to make
payments to First Nationwide Holdings under the FN Tax Sharing Agreement. As a
result, First Nationwide Holdings may be required to make additional payments to
Mafco Holdings under the FN Tax Sharing Agreement if First Nationwide Holdings
has insufficient expenses and losses to offset such income. At December 31,
1995, First Nationwide Bank had tax bad debt reserves totalling $187 million,
all of which had been provided for in deferred tax liabilities. First Nationwide
Bank does not expect to generate substantial amounts of federal taxable income
(after taking into account its net operating loss carryovers) from any recapture
of First Nationwide Bank's bad debt reserve. Accordingly, the repeal of the
reserve method of accounting for bad debts, if enacted, would not be expected to
have a material adverse effect on First Nationwide Bank.
LACK OF A PUBLIC MARKET FOR THE NOTES
The New Notes are being offered to the holders of the Old Notes. The Old
Notes were issued on April 17 to a small number of institutional investors and
are eligible for trading in the Private Offering, Resale and Trading through
Automated Linkages (PORTAL) Market, the National Association of Securities
Dealers' screenbased, automated market for trading of securities eligible for
resale under Rule 144A. To the extent that Old Notes are tendered and accepted
in the Exchange Offer, the trading market for the remaining untendered Old Notes
could be adversely affected. There is no existing trading market for the New
Notes, and there can be no assurance regarding the future development of a
market for the New Notes, or the ability of holders of the New Notes to sell
their New Notes or the price at which such holders may be able to sell their New
Notes. Although the Initial Purchasers have informed the Issuer that they
currently intend to make a market in the New Notes, they are not obligated to do
so and any such market making may be discontinued at any time without notice. As
a result, the market price of the New Notes could be adversely affected. The
Issuer does not intend to apply for listing or quotation of the New Notes on any
securities exchange or stock market.
CONTROL BY MACANDREWS & FORBES
The Issuer is indirectly owned through MacAndrews & Forbes by Ronald O.
Perelman. The Issuer's board of directors is, and is expected to continue to be,
comprised entirely of designees of MacAndrews & Forbes. As a result, MacAndrews
& Forbes will be able to direct and control the policies of the Issuer and its
subsidiaries, including with respect to mergers, sales of assets and similar
transactions.
23
<PAGE>
STRATEGIC ACQUISITIONS AND DISPOSITIONS
First Nationwide Bank's total consolidated assets have grown from $924
million as of September 30, 1994, immediately prior to the FN Acquisition, to
approximately $14.6 billion at December 31, 1995. The current composition of
First Nationwide Bank's assets and operations resulted principally from certain
of the acquisitions and dispositions described below. The FN Acquisition laid
the foundation for First Nationwide Bank's current strategy, the implementation
of which is reflected in subsequent acquisitions and dispositions. See
'Business--Business Strategy.'
ACQUISITIONS
The FN Acquisition
On April 14, 1994, First Nationwide Bank entered into the FNB Asset
Purchase Agreement with Old FNB, an indirect subsidiary of Ford Motor, pursuant
to which, on October 3, 1994, effective immediately after the close of business
on September 30, 1994, the Bank purchased the FNB Acquired Business for $726.5
million. Effective October 1, 1994, First Nationwide Bank changed its name from
'First Madison Bank, FSB' to 'First Nationwide Bank, A Federal Savings Bank.'
First Nationwide Bank financed the FN Acquisition and paid related fees and
expenses with: (i) a capital contribution by First Nationwide Holdings funded
with the net proceeds of (a) the issuance of the FN Holdings Senior Notes and
(b) the issuance of First Nationwide Holdings' class C common stock to the
Issuer, (ii) the net proceeds from the issuance of the First Nationwide Bank
Preferred Stock, and (iii) existing cash and proceeds from securities sold under
agreements to repurchase. See 'Certain Transactions.'
The Maryland Acquisition
In December 1994, FNMC entered into a series of agreements with the
Resolution Trust Corporation as conservator for Standard Federal Savings
Association, America's Mortgage Servicing, Inc., a mortgage company, America's
Lending Network, Inc., and StanFed Financial Services, Inc. (collectively,
'StanFed'), of Frederick, Maryland, to acquire certain of StanFed's mortgage
servicing assets and assume certain of StanFed's mortgage servicing liabilities
for approximately $178 million. As a result of the Maryland Acquisition, FNMC
acquired a 1-4 unit residential mortgage loan servicing portfolio of
approximately $11.4 billion (including $1.8 billion of MSRs that are owned by
third parties who have subcontracted to FNMC the servicing function (a
'sub-servicing portfolio')) and certain other assets and liabilities. The
transaction was consummated on February 28, 1995. In connection with the
Maryland Acquisition, FNMC moved its mortgage servicing operations to Maryland
from its former location in Sacramento, California. Costs totalling $5.7 million
associated with such consolidation are included in noninterest expense in the
Issuer's consolidated statement of operations for the year ended December 31,
1995.
In April 1995, First Nationwide Bank closed substantially all of its retail
loan production offices. Costs associated with closures of approximately $2.1
million are included in noninterest expense in the Issuer's consolidated
statement of operations for the year ended December 31, 1995.
The Branch Purchases
In April 1995, First Nationwide Bank consummated the Tiburon Purchase in
which it acquired approximately $13 million in deposits located in Tiburon,
California from East-West Federal Bank, a federal savings bank. In August 1995,
First Nationwide Bank consummated the ITT Purchase in which it acquired three
retail branches located in Orange County, California with deposit accounts
totalling approximately $356 million from ITT Federal Bank, fsb. On December 8,
1995, First Nationwide Bank consummated the Sonoma Purchase in which it acquired
four retail branches located in Sonoma County, California with associated
deposit accounts of approximately $143.5 million from Citizens Federal Bank, a
Federal Savings Bank. The weighted average deposit premium paid in connection
with the Branch Purchases was 3.78%.
The LMUSA Purchases
On October 2, 1995, FNMC purchased from LMUSA in the LMUSA 1995 Purchase a
loan servicing portfolio of approximately $11.1 billion (including a
sub-servicing portfolio of $3.1 billion), a master servicing portfolio of $2.9
billion and other assets, principally existing loans and loan production
operations of LMUSA,
24
<PAGE>
for $100 million, payable in installments, and the assumption of the certain
indebtedness relating to the acquired loan portfolio. On January 31, 1996, FNMC
purchased in the LMUSA 1996 Purchase LMUSA's remaining $14.1 billion loan
servicing portfolio (including a sub-servicing portfolio of $2.4 billion), a
master servicing portfolio of $2.7 billion, its real estate acquired through
loan foreclosures in connection with its servicing operations and its trade
names for $160.8 million (as adjusted pursuant to the terms of the agreement)
payable in installments and subject to certain adjustments, and the assumption
of certain of LMUSA's obligations secured by its mortgage servicing operations.
The SFFed Acquisition
On February 1, 1996, First Nationwide Bank consummated the SFFed
Acquisition pursuant to which First Nationwide Bank acquired SFFed and its
wholly owned federal savings association subsidiary, San Francisco Federal. The
aggregate consideration paid in the SFFed Acquisition was approximately $264
million. Following completion of the SFFed Acquisition, SFFed was liquidated and
San Francisco Federal was merged into First Nationwide Bank.
San Francisco Federal operated 35 branches in the Northern California area,
and as a result of the SFFed Acquisition and the related consolidation of
branches, the number of First Nationwide Bank's retail branches in Northern
California increased to 63. San Francisco Federal's primary business consisted
of operating retail deposit branches and originating and/or purchasing
residential real estate loans and, to a lesser extent, certain consumer loans.
At December 31, 1995, San Francisco Federal had approximately $4.0 billion in
assets and approximately $2.7 billion in deposits.
First Nationwide Bank financed the SFFed Acquisition with existing cash and
other borrowings, some of which were repaid with the proceeds from the sale on
February 23, 1996 of an aggregate of approximately $298 million in carrying
value of consumer loans. On January 31, 1996, First Nationwide Holdings issued
$140 million aggregate principal amount of the FN Holdings Subordinated Notes
and contributed the net proceeds therefrom to First Nationwide Bank as
additional paid-in capital, which augmented First Nationwide Bank's regulatory
capital to maintain its 'well capitalized' status after the SFFed Acquisition.
In connection with the SFFed Acquisition, First Nationwide Bank assumed $50
million of 11.20% Senior Notes issued by SFFed in September 1994 (the 'SFFed
Notes'). See 'Business--Sources of Funds--SFFed Notes.'
The Home Federal Acquisition
On December 19, 1995, First Nationwide Bank entered into a merger agreement
with HFFC, pursuant to which First Nationwide Bank will acquire HFFC and its
wholly owned federally chartered savings association subsidiary, Home Federal,
which, at December 31, 1995, had approximately $718 million in assets and $625
million in deposits and operated 15 branches in the Northern California area.
The aggregate consideration to be paid in connection with the Home Federal
Acquisition is estimated to be approximately $70.6 million.
The Home Federal Acquisition is subject to approval by HFFC's shareholders.
The Home Federal Acquisition is presently anticipated to close in the second
quarter of 1996, although there can be no assurance that the Home Federal
Acquisition will be consummated. The Issuer expects that First Nationwide Bank
will remain 'well capitalized' after consummation of the Home Federal
Acquisition.
DISPOSITIONS
The Illinois Sale
On October 7, 1994, First Nationwide Bank sold (the 'Illinois Sale') the
FNB Acquired Business' branch network located in Illinois consisting of 26
branches with approximately $1.2 billion in deposits to Household Bank, f.s.b.
The $89 million deposit premium received by First Nationwide Bank was treated as
a reduction of the core deposit intangible asset established in connection with
the FN Acquisition.
25
<PAGE>
The Branch Sales
From September through December of 1995, First Nationwide Bank entered into
the following agreements relating to the Branch Sales:
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
BRANCHES AMOUNT OF APPROXIMATE
GENERAL TO BE DEPOSITS AMOUNT OF DATE OF
NAME OF PURCHASER LOCATION SOLD (A) ASSETS (A) AGREEMENT
- ---------------------------------- --------------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fifth Third Bank of Ohio 28 $1,414,695 $18,480 9/22/95
Northeastern Ohio
North Fork Bank Long Island, 10 602,014 8,222 9/28/95
New York
Middletown Upstate 8 485,975 5,594 9/29/95
Savings Bank New York
Independence Brooklyn, 3 330,073 3,308 10/11/95
Savings Bank New York
Republic National Manhattan, 3 282,580 1,795 10/31/95
Bank of New York New York
Midlantic Bank New Jersey 4 509,597 5,556 11/03/95
Independence Staten Island, 2 286,723 3,718 11/15/95
Savings Bank New York
Charter One Bank Michigan 21 783,965 12,667 12/14/95
-- ----------- -----------
Total 79 $4,695,622 $59,340
-- ----------- -----------
-- ----------- -----------
</TABLE>
- ------------------
(a) As of December 31, 1995.
The Branch Sales, when consummated, will result in gains, which, based on
deposit information at December 31, 1995, will be approximately $366 million on
a pre-tax basis. The gains from the Branch Sales will be used, as necessary, to
augment First Nationwide Bank's regulatory capital to maintain its 'well
capitalized' status after the SFFed Acquisition.
The sale of First Nationwide Bank's retail branches in the state of Ohio
(the 'Ohio Branch Sale') was consummated on January 19, 1996. The sales of First
Nationwide Bank's retail branches in the states of New York and New Jersey (the
'Northeast Branch Sales') were consummated in a series of closings that occurred
between January 12, 1996 and March 22, 1996. The sale of these 58 branches has
generated pre-tax gains of approximately $308 million. Although regulatory
approval for the sale of First Nationwide Bank's retail branches in the state of
Michigan (the 'Michigan Branch Sale') has been obtained and it is anticipated
that the Michigan Branch Sale will be consummated during the second quarter of
1996, no assurances can be given as to whether or when such transaction will be
consummated.
USE OF PROCEEDS
The Issuer will not receive any proceeds from the Exchange Offer. The net
proceeds from the sale of the Notes were approximately $432 million, which were
distributed to the Issuer's parent, First Gibraltar Holdings, and used to repay
indebtedness of affiliates of the Issuer, other than the Issuer or its
subsidiaries. None of the net proceeds were available to the Issuer or its
subsidiaries.
26
<PAGE>
CONSOLIDATED CAPITALIZATION
The following table sets forth the actual consolidated capitalization of
each of the Issuer (on a stand-alone basis) and First Nationwide Holdings at
December 31, 1995 and the capitalization of the Issuer on a consolidated basis
at such date as adjusted to give effect to the SFFed Acquisition, the LMUSA 1996
Purchase, the Branch Sales, the FN Holdings Subordinated Notes Offering and the
Offering. The following table should be read in conjunction with the
Consolidated Financial Statements of the Issuer and the notes thereto, 'Pro
Forma Financial Data' and the Unaudited Pro Forma Financial Data included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
CONSOLIDATED
FIRST CAPITALIZATION
NATIONWIDE OF ISSUER,
ISSUER HOLDINGS ADJUSTMENTS AS ADJUSTED
-------- ------------ ----------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Deposits........................................................ $ -- $10,241,628 $(1,650,069)(a) $ 8,591,559
-------- ----------- ----------- -------------
-------- ----------- ----------- -------------
Borrowings:
Securities sold under agreements to repurchase................ -- $ 969,510 $ 2,698,370(a) $ 3,667,880
Other borrowings (primarily FHLB advances).................... -- 2,100,131 2,276,360(a) 4,376,491
-------- ----------- ----------- -------------
Total..................................................... $ -- $ 3,069,641 $ 4,974,730 $ 8,044,371
-------- ----------- ----------- -------------
-------- ----------- ----------- -------------
Long-term notes:
12 1/2% Senior Notes due 2003 (net of original issue
discount)................................................... $ -- $ -- $ 449,827(b) $ 449,827
9 1/8% Senior Subordinated Notes Due 2003..................... -- -- 140,000(c) 140,000
12 1/4% Senior Notes Due 2001(d).............................. -- 200,000 -- 200,000
10% Subordinated Debentures Due 2006.......................... -- 89,600 -- 89,600
11.20% Senior Notes Due 2004.................................. -- -- 56,666(a) 56,666
-------- ----------- ----------- -------------
Total long-term notes..................................... -- 289,600 646,493 936,093
-------- ----------- ----------- -------------
Minority interest--preferred stock of First Nationwide
Bank.......................................................... 300,730 -- -- 300,730
Minority interest--Hunter's Glen................................ 58,261 -- 67,395(a) 125,656
-------- ----------- ----------- -------------
Total minority interest................................... 358,991 -- 67,395 426,386
-------- ----------- ----------- -------------
Stockholder's equity:
As adjusted:
Common stock (par value $1.00 per share; 1,000 shares
authorized, 1,000 shares issued and outstanding).......... 1 -- -- 1
Additional paid-in capital.................................. 267,055 -- -- 267,055
Net unrealized holding gain on securities available
for sale.................................................. (12,702)(f) 63,512 -- 50,810
Retained earnings (accumulated deficit)(g).................. 86,289 -- (162,172)(e) (75,883)
-------- ----------- ----------- -------------
Total stockholder's equity(g)............................. 340,643 63,512 (162,172) 241,983
-------- ----------- ----------- -------------
Total capitalization............................................ $699,634 $ 353,112 $ 551,716 $ 1,604,462
-------- ----------- ----------- -------------
-------- ----------- ----------- -------------
</TABLE>
- ------------------
(a) Represents deposits and borrowed funds of SFFed assumed by First Nationwide
Bank at their approximate respective fair values at December 31, 1995, the
impact of the Branch Sales and deposits transferred to First Nationwide Bank
as a result of the LMUSA 1996 Purchase.
(b) Represents the issuance of the Notes.
(c) Represents the issuance of the FN Holdings Subordinated Notes.
(d) Excludes $3.1 million accrued interest payable on the FN Holdings Senior
Notes at December 31, 1995.
(e) Represents the net gains on the Branch Sales assuming an aggregate deposit
premium of $367 million, offset by the distribution of net proceeds from
the Notes to First Gibraltar Holdings.
(f) Represents the portion of net unrealized holding gain on securities
available for sale attributable to minority interest--Hunter's Glen.
(g) Pro forma stockholder's equity amounts do not reflect dividends from First
Nationwide Bank to First Nationwide Holdings that would be anticipated in
connection with the Branch Sales. In addition, the pro forma financial data
does not give effect to the redemption of the class C common stock of First
Nationwide Holdings which, at December 31, 1995, had a redemption value of
$171.1 million. The Issuer expects that such class C common stock will be
redeemed in full on or before June 1, 1996.
27
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma financial data gives effect to the Acquisitions,
the Branch Sales, the FN Holdings Subordinated Notes Offering and the Offering.
The Branch Purchases consummated in 1995 and the proposed Home Federal
Acquisition have not been reflected in the pro forma financial data because such
transactions are not material either individually or in the aggregate.
The following pro forma financial, operating and other data as of and for
the year ended December 31, 1995, are based on (i) the historical consolidated
statement of financial condition of the Issuer at December 31, 1995 giving
effect to the SFFed Acquisition, the LMUSA 1996 Purchase, the Branch Sales, the
FN Holdings Subordinated Notes Offering and the Offering as if such transactions
occurred on December 31, 1995, and (ii) the historical consolidated statement of
operations for the year ended December 31, 1995 giving effect to the
Acquisitions, the Branch Sales, the FN Holdings Subordinated Notes Offering and
the Offering as if such transactions occurred on January 1, 1995. The pro forma
adjustments are based on available information and upon certain assumptions that
management believes are reasonable under the circumstances. The Acquisitions are
accounted for under the purchase method of accounting. Under this method of
accounting, the purchase price has been allocated to the assets and liabilities
acquired based on preliminary estimates of fair value. The actual fair value is
determined as of the consummation of each of the Acquisitions. The pro forma
financial, operating and other data do not necessarily reflect the results of
operations or the financial position of the Issuer that actually would have
resulted had the Acquisitions, the Branch Sales, the FN Holdings Subordinated
Notes Offering and the Offering occurred at the dates indicated, nor do they
necessarily project the results of operations or financial position of the
Issuer for any future date or period.
The pro forma financial data does not give effect to the redemption of the
class C common stock of First Nationwide Holdings which, at December 31, 1995,
had a redemption value of $171.1 million. The Issuer expects that such class C
common stock will be redeemed in full on or before June 1, 1996.
The pro forma financial data should be read in conjunction with the
accompanying notes thereto and the Unaudited Pro Forma Financial Data included
elsewhere in this Prospectus. In addition, the pro forma financial data should
be read in conjunction with the Consolidated Financial Statements of the Issuer
and the notes thereto, the Consolidated Financial Statements of the FNB Acquired
Business and the notes thereto, and the Consolidated Financial Statements of
SFFed and the notes thereto, contained elsewhere in this Prospectus. See
'Selected Historical Financial Data.'
28
<PAGE>
THE ISSUER
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED ACQUISITION LMUSA 1996 PURCHASE
----------------------------------------------- ---------------------
ISSUER SFFED ADJUST- SFFED LMUSA ADJUST-
HISTORICAL HISTORICAL MENTS(A) PRO FORMA(B) HISTORICAL MENTS(C)
------------ ------------ ---------------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..... $ 312,571 $ 195,251 $ (272,132)(2) $ (76,881) $ -- $ --
Securities.................... 350,016 -- -- -- -- --
Mortgage-backed securities.... 3,002,002 932,398 9,915 (1) 942,313 -- --
Loans receivable, net......... 10,034,430 2,719,381 (23,415)(1) 2,695,966 176 --
Covered assets, net........... 39,349 -- -- -- -- --
Office premises and equipment,
net.......................... 93,509 21,899 (8,844)(1) 13,055 -- --
Mortgage servicing rights,
net.......................... 241,355 2,183 13,817 (1) 16,000 89,902 15,957 (4)
Core deposit and other
intangible assets............ 18,606 8,053 108,689 (1) 116,742 -- --
Other assets.................. 554,407 112,323 -- 112,323 62,367 --
------------ ------------ ------- ------------ --------- ----------
Total assets.................. $ 14,646,245 $ 3,991,488 $ (171,970) $ 3,819,518 $152,445 $ 15,957
------------ ------------ ------- ------------ --------- ----------
------------ ------------ ------- ------------ --------- ----------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Deposits...................... $ 10,241,628 $ 2,693,243 $ 10,950 (1) $ 2,704,193 $ -- $ 341,360 (5)
Borrowings.................... 3,362,372 1,041,558 12,470 (1) 1,054,028 -- (291,610)(5)
Other liabilities............. 279,099 61,297 -- 61,297 2,874 115,778 (6)
------------ ------------ ------- ------------ --------- ----------
Total liabilities............. 13,883,099 3,796,098 23,420 3,819,518 2,874 165,528
------------ ------------ ------- ------------ --------- ----------
Minority interest--preferred
stock
of First Nationwide Bank..... 300,730 -- -- -- -- --
Minority interest--Hunter's
Glen......................... 58,261 -- -- -- -- --
Stockholder's equity.......... 404,155 195,390 (181,089)(3) -- 149,571 (165,528)(7)
(14,301)(1) 15,957 (4)
------------ ------------ ------- ------------ --------- ----------
Total liabilities and
stockholder's equity......... $ 14,646,245 $ 3,991,488 $ (171,970) $ 3,819,518 $152,445 $ 15,957
------------ ------------ ------- ------------ --------- ----------
------------ ------------ ------- ------------ --------- ----------
<CAPTION>
FN HOLDINGS
SUBORDINATED
LMUSA BRANCH NOTES PRO FORMA
PRO FORMA(D) SALES(E) OFFERING(F) OFFERING(G) COMBINED
------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents..... $ -- $ (22,649)(8) $ 133,000 (11) $ -- $ 346,041
Securities.................... -- -- -- -- 350,016
Mortgage-backed securities.... -- -- -- -- 3,944,315
Loans receivable, net......... 176 (5,785)(8) -- -- 12,724,787
Covered assets, net........... -- -- -- -- 39,349
Office premises and equipment,
net.......................... -- (30,906)(8) -- -- 75,658
Mortgage servicing rights,
net.......................... 105,859 -- -- -- 363,214
Core deposit and other
intangible assets............ -- (1,029)(8) -- -- 134,319
Other assets.................. 62,367 -- 7,000 (11) 18,077 (12) 754,174
------------ -------------- ------------ ------- ------------
Total assets.................. $ 168,402 $ (60,369) $ 140,000 $ 18,077 $ 18,731,873
------------ -------------- ------------ ------- ------------
------------ -------------- ------------ ------- ------------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Deposits...................... $ 341,360 $ (4,695,622)(8) $ -- $ -- $ 8,591,559
Borrowings.................... (291,610) 4,268,978 (9) 140,000 (11) 449,827 (12) 8,983,595
Other liabilities............. 118,652 29,302 (10) -- -- 488,350
------------ -------------- ------------ ------- ------------
Total liabilities............. 168,402 (397,342) 140,000 449,827 18,063,504
------------ -------------- ------------ ------- ------------
Minority interest--preferred
stock
of First Nationwide Bank..... -- -- -- -- 300,730
Minority interest--Hunter's
Glen......................... -- 67,395 (10) -- -- 125,656
Stockholder's equity.......... -- 269,578 (10) -- (431,750)(12) 241,983
------------ -------------- ------------ ------- ------------
Total liabilities and
stockholder's equity......... $ 168,402 $ (60,369) $ 140,000 $ 18,077 $ 18,731,873
------------ -------------- ------------ ------- ------------
------------ -------------- ------------ ------- ------------
</TABLE>
- ------------------
<TABLE>
<S> <C>
(a) Represents adjustments to record (i) SFFed's assets and liabilities at preliminary estimates of their respective fair
values, (ii) the elimination of historical goodwill, (iii) the purchase price of the SFFed Acquisition and (iv) the
elimination of the equity of SFFed.
(b) Represents the pro forma effect of the SFFed Acquisition.
(c) Represents adjustments to record (i) the assets acquired and liabilities assumed in the LMUSA 1996 Purchase at preliminary
estimates of their respective fair values, (ii) acquisition fees and expenses, (iii) the cash paid at closing for the LMUSA
1996 Purchase, (iv) the impact of the transfer of custodial accounts to First Nationwide Bank and (v) the elimination of the
excess of assets acquired over the liabilities assumed in the LMUSA 1996 Purchase.
(d) Represents the pro forma effect of the LMUSA 1996 Purchase.
(e) Represents adjustments to record the impact of the Branch Sales.
(f) Represents adjustments to record the issuance of the FN Holdings Subordinated Notes in the FN Holdings Subordinated Notes
Offering.
(g) Represents adjustments to record the issuance of the Notes in the Offering and the distribution of the net proceeds to First
Gibraltar Holdings.
</TABLE>
<TABLE>
<CAPTION>
DOLLAR
AMOUNT PERCENT
---------- -------
<S> <C> <C>
Pro Forma Regulatory Capital Ratios of
First Nationwide Bank:
Tangible capital.................... $1,186,474 6.30%
Core capital........................ 1,186,474 6.30
Risk-based capital:
Core capital................... 1,186,474 10.16
Total capital.................. 1,419,810 12.15
</TABLE>
The amount of adjusted total assets used for the tangible and core
capital ratios was $18.8 million. Risk-weighted assets used for the
risk-based core and total capital ratios amounted to $11.7 million.
Under proposed congressional legislation relative to the
recapitalization of the SAIF, a special assessment could be levied against
SAIF-insured deposits, which is currently estimated to range from 85 to 90
basis points. The impact of such assessment (at 90 basis points) on the pro
forma condensed combined statement of financial condition as of December 31,
1995 would be to (i) increase other liabilities by approximately $69 million
and (ii) reduce stockholder's equity by approximately $69 million. See
'Regulation--Regulation of Federal Savings Banks--FDIC Assessments.'
First Nationwide Bank intends to maintain its 'well capitalized' status
(generally, core capital of at least 5% and total risk-based capital of at
least 10%) and to distribute amounts in excess of such levels as dividends
to First Nationwide Holdings, subject to regulatory limitations and the
terms of the FN Holdings Indentures. While maintaining First Nationwide
Bank's regulatory capital at the 'well capitalized' level and considering
the aforementioned impact of the SAIF assessment, the amount of First
Nationwide Bank's capital that would be available for distribution as common
dividends to First Nationwide Holdings in the first quarter of 1996 would
approximate $177 million. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources.'
29
<PAGE>
THE ISSUER
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(1) The SFFed Acquisition will be accounted for using the purchase method of
accounting. The total purchase cost will be allocated first to the tangible
and identifiable intangible assets and liabilities of SFFed based on their
respective fair values and the remainder will be allocated to goodwill. The
aggregate purchase price was determined as follows:
<TABLE>
<S> <C>
Purchase price, as defined:
Shares outstanding at December 31,
1995............................... 7,883,247
Options outstanding at December 31,
1995............................... 553,304
----------
Total.............................. 8,436,551
Purchase price per share: $ 32.00
----------
$ 269,969
Exercise of options outstanding(a).... (7,425)
----------
Purchase price........................ 262,544
Acquisition fees and expenses......... 15,000
Acquisition fees and expenses included
in equity of SFFed................. (5,412)
----------
Total............................ $ 272,132
----------
----------
</TABLE>
The following is a reconciliation of the equity of SFFed to the fair value
of the net assets to be acquired by First Nationwide Bank:
<TABLE>
<S> <C> <C>
Equity of SFFed at December 31, 1995.... $195,390
Fair value adjustments(b):
Mortgage-backed securities............ $ 9,915
Loans receivable, net................. (23,415)
Office premises and equipment, net.... (8,844)
Mortgage servicing rights............. 13,817
Core deposit intangible asset......... 25,700
Deposit accounts...................... (10,950)
Borrowings............................ (12,470)
Historical goodwill................... (8,054)
----------
(14,301) (14,301)
--------
Fair value of net assets acquired..... 181,089
Purchase cost......................... 272,132
--------
Excess of purchase cost over net
assets acquired ('goodwill')....... $ 91,043
--------
--------
</TABLE>
(a) Represents cash to be received by SFFed in settlement of stock
options and stock appreciation rights outstanding as of December
31, 1995 (553,304 options outstanding at an average price of
$13.42 per share).
30
<PAGE>
THE ISSUER
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(b) Fair value adjustments are amortized against (accreted to) net
income as follows:
<TABLE>
<CAPTION>
PERIOD OF AMORTIZATION
ITEM METHOD OF AMORTIZATION (ACCRETION) (ACCRETION)
- ------------------------------- ---------------------------------------------- -----------------------
<S> <C> <C>
Mortgage-backed securities Level yield method over effective terms of 6 to 9 years
such assets, considering estimated
prepayments
Loans receivable Level yield method over effective terms of 2 to 12 years
such assets, considering estimated
prepayments
Mortgage servicing rights Level yield method over effective terms of 2 to 7 years
such assets, considering estimated
prepayments
Core deposit intangible asset Method based on the estimated lives of 7 to 10 years
existing depositor relationships
Deposit accounts Level yield method over stated terms of such 1 to 5 years
liabilities
Borrowings Level yield method over stated terms of such 1 to 5 years
liabilities
</TABLE>
(2) Represents payment by First Nationwide Bank in connection with the SFFed
Acquisition. The purchase price will be paid from existing cash of SFFed and
the Issuer.
(3) Represents the elimination of the equity of SFFed of $181,089.
(4) The LMUSA 1996 Purchase will be accounted for using the purchase method of
accounting. The total purchase cost will be allocated first to the tangible
and indentifiable intangible assets based on their respective fair values
and the remainder, if any, will be allocated to goodwill. The aggregate
purchase price was determined as follows:
<TABLE>
<S> <C>
Gross purchase price.................... $178,260
Adjustments to gross purchase
price, net (i)................ (20,732)
--------
Purchase cost as of December 31,
1995.......................... 157,528
Acquisition fees and expenses.... 8,000
--------
Total............................ $165,528
--------
--------
</TABLE>
(i) The gross purchase price amount in the agreement is based on
account and loan portfolio balances as of July 31, 1995 and is
adjusted based on subsequent changes in the balances.
31
<PAGE>
THE ISSUER
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
The following is a reconciliation of the excess of the assets acquired over
the liabilities assumed (at LMUSA's historical carrying value) to the
recorded value of the net assets to be acquired by First Nationwide Bank:
<TABLE>
<S> <C>
Excess of assets acquired over
liabilities assumed at December 31,
1995, at LMUSA's historical carrying
value.................................. $149,571
Fair value adjustments--mortgage
servicing rights....................... 15,957
--------
Recorded value of net assets
acquired........................... $165,528
--------
--------
</TABLE>
(5) Represents the balance of funds in custodial accounts maintained by LMUSA at
other banks related to the servicing acquired in the LMUSA 1996 Purchase.
For pro forma purposes, it is assumed that such funds will be transferred to
First Nationwide Bank and used to pay the amount due at closing and to
liquidate borrowings as follows:
<TABLE>
<S> <C>
Total amount of custodial funds
transferred............................ $341,360
Less: Cash paid at closing.............. 49,750
--------
Amount applied to reduce
borrowings.................... $291,610
--------
--------
</TABLE>
(6) Represents payment by First Nationwide Bank in connection with the LMUSA
1996 Purchase. The agreement for the LMUSA 1996 Purchase includes an initial
cash payment with deferred payments of the remainder of the contractual
purchase price.
<TABLE>
<S> <C>
Total purchase price.................... $165,528
Less: Acquisition fees and expenses
(i).................................... 8,000
--------
Purchase cost...................... $157,528
--------
--------
Deferred payment amount (i)............. 107,778
--------
Cash paid at closing.................... 49,750
--------
$157,528
--------
--------
(i) Represents $115,778 recorded in other
liabilities as a result of the LMUSA 1996
Purchase.
</TABLE>
(7) Represents the elimination of the excess of assets acquired over liabilities
assumed totalling $165,528.
(8) The following represents adjustments necessary to record the Branch Sales:
<TABLE>
<CAPTION>
CARRYING VALUE AS OF DECEMBER 31, 1995
------------------------------------------------------
OHIO MICHIGAN NORTHEAST TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 9,195 $ 4,355 $ 9,099 $ 22,649
Loans receivable...................... 1,045 597 4,143 5,785
Office premises and equipment......... 8,240 7,715 14,951 30,906
Deposits.............................. (1,414,695) (783,965) (2,496,962) (4,695,622)
Core deposit intangible asset......... (865) 1,229 665 1,029
----------- --------- ----------- -----------
Net carrying value of assets and
liabilities sold................. $(1,397,080) $(770,069) $(2,468,104) $(4,635,253)
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
32
<PAGE>
THE ISSUER
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(9) Represents borrowings necessary to fund the Branch Sales, computed as
follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net carrying value of assets and
liabilities sold....................... $ 1,397,080 $ 770,069 $ 2,468,104 $ 4,635,253
Gain on sale--see note 10............... 129,602 55,060 181,613 366,275
----------- --------- ----------- -----------
Borrowings............................ $ 1,267,478 $ 715,009 $ 2,286,491 $ 4,268,978
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
(10) Represents pro forma gain on the Branch Sales, computed as follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Deposit totals at December 31, 1995..... $ 1,414,695 $ 783,965 $ 2,496,962 $ 4,695,622
Premium per contract.................... 9.10% 7.18% 7.30% 7.82%
----------- --------- ----------- -----------
Total premium......................... 128,737 56,289 182,278 367,304
Core deposit intangible asset......... 865 (1,229) (665) (1,029)
----------- --------- ----------- -----------
Gain on sale of deposits (a).......... 129,602 55,060 181,613 366,275
Tax effect (other liabilities)........ (10,368) (4,405) (14,529) (29,302)
----------- --------- ----------- -----------
Total net gain................... 119,234 50,655 167,084 336,973
Minority interest--Hunter's
Glen.......................... 23,847 10,131 33,417 67,395
----------- --------- ----------- -----------
Net gain to common stockholder... $ 95,387 $ 40,524 $ 133,667 $ 269,578
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
(a) The remaining assets and liabilities will be sold at their respective
carrying values, resulting in no gain or loss.
(11) Represents the issuance of the FN Holdings Subordinated Notes:
<TABLE>
<S> <C>
Proceeds from the issuance of the FN
Holdings Subordinated Notes............ $140,000
Less: deferred issuance costs........... 7,000
--------
Net proceeds..................... $133,000
--------
--------
</TABLE>
(12) Represents the issuance of the Notes:
<TABLE>
<S> <C>
Proceeds from the issuance of the
Notes.................................. $449,827
Less: deferred issuance costs........... 18,077
--------
Net proceeds..................... $431,750
--------
--------
</TABLE>
Net proceeds from the Offering will be distributed to First Gibraltar
Holdings.
33
<PAGE>
THE ISSUER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED LMUSA
ACQUISITION PURCHASES BRANCH SALES
ISSUER PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL TOTALS(1) TOTALS(2) TOTALS(3) ADJUSTMENTS(4) COMBINED
---------- ----------- --------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable........................ $ 823,864 $ 230,713 $ 22,477 $ (623) $ -- $1,076,431
Securities.............................. 28,396 10,685 -- -- -- 39,081
Mortgage-backed securities.............. 212,880 62,403 -- -- -- 275,283
Other interest income................... 10,705 -- -- -- -- 10,705
---------- ----------- --------- ------------ -------------- ----------
Total interest income................. 1,075,845 303,801 22,477 (623) -- 1,401,500
INTEREST EXPENSE:
Deposits................................ 447,359 143,797 -- (211,530) -- 379,626
Borrowings.............................. 287,456 74,587 2,018 280,671 70,143 714,875
---------- ----------- --------- ------------ -------------- ----------
Total interest expense................ 734,815 218,384 2,018 69,141 70,143 1,094,501
---------- ----------- --------- ------------ -------------- ----------
Net interest income..................... 341,030 85,417 20,459 (69,764) (70,143) 306,999
Provision for loan losses............... 37,000 11,094 -- -- -- 48,094
---------- ----------- --------- ------------ -------------- ----------
Net interest income after provision for
loan losses........................... 304,030 74,323 20,459 (69,764) (70,143) 258,905
NONINTEREST INCOME:
Customer banking fees................... 47,493 5,291 -- (22,228) -- 30,556
Mortgage banking operations............. 70,265 860 76,445 -- -- 147,570
Net gain (loss) on sales of assets...... 147 -- (1,851) -- -- (1,704)
Other................................... 33,068 1,677 2,690 (789) -- 36,646
---------- ----------- --------- ------------ -------------- ----------
Total noninterest income.............. 150,973 7,828 77,284 (23,017) -- 213,068
NONINTEREST EXPENSE:
Compensation and benefits............... 154,288 11,141 19,500 (19,476) -- 165,453
Other................................... 178,265 34,896 38,081 (25,823) 3,582 229,001
---------- ----------- --------- ------------ -------------- ----------
Total noninterest expense............. 332,553 46,037 57,581 (45,299) 3,582 394,454
---------- ----------- --------- ------------ -------------- ----------
Income (loss) before income taxes,
extraordinary item and minority
interest.............................. 122,450 36,114 40,162 (47,482) (73,725) 77,519
Federal and state income taxes.......... (57,185) 3,554 3,952 (4,671) (7,255) (61,605)
---------- ----------- --------- ------------ -------------- ----------
Income (loss) before extraordinary item
and minority interest................. 179,635 32,560 36,210 (42,811) (66,470) 139,124
Extraordinary item--gain on early
extinguishment of FHLB advances,
net................................... 1,967 -- -- -- -- 1,967
---------- ----------- --------- ------------ -------------- ----------
Net income (loss) before minority
interest.............................. 181,602 32,560 36,210 (42,811) (66,470) 141,091
Minority interest--First Nationwide Bank
preferred stock dividends............. 34,584 -- -- -- -- 34,584
Minority interest--Hunter's Glen........ 24,554 6,512 7,242 (8,562) (2,484) 27,262
---------- ----------- --------- ------------ -------------- ----------
Net income (loss)....................... $ 122,464 $ 26,048 $ 28,968 $(34,249) $(63,986) $ 79,245
---------- ----------- --------- ------------ -------------- ----------
---------- ----------- --------- ------------ -------------- ----------
COMPONENTS OF PRO FORMA CONSOLIDATED NET INCOME OF THE ISSUER:
Historical net income of First Nationwide Bank........................................................... $ 211,260
Pro forma adjustments for SFFed Acquisition, LMUSA Purchases and Branch Sales............................ 25,959
----------
Pro forma net income of First Nationwide Bank............................................................ 237,219
Minority interest--First Nationwide Bank preferred stock dividends....................................... (34,584)
First Nationwide Holdings unconsolidated loss before minority interest, excluding net income from First
Nationwide Bank........................................................................................ (29,658)
Pro forma adjustments for FN Holdings Subordinated Notes................................................. (12,420)
----------
Pro forma net income of First Nationwide Holdings........................................................ 160,557
Minority interest--Hunter's Glen......................................................................... (27,262)
Pro forma adjustments for Notes.......................................................................... (54,050)
----------
Pro forma net income of the Issuer....................................................................... $ 79,245
----------
----------
OTHER DATA, AS ADJUSTED:
Historical net income of First Nationwide Bank........................................................... $ 211,260
Pro forma adjustment for SFFed Acquisition, LMUSA Purchases and Branch Sales............................. 25,959
Elimination of deferred tax benefit of First Nationwide Bank(5).......................................... (69,000)
----------
Pro forma net income of First Nationwide Bank, as adjusted............................................... 168,219
First Nationwide Bank preferred stock dividends.......................................................... (34,584)
----------
Net income of First Nationwide Bank available to First Nationwide Holdings, as adjusted(6)............... 133,635
Net expenses of First Nationwide Holdings (unconsolidated)(7)............................................ (42,078)
----------
Net income of First Nationwide Holdings, as adjusted(8).................................................. 91,557
Minority Interest--Hunter's Glen(9)...................................................................... (18,311)
----------
Cash available for distribution or loan to Issuer(8)(9).................................................. $ 73,246
----------
----------
</TABLE>
34
<PAGE>
THE ISSUER
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(1) Represents historical results of operations of SFFed for the year ended
December 31, 1995. Historical results have been adjusted to reflect:
(a) the amortization/accretion of fair value adjustments;
(b) the elimination of amortization of historical goodwill;
(c) the elimination of certain noninterest expense due to consolidation of
SFFed operations with First Nationwide Bank;
(d) the elimination of certain historical noninterest expenses recorded by
SFFed as a result of the acquisition by First Nationwide Bank;
(e) income taxes relative to the SFFed Acquisition; and
(f) 20% minority interest relative to the SFFed Acquisition.
(2) Represents historical results of operations for the nine months ended
September 30, 1995 and the year ended December 31, 1995 related to the
LMUSA 1995 Purchase and LMUSA 1996 Purchase, respectively (unaudited).
(LMUSA 1995 Purchase was consummated on October 2, 1995). Historical
results have been adjusted to reflect:
(a) the amortization of the fair value of mortgage servicing rights;
(b) the elimination of amortization of historical mortgage servicing rights;
(c) the decrease in interest expense resulting from the transfer of custodial
accounts acquired to First Nationwide Bank;
(d) decreases in compensation and benefits expense due to reduction in
staffing;
(e) the elimination of certain other noninterest expenses due to
consolidation with First Nationwide Bank's existing mortgage banking
operations;
(f) income taxes relative to the LMUSA Purchases; and
(g) 20% minority interest relative to the LMUSA Purchases.
(3) Represents adjustments necessary to record the impact of the Branch Sales:
(a) the elimination of historical interest income and expense for the year
ended December 31, 1995 on the savings account loans and deposits being
sold;
(b) the elimination of historical noninterest income (customer banking fees
and other noninterest income) for
the year ended December 31, 1995 related to the deposits being sold;
(c) the elimination of historical noninterest expense for the year ended
December 31, 1995, including compensation and benefits, occupancy, SAIF
insurance premiums, marketing, OTS assessments, data processing and
telecommunications directly attributable to the Ohio, Michigan and
Northeast retail branch operations;
(d) interest expense for the borrowings used to fund the Branch Sales;
(e) income taxes relative to the Branch Sales; and
(f) 20% minority interest relative to the Branch Sales.
See note 6 below.
(4) Represents adjustments to reflect:
(a) interest expense and amortization of debt issuance costs associated with
the FN Holdings Subordinated Notes of $12,775 and $1,000, respectively,
and the Notes of $57,368 and $2,582, respectively;
(b) the impact of income taxes from (a); and
(c) 20% minority interest relative to the FN Holdings Subordinated Notes.
NOTES TO OTHER DATA, AS ADJUSTED
(5) First Nationwide Bank recognized a deferred tax benefit of $69 million in
the fourth quarter of 1995. Such benefit is not a recurring item.
(6) Represents pro forma net income of First Nationwide Bank, as adjusted, less
First Nationwide Bank preferred stock dividends. Assumes that no retention
of retained earnings is necessary in order for First Nationwide Bank to
retain its 'well capitalized' status.
35
<PAGE>
(7) Represents unconsolidated net loss before minority interest of First
Nationwide Holdings (which includes interest expense on the FN Holdings
Senior Notes and other expenses of First Nationwide Holdings), and the pro
forma effect of interest expense on the FN Holdings Subordinated Notes,
excluding net income from First Nationwide Bank.
(8) The terms of the FN Holdings Indentures generally limit distributions to
75% of the consolidated net income of First Nationwide Holdings. The FN
Holdings Indentures also permit First Nationwide Holdings to loan the
remaining 25% of its consolidated net income to affiliates, including the
Issuer, provided that such loans are on an arm's length basis. See 'Risk
Factors--Holding Company Structure; Restrictions on Ability of Subsidiaries
to Pay Dividends.'
(9) Assumes that the class C common stock of First Nationwide Holdings owned by
the Issuer is redeemed in full for approximately $171.1 million, which the
Issuer expects to occur on or before June 1, 1996. Until the redemption of
the class C common stock, no dividends are payable on the class A common
stock of First Nationwide Holdings owned by the Issuer, or the class B
common stock of First Nationwide Holdings owned by Hunter's Glen.
Thereafter, the Issuer expects that distributions by First Nationwide
Holdings will be made on a pro rata basis with respect to its 80% ownership
interest and the 20% ownership interest of Hunter's Glen.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The Issuer is a holding company with no business of its own. The Issuer's
only significant asset is its ownership of 80% of the common stock of First
Nationwide Holdings, a holding company which owns all of the common stock of
First Nationwide Bank. As such, the Issuer's principal business operations are
conducted by First Nationwide Bank and its subsidiaries. The selected historical
financial data for the Issuer presented under the captions 'Selected Operating
Data' and 'Selected Financial Data' for, and as of the end of, each of the years
in the five-year period ended December 31, 1995, have been derived from the
Consolidated Financial Statements of the Issuer.
The following data should be read in conjunction with the Consolidated
Financial Statements of the Issuer and the notes thereto, the Consolidated
Financial Statements of the FNB Acquired Business and the notes thereto and the
Consolidated Financial Statements of SFFed and the notes thereto, included
elsewhere in this Prospectus. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994(1) 1993(2) 1992(3) 1991
---------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Interest income....................................... $1,075,845 $293,139 $ 95,264 $659,201 $ 990,596
Interest expense...................................... 734,815 199,845 74,728 450,240 663,016
Net interest income................................... 341,030 93,294 20,536 208,961 327,580
Provision for loan losses............................. 37,000 6,226 1,402 16,193 17,698
Noninterest income.................................... 150,973 41,158 190,876 384,336 128,366
Noninterest expense................................... 332,553 96,298 63,392 361,549 464,624
Income (loss) before taxes, extraordinary item and
minority interest................................... 122,450 31,928 146,618 215,555 (26,376)
Income tax expense (benefit)(4)....................... (57,185) 2,558 2,500 -- --
Income before extraordinary item and minority
interest............................................ 179,635 29,370 144,118 215,555 (26,376)
Extraordinary item: gain on early extinguishment of
FHLB advances, net.................................. 1,967 1,376 -- -- --
Net income before minority interest................... 181,602 30,746 144,118 215,555 (26,376)
Minority interest--First Nationwide
Bank Preferred Stock dividends...................... 34,584 -- -- -- --
Minority interest--Hunter's Glen...................... 24,554 4,259 -- -- --
Net income (loss)..................................... 122,464 26,487 144,118 215,555 (26,376)
SELECTED PERFORMANCE RATIOS
Return (loss) on average assets(5).................... .83% .60% 7.84% 2.52% (0.25)%
Return (loss) on average common equity(6)............. 35.91 15.86 69.41 58.89 (6.64)
Yield on interest-earning assets(7)................... 7.71 6.85 5.42 8.32 9.99
Cost of interest-bearing
liabilities(8)...................................... 5.35 4.83 4.70 5.73 6.78
Net interest margin(9)................................ 2.44 2.18 1.14 2.63 3.30
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
MINORITY INTEREST(10)
Excluding interest on deposits(11).................... 1.18x 1.26x 9.59x 10.74x --
Including interest on deposits(11).................... 1.08x 1.13x 3.02x 1.46x --
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
1995 1994(1) 1993(2) 1992(3) 1991
----------- ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
Securities available for sale............... $ 1,826,075 $ 45,000 $ -- $ -- $ --
Securities to be held to maturity(12)(13)... 1,455 411,859 15,118 2,034,842 90,416
Mortgage-backed securities to be held to
maturity(13).............................. 1,524,488 3,153,812 341,224 77,622 1,771,168
Loans receivable, net....................... 8,831,018 9,966,886 29,244 777,265 2,541,600
Covered assets, net......................... 39,349 311,603 592,593 839,538 1,398,906
Total assets................................ 14,646,245 14,683,559 1,125,222 8,961,473 10,178,061
Deposits.................................... 10,241,628 9,196,656 431,778 7,809,478 9,148,901
Securities sold under agreements to
repurchase................................ 969,510 1,883,490 119,144 30,647 305,000
Borrowings.................................. 2,392,862 2,808,979 440,792 597,564 192,117
Total liabilities........................... 13,883,099 14,029,957 1,012,328 8,488,697 9,761,664
Minority interest--preferred stock of First
Nationwide Bank........................... 300,730 300,730 -- -- --
Minority interest--Hunter's Glen............ 58,261 23,205 -- -- --
Stockholder's equity........................ 404,155 329,667 112,894 472,776 416,397
REGULATORY CAPITAL RATIOS OF FIRST
NATIONWIDE BANK
Tangible capital............................ 5.84% 5.50% 9.50% 4.59% 3.37%
Core capital................................ 5.84 5.50 9.50 5.13 3.88
Risk-based capital:
Core capital.............................. 9.14 8.86 67.71 15.67 12.39
Total capital............................. 11.34 11.01 68.97 16.24 13.09
SELECTED OTHER DATA
Number of full service customer
facilities................................ 160 156 4 162 162
Loans serviced for others(14)............... $28,170,543 $ 7,475,119 $ 327,449 $10,156,020 $ 4,466,467
Approximate number of employees............. 3,619 3,573 317 3,030 2,693
Non-performing assets as a percentage of
First Nationwide Bank's total assets...... 1.50% 1.49% 0.98% 0.12% 0.53%
</TABLE>
- ------------------
<TABLE>
<S> <C>
(1) On October 3, 1994, effective immediately following the close of business on September 30, 1994, First
Nationwide Bank acquired assets with fair values totalling approximately $14.1 billion and liabilities
(including deposit liabilities) with fair values totalling approximately $13.4 billion from Old FNB.
(2) During the first quarter of 1993, First Nationwide Holdings sold certain assets, liabilities, and
substantially all of its branch operations located in Texas, including $829 million of loans and 130 branches
with $6.9 billion in deposits, in the First Gibraltar Texas Sale. A net gain of $141 million was recorded in
connection with this sale.
(3) During the last quarter of 1992, First Nationwide Holdings sold certain assets, liabilities, and branch
operations located in Oklahoma, including $3 million of loans and 27 branches with $809 million in deposits,
in the First Gibraltar Oklahoma Sale. The increase in noninterest income in 1992 was primarily attributable
to the gain of $203 million on sales of assets in anticipation of the First Gibraltar Texas Sale, the gain of
$19 million on the First Gibraltar Oklahoma Sale and a gain of $41 million as a result of the modification of
the Assistance Agreement.
(4) Utilization of net operating loss carryovers resulted in no provisions for income taxes until the FN
Acquisition. Income tax expense of $2.5 million was recorded in the first quarter of 1993 representing AMT
expense related to the gain recognized on the First Gibraltar Texas Sale (see Footnote 2). Income tax expense
recorded in 1994 after the FN Acquisition represents federal AMT reduced, to the extent of 90%, by net
operating loss carryovers, and state tax at an assumed rate of 8%. Income tax benefit in 1995 includes the
recognition of a deferred tax benefit of $69 million, offset by federal AMT reduced, to the extent of 90%, by
net operating loss carryover and state tax at an assumed rate of 8%.
(5) Return (loss) on average assets represents net income (loss) as a percentage of average assets.
(6) Return (loss) on average common equity represents net income (loss) available to common stockholder as a
percentage of average common equity.
(7) Yield on interest-earning assets represents interest income as a percentage of average interest-earning
assets.
</TABLE>
(Footnotes continued on next page)
38
<PAGE>
(Footnotes continued from previous page)
<TABLE>
<S> <C>
(8) Cost of interest-bearing liabilities represents interest expense as a percentage of average interest-bearing
liabilities.
(9) Net interest margin represents net interest income as a percentage of average interest-earning assets.
(10) Earnings used in computing the ratio of earnings to combined fixed charges and minority interest consists of
income before taxes, extraordinary item and minority interest. Fixed charges consist of interest expense on
borrowings, the interest component of lease expense and, where indicated, interest expense on deposits.
Minority interest consists of First Nationwide Preferred Stock dividends and the Hunter's Glen 20% interest
in First Nationwide Holdings.
(11) Earnings were insufficient to cover fixed charges in 1991 by $26.4 million excluding interest on deposits,
and $26.4 million including interest on deposits.
(12) Fluctuation in securities and mortgage-backed securities held to maturity and securities available for sale
from December 31, 1994 to December 31, 1995 resulted from the reclassification of substantially all
securities and mortgage-backed securities (except for mortgage-backed securities resulting from the
securitization with recourse of certain of First Nationwide Bank's loans) from held-to-maturity to securities
available for sale.
(13) Increase in securities to be held to maturity at December 31, 1992 resulted from the investment of proceeds
on sale of certain long-term interest-bearing assets, primarily loans and mortgage-backed securities, in
cash, cash equivalents and securities in anticipation of the First Gibraltar Texas Sale.
(14) Includes loans serviced by FNMC, First Nationwide Bank, and FGB Realty, excluding loans serviced for First
Nationwide Bank by FNMC.
</TABLE>
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Issuer and the notes thereto included
elsewhere in this Prospectus. The Issuer is a holding company with no business
operations of its own. The Issuer's only significant asset is its ownership of
80% of the common stock of First Nationwide Holdings, a holding company which
owns all of the common stock of First Nationwide Bank. As such, the Issuer's
principal business operations are conducted by First Nationwide Bank and its
subsidiaries. Accordingly, except as otherwise indicated, the following
discussion of the Issuer relates to First Nationwide Bank.
GENERAL
The Issuer's principal business consists of operating retail deposit
branches and originating and/or purchasing residential real estate loans and, to
a lesser extent, certain consumer loans, for investment. The Issuer actively
manages its commercial real estate loan portfolio and is also active in mortgage
banking and loan servicing. Revenues are derived primarily from interest charged
on loans, interest received on government and agency securities and
mortgage-backed securities, gains on sales of loans and other investments, and
fees received in connection with loan servicing, securities brokerage and other
customer service transactions. Expenses consist primarily of interest on
customer deposit accounts, interest on short-term and long-term borrowings,
provisions for losses, general and administrative expenses consisting of
compensation and benefits, advertising and marketing, premises and equipment,
communications, deposit insurance assessments, data processing and other general
and administrative expenses.
Impact of Acquisitions and Dispositions
The FN Acquisition was consummated on October 3, 1994, effective
immediately after the close of business on September 30, 1994, and was recorded
using the purchase method of accounting. Accordingly, the accompanying financial
data include the results of operations related to the approximately $14.1
billion in assets and $13.4 billion in liabilities acquired in the FN
Acquisition. Minority interest increased by $301 million due to the issuance of
the First Nationwide Bank Preferred Stock, and common stockholder's equity
increased by $210 million during 1994 due to the capital contribution of
approximately $210 million by the Issuer in exchange for 230.3 shares of First
Nationwide Holdings' class C common stock. See the Consolidated Financial
Statements of the FNB Acquired Business and the notes thereto included elsewhere
in the Prospectus.
On February 28, 1995, FNMC consummated the Maryland Acquisition and
acquired a loan servicing portfolio of approximately $11.4 billion, including a
subservicing portfolio of $1.8 billion, and certain assets and liabilities from
StanFed. The transaction was accounted for as a purchase, and the Issuer's
consolidated statement of operations for the year ended December 31, 1995
includes the results of operations of the acquired mortgage servicing operation
for the period from March 1, 1995 through December 31, 1995.
In April 1995, First Nationwide Bank acquired approximately $13 million in
deposits located in Tiburon, California in the Tiburon Purchase. In August 1995,
First Nationwide Bank acquired three retail branches located in Orange County,
California with deposit accounts totalling approximately $356 million in the ITT
Purchase. On December 8, 1995, First Nationwide Bank acquired four retail
branches with deposit accounts of approximately $144 million in the Sonoma
Purchase. The Branch Purchases were accounted for as purchases, and the results
of operations of the acquired retail deposit operations are included in the
Issuer's consolidated statement of operations for the year ended December 31,
1995 from the date each of the transactions was consummated.
On October 2, 1995, FNMC consummated the LMUSA 1995 Purchase and acquired a
loan servicing portfolio of approximately $11.1 billion (including a
sub-servicing portfolio of $3.1 billion), a master servicing portfolio of $2.9
billion and other assets, principally existing loans and loan production
operations for approximately $100 million, payable in installments, and the
assumption of certain indebtedness secured by the acquired loan portfolio
totalling approximately $274 million. The LMUSA 1995 Purchase was accounted for
as a purchase and the Issuer's consolidated statement of operations for the year
ended December 31, 1995 includes the results of operations of the acquired
mortgage servicing operations for the period from October 3, 1995 through
December 31, 1995.
40
<PAGE>
The First Gibraltar Texas Sale was effective February 1, 1993 resulting in
the sale of $829 million of loans and $6.9 billion in deposits in 130 branches.
The accompanying financial data for 1993 reflect the results of operations in
1993 including these sold assets and liabilities during the first month of the
year. Subsequent to the First Gibraltar Texas Sale, First Nationwide Bank
managed four retail branches in Texas and supplemented the retail deposit base
with wholesale funds from Brokered Deposits and Federal Home Loan Bank ('FHLB')
advances.
Prior to and during 1993, most of the mortgage banking operations of First
Nationwide Bank were conducted through First Gibraltar Mortgage Holdings, Inc.
('FGMH') prior to the distribution by First Nationwide Bank of the stock of FGMH
to its then immediate parent in the first quarter of 1993. Therefore, the
accompanying financial data for 1993 reflect the results of such mortgage
banking operations during 1993 prior to the distribution. See
'Business--General--Background.'
Accrued Termination and Facilities Costs
During 1995, the Issuer recorded $12.7 million in noninterest expense
related to four specific actions. In connection with the Maryland Acquisition,
the former residential loan servicing center in Sacramento, California was
relocated to Maryland, resulting in a charge of $5.7 million for employee
termination and facilities costs, net of expected sublease income. Additionally,
$2.1 million has been provided for employee termination and facilities costs
(net of expected sublease income) related to the closing of the Issuer's
residential loan production offices. In conjunction with First Nationwide Bank's
cost reduction plan, the Issuer has also recorded a charge of $4.0 million
related to employee termination benefits for positions which will be eliminated
over the next twelve months. In connection with the elimination of these
positions, First Nationwide Bank has identified opportunities for office space
consolidation and has established additional liabilities totalling $.4 million
for lease termination payments. Additionally, First Nationwide Bank has
identified certain of its retail banking facilities which will be closed and
marketed for sale, with the related operations consolidated into other retail
banking facilities acquired in the ITT Purchase. In connection with such
closures and consolidations, a liability totalling $.5 million was established
to record such facilities at fair value.
Accounting Changes
The Issuer adopted SFAS No. 114, 'Accounting by Creditors for Impairment of
a Loan,' as amended by SFAS No. 118, 'Accounting by Creditors for Impairment of
a Loan--Income Recognition and Disclosures,' effective January 1, 1995. Under
SFAS No. 114, a loan is impaired when it is 'probable' that a creditor will be
unable to collect all amounts due (i.e., both principal and interest) according
to the contractual terms of the loan agreement. The measurement of impairment
may be based on: (i) the present value of the expected future cash flows of the
impaired loan discounted at the loan's original effective interest rate, (ii)
the loan's observable market price, or (iii) the fair value of the loan's
collateral. SFAS No. 114 does not apply to large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment. For the
Issuer, loans collectively reviewed for impairment include all single family
loans and performing multi-family and commercial real estate loans under
$500,000, excluding loans which have entered the workout process. The adoption
of SFAS No. 114, as amended by SFAS No. 118, had no material impact on the
Issuer's Consolidated Financial Statements as the Issuer's existing policy of
measuring loan impairment is consistent with methods prescribed in these
standards.
The Issuer considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Issuer will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Any insignificant delay (i.e., 60 days or less) or insignificant
shortfall in amount of payments will not cause a loan to be considered impaired.
In determining impairment, the Issuer considers large non-homogeneous loans
including nonaccrual loans, troubled debt restructurings, and performing loans
which exhibit, among other characteristics, high LTV ratios, low debt-coverage
ratios or other indications that the borrowers are experiencing increased levels
of financial difficulty. The Issuer bases the measurement of
collateral-dependent impaired loans on the fair value of their collateral. The
amount, if any, by which the recorded investment of the loan exceeds the measure
of the impaired loan's value is recognized by recording a valuation allowance.
Generally, specific allowances for loan losses relative to impaired
multi-family and commercial real estate loans that were acquired in the FN
Acquisition, which comprised the majority of impaired loans at December 31,
1995, have not been established because most would be eligible to be sold to
Granite under the Put Agreement.
41
<PAGE>
There have not been any significant multi-family or commercial real estate loans
originated since October 1, 1994.
At December 31, 1995, the carrying value of loans that are considered to be
impaired under SFAS No. 114 totalled $125.4 million (of which $29.6 million were
on nonaccrual status). The average recorded investment in impaired loans during
the year ended December 31, 1995, was approximately $125.5 million. For the year
ended December 31, 1995, the Issuer recognized interest income on these impaired
loans of $12.9 million, which included $.2 million of interest income recognized
using the cash basis method of income recognition.
On May 12, 1995, the FASB issued SFAS No. 122, 'Accounting for Mortgage
Servicing Rights, an amendment to Statement No. 65.' This statement provides
guidance for the recognition of mortgage servicing rights as an asset when a
mortgage loan is sold or securitized and servicing rights are retained. The
Issuer adopted this standard effective April 1, 1995. The result of such
adoption was to capitalize approximately $17 million in mortgage servicing
rights originated by the Issuer in 1995.
SFAS No. 122 requires that a portion of the cost of originating a mortgage
loan be allocated to the mortgage servicing rights based on its fair market
value. To determine the fair value of the servicing rights created since April
1, 1995, the Issuer used market prices under comparable servicing sale
contracts, when available, or alternatively, used a valuation model that
calculates the present value of future net servicing income. In using this
valuation method, the Issuer incorporated assumptions that market participants
would use in estimating future net servicing income which included estimates of
the cost of servicing, the discount rate, mortgage escrow earnings rate, an
inflation rate, ancillary income, prepayment speeds and default rates and
losses. Originated mortgage servicing rights totalling $16.8 million were
recorded during the year ended December 31, 1995.
Also, SFAS No. 122 requires enterprises to measure the impairment of
servicing rights based on the difference between the carrying amount of the
servicing rights and their current fair value. In determining impairment, the
Issuer aggregates all mortgage servicing rights and stratifies them based on the
predominant risk characteristics of interest rate, loan type and investor type.
Further, mortgage servicing rights capitalized prior to the adoption of SFAS No.
122 were stratified by acquisition to measure impairment. A valuation allowance
is established for any excess of amortized book value over the current fair
value, by risk stratification, by a charge to income. Based on this analysis, no
allowance for loss on impairment of loan servicing rights was necessary at
December 31, 1995.
Effective January 1, 1994, the Issuer adopted SFAS No. 115. SFAS No. 115
directs that securities held to maturity be reported at amortized cost.
Securities bought and held principally for the purpose of selling them in the
near term are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. All other securities held for
investment purposes are classified as available for sale and are carried at fair
value, with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholder's equity, net of tax. There was no impact on
the Consolidated Financial Statements of the Issuer as a result of such
adoption. At December 31, 1994, all U.S. government and agency securities and
mortgage-backed securities were classified in the held-to-maturity portfolio.
On November 15, 1995, FASB issued the Special Report, which provided all
entities an opportunity to reassess their ability and intent to hold securities
to maturity and allowed a one-time reclassification of securities from held to
maturity to available for sale without 'tainting' the remaining held-to-maturity
securities. On December 29, 1995, the Issuer reclassified $1.5 billion and
$231.8 million in carrying value of mortgage-backed securities and U.S.
government and agency securities, respectively, from the respective
held-to-maturity categories to securities available-for-sale, resulting in a net
after-tax increase of $18 million and $4.5 million in stockholder's equity and
minority interest--Hunter's Glen, respectively. There was no impact on First
Nationwide Bank's regulatory capital as a result of this reclassification.
The Issuer adopted SFAS No. 109, 'Accounting for Income Taxes' effective
January 1, 1993. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. There was no impact on the Consolidated Financial
Statements of the Issuer as a result of such adoption.
42
<PAGE>
As of December 31, 1994, the Issuer recorded a valuation allowance for 100%
of the net deferred tax asset because at that time it was not more likely than
not that such deferred tax asset would be realized. Based on a favorable
earnings trend since the consummation of the FN Acquisition and future earnings
expectations, management changed its judgment about the realizability of the
Issuer's net deferred tax assets and recognized a deferred tax benefit of $69
million in the fourth quarter of 1995. Management believes that the realization
of such asset is more likely than not, based upon the expectation that the
Issuer will generate the necessary amount of taxable income in future periods.
RECENT DEVELOPMENTS
For the three months ended March 31, 1996, the Issuer's net income was
$239.7 million (which included $283.3 million in gains, net of taxes, on sales
of branches) compared with net income of $15.3 million for the comparable period
in 1995 (which included $2.0 million in extraordinary gains, net of taxes, from
the early extinguishment of FHLB advances). Net interest income before provision
for loan losses was $108.1 million for the three months ended March 31, 1996
compared with $80.2 million for the comparable period in 1995. Noninterest
income for the three months ended March 31, 1996 was $364.9 million, an increase
of $333.9 million from the comparable period in 1995. Noninterest expense for
the three months ended March 31, 1996 was $118.2 million, an increase of $37.9
million from the comparable period in 1995. During the three months ended March
31, 1996, consolidated total assets increased $3.2 billion, to $17.8 billion,
from December 31, 1995, due to the assets acquired in the SFFed Acquisition and
the LMUSA 1996 Purchase. During the same period, consolidated total liabilities
increased $2.9 billion, primarily due to additional liabilities assumed in the
SFFed Acquisition and the issuance of the FN Holdings Subordinated Notes.
Except for the transactions for which pro forma information has been
provided in this Prospectus, there have not been any material trends, events or
transactions subsequent to December 31, 1995 that would materially affect the
Issuer's financial condition and results of operations.
PRO FORMA FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the pro forma condensed combined statement of
financial condition at December 31, 1995 and the pro forma condensed combined
statement of operations for the year ended December 31, 1995 gives effect to the
Acquisitions, the Branch Sales, the FN Holdings Subordinated Notes Offering and
the Offering and should be read in conjunction with the Unaudited Pro Forma
Financial Data included elsewhere in this Prospectus. The Branch Purchases
consummated in 1995 and the proposed Home Federal Acquisition have not been
reflected in the pro forma financial data because such transactions are not
material either individually or in the aggregate.
Pro Forma Statement of Financial Condition
The SFFed Acquisition, the LMUSA 1996 Purchase, the Branch Sales, the FN
Holdings Subordinated Notes Offering and the Offering have a significant effect,
on a pro forma basis, on the Issuer's 1995 historical consolidated statement of
financial condition. Total assets increase $4.1 billion, or 28%, from $14.6
billion historical to $18.7 billion pro forma combined.
Cash and cash equivalents increase by approximately $33 million,
principally as a result of the proceeds from the issuance of the FN Holdings
Subordinated Notes in the FN Holdings Subordinated Notes Offering and cash
acquired in the SFFed Acquisition, offset by payment made in connection with the
purchase price of SFFed.
Mortgage-backed securities increase by approximately $942 million.
Loans receivable increase approximately $2.7 billion, including
approximately $1.5 billion of 1-4 unit residential loans, approximately $628
million of multi-family residential loans, approximately $465 million of
commercial real estate loans, and approximately $100 million of principally
consumer loans. The majority of these loans are adjustable rate mortgage loans
and are collateralized with properties located in California.
MSRs increase approximately $122 million, principally as a result of the
LMUSA 1996 Purchase, which is expected to add a loan servicing portfolio of
approximately $14.1 billion and 268,000 loans.
Core deposit and other intangible assets increase by approximately $116
million as a result of the purchase accounting applied in the SFFed Acquisition,
offset by the reduction of core deposit intangible assets in connection with the
Branch Sales.
43
<PAGE>
Other assets increase by approximately $200 million as a result of other
assets (primarily notes receivable, other real estate, servicing-related
receivables and miscellaneous other assets) acquired in the SFFed Acquisition
and the LMUSA 1996 Purchase, as well as deferred issuance costs in connection
with the FN Holdings Subordinated Notes Offering and the Offering.
Deposits decrease by approximately $1.6 billion, comprised of $2.7 billion
in deposits acquired in the SFFed Acquisition and $341 million in custodial
accounts transferred to First Nationwide Bank in connection with the LMUSA 1996
Purchase, offset by approximately $4.7 billion in deposits sold in the Branch
Sales. First Nationwide Bank operated 160 full service branches in seven major
metropolitan areas at December 31, 1995. On a pro forma basis in connection with
the Branch Sales and the SFFed Acquisition, First Nationwide Bank will operate
107 full service branches (80 of which will be in California) in four major
metropolitan areas.
Borrowings increase by approximately $5.6 billion, including $1.1 billion
of borrowings assumed in connection with the SFFed Acquisition (principally
securities sold under agreements to repurchase and FHLB advances), a reduction
in borrowings of approximately $292 million as a result of the transfer of
custodial accounts to First Nationwide Bank in connection with the LMUSA 1996
Purchase, additional borrowings necessary to fund the Branch Sales of
approximately $4.3 billion, $140 million in FN Holdings Subordinated Notes and
$450 million in Notes.
Other liabilities increase by approximately $209 million, principally
related to deferred payments of the purchase price in connection with the LMUSA
1996 Purchase, deferred tax liabilities established in connection with the
Branch Sales, and other liabilities and accrued expenses assumed by First
Nationwide Bank as part of the SFFed Acquisition.
Minority interest -- Hunter's Glen increases by approximately $67 million,
representing the minority interest in the pro forma gain in the Branch Sales.
Stockholder's equity decreases by approximately $162 million, representing
the $270 million pro forma gain on the Branch Sales, net of tax, offset by the
distribution of $432 million net proceeds of the offering to First Gibraltar
Holdings.
Pro Forma Results of Operations
On a pro forma basis, the Issuer's historical net income for the year ended
December 31, 1995 decreases approximately $43 million, or 35%, as a result of
the Acquisitions, the Branch Sales, the FN Holdings Subordinated Notes Offering
and the Offering. However, Branch Sales consummated through March 31, 1996 have
been funded with a mix of FHLB advances and reverse repos at a weighted average
rate of 5.45%, compared to 6.79% used in the pro forma data which is based on
blended borrowing rates during 1995. Applying the actual average rate to the
additional borrowings used to fund the Branch Sales has the effect of decreasing
the pro forma interest expense on borrowings by approximately $50 million on an
after tax basis.
Net interest income after provision for loan losses decreases approximately
$45 million, due, in part, to the net effect of the interest-earning assets
acquired and the interest-bearing liabilities assumed in the SFFed Acquisition.
In addition, the loans receivable acquired as part of the LMUSA Purchases
contributed to this increase. The positive impact of the SFFed Acquisition and
the LMUSA Purchases is offset by the additional interest expense on the FN
Holdings Subordinated Notes and the Notes. In addition, the pro forma interest
expense on borrowings to replace deposits sold in the Branch Sales is
approximately $69 million higher than the interest expense on such deposits.
However, as noted above, Branch Sales consummated through March 31, 1996 have
been funded at a rate significantly lower than the rate used in the pro forma
data.
Noninterest income increases approximately $62 million, substantially all
of which relates to loan servicing fee income on the additional $26.8 billion
loan servicing portfolio acquired in connection with the LMUSA Purchases.
Noninterest expense increases approximately $62 million, principally due to
incremental expenses of operations acquired in the SFFed Acquisition and the
LMUSA Purchases, offset by the elimination of historical noninterest expense
directly attributable to the Ohio, Michigan and Northeast retail branch
operations. The pro forma results of operations for the SFFed Acquisition
include a $46 million reduction in noninterest expense over historical SFFed
levels relative to a staff reduction of approximately 60%, the consolidation of
ten branch offices and administrative facilities, the elimination of
nonrecurring historical expenses related to the SFFed Acquisition and other
economies of scale, offset in part by the amortization of core deposit
intangible and goodwill.
44
<PAGE>
Similarly, the pro forma results of operations for the LMUSA Purchases include a
$262 million reduction in noninterest expense over historical LMUSA levels,
representing the effect of significant staff reductions, reductions in
facilities costs due to consolidation and the elimination of certain historical
amounts related to operations not acquired as part of the LMUSA Purchases.
RESULTS OF OPERATIONS
The year to year comparisons set forth below, including the changes in
magnitude of the various items between years, have been affected by the
acquisitions and dispositions consummated during the years involved.
The following tables set forth, for the periods and at the dates indicated,
information regarding the Issuer's consolidated average statements of financial
condition, together with the total dollar amounts of interest income and
interest expense and the weighted average interest rates for the periods
presented. Average balances are calculated on a daily basis. The information
presented represents the historical activity of the Issuer.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1995 1994 1993
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------- ------- -------- ------- ------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets(1):
U.S. government and agency
securities held to
maturity(2)(3).............. $ 435 $ 28 6.42% $ 138 $ 7 4.95% $ 710 $ 24 3.43%
Mortgage-backed securities
held to maturity(3)(4)...... 2,985 213 7.14 711 43 6.05 120 6 5.04
Loans held for sale........... 304 24 7.89 11 1 5.22 -- -- --
Loans receivable, net(4)...... 10,058 800 7.95 2,926 212 7.27 124 16 12.67
Covered Assets, net(5)........ 165 11 6.67 491 30 6.11 804 49 6.11
------- -------- ------- ------- -------- ------- ------- --- -------
Total interest-earning
asset....................... 13,947 1,076 7.71% 4,277 293 6.85% 1,758 95 5.42%
Noninterest-earning assets...... 751 161 81
------- ------- -------
Total assets.................. $14,698 $4,438 $1,839
------- ------- -------
------- ------- -------
Liabilities and Stockholder's
Equity:
Interest-bearing liabilities:
Deposits...................... $9,959 $ 447 4.49% $2,605 $101 3.88% $1,197 $ 55 4.59%
Securities sold under
agreements to repurchase.... 1,577 105 6.66 351 19 5.37 21 1 3.83
Borrowings(6)................. 2,210 183 8.26 1,181 80 6.77 373 19 5.09
------- -------- ------- ------- -------- ------- ------- --- -------
Total interest-bearing
liabilities................. 13,746 735 5.35% 4,137 200 4.83% 1,591 75 4.70%
------- -------- ------- ------- -------- ------- ------- --- -------
Noninterest-bearing
liabilities................... 277 53 40
Minority interest--preferred
stock of First Nationwide
Bank.......................... 301 75 --
Minority interest--Hunter's
Glen.......................... 33 6 --
Stockholder's equity............ 341 167 208
------- ------- -------
Total liabilities and
stockholder's equity........ $14,698 $4,438 $1,839
------- ------- -------
------- ------- -------
Net interest income............. $ 341 $ 93 $ 20
-------- -------- ---
-------- -------- ---
Interest rate spread............ 2.36% 2.02% .72%
------- ------- -------
------- ------- -------
Net interest margin............. 2.44% 2.18% 1.14%
------- ------- -------
------- ------- -------
Average equity to average
assets........................ 2.32% 3.76% 11.31%
------- ------- -------
------- ------- -------
</TABLE>
- ------------------
(1) Nonaccruing assets are included in the average balances for the periods
indicated.
(2) Includes interest-bearing deposits in other banks and short-term investment
securities.
(3) Substantially all securities held to maturity (except for mortgage-backed
securities resulting from the securitization with recourse of certain of
First Nationwide Bank's loans) were reclassified to securities available for
sale on December 29, 1995. The average balance of such securities for three
days is not material and is therefore not presented.
(4) In late December, 1994, $1.3 billion of single-family loans were securitized
with recourse. The large increase in the average balance of mortgage-backed
securities held to maturity from 1994 to 1995 is due to such securitized
loans.
(5) Includes unconsolidated subsidiaries covered by FSLIC/RF yield maintenance.
(6) Interest and average rate include the impact of interest rate swaps.
The following table presents certain information regarding changes in
interest income and interest expense of the Issuer during the periods indicated.
The dollar amount of interest income and interest expense fluctuates
45
<PAGE>
depending upon changes in the respective interest rates and upon changes in the
respective amounts (volume) of the Issuer's interest-earning assets and
interest-bearing liabilities. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable
to: (i) changes in volume (changes in average outstanding balances multiplied by
the prior year's rate) and (ii) changes in rate (changes in average interest
rate multiplied by the prior year's volume). Changes attributable to both volume
and rate have been allocated proportionately.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1995 VS. 1994 1994 VS. 1993
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
----------------------- ----------------------
VOLUME RATE NET VOLUME RATE NET
------ ---- ----- ------ ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Securities (1).................................................. $ 18 $ 3 $ 21 $(38) $21 $(17)
Mortgage-backed securities...................................... 160 10 170 36 1 37
Loans held for sale............................................. 23 0 23 1 0 1
Loans receivable, net........................................... 566 22 588 200 (4 ) 196
Covered assets, net (2)......................................... (22) 3 (19) (19) 0 (19)
------ ---- ----- ------ ---- ----
Total.................................................... 745 38 783 180 18 198
------ ---- ----- ------ ---- ----
Interest Expense:
Deposits........................................................ 328 18 346 53 (7 ) 46
Securities sold under agreements to repurchase.................. 80 6 86 18 0 18
Borrowings...................................................... 82 21 103 53 8 61
------ ---- ----- ------ ---- ----
Total.................................................... 490 45 535 124 1 125
------ ---- ----- ------ ---- ----
Change in net interest income......................... $255 $ (7) $ 248 $ 56 $17 $ 73
------ ---- ----- ------ ---- ----
------ ---- ----- ------ ---- ----
</TABLE>
- ------------------
(1) Includes interest-bearing deposits in banks and short-term investment
securities.
(2) Includes unconsolidated subsidiaries covered by FSLIC/RF yield maintenance.
The positive volume variance of $255 million from 1994 to 1995 is largely
due to $13.4 billion in interest-earning assets acquired offset in part by the
$13.3 billion in interest-bearing liabilities assumed in the FN Acquisition on
October 3, 1994, which contributed to net interest income during the last
quarter of 1994 and all of 1995. The negative rate variance of $7 million is
attributed to the interest-bearing liabilities acquired in the FN Acquisition,
which rates reflect the overall increase in market interest rates from the
fourth quarter of 1994 through 1995, and the issuance of the FN Holdings Senior
Notes to finance the FN Acquisition. In an increasing rate environment, the
Issuer's cost of interest-bearing liabilities reacts more quickly to changes in
rates than the yields on interest-bearing assets, due to the volume of
adjustable rate interest-bearing assets which generally reprice on an annual or
semi-annual basis.
The positive volume variance of $56 million from 1993 to 1994 is largely
due to the FN Acquisition, which resulted in $14 billion in interest-earning
assets contributing to net interest income during the last quarter of 1994. In
addition, the FN Holdings Senior Notes were issued to partially finance the FN
Acquisition. The positive total rate variance of $17 million is also attributed
to the FN Acquisition, as the majority of the interest-earning assets acquired
were variable-rate assets, reflecting the overall increase in market interest
rates from 1993 to 1994.
Year Ended December 31, 1995 versus Year Ended December 31, 1994
Net Income. The Issuer reported net income for 1995 of $122.5 million
compared with net income of $26.5 million for 1994. Net income for 1995 includes
an income tax benefit of $57 million (largely due to the recognition of a $69
million deferred tax benefit) and an extraordinary gain from the early
extinguishment of FHLB advances of $2.0 million, net of tax. Net income for 1994
includes income tax expense totalling $2.6 million and $1.4 million, net of tax,
in extraordinary gain from the early extinguishment of FHLB advances.
The Issuer reported income before income taxes, extraordinary item and
minority interest of $122 million in 1995 compared with pre-tax income of $32
million in 1994. The increase is generally due to the inclusion in
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1995 of the operations acquired in the FN Acquisition for a full year compared
to the operations acquired in the FN Acquisition for only the fourth quarter of
1994.
Net interest income was $341 million for 1995, compared with $93 million
for 1994, an increase of $248 million. The increase is generally due to the
inclusion in 1995 of the operations acquired in the FN Acquisition for a full
year compared with the inclusion of the operations acquired in the FN
Acquisition for only the fourth quarter of 1994.
Interest Income. Total interest income was $1.1 billion for the year ended
December 31, 1995, an increase of $783 million from the year ended December 31,
1994.
The interest-bearing assets acquired in the FN Acquisition resulted in
total interest-earning assets for 1995 averaging $13.9 billion, compared to $4.3
billion in 1994. In addition, the yield on total interest-earning assets during
1995 increased .86% from the yield on total interest-earning assets during 1994,
principally due to changes in overall market interest rates and higher yielding
assets acquired in the FN Acquisition.
The Issuer earned $800 million of interest income on loans receivable for
the year ended December 31, 1995, an increase of $588 million from the year
ended December 31, 1994. The loans acquired in the FN Acquisition resulted in an
increase in the average balance of loans receivable to $10.1 billion from $2.9
billion for the years ended December 31, 1995 and 1994, respectively. The
weighted average yield on loans receivable increased to 7.95% for 1995 from
7.27% during 1994, primarily due to the repricing of the adjustable rate loans
in the portfolio acquired in the FN Acquisition.
The Issuer earned $24 million of interest income on loans held for sale for
the year ended December 31, 1995, an increase of $23 million from the year ended
December 31, 1994. The additional loan production from the Maryland Acquisition
and the LMUSA 1995 Purchase resulted in an increase in the average balance of
loans held for sale to $304 million from $11 million for the years ended
December 31, 1995 and 1994, respectively. The weighted average yield on loans
held for sale increased to 7.89% for 1995 from 5.22% during 1994.
Interest income on mortgage-backed securities was $213 million for the year
ended December 31, 1995, an increase of $170 million from the year ended
December 31, 1994. The mortgage-backed securities acquired in the FN
Acquisition, including $1.3 billion of qualifying single-family loans
securitized from First Nationwide Bank's loan portfolio in late 1994 and an
additional $.4 billion securitized in 1995, resulted in the average portfolio
balances increasing from $711 million to $3.0 billion during the years ended
December 31, 1994 and 1995, respectively. The weighted average yield on
mortgage-backed securities increased to 7.14% for 1995 from 6.05% for 1994,
primarily due to the addition of higher-yielding securities from the FN
Acquisition, including loan securitizations, and the subsequent upward rate
adjustments of adjustable rate mortgage-backed securities related to an overall
increase in market interest rates.
Interest income from Covered Assets declined $19 million, to $11 million,
for the year ended December 31, 1995. This decline is due to a reduction in the
volume of Covered Assets due to sales, repayments and other dispositions of
Covered Assets, including the purchase by the FDIC of substantially all of the
remaining Covered Assets at the fair market value of such assets (the 'FDIC
Purchase'), offset in part by an increase in the effective rate earned on such
Covered Assets, which was 6.67% for 1995 compared to 6.11% for 1994. The higher
rate is due to the net effect of the increase in the Texas Cost of Funds
('TCOF') between the two periods due to generally increasing interest rates,
offset by the reduction in the applicable margin over TCOF prescribed in the
Assistance Agreement.
Interest income from securities and interest-bearing deposits in banks was
$28 million for the year ended December 31, 1995, an increase of $21 million
from the year ended December 31, 1994. The average portfolio balances during the
years ended December 31, 1995 and 1994 increased to $435 million from $138
million, respectively, due to the securities acquired in the FN Acquisition
being held for an entire year in 1995 versus the fourth quarter only in 1994.
The weighted average yield on these assets increased to 6.42% for 1995 from
4.95% for 1994, primarily due to the increase in overall market interest rates.
Interest Expense. Total interest expense was $735 million for the year
ended December 31, 1995, an increase of $535 million from the year ended
December 31, 1994. The increase is generally due to the inclusion for a full
year in 1995 of the additional interest-bearing liabilities from the operations
acquired in the FN Acquisition, the issuance of the FN Holdings Senior Notes and
changes in overall market rates of interest as discussed below.
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Interest expense on deposits, including Brokered Deposits, was $447 million
for the year ended December 31, 1995, an increase of $346 million from the year
ended December 31, 1994. The deposits of approximately $10 billion acquired in
the FN Acquisition, net of $1.2 billion in deposits sold in the Illinois Sale,
and the $513 million of deposits assumed in the Branch Purchases, resulted in an
increase in the average balance of deposits outstanding from $2.6 billion to
$10.0 billion for the years ended December 31, 1994 and 1995, respectively. The
overall weighted average cost of deposits increased from 3.88% for 1994 to 4.49%
for 1995, due principally to increases in the overall level of interest rates
between the two years.
Interest expense on securities sold under agreements to repurchase and
borrowings totalled $288 million for the year ended December 31, 1995, an
increase of $189 million from the year ended December 31, 1994.
The timing of the FN Acquisition and the Illinois Sale, offset in part by
the reduction of borrowings from funds received in connection with the Branch
Purchases, resulted in the average balance outstanding of securities sold under
agreements to repurchase and borrowings for the years ended December 31, 1995
and 1994 increasing to $3.8 billion from $1.5 billion, respectively. The
weighted average interest rate on these instruments increased to 7.60% in 1995
from 6.46% for 1994, primarily due to the impact of increases in overall market
interest rates. The FN Holdings Senior Notes issued in 1994 resulted in an
additional $18 million in interest expense in 1995 compared to 1994.
Net Interest Income. Net interest income before provision for loan losses
was $341 million for the year ended December 31, 1995, an increase of $248
million from the year ended December 31, 1994. The interest rate spread
increased to 2.36% in 1995 from 2.02% in 1994. The increase in net interest
income is generally due to the inclusion in 1995 of the operations acquired in
the FN Acquisition for a full year compared to the inclusion of the operations
acquired in the FN Acquisition for only the fourth quarter of 1994.
Noninterest Income. Total noninterest income, consisting primarily of
mortgage banking, customer banking and management fee income, was $151 million
for the year ended December 31, 1995, an increase of $110 million from the year
ended December 31, 1994. The increase is generally due to the inclusion in 1995
of the operations acquired in the FN Acquisition for a full year compared to the
inclusion of the operations acquired in the FN Acquisition for only the fourth
quarter of 1994. In addition, additional fee revenues were generated from
operations acquired in the Maryland Acquisition and the LMUSA 1995 Purchase.
Fees and service charges related to mortgage banking operations, which
consist principally of loan servicing income and borrower fees, were $70 million
for the year ended December 31, 1995, compared to $10 million for the year ended
December 31, 1994. This increase is due to the inclusion in 1995 of the mortgage
banking operations acquired in the FN Acquisition for an entire year versus only
the fourth quarter in 1994, as well as additional fee revenues received as a
result of the inclusion of the mortgage banking operations acquired in the
Maryland Acquisition and the LMUSA 1995 Purchase.
Fees and service charges related to retail banking operations, consisting
of depositor fees for transaction accounts, overdrafts, and miscellaneous other
fees, were $48 million for the year ended December 31, 1995 compared to $11
million for the year ended December 31, 1994. The increase of $37 million is due
to the inclusion in 1995 of the retail banking operations acquired in the FN
Acquisition for an entire year compared to only the fourth quarter of such
operations in 1994, as well as a slight increase in such fees related to the
operations acquired in the Branch Purchases.
Management fees, principally from commercial loan servicing and asset
management services provided for third-party investors, totalled $15 million for
the year ended December 31, 1995, an increase of $2 million over 1994. This $2
million increase is the net effect of a $3.8 million increase in the revenues
from the asset servicing agreements entered into with Granite in conjunction
with the FN Acquisition, offset by decreases in disposition and other third
party fees received by FGB Realty Advisors, Inc. ('FGB Realty'), principally due
to the expiration of certain government contracts, totalling $1.8 million.
Other noninterest income was $18 million for the year ended December 31,
1995, an increase of $10.4 million from the year ended December 31, 1994. The
increase is attributed to an increase of $3.4 million in dividends on FHLB
stock, $1.7 million in fees earned on check disbursement products, $1.1 million
in early withdrawal penalties on deposits, and $4.2 million in miscellaneous
other income. The increases are attributed to the inclusion in 1995 of the
operations acquired in the FN Acquisition for a full year compared to the
inclusion of the operations acquired in the FN Acquisition for only the fourth
quarter of 1994.
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Noninterest Expense. Total noninterest expense was $333 million for the
year ended December 31, 1995, an increase of $237 million from the year ended
December 31, 1994. All categories of noninterest expense increased, primarily
due to the inclusion in 1995 of expenses related to the operations acquired in
the FN Acquisition for an entire year compared to including such expenses for
only the fourth quarter in 1994. In addition, the year ended December 31, 1995
includes charges totalling $13 million related to accrued termination and
facilities costs for specific cost reduction actions taken by First Nationwide
Bank during the year.
Total compensation and employee benefits expense was $154 million for the
year ended December 31, 1995, an increase of $105 million from the year ended
December 31, 1994. The increase is primarily due to the inclusion in 1995 of a
full year of such charges related to the operations acquired in the FN
Acquisition compared to only the fourth quarter of such expenses in 1994. In
addition, 1995 includes expenses totalling $7 million related to employee
severance and termination costs for the relocation of First Nationwide Bank's
mortgage loan servicing operations to Maryland, the closure of First Nationwide
Bank's retail mortgage loan production offices, and a bank-wide cost reduction
project.
Occupancy and equipment expense was $50 million for the year ended December
31, 1995, an increase of $38 million from the year ended December 31, 1994. The
increase is primarily due to the inclusion in 1995 of a full year of such
charges related to the operations acquired in the FN Acquisition compared to
only the fourth quarter of such expenses in 1994. In addition, 1995 includes
expenses totalling $6 million related to space reductions and lease termination
charges for the relocation of First Nationwide Bank's mortgage loan servicing
operations to Maryland, the closure of First Nationwide Bank's retail mortgage
loan production offices, a bank-wide cost reduction project, and retail branch
consolidations due to duplicate facilities resulting from the Branch Purchases.
Data processing expense increased to $10 million for the year ended
December 31, 1995 from $3 million for the same period in 1994. The increase is
primarily due to the inclusion in 1995 of a full year of such charges related to
the operations acquired in the FN Acquisition compared to only the fourth
quarter of such charges in 1994.
SAIF deposit insurance premiums increased to $22 million in 1995 compared
to $7 million for the year ended December 31, 1994. The increase is primarily
due to the inclusion in 1995 of a full year of such charges related to the
operations acquired in the FN Acquisition compared to only the fourth quarter of
such charges in 1994.
Marketing expense was $11 million for the year ended December 31, 1995, an
increase of $8 million from the year ended December 31, 1994. The increase is
primarily due to the inclusion in 1995 of a full year of such charges related to
the operations acquired in the FN Acquisition compared to only the fourth
quarter of such charges in 1994.
Loan expense was $12 million for the year ended December 31, 1995, an
increase of $11 million from the year ended December 31, 1994. The increase is
due to the inclusion in 1995 of a full year of the mortgage banking operations
acquired in the FN Acquisition compared to only the fourth quarter in 1994, as
well as increased expenses related to operations acquired in the Maryland
Acquisition and the LMUSA 1995 Purchase.
Other noninterest expense was $73 million for the year ended December
31,1995, an increase of $52 million from the year ended December 31, 1994,
principally due to increased telecommunications, postage, office supplies,
travel and professional fee expenses, all of which are attributed primarily to
the inclusion in 1995 of a full year of the operations acquired in the FN
Acquisition compared to only the fourth quarter in 1994. The Branch Purchases,
Maryland Acquisition and LMUSA 1995 Purchase also contributed to increases in
these expenses.
Provision for Income Taxes. During the year ended December 31, 1995 and
1994, the Issuer recorded income tax (benefit) expense of $(57.2) million and
$2.6 million, respectively. The net benefit in 1995 is largely the result of the
recognition of a deferred tax benefit of $69 million. Included in tax expense
for the year ended December 31, 1995 is the reversal of 1993 and 1994
overaccruals of federal taxes totaling $1.7 million. The Issuer's effective
federal tax rates were (55)% and 0% during the year ended December 31, 1995 and
1994, respectively, while its statutory federal tax rate was 35% during both
periods. The difference between effective and statutory rates was primarily the
result of the utilization of net operating loss carryforwards and, in 1995, the
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recognition of a deferred tax benefit of $69 million. The Issuer's effective
state tax rate was 8% for the years ended December 31, 1995 and 1994,
respectively.
Extraordinary Item. During the year ended December 31, 1995, the Issuer
had a gain of $2.0 million on the early extinguishment of $250 million in FHLB
advances, net of income taxes. During the year ended December 31, 1994, the
Issuer had a gain of $1.4 million on the early extinguishment of $95 million in
FHLB advances, net of income taxes.
Minority Interest--First Nationwide Bank Preferred Stock
Dividends. Dividends on the First Nationwide Bank Preferred Stock totalling
$34.6 million were declared and paid during the year ended December 31, 1995.
Minority Interest--Hunter's Glen. Minority interest--Hunter's Glen for the
year ended December 31, 1995 of $24.6 million represents that portion of First
Nationwide Holdings' 1995 net income attributable to its class B common stock,
which is owned by Hunter's Glen.
Year Ended December 31, 1994 versus Year Ended December 31, 1993
Net Income. The Issuer reported net income for 1994 of $26.5 million
compared with net income of $144 million for 1993. Net income for 1994 includes
$1.4 million, net of tax effect, in extraordinary gain from the early
extinguishment of FHLB advances. Net income for 1993 includes a pre-tax gain of
$141 million from the First Gibraltar Texas Sale.
The Issuer reported income before income taxes and extraordinary item of
$32 million in 1994 compared with pre-tax income of $147 million in 1993.
Pre-tax income was reduced by provision for income taxes of $2.6 million and
$2.5 million in 1994 and 1993, respectively.
Net interest income was $93 million for the year ended December 31, 1994,
compared with $20 million for 1993, an increase of $73 million. The
interest-bearing assets and liabilities acquired in the FN Acquisition
contributed $83 million of net interest income in 1994, and the FN Holdings
Senior Notes issued by First Nationwide Holdings in 1994 contributed $6 million
of interest expense in 1994.
Interest Income. Total interest income was $293 million for the year ended
December 31, 1994, an increase of $198 million from the year ended December 31,
1993. The interest-bearing assets acquired in the FN Acquisition resulted in
total interest-earning assets for 1994 averaging $4.3 billion, compared to $1.8
billion for 1993 and contributed $245 million of total interest income in 1994.
The assets sold in the First Gibraltar Texas Sale contributed $26 million in
total interest income in 1993. In addition, yields on mortgage-backed
securities, securities to be held to maturity and all interest-earning assets
during 1994 increased 1.01%, 1.52% and 1.43%, respectively, from the yields on
mortgage-backed securities, securities held to maturity and all interest-earning
assets during 1993, principally due to increases in overall market interest
rates and the FN Acquisition.
The Issuer earned $212 million of interest income on loans receivable for
the year ended December 31, 1994, an increase of $196 million from the year
ended December 31, 1993. The loans acquired in the FN Acquisition contributed
$211 million of interest income in 1994, and resulted in an increase in the
average balance of loans receivable to $2.9 billion from $124 million for the
years ended December 31, 1994 and 1993, respectively. The weighted average yield
on real estate loans decreased to 7.27% for 1994 from 12.67% during 1993,
primarily due to the absorption of the smaller, but higher-yielding 1993
portfolio balance into the larger, market rate sensitive portfolio acquired in
the FN Acquisition.
Interest income on mortgage-backed securities was $43 million for the year
ended December 31, 1994, an increase of $37 million from the year ended December
31, 1993. The mortgage-backed securities acquired in the FN Acquisition
contributed $29 million of the increase and resulted in the average portfolio
balances increasing from $120 million to $711 million during the years ended
December 31, 1993 and 1994, respectively. The weighted average yield on
mortgage-backed securities increased to 6.05% for 1994 from 5.04% for 1993,
primarily due to the addition of higher-yielding securities from the FN
Acquisition and the subsequent upward rate adjustments of adjustable-rate
mortgage-backed securities related to an overall increase in market interest
rates.
The interest income from Covered Assets declined $19 million, to $30
million for the year ended December 31, 1994. This decline is due to a reduction
in the volume of Covered Assets due to sales, repayments and other dispositions
net of a slight increase in the effective rate earned on such Covered Assets.
The higher rate
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is due to the net effect of the increase in TCOF between the two periods due to
generally increasing interest rates offset by the reduction in the applicable
margin over the TCOF prescribed in the Assistance Agreement.
Interest income from securities held to maturity and interest-bearing
deposits in other banks was $7 million for the year ended December 31, 1994, a
decrease of $17 million from the year ended December 31, 1993. The average
portfolio balances during the years ended December 31, 1994 and 1993 decreased
to $138 million from $710 million, respectively, due to restructuring of the
balance sheet as a result of the FN Acquisition. The weighted average yield on
these assets increased to 4.95% for 1994 from 3.43% for 1993, primarily due to
the increase in market interest rates.
Interest Expense. Total interest expense was $200 million for the year
ended December 31, 1994, an increase of $125 million from the year ended
December 31, 1993. The increase is the result of additional interest-bearing
liabilities from the FN Acquisition, the issuance of the FN Holdings Senior
Notes, and the increase in overall market interest rates.
Interest expense on deposits, including Brokered Deposits, was $101 million
for the year ended December 31, 1994, an increase of $46 million from the year
ended December 31, 1993. The deposits of approximately $10 billion acquired in
the FN Acquisition, net of $1.2 billion in deposits sold in the Illinois Sale,
contributed an additional $85 million in interest expense in 1994 and resulted
in an increase in the average balance of deposits outstanding from $1.2 billion
to $2.6 billion for the years ended December 31, 1993 and 1994, respectively.
The deposit liabilities included in the First Gibraltar Texas Sale contributed
$26 million of interest expense in 1993. The overall weighted average cost of
deposits decreased from 4.59% for 1993 to 3.88% for 1994, due principally to the
larger volume of lower rate transaction accounts acquired in the FN Acquisition.
The FN Acquisition decreased First Nationwide Bank's reliance on Brokered
Deposits as a source of funds.
