SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20579
---------------------
FORM 8-K
CURRENT REPORT
---------------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 30, 1996
First Nationwide (Parent) Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-82654 13-3778550
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
38 East 63rd Street, New York, New York 10021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 572-8500
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
As previously announced, First Nationwide Holdings Inc. ("FN
Holdings") has entered into an Agreement and Plan of Merger dated as of July 27,
1996 pursuant to which it will acquire (the "Cal Fed Acquisition") Cal Fed
Bancorp Inc. ("Cal Fed") and its wholly owned subsidiary, California Federal
Bank, A Federal Savings Bank ("California Federal"). FN Holdings, an 80% owned
subsidiary of First Nationwide (Parent) Holdings Inc. ("(Parent) Holdings"), is
a holding company whose only significant asset is all the common stock of First
Nationwide Bank, A Federal Savings Bank ("First Nationwide" or the "Bank").
FN Holdings will finance the Cal Fed Acquisition through (i) an issuance of
approximately $525 million aggregate principal amount of senior subordinated
notes (the "New FN Holdings Notes"), (ii) a contribution by an indirect parent
corporation of Holdings of approximately $145 million in cash in exchange for
$150 million aggregate liquidation value of perpetual preferred stock of FN
Holdings (the "FN Holdings Preferred Stock") and (iii) existing cash. The
offering of the New FN Holdings Notes (the "Offering") will not be registered
under the Securities Act of 1933, as amended, and the New FN Holdings Notes may
not be offered or sold in the United States absent registration or an applicable
exemption from the registration requirements.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
99.1 Unaudited Pro Forma Financial Data of First Nationwide (Parent)
Holdings Inc. and Subsidiaries.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
Dated: August 30, 1996
By: /s/ Joram C. Salig
---------------------
Name: Joram C. Salig
Title: Vice President
3
<PAGE>
EXHIBITS
Exhibit No. Document
- ----------- --------
99.1 Unaudited Pro Forma Financial Data of
First Nationwide (Parent) Holdings Inc. and
Subsidiaries.
4
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma financial data gives effect to the Cal Fed
Acquisition, the SFFed Acquisition and the LMUSA Purchases (collectively, the
"Acquisitions"), the Branch Sales, the issuances of the FN Holdings Preferred
Stock, the FN Holdings 9 1/8% Senior Subordinated Notes, the (Parent)
Holdings 12 1/2% Senior Notes and the Offering of New FN Holdings Notes. The
Branch Purchases and the 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 data as of and for the six months ended
June 30, 1996 are based on (i) the historical consolidated statement of
financial condition of (Parent) Holdings giving effect to the Cal Fed
Acquisition, the issuance of the FN Holdings Preferred Stock and the Offering
of New FN Holdings Notes as if such transactions occurred on June 30, 1996,
and (ii) the historical consolidated statement of operations of (Parent)
Holdings for the six months ended June 30, 1996 giving effect to the Cal Fed
Acquisition, the SFFed Acquisition, the LMUSA 1996 Purchase, the Branch
Sales, the issuances of the FN Holdings Preferred Stock, the FN Holdings 9
1/8% Senior Subordinated Notes and the (Parent) Holdings 12 1/2% Senior Notes
and the Offering of New FN Holdings Notes as if such transactions occurred on
January 1, 1995. The following pro forma financial data for the year ended
December 31, 1995 is based on the historical consolidated statement of
operations of (Parent) Holdings for the year ended December 31, 1995 giving
effect to the Acquisitions, the Branch Sales, the issuances of the FN
Holdings Preferred Stock, the FN Holdings 9 1/8% Senior Subordinated Notes
and the (Parent) Holdings 12 1/2% Senior Notes and the Offering of New FN
Holdings Notes 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 data do not necessarily reflect the
results of operations or the financial position of (Parent) Holdings that
actually would have resulted had the Acquisitions, the Branch Sales, the
issuances of the FN Holdings Preferred Stock, the FN Holdings 9 1/8% Senior
Subordinated Notes and the (Parent) Holdings 12 1/2% Senior Notes and the
Offering of New FN Holdings Notes occurred at the dates indicated, or project
the results of operations or financial position of (Parent) Holdings for any
future date or period.
The pro forma financial data should be read in conjunction with the notes
accompanying the Unaudited Pro Forma Financial Data. In addition, the
following unaudited pro forma financial data should be read in conjunction
with the Consolidated Financial Statements of (Parent) Holdings and the notes
thereto, the Consolidated Financial Statements of SFFed and the notes thereto
and the Consolidated Financial Statements of Cal Fed and California Federal
and the notes thereto, as filed with each Company's Annual Report on Form
10-K.
Capitalized terms used but not defined herein have the meaning ascribed to
them in (Parent) Holdings' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
P-1
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAL FED ACQUISITION (A)
--------------------------------------------------------
(PARENT) CAL FED
HOLDINGS CAL FED VALUATION PRO FORMA ACQUISITION PRO FORMA
HISTORICAL HISTORICAL(I) ADJUSTMENTS(II) ADJUSTMENTS(III) PRO FORMA CAPITALIZATION(B) COMBINED
----------- ------------- --------------- --------------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents . $ 227,693 $ 255,000 $ -- $ -- $ 255,000 $ 506,500 (1) $ 141,560
145,000 (2)
(992,633)(3)
Securities ................. 504,296 1,558,400 (800)(1) -- 1,557,600 (300,000)(3) 1,761,896
Mortgage-backed securities 3,509,994 2,140,000 5,000 (1) -- 2,145,000 -- 5,654,994
Loans receivable, net ..... 11,862,743 9,669,100 (25,661)(1) -- 9,643,439 -- 21,506,182
Covered assets ............. 39,349 -- -- -- -- -- 39,349
Office premises and
equipment, net ............ 90,203 65,600 (56,633)(1) -- 8,967 -- 99,170
Mortgage servicing rights,
net ....................... 381,670 4,773 27,485 (1) -- 32,258 -- 413,928
Intangible assets .......... 146,160 15,399 (15,399)(1) 517,171 (1) 517,171 -- 663,331
Other assets ............... 952,063 337,128 138,597 (1) -- 529,101 18,500 (1) 1,499,664
53,376 (1)
----------- ----------- --------------- ----------- ------------ ------------ -----------
Total assets ............... $17,714,171 $14,045,400 $125,965 (1) $ 517,171 $14,688,536 $ (622,633) $31,780,074
=========== =========== =============== =========== ============ ============ ===========
LIABILITIES, MINORITY
INTEREST AND
STOCKHOLDER'S EQUITY
Deposits ................... $ 9,035,219 $ 8,844,200 $ 30,413 (1) $ -- $ 8,874,613 $ -- $17,909,832
Borrowings ................. 7,583,680 4,211,500 (2,010)(1) -- 4,209,490 525,000 (1) 12,318,170
Other liabilities .......... 466,116 134,000 5,300 (1) -- 139,300 -- 605,416
----------- ----------- --------------- ----------- ------------ ------------ -----------
Total liabilities .......... 17,085,015 13,189,700 33,703 -- 13,223,403 525,000 30,833,418
----------- ----------- --------------- ----------- ------------ ------------ -----------
Cost of the Cal Fed
Acquisition ............... -- -- -- 1,292,633 (2) 1,292,633 (1,292,633)(3) --
Minority interest .......... 462,423 172,500 -- -- 172,500 150,000 (2) 784,923
Stockholder's equity ....... 166,733 683,200 92,262 (1) (775,462)(3) -- (5,000)(2) 161,733
----------- ----------- --------------- ----------- ------------ ------------ -----------
Total liabilities, minority
interest and stockholder's
equity .................... $17,714,171 $14,045,400 $125,965 $ 517,171 $14,688,536 $ (622,633) $31,780,074
=========== =========== =============== =========== ============ ============ ===========
</TABLE>
- ------------
(A) See note (A) on page P-3.
(B) See note (B) on page P-4.
