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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20579
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FORM 8-K
CURRENT REPORT
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PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 3, 1997
FIRST NATIONWIDE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-82654 13-3778552
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
36 EAST 63RD STREET, NEW YORK, NEW YORK 10021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 572-8500
Not Applicable
(Former name or former address, if changed since last report)
PAGE 1 OF 5 PAGES
EXHIBIT INDEX ON PAGE: 5
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On January 3, 1996, First Nationwide Bank, A Federal Savings Bank merged
with and into California Federal Bank, A Federal Savings Bank (the "Cal Fed
Acquisition"). Unless the context otherwise indicates, (i) "First Nationwide"
refers to First Nationwide Bank, A Federal Savings Bank prior to the
consummation of the Cal Fed Acquisition, (ii) "Cal Fed" and "California
Federal" refer to Cal Fed Bancorp Inc. and California Federal Bank, A Federal
Savings Bank, respectively, prior to the consummation of the Cal Fed
Acquisition and (iii) the "Bank" refers to California Federal Bank, A Federal
Savings Bank, the surviving entity after consummation of the Cal Fed
Acquisition. Other capitalized terms used and not defined herein have the
meaning ascribed to them in the Glossary of Terms that begins on page P-33 of
Exhibit 99.1.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On January 3, 1997, First Nationwide Holdings Inc. ("Holdings"), the
parent company of First Nationwide consummated the Cal Fed Acquisition. The Cal
Fed Acquisition was effected pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") dated as of July 27, 1996 between Holdings, Cal Fed and
California Federal. Following the consummation of the Cal Fed Acquisition,
Holdings contributed the capital stock of Cal Fed to First Nationwide. Cal Fed
was then liquidated and First Nationwide was merged with California Federal,
with California Federal being the surviving bank.
Under the Merger Agreement, each share of Cal Fed common stock outstanding
at the effective time of the merger (other than shares for which dissenter's
rights were perfected, shares held directly or indirectly by Holdings and
shares held as treasury stock) were converted into and became the right to
receive a cash payment of $23.50 and one-tenth of one Secondary Contingent
Litigation Recovery Participation Interest ("Secondary Litigation Interest").
The holders of options or warrants to purchase the common stock of Cal Fed
received, for each share subject to such options or warrants, the difference
between $23.50 and the applicable per share option price, one-tenth of one
Secondary Litigation Interest and, in certain circumstances, one-tenth of one
Contingent Litigation Recovery Participation Interest ("Litigation Interest").
No fractional Secondary Litigation Interests were issued in the merger. The
stockholders of Cal Fed who would otherwise receive fractional interests
received their ratable share of the aggregate net cash proceeds obtained (after
deducting certain selling expenses) from aggregating the fractional interests
into the nearest whole number of Secondary Litigation Interests and selling
such Secondary Litigation Interests on the open market.
The aggregate cash consideration paid under the Merger Agreement was
approximately $1.2 billion. Holdings obtained the funds necessary to finance
the Cal Fed Acquisition and pay related fees and expenses from the following
sources:
(i) the net proceeds of approximately $555 million from the issuance of $575
million of 10 5/8% Senior Subordinated Notes Due 2003 ("10 5/8% Notes") by
First Nationwide Escrow Corp., which was merged with and into Holdings in
connection with the Cal Fed Acquisition;
(ii) a $145 million investment, funded by borrowings under a credit
facility, by a newly formed Delaware corporation, all of the common stock of
which is owned by Gerald J. Ford, the Chairman of the Board, Chief Executive
Officer and a director of the Bank, in exchange for $150 million aggregate
liquidation value of Holdings' Cumulative Perpetual Preferred Stock ("Holdings
Preferred Stock"); and
(iii) existing cash.
The net proceeds from the 10 5/8% Notes and the Holdings Preferred Stock
were contributed to First Nationwide concurrent with the Cal Fed Acquisition in
the Capital Contribution.
In connection with the merger of California Federal with First Nationwide,
each share of First Nationwide's 11 1/2% Noncumulative Perpetual Preferred
Stock ("11 1/2% Preferred Stock") was converted into and became one share of
preferred stock of the Bank, which preferred stock has the same relative
rights, terms and preferences as the 11 1/2% Preferred Stock.
(b) As of September 30, 1996, First Nationwide had approximately $16.8
billion in assets and approximately $8.8 billion in deposits, and operated 116
branches in California, Florida and Texas. After giving effect to the Cal Fed
Acquisition and the Capital Contribution at September 30, 1996, First
Nationwide would have had approximately $31.0 billion in assets, approximately
$17.6 billion in deposits,
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would have operated approximately 227 branches and would have ranked at such
date as the fourth largest thrift in the United States in terms of assets,
based on published sources. As a result of the Cal Fed Acquisition, the Bank
has a substantial presence in Northern and Southern California.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
(i) The following financial statements for Cal Fed at December 31, 1995 and
1994, and for the years ended December 31, 1995, 1994 and 1993 are set forth in
Exhibit 99.3 hereto:
Independent Auditors' Report
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(ii) The following financial statements for Cal Fed at September 30, 1996
and for the nine months ended September 30, 1996 and 1995 are also set forth in
Exhibit 99.3 hereto:
Condensed Consolidated Statement of Financial Condition (Unaudited)
Condensed Consolidated Statements of Operations (Unaudited)
Condensed Condolidated Statements of Cash Flows (Unaudited)
Notes to Unaudited Consolidated Financial Statements
(b) Pro Forma Financial Information
The following unaudited pro forma condensed combined financial statements at
September 30, 1996 and for the nine months ended September 30, 1996 and the
year ended December 31, 1995 are set forth in Exhibit 99.1 hereto:
Pro Forma Condensed Combined Statement of Financial Condition at September
30, 1996 (unaudited)
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1996 (unaudited)
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1995 (unaudited)
(c) Exhibits
EXHIBIT NO. DOCUMENT
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2.1 Amended and Restated Agreement and Plan of Merger, dated as of
July 27, 1996 between First Nationwide Holdings Inc., CFB
Holdings, Inc., Cal Fed Bancorp, Inc. and California Federal
Bank, A Federal Savings Bank.
99.1 Unaudited Pro Forma Financial Data of First Nationwide Holdings
Inc. and Subsidiaries and Glossary of Terms.
99.2 Press Release.
99.3 Cal Fed Bancorp Inc. financial statements listed in Item 7(a)(i)
and (ii).
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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: January 15, 1997
By: /s/ Laurence Winoker
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Name: Laurence Winoker
Title: Vice President and Controller
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EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
July 27, 1996 between First Nationwide Holdings Inc., CFB
Holdings, Inc., Cal Fed Bancorp, Inc. and California Federal
Bank, A Federal Savings Bank.
99.1 Unaudited Pro Forma Financial Data of First Nationwide Holdings
Inc. and Subsidiaries and Glossary of Terms.
