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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 March 31, 1998
-------------------------------------------------
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
March 31, 1998 was 51,327,541.
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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 -
MARCH 31, 1998 AND JUNE 30, 1997............................ 1
CONSOLIDATED STATEMENTS OF OPERATIONS -
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997......... 2
CONSOLIDATED STATEMENTS OF CASH FLOWS -
NINE MONTHS ENDED MARCH 31, 1998 AND 1997................... 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......... 30
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>
March 31, June 30,
1998 1997
--------------- --------------
ASSETS
<S> <C> <C>
Cash and amounts due from banks $ 284,113 $ 221,557
Federal funds sold and assets purchased under resale agreements 520,000 632,000
Certificates of deposit -- substantially restricted 2,805 4,005
Other debt and equity securities available for sale, at fair value 24,530 27,794
Mortgage-backed securities held to maturity, at amortized cost
(fair value: $1,001,270 at March 31, 1998 and
$1,166,941 at June 30, 1997) 995,038 1,162,825
Mortgage-backed securities available for sale, at fair value 1,183,334 1,116,709
Loans receivable, net of allowance for loan losses of $146,382 at
March 31, 1998 and $163,759 at June 30, 1997 11,795,753 11,886,090
Loans held for sale, at lower of cost or market 11,565 19,003
Real estate held for sale or investment 6,124 8,689
Real estate acquired in settlement of loans 33,466 61,500
Interest receivable 98,169 102,940
Investment in capital stock of Federal Home Loan Bank, at cost 271,749 259,587
Premises and equipment, at cost, less accumulated depreciation 142,288 134,936
Mortgage servicing assets 247,914 284,472
Goodwill and other intangible assets, less accumulated amortization 92,510 99,533
Other assets 214,892 196,619
--------------- ---------------
$ 15,924,250 $ 16,218,259
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 9,692,874 $ 9,356,909
Securities sold under agreements to repurchase - 768,682
Borrowings from the Federal Home Loan Bank 4,824,000 4,788,000
Other borrowings 73 10,782
Other liabilities and accrued expenses 212,424 221,540
Income taxes payable 80,007 60,272
--------------- ---------------
Total liabilities 14,809,378 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 March 31, 1998 and June 30, 1997) 4,622 4,622
Common stock, $1.00 par value per share
(100,000,000 shares authorized; 51,327,541 shares issued
and outstanding at March 31, 1998; 50,348,509
shares issued and outstanding at June 30, 1997) 51,328 50,349
Additional paid-in capital 813,913 793,111
Net unrealized holding loss on debt and equity
securities available for sale (2,003) (1,154)
Retained earnings-substantially restricted 247,012 165,146
--------------- ---------------
Total stockholders' equity 1,114,872 1,012,074
--------------- ---------------
$ 15,924,250 $ 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 Nine Months Ended
March 31, March 31,
------------------------ --------------------------
1998 1997 1998 1997
----------- -------- ---------- -----------
<S> <C> <C> <C> <C>
Interest income:
Loans receivable $225,950 $213,675 $694,448 $638,677
Mortgage-backed securities 36,588 38,184 112,685 111,985
Investments 14,025 16,496 45,749 45,947
-------- -------- -------- --------
Total interest income 276,563 268,355 852,882 796,609
-------- -------- -------- --------
Interest expense:
Deposits 97,733 100,682 300,953 304,006
Short-term borrowings 7,515 837 36,260 13,904
Other borrowings 63,657 70,315 195,186 199,583
-------- -------- -------- --------
Total interest expense 168,905 171,834 532,399 517,493
-------- -------- -------- --------
Net interest income 107,658 96,521 320,483 279,116
Provision for loan losses (1,577) 6,143 417 21,326
-------- -------- -------- --------
Net interest income after provision for loan losses 109,235 90,378 320,066 257,790
Other income:
Loan servicing income, net 5,999 8,354 23,063 25,478
Other fees and service charges 17,570 14,811 50,225 41,235
Loss on sale of loans, net (406) (156) (597) (275)
Gain (loss) on sale of mortgage-backed securities
available for sale, net 1,191 (127) 1,323 (1,573)
Other income (loss), net 28 (165) 1,461 113
-------- -------- -------- --------
Total other income 24,382 22,717 75,475 64,978
-------- -------- -------- --------
Other expenses:
Compensation and employee benefits 35,103 29,403 100,620 84,498
Occupancy expense, net 7,917 7,726 25,245 23,363
Advertising and promotion 5,173 4,635 16,555 17,725
Regulatory insurance 1,920 2,563 5,748 13,759
Furniture, fixtures and equipment 4,055 3,069 11,024 8,974
Stationery, supplies and postage 3,792 3,009 10,527 8,476
Other general and administrative expenses 15,011 12,965 46,759 38,618
-------- -------- -------- --------
Total general and administrative expenses 72,971 63,370 216,478 195,413
SAIF special assessment - - - 58,672
Legal expense - goodwill lawsuit 5,254 8,202 15,231 13,720
Acquisition and restructuring costs 946 - 3,433 -
Operations of real estate held for sale or investment 20 104 (690) 716
Operations of real estate acquired in settlement of loans (2,785) 2,086 (1,567) 5,906
Amortization of goodwill and other intangible assets 2,002 1,351 6,101 3,924
-------- -------- -------- --------
Total other expenses 78,408 75,113 238,986 278,351
-------- -------- -------- --------
Earnings before income tax provision 55,209 37,982 156,555 44,417
Income tax provision 23,188 15,090 67,106 18,288
-------- -------- -------- --------
Net earnings $ 32,021 $ 22,892 $ 89,449 $ 26,129
======== ======== ======== ========
Earnings applicable to common shareholders:
Net earnings $ 32,021 $ 22,892 $ 89,449 $ 26,129
Dividends declared on preferred stock (2,528) (2,527) (7,583) (8,313)
Premium on exchange of preferred stock for common stock - (241) - (4,173)
--------- --------- --------- ---------
$ 29,493 $ 20,124 $ 81,866 $ 13,643
======== ======== ========= ========
Earnings per share:
Basic $ 0.58 $ 0.40 $ 1.61 $ 0.28
Diluted $ 0.45 $ 0.33 $ 1.27 $ 0.25
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
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GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended March 31
---------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $89,449 26,129
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Amortization of discounts and accretion of premiums, net 6,477 8,006
Accretion of deferred loan fees (2,465) (3,382)
Provision for loan losses 417 21,326
Loss on sale of loans, net 597 275
(Gain) loss on sale of mortgage-backed securities
available for sale, net (1,323) 1,573
Depreciation 11,733 11,171
Amortization of mortgage servicing assets 36,626 21,192
Provision for losses on real estate 2,433 6,412
Gain on sale of real estate (8,099) (5,352)
Amortization of goodwill and other intangible assets 6,101 3,924
Provision for deferred income taxes 3,197 14,398
Net change in loans originated or purchased for resale 49,234 35,441
Decrease (increase) in interest receivable 4,771 (8,117)
FHLB stock dividend received (12,162) (9,940)
Increase in other assets (16,243) (755)
Increase in other liabilities 34,887 75,236
Other items 591 (5,281)
----------- -----------
Total adjustments 116,772 166,127
----------- -----------
Net cash provided by operating activities 206,221 192,256
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in certificates of deposit with original maturities
of 3 months or less 3,200 (1,022)
Net change in other debt and equity securities with original maturities
of 3 months or less 796 400
Purchase of certificates of deposit (2,000) -
Purchase of other debt and equity securities held to maturity - (3,000)
Proceeds from maturities of other debt and equity securities held to maturity - 7,810
Purchase of other debt and equity securities available for sale (141) -
Proceeds from maturities of other debt and equity securities
available for sale 3,000 -
Principal payments on mortgage-backed securities held to maturity 165,854 144,417
Purchase of mortgage-backed securities available for sale (366,047) (358,405)
Principal payments on mortgage-backed securities available for sale 290,379 210,513
Loans originated for investment, net of refinances (459,158) (371,132)
Loans purchased for investment (1,457,787) (1,620,508)
Net change in undisbursed loan funds (1,529) (8,370)
Principal payments on loans held for investment 1,935,759 1,378,029
Proceeds from sale of other debt securities available for sale - 702
Cash invested in real estate (10,496) (9,586)
Cash received from real estate investments and sale of real estate
acquired in settlement of loans 80,135 72,151
Purchase of FHLB stock - (53,052)
Net increase in premises and equipment (19,085) (13,379)
Payments under agreements to purchase mortgage servicing assets (13,194) (90,609)
Payment for purchase of OneCentral Bank - (11,111)
----------- -----------
Net cash provided (used) by investing actitivities 149,686 (726,152)
----------- -----------
</TABLE>
Statement continued on next page
3
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GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended March 31
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 335,965 393,110
Net change in short-term borrowings with original maturities of 3 months or less (768,682) (758,050)
Proceeds from funding of FHLB advances 3,424,000 2,300,000
Repayments of FHLB advances (3,388,000) (1,150,000)
Repayment of other borrowings (10,709) (2,485)
Proceeds from issuance of common stock 9,658 4,317
Payment of dividends on preferred stock (7,583) (9,299)
------------ ------------
Net cash (used) provided by financing activities (405,351) 777,593
------------ ------------
Net (decrease) increase in cash and cash equivalents (49,444) 243,697
Cash and cash equivalents at beginning of period 853,557 586,608
------------ ------------
Cash and cash equivalents at end of period $ 804,113 $ 830,305
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
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, pursuant to which Golden State became the holding company
for Glendale Federal, 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
March 31, 1998 and June 30, 1997, the results of its operations for the three
and nine months ended March 31, 1998 and 1997 and its cash flows for the nine
months ended March 31, 1998 and 1997. 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 March 31, 1998 and June 30,
1997. Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the March 31, 1998 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 disclosures of contingent assets and liabilities as of the dates
of the consolidated statements of financial condition and consolidated
statements of operations for the periods covered, including the allowance for
loan losses, the mortgage servicing asset valuation allowance and the 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>
Nine months ended March 31
---------------------------
1998 1997
------------- -----------
<S> <C> <C>
Cash paid for:
Interest $535,295 $529,039
Income taxes 34,288 6,145
Non-cash investing and financing activities:
Principal reductions to loans due to foreclosure 75,851 121,233
Loans exchanged for mortgage-backed securities 97,993 38,198
Loans made to facilitate the sale of real estate
held for investment and real estate acquired in settlement of loans 30,996 45,858
Transfer of other debt and equity securities to available for sale - 7,935
Transfers of loans from held for investment to held for sale:
Liquidation of troubled credits 31,426 15,024
Other 17,062 -
Loans originated for investment, subsequently identified to sale portfolio - 1,596
Transfers of loans from held for sale to held for investment:
Loans originated for sale, subsequently identified to investment portfolio 3,723 -
Fair value of OneCentral net assets acquired - 5,306
Exchange of preferred stock for common stock - 1,202
Issuance of common stock in exchange for preferred stock - 3,104
</TABLE>
5
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
MARCH 31, 1998
The transfers of loans from the held for investment portfolio to the held for
sale portfolio were primarily of troubled loans which the Company sold to remove
the credit and/or collateral risk arising from the credit.
During the nine months ended March 31, 1998 and 1997, the Company received
income tax refunds of $144,000 and $8,383,000, respectively.
NOTE (3) - EARNINGS PER SHARE INFORMATION
In February 1997, the Financial Accounting Standards Board 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 for 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.
There were no exchanges of preferred stock for common stock during the three
and nine months ended March 31, 1998. During the three and nine months ended
March 31, 1997, 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 82,200 shares and 1.2 million shares,
respectively, of the preferred stock for 207,966 shares and 3.1 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 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 earnings
applicable to common shareholders in the calculation of earnings (loss) per
share.
The table in Exhibit 11.1 presents the calculation of earnings per share on a
basic and diluted basis for the three and nine months ended March 31, 1998 and
1997, respectively.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
EARNINGS PERFORMANCE
The Company recorded net earnings of $32.0 million, or $0.45 per diluted
share, for the three months ended March 31, 1998, compared to net earnings of
$22.9 million, or $0.33 per diluted share, for the same period last year. For
the nine months ended March 31, 1998, the Company recorded net earnings of $89.4
million, or $1.27 per diluted share, compared to net earnings of $26.1 million,
or $0.25 per diluted share, for the same period last year.
