<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 December 31, 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
December 31, 1997 was 51,023,321.
================================================================================
<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 -
DECEMBER 31, 1997 AND JUNE 30, 1997.......................... 1
CONSOLIDATED STATEMENTS OF OPERATIONS -
THREE AND SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996........ 2
CONSOLIDATED STATEMENTS OF CASH FLOWS -
SIX MONTHS ENDED DECEMBER 31, 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........................................ 29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 29
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K......................... 30
</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>
December 31, June 30,
1997 1997
---------------- ---------------
<S> <C> <C>
ASSETS
Cash and amounts due from banks $ 305,766 $ 221,557
Federal funds sold and assets purchased under resale agreements 505,000 632,000
Certificates of deposit -- substantially restricted 2,796 4,005
Other debt and equity securities available for sale, at fair value 24,338 27,794
Mortgage-backed securities held to maturity, at amortized cost
(fair value: $1,039,664 at December 31, 1997 and
$1,166,941 at June 30, 1997) 1,052,969 1,162,825
Mortgage-backed securities available for sale, at fair value 1,270,974 1,116,709
Loans receivable, net of allowance for loan losses of $155,374 at
December 31, 1997 and $163,759 at June 30, 1997 11,704,403 11,886,090
Loans held for sale, at lower of cost or market 30,158 19,003
Real estate held for sale or investment 6,324 8,689
Real estate acquired in settlement of loans 45,319 61,500
Interest receivable 100,430 102,940
Investment in capital stock of Federal Home Loan Bank, at cost 267,793 259,587
Premises and equipment, at cost, less accumulated depreciation 140,571 134,936
Mortgage servicing assets 261,171 284,472
Goodwill and other intangible assets, less accumulated amortization 94,511 99,533
Other assets 216,593 196,619
----------- -----------
$16,029,116 $16,218,259
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 9,543,338 $ 9,356,909
Securities sold under agreements to repurchase 817,374 768,682
Borrowings from the Federal Home Loan Bank 4,324,000 4,788,000
Other borrowings 76 10,782
Other liabilities and accrued expenses 198,890 221,540
Income taxes payable 62,367 60,272
----------- -----------
Total liabilities 14,946,045 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 December 31, 1997 and June 30, 1997) 4,622 4,622
Common stock, $1.00 par value per share
(100,000,000 shares authorized; 51,023,321 shares issued
and outstanding at December 31, 1997; 50,348,509
shares issued and outstanding at June 30, 1997) 51,023 50,349
Additional paid-in capital 808,042 793,111
Net unrealized holding gain (loss) on debt and equity
securities available for sale 1,865 (1,154)
Retained earnings-substantially restricted 217,519 165,146
----------- -----------
Total stockholders' equity 1,083,071 1,012,074
----------- -----------
$16,029,116 $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 Six Months Ended
December 31, December 31,
---------------------- ---------------------
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $232,697 $214,815 $468,498 $425,002
Mortgage-backed securities 38,033 37,448 76,097 73,801
Investments 14,503 15,322 31,724 29,451
-------- -------- -------- --------
Total interest income 285,233 267,585 576,319 528,254
-------- -------- -------- --------
Interest expense:
Deposits 101,705 101,628 203,220 203,324
Short-term borrowings 13,521 3,254 28,745 13,067
Other borrowings 63,333 69,471 131,529 129,268
-------- -------- -------- --------
Total interest expense 178,559 174,353 363,494 345,659
-------- -------- -------- --------
Net interest income 106,674 93,232 212,825 182,595
Provision for loan losses (1,103) 7,829 1,994 15,183
-------- -------- -------- --------
Net interest income after provision for
loan losses 107,777 85,403 210,831 167,412
Other income:
Loan servicing income, net 8,263 8,823 17,064 17,124
Other fees and service charges 16,686 13,573 32,655 26,424
Loss on sale of loans, net (140) (30) (191) (119)
Gain (loss) on sale of mortgage-backed securities
available for sale, net (111) (1,318) 132 (1,446)
Other income, net 1,284 151 1,433 278
-------- -------- -------- --------
Total other income 25,982 21,199 51,093 42,261
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits 32,930 27,527 65,517 55,095
Occupancy expense, net 8,566 7,781 17,328 15,637
Advertising and promotion 5,519 5,568 11,382 13,090
Regulatory insurance 1,902 4,995 3,828 11,196
Furniture, fixtures and equipment 3,516 2,958 6,969 5,905
Stationery, supplies and postage 3,346 2,725 6,735 5,467
Other general and administrative expenses 16,782 11,915 31,748 25,653
-------- -------- -------- --------
Total general and administrative expenses 72,561 63,469 143,507 132,043
SAIF special assessment - - - 58,672
Legal expense - goodwill lawsuit 5,258 4,931 9,977 5,518
Acquisition and restructuring costs 2,487 - 2,487 -
Operations of real estate held for sale or investment 26 290 (710) 612
Operations of real estate acquired in settlement of loans 63 2,504 1,218 3,820
Amortization of goodwill and other intangible assets 2,049 1,286 4,099 2,573
-------- -------- -------- --------
Total other expenses 82,444 72,480 160,578 203,238
-------- -------- -------- --------
Earnings before income tax provision 51,315 34,122 101,346 6,435
Income tax provision 22,404 10,900 43,918 3,198
-------- -------- -------- --------
Net earnings $ 28,911 $ 23,222 $ 57,428 $ 3,237
======== ======== ======== ========
Earnings (loss) applicable to common shareholders:
Net earnings $ 28,911 $ 23,222 $ 57,428 $ 3,237
Dividends declared on preferred stock (2,527) (2,679) (5,055) (5,786)
Premium on exchange of preferred stock for common stock - (3,429) - (3,932)
-------- -------- -------- --------
$ 26,384 $ 17,114 $ 52,373 $ (6,481)
======== ======== ======== ========
Earnings (loss) per share:
Basic $ 0.52 $ 0.35 $ 1.03 $(0.14)
Diluted $ 0.41 $ 0.30 $ 0.82 $(0.14)
</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>
Six Months Ended December 31
------------------------------------
1997 1996
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $57,428 $3,237
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Amortization of discounts and accretion of premiums, net 4,727 5,303
Accretion of deferred loan fees (1,772) (2,481)
Provision for loan losses 1,994 15,183
Loss on sale of loans, net 191 119
(Gain) loss on sale of mortgage-backed securities
available for sale, net (132) 1,446
Depreciation 7,742 7,343
Amortization of mortgage servicing assets 23,616 13,363
Provision for losses on real estate 3,382 4,641
Gain on sale of real estate (5,271) (4,264)
Amortization of goodwill and other intangible assets 4,099 2,573
Provision for deferred income taxes 1,024 5,849
Net change in loans originated or purchased for resale 34,840 22,998
Decrease (increase) in interest receivable 2,510 (4,957)
FHLB stock dividend received (8,206) (6,006)
(Increase) decrease in other assets (18,779) 313
(Decrease) increase in other liabilities (1,855) 15,751
Other items 2,040 (5,710)
------------- -----------
Total adjustments 50,150 71,464
------------- -----------
Net cash provided by operating activities 107,578 74,701
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificates of deposit with original maturities
of 3 months or less 3,209 (1,014)
Net change in other debt and equity securities with original maturities
of 3 months or less 898 991
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 -- 7,810
Proceeds from maturities of other debt and equity securities
available for sale 3,000 --
Principal payments on mortgage-backed securities held to maturity 108,486 97,361
Purchase of mortgage-backed securities available for sale (329,115) (327,656)
Principal payments on mortgage-backed securities available for sale 175,240 134,324
Loans originated for investment, net of refinances (365,664) (277,924)
Loans purchased for investment (779,760) (1,067,473)
Net change in undisbursed loan funds (1,353) (4,146)
Principal payments on loans held for investment 1,253,490 884,122
Cash invested in real estate (8,663) (7,323)
Cash received from real estate investments and sale of real estate
acquired in settlement of loans 56,666 49,726
Purchase of FHLB stock -- (53,052)
Net increase in premises and equipment (13,377) (8,157)
Purchase of mortgage servicing assets (12,696) (78,313)
-------------- -----------
Net cash provided (used) by investing actitivities 88,220 (653,724)
-------------- -----------
</TABLE>
Statement continued on next page
3
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended December 31
------------------------------------
1997 1996
------------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $186,429 $ 56,005
Net change in short-term borrowings with original maturities of
3 months or less 48,692 (608,246)
Proceeds from fundings of FHLB advances 2,924,000 2,300,000
Repayments of FHLB advances (3,388,000) (1,100,000)
Repayment of other borrowings (10,706) (2,482)
Proceeds from issuance of common stock 6,051 2,073
Payment of dividends on preferred stock (5,055) (6,621)
-------------- -----------
Net cash (used) provided by financing activities (238,589) 640,729
-------------- -----------
Net (decrease) increase in cash and cash equivalents (42,791) 61,706
Cash and cash equivalents at beginning of period 853,557 586,608
-------------- -----------
Cash and cash equivalents at end of period $810,766 $648,314
============= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 ("Glendale Federal" or the "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
December 31, 1997 and June 30, 1997, the results of its operations for the three
and six months ended December 31, 1997 and 1996 and its cash flows for the six
months ended December 31, 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 December 31, 1997 and June
30, 1997. Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the December 31, 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, mortgage servicing asset valuation
allowance 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>
Six months ended December 31
-------------------------------
1997 1996
-------------- -----------
<S> <C> <C>
Cash paid for:
Interest $365,491 $358,968
Income taxes 34,201 6,140
Non-cash investing and financing activities:
Principal reductions to loans due to foreclosure 58,172 72,462
Loans exchanged for mortgage-backed securities 41,025 25,056
Loans made to facilitate the sale of real estate
held for investment and real estate acquired in settlement of loans 21,192 34,831
Exchange of preferred stock for common stock - 1,120
Issuance of common stock in exchange for preferred stock - 2,896
Transfer of other debt and equity securities to available for sale - 7,100
Transfers of loans from held for investment to held for sale:
Liquidation of troubled credits 30,167 4,410
Other 17,062 -
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
DECEMBER 31, 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 six months ended December 31, 1997, the Company received income
tax refunds of $144,000.
NOTE (3) - EARNINGS (LOSS) PER SHARE INFORMATION
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128"). SFAS 128 simplifies the standards found in Accounting Principles
Board Opinion No. 15 ("APB 15") for computing earnings per share ("EPS") and
makes them comparable to international standards.
Basic EPS, which replaces primary EPS required by APB 15, is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted EPS, which replaces fully
diluted EPS required by APB 15, gives effect to all dilutive potential common
shares that were outstanding during the period, regardless of when the dilutive
securities must be exercised, converted or issued. Under APB 15 only dilutive
securities with conversion privileges taking effect within 10 years from the end
of the fiscal period were considered in the computation of fully diluted EPS.
SFAS 128 retains APB 15's treasury stock method and the "if converted"
method for convertible securities in the computation of diluted EPS. Both
methods assume the conversion of a security at the beginning of the earliest
period reported or at the date of issue, if later. However, under SFAS 128, the
number of common shares assumed repurchased on the exercise of warrants or
options is no longer capped at 20% of the already outstanding common stock. In
a departure from APB 15, SFAS 128 requires the use of the average market price
of the common stock during the period when calculating diluted EPS, rather than
the higher of the average or closing price of the period.