99.2 Press Release.
99.3 Cal Fed Bancorp Inc. financial statements listed in Item 7(a)(i)
and (ii).
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of the 27th day
of July, 1996 (this "Plan"), by and among FIRST NATIONWIDE HOLDINGS INC., a
Delaware corporation (the "Acquiror"), CFB HOLDINGS, INC., a Delaware
corporation ("Merger Sub"), CAL FED BANCORP INC., a Delaware corporation (the
"Company") and CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK (the "Bank").
RECITALS:
A. The Acquiror. The Acquiror has been duly incorporated and is an
existing corporation in good standing under the laws of the State of
Delaware.
B. Merger Sub. Merger Sub is a corporation in good standing under the laws
of the State of Delaware. All the shares of the capital stock of Merger Sub
are owned directly by the Acquiror.
C. The Company. The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with its
principal executive offices located in Los Angeles, California. The Company has
100,000,000 authorized shares of common stock, par value $1.00 per share
("Company Common Stock"), of which 49,396,947 shares were outstanding as of the
date hereof, and 25,000,000 authorized shares of preferred stock, par value
$.01 per share, of which no shares were outstanding as of June 30, 1996 (no
other class of capital stock of the Company being authorized). The Company is a
savings and loan holding company duly registered under the Home Owners' Loan
Act of 1933, as amended ("HOLA"), and owns 100% of the outstanding common stock
of the Bank. As of the date hereof, the Company had (i) an aggregate of
3,656,433 shares of Company Common Stock reserved for issuance upon exercise of
stock options, warrants or other rights granted pursuant to its 1995 Employee
Stock Incentive Plan, its 1995 Non-Employee Director Stock Option Plan, the
Bank's 1983 Stock Incentive Plan, the Bank's 1993 Stock Incentive Plan and the
Bank's 1994 Non-Employee Director Stock Option Plan (collectively, the "Company
Stock Plans"), (ii) 18,407 shares of Company Common Stock reserved for issuance
upon conversion of the 6 1/2% Convertible Subordinated Debentures Due 2001 (the
"6 1/2% Subordinated Notes") of XCF Acceptance Corporation, a California
corporation and a wholly owned subsidiary of the Bank, and (iii) 100,000 shares
of the Company's Series RP Preferred Stock reserved for issuance pursuant to
exercise of the Purchase Rights (as defined below). As of the date hereof, the
Bank has 5,075,549 authorized and 4,941,498 issued and outstanding contingent
litigation recovery participation interests (the "Participation Interests"),
each of which represents the right to receive in cash five millionths of one
percent (0.000005%) of the Litigation Recovery (as defined in the certificates
evidencing the Participation Interests) in the Bank's litigation against the
United States, California Federal Bank v. United States, Civil Action No.
92-138C (the "Goodwill Litigation"). Unless the context otherwise requires, all
references herein to the Company Common Stock shall be deemed to include the
corresponding rights (the "Purchase Rights") to purchase from the Company, for
each share of Company Common Stock held, one-thousandth of a share of the
Company's Series RP Preferred Stock, par value $.01 per share, pursuant to the
terms and conditions of the Rights Agreement (as defined below).
D. Rights, Etc. The Compay does not have any shares of its capital stock
reserved for issuance, any outstanding option, call or commitment relating to
shares of its capital stock or any outstanding securities, obligations or
agreements convertible into or exchangeable for, or giving any person any right
(including, without limitation, preemptive rights) to subscribe for or acquire
from it, any shares of its capital stock (collectively, "Rights") except (i)
pursuant to the Option Agreement (as defined below) which is being entered into
simultaneously with the execution and delivery of this Plan, (ii) pursuant to
the Rights Agreement, dated as of February 16, 1996, between the Company and
Chemical Bank, as Rights Agent (the "Rights Agreement"), (iii) subject to
Section 4.23 hereof, the 6 1/2% Subordinated Notes, and (iv) pursuant to stock
options or other rights granted pursuant to the Company Stock Plans as
previously disclosed to the Acquiror.
E. The Option Agreement. As an inducement to the willingness of the Acquiror
to enter into this Plan, the Company will, immediately after the execution and
delivery of this Plan by the parties hereto, enter into a Stock Option
Agreement with the Acquiror in the form set forth in Annex 1 (the "Option
Agreement"), pursuant to which the Company will grant to the Acquiror an option
to purchase
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authorized but unissued shares of Company Common Stock in an amount equal to
19.9% of the outstanding shares of Company Common Stock upon the terms and
conditions therein contained.
F. Bank Merger Agreement. It is the intention of the Acquiror that, unless
otherwise determined pursuant to Section 1.6 hereof, immediately following the
Effective Time (as defined in Section 7.1) of the Merger, (i) the Acquiror will
contribute all of the shares of capital stock of the Surviving Corporation (as
defined below) to its wholly-owned subsidiary, First Nationwide Bank, a Federal
Savings Bank ("FNB"), (ii) the Surviving Corporation will be liquidated by FNB,
and (iii) FNB will be merged with and into the Bank (the "Bank Merger")
immediately thereafter.
G. Board Approvals. The respective Boards of Directors of the Acquiror,
the Company and the Bank have duly approved this Plan and have duly
authorized its execution and delivery.
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Plan and prescribe the terms
and conditions hereof and the manner and basis of carrying it into effect,
which shall be as follows:
ARTICLE I. THE MERGER
SECTION 1.1. Structure of the Merger. On the Effective Date, Merger Sub will
merge (the "Merger") with and into the Company, with the Company being the
surviving corporation (the "Surviving Corporation"), pursuant to the provisions
of, and with the effect provided in, the Delaware General Corporation Law (the
"State Corporation Law"). The separate corporate existence of Merger Sub shall
thereupon cease. The Surviving Corporation shall continue to be governed by the
State Corporation Law and its separate corporate existence with all of its
rights, privileges, immunities, powers and franchises shall continue unaffected
by the Merger. At the Effective Time, the certificate of incorporation and
by-laws of the Merger Sub, in effect immediately prior to the Effective Time,
shall become the certificate of incorporation and by-laws of the Surviving
Corporation. At the Effective Time, the directors and officers of Merger Sub
shall become the directors and officers of the Surviving Corporation.
