<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
-----------------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------------
Commission File Number 333-28037
GOLDEN STATE BANCORP INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4642135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
414 North Central Avenue, Glendale, California 91203
(Address of principal executive offices) (Zip Code)
(818) 500-2000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
The number of shares of issuer's $1.00 par value common stock outstanding as of
September 30, 1997 was 50,455,630.
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<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION -
SEPTEMBER 30, 1997 AND JUNE 30, 1997............... 1
CONSOLIDATED STATEMENTS OF OPERATIONS -
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996..... 2
CONSOLIDATED STATEMENTS OF CASH FLOWS -
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996..... 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................... 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 27
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands except share data)
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and amounts due from banks $ 246,257 $ 221,557
Federal funds sold and assets purchased under resale agreements 585,000 632,000
Certificates of deposit -- substantially restricted 2,788 4,005
Other debt and equity securities available for sale, at fair value 24,242 27,794
Mortgage-backed securities held to maturity, at amortized cost
(fair value: $1,122,772 at September 30, 1997 and
$1,166,941 at June 30, 1997) 1,111,413 1,162,825
Mortgage-backed securities available for sale, at fair value 1,227,975 1,116,709
Loans receivable, net of allowance for loan losses of $158,597 at
September 30, 1997 and $163,759 at June 30, 1997 12,071,393 11,886,090
Loans held for sale, at lower of cost or market 11,225 19,003
Real estate held for sale or investment 6,324 8,689
Real estate acquired in settlement of loans 57,206 61,500
Interest receivable 104,913 102,940
Investment in capital stock of Federal Home Loan Bank, at cost 263,536 259,587
Premises and equipment, at cost, less accumulated depreciation 140,248 134,936
Mortgage servicing assets 273,303 284,472
Goodwill and other intangible assets, less accumulated amortization 97,421 99,533
Other assets 209,060 196,619
----------- -----------
$16,432,304 $16,218,259
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 9,338,941 $ 9,356,909
Securities sold under agreements to repurchase 1,167,775 768,682
Borrowings from the Federal Home Loan Bank 4,584,000 4,788,000
Other borrowings 79 10,782
Other liabilities and accrued expenses 233,068 221,540
Income taxes payable 64,863 60,272
----------- -----------
Total liabilities 15,388,726 15,206,185
----------- -----------
Stockholders' Equity:
Preferred stock, Series A, $1.00 par value per share
(8,050,000 shares authorized; 4,621,982 shares issued
and outstanding at September 30, 1997 and June 30, 1997) 4,622 4,622
Common stock, $1.00 par value per share
(100,000,000 shares authorized; 50,455,630 shares
issued and outstanding at September 30, 1997; 50,348,509
shares issued and outstanding at June 30, 1997) 50,456 50,349
Additional paid-in capital 797,735 793,111
Net unrealized holding loss on debt and equity
securities available for sale (370) (1,154)
Retained earnings-substantially restricted 191,135 165,146
----------- -----------
Total stockholders' equity 1,043,578 1,012,074
----------- -----------
$16,432,304 $16,218,259
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
1
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------
1997 1996
-------- --------
<S> <C> <C>
Interest income:
Loans receivable $235,801 $210,187
Mortgage-backed securities 38,064 36,353
Investments 17,221 14,129
-------- --------
Total interest income 291,086 260,669
-------- --------
Interest expense:
Deposits 101,515 101,696
Short-term borrowings 15,224 9,813
Other borrowings 68,196 59,797
-------- --------
Total interest expense 184,935 171,306
-------- --------
Net interest income 106,151 89,363
Provision for loan losses 3,097 7,354
-------- --------
Net interest income after provision for loan losses 103,054 82,009
Other income:
Loan servicing income, net 8,801 8,301
Other fees and service charges 15,969 12,851
Loss on sale of loans, net (51) (89)
Gain (loss) on sale of mortgage-backed securities
available for sale, net 243 (128)
Other income, net 149 127
-------- --------
Total other income 25,111 21,062
-------- --------
Other expenses:
Compensation and employee benefits 32,588 27,568
Occupancy expense, net 8,762 7,856
Advertising and promotion 5,863 7,522
Regulatory insurance 1,926 6,201
Furniture, fixtures and equipment 3,453 2,947
Stationery, supplies and postage 3,389 2,742
Other general and administrative expenses 14,965 13,738
-------- --------
Total general and administrative expenses 70,946 68,574
SAIF special assessment - 58,672
Legal expense - goodwill lawsuit 4,719 587
Operations of real estate held for sale or investment (736) 322
Operations of real estate acquired in settlement of loans 1,155 1,316
Amortization of goodwill and other intangible assets 2,050 1,287
-------- --------
Total other expenses 78,134 130,758
-------- --------
Earnings (loss) before income tax provision (benefit) 50,031 (27,687)
Income tax provision (benefit) 21,514 (7,702)
-------- --------
Net earnings (loss) $ 28,517 $(19,985)
======== ========
Earnings (loss) applicable to common shareholders:
Net earnings (loss) $ 28,517 $(19,985)
Dividends declared on preferred stock (2,528) (3,107)
Premium on exchange of preferred stock for common stock - (503)
-------- --------
$ 25,989 $(23,595)
======== ========
Earnings (loss) per share:
Primary $ 0.44 $ (0.50)
Fully diluted $ 0.40 $ (0.50)
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 28,517 $ (19,985)
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Amortization of discounts and accretion of premiums, net 2,015 2,917
Accretion of deferred loan fees (991) (1,388)
Provision for loan losses 3,097 7,354
Loss on sale of loans, net 51 89
(Gain) loss on sale of mortgage-backed securities available
for sale, net (243) 128
Depreciation 3,879 3,705
Amortization of mortgage servicing assets 11,451 5,644
Provision for impairment of mortgage servicing assets 249 --
Provision for losses on real estate 1,985 2,037
Gain on sale of real estate (3,034) (2,136)
Amortization of goodwill and other intangible assets 2,050 1,287
Provision for deferred income taxes (1,079) --
Net change in loans originated or purchased for resale 15,648 20,906
Increase in interest receivable (1,973) (4,896)
FHLB stock dividend received (3,949) (2,749)
(Increase) decrease in other assets (11,882) 2,857
Accrual of SAIF special assessment -- 58,672
Increase in other liabilities 21,591 8,337
Other items (1,421) (5,669)
--------- ---------
Total adjustments 37,444 97,095
--------- ---------
Net cash provided by operating activities 65,961 77,110
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificates of deposit with original maturities
of 3 months or less 3,217 (7)
Net change in other debt and equity securities with original maturities
of 3 months or less 1,894 348
Purchase of certificates of deposit (2,000) (3,000)
Purchase of other debt and equity securities available for sale (141) --
Proceeds from maturities of certificates of deposit -- 3,000
Proceeds from sales and maturities of other debt and equity securities
available for sale 2,000 --
Principal payments on mortgage-backed securities held to maturity 50,752 52,194
Purchase of mortgage-backed securities available for sale (198,110) --
Principal payments on mortgage-backed securities available for sale 85,774 69,017
Loans originated for investment, net of refinances (209,198) (163,211)
Loans purchased for investment (621,247) (741,398)
Net change in undisbursed loan funds (982) (280)
Principal payments on loans held for investment 620,843 410,676
Cash invested in real estate (2,031) (4,035)
Cash received from real estate investments and sale of real estate
acquired in settlement of loans 26,926 25,266
Purchase of FHLB stock -- (26,309)
Net increase in premises and equipment (9,191) (4,285)
Purchase of mortgage servicing assets (1,546) (28,931)
--------- ---------
Net cash used by investing actitivities (253,040) (410,955)
--------- ---------
</TABLE>
Statement continued on next page
3
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits $ (17,968) $ 91,158
Net change in short-term borrowings with original maturities of 3 months or less 399,093 (116,798)
Proceeds from fundings of FHLB advances 1,196,000 1,400,000
Repayments of FHLB advances (1,400,000) (800,000)
Repayment of other borrowings (10,703) (12)
Proceeds from issuance of common stock 885 610
Payment of dividends on preferred stock (2,528) (3,514)
----------- ----------
Net cash provided by financing activities 164,779 571,444
----------- ----------
Net (decrease) increase in cash and cash equivalents (22,300) 237,599
Cash and cash equivalents at beginning of period 853,557 586,608
----------- ----------
Cash and cash equivalents at end of period $ 831,257 $ 824,207
=========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE (1) - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in Glendale Federal Bank's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997, filed with
the Office of Thrift Supervision ("OTS"). Golden State Bancorp Inc.("Golden
State" or the "Company") is the holding company of Glendale Federal Bank and has
no significant assets or business other than its ownership of Glendale Federal
Bank. Golden State did not file an Annual Report on Form 10-K for the year ended
June 30, 1997 because the holding company formation transaction was completed on
July 24, 1997, after the end of Glendale Federal Bank's fiscal year. Golden
State filed a Form 8-K, dated September 26, 1997, with the Securities Exchange
Commission ("SEC"), containing the June 30, 1997 Annual Report on Form 10-K of
its principal subsidiary, Glendale Federal Bank.
In the opinion of management of Golden State Bancorp Inc. and its
subsidiaries, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting solely of normal recurring accruals)
necessary for a fair presentation of the Company's financial condition as of
September 30, 1997 and June 30, 1997, and the results of its operations and its
cash flows for the three months ended September 30, 1997 and 1996. All
significant intercompany balances and transactions have been eliminated in
consolidation, including 200,686 common shares held by a subsidiary of the
Company at both September 30, 1997 and June 30, 1997. Certain reclassifications
have been made to prior years' consolidated financial statements to conform to
the September 30, 1997 presentation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the dates
of the balance sheets and revenues and expenses for the periods covered,
including the allowance for loan losses and liability for income taxes. Actual
results could differ significantly from those estimates and assumptions.
NOTE (2) - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the purpose of the statement of cash flows, cash and cash equivalents
include "Cash and amounts due from banks" and "Federal funds sold and assets
purchased under resale agreements."
Supplemental disclosure of cash flow information is as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------
1997 1996
-------------------------------
<S> <C> <C>
Cash paid for:
Interest $186,382 $184,177
Income taxes 13,701 6,140
Non-cash investing and financing
activities:
Principal reductions to loans due
to foreclosure 30,955 42,053
Loans exchanged for mortgage-backed
securities 10,592 11,685
Loans made to facilitate the sale
of real estate held for investment
and real estate acquired in
settlement of loans 8,110 15,800
Exchange of preferred stock for
common stock - 142
Issuance of common stock in
exchange for preferred stock - 370
Transfers of loans from held for
investment to held for sale:
Liquidation of troubled credits 4,961 247
Other 3,152 -
Loans originated for investment,
subsequently identified
to sale portfolio - 1,596
</TABLE>
5
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
The transfers from held for investment loans were primarily of troubled loans
which the Company sold to remove the credit and/or collateral risk arising from
the credit.
During the three months ended September 30, 1997, the Company
received income tax refunds of $54,000.
NOTE (3) - NET EARNINGS (LOSS) PER SHARE INFORMATION
For the purpose of calculating net earnings (loss) per share, the Company used
the following numbers of shares for the periods presented (in thousands):
<TABLE>
<CAPTION>
Three months
ended September 30
------------------
1997 1996
------------------
<S> <C> <C>
Primary net earnings (loss) per share 59,529 47,112
Fully diluted net earnings (loss) per 70,842 47,112
share
</TABLE>
During the three months ended September 30, 1996, the Company entered into
separately negotiated agreements with certain holders of its then Series E (now
Series A) preferred stock providing, in the aggregate, for exchanges of 142,400
shares of the preferred stock for 370,452 shares of Company common stock. The
exchanges were made at premiums above the stated conversion rate of 2.404 shares
of Company common stock for each share of the preferred stock. In accordance
with applicable accounting guidance for calculating net earnings (loss) per
share, the excess of the fair value of Company common stock transferred by the
Company to the holders of the preferred stock over the fair value of Company
common stock issuable pursuant to the original conversion terms has been
subtracted from net loss to arrive at the loss applicable to common shareholders
in the calculation of loss per share.
The table in Exhibit 11.1 presents the calculation of net earnings (loss) per
share on a primary and fully-diluted basis for the three months ended September
30, 1997 and 1996, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
EARNINGS PERFORMANCE
The Company recorded net earnings of $28.5 million, or $0.40 per fully diluted
share, for the three months ended September 30, 1997, compared to a net loss of
$20.0 million, or $0.50 per fully diluted share, for the same period last year.