Interest expense on securities sold under agreements to repurchase and
borrowings totalled $99 million for the year ended December 31, 1994, an
increase of $79 million from the year ended December 31, 1993. Approximately $55
million of the increase is attributed to liabilities acquired in the FN
Acquisition, with an additional $18 million attributable to the FHLB advances
which replaced the deposits sold in the Illinois Sale. In addition, the interest
expense related to the FN Holdings Senior Notes totalled $6 million in 1994. The
average balance of securities sold under agreements to repurchase and borrowings
outstanding for the years ended December 31, 1994 and 1993 was $1.5 billion and
$394 million, respectively. The weighted average interest rate on these
instruments increased to 6.46% in 1994 from 4.91% for 1993, primarily due to the
impact of increases in overall market interest rates between December 1993
through the date of the FN Acquisition and continued increasing rates thereafter
through year end 1994, as well as the issuance of the FN Holdings Senior Notes.
Net Interest Income. Net interest income before provision for loan losses
was $93 million for the year ended December 31, 1994, an increase of $73 million
from the year ended December 31, 1993. The interest rate spread increased to
2.02% in 1994 from .72% in 1993.
Noninterest Income. Total noninterest income, consisting primarily of
mortgage banking, customer banking and management fee income, was $41 million
for the year ended December 31, 1994, a decrease of $150 million from the year
ended December 31, 1993. Noninterest income in 1993 included gains of $165
million from the sales of branches and loans related to the First Gibraltar
Texas Sale. After adjusting for these gains, other noninterest income increased
$16 million from the year ended December 31, 1993 to December 31, 1994, which
represents the net of $25 million additional income related to operations
acquired in the FN Acquisition, offset by $9 million of income in 1993 related
to the operations included in the First Gibraltar Texas Sale.
Fees and service charges related to mortgage banking operations,
principally loan servicing income and borrower fees, were $10 million for the
year ended December 31, 1994, compared to $9 million for the year ended December
31, 1993. This increase is due to the addition of the mortgage banking
operations from the FN Acquisition, offset in part by the distribution of FGMH
to First Gibraltar Holdings (the then immediate parent of First Nationwide Bank)
in the first quarter of 1993. During 1994, the Issuer sold $47 million in
principally fixed rate single-family mortgage loans originated as part of the
Issuer's ongoing mortgage banking operations.
Fees and service charges related to retail banking operations, consisting
of depositor fees for transaction accounts, overdrafts, and miscellaneous other
fees, were $11 million for the year ended December 31, 1994 compared to $3
million for the year ended December 31, 1993. The increase of $8 million is
composed of
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$11 million in income related to retail banking operations acquired in the FN
Acquisition, offset in part by $3 million received in 1993 related to the retail
banking operations sold in the First Gibraltar Texas Sale.
Management fees, which were recorded as other noninterest income, totalled
$13 million for the year ended December 31, 1994, an increase of $5 million over
1993. This increase is due to a $3.5 million increase in disposition and other
fees for assets serviced by FGB Realty and $1.5 million in fees related to the
shared services and asset servicing contracts with Granite entered into in
conjunction with the FN Acquisition.
Noninterest Expense. Total noninterest expense was $96 million for the
year ended December 31, 1994, an increase of $33 million from the year ended
December 31, 1993, principally due to increased compensation, occupancy and SAIF
deposit insurance premiums, primarily related to the FN Acquisition.
Total compensation and employee benefits expense was $49 million for the
year ended December 31, 1994, an increase of $24 million from the year ended
December 31, 1993. This increase of $24 million is composed principally of a $32
million increase attributable to the FN Acquisition, offset in part by $5
million of the expense in 1993 related primarily to operations sold in the First
Gibraltar Texas Sale.
Occupancy and equipment expense was $12 million for the year ended December
31, 1994, an increase of $7 million from the year ended December 31, 1993. This
increase of $7 million is comprised principally of $9 million due to the FN
Acquisition, offset in part by $2 million of the expense represented by
operations sold in the First Gibraltar Texas Sale.
Extraordinary Item. The Issuer had a net gain on the early extinguishment
of FHLB advances of $1.4 million during the year ended December 31, 1994. Such
gain resulted from the prepayment of $95.2 million in FHLB advances.
Minority Interest--Hunter's Glen. Minority interest--Hunter's Glen for the
year ended December 31, 1994 of $4.3 million represents that portion of First
Nationwide Holdings' 1994 net income attributable to its class B common stock,
which is owned by Hunter's Glen.
PROVISION FOR FEDERAL AND STATE INCOME TAXES
During the years ended December 31, 1995, 1994 and 1993, the Issuer
recorded income tax (benefit) expense, excluding the tax effects associated with
extraordinary items in 1995 and 1994, of $(57.2) million, $2.6 million and $2.5
million, respectively. The Issuer's effective income tax rates were (47)%, 8%
and 2% in 1995, 1994, and 1993, respectively. The Issuer's federal income
statutory tax rate was 35% in 1995, 1994 and 1993. The difference between
effective and statutory rates was primarily the result of offsetting certain
deductions and losses with the receipt by the Issuer of non-taxable FSLIC/RF
assistance payments and, in 1995, the recognition of a deferred tax benefit
totalling $69 million. The non-taxable portions of the FSLIC/RF assistance
payments decreased to $5 million in 1995 from $9 million in 1994. During 1995,
the Issuer used the experience method for purposes of calculating its tax bad
debt reserve.
First Nationwide Bank, First Nationwide Holdings and Mafco Holdings are
parties to the FN Tax Sharing Agreement effective as of January 1, 1994,
pursuant to which (i) First Nationwide Bank will pay to First Nationwide
Holdings amounts equal to the taxes that First Nationwide Bank would be required
to pay if it were to file a return separately from the Mafco Group and (ii)
First Nationwide Holdings will pay to Mafco Holdings amounts equal to the taxes
that First Nationwide Holdings would be required to pay if it were to file a
consolidated return on behalf of itself and First Nationwide Bank separately
from the Mafco Group. The FN Tax Sharing Agreement allows First Nationwide Bank
to take into account, in determining its liability to First Nationwide Holdings,
any net operating losses that it would have been entitled to utilize if it had
filed separate returns for each year since the formation of First Nationwide
Bank. The FN Tax Sharing Agreement also allows First Nationwide Holdings to take
into account, in determining its liability to Mafco Holdings, any net operating
losses that it would have been entitled to utilize if it had filed a
consolidated return on behalf of itself and First Nationwide Bank for each year
since the formation of First Nationwide Bank. Accordingly, pursuant to the FN
Tax Sharing Agreement, the benefits of any net operating losses generated by
First Nationwide Bank since its formation are retained by First Nationwide Bank
and First Nationwide Holdings.
First Nationwide Bank has generated significant federal income tax net
operating losses since it was organized in December 1988. This is due, in part,
to the fact that under applicable federal income tax law, the financial
assistance received by First Nationwide Bank pursuant to the Assistance
Agreement was excluded from
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the taxable income of First Nationwide Bank. In addition to such tax-free
financial assistance, First Nationwide Bank has been entitled to its normal
operating deductions, including interest expense and certain losses relating to
its loan portfolio. As a result, First Nationwide Bank generated significant net
operating losses for federal income tax purposes even though its operations were
profitable. Furthermore, under the reorganization provisions of the Code, First
Nationwide Bank succeeded to certain net operating loss carryovers of the Texas
Closed Banks.
At December 31, 1995, if First Nationwide Holdings had filed a consolidated
tax return on behalf of itself (as common parent) and First Nationwide Bank for
each year since the formation of First Nationwide Bank, it would have had
approximately $2.6 billion of regular tax net operating losses and approximately
$992 million of AMT net operating losses, both of which First Nationwide
Holdings would have been entitled to utilize. A portion of such losses, to the
extent not previously used to offset income, would expire in the year 2002 and
thereafter and would fully expire in 2007. Under applicable tax law, only 90% of
a corporation's alternative minimum taxable income may be offset by carryovers
from other years. Thus, 10% of the alternative minimum taxable income earned by
First Nationwide Holdings in the current period will be subject to federal
income tax at an effective rate of 20%. For the year ended December 31, 1995
this resulted in federal income tax benefit, including the tax effects
associated with extraordinary items, of $68.7 million. Included in federal
income tax benefit for the year ended December 31, 1995 was the recognition of a
$69 million deferred tax benefit in the fourth quarter of 1995 and an adjustment
reducing prior years' tax expense by $1.7 million. It is not anticipated that
First Nationwide Holdings' liability for alternative minimum tax under the FN
Tax Sharing Agreement will be significant. Accordingly, it is expected that
under the FN Tax Sharing Agreement, First Nationwide Bank and First Nationwide
Holdings will be able to eliminate a significant portion of the amounts that
they otherwise would be required to pay to First Nationwide Holdings and Mafco
Holdings, respectively, in respect of federal income tax and, accordingly, it is
not expected that First Nationwide Bank or First Nationwide Holdings will record
significant amounts of federal income tax expense as members of the Mafco Group.
Payments made by First Nationwide Holdings under the FN Tax Sharing Agreement
with the Mafco Group during the year ended December 31, 1995 totalled $3.1
million. There were no such payments in 1994. Such payments may increase
significantly at such time as the net operating losses described above are
either used in full to offset income or expire.
TAX EFFECTS OF DIVIDEND PAYMENTS BY FIRST NATIONWIDE BANK
Dividend distributions made to First Nationwide Holdings, as the sole owner
of First Nationwide Bank's common stock, and to holders of the First Nationwide
Bank Preferred Stock, in each case in excess of First Nationwide Bank's
accumulated earnings and profits, as well as any distributions in dissolution or
in redemption or liquidation of stock, may cause First Nationwide Bank to
recognize a portion of its tax bad debt reserves as income and, accordingly,
could cause First Nationwide Bank to make payments to First Nationwide Holdings
under the FN Tax Sharing Agreement. As a result, First Nationwide Holdings may
be required to make payments to Mafco Holdings under the FN Tax Sharing
Agreement if First Nationwide Holdings has insufficient expenses and losses to
offset such income. First Nationwide Bank does not expect to generate
substantial amounts of federal taxable income (after taking into account its net
operating loss carryovers) from any recapture of its bad debt reserve.
Accordingly, the recapture of its bad debt reserve as a result of distributions
to stockholders, or of the redemption of stock, would not be expected to have a
material adverse effect on First Nationwide Bank.
TAXATION OF FIRST NATIONWIDE BANK
Under current law, First Nationwide Bank qualifies as a domestic building
and loan association for federal income tax purposes. Accordingly, First
Nationwide Bank is entitled to take its bad debts into account using the reserve
method of accounting under Section 593 of the Code. First Nationwide Bank
determines the amount of the appropriate addition to its bad debt reserves based
on the experience method of accounting of Section 593(b)(3), which is described
in Section 585(b)(2) of the Code, rather than on the percentage of taxable
income method described in Section 593(b)(2) of the Code.
Each of the Senate and House of Representatives has passed a bill which
includes a provision that, if enacted, would repeal Section 593 of the Code. In
addition, the President has proposed tax legislation that also includes a
provision repealing Section 593 of the Code which is substantially similar to
the provision passed by Congress. If tax legislation is ultimately enacted that
includes the repeal of Section 593 of the Code, the reserve
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method of accounting for bad debts would no longer be available to First
Nationwide Bank. Rather, First Nationwide Bank generally would be required to
take its bad debts into account using the specific charge-off method. Pursuant
to the specific charge-off method, First Nationwide Bank would be entitled to
take its bad debts into account in the taxable year during which such debts
become wholly or partially worthless. The repeal of Section 593 of the Code also
may require a domestic building and loan association, such as First Nationwide
Bank, to recapture a certain portion of its bad debt reserve into income under
certain circumstances and, accordingly, could cause First Nationwide Bank to
make payments to First Nationwide Holdings under the FN Tax Sharing Agreement.
As a result, First Nationwide Holdings may be required to make payments to Mafco
Holdings under the FN Tax Sharing Agreement if First Nationwide Holdings has
insufficient expenses and losses to offset such income. As of December 31, 1995,
First Nationwide Bank had tax bad debt reserves totalling $187 million, all of
which had been provided for in deferred tax liabilities. First Nationwide Bank
does not expect to generate substantial amounts of federal taxable income (after
taking into account its net operating loss carryovers) from any recapture of
First Nationwide Bank's bad debt reserve. Accordingly, the repeal of the reserve
method of accounting for bad debts, if enacted, would not be expected to have a
material adverse effect on First Nationwide Bank.
PROVISION FOR LOAN LOSSES
The adequacy of the allowance for loan losses is periodically evaluated by
management in order to maintain the allowance at a level that is sufficient to
absorb expected loan losses. The Issuer charges current earnings with a
provision for estimated credit losses on loans receivable. The provision
considers both specifically identified problem loans as well as credit risks not
specifically identified in the loan portfolio. The Issuer established provisions
for loan losses of $37 million, $6 million and $1 million for the years ended
December 31, 1995, 1994 and 1993, respectively. The allowance for loan losses is
increased by provisions for loan losses and decreased by charge-offs (net of
recoveries). See '--General--Accounting Changes.' The increase in the provision
for losses in 1995 over 1994 is due to the increased loan production activity
(primarily single-family residential) and loans acquired through acquisitions in
1995 compared to 1994.
A significant portion of the Issuer's loans are secured by real estate
located within California. Accordingly, the ultimate collectibility of those
loans is susceptible to changes in the economic conditions in such region.
Management's periodic evaluation of the adequacy of the allowance is based on
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, estimated value of
any underlying collateral, current prospective economic conditions, and the
remaining available balance under the Put Agreement. Real estate values could
also be affected by earthquakes.
Although management believes that its present allowance for loan losses is
adequate, it will continue to review its loan portfolio to determine the extent
to which any changes in economic conditions or loss experience may require
further provisions in the future.
ASSET AND LIABILITY MANAGEMENT
Financial institutions are subject to interest rate risk to the degree that
their interest-bearing liabilities, consisting principally of deposits,
securities sold under agreements to repurchase and FHLB advances, mature or
reprice more or less frequently, or on a different basis, than their
interest-earning assets. A key element of banking is the monitoring and
management of liquidity risk and interest rate risk. The process of planning and
controlling asset and liability mixes, volumes and maturities to influence the
net interest spread is referred to as asset and liability management. The
objective of the Issuer's asset and liability management is to maximize the net
interest yield within the constraints imposed by prudent lending and investing
practices, liquidity needs and capital planning.
The Issuer, through First Nationwide Bank, actively pursues investment and
funding strategies to minimize the sensitivity of its earnings to interest rate
fluctuations. First Nationwide Bank measures the interest rate sensitivity of
the balance sheet through gap and duration analysis, as well as net interest
income and market value simulation, and, after taking into consideration both
the variability of rates and the maturities of various instruments, evaluates
strategies which may reduce the sensitivity of its earnings to interest rate and
market value fluctuations. An important decision is the selection of
interest-bearing liabilities which best match interest rate changes in the loan
and investment portfolios. In order to reduce interest rate risk by increasing
the percentage of interest sensitive assets, First Nationwide Bank has continued
its emphasis on the origination of adjustable rate
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mortgage ('ARM') products for its portfolio. Where possible, First Nationwide
Bank seeks to originate real estate loans that reprice frequently and that on
the whole adjust in accordance with the repricing of its liabilities. In
general, most of the fixed rate real estate loans originated have been sold in
the secondary market and substantially all of the ARM loans ('ARMs') originated
prior to September 30, 1995 have been retained for the investment portfolio.
Subsequent to September 30, 1995, however, all of the ARMs originated were sold
in the secondary market in anticipation of the SFFed Acquisition. At December
31, 1995, approximately 83% of the Issuer's real estate loan portfolio consisted
of ARMs.
ARMs have from time to time been offered with low initial interest rates as
marketing inducements. In addition, most ARMs are also subject to periodic
interest rate adjustment caps or floors. In a period of rising interest rates,
ARMs could reach a periodic adjustment cap while still at a rate significantly
below their contractual margin over existing market rates. Since repricing
liabilities are typically not subject to such interest rate adjustment
constraints, the Issuer's net interest margin would most likely be negatively
impacted in this situation. Certain ARMs now offered by First Nationwide Bank
have a fixed monthly payment for a given period, with any changes as a result of
market interest rates reflected in the unpaid principal balance through negative
amortization. From the lender's perspective, these loans respond most quickly to
rate changes because interest accruals immediately reflect the loans as though
they were fully indexed. In general, the closer the interest rate on a portfolio
of ARMs is to the ultimate contractual margin over market rates, the more
sensitive the portfolio yield is to changes in market interest rates.
As a result of the FN Acquisition, First Nationwide Bank acquired the
rights and assumed the obligations of Old FNB under certain interest rate swap
agreements. Under the terms of these agreements, First Nationwide Bank pays the
variable rate based on LIBOR and receives fixed rates. During 1995 and 1994,
First Nationwide Bank's interest margin decreased by $12.9 million and $4.2
million, respectively, as a result of these interest rate swap agreements,
largely due to the amortization of the premium assigned to these agreements in
the FN Acquisition.
One of the most important sources of a financial institution's net income
is net interest income which is the difference between the combined yield earned
on interest-earning assets and the combined rate paid on interest-bearing
liabilities. Net interest income is also dependent on the relative balances of
interest-earning assets and interest-bearing liabilities.
A traditional measure of interest-rate risk within the savings industry is
the interest rate sensitivity gap, which is the sum of all interest-earning
assets minus the sum of all interest-bearing liabilities to be repriced within
the same period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds interest rate sensitive liabilities, while the opposite
results in a negative gap. During a period of rising interest rates, a negative
gap would tend to adversely affect net interest income, and a positive gap would
tend to result in an increase in net interest income, while the opposite would
tend to occur in a period of falling rates.
The following table sets forth the projected maturities based upon
contractual maturities as adjusted for projected prepayments and 'repricing
mechanisms' (provisions for changes in the interest rates of assets and
liabilities), and the impact of interest rate swap agreements as of December 31,
1995. Prepayment rates are assumed in each period on substantially all of the
Issuer's loan portfolio based upon expected loan prepayments. Repricing
mechanisms on the Issuer's assets are subject to limitations such as caps on the
amount that interest rates and payments on its loans may adjust and,
accordingly, such assets may not respond in the same manner or to the same
extent to changes in interest rates as the Issuer's liabilities. In addition,
the interest rate sensitivity of the Issuer's assets and liabilities illustrated
in the table would vary substantially if different assumptions were
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used or if actual experience differed from the assumptions set forth. The
Issuer's estimated interest rate sensitivity gap at December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
MATURITY/RATE SENSITIVITY
------------------------------------------
WITHIN OVER
1 YEAR 1-5 YEARS 5 YEARS TOTAL
------- --------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Interest-Earning Assets:
Securities held to maturity (1)(2)..................................... $ 159 $ -- $ -- $ 159
Mortgage-backed securities held to maturity (1)........................ 1,522 1 2 1,525
Loans and securities held for sale, net (3)............................ 3,029 -- -- 3,029
Loans receivable, net (1)(4)........................................... 7,675 556 639 8,870
Covered Assets, net (5)................................................ 39 -- -- 39
Investment in FHLB..................................................... 110 -- -- 110
------- --------- ------- -------
Total interest-earning assets..................................... 12,534 557 641 13,732
Noninterest-earning assets............................................. -- -- 914 914
------- --------- ------- -------
$12,534 $ 557 $ 1,555 $14,646
------- --------- ------- -------
------- --------- ------- -------
Interest-Bearing Liabilities:
Deposits (6)........................................................... $ 8,436 $ 1,759 $ 47 $10,242
Securities sold under agreements to repurchase (1)..................... 719 250 -- 969
FHLB advances (1)...................................................... 1,712 325 2 2,039
Other borrowings (1)................................................... 57 3 290 350
------- --------- ------- -------
Total interest-bearing liabilities................................ 10,924 2,337 339 13,600
Noninterest-bearing liabilities........................................ -- -- 283 283
Minority interest--preferred stock of First Nationwide Bank............ -- -- 301 301
Minority interest--Hunter's Glen....................................... -- -- 58 58
Stockholder's equity................................................... -- -- 404 404
------- --------- ------- -------
$10,924 $ 2,337 $ 1,385 $14,646
------- --------- ------- -------
------- --------- ------- -------
Gap before interest rate swap agreements............................... $ 1,610 $(1,780) $ 302 $ 132
Interest rate swap agreements (7)...................................... (400) 400 -- 0
------- --------- ------- -------
Gap adjusted for interest rate swap agreements......................... $ 1,210 $(1,380) $ 302 $ 132
------- --------- ------- -------
------- --------- ------- -------
Cumulative gap......................................................... $ 1,210 $ (170) $ 132 $ 132
------- --------- ------- -------
------- --------- ------- -------
Gap as a percentage of total assets.................................... 8.3% (9.4)% 2.1% 1.0%
Cumulative gap as a percentage of total assets......................... 8.3% (1.1)% 1.0% 1.0%
</TABLE>
- ------------------
(1) Based upon (a) contractual maturity, (b) instrument repricing date, if
applicable, and (c) projected repayments and prepayments of principal, if
applicable. Prepayments were estimated generally by using the prepayment
rates forecast by various large brokerage firms as of December 31, 1995. The
actual maturity and rate sensitivity of these assets could vary
substantially if future prepayments differ from the Issuer's prepayment
estimates.
(2) Consists of $32 million of interest-bearing deposits in other banks, $125
million of short-term investment securities and $2 million of securities
held to maturity.
(3) As loans held and securities available for sale may be sold within one year,
they are considered to be maturing within one year.
(4) Excludes allowance for loan losses of $210.5 million and nonaccrual loans of
$171.5 million.
(5) Covered Assets generally reprice quarterly according to the change in TCOF,
the composite cost of funds for thrift institutions in Texas. Because TCOF
is generally reported on a quarterly basis, the Covered Assets are included
within the one year time frame in this table.
(6) Fixed rate deposits and deposits with a fixed pricing interval are reflected
as maturing in the year of contractual maturity or first repricing date.
Money market deposit accounts, demand deposit accounts and passbook accounts
are reflected as maturing within one year.
(7) Agreements with a notional amount of $500 million and $250 million maturing
in April and September 1996, respectively, have no impact within the time
periods presented.
At December 31, 1995, interest-earning assets of the Issuer exceeded
interest-bearing liabilities by approximately $132 million.
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The maturity/rate sensitivity analysis is a static view of the balance
sheet with assets and liabilities grouped into certain defined time periods, and
thus only partially depicts the dynamics of First Nationwide Bank's sensitivity
to interest rate changes. Being at a point in time, this analysis may not fully
describe the complexity of relationships between product features and pricing,
market rates and future management of the balance sheet mix. First Nationwide
Bank utilizes computer modeling, under various interest rate scenarios, to
provide a dynamic view of the effects of the changes in rates, spreads, and
yield curve shifts on net interest income.
First Nationwide Bank's risk management policies are established by the
Asset/Liability Management Committee ('ALCO') of First Nationwide Bank. ALCO
meets monthly to formulate First Nationwide Bank's investment and risk
management strategies. The basic responsibilities of ALCO include management of
net interest income and market value of portfolio equity to measure the
stability of earnings, management of liquidity to provide adequate funding, and
the establishment of asset product priorities by formulating performance
evaluation criteria, risk evaluation techniques and a system to standardize the
analysis and reporting of originations, competitive trends, profitability and
risk. On a quarterly basis, the Board of Directors of First Nationwide Bank is
apprised of ALCO strategies adopted and their impact on operations. At least
annually, the Board of Directors of First Nationwide Bank reviews First
Nationwide Bank's interest rate risk management policy statements.
On November 15, 1995, the FASB issued the Special Report. On December 29,
1995, First Nationwide Holdings reclassified substantially all of its securities
and mortgage-backed securities from held to maturity to available for sale. The
impact on the gap schedule of reclassifying securities from the held-to-maturity
portfolio to the available-for-sale portfolio is to shorten the maturity and
interest rate sensitivity of such assets. See '--General--Accounting Changes.'
LIQUIDITY
The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U.S. government and other specified securities to deposits
and borrowings due within one year. The OTS has currently established a minimum
liquidity requirement of 5.0%. First Nationwide Bank's liquidity ratio was 5.46%
and 5.62% at December 31, 1995 and 1994, respectively.
A major source of First Nationwide Bank's funding is expected to be its
retail deposit branch network, which management believes will be sufficient to
meet its long-term liquidity needs. The ability of First Nationwide Bank to
retain and attract new deposits is dependent upon the variety and effectiveness
of its customer account products, customer service and convenience, and rates
paid to customers. First Nationwide Bank also obtains funds from the repayment
and maturities of loans and mortgage-backed securities, and from the disposition
of primarily Covered Assets (including assistance payments from the FSLIC/RF),
while additional funds can be obtained from a variety of sources including
customer and Brokered Deposits, loan sales, securities sold under agreements to
repurchase, FHLB advances, and other secured and unsecured borrowings. It is
anticipated that FHLB advances and securities sold under agreements to
repurchase will be secondary sources of funding, and management expects there to
be adequate collateral for such funding requirements. The FN Acquisition
decreased First Nationwide Bank's reliance on Brokered Deposits as a source of
funds.
First Nationwide Bank's primary uses of funds are the origination or
purchase of loans, the funding of First Nationwide Bank's maturing certificates
of deposit and demand deposit withdrawals, and the repayment of borrowings.
Certificates of deposit scheduled to mature during the twelve months ending
December 31, 1996 total $4.9 billion. First Nationwide Bank may renew these
certificates, attract new replacement deposits, replace such funds with other
borrowings, or it may elect to shrink the balance sheet. In addition, at
December 31, 1995, First Nationwide Bank had FHLB advances and other borrowings
of $1.5 billion maturing within twelve months. First Nationwide Bank may elect
to pay off such debt or to replace borrowings with additional FHLB advances or
other borrowings at prevailing rates.
First Nationwide Bank has entered into various contracts in connection with
the Branch Sales and the Home Federal Acquisition. First Nationwide Bank
currently has sufficient borrowing capacity to fund these transactions. This
additional funding may take the form of additional borrowings under reverse
repurchase agreements, additional advances from the FHLB, or increased cash
raised through the remaining retail deposit network. First Nationwide Bank
expects to finance the Home Federal Acquisition with existing cash and, if
necessary, proceeds from additional borrowings. Net cash flow from operations,
together with these additional funding sources, is expected to be adequate to
maintain liquidity above the required levels.
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During 1994, First Nationwide Bank issued 3,007,300 shares of the First
Nationwide Bank Preferred Stock. Cash dividends on First Nationwide Bank
Preferred Stock are noncumulative and are payable at an annual rate of 11 1/2%
if, when, and as declared by the Board of Directors of First Nationwide Bank.
The payment of dividends by First Nationwide Bank is subject to certain federal
laws applicable to savings associations. First Nationwide Bank Preferred Stock
dividends totalling $34.6 million were declared and paid during 1995.
During 1995, the FSLIC/RF purchased substantially all remaining Covered
Assets at the fair market value of such assets in the FDIC Purchase. Any losses
sustained by First Nationwide Bank from this directed purchase were reimbursed
under the Capital Loss Coverage provision of the Assistance Agreement. See
'Business--Other Activities--The Assistance Agreement.' Proceeds from this
transaction were reinvested in the normal course of business. As a result of the
FDIC Purchase, First Nationwide Bank's reliance on dispositions of Covered
Assets as a source of funds has been substantially eliminated.
In the FN Acquisition, First Nationwide Bank assumed $92.1 million of Old
FNB's Subordinated Debentures which have an annual interest rate of 10% and an
annual interest cost of $9.2 million. In the SFFed Acquisition, First Nationwide
Bank assumed $50 million of the SFFed Notes which have an annual interest rate
of 11.20% and an annual interest cost of $5.6 million.
The Issuer anticipates that cash and cash equivalents on hand, the cash
flow from assets as well as other sources of funds will provide adequate
liquidity for First Nationwide Bank's operating, investing and financing needs
and its regulatory liquidity requirements in the foreseeable future. In addition
to cash and cash equivalents of $312.6 million at December 31, 1995, First
Nationwide Bank has substantial additional secured borrowing capacity with the
FHLB and other sources.
Net cash used in operating activities for the year ended December 31, 1995
totalled $430 million, an increase of $393 million from the year ended December
31, 1994. The increase is principally due to the increase in loans held for sale
due to the additional production capacity from the Maryland Acquisition and the
LMUSA 1995 Purchase.
Net cash used in operating activities for the year ended December 31, 1994
totalled $37.2 million, a decrease of $5.3 million from the year ended December
31, 1993.
Net cash provided by investing activities for the year ended December 31,
1995 totalled $1.7 billion, an increase of $1.7 billion from the year ended
December 31, 1994. Cash flows provided by investing activities included $272
million from the FDIC Purchase and other dispositions of the Covered Assets,
principal payments on mortgage-backed securities totalling $571 million and
proceeds from maturities of securities of $344 million. Proceeds from sales of
loans receivable, including loans sold to Granite pursuant to the Put Agreement
of $199.5 million, totalled $431 million. Redemptions of FHLB stock provided $26
million, and proceeds from sales of foreclosed real estate provided $71 million.
Proceeds from the Branch Purchases provided $501 million. Cash flows used in
investing activities included $215 million for the Maryland Acquisition and
LMUSA 1995 Purchase, purchases of securities of $158 million, purchases of $20
million in mortgage-backed securities, a net increase in loans receivable of $86
million, and purchases of office premises and equipment of $15 million.
Net cash used in investing activities for the year ended December 31, 1994
totalled $1 million, a decrease of $3.6 billion from the year ended December 31,
1993. The decrease was due largely to the purchase of securities totalling $3.5
billion in early 1993 from proceeds obtained from prior year sales of loans and
mortgage-backed securities in preparation for the First Gibraltar Texas Sale.
Funds used in the FN Acquisition totalled $527 million, representing the
purchase price paid at closing of $715 million, less cash and cash equivalents
acquired of $188 million. Other uses included purchases of securities during
1994 of $158 million, purchases of $64 million in mortgage-backed securities,
and a net $69 million increase in loans receivable. Funds provided by investing
activities included a $280 million decline in Covered Assets resulting from
dispositions, principal payments on mortgage-backed securities totalling $178
million and proceeds from maturities of securities of $109 million. Proceeds
from sales of loans receivable, including loans sold to Granite pursuant to the
Put Agreement of $104 million, totalled $155 million. Proceeds from the Illinois
Sale provided $31 million, redemptions of FHLB stock provided $28 million, and
proceeds from sales of foreclosed real estate provided $26 million.
Net cash used in financing activities for the year ended December 31, 1995
totalled $1.2 billion. Principal payments on borrowings totalled $6.9 billion
and the net decrease in securities sold under agreements to repurchase totalled
$913 million. Cash flows provided by financing activities included increases in
deposits
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(other than the Branch Purchases) of $543 million and additional borrowings of
$6.2 billion. Additionally, dividends on and redemptions of First Nationwide
Holdings' class C common stock were $29 million and $61 million, respectively.
Net cash provided by financing activities for the year ended December 31,
1994 totalled $183 million. The issuance of First Nationwide Bank Preferred
Stock, First Nationwide Holdings' class C common stock and the FN Holdings
Senior Notes in connection with the FN Acquisition provided $289 million,
approximately $210 million and approximately $190 million, respectively. These
funds were partially offset by an overall net decrease in borrowings and
securities sold under agreements to repurchase of $232 million. Additionally,
deposits decreased $84 million as Brokered Deposits were allowed to mature.
First Nationwide Holdings' primary source of cash to pay the interest on
and principal of the $200 million aggregate principal amount of FN Holdings
Senior Notes and the $140 million aggregate principal amount of FN Holdings
Subordinated Notes and the Issuer's primary source of cash to pay the interest
on and principal of the Notes is expected to be distributions from First
Nationwide Bank. The annual interest on the FN Senior Notes is $24.5 million,
the annual interest on the FN Holdings Subordinated Notes is $12.8 million and
the annual interest on the Notes is expected to be $56.9 million.
The terms of First Nationwide Bank Preferred Stock provide that First
Nationwide Bank may not declare or pay any dividends or other distributions
(other than in shares of common stock of First Nationwide Bank or other Junior
Stock) with respect to any Junior Stock or repurchase, redeem or otherwise
acquire, or set apart funds for the repurchase, redemption or other acquisition
of any Junior Stock (including the common stock held by First Nationwide
Holdings) through a sinking fund or otherwise, unless and until (i) First
Nationwide Bank has paid full dividends on First Nationwide Bank Preferred Stock
for the four most recent dividend periods or funds have been paid over to the
dividend disbursing agent of First Nationwide Bank for payment of such
dividends, and (ii) First Nationwide Bank has declared a cash dividend on First
Nationwide Bank Preferred Stock at the annual dividend rate for the current
dividend period, and sufficient funds have been paid over to the dividend
disbursing agent of First Nationwide Bank for the payment of a cash dividend for
such current dividend period. First Nationwide Bank is currently in compliance
with both of such requirements.
The Issuer currently anticipates that, in order to pay the principal amount
of the Notes upon the occurrence of an Event of Default or to redeem or
repurchase the Notes upon a Change of Control Put Event or, in the event that
earnings from First Nationwide Holdings are not sufficient to make distributions
to the Issuer to enable it to pay the principal amount of the Notes at maturity,
the Issuer may be required to adopt one or more alternatives, such as borrowing
funds, selling its equity securities, or the equity securities or assets of
First Nationwide Bank, or seeking capital contributions or loans from its
affiliates. None of the affiliates of the Issuer are required to make any
capital contributions or other payments to the Issuer with respect to the
Issuer's obligations on the Notes. First Nationwide Holdings may be required to
adopt similar alternatives in order to pay the principal amount of the FN
Holdings Notes. There can be no assurance that any of the foregoing actions
could be effected on satisfactory terms, that any of the foregoing actions would
enable the Issuer to pay the principal amount of the Notes, or would enable
First Nationwide Holdings to pay the principal amount of the FN Holdings Notes,
or that any of such actions would be permitted by the terms of the Indenture,
the FN Holdings Indentures or any other debt instruments of the Issuer or the
Issuer's subsidiaries then in effect, by the terms of the First Nationwide Bank
Preferred Stock or under applicable federal thrift laws or regulations. The
events that constitute a Change of Control Put Event under the Indenture will,
with few exceptions, also permit the holders of FN Holdings Notes to require
First Nationwide Holdings to repurchase such indebtedness.
The terms of the FN Holdings Indentures generally limit distributions (and
other Restricted Payments (as defined therein)) to 75% of the consolidated net
income of First Nationwide Holdings and require, among other things, that, in
order for First Nationwide Holdings to distribute any cash to the Issuer or
otherwise make any Restricted Payment, after giving effect to such distribution
or payment First Nationwide Bank must be 'well capitalized' under applicable OTS
regulations and the Consolidated Common Shareholders' Equity (as defined
therein) of First Nationwide Bank must be at least equal to the Minimum Common
Equity Amount (as defined therein). The FN Holdings Indentures and the Indenture
permit First Nationwide Holdings to loan funds to any affiliate, including the
Issuer, provided that the Consolidated Common Shareholders' Equity of First
Nationwide Bank be at least equal to the Minimum Common Equity Amount and that
the terms of any such loan be on terms that would be obtainable in arm's length
dealings. Subject to such restrictions, such loans may consist of any and
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all funds available to First Nationwide Holdings, whether or not such funds may
be distributed (or otherwise paid as a Restricted Payment) pursuant to the terms
of the FN Holdings Indentures. See 'Description of Other Indebtedness.'
The terms of the Indenture generally permit the Issuer to make
distributions (and other Restricted Payments) of up to 65% of the consolidated
net income of the Issuer if, after giving effect to such distribution or
payment, (i) First Nationwide Bank is 'well capitalized' under applicable OTS
regulations and (ii) the Consolidated Common Shareholders' Equity of First
Nationwide Bank is at least equal to the Minimum Common Equity Amount. The
Issuer is able to loan funds to its affiliates pursuant to the Indenture
provided that the Consolidated Common Shareholders' Equity of First Nationwide
Bank is at least equal to the Minimum Common Equity Amount and the terms of any
such loan are on terms that would be obtainable in arm's length dealings.
Subject to such restrictions, such loans may consist of any and all funds
available to the Issuer, whether or not such funds may be distributed (or
otherwise paid as a Restricted Payment) pursuant to the terms of the Indenture.
See 'Description of the Notes--Certain Covenants.' Accordingly, there can be no
assurance that, notwithstanding the receipt by the Issuer of sufficient funds to
enable it to pay the principal amount of the Notes at maturity, the Issuer will
have funds available to pay the principal amount of the Notes at maturity or
prior to maturity upon the occurrence of an Event of Default or to redeem or
repurchase the Notes upon a Change of Control Put Event.
First Nationwide Holdings is a holding company with no business operations
of its own. If indebtedness of First Nationwide Holdings or its subsidiaries
were to be accelerated, there could be no assurance that the assets of First
Nationwide Holdings or its subsidiaries, as the case may be, would be sufficient
to repay in full borrowings under all of such debt instruments or that First
Nationwide Bank would be able to distribute funds to permit First Nationwide
Holdings to provide sufficient funds to the Issuer to permit the Issuer to pay
interest on the Notes. First Nationwide Holdings' only significant asset is all
of the common stock of First Nationwide Bank.
The terms and conditions of the Indenture and the FN Holdings Indentures
impose restrictions that affect, among other things, the ability of the Issuer
or First Nationwide Holdings, as the case may be, to incur debt, pay dividends
or make distributions, engage in a business other than holding the common stock
of First Nationwide Holdings, in the case of the Issuer, or of First Nationwide
Bank and similar banking institutions, in the case of First Nationwide Holdings,
make acquisitions, create liens, sell assets and make certain investments. The
ability of the Issuer and its subsidiaries to comply with the foregoing
provisions can be affected by events beyond their control. The breach of any of
these covenants could result in a default under one or more of the debt
instruments of the Issuer or its subsidiaries. In the event of a default under
any indebtedness of the Issuer or its subsidiaries, the holders of such
indebtedness could elect to declare all amounts outstanding under their
respective debt instruments to be due and payable. Any such declaration under a
debt instrument of the Issuer or its subsidiaries is likely to result in an
event of default under one or more of the other debt instruments of the Issuer
or its subsidiaries. If indebtedness of the Issuer or its subsidiaries were to
be accelerated, there could be no assurance that the assets of the Issuer or its
subsidiaries, as the case may be, would be sufficient to repay in full
borrowings under all of such debt instruments, including the Notes. See 'Risk
Factors--Indebtedness and Ability to Pay Principal of the Notes,' 'Business
- --Sources of Funds--Old FNB Debentures,' 'Description of the Notes' and
'Description of Other Indebtedness.'
Any right of the Issuer and its creditors, including holders of the Notes,
to participate in the assets of any of the Issuer's subsidiaries, including
First Nationwide Holdings and First Nationwide Bank, upon any liquidation or
reorganization of any such subsidiary will be subject to the prior claims of
that subsidiary's creditors, including First Nationwide Bank's depositors and
trade creditors (except to the extent that the Issuer may itself be a creditor
of such subsidiary). Accordingly, the Notes will be effectively subordinated to
(i) all existing and future liabilities, including deposits, indebtedness and
trade payables, of the Issuer's subsidiaries, including First Nationwide
Holdings and First Nationwide Bank, and (ii) all preferred stock issued by First
Nationwide Bank, including the First Nationwide Bank Preferred Stock. The Notes
will also be effectively subordinated to obligations of First Nationwide
Holdings under the FN Tax Sharing Agreement. At December 31, 1995, after giving
effect to the SFFed Acquisition, the Branch Sales, the LMUSA 1996 Purchase and
the FN Holdings Subordinated Notes Offering, the outstanding interest-bearing
liabilities, including deposits, of such subsidiaries would have been
approximately $17.1 billion, the other liabilities of such subsidiaries,
including trade payables and accrued expenses, would have been approximately
$488 million, and there would have been approximately $301 million aggregate
liquidation value of First Nationwide Bank Preferred Stock outstanding. The
aggregate amount of indebtedness, other liabilities and preferred stock of the
Issuer's subsidiaries will not be affected by
60
<PAGE>
the Offering or the use of the net proceeds. See 'Use of Proceeds.' In the event
of the liquidation or dissolution of First Nationwide Bank, the holders of First
Nationwide Bank Preferred Stock will have preference over the Issuer, as the
indirect holder of all of the common stock of First Nationwide Bank, with
respect to the assets of First Nationwide Bank.
IMPACT OF INFLATION AND CHANGING PRICES
The business of the Issuer is generally not affected by inflation in the
short run, but may be affected by inflation in the long run. Prevailing interest
rates have a more significant impact on the Issuer's performance than does the
general level of inflation. While interest rates may bear some relationship to
the general level of inflation (particularly in the long run), over short
periods of time interest rates may not necessarily move in the same direction or
change in the same magnitude as the general level of inflation.
NON-PERFORMING ASSETS AND IMPAIRED LOANS
Pursuant to SFAS No. 114, as amended by SFAS No. 118, effective January 1,
1995, loans collectively reviewed for impairment by the Issuer include all
single family loans, and performing multi-family and commercial real estate
loans under $500,000, excluding loans which have entered the workout process.
The adoption of SFAS No. 114, as amended by SFAS No. 118, had no material impact
on the Issuer's Consolidated Financial Statements as the Issuer's existing
policy of measuring loan impairment is consistent with methods prescribed in
these standards. See '--General--Accounting Changes.'
The Issuer considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Issuer will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. Any insignificant delay (i.e., 60 days or less) or insignificant
shortfall in amount of payments will not cause a loan to be considered impaired.
In determining impairment, the Issuer considers large non-homogeneous loans
including nonaccrual loans, troubled debt restructurings, and performing loans
which exhibit, among other characteristics, high LTV ratios, low debt-coverage
ratios, or other indications that the borrowers are experiencing increased
levels of financial difficulty. The Issuer bases the measurement of
collateral-dependent impaired loans, which represents substantially all of the
Issuer's loan portfolio, on the fair value of the loan's collateral. The amount,
if any, by which the recorded investment of the loan exceeds the measure of the
impaired loan's value is recognized by recording a valuation allowance.
At December 31, 1995, the carrying value of loans that are considered to be
impaired under SFAS No. 114 totalled $125.4 million (of which $29.6 million were
on nonaccrual status).
The following table presents the amounts, net of purchase accounting
adjustments, of the Issuer's nonaccrual loans, foreclosed real estate, troubled
debt restructurings, and impaired loans as of the dates indicated. These
categories are not mutually exclusive; certain loans are included in more than
one classification.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------------- --------------------------------------
NONACCRUAL IMPAIRED RESTRUCTURED NONACCRUAL IMPAIRED RESTRUCTURED
---------- -------- ------------ ---------- -------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Real Estate:
1-4 unit residential................ $136 $ -- $ 8 $133 $ -- $ 19
5+ unit residential................. 23 73 147 24 -- 204
Commercial and other................ 9 52 79 11 -- 110
Land................................ -- -- -- 7 -- --
Construction........................ -- -- -- 2 -- --
---------- -------- ------ ---------- -------- ------
Total real estate................ 168 125 234 177 -- 333
Non-real estate....................... 3 -- -- 4 -- --
---------- -------- ------ ---------- -------- ------
Total loans...................... 171 $125(a) $234(b) 181 $ -- $333(b)
-------- ------ -------- ------
-------- ------ -------- ------
Foreclosed real estate, net........... 49 37
---------- ----------
Total non-performing assets...... $220 $218
---------- ----------
---------- ----------
</TABLE>
- ------------------
(a) Includes $29.6 million of loans on nonaccrual status and $31.9 million of
loans classified as troubled debt restructurings.
(Footnotes continued on next page)
61
<PAGE>
(Footnotes continued from previous page)
(b) Includes nonaccrual loans of $1.2 million and $10 million at December 31,
1995 and 1994, respectively. At December 31, 1995, $1.1 million of these
nonaccrual, troubled debt restructurings was also considered impaired under
SFAS No. 114.
There were no accruing loans contractually past due 90 days or more at
December 31, 1995 or 1994.
The Issuer's non-performing assets, consisting of nonaccrual loans, net of
purchase accounting adjustments, and foreclosed real estate, net, increased
slightly to $220 million at December 31, 1995, compared with $218 million at
December 31, 1994. Non-performing assets as a percentage of the Issuer's total
assets increased slightly to 1.50% at December 31, 1995, from 1.49% of total
assets at December 31, 1994. During 1995, $199.5 million of assets were sold to
Granite under the Put Agreement, leaving a remaining available balance under the
Put Agreement of $112.4 million. Of the $220.1 million in non-performing assets
at December 31, 1995, approximately $13.5 million were eligible to be sold to
Granite pursuant to the Put Agreement.
The Issuer, through First Nationwide Bank, continuously manages its credit
risk by assessing the current and estimated future performance of the real
estate markets in which it operates. First Nationwide Bank continues to place a
high degree of emphasis on the management of its asset portfolio. First
Nationwide Bank has three distinct asset management functions: performing loan
asset management, problem loan asset management and credit review. These three
functions are charged with the responsibility of reducing the risk profile
within the residential, commercial and multi-family asset portfolios by applying
asset management and risk evaluation techniques that are consistent with First
Nationwide Bank's portfolio management strategy and regulatory requirements. In
addition to these asset management functions, First Nationwide Bank has a
specialized credit risk management group that is charged with development of
credit policies and performing credit risk analyses for all asset portfolios.
The following table presents non-performing real estate assets by
geographic region of the country as of December 31, 1995:
<TABLE>
<CAPTION>
NONACCRUAL FORECLOSED TOTAL NON-
REAL ESTATE REAL ESTATE, PERFORMING REAL GEOGRAPHIC
LOANS, NET(2) NET(2) ESTATE ASSETS CONCENTRATION
------------- ------------ ------------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Region:
California.............................. $ 75 $ 35 $110 50.7%
Northeast(1)............................ 46 11 57 26.3
Other regions........................... 47 3 50 23.0
------ --- ------ ------
Total................................ $ 168 $ 49 $217 100.0%
------ --- ------ ------
------ --- ------ ------
</TABLE>
- ------------------
(1) Includes Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, New
York, Pennsylvania, Rhode Island and Vermont.
(2) Net of purchase accounting adjustments.
62
<PAGE>
The level of non-performing assets is directly affected by economic
conditions throughout the country. The following table indicates nonaccrual real
estate loans, net of purchase accounting adjustments, by collateral type and
state concentration as of December 31, 1995:
<TABLE>
<CAPTION>
1-4 UNIT 5+ UNIT COMMERCIAL TOTAL
RESIDENTIAL RESIDENTIAL AND OTHER NONACCRUAL
----------------- ----------------- ----------------- REAL ESTATE % OF
STATE VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED LOANS TOTAL
- ------------------------------------- -------- ----- -------- ----- -------- ----- ----------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California........................... $ 53 $ 4 $ 10 $ 1 $7 -- $ 75 44.64%
New York............................. 27 2 1 1 -- -- 31 18.45
Ohio................................. 3 2 2 4 -- -- 11 6.55
Hawaii............................... 10 1 -- -- -- -- 11 6.55
New Jersey........................... 7 2 -- -- -- -- 9 5.36
Illinois............................. 2 1 -- 3 1 -- 7 4.17
Florida.............................. 2 3 -- -- 1 -- 6 3.57
Pennsylvania......................... 2 -- -- 1 -- -- 3 1.79
Connecticut.......................... 2 -- -- -- -- -- 2 1.19
Massachusetts........................ 1 1 -- -- -- -- 2 1.19
Other states(1)...................... 8 3 -- -- -- -- 11 6.54
--
-------- ----- ---- ----- -- ----- ----------- ------
Total.............................. $117 $19 $ 13 $10 $9 $-- $ 168 100.00%
-------- ----- ---- ----- -- ----- ----------- ------
-------- ----- ---- ----- -- ----- ----------- ------
</TABLE>
- ------------------
(1) There are 27 states, Puerto Rico, and the District of Columbia, of which no
one state had nonaccrual loans in excess of 1% of the total.
At December 31, 1995, First Nationwide Bank's largest non-performing asset
was approximately $6.3 million, and it had approximately nine non-performing
assets over $2 million in size with balances averaging approximately $3.6
million. First Nationwide Bank has approximately 1,750 non-performing assets
below $2 million in size, including approximately 1,600 non-performing 1-4 unit
residential assets.
The following table indicates outstanding balances of troubled debt
restructured loans, net of purchase accounting adjustments, by collateral type,
interest rate type and state concentration as of December 31, 1995:
<TABLE>
<CAPTION>
1-4 UNIT 5+ UNIT COMMERCIAL TOTAL
RESIDENTIAL RESIDENTIAL AND OTHER TROUBLED
----------------- ----------------- ----------------- DEBT % OF
STATE VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED RESTRUCTURED TOTAL
- ------------------------------------ -------- ----- -------- ----- -------- ----- ------------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California.......................... $ 1 $ 5 $ 29 $ 5 $ 19 $23 $ 82 35.04%
New York............................ -- 1 3 35 -- 22 61 26.07
New Jersey.......................... -- -- 16 2 -- -- 18 7.69
Pennsylvania........................ -- -- 17 1 -- -- 18 7.69
Florida............................. -- -- 4 1 8 -- 13 5.56
Missouri............................ -- -- 1 3 5 -- 9 3.85
Georgia............................. -- -- -- 6 -- -- 6 2.56
Texas............................... -- -- 2 4 -- -- 6 2.56
Other states(1)..................... -- 1 4 14 1 1 21 8.98
-------- ----- ---- ----- ---- ----- ------ ------
Total............................. $ 1 $ 7 $ 76 $71 $ 33 $46 $234 100.00%
-------- ----- ---- ----- ---- ----- ------ ------
-------- ----- ---- ----- ---- ----- ------ ------
</TABLE>
- ------------------
(1) There are 12 states of which no one state had troubled debt restructured
loans in excess of 2% of the total.
63
<PAGE>
The following table indicates outstanding balances of impaired loans, net
of purchase accounting adjustments, by collateral type, interest rate type and
state concentration as of December 31, 1995:
<TABLE>
<CAPTION>
5+ UNIT COMMERCIAL
RESIDENTIAL AND OTHER
----------------- ----------------- TOTAL % OF
STATE VARIABLE FIXED VARIABLE FIXED IMPAIRED TOTAL
- --------------------------------------------------------- -------- ----- -------- ----- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
California............................................... $ 29 $ 3 $ 38 $10 $ 80 64.00%
New York................................................. 4 12 1 -- 17 13.60
Georgia.................................................. -- 6 -- -- 6 4.80
Ohio..................................................... 2 4 -- -- 6 4.80
Arizona.................................................. 1 3 -- -- 4 3.20
Illinois................................................. -- 4 1 -- 5 4.00
Other states(1).......................................... 2 3 1 1 7 5.60
---- ----- ---- ----- -------- ------
Total.................................................. $ 38 $35 $ 41 $11 $125 100.00%
---- ----- ---- ----- -------- ------
---- ----- ---- ----- -------- ------
</TABLE>
- ------------------
(1) There are 8 states, of which no one state had impaired loans in excess of
1.5% of the total.
A summary of the activity in the allowance for loan losses by loan type is
as follows for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
5+ UNIT
RESIDENTIAL CONSUMER
1-4 UNIT AND COMMERCIAL AND
RESIDENTIAL REAL ESTATE OTHER TOTAL
----------- -------------- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Balance--December 31, 1993............................ $ 2 $ -- $ -- $ 2
Purchases-FN Acquisition............................ 108 84 10 202
Provision for loan losses........................... 3 3 -- 6
Charge-offs......................................... (4) (4) (1) (9)
Recoveries.......................................... 2 -- -- 2
----------- ------ -------- -----
Balance--December 31, 1994............................ 111 83 9 203
Provision for loan losses........................... 31 3 3 37
Charge-offs......................................... (27) (1) (5) (33)
Recoveries.......................................... 1 -- 2 3
----------- ------ -------- -----
Balance--December 31, 1995............................ $ 116 $ 85 $ 9 $ 210
----------- ------ -------- -----
----------- ------ -------- -----
Ratio of allowance for loan losses to non-performing
loans:
December 31, 1993................................... 100.0% -- -- 18.2%
----------- ------ -------- -----
----------- ------ -------- -----
December 31, 1994................................... 83.5% 188.6% 225.0% 112.2%
----------- ------ -------- -----
----------- ------ -------- -----
December 31, 1995................................... 85.3% 261.9% 290.0% 122.7%
----------- ------ -------- -----
----------- ------ -------- -----
</TABLE>
For additional discussion on the non-performing assets of the Issuer, see
'Business--Non-performing Assets.'
CAPITAL RESOURCES
OTS capital regulations require savings banks to satisfy three minimum
capital requirements: tangible capital, core (leverage) capital and risk-based
capital. In general, an institution's tangible capital, which must be at least
1.5% of adjusted total assets, is the sum of common stockholder's equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interest in equity accounts of fully consolidated subsidiaries, less
most intangible assets. An institution's ratio of core capital to adjusted total
assets (the 'leverage capital ratio') must be at least 3%. Core capital
generally is the sum of tangible capital plus certain other qualifying
intangibles. Under the risk-based capital requirement, a savings bank must have
total capital (core capital plus supplementary capital) equal to at least 8% of
risk-weighted assets (which includes the credit risk equivalent of certain
off-balance sheet items). Supplementary capital, which may not exceed 100% of
core
64
<PAGE>
capital for purposes of the risk-based requirements, includes, among other
things, certain permanent capital instruments such as qualifying cumulative
perpetual preferred stock, as well as some forms of maturing capital
instruments, such as qualifying subordinated debt. These capital requirements
are applicable to First Nationwide Bank but not to the Issuer. See
'Regulation--Regulation of Federal Savings Banks--Regulatory Capital
Requirements.'
At December 31, 1995, First Nationwide Bank's regulatory capital levels
exceeded the minimum regulatory capital requirements, with tangible, leverage
and total risk-based capital ratios of 5.84%, 5.84% and 11.34%, respectively.
The following is a reconciliation of First Nationwide Bank's stockholders'
equity to regulatory capital as of December 31, 1995:
<TABLE>
<CAPTION>
TANGIBLE RISK-BASED
CAPITAL CORE CAPITAL CAPITAL
-------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity of First Nationwide Bank................... $959,885 $959,885 $ 959,885
Unrealized holding gain on securities available for sale, net... (63,512) (63,512) (63,512)
Non-qualifying loan-servicing rights............................ (24,136) (24,136) (24,136)
Non-allowable capital:
Intangible assets............................................. (18,606) (18,606) (18,606)
Investment in subsidiaries.................................... (307) (307) (307)
Supplemental capital:
Qualifying subordinated debt debentures....................... -- -- 89,600
General loan loss reserves.................................... -- -- 117,854
Assets required to be deducted:
Land loans with more than 80% LTV ratio....................... -- -- (2,290)
-------- ------------ ----------
Regulatory capital of First Nationwide Bank..................... 853,324 853,324 1,058,488
Minimum regulatory capital requirement.......................... 219,224 438,449 746,938
-------- ------------ ----------
Excess above minimum capital requirement........................ $634,100 $414,875 $ 311,550
-------- ------------ ----------
-------- ------------ ----------
<CAPTION>
TANGIBLE LEVERAGE RISK-BASED
CAPITAL CAPITAL CAPITAL
RATIO RATIO RATIO
-------- ------------ ----------
<S> <C> <C> <C>
Regulatory capital of First Nationwide Bank..................... 5.84% 5.84% 11.34%
-------- ------------ ----------
Minimum regulatory capital requirement.......................... 1.50 3.00 8.00
-------- ------------ ----------
Excess above minimum capital requirement........................ 4.34% 2.84% 3.34%
-------- ------------ ----------
-------- ------------ ----------
</TABLE>
The amount of adjusted total assets used for the tangible and leverage
capital ratios is $14.6 billion. Risk-weighted assets used for the risk-based
capital ratio amounted to $9.3 billion.
First Nationwide Bank is also subject to the provisions of the FDICIA,
which, among other things, define specific capital categories based on an
institution's capital ratios. The capital categories, in declining order, are
'well capitalized,' 'adequately capitalized,' 'undercapitalized,' 'significantly
undercapitalized' and 'critically undercapitalized.' Institutions categorized as
'undercapitalized' or worse are subject to certain restrictions, including the
requirement to file a capital plan with the OTS, prohibitions on the payment of
dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. Other restrictions may be
imposed on the institution either by the OTS or by the FDIC, including
requirements to raise additional capital, sell assets, or sell the entire
institution. Once an institution becomes 'critically undercapitalized' it is
generally placed in receivership or conservatorship within 90 days.
To be considered 'well capitalized,' a savings institution must generally
have a leverage capital ratio of at least 5%, a Tier 1 (core capital) risk-based
capital ratio of at least 6%, and a total risk-based capital ratio of at least
10%. An institution is deemed to be 'critically undercapitalized' if it has a
tangible equity ratio of 2% or less. At December 31, 1995, First Nationwide
Bank's leverage capital, Tier 1 (core capital) risk-based and total risk-based
capital ratios were sufficient for it to be considered 'well capitalized':
65
<PAGE>
<TABLE>
<CAPTION>
RISK-BASED
-----------------------
LEVERAGE CAPITAL TIER 1 TOTAL CAPITAL
---------------- ------ -------------
<S> <C> <C> <C>
Regulatory capital of First Nationwide Bank..................... 5.84% 9.14% 11.34%
Well capitalized ratio.......................................... 5.00 6.00 10.00
----- ------ ------
Excess above well capitalized ratio............................. .84% 3.14% 1.34%
----- ------ ------
----- ------ ------
</TABLE>
The Issuer expects that First Nationwide Bank will remain a 'well
capitalized' institution after consummation of the Branch Sales, the SFFed
Acquisition, the LMUSA 1996 Purchase and the Home Federal Acquisition. In
addition, the net proceeds from the issuance of the FN Holdings Subordinated
Notes of approximately $133 million were contributed as additional paid in
capital of First Nationwide Bank on February 1, 1996, further strengthening
First Nationwide Bank's regulatory capital ratios.
OTS capital regulations allow a savings bank to include a net deferred tax
asset under SFAS No. 109 in regulatory capital, subject to certain limitations.
To the extent that the realization of a deferred tax asset depends on a savings
bank's future taxable income, such deferred tax asset is limited for regulatory
capital purposes to the lesser of the amount that can be realized within one
year or 10 percent of core capital. As of December 31, 1994, First Nationwide
Bank recorded a valuation adjustment for 100% of its net deferred tax asset
because First Nationwide Bank believed, at that time, it was not more likely
than not that such deferred tax asset would be realized.
Based on a favorable earnings trend since the consummation of the FN
Acquisition and future earnings expectations, management changed its judgment
about the realizability of First Nationwide Bank's net deferred tax assets and
recognized a deferred tax benefit of $69 million in the fourth quarter of 1995.
The net tax benefit of $69 million has been determined based upon the amount of
taxable income that may be realized within one year. This amount does not exceed
10 percent of core capital and therefore is allowed without limitation under OTS
capital regulations.
Congress has passed budget reconciliation legislation that, if enacted,
would impose a one-time assessment on all SAIF-insured deposits held as of March
31, 1995, in order to capitalize the SAIF to the required designated reserve
ratio of 1.25% of insured deposits. The President has vetoed this budget
reconciliation bill. Such veto, however, was based on issues unrelated to the
provisions dealing with capitalization of the SAIF. The FDIC, which would
establish the assessment rate, has estimated the rate needed to capitalize the
SAIF to be in the range of 85 cents to 90 cents per $100 of domestic deposits.
If the assessment is enacted into law, and assessed at the rate estimated by the
FDIC, after giving effect to the SFFed Acquisition, the Branch Sales, the Home
Federal Acquisition and the Branch Purchases, the effect on First Nationwide
Bank would be a pre-tax charge in the range of $75 to $80 million ($68 to $72
million on an after-tax basis). Such an assessment would not be expected to
cause First Nationwide Bank to fail to meet the capital requirements of a 'well
capitalized' institution based upon First Nationwide Bank's regulatory capital
and asset levels as of December 31, 1995. Upon the SAIF reaching the required
reserve ratio, management expects that First Nationwide Bank's SAIF deposit
premium assessments would decrease substantially from First Nationwide Bank's
current rate of 23 cents. The Issuer is unable to predict whether this, or
similar, legislation will be enacted.
Because the SAIF has not reached its required designated reserve ratio,
savings associations like First Nationwide Bank insured by SAIF pay deposit
insurance premiums that are higher (by at least 23 cents per $100 of deposits)
than premiums paid by comparable banks insured by the Bank Insurance Fund
('BIF'), which has adequate reserves. See 'Regulation--Regulation of Federal
Savings Banks--FDIC Assessments.' This disparity in deposit insurance costs
gives SAIF-insured institutions incentives to attempt to leave the SAIF and seek
BIF insurance, and adversely affects returns on capital of SAIF members as
compared with similarly-situated, BIF-insured competitors.
In addition to Congressional proposals to capitalize the SAIF, other
legislative proposals would combine the two deposit insurance funds of the FDIC
and merge the charters for federal savings associations and commercial banks.
The Issuer is unable to predict whether, or in what form, any of this proposed
legislation would be enacted.
66
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term 'Expiration Date' means 5:00 p.m., New
York City time, on June 17, 1996; provided, however, that if the Issuer, in its
sole discretion, has extended the period of time for which the Exchange Offer is
open, the term 'Expiration Date' means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $455,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about May 15, 1996, to all holders of
Old Notes known to the Issuer. The Issuer's obligation to accept Old Notes for
exchange pursuant to the Exchange Offer is subject to certain conditions as set
forth below under '--Certain Conditions to the Exchange Offer.'
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Issuer. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the events specified below under
'--Certain Conditions to the Exchange Offer.' The Issuer will give oral or
written notice of any extension, amendment, non-acceptance or termination to the
holders of the Old Notes as promptly as practicable, such notice in the case of
any extension to be issued by means of a press release or other public
announcement no later than 9:00 a.m., New York City time, on the next business
day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Issuer of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Issuer will constitute a binding
agreement between the tendering holder and the Issuer upon the terms and subject
to the conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to The Bank of New York, as Exchange Agent, at
the address set forth below under '--Exchange Agent' on or prior to the
Expiration Date. In addition, either (i) certificates for such Old Notes must be
received by the Exchange Agent along with the Letter of Transmittal, or (ii) a
timely confirmation of a book-entry transfer (a 'Book-Entry Confirmation') of
such Old Notes, if such procedure is available, into the Exchange Agent's
account at The Depository Trust Company (the 'Book-Entry Transfer Facility')
pursuant to the procedure for book-entry transfer described below, must be
received by the Exchange Agent prior to the Expiration Date, or (iii) the holder
must comply with the guaranteed delivery procedures described below. THE METHOD
OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO
THE ISSUER.
67
<PAGE>
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled 'Special Issuance Instructions' or 'Special
Delivery Instructions' on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, 'Eligible
Institutions'). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Issuer in its
sole discretion, duly executed by, the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Issuer in its sole discretion, which determination shall be final and
binding. The Issuer reserves the absolute right to reject any and all tenders of
any particular Old Notes not properly tendered or to not accept any particular
Old Notes which acceptance might, in the judgment of the Issuer or its counsel,
be unlawful. The Issuer also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Old
Notes either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer as
to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the Issuer
shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Issuer shall determine.
Neither the Issuer, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Old Notes for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders that appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
By tendering, each holder will represent to the Issuer that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, and that neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. In the case of a holder that is not a
broker-dealer, each such holder, by tendering, will also represent to the Issuer
that such holder is not engaged in, or intends to engage in, a distribution of
the New Notes. If any holder or any such other person is an 'affiliate,' as
defined under Rule 405 of the Securities Act, of the Issuer, or is engaged in or
intends to engage in or has an arrangement or understanding with any person to
participate in a distribution of such New Notes to be acquired pursuant to the
Exchange Offer, such holder or any such other person (i) could not rely on the
applicable interpretations of the staff of the SEC and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See 'Plan of Distribution.' The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
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ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Issuer will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See--'Certain Conditions to the Exchange Offer.' For purposes of the
Exchange Offer, the Issuer shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Issuer has given oral or written
notice thereof to the Exchange Agent, with written confirmation of any oral
notice to be given promptly thereafter.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid, from
April 17, 1996. Accordingly, if the relevant record date for interest payment
occurs after the consummation of the Exchange Offer registered holders of New
Notes on such record date will receive interest accruing from the most recent
date to which interest has been paid or, if no interest has been paid, from
April 17, 1996. If, however, the relevant record date for interest payment
occurs prior to the consummation of the Exchange Offer registered holders of Old
Notes on such record date will receive interest accruing from the most recent
date to which interest has been paid or, if no interest has been paid, from
April 17, 1996. Old Notes accepted for exchange will cease to accrue interest
from and after the date of consummation of the Exchange Offer, except as set
forth in the immediately preceding sentence. Holders of Old Notes whose Old
Notes are accepted for exchange will not receive any payment in respect of
accrued interest on such Old Notes otherwise payable on any interest payment
date the record date for which occurs on or after consummation of the Exchange
Offer. If the Exchange Offer is not consummated by September 16, 1996, the rate
per annum at which the Old Notes bear interest will be 13% per annum from and
including September 16, 1996 until but excluding the date of consummation of the
Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount that the
holder desired to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under '--Exchange Agent' on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the
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Expiration Date, the Exchange Agent received from such Eligible Institution a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof) and Notice of Guaranteed Delivery, substantially in the form provided
by the Issuer (by telegram, telex, facsimile transmission, mail or hand
delivery), setting forth the name and address of the holder of Old Notes and the
amount of Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ('NYSE') trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
'--Exchange Agent.' Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuer, whose determination shall be final and binding
on all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Old Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under '--Procedures for Tendering Old Notes' above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for such Old Notes, any of the following events shall occur:
(a) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order of decree shall have been
issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain
or prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Issuer to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the
Issuer might directly or indirectly result in any of the consequences
referred
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to in clauses (i) or (ii) above or, in the sole judgment of the Issuer,
might result in the holders of New Notes having obligations with respect to
resales and transfers of New Notes which are greater than those described
in the interpretation of the SEC referred to on the cover page of this
Prospectus, or would otherwise make it inadvisable to proceed with the
Exchange Offer; or
(b) there shall have occurred (i) any general suspension of or general
limitation on prices for, or trading in, securities on any national
securities exchange or in the over-the-counter market, (ii) any limitation
by any governmental agency or authority which may adversely affect the
ability of the Issuer to complete the transactions contemplated by the
Exchange Offer, (iii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects
the extension of credit or (iv) a commencement of a war, armed hostilities
or other similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing existing at the
time of the commencement of the Exchange Offer, a material acceleration or
worsening thereof; or
(c) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Issuer and its subsidiaries taken as a whole that, in the
sole judgment of the Issuer, is or may be adverse to the Issuer, or the
Issuer shall have become aware of facts that, in the sole judgment of the
Issuer, have or may have adverse significance with respect to the value of
the Old Notes or the New Notes;
which in the reasonable judgment of the Issuer in any case, and regardless of
the circumstances (including any action by the Issuer) giving rise to any event
described above, makes it inadvisable to proceed with the Exchange Offer and/or
with such acceptance for exchange or with such exchange.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, the Issuer will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939 (the
'TIA').
EXCHANGE AGENT
The Bank of New York has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Delivery To: The Bank of New York, Exchange Agent
<TABLE>
<S> <C>
By Mail: By Overnight Courier or Hand:
The Bank of New York The Bank of New York
101 Barclay Street--(7 East) 101 Barclay Street--(7 East)
Reorganization Section Reorganization Section
New York, New York 10286 Corporate Trust Services Window
Attention: Enrique Lopez New York, New York 10286
Attention: Enrique Lopez
</TABLE>
By Facsimile:
(212) 571-3080
Confirm by Telephone:
(212) 815-2742
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Issuer and are estimated in the aggregate to be
$850,000.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who instruct
the Issuer to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF EXCHANGING OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Issuer does not currently anticipate that
it will register Old Notes under the Securities Act. See 'Description of the
Notes--Registration Rights.' Based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties, the Issuer believes
that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an 'affiliate' of the Issuer within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any person
to participate in the distribution of such New Notes. However, the Issuer does
not intend to request the SEC to consider, and the SEC has not considered, the
Exchange Offer in the context of a no-action letter and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer as in such other circumstances. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of New Notes and has no arrangement or
understanding to participate in a distribution of New Notes. If any holder is an
affiliate of the Issuer, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, such holder (i) could not rely on
the applicable interpretations of the staff of the SEC and (ii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See 'Plan of Distribution.' In
addition, to comply with the state securities laws, the New Notes may not be
offered or sold in any state unless they have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and is complied with. The offer and sale of the New Notes to
'qualified institutional buyers' (as such term is defined under Rule 144A of the
Securities Act) is generally exempt from registration or qualification under the
state securities laws. The Issuer currently does not intend to register or
qualify the sale of the New Notes in any state where an exemption from
registration or qualification is required and not available.
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BUSINESS
GENERAL
The Issuer
The Issuer is a holding company with no business operations of its own. The
Issuer's only significant asset is its ownership of 80% of the common stock of
First Nationwide Holdings, a holding company which owns all of the common stock
of First Nationwide Bank. As such, the Issuer's principal business operations
are conducted by First Nationwide Bank and its subsidiaries.
The Issuer's operations are influenced significantly by general economic
conditions in the markets and geographic areas in which First Nationwide Bank
conducts its business, the monetary and fiscal policies of the federal
government and the regulatory policies of certain governmental agencies. Deposit
balances and the cost of borrowings are influenced by interest rates on
competing investments and general market interest rates. The Issuer's loan
volume and yields are also affected by market interest rates on loans, the
supply of and demand for housing, and the availability of funds.
First Nationwide Bank
First Nationwide Bank's principal business consists of operating retail
deposit branches and originating and/or purchasing one to four family real
estate loans and, to a lesser extent, certain consumer loans, and is conducted
primarily in California, Florida and Texas. First Nationwide Bank actively
manages its commercial real estate loan portfolio acquired through acquisitions
and is also active in mortgage banking and loan servicing. These operating
activities are financed principally with customer deposits, secured short-term
and long-term borrowings, collections on loans, asset sales and retained
earnings. At December 31, 1995, First Nationwide Bank had approximately $14.6
billion in assets and approximately $10.2 billion in deposits. According to
published sources, First Nationwide Bank was the seventh largest thrift in the
United States, in terms of assets, as of June 30, 1995.
First Nationwide Bank is chartered as a federal stock savings bank under
the HOLA and regulated by the OTS and the FDIC, which, through the SAIF, insures
the deposit accounts of First Nationwide Bank. First Nationwide Bank is also a
member of the FHLBS.
Revenues are derived from interest charged on loans, interest and dividends
received on securities and mortgage-backed securities, fees received in
connection with loan servicing, securities brokerage and other customer service
transactions, and asset management fees. Expenses primarily consist of interest
on customer deposit accounts, interest on short-term and long-term borrowings,
general and administrative expenses consisting of compensation and benefits,
data processing, occupancy and equipment, communications, deposit insurance
assessments, advertising and marketing, professional fees and other general and
administrative expenses.
Background
First Nationwide Bank was organized as First Gibraltar in December 1988 to
acquire substantially all of the assets and certain liabilities of the Texas
Closed Banks in a federally assisted transaction. The Texas Closed Banks were
purchased effective December 28, 1988 pursuant to five substantially similar
acquisition agreements and the Assistance Agreement. In January 1992, certain
provisions of the Assistance Agreement were renegotiated and amended or
modified. In connection with such modification, First Nationwide Bank accrued
the present value of the estimated liability at December 31, 1992 to the
FSLIC/RF for the reimbursement by First Nationwide Bank to the FSLIC/RF in an
amount equal to 10% of the gross amount of assistance received by First
Nationwide Bank from the FSLIC/RF and a fee payable by the FSLIC/RF to First
Nationwide Bank for the disposition of a Covered Asset at a price in excess of
50% of such asset's original book value ('Shared Gains') over the life of the
Assistance Agreement, resulting in a $60 million charge to operations in 1992.
See '--Other Activities--The Assistance Agreement.'
On December 31, 1992, First Gibraltar sold or otherwise transferred a
substantial portion of its business operations in Oklahoma, consisting of
approximately $3 million of loans and 27 branches with $809 million in deposits
in the First Gibraltar Oklahoma Sale. A gain of $19 million was recorded in
connection with this sale.
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On February 1, 1993, First Gibraltar sold to BankAmerica certain assets,
liabilities and substantially all of the branch operations located in Texas
consisting of approximately $829 million of loans and 130 branches with
approximately $6.9 billion in deposits in the First Gibraltar Texas Sale. A gain
of $141 million was recorded in connection with this sale. In anticipation of
the First Gibraltar Texas Sale, management sold long-term interest-earning
assets, primarily loans and mortgage-backed securities, based on BankAmerica's
intention to acquire primarily shorter-term assets. As a result, First Gibraltar
recognized gains on the sale of interest-earning assets totalling $203 million
during the year ended December 31, 1992. Concurrently with the First Gibraltar
Texas Sale, First Gibraltar changed its name to First Madison.
Following the First Gibraltar Texas Sale, and through September 1994, First
Madison's principal business was the funding of the Covered Assets and the
performance of its obligations under the Assistance Agreement. Subsequent to the
First Gibraltar Texas Sale, First Nationwide Bank also managed four retail
branches in Texas and supplemented its retail deposit base with wholesale funds
from Brokered Deposits and FHLB advances. In June 1995, the FDIC, as manager for
the FSLIC/RF, exercised its right under the Assistance Agreement to purchase
substantially all of the remaining Covered Assets as of June 1, 1995 at the fair
market value of such assets and further purchased additional assets from the
remaining Covered Asset portfolio in September 1995. Any losses sustained by
First Nationwide Bank as a result of the FDIC Purchase have been reimbursed
under the Capital Loss Coverage provision of the Assistance Agreement except for
$39 million which the FDIC has elected to treat as a Covered Asset at December
31, 1995. Proceeds from this transaction were reinvested in the normal course of
business.
From August 1991 through March 31, 1993, First Nationwide Holdings
conducted most of its mortgage banking operations through FGMH. Effective July
1, 1992, FGMH acquired all of the outstanding stock of the mortgage banking
company, Troy and Nichols, Inc. of Monroe, Louisiana, with a servicing portfolio
of 129,000 loans totalling approximately $5.9 billion. This transaction was
accounted for under the purchase method of accounting. On March 31, 1993, the
stock of FGMH was distributed by First Nationwide Bank to its then immediate
parent. FGMH was subsequently sold during 1993 for a gain of approximately $95
million.
On April 14, 1994, First Nationwide Bank entered into the FNB Asset
Purchase Agreement with Old FNB. On October 3, 1994, effective immediately after
the close of business on September 30, 1994, First Nationwide Bank purchased the
FNB Acquired Business in the FN Acquisition for $726.5 million. Effective on
October 1, 1994, First Nationwide Bank changed its name from 'First Madison
Bank, FSB' to 'First Nationwide Bank, A Federal Savings Bank.' First Nationwide
Bank and Old FNB are currently in disagreement over certain elements of the
purchase price for the FN Acquisition. See '--Legal Proceedings.' On October 7,
1994, First Nationwide Bank sold in the Illinois Sale the FNB Acquired Business'
branch network located in Illinois consisting of 26 branches with approximately
$1.2 billion in deposits. The $89 million deposit premium received by First
Nationwide Bank in the Illinois Sale was treated as a reduction of the core
deposit intangible asset established in connection with the FN Acquisition.
First Nationwide Bank financed the FN Acquisition and paid related fees and
expenses with: (i) a capital contribution by First Nationwide Holdings funded
with the net proceeds of (a) the issuance of the FN Holdings Senior Notes and
(b) the issuance of First Nationwide Holdings' class C common stock, (ii) the
net proceeds from the issuance of the First Nationwide Bank Preferred Stock and
(iii) existing cash and proceeds from securities sold under agreements to
repurchase. See 'Certain Transactions.'
In December 1994, First Nationwide Bank's wholly owned mortgage bank
operating subsidiary, FNMC, entered into a series of agreements with the
Resolution Trust Corporation as conservator for StanFed to acquire certain of
StanFed's mortgage servicing assets and assume certain of StanFed's mortgage
servicing liabilities for approximately $178 million in the Maryland
Acquisition. As a result of the Maryland Acquisition, FNMC acquired a 1-4 unit
residential mortgage loan servicing portfolio of approximately $11.4 billion
(including a subservicing portfolio of $1.8 billion) and certain other assets
and liabilities. The transaction was consummated on February 28, 1995. In
connection with the Maryland Acquisition, FNMC moved its mortgage servicing
operations to Maryland from its former location in Sacramento, California. Costs
totalling $5.7 million associated with such consolidation are included in
noninterest expense in First Nationwide Holdings's consolidated statement of
operations for the year ended December 31, 1995.
In April 1995, First Nationwide Bank closed substantially all of its retail
mortgage loan production offices. Costs associated with such closures of
approximately $2.1 million are included in noninterest expense in the Issuer's
consolidated statement of operations for the year ended December 31, 1995.
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In April 1995, First Nationwide Bank consummated the Tiburon Purchase in
which it acquired approximately $13 million in deposits located in Tiburon,
California from East-West Federal Bank, a federal savings bank. In August 1995,
First Nationwide Bank consummated the ITT Purchase in which it acquired three
retail branches located in Orange County, California with deposit accounts
totalling approximately $356 million from ITT Federal Bank, fsb. On December 8,
1995, First Nationwide Bank consummated the Sonoma Purchase in which it acquired
four retail branches located in Sonoma County, California with deposit accounts
of approximately $144 million from Citizens Federal Bank, a Federal Savings
Bank. The weighted average deposit premium paid in connection with the Branch
Purchases was 3.78%.
On February 1, 1996, First Nationwide Bank consummated the SFFed
Acquisition pursuant to which First Nationwide Bank acquired SFFed and its
wholly owned federal savings association subsidiary, San Francisco Federal. The
aggregate consideration paid in the SFFed Acquisition was approximately $264
million. Following completion of the SFFed Acquisition, SFFed was liquidated and
San Francisco Federal was merged into First Nationwide Bank. See 'Strategic
Acquisitions and Dispositions--Acquisitions--The SFFed Acquisition.'
On October 2, 1995, FNMC purchased in the LMUSA 1995 Purchase from LMUSA a
loan servicing portfolio of approximately $11.1 billion (including a
sub-servicing portfolio of $3.1 billion), a master servicing portfolio of $2.9
billion and other assets, principally existing loans and loan production
operations of LMUSA, for $100 million, payable in installments, and the
assumption of certain indebtedness relating to the acquired loan portfolio.
On January 31, 1996, FNMC purchased in the LMUSA 1996 Purchase LMUSA's
remaining $14.1 billion loan servicing portfolio (including a sub-servicing
portfolio of $2.4 billion), a master servicing portfolio of $2.7 billion, $5.9
million in foreclosed real estate, $45.3 million in net other servicing
receivables, $5.8 million in mortgage loans, and $6.2 million in net other
assets for a purchase price of approximately $160.8 million payable in
installments. The initial installment of $49.8 million was paid with existing
cash.
On December 19, 1995, First Nationwide Bank entered into a merger agreement
with HFFC, pursuant to which First Nationwide Bank will acquire HFFC and its
wholly owned federally chartered savings association subsidiary, Home Federal,
which, at December 31, 1995, had approximately $718 million in assets and $625
million in deposits and operated 15 branches in the Northern California area.
The aggregate consideration to be paid in connection with the Home Federal
Acquisition is estimated to be approximately $70.6 million.
The Home Federal Acquisition is subject to approval by HFFC's shareholders.
The Home Federal Acquisition is presently anticipated to close in the second
quarter of 1996, although there can be no assurance that the Home Federal
Acquisition will be consummated. The Issuer expects that First Nationwide Bank
will remain 'well capitalized' after consummation of the Home Federal
Acquisition.
From September through December of 1995, First Nationwide Bank entered into
the following agreements relating to the Branch Sales:
<TABLE>
<CAPTION>
NUMBER OF
BRANCHES APPROXIMATE APPROXIMATE
GENERAL TO BE AMOUNT OF AMOUNT OF DATE OF
NAME OF PURCHASER LOCATION SOLD DEPOSITS(A) ASSETS(A) AGREEMENT
- --------------------------------- --------------------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fifth Third Bank of Northeastern
Ohio........................... Ohio 28 $1,414,695 $18,480 9/22/95
North Fork Bank.................. Long Island, New York 10 602,014 8,222 9/28/95
Middletown Savings Bank.......... Upstate New York 8 485,975 5,594 9/29/95
Independence Savings Bank........ Brooklyn, New York 3 330,073 3,308 10/11/95
Republic National Bank of New
York........................... Manhattan, New York 3 282,580 1,795 10/31/95
Midlantic Bank................... New Jersey 4 509,597 5,556 11/03/95
Independence Savings Bank........ Staten Island, New
York 2 286,723 3,718 11/15/95
Charter One Bank................. Michigan 21 783,965 12,667 12/14/95
-- ----------- -----------
Total............................ 79 $4,695,622 $59,340
-- ----------- -----------
-- ----------- -----------
</TABLE>
- ------------------
(a) As of December 31, 1995.
The Branch Sales, when consummated, will result in gains which, based on
deposit information at December 31, 1995, will be approximately $366 million on
a pre-tax basis. The gains from the Branch Sales will
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<PAGE>
be used, as necessary, to augment First Nationwide Bank's regulatory capital to
maintain its 'well capitalized' status after the SFFed Acquisition.
The Ohio Branch Sale was consummated on January 19, 1996. The Northeast
Branch Sales were consummated in a series of closings that occurred between
January 12, 1996 and March 22, 1996. The sale of these 58 branches has generated
pre-tax gains of approximately $308 million. Although regulatory approval for
the Michigan Branch Sale has been obtained and it is anticipated that the
Michigan Branch Sale will be consummated during the second quarter of 1996, no
assurances can be given as to whether or when such transaction will be
consummated.
BUSINESS STRATEGY
First Nationwide Bank's business strategy is to augment its position as a
leading thrift in California, principally through a combination of selective
acquisitions of high quality assets and deposits, expansion of its mortgage
banking and servicing operations and continued increases in its operating
efficiency. The key elements of this business strategy are as follows.
Concentration and Expansion in California
Beginning with the FN Acquisition in 1994, First Nationwide Bank developed
a strategy to concentrate its retail branch network in California. The
management of First Nationwide Bank believes that the West Coast region, and
California in particular, offers attractive opportunities to continue to build
franchise value. First Nationwide Bank continues to actively explore
opportunities to expand its California retail branch network, including through
additional acquisitions. The SFFed Acquisition, the Home Federal Acquisition and
the Branch Purchases are consistent with this strategy and, in the aggregate,
have added, or will add, $3.8 billion in deposits. The SFFed Acquisition, net of
the related consolidation of branches, increased the number of First Nationwide
Bank's Northern California branches from 37 to 63, and, based on information as
of December 31, 1995, increased the outstanding balances of First Nationwide
Bank's deposits in this region by $2.7 billion, from approximately $1.9 billion
to approximately $4.6 billion. In addition, the Branch Purchases added another
seven California branches, and the Home Federal Acquisition will increase the
number of Northern California branches by 10 on a net basis. Management believes
that these acquisitions have significantly increased First Nationwide Bank's
presence on the West Coast, providing additional economies of scale and
diversity of operations within its target California markets.
Following the consummation of the Branch Sales, First Nationwide Bank will
have consolidated its branch system to California, Texas and Florida. Although
First Nationwide Bank has no current plans to dispose of its remaining branch
operations outside California, it will continue to evaluate opportunities to
dispose of such operations, as well as other acquisition opportunities in such
states. As a result of the Branch Sales, the Issuer expects First Nationwide
Bank to reduce certain operational costs inherent in its widely dispersed branch
network. Gains generated by the Branch Sales and sales of other branch
operations outside of California, if any, are expected to be used to finance the
acquisition of branch operations in the West Coast region.
Mortgage Banking
First Nationwide Bank, through FNMC, has significantly expanded its
mortgage banking operations and enhanced efficiency. In February 1995, First
Nationwide Bank purchased a larger and more efficient mortgage loan servicing
facility located in Frederick, Maryland as part of the Maryland Acquisition.
Subsequently, all of FNMC's mortgage servicing has been consolidated in
Frederick, Maryland, and its Sacramento, California servicing facility has been
closed. FNMC acquired additional mortgage servicing from LMUSA in the LMUSA 1995
Purchase during the fourth quarter of 1995 and on January 31, 1996 in the LMUSA
1996 Purchase. The management of First Nationwide Bank estimates that at
December 31, 1995, the existing loan servicing portfolio of FNMC (excluding
loans serviced for First Nationwide Bank) and the servicing portfolios included
in the LMUSA Purchases would have aggregated approximately $41.4 billion. The
Maryland Acquisition and the LMUSA Purchases will provide First Nationwide Bank
with the opportunity to increase its noninterest income through fees generated
from its mortgage servicing operations. First Nationwide Bank's excess servicing
capacity and existing servicing expertise enabled it to accommodate the loan
servicing portfolios acquired in these transactions without the need for
significant additional investment.
76
<PAGE>
First Nationwide Bank intends to increase its origination of residential
loans through enhanced focus on existing distribution channels, principally
correspondent origination and wholesale acquisitions. The LMUSA 1995 Purchase
included the acquisition of a correspondent lending operation of one of the
largest originators of Government National Mortgage Association ('GNMA') loans
in the United States. In order to minimize the exposure to market interest rate
fluctuations typically associated with long-term fixed rate lending, First
Nationwide Bank intends to continue to retain in its portfolio the majority of
its ARMs, while selling most of its fixed rate mortgage loans.
First Nationwide Bank has continued to retain servicing on loans that it
sells. The number of loans serviced by others and participation loans continues
to be reduced by cancelling contracts or selling assets following a cost-benefit
analysis. In addition, First Nationwide Bank intends to continue to evaluate
opportunities to increase its servicing portfolio through purchases.
First Nationwide Bank intends to make its loan portfolio more liquid and
marketable by consolidating participation loans and modifying some existing
loans in order to create a standard product. In addition, First Nationwide Bank
intends to increase front-end loan production fees on loans originated through
the retail branch system.
Protecting Credit Quality
First Nationwide Bank will continue to originate single-family residential
loans and consumer loans in accordance with stringent underwriting standards.
The management of First Nationwide Bank expects originations of new commercial
real estate loans to be limited to its participation in affordable housing
programs which extend loans to multifamily projects.
When evaluating acquisition opportunities, First Nationwide Bank considers
the quality of assets to be acquired along with the strategic location of the
branches and characteristics of the deposit base. First Nationwide Bank has
declined to bid on potential acquisitions where its due diligence investigation
raised concerns about asset quality that could not be mitigated.
First Nationwide Bank's sizeable portfolio of multi-family and commercial
real estate loans increased 31% as a result of the SFFed Acquisition. Management
will continue to actively review this portfolio of seasoned commercial real
estate loans to determine when credit action is necessary. Credit action may
include the sale of eligible loans acquired in the FN Acquisition to Granite
under the Put Agreement. See '--Other Activities--Put Agreement.'
First Nationwide Bank continuously manages its credit risk by assessing the
current and estimated future performance of the real estate markets in which it
operates. First Nationwide Bank continues to place a high degree of emphasis on
the management of its asset portfolio. First Nationwide Bank has a comprehensive
process for classifying assets, and asset reviews are performed on a periodic
basis. First Nationwide Bank's asset portfolio is stratified based on geographic
and collateral type concentrations and delinquency trends. The objective of the
review process is to identify significant trends and determine the levels of
loss exposure to First Nationwide Bank that would require increases to specific
and general valuation allowances.
Operating Efficiency
First Nationwide Bank has implemented programs to expand its customer base,
increase transaction account volumes and generally enhance the efficiency of its
operations. A bank-wide cost reduction project resulted in the consolidation of
certain administrative and managerial functions, as well as other measures to be
implemented by the end of 1996.
First Nationwide Bank has improved its efficiency ratio from approximately
62.2% on an annualized basis during the fourth quarter of 1994 to approximately
56.0% on an annualized basis during the fourth quarter of 1995. The efficiency
ratio represents the ratio of noninterest expense to net interest income and
noninterest income. Management anticipates that the SFFed Acquisition, the
Branch Sales and the Home Federal Acquisition will enable First Nationwide Bank
to enhance the value of its franchise and further improve its operating
efficiency. By concentrating its operations in the West Coast region, First
Nationwide Bank has increased its presence and enhanced its ability to attract
and retain retail customers in its largest market. The Issuer expects that First
Nationwide Bank will achieve increased efficiency in its combined institution
through the consolidation or elimination of duplicative back office operations
and administrative and management functions, a process it
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<PAGE>
began to implement immediately upon the closing of the SFFed Acquisition. First
Nationwide Bank presently estimates that it will save approximately $40 million
in annual noninterest expenses as compared to operating SFFed on a stand-alone
basis. Management continues to evaluate ways in which it can achieve increased
efficiency from the combination of its operations with those of SFFed, and is in
the process of developing its rationalization plan to become effective upon
closing the Home Federal Acquisition. In connection with the SFFed Acquisition
and the consolidation of SFFed's operations with those of First Nationwide Bank,
First Nationwide Bank expects to capitalize acquisition costs totalling
approximately $15 million. The Branch Sales will also improve the efficiencies
of First Nationwide Bank's retail operations by reducing the need for multi-
state back office support and by allowing First Nationwide Bank to concentrate
its marketing activities in an area in which First Nationwide Bank has a larger
market presence.
Service to Community
The needs of the communities in which First Nationwide Bank is located will
also be met through First Nationwide Bank's Community Reinvestment Act ('CRA')
program. First Nationwide Bank continues to be committed to the needs of its
communities through its CRA program. First Nationwide Bank received an
'outstanding' rating in its most recent CRA exam completed in 1995.
The implementation of the preceding strategies is subject to numerous
contingencies beyond management's control. These contingencies include general
and regional economic conditions, competition and changes in regulation and
interest rates. Accordingly, no assurance can be given that any of First
Nationwide Bank's strategies will prove to be effective or that First Nationwide
Bank's goals will be achieved.
LENDING ACTIVITIES
During the period between the First Gibraltar Texas Sale and the FN
Acquisition, First Nationwide Bank's lending activity was limited. Loan
originations focused on second lien home improvement lending, with a limited
number of residential mortgage loans made. In addition, First Nationwide Bank
made loans to address special community housing needs through its CRA program.
Since the FN Acquisition, First Nationwide Bank's principal lending
activity has been the origination of adjustable and fixed rate mortgage loans
secured by residential properties. To a lesser extent, First Nationwide Bank
also originates consumer loans consisting principally of adjustable rate home
equity lines of credit. The current commercial lending activity of First
Nationwide Bank is limited to restructuring and refinancing existing portfolio
loans, and multi-family loans originated under its affordable housing program.
First Nationwide Bank also participates in a number of other affordable housing
programs and initiatives.
First Nationwide Bank's residential loan origination activities are
conducted by FNMC. Throughout this Prospectus, references to First Nationwide
Bank and its residential loan origination or servicing activities relate to
functions performed by FNMC. In April 1995, FNMC concluded that the costs of
operating retail offices outweighed the benefits and, accordingly, closed
substantially all of its retail mortgage production offices. Residential loans
continue to be originated through FNMC's wholesale origination offices (wherein
loans are purchased from independent loan brokers) and First Nationwide Bank's
retail branches. FNMC originates ARMs on single-family residential properties,
which in the case of ARMs originated prior to September 30, 1995, have generally
been held for investment, and fixed rate loans, which are generally held for
sale to the secondary mortgage market. Subsequent to September 30, 1995,
however, substantially all of the ARMs originated were sold in the secondary
market in anticipation of the SFFed Acquisition. On October 2, 1995, FNMC
acquired the correspondent loan purchase operation of LMUSA as well as contracts
to administer various housing bond and other private mortgage lending programs.
First Nationwide Bank generates consumer loan applications at its retail
branches. In addition, First Nationwide Bank conducts direct-mail solicitations,
principally of its existing customers, for both secured and, to a much lesser
extent, unsecured revolving loans. All consumer loan processing, servicing and
collection operations are centralized at a facility in Oak Brook, Illinois.
78
<PAGE>
The following table reflects, for the periods indicated, the net change in
the total principal balances of loans receivable outstanding, excluding loans
held for sale, for the Issuer and its subsidiaries:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -----
(IN MILLIONS)
<S> <C> <C> <C>
Real estate loans originated:
Loans to purchase existing property............................................... $ 959 $ 419 $ 27
Loans for construction, including loans in process................................ -- -- 2
------- ------- -----
Total real estate loans originated............................................. 959 419 29
Other loans originated............................................................ 224 61 26
Loans purchased................................................................... 751 11,753 2
------- ------- -----
Total loans originated and purchased........................................... 1,934 12,233 57
Loans sold, securitized, repaid and foreclosed:
Loans sold(1)..................................................................... (380) (155) (300)
Loans securitized................................................................. (376) (1,339) --
Loan repayments and payoffs....................................................... (1,922) (387) (539)
Loan foreclosures................................................................. (93) (25) (32)
------- ------- -----
Total loans sold, securitized, repaid and foreclosed........................... (2,771) (1,906) (871)
Other changes in loans receivable................................................... (308) (40) (51)
------- ------- -----
Net increase/(decrease) in loans receivable(2).................................... $(1,145) $10,287 $(865)
------- ------- -----
------- ------- -----
</TABLE>
- ------------------
(1) Includes loans sold pursuant to the Put Agreement totaling $199.5 million
and $104.2 million in 1995 and 1994, respectively.
(2) Excludes allowance for loan losses, purchase accounting adjustments,
unearned discounts and loan fees, and loans in process.
Interest Rates, Terms and Fees
First Nationwide Bank offers a variety of ARM products with the objectives
of (i) matching, as closely as possible, the interest rate sensitivity of its
assets with the interest rate sensitivity of its interest-bearing liabilities
and (ii) maintaining a relatively stable net interest margin in varied interest
rate environments. In response to consumer demand, and in order to diversify its
loan portfolio and help to control its future interest rate risk, First
Nationwide Bank's loan portfolio includes several ARM products which vary as to
(i) the frequency and amount of periodic interest rate changes and (ii) the
minimum and maximum rates applied to a particular loan. ARMs have the advantage
of reducing an institution's sensitivity to interest rate fluctuations. However,
they also present certain risks not associated with traditional fixed rate
mortgages, such as adjustments in interest rates which could cause payment
increases that some borrowers might be unable to service.
First Nationwide Bank attempts to mitigate the credit risks associated with
mortgage lending activities by the use of strict underwriting standards.
Substantially all residential loans originated are underwritten to conform with
standards adopted by the Federal National Mortgage Association ('FNMA'), the
Federal Home Loan Mortgage Corporation ('FHLMC'), GNMA, or other secondary
market investors. Accordingly, First Nationwide Bank's underwriting standards
include LTV ratios and maximum loan amounts for both fixed rate loans and ARMs
that closely mirror secondary market requirements. Generally, where these
standards differ, specific strong compensating factors are required. With
respect to ARMs, First Nationwide Bank underwrites the borrower's ability to pay
at the maximum second year payment rate, consistent with secondary market
requirements.
In addition to the interest earned on its loans, First Nationwide Bank
charges fees for loan originations, loan prepayments and modifications, late
payments, changes of property ownership and other similar services. The amount
of this fee income varies with the volume of loan originations, prepayments, the
general economic conditions affecting the portfolio and other competitive
factors affecting the mortgage market.
Generally, late charges are assessed when payments are delinquent. On loans
secured by residential properties, these charges are generally limited to 4% to
6% of the overdue payment of principal and interest and
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<PAGE>
cannot be imposed until the payment is more than 15 days late, in accordance
with the contractual terms of the loans and regulatory requirements in effect
when the loans were made.
Composition of Loan Portfolio
The composition of First Nationwide Bank's loan portfolio, excluding
Covered Assets and loans held for sale, is set forth in the following table, at
the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
------- ------- ---- ---- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Real estate loans:
1-4 unit residential............................................. $ 5,423 $ 5,612 $19 $ 40 $1,891
5+ unit residential.............................................. 1,854 2,178 -- -- --
Commercial real estate........................................... 1,716 2,015 10 138 96
Land............................................................. 9 15 -- -- --
Construction..................................................... -- 8 -- -- --
------- ------- ---- ---- ------
Total real estate loans....................................... 9,002 9,828 29 178 1,987
Equity-line and consumer loans..................................... 171 492 5 631 866
Commercial loans................................................... 2 1 -- 90 136
------- ------- ---- ---- ------
Total loans receivable........................................ 9,175 10,321 34 899 2,989
Less:
Unearned discounts and loan fees................................. (19) -- 3 55 376
Loans in process................................................. -- -- -- 52 49
Allowance for loan losses........................................ 210 203 2 14 23
Purchase accounting adjustments, net............................. 153 151 -- 1 --
------- ------- ---- ---- ------
Loans receivable, net......................................... $ 8,831 $ 9,967 $29 $777 $2,541
------- ------- ---- ---- ------
------- ------- ---- ---- ------
</TABLE>
The composition of First Nationwide Bank's loan portfolio is similar to
that of SFFed. SFFed's loan portfolio and the percent of the total portfolio
represented by each type of loan are set forth below as of December 31, 1995:
<TABLE>
<CAPTION>
OUTSTANDING PERCENTAGE
LOAN BALANCES OF TOTAL
------------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Real estate loans:
1-4 unit residential........................................ $ 1,536 55.41%
5+ unit residential......................................... 628 22.26
Commercial real estate...................................... 465 16.77
Land and construction....................................... 40 1.44
------------- ----------
Total real estate loans.................................. 2,669 96.28
Consumer loans.............................................. 95 3.43
Loans secured by savings account............................ 8 .29
------------- ----------
Total loans receivable................................... $ 2,772 100.00%
------------- ----------
------------- ----------
</TABLE>
80
<PAGE>
The following table sets forth the Issuer's real estate loan portfolio
(excluding loans held for sale and loans subject to the Assistance Agreement),
by collateral type, by interest rate type and by state concentration at December
31, 1995:
<TABLE>
<CAPTION>
1-4 UNIT 5+ UNIT COMMERCIAL
RESIDENTIAL RESIDENTIAL AND OTHER TOTAL REAL
----------------- ----------------- ----------------- ESTATE % OF
STATE VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED LOANS TOTAL
- ------------------------------------------- -------- ----- -------- ----- -------- ----- ---------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California................................. $2,729 $ 238 $ 798 $ 91 $1,128 $ 141 $ 5,125 56.93%
New York................................... 404 73 215 115 48 40 895 9.94
Illinois................................... 160 76 41 7 40 18 342 3.80
Florida.................................... 102 46 39 33 31 12 263 2.92
Ohio....................................... 93 83 28 8 32 3 247 2.74
New Jersey................................. 115 28 62 9 8 4 226 2.51
Hawaii..................................... 198 19 -- 1 4 -- 222 2.47
Washington................................. 78 8 52 8 25 1 172 1.91
Colorado................................... 97 53 1 4 -- -- 155 1.72
Texas...................................... 75 48 2 18 1 5 149 1.66
Other states(1)............................ 517 183 242 80 151 33 1,206 13.40
-------- ----- -------- ----- -------- ----- ---------- ------
Total.................................... $4,568 $ 855 $1,480 $ 374 $1,468 $ 257 $ 9,002 100.00%
-------- ----- -------- ----- -------- ----- ---------- ------
-------- ----- -------- ----- -------- ----- ---------- ------
</TABLE>
- ------------------
(1) Real estate loans involving property located in 39 states, Puerto Rico and
the District of Columbia; not more than 1.5% of the total amount of such
loans are located in any one state.