SECTION 1.2. Effect on Outstanding Shares. (a) By virtue of the Merger,
automatically and without any action on the part of the holders of Company
Common Stock, each share of Company Common Stock issued and outstanding at the
Effective Time (other than Excluded Shares (as defined below)) shall become and
be converted into the right to receive (i) $23.50 in cash without interest and
(ii) one-tenth of a Secondary Participation Interest (as defined below),
provided, however, that no fractional Secondary Participation Interests shall
be issued, holders of Company Common Stock who would otherwise receive
fractional Secondary Participation Interests shall not be entitled thereto and
such holders shall receive their respective pro rata portion of the cash
proceeds (net of aggregate commissions and any other selling expenses) obtained
from the Exchange Agent (as hereinafter defined) batching such fractional
Secondary Participation Interests together with the fractional Secondary
Participation Interests that would otherwise be received by holders of options
and warrants pursuant to Section 1.5 into the nearest aggregate whole number of
Secondary Participation Interests (collectively, the "Batched Secondary
Participation Interests") and effecting the sale (the "Batched Sales") of the
Batched Secondary Participation Interests on the open market at prevailing
prices in accordance with Section 1.3(c) (collectively the consideration
described in the foregoing clauses (i) and (ii), including any cash payment
from the proceeds of the Batched Sales, is referred to herein as the "Merger
Consideration"). As of the Effective Time, each share of Company Common Stock
held directly or indirectly by the Acquiror, other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted, and
shares held as treasury stock of the Company, shall be cancelled and retired
and cease to exist, and no exchange or payment shall be made with respect
thereto.
(b) The shares of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall become shares of the Surviving
Corporation after the Merger and shall thereafter constitute all of the issued
and outstanding shares of the capital stock of the Surviving Corporation.
(c) "Excluded Shares" shall mean (i) shares of Company Common Stock the
holder of which (the "Dissenting Stockholder"), pursuant to the State
Corporation Law providing for dissenters' or appraisal rights, is entitled to
receive payment in accordance with the provisions of such State Corporation
Law,
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such holder to have only the rights provided in such State Corporation Law (the
"Dissenters' Shares"), (ii) shares of Company Common Stock held directly or
indirectly by the Acquiror, other than shares held in fiduciary capacity or in
satisfaction of a debt previously contracted and (iii) shares of Company Common
Stock held as treasury stock by the Company.
SECTION 1.3. Exchange Procedures. (a) At and after the Effective Time, each
certificate (each a "Certificate") previously representing shares of Company
Common Stock shall represent only the right to receive the Merger Consideration
(without interest on the cash portion thereof).
(b) As of the Effective Time, (i) the Acquiror shall deposit, or shall cause
to be deposited, with ChaseMellon Shareholder Services, L.L.C., a New Jersey
limited liability company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Section 1.3, the amount constituting the cash portion of the Merger
Consideration to be paid pursuant to Section 1.2, and (ii) the Company shall
deposit, or shall cause to be deposited, with the Exchange Agent, for the
benefit of the holders of shares of Company Common Stock, one or more
certificates representing (x) the Secondary Participation Interests to be
distributed to holders of Company Common Stock in exchange for their
Certificates pursuant to this Section 1.3 and (y) the Batched Secondary
Participation Interests to be sold by the Exchange Agent on behalf of the
Company in the Batched Sales pursuant to Sections 1.2 and 1.3(c).
(c) As soon as practicable after the Effective Time, the Acquiror shall
cause the Exchange Agent to mail to each holder of record of a Certificate or
Certificates the following: (i) a letter of transmittal specifying that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent, which
shall be in a form and contain any other reasonable provisions as the Acquiror
may determine; and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. In addition, as soon as
practicable after the Effective Time, the Batched Secondary Participation
Interests shall be sold on the open market at prevailing prices by means of the
Batched Sales. The Exchange Agent shall be instructed by the Surviving
Corporation to effect the Batched Sales on behalf of the Surviving Corporation,
through the use of one or more broker-dealers, over a period of time following
the Effective Time and in a manner designed not to adversely affect the market
prices of the Secondary Participation Interests. Upon the proper surrender of a
Certificate to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal, the holder of such Certificate shall be
entitled to receive in exchange therefor a check representing the cash portion
of the Merger Consideration and a certificate representing such number of
Secondary Participation Interests which such holder has the right to receive in
respect of the Certificate surrendered pursuant to the provisions hereof, and
the Certificate so surrendered shall forthwith be cancelled. No interest will
be paid or accrued on the cash portion of the Merger Consideration. In the
event of a transfer of ownership of any shares of Company Common Stock not
registered in the transfer records of the Company, a check for the cash portion
of the Merger Consideration and a certificate representing the applicable
number of Secondary Participation Interests may be issued to the transferee if
the Certificate representing such Company Common Stock is presented to the
Exchange Agent, accompanied by documents sufficient, in the reasonable
discretion of the Acquiror and the Exchange Agent, (i) to evidence and effect
such transfer and (ii) to evidence that all applicable stock transfer taxes
have been paid.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer records of the Company of any shares of Company Common Stock
that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Acquiror or the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Plan in accordance with the
procedures set forth in this Section 1.3.
(e) Any portion of the aggregate Merger Consideration or the proceeds of any
investments thereof that remains unclaimed by the stockholders of the Company
for one year after the Effective Time shall be repaid or delivered, as
applicable, by the Exchange Agent to the Acquiror. Any stockholders of the
Company who have not theretofore complied with this Section 1.3 shall
thereafter look only to the Acquiror for payment of their Merger Consideration
deliverable in respect of each share of Company
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Common Stock such stockholder holds as determined pursuant to this Plan without
any interest on the cash portion of the Merger Consideration. If outstanding
Certificates are not surrendered or the payment for them not claimed prior to
the date on which such payments would otherwise escheat to or become the
property of any governmental unit or agency, the unclaimed items shall, to the
extent permitted by abandoned property and any other applicable law, become the
property of the Acquiror (and to the extent not in its possession shall be paid
over to it), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, none of the Acquiror,
the Surviving Corporation, the Exchange Agent or any other person shall be
liable to any former holder of Company Common Stock for any amount delivered to
a public official pursuant to applicable abandoned property, escheat or similar
laws.
(f) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by the Exchange
Agent, the posting by such person of a bond in such amount as the Exchange
Agent may reasonably direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof pursuant to this Plan.
SECTION 1.4. Dissenters' Rights. Any Dissenting Stockholder who shall be
entitled to be paid the "fair value" of his or her Dissenters' Shares, as
provided in Section 262 of the State Corporation Law, shall not be entitled to
the Merger Consideration, unless and until the holder thereof shall have failed
to perfect or shall have effectively withdrawn or lost such holder's right to
dissent from the Merger under the State Corporation Law, and shall be entitled
to receive only the payment to the extent provided for by Section 262 of the
State Corporation Law with respect to such Dissenters' Shares. If any
Dissenting Stockholder shall fail to perfect or shall have effectively
withdrawn or lost the right to dissent, the Dissenters' Shares held by such
Dissenting Stockholder shall thereupon be treated as though such Dissenters'
Shares had been converted into the right to receive the Merger Consideration
pursuant to Section 1.2.
