SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20579
---------------------
FORM 8-K/A
CURRENT REPORT
---------------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 30, 1996
First Nationwide Holdings Inc.
(Exact name of registrant as specified in its charter)
Delaware 33-82654 13-3778552
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(212) 527-6300
Not Applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
As previously announced, First Nationwide Holdings Inc. ("Holdings") has
entered into an Agreement and Plan of Merger dated as of July 27, 1996
pursuant to which it will acquire (the "Cal Fed Acquisition") Cal Fed Bancorp
Inc. ("Cal Fed") and its wholly owned subsidiary, California Federal Bank, A
Federal Savings Bank ("California Federal"). Holdings is a holding company
whose only significant asset is all the common stock of First Nationwide Bank,
A Federal Savings Bank ("First Nationwide" or the "Bank"). Holdings will
finance the Cal Fed Acquisition through (i) an issuance of approximately $575
million aggregate principal amount of 10-5/8% Senior Subordinated Notes Due
2003 (the "Notes"), (ii) a contribution by an indirect parent corporation of
Holdings of approximately $145 million in cash in exchange for $150 million
aggregate liquidation value of perpetual preferred stock of Holdings (the
"Holdings Preferred Stock") and (iii) existing cash. The offering of the Notes
(the "Offering") will not be registered under the Securities Act of 1933, as
amended, and the Notes may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
*10.1 Amendment to Employment Agreement, dated as of June 1, 1996, between
First Nationwide Bank, A Federal Savings Bank and Carl B. Webb II.
*10.2 Amendment to Employment Agreement, dated as of June 1, 1996, between
First Nationwide Bank, A Federal Savings Bank and Richard P. Hodge.
*10.3 Amendment to Employment Agreement, dated as of June 1, 1996, between
First Nationwide Bank, A Federal Savings Bank and J. Randy Staff.
*10.4 Employment Agreement, dated as of June 1, 1996, between First
Nationwide Bank, A Federal Savings Bank and Christie S. Flanagan.
*10.5 Amendment to Employment Agreement, dated as of June 1, 1996, between
First Nationwide Bank, A Federal Savings Bank and Lacy G. Newman.
2
<PAGE>
99.1 Unaudited Pro Forma Financial Data of First Nationwide Holdings Inc.
and Subsidiaries.
*99.2 Press Release.
- ----------
* Previously filed with Form 8-K.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST NATIONWIDE HOLDINGS INC.
Dated: November 8, 1996
By: /s/ Laurence Winoker
--------------------
Name: Laurence Winoker
Title: Vice President and
Controller
4
<PAGE>
EXHIBITS
Exhibit No. Document
- ----------- --------
*10.1 Amendment to Employment Agreement, dated as of June 1,
1996, between First Nationwide Bank, A Federal Savings
Bank and Carl B. Webb II.
*10.2 Amendment to Employment Agreement, dated as of June 1,
1996, between First Nationwide Bank, A Federal Savings
Bank and Richard P. Hodge.
*10.3 Amendment to Employment Agreement, dated as of June 1,
1996, between First Nationwide Bank, A Federal Savings
Bank and J. Randy Staff.
*10.4 Employment Agreement, dated as of June 1, 1996, between
First Nationwide Bank, A Federal Savings Bank and Christie
S. Flanagan.
*10.5 Amendment to Employment Agreement, dated as of June 1,
1996, between First Nationwide Bank, A Federal Savings
Bank and Lacy G. Newman.
99.1 Unaudited Pro Forma Financial Data of First Nationwide
Holdings Inc. and Subsidiaries.
*99.2 Press Release.
----------
* Previously filed with Form 8-K.
5
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma financial data gives effect to the Acquisitions,
the Branch Sales, the issuances of the Holdings Preferred Stock and the
Holdings 9 1/8% Senior Subordinated Notes and the Offering. The Branch
Purchases and the Home Federal Acquisition have not been reflected in the pro
forma financial data because such transactions are not material either
individually or in the aggregate.
The following pro forma financial data as of and for the six months ended
June 30, 1996 are based on (i) the historical consolidated statement of
financial condition of Holdings giving effect to the Cal Fed Acquisition, the
issuance of the Holdings Preferred Stock and the Offering as if such
transactions occurred on June 30, 1996, and (ii) the historical consolidated
statement of operations of Holdings for the six months ended June 30, 1996
giving effect to the Cal Fed Acquisition, the SFFed Acquisition, the LMUSA
1996 Purchase, the Branch Sales, the issuances of the Holdings Preferred
Stock and the Holdings 9 1/8% Senior Subordinated Notes and the Offering as
if such transactions occurred on January 1, 1995. The following pro forma
financial data for the year ended December 31, 1995 is based on the
historical consolidated statement of operations of Holdings for the year
ended December 31, 1995 giving effect to the Acquisitions, the Branch Sales,
the issuances of the Holdings Preferred Stock and the Holdings 9 1/8% Senior
Subordinated Notes and the Offering as if such transactions occurred on
January 1, 1995. The pro forma adjustments are based on available information
and upon certain assumptions that management believes are reasonable under
the circumstances. The Acquisitions are accounted for under the purchase
method of accounting. Under this method of accounting, the purchase price has
been allocated to the assets and liabilities acquired based on preliminary
estimates of fair value. The actual fair value is determined as of the
consummation of each of the Acquisitions. The pro forma financial data do not
necessarily reflect the results of operations or the financial position of
Holdings that actually would have resulted had the Acquisitions, the Branch
Sales, the issuances of the Holdings Preferred Stock and the Holdings 9 1/8%
Senior Subordinated Notes and the Offering occurred at the dates indicated,
or project the results of operations or financial position of Holdings for
any future date or period.
The following pro forma financial data should be read in conjunction with
the Consolidated Financial Statements of Holdings and the notes thereto, the
Consolidated Financial Statements of SFFed and the notes thereto and the
Consolidated Financial Statements of Cal Fed and California Federal and the
notes thereto, contained elsewhere in this Offering Circular. Capitalized
terms used and not defined herein have the meanings set forth in the Offering
Circular.
P-1
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CAL FED ACQUISITION (A)
-------------------------------------------------------------
CAL FED
HOLDINGS CAL FED VALUATION PRO FORMA ACQUISITION
HISTORICAL HISTORICAL(I) ADJUSTMENTS(II) ADJUSTMENTS(III) PRO FORMA
------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents . $ 227,693 $ 255,000 $ -- $(992,633)(2) $ (737,633)
Securities ................. 504,296 1,558,400 (800)(1) (300,000)(2) 1,257,600
Mortgage-backed securities 3,509,994 2,140,000 5,000 (1) -- 2,145,000
Loans receivable, net ..... 11,862,743 9,669,100 (25,661)(1) -- 9,643,439
Covered assets ............. 39,349 -- -- -- --
Office premises and
equipment, net ............ 90,203 65,600 (56,633)(1) -- 8,967
Mortgage servicing rights,
net ....................... 381,670 4,773 27,485 (1) -- 32,258
Intangible assets .......... 146,160 15,399 (15,399)(1) 574,747 (1) 574,747
Other assets ............... 934,303 337,128 138,597 (1) -- 471,525
(4,200) (1)
------------- ------------- --------------- -------------- -------------
Total assets ............... $17,696,411 $14,045,400 $ 68,389 (1) $(717,886) $13,395,903
============= ============= =============== ============== =============
LIABILITIES, MINORITY
INTEREST AND
STOCKHOLDERS' EQUITY
Deposits ................... $ 9,035,219 $ 8,844,200 $ 30,413 (1) $ -- $ 8,874,613
Borrowings ................. 7,122,168 4,211,500 (2,010)(1) -- 4,209,490
Other liabilities .......... 464,408 134,000 5,300 (1) -- 139,300
------------- ------------- --------------- -------------- -------------
Total liabilities .......... 16,621,795 13,189,700 33,703 -- 13,223,403
------------- ------------- --------------- -------------- -------------
Minority interest .......... 309,376 172,500 172,500
Stockholders' Equity:
Preferred Stock ........... -- -- -- -- --
Common Stock .............. 1 49,400 -- (49,400)(3) --
Additional paid-in
capital .................. 53,503 840,300 -- (840,300)(3) --
Net unrealized holding
gain on securities
available for sale ....... 23,887 400 -- (400)(3) --
Retained earnings
(deficit) ................ 687,849 (206,900) 34,686 (1) 172,214 (3) --
------------- ------------- --------------- -------------- -------------
Total stockholders'
equity .................. 765,240 683,200 34,686 (717,886) --
------------- ------------- --------------- -------------- -------------
Total liabilities, minority
interest and stockholders'
equity .................... $17,696,411 $14,045,400 $ 68,389 $(717,886) $13,395,903
============= ============= =============== ============== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
CAPITALIZATION(B) COMBINED
--------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . $555,000 (1) $ 190,060
145,000 (2)
Securities ................. 1,761,896
Mortgage-backed securities -- 5,654,994
Loans receivable, net ..... -- 21,506,182
Covered assets ............. -- 39,349
Office premises and
equipment, net ............ -- 99,170
Mortgage servicing rights,
net ....................... -- 413,928
Intangible assets .......... -- 720,907
Other assets ............... 20,000 (1) 1,425,828
--------------- -------------
Total assets ............... $720,000 $31,812,314
=============== =============
LIABILITIES, MINORITY
INTEREST AND
STOCKHOLDERS' EQUITY
Deposits ................... $ -- $17,909,832
Borrowings ................. 575,000 (1) 11,906,658
Other liabilities .......... -- 603,708
--------------- -------------
Total liabilities .......... 575,000 30,420,198
--------------- -------------
Minority interest .......... -- 481,876
Stockholders' Equity:
Preferred Stock ........... 150,000 (2) 150,000
Common Stock .............. -- 1
Additional paid-in
capital .................. (5,000)(2) 48,503
Net unrealized holding
gain on securities
available for sale ....... -- 23,887
Retained earnings
(deficit) ................ -- 687,849
--------------- -------------
Total stockholders'
equity .................. 145,000 910,240(C)
--------------- -------------
Total liabilities, minority
interest and stockholders'
equity .................... $720,000 $31,812,314
=============== =============
</TABLE>
- ------------
(A) See note (A) on page P-3.
(B) See note (B) on page P-7.
(C) See note (C) on page P-7.
(i) Represents historical amounts obtained from Cal Fed's unaudited
financial statements.
(ii) Represents adjustments to (i) record Cal Fed's assets and liabilities
at preliminary estimates of their respective fair value and (ii) the
elimination of Cal Fed's historical intangible assets.
(iii) Represents adjustments to record (i) the purchase price of the Cal Fed
Acquisition, and (ii) the elimination of the equity of Cal Fed.
In connection with the Economic Growth and Regulatory Paperwork Reduction
Act of 1996 ("Act") enacted on September 30, 1996, a special assessment
related to the recapitalization of the SAIF was levied against SAIF-insured
deposits, which is currently estimated to be 65.7 cents per $100 of insured
domestic deposits at March 31, 1995. The impact of such assessment on the pro
forma condensed combined statement of financial condition as of June 30,
1996, had such Act been enacted on that date, would be to (i) increase other
liabilities by approximately $118.2 million, (ii) reduce stockholders' equity
by approximately $60.1 million, and (iii) increase goodwill by approximately
$58.1 million.