(i) Represents historical amounts obtained from Cal Fed's unaudited
financial statements.
(ii) Represents adjustments to (i) record Cal Fed's assets and liabilities
at preliminary estimates of their respective fair value and (ii) the
elimination of Cal Fed's historical intangible assets.
(iii) Represents adjustments to record (i) the purchase price of the Cal Fed
Acquisition, and (ii) the elimination of the equity of Cal Fed.
Projected pro forma regulatory capital ratios of the Bank: see Note (C) on
page P-5.
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 June 30, 1996 would be to (i)
increase other liabilities by approximately $148 million and (ii) reduce
stockholder's equity by approximately $148 million. See
"Regulation--Regulation of Federal Savings Banks--FDIC Assessments."
P-2
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) CAL FED ACQUISITION
(1) The Cal Fed Acquisition will be accounted for using the purchase method
of accounting. The aggregate purchase price was determined as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price, as defined:
Shares outstanding at June 30, 1996 . 49,395,947
Options outstanding at June 30, 1996 1,395,300
------------
Total ............................. 50,791,247
Purchase price per share ............. $ 23.50
------------
$ 1,193,594
Exercise of options outstanding (a) . (11,218)
------------
Purchase price ....................... 1,182,376
Acquisition fees and costs (b) ...... 110,257
------------
Total ............................. $ 1,292,633
============
</TABLE>
The following is a reconciliation of the equity of Cal Fed to the fair
value of the net assets to be acquired by FN Holdings:
<TABLE>
<CAPTION>
<S> <C> <C>
Equity of Cal Fed at June 30, 1996 ............... $ 683,200
Fair value adjustments (c):
Securities ...................................... $ (800)
Mortgage-backed securities ...................... 5,000
Loans receivable, net ........................... (25,661)
Mortgage servicing rights ....................... 27,485
Office premises and equipment ................... (56,633)
Litigation receivable, net (other assets) (d) .. 138,597
Other assets (e) ................................ 53,376
Deposits ........................................ (30,413)
Borrowings ...................................... 2,010
Other liabilities ............................... (5,300)
Elimination of historical intangible assets .... (15,399)
----------
92,262 92,262
-----------
Fair value of net assets acquired ............... 775,462
Purchase cost ................................... 1,292,633
-----------
Excess of purchase cost over net assets acquired
("goodwill") ................................... $ 517,171
===========
</TABLE>
(a) Represents cash to be received by Cal Fed in settlement of stock
options and stock appreciation rights outstanding as of June 30, 1996
(1,395,300 options outstanding at an average price of $8.04 per
share).
P-3
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(A) CAL FED ACQUISITION (CONTINUED)
(b) Represents fees and costs consisting of the following:
<TABLE>
<CAPTION>
<S> <C>
Severance costs ....................................... $ 45,500
Pension plan termination costs ........................ 6,700
Conversion and contract termination costs ............. 33,257
Investment banking, legal and other professional costs 24,800
---------
$110,257
=========
</TABLE>
(c) 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 such
assets, considering estimated prepayments 6 to 9 years
Loans receivable Level yield method over effective terms of such
assets, considering estimated prepayments 2 to 12 years
Mortgage servicing rights Level yield method over effective terms of such
assets, considering estimated prepayments 2 to 7 years
Goodwill Straight-line method 15 years
Deposits Level yield method over stated terms of such
liabilities 1 to 6 years
Borrowings Level yield method over stated terms of such
liabilities 1 to 9 years
</TABLE>
(d) Represents the estimated after-tax recovery that will inure to the
Bank from the California Federal Litigation, net of amounts payable to
holders of the Litigation Interests and the Secondary Litigation
Interests.
(e) Includes fair value adjustments to reflect Federal income tax and
interest receivable, net of California franchise tax and interest
payable.
(2) Represents payment by FN Holdings in connection with the Cal Fed
Acquisition.
(3) Represents the elimination of the equity of Cal Fed of $775,462.
(B) OFFERING
(1) Represents the issuance of the New FN Holdings Notes:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the issuance of the Notes $525,000
Less: deferred issuance costs .......... (18,500)
----------
Net proceeds .......................... $506,500
==========
</TABLE>
(2) Represents the issuance of the FN Holdings Preferred Stock, which is
classified as Minority Interest:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the issuance of the FN Holdings Preferred
Stock ..................................................... $150,000
Less: issuance costs ........................................ (5,000)
----------
Net proceeds ............................................... $145,000
==========
</TABLE>
(3) Represents payment by FN Holdings in connection with the Cal Fed
Acquisition. The cash portion of the purchase price will be obtained by
liquidating certain of Cal Fed's assets at book value, as follows:
<TABLE>
<CAPTION>
<S> <C>
Existing cash ......................... $ 992,633
Sale of securities available for sale 300,000
-----------
Purchase Price ...................... $1,292,633
===========
</TABLE>
P-4
<PAGE>
(C) PROJECTED PRO FORMA REGULATORY CAPITAL RATIOS OF THE BANK
Prior to or concurrent with the consummation of the Cal Fed Acquisition,
the Capital Contribution totalling approximately $650 million will be
contributed by FN Holdings to First Nationwide. In addition, the MBS Sale of
approximately $2.3 billion of lower-yielding mortgage-backed securities is
expected to occur shortly before or simultaneously with the closing of the
Cal Fed Acquisition. Substantially all the securities to be included in the
MBS Sale are recorded in California Federal's investment portfolio. It is
expected that the MBS Sale will be effected at carrying value of the assets,
with no gain or loss recorded on the sale.
After giving effect to the Cal Fed Acquisition, the Capital Contribution
and the MBS Sale, at June 30, 1996, on a pro forma basis, the Bank is
expected to be "well capitalized."
<TABLE>
<CAPTION>
DOLLAR AMOUNT PERCENT
--------------- ---------
(IN THOUSANDS)
<S> <C> <C>
REGULATORY CAPITAL RATIOS OF THE BANK:
Tangible capital ..................... $1,508,123 5.18%
Core capital ......................... 1,508,123 5.18
Risk-based capital:
Core capital ........................ 1,508,123 8.18
Total capital ....................... 1,841,735 10.02
</TABLE>
The amount of adjusted total assets used for the tangible and core capital
ratios was approximately $28.7 billion. Risk-weighted assets used for the
risk-based core and total capital ratios amounted to approximately $18.1
billion.