SECTION 1.5. Options. At the Effective Time, each option or warrant granted
by the Company pursuant to the Company Stock Plans to purchase shares of
Company Common Stock, which is outstanding and unexercised immediately prior to
the Effective Time, whether or not then vested and exercisable, shall be
terminated and each grantee thereof shall be entitled to receive from the
Company, in lieu of each share of Company Common Stock that would otherwise
have been issuable upon exercise, (A) an amount in cash computed by multiplying
(i) the difference between (x) $23.50 and (y) the per share exercise price
applicable to such option or warrant by (ii) the number of such shares of
Company Common Stock subject to such option or warrant, (B) to the extent
applicable, the number of Participation Interests reserved for issuance upon
exercise of such stock options, and (C) one-tenth of a Secondary Participation
Interest for each share of Company Common Stock subject to such option or
warrant, provided however, that no fractional Secondary Participation Interests
shall be issued, holders of such options or warrants who would otherwise
receive fractional Secondary Participation Interests shall not be entitled
thereto and such holders shall receive their respective pro rata portion of the
aggregate net cash proceeds (determined under Section 1.2) obtained from the
Batched Sales. The Company agrees to use its best efforts to take or cause to
be taken all action necessary under such options to provide for such
termination and payment, including obtaining any necessary consents from
grantees. The Company will make the payments required to be made to grantees of
options under this Section 1.5 immediately prior to the Effective Time.
SECTION 1.6. Alternative Structure. Notwithstanding anything in this Plan to
the contrary, the Acquiror may specify that, before or after the Merger, the
Company, the Acquiror, the Bank and any other subsidiary or affiliate of the
Acquiror shall enter into transactions other than those described in Article I
hereof in order to effect the purposes of this Plan, and the Company and the
Acquiror shall take all action necessary and appropriate to effect, or cause to
be effected, such transactions; provided, however, that no such specification
may (i) materially and adversely affect the timing of the consummation of the
transactions contemplated herein or the tax effect or economic benefits of the
Merger to the holders of Company Common Stock, Participation Interests or
Secondary Participation Interests, or (ii) cause any event or condition to
exist which constitutes or, after notice or lapse of time or both, would
constitute a breach of Section 4.20 hereof.
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SECTION 1.7. Issuance of Secondary Participation Interests. Prior to the
Effective Date, the Bank shall have issued to the Company and the Company shall
have delivered to the Exchange Agent pursuant to Section 1.3, certificates
representing the secondary contingent litigation recovery participation
interests in substantially the form attached hereto as Annex 4.21(b) (the
"Secondary Participation Interests").
ARTICLE II. CONDUCT PENDING THE MERGER
SECTION 2.1 Conduct of the Company's Business Prior to the Effective Time.
Except as expressly provided in this Plan or the Option Agreement or as agreed
to by the Acquiror, during the period from the date of this Plan to the
Effective Time, the Company shall, and shall cause its Subsidiaries (as defined
below) to, (i) conduct its business and maintain its books and records in the
usual, regular and ordinary course consistent with past practice, (ii) use its
commercially reasonable efforts to maintain and preserve intact its business
organization, properties, leases, employees and advantageous business
relationships and retain the servies of its officers and key employees, (iii)
except as required by applicable law, take no action which would adversely
affect or delay the ability of the Company, the Bank, the Acquiror, or the
Merger Sub to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated hereby or to
perform its covenants and agreements on a timely basis under this Plan and (iv)
except as required by applicable law, take no action that could be deemed to
have a Material Adverse Effect (as defined in Section 3.2 herefo) on the
Company. As used in this Plan, the word "Subsidiary" when used with respect to
any party means any corporation, partnership or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes.
SECTION 2.2. Forbearance by the Company. It is contemplated that during the
period from the date of this Plan to the Effective Time, the Company shall
continue to operate in accordance with the 1996 Cal Fed Bancorp Inc. Business
Plan as in effect on the date hereof, a copy of which has been made available
to Acquiror, or the 1997 Cal Fed Bancorp Inc. Business Plan when such a plan is
adopted and put into effect. Notwithstanding the foregoing, during the period
from the date of this Plan to the Effective Time, and except as contemplated by
this Plan (including, without limitation, Section 1.7 hereof) or the Option
Agreement or as set forth in Section 2.2 of the Company's Disclosure Letter,
the Company shall not, and shall not permit any of its Subsidiaries, without
the prior written consent of the Acquiror, to:
(a) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the
obligations of any other person; provided, however, that neither the
Company nor any of its Subsidiaries shall incur any indebtedness for
borrowed money (including reverse repurchase agreements) with a final
maturity date on or after July 28, 1998.
(b) adjust, split, combine or reclassify any capital stock; make, declare
or pay any dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock (except for dividends paid by the Bank to the Company) or any
securities or obligations convertible into or exchangeable for any shares
of its capital stock, or grant any stock appreciation rights or grant, sell
or issue to any individual, corporation or other person any right or option
to acquire, or securities evidencing a right to convert into or acquire,
any shares of its capital stock (except for regular quarterly cash
dividends on the Series B Preferred Stock (as defined below) at the rate
set forth in the certificate of designation for such stock and except
pursuant to the Rights Agreement), or issue any additional shares of
capital stock except pursuant to (i) the exercise of stock options or
warrants outstanding as of the date hereof as previously disclosed to the
Acquiror and on the terms in effect on the date hereof, (ii) the Option
Agreement and (iii) the conversion of 6 1/2% Subordinated Notes;
(c) other than in the ordinary course of business consistent with past
practice, sell, transfer, mortgage, encumber or otherwise dispose of any of
its properties, leases or assets to any person, or cancel, release or
assign any indebtedness of any person, except pursuant to contracts or
agreements in force at the date of this Plan and disclosed to Acquiror;
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(d) enter into, renew or amend any employment agremeent with any employee
or director, increase in any manner the compensation or fringe benefits of
any of its employees or directors, or create or institute, or make any
payments pursuant to, any severance plan, bonus plan, incentive
compensation plan, or package, or pay any pension or retirement allowance
not required by any existing plan or agreement to any such employees or
directors, or become a party to, amend or commit itself to, or otherwise
establish any trust or account related to, any Employee Plan (as defined in
Section 3.3(o)), with or for the benefit of any employee, other than
general increases in compensation in the ordinary course of business
consistent with past practice or any amendment to any Employee Plan
required by applicable law (provided that the Company shall use its best
efforts to minimize the cost of any such amendment as permitted under such
applicable law), or voluntarily accelerate the vesting of any stock options
or other compensation or benefit;
(e) other than in the ordinary couse of business consistent with past
practice, make any investment either by purchase of stock or securities,
contributions to capital, property transfers, or purchase of any property
or assets of any person; provided, however, that no investment or series of
related investments shall be made in an amount in excess of $1,000,000
except in (i) securities which would be reported under the caption "cash
and cash equivalents" on the Company's consolidated statement of financial
condition and (ii) federal government securities with a maturity of not
more than two (2) years, provided further, however, that in no event shall
the Company or any of its Subsidiaries make any acquisition of equity
securities or business operations without the Acquiror's prior consent;
(f) enter into, renew or terminate any contract or agreement, or make any
change in any of its leases or contracts, other than any lease, contract or
agreement involving aggregate payments of $250,000 or less per annum, and
either (i) having a term of less than or equal to one year or (ii) which
may be terminated with notice of thirty days without payment by the Company
or any of its Subsidiaries of a fee, penalty or other payment;
(g) settle any claim, action or proceeding involving any liability of the
Company or any of its Subsidiaries for money damages in excess of $250,000,
exclusive of contributions from insurers, or involving material
restrictions upon the business or operations of the Company or any of its
Subsidiaries;
(h) except in the ordinary course of business, waive or release any
material right or collateral or cancel or compromise any extension of
credit or other debt or claim;
(i) make, renegotiate, renew, increase, extend or purchase any loan, lease
(credit equivalent), advance, credit enhancement or other extension of
credit, or make any commitment in respect of any of the foregoing, except
for loans, advances or commitments in amounts (A) less than $1,000,000 made
in the ordinary course of business consistent with past practice and made
in conformity with all applicable policies and procedures or (B) greater
than $1,000,000 if such loans, advances or commitments conform to the
Company's present written loan underwriting policies;
(j) except as contemplated by Section 4.2, change its method of accounting
as in effect at December 31, 1995, except as required by changes in
generally accepted accounting principles ("GAAP") as concurred in by the
Company's independent auditors, or as required by regulatory accounting
principles or regulatory requirements;
(k) enter into any new activities or lines of business, or cease to
conduct any material activities or lines of business that it conducts on
the date hereof, or conduct any material business activity not consistent
with past practice;
(l) amend its certificate of incorporation, by-laws or other similar
governing documents;