Net earnings for the quarter ended September 30, 1997 included legal expenses
for the Company's goodwill litigation of $4.7 million ($2.7 million after-tax).
See "Results of Operations--Legal Expenses--Goodwill Lawsuit" for additional
information.
The net loss of $20.0 million during the quarter ended September 30, 1996
included a special assessment by the Federal Deposit Insurance Corporation
("FDIC") of $58.7 million ($33.7 million after-tax) to recapitalize the Savings
Association Insurance Fund ("SAIF") and legal expenses for the Company's
goodwill litigation of $0.6 million ($0.3 million after-tax).
During the quarter ended September 30, 1996, the Company exchanged 142,400
shares its preferred stock for 370,452 shares of Company common stock. See Note
3 of the Notes to Consolidated Financial Statements for additional information
on this transaction. There were no exchanges of preferred stock for common stock
during the quarter ended September 30, 1997.
Excluding the after-tax impact of the non-recurring items mentioned above and
the effect of the preferred stock conversions during the quarter ended September
30, 1996, adjusted net earnings for the three months ended September 30, 1997
were $31.2 million, or $0.44 per fully-diluted share compared to adjusted net
earnings for the same period last year of $14.1 million, or $0.21 per fully
diluted share.
The 121% improvement in adjusted net earnings in the first quarter of fiscal
1998 over the same period in fiscal 1997 reflects higher net interest income,
lower credit-related costs, increases in loan servicing income and other fees
and service charges and reduced FDIC insurance premiums, partially offset by
increases in certain general and administrative expenses due to expansion of the
Company's business lines, recent acquisitions and franchise expansion, the
increase in the amortization of goodwill and other intangible assets due to
acquisitions, and an increase in the Company's effective income tax rate.
The Company's interest rate spread was 2.76% at September 30, 1997, as
compared with 2.49% at September 30, 1996 and 2.68% at June 30, 1997. The
Company's interest rate spread continued to improve in the first quarter of
fiscal 1997 primarily due to a decline in the Company's cost of funds and, to a
lesser extent, due to an increase in the yield on its interest-earning assets.
The decrease in the cost of funds reflects a decline in deposit costs due to a
continuing change in the mix of deposits from higher-cost certificates of
deposit to lower-cost daily access accounts and the addition of lower-costing
checking and daily access accounts obtained in recent acquisitions, and the
replacement of maturing higher-cost FHLB advances with lower-cost advances.
Checking accounts comprised 14.3% of total deposits at September 30, 1997,
compared with 12.8% and 10.0%, at June 30, 1997 and September 30, 1996,
respectively.
See "Results of Operations--Net Interest Income" for additional discussion of
the Company's interest rate spread and the impact that possible future interest
rate changes could have on the Company's net interest income.
7
<PAGE>
GOODWILL LITIGATION TRACKING WARRANTS
On October 28, 1997, Golden State announced plans to distribute Litigation
Tracking Warrants ("LTW(TM)s") to its security holders representing the right to
receive, upon exercise of the LTW(TM)s, Golden State common stock equal in value
to 85 percent of the net after-tax proceeds, if any, from Glendale Federal
Bank's pending goodwill lawsuit against the U.S. Government. The LTW(TM)s would
be exercisable after notification by Golden State of its receipt of proceeds
from a final judgment in or settlement of the litigation. The LTW(TM)s would
expire 60 days after such notification is given.
It is currently expected that approximately 86 million LTW(TM)s would be
distributed, or reserved for distribution. The distribution of the LTW(TM)s
prior to becoming exercisable would not affect Golden State's fully diluted
shares outstanding as the amount of the proceeds and the number of shares of
common stock to be issued cannot be determined.
Golden State expects to hold a shareholders' meeting in the March 1998
quarter to approve certain corporate changes necessary to issue the LTW(TM)s,
including an increase in the number of shares of common stock that the Company
is authorized to issue, a decrease in the per share par value of the Company's
common stock from $1.00 to $0.01 and amendments to certain terms of the
Company's noncumulative convertible preferred stock. The distribution is also
subject to a final determination by Golden State's Board of Directors, which is
expected to be made subsequent to the shareholders' meeting.
CENFED ACQUISITION
On August 18, 1997, Golden State entered into an agreement to acquire CENFED
Financial Corporation ("CENFED") and its federal savings bank subsidiary, CenFed
Bank. The agreement is subject to regulatory and other approvals and is expected
to close in the first calendar quarter of 1998. The terms of the transaction
provide for a tax-free exchange of 1.2 shares of Golden State common stock for
each outstanding share of CENFED's common stock. This acquisition will be
accounted for as a pooling-of-interests.
At September 30, 1997, CENFED operated 18 branches and had $2.3 billion in
assets, including $1.6 billion in gross loans receivable, and $1.6 billion in
deposits, over 79% of which were in certificate of deposit accounts. On a pro-
forma basis as of September 30, 1997, Golden State would have consolidated
assets of $18.7 billion, total deposits of $10.9 billion, stockholders' equity
of $1.2 billion and 194 banking offices.
This acquisition will provide Golden State entry into several markets in which
it does not currently operate. With CENFED's servicing portfolio of Small
Business Administration ("SBA") loans Golden State, upon completion of the
acquisition, will become the fourth largest servicer of SBA loans in the State
of California.
CAPITAL
At September 30, 1997, the Company's tangible book value was $16.46 per common
share and $14.92 per fully diluted share, versus $15.83 per common share and
$14.35 per fully diluted share at June 30, 1997. The Company's core capital,
Tier 1 risk-based capital and total risk-based capital ratios at September 30,
1997 were 5.71%, 10.23% and 11.41%, respectively, placing the Company in the
"well-capitalized" category as defined by federal regulations, which require 5%
core, 6% Tier 1 risk-based and 10% total risk-based capital to assets ratios to
qualify for that designation. At June 30, 1997, the Company's core capital, Tier
1 risk-based capital and total risk-based capital ratios were 5.67%, 10.02% and
11.17%, respectively.
The Company's capital ratios could decrease in future periods due to, among
other things, acquisition activity and further growth in assets, but the Company
nonetheless expects to continue to remain in the "well capitalized" category as
defined by OTS.
8
<PAGE>
BALANCE SHEET ANALYSIS
The Company's asset size and composition have been determined principally by
seeking to balance liquidity, yield, risk and regulatory capital requirements.
Consolidated assets of the Company increased by $214.0 million, to $16.4
billion, in the three months ended September 30, 1997, primarily through the
purchases of single-family residential loans in the secondary market, and
mortgage-backed securities issued by federal agencies for its available for sale
portfolio.
Consolidated liabilities of the Company increased by $182.5 million, to $15.4
billion, in the three months ended September 30, 1997. This was mainly
attributable to an increase of $399.1 million in securities sold under
agreements to repurchase offset by maturities in borrowings from the FHLB of
$204.0 million.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity decreased by $51.4 million, to
$1.1 billion, in the three months ended September 30, 1997, primarily due to
principal payments received of $50.8 million.
Mortgage-backed securities available for sale increased by $111.3 million, to
$1.2 billion, in the three months ended September 30, 1997, due to purchases of
$196.0 million of mortgage-backed securities issued by various federal agencies,
partially offset by principal payments of $85.8 million. The purchases primarily
consisted of $47.6 million and $59.1 million of adjustable-rate and fixed-rate
securities, respectively, issued by the Government National Mortgage Association
("GNMA").
LOANS RECEIVABLE
Loans receivable held for investment increased by $185.3 million, to $12.1
billion, in the three months ended September 30, 1997. The increase was
primarily due to loans purchased for investment totaling $615.5 million and
loans originated for investment, net of refinances, of $217.3 million, partially
offset by principal payments of $620.8 million, and loans transferred to real
estate acquired in settlement of loans ("REO") of $31.0 million. The loans
purchased were primarily purchases in the secondary market of $306.3 million of
single-family residential, adjustable-rate mortgage loans and $297.2 million of
single-family residential, fixed-rate mortgage loans.
Loans receivable held for sale decreased by $7.8 million, to $11.2 million, in
the three months ended September 30, 1997, primarily due to securitization of
loans for mortgage-backed securities in the amount of $10.6 million, and fixed-
rate loan sales totaling $40.4 million, partially offset by term loan
originations of $35.1 million and the net transfer of loans from held for
investment totaling $8.1 million. See Note 2 of the Notes to Consolidated
Financial Statements for additional information on the transfer of loans from
held for investment.
As of September 30, 1997, commitments of the Company to purchase loans in the
secondary market totaled $35.6 million and was comprised solely of adjustable
rate loans. At that date, commitments of the Company to originate loans and sell
mortgage-backed securities totaled $43.2 million and $16.0 million,
respectively. As of September 30, 1997, commitments on outstanding letters of
credit totaled $3.7 million.
9
<PAGE>
New commitments under lines of credit that were purchased or generated through
the Company's consumer and commercial lending programs are summarized as follows
(in millions):
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
1997 1997 1997 1996 1996
---------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Consumer loans $37 $ 66 $ 32 $31 $40
Commercial loans 52 109 71 63 8
--- ---- ---- --- ---
$89 $175 $103 $94 $48
=== ==== ==== === ===
</TABLE>
The new commitments under consumer and commercial lines of credit for the June
1997 quarter included $17.6 million and $67.9 million, respectively, of
commitments related to the acquisition of TransWorld Bank.
The following table summarizes the outstanding commitments and related
outstanding principal balances on lines of credit under the Company's consumer
and commercial lending programs (in thousands):
<TABLE>
<CAPTION>
Sept. 30 June 30
1997 1997
------------ ---------
<S> <C> <C>
Consumer loans:
Credit limit balance $352,359 $309,013
Outstanding principal balance 77,558 71,847
Commercial loans:
Credit limit balance 258,586 213,332
Outstanding principal balance 107,460 88,927
</TABLE>
Term loan originations by property type (including the refinanced portion of
the Company's loans) and loans purchased in the secondary market are summarized
as follows (in millions):
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
Originations: 1997 1997 1997 1996 1996
-------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Permanent Loans:
Single-family 1-4 units $275 $ 245 $141 $164 $176
Multi-family 5-36 units 4 4 4 9 5
Multi-family 37 or more units -- 7 -- 2 --
Non-residential 4 3 1 3 1
Construction Loans:
Single-family 1-4 units -- -- -- -- 3
Multi-family 5-36 units -- -- -- 1 3
Commercial loans 16 17 5 1 7
Consumer loans 3 3 3 6 4
---- ------ ---- ---- ----
Total Originations 302 279 154 186 199
Secondary Market Purchases (1-4 units):
Adjustable 306 294 214 259 369
Fixed 297 502 324 -- 372
---- ------ ---- ---- ----
Total Purchases 603 796 538 259 741
---- ------ ---- ---- ----
$905 $1,075 $692 $445 $940
==== ====== ==== ==== ====
</TABLE>
Term loan originations for the three months ended September 30, 1997 increased
7% from the quarter ended June 30, 1997. Loans refinanced totaled $49.5 million,
or 16% of total originations, for the three months ended September 30, 1997,
compared to $24.4 million, or 9% of total originations, for the quarter ended
June 30, 1997.
10
<PAGE>
Term loan originations for the three months ended September 30, 1997 increased
by $102.9 million, or 52%, to $301.8 million, as compared to the same quarter
last year primarily due to an improvement in the California housing market and
an increase in fixed-rate originations resulting from a reduction in long term
interest rates. Loans refinanced totaled $19.9 million, or 10% of total
originations, for the three months ended September 30, 1996. See Exhibit 99C for
loan originations by note type, including refinanced portion, for the past five
quarters.
Multi-family residential and non-residential real estate loans have primarily
been made to finance the disposition of REO and real estate held for sale or
investment ("REI") properties or to refinance maturing loans. The single-family
residential and multi-family residential construction loans originated in fiscal
1997 represent outstanding commitments made before the Company's construction
lending program was terminated during fiscal 1997.