P-5
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED LMUSA 1996 CAL FED
(PARENT) ACQUISITION PURCHASE PRO ACQUISITION BRANCH SALES
HOLDINGS PRO FORMA FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL TOTALS(A) TOTALS(B) TOTALS(C) TOTALS(D) ADJUSTMENTS(E) COMBINED
---------- ----------- ----------- ----------- ------------ -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable .................. $478,745 $21,821 $ -- $383,650 $ (110) $ -- $ 884,106
Securities ........................ 15,696 1,017 -- 54,900 -- -- 71,613
Mortgage-backed securities ........ 130,422 3,174 -- 86,600 -- -- 220,196
Other interest income ............. 1,413 -- -- (15,801) -- -- (14,388)
---------- ----------- ----------- ----------- ------------ -------------- -----------
Total interest income ............ 626,276 26,012 -- 509,349 (110) -- 1,161,527
INTEREST EXPENSE:
Deposits .......................... 222,656 12,401 -- 216,500 (40,742) -- 410,815
Borrowings ........................ 197,265 6,114 (848) 112,450 44,835 46,212 (1) 406,028
---------- ----------- ----------- ----------- ------------ -------------- -----------
Total interest expense ........... 419,921 18,515 (848) 328,950 4,093 46,212 816,843
Net interest income ............... 206,355 7,497 848 180,399 (4,203) (46,212) 344,684
Provision for loan losses ......... 19,800 500 -- 20,400 -- -- 40,700
---------- ----------- ----------- ----------- ------------ -------------- -----------
Net interest income after
provision for loan losses ........ 186,555 6,997 848 159,999 (4,203) (46,212) 303,984
NONINTEREST INCOME:
Customer banking fees ............. 23,806 199 -- 24,100 (3,965) -- 44,140
Mortgage banking operations ...... 60,765 191 3,484 2,400 -- -- 66,840
Net gain (loss) on sales of assets 415,378 (1,140) -- 300 10 -- 414,548
Other ............................. 19,642 239 51 13,700 (163) -- 33,469
---------- ----------- ----------- ----------- ------------ -------------- -----------
Total noninterest income ......... 519,591 (511) 3,535 40,500 (4,118) -- 558,997
NONINTEREST EXPENSE:
Compensation and benefits ......... 110,866 1,257 2,070 33,964 (4,337) -- 143,820
Other ............................. 111,742 2,616 1,099 78,787 (3,387) 2,150 (2) 193,007
---------- ----------- ----------- ----------- ------------ -------------- -----------
Total noninterest expense ........ 222,608 3,873 3,169 112,751 (7,724) 2,150 336,827
---------- ----------- ----------- ----------- ------------ -------------- -----------
Income (loss) before income taxes
and minority interest ............ 483,538 2,613 1,214 87,748 (597) (48,362) 526,154
Income tax (benefit) expense ..... (81,975) 369 120 11,583 (59) (4,759)(3) (74,721)
---------- ----------- ----------- ----------- ------------ -------------- -----------
Net income (loss) before minority
interest ......................... 565,513 2,244 1,094 76,165 (538) (43,603) 600,875
MINORITY INTEREST ................. 134,733 449 219 26,673 (108) 1,969 (4) 163,935
---------- ----------- ----------- ----------- ------------ -------------- -----------
Net income (loss) ................. $430,780 $ 1,795 $875 $ 49,492 $ (430) $(45,572) $ 436,940 (5)
========== =========== =========== =========== ============ ============== ===========
</TABLE>
- ------------
(A) See note (A) on page P-7.
(B) See note (B) on page P-10.
(C) See note (C) on page P-12.
(D) See note (D) on page P-15.
(E) See note (E) on page P-17.
(i) Includes the following:
(a) gains of approximately $334.2 million (on an after-tax basis)
realized in connection with the Branch Sales;
(b) gain of approximately $12 million representing Cal Fed's gain on
branch sales;
(c) deferred tax benefit of First Nationwide of $125 million;
(d) after-tax gain on sale of ACS (as defined herein) common stock of
$36.4 million; and
(e) Incentive Plan expense of $27.4 million (on an after-tax basis).
P-6
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH ENDED JANUARY 31, 1996 (A)
-------------------------------------------------------------
SFFED
ACQUISITION
VALUATION PRO FORMA PRO FORMA
(A) SFFED ACQUISITION HISTORICAL ADJUSTMENTS (B) ADJUSTMENTS (C) TOTALS
- ----------------------------------- ------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ................... $20,524 $ 1,297 (1) $ -- $21,821
Securities ......................... 1,017 -- -- 1,017
Mortgage-backed securities ......... 2,976 198 (1) -- 3,174
Other interest income .............. -- -- -- --
------------ --------------- --------------- -------------
Total interest income ............. 24,517 1,495 -- 26,012
INTEREST EXPENSE:
Deposits ........................... 11,693 708 (1) -- 12,401
Borrowings ......................... 5,861 253 (1) -- 6,114
------------ --------------- --------------- -------------
Total interest expense ............ 17,554 961 -- 18,515
------------ --------------- --------------- -------------
Net interest income ................ 6,963 534 -- 7,497
Provision for loan losses .......... 500 -- -- 500
------------ --------------- --------------- -------------
Net interest income after provision
for loan losses ................... 6,463 534 -- 6,997
NONINTEREST INCOME:
Customer banking fees .............. 199 -- -- 199
Mortgage banking operations ....... 557 (366)(1) -- 191
Net gain (loss) on sales of assets (1,140) -- -- (1,140)
Other .............................. 239 -- -- 239
------------ --------------- --------------- -------------
Total noninterest income .......... (145) (366) -- (511)
NONINTEREST EXPENSE:
Compensation and benefits .......... 6,041 -- (4,784)(3) 1,257
Other .............................. 4,315 1,076 (2) (2,775)(4) 2,616
------------ --------------- --------------- -------------
Total noninterest expense ......... 10,356 1,076 (7,559) 3,873
------------ --------------- --------------- -------------
Income (loss) before income taxes
and minority interest ............. (4,038) (908) 7,559 2,613
Income tax (benefit) expense ...... (4,993) -- 5,362 (5) 369
------------ --------------- --------------- -------------
Net income (loss) before minority
interest .......................... 955 (908) 2,197 2,244
MINORITY INTEREST .................. -- -- 449 (6) 449
------------ --------------- --------------- -------------
Net income (loss) .................. $ 955 $ (908) $ 1,748 $ 1,795
============ =============== =============== =============
</TABLE>
- ------------
(a) The SFFed Acquisition was consummated on February 1, 1996. Historical
results represent unaudited results of operations of SFFed for the
month ended January 31, 1996.
(b) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of
historical goodwill.
(c) Represents adjustments to reflect (i) the elimination of certain
noninterest expense due to consolidation of SFFed operations with First
Nationwide's and (ii) the elimination of certain historical noninterest
expense recorded by SFFed as a result of the acquisition by First
Nationwide, and (iii) income taxes relative to the SFFed Acquisition.
P-7
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPACT ON INCOME BEFORE
INCOME TAXES AND MINORITY
INTEREST INCREASE
(A) SFFED ACQUISITION (CONTINUED) (DECREASE)
- --------------------------------------------------------------------------------- -------------------------
<S> <C>
(1) Represents amortization or accretion of fair value adjustments as follows:
Loans receivable, net ......................................................... $1,297
Mortgage-backed securities .................................................... 198
Deposits ...................................................................... (708)
Borrowings .................................................................... (253)
Mortgage servicing rights ..................................................... (366)
======
IMPACT ON INCOME
BEFORE INCOME TAXES
AND MINORITY INTEREST
INCREASE (DECREASE)
-------------------------
(2) Represents adjustments consisting of the following:
Amortization of fair value adjustments--amortization of goodwill ............. $(1,131)
Elimination of amortization of SFFed's historical goodwill ................... 55
-------
$(1,076)
=======
(3) Represents adjustments to compensation and benefits expense relating to the consolidation of SFFed's
operations into those of (Parent) Holdings:
Decrease in compensation and benefits due to the reduction in headcount from
620 at January 1, 1996 to approximately 260 after the consummation of the SFFed
Acquisition. Substantially all retained employees represent retail branch
personnel. ................................................................ $1,586
Elimination of certain nonrecurring expenses recorded by SFFed related to
the acquisition by (Parent) Holdings:
Accrual for severance for employees noticed for termination in January
1996 .................................................................... 2,459
Directors retirement plan and fees ...................................... 388
Expense related to restricted stock options ............................. 351
-------
$4,784
=======
</TABLE>
P-8
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
(4) Represents adjustments to other noninterest expense relating to the
consolidation of SFFed's operations into those of (Parent) Holdings.
Substantially all of SFFed's operations have been consolidated into the
existing operations of (Parent) Holdings, resulting in a reduction in
headcount of approximately 58% with the remaining personnel primarily
consisting of retail branch personnel. In addition, ten retail branches
have been closed. The estimates are based on the pro-rata portion of the
annual expense reduction computed for the year ended December 31, 1995.