Net earnings for the quarter ended March 31, 1998 included legal expenses for
the Company's goodwill litigation of $5.3 million ($3.0 million after-tax), and
acquisition and restructuring costs of $0.9 million ($0.6 million after-tax)
related to the acquisitions of CENFED Financial Corporation and RedFed Bancorp
Inc., and the distribution of the Litigation Tracking Warrants/TM/ described
below. Net earnings for the nine months ended March 31, 1998 included legal
expenses for the Company's goodwill litigation of $15.2 million ($8.8 million
after-tax), and acquisition and restructuring costs of $3.4 million ($2.0
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 March 31, 1997 included legal expenses for
the Company's goodwill litigation of $8.2 million ($4.7 million after-tax). Net
earnings for the nine months ended March 31, 1997 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 $13.7
million ($7.9 million after-tax).
During the three and nine months ended March 31, 1997, the Company exchanged
82,200 shares and 1.2 million shares, respectively, of its preferred stock for
207,966 shares and 3.1 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 nine months ended March 31, 1998.
Excluding the after-tax impact of the non-operating items mentioned above and
the effect of the preferred stock conversions during the three and nine months
ended March 31, 1997, adjusted net earnings for the three and nine months ended
March 31, 1998 were $35.6 million, or $0.50 per diluted share, and $100.3
million, or $1.42 per diluted share, respectively, compared to adjusted net
earnings during the comparable periods in fiscal 1997 of $27.6 million, or $0.40
per diluted share, and $67.8 million, or $1.02 per diluted share, respectively.
The 29% and 48% improvements in adjusted net earnings during the three and
nine months ended March 31, 1998, respectively, over the same periods in fiscal
1997 reflect higher net interest income, lower credit-related costs, increases
in other fees and service charges and reduced FDIC insurance premiums, partially
offset by decreases in loan servicing income, increases in certain general and
administrative expenses due to expansion of the Company's business lines, recent
acquisitions and franchise expansion, and increases in the amortization of
goodwill and other intangible assets due to acquisitions.
The Company's interest rate spread was 2.95% at March 31, 1998, as compared
with 2.56% at March 31, 1997 and 2.68% at June 30, 1997. The Company's interest
rate spread continued to improve in the first nine months of fiscal 1998
primarily due to a decline in the Company's cost of funds. The decrease in the
cost of funds from 4.90% at March 31, 1997 to 4.58% at March 31, 1998, reflects
a decline in deposit costs due to a continuing shift in the mix of deposits from
higher-cost certificates of deposit to lower-cost checking and other daily
access accounts, and to the addition of lower-costing checking and daily access
accounts obtained in recent acquisitions. Checking accounts comprised 17.6% of
total deposits at March 31, 1998, compared with 12.8% and 11.1%, at June 30,
1997 and March 31, 1997, respectively.
7
<PAGE>
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 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'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.
In a special meeting on April 23, 1998, Golden State shareholders approved
certain corporate changes necessary to issue the LTW/TM/s, including an increase
in the total number of authorized shares of common stock from 100 million shares
to 250 million shares and amendments to certain terms of the Company's
Noncumulative Convertible Preferred Stock, Series A (the "Series A Preferred
Stock"). Following the shareholder meeting on that date, the Company's Board of
Directors declared a distribution of its LTW/TM/s for May 29, 1998, to holders
of the common stock of Golden State of record on May 7, 1998, on the basis of
one LTW/TM/ for each share held as of the close of business on that date. The
Board of Directors also reserved additional LTW/TM/s for future issuance in
connection with conversions or exercises of the Company's outstanding Series A
Preferred Stock, its two outstanding classes of common stock purchase warrants
and employee stock options. The total number of LTW/TM/s issued to holders of
common stock and reserved for such future issuances is approximately 85.8
million. The distribution of the LTW/TM/s will not affect Golden State's diluted
shares outstanding prior to the time they become exercisable because the amount
of the proceeds from the Goodwill Litigation and the number of shares of common
stock to be issued cannot be determined until the LTW/TM/s become exercisable.
The LTW/TM/s started trading on a "when issued" basis on the NASDAQ National
Market System on May 5, 1998 under the ticker symbol "GSBZV", and will trade
"regular way" on the NASDAQ National Market System following completion of their
distribution under the ticker symbol "GSBNZ" effective June 1, 1998.
MERGER AGREEMENT WITH FIRST NATIONWIDE (PARENT) HOLDINGS INC.
On February 4, 1998, Golden State entered into an Agreement and Plan of
Reorganization (the "Cal Fed Merger Agreement") with First Nationwide (Parent)
Holdings, Inc. ("First Nationwide"), First Nationwide Holdings, Inc. ("FNH"),
and certain other parent entities of California Federal Bank, A Federal Savings
Bank ("Cal Fed"). FNH is controlled, through intermediate entities, by
MacAndrews and Forbes Holdings Inc. ("MAF") and Gerald J. Ford ("Ford"), the
Chairman of the Board and Chief Executive Officer of Cal Fed. After giving
effect to the Cal Fed Merger (and other announced thrift industry mergers), the
resulting company, which is expected to be named "California Federal Bank" at
the operating level and "Golden State Bancorp Inc." at the holding company
level, will be California's largest statewide community bank and fourth largest
depository institution, and will be a leading in-state provider of consumer,
business and mortgage banking services.
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 on a fully diluted basis, immediately
after the merger, before giving effect to any shares that may be issuable
pursuant to the Litigation Tracking Warrants/TM/ or to the possible issuance of
contingent additional shares of Golden State common stock to affiliates of MAF
and Ford under the Cal Fed Merger Agreement that could substantially increase
the percentage ownership of the MAF and Ford affiliates. The Cal Fed Merger
Agreement also contemplates that two-thirds of the Board of Directors of Golden
State immediately after the Cal Fed Merger will be individuals designated by
affiliates of MAF and Ford.
8
<PAGE>
The terms of the Cal Fed Merger provide that the Company's stockholders are to
own 58% of the combined entity on a fully diluted basis, immediately after the
merger, if the adjusted volume-weighted average trading price (the "Adjusted
Average Price") of the Common Stock is $32 per share or less, and are to own 55%
of the combined entity on such basis if the Adjusted Average Price is $33 or
more per share, with intermediate ownership percentages being applicable in the
event the Adjusted Average Price is between $32 and $33. The Adjusted Average
Price of Golden State common stock will be the daily volume-weighted average
price per share for Golden State common stock on the New York Stock Exchange for
15 randomly selected trading days during a 30 trading-day period following the
above-described distribution of the LTW/TM/s, to Golden State Stockholders and
ending three days before the closing date of the Cal Fed Merger, adjusted to
subtract the value attributable to the 15% of the value of the potential
recovery in the Goodwill Litigation that is not included for purposes of
calculating the number of shares of Golden State common stock issuable upon
exercise of the LTW/TM/s.
Following the Cal Fed Merger, the Company will have approximately 130 to 140
million shares of common stock outstanding. Because the Company will survive the
Cal Fed Merger, the LTW/TM/s will remain exercisable for common stock of the
Company after the Cal Fed Merger. The Cal Fed Merger is subject to regulatory
approval and the approval of the stockholders of the Company, as well as
satisfaction or waiver of other conditions, and is expected to close in the
September 1998 quarter.
At March 31, 1998, First Nationwide, through its subsidiary Cal Fed, operated
225 branches and had $32.2 billion in assets, including $20.9 billion in loans
receivable, net and $16.4 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 March 31, 1998, Golden State would have approximately 375
banking offices (after branch closures), combined consolidated assets of $52.4
billion, including $35.1 billion of loans receivable, net, $9.5 billion of
mortgage-backed securities, $1.8 billion of goodwill, deposits of $28.4 billion,
$19.0 billion of borrowings and a tangible book value of $4.33 per share. This
pro-forma information does not include the impact of Cal Fed's pending sale of
its Florida branch franchise for $110 million expected to be completed in the
September 1998 quarter. At March 31, 1998, Cal Fed's Florida branch franchise
had 24 branches with total deposits of $1.5 billion.
ACQUISITIONS
On April 21, 1998, Golden State completed its acquisition of CENFED Financial
Corporation ("CENFED"), the parent company of CenFed Bank, A Federal Savings
Bank. The terms of the transaction provided for a tax-free exchange of 1.2
shares of Golden State common stock for each outstanding share of CENFED's
common stock. Pursuant to the terms of the transaction, Golden State issued
approximately 7,391,000 shares of its common stock for a total purchase price of
$211.1 million, or $28.563 per share. Under the purchase method of accounting,
the goodwill recorded in this transaction will be amortized over 15 years using
the straight-line method. At April 21, 1998, CENFED operated 18 branches and had
$1.9 billion in assets, including $1.4 billion of loans receivable, net, $354
million of mortgage-backed securities, $1.4 billion of deposits and $403 million
of borrowings. The merger of CenFed Bank with Glendale Federal Bank was
completed on May 8, 1998.
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. On May 4, 1998,
the Company received OTS approval to acquire RedFed. A meeting of RedFed
stockholders to approve the transaction is scheduled for June 1, 1998 and the
transaction is expected to be completed in July 1998. 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
amounts equal to up to the amount that will be issued in the merger. The
transaction, which is valued at approximately $158 million, will be accounted
for as a purchase. The goodwill arising from this transaction will be
amortized over 15 years using the straight-line method. At March 31, 1998,
RedFed operated 14 branches and had $1.0 billion in assets, including $911
million of loans receivable, net, $10 million of mortgage-backed securities,
$861 million of deposits and $69 million of borrowings.
9
<PAGE>
CAPITAL
At March 31, 1998, the Company's tangible book value was $17.67 per common
share and $15.80 per diluted share. Glendale Federal's core capital, Tier 1
risk-based capital and total risk-based capital ratios at March 31, 1998 were
6.24%, 11.12% and 12.27%, respectively, placing the Bank 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.
On a pro-forma basis and after giving effect to the acquisition of CENFED,
Glendale Federal's core and risk-based capital ratios at March 31, 1998 would
have been 6.10% and 11.98%, respectively. It is anticipated that the Bank will
remain well-capitalized after the RedFed acquisition which is expected to be
completed in July 1998.
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 $294.0 million, to $15.9
billion, in the nine months ended March 31, 1998, primarily because of principal
payments received on loans. If interest rates decline significantly from current
levels, the Company's balance sheet could shrink further due to timing
differences between the runoff attributable to higher levels of prepayments on
loans and mortgage-backed securities, and the Company's ability to locate
suitable investments to replace the runoff. A reduction in asset size and a
corresponding decrease in interest-earning assets could adversely impact the
Company's earnings.
Consolidated liabilities of the Company decreased by $396.8 million, to $14.8
billion, in the nine months ended March 31, 1998. This decrease was mainly
attributable to a decrease of $768.7 million in securities sold under agreements
to repurchase, partially offset by an increase in deposits of $336.0 million.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held to maturity decreased by $167.8 million, to
$995.0 million, in the nine months ended March 31, 1998, primarily due to
principal payments received of $165.9 million.
Mortgage-backed securities available for sale increased by $66.6 million, to
$1.2 billion, in the nine months ended March 31, 1998, primarily due to
purchases of $362.4 million of mortgage-backed securities issued by various
federal agencies, partially offset by principal payments of $290.4 million. The
purchases primarily consisted of $112.8 million and $97.8 million of fixed-rate
and adjustable-rate securities, respectively, issued by the Government National
Mortgage Association.
LOANS RECEIVABLE
Loans receivable held for investment decreased by $90.3 million, to $11.8
billion, in the nine months ended March 31, 1998. The decrease was primarily due
to principal repayments of $1.9 billion and loans transferred to real estate
acquired in settlement of loans ("REO") of $75.9 million, partially offset by
loans purchased for investment totaling $1.4 billion and loans originated for
investment, net of refinances, of $490.2 million. The loan purchases consisted
primarily of $569.2 million of single-family residential, adjustable-rate
mortgage loans and $844.5 million of single-family residential, fixed-rate
mortgage loans that were purchased in the secondary market.
Loans receivable held for sale decreased by $7.4 million, to $11.6 million, in
the nine months ended March 31, 1998, primarily due to loan sales totaling
$240.1 million and the securitization of loans into mortgage-backed securities
in the amount of $98.0 million, partially offset by term loan originations of
$285.9 million and the net transfer of loans from held for investment totaling
$44.8 million. See Note 2 of the Notes to Consolidated Financial Statements for
additional information on the transfer of loans from the Company's held for
investment portfolio.