NON-PERFORMING ASSETS ("NPAS") AND RESTRUCTURED LOANS
The following table summarizes the Company's NPAs and restructured loans at
the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
---------------------- ------------------------
% of % of
Dollar Total Dollar Total
Amount Assets Amount Assets
---------- -------- -------- ------
<S> <C> <C> <C> <C>
Non-accrual loans $129,911 0.79% $140,295 0.86%
REO and other assets 60,338 0.37% 64,663 0.40%
-------- ----- -------- ----
Total NPAs 190,249 1.16% $204,958 1.26%
======== ===== ======== ====
Restructured loans $ 33,251 0.20% $ 31,064 0.19%
======== ===== ======== ====
</TABLE>
11
<PAGE>
The following table summarizes NPA and restructured loan activity during the
first three months of fiscal 1998 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, PAYOFFS/ SEPT. 30,
1997 FORE- WRITE- REIN- SALES/ 1997
BALANCE ADDITIONS CLOSURES DOWNS STATEMENTS OTHER BALANCE
----------------------------------------------------------------------------------------------------
NON-ACCRUAL LOANS:
<S> <C> <C> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 82,989 $38,478 $(17,294) $ - $(11,287) $ (7,099) $ 85,787
Multi-family 5-36 units 21,087 4,430 (7,471) (35) (2,018) (1,509) 14,484
Multi-family 37 or more units 3,121 - - - - (1,618) 1,503
Non-residential 30,672 7,082 (5,934) - (1,731) (4,903) 25,186
Commercial 859 2,460 - (2) (1,512) 364 2,169
Consumer 1,567 52 - - - (837) 782
---------------------------------------------------------------------------------------------------
Total $140,295 $52,502 $(30,699) $ (37) $(16,548) $(15,602) $129,911
===================================================================================================
REO AND OTHER ASSETS:
Single-family 1-4 units $ 34,116 $ 1,533 $ 13,546 $ (551) $ - $(21,230) $ 27,414
Multi-family 5-36 units 8,414 399 5,268 (197) - (4,736) 9,148
Multi-family 37 or more units 1,933 - - - - (1,933) -
Non-residential 20,169 146 5,857 (745) - (1,651) 23,776
Consumer 31 - - - - (31) -
--------------------------------------------------------------------------------------------------
Total $ 64,663 $ 2,078 $ 24,671 $(1,493) $ - $(29,581) $ 60,338
==================================================================================================
TOTAL NPAS:
Single-family 1-4 units $117,105 $40,011 $ (3,748) $ (551) $(11,287) $(28,329) $113,201
Multi-family 5-36 units 29,501 4,829 (2,203) (232) (2,018) (6,245) 23,632
Multi-family 37 or more units 5,054 - - - - (3,551) 1,503
Non-residential 50,841 7,228 (77) (745) (1,731) (6,554) 48,962
Commercial 859 2,460 - (2) (1,512) 364 2,169
Consumer 1,598 52 - - - (868) 782
--------------------------------------------------------------------------------------------------
Total $204,958 $54,580 $ (6,028) $(1,530) $(16,548) $(45,183) $190,249
==================================================================================================
RESTRUCTURED LOANS:
Single-family 1-4 units $ 2,168 $ 311 $ - $ - $ - $ (545) $ 1,934
Multi-family 5-36 units 3,676 - - - - (1,314) 2,362
Multi-family 37 or more 18,331 3,114 - - - (73) 21,372
Non-residential 6,889 751 - - - (57) 7,583
--------------------------------------------------------------------------------------------------
Total $ 31,064 $ 4,176 $ - $ - $ - $ (1,989) $ 33,251
==================================================================================================
</TABLE>
The $14.7 million, or 7.2%, decrease in NPAs for the three months
ended September 30, 1997 reflects $29.6 million in sales of REO through the
Company's regular liquidation process, $15.6 million in non-accrual loans being
sold or paid off and $16.5 million in non-accrual loans being reinstated to
accrual status, partially offset by NPA additions of $54.6 million. For the
three months ended September 30, 1997, 73.3% of NPA additions were loans secured
by, and REO consisting of, single-family residences. During October 1997, the
Company's largest non-accrual loan in the amount of $11.3 million, secured by a
shopping center, paid off and the largest REO in the amount of $13.4 million,
consisting of land acquired for development, was sold, for a combined reduction
in NPAs of $24.7 million. On a pro forma basis, these reductions would have
improved the ratio of NPAs to total assets at September 30, 1997 from 1.16% to
1.01%.
The $2.2 million increase in restructured loans for the three months
ended September 30, 1997 was primarily due to $4.2 million of new restructured
loans transferred from non-accrual status, partially offset by $2.0 million of
restructured loans being transferred to performing status.
The table in Exhibit 99E presents the Company's gross loan portfolio,
NPAs and restructured loans by property type as of September 30, 1997. The table
in Exhibit 99G summarizes the activity in the Company's NPAs for the past five
quarters.
12
<PAGE>
Total delinquent loans at September 30, 1997 did not change
significantly from the level at June 30, 1997. Delinquent loans in the single-
family residential and commercial loan portfolios, increased by $5.7 million and
$6.8 million, to $151.9 million and $12.7 million, respectively. Delinquent
loans in the multi-family residential and non-residential loan portfolios,
declined by $4.4 million and $6.8 million, to $26.6 million and $21.7 million,
respectively. At September 30, 1997, single-family residential and multi-family
residential loans comprised 71% and 12%, respectively, of total delinquent
loans. The table in Exhibit 99H presents the Company's delinquent loans by
property type for the past five quarters.
ALLOWANCE FOR LOAN LOSSES
Golden State uses an internal asset review system to identify problem assets.
The Company's asset classification process, in accordance with applicable
regulations, provides for the classification of assets into the categories of
satisfactory, special mention, substandard, doubtful or loss. The Company's
determination of the level and the allocation of the allowance for loan losses
and, correspondingly, the provisions for such losses, is based on various
judgments, assumptions and projections regarding a number of factors, including,
but not limited to, asset classifications, current and forecasted economic and
market conditions, loan portfolio composition, historical loan loss experience
and industry experience. The allowance for loan losses is adjusted quarterly to
reflect management's current assessment of the effect of these factors on
estimated inherent loan losses. While management uses all information available
to it to estimate losses on loans, future changes to the allowance may become
necessary based on changes in economic and market conditions. Various regulatory
agencies, as part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the Company to
make changes to the allowance based on their judgments and the information
available to them at the time of their examination.
The following table sets forth the allocation of Golden State's allowance for
loan losses at September 30, 1997 and June 30, 1997 by property type (dollars in
thousands):
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
--------------------------------------------- -----------------------------------
Gross Percent of Gross Percent of
Loan Allowance Loan Allowance
Portfolio to Loan Portfolio to Loan
Allowance Balance Balance Allowance Balance Balance
--------------- ------------ ------------ ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 45,672 $ 9,091,337 0.50% $ 52,579 $ 8,821,828 0.60%
Multi-family:
5-36 units 39,887 1,453,674 2.74 43,852 1,477,549 2.97
37 or more units 14,760 347,409 4.25 16,496 345,052 4.78
Non-residential 38,229 1,067,392 3.58 35,280 1,207,013 2.92
Commercial 6,687 213,155 3.14 7,552 160,061 4.72
Consumer 13,362 123,629 10.81 8,000 120,685 6.63
-------- ----------- -------- -----------
$158,597 $12,296,596 1.29% $163,759 $12,132,188 1.35%
======== =========== ===== ======== =========== ====
</TABLE>
The allocation of the allowance to each category is not necessarily indicative
of future losses and does not restrict the use of the allowance to absorb losses
in any other category. The reallocation of the allowance among the different
portfolios reflects management's current assessment of the shifting of the
relative risks of loss inherent in the different portfolios.
13
<PAGE>
Specific valuation allowances of $13.4 million and $14.0 million have been
established at September 30 and June 30, 1997, respectively, for impaired loans
and are included in the allowance for loan losses. Specific valuation allowances
are provided when management determines that, for a specific loan, default
appears probable and the amount of the expected loss is measurable. The balances
of impaired loans with related specific valuation allowances at September 30,
1997 and June 30, 1997 totaled $74.1 million and $78.7 million, respectively.
Those impaired loans without related specific valuation allowances at September
30, 1997 and June 30, 1997 totaled $54.3 million and $64.1 million,
respectively.
The allowance for loan losses declined by $5.2 million, to $158.6 million, in
the first three months of fiscal 1998. The decrease in the allowance during this
period reflects improving NPA and delinquency trends, reduced levels of charge-
offs, a reduced number of high-risk, large, and multiple loan borrower
relationships and an overall improvement in the performance of the total loan
portfolio. Credit quality continued to improve, reflecting the lowest level of
NPAs since fiscal 1988, and the lowest level of charge-offs since March 1989.
The increase in the allowance allocation to consumer loans reflects growth in
that portfolio and in the outstanding commitments on consumer lines of credit,
and the Company's limited experience to date in managing the credit performance
of this new line of business. The ratios of allowance to non-accrual loans and
total gross loans at September 30, 1997 were 122.1% and 1.3%, respectively,
compared to 116.7% and 1.4%, respectively, at June 30, 1997.
A summary of activity in the allowance for loan losses by property type during
the first three months of fiscal 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Balance
June 30, Provision Charge- September 30,
1997 (Reallocation) offs Recoveries 1997
-------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 52,579 $(3,094) $(3,844) $ 31 $ 45,672
Multi-family:
5-36 units 43,852 (1,477) (2,488) -- 39,887
37 or more units 16,496 (1,643) (93) -- 14,760
Non-residential 35,280 3,751 (1,012) 210 38,229
Commercial 7,552 (395) (1,035) 565 6,687
Consumer 8,000 5,955 (845) 252 13,362
-------- ------- ------- ------ --------
$163,759 $ 3,097 $(9,317) $1,058 $158,597
======== ======= ======= ===== ========
</TABLE>
A summary of activity in the allowance for loan losses by property type during
the first three months of fiscal 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Balance
June 30, Provision Charge- September 30,
1996 (Reallocation) offs Recoveries 1996
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 56,833 $ 4,514 $ (7,573) $ 13 $ 53,787
Multi-family:
5-36 units 48,628 929 (2,945) 5 46,617
37 or more units 26,062 (890) (4,384) -- 20,788
Non-residential 47,260 2,283 (2,837) 55 46,761
Commercial 4,699 (2,111) (28) 884 3,444
Consumer 3,274 2,629 (990) 321 5,234
-------- ------- -------- ------ --------
$186,756 $ 7,354 $(18,757) $1,278 $176,631
======== ======= ======== ====== ========
</TABLE>
14
<PAGE>
The provision for loan losses declined by $4.3 million, to $3.1 million, in
the three months ended September 30, 1997, compared to the same period last
year, reflecting management's assessment that there is a decreased risk of loss
inherent in the loan portfolio, as evidenced by decreases in NPAs and delinquent
loans. The negative balances shown in the "Provision/(Reallocation)" column in
the above tables represent the reallocation of the allowance among the different
portfolios and reflects management's current assessment of the shifting of the
relative risks of loss inherent in the different portfolios.
If the recent economic improvements in the Company's principal market areas do
not continue, the Company's loans could be adversely impacted resulting in
increases in NPAs and higher charge-offs. Such increases could require a larger
allowance for loan losses and could reduce net earnings.
MORTGAGE LOAN SERVICING ACTIVITIES
Golden State services mortgage loans for other loan investors in exchange for
servicing fees. The Company enters into agreements to service loans for others
primarily through the purchase of servicing rights from other servicers, and to
a lesser extent, through the sale of loans it has originated while retaining the
right to service the loans.
Mortgage servicing assets ("MSA") decreased by $11.2 million, to $273.3
million, during the three months ended September 30, 1997, primarily due to the
amortization of MSA of $11.5 million. No servicing rights were purchased during
the quarter ended September 30, 1997. During fiscal 1997, the Company purchased
servicing rights relating to $17.2 billion of loans for $187.3 million, which
included servicing rights relating to $11.5 billion of predominantly fixed-rate
mortgage loans purchased for $112.8 million in the fourth quarter of fiscal
1997.
The valuation of mortgage servicing is significantly impacted by market
prepayment expectations of the loans underlying the MSA. If prepayment
expectations increase from the levels as of September 30, 1997, recognition of
valuation allowances relating to the value of the Company's MSA and acceleration
of the rate of amortization of the asset may be necessary, depending upon the
frequency and magnitude of such increases. A decrease in long-term interest
rates in the range of 50 to 100 basis points from the September 30, 1997 levels
could result in impairment to the Company's MSA in the range of $5 million to
$32 million.