(m) make any capital expenditure other than (A) in accordance with the
1996 Cal Fed Bancorp Inc. Business Plan or the 1997 Cal Fed Bancorp Inc.
Business Plan, as applicable, or (B) as necessary to maintain its assets in
good repair; provided, however, that no capital expenditure (other than
expenditures in accordance with the 1996 Cal Fed Bancorp Inc. Business Plan
or the 1997 Cal Fed Bancorp Inc. Business Plan, as applicable) shall be
made which individually or in the aggregate with all other capital
expenditures exceeds $1,500,000;
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(n) settle, compromise, dismiss or cease prosecution of the Goodwill
Litigation; or sell, transfer, assign, distribute or convey all or part of,
or otherwise take any action that could reasonably be expected to adversely
affect the value of, its rights or interest in the Goodwill Litigation;
(o) hold any formal meeting with the Appeals Office of the Internal
Revenue Service or any similar state taxing authority to settle or
compromise any audit, examination or other proceeding with respect to any
federal or state income tax liability of the Company or any of its
Subsidiaries without prior notification to Acquiror and allowing a
representative of Acquiror to attend, but not participate in, such formal
meeting;
(p) execute Form 870-AD or comparable document agreement to the finality
of any audit, examination or other proceeding with respect to any federal
or state income tax liability of the Company or any of its Subsidiaries; or
(q) agree to, or make any commitment to, take any of the actions
prohibited by this Section 2.2.
SECTION 2.3 Cooperation. The Company shall cooperate with Acquiror and
Merger Sub in completing the transactions contemplated hereby and shall not
take, cause to be taken or agree or make any commitment to take any action; (i)
that is intended or may reasonably be expected to cause any of its
representations or warranties set forth in Article III hereof not to be true
and correct, or (ii) that is inconsistent with or prohibited by Section 2.1 or
Section 2.2; except in any case as may be required by law, rule or regulation.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Disclosure Letters. On or prior to the date hereof, the Company
has delivered to the Acquiror, and the Acquiror has delivered to the Company, a
letter (as the case may be, its "Disclosure Letter") setting forth, among other
things, facts, circumstances and events the disclosure of which is required or
appropriate in relation to any or all of its representations and warranties
(and making specific reference to the Section of this Plan to which they
relate); provided, however, that the mere inclusion of a fact, circumstance or
event in a Disclosure Letter shall not be deemed an admission by a party that
such item represents a material exception or that such item is reasonably
likely to result in a Material Adverse Effect (as defined in Section 3.2).
SECTION 3.2 Definitions. As used in this Plan, (A) the term "Material
Adverse Effect" means an effect which (i) is material and adverse to the
business, properties, assets, liabilities, financial condition or results of
operations of the Company or the Acquiror, as the context may dictate, and its
Subsidiaries taken as a whole, or (ii) significantly and adversely affects the
ability of the Company or the Acquiror, as the context may dictate, to
consummate the Merger by March 31, 1997 (or such later date as provided in
Section 6.1(c)), or to perform its material obligations hereunder, provided
however, that any actions taken by the Company or any of its Subsidiaries at
the request of Acquiror with respect to the matters described in Sections 4.2
or 4.24 of this Plan or the Benefits Letter (as defined in Section 4.3 hereof)
or any consequences of such actions shall not, individually or in the
aggregate, constitute a Material Adverse Effect on the Company; and (ii) the
term "to the best knowleddge of the Company" means the actual knowledge of the
following officers of the Company: the President and Chief Executive Officer,
the Executive Vice President, Controller and Co-Principal Financial Officer,
the Executive Vice President, Treasurer and Co-Principal Financial Officer, the
Executive Vice President, General Counsel and Secretary, the Executive Vice
Persident--Human Resources and Administration and the Executive Vice
President--Investor Relations; the Executive Vice President--Retail Bank, the
Executive Vice President--Residential Lending and the Executive Vice
President--Credit Cycle Management.
SECTION 3.3 Representations and Warranties of the Company. The Company
represents and warrants to the Acquiror that:
(a) Recitals True. The facts set forth in the Recitals of this Plan with
respect to the Company are true and correct in all material respects.
(b) Capital Stock. All outstanding shares of capital stock of the Company
and its Subsidiaries are duly authorized, validly issued and outstanding,
fully paid and non-assessable, and subject to no
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preemptive rights. As of the date hereof, the Bank has 100,000,000
authorized shares of common stock, par value $1.00 per share, of which 100
shares are issued and outstanding, and 25,000,000 authorized shares of
preferred stock of which 3,800,000 shares have been designated and 150,403
formerly issued shares of 7 3/4% Noncumulative Convertible Preferred Stock,
Series A have been called, but are unexchanged, and 1,725,000 shares have
been designated and 1,725,000 shares are issued and outstanding as 10 5/8%
Noncumulative Perpetual Preferred Stock, Series B (the "Series B Preferred
Stock"). Except for the Series B Preferred Stock, the shares of capital
stock of each of the Company's Subsidiaries are owned directly or
indirectly by the Company free and clear of all liens, claims, encumbrances
and restrictions on transfer, and there are no Rights with respect to such
capital stock.