The following table summarizes the Issuer's loan portfolio not subject to
the Assistance Agreement, excluding loans held for sale, at December 31, 1995,
based upon various contractually scheduled principal payments allocated to the
indicated maturity categories. This table does not reflect expected prepayments.
<TABLE>
<CAPTION>
DUE OVER ONE
WITHIN BUT WITHIN OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Real estate loans:
1-4 unit residential
Fixed rate.................................................... $ 9 $ 57 $ 789 $ 855
Variable rate................................................. 4 25 4,539 4,568
5+ unit residential
Fixed rate.................................................... 25 129 220 374
Variable rate................................................. 97 515 868 1,480
Commercial and other
Fixed rate.................................................... 21 81 155 257
Variable rate................................................. 121 473 874 1,468
-------- ---------- ---------- -------
Total....................................................... 277 1,280 7,445 9,002
Commercial and consumer loans:
Fixed rate.................................................... 19 10 5 34
Variable rate................................................. 40 4 95 139
-------- ---------- ---------- -------
Total....................................................... 59 14 100 173
-------- ---------- ---------- -------
Total loans receivable...................................... $336 $1,294 $7,545 $ 9,175
-------- ---------- ---------- -------
-------- ---------- ---------- -------
</TABLE>
81
<PAGE>
Residential Lending
First Nationwide Bank currently offers three primary residential ARM
programs, and a variety of fixed rate programs with maturities ranging from 15
to 30 years. Adjustable rate programs include loans which: (i) provide for
monthly interest rate adjustments, after the third or sixth month from inception
of the loan, based on the FHLB 11th District Cost of Funds, (ii) provide for
annual rate adjustments based upon the weekly average yield on U.S. Treasury
Securities adjusted to a constant maturity of one year, or (iii) provide for
semi-annual rate adjustments based on the weekly average of the secondary market
rates on six-month negotiable certificates of deposit. Some ARMs offer an option
to convert to a fixed rate after the first year through the fifth year of the
loan term. A variety of features are incorporated into ARM loans to protect
borrowers from unlimited adjustments in interest rates and payments. All ARMs
have lifetime caps which limit the amount of rate increases over the life of the
loan. ARMs whose rates adjust annually have rate caps which limit the amount
that rates can change to two percentage points per year. Loans which adjust
monthly based upon the FHLB 11th District Cost of Funds limit payment changes to
no more than 7.5% of the payment amount per year. This may lead to monthly
payments which are less than the amount necessary to amortize the loan to
maturity at the interest rate in effect for any particular month. In the event
that the monthly payment is not sufficient to pay interest accruing on the loan
during the month, this deficiency is added to the loan's principal balance
(i.e., negative amortization). The total outstanding principal balance for a
particular loan is not allowed to exceed 110% of the original loan amount as a
result of negative amortization. If the loan reaches 110% of the original loan
amount, the loan payment is recalculated to the payment sufficient to repay the
unpaid principal balance in full at the maturity date. As of December 31, 1995,
First Nationwide Bank's capitalized interest relative to such residential loans
was approximately $1.8 million. This amount represents approximately .16% of the
approximately $1.1 billion of residential ARMs that have the potential to
experience negative amortization. First Nationwide Bank also originates 15 and
30 year fully amortizing fixed rate residential loans under a variety of fixed
rate programs, primarily for resale in the secondary mortgage market. When loans
are sold, FNMC normally retains the servicing of the loan. See '--Mortgage
Banking Operations' for a further discussion of these activities.
Multi-family, Commercial and Other Real Estate Lending
While First Nationwide Bank currently originates multi-family, commercial
and other real estate loans only as they relate to affordable housing programs,
First Nationwide Bank's loan portfolio includes loans secured by multi-family
residential, commercial, industrial and unimproved real property. Such loans are
principally acquired through acquisitions. First Nationwide Bank's variable rate
multi-family and commercial real estate loans have a maximum amortized loan term
of 30 years with some loans having balloon payments due in one to fifteen years.
ARMs primarily adjust with the FHLB 11th District Cost of Funds or the six-month
Treasury Bill indices with a monthly or semi-annual rate adjustment. The terms
and characteristics of the ARMs originated for multi-family and commercial real
estate lending purposes are similar to those for residential lending. As such,
many of the same risks and protections related to residential borrowers are
present in the multi-family and commercial real estate portfolios, including the
potential for negative amortization. Negative amortization for multi-family and
commercial real estate loans is allowed to increase the outstanding principal
balance to 110% of the original loan amount. If the loan reaches 110% of the
original loan amount, all future interest rate increases will increase the
monthly payment to amortize the loan over the remaining life of the loan. At
December 31, 1995, First Nationwide Bank's capitalized interest relative to such
loans was approximately $1 million, which represents approximately .12% of the
$878 million of multi-family and commercial real estate loans that have the
potential to experience negative amortization.
Real estate loans secured by multi-family and commercial property represent
a significant portion of First Nationwide Bank's portfolio. The management of
First Nationwide Bank periodically reviews the multi-family and commercial real
estate loan portfolio. At December 31, 1995 and 1994 the multi-family and
commercial real estate loan portfolio totalled $3.6 billion and $4.2 billion,
respectively. Included in the multi-family and commercial real estate loan
portfolio at December 31, 1995 are $131 million of loans with credit enhancement
wherein the lead participant subordinated its minority interest in a pool of
loans to First Nationwide Bank's interest in the corresponding pool of loans. No
loans are subject to be repurchased by the seller in the event such loans become
90 days delinquent.
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<PAGE>
First Nationwide Bank's potential for loss on the multi-family and
commercial loan portfolio acquired from Old FNB and, to a lesser extent, the
residential mortgage loan portfolio acquired from Old FNB, is mitigated to the
extent of the remaining balance under the Put Agreement entered into by First
Nationwide Bank with Granite, an affiliate of Old FNB, in connection with the FN
Acquisition. At December 31, 1995, $387.6 million had been put to Granite by
First Nationwide Bank, leaving a remaining balance available under the Put
Agreement to be put of $112.4 million. See '--Other Activities--The Put
Agreement' for a description of the Put Agreement.
In addition to managing its own asset portfolio, First Nationwide Bank and
its wholly owned subsidiary, FGB Realty, managed non-performing loan
(principally multi-family and commercial real estate) and asset portfolios
totalling $1.3 billion and $1.6 billion, respectively, for investors. Revenues
related to such activities are reflected as management fees in the Issuer's
consolidated statements of operations. Certain of this servicing was acquired
from Old FNB, which had sold loans with certain recourse provisions. The
recourse liability was assumed by First Nationwide Bank in the FN Acquisition
and at December 31, 1995, the balance of multi-family and commercial real estate
loans sold with recourse totalled $181.3 million.
Consumer Lending
First Nationwide Bank's consumer loan originations are primarily
concentrated in home equity lending. At December 31, 1995, the home equity
portfolio totaled $399 million, representing 80.3% of the total consumer loan
portfolio of $497 million. At December 31, 1995, consumer loans with a carrying
value of $326 million (recorded at lower of aggregate amortized cost or market
value) are held for sale. On February 23, 1996, approximately $298 million of
such loans were sold. At December 31, 1994, the home equity portfolio totalled
$409 million, or 83.1% of the total consumer loan portfolio of $492 million. The
portfolio is geographically dispersed and correlates closely to retail deposit
branch distribution.
First Nationwide Bank offers an adjustable, prime interest rate-based home
equity line of credit on owner-occupied residential properties. In determining
the amount of credit to be extended, all loans secured by the collateral
properties are aggregated and compared to the appraised value of the properties.
First Nationwide Bank's policy is to extend credit up to a maximum combined LTV
ratio of 80%.
Other consumer loan products include: fixed rate home equity installment
loans; adjustable prime rate-based home equity loans, which while secured, are
based on repayment ability and credit history; auto and boat loans; unsecured
lines of credit; overdraft protection; and loans secured by certificates of
deposit.
At December 31, 1995, SFFed held a consumer loan portfolio of approximately
$95 million, 91% of which consisted of home equity line of credit loans. The
remaining 9% consisted of loans secured primarily by autos, boats and other
personal property collateral.
Loans Held for Sale
The carrying value of First Nationwide Bank's loans held for sale portfolio
consisted of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------ ----
(IN MILLIONS)
<S> <C> <C>
Single-family residential mortgage loans............ $ 877 $26
Consumer loans, primarily home equity loans......... 326 --
------ ----
$1,203 $26
------ ----
------ ----
</TABLE>
Loans held for sale are carried at the lower of cost or market value. The
significant increase in single family residential mortgage loans held for sale
is attributed to the higher loan production volumes in 1995 compared to 1994. In
addition, substantially all ARMs originated subsequent to September 30, 1995
were sold or held for sale in the secondary market in anticipation of the SFFed
Acquisition. Prior to that time, most ARMs originated were held by First
Nationwide Bank for investment. The consumer loans held for sale generally
represent loans in states where First Nationwide Bank has contracted to sell the
retail deposits.
83
<PAGE>
Origination of Residential Loans
First Nationwide Bank originates residential loans principally through the
efforts of wholesale origination offices where loans are purchased from
independent loan brokers, and, to a lesser degree, staff loan agents. To promote
continuity of customer service, help meet credit needs and to increase
opportunities to sell customer deposit and other financial services offered by
First Nationwide Bank and its subsidiaries, loan inquiries from retail branch
customers and 'walk-in' applicants are encouraged. These inquiries are initially
processed by retail branch office personnel, with support provided by regional
lending offices. The residential loan agents are compensated principally on a
commission basis. Closed mortgage loans are also acquired by FNMC through a
correspondent lending operation acquired from LMUSA on October 2, 1995.
The majority of real estate loans originated by First Nationwide Bank have
LTV ratios of 80% or less in accordance with its underwriting criteria. First
Nationwide Bank has originated loans with LTV ratios of up to 95%, with the
portion of the loan exceeding 80% guaranteed by private mortgage insurance, the
premiums of which are paid monthly by the borrower. Certain exceptions to this
guideline have been made for low and moderate income borrowers. However, the
amount of loans subject to such exceptions is not significant in terms of First
Nationwide Bank's total loan originations. The value of the property offered as
security for a mortgage loan is determined by a professionally qualified
appraiser approved by First Nationwide Bank, who may or may not be an employee
of First Nationwide Bank. As further security for its loan, First Nationwide
Bank requires title insurance and fire and casualty insurance on all loans
secured by liens on real property. First Nationwide Bank also requires flood
insurance on any loan secured by real property if the property lies within a
U.S. Housing and Urban Development Department ('HUD') -designated flood hazard
area. First Nationwide Bank does not originate loans secured by properties
located in HUD-designated flood hazard areas in communities that do not
participate in the National Flood Insurance Program.
Mortgage Banking Operations
Mortgage banking operations have been an integral part of the business
activities of First Nationwide Bank since the FN Acquisition. FNMC was
incorporated in June 1994 as a wholly owned operating subsidiary of First
Nationwide Bank. In the FN Acquisition, First Nationwide Bank acquired certain
of Old FNB's residential mortgage operations, which were transferred to FNMC in
exchange for a combination of debt and equity held by First Nationwide Bank.
Mortgage banking activities allow the generation of fee income without the
associated capital retention requirements attributable to traditional real
estate lending activities. Generally, First Nationwide Bank originates fixed
rate residential loans for sale in the secondary mortgage market. ARMs
originated prior to September 30, 1995 have generally been held by First
Nationwide Bank for investment. Subsequent to September 30, 1995, however,
substantially all of the ARMs originated were sold or held for sale in the
secondary market in anticipation of the SFFed Acquisition. First Nationwide Bank
employs forward sale hedging techniques to minimize the interest rate and
pricing risks associated with the origination and sale of fixed rate loans.
At the time of origination, management identifies residential loans that
are expected to be sold in the foreseeable future. At December 31, 1995,
management had identified $877.4 million of single-family residential real
estate loans as held for sale. These loans have been classified as assets held
for sale in the consolidated statement of financial condition at December 31,
1995 and are recorded at the lower of aggregate amortized cost or market value.
At December 31, 1995, First Nationwide Bank had forward commitments to sell
loans totalling $572.4 million. In addition, $235.2 million of the loans held
for sale were funded under pre-existing purchase commitments to various housing
bond programs and the California Public Employees Retirement System.
The servicing portfolio of FNMC (including loans serviced for First
Nationwide Bank) approximates $33.6 billion and 571,000 loans as of December 31,
1995. Further, the LMUSA 1996 Purchase increased the loan servicing portfolio by
approximately $14.1 billion and 268,000 loans. Substantially all of FNMC's loans
are serviced in a 220,000 square-foot facility in Frederick, Maryland acquired
from StanFed.
Since the FN Acquisition, First Nationwide Bank has sold fixed rate and
adjustable rate whole loans secured by residential properties to FNMA, FHLMC,
and private investors. Mortgage loan sales totalled $1.4 billion and $47 million
in 1995 and 1994, respectively.
84
<PAGE>
Old FNB occasionally sold loans under recourse provisions; such liability
was assumed by First Nationwide Bank in the FN Acquisition. As of December 31,
1995, the balance of loans sold with certain recourse provisions was $151.9
million.
First Nationwide Bank, through FNMC, has generally retained the right to
service the loans it has sold. FNMC collects from the borrower payments of
principal and interest and, after retaining a servicing fee, remits the balance
to the investors.
In accounting for its mortgage loan sales prior to April 1, 1995, a gain or
loss was recognized based on the sum of three components: (i) the difference
between the cash proceeds of the loan sales and First Nationwide Bank's book
value of the loans; (ii) the 'excess servicing,' if any; less (iii) provisions
for estimated losses to be incurred from limited recourse obligations, if any.
Excess servicing results in a capitalized asset that reflects the discounted
present value of any difference between the interest rate received from the
borrower and the interest rate passed through to the purchaser of the loan, less
a 'normal servicing fee' (dependent upon loan type), which is retained as
compensation for future servicing costs. The amount of excess servicing
recognized in any particular loan sale depends significantly upon three factors
upon which estimates or assumptions must be employed: (i) the estimated life of
the loans, (ii) the discount rate used in calculating discounted present value
and (iii) the 'normal servicing fee.'
The excess servicing asset is amortized as an offset to servicing fee
income using the interest method adjusted for actual prepayment experience over
the estimated remaining servicing lives of the loans sold. First Nationwide Bank
monitors the prepayments on the loans serviced for investors and reduces the
balance of the asset if the actual prepayments are in excess of the estimated
prepayment trends used to record the original asset. First Nationwide Bank's
assumptions relative to prepayment speed, discount and servicing fee rates are
revised periodically to reflect current market conditions and regulatory
requirements.
Effective April 1, 1995, First Nationwide Holdings adopted SFAS No. 122
which requires that, when a mortgage loan is sold and servicing rights are
retained, a portion of the cost of originating a mortgage loan be allocated to
the mortgage servicing rights based on its fair market value. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations of
First Nationwide--General--Accounting Changes' for a description of SFAS No.
122.
At December 31, 1995, FNMC owned rights to service approximately $27.1
billion of whole loans, participation interests and mortgage-backed securities
for others. These loans had an average balance of $52,791, a weighted average
coupon rate of 8.58%, a weighted average maturity of 262 months and a service
fee spread of .49%. The greater than 30 day delinquency rate on these loans at
December 31, 1995 was 3.82%. First Nationwide Bank subserviced for others
approximately $3.3 billion of whole loans, participation interests and
mortgage-backed securities. These loans had an average balance of $60,709, a
weighted average coupon rate of 8.36% and a weighted average remaining maturity
of 286 months. The servicing fee collected on these loans is passed through to
the primary servicer with First Nationwide Bank retaining a flat subservice fee
that is netted out of the monthly remittance. Although First Nationwide Bank has
no risk for loans subserviced, the greater than 30 day delinquency rate on these
loans is 7.46%. For the year ended December 31, 1995, gross revenue for such
servicing activities totalled $94.3 million.
On October 2, 1995, FNMC purchased the stock of Lomas Mortgage Services
Inc., in the LMUSA 1995 Purchase, which is a 33% owner of Lomas Mortgage
Partnership L.P. ('LMP') and its managing general partner. LMP owns the mortgage
servicing rights to approximately $3.1 billion of loans serviced for FNMA, GNMA,
FHLMC and private investors. LMP's investment in such servicing rights and its
other assets are partially funded by independent bank lines of credit totalling
approximately $27 million. LMP has no employees or physical operations but
discharges its obligations under its servicing contracts under a subservicing
contract with FNMC. See '--General--Background.'
85
<PAGE>
NON-PERFORMING ASSETS
The Issuer's exposure to losses relative to certain assets acquired in the
FN Acquisition that become non-performing or otherwise problematic prior to
November 30, 1996 is mitigated to the extent First Nationwide Bank is able to
put such loans to Granite under the Put Agreement. See '--Other Activities--The
Put Agreement.'
Classification of Assets
Savings institutions are required to classify their assets on a regular
basis, establish prudent allowances for loan losses and make quarterly reports
of troubled asset classification to the OTS. Assets must be classified as
'pass,' 'special mention,' 'substandard,' 'doubtful' or 'loss.' An asset is
generally designated as 'special mention' if potential weaknesses are identified
that, if left uncorrected, would result in deterioration of the repayment
prospects for the asset. An asset, or a portion thereof, is generally classified
as 'substandard' if it possesses a well-defined weakness which could jeopardize
the timely liquidation of the asset or realization of the collateral at the
asset's book value. Thus, these assets are characterized by the possibility that
the institution will sustain some loss if the deficiencies are not corrected. An
asset, or portion thereof, is classified as 'doubtful' if identified weaknesses
make collectibility or liquidation in full highly questionable and improbable.
An asset, or a portion thereof, that is considered to be uncollectible is
classified as 'loss.' It should be noted that First Nationwide Bank does not
maintain assets in a loss classification category; rather, the carrying value of
all troubled assets is reduced by any amount considered to be uncollectible. The
appropriate OTS Regional Director has the authority to approve, disapprove or
modify any asset classification or any amount established as an allowance
pursuant to such classification. Savings institutions must maintain adequate
general valuation allowances in accordance with generally accepted accounting
principles and federal regulations for assets classified as 'substandard' or
'doubtful' and either immediately write off assets classified as 'loss' or
establish specific valuation allowances equal to the amounts classified as
'loss.'
First Nationwide Bank has a comprehensive process for classifying assets,
and asset reviews are performed on a periodic basis. Such reviews are
prioritized according to an asset's risk characteristics, such as loan size,
collateral type and/or location, and potential loan performance problems. The
objective of the review process is to identify significant trends and determine
the levels of loss exposure to First Nationwide Bank that would require
increases to specific and general valuation allowances.
Loan Portfolio Risk Elements
When a borrower fails to make a contractually required payment on a loan,
the loan is characterized as delinquent. In most cases delinquencies are cured
promptly; however, foreclosure proceedings, and, in some cases workout
proceedings, are generally commenced if the delinquency is not cured. The
procedures for foreclosure actions vary from state to state, but generally if
the loan is not reinstated within certain periods specified by statute, the
property securing the loan can be acquired through foreclosure by the lender.
While deficiency judgments against the borrower are available in some of the
states in which First Nationwide Bank originates loans, the value of the
underlying collateral property is usually the principal source of recovery
available to satisfy the loan balance.
In general, loans are placed on nonaccrual status after being contractually
delinquent for more than 90 days. When a loan is placed on nonaccrual status,
all interest previously accrued but not received is reversed, unless the loan is
put eligible under the Put Agreement, in which case 90 days of interest remains
accrued. First Nationwide Bank may modify or restructure a loan as a result of a
borrower's inability to service the obligation under the original terms of the
loan agreement. Management believes that losses currently arising out of loans
on nonaccrual status and loans contractually past due 91 days or more, acquired
from Old FNB, are eliminated to the extent such loans are sold under the Put
Agreement.
86
<PAGE>
The following table indicates the carrying value of First Nationwide Bank's
loans, excluding loans subject to the Assistance Agreement, which have been
placed on nonaccrual status, as well as the carrying value of foreclosed real
estate, at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1995 1994 1993 1992 1991
---- ---- ------ ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Real estate:
1-4 unit residential........................................... $136 $133 $ 2 $ 7 $ 52
5+ unit residential............................................ 23 24 9 -- --
Commercial and other........................................... 9 11 -- -- --
Land........................................................... -- 7 -- -- --
Construction................................................... -- 2 -- -- --
---- ---- ------ ---- ----
Total real estate............................................ 168 177 11 7 52
Equity-line and consumer......................................... 3 4 -- 4 2
---- ---- ------ ---- ----
Total nonaccrual loans....................................... 171 181 11 11 54
Foreclosed real estate, net........................................ 49 37 -- -- --
---- ---- ------ ---- ----
Total non-performing assets.................................. $220(a) $218 $ 11 $ 11 $ 54
---- ---- ------ ---- ----
---- ---- ------ ---- ----
Non-performing loans as a percentage of First Nationwide Bank's
total loans...................................................... 1.71% 1.81% 37.61%(b) 1.42% 2.12%
---- ---- ------ ---- ----
---- ---- ------ ---- ----
Non-performing assets as a percentage of First Nationwide Bank's
total assets..................................................... 1.50% 1.49% .98% .12% .53%
---- ---- ------ ---- ----
---- ---- ------ ---- ----
</TABLE>
- ------------------
(a) Of the $220 million in total non-performing assets, approximately $13.5
million were eligible to be sold to Granite pursuant to the Put Agreement at
December 31, 1995.
(b) The significant increase in the percentage of non-performing loans to total
loans at December 31, 1993 from December 31, 1992, reflects the decrease in
loans receivable from $899 million at December 31, 1992 to $34 million at
December 31, 1993. The level of non-performing assets over that time period
remained relatively constant.
Interest income of $6.1 million was received and recognized for nonaccrual
loans during 1995, instead of $15.3 million which would have been recognized had
the loans performed in accordance with their original terms. First Nationwide
Bank has had no loans contractually past due 90 days or more on accrual status
in the past five years.
The following table indicates loans classified as troubled debt
restructurings, net of purchase accounting adjustments, and excluding loans
subject to the Assistance Agreement, at the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Restructured loans:
1-4 unit residential............... $ 8 $ 19 $ -- $ -- $ --
5+ unit residential................ 147 204 -- -- --
Commercial and other............... 79 110 -- -- --
---- ---- ---- ---- ----
Total restructured loans....... $234 $333 $ -- $ -- $ --
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
For the year ended December 31, 1995, interest income of $22 million was
recognized on restructured loans instead of the $33 million which would have
been recognized had the loans been performing in accordance with their original
terms. There were no non-real estate restructured loans in any of the past five
years.
Allowance for Loan Losses
The Issuer charges current earnings with a provision for estimated credit
losses on loans receivable to bring the total allowance to a level deemed
appropriate by management. The provision considers both specifically identified
problem loans and credit risks not specifically identified in the loan
portfolio. The allowance for loan losses is based on such factors as the
financial condition of the borrowers, the fair value of the loan collateral,
recourse to guarantors, the estimated net cost of holding and maintaining
properties and collateral prior to the
87
<PAGE>
anticipated date of sale, analysis of delinquency trends, geographic and
collateral-type concentrations, past loss experience, regulatory policies, and
other factors related to the collectibility of the Issuer's loan portfolio.
The following table summarizes activity in the Issuer's allowance for loan
losses during the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $203 $ 2 $15 $24 $15
Purchases--FN Acquisition....................... -- 202 -- -- --
Provision for loan losses....................... 37 6 1 16 18
Charge-offs:
1-4 unit residential.......................... (28) (4) -- (11) (6)
Commercial real estate(a)..................... -- (4) -- -- --
Consumer and other............................ (5) (1) (1) (7) (5)
Commercial.................................... -- -- (1) (1) --
---- ---- ---- ---- ----
Total charge-offs........................... (33) (9) (2) (19) (11)
---- ---- ---- ---- ----
Recoveries...................................... 3 2 1 2 2
---- ---- ---- ---- ----
Net charge-offs............................... (30) (7) (1) (17) (9)
---- ---- ---- ---- ----
Allowance for losses assigned to loans sold..... -- -- (13) (8) --
---- ---- ---- ---- ----
Balance at end of period.......................... $210 $203 $ 2 $15 $24
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
- ------------------
(a) Lack of activity in the year ended December 31, 1995 is principally due to
the existence of the Put Agreement.
The following table sets forth the allocation of the allowance for loan
losses at the dates indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Specific reserves:
Real estate loans--1-4 unit residential........ $ 1 $ 4 $-- $ 2 $ 1
General reserves:
Real estate loans:
1-4 unit residential......................... 115 105 2 13 23
5+ unit residential.......................... 44 44 -- -- --
Commercial real estate....................... 41 41 -- -- --
---- ---- ---- ---- ----
Total real estate loans.................... 200 190 2 13 23
Equity-line and consumer loans................. 9 9 -- -- --
---- ---- ---- ---- ----
Total general reserves....................... 209 199 2 13 23
---- ---- ---- ---- ----
Total allowance for loan losses.................. $210 $203 $ 2 $15 $24
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
The table below provides ratios of net charge-offs on loans to outstanding
average loan balances for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate:
1-4 unit residential............ .47 % 0.06% 1.26% 1.13% 0.38%
Commercial real estate.......... -- 0.10 0.19 0.01 --
Consumer and other.................. 1.00 0.23 0.24 0.94 0.57
Commercial.......................... -- -- 1.29 1.06 --
</TABLE>
Impaired Loans
See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--General--Accounting Changes' for a discussion of SFAS
No. 114 and First Nationwide Bank's impaired loans as of December 31, 1995.
88
<PAGE>
INVESTMENT ACTIVITIES
First Nationwide Bank is required by OTS regulations to maintain a
specified minimum amount of liquid assets which may be invested in specified
securities. First Nationwide Bank is also permitted to invest in certain other
types of securities. Securities balances (including cash equivalent securities)
exceeding minimum federal requirements are subject to change over time based on
First Nationwide Bank's asset/liability funding needs and interest rate risk
management objectives. First Nationwide Bank's liquidity levels take into
consideration anticipated future cash flows and all available sources of credit.
Liquidity is maintained at levels management believes is appropriate to assure
future flexibility in meeting anticipated funding needs including deposit
withdrawal requests, loan funding commitments, and other investment or
restructuring requirements.
During 1993 to 1995 the OTS required members of the FHLBS to maintain
eligible liquid assets as defined by federal regulations in an amount equal to
or greater than 5% of average deposits and borrowings due within one year. Under
applicable law, this liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10%, and the OTS has the
authority to prescribe liquidity requirements for different classes of savings
institutions, which classes may be determined in accordance with criteria
selected by the OTS. First Nationwide Bank was in compliance with this
regulation throughout 1995.
Cash Equivalents
The Issuer invests in federal funds sold, securities purchased under
agreements to resell and interest-bearing deposits in other banks from time to
time to help meet First Nationwide Bank's regulatory liquidity requirements and
as temporary holdings until the funds can be otherwise deployed or invested.
Securities Available for Sale
The Issuer adopted SFAS No. 115 effective January 1, 1994. In November
1995, the FASB issued the Special Report which provided all entities an
opportunity to reassess their ability and intent to hold securities to maturity
and allowed a one-time reclassification of securities from held-to-maturity to
available-for-sale without 'tainting' the remaining held-to-maturity securities.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations--General--Accounting Changes.' On December 29, 1995, the Issuer
reclassified $1.5 billion and $231.8 million in carrying value of
mortgage-backed securities and U.S. government and agency securities,
respectively, from the respective held-to-maturity categories to securities
available for sale, and recorded an increase of $18 million and $4.5 million in
stockholder's equity and minority interest--Hunter's Glen, respectively, for the
net unrealized gain on such securities.
The following summarizes the amortized cost and estimated fair value of the
Issuer's securities available for sale at the dates indicated (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------
GROSS GROSS NET
AMORTIZED UNREALIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Marketable equity securities..................... $ 34,000 $ 80,068 $ -- $ 80,068 $ 114,068
Mortgage-backed securities:
GNMA........................................... 14,018 906 -- 906 14,924
FNMA........................................... 294,070 5,643 -- 5,643 299,713
FHLMC.......................................... 801,393 19,671 (1) 19,670 821,063
Collateralized mortgage obligations............ 345,699 793 (4,678) (3,885) 341,814
U.S. government and agency obligations........... 231,794 2,768 (69) 2,699 234,493
---------- ---------- ---------- ---------- ----------
Total....................................... $1,720,974 $ 109,849 $ (4,748) 105,101 $1,826,075
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FDIC portion of unrealized gain on marketable
equity securities.............................. (34,534)
Minority interest--Hunter's Glen................. (12,702)
Estimated tax effect............................. (7,055)
----------
Net unrealized holding gain in stockholder's
equity.................................... $ 50,810
----------
----------
</TABLE>
89
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------
GROSS GROSS NET
AMORTIZED UNREALIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Marketable equity securities..................... $ 34,000 $ 11,000 $ -- $ 11,000 $ 45,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Minority interest--Hunter's Glen................. (2,200)
----------
Net unrealized holding gain in stockholder's
equity.................................... $ 8,800
----------
----------
</TABLE>
At December 31, 1995, mortgage-backed securities available for sale
included securities totalling $63.4 million which resulted from the
securitization of certain qualifying mortgage loans from First Nationwide Bank's
loan portfolio. There were no such securities classified as available for sale
at December 31, 1994 or 1993.
At December 31, 1995, mortgage-backed securities available for sale
included $979.0 million of variable-rate securities. No variable-rate securities
were classified as available for sale at December 31, 1994 or 1993.
Marketable equity securities available for sale represents approximately
25% of the outstanding common stock of Affiliated Computer Services ('ACS'),
representing 5% of the voting power, with an original cost basis of $34 million.
At December 31, 1995, ACS stock closed at $37.50 per share on The Nasdaq Stock
Market, resulting in a total value of $114.1 million for the ACS shares held by
First Nationwide Bank. Pursuant to the terms of an agreement dated July 15, 1991
between First Nationwide Bank and the FDIC, the FDIC is entitled to share in a
defined portion of the proceeds from the sale of the stock, which, at December
31, 1995 and 1994, approximated $34.5 million and $0, respectively, and which is
recorded in other liabilities. Accordingly, the net unrealized gain on the ACS
stock, net of income taxes, reported as a separate component of stockholder's
equity at December 31, 1995 was $41.0 million. The ACS stock represents the only
security classified as available for sale at December 31, 1994.
The Issuer maintains a significant portfolio of mortgage-backed securities
as a means of investing in housing-related mortgage instruments without the
costs associated with originating mortgage loans for portfolio retention and the
credit risk of default which arises in holding a portfolio of loans to maturity.
By investing in mortgage-backed securities, management seeks to achieve a
positive spread over the cost of funds used to purchase these securities.
Mortgage-backed securities available for sale are carried at fair value, with
unrealized gains and losses excluded from earnings are reported in a separate
component of stockholder's equity. Premiums and discounts on the purchase of
mortgage-backed securities are amortized or accreted as a yield adjustment over
the life of the securities using the interest method, with the amortization or
accretion effect of prepayment being adjusted based on revised estimates of
future repayments.
Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings. Mortgage-backed securities issued or guaranteed by FNMA or FHLMC
(except interest-only securities or the residual interests in collateralized
mortgage obligations ('CMOs')) are weighted at no more than 20% for risk-based
capital purposes, compared to a weight of 50% to 100% for residential loans. See
'Regulation--Regulation of the Bank.'
The following is a summary of privately issued CMOs with aggregate carrying
values in excess of 10% of stockholder's equity at December 31, 1995 (in
millions):
<TABLE>
<CAPTION>
AGGREGATE AGGREGATE
CARRYING VALUE MARKET VALUE
-------------- ------------
<S> <C> <C>
Residential Funding Mortgage Securities........................... $ 77 $ 77
Solomon Brothers Mortgage Securities.............................. 56 56
------ ------
$133 $133
------ ------
------ ------
</TABLE>
90
<PAGE>
The Issuer held privately issued CMOs with an aggregate carrying value of
$274 million at December 31, 1995. At December 31, 1995, the mortgage-backed
securities acquired by the Issuer have the highest credit rating from one or
more of the national securities rating agencies. Such credit rating, however,
may be subject to revision or withdrawal at any time by such rating agencies.
The mortgage-backed securities which the Issuer purchases and maintains in its
portfolio include certain CMOs. A CMO is a special type of pay-through debt
obligation in which the stream of principal and interest payments on the
underlying mortgages or mortgage-backed securities is used to create classes
with different maturities and, in some cases, amortization schedules and a
residual class of the CMO security being sold, with each such class possessing
different risk characteristics. The residual interest sold represents any
residual cash flows which result from the excess of the monthly receipts
generated by principal and interest payments on the underlying mortgage
collateral and any reinvestment earnings thereon, less the cash payments to the
CMO holders and any administrative expenses. As a matter of policy, due to the
risk associated with residual interests, the Issuer does not invest in the
residual interests of CMOs.
Securities Held to Maturity
Substantially all of the Issuer's securities classified as held to maturity
were reclassified to available for sale at December 29, 1995.
The following summarizes the amortized cost and estimated fair value of the
Issuer's securities available for sale at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
1995 1994 1993
---------------------- ---------------------- ----------------------
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
--------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
U.S. government and agency obligations............ $-- $-- $ 410 $ 407 $15 $15
Municipal and other securities.................... 1 1 2 2 -- --
--- --- --------- --------- --- ---
Total........................................... $ 1 $ 1 $ 412 $ 409 $15 $15
--- --- --------- --------- --- ---
--- --- --------- --------- --- ---
</TABLE>
The weighted average stated interest rate on securities held to maturity
was 8.25%, 5.79% and 3.66% at December 31, 1995, 1994 and 1993, respectively.
Securities held to maturity at December 31, 1995 mature with one year.
Mortgage-backed Securities Held to Maturity
Substantially all of the Issuer's mortgage-backed securities, except for
mortgage-backed securities resulting from the securitization of certain of First
Nationwide Bank's loans, were reclassified from the held-to-maturity portfolio
to the available-for-sale portfolio on December 29, 1995.
A summary of the Issuer's mortgage-backed securities held to maturity at
the dates indicated is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------
1995 1994 1993
----------------------- ----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ---------- --------- ----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
GNMA......... $ -- $ -- $ 16 $ 16 $ -- $ --
FNMA......... 533 548 1,078 1,060 -- --
FHLMC........ 988 1,016 1,660 1,647 -- --
CMOs......... -- -- 397 370 341 340
Other........ 3 3 3 3 -- --
--------- ---------- --------- ---------- --------- -----
Total...... $ 1,524 $1,567 $ 3,154 $3,096 $ 341 $340
--------- ---------- --------- ---------- --------- -----
--------- ---------- --------- ---------- --------- -----
</TABLE>
91
<PAGE>
The weighted average interest rate on mortgage-backed securities to be held
to maturity was 7.46%, 6.30% and 6.75% at December 31, 1995, 1994 and 1993,
respectively. At December 31, 1995 and 1994, mortgage-backed securities held to
maturity included securities totalling $1.5 billion and $1.4 billion,
respectively, which resulted from the securitization of certain qualifying
mortgage loans from First Nationwide Bank's loan portfolio. There were no such
securities held at December 31, 1993. At December 31, 1995 and 1994, these
securities include $1.5 billion and $1.3 billion, respectively, which have been
securitized with FNMA and FHLMC with full recourse to First Nationwide Bank. At
December 31, 1995 and 1994, respectively, the Issuer had $1.5 billion and $2.5
billion of variable rate mortgage-backed securities held to maturity. No
variable rate mortgage-backed securities were held at December 31, 1993.
For the years ended December 31, 1995, 1994 and 1993, the Issuer recognized
no gains on sales of mortgage-backed securities held to maturity.
Mortgage-backed securities held to maturity are carried at amortized cost
rather than the lower of cost or market, unless there is evidence of a decline
other than a temporary decline in value. Anything other than temporary declines
in value are charged to income in the periods in which the declines are
determined. Premiums and discounts on the purchase of mortgage-backed securities
are amortized or accreted as a yield adjustment over the life of the securities
using the interest method, with the amortization or accretion effect of
prepayment being adjusted based on revised estimates of future repayments.
The following table summarizes the Issuer's mortgage-backed securities
held-to-maturity portfolio and the related weighted average coupon rate at
December 31, 1995, based upon contractual scheduled maturities allocated to the
appropriate maturity categories. This table does not reflect the scheduled
amortization or any anticipated prepayment of the underlying loans
collateralizing such securities in the portfolio.
<TABLE>
<CAPTION>
OVER TEN
OVER ZERO OVER THREE OVER FIVE BUT WITHIN OVER
BUT WITHIN WAC BUT WITHIN WAC BUT WITHIN WAC FIFTEEN WAC FIFTEEN WAC
THREE YEARS (1) FIVE YEARS (1) TEN YEARS (1) YEARS (1) YEARS (1) TOTAL
----------- ---- ---------- ---- ---------- ---- ---------- ----- ------- ---- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA.................... $-- -- % $ -- -- % $ -- -- % $ -- -- % $ 988 7.20% $ 988
FHLMC................... -- -- -- -- -- -- -- -- 533 7.93 533
Other................... -- -- -- -- -- -- 1 10.00% 2 8.14 3
--- --- --- --- ------- ------
$-- $ -- $ -- $ 1 $1,523 $1,524
--- --- --- --- ------- ------
--- --- --- --- ------- ------
</TABLE>
- ------------------
(1) Weighted average coupon rate.
SOURCES OF FUNDS
General
Deposits, sales of securities under agreements to repurchase, advances from
the FHLBs of Dallas and San Francisco, and sales, maturities and principal
repayments on loans and mortgage-backed securities have been the major sources
of funds for use in First Nationwide Bank's lending and investment activities
and other general business purposes. The management of First Nationwide Bank
closely monitors rates and terms of competing sources of funds on a daily basis
and utilizes the source which is most cost-effective. The availability of funds
from sales of loans and securities is influenced by the levels of general
interest rates and other market conditions. For additional information regarding
the Issuer's sources of funds, see 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the Issuer's Consolidated
Statements of Cash Flows set forth in the Issuer's Consolidated Financial
Statements contained elsewhere in this Prospectus.
Loan principal and interest payments are a relatively stable source of
funds, while customer deposit inflows and outflows and loan repayments and
prepayments are influenced significantly by the levels of general interest rates
and money market conditions, and may fluctuate widely. Borrowings may be used to
compensate for reductions in normal sources of funds such as customer deposits.
Deposits
First Nationwide Bank offers a variety of deposit accounts designed to
attract both short-term and long-term deposits. There are no rate limitations on
any type of deposit account presently offered by First Nationwide Bank.
92
<PAGE>
The ability of First Nationwide Bank to retain and attract new deposits is
dependent upon the variety and effectiveness of its customer account products,
customer service and convenience, and prevailing market conditions. The
following table shows the distribution of deposits by type of account at the
dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1995 1994 1993
--------------------- -------------------- --------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT DEPOSITS AMOUNT DEPOSITS AMOUNT DEPOSITS
------- ---------- ------ ---------- ------ ----------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Passbook accounts............................. $ 664 6.5% $ 685 7.5% $ 3 0.7%
Demand deposits:
Interest-bearing........................... 684 6.7 667 7.3 5 1.2
Noninterest-bearing........................ 697 6.8 352 3.8 4 0.9
Money market deposit accounts................. 1,443 14.2 1,927 21.1 48 11.2
------- ---------- ------ ---------- ------ ----------
Total transaction accounts................. 3,488 34.2 3,631 39.7 60 14.0
Term accounts................................... 6,696 65.8 5,519 60.3 370 86.0
------- ---------- ------ ---------- ------ ----------
10,184 100.0% 9,150 100.0% 430 100.0%
---------- ---------- ----------
Accrued interest payable........................ 51 26 2
Purchase accounting adjustments, net............ 7 21 --
------- ------ ------
Total...................................... $10,242 $9,197 $432
------- ------ ------
------- ------ ------
</TABLE>
Deposit balances averaged $9.9 billion and $2.6 billion during 1995 and
1994 respectively, with average stated interest rates of 4.67% and 3.86%
respectively. The weighted average stated interest rates on deposits at December
31, 1995 were 4.67% and 4.19% respectively. Deposit balances averaged $2.6
billion and $1.2 billion during 1994 and 1993, respectively, with average
interest rates of 3.86% and 4.64%, respectively. The weighted average stated
interest rates on deposits at December 31, 1994 and 1993 were 4.19% and 4.41%,
respectively.
The following table presents the average balance and weighted average rate
paid on each deposit type at the periods indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE PAID BALANCE RATE PAID BALANCE RATE PAID
------- --------- ------- --------- ------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Passbook accounts............................. $ 666 2.20% $ 179 2.14% $ 192 2.67%
Demand deposits:
Interest-bearing........................... 699 1.00 184 .97 42 2.02
Noninterest-bearing........................ 583 -- 93 -- 11 --
Money market deposit accounts................. 1,581 3.22 547 2.98 32 2.79
Term accounts................................... 6,398 6.10 1,611 4.91 918 5.24
------- --------- ------- --------- ------- ---------
Total...................................... $ 9,927 4.67% $2,614 3.86% $1,195 4.64%
------- --------- ------- --------- ------- ---------
------- --------- ------- --------- ------- ---------
</TABLE>
93
<PAGE>
The following table sets forth the scheduled maturities of term accounts by
stated interest rate at December 31, 1995.
<TABLE>
<CAPTION>
1999 AND
1996 1997 1998 THEREAFTER TOTAL
------ ------ ---- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
3.00% or less............. $ 3 $ -- $ -- $ -- $ 3
3.01--4.00%............... 104 9 -- -- 113
4.01--5.00%............... 311 16 27 13 367
5.01--6.00%............... 2,442 405 52 155 3,054
6.01--7.00%............... 1,336 361 35 212 1,944
7.01--8.00%............... 528 239 37 132 936
8.01--9.00%............... 71 40 5 7 123
9.01--10.00%.............. 134 2 2 11 149
10.01--11.00%............. -- -- -- 4 4
11.01--12.00%............. -- -- -- 1 1
12.01--13.00%............. -- -- -- 2 2
------ ------ ---- ---------- ------
Total term accounts..... $4,929 $1,072 $158 $537 $6,696
------ ------ ---- ---------- ------
------ ------ ---- ---------- ------
</TABLE>
The following table sets forth remaining maturities for term deposits in
amounts of $100,000 or more at December 31, 1995 (in millions):
<TABLE>
<S> <C>
3 months or less........................... $ 168
Over 3 months but within 6 months.......... 141
Over 6 months but within 12 months......... 201
Over 12 months............................. 180
---------
Total.................................... $ 690
---------
---------
</TABLE>
At December 31, 1995, the aggregate amount outstanding of certificates of
deposit of $100,000 or larger was $690 million, compared with $523 million at
December 31, 1994. Deposits held by foreign investors totalled $63 million and
$58 million at December 31, 1995 and 1994 respectively. No such deposits were
held at December 31, 1993.
First Nationwide Bank's deposit accounts are held primarily by individuals
residing in the vicinity of its retail branch offices located throughout the
country. First Nationwide Bank has emphasized, and will continue to emphasize, a
retail branch network for attracting deposits. Key market areas, particularly
the West Coast region, will continue to be targeted for expansion of retail
deposits and the cross-selling of additional consumer products.
When cost-effective relative to other sources of funding, First Nationwide
Bank issues certificates of deposit through direct placement programs and
national investment banking firms ('Brokered Deposits'). These deposits are
usually in amounts less than $100,000 and are obtained from a diverse customer
base. While these funds are generally more costly than traditional passbook and
money market deposits and more volatile as a source of funds because of their
sensitivity to the rates offered, they supplement retail customer deposits in
raising funds for financing and liquidity purposes. At December 31, 1995, First
Nationwide Bank had approximately $965 million of Brokered Deposits outstanding,
representing 9.47% of total deposits.
The following table presents the scheduled maturity of Brokered Deposits
and all other retail term deposits at December 31, 1995.
<TABLE>
<CAPTION>
1999 AND
1996 1997 1998 THEREAFTER TOTAL
------ ------ ---- ---------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Brokered Deposits........... $ 523 $ 368 $ 5 $ 69 $ 965
Retail term deposits........ 4,406 704 153 468 5,731
------ ------ ---- ---------- ------
Total term deposits....... $4,929 $1,072 $158 $537 $6,696
------ ------ ---- ---------- ------
------ ------ ---- ---------- ------
</TABLE>
In April 1995, First Nationwide Bank acquired approximately $13 million in
deposits located in Tiburon, California in the Tiburon Purchase. In August 1995,
First Nationwide Bank acquired three retail branches and associated deposit
accounts totalling approximately $356 million located in Orange County,
California in the ITT
94
<PAGE>
Purchase. On December 8, 1995, First Nationwide Bank acquired four retail
branches located in Sonoma County, California with associated deposit accounts
of approximately $143.5 million as of December 7, 1995, in the Sonoma Purchase.
In connection with the Branch Sales and the SFFed and Home Federal
Acquisitions, total deposits sold will exceed deposits to be acquired, resulting
in a reduction in deposits. The average interest rate on deposits will increase
slightly because the deposit base acquired in the SFFed Acquisition had a lower
percentage of transaction accounts relative to term deposit accounts.
Borrowings
First Nationwide Bank utilizes various borrowings as alternative sources of
funds for its business needs. These sources have included securities sold under
agreements to repurchase, FHLB advances and subordinated debentures. First
Nationwide Bank will rely primarily on FHLB advances and securities sold under
agreements to repurchase to replace funding from deposits sold in the Branch
Sales.
Short-term Borrowings
The following table sets forth for each category of borrowings due within
one year: (i) for the periods presented, the average amount outstanding, the
maximum amount outstanding at any month end and the average interest rate paid,
and (ii) at period end, the amount outstanding and average interest rate paid.
Amounts and rates reflected in the table exclude accrued interest payable and
purchase accounting adjustments.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
-------------------------
1995 1994 1993
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding......................................................... $ 862 $ 434 $ 369
Maximum amount outstanding at any month end during the period....................... 1,487 1,909 441
Balance outstanding at end of period................................................ 1,487 1,049 441
Average interest rate during the period............................................. 7.19% 6.56% 4.26%
Average interest rate at end of period.............................................. 6.12% 7.34% 4.54%
Securities sold under agreements to repurchase:
Average balance outstanding......................................................... 1,351 499 21
Maximum amount outstanding at any month end during the period....................... 1,965 1,880 139
Balance outstanding at end of period................................................ 698 1,880 119
Average interest rate during the period............................................. 6.53% 3.78% 3.83%
Average interest rate at end of period.............................................. 6.06% 6.51% 3.45%
Real estate notes payable and revolving warehouse line:
Average balance outstanding......................................................... -- -- 3
Maximum amount outstanding at any month end during the period....................... -- -- 6
Balance outstanding at end of period................................................ -- -- --
Average interest rate during the period............................................. -- -- 12.50%
Average interest rate at end of the period.......................................... -- -- --
</TABLE>
At December 31, 1995, First Nationwide Bank had additional secured
borrowing capacity of $5.1 billion with the FHLB and other sources. These
collateralized funding sources may also be used to satisfy other funding
requirements.
Securities Sold Under Agreements to Repurchase
First Nationwide Bank enters into reverse repurchase agreements whereby it
sells marketable U.S. government and mortgage-backed securities and CMOs with a
commitment to repurchase the securities at a specified price and on a specified
date. These agreements are recorded as financings, and the obligation to
repurchase assets sold is reflected as a liability on the consolidated statement
of financial condition. The dollar amount of assets underlying the agreements
remains in the asset accounts. The securities underlying the agreements are
delivered to the dealers who arranged the transactions. The counterparty to the
repurchase agreement may have loaned the securities to other parties in the
normal course of their operations; however, all
95
<PAGE>
agreements require that the identical securities be resold to First Nationwide
Bank at the maturity of the agreements. In order to reduce possible risks
associated with these borrowing transactions, the reverse repurchase agreements
are generally entered into with national investment banking firms and major
commercial banks which are primary dealers in these securities.
During 1995, First Nationwide Bank reduced the level of funds borrowed
under reverse repurchase agreements from $1.9 billion at December 31, 1994 to
$1.0 billion at December 31, 1995 to take advantage of favorable rates offered
on short-term FHLB advances throughout the year and to assume additional
deposits in the Branch Purchases.
FHLB Advances
The FHLB functions in a credit capacity for savings institutions and
certain other home financing institutions. A thrift institution may generally
borrow from its district FHLB through advances secured by its home mortgages and
other assets (principally securities which are obligations of, or guaranteed by,
the U.S. government). A thrift is required to hold a minimum amount of capital
stock of the FHLB based upon a percentage of its outstanding home mortgage loans
and similar obligations, a percentage of its outstanding advances from the FHLB
or a certain percentage of total assets. Such advances may be made pursuant to
several different credit programs made available from time to time by the FHLB
to meet seasonal and other withdrawals of deposit accounts and to expand
lending, each of which has its own interest rate and range of maturities. The
FHLB prescribes the acceptable uses, as well as limitations on the size of such
advances. Depending on the program, such limitations are based either on a fixed
percentage of the institution's net worth or on the FHLB's assessment of the
institution's creditworthiness.
During 1995, First Nationwide Bank prepaid $250 million in FHLB advances
resulting in a $2 million extraordinary gain on the early extinguishment of
debt, net of tax. During 1994, First Nationwide Bank prepaid $95.2 million in
FHLB advances, resulting in an extraordinary gain on the early extinguishment of
debt, net of tax of approximately $1.4 million.
Interest Rate Swap Agreements
First Nationwide Bank has used interest rate swap agreements to reduce its
interest rate risk exposure on fixed rate FHLB advances. Interest rate swap
agreements with a notional principal amount of $1.15 billion existed at December
31, 1995. The notional amount does not represent amounts exchanged by the
parties and thus, is not a measure of First Nationwide Bank's exposure. First
Nationwide Bank pays the variable rate and receives the fixed rate based on
LIBOR under these agreements. The differential between these two amounts may
change significantly in the future due to fluctuations in market interest rates.
In order to reduce possible counterparty nonperformance risk, First
Nationwide Bank has entered into interest rate swap agreements only with
national investment banking firms and the FHLB of San Francisco.
Old FNB Debentures
As part of the FN Acquisition, First Nationwide Bank assumed subordinated
debentures, which bear interest at 10% per annum and mature on October 1, 2006
(the 'Old FNB Debentures'). At December 31, 1995, the aggregate principal amount
of the Old FNB Debentures outstanding was $92.1 million.
Events of Default under the indenture governing the Old FNB Debentures (the
'Old FNB Indenture') include, among other things: (i) a default in the payment
of interest when due and such default continues for 30 days, (ii) a default in
the payment of any principal when due, (iii) the failure to comply with
covenants in the Old FNB Indenture, provided that the trustee or holders of at
least 25% in principal amount of the outstanding Old FNB Debentures notify First
Nationwide Bank of the default and First Nationwide Bank does not cure the
default within 60 days after receipt of such notice, (iv) certain events of
bankruptcy, insolvency or reorganization of First Nationwide Bank, (v) the
FSLIC/RF (or a comparable entity) is appointed to act as conservator,
liquidator, receiver or other legal custodian for First Nationwide Bank and (vi)
a default under other indebtedness of First Nationwide Bank in excess of $10
million resulting in such indebtedness becoming due and payable, and such
default or acceleration has not been rescinded or annulled within 60 days after
the date on which written notice of
96
<PAGE>
such failure has been given by the trustee to First Nationwide Bank or by
holders of at least 25% in principal amount of the outstanding Old FNB
Debentures to First Nationwide Bank and the trustee.
SFFed Notes
As part of the SFFed Acquisition, First Nationwide Bank assumed the SFFed
Notes, which bear interest at 11.20% per annum and mature on September 1, 2004.
In connection with the assumption of the SFFed Notes, First Nationwide Bank and
all of the holders of the SFFed Notes entered into an agreement amending certain
provisions of the note purchase pursuant to which the SFFed Notes were sold (as
amended, the 'Note Purchase Agreement'). At December 31, 1995, the aggregate
principal amount of the SFFed Notes outstanding was $50 million. Events of
Default under the Note Purchase Agreement include, among other things: (i)
failure to make any payment of principal when due; (ii) any failure to make any
payment of interest when due and such payment is not made within 15 days after
the date such payment was due; (iii) failure to comply with certain covenants in
the Note Purchase Agreement, provided that such failure continues for more than
60 days; (iv) failure to deliver to holders a notice of default, notice of event
of default, or notice of claimed default as provided in the Note Purchase
Agreement; (v) failure to comply with any provision of the Note Purchase
Agreement, provided that such failure continues for more than 60 days after
notice is delivered to SFFed; (vi) a default under other indebtedness provided
that the aggregate amount of all obligations in respect of such indebtedness
exceeds $15 million; (vii) one or more final, non-appealable judgements
outstanding against SFFed or its subsidiaries for the payment of money
aggregating in excess of $15 million, any one of which has been outstanding for
45 days and shall not have been discharged in full or stayed; (viii) any
warranty, representation or other statement contained in the Note Purchase
Agreement by SFFed or any of its subsidiaries being false or misleading in any
material respect when made or (ix) certain events of bankruptcy, insolvency or
reorganization of SFFed or its subsidiaries.
Consummation of the SFFed Acquisition constituted a 'Change of Control'
under the Note Purchase Agreement. Although holders of the SFFed Notes had the
right to compel First Nationwide Bank to redeem the SFFed Notes held by any such
holder at a redemption price of 100% of the principal amount thereof, none of
the holders of SFFed Notes exercised their redemption right.
First Nationwide Bank Preferred Stock
In connection with the FN Acquisition, First Nationwide Bank issued
3,007,300 shares of First Nationwide Bank Preferred Stock. First Nationwide Bank
Preferred Stock has a stated liquidation value of $100 per share, plus declared
and unpaid dividends, if any, without interest. Cash dividends are noncumulative
and are payable at an annual rate of 11 1/2% per share if, when and as declared
by the Board of Directors of First Nationwide Bank.
First Nationwide Bank Preferred Stock ranks prior to the common stock of
First Nationwide Bank and to all other classes and series of equity securities
subsequently issued, other than any class or series expressly designated as
being on a parity with or senior to First Nationwide Bank Preferred Stock as to
dividends and liquidating distributions.
The terms of First Nationwide Bank Preferred Stock provide that First
Nationwide Bank may not declare or pay any dividends or other distributions
(other than in shares of common stock of First Nationwide Bank or other Junior
Stock) with respect to any Junior Stock or repurchase, redeem or otherwise
acquire, or set apart funds for the repurchase, redemption or other acquisition
of, any Junior Stock (including the common stock held by First Nationwide
Holdings) through a sinking fund or otherwise, unless and until: (i) First
Nationwide Bank has paid full dividends on the First Nationwide Bank Preferred
Stock for the four most recent dividend periods, or funds have been paid over to
the dividend disbursing agent of First Nationwide Bank for payment of such
dividends, and (ii) First Nationwide Bank has declared a cash dividend on the
First Nationwide Bank Preferred Stock at the annual dividend rate for the
current dividend period, and sufficient funds have been paid over to the
dividend disbursing agent of First Nationwide Bank for the payment of a cash
dividend for such current dividend period. First Nationwide Bank is currently in
compliance with both of such requirements.
Holders of First Nationwide Bank Preferred Stock have no voting rights,
except as required by law or in certain limited circumstances.
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<PAGE>
Except in the event of a change of control, First Nationwide Bank Preferred
Stock is not redeemable prior to September 1, 1999. First Nationwide Bank
Preferred Stock is redeemable solely at the option of First Nationwide Bank or
its successor or any acquiring or resulting entity with respect to First
Nationwide Bank (including by any parent or subsidiary of First Nationwide Bank,
any such successor, or any such acquiring or resulting entity), as applicable,
at any time on and after September 1, 1999, in whole or in part, at $105.75 per
share on or after September 1, 1999 and prior to September 1, 2000, and at
prices decreasing pro rata annually thereafter to the stated liquidation value
of $100 per share on or after September 1, 2004, plus declared and unpaid
dividends, if any, without interest. Upon a change of control, First Nationwide
Bank Preferred Stock is redeemable on or prior to September 1, 1999 at the
option of First Nationwide Bank or its successor or any acquiring or resulting
entity with respect to First Nationwide Bank (including by any parent or
subsidiary of First Nationwide Bank, any such successor, or any such acquiring
or resulting entity), as applicable, in whole, but not in part, at a price per
share equal to: (i) $100, plus (ii) an amount equal to declared and unpaid
dividends, if any, to the date fixed for redemption, without interest, and
without duplication, an additional amount equal to the amount of dividends that
would be payable on the First Nationwide Bank Preferred Stock in respect of the
period from the first day of the dividend period in which the date fixed for
redemption occurs to the date fixed for redemption (assuming all such dividends
were to be declared), plus (iii) a specified make whole premium.
SFFed Borrowings
Borrowings assumed in connection with the SFFed Acquisition consisted of
the following, at December 31, 1995 (in millions):
<TABLE>
<S> <C>
Federal funds purchased................................. $ 4
Securities sold under agreements to repurchase.......... 713
FHLB advances........................................... 275
SFFed Notes............................................. 49
---------
$ 1,041
---------
---------
</TABLE>
The weighted average rate on such borrowings at December 31, 1995 was
6.60%.
OTHER ACTIVITIES
The Put Agreement
In connection with FN Acquisition, Granite and First Nationwide Bank
entered into the Put Agreement. Pursuant to the Put Agreement, First Nationwide
Bank has the right, on a quarterly basis (the 'Put Option'), to require Granite
to purchase certain commercial real estate loans, commercial real estate loans
serviced by others and residential mortgage loans with an original principal
balance greater than $250,000, and to take certain actions to protect First
Nationwide Bank from losses with respect to certain Letters of Credit ('LOC')
transactions, in each case, only if such asset was purchased by First Nationwide
Bank from Old FNB pursuant to the FNB Asset Purchase Agreement. The Put Option
will expire upon the earlier of: (i) November 30, 1996, or (ii) such time as the
sum of (x) the total amount paid by Granite to First Nationwide Bank in
connection with all purchases or other payments made by Granite pursuant to the
Put Agreement and (y) the aggregate purchase price paid by Granite to Old FNB in
connection with purchases made prior to the closing date ('Closing Date')
pursuant to the Mortgage Loan Sale Agreement dated as of November 30, 1993 (the
'Mortgage Loan Sale Agreement'), between Granite and Old FNB, less the total
amount paid by First Nationwide Bank to Granite in connection with purchases
made by First Nationwide Bank through exercise of certain buyback rights, equals
$500 million (the 'Maximum Amount'). First Nationwide Bank may not require
Granite to purchase more than $100 million of residential mortgage loans.
Granite's obligations under the Put Agreement are guaranteed by Ford Motor.
The Put Option is generally triggered in the event that any of the assets
subject to the Put Agreement become non-performing assets (i.e., payments of
interest or principal become 90 days or more contractually past due) at any time
prior to the expiration of the Put Option.
98
<PAGE>
The purchase price to be paid by Granite for each mortgage loan purchased
pursuant to the Put Agreement is the sum of: (i) the outstanding principal
balance of the loan, (ii) any accrued but unpaid interest on the loan shown on
First Nationwide Bank's books (not to exceed 90 days accrued but unpaid
interest), (iii) amounts owed to First Nationwide Bank for real property taxes,
insurance premiums and similar charges and (iv) reasonable amounts (including
reasonable attorneys' fees and protective advances) expended by First Nationwide
Bank in protecting its security interest or enforcing its rights with respect to
such loan. The amount to be paid by Granite to First Nationwide Bank with
respect to each non-performing LOC for which First Nationwide Bank requires such
payment will be the amount of any protective advances (the 'Protective
Advances') made by First Nationwide Bank in connection with such LOC (but in no
event shall the Protective Advances include an amount greater than 90 days
accrued but unpaid interest). In addition, with respect to any such LOC which
has been included in the FNMA Pool (as defined in the Put Agreement), Granite
must, if so requested by First Nationwide Bank, take all necessary or
appropriate steps to cause such LOC to be removed from the FNMA Pool and
thereafter Granite will bear all economic risk associated with such LOC (or, if
all required consents for such removal can not be obtained, Granite must take
such actions as are necessary to place First Nationwide Bank in the same
economic position as it would have been in had the LOC been so removed). With
respect to certain other non-performing LOCs (including LOCs that were
originally part of the FNMA Pool but were required by FNMA to be removed from
such pool prior to the time such LOCs became non-performing), Granite must, if
requested by First Nationwide Bank, post substitute collateral for the benefit
of First Nationwide Bank, in the form of cash or cash equivalents with a value
not less than the face amount of the LOC, or in any other form deemed reasonably
acceptable by First Nationwide Bank, in the place of any existing LOC
collateral. The total amount charged against the Maximum Amount with respect to
any LOC will be the amount of Protective Advances reimbursed by Granite,
together with (x) in the case of LOCs removed from the FNMA Pool, to the extent
not included as part of the reimbursed Protective Advances, the amounts set
forth in clauses (i)-(iv) of the first sentence of this paragraph with respect
to the mortgage loan underlying the LOC, or (y) in the case of LOCs for which a
substitution of collateral must be made, the face amount of the LOC.
If First Nationwide Bank declines on any quarterly put date to sell an
eligible non-performing mortgage loan or to demand the removal or substitution
of collateral, as appropriate, in connection with an eligible LOC, its right to
put such asset or demand such removal or substitution, as the case may be, shall
be extinguished, except that put rights with respect to: (i) jumbo residential
loans, First Nationwide Bank's interest in certain commercial mortgage loans
serviced by others and certain other loans formerly owned by FNMA will be
extended for one additional quarter, and (ii) loans which have matured as of the
Closing Date for which monthly principal and interest payments are being made as
of the Closing Date will be extended until the end of the second quarter
following the Closing Date. In the event that, as of November 30, 1996, Granite
has not been required to purchase $500 million of non-performing assets, First
Nationwide Bank may require Granite to purchase any Putable Assets of First
Nationwide Bank, other than assets which previously became non-performing and
which First Nationwide Bank did not require Granite to purchase, up to the
Maximum Amount.
The Assistance Agreement
Under the terms of the Assistance Agreement, the FSLIC's successor, the
FSLIC/RF, provides capital loss coverage and a guaranteed yield on the Covered
Assets, as well as indemnification in connection with certain claims.
In 1995, the FSLIC/RF purchased substantially all of the remaining Covered
Assets at the fair market value of such assets in the FDIC Purchase. Under the
terms of the Capital Loss Coverage (as defined herein) provisions of the
Assistance Agreement, losses sustained by First Nationwide Bank from the FDIC
Purchase were reimbursed by the FSLIC/RF. There was no material impact on the
Consolidated Financial Statements of the Issuer as a result of the FDIC
Purchase.
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First Nationwide Bank's Covered Assets at the dates indicated are
summarized by type as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1995 1994
---- ----
(IN MILLIONS)
<S> <C> <C>
Loans............................................. $-- $210
Investments in and advances to subsidiaries....... -- 7
Real estate owned................................. -- 129
Other............................................. 39 4
---- ----
Total Covered Assets......................... 39 350
FSLIC rebate reserve.............................. -- (38)
---- ----
Covered Assets, net.......................... $39 $312
---- ----
---- ----
</TABLE>
At December 31, 1995, the Covered Asset balance of $39 million represents
amounts which remain unpaid by the FDIC for First Nationwide Bank's second
quarter 1995 billing. The FDIC has elected to treat this amount as a Covered
Asset, earning Guaranteed Yield (as defined herein), until payment is made by
the FDIC to First Nationwide Bank.
The tax-exempt assistance received by First Nationwide Bank from the
FSLIC/RF included the following provisions:
Guaranteed Yield. The guaranteed yield for a Covered Asset for any quarter
is the product of the Covered Asset's average book value for such quarter and a
yield which is based on the TCOF, the annualized quarterly average cost of funds
for Texas-based SAIF-insured savings institutions as reported by the OTS plus a
specified basis point spread ('Guaranteed Yield'). At December 31, 1995, the
applicable TCOF was 5.63% and the applicable spread was 190 basis points,
resulting in a Guaranteed Yield of 7.53%.
Capital Loss Coverage. The FSLIC/RF mitigated First Nationwide Bank's
exposure to capital losses on Covered Assets by providing for the reimbursement
of capital losses resulting from the liquidation of Covered Assets at less than
their book value ('Capital Loss Coverage').
Covered Asset Recovery. When the liquidation of a Covered Asset results in
a recovery in excess of the asset's original book value, the Assistance
Agreement requires that 90% of such recovery be remitted to the FSLIC/RF, or
offset against payments due to First Nationwide from the FSLIC/RF ('Covered
Asset Recovery').
Shared Gain. First Nationwide Bank was entitled to a disposition fee on
any Covered Asset liquidated prior to the termination of coverage for net
proceeds in excess of 50% of its original book value.
Indemnification. The Assistance Agreement provides for indemnification of
losses suffered on specific assets acquired by First Nationwide Bank that were
not Covered Assets under the Assistance Agreement. Items payable to First
Nationwide Bank consist primarily of indemnification of amounts paid in
settlement of certain litigation and reimbursement of specific types of legal
costs and expenses.
FSLIC/RF Reimbursement. First Nationwide Bank agreed to make a payment to
the FSLIC/RF over the ten-year term of the Assistance Agreement in lieu of a
tax-sharing agreement. Such tax benefit payment is implemented on a current
basis, without regard to the actual amount or timing of any such tax benefits
received, through a credit to the FSLIC/RF of 10% of the gross assistance the
FSLIC/RF pays to First Nationwide Bank. This amount, net of 10% of all Covered
Asset Recoveries and Shared Gains, is known as the 'FSLIC/RF Reimbursement.' In
addition, the FSLIC/RF is entitled to a 10% share of tax benefits attributable
to the use of net operating loss carryovers of the Texas Closed Banks in
reducing the regular tax liability of the affiliated group of which First
Nationwide Bank is a member. The sharing of tax benefits attributable to the use
of these net operating loss carryovers, however, occurs only when the net
operating loss carryovers are actually used.
Coverage Period. The FSLIC/RF assistance with respect to the Covered
Assets on First Nationwide Bank's books at December 31, 1995 will expire from
coverage on December 27, 1998, unless the parties mutually agree to terminate
the Assistance Agreement at an earlier date.
Settlement of Amounts Due. After each calendar quarter, the FSLIC/RF is
required to pay to First Nationwide Bank the net amount of all payments due
under the terms of the Assistance Agreement. The
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FSLIC/RF has the option either to pay in cash or to treat as a Covered Asset
(for purposes of determining the Guaranteed Yield on all Covered Assets) the
amount due to First Nationwide Bank.
In connection with a modification to the Assistance Agreement in January
1992, First Nationwide Bank was paid $45 million. Of such $45 million payment,
$41 million, the amount net of certain claims, was included in First Nationwide
Bank's income. Also, in connection with the modification, First Nationwide Bank
accrued the present value of the estimated liability at December 31, 1992 to the
FSLIC/RF for the FSLIC/RF Reimbursement over the life of the Assistance
Agreement, resulting in a $60 million charge to operations in 1992. This
liability was fully utilized in 1995 as a result of the FDIC Purchase.
FNMA Letters of Credit
On September 28, 1994, First Nationwide Bank entered into an agreement with
FNMA pursuant to which FNMA provided credit enhancements for certain
bond-financed real estate projects originated by Old FNB. The agreement requires
that First Nationwide Bank pledge to FNMA collateral in the form of certain
eligible securities which are held by a third party trustee. The collateral
requirement varies based on the balance of the bonds outstanding, losses
incurred (if any), as well as other factors. At December 31, 1995, First
Nationwide Bank had pledged as collateral certain securities available for sale
and short-term investment securities with a carrying value of $98.6 million.
FGB Realty Advisors, Inc.
FGB Realty, a wholly owned subsidiary of First Nationwide Bank, provides
asset management, disposition and advisory services to institutional owners of
real estate. FGB Realty has performed asset management and disposition services
for a variety of properties which range in product type from single family homes
to complex mixed use developments. Since its formation in 1991, FGB Realty has
become one of the largest full service asset management and disposition firms in
the United States, having managed portfolios in excess of $7.5 billion. Fee
revenues from unaffiliated parties were $14.0 million, $14.1 million and $8
million for the years ended December 31, 1995, 1994 and 1993, respectively.
These revenues are included in management fees in the Issuer's respective
consolidated statements of operations. At December 31, 1995 and 1994,
respectively, First Nationwide Bank and FGB Realty managed principally
non-performing loan and asset portfolios totalling $1.3 billion and $1.6
billion, respectively, for investors.
At December 31, 1995, FGB Realty was responsible for the asset management
and disposition of over 4,500 assets, representing $862 million in commercial
and residential real estate loans located in markets throughout the nation. FGB
Realty has full service offices in Dallas, New York, Tulsa, Phoenix, San
Francisco and Los Angeles.
FN Investment Center
FN Investment Center ('FNIC'), an indirect wholly owned subsidiary of First
Nationwide Bank which was acquired as part of the FN Acquisition, offers
securities and insurance products to both existing and prospective customers of
First Nationwide Bank. FNIC is subject to the guidelines established by the OTS
for broker-dealer subsidiaries of savings associations, and is a member of the
National Association of Securities Dealers. In addition, FNIC is registered as a
broker-dealer with the SEC and the Securities Investor Protection Corporation.
FNIC receives commission revenue for acting as a broker-dealer on behalf of its
customers, but FNIC does not maintain customer accounts or take possession of
customer securities. Commission revenues of $8.5 million and $2.0 million for
the years ended December 31, 1995 and 1994, respectively, are included in fees
and service charges in the Issuer's consolidated statements of operations for
such years.
DIVIDEND POLICY OF FIRST NATIONWIDE BANK
The dividend policy of First Nationwide Bank complies with applicable legal
and regulatory restrictions. Before declaring any dividend, the directors of
First Nationwide Bank consider the following factors: (i) the quality and
stability of First Nationwide Bank's net income, (ii) the availability of liquid
assets to make dividend payments, (iii) the level of earnings retention as it
affects First Nationwide Bank's capital needs and projected growth and funding
levels, both internal and external, and (iv) the adequacy of capital after the
payment of a
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dividend. Under First Nationwide Bank's dividend policy, a dividend will not be
declared or paid which would: (i) cause the capital level of First Nationwide
Bank to be reduced below fully phased-in levels or (ii), together with any other
dividends declared during the same calendar year, exceed 100% of the net income
to date for that calendar year plus 50% of First Nationwide Bank's surplus
capital (that is, in excess of fully phased-in requirements) at the beginning of
that calendar year, so long as First Nationwide Bank is a Tier 1 association (as
defined herein).
The Issuer expects that a substantial portion of any net earnings generated
by First Nationwide Bank, including net earnings generated as a result of sales
of assets or deposits, that are not needed to pay dividends on the First
Nationwide Bank Preferred Stock or in First Nationwide Bank's operations or to
expand its business will, subject to the foregoing restrictions, be distributed
to First Nationwide Holdings, its parent company.
EMPLOYEES
At December 31, 1995, First Nationwide Bank and its subsidiaries had
approximately 3,600 employees, consistent with the number of employees at
December 31, 1994. Although the number of employees has remained substantially
the same between the two years, there has been a significant decrease in the
number of employees located in California, offset by additional employees in
Maryland as a result of the Maryland Acquisition and the transfer of the
mortgage servicing operations to Maryland. None of First Nationwide Bank's
employees are represented by any collective bargaining group and management
considers its relations with its employees to be good. First Nationwide Bank
maintains a comprehensive employee benefits program providing, among other
benefits, health and welfare benefits, long and short-term disability insurance,
and life insurance. Additionally, First Nationwide Bank offers employees a
defined contribution investment plan which is a qualified plan under Section
401(a) of the Internal Revenue Code.
First Nationwide Bank has undertaken a project to identify opportunities
for reducing operating costs and enhancing the efficiency of its operations. The
management of First Nationwide Bank has identified certain employees whose
positions will be eliminated over the next twelve months. These positions span
all areas and business units of First Nationwide Bank. An initial liability for
termination benefits totalling $4 million was established in connection with
this plan, and is included in the Issuer's consolidated statement of operations
for the year ended December 31, 1995.
The Issuer and First Nationwide Holdings have no employees.
COMPETITION OF FIRST NATIONWIDE BANK
First Nationwide Bank experiences significant competition in both
attracting and retaining deposits and in originating real estate and consumer
loans.
First Nationwide Bank competes with other thrift institutions, commercial
banks, insurance companies, credit unions, thrift and loan associations, money
market mutual funds and brokerage firms in attracting and retaining deposits.
Competition for deposits from large commercial banks is particularly strong.
Many of the nation's thrift institutions and many large commercial banks have a
significant number of branch offices in the areas in which First Nationwide Bank
operates.
In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks, mortgage banking companies, insurance companies, consumer
finance companies, pension funds and commercial finance companies. The primary
factors in competing for loans are the quality and extent of service to
borrowers and brokers, economic factors such as interest rates, interest rate
caps, rate adjustment provisions, loan maturities, LTV ratios, loan fees, and
the amount of time it takes to process a loan from receipt of the loan
application to date of funding. First Nationwide Bank's future performance will
depend on its ability to originate a sufficient volume of mortgage loans in its
local market areas and through its wholesale network and, if it is unable to
originate a sufficient volume of mortgage loans, to purchase a sufficient
quantity of high-quality mortgage-backed securities with adequate yields.
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PROPERTIES
The Issuer neither owns nor leases any properties directly. The executive
offices of First Nationwide Bank are located at 14651 Dallas Parkway, Suite 200,
Dallas, TX 75240, and its telephone number is (214) 770-3700. First Nationwide
Bank leases approximately 41,000 square feet of space in the building in which
its executive offices are located under a lease expiring in 1999. First
Nationwide Bank maintains additional office space at 135 Main Street, San
Francisco, California, 94105, consisting of approximately 99,000 square feet.
First Nationwide Bank leases the building in which its additional office space
is located under a ten-year lease expiring in 2001. In addition, First
Nationwide Bank leases approximately 288,000 square feet in a multiple-building
administrative facility in West Sacramento, California under a ten-year lease
expiring in 2001. In connection with the move of FNMC's servicing operation to
Maryland, one and one-half of these four Sacramento buildings containing
approximately 108,000 square feet were vacated. The management of First
Nationwide Bank is currently screening potential sub-lessees. At December 31,
1995, First Nationwide Bank operated a total of 160 retail branches, and
maintained one vacant branch facility which was consolidated as a result of the
Sonoma Purchase. Of those, 83 were owned and 78 were leased. Some of these
retail branches are multi-purpose facilities, housing loan production and
administrative facilities as well. In addition to the branch locations, at
December 31, 1995 there are 27 separate loan production offices, all of which
were leased and eight of which were vacant, and 14 separate administrative
facilities (two owned and 12 leased). The administrative facilities include a
220,000 square foot building owned in Frederick, Maryland, which houses FNMC's
mortgage loan servicing operation. A state-by-state breakdown of all retail
branches, administrative facilities and loan production offices of First
Nationwide Bank at December 31, 1995 is shown in the following table:
<TABLE>
<CAPTION>
Loan
Administrative Production
Branches Facilities Facilities
------------- ------------- -------------
Owned Leased Owned Leased Owned Leased
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Arizona............................ -- -- -- 1 -- 2
California......................... 17 38 -- 3 -- 11
Florida............................ 6 18 -- 1 -- 2
Georgia............................ -- -- -- -- -- 1
Illinois........................... -- -- -- 2 -- 2
Maryland........................... -- -- 1 -- -- 1
Michigan*.......................... 18 3 -- 1 -- 1
Minnesota.......................... -- -- -- -- -- 1
Montana............................ -- -- -- 1 -- --
New Jersey*........................ 3 1 -- -- -- --
New York*.......................... 18 8 -- 1 -- --
Ohio*.............................. 18 10 1 -- -- --
Oklahoma........................... -- -- -- 1 -- --
Oregon............................. -- -- -- -- -- 1
Pennsylvania....................... -- -- -- -- -- 1
Texas.............................. 3 -- -- 1 -- 2
Washington......................... -- -- -- -- -- 2
----- -- ----- -- ----- --
Total............................ 83 78 2 12 -- 27
----- -- ----- -- ----- --
----- -- ----- -- ----- --
</TABLE>
- ------------------
* Certain properties in these states are under contract as of December 31, 1995
to be sold as part of the Branch Sales. See '--General--Background.'
In April 1995, FNMC closed substantially all of its retail mortgage loan
production offices. Costs associated with such closure approximated $2 million
and are included in noninterest expense in the Issuer's 1995 consolidated
statement of operations. On a continuing basis, First Nationwide Bank evaluates
the adequacy of its office premises. As a result, surplus office facilities may
be sold or subleased to maintain cost-effective operations and minimize vacant
facilities. The 27 loan production offices at December 31, 1995 include eight
offices housing operations acquired in the LMUSA 1995 Purchase, eleven offices
housing wholesale lending operations, and eight vacant facilities. Of the eight
vacant loan production offices, one has been subleased and management is
currently screening tenants for the remaining seven.
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LEGAL PROCEEDINGS
The FNB Asset Purchase Agreement provides that the purchase price
thereunder will be increased or decreased by, among other items, the increase or
decrease, as the case may be, from January 1, 1994 to September 30, 1994, in the
net book value of the purchased assets acquired from Old FNB (the 'Purchased
Assets') and the liabilities assumed from Old FNB (the 'Assumed Liabilities') as
such net book value is reflected on the books and records of Old FNB in
accordance with GAAP (as defined in the FNB Asset Purchase Agreement)
consistently applied with the previous accounting practices of Old FNB. The
purchase price paid at closing, including that portion based upon the change in
net book value from January 1, 1994 to the close of business on September 30,
1994, was an estimate provided by Old FNB. First Nationwide Bank prepared a
closing date balance sheet and a statement of the change in net book value of
the Purchased Assets and Assumed Liabilities from January 1, 1994 to September
30, 1994 ('Closing Adjustment Documents'). The parties mutually agreed upon all
but two of the issues raised as a result of the Closing Adjustment Documents.
The more significant of the two issues in dispute arises from Old FNB's
change in net book value from January 1, 1994, to the close of business on
September 30, 1994. In arriving at the cash purchase price, Old FNB added back
to the book value of the Purchased Assets an amount of approximately $24 million
which had been amortized from intangible assets and goodwill on the closing
date, thereby increasing the net book value of the Purchased Assets and Assumed
Liabilities and the estimated cash purchase price by $24 million. First
Nationwide Bank believes that the exclusion of the amortization of intangible
assets and goodwill from the closing net book value is contrary to the express
provisions of the FNB Asset Purchase Agreement. As a result, First Nationwide
Bank does not believe that the addition by Old FNB of $24 million to the cash
purchase price was proper under the terms of the FNB Asset Purchase Agreement.
On March 9, 1995, First Nationwide Bank filed suit against Old FNB in state
district court in Dallas, Texas regarding this matter. On October 16, 1995, the
court in this matter granted Old FNB's motion to compel arbitration and stayed
First Nationwide Bank's court action. The arbitration hearing was held from
April 22, 1996 to April 25, 1996. The arbitrator ordered post-hearing briefs to
be filed on May 15, 1996. Although management of First Nationwide Bank believes
that it will prevail on this issue, in the event that First Nationwide Bank does
not so prevail, the result would not be material to the consolidated financial
statements of the Issuer or First Nationwide Bank.
The other remaining issue in dispute arising out of the Closing Adjustment
Documents relates to an outstanding receivable account, which First Nationwide
Bank maintains was overstated by approximately $4 million by Old FNB at
September 30, 1994. Resolution of this issue remains outstanding. Although
management of First Nationwide Bank believes that it will prevail on this issue,
in the event that it does not do so, the result would not be material to the
consolidated financial statements of the Issuer or First Nationwide Bank.
First Nationwide Bank is involved in legal proceedings incidental to the
normal conduct of its business. Although it is impossible to predict the outcome
of any outstanding legal proceedings, management believes that such legal
proceedings and claims, individually or in the aggregate, will not have a
material effect on the financial condition or results of operations of the
Issuer or First Nationwide Bank.
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REGULATION
GENERAL
The Issuer is a savings and loan holding company within the meaning of the
HOLA and, as such, is registered with the OTS and is subject to comprehensive
OTS regulation. First Nationwide Bank is a federally chartered and insured stock
savings bank subject to extensive regulation and supervision by the OTS, as the
primary federal regulator of savings associations, and the FDIC, as the
administrator of the SAIF.
The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings associations and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description of
these provisions or their effects on the Issuer or First Nationwide Bank, is
qualified in its entirety by reference to the particular statutory or regulatory
provisions or proposals.
REGULATION OF SAVINGS AND LOAN HOLDING COMPANIES
Holding Company Acquisitions
The Issuer is a registered savings and loan holding company. The HOLA and
OTS regulations generally prohibit a savings and loan holding company, without
prior OTS approval, from acquiring, directly or indirectly, the ownership or
control of any other savings association or savings and loan holding company, or
all, or substantially all, of the assets or more than 5% of the voting shares
thereof. These provisions also prohibit, among other things, any director or
officer of a savings and loan holding company, or any individual who owns or
controls more than 25% of the voting shares of such holding company, from
acquiring control of any savings association not a subsidiary of such savings
and loan holding company, unless the acquisition is approved by the OTS.
Holding Company Activities
The Issuer currently operates as a unitary savings and loan holding
company. Generally, there are limited restrictions on the activities of a
unitary savings and loan holding company and its non-savings association
subsidiaries. If the Issuer ceases to be a unitary savings and loan holding
company, the activities of the Issuer and its non-savings association
subsidiaries would thereafter be subject to substantial restrictions.
The HOLA requires every savings association subsidiary of a savings and
loan holding company to give the OTS at least 30 days' advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock, or else such dividend will be invalid.
Affiliate Restrictions
Transactions between a savings association and its 'affiliates' are subject
to quantitative and qualitative restrictions under Sections 23A and 23B of the
Federal Reserve Act. Affiliates of a savings association include, among other
entities, the savings association's holding company and companies that are under
common control with the savings association.
In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain 'covered transactions' with affiliates to an amount equal
to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates. In
addition, a savings association and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A 'covered transaction' is
defined to include a loan or extension of credit to an affiliate; a purchase of
investment securities issued by affiliate; a purchase of assets from an
affiliate, with certain exceptions; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.
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In addition, under the OTS regulations, a savings association may not make
a loan or extension of credit to an affiliate unless the affiliate is engaged
only in activities permissible for bank holding companies; a savings association
may not purchase or invest in securities of an affiliate other than shares of a
subsidiary; a savings association and its subsidiaries may not purchase a
low-quality asset from an affiliate; and covered transactions and certain other
transactions between a savings association or its subsidiaries and an affiliate
must be on terms and conditions that are consistent with safe and sound banking
practices. With certain exceptions, each loan or extension of credit by a
savings association to an affiliate must be secured by collateral with a market
value ranging from 100% to 130% (depending on the type of collateral) of the
amount of the loan or extension of credit.
The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Board of Governors of the Federal
Reserve System (the 'FRB') decides to treat such subsidiaries as affiliates. The
regulation also requires savings associations to make and retain records that
reflect affiliate transactions in reasonable detail, and provides that certain
classes of savings associations may be required to give the OTS prior notice of
affiliate transactions.
REGULATION OF FEDERAL SAVINGS BANKS
Regulatory System
As a federally insured savings bank, lending activities and other
investments of First Nationwide Bank must comply with various statutory and
regulatory requirements. First Nationwide Bank is regularly examined by the OTS
and must file periodic reports concerning its activities and financial
condition.
Although the OTS is First Nationwide Bank's primary regulator, the FDIC has
'backup enforcement authority' over First Nationwide Bank. First Nationwide
Bank's eligible deposit accounts are insured by the FDIC under the SAIF, up to
applicable limits.
Federal Home Loan Banks
First Nationwide Bank is a member of the FHLBS. Among other benefits, FHLB
membership provides First Nationwide Bank with a central credit facility. First
Nationwide Bank is required to own capital stock in an FHLB in an amount equal
to the greater of: (i) 1% of its aggregate outstanding principal amount of its
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each calendar year, (ii) .3% of total assets, or (iii) 5% of
its FHLB advances (borrowings).
Liquid Assets
Under OTS regulations, for each calendar month, a savings bank is required
to maintain an average daily balance of liquid assets (including cash, certain
time deposits and savings accounts, bankers' acceptances, certain government
obligations and certain other investments) not less than a specified percentage
of the average daily balance of its net withdrawable accounts plus short-term
borrowings (its liquidity base) during the preceding calendar month. This
liquidity requirement, which is currently at 5.0%, may be changed from time to
time by the OTS to any amount between 4.0% to 10.0%, depending upon certain
factors. OTS regulations also require each savings association to maintain an
average daily balance of short-term liquid assets equal to not less than 1.0% of
the average daily balance of its net withdrawable accounts and short-term
borrowings during the preceding calendar month. First Nationwide Bank maintains
liquid assets in compliance with these regulations.
Regulatory Capital Requirements
OTS capital regulations require savings banks to satisfy minimum capital
standards: risk-based capital requirements, a leverage requirement and a
tangible capital requirement. Savings banks must meet each of these standards in
order to be deemed in compliance with OTS capital requirements. In addition, the
OTS may require a savings association to maintain capital above the minimum
capital levels.
All savings banks are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal to
8% of risk-weighted assets (which includes the credit risk equivalents
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of certain off-balance sheet items). In calculating total capital for purposes
of the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings bank is required to maintain
core capital equal to a minimum of 3% of adjusted total assets. (In addition,
under the prompt corrective action provisions of the OTS regulations, all but
the most highly-rated institutions must maintain a minimum leverage ratio of 4%
in order to be adequately capitalized. See '--Prompt Corrective Action.') A
savings bank is also required to maintain tangible capital in an amount at least
equal to 1.5% of its adjusted total assets.
Under OTS regulations, a savings bank with a greater than 'normal' level of
interest rate exposure must deduct an interest rate risk ('IRR') component in
calculating its total capital for purposes of determining whether it meets its
risk-based capital requirement. Interest rate exposure is measured, generally,
as the decline in an institution's net portfolio value that would result from a
200 basis point increase or decrease in market interest rates (whichever would
result in lower net portfolio value), divided by the estimated economic value of
the savings association's assets. The interest rate risk component to be
deducted from total capital is equal to one-half of the difference between an
institution's measured exposure and 'normal' IRR exposure (which is defined as
2%), multiplied by the estimated economic value of the institution's assets.
Based on internal measures of interest rate risk at December 31, 1995, First
Nationwide Bank would not be required to deduct an IRR component in calculating
total risk-based capital.
First Nationwide Bank's total capital to risk-based assets ratio was
11.34%, its core capital to risk-based assets ratio was 9.14%, its leverage
capital ratio was 5.84% and its tangible capital ratio was 5.84% at December 31,
1995. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capital Resources.' In connection with the acquisition of
the Texas Closed Banks, First Nationwide Bank was granted a forbearance from
several regulations for up to ten years from December 28, 1988. Generally, the
forbearance is from regulatory action against violations that might otherwise
arise from the nature of the government assisted acquisition of the Texas Closed
Banks, such as limitations on investment in service corporations, investing in
forward commitments, equity risk investments, loans to one borrower, investments
in buildings and qualified thrift lender status. Although certain forbearances
may have been affected by the passage of subsequent legislation, management
believes that the forbearance granted in this case remains in full force and
effect. First Nationwide Bank does not rely on the forbearance for purposes of
complying with its regulatory capital requirements.
Under regulations of the OTS, the following factors may cause the OTS to
require a particular savings association to maintain higher capital than
otherwise would be required under the capital regulations: (1) concentration of
credit risk, (2) certain risks arising from non-traditional activities, and (3)
management failure to adequately monitor and control risks presented by
concentrations of credits and non-traditional activities.
Certain Consequences of Failure to Comply with Regulatory Capital Requirements
A savings bank's failure to maintain capital at or above the minimum
capital requirements may be deemed an unsafe and unsound practice and may
subject the savings bank to enforcement actions and other proceedings. Any
savings bank not in compliance with all of its capital requirements is required
to submit a capital plan that addresses the bank's need for additional capital
and meets certain additional requirements. While the capital plan is being
reviewed by the OTS, the savings bank must certify, among other things, that it
will not, without the approval of its appropriate OTS Regional Director, grow
beyond net interest credited or make capital distributions. If a savings bank's
capital plan is not approved, the bank will become subject to additional growth
and other restrictions. In addition, the OTS, through a capital directive or
otherwise, may restrict the ability of a savings bank not in compliance with the
capital requirements to pay dividends and compensation, and may require such a
bank to take one or more of certain corrective actions, including, without
limitation: (i) increasing its capital to specified levels, (ii) reducing the
rate of interest that may be paid on savings accounts, (iii) limiting receipt of
deposits to those made to existing accounts, (iv) ceasing issuance of new
accounts of any or all classes or categories except in exchange for existing
accounts, (v) ceasing or limiting the purchase of loans or the making of other
specified investments, and (vi) limiting operational expenditures to specified
levels.
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The HOLA permits savings banks not in compliance with the OTS capital
standards to seek an exemption from certain penalties or sanctions for
noncompliance. Such an exemption will be granted only if certain strict
requirements are met, and must be denied under certain circumstances. If an
exemption is granted by the OTS, the savings bank still may be subject to
enforcement actions for other violations of law or unsafe or unsound practices
or conditions.
Prompt Corrective Action
The prompt corrective action regulation of the OTS, promulgated under
FDICIA, requires certain mandatory actions and authorizes certain other
discretionary actions to be taken by the OTS against a savings bank that falls
within certain undercapitalized capital categories specified in the regulation.
The regulation establishes five categories of capital classification: 'well
capitalized,' 'adequately capitalized,' 'undercapitalized,' 'significantly
undercapitalized,' and 'critically undercapitalized.' Under the regulation, the
ratio of total capital to risk-weighted assets, core capital to risk-weighted
assets and the leverage ratio are used to determine an institution's capital
classification. At December 31, 1995, First Nationwide Bank met the capital
requirements of a 'well capitalized' institution under applicable OTS
regulations.
In general, the prompt corrective action regulation prohibits an insured
depository institution from declaring any dividends, making any other capital
distribution, or paying a management fee to a controlling person if, following
the distribution or payment, the institution would be within any of the three
undercapitalized categories. In addition, adequately capitalized institutions
may accept brokered deposits only with a waiver from the FDIC, while
undercapitalized institutions may not accept, renew or roll-over Brokered
Deposits.
Institutions that are classified as undercapitalized are subject to certain
mandatory supervisory actions, including: (i) increased monitoring by the
appropriate federal banking agency for the institution and periodic review of
the institution's efforts to restore its capital, (ii) a requirement that the
institution submit a capital restoration plan acceptable to the appropriate
federal banking agency and implement that plan, and that each company having
control of the institution guarantee compliance with the capital restoration
plan in an amount not exceeding the lesser of 5% of the institution's total
assets at the time it received notice of being undercapitalized, or the amount
necessary to bring the institution into compliance with applicable capital
standards at the time it fails to comply with the plan, and (iii) a limitation
on the institution's ability to make any acquisition, open any new branch
offices, or engage in any new line of business without the prior approval of the
appropriate federal banking agency for the institution or the FDIC.
The regulation also provides that the OTS may take any of certain
additional supervisory actions against an undercapitalized institution if the
agency determines that such actions are necessary to resolve the problems of the
institution at the least possible long-term cost to the deposit insurance fund.
These supervisory actions include: (i) requiring the institution to raise
additional capital or be acquired by another institution or holding company if
certain grounds exist, (ii) restricting transactions between the institution and
its affiliates, (iii) restricting interest rates paid by the institution on
deposits, (iv) restricting the institution's asset growth or requiring the
institution to reduce its assets, (v) requiring replacement of senior executive
officers and directors, (vi) requiring the institution to alter or terminate any
activity deemed to pose excessive risk to the institution, (vii) prohibiting
capital distributions by bank holding companies without prior approval by the
FRB, (viii) requiring the institution to divest certain subsidiaries, or
requiring the institution's holding company to divest the institution or certain
affiliates of the institution, and (ix) taking any other supervisory action that
the agency believes would better carry out the purposes of the prompt corrective
action provisions of FDICIA.
Institutions classified as undercapitalized that fail to submit a timely,
acceptable capital restoration plan or fail to implement such a plan are subject
to the same supervisory actions as significantly undercapitalized institutions.
Significantly undercapitalized institutions are subject to the mandatory
provisions applicable to undercapitalized institutions. The regulation also
makes mandatory for significantly undercapitalized institutions certain of the
supervisory actions that are discretionary for institutions classified as
undercapitalized, creates a presumption in favor of certain discretionary
supervisory actions, and subjects significantly undercapitalized institutions to
additional restrictions, including a prohibition on paying bonuses or raises to
senior executive officers without the prior written approval of the appropriate
federal bank regulatory agency. In addition,
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significantly undercapitalized institutions may be subjected to certain of the
restrictions applicable to critically undercapitalized institutions.
The regulation requires that an institution be placed into conservatorship
or receivership within 90 days after it becomes critically undercapitalized,
unless the OTS, with concurrence of the FDIC, determines that other action would
better achieve the purposes of the prompt corrective action provisions of
FDICIA. Any such determination must be renewed every 90 days. A depository
institution also must be placed into receivership if the institution continues
to be critically undercapitalized on average during the fourth quarter after the
institution initially became critically undercapitalized, unless the
institution's federal bank regulatory agency, with concurrence of the FDIC,
makes certain positive determinations with respect to the institution.
Critically undercapitalized institutions are also subject to the
restrictions generally applicable to significantly undercapitalized institutions
and to a number of other severe restrictions. For example, beginning 60 days
after becoming critically undercapitalized, such institutions may not pay
principal or interest on subordinated debt without the prior approval of the
FDIC. (However, the regulation does not prevent unpaid interest from accruing on
subordinated debt under the terms of the debt instrument, to the extent
otherwise permitted by law.) In addition, critically undercapitalized
institutions may be prohibited from engaging in a number of activities,
including entering into certain transactions or paying interest above a certain
rate on new or renewed liabilities.
If the OTS determines that an institution is in an unsafe or unsound
condition, or if the institution is deemed to be engaging in an unsafe and
unsound practice, the OTS may, if the institution is well capitalized,
reclassify it as adequately capitalized; if the institution is adequately
capitalized but not well capitalized, require it to comply with restrictions
applicable to undercapitalized institutions; and, if the institution is
undercapitalized, require it to comply with certain restrictions applicable to
significantly undercapitalized institutions.
Conservatorship/Receivership
In addition to the grounds discussed under '--Prompt Corrective Action,'
the OTS (and, under certain circumstances, the FDIC) may appoint a conservator
or receiver for a savings association if any one or more of a number of
circumstances exist, including, without limitation, the following: (i) the
institution's assets are less than its obligations to creditors and others, (ii)
a substantial dissipation of assets or earnings due to any violation of law or
any unsafe or unsound practice, (iii) an unsafe or unsound condition to transact
business, (iv) a willful violation of a final cease-and-desist order, (v) the
concealment of the institution's books, papers, records or assets or refusal to
submit such items for inspection to any examiner or lawful agent of the
appropriate federal banking agency or state bank or savings association
supervisor, (vi) the institution is likely to be unable to pay its obligations
or meet its depositors' demands in the normal course of business, (vii) the
institution has incurred, or is likely to incur, losses that will deplete all or
substantially all of its capital, and there is no reasonable prospect for the
institution to become adequately capitalized without federal assistance, (viii)
any violation of law or unsafe or unsound practice that is likely to cause
insolvency or substantial dissipation of assets or earnings, weaken the
institution's condition, or otherwise seriously prejudice the interests of the
institution's depositors or the federal deposit insurance fund, (ix) the
institution is undercapitalized and the institution has no reasonable prospect
of becoming adequately capitalized, fails to become adequately capitalized when
required to do so, fails to submit a timely and acceptable capital restoration
plan, or materially fails to implement an accepted capital restoration plan, (x)
the institution is critically undercapitalized or otherwise has substantially
insufficient capital, or (xi) the institution is found guilty of certain
criminal offenses related to money laundering.