SFAS 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Golden State adopted SFAS 128 effective
December 31, 1997 and accordingly restated prior period EPS data.
The table in Exhibit 11.1 presents the calculation of earnings (loss) per
share on a basic and diluted basis for the three and six months ended December
31,1997 and 1996, respectively.
There were no exchanges of preferred stock for common stock during the
three and six months ended December 31, 1997. During the three and six months
ended December 31, 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 977,000 shares and 1.1
million shares, respectively, of the preferred stock for 2.5 million shares and
2.9 million shares, respectively, 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 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
earnings to arrive at the net earnings (loss) applicable to common shareholders
in the calculation of earnings (loss) per share.
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 $28.9 million, or $0.41 per diluted
share, for the three months ended December 31, 1997, compared to net earnings of
$23.2 million, or $0.30 per diluted share, for the same period last year. For
the six months ended December 31, 1997, the Company recorded net earnings of
$57.4 million, or $0.82 per diluted share, compared to net earnings of $3.2
million for the same period last year. In the calculation of per share results,
dividends on preferred stock and premiums paid on preferred stock conversions
are subtracted from net earnings. Accordingly, the per share result for the six
months ended December 31, 1996 was a loss of $0.14 per diluted share.
Net earnings for the quarter ended December 31, 1997 included legal
expenses for the Company's goodwill litigation of $5.3 million ($3.0 million
after-tax), and acquisition and restructuring charges of $2.5 million ($1.9
million after-tax) related to the pending acquisition of CENFED Financial
Corporation and the distribution of the Litigation Tracking Warrants(TM).
Net earnings for the six months ended December 31, 1997 included legal expenses
for the Company's goodwill litigation of $10.0 million ($5.8 million after-tax),
and the aforementioned acquisition and restructuring charges of $2.5 million
($1.9 million after-tax). See "Goodwill Litigation Tracking Warrants(TM)",
"Acquisitions" and "Results of Operations--Legal Expenses--Goodwill Lawsuit" for
additional information.
Net earnings for the quarter ended December 31, 1996 included legal
expenses for the Company's goodwill litigation of $4.9 million ($2.8 million
after-tax). Net earnings for the six months ended December 31, 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 $5.5 million ($3.2 million after-tax).
During the three and six months ended December 31, 1996, the Company
exchanged 977,000 shares and 1.1 million shares, respectively, of its preferred
stock for 2.5 million shares and 2.9 million shares, respectively, of Company
common stock. See Note 3 of the Notes to Consolidated Financial Statements for
additional information. There were no exchanges of preferred stock for common
stock during the three and six months ended December 31, 1997.
Excluding the after-tax impact of the non-recurring items mentioned above
and the effect of the preferred stock conversions during the three and six
months ended December 31, 1996, adjusted net earnings for the three and six
months ended December 31, 1997 were $33.8 million, or $0.48 per diluted share
and $65.1 million, or $0.93 per diluted share, respectively, compared to
adjusted net earnings during the comparable periods in fiscal 1997 of $26.1
million, or $0.39 per diluted share, and $40.1 million, or $0.61 per diluted
share, respectively.
The 30% and 62% improvement in adjusted net earnings during the three and
six months ended December 31, 1997, respectively, over the same periods in
fiscal 1997 reflects higher net interest income, lower credit-related costs, an
increase in 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 and the increase in the amortization of goodwill and other intangible
assets.
The Company's interest rate spread was 2.82% at December 31, 1997, as
compared with 2.52% at December 31, 1996 and 2.68% at June 30, 1997. The
Company's interest rate spread continued to improve in the first six months of
fiscal 1998 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 shift in the mix of deposits from higher-cost certificates of deposit
to
7
<PAGE>
lower-cost checking and other daily access accounts and the addition of lower-
costing checking and daily access accounts obtained in recent acquisitions.
Checking accounts comprised 15.9% of total deposits at December 31, 1997,
compared with 12.8% and 10.5%, at June 30, 1997 and December 31, 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.
GOODWILL LITIGATION TRACKING WARRANTS/TM/
On October 28, 1997, Golden State announced plans to distribute (the
"Distribution") Litigation Tracking Warrants/TM/ ("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 "Goodwill Litigation"). 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 85,700,000 LTW/TM/s would be
distributed, or reserved for distribution, in late April 1998 or early May 1998.
The distribution of the LTW/TM/s prior to becoming exercisable would not affect
Golden State's diluted shares outstanding as the amount of the proceeds and the
number of shares of common stock to be issued cannot be determined until the
LTW/TM/s become exercisable.
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 and amendments to certain terms of the Company's
noncumulative convertible preferred stock. The distribution of LTW/TM/s to
Golden State stockholders is a condition to completion of the Cal Fed Merger.
MERGER AGREEMENT WITH FIRST NATIONWIDE (PARENT) HOLDINGS INC.
On February 5, 1998, the Company and First Nationwide (Parent) Holdings
Inc. ("First Nationwide"), parent of California Federal Bank FSB, announced that
they had entered into an agreement to merge in a tax-free exchange of shares
(the "Cal Fed Merger"). After giving effect to the Cal Fed Merger, the resulting
company, which is expected to be named California Federal Bank FSB at the
operating level and Golden State Bancorp Inc. at the holding company level, will
be California's largest statewide community bank and fifth-largest depository
institution, with a 6.4% statewide deposit market share, and will be a leading
in-state provider of consumer, business and mortgage banking services. The
combined entity will be the third-largest thrift institution in the country,
with assets in excess of $51 billion, and will operate more than 400 branches
with $28 billion in deposits.
The transaction will take the form of a merger of First Nationwide into the
Company, with the Company being the surviving entity. The Company's stockholders
will own 55% to 58% of the combined entity. The terms of the Cal Fed Merger
provide that the Company's stockholders are to own 58% of the combined entity if
the adjusted volume-weighted average trading price (the "Adjusted Average
Price") of the Common Stock during a period preceding the close of the Cal Fed
Merger, but after the distribution of LTW/TM/s to Golden State stockholders (the
"Pricing Period"), is $32 per share or less, and are to own 55% of the combined
entity if the Adjusted Average Price is more than $33 per share, with
intermediate ownership percentages being applicable in the the event the
Adjusted Average Price is between $32 and $33. For purposes of determining the
Adjusted Average Price, the volume-weighted average price will be adjusted
downward by the implied market value per share of Common Stock of the Company's
retained interest in the Goodwill Litigation, as determined by the volume-
weighted average trading price of the LTW/TM/s, during the Pricing Period.
The remainder of the combined entity will be owned by the principal
shareholders of First Nationwide. Following the Cal Fed Merger, the Company will
have 130 to 140 million shares outstanding. Because the Company will survive
the Cal Fed Merger, LTW/TM/s outstanding immediately before the Cal Fed Merger
would be exercisable into stock of the Company after the Cal Fed Merger. The
Cal Fed Merger will not be a taxable event to LTW/TM/ holders. The Cal Fed
Merger is subject to regulatory approval and the approval of the stockholders of
both the Company and First Nationwide, as well as satisfaction or waiver of
other conditions, and is expected to close late in the September 1998 quarter.
At December 31, 1997, Cal Fed operated 225 branches and had $31.4 billion
in assets, including $20.9 billion in loans receivable, net and $16.2 billion in
deposits. On a pro-forma basis and including the effects of Golden State's
pending CENFED and Redfed mergers described below, as of December 31, 1997,
Golden State would have combined consolidated assets of $51.5 billion, including
$35.1 billion of loans receivable, net, $9.2 billion of mortgage-backed
securities, deposits of $28.1 billion, $18.8 billion of borrowings and 438
banking offices.
Acquisitions
On November 30, 1997, Golden State entered into a definitive agreement to
acquire Redfed Bancorp Inc. ("Redfed") and its federal savings bank subsidiary,
Redlands Federal Bank, in a tax-free, stock-for-stock merger. The agreement is
subject to regulatory and other approvals and is expected to close in the June
1998 quarter. This transaction which is valued at approximately $158 million
will be accounted for as a purchase business combination. Golden State will
issue shares of its common stock with a value of $20.75 for each outstanding
share of the common stock of Redfed. The exact number of shares of Golden State
common stock to be issued to holders of Redfed common stock will be determined
based on the average closing price of Golden State common stock for the ten
trading days prior to the second business day before the closing of the
transaction. Golden State intends to purchase shares of its common stock in the
open market in an amount equal to the amount that will be issued in the merger.
At December 31, 1997, Redfed operated 14 branches and had $1.0 billion in
assets, including $895 million of loans receivable, net, $16 million of
mortgage-backed securities, $845 million of deposits and $64 million of
borrowings.
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 March 1998 quarter. 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, which was
originally intended to be accounted for as a pooling of interests, will be
accounted for as a purchase business combination. At December 31, 1997, CENFED
operated 18 branches and had $2.2 billion in assets, including $1.5 billion of
loans receivable, net, $417 million of mortgage-backed securities, $1.6 billion
of deposits and $506 million of borrowings.
8
<PAGE>
CAPITAL
At December 31, 1997, the Company's tangible book value was $17.11 per
common share and $15.41 per diluted share. Glendale Federal's core capital,
Tier 1 risk-based capital and total risk-based capital ratios at December 31,
1997 were 6.10%, 11.01% and 12.18%, 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.
It is anticipated that Glendale Federal Bank will remain well-capitalized
after completion of the CENFED, Redfed and First Nationwide transactions.
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 decreased by $189.1 million, to
$16.0 billion, in the six months ended December 31, 1997, primarily because of
the principal payments on loans. If the current declining interest rate
environment prevails, the Company's balance sheet could shrink further
attributable to higher prepayments and the Company's inability to generate or
purchase interest-earning assets to be held in portfolio sufficient to offset
the runoff. A reduction in asset size and a corresponding decrease in interest-
earning assets could adversely impact earnings.
Consolidated liabilities of the Company decreased by $260.1 million, to
$14.9 billion, in the six months ended December 31, 1997. This was mainly
attributable to net maturities in borrowings from the FHLB of $464.0 million,
offset by an increase in deposits of $186.4 million.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity decreased by $109.9 million, to
$1.1 billion, in the six months ended December 31, 1997, primarily due to
principal payments received of $108.5 million.
Mortgage-backed securities available for sale increased by $154.3 million,
to $1.3 billion, in the six months ended December 31, 1997, primarily due to
purchases of $325.8 million of mortgage-backed securities issued by various
federal agencies, partially offset by principal payments of $175.2 million. The
purchases primarily consisted of $115.8 million and $77.1 million of adjustable-
rate and fixed-rate securities, respectively, issued by the Government National
Mortgage Association ("GNMA").
LOANS RECEIVABLE
Loans receivable held for investment decreased by $181.7 million, to $11.7
billion, in the six months ended December 31, 1997. The decrease was primarily
due to principal repayments of $1.3 billion and loans transferred to real estate
acquired in settlement of loans ("REO") of $58.2 million, partially offset by
loans purchased for investment totaling $773.1 million and loans originated for
investment, net of refinances, of $386.9 million. The loan purchases primarily
consisted primarily of $452.9 million of single-family residential, adjustable-
rate mortgage loans and $297.5 million of single-family residential, fixed-rate
mortgage loans that were purchased in the secondary market.