<TABLE>
<CAPTION>
SFFED COST OF 1995
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 ............. 6,811 6,011 800
Travel, automobile and employee dues .............. 410 60 350
Telecommunications and data processing ............ 1,766 364 1,402
Postage and messenger 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 $ -- $ 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 --
------------ ------------ -----------
Subtotal overhead areas .......................... $14,330 $ 9,572 $ 4,758
============ ============ ===========
Total decreases due to consolidation ............ $38,977 $21,322 $17,655
============ ============ ===========
Estimated impact on January 1996 ................................................ $ 1,471
Elimination of certain nonrecurring expenses recorded by SFFed related to the
acquisition by First Nationwide:
Retirement of office, premises and equipment ................................... 1,115
Directors and officers insurance premiums ...................................... 189
-----------
Total expense reduction for the month ended January 31, 1996 ................ $ 2,775
===========
(5) Represents amount necessary to adjust historical tax expense to the pro forma computation. Pro
forma tax expense for the month ended January 31, 1996 related to the SFFed Acquisition was
computed as follows:
Income before taxes ........................................................... $ 2,613
Add: permanent differences--amortization of goodwill .......................... 1,131
-----------
Taxable income ................................................................ $ 3,744
===========
Federal AMT, reduced, to the extent of 90%, by net operating loss carryovers .. $ 69
State taxes, at an assumed rate of 8% ......................................... 300
-----------
$ 369
===========
(6) Represents 20% minority interest relative to $2,244 in pro forma net income relating to the
SFFed Acquisition.
</TABLE>
P-9
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH ENDED JANUARY 31, 1996 (A)
------------------------------------------------------------------
LMUSA 1996
PRO FORMA PURCHASE PRO
(B) LMUSA 1996 PURCHASE HISTORICAL (A) ADJUSTMENTS (B) ADJUSTMENTS (C ) FORMA TOTALS
- ---------------------------------------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................. $ -- $ -- $ -- $ --
Securities ................................... -- -- -- --
Mortgage-backed securities ................... -- -- -- --
Other interest income ........................ -- -- -- --
------- ------- ------- -------
Total interest income ...................... -- -- -- --
INTEREST EXPENSE:
Deposits ..................................... -- -- -- --
Borrowings ................................... -- -- (848)(2) (848)
------- ------- ------- -------
Total interest expense ..................... -- -- (848) (848)
------- ------- ------- -------
Net interest income .......................... -- -- 848 848
Provision for loan losses .................... -- -- -- --
------- ------- ------- -------
Net interest income after provision for loan
losses ...................................... -- -- 848 848
NONINTEREST INCOME:
Customer banking fees ........................ -- -- -- --
Mortgage banking operations .................. 5,363 (1,879)(1) -- 3,484
Net gain (loss) on sales of assets ........... -- -- -- --
Other ........................................ 51 -- -- 51
------- ------- ------- -------
Total noninterest income ................... 5,414 (1,879) -- 3,535
NONINTEREST EXPENSE:
Compensation and benefits .................... 2,070 -- -- 2,070
Other ........................................ 1,940 -- (841)(3) 1,099
------- ------- ------- -------
Total noninterest expense .................. 4,010 -- (841) 3,169
------- ------- ------- -------
Income (loss) before income taxes and minority
interest .................................... 1,404 (1,879) 1,689 1,214
Income tax (benefit) expense ................. -- -- 120 120
------- ------- ------- -------
Net income (loss) before minority interest ... 1,404 (1,879) 1,569 1,094
MINORITY INTEREST ............................ -- -- 219 219
------- ------- ------- -------
Net income (loss) ............................ $ 1,404 $(1,879) $ 1,350 $ 875
======= ======= ======= =======
</TABLE>
- ------------
(a) The LMUSA 1996 Purchase was consummated on January 31, 1996.
Accordingly, historical financial data relating to operations acquired
in the LMUSA 1996 Purchase is presented for the month ended January 31,
1996 (unaudited). Historical financial statements were not available;
accordingly, historical data presented reflects best estimates of
management.
(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, (ii) elimination of certain other noninterest expense due
to consolidation with the Bank's existing mortgage banking operations,
and (iii) income taxes relative to the LMUSA 1996 Purchase.
P-10
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(B) LMUSA 1996 Purchase (continued)
(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 AND
MINORITY INTEREST
INCREASE/(DECREASE)
-----------------------
<S> <C>
Pro forma amortization .... $(2,284)
Historical amortization (i) 405
-----------------------
$(1,879)
=======================
</TABLE>
(i) Represents elimination of amortization of mortgage servicing
rights of $405 included in LMUSA's historical statement of
operations for the month ended January 31, 1996.
(2) Represents a decrease in interest expense resulting from the transfer of
custodial accounts acquired to First Nationwide.
(3) Represents the impact on other noninterest expense of (i) the elimination
of historical amounts related to LMUSA operations not included in the
LMUSA 1996 Purchase and (ii) the consolidation of the LMUSA 1996 Purchase
into the Bank's existing mortgage banking operations, as follows:
<TABLE>
<CAPTION>
DECREASE IN
LMUSA ESTIMATED OTHER
HISTORICAL FUTURE NONINTEREST
COSTS COSTS EXPENSE
------------ ----------- -------------
<S> <C> <C> <C>
Components of LMUSA historical noninterest
expense:
Facilities depreciation .......................... $ 128 $ -- (ii) $(128)
Data processing, document storage, administrative
services and management fees .................... 833 120 (iii) (713)
Other miscellaneous costs ........................ 979 979 --
------------ ----------- -------------
$1,940 $1,099 $(841)
============ =========== =============
</TABLE>
(ii) Represents historical amounts related to operations not included in
the LMUSA 1996 Purchase.
(iii) Represents amounts necessary to replace these services based on
(Parent) Holdings' historical annual cost per loan based on the
average number of loans serviced.
(4) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the month ended January 31,
1996 related to the LMUSA 1996 Purchase was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net
operating loss carryovers ...................... $ 23
State taxes, at an assumed rate of 8% ............ 97
-----
$120
=====
</TABLE>
(5) Represents 20% minority interest relative to $1,094 in pro forma net
income relating to the LMUSA 1996 Purchase.
P-11
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAL FED
ACQUISITION
CAL FED VALUATION PRO FORMA PRO FORMA
(C) CAL FED ACQUISITION HISTORICAL ADJUSTMENTS (A) ADJUSTMENTS (B) TOTALS
- --------------------------------------------------- ------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ................................... $376,100 $ 7,550 (1) $ -- $383,650
Securities ......................................... 54,900 -- -- 54,900
Mortgage-backed securities ......................... 75,200 11,400 (1) -- 86,600
Other interest income .............................. 2,800 -- (18,601)(3) (15,801)
------------ --------------- --------------- -------------
Total interest income ............................. 509,000 18,950 (18,601) 509,349
INTEREST EXPENSE:
Deposits ........................................... 221,500 (5,000)(1) -- 216,500
Borrowings ......................................... 113,100 (650)(1) -- 112,450
------------ --------------- --------------- -------------
Total interest expense ............................ 334,600 (5,650) -- 328,950
------------ --------------- --------------- -------------
Net interest income ................................ 174,400 24,600 (18,601) 180,399
Provision for loan losses .......................... 20,400 -- -- 20,400
------------ --------------- --------------- -------------
Net interest income after provision for loan losses 154,000 24,600 (18,601) 159,999
NONINTEREST INCOME:
Customer banking fees .............................. 24,100 -- -- 24,100
Mortgage banking operations ........................ 5,600 (3,200)(1) -- 2,400
Net gain (loss) on sales of assets ................. 300 -- -- 300
Other .............................................. 13,700 -- -- 13,700(6)
------------ --------------- --------------- -------------
Total noninterest income .......................... 43,700 (3,200) -- 40,500
NONINTEREST EXPENSE:
Compensation and benefits .......................... 48,000 -- (14,036)(4) 33,964
Other .............................................. 76,000 28,227 (2) (25,440)(4) 78,787
------------ --------------- --------------- -------------
Total noninterest expense ......................... 124,000 28,227 (39,476) 112,751
------------ --------------- --------------- -------------
Income (loss) before income taxes and minority
interest .......................................... 73,700 (6,827) 20,875 87,748
Income tax (benefit) expense ....................... 100 -- 11,483 (5) 11,583
------------ --------------- --------------- -------------
Net income (loss) before minority interest ........ 73,600 (6,827) 9,392 76,165
MINORITY INTEREST .................................. 14,300 -- 12,373 (7) 26,673
------------ --------------- --------------- -------------
Net income (loss) .................................. $ 59,300 $(6,827) $ (2,981) $ 49,492
============ =============== =============== =============
<FN>
- ------------
(a) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of Cal
Fed's historical intangible assets.