Liability of Commonly Controlled Depository Institutions
In general, savings associations and other depository institutions can be
held liable for any loss which the FDIC incurs or reasonably anticipates
incurring in connection with either the default of a commonly controlled
depository institution or any assistance provided by the FDIC to a commonly
controlled institution in danger of default. A depository institution is
required to pay the amount of such liability upon receipt of written notice from
the FDIC unless such written notice is received more than two years from the
date the FDIC incurred the loss. Liability for the losses of commonly controlled
institutions can lead to the failure of all depository institutions in a holding
company structure if the remaining institutions are unable to pay the liability
assessed by the FDIC.
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In general, for purposes of this provision, depository institutions are
deemed to be 'commonly controlled' if they are controlled by the same holding
company or if one depository institution is controlled by another; 'default' of
a depository institution occurs when there is an official determination pursuant
to which a conservator, receiver or other legal custodian is appointed for the
institution; and a depository institution is deemed to be 'in danger of default'
where its federal or state supervisory agency determines that the institution is
not likely to be able to meet the demands of its depositors or pay its
obligations in the normal course of business and there is no reasonable prospect
that it will be able to do so, or determines that the institution has incurred
or is likely to incur losses that will deplete substantially all of its capital
and there is no reasonable prospect that the institution's capital can be
replenished without federal assistance. First Nationwide Bank is not currently
under common control with any other depository institution.
Enforcement Powers
The OTS and, under certain circumstances, the FDIC, have substantial
enforcement authority with respect to savings associations, including authority
to bring various enforcement actions against a savings association and any of
its 'institution-affiliated parties' (a term defined to include, among other
persons, directors, officers, employees controlling stockholders, agents and
shareholders who participate in the conduct of the affairs of the institution).
This enforcement authority includes, without limitation: (i) the ability to
terminate a savings association's deposit insurance, (ii) institute
cease-and-desist proceedings, (iii) bring suspension, removal, prohibition and
criminal proceedings against institution-affiliated parties, and (iv) assess
substantial civil money penalties. As part of a cease-and-desist order, the
agencies may require a savings association or an institution-affiliated party to
take affirmative action to correct conditions resulting from that party's
actions, including to make restitution or provide reimbursement, indemnification
or guarantee against loss; restrict the growth of the institution; and rescind
agreements and contracts.
Capital Distribution Regulation
In addition to the prompt corrective action restriction on paying
dividends, OTS regulations limit certain 'capital distributions' by
OTS-regulated savings associations. Capital distributions are defined to
include, in part, dividends and payments for stock repurchases and cash-out
mergers.
Under the regulation, an association that meets its fully phased-in capital
requirements both before and after a proposed distribution and has not been
notified by the OTS that it is in need of more than normal supervision (a 'Tier
1 association') may, after prior notice to but without the approval of the OTS,
make capital distributions during a calendar year up to the higher of: (i) 100%
of its net income to date during the calendar year plus the amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four-quarter period. A
Tier 1 association may make capital distributions in excess of the above amount
if it gives notice to the OTS and the OTS does not object to the distribution. A
savings association that meets its regulatory capital requirements both before
and after a proposed distribution but does not meet its fully phased-in capital
requirement (a 'Tier 2 association') is authorized, after prior notice to the
OTS but without OTS approval, to make capital distributions in an amount up to
75% of its net income over the most recent four-quarter period, taking into
account all prior distributions during the same period. Any distribution in
excess of this amount must be approved in advance by the OTS. A savings
association that does not meet its current regulatory capital requirements (a
'Tier 3 association') cannot make any capital distribution without prior
approval from the OTS, unless the capital distribution is consistent with the
terms of a capital plan approved by the OTS.
At December 31, 1995, First Nationwide Bank qualifies as a Tier 1
association for purposes of the capital distribution rule. The OTS may prohibit
a proposed capital distribution that would otherwise be permitted if the OTS
determines that the distribution would constitute an unsafe or unsound practice.
The requirements of the capital distribution regulation supersede less stringent
capital distribution restrictions in earlier agreements or conditions.
The OTS has proposed to amend its capital distribution regulation to
conform its requirements to the OTS prompt corrective action regulation. Under
the proposed regulation, an institution that would remain at least adequately
capitalized after making a capital distribution, and that was owned by a holding
company, would be
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required to provide notice to the OTS prior to making a capital distribution.
'Troubled' associations and undercapitalized associations would be allowed to
make capital distributions only by filing an application and receiving OTS
approval, and such applications would be approved under certain limited
circumstances.
Qualified Thrift Lender Test
In general, savings associations are required to maintain at least 65% of
their portfolio assets in certain qualified thrift investments (which consist
primarily of loans and other investments related to residential real estate and
certain other assets). A savings association that fails the qualified thrift
lender test is subject to substantial restrictions on activities and to other
significant penalties. At December 31, 1995, approximately 90.34% of First
Nationwide Bank's portfolio assets were qualified thrift investments.
FDIC Assessments
The deposits of First Nationwide Bank are insured by the SAIF of the FDIC,
up to applicable limits, and are subject to deposit premium assessments by the
SAIF. Under the FDIC's risk-based insurance system, SAIF-assessed deposits are
currently subject to premiums of between 23 and 31 cents per $100 of deposits,
depending upon the institution's capital position and other supervisory factors.
The rate applicable to First Nationwide Bank is currently 23 cents per $100 of
deposits.
The FDIC recently amended its assessment regulations to lower the deposit
premiums for some banking institutions which are members of the BIF of the FDIC.
Under the FDIC's risk-based insurance system, BIF-assessed deposits are
currently subject to premiums of between 0 to 27 cents per $100 of deposits as a
result of these amendments. In reducing these BIF rates, the FDIC did not change
the rates applicable to SAIF-assessable deposits.
Proposed budget reconciliation legislation that contains provisions to
capitalize the SAIF has been passed by Congress. The President has vetoed this
budget reconciliation bill. Such veto, however, was based on issues unrelated to
the provisions dealing with capitalization of the SAIF. The legislation includes
provisions for a special assessment, as determined by the FDIC, on
SAIF-assessable deposits of insured depository institutions in an amount
adequate to cause the SAIF to achieve a specified designated reserve ratio.
Under the proposed legislation, the assessment would have been due January 1,
1996. The FDIC has publicly estimated that the amount of the special assessment
needed to recapitalize the SAIF ranges between 85 to 90 basis points.
The legislation provides that the assessment would be applied to SAIF
deposits held as of March 31, 1995. The SAIF-assessable deposits of First
Nationwide Bank as of this date, adjusted for the Branch Sales, the Branch
Purchases, the SFFed Acquisition and the Home Federal Acquisition, totalled
approximately $8.9 billion. If the assessment is made at a rate within the
estimated range of 85 to 90 basis points, after giving effect to the SFFed
Acquisition, the Branch Sales, the Home Federal Acquisition and the Branch
Purchases, the effect on First Nationwide Bank would be a pre-tax charge in the
range of $75 to $80 million ($68 to $72 million on an after-tax basis), It is
expected that in the event that the SAIF is recapitalized pursuant to this
legislation, the assessment rates applicable to SAIF-assessable deposits will be
reduced substantially from First Nationwide Bank's current rate of 23 cents. The
proposed legislation includes additional provisions that, among other things,
would require BIF member institutions to share pro rata in the obligations of
SAIF members for certain obligations issued by the Financing Corporation, a
corporation established by the federal government in 1987 to finance the
recapitalization of FSLIC. The Issuer is unable to predict whether this, or
similar, legislation will be enacted.
Congress is considering other legislative proposals to merge the SAIF and
the BIF and to merge the charters for federal savings associations and
commercial banks. Such legislation, if enacted, could have a material effect on
the operations of First Nationwide Bank and the Issuer. The Issuer is unable to
predict whether, or in what form, such legislation would be enacted.
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Non-Investment Grade Debt Securities
Savings associations and their subsidiaries are prohibited from acquiring
or retaining any corporate debt security that, at the time of acquisition, is
not rated in one of the four highest rating categories by at least one
nationally recognized statistical rating organization. First Nationwide Bank
does not own any non-investment grade debt securities.
Community Reinvestment Act and the Fair Lending Laws
Savings associations have a responsibility under CRA and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the 'Fair Lending Laws')
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. An institution's failure to comply
with the provisions of CRA could, as a minimum, result in regulatory
restrictions on its activities, and failure to comply with the Fair Lending Laws
could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice.
New Safety and Soundness Guidelines
The OTS and the other federal banking agencies have established guidelines
for safety and soundness, addressing operational and managerial, as well as
compensation matters for insured financial institutions. Institutions failing to
meet these standards are required to submit compliance plans to their
appropriate federal regulators. The OTS and the other agencies have also issued
for comment proposed guidelines regarding asset quality and earnings standards
for insured institutions.
Change of Control
Subject to certain limited exceptions, no company can acquire control of a
savings association without the prior approval of the OTS, and no individual may
acquire control of a savings association if the OTS objects. Any company that
acquires control of a savings association becomes a savings and loan holding
company subject to extensive registration, examination and regulation by the
OTS. Conclusive control exists, among other ways, when an acquiring party
acquires more than 25% of any class of voting stock of a savings association or
savings and loan holding company, or controls in any manner the election of a
majority of the directors of the company. In addition, a rebuttable presumption
of control exists if, among other things, a person acquires more than 10% of any
class of a savings association or savings and loan holding company's voting
stock (or 25% of any class of stock) and, in either case, any of certain
additional control factors exist.
TAXATION OF FIRST NATIONWIDE BANK
For a discussion of proposed tax legislation that would change First
Nationwide Bank's method of accounting for bad debts, see 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Provision for Federal and State Income Taxes.'
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Issuer
The following table sets forth certain information (ages as of April 1,
1996) concerning the directors and executive officers of the Issuer. All
directors serve terms of one year or until the election of their respective
successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Ronald O. Perelman......................... 53 Chairman of the Board, Chief Executive
Officer and Director
Gerald J. Ford............................. 51 President and Director
Howard Gittis.............................. 62 Vice Chairman and Director
Irwin Engelman............................. 61 Executive Vice President and Chief
Financial Officer
Barry F. Schwartz.......................... 46 Executive Vice President and General
Counsel
Laurence Winoker........................... 39 Vice President and Controller
</TABLE>
First Nationwide Bank
The following table sets forth certain information (ages as of April 1,
1996) concerning the directors and executive officers of First Nationwide Bank.
All directors serve terms of one year or until the election of their respective
successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Ronald O. Perelman......................... 53 Director
Gerald J. Ford............................. 51 Chairman of the Board, Chief Executive
Officer and Director
Carl B. Webb............................... 46 President, Chief Operating Officer and
Director
Paul M. Bass, Jr........................... 60 Director
George W. Bramblett, Jr.................... 55 Director
Bob Bullock................................ 66 Director
Irwin Engleman............................. 61 Director
Howard Gittis.............................. 62 Director
Gabrielle K. McDonald...................... 53 Director
Robert Setrakian........................... 72 Director
Christie S. Flanagan....................... 57 Executive Vice President and General
Counsel
Kendall M. Fugate.......................... 58 Executive Vice President and Information
and Technology Services Director
Roger L. Gordon............................ 54 Executive Vice President
Richard P. Hodge........................... 41 Executive Vice President and Corporate Tax
Director
Walter C. Klein, Jr........................ 52 Executive Vice President; President, FNMC
Lacy G. Newman, Jr......................... 45 Executive Vice President and Chief Credit
Officer
James R. Staff............................. 48 Executive Vice President and Chief
Financial Advisor
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Richard H. Terzian......................... 59 Executive Vice President and Chief
Financial Officer
Peter K. Thomsen........................... 54 Executive Vice President and Retail Banking
Director
Michael R. Walker.......................... 50 Executive Vice President--Commercial Real
Estate
Renee N. Tucei............................. 39 Senior Vice President and Controller
</TABLE>
Mr. Perelman has been Chairman of the Board of the Issuer and of First
Nationwide Holdings since their formation in 1994 and a Director of First
Nationwide Bank since 1994. Mr. Perelman has been Chairman of the Board and
Chief Executive Officer of MacAndrews & Forbes for more than the past five
years. Mr. Perelman also is Chairman of the Board of Andrews Group Incorporated
('Andrews Group'), Consolidated Cigar Corporation ('Consolidated Cigar'), Mafco
Consolidated Group Inc. ('Mafco Consolidated'), Mafco Worldwide Corporation
('Mafco Worldwide'), Marvel Entertainment Group, Inc. ('Marvel'), Meridian
Sports Incorporated ('Meridian Sports'), New World Communications Group
Incorporated ('New World'), New World Television Incorporated ('New World
Television'), Power Control Technologies Inc. ('PCT'), and Toy Biz, Inc. ('Toy
Biz') and is the Chairman of the Executive Committee of the Board of Directors
of Revlon, Inc. ('Revlon') and Revlon Consumer Products Corporation ('Revlon
Products'). Mr. Perelman is a Director of the following corporations which file
reports pursuant to the Exchange Act: Andrews Group, The Coleman Company, Inc.
('Coleman'), Coleman Holdings Inc., Coleman Worldwide Corporation ('Coleman
Worldwide'), Consolidated Cigar, First Nationwide Bank, First Nationwide
Holdings, Mafco Consolidated, Mafco Worldwide, Marvel, Marvel Holdings Inc.
('Marvel Holdings'), Marvel (Parent) Holdings Inc., ('Marvel Parent'), Marvel
III Holdings Inc. ('Marvel III'), Meridian Sports, New World, New World
Television, NWCG Holdings Corporation ('NWCG Holdings'), Revlon, Revlon
Products, Revlon Worldwide Corporation ('Revlon Worldwide') and Toy Biz.
Mr. Ford has been President and a Director of the Issuer since its
formation in 1994 and Chairman of the Board, Chief Executive Officer and a
Director of First Nationwide Bank since consummation of the FN Acquisition. Mr.
Ford was Chairman of the Board and a Director of First Madison from 1993 to
1994. Mr. Ford previously served as chairman of the Board, Chief Executive
Officer and a Director of First Gibraltar from 1988 through 1993. Mr. Ford
served as the Chairman of the Board, Chief Executive Officer and a Director of
First United Bank Group, Inc. ('First United Bank Group'), from 1993 through
1994. Mr. Ford is Chairman of the Board, and a Director of Millennium Mortgage
Corporation. Mr. Ford is Chairman of the Board and a Director of FGB Services,
Inc. and Madison Realty Advisors, Inc. ('Madison Realty'). Mr. Ford has also
served in the following capacities over the past five years: Chairman of the
Board, Chief Executive Officer and Director, Ford Bank Group, Inc. ('Ford Bank
Group'); Chairman of the Board, Chief Executive Officer and Director, United New
Mexico Financial Corporation. Mr. Ford is also a Director of Norwest Corporation
and ACS.
Mr. Gittis has been Vice Chairman and a Director of the Issuer and of First
Nationwide Holdings since 1994 and a Director of First Nationwide Bank since
1994. Mr. Gittis has been Vice Chairman and Director of MacAndrews & Forbes and
various of its affiliates since 1985. Mr. Gittis is a Director of Andrews Group,
Jones Apparel Group, Inc., Loral Corporation, Revlon, Revlon Worldwide, Revlon
Products, Mafco Consolidated, Mafco Worldwide, Consolidated Cigar, New World,
New World Television, NWCG Holdings and PCT.
Mr. Engelman has been Executive Vice President and Chief Financial Officer
of the Issuer and of First Nationwide Holdings since their formation in 1994,
and a Director of First Nationwide Bank since 1993. He has been Executive Vice
President and Chief Financial Officer of MacAndrews & Forbes and various of its
affiliates since February 1992. He was Executive Vice President and Chief
Financial Officer of GAF Corporation from 1990 to 1991; Director, President and
Chief Operating Officer of Citytrust Bancorp Inc. from 1988 to 1990; Executive
Vice President of the Blackstone Group LP from 1987 to 1988; and Director and
Executive Vice President of General Foods Corporation for more than five years
prior to 1987. Mr. Engelman is a Director of New World, New World Television and
Revlon Products.
Mr. Schwartz has been Executive Vice President and General Counsel of the
Issuer since March 1996 and Executive Vice President and General Counsel of
First Nationwide Holdings since January 1996. He has been
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Executive Vice President and General Counsel of MacAndrews & Forbes and various
of its affiliates since 1993. Mr. Schwartz was Senior Vice President of
MacAndrews & Forbes from 1989 to 1993.
Mr. Winoker has been Vice President and Controller of the Issuer and of
First Nationwide Holdings since 1994. He has been Vice President and Controller
of MacAndrews & Forbes and various of its affiliates since September 1992. Mr.
Winoker was Assistant Vice President and Assistant Controller of MacAndrews &
Forbes and various of its affiliates for more than five years prior to September
1992.
Mr. Webb has been the President, Chief Operating Officer and a Director of
First Nationwide Bank since the consummation of the FN Acquisition. Mr. Webb
served as President, Chief Executive Officer and Director of First Madison from
1993 through 1994. Mr. Webb previously served as President, Chief Operating
Officer and a Director of First Gibraltar from 1988 throught 1993. Mr. Webb also
serves as a Director of FNMC, a wholly owned subsidiary of First Nationwide
Bank.
Mr. Bass has been a Director of First Nationwide Bank since May, 1993. Mr.
Bass is currently the Vice Chairman and Director of First Southwest Company. Mr.
Bass is a Director and Chairman of the Audit Committee of Keystone Consolidated
Industries, and is a Director of Source Services, Inc. Mr. Bass has served in
the following capacities during the past five years: Director, Endevco, Inc.;
Director, Ford Bank Group; and Chairman of the Board and Director, Pizza Inn,
Inc.
Mr. Bramblett has been a Director of First Nationwide Bank since May, 1993.
Mr. Bramblett has been associated with the law firm of Hayes & Boone since 1973
and is currently a Partner and a member of the Executive Committee of that firm.
Mr. Bramblett has served in the following capacities during the past five years:
Member of the Texas Higher Education Coordinating Board of the Texas College and
University System and Trustee of the Baylor College of Dentistry.
Mr. Bullock has served as a Director of First Nationwide Bank since 1994.
Mr. Bullock has been Lieutenant Governor of the State of Texas since 1990. Mr.
Bullock is Chairman of the Board, Director and President of JFB-RDB, Inc. Mr.
Bullock served as a Director of the Ford Bank Group from 1992 to 1993, and as
Director of the First United Bank Group from 1992 to 1993. Prior to 1990, Mr.
Bullock served as the State of Texas Comptroller of Public Accounts. Mr. Bullock
has been Of Counsel to the law firm of Scott, Douglass, Luton and McConnico,
L.L.P. since 1992.
Ms. McDonald has served as a Director of First Nationwide Bank since
January, 1991. Ms. McDonald also served as a Director of FGB-San Antonio in
1992. Ms. McDonald currently serves as a Judge on the International Criminal
Tribunal for the former Yugoslavia. Ms. McDonald is also currently a Professor
of Law at the Thurgood Marshall School of Law of Texas Southern University. Ms.
McDonald currently serves as a director of Freeport McMoRan Inc., McMoRan Oil &
Gas Co. and Freeport McMoRan Copper & Gold Inc. Ms. McDonald was Of Counsel to
the Walker & Satterthwaite firm from 1991 to 1993. She was a partner in the law
firm of Matthews & Branscomb from 1988 through 1991. Prior to that time, Ms.
McDonald served as a United States District Court Judge for the Southern
District of Texas.
Mr. Setrakian has been a Director of First Nationwide Bank since November
1994. Mr. Setrakian previously served as a Director of Old FNB for more than 10
years. Mr. Setrakian is presently the Chairman and President of the William
Saroyan Foundation and the Chairman and President of Mid-State Horticultural
Company. He is also a former Chairman and member of the Board of Governors of
the United States Postal Service; former Commissioner of the Federal Maritime
Commission; former Chairman and Chief Executive Officer of the California
Growers Winery, Inc.; and former Chairman and founder of the National Bank of
Agriculture.
Mr. Flanagan has been the Executive Vice President and General Counsel of
First Nationwide Bank since the consummation of the FN Acquisition. He also
serves as a Director of FNMC. Mr. Flanagan has been associated with the law firm
of Jenkins & Gilchrist, P.C. and its predecessors since 1968 in various
capacities, including Managing Partner, and he is currently Of Counsel to that
firm.
Mr. Fugate has been an Executive Vice President of First Nationwide Bank
since the consummation of the FN Acquisition. Mr. Fugate previously served as
Executive Vice President of Old FNB from 1991 to 1994, and held various
executive positions with Citibank, N.A. and Citibank California, FSB from 1982
to 1991.
Mr. Gordon has been an Executive Vice President of First Nationwide Bank
since February 1996. Mr. Gordon previously was associated with SFFed for more
than five years prior to February 1996, including most recently as Chairman,
President and Chief Executive Officer.
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Mr. Hodge has been an Executive Vice President of First Nationwide Bank
since January 1996 and has been employed by First Nationwide Bank since November
1995. Mr. Hodge previously was associated with the public accounting firm of
KPMG Peat Marwick LLP and its predecessors since 1981, including most recently
as a tax partner since 1986.
Mr. Klein has been an Executive Vice President of First Nationwide Bank and
the President of FNMC since January 1996. He also serves as a Director of FNMC.
Mr. Klein previously was associated with PNC Mortgage Corp. of America and its
predecessor, Sears Mortgage Corporation, since 1986, including most recently as
Chairman and Chief Executive Officer.
Mr. Newman has been Executive Vice President and Chief Credit Officer of
First Nationwide Bank since the consummation of the FN Acquisition. Mr Newman
has also served as President and a Director of FGB Realty and Madison Realty
since 1992. During 1991, Mr. Newman was a Senior Vice President of J.E. Robert
Companies. He served as a Senior Vice President of Bank of New England
Corporation from 1990 to 1991, and served as the President, Chief Executive
Officer and Director of the Seamen's Bank for Savings from 1989 to 1990.
Mr. Staff has been an Executive Vice President of First Nationwide Bank
since October 17,1994. He also serves as a Director of FNMC. Mr. Staff
previously was associated with the public accounting firm of KPMG Peat Marwick
LLP and its predecessors since 1979, including most recently as
Partner-in-charge of Financial Services for the Southwest-Dallas area.
Mr. Terzian has served as Executive Vice President and Chief Financial
Officer of First Nationwide Bank since April 1, 1995. For the five years prior
to that date, Mr. Terzian served as Chief Financial Officer of Dime Bancorp,
Inc. (The Dime Savings Bank of New York, FSB).
Mr. Thomsen has been an Executive Vice President of First Nationwide Bank
since the consummation of the FN Acquisition. Mr. Thomsen previously served as
Senior Executive Vice President of Old FNB and a Director from 1992 to 1994. Mr.
Thomsen was an Executive Vice President of Old FNB from 1991 to 1992. Mr.
Thomsen had been Executive Vice President of Michigan National Corporation from
1986 to 1991 and a Director from 1989 to 1991, and the President of Michigan
National Bank from 1988 to 1991 and a Director from 1989 to 1991. Mr. Thomsen
was Chairman of Independence One Mortgage Corporation, a subsidiary of Michigan
National Bank, from 1986 to 1990.
Mr. Walker has been an Executive Vice President of First Nationwide Bank
since the consummation of the FN Acquisition. Mr. Walker served as Senior Vice
President of First Madison from 1993 to 1994. Mr. Walker previously served as
Senior Vice President of First Gibraltar from 1988 to 1993.
Ms. Tucei has been a Senior Vice President and the Controller of First
Nationwide Bank since the consummation of the FN Acquisition. Ms. Tucei
previously served as Senior Vice President and Controller of First Madison from
1993 to 1994. Ms. Tucei was Senior Vice President and Director of Regulatory
Assistance Compliance for First Gibraltar from 1991 to 1993, and served as
Senior Vice President and Manager of Regulatory Assistance Operations for First
Gibraltar from 1989 to 1991.
COMPENSATION OF DIRECTORS
Directors of the Issuer who are not officers or employees of the Issuer or
any of its affiliates receive $25,000 per year plus an additional $1,000 per
meeting. Directors of First Nationwide Bank who do not receive compensation as
officers or employees of First Nationwide Bank or any of its affiliates are paid
a fee of $3,500 for each meeting of the Board of Directors they attend and each
director who attends 67% or more of the regular meetings of the Board of
Directors during a fiscal year will receive an additional fee of $9,000. Members
of the Audit Committee of the Board of Directors of First Nationwide Bank who do
not receive compensation as officers or employees of First Nationwide Bank or
any of its affiliates are paid a fee of $1,500 for each meeting of the Audit
Committee they attend.
EXECUTIVE COMPENSATION
The Issuer is a holding company with no business operations of its own and,
accordingly, engages in its business through First Nationwide Bank and its
subsidiaries. The officers of the Issuer receive no compensation for their
services to the Issuer. Accordingly, the following table sets forth certain
compensation awarded to, earned by or paid to the Chief Executive Officer of
First Nationwide Bank, and the four most highly paid
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executive officers of First Nationwide Bank, other than the Chief Executive
Officer, who served as executive officers of First Nationwide Bank at December
31, 1995, for services rendered in all capacities to the Issuer, First
Nationwide Holdings, First Nationwide Bank and its subsidiaries during the years
ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) COMPENSATION (2)
- -------------------------------------------- ---- ---------- ------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Gerald J. Ford (3) 1995 $1,500,000 $ 0 $ 7,644 $ 49,511
Chairman & Chief 1994 317,358 0 912 4,500
Executive Officer
Carl B. Webb 1995 900,000 0 274,351 66,707
President & Chief 1994 361,724 0 154,496 9,000
Operating Officer 1993 269,551 80,000 8,493 12,658
Christie S. Flanagan (3) 1995 700,000 20,000 10,892 44,854
Executive Vice President & 1994 116,669 0 0 0
General Counsel
Lacy G. Newman, Jr. 1995 475,000 0 178,457 36,166
Executive Vice President & 1994 345,334 0 124,916 9,000
Chief Credit Officer 1993 300,000 77,200 6,289 11,572
James R. Staff (3) 1995 450,000 0 17,348 27,001
Executive Vice President & 1994 65,627 0 0 0
Chief Financial Advisor
</TABLE>
- ------------------
(1) Includes: (i) the value of group term life insurance, (ii) amounts paid
under relocation programs for Messrs. Webb and Newman, (iii) the value of
the use of First Nationwide Bank-owned automobiles for Messrs. Webb,
Flanagan, Newman and Staff, (iv) club dues, (v) personal financial planning
services paid by First Nationwide Bank for Messrs. Ford, Webb, Newman and
Staff, and (vi) security expenses paid by First Nationwide Bank for Messrs.
Newman and Staff.
(2) Includes: (i) First Nationwide Bank's contributions to the 401(k) plan for
Messrs. Ford, Webb, Flanagan and Newman, (ii) First Nationwide Bank's
contribution to the Supplemental Employees' Investment Plan, and (iii)
premiums on supplemental life insurance paid by First Nationwide Bank for
Messrs. Ford, Webb and Flanagan.
(3) Mr. Ford became Chief Executive Officer of First Nationwide Bank upon the
consummation of the FN Acquisition on October 3, 1994. Messrs. Flanagan and
Staff became Executive Vice Presidents on October 3 and October 17, 1994,
respectively.
Certain executive officers of First Nationwide Bank have entered into
employment agreements with First Nationwide Bank. See 'Certain
Transactions--Executive Employment Agreements.' Also, Gerald J. Ford has been
and is presently a party to certain consulting, and similar agreements with the
certain affiliates of First Nationwide Holdings, as more fully described in
'Certain Transactions--Transactions with Mr. Ford.'
Effective October 1, 1995, First Nationwide Holdings adopted a management
incentive plan (the 'Incentive Plan') with respect to certain executive officers
of First Nationwide Bank (the 'Participants'). Awards under the Incentive Plan
are made in the form of performance units. Each performance unit entitles the
Participants to receive cash and/or stock options ('Bonuses') based on the
Participant's vested interest in a bonus pool. Generally, the Incentive Plan
provides for the payment of Bonuses, on a quarterly basis, to the Participants
upon the occurrence of certain events. Bonuses vest at 20% per year beginning
October 1, 1995. The aggregate amount of Bonuses payable under the Incentive
Plan is subject to a cap of $50 million. During 1995, a liability of $2 million
was recorded relative to the Incentive Plan.
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The following table sets forth information concerning awards made during
1995 to each of the executive officers named in the preceding table under all
long-term incentive plans. There were no long-term incentive plan awards in 1994
or 1993.
LONG-TERM INCENTIVE PLAN AWARDS (1)
<TABLE>
<CAPTION>
NUMBER OF
SHARES, ESTIMATED FUTURE PAYOUTS
UNITS OR PERFORMANCE OR UNDER NON-STOCK-PRICE-BASED PLANS
OTHER OTHER PERIOD UNTIL -----------------------------------------
RIGHTS MATURATION OR THRESHOLD TARGET MAXIMUM
NAME (#) PAYOUT (2) ($) (3) ($) (3) ($) (3)
- ------------------------------------ --------- ------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Carl B. Webb........................ 500 Ten years $10,127,500 $10,127,500 $25,000,000
Christie S. Flanagan................ 80 Ten years 1,620,400 1,620,400 4,000,000
Lacy G. Newman, Jr. ................ 80 Ten years 1,620,400 1,620,400 4,000,000
James R. Staff...................... 80 Ten years 1,620,400 1,620,400 4,000,000
</TABLE>
- ------------------
(1) The table above represents awards of performance units pursuant to the
Incentive Plan. Any payout with respect to the performance units would only
be made by First Nationwide Holdings. Units vest at 20% per year beginning
on October 1, 1995.
(2) Payouts of cash awards would be made only if earned and only (i) upon
achievement of a target 'Excess Value' prior to December 31, 2004, (ii) upon
an occurrence of a change in control of First Nationwide Holdings or First
Nationwide Bank, (iii) upon an occurrence of a public offering of common
stock of First Nationwide Holdings or the First Nationwide Bank or (iv) on
December 31, 2004. 'Excess Value' is a measure of First Nationwide Holdings'
performance tied to the aggregate earnings of the Issuer and the aggregate
distributions made to the shareholders of First Nationwide Holdings.
(3) Generally, the cash payout with respect to a performance unit equals .0084%
of the Excess Value. Upon achievement of the target Excess Value, the cash
payout with respect to each performance unit would be $20,255. If a payout
is triggered otherwise than by achievement of the target Excess Value, no
cash payouts would be made unless the Excess Value at the time of the event
triggering payment exceeds or equals the amount resulting in a payout of at
least $20,255 with respect to each performance unit. In certain
circumstances, in case of a public offering of common stock of First
Nationwide Holdings or First Nationwide Bank, the payout would be made, in
whole or in part, in options to acquire common stock of First Nationwide
Holdings or First Nationwide Bank. The number of shares of stock that would
be subject to such options is not determinable at this time.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Issuer has no Compensation Committee. The following directors serve on
the Compensation Committee of the Board of First Nationwide Bank: Gerald J.
Ford, Howard Gittis, Paul Bass and George Bramblett. During the 1995 and 1994
fiscal years, Mr. Ford was Chairman of the Board of First Nationwide Bank and
President and a director of the Issuer. In addition, Mr. Ford controls Hunter's
Glen/Ford Ltd. ('Hunter's Glen'), a limited partnership which owns 100% of the
class B common stock of First Nationwide Holdings representing 20% of the voting
common stock (respresenting approximately 15% of the voting power of its common
stock) of First Nationwide Holdings. Mr. Gittis is a director of the Issuer and
of First Nationwide Bank.
OWNERSHIP OF COMMON STOCK
Ronald O. Perelman, 35 East 62 Street, New York, New York 10021 through
MacAndrews & Forbes, beneficially owns all of the outstanding common stock of
the Issuer. No other director, executive officer or other person beneficially
owns any shares of common stock of the Issuer.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH MACANDREWS & FORBES
MacAndrews & Forbes beneficially owns all shares of the common stock of the
Issuer. As a result, MacAndrews & Forbes is able to direct and control the
policies of the Issuer and its subsidiaries, including with respect to mergers,
sales of assets and similar transactions.
MacAndrews & Forbes is a diversified holding company with interests in
several industries. Through its 83% ownership of Revlon, MacAndrews & Forbes is
engaged in the cosmetics and skin care, fragrance and personal care products
business. MacAndrews & Forbes owns 83% of Coleman, which is engaged in the
manufacture and marketing of recreational outdoor products, portable generators,
power-washing equipment, spas and hot tubs and 65% of Meridian Sports, a
manufacturer and marketer of specialized boats and water sports equipment.
Marvel, a youth entertainment company, is 80% owned by MacAndrews & Forbes.
MacAndrews & Forbes also is engaged in the television broadcast and programming
production business through its approximate 40% ownership of New World
Communications, and through its 85% ownership of Mafco Consolidated, in the
processing of licorice and other flavors, and in the manufacture and
distribution of cigars and pipe tobacco. MacAndrews & Forbes is also in the
financial services business through First Nationwide Bank. The principal
executive offices of MacAndrews & Forbes are located at 35 East 62nd Street, New
York, New York 10021.
FN TAX SHARING AGREEMENT
For federal income tax purposes, the Issuer, First Nationwide Holdings and
First Nationwide Bank are included in the Mafco Group, and accordingly their
federal taxable income and loss will be included in the consolidated federal
income tax return filed by Mafco Holdings. The Issuer, First Nationwide Holdings
and First Nationwide Bank also may be included in certain state and local tax
returns of Mafco Holdings or its subsidiaries. First Nationwide Bank, First
Nationwide Holdings and Mafco Holdings are parties to the FN Tax Sharing
Agreement, effective as of January 1, 1994, pursuant to which: (i) First
Nationwide Bank will pay to First Nationwide Holdings amounts equal to the taxes
that First Nationwide Bank would be required to pay if it were to file a return
separately from the Mafco Group, and (ii) First Nationwide Holdings will pay to
Mafco Holdings amounts equal to the taxes that First Nationwide Holdings would
be required to pay if it were to file a consolidated return on behalf of itself
and First Nationwide Bank separately from the Mafco Group. The FN Tax Sharing
Agreement allows First Nationwide Bank to take into account, in determining its
liability to First Nationwide Holdings, any net operating loss carryovers that
it would have been entitled to utilize if it had filed separate returns for each
year since the formation of First Nationwide Bank. The FN Tax Sharing Agreement
also allows First Nationwide Holdings to take into account, in determining its
liability to Mafco Holdings, any net operating losses that it would have been
entitled to utilize if it had filed a consolidated return on behalf of itself
and First Nationwide Bank for each year since the formation of First Nationwide
Bank.
First Nationwide Bank has generated significant federal income tax net
operating losses since its formation. This is due, in part, to the fact that
under applicable federal income tax law, the financial assistance received by
First Nationwide Bank pursuant to the Assistance Agreement was excluded from the
taxable income of First Nationwide Bank. In addition to such tax-free financial
assistance, First Nationwide Bank has been entitled to its normal operating
deductions, including interest expense and certain losses relating to its loan
portfolio. As a result, First Nationwide Bank generated significant net
operating losses for federal income tax purposes even though its operations were
profitable. Furthermore, under the reorganization provisions of the Code, First
Nationwide Bank succeeded to certain net operating loss carryovers of the Texas
Closed Banks.
At December 31, 1995, if First Nationwide Holdings had filed a consolidated
tax return on behalf of itself (as common parent) and First Nationwide Bank for
each year since the formation of First Nationwide Bank, it would have had
approximately $2.6 billion of regular net operating losses and approximately
$992 million of AMT net operating losses, both of which First Nationwide
Holdings would have been entitled to utilize. A portion of such losses, to the
extent not previously used to offset income, would expire in the year 2002 and
in each year thereafter and would fully expire in 2007. It is expected that
under the FN Tax Sharing Agreement, First Nationwide Bank and First Nationwide
Holdings will be able to eliminate a significant portion of the amounts they
otherwise would be required to pay to First Nationwide Holdings and Mafco
Holdings, respectively, under the FN Tax Sharing Agreement in respect of federal
income tax and, accordingly, it is not
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expected that First Nationwide Bank or First Nationwide Holdings will record a
significant amount of federal income tax expense as members of the Mafco Group.
Payments made by First Nationwide Holdings under the FN Tax Sharing Agreement
with the Mafco Group during the year ended December 31, 1995 totalled $3.1
million. There were no such payments in 1994.
Under federal tax law, First Nationwide Holdings and First Nationwide Bank
will be subject to several liability with respect to the consolidated federal
income tax liabilities of the Mafco Group for any taxable period during which
First Nationwide Holdings or First Nationwide Bank are, as the case may be, a
member of such group. Mafco Holdings has agreed, however, to indemnify First
Nationwide Holdings and First Nationwide Bank for any such federal income tax
liability (and certain state and local tax liabilities) of Mafco Holdings or any
of its subsidiaries (other than First Nationwide Holdings and First Nationwide
Bank) that First Nationwide Holdings or First Nationwide Bank is actually
required to pay. Therefore, the FN Tax Sharing Agreement will not increase the
amounts payable by First Nationwide Holdings or First Nationwide Bank over the
amounts that they would have had to pay if they were not members of the Mafco
Group.
LOANS TO AFFILIATE
First Nationwide Holdings loaned approximately $46.8 million to an
affiliate of the Issuer on March 1, 1996. Such loan bears interest at the rate
of 10.5% over the then prevailing yield to maturity of the five-year United
States treasury note, and is an unsecured subordinated obligation of the
borrower guaranteed by certain other affiliates of the Issuer. Management
believes that the terms and conditions of such loan are at least as favorable to
First Nationwide Holdings as might have been obtained in a similar transaction
with an unaffiliated party.
TRANSACTIONS WITH MR. FORD
Madison Financial, Inc. ('Madison Financial'), a corporation formerly owned
by Gerald J. Ford, the Chairman of the Board, Chief Executive Officer and a
director of First Nationwide Bank and the President and a director of the
Issuer, was a party to a Consulting Agreement (the 'Consulting Agreement'),
effective as of February 1, 1993, between Madison Financial and Trans Network
Insurance Services (formerly First Gibraltar (Parent) Holdings Inc.) ('TNIS')
pursuant to which Madison Financial provided consulting services to TNIS for a
term ending on December 31, 1998. The Consulting Agreement was terminated in
July 1994 in connection with the Exchange Agreement (as defined herein). Certain
costs related to the Consulting Agreement were charged to the Issuer.
First Nationwide Bank is an indirect subsidiary of First Gibraltar
Holdings. In connection with the offering of the FN Holdings Senior Notes, First
Gibraltar Holdings incorporated the Issuer and First Nationwide Holdings, to
hold 100% of the common stock of First Nationwide Bank. First Gibraltar Holdings
contributed all of its shares of capital stock of First Nationwide Bank to the
Issuer, which contributed such shares to First Nationwide Holdings in exchange
for 1,000 shares of common stock of First Nationwide Holdings. First Nationwide
Holdings amended its certificate of incorporation to create 800 shares of class
A common stock having one vote per share, 200 shares of class B common stock
having .75 votes per share and 230.3 shares of nonvoting class C common stock,
and the Issuer exchanged its 1,000 shares of common stock for 800 shares of
class A common stock. Pursuant to the terms of an Exchange Agreement entered
into between First Nationwide Holdings, Mr. Ford and the Issuer (the 'Exchange
Agreement'), and in connection with the consummation of the FN Acquisition, the
Issuer acquired 100% of the class C common stock of First Nationwide Holdings,
in exchange for $210 million and Mr. Ford acquired 100% of the class B common
stock of First Nationwide Holdings in exchange for his 6.25% of the class A
common stock of First Gibraltar Holdings and all of the shares of Madison
Financial, the sole asset of which was the Consulting Agreement. In addition,
First Nationwide Holdings also assumed indebtedness of Mr. Ford in the amount of
approximately $11.9 million to TNIS (the 'Ford Obligation'), which obligation
has been forgiven by TNIS. As a result of the consummation of the transactions
contemplated by the Exchange Agreement, Mr. Ford owns 100% of the class B common
stock of First Nationwide Holdings, representing 20% of its voting common stock
(representing approximately 15% of the voting power of its voting common stock)
and the Issuer owns 100% of the class A common stock of First Nationwide
Holdings, representing 80% of its voting common stock (representing
approximately 85% of the voting power of its voting common stock), and 100% of
the class C common stock of First Nationwide Holdings. The Issuer, First
Nationwide Holdings and Mr. Ford have entered into a stockholders agreement (the
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'Stockholders Agreement') pursuant to which, among other things, Mr. Ford and
First Nationwide Holdings have the right to transfer their respective shares to
certain affiliates. In addition, the Stockholders Agreement contains other
customary provisions regarding restrictions on transfer and registration rights.
On December 29, 1995, Mr. Ford transferred his shares of class B common stock to
Hunter's Glen, which assumed the obligations under, and will receive the
benefits of, the Stockholders Agreement.
Mr. Ford has entered into a loan agreement with NationsBank of Texas, N.A.
('NationsBank'), whereby NationsBank has loaned Mr. Ford $5 million. Such loan
has a maturity of up to one year and bears interest at a floating interest rate
based on LIBOR. The loan is secured by Mr. Ford's FN Holdings Senior Notes. The
terms of the loan provide that, in the event of default by Mr. Ford under such
loan or in the event of certain rapid and material declines in the value of the
FN Holdings Senior Notes pledged as collateral, NationsBank or any successor or
assignee thereof will have the right to foreclose on the pledged FN Holdings
Senior Notes and sell, or direct Mr. Ford to sell, such FN Holdings Senior
Notes, to certain Qualified Institutional Buyers ('QIBs') (as such term is
defined in Rule 144A under the Securities Act) pursuant to Rule 144A under the
Securities Act, pursuant to Regulation S under the Securities Act, to First
Nationwide Holdings or pursuant to a shelf registration statement.
Mr. Ford has entered into an employment agreement with First Nationwide
Bank calling for his continued employment by First Nationwide Bank in his
current executive capacity with an annual base salary of $750,000. The term of
this agreement extends through December 31, 1997, and provides for, among other
things, a life insurance policy on the life of Mr. Ford in an amount equal to
three times his base salary.
Mr. Ford has also entered into a consulting agreement with First Nationwide
Management Corp. ('First Nationwide Management'), an affiliate of the Issuer,
providing for the payment to him of annual consulting fees of $750,000 for 1995
and in increasing amounts through 1997, and certain other related expenses.
Pursuant to an arrangement between First Nationwide Management and First
Nationwide Holdings, such consulting fees and other related expenses paid by
First Nationwide Management are charged to First Nationwide Holdings. Such
charges amounted to approximately $964,000 and $155,000 in 1995 and 1994,
respectively.
EXECUTIVE EMPLOYMENT AGREEMENTS
In addition to the employment agreement between Mr. Ford and First
Nationwide Bank (see '--Transactions with Mr. Ford'), Messrs. Webb, Flanagan,
Staff, Newman and Hodge have entered into employment agreements with First
Nationwide Bank calling for their continued employment by First Nationwide Bank
in their current executive capacities. All five agreements are substantially
similar in their terms except that Messrs. Webb, Staff and Newman's employment
agreements terminate on January 31, 1998, Mr. Hodge's terminates on December 31,
1998 and Mr. Flanagan's terminates on December 31, 1999, and Mr. Flanagan has
been paid a $20,000 'sign on' bonus. Additionally, each employment agreement
provides for a life insurance policy on the life of the insured in an amount
double the base salary payable by First Nationwide Bank to such individual.
Pursuant to such employment agreements, the annual base salaries payable by
First Nationwide Bank to Messrs. Webb, Flanagan, Staff, Newman and Hodge are
$900,000 $700,000, $450,000, $475,000 and $250,000, respectively.
Pursuant to an Agreement for Provision of Services between First Nationwide
Bank and First Nationwide Management, dated December 1, 1994 (the 'Services
Agreement'), a portion of the salaries payable by First Nationwide Bank to
Messrs. Webb, Flanagan and Staff is charged to First Nationwide Management so
that the annual net base compensation payable by First Nationwide Bank will be
$600,000, $350,000 and $225,000 for Messrs. Webb, Flanagan and Staff,
respectively. All of such fees paid by First Nationwide Management are charged
to First Nationwide Holdings for services performed by these executives. The
total amounts of such fees were approximately $945,000 and $147,000 in 1995 and
1994, respectively, including $945,000 and $78,000 received by First Nationwide
Bank pursuant to the Services Agreement, which fees are included in the amounts
allocated by First Nationwide Management to First Nationwide Holdings as
described in the first paragraph under '--Services Agreement.'
First Nationwide Bank has also entered into an employment agreement with
Mr. Gordon, effective as of the consummation of the SFFed Acquisition, for a
term ending on January 30, 1999. Pursuant to such employment agreement, the
annual base salary payable by First Nationwide Bank to Mr. Gordon is $400,000.
Mr. Gordon's agreement also provides for life insurance in an amount on the life
of the insured equal to $714,000.
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SERVICES AGREEMENTS
First Nationwide Management allocates certain of its expenditures to First
Nationwide Holdings. Such expenditures relate to salaries and benefits payable
to selected First Nationwide Bank employees (including Messrs. Webb, Flanagan
and Staff), aviation and other expenses. Pursuant to this arrangement,
approximately $1,935,000 and $459,000 was allocated by First Nationwide
Management to First Nationwide Holdings for the years ended December 31, 1995
and 1994, respectively.
Effective December 1, 1994, First Nationwide Bank entered into the Services
Agreement with First Nationwide Management whereby selected employees of First
Nationwide Bank (including Messrs. Webb, Flanagan, and Staff) provided services
for First Nationwide Management and certain of its subsidiaries. Fees are paid
to First Nationwide Bank under the Services Agreement at the rate of
approximately $86,000 per month based on actual services provided and
approximated $1,092,000 and $86,000 for the years ended December 31, 1995 and
1994, respectively. These costs are included in the amounts allocated by First
Nationwide Management to First Nationwide Holdings as described in the preceding
paragraph.
Effective on June 1, 1995, First Nationwide Bank entered into an agreement
whereby it provides marketing and other support services to TNIS in connection
with the insurance agency business it purchased from a First Nationwide Bank
subsidiary on the same date. Service charges under this agreement amount to
approximately $43,000 per month. Management believes that the terms and
conditions of these arrangements are at least as favorable to First Nationwide
Bank as those which could be obtained from similar arrangements with an
unaffiliated party.
SALE OF BUSINESS TO TNIS
Effective on June 1, 1995, FNC Insurance Agency, Inc., a wholly owned
subsidiary of First Nationwide Bank, sold that portion of its insurance agency
business related to marketing insurance products to First Nationwide Bank's
retail deposit and consumer loan customers to TNIS for approximately $0.7
million. Management believes that the terms and conditions of this transaction
are at least as favorable to the Issuer as might have been obtained in a similar
transaction with an unaffiliated party.
LOANS TO EXECUTIVE OFFICERS AND DIRECTORS
Some of First Nationwide Bank's executive officers, directors, and members
of their immediate families have engaged in loan transactions with First
Nationwide Bank. Such loans were made: (i) in the ordinary course of First
Nationwide Bank's business, (ii) on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions between First Nationwide Bank and other persons, and (iii) did not
involve more than the normal risk of collectibility or present other unfavorable
features.
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DESCRIPTION OF THE NOTES
The New Notes offered hereby will be issued under the Indenture between the
Issuer and The Bank of New York, as Trustee, a copy of which is filed as an
exhibit to the Registration Statement of which this Prospectus constitutes a
part. The following summary, which describes certain provisions of the Indenture
and the Notes, does not purport to be complete and is subject to, and is
qualified in its entirety by reference to the TIA and all the provisions of the
Indenture and the Notes, including the definitions therein of terms not defined
in this Prospectus. Certain terms used in this section are defined below for
purposes of this section under '--Certain Definitions'. The New Notes are
identical in all material respects to the terms of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes
and except that, if the Exchange Offer is not consummated by September 16, 1996,
the rate per annum at which the Old Notes bear interest will be 13% from and
including September 16, 1996 until but excluding the date of the consummation of
the Exchange Offer. See '--Registration Rights' below.
GENERAL
The Notes will mature on April 15, 2003. The Notes will bear interest from
April 17, 1996, payable semiannually in arrears on April 15 and October 15 of
each year, commencing October 15, 1996, to the persons who are registered
holders thereof at the close of business on the April 1 or October 1 next
preceding such interest payment date.
The Notes will bear interest at a rate of 12 1/2% per annum. The rate per
annum at which the Notes will bear interest may increase under certain
circumstances as described below under '--Registration Rights'.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Principal and interest will be payable initially at the
office of the Trustee, but, at the option of the Issuer, interest may be paid by
check mailed to the registered holders of the Notes at their registered
addresses. The Notes will be transferable and exchangeable initially at the
office of the Trustee and will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple thereof.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
All Old Notes and New Notes will be treated as a single class of securities
under the Indenture.
OPTIONAL REDEMPTION
Except as set forth in the next paragraph, the Notes may not be redeemed
prior to April 15, 2000. On and after such date, the Notes may be redeemed at
the option of the Issuer as a whole, or from time to time in part, at the
following redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest (if any) to the date of redemption (subject to the
right of holders of record on the relevant record date to receive interest due
on the relevant interest payment date) if redeemed during the 12-month period
beginning April 15 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICES
- -------------------------- -----------------
<S> <C>
2000...................... 106.250%
2001...................... 103.125%
2002...................... 100.000%
</TABLE>
At any time prior to April 15, 2000, the Issuer at its option may redeem
all, but not less than all, of the Notes at an aggregate redemption price equal
to the sum of (A) the then outstanding principal amount of the Notes, plus (B)
accrued and unpaid interest to the date of redemption, plus (C) the Applicable
Premium.
'Applicable Premium' means, with respect to a Note at any time of
determination, the greater of (i) the product of (x) 6.25% and (y) the
outstanding principal amount of such Note on such date of determination and (ii)
the excess of (A) the present value at such time of determination of the
required interest and principal payments payable to and including the first date
on which the Note may be redeemed at the option of the Issuer including the
premium on the Note payable on the first date on which such Note may be redeemed
at the option of the Issuer, computed using a discount rate equal to the
Treasury Rate plus 75 basis points, over (B) the then outstanding principal
amount of the Note.
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'Treasury Rate' means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for repayment (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining Average Life to the first date on which Notes are subject to optional
redemption by the Issuer pursuant to the first paragraph above; provided,
however, that, if the Average Life of the Notes to such first date on which
Notes are subject to optional redemption by the Issuer is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate will be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that, if the Average Life of the Notes to the first date on which
Notes are subject to optional redemption by the Issuer pursuant to the first
paragraph above is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of one
year will be used.
Notice of redemption will be mailed at least 30 days but not more than 60
days before any redemption date to each holder of Notes to be redeemed at its
registered address. Notes in denominations larger than $1,000 may be redeemed in
part but only in integral multiples thereof. If money sufficient to pay the
redemption price of all Notes (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent (or, if the Issuer or a
Subsidiary acts as the Paying Agent, it segregates the money held by it as
Paying Agent and holds it as a separate trust fund) on or before the redemption
date, then on and after such date interest ceases to accrue on such Notes (or
such portions thereof) called for redemption.
SINKING FUND
There will be no mandatory sinking fund payments for the Notes.
CHANGE OF CONTROL PUT EVENT
Upon the occurrence of any of the following events (each a 'Change of
Control Put Event'), each holder of Notes will have the right to require the
Issuer to repurchase all or any part of such holder's Notes at a repurchase
price equal to 103% of the principal amount thereof plus accrued and unpaid
interest (if any) to the date of repurchase (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(i) the Permitted Holders cease to be the 'beneficial owner' (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Issuer, whether as a result of the issuance of
securities of the Issuer, any merger, consolidation, liquidation or
dissolution of the Issuer, any direct or indirect transfer of securities by
a Permitted Holder or otherwise;
(ii) the Issuer ceases (x) to be the 'beneficial owner' (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act) of a majority of the
aggregate voting power of the Voting Stock of FN Holdings or the Bank,
whether as a result of the issuance of securities by FN Holdings or the
Bank, any merger, consolidation, liquidation or dissolution of FN Holdings
or the Bank, any direct or indirect transfer of securities of FN Holdings
or the Bank or otherwise, or (y) to have the ability to elect a majority of
the Board of Directors of FN Holdings or the Bank;
(iii) a sale, transfer, conveyance or other disposition (other than to
the Issuer, FN Holdings or any of its Subsidiaries) in a single transaction
or in a series of related transactions, in either case occurring outside
the ordinary course of business, of more than 75% of the assets and 75% of
the deposit liabilities of the Bank shown on the consolidated balance sheet
of the Bank as of the end of the most recent fiscal quarter ending at least
45 days prior to such transaction (or the first transaction in any such
related series of transactions); provided, however, that for purposes of
this clause (iii), if FN Holdings at any time holds any assets other than
(A) the Capital Stock of the Bank, (B) Temporary Cash Investments, (C)
assets related to Permitted Business Activities and (D) Permitted
Investments of the type described in clause (iv) of the definition thereof,
such other assets will be deemed to be assets of the Bank and to have been
reflected on such consolidated balance sheet; or
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(iv) a transaction or series of related transactions as a result of
which 20% or more of the Voting Stock or common stock (or Capital Stock
convertible or exchangeable into 20% of the Voting Stock or common stock)
of the Bank is held by one or more Persons other than the Issuer, FN
Holdings or any Wholly Owned Subsidiaries of FN Holdings.
Within 45 days following any Change of Control Put Event, the Issuer will
mail a notice to each holder stating (i) that a Change of Control Put Event has
occurred and that such holder has the right to require the Issuer to repurchase
all or any part of such holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest (if any) to the
date of repurchase (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), (ii)
the circumstances and relevant facts regarding such Change of Control Put Event,
(iii) the repurchase date (which will be no earlier than 30 days nor later than
60 days from the date such notice is mailed), and (iv) the instructions,
determined by the Issuer consistent with the Indenture, that a holder must
follow in order to have its Notes repurchased.
The Issuer's ability to pay cash to holders of Notes upon a repurchase may
be limited by the Issuer's then existing financial resources. See 'Risk
Factors--Indebtedness and Ability to Pay Principal of the Notes'.
The Issuer will comply with any tender offer rules under the Exchange Act
which may then be applicable, including Rule 14e-1, in connection with any offer
required to be made by the Issuer to repurchase the Notes as a result of a
Change of Control Put Event. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this covenant, the Issuer will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligation under this covenant by virtue thereof.
Certain provisions relating to the Issuer's obligation to make an offer to
repurchase the Notes as a result of a Change of Control Put Event may not be
waived or modified without the written consent of the holders of all the Notes.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture:
Limitation on Debt. The Issuer will not issue any Debt and the Issuer will
not permit any Subsidiary to issue any Debt; provided, however, that the
foregoing will not prohibit the issuance of the following Debt:
(a) the Notes and Debt of the Issuer issued by the Issuer in exchange
for, or the proceeds of which are used to Refinance, any Debt permitted by
this clause (a); provided, however, that in the case of any Debt (other
than any Exchange Notes or Private Exchange Notes) issued in connection
with a Refinancing, (x) the principal amount or, in the case of Debt issued
at a discount, the accreted value of the Debt so issued will, as of the
date of the Stated Maturity of the Debt being Refinanced, not exceed the
sum of (i) the principal amount or, if the Debt being Refinanced was issued
at a discount, the accreted value of the Debt being Refinanced as of the
date of the Stated Maturity of the Debt being Refinanced and (ii) any
premium actually paid and reasonable costs and expenses, including
underwriting discounts, in connection with such Refinancing ('Refinancing
Costs') or, if such Debt is issued at a discount, the accreted value of the
portion of such Debt used to pay the Refinancing Costs as of the date of
the Stated Maturity of the Debt being Refinanced, (y) the Debt so issued
will not provide for the payment of principal in cash prior to the Stated
Maturity of the Notes and (z) if the Debt being Refinanced is a
Subordinated Obligation, the Debt so issued will be a Subordinated
Obligation;
(b) Debt of the resulting, surviving or transferee Person in a
transaction permitted by the covenant described under 'Successor Company'
below; provided that immediately prior to such transaction no Default has
occurred or is continuing;
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(c) Debt of FN Holdings issued by FN Holdings in exchange for, or the
proceeds of which are used to Refinance, the FN Holdings Senior Notes or
the FN Holdings Senior Subordinated Notes or any Debt permitted by this
clause (c) or clause (d) below; provided, however, (x) the principal amount
or, in the case of Debt issued at a discount, the accreted value of the
Debt so issued will, as of the date of the Stated Maturity of the Debt
being Refinanced, not exceed the sum of (i) the principal amount or, if the
Debt being Refinanced was issued at a discount, the accreted value of the
Debt being Refinanced as of the date of the Stated Maturity of the Debt
being Refinanced and (ii) any Refinancing Costs, or if such Debt is issued
at a discount, the accreted value of the portion of such Debt used to pay
the Refinancing Costs as of the date of the Stated Maturity of the Debt
being Refinanced and (y) the Debt so issued will not provide for the
payment of principal in cash prior to the Stated Maturity of the Debt being
Refinanced;
(d) Debt of FN Holdings if, immediately after giving effect to any
such issuance (including the Refinancing of any Debt from the proceeds of
such Debt of FN Holdings), the aggregate outstanding principal amount of
all Debt of FN Holdings (other than Debt of FN Holdings permitted under
clause (h) below) would not exceed an amount equal to the Consolidated Net
Worth of FN Holdings as of the end of the most recent fiscal quarter ending
at least 45 days prior to such issuance; provided, however, that the Debt
so issued will not provide for the payment of principal in cash prior to
the Stated Maturity of the Notes;
(e) any Debt of a Subsidiary that is a Depository Institution or a
Subsidiary of such Depository Institution;
(f) if any Mortgage Bank is not a Subsidiary of a Depository
Institution, any Debt issued by such Mortgage Bank in the ordinary course
of funding the origination or carrying of mortgage loans or hedging such
Subsidiary's loan portfolio;
(g) any Qualified Preferred Stock; or
(h) any Debt of the Issuer or any Subsidiary of the Issuer owing to
and held by the Issuer or any Subsidiary of the Issuer.
Limitation on Restricted Payments. (a) The Issuer will not, and will not
permit any of its Subsidiaries, directly or indirectly, to, make any Restricted
Payment if, at the time of the making of such Restricted Payment, and after
giving effect thereto:
(i) a Default will have occurred or be continuing (or would result
therefrom);
(ii) any Subsidiary that is a Depositary Institution will not qualify
as 'well capitalized' under Section 28 of the Federal Deposit Insurance Act
(the 'FDI Act') (or any successor provision) and the regulations of the
Office of Thrift Supervision ('OTS') thereunder;
(iii) the Consolidated Common Shareholders' Equity of the Bank as of
the end of the most recent fiscal quarter ending at least 45 days prior to
the date of such Restricted Payment would have been less than the Minimum
Common Equity Amount as of the end of such fiscal quarter; or
(iv) the aggregate amount of such Restricted Payment and all other
Restricted Payments declared or made from and after the Issue Date would
exceed the sum of:
(A) 65% of the aggregate Consolidated Net Income of the Issuer (or,
if such aggregate Consolidated Net Income of the Issuer is a deficit,
minus 100% of such deficit) since January 1, 1996 to the end of the most
recent fiscal quarter ending at least 45 days prior to the date of such
Restricted Payment;
(B) the aggregate Net Cash Proceeds from sales of Capital Stock of
the Issuer (other than Redeemable Stock or Exchangeable Stock) or cash
capital contributions made to the Issuer and any earnings or proceeds
thereof to the extent invested in Temporary Cash Investments, to the
extent received, made or realized on or after the Issue Date (other than
an issuance or sale to a Subsidiary of the Issuer); and
(C) the amount by which Debt of the Issuer is or has been reduced
on the Issuer's balance sheet on or after the Issue Date upon the
conversion or exchange (other than by a Subsidiary of the Issuer) of
Debt of the Issuer into Capital Stock (other than Redeemable Stock or
Exchangeable Stock) of the Issuer (less the amount of any cash or other
property distributed by the Issuer or any Subsidiary of the Issuer upon
such conversion or exchange).
(b) The foregoing paragraph (a) will not prohibit the following (none of
which shall be included in the calculation of the amount of Restricted Payments,
except to the extent expressly provided in clause (i) below):
(i) dividends paid within 60 days after the date of declaration
thereof, or Restricted Payments made within 60 days after the making of a
binding commitment in respect thereof, if at such date of declaration or
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commitment such dividend or other Restricted Payment would have complied
with the foregoing paragraph (a); provided, however, that, at the time of
payment of such dividend or the making of such Restricted Payment, no other
Default will have occurred and be continuing (or result therefrom);
provided further, however, that such dividend or other Restricted Payment
shall be included in the calculation of the amount of Restricted Payments;
(ii) any purchase or redemption of Capital Stock or Subordinated
Obligations by exchange for or out of the proceeds from the substantially
concurrent sale of Capital Stock of the Issuer or any purchase or
redemption of Subordinated Obligations from the proceeds of an Asset
Disposition to the extent permitted by the covenant described under
'--Limitation on Asset Dispositions' below or upon the occurrence of a
Change of Control Put Event after compliance in full with the covenant
described under '--Change of Control Put Event' above;
(iii) any purchase or redemption of Subordinated Obligations by
exchange for or out of the proceeds from the substantially concurrent sale
of Subordinated Obligations; provided, however, that such Subordinated
Obligations (A) will be subordinated to the Notes to at least the same
extent as the Subordinated Obligations so exchanged, purchased or redeemed,
(B) will have a Stated Maturity later than the Stated Maturity of the Notes
and (C) will have an Average Life to their Stated Maturity greater than the
remaining Average Life to the Stated Maturity of the Notes;
(iv) dividends or distributions paid by the Issuer from time to time
to the extent of the net proceeds to the Issuer of the issuance of the
Notes (including any earnings or proceeds thereof); and
(v) dividends or distributions by the Issuer from time to time after
the Issue Date, in an aggregate amount not in excess of $25,000,000, of
amounts received in respect of redemption payments on the class C common
stock of FN Holdings.
(c) The Issuer or any Subsidiary may take actions to make a Restricted
Payment in anticipation of the occurrence of any of the events described in
paragraph (b) of this covenant; provided, however, that the making of such
Restricted Payment will be conditioned upon the occurrence of such event.
Limitation on Transactions with Affiliates. (a) The Issuer will not, and
will not permit any of its Subsidiaries to, conduct any business or enter into
any transaction or series of similar transactions (including the purchase, sale,
lease or exchange of any property or the rendering of any service) with any
Affiliate of the Issuer or any legal or beneficial owner of 10% or more of the
Voting Stock of the Issuer or FN Holdings or with an Affiliate of any such owner
unless:
(i) the terms of such business, transaction or series of transactions are
(A) set forth in writing and (B) at least as favorable to the Issuer or such
Subsidiary as terms that would be obtainable at the time for a comparable
transaction or series of similar transactions in arm's-length dealings with an
unrelated third Person; and
(ii) to the extent that such business, transaction or series of
transactions is known by the Board of Directors of the Issuer or such Subsidiary
to involve an Affiliate of the Issuer or a legal or beneficial owner of 10% or
more of the Voting Stock of the Issuer or FN Holdings or an Affiliate of such
owner, then:
(A) with respect to a transaction or series of related transactions
involving aggregate payments or other consideration in excess of $500,000,
such transaction or series of related transactions has been determined to
satisfy the requirements of clause (i)(B) above (and the value of any
non-cash consideration has been determined) by a majority of those members
of the Board of Directors of the Issuer or such Subsidiary having no
personal stake in such business, transaction or series of transactions; and
(B) with respect to a transaction or series of related transactions
involving aggregate payments or other consideration in excess of
$10,000,000 (with the value of any non-cash consideration being determined
by a majority of those members of the Board of Directors of the Issuer or
such Subsidiary having no personal stake in such business, transaction or
series of transactions), such transaction or series of related transactions
has been determined, in the written opinion of a nationally recognized
investment banking firm to be fair, from a financial point of view, to the
Issuer or such Subsidiary.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i)
any Restricted Payment permitted to be paid as described under '--Limitation on
Restricted Payments' above; (ii) any transaction between the Issuer and any of
its Subsidiaries or between Subsidiaries of the Issuer and any transaction with
an Unrestricted Affiliate; provided, however, that no portion of any minority
interest in any such Subsidiary and no equity interest in any such Unrestricted
Affiliate is owned by (x) any Affiliate of the Issuer (other than FN Holdings,
the Bank, a Wholly Owned Subsidiary of FN Holdings, an Unrestricted Affiliate or
a Permitted Affiliate) or (y) any legal or beneficial owner of 10% or more of
the Voting Stock of the Issuer or FN Holdings or any Affiliate of
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such owner (other than the Issuer, FN Holdings, the Bank, any Wholly Owned
Subsidiary of FN Holdings, an Unrestricted Affiliate or, if any such Subsidiary
is FN Holdings, a Permitted Affiliate or any Affiliate thereof that is not
otherwise an Affiliate of the Issuer); (iii) transactions pursuant to which
Mafco Holdings will provide the Issuer and its Subsidiaries at the request of
the Issuer with certain allocated services to be purchased from third party
providers, such as legal and accounting services, insurance coverage and other
services; (iv) any transaction with an executive officer or director of any
Subsidiary of the Issuer entered into in the ordinary course of business
(including compensation or employee benefit arrangements with any such executive
officer or director); provided, however, that such executive officer or director
holds directly or indirectly no more than 10% of the outstanding Capital Stock
of the Issuer or FN Holdings; and (v) any transactions pursuant to the Tax
Sharing Agreement.
Limitation on Other Business Activities. (a) To the extent that any shares
of Capital Stock of FN Holdings are beneficially owned by the Permitted Holders,
the Issuer will not permit such shares to be held of record by any person other
than the Issuer. The Issuer will not engage in any trade or business other than
(i) the ownership of Capital Stock of FN Holdings, (ii) the making or holding of
Permitted Investments and (iii) Permitted Business Activities.
(b) The Issuer will not permit FN Holdings to engage in any trade or
business other than (i) the ownership of the Capital Stock of the Bank, (ii) the
ownership of the Capital Stock of one or more other Subsidiaries engaged in
activities permissible for subsidiaries of a multiple savings and loan holding
company under Section 10 of the Home Owners' Loan Act (or any successor
provision), (iii) the making or holding of Permitted Investments and (iv)
Permitted Business Activities.
Limitations on Restrictions on Distributions by Subsidiaries. The Issuer
will not, and will not permit any Subsidiary of the Issuer to, suffer to exist
any consensual encumbrance or restriction on the ability of any Subsidiary of
the Issuer (i) to pay, directly or indirectly, dividends or make any other
distributions in respect of its Capital Stock or to pay any Debt or other
obligation owed to the Issuer, (ii) to make loans or advances to the Issuer or
(iii) to transfer any of its property or assets to the Issuer, except, in any
such case, any encumbrance or restriction:
(a) pursuant to any agreement or instrument in effect or entered into
on the Issue Date;
(b) pursuant to an agreement or instrument in effect or entered into
by such Subsidiary prior to the date on which such Subsidiary was acquired
by the Issuer (other than Debt issued as consideration in, or to provide
all or any portion of the funds or credit support utilized to consummate,
the transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Issuer and other than
any agreement entered into in anticipation of the acquisition of such
Subsidiary by the Issuer) and outstanding on such date;
(c) pursuant to an agreement or instrument effecting a renewal,
extension, Refinancing or refunding of Debt (other than Debt of FN
Holdings) or relating to such Debt being renewed, extended, Refinanced or
refunded issued pursuant to an agreement or instrument referred to in
clause (a) or (b) above or this clause (c), or contained in any amendment
to an agreement or instrument referred to in clause (a) or (b) above or
this clause (c); provided, however, that the provisions contained in such
renewal, extension, Refinancing or refunding agreement or instrument or in
such amendment relating to such encumbrance or restriction are no more
restrictive than the provisions contained in the agreement or instrument
relating to such Debt being renewed, extended, Refinanced or refunded or
relating to such amendment, as determined in good faith by the Board of
Directors of the Issuer and evidenced by a resolution adopted by such
Board;
(d) affecting the ability of FN Holdings or any of its Subsidiaries to
take any of the actions described in clauses (i) through (iii) above,
pursuant to any agreement or instrument with respect to any new issuance of
Debt of FN Holdings or an agreement or instrument effecting a renewal,
extension, Refinancing or refunding of Debt of FN Holdings or any amendment
to any agreement or instrument relating to Debt of FN Holdings; provided,
however, that the provisions contained in such agreement or instrument
relating to such encumbrance or restriction are no more restrictive in any
material respect than the most restrictive provisions applicable to FN
Holdings or such Subsidiary, as the case may be, in effect on the Issue
Date, as determined in good faith by the Board of Directors of the Issuer
and evidenced by a resolution adopted by such Board;
(e) any encumbrance or restriction (A) that restricts in a customary
manner the subletting, assignment or transfer of any property or asset that
is a lease, license, conveyance or contract or similar property or asset,
(B) by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any
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property or assets of the Issuer or any Subsidiary not otherwise prohibited
by the Indenture or (C) arising or agreed to in the ordinary course of
business and that does not, individually or in the aggregate, detract from
the value of property or assets of the Issuer or any Subsidiary in any
manner material to the Issuer or such Subsidiary;
(f) in the case of clause (iii) above, restrictions contained in
security agreements securing Debt of a Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements;
(g) any encumbrance or restriction relating to a Mortgage Bank
contained in an agreement or instrument providing for 'warehouse' or other
financing for such Subsidiary for originating or carrying mortgage loans or
hedging such Subsidiary's loan portfolio;
(h) any encumbrance or restriction imposed by, or otherwise agreed to
with, any governmental agency having regulatory supervision over the Bank
or any other Subsidiary of the Issuer;
(i) pursuant to the terms of (A) any Qualified Preferred Stock or (B)
any other Preferred Stock issued by FN Holdings or any Subsidiary of FN
Holdings; provided, however, that, in the case of any Preferred Stock other
than Qualified Preferred Stock, the terms of such Preferred Stock do not
impose any consensual encumbrance or restriction on the ability of the
issuer thereof (x) to pay dividends or make distributions on its common
stock except in a manner that is no more restrictive in any material
respect than the following, as determined in good faith by the Board of
Directors of the Issuer and evidenced by a resolution adopted by such
Board:
(I) Dividends and distributions on common stock or other capital
stock of the issuer may not be declared or paid or set apart for payment
at any time when the issuer has not declared and paid any dividends or
distributions on such Preferred Stock which are required to be declared
and paid as a precondition to dividends or distributions on other
capital stock of the issuer;
(II) Distributions upon the liquidation, dissolution or winding up
of the issuer, whether voluntary or involuntary ('Liquidating
Distributions'), may not be made on the common stock or other capital
stock of the issuer at any time when such Preferred Stock is entitled to
receive Liquidating Distributions which have not been paid; and
(III) Dividends and distributions on common stock or other capital
stock of the issuer may not be declared or paid or set apart for payment
at any time when such Preferred Stock is required to be, but has not
been, redeemed pursuant to mandatory redemption provisions provided for
therein; provided, however, that any such mandatory redemption
provisions do not require such Preferred Stock to be redeemed prior to
the Stated Maturity of the Notes;
and (y) to (i) pay any Debt or other obligation owed to FN Holdings or the
Issuer; (ii) make loans or advances to FN Holdings or the Issuer; or (iii)
transfer any of its property or assets to FN Holdings or the Issuer, except,
in any such case, any encumbrance or restriction permitted by this covenant
(other than this clause (i)); and
(j) any encumbrance or restriction to the extent it restricts a
dividend, distribution or transfer of any note or other receivable owed to
the Issuer or any Subsidiary of the Issuer by any Affiliate of the Issuer
or of FN Holdings (other than a Subsidiary of the Issuer).
Limitation on Asset Dispositions. (a) The Issuer will not, and will not
permit any Subsidiary to, directly or indirectly, consummate any Asset
Disposition unless (i) the Issuer or any Subsidiary receives consideration at
the time of such Asset Disposition at least equal to the fair market value, as
determined in good faith by the Board of Directors of the Issuer (including as
to the value of all noncash consideration), of the shares subject to such Asset
Disposition and 100% of the consideration thereof received by the Issuer or such
Subsidiary, (x) in the event of an Asset Disposition by the Issuer, is in the
form of cash, Temporary Cash Investments or readily marketable securities that
the Issuer intends, in good faith, to liquidate promptly after receipt thereof,
and (y) in the event of an Asset Disposition by FN Holdings, is in the form of
cash or Permitted Investments and (ii) an amount equal to 100% of the Net Cash
Proceeds from such Asset Disposition is, within 180 days after consummation of
such Asset Disposition, at the election of the Issuer:
(I) Invested in the Bank or in Permitted Investments;
(II) used to prepay, repay, redeem, defease or repurchase Debt of FN
Holdings (other than Debt owed to the Issuer or any Affiliate of the
Issuer, except in the case of a pro rata prepayment, repayment, redemption,
defeasance or repurchase of securities of FN Holdings of which less than
10% of the aggregate outstanding principal amount of such securities is
owed to such Affiliate);
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(III) in the event of a sale or other disposition of Capital Stock of
FN Holdings by the Issuer, used (A) first, to make an offer to the Holders
of Notes to purchase Notes in accordance with this covenant and, at the
Issuer's election, to make an offer to purchase other pari passu Debt of
the Issuer which includes provisions similar to this covenant and (B)
second, to the extent any of such Net Cash Proceeds remain after
application thereof in accordance with clause (A) of this clause (III), at
the Issuer's election, to make an offer to purchase Subordinated
Obligations or other Debt of the Issuer; or
(IV) in the event of a primary Issuance or other disposition of
Capital Stock of FN Holdings by FN Holdings, used to prepay, repay, redeem,
defease or repurchase Debt of FN Holdings owed to the Issuer (and, if
applicable, a pro rata portion of Debt of the same class owed to other
stockholders of FN Holdings or their designees) or to make a pro rata
dividend to the stockholders of FN Holdings, and the proceeds thereof
received by the Issuer will be used (A) first, to make an offer to the
Holders of Notes to purchase Notes in accordance with this covenant and, at
the Issuer's election, to make an offer to purchase other pari passu Debt
of the Issuer which includes provisions similar to this covenant and (B)
second, to the extent any of such Net Cash Proceeds remain after
application thereof in accordance with clause (A) of this clause (IV), at
the Issuer's election, to make an offer to purchase Subordinated
Obligations or other Debt of the Issuer.
Pending application of Net Cash Proceeds pursuant to this covenant, such Net
Cash Proceeds will be invested in Temporary Cash Investments.
(b) In the event the Issuer elects to apply all or any portion of such Net
Cash Proceeds toward the purchase of Notes or such pari passu Debt pursuant to
the foregoing clauses (a)(III)(A) or (a)(IV)(A) (such proceeds, the 'Offered
Proceeds'), the Issuer will be required to purchase Notes tendered pursuant to
an offer by the Issuer to repurchase the Notes and such pari passu Debt (the
'Offer') at a purchase price of 100% of their principal amount plus accrued but
unpaid interest to the date of repurchase (or, in respect of such pari passu
Debt, such lesser price, if any, as may be provided for by the terms of such
pari passu Debt) in accordance with the procedures (including prorating among
the holders of the Notes and such pari passu Debt in the event of
oversubscription) set forth in the Indenture; provided that the procedures for
making an Offer to holders of such pari passu Debt will be as provided for by
the terms of such pari passu Debt to the extent such procedures do not conflict
with the procedures set forth in the Indenture for prorating or making an Offer
to holders of Notes pursuant to this covenant. In the event that the aggregate
purchase price of the Notes delivered by the Issuer to the Trustee together with
the aggregate purchase price of all other pari passu Debt purchased by the
Issuer pursuant to clauses (a)(III)(A) and (a)(IV)(A) above is less than the
Offered Proceeds, the excess will be delivered to the Issuer promptly following
the expiration of the period of the Offer for application in accordance with
paragraph (a) above or, at the Issuer's election, such excess may be used to
make Restricted Payments to the extent permitted by the covenant described under
'Certain Covenants--Limitation on Restricted Payments' above.
(c) The Issuer will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuer will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Liens. The Issuer will not create or permit to exist any
Lien (other than a Lien under the Indenture to secure certain of the Issuer's
obligations to the Trustee and any other Lien substantively similar to such Lien
arising in favor of trustees under other indentures of the Issuer) on any of its
property or assets (including Capital Stock) whether owned on the date of the
Indenture or thereafter acquired, securing any obligation of the Issuer or any
Subsidiary of the Issuer, unless contemporaneously therewith, effective
provision is made to secure the Notes equally and ratably with such obligation
with a Lien on the assets securing such obligation for so long as such
obligation is secured by such Lien; provided, however, that if such secured
obligation of the Issuer is a Subordinated Obligation, the Lien securing such
obligation will be subordinate and junior to the Lien securing the Notes with
the same or lesser relative priority as such Subordinated Obligation will have
with respect to the Notes.
Amendment of Tax Sharing Agreement. (a) The Issuer will not permit any of
its Subsidiaries to terminate, amend, modify or waive any provisions of the Tax
Sharing Agreement if such termination, amendment, modification or waiver will
adversely affect the Issuer.
(b) Nothing in this covenant will prohibit the replacement of Mafco
Holdings as 'Parent' under the Tax Sharing Agreement with any other corporation
that becomes the 'common parent' (within the meaning of
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Section 1504 of the Code) of the affiliated group of corporations with respect
to which a consolidated Federal income tax return is filed that includes FN
Holdings and the Bank and the amendment of the Tax Sharing Agreement to reflect
such replacement.
Maintenance of Status of Subsidiaries as Insured Depository Institutions;
Capital Maintenance. (a) The Issuer will do or cause to be done all things
necessary to preserve and keep in full force and effect the status of each of
its Subsidiaries that is a Depository Institution as an insured depository
institution and do all things necessary to ensure that savings accounts of each
such Subsidiary are insured by the FDIC or any successor organization up to the
maximum amount permitted by 12 U.S.C. Section 1811 et seq. and the regulations
thereunder or any succeeding federal law, except as to individual accounts or
interests in employee benefit plans that are not entitled to 'pass-through'
insurance under 12 U.S.C. Section 1821(a)(1)(D).
(b) The Issuer will cause the Bank to maintain or exceed the status of an
'adequately capitalized' institution as defined in the FDIA and OTS regulations.
SEC Reports. Notwithstanding that the Issuer may not be required to be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Issuer will file or cause to be filed with the SEC and provide the
Trustee and holders of the Notes with the information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) specified in Sections 13 and 15(d) of the
Exchange Act. The Issuer also will comply with the other provisions of TIA
Section 314(a).
SUCCESSOR COMPANY
The Issuer may not, and will not permit FN Holdings to, consolidate with or
merge with or into, or convey, transfer or lease all or substantially all its
assets to, any Person (other than, in the case of FN Holdings, such a
consolidation or merger with, or conveyance, transfer or lease to, a Wholly
Owned Subsidiary of FN Holdings), unless: (i) the resulting, surviving or
transferee Person (if not the Issuer or FN Holdings, as the case may be) is
organized and existing under the laws of the United States of America, any State
thereof or the District of Columbia and such Person expressly assumes by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Issuer under the
Indenture and the Notes; (ii) immediately after giving effect to such
transaction (and treating any Debt or Liens which become an obligation of the
resulting, surviving or transferee Person or any of its Subsidiaries as a result
of such transaction as having been issued or created by such Person or such
Subsidiary at the time of such transaction), no Default has occurred and is
continuing; (iii) immediately after giving effect to such transaction, the
resulting, surviving or transferee Person has a Consolidated Net Worth in an
amount which is not less than the Consolidated Net Worth of the Issuer
immediately prior to such transaction; and (iv) the Issuer delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer complies with the Indenture and such
supplemental indenture (if any) complies with the Indenture and the TIA. The
resulting, surviving or transferee Person will be the successor company and will
succeed to, and be substituted for, and may exercise every right and power of,
the Issuer under the Indenture, and thereafter, except in the case of a lease,
the Issuer will be discharged from all obligations and covenants under the
Indenture and the Notes.
DEFAULTS
An Event of Default is defined in the Indenture as (i) (1) a default in the
payment of principal of any Note when due at its Stated Maturity, upon
redemption, upon required purchase, upon declaration or otherwise, or (2) a
default in the payment of interest on any Note when due and payable and the
continuance of such default for a period of 30 days, or (3) a failure to redeem
or purchase Notes when required pursuant to the Indenture or the Notes, (ii) the
failure by the Issuer to comply with its obligations described under 'Successor
Company' above, (iii) the failure by the Issuer to comply for 30 days after
notice with any of its obligations under the provisions described under 'Change
of Control Put Event' (other than a failure to purchase Notes), or under the
covenants described under 'Limitation on Debt', 'Limitation on Restricted
Payments', 'Limitation on Transactions with Affiliates', 'Limitation on Other
Business Activities', 'Limitations on Restrictions on Distributions by
Subsidiaries', 'Limitations on Liens', 'Amendment of Tax Sharing Agreement',
'Maintenance of Status of Subsidiaries as Insured Depository Institutions;
Capital Maintenance', 'Limitation on Asset Dispositions' (other than a failure
to purchase Notes) or 'SEC Reports' above, (iv) the failure by the Issuer to
comply for 60 days after notice with its other agreements contained in the
Indenture or the Notes (other than those referred to in clauses (i), (ii) and
(iii) of this paragraph), (v) Debt of the Issuer or any Significant Subsidiary
is not paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default
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and the total principal amount of the portion of such Debt that is unpaid or
accelerated exceeds $25 million or its foreign currency equivalent and such
default continues for 5 days after notice (the 'cross acceleration provision'),
(vi) certain events of bankruptcy, insolvency or reorganization of the Issuer or
a Significant Subsidiary (the 'bankruptcy provisions'), or (vii) any judgment or
decree for the payment of money in excess of $25 million is entered against the
Issuer or a Significant Subsidiary and is not discharged and either (A) an
enforcement proceeding has been commenced by any creditor upon such judgment or
decree or (B) there is a period of 60 days following the entry of such judgment
or decree during which such judgment or decree is not discharged, waived or the
execution thereof stayed and, in the case of (B), such default continues for 10
days after the notice specified in the next sentence (the 'judgment default
provision'). However, a default under clauses (iii), (iv), (v) and (vii)(B) will
not constitute an Event of Default until the Trustee or the holders of at least
25% in principal amount of the outstanding Notes notify the Issuer of the
default and the Issuer does not cure such default within the time specified
after receipt of such notice.
If an Event of Default (other than an Event of Default specified in clause
(vi) in the above paragraph with respect to the Issuer) occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the outstanding Notes may declare the principal amount of and accrued interest
on all the Notes as of the date of such declaration to be immediately due and
payable (collectively, the 'Default Amount'). If an Event of Default relating to
certain events of bankruptcy, insolvency or reorganization of the Issuer occurs,
the Default Amount on all the Notes as of the date of such Event of Default will
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal or interest when due, no holder of a Note may pursue any
remedy with respect to the Indenture or the Notes unless (i) such holder has
previously given the Trustee written notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have made a written request of the Trustee to pursue the remedy, (iii)
such holders have offered the Trustee reasonable security or indemnity against
any loss, liability or expense, (iv) the Trustee has not complied with such
request within 60 days after the receipt thereof and the offer of security or
indemnity and (v) the holders of a majority in principal amount of the
outstanding Notes have not given the Trustee a direction inconsistent with such
request within such 60-day period. Subject to certain restrictions, the holders
of a majority in principal amount of the outstanding Notes are given the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee. The Trustee, however, may refuse to follow any direction that conflicts
with law or the Indenture or that the Trustee determines is unduly prejudicial
to the rights of any other holder of a Note or that would involve the Trustee in
personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding notice is in the interest of the holders of the
Notes. In addition, the Issuer is required to deliver to the Trustee, within 120
days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year. The
Issuer also is required to deliver to the Trustee, within 30 days after the
occurrence thereof, written notice of any event which would constitute certain
Defaults, their status and what action the Issuer is taking or proposes to take
in respect thereof.
AMENDMENT
Subject to certain exceptions, the Indenture may be amended with the
written consent of the holders of a majority in principal amount of the Notes
then outstanding and any past default or noncompliance with any provisions may
be waived with the consent of the holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce the
principal amount of Notes whose holders must consent to an amendment,
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(ii) reduce the rate of or extend the time for payment of interest on any Note,
(iii) reduce the principal of or extend the Stated Maturity of any Note or
reduce the Default Amount of any Note, (iv) reduce the price payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under 'Optional Redemption' above, (v) make any Note payable in money
other than that stated in the Note, (vi) make any change in the definition of
Change of Control Put Event or in the dates by which the Issuer must purchase,
or in the obligation of the Issuer to purchase, tendered Notes upon the
occurrence of a Change of Control Put Event, or (vii) make any change in the
amendment provisions which require each holder's consent or in the waiver
provisions.
Without the consent of or notice to any holder of the Notes, the Issuer and
the Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Issuer under the Indenture if in compliance with the
provisions described under 'Successor Company' above, to provide for
uncertificated Notes in addition to or in place of certificated Notes (provided
that the uncertificated Notes are issued in registered form for purposes of
Section 163(f) of the Code, or in a manner such that the uncertificated Notes
are described in Section 163(f)(2)(B) of the Code), to add guarantees with
respect to the Notes or to secure (or provide additional security for) the
Notes, to add to the covenants of the Issuer for the benefit of the holders of
the Notes or to surrender any right or power conferred upon the Issuer, to
provide for the issuance of the Exchange Notes or Private Exchange Notes, which
will have terms substantially identical in all material respects to the Initial
Notes (except that the transfer restrictions contained in the Initial Notes will
be modified or eliminated as appropriate), and which will be treated, together
with any outstanding Initial Notes, as a single issue of securities, to make any
change that does not adversely affect the rights of any holder of the Notes or
to comply with any requirement of the SEC in connection with the qualification
of the Indenture under the TIA.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
A consent to any amendment or waiver under the Indenture by any holder of
Notes given in connection with a tender of such holder's Notes will not be
rendered invalid by such tender.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer.
The Issuer may require payment of a sum sufficient to cover any tax, assessment
or other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes
and the Indenture ('legal defeasance'), except for certain obligations,
including those respecting the defeasance trust (as herein defined) and
obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes. The Issuer at any time may terminate its
obligations under the covenants described under 'Certain Covenants' and 'Change
of Control Put Event' above, the operation of the cross acceleration provision,
the bankruptcy provisions with respect to Significant Subsidiaries and the
judgment default provision and the limitation contained in clause (iii)
described under 'Successor Company' above ('covenant defeasance').
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Issuer exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii), (v), (vi) (with respect only to
Significant Subsidiaries) or (vii) under 'Defaults' above, or because of the
failure of the Issuer to comply with clause (iii) described under 'Successor
Company' above.
In order to exercise either defeasance option, the Issuer must irrevocably
deposit in trust (the 'defeasance trust') with the Trustee money or U.S.
Government Obligations for the payment of principal on the Notes and interest
thereon to maturity or redemption, as the case may be, and must comply with
certain other conditions, including, but not limited to (unless the Notes will
mature or be redeemed within 30 days), delivering to the
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Trustee an Opinion of Counsel to the effect that holders of the Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been in
the case if such deposit and defeasance had not occurred (and, in the case of
legal defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or a change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Issuer as Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
The following are certain definitions used in the Indenture and applicable
to the description of the Indenture set forth herein.
'Affiliate' of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director or
executive officer (A) of such specified Person, (B) of any Subsidiary of such
specified Person or (C) of any Person described in clause (i) above. For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms 'controlling' and
'controlled' have meanings correlative to the foregoing.
'Asset Disposition' means any sale, lease, transfer, issuance or other
disposition (or series of related sales, leases, transfers, issuances or
dispositions) by the Issuer or FN Holdings, including any disposition by means
of a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a 'disposition'), of any shares of Capital Stock
of FN Holdings (other than (i) the Issuance of Preferred Stock by FN Holdings
permitted by the terms of the Indenture, (ii) the issuance of common stock of FN
Holdings to the Issuer or (iii) any redemption of the class C common stock of FN
Holdings); provided, however, any disposition that constitutes a Change of
Control Put Event will be deemed not to be an Asset Disposition.
'Average Life' means, with respect to any Debt, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
the transaction or event giving rise to the need to calculate the Average Life
of such Debt to the date, or dates, of each successive scheduled principal
payment of such Debt multiplied by (b) the amount of each such principal payment
by (ii) the sum of all such principal payments.
'Bank' means First Nationwide Bank, A Federal Savings Bank.
'Bank Preferred Stock' means the 11 1/2% Noncumulative Perpetual Preferred
Stock issued by the Bank or, at the Issuer's election, other Preferred Stock of
the Bank issued to Refinance such stock in an aggregate liquidation value at no
time exceeding the sum of the liquidation value of the Bank Preferred Stock on
the Issue Date plus reasonable fees and expenses incurred in connection with
such Refinancing and accrued dividends and premium, if any.
'Board of Directors' means, with respect to any Person, the Board of
Directors of such Person or any committee thereof duly authorized to act on
behalf of such Board.
'Capital Lease Obligations' of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation will be the capitalized amount thereof, determined in accordance
with GAAP; and the Stated Maturity thereof will be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
'Capital Stock' of any Person means any and all shares, interests
(including partnership interests), rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into or exchangeable for such equity.
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'Consolidated Common Shareholders' Equity' of any Person means, at any
date, all amounts which would, in conformity with GAAP, be included under
shareholders' equity on a consolidated balance sheet of such Person as at such
date, less any amounts included therein attributable to, without duplication,
(x) Redeemable Stock, (y) Exchangeable Stock and (z) Preferred Stock.
'Consolidated Net Income' of any Person (the 'Relevant Person') means for
any period the consolidated net income (or loss) of the Relevant Person and its
consolidated Subsidiaries for such period determined in accordance with GAAP,
less, without duplication, the amount of dividends declared in respect of the
Bank Preferred Stock and any Qualified Preferred Stock during such period (to
the extent not deducted from Consolidated Net Income in accordance with GAAP);
provided, however, that there will be excluded therefrom:
(a) any net income (or loss) of any Person if such Person is not a
Subsidiary of the Relevant Person, except that (A) the Relevant Person's
equity in the net income of any such Person for such period will be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Relevant
Person or one of its Subsidiaries as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Subsidiary
of the Relevant Person to the limitations contained in clause (c) below)
and (B) the Relevant Person's equity in a net loss of any such Person for
such period will be included in determining such Consolidated Net Income;
(b) any net income (but not loss) of any Person acquired by the
Relevant Person or a Subsidiary of the Relevant Person in a pooling of
interests transaction for any period prior to the date of such acquisition;
(c) any net income (or loss) of any Subsidiary of the Relevant Person
(other than FN Holdings, the Bank or any of its Subsidiaries) if such
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Subsidiary,
directly or indirectly, to the Relevant Person (other than restrictions
contained in any Qualified Preferred Stock), except that (A) the Relevant
Person's equity in the net income of any such Subsidiary for such period
will be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Subsidiary during such period to the
Relevant Person or another Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to another
Subsidiary, to the limitation contained in this clause) and (B) the
Relevant Person's equity in a net loss of any such Subsidiary for such
period will be included in determining such Consolidated Net Income;
(d) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Relevant Person or
its consolidated Subsidiaries (other than in connection with the sale of
insured deposits) (including pursuant to any sale-and-leaseback
arrangement) and any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of any Person (provided, however, that
there shall be deemed added to Consolidated Net Income an amount equal to
the balance of the portion of Net Cash Proceeds from an Asset Disposition
that are used to make an Offer to holders of Notes, if any, remaining after
compliance with the procedures for making such Offer set forth in the
covenant described under 'Certain Covenants--Limitations on Asset
Dispositions');
(e) the cumulative effect of a change in accounting principles; and
(f) the gain (but not the loss) from the sale, transfer, conveyance or
other disposition (other than to the Issuer, FN Holdings or any of its
Subsidiaries) in a single transaction or in a series of related
transactions, in either case occurring outside the ordinary course of
business, of more than 75% of the assets of the Mortgage Bank shown on a
balance sheet of the Mortgage Bank as of the end of the most recent fiscal
quarter ending at least 45 days prior to such transaction (or the first
transaction in such related series of transactions).
'Consolidated Net Worth' of any Person means, at any date, all amounts
which would, in conformity with GAAP, be included under shareholders' equity on
a consolidated balance sheet of such Person as at such date, less any amounts
included therein attributable to (x) Redeemable Stock and (y) Exchangeable
Stock.
'Debt' of any Person means, without duplication,
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person;
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(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and other accrued current liabilities
arising in the ordinary course of business);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (i) through (iii)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
business day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock and in
the case of any Subsidiary of the Issuer, any Preferred Stock (but
excluding in each case any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including Guarantees of
such obligations and dividends; and
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured.
'Default' means any event which is, or after notice or passage of time or
both would be, an Event of Default.
'Depository Institution' will have the meaning attributed thereto in
Section 3(c)(1) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1813(c)(1), or a similar definition under any successor statute.
'Exchangeable Stock' means any Capital Stock of a Person which is
exchangeable or convertible into another security (other than Capital Stock of
such Person which is neither Exchangeable Stock nor Redeemable Stock).
'FN Holdings' means First Nationwide Holdings Inc., a Delaware corporation,
and its successors.
'FN Holdings Senior Notes' means the 12 1/4% Senior Notes Due 2001 of FN
Holdings and the 12 1/4% Senior Exchange Notes Due 2001 of FN Holdings issued
pursuant to the Senior Indenture.
'FN Holdings Senior Subordinated Notes' means the 9 1/8% Senior
Subordinated Notes Due 2003 of FN Holdings and the 9 1/8% Senior Subordinated
Exchange Notes Due 2003 of FN Holdings issued pursuant to the Senior
Subordinated Indenture.
'Generally Accepted Accounting Principles' or 'GAAP' means generally
accepted accounting principles in the United States, as in effect from time to
time, except that, for purposes of calculating Consolidated Net Income,
Consolidated Net Worth and Consolidated Common Shareholders' Equity, it will
mean generally accepted accounting principles in the United States as in effect
on the Issue Date.
'Guarantee' means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any Person
and any obligation, direct or indirect, contingent or otherwise, of such Person
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation of such Person (whether arising by virtue of
partnership arrangements, or by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term 'Guarantee' will not include
endorsements for collection or deposit in the ordinary course of business. The
term 'Guarantee' used as a verb has a corresponding meaning.
'Investment' in any Person means any loan or advance to, any net payment on
a Guarantee of, any acquisition of Capital Stock, equity interest, obligation or
other security of, or capital contribution or other investment in, such Person.
Investments will exclude loans or advances to customers and suppliers in the
ordinary course of business. The term 'Invest' has a corresponding meaning.
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'issue' means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary of another Person (whether by merger,
consolidation, acquisition or otherwise) will be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary of such other Person.
'Issue Date' means the date of original issue of the Notes.
'Lien' means any mortgage, pledge, security interest, conditional sale or
other title retention agreement or other similar lien.
'Mafco Holdings' means Mafco Holdings Inc., a Delaware corporation, and its
successors.
'Minimum Common Equity Amount' means, as of the end of any fiscal quarter,
an amount equal to the sum of (i) $400 million and (ii) the excess, if any, of
amounts attributable to goodwill and core deposit intangible on the consolidated
balance sheet of the Bank as at the end of such fiscal quarter, over $100
million.
'Mortgage Bank' means any Subsidiary of FN Holdings, other than the Bank,
that is engaged in the mortgage banking business, including the business of
originating or carrying mortgage loans.
'Net Cash Proceeds', with respect to any issuance or sale of Capital Stock,
means the aggregate of cash proceeds of such issuance or sale, the amount of
Temporary Cash Investments received in such issuance or sale and the fair market
value on the date of receipt of readily marketable securities received by the
Issuer in such issuance or sale, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees actually incurred in connection with such issuance or
sale or in connection with any conversion of such readily marketable securities
into cash and net of taxes paid or estimated in good faith to be payable as a
result thereof.
'Non-Convertible Capital Stock' means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible common stock of such
corporation; provided, however, that Non-Convertible Capital Stock will not
include any Redeemable Stock or Exchangeable Stock.
'Officer' means the Chairman of the Board, the Vice Chairman, the
President, any Vice President, the Treasurer, an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Issuer.
'Officers' Certificate' means a certificate signed by the Chairman of the
Board, the Vice Chairman, the President or a Vice President (regardless of Vice
Presidential designation), and by the Treasurer, an Assistant Treasurer,
Secretary or an Assistant Secretary, of the Issuer, and delivered to the
Trustee. One of the Officers signing an Officers' Certificate given pursuant to
the requirement for a compliance certificate as described in the last paragraph
under 'Defaults' above will be the principal executive, financial or accounting
officer of the Issuer.
'Opinion of Counsel' means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Issuer (or Mafco Holdings or one of its Subsidiaries) or the
Trustee.
'Permitted Affiliate' means any individual that is a director or officer of
the Issuer, of a Subsidiary of the Issuer or of an Unrestricted Affiliate;
provided, however, that such individual is not also a director or officer of
Mafco Holdings, any Person that controls Mafco Holdings or any successor to any
of the foregoing.
'Permitted Business Activities' means, with respect to any Person, (i) the
annuities and mutual funds sales business, (ii) the asset and real estate
management business and (iii) any other business activity permissible for
Subsidiaries of a multiple savings and loan holding company under Section 10 of
the Home Owners' Loan Act (or any successor provision); provided, however, that
in connection with such business activities such Person may not have total
liabilities of more than $1,000,000.
'Permitted Holders' means Ronald O. Perelman (or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee or
other personal representative (collectively, 'heirs')) or any Person controlled,
directly or indirectly, by Ronald O. Perelman or his heirs.