10
<PAGE>
As of March 31, 1998, commitments of the Company to purchase loans in the
secondary market totaled $685 million and were comprised solely of commitments
to purchase fixed rate loans. At that date, commitments of the Company to
originate loans and sell mortgage-backed securities totaled $87.4 million and
$79 million, respectively, and the Company's commitments on outstanding letters
of credit totaled $5.0 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
-------------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
1998 1997 1997 1997 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Consumer loans $ 39 $ 39 $ 37 $ 66 $ 32
Commercial loans 84 84 52 109 71
------- ------- -------- ------- -------
$ 123 $ 123 $ 89 $ 175 $ 103
======= ======= ======== ======= =======
</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 quarter included $25 million
through the OneCentral acquisition in January 1997.
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>
Mar. 31 June 30
1998 1997
--------- --------
<S> <C> <C>
Consumer loans:
Credit limit balance $407,230 $309,013
Outstanding principal balance 100,405 71,847
Commercial loans:
Credit limit balance 373,221 213,332
Outstanding principal balance 158,296 88,927
</TABLE>
Term loan originations by property type (including the refinanced portion of
the Company's loans) and loans purchased in the secondary market are summarized
as follows (in millions):
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
Originations: 1998 1997 1997 1997 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Permanent Loans:
Single-family 1-4 units $ 360 $311 $275 $ 245 $141
Multi-family 5-36 units 3 5 4 4 4
Multi-family 37 or more units -- -- -- 7 --
Non-residential 5 -- 4 3 1
Land -- 6 -- -- --
Commercial loans 10 21 16 17 5
Consumer loans 4 2 3 3 3
------- ------- -------- ------- -------
Total Originations 382 345 302 279 154
Secondary Market Purchases (1-4 units):
Adjustable-rate 116 147 306 294 214
Fixed-rate 548 -- 297 502 324
------- ------- -------- ------- -------
Total Purchases 664 147 603 796 538
------- ------- -------- ------- -------
$1,046 $492 $905 $1,075 $692
======= ======= ======== ======= =======
</TABLE>
11
<PAGE>
Term loan originations for the three months ended March 31, 1998 increased by
$37 million or 11%, to $382 million, as compared to the quarter ended December
31, 1997, and increased by $228 million or 148%, as compared to the same quarter
last year. Loans refinanced totaled $133 million, or 35% of total originations,
for the three months ended March 31, 1998, compared to $70.3 million, or 20% of
total originations, for the quarter ended December 31, 1997. Loans refinanced
totaled $20.2 million, or 13% of total originations, for the three months ended
March 31, 1997.
Term loan originations for the three months ended March 31, 1998 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 82% of total originations in the current
quarter, compared to 65% and 47%, respectively, in the December 1997 and March
1997 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.
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>
March 31, 1998 June 30, 1997
---------------------- ---------------------
% of % of
Dollar Total Dollar Total
Amount Assets Amount Assets
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Non-accrual loans $102,788 0.65% $140,295 0.86%
REO and other assets 34,848 0.21% 64,663 0.40%
-------- ------ -------- ------
Total NPAs $137,636 0.86% $204,958 1.26%
======== ====== ======== ======
Restructured loans $ 20,123 0.13% $ 31,064 0.19%
======== ====== ======== ======
</TABLE>
12
<PAGE>
The following table summarizes NPA and restructured loan activity during the
first nine months of fiscal 1998 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, PAYOFFS/ MAR. 31,
1997 FORE- WRITE- REIN- SALES/ 1998
BALANCE ADDITIONS CLOSURES DOWNS STATEMENTS OTHER BALANCE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS:
Single-family 1-4 units $ 82,989 $105,379 $(53,146) $ - $(38,505) $ (23,042) $ 73,675
Multi-family 5-36 units 21,087 17,669 (16,513) (495) (4,151) (9,266) 8,331
Multi-family 37 or more units 3,121 93 - - - (1,213) 2,001
Non-residential 30,672 16,022 (6,119) (2,740) (2,561) (19,323) 15,951
Commercial 859 7,821 - (88) (4,164) (2,680) 1,748
Consumer 1,567 364 - (15) (4) (830) 1,082
-------------------------------------------------------------------------------------
Total $140,295 $147,348 $(75,778) $(3,338) $(49,385) $ (56,354) $102,788
=====================================================================================
REO AND OTHER ASSETS:
Single-family 1-4 units $ 34,116 $ 3,758 $ 42,573 $ (818) $ - $ (55,060) $ 24,569
Multi-family 5-36 units 8,414 1,323 12,568 (674) - (16,092) 5,539
Multi-family 37 or more units 1,933 - - - - (1,933) -
Non-residential 20,169 152 6,038 (1,104) - (20,515) 4,740
Consumer 31 - - - - (31) -
-------------------------------------------------------------------------------------
Total $ 64,663 $ 5,233 $ 61,179 $(2,596) $ - $ (93,631) $ 34,848
=====================================================================================
TOTAL NPAs:
Single-family 1-4 units $117,105 $109,137 $(10,573) $ (818) $(38,505) $ (78,102) $ 98,244
Multi-family 5-36 units 29,501 18,992 (3,945) (1,169) (4,151) (25,358) 13,870
Multi-family 37 or more units 5,054 93 - - - (3,146) 2,001
Non-residential 50,841 16,174 (81) (3,844) (2,561) (39,838) 20,691
Commercial 859 7,821 - (88) (4,164) (2,680) 1,748
Consumer 1,598 364 - (15) (4) (861) 1,082
-------------------------------------------------------------------------------------
Total $204,958 $152,581 $(14,599) $(5,934) $(49,385) $(149,985) $137,636
=====================================================================================
RESTRUCTURED LOANS:
Single-family 1-4 units $ 2,168 $ 828 $ - $ - $ - $ (1,243) $ 1,753
Multi-family 5-36 units 3,676 3,353 - - - (1,374) 5,655
Multi-family 37 or more units 18,331 3,114 - - - (16,225) 5,220
Non-residential 6,889 751 - - - (145) 7,495
-------------------------------------------------------------------------------------
Total $ 31,064 $ 8,046 $ - $ - $ - $ (18,987) $ 20,123
=====================================================================================
</TABLE>
The $67.3 million, or 32.8%, decrease in NPAs for the nine months ended March
31, 1998 reflects $93.6 million in sales of REO through the Company's regular
liquidation process, $56.4 million in non-accrual loans being sold or paid off
and $49.4 million in non-accrual loans being reinstated to accrual status,
partially offset by NPA additions of $152.6 million. For the nine months ended
March 31, 1998, 71.5% 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 $10.9 million decrease in restructured loans for the nine months ended
March 31, 1998 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
$8.0 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 March 31, 1998. The table in Exhibit
99G summarizes the activity in the Company's NPAs for the past five quarters.
Total delinquent loans decreased during the nine months ended March 31, 1998
by $27.3 million, or 12.7%, to $188.0 million. This change was primarily related
to the single family residential and multi-family residential loan portfolios.
Delinquent loans in the single-family portfolio declined by $14.9 million, or
10.2%, to $131.3 million. Delinquent loans in the multi-family portfolio
decreased by $12.5 million, or 40.4%, to $18.5 million. At March 31, 1998,
single-family and multi-family loans comprised approximately 70% and 10%,
respectively, of total delinquent loans. Partially offsetting the reduction in
delinquent loans relating to the single-family and multi-family loan portfolios
was an increase in delinquent loans in the non-residential loan portfolio of
$2.4 million, or 8.6%, to $30.9 million. At March 31, 1998, non-residential
loans comprised 16.4% of total delinquent loans.
ALLOWANCE FOR LOAN LOSSES
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, current and forecasted economic and market
conditions, loan portfolio composition, historical loan loss experience,
industry experience and asset classifications. 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 allowance for loan losses is
adjusted quarterly to reflect management's current assessment of the effect of
these considerations on estimated inherent loan losses. While management uses
all information available to it to estimate inherent losses on loans, future
changes to the allowance may become necessary based on changes in loan
performance, 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 March 31, 1998 and June 30, 1997 by property type (dollars in
thousands):
<TABLE>
<CAPTION>
March 31, 1998 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 $ 42,966 $ 8,902,036 0.48% $ 52,579 $ 8,821,828 0.60%
Multi-family:
5-36 units 32,830 1,407,887 2.33 43,852 1,477,549 2.97
37 or more units 14,196 312,143 4.55 16,496 345,052 4.78
Non-residential 28,406 983,954 2.89 35,280 1,207,013 2.92
Commercial 10,284 258,821 3.97 7,552 160,061 4.72
Consumer 17,700 137,803 12.84 8,000 120,685 6.63
--------- ----------- --------- -----------
$146,382 $12,002,644 1.22% $163,759 $12,132,188 1.35%
========= =========== ========= ===========
</TABLE>
The allocation of the allowance to the above categories 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 (see tables below) 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 $11.0 million and
$14.0 million at March 31, 1998 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 March 31, 1998 and
June 30, 1997 totaled $41.4 million and $78.7 million, respectively. Those
impaired loans without related specific valuation allowances at March 31, 1998
and June 30, 1997 totaled $52.9 million and $64.1 million, respectively.
The allowance for loan losses declined by $17.4 million, to $146.4 million, in
the first nine 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 March 31, 1998 were 142.4% and 1.2%,
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 nine months of fiscal 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Balance
June 30, Provision Charge- March 31,
1997 (Reallocation) offs Recoveries 1998
-------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 52,579 $ (459) $ (9,385) $ 231 $ 42,966
Multi-family:
5-36 units 43,852 (5,563) (5,459) - 32,830
37 or more units 16,496 (2,038) (548) 286 14,196
Non-residential 35,280 (3,439) (4,183) 748 28,406
Commercial 7,552 377 (1,797) 4,152 10,284
Consumer 8,000 11,539 (2,490) 651 17,700
-------- ------- -------- ------ --------
$163,759 $ 417 $(23,862) $6,068 $146,382
======== ======= ======== ====== ========
</TABLE>
A summary of activity in the allowance for loan losses by property type during
the first nine months of fiscal 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Balance Acquisition of Balance
June 30, Provision Charge- OneCentral March 31,
1996 (Reallocation) offs Recoveries Bank 1997
-------- -------------- -------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Single-family 1-4 units $ 56,833 $17,464 $(22,044) $ 112 $ - $ 52,365
Multi-family:
5-36 units 48,628 4,727 (8,448) 14 - 44,921
37 or more units 26,062 (1,197) (5,189) 170 - 19,846
Non-residential 47,260 619 (10,435) 1,124 - 38,568
Commercial 4,699 (5,717) (58) 3,323 1,030 3,277
Consumer 3,274 5,430 (2,473) 736 - 6,967
-------- ------- -------- ------ ------ --------
$186,756 $21,326 $(48,647) $5,479 $1,030 $165,944
======== ======= ======== ====== ====== ========
</TABLE>
15
<PAGE>
The provision for loan losses declined by $20.9 million, to $0.4 million, in
the nine months ended March 31, 1998, compared to the same period last year,
reflecting management's assessment that there is a decreased risk of loss
inherent in the loan portfolio, as evidenced by decreases in NPAs and delinquent
loans. The negative balances shown in the "Provision/(Reallocation)" column in
the above tables represent the reallocation of the allowance among the different
portfolios and reflects management's current assessment of the shifting of the
relative risks of loss inherent in the different portfolios.
If the recent economic improvements in the Company's principal market areas do
not continue, the Company's loans could be adversely impacted, resulting in
increases in NPAs and higher charge-offs. Such increases could require a larger
allowance for loan losses and could reduce net earnings.
MORTGAGE LOAN SERVICING ACTIVITIES
Golden State services mortgage loans for other loan investors in exchange for
servicing fees. The Company enters into agreements to service loans for others
primarily through the purchase of servicing rights from other servicers, and to
a lesser extent, through the sale of loans it has originated while retaining the
right to service the loans.
Mortgage servicing assets ("MSA") decreased by $36.6 million, to $247.9
million, during the nine months ended March 31, 1998, due to the amortization of
MSA of $36.6 million. No servicing rights were purchased during the nine months
ended March 31, 1998. 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 March 31, 1998, 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 March 31, 1998 levels
could result in impairment to the Company's MSA (before the recorded valuation
allowance of $8.6 million at March 31, 1998) in the range of $28 million to $63
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 following table summarizes the Company's mortgage loan servicing
portfolio:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
-------- --------
<S> <C> <C>
Principal balance (in billions) $ 26.4 $ 29.6
Number of loans 218,977 240,629
Weighted average interest rate 7.63% 7.66%
Weighted average service fee (in basis points) 31.9 32.1
Weighted average remaining term (in months) 275 310
Percent delinquent 30 days or more 1.03% 1.11%
</TABLE>
LIABILITY COMPOSITION
The Company's ratios of deposits and borrowings to total interest-earning
liabilities were 67% and 33%, respectively, at March 31, 1998, 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.