Loans receivable held for sale increased by $11.2 million, to $30.2
million, in the six months ended December 31, 1997, primarily due to term loan
originations of $140.6 million and the net transfer of loans from held for
investment totaling $47.2 million, partially offset by securitization of loans
for mortgage-backed securities
9
<PAGE>
in the amount of $41.0 million, and loan sales totaling $135.7 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 December 31, 1997, commitments of the Company to purchase loans in
the secondary market totaled $17.3 million and were comprised solely of
commitments to purchase adjustable rate loans. At that date, commitments of the
Company to originate loans and sell mortgage-backed securities totaled $39.9
million and $53.0 million, respectively, and the Company's commitments on
outstanding letters of credit totaled $3.7 million.
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
-------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
1997 1997 1997 1997 1996
-------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Consumer loans $ 39 $37 $ 66 $ 32 $31
Commercial loans 84 52 109 71 63
---- --- ---- ---- ---
$123 $89 $175 $103 $94
==== === ==== ==== ===
</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 new commitments
under commercial lines of credit for the March 1997 and December 1996 quarters
included $25 million through the One Central acquisition in January 1997, and
$50 million of agricultural loan commitments that were purchased in December
1996.
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>
Dec. 31 June 30
1997 1997
-------- --------
<S> <C> <C>
Consumer loans:
Credit limit balance $380,825 $309,013
Outstanding principal balance 94,073 71,847
Commercial loans:
Credit limit balance 335,248 213,332
Outstanding principal balance 131,848 88,927
</TABLE>
10
<PAGE>
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
-------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
1997 1997 1997 1997 1996
-------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Originations:
Permanent Loans:
Single-family 1-4 units $311 $275 $ 245 $141 $164
Multi-family 5-36 units 5 4 4 4 9
Multi-family 37 or more units -- -- 7 -- 2
Non-residential -- 4 3 1 3
Land 6 -- -- -- --
Construction Loans:
Multi-family 5-36 units -- -- -- -- 1
Commercial loans 21 16 17 5 1
Consumer loans 2 3 3 3 6
---- ---- ------ ---- ----
Total Originations 345 302 279 154 186
Secondary Market Purchases (1-4 units):
Adjustable 147 306 294 214 259
Fixed -- 297 502 324 --
---- ---- ------ ---- ----
Total Purchases 147 603 796 538 259
---- ---- ------ ---- ----
$492 $905 $1,075 $692 $445
==== ==== ====== ==== ====
</TABLE>
Term loan originations for the three months ended December 31, 1997
increased by $43 million or 14%, to $345 million, as compared to the quarter
ended September 30, 1997, and increased by $159 million or 85%, as compared to
the same quarter last year. Loans refinanced totaled $70.3 million, or 20% of
total originations, for the three months ended December 31, 1997, compared to
$49.5 million, or 16% of total originations, for the quarter ended September 30,
1997. Loans refinanced totaled $22.1 million, or 12% of total originations, for
the three months ended December 31, 1996.
Term loan originations for the three months ended December 31, 1997
increased primarily due to an increase in fixed-rate mortgage lending resulting
from a decline in long term interest rates and an improvement in the California
housing market. Fixed-rate originations were 65% of total originations in the
current quarter, compared to 59% and 38%, respectively, in the September 1997
and December 1996 quarters. 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.
11
<PAGE>
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>
December 31, 1997 June 30, 1997
--------------------- --------------------
% of % of
Dollar Total Dollar Total
Amount Assets Amount Assets
--------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Non-accrual loans $103,690 0.65% $140,295 0.86%
REO and other assets 48,451 0.30% 64,663 0.40%
-------- ---- -------- ----
Total NPAs 152,141 0.95% $204,958 1.26%
======== ==== ======== ====
Restructured loans $ 20,262 0.13% $ 31,064 0.19%
======== ==== ======== ====
</TABLE>
12
<PAGE>
The following table summarizes NPA and restructured loan activity during the
first six months of fiscal 1998 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, PAYOFFS/ DEC. 31,
1997 FORE- WRITE- REIN- SALES/ 1997
BALANCE ADDITIONS CLOSURES DOWNS STATEMENTS OTHER BALANCE
----------------------------------------------------------------------------------------
NON-ACCRUAL LOANS:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 82,989 $ 70,127 $(38,884) $ - $(24,720) $ (14,196) $ 75,316
Multi-family 5-36 units 21,087 15,206 (13,130) (89) (4,151) (7,249) 11,674
Multi-family 37 or more units 3,121 93 - - - (1,622) 1,592
Non-residential 30,672 7,449 (5,934) (327) (1,818) (18,014) 12,028
Commercial 859 5,361 - (6) (2,116) (1,671) 2,427
Consumer 1,567 89 - - - (1,003) 653
----------------------------------------------------------------------------------------
Total $140,295 $ 98,325 $(57,948) $ (422) $(32,805) $ (43,755) $103,690
========================================================================================
REO AND OTHER ASSETS:
Single-family 1-4 units $ 34,116 $ 2,109 $ 30,859 $ (551) $ - $ (34,431) $ 32,102
Multi-family 5-36 units 8,414 982 9,643 (477) - (11,161) 7,401
Multi-family 37 or more units 1,933 - - - - (1,933) -
Non-residential 20,169 152 5,857 (844) - (16,386) 8,948
Consumer 31 - - - - (31) -
----------------------------------------------------------------------------------------
Total $ 64,663 $ 3,243 $ 46,359 $(1,872) $ - $ (63,942) $ 48,451
========================================================================================
TOTAL NPAS:
Single-family 1-4 units $117,105 $ 72,236 $ (8,025) $ (551) $(24,720) $ (48,627) $107,418
Multi-family 5-36 units 29,501 16,188 (3,487) (566) (4,151) (18,410) 19,075
Multi-family 37 or more units 5,054 93 - - - (3,555) 1,592
Non-residential 50,841 7,601 (77) (1,171) (1,818) (34,400) 20,976
Commercial 859 5,361 - (6) (2,116) (1,671) 2,427
Consumer 1,598 89 - - - (1,034) 653
----------------------------------------------------------------------------------------
Total $204,958 $101,568 $(11,589) $(2,294) $(32,805) $(107,697) $152,141
========================================================================================
RESTRUCTURED LOANS:
Single-family 1-4 units $ 2,168 $ 598 $ - $ - $ - $ (953) $ 1,813
Multi-family 5-36 units 3,676 3,353 - - - (1,354) 5,675
Multi-family 37 or more units 18,331 3,114 - - - (16,196) 5,249
Non-residential 6,889 751 - - - (115) 7,525
----------------------------------------------------------------------------------------
Total $ 31,064 $ 7,816 $ - $ - $ - $ (18,618) $ 20,262
========================================================================================
</TABLE>
The $52.8 million, or 25.8%, decrease in NPAs for the six months ended
December 31, 1997 reflects $63.9 million in sales of REO through the Company's
regular liquidation process, $43.8 million in non-accrual loans being sold or
paid off and $32.8 million in non-accrual loans being reinstated to accrual
status, partially offset by NPA additions of $101.6 million. For the six months
ended December 31, 1997, 71.1% 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.
The $10.8 million decrease in restructured loans for the six months ended
December 31, 1997 was primarily due to the payoff in November 1997, of the
Company's largest restructured loan in the amount of $16.1 million, partially
offset by $7.8 million of new restructured loans transferred from non-accrual
status.
13
<PAGE>
The table in Exhibit 99E presents the Company's gross loan portfolio, NPAs and
restructured loans by property type as of December 31, 1997. The table in
Exhibit 99G summarizes the activity in the Company's NPAs for the past five
quarters.
Total delinquent loans decreased by $27.7 million, or 12.8% to $187.6 million
at December 31, 1997. Delinquent loans in the single-family residential loan
portfolio decreased by $12.4 million or 8.5%, to $133.7 million at December 31,
1997. Delinquent loans in the multi-family residential and non-residential loan
portfolios, declined by $12.5 million or 40.3%, and $6.8 million, or 23.8%, to
$18.5 million and $21.7 million, respectively, at December 31, 1997. Delinquent
loans in the commercial loan portfolio increased by $4.7 million, or 80.2%, to
$10.6 million. At December 31, 1997, single-family residential and non-
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 December 31, 1997 and June 30, 1997 by property type (dollars in
thousands):
<TABLE>
<CAPTION>
December 31, 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 $ 42,922 $ 8,793,806 0.49% $ 52,579 $ 8,821,828 0.60%
Multi-family:
5-36 units 37,603 1,426,589 2.64 43,852 1,477,549 2.97
37 or more units 14,214 319,849 4.44 16,496 345,052 4.78
Non-residential 37,067 1,030,994 3.60 35,280 1,207,013 2.92
Commercial 7,816 233,921 3.34 7,552 160,061 4.72
Consumer 15,752 138,366 11.38 8,000 120,685 6.63
--------- ------------ --------- ------------
$155,374 $11,943,525 1.30% $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.
14
<PAGE>
Specific valuation allowances for impaired loans totaled $12.4 million and
$14.0 million at December 31 and June 30, 1997, respectively, 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 December 31, 1997 and June
30, 1997 totaled $50.4 million and $78.7 million, respectively. Those impaired
loans without related specific valuation allowances at December 31, 1997 and
June 30, 1997 totaled $45.0 million and $64.1 million, respectively.
The allowance for loan losses declined by $8.4 million, to $155.4 million, in
the first six 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. The improvement in credit quality was significant, 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 December 31, 1997 were 149.8% 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 six months of fiscal 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Balance
June 30, Provision Charge- December 31,
1997 (Reallocation) offs Recoveries 1997
--------- ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 52,579 $(3,046) $ (6,835) $ 224 $ 42,922
Multi-family:
5-36 units 43,852 (2,319) (3,930) - 37,603
37 or more units 16,496 (2,454) (98) 270 14,214
Non-residential 35,280 2,579 (1,459) 667 37,067
Commercial 7,552 (1,757) (1,672) 3,693 7,816
Consumer 8,000 8,991 (1,676) 437 15,752
--------- -------- --------- ------- ---------
$163,759 $ 1,994 $(15,670) $5,291 $155,374
========= ======== ========= ======= =========
</TABLE>
A summary of activity in the allowance for loan losses by property type during
the first six months of fiscal 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Balance
June 30, Provision Charge- December 31,
1996 (Reallocation) offs Recoveries 1996
--------- -------------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 56,833 $13,179 $(14,181) $ 74 $ 55,905
Multi-family:
5-36 units 48,628 1,919 (6,346) 19 44,220
37 or more units 26,062 (44) (5,051) 27 20,994
Non-residential 47,260 417 (4,191) 61 43,547
Commercial 4,699 (4,682) (28) 3,037 3,026
Consumer 3,274 4,394 (1,888) 493 6,273
--------- -------- --------- ------- ---------
$186,756 $15,183 $(31,685) $3,711 $173,965
========= ======== ========= ======= =========
</TABLE>
15
<PAGE>
The provision for loan losses declined by $13.2 million, to $2.0 million, in
the six months ended December 31, 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, or reverse, 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 $23.3 million, to $261.2
million, during the six months ended December 31, 1997, primarily due to the
amortization of MSA of $23.2 million. No servicing rights were purchased during
the six months ended December 31, 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 December 31, 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 December 31, 1997 levels
could result in impairment to the Company's MSA (before the recorded valuation
allowance of $6.0 million at December 31, 1997) in the range of $19 million to
$54 million. If interest rates continue to decline or remain at current levels
for a protracted period of time, the resulting higher actual and expected
prepayments could have an adverse impact on the Company's quarterly operating
results.