The Company's portfolio of loans serviced for others totaled $28.6 billion at
September 30, 1997 and included the above-mentioned $11.5 billion of loans which
were transferred to the Company for servicing in the current quarter. Loans
serviced for others at September 30, 1996 totaled $17.8 billion. At September 30
and June 30, 1997, 3.39% and 3.50%, respectively, of the Company's loans
serviced for others were delinquent 30 days or more.
LIABILITY COMPOSITION
The Company's ratios of deposits and borrowings to total interest-earning
liabilities were 62% and 38%, respectively, at September 30, 1997, compared to
ratios of 63% and 37%, respectively, at June 30, 1997. The Company continues to
emphasize the attraction of retail deposits, especially low-cost demand
deposits. The ratio of deposits to borrowings, however, is impacted by the
Company's ability to fund asset growth with growth in retail deposits. The
Company expects to replace borrowings with retail deposits over time through a
combination of retail sales efforts and acquisitions of deposits. See the
deposit composition table following for additional information.
DEPOSITS
The Company uses retail deposits as its core source of funds for lending and
asset purchase purposes and as a customer base for providing additional
financial services. The Company's total deposits decreased by $18.0 million, to
$9.3 billion, in the first three months of fiscal 1998.
Golden State's deposit composition at September 30, 1997 and June 30, 1997 was
as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
------------------- ----------------------
% of % of
Balance Total Balance Total
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Checking $1,331,925 14.3% $1,198,011 12.8%
Savings 442,141 4.7 452,225 4.8
Money market 2,150,961 23.0 2,119,553 22.7
---------- ------ ---------- ------
Total daily access 3,925,027 42.0 3,769,789 40.3
---------- ----- ---------- -----
Short-term certificates
(1 year or less) 2,628,395 28.1 2,703,538 28.9
Long-term certificates
(over 1 year) 2,621,355 28.1 2,700,906 28.9
Jumbo and brokered
certificates 164,164 1.8 182,676 1.9
---------- ----- ---------- -----
Total certificates 5,413,914 58.0 5,587,120 59.7
---------- ----- ---------- -----
Total deposits $9,338,941 100.0% $9,356,909 100.0%
========== ===== ========== =====
</TABLE>
Checking accounts increased by $133.9 million, or 11%, to $1.3 billion, during
the first three months of fiscal 1998. The increase was comprised of a $64.0
million increase in retail and business checking accounts and a $69.9 million
increase in custodial checking accounts to which borrower payments on loans
serviced by the Company are deposited prior to disbursement to investors, taxing
authorities or insurance companies.
15
<PAGE>
BORROWINGS
Total borrowings increased by $184.4 million, to $5.8 billion, during the
three months ended September 30, 1997 to support asset growth. Securities sold
under agreements to repurchase increased by $399.1 million, to $1.2 billion at
September 30, 1997. Borrowings from the Federal Home Loan Bank ("FHLB")
decreased by $204.0 million to $4.6 billion. The Company decreased adjustable-
rate FHLB borrowings by $200.0 million, to $2.7 billion during the three months
ended September 30, 1997, while keeping fixed-rate FHLB borrowings at the level
of $1.9 billion at June 30, 1997. All of the $10.5 million outstanding
subordinated debentures at June 30, 1997 were redeemed on September 16, 1997 at
a redemption price equal to 100% of the principal amount together with accrued
and unpaid interest from March 15, 1997 to the redemption date. Total borrowings
as of September 30, 1997 and June 30, 1997 included $4.4 billion and $4.2
billion, respectively, of borrowings due within one year. See "Liquidity and
Asset and Liability Management--Asset and Liability Management" below for
additional discussion of the Company's borrowings.
STOCKHOLDERS' EQUITY
Stockholders' equity increased by $31.5 million, to $1.0 billion, during the
three months ended September 30, 1997, primarily due to net earnings of $28.5
million, income tax benefits of $3.8 million relating to the exercise of stock
options, proceeds of $1.3 million received from the issuance of common stock
related to the exercise of stock options and a $0.8 million decrease in the net
unrealized loss recorded on the portfolio of mortgage-backed securities
available for sale, partially offset by dividends declared of $2.5 million on
the Company's preferred stock.
REGULATORY CAPITAL
The following table compares Glendale Federal Bank's regulatory capital at
September 30, 1997 to its minimum regulatory capital requirements at that date
(dollars in thousands):
<TABLE>
<CAPTION>
Capital at As a % Capital As a % Excess
Sept. 30, 1997 of Assets Required of Assets Capital
----------------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Glendale Federal Bank's capital in
accordance with generally accepted
accounting principles $1,030,488
Adjustments for tangible and core
capital:
Goodwill and other intangible
assets (97,421)
Investments in and advances to
non-permissible subsidiaries (362)
Net unrealized holding loss on
available for sale securities 366
----------
Total tangible capital $ 933,071 5.71% $245,000 1.50% $688,071
Adjustment for core capital -
----------
Total core capital $ 933,071 5.71% $489,999* 3.00%* $443,072*
Adjustments for risk-based capital:
Allowance for general loan losses** 112,991
Equity risk investments required
to be deducted (7,408)
----------
Total risk-based capital $1,038,654 11.41% $731,956* 8.00%* $306,698*
==========
- - ------------------------------
</TABLE>
* Under the standards for "well capitalized" institutions established pursuant
to the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), the corresponding amounts for core capital are $816,665, 5.00%
and $116,406, respectively, and the corresponding amounts for risk-based
capital are $912,097, 10.00% and $126,557, respectively.
** Limited to 1.25% of risk-weighted assets.
16
<PAGE>
LIQUIDITY AND ASSET AND LIABILITY MANAGEMENT
LIQUIDITY
The Company's primary sources of funds consist of retail deposits,
borrowings from the FHLB, principal repayments on loans and mortgage-backed
securities and sales of securities under agreements to repurchase. The Company
also obtains funds from its operations. Each of the Company's sources of
liquidity is subject to various uncertainties beyond the control of the Company.
Scheduled loan payments are a relatively stable source of funds, while loan and
mortgage-backed security prepayments and deposit flows may vary widely in
reaction to market conditions, primarily prevailing interest rates. As a
measure of protection against these uncertainties, the Company generally has
back-up sources of funds available to it. At September 30, 1997, funds
estimated to be available from these sources totaled approximately $3.8 billion
and consisted primarily of FHLB advances and the repurchase agreement markets.
During the three months ended September 30, 1997, the Company experienced a
net cash outflow from investing activities of $253.0 million, primarily due to
the purchase of loans and mortgage-backed securities and to term loan
originations, partially offset by principal payments on loans and mortgage-
backed securities. The Company experienced positive cash flows from operating
activities during the period of $66.0 million. The Company's financing
activities during the period resulted in a net cash inflow of $164.8 million,
consisting principally of an increase in short-term borrowings.
During September 1997, the Company's average liquidity ratio was 5.78%. The
current minimum regulatory requirement for this ratio is 5%.
ASSET AND LIABILITY MANAGEMENT
Savings institutions are subject to interest rate risk to the degree that
their interest-bearing liabilities, consisting principally of deposits, FHLB
advances and other borrowings, mature or reprice at different frequencies, or on
different bases, than their interest-earning assets, which consist predominantly
of intermediate or long-term real estate loans and mortgage-backed securities.
Interest rate risk is increased by the difference in aggregate amounts of
interest-earning assets and interest-bearing liabilities. Institutions that
invest in mortgage-backed assets are subject to prepayment risk as the duration
and value of such assets are impacted by changes in actual prepayment from
projections made at the time of origination or purchase. Generally, a
significant or prolonged reduction in interest rates would be expected to result
in an acceleration of loan prepayments beyond the levels currently projected by
the Company.
One of the Company's primary financial objectives is to manage the interest
rate risk inherent in its business. The one-year GAP represents the estimated
difference between the amounts of interest-earning assets and interest-bearing
liabilities maturing or repricing within one year, based on assumptions as to
the expected repayment of assets and liabilities. The interest rate sensitivity
of the Company's assets and liabilities could vary substantially if actual
experience differs from the assumptions used. The Maturity and Rate Sensitivity
Analysis table in Exhibit 99A sets forth the projected maturities, based upon
contractual maturities as adjusted for projected prepayments and "repricing
mechanisms" (provisions for changes in the interest rates of assets and
liabilities), of the Company's major asset and liability categories as of
September 30, 1997.
The following table is a summary of Golden State's one-year GAP at the
dates indicated (dollars in millions):
<TABLE>
<CAPTION>
Sept. 30, June 30,
1997 1997
------------------------
<S> <C> <C>
Interest-earning assets maturing or
repricing within one year $11,148 $11,640
Interest-bearing liabilities maturing
or repricing within one year 9,783 9,282
------- -------
One-year maturity GAP $ 1,365 $ 2,358
One-year maturity GAP as a percent of ======= =======
total assets 8.3% 14.5%
======= =======
</TABLE>
17
<PAGE>
The $993 million decrease in the one-year GAP during the first quarter of
fiscal 1998 was primarily due to a $501 million increase in interest-bearing
liabilities maturing or repricing within one year and a $492 million decrease in
interest-earning assets maturing or repricing within one year. The growth in
one-year liabilities was primarily due to an increase of $275 million in
certificates of deposits and an increase of $399 million in securities sold
under agreements to repurchase, partially offset by a decrease of $204 million
in FHLB borrowings that mature or reprice within one year. The decrease in one-
year assets was principally due to decreases of $299 million and $145 million in
single-family residential loans and multi-family and non-residential loans,
respectively, that mature or reprice within one year. Assets repricing beyond
one year increased by $694 million due to purchases of loans and mortgage-backed
securities, and originations of fixed-rate single-family loans.
The Company is better protected against rising interest rates with a positive
one-year GAP. However, the Company remains subject to possible interest rate
spread compression, which would adversely impact the Company's net interest
income, if interest rates rise. This is primarily due to the lag in the
repricing of the indices to which the Company's adjustable-rate loans and
mortgage-backed securities are tied, as well as the repricing frequencies and
periodic interest rate caps on such adjustable-rate loans and mortgage-backed
securities, and to an increase in the cost of the Company's liabilities which
are subject to monthly repricing. The amount of such interest rate spread
compression would depend upon the frequency, severity and duration of such
interest rate fluctuations. The positive one-year GAP could decrease in future
periods due to, among other things, the use of short-term adjustable-rate
borrowings to purchase long-term fixed-rate loans in the secondary market.
The Company's Asset/Liability Management Committee ("ALCO") is responsible for
implementing the interest rate risk management policy adopted by the Company.
Among other things, the Company's policy statement sets forth the limits
established by the Board of Directors on acceptable changes in net interest
income and net portfolio value resulting from specified changes in interest
rates. ALCO reviews, among other things, economic conditions, the interest rate
outlook, the demand for loans, the availability of deposits and Golden State's
current operating results, liquidity, capital and interest rate risk exposure.
Based on such reviews, ALCO formulates a strategy that is intended to implement
the objectives set forth in Golden State's business plan without exceeding the
net interest income and net portfolio value limits set forth in the interest
rate risk management policy statement.
18
<PAGE>
The following tables present the Company's gross loan portfolio, including
loans owned and serviced by the Company and loans owned and serviced by others,
and the Company's gross mortgage-backed securities portfolio (before adjustment
for the unrealized loss on mortgage-backed securities available for sale) by
note type and the distribution of adjustable-rate loans and mortgage-backed
securities among the major underlying indices at the dates indicated (dollars in
millions):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------------------------------------------------
LOANS LOANS
OWNED AND OWNED AND MORTGAGE-
SERVICED SERVICED BACKED PERCENT
BY BANK BY OTHERS SECURITIES TOTAL OF TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable:
6-month Treasury Bills........... $ 317 $ 30 $ 393 $ 740 5%
1-Year Treasury Bills(1)......... 2,410 2,176 1,249 5,835 40
11th District Cost of Funds...... 3,420 69 126 3,615 25
Prime............................ 299 -- 7 306 2
Other............................ 113 7 107 227 1
------ ------ ------ ------- ---
6,559 2,282 1,882 10,723 73
Fixed.............................. 1,172 2,284 426 3,882 27
------ ------ ------ ------- ---
Total.............................. $7,731 $4,566 $2,308 $14,605 100%
====== ====== ====== ======= ===
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------------------
LOANS LOANS
OWNED AND OWNED AND MORTGAGE-
SERVICED SERVICED BACKED PERCENT
BY BANK BY OTHERS SECURITIES TOTAL OF TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable:
6-month Treasury Bills........... $ 328 $ 32 $ 411 $ 771 5%
1-Year Treasury Bills(1)......... 2,452 2,135 1,285 5,872 41
11th District Cost of Funds...... 3,551 71 131 3,753 26
Prime............................ 288 -- 8 296 2
Other............................ 115 7 117 239 2
------ ------ ------ ------- ---
6,734 2,245 1,952 10,931 76
Fixed.............................. 1,070 2,083 297 3,450 24
------ ------ ------ ------- ---
Total.............................. $7,804 $4,328 $2,249 $14,381 100%
====== ====== ====== ======= ===
</TABLE>
------------------
(1) Includes $1.4 billion and $1.3 billion at September 30, 1997 and 1996,
respectively, of loans and mortgage-backed securities with interest rates that
are fixed for three to five years which then convert to adjustable rates for the
remainder of the loan term.