P-2
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(A) CAL FED ACQUISITION
(1) The Cal Fed Acquisition will be accounted for using the purchase method
of accounting. The aggregate purchase price was determined as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price, as defined:
Shares outstanding at June 30, 1996 . 49,395,947
Options outstanding at June 30, 1996 1,395,300
------------
Total ............................. 50,791,247
Purchase price per share ............. $ 23.50
------------
$ 1,193,594
Exercise of options outstanding (a) . (11,218)
------------
Purchase price ....................... 1,182,376
Acquisition fees and costs (b) ...... 110,257
------------
Total ............................. $ 1,292,633
============
</TABLE>
The following is a reconciliation of the equity of Cal Fed to the fair
value of the net assets to be acquired by Holdings:
<TABLE>
<CAPTION>
<S> <C> <C>
Equity of Cal Fed at June 30, 1996 ............... $ 683,200
Fair value adjustments (c):
Securities ...................................... $ (800)
Mortgage-backed securities ...................... 5,000
Loans receivable, net ........................... (25,661)
Mortgage servicing rights ....................... 27,485
Office premises and equipment (d) ............... (56,633)
Litigation asset, net (other assets) (e) ....... 138,597
Other assets (f) ................................ (4,200)
Deposits ........................................ (30,413)
Borrowings ...................................... 2,010
Other liabilities (g) ........................... (5,300)
Elimination of historical intangible assets .... (15,399)
---------- -----------
34,686 34,686
-----------
Fair value of net assets acquired ............... 717,886
Purchase cost ................................... 1,292,633
-----------
Excess of purchase cost over net assets acquired
("goodwill") ................................... $ 574,747
===========
</TABLE>
(a) Represents cash to be received by Cal Fed in settlement of stock
options and stock appreciation rights outstanding as of June 30, 1996
(1,395,300 options outstanding at an average price of $8.04 per
share).
P-3
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(A) CAL FED ACQUISITION (CONTINUED)
(b) Represents fees and costs consisting of the following:
<TABLE>
<CAPTION>
<S> <C>
Severance costs ....................................... $ 45,500
Pension plan termination costs ........................ 6,700
Conversion and contract termination costs ............. 33,257
Investment banking, legal and other professional costs 24,800
---------
$110,257
=========
</TABLE>
Severance costs were estimated based on (i) obligations assumed by
Holdings under Cal Fed's compensation agreements with eleven of its
executive officers; (ii) transaction bonuses to be paid to six Cal Fed
executive officers; (iii) severance benefits payable pursuant to a letter
agreement between Cal Fed and Holdings for approximately 850 employees who
are not parties to separate employment agreements; and (iv) relocation
benefits for employees who will be offered employment opportunities in
northern California. The obligations of Holdings pursuant to items (i) and
(ii) above approximate $15.5 million and $10 million, respectively.
Non-contract employees are eligible to be paid three weeks of severance per
year of service, with a minimum payment of eight weeks severance. In
addition, 52 employees have guaranteed minimum severance payments, which
often exceed the three weeks per year of service. Holdings' termination
plan is currently being developed, and it is expected that the employees to
be terminated will be so notified no later than 60 days before their
expected termination date. Such termination dates are expected to fall
within six months of the consummation of the Cal Fed Acquisition. It is
expected that employees who will be offered relocation opportunities will
be notified before the consummation of the Cal Fed Acquisition.
Pension termination costs represent lump sum distributions which will be
required under CalFed's defined benefit programs upon termination of such
plans. These amounts, totalling $4.2 million, have not been previously
accrued. In addition, the purchase agreement includes $2.5 million to be
allocated to an employee retention pool, established to provide additional
incentive to critical employees to remain with Cal Fed until the Cal Fed
Acquisition is consummated.
The majority of conversion and contract costs of $33.3 million represents
costs and penalties expected to be incurred by Holdings in connection with
the cancellation of outstanding contracts. Such contracts consist primarily
of data processing services and real property lease arrangements. This
amount also includes the transfer cost of mortgage loan servicing,
estimated at $40 per loan, based on the Bank's historical experience.
(c) Fair value adjustments are amortized against (accreted to) net income
as follows:
<TABLE>
<CAPTION>
PERIOD OF AMORTIZATION
ITEM METHOD OF AMORTIZATION (ACCRETION) (ACCRETION)
- ------------------------------ ------------------------------------------------ --------------------------
<S> <C> <C>
Mortgage-backed securities Level yield method over effective terms of such 6 to 9 years
assets, considering estimated prepayments
Loans receivable Level yield method over effective terms of such 2 to 12 years
assets, considering estimated prepayments
Mortgage servicing rights Level yield method over effective terms of such 2 to 7 years
assets, considering estimated prepayments
Goodwill Straight-line method 15 years
Deposits Level yield method over stated terms of such 1 to 6 years
liabilities
Borrowings Level yield method over stated terms of such 1 to 9 years
liabilities
</TABLE>
P-4
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(A) CAL FED ACQUISITION (CONTINUED)
With respect to goodwill, representing the excess of the purchase price
over the fair value of tangible assets acquired and liabilities assumed
(the "Excess"), Holdings does not currently anticipate that any of the
Excess will be allocated to "identifiable intangible assets" (i.e., core
deposit intangibles) in connection with the Cal Fed Acquisition. Based on
prior core deposit intangible studies, management estimates that the value
of California deposits would approximate $135 million, at June 30, 1996.
The average life of this intangible, based on historical experience, is
approximately five years. On the other hand, goodwill related to financial
institutions is, by industry standards, typically amortized over a 25 year
period. Holdings has elected to forego the cost of a deposit study to
support an intangible valuation, and has elected instead to amortize the
Excess over 15 years. This treatment is predicated on the fact that 15
years is a reasonable approximation of the combined lives of a separately
determinable core deposit intangible and the remaining Excess, and that
non-segregation of these assets would not have a significant effect on
Holdings' financial statements.
(d) Includes (i) $45.7 million in fair value adjustments to reflect
obligations to be assumed under master lease arrangements on Cal Fed's
two corporate facilities at market rental rates, net of sub-lease
income; (ii) fair value adjustments to reflect lease obligations on
branch facilities at market rates; and (iii) fair value adjustments
related to certain data processing hardware and software.
(e) Represents the estimated after-tax recovery that will inure to the
Bank from the California Federal Litigation, net of amounts payable to
holders of the Litigation Interests and the Secondary Litigation
Interests. The estimated fair value of such litigation asset was
determined based on the following methodology:
CALCULATION OF ESTIMATED GROSS PROCEEDS (WHOLE DOLLARS)
<TABLE>
<CAPTION>
<S> <C>
CALGZ Closing Price at July 1, 1996 $ 12.625
CALGZ Shares Outstanding ........... 5,075,549
---------------
CALGZ Total Value .................. $ 64,078,806
CALGZ Share of Litigation Proceeds 25.37775%
---------------
Total Value, After-tax Proceeds ... $252,499,950
Gross-up for Tax Effect (1-40.2%) . 59.80%
---------------
$422,240,719(i)
Subjective Discount (ii) ........... 66,053,498
---------------
Estimated Gross Proceeds ........... $356,187,221
===============
</TABLE>
(i) No adjustment for expenses included due to immateriality to total
proceeds.
(ii) Subjective discount of approximately 15% was applied in
consideration of the variability of the market prices of the CALGZ
interests over time (which may be attributed in part to the
market's assumptions and uncertainty concerning, among other
things, the time frame for the final settlement of the California
Federal Litigation, the related discount for the time value of
money, and past and future expenses incurred in pursuing the
California Federal Litigation.) After discount, estimated gross
proceeds represent a CALGZ price of $10.65 per share.
P-5
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(A) CAL FED ACQUISITION (CONTINUED)
DISTRIBUTION OF PROCEEDS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
<S> <C>
Estimated Gross Proceeds .................... $ 356.2
Tax Liability, Estimated at 40.2% ........... 143.2
-----------
Total After-tax Proceeds .................... $ 213.0
===========
Distribution to Class A Certificate Holders $ 213.0
CALGZ Share of After-tax Proceeds ........... 25.37775%
-----------
Total Distribution to Class A Holders ...... $ 54.1
===========
Remaining After Tax Proceeds ................ $ 158.9
Holdings Initial Distribution ............... 125.0
-----------
Remainder for Secondary Distribution ....... $ 33.9
===========
Holdings--40% Distribution .................. $ 13.6
Class B Certificate Holders--60%
Distribution ............................... 20.3
-----------
Total Secondary Distribution ............... $ 33.9
===========
Holdings Distribution:
Initial Distribution ....................... $ 125.0
40% Secondary Distribution ................. 13.6
-----------
Total Holdings Distribution ............... $ 138.6
===========
</TABLE>
Once the allocation of purchase price has been made, the Bank will
incur periodic charges against earnings for any market value
declines in the carrying value of this asset. Market value will be
determined based upon the market value of the CALGZ and Secondary
Participation Interests, and will also consider a decline in value
related to factors of which management is aware which may not be
reflected in the market values of these securities. Any increases in
market value above the original cost basis established through
purchase accounting will be deferred until the final realization of
the settlement.
(f) Includes fair value adjustments to reflect investor advances accounts
related to the loan servicing operation.
(g) Includes fair value adjustments to deficit escrow accounts.
(2) Represents payment by Holdings in connection with the Cal Fed
Acquisition. The cash portion of the purchase price will be obtained by
liquidating certain of Cal Fed's assets at book value, as follows:
<TABLE>
<CAPTION>
<S> <C>
Existing cash .................................................... $ 992,633
Sale of securities available for sale and proceeds from
securities purchased under agreements to resell ................. 300,000
-----------
Purchase Price .................................................. $1,292,633
===========
</TABLE>
(3) Represents the elimination of the equity components of Cal Fed totalling
$717,886.
P-6
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(B) CAPITALIZATION
(1) Represents the issuance of the Notes:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the issuance of the Notes................... $575,000
Less: deferred issuance costs ............................. (20,000)
----------
Net proceeds ............................................. $555,000
==========
</TABLE>
(2) Represents the issuance of the Holdings Preferred Stock:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the issuance of the Holdings Preferred
Stock ................................................... $150,000
Less: issuance costs ..................................... (5,000)
----------
Net proceeds ............................................ $145,000
==========
</TABLE>
(C) OTHER DATA
Prior to or concurrent with the consummation of the Cal Fed Acquisition,
the net proceeds from the issuance of the Notes and Holdings Preferred Stock
will be contributed to the Bank in the Capital Contribution totalling
approximately $700 million. In addition, the MBS Sale of approximately $2.3
billion of lower-yielding mortgage-backed securities is expected to occur
concurrent with or shortly after the closing of the Cal Fed Acquisition.
Substantially all the securities to be included in the MBS Sale are included
in Cal Fed's securities portfolio. It is expected that proceeds from the MBS
Sale will approximate carrying value of the assets, with no gain or loss
recorded on the sale.