(b) Represents adjustments to reflect (i) the reduction in interest income
relative to the loss in yield on the purchase price of the Cal Fed
Acquisition funded with existing cash, (ii) the elimination of certain
noninterest expense due to consolidation of Cal Fed's operations with
(Parent) Holdings' and (iii) income taxes relative to the Cal Fed
Acquisition.
P-12
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(C) CAL FED ACQUISITION
- -----------------------
(1) Represents amortization or accretion of fair value adjustments as
follows:
</TABLE>
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Loans receivable, net ..... $ 7,550
Mortgage-backed securities 11,400
Deposits ................... 5,000
Borrowings ................. 650
Mortgage servicing rights . (3,200)
=========
</TABLE>
(2) Represents adjustments consisting of the following:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Amortization of fair value adjustment--amortization of
goodwill .................................................... $(29,965)
Elimination of amortization of Cal Fed's historical
intangible assets ........................................... 1,738
-----------
$(28,227)
===========
</TABLE>
(3) Represents the reduction in interest income relative to the loss in
yield on the purchase price of the Cal Fed Acquisition funded with
existing cash.
(4) Represents adjustments to other noninterest expense relating to the
consolidation of Cal Fed's operations into those of (Parent) Holdings.
A substantial portion of Cal Fed's operations will be consolidated into
the existing operations of (Parent) Holdings, resulting in a reduction
in headcount of 850, or approximately 36%, across all business areas.
In addition, seven retail branches and two administrative offices will
be closed. Expected savings from such consolidation include
compensation, occupancy, travel, telecommunications, data processing
and marketing expenses. The expense reduction for the six months ended
June 30, 1996 represents a 32% reduction over historical levels based
on management's current transition plan for the second year following
the consummation of the Cal Fed Acquisition:
<TABLE>
<CAPTION>
CAL FED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
BUSINESS AREA: COSTS OPERATIONS REDUCTION
- ----------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Compensation:
Retail Banking ........ $24,369 $24,163 $ 206
Information Technology 283 634 (351)
Commercial Real Estate 3,847 1,095 2,752
Mortgage Banking ...... 10,396 6,301 4,095
Legal ................. 905 412 493
Finance ............... 2,967 616 2,351
Internal Audit ........ 689 141 548
Executive and Other .. 2,320 162 2,158
Human Resources ....... 1,412 231 1,181
Corporate Services ... 855 252 603
------------ ------------ -------------
48,043 34,007 14,036
</TABLE>
P-13
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAL FED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
BUSINESS AREA: COSTS OPERATIONS REDUCTION
- ------------------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Occupancy & Other Expense:
Retail Banking ............... $ 31,457 $13,570 $17,887
Information Technology ...... 14,297 4,776 9,521
Commercial Real Estate ...... 1,366 254 1,112
Mortgage Banking ............. 1,407 2,242 (835)
Legal ........................ 1,715 3,430 (1,715)
Finance ...................... 2,812 380 2,432
Internal Audit ............... 317 22 295
Executive and Other .......... 4,364 305 4,059
Human Resources .............. 1,640 115 1,525
Corporate Services ........... 2,971 11,812 (8,841)
------------- ------------ -------------
62,346 36,906 25,440
SAIF Deposit Insurance Premium 11,872 11,872 --
------------- ------------ -------------
Total Noninterest Expense ... $122,261(i) $82,785 $39,476
============= ============ =============
</TABLE>
(i) Balance represents total historical noninterest expense of $124,000
less historical amortization of intangible assets 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 six months ended June
30, 1996 related to the Cal Fed Acquisition was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Income before taxes ............................................. $118,841
Add back: permanent differences--amortization of goodwill ...... 25,200
----------
Taxable income .................................................. $144,041
==========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 2,651
State taxes, at an assumed rate of 8% ........................... 11,524
----------
$ 14,175
==========
</TABLE>
(6) Includes $12,000 gain on sale of California Federal's branches in San
Diego county.
(7) Represents 20% minority interest relative to $61,865 in pro forma net
income relating to the Cal Fed Acquisition after giving effect to the
Cal Fed preferred stock dividends of $14,300.
P-14
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BRANCH SALES
OHIO SALE MICHIGAN SALE NORTHEAST SALE PRO FORMA
(D) BRANCH SALES PRO FORMA PRO FORMA PRO FORMA TOTALS
- -------------------------------------------- ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................ $ (6)(a) $ (27)(a) $ (77)(a) $ (110)
Securities .................................. -- -- -- --
Mortgage-backed securities .................. -- -- -- --
Other interest income ....................... -- -- -- --
------------ --------------- -------------- --------------
Total interest income ...................... (6) (27) (77) (110)
INTEREST EXPENSE:
Deposits .................................... (3,392)(a) (17,009)(a) (20,341)(a) (40,742)
Borrowings .................................. 3,522 (1) 19,560 (1) 21,753 (1) 44,835
------------ --------------- -------------- --------------
Total interest expense ..................... 130 2,551 1,412 4,093
------------ --------------- -------------- --------------
Net interest income ......................... (136) (2,578) (1,489) (4,203)
Provision for loan losses ................... -- -- -- --
------------ --------------- -------------- --------------
Net interest income after provision for loan
losses ..................................... (136) (2,578) (1,489) (4,203)
NONINTEREST INCOME:
Customer banking fees ....................... (256)(a) (2,147)(a) (1,562)(a) (3,965)
Mortgage banking operations ................. -- -- -- --
Net gain (loss) on sales of assets .......... -- 2 8 10
Other ....................................... (15)(a) (63)(a) (85)(a) (163)
------------ --------------- -------------- --------------
Total noninterest income ................... (271) (2,208) (1,639) (4,118)
NONINTEREST EXPENSE:
Compensation and benefits ................... (516)(a) (2,133)(a) (1,688)(a) (4,337)
Other ....................................... (265)(a) (1,456)(a) (1,666)(a) (3,387)
------------ --------------- -------------- --------------
Total noninterest expense .................. (781) (3,589) (3,354) (7,724)
------------ --------------- -------------- --------------
Income (loss) before income taxes and
minority interest .......................... 374 (1,197) 226 (597)
Income tax (benefit) expense ................ 37 (118) 22 (59)(2)
------------ --------------- -------------- --------------
Net income (loss) before minority interest . 337 (1,079) 204 (538)
MINORITY INTEREST ........................... 67 (216) 41 (108)(3)
------------ --------------- -------------- --------------
Net income (loss) ........................... $ 270 $ (863) $ 163 $ (430)
============ =============== ============== ==============
</TABLE>
- ------------
(a) Represents historical information for the six months ended June 30, 1996
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. Amounts represent historical
information from January 1, 1996 through the date of sale.
P-15
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(D) BRANCH SALES (CONTINUED)
(1) Represents increase in interest expense on borrowings to fund the
Branch Sales, as follows:
<TABLE>
<CAPTION>
SALE DEPOSITS PRE-TAX AMOUNT PRO FORMA
DATE LOCATION SOLD ASSETS GAIN BORROWED RATE DAYS INTEREST EXPENSE
- --------- ------------ ----------- -------- --------- ----------- ---------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/19/96 Ohio 1,392,561 20,480 130,664 1,241,417 5.45%(i) 19 $ 3,522
================
1/12/96 New York 416,476 5,997 32,967 377,512 5.45%(i) 12 $ 676
2/23/96 New York 270,046 1,838 17,054 251,154 5.45%(i) 54 2,025
3/15/96 New York 615,572 8,083 48,975 558,514 5.45%(i) 75 6,255
3/22/96 New Jersey 501,262 6,396 35,934 458,932 5.45%(i) 82 5,619
3/22/96 New York 637,045 9,465 41,311 586,269 5.45%(i) 82 7,178
----------------
Total Northeast $21,753
================
6/28/96 Michigan 799,226 15,060 56,411 727,755 5.45%(i) 180 $19,560
================
</TABLE>
(i) Rate represents the average rates paid on new borrowings used to
finance the Branch Sales during the six months ended June 30,
1996.