'Permitted Investments' means (i) Temporary Cash Investments, and readily
marketable securities received by the Issuer in accordance with the covenant
described under '--Certain Covenants--Limitation on Asset Dispositions' above,
(ii) investments by the Bank consisting of loans to directors and executive
officers (other than any such director or executive officer that is the
beneficial owner of 10% or more of the Voting Stock
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of the Issuer or FN Holdings) of any Subsidiary of FN Holdings made in the
ordinary course of its business and in compliance with all regulatory
restrictions on such loans, (iii) Investments by any Subsidiary of FN Holdings
(to the extent that and for so long as such Subsidiary, if it were the Bank or a
Subsidiary of the Bank, would be permitted under applicable laws and regulations
to make such Investment) in any Person other than an Affiliate of the Issuer
(other than an Unrestricted Affiliate of the Issuer, a Subsidiary of the Issuer
or a Person that would become an Unrestricted Affiliate or a Subsidiary as a
result of such Investment), (iv) Investments by the Issuer or FN Holdings
consisting of loans to Affiliates of the Issuer or FN Holdings so long as (in
the case of this clause (iv) only) the Consolidated Common Shareholders' Equity
of the Bank as of the end of the most recent fiscal quarter ending at least 45
days prior to the date of such Investment was at least equal to the Minimum
Common Equity Amount as of the end of such fiscal quarter, (v) Investments by
the Issuer or FN Holdings in FN Holdings or any Subsidiary of FN Holdings, (vi)
Investments by FN Holdings in any Person which would become a Subsidiary of FN
Holdings as a result of such Investment, but, in the case of this clause (vi),
only if after giving effect to such Investment such Subsidiary is not engaged in
any trade or business other than (x) activities permissible for subsidiaries of
a multiple savings and loan holding company under Section 10 of the Home Owners'
Loan Act (or any successor provision) and (y) the ownership of the Capital Stock
of one or more other Subsidiaries engaged solely in such activities, (vii)
Investments by a Subsidiary of the Issuer in FN Holdings or in the Issuer and
(viii) if an Investment is made by a Subsidiary of the Issuer in the Issuer (an
'Issuer Investment'), Investments by such Subsidiary in Persons (other than the
Issuer) that hold common stock of FN Holdings (or such Persons' designees) in
original principal amounts that, after giving effect to such Investments, equal
in the aggregate no more than an amount that is proportionate to the original
principal amount of such Issuer Investment (based on the common stock ownership
interests of such Persons in FN Holdings relative to the common stock ownership
interests of the Issuer in FN Holdings).
'Person' means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
'Preferred Stock' as applied to the Capital Stock of any corporation means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
'Principal' of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
'Qualified Preferred Stock' means (x) any Preferred Stock of any Subsidiary
of FN Holdings (other than the Bank Preferred Stock) which meets the
requirements set forth in clauses (a), (b), (c) and (d) below, and (y) any
Preferred Stock of any Subsidiary of FN Holdings (other than the Bank Preferred
Stock) issued to Refinance any other Qualified Preferred Stock or, at the
Issuer's election, to Refinance any Bank Preferred Stock, provided that the
Preferred Stock issued in such Refinancing meets the requirements set forth in
clauses (a), (b), (c) and (e) below:
(a) Such Preferred Stock does not contain any mandatory redemption
provisions which would require it to be redeemed prior to the first
anniversary of the Stated Maturity of the Notes;
(b) The terms of such Preferred Stock do not impose any consensual
encumbrance or restriction on the ability of the issuer thereof to pay
dividends or make distributions on its common stock except in a manner that
is no more restrictive in any material respect than the following, as
determined in good faith by the Board of Directors of the Issuer and
evidenced by a resolution adopted by such Board:
(i) Dividends and distributions on common stock or other capital
stock of the issuer may not be declared or paid or set apart for
payment at any time when the issuer has not declared and paid any
dividends or distributions on such Preferred Stock which are required
to be declared and paid as a precondition to dividends or
distributions on other capital stock of the issuer;
(ii) Distributions upon the liquidation, dissolution or winding
up of the issuer, whether voluntary or involuntary ('Liquidating
Distributions'), may not be made on the common stock or other capital
stock of the issuer at any time when such Preferred Stock is entitled
to receive Liquidating Distributions which have not been paid; and
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(iii) Dividends and distributions on common stock or other
capital stock of the issuer may not be declared or paid or set apart
for payment at any time when such Preferred Stock is required to be,
but has not been, redeemed pursuant to redemption provisions which
meet the requirements of clause (a) above;
(c) The terms of such Preferred Stock do not impose any consensual
encumbrance or restriction on the ability of the issuer thereof (i) to pay
any Debt or other obligation owed to the Issuer or FN Holdings; (ii) to
make loans or advances to the Issuer or FN Holdings; or (iii) to transfer
any of its property or assets to the Issuer or FN Holdings, except, in any
such case, any encumbrance or restriction permitted under '--Certain
Covenants--Limitations on Restrictions on Distributions by Subsidiaries'
(other than clause (i) thereof);
(d) In the case of Preferred Stock issued pursuant to clause (x)
above, Consolidated Net Income of FN Holdings for the Relevant Period (as
defined in the next sentence) on a pro forma basis, after giving effect to
(i) the issuance of such Preferred Stock (including fees and expenses
incurred in connection with such issuance), (ii) the use of the proceeds
thereof, if any, (iii) any acquisition of capital stock or assets of
another Person occurring in connection with the issuance of such Preferred
Stock (including the anticipated revenue and earnings relating thereto) and
(iv) any dividend or other payment obligations with respect to such
Preferred Stock, in each case as if such Preferred Stock had been issued
and any such acquisition had been made on the first day of the Relevant
Period, is no less than the actual Consolidated Net Income of FN Holdings
for the Relevant Period. 'Relevant Period' means, with respect to any
issuance of Preferred Stock, the four full fiscal quarters most recently
ended at least 45 days prior to the date of such issuance. For purposes of
this clause (d), whenever pro forma effect is to be given to an acquisition
of capital stock or assets, the amount of revenue and earnings relating
thereto, or any other circumstance, the pro forma calculations will be
determined in good faith by a responsible financial or accounting officer
of FN Holdings; and
(e) In the case of Preferred Stock issued in a Refinancing pursuant to
clause (y) above, the aggregate liquidation value of such Preferred Stock
will not exceed the sum of the liquidation value of the Preferred Stock
being Refinanced on the date it was originally issued plus reasonable fees
and expenses incurred in connection with such Refinancing and accrued
dividends and premium, if any.
'Redeemable Stock' means, with respect to any Person, Capital Stock of such
Person that by its terms or otherwise is required to be redeemed on or prior to
the first anniversary of the Stated Maturity of the Notes or is redeemable at
the option of the holder thereof at any time on or prior to the first
anniversary of the Stated Maturity of the Notes.
'Refinance' means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue Debt in exchange
or replacement for, such Debt. 'Refinanced' and 'Refinancing' will have
correlative meanings.
'Restricted Payment' means, as to any Person making a Restricted Payment,
(i) the declaration or payment of any dividend or any distribution on or in
respect of the Capital Stock of the Issuer (including any payment in connection
with any merger or consolidation involving the Issuer) or to the holders of the
Capital Stock of the Issuer (except dividends or distributions payable solely in
the Non-Convertible Capital Stock of the Issuer or in options, warrants or other
rights to purchase the Non-Convertible Capital Stock of the Issuer), (ii) any
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Issuer, (iii) any purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment, of any Subordinated
Obligation (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), and (iv) any Investment in any Person other
than a Permitted Investment.
'Senior Indenture' means the Indenture, dated as of July 15, 1994, between
FN Holdings and The First National Bank of Boston, as Trustee, as such Indenture
may be amended from time to time, pursuant to which the FN Holdings Senior Notes
were issued.
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'Senior Subordinated Indenture' means the Indenture, dated as of January
31, 1996, between FN Holdings, and The Bank of New York, as Trustee, as such
Indenture may be amended from time to time, pursuant to which the FN Holdings
Senior Subordinated Notes were issued.
'Significant Subsidiary' means (i) any Subsidiary of the Issuer which at
the time of determination either (A) had assets which, as of the date of the
Issuer's most recent quarterly consolidated balance sheet, constituted at least
5% of the Issuer's total assets on a consolidated basis as of such date, in each
case determined in accordance with GAAP, or (B) had revenues for the 12-month
period ending on the date of the Issuer's most recent quarterly consolidated
statement of income which constituted at least 5% of the Issuer's total revenues
on a consolidated basis for such period or (ii) any Subsidiary of the Issuer
which, if merged with all Defaulting Subsidiaries (as defined below) of the
Issuer, would at the time of determination either (A) have had assets which, as
of the date of the Issuer's most recent quarterly consolidated balance sheet,
would have constituted at least 10% of the Issuer's total assets on a
consolidated basis as of such date or (B) have had revenues for the 12-month
period ending on the date of the Issuer's most recent quarterly consolidated
statement of income which would have constituted at least 10% of the Issuer's
total revenues on a consolidated basis for such period (each such determination
being made in accordance with GAAP). 'Defaulting Subsidiary' means any
Subsidiary of the Issuer with respect to which an event described under clause
(v), (vi) or (vii) of 'Defaults' above has occurred and is continuing.
'Stated Maturity' means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).
'Subordinated Obligation' means any Debt of the Issuer (whether outstanding
on the date hereof or hereafter issued) which is subordinate or junior in right
of payment to the Notes.
'Subsidiary' means as to any Person any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned, directly or indirectly, by (i) such Person, (ii) such Person and one or
more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
'Tax Sharing Agreement' means (i) that certain agreement dated as of
January 1, 1994 among FN Holdings, certain of its Subsidiaries and Mafco
Holdings and (ii) any other tax allocation agreement between FN Holdings or any
of its Subsidiaries with FN Holdings or any direct or indirect shareholder of FN
Holdings with respect to consolidated or combined tax returns including FN
Holdings or any of its Subsidiaries but only to the extent that amounts payable
from time to time by FN Holdings or any such Subsidiary under any such agreement
do not exceed the corresponding tax payments that FN Holdings or such Subsidiary
would have been required to make to any relevant taxing authority had FN
Holdings or such Subsidiary not joined in such consolidated or combined returns,
but instead had filed returns including only FN Holdings or its Subsidiaries
(provided that any such agreement may provide that, if FN Holdings or any
Subsidiary ceases to be a member of the affiliated group of corporations of
which Mafco Holdings is the common parent for purposes of filing a consolidated
Federal income tax return (such cessation, a 'Deconsolidation Event'), then FN
Holdings or such Subsidiary will indemnify such direct or indirect shareholder
with respect to any Federal, state or local income, franchise or other tax
liability (including any related interest, additions or penalties) imposed on
such shareholder as the result of an audit or other adjustment with respect to
any period prior to such Deconsolidation Event that is attributable to FN
Holdings, such Subsidiary or any predecessor business thereof (computed as if FN
Holdings, such Subsidiary or such predecessor business, as the case may be, were
a stand-alone entity that filed separate tax returns as an independent
corporation), but only to the extent that any such tax liability exceeds any
liability for taxes recorded on the books of FN Holdings or such Subsidiary with
respect to any such period.
'Temporary Cash Investments' means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof, in
each case, maturing within 360 days of the date of acquisition thereof, (ii)
investments in time deposit accounts, certificates of deposit and money market
deposits maturing within 180 days of the date of acquisition thereof issued by a
bank or trust company (including the Trustee) which is organized under the laws
of the United States of America, any state thereof or any foreign country
recognized by the United States having
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capital, surplus and undivided profits aggregating in excess of $250,000,000 and
whose debt is rated 'A' (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined for
purposes of Rule 436 under the Securities Act) or any money-market fund
sponsored by any registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for underlying
securities of the types described in clause (i) above entered into with a bank
meeting the qualifications described in clause (ii) above, (iv) investments in
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate or Subsidiary of the Issuer)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of 'P-2' (or higher) according
to Moody's Investors Service, Inc. or 'A-2' (or higher) according to Standard
and Poor's Corporation and (v) securities with maturities of six months or less
from the date of acquisition backed by standby or direct pay letters of credit
issued by any bank satisfying the requirements of clause (ii) above.
'TIA' means the Trust Indenture Act of 1939 (15 U.S.C. SectionSection
77aaa-77bbbb) as in effect on the Issue Date.
'Trustee' means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
'Trust Officer' means any officer or assistant officer of the Trustee
assigned by the Trustee to administer its corporate trust matters.
'Unrestricted Affiliate' means a Person (other than a Subsidiary of the
Issuer) controlled (as defined in the definition of 'Affiliate') by the Issuer,
in which no Affiliate of the Issuer (other than (w) the Issuer or FN Holdings,
(x) a Wholly Owned Subsidiary of FN Holdings, (y) a Permitted Affiliate and (z)
another Unrestricted Affiliate) has an Investment.
'U.S. Government Obligations' means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
'Voting Stock' of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
'Wholly Owned Subsidiary' of any Person means FN Holdings, the Bank and any
Subsidiary of such Person all the Capital Stock of which (other than directors'
qualifying shares or Qualified Preferred Stock) is owned by such Person or FN
Holdings or another Wholly Owned Subsidiary of such Person.
REGISTRATION RIGHTS
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. Pursuant to the Registration Agreement, holders of Old
Notes are entitled to certain registration rights. Under the Registration
Agreement, the Issuer has agreed, for the benefit of the holders of the Old
Notes, that it will, at its cost, (i) by June 3, 1996, file a registration
statement with the SEC with respect to the Exchange Offer and (ii) by August 15,
1996, use its best efforts to cause such registration statement to be declared
effective under the Securities Act. The Registration Statement of which this
Prospectus is a part constitutes the registration statement for the Exchange
Offer.
In the event that (i) applicable interpretations of the staff of the SEC do
not permit the Issuer to effect the Exchange Offer, (ii) for any other reason
the Exchange Offer is not consummated by September 16, 1996, (iii) any Initial
Purchaser so requests with respect to Notes held by it following consummation of
the Exchange Offer, (iv) any holder of Notes is not eligible to participate in
the Exchange Offer or does not receive freely tradeable Exchange Notes in
exchange for exchanged Notes or (v) the Issuer so elects, then, the Issuer will,
at its cost, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Old Notes, (b) use its best efforts to cause such shelf
registration statement to be declared effective under the Securities Act and (c)
use its best efforts to keep effective the shelf registration statement until
three years after its effective date. The Issuer will, in the event the filing
of such shelf registration statement becomes necessary, provide to each holder
of the Old Notes copies of the prospectus, which is a part of the shelf
registration statement, notify each such holder when the shelf registration
statement for the Old Notes has become effective and take certain other actions
as are required to permit unrestricted resales of the Notes. A holder of Old
Notes who sells such Old Notes pursuant to the shelf registration statement
generally would be required to be named as a selling
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securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Agreement which are applicable to such a holder
(including certain indemnification obligations). If by September 16, 1996,
neither (i) the Exchange Offer is consummated nor (ii) a shelf registration
statement with respect to the resale of the Old Notes is declared effective,
the rate per annum at which the Notes bear interest will be 13% from and
including September 16, 1996, until but excluding the earlier of (i) the
consummation of the Exchange Offer and (ii) the effective date of such shelf
registration statement.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus constitutes a part.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes may be issued in the form of one or more global securities
(collectively, the 'Global Note'). The Global Note will be deposited with, or on
behalf of, the Depository and registered in the name of the Depository or its
nominee. Except as set forth below, the Global Note may be transferred, in whole
and not in part, only to the Depository or another nominee of the Depository.
Investors may hold their beneficial interests in the Global Note directly
through the Depository if they have an account with the Depository or indirectly
through organizations which have accounts with the Depository.
The Depository has advised the Issuer as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a 'clearing corporation' within
the meaning of the New York Uniform Commercial Code, and a 'clearing agency'
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ('participants') and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in the accounts of the participants,
thereby eliminating the need for physical movement of securities certificates.
The Depository's participants include securities brokers and dealers (which may
include the Initial Purchasers), banks, trust companies, clearing corporations
and certain other organizations. Access to the Depository's book-entry system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry and transfer system, the principal amount of the Notes represented by
the Global Note to the accounts of participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interests) and such participants (with
respect to the owners of beneficial interests in the Global Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related New Notes for
all purposes of such New Notes and the Indenture. Except as set forth below,
owners of beneficial interests in the Global Note will not be entitled to have
the New Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated New Notes in
definitive form and will not be considered to be the owners or holders of any
New Notes under the Global Note. Accordingly, each person owning a beneficial
interest in the Global Note must rely on the procedures of the Depository and,
if such person is not a participant, on the procedures of the participant
through which such person owns its interests, to exercise any right of a holder
of New Notes under the Global Note. The Issuer understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Notes desires to take any action that the Depository, as the Holder of the
Global Note, is entitled to take, the Depositary would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
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Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Issuer expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payment in amounts proportionate to their respective
beneficial interests in the principal amount of the Global Note as shown on the
records of the Depository or its nominee. The Issuer also expects that payments
by participants to owners of beneficial interests in the Global Note held
through such participants will be governed by standing instructions and
customary practices and will be the responsibility, of such participants. The
Issuer will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any New Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for
other aspects of the relationship between the Depositor and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Issuer will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligation under the rules and procedures governing their operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such New Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Issuer that it is unwilling or unable to continue as
Depository for the Global Note or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, (ii) the Issuer in its
discretion at any time determines not to have any of the New Notes represented
by the Global Note, (iii) a default entitling the holders of the New Notes to
accelerate the maturity thereof has occurred and is continuing or (iv) the
holder of the New Notes so requests. Any New Note that is exchangeable pursuant
to the preceding sentence is exchangeable for certificated New Notes issuable in
authorized denominations and registered in such names as the Depository will
direct.
DESCRIPTION OF OTHER INDEBTEDNESS
Each of the following summaries of certain indebtedness of the Issuer's
subsidiaries is subject to and qualified in its entirety by reference to the
detailed provisions of the respective agreements and instruments to which each
summary relates. Copies of such agreements and instruments are filed as exhibits
to the Registration Statement of which this Prospectus constitutes a part.
Capitalized terms used below and not defined have the meanings set forth in the
respective agreements.
FN Holdings Senior Notes
On July 27, 1994 First Nationwide Holdings issued $200 million principal
amount of 12 1/4% senior notes (the 'Original FN Holdings Senior Notes')
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. First
Nationwide Holdings consummated an exchange offer registered under the
Securities Act to exchange the Original FN Holdings Senior Notes for the FN
Holdings Notes, which have terms substantially identical in all material
respects to the Original FN Holdings Senior Notes. Interest is payable
semiannually on each May 15 and November 15. The FN Holdings Senior Notes are
unsecured obligations of First Nationwide Holdings and rank pari passu with all
other existing and future senior debt of First Nationwide Holdings and are
effectively subordinated in right of payment to all existing and future
liabilities of First Nationwide Holdings' subsidiaries, and mature on May 15,
2001.
The FN Holdings Senior Notes may be redeemed at the option of First
Nationwide Holdings in whole or in part at any time during the twelve month
period beginning May 15, 1999 at a redemption price of 106.125% plus
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accrued and unpaid interest, if any, to the date of redemption, and thereafter
at a redemption price of 100% plus accrued and unpaid interest, if any, to the
date of redemption. Upon a Change of Control Call Event (as defined in the FN
Holdings Senior Notes Indenture) prior to May 15, 1999, First Nationwide
Holdings will have the option to redeem the FN Holdings Senior Notes in whole at
a redemption price equal to the principal amount thereof plus the Applicable
Premium (as defined in the FN Holdings Senior Notes Indenture), plus accrued and
unpaid interest, if any, to the date of redemption, and, subject to certain
conditions, upon a Change of Control Put Event (as defined in the FN Holdings
Senior Notes Indenture) each holder of FN Holdings Senior Notes will have the
right to require First Nationwide Holdings to repurchase all or a portion of
such holder's FN Holdings Senior Notes at 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the date of repurchase.
The FN Holdings Senior Notes Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness by First Nationwide Holdings and certain subsidiaries, (ii) the
payment of dividends on capital stock of First Nationwide Holdings and its
subsidiaries, and the redemption or repurchase of the capital stock of First
Nationwide Holdings and its subsidiaries, including a requirement that no such
payments, redemptions or repurchases may be made if at the time the Consolidated
Common Shareholders' Equity (as defined in the FN Holdings Senior Notes
Indenture) of First Nationwide Bank is less than the Minimum Common Equity
Amount (as defined in the FN Holdings Senior Notes Indenture) (iii) the making
of certain investments, (iv) transactions with affiliates, (v) the incurrence of
liens on the assets of First Nationwide Holdings, (vi) the termination or
amendment of the FN Tax Sharing Agreement, (vii) the ability of First Nationwide
Holdings to restrict dividends or distributions from subsidiaries, (viii)
consolidations, mergers and transfers of all or substantially all of First
Nationwide Holdings' assets and (ix) other business activities of First
Nationwide Holdings. All of these limitations and prohibitions, however, are
subject to a number of important qualifications.
Events of default under the FN Holdings Senior Notes Indenture include,
among other things, (i) a default continuing for 30 days in the payment of
interest when due, (ii) a default in the payment of any principal when due,
(iii) the failure to redeem or purchase the FN Holdings Senior Notes when
required pursuant to the FN Holdings Senior Notes Indenture, (iv) the failure to
comply with the covenants in the FN Holdings Senior Notes Indenture, subject in
certain instances to grace periods, (iv) failure to pay other indebtedness of
First Nationwide Holdings or a Significant Subsidiary (as defined in the FN
Holdings Senior Notes Indenture) in excess of $25 million upon final maturity or
as a result of such indebtedness becoming accelerated and such default continues
for a period of 5 days after notice thereof, (v) certain events of bankruptcy,
insolvency or reorganization of First Nationwide Holdings or a Significant
Subsidiary and (vi) the failure to pay any judgment in excess of $25 million.
FN Holdings Subordinated Notes
On January 31, 1996, First Nationwide Holdings issued and sold $140.0
million principal amount of 9 1/8% FN Holdings Subordinated Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. First
Nationwide Holdings has filed a registration statement under the Securities Act
for an exchange offer to exchange 9 1/8% senior subordinated notes having terms
substantially identical in all material respects to the FN Holdings Subordinated
Notes. If the exchange offer is not consummated by July 1, 1996, the FN Holdings
Subordinated Notes will bear interest at 9 5/8% per annum from and including
July 1, 1996 until but excluding the date of consummation of the exchange offer,
at which time the interest on the FN Holdings Subordinated Notes will
permanently decrease to 9 1/8% per annum. Interest is payable semiannually on
each January 15 and July 15 and the FN Holdings Subordinated Notes mature on
January 15, 2003. The FN Holdings Subordinated Notes are unsecured obligations
of First Nationwide Holdings and are subordinated to all existing and future
Senior Indebtedness (as defined in the FN Holdings Subordinated Notes Indenture)
of First Nationwide Holdings, including the FN Holdings Senior Notes.
The FN Holdings Subordinated Notes may be redeemed at the option of First
Nationwide Holdings in whole or in part at any time during the twelve month
period beginning January 1, 2001 at a redemption price of 104.5625% plus accrued
and unpaid interest, if any, to the date of redemption, and thereafter at a
redemption price of 100% plus accrued and unpaid interest, if any, to the date
of redemption. Upon a Change of Control Call Event (as defined in the FN
Holdings Subordinated Notes Indenture) prior to January 1, 2001, First
Nationwide
144
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Holdings will have the option to redeem the FN Holdings Subordinated Notes in
whole at a redemption price equal to the principal amount thereof plus the
Applicable Premium (as defined in the FN Holdings Subordinated Notes Indenture),
plus accrued and unpaid interest, if any, to the date of redemption, and,
subject to certain conditions, upon a Change of Control Put Event (as defined in
the FN Holdings Subordinated Notes Indenture) each holder of FN Holdings
Subordinated Notes will have the right to require First Nationwide Holdings to
repurchase all or a portion of such holder's FN Holdings Subordinated Notes at
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of repurchase.
The FN Holdings Subordinated Notes Indenture contains various restrictive
covenants that, among other things, limit (i) the issuance of additional
indebtedness by First Nationwide Holdings and certain subsidiaries, (ii) the
payment of dividends on capital stock of First Nationwide Holdings and its
subsidiaries, and the redemption or repurchase of the capital stock of First
Nationwide Holdings and its subsidiaries, including a requirement that no such
payments, redemptions or repurchases may be made if at the time the Consolidated
Common Shareholders' Equity (as defined in the FN Holdings Subordinated Notes
Indenture) of First Nationwide Bank is less than the Minimum Common Equity
Amount (as defined in the FN Holdings Subordinated Notes Indenture) (iii) the
making of certain investments, (iv) transactions with affiliates, (v) the
incurrence of liens on the assets of First Nationwide Holdings to secure pari
passu or subordinated obligations which do not equally and ratably secure the FN
Holdings Subordinated Notes, (vi) the termination or amendment of the FN Tax
Sharing Agreement, (vii) the ability of First Nationwide Holdings to restrict
dividends or distributions from subsidiaries, (viii) consolidations, mergers and
transfers of all or substantially all of First Nationwide Holdings' assets and
(ix) other business activities of First Nationwide Holdings. All of these
limitations and prohibitions, however, are subject to a number of important
qualifications.
Events of default under the FN Holdings Subordinated Notes Indenture
include, among other things, (i) a default continuing for 30 days in the payment
of interest when due, (ii) a default in the payment of any principal when due,
(iii) the failure to purchase the FN Holdings Subordinated Notes when required
pursuant to the FN Holdings Subordinated Notes Indenture, (iv) the failure to
comply with the covenants in the FN Holdings Subordinated Notes Indenture,
subject in certain instances to grace periods, (iv) failure to pay other
indebtedness of First Nationwide Holdings or a Significant Subsidiary (as
defined in the FN Holdings Subordinated Notes Indenture) in excess of $25
million upon final maturity or as a result of such indebtedness becoming
accelerated and such default continues for a period of 5 days after notice
thereof, (v) certain events of bankruptcy, insolvency or reorganization of First
Nationwide Holdings or a Significant Subsidiary and (vi) the failure to pay any
judgment in excess of $25 million.
First Nationwide Bank
For a description of certain indebtedness of First Nationwide Bank, see
'Business--Source of Funds--Old FNB Debentures,' and 'Business--Source of
Funds--SFFed Notes.'
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax consequences
associated with the exchange of Old Notes for New Notes and the ownership and
disposition of the New Notes by holders who acquire the New Notes pursuant to
the Exchange Offer. The summary is based upon current laws, regulations, rulings
and judicial decisions all of which are subject to change. The discussion below
does not address all aspects of U.S. federal income taxation that may be
relevant to particular holders in the context of their specific investment
circumstances or certain types of holders subject to special treatment under
such laws (for example, financial institutions and tax-exempt organizations). In
addition, the discussion does not address any aspect of state, local or foreign
taxation and assumes that holders of the New Notes will hold them as 'capital
assets' (generally, property held for investment) within the meaning of Section
1221 of the Code.
For purposes of this discussion, a 'United States Holder' is an individual
who is a citizen or resident of the United States, a corporation, a partnership
or other entity created under the laws of the United States or any political
subdivision thereof, or an estate or trust that is subject to U.S. federal
income taxation without regard to the source of income.
PROSPECTIVE HOLDERS OF THE NEW NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
145
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THE EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE
NEW NOTES AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAW.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an exchange or other taxable event for U.S. federal
income tax purposes because, under regulations proposed by the United States
Treasury, the New Notes should not be considered to differ materially in kind or
extent from the Old Notes. Rather, the New Notes received by a holder should be
treated as a continuation of the Old Notes in the hands of such holder. As a
result, there should be no U.S. federal income tax consequences to holders who
exchange Old Notes for New Notes pursuant to the Exchange Offer and any such
holder should have the same tax basis and holding period in the New Notes as it
had in the Old Notes immediately before the exchange.
UNITED STATES HOLDERS
Interest payable on the New Notes will be includible in the income of a
United States Holder in accordance with such holder's regular method of
accounting. If a New Note is redeemed, sold or otherwise disposed of, a United
States Holder generally will recognize gain or loss equal to the difference
between the amount realized on the sale or other disposition of such New Note
(to the extent such amount does not represent accrued but unpaid interest) and
such holder's tax basis in the New Note. Subject to the market discount rules
discussed below, such gain or loss will be capital gain or loss, assuming that
the holder has held the New Note as a capital asset, and will be long-term if
the holder has a holding period for the New Note (which would include the
holding period of the Old Notes) of more than one year at the time of the
disposition.
Under the market discount rules of the Code, a holder (other than a holder
who made the election described below) who purchased an Old Note with 'market
discount' (generally defined as the amount by which the stated redemption price
at maturity of the Old Note exceeds the holder's purchase price) will be
required to treat any gain recognized on the redemption, sale or other
disposition of the New Note received in the exchange as ordinary income to the
extent of the market discount that accrued during the holding period of such New
Note (which would include the holding period of the Old Note). A holder who has
elected under applicable Code provisions to include market discount in income
annually as such discount accrues will not, however, be required to treat any
gain recognized as ordinary income under these rules. Holders should consult
their tax advisors as to the portion of any gain that would be taxable as
ordinary income under these provisions.
NON-UNITED STATES HOLDERS
An investment in the New Notes by a non-United States Holder generally will
not give rise to any U.S. federal income tax consequences, unless the interest
received or any gain recognized on the sale, redemption or other disposition of
the New Notes by such holder is treated as effectively connected with the
conduct by such holder of a trade or business in the United States, or, in the
case of gains derived by an individual such individual is present in the United
States for 183 days or more and certain other requirements are met.
In order to avoid back-up withholding of 31% and withholding of 30% under
Section 1441 of the Code (to the extent such interest qualifies as portfolio
interest for purposes of Section 1441) on payments of interest made by U.S.
payors, a non-United States Holder of the New Notes generally must complete, and
provide the payor with, an Internal Revenue Service Form W-8 ('Certificate of
Foreign Status'), or other documentary evidence, certifying that such holder is
exempt from back-up withholding.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Issuer has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until August 13, 1996, all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.
146
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The Issuer will not receive any proceeds from any sale of New notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an 'underwriter' within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Issuer will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that request such document in
the Letter of Transmittal. The Issuer has agreed to pay all expenses incident to
the Exchange Offer other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
New Notes will be passed upon for the Issuer by Paul, Weiss, Rifkind, Wharton &
Garrison, New York, New York. Skadden, Arps, Slate, Meagher & Flom has acted as
counsel for the Issuer in connection with the Exchange Offer. Skadden, Arps,
Slate, Meagher & Flom and Paul, Weiss, Rifkind, Wharton & Garrison have from
time to time represented, and may continue to represent, MacAndrews & Forbes and
certain of its affiliates (including First Nationwide Holdings and First
Nationwide Bank) in connection with certain legal matters. Joseph H. Flom, a
partner in the firm of Skadden, Arps, Slate, Meagher & Flom, is a director of
Revlon Group Incorporated, a wholly owned subsidiary of MacAndrews & Forbes.
EXPERTS
The Consolidated Financial Statements of the Issur as of December 31, 1995
and 1994 and for each of the years in the three-year period ended December 31,
1995, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing. The report of KPMG Peat Marwick LLP refers
to a change in accounting for mortgage servicing rights in 1995, a change in
accounting for certain investments in debt and equity securities in 1994 and a
change in accounting for income taxes in 1993.
The consolidated statements of financial condition of the FNB Acquired
Business as of December 31, 1993, and the consolidated statements of operations,
equity and cash flows for each of the two years in the period ended December 31,
1993, have been included in this Registration Statement in reliance upon the
report of Coopers & Lybrand LLP, independent accountants, given on the authority
of that firm as experts in accounting and auditing. The report of Coopers &
Lybrand LLP covering the December 31, 1992 consolidated financial statements
refers to a change in accounting for income taxes and postretirement health
benefits.
The consolidated financial statements of SFFed as of December 31, 1995 and
1994 and for each of the three years in the period ended December 31, 1995
included in this Prospectus, which is part of this Registration Statement, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the acquisition of SFFed), and
have been included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
147
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INDEX OF DEFINED TERMS*
<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- -------------------------------------------- ------
<S> <C>
Acquisitions................................ 12
ACS......................................... 90
ALCO........................................ 57
AMT......................................... 14
Andrews Group............................... 114
Applicable Premium.......................... 113
ARM......................................... 55
ARMs........................................ 55
Assistance Agreement........................ 5
Assumed Liabilities......................... 104
BankAmerica................................. 5
bankruptcy provisions....................... 131
BIF......................................... 66
Bonuses..................................... 117
Book-Entry Confirmation..................... 67
Book-Entry Transfer Facility................ 67
Branch Purchases............................ 4
Branch Sales................................ 4
Brokered Deposits........................... 94
Capital Loss Coverage....................... 100
Certificate of Foreign Status............... 146
Change of Control Put Event................. 124
Closing Adjustment Documents................ 104
Closing Date................................ 98
CMOs........................................ 90
Code........................................ 22
Coleman..................................... 114
Coleman Worldwide........................... 114
Consolidated Cigar.......................... 114
Consolidated Common Shareholders' Equity.... 134
Consolidated Net Worth...................... 134
Consulting Agreement........................ 120
covenant defeasance......................... 133
Covered Asset Recovery...................... 100
Covered Assets.............................. 5
cross acceleration provision................ 131
CRA......................................... 78
Debt........................................ 134
Default Amount.............................. 131
defeasance trust............................ 133
Eligible Institutions....................... 68
Event of Default............................ 135
Excess Value................................ 108
Exchange Act................................ 2
Exchange Agent.............................. 8
Exchange Agreement.......................... 120
Exchange Notes.............................. 10
Exchange Offer.............................. 1
Fair Lending Laws........................... 112
FASB........................................ 19
<CAPTION>
PAGE
TERM NUMBER
- -------------------------------------------- ------
<S> <C>
FDI Act..................................... 126
FDIC........................................ 3
FDIC Purchase............................... 47
FDICIA...................................... 16
FGB Realty.................................. 48
FGMH........................................ 41
FHLB........................................ 41
FHLBS....................................... 3
FHLMC....................................... 79
financial institution....................... 137
First Gibraltar............................. 5
First Gibraltar Holdings.................... 5
First Gibraltar Oklahoma Sale............... 5
First Gibraltar Texas Sale.................. 5
First Madison............................... 5
First Nationwide Bank....................... 1
First Nationwide Bank Preferred Stock....... 1
First Nationwide Holdings................... 1
First Nationwide Management................. 121
First United Bank Group..................... 113
FN Acquisition.............................. 5
FN Holdings Book Value...................... 126
FN Holdings Indentures...................... 16
FN Holdings Notes........................... 6
FN Holdings Senior Notes.................... 6
FN Holdings Senior Notes Indenture.......... 16
FN Holdings Subordinated Notes.............. 4
FN Holdings Subordinated Notes Indenture.... 16
FN Holdings Subordinated Notes Offering..... 4
FN Tax Sharing Agreement.................... 21
FNB Acquired Business....................... 5
FNB Asset Purchase Agreement................ 5
FNIC........................................ 101
FNMA........................................ 79
FNMC........................................ 4
Ford Bank Group............................. 114
Ford Motor.................................. 5
Ford Obligation............................. 119
FRB......................................... 106
FSLIC....................................... 5
FSLIC/RF.................................... 5
GNMA........................................ 77
Global Note................................. 142
goodwill.................................... 30
Granite..................................... 5
Guaranteed Yield............................ 100
HFFC........................................ 4
HOLA........................................ 3
Home Federal................................ 4
Home Federal Acquisition.................... 4
</TABLE>
- ------------------
*Does not include certain terms defined under 'Description of the Notes.'
148
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<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- -------------------------------------------- ------
<S> <C>
HUD......................................... 84
Hunter's Glen............................... 118
Illinois Sale............................... 25
Incentive Plan.............................. 117
Indenture................................... 2
Initial Purchasers.......................... 1
IRR......................................... 107
IRS......................................... 22
Issuer...................................... 1
ITT Purchase................................ 4
judgment default provision.................. 131
Junior Stock................................ 16
legal defeasance............................ 133
leverage capital ratio...................... 64
LMP......................................... 85
LMUSA....................................... 4
LMUSA 1995 Purchase......................... 4
LMUSA 1996 Purchase......................... 4
LMUSA Purchases............................. 4
LOC......................................... 98
LTV......................................... 21
MacAndrews & Forbes......................... 6
MacAndrews Holdings......................... 5
Madison Financial........................... 120
Madison Realty.............................. 114
Mafco Consolidated.......................... 114
Mafco Group................................. 21
Mafco Holdings.............................. 6
Mafco Worldwide............................. 114
Marvel...................................... 114
Marvel Holdings............................. 114
Marvel III.................................. 114
Marvel Parent............................... 114
Maryland Acquisition........................ 4
master servicing portfolio.................. 4
Maximum Amount.............................. 98
Meridian Sports............................. 114
Michigan Branch Sale........................ 26
Minimum Common Equity Amount................ 127
Mortgage Loan Sale Agreement................ 98
MSRs........................................ 4
NationsBank................................. 120
New Notes................................... 1
New World................................... 114
New World Television........................ 114
Northeast Branch Sales...................... 26
Note Purchase Agreement..................... 96
Notes....................................... 1
NWCG Holdings............................... 114
NYSE........................................ 70
Offer....................................... 129
Offered Proceeds............................ 129
<CAPTION>
PAGE
TERM NUMBER
- -------------------------------------------- ------
<S> <C>
Offering.................................... 1
Ohio Branch Sale............................ 26
Old FNB..................................... 5
Old FNB Debentures.......................... 96
Old FNB Indenture........................... 96
Old Notes................................... 1
Original FN Holdings Senior Notes........... 143
OTS......................................... 3
participants................................ 142
Participants................................ 117
PCT......................................... 114
Protective Advances......................... 98
Purchase Agreement.......................... 137
Purchased Assets............................ 104
Put Agreement............................... 5
Put Option.................................. 98
Putable Assets.............................. 20
QIBs........................................ 121
Refinancing Costs........................... 125
Registration Agreement...................... 1
Registration Statement...................... 2
Restricted Payment.......................... 129
Revlon...................................... 114
Revlon Products............................. 114
Revlon Worldwide............................ 114
SAIF........................................ 3
San Francisco Federal....................... 4
SEC......................................... 1
Securities Act.............................. 1
Services Agreement.......................... 121
SFAS........................................ 19
SFFed....................................... 4
SFFed Acquisition........................... 4
SFFed Notes................................. 25
Shared Gains................................ 73
Sonoma Purchase............................. 4
Special Report.............................. 19
StanFed..................................... 24
Stockholders' Agreement..................... 121
sub-servicing portfolio..................... 24
TCOF........................................ 47
Texas Closed Banks.......................... 5
TIA......................................... 71
Tiburon Purchase............................ 4
Tier 1 association.......................... 110
Tier 2 association.......................... 110
Tier 3 association.......................... 110
TNIS........................................ 120
Toy Biz..................................... 114
Trustee..................................... 2
</TABLE>
149
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[Intentionally Left Blank]
150
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
First Nationwide (Parent) Holdings Inc. and Subsidiaries
At December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993:
Independent Auditors' Report............................................................................ F-2
Consolidated Statements of Financial Condition.......................................................... F-3
Consolidated Statements of Operations................................................................... F-4
Consolidated Statements of Stockholder's Equity......................................................... F-5
Consolidated Statements of Cash Flows................................................................... F-6
Notes to Consolidated Financial Statements.............................................................. F-8
The FNB Acquired Business
At December 31, 1993 and for the years ended December 31, 1993 and 1992:
Report of Independent Accountants....................................................................... F-46
Consolidated Statements of Financial Condition.......................................................... F-47
Consolidated Statements of Operations................................................................... F-48
Consolidated Statements of Equity....................................................................... F-49
Consolidated Statements of Cash Flows................................................................... F-50
Notes to Consolidated Financial Statements.............................................................. F-51
SFFed Corp. and Subsidiaries
At December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994 and 1993:
Independent Auditors' Report............................................................................ F-77
Consolidated Statements of Financial Condition.......................................................... F-78
Consolidated Statements of Operations................................................................... F-79
Consolidated Statements of Stockholders' Equity......................................................... F-80
Consolidated Statements of Cash Flows................................................................... F-81
Notes to Consolidated Financial Statements.............................................................. F-83
Unaudited Pro Forma Financial Data of First Nationwide (Parent) Holdings Inc. and Subsidiaries
Pro Forma Condensed Combined Statement of Financial Condition at December 31, 1995........................ P-2
Notes to Pro Forma Condensed Combined Statement of Financial Condition.................................. P-4
SFFed Acquisition and notes thereto..................................................................... P-5
LMUSA 1996 Purchase and notes thereto................................................................... P-8
Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1995................. P-10
Notes to Pro Forma Condensed Combined Statement of Operations........................................... P-11
SFFed Acquisition and notes thereto..................................................................... P-12
LMUSA Purchases and notes thereto....................................................................... P-15
Branch Sales and notes thereto.......................................................................... P-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
First Nationwide (Parent) Holdings Inc.:
We have audited the accompanying consolidated statements of financial
condition of First Nationwide (Parent) Holdings Inc. and subsidiaries (the
'Company') as of December 31, 1995 and 1994, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Nationwide (Parent) Holdings Inc. and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 122, 'Accounting for Mortgage
Servicing Rights' in 1995, No. 115, 'Accounting for Certain Investments in Debt
and Equity Securities' in 1994, and No. 109, 'Accounting for Income Taxes' in
1993.
KPMG Peat Marwick LLP
Dallas, Texas
March 8, 1996
F-2
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and amounts due from banks.................................................... $ 154,758 $ 149,564
Interest-bearing deposits in other banks........................................... 32,778 39,219
Short-term investment securities................................................... 125,035 --
----------- -----------
Cash and cash equivalents........................................................ 312,571 188,783
Securities available for sale, at fair value....................................... 1,826,075 45,000
Securities held to maturity (fair value $1,455 in 1995 and $409,398 in 1994)....... 1,455 411,859
Mortgage-backed securities held to maturity (fair value $1,567,197 in 1995 and
$3,095,994 in 1994).............................................................. 1,524,488 3,153,812
Loans held for sale, net........................................................... 1,203,412 26,354
Loans receivable, net.............................................................. 8,831,018 9,966,886
Covered assets, net................................................................ 39,349 311,603
Investment in Federal Home Loan Bank System........................................ 109,943 128,557
Office premises and equipment, net................................................. 93,509 76,523
Foreclosed real estate, net........................................................ 48,535 37,369
Accrued interest receivable........................................................ 100,604 87,706
Core deposit and other intangible assets........................................... 18,606 12,217
Mortgage servicing rights.......................................................... 241,355 86,840
Other assets....................................................................... 295,325 150,050
----------- -----------
Total assets.................................................................. $14,646,245 $14,683,559
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits........................................................................... $10,241,628 $ 9,196,656
Securities sold under agreements to repurchase..................................... 969,510 1,883,490
Borrowings......................................................................... 2,392,862 2,808,979
Other liabilities.................................................................. 279,099 140,832
----------- -----------
Total liabilities................................................................ 13,883,099 14,029,957
----------- -----------
Minority interest--preferred stock of First Nationwide Bank........................ 300,730 300,730
Minority interest--Hunter's Glen................................................... 58,261 23,205
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding... 1 1
Additional paid-in capital....................................................... 267,055 267,055
Net unrealized holding gain on securities available for sale..................... 50,810 8,800
Retained earnings................................................................ 86,289 53,811
----------- -----------
Total stockholder's equity.................................................... 404,155 329,667
----------- -----------
Total liabilities and stockholder's equity.................................... $14,646,245 $14,683,559
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Interest income:
Loans receivable......................................................... $ 799,607 $212,553 $ 15,766
Mortgage-backed securities............................................... 212,880 43,015 6,028
Covered assets........................................................... 10,705 29,991 49,128
Loans held for sale...................................................... 24,257 583 --
Securities and interest-bearing deposits in other banks.................. 28,396 6,997 24,342
---------- -------- --------
Total interest income.................................................... 1,075,845 293,139 95,264
---------- -------- --------
Interest expense:
Deposits................................................................. 447,359 100,957 55,410
Securities sold under agreements to repurchase........................... 104,957 18,863 805
Borrowings............................................................... 182,499 80,025 18,513
---------- -------- --------
Total interest expense................................................ 734,815 199,845 74,728
---------- -------- --------
Net interest income................................................... 341,030 93,294 20,536
Provision for loan losses.................................................. 37,000 6,226 1,402
---------- -------- --------
Net interest income after provision for loan losses................... 304,030 87,068 19,134
---------- -------- --------
Noninterest income:
Loan servicing fees, net................................................. 70,265 10,042 8,868
Customer banking fees and service charges................................ 47,493 10,595 2,863
Management fees.......................................................... 15,141 13,121 7,855
Gain (loss) on sale of assets............................................ 147 (152) 24,188
Gain on sales of branches................................................ -- -- 140,877
Other income............................................................. 17,927 7,552 6,225
---------- -------- --------
Total noninterest income.............................................. 150,973 41,158 190,876
---------- -------- --------
Noninterest expense:
Compensation and employee benefits....................................... 154,288 48,846 24,951
Occupancy and equipment.................................................. 49,897 12,247 5,343
Data processing.......................................................... 9,787 2,888 3,739
Savings Association Insurance Fund ('SAIF')
deposit insurance premium............................................. 22,262 6,813 3,259
Marketing................................................................ 10,810 3,385 166
Loan expense............................................................. 12,431 1,132 388
Foreclosed real estate operations, net................................... (927) (528) (726)
Amortization of core deposit and other intangible assets................. 1,474 222 468
Other.................................................................... 72,531 21,293 25,804
---------- -------- --------
Total noninterest expense............................................. 332,553 96,298 63,392
---------- -------- --------
Income before income taxes, extraordinary item and
minority interest........................................................ 122,450 31,928 146,618
Income taxes............................................................... (57,185) 2,558 2,500
---------- -------- --------
Income before extraordinary item and minority interest..................... 179,635 29,370 144,118
Extraordinary item--gain on early extinguishment of FHLB advances, net..... 1,967 1,376 --
---------- -------- --------
Income before minority interest............................................ 181,602 30,746 144,118
Minority interest--First Nationwide Bank preferred stock dividends......... 34,584 -- --
Minority interest--Hunter's Glen........................................... 24,554 4,259 --
---------- -------- --------
Net income............................................................ $ 122,464 $ 26,487 $144,118
---------- -------- --------
---------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL HOLDING GAIN ON TOTAL
COMMON PAID-IN SECURITIES RETAINED STOCKHOLDER'S
STOCK CAPITAL AVAILABLE FOR SALE EARNINGS EQUITY
------ ---------- ------------------ -------- --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993..................... $1 $ 401,569 $ -- $ 71,206 $472,776
Net income................................... -- -- -- 144,118 144,118
Redemption of preferred stock................ -- (124,500) -- -- (124,500)
Dividends and distributions
to stockholder............................ -- (191,500) -- (188,000) (379,500)
-- ---------- ---------- -------- --------
Balance at December 31, 1993................... 1 85,569 -- 27,324 112,894
Net income................................... -- -- -- 26,487 26,487
Change in net unrealized holding gain on
securities available for sale............. -- -- 11,000 -- 11,000
Capital contribution from First Gibraltar
Holdings.................................. -- 210,376 -- -- 210,376
Issuance of the Bank's preferred stock....... -- (12,144) -- -- (12,144)
Issuance of Class B common stock of FN
Holdings in exchange for Class A common
stock of First Gibraltar Holdings......... -- (16,746) (2,200) -- (18,946)
-- ---------- ---------- -------- --------
Balance at December 31, 1994................... 1 267,055 8,800 53,811 329,667
Net income................................... -- -- -- 122,464 122,464
Dividends and distributions
to stockholder............................ -- -- -- (89,986) (89,986)
Change in net unrealized holding gain on
securities available for sale............. -- -- 42,010 -- 42,010
-- ---------- ---------- -------- --------
Balance at December 31, 1995................... $1 $ 267,055 $ 50,810 $ 86,289 $404,155
-- ---------- ---------- -------- --------
-- ---------- ---------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 122,464 $ 26,487 $ 144,118
Adjustments to reconcile net income to net cash used in operating
activities:
Adjustments related to the BAC Sale:
Write-off of excess cost over fair value of net assets
acquired................................................... -- -- 59,506
Write-off of purchase premiums and discounts for assets and
liabilities sold........................................... -- -- (49,013)
Net premium on liabilities sold.............................. -- -- (141,215)
Net premium on assets sold................................... -- -- (17,363)
Other adjustments............................................ -- -- 7,208
Minority interest--Hunter's Glen................................ 24,554 4,259 --
Amortization of core deposit and other intangible assets........ 1,474 222 468
(Accretion) amortization of premiums and discounts, net......... (5,491) 3,156 1,545
Amortization of mortgage servicing rights....................... 33,892 3,604 2,259
Provision for accrued termination and facilities costs.......... 12,772 -- --
Provision for loan losses....................................... 37,000 6,226 1,402
Loss (gain) on sales of assets.................................. 17,755 158 (24,373)
Gain on sales of foreclosed real estate......................... (3,010) (728) (1,864)
Extraordinary gain on early extinguishment of FHLB advances..... (1,967) (1,376) --
Depreciation and amortization................................... 9,650 2,725 2,118
FHLB stock dividend............................................. (6,951) (3,188) (1,433)
Capitalization of originated mortgage servicing rights and
excess servicing fees receivable............................. (17,902) -- --
Purchases and originations of loans held for sale............... (1,773,437) (40,284) --
Proceeds from the sale of loans held for sale................... 1,191,281 47,227 --
Increase in other assets........................................ (75,273) (64,217) (65,242)
(Increase) decrease in accrued interest receivable.............. (9,743) 759 752
Increase (decrease) in other liabilities........................ 12,619 (22,224) 38,640
------------- ------------- -------------
Total adjustments............................................ (552,777) (63,681) (186,605)
------------- ------------- -------------
Net cash flows used in operating activities (430,313) (37,194) (42,487)
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES: ------------- ------------- -------------
<S> <C> <C> <C>
Acquisitions and divestitures:
Maryland Acquisition and Lomas 1995 Purchase................. $ (214,727) -- --
Branch Acquisitions.......................................... 501,351 -- --
FN Acquisition............................................... -- $ (526,813) --
Illinois Branch Sale......................................... 31,263 --
BAC Sale..................................................... -- -- $ (471,998)
Purchases of securities available for sale...................... -- (5,939) --
Proceeds from sales of securities available for sale............ -- 5,939 --
Purchases of securities held to maturity........................ (157,962) (152,068) (3,473,977)
Proceeds from maturities of securities held to maturity......... 344,475 108,754 --
Purchases of mortgage-backed securities available for sale...... -- (5,758) --
Proceeds from sales of mortgage-backed securities available for
sale......................................................... -- 5,758 --
Purchases of mortgage-backed securities held to maturity........ (19,825) (58,125) (454,327)
Principal payments on mortgage-backed securities held to
maturity..................................................... 570,607 177,926 159,925
Proceeds from sales of mortgage-backed securities held to
maturity..................................................... -- -- 80,205
Proceeds from sales of loans receivable......................... 431,247 154,638 300,156
Net increase in loans receivable................................ (86,193) (69,025) (38,149)
Decrease in covered assets...................................... 272,254 279,930 243,355
Redemptions of FHLB stock, net of purchases..................... 25,565 28,281 --
Purchases of office premises and equipment...................... (15,331) (2,555) (1,251)
Proceeds from the disposal of office premises
and equipment................................................ 1,667 1,427 --
Proceeds from sales of foreclosed real estate................... 71,453 25,763 8,182
Purchase of mortgage servicing rights........................... (774) (444) (1,728)
------------- ------------- -------------
Net cash flows provided by (used in) investing activities.... 1,723,807 (1,048) (3,649,607)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits............................. 542,633 (83,851) (432,464)
Proceeds from additional borrowings............................. 6,151,319 1,472,160 112,100
Principal payments on borrowings................................ (6,860,569) (2,239,248) (138,874)
Net (decrease) increase in securities sold under agreements to
repurchase................................................... (913,103) 534,998 119,144
Capital contribution............................................ -- 210,376 --
Minority interest--issuance of First Nationwide Preferred
Stock........................................................ -- 288,586 --
Redemption of Old Preferred Stock............................... -- -- (124,500)
Dividends....................................................... (89,986) -- (136,210)
Net cash transferred through dividend of First Gibraltar
Mortgage Holdings............................................ -- -- (4,295)
------------- ------------- -------------
Net cash flows (used in) provided by financing activities....... (1,169,706) 183,021 (605,099)
------------- ------------- -------------
Net change in cash and cash equivalents........................... 123,788 144,779 (4,297,193)
Cash and cash equivalents at beginning of year.................... 188,783 44,004 4,341,197
------------- ------------- -------------
Cash and cash equivalents at end of year.......................... $ 312,571 $ 188,783 $ 44,004
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
First Nationwide (Parent) Holdings Inc. (the 'Company' or 'Parent
Holdings') is a holding company with no business operations of its own. Parent
Holdings' only significant asset is its indirect ownership of 80% of the common
stock of First Nationwide Bank, A Federal Savings Bank, formerly First Madison
Bank, FSB ('First Madison') ('First Nationwide' or the 'Bank'). Parent Holdings
owns directly 80% of the common stock of First Nationwide Holdings Inc. ('FN
Holdings'), a holding company which owns all of the common stock of First
Nationwide. As such, Parent Holdings' principal business operations are
conducted by First Nationwide and its subsidiaries. Parent Holdings is a
subsidiary of First Gibraltar Holdings Inc. ('First Gibraltar Holdings'), an
indirect subsidiary of MacAndrews & Forbes Holdings Inc. ('M&F Holdings').
First Nationwide was organized and chartered as First Gibraltar Bank, FSB
('First Gibraltar'), a Federal stock savings bank, in December 1988 for the
primary purpose of acquiring substantially all of the assets and assuming
deposit, secured and certain other liabilities of five insolvent Texas savings
and loan associations ('Closed Associations') from the Federal Savings and Loan
Insurance Corporation ('FSLIC'), as receiver. On August 9, 1989, the FSLIC was
abolished and its obligations and rights were assumed by the FSLIC Resolution
Fund ('FSLIC/RF').
Acquisition of the Closed Associations was made pursuant to five
substantially similar acquisition agreements and an assistance agreement
('Assistance Agreement') among the FSLIC/RF, First Gibraltar, First Gibraltar
Holdings, and M&F Holdings, and became effective on December 28, 1988. Both
First Gibraltar Holdings and M&F Holdings are indirect parents of First
Nationwide. Assets subject to the Assistance Agreement are known as 'Covered
Assets.' The Assistance Agreement generally provides for guaranteed yield
amounts to be paid on the book value of the Covered Assets, and pays First
Nationwide for 90% of the losses incurred upon disposition of the Covered Assets
('Capital Loss Provision'). The remaining 10% not reimbursed, net of 10% of all
asset recoveries and certain agreed-upon Covered Asset disposition fees ('Shared
Gain'), is known as the 'FSLIC/RF Reimbursement.' In January 1992, certain
provisions of the Assistance Agreement were renegotiated and amended or
modified.
On February 1, 1993, First Gibraltar sold to BankAmerica Corporation
certain assets, liabilities and substantially all of the branch operations of
First Gibraltar located in Texas, including $829 million of loans and 130
branches with approximately $6.9 billion in deposits (the 'BAC Sale'). A net
gain of $141 million was recorded in connection with this sale. Subsequent to
the BAC Sale, First Gibraltar changed its name to First Madison and its
principal business consisted of funding the Covered Assets and the performance
of its obligations under the Assistance Agreement.
On April 14, 1994, First Madison entered into the Asset Purchase Agreement
(the 'Asset Purchase Agreement') with First Nationwide Bank, A Federal Savings
Bank ('Old FN'), an indirect subsidiary of Ford Motor Company ('Ford Motor'). On
October 3, 1994, effective immediately after the close of business on September
30, 1994, First Madison acquired substantially all of the assets and certain of
the liabilities (the 'FN Acquired Business') of Old FN (the 'FN Acquisition')
for approximately $715 million based on estimates prepared by Old FN. On March
2, 1995, an additional $11.5 million was paid to Old FN pursuant to certain
settlement provisions of the Asset Purchase Agreement. Effective on October 1,
1994, First Madison changed its name to First Nationwide.
Following the FN Acquisition, the Bank's principal business consists of
operating retail deposit branches and originating and/or purchasing one-to
four-family real estate mortgage loans and, to a lesser extent, certain consumer
loans. First Nationwide actively manages its portfolio of commercial real estate
loans acquired through acquisitions and is also active in mortgage banking and
loan servicing. These operating activities are financed principally with
customer deposits, secured short-term and long-term borrowings, collections on
loans and mortgage-backed securities, asset sales and retained earnings.
During 1995, the FSLIC/RF exercised its right under the Assistance
Agreement to purchase substantially all of the remaining Covered Assets at the
fair market value of such assets (the 'FDIC Purchase'). Under the Capital Loss
Provision, losses sustained by First Nationwide from these actions are
reimbursed by the FSLIC/RF
F-8
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION--(CONTINUED)
and therefore no gain or loss was recorded on the sale of these assets to the
Federal Deposit Insurance Corporation ('FDIC').
(2) ACQUISITIONS
The following represent acquisitions consummated during 1995. In addition,
the Bank has executed various contracts in 1995 for the acquisition of other
thrift institutions and mortgage loan servicing operations, and for the sale of
a significant portion of the retail deposit operations outside California, as
further described in note 33.
FN Acquisition
The FN Acquisition was accounted for as a purchase and, accordingly, the
purchase price was allocated to assets and liabilities based on estimates of
fair values at October 3, 1994. Since October 3, 1994, the results of operations
of the FN Acquired Business have been included in First Nationwide's
consolidated statements of operations.
The following is a summary of the assets acquired and liabilities assumed
in connection with the FN Acquisition at October 3, 1994 (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
REMAINING
LIVES AT
OLD FN FAIR FIRST NATIONWIDE ACQUISTION
CARRYING VALUE CARRYING DATE
VALUE ADJUSTMENTS VALUE (IN YEARS)
------------ ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Securities.................................. $ 355,760 $ (3,989) $ 351,771 1 to 5
Mortgage-backed securities.................. 1,615,183 (30,516) 1,584,667 6 to 9
Loans held for sale......................... 33,527 (72) 33,455 --
Loans receivable, net....................... 11,395,622 6,651 11,402,273 2 to 18
Investment in FHLB.......................... 111,654 -- 111,654 --
Offices premises and equipment.............. 98,075 (13,166) 84,909 3 to 10
Foreclosed real estate, net................. 48,188 (4,032) 44,156 --
Accrued interest receivable................. 86,361 -- 86,361 2 to 7
Cost of mortgage servicing rights, net...... 50,718 39,282 90,000 2 to 4
Other assets................................ 82,186 67,304 149,490 2 to 5
Deposits.................................... (10,047,911) (25,607) (10,073,518) 1 to 5
Securities sold under agreement to
repurchase................................ (1,229,296) (416) (1,229,712) --
Borrowings.................................. (2,012,574) 33,765 (1,978,809) 1 to 17
Other liabilities........................... (106,073) (36,250) (142,323) 1 to 5
------------ ----------- ----------------
481,420 32,954 514,374
Cash and cash equivalents................... 188,109 -- 188,109
------------ ----------- ----------------
$ 669,529 $ 32,954 702,483
------------ -----------
------------ -----------
Purchase price paid at closing.............. 714,922
----------------
Excess cost over fair value of net assets
acquired.................................. $ 12,439
----------------
----------------
</TABLE>
The amount paid at closing was based on an estimated purchase price
prepared by Old FN. This estimate was subsequently adjusted, and an additional
$11.5 million, plus interest, was paid to Old FN on March 2, 1995. As a result
of this additional amount paid and other revisions to the original fair value
estimates, the excess of cost over fair value of net assets acquired was reduced
to $6.5 million.
The Bank financed the FN Acquisition and paid related fees and expenses
with (i) a capital contribution by FN Holdings, funded with the net proceeds of
(a) the issuance by FN Holdings of its 12 1/4% Senior Notes due 2001
F-9
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) ACQUISITIONS--(CONTINUED)
('Senior Notes'), and (b) the issuance of FN Holdings' class C common stock to
Parent Holdings, (ii) the net proceeds from the issuance of 3,007,300 shares of
the Bank's 11 1/2% Noncumulative Perpetual Preferred Stock ('Preferred Stock'),
and (iii) existing cash and proceeds from securities sold under agreements to
repurchase.
On October 7, 1994, First Nationwide sold the FN Acquired Business' branch
network in Illinois, with approximately $1.2 billion in deposits, to Household
Bank, f.s.b. (the 'Illinois Sale'). The Illinois Sale was funded with
approximately $1.2 billion in borrowings and did not result in any gain or loss.
The following is a summary of the Bank's carrying value of the assets and
liabilities of the branch operations in the Illinois Sale at date of sale (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Office premises and equipment............................... $ 10,293
Core deposit intangible (other assets)...................... 89,726
Deposits.................................................... (1,218,758)
-----------
-----------
</TABLE>
The following pro forma financial information combines the historical
results of the Company and the FN Acquired Business as if the FN Acquisition and
the Illinois Sale had occurred as of the beginning of each year presented. The
pro forma results are not necessarily indicative of the results which would have
actually been obtained if the FN Acquisition and the Illinois Sale had been
consummated in the past nor do they project the results of operations in any
future period (in thousands) (unaudited):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1993
---- ----
<S> <C> <C>
Net interest income........... $385,313 $489,204
Net income.................... 77,397 150,946
----------- -----------
----------- -----------
</TABLE>
Maryland Acquisition
On February 28, 1995, the Bank's wholly owned mortgage bank operating
subsidiary, First Nationwide Mortgage Corporation ('FNMC') acquired the mortgage
servicing operations of the former Standard Federal Savings Association in
Frederick, Maryland for approximately $178 million (the 'Maryland Acquisition').
As a result of this transaction, the Bank acquired certain assets and
liabilities and a loan servicing portfolio of approximately $11.4 billion
(including a subservicing portfolio of $1.8 billion). The transaction was
accounted for as a purchase. Accordingly, the accompanying consolidated
statement of operations for the period ended December 31, 1995 includes the
results of the acquired mortgage servicing operations for the period since March
1, 1995.
Branch Acquisitions
In April 1995, First Nationwide acquired approximately $13 million in
deposits located in Tiburon, California, from East-West Federal Bank, a federal
savings bank (the 'Tiburon Purchase'). In August 1995, the Bank acquired three
retail branches located in Orange County, California with deposit accounts
totalling approximately $356 million from ITT Federal Bank, fsb, ( the 'ITT
Purchase'). On December 8, 1995, the Bank acquired four retail branches located
in Sonoma County, California with deposit accounts of approximately $144 million
from Citizens Federal Bank, a Federal Savings Bank (the 'Sonoma Purchase' and,
collectively with the Tiburon Purchase and the ITT Purchase, the 'Branch
Acquisitions'). The aggregate amounts received from the sellers in the Branch
Acquisitions totalled $501 million.
Lomas 1995 Purchase
In September 1995, FNMC entered into an agreement to purchase a portion of
Lomas Mortgage USA, Inc.'s ('LMUSA') loan servicing portfolio of approximately
$11.1 billion (including a sub-servicing portfolio of $3.1 billion), a master
servicing portfolio of $2.9 billion and other assets, principally existing
loans, loan
F-10
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) ACQUISITIONS--(CONTINUED)
production operations and ownership of Lomas Mortgage Services Inc. from LMUSA,
a subsidiary of Lomas Financial Corporation, for $100 million, payable in
installments, and the assumption of the certain indebtedness relating to the
acquired loan portfolio totalling approximately $274 million (the 'Lomas 1995
Purchase'). This transaction closed on October 2, 1995, and FNMC made the first
installment payment totalling $35 million from existing cash. At December 31,
1995, approximately $64.7 million remains payable to LMUSA and bears interest at
the average federal funds rate plus 1%. The transaction was accounted for as a
purchase. Accordingly, the accompanying consolidated financial statements of
operations include the results of the acquired operations since October 2, 1995.
Pro forma financial information for the Maryland and Branch Acquisitions
and the Lomas 1995 Purchase has not been presented because such information is
not considered material to the consolidated financial statements.
Purchase Accounting Adjustments
Premiums and discounts related to interest-earning assets acquired and
interest-bearing liabilities assumed are amortized (accreted) to operations
using the level yield method over the estimated remaining lives of the
respective assets and liabilities. Premiums and discounts relative to
noninterest-earning assets and noninterest-bearing liabilities are amortized
(accreted) to operations using the straight-line method over the estimated
useful lives.
Income before income taxes, extraordinary item and minority interest for
the years ended December 31, 1995 and 1994 included net amortization (accretion)
of premiums (discounts) of $.9 million and $.6 million, respectively, which
resulted from the application of purchase accounting relative to
interest-earning assets and interest-bearing liabilities assumed in the FN,
Maryland and Branch Acquisitions, and the Lomas 1995 Purchase.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Parent Holdings conform to
generally accepted accounting principles and general practices within the
savings and loan industry. The following summarizes the more significant of
these policies.
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Parent Holdings, FN Holdings, the Bank and the Bank's wholly
owned subsidiaries not subject to the Assistance Agreement. Earnings per
share data is not presented due to the limited ownership of the Company.
All significant intercompany accounts and transactions have been
eliminated.
Investments in and advances to directly-held subsidiaries at December
28, 1988 are Covered Assets under the provisions of the Assistance
Agreement. Therefore, all significant activity regarding additional
investments and dispositions is subject to FSLIC/RF approval. Because
control over such subsidiaries does not rest solely with First Nationwide
and ownership is temporary in management's view, the assets and liabilities
and results of operations of these entities are not consolidated in the
accompanying consolidated financial statements. The investments in these
subsidiaries, including advances, are recorded as Covered Assets at their
guaranteed values.
(b) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and
cash equivalents include cash and amounts due from banks, interest-bearing
deposits in other banks, and other short-term investment securities with
original maturities of three months or less. Savings and loans are required
by the Federal Reserve Bank to maintain non-interest bearing cash reserves
equal to a percentage of certain deposits. The reserve balance for First
Nationwide at December 31, 1995 was $53.6 million.
F-11
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(c) Securities and Mortgage-backed Securities
The Company's investment in securities consists primarily of U.S.
government and agency securities and mortgage-backed securities. Parent
Holdings adopted Statement of Financial Accounting Standards No. 115,
'Accounting for Certain Investments in Debt and Equity Securities' ('SFAS
No. 115'), which specifies the accounting and reporting for all investments
in debt securities and for investments in equity securities that have
readily determinable fair values, effective January 1, 1994. There was no
material impact on the consolidated financial statements as a result of the
adoption of SFAS No. 115 at January 1, 1994. SFAS No. 115 requires
classification of debt and equity securities, including mortgage-backed
securities, into one of three categories: held to maturity, available for
sale or trading securities. Securities expected to be held to maturity
represent securities which management has the positive intent and ability
to hold to maturity and are reported at amortized cost. Securities bought
and held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. All other securities are
classified as available for sale and are carried at fair value, with
unrealized holding gains and losses, net of tax, reported as a separate
component of stockholders' equity until realized. Should an other than
temporary decline in the fair value of a security classified as held to
maturity or available for sale occur, the carrying value of such security
would be written down to fair value by a charge to operations. Realized
gains or losses on securities available for sale are computed on a specific
identification basis and are accounted for on a trade-date basis.
The Financial Accounting Standards Board ('FASB') issued a Special
Report in November 1995, 'A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities' (the
'Special Report'). The Special Report provided all entities an opportunity
to reassess their ability and intent to hold securities to maturity and
allowed a one time reclassification of securities from held-to-maturity to
available-for-sale without 'tainting' the remaining held-to-maturity
securities. On December 29, 1995, the Company reclassified $1.5 billion and
$231.8 million in carrying value of mortgage-backed securities and U.S.
government and agency securities, respectively, from the respective
held-to-maturity categories to securities available for sale.
Amortization and accretion of premiums and discounts relating to
mortgage-backed securities is recognized using the interest method over the
estimated lives of the underlying mortgages with adjustments based on
prepayment experience.
(d) Loans Held for Sale, Net
One- to four-family residential mortgage loans originated and intended
for sale in the secondary market and other loans which are expected to be
sold in the near term are carried at the lower of cost or market value as
determined by outstanding commitments from investors or current investor
yield requirements calculated on an aggregate basis. Net unrealized losses
are recognized in a valuation allowance by charges to income.
(e) Loans Receivable, Net
Loans receivable, net, is stated at unpaid principal balances, less
the allowance for loan losses, and net of deferred loan origination fees
and purchase discounts.
Discounts on one- to four-family residential mortgage loans are
amortized to income using the interest method over the remaining period to
contractual maturity, adjusted for anticipated prepayments. Discounts on
consumer and other loans are recognized over the lives of the loans using
the interest method.
A significant portion of First Nationwide's real estate loan portfolio
is comprised of adjustable-rate mortgages. The interest rate and payment
terms of these mortgages adjust on a periodic basis in accordance with
various published indices. The majority of these adjustable-rate mortgages
have terms which limit the amount of interest rate adjustment that can
occur each year and over the life of the mortgage. During periods
F-12
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
of limited payment increases, negative amortization may occur on certain
adjustable-rate mortgages. See note 29.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on such factors as the
Bank's past loan loss experience, delinquency trends, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, and
current economic conditions. As management utilizes information currently
available to make such evaluation, the allowance for loan losses is
subjective and may be adjusted in the future depending on changes in
economic conditions or other factors. Additionally, regulatory authorities,
as an integral part of their regular examination process, review the Bank's
allowance for estimated losses on a periodic basis. These authorities may
require the Bank to recognize additions to the allowance based on their
judgment of information available to them at the time of their examination.
Uncollectible interest on loans that are contractually ninety days or
more past due is charged off, or an allowance is established, based on
management's periodic evaluation. The allowance is established by a charge
to interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent that cash payments are received.
When, in management's judgment, the borrower's ability to make periodic
interest and principal payments resumes, the loan is returned to accrual
status.
(f) Impaired Loans
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, 'Accounting by Creditors for Impairment of a
Loan' ('SFAS No. 114'), as amended by Statement of Financial Accounting
Standards No. 118, 'Accounting by Creditors for Impairment of a
Loan--Income Recognition and Disclosures' ('SFAS No. 118'). Under SFAS No.
114, a loan is impaired when it is 'probable' that a creditor will be
unable to collect all amounts due (i.e., both principal and interest)
according to the contractual terms of the loan agreement. The measurement
of impairment may be based on (i) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original effective
interest rate, (ii) the observable market price of the impaired loan, or
(iii) the fair value of the collateral of a collateral-dependent loan. SFAS
No. 114 does not apply to large groups of smaller balance homogeneous loans
that are collectively evaluated for impairment. For FN Holdings, loans
collectively reviewed for impairment include all single-family loans, and
performing multi-family and commercial real estate loans under $500,000,
excluding loans which have entered the workout process. The adoption of
SFAS No. 114, as amended by SFAS No. 118, had no material impact on the
Company's consolidated financial statements as the Company's existing
policy of measuring loan impairment was consistent with methods prescribed
in these standards.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. Any insignificant delay (i.e., 60 days or less) or
insignificant shortfall in amount of payments will not cause a loan to be
considered impaired. In determining impairment, Parent Holdings considers
large non-homogeneous loans including nonaccrual loans, troubled debt
restructurings, and performing loans which exhibit, among other
characteristics, high loan-to-value ratios, low debt-coverage ratios, or
other indications that the borrowers are experiencing increased levels of
financial difficulty. The Company bases the measurement of
collateral-dependent impaired loans, which represent substantially all of
the Company's loan portfolio, on the fair value of the loan's collateral.
The amount, if any, by which the recorded investment of the loan exceeds
the measure of the impaired loan's value is recognized by recording a
valuation allowance.
Cash receipts on impaired loans not performing according to
contractual terms are generally used to reduce the carrying value of the
loan, unless the Company believes it will recover the remaining principal
F-13
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
balance of the loan. Impairment losses are included in the allowance for
loan losses through a charge to provision for loan losses. Adjustments to
impairment losses due to changes in the fair value of collateral of
impaired loans are included in provision for loan losses. Upon disposition
of an impaired loan, loss of principal, if any, is recorded through a
charge-off to the allowance for loan losses.
(g) Loan Origination and Commitment Fees and Related Costs
Loan origination fees, net of direct underwriting closing and
acquisition costs, are deferred and amortized to interest income using the
interest method over the contractual term of the loans, adjusted for actual
loan prepayment experience. Unamortized fees on loans sold or paid in full
are recognized as income. Adjustable-rate loans with lower initial interest
rates during the introductory period result in the amortization of a
substantial portion of the net deferred fee during the introductory period.
Commitment fees paid to investors, for the right to deliver permanent
residential mortgages in the future to the investors at a specified yield,
are deferred. Amounts are included in the recognition of gain (loss) on
sale of loans as loans are delivered to the investor in proportion to the
percentage relationship of loans delivered to the total commitment amount.
Any unused fee is recognized as an expense at the expiration of the
commitment date, or earlier, if it is determined that the commitment will
not be filled.
Fees received in connection with loan commitments are deferred and
recognized as fee revenue on a straight-line basis over the term of the
commitment. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the term of the loan as an adjustment to yield.
Other loan fees and charges, which represent income from the
prepayment of loans, delinquent payment charges, and miscellaneous loan
services, are recognized as income when collected.
(h) Office Premises and Equipment
Land is carried at cost. Premises, equipment and leasehold
improvements are stated at cost, less accumulated depreciation and
amortization. Premises, equipment and leasehold improvements are
depreciated or amortized on a straight-line basis over the lesser of the
lease term or the estimated useful lives of the various classes of assets.
Maintenance and repairs on premises and equipment are charged to expense in
the period incurred.
Closed facilities of the Company and its subsidiaries are carried at
fair value. In the case of leased premises that are vacated by the Bank, a
liability is established representing the difference between the net
present value of future lease payments and the net present value of
anticipated sublease income, if any, for the remaining term of the lease.
(i) Foreclosed Real Estate
Real estate acquired through foreclosure is carried at fair value less
estimated disposal costs at the time of foreclosure. Subsequent to
foreclosure, Parent Holdings charges current earnings with a provision for
estimated losses when the carrying value of the collateral property exceeds
its fair value.
(j) Core Deposit and Other Intangible Assets
The core deposit intangible asset is amortized over the estimated
lives of existing deposit relationships. Other intangible assets,
principally excess of cost over fair value of net assets acquired in
business combinations accounted for as a purchase, are amortized on a
straight-line basis over the expected period to be benefited of 15 years.
The Company periodically reviews the operations of the businesses acquired
to determine that income from operations continues to support the
recoverability of its intangible assets and the amortization periods used.
F-14
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(k) Mortgage Servicing Rights
The Company purchases mortgage servicing rights separately or it may
acquire mortgage servicing rights by purchasing or originating mortgage
loans and selling those loans with servicing rights retained. Generally,
purchased mortgage servicing rights are capitalized at the cost to acquire
the rights and are carried at the lower of cost, net of accumulated
amortization, or fair value. Originated mortgage servicing rights are
capitalized based on a relative fair value of the servicing right to the
fair value of the loan and are recorded at the lower of the capitalized
amount, net of accumulated amortization, or fair value.
The Company records mortgage servicing rights at cost, net of
accumulated amortization. The Company amortizes the mortgage servicing
rights in proportion to, and over the period of, estimated net servicing
income. The Company uses a cash flow model to calculate the amortization of
mortgage servicing rights. The amortization of the mortgage servicing
rights is analyzed periodically and is adjusted to reflect changes in
prepayment rates and other estimates.
On May 12, 1995, the FASB issued Statement of Financial Accounting
Standards No. 122, 'Accounting for Mortgage Servicing Rights, an amendment
to Statement No. 65' ('SFAS No. 122'). This statement provides guidance for
the recognition of mortgage servicing rights as an asset when a mortgage
loan is sold and servicing rights are retained. The Company elected to
adopt this standard effective April 1, 1995. The result of such adoption
was to capitalize approximately $17 million in mortgage servicing rights
related to loans originated by the Company in 1995.
SFAS No. 122 requires that a portion of the cost of originating a
mortgage loan be allocated to the mortgage servicing rights based on its
fair value. To determine the fair value of mortgage servicing rights
created since April 1, 1995, the Company uses market prices for comparable
mortgage servicing contracts, when available, or alternatively uses a
valuation model that calculates the present value of future net servicing
income. In using this valuation method, the Company incorporates
assumptions that market participants would use in estimating future net
servicing income, which include estimates of the cost of servicing, the
discount rate, mortgage escrow earnings rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses.
SFAS No. 122 requires enterprises to measure the impairment of
servicing rights based on the difference between the carrying amount and
current fair value of the servicing rights. In determining impairment, the
Company aggregates all mortgage servicing rights and stratifies them based
on the predominant risk characteristics of interest rate, loan type and
investor type. Further, mortgage servicing rights capitalized prior to the
adoption of SFAS No. 122 were stratified by acquisition to measure
impairment. A valuation allowance is established for any excess of
amortized book value over the current fair value, by risk stratification,
by a charge to income.
The carrying value of mortgage servicing rights is amortized over the
life of the related loan portfolio. A decline in long-term interest rates
generally results in an acceleration in mortgage loan prepayments. Higher
levels of prepayments would result in an acceleration of the amortization
of mortgage servicing rights, causing a reduction in the Bank's servicing
fee income. Management has taken the current and projected interest rate
environment into account in estimating the amount of amortization of
mortgage servicing rights included in the accompanying statements of
operations. However, further declines in long-term interest rates could
cause the level of prepayments to exceed management's estimates.
(l) Gains/Losses on Sale of Mortgage Loans
Mortgage loans are generally sold with the mortgage servicing rights
retained by the Company. Effective with the adoption of SFAS No. 122 on
April 1, 1995, the carrying value of mortgage loans sold was reduced by the
cost allocated to the associated mortgage servicing rights. Gains or losses
on sales of mortgage loans are recognized based on the difference between
the selling price and the carrying value of the related mortgage loans
sold. Such gains and losses are increased or decreased by the amount of
excess
F-15
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
servicing fees recorded. Deferred origination fees and expenses, net of
commitment fees paid in connection with the sale of the loans, are
recognized at the time of sale in the gain or loss determination.
(m) Servicing Fee Income
Servicing fee income represents the fees earned for servicing mortgage
loans under servicing agreements with the Federal National Mortgage
Association ('FNMA'), the Federal Home Loan Mortgage Corporation ('FHLMC'),
the Government National Mortgage Association ('GNMA'), and certain private
investors. The fees are based on a contractual percentage of the
outstanding principal balance or a fixed amount per loan and are recorded
as income when received. Amortization of capitalized excess servicing is
netted against loan servicing fees to reflect a normal servicing fee. The
amortization of mortgage servicing rights is included in servicing fee
income.
(n) Interest Rate Swap Agreements
The Bank is a party to various interest rate swap agreements as a
means of managing its interest rate exposure relative to the Bank's FHLB
advances. Amounts receivable or payable under these derivative financial
instruments are recognized as adjustments to interest expense of the hedged
liability (FHLB advances). Gains and losses on early termination of these
agreements are included in the carrying amount of the related liability and
amortized over the remaining terms of the liability.
(o) Income Taxes
For Federal income tax purposes, Parent Holdings and FN Holdings and
subsidiaries are members of the Mafco Holdings Inc. ('Mafco', the indirect
parent of FN Holdings) affiliated group, and accordingly, its Federal
taxable income or loss will be included in the consolidated Federal income
tax return filed by Mafco. Parent Holdings may also be included in certain
state and local income tax returns of Mafco or its subsidiaries. FN
Holdings' tax sharing agreement with Mafco provides that income taxes will
be based on the separate results of FN Holdings. The agreement generally
provides that FN Holdings will pay to Mafco amounts equal to the taxes that
FN Holdings would be required to pay if it were to file a return separately
from the affiliated group. Furthermore, the agreement provides that FN
Holdings shall be entitled to take into account any net operating loss
carryovers attributable to taxable periods prior to January 1, 1994 in
determining its tax liability. The agreement also provides that Mafco will
pay FN Holdings amounts equal to tax refunds FN Holdings would be entitled
to if it had always filed a separate company tax return.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. FN Holdings adopted SFAS No. 109,
'Accounting for Income Taxes,' effective January 1, 1993 for which there
was no cumulative effect of that change in the method of accounting for
income taxes in the accompanying 1993 consolidated statement of operations.
The effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(p) Extraordinary Gain from Extinguishment of Debt
During 1995, First Nationwide prepaid $250 million on FHLB advances
resulting in an extraordinary gain of approximately $2.0 million, net of
income taxes, on the early extinguishment of debt. During 1994, First
Nationwide prepaid $95.2 million in FHLB advances resulting in an
extraordinary gain of approximately $1.4 million, net of income taxes, on
the early extinguishment of debt.
(q) Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and
F-16
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
liabilities, (ii) disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and (iii) the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(r) Reclassification
Certain amounts within the consolidated financial statements have been
reclassified to conform to the current year presentation.
(s) Newly Issued Accounting Pronouncements
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of' ('SFAS No. 121'). SFAS No. 121
provides guidance for recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill related
both to assets to be held and used by an entity and assets to be disposed
of. SFAS No. 121 is effective for financial statements for fiscal years
beginning after December 15, 1995. Although the Company has not yet adopted
SFAS No. 121, management does not expect such adoption to have a material
impact on the Company's consolidated financial statements.
(4) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (IN THOUSANDS)
Cash paid for interest for the years ended December 31, 1995, 1994 and 1993
was $702,254, $184,499, and $84,663 respectively.
During the year ended December 31, 1995, noncash activity consisted of the
reclassification of $1.5 billion and $231.8 million historical carrying value of
mortgage-backed securities and U. S. government and agency securities,
respectively, from the held-to-maturity portfolio to the available-for-sale
portfolio (see note 5). In addition, $326.0 million of consumer loans were
reclassified from loans receivable to loans held for sale, transfers from loans
receivable to foreclosed real estate amounted to $79.6 million, and $376.3
million was transferred from loans receivable to mortgage-backed securities to
be held to maturity representing the securitization of certain of the Bank's
qualifying single-family loans.
During the year ended December 31, 1994, noncash activity consisted of the
transfer of $21.8 million from loans receivable to foreclosed real estate and
the transfer of $1.3 billion from loans receivable to mortgage-backed securities
to be held to maturity representing the securitization of certain of the Bank's
qualifying single-family loans. The transfer to foreclosed real estate was net
of a $4 million write-down, which was recorded as a receivable from the FSLIC/RF
(other assets), resulting from the expiration of coverage of a multi-family
residential commercial loan.
During the year ended December 31, 1993, noncash activity consisted of the
transfer of $50,950 from loans receivable to mortgage-backed securities, the
transfer of $7,136 from loans held for sale to loans receivable, and the
transfer of $9,604 from Covered Assets to loans receivable due to a commercial
loan which expired from coverage. The Bank distributed the common stock of a
subsidiary, First Gibraltar Mortgage Holdings Inc. ('FGMH'), to First Gibraltar
Holdings at its carrying value of $99,781. Net cash and cash equivalents
transferred amounted to $4,295. The Bank also dividended office premises and
equipment totalling $943 and securities totalling $142,566 to First Gibraltar
Holdings. As discussed in note 1, the Bank sold substantially all of its branch
operations to BAT during 1993. The excess of liabilities transferred over assets
was $141,215. Net cash and cash equivalents transferred to BAT amounted to
$471,998.
F-17
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SECURITIES AVAILABLE FOR SALE
At December 31, 1995 and 1994, securities available for sale and the
related unrealized gain or loss consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------------------------
GROSS GROSS NET
AMORTIZED UNREALIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Marketable equity securities........... $ 34,000 $ 80,068 $ -- $ 80,068 $ 114,068
Mortgage-backed securities:
GNMA................................. 14,018 906 -- 906 14,924
FNMA................................. 294,070 5,643 -- 5,643 299,713
FHLMC................................ 801,393 19,671 (1) 19,670 821,063
Collateralized mortgage
obligations....................... 345,699 793 (4,678) (3,885) 341,814
U.S. government and agency
obligations.......................... 231,794 2,768 (69) 2,699 234,493
---------- ---------- ---------- ---------- ----------
Total............................. $1,720,974 $ 109,849 $ (4,748) 105,101 $1,826,075
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FDIC portion of unrealized gain on
marketable equity securities......... (34,534)
Minority interest--Hunter's Glen (12,702)
Estimated tax effect................... (7,055)
----------
Net unrealized holding gain in
stockholders'equity............. $ 50,810
----------
----------
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------------------------
GROSS GROSS NET
AMORTIZED UNREALIZED UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES GAIN VALUE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Marketable equity securities........... $ 34,000 $ 11,000 $ -- $ 11,000 $ 45,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Minority interest--Hunter's Glen....... (2,200)
----------
Net unrealized holding gain in
stockholder's equity.............. $ 8,800
----------
----------
</TABLE>
The following represents a summary of the amortized cost, carrying value
and weighted average yield of securities available for sale with related
maturities (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------
WEIGHTED
AMORTIZED CARRYING AVERAGE
COST VALUE YIELD
---------- ---------- --------
<S> <C> <C> <C>
Marketable equity securities..................................... $ 34,000 $ 114,068 --
Mortgage-backed securities....................................... 1,455,180 1,477,514 7.41%
U.S. government and agency obligations:
Maturing within 1 year......................................... 62,054 62,093 5.70
Maturing after 1 year but within 5 years....................... 169,676 172,336 6.98
Maturing after 5 years through 10 years........................ 64 64 7.25
---------- ---------- --------
Total....................................................... $1,720,974 $1,826,075 7.16%
---------- ---------- --------
---------- ---------- --------
</TABLE>
F-18
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SECURITIES AVAILABLE FOR SALE--(CONTINUED)
As discussed more fully in note 3, the FASB issued the Special Report which
provided all entities an opportunity to reassess their ability and intent to
hold securities to maturity and allowed a one-time reclassification of
securities from held-to-maturity to available-for-sale without 'tainting' the
remaining held-to-maturity securities. On December 29, 1995, the Bank
reclassified $1.5 billion and $231.8 million in carrying value of
mortgage-backed securities and U.S. government and agency securities,
respectively, from held to maturity to securities available for sale. This
reclassification resulted in a net after-tax increase in the unrealized gain
account in stockholder's equity and minority interest--Hunter's Glen of $18
million and $4.5 million, respectively.
Proceeds on sales of mortgage-backed securities available for sale during
1994 totalled $6 million. No realized gain or loss was recognized on such sales.
At December 31, 1995, mortgage-backed securities available for sale
included securities totalling $63.4 million which resulted from the
securitization of certain qualifying mortgage loans from First Nationwide's loan
portfolio.
At December 31, 1995, mortgage-backed securities available for sale
included $979.0 million of variable-rate securities.
U.S. government and agency obligations and mortgage-backed securities
available for sale of $50 million and $39 million, respectively, were pledged as
collateral for various obligations as further discussed in note 29.
Marketable equity securities available for sale represents approximately
25% of the outstanding common stock of Affiliated Computer Services ('ACS'),
representing 5% of the voting power, with an original cost basis of $34 million.
Pursuant to the terms of a settlement agreement dated June 17, 1991 between the
Company, ACS, and the FDIC, the FDIC is entitled to share in a defined portion
of the proceeds from the sale of the stock, which, at December 29, 1995 and
1994, approximated $34.5 million and $0, respectively, and which is recorded in
other liabilities.
(6) SECURITIES HELD TO MATURITY
At December 31, 1995 and 1994 securities held to maturity consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Municipal securities................................... $ 1,455 $ -- $ -- $ 1,455
--------- --- ---------- ----------
--------- --- ---------- ----------
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U. S. government and agency obligations................ $ 410,211 $ 51 $2,524 $ 407,738
Municipal securities................................... 1,648 12 -- 1,660
--------- --- ---------- ----------
$ 411,859 $ 63 $2,524 $ 409,398
--------- --- ---------- ----------
--------- --- ---------- ----------
</TABLE>
As discussed in note 5 to the consolidated financial statements, securities
with a carrying value of $231.8 million were reclassified from securities held
to maturity to securities available for sale at December 29, 1995.
F-19
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) SECURITIES HELD TO MATURITY--(CONTINUED)
The weighted average stated interest rates on securities held to maturity
were 8.25% and 5.79% at December 31, 1995 and 1994, respectively.
The following represents a summary of the carrying values (amortized cost),
estimated fair values, and weighted average yield of securities held to maturity
with related maturities (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------
ESTIMATED WEIGHTED
AMORTIZED FAIR AVERAGE
COST VALUE YIELD
--------- --------- --------
<S> <C> <C> <C>
Municipal securities:
Maturing within 1 year........................................... $ 1,250 $ 1,250 8.25%
Maturing after 1 year but within 5 years......................... 205 205 8.25
--------- --------- --------
Total............................................................ $ 1,455 $ 1,455 8.25%
--------- --------- --------
--------- --------- --------
</TABLE>
(7) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
At December 31, 1995 and 1994, mortgage-backed securities held to maturity
consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FHLMC.............................................. $ 533,208 $ 15,285 $ -- $ 548,493
FNMA............................................... 988,700 27,424 -- 1,016,124
Other mortgage-backed securities................... 2,580 -- -- 2,580
---------- ---------- ---------- ----------
$1,524,488 $ 42,709 $ -- $1,567,197
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FHLMC.............................................. $1,659,912 $ 4,865 $ 17,744 $1,647,033
FNMA............................................... 1,078,323 1,234 19,093 1,060,464
GNMA............................................... 15,712 4 203 15,513
Collateralized Mortgage Obligations................ 396,820 13 26,894 369,939
Other mortgage-backed securities................... 3,045 -- -- 3,045
---------- ---------- ---------- ----------
$3,153,812 $ 6,116 $ 63,934 $3,095,994
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
As discussed in note 5 to the consolidated financial statements,
mortgage-backed securities with a carrying value of $1.5 billion were
reclassified from mortgage-backed securities held to maturity to securities
available for sale at December 29, 1995.
The weighted average stated interest rates on mortgage-backed securities to
be held to maturity were 7.46% and 6.30% at December 31, 1995 and 1994,
respectively.
At December 31, 1995 and 1994, mortgage-backed securities held to maturity
included securities totalling $1.5 billion and $1.4 billion, respectively, which
resulted from the securitization of certain qualifying mortgage loans from First
Nationwide's loan portfolio. At December 31, 1995 and 1994, these securities
include $1.5 billion and $1.3 billion, respectively, which have been securitized
with FNMA and FHLMC with full recourse to the Bank. At December 31, 1995 and
1994, mortgage-backed securities held to maturity included $1.5 billion and $2.5
billion, respectively, of variable-rate securities.
F-20
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) LOANS RECEIVABLE, NET
At December 31, 1995 and 1994, loans receivable, net, excluding Covered
Assets, included the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Real estate loans:
1-4 unit residential...................................... $ 5,423,411 $ 5,612,150
5+ unit residential....................................... 1,854,333 2,177,646
Commercial................................................ 1,716,121 2,015,808
Construction.............................................. -- 7,544
Land...................................................... 8,840 15,270
----------- -----------
9,002,705 9,828,418
Undisbursed loan funds.................................... -- (732)
----------- -----------
Total real estate loans.............................. 9,002,705 9,827,686
----------- -----------
Equity-line loans.............................................. 110,830 408,964
Other consumer loans........................................... 60,106 82,996
Commercial loans............................................... 1,913 970
----------- -----------
Total consumer and other loans....................... 172,849 492,930
----------- -----------
Total loans receivable............................... 9,175,554 10,320,616
Deferred fees and unearned premiums (discounts)................ 19,423 (255)
Allowance for loan losses...................................... (210,484) (202,780)
Purchase accounting discounts, net............................. (153,475) (150,695)
----------- -----------
Total loans receivable, net.......................... $ 8,831,018 $ 9,966,886
----------- -----------
----------- -----------
</TABLE>
The Bank's lending activities are principally conducted in California, New
York and Florida.
As a result of the FN Acquisition, the Bank assumed obligations for certain
loans sold with recourse. The outstanding balances of loans sold with recourse
at December 31, 1995 totalled $333.2 million. The Bank evaluates the credit risk
of loans sold with recourse and, if necessary, records a liability (other
liabilities) for estimated losses related to these potential obligations. No
loans were sold with recourse during the years ended December 31, 1995, 1994 and
1993.
The following table indicates the carrying value of loans which have been
placed on nonaccrual status, excluding Covered Assets, as of the dates indicated
(in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Nonaccrual loans:
Real estate:
1-4 unit residential............. $135,710 $133,439
5+ unit residential.............. 23,253 23,543
Commercial and other............. 9,280 11,334
Land............................. 136 6,850
Construction..................... -- 2,036
-------- --------
Total real estate........... 168,379 177,202
Non-real estate....................... 3,159 4,002
-------- --------
Total nonaccrual loans...... $171,538 $181,204
-------- --------
-------- --------
</TABLE>
F-21
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) LOANS RECEIVABLE, NET--(CONTINUED)
The following table indicates the carrying value of loans classified as
troubled debt restructurings, net of purchase accounting adjustments and
excluding Covered Assets, as of December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------
1995 1994
-------- --------
<S> <C> <C>
1-4 unit residential real estate...................................... $ 8,479 $ 19,026
5+ unit residential real estate....................................... 146,971 203,742
Commercial and other real estate...................................... 79,000 110,123
-------- --------
Total restructured loans......................................... $234,450 $332,891
-------- --------
-------- --------
</TABLE>
At December 31, 1995, the Bank's loan portfolio totalling $9.2 billion is
concentrated in California. The financial condition of the Bank is subject to
general economic conditions such as the volatility of interest rates and real
estate market conditions and, in particular, to conditions in the California
residential real estate market. Any downturn in the economy generally, and in
California in particular, could further reduce real estate values. An increase
in the general level of interest rates may adversely affect the ability of
certain borrowers to pay the interest on and principal of their obligations.
Accordingly, in the event interest rates rise or real estate market values
decline, particularly in California, the Bank may find it difficult to maintain
its asset quality and may require additional allowances for loss above the
amounts currently estimated by management.
For nonaccrual loans and loans classified as troubled debt restructurings,
the following table summarizes the interest income recognized ('Recognized') and
total interest income that would have been recognized had the borrowers
performed under the original terms of the loans ('Contractual') for the years
ended December 31, 1995 and 1994 (in thousands). There were no loans classified
as troubled debt restructurings in 1993.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- -------------------------
RECOGNIZED CONTRACTUAL RECOGNIZED CONTRACTUAL
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Restructured loans.................................. $ 22,098 $33,093 $6,976 $ 8,572
Nonaccrual loans.................................... 6,136 15,329 544 3,806
---------- ----------- ---------- -----------
$ 28,234 $48,422 $7,520 $12,378
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
</TABLE>
At December 31, 1995 and 1994, respectively, the Bank and its wholly owned
subsidiary, FGB Realty Advisors, Inc., managed non-performing loan and asset
portfolios totalling $1.3 billion and $1.6 billion, respectively, for investors.
Revenues related to such activities are included in management fees in the
accompanying statements of operations.
Activity in the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance--January 1.................................................. $202,780 $ 2,250 $ 14,537
Purchases--FN Acquisition........................................... -- 201,927 --
Provision for loan losses........................................... 37,000 6,226 1,402
Allowance for losses assigned to loans sold......................... -- -- (12,918)
Charge-offs......................................................... (32,344) (9,676) (1,860)
Recoveries.......................................................... 3,048 2,053 1,089
-------- -------- --------
Balance--December 31................................................ $210,484 $202,780 $ 2,250
-------- -------- --------
-------- -------- --------
</TABLE>
F-22
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) IMPAIRED LOANS
The Company's adoption of SFAS No. 114, as amended by SFAS No. 118,
effective January 1, 1995, had no material impact on the Company's consolidated
financial statements as the Company's existing policy of measuring loan
impairment was consistent with methods prescribed in these standards.
At December 31, 1995, the carrying value of loans that are considered to be
impaired under SFAS No. 114 totalled $125.4 million (of which $29.6 million were
on nonaccrual status). The average recorded investment in impaired loans during
the year ended December 31, 1995 was approximately $125.5 million. For the year
ended December 31, 1995, the Company recognized interest income on those
impaired loans of $12.9 million, which included $.2 million of interest income
recognized using the cash basis method of income recognition.
Generally, specific allowances for loan losses relative to impaired
multi-family and commercial real estate loans, which comprised the majority of
impaired loans at December 31, 1995, have not been established, because most
would be eligible to be sold to Granite under the Put Agreement (see note 10).
There have been no significant multi-family or commercial real estate loans
originated since October 1, 1994.
(10) PUT AGREEMENT
In connection with the FN Acquisition, the Bank assumed generally the same
rights under an agreement ('Put Agreement') Old FN had with Granite Management
and Disposition, Inc. ('Granite'), an indirect subsidiary of Ford Motor, whereby
Old FN had the option to sell ('put') to Granite, on a quarterly basis, up to
approximately $500 million of certain assets, primarily non-performing
commercial real estate loans and residential mortgage loans with an original
principal balance greater than $250,000. The Put Agreement will expire upon the
earlier of (i) November 30, 1996; or (ii) the date on which the aggregate
purchase price of assets which have been 'put' to Granite equals $500 million,
including assets 'put' to Granite by Old FN under a similar agreement through
October 3, 1994. The purchase price represents the outstanding principal
balance, accrued interest and certain other expenses. The remaining balance of
the Put Agreement at December 31, 1995 was $112.4 million.
(11) RECEIVABLES FROM THE FSLIC/RF--COVERED ASSETS
Components and Coverage Periods
Covered Assets represent guaranteed amounts to be received by First
Nationwide either from the disposition of the underlying assets or from the
FSLIC/RF. During the coverage period, which varies based on the underlying
asset, First Nationwide is not subject to any loss from the disposition of such
assets other than the 10% FSLIC/RF Reimbursement.