(c) Qualification. Each of the Company and its Subsidiaries has the power
and authority, and is duly qualified in all jurisdictions where such
qualification is required, to carry on its business as it is now being
conducted and to own all its properties and assets, and it has all federal,
state, local, and foreign governmental authorizations necessary for it to
own or lease its properties and assets and to carry on its business as it
is now being conducted.
(d) Subsidiaries. The only Subsidiaries of the Company are those listed on
Section 3.3(d) of the Company's Disclosure Letter. The Bank is a federal
savings bank duly organized, validly existing and in good standing under
the laws of the United States of America. The deposit accounts of the Bank
are insured by the Federal Deposit Insurance Corporation (the "FDIC")
through the Savings Association Insurance Fund (the "SAIF") to the fullest
extent permitted by law, and all premiums and assessments required to be
paid in connection therewith have been paid when due by the Bank. Each of
the other Subsidiaries of the Company is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. The minute books of the Company and each of
its Subsidiaries contain true, complete and accurate records in all
material respects of all meetings and other corporate actions held or taken
since December 31, 1993 of their respective stockholders and Boards of
Directors (including committees of their respective Boards of Directors).
(e) Authority and Stockholder Approvals.
(i) Each of the Company and the Bank has the requisite corporate power
and authority to execute and deliver this Plan and, subject to the
receipt of all necessary stockholder and regulatory approvals, consents
or nonobjections, as the case may be, and to the receipt by the Bank of
board and stockholder approval (collectively, the "Bank Merger
Approval") to the definitive documents to be used to effect the Bank
Merger (the "Bank Merger Documents"), to consummate the transactions
contemplated hereby. Subject in the case of the Company to the receipt
of required stockholder approval of this Plan by the holders of the
Company Common Stock and in the case of the Bank to the receipt of the
Bank Merger Approval, the execution and delivery of this Plan and
consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action of the Company and
the Bank. This Plan has been duly and validly executed and delivered by
each of the Company and the Bank and (assuming due authorization,
execution and delivery by the Acquiror) constitutes a valid and binding
agreement of the Company and the Bank enforceable against each entity in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(ii) The affirmative vote of at least a majority of the outstanding
shares of Company Common Stock entitled to vote on this Plan is the only
vote of holders of any of the capital stock of the Company or any of its
Subsidiaries required for approval of this Plan and consummation of the
Merger.
(f) No Violations; Consents and Approvals.
(i) Neither the execution, delivery and performance of this Plan by
the Company or the Bank nor the consummation by the Company or the
Bank of the transactions contemplated
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hereby will constitute (A) a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental
permit or license, or agreement, indenture or instrument of the Company
or any of its Subsidiaries or to which the Company or any of its
Subsidiaries (or any of their respective properties) is subject, or
enable any person to enjoin the Merger, the Bank Merger or the other
transactions contemplated hereby and thereby, (B) a breach or violation
of, or a default under, the certificate of incorporation or by-laws or
similar organizational documents of the Company or any of its
Subsidiaries or (C) a breach or violation of, or a default under (or an
event which with due notice or lapse of time or both would constitute a
default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the
properties or assets of the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of any note, bond, indenture,
deed of trust, loan agreement or other agreement, instrument or
obligation to which the Company or any of its Subsidiaries is a party,
or to which any of their respective properties or assets may be bound or
affected, provided, however, that with respect to the Bank and the Bank
Merger, the foregoing representation is subject to the execution and
delivery of the Bank Merger Documents and the receipt of Bank Merger
Approval.
(ii) Except for (A) the filing of an application with the Office of
Thrift Supervision (the "OTS") and approval of such application, (B) the
filing with the Securities and Exchange Commission (the "SEC") of a
proxy statement in definitive form relating to the meeting of the
Company's stockholders to be held in connection with this Plan and the
transactions contemplated hereby (the "Proxy Statement"), (C) the
adoption of the agreement of merger (within the meaning of Section 251
of the State Corporation Law) contained in this Plan by the requisite
vote of the stockholders of the Company, (D) the filing of the
certificate of merger with the Secretary of State of the State of
Delaware pursuant to the State Corporation Law (the "Certification of
Merger"), (E) the consents and approvals set forth in Section 3.3
(f)(ii) of the Company's Disclosure Letter, (F) the filing with the OTS
of a registration statement covering the issuance and distribution of
the Secondary Participation Interests and the declaration of the
effectiveness of such registration statement, and (G) such consents and
approvals of third parties which are not Governmental Entities (as
defined below) the failure of which to obtain will not have and would
not be reasonably expected to have a Material Adverse Effect on the
Company, no consents or approvals of, or filings or registrations with,
any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") or with any
third party are necessary in connection with the execution and delivery
by the Company of this Plan and the Option Agreement and the
consummation by the Company of the Merger and the other transactions
contemplated hereby, and the Company knows of no reason why the
Requisite Regulatory Approvals (as defined in Section 5.1(b)) should not
be obtained.
(g) Financial Statements. The Company has previously made available to the
Acquiror copies of (i) the consolidated statements of financial condition
of the Bank and its Subsidiaries as of December 31 for the fiscal years
1994 and 1995, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995, as reported in the Bank's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 filed with
the OTS under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), in each case accompanied by the audit report of KPMG Peat
Marwick LLP, independent auditors with respect to the Bank, (ii) the
unaudited consolidated statements of financial condition of the Company and
its Subsidiaries as of March 31, 1995 and March 31, 1996 and the related
unaudited consolidated statements of operations and cash flows for each of
the three-month periods then ended, as reported in the Company's Quarterly
Report on Form 10-Q for the period ended March 31, 1996 filed with the SEC
under the Exchange Act, and (iii) the unaudited internal report to the
Company's Board setting forth financial results for the six months ended
June 30, 1996. The December 31, 1995 consolidated statement of financial
condition of the Bank (including the related notes, where applicable)
fairly presents the consolidated financial position of the Bank and its
Subsidiaries as of the date thereof, and the other financial statements
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referred to in this Section 3.3(g) (including the related notes, where
applicable) fairly present, and the financial statements referred to in
Section 4.17 hereof will fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consolidated operations and changes in
shareholders' equity and consolidated financial position of the entity or
entities to which they relate for the respective fiscal periods or as of
the respective dates therein set forth. Each of such statements (including
the related notes, where applicable) complies, and the financial statements
referred to in Section 4.17 hereof will comply, in all material respects,
with applicable accounting requirements and with the published rules and
regulations of the OTS or the SEC, as applicable, with respect thereto, and
each of such statements (including the related notes, where applicable) has
been, and the financial statements referred to in Section 4.17 will be,
prepared in accordance with GAAP consistently applied during the periods
involved, except in each case as indicated in such statements or in the
notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q.
(h) Company Reports.