After giving effect to the Cal Fed Acquisition, the Capital Contribution
and the MBS Sale, at June 30, 1996, on a pro forma basis, the Bank is
expected to exceed minimum regulatory capital requirements. The following is
a reconciliation of the Bank's pro forma stockholders' equity to regulatory
capital as of June 30, 1996:
<TABLE>
<CAPTION>
TANGIBLE RISK-BASED
CAPITAL CORE CAPITAL CAPITAL
------------ ------------ --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Stockholders' equity of the Bank ........ $2,314 $2,314 $2,314
Unrealized holding gain on securities
available for sale, net ................. (24) (24) (24)
Non-qualifying loan-servicing rights .... (41) (41) (41)
Non-allowable capital:
Intangible assets ....................... (744) (744) (744)
Investment in subsidiaries .............. (27) (27) (27)
Excess deferred tax assets ............... (42) (42) (42)
Supplemental capital:
Qualifying subordinated debt debentures -- -- 108
General loan loss reserves .............. -- -- 227
Assets required to be deducted:
Land loans with more than 80% LTV ratio -- -- (2)
------------ ------------ --------------
Regulatory capital of the Bank ........... $1,436 $1,436 $1,769
============ ============ ==============
Tangible Leverage Risk-based
Capital Capital Capital
Ratio Ratio Ratio
------------ ------------ --------------
Regulatory capital of the Bank (i) ...... 5.01% 5.01% 9.78%
Minimum regulatory capital requirement .. 1.50 3.00 8.00
------------ ------------ --------------
Excess above minimum capital requirement 3.51% 2.01% 1.78%
============ ============ ==============
</TABLE>
P-7
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(C) OTHER DATA (CONTINUED)
The amount of adjusted total assets used for the tangible and core capital
ratios was approximately $28.7 billion. Risk-weighted assets used for the
risk-based core and total capital ratios amounted to approximately $18.1
billion.
(i) The Office of Thrift Supervision, at the regional and national levels, is
currently considering disallowing the inclusion of the litigation asset
in regulatory capital. Should the OTS prevail in its position, First
Nationwide's pro forma capital ratios at June 30, 1996 would be as
follows:
<TABLE>
<CAPTION>
<S> <C>
Tangible Capital Ratio 4.52%
Leverage Capital Ratio 4.52
Risk-based Capital Ratio 9.03
</TABLE>
Although First Nationwide, on a pro forma basis combined with California
Federal, would not qualify as a well-capitalized institution at June 30,
1996, management expects the institution to so qualify once the Cal Fed
Acquisition is consummated.
P-8
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED LMUSA 1996 CAL FED
ACQUISITION PURCHASE PRO ACQUISITION
HOLDINGS PRO FORMA FORMA PRO FORMA
HISTORICAL TOTALS(A) TOTALS(B) TOTALS (C)
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable .................. $478,745 $21,821 $ -- $383,650
Securities ........................ 15,696 1,017 -- 54,900
Mortgage-backed securities ........ 130,422 3,174 -- 86,600
Other interest income ............. 1,413 -- -- (14,195)
------------ ------------- ------------ -------------
Total interest income ............ 626,276 26,012 -- 510,955
INTEREST EXPENSE:
Deposits .......................... 222,656 12,401 -- 216,500
Borrowings ........................ 185,580 6,114 (848) 112,450
------------ ------------- ------------ -------------
Total interest expense ........... 408,236 18,515 (848) 328,950
Net interest income ............... 218,040 7,497 848 182,005
Provision for loan losses ......... 19,800 500 -- 20,400
------------ ------------- ------------ -------------
Net interest income after
provision for loan losses ........ 198,240 6,997 848 161,605
NONINTEREST INCOME:
Customer banking fees ............. 23,806 199 -- 24,100
Mortgage banking operations ...... 60,765 191 3,484 2,400
Net gain (loss) on sales of assets 415,378 (1,140) -- 300
Other ............................. 19,642 239 51 13,700
------------ ------------- ------------ -------------
Total noninterest income ......... 519,591 (511) 3,535 40,500
NONINTEREST EXPENSE:
Compensation and benefits ......... 110,866 1,257 2,070 33,964
Other ............................. 111,426 2,616 1,099 80,373
------------ ------------- ------------ -------------
Total noninterest expense ........ 222,292 3,873 3,169 114,337
------------ ------------- ------------ -------------
Income (loss) before income taxes
and minority interest ............ 495,539 2,613 1,214 87,768
Income tax (benefit) expense ..... (81,351) 369 120 11,741
------------ ------------- ------------ -------------
Net income (loss) before minority
interest ......................... 576,890 2,244 1,094 76,027
MINORITY INTEREST ................. 25,938 -- -- 14,300
------------ ------------- ------------ -------------
Net income (loss) ................. 550,952 2,244 1,094 61,727
Holdings Preferred Stock dividends -- -- -- --
------------ ------------- ------------ -------------
Net income (loss) available to
common stockholders .............. $550,952 $ 2,244 $1,094 $ 61,727
============ ============= ============ =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BRANCH SALES
PRO FORMA PRO FORMA PRO FORMA
TOTALS(D) ADJUSTMENTS (E) COMBINED
-------------- --------------- ------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable .................. $ (110) $ -- $ 884,106
Securities ........................ -- -- 71,613
Mortgage-backed securities ........ -- -- 220,196
Other interest income ............. -- -- (12,782)
-------------- --------------- ------------
Total interest income ............ (110) -- 1,163,133
INTEREST EXPENSE:
Deposits .......................... (40,742) -- 410,815
Borrowings ........................ 44,835 30,547 (1) 379,743
1,065 (1)
-------------- --------------- ------------
Total interest expense ........... 4,093 31,612 790,558
Net interest income ............... (4,203) (31,612) 372,575
Provision for loan losses ......... -- -- 40,700
-------------- --------------- ------------
Net interest income after
provision for loan losses ........ (4,203) (31,612) 331,875
NONINTEREST INCOME:
Customer banking fees ............. (3,965) -- 44,140
Mortgage banking operations ...... -- -- 66,840
Net gain (loss) on sales of assets 10 -- 414,548
Other ............................. (163) -- 33,469
-------------- --------------- ------------
Total noninterest income ......... (4,118) -- 558,997
NONINTEREST EXPENSE:
Compensation and benefits ......... (4,337) -- 143,820
Other ............................. (3,387) 1,429 (2) 193,623
67 (2)
-------------- --------------- ------------
Total noninterest expense ........ (7,724) 1,496 337,443
-------------- --------------- ------------
Income (loss) before income taxes
and minority interest ............ (597) (33,108) 553,429
Income tax (benefit) expense ..... (59) (3,258)(3) (72,438)
-------------- --------------- ------------
Net income (loss) before minority
interest ......................... (538) (29,850) 625,867
MINORITY INTEREST ................. -- -- 40,238
-------------- --------------- ------------
Net income (loss) ................. (538) (29,850) 585,629 (5)
Holdings Preferred Stock dividends -- 9,213 (4) 9,213
-------------- --------------- ------------
Net income (loss) available to
common stockholders .............. $ (538) $(39,063) $ 576,416 (i)
============== =============== ============
</TABLE>
- ------------
(A) See note (A) on page P-10.
(B) See note (B) on page P-13.
(C) See note (C) on page P-15.
(D) See note (D) on page P-18.
(E) See note (E) on page P-20.
(i) Includes the following:
(a) gains of approximately $334.2 million (on an after-tax basis)
realized in connection with the Branch Sales consummated during
the six months ended June 30, 1996;
(b) gain of approximately $12 million representing Cal Fed's gain on
branch sales consummated during the six months ended June 30,
1996;
(c) deferred tax benefit of First Nationwide of $125 million;
(d) after-tax gain on sale of ACS (as defined herein) common stock of
$36.4 million; and
(e) Incentive Plan expense of $27.4 million (on an after-tax basis).
P-9
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH ENDED JANUARY 31, 1996 (A)
-------------------------------------------------------------
SFFED
ACQUISITION
VALUATION PRO FORMA PRO FORMA
(A) SFFED ACQUISITION HISTORICAL ADJUSTMENTS (B) ADJUSTMENTS (C) TOTALS
- ----------------------------------- ------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loan receivable .................... $20,524 $ 1,297 (1) $ -- $21,821
Securities ......................... 1,017 -- -- 1,017
Mortgage-backed securities ......... 2,976 198 (1) -- 3,174
Other interest income .............. -- -- -- --
------------ --------------- --------------- -------------
Total interest income ............. 24,517 1,495 -- 26,012
INTEREST EXPENSE:
Deposits ........................... 11,693 708 (1) -- 12,401
Borrowings ......................... 5,861 253 (1) -- 6,114
------------ --------------- --------------- -------------
Total interest expense ............ 17,554 961 -- 18,515
------------ --------------- --------------- -------------
Net interest income ................ 6,963 534 -- 7,497
Provision for loan losses .......... 500 -- -- 500
------------ --------------- --------------- -------------
Net interest income after provision
for loan losses ................... 6,463 534 -- 6,997
NONINTEREST INCOME:
Customer banking fees .............. 199 -- -- 199
Mortgage banking operations ....... 557 (366)(1) -- 191
Net gain (loss) on sales of assets (1,140) -- -- (1,140)
Other .............................. 239 -- -- 239
------------ --------------- --------------- -------------
Total noninterest income .......... (145) (366) -- (511)
NONINTEREST EXPENSE:
Compensation and benefits .......... 6,041 -- (4,784)(3) 1,257
Other .............................. 4,315 1,076 (2) (2,775)(4) 2,616
------------ --------------- --------------- -------------
Total noninterest expense ......... 10,356 1,076 (7,559) 3,873
------------ --------------- --------------- -------------
Income (loss) before income taxes
and minority taxes ................ (4,038) (908) 7,559 2,613
Income tax (benefit) expense ...... (4,993) -- 5,362 (5) 369
------------ --------------- --------------- -------------
Net income (loss) before minority
interest .......................... 955 (908) 2,197 2,244
------------ --------------- --------------- -------------
MINORITY INTEREST .................. -- -- -- --
------------ --------------- --------------- -------------
Net income (loss) .................. $ 955 $ (908) $ 2,197 $ 2,244
============ =============== =============== =============
</TABLE>
- ------------
(a) The SFFed Acquisition was consummated on February 1, 1996. Historical
results represent unaudited results of operations of SFFed for the
month ended January 31, 1996.
(b) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of
historical goodwill.
(c) Represents adjustments to reflect (i) the elimination of certain
noninterest expense due to consolidation of SFFed operations with First
Nationwide's and (ii) the elimination of certain historical noninterest
expense recorded by SFFed as a result of the acquisition by First
Nationwide, and (iii) income taxes relative to the SFFed Acquisition.