(2) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the six months ended June
30, 1996 related to the Branch Sales was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ............................................. $(11)
State taxes, at an assumed rate of 8% ......................... (48)
-------
$(59)
=======
</TABLE>
(3) Represents 20% minority interest relative to $538 in pro forma losses
relating to the Branch Sales.
P-16
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(E) PRO FORMA ADJUSTMENTS
(1) Represents interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
$525 million New FN Holdings Notes at 10 3/4% per annum
(estimated) ................................................ $28,219
$140 million FN Holdings 9 1/8% Senior Subordinated Notes
issued January 31, 1996 (expense for one month) ........... 1,065
$455 million (Parent) Holdings 12 1/2 Senior Notes issued
April 17, 1996 (interest expense and amortization of
original issue discount for the period January 1-April 16,
1996) ...................................................... 16,928
---------
$46,212
=========
</TABLE>
A change in the interest rate payable with respect to the New FN Holdings
Notes of .25% would change interest expense by $656.
(2) Represents the amortization of:
<TABLE>
<CAPTION>
<S> <C>
$18,500 in deferred debt issuance costs over the seven year
term of New FN Holdings Notes ................................. $ 1,321
$5,600 in deferred debt issuance costs over the seven year term
of the FN Holdings 9 1/8% Senior Subordinated Notes (for one
month) ........................................................ 67
$18,076 in defered debt issuance cost over the seven year term
of the (Parent) Holdings 12 1/2 Senior Notes for the period
January 1-April 16, 1996 ...................................... 762
-----------
$2,150
===========
</TABLE>
(3) Represents amounts necessary to adjust historical tax expense to the
pro forma computation. Pro forma tax expense for the six months ended
June 30, 1996 related to the issuance of the FN Holdings 9 1/8% Senior
Subordinated Notes, the New FN Holdings Notes and the (Parent) Holdings
12 1/2 Senior Notes was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced to the extent of 90%, by net
operating loss carryovers ................................ $ (890)
State taxes, at an assumed rate of 8% ..................... (3,869)
---------
$ 4,759
=========
</TABLE>
(4) Represents dividends on FN Holdings Preferred Stock (estimated at 10%
per annum). A change of .25% in the dividend rate payable with respect
to the FN Holdings Preferred Stock would change dividends by $188. Also
includes 20% minority interest relative to $27,654, net of tax, in pro
forma expenses relating to the New FN Holdings Notes and the FN
Holdings 9 1/8% Senior Subordinated Notes.
(5) Management expects the Bank to maintain its "well capitalized" status
upon consummation of the Cal Fed Acquisition. Accordingly, First
Nationwide may sell certain of its assets or cause Cal Fed to sell
certain assets of Cal Fed prior to the consummation of the Cal Fed
Acquisition. The assets to be sold may include mortgage-backed
securities (such as the MBS Sale), or other assets. To the extent
interest-bearing assets of the Bank or Cal Fed are sold, the net
income of the Bank would decrease by the amount of the incremental
yield on such assets over their related funding cost. Such
reductions are not reflected in pro forma net income (loss).
P-17
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED LMUSA CAL FED
(PARENT) ACQUISITION PURCHASES ACQUISITION BRANCH SALES
HOLDINGS PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL TOTALS(A) TOTALS(B) TOTALS(C) TOTALS(D) ADJUSTMENTS(E) COMBINED
------------ ------------- ----------- ------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable .................. $ 823,864 $230,713 $22,477 $ 722,000 $ (623) $ -- $1,798,431
Securities ........................ 28,396 10,685 -- 124,200 -- -- 163,281
Mortgage-backed securities ........ 212,880 62,403 -- 192,600 -- -- 467,883
Other interest income ............. 10,705 -- -- (24,322) -- -- (13,617)
------------ ------------- ----------- ------------- ----------- -------------- ------------
Total interest income ............ 1,075,845 303,801 22,477 1,014,478 (623) -- 2,415,978
INTEREST EXPENSE:
Deposits .......................... 447,359 143,797 -- 396,200 (211,530) -- 775,826
Borrowings ........................ 287,456 74,587 2,018 245,400 280,671 126,088 (1) 1,016,220
------------ ------------- ----------- ------------- ----------- -------------- ------------
Total interest expense ........... 734,815 218,384 2,018 641,600 69,141 126,088 1,792,046
Net interest income ............... 341,030 85,417 20,459 372,878 (69,764) (126,088) 623,932
Provision for loan losses ......... 37,000 11,094 -- 31,800 -- -- 79,894
------------ ------------- ----------- ------------- ----------- -------------- ------------
Net interest income after
provision for loan losses ........ 304,030 74,323 20,459 341,078 (69,764) (126,088) 544,038
NONINTEREST INCOME:
Customer banking fees ............. 47,493 5,291 -- 42,100 (22,228) -- 72,656
Mortgage banking operations ....... 70,265 860 76,445 3,600 -- -- 151,170
Net gain (loss) on sales of assets 147 -- (1,851) 6,600 -- -- 4,896
Other ............................. 33,068 1,677 2,690 2,400 (789) -- 39,046
------------ ------------- ----------- ------------- ----------- -------------- ------------
Total noninterest income ......... 150,973 7,828 77,284 54,700 (23,017) -- 267,768
NONINTEREST EXPENSE:
Compensation and benefits ......... 154,288 11,141 19,500 69,408 (19,476) -- 234,861
Other ............................. 178,265 34,896 38,081 158,926 (25,823) 6,025 (2) 390,370
------------ ------------- ----------- ------------- ----------- -------------- ------------
Total noninterest expense ........ 332,553 46,037 57,581 228,334 (45,299) 6,025 625,231
------------ ------------- ----------- ------------- ----------- -------------- ------------
Income (loss) before income taxes,
extraordinary item and minority
interest ........................ 122,450 36,114 40,162 167,444 (47,482) (132,113) 186,575
Income tax (benefit) expense ...... (57,185) 4,890 3,952 22,374 (4,671) (13,000)(3) (43,640)
------------ ------------- ----------- ------------- ----------- -------------- ------------
Income (loss) before extraordinary
item and minority interest ....... 179,635 31,224 36,210 145,070 (42,811) (119,113) 230,215
Extraordinary item--gain on early
extinguishment of FHLB advances,
net ............................. 1,967 -- -- -- -- -- 1,967
------------ ------------- ----------- ------------- ----------- -------------- ------------
Net income (loss) before
minority interest .............. 181,602 31,224 36,210 145,070 (42,811) (119,113) 232,182
MINORITY INTEREST ................. 59,138 6,245 7,242 49,494 (8,562) 1,899 (4) 115,456
------------ ------------- ----------- ------------- ----------- -------------- ------------
Net income (loss) ................. $ 122,464 $ 24,979 $28,968 $ 95,576 $ (34,249) $ (121,012) $ 116,726(5)
============ ============= =========== ============= =========== ============== ============
</TABLE>
- ------------
(A) See note (A) on page P-19.
(B) See note (B) on page P-23.
(C) See note (C) on page P-25.
(D) See note (D) on page P-28.
(E) See note (E) on page P-30.