(i) The Company has previously made available to the Acquiror an
accurate and complete copy of each (A) final registration statement,
prospectus, report, schedule and definitive proxy statement filed since
January 1, 1994 by the Company with the SEC, or filed by the Bank with
the OTS, as the case may be, pursuant to the Securities Act of 1933, as
amended (the "Securities Act") or the Exchange Act (the "Company
Reports") and (B) communications mailed by the Company or by the Bank,
as the case may be, to its stockholders since January 1, 1994, and no
such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that
information as of a later date shall be deemed to modify information as
of an earlier date. Except as set forth in Section 3.3(h)(i) of the
Company's Disclosure Letter, each of the Company and the Bank has timely
filed all Company Reports and other documents required to be filed by it
under the Securities Act and the Exchange Act, and, as of their
respective dates, all Company Reports complied in all material respects
with the published rules and regulations of the SEC or the OTS, as
applicable, with respect thereto.
(ii) The Company and each Company Subsidiary have each timely filed all
reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file
since December 31, 1993 with (i) the SEC, (ii) the OTS, (iii) the FDIC,
(iv) the SAIF, (v) the Federal Housing Finance Board ("FHFB"), (vi) the
Federal Home Loan Bank of San Francisco ("FHLBSF"), (vii) any state
banking commission or other regulatory authority ("State Regulator"),
and (viii) the National Association of Securities Dealers, Inc. and any
other self-regulatory organization ("SRO") (collectively, the
"Regulatory Agencies"), and all other material reports and statements
required to be filed by them since December 31, 1993, including, without
limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, the OTS, the FDIC,
SAIF, FHFB, FHLBSF, any State Regulator or any SRO, and have paid all
fees and assessments due and payable in connection therewith. Except for
normal examinations conducted by a Regulatory Agency in the regular
course of the business of the Company and its Subsidiaries, and except
as set forth in Section 3.3(h)(ii) of the Company's Disclosure Letter,
no Regulatory Agency has initiated any proceeding or, to the best
knowledge of the Company, investigation into the business or operations
of the Company or any of its Subsidiaries since December 31, 1995.
Except as set forth on Section 3.3(h)(ii) of the Company's Disclosure
Letter, there is no unresolved material violation, criticism, or
exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of the Company or any of its
Subsidiaries.
(i) Absence of Certain Changes or Events. Except as disclosed in the
Company Disclosure Letter or the Company Reports filed prior to the date of
this Plan, true and complete copies of which have been provided by the
Company to the Acquiror, since December 31, 1995, (A) the Company
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and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses consistent with past practice,
and (B) there has not been any change in the assets, liabilities, financial
condition, properties, business, or results of operations of the Company or
its Subsidiaries, or any occurrence, development or event of any nature
(including without limitation any earthquake or other Act of God), which,
individually or in the aggregate, has had or could reasonably be expected
to have a Material Adverse Effect on the Company.
(j) Taxes.
(i) Except as set forth in Section 3.3(j) of the Company Disclosure Letter.
(A) all material Tax Returns required to be filed by or on behalf of the
Company or any of its Subsidiaries have been timely filed or requests for
extensions have been timely filed and any such extension shall have been
granted and not have expired, and all such filed returns are complete and
accurate in all material respects; (B) all Taxes shown on such Tax Returns have
been paid in full or adequate provision has been made for any such Taxes in the
financial statements of the Company and its Subsidiaries (in accordance with
GAAP); (C) there is no audit examination, deficiency assessment, or refund
litigation currently pending with respect to any Taxes of the Company or any of
its Subsidiaries; (D) all Taxes due with respect to completed and settled
examinations or concluded litigation relating to the Company or any of its
Subsidiaries have been paid in full or adequate provision has been made for any
such amounts in the financial statements of the Company and its Subsidiaries
(in accordance with GAAP); (E) no extensions or waivers of statutes of
limitations have been given by or requested with respect to any Taxes of the
Company or any of its Subsidiaries; and (F) there are no material liens for
Taxes upon the assets or property of any of the Company or its Subsidiaries
except for statutory liens for current Taxes not yet due.
(ii) As used in this Plan, (A) the term "Tax" or "Taxes" means taxes and
other impost, levies, assessments, duties, fees or charges imposed or required
to be collected by any federal, state, county, local, municipal, territorial or
foreign governmental authority or subdivision thereof, including, without
limitation, income, excise, gross receipts, ad valorem, profits, gains,
property, sales, transfer, use, payroll, employment, severance, withholding,
duties, intangible, franchise, personal property, and other taxes, charges,
levies or like assessments, together with all penalties and additions to tax
and interest thereon, and (B) the term "Tax Return" shall mean any return,
report, information return or other document (including elections,
declarations, disclosures, schedules, estimates, and other returns or
supporting documents) with respect to Taxes.
(k) Absence of Claims; Undisclosed Liabilities.
(i) No litigation, proceeding or controversy before any court or
governmental agency is pending, and there is no pending claim, action or
proceeding against the Company or any of its Subsidiaries, or challenging the
validity or propriety of the transactions contemplated by this Plan or the
Option Agreement, and to the best knowledge of the Company, except as set forth
in Section 3.3 (k)(i) of the Company's Disclosure Letter, no such litigation,
proceeding, controversy, claim or action has been threatened, in each case as
to which there is a reasonable possibility of an adverse determination and
which, if adversely determined, would, individually or in the aggregate have or
be reasonably expected to have a Material Adverse Effect on the Company. There
are no claims (statutory or otherwise), demands, proceedings or other actions
pending or, to the best knowledge of the Company, threatened against the
Company or any of its Subsidiaries by (A) any of their present or former
employees or (B) any person who sought to become employed by the Company or any
of its Subsidiaries.
(ii) Except as set forth in Section 3.3(k)(ii) of the Company Disclosure
Letter, there is no injunction, order, judgment, decree, or regulatory
restriction imposed upon the Company, any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries which has had, or could reasonably be
expected to have, a Material Adverse Effect on the Company.
(iii) Except (A) as set forth in Section 3.3(k)(iii) of the Company's
Disclosure Letter, (B) for those liabilities that are fully reflected or
reserved against on the consolidated statement of financial condition of the
Company as of March 31, 1996 and (C) for liabilities incurred in the ordinary
course of business consistent with past practice since March 31, 1996 that,
either alone or when combined with all similar
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liabilities, have not had, and could not reasonably be expected to have, a
Material Adverse Effect on the Company, neither the Company nor any of its
Subsidiaries has incurred any liabilities of any nature whatsoever (whether
absolute, accrued, contingent or otherwise and whether due or to become due).
(l) Absence of Regulatory Actions. Except as set forth in Section 3.3(l) of
the Company's Disclosure Letter, neither the Company nor any of its
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any
board resolutions at the request of, federal or state governmental authorities
charged with the supervision or regulation of depository institutions or
depositary institution holding companies or engaged in the insurance of bank
and/or savings and loan deposits ("Government Regulators") nor has it been
advised by any Government Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
(m) Agreements.