P-10
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPACT ON INCOME BEFORE
INCOME TAXES AND MINORITY
INTEREST INCREASE
(A) SFFED ACQUISITION (CONTINUED) (DECREASE)
- --------------------------------------------------------------------------------- -------------------------
<S> <C>
(1) Represents amortization or accretion of fair value adjustments for the one
month ended January 31, 1996 as follows:
Loans receivable, net ......................................................... $ 1,297
Mortgage-backed securities .................................................... 198
Deposits ...................................................................... (708)
Borrowings .................................................................... (253)
Mortgage servicing rights ..................................................... (366)
=========================
IMPACT ON INCOME BEFORE
INCOME TAXES AND MINORITY
INTEREST INCREASE
(DECREASE)
--------------------------
(2) Represents adjustments for the one month ended January 31, 1996
consisting of the following:
Amortization of fair value adjustments--amortization of goodwill .............. $(1,131)
Elimination of amortization of SFFed's historical goodwill .................... 55
-------------------------
$(1,076)
=========================
(3) Represents adjustments to compensation and benefits expense for the one
month ended January 31, 1996
relating to the consolidation of SFFed's operations into those of Holdings:
Decrease in compensation and benefits due to the reduction in headcount from
620 at January 1, 1996 to approximately 260 after the consummation of the SFFed
Acquisition. Substantially all retained employees represent retail branch
personnel. ................................................................ $ 1,586
Elimination of certain nonrecurring expenses recorded by SFFed related
to the acquisition by Holdings:
Accrual for severance for employees noticed for termination in
January 1996 ........................................................... 2,459
Directors retirement plan and fees ...................................... 388
Expense related to restricted stock options ............................. 351
-------------------------
$ 4,784
=========================
</TABLE>
P-11
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
(4) Represents adjustments to other noninterest expense relating to the
consolidation of SFFed's operations into those of Holdings. Substantially
all of SFFed's operations have been consolidated into the existing
operations of Holdings, resulting in a reduction in headcount of
approximately 58% with the remaining personnel primarily consisting of
retail branch personnel. In addition, ten retail branches have been
closed. The estimates are based on the pro-rata portion of the annual
expense reduction computed for the year ended December 31, 1995.
<TABLE>
<CAPTION>
SFFED COST OF 1995
HISTORICAL ONGOING EXPENSE
COSTS OPERATIONS REDUCTION
------------ ------------ -----------
<S> <C> <C> <C>
Expense decreases due to consolidation:
Mortgage banking operations:
Occupancy expenses, including insurance ........... $ 1,329 $ 588 $ 741
Travel, automobile and employee dues .............. 282 67 215
Telecommunications, postage and supplies .......... 900 214 686
Other, net ........................................ 1,047 460 587
------------ ------------ -----------
Subtotal mortgage banking operations ............. $ 3,558 $ 1,329 $ 2,229
============ ============ ===========
Retail Banking operations--reductions due to
consolidation of ten retail branches and retail
operations center:
Occupancy expenses, including insurance ........... $11,220 $ 3,405 $ 7,815
SAIF assessment reduction based on lower historical
assessment rate for First Nationwide ............. 6,811 6,011 800
Travel, automobile and employee dues .............. 410 60 350
Telecommunications and data processing ............ 1,766 364 1,402
Postage and messenger costs ....................... 666 473 193
Other costs, net .................................. 216 108 108
------------ ------------ -----------
Subtotal retail banking operations ............... $21,089 $10,421 $10,668
============ ============ ===========
Overhead areas, including executive offices, legal,
human resources, information services, accounting,
and strategic planning areas:
Occupancy costs ................................... $ 1,316 $ -- $ 1,316
Data processing costs ............................. 2,848 1,000 1,848
Marketing and advertising expenses ................ 2,094 500 1,594
Other overhead costs .............................. 8,072 8,072 --
------------ ------------ -----------
Subtotal overhead areas .......................... $14,330 $ 9,572 $ 4,758
============ ============ ===========
Total decreases due to consolidation ............ $38,977 $21,322 $17,655
============ ============ ===========
Estimated impact on January 1996 (1/12 of 1995 Expense Reduction) ............... $ 1,471
Elimination of certain nonrecurring expenses recorded by SFFed related to the
acquisition by First Nationwide: ................................................
Retirement of office, premises and equipment ................................... 1,115
Directors and officers insurance premiums ...................................... 189
-----------
Total expense reduction for the month ended January 31, 1996 ................ $ 2,775
===========
(5) Represents amount necessary to adjust historical tax expense to the pro forma computation. Pro
forma tax expense for the month ended January 31, 1996 related to the SFFed Acquisition was
computed as follows:
Income before taxes ........................................................... $ 2,613
Add: permanent differences--amortization of goodwill .......................... 1,131
-----------
Taxable income ................................................................ $ 3,744
===========
Federal AMT, reduced, to the extent of 90%, by net operating loss carryovers .. $ 69
State taxes, at an assumed rate of 8% ......................................... 300
-----------
$ 369
===========
</TABLE>
P-12
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ONE MONTH ENDED JANUARY 31, 1996 (A)
----------------------------------------------------------------------------
PRO FORMA LMUSA 1996 PURCHASE
(B) LMUSA 1996 PURCHASE HISTORICAL (A) ADJUSTMENTS (B) ADJUSTMENTS (C) PRO FORMA TOTALS
- -------------------------------------------------- ---------------- ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable .................................. $ -- $ -- $ -- $ --
Securities ........................................ -- -- -- --
Mortgage-backed securities ........................ -- -- -- --
Other interest income ............................. -- -- -- --
---------------- ----------------- ----------------- --------------------
Total interest income ........................... -- -- -- --
INTEREST EXPENSE:
Deposits .......................................... -- -- -- --
Borrowings ........................................ -- -- (848)(2) (848)
---------------- ----------------- ----------------- --------------------
Total interest expense .......................... -- -- (848) (848)
---------------- ----------------- ----------------- --------------------
Net interest income ............................... -- -- 848 848
Provision for loan losses ......................... -- -- -- --
---------------- ----------------- ----------------- --------------------
Net interest income after provision for loan
losses ........................................... -- -- 848 848
NONINTEREST INCOME:
Customer banking fees ............................. -- -- -- --
Mortgage banking operations ....................... 5,363 (1,879)(1) -- 3,484
Net gain (loss) on sales of assets ................ -- -- -- --
Other ............................................. 51 -- -- 51
---------------- ----------------- ----------------- --------------------
Total noninterest income ........................ 5,414 (1,879) -- 3,535
NONINTEREST EXPENSE:
Compensation and benefits ......................... 2,070 -- -- 2,070
Other ............................................. 1,940 -- (841)(3) 1,099
---------------- ----------------- ----------------- --------------------
Total noninterest expense ....................... 4,010 -- (841) 3,169
---------------- ----------------- ----------------- --------------------
Income (loss) before income taxes and minority
interest ......................................... 1,404 (1,879) 1,689 1,214
Income tax (benefit) expense ...................... -- -- 120 (4) 120
---------------- ----------------- ----------------- --------------------
Net income (loss) before minority interest ....... 1,404 (1,879) 1,569 1,094
---------------- ----------------- ----------------- --------------------
MINORITY INTEREST ................................. -- -- -- --
---------------- ----------------- ----------------- --------------------
Net income (loss) ................................. $1,404 $(1,879) $1,569 $1,094
================ ================= ================= ====================
</TABLE>
- ------------
(a) The LMUSA 1996 Purchase was consummated on January 31, 1996.
Accordingly, historical financial data relating to operations acquired
in the LMUSA 1996 Purchase is presented for the month ended January 31,
1996 (unaudited). Historical financial statements were not available;
accordingly, historical data presented reflects best estimates of
management.
(b) Represents adjustments to reflect (i) the amortization of the fair
value of mortgage servicing rights and (ii) the elimination of
amortization of historical mortgage servicing rights.
(c) Represents adjustments to reflect (i) the decrease in interest expense
resulting from the transfer of custodial accounts acquired to First
Nationwide, (ii) elimination of certain other noninterest expense due
to consolidation with the Bank's existing mortgage banking operations,
and (iii) income taxes relative to the LMUSA 1996 Purchase.
P-13
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(B) LMUSA 1996 PURCHASE (CONTINUED)
(1) Represents the difference between the amortization of pro forma recorded
balance of mortgage servicing rights and the historical amortization of
mortgage servicing rights as follows:
<TABLE>
<CAPTION>
<S> <C>
IMPACT ON INCOME BEFORE
INCOME TAXES AND
MINORITY INTEREST
INCREASE/(DECREASE)
-----------------------
Pro forma amortization .... $(2,284)
Historical amortization (i) 405
-----------------------
$(1,879)
=======================
</TABLE>
(i) Represents elimination of amortization of mortgage servicing
rights of $405 included in LMUSA's historical statement of
operations for the month ended January 31, 1996.
(2) Represents a decrease in interest expense resulting from the transfer of
custodial accounts acquired to First Nationwide.
(3) Represents the impact on other noninterest expense of (i) the elimination
of historical amounts related to LMUSA operations not included in the
LMUSA 1996 Purchase and (ii) the consolidation of the LMUSA 1996 Purchase
into the Bank's existing mortgage banking operations, as follows:
<TABLE>
<CAPTION>
DECREASE IN
LMUSA ESTIMATED OTHER
HISTORICAL FUTURE NONINTEREST
COSTS COSTS EXPENSE
------------ ----------- -------------
<S> <C> <C> <C>
Components of LMUSA historical noninterest
expense:
Facilities depreciation .......................... $ 128 $ -- (ii) $(128)
Data processing, document storage, administrative
services and management fees .................... 833 120 (iii) (713)
Other miscellaneous costs ........................ 979 979 --
------------ ----------- -------------
$1,940 $1,099 $(841)
============ =========== =============
</TABLE>
(ii) Represents historical amounts related to operations not included in
the LMUSA 1996 Purchase.
(iii) Represents amounts necessary to replace these services based on
Holdings' historical annual cost per loan based on the average
number of loans serviced.
(4) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the month ended January 31,
1996 related to the LMUSA 1996 Purchase was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net
operating loss carryovers ........................ $ 23
State taxes, at an assumed rate of 8% ............. 97
-----
$120
=====
</TABLE>
P-14
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAL FED
ACQUISITION
CAL FED VALUATION PRO FORMA PRO FORMA
(C) CAL FED ACQUISITION HISTORICAL ADJUSTMENTS (A) ADJUSTMENTS (B) TOTALS
- --------------------------------------------------- ------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ................................... $376,100 $ 7,550 (1) $ -- $383,650
Securities ......................................... 54,900 -- -- 54,900
Mortgage-backed securities ......................... 75,200 11,400 (1) -- 86,600
Other interest income .............................. 2,800 -- (16,995)(3) (14,195)
------------ --------------- --------------- -------------
Total interest income ............................. 509,000 18,950 (16,995) 510,955
INTEREST EXPENSE:
Deposits ........................................... 221,500 (5,000)(1) -- 216,500
Borrowings ......................................... 113,100 (650)(1) -- 112,450
------------ --------------- --------------- -------------
Total interest expense ............................ 334,600 (5,650) -- 328,950
------------ --------------- --------------- -------------
Net interest income ................................ 174,400 24,600 (16,995) 182,005
Provision for loan losses .......................... 20,400 -- -- 20,400
------------ --------------- --------------- -------------
Net interest income after provision for loan losses 154,000 24,600 (16,995) 161,605
NONINTEREST INCOME:
Customer banking fees .............................. 24,100 -- -- 24,100
Mortgage banking operations ........................ 5,600 (3,200)(1) -- 2,400
Net gain (loss) on sales of assets ................. 300 -- -- 300
Other .............................................. 13,700 -- -- 13,700 (6)
------------ --------------- --------------- -------------
Total noninterest income .......................... 43,700 (3,200) -- 40,500
NONINTEREST EXPENSE:
Compensation and benefits .......................... 48,000 -- (14,036)(4) 33,964
Other .............................................. 76,000 29,813 (2) (25,440)(4) 80,373
------------ --------------- --------------- -------------
Total noninterest expense ......................... 124,000 29,813 (39,476) 114,337
------------ --------------- --------------- -------------
Income (loss) before income taxes and minority
interest .......................................... 73,700 (8,413) 22,481 87,768
Income tax (benefit) expense ....................... 100 -- 11,641 11,741 (5)
------------ --------------- --------------- -------------
Net income (loss) before minority interest ........ 73,600 (8,413) 10,840 76,027
------------ --------------- --------------- -------------
MINORITY INTEREST .................................. 14,300 -- -- 14,300
------------ --------------- --------------- -------------
Net income (loss) .................................. $ 59,300 $(8,413) $ 10,840 $ 61,727
============ =============== =============== =============
<FN>
- ------------
(a) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of Cal
Fed's historical intangible assets.