19
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
The following table sets forth the Company's average balances of interest-
earning assets and interest-bearing liabilities, the interest income earned and
interest expense incurred thereon and the resulting average yield-cost ratios
for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30
----------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Cost Balances Expense Cost
----------- ---------- ----- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans receivable, net $12,251,299 $235,801 7.70% $11,107,267 $210,187 7.57%
----------- -------- ----------- --------
Mortgage-backed securities, held to maturity 1,138,451 19,469 6.84% N/A N/A N/A
Mortgage-backed securities, available for sale 1,144,435 18,595 6.51% N/A N/A N/A
----------- -------- ----------- --------
Total mortgage-backed securities, net/2/ 2,282,886 38,064 6.67% 2,207,737 36,353 6.59%
----------- -------- ----------- --------
Total loans and mortgage-backed securities 14,534,185 273,865 7.54% 13,315,004 246,540 7.41%
----------- -------- ----------- --------
Federal funds sold and assets purchased under
resale agreements 643,652 9,494 5.85% 615,022 8,591 5.54%
----------- -------- ----------- --------
Other debt and equity securities available for
sale 26,577 357 5.33% N/A N/A N/A
Other investments 270,231 7,370 10.82% N/A N/A N/A
----------- -------- ----------- --------
Total other investments/2/ 296,808 7,727 10.33% 228,107 5,538 9.63%
----------- -------- ----------- --------
Total investments 940,460 17,221 7.26% 843,129 14,129 6.65%
----------- -------- ----------- --------
Total interest-earning assets $15,474,645 $291,086 7.52% $14,158,133 $260,669 7.36%
=========== ======== =========== ========
Interest-bearing Liabilities:
Non-interest-bearing demand deposits $ 829,816 $ -- 0.00% $ 429,374 $ -- 0.00%
Interest-bearing demand deposits 428,712 1,081 1.00% 398,611 1,051 1.05%
Savings deposits 448,375 2,430 2.15% 477,633 2,588 2.15%
Money market deposits 2,128,718 22,781 4.25% 1,778,261 19,674 4.39%
----------- -------- ----------- --------
Total daily access 3,835,621 26,292 2.72% 3,083,879 23,313 3.00%
Certificates 5,474,866 75,223 5.45% 5,684,458 78,383 5.47%
----------- -------- ----------- --------
Total deposits 9,310,487 101,515 4.33% 8,768,337 101,696 4.60%
----------- -------- ----------- --------
Securities sold under agreements to
repurchase 1,067,620 15,224 5.66% 712,618 9,813 5.46%
Borrowings from the Federal Home Loan
Bank 4,668,315 67,641 5.75% 4,083,652 59,435 5.77%
Other borrowings 59,024 555 3.73% 41,992 362 3.42%
----------- ------- ----------- --------
Total borrowings 5,794,959 83,420 5.71% 4,838,262 69,610 5.71%
----------- ------- ----------- --------
Total interest-bearing liabilities $15,105,446 $184,935 4.86% $13,606,599 $171,306 4.99%
=========== ======== =========== ========
Difference between average
interest-earning assets and
interest-bearing liabilities $ 369,199 $ 551,534
=========== ===========
Net interest income 106,151 $ 89,363
======== ========
Yield-cost spread 2.66% 2.37%
===== =====
Effective net spread /1/ 2.78% 2.56%
===== =====
</TABLE>
_______________
/1/ Annualized net interest income divided by average interest-earning
assets.
/2/ Prior to fiscal 1998, the Company aggregated income from all securities
(held to maturity and available for sale).
20
<PAGE>
The following rate/volume analysis depicts the increase (decrease) in net
interest income attributable to interest rate fluctuations (change in rate
multiplied by prior period average balance) and volume fluctuations (change in
average balance multiplied by prior period rate) for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Three months ended September 30,
1997 vs. 1996
Changes Due To
-------------------------------------
Volume Rate Total
-------------------------------------
<S> <C> <C> <C>
Interest income:
Loans receivable, net $21,954 $ 3,660 $25,614
Mortgage-backed securities, net 1,261 450 1,711
------- ------- -------
Total loans and mortgage-backed 23,215 4,110 27,325
securities
Federal funds sold and assets
purchased under resale agreements 410 493 903
Other investments 1,764 425 2,189
------- ------- -------
Total investments 2,174 918 3,092
------- ------- -------
Total interest income 25,389 5,028 30,417
------- ------- -------
Interest expense:
Deposits - daily access 5,302 (2,323) 2,979
Deposits - certificates (2,875) (285) (3,160)
------- ------- -------
Total deposits 2,427 (2,608) (181)
Securities sold under agreements
to repurchase 5,041 370 5,411
Borrowings from the Federal Home
Loan Bank 8,414 (208) 8,206
Other borrowings 158 35 193
------- ------- -------
Total borrowings 13,613 197 13,810
------- ------- -------
Total interest expense 16,040 (2,411) 13,629
------- ------- -------
Net interest income $ 9,349 $ 7,439 $16,788
======= ======= =======
</TABLE>
Note: Non-accrual loans are included in the average balances for the periods;
however, interest on such loans has been excluded from interest income for
the periods. The change in interest not due solely to volume or rate has
been allocated in proportion to the absolute dollar amounts of the change
in each.
Net interest income increased by $16.8 million, to $106.2 million, in the
three months ended September 30, 1997, compared to the same period last year,
because of an increase in average interest-earning assets and an improvement in
the yield-cost spread. Volume changes contributed $9.3 million to the increase
in net interest income, and were primarily due to increased interest income of
$25.4 million resulting from a $1.3 billion increase in average interest earning
assets for the first quarter of fiscal 1998 compared to the same period last
year. Partially offsetting the volume-based growth in interest income was a
$16.0 million increase in interest expense relating to a $1.5 billion increase
in average interest bearing liabilities for the quarter ended September 30, 1997
compared to the same quarter a year ago. The $200 million difference in the
growth of interest earning assets of $1.3 billion as compared to the growth in
interest bearing liabilities of $1.5 billion is primarily due to the Company's
purchases in the fourth quarter of fiscal 1997 of mortgage servicing assets and
goodwill acquired in connection with the TransWorld Bank transaction. The yield-
cost spread increased by 29 basis points, to 2.66%, in the three months ended
September 30, 1997, compared to the same period last year, primarily due to an
increase in the yield on the Company's interest-earning assets of 16 basis
points, to 7.52%, and a decrease in its cost of funds of 13 basis points, to
4.86%.
21
<PAGE>
Interest income on loans receivable increased by $25.6 million, to $235.8
million, in the three months ended September 30, 1997, compared to the same
period last year, primarily due to portfolio growth. The average balance of
loans receivable, net, increased by $1.1 billion, to $12.3 billion, during the
quarter ended September 30, 1997, contributing $22.0 million to the growth. This
was due to the Company's purchases, in the secondary market, of $824.1 million
of fixed rate loans with a weighted average yield of 8.02% and $767.9 million of
adjustable rate loans with a weighted average yield of 7.43% during the last
nine months of fiscal 1997. During the current quarter, the Company purchased
$296.7 million of fixed-rate loans with a weighted average yield of 7.63% and
$306.3 million of adjustable rate loans with a weighted average yield of 7.36%
in the secondary market. Contributing to the growth in the loan portfolio was
the purchase of $135.8 million in loans with a weighted average yield of 10.26%
from the May 1997 TransWorld Bank acquisition. The growth in the loan portfolio
was enhanced by an increase in portfolio yield of 13 basis points, which
contributed $3.7 million to growth. The increase in portfolio yield was
primarily due to the impact of the aforementioned higher yielding fixed rate
purchases in the secondary market, the higher yielding loans acquired from
TransWorld Bank, and to the effect of a declining level of non-accrual loans.
The Company does not recognize income on non-accrual loans during the period
they are considered non-accrual, while their balances are included in the asset
base for yield calculation purposes. The average balances of non-accrual loans
in the first quarters of fiscal 1998 and fiscal 1997 were $135.1 million and
$182.0 million, respectively. The impact of non-accrual loans on the yield on
loans was a reduction in yield of 5 basis points in the first quarter of fiscal
1998 versus a reduction in yield of 11 basis points in the same period in fiscal
1997.
Interest income on mortgage backed securities increased by $1.7 million, to
$38.1 million, in the three months ended September 30, 1997, compared to the
same period last year, primarily due to an increase in the yield on mortgage-
backed securities of 8 basis points to 6.67% and an increase in the average
portfolio balance of $75.0 million.
Interest income on federal funds sold and assets purchased under resale
agreements increased by $0.9 million, to $9.5 million, in the first quarter of
fiscal 1998, compared to the same period in fiscal 1997, primarily due to an
increase in the yield of 31 basis points to 5.85% and an increase in the average
balance of $28.6 million.
Interest income on other investments increased by $2.2 million to $7.7 million
in the three months ended September 30, 1997, compared to the same period last
year, due to an increase in the average portfolio balance of $68.7 million and
an increase in the yield of 70 basis points, to 10.33%. The increase in the
average portfolio balance was primarily due to a $57.6 million increase in the
Company's average investment in FHLB stock, which was required by the FHLB in
order for the Company to obtain additional borrowings from the FHLB. The
increase in the yield on other investments was primarily due to an increase in
the yield on the investment on FHLB stock as well as to interest earned on off-
balance sheet custodial accounts.
Interest expense on daily access deposits increased by $3.0 million, to $26.3
million, in the first quarter of fiscal 1998, compared to the same period in
fiscal 1997, primarily due to a $0.8 billion, or 24% increase in the average
balance in daily access accounts during the three months ended September 30,
1997, compared to the same period last year. This growth in average balance
contributed $5.3 million to the increase in interest expense. The growth in
average daily access account balances was due to the addition of daily access
accounts related to acquisitions made in the second half of fiscal 1997, and to
internally-developed account growth. The increase in interest expense was offset
by a 28 basis point reduction in the average cost of daily access accounts. The
decrease in average cost was due to the low cost of deposits obtained through
the acquisitions.
Interest expense on certificate accounts decreased by $3.2 million, to $75.2
million, in the three months ended September 30, 1997, compared to the same
period last year, due to decreasing average balances. Average balances in
certificate accounts decreased by $209.0 million, or 4%, due to management's
efforts to change the mix of deposits toward daily access accounts. This
decrease contributed $2.9 million to the reduction in interest expense on
certificate accounts. The average cost of certificate accounts decreased by 2
basis points to 5.45% due to growth in daily access deposits allowing management
to price certificate accounts less aggressively, while maintaining approximately
the same retail-wholesale funding mix.
22
<PAGE>
Interest expense on borrowings increased by $13.8 million to $83.4 million in
the first quarter of fiscal 1998, compared to the same period in fiscal 1997,
primarily due to an increase of $956.7 million, or 20%, in the average balance
of borrowings compared to the same period last year.
The Company has, in the past, entered into interest rate exchange agreements
("swaps") to reduce the effect of rising interest rates on short-term deposits
and FHLB advances, and the effect thereof on interest expense. The Company
predominantly paid fixed interest rates and received variable interest rates
under its swap contracts. At September 30, 1996, the Company had $200 million in
notional principal amount of swaps that matured in April 1997. At September 30,
1997, no swaps were outstanding.