P-18
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(A) 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
Income tax (benefit) expense ..................... 1,568 -- 3,322 4,890
--------- --------- --------- ---------
Income (loss) before extraordinary item
and minority interest ........................... (200) (10,897) 42,321 31,224
Extraordinary item--gain on early
extinguishment of FHLB advances, net ............ -- -- -- --
--------- --------- --------- ---------
Net income (loss) before minority interest ....... (200) (10,897) 42,321 31,224
MINORITY INTEREST ................................ -- -- 6,245 6,245
--------- --------- --------- ---------
Net income (loss) ................................ $ (200) $ (10,897) $ 36,076 $ 24,979
========= ========= ========= =========
</TABLE>
- ------------
(a) Represents adjustments to reflect (i) the amortization or 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 expense due to consolidation of SFFed operations with First
Nationwide, (ii) the elimination of certain historical noninterest
expense recorded by SFFed as a result of the acquisition by First
Nationwide and (iii) income taxes relative to the SFFed Acquisition.
P-19
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
(1) Represents amortization or 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 goodwill ................................. $(13,574)
Elimination of amortization of SFFed's historical
goodwill ................................................ 669
----------------------
$(12,905)
======================
</TABLE>
(3) Represents adjustments to noninterest expense relating to the
consolidation of SFFed's operations into those of (Parent) Holdings and
the elimination of nonrecurring historical expenses related to the SFFed
Acquisition:
<TABLE>
<CAPTION>
<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 accruals recorded by SFFed related to the acquisition
by (Parent) Holdings:
Payments under employment contracts ......................................... 2,080
Accruals for benefit plans frozen by First Nationwide ....................... 3,260
---------
$24,377
=========
</TABLE>
(4) Represents adjustments to other noninterest expense relating to the
consolidation of SFFed's operations into those of (Parent) Holdings and
the elimination of nonrecurring historical expenses of SFFed.
Substantially all of SFFed's operations have been consolidated into the
existing operations of (Parent) Holdings, resulting in a reduction in
headcount of approximately 58% with the remaining personnel primarily
consisting of retail branch personnel. In addition, ten retail branches
have been closed.
P-20
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
SFFED 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 .................................. 6,811 6,011 800
Travel, automobile and employee dues .......... 410 60 350
Telecommunications and data processing ........ 1,766 364 1,402
Postage and messenger 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 $ -- $ 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 --
------------ ------------ -------------
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:
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
============ ============ =============
<FN>
- ------------
(i) Balance represents total historical noninterest expense of $43,257 less
historical amortization of goodwill already adjusted in note 2 on page
P-20.
</TABLE>
P-21
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
(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>
<CAPTION>
<S> <C>
Income before taxes ............................................. $36,114
Add back: permanent differences--amortization of goodwill ...... 13,574
---------
Taxable income .................................................. $49,688
=========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 915
State taxes, at an assumed rate of 8% ........................... 3,975
---------
$ 4,890
=========
</TABLE>
(6) Represents 20% minority interest relative to $31,224 in pro forma net
income relating to the SFFed Acquisition.
P-22
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(B) LMUSA PURCHASES
<TABLE>
<CAPTION>
PRO FORMA LMUSA PURCHASES
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(C) PRO FORMA TOTALS
------------- -------------- -------------- ----------------
<S> <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 gain (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 income .................... 338,517 -- (280,936) 57,581
------------- -------------- -------------- ----------------
Income (loss) before income taxes,
extraordinary item and minority interest .. (275,672) (1,442) 317,276 40,162
Income tax (benefit) expense ................ -- -- 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 ........................... -- -- 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 management.
(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, (ii) decreases in compensation and benefits expense due to
reduction in staffing, (iii) elimination of certain other noninterest
expense due to consolidation with (Parent) Holdings' existing mortgage
banking operations, and (iv) income taxes relative to the LMUSA
Purchases.
P-23
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(B) LMUSA PURCHASES (CONTINUED)
(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)
===========================
</TABLE>
(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.
(2) Represents a decrease in interest expense resulting from a reduction in
funding costs due to the transfer of custodial accounts acquired to the
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 (Parent) Holdings as
a result of the LMUSA Purchases, with average annual compensation and
benefits per employee of $30.
(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 the Bank's existing mortgage banking operations, as
follows:
<TABLE>
<CAPTION>
DECREASE IN
LMUSA OTHER
HISTORICAL ESTIMATED NONINTEREST
COSTS FUTURE COSTS EXPENSE
------------ ------------- -------------
<S> <C> <C> <C>
Components of historical noninterest expense:
Interest rate swap agreements ............... $ 6,615 $ -- (ii) $ (6,615)
Facilities charge-offs ...................... 38,559 -- (ii) (38,559)
Facilities depreciation ..................... 1,797 -- (ii) (1,797)
Provision for losses on assets held for sale 180,255 -- (ii) (180,255)
Reorganization items ........................ 16,892 -- (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 --
------------ ------------- -------------
$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 (Parent) Holdings' 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>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net
operating loss carryovers ................................. $ 739
State taxes, at an assumed rate of 8% ...................... 3,213
-------
$3,952
=======
</TABLE>
(6) Represents 20% minority interest relative to $36,210 in pro forma net
income relating to the LMUSA Purchases.
P-24
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(C) CAL FED ACQUISITION
<TABLE>
<CAPTION>
CAL FED
ACQUISITION
CAL FED VALUATION PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (A) ADJUSTMENTS (B) TOTALS
------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ........................... $ 706,900 $ 15,100 (1) $ -- $ 722,000
Securities ................................. 124,200 -- -- 124,200
Mortgage-backed securities ................. 164,000 28,600 (1) -- 192,600
Other interest income ...................... 12,900 -- (37,222)(3) (24,322)
------------ --------------- --------------- -------------
Total interest income ..................... 1,008,000 43,700 (37,222) 1,014,478
INTEREST EXPENSE:
Deposits ................................... 441,600 (45,400)(1) -- 396,200
Borrowings ................................. 254,500 (9,100)(1) -- 245,400
------------ --------------- --------------- -------------
Total interest expense .................... 696,100 (54,500) -- 641,600
------------ --------------- --------------- -------------
Net interest income ........................ 311,900 98,200 (37,222) 372,878
Provision for loan losses .................. 31,800 -- -- 31,800
------------ --------------- --------------- -------------
Net interest income after provision for
loan losses ............................... 280,100 98,200 (37,222) 341,078
NONINTEREST INCOME:
Customer banking fees ...................... 42,100 -- -- 42,100
Mortgage banking operations ................ 12,400 (8,800)(1) -- 3,600
Net gain (loss) on sales of assets ........ 6,600 -- -- 6,600
Other ...................................... 2,400 -- -- 2,400
------------ --------------- --------------- -------------
Total noninterest income .................. 63,500 (8,800) -- 54,700
NONINTEREST EXPENSE:
Compensation and benefits .................. 97,100 -- (27,692)(4) 69,408
Other ...................................... 152,800 56,454 (2) (50,328)(4) 158,926
------------ --------------- --------------- -------------
Total noninterest expense ................. 249,900 56,454 (78,020) 228,334
------------ --------------- --------------- -------------
Income (loss) before income taxes,
extraordinary item and minority interest . 93,700 32,946 40,798 167,444
Income tax (benefit) expense ............... 100 -- 25,937 (5) 22,374
------------ --------------- --------------- -------------
Income (loss) before extraordinary item and
minority interest ......................... 93,600 32,946 18,524 145,070
Extraordinary item--gain on early
extinguishment of FHLB advances, net ..... -- -- -- --
------------ --------------- --------------- -------------
Net income (loss) before minority interest 93,600 32,946 18,524 145,070
MINORITY INTEREST .......................... 25,600 -- 23,894 (6) 49,494
------------ --------------- --------------- -------------
Net income (loss) .......................... $ 68,000 $ 32,946 $ (5,370) $ 95,576
============ =============== =============== =============
</TABLE>
- ------------
(a) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of Cal
Fed's historical intangible assets.