(b) Represents adjustments to reflect (i) the reduction in interest income
relative to the loss in yield on the purchase price of the Cal Fed
Acquisition funded with existing cash, (ii) the elimination of certain
noninterest expense due to consolidation of Cal Fed's operations with
Holdings' and (iii) income taxes relative to the Cal Fed Acquisition.
See further discussion at Notes (3) and (4).
P-15
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(C) CAL FED ACQUISITION
- -----------------------
(1) Represents amortization or accretion of fair value adjustments as
follows:
</TABLE>
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Loans receivable, net ....................................... $ 7,550
Mortgage-backed securities ................................... 11,400
Deposits ..................................................... 5,000
Borrowings ................................................... 650
Mortgage servicing rights ................................... (3,200)
=====================
</TABLE>
(2) Represents adjustments consisting of the following:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Amortization of fair value adjustment--amortization of
goodwill .................................................... $(31,551)
Elimination of amortization of Cal Fed's historical
intangible assets ........................................... 1,738
---------------------
$(29,813)
=====================
</TABLE>
(3) Represents the reduction in interest income relative to the loss in
yield on the purchase price of the Cal Fed Acquisition funded with
existing cash. The loss was estimated using an interest rate of 5.75%,
which approximates the average interest rate on short term investments
for the six months ended June 30, 1996.
(4) Represents adjustments to other noninterest expense relating to the
consolidation of Cal Fed's operations into those of Holdings. A
substantial portion of Cal Fed's operations will be consolidated into
the existing operations of Holdings, resulting in a reduction in
headcount of 850, or approximately 36%, across all business areas. In
addition, seven retail branches and two administrative offices will be
closed. Expected savings from such consolidation include compensation,
occupancy, travel, telecommunications, data processing and marketing
expenses. The expense reduction for the six months ended June 30, 1996
represents a 32% reduction over historical levels based on management's
current transition plan for the second year following the consummation
of the Cal Fed Acquisition:
<TABLE>
<CAPTION>
CAL FED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
BUSINESS AREA: COSTS OPERATIONS REDUCTION
- ----------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Compensation:
Retail Banking ........ $24,369 $24,163 $ 206
Information Technology 283 634 (351)
Commercial Real Estate 3,847 1,095 2,752
Mortgage Banking ...... 10,396 6,301 4,095
Legal ................. 905 412 493
Finance ............... 2,967 616 2,351
Internal Audit ........ 689 141 548
Executive and Other .. 2,320 162 2,158
Human Resources ....... 1,412 231 1,181
Corporate Services ... 855 252 603
------------ ------------ -------------
48,043 34,007 14,036
</TABLE>
P-16
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAL FED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
BUSINESS AREA: COSTS OPERATIONS REDUCTION
- ------------------------------ ------------- ------------ -------------
<S> <C> <C> <C>
Occupancy & Other Expense:
Retail Banking ............... $ 31,457 $13,570 $17,887
Information Technology ...... 14,297 4,776 9,521
Commercial Real Estate ...... 1,366 254 1,112
Mortgage Banking ............. 1,407 2,242 (835)
Legal ........................ 1,715 3,430 (1,715)
Finance ...................... 2,812 380 2,432
Internal Audit ............... 317 22 295
Executive and Other .......... 4,364 305 4,059
Human Resources .............. 1,640 115 1,525
Corporate Services ........... 2,971 11,812 (8,841)
------------- ------------ -------------
62,346 36,906 25,440
SAIF Deposit Insurance Premium 11,872 11,872 0
------------- ------------ -------------
Total Noninterest Expense ... $122,261(i) $82,785 $39,476
============= ============ =============
</TABLE>
(i) Balance represents total historical noninterest expense of $124,000
less historical amortization of intangible assets already adjusted in
note 2 on page P-16.
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the six months ended June
30, 1996 related to the Cal Fed Acquisition was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Income before taxes ............................................. $ 87,768
Add back: permanent differences--amortization of goodwill ...... 31,551
----------
Taxable income .................................................. $119,319
==========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 2,195
State taxes, at an assumed rate of 8% ........................... 9,546
----------
$ 11,741
==========
</TABLE>
(6) Includes $12,000 gain on sale of California Federal's branches in San
Diego county.
P-17
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BRANCH SALES
OHIO SALE MICHIGAN SALE NORTHEAST SALE PRO FORMA
(D) BRANCH SALES PRO FORMA PRO FORMA PRO FORMA TOTALS
- -------------------------------------------- ------------ --------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................ $ (6)(a) $ (27)(a) $ (77)(a) $ (110)
Securities .................................. -- -- -- --
Mortgage-backed securities .................. -- -- -- --
Other interest income ....................... -- -- -- --
------------ --------------- -------------- --------------
Total interest income ...................... (6) (27) (77) (110)
INTEREST EXPENSE:
Deposits .................................... (3,392)(a) (17,009)(a) (20,341)(a) (40,742)
Borrowings .................................. 3,522 (1) 19,560 (1) 21,753 (1) 44,835
------------ --------------- -------------- --------------
Total interest expense ..................... 130 2,551 1,412 4,093
------------ --------------- -------------- --------------
Net interest income ......................... (136) (2,578) (1,489) (4,203)
Provision for loan losses ................... -- -- -- --
------------ --------------- -------------- --------------
Net interest income after provision for loan
losses ..................................... (136) (2,578) (1,489) (4,203)
NONINTEREST INCOME:
Customer banking fees ....................... (256)(a) (2,147)(a) (1,562)(a) (3,965)
Mortgage banking operations ................. -- -- -- --
Net gain (loss) on sales of assets .......... -- 2 8 10
Other ....................................... (15)(a) (63)(a) (85)(a) (163)
------------ --------------- -------------- --------------
Total noninterest income ................... (271) (2,208) (1,639) (4,118)
NONINTEREST EXPENSE:
Compensation and benefits ................... (516)(a) (2,133)(a) (1,688)(a) (4,337)
Other ....................................... (265)(a) (1,456)(a) (1,666)(a) (3,387)
------------ --------------- -------------- --------------
Total noninterest expense .................. (781) (3,589) (3,354) (7,724)
------------ --------------- -------------- --------------
Income (loss) before income taxes and
minority interest .......................... 374 (1,197) 226 (597)
Income tax (benefit) expense ................ 37 (118) 22 (59)(2)
------------ --------------- -------------- --------------
Net income (loss) before minority interest . 337 (1,079) 204 (538)
------------ --------------- -------------- --------------
MINORITY INTEREST ........................... -- -- -- --
------------ --------------- -------------- --------------
Net income (loss) ........................... $ 337 $ (1,079) $ 204 $ (538)
============ =============== ============== ==============
</TABLE>
- ------------
(a) Represents historical information for the six months ended June 30, 1996
related to the retail banking facilities in Ohio, Michigan and the
Northeast. Other noninterest expense includes occupancy, SAIF insurance
premiums, marketing, OTS assessments, data processing and
telecommunications directly attributable to the Ohio, Michigan and
Northeast retail branch operations. Amounts represent historical
information from January 1, 1996 through the date of sale.
P-18
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(D) BRANCH SALES (CONTINUED)
(1) Represents increase in interest expense on borrowings to fund the
Branch Sales, as follows:
<TABLE>
<CAPTION>
SALE DEPOSITS PRE-TAX AMOUNT PRO FORMA
DATE LOCATION SOLD ASSETS GAIN BORROWED RATE DAYS INTEREST EXPENSE
- --------- ------------ ------------ --------- ---------- ------------ ---------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/19/96 Ohio $1,392,561 $20,480 $130,664 $1,241,417 5.45%(i) 19 $ 3,522
================
1/12/96 New York 416,476 5,997 32,967 377,512 5.45%(i) 12 $ 676
2/23/96 New York 270,046 1,838 17,054 251,154 5.45%(i) 54 2,025
3/15/96 New York 615,572 8,083 48,975 558,514 5.45%(i) 75 6,255
3/22/96 New Jersey 501,262 6,396 35,934 458,932 5.45%(i) 82 5,619
3/22/96 New York 637,045 9,465 41,311 586,269 5.45%(i) 82 7,178
----------------
Total Northeast $21,753
================
6/28/96 Michigan 799,226 15,060 56,411 727,755 5.45%(i) 180 $19,560
================
</TABLE>
(i) Rate represents the average rates paid on new borrowings used to
finance the Branch Sales during the six months ended June 30,
1996.
(2) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the six months ended June
30, 1996 related to the Branch Sales was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $(11)
State taxes, at an assumed rate of 8% ........................... (48)
-------
$(59)
=======
</TABLE>
P-19
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(E) PRO FORMA ADJUSTMENTS
(1) Represents interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
$575 million Notes at 10 5/8% per annum (estimated) ............ $30,547
$140 million Holdings 9 1/8% Senior Subordinated Notes
issued January 31, 1996 (expense for one month) ............... 1,065
</TABLE>
(2) Represents the amortization of:
<TABLE>
<CAPTION>
<S> <C>
$20,000 in deferred debt issuance costs over the seven year
term of the Notes ............................................. $ 1,429
$5,600 in deferred debt issuance costs over the seven year term
of the Holdings 9 1/8% Senior Subordinated Notes (for one
month) ........................................................ 67
</TABLE>
(3) Represents amounts necessary to adjust historical tax expense to the
pro forma computation. Pro forma tax expense for the six months ended
June 30, 1996 related to the issuance of the Holdings 9 1/8% Senior
Subordinated Notes and the Notes was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced to the extent of 90%, by net
operating loss carryovers .................................. $ (609)
State taxes, at an assumed rate of 8% ....................... (2,649)
---------
$(3,258)
=========
</TABLE>
(4) Represents dividends on Holdings Preferred Stock (estimated at 12% per
annum), including the compounding effect of dividends paid-in-kind.
(5) Management expects the Bank to maintain its "well capitalized" status
once the Cal Fed Acquisition is consummated. Accordingly, First
Nationwide may sell certain of its assets or cause Cal Fed to sell
certain assets of Cal Fed concurrent with or shortly after the
consummation of the Cal Fed Acquisition. The assets to be sold may
include mortgage-backed securities (such as the MBS Sale), or other
assets. To the extent interest-bearing assets of the Bank or Cal Fed
are sold, the net income of the Bank would decrease by the amount of
the incremental yield on such assets over their related funding cost.