PROVISION FOR LOAN LOSSES
Provision for loan losses totaled $3.1 million in the three months ended
September 30, 1997, a decrease of $4.3 million or 58% compared to $7.4 million
in the same period last year. The significant reduction in the provision was
primarily due to steadily declining NPAs and delinquent loans, lower net charge-
offs and management's assessment that there is a decreased risk of loss inherent
in the Company's real estate loan portfolio, partially offset by the increased
risk of loss inherent in its consumer loan portfolio. NPAs at September 30, 1997
totaled $190.2 million, which represents a 25% decline from the $255.0 million
of NPAs recorded at September 30, 1996. Net charge-offs to the allowance for
loan losses totaled $8.3 million in the first quarter of fiscal 1998, compared
to $17.5 million in the same period in fiscal 1997. The allowance for loan
losses is determined based on, among other things, the application to the loan
portfolios of factors used in the Company's allowance for loan loss evaluation
process. The application of these factors is discussed in "Balance Sheet
Analysis--Allowance for Loan Losses".
LOAN SERVICING INCOME, NET
Loan servicing income, net, increased by $0.5 million or 6%, to $8.8 million,
in the first quarter of fiscal 1998, compared to the same period last year.
Servicing fees earned increased by $6.5 million or 46%, to $20.7 million, due to
the Company's most recent purchase of servicing rights relating to approximately
$11.5 billion of predominantly fixed-rate mortgage loans. However, the
amortization of MSA increased by $5.8 million or 102%, to $11.5 million. The
disproportionate increase in the amortization of MSA compared to the servicing
fees earned, was primarily due to the servicing fee rates on the aforementioned
purchases being less than those associated with a standard fixed-rate package,
and to a certain extent, due to increased market expectations for prepayments.
The lower servicing fee rates associated with this purchase are offset, from an
earnings perspective, by an increase in net interest income resulting from
investing the custodial deposit balances associated with this servicing during
the holding period between the collection of borrower payments and remittance to
investors, taxing authorities or insurance companies.
OTHER FEES AND SERVICE CHARGES
Other fees and service charges increased by $3.1 million or 24%, to $16.0
million, in the three months ended September 30, 1997, compared to the same
period last year. This increase was due primarily to an increase in deposit fee
income of $2.1 million related to growth in the number of transaction accounts.
23
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, excluding legal expenses for the goodwill
litigation, increased by $2.4 million to $70.9 million in the three months ended
September 30, 1997, compared with $68.6 million in the same period last year.
The increase primarily reflected costs associated with the Company's new
business lines, franchise growth and recent acquisitions, partially offset by
reduced regulatory insurance premiums. Operating expenses directly related to
the new business lines, franchise growth and recent acquisitions approximated
$6.5 million during the three months ended September 30, 1997, compared with
$1.6 million during the same period last year. General and administrative
expenses may increase in future periods as the Company continues to expand its
business lines, broaden the reach of its branch franchise and maintain a higher
level of marketing activity. The targeted benefits resulting from the expansion
of its business lines and branch franchise, namely increased net interest margin
and higher fee income, may lag the increase in expenditures depending upon the
timing of the investment in new business lines, network expansion and marketing,
and the increase in revenues that is intended to result from this investment.
The Company has an ongoing program designed to ensure that its operational and
financial systems will not be adversely affected by year 2000 software failures
due to processing errors arising from calculations using the year 2000 date.
Expenses related to the Year 2000 enhancements amounted to $0.8 million during
the three months ended September 30, 1997. The Company expects to incur $32
million to $37 million over the next three years on its program to modify,
redevelop or replace its computer applications to try to make them "year 2000"
compliant. While the Company believes it is doing everything technologically
possible to assure year 2000 compliance, it is to some extent dependent upon
vendor cooperation. The Company is requiring its computer systems and software
vendors to represent that the products provided are or will be year 2000
compliant and has planned a program of testing for compliance. It is recognized
that any year 2000 compliance failures could result in additional expense to the
Company.
As a result of the reduced assessment from the FDIC following the SAIF
recapitalization, regulatory insurance in the first quarter of fiscal 1998
decreased by $4.3 million or 69%, to $1.9 million, compared to the same period
in fiscal 1997.
LEGAL EXPENSE--GOODWILL LAWSUIT
Legal expenses related to the Company's trial in the Court of Federal Claims
to determine damages in its breach of contract suit against the federal
government were significantly higher in the first quarter of fiscal 1998 at $4.7
million compared to $0.6 million in the same period in fiscal 1997. Management
expects to incur legal expenses of up to approximately $6 million pretax per
quarter for the duration of the damages trial, which is currently estimated to
be completed sometime in the March 1998 quarter. See Part II, Item 1. "Legal
Proceedings - Goodwill Litigation Against the Government" for further
discussion.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of goodwill increased by $0.8 million to $2.1 million in the
three months ended September 30, 1997, compared with $1.3 million in the same
period last year. The increase reflected the impact of the amortization of $45.8
million of additions to goodwill relating to acquisitions in the second half of
fiscal 1997. On an annual basis, the goodwill relating to these acquisitions
will increase amortization expense by $3.1 million.
INCOME TAX PROVISION
The Company recorded an income tax provision of $21.5 million in the three
months ended September 30, 1997, compared to an income tax benefit of $7.7
million in the same period last year. The effective tax rate is higher than the
federal statutory rate primarily due to state taxes and the effect of
nondeductible goodwill.
24
<PAGE>
FORWARD-LOOKING INFORMATION
The discussions contained above in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are intended to provide
information to facilitate the understanding and assessment of the consolidated
financial condition of Golden State as reflected in the accompanying
consolidated financial statements and footnotes and should be read and
considered in conjunction therewith. These discussions include forward-looking
statements within the meaning of Section 21E of the Exchange Act regarding
management's beliefs, estimates, projections, and assumptions with respect to
future operations. All forward-looking statements herein are subject to risks
and uncertainties, including the risks and uncertainties detailed herein and
from time to time in Golden State's SEC reports and filings. Actual results and
operations for any future period may vary materially from those projected herein
and from past results discussed herein.
25
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GOODWILL LITIGATION AGAINST THE GOVERNMENT
Following the adoption of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), the Company sued the United States
Government (the "Government") contending that FIRREA's treatment of supervisory
goodwill constituted a breach by the Government of its 1981 contract with the
Company, under which the Company merged with a Florida thrift and the Company
was permitted to include the goodwill resulting from the merger in the Company's
regulatory capital (Glendale Federal Bank, F.S.B. v. United States, No. 90-772C,
in the United States Court of Federal Claims, filed August 15, 1990).
On July 1, 1996, the Supreme Court, by a vote of 7 to 2, ruled that the
Government had breached its contract with the Company and remanded the case to
the Claims Court for a determination of damages. The trial to determine damages
commenced on February 24, 1997. The Company currently anticipates that the trial
will end in the March 1998 quarter, with a decision anticipated during the
summer of 1998. The Company completed presentation of its case in chief on July
21, 1997, and on September 2, 1997 the Government began the presentation of its
case in chief.
Subsequent to the Company's completion of its case in chief, the Government
filed motions with the Claims Court seeking leave to plead four new defenses to
the Company's claims. One of these new defenses asserts that certain testimony
by Glendale Federal witnesses at the trial is inconsistent with prior documents
filed by the Company and that these inconsistencies constitute a fraud against
the Government that should result in forfeiture of Glendale Federal's right to
compensation for the Government's breach of contract. The Government also
requested the Court to grant summary judgment on its fraud claim.
In its response to the Government's summary judgment motion, Glendale Federal
stated that the Government's motion is unfounded and without merit and urged the
Court not only to deny the motion but also to levy sanctions against the
Government on the grounds that the fraud claim and related summary judgment
motion appear to have been filed either for their intimidating effect or for the
purpose of harassment, delay or increasing litigation costs. The Claims Court
has deferred consideration of both the Government's motion for summary judgment
and the Bank's motion for sanctions until after the conclusion of the trial.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 23, 1997, a special meeting of stockholders of Glendale Federal Bank
(the "Bank") was held to vote on the proposal to adopt an Agreement and Plan of
Reorganization pursuant to which a holding company, Golden State Bancorp Inc.,
would be formed for the Bank.
Holders of the Bank's common stock approved the formation of the holding
company with 32,715,297 votes cast "For", 126,997 votes cast "Against" and
120,302 shares abstaining. Holders of the Bank's Noncumulative Preferred Stock,
Series E, approved the formation of the holding company with 3,379,324 votes
cast "For", 3,542 votes cast "Against" and 3,675 shares abstaining.
The formation of the holding company became effective on July 24, 1997, and
the Bank became a wholly-owned subsidiary of Golden State on that date.
26
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Per Share Earnings (Loss)
27 Financial Data Schedule
99A Maturity and Rate Sensitivity Analysis
99B Interest Rate Margin
99C Loan Originations by Type
99D Analysis of Allowance for Loan Losses and Non-Performing Assets
99E Gross Loans, Non-Performing Assets and Restructured Loans by Property
Type
99F Non-Performing Assets and Restructured Loans
99G Non-Performing Assets Activity
99H Delinquent Loans by Property Type
(b) Reports on Form 8-K
Golden State filed a Form 8-K, dated July 24, 1997, to announce its
formation as the new holding company for Glendale Federal Bank, Federal Savings
Bank. On that date, shares of Glendale Federal Bank's outstanding common and
preferred stock automatically became equal numbers of shares of common and
preferred stock of Golden State. Glendale Federal Bank retained its name and
became a wholly owned subsidiary of Golden State.
Golden State filed a Form 8-K, dated August 17, 1997, to announce that it
had entered into an Agreement and Plan of Merger with CENFED Financial
Corporation, pursuant to which Golden State will acquire CENFED through the
merger of a wholly-owned subsidiary of Golden State with CENFED (the "Merger").
As a result of the Merger, each outstanding share of CENFED's common stock will
be converted into the right to receive 1.2 shares of common stock of Golden
State. The Merger is subject to regulatory and other approvals and is expected
to close in the first quarter of calendar 1998.
Golden State filed a Form 8-K, dated September 26, 1997, containing the
June 30, 1997 Annual Report on Form 10-K of its principal subsidiary, Glendale
Federal, which was filed with the Office of Thrift Supervision. Golden State,
the holding company of the Bank, did not file an Annual Report on Form 10-K with
the Securities and Exchange Commission for the year ended June 30, 1997 because
the holding company formation transaction was completed on July 24, 1997, after
the end of the Bank's fiscal year.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Golden State Bancorp Inc.
-------------------------
(Registrant)
Date: November 13, 1997 By: /s/ John E. Haynes
-------------------------------
Chief Financial Officer
(Principal Financial Officer)
28
<PAGE>
EXHIBIT 11.1
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1997 1996
---------- ------------
<S> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
COMPUTATION FOR STATEMENT OF OPERATIONS
Net earnings (loss) per statement of operations used in
primary earnings per share computation:
Net earnings (loss) $28,517 $(19,985)
Dividends on Preferred Stock (2,528) (3,107)
Premium on conversion of Preferred Stock - (503)
------- --------
Net earnings (loss), as adjusted $25,989 $(23,595)
======= ========
Weighted average number of shares outstanding used in
primary earnings (loss) per share computation:
Weighted average number of shares 50,396 47,112
Net shares issuable from assumed exercise of warrants
and options, as determined by the application
of the Modified Treasury Stock Method 9,133 -
------- --------
59,529 47,112
======= ========
Primary earnings (loss) per share (b) $ 0.44 $ (0.50)
======= ========
ADDITIONAL PRIMARY EARNINGS (LOSS) PER SHARE COMPUTATION
Net earnings (loss), as per primary computation above $25,989 $(23,595)
Interest on borrowings, net of tax effect,
on application of assumed proceeds from
exercise of warrants and options in excess of
20% limitation (a) - 123
------- --------
Net earnings (loss), as adjusted $25,989 $(23,472)
======= ========
Weighted average number of shares outstanding,
as per primary computation above 59,529 47,112
Net shares issuable from assumed exercise of warrants
and options, as determined by the application
of the Modified Treasury Stock Method - 5,726
------- --------
Weighted average number of shares outstanding, as adjusted 59,529 52,838
======= ========
Primary earnings (loss) per share, as adjusted $ 0.44 $ (0.44)(c)
======= ========
</TABLE>
<PAGE>
EXHIBIT 11.1
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS) - Continued
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------------
1997 1996
---------- ------------
<S> <C> <C>
FULLY DILUTED EARNINGS (LOSS) PER SHARE
COMPUTATION FOR STATEMENT OF OPERATIONS
Net earnings (loss) per statement of operations used in
fully diluted earnings per share computation:
Net earnings (loss) $28,517 $(19,985)
Dividends on Preferred Stock - (3,107)
Premium on conversion of Preferred Stock - (503)
------- --------
Net earnings (loss), as adjusted $28,517 $(23,595)
======= ========
Weighted average number of shares outstanding used in
fully diluted earnings (loss) per share computation:
Weighted average number of shares 50,396 47,112
Shares issuable from assumed conversion of
Preferred Stock 11,111 -
Net shares issuable from assumed exercise of warrants
and options, as determined by the application
of the Modified Treasury Stock Method 9,335 -
------- --------
70,842 47,112
======= ========
Fully diluted earnings (loss) per share (b) $ 0.40 $ (0.50)
======= ========
ADDITIONAL FULLY DILUTED EARNINGS (LOSS) PER SHARE
COMPUTATION (c)
Net earnings (loss) as per fully diluted computation above $28,517 $(23,595)
Dividends on Preferred Stock - 3,107
Interest on borrowings, net of tax effect,
on application of assumed proceeds from
exercise of warrants and options in excess of
20% limitation (a) - 123
Interest on convertible subordinated debentures, net of tax effect (a) 99 118
------- --------
Net earnings (loss), as adjusted $28,616 $(20,247)
======= ========
Weighted average number of shares outstanding,
as per fully diluted computation above 70,842 47,112
Shares issuable from assumed conversion of
Preferred Stock - 13,696
Net shares issuable from assumed exercise of warrants
and options, as determined by the application
of the Modified Treasury Stock Method - 5,726
Shares issuable from assumed exercise of convertible subordinated debentures 15 15
------- --------
Weighted average number of shares outstanding, as adjusted 70,857 66,549
======= ========
Fully diluted earnings (loss) per share, as adjusted $ 0.40 $ (0.30)
======= ========
</TABLE>
- - ----------------
(a) Adjustments to earnings have been shown net of tax effects which were
calculated at the Company's effective tax rates.