16
<PAGE>
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 $336.0 million, to
$9.7 billion, in the first nine months of fiscal 1998.
Golden State's deposit composition at March 31, 1998 and June 30, 1997 was as
follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
-------------------- -------------------
% of % of
Balance Total Balance Total
---------- ----- ---------- -----
<S> <C> <C> <C> <C>
Checking $1,705,459 17.6% $1,198,011 12.8%
Savings 429,398 4.4 452,225 4.8
Money market 2,196,104 22.7 2,119,553 22.7
---------- ----- ---------- ------
Total daily access 4,330,961 44.7 3,769,789 40.3
---------- ----- ---------- ------
Short-term certificates (1 year or less) 2,615,983 27.0 2,703,538 28.9
Long-term certificates (over 1 year) 2,494,327 25.7 2,700,906 28.9
Jumbo and brokered certificates 251,603 2.6 182,676 1.9
---------- ----- ---------- ------
Total certificates 5,361,913 55.3 5,587,120 59.7
---------- ----- ---------- ------
Total deposits $9,692,874 100.0% $9,356,909 100.0%
========== ===== ========== ======
</TABLE>
Checking accounts increased by $507.4 million, or 42%, to $1.7 billion, during
the first nine months of fiscal 1998. The increase was comprised of a $211.3
million increase in retail and business checking accounts and a $296.1 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 $68.9 million, or 38%, to $251.6 million, during the first nine
months of fiscal 1998, primarily due to the addition of $100 million of savings
accounts from the State of California.
BORROWINGS
Total borrowings decreased by $743.4 million, to $4.8 billion, during the nine
months ended March 31, 1998. Securities sold under agreements to repurchase of
$768.7 million at June 30, 1997 matured during the nine months ended March 31,
1998. Borrowings from the Federal Home Loan Bank ("FHLB") increased by $36.0
million, to $4.8 billion at March 31, 1998. Adjustable-rate FHLB borrowings
decreased by $304 million, to $2.6 billion during the nine months ended March
31, 1998, while fixed-rate FHLB borrowings of $2.2 billion increased $340
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. Borrowings as of March 31, 1998 which are due within one year totaled $3.5
billion and included $400 million of five-year FHLB borrowings funded in March
1998 with a weighted average interest rate of 5.13% that is fixed for one year,
after which period the FHLB can call the advance and offer replacement funding
at the then current market rate. Borrowings as of June 30, 1997 that were due
within one year totaled $4.2 billion. 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 $102.8 million, to $1.1 billion, during the
nine months ended March 31, 1998, primarily due to net earnings of $89.4
million, income tax benefits of $12.6 million relating to the exercise of stock
options, proceeds of $9.1 million received from the issuance of common stock
related to the exercise of stock options, partially offset by dividends declared
of $7.6 million on the Company's preferred stock and a $0.8 million increase in
the net unrealized loss recorded on the portfolio of debt and equity securities
available for sale.
17
<PAGE>
REGULATORY CAPITAL
The following table compares Glendale Federal Bank's regulatory capital at
March 31, 1998 to its minimum regulatory capital requirements at that date
(dollars in thousands):
<TABLE>
<CAPTION>
Capital at As a % Capital As a % Excess
Mar. 31, 1998 of Assets Required of Assets Capital
------------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Glendale Federal Bank's capital in
accordance with generally accepted
accounting principles $1,090,967
Adjustments for tangible and core capital:
Net unrealized holding loss on
available for sale securities 2,005
Goodwill and other intangible assets (92,510)
Disallowed mortgage servicing (3,361)
Disallowed capitalized software (10,505)
Investments in and advances to
non-includable subsidiaries (162)
----------
Total tangible capital $ 986,434 6.24% $237,305 1.50% $749,129
Adjustment for core capital -
----------
Total core capital $ 986,434 6.24% $474,609* 3.00%* $511,825*
Adjustments for risk-based capital:
Allowance for general loan losses ** 109,937
Equity risk investments required
to be deducted (9,081)
Low level recourse deduction (10,982)
----------
Total risk-based capital $1,076,308 12.27% $701,561* 8.00%* $374,747*
==========
</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 $791,015,
5.00% and $195,419, respectively, and the corresponding amounts for risk-
based capital are $876,951, 10.00% and $199,357, 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 assets 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 March 31, 1998, funds estimated to be available from these sources
totaled approximately $4.4 billion and consisted primarily of funds from the
repurchase agreement markets.
During the nine months ended March 31, 1998, the Company experienced a net
cash outflow from financing activities of $405.4 million, primarily due to the
maturities of securities sold under agreements to repurchase of $768.7 million,
partially offset by an increase in deposits of $336.0 million. The Company's
investing activities during the period resulted in a net cash inflow of $149.7
million, principally due to principal payments on loans and mortgage-backed
securities of $2.4 billion, partially offset by purchases of loans and mortgage-
backed securities totaling $1.8 billion, and term loan originations of $459.2
million. The Company experienced positive cash flows from operating activities
during the period of $206.2 million.
During March 1998, the Company's average liquidity ratio was 6.87%. The
current minimum regulatory requirement for this ratio is 4%.
18
<PAGE>
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. In its management of interest
rate risk, the Company relies primarily on various dynamic measures of
determining its interest rate risk position in addition to the static one-year
GAP position. Foremost among these measures is the Company's analysis of the
sensitivity of its earnings forecast to various interest rate and business
strategy scenarios. 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 March 31, 1998.
The following table is a summary of Golden State's one-year GAP at the dates
indicated (dollars in millions):
<TABLE>
<CAPTION>
Mar. 31, June 30,
1998 1997
-------- --------
<S> <C> <C>
Interest-earning assets maturing or repricing within one year $10,217 $11,640
Interest-bearing liabilities maturing or repricing within one year 9,244 9,282
------- --------
One-year maturity GAP $ 973 $ 2,358
------- --------
One-year maturity GAP as a percent of total assets 6.1% 14.5%
======= ========
</TABLE>
The $1.4 billion decrease in the one-year GAP during the first nine months of
fiscal 1998 was due to a corresponding decrease in interest-earning assets
maturing or repricing within one year. Interest-bearing liabilities maturing or
repricing within one year remained virtually unchanged from the level at June
30, 1997. The decrease of $1.4 billion in one-year assets was principally due to
decreases of $1.1 billion and $229 million in single-family residential loans
and multi-family and non-residential loans, respectively, that mature or reprice
within one year. Declining interest rates resulted in higher prepayments of
adjustable-rate single-family residential loans, primarily of loans with
adjustable rates tied to a treasury index. Assets repricing beyond one year
increased by $1.2 billion due to the purchase of $845 million of fixed-rate
loans in the secondary market, and to fixed-rate single-family loan originations
of $716 million, of which $185 million were sold during the first nine months of
fiscal 1998. The decrease of $38 million in one-year liabilities was due to the
maturity of $769 million of securities sold under agreements to repurchase,
partially offset by increases of $528 million in certificates of deposit, $96
million in FHLB borrowings and $86 million in checking accounts that mature or
reprice within one year.
A positive one-year GAP tends, in general, to assist the Company in rising
interest rate markets. 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 any unrealized gain or 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>
MARCH 31, 1998
-----------------------------------------------------------------
LOANS LOANS
OWNED AND OWNED BY BANK MORTGAGE-
SERVICED AND SERVICED BACKED PERCENT
BY BANK BY OTHERS SECURITIES TOTAL OF TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable:
6-month Treasury Bills.............................. $ 285 $ 24 $ 351 $ 660 5%
1-Year Treasury Bills (1)........................... 2,261 1,823 1,106 5,190 37
11th District Cost of Funds......................... 3,176 65 115 3,356 24
Prime............................................... 378 -- 6 384 3
Other............................................... 104 7 90 201 1
------ ------ ------ ------- ---
6,204 1,919 1,668 9,791 70
Fixed................................................. 1,371 2,509 487 4,367 30
------ ------ ------ ------- ---
Total................................................. $7,575 $4,428 $2,155 $14,158 100%
====== ====== ====== ======= ===
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------------------------------
LOANS LOANS
OWNED AND OWNED BY BANK MORTGAGE-
SERVICED AND SERVICED BACKED PERCENT
BY BANK BY OTHERS SECURITIES TOTAL OF TOTAL
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adjustable:
6-month Treasury Bills.............................. $ 328 $ 32 $ 411 $ 771 5%
1-Year Treasury Bills (1)........................... 2,452 2,135 1,285 5,872 41
11th District Cost of Funds......................... 3,551 71 131 3,753 26
Prime............................................... 288 -- 8 296 2
Other............................................... 115 7 117 239 2
------ ------ ------ ------- ---
6,734 2,245 1,952 10,931 76
Fixed................................................. 1,070 2,083 297 3,450 24
------ ------ ------ ------- ---
Total................................................. $7,804 $4,328 $2,249 $14,381 100%
====== ====== ====== ======= ===
</TABLE>
________________
(1) Includes $1.4 billion at March 31, 1998 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 March 31
----------------------------------------------------------------
1998 1997
------------------------------ -------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Cost Balances Expense Cost
----------- ----------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans receivable, net $11,775,696 $225,950 7.68% $11,234,078 $213,675 7.61%
----------- -------- ----------- --------
Mortgage-backed securities, held to maturity 1,024,937 17,478 6.82% N/A N/A N/A
Mortgage-backed securities, available for sale 1,244,221 19,110 6.14% N/A N/A N/A
----------- -------- ----------- --------
Total mortgage-backed securities, net/1/ 2,269,158 36,588 6.45% 2,302,605 38,184 6.63%
----------- -------- ----------- --------
Total loans and mortgage-backed
securities 14,044,854 262,538 7.48% 13,536,683 251,859 7.44%
----------- -------- ----------- --------
Federal funds sold and assets purchased
under resale agreements 690,722 9,799 5.75% 734,935 10,049 5.55%
----------- -------- ----------- --------
Other debt and equity securities available
for sale 23,758 317 5.42% N/A N/A N/A
Other investments 277,761 3,909 5.71% N/A N/A N/A
----------- -------- ----------- --------
Total other investments/1/ 301,519 4,226 5.68% 284,689 6,447 9.18%
----------- -------- ----------- --------
Total investments 992,241 14,025 5.73% 1,019,624 16,496 6.56%
----------- -------- ----------- --------
Total interest-earning assets $15,037,095 $276,563 7.36% $14,556,307 $268,355 7.37%
=========== ======== =========== ========
Interest-bearing Liabilities:
Non-interest-bearing demand deposits $ 1,081,714 $ -- 0.00% $ 552,457 $ -- 0.00%
Interest-bearing demand deposits 455,676 1,124 1.00% 407,670 1,005 1.00%
Savings deposits 429,733 2,119 2.00% 446,636 2,368 2.15%
Money market deposits 2,210,019 21,596 3.96% 2,009,632 21,839 4.41%
----------- -------- ----------- --------
Total daily access 4,177,142 24,839 2.41% 3,416,395 25,212 2.99%
Certificates 5,388,375 72,894 5.49% 5,579,486 75,470 5.49%
----------- -------- ----------- --------
Total deposits 9,565,517 97,733 4.14% 8,995,881 100,682 4.54%
----------- -------- ----------- --------
Securities sold under agreements to
repurchase 527,983 7,515 5.77% 61,139 837 5.55%
Federal Home Loan Bank and other
borrowings 4,492,218 63,657 5.75% 5,038,946 70,315 5.66%
----------- -------- ----------- --------
Total borrowings 5,020,201 71,172 5.75% 5,100,085 71,152 5.66%
----------- -------- ----------- --------
Total interest-bearing liabilities $14,585,718 $168,905 4.70% $14,095,966 $171,834 4.94%
=========== ======== =========== ========
Difference between average interest-earning
assets and interest-bearing liabilities $ 451,377 $ 460,341
=========== ===========
Net interest income $107,658 $ 96,521
======== ========
Yield-cost spread 2.66% 2.43%
==== ====
Effective net spread/2/ 2.80% 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.