Such reductions are not reflected in pro forma net income (loss).
P-20
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SFFED LMUSA CAL FED
ACQUISITION PURCHASES ACQUISITION
HOLDINGS PRO FORMA PRO FORMA PRO FORMA
HISTORICAL TOTALS(A) TOTALS(B) TOTALS(C)
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................ $ 823,864 $230,713 $22,477 $ 722,000
Securities .................................. 28,396 10,685 -- 124,200
Mortgage-backed securities .................. 212,880 62,403 -- 192,600
Other interest income ....................... 10,705 -- -- (21,089)
------------ ------------- ----------- -------------
Total interest income ...................... 1,075,845 303,801 22,477 1,017,711
INTEREST EXPENSE:
Deposits .................................... 447,359 143,797 -- 396,200
Borrowings .................................. 287,456 74,587 2,018 245,400
------------ ------------- ----------- -------------
Total interest expense ..................... 734,815 218,384 2,018 641,600
Net interest income ......................... 341,030 85,417 20,459 376,111
Provision for loan losses ................... 37,000 11,094 -- 31,800
------------ ------------- ----------- -------------
Net interest income after provision for loan
losses ..................................... 304,030 74,323 20,459 344,311
NONINTEREST INCOME:
Customer banking fees ....................... 47,493 5,291 -- 42,100
Mortgage banking operations ................. 70,265 860 76,445 3,600
Net gain (loss) on sales of assets .......... 147 -- (1,851) 6,600
Other ....................................... 33,068 1,677 2,690 2,400
------------ ------------- ----------- -------------
Total noninterest income ................... 150,973 7,828 77,284 54,700
NONINTEREST EXPENSE:
Compensation and benefits ................... 154,288 11,141 19,500 69,408
Other ....................................... 178,265 34,896 38,081 162,097
------------ ------------- ----------- -------------
Total noninterest expense .................. 332,553 46,037 57,581 231,505
------------ ------------- ----------- -------------
Income (loss) before income taxes,
extraordinary item and minority interest .. 122,450 36,114 40,162 167,506
Income tax (benefit) expense ................ (57,185) 4,890 3,952 22,692
------------ ------------- ----------- -------------
Income (loss) before extraordinary item and
minority interest .......................... 179,635 31,224 36,210 144,814
Extraordinary item--gain on early
extinguishment of FHLB advances, net ...... 1,967 -- -- --
------------ ------------- ----------- -------------
Net income (loss) before minority interest . 181,602 31,224 36,210 144,814
MINORITY INTEREST ........................... 34,584 -- -- 25,600
------------ ------------- ----------- -------------
Net income (loss) ........................... 147,018 31,224 36,210 119,214
Holdings Preferred Stock dividends .......... -- -- -- --
------------ ------------- ----------- -------------
Net income (loss) available to common
stockholders ............................... $ 147,018 $ 31,224 $36,210 $ 119,214
============ ============= =========== =============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
BRANCH SALES
PRO FORMA PRO FORMA PRO FORMA
TOTALS(D) ADJUSTMENTS(E) COMBINED
-------------- -------------- -------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................ $ (623) $ -- $1,798,431
Securities .................................. -- -- 163,281
Mortgage-backed securities .................. -- -- 467,883
Other interest income ....................... -- -- (10,384)
-------------- -------------- -------------
Total interest income ...................... (623) -- 2,419,211
INTEREST EXPENSE:
Deposits .................................... (211,530) -- 775,826
Borrowings .................................. 280,671 61,094 (1) 964,001
12,775 (1)
-------------- -------------- -------------
Total interest expense ..................... 69,141 73,869 1,739,827
Net interest income ......................... (69,764) (73,869) 679,384
Provision for loan losses ................... -- 79,894
-------------- -------------- -------------
Net interest income after provision for loan
losses ..................................... (69,764) (73,869) 599,490
NONINTEREST INCOME:
Customer banking fees ....................... (22,228) -- 72,656
Mortgage banking operations ................. -- -- 151,170
Net gain (loss) on sales of assets .......... -- -- 4,896
Other ....................................... (789) -- 39,046
-------------- -------------- -------------
Total noninterest income ................... (23,017) -- 267,768
NONINTEREST EXPENSE:
Compensation and benefits ................... (19,476) 234,861
Other ....................................... (25,823) 2,857 (2) 391,173
800 (2)
-------------- -------------- -------------
Total noninterest expense .................. (45,299) 3,657 626,034
-------------- -------------- -------------
Income (loss) before income taxes,
extraordinary item and minority interest .. (47,482) (77,526) 241,224
Income tax (benefit) expense ................ (4,671) (7,628)(3) (37,950)
-------------- -------------- -------------
Income (loss) before extraordinary item and
minority interest .......................... (42,811) (69,898) 279,174
Extraordinary item--gain on early
extinguishment of FHLB advances, net ...... -- -- 1,967
-------------- -------------- -------------
Net income (loss) before minority interest . (42,811) (69,898) 281,141
MINORITY INTEREST ........................... -- -- 60,184
-------------- -------------- -------------
Net income (loss) ........................... (42,811) (69,898) 220,957 (4)
Holdings Preferred Stock dividends .......... -- 18,139 (5) 18,139
-------------- -------------- -------------
Net income (loss) available to common
stockholders ............................... $(42,811) $(88,037) $202,818
============== ============== =============
</TABLE>
- ------------
(A) See note (A) on page P-22.
(B) See note (B) on page P-26.
(C) See note (C) on page P-28.
(D) See note (D) on page P-31.
(E) See note (E) on page P-33.
P-21
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(A) SFFED ACQUISITION
<TABLE>
<CAPTION>
SFFED
ACQUISITION
VALUATION PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(A) ADJUSTMENTS(B) TOTALS
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable .......................... $215,147 $ 15,566 (1) $ -- $230,713
Securities ................................ 10,685 -- -- 10,685
Mortgage-backed securities ................ 60,024 2,379 (1) -- 62,403
Other interest income ..................... -- -- -- --
------------ -------------- -------------- -------------
Total interest income .................... 285,856 17,945 -- 303,801
INTEREST EXPENSE:
Deposits .................................. 135,299 8,498 (1) -- 143,797
Borrowings ................................ 71,543 3,044 (1) -- 74,587
------------ -------------- -------------- -------------
Total interest expense ................... 206,842 11,542 -- 218,384
------------ -------------- -------------- -------------
Net interest income ....................... 79,014 6,403 -- 85,417
Provision for loan losses ................. 11,094 -- -- 11,094
------------ -------------- -------------- -------------
Net interest income after provision for
loan losses .............................. 67,920 6,403 -- 74,323
NONINTEREST INCOME:
Customer banking fees ..................... 5,291 -- -- 5,291
Mortgage banking operations ............... 5,255 (4,395)(1) -- 860
Net gain (loss) on sales of assets ....... -- -- -- --
Other ..................................... 1,677 -- -- 1,677
------------ -------------- -------------- -------------
Total noninterest income ................. 12,223 (4,395) -- 7,828
NONINTEREST EXPENSE:
Compensation and benefits ................. 35,518 -- (24,377)(3) 11,141
Other ..................................... 43,257 12,905 (2) (21,266)(4) 34,896
------------ -------------- -------------- -------------
Total noninterest expense ................ 78,775 12,905 (45,643) 46,037
------------ -------------- -------------- -------------
Income (loss) before income taxes,
extraordinary item and minority interest 1,368 (10,897) 45,643 36,114
Income tax (benefit) expense .............. 1,568 -- 3,322 (5) 4,890
------------ -------------- -------------- -------------
Income (loss) before extraordinary item
and minority interest .................... (200) (10,897) 42,321 31,224
Extraordinary item--gain on early
extinguishment of FHLB advances, net .... -- -- -- --
------------ -------------- -------------- -------------
Net income (loss) before minority interest (200) (10,897) 42,321 31,224
MINORITY INTEREST ......................... -- -- -- --
------------ -------------- -------------- -------------
Net income (loss) ......................... $ (200) $(10,897) $ 42,321 $ 31,224
============ ============== ============== =============
</TABLE>
- ------------
(a) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of
historical goodwill.
(b) Represents adjustments to reflect (i) the elimination of certain
noninterest expense due to consolidation of SFFed operations with First
Nationwide, (ii) the elimination of certain historical noninterest
expense recorded by SFFed as a result of the acquisition by First
Nationwide and (iii) income taxes relative to the SFFed Acquisition.
P-22
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
(1) Represents amortization or accretion of fair value adjustments as
follows:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
MINORITY INTEREST
INCREASE/(DECREASE)
----------------------
<S> <C>
Loans receivable, net ................................ $15,566
Mortgage-backed securities ............................ 2,379
Deposits .............................................. (8,498)
Borrowings ............................................ (3,044)
Mortgage servicing rights ............................. (4,395)
======================
</TABLE>
(2) Represents adjustments consisting of the following:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND
MINORITY INTEREST
INCREASE/(DECREASE)
----------------------
<S> <C>
Amortization of goodwill ................................. $(13,574)
Elimination of amortization of SFFed's historical
goodwill ................................................ 669
----------------------
$(12,905)
======================
</TABLE>
(3) Represents adjustments to noninterest expense relating to the
consolidation of SFFed's operations into those of Holdings and the
elimination of nonrecurring historical expenses related to the SFFed
Acquisition:
<TABLE>
<CAPTION>
<S> <C>
Decrease in compensation and benefits due to the reduction in headcount from
620 at January 1, 1995 to approximately 260 after the consummation of the
SFFed Acquisition. Substantially all retained employees represent retail
branch personnel ........................................................... $19,037
Elimination of certain accruals recorded by SFFed related to the acquisition
by Holdings:
Payments under employment contracts ......................................... 2,080
Accruals for benefit plans frozen by First Nationwide ....................... 3,260
---------
$24,377
=========
</TABLE>
(4) Represents adjustments to other noninterest expense relating to the
consolidation of SFFed's operations into those of Holdings and the
elimination of nonrecurring historical expenses of SFFed. Substantially
all of SFFed's operations have been consolidated into the existing
operations of Holdings, resulting in a reduction in headcount of
approximately 58% with the remaining personnel primarily consisting of
retail branch personnel. In addition, ten retail branches have been
closed.