(b) These figures agree with the related amounts in the statement of
operations.
(c) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive effect.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 246,257
<INT-BEARING-DEPOSITS> 2,788
<FED-FUNDS-SOLD> 585,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,252,217
<INVESTMENTS-CARRYING> 1,111,413
<INVESTMENTS-MARKET> 1,122,772
<LOANS> 12,082,618
<ALLOWANCE> 158,597
<TOTAL-ASSETS> 16,432,304
<DEPOSITS> 9,338,941
<SHORT-TERM> 4,351,775
<LIABILITIES-OTHER> 297,931
<LONG-TERM> 1,400,079
4,622
0
<COMMON> 50,456
<OTHER-SE> 988,500
<TOTAL-LIABILITIES-AND-EQUITY> 16,432,304
<INTEREST-LOAN> 235,801
<INTEREST-INVEST> 55,285
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 291,086
<INTEREST-DEPOSIT> 101,515
<INTEREST-EXPENSE> 184,935
<INTEREST-INCOME-NET> 106,151
<LOAN-LOSSES> 3,097
<SECURITIES-GAINS> 243
<EXPENSE-OTHER> 78,134
<INCOME-PRETAX> 50,031
<INCOME-PRE-EXTRAORDINARY> 50,031
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,517
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 2.78
<LOANS-NON> 129,911
<LOANS-PAST> 0
<LOANS-TROUBLED> 33,251
<LOANS-PROBLEM> 43,576
<ALLOWANCE-OPEN> 163,759
<CHARGE-OFFS> 9,317
<RECOVERIES> 1,058
<ALLOWANCE-CLOSE> 158,597
<ALLOWANCE-DOMESTIC> 158,597
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99A
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
MATURITY AND RATE SENSITIVITY ANALYSIS
(dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Maturity/Rate Sensitivity
----------------------------------------
Total % of Within Over 6 to 12 1-5 Over 5
At September 30, 1997 Balance Total 6 Months Months Years Years
- - --------------------- ------- ------ -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets (1):
Loans receivable:
Single-family 1-4 units (2)(3) $ 9,092 57.8% $3,972 $ 1,590 $2,822 $ 708
Multi-family and non-residential (2)(3) 2,867 18.2% 2,568 91 130 78
Consumer and commercial (3) 335 2.2% 305 3 26 1
-----------------------
Mortgage-backed securities (2)(3) 2,310 14.7% 1,435 308 395 172
Investment securities (4) 612 3.9% 612 - - -
Other assets (5) 510 3.2% 264 - - 246
------- ------ ------ ------- ------ ------
Total interest-earning assets 15,726 100.0% 9,156 1,992 3,373 1,205
====== ------ ------- ------ ------
Non-interest-earning assets 706
-------
Total assets $16,432
=======
Interest-bearing Liabilities:
Deposits:
Checking (6) $ 1,333 8.8% 119 108 581 525
Savings (6) 442 2.9% 32 30 172 208
Money market (6) 2,151 14.3% 377 311 1,150 313
Certificates (4) 5,413 35.9% 1,771 2,683 958 1
Borrowings:
FHLB (4) 4,584 30.4% 2,338 846 1,400 -
Other (4) 1,168 7.7% 1,168 - - -
------- ------ ------ ------- ------ ------
Total interest-bearing liabilities 15,091 100.0% 5,805 3,978 4,261 1,047
====== ------ ------- ------ ------
Non-interest-bearing liabilities 298
-------
Total liabilities 15,389
Stockholders' equity 1,043
-------
Total liabilities and stockholders' equity $16,432
=======
Maturity GAP 3,351 (1,986) (888) 158
Impact of interest rate swaps (7) - - - -
------ ------- ------ ------
Adjusted GAP $3,351 $(1,986) $ (888) $ 158
Cumulative GAP $3,351 $ 1,365 $ 477 $ 635
As % of total assets 20.4% 8.3% 2.9% 3.9%
June 30, 1997 Cumulative GAP $1,924 $ 2,358 $ 631 $ 600
As % of total assets 11.9% 14.5% 3.9% 3.7%
</TABLE>
-------
(1) Asset balances are net of loans in process.
(2) ARM loans are predominantly included in the "within 6 months" and "over 6
to 12 months" categories, as they are subject to an interest adjustment
every month, six months, or twelve months, depending upon terms of the
applicable note.
(3) Maturity/rate sensitivity is based upon contractual maturity, projected
repayments and prepayments of principal. The prepayment experience
reflected herein is based on the Company's historical experience. The
Company's average Constant Prepayment Rate ("CPR") is 18.1% and 19.3% on
its fixed-rate and adjustable-rate portfolios, respectively. The actual
maturity and rate sensitivity of these assets could vary substantially if
future prepayments differ from the Company's historical experience.
(4) Based on the contractual maturity of the instrument.
(5) Includes cash and demand deposits and FHLB stock, the latter earning a
rate of return that varies quarterly.
(6) In accordance with standard industry practice and the Company's own
historical experience, a decay factor, used to estimate deposit runoff, of
41.5% (CPR) per year has been applied to these deposits.
(7) No interest rate swaps were outstanding at September 30, 1997.
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
INTEREST RATE MARGIN
(unaudited) EXHIBIT 99B
<TABLE>
<CAPTION>
As of
-----------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
1997 1997 1997 1996 1996
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average rate:
Loans receivable, net 7.79% 7.73% 7.68% 7.68% 7.64%
Mortgage-backed securities, net 6.76% 6.78% 6.73% 6.77% 6.69%
--------- -------- --------- -------- ---------
Total loans and MBS 7.62% 7.58% 7.52% 7.52% 7.49%
Federal funds sold and assets purchased
under resale agreements 6.61% 6.49% 5.66% 6.67% 6.06%
Other investments 7.46% 8.41% 8.51% 8.37% 8.95%
--------- -------- --------- -------- ---------
Total investments 6.89% 7.10% 6.51% 7.27% 6.82%
--------- -------- --------- -------- ---------
Total loans, MBS and investments 7.58% 7.55% 7.46% 7.51% 7.45%
========= ======== ========= ======== =========
Weighted average rate:
Deposits - daily access 2.69% 2.76% 2.88% 3.01% 3.01%
Deposits - certificates 5.46% 5.46% 5.47% 5.47% 5.44%
--------- -------- --------- -------- ---------
Total deposits 4.30% 4.37% 4.48% 4.56% 4.57%
Securities sold under agreements to repurchase 5.65% 5.66% 0.00% 5.69% 5.46%
FHLB borrowings 5.67% 5.72% 5.66% 5.72% 5.66%
Other borrowings 8.75% 7.78% 7.76% 7.76% 7.63%
--------- -------- --------- -------- ---------
Total borrowings 5.66% 5.72% 5.66% 5.72% 5.64%
--------- -------- --------- -------- ---------
Total deposits and borrowings 4.82% 4.87% 4.90% 4.99% 4.96%
========= ======== ========= ======== =========
Interest rate spread 2.76% 2.68% 2.56% 2.52% 2.49%
========= ======== ========= ======== =========
Adjusted Interest Rate Spread 2.88% 2.79% 2.73% 2.67% 2.66%
========= ======== ========= ======== =========
<CAPTION>
Quarter Ended
----------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
1997 1997 1997 1996 1996
--------- -------- --------- -------- ---------
Weighted average yield:
<S> <C> <C> <C> <C> <C>
Loans receivable, net 7.70% 7.62% 7.61% 7.60% 7.57%
Mortgage-backed securities, net 6.67% 6.71% 6.63% 6.73% 6.59%
--------- -------- --------- -------- ---------
Total loans and MBS 7.54% 7.47% 7.44% 7.45% 7.41%
Federal funds sold and assets purchased
under resale agreements 5.85% 5.79% 5.55% 5.52% 5.54%
Other investments 10.33% 8.21% 9.18% 8.77% 9.63%
--------- -------- --------- -------- ---------
Total investments 7.26% 6.60% 6.56% 6.43% 6.65%
--------- -------- --------- -------- ---------
Total loans, MBS and investments 7.52% 7.42% 7.37% 7.39% 7.36%
========= ======== ========= ======== =========
Weighted average cost:
Deposits - daily access 2.72% 2.72% 2.99% 3.01% 3.00%
Deposits - certificates 5.45% 5.47% 5.49% 5.47% 5.47%
--------- -------- --------- -------- ---------
Total deposits 4.33% 4.40% 4.54% 4.56% 4.60%
Securities sold under agreements to repurchase 5.66% 5.65% 5.55% 5.61% 5.46%
FHLB borrowings 5.75% 5.78% 5.67% 5.66% 5.77%
Other borrowings 3.73% 3.84% 3.86% 3.24% 3.42%
--------- -------- --------- -------- ---------
Total borrowings 5.71% 5.75% 5.66% 5.63% 5.71%
--------- -------- --------- -------- ---------
Total deposits and borrowings 4.86% 4.89% 4.94% 4.95% 4.99%
========= ======== ========= ======== =========
Yield-cost spread 2.66% 2.53% 2.43% 2.44% 2.37%
========= ======== ========= ======== =========
Effective Net Spread /1/ 2.78% 2.67% 2.59% 2.61% 2.56%
========= ======== ========= ======== =========
</TABLE>
/1/ The effective net spread for a period is net interest income during the
period divided by average interest-earning assets during the period. The
adjusted interest rate spread as of a particular date is net interest
income annualized at the rates in effect on such date divided by the
balance of interest earning assets as of such date.
<PAGE>
EXHIBIT 99C
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
LOAN ORIGINATIONS BY TYPE
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Real Estate
-------------------------------------------------------
Convertible/ Call Construction/
Quarter Ended Fixed ARM Date Fixed Tract Consumer Commercial Total (1)
- - -------------- --------- ------- ------ -------- ------------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sept. 30, 1997 $64,062 $37,256 $4,432 $177,237 $ - $3,019 $15,831 $301,837
21% 12% 2% 59% 0% 1% 5% 100%
June 30, 1997 $90,056 $33,752 $6,888 $128,591 $ - $2,658 $17,274 $279,219
32% 12% 3% 46% 0% 1% 6% 100%
Mar. 31, 1997 $42,262 $25,206 $4,637 $72,900 $ - $3,873 $4,808 $153,686
28% 16% 3% 47% 0% 3% 3% 100%
Dec. 31, 1996 $35,390 $61,404 $10,789 $71,224 $ 600 $5,314 $1,347 $186,068
19% 33% 6% 38% 0% 3% 1% 100%
Sept. 30, 1996 $20,616 $104,616 $5,449 $51,109 $6,180 $4,255 $6,675 $198,900
10% 53% 3% 26% 3% 2% 3% 100%
</TABLE>
- - ----------
(1) Includes refinanced portion of the Company's loans, which amounted to
$49,461, $24,399, $20,203, $22,075 and $19,889 for the quarters ended
September 30, 1997, June 30, 1997, March 31, 1997, December 31, 1996, and
September 30, 1996, respectively.