The Company's portfolio of loans serviced for others totaled $27.6 billion at
December 31, 1997 and included the above-mentioned $11.5 billion of loans which
were transferred to the Company for servicing in the previous quarter. Loans
serviced for others at December 31, 1996 totaled $19.1 billion. At December 31
and June 30, 1997, 1.09% and 1.11%, 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 65% and 35%, respectively, at December 31, 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 is, from time to time, impacted by
the Company's ability to fund asset growth with concurrent growth in retail
deposits. However, 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 increased by $186.4 million, to
$9.5 billion, in the first six months of fiscal 1998.
16
<PAGE>
Golden State's deposit composition at December 31, 1997 and June 30, 1997 was
as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
------------------- -------------------------
% of % of
Balance Total Balance Total
---------- ------- ---------- ---------
<S> <C> <C> <C> <C>
Checking $1,517,566 15.9% $1,198,011 12.8%
Savings 433,525 4.6 452,225 4.8
Money market 2,178,169 22.8 2,119,553 22.7
---------- ------- ---------- ---------
Total daily access 4,129,260 43.3 3,769,789 40.3
---------- ------- ---------- ---------
Short-term certificates
(1 year or less) 2,635,117 27.6 2,703,538 28.9
Long-term certificates
(over 1 year) 2,519,153 26.4 2,700,906 28.9
Jumbo and brokered
certificates 259,808 2.7 182,676 1.9
---------- ------ ---------- ---------
Total certificates 5,414,078 56.7 5,587,120 59.7%
---------- ------- ---------- ---------
Total deposits $9,543,338 100.0% $9,356,909 100.0%
========== ======= ========== =========
</TABLE>
Checking accounts increased by $319.6 million, or 27%, to $1.5 billion, during
the first six months of fiscal 1998. The increase was comprised of a $174.3
million increase in retail and business checking accounts and a $145.2 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. Jumbo and brokered certificates of deposit
increased by $77.1 million, or 42%, to $259.8 million, during the first six
months of fiscal 1998, primarily due to the acquisition of $100 million of low
cost savings from the state of California.
BORROWINGS
Total borrowings decreased by $426.0 million, to $5.1 billion, during the six
months ended December 31, 1997. Securities sold under agreements to repurchase
increased by $48.7 million, to $817.4 million at December 31, 1997. Borrowings
from the Federal Home Loan Bank ("FHLB") decreased by $464.0 million, to $4.3
billion at December 31, 1997. The Company decreased adjustable-rate FHLB
borrowings by $304.0 million, to $2.6 billion during the six months ended
December 31, 1997, while fixed-rate FHLB borrowings of $1.7 billion decreased
$0.2 million from the level at June 30, 1997 of $1.9 billion. 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 December 31, 1997 and June 30, 1997 included $3.0
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 $71.0 million, to $1.1 billion, during the
six months ended December 31, 1997, primarily due to net earnings of $57.4
million, income tax benefits of $10.0 million relating to the exercise of stock
options, proceeds of $6.1 million received from the issuance of common stock
related to the exercise of stock options and a $3.0 million decrease in the net
unrealized loss recorded on the portfolio of debt and equity securities
available for sale, partially offset by dividends declared of $5.1 million on
the Company's preferred stock.
17
<PAGE>
REGULATORY CAPITAL
The following table compares Glendale Federal Bank's regulatory capital at
December 31, 1997 to its minimum regulatory capital requirements at that date
(dollars in thousands):
<TABLE>
<CAPTION>
Capital at As a % Capital As a % Excess
Dec. 31, 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 $1,067,743
Adjustments for tangible and core
capital:
Goodwill and other intangible assets (94,511)
Investments in and advances to
non-permissible subsidiaries (362)
Net unrealized holding gain on
available for sale securities (1,865)
----------------
Total tangible capital $ 971,005 6.10% $238,947 1.50% $732,058
Adjustment for core capital -
----------------
Total core capital $ 971,005 6.10% $477,895 * 3.00% * $493,110 *
Adjustments for risk-based capital:
Allowance for general loan losses** 109,367
Equity risk investments required
to be deducted (7,736)
Total risk-based capital $1,072,636 12.18% $708,451 * 8.00% * $364,185 *
================
</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 $796,492, 5.00%
and $174,513, respectively, and the corresponding amounts for risk-based
capital are $882,766, 10.00% and $189,870, respectively.
** Limited to 1.25% of risk-weighted assets.
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 December 31, 1997, funds estimated to be available from
these sources totaled approximately $4.1 billion and consisted primarily of FHLB
advances and the repurchase agreement markets.
During the six months ended December 31, 1997, the Company experienced a net
cash outflow from financing activities of $238.6 million, primarily due to the
net repayment of FHLB advances of $464.0 million, partially offset by an
increase in deposits of $186.4 million. The Company's investing activities
during the period resulted in a net cash inflow of $88.2 million, principally
due to principal payments on loans and mortgage-backed securities of $1.5
billion, partially offset by purchases of loans and mortgage-backed securities
totaling $1.1 billion, and term loan originations of $365.7 million. The Company
experienced positive cash flows from operating activities during the period of
$107.6 million.
18
<PAGE>
During December 1997, the Company's average liquidity ratio was 5.6%. The
current minimum regulatory requirement for this ratio is 4%.
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 prepayments 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
December 31, 1997.
The following table is a summary of Golden State's one-year GAP at the dates
indicated (dollars in millions):
<TABLE>
<CAPTION>
Dec. 31, June 30,
1997 1997
----------- ---------
<S> <C> <C>
Interest-earning assets maturing or
repricing within one year $10,763 $11,640
Interest-bearing liabilities maturing
or repricing within one year 9,409 9,282
----------- --------
One-year maturity GAP $ 1,354 $ 2,358
=========== ========
One-year maturity GAP as a percent of
total assets 8.4% 14.5%
=========== ========
</TABLE>
The $1.0 billion decrease in the one-year GAP during the first six months of
fiscal 1998 was primarily due to a $127 million increase in interest-bearing
liabilities maturing or repricing within one year and an $877 million decrease
in interest-earning assets maturing or repricing within one year. The growth of
$127 million in one-year liabilities was primarily due to an increase of $614
million in certificates of deposit, an increase of $54 million in checking
accounts and an increase of $48 million in securities sold under agreements to
repurchase, partially offset by a decrease of $604 million in FHLB borrowings
that mature or reprice within one year. The decrease of $877 million in one-year
assets was principally due to decreases of $573 million and $232 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 $693 million due to purchases of loans and fixed-rate
single-family loan originations of $401 million during the first six months of
fiscal 1998, of which $83.9 million were sold during the same period.
A positive one-year GAP tends, in general, to assist the Company in rising
interest rates. 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.
19
<PAGE>
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 while prudently
managing interest rate risk.
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>
DECEMBER 31, 1997
----------------------------------------------------------------------------
LOANS LOANS MORTGAGE-
OWNED AND SERVICED OWNED AND SERVICED BACKED PERCENT
BY BANK BY OTHERS SECURITIES TOTAL OF TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable:
6-month Treasury Bills........... $ 303 $ 26 $ 371 $ 700 5%
1-Year Treasury Bills (1)........ 2,353 2,017 1,206 5,576 39
11th District Cost of Funds...... 3,302 67 119 3,488 25
Prime............................ 335 - 7 342 2
Other............................ 113 7 98 218 2
------ ------ ------ ------- ---
6,406 2,117 1,801 10,324 73
Fixed............................. 1,271 2,150 490 3,911 27
------ ------ ------ ------- ---
Total............................. $7,677 $4,267 $2,291 $14,235 100%
====== ====== ====== ======= ===
JUNE 30, 1997
----------------------------------------------------------------------------
LOANS LOANS MORTGAGE-
OWNED AND SERVICED OWNED AND SERVICED BACKED PERCENT
BY BANK BY OTHERS SECURITIES TOTAL OF TOTAL
-----------------------------------------------------------------------------
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 at December 31, 1997 and $1.3 billion at June 30,
1997, respectively, of loans and mortgage-backed securities with interest rates
that are fixed for three to five years and then convert to adjustable rates
for the remainder of the loan term.
20
<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 December 31
--------------------------------------------------------------------------
1997 1996
------------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Cost Balances Expense Cost
-------------- -------------------- ----------- -------------------
Interest-earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable, net $12,072,874 $232,697 7.71% $11,311,096 $214,815 7.60%
-------------- --------- ----------- ---------
Mortgage-backed securities,
held to maturity 1,082,609 18,355 6.78% N/A N/A N/A
Mortgage-backed securities,
available for sale 1,225,553 19,678 6.44% N/A N/A N/A
-------------- ---------- ----------- ----------
Total mortgage-backed
securities, net/1/ 2,308,162 38,033 6.59% 2,226,887 37,448 6.73%
-------------- ---------- ----------- ----------
Total loans and
mortgage-backed
securities 14,381,036 270,730 7.53% 13,537,983 252,263 7.45%
-------------- ---------- ----------- ----------
Federal funds sold and assets
purchased under resale agreements 608,641 8,879 5.79% 680,592 9,470 5.52%
-------------- ---------- ----------- ----------
Other debt and equity securities
available for sale 23,572 318 5.35% N/A N/A N/A
Other investments 273,857 5,306 7.69% N/A N/A N/A
-------------- ---------- ----------- ----------
Total other investments/1/ 297,429 5,624 7.50% 264,708 5,852 8.77%
-------------- ---------- ----------- ----------
Total investments 906,070 14,503 6.35% 945,300 15,322 6.43%
-------------- ---------- ----------- ----------
Total interest-earning assets $15,287,106 $285,233 7.46% $14,483,283 $267,585 7.39%
============== ========= =========== ==========
Interest-bearing Liabilities:
Non-interest-bearing demand deposits $ 1,039,559 $ -- 0.00% $ 543,732 $ -- 0.00%
Interest-bearing demand deposits 453,523 1,143 1.00% 401,661 1,012 1.00%
Savings deposits 435,562 2,251 2.05% 452,890 2,454 2.15%
Money market deposits 2,179,092 23,038 4.19% 1,895,138 21,518 4.51%
-------------- ---------- ----------- ----------
Total daily access 4,107,736 26,432 2.55% 3,293,421 24,984 3.01%
Certificates 5,453,597 75,273 5.48% 5,557,306 76,644 5.47%
-------------- ---------- ----------- ----------
Total deposits 9,561,333 101,705 4.22% 8,850,727 101,628 4.56%
-------------- ---------- ----------- ----------
Securities sold under agreements to
repurchase 941,907 13,521 5.70% 230,192 3,254 5.61%
Borrowings from the Federal Home Loan
Bank 4,347,696 63,119 5.76% 4,842,348 69,077 5.66%
Other borrowings 36,346 214 2.34% 48,199 394 3.24%
-------------- ---------- ----------- ----------
Total borrowings 5,325,949 76,854 5.72% 5,120,739 72,725 5.63%
-------------- ---------- ----------- ----------
Total interest-bearing liabilities $14,887,282 $178,559 4.76% $13,971,466 $174,353 4.95%
============== ========= =========== ==========
Difference between average
interest-earning assets and
interest-bearing liabilities $ 399,824 $ 511,817
============== ===========
Net interest income $106,674 $ 93,232
======== =========
Yield-cost spread 2.70% 2.44%
===== =====
Effective net spread/2/ 2.83% 2.61%
===== =====
- - ---------------
</TABLE>
/1/ Prior to fiscal 1998, the Company aggregated income from all securities
(held to maturity and available for sale).