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>
Nine months ended March 31
----------------------------------------------------------------
1998 1997
------------------------------ -------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Cost Balances Expense Cost
----------- ----------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans receivable, net $12,035,306 $694,448 7.69% $11,217,359 $638,677 7.59%
----------- -------- ----------- --------
Mortgage-backed securities, held to maturity 1,082,409 55,302 6.81% N/A N/A N/A
Mortgage-backed securities, available for sale 1,204,448 57,383 6.35% N/A N/A N/A
----------- -------- ----------- --------
Total mortgage-backed securities, net/1/ 2,286,857 112,685 6.57% 2,245,328 111,985 6.65%
----------- -------- ----------- --------
Total loans and mortgage-backed
securities 14,322,163 807,133 7.51% 13,462,687 750,662 7.43%
----------- -------- ----------- --------
Federal funds sold and assets purchased
under resale agreements 647,358 28,172 5.80% 676,426 28,110 5.54%
----------- -------- ----------- --------
Other debt and equity securities available
for sale 24,653 992 5.36% N/A N/A N/A
Other investments 273,924 16,585 8.07% N/A N/A N/A
----------- -------- ----------- --------
Total other investments/1/ 298,577 17,577 7.84% 259,205 17,837 9.17%
----------- -------- ----------- --------
Total investments 945,935 45,749 6.44% 935,631 45,947 6.54%
----------- -------- ----------- --------
Total interest-earning assets $15,268,098 $852,882 7.45% $14,398,318 $796,609 7.38%
=========== ======== =========== ========
Interest-bearing Liabilities:
Non-interest-bearing demand deposits $ 972,319 $ -- 0.00% $ 504,609 $ -- 0.00%
Interest-bearing demand deposits 444,776 3,339 1.00% 401,928 3,072 1.02%
Savings deposits 438,559 6,836 2.08% 461,031 7,441 2.15%
Money market deposits 2,179,692 67,306 4.11% 1,875,589 62,156 4.42%
----------- -------- ----------- --------
Total daily access 4,035,346 77,481 2.56% 3,243,157 72,669 2.98%
Certificates 5,443,136 223,472 5.47% 5,627,584 231,337 5.48%
----------- -------- ----------- --------
Total deposits 9,478,482 300,953 4.23% 8,870,741 304,006 4.57%
----------- -------- ----------- --------
Securities sold under agreements to
repurchase 848,157 36,260 5.69% 336,646 13,904 5.50%
Federal Home Loan Bank and other
borrowings 4,534,646 195,186 5.73% 4,679,331 199,583 5.68%
----------- -------- ----------- --------
Total borrowings 5,382,803 231,446 5.73% 5,015,977 213,487 5.67%
----------- -------- ----------- --------
Total interest-bearing liabilities $14,861,285 $532,399 4.77% $13,886,718 $517,493 4.96%
=========== ======== =========== ========
Difference between average interest-earning
assets and interest-bearing liabilities $ 406,813 $ 511,600
=========== ===========
Net interest income $320,483 $279,116
======== ========
Yield-cost spread 2.68% 2.42%
==== ====
Effective net spread/2/ 2.80% 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 Nine months ended
March 31, March 31,
1998 vs. 1997 1998 vs. 1997
Changes Due To Changes Due To
--------------------------- ------------------------------
Volume Rate Total Volume Rate Total
------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable, net $10,308 $ 1,967 $12,275 $47,236 $ 8,535 $55,771
Mortgage-backed securities, net (555) (1,041) (1,596) 2,057 (1,357) 700
------- ------- ------- ------- -------- -------
Total loans and mortgage-backed securities 9,753 926 10,679 49,293 7,178 56,471
Federal funds sold and assets
purchased under resale agreements (608) 358 (250) (1,231) 1,293 62
Other investments 362 (2,583) (2,221) 2,515 (2,775) (260)
------- ------- ------- ------- -------- -------
Total investments (246) (2,225) (2,471) 1,284 (1,482) (198)
------- ------- ------- ------- -------- -------
Total interest income 9,507 (1,299) 8,208 50,577 5,696 56,273
------- ------- ------- ------- -------- -------
Interest expense:
Deposits - daily access 5,024 (5,397) (373) 16,020 (11,208) 4,812
Deposits - certificates (2,576) - (2,576) (7,452) (413) (7,865)
------- ------- ------- ------- -------- -------
Total deposits 2,448 (5,397) (2,949) 8,568 (11,621) (3,053)
Securities sold under agreements
to repurchase 6,644 34 6,678 21,859 497 22,356
Federal Home Loan Bank and other
borrowings (7,736) 1,078 (6,658) (6,240) 1,843 (4,397)
------- ------- ------- ------- -------- -------
Total borrowings (1,092) 1,112 20 15,619 2,340 17,959
------- ------- ------- ------- -------- -------
Total interest expense 1,356 (4,285) (2,929) 24,187 (9,281) 14,906
------- ------- ------- ------- -------- -------
Net interest income $ 8,151 $ 2,986 $11,137 $26,390 $ 14,977 $41,367
======= ======= ======= ======= ======== =======
</TABLE>
Note: Non-accrual loans are included in the average balances for the periods;
however, interest on such loans is not recognized during the periods the
loans are non-accrual and is therefore excluded from interest income. The
change in interest not due solely to volume or rate has been allocated in
proportion to the absolute dollar amounts of the change in each.
Net interest income increased by $11.1 million and $41.4 million, to $107.7
million and $320.5 million, respectively, for the three and nine months ended
March 31, 1998, compared to the same periods last year. This is attributable to
increases in average interest-earning assets and to improvement in the yield-
cost spread during the current three- and nine-month periods. Average interest-
earning assets and average interest-bearing liabilities increased by $480.8
million and $489.8 million, respectively, during the third quarter of fiscal
1998, compared to the same quarter in fiscal 1997. These increases contributed
$8.2 million to the increase in net interest income. The yield-cost spread
increased by 23 basis points, to 2.66%, in the three months ended March 31,
1998, compared to the same period last year, contributing $3.0 million to the
increase in net interest income. The increase in the yield-cost spread was
primarily due to a decrease in the Company's cost of funds of 24 basis points,
to 4.70%, that was attributable to a 40 basis point decrease in the cost of
deposits, partially offset by a 9 basis point increase in the cost of
borrowings.
23
<PAGE>
On a year-to-date basis, volume changes contributed $26.4 million to the
increase in net interest income, and were primarily due to increases of $869.8
million and $974.6 million in average interest-earning assets and average
interest-bearing liabilities, respectively, which resulted in increased interest
income and interest expense of $50.6 million and $24.2 million, respectively.
The yield-cost spread increased by 26 basis points, to 2.68%, in the nine months
ended March 31, 1998, compared to the same period last year. The increase in
the yield-cost spread contributed $15.0 million to the increase in net interest
income, and was primarily due to a decrease in the Company's cost of funds of 19
basis points, to 4.77%, and an increase in the yield on its interest-earning
assets of 7 basis points, to 7.45%. 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 lower-cost checking and other daily
access accounts, and to the addition of lower-costing checking and daily access
accounts obtained in recent acquisitions.
The $9 million difference in the growth of interest-earning assets of $480.8
million as compared to the growth in interest-bearing liabilities of $489.8
million during the third quarter of fiscal 1998, and the $105 million difference
in the growth of interest-earning assets of $869.8 million as compared to the
growth in interest-bearing liabilities of $974.6 million during the nine months
ended March 31, 1998, are primarily due to the Company's purchases of mortgage
servicing assets in the fourth quarter of fiscal 1997, and goodwill recorded in
connection with the TransWorld Bank transaction, both of which are non-interest-
earning assets.
Interest income on loans receivable increased by $12.3 million, to $226.0
million, and by $55.8 million, to $694.4 million, in the three and nine months
ended March 31, 1998, respectively, compared to the same periods last year,
primarily due to portfolio growth. The average balance of loans receivable, net,
increased by $541.6 million, to $11.8 billion, during the quarter ended March
31, 1998, contributing $10.3 million to the increase. The average balance of
loans receivable, net, increased by $817.9 million, to $12.0 billion, during the
nine months ended March 31, 1998, contributing $47.2 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 $548.0 million of fixed-rate loans
with a weighted average yield of 7.13%, and $116.3 million of adjustable rate
loans with a weighted average yield of 7.24%. During the nine months ended March
31, 1998, the Company purchased in the secondary market $844.5 million of fixed-
rate loans with a weighted average yield of 7.31%, and $569.2 million of
adjustable rate loans with a weighted average yield of 7.33%. 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% in the May 1997
TransWorld Bank acquisition. The growth in the loan portfolio was enhanced by
increases in portfolio yield of 7 and 10 basis points for the three and nine
months ended March 31, 1998, respectively, which contributed $2.0 million and
$8.5 million, respectively, to the 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 third quarters of fiscal 1998 and fiscal 1997 were $103.2 million and
$152.8 million, respectively. The average balances of non-accrual loans in the
first nine months of fiscal 1998 and fiscal 1997 were $119.2 million and $167.4
million, respectively. The impact of non-accrual loans was to reduce the
Company's loan yield by 5 and 4 basis points in the three and nine months ended
March 31, 1998, versus a reduction in loan yield of 9 and 10 basis points in the
three and nine months ended March 31, 1997.
24
<PAGE>
Interest expense on daily access deposits decreased by $0.4 million, to $24.8
million, and increased by $4.8 million, to $77.5 million, in the three and nine
months ended March 31, 1998, compared to the same periods last year. The average
balances in daily access accounts increased $0.8 billion during both the three
and nine months ended March 31, 1998, compared to the same periods last year.
This growth in average balance contributed $5.0 million and $16.0 million,
respectively, to the increase in interest expense during the three and nine
months ended March 31, 1998. The growth in average daily access account balances
was due to internally-developed account growth, 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, and the addition of daily access accounts related to
acquisitions made in the second half of fiscal 1997. The average cost of daily
access accounts declined by 58 and 42 basis points, respectively, for the
current quarter and year-to-date periods. The decrease in the average cost of
deposits, which contributed $5.4 million and $11.2 million, respectively, to the
reduction in interest expenses during the quarter and year-to-date ended March
31, 1998, was due to the generation and acquisition of low cost deposits,
consisting primarily of checking accounts.
Interest expense on certificate accounts decreased by $2.6 million, to $72.9
million, and by $7.9 million, to $223.5 million, in the three and nine months
ended March 31, 1998, 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 $191.1 million and $184.4 million,
respectively, due to management's efforts to change the mix of deposits toward
daily access accounts. This decrease contributed $2.6 million and $7.5 million,
respectively, to the reduction in interest expense on certificate accounts
during the corresponding current periods.
Interest expense on borrowings was essentially unchanged for the three months
ended March 31, 1998, compared to the same period a year ago, but increased by
$18.0 million, or 8.4%, to $231.4 million in the nine months ended March 31,
1998, compared to the same period in fiscal 1997, primarily due to a
corresponding increase of $366.8 million, or 7.3%, in the average balance of
borrowings for the current year-to-date period compared to the same period in
fiscal 1997. The growth in the average balances of borrowings contributed $15.6
million to the increase in interest expense during the nine months ended March
31, 1998.
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 March 31, 1997, the Company had $200 million in
notional principal amount of swaps that matured in April 1997. At March 31,
1998, no swaps were outstanding.
PROVISION FOR LOAN LOSSES
The Company recorded a net credit for loan losses of $1.6 million during the
three months ended March 31, 1998, compared to a provision for loan losses of
$6.1 million in the same period last year due to management's assessment that
there is a decreased risk of loss inherent in the Company's loan portfolios.
During the nine months ended March 31, 1998, the provision for loan losses
decreased by $20.9 million, or 98%, to $0.4 million, compared to $21.3 million
in the same period last year. The significant reduction in the provision was
primarily due to 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 and business loan portfolios. NPAs at March 31,
1998 totaled $137.6 million, which represents a 39% decline from the $224.8
million of NPAs recorded at March 31, 1997. Net charge-offs to the allowance for
loan losses decreased by 51% and 59%, respectively, to $7.4 million and $17.8
million in the three and nine months ended March 31, 1998, compared to $15.2
million and $43.2 million in the same periods in fiscal 1997.
The ratios of allowance to non-accrual loans and total gross loans at March
31, 1998 were 142.4% and 1.2%, respectively, compared to 116.7% and 1.4%,
respectively, at June 30, 1997. 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, current and
forecasted economic and market conditions, loan portfolio composition,
historical loan loss experience, industry experience and asset classifications.