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES AND EXHIBIT 99D
NON-PERFORMING ASSETS ("NPA")
At September 30, 1997
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Allowance for
Loan Losses Allowance for NPA
Gross Allowance As a % of Loan Losses As a % of Allowance for
Loan for Gross Loan Non- As a % of Gross Loan Loan Losses
Portfolio Loan Portfolio Accrual Non-Accrual Portfolio As a % of
Property Type Balance Losses Balance Loans Loans NPA Balance NPA
- - ------------- ---------- -------- ------------- -------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family
1-4 units $ 9,091,337 $ 45,672 0.50% $ 85,787 53.24% $113,201 1.25% 40.35%
Multi-family:
5-36 units 1,453,674 39,887 2.74% 14,484 275.39% 23,632 1.63% 168.78%
37 or more units 347,409 14,760 4.25% 1,503 982.04% 1,503 0.43% 982.04%
Non-residential 1,067,392 38,229 3.58% 25,186 151.79% 48,962 4.59% 78.08%
Commercial 213,155 6,687 3.14% 2,169 308.30% 2,169 1.02% 308.30%
Consumer 123,629 13,362 10.81% 782 1708.70% 782 0.63% 1708.70%
----------- -------- -------- --------
$12,296,596 $158,597 1.29% $129,911 122.08% $190,249 1.55% 83.36%
=========== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 99E
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
GROSS LOANS, NON-PERFORMING ASSETS ("NPA")
AND RESTRUCTURED LOANS ("TDR") BY PROPERTY TYPE
At September 30, 1997
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Non-
Gross Accrual REO and Total Restructured
Property Type Loans Loans Other Assets NPA Loans
- - ------------- --------- ----------- ---------------- ------- --------------
<S> <C> <C> <C> <C> <C>
Single-family
1-4 units $ 9,091,337 $ 85,787 $27,414 $ 113,201 $ 1,934
Multi-family:
5-36 units 1,453,674 14,484 9,148 23,632 2,362
37 or more units 347,409 1,503 - 1,503 21,372
Non-residential:
Office buildings 365,518 6,013 1,934 7,947 4,470
Shopping centers 331,804 15,952 4,437 20,389 748
Warehouse/storage 81,186 631 - 631 -
Hotels/motels 25,357 852 3,374 4,226 -
Industrial parks 93,414 - 402 402 1,849
Land 10,590 - 13,629 13,629 516
Commercial/
industrial 159,523 1,738 - 1,738 -
----------- -------- --------- ---------- ---------
Total non-residential 1,067,392 25,186 23,776 48,962 7,583
Commercial 213,155 2,169 - 2,169 -
Consumer 123,629 782 - 782 -
---------- ------- --------- ----------- ---------
Total $12,296,596 $129,911 $60,338 $ 190,249 $33,251
=========== ======== ========= =========== =========
</TABLE>
<PAGE>
EXHIBIT 99F
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NON-PERFORMING ASSETS AND RESTRUCTURED LOANS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30
1997 1997 1997 1996 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances:
Non-accrual loans $129,911 $140,295 $153,402 $152,100 $171,465
Real estate owned and other assets 60,338 64,663 71,371 72,634 83,513
-------- -------- -------- -------- --------
Total non-performing assets $190,249 $204,958 $224,773 $224,734 $254,978
======== ======== ======== ======== ========
Restructured loans $ 33,251 $ 31,064 $ 31,342 $ 30,712 $ 11,527
======== ======== ======== ======== ========
Percent of total assets:
Non-accrual loans 0.79% 0.86% 1.00% 1.01% 1.14%
Real estate owned and other assets 0.37% 0.40% 0.46% 0.48% 0.55%
-------- -------- -------- -------- --------
Total non-performing assets 1.16% 1.26% 1.46% 1.49% 1.69%
======== ======== ======== ======== ========
Restructured loans 0.20% 0.19% 0.20% 0.20% 0.08%
======== ======== ======== ======== ========
</TABLE>
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES EXHIBIT 99G
NON-PERFORMING ASSETS ACTIVITY
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30,
1997 1997 1997 1996 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 204,958 $ 224,773 $ 224,734 $ 254,978 $ 274,649
Additions:
Single-family 1-4 units 40,011 41,144 52,103 54,427 48,065
Multi-family:
5 to 36 units 4,829 9,492 9,911 20,390 12,517
37 or more units - 4,292 - - 3,912
Non-residential 7,228 10,002 21,538 3,600 2,863
Commercial 2,460 1,643 458 - 12
Consumer 52 1,161 71 142 -
----------- ----------- ----------- ----------- -----------
54,580 67,734 84,081 78,559 67,369
----------- ----------- ----------- ----------- -----------
Deletions:
Foreclosures:
Single-family 1-4 units (3,748) (5,776) (8,692) (5,476) (7,582)
Multi-family:
5 to 36 units (2,203) (603) (1,704) (2,280) (796)
37 or more units - (21) (555) (5) 468
Non-residential (77) 3 (208) 466 (1,378)
----------- ----------- ----------- ----------- -----------
(6,028) (6,397) (11,159) (7,295) (9,288)
----------- ----------- ----------- ----------- -----------
Write-downs:
Single-family 1-4 units (551) - (2,750) (734) (571)
Multi-family:
5 to 36 units (232) (766) (950) (606) (1,548)
37 or more units - - (246) (754) (2,369)
Non-residential (745) (1,229) (120) (877) (263)
Commercial (2) - - - (28)
----------- ----------- ----------- ----------- -----------
(1,530) (1,995) (4,066) (2,971) (4,779)
----------- ----------- ----------- ----------- -----------
Reinstatements:
Single-family 1-4 units (11,287) (11,754) (18,372) (17,065) (14,407)
Multi-family:
5 to 36 units (2,018) (3,309) (5,679) (1,116) (1,689)
37 or more units - (3,463) (503) - -
Non-residential (1,731) - (559) (118) (269)
Commercial (1,512) - - - -
----------- ----------- ----------- ----------- -----------
(16,548) (18,526) (25,113) (18,299) (16,365)
----------- ----------- ----------- ----------- -----------
Payoffs/Sales/Other:
Single-family 1-4 units (28,329) (35,948) (27,998) (41,730) (39,450)
Multi-family:
5 to 36 units (6,245) (7,477) (8,905) (22,011) (8,161)
37 or more units (3,551) (8,982) (219) (4,877) (912)
Non-residential (6,554) (7,229) (6,129) (11,316) (7,689)
Commercial 364 (799) (452) (3) 6
Consumer (868) (196) (1) (301) (402)
----------- ----------- ----------- ----------- -----------
(45,183) (60,631) (43,704) (80,238) (56,608)
----------- ----------- ----------- ----------- -----------
Ending Balance $ 190,249 $ 204,958 $ 224,773 $ 224,734 $ 254,978
=========== =========== =========== =========== ===========
Net (Increase) Decrease $ 14,709 $ 19,815 $ (39) $ 30,244 $ 19,671
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
DELINQUENT LOANS BY PROPERTY TYPE EXHIBIT 99H
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
% OF TYPE OF % OF TYPE OF % OF TYPE OF % OF TYPE OF
GROSS GROSS GROSS GROSS
SEPT. 30, LOANS JUNE 30, LOANS MAR. 31, LOANS DEC. 31, LOANS
1997 RECEIVABLE 1997 RECEIVABLE 1997 RECEIVABLE 1996 RECEIVABLE
-------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family 1-4 units:
31 - 60 Days $ 47,820 0.53% $ 46,172 0.52% $ 52,181 0.63% $ 52,280 0.65%
61 - 90 Days 18,315 0.20% 17,030 0.19% 18,035 0.22% 22,787 0.28%
Over 90 Days 85,787 0.94% 82,989 0.95% 93,111 1.12% 100,006 1.23%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
151,922 1.67% 146,191 1.66% 163,327 1.97% 175,073 2.16%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Multi-family 5-36 units:
31 - 60 Days 8,452 0.58% 8,944 0.61% 11,351 0.76% 10,507 0.69%
61 - 90 Days 5,551 0.38% 3,021 0.20% 4,105 0.27% 4,932 0.33%
Over 90 Days 11,118 0.77% 17,713 1.20% 17,405 1.16% 21,009 1.39%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
25,121 1.73% 29,678 2.01% 32,861 2.19% 36,448 2.41%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Multi-family 37 or more units:
31 - 60 Days ---- ---- 1,312 0.38% ---- ---- 1,887 0.50%
61 - 90 Days ---- ---- ---- ---- 1,478 0.41% 988 0.26%
Over 90 Days 1,503 0.43% ---- ---- 4,470 1.23% 10,917 2.90%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
1,503 0.43% 1,312 0.38% 5,948 1.64% 13,792 3.66%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Non-residential:
31 - 60 Days 7,340 0.69% 11,240 0.93% 12,226 1.02% 8,827 0.71%
61 - 90 Days 5,035 0.47% 3,079 0.26% 2,422 0.20% 18 ----
Over 90 Days 9,281 0.87% 14,149 1.17% 12,660 1.05% 12,262 0.99%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
21,656 2.03% 28,468 2.36% 27,308 2.27% 21,107 1.70%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Commercial:
31 - 60 Days 8,515 4.00% 3,235 2.02% 929 1.26% 2 ----
61 - 90 Days 2,374 1.11% 1,935 1.21% ---- ---- ---- ----
Over 90 Days 1,853 0.87% 726 0.45% 6 0.01% ---- ----
-------- ---------- -------- ---------- -------- ---------- -------- ----------
12,742 5.98% 5,896 3.68% 935 1.27% 2 ----
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Consumer:
31 - 60 Days 1,020 0.83% 1,560 1.29% 2,462 2.73% 1,517 1.85%
61 - 90 Days 559 0.45% 624 0.52% 769 0.85% 521 0.63%
Over 90 Days 782 0.63% 1,562 1.29% 409 0.45% 512 0.62%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
2,361 1.91% 3,746 3.10% 3,640 4.03% 2,550 3.10%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
Total:
31 - 60 Days 73,147 0.59% 72,463 0.60% 79,149 0.69% 75,020 0.66%
61 - 90 Days 31,834 0.26% 25,689 0.21% 26,809 0.23% 29,246 0.26%
Over 90 Days 110,324 0.90% 117,139 0.96% 128,061 1.11% 144,706 1.27%
-------- ---------- -------- ---------- -------- ---------- -------- ----------
$215,305 1.75% $215,291 1.77% $234,019 2.03% $248,972 2.19%
======== ========== ======== ========== ======== ========== ======== ==========
<CAPTION>
% OF TYPE OF
GROSS
SEPT. 30, LOANS
1996 RECEIVABLE
--------- ----------
<S> <C> <C>
Single-family 1-4 units:
31 - 60 Days $ 51,442 0.63%
61 - 90 Days 28,023 0.35%
Over 90 Days 107,263 1.32%
-------- ----------
186,728 2.30%
-------- ----------
Multi-family 5-36 units:
31 - 60 Days 13,629 0.88%
61 - 90 Days 5,619 0.36%
Over 90 Days 27,391 1.78%
-------- ----------
46,639 3.02%
-------- ----------
Multi-family 37 or more units:
31 - 60 Days ---- ----
61 - 90 Days ---- ----
Over 90 Days 12,755 3.30%
-------- ----------
12,755 3.30%
-------- ----------
Non-residential:
31 - 60 Days 12,579 0.97%
61 - 90 Days 607 0.05%
Over 90 Days 14,840 1.14%
-------- ----------
28,026 2.16%
-------- ----------
Commercial:
31 - 60 Days 16 0.09%
61 - 90 Days ---- ----
Over 90 Days 12 0.06%
-------- ----------
28 0.15%
-------- ----------
Consumer:
31 - 60 Days 1,480 2.00%
61 - 90 Days 448 0.60%
Over 90 Days 657 0.89%
-------- ----------
2,585 3.49%
-------- ----------
Total:
31 - 60 Days 79,146 0.69%
61 - 90 Days 34,697 0.30%
Over 90 Days 162,918 1.43%
-------- ----------
$276,761 2.42%
======== ==========
</TABLE>