During the coverage period, the FSLIC/RF guarantees to First Nationwide an
agreed-upon yield on Covered Assets ('Guaranteed Yield'). The Guaranteed Yield
is based on a spread that began at 2.25% over the Texas cost of funds (the
average cost of funds of all previous FSLIC-insured institutions whose main
offices are located in Texas as most recently reported by the Office of Thrift
Supervision ('TCOF')) declining to 1.50% over the TCOF over the term of the
Assistance Agreement. The TCOF was 5.63%, 4.46% and 4.07% at December 31, 1995,
1994, and 1993, respectively. The spread over the TCOF was 1.90%, 2.00% and
2.05% at December 31, 1995, 1994, and 1993, respectively.
Certain provisions of the Assistance Agreement were amended and/or modified
in January 1992. The Bank recorded a FSLIC/RF Reimbursement reserve in 1992
based on the present value of the FSLIC/RF Reimbursement amount (net of Shared
Gains) to be paid. At December 31, 1994, this reserve was reflected as a
reduction of the related Covered Assets and is evaluated periodically and
adjusted for any change in the expected amounts. The FSLIC/RF Reimbursement
reserve was fully utilized in 1995 as a result of the FDIC Purchase.
F-23
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) RECEIVABLES FROM THE FSLIC/RF--COVERED ASSETS--(CONTINUED)
In June 1995, the FDIC, as manager of the FSLIC/RF, as successor to the
FSLIC, exercised its rights under the Assistance Agreement to purchase
substantially all of the remaining Covered Assets as of June 1, 1995 at the fair
market value of such assets and further purchased additional assets from the
remaining Covered Asset portfolio in September 1995 as part of the FDIC
Purchase. Under the terms of the Capital Loss Coverage provisions of the
Assistance Agreement, losses sustained by First Nationwide from the FDIC
Purchase were reimbursed by the FSLIC/RF. At December 31, 1995, the Covered
Asset balance of $39.3 million represents amounts which remain unpaid by the
FDIC in connection with the FDIC Purchase. The FDIC has elected to treat this
amount as a Covered Asset, earning Guaranteed Yield, until such time as it is
paid to the Bank.
(12) INVESTMENT IN FHLB
The Bank's investment in FHLB stock is carried at cost. The FHLB provides a
central credit facility for member institutions. As a member of the FHLB system,
the Bank is required to own capital stock in the FHLB in an amount equal to the
greater of (i) 1% of the aggregate outstanding principal amount of its
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each calendar year, (ii) .3% of total assets, or (iii) 5% of
its advances (borrowings) from the FHLB. The Bank was in compliance with this
requirement at December 31, 1995 and 1994.
(13) OFFICE PREMISES AND EQUIPMENT, NET
Office premises and equipment, net at December 31, 1995 and 1994 is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
DEPRECIABLE
LIVES AT
1995 1994 DECEMBER 31, 1995
-------- ------- -----------------
(IN YEARS)
<S> <C> <C> <C>
Land....................................................... $ 17,952 $14,857 --
Buildings and leasehold improvements....................... 46,652 38,240 25
Furniture and equipment.................................... 37,697 25,348 10
Capitalized equipment leases............................... -- 819 --
Construction in progress................................... 2,471 2,882 --
-------- -------
104,772 82,146
Accumulated depreciation and amortization.................. (11,263) (5,623)
-------- -------
Total office premises and equipment, net........... $ 93,509 $76,523
-------- -------
-------- -------
</TABLE>
Depreciation and amortization expense of office premises and equipment for
the years ended December 31, 1995, 1994 and 1993 totalled $8.8 million, $2.5
million and $2.0 million, respectively.
Certain of the office premises and equipment included in the above table
are included in the Branch Sale Agreements, as defined and more fully described
in note 33.
First Nationwide rents certain office premises and equipment under
long-term, noncancelable operating leases expiring at various dates through
2015. Rental expense under such operating leases, included in occupancy and
equipment expense, for the years ended December 31, 1995, 1994 and 1993 totalled
$22.6 million, $4.2 million and $1.1 million, respectively. Rental income from
subleasing agreements for the years ended December 31, 1995 and 1994 totalled
$2.2 and $.4 million, respectively. At December 31, 1995, the projected
F-24
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) OFFICE PREMISES AND EQUIPMENT, NET--(CONTINUED)
minimum rental commitments, net of sublease agreements, under terms of the
leases were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
- -------------------------------------------------------------
<S> <C>
1996......................................................... $ 12,852
1997......................................................... 11,399
1998......................................................... 10,488
1999......................................................... 8,188
2000......................................................... 6,896
2001 and thereafter 11,096
----------
Total $ 60,919
----------
----------
</TABLE>
During 1995, the Bank established reserves for certain of these rental
expenses as further discussed in note 21.
The above table includes projected minimum rental commitments, net of
sublease agreements, of $2.5 million, $2.2 million, $2.0 million, $1.4 million,
$1.1 million, and $5.8 million for the years ended 1996 through 2000, and 2001
and thereafter, respectively, related to facilities included in the Branch Sale
Agreements, as defined and further described in note 33.
(14) FORECLOSED REAL ESTATE, NET
Foreclosed real estate, net, at December 31, 1995 and 1994 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
1-4 unit residential real estate........................................ $33,694 $37,396
Multifamily real estate................................................. 14,368 --
Commercial real estate.................................................. 506 --
Less allowance for losses............................................... (33) (27)
------- -------
Total foreclosed real estate, net.................................. $48,535 $37,369
------- -------
------- -------
</TABLE>
Activity in the allowance for losses on foreclosed real estate for the
years ended December 31, 1995, 1994 and 1993 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance--January 1.......................................................... $27 $223 $358
Charge-offs................................................................. (53) (248) (135)
Recoveries.................................................................. 59 52 --
---- ---- ----
Balance--December 31........................................................ $33 $ 27 $223
---- ---- ----
---- ---- ----
</TABLE>
(15) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at December 31, 1995 and 1994 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Cash and cash equivalents and securities............................... $ 4,387 $ 4,062
Mortgage-backed securities............................................. 21,200 19,268
Loans receivable, including loans held for sale........................ 75,017 64,376
-------- -------
Total accrued interest receivable................................. $100,604 $87,706
-------- -------
-------- -------
</TABLE>
F-25
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) MORTGAGE SERVICING RIGHTS
The following is a summary of activity for mortgage servicing rights
purchased ('Purchased'), originated ('Originated'), and excess servicing fees
receivable ('Excess') for the years ended December 31, 1995, 1994 and 1993 (in
thousands):
<TABLE>
<CAPTION>
PURCHASED ORIGINATED EXCESS TOTAL
-------- ---------- ------ --------
<S> <C> <C> <C> <C>
Balance at January 1, 1993................................ $ 71,951 -- $2,718 $ 74,669
Additions............................................... 1,191 -- 537 1,728
Amortization............................................ (2,123) -- (136) (2,259)
Distribution of stock of FGMH to First Gibraltar
Holdings............................................. (71,019) -- (3,119) (74,138)
-------- ---------- ------ --------
Balance at December 31, 1993.............................. -- -- -- --
Additions from FN Acquisition........................... 90,000 -- -- 90,000
Additions--other........................................ 168 -- 276 444
Amortization............................................ (3,600) -- (4) (3,604)
-------- ---------- ------ --------
Balance at December 31, 1994.............................. 86,568 -- 272 86,840
Additions from Maryland Acquisition..................... 76,369 -- -- 76,369
Additions from Lomas 1995 Purchase...................... 93,362 -- -- 93,362
Additions--other........................................ 774 $ 16,824 1,078 18,676
Amortization............................................ (33,324) (454) (114) (33,892)
-------- ---------- ------ --------
Balance at December 31, 1995.............................. $223,749 $ 16,370 $1,236 $241,355
-------- ---------- ------ --------
-------- ---------- ------ --------
</TABLE>
At December 31, 1995, 1994 and 1993, the outstanding balances of
single-family residential mortgage loan participations, whole loans and mortgage
pass-through securities serviced for other investors by FNMC totalled $27.1
billion, $7.5 billion and $0.3 billion, respectively. In addition, the loan
servicing portfolio included $3.0 billion of master servicing at December 31,
1995.
SFAS No. 122 requires enterprises to measure the impairment of servicing
rights based on the difference between the carrying amount of the servicing
rights and their current fair value. At December 31, 1995, no allowance for
impairment of the mortgage servicing rights was necessary. The estimated fair
value of the mortgage servicing rights was $307 million and $91 million at
December 31, 1995 and 1994, respectively.
At December 31, 1995 and 1994, servicing advances and other receivables
related to single-family residential mortgage loan servicing, net of valuation
allowances of $6 million and $9 million in 1995 and 1994, respectively,
(included in other assets) consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Servicing advances..................................................... $ 57,359 $16,485
Corporate advances due from banks...................................... 73,566 21,111
Other.................................................................. 35,042 1,729
-------- -------
$165,967 $39,325
-------- -------
-------- -------
</TABLE>
F-26
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) DEPOSITS
A summary of deposits and weighted average contractual interest rates at
December 31, 1995 and 1994 follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------- ---------------------
AVERAGE CARRYING AVERAGE CARRYING
RATE VALUE RATE VALUE
------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Passbook accounts...................................... 2.17% $ 663,880 2.14% $ 685,049
Demand deposits:
Interest-bearing..................................... .98 684,079 1.04 666,957
Noninterest-bearing.................................. -- 696,918 -- 351,824
Money market deposit accounts.......................... 3.14 1,443,465 3.11 1,926,851
Term accounts:
3.00% or less....................................... 2.82 2,882 2.91 45,055
3.01- 4.00%......................................... 3.68 112,564 3.57 1,050,648
4.01- 5.00.......................................... 4.65 367,247 4.52 1,596,827
5.01- 6.00.......................................... 5.49 3,053,770 5.46 1,113,486
6.01- 7.00.......................................... 6.52 1,944,418 6.42 703,933
7.01- 8.00.......................................... 7.34 935,780 7.56 371,446
8.01- 9.00.......................................... 8.47 123,293 8.45 404,859
9.01-10.00.......................................... 9.29 149,434 9.31 173,694
10.01-11.00.......................................... 10.57 3,696 10.92 49,434
11.01-12.00.......................................... 11.52 788 11.12 8,206
12.01-13.00.......................................... 12.27 1,587 12.27 1,641
------- ----------- ------- ----------
4.67% 10,183,801 4.19% 9,149,910
Accrued interest payable............................. 50,755 25,848
Purchase accounting adjustments...................... 7,072 20,898
----------- ----------
Total deposits.................................... $10,241,628 $9,196,656
----------- ----------
----------- ----------
</TABLE>
The aggregate amount of jumbo certificates of deposit (term deposits) with
a minimum denomination of $100,000 was approximately $690 million and $523
million at December 31, 1995 and 1994, respectively. Brokered certificates of
deposit totalling $965 million and $824 million were included in deposits at
December 31, 1995 and 1994, respectively.
A summary of interest expense by deposit category for the years ended
December 31, 1995, 1994 and 1993 follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Passbook accounts.................................................... $ 14,668 $ 3,843 $ 768
Interest-bearing demand deposits..................................... 6,953 1,809 879
Money market deposit accounts........................................ 50,847 16,137 5,498
Term accounts........................................................ 374,891 79,168 48,265
-------- -------- -------
$447,359 $100,957 $55,410
-------- -------- -------
-------- -------- -------
</TABLE>
F-27
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) DEPOSITS--(CONTINUED)
At December 31, 1995, term accounts had scheduled maturities as follows (in
thousands):
<TABLE>
<S> <C>
1996........................................................ $4,928,828
1997........................................................ 1,071,908
1998........................................................ 157,438
1999........................................................ 180,424
2000........................................................ 310,302
2001 and thereafter......................................... 46,559
----------
$6,695,459
----------
----------
</TABLE>
Certain of these deposits are the subject of the Branch Sale Agreements, as
defined and more fully described in note 33.
(18) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
A summary of information regarding securities sold under agreements to
repurchase collateralized with mortgage-backed securities as of December 31,
1995 and 1994 follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------------
UNDERLYING COLLATERAL REPURCHASE LIABILITY
------------------------ ----------------------
RECORDED MARKET INTEREST
VALUE (I) VALUE AMOUNT RATE
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Maturing within 30 days............................. $ 501,647 $ 511,513 $ 487,528 5.82%
Maturing 30 days to 90 days......................... 236,483 240,152 210,057 6.64
Maturing over 1 year................................ 253,363 254,502 250,000 7.63
---------- ---------- ----------
Total (ii)..................................... 991,493 1,006,167 947,585
Purchase accounting adjustment...................... 554 554 --
Accrued interest payable............................ -- -- 21,925
---------- ---------- ----------
$ 992,047 $1,006,721 $ 969,510
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
DECEMBER 31, 1994
--------------------------------------------------
UNDERLYING COLLATERAL REPURCHASE LIABILITY
------------------------ ----------------------
RECORDED MARKET INTEREST
VALUE (I) VALUE AMOUNT RATE
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Maturing within 30 days............................. $ 321,965 $ 319,249 $ 306,659 6.07%
Maturing 30 days to 90 days......................... 1,231,871 1,226,579 1,168,738 6.22
Maturing 90 days to 1 year.......................... 438,362 433,454 404,286 7.70
---------- ---------- ----------
Total (ii)..................................... 1,992,198 1,979,282 1,879,683
Purchase accounting adjustment...................... 3,078 3,078 53
Accrued interest payable............................ -- -- 3,754
---------- ---------- ----------
$1,995,276 $1,982,360 $1,883,490
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------
(i) Recorded value includes accrued interest at December 31, 1995 and 1994. In
addition, the recorded value at December 31, 1995 includes adjustments for
the unrealized gain or loss on securities available for sale pursuant to
SFAS No. 115.
(ii) Total mortgage-backed securities collateral at December 31, 1995 and 1994
includes $585 million and $876 million, respectively, in recorded value of
loans securitized with full recourse to the Bank. The market value of such
collateral was $600 million and $876 million at December 31, 1995 and 1994,
respectively.
F-28
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(18) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE--(CONTINUED)
At December 31, 1995 and 1994, these agreements had weighted average stated
interest rates of 6.48% and 6.51%, respectively. The underlying securities were
delivered to, and are being held under the control of, third party securities
dealers. These dealers may have loaned the securities to other parties in the
normal course of their operations, but all agreements require the dealers to
resell to First Nationwide the identical securities at the maturities of the
agreements. Securities sold under agreements to repurchase averaged $1.6 billion
and $499 million during 1995 and 1994, respectively, and the maximum amount
outstanding at any month-end during these periods was $2.2 billion and $1.9
billion, respectively.
(19) BORROWINGS
Borrowings at December 31, 1995 and 1994 are summarized as follows (dollars
in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------- ---------------------
CARRYING AVERAGE CARRYING AVERAGE
VALUE RATE VALUE RATE
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Fixed-rate borrowings from the FHLB..................... $1,789,811 6.68% $2,242,323 7.61%
Variable-rate borrowings from the FHLB.................. 250,000 6.02 275,000 5.93
Senior Notes............................................ 200,000 12.25 200,000 12.25
Subordinated debentures due October 2006................ 92,100 10.00 92,100 10.00
Federal funds purchased................................. 55,000 6.00 -- --
Other borrowings........................................ 3,755 7.91 4,416 7.94
---------- ------- ---------- -------
Total borrowings................................... 2,390,666 7.19 2,813,839 7.85
Accrued interest payable................................ 11,555 -- 18,635 --
Purchase accounting adjustments, net.................... (9,359) -- (23,495) --
---------- ------- ---------- -------
$2,392,862 7.19% $2,808,979 7.85%
---------- ------- ---------- -------
---------- ------- ---------- -------
</TABLE>
Maturities and weighted average stated interest rates of borrowings at
December 31, 1995, not including accrued interest payable or purchase accounting
adjustments, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
BALANCES MATURING AVERAGE RATES
MATURITIES DURING THE YEARS ---------------------- -------------
ENDING DECEMBER 31 FHLB OTHER FHLB OTHER
- ------------------------------------------------------------- ---------- -------- ---- -----
<S> <C> <C> <C> <C>
1996......................................................... $1,487,166 $ 55,236 6.12% 6.01%
1997......................................................... 240,000 213 8.61 8.10
1998......................................................... 310,000 200 7.34 8.20
1999......................................................... 250 171 7.75 8.19
2000......................................................... -- 121 -- 8.27
2001 and thereafter.......................................... 2,395 294,914 7.71 11.51
---------- -------- ---- -----
Total................................................... $2,039,811 $350,855 6.60% 10.65%
---------- -------- ---- -----
---------- -------- ---- -----
</TABLE>
Interest expense on borrowings for the years ended December 31, 1995, 1994
and 1993, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
FHLB advances......................................................... $139,051 $71,662 $15,895
Interest rate swap agreements......................................... (15,177) (8,797) --
Subordinated debentures............................................... 9,210 2,303 --
Senior Notes.......................................................... 24,500 6,150 --
Federal funds purchased............................................... 2,268 438 --
Revolving warehouse line.............................................. -- -- 1,924
Other................................................................. 1,403 332 694
Purchase accounting adjustments....................................... 21,244 7,937 --
-------- ------- -------
Total............................................................ $182,499 $80,025 $18,513
-------- ------- -------
-------- ------- -------
</TABLE>
F-29
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(19) BORROWINGS--(CONTINUED)
The following is a summary of the carrying value of assets pledged as
collateral for FHLB advances at December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Real estate loans (primarily residential)................... $1,643,971
Mortgage-backed securities.................................. 905,823
FHLB stock.................................................. 109,943
----------
Total.................................................. $2,659,737
----------
----------
</TABLE>
In connection with the FN Acquisition, FN Holdings issued $200 million
principal amount of 12-1/4% Senior Notes, including $5.5 million principal
amount of Senior Notes to certain directors and officers of the Bank. The notes
will mature on May 15, 2001 with interest payable semiannually on May 15 and
November 15. Deferred issuance costs associated with the Senior Notes' issuance
totalling $9.6 million were recorded in other assets in the 1994 consolidated
statement of financial condition and are being amortized over the term of the
Senior Notes.
The notes are redeemable at the option of the FN Holdings, in whole or in
part, during the 12-month period beginning May 15, 1999, at a redemption price
of 106.125% plus accrued interest to the date of redemption, and thereafter at
100% plus accrued interest. The notes are subordinated to all existing and
future liabilities, including deposits and other borrowings of the Bank, and to
the Preferred Stock. The terms and conditions of the Senior Notes indenture
impose restrictions that affect, among other things, the ability of FN Holdings
to incur debt, pay dividends, make acquisitions, create liens, sell assets and
make certain investments. FN Holdings was in compliance with these covenants at
December 31, 1995.
(20) INTEREST RATE SWAP AGREEMENTS
Interest rate swap agreements outstanding and their weighted average rates
at December 31, 1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
NOTIONAL AVERAGE RATE ESTIMATED
PRINCIPAL --------------- MATURITY VARIABLE
MATURITY DATE AMOUNT PAY RECEIVE IN YEARS RATE INDEX
- ------------------------------------------ ---------- ---- ------- --------- --------------
<S> <C> <C> <C> <C> <C>
April 1996................................ $ 500,000 6.04% 8.19% .26 3 month LIBOR
September 1996............................ 250,000 5.96 4.19 .71 1 month LIBOR
April 1998................................ 400,000 6.00 8.38 2.26 3 month LIBOR
----------
Total................................ $1,150,000
----------
----------
</TABLE>
Interest rate swap agreements outstanding and their weighted average rates
at December 31, 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
WEIGHTED
NOTIONAL AVERAGE RATE ESTIMATED
PRINCIPAL --------------- MATURITY VARIABLE
MATURITY DATE AMOUNT PAY RECEIVE IN YEARS RATE INDEX
- ------------------------------------------ ---------- ---- ------- --------- --------------
<S> <C> <C> <C> <C> <C>
April 1995................................ $ 500,000 5.06% 7.97% .3 3 month LIBOR
April 1996................................ 500,000 5.64 8.19 1.3 3 month LIBOR
September 1996............................ 250,000 6.14 4.19 1.8 1 month LIBOR
April 1998................................ 400,000 5.56 8.38 3.3 3 month LIBOR
----------
Total................................ $1,650,000
----------
----------
</TABLE>
The Bank uses interest rate swap agreements to hedge against interest rate
risk inherent in its FHLB advances. Under the agreements, the Bank receives or
makes payments based on the differential between fixed-rate and variable-rate
interest amounts on the notional amount of the agreement. The notional amounts
of these derivatives do not represent amounts exchanged by the parties and thus,
are not a measure of the Bank's exposure through its use of derivatives. The
Bank pays the variable-rate and receives the fixed-rate under these agreements.
The variable interest rates presented in the tables above are based on LIBOR.
The current LIBOR rates have been assumed implicitly, in the aforementioned
weighted average receive rate, to remain constant throughout the term
F-30
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(20) INTEREST RATE SWAP AGREEMENTS--(CONTINUED)
of the respective swaps. Any changes in LIBOR interest rates would affect the
variable-rate information disclosed above.
The Bank is exposed to credit-related losses in the event of nonperformance
by the counterparties to these agreements but does not expect any counterparties
to fail their obligations. The Bank deals only with highly rated counterparties.
(21) ACCRUED TERMINATION AND FACILITIES COSTS
During the year ended December 31, 1995, the Bank recognized liabilities
for certain employee severance and termination costs and facilities costs as a
result of: (i) the relocation of the Bank's mortgage loan servicing operations
to Maryland, (ii) the closure of substantially all the Bank's retail mortgage
loan production offices, (iii) a Bank-wide cost reduction project, and (iv)
branch consolidations due to duplicate facilities resulting from certain Branch
Acquisitions. These accruals have been charged to noninterest expense in the
accompanying consolidated statement of operations for the year ended December
31, 1995 as follows (in thousands):
<TABLE>
<CAPTION>
COMPENSATION
& EMPLOYEE OCCUPANCY &
BENEFITS EQUIPMENT TOTAL
------------ ----------- -------
<S> <C> <C> <C>
Servicing relocation........................................... $1,800 $ 3,913 $ 5,713
Closing loan production offices................................ 787 1,294 2,081
Cost reduction project......................................... 4,000 446 4,446
Branch consolidations.......................................... -- 532 532
------------ ----------- -------
Total liability established............................... 6,587 6,185 12,772
Charges to liability account................................... 4,374 2,239 6,613
------------ ----------- -------
Balance, December 31, 1995................................ $2,213 $ 3,946 $ 6,159
------------ ----------- -------
------------ ----------- -------
</TABLE>
As a result of the relocation of the servicing operation to Frederick,
Maryland from Sacramento, California, virtually all California-based loan
servicing employees were terminated. Termination benefits totalling
approximately $1.8 million have been charged against the liability established.
In addition, the relocation resulted in the vacancy of approximately 108,000
square feet of leased office space in Sacramento. A $3.9 million liability was
established in 1995 representing the estimated present value of future occupancy
expenses, offset by estimates of sub-lease income over the remaining six-year
term of the lease. At December 31, 1995 approximately $.9 million had been
charged against this liability.
In connection with the Bank's closure of substantially all of its retail
mortgage loan production offices, certain employees were terminated. Termination
benefits totalling approximately $.8 million have been charged against the
liability established. In addition, such closure resulted in the vacancy of 18
leased offices. The $1.3 million liability established in April 1995 represents
the estimated present value of future occupancy expenses, offset by estimates of
sub-lease income over the applicable remaining lease terms. At December 31,
1995, costs totalling approximately $.8 million had been charged against the
liability.
In connection with a project to identify opportunities for reducing
operating costs and enhancing the efficiency of its operations, management has
identified certain employees whose positions would be eliminated. These
positions span all areas and business units of the Bank. An initial liability
for termination benefits totalling $4 million was established, of which $1.8
million had been charged at December 31, 1995 relating to this plan. In
connection with the elimination of these positions, the Bank has identified
opportunities for office space consolidation and has established additional
liabilities totalling $.4 million for lease termination payments, none of which
had been charged at December 31, 1995.
The Bank has identified certain of its retail banking facilities that will
be closed and marketed for sale, with the related operations consolidated into
other retail banking facilities acquired in the Branch Acquisitions.
Accordingly, a liability of $.5 million was established during the year ended
December 31, 1995 to record such facilities at fair value, which amount had been
charged at December 31, 1995.
F-31
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(22) MINORITY INTEREST AND STOCKHOLDER'S EQUITY
In connection with the FN Acquisition, the Bank issued 3,007,300 shares of
its Preferred Stock with a par value of $.01 per share, having a liquidation
preference of $300.7 million. Such minority interest has been reflected as
'minority interest--preferred stock of First Nationwide Bank' in the
accompanying consolidated statements of financial condition. This stock has a
stated liquidation value of $100 per share. Costs related to the Preferred Stock
issuance were deducted from additional paid-in capital. At or after September 1,
1999, the Preferred Stock is redeemable at the option of the Bank, in whole or
in part, at $105.75 per share prior to September 1, 2000, and at prices which
will decrease annually thereafter to the stated liquidation value of $100 per
share on or after September 1, 2004, plus declared but unpaid dividends.
Dividends are payable quarterly at an annual rate of 11.5% per share when
declared by the Bank's Board of Directors.
'Minority interest--Hunter's Glen' represents that portion of stockholder's
equity of Parent Holdings attributable to its class B common stock, which is
owned by a limited partnership controlled by the Bank's Chairman of the Board
and Chief Executive Officer.
In connection with the FN Acquisition and the offering of the FN Holdings
Senior Notes, First Gibraltar Holdings incorporated Parent Holdings and FN
Holdings to hold 100% of the common stock of First Nationwide Bank. First
Gibraltar Holdings contributed all of its shares of capital stock of First
Nationwide Bank to Parent Holdings, which contributed such shares to FN Holdings
in exchange for 1,000 shares of common stock of FN Holdings.
In 1994, FN Holdings amended its certificate of incorporation to create 800
shares of class A common stock, having one vote per share, 200 shares of class B
common stock, having .75 votes per share, and 230.3 shares of nonvoting class C
common stock. Parent Holdings exchanged its 1,000 shares of common stock of FN
Holdings for 800 shares of class A common stock.
Pursuant to the terms of an exchange agreement between FN Holdings, the
Bank's Chairman and Parent Holdings (the 'Exchange Agreement'), and in
connection with the consummation of the FN Acquisition, FN Holdings issued 100%
of its class C common stock to Parent Holdings for approximately $210.4 million,
and the Bank's Chairman acquired 100% of the class B common stock of FN
Holdings, in exchange for his 6.25% of the class A common stock of First
Gibraltar Holdings.
As a result of the consummation of the transactions contemplated by the
Exchange Agreement, the Bank's Chairman owned 100% of the class B common stock
of FN Holdings, representing 20% of its voting common stock (representing
approximately 15% of the voting power of its common stock), and Parent Holdings
owns (i) 100% of the class A common stock of FN Holdings, representing 80% of
its voting common stock (representing approximately 85% of the voting power of
its common stock) and (ii) 100% of the class C common stock of FN Holdings. On
December 29, 1995. The Bank's Chairman transferred his shares of class B common
stock to Hunter's Glen.
No dividend will be payable on the class A common stock or the class B
common stock of FN Holdings as long as any shares of the class C common stock
remain outstanding. The portion of FN Holdings' net income that is attributable
to the class C common stock for a given period equals dividends accrued on the
class C common stock for such period. The remaining portion of such earnings are
allocated 80% to the class A common stock and 20% to the class B common stock.
Dividends accrued on FN Holdings' class C common stock for 1995 approximated
$24.2 million.
(23) REGULATORY CAPITAL
As a savings institution which is regulated by the OTS, the Bank is
required to comply with capital requirements of the OTS. These regulations
require savings institutions to maintain minimum regulatory tangible capital
equal to 1.5% of adjusted total assets and minimum core capital equal to 3.0% of
adjusted total assets. Additionally, savings institutions are required to meet a
risk-based total capital requirement of 8.0%. At December 31, 1995, the Bank's
regulatory capital levels exceeds the minimum regulatory capital requirements.
F-32
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(24) FINANCIAL ASSISTANCE PROVIDED BY FSLIC/RF
Financial assistance provided pursuant to the Assistance Agreement for the
years ended December 31, 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
ACTUAL FSLIC/RF GUARANTEED
1995 YIELD ASSISTANCE YIELD
- -------------------------------------------------------------------- ------- -------- ----------
<S> <C> <C> <C>
Yield maintenance on Covered Assets:
Loans and accounts receivable..................................... $ 7,572 $ (213) $ 7,359
Investments in and advances to subsidiaries....................... (63) 283 220
Real estate owned................................................. (1,890) 5,016 3,126
------- -------- ----------
$ 5,619 5,086 $ 10,705
------- ----------
------- ----------
FSLIC/RF Reimbursement.............................................. --
--------
Total effect of FSLIC/RF assistance on the consolidated statement of
operations........................................................ $ 5,086
--------
--------
FDIC Purchase proceeds, write-downs, losses on Covered Assets and
other claims...................................................... $236,378
--------
--------
<CAPTION>
ACTUAL FSLIC/RF GUARANTEED
1994 YIELD ASSISTANCE YIELD
- -------------------------------------------------------------------- ------- -------- ----------
<S> <C> <C> <C>
Yield maintenance on Covered Assets:
Loans and accounts receivable..................................... $21,573 $ (5,543) $ 16,030
Investments in and advances to subsidiaries....................... (473) 1,178 705
Real estate owned................................................. (1,561) 14,817 13,256
------- -------- ----------
$19,539 10,452 $ 29,991
------- ----------
------- ----------
FSLIC/RF Reimbursement.............................................. (1,060)
--------
Total effect of FSLIC/RF assistance on the consolidated statement of
operations........................................................ $ 9,392
--------
--------
Write-downs and losses on Covered Assets and other claims........... $ 71,220
--------
--------
</TABLE>
<TABLE>
<CAPTION>
ACTUAL FSLIC/RF GUARANTEED
1993 YIELD ASSISTANCE YIELD
- -------------------------------------------------------------------- ------- -------- ----------
<S> <C> <C> <C>
Yield maintenance on Covered Assets:
Loans and accounts receivable..................................... $27,458 $(4,884) $ 22,574
Investments in and advances to subsidiaries....................... (4,488) 6,029 1,541
Real estate owned................................................. 4,953 19,897 24,850
Other............................................................. 35 128 163
------- -------- ----------
$27,958 21,170 $ 49,128
------- ----------
------- ----------
FSLIC/RF Reimbursement.............................................. (5,694)
--------
Total effect of FSLIC/RF assistance on the consolidated statement of
operations........................................................ $15,476
--------
--------
Write-downs and losses on Covered Assets and other claims........... $28,076
--------
--------
</TABLE>
F-33
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(25) OTHER NONINTEREST INCOME AND EXPENSE
Other noninterest income and expense amounts are summarized as follows for
the years ended December 31, 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Other noninterest income:
Dividends on FHLB stock.............................................. $ 6,546 $ 3,186 $ 1,438
Disbursement float................................................... 2,622 943 149
Other................................................................ 8,759 3,423 4,638
------- ------- -------
$17,927 $ 7,552 $ 6,225
------- ------- -------
------- ------- -------
Other noninterest expense:
Professional fees.................................................... $11,802 $ 2,622 $ 5,906
Telephone............................................................ 7,652 2,134 737
Insurance and surety bonds........................................... 4,005 2,321 2,370
Postage.............................................................. 6,856 1,535 801
Printing, copying and office supplies................................ 6,096 2,057 1,103
Employee travel...................................................... 5,244 1,249 449
Other................................................................ 30,876 9,375 14,438
------- ------- -------
$72,531 $21,293 $25,804
------- ------- -------
------- ------- -------
</TABLE>
(26) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1995,
1994 and 1993 was allocated as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
Income before income taxes, extraordinary item and minority interest..... $(57,185) $2,558 $2,500
Extraordinary item....................................................... 221 119 --
Net unrealized holding gain on securities available for sale............. 7,055 -- --
-------- ------ ------
$(49,909) $2,677 $2,500
-------- ------ ------
-------- ------ ------
</TABLE>
Income tax expense (benefit) attributable to income before income taxes,
extraordinary item and minority interest for the years ended December 31, 1995,
1994 and 1993, consisted of (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
Federal
Current................. $ 285 $ -- $2,500
Deferred................ (69,000) -- --
-------- ------ ------
(68,715) 2,500
-------- ------ ------
State and local
Current................. 11,530 -- --
Deferred................ -- 2,558 --
-------- ------ ------
11,530 2,558 --
-------- ------ ------
$(57,185) $2,558 $2,500
-------- ------ ------
-------- ------ ------
</TABLE>
F-34
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(26) INCOME TAXES--(CONTINUED)
The consolidated income tax expense (benefit) for the years ended December
31, 1995, 1994 and 1993 differs from the amounts computed by applying the
statutory U.S. Federal corporate tax rate of 35% for 1995, 1994 and 1993 to
income before income taxes, extraordinary item and minority interest (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Computed 'expected' income tax expense................................ $ 42,858 $11,175 $51,316
Increase (decrease) in taxes resulting from:
State income taxes, net of Federal income tax benefit............... 7,495 1,740 --
Tax exempt income................................................... (2,636) (3,493) (5,679)
Amortization of excess cost over fair value of net assets
acquired......................................................... -- -- 164
Earnings from nonconsolidated subsidiaries.......................... -- -- (11,825)
Loss on sales of real estate owned, net of income earned............ -- -- (2,193)
Gain on sales of assets and deposits due to goodwill................ -- -- 19,152
Reduction of net operating losses related to subsidiary............. -- -- 12,214
Adjustment to prior year's tax expense.............................. (1,675) -- --
Adjustment to deferred tax asset.................................... 7,644 -- --
Unrealized holding gain on securities available for sale recognized
for tax purposes................................................. 15,937 -- --
Other............................................................... (1,747) 306 390
Change in the beginning-of-the-year balance of the valuation
allowance for deferred tax assets allocated to income tax
expense.......................................................... (125,061) (7,170) (61,039)
-------- ------- -------
$(57,185) $ 2,558 $ 2,500
-------- ------- -------
-------- ------- -------
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income before income taxes, extraordinary item and minority
interest for the years ended December 31, 1995, 1994 and 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ -------
<S> <C> <C> <C>
Deferred tax expense (exclusive of the effects of other components
listed below)........................................................ $ 56,061 $9,728 $61,039
Decrease in beginning-of-the-year balance of the valuation allowance
for deferred tax assets.............................................. (125,061) (7,170) (61,039)
-------- ------ -------
$(69,000) $2,558 $ --
-------- ------ -------
-------- ------ -------
</TABLE>
F-35
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(26) INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................ $ 920,300 $ 938,153
Foreclosed real estate.......................................... -- 8,209
Loans receivable................................................ 6,868 62,833
Securities...................................................... -- 3,850
Miscellaneous reserves.......................................... 11,842 5,538
Accrued liabilities............................................. 12,675 1,354
Deferred interest............................................... 4,552 --
State taxes..................................................... 4,243 1,101
Other intangible assets......................................... 47,169 27,498
Alternative minimum tax credit and investment tax credit
carryforwards................................................ 2,932 3,290
Other........................................................... 8,174 4,116
---------- ----------
Total gross deferred tax assets.............................. 1,018,755 1,055,942
Less valuation allowance..................................... (810,459) (936,242)
---------- ----------
Net deferred tax assets...................................... 208,296 119,700
---------- ----------
Deferred tax liabilities:
Change in accounting method..................................... 35,043 46,725
Other intangible assets......................................... 41,651 --
Purchase accounting adjustments................................. 56,319 64,684
FHLB stock...................................................... 2,610 3,297
Unrealized gains on securities available for sale............... 2,503 --
Other........................................................... 3,673 4,994
---------- ----------
Net deferred tax liabilities................................. 141,799 119,700
---------- ----------
Net deferred tax assets and liabilities...................... $ 66,497 $ --
---------- ----------
---------- ----------
</TABLE>
The net change in the total valuation allowance for the year ended December
31, 1995 was a decrease of $125.8 million, of which $125.1 million is
attributable to income before income taxes, extraordinary item, and minority
interest and $.7 million is attributable to the extraordinary item. The decrease
of $125.1 million attributable to income before income taxes, extraordinary item
and minority interest consists of $69 million relating to the favorable
reassessment, in the fourth quarter of 1995, of future earnings expectations and
$56.1 million relating to the current year. The valuation allowance for deferred
tax assets at January 1, 1994 was approximately $943.8 million. The net change
in the total valuation allowance for the year ended December 31, 1994 was a
decrease of $7.6 million.
During the fourth quarter of 1995, FN Holdings recognized a deferred tax
benefit of $69 million. Realization of the resulting net deferred tax asset is
dependent upon generating sufficient taxable income prior to expiration of the
net operating loss carryforwards. Although realization is not assured,
management believes it is more likely than not that all of the net deferred tax
asset will be realized. The amount of the net deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
At December 31, 1995, if Parent Holdings had filed a consolidated Federal
income tax return with its subsidiaries, it would have had regular and
alternative minimum tax net operating loss carryforwards of approximately $2.6
billion and $992 million, respectively, which expire in 2002 through 2007.
F-36
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(27) EMPLOYEE BENEFIT PLANS
Postretirement Benefits Plan
In connection with the FN Acquisition, the Bank assumed unfunded plans to
provide postretirement medical benefits to certain eligible employees and their
dependents through age 64. In general, early retirement is age 55 with 10 years
of service. Retirees participating in the plans pay Consolidated Omnibus Budget
Reduction Act ('COBRA') premiums for the period of time they participate.
The estimated cost for postretirement health care benefits has been accrued
on an actuarial net present value basis, in accordance with the requirements of
Statement of Financial Accounting Standards No. 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions.'
The following table sets forth the plans' combined liabilities included in
the Bank's consolidated statement of financial condition at December 31, 1995
and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $ -- $ --
Eligible active plan participants.................... 1,177 713
Ineligible active plan participants.................. 1,719 1,164
------ ------
Accumulated postretirement benefit
obligation (other liabilities).................. $2,896 $1,877
------ ------
------ ------
</TABLE>
The projected benefit obligation at December 31, 1995 and 1994 was
determined using a discount rate of 8.00% and 8.75%, respectively. At December
31, 1995, an increase of 1% in the health care cost trend rate would cause the
accumulated postretirement benefit obligation to increase by $.1 million, and
the service and interest costs to increase by less than $.1 million.
Net periodic postretirement benefits cost for the years ended December 31,
1995 and 1994 included the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Service cost--benefits attributable to service during
the current period...................................... $340 $ 78
Interest cost on the accumulated postretirement
benefit obligation...................................... 163 37
---- ----
Periodic postretirement benefit cost................. $503 $115
---- ----
---- ----
</TABLE>
The initial health care cost trend rate for medical benefits in 1995 was
9.50%, and the average trend rate was 7.32% and the ultimate trend rate was
5.50% which will be reached in seven years. In 1994, the initial health care
cost trend rate for medical and dental benefits were 10% and 8%, respectively,
and the average trend rate used was 7.5%, with an ultimate trend rate of 6.0%,
to be achieved in ten years.
Investment Plan
In connection with the FN Acquisition, the Bank assumed Old FN's defined
contribution plan. Effective December 31, 1994, the Bank resolved to merge these
plans. The merger was completed in February 1995 upon completion of the transfer
of all funds to the surviving plan. Both plans are qualified plans under Section
401(a) of the Internal Revenue Code. The plan is available to substantially all
employees with at least one year of employment. Employee contributions are
voluntary. The plan provides for deferral of up to 12% of qualifying
compensation of plan participants. The Bank's matching contribution was a
maximum of 100% of up to the first 3% of employee deferrals. The annual
discretionary employer profit sharing contribution is a
F-37
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(27) EMPLOYEE BENEFIT PLANS--(CONTINUED)
maximum of 3% of eligible compensation. It can be declared at any level in the
range from 0% to 3%. Employees vest immediately in their own deferrals and any
employer profit sharing contributions and vest in employer matching
contributions based on completed years of service. The Bank's contributions to
such plan totalled $2.8 million, $1.5 million, and $.65 million for the years
ended December 31, 1995, 1994 and 1993, respectively.
(28) INCENTIVE PLAN
Effective October 1, 1995, FN Holdings entered into a management incentive
plan ('Plan') with certain executive officers of the Bank ('Participants').
Awards under the Plan will be made in the form of performance units. Each
performance unit entitles Plan Participants to receive cash and/or stock options
('Bonuses') based upon the Participants' vested interest in a bonus pool.
Generally, the Plan provides for the payment of Bonuses, on a quarterly basis,
to the Participants upon the occurrence of certain events. Bonuses vest at 20%
per year beginning October 1, 1995 and are subject to a cap of $50 million.
In accordance with generally accepted accounting principles, Bonuses are
recorded by a charge to compensation and employee benefits and an increase to
other liabilities. During 1995, a liability of $2 million was recorded relative
to the Plan.
(29) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various commitments and
contingent liabilities that are not reflected in the accompanying consolidated
financial statements. Loan commitments have off-balance sheet credit risk
because only origination fees and accruals for possible losses are recognized in
the consolidated statement of financial condition until the commitments are
fulfilled. Credit risk represents the accounting loss that would be recognized
at the reporting date if counterparties failed to perform as contracted. The
credit risk amounts are equal to the contractual amounts, assuming the amounts
are fully advanced and that, in accordance with Statement of Financial
Accounting Standards No. 105, 'Disclosure of Information about Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentrations of Credit Risk,' collateral or other security is of no value. The
Bank does not anticipate any material loss as a result of these commitments. The
Bank applies the same credit standards used in the lending process to extending
these commitments, and periodically reassesses the customers' credit worthiness
through ongoing credit reviews.
The following is a summary of outstanding firm commitments to originate,
purchase and sell loans at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Commitments to originate and purchase loans:
Variable-rate.................................... $101,355 $81,230
Fixed-rate....................................... 325,199 29,583
Forward commitments to sell loans.................. 572,363 33,255
-------- -------
-------- -------
</TABLE>
On September 28, 1994, First Nationwide entered into an agreement with FNMA
pursuant to which FNMA provided credit enhancements for certain bond-financed
real estate projects originated by Old FN. The agreement requires that First
Nationwide pledge to FNMA collateral in the form of certain eligible securities
which are held by a third party trustee. The collateral requirement varies based
on the balance of the bonds outstanding, losses incurred (if any), as well as
other factors. At December 31, 1995, First Nationwide had pledged as collateral
certain securities available for sale and short-term investment securities with
a carrying value of $98.6 million.
At December 31, 1995, certain mortgage-backed securities available for sale
with a carrying value of $39.0 million were pledged to FNMA associated with the
sales of certain securitized multi-family loans.
F-38
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(29) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
At December 31, 1995, loans receivable included approximately $2.0 billion
of loans that had the potential to experience negative amortization.
Proposed budget reconciliation legislation that contains provisions to
recapitalize the SAIF has been passed by Congress. The legislation includes
provisions for a special assessment, as determined by the FDIC, on SAIF-
assessable deposits of insured depository institutions in an amount adequate to
cause the SAIF to achieve a specified designated reserve ratio. Under the
proposed legislation, the assessment would have been due January 1, 1996. The
FDIC has publicly estimated that the amount of the special assessment needed to
recapitalize the SAIF ranges between 85 to 90 basis points.
The legislation provides that the assessment would be applied to SAIF
deposits held as of March 31, 1995. The SAIF-assessable deposits of the Bank as
of this date, adjusted for the deposit acquisitions and sales discussed in notes
2 and 33, totalled approximately $8.9 billion. If the assessment is made at a
rate within the estimated range of 85 to 90 basis points, after giving effect to
the deposit acquisitions and sales discussed in notes 2 and 33, the effect on
the Bank would be a pre-tax charge in the range of $75 to $80 million ($68 to
$72 million on an after-tax basis), and an increase in core deposit and other
intangible assets of $29 to $31 million (unaudited). It is expected that in the
event that the SAIF is recapitalized pursuant to this legislation, the
assessment rates applicable to SAIF-assessable deposits will be reduced
substantially from the Bank's current rate of 23 cents. The proposed legislation
includes additional provisions that, among other things, would require BIF
member institutions to share pro rata in the obligations of SAIF members for
certain obligations issued by the Financing Corporation, a corporation
established by the federal government in 1987 to finance the recapitalization of
FSLIC. The President has vetoed this budget reconciliation bill. Such veto,
however, was based on issues unrelated to the provisions dealing with
recapitalization of the SAIF. Congress and the President are in negotiations
that will affect the outcome of the legislation. The Bank is unable to predict
whether such legislation will be enacted.
First Nationwide is involved in various claims and lawsuits arising from
the December 28, 1988 acquisition of five savings associations located in Texas.
Under the terms of the Assistance Agreement, FSLIC/RF will indemnify First
Nationwide for any amounts incurred in connection with the satisfaction,
settlement or compromise of such previous claims and lawsuits, including costs
and expenses.
With respect to the FN Acquisition, First Nationwide and Old FN disagree on
two components of the purchase price paid for the FN Acquired Business, which
total approximately $28 million. This $28 million is carried in other assets in
the Bank's consolidated statement of financial condition. The more significant
of the two issues in dispute arises from Old FN's change in net book value from
January 1, 1994, to the close of business on September 30, 1994. In arriving at
the cash purchase price, Old FN added back to the book value of the purchased
assets an amount of approximately $24 million which had been amortized from
intangible assets and goodwill for the period from January 1, 1994 through
September 30, 1994, thereby increasing the estimated cash purchase price by $24
million. First Nationwide believes that the exclusion of the amortization of
intangible assets and goodwill from the closing net book value is contrary to
the express provisions of the Asset Purchase Agreement. As a result, First
Nationwide does not believe that the addition by Old FN of $24 million to the
cash purchase price was proper under the terms of the Asset Purchase Agreement.
First Nationwide and Old FN commenced the arbitration in December 1995. Although
management of First Nationwide believes that it will prevail on this issue, in
the event that First Nationwide does not so prevail, the result would not be
material to the consolidated financial statements of First Nationwide.
The other remaining issue in dispute relates to an outstanding receivable
account, which the Bank maintains was overstated by approximately $4 million by
Old FN at September 30, 1994. Resolution of this issue remains outstanding.
Although management of the Bank believes that it will prevail on this issue, in
the event that it does not do so, the result would not be material to the
consolidated financial statements of First Nationwide.
F-39
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(29) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
In addition, First Nationwide is involved in various claims and lawsuits
arising in the ordinary course of business. Management is of the opinion that
the effect, if any, of these claims and lawsuits is not material to the Bank's
consolidated financial statements.
(30) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1995 and 1994 (in thousands).
Statement of Financial Accounting Standards No. 107, 'Disclosures of Financial
Instruments,' defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents......................... $ 312,571 $ 312,571 $ 184,982 $ 184,982
Securities available for sale..................... 1,826,075 1,826,075 45,000 45,000
Securities held to maturity....................... 1,455 1,455 411,859 409,398
Mortgage-backed securities held to maturity....... 1,524,488 1,567,197 3,153,812 3,095,994
Loans held for sale............................... 1,203,412 1,209,302 26,354 26,354
Loans receivable, net............................. 8,831,018 8,971,983 9,966,886 9,832,003
Covered assets.................................... 39,349 39,349 311,603 311,603
Investment in FHLB................................ 109,943 109,943 128,557 128,557
Accrued interest receivable....................... 100,604 100,604 87,706 87,706
Financial Liabilities:
Deposits.......................................... 10,241,628 10,283,600 9,196,656 9,140,000
Securities sold under agreements to
repurchase..................................... 969,510 978,700 1,883,490 1,883,490
Borrowings:
Gross.......................................... 2,409,166 2,464,431 2,853,369 2,624,000
Interest rate swap agreements(1)............... (16,304) (32,000) (44,390) (27,000)
----------- ----------- ----------- -----------
Total borrowings............................. $ 2,392,862 $ 2,432,431 $ 2,808,979 $ 2,597,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Off-balance-sheet net unrealized gains (losses):
Commitments to originate loans.................... $ 1,691 $ --
Forward commitments to sell loans................. (2,757) 56
</TABLE>
- ------------------
(1) Designated as a hedge against FHLB advances.
The carrying amounts in the table are included in the accompanying
consolidated statement of financial position under the indicated captions,
except for off-balance sheet net unrealized gains (losses).
The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active markets do not exist. Therefore, considerable judgement was
required in estimating fair value for certain items. The subjective factors
include, among other things, the estimated timing and amount of cash flows, risk
characteristics, and interest rates, all of which are subject to changes.
F-40
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(30) FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Cash and cash equivalents: Cash and cash equivalents are valued at their
carrying amounts included in the consolidated statement of financial condition,
which are reasonable estimates of fair value due to the relatively short period
to maturity of the instruments.
Securities and mortgage-backed securities: Securities and mortgage-backed
securities are valued at quoted market prices where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.
Loans held for sale: Loans held for sale are valued based on quoted market
prices for mortgage-backed securities backed by similar loans.
Loans receivable, net: Fair values are estimated for loans in groups with
similar financial and risk characteristics. Loans are segregated by type
including residential, multi-family and commercial. Each loan type is further
segmented into fixed and variable interest rate terms and by performing and
non-performing categories in order to estimate fair values.
For performing residential mortgage loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources. The fair value of performing
commercial and multi-family loans is calculated by discounting scheduled
principal and interest cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the respective loan type.
Fair value for non-performing loans is based on discounting estimated cash
flows using a rate commensurate with the risk associated with the estimated cash
flows, or underlying collateral values, where appropriate.
Covered Assets: Since the carrying value of Covered Assets is fully
guaranteed by the FSLIC Resolution Fund, fair value of these financial
instruments approximates the carrying value.
Investment in FHLB: Since no secondary market exists for FHLB stock and
the stock is bought and sold at par by FHLB, fair value of these financial
instruments approximates the carrying value.
Accrued interest: The carrying amounts of accrued interest approximate
their fair values.
Deposits: The fair values of demand deposits, passbook accounts, money
market accounts, and other deposits immediately withdrawable, by definition,
approximate carrying values for the respective financial instruments. For fixed
maturity deposits, the fair value was estimated by discounting expected cash
flows by the current offering rates of deposits with similar terms and
maturities.
Securities sold under agreements to repurchase: The fair value of
securities sold under agreements to repurchase is estimated using a discounted
cash flow analysis based on interest rates currently offered on such repurchase
agreements with similar maturities.
Borrowings: The fair value of borrowings, other than FHLB advances, is
estimated using discounted cash flow analyses based on current incremental rates
for similar borrowing arrangements. The fair values of FHLB advances are
estimated using a discounted cash flow analysis based on interest rates
currently offered on advances with similar maturities. Fair values of the Bank's
interest rate swap agreements, which effectively hedge certain of the Bank's
FHLB advances, are based on the net present value of the estimated interest due
to the Bank as compared to the estimated interest due to the counterparties of
the agreements.
Off-balance sheet financial instruments: Fair values of the Bank's
commitments to originate loans is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. Fair value of forward
commitments to sell loans are determined using current estimated replacement
costs.
F-41
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(31) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents selected quarterly financial data for the
years ended December 31, 1995 and 1994 (in thousands) (unaudited):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1995 1995 1995 1995 TOTAL
------------ ------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Total interest income...................... $ 277,679 $ 270,583 $ 268,127 $ 259,456 $ 1,075,845
Total interest expense..................... (185,619) (184,751) (185,237) (179,208) (734,815)
------------ ------------- --------- --------- -----------
Net interest income...................... 92,060 85,832 82,890 80,248 341,030
Provision for loan losses.................. (19,000) (6,000) (5,799) (6,201) (37,000)
------------ ------------- --------- --------- -----------
Net interest income after provision for
loan losses........................... 73,060 79,832 77,091 74,047 304,030
Total noninterest income................... 45,717 35,636 38,595 31,025 150,973
Total noninterest expense.................. (82,725) (76,973) (92,520) (80,335) (332,553)
------------ ------------- --------- --------- -----------
Income before income taxes, extraordinary
item and minority interest............ 36,052 38,495 23,166 24,737 122,450
Income taxes (See note 26)................. 64,614 (4,005) (2,743) (681) 57,185
------------ ------------- --------- --------- -----------
Income before extraordinary item and
minority interest..................... 100,666 34,490 20,423 24,056 179,635
Extraordinary item......................... -- -- -- 1,967 1,967
------------ ------------- --------- --------- -----------
Income before minority interest.......... 100,666 34,490 20,423 26,023 181,602
Minority interest--First Nationwide Bank
preferred stock dividend................. (8,646) (8,646) (8,646) (8,646) (34,584)
Minority interest--Hunter's Glen........... (17,335) (4,016) (1,089) (2,114) (24,554)
------------ ------------- --------- --------- -----------
Net income (loss)........................ $ 74,685 $ 21,828 $ 10,688 $ 15,263 $ 122,464
------------ ------------- --------- --------- -----------
------------ ------------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
1994 1994 1994 1994 TOTAL
------------ ------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Total interest income...................... $ 252,220 $ 12,856 $ 13,307 $ 14,756 $ 293,139
Total interest expense..................... (169,434) (9,385) (10,325) (10,701) (199,845)
------------ ------------- --------- --------- -----------
Net interest income...................... 82,786 3,471 2,982 4,055 93,294
Provision for loan losses.................. (6,226) -- -- -- (6,226)
------------ ------------- --------- --------- -----------
Net interest income after provision for
loan losses.............................. 76,560 3,471 2,982 4,055 87,068
Total noninterest income................... 28,651 4,174 4,634 3,699 41,158
Total noninterest expense.................. (74,401) (7,059) (7,279) (7,559) (96,298)
------------ ------------- --------- --------- -----------
Income before income taxes, extraordinary
item and minority interest............ 30,810 586 337 195 31,928
Income taxes............................... (2,558) -- -- -- (2,558)
------------ ------------- --------- --------- -----------
Income before extraordinary item and
minority interest..................... 28,252 586 337 195 29,370
Extraordinary item......................... (119) -- 1,495 -- 1,376
------------ ------------- --------- --------- -----------
Income before minority interest.......... 28,133 586 1,832 195 30,746
Minority interest--Hunter's Glen........... (4,259) -- -- -- (4,259)
------------ ------------- --------- --------- -----------
Net income............................... $ 23,874 $ 586 $ 1,832 $ 195 $ 26,487
------------ ------------- --------- --------- -----------
------------ ------------- --------- --------- -----------
</TABLE>
F-42
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(32) CONDENSED PARENT COMPANY FINANCIAL INFORMATION
The following represents condensed statements of financial condition of the
Company (parent company only) at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Investment in FN Holdings....................................................... $462,416 $352,872
-------- --------
Total assets.................................................................. $462,416 $352,872
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY
Minority interest--Hunter's Glen................................................ $ 58,261 $ 23,205
Stockholder's equity............................................................ 404,155 329,667
-------- --------
Total liabilities and stockholder's equity.................................... $462,416 $352,872
-------- --------
-------- --------
</TABLE>
The following represents parent company only condensed statements of
operations for the years ended December 31, 1995, 1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Dividends received from FN Holdings.................................. $ 89,986 $ -- $136,210
-------- ------- --------
Income before equity in undistributed net income
of FN Holdings..................................................... 89,986 -- 136,210
Equity in undistributed net income of FN Holdings.................... 57,032 30,746 7,908
-------- ------- --------
Income before minority interest...................................... 147,018 30,746 144,118
Minority interest--Hunter's Glen..................................... 24,554 4,259 --
-------- ------- --------
Net income...................................................... $122,464 $26,487 $144,118
-------- ------- --------
-------- ------- --------
</TABLE>
The following represents parent company only statements of cash flows for
the years ended December 31, 1995, 1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................................... $122,464 $ 26,487 $144,118
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Minority interest--Hunter's Glen................................. 24,554 4,259 --
Equity in undistributed net income of FN Holdings................ (57,032) (30,746) (7,908)
-------- --------- --------
Net cash flows provided by (used in) operating activities..... 89,986 -- 136,210
-------- --------- --------
Cash flows from investing activities:
Acquisition of FN Holdings' class C common stock................. -- (210,376) --
-------- --------- --------
Net cash flows used in investing activities................... -- (210,376) --
-------- --------- --------
Cash flows from financing activities:
Capital contribution............................................. -- 210,376 --
Dividends........................................................ (89,986) -- (136,210)
-------- --------- --------
Net cash flows (used in) provided by financial activities..... (89,986) 210,376 (136,210)
-------- --------- --------
Net change in cash and cash equivalents............................ -- -- --
Cash and cash equivalents at beginning of year..................... -- -- --
-------- --------- --------
Cash and cash equivalents at end of year........................... $ -- $ -- $ --
-------- --------- --------
-------- --------- --------
</TABLE>
F-43
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(33) SUBSEQUENT EVENTS (UNAUDITED)
Lomas 1996 Purchase
On January 31, 1996, FNMC consummated an agreement to purchase LMUSA's
remaining $14.1 billion loan servicing portfolio (including a sub-servicing
portfolio of $2.4 billion), a master servicing portfolio of $2.7 billion, $5.9
million in foreclosed real estate, $45.3 million in net other servicing
receivables, $5.8 million in mortgage loans, $6.2 million in net other assets
for a purchase price of approximately $160.8 million payable in installments
(the 'Lomas 1996 Purchase'). The initial installment of $49.8 million was paid
with existing cash.
SFFed Acquisition
On August 27, 1995 the Bank entered into an Agreement and Plan of Merger
(the 'Merger Agreement') with SFFed Corp. ('SFFed'), a savings and loan holding
company, pursuant to which the Bank acquired (the 'SFFed Acquisition') SFFed and
its wholly owned federal savings association, San Francisco Federal Savings and
Loan Association ('San Francisco Federal'). San Francisco Federal operated 35
branches in the Northern California area. At December 31, 1995, San Francisco
Federal had approximately $4.0 billion in assets and approximately $2.7 billion
in deposits.
The SFFed Acquisition was consummated on February 1, 1996. Under the Merger
Agreement, holders of SFFed common stock outstanding at the effective time of
the merger (other than shares for which dissenter's rights were perfected,
shares held by First Nationwide and shares held as treasury stock) received $32
per share. The holders of options on the common stock of SFFed received for each
share subject to an option the difference between $32 and the applicable per
share option price. The aggregate consideration paid under the Merger Agreement
was approximately $264 million. Following completion of the SFFed Acquisition,
SFFed was liquidated and San Francisco Federal was merged into First Nationwide.
The Bank financed the SFFed Acquisition with existing cash and other borrowings
which may ultimately be replaced by proceeds from the sale of certain
mortgage-backed securities or other assets.
Issuance of Senior Subordinated Notes
On January 31, 1996, FN Holdings issued $140 million of its 9-1/8% Senior
Subordinated Notes Due 2003. On February 1, 1996, FN Holdings contributed the
net proceeds of such offering totalling $133 million in cash as additional
paid-in capital to the Bank to ensure that the Bank retains its
'well-capitalized' status upon consummation of the SFFed Acquisition and Lomas
1996 Purchase described in the preceding paragraphs.
Pending Acquisition--Home Federal
On December 19, 1995, the Bank entered into a merger agreement with Home
Federal Financial Corporation ('HFFC'), pursuant to which the Bank will acquire
(the 'Home Federal Acquisition') HFFC and its wholly owned federally chartered
savings association subsidiary, Home Federal Savings and Loan Association of San
Francisco ('Home Federal'). At December 31, 1995, HFFC had approximately $718
million in assets and $625 million in deposits and operated 15 branches in the
Northern California area. The aggregate consideration to be paid in connection
with the Home Federal Acquisition is estimated to approximate $70.6 million. The
Home Federal Acquisition is subject to approval by HFFC's shareholders and
regulatory approval by the Office of Thrift Supervision, and is expected to
close in the second quarter of 1996.
F-44
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(33) SUBSEQUENT EVENTS (UNAUDITED)--(CONTINUED)
Branch Sales
From September through December of 1995, the Bank entered into the
following agreements (the 'Branch Sale Agreements') to sell retail deposits
('Deposits') and the related retail banking assets comprised of cash on hand,
loans on deposits and facilities ('Related Assets') in Ohio, New York, New
Jersey and Michigan as follows:
<TABLE>
<CAPTION>
CARRYING VALUE AT
DECEMBER 31, 1995
DATE OF NUMBER OF GENERAL ----------------------------
PURCHASER AGREEMENT BRANCHES LOCATION DEPOSITS RELATED ASSETS
- --------------------------------- --------- --------- --------------- ---------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Fifth Third Bank of Northeastern
Ohio........................... 9/22/95 28 Ohio $1,414,695 $ 18,480
North Fork Bank.................. 9/28/95 10 Long Island, 602,014 8,222
New York
Middletown Savings Bank.......... 9/29/95 8 Upstate 485,975 5,594
New York
Independence Savings Bank........ 10/11/95 3 Brooklyn, 330,073 3,308
New York
Republic National Bank........... 10/31/95 3 Manhattan, 282,580 1,795
New York
Midlantic Bank................... 11/3/95 4 New Jersey 509,597 5,556
Independence Savings Bank........ 11/15/95 2 Staten Island, 286,723 3,718
New York
Charter One Bank................. 12/14/95 21 Michigan 783,965 12,667
---------- --------------
Total....................... $4,695,622 $ 59,340
---------- --------------
---------- --------------
</TABLE>
The premiums to be paid by the purchasers in these transactions total
approximately $367 million. These sales are subject to regulatory approval and
are expected to close during the first half of 1996.
As of March 8, 1996, the Bank has consummated the sale of 43 branches
pursuant to the Branch Sale Agreements, totalling $2.1 billion and $28.1 million
in carrying value of Deposits and Related Assets at their respective sale dates,
respectively. The Bank financed these sales through additional borrowings from
the FHLB and reverse repurchase agreements. Through March 8, 1996, pre-tax gains
totalling $181 million have been recognized in connection with these
transactions.
Loans to Affiliate
On March 1, 1996, the Company extended a loan to an affiliate in the amount
of $46.8 million.
F-45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
First Nationwide Bank, A Federal Savings Bank and
First Madison Bank, FSB
We have audited the accompanying consolidated statements of financial condition
of the acquired business of First Nationwide Bank ('the Acquired Business'), as
of December 31, 1993, and the related consolidated statements of operations,
equity, and cash flows for each of the two years in the period ended December
31, 1993. The historical financial statements of First Nationwide Bank ('Old
FNB') are the responsibility of the management of Old FNB. The assumptions
discussed in Note 1 under 'Basis of Presentation' (to the extent related to the
Asset Purchase Agreement, as defined therein, and the transactions contemplated
thereby) used in preparing the accompanying consolidated financial statements of
the Acquired Business are the responsibility of the management of First Madison
Bank. Our responsibility is to express an opinion on the financial statements of
the Acquired Business based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Acquired
Business, at December 31, 1993, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
1993, in conformity with generally accepted accounting principles and the basis
of presentation discussed in Note 1.
As discussed in Notes 16 and 18 to the consolidated financial statements, the
Acquired Business changed its method of accounting for income taxes and
postretirement health benefits in 1992.
COOPERS & LYBRAND LLP
San Francisco, California
May 10, 1994
F-46
<PAGE>
THE ACQUIRED BUSINESS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1993
------------
<S> <C>
ASSETS
Cash and amounts due from depository institutions $ 230,624
Other short-term investment securities............................................................. 40,000
------------
Total cash and cash equivalents............................................................... 270,624
Investment securities, net (approximate market value $377 million in 1993)......................... 376,429
Mortgage-backed securities, net (approximate market value $1.8 billion in 1993).................... 1,776,140
Loans receivable, net.............................................................................. 11,408,852
Loans and investment securities held for sale, net 155,316
Accrued interest receivable........................................................................ 84,835
Property acquired in settlement of loans, net 63,851
Investment in Federal Home Loan Bank system, at cost 152,629
Office premises and equipment, net................................................................. 108,711
Real estate held for investment and sale, net...................................................... 9,691
Goodwill........................................................................................... 216,777
Other assets....................................................................................... 282,632
------------
Total Assets.................................................................................. $ 14,906,487
------------
------------
<CAPTION>
LIABILITIES AND EQUITY
<S> <C>
Liabilities:
Customer deposit................................................................................. $ 10,561,620
Securities sold under agreements to repurchase................................................... 835,341
Other borrowings................................................................................. 2,477,615
Advance payments by borrowers.................................................................... 45,056
Accounts payable and accrued liabilities......................................................... 82,196
------------
Total Liabilities............................................................................. 14,001,828
Contingent Liabilities............................................................................. --
Equity............................................................................................. 904,659
------------
Total Liabilities and Equity.................................................................. $ 14,906,487
------------
------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-47
<PAGE>
THE ACQUIRED BUSINESS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1993 1992
---------- ----------
<S> <C> <C>
Interest and Dividend Income:
Real estate loans................................................................... $ 891,588 $1,179,468
Mortgage-backed securities.......................................................... 80,458 64,059
Consumer and other loans............................................................ 42,437 51,230
FSLIC/RF notes and investment securities............................................ 32,395 105,226
Short-term investment securities.................................................... 20,101 36,387
Receivable/Transferred Asset........................................................ 18,062 65,050
FSLIC/RF yield maintenance and net earnings on unconsolidated subsidiaries.......... -- 7,742
---------- ----------
Total interest and dividend income............................................... 1,085,041 1,509,162
Interest Expense:
Customer deposits................................................................... 482,431 755,480
Securities sold under agreements to repurchase...................................... 12,730 5,370
Short-term borrowings............................................................... 370 3,396
Other borrowings.................................................................... 133,125 176,547
---------- ----------
Total interest expense........................................................... 628,656 940,793
---------- ----------
Net interest income................................................................... 456,385 568,369
Provision for loan losses............................................................. 81,506 85,228
---------- ----------
Net interest income after provision for loan losses................................... 374,879 483,141
Other Income:
Mortgage banking operations, net.................................................... 14,795 40,941
Customer banking fees............................................................... 52,104 37,558
Other loan fees and charges......................................................... 14,044 13,307
Net gain (loss) on sales of:
Customer deposits................................................................ 22,281 527
Investment securities............................................................ 109 7,921
Consumer loans................................................................... 1,105 (3,094)
Other assets..................................................................... (1,547) (18,959)
Real estate operations, net........................................................... (3,578) (1,330)
Provision for losses on foreclosed property........................................... (45,110) (80,654)
Other................................................................................. 90,389 50,635
---------- ----------
Total other income............................................................... 144,592 46,852
Other Expense:
Compensation and benefits........................................................... 142,568 158,857
Premises and equipment.............................................................. 73,242 92,967
SAIF insurance premiums............................................................. 31,820 36,036
Communications...................................................................... 15,327 18,919
Marketing and advertising........................................................... 8,928 14,949
Goodwill amortization............................................................... 16,945 20,496
Other general and administrative.................................................... 43,033 79,377
---------- ----------
Total other expense.............................................................. 331,863 421,601
---------- ----------
Earnings (loss) before income taxes and cumulative effect of accounting changes....... 187,608 108,392
Federal and state income tax expense (benefit)........................................ 40,408 (27,451)
---------- ----------
Earnings before cumulative effect of accounting changes............................... 147,200 135,843
Cumulative effect of accounting changes, net of income taxes.......................... -- 10,128
---------- ----------
Net Earnings.......................................................................... $ 147,200 $ 145,971
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-48
<PAGE>
THE ACQUIRED BUSINESS
CONSOLIDATED STATEMENTS OF EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY OF
ACQUIRED BUSINESS
-----------------
<S> <C>
Balance--December 31, 1991....................... 960,863
Capital contribution............................. 40,625
Cash dividends paid.............................. (240,000)
Net earnings..................................... 145,971
-----------------
Balance--December 31, 1992....................... 907,459
Cash dividends paid.............................. (150,000)
Net earnings..................................... 147,200
-----------------
Balance--December 31, 1993....................... $ 904,659
-----------------
-----------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-49
<PAGE>
THE ACQUIRED BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1992
----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS AT JANUARY 1................................................. $ 2,142,498 $ 596,993
Cash Flows From Operating Activities:
Net earnings......................................................................... 147,200 145,971
Adjustments to reconcile net earnings to net cash provided by operating activities:
Cumulative effect of accounting changes............................................ -- (10,128)
Provisions for losses.............................................................. 126,616 168,083
Depreciation and amortization...................................................... 99,886 105,831
Accretion of fees and discounts and amortization of premiums....................... (14,718) (60,006)
Gain on sales of loans, mortgage-backed securities and investment securities....... (5,917) (22,872)
Provision for deferred income taxes................................................ (14,156) (50,747)
Mortgage banking activities:
Loans originated or purchased for resale......................................... (2,129,216) (2,588,452)
Proceeds from sales of loans held for sale....................................... 2,189,480 2,665,227
Changes in assets and liabilities:
Decrease in accounts payable and accrued liabilities............................. (178,637) (232,050)
Decrease in accrued interest receivable.......................................... 17,089 44,262
Increase (decrease) in accrued interest payable.................................. 17,134 (48,688)
Decrease (increase) in accounts receivable....................................... 3,796 (53,873)
Other............................................................................ 157,803 295,100
----------- -----------
Net cash provided by operating activities........................................ 416,360 357,658
Cash Flows From Investing Activities:
Principal payments, net of originated loans.......................................... 480,730 806,826
Proceeds from sales of loans and mortgage-backed securities.......................... 71,485 321,164
Principal payments on mortgage-backed securities..................................... 318,965 203,224
Purchases of loans and mortgage-backed securities.................................... (985,881) (583,925)
Decrease (increase) in receivable/transferred assets................................. 330,011 778,239
Changes in real estate held for investment and sale and property acquired in
settlement of loans:
Acquisitions and improvements...................................................... (93) --
Sales and disposals, net........................................................... 238,884 407,903
Proceeds from FDIC settlement:
FSLIC/RF notes and accrued interest................................................ -- 2,177,708
Repurchase of assets and other settlement proceeds................................. 357,480 933,848
Changes in investment securities:
Purchases.......................................................................... (66,654) (1,329,820)
Maturities and sales............................................................... 234,432 1,332,671
Purchases and sales of premises and equipment, net................................... 27,115 8,505
Other................................................................................ 7,590 50,182
----------- -----------
Net cash provided by investing activities............................................ 1,014,064 5,106,525
----------- -----------
Cash Flows From Financing Activities:
Change in customer deposits, net..................................................... (1,576,627) (2,834,312)
Sale of customer deposits............................................................ (2,180,768) (24,599)
Purchase of customer deposits........................................................ 233,111 --
Principal payments on borrowings..................................................... (929,231) (1,110,777)
Net increase (decrease) in short-term borrowings..................................... 785,432 (15,000)
Proceeds from issuance of borrowings................................................. 524,708 284,045
Capital contributions................................................................ -- 40,625
Cash dividends paid.................................................................. (150,000) (240,000)
Other................................................................................ (8,923) (18,660)
----------- -----------
Net cash used by financing activities................................................ (3,302,298) (3,918,678)
----------- -----------
Net (decrease) increase in cash and cash equivalents................................. (1,871,874) 1,545,505
----------- -----------
CASH AND CASH EQUIVALENTS AT DECEMBER 31............................................. $ 270,624 $ 2,142,498
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-50
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--STATEMENT OF ACCOUNTING POLICIES
Basis of Presentation:
First Nationwide Bank, A Federal Savings Bank ('Old FNB') is a federally
chartered capital stock savings bank. Old FNB is a wholly-owned subsidiary of
First Nationwide Financial Corporation ('FNFC') which, in turn, is a
wholly-owned subsidiary of Ford Motor Company ('Ford'). On April 14, 1994, the
'Asset Purchase Agreement' between First Madison Bank, FSB ('First Madison') and
Old FNB was executed. Pursuant to this agreement, Old FNB agreed to sell
substantially all of its assets and liabilities to First Madison with the
exception of certain excluded asset and liability amounts as defined in the
agreement. The excluded assets include, principally, certain commercial and
other mortgages, investments in certain subsidiaries, foreclosed commercial real
estate, and real estate held for development. Certain liabilities, principally
amounts due to affiliated companies and income taxes payable as of December 31,
1993, were also excluded.
The excess of assets over liabilities acquired by First Madison from Old
FNB represents only a portion of the assets and liabilities of Old FNB.
Accordingly, the stockholder's equity section of Old FNB has been eliminated and
replaced with 'equity of the Acquired Business.'
These financial statements have been prepared in connection with this Asset
Purchase Agreement. They represent the historical financial statements of Old
FNB adjusted to eliminate the impact of the excluded assets and liabilities on
the financial position and the results of operations and cash flows for all
years presented. In addition, certain assets (including their impact on the
results of operations and cash flows which were transferred to FNFC in
contemplation of this sale, principally real estate held for development,
non-performing commercial and multi-family mortgages, and a portfolio of
mortgage derivative securities, have been eliminated for all periods presented.
The adjustments to 1992 financial statements also reflect a reduction in
long-term debt (to the extent such debt was eventually paid down when such
assets were transferred) and an increase in an interest bearing
Receivable/Transferred Asset corresponding to the amount transferred. Interest
income (based on the interest rate of investments maturing within one year) and
interest expense (based on the actual rates associated with the debt reduced)
also reflect this adjustment. The resulting entity is referred to herein as the
Acquired Business.
Below is a discussion of the various assets transferred to FNFC and its
subsidiaries.
On June 30, 1993, Old FNB sold approximately $34 million of foreclosed real
estate assets to FN Development Company, Delta ('FND-Delta'), a wholly-owned
subsidiary of FNFC, at net book value.
On December 30, 1993, Old FNB sold approximately $466 million of commercial
and multi-family real estate loans, foreclosed real estate assets and real
estate development assets to Granite Management and Disposition, Inc. ('GMD'), a
subsidiary of FNFC, Epsilon Properties Inc., a wholly-owned subsidiary of GMD,
and FND-Delta, a subsidiary of FNFC, at net book value.
On October 31, 1992, Old FNB sold approximately $453 million of real estate
development assets to FNFC at their net book value.
In September 1992, Old FNB sold approximately $318 million of mortgage
derivative securities to FNFC at a sales price equal to book value of the
securities.
Below is a summary of the impact on the net earnings of Old FNB for the
years ending December 31, 1993 and 1992 related to both the excluded net assets
and transferred assets.
<TABLE>
<CAPTION>
ADJUSTMENTS ADJUSTMENTS NET EARNINGS
RELATED TO RELATED TO FOR THE
NET EARNINGS EXCLUDED NET TRANSFERRED ACQUIRED
FOR THE YEAR ENDED (LOSS) OF OLD FNB ASSETS ASSETS BUSINESS
- ------------------------------------------ ----------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
1993...................................... $82,563 $ 30,542 $ 34,095 $147,200
1992...................................... $(7,928) $ 43,167 $ 110,732 $145,971
</TABLE>
F-51
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--STATEMENT OF ACCOUNTING POLICIES--(CONTINUED)
Regulatory Requirements:
FNB is subject to regulation by the Federal Deposit Insurance Corporation
('FDIC') and the OTS, an office of the Department of the Treasury.
As a member of the Federal Home Loan Bank System ('FHLB'), savings and
loans are required to maintain an investment in the capital stock of the Federal
Home Loan Banks. The investment is carried at cost. Savings and loans also
maintain insurance on customer deposit accounts with the Savings Association
Insurance Fund ('SAIF'), which requires semi-annual payments of deposit
insurance premiums. Savings and loans are required by the Federal Reserve Bank
to maintain non-interest bearing cash reserves equal to a percentage of certain
deposits. The average reserve balance for the Acquired Business was $54 million
in 1993.
Principles of Consolidation:
The consolidated financial statements of the Acquired Business include the
accounts of its wholly-owned subsidiaries, FNB Mortgage Corp. ('FNBMC'), FN
Projects, Inc., FN Investment Center, Trans Network Insurance Services, D.L.
Equity Corporation and Master Mortgage Company. All material intercompany
accounts and transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Statement of Cash Flows:
For purposes of reporting cash flows, cash and cash equivalents include
cash due from depository institutions, U.S. Government and agency securities,
federal funds sold, securities purchased under agreements to resell, and highly
liquid short-term debt securities. At December 31, 1993, other short-term
investment securities included $40 million of federal funds sold with a weighted
average interest rate of 2.75%. Cash equivalents include short-term investments
with remaining terms to maturity of three months or less from the date of
acquisition. Other short-term investment securities include substantially all
cash balances held in other financial institutions which exceed existing deposit
insurance coverage.
For purposes of reporting cash flows, short-term investments have an
original term to maturity of three months or less. Cash flows from financial
instruments that are accounted for as hedges of identifiable transactions are
classified in the same category as the cash flows from the items being hedged.
Disclosures About Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107 ('SFAS No.107'),
'Disclosures about Fair Value of Financial Instruments', requires the disclosure
in the financial statements, or notes thereto, of fair value information for
financial instruments, as defined, whether or not recognized in the balance
sheet, for which it is practical to estimate fair value. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instruments. SFAS No. 107 excludes
certain financial instruments and all nonfinancial instruments from disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent and should not be construed to represent, the full underlying value of
the Acquired Business.
Investment Securities:
Investment securities are stated at cost, net of any unamortized premiums
or discounts. The Acquired Business has the ability to hold these assets to
maturity. Premiums and discounts on these securities are amortized over the
expected life of the underlying securities using methods approximating the
interest method.
F-52
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--STATEMENT OF ACCOUNTING POLICIES--(CONTINUED)
Investment securities identified as being held for sale are stated at the lower
of amortized cost or market value. Gains or losses on the sale of such
securities are based on the specific identification method.
Fair value of investment securities is determined by reference to quoted
market prices, if available. If quoted market prices are not available, fair
value is estimated using quoted market prices for similar securities. For short-
term investments, the carrying amount is a reasonable estimate of fair value.
Mortgage-backed Securities:
Mortgage-backed securities are stated at cost, net of any unamortized
premiums and discounts. The Acquired Business has the ability to hold these
assets to maturity. Premiums and discounts on these securities are amortized
over the expected life of the underlying mortgages using methods approximating
the interest method. A portion of the mortgage-backed securities portfolio
resulted from the securitization of certain qualifying mortgage loans in the
Acquired Business' portfolio. Gains or losses on the sale of mortgage-backed
securities are based on the specific identification method.
For mortgage-backed securities, fair value is determined by reference to
quoted market prices, if available. If quoted market prices are not available,
fair value is estimated using quoted market prices for similar securities.
Loans Receivable:
Loans receivable are recorded at cost, net of discounts and premiums,
undisbursed loan funds, advances to borrowers for taxes and insurance, net
deferred fees and allowance for loan losses. The Acquired Business holds loans
receivable primarily for investment purposes and has both the intent and ability
to hold these loans until maturity. Unforeseen circumstances may arise in the
future that would cause the sale of loans prior to their maturity. The Acquired
Business' real estate loan portfolio consists primarily of long-term loans
(15-30 years) secured by first trust deeds on 1 to 4 unit residences,
multi-family property, commercial property, and land. The Acquired Business also
makes first and second trust deed loans with shorter terms.
A significant portion of the Acquired Business' real estate loan portfolio
is comprised of adjustable-rate mortgages. The interest rate and payment terms
of these mortgages adjust on a periodic basis in accordance with various
published indices. The majority of these adjustable-rate mortgages have terms
which limit the amount of interest rate adjustment that can occur each year and
over the life of the mortgage. During periods of limited payment increases,
negative amortization may occur on certain adjustable-rate mortgages.
The Acquired Business' loan portfolio also includes consumer and commercial
loans that are collateralized by passbook accounts, mobile homes, recreational
vehicles, motor vehicles and other non-real estate commercial assets. Finance
charges included in consumer loans receivable are deferred and amortized into
income over the term of the loan except in the case of delinquent installments
for which collection is not reasonably assured.
The fair value of performing loans has been estimated by discounting future
cash flows using interest rates that consider the current credit and interest
rate risk inherent in the loans, and current economic and lending conditions. In
general, the fair value of nonperforming loans has been estimated using
management's current estimate of future cash flows from the underlying
collateral discounted at a rate commensurate with the risks of the specific
property identified.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee by the customer. Since some of the commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements.
Interest income is accrued based on the outstanding principal amount of
loans and their contractual terms. Loans are generally placed on non-accrual
status when the borrowers are contractually past due 90 days and
F-53
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--STATEMENT OF ACCOUNTING POLICIES--(CONTINUED)
when payment in full of principal or interest is not expected. The accrual of
interest is discontinued and any accrued and unpaid interest is reversed out of
current income when the loans are placed on non-accrual status. Such interest,
if ultimately collected, is credited to interest income in the period of
recovery.
Loan Fees:
The Acquired Business charges fees for originating loans. Loan origination
fees, net of direct underwriting and closing costs, are deferred and amortized
to interest income using the interest method over the contractual term of the
loans, adjusted for actual loan prepayment experience. Unamortized fees on loans
sold or paid in full are recognized as income. Adjustable-rate loans with lower
initial interest rates during the introductory period result in the amortization
of a substantial portion of the net deferred fee during the introductory period.
Other loan fees and charges, which represent income from the prepayment of
loans, delinquent payment charges, and miscellaneous loan services are
recognized as income when collected.
Allowance for Loan Losses:
The Acquired Business charges current earnings with a provision for
estimated credit losses on loans receivable. The provision considers both
specifically identified problem loans and credit risks not specifically
identified in the loan portfolio. The allowance for loan losses takes into
consideration numerous factors including the financial condition of the
borrowers, the fair value of collateral, recourse to guarantors, the estimated
net cost of holding and maintaining properties and collateral prior to the
anticipated date of sale, analysis of delinquency trends, geographic and
collateral-type concentrations and past loss experience. The allowance also
considers the ability of the Acquired Business to 'put' $500 million of
non-performing and classified assets to an affiliate of FNB (also, see Note 10).
Losses are charged to the allowance when the loan is considered uncollectible or
at the time of foreclosure. Recoveries on receivables and loans previously
charged-off as uncollectible are credited to the allowance for loan losses.
Mortgage Banking Activities:
The Acquired Business sells whole loans and participating interests in
whole loans. The Acquired Business is also active in the creation of
mortgage-backed securities through the securitization of the loans it
originates. Mortgage banking activities are undertaken to generate fee income,
to effectively manage the Acquired Business' interest rate risk levels, overall
funding requirements and to meet certain regulatory requirements and
limitations.
During the loan origination process, loans and unfunded loan commitments
identified as held for investment are recorded at cost; loans and commitments to
fund loans identified for sale are carried at the lower of aggregate cost or
market value on an aggregate basis. Commitments to purchase or sell loans are
included in determining aggregate cost or market value. In general, the Acquired
Business originates fixed rate loans and fixed rate mortgage-backed securities
for sale in the secondary market. Adjustable rate loans and mortgage-backed
securities are originated primarily for investment purposes and the Acquired
Business has both the intent and ability to hold them until maturity. In certain
instances, fixed rate loans are held for investment purposes and adjustable rate
loans and mortgage-backed securities originated are identified as being held for
sale.
Forward loan sale commitments are contracts for delayed delivery of
mortgage-backed securities in which the seller agrees to make delivery at a
specified future date of a specified instrument, at a specified price or yield.
The Acquired Business uses forward loan sale commitments in its mortgage banking
operations to reduce the interest rate risk on unfunded fixed rate loan
commitments before they are sold in the secondary market. This action is taken
to effectively manage the total interest rate risk levels of the Acquired
Business' asset/liability structure.
F-54
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--STATEMENT OF ACCOUNTING POLICIES--(CONTINUED)
Gains or losses resulting from loan and mortgage-backed securities sales
are recognized at time of sale based on the difference between the net sales
proceeds and the net carrying value of the loans or interests sold. When the
rights to service the underlying loans are retained, the cash gain or loss is
adjusted based on the net present value of the expected amounts to be received
or paid. The Acquired Business calculates these amounts by comparing the
contractual interest rates to be paid by the borrowers and the interest rates to
be paid to the investors, less an amount equal to the present value of a normal
servicing fee. The resulting deferred premium is amortized to income over the
estimated remaining servicing lives of the loans sold using the interest method,
adjusted for actual and anticipated prepayments.
Loans and mortgage-backed securities may be sold with limited recourse
obligations. The credit risk associated with these limited recourse obligations
is generally less than the credit risk the Acquired Business would have had if
it held the loans in its own portfolio.
Real Estate Held for Investment and Sale:
Real estate held for investment and sale consists of partnership
investments which are accounted for by the equity method. Valuation allowances
for estimated losses on real estate are provided when the cost exceeds net
realizable value. Net realizable value is based on current market conditions and
estimated sales values of similar properties, less estimated holding costs to
anticipated date of sale. Net income from real estate operations includes net
gains from the sale of real estate partnerships, equity in net earnings or
losses from real estate partnerships, and provisions for estimated losses. FNFC
has guaranteed First Madison collection on $5.5 million of the December 31,
1993, balance in real estate held for investment and sale.
Property Acquired in Settlement of Loans:
Property acquired in settlement of loans is recorded at the lower of cost
or fair value less estimated disposal costs at the time of foreclosure.
Subsequent to foreclosure, the Acquired Business charges current earnings with a
provision for estimated losses when the carrying value of the collateral
property exceeds its estimated fair value. Net operating income or loss from the
properties is recorded in other income.
Interest Rate Exchange Agreements:
The Acquired Business enters into interest rate exchange agreements to
assist in matching interest expense on specific interest-bearing liabilities
with the interest rate adjustments of specific interest-earning assets. These
agreements may consist of interest rate swaps, interest rate caps and interest
rate options. Interest rate swaps are agreements in which the Acquired Business
and third parties agree to exchange interest payments (one at a variable rate,
the other at a fixed rate) on notional principal amounts. Interest rate caps are
agreements under which the Acquired Business will receive interest payments from
third parties if interest rates exceed certain agreed upon rates on notional
amounts. Interest rate options are contracts that allow the holder of the option
to purchase or sell a financial instrument at a specified price within a
specified period of time from the seller or 'writer' of the option.
The effect on interest expense relating to payments or receipts from
interest rate exchange agreements is recognized currently. Gains or losses at
early termination of these agreements are deferred and amortized to income or
expense over the shorter of the original maturity of the agreement or the
maturity of the hedged assets or liabilities. Fees paid, if any, are amortized
on a straight-line basis over the term of the agreement.
For purposes of calculating fair values under FASB 107, the fair value of
interest rate exchange agreements is the estimated amounts that the Acquired
Business would receive or pay to terminate the agreements at the reporting date,
taking into consideration current interest rates and the current
creditworthiness of the exchange agreement counterparties.
F-55
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--STATEMENT OF ACCOUNTING POLICIES--(CONTINUED)
Office Premises and Equipment:
Premises, equipment, leasehold improvements and capitalized software are
stated at cost, less accumulated depreciation and amortization. Premises,
equipment, leasehold improvements and capitalized software are depreciated or
amortized on a straight-line basis over the lesser of the lease term or the
estimated useful lives of the various classes of assets. Maintenance and repairs
on premises and equipment are charged to expense in the period incurred.
From time to time, the Acquired Business designates certain owned and
leased office facilities as surplus facilities no longer needed to support
ongoing business operations. Valuation allowances are established to adjust the
net carrying value of surplus office facilities to the lower of aggregate cost
or market value.
Financial Instruments with Off-Balance-Sheet Risk:
The Acquired Business is a party to financial instruments with
off-balance-sheet risk in the normal course of business and to meet the
financial needs of its customers. These financial instruments include
commitments to extend credit, options written, regular and standby letters of
credit, interest rate exchange agreements, and forward commitments to purchase
or sell loans, investment securities or mortgage-backed securities. These
instruments may involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statements of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Acquired Business has in particular classes of
financial instruments.
The Acquired Business generally uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments, which may require that it obtain collateral that will reduce its
exposure to credit loss. The Acquired Business' exposure to credit loss, in the
event of nonperformance by the other party to the financial instrument, for
commitments to extend credit, and regular and standby letters of credit is
represented by the difference between the contractual commitment amount of those
instruments and the fair value of the collateral. If there is no collateral, or
if the underlying collateral is determined to have little or no value, or the
Acquired Business is not able to obtain possession of the collateral, the
maximum exposure to credit loss is represented by the contractual commitment.
For interest rate exchange transactions, forward commitments, and options
written, the risk associated with these instruments arises from movements in
interest rates and dealing with counterparties and their ability to meet the
terms of the contracts. The notional principal amounts often are used to express
the volume of these transactions, but the amounts subject to credit risk are
much smaller. The Acquired Business controls the credit risk of its interest
rate exchange agreements and forward commitments through credit approvals,
limits, and monitoring procedures.
The market risk associated with the forward sale of unfunded loan
commitments used in the Acquired Business' mortgage banking operations occurs
when the estimated amount of the unfunded loan commitments is not the same as
the outstanding forward commitments to sell loans and mortgage-backed securities
and from the possible inability of counterparties to meet the terms of their
contracts. An increase in interest rates may cause greater than expected
fundings on loan commitments. This could result in a loss since the unsold loans
not covered by forward sale commitments would be required to be adjusted to the
lower of aggregate cost or market value. A decrease in interest rates may cause
lower than expected fundings on loan commitments. This could result in a loss
equal to the fee paid to satisfy the unfulfilled forward sale commitment. The
fair value of commitments to originate, purchase or sell loans and
mortgage-backed securities is estimated using the difference between current
levels of interest rates and the committed rates.
Goodwill and Intangible Assets:
Goodwill resulting from acquisitions is $217 million at December 31, 1993.
A portion of this amount totalling $176 million, is amortized on the
straight-line method over a period of approximately 25 years. The remaining
goodwill of $41 million is amortized using the interest method over the
estimated composite remaining
F-56
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--STATEMENT OF ACCOUNTING POLICIES--(CONTINUED)
life of the long-term, interest-earning assets acquired, which is approximately
7 years. The Acquired Business periodically evaluates its goodwill for possible
impairment based on expected net earnings, on an undiscounted basis, over the
remaining life of the goodwill.
Identified intangible assets totalling $75 million at December 31, 1993
resulting from certain acquisitions are amortized using the straight-line method
over an estimated remaining composite life of approximately 5 years. Core
deposit intangible assets totalling $8 million at December 31, 1993 are
amortized using the interest method over an estimated remaining composite life
of approximately 7 years.
Securities Sold Under Agreements of Repurchase:
The Acquired Business enters into sales of securities under agreements to
repurchase ('reverse repurchase agreements'). Reverse repurchase agreements are
treated as financings, and the obligations to repurchase securities sold are
reflected as liabilities in the statements of financial condition. The
securities underlying the reverse repurchase agreements are carried as assets.
Income Taxes:
Old FNB and its subsidiaries are included with FNFC and Ford in filing
consolidated income tax returns. Income taxes have been computed on the separate
results of the Acquired Business and its subsidiaries based on the provisions of
Old FNB's tax sharing agreements with FNFC and Ford. The federal tax sharing
agreements generally provide that the Acquired Business will be charged or
reimbursed based on the tax effects of its earnings or losses in the
consolidated returns. The state tax sharing agreements provide that charges or
reimbursements will be allocated as if Old FNB and its subsidiaries filed state
taxes on a separate return basis. Deferred income taxes reflect the estimated
future tax effects of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws and regulations. The recoverability of deferred tax assets is evaluated on
a consolidated basis with FNFC and Ford.
New Accounting Standards:
In May 1993, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards No. 114 ('SFAS No. 114'),
'Accounting by Creditors for Impairment of a Loan'. The standard requires that
impaired loans be measured based on the present value of expected cash flows
discounted at the loan's effective interest rate. The Acquired Business does not
plan to adopt this standard until January 1, 1995.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115 ('SFAS No. 115'), 'Accounting for Certain Investments in Debt and Equity
Securities'. The standard establishes financial accounting and reporting
requirements for investments in equity securities (excluding those accounted for
under the equity method and investments in consolidated subsidiaries) that have
readily determinable fair values and for all investments in debt securities. The
Acquired Business adopted SFAS No. 115 in 1994. The impact of adoption was not
material.
NOTE 2--RECEIVABLES FROM THE FSLIC/RF
In 1988, FNFC and Old FNB acquired several financial institutions in
federally assisted acquisitions. All of the acquired institutions were either
immediately or subsequently merged with and into the Acquired Business. In
connection with the acquisitions, FNFC and Old FNB entered into various
assistance agreements with the FSLIC Resolution Fund ('FSLIC/RF'), a special
fund administered by the FDIC. Under the terms of the assistance agreements, the
FSLIC/RF provided Old FNB with assistance payments consisting primarily of
interest payments on FSLIC/RF notes, and yield maintenance and loss protection
on certain underperforming and other assets including investments in
unconsolidated subsidiaries of the acquired savings and loan institutions. This
revenue
F-57
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--RECEIVABLES FROM THE FSLIC/RF--(CONTINUED)
provided reimbursement for interim losses without which the assets could not
have been acquired economically. The FSLIC/RF notes were issued to FNFC and Old
FNB at the time of the acquisitions in an amount generally equal to the tangible
negative net worth of the acquired institutions' assets after reflecting the
fair value or mark to market adjustments on certain assets and liabilities.
Effective June 30, 1992, FNFC and Old FNB entered into a settlement
agreement with the FDIC Manager ('FDIC') which covered the remaining active
assistance agreements with the FSLIC/RF. In accordance with the terms of the
settlement agreement, the FDIC prepaid approximately $2.2 billion in FSLIC/RF
notes and related accrued interest. In addition, the FDIC paid $0.9 billion
primarily for the repurchase of certain covered assets. The FDIC and Old FNB
also reached agreement on certain federal and state tax issues associated with
the covered assets and related assistance payments. There was no gain or loss
recognized on the settlement. The agreement also provided for various options
related to the treatment of approximately $490 million of covered assets.
Effective January 31, 1993, FNFC and Old FNB reached a final settlement
with the FDIC concerning these remaining covered assets. As part of the final
settlement, Old FNB received the book value of these remaining covered assets.
With the exception of certain indemnity and audit provisions, the 1992 and
1993 settlement agreements with the FDIC effectively terminate the remaining
active assistance agreements with the FSLIC/RF. Management believes there will
be no adjustments material to the financial statements from the resolution of
the final audit. Future assistance payments from the FSLIC/RF are curtailed.
Certain previously received assistance payments may be recognized as revenue
when the final audits of the assistance agreements and associated payments are
completed and remaining issues resolved.
During 1993, approximately $72 million of FSLIC/RF assistance was
recognized in other income. The amount of FSLIC/RF assistance recognized as
revenue by the Acquired Business in 1992 is reflected in the statement of
operations as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1992
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Interest and Dividend Income:
FSLIC/RF notes and investment securities........... $ 63,417
Real estate loans.................................. 36,873
Mortgage-backed securities......................... (1,439)
Consumer and other loans........................... (327)
FSLIC/RF yield maintenance on unconsolidated
subsidiaries....................................... 25,518
-----------
124,042
Other Income:
Net gain on sales of investment securities......... 44,812
Other.............................................. 40,585
-----------
85,397
-----------
Total........................................... $209,439
-----------
-----------
</TABLE>
F-58
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INVESTMENT SECURITIES
Investment securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
--------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government and agency obligations.............. $ 191,166 $ 698 $ 15 $191,849
Collateralized mortgage obligations................. 182,947 440 852 182,535
Municipal securities................................ 2,316 -- -- 2,316
--------- ---------- ---------- ------------
Total investment securities.................... $ 376,429 $1,138 $867 $376,700
--------- ---------- ---------- ------------
--------- ---------- ---------- ------------
</TABLE>
The weighted average interest rate on investment securities was 5.11% at
December 31, 1993. Non-taxable interest recognized on municipal securities
during 1993 and 1992 was $0.7 million and $1 million, respectively.
At December 31, 1993 investment securities at amortized cost and estimated
market value, have scheduled maturities as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------
ESTIMATED WEIGHTED
AMORTIZED MARKET AVERAGE
COST VALUE YIELD
--------- --------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
U.S. Government and agency securities:
Maturing within 1 year.............................................. -- -- --
Maturing after 1 year but within 5 years............................ $ 191 $ 191 4.17%
Maturing after 5 years but within 10 years.......................... -- -- --
Maturing after 10 years............................................. -- 1 14.00
--------- ---------
191 192 4.19
--------- ---------
Collateralized mortgage obligations:
Maturing within 1 year.............................................. 1 2 8.92
Maturing after 1 year but within 5 years............................ 174 173 5.38
Maturing after 10 years............................................. 8 8 7.00
--------- ---------
183 183 5.48
--------- ---------
Municipal securities:
Maturing after 1 year but within 5 years............................ 1 1 8.25
Maturing after 5 years but within 10 years.......................... -- -- --
Maturing after 10 years............................................. 1 1 8.25
--------- ---------
2 2 8.25
All other securities maturing within 1 year........................... -- -- --
--------- ---------
Total............................................................ $ 376 $ 377 4.83
--------- ---------
--------- ---------
</TABLE>
Proceeds from sales of investments in debt securities during 1993 were $41
million, of which $32 million, were related to the sales of investments in debt
securities covered for loss by the FSLIC/RF. There were no material gains or
losses on the sale of investment debt securities in 1993. Gains on the sale of
investments in debt securities not covered for loss were $4 million in 1992.
Losses on the sale of investments in debt securities not covered for loss were
$5 million in 1992. Gains on the sale of investments in debt securities covered
for loss were $8 million in 1992. No material losses were recognized in the
sales of investments in debt securities covered for loss in 1992.
F-59
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
---------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation............ $1,236,993 $ 20,483 $ 946 $1,256,530
Federal National Mortgage Association............. 514,915 5,391 348 519,958
Government National Mortgage Association.......... 18,609 1,193 1 19,801
Other............................................. 5,623 -- -- 5,623
---------- ---------- ---------- ------------
Total mortgage-backed securities, net............. $1,776,140 $ 27,067 $1,295 $1,801,912
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
The weighted average interest rate on mortgage-backed securities was 5.52%
at December 31, 1993. Proceeds from sales of mortgage-backed securities during
1993 were $96 million, of which $90 million were related to the sales of
mortgage-backed securities covered for loss by the FSLIC/RF. During 1993 and
1992, there were no gains or losses realized on sales of mortgage-backed
securities.