25
<PAGE>
LOAN SERVICING INCOME, NET
Loan servicing income, net, decreased by $2.4 million, or 28%, to $6.0
million, in the third quarter of fiscal 1998, compared to the same period last
year. For the nine months ended March 31, 1998, loan servicing fee income, net,
decreased by $2.4 million, or 9%, to $23.1 million, compared to the same period
last year. Due to the Company's purchases of servicing rights during fiscal
1997, gross servicing fees earned increased by $2.9 million, or 18%, and $13.4
million, or 28%, to $19.3 million and $60.8 million, respectively, during the
three and nine months ended March 31, 1998, compared to the same periods last
year. However, the amortization of MSA increased by $5.2 million, or 66% and
$15.4 million, or 73%, to $13.0 million and $36.6 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 purchased servicing rights relating to approximately $11.5 billion
of predominantly fixed-rate mortgage loans being less than those associated with
a standard fixed-rate package, and to a certain extent, to increased prepayment
experience and market prepayment expectations 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 overall earnings
perspective, by an increase in net interest income. The increase in net interest
income results from the reduction in the cost of funds attributable to the
Company keeping 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. The Company generally
pays interest, at rates dictated by various states' regulations, on borrower
funds held for purposes of paying property taxes and hazard insurance premiums.
Such rates range up to 5%. The Company does not pay interest on the principal
and interest portions of borrower payments that it remits to the investors.
OTHER FEES AND SERVICE CHARGES
Other fees and service charges increased by $2.8 million, or 19% and $9.0
million, or 22%, to $17.6 million and $50.2 million, respectively, in the three
and nine months ended March 31, 1998, 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 $12.9 million and $37.8
million, respectively, for the three and nine months ended March 31, 1998,
compared to $9.6 million and $27.4 million for the same periods last year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $9.6 million, or 15%, to
$73.0 million in the three months ended March 31, 1998, compared with $63.4
million in the same period last year. General and administrative expenses
increased by $21.1 million, or 11%, to $216.5 million in the nine months ended
March 31, 1998, compared with $195.4 million in the same period last year. The
increase primarily reflected costs associated with the Company's new business
lines, franchise growth, recent acquisitions and Year 2000 compliance costs,
partially offset by reduced regulatory insurance premiums. Operating expenses
directly related to the new business lines, franchise growth and recent
acquisitions approximated $7.6 million and $20.5 million, respectively, during
the three and nine months ended March 31, 1998, compared with $2.8 million and
$6.4 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.
26
<PAGE>
The Company has an ongoing program designed to ensure that its operational and
financial systems will not be adversely affected by Year 2000 data processing
hardware and software failures due to processing errors arising from
calculations using the Year 2000 date. Enhancements to the Company's mainframe
systems have been implemented with completion of repairs scheduled for November
1998. The Company has initiated renovation of its non-mainframe systems with
completion scheduled for December 1998. Expenses related to the Year 2000
enhancements amounted to $2.6 million and $5.0 million, respectively, during the
three and nine months ended March 31, 1998. The Company expects to incur
approximately $37 million on this project, 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 $7 million and $24 million, for the
fourth quarter of fiscal 1998 and for the entire 1999 fiscal year, 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 requesting 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. 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 $0.6 million or 25%, to $1.9
million, and by $8.0 million or 58%, to $5.7 million, respectively, during the
three and nine months ended March 31, 1998, compared to the same periods in
fiscal 1997.
LEGAL EXPENSE--GOODWILL LAWSUIT
Legal expenses related to the Company's trial in the Court of Federal Claims
to determine damages in its breach of contract suit against the federal
government decreased in the three months ended March 31, 1998 at $5.3 million,
compared to $8.2 million in the same period in fiscal 1997, as the most
intensive phase of the damages trial was completed in early April 1998. During
the nine months ended March 31, 1998, goodwill legal expenses increased by 11%,
to $15.2 million, compared to $13.7 million in the same period in fiscal 1997.
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.
ACQUISITION AND RESTRUCTURING COSTS
The Company incurred acquisition and restructuring costs of $0.9 million and
$3.4 million during the three and nine months ended March 31, 1998,
respectively. Costs related to the CENFED and RedFed acquisitions totaled $0.9
million and $2.8 million, respectively, and costs related to the distribution of
the Litigation Tracking Warrants/TM/ totaled $51,000 and $0.7 million,
respectively, during the three and nine months ended March 31, 1998.
REO OPERATIONS
Operations of REO resulted in income of $2.8 million and $1.6 million in the
three and nine months ended March 31, 1998, as compared to losses of $2.1
million and $5.9 million in last year's comparable periods. The $4.9 million
improvement for the current quarter compared to the same quarter last year
resulted from a $1.7 million increase in gains on sale of REO (after market
valuation adjustments), a $1.7 million reduction in specific provisions to
adjust the REO portfolio to current fair value, a $0.4 million decrease in
operating expenses, and a $1.1 million decrease in the general valuation
allowance provision. The $7.5 million improvement for the current year-to-date
period compared to the same period last year resulted from a $2.0 million
increase in gains on sale of REO (after market valuation adjustments), a $2.7
million reduction in specific provisions to adjust the REO portfolio to current
fair value, a $1.7 million decrease in operating expenses, and a $1.1 million
decrease in the general valuation allowance provision.
27
<PAGE>
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of goodwill increased by $0.7 million, or 48%, and $2.2 million,
or 55%, to $2.0 million and $6.1 million, respectively, in the three and nine
months ended March 31, 1998, compared with $1.4 million and $3.9 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.
INCOME TAX PROVISION
The Company recorded income tax provisions of $23.2 million and $67.1 million
in the three and nine months ended March 31, 1998, respectively. The Company
recorded income tax provisions of $15.1 million and $18.3 million in the three
and nine months ended March 31, 1997, 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 institution 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 (the "Claims
Court"), filed August 15, 1990).
On July 1, 1996, the United States 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, and the taking of testimony in the trial
was completed on April 9, 1998. In lieu of traditional closing briefs, in an
order entered on May 8, 1998 the Claims Court requested the parties to respond
to a series of written questions posed by the Court regarding factual and legal
issues raised in the damages trial. The parties may augment, or seek
clarification of, the Court's questions by May 19, 1998. The schedule for filing
responses to these questions has not yet been established. In order to permit
ample time to respond to the written questions, the Court rescheduled oral
arguments for September 11, 1998. The Company continues to anticipate a decision
by the end of calendar 1998.
SHAREHOLDER CLASS ACTION LITIGATION
A wholly-owned subsidiary of Glendale Federal Bank, as the successor by
merger to Glendale Federal Bank's former parent corporation, GLENFED, Inc.
("GLENFED"), is a defendant in consolidated class actions pending in the United
States District Court for the Central District of California (the "District
Court"), entitled In Re GLENFED Inc. Securities Litigation, Civil No. 91-0818
WJR, originally filed on January 18, 1991. The original consolidated complaint
was dismissed by the Court on July 15, 1991, with leave to amend, for failure to
allege with specificity the securities law and common law fraud claims asserted
in the complaint. The complaint alleged, among other things, that various
misrepresentations were made concerning the financial condition and operations
of GLENFED and the Bank prior to GLENFED's announcement of a $140 million loss
on or about January 16, 1991. After a dismissal of the case, the appeals court
affirmed the dismissal of the outside directors but reversed as to the inside
directors and GLENFED, Inc.
On November 12, 1996, the Court heard GLENFED's and the remaining officers'
and directors' motion for summary judgment and/or summary adjudication. On
January 6, 1997, the court denied the motion for summary judgment but granted
the motion for summary adjudication that: 1) the marketplace was informed of
conditions in the real estate and savings and loan industries during the
relevant time period; and 2) defendants monitored and disclosed the status of
GLENFED's loan loss and non-performing assets and did not make false or
misleading statements in regard to said reserves and assets. The issue remaining
in the case is whether the defendants had a reasonable belief that certain
subsidiaries could be sold without a loss. On April 15, 1997, the court issued a
ruling denying class certification. Counsel for the purported class filed a
motion in intervention to substitute other class representatives. The motion was
heard on June 3, 1997 and was granted. The new plaintiffs have filed a
complaint and motion seeking class status that was denied on April 6, 1998,
along with another motion for class intervention. Unless these decisions are
reversed on appeal, management no longer considers this case to be material.
29
<PAGE>
Certain of the former officers and directors of GLENFED were also named
defendants in a California state court derivative action (entitled Donald P.
Deliquanti, et al. v. Norman M. Coulson, et al. and GLENFED, Inc. as a nominal
defendant, Case No. BC021028, filed February 8, 1991 in Los Angeles County,
California Superior Court) which charges those persons who were directors of
GLENFED during the period covered by the plaintiff's allegations with breach of
fiduciary duty and mismanagement in connection with past write-downs and loss
provisions for real estate loans and investments. Since the litigation is
derivative in nature, the subsidiary of Glendale Federal Bank which is the
successor to GLENFED would be a recipient of any judgment and has no exposure to
damages. On October 8, 1991, the Court sustained the defendant's demurrer to the
second amended complaint in this action and entered judgment in favor of GLENFED
and the individual officer defendants. The plaintiffs filed an appeal, and on
September 1, 1993, the Court of Appeals reversed the decision of the lower
Court. The case is set for trial on August 26, 1998.
Golden State and its directors have been sued in seven cases (four in
Delaware and three in California) involving the proposed merger with First
Nationwide. The complaints allege that the directors and the Company failed to
obtain a competitive price for the Company. The cases have all been consolidated
in Delaware. At the present time, the plaintiffs have not filed a consolidated
complaint on the matter. The Company intends to vigorously defend the claims
asserted by the plaintiffs in this matter.
OTHER LITIGATION
In addition to the matters described above, Glendale Federal or its
subsidiaries are involved as plaintiff or defendant in various legal actions
incidental to their business, none of which is believed by management to be
material to the financial condition or results of operations of Glendale Federal
and its subsidiaries on a consolidated basis.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement Regarding Computation of Per Share Earnings
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
On February 3, 1998, Golden State filed with the SEC, a Form 8-K/A dated
October 28, 1997, announcing its intention to distribute Litigation Tracking
Warrants/TM/ 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 Glendale Federal's pending goodwill lawsuit against the United
States Government.
30
<PAGE>
On February 17, 1998, Golden State filed with the SEC, a Form 8-K, dated
February 4, 1998, to announce that it had entered into a merger agreement with
First Nationwide (Parent) Holdings Inc., parent of California Federal Bank, A
Federal Savings Bank, pursuant to which First Nationwide will merge with Golden
State (the "Cal Fed Merger").
On March 5, 1998, Golden State filed Amendment No. 1 to its February 4, 1998
Form 8-K, to provide revised analyst presentation materials regarding the Cal
Fed Merger.