P-23
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
SFFED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
COSTS OPERATIONS REDUCTION
------------ ------------ -------------
<S> <C> <C> <C>
Expense decreases due to consolidation:
Mortgage banking operations:
Occupancy expenses, including insurance ....... $ 1,329 $ 588 $ 741
Travel, automobile and employee dues .......... 282 67 215
Telecommunications, postage and supplies ...... 900 214 686
Other, net .................................... 1,047 460 587
------------ ------------ -------------
Subtotal mortgage banking operations ......... $ 3,558 $ 1,329 $ 2,229
============ ============ =============
Retail Banking operations --reductions due to
consolidation of ten retail branches and retail
operations center:
Occupancy expenses, including insurance ....... $11,220 $ 3,405 $ 7,815
SAIF assessment reduction based on lower
historical assessment rate for First
Nationwide .................................. 6,811 6,011 800
Travel, automobile and employee dues .......... 410 60 350
Telecommunications and data processing ........ 1,766 364 1,402
Postage and messenger costs ................... 666 473 193
Other costs, net .............................. 216 108 108
------------ ------------ -------------
Subtotal retail banking operations ........... $21,089 $10,421 $10,668
============ ============ =============
Overhead areas, including executive offices,
legal, human resources, information services,
accounting, and strategic planning areas:
Occupancy costs ............................... $ 1,316 $ -- $ 1,316
Data processing costs ......................... 2,848 1,000 1,848
Marketing and advertising expenses ............ 2,094 500 1,594
Other overhead costs .......................... 8,072 8,072 --
------------ ------------ -------------
Subtotal overhead areas ...................... $14,330 $ 9,572 $ 4,758
============ ============ =============
Total decreases due to consolidation ........ $38,977 $21,322 $17,655
Elimination of certain nonrecurring expense
recorded by SFFed related to the acquisition by
First Nationwide:
Data processing termination fees .............. 875 -- 875
Investment banker fees related to the SFFed
Acquisition ................................. 2,311 -- 2,311
Legal fees related to the SFFed Acquisition ... 425 -- 425
------------ ------------ -------------
Total expense reduction ..................... $42,588(i) $21,322 $21,266
============ ============ =============
</TABLE>
- ------------
(i) Balance represents total historical noninterest expense of $43,257 less
historical amortization of goodwill already adjusted in note 2 on page
P-23.
P-24
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(A) SFFED ACQUISITION (CONTINUED)
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December 31,
1995 related to the SFFed Acquisition was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Income before taxes ............................................. $36,114
Add back: permanent differences--amortization of goodwill ...... 13,574
---------
Taxable income .................................................. $49,688
=========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 915
State taxes, at an assumed rate of 8% ........................... 3,975
---------
$ 4,890
=========
</TABLE>
P-25
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(B) LMUSA PURCHASES
<TABLE>
<CAPTION>
PRO FORMA LMUSA PURCHASES
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(C) PRO FORMA TOTALS
------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ............................ $ 22,477 $ -- $ -- $22,477
Securities .................................. -- -- -- --
Mortgage-backed securities .................. -- -- -- --
Other interest income ....................... -- -- -- --
------------- -------------- -------------- ----------------
Total interest income ..................... 22,477 -- -- 22,477
INTEREST EXPENSE:
Deposits .................................... -- -- -- --
Borrowings .................................. 38,358 -- (36,340)(2) 2,018
------------- -------------- -------------- ----------------
Total interest expense .................... 38,358 -- (36,340) 2,018
------------- -------------- -------------- ----------------
Net interest income ......................... (15,881) -- 36,340 20,459
Provision for loan losses ................... -- -- -- --
------------- -------------- -------------- ----------------
Net interest income after provision for loan
losses ..................................... (15,881) -- 36,340 20,459
NONINTEREST INCOME:
Customer banking fees ....................... -- -- -- --
Mortgage banking operations ................. 77,887 (1,442)(1) -- 76,445
Net gain (loss) on sales of assets .......... (1,851) -- -- (1,851)
Other ....................................... 2,690 -- -- 2,690
------------- -------------- -------------- ----------------
Total noninterest income .................. 78,726 (1,442) -- 77,284
NONINTEREST EXPENSE:
Compensation and benefits ................... 38,426 -- (18,926)(3) 19,500
Other ....................................... 300,091 -- (262,010)(4) 38,081
------------- -------------- -------------- ----------------
Total noninterest expense ................... 338,517 -- (280,936) 57,581
------------- -------------- -------------- ----------------
Income (loss) before income taxes,
extraordinary item and minority interest .. (275,672) (1,442) 317,276 40,162
Income tax (benefit) expense ................ -- -- 3,952 (5) 3,952
------------- -------------- -------------- ----------------
Income (loss) before extraordinary item and
minority interest .......................... (275,672) (1,442) 313,324 36,210
Extraordinary item--gain on early
extinguishment of FHLB advances, net ...... -- -- -- --
------------- -------------- -------------- ----------------
Net income (loss) before minority interest . (275,672) (1,442) 313,324 36,210
MINORITY INTEREST ........................... -- -- -- --
------------- -------------- -------------- ----------------
Net income (loss) ........................... $(275,672) $(1,442) $ 313,324 $36,210
============= ============== ============== ================
</TABLE>
- ------------
(a) The LMUSA 1995 Purchase was consummated on October 2, 1995.
Accordingly, historical financial data relating to operations acquired
in the LMUSA 1995 Purchase is presented for the nine months ended
September 30, 1995 (unaudited). Historical financial data relating to
operations acquired in the LMUSA 1996 Purchase is presented for the
year ended December 31, 1995 (unaudited). Historical financial
statements were not available; accordingly, historical data presented
reflects best estimates of management.
(b) Represents adjustments to reflect (i) the amortization of the fair
value of mortgage servicing rights and (ii) the elimination of
amortization of historical mortgage servicing rights.
(c) Represents adjustments to reflect (i) the decrease in interest expense
resulting from the transfer of custodial accounts acquired to First
Nationwide, (ii) decreases in compensation and benefits expense due to
reduction in staffing, (iii) elimination of certain other noninterest
expense due to consolidation with Holdings' existing mortgage banking
operations, and (iv) income taxes relative to the LMUSA Purchases.
P-26
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(B) LMUSA PURCHASES (CONTINUED)
(1) Represents the difference between the amortization of pro forma
recorded balance of mortgage servicing rights and the historical
amortization of mortgage servicing rights as follows:
<TABLE>
<CAPTION>
IMPACT ON INCOME BEFORE
INCOME TAXES, EXTRAORDINARY
ITEM AND MINORITY INTEREST
INCREASE (DECREASE)
---------------------------
<S> <C>
Pro forma amortization ... $(48,941)
Historical amortization(i) 47,499
---------------------------
$ (1,442)
===========================
</TABLE>
(i) Represents elimination of amortization of mortgage servicing
rights of $47,499 included in LMUSA's historical consolidated
statement of operations for the year ended December 31, 1995.
(2) Represents a decrease in interest expense resulting from a reduction in
funding costs due to the transfer of custodial accounts acquired to the
Bank.
(3) Represents the adjustment necessary to reduce compensation and benefits
expense to the level necessary for the incremental number
(approximately 650) of LMUSA employees retained by Holdings as a result
of the LMUSA Purchases, with average annual compensation and benefits
per employee of $30.
(4) Represents the impact on other noninterest expense of (i) the
elimination of historical amounts related to LMUSA operations not
included in the LMUSA Purchases and (ii) the consolidation of the LMUSA
Purchases into the Bank's existing mortgage banking operations, as
follows:
<TABLE>
<CAPTION>
DECREASE IN
LMUSA OTHER
HISTORICAL ESTIMATED NONINTEREST
COSTS FUTURE COSTS EXPENSE
------------ ------------- -------------
<S> <C> <C> <C>
Components of historical noninterest expense:
Interest rate swap agreements ............... $ 6,615 $ -- (ii) $ (6,615)
Facilities charge-offs ...................... 38,559 -- (ii) (38,559)
Facilities depreciation ..................... 1,797 -- (ii) (1,797)
Provision for losses on assets held for sale 180,255 -- (ii) (180,255)
Reorganization items ........................ 16,892 -- (ii) (16,892)
Data processing, document storage,
administrative services and management
fees ....................................... 20,896 3,004 (iii) (17,892)
Other miscellaneous costs ................... 35,077 35,077 --
------------ ------------- -------------
$300,091 $38,081 $(262,010)
============ ============= =============
</TABLE>
(ii) Represents historical amounts related to operations not
included in the LMUSA Purchases.
(iii) Represents amounts necessary to replace these services based
on Holdings' historical annual cost per loan based on the
average number of loans serviced.
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December
31, 1995 related to the LMUSA Purchases was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net
operating loss carryovers ................................. $ 739
State taxes, at an assumed rate of 8% ...................... 3,213
-------
$3,952
=======
</TABLE>
P-27
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(C) CAL FED ACQUISITION
<TABLE>
<CAPTION>
CAL FED
ACQUISITION
CAL FED VALUATION PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS (A) ADJUSTMENTS (B) TOTALS
------------ --------------- --------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ........................... $ 706,900 $ 15,100 (1) $ -- $ 722,000
Securities ................................. 124,200 -- -- 124,200
Mortgage-backed securities ................. 164,000 28,600 (1) -- 192,600
Other interest income ...................... 12,900 -- (33,989)(3) (21,089)
------------ --------------- --------------- -------------
Total interest income ..................... 1,008,000 43,700 (33,989) 1,017,711
INTEREST EXPENSE:
Deposits ................................... 441,600 (45,400)(1) -- 396,200
Borrowings ................................. 254,500 (9,100)(1) -- 245,400
------------ --------------- --------------- -------------
Total interest expense .................... 696,100 (54,500) -- 641,600
------------ --------------- --------------- -------------
Net interest income ........................ 311,900 98,200 (33,989) 376,111
Provision for loan losses .................. 31,800 -- -- 31,800
------------ --------------- --------------- -------------
Net interest income after provision for
loan losses ............................... 280,100 98,200 (33,989) 344,311
NONINTEREST INCOME:
Customer banking fees ...................... 42,100 -- -- 42,100
Mortgage banking operations ................ 12,400 (8,800)(1) -- 3,600
Net gain (loss) on sales of assets ........ 6,600 -- -- 6,600
Other ...................................... 2,400 -- -- 2,400
------------ --------------- --------------- -------------
Total noninterest income .................. 63,500 (8,800) -- 54,700
NONINTEREST EXPENSE:
Compensation and benefits .................. 97,100 -- (27,692)(4) 69,408
Other ...................................... 152,800 59,625 (2) (50,328)(4) 162,097
------------ --------------- --------------- -------------
Total noninterest expense ................. 249,900 59,625 (78,020) 231,505
------------ --------------- --------------- -------------
Income (loss) before income taxes,
extraordinary item and minority interest . 93,700 29,775 44,031 167,506
Income tax (benefit) expense ............... 100 -- 22,592 (5) 22,692
------------ --------------- --------------- -------------
Income (loss) before extraordinary item and
minority interest ......................... 93,600 29,775 21,439 144,814
Extraordinary item--gain on early
extinguishment of FHLB advances, net ..... -- -- -- --
------------ --------------- --------------- -------------
Net income (loss) before minority interest 93,600 29,775 21,439 144,814
MINORITY INTEREST .......................... 25,600 -- -- 25,600
------------ --------------- --------------- -------------
Net income (loss) .......................... $ 68,000 $ 29,775 $ 21,439 $ 119,214
============ =============== =============== =============
</TABLE>
- ------------
(a) Represents adjustments to reflect (i) the amortization or accretion of
fair value adjustments and (ii) the elimination of amortization of Cal
Fed's historical intangible assets.
(b) Represents adjustments to reflect (i) the reduction in interest income
relative to the loss in yield on the purchase price of the Cal Fed
Acquisition funded with existing cash, (ii) the elimination of certain
noninterest expense due to consolidation of Cal Fed operations with
Holdings' and (iii) income taxes relative to the Cal Fed Acquisition.