At December 31, 1993, $94 million of mortgage-backed securities held
resulted from the securitization of certain qualifying mortgage loans from the
Acquired Business' loan portfolio. At December 31, 1993 the Acquired Business
had $1.5 billion of variable rate mortgage-backed securities. At December 31,
1993, other mortgage-backed securities contained approximately $5 million in
securities which represent subordinated interests in mortgage pool securities.
NOTE 5--LOANS RECEIVABLE
Loans receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
(DOLLARS IN THOUSANDS)
<S> <C>
Real estate loans:
1-4 unit residential............................... $ 6,533,809
5+ unit residential................................ 2,396,385
Commercial......................................... 2,303,182
Construction....................................... 24,921
Land............................................... 10,101
------------
11,268,398
Undisbursed loan funds............................. (7,373)
------------
Total real estate loans......................... 11,261,025
Equity-line loans.................................... 403,694
Other consumer loans................................. 78,027
Commercial loans..................................... 3,623
------------
Total consumer and other loans.................. 485,344
Amounts advanced to borrowers for taxes and
insurance.......................................... 24,732
Unearned fees, unearned income, discounts and
premiums, net...................................... (105,007)
Allowance for loan losses............................ (257,242)
------------
Total loans receivable, net..................... $ 11,408,852
------------
------------
</TABLE>
F-60
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LOANS RECEIVABLE--(CONTINUED)
The weighted average stated interest rate on loans receivable was 6.43% at
December 31, 1993. At December 31, 1993, the Acquired Business had $8.7 billion
of variable rate real estate loans. During 1993 the Acquired Business sold $10
million of various consumer loans and credit card receivables recognizing a net
gain of $1 million and a net loss of $3 million, respectively. Loans receivable,
net, had a fair value of approximately $11.7 billion at December 31, 1993.
The following table indicates the gross amount of loans which have been
placed on nonaccrual status as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Nonaccrual loans:
Real Estate:
1-4 unit residential............................. $ 313
5+ unit residential.............................. 18
Commercial and other............................. 15
Construction..................................... --
------
Total real estate.............................. 346
Non-mortgage.......................................... 2
------
Total nonaccrual loans.............................. $ 348
------
------
</TABLE>
The following table indicates the remaining principal balances of loans
classified as troubled debt restructurings, excluding loans subject to FSLIC/RF
loss coverage, as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Modified and restructured loans:
Real estate:
5+ unit residential.............................. $ 255
Commercial and other............................. 111
Construction..................................... 14
1-4 unit residential............................. 15
------
Total restructured loans....................... $ 395
------
------
</TABLE>
At December 31, 1993, there were no commitments to lend additional funds to
borrowers whose loans were on nonaccrual or were restructured.
The following table reflects the amount of nonaccrual, past due and
troubled debt restructured loans including the interest income recognized and
total interest income that would have been recognized had the borrowers
performed under the original terms of the loans.
<TABLE>
<CAPTION>
DECEMBER 31, 1993
--------------------------------------------
TOTAL INTEREST
INTEREST INCOME INCOME IF
BALANCE RECOGNIZED PERFORMING
------- --------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Troubled debt restructured loans............................... $ 395 $33 $ 36
Nonaccrual loans............................................... 348 7 26
Accruing loans contractually past due 91 days or more.......... -- -- --
------- --- ---
$ 743 $40 $ 62
------- --- ---
------- --- ---
</TABLE>
F-61
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LOANS RECEIVABLE--(CONTINUED)
The following table summarizes real estate loans net of undisbursed loan
funds by collateral type, interest rate type and state concentration as of
December 31, 1993.
<TABLE>
<CAPTION>
1-4 UNIT 5+ UNIT COMMERCIAL AND TOTAL
RESIDENTIAL RESIDENTIAL OTHER REAL
----------------- ---------------- ---------------- CONSTRUCTION ESTATE
STATE VARIABLE FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE LOANS(2) % OF TOTAL
- --------------------------------- -------- ------ -------- ----- -------- ----- ------------ -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California....................... $3,151 $ 439 $ 932 $ 159 $1,336 $ 298 $ 3 $ 6,318 55%
New York......................... 538 119 194 210 47 49 -- 1,157 10
Florida.......................... 138 67 50 72 75 37 -- 439 4
Illinois......................... 125 105 55 16 51 30 -- 382 3
Hawaii........................... 311 41 -- -- 4 -- -- 356 3
Ohio............................. 145 125 29 12 31 10 -- 352 3
New Jersey....................... 170 47 58 28 16 11 -- 330 3
Colorado......................... 35 155 2 3 -- -- -- 195 2
Texas............................ 68 57 3 40 1 5 -- 174 2
Nevada........................... 14 4 79 26 37 1 -- 161 1
Other states(1).................. 565 260 243 186 163 110 15 1,542 14
-------- ------ -------- ----- -------- ----- --- -------- ---
Total............................ $5,260 $1,419 $1,645 $ 752 $1,761 $ 551 $ 18 $ 11,406 100%
-------- ------ -------- ----- -------- ----- --- -------- ---
-------- ------ -------- ----- -------- ----- --- -------- ---
</TABLE>
- ------------------
(1) There are 40 states, of which no one state has real estate loans in excess
of 1.3% of the total.
(2) The table balances exclude accrued interest receivable, amounts advanced to
borrowers for taxes and insurance, discounts and premiums, and loss
reserves, and include $145 million of loans held for sale.
NOTE 6--LOANS AND INVESTMENT SECURITIES HELD FOR SALE
Assets held for sale at the lower of aggregate amortized cost or estimated
market value, are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------
AMORTIZED ESTIMATED
COST MARKET VALUE
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
1-4 unit residential real estate loans............................. $ 145,316 $145,316
Investment securities.............................................. 10,000 10,000
Consumer loans..................................................... -- --
--------- ------------
Total loans and investment securities held for sale................ $ 155,316 $155,316
--------- ------------
--------- ------------
</TABLE>
F-62
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--MORTGAGE BANKING OPERATIONS
Income from mortgage banking operations is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1993 1992
----------------------- -----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net gains on loans and mortgage-backed securities sales:
Cash gain (loss)............................................... $(3,440) $ 3,720
Present value of retained yield on loans sold.................. 12,978 14,325
Loan servicing fee revenue....................................... 47,306 59,189
Net amortization and write downs of:
Present value of retained yield on loans sold.................. (30,036) (32,358)
Purchased servicing rights..................................... (12,013) (3,935)
---------- ----------
Income from mortgage banking operations, net................ $14,795 $40,941
---------- ----------
---------- ----------
</TABLE>
Details of certain other mortgage banking activities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Unamortized balances of:
Purchased servicing rights......................... $ 5,052
Present value of excess servicing
on loans sold................................... 45,701
Loans serviced for others.......................... 7,903,767
Remaining balance of loans sold with limited
recourse provisions............................. 456,711
</TABLE>
The fair value of the purchased servicing rights and excess servicing on
loans sold was approximately $116 million at December 31, 1993. The cash flow
valuation model used to calculate this amount utilizes assumptions regarding
future net servicing income and current market discount rates. Future net
servicing income is based on many factors including independent investment
banker prepayment rate projections. At December 31, 1993, included in
non-interest bearing demand deposit accounts are approximately $229 million of
unremitted principal and interest due investors and funds held for payment of
taxes and insurance on investor-owned loans.
NOTE 8--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Investment securities................................ $ 2,184
Mortgage-backed securities........................... 12,738
Loans receivable..................................... 69,913
----------
Total accrued interest receivable............... $ 84,835
----------
----------
</TABLE>
F-63
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--PROPERTY ACQUIRED IN SETTLEMENT OF LOANS
Property acquired in settlement of loans consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Real estate
1-4 unit residential............................... $ 65,712
5+ unit residential................................ 13,186
Commercial and other............................... --
Mobile homes and automobiles......................... 433
----------
79,331
Less allowance for losses............................ (15,480)
----------
Total property acquired in settlement of loans,
net........................................... $ 63,851
----------
----------
</TABLE>
The above balance in 5+ unit residential real estate represents an amount
for which, upon consummation of the purchase by First Madison of the Acquired
Business, FNFC has partially guaranteed First Madison collection of such
balance.
NOTE 10--LOSS RESERVES
Analysis of the allowance for losses on loans, investment real estate and
foreclosed property is as follows:
<TABLE>
<CAPTION>
LOANS
------------------------------------
CONSUMER INVESTMENT FORECLOSED
REAL ESTATE AND OTHER COMMERCIAL TOTAL REAL ESTATE PROPERTY TOTAL
----------- --------- ---------- -------- ----------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--December 31, 1991.......... $ 361,728 $10,317 $7,173 $379,218 $10,608 $ 71,513 $461,339
Additions charged to expense........ 78,552 2,725 3,951 85,228 2,120 80,654 168,002
Charge-offs......................... (131,469) (4,682) (6,240) (142,391) (9,922) (116,801) (269,114)
Recoveries.......................... 2,372 1,159 740 4,271 5 18,835 23,111
----------- --------- ---------- -------- ----------- ---------- --------
Balance--December 31, 1992.......... 311,183 9,519 5,624 326,326 2,811 54,201 383,338
Additions charged to expense........ 78,550 2,946 10 81,506 2,690 45,110 129,306
Charge-offs......................... (153,637) (5,150) (5,011) (163,798) -- (94,922) (258,720)
Recoveries.......................... 12,023 808 377 13,208 772 11,091 25,071
----------- --------- ---------- -------- ----------- ---------- --------
Balance--December 31, 1993.......... $ 248,119 $ 8,123 $1,000 $257,242 $ 6,273 $ 15,480 $278,995
----------- --------- ---------- -------- ----------- ---------- --------
----------- --------- ---------- -------- ----------- ---------- --------
</TABLE>
On December 30, 1993, Old FNB entered into an agreement with GMD, pursuant
to which Old FNB would sell to GMD approximately $500 million in non-performing
and/or classified commercial and multi-family real estate loans at Old FNB's
gross book value, over a period not exceeding approximately three years. The
obligations of GMD under this arrangement are guaranteed by Ford Motor Company.
Generally, under this agreement, Old FNB will sell to GMD, on a quarterly
basis, all non-performing commercial and multi-family real estate loans, up to
the aggregate $500 million limit. If that limit is not reached by the end of the
three year term, the remaining portion of the $500 million commitment will be
satisfied by Old FNB selling to GMD performing classified commercial and
multi-family real estate loans. The assets that may be sold under this agreement
are limited to commercial and multi-family real estate loans held by Old FNB as
of November 30, 1993. $17 million of such loans were sold to GMD in the first
quarter of 1994.
F-64
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--OFFICE PREMISES AND EQUIPMENT
The components of office premises and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Land................................................. $ 21,425
Buildings and leasehold improvements................. 91,629
Furniture and equipment.............................. 146,335
Capitalized equipment leases......................... 1,310
Construction in progress............................. 2,891
-----------
263,590
Accumulated depreciation and amortization............ (154,879)
-----------
Total office premises and equipment, net........ $108,711
-----------
-----------
</TABLE>
The estimated cost to complete projects included in construction in
progress was $4 million at December 31, 1993. Depreciation and amortization
expense on office premises and equipment for the years ended December 31, 1993
and 1992 was $25 million and $36 million, respectively.
The Acquired Business and its subsidiaries rent premises under long-term,
noncancelable operating leases expiring at various dates through 2064. Rental
expense for the years ended December 31, 1993 and 1992 was $23 million and $27
million, respectively. Rental income from subleasing agreements was $5 million
in each of the years ended December 31, 1993 and 1992. At December 31, 1993,
minimum rental commitments, net of sublease agreements, under all noncancelable
operating leases were as follows:
<TABLE>
<CAPTION>
YEAR ENDED (DOLLARS IN THOUSANDS)
- ----------------------------------------------------- ----------------------
<S> <C>
1994................................................. $ 14,834
1995................................................. 12,058
1996................................................. 10,541
1997................................................. 9,872
1998................................................. 8,744
1999 and thereafter.................................. 26,025
----------
Total........................................... $ 82,074
----------
----------
</TABLE>
At December 31, 1993, future minimum lease payments under all capital
leases together with the present value of the minimum lease payments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED (DOLLARS IN THOUSANDS)
- ----------------------------------------------------- ----------------------
<S> <C>
1994................................................. $ 937
1995................................................. 894
1996................................................. 894
1997................................................. 223
Total minimum lease payments.................... 2,948
Less interest portion................................ (1,777)
-------
Total capitalized lease obligations............. $1,171
-------
-------
</TABLE>
F-65
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CUSTOMER DEPOSITS
A summary of deposit accounts by category is presented below:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------
AVERAGE RATE BALANCE
------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
TYPE OF ACCOUNT
Passbook accounts............................................... 2.14% $ 838,922
NOW accounts:
Interest bearing.............................................. 1.04 761,433
Non-interest bearing.......................................... -- 788,309
Money market deposit accounts................................... 2.51 2,786,381
Term accounts:
3.0% or less................................................... 2.78 1,078,875
3.01- 4.00%.................................................... 3.45 1,739,313
4.01- 5.00..................................................... 4.63 506,427
5.01- 6.00..................................................... 5.31 261,512
6.01- 7.00..................................................... 6.57 258,522
7.01- 8.00..................................................... 7.51 524,059
8.01- 9.00..................................................... 8.47 525,305
9.01-10.00..................................................... 9.34 283,160
10.01-11.00..................................................... 10.64 13,358
11.01-12.00..................................................... 11.36 89,455
12.01-13.00..................................................... 12.28 91,452
13.01-14.00..................................................... 13.43 188
-----------
10,546,671
Accrued interest payable........................................ 12,479
Purchase accounting adjustments................................. 2,470
-----------
Total customer deposits.................................... $10,561,620
-----------
-----------
</TABLE>
The weighted average stated interest rates on deposits at December 31, 1993
was 3.54%. Brokered certificates of deposits included above totalled $230
million at December 31, 1993. Deposit month-end balances averaged $12.1 billion
during 1993 with a weighted average rate of interest of 4.00%. At December 31,
1993, deposit liabilities include $283 million of deposits from affiliated
companies and entities. At December 31, 1993, the Acquired Business had
committed to sell customer deposits held in two branches totalling approximately
$35 million.
The fair value of customer deposits at December 31, 1993 is $10.6 billion.
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed maturity term accounts is estimated using the interest rates currently
offered for deposits of similar remaining maturities.
F-66
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--CUSTOMER DEPOSITS--(CONTINUED)
A summary of deposit interest expense by category is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
TYPE OF ACCOUNT
Passbook accounts................................................... $ 32,493 $ 28,856
NOW accounts........................................................ 11,584 25,154
Money market deposit accounts....................................... 78,149 141,917
Term accounts....................................................... 361,331 561,124
-------- --------
483,557 757,051
Interest forfeitures................................................ (1,126) (1,571)
-------- --------
Total customer deposit interest expense.......................... $482,431 $755,480
-------- --------
-------- --------
</TABLE>
At December 31, 1993, term accounts have scheduled maturities as follows:
<TABLE>
<CAPTION>
TERM ACCOUNTS MATURING
WITH BALANCES
MATURITY ---------------------- TOTAL
DURING THE YEAR ENDING OVER $100,000 BALANCES WEIGHTED
DECEMBER 31, $100,000 AND UNDER MATURING AVERAGE RATE
- ------------------------------------------------- -------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1994............................................. $360,710 $3,458,494 $3,819,204 4.36%
1995............................................. 84,698 494,553 579,251 7.42
1996............................................. 66,343 528,031 594,374 7.55
1997............................................. 17,181 196,622 213,803 6.21
1998............................................. 11,184 133,780 144,964 5.60
1999 and thereafter.............................. 5,859 14,171 20,030 9.53
-------- ---------- ----------
$545,975 $4,825,651 $5,371,626 5.17%
-------- ---------- ----------
-------- ---------- ----------
</TABLE>
NOTE 13--SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Mortgage-backed securities:
Maturing within 30 days.......................................................... $554,057
Maturing 30-90 days.............................................................. 236,291
Maturing 90 days to 1 year....................................................... 30,500
Maturing 1-2 years............................................................... 13,051
Accrued interest payable......................................................... 1,442
-----------
Total securities sold under agreements to repurchase.......................... $835,341
-----------
-----------
</TABLE>
At December 31, 1993, these agreements had a weighted average interest rate
of 3.73%. The market value of these agreements at December 31, 1993 was $836
million. The underlying securities were delivered to, and are being held by
securities dealers. These dealers may have loaned the securities to other
parties in the normal course of their operations, but all agreements require the
dealers to resell to the Acquired Business the identical securities at the
maturities of the agreements. Securities sold under agreements to repurchase
averaged $309 million during 1993 and the maximum amount outstanding at any
month-end was $983 million for 1993.
F-67
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE--(CONTINUED)
At December 31, 1993 the amortized cost of the mortgage-backed securities
subject to the terms of the reverse repurchase agreements was $855 million. The
market value of these securities at December 31, 1993 was $907 million.
The following is a summary by dealer of securities sold under agreements to
repurchase, excluding accrued interest, at December 31, 1993:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
AMOUNT DUE MATURITY (DAYS)
---------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First Boston.......................................... $250,035 27
Goldman Sachs......................................... 205,877 8
Merrill Lynch......................................... 98,145 10
Morgan Stanley........................................ 279,842 125
----------- ---
Total............................................ $833,899 53
----------- ---
----------- ---
</TABLE>
NOTE 14--OTHER BORROWINGS
Other borrowings consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
--------------------------
BALANCE AVERAGE RATE
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed rate borrowings from the FHLB.............................. $2,350,110 8.52%
Subordinated debentures:
10.00%, due October, 2006...................................... 92,100 10.00
Multi-family housing revenue bonds............................. 20,099 3.79
Capitalized lease obligations.................................. 1,171 15.77
Other borrowings............................................... 5,665 8.14
---------- ------
2,469,145 8.54%
Accrued interest payable......................................... 19,024
Net discount..................................................... (10,554)
----------
Total long-term borrowings....................................... $2,477,615
----------
----------
</TABLE>
Maturities of other borrowings at December 31, 1993 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
BALANCES MATURING AVERAGE RATES
---------------------- -------------
MATURITIES DURING THE YEARS ENDING DECEMBER 31 FHLB OTHER FHLB OTHER
- --------------------------------------------------- ---------- -------- ---- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1994............................................... $ 680,787 $ 1,258 9.60% 6.63%
1995............................................... 485,710 81 8.74 8.20
1996............................................... 865,968 321 7.30 8.38
1997............................................... 215,000 8,325 8.92 13.49
1998............................................... 100,000 -- 9.85 --
1999 and thereafter................................ 2,645 109,050 7.71 8.96
---------- -------- ---- -----
Total......................................... $2,350,110 $119,035 8.52% 9.25%
---------- -------- ---- -----
---------- -------- ---- -----
</TABLE>
Short-term borrowings averaged $12 million during 1993, with a weighted
average rate of 3.09%. There were no outstanding short-term borrowings as of
December 31, 1993. Long-term borrowings averaged $2.7 billion during 1993 with a
weighted average rate, adjusted for interest income recognized on interest rate
F-68
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--OTHER BORROWINGS--(CONTINUED)
exchange agreements, of 5.59%. Included in discounts at December 31, 1993 are
deferred gains on sale of interest rate exchange agreements totalling $4
million.
At December 31, 1993, advances from Federal Home Loan Banks and other
borrowings had a fair value of approximately $2.6 billion. Fair value of
borrowings is estimated using rates currently offered for liabilities of similar
remaining maturities.
The following is a summary of the carrying value of real estate loans,
mortgage-backed securities, investment securities, and FHLB stock pledged as
collateral for FHLB borrowings:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Real estate loans.................................... $4,643,239
Mortgage-backed securities........................... 1,008,222
FHLB stock........................................... 152,629
----------
Total........................................... $5,804,090
----------
----------
</TABLE>
NOTE 15--INTEREST RATE EXCHANGE AGREEMENTS
Interest rate exchange agreements outstanding at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
YEAR END INTEREST RATE
-----------------------------------------------------
NOTIONAL
PRINCIPAL
AMOUNT PAID RECEIVED VARIABLE RATE INDEX
--------- ---- -------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity Date
Paid Variable/Received Fixed:
April 1994......................................... $ 500,000 3.38% 7.73% 3 Month LIBOR
April 1995......................................... 500,000 3.38 7.97 3 Month LIBOR
April 1996......................................... 500,000 3.38 8.19 3 Month LIBOR
September 1996..................................... 250,000 3.33 4.19 1 Month LIBOR
April 1998......................................... 400,000 3.38 8.38 3 Month LIBOR
</TABLE>
As of December 31, 1993, interest rate exchange agreements totalling $1.35
billion of notional principal are collateralized by a $30 million third party
letter of credit issued. If terminated at December 31, 1993, the interest rate
exchange agreements would generate a pre-tax gain of approximately $133 million.
There were no interest rate cap, collar and floor agreements outstanding at
December 31, 1993.
The net decrease in interest expense on customer deposits and borrowings
from interest rate exchange agreements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest rate exchanges.......................................... $87,369 $76,280
Amortization of deferred gains and fees.......................... 1,985 2,934
Interest rate caps, collars and floors........................... -- (750)
---------- ----------
$89,354 $78,464
---------- ----------
---------- ----------
</TABLE>
F-69
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--INTEREST RATE EXCHANGE AGREEMENTS--(CONTINUED)
Below is a roll forward of deferred gains associated with interest rate
swaps. These gains resulted from the termination of interest rate swaps in 1990
and are being amortized over the original life of the swap terminated.
<TABLE>
<S> <C>
Balance as of December 31, 1991.................................. $8,740
Amortization..................................................... 2,934
------
Balance as of December 31, 1992.................................. 5,806
Amortization..................................................... 1,985
------
Balance as of December 31, 1993.................................. $3,821
------
------
</TABLE>
NOTE 16--FEDERAL AND STATE TAXES ON INCOME
The components for the provision (recovery) for federal and state income
taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1992(*)
---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Federal and state tax expense (benefit):
Current:
Federal..................................................... $46,730 $ 21,296
State....................................................... 7,834 2,000
---------- ----------
54,564 23,296
Deferred:
Federal..................................................... (14,156) (50,747)
State....................................................... -- --
(14,156) (50,747)
---------- ----------
Expense (benefit) for the period....................... $40,408 $ (27,451)
---------- ----------
---------- ----------
</TABLE>
- ------------------
(*) Excludes cumulative effect of changes in accounting principles.
The Acquired Business adopted Statement of Financial Accounting Standards
No. 109 ('SFAS No. 109'), 'Accounting for Income Taxes,' as of January 1, 1992.
The cumulative effect of this change in accounting principle increased 1992 net
income by $13 million. Financial statements for prior years were not restated to
apply the provisions of SFAS No.109. The adoption of SFAS No. 109 changes the
method of accounting for income taxes from the deferred method using Accounting
Principles Board Opinion No. 11 ('APB No. 11') to an asset and liability
approach.
Under SFAS No. 109, deferred income taxes reflect the estimated tax effect
of temporary differences between the amount of assets and liabilities for
financial reporting purposes and those amounts as measured by tax laws and
regulations. These temporary differences include purchase accounting valuation
adjustments and other items not previously included in the determination of
deferred income taxes under APB No. 11. Accordingly, certain purchase accounting
valuation adjustments and related amortization have been modified as a result of
the adoption of SFAS No. 109. The impact from the adoption of SFAS No. 109 as it
relates to purchase accounting valuation adjustments was to increase pre-tax
income by $14 million and increase income tax expense by $14 million for the
year ended December 31, 1992.
F-70
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--FEDERAL AND STATE TAXES ON INCOME--(CONTINUED)
The components of deferred income tax assets and liabilities as of December
31, 1993 are as follows:
<TABLE>
<CAPTION>
1993 DEFERRED TAX
-------------------------
ASSETS LIABILITIES
------ -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Loss reserves.......................................................... $ 76 --
Deferred intercompany transactions..................................... 47 --
Purchase accounting.................................................... 23 --
Deferred loan servicing................................................ -- $ (16)
Deferred loan fees..................................................... -- (11)
Employee benefit plans................................................. 2 --
All other.............................................................. 15 (38)
------ -----
163 (65)
Valuation allowances................................................... (16) --
------ -----
Total............................................................. $ 147 $ (65)
------ -----
------ -----
</TABLE>
The valuation allowances established relate primarily to state deferred tax
assets. The Acquired Business' net deferred federal tax assets, including
alternative minimum taxes, are expected to be realized in the consolidated
income tax return, in accordance with the terms of its tax sharing agreement.
A reconciliation of statutory tax rates to effective tax rates is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1993 1992
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Tax at statutory federal rate............................................ $66 35.0% $ 37 34.0%
Effect of:
Payments from the FSLIC/RF............................................. (25) (12.8) (75) (69.6)
Municipal bond interest................................................ (1) (0.5) (1) (0.9)
Amortization of purchase accounting adjustments, goodwill and
intangible assets................................................... 6 3.2 6 5.5
Qualifying loan loss reserve liquidation................................. 8 4.3 -- --
Change in tax rate..................................................... (5) (2.7) -- --
Other, net.......................................................... (14) (7.5) 5 4.6
---- ----- ---- -----
35 19.0 (28) (26.4)
State tax, net of federal income tax effect.............................. 5 2.7 1 0.9
---- ----- ---- -----
Income tax expense (recovery)............................................ $40 21.7% $(27) (25.5)%
---- ----- ---- -----
---- ----- ---- -----
</TABLE>
During 1993, the Acquired Business recognized $8 million of federal income
tax charges resulting from the partial liquidation of its qualifying loan loss
reserves for which deferred income taxes have not previously been provided. The
liquidation of the qualifying loan loss reserves resulted from a decline in the
balance of qualifying loans and real estate owned. Included in retained earnings
at December 31, 1993 is $187 million which represents the accumulation of
qualifying loan loss reserve deductions and supplemental reserve deductions for
which no provision for federal income taxes has been made. If in the future
these amounts are used for any purpose other than to absorb losses on bad debts,
or if further reductions in qualifying loans and real estate owned occur, a tax
liability will be imposed on Old FNB for these amounts at the then-current tax
rates.
F-71
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--REGULATION
The OTS has established capital regulations requiring all savings
institutions to maintain: (a) tangible capital equal to 1.5% of adjusted total
assets, as defined; (b) core capital equal to 3.0% of adjusted total assets, as
defined; and (c) risk-based capital, equal to 8.0% on December 31, 1993, of
risk-weighted assets, as defined.
The following table sets forth the regulatory capital positions as reported
to the OTS by Old FNB at December 31, 1993:
<TABLE>
<CAPTION>
REGULATORY CAPITAL
-----------------------------------------
TANGIBLE CORE (LEVERAGE) RISK-BASED
-------- --------------- ----------
<S> <C> <C> <C>
Regulatory capital ratios, as filed with the OTS................ 6.3% 6.5% 11.1%
-------- ------ ----------
-------- ------ ----------
</TABLE>
The above ratios were calculated using amounts reported to the OTS prior to
the preparation of the Acquired Business' financial statements. The new
management of the Acquired Business intends to continue to comply with all
required capital ratios.
The FDIC Improvement Act of 1992 ('FDICIA') requires each federal banking
agency to implement prompt corrective actions for institutions that it
regulates. In response to this requirement, the OTS adopted final rules,
effective December 19, 1993, based upon FDICIA's five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under FDICIA, the OTS is
required to take supervisory action against institutions that are not deemed
either 'well capitalized' or 'adequately capitalized.' The rules generally
provide that a savings association is 'well capitalized' if its total risk-based
capital ratio is 10% or greater, its ratio of core capital to risk-based assets
is 6% or greater, its core capital (leverage) ratio is 5% or greater, and the
institution is not subject to a capital directive.
NOTE 18--EMPLOYEE BENEFIT PLANS
Retirement Plans:
The FNFC Retirement Plan ('Plan') is the primary retirement plan covering
the employees of FNFC, the Acquired Business and their subsidiaries. The Plan
covers substantially all permanent employees who have completed one year of
service. In addition, an unfunded, nonqualified, discretionary plan is
maintained to provide supplemental retirement benefits to certain present and
former senior officers.
During 1991, the Plan benefit formula was modified retroactively to an
effective date of July 1, 1989. Under the Plan's previous benefit formulas,
participants accrued a monthly benefit amount under a defined benefit formula.
Upon revision of the Plan's benefit formulas, the monthly benefit amount was
converted to a lump-sum equivalent value representing the participant's
beginning account balance under the amended plan. Thereafter, 4% of the
participant's quarterly eligible compensation is allocated to each participant's
account. Plan net earnings are allocated based on the participant's account
balance. The periodic pension expense for 1993 and 1992 has been calculated
using the revised benefit formula and reflects all adjustments necessary to
adopt the provisions of the new Plan.
The Acquired Business' funding policy is to contribute amounts sufficient
to meet funding requirements set forth in U.S. employee benefit and tax laws
plus such additional amounts as the Acquired Business may determine to be
appropriate. A contribution of $0.1 million was made in 1992. No contributions
were required in 1993. All assets are invested with the Ford Retirement Plan
Master Trust. Master Trust assets are principally U.S. Government and Agency
obligations, corporate bonds and notes, and common stocks.
The Plan was previously qualified under 401(a) of the Internal Revenue
Code. The Plan intends to file an application with the IRS for a determination
that the Plan, as amended, satisfies the qualification requirements of Section
401(a) and related provisions of the Internal Revenue Code of 1986, as amended.
The Plan intends to file the determination letter application before the
required filing due date and to make all such amendments to the
F-72
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--EMPLOYEE BENEFIT PLANS--(CONTINUED)
Plan as may be necessary or appropriate to ensure that it will obtain a
favorable determination letter. Pension costs include the following components:
<TABLE>
<CAPTION>
ENDED DECEMBER 31,
--------------------------
1993 1992
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Benefits credited for service during the year......................... $ 2,099 $ 1,565
Interest cost on projected benefit obligation......................... 2,567 2,690
Actual return on assets............................................... (4,134) (4,470)
Net amortization and deferral......................................... (782) (782)
Curtailment (loss) gain............................................... (587) (1,137)
-------- --------
Net periodic pension cost (credit).................................... $ (837) $ (2,134)
-------- --------
-------- --------
</TABLE>
Net periodic pension costs at December 31, 1993 and 1992 were computed
using a weighted average discount rate of 8.0%, 8.5% and an expected rate of
return on plan assets of 9.5% for 1993 and 1992.
The projected benefit obligations at December 31, 1993 were determined
using a discount rate of 8%.
The status of the retirement plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
------------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Present value of accumulated retirement benefits:
Vested........................................................ $ (34,542) $(2,258)
Non-vested.................................................... (2,320) (53)
----------- ----------
Accumulated benefits obligation................................. $ (36,862) $(2,311)
----------- ----------
----------- ----------
Projected benefit obligation.................................... $ (36,862) $(2,311)
Plan assets at fair value....................................... 48,500 --
----------- ----------
Projected benefit obligation less than (in excess of) Plan
assets........................................................ 11,638 (2,311)
Unrecognized net (asset) obligation at January 1, 1987 (date of
adoption)..................................................... (4,582) 153
Unamortized amendments.......................................... (3,475) 760
Unrecognized net amount resulting from Plan investment
experience.................................................... (9,592) (913)
----------- ----------
Total accrued pension cost................................. $ (6,011) $(2,311)
----------- ----------
----------- ----------
</TABLE>
Since the plan will not be retained by First Madison upon completion of its
acquisition of the Acquired Business, any plan over funding amount will remain
with FNFC.
Postretirement Benefits Plan:
FNB and certain of its subsidiaries sponsor unfunded plans to provide
medical, dental and vision benefits to certain eligible employees and their
dependents from the date of early retirement to a maximum age of 65. In general,
early retirement is age 55 with 10 years of service. Certain retirees contribute
nothing for their coverage; however, all new retirees participating in the Plan
contribute a portion of the premiums until age 65.
F-73
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18--EMPLOYEE BENEFIT PLANS--(CONTINUED)
The estimated cost for postretirement health care benefits has been accrued
on an actuarially-determined basis, in accordance with the requirements of
Statement of Financial Accounting Standards No. 106, ('SFAS No. 106'),
'Employers' Accounting for Postretirement Benefits Other Than Pensions'. In
1992, Old FNB elected to recognize immediately the full amount of the
accumulated postretirement benefit obligation of this accounting change,
resulting in an adverse effect on income of $3 million in the first quarter of
1992. The change reflected an unaccrued retiree benefit obligation liability of
approximately $4 million, partially offset by projected tax benefits of $1
million.
The status of the postretirement plan is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Accumulated postretirement benefit obligation:
Retirees........................................... $2,202
Active employees eligible to retire................ 1,818
Other active employees............................. 1,754
-------
Total accrued benefit liability................. $5,774
-------
-------
</TABLE>
The projected benefit obligation at December 31, 1993 was determined using
a discount rate of 7.5%. An increase of 1% in the health care cost trend rate
would cause service and interest costs and the accumulated postretirement
benefit obligation to increase by less than $2 million.
Postretirement benefits costs for the years ended December 31, 1993 and
1992 include the following components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current service cost.................................................. $288 $249
Interest cost on benefit obligation................................... 389 360
------ ------
Net periodic benefit cost............................................. $677 $609
------ ------
------ ------
</TABLE>
Net periodic benefit cost at December 31, 1993 was computed using a
weighted average discount rate of 7.5%. The initial health care cost trend rate
used was 11.5%, the average trend rate used was 8.7% and the ultimate trend rate
used was 5.5%, with the ultimate rate being achieved in 10 years.
Investment Plan:
At December 31, 1993, FNFC, the Acquired Business and substantially all of
their subsidiaries had a defined contribution plan that is a qualified plan
under Section 401(k) of the Internal Revenue Code ('401(k) Plan'). The 401(k)
Plan has received a favorable determination letter from the IRS. The 401(k) Plan
is available to substantially all employees with at least one year of
employment. Employee contributions are voluntary. Effective January 1, 1993, the
401(k) Plan has been amended to provide for deferrals of up to twelve percent of
qualifying compensation with a corresponding dollar for dollar matched employer
contribution of the first four percent of eligible employee contributions.
Employees vest immediately in their own contributions, and vest in the Acquired
Business' contributions based on years of service. For the years ended December
31, 1993 and 1992, the Acquired Business' pre-tax 401(k) Plan contributions were
$3 million and $3 million, respectively.
F-74
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19--COMMITMENTS AND CONTINGENCIES
Lending and Investment Commitments:
Outstanding written commitments relating to loans, mortgage-backed
securities and investment securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Commitments to originate loans:
Variable rate.......................................................... $123,725
Fixed rate............................................................. 148,983
Unused lines of credit provided to consumers........................... 327,671
Commitments to purchase loans
and mortgage-backed securities:
Variable rate.......................................................... --
Fixed rate............................................................. 8,912
Forward commitments to sell loans
and mortgage-backed securities......................................... 280,187
</TABLE>
Letters of Credit Commitments:
Through year-end 1985, FNBMC entered into partnership agreements with
developers to acquire and develop multi-family rental projects. The projects are
partially funded through tax-exempt mortgage revenue bond programs. Commencing
in 1984, the Acquired Business began issuing its letters of credit to guarantee
the payment of principal and interest on bonds issued by various housing
authorities, and concurrently originated and serviced the mortgage loans made by
the bond issuers. Should the Acquired Business be obligated under its letter of
credit to redeem the bonds because of default of a project, the bond trustee is
required to assign the mortgage loan to the Acquired Business. At December 31,
1993, the Acquired Business had a total of $375 million of such letters of
credit outstanding with remaining terms of 2 to 26 years. Given the uncertainty
of the interaction of these letters of credit with the underlying mortgage loans
and cash flows of collateral properties under future economic conditions, it is
not practicable to estimate the fair value of these letters of credit.
Litigation:
The Acquired Business and its subsidiaries are involved in litigation and
may be subject to claims arising from its operations. The Acquired Business does
not believe that the outcome of these actions, individually or in the aggregate,
will have a material adverse effect on the consolidated financial position of
the Acquired Business.
F-75
<PAGE>
THE ACQUIRED BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 20--SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest and Income Taxes Paid:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1993 1992
-------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Interest paid....................................................... $612,397 $1,008,821
Income taxes paid................................................... 1,956 2,413
Income tax refunds.................................................. 17,708 114,573
</TABLE>
Non-Cash Investing and Financing Activities:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1993 1992
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Additions to property acquired in settlement of loans................. $135,251 $226,320
Loans securitized into mortgage-backed securities..................... -- 17,827
</TABLE>
F-76
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of SFFed Corp.:
We have audited the accompanying consolidated statements of financial condition
of SFFed Corp. and subsidiaries ('SFFed') as of December 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity and cash
flows, for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of SFFed's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of SFFed Corp. and subsidiaries at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on February 1,
1996, SFFed was acquired by and merged into First Nationwide Bank, A Federal
Savings Bank.
DELOITTE & TOUCHE LLP
San Francisco, California
April 15, 1996
F-77
<PAGE>
SFFED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 3):
Cash on hand and amounts due from depository institutions........................... $ 26,251 $ 18,306
Federal funds sold.................................................................. 4,000 34,900
Securities purchased under agreements to resell..................................... 165,000 112,000
------------ ------------
Total............................................................................ 195,251 165,206
Mortgage-backed securities available for sale, at market (Note 4)..................... 72,844 77,458
Mortgage-backed securities held for investment, net (approximate market value
--1995: $872,475; and 1994: $323,257 (Note 4)....................................... 859,554 330,578
Loans held for sale, net (Note 6)..................................................... 4,393 3,627
Loans receivable held for investment, net (Note 5).................................... 2,714,988 3,011,504
Accrued interest receivable (Notes 4 and 5)........................................... 23,600 18,798
Federal Home Loan Bank stock, at cost (Note 3)........................................ 31,579 30,049
Premises and equipment, net (Note 7).................................................. 21,899 22,946
Real estate owned, net (Note 8)....................................................... 32,404 25,784
Other assets.......................................................................... 26,923 23,986
Excess of cost over fair value of net assets acquired (net of accumulated amortization
of 1995: $8,967; and 1994: $8,298................................................... 8,053 8,722
------------ ------------
$ 3,991,488 $ 3,718,658
------------ ------------
------------ ------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Customer deposits (Note 9)............................................................ $ 2,693,243 $ 2,481,988
Federal funds purchased............................................................... 4,000 35,000
Securities sold under agreements to repurchase (Note 10).............................. 713,362 347,679
Advances from Federal Home Loan Bank of San Francisco (Note 10)....................... 274,952 580,983
Senior notes (Note 10)................................................................ 49,245 49,158
Advance payments by borrowers for taxes and insurance................................. 2,138 3,425
Taxes on income (Note 11)............................................................. 3,671 602
Other liabilities and accrued expenses................................................ 54,186 23,636
Unearned income....................................................................... 1,301 1,643
------------ ------------
Total............................................................................ 3,796,098 3,524,114
------------ ------------
Commitments and contingencies (Note 17)
Stockholders' equity (Notes 4, 10, 11, 12, 14 and 15):
Serial preferred stock--par value $.01 per share; 4,000,000 shares
authorized and unissued........................................................ -- --
Common stock--par value $.01 per share; 20,000,000 shares authorized;
issued and outstanding--1995: 7,883,247 and 1994: 7,833,282................... 79 78
Additional paid-in capital.......................................................... 70,497 69,912
Retained earnings--substantially restricted......................................... 126,270 128,512
Unrealized loss on securities available for sale, net of tax........................ (1,128) (3,449)
Minimum pension liability adjustment, net of tax.................................... (328) (509)
------------ ------------
Total stockholders' equity....................................................... 195,390 194,544
------------ ------------
Total.......................................................................... $ 3,991,488 $ 3,718,658
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-78
<PAGE>
SFFED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest income:
Interest on loans............................................................. $215,147 $189,984 $191,532
Interest on mortgage-backed securities........................................ 60,024 22,729 21,963
Interest and dividends on investments and FHLB stock.......................... 10,685 6,735 4,850
-------- -------- --------
Total....................................................................... 285,856 219,448 218,345
-------- -------- --------
Interest expense:
Interest on customer deposits (Note 9)........................................ 135,299 101,411 94,803
Interest on Federal Home Loan Bank advances................................... 23,958 24,915 28,303
Interest on senior notes...................................................... 5,703 1,756 --
Interest on other borrowings.................................................. 41,882 12,277 8,026
-------- -------- --------
Total....................................................................... 206,842 140,943 132,180
-------- -------- --------
Net interest income........................................................... 79,014 78,505 86,165
Provision for loan losses (Note 5).............................................. 11,094 17,205 6,583
-------- -------- --------
Net interest income after provision for loan losses........................... 67,920 61,300 79,582
-------- -------- --------
Noninterest income:
Mortgage banking activities (Note 6):
Gain (loss) on sale of real estate loans.................................... (205) 491 4,898
Loan servicing income....................................................... 5,460 4,080 2,621
-------- -------- --------
Total....................................................................... 5,255 4,571 7,519
Loan, deposit and other fees.................................................. 5,291 5,853 6,773
Income from real estate partnerships.......................................... 267 79 953
Other income.................................................................. 1,410 171 858
-------- -------- --------
Total....................................................................... 12,223 10,674 16,103
-------- -------- --------
Noninterest expense:
Compensation and benefits (Notes 2, 14 and 15)................................ 35,518 35,979 36,616
Occupancy and equipment (Note 17)............................................. 13,865 12,953 13,252
Advertising and promotion..................................................... 2,094 2,446 1,859
Outside data processing....................................................... 4,540 4,065 3,849
Deposit insurance premiums and regulatory assessments......................... 6,811 6,178 5,867
Provision for losses on real estate owned and other (Note 5).................. 4,874 8,524 7,067
Real estate owned operations, net............................................. 2,138 5,897 6,353
Deferred loan origination costs............................................... (4,497) (7,016) (8,077)
Amortization of excess of cost over fair value of net assets acquired......... 669 708 709
Other expense (Note 2)........................................................ 12,763 10,368 10,391
-------- -------- --------
Total....................................................................... 78,775 80,102 77,886
-------- -------- --------
Income (loss) before income taxes............................................. 1,368 (8,128) 17,799
Income tax expense (benefit) (Note 11).......................................... 1,568 (3,400) 7,905
-------- -------- --------
Net income (loss)............................................................. $ (200) $ (4,728) $ 9,894
-------- -------- --------
-------- -------- --------
Earnings (loss) per share (Note 1)............................................ $ (0.03) $ (0.60) $ 1.24
-------- -------- --------
-------- -------- --------
Dividends per share............................................................. $ 0.26 $ 0.28 $ 0.15
-------- -------- --------
-------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-79
<PAGE>
SFFED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
------------------------------------------------------------------------------------
UNREALIZED
RETAINED LOSS ON MINIMUM
EARNINGS SECURITIES PENSION
SUBSTANTIALLY AVAILABLE LIABILITY
ADDITIONAL RESTRICTED FOR SALE. ADJUSTMENT.
PAID-IN (NOTES 11, NET OF TAX NET OF TAX
COMMON STOCK CAPITAL 12 AND 15) (NOTE 4) (NOTE 14) TOTAL
---------------- ---------- -------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992.............. $ 77 $ 68,824 $126,704 $195,605
Stock option and restricted stock
activity............................ 1 568 -- 569
Cash dividends......................... -- -- (1,166) (1,166)
Unrealized gain on securities available
for sale, net of tax................ -- -- -- $ 3,149 3,149
Net income............................. -- -- 9,894 9,894
--- ---------- -------------- ---------- ----------- --------
Balances, December 31, 1993.............. 78 69,392 135,432 3,149 208,051
Stock option and restricted stock
activity............................ 520 -- -- 520
Cash dividends......................... -- -- (2,192) -- (2,192)
Net change in unrealized loss on
securities available for sale, net
of tax.............................. -- -- -- (6,598) (6,598)
Minimum pension liability adjustment,
net of tax.......................... $ (509) (509)
Net loss............................... -- -- (4,728) -- (4,728)
--- ---------- -------------- ---------- ----------- --------
Balances, December 31, 1994.............. 78 69,912 128,512 (3,449) (509) 194,544
Stock option and restricted stock
activity............................ 1 585 586
Cash dividends......................... (2,042) (2,042)
Net change in unrealized loss on
securities available for sale, net
of tax.............................. 2,321 2,321
Net change in minimum pension liability
adjustment, net of tax.............. 181 181
Net loss............................... (200) (200)
--- ---------- -------------- ---------- ----------- --------
Balances, December 31, 1995.............. $ 79 $ 70,497 $126,270 $ (1,128) $ (328) $195,390
--- ---------- -------------- ---------- ----------- --------
--- ---------- -------------- ---------- ----------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-80
<PAGE>
SFFED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
---------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ (200) $ (4,728) $ 9,894
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization of premises and equipment.................. 3,206 3,226 3,043
Amortization of excess of cost over fair value of net assets
acquired.............................................................. 669 708 709
Provision for losses, net................................................ 15,968 25,729 13,650
Change in deferred income taxes.......................................... 4,195 (2,660) (5,050)
Increase in interest payable............................................. 16,872 5,356 1,293
Increase in interest receivable.......................................... (4,802) (1,996) (142)
Dividend income on FHLB stock............................................ (1,530) (1,322) (737)
(Gain) loss on sale of real estate loans, net............................ 205 (491) (4,898)
Amortization of deferred loan fees....................................... (1,778) (2,667) (3,271)
Proceeds from sales of loans originated for sale......................... 46,623 130,824 434,242
Originations of loans held for sale...................................... (58,402) (153,709) (472,847)
Net change in other assets/liabilities................................... 8,587 (21,137) 2,226
Increase (decrease) in income taxes payable.............................. (1,126) (1,040) 4,476
---------- --------- --------
Net cash provided by (used in) operating activities........................ 28,487 (23,907) (17,412)
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments received on mortgage-backed securities available
for sale................................................................. 8,467 37,233 --
Principal payments received on mortgage-backed securities held for
investment............................................................... 73,668 31,669 77,610
Purchases of mortgage-backed securities held for investment................ (104,472) (4,074) (10,053)
Maturities of investment securities........................................ -- -- 13,270
Purchases of investment securities......................................... -- -- (6,040)
Principal payments received on loans receivable held for investment........ 245,990 367,463 385,560
Originations of loans receivable held for investment....................... (469,761) (795,217) (693,488)
Loans purchased............................................................ (12,386) (1,307) (542)
Proceeds from redemption of FHLB stock..................................... -- -- 2,103
Purchases of FHLB stock.................................................... -- (622) (1,118)
Sales of premises and equipment............................................ 214 43 92
Purchases of premises and equipment........................................ (2,373) (2,791) (2,924)
Sales of real estate....................................................... 24,900 44,923 58,536
Investment in and acquisition of real estate............................... (1,771) (1,738) (3,512)
Other, net................................................................. 754 (3,861) 254
---------- --------- --------
Net cash used in investing activities...................................... (236,770) (328,279) (180,252)
---------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
F-81
<PAGE>
SFFED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Net increase (decrease) in demand deposits................................. $ 286,369 $(169,676) $(92,625)
Certificate account deposits............................................... 458,162 896,549 538,089
Certificate account withdrawals............................................ (533,276) (544,995) (416,881)
Increase (decrease) in borrowings with maturities of three months
or less.................................................................. (20,848) 53,397 57,941
Proceeds from long-term borrowings......................................... 1,047,876 809,710 624,368
Principal payments on long-term borrowings................................. (998,289) (688,979) (494,194)
Proceeds from issuance of common stock..................................... 376 404 488
Payment of dividends....................................................... (2,042) (2,192) (1,166)
---------- --------- --------
Net cash provided by financing activities.................................. 238,328 354,218 216,020
---------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................................. 30,045 2,032 18,356
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................. 165,206 163,174 144,818
---------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 195,251 $ 165,206 $163,174
---------- --------- --------
---------- --------- --------
Supplemental disclosures of cash flow information
Cash paid for:
Interest on customer deposits......................................... $ 135,557 $ 100,626 $ 95,663
Interest on borrowings................................................ 54,542 32,402 34,061
Income taxes.......................................................... -- 466 8,479
Non-cash investing activities:
Transfers of loans to real estate owned............................... 39,242 58,295 43,809
Loans converted to mortgage-backed securities......................... 499,657 91,958 142,136
Mortgage-backed securities transferred to available-for-sale
portfolio........................................................... -- -- 379,135
Mortgage-backed securities transferred from available-for-sale
portfolio to held-for-investment portfolio.......................... -- 258,344 --
Loans transferred from held-for-sale portfolio to held-for-investment
portfolio........................................................... 11,013 77,195 --
</TABLE>
See Notes to Consolidated Financial Statements.
F-82
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
SFFed Corp. (SFFed) and its wholly owned subsidiary; San Francisco Federal
Savings and Loan Association (the Association) and its subsidiaries; Franciscan
Financial Corporation, Development Credit Corporation, Capital Conveyance
Company and Capital CMO Services and the subsidiary of Franciscan Financial
Corporation; San Francisco Auxiliary Corporation. All significant intercompany
transactions have been eliminated.
Primary Business Activities
SFFed's principal business is attracting deposits from the general public
and using such funds, along with borrowings from various other sources, to
originate real estate loans secured by deeds of trust, other loans and to make
short-term investments. The Company's revenues are primarily interest received
from its loan portfolio, investment securities and mortgage-backed securities
and fees related to originating and servicing loans.
Cash Equivalents
For purposes of the statements of cash flows, SFFed considers all highly
liquid investments purchased with an initial maturity of three months or less to
be cash equivalents.
Securities Purchased Under Agreements to Resell
SFFed enters into purchases of securities under agreements to resell
(repurchase agreements). The amounts advanced under these agreements represent
short-term loans.
Mortgage-Backed Securities (MBS)
SFFed has converted certain qualifying real estate loans in its portfolio
to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage
Association (FNMA) MBS. Additionally, SFFed has purchased MBS through
established securities dealers. Effective December 31, 1993 SFFed adopted
Statement of Financial Accounting Standards No. 115 (FAS 115), Accounting for
Certain Investments in Debt and Equity Securities. In accordance with the
provision of FAS 115, SFFed has identified MBS as either held for investment or
available for sale. SFFed does not have any trading securities. Premiums and
discounts on purchased MBS are amortized or accreted over the expected life of
the underlying mortgages using the interest method.
MBS Held for Investment
SFFed has the positive intent and ability to hold these MBS to maturity.
These MBS are reported at cost net of any applicable premium or discount.
Transfers of MBS available-for-sale to MBS held-for-investment portfolio are
recorded at fair value. The related net unrealized holding gains or losses, net
of applicable income taxes, at the date of transfer are reported as a separate
component of stockholders' equity and amortized over the remaining contractual
life of these securities using the interest method.
MBS Available for Sale
These MBS are reported at their aggregate fair value. Net unrealized gains
and losses are excluded from earnings and reported, net of applicable income
taxes, as a separate component of stockholders' equity until realized. Gains and
losses on the sale of these MBS are determined using the specific identification
method. Any permanent decline in the fair value of individual securities
held-for-investment and available-for-sale below their cost would be recognized
through a write-down of the securities to their fair value by a charge to
earnings as a realized loss.
F-83
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Loans Held For Sale
During the period of origination, real estate loans are designated as held
either for sale or investment purposes. Loans held for sale are carried at the
lower of cost or estimated market value, determined on an aggregate basis.
Transfers of loans held for sale to the held-for-investment portfolio are
recorded at the lower of cost or market value on the transfer date.
Net unrealized losses are recognized through a valuation allowance by
charges to income.
Impaired and Non-Performing Loans
The Financial Accounting Standards Board ('FASB') issued Statement of
Financial Accounting Standards No. 114, Accounting by Creditors for Impairment
of a Loan ('SFAS 114'), in May 1993 and Statement of Financial Standards No.
118, Accounting for Creditors for Impairment of a Loan-Income Recognition and
Disclosures ('SFAS 118') (an amendment of SFAS 114), in October 1994. SFFed
adopted SFAS 114 and SFAS 118 effective January 1, 1993. SFFed, in accordance
with the methods prescribed under SFAS 114, considers a loan impaired when it is
'probable' that a creditor will be unable to collect all amounts due (i.e., both
principal and interest) according to the contractual terms of the loan
agreement. The measurement of impairment may be based on (i) the present value
of the expected future cash flows of the impaired loan discounted at the loan's
original effective interest rate, (ii) the observable market price of the
impaired loan, or (iii) the fair value of the collateral of a
collateral-dependent loan. The amount by which the recorded investment of the
loan exceeds the measure of the impaired loan is recognized by recording a
valuation allowance with a corresponding charge to the provision for loan
losses. SFFed has defined residential 1-4 loans and consumer loans as homogenous
loans. Homogenous loans that have had a modification of terms are individually
reviewed to determine if they meet the definition of a troubled debt
restructuring. SFFed's loans are secured primarily by real estate and therefore,
measurement of impairment is based upon the fair value of the property
collateralizing the loan. Where impairment is determined to be permanent, a
charge-off is recorded; where impairment may be temporary, an allowance is
established. SFFed, before the adoption of SFAS 114, measured loan impairment
with the methods prescribed in this pronouncement. As a result, no additional
loss provisions were required by adoption of SFAS 114.
All loans designated by SFFed as 'impaired' are either placed on
non-accrual status or are designated as restructured and are included with those
loans reported as non-performing. SFFed's non-performing loans consist of loans
on which SFFed has ceased the accrual of interest ('non-accrual loans') and
loans on which various concessions have been made with respect to the interest
rate or other terms due to the inability of the borrower to service the
obligation under the original terms of the agreement ('restructured loans'). It
is SFFed's policy to place a loan on non-accrual status in the event that the
borrower is 90 days or more delinquent or earlier if the timely collection of
interest and/or principal appears doubtful or the risk of default is probable.
Allowance for Loan Losses
SFFed maintains a loan monitoring system which provides a means for the
timely identification of impaired loans and to permit the evaluation of the
adequacy of the allowance for losses. SFFed has established valuation allowances
for estimated losses on specific loans ('specific allowances') and for the
inherent risk in the loan portfolio which has yet to be specifically identified
('general allowances'). Specific allowances are provided when a decline in the
value of an impaired loan is identified, based upon the excess of the
outstanding loan amount over the fair value of the related collateral plus
holding and selling costs. General allowances are established based upon the
inherent risk in the loan portfolio that has not been specifically identified.
In conjunction with a review of the loan portfolio, the allowance for loan
losses is evaluated quarterly and maintained at a level believed adequate by
management to absorb estimated probable losses. In evaluating the general
allowance for loan losses, management considers various factors including
historical loss experience, the
F-84
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
level and trend of delinquent real estate conditions, and the composition of the
loan portfolio. Losses incurred upon initial acquisition of real estate owned
through foreclosure are charged to the allowance for loan losses.
While management uses currently available information in evaluating and
adjusting the allowance for loan losses, additions to the allowance may be
required because of changes in future economic, real estate and other conditions
beyond SFFed's control.
Interest on Loans
Interest on loans is credited to income when earned. Interest is not
recognized on loans that are considered to be uncollectible or in the process of
foreclosure. In general, loans are placed on a non-accrual status when they
become 90 days delinquent and a reserve is established for previously accrued
but uncollected interest on such loans. Interest income received on non-accrual
loans is recognized during the year using the cash basis method of income
recognition.
Loan Origination Fees
SFFed charges fees for originating loans. These fees, net of certain
related direct loan origination costs, are recognized as an adjustment of the
loan's yield over the contractual life of the loan using the interest method,
which results in a constant rate of return. When a loan is paid-off or sold, the
unamortized balance of any related fees and costs is recognized as income. Other
loan fees and charges representing service costs are reported in income when
collected or earned.
Sales of Loans
Gains or losses resulting from sales of loans or interests in loans are
recorded at the time of sale and are determined by the difference between the
net sales proceeds and the carrying value of the assets sold. When the right to
service the loans is retained, a gain or loss is recognized based upon the net
present value of expected amounts to be received or paid resulting from the
difference between the contractual interest rates received from the borrowers
and the rate paid to the buyer, taking into account estimated prepayments on
such loans. Excluded from the net present value portion of the gain or loss is
an amount equal to the present value of a normal servicing fee. The net asset
resulting from the present value computation, representing deferred revenue or
expense, is amortized to operations over the estimated remaining life of the
loan using a method that approximates the interest method. The balance of
deferred revenue and expense has been adjusted as necessary for loan prepayments
in excess of, or below, estimated prepayments (See Note 6). Any loans held for
sale by SFFed are carried at the lower of cost or market.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation of office property and equipment is computed using
the straight-line method over the estimated useful lives of the various classes
of assets. Amortization of leasehold improvements is provided for using the
straight-line method over the remaining term of the lease or the estimated
useful life of the asset, whichever is less. Maintenance and repairs are charged
to expense and improvements are capitalized.
Real Estate Owned
Real estate acquired in settlement of loans is initially recorded at the
lower of the unpaid loan balance or fair value at the date acquired. Subsequent
adjustments, if any, are made when the carrying value exceeds estimated fair
value. Costs related to the development of such properties are capitalized and
costs related to holding are charged to expense. Real estate acquired for sale
or development is carried at the lower of cost or estimated net realizable
value. The carrying value of this real estate includes capitalized development
and construction costs.
F-85
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The carrying value is reviewed periodically and adjusted when it exceeds net
realizable value. Interest is capitalized on funds disbursed during the
development and construction period for real estate projects.
Excess of Cost Over Fair Value of Net Assets Acquired (Goodwill)
Goodwill is stated net of accumulated amortization and is being amortized
using the straight-line method over periods ranging from 5 to 25 years.
Securities Sold Under Agreements to Repurchase
SFFed enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Fixed-coupon reverse repurchase agreements are
treated as financing arrangements, and the obligations to repurchase securities
sold are reflected as a liability in the consolidated statements of financial
condition. The securities underlying the agreements remain in the asset
accounts.
Taxes on Income
SFFed accounts for income taxes in accordance with the provisions of the
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
('SFAS 109'). SFAS 109 requires the use of an asset and liability approach
whereby deferred income taxes are computed by applying enacted tax laws and
rates applicable to future periods to the temporary differences between the tax
bases of assets and liabilities and their carrying values for financial
reporting purposes. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date. Future tax benefits attributable to temporary differences are recognized
to the extent the realization of such benefits is more likely than not.
Earnings Per Share
Earnings per share is based on the weighted average number of shares
outstanding (including the dilutive effect of unexercised stock options):
7,855,919, 7,827,665, and 7,956,090 for 1995, 1994 and 1993, respectively.
Recently Issued Accounting Pronouncements
During 1995, the Financial Accounting Standards Board issued several
Statements of Financial Accounting Standards, ('SFAS's') which are described
below. SFFed has not assessed the impact of these statements on its financial
position or its results of operations because of SFFed's acquisition by First
Nationwide Bank, A Federal Savings Bank (see Note 2).
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
('SFAS 121'), was issued in March 1995. The Statement addresses the accounting
for the impairment of long-lived assets, such as premises, furniture and
equipment, certain identifiable intangibles and goodwill related to those
assets. Long-lived assets and certain identifiable intangibles are to be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment loss
is recognized when the sum of the future cash flows (undiscounted and without
interest charges expected from the use of the asset and its eventual
disposition) is less than the carrying amount of the asset. The Statement also
requires that long-lived assets and identifiable intangibles, except for assets
of a discontinued operation held for disposal, be accounted for at the lower of
cost or fair value less cost to sell. SFAS 121 is effective for financial
statements for periods beginning after December 15, 1995.
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
Accounting for Mortgage Servicing Rights ('SFAS 122'). SFAS 122 requires that an
enterprise that acquires servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes these mortgage loans with
servicing
F-86
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
rights retained should allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the mortgage servicing rights)
based on their relative fair values. SFAS 122 is effective for financial
statements for periods beginning after December 15, 1995.
SFAS No. 123, Accounting for Stock-Based Compensation ('SFAS 123'), was
issued in October 1995. This Statement prescribes accounting and reporting
standards for all stock-based compensation plans, including employee stock
options, restricted stock and stock appreciation rights. The Statement defines a
'fair value based method' of accounting for employee stock options and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure compensation for those plans using the 'intrinsic value based method'
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ('Opinion No. 25').
Under the fair value based method, compensation cost is measured at the
grant date of the option based on the value of the award and is recognized over
the service period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at grant date or other measurement date over the
amount an employee must pay to acquire the stock. Under Opinion No. 25, no
compensation cost is recognized.
SFAS 123 requires that an employer's financial statements include certain
disclosures about stock-based compensation arrangements regardless of the method
used to account for them. An employer that continues to apply the accounting
provisions of Opinion No. 25 will disclose pro forma amounts that reflect the
difference between compensation cost, if any, included in results of operations
and the related cost measured by the fair value based method, including tax
effects, that would have been recognized in the statement of operations if the
fair value based method had been used. SFAS 123 is effective for transactions
entered into after December 15, 1995.
Use of Financial Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain of the 1994 and 1993 consolidated financial statement amounts have
been reclassified to conform to the 1995 presentation.
NOTE 2--ACQUISITION BY FIRST NATIONWIDE BANK
On August 27, 1995, SFFed entered into an Agreement and Plan of Merger (the
'Merger Agreement') with First Nationwide Bank, A Federal Savings Bank ('First
Nationwide'), pursuant to which SFFed was acquired.
The acquisition by and merger into First Nationwide was consummated on
February 1, 1996. Under the Merger Agreement, holders of SFFed common stock
outstanding at the effective time of the merger (other than shares for which
dissenter's rights were perfected, shares held by First Nationwide and shares
held as treasury stock) received $32 per share. The holders of options on the
common stock of SFFed received for each share subject to an option the
difference between $32 and the applicable per share option price. The aggregate
consideration paid by First Nationwide under the Merger Agreement was
approximately $264,000,000. In connection with the acquisition by First
Nationwide, at December 31, 1995, SFFed accrued approximately $9,600,000 of
investment banker and legal fees, contract termination costs, severance and
other employee related costs.
F-87
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--CASH AND INVESTMENTS
SFFed's banking depositories apply an imputed interest credit to balances
left on deposit which is used as an offset to charges for banking services
rendered. The Association is required by the Federal Reserve System to maintain
noninterest-bearing cash balances against some of its customer certificate and
transaction deposit accounts. The required reserves averaged $3,016,000 during
the year ended December 31, 1995. SFFed does not maintain compensating balances
with banks.
Securities Purchased Under Agreements to Resell
The following is a summary of these securities:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at end of period,
comprised of mortgage-backed securities............................. $165,000 $112,000
-------- --------
-------- --------
Average balance during each year...................................... $149,412 $102,983
Maximum balance at any month end...................................... 175,000 138,000
Weighted average interest rate........................................ 6.12% 6.12%
Weighted average days to maturity..................................... 4 4
</TABLE>
These agreements are collateralized by mortgage-backed securities and
loans. At December 31, 1995 and 1994, all agreements to resell securities were
for securities identical to those purchased and were executed with five primary
dealers. The related collateral was held by the dealers arranging the
transactions.
Federal Home Loan Bank Stock
At December 31, 1995 and 1994, this investment consisted of 315,795 and
300,492 shares, respectively, of Federal Home Loan Bank of San Francisco (FHLB)
$100 par value capital stock at cost. The amount of stock owned meets the last
annual regulatory determination. The FHLB capital stock is pledged to secure
borrowings from the FHLB.
NOTE 4--MORTGAGE-BACKED SECURITIES [MBS]
SFFed has classified a portion of its MBS portfolio as 'available for sale'
as of year-end 1995 and 1994. At December 31, 1995 and 1994 the
available-for-sale MBS portfolio is reported in the Consolidated Statements of
Financial Condition at fair value. The held-for-investment MBS portfolio is
reported at amortized cost. At December 31, 1995 SFFed reflected an unrealized
loss on the MBS available for sale portfolio, net of tax, of $1,128,000 as a
decrease to stockholders' equity. At December 31, 1994, the unrealized loss on
the MBS portfolio amounted to $3,449,000, net of tax.
F-88
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--MORTGAGE-BACKED SECURITIES [MBS]--(CONTINUED)
The carrying amount of MBS and their approximate fair values at December
31, 1995 and 1994 were as follows:
MBS available for sale:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995
Adjustable rate........................................ $46,668 $ 533 -- $47,201
Fixed rate............................................. 25,328 539 $ (224) 25,643
--------- ---------- ---------- -------
Total $71,996 $1,072 $ (224) $72,844
--------- ---------- ---------- -------
--------- ---------- ---------- -------
Weighted average interest rate......................... 6.53%
---------
---------
December 31, 1994
Adjustable rate........................................ $50,242 -- $ (1,662) $48,580
Fixed rate............................................. 30,218 $ 127 (1,467) 28,878
--------- ---------- ---------- -------
$80,460 $ 127 $ (3,129) $77,458
--------- ---------- ---------- -------
--------- ---------- ---------- -------
Weighted average interest rate......................... 6.17%
---------
---------
</TABLE>
MBS held for investment are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1995
Adjustable rate...................................... $ 776,397 $ 9,220 $ (79) $785,538
Fixed rate........................................... 83,157 3,780 -- 86,937
--------- ---------- ---------- --------
Total............................................. $ 859,554 $ 13,000 $ (79) $872,475
--------- ---------- ---------- --------
--------- ---------- ---------- --------
Weighted average interest rate....................... 7.32%
---------
---------
December 31, 1994
Adjustable rate...................................... $ 324,757 -- $ (7,136) $317,621
Fixed rate........................................... 5,821 $ 23 (208) 5,636
--------- ---------- ---------- --------
$ 330,578 $ 23 $ (7,344) $323,257
--------- ---------- ---------- --------
--------- ---------- ---------- --------
Weighted average interest rate....................... 5.92%
---------
---------
</TABLE>
The scheduled maturities of MBS available for sale and MBS held for
investment at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD FOR INVESTMENT
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Due from one year to five years......................... $12,158 $11,934 -- --
Due from five years to ten years........................ 894 937 -- --
Due after ten years..................................... 58,944 59,973 $ 859,554 $ 872,475
--------- --------- --------- ---------
Total.............................................. $71,996 $72,844 $ 859,554 $ 872,475
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-89
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--MORTGAGE-BACKED SECURITIES [MBS]--(CONTINUED)
The amortized cost SFFed's MBS portfolio, pledged as collateral in
conjunction with various borrowings and transactions, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Collateral for:
Local government agency deposits.................................... $ 550 $ 545
Securities sold under agreements to repurchase (Note 10)............ 791,665 371,679
FNMA servicing...................................................... 4,638 18,599
-------- --------
$796,853 $390,823
-------- --------
-------- --------
</TABLE>
At December 31, 1995 and 1994, accrued interest receivable on MBS amounted
to $5,836,000 and $2,160,000, respectively.
MBS converted from SFFed originated loans included in the amortized cost of
MBS available for sale and held for investment at December 31, 1995 totalled
$36,056,000 and $740,158,000, respectively (December 31, 1994, $41,285,000 and
$284,087,000).
In accordance with the provisions of SFAS 115, the MBS portfolio has been
classified in the Consolidated Statements of Financial Condition according to
management's intent. At June 30, 1994, as a result of a revision of its
long-term business plans, SFFed transferred $258,344,000 of its MBS from the
available-for-sale portfolio to its held-for-investment portfolio. The
unrealized holding loss at the date of transfer, in the amount of $3,055,000, is
being amortized as a yield adjustment over the remaining life of these MBS. At
December 31, 1995, the unrealized holding loss related to this transfer is
reflected as a $1,620,000, net of tax, reduction in stockholders' equity.
NOTE 5--LOANS RECEIVABLE HELD FOR INVESTMENT
Loans receivable held for investment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
One-to-four family residential loans.............................. $1,535,791 $1,764,572
Multi-family residential loans.................................... 628,410 648,491
Commercial property loans......................................... 465,466 500,106
Construction and improved land loans.............................. 40,230 54,489
---------- ----------
Total 2,669,897 2,967,658
Consumer loans.................................................... 94,749 91,928
Loans secured by savings accounts................................. 7,528 6,689
---------- ----------
Total 2,772,174 3,066,275
Less:
Undisbursed loan funds.......................................... (16,468) (12,557)
Deferred loan fees, net......................................... (1,160) (4,292)
Discounts and premiums, net..................................... (955) (1,093)
Allowance for losses............................................ (38,603) (36,829)
---------- ----------
Loans receivable held for investment, net......................... $2,714,988 $3,011,504
---------- ----------
---------- ----------
Weighted average interest rate.................................... 7.88% 6.90%
</TABLE>
The above classifications are net of participation interests in loans sold
and loans serviced for others.
F-90
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LOANS RECEIVABLE HELD FOR INVESTMENT--(CONTINUED)
The following is an analysis, by property type, of commercial real estate
loans included above:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Office buildings...................................................... $225,130 $233,234
Warehouses............................................................ 93,628 100,813
Shopping centers...................................................... 17,610 53,970
Motels................................................................ 20,098 15,958
General purpose....................................................... 53,709 24,281
Mobile home parts..................................................... 9,007 10,449
Other................................................................. 46,284 61,401
-------- --------
Total $465,466 $500,106
-------- --------
-------- --------
</TABLE>
Certain of SFFed's real estate loans are pledged as collateral for
borrowings from various sources, as summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Collateral for:
FHLB advances (Note 10)......................................... $1,016,450 $1,109,092
Deposits of state and local government agencies................. 3,502 4,887
---------- ----------
Total $1,019,952 $1,113,979
---------- ----------
---------- ----------
</TABLE>
At December 31, 1995 and 1994, accrued interest receivable on loans
amounted to $17,389,000 and $16,184,000, respectively.
Over 99% of SFFed's loan portfolio is secured by property within the state
of California. Additionally, 61% of SFFed's loan portfolio is secured by
property located within the greater San Francisco Bay Area. Accordingly, the
ultimate collectibility of SFFed's loan portfolio is susceptible to changes in
the regional economics and real estate markets within Northern California and,
to a lesser extent, in Southern California.
On occasion, SFFed restructures major loans, generally because of a
borrower's financial difficulties. Interest rate and cash payment concessions
and an extension of a loan's maturity may be granted in such restructurings.
Information concerning impaired loans that were past due for three months
or more or in the process of foreclosure, (nonaccrual loans), and restructured
loans, is summarized as follows:
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Balance at year end.................................................. $40,976 $44,809 $81,067
Interest foregone.................................................... 3,259 3,829 4,362
Restructured loans:
Balance at year end (1).............................................. 4,304 29,639 33,044
Actual interest income recognized.................................... 1,123 2,305 2,284
Pro-forma interest income using original loan terms.................. 1,119 2,358 2,387
</TABLE>
(Footnote on next page)
F-91
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--LOANS RECEIVABLE HELD FOR INVESTMENT--(CONTINUED)
(Footnote from previous page)
- ------------------
(1) Ending balances are shown of net of nonaccrual loans. During the second
quarter of 1995, SFFed re-evaluated its policies on restructured loans and
determined that several loans that had been restructured were current for
several years. As such, the December 31, 1995 balance does not include these
loans.
At December 31, 1995, the aggregate investment in loans considered to be
impaired under SFAS 114 was $45,280,000. Included in this amount is $12,463,000
of impaired loans for which the related allowance for loan losses was $3,665,000
and $32,817,000 of loans for which no allowance was considered necessary. The
average recorded investment in impaired loans during the year ended December 31,
1995 was approximately $61,225,000. For the year ended December 31, 1995, SFFed
recognized interest income on those impaired loans of $1,123,000. Interest
income recognized during the year using the cash basis method of income
recognition cannot be practicably determined.
At December 31, 1994, SFFed's aggregate investment in loans considered
impaired under SFAS 114 was $74,448,000. Included in this amount is $18,069,000
of impaired loans for which the related allowance for loan losses was $2,430,000
and $56,379,000 of loans for which no allowance was considered necessary. SFFed
recognized approximately $2,305,000 of interest income on these loans in 1994.
Activity in the allowance for losses on loans, real estate owned and other
transactions is summarized as follows:
<TABLE>
<CAPTION>
REAL ESTATE CONSUMER TOTAL REAL ESTATE
LOANS LOANS LOANS OWNED OTHER(1) TOTAL
----------- -------- -------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992................ $33,194 $ 717 $ 33,911 $ 6,645 $ 838 $ 41,394
Provision for losses (recoveries)......... 6,279 304 6,583 7,134 (90) 13,627
Charge-offs............................... (3,290) (603) (3,893) (5,975) -- (9,868)
Recoveries................................ 25 171 196 -- -- 196
----------- -------- -------- ----------- -------- --------
Balance at December 31, 1993................ 36,208 589 36,797 7,804 748 45,349
Provision for losses...................... 16,828 377 17,205 8,336 188 25,729
Charge-offs............................... (16,830) (605) (17,435) (4,980) (200) (22,615)
Recoveries................................ 59 203 262 -- -- 262
----------- -------- -------- ----------- -------- --------
Balance at December 31, 1994................ 36,265 564 36,829 11,160 736 48,725
Provision for losses...................... 10,169 925 11,094 3,832 1,042 15,968
Charge-offs............................... (8,895) (945) (9,840) (1,902) (28) (11,770)
Recoveries................................ 262 258 520 -- -- 520
----------- -------- -------- ----------- -------- --------
Balance at December 31, 1995................ $37,801 $ 802 $ 38,603 $13,090 $1,750 $ 53,443
----------- -------- -------- ----------- -------- --------
----------- -------- -------- ----------- -------- --------
</TABLE>
- ------------------
(1) The 1995, 1994 and 1993 provision for losses (recoveries) included
$1,042,000, $188,000 and $(90,000), respectively, related to real estate
development projects.
NOTE 6--MORTGAGE BANKING
Loans held for sale are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1994
------------------ -------------------
CARRYING MARKET CARRYING MARKET
VALUE VALUE VALUE VALUE
-------- ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Adjustable-rate single-family loans.......................... -- -- $ 3,627 $ 3,627
Fixed-rate single-family loans............................... $4,393 $4,393 -- --
-------- ------ -------- -------
Total $4,393 $4,393 $ 3,627 $ 3,627
-------- ------ -------- -------
-------- ------ -------- -------
</TABLE>
F-92
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--MORTGAGE BANKING--(CONTINUED)
SFFed services loans for others amounting to $1,829,863,000, $1,454,344,000
and $1,518,546,000 at December 31, 1995, 1994 and 1993, respectively, and are
not included in the accompanying Consolidated Statements of Financial Condition.
Income from loan servicing amounted to $5,460,000, $4,080,000 and $2,621,000 for
the years ended December 31, 1995, 1994 and 1993, respectively. Custodial
balances maintained in connection with loans serviced for others were
approximately $12,399,000, $8,310,000 and $31,902,000 at December 31, 1995, 1994
and 1993, respectively.
Activity in the net deferred premiums resulting from sales of loans,
participation interests in loans and securitization of loans when servicing
rights are retained for the three years ended December 31, is summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................................. $ 2,803 $3,424 $ 5,361
Additions to gain on sale of loans....................................... 12 175 364
Amortization charged to loan servicing income:
Regular................................................................ (1,447) (1,696) (1,826)
(Increase) decrease due to changes in actual and estimated prepayments... 980 900 (475)
------- ------ -------
Balance at end of year................................................... $ 2,348 $2,803 $ 3,424
------- ------ -------
------- ------ -------
</TABLE>
NOTE 7--PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ ESTIMATED
1995 1994 USEFUL LIVES
------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land.............................................................. $ 4,811 $ 4,811 --
Buildings......................................................... 10,170 10,064 40 years
Leasehold improvements............................................ 14,717 13,754 Life of lease
Furniture and equipment........................................... 22,347 23,447 5-20 years
Construction in progress.......................................... 57 131 --
------- -------
Total................................................... 52,102 52,207
Less accumulated depreciation and amortization.................... (30,203) (29,261)
------- -------
Net............................................................... $21,899 $22,946
------- -------
------- -------
</TABLE>
Depreciation and amortization expense amounted to $3,206,000, $3,226,000
and $3,043,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
F-93
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--REAL ESTATE OWNED
Real estate owned is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Real estate acquired through foreclosure and held for sale or
development........................................................... $45,494 $36,944
Less allowance for losses (Note 5)...................................... (13,090) (11,160)
------- -------
$32,404 $25,784
------- -------
------- -------
</TABLE>
Real estate acquired by foreclosure during 1995 and 1994, as adjusted to
the lower of cost or fair value, amounted to $34,580,000 and $47,436,000,
respectively.
NOTE 9--CUSTOMER DEPOSITS
Customer deposits consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994
------------------- -------------------
AMOUNT % AMOUNT %
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Passbook accounts:
0.01 to 4.50%.................................. $ 572,848 21.3% $ 76,250 3.1%
NOW and money market deposit accounts:
0.01 to 6.00%.................................. 279,867 10.4 490,153 19.7
---------- ----- ---------- -----
Demand deposits.................................. 852,715 31.7 566,403 22.8
---------- ----- ---------- -----
Certificate accounts:
Less than 3.00%................................ 15,022 0.6 33,858 1.4
3.00 to 4.99%.................................. 132,192 4.9 863,911 34.8
5.00 to 6.99%.................................. 1,548,151 57.4 921,283 37.1
7.00 to 8.99%.................................. 144,910 5.4 95,133 3.8
9.00 to 10.99%................................. 196 -- 1,350 0.1
11.00% and above............................... 57 -- 50 --
---------- ----- ---------- -----
Total certificate accounts....................... 1,840,528 68.3 1,915,585 77.2
---------- ----- ---------- -----
Total customer deposits.......................... $2,693,243 100.0% $2,481,988 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
Weighted average interest rate................... 5.13% 4.61%
----- -----
----- -----
</TABLE>
Noninterest bearing deposits were $29,061,000 and $23,335,000 at December
31, 1995 and 1994, respectively.
A summary of certificate accounts by maturity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1995 1994
------------------- -------------------
AMOUNT % AMOUNT %
---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Maturity within one year......................... $1,108,847 60.3% $1,316,580 68.7%
One to two years................................. 243,006 13.2 334,842 17.5
Two to three years............................... 127,333 6.9 156,595 8.2
Three or more years.............................. 361,342 19.6 107,568 5.6
---------- ----- ---------- -----
$1,840,528 100.0% $1,915,585 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
F-94
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--CUSTOMER DEPOSITS--(CONTINUED)
Customer deposits include approximately $387,385,000 and $373,347,000 of
accounts with balances in excess of $100,000 at December 31, 1995 and 1994,
respectively.
At December 31, 1995 and 1994, accrued interest payable on customer
deposits, included in other liabilities in the accompanying Statements of
Financial Condition, was $363,000 and $491,000, respectively.
A tabulation of interest expense on customer deposits follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Demand deposits.................................................... $ 29,580 $ 14,592 $ 19,590
Certificate accounts............................................... 105,719 86,819 75,213
-------- -------- --------
$135,299 $101,411 $ 94,803
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 10--BORROWINGS
Securities Sold Under Agreements to Repurchase
SFFed enters into agreements with broker-dealers and other financial
institutions to repurchase securities previously sold. These agreements are
effectively short-term borrowings secured by MBS (see Note 4). Securities sold
under the terms of these agreements are held by the securities dealers who
arrange the transactions.
Information related to securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Balance at end of period.............................................. $713,362 $347,679
-------- --------
-------- --------
Average balance during each year...................................... $658,953 $261,368
Maximum balance at any month end...................................... 871,722 347,679
Weighted average interest rate........................................ 6.14% 5.74%
</TABLE>
At December 31, 1995, $659,442,000 of SFFed's agreements mature in one year
or less, and $53,920,000 mature in 1998.
Advances from the Federal Home Loan Bank of San Francisco
Each Federal Home Loan Bank (FHLB) is authorized to make advances to its
member associations, subject to such regulations and limitations that the
Federal Housing Finance Board may prescribe. SFFed's borrowings from the FHLB
consist of notes payable with interest rates ranging from 4.11% to 9.10%. The
maturity and weighted average interest rate of the advances outstanding at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31: (DOLLARS IN THOUSANDS)
- ------------ ----------------------
<S> <C>
1996........................... $266,969
1997........................... 7,500
1998........................... --
1999........................... --
2000........................... --
Thereafter..................... 483
-----------
$274,952
-----------
-----------
Weighted average interest
rate......................... 6.90%
-----------
-----------
</TABLE>
F-95
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--BORROWINGS--(CONTINUED)
At December 31, 1995 and 1994, SFFed had pledged certain real estate loans
(see Note 5), mortgage-backed securities (see Note 4) and SFFed's investment in
stock of the FHLB of San Francisco (see Note 3) to secure FHLB advances.
Mortgage-Backed Bonds
In September 1994, SFFed retired the collateralized mortgage obligation at
face value and incurred a loss of $347,000.
Senior Notes
In September 1994, SFFed issued $50,000,000 of its senior notes due
September 1, 2004. The notes are reported net of unamortized issuance costs. The
notes bear interest at the rate of 11.20% payable semi-annually on March 1 and
September 1. Under the terms of the notes, SFFed may not make any prepayments of
principal, except that in the event of a change in control of SFFed, SFFed shall
offer to prepay the notes in full. SFFed may contribute up to $34,000,000 from
the proceeds of the note sale to the Association in the form of equity capital
and by December 31, 1995 SFFed had so contributed $30,000,000.
The note agreement contains certain restrictive covenants which, among
other things, (1) require SFFed to maintain certain capital levels, (2) restrict
the amount of funds available for payment of dividends on SFFed's stock or for
the repurchase of its stock and (3) establish a maximum ratio of non-performing
assets (as defined) to consolidated total assets. If an event of default occurs,
including failure to comply with any restrictive covenant, the notes may become
immediately payable in full. SFFed was in compliance with all terms of the note
agreement at December 31, 1995.
NOTE 11--TAXES ON INCOME
The provision (benefit) for taxes on income in the Consolidated Statements
of Operations is comprised of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal income tax.................................................... $ (760) $ (357) $ 9,338
California franchise tax.............................................. (15) (383) 3,617
------- ------- -------
Total.............................................................. (775) (740) 12,955
------- ------- -------
Deferred:
Federal income tax.................................................... 873 (1,748) (3,453)
California franchise tax.............................................. 1,470 (912) (1,597)
------- ------- -------
Total.............................................................. 2,343 (2,660) (5,050)
------- ------- -------
Total:
Federal income tax.................................................... 113 (2,105) 5,885
California franchise tax.............................................. 1,455 (1,295) 2,020
------- ------- -------
Total.............................................................. $ 1,568 $(3,400) $ 7,905
------- ------- -------
------- ------- -------
</TABLE>
The liability for taxes on income at December 31, 1995 and 1994 in the
Consolidated Statements of Financial Condition includes a deferred tax liability
totalling $1.9 million for 1995 and a deferred tax asset totalling $2.3 million
for 1994, that have been provided for the temporary differences between the tax
bases and financial statement carrying amounts of assets and liabilities. Tax
benefits attributable to temporary differences are recognized to the extent that
realization of such benefits is more likely than not. The major sources of these
F-96
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--TAXES ON INCOME--(CONTINUED)
temporary differences comprising SFFed's net deferred tax liability and net
deferred tax (asset) at December 31, 1995 and 1994, respectively, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Loan fee income and discounts deferred for tax purposes.......................... $ 18,508 $ 17,243
FHLB stock dividends............................................................. 3,244 2,311
Deferred servicing-related premiums on loans..................................... 933 999
Tax basis versus financial statement basis depreciation expense.................. 2,701 2,846
Investments in partnerships...................................................... 54 179
Other............................................................................ -- 682
-------- --------
Gross deferred tax liabilities................................................... 25,440 24,260
-------- --------
DEFERRED TAX ASSETS:
Federal tax basis loss carryovers................................................ (12) (648)
Deferred interest on restructured loans.......................................... (605) (692)
Accrued pension plan contributions............................................... (6,160) (4,380)
Book basis loss reserves......................................................... (13,349) (17,052)
Minimum pension liability adjustment............................................. (241) (376)
CMO investment trust............................................................. (972) (887)
Unrealized loss on securities available for sale................................. (709) (2,507)
Contract accruals................................................................ (1,373) --
Other............................................................................ (106) --
-------- --------
Gross deferred tax assets........................................................ (23,257) (26,542)
-------- --------
Net deferred tax liability (asset)............................................... $ 1,913 $ (2,282)
-------- --------
-------- --------
</TABLE>
The differences between the federal statutory income tax rate and the
effective rate of SFFed's tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
------ ------ ----
<S> <C> <C> <C>
Federal statutory tax rate............................................. 35.0% (35.0)% 35.0%
Increase (reduction) in tax rate resulting from:
California franchise tax, net of federal benefit..................... 7.5 (7.5) 7.4
Amortization and write-down of intangible asset...................... 20.9 3.1 1.4
Change in base year tax bad debt reserve............................. -- (5.0) (3.4)
Deferred tax adjustment resulting from tax rate change............... -- -- 1.1
Capitalized merger costs............................................. 84.9 -- --
Interest on officer's life insurance................................. (14.6) -- --
California enterprise zone deduction................................. (9.0) -- --
Other................................................................ (10.1) 2.6 2.9
------ ------ ----
Effective tax rate..................................................... 114.6% (41.8)% 44.4%
------ ------ ----
------ ------ ----
</TABLE>
Under the Internal Revenue Code, the Association in determining taxable
income is allowed a special bad debt deduction based on a percentage of taxable
income (8% for 1995, 1994 and 1993) or on specified experience formulas. The
Association used the experience method in 1995, 1994 and 1993 in determining the
federal income tax bad debt deduction for tax return purposes for each
respective year.
A deferred tax liability has not been recognized for the amount of the
Association's tax bad debt reserves that arose in tax years beginning before
December 31, 1987. These reserves amounted to approximately $15.9 million at
both December 31, 1995 and 1994, respectively. The amount of the unrecognized
deferred tax
F-97
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--TAXES ON INCOME--(CONTINUED)
liability on such reserves at both December 31, 1995 and 1994 was approximately
$5.6 million. This deferred tax liability could be recognized if, in the future,
(1) that portion of the Association's retained earnings represented by these
reserves is used for purposes other than to absorb losses from bad debts,
including dividends or distributions in liquidation, (2) the Association fails
to meet the definition of a 'qualified savings institution,' or (3) there is a
change in the federal tax law.
During 1994 the Internal Revenue Service (IRS) completed its examination of
SFFed's tax returns for the years 1989 and 1990. The IRS had previously
completed its examination of SFFed's tax returns for 1987 and 1988. As a result
of these examinations the IRS has proposed adjustments, primarily related to
timing differences as to the recognition of income and expense for tax return
purposes. The most significant proposed adjustment relates to deferred loan fee
income. SFFed filed a formal protest with the IRS in 1994 contesting the results
of the audit of 1989 and 1990 (SFFed had previously filed a protest with regards
to the results of 1987 and 1988 examinations). Taxes associated with the
proposed adjustments which are being protested amount to approximately $23.5
million. SFFed believes that the income tax returns are substantially correct as
originally filed. SFFed has established a deferred tax liability in prior
periods for substantially all the items included in the IRS proposed
adjustments. Accordingly, SFFed's exposure is limited to interest on any tax
deficiency that may finally be assessed. SFFed believes that any additional tax
and interest thereon which may be due will not have a materially adverse effect
on the consolidated financial position or results of operations of SFFed.
NOTE 12--STOCKHOLDERS' EQUITY AND REGULATORY
CAPITAL REQUIREMENTS
Office of Thrift Supervision (OTS) regulations issued pursuant to the
Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA)
specify minimum tangible, core and risk-based capital requirements for thrift
institutions. The amount of the Association's net worth included in its minimum
regulatory capital requirements is not available for the payment of dividends
and may only be used to cover any future losses. Various adjustments are
required to be made to stockholder's equity and total assets for computing these
capital ratios, depending on an institution's capital and asset structure. For
purposes of computing the risk-based capital requirement, the regulations assign
a degree of credit risk to each of a thrift's assets and off-balance sheet
liabilities, ranging from zero to 100%.
Under Section 38 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (FDICIA), federal banking authorities are required to take prompt
corrective action against undercapitalized financial institutions, imposing a
series of increasing constraints on the operations of such institutions,
depending on the level of their undercapitalization. There are five capital
levels specified by FDICIA, ranging from well capitalized to critically
undercapitalized. OTS regulations set forth the minimum capital ratios for each
of these levels. Based upon qualitative judgments made during its most recent
examination of an institution, the OTS may downgrade an institution's capital
level by one step (e.g., a well capitalized institution can be reclassified as
adequately capitalized). Under these regulations, the Association is deemed to
be well capitalized at December 31, 1995.
F-98
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCKHOLDERS' EQUITY AND REGULATORY
CAPITAL REQUIREMENTS--(CONTINUED)
The Association's regulatory capital position at December 31, 1995 and 1994
is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
TANGIBLE, TANGIBLE,
CORE, CORE,
TIER 1 TIER 1
RISK-BASED TOTAL RISK-BASED TOTAL
CAPITAL RISK-BASED CAPITAL RISK-BASED
(1) CAPITAL (1) CAPITAL
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Capital per Association financial statements........ $231,966 $231,966 $219,225 $219,225
Adjustments for regulatory capital purposes:
Goodwill (2)..................................... (8,054) (8,054) (8,722) (8,722)
Investment in nonincludable subsidiaries (2)..... (8,924) (8,924) (8,205) (8,205)
Unrealized loss on securities available for sale,
net of tax..................................... 1,128 1,128 3,449 3,449
General valuation allowances........................ -- 27,829 -- 26,771
---------- ---------- ---------- ----------
Regulatory capital............................. $216,116 $243,945 $205,747 $232,518
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
- ------------------
(1) For the Association, there are no differences in these regulatory capital
computations.
(2) Also deducted from total assets for regulatory test purposes.
<TABLE>
<CAPTION>
ACTUAL MINIMUM
DECEMBER 31, 1995 REQUIREMENT
----------------- -----------------
CAPITAL RATIO CAPITAL RATIO
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FIRREA Capital Standards:
Tangible.................................................... $216,116 5.43% $ 59,717 1.50%
Core (leverage)............................................. 216,116 5.43 199,433 3.00
Risk-based.................................................. 243,945 10.92 178,720 8.00
FDICIA Capital Standards (well capitalized):
Leverage.................................................... 216,116 5.43 199,056 5.00
Tier 1 risk-based........................................... 216,116 9.67 134,041 6.00
Total risk-based............................................ 243,945 10.92 223,401 10.00
</TABLE>
<TABLE>
<CAPTION>
ACTUAL MINIMUM
DECEMBER 31, 1994 REQUIREMENT
----------------- -----------------
CAPITAL RATIO CAPITAL RATIO
-------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FIRREA Capital Standards:
Tangible.................................................... $205,747 5.54% $ 55,666 1.50%
Core (leverage)............................................. 205,747 5.54 111,332 3.00
Risk-based.................................................. 232,518 10.84 171,662 8.00
FDICIA Capital Standards (well capitalized):
Leverage.................................................... $205,747 5.54 $185,552 5.00
Tier 1 risk-based........................................... 205,747 9.59 128,746 6.00
Total risk-based............................................ 232,518 10.84 214,577 10.00
</TABLE>
F-99
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--STOCKHOLDERS' EQUITY AND REGULATORY
CAPITAL REQUIREMENTS--(CONTINUED)
During 1995, SFFed contributed $5,000,000 from the senior note proceeds to
the Association as equity capital. During 1994, SFFed contributed $30,000,000 to
the Association as equity capital, including $25.0 million of the proceeds from
the sale of its senior notes. See Note 10 concerning certain covenants included
in the senior note agreement.
In August 1994, the OTS issued a regulation, adding an interest rate risk
component to the risk-based capital requirement for thrifts. Those thrifts that
have an above normal interest rate risk exposure will be subject to a deduction
from the total capital available in computing their risk-based capital
requirement. The regulation, which was to become effective as of December 31,
1994, has been postponed indefinitely pending the testing of an OTS appeals
process at certain institutions and the impositions of similar requirements by
federal banking agencies. Based upon its December 31, 1995 computations, SFFed
does not currently have an above normal interest rate risk.
At periodic intervals, both the OTS and the FDIC routinely examine the
Association's financial statements as part of their legally prescribed oversight
of the savings and loan industry. Based on these examinations, the regulators
can direct that the Association's financial statements be adjusted in accordance
with their findings. No such adjustments were required by the regulators as a
result of their most recent examination of the Association which was completed
in March 1995.
Pursuant to a quarterly dividend policy initiated in 1993, SFFed paid cash
dividends totalling $2,042,000 or $0.26 per share on its common stock during
1995 compared with $0.28 per share in 1994 and $0.15 per share in 1993.
NOTE 13--PARENT COMPANY FINANCIAL INFORMATION
SFFed and its subsidiary file a consolidated federal income tax return in
which the taxable income or loss of SFFed is combined with that of its
subsidiary. SFFed's share of income tax expense is based on the amount which
would be payable if separate returns were filed. Accordingly, SFFed's equity in
the net income or loss of its subsidiary is excluded from the computation of the
provision for income taxes for financial statement purposes.
SFFed's statements of financial condition and related statements of
operations and cash flows are as follows:
Statements of Financial Condition
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash.................................................................. $ 234 $ 169
Note receivable from subsidiary....................................... 11,770 24,170
Tax benefit........................................................... 3,613 893
Other assets.......................................................... 2,022 1,018
Investment in subsidiary.............................................. 231,966 219,225
-------- --------
Total............................................................ $249,605 $245,475
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses...................................................... $ 4,970 $ 1,773
Senior notes (Note 10)................................................ 49,245 49,158
Stockholders' equity (see Consolidated Statements of Financial
Condition).......................................................... 195,390 194,544
-------- --------
$249,605 $245,475
-------- --------
-------- --------
</TABLE>
F-100
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--PARENT COMPANY FINANCIAL INFORMATION--(CONTINUED)
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividend from subsidiary................................................ $ 1,000
Interest on investments................................................. $ 1,151 $ 835 238
------- ------- -------
1,151 835 1,238
------- ------- -------
EXPENSES
General and administrative.............................................. 3,464 576 395
Interest on senior notes................................................ 5,703 1,756 --
Federal and state income tax benefit.................................... (2,577) (605) (79)
------- ------- -------
6,590 1,727 316
------- ------- -------
Income (loss) before undistributed net income (loss) of subsidiary...... (5,439) (892) 922
Undistributed net income (loss) of subsidiary........................... 5,239 (3,836) 8,972
------- ------- -------
Net income (loss)....................................................... $ (200) $(4,728) $ 9,894
------- ------- -------
------- ------- -------
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ (200) $ (4,728) $ 9,894
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Undistributed net (income) loss of subsidiary................... (5,239) 3,836 (8,972)
Amortization of organization expense............................ -- -- 42
Income tax benefit.............................................. (2,577) (605) (79)
Net change in other assets/liabilities.......................... 2,401 705 378
-------- -------- --------
Net cash provided by (used in) operating activities.................. (5,615) (792) 1,263
-------- -------- --------
Cash flows from investing activities:
Maturities of investment securities................................ -- -- 13,270
Purchases of investment securities................................. -- -- (6,040)
Decrease (increase) in note receivable from subsidiary............. 12,400 (16,800) (7,370)
Capital contributions to subsidiary................................ (5,000) (30,000) --
Other, net......................................................... (54) -- (106)
-------- -------- --------
Net cash provided by (used in) investing activities.................. 7,346 (46,800) (246)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock............................. 376 404 488
Proceeds from issuance of senior notes............................. -- 49,158 --
Payment of dividends............................................... (2,042) (2,192) (1,166)
-------- -------- --------
Net cash provided by (used in) financing activities.................. (1,666) 47,370 (678)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents................. 65 (222) 339
Cash and cash equivalents at beginning of year....................... 169 391 52
-------- -------- --------
Cash and cash equivalents at end of year............................. $ 234 $ 169 $ 391
-------- -------- --------
-------- -------- --------
</TABLE>
F-101
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--PENSION PLANS AND OTHER RETIREMENT BENEFITS
Pension Plans
The Association has five noncontributory pension plans: A qualifying
defined benefit plan covering substantially all employees over the age of 21 who
meet minimum service requirements, and four nonqualifying supplemental plans to
provide eligible plan members benefits, based on compensation and length of
service, greater than permitted by the terms of the qualified plan. Assets of
the qualified plan are maintained by a trustee and administered by the
Association's advisory committee. Such assets consist primarily of money market
funds, government securities, corporate bonds and common stocks. The
nonqualifying plans have no assets. The Association has voluntarily agreed to
make contributions to each Plan sufficient to provide for the payment of pension
benefits to Plan participants.
During the third quarter of 1995, SFFed recorded an approximate $1.7
million reduction of retirement plan expenses reflecting a net curtailment gain
arising from the suspension of SFFed's defined benefit retirement plan. The gain
is net of the costs of enhancing certain retirement benefits under that plan
immediately before it was suspended and net of certain other costs associated
primarily with enhancing benefits provided under SFFed's defined contribution
(401(k)) plan. During the fourth quarter of 1995, SFFed recorded an approximate
$1.4 million increase in retirement plan expenses arising from the suspension of
SFFed's nonqualified supplemental retirement plans related to the anticipated
acquisition of SFFed as discussed in Note 2.