31
<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: May 14, 1998 By: /s/ John E. Haynes
------------------ ------------------------------------
Chief Financial Officer
(Principal Financial Officer)
32
<PAGE>
EXHIBIT 11.1
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (a)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
--------------------------------- ----------------------------------
Per-share Per-Share
BASIC EARNINGS PER SHARE Earnings Shares Amount Earnings Shares Amount
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computation for Statement of Operations
Net earnings per statement of operations used in
basic earnings per share computation:
Net earnings $ 32,021 $ 22,892
Dividends on preferred stock (2,528) (2,527)
Premium on conversion of preferred stock - (241)
-------- --------
Earnings applicable to common
shareholders (b) 29,493 51,155 $ 0.58 20,124 50,140 $ 0.40
====== ======
Effect of Dilutive Securities
Options and warrants - 8,839 - 7,201
Convertible preferred stock 2,528 11,111 2,527 11,144
-------- ------- -------- -------
DILUTED EARNINGS PER SHARE
Earnings applicable to common
shareholders (b) $ 32,021 71,105 $ 0.45 $ 22,651 68,485 $ 0.33
======== ======= ====== ======== ======= ======
Additional Diluted Earnings Per Share
Computation (c)
Net earnings as per diluted computation above $ 32,021 71,105 $22,651 68,485
Interest on convertible subordinated
debentures, net of tax effect - - 115 15
------- ------ ------- ------
$ 32,021 71,105 $ 0.45 $22,766 68,500 $ 0.33
======== ====== ====== ======= ====== ======
</TABLE>
<PAGE>
EXHIBIT 11.1
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (a) - Continued
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1998 1997
--------------------------------- ----------------------------------
Per-share Per-Share
BASIC EARNINGS PER SHARE Earnings Shares Amount Earnings Shares Amount
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computation for Statement of Operations
Net earnings per statement of operations used in
basic earnings per share computation:
Net earnings $ 89,449 $ 26,129
Dividends on preferred stock (7,583) (8,313)
Premium on conversion of preferred stock - (4,173)
Earnings applicable to common -------- --------
shareholders (b) $ 81,866 50,790 $ 1.61 $ 13,643 48,687 $ 0.28
====== ======
Effect of Dilutive Securities
Options and warrants - 8,508 - 5,723
Convertible preferred stock 7,583 11,111 - -
-------- ------- -------- -------
DILUTED EARNINGS PER SHARE
Earnings applicable to common
shareholders (b) $ 89,449 70,409 $ 1.27 $ 13,643 54,410 $ 0.25
======== ======= ====== ======== ======= ======
Additional Diluted Earnings Per Share
Computation (c)
Net earnings as per diluted
computation above $ 89,449 70,409 $ 13,643 54,410
Dividends on preferred stock - - 8,313 12,425
Interest on convertible subordinated
debentures, net of tax effect 99 15 351 15
-------- ------- -------- -------
$ 89,548 70,424 $ 1.27 $ 22,307 66,850 $ 0.33
======== ====== ====== ======== ======= ======
</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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 284,113
<INT-BEARING-DEPOSITS> 2,805
<FED-FUNDS-SOLD> 520,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,207,864
<INVESTMENTS-CARRYING> 1,266,787
<INVESTMENTS-MARKET> 1,273,019
<LOANS> 11,807,318
<ALLOWANCE> 146,382
<TOTAL-ASSETS> 15,924,250
<DEPOSITS> 9,692,874
<SHORT-TERM> 3,484,000
<LIABILITIES-OTHER> 292,431
<LONG-TERM> 1,340,073
4,622
0
<COMMON> 51,328
<OTHER-SE> 1,058,922
<TOTAL-LIABILITIES-AND-EQUITY> 15,924,250
<INTEREST-LOAN> 694,448
<INTEREST-INVEST> 158,434
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 852,882
<INTEREST-DEPOSIT> 300,953
<INTEREST-EXPENSE> 532,399
<INTEREST-INCOME-NET> 320,483
<LOAN-LOSSES> (417)
<SECURITIES-GAINS> 1,323
<EXPENSE-OTHER> 238,986
<INCOME-PRETAX> 156,555
<INCOME-PRE-EXTRAORDINARY> 156,555
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 89,449
<EPS-PRIMARY> 1.61
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 2.80
<LOANS-NON> 102,788
<LOANS-PAST> 0
<LOANS-TROUBLED> 20,123
<LOANS-PROBLEM> 38,690
<ALLOWANCE-OPEN> 163,759
<CHARGE-OFFS> 23,862
<RECOVERIES> 6,068
<ALLOWANCE-CLOSE> 146,382
<ALLOWANCE-DOMESTIC> 146,382
<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 March 31, 1998 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) $ 8,902 58.3% $ 3,535 $ 1,269 $ 2,691 $ 1,407
Multi-family and non-residential (2)(3) 2,704 17.7% 2,461 114 94 35
Consumer and commercial (3) 397 2.7% 383 2 11 1
Mortgage-backed securities (2)(3) 2,155 14.1% 1,245 389 312 209
Investment securities (4) 547 3.6% 547 - - -
Other assets (5) 556 3.6% 272 - - 284
----------- -------- --------- ---------- --------- ---------
Total interest-earning assets 15,261 100.0% 8,443 1,774 3,108 1,936
======== --------- ---------- --------- ---------
Non-interest-earning assets 663
-----------
Total assets $ 15,924
==========
Interest-bearing Liabilities:
Deposits:
Checking (6) $ 1,706 11.8% 152 138 744 672
Savings (6) 429 3.0% 31 29 167 202
Money market (6) 2,196 15.1% 385 318 1,174 319
Certificates (4) 5,361 36.9% 3,649 1,058 653 1
Borrowings:
FHLB (4)(7) 4,824 33.2% 2,584 900 1,340 -
--------- -------- ---------- ---------- --------- ---------
Total interest-bearing liabilities 14,516 100.0% 6,801 2,443 4,078 1,194
======== ---------- ---------- --------- ---------
Non-interest-bearing liabilities 293
---------
Total liabilities 14,809
Stockholders' equity 1,115
---------
Total liabilities and stockholders' equity $ 15,924
=========
Maturity GAP 1,642 (669) (970) 742
Impact of interest rate swaps (8) - - - -
--------- ---------- --------- ---------
Adjusted GAP $ 1,642 $ (669) $ (970) $ 742
Cumulative GAP $ 1,642 $ 973 $ 3 $ 745
As % of total assets 10.3% 6.1% 0.0% 4.7%
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 17.9% and 19.9% 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 and regulatory practice, a decay
factor, used to estimate deposit runoff, of 39.45% (CPR) per year has been
applied to these deposits.
(7) Includes $400 million funded in March, 1998 with a five year term, but
which the FHLB has the option to call after one year and accordingly has
been allocated to the "over 6 to 12 months" category.
(8) No interest rate swaps were outstanding at March 31, 1998.
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
INTEREST RATE MARGIN
(unaudited)
<TABLE>
<CAPTION>
EXHIBIT 99B
As of
-------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
1998 1997 1997 1997 1997
---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average rate:
Loans receivable, net 7.77% 7.80% 7.79% 7.73% 7.68%
Mortgage-backed securities, net 6.59% 6.68% 6.76% 6.78% 6.73%
---------- --------- ---------- ---------- ---------
Total loans and MBS 7.59% 7.61% 7.62% 7.58% 7.52%
Federal funds sold and assets purchased
under resale agreements 6.20% 6.90% 6.61% 6.49% 5.66%
Other investments 7.03% 7.58% 7.46% 8.41% 8.51%
---------- --------- ---------- ---------- ---------
Total investments 6.51% 7.15% 6.89% 7.10% 6.51%
---------- --------- ---------- ---------- ---------
Total loans, MBS and investments 7.53% 7.59% 7.58% 7.55% 7.46%
========== ========= ========== ========== =========
Weighted average rate:
Deposits - daily access 2.33% 2.48% 2.69% 2.76% 2.88%
Deposits - certificates 5.46% 5.49% 5.46% 5.46% 5.47%
---------- --------- ---------- ---------- ---------
Total deposits 4.06% 4.19% 4.30% 4.37% 4.48%
Securities sold under agreements to repurchase 0.00% 6.02% 5.65% 5.66% 0.00%
FHLB borrowings 5.62% 5.83% 5.67% 5.72% 5.66%
Other borrowings 8.75% 8.75% 8.75% 7.78% 7.76%
---------- --------- ---------- ---------- ---------
Total borrowings 5.62% 5.86% 5.66% 5.72% 5.66%
---------- --------- ---------- ---------- ---------
Total deposits and borrowings 4.58% 4.77% 4.82% 4.87% 4.90%
========== ========= ========== ========== =========
Interest rate spread 2.95% 2.82% 2.76% 2.68% 2.56%
========== ========= ========== ========== =========
Adjusted Interest Rate Spread /1/ 3.08% 2.92% 2.88% 2.79% 2.73%
========== ========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
1998 1997 1997 1997 1997
---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average yield:
Loans receivable, net 7.68% 7.71% 7.70% 7.62% 7.61%
Mortgage-backed securities, net 6.45% 6.59% 6.67% 6.71% 6.63%
---------- --------- ---------- ---------- ---------
Total loans and MBS 7.48% 7.53% 7.54% 7.47% 7.44%
Federal funds sold and assets purchased
under resale agreements 5.75% 5.79% 5.85% 5.79% 5.55%
Other investments 5.68% 7.50% 10.33% 8.21% 9.18%
---------- --------- ---------- ---------- ---------
Total investments 5.73% 6.35% 7.26% 6.60% 6.56%
---------- --------- ---------- ---------- ---------
Total loans, MBS and investments 7.36% 7.46% 7.52% 7.42% 7.37%
========== ========= ========== ========== =========
Weighted average cost:
Deposits - daily access 2.41% 2.55% 2.72% 2.72% 2.99%
Deposits - certificates 5.49% 5.48% 5.45% 5.47% 5.49%
---------- --------- ---------- ---------- ---------
Total deposits 4.14% 4.22% 4.33% 4.40% 4.54%
Securities sold under agreements to repurchase 5.77% 5.70% 5.66% 5.65% 5.55%
FHLB borrowings 5.77% 5.76% 5.75% 5.78% 5.67%
Other borrowings 2.37% 2.34% 3.73% 3.84% 3.86%
---------- --------- ---------- ---------- ---------
Total borrowings 5.75% 5.72% 5.71% 5.75% 5.66%
---------- --------- ---------- ---------- ---------
Total deposits and borrowings 4.70% 4.76% 4.86% 4.89% 4.94%
========== ========= ========== ========== =========
Yield-cost spread 2.66% 2.70% 2.66% 2.53% 2.43%
========== ========= ========== ========== =========
Effective Net Spread/1/ 2.80% 2.83% 2.78% 2.67% 2.59%
========== ========= ========== ========== =========
</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
-------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
1998 1997 1997 1997 1997
---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Weighted average yield:
Loans receivable, net 7.69% 7.70% 7.70% 7.60% 7.59%
Mortgage-backed securities, net 6.57% 6.63% 6.67% 6.67% 6.65%
---------- --------- ---------- ---------- --------
Total loans and MBS 7.51% 7.53% 7.54% 7.44% 7.43%
Federal funds sold and assets purchased
under resale agreements 5.80% 5.82% 5.85% 5.59% 5.54%
Other investments 7.84% 8.91% 10.33% 8.89% 9.17%
---------- --------- ---------- ---------- --------
Total investments 6.44% 6.82% 7.26% 6.55% 6.54%
---------- --------- ---------- ---------- --------
Total loans, MBS and investments 7.45% 7.49% 7.52% 7.39% 7.38%
========== ========= ========== ========== ========
Weighted average rate:
Deposits - daily access 2.56% 2.63% 2.72% 2.94% 2.98%
Deposits - certificates 5.47% 5.46% 5.45% 5.46% 5.48%
---------- --------- ---------- ---------- --------
Total deposits 4.23% 4.27% 4.33% 4.52% 4.57%
Securities sold under agreements to repurchase 5.69% 5.68% 5.66% 5.55% 5.50%
FHLB borrowings 5.76% 5.75% 5.75% 5.72% 5.70%
Other borrowings 2.99% 3.19% 7.37% 3.77% 3.76%
---------- --------- ---------- ---------- --------
Total borrowings 5.73% 5.72% 5.71% 5.69% 5.67%
---------- --------- ---------- ---------- --------
Total deposits and borrowings 4.77% 4.81% 4.86% 4.95% 4.96%
========== ========= ========== ========== ========
Yield-cost spread 2.68% 2.68% 2.66% 2.44% 2.42%
========== ========= ========== ========== ========
Effective net spread /1/ 2.80% 2.81% 2.78% 2.61% 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
Quarter Ended Fixed ARM Date Fixed Consumer Commercial Total (1)
- ------------- --------- ------- ---------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Mar. 31, 1998 $34,302 $13,223 $5,816 $314,520 $3,564 $10,179 $381,604
9% 3% 2% 82% 1% 3% 100%
Dec. 31, 1997 $69,219 $23,543 $5,219 $223,942 $2,428 $21,031 $345,382
20% 7% 1% 65% 1% 6% 100%
Sept. 30, 1997 $64,062 $37,256 $4,432 $177,237 $3,019 $15,831 $301,837
21% 12% 2% 59% 1% 5% 100%
June 30, 1997 $90,056 $33,752 $6,888 $128,591 $2,658 $17,274 $279,219
32% 12% 3% 46% 1% 6% 100%
Mar. 31, 1997 $42,262 $25,206 $4,637 $72,900 $3,873 $4,808 $153,686
28% 16% 3% 47% 3% 3% 100%
</TABLE>
- -----------
(1) Includes refinanced portion of the Company's loans, which amounted to
$132,989, $70,286, $49,461, $24,399, and $20,203 for the quarters ended March
31, 1998, December 31, 1997, September 30, 1997, June 30, 1997, and March 31,
1997, respectively.