P-28
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(C) CAL FED ACQUISITION (CONTINUED)
(1) Represents amortization or accretion of fair value adjustments as
follows:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Loans receivable, net ............................................ $15,100
Mortgage-backed securities ........................................ 28,600
Deposits .......................................................... 45,400
Borrowings ........................................................ 9,100
Mortgage servicing rights.......................................... (8,800)
=====================
</TABLE>
(2) Represents adjustments consisting of the following:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Amortization of fair value adjustment--amortization of goodwill .... $(63,101)
Elimination of amortization of Cal Fed's historical intangible
assets ............................................................. 3,476
---------------------
$(59,625)
=====================
</TABLE>
(3) Represents the reduction in interest income relative to the loss in
yield on the purchase price of the Cal Fed Acquisition funded with
existing cash. The loss was estimated using an interest rate of 5.75%,
which approximates the average interest rate on short term investments
during 1995.
(4) Represents adjustments to other noninterest expense relating to the
consolidation of Cal Fed's operations into those of Holdings. A
substantial portion of Cal Fed's operations will be consolidated into
the existing operations of Holdings, resulting in a reduction in
headcount of 850, or approximately 35%, across all business areas. In
addition, seven retail branches and two administrative offices will be
closed. Expected savings from such consolidation include compensation,
occupancy, travel, telecommunications, data processing and marketing
expenses. The expense reduction for the year ended December 31, 1995
represents a 32% reduction over historical levels based on management's
current transition plan:
P-29
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(C) CAL FED ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
CAL FED COST OF ADJUSTMENT-
HISTORICAL ONGOING EXPENSE
BUSINESS AREA: COSTS OPERATIONS REDUCTION
- ------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Compensation:
Retail Banking ................ $ 50,284 $ 50,913 $ (629)
Information Technology ........ 625 1,428 (803)
Commercial Real Estate ........ 8,248 1,851 6,397
Mortgage Banking .............. 18,426 12,545 5,881
Legal ......................... 1,930 880 1,050
Finance ....................... 6,412 875 5,537
Internal Audit ................ 1,383 212 1,171
Executive and Other ........... 5,932 0 5,932
Human Resources ............... 2,818 300 2,518
Corporate Services ............ 1,071 433 638
------------- ------------ -------------
97,129 69,437 27,692
Occupancy & Other Expense:
Retail Banking ................ 12,166 27,555 (15,389)
Information Technology ........ 30,048 8,549 21,499
Commercial Real Estate ........ 3,739 379 3,360
Mortgage Banking .............. 7,055 4,788 2,267
Legal ......................... 3,364 7,420 (4,056)
Finance ....................... 7,819 481 7,338
Internal Audit ................ 560 0 560
Executive and Other ........... 6,193 0 6,193
Human Resources ............... 3,574 0 3,574
Corporate Services ............ 48,782 23,800 24,982
------------- ------------ -------------
123,300 72,972 50,328
SAIF Deposit Insurance Premium 25,996 25,996 0
------------- ------------ -------------
Total Noninterest Expense .... $246,425(i) $168,405 $ 78,020
============= ============ =============
</TABLE>
(i) Balance represents total historical noninterest expense of $249,900 less
historical amortization of intangible assets already adjusted in note 2 on
page P-29.
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December
31, 1995 related to the Cal Fed Acquisition was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Income before taxes ............................................. $167,506
Add back: permanent differences--amortization of goodwill ...... 63,101
----------
Taxable income .................................................. $230,607
==========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 4,243
State taxes, at an assumed rate of 8% ........................... 18,449
----------
$ 22,692
==========
</TABLE>
P-30
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(D) BRANCH SALES
<TABLE>
<CAPTION>
BRANCH SALES
OHIO SALE PRO MICHIGAN SALE NORTHEAST SALE PRO FORMA
FORMA PRO FORMA PRO FORMA TOTALS
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable ....................... $ (119)(a) $ (64)(a) $ (440)(a) $ (623)
Securities ............................. -- -- -- --
Mortgage-backed securities ............. -- -- -- --
Other interest income .................. -- -- -- --
------------- --------------- -------------- --------------
Total interest income ................. (119) (64) (440) (623)
INTEREST EXPENSE:
Deposits ............................... (65,588)(a) (32,677)(a) (113,265)(a) (211,530)
Borrowings ............................. 86,565 (1) 45,869 (1) 148,237 (1) 280,671 (1)
------------- --------------- -------------- --------------
Total interest expense ................ 20,977 13,192 34,972 69,141
------------- --------------- -------------- --------------
Net interest income .................... (21,096) (13,256) (35,412) (69,764)
Provision for loan losses .............. -- -- -- --
------------- --------------- -------------- --------------
Net interest income after provision for
loan losses ........................... (21,096) (13,256) (35,412) (69,764)
NONINTEREST INCOME:
Customer banking fees .................. (7,076)(a) (5,673)(a) (9,479)(a) (22,228)
Mortgage banking operations ............ -- -- -- --
Net gain (loss) on sales of assets .... -- -- -- --
Other .................................. (240)(a) (139)(a) (410)(a) (789)
------------- --------------- -------------- --------------
Total noninterest income .............. (7,316) (5,812) (9,889) (23,017)
NONINTEREST EXPENSE:
Compensation and benefits .............. (6,771)(a) (4,154)(a) (8,551)(a) (19,476)
Other .................................. (7,436)(a) (4,348)(a) (14,039)(a) (25,823)
------------- --------------- -------------- --------------
Total noninterest expense ............. (14,207) (8,502) (22,590) (45,299)
------------- --------------- -------------- --------------
Income (loss) before income taxes,
extraordinary item and minority
interest .............................. (14,205) (10,566) (22,711) (47,482)
Income tax (benefit) expense ........... (1,397) (1,039) (2,235) (4,671)(2)
------------- --------------- -------------- --------------
Income (loss) before extraordinary item
and minority interest ................. (12,808) (9,527) (20,476) (42,811)
Extraordinary item-gain on early
extinguishment of FHLB advances, net . -- -- -- --
------------- --------------- -------------- --------------
Net income (loss) before minority
interest .............................. (12,808) (9,527) (20,476) (42,811)
MINORITY INTEREST ...................... -- -- -- --
------------- --------------- -------------- --------------
Net income (loss) ...................... $ (12,808) $ (9,527) $ (20,476) $ (42,811)
============= =============== ============== ==============
<FN>
- ------------
(a) Represents historical information related to the retail banking
facilities in Ohio, Michigan and the Northeast. Other noninterest
expense includes occupancy, SAIF insurance premiums, marketing, OTS
assessments, data processing and telecommunications directly
attributable to the Ohio, Michigan and Northeast retail branch
operations.
P-31
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(D) BRANCH SALES (CONTINUED)
- ----------------------------
(1) Represents increase in interest expense on borrowings to fund the
Branch Sales, as follows:
</TABLE>
<TABLE>
<CAPTION>
FUNDING ADDITIONAL INTEREST
SOURCE PERIOD BORROWINGS RATE EXPENSE
- --------------- ----------------------------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
FHLB Advances January 1, 1995 - December 31, 1995 $2,000,000 7.72%(i) $154,400
Reverse Repos January 1, 1995 - December 31, 1995 2,132,967 5.92%(ii) 126,271
------------ ----------
$4,132,967 $280,671
============ ==========
</TABLE>
The sales are assumed to be funded by a combination of a one-year FHLB
advance of $2 billion and reverse repurchase agreements, as these instruments
most closely meet the Bank's current interest rate risk management objectives
in conjunction with the borrowing capacities for the respective debt
instruments. Additional pro forma borrowings are computed as follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Deposit totals at January 1, 1995 .......... $1,431,872 $749,788 $2,369,728 $4,551,388
Less:
Carrying value of office premises and
equipment ................................ 8,591 6,510 13,397 28,498
Carrying value of loans receivable ....... 2,836 3,333 6,353 12,522
Carrying value of cash and cash
equivalents .............................. 9,395 3,830 8,150 21,375
Gain on sale (iii) ........................ 131,233 52,510 172,283 356,026
------------ ---------- ------------ ------------
Additional pro forma borrowings ............ $1,279,817 $683,605 $2,169,545 $4,132,967
============ ========== ============ ============
</TABLE>
(i) Represents rate for a one-year fixed rate FHLB advance as of January
1, 1995.
(ii) Represents average reverse repurchase rate for 1995.
(iii) Represents pro forma gain on Branch Sales, computed as follows:
<TABLE>
<CAPTION>
OHIO MICHIGAN NORTHEAST TOTAL
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Deposit totals at January 1, 1995 $1,431,872 $749,788 $2,369,728 $4,551,388
Premium percentage per contract . 9.10% 7.18% 7.30% 7.85%
------------ ---------- ------------ ------------
Total pro forma premium ......... 130,300 53,835 172,990 357,125
Adjustment of intangibles
related to deposits sold ....... 933 (1,325) (707) (1,099)
------------ ---------- ------------ ------------
Gain on sale of deposits (a) ... $ 131,233 $ 52,510 $ 172,283 $ 356,026
============ ========== ============ ============
</TABLE>
(a) The remaining assets and liabilities will be sold at their
respective carrying values, resulting in no gain or loss.
(2) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the year ended December
31, 1995 related to the Branch Sales was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced, to the extent of 90%, by net
operating loss carryovers ........................ $ (873)
State taxes, at an assumed rate of 8% ............. (3,798)
---------
$(4,671)
=========
</TABLE>
P-32
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(E) PRO FORMA ADJUSTMENTS
(1) Represents interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
$575 million Notes at 10 5/8% per annum
(estimated) ................................................... $61,094
$140 million Holdings 9 1/8% Senior Subordinated
Notes ......................................................... 12,775
</TABLE>
(2) Represents the amortization of:
<TABLE>
<CAPTION>
<S> <C>
$20,000 in deferred debt issuance costs over the seven year
term of the Notes ............................................. $2,857
$5,600 in deferred debt issuance costs over the seven year term
of the Holdings 9 1/8% Senior Subordinated Notes .............. 800
</TABLE>
(3) Represents amounts necessary to adjust historical tax expense to the
pro forma computation. Pro forma tax expense for the year ended
December 31, 1995 related to the issuance of the Holdings 9 1/8% Senior
Subordinated Notes and the Notes was computed as follows:
<TABLE>
<CAPTION>
<S> <C>
Federal AMT, reduced to the extent of 90%, by net
operating loss carryovers .................................... $(1,426)
State taxes, at an assumed rate of 8% ......................... (6,202)
----------
$(7,628)
==========
</TABLE>
(4) Management expects the Bank to maintain its "well capitalized" status
once the Cal Fed Acquisition is consummated. Accordingly, First
Nationwide may sell certain of its assets or cause Cal Fed to sell
certain assets of Cal Fed concurrent with or shortly after the
consummation of the Cal Fed Acquisition. The assets to be sold may
include mortgage-backed securities (such as the MBS Sale), or other
assets. To the extent interest-bearing assets of the Bank or Cal Fed
are sold, the net income of the Bank would decrease by the amount of
the incremental yield on such assets over their related funding cost.
Such reductions are not reflected in pro forma net income (loss).
(5) Represents dividends on Holdings Preferred Stock (estimated at 12% per
annum), including the compounding effect of dividends paid-in-kind.
P-33