Net periodic pension cost and its components are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned........................................... $ 875 $ 1,897 $ 1,810
Interest on projected benefit obligation................................ 2,814 2,756 2,410
Return on plan assets................................................... (1,887) (1,531) (1,640)
Other components--net................................................... 280 819 602
Curtailment gain--qualified plan........................................ (1,689) --
Curtailment loss--unqualified plans..................................... 1,406 --
------- ------- -------
Net periodic pension cost............................................... $ 1,799 $ 3,941 $ 3,182
------- ------- -------
------- ------- -------
Assumptions used were as follows:
Discount rate........................................................... 7.25% 8.00% 6.50%
Rate of increase in compensation levels................................. 5.00 5.00 5.00
Expected long-term rate of return on assets............................. 8.00 8.00 8.50
</TABLE>
F-102
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--PENSION PLANS AND OTHER RETIREMENT BENEFITS--(CONTINUED)
The following table shows the funded status and amounts recognized in the
Consolidated Statements of Financial Condition:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
QUALIFIED PLAN--ASSETS LESS THAN ACCUMULATED BENEFITS
Actuarial present value of benefit obligations:
Vested benefits................................................................ $ 31,022 $ 23,257
Nonvested benefits............................................................. 543 734
-------- --------
Accumulated benefit obligation.............................................. $ 31,565 $ 23,991
-------- --------
-------- --------
Projected benefit obligation for service rendered to date........................ $ 31,565 $ 28,627
Plan assets at fair value........................................................ (28,098) (21,787)
-------- --------
Plan assets less than projected benefit obligation............................... 3,467 6,840
Unrecognized net loss from past experience different from that assumed........... (928) (1,520)
Unrecognized net asset being recognized over 13 years............................ 437 546
Unrecognized prior service cost.................................................. -- (680)
Adjustment required to recognize minimum liability............................... 491 --
-------- --------
Accrued pension cost (included in 'Other Liabilities')........................... $ 3,467 $ 5,186
-------- --------
-------- --------
NONQUALIFIED PLANS--ACCUMULATED BENEFITS EXCEED ASSETS
Actuarial present value of benefit obligations:
Vested benefits................................................................ $ 7,171 $ 5,847
Nonvested benefits............................................................. -- 7
-------- --------
Accumulated benefit obligation.............................................. $ 7,171 $ 5,854
-------- --------
-------- --------
Projected benefit obligation for service rendered to date........................ $ 7,171 $ 7,678
Plan assets at fair value........................................................ -- --
-------- --------
Plan assets less than projected benefit obligation............................... 7,171 7,678
Unrecognized net loss from past experience different from that assumed........... (1,069) (1,668)
Unrecognized net obligation being recognized over 15 years....................... (202)
Unrecognized prior service cost.................................................. (667)
Adjustment required to recognize minimum liability............................... 1,069 916
-------- --------
Accrued pension cost (included in 'Other Liabilities')........................... $ 7,171 $ 6,057
-------- --------
-------- --------
</TABLE>
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87 (SFAS 87), Employer's Accounting for Pensions, SFFed has
recognized an additional pension liability of $570,000 and $885,000 in 1995 and
1994, respectively, representing the excess of the accumulated benefit
obligation over the fair value of pension plan assets and accrued pension
liability. As required by SFAS 87, in 1995, this liability, net of an income tax
benefit of $242,000, has been reflected as a $328,000 reduction of stockholders'
equity and in 1994, this liability, net of an income tax benefit of $376,000,
was established by a $509,000 reduction of stockholders' equity. This additional
liability is a result of a change in the discount rate used in the measurement
of pension plan benefits and a reduction in the expected long-term rate of
return on pension plan assets.
Other Post-retirement Benefits
Effective January 1, 1993, SFFed adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 106 (SFAS 106)
Employers' Accounting for Postretirement Benefits Other than Pensions. Under
SFAS 106, the cost of postretirement benefits other than pensions (e.g. health
care) must be recognized on an accrual basis as employees perform services to
earn the benefits. Many of the provisions and concepts of SFAS 106 are similar
to current standards on accounting for pensions. Based on the transition
F-103
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14--PENSION PLANS AND OTHER RETIREMENT BENEFITS--(CONTINUED)
provisions of SFAS 106, the accumulated postretirement benefit obligation at the
date of adoption (the transition obligation) may be recognized in income as the
cumulative effect of an accounting change in the period of adoption or delayed
and amortized over future periods as a component of net periodic postretirement
cost. The transition obligation at January 1, 1993 was estimated at $4.0
million, which SFFed is amortizing to expense over 20 years as permitted by SFAS
106. SFFed estimated that accounting for covered benefits on an accrual basis,
as required by SFAS 106, rather than the pay-as-you-go method previously used by
SFFed, increased expense for 1993 by approximately $0.4 million. During the
fourth quarter of 1995, SFFed recorded an approximate $1.9 million increase in
retirement medical benefits expenses resulting from the curtailment of the plan
due to the anticipated acquisition of SFFed, as discussed in Note 2.
NOTE 15--EMPLOYEE INCENTIVE AND COMPENSATION PLANS
SFFed's Stock Incentive Plan, which was amended in 1994 to increase the
number of shares reserved thereunder for issuance by 500,000 shares, provides
for up to 1,271,500 shares of common stock to be issued to directors and key
employees of SFFed and its subsidiaries. Directors of SFFed are granted options
for 10,000 shares of common stock upon their initial election to the Board of
Directors. The Plan provides that stock options may be either incentive stock
options (ISO), as defined by Section 422 of the Internal Revenue Code, or
nonstatutory options which do not satisfy the provisions of Code Section 422.
The Plan also provides for the issuance of stock appreciation rights (SAR) and
restricted stock.
ISOs may be granted at an option price not less than fair market value as
of the date of grant and nonstatutory options at a price determined by the Stock
Option Committee provided for in the Plan. Stock options may be exercised with
cash, shares of SFFed's common stock, or a combination of cash and common stock
equal to the option price.
In 1990 a stock option plan for non-employee directors (Directors' Plan)
was established to allow those directors the choice of receiving nonstatutory
options in lieu of their annual retainer fees. In 1994 the Directors' Plan was
amended permitting participants to elect to receive nonstatutory options in lieu
of their attendance fees as well as retainer fees. In addition, the Directors'
Plan was further amended to provide an option pricing model generally accepted
by the financial community as reflective of the fair market value of the
interest received by the Directors in exchange for the cash compensation. The
exercise price of options granted under this plan is $1.00 per share. The
maximum number of shares of common stock which may be issued under the
Directors' Plan is 200,000 shares, provided that the aggregate number of shares
of common stock issuable under this plan and SFFed's Stock Incentive Plan shall
not exceed 1,271,500 shares.
SARs are only granted in conjunction with all or any part of any stock
option granted under the Plan. A SAR entitles the holder to receive cash, shares
of SFFed's common stock or a combination thereof, at the discretion of SFFed,
equal to the excess of the fair market value at the date of exercise over the
option price of the related stock option. Exercise of a SAR cancels the related
stock option.
During 1992 certain key employees agreed to convert their existing SARs for
limited stock appreciation rights (LSAR). LSARs are subject to the same terms
and conditions as SARs but are exercisable only if there is a change of control
of SFFed.
Restricted stock is subject to such restrictions against sale, transfer or
other disposition, as may be determined at the time of making the award.
Employees forfeit all shares of restricted stock if they leave the employ of
SFFed and its subsidiaries prior to the lapse of restrictions.
All nonstatutory options and related SARs granted may be exercised prior to
a dissolution or liquidation of SFFed or a sale of substantially all the assets
of SFFed or a merger or consolidation in which SFFed is not the surviving
entity.
F-104
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15--EMPLOYEE INCENTIVE AND COMPENSATION PLANS--(CONTINUED)
No ISOs have been granted through December 31, 1995. Nonstatutory options,
restricted stock, SARs and LSARs granted, exercised or terminated are summarized
as follows:
<TABLE>
<CAPTION>
TOTAL RESTRICTED PRICE
SHARES STOCK OPTIONS SARS (1) LSARS PER SHARE
------- ---------- ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at December 31,
1992......................... 594,453 6,603 587,850 61,143 272,536
Granted...................... 6,096 -- 6,096 -- -- $ 1.00
Exercised.................... (49,915) -- (49,915) (24,826) -- 6.38-17.00
Restrictions lapsed.......... (2,996) (2,996) -- -- -- 11.25-14.13
Terminated/cancelled......... (44,780) -- (44,780) (18,037) -- 6.38-17.00
------- ---------- ------- -------- -------
Outstanding at December 31,
1993......................... 502,858 3,607 499,251 18,280 272,536
Granted...................... 103,146 -- 103,146 -- 86,550 1.00-18.88
Exercised.................... (33,379) -- (33,379) (5,918) -- 6.38-17.00
Restrictions lapsed.......... (2,691) (2,691) -- -- -- 11.25-14.13
Terminated/cancelled......... (6,118) -- (6,118) (1,124) (20,682) 6.38-17.00
------- ---------- ------- -------- -------
Outstanding at December 31,
1994......................... 563,816 916 562,900 11,238 338,404
Granted...................... 117,508 20,000 97,508 -- 87,600 1.00-20.25
Exercised.................... (29,965) -- (29,965) (1,264) -- 6.38-17.00
Restrictions lapsed.......... (916) (916) -- -- -- 11.25
Terminated/cancelled......... (1,264) -- (1,264) (511) (9,000) 6.38-17.00
------- ---------- ------- -------- -------
Outstanding at December 31,
1995(2)...................... 649,179 20,000 629,179 9,463 417,004
------- ---------- ------- -------- -------
------- ---------- ------- -------- -------
</TABLE>
- ------------------
(1) All SARs are related to options. The exercise of SARs results in a surrender
of the related option.
(2) Options and SARs exercisable at December 31, 1995 were 444,177 and 9,463,
respectively.
The number of shares available for future options was 393,045 and 510,553
at December 31, 1995 and 1994, respectively. See Note 2 regarding the treatment
of options in connection with the acquisition of SFFed by First Nationwide.
Incentive Plans are maintained to provide a means of awarding incentive
compensation to most officers and employees, including loan agents. The Plans
are nonqualified plans and all disbursements are paid from the general assets of
SFFed. For the years ended December 31, 1995, 1994 and 1993 SFFed's expense
under these plans amounted to approximately $183,000, $422,000 and $1,726,000,
respectively. SFFed maintains a savings plan for its employees and the employees
of its subsidiaries. The plan allows participants to make contributions by
salary deductions equal to 15% or less of their salary pursuant to Section
401(k) of the Internal Revenue Code. Employee contributions are matched by SFFed
at the rate of 50% of such contributions up to 2% of the employee's salary.
SFFed's matching contributions, under the terms of the plan, must be used to
purchase SFFed's common stock. SFFed contributions to the plan amounted to
$413,000, $347,000 and $316,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
F-105
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of SFFed's financial
instruments is in accordance with the provisions of Statement of Financial
Accounting Standards No. 107 (SFAS 107). Disclosures about Fair Value of
Financial Instruments. The valuation methods used by SFFed are set forth below.
The accuracy and usefulness of the fair value information disclosed herein
is limited by the following factors.
o Because no market exists for a significant portion of SFFed's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in these assumptions could significantly affect the
estimates.
o These estimates do not reflect any premium or discount that could result
from offering for sale at one time SFFed's entire holding of a particular
financial asset.
o SFAS 107 excludes from its disclosure requirements certain financial
instruments and various significant assets and liabilities that are not
considered to be financial instruments.
Because of these and other limitations, the aggregate fair value amounts
presented in the following table do not represent the underlying value of SFFed.
The carrying amounts and the estimated fair values of SFFed's financial
instruments at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents...................... $ 195,251 $ 195,251 $ 165,206 $ 165,206
Federal Home Loan Bank stock................... 31,579 31,579 30,049 30,049
Mortgage-backed securities..................... 932,398 945,319 408,036 400,715
Loans held for sale............................ 4,393 4,393 3,627 3,627
Loans receivable held for investment........... 2,714,988 2,708,195 3,011,504 2,942,263
Excess servicing............................... 2,348 25,825 2,803 14,175
LIABILITIES
Demand deposits................................ 852,715 852,715 566,403 566,403
Certificate accounts........................... 1,840,528 1,852,308 1,915,585 1,899,119
Borrowings..................................... 1,041,559 1,049,860 1,012,820 1,006,902
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
Commitments to originate loans and related
hedging program (unrealized gain)............ -- 46 -- 371
</TABLE>
The following methods and assumptions were used by SFFed in computing the
estimated fair values in the above table:
Cash and Cash Equivalents and Federal Home Loan Bank Stock and Demand
Deposits: The carrying amounts of these financial instruments approximate their
fair values.
Mortgage-Backed Securities: Fair values of these securities are based on
year-end quoted market prices.
Loans Held for Sale: The fair value of these loans has been based on
market prices of similar loans traded in the secondary market.
F-106
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 16--ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS--(CONTINUED)
Loans Receivable Held for Investment: For fair value estimation purposes,
these loans have been categorized by type of loan (e.g., one-to-four unit
residential) and then further segmented between adjustable or fixed rates and
performing or nonperforming. Where possible, the fair value of these groups of
loans has been based on secondary market prices for loans with similar
characteristics. The fair value of the remaining loans has been estimated by
discounting the future cash flows using current interest rates being offered for
loans with similar terms to borrowers of similar credit quality.
Excess Servicing (Deferred Premium on Sales and Securitization of
Loans): Fair value of this asset has been estimated by reference to market loan
prepayment assumptions and interest rates for similar pools of loans.
Certificate Accounts and Borrowings: Fair values have been estimated using
projected cash flows discounted at replacement rates offered at each year end
for instruments of similar remaining maturities.
Commitments to Originate Loans and Related Hedging Program: The fair value
of the amount of commitments to originate loans considered likely to fund has
been estimated on current secondary market prices for similar loans. No loans
were being originated for sale at December 31, 1995 and 1994.
The fair value estimates disclosed above were based on market prices and
other available information at year-end 1995 and 1994, respectively. No detailed
valuation has been performed since December 31, 1995 and, although SFFed is not
aware of any changes that could significantly impact these estimates, current
fair value estimates could be materially different from the year-end 1995
amounts presented above.
NOTE 17--COMMITMENTS AND CONTINGENCIES
Outstanding commitments relating to loans and MBS are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- --------
(IN THOUSANDS)
<S> <C> <C>
Commitments to originate loans......................................... $31,341 $ 76,928
Commitments to sell loans.............................................. 1,014 1,423
Commitments to convert loans to MBS.................................... -- 199,784
Commitments to purchase MBS............................................ -- 100,000
Forward commitments to sell loans...................................... 4,500 --
</TABLE>
At December 31, 1995 SFFed's commitments to originate loans included
$10,977,000 of fixed-rate loans at interest rates ranging from 6.38% to 7.88%,
and were outstanding for no more than 30 days.
SFFed on occasion has securitized (received MBS for loans) and sold loans
with recourse provisions. In 1995, SFFed did not have any sales of loans or MBS
with recourse. The principal balance of loans that have been securitized or sold
with recourse at December 31, 1995 and 1994 were $478,348,000 and $11,796,000
respectively.
As part of the normal course of business, SFFed has entered into forward
transactions in order to reduce its exposure to fluctuations in interest rates
associated with originating loans for sale. At December 31, 1995 forward
commitments to sell was $4,500,000.
LITIGATION
SFFed is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultations
with counsel, the ultimate disposition of these matters will not have a
materially adverse effect on SFFed's consolidated financial position or results
of operations.
F-107
<PAGE>
SFFED CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
LEASE COMMITMENTS
Certain branches and offices are leased by SFFed under the terms of
operating leases expiring at various dates through the year 2029. Lease rental
expense amounted to $7,223,000, $7,173,000 and $8,009,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Future approximate minimum lease
payments under the terms of the existing operating leases are as follows:
<TABLE>
<CAPTION>
OFFICE
AND
NET SUBLEASES EQUIPMENT
------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1996.................................................................. $ 6,966 $ 514 $ 7,480
1997.................................................................. 6,778 414 7,192
1998.................................................................. 5,677 382 6,059
1999.................................................................. 5,287 240 5,527
2000.................................................................. 5,032 99 5,131
Thereafter............................................................ 6,067 297 6,364
------- --------- ---------
$35,807 $ 1,946 $37,753
------- --------- ---------
------- --------- ---------
</TABLE>
Legislation is currently pending in Congress which would recapitalize the
Savings Association Insurance Fund ('SAIF') in order to bring it into parity
with the FDIC's other insurance fund, the Bank Insurance Fund ('BIF'). The
legislation would require an assessment of all SAIF-insured institutions of
approximately 0.85% to 0.90% of their March 31, 1995 customer deposit balances.
If such legislation had been enacted by law by December 31, 1995, the
Association would have been assessed approximately $23,100,000 to $24,400,000,
on a pre-tax basis. After paying the one-time assessment, it would be expected
that SFFed would pay significantly reduced insurance premiums on its customer
deposits. SFFed is unable to predict whether such legislation will be enacted.
F-108
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data gives effect to the
Acquisitions, the Branch Sales, the FN Holdings Subordinated Notes Offering and
the Offering (together with the FN Holdings Subordinated Notes Offering, 'the
Offerings'). The Branch Purchases consummated in 1995 and the proposed Home
Federal Acquisition have not been reflected in the pro forma financial data
because such transactions are not material either individually or in the
aggregate.
The following pro forma condensed combined statement of financial condition
at December 31, 1995 is based on the historical consolidated statement of
financial condition of the Issuer giving pro forma effect to the SFFed
Acquisition, the LMUSA 1996 Purchase, the Branch Sales and the Offerings as if
such transactions had occurred on December 31, 1995. The pro forma condensed
combined statement of operations for the year ended December 31, 1995, is based
on the historical consolidated statement of operations for the year ended
December 31, 1995 giving pro forma effect to the Acquisitions, the Branch Sales
and the Offerings as if such transactions had occurred on January 1, 1995. The
pro forma adjustments are based on available information and upon certain
assumptions that management believes are reasonable under the circumstances. The
Acquisitions are accounted for under the purchase method of accounting. Under
this method of accounting, the purchase price has been allocated to the assets
and liabilities acquired based on preliminary estimates of fair value. The
actual fair value is determined as of the consummation of each of the
Acquisitions. The unaudited pro forma financial data do not necessarily reflect
the results of operations or the financial position of the Issuer that actually
would have resulted had the Acquisitions, the Branch Sales and the Offerings
occurred at the dates indicated, or project the results of operations or
financial position of the Issuer for any future date or period.
The pro forma financial data does not give effect to the redemption of the
class C common stock of First Nationwide Holdings which, at December 31, 1995,
had a redemption value of $171.1 million. The Issuer expects that such class C
common stock will be redeemed in full on or before June 1, 1996.
The following unaudited pro forma financial data should be read in
conjunction with the Consolidated Financial Statements of the Issuer and the
notes thereto, the Consolidated Financial Statements of the FNB Acquired
Business and the notes thereto, and the Consolidated Financial Statements of
SFFed and the notes thereto, included elsewhere in this Prospectus. Capitalized
terms used and not defined herein have the meanings set forth in the Prospectus.
P-1
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FN HOLDINGS
LMUSA 1996 SUBORDINATED
ISSUER SFFED PURCHASE BRANCH NOTES PRO FORMA
HISTORICAL PRO FORMA(A) PRO FORMA(B) SALES(C) OFFERING(D) OFFERING(E) COMBINED
----------- ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents........... $ 312,571 $ (76,881) $ -- $ (22,649)(1) $133,000 (4) $ -- $ 346,041
Securities.............. 350,016 -- -- -- -- -- 350,016
Mortgage-backed
securities............ 3,002,002 942,313 -- -- -- -- 3,944,315
Loans receivable, net... 10,034,430 2,695,966 176 (5,785)(1) -- -- 12,724,787
Covered assets, net..... 39,349 -- -- -- -- -- 39,349
Office premises and
equipment, net........ 93,509 13,055 -- (30,906)(1) -- -- 75,658
Mortgage servicing
rights, net........... 241,355 16,000 105,859 -- -- -- 363,214
Core deposit and other
intangible assets..... 18,606 116,742 -- (1,029)(1) -- -- 134,319
Other assets............ 554,407 112,323 62,367 -- 7,000(4) 18,077 (5) 754,174
----------- ------------ ------------ ------------ ------------ ----------- -----------
Total assets............ $14,646,245 $3,819,518 $ 168,402 $ (60,369) $140,000 $ 18,077 $18,731,873
----------- ------------ ------------ ------------ ------------ ----------- -----------
----------- ------------ ------------ ------------ ------------ ----------- -----------
LIABILITIES AND
STOCKHOLDER'S EQUITY
Deposits................ $10,241,628 $2,704,193 $ 341,360 $ (4,695,622)(1) $ -- $ -- $ 8,591,559
Borrowings.............. 3,362,372 1,054,028 (291,610) 4,268,978 (2) 140,000(4) 449,827(5) 8,983,595
Other liabilities....... 279,099 61,297 118,652 29,302 (3) -- -- 488,350
----------- ------------ ------------ ------------ ------------ ----------- -----------
Total liabilities....... 13,883,099 3,819,518 168,402 (397,342) 140,000 449,827 18,063,504
----------- ------------ ------------ ------------ ------------ ----------- -----------
Minority
interest--preferred
stock of First
Nationwide Bank....... 300,730 -- -- -- -- -- 300,730
Minority interest--
Hunter's Glen......... 58,261 -- -- 67,395 (3) -- -- 125,656
Stockholder's equity.... 404,155 -- -- 269,578 (3) -- (431,750)(5) 241,983
----------- ------------ ------------ ------------ ------------ ----------- -----------
Total liabilities and
stockholder's
equity................ $14,646,245 $3,819,518 $ 168,402 $ (60,369) $140,000 $ 18,077 $18,731,873
----------- ------------ ------------ ------------ ------------ ----------- -----------
----------- ------------ ------------ ------------ ------------ ----------- -----------
</TABLE>
- ------------------
(a) Represents the pro forma effect of the SFFed Acquisition. See details on
P-5.
(b) Represents the pro forma effect of the LMUSA 1996 Purchase. See details on
P-8.
(c) Represents adjustments to record the impact of the Branch Sales.
(d) Represents adjustments to record the issuance of the FN Holdings
Subordinated Notes in the FN Holdings Subordinated Notes Offering.
(e) Represents adjustments to record the issuance of the Notes in the Offering
and the distribution of net proceeds to First Gibraltar Holdings.
P-2
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF
FINANCIAL CONDITION--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DOLLAR
AMOUNT PERCENT
----------- -------
<S> <C> <C>
Pro Forma Regulatory Capital Ratios of First Nationwide Bank:
Tangible capital....................................................................... $1,186,474 6.30%
Core capital........................................................................... 1,186,474 6.30
Risk-based capital:
Core capital...................................................................... 1,186,474 10.16
Total capital..................................................................... 1,419,810 12.15
</TABLE>
The amount of adjusted total assets used for the tangible and core capital
ratios was $18.8 million. Risk-weighted assets used for the risk-based core and
total capital ratios amounted to $11.7 million.
Under proposed congressional legislation relative to the recapitalization
of the SAIF, a special assessment could be levied against SAIF-insured deposits,
which is currently estimated to range from 85 to 90 basis points. The impact of
such assessment (at 90 basis points) on the pro forma condensed combined
statement of financial condition as of December 31, 1995 would be to (i)
increase other liabilities by approximately $69 million and (ii) reduce
stockholder's equity by approximately $69 million. See 'Regulation--Regulation
of Federal Savings Banks--FDIC Assessments.'
First Nationwide Bank intends to maintain its 'well capitalized' status
(generally, core capital of at least 5% and total risk-based capital of at least
10%) and to distribute amounts in excess of such levels as dividends to First
Nationwide Holdings, subject to regulatory limitations and the terms of the FN
Holdings Indentures. While maintaining First Nationwide Bank's regulatory
capital at the 'well capitalized' level and considering the aforementioned
impact of the SAIF assessment, the amount of First Nationwide Bank's capital
that would be available for distribution as common dividends to First Nationwide
Holdings in the first quarter of 1996 would approximate $177 million. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources.'
P-3
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT
OF FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(1) The following represents adjustments necessary to record the Branch Sales:
<TABLE>
<CAPTION>
CARRYING VALUE AS OF DECEMBER 31, 1995
------------------------------------------------------
OHIO MICHIGAN NORTHEAST TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 9,195 $ 4,355 $ 9,099 $ 22,649
Loans receivable.............................. 1,045 597 4,143 5,785
Office premises and equipment................. 8,240 7,715 14,951 30,906
Deposits...................................... (1,414,695) (783,965) (2,496,962) (4,695,622)
Core deposit intangible asset................. (865) 1,229 665 1,029
----------- --------- ----------- -----------
Net carrying value of assets and liabilities
sold..................................... $(1,397,080) $(770,069) $(2,468,104) $(4,635,253)
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
(2) Represents borrowings necessary to fund the Branch Sales, computed as
follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Net carrying value of assets and liabilities
sold........................................ $ 1,397,080 $ 770,069 $ 2,468,104 $ 4,635,253
Gain on sale--see note 3...................... 129,602 55,060 181,613 366,275
----------- --------- ----------- -----------
Borrowings.................................. $ 1,267,478 $ 715,009 $ 2,286,491 $ 4,268,978
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
(3) Represents pro forma gain on the Branch Sales, computed as follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Deposit totals at December 31, 1995........... $ 1,414,695 $ 783,965 $ 2,496,962 $ 4,695,622
Premium per contract.......................... 9.10% 7.18% 7.30% 7.82%
----------- --------- ----------- -----------
Total premium............................... 128,737 56,289 182,278 367,304
Core deposit intangible asset............... 865 (1,229) (665) (1,029)
----------- --------- ----------- -----------
Gain on sale of deposits(a)................. 129,602 55,060 181,613 366,275
Tax effect (other liabilities).............. (10,368) (4,405) (14,529) (29,302)
----------- --------- ----------- -----------
Total net gain........................... 119,234 50,655 167,084 336,973
Minority interest--Hunter's Glen......... 23,847 10,131 33,417 67,395
----------- --------- ----------- -----------
Net gain to common stockholder........... $ 95,387 $ 40,524 $ 133,667 $ 269,578
----------- --------- ----------- -----------
----------- --------- ----------- -----------
</TABLE>
(a) The remaining assets and liabilities will be sold at their respective
carrying values, resulting in no gain or loss.
(4) Represents the issuance of the FN Holdings Subordinated Notes:
<TABLE>
<S> <C>
Proceeds from the issuance of the FN Holdings Subordinated Notes............................ $ 140,000
Less: deferred issuance costs............................................................... 7,000
---------
Net proceeds........................................................................... $ 133,000
---------
---------
</TABLE>
(5) Represents the issuance of the Notes:
<TABLE>
<S> <C>
Proceeds from the issuance of the Notes..................................................... $ 449,827
Less: deferred issuance costs............................................................... 18,077
---------
Net proceeds........................................................................... $ 431,750
---------
---------
</TABLE>
Net proceeds from the Offering will be distributed to First Gibraltar
Holdings.
P-4
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT
OF FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SFFED ACQUISITION
<TABLE>
<CAPTION>
SFFED VALUATION PRO FORMA SFFED
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(C) PRO FORMA
------------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 195,251 $ -- $ (272,132)(2) $ (76,881)
Securities............................................ -- -- -- --
Mortgage-backed securities............................ 932,398 9,915 (1) -- 942,313
Loans receivable, net................................. 2,719,381 (23,415)(1) -- 2,695,966
Covered assets, net................................... -- -- -- --
Office premises and equipment, net.................... 21,899 (8,844)(1) -- 13,055
Mortgage servicing rights, net........................ 2,183 13,817 (1) -- 16,000
Core deposit and other intangible assets.............. 8,053 (8,054)(1) 91,043 (1) 116,742
25,700 (1)
Other assets.......................................... 112,323 -- -- 112,323
------------- -------------- -------------- ----------
Total assets..................................... $ 3,991,488 $ 9,119 $ (181,089) $3,819,518
------------- -------------- -------------- ----------
------------- -------------- -------------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits.............................................. $ 2,693,243 $ 10,950 (1) $ -- $2,704,193
Borrowings............................................ 1,041,558 12,470 (1) -- 1,054,028
Other liabilities..................................... 61,297 -- -- 61,297
------------- -------------- -------------- ----------
Total liabilities..................................... 3,796,098 23,420 -- 3,819,518
------------- -------------- -------------- ----------
Minority interest..................................... -- -- -- --
Stockholder's equity.................................. 195,390 (14,301)(1) (181,089)(3) --
------------- -------------- -------------- ----------
Total liabilities and stockholder's equity....... $ 3,991,488 $ 9,119 $ (181,089) $3,819,518
------------- -------------- -------------- ----------
------------- -------------- -------------- ----------
</TABLE>
- ------------------
(a) Represents historical amounts obtained from SFFed's records (unaudited).
(b) Represents adjustments to record (i) SFFed's assets and liabilities at
preliminary estimates of their respective fair values and (ii) the
elimination of historical goodwill.
(c) Represents adjustments to record (i) the purchase price of the SFFed
Acquisition and (ii) the elimination of the equity of SFFed.
P-5
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT
OF FINANCIAL CONDITION
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SFFED ACQUISITION
(1) The SFFed Acquisition will be accounted for using the purchase method of
accounting. The total purchase cost will be allocated first to the tangible
and identifiable intangible assets and liabilities of SFFed based on their
respective fair values and the remainder will be allocated to goodwill. The
aggregate purchase price was determined as follows:
<TABLE>
<S> <C>
Purchase price, as defined:
Shares outstanding at December 31, 1995....................................... 7,883,247
Options outstanding at December 31, 1995...................................... 553,304
----------
Total...................................................................... 8,436,551
Purchase price per share...................................................... $ 32.00
----------
$ 269,969
Exercise of options outstanding(a)............................................ (7,425)
----------
Purchase price................................................................ 262,544
Acquisition fees and expenses................................................. 15,000
Acquisition fees and expenses included in equity of SFFed..................... (5,412)
----------
Total...................................................................... $ 272,132
----------
----------
</TABLE>
The following is a reconciliation of the equity of SFFed to the fair value
of the net assets to be acquired by First Nationwide Bank:
<TABLE>
<S> <C> <C>
Equity of SFFed at December 31, 1995................................... $195,390
Fair value adjustments(b):
Mortgage-backed securities........................................... $ 9,915
Loans receivable, net................................................ (23,415)
Office premises and equipment, net................................... (8,844)
Mortgage servicing rights............................................ 13,817
Core deposit intangible asset........................................ 25,700
Deposit accounts..................................................... (10,950)
Borrowings........................................................... (12,470)
Historical goodwill.................................................. (8,054)
-------
(14,301) (14,301)
--------
Fair value of net assets acquired.................................... 181,089
Purchase cost........................................................ 272,132
--------
Excess of purchase cost over net assets acquired ('goodwill')........ $ 91,043
--------
--------
</TABLE>
P-6
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT
OF FINANCIAL CONDITION--(CONTINUED)
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SFFED ACQUISITION--(CONTINUED)
(a) Represents cash to be received by SFFed in settlement of stock options
and stock appreciation rights outstanding as of December 31, 1995
(553,304 options outstanding at an average price of $13.42 per share).
(b) Fair value adjustments are amortized against (accreted to) net income
as follows:
<TABLE>
<CAPTION>
METHOD OF AMORTIZATION PERIOD OF AMORTIZATION
ITEM (ACCRETION) (ACCRETION)
- --------------------------------------------- --------------------------------------------- -----------------------
<S> <C> <C>
Mortgage-backed securities Level yield method over effective terms of 6 to 9 years
such assets, considering estimated
prepayments
Loans receivable Level yield method over effective terms of 2 to 12 years
such assets, considering estimated
prepayments
Mortgage servicing rights Level yield method over effective terms of 2 to 7 years
such assets, considering estimated
prepayments
Core deposit intangible asset Method based on the estimated lives of 7 to 10 years
existing depositor relationships
Deposit accounts Level yield method over stated terms of such 1 to 5 years
liabilities
Borrowings Level yield method over stated terms of such 1 to 5 years
liabilities
</TABLE>
(2) Represents payment by First Nationwide Bank in connection with the SFFed
Acquisition. The purchase price will be paid from existing cash of SFFed and
the Issuer.
(3) Represents the elimination of the equity of SFFed of $181,089.
P-7
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF
ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31, 1995
(IN THOUSANDS)
LMUSA 1996 PURCHASE
<TABLE>
<CAPTION>
LMUSA 1996 LMUSA 1996
PURCHASE VALUATION PRO FORMA PURCHASE
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(C) PRO FORMA
---------- -------------- -------------- ----------
<S> <C> <C> <C> <C>
ASSETS ACQUIRED
Cash and cash equivalents.......................... $ -- $ -- $ 341,360 (2) $ --
(291,610)(2)
(49,750)(3)
Securities......................................... -- -- -- --
Mortgage-backed securities......................... -- -- -- --
Loans receivable, net.............................. 176 -- -- 176
Covered assets, net................................ -- -- -- --
Office premises and equipment, net................. -- -- -- --
Mortgage servicing rights, net..................... 89,902 15,957(1) -- 105,859
Core deposit and other intangible assets........... -- -- -- --
Other assets....................................... 62,367 -- -- 62,367
---------- -------------- -------------- ----------
Total assets....................................... $152,445 $ 15,957 $ -- $168,402
---------- -------------- -------------- ----------
---------- -------------- -------------- ----------
LIABILITIES ASSUMED
Deposits........................................... $ -- $ -- $ 341,360 (2) $341,360
Borrowings......................................... -- -- (291,610)(2) (291,610)
Other liabilities.................................. 2,874 -- 107,778 (3) 118,652
8,000 (3)
---------- -------------- -------------- ----------
Total liabilities assumed.......................... 2,874 -- 165,528 168,402
---------- -------------- -------------- ----------
Minority interest.................................. -- -- -- --
Excess of assets acquired over
liabilities assumed.............................. 149,571 15,957(1) (165,528)(4) --
---------- -------------- -------------- ----------
Total liabilities and excess of assets acquired
over liabilities assumed......................... $152,445 $ 15,957 $ -- $168,402
---------- -------------- -------------- ----------
---------- -------------- -------------- ----------
</TABLE>
- ------------------
(a) Represents historical balances of the assets acquired and liabilities
assumed obtained from LMUSA's records (unaudited).
(b) Represents adjustments to record (i) the assets acquired and liabilities
assumed at preliminary estimates of their respective fair values and (ii)
acquisition fees and expenses.
(c) Represents adjustment to record (i) the cash paid at closing for the LMUSA
1996 Purchase, (ii) the impact of the transfer of custodial accounts to
First Nationwide Bank and (iii) the elimination of the excess of assets
acquired over the liabilities assumed in the LMUSA 1996 Purchase.
P-8
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF
ASSETS ACQUIRED AND LIABILITIES ASSUMED
DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
LMUSA 1996 PURCHASE
(1) The LMUSA 1996 Purchase will be accounted for using the purchase method of
accounting. The total purchase cost will be allocated first to the tangible
and identifiable intangible assets based on their respective fair values and
the remainder, if any, will be allocated to goodwill. The aggregate purchase
price was determined as follows:
<TABLE>
<S> <C>
Gross purchase price............................................................ $ 178,260
Adjustments to gross purchase price, net (i)................................. (20,732)
----------
Purchase cost as of December 31, 1995........................................ 157,528
Acquisition fees and expenses................................................ 8,000
----------
Total...................................................................... $ 165,528
----------
----------
</TABLE>
(i) The gross purchase price amount in the agreement is based on account and
loan portfolio balances as of July 31, 1995 and is adjusted based on
subsequent changes in the balances.
The following is a reconciliation of the excess of the assets acquired over
the liabilities assumed (at LMUSA's historical carrying value) to the
recorded value of the net assets to be acquired by First Nationwide Bank:
<TABLE>
<S> <C>
Excess of assets acquired over liabilities assumed at December 31, 1995, at
LMUSA's historical carrying value............................................... $ 149,571
Fair value adjustments-mortgage servicing rights.................................. 15,957
----------
Recorded value of net assets acquired........................................... $ 165,528
----------
----------
</TABLE>
(2) Represents the balance of funds in custodial accounts maintained by LMUSA at
other banks related to the servicing acquired in the LMUSA 1996 Purchase.
For pro forma purposes, it is assumed that such funds will be transferred to
First Nationwide Bank and used to pay the amount due at closing and to
liquidate borrowings as follows:
<TABLE>
<S> <C>
Total amount of custodial funds transferred....................................... $ 341,360
Less: Cash paid at closing........................................................ 49,750
----------
Amount applied to reduce borrowings............................................. $ 291,610
----------
----------
</TABLE>
(3) Represents payment by First Nationwide Bank in connection with the LMUSA
1996 Purchase. The agreement for the LMUSA 1996 Purchase includes an initial
cash payment with deferred payments of the remainder of the contractual
purchase price.
<TABLE>
<S> <C>
Total purchase price.............................................................. $ 165,528
Less: Acquisition fees and expenses............................................... 8,000
----------
Purchase cost..................................................................... $ 157,528
----------
----------
Deferred payment amount........................................................... $ 107,778
Cash paid at closing.............................................................. 49,750
----------
$ 157,528
----------
----------
</TABLE>
(4) Represents the elimination of the excess of assets acquired over liabilities
assumed totalling $165,528.
P-9
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED LMUSA
ACQUISITION PURCHASES BRANCH SALES
ISSUER PRO FORMA PRO FORMA PRO FORMA
HISTORICAL TOTALS(A) TOTALS(B) TOTALS(C)
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable............................................... $ 823,864 $ 230,713 $22,477 $ (623)
Securities..................................................... 28,396 10,685 -- --
Mortgage-backed securities..................................... 212,880 62,403 -- --
Other interest income.......................................... 10,705 -- -- --
---------- ----------- --------- ------------
Total interest income...................................... 1,075,845 303,801 22,477 (623)
INTEREST EXPENSE:
Deposits....................................................... 447,359 143,797 -- (211,530)
Borrowings..................................................... 287,456 74,587 2,018 280,671
---------- ----------- --------- ------------
Total interest expense..................................... 734,815 218,384 2,018 69,141
---------- ----------- --------- ------------
Net interest income............................................ 341,030 85,417 20,459 (69,764)
Provision for loan losses...................................... 37,000 11,094 -- --
---------- ----------- --------- ------------
Net interest income after provision for loan losses............ 304,030 74,323 20,459 (69,764)
NONINTEREST INCOME:
Customer banking fees.......................................... 47,493 5,291 -- (22,228)
Mortgage banking operations.................................... 70,265 860 76,445 --
Net gain (loss) on sales of assets............................. 147 -- (1,851) --
Other.......................................................... 33,068 1,677 2,690 (789)
---------- ----------- --------- ------------
Total noninterest income................................... 150,973 7,828 77,284 (23,017)
NONINTEREST EXPENSE:
Compensation and benefits...................................... 154,288 11,141 19,500 (19,476)
Other.......................................................... 178,265 34,896 38,081 (25,823)
---------- ----------- --------- ------------
Total noninterest expense.................................. 332,553 46,037 57,581 (45,299)
---------- ----------- --------- ------------
Income (loss) before income taxes, extraordinary item and
minority interest............................................ 122,450 36,114 40,162 (47,482)
Federal and state income taxes................................. (57,185) 3,554 3,952 (4,671)
---------- ----------- --------- ------------
Income (loss) before extraordinary item and minority
interest..................................................... 179,635 32,560 36,210 (42,811)
Extraordinary item-gain on early extinguishment of FHLB
advances, net................................................ 1,967 -- -- --
---------- ----------- --------- ------------
Net income (loss) before minority
interest..................................................... 181,602 32,560 36,210 (42,811)
Minority interest--First Nationwide Bank preferred stock
dividends.................................................... 34,584 -- -- --
Minority interest--Hunter's Glen............................... 24,554 6,512 7,242 (8,562)
---------- ----------- --------- ------------
Net income (loss).............................................. $ 122,464 $ 26,048 $28,968 $ (34,249)
---------- ----------- --------- ------------
---------- ----------- --------- ------------
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS(D) COMBINED
-------------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans receivable............................................... $ -- $1,076,431
Securities..................................................... -- 39,081
Mortgage-backed securities..................................... -- 275,283
Other interest income.......................................... -- 10,705
-------------- ----------
Total interest income...................................... -- 1,401,500
INTEREST EXPENSE:
Deposits....................................................... -- 379,626
Borrowings..................................................... 70,143 (1) 714,875
-------------- ----------
Total interest expense..................................... 70,143 1,094,501
-------------- ----------
Net interest income............................................ (70,143) 306,999
Provision for loan losses...................................... -- 48,094
-------------- ----------
Net interest income after provision for loan losses............ (70,143) 258,905
NONINTEREST INCOME:
Customer banking fees.......................................... -- 30,556
Mortgage banking operations.................................... -- 147,570
Net gain (loss) on sales of assets............................. -- (1,704)
Other.......................................................... -- 36,646
-------------- ----------
Total noninterest income................................... -- 213,068
NONINTEREST EXPENSE:
Compensation and benefits...................................... -- 165,453
Other.......................................................... 3,582 (2) 229,001
-------------- ----------
Total noninterest expense.................................. 3,582 394,454
-------------- ----------
Income (loss) before income taxes, extraordinary item and
minority interest............................................ (73,725) 77,519
Federal and state income taxes................................. (7,255)(3) (61,605)
-------------- ----------
Income (loss) before extraordinary item and minority
interest..................................................... (66,470) 139,124
Extraordinary item-gain on early extinguishment of FHLB
advances, net................................................ -- 1,967
-------------- ----------
Net income (loss) before minority
interest..................................................... (66,470) 141,091
Minority interest--First Nationwide Bank preferred stock
dividends.................................................... -- 34,584
Minority interest--Hunter's Glen............................... (2,484)(4) 27,262
-------------- ----------
Net income (loss).............................................. $(63,986) $ 79,245
-------------- ----------
-------------- ----------
</TABLE>
- ------------------
(a) Represents pro forma results of operations related to the SFFed Acquisition.
See details on P-12.
(b) Represents pro forma results of operations related to the LMUSA Purchases.
See details on P-14.
(c) Represents pro forma results of operations related to the Branch Sales. See
details on P-16.
(d) Represents adjustments to reflect (i) interest expense and amortization of
debt issuance costs associated with the FN Holdings Subordinated Notes and
the Notes; (ii) the impact on income taxes from (i); and (iii) minority
interest relative to the FN Holdings Subordinated Notes.
P-10
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(1) Represents interest expense as follows:
<TABLE>
<S> <C>
$140 million FN Holdings Subordinated Notes at 9 1/8% per annum.................... $12,775
$455 million Notes at 12 1/2% per annum............................................ 56,875
Amortization of original issue discount on the Notes............................... 493
-------
$70,143
-------
-------
</TABLE>
(2) Represents the amortization of:
<TABLE>
<S> <C>
$7,000 in deferred debt issuance costs over the seven year term of FN Holdings
Subordinated Notes................................................................. $1,000
$18,077 in deferred debt issuance costs over the seven year term of the Notes........ 2,582
------
$3,582
------
------
</TABLE>
(3) Represents amounts necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December 31,
1995 related to the issuance of the FN Holdings Subordinated Notes and the
Notes was computed as follows:
<TABLE>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by
net operating loss carryovers..................................................... $(1,357)
State, at an assumed rate of 8%..................................................... (5,898)
-------
$(7,255)
-------
-------
</TABLE>
(4) Represents 20% minority interest relative to $12,420, net of tax, in pro
forma expenses relating to the FN Holdings Subordinated Notes.
P-11
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
SFFED ACQUISITION
<TABLE>
<CAPTION>
SFFED
ACQUISITION
VALUATION PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(A) ADJUSTMENTS(B) TOTALS
---------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable......................................... $ 215,147 $ 15,566 (1) $ -- $ 230,713
Securities............................................... 10,685 -- -- 10,685
Mortgage-backed securities............................... 60,024 2,379 (1) -- 62,403
Other interest income.................................... -- -- -- --
---------- -------------- -------------- -----------
Total interest income............................... 285,856 17,945 -- 303,801
INTEREST EXPENSE:
Deposits................................................. 135,299 8,498 (1) -- 143,797
Borrowings............................................... 71,543 3,044 (1) -- 74,587
---------- -------------- -------------- -----------
Total interest expense.............................. 206,842 11,542 -- 218,384
---------- -------------- -------------- -----------
Net interest income...................................... 79,014 6,403 -- 85,417
Provision for loan losses................................ 11,094 -- -- 11,094
---------- -------------- -------------- -----------
Net interest income after provision for loan losses...... 67,920 6,403 -- 74,323
NONINTEREST INCOME:
Customer banking fees.................................... 5,291 -- -- 5,291
Mortgage banking operations.............................. 5,255 (4,395)(1) -- 860
Net loss on sales of assets.............................. -- -- -- --
Other.................................................... 1,677 -- -- 1,677
---------- -------------- -------------- -----------
Total noninterest income............................ 12,223 (4,395) -- 7,828
NONINTEREST EXPENSE:
Compensation and benefits................................ 35,518 -- (24,377)(3) 11,141
Other.................................................... 43,257 12,905 (2) (21,266)(4) 34,896
---------- -------------- -------------- -----------
Total noninterest expense........................... 78,775 12,905 (45,643) 46,037
---------- -------------- -------------- -----------
Income (loss) before income taxes, extraordinary item and
minority interest...................................... 1,368 (10,897) 45,643 36,114
Federal and state income taxes........................... 1,568 -- 1,986 (5) 3,554
---------- -------------- -------------- -----------
Income (loss) before extraordinary item and minority
interest............................................... (200) (10,897) 43,657 32,560
Extraordinary item-gain on early extinguishment of FHLB
advances, net.......................................... -- -- -- --
---------- -------------- -------------- -----------
Net income (loss) before minority interest............... (200) (10,897) 43,657 32,560
Minority interest--Hunter's Glen......................... -- -- 6,512 (6) 6,512
---------- -------------- -------------- -----------
Net income (loss)........................................ $ (200) $(10,897) $ 37,145 $ 26,048
---------- -------------- -------------- -----------
---------- -------------- -------------- -----------
</TABLE>
- ------------------
(a) Represents adjustments to reflect (i) the amortization/accretion of fair
value adjustments and (ii) the elimination of amortization of historical
goodwill.
(b) Represents adjustments to reflect (i) the elimination of certain noninterest
expenses due to consolidation of SFFed operations with First Nationwide
Bank, (ii) the elimination of certain historical noninterest expenses
recorded by SFFed as a result of the acquisition by the Bank, (iii) income
taxes relative to the SFFed Acquisition and (iv) 20% minority interest
relative to the SFFed Acquisition.
P-12
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
SFFED ACQUISITION
(1) REPRESENTS AMORTIZATION/ACCRETION OF FAIR VALUE ADJUSTMENTS AS FOLLOWS:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Loans receivable, net.................................................... $15,566
Mortgage-backed securities............................................... 2,379
Deposits................................................................. (8,498)
Borrowings............................................................... (3,044)
Mortgage servicing rights................................................ (4,395)
</TABLE>
(2) Represents adjustments consisting of the following:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Amortization of fair value adjustments:
Amortization of core deposit intangible asset.......................... $ (3,368)
Amortization of goodwill............................................... (10,206)
Elimination of amortization of SFFed's historical goodwill............... 669
----------
$ (12,905)
----------
----------
</TABLE>
(3) Represents adjustments to compensation and benefits expense relating to the
consolidation of SFFed's operations into those of First Nationwide Bank and
the elimination of nonrecurring historical expenses related to the SFFed
Acquisition:
<TABLE>
<S> <C>
Decrease in compensation and benefits due to the reduction in headcount
from 620 at January 1, 1995 to approximately 260 after the consummation
of the SFFed Acquisition. Substantially all retained employees
represent retail branch personnel...................................... $19,037
Elimination of certain nonrecurring expenses recorded by SFFed related to
the acquisition by First Nationwide Bank:
Payments under employment contracts................................. 2,080
Accruals for benefit plans frozen by First Nationwide Bank.......... 3,260
----------
$24,377
----------
----------
</TABLE>
P-13
<PAGE>
(4) Represents adjustments to other noninterest expense relating to the
consolidation of SFFed's operations into those of First Nationwide Bank and
the elimination of nonrecurring historical expenses of SFFed. Substantially
all of SFFed's operations will be consolidated into the existing operations
of First Nationwide Bank, resulting in a reduction in headcount of
approximately 58% with the remaining personnel primarily consisting of
retail branch personnel. In addition, ten retail branches will be closed.
<TABLE>
<CAPTION>
COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
COSTS OPERATIONS REDUCTION
---------- ---------- -----------
<S> <C> <C> <C>
Expense decreases due to consolidation:
Mortgage banking operations:
Occupancy expenses, including insurance................................. $ 1,329 $ 588 $ 741
Travel, automobile and employee dues.................................... 282 67 215
Telecommunications, postage and supplies................................ 900 214 686
Other, net.............................................................. 1,047 460 587
---------- ---------- -----------
Subtotal mortgage banking operations.................................. $ 3,558 $ 1,329 $ 2,229
---------- ---------- -----------
Retail Banking operations--reductions due to consolidation of ten retail
branches and retail operations center:
Occupancy expenses, including insurance................................. $ 11,220 $ 3,405 $ 7,815
SAIF assessment reduction based on lower historical assessment
rate for First Nationwide Bank........................................ 6,811 6,011 800
Travel, automobile and employee dues.................................... 410 60 350
Telecommunications and data processing.................................. 1,766 364 1,402
Postage and message costs............................................... 666 473 193
Other costs, net........................................................ 216 108 108
---------- ---------- -----------
Subtotal retail banking operations.................................... $ 21,089 $ 10,421 $10,668
---------- ---------- -----------
Overhead areas, including executive offices, legal, human resources,
information services, accounting, and strategic planning areas:
Occupancy costs......................................................... $ 1,316 $ 0 $ 1,316
Data processing costs................................................... 2,848 1,000 1,848
Marketing and advertising expenses...................................... 2,094 500 1,594
Other overhead costs.................................................... 8,072 8,072 0
---------- ---------- -----------
Subtotal overhead areas............................................... $ 14,330 $ 9,572 $ 4,758
---------- ---------- -----------
Total decreases due to consolidation............................... $ 38,977 $ 21,322 $17,655
Elimination of certain nonrecurring expense recorded by SFFed related to the
acquisition by First Nationwide Bank:
Data processing termination fees........................................ 875 -- 875
Investment banker fees related to the SFFed Acquisition................. 2,311 -- 2,311
Legal fees related to the SFFed Acquisition............................. 425 -- 425
---------- ---------- -----------
Total expense reduction............................................ $ 42,588(i) $ 21,322 $21,266
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------
(i) Balance represents total historical noninterest expense of $43,257 less
historical amortization of goodwill already adjusted in note 2 on page P-13.
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December 31,
1995 related to the SFFed Acquisition was computed as follows:
<TABLE>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net operating loss
carryovers............................................................. $ 665
State, at an assumed rate of 8%.......................................... 2,889
----------
$ 3,554
----------
----------
</TABLE>
(6) Represents 20% minority interest relative to $32,560 in pro forma net income
relating to the SFFed Acquisition.
P-14
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
LMUSA PURCHASES
<TABLE>
<CAPTION>
LMUSA PURCHASES
PRO FORMA PRO FORMA
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(C) TOTALS
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable................................. $ 22,477 $ -- $ -- $22,477
Securities....................................... -- -- -- --
Mortgage-backed securities....................... -- -- -- --
Other interest income............................ -- -- -- --
------------- -------------- -------------- ---------------
Total interest income....................... 22,477 -- -- 22,477
INTEREST EXPENSE:
Deposits......................................... -- -- -- --
Borrowings....................................... 38,358 -- (36,340)(2) 2,018
------------- -------------- -------------- ---------------
Total interest expense...................... 38,358 -- (36,340) 2,018
------------- -------------- -------------- ---------------
Net interest income.............................. (15,881) -- 36,340 20,459
Provision for loan losses........................ -- -- -- --
------------- -------------- -------------- ---------------
Net interest income after provision for loan
losses......................................... (15,881) -- 36,340 20,459
NONINTEREST INCOME:
Customer banking fees............................ -- -- -- --
Mortgage banking operations...................... 77,887 (1,442)(1) -- 76,445
Net loss on sales of assets...................... (1,851) -- -- (1,851)
Other............................................ 2,690 -- -- 2,690
------------- -------------- -------------- ---------------
Total noninterest income.................... 78,726 (1,442) -- 77,284
NONINTEREST EXPENSE:
Compensation and benefits........................ 38,426 -- (18,926)(3) 19,500
Other............................................ 300,091 -- (262,010)(4) 38,081
------------- -------------- -------------- ---------------
Total noninterest expense................... 338,517 -- (280,936) 57,581
------------- -------------- -------------- ---------------
Income (loss) before income taxes, extraordinary
item and minority interest..................... (275,672) (1,442) 317,276 40,162
Federal and state income taxes................... -- -- 3,952 (5) 3,952
------------- -------------- -------------- ---------------
Income (loss) before extraordinary item and
minority interest.............................. (275,672) (1,442) 313,324 36,210
Extraordinary item--gain on early extinguishment
of FHLB advances, net.......................... -- -- -- --
------------- -------------- -------------- ---------------
Net income (loss) before minority interest....... (275,672) (1,442) 313,324 36,210
Minority interest--Hunter's Glen................. -- -- 7,242 (6) 7,242
------------- -------------- -------------- ---------------
Net income (loss)................................ $(275,672) $ (1,442) $ 306,082 $28,968
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
</TABLE>
- ------------------
(a) The LMUSA 1995 Purchase was consummated on October 2, 1995. Accordingly,
historical financial data relating to operations acquired in the LMUSA 1995
Purchase is presented for the nine months ended September 30, 1995
(unaudited). Historical financial data relating to operations acquired in
the LMUSA 1996 Purchase is presented for the year ended December 31, 1995
(unaudited). Historical financial statements were not available;
accordingly, historical data presented reflects best estimates of the
management of First Nationwide Bank.
(b) Represents adjustments to reflect (i) the amortization of the fair value of
mortgage servicing rights and (ii) the elimination of amortization of
historical mortgage servicing rights.
(c) Represents adjustments to reflect (i) the decrease in interest expense
resulting from the transfer of custodial accounts acquired to First
Nationwide Bank, (ii) decreases in compensation and benefits expense due to
reduction in staffing, (iii) elimination of certain other noninterest
expense due to consolidation with First Nationwide Bank's existing mortgage
banking operations, (iv) income taxes relative to the LMUSA Purchases and
(v) 20% minority interest relative to the LMUSA Purchases.
P-15
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
LMUSA PURCHASES
(1) Represents the difference between the amortization of pro forma recorded
balance of mortgage servicing rights and the historical amortization of
mortgage servicing rights as follows:
<TABLE>
<CAPTION>
IMPACT ON INCOME BEFORE
INCOME TAXES, EXTRAORDINARY
ITEM AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------------
<S> <C>
Pro forma amortization............................................ $ (48,941)
Historical amortization (i)....................................... 47,499
----------
$ (1,442)
----------
----------
(i) Represents elimination of amortization of mortgage servicing rights of $47,499 included in
LMUSA's historical consolidated statement of operations for the year ended December 31,
1995.
</TABLE>
(2) Represents a decrease in interest expense resulting from a reduction in
funding costs due to the transfer of custodial accounts acquired to First
Nationwide Bank.
(3) Represents the adjustment necessary to reduce compensation and benefits
expense to the level necessary for the incremental number (approximately
650) of LMUSA employees retained by the Issuer as a result of the LMUSA
Purchases, with average annual compensation and benefits per employee of
$30,000.
(4) Represents the impact on other noninterest expense of (i) the elimination of
historical amounts related to LMUSA operations not included in the LMUSA
Purchases and (ii) the consolidation of the LMUSA Purchases into First
Nationwide Bank's existing mortgage banking operations, as follows:
<TABLE>
<CAPTION>
DECREASE
ESTIMATED IN OTHER
HISTORICAL FUTURE NONINTEREST
COSTS COSTS EXPENSE
---------- --------- -----------
<S> <C> <C> <C>
COMPONENTS OF HISTORICAL NONINTEREST EXPENSE:
Interest rate swap agreements................................... $ 6,615 $ 0(ii) $ (6,615)
Facilities charge-offs.......................................... 38,559 0(ii) (38,559)
Facilities depreciation......................................... 1,797 0(ii) (1,797)
Provision for losses on assets held for sale.................... 180,255 0(ii) (180,255)
Reorganization items............................................ 16,892 0(ii) (16,892)
Data processing, document storage, administrative services and
management fees............................................... 20,896 3,004(iii) (17,892)
Other miscellaneous costs....................................... 35,077 35,077 0
---------- --------- -----------
$ 300,091 $38,081 $ (262,010)
---------- --------- -----------
---------- --------- -----------
</TABLE>
(ii) Represents historical amounts related to operations not included in
the LMUSA Purchases.
(iii) Represents amounts necessary to replace these services based on the
Issuer's historical annual cost per loan based on the average number
of loans serviced.
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December 31,
1995 related to the LMUSA Purchases was computed as follows:
<TABLE>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net operating loss
carryovers......................................................................... $ 739
State, at an assumed rate of 8%...................................................... 3,213
------
$3,952
------
------
</TABLE>
(6) Represents 20% minority interest relative to $36,210 in pro forma net
earnings relating to the LMUSA Purchases.
P-16
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
BRANCH SALES
<TABLE>
<CAPTION>
BRANCH SALES
OHIO SALE MICHIGAN SALE NORTHEAST SALE PRO FORMA
PRO FORMA PRO FORMA PRO FORMA TOTALS
--------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable.......................................... $ (119)(a) $ (64)(a) $ (440)(a) $ (623)
Securities................................................ -- -- -- --
Mortgage-backed securities................................ -- -- -- --
Other interest income..................................... -- -- -- --
--------- ------------- -------------- ------------
Total interest income................................ (119) (64) (440) (623)
INTEREST EXPENSE:
Deposits.................................................. (65,588)(a) (32,677)(a) (113,265)(a) (211,530)
Borrowings................................................ 86,565 (1) 45,869 (1) 148,237 (1) 280,671
--------- ------------- -------------- ------------
Total interest expense............................... 20,977 13,192 34,972 69,141
--------- ------------- -------------- ------------
Net interest income....................................... (21,096) (13,256) (35,412) (69,764)
Provision for loan losses................................. -- -- -- --
--------- ------------- -------------- ------------
Net interest income after provision for loan losses....... (21,096) (13,256) (35,412) (69,764)
NONINTEREST INCOME:
Customer banking fees..................................... (7,076)(a) (5,673)(a) (9,479)(a) (22,228)
Mortgage banking operations............................... -- -- -- --
Net loss on sales of assets............................... -- -- -- --
Other..................................................... (240)(a) (139)(a) (410)(a) (789)
--------- ------------- -------------- ------------
Total noninterest income............................. (7,316) (5,812) (9,889) (23,017)
NONINTEREST EXPENSE:
Compensation and benefits................................. (6,771)(a) (4,154)(a) (8,551)(a) (19,476)
Other..................................................... (7,436)(a) (4,348)(a) (14,039)(a) (25,823)
--------- ------------- -------------- ------------
Total noninterest expense............................ (14,207) (8,502) (22,590) (45,299)
--------- ------------- -------------- ------------
Income (loss) before income taxes, extraordinary item and
minority interest....................................... (14,205) (10,566) (22,711) (47,482)
Federal and state income taxes............................ (1,397) (1,039) (2,235) (4,671)(2)
--------- ------------- -------------- ------------
Income (loss) before extraordinary item and minority
interest................................................ (12,808) (9,527) (20,476) (42,811)
Extraordinary item-gain on early extinguishment of FHLB
advances, net........................................... -- -- -- --
--------- ------------- -------------- ------------
Net income (loss) before minority interest................ (12,808) (9,527) (20,476) (42,811)
Minority interest--Hunter's Glen.......................... (2,561) (1,905) (4,096) (8,562)(3)
--------- ------------- -------------- ------------
Net income (loss)......................................... $(10,247) $ (7,622) $ (16,380) $ (34,249)
--------- ------------- -------------- ------------
--------- ------------- -------------- ------------
</TABLE>
- ------------------
(a) Represents historical information related to the retail banking facilities
in Ohio, Michigan and the Northeast. Other noninterest expense includes
occupancy, SAIF insurance premiums, marketing, OTS assessments, data
processing and telecommunications directly attributable to the Ohio,
Michigan and Northeast retail branch operations.
P-17
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
BRANCH SALES
(1) Represents increase in interest expense on borrowings necessary to fund the
Branch Sales, as follows:
<TABLE>
<CAPTION>
FUNDING ADDITIONAL INTEREST
SOURCE PERIOD BORROWINGS RATE EXPENSE
------------------------ ----------------------------------------- ---------- ---- --------
<S> <C> <C> <C> <C>
FHLB Advances........... January 1, 1995 - December 31, 1995 $2,000,000 7.72%(i) $154,400
Reverse Repos........... January 1, 1995 - December 31, 1995 $2,132,967 5.92%(ii) 126,271
---------- --------
$4,132,967 $280,671(iii)
---------- --------
---------- --------
</TABLE>
The sales are assumed to be funded by a combination of a one-year FHLB
advance of $2 billion and reverse repurchase agreements, as these instruments
most closely meet the Issuer's current interest rate risk management
objectives in conjunction with the borrowing capacities for the respective
debt instruments. Additional pro forma borrowings are computed as follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Deposit totals at January 1, 1995................ $1,431,872 $749,788 $2,369,728 $4,551,388
Less:
Carrying value of office premises and
equipment................................... 8,591 6,510 13,397 28,498
Carrying value of loans receivable............. 2,836 3,333 6,353 12,522
Carrying value of cash and cash equivalents.... 9,395 3,830 8,150 21,375
Gain on sale (iv).............................. 131,233 52,510 172,283 356,026
---------- -------- ---------- ----------
Additional pro forma borrowings.................. $1,279,817 $683,605 $2,169,545 $4,132,967
---------- -------- ---------- ----------
---------- -------- ---------- ----------
</TABLE>
<TABLE>
<S> <C>
(i) Represents rate for a one-year fixed rate FHLB advance as of January 1, 1995.
(ii) Represents average reverse repurchase rate for 1995.
(iii) Branch Sales consummated through March 31, 1996 have been funded with a mix of FHLB advances and
reverse repos at a weighted average rate of 5.45%, compared to 6.79% used in the pro forma data
which is based on blended borrowing rates during 1995, as reflected in (i) and (ii) above.
Applying the actual average rate to the additional borrowings used to fund the Branch Sales has
the effect of decreasing the pro forma interest expense on borrowings by $49,882 on an after tax
basis.
(iv) Represents pro forma gain on Branch Sales, computed as follows:
</TABLE>
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Deposit totals at January 1, 1995...... $1,431,872 $749,788 $2,369,728 $4,551,388
Premium percentage per contract........ 9.10% 7.18% 7.30% 7.86%
---------- -------- ---------- ----------
Total pro forma premium.............. 130,300 53,835 172,990 357,125
Write-off of core deposit
intangible........................ 933 (1,325) (707) (1,099)
---------- -------- ---------- ----------
Gain on sale of deposits (a)......... $ 131,233 $ 52,510 $ 172,283 $ 356,026
---------- -------- ---------- ----------
---------- -------- ---------- ----------
</TABLE>
<TABLE>
<S> <C>
(a) The remaining assets and liabilities will be sold at their respective carrying values,
resulting in no gain or loss.
</TABLE>
(2) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December 31,
1995 related to the Branch Sales was computed as follows:
<TABLE>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers............................................... $ (873)
State, at an assumed rate of 8%................................. (3,798)
-------
$(4,671)
-------
-------
</TABLE>
(3) Represents 20% minority interest relative to $42,811 in pro forma losses
relating to the Branch Sales.
P-18
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE ISSUER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE OF THE ISSUER SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.......................... 2
Summary........................................ 3
Risk Factors................................... 15
Strategic Acquisitions and
Dispositions................................. 24
Use of Proceeds................................ 26
Consolidated Capitalization.................... 27
Pro Forma Financial Data....................... 28
Selected Historical Financial Data............. 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 40
The Exchange Offer............................. 67
Business....................................... 73
Regulation..................................... 105
Management..................................... 113
Ownership of Common Stock...................... 118
Certain Transactions........................... 119
Description of the Notes....................... 123
Description of Other Indebtedness.............. 143
Certain U.S. Federal Income Tax
Considerations............................... 145
Plan of Distribution........................... 146
Legal Matters.................................. 147
Experts........................................ 147
Index to Financial Statements.................. F-1
</TABLE>
UNTIL AUGUST 13, 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
================================================================================
================================================================================
$455,000,000
FIRST NATIONWIDE (PARENT)
HOLDINGS INC.
12 1/2% SENIOR EXCHANGE NOTES
DUE 2003
----------------------
PROSPECTUS
----------------------
May 15, 1996
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is a table of the SEC registration fee and estimates of all
other expenses to be incurred in connection with the issuance and distribution
of the securities described in this Registration Statement:
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 156,897
Exchange Agent fees and expenses.............................. 15,000
Printing and engraving expenses............................... 250,000
Legal fees and expenses....................................... 225,000
Accounting fees and expenses.................................. 200,000
Miscellaneous................................................. 3,103
---------
Total.................................................... $ 850,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
'Delaware Corporation Law') empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was unlawful. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in an action by or in the right of the corporation under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses which such officer or director actually and reasonably
incurred.
Article VIII of the By-laws of the Registrant, a copy of which is filed as
Exhibit 3.2 to this Registration Statement, allows the Registrant to maintain
director and officer liability insurance on behalf of any person who is or was a
director or officer of the Registrant or such person who serves or served as a
director, officer, employee or agent, of another corporation, partnership or
other enterprise at the request of the Registrant. Article VIII of the
Registrant's By-Laws provides for indemnification of the officers and directors
of the Registrant to the fullest extent permitted by applicable law.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article
Fifth of the Certificate of Incorporation of the Registrant, a copy of which is
filed as Exhibit 3.1 to this Registration Statement, provides that no director
of the Registrant shall be personally liable to the Registrant or its
shareholders for monetary damages for any breach of his fiduciary duty as a
director; provided, however, that such clause shall not apply to any liability
of a director (1) for any breach of his duty of loyalty to the Registrant or its
stockholders, (2) for acts or omissions that are not in good faith or involve
intentional misconduct or a knowing violation of the law, (3) under Section 174
of the Delaware Corporation Law, or (4) for any transaction from which the
director derived an improper personal benefit.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the organization of the Registrant, on July 27, 1994,
the Registrant sold 1,000 shares of common stock to First Gibraltar Holdings
Inc. for $1,000. The transaction was exempt from the registration requirements
of the Securities Act in reliance on Section 4(2) of the Securities Act on the
basis that such transaction did not involve a public offering.
On April 17, 1996, the Registrant sold $455,000,000 aggregate principal
amount of the Old Notes to Bear, Stearns & Co. Inc., Smith Barney Inc., Chase
Securities Inc. and Citicorp Securities, Inc. (the 'Initial Purchasers') for
$449,826,650 less the aggregate discount to Initial Purchasers of $15,743,933.
The transaction was exempt from the registration requirements of the Securities
Act in reliance on Section 4(2) of the Securities Act on the basis that such
transaction did not involve a public offering. In accordance with the agreement
pursuant to which the Initial Purchasers purchased the Old Notes, such Initial
Purchasers agreed to offer and sell the Old Notes only to 'qualified instituted
buyers' (as defined in Rule 144A under the Securities Act), a limited number of
institutional 'accredited investors' (as defined in Rule 501(A)(1), (2), (3) or
(7) under the Securities Act) and pursuant to offers and sales that occur
outside the United States within the meaning of Regulation S under the
Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*1.3 Third Restated Certificate of Incorporation of the Registrant.
*3.2 By-laws of the Registrant.
*4.1 Indenture, dated as of April 15, 1996, between the Registrant and The Bank of New York, as trustee,
relating to the New Notes.
*4.2 Indenture, dated as of January 31, 1996, between First Nationwide Holdings Inc. ('Holdings') and The
Bank of New York, as trustee, relating to the 9 1/8% Senior Subordinated Notes Due 2003 (incorporated
by reference to Exhibit No. 4.1 to Holdings' Registration Statement on Form S-1 (File No. 333-00854)).
*4.3 Indenture, dated as of July 15, 1994, between Holdings and The First National Bank of Boston, as
trustee, relating to the 12 1/4% Senior Exchange Notes Due 2001 (incorporated by reference to Exhibit
4.1 to Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*4.4 Indenture, dated as of October 1, 1996, between First Nationwide Bank, A Federal Savings Bank, and
Bank of America National Trust and Savings Association Re: $100,000,000 10% Subordinated Debentures
due 2006 (incorporated by reference to Exhibit 4.5 to Holdings' filing on Form 10-K for the year ended
December 31, 1994).
*4.5 First Supplemental Indenture, dated as of September 30, 1994, among First Madison Bank, FSB, First
Nationwide Bank, A Federal Savings Bank, and Bank of America National Trust and Savings Association,
supplementing the Indenture, dated as of October 1, 1986, between First Nationwide Bank, A Federal
Savings Bank, and Bank of America National Trust and Savings Association Re: $100,000,000 10%
Subordinated Debentures due 2006 (incorporated by reference to Exhibit 4.6 to Holdings' filing on Form
10-K for the year ended December 31, 1994).
*4.6 Note Purchase Agreement, dated as of September 1, 1994, between SFFed Corp. and each of the purchasers
(incorporated by reference to Exhibit 4.5 to Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
*4.7 First Amendment and Waiver Agreement, dated as of December 11, 1995, between SFFed Corp. and each of
the purchasers, supplementing the Note Purchase Agreement, dated as of September 1, 1994, between
SFFed Corp. and each of the purchasers (incorporated by reference to Exhibit 4.6 to Holdings'
Registration Statement on Form S-1 (File No. 333-00854)).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*4.8 Registration Agreement, dated April 12, 1996, by and among the Registrant and Bear, Stearns & Co.
Inc., Smith Barney Inc., Chase Securities Inc. and Citicorp Securities, Inc.
*4.9 Registration Agreement, dated January 23, 1996, by and among Holdings, Smith Barney Inc. and Keefe,
Bruyette & Woods, Inc. (incorporated by reference to Exhibit 4.7 to Holdings' Registration Statement
on Form S-1 (File No. 333-00854)).
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Registrant, regarding the legality
of the New Notes.
*10.1 Tax Sharing Agreement, effective as of January 1, 1994, by and among First Madison Bank, FSB, Holdings
and Mafco Holdings, Inc. (incorporated by reference to Exhibit 10.10 to Holdings' Registration
Statement on Form S-1 (File No. 33-82654)).
*10.2 Asset Purchase Agreement, dated as of April 14, 1994, between First Madison Bank, FSB, and First
Nationwide Bank, A Federal Savings Bank (incorporated by reference to Exhibit 2.1 to Holdings' filing
on Form 8-K dated October 3, 1995).
*10.3 Assistance Agreement, dated as of December 28, 1988, among the Federal Savings and Loan Insurance
Corporation, First Madison Bank, FSB (formerly named First Texas Bank, FSB) and MacAndrews & Forbes
Holdings Inc. (incorporated by reference to Exhibit 10.2 to Holdings' Registration Statement on Form
S-1 (File No. 33-82654)).
*10.4 Modification Agreement, dated January 31, 1992, among the Federal Deposit Insurance Corporation, as
manager of the FSLIC Resolution Fund, Resolution Trust Corporation, First Madison Bank, FSB (formerly
named First Gibraltar Bank, FSB), First Gibraltar Holdings Inc. and MacAndrews & Forbes Holdings Inc.
(incorporated by reference to Exhibit 10.3 to Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
*10.5 Amendment No. 1 to the Asset Purchase Agreement, dated as of September 30, 1994, between First Madison
Bank, FSB, and First Nationwide Bank, A Federal Savings Bank (incorporated by reference to Exhibit 2.3
to Holdings' filing on Form 8-K dated October 3, 1994).
*10.6 Amendment No. 2 to the Asset Purchase Agreement, dated as of September 30, 1994, between First Madison
Bank, FSB, and First Nationwide Bank, A Federal Savings Bank (incorporated by reference to Exhibit 2.4
to Holdings' filing on Form 8-K dated October 3, 1994).
*10.7 Non-Performing Asset Sale Agreement, dated September 30, 1994, between First Madison Bank, FSB, and
Granite Management and Disposition, Inc. (incorporated by reference to Exhibit 10.1 to Holdings'
filing on Form 8-K dated October 3, 1994).
*10.8 Settlement Agreement, dated July 17, 1991, by and among First Gibraltar Bank, FSB, Affiliated Computer
Services, Inc. and the Federal Deposit Insurance Corporation, in its corporate capacity, the Federal
Deposit Insurance Corporation, as receiver for Gibraltar Savings Association, and the Federal Deposit
Insurance Corporation, as receiver for First Texas Savings Association (incorporated by reference to
Exhibit 10.2 to Holdings' filing on Form 8-K dated October 3, 1994).
*10.9 Office Lease dated as of November 15, 1990, between Webb/San Francisco Ventures, Ltd. and First
Nationwide Bank, A Federal Savings Bank. Confidential treatment has been granted for portions of this
document (incorporated by reference to Exhibit 10.6 to Amendment No. 3 to Holdings' Registration
Statement on Form S-1 (File No. 33-82654)).
*10.10 Exchange Agreement dated September 26, 1994 by and among Gerald J. Ford, Holdings and NationsBank of
Texas, N.A. (incorporated by reference to Exhibit 10.12 to Amendment No. 2 to Holdings' Registration
Statement on Form S-1 (File No. 33-82654)).
*10.11 Exchange Agreement dated October 20, 1994 between Carl B. Webb and Holdings (incorporated by reference
to Exhibit 10.11 to Holdings' Registration Statement on Form S-1 (File No. 333-00854)).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*10.12 Stockholders Agreement dated October 3, 1994 by and among Gerald J. Ford, Holdings and First
Nationwide (Parent) Holdings Inc. (incorporated by reference to Exhibit 10.16 to Amendment No. 2 to
Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.13 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Gerald J. Ford, dated
as of October 1, 1994 (incorporated by reference to Exhibit 10.13 to Holdings' filing on Form 10-K for
the year ended December 31, 1994).
*10.14 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Carl B. Webb, II,
dated as of February 1, 1995 (incorporated by reference to Exhibit 10.14 to Holdings' filing on Form
l0-K for the year ended December 31, 1994).
*10.15 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Christie S. Flanagan,
dated as of October 1, 1994 (incorporated by reference to Exhibit 10.15 to Holdings' filing on Form
10-K for the year ended December 31, 1994).
*10.16 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and James R. Staff, dated
as of February 1, 1995 (incorporated by reference to Exhibit 10.16 to Holdings' filing on Form 10-K
for the year ended December 31, 1994).
*10.17 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Lacy Newman, dated as
of February 1, 1995 (incorporated by reference to Exhibit 10.17 to Holdings' Registration Statement on
Form S-1 (File No. 333-00854)).
*10.18 Mortgage Company Asset Sale Agreement by and among Resolution Trust Corporation as conservator for
Standard Federal Savings Association, America's Mortgage Servicing, Inc., A Mortgage Company,
America's Lending Network, Inc. and StanFed Financial Services, Inc., and First Nationwide Mortgage
Corporation, dated as of December 1, 1994 (incorporated by reference to Exhibit 10.18 to Holdings'
filing on Form 10-K for the year ended December 31, 1994).
*10.19 Receivables Sale Agreement by and among Resolution Trust Corporation as conservator for Standard
Federal Savings Association, America's Mortgage Servicing, Inc., A Mortgage Company, and America's
Lending Network, Inc., and First Nationwide Mortgage Corporation, dated as of December 1, 1994
(incorporated by reference to Exhibit 10.19 to Holdings' filing on Form 10K for the year ended
December 31, 1994).
*10.20 Purchase and Sale Agreement by and between Resolution Trust Corporation in its corporate capacity and
First Nationwide Mortgage Corporation, dated as of December 1, 1994 (incorporated by reference to
Exhibit 10.20 to Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.21 Purchase and Sale Agreement by and among Resolution Trust Corporation as receiver of or conservator
for certain associations and First Nationwide Mortgage Corporation, dated as of December 1, 1994
(incorporated by reference to Exhibit 10.21 to Holdings' filing on Form 10-K for the year ended
December 31, 1994).
*10.22 Letter agreement between the Resolution Trust Corporation, as conservator for Standard Federal Savings
Association, et al., and First Nationwide Mortgage Corporation, dated December 2, 1994, regarding the
Mortgage Company Asset Sale Agreement, Receivable Sales Agreement, and two Purchase and Sales
Agreements among such parties, as of December 1, 1994 (incorporated by reference to Exhibit 10.22 to
Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.23 Letter agreement between the Resolution Trust Corporation, as conservator for Standard Federal Savings
Association, et al., and First Nationwide Mortgage Corporation, dated February 23, 1995, regarding the
Mortgage Company Asset Sale Agreement, Receivable Sales Agreement, and two Purchase and Sales
Agreements among such parties, as of December 1, 1994 (incorporated by reference to Exhibit 10.23 to
Holdings' filing on Form 10-K for the year ended December 31, 1994).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*10.24 Letter agreement between the Resolution Trust Corporation, as conservator for Standard Federal Savings
Association, et al., and First Nationwide Mortgage Corporation, dated February 24, 1995, regarding the
Mortgage Company Asset Sale Agreement among such parties, as of December 1, 1994 (incorporated by
reference to Exhibit 10.24 to Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.25 Letter agreement between the Resolution Trust Corporation, as conservator for Standard Federal Savings
Association, et al., and First Nationwide Mortgage Corporation, dated February 28, 1995, regarding the
Mortgage Company Asset Sale Agreement among such parties, as of December 1, 1994 (power of attorney
matters) (incorporated by reference to Exhibit 10.25 to Holdings' filing on Form 10-K for the year
ended December 31, 1994).
*10.26 Letter agreement between the Resolution Trust Corporation, as conservator for Standard Federal Savings
Association, et al., and First Nationwide Mortgage Corporation, dated February 28, 1995, regarding the
Mortgage Company Asset Sale Agreement among such parties, as of December 1, 1994 (amendments to
schedules) (incorporated by reference to Exhibit 10.26 to Holdings' filing on Form 10-K for the year
ended December 31, 1994).
*10.27 Agreement for Provision of Services between First Nationwide Bank, A Federal Savings Bank, and Trans
Network Insurance Services Inc. (then named 'First Gibraltar (Parent) Holdings Inc.'), dated effective
December 1, 1994 (incorporated by reference to Exhibit 10.27 to Holdings' filing on Form 10-K for the
year ended December 31, 1994).
*10.28 Assignment from Trans Network Insurance Services Inc. to First Nationwide Management Corp. of
Agreement for Provision of Services (incorporated by reference to Exhibit 10.37 to Holdings' filing on
Form 10-K for the year ended December 31, 1995).
*10.29 Asset Purchase Agreement between Trans Network Insurance Services Inc. and FNC Insurance Agency, Inc.
dated effective June 1, 1995 (incorporated by reference to Exhibit 10.24 to Post-Effective Amendment
No. 1 to Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.30 Trans Network Marketing and Support Services Agreement between First Nationwide Bank, A Federal
Savings Bank, and Trans Network Insurance Services Inc. dated effective June 1, 1995 (incorporated by
reference to Exhibit 10.25 to Post-Effective Amendment No. 1 to Holdings' Registration Statement on
Form S-1 (File No. 33-82654)).
*10.31 Amendment No. 2 to Lease between First Nationwide Bank, A Federal Savings Bank, and RNM 135 Main, L.P.
dated April 6, 1995 (incorporated by reference to Exhibit 10.26 to Post-Effective Amendment No. 1 to
Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.32 Consulting Agreement between First Nationwide Management Corp. and Gerald J. Ford dated as of October
1, 1994 (incorporated by reference to Exhibit 10.27 to Post-Effective Amendment No. 1 to Holdings'
Registration Statement on Form S-1 (File No. 33-82654)).
*10.33 First Amendment, dated as of January 1, 1995, by and among First Nationwide Management Corp., Diamond
A-Ford Corporation, Trans Network Insurance Services, Inc. and Gerald J. Ford, supplementing the
Consulting Agreement between First Nationwide Management Corp. and Gerald J. Ford dated as of October
1, 1994 (incorporated by reference to Exhibit 10.33 to Holdings' Registration Statement on Form S-1
(File No. 333-00854)).
*10.34 Management Incentive Plan for Certain Employees of First Nationwide Bank, A Federal Savings Bank
(incorporated by reference to Exhibit 10.34 to Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
*10.35 Reimbursement and Expense Allocation Agreement, dated as of January 1, 1996, by and between First
Nationwide Management Corp. and Holdings (incorporated by reference to Exhibit 10.35 to Holdings'
Registration Statement on Form S-1 (File No. 333-00854)).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
*10.36 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Roger L. Gordon, dated
as of January 30, 1996 (incorporated by reference to Exhibit 10.15 to Holdings' filing on Form 10-K
for the year ended December 31, 1995).
*10.37 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Richard P. Hodge
(incorporated by reference to Exhibit 10.16 to Holdings' filing on Form 10-K for the year ended
December 31, 1995).
*12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Registrant.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Coopers & Lybrand LLP, Independent Auditors.
*23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
23.4 Consent of Deloitte & Touche LLP, Independent Auditors.
*24.1 Power of Attorney executed by Ronald O. Perelman.
*24.2 Power of Attorney executed by Gerald J. Ford.
*24.3 Power of Attorney executed by Howard Gittis.
*24.4 Power of Attorney executed by Irwin Engelman.
*24.5 Power of Attorney executed by Laurence Winoker.
*25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee under the
Indenture relating to the Notes (bound separately).
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ------------------
* Previously filed.
(b) Financial Statement Schedules: None
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more that 20 percent change in
the maximum aggregate offering price set forth in the 'Calculation of
Registration Fee' table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the Registration
Statement.
II-6
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on May 15, 1996.
FIRST NATIONWIDE (PARENT) HOLDINGS
INC.
By: /s/ GLENN P. DICKES
----------------------------------
Glenn P. Dickes
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
* Chairman of the Board, Chief Executive May 15, 1996
- ------------------------------------------ Officer and Director (Principal Executive
Ronald O. Perelman Officer)
* President and Director May 15, 1996
- ------------------------------------------
Gerald J. Ford
* Vice Chairman and Director May 15, 1996
- ------------------------------------------
Howard Gittis
* Executive Vice President and Chief May 15, 1996
- ------------------------------------------ Financial Officer (Principal Financial
Irwin Engelman Officer)
* Vice President and Controller (Principal May 15, 1996
- ------------------------------------------ Accounting Officer)
Laurence Winoker
</TABLE>
*Joram C. Salig, by signing his name hereto, does hereby execute this
Amendment No. 2 to the Registration Statement on behalf of the directors and
officers of the Registrant indicated above by asterisks, pursuant to powers of
attorney duly executed by such directors and officers and filed as exhibits to
the Registration Statement.
By: /s/ JORAM C. SALIG
--------------------------------------
Joram C. Salig
Attorney-in-Fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
*3.1 Third Restated Certificate of Incorporation of the Registrant.
*3.2 By-laws of the Registrant.
*4.1 Indenture, dated as of April 15, 1996, between the Registrant and The Bank of New York, as
trustee, relating to the New Notes.
*4.2 Indenture, dated as of January 31, 1996, between First Nationwide Holdings Inc.
('Holdings') and The Bank of New York, as trustee, relating to the 9 1/8% Senior
Subordinated Notes Due 2003 (incorporated by reference to Exhibit No. 4.1 to Holdings'
Registration Statement on Form S-1 (File No. 333-00854)).
*4.3 Indenture, dated as of July 15, 1994, between Holdings and The First National Bank of
Boston, as trustee, relating to the 12 1/4% Senior Exchange Notes Due 2001 (incorporated
by reference to Exhibit 4.1 to Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
*4.4 Indenture, dated as of October 1, 1996, between First Nationwide Bank, A Federal Savings
Bank, and Bank of America National Trust and Savings Association Re: $100,000,000 10%
Subordinated Debentures due 2006 (incorporated by reference to Exhibit 4.5 to Holdings'
filing on Form 10-K for the year ended December 31, 1994).
*4.5 First Supplemental Indenture, dated as of September 30, 1994, among First Madison Bank,
FSB, First Nationwide Bank, A Federal Savings Bank, and Bank of America National Trust and
Savings Association, supplementing the Indenture, dated as of October 1, 1986, between
First Nationwide Bank, A Federal Savings Bank, and Bank of America National Trust and
Savings Association Re: $100,000,000 10% Subordinated Debentures due 2006 (incorporated by
reference to Exhibit 4.6 to Holdings' filing on Form 10-K for the year ended December 31,
1994).
*4.6 Note Purchase Agreement, dated as of September 1, 1994, between SFFed Corp. and each of
the purchasers (incorporated by reference to Exhibit 4.5 to Holdings' Registration
Statement on Form S-1 (File No. 333-00854)).
*4.7 First Amendment and Waiver Agreement, dated as of December 11, 1995, between SFFed Corp.
and each of the purchasers, supplementing the Note Purchase Agreement, dated as of
September 1, 1994, between SFFed Corp. and each of the purchasers (incorporated by
reference to Exhibit 4.6 to Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
*4.8 Registration Agreement, dated April 12, 1996, by and among the Registrant and Bear,
Stearns & Co. Inc., Smith Barney Inc., Chase Securities Inc. and Citicorp Securities, Inc.
*4.9 Registration Agreement, dated January 23, 1996, by and among Holdings, Smith Barney Inc.
and Keefe, Bruyette & Woods, Inc. (incorporated by reference to Exhibit 4.7 to Holdings'
Registration Statement on Form S-1 (File No. 333-00854)).
*5.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the Registrant, regarding
the legality of the New Notes.
*10.1 Tax Sharing Agreement, effective as of January 1, 1994, by and among First Madison Bank,
FSB, Holdings and Mafco Holdings, Inc. (incorporated by reference to Exhibit 10.10 to
Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.2 Asset Purchase Agreement, dated as of April 14, 1994, between First Madison Bank, FSB, and
First Nationwide Bank, A Federal Savings Bank (incorporated by reference to Exhibit 2.1 to
Holdings' filing on Form 8-K dated October 3, 1995).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
*10.3 Assistance Agreement, dated as of December 28, 1988, among the Federal Savings and Loan
Insurance Corporation, First Madison Bank, FSB (formerly named First Texas Bank, FSB) and
MacAndrews & Forbes Holdings Inc. (incorporated by reference to Exhibit 10.2 to Holdings'
Registration Statement on Form S-1 (File No. 33-82654)).
*10.4 Modification Agreement, dated January 31, 1992, among the Federal Deposit Insurance
Corporation, as manager of the FSLIC Resolution Fund, Resolution Trust Corporation, First
Madison Bank, FSB (formerly named First Gibraltar Bank, FSB), First Gibraltar Holdings
Inc. and MacAndrews & Forbes Holdings Inc. (incorporated by reference to Exhibit 10.3 to
Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.5 Amendment No. 1 to the Asset Purchase Agreement, dated as of September 30, 1994, between
First Madison Bank, FSB, and First Nationwide Bank, A Federal Savings Bank (incorporated
by reference to Exhibit 2.3 to Holdings' filing on Form 8-K dated October 3, 1994).
*10.6 Amendment No. 2 to the Asset Purchase Agreement, dated as of September 30, 1994, between
First Madison Bank, FSB, and First Nationwide Bank, A Federal Savings Bank (incorporated
by reference to Exhibit 2.4 to Holdings' filing on Form 8-K dated October 3, 1994).
*10.7 Non-Performing Asset Sale Agreement, dated September 30, 1994, between First Madison Bank,
FSB, and Granite Management and Disposition, Inc. (incorporated by reference to Exhibit
10.1 to Holdings' filing on Form 8-K dated October 3, 1994).
*10.8 Settlement Agreement, dated July 17, 1991, by and among First Gibraltar Bank, FSB,
Affiliated Computer Services, Inc. and the Federal Deposit Insurance Corporation, in its
corporate capacity, the Federal Deposit Insurance Corporation, as receiver for Gibraltar
Savings Association, and the Federal Deposit Insurance Corporation, as receiver for First
Texas Savings Association (incorporated by reference to Exhibit 10.2 to Holdings' filing
on Form 8-K dated October 3, 1994).
*10.9 Office Lease dated as of November 15, 1990, between Webb/San Francisco Ventures, Ltd. and
First Nationwide Bank, A Federal Savings Bank. Confidential treatment has been granted for
portions of this document (incorporated by reference to Exhibit 10.6 to Amendment No. 3 to
Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.10 Exchange Agreement dated September 26, 1994 by and among Gerald J. Ford, Holdings and
NationsBank of Texas, N.A. (incorporated by reference to Exhibit 10.12 to Amendment No. 2
to Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.11 Exchange Agreement dated October 20, 1994 between Carl B. Webb and Holdings (incorporated
by reference to Exhibit 10.11 to Holdings' Registration Statement on Form S-1 (File No.
333-00854)).
*10.12 Stockholders Agreement dated October 3, 1994 by and among Gerald J. Ford, Holdings and
First Nationwide (Parent) Holdings Inc. (incorporated by reference to Exhibit 10.16 to
Amendment No. 2 to Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.13 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Gerald J.
Ford, dated as of October 1, 1994 (incorporated by reference to Exhibit 10.13 to Holdings'
filing on Form 10-K for the year ended December 31, 1994).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
*10.14 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Carl B.
Webb, II, dated as of February 1, 1995 (incorporated by reference to Exhibit 10.14 to
Holdings' filing on Form l0-K for the year ended December 31, 1994).
*10.15 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Christie
S. Flanagan, dated as of October 1, 1994 (incorporated by reference to Exhibit 10.15 to
Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.16 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and James R.
Staff, dated as of February 1, 1995 (incorporated by reference to Exhibit 10.16 to
Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.17 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Lacy
Newman, dated as of February 1, 1995 (incorporated by reference to Exhibit 10.17 to
Holdings' Registration Statement on Form S-1 (File No. 333-00854)).
*10.18 Mortgage Company Asset Sale Agreement by and among Resolution Trust Corporation as
conservator for Standard Federal Savings Association, America's Mortgage Servicing, Inc.,
A Mortgage Company, America's Lending Network, Inc. and StanFed Financial Services, Inc.,
and First Nationwide Mortgage Corporation, dated as of December 1, 1994 (incorporated by
reference to Exhibit 10.18 to Holdings' filing on Form 10-K for the year ended December
31, 1994).
*10.19 Receivables Sale Agreement by and among Resolution Trust Corporation as conservator for
Standard Federal Savings Association, America's Mortgage Servicing, Inc., A Mortgage
Company, and America's Lending Network, Inc., and First Nationwide Mortgage Corporation,
dated as of December 1, 1994 (incorporated by reference to Exhibit 10.19 to Holdings'
filing on Form 10K for the year ended December 31, 1994).
*10.20 Purchase and Sale Agreement by and between Resolution Trust Corporation in its corporate
capacity and First Nationwide Mortgage Corporation, dated as of December 1, 1994
(incorporated by reference to Exhibit 10.20 to Holdings' filing on Form 10-K for the year
ended December 31, 1994).
*10.21 Purchase and Sale Agreement by and among Resolution Trust Corporation as receiver of or
conservator for certain associations and First Nationwide Mortgage Corporation, dated as
of December 1, 1994 (incorporated by reference to Exhibit 10.21 to Holdings' filing on
Form 10-K for the year ended December 31, 1994).
*10.22 Letter agreement between the Resolution Trust Corporation, as conservator for Standard
Federal Savings Association, et al., and First Nationwide Mortgage Corporation, dated
December 2, 1994, regarding the Mortgage Company Asset Sale Agreement, Receivable Sales
Agreement, and two Purchase and Sales Agreements among such parties, as of December 1,
1994 (incorporated by reference to Exhibit 10.22 to Holdings' filing on Form 10-K for the
year ended December 31, 1994).
*10.23 Letter agreement between the Resolution Trust Corporation, as conservator for Standard
Federal Savings Association, et al., and First Nationwide Mortgage Corporation, dated
February 23, 1995, regarding the Mortgage Company Asset Sale Agreement, Receivable Sales
Agreement, and two Purchase and Sales Agreements among such parties, as of December 1,
1994 (incorporated by reference to Exhibit 10.23 to Holdings' filing on Form 10-K for the
year ended December 31, 1994).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
*10.24 Letter agreement between the Resolution Trust Corporation, as conservator for Standard
Federal Savings Association, et al., and First Nationwide Mortgage Corporation, dated
February 24, 1995, regarding the Mortgage Company Asset Sale Agreement among such parties,
as of December 1, 1994 (incorporated by reference to Exhibit 10.24 to Holdings' filing on
Form 10-K for the year ended December 31, 1994).
*10.25 Letter agreement between the Resolution Trust Corporation, as conservator for Standard
Federal Savings Association, et al., and First Nationwide Mortgage Corporation, dated
February 28, 1995, regarding the Mortgage Company Asset Sale Agreement among such parties,
as of December 1, 1994 (power of attorney matters) (incorporated by reference to Exhibit
10.25 to Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.26 Letter agreement between the Resolution Trust Corporation, as conservator for Standard
Federal Savings Association, et al., and First Nationwide Mortgage Corporation, dated
February 28, 1995, regarding the Mortgage Company Asset Sale Agreement among such parties,
as of December 1, 1994 (amendments to schedules) (incorporated by reference to Exhibit
10.26 to Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.27 Agreement for Provision of Services between First Nationwide Bank, A Federal Savings Bank,
and Trans Network Insurance Services Inc. (then named 'First Gibraltar (Parent) Holdings
Inc.'), dated effective December 1, 1994 (incorporated by reference to Exhibit 10.27 to
Holdings' filing on Form 10-K for the year ended December 31, 1994).
*10.28 Assignment from Trans Network Insurance Services Inc. to First Nationwide Management Corp.
of Agreement for Provision of Services (incorporated by reference to Exhibit 10.37 to
Holdings' filing on Form 10-K for the year ended December 31, 1995).
*10.29 Asset Purchase Agreement between Trans Network Insurance Services Inc. and FNC Insurance
Agency, Inc. dated effective June 1, 1995 (incorporated by reference to Exhibit 10.24 to
Post-Effective Amendment No. 1 to Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
*10.30 Trans Network Marketing and Support Services Agreement between First Nationwide Bank, A
Federal Savings Bank, and Trans Network Insurance Services Inc. dated effective June 1,
1995 (incorporated by reference to Exhibit 10.25 to Post-Effective Amendment No. 1 to
Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.31 Amendment No. 2 to Lease between First Nationwide Bank, A Federal Savings Bank, and RNM
135 Main, L.P. dated April 6, 1995 (incorporated by reference to Exhibit 10.26 to
Post-Effective Amendment No. 1 to Holdings' Registration Statement on Form S-1 (File No.
33-82654)).
*10.32 Consulting Agreement between First Nationwide Management Corp. and Gerald J. Ford dated as
of October 1, 1994 (incorporated by reference to Exhibit 10.27 to Post-Effective Amendment
No. 1 to Holdings' Registration Statement on Form S-1 (File No. 33-82654)).
*10.33 First Amendment, dated as of January 1, 1995, by and among First Nationwide Management
Corp., Diamond A-Ford Corporation, Trans Network Insurance Services, Inc. and Gerald J.
Ford, supplementing the Consulting Agreement between First Nationwide Management Corp. and
Gerald J. Ford dated as of October 1, 1994 (incorporated by reference to Exhibit 10.33 to
Holdings' Registration Statement on Form S-1 (File No. 333-00854)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ---------- ------------------------------------------------------------------------------------------ -----------
<S> <C> <C>
*10.34 Management Incentive Plan for Certain Employees of First Nationwide Bank, A Federal
Savings Bank (incorporated by reference to Exhibit 10.34 to Holdings' Registration
Statement on Form S-1 (File No. 333-00854)).
*10.35 Reimbursement and Expense Allocation Agreement, dated as of January 1, 1996, by and
between First Nationwide Management Corp. and Holdings (incorporated by reference to
Exhibit 10.35 to Holdings' Registration Statement on Form S-1 (File No. 333-00854)).
*10.36 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Roger L.
Gordon, dated as of January 30, 1996 (incorporated by reference to Exhibit 10.15 to
Holdings' filing on Form 10-K for the year ended December 31, 1995).
*10.37 Employment Agreement between First Nationwide Bank, A Federal Savings Bank, and Richard P.
Hodge (incorporated by reference to Exhibit 10.16 to Holdings' filing on Form 10-K for the
year ended December 31, 1995).
*12.1 Statement regarding the computation of ratio of earnings to fixed charges for the
Registrant.
*21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Coopers & Lybrand LLP, Independent Auditors.
*23.3 Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5.1).
23.4 Consent of Deloitte & Touche LLP, Independent Auditors.
*24.1 Power of Attorney executed by Ronald O. Perelman.
*24.2 Power of Attorney executed by Gerald J. Ford.
*24.3 Power of Attorney executed by Howard Gittis.
*24.4 Power of Attorney executed by Irwin Engelman.
*24.5 Power of Attorney executed by Laurence Winoker.
*25.1 Statement of Eligibility and Qualification on Form T-1 of The Bank of New York, as trustee
under the Indenture relating to the Notes (bound separately).
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
*99.4 Form of Letter to Clients.
</TABLE>
- ------------------
* Previously filed.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
Board of Directors
First Nationwide (Parent) Holdings Inc.:
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the Prospectus. Our report
refers to a change in accounting for mortgage servicing rights in 1995,
a change in accounting for certain investments in debt and equity
securities in 1994 and a change in accounting for income taxes in 1993.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Dallas, Texas
May 15, 1996
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement of First
Nationwide (Parent) Holdings Inc. on Form S-1 related to the offer for
all outstanding Senior Notes due 2003 in exchange for Senior Exchange
Notes due 2003 of our report, which includes an explanatory paragraph
referring to a change in method of accounting for income taxes and
postretirement health benefits in 1992, dated May 10, 1994, on our
audits of the financial statements of the Acquired Business. We also
consent to the reference of our firm under the caption "Experts."
/s/ COOPERS & LYBRAND
COOPERS & LYBRAND
San Francisco, California
May 14, 1996
Exhibit 23.4
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-4026 of First Nationwide (Parent) Holdings Inc. on Form S-1 of our report
dated April 15, 1996, (relating to the consolidated financial statements of
SFFed Corp. for the years ended December 31, 1995, 1994 and 1993 and which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the acquisition of SFFed Corp.) appearing in the Prospectus, which is part of
this Registration Statement.
We also consent to the reference to us under the heading "Experts" in
such Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
May 15, 1996