/2/ Annualized net interest income divided by average interest-earning
assets.
21
<PAGE>
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>
Six months ended December 31
--------------------------------------------------------------------------
1997 1996
------------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Cost Balances Expense Cost
-------------- -------------------- ----------- -------------------
Interest-earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable, net $12,162,289 $468,498 7.70% $11,209,182 $425,002 7.58%
-------------- --------- ----------- ----------
Mortgage-backed securities, held to
maturity 1,110,520 37,824 6.81% N/A N/A N/A
Mortgage-backed securities,
available for sale 1,184,994 38,273 6.46% N/A N/A N/A
-------------- --------- ----------- ----------
Total mortgage-backed
securities, net/1/ 2,295,514 76,097 6.63% 2,217,312 73,801 6.66%
-------------- --------- ----------- ----------
Total loans and
mortgage-backed securities 14,457,803 544,595 7.53% 13,426,494 498,803 7.43%
-------------- --------- ----------- ----------
Federal funds sold and assets
purchased under resale agreements 626,147 18,373 5.82% 647,807 18,061 5.53%
-------------- --------- ----------- ----------
Other debt and equity securities
available for sale 25,091 675 5.34% N/A N/A N/A
Other investments 272,044 12,676 9.24% N/A N/A N/A
-------------- --------- ----------- ----------
Total other investments/1/ 297,135 13,351 8.91% 246,740 11,390 9.16%
-------------- --------- ----------- ----------
Total investments 923,282 31,724 6.82% 894,547 29,451 6.53%
-------------- --------- ----------- ----------
Total interest-earning assets $15,381,085 $576,319 7.49% $14,321,041 $528,254 7.38%
============== ========= =========== ==========
Interest-bearing Liabilities:
Non-interest-bearing demand deposits $ 919,705 $ -- 0.00% $ 478,384 $ -- 0.00%
Interest-bearing demand deposits 439,345 2,138 0.97% 399,918 2,069 1.03%
Savings deposits 442,884 4,706 2.11% 467,029 5,062 2.15%
Money market deposits 2,163,128 45,711 4.19% 1,847,902 41,245 4.43%
-------------- --------- ----------- ----------
Total daily access 3,965,062 52,555 2.63% 3,193,233 48,376 3.01%
Certificates 5,470,848 150,665 5.46% 5,616,299 154,948 5.47%
Total deposits 9,435,910 203,220 4.27% 8,809,532 203,324 4.58%
-------------- --------- ----------- ----------
Securities sold under agreements to
repurchase 1,004,764 28,745 5.68% 471,405 13,067 5.50%
Borrowings from the Federal Home Loan
Bank 4,508,005 130,760 5.75% 4,463,000 128,512 5.71%
Other borrowings 47,753 769 3.19% 45,096 756 3.33%
-------------- --------- ----------- ----------
Total borrowings 5,560,522 160,274 5.72% 4,979,501 142,335 5.67%
-------------- --------- ----------- ----------
Total interest-bearing liabilities $14,996,432 $363,494 4.81% $13,789,033 $345,659 4.97%
============== ========= =========== ==========
Difference between average
interest-earning assets and
interest-bearing liabilities $ 384,653 $ 532,008
============== ============
Net interest income $212,825 $182,595
============ ============
Yield-cost spread 2.68% 2.41%
========== ==========
Effective net spread/2/ 2.81% 2.59%
========== ==========
- - ---------------
</TABLE>
/1/ Prior to fiscal 1998, the Company aggregated income from all securities
(held to maturity and available for sale).
/2/ Annualized net interest income divided by average interest-earning
assets.
22
<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 Six months ended
December 31, December 31,
1997 vs. 1996 1997 vs. 1996
Changes Due To Changes Due To
------------------------------------------ --------------------------------------------------
Volume Rate Total Volume Rate Total
----------- ----------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, net $14,718 $ 3,164 $17,882 $36,668 $ 6,828 $43,496
Mortgage-backed
securities, net 1,365 (780) 585 2,625 (329) 2,296
---------- ----------- ------------ ------------ ----------- -----------
Total loans and
mortgage-backed
securities 16,083 2,384 18,467 39,293 6,499 45,792
Federal funds sold and assets
purchased under resale
agreements (1,036) 445 (591) (614) 926 312
Other investments 676 (904) (228) 2,279 (318) 1,961
---------- ----------- ------------ ------------ ----------- -----------
Total investments (360) (459) (819) 1,665 608 2,273
---------- ----------- ------------ ------------ ----------- -----------
Total interest income 15,723 1,925 17,648 40,958 7,107 48,065
---------- ----------- ------------ ------------ ----------- -----------
Interest expense:
Deposits - daily access 5,615 (4,167) 1,448 10,782 (6,603) 4,179
Deposits - certificates (1,503) 132 (1,371) (4,002) (281) (4,283)
---------- ----------- ------------ ------------ ----------- -----------
Total deposits 4,112 (4,035) 77 6,780 (6,884) (104)
Securities sold under
agreements to repurchase 10,214 53 10,267 15,237 441 15,678
Borrowings from the Federal
Home Loan Bank (7,160) 1,202 (5,958) 1,326 922 2,248
Other borrowings (85) (95) (180) 45 (32) 13
----------- ----------- ------------ ------------ ----------- -----------
Total borrowings 2,969 1,160 4,129 16,608 1,331 17,939
----------- ----------- ------------ ------------ ----------- -----------
Total interest expense 7,081 (2,875) 4,206 23,388 (5,553) 17,835
----------- ----------- ------------ ------------ ----------- -----------
Net interest income $ 8,642 $ 4,800 $13,442 $17,570 $12,660 $30,230
=========== =========== ============ ============ =========== ===========
</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.
23
<PAGE>
Net interest income increased by $13.4 million and $30.2 million, to
$106.7 million and $212.8 million, respectively, for the three and six months
ended December 31, 1997, compared to the same periods last year. This is
attributable to increases in average interest-earning assets and improvement in
the yield-cost spread during the current three- and six-month periods. Volume
changes contributed $8.6 million to the increase in net interest income, and
were primarily due to increased interest income of $15.7 million resulting from
an $803.8 million increase in average interest-earning assets for the second
quarter of fiscal 1998 compared to the same period last year. Partially
offsetting the volume-based growth in interest income was a $7.1 million
increase in interest expense relating to a $915.8 million increase in average
interest-bearing liabilities for the quarter ended December 31, 1997 compared to
the same quarter a year ago. The yield-cost spread increased by 26 basis points,
to 2.70%, in the three months ended December 31, 1997, compared to the same
period last year, primarily due to a decrease in the Company's cost of funds of
19 basis points, to 4.76%, and an increase in the yield on its interest-earning
assets of 7 basis points, to 7.46%.
On a year-to-date basis, volume changes contributed $17.6 million to the
increase in net interest income, and were primarily due to increased interest
income of $41.0 million resulting from a $1.1 billion increase in average
interest-earning assets. Partially offsetting the volume-based growth in
interest income was a $23.4 million increase in interest expense relating to a
$1.2 billion increase in average interest-bearing liabilities for the six months
ended December 31, 1997 compared to the same period a year ago. The yield-cost
spread increased by 27 basis points, to 2.68%, in the six months ended December
31, 1997, compared to the same period last year, primarily due to a decrease in
the Company's cost of funds of 16 basis points, to 4.81%, and an increase in the
yield on its interest-earning assets of 11 basis points, to 7.49%. The $112
million difference in the growth of interest-earning assets of $803.8 million as
compared to the growth in interest-bearing liabilities of $915.8 million during
the second quarter of fiscal 1998, and the $147 million difference in the growth
of interest-earning assets of $1.1 billion as compared to the growth in
interest-bearing liabilities of $1.2 billion during the six months ended
December 31, 1997, are 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 both of which are non-interest-
earning assets.
Interest income on loans receivable increased by $17.9 million, to
$232.7 million, and by $43.5 million, to $468.5 million, in the three and six
months ended December 31, 1997, respectively, compared to the same periods last
year, primarily due to portfolio growth. The average balance of loans
receivable, net, increased by $761.8 million, to $12.1 billion, during the
quarter ended December 31, 1997, contributing $14.7 million to the increase. The
average balance of loans receivable, net, increased by $1.0 billion, to $12.2
billion, during the six months ended December 31, 1997, contributing $36.7
million to the increase. These increases were 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 in the secondary market $146.6
million of adjustable rate loans with a weighted average yield of 7.31%. During
the six months ended December 31, 1997, the Company purchased in the secondary
market, $297.5 million of fixed-rate loans with a weighted average yield of
7.63%, and $452.9 million of adjustable rate loans with a weighted average yield
of 7.35%. Further 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 increases in portfolio yield of 11 and 12 basis points for the
three and six months ended December 31, 1997, respectively, which contributed
$3.2 million and $6.8 million, respectively, to increase in interest income.
The increase in portfolio yield was primarily due to the impact of the
aforementioned higher yielding fixed rate purchases in the secondary market
during the last nine months of fiscal 1997, the higher yielding loans acquired
from TransWorld Bank, and to the favorable 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 second quarters of fiscal 1998 and fiscal 1997 were
$116.8 million and $161.8 million, respectively. The average balances of non-
accrual loans in the first six months of fiscal 1998 and fiscal 1997 were $202.5
million and $172.0 million, respectively. The impact of non-accrual loans was
to reduce the Company's loan yield by 3 and 4 basis points in the three and six
months ended December 31, 1997 versus a reduction in loan yield of 10 basis
points in each of the corresponding periods in fiscal 1997.
Interest expense on daily access deposits increased by $1.4 million, to
$26.4 million, and by $4.2 million, to $52.6 million, in the three and six
months ended December 31, 1997, compared to the same periods last year,
24
<PAGE>
primarily due to a $0.8 billion, or 25% increase, in the average balances in
daily access accounts during both the three and six months ended December 31,
1997, compared to the same periods last year. This growth in average balance
contributed $5.6 million and $10.8 million, respectively, to the increase in
interest expense during the three and six months ended December 31, 1997. The
growth in average daily access account balances was due to the addition of
custodial checking accounts in October 1997, arising from the Company's purchase
of servicing rights relating to $11.5 billion of mortgage loans in the fourth
quarter of fiscal 1997, 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 for the current quarter and
year-to-date periods was offset by a 46 and 38 basis point reduction,
respectively, in the average cost of daily access accounts. The decrease in the
average cost of deposits, which contributed $4.0 million and $6.9 million,
respectively, to the reduction in interest expenses during the quarter and year-
to-date ended December 31, 1997 , was due to the low cost of deposits obtained
through the acquisitions.