<PAGE>
EXHIBIT 99D
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES AND
NON-PERFORMING ASSETS ("NPA")
AT MARCH 31, 1998
(DOLLARS IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Allowance for
Loan Losses Allowance for
Gross Allowance As a % of Loan Losses
Loan for Gross Loan Non- As a % of
Portfolio Loan Portfolio Accrual Non-Accrual
Property Type Balance Losses Balance Loans Loans NPA
- ------------- --------------- ----------- ------------ --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Single-family
1-4 units $ 8,902,036 $ 42,966 0.48% $ 73,675 58.32% $ 98,244
Multi-family:
5-36 units 1,407,887 32,830 2.33% 8,331 394.07% 13,870
37 or more units 312,143 14,196 4.55% 2,001 709.45% 2,001
Non-residential 983,954 28,406 2.89% 15,951 178.08% 20,691
Commercial 258,821 10,284 3.97% 1,748 588.33% 1,748
Consumer 137,803 17,700 12.84% 1,082 1635.86% 1,082
-------------- ----------- --------- ----------
$ 12,002,644 $ 146,382 1.22% $ 102,788 142.41% $ 137,636
============== =========== ========= ==========
<CAPTION>
NPA
As a % of Allowance for
Gross Loan Loan Losses
Portfolio As a % of
Property Type Balance NPA
- ------------- ------------- ---------------
<S> <C> <C>
Single-family
1-4 units 1.10% 43.73%
Multi-family:
5-36 units 0.99% 236.70%
37 or more units 0.64% 709.45%
Non-residential 2.10% 137.29%
Commercial 0.68% 588.33%
Consumer 0.79% 1635.86%
1.15% 106.35%
</TABLE>
<PAGE>
EXHIBIT 99E
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
GROSS LOANS, NON-PERFORMING ASSETS ("NPA")
AND RESTRUCTURED LOANS ("TDR") BY PROPERTY TYPE
At March 31, 1998
(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 $ 8,902,036 $ 73,675 $ 24,569 $ 98,244 $ 1,753
Multi-family:
5-36 units 1,407,887 8,331 5,539 13,870 5,655
37 or more units 312,143 2,001 - 2,001 5,220
Non-residential:
Office buildings 340,303 6,984 1,386 8,370 4,430
Shopping centers 297,560 6,739 - 6,739 739
Warehouse/storage 75,615 385 - 385 -
Hotels/motels 18,788 357 3,354 3,711 -
Industrial parks 90,676 - - - 1,821
Land 14,471 80 - 80 505
Commercial/
industrial 146,541 1,406 - 1,406 -
------------- ----------- ----------- ----------- ---------
Total non-residential 983,954 15,951 4,740 20,691 7,495
Commercial 258,821 1,748 - 1,748 -
Consumer 137,803 1,082 - 1,082 -
------------- ----------- ----------- ----------- ---------
Total $ 12,002,644 $ 102,788 $ 34,848 $ 137,636 $ 20,123
============= =========== =========== =========== =========
</TABLE>
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES EXHIBIT 99F
NON-PERFORMING ASSETS AND RESTRUCTURED LOANS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
1998 1997 1997 1997 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances:
Non-accrual loans $ 102,788 $ 103,690 $ 129,911 $ 140,295 $ 153,402
Real estate owned and other assets 34,848 48,451 60,338 64,663 71,371
--------- --------- --------- --------- ---------
Total non-performing assets $ 137,636 $ 152,141 $ 190,249 $ 204,958 $ 224,773
========= ========= ========= ========= =========
Restructured loans $ 20,123 $ 20,262 $ 33,251 $ 31,064 $ 31,342
========= ========= ========= ========= =========
Percent of total assets:
Non-accrual loans 0.65% 0.65% 0.79% 0.86% 1.00%
Real estate owned and other assets 0.21% 0.30% 0.37% 0.40% 0.46%
---------- --------- --------- --------- ---------
Total non-performing assets 0.86% 0.95% 1.16% 1.26% 1.46%
========== ========= ========= ========= =========
Restructured loans 0.13% 0.13% 0.20% 0.19% 0.20%
========== ========= ========= ========= =========
</TABLE>
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
NON-PERFORMING ASSETS ACTIVITY EXHIBIT 99G
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
1998 1997 1997 1997 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Balance $ 152,141 $ 190,249 $ 204,958 $ 224,773 $ 224,734
Additions:
Single-family 1-4 units 36,901 32,225 40,011 41,144 52,103
Multi-family:
5 to 36 units 2,804 11,359 4,829 9,492 9,911
37 or more units - 93 - 4,292 -
Non-residential 8,573 373 7,228 10,002 21,538
Commercial 2,460 2,901 2,460 1,643 458
Consumer 275 37 52 1,161 71
---------- ---------- ---------- ---------- ----------
51,013 46,988 54,580 67,734 84,081
---------- ---------- ---------- ---------- ----------
Deletions:
Foreclosures:
Single-family 1-4 units (2,548) (4,277) (3,748) (5,776) (8,692)
Multi-family:
5 to 36 units (458) (1,284) (2,203) (603) (1,704)
37 or more units - - - (21) (555)
Non-residential (4) - (77) 3 (208)
---------- ---------- ---------- ---------- ----------
(3,010) (5,561) (6,028) (6,397) (11,159)
---------- ---------- ---------- ---------- ----------
Write-downs:
Single-family 1-4 units (267) - (551) - (2,750)
Multi-family:
5 to 36 units (603) (334) (232) (766) (950)
37 or more units - - - - (246)
Non-residential (2,673) (426) (745) (1,229) (120)
Commercial (82) (4) (2) - -
Consumer (15) - - - -
---------- ---------- ---------- ---------- ----------
(3,640) (764) (1,530) (1,995) (4,066)
---------- ---------- ---------- ---------- ----------
Reinstatements:
Single-family 1-4 units (13,785) (13,433) (11,287) (11,754) (18,372)
Multi-family:
5 to 36 units - (2,133) (2,018) (3,309) (5,679)
37 or more units - - - (3,463) (503)
Non-residential (743) (87) (1,731) - (559)
Commercial (2,048) (604) (1,512) - -
Consumer (4) - - - -
---------- ---------- ---------- ---------- ----------
(16,580) (16,257) (16,548) (18,526) (25,113)
---------- ---------- ---------- ---------- ----------
Payoffs/Sales/Other:
Single-family 1-4 units (29,475) (20,298) (28,329) (35,948) (27,998)
Multi-family:
5 to 36 units (6,948) (12,165) (6,245) (7,477) (8,905)
37 or more units 409 (4) (3,551) (8,982) (219)
Non-residential (5,438) (27,846) (6,554) (7,229) (6,129)
Commercial (1,009) (2,035) 364 (799) (452)
Consumer 173 (166) (868) (196) (1)
---------- ---------- ---------- ---------- ----------
(42,288) (62,514) (45,183) (60,631) (43,704)
---------- ---------- ---------- ---------- ----------
Ending Balance $ 137,636 $ 152,141 $ 190,249 $ 204,958 $ 224,773
========== ========== ========== ========== ==========
Net (Increase) Decrease $ 14,505 $ 38,108 $ 14,709 $ 19,815 $ (39)
========== ========== ========== ========== ==========
</TABLE>
<PAGE>
GOLDEN STATE BANCORP INC. AND SUBSIDIARIES EXHIBIT 99H
DELINQUENT LOANS BY PROPERTY TYPE
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
% of Type of % of Type of
Mar. 31, Loans Dec. 31, Loans Sept. 30,
1998 Receivable 1997 Receivable 1997
------------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units:
31 - 60 Days $ 43,864 0.49% $ 42,706 0.48% $ 47,820
61 - 90 Days 13,768 0.15% 15,723 0.18% 18,315
Over 90 Days 73,675 0.83% 75,316 0.86% 85,787
------------ --------- ----------- ------- ----------
131,307 1.47% 133,745 1.52% 151,922
------------ --------- ----------- ------- ----------
Multi-family 5-36 units:
31 - 60 Days 5,374 0.38% 5,469 0.38% 8,452
61 - 90 Days 1,459 0.11% 1,414 0.10% 5,551
Over 90 Days 7,741 0.55% 11,630 0.82% 11,118
------------ --------- ----------- ------ ----------
14,574 1.04% 18,513 1.30% 25,121
------------ --------- ----------- ------ ----------
Multi-family 37 or more units:
31 - 60 Days ---- ---- ---- ---- ----
61 - 90 Days 3,476 1.12% ---- ---- ----
Over 90 Days 417 0.14% ---- ---- 1,503
------------ --------- ----------- ------- ---------
3,893 1.26% ---- ---- 1,503
------------ --------- ----------- ------- ---------
Non-residential:
31 - 60 Days 16,875 1.73% 8,341 0.81% 7,340
61 - 90 Days 892 0.09% 3,822 0.37% 5,035
Over 90 Days 13,136 1.34% 9,538 0.92% 9,281
------------ --------- ----------- ------- ---------
30,903 3.16% 21,701 2.10% 21,656
------------ --------- ----------- ------- ---------
Commercial:
31 - 60 Days 2,815 1.09% 5,437 2.32% 8,515
61 - 90 Days 517 0.20% 3,041 1.30% 2,374
Over 90 Days 919 0.36% 2,146 0.92% 1,853
------------ --------- ----------- ------- ---------
4,251 1.65% 10,624 4.54% 12,742
------------ --------- ----------- ------- ---------
Consumer:
31 - 60 Days 1,471 1.07% 1,711 1.24% 1,020
61 - 90 Days 719 0.52% 709 0.51% 559
Over 90 Days 913 0.66% 646 0.47% 782
------------ --------- ----------- ------- ---------
3,103 2.25% 3,066 2.22% 2,361
------------ --------- ----------- ------- ---------
Total:
31 - 60 Days 70,399 0.59% 63,664 0.53% 73,147
61 - 90 Days 20,831 0.17% 24,709 0.21% 31,834
Over 90 Days 96,801 0.81% 99,276 0.83% 110,324
------------ --------- ----------- ------- ---------
$ 188,031 1.57% $ 187,649 1.57% $ 215,305
============ ========= =========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
% of Type of % of Type of % of Type of
Loans June 30, Loans Mar. 31, Loans
Receivable 1997 Receivable 1997 Receivable
------------ ------------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Single-family 1-4 units:
31 - 60 Days 0.53% $ 46,172 0.52% $ 52,181 0.63%
61 - 90 Days 0.20% 17,030 0.19% 18,035 0.22%
Over 90 Days 0.94% 82,989 0.95% 93,111 1.12%
--------- ----------- -------- ---------- -------
1.67% 146,191 1.66% 163,327 1.97%
--------- ----------- -------- ---------- -------
Multi-family 5-36 units:
31 - 60 Days 0.58% 8,944 0.61% 11,351 0.76%
61 - 90 Days 0.38% 3,021 0.20% 4,105 0.27%
Over 90 Days 0.77% 17,713 1.20% 17,405 1.16%
--------- ----------- -------- ---------- -------
1.73% 29,678 2.01% 32,861 2.19%
--------- ----------- -------- ---------- -------
Multi-family 37 or more units:
31 - 60 Days ---- 1,312 0.38% ---- ----
61 - 90 Days ---- ---- ---- 1,478 0.41%
Over 90 Days 0.43% ---- ---- 4,470 1.23%
--------- ----------- -------- ---------- -------
0.43% 1,312 0.38% 5,948 1.64%
--------- ----------- -------- ---------- -------
Non-residential:
31 - 60 Days 0.69% 11,240 0.93% 12,226 1.02%
61 - 90 Days 0.47% 3,079 0.26% 2,422 0.20%
Over 90 Days 0.87% 14,149 1.17% 12,660 1.05%
--------- ----------- -------- ---------- -------
2.03% 28,468 2.36% 27,308 2.27%
--------- ----------- -------- ---------- -------
Commercial:
31 - 60 Days 4.00% 3,235 2.02% 929 1.26%
61 - 90 Days 1.11% 1,935 1.21% ---- ----
Over 90 Days 0.87% 726 0.45% 6 0.01%
--------- ----------- -------- ---------- -------
5.98% 5,896 3.68% 935 1.27%
--------- ----------- -------- ---------- -------
Consumer:
31 - 60 Days 0.83% 1,560 1.29% 2,462 2.73%
61 - 90 Days 0.45% 624 0.52% 769 0.85%
Over 90 Days 0.63% 1,562 1.29% 409 0.45%
--------- ----------- -------- ---------- -------
1.91% 3,746 3.10% 3,640 4.03%
--------- ----------- -------- ---------- -------
Total:
31 - 60 Days 0.59% 72,463 0.60% 79,149 0.69%
61 - 90 Days 0.26% 25,689 0.21% 26,809 0.23%
Over 90 Days 0.90% 117,139 0.96% 128,061 1.11%
--------- ----------- -------- ---------- -------
1.75% $ 215,291 1.77% $234,019 2.03%
========= =========== ======== ========== =======
</TABLE>