(b) Represents adjustments to reflect (i) the reduction in interest income
relative to the loss in yield on the purchase price of the Cal Fed
Acquisition funded with existing cash, (ii) the elimination of certain
noninterest expense due to consolidation of Cal Fed operations with
(Parent) Holdings' and (iii) income taxes relative to the Cal Fed
Acquisition.
P-25
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(C) CAL FED ACQUISITION (CONTINUED)
(1) Represents amortization or 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 .... $15,100
Mortgage-backed securities 28,600
Deposits .................. 45,400
Borrowings ................ 9,100
Mortgage servicing rights (8,800)
=====================
</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 adjustment--amortization of goodwill .... $(59,930)
Elimination of amortization of Cal Fed's historical intangible
assets ............................................................. 3,476
---------------------
$(56,454)
=====================
</TABLE>
(3) Represents the reduction in interest income relative to the loss in
yield on the purchase price of the Cal Fed Acquisition funded with
existing cash.
(4) Represents adjustments to other noninterest expense relating to the
consolidation of Cal Fed's operations into those of (Parent) Holdings.
A substantial portion of Cal Fed's operations will be consolidated into
the existing operations of (Parent) Holdings, resulting in a reduction
in headcount of 850, or approximately 35%, across all business areas.
In addition, seven retail branches and two administrative offices will
be closed. Expected savings from such consolidation include
compensation, occupancy, travel, telecommunications, data processing
and marketing expenses. The expense reduction for the year ended
December 31, 1995 represents a 32% reduction over historical levels
based on management's current transition plan:
P-26
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(C) CAL FED ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
CAL FED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
BUSINESS AREA: COSTS OPERATIONS REDUCTION
- ------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Compensation:
Retail Banking ................ $ 50,284 $ 50,913 $ (629)
Information Technology ........ 625 1,428 (803)
Commercial Real Estate ........ 8,248 1,851 6,397
Mortgage Banking .............. 18,426 12,545 5,881
Legal ......................... 1,930 880 1,050
Finance ....................... 6,412 875 5,537
Internal Audit ................ 1,383 212 1,171
Executive and Other ........... 5,932 -- 5,932
Human Resources ............... 2,818 300 2,518
Corporate Services ............ 1,071 433 638
------------- ------------ -------------
97,129 69,437 27,692
Occupancy & Other Expense:
Retail Banking ................ 12,166 27,555 (15,389)
Information Technology ........ 30,048 8,549 21,499
Commercial Real Estate ........ 3,739 379 3,360
Mortgage Banking .............. 7,055 4,788 2,267
Legal ......................... 3,364 7,420 (4,056)
Finance ....................... 7,819 481 7,338
Internal Audit ................ 560 -- 560
Executive and Other ........... 6,193 -- 6,193
Human Resources ............... 3,574 -- 3,574
Corporate Services ............ 48,782 23,800 24,982
------------- ------------ -------------
123,300 72,972 50,328
SAIF Deposit Insurance Premium 25,996 25,996 --
------------- ------------ -------------
Total Noninterest Expense .... $246,425(i) $168,405 $ 78,020
============= ============ =============
</TABLE>
(i) Balance represents total historical nonintereest expense of $249,900 less
historical amortization of intangible assets already adjusted in note 2
on page P-26.
(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 Cal Fed Acquisition was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Income before taxes ............................................. $167,444
Add back: permanent differences--amortization of goodwill ...... 59,930
----------
Taxable income .................................................. $227,374
==========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 4,184
State taxes, at an assumed rate of 8% ........................... 18,190
----------
$ 22,374
==========
</TABLE>
(6) Represents 20% minority interest relative to $119,470 in pro forma net
income relating to the Cal Fed Acquisition after giving effect to the
Cal Fed preferred stock dividends of $25,600.
P-27
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(D) BRANCH SALES
<TABLE>
<CAPTION>
BRANCH SALES
OHIO SALE PRO MICHIGAN SALE NORTHEAST SALE PRO FORMA
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 (1)
------------- --------------- -------------- -----------
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)
------------- --------------- -------------- -----------
(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)
Income tax (benefit) expense ........... (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 ...................... (2,561) (1,905) (4,096) (8,562)(3)
------------- --------------- -------------- -----------
Net income (loss) ...................... $ (10,247) $ (7,622) $ (16,380) $ (34,249)
============= =============== ============== ===========
<FN>
- ------------
(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.
</TABLE>
P-28
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(D) BRANCH SALES (CONTINUED)
(1) Represents increase in interest expense on borrowings 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
============ ==========
</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 Bank'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 (iii) ........................ 131,233 52,510 172,283 356,026
------------ ---------- ------------ ------------
Additional pro forma borrowings ............ $1,279,817 $683,605 $2,169,545 $4,132,967
============ ========== ============ ============
</TABLE>
(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) Represents pro forma gain on Branch Sales, 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
Premium percentage per contract . 9.10% 7.18% 7.30% 7.85%
------------ ---------- ------------ ------------
Total pro forma premium ......... 130,300 53,835 172,990 357,125
Adjustment of intangibles
related to deposits sold ....... 933 (1,325) (707) (1,099)
------------ ---------- ------------ ------------
Gain on sale of deposits (a) ... $ 131,233 $ 52,510 $ 172,283 $ 356,026
============ ========== ============ ============
</TABLE>
(a) The remaining assets and liabilities will be sold at their
respective carrying values, resulting in no gain or loss.
(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>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net
operating loss carryovers ........................ $ (873)
State taxes, at an assumed rate of 8% ............. (3,798)
---------
$(4,671)
=========
</TABLE>
(3) Represents minority interest relative to $42,811 in pro forma losses
relating to the Branch Sales.
P-29
<PAGE>
FIRST NATIONWIDE (PARENT) HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(E) PRO FORMA ADJUSTMENTS
(1) Represents interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
$525 million New FN Holdings Notes at 10 3/4% per
annum (estimated) ................................... $ 56,438
$140 million FN Holdings 9 1/8% Senior Subordinated
Notes ............................................... 12,775
$455 million (Parent) Holdings 12 1/2% Senior Notes . 56,875
---------
$126,088
=========
</TABLE>
A change in the interest rate payable with respect to the New FN Holdings
of .25% would change interest expense by $1,313.
(2) Represents the amortization of:
<TABLE>
<CAPTION>
<S> <C>
$18,500 in deferred debt issuance costs over the seven year
term of the New FN Holdings Notes ............................. $2,643
$5,600 in deferred debt issuance costs over the seven year term
of the FN Holdings 9 1/8% Senior Subordinated Notes .......... 800
$18,076 in deferred debt issuance costs over the seven year
term of the (Parent) Holdings 12 1/2% Senior Notes ........... 2,582
--------
$6,025
========
</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 Holdings 9 1/8% Senior
Subordinated Notes, the New FN Holdings Notes and the (Parent) Holdings
12 1/2% Senior Notes was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced to the extent of 90%, by net
operating loss carryovers ................................ $ (2,431)
State taxes, at an assumed rate of 8% ..................... (10,569)
----------
$(13,000)
==========
</TABLE>
(4) Represents dividends on FN Holdings Preferred Stock (estimated at 10%
per annum). A change of .25% in the dividend rate payable with respect
to the FN Holdings Preferred Stock would change dividends by $375. Also
includes 20% minority interest relative to $65,507, net of tax, in pro
forma expenses relating to the New FN Holdings Notes and the FN
Holdings 9 1/8% Senior Subordinated Notes.
(5) Management expects the Bank to maintain its "well capitalized" status
upon consummation of the Cal Fed Acquisition. Accordingly, First
Nationwide may sell certain of its assets or cause Cal Fed to sell
certain assets of Cal Fed prior to the consummation of the Cal Fed
Acquisition. The assets to be sold may include mortgage-backed
securities (such as the MBS Sale), or other assets. To the extent
interest-bearing assets of the Bank or Cal Fed are sold, the net income
of the Bank would decrease by the amount of the incremental yield on
such assets over their related funding cost. Such reductions are not
reflected in pro forma net income (loss).
P-30