Interest expense on certificate accounts decreased by $1.4 million, to
$75.3 million, and by $4.3 million, to $150.7 million in the three and six
months ended December 31, 1997, compared to the same periods last year, due to
decreasing average balances. Average balances in certificate accounts during the
current quarter and year-to-date periods decreased by $103.7 million and $145.5
million, respectively, due to management's efforts to change the mix of deposits
toward daily access accounts. This decrease contributed $1.4 million and $4.0
million, respectively, to the reduction in interest expense on certificate
accounts during the corresponding current periods.
Interest expense on borrowings increased by $4.1 million or 6%, to
$76.9 million, and by $17.9 million or 13%, to $160.3 million, respectively, in
the three and six months ended December 31, 1997, compared to the same periods
in fiscal 1997, primarily due to a corresponding increase of $205.2 million, or
4%, and $581.0 million, or 12% in the average balances of borrowings for the
same current periods, compared to the same periods in fiscal 1997. The growth
in the average balances of borrowings contributed $3.0 million and $16.6
million, respectively, to the increase in interest expense during the three and
six months ended December 31, 1997.
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 December 31, 1996, the Company had $200
million in notional principal amount of swaps that matured in April 1997. At
December 31, 1997, no swaps were outstanding.
PROVISION FOR LOAN LOSSES
The Company recorded a net credit for loan losses of $1.1 million during
the three months ended December 31, 1997, compared to a provision for loan
losses of $7.8 million in the same period last year, primarily resulting from a
$2.6 million recovery of a previously charged-off loan of one of its liquidated
subsidiaries. During the six months ended December 31, 1997, provision for loan
losses decreased by $13.2 million, or 87%, to $2.0 million, compared to $15.2
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
December 31, 1997 totaled $152.1 million, which represents a 32% decline from
the $224.7 million of NPAs recorded at December 31, 1996. Net charge-offs to the
allowance for loan losses totaled $2.1 million and $10.4 million in the three
and six months ended December 31, 1997, compared to $10.5 million and $28.0
million in the same periods 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, decreased by $0.6 million, or 6%, to $8.3
million, in the second quarter of fiscal 1998, compared to the same period last
year. For the six months ended December 31, 1997, loan servicing fee
25
<PAGE>
income, net, totaled $17.1 million, virtually unchanged from the comparable
period last year. Due to the Company's most recent and largest purchase of
servicing rights relating to approximately $11.5 billion of predominantly fixed-
rate mortgage loans, gross servicing fees earned increased by $4.0 million, or
24%, and $10.5 million, or 34%, to $20.7 million and $41.4 million,
respectively, during the three and six months ended December 31, 1997, compared
to the same periods last year. However, the amortization of MSA increased by
$4.4 million, or 58% and $10.3 million, or 77%, to $12.2 million and $23.6
million, respectively, during the same periods. 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 purchase being less than those
associated with a standard fixed-rate package, and to a certain extent, due to
increased actual and market expectations for prepayments attributable to the
decline in interest rates and the flattening of the yield curve. 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 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 23% and
$6.2 million, or 24%, to $16.7 million and $32.7 million, respectively, in the
three and six months ended December 31, 1997, compared to the same periods last
year. These increases, which reflect the continuing growth in the number of
transaction accounts, were due primarily to increases in loan and deposit fee
income and income from ATM transactions which totaled $3.6 million and $7.1
million, respectively, for the three and six months ended December 31, 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, excluding legal expenses for the
goodwill litigation, increased by $9.1 million or 14%, to $72.6 million in the
three months ended December 31, 1997, compared with $63.5 million in the same
period last year. General and administrative expenses increased by 11.5 million
or 9%, to $143.5 million in the six months ended December 31, 1997, compared
with $132.0 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 $6.4 million and $12.9
million, respectively, during the three and six months ended December 31, 1997,
compared with $2.0 million and $3.6 million, respectively, during the same
periods 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, maintain a higher level of marketing activity and
upgrade the Bank's operational capabilities. 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 $1.4
million and $2.2 million, respectively, during the three and six months ended
December 31, 1997. The Company expects to incur $32 million to $37 million over
the next two years, including $2 million to $3 million on software and hardware
expenditures, on its program to modify, redevelop or replace its computer
applications to try to make them "year 2000" compliant. It is anticipated that
expenditures may total $10 million and $21 million, for the second half of
fiscal 1998 and for the entire fiscal 1999, respectively. 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 decreased by $3.1 million or 62%, to $1.9
million, and by $7.4 million or 66%, to $3.8 million, respectively, during the
three and six months ended December 31, 1997, compared to the same periods in
fiscal 1997.
LEGAL EXPENSE--GOODWILL LAWSUIT
26
<PAGE>
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 three and six months ended December
31, 1997 at $5.3 million and $10.0 million, respectively, compared to $4.9
million and $$5.5 million, respectively, in the same periods in fiscal 1997. The
Company 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. Costs will be incurred
during any appeals process. However, these costs are expected to be at a
significantly lower rate per 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 and $1.5 million, to
$2.0 million and $4.1 million, respectively, in the three and six months ended
December 31, 1997, compared with $1.3 million and $2.6 million, respectively, in
the same periods last year. The increase reflected the impact of the
amortization of $45.8 million of additional goodwill resulting from 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.
27
<PAGE>
INCOME TAX PROVISION
The Company recorded income tax provisions of $22.4 million and $43.9
million in the three and six months ended December 31, 1997, respectively. The
Company recorded income tax provisions of $10.9 million and $3.2 million in the
three and six months ended December 31, 1996, respectively. The effective tax
rate is higher than the federal statutory rate primarily due to state taxes and
the effect of nondeductible goodwill.
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.
28
<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 June 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 the Government presentation of its case in chief is expected
to be completed on or about February 13, 1998. Rebuttal testimony is currently
scheduled to be presented by both parties in March and early April 1998. Written
briefs and oral arguments will follow completion of the rebuttal testimony and
the case is expected to be submitted to the Claims Court for decision in June
1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Golden State Bancorp Inc. was held
on October 28, 1997. Three nominees for election as Directors, Brian P. Dempsey,
Cora M. Tellez and Stephen J. Trafton, were elected for three-year terms. One
nominee for election as Director, Paul J. Orfalea, was elected for a one-year
term. The votes cast for Brian P. Dempsey were 46,475,596 shares "For" and
109,225 shares withheld. The votes cast for Paul J. Orfalia were 46,467,008
shares "For" and 117,813 shares withheld. The votes cast for Cora M. Tellez were
46,447,666 shares "For" and 137,155 shares withheld. The votes cast for Stephen
J. Trafton were 46,478,858 shares "For" and 105,963 shares withheld.
The stockholders ratified the appointment of KPMG Peat Marwick LLP as
Golden State's independent auditors for fiscal 1998 with 46,449,119 votes cast
for the proposal, 62,622 votes cast against the proposal and 73,080 shares
abstaining.
29
<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 October 28, 1997, to announce its
plans to issue Litigation Tracking Warrants(TM) ("LTW(TM)s") to its security
holders representing the right to receive Golden State common stock equal in
value to 85 percent of the net after-tax proceeds, if any, from the pending
goodwill lawsuit against the United States Government of its principal
subsidiary, Glendale Federal Bank. The issuance of the LTW(TM)s is subject to
final Board action approving the LTW(TM)s and to receipt of shareholder approval
of certain corporate changes required for their issuance. It is anticipated
that the LTW(TM)s would be tradable by Golden State's security holders after
issuance.
Golden State filed a Form 8-K, dated November 30, 1997, to announce that
it had entered into a definitive agreement with Redfed Bancorp Inc. pursuant to
which Golden State will acquire Redfed in a tax-free, stock-for-stock merger
(the "Merger") with a total transaction value of approximately $158 million. The
Merger will be accounted for as a purchase business combination. Golden State
intends to purchase shares of Golden State common stock in the open market in an
amount equal to the amount that will be issued in the Merger. The Merger is
subject to regulatory and stockholder approvals, as well as satisfaction of
other conditions, and is expected to close in the second quarter of calendar
1998.
30
<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: February 13, 1998 By: /s/ John E. Haynes
----------------------
Chief Financial Officer
(Principal Financial Officer)
<PAGE>
EXHIBIT 11.1
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS) (a)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1997 1996
------------------------------- ------------------------------
Per-share Per-Share
Earnings Shares Amount Earnings Shares Amount
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Computation for Statement of Operations
Net earnings per statement of operations used in
basic earnings per share computation:
Net earnings $ 28,911 $ 23,222
Dividends on preferred stock (2,527) (2,679)
Premium on conversion of preferred stock - (3,429)
-------- --------
Earnings applicable to common
shareholders (b) 26,384 50,828 $ 0.52 17,114 48,839 0.35
====== =====
Effect of Dilutive Securities
Options and warrants - 8,700 - 5,543
Convertible preferred stock 2,527 11,111 2,679 12,211
-------- ------- -------- -------
DILUTED EARNINGS PER SHARE
Earnings applicable to common
shareholders (b) $ 28,911 70,639 $ 0.41 $ 19,793 66,593 $ 0.30
======== ====== ====== ======== ======= ======
Additional Diluted Earnings Per Share
Computation (c)
Net earnings as per diluted computation above $ 28,911 70,639 $ 19,793 66,593
Interest on convertible subordinated
debentures, net of tax effect - - 118 15
-------- ------ -------- -------
$ 28,911 70,639 $ 0.41 $ 19,911 66,608 $ 0.30
======== ====== ====== ======== ======= ======
</TABLE>
<PAGE>
EXHIBIT 11.1
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS) (a) - Continued
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended December 31,
1997 1996
------------------------------- --------------------------------
Per-share Per-Share
Earnings Shares Amount Earnings Shares Amount
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Computation for Statement of Operations
Net earnings per statement of operations used in
basic earnings per share computation:
Net earnings $ 57,428 $ 3,237
Dividends on preferred stock (5,055) (5,786)
Premium on conversion of preferred stock - (3,932)
-------- -------
Earnings (loss) applicable to common
shareholders (b) $ 52,373 50,612 $ 1.03 $ (6,481) 47,976 $ (0.14)
======
Effect of Dilutive Securities
Options and warrants - 8,265 - -
Convertible preferred stock 5,055 11,111 - -
-------- ------- -------- ------
DILUTED EARNINGS (LOSS) PER SHARE
Earnings (loss) applicable to common
shareholders (b) $ 57,428 69,988 $0.82 $ (6,481) 47,976 ($0.14)
======== ======= ======== ======== ======= ======
Additional Diluted Earnings (Loss) Per Share
Computation (c)
Net earnings (loss) as per diluted
computation above $ 57,428 69,988 $ (6,481) 47,976
Options and warrants - - - 4,821
Dividends on preferred stock - - 5,786 13,042
Interest on convertible subordinated
debentures, net of tax effect 99 15 236 15
-------- ------- -------- -------
$ 57,527 70,003 $0.82 $ (459) 65,854 ($0.01)
======== ======= ======== ======== ======= ======
</TABLE>
(a) Golden State Bancorp adopted Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS128") effective December 31, 1997 and
accordingly restated prior period EPS data.
(b) These figures agree with the related amounts in the statement of
operations.
(c) This calculation, which includes securities that could potentially dilute
basic earnings per share in the future and is anti-dilutive for the
periods presented, is submitted in accordance with Regulation S-K item
601(b)(11) and paragraph 40(c) of SFAS No. 128.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 305,766
<INT-BEARING-DEPOSITS> 2,796
<FED-FUNDS-SOLD> 505,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,295,312
<INVESTMENTS-CARRYING> 1,052,969
<INVESTMENTS-MARKET> 1,039,664
<LOANS> 11,734,561
<ALLOWANCE> 155,374
<TOTAL-ASSETS> 16,029,116
<DEPOSITS> 9,543,338
<SHORT-TERM> 2,955,374
<LIABILITIES-OTHER> 261,257
<LONG-TERM> 2,186,076
4,622
0
<COMMON> 51,023
<OTHER-SE> 1,027,426
<TOTAL-LIABILITIES-AND-EQUITY> 16,029,116
<INTEREST-LOAN> 468,498
<INTEREST-INVEST> 107,821
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 576,319
<INTEREST-DEPOSIT> 203,220
<INTEREST-EXPENSE> 363,494
<INTEREST-INCOME-NET> 212,825
<LOAN-LOSSES> 1,994
<SECURITIES-GAINS> 132
<EXPENSE-OTHER> 160,578
<INCOME-PRETAX> 101,346
<INCOME-PRE-EXTRAORDINARY> 101,346
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,428
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 0.82
<YIELD-ACTUAL> 0.028
<LOANS-NON> 103,690
<LOANS-PAST> 0
<LOANS-TROUBLED> 20,262
<LOANS-PROBLEM> 39,848
<ALLOWANCE-OPEN> 163,759
<CHARGE-OFFS> 15,670
<RECOVERIES> 5,291
<ALLOWANCE-CLOSE> 155,374
<ALLOWANCE-DOMESTIC> 155,374
<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 December 31, 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) $ 8,794 57.3% $3,834 $1,454 $2,832 $674
Multi-family and non-residential (2)(3) 2,777 18.1% 2,479 93 131 74
Consumer and commercial (3) 372 2.5% 343 4 24 1
Mortgage-backed securities (2)(3) 2,291 14.9% 1,466 290 392 143
Investment securities (4) 532 3.5% 532 - - -
Other assets (5) 574 3.7% 268 - - 306
----------- -------- --------- ---------- --------- ---------
Total interest-earning assets 15,340 100.0% 8,922 1,841 3,379 1,198
======= --------- ---------- --------- ---------
Non-interest-earning assets 689
-----------
Total assets $16,029
==========
INTEREST-BEARING LIABILITIES:
Deposits:
Checking (6) $ 1,518 10.3% 135 123 662 598
Savings (6) 433 2.9% 31 29 169 204
Money market (6) 2,178 14.8% 382 315 1,164 317
Certificates (4) 5,414 37.0% 2,755 2,038 619 2
Borrowings:
FHLB (4) 4,324 29.4% 2,584 200 1,540 -
Other (4) 817 5.6% 817 - - -
----------- -------- --------- ---------- --------- ---------
Total interest-bearing liabilities 14,684 100.0% 6,704 2,705 4,154 1,121
======== --------- ---------- --------- ---------
Non-interest-bearing liabilities 262
-----------
Total liabilities 14,946
Stockholders' equity 1,083
-----------
Total liabilities and stockholders' equity $16,029
==========
Maturity GAP 2,218 (864) (775) 77
Impact of interest rate swaps (7) - - - -
--------- ---------- --------- ---------
Adjusted GAP $ 2,218 $ (864) $ (775) $ 77
Cumulative GAP $ 2,218 $ 1,354 $ 579 $ 656
As % of total assets 13.8% 8.4% 3.6% 4.1%
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 18.0% 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
40% (CPR) per year has been applied to these deposits.
(7) No interest rate swaps were outstanding at December 31, 1997.
<PAGE>
EXHIBIT 99B
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
INTEREST RATE MARGIN
(unaudited)
<TABLE>
<CAPTION>
As of
--------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
1997 1997 1997 1997 1996
--------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average rate:
Loans receivable, net 7.80% 7.79% 7.73% 7.68% 7.68%
Mortgage-backed securities, net 6.68% 6.76% 6.78% 6.73% 6.77%
--------- ---------- ----------- --------- -----------
Total loans and MBS 7.61% 7.62% 7.58% 7.52% 7.52%
Federal funds sold and assets purchased
under resale agreements 6.90% 6.61% 6.49% 5.66% 6.67%
Other investments 7.58% 7.46% 8.41% 8.51% 8.37%
--------- ----------- ----------- --------- -----------
Total investments 7.15% 6.89% 7.10% 6.51% 7.27%
--------- ----------- ----------- --------- -----------
Total loans, MBS and investments 7.59% 7.58% 7.55% 7.46% 7.51%
======== ========== ========== ======== ==========
Weighted average rate:
Deposits - daily access 2.48% 2.69% 2.76% 2.88% 3.01%
Deposits - certificates 5.49% 5.46% 5.46% 5.47% 5.47%
--------- ----------- ----------- --------- -----------
Total deposits 4.19% 4.30% 4.37% 4.48% 4.56%
Securities sold under agreements to repurchase 6.02% 5.65% 5.66% 0.00% 5.69%
FHLB borrowings 5.83% 5.67% 5.72% 5.66% 5.72%
Other borrowings 8.75% 8.75% 7.78% 7.76% 7.76%
--------- ----------- ----------- --------- -----------
Total borrowings 5.86% 5.66% 5.72% 5.66% 5.72%
--------- ----------- ----------- --------- -----------
Total deposits and borrowings 4.77% 4.82% 4.87% 4.90% 4.99%
======== ========== ========== ======== ==========
Interest rate spread 2.82% 2.76% 2.68% 2.56% 2.52%
======== ========== ========== ======== ==========
Adjusted Interest Rate Spread 1 2.92% 2.88% 2.79% 2.73% 2.67%
======== ========== ========== ======== ==========
<CAPTION>
Quarter Ended
--------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
1997 1997 1997 1997 1996
--------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average yield:
Loans receivable, net 7.71% 7.70% 7.62% 7.61% 7.60%
Mortgage-backed securities, net 6.59% 6.67% 6.71% 6.63% 6.73%
--------- ----------- ----------- --------- -----------
Total loans and MBS 7.53% 7.54% 7.47% 7.44% 7.45%
Federal funds sold and assets purchased
under resale agreements 5.79% 5.85% 5.79% 5.55% 5.52%
Other investments 7.50% 10.33% 8.21% 9.18% 8.77%
--------- ----------- ----------- --------- -----------
Total investments 6.35% 7.26% 6.60% 6.56% 6.43%
--------- ----------- ----------- --------- -----------
Total loans, MBS and investments 7.46% 7.52% 7.42% 7.37% 7.39%
======== ========== ========== ======== ==========
Weighted average cost:
Deposits - daily access 2.55% 2.72% 2.72% 2.99% 3.01%
Deposits - certificates 5.48% 5.45% 5.47% 5.49% 5.47%
--------- ----------- ----------- --------- -----------
Total deposits 4.22% 4.33% 4.40% 4.54% 4.56%
Securities sold under agreements to repurchase 5.70% 5.66% 5.65% 5.55% 5.61%
FHLB borrowings 5.76% 5.75% 5.78% 5.67% 5.66%
Other borrowings 2.34% 3.73% 3.84% 3.86% 3.24%
--------- ----------- ----------- --------- -----------
Total borrowings 5.72% 5.71% 5.75% 5.66% 5.63%
--------- ----------- ----------- --------- -----------
Total deposits and borrowings 4.76% 4.86% 4.89% 4.94% 4.95%
======== ========== ========== ======== ==========
Yield-cost spread 2.70% 2.66% 2.53% 2.43% 2.44%
======== ========== ========== ======== ==========
Effective Net Spread 1 2.83% 2.78% 2.67% 2.59% 2.61%
======== ========== ========== ======== ==========
</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 99B
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
INTEREST RATE MARGIN - (Continued)
(unaudited)
<TABLE>
<CAPTION>
Year-to-date Ended
--------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
1997 1997 1997 1997 1996
--------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average yield:
Loans receivable, net 7.70% 7.70% 7.60% 7.59% 7.58%
Mortgage-backed securities, net 6.63% 6.67% 6.67% 6.65% 6.66%
--------- ----------- ----------- --------- ----------
Total loans and MBS 7.53% 7.54% 7.44% 7.43% 7.43%
Federal funds sold and assets purchased
under resale agreements 5.82% 5.85% 5.59% 5.54% 5.53%
Other investments 8.91% 10.33% 8.89% 9.17% 9.16%
--------- ----------- ----------- --------- ----------
Total investments 6.82% 7.26% 6.55% 6.54% 6.53%
--------- ----------- ----------- --------- -----------
Total loans, MBS and investments 7.49% 7.52% 7.39% 7.38% 7.38%
======== ========== ========== ======== ==========
Weighted average rate:
Deposits - daily access 2.63% 2.72% 2.94% 2.98% 3.01%
Deposits - certificates 5.46% 5.45% 5.46% 5.48% 5.47%
--------- ----------- ----------- --------- ----------
Total deposits 4.27% 4.33% 4.52% 4.57% 4.58%
Securities sold under agreements to repurchase 5.68% 5.66% 5.55% 5.50% 5.50%
FHLB borrowings 5.75% 5.75% 5.72% 5.70% 5.71%
Other borrowings 3.19% 7.37% 3.77% 3.76% 3.33%
--------- ----------- ----------- --------- ----------
Total borrowings 5.72% 5.71% 5.69% 5.67% 5.67%
--------- ----------- ----------- --------- -----------
Total deposits and borrowings 4.81% 4.86% 4.95% 4.96% 4.97%
======== ========== ========== ======== ==========
Yield-cost spread 2.68% 2.66% 2.44% 2.42% 2.41%
======== ========== ========== ======== ==========
Effective net spread 1 2.81% 2.78% 2.61% 2.59% 2.59%
======== ========== ========== ======== ==========
</TABLE>
- - -----------------------------------
1 The effective net spread for a period is annualized net interest income
during the period divided by average interest-earning assets during the
period.
<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>
Dec. 31, 1997 $ 69,219 $ 23,543 $ 5,219 $ 223,942 $ - $ 2,428 $ 21,031 $ 345,382
20% 7% 1% 65% 0% 1% 6% 100%
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%
</TABLE>
- - -----------
(1) Includes refinanced portion of the Company's loans, which amounted to
$70,286, $49,461, $24,399, $20,203, and $22,075 for the quarters ended December
31, 1997, September 30, 1997, June 30, 1997, March 31, 1997, and December 31,
1996, respectively.
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES AND EXHIBIT 99D
NON-PERFORMING ASSETS ("NPA")
At December 31, 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 $ 8,793,806 $ 42,922 0.49% $ 75,316 56.99% $ 107,418 1.22% 39.96%
Multi-family:
5-36 units 1,426,589 37,603 2.64% 11,674 322.11% 19,075 1.34% 197.13%
37 or more units 319,849 14,214 4.44% 1,592 892.84% 1,592 0.50% 892.84%
Non-residential 1,030,994 37,067 3.60% 12,028 308.17% 20,976 2.03% 176.71%
Commercial 233,921 7,816 3.34% 2,427 322.04% 2,427 1.04% 322.04%
Consumer 138,366 15,752 11.38% 653 2412.25% 653 0.47% 2,412.25%
------------ --------- --------- ---------
$ 11,943,525 $ 155,374 1.30% $ 103,690 149.84% $ 152,141 1.27% 102.13%
============ ========= ========= ==========
</TABLE>
<PAGE>
EXHIBIT 99E
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
GROSS LOANS, NON-PERFORMING ASSETS ("NPA")
AND RESTRUCTURED LOANS ("TDR") BY PROPERTY TYPE
At December 31, 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 $ 8,793,806 $ 75,316 $32,102 $ 107,418 $ 1,813
Multi-family:
5-36 units 1,426,589 11,674 7,401 19,075 5,675
37 or more units 319,849 1,592 - 1,592 5,249
Non-residential:
Office buildings 357,512 6,331 1,255 7,586 4,444
Shopping centers 312,739 3,177 4,360 7,537 742
Warehouse/storage 76,420 380 - 380 -
Hotels/motels 23,627 853 3,333 4,186 -
Industrial parks 90,969 - - - 1,828
Land 13,884 17 - 17 511
Commercial/
industrial 155,843 1,270 - 1,270 -
----------- ---------- ---------- ---------- ----------
Total non-residential 1,030,994 12,028 8,948 20,976 7,525
Commercial 233,921 2,427 - 2,427 -
Consumer 138,366 653 - 653 -
----------- ---------- ---------- ---------- ----------
Total $11,943,525 $ 103,690 $ 48,451 $ 152,141 $ 20,262
=========== ========== ========== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES EXHIBIT 99F
NON-PERFORMING ASSETS AND RESTRUCTURED LOANS
(dollars in thousands)
(unaudited)
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31
1997 1997 1997 1997 1996
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Balances:
Non-accrual loans $103,690 $129,911 $140,295 $153,402 $152,100
Real estate owned and other assets 48,451 60,338 64,663 71,371 72,634
-------- -------- --------- -------- --------
Total non-performing assets $152,141 $190,249 $204,958 $224,773 $224,734
======== ======== ======== ======== ========
Restructured loans $ 20,262 $ 33,251 $ 31,064 $ 31,342 $ 30,712
======== ======== ======== ======== ========
Percent of total assets:
Non-accrual loans 0.65% 0.79% 0.86% 1.00% 1.01%
Real estate owned and other assets 0.30% 0.37% 0.40% 0.46% 0.48%
-------- -------- -------- -------- --------
Total non-performing assets 0.95% 1.16% 1.26% 1.46% 1.49%
======== ======== ======== ======== ========
Restructured loans 0.13% 0.20% 0.19% 0.20% 0.20%
========== ========= ========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 99G
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NON-PERFORMING ASSETS ACTIVITY
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
1997 1997 1997 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 190,249 $ 204,958 $ 224,773 $ 224,734 $ 254,978
Additions:
Single-family 1-4 units 32,225 40,011 41,144 52,103 54,427
Multi-family:
5 to 36 units 11,359 4,829 9,492 9,911 20,390
37 or more units 93 - 4,292 - -
Non-residential 373 7,228 10,002 21,538 3,600
Commercial 2,901 2,460 1,643 458 -
Consumer 37 52 1,161 71 142
---------- ---------- ---------- ---------- ----------
46,988 54,580 67,734 84,081 78,559
---------- ---------- ---------- ---------- ----------
Deletions:
Foreclosures:
Single-family 1-4 units (4,277) (3,748) (5,776) (8,692) (5,476)
Multi-family:
5 to 36 units (1,284) (2,203) (603) (1,704) (2,280)
37 or more units - - (21) (555) (5)
Non-residential - (77) 3 (208) 466
---------- ---------- ---------- ---------- ----------
(5,561) (6,028) (6,397) (11,159) (7,295)
---------- ---------- ---------- ---------- ----------
Write-downs:
Single-family 1-4 units - (551) - (2,750) (734)
Multi-family:
5 to 36 units (334) (232) (766) (950) (606)
37 or more units - - - (246) (754)
Non-residential (426) (745) (1,229) (120) (877)
Commercial (4) (2) - - -
---------- ---------- ---------- ---------- ----------
(764) (1,530) (1,995) (4,066) (2,971)
---------- ---------- ---------- ---------- ----------
Reinstatements:
Single-family 1-4 units (13,433) (11,287) (11,754) (18,372) (17,065)
Multi-family:
5 to 36 units (2,133) (2,018) (3,309) (5,679) (1,116)
37 or more units - - (3,463) (503) -
Non-residential (87) (1,731) - (559) (118)
Commercial (604) (1,512) - - -
---------- ---------- ---------- ---------- ----------
(16,257) (16,548) (18,526) (25,113) (18,299)
---------- ---------- ---------- ---------- ----------
Payoffs/Sales/Other:
Single-family 1-4 units (20,298) (28,329) (35,948) (27,998) (41,730)
Multi-family:
5 to 36 units (12,165) (6,245) (7,477) (8,905) (22,011)
37 or more units (4) (3,551) (8,982) (219) (4,877)
Non-residential (27,846) (6,554) (7,229) (6,129) (11,316)
Commercial (2,035) 364 (799) (452) (3)
Consumer (166) (868) (196) (1) (301)
---------- ---------- ---------- ---------- ----------
(62,514) (45,183) (60,631) (43,704) (80,238)
---------- ---------- ---------- ---------- ----------
Ending Balance $ 152,141 $ 190,249 $ 204,958 $ 224,773 $ 224,734
========== ========== ========== ========== ==========
Net (Increase) Decrease $ 38,108 $ 14,709 $ 19,815 $ (39)$ 30,244
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 99H
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
DELINQUENT LOANS BY PROPERTY TYPE
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
% of Type of % of Type of % of Type of
Gross Gross Gross
Dec. 31, Loans Sept. 30, Loans June 30, Loans
1997 Receivable 1997 Receivable 1997 Receivable
----------- ---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Single-family 1-4 units:
31 - 60 Days $ 42,706 0.48% $ 47,820 0.53% $ 46,172 0.52%
61 - 90 Days 15,723 0.18% 18,315 0.20% 17,030 0.19%
Over 90 Days 75,316 0.86% 85,787 0.94% 82,989 0.95%
-------- ----- -------- ---- -------- ----
133,745 1.52% 151,922 1.67% 146,191 1.66%
-------- ----- -------- ---- -------- ----
Multi-family 5-36 units:
31 - 60 Days 5,469 0.38% 8,452 0.58% 8,944 0.61%
61 - 90 Days 1,414 0.10% 5,551 0.38% 3,021 0.20%
Over 90 Days 11,630 0.82% 11,118 0.77% 17,713 1.20%
-------- ----- -------- ---- -------- ----
18,513 1.30% 25,121 1.73% 29,678 2.01%
-------- ----- -------- ---- -------- ----
Multi-family 37 or more units:
31 - 60 Days ---- ---- ---- ---- 1,312 0.38%
61 - 90 Days ---- ---- ---- ---- ---- ----
Over 90 Days ---- ---- 1,503 0.43% ---- ----
-------- ---- -------- ---- -------- ----
---- ---- 1,503 0.43% 1,312 0.38%
-------- ---- -------- ---- -------- ----
Non-residential:
31 - 60 Days 8,341 0.81% 7,340 0.69% 11,240 0.93%
61 - 90 Days 3,822 0.37% 5,035 0.47% 3,079 0.26%
Over 90 Days 9,538 0.92% 9,281 0.87% 14,149 1.17%
-------- ----- -------- ---- -------- ----
21,701 2.10% 21,656 2.03% 28,468 2.36%
-------- ---- -------- ---- -------- ----
Commercial:
31 - 60 Days 5,437 2.32% 8,515 4.00% 3,235 2.02%
61 - 90 Days 3,041 1.30% 2,374 1.11% 1,935 1.21%
Over 90 Days 2,146 0.92% 1,853 0.87% 726 0.45%
-------- ---- -------- ---- -------- ----
10,624 4.54% 12,742 5.98% 5,896 3.68%
-------- ---- -------- ---- -------- ----
Consumer:
31 - 60 Days 1,711 1.24% 1,020 0.83% 1,560 1.29%
61 - 90 Days 709 0.51% 559 0.45% 624 0.52%
Over 90 Days 646 0.47% 782 0.63% 1,562 1.29%
-------- ---- -------- ---- -------- ----
3,066 2.22% 2,361 1.91% 3,746 3.10%
-------- ---- -------- ---- -------- ----
Total:
31 - 60 Days 63,664 0.53% 73,147 0.59% 72,463 0.60%
61 - 90 Days 24,709 0.21% 31,834 0.26% 25,689 0.21%
Over 90 Days 99,276 0.83% 110,324 0.90% 117,139 0.96%
-------- ---- -------- ---- -------- ----
$187,649 1.57% $215,305 1.75% $215,291 1.77%
======== ==== ======== ==== ======== ====
<CAPTION>
% of Type of % of Type of
Gross Gross
Mar. 31, Loans Dec. 31, Loans
1997 Receivable 1996 Receivable
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Single-family 1-4 units:
31 - 60 Days $ 52,181 0.63% $ 52,280 0.65%
61 - 90 Days 18,035 0.22% 22,787 0.28%
Over 90 Days 93,111 1.12% 100,006 1.23%
-------- ---- -------- ----
163,327 1.97% 175,073 2.16%
-------- ---- -------- ----
Multi-family 5-36 units:
31 - 60 Days 11,351 0.76% 10,507 0.69%
61 - 90 Days 4,105 0.27% 4,932 0.33%
Over 90 Days 17,405 1.16% 21,009 1.39%
-------- ---- -------- ----
32,861 2.19% 36,448 2.41%
-------- ---- -------- ----
Multi-family 37 or more units:
31 - 60 Days ---- ---- 1,887 0.50%
61 - 90 Days 1,478 0.41% 988 0.26%
Over 90 Days 4,470 1.23% 10,917 2.90%
-------- ---- -------- ----
5,948 1.64% 13,792 3.66%
-------- ---- -------- ----
Non-residential:
31 - 60 Days 12,226 1.02% 8,827 0.71%
61 - 90 Days 2,422 0.20% 18 ----
Over 90 Days 12,660 1.05% 12,262 0.99%
-------- ---- -------- ----
27,308 2.27% 21,107 1.70%
-------- ---- -------- ----
Commercial:
31 - 60 Days 929 1.26% 2 ----
61 - 90 Days ---- ---- ---- ----
Over 90 Days 6 0.01% ---- ----
-------- ---- -------- ----
935 1.27% 2 ----
-------- ---- -------- ----
Consumer:
31 - 60 Days 2,462 2.73% 1,517 1.85%
61 - 90 Days 769 0.85% 521 0.63%
Over 90 Days 409 0.45% 512 0.62%
-------- ---- --------
3,640 4.03% 2,550 3.10%
-------- ---- -------- ----
Total:
31 - 60 Days 79,149 0.69% 75,020 0.66%
61 - 90 Days 26,809 0.23% 29,246 0.26%
Over 90 Days 128,061 1.11% 144,706 1.27%
-------- ---- -------- ----
$234,019 2.03% $248,972 2.19%
======== ==== ======== ====
</TABLE>