(i) Except for the Option Agreement, the Company and its Subsidiaries are
not bound by any material contract (as defined in Item 601(b)(10) of
Regulation S-K) to be performed after the date hereof that has not been
filed with, or incorporated by reference in the Company Reports. Except as
disclosed in the Company Reports filed prior to the date of this Plan or in
Section 3.3(m)(i) of the Company's Disclosure Letter, neither the Company
nor any of its Subsidiaries is a party to an oral or written (A) consulting
agreement (including data processing, software programming and licensing
contracts) involving the payment of more than $250,000 per annum, in the
case of any such agreement with an individual, or $250,000 per annum, in
the case of any other such agreement, (B) agreement with any executive
officer or other key employee of the Company or any of its Subsidiaries the
benefits of which are contingent, or the terms of which are materially
altered or any payments or rights are accelerated, upon the occurrence of a
transaction involving the Company or any of its Subsidiaries of the nature
contemplated by this Plan or the Option Agreement and which provides for
the payment of more than $150,000, (C) agreement with respect to any
executive officer of the Company or any of its Subsidiaries providing any
term of employment or compensation guarantee extending for a period longer
than one year and for the payment of more than $100,000 per annum, (D)
agreement or plan, including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Plan or the Option Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Plan or the Option Agreement or (E)
except as set forth in Section 3.3(m)(i)(E) of the Company's Disclosure
Letter, agreement containing covenants that limit the ability of the
Company or any of its Subsidiaries to compete in any line of business or
with any person, or that involve any restriction on the geographic area in
which, or method by which, the Company (including any successor thereof) or
any of its Subsidiaries may carry on its business (other than as may be
required by law or any regulatory agency). Each contract, arrangement,
commitment or understanding with an aggregate annual payment by the Company
or the Bank of $250,000 or more, whether or not set forth in Section
3.3(m)(i) of the Company's Disclosure Letter, is referred to herein as a
"Material Company Contract". The Company has previously delivered to
Acquiror true and correct copies of each Material Company Contract.
(ii) Except as set forth in Section 3(m)(ii) of the Company's Disclosure
Letter, (A) each Material Company Contract is a valid and binding
obligation of the Company or one of its Subsidiaries and is in full force
and effect, (B) the Company and each of its Subsidiaries have in all
material respects performed all obligations required to be performed by it
to date under each Material Company Contract, (C) no event or condition
exists which constitutes or, after notice or lapse of time or both, would
constitute a material default on the part of the Company or any of its
Subsidiaries under any
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such Material Company Contract, except where such default, individually or
in the aggregate, would not have or be reasonably likely to have a Material
Adverse Effect on the Company and (D) no other party to such Material
Company Contract is, to the best knowledge of the Company, in default in
any respect thereunder.
(n) Labor Matters. Neither the Company or any of its Subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization, nor is the
Company or any of its Subsidiaries the subject of any proceeding asserting that
it has committed an unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment, nor, to the best knowledge of the Company, is there any strike,
other labor dispute or organizational effort involving the Company or any of
its Subsidiaries pending or threatened.
(o) Employee Benefit Plans. Section 3.3(o) of the Company Disclosure Letter
contains a complete list of all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance, employment,
termination, severance, medical, health and other benefit plans, contracts,
agreements, arrangements, including, but not limited to, "employee benefit
plans", as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), incentive and welfare policies, contracts,
plans and arrangements and all trust agreements related thereto in respect to
any present or former directors, officers, or other employees of the Company or
any of its Subsidiaries (hereinafter referred to collectively as the "Employee
Plans"). (i) All of the Employee Plans comply in all material respects with all
applicable requirements of ERISA, the Code and other applicable laws; neither
the Company nor any of its Subsidiaries has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to any Employee Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject the Company to a
material tax or penalty imposed by either Section 4975 or 4976 of the Code or
Section 502 of ERISA; and all contributions required to be made under the terms
of any Employee Plan have been timely made or have been reflected on the
balance sheets contained or incorporated by reference in the Reports; (ii) no
liability to the Pension Benefit Guaranty Corporation (the "PBGC") (except for
payment of premiums) has been incurred, and no condition exists that presents a
material risk to the Company or any ERISA Affiliate (as defined below) of
incurring such a liability, with respect to any Employee Plan which is subject
to Title IV of ERISA ("Pension Plan"), or with respect to any "single-employer
plan" (as defined in Section 4001(a)(15) of ERISA) currently or formerly
maintained by the Company or any entity (an "ERISA Affiliate") which is
considered one employer with the Company under Section 4001 of ERISA or Section
414 of the Code (an "ERISA Affiliate Plan"); and no proceedings have been
instituted to terminate any Pension Plan or ERISA Affiliate Plan; (iii) no
Pension Plan or ERISA Affiliate Plan had an "accumulated funding deficiency"
(as defined in Section 302 of ERISA (whether or not waived)) as of the last day
of the end of the most recent plan year ending prior to the date hereof; the
fair market value of the assets of each Pension Plan and ERISA Affiliate Plan
exceeds the present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) under such Pension Plan or ERISA Affiliate Plan as of the
end of the most recent plan year with respect to the respective Pension Plan or
ERISA Affiliate Plan ending prior to the date hereof, calculated on the basis
of the actuarial assumptions used in the most recent actuarial valuation for
such Pension Plan or ERISA Affiliate Plan prior to the date hereof, and there
has been no material change in the financial condition of any such Pension Plan
or ERISA Affiliate Plan since the last day of the most recent plan year; and no
notice of a "reportable event" (as defined in Section 4043 of ERISA) for which
the 30-day reporting requirement has not been waived has been required to be
filed for any Pension Plan or ERISA Affiliate Plan within the 12-month period
ending on the date hereof; (iv) neither the Company nor any ERISA Affiliate has
provided or is required to provide security to any Pension Plan or to any ERISA
Affiliate Plan pursuant to Section 401(a)(29) of the Code; (v) neither the
Company nor any ERISA Affiliate has contributed to any "multiemployer plan", as
defined in Section 3(37) of ERISA, on or after September 26, 1980; (vi) each
Employee Plan which is an "employee pension benefit plan" (as defined in
Section 3(2) of ERISA), and which is intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the
Internal Revenue Service deeming such plan to be so qualified (a "Qualified
Plan"); and no condition exists that is likely to result
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in revocation of any such favorable determination letter; (vii) all Employee
Plans covering current or former non-U.S. employees comply in all material
respects with applicable local law, and there are no material unfunded
liabilities with respect to any Employee Plan which covers such employees;
(viii) there is no pending or threatened material litigation, administrative
action or proceeding relating to any Employee Plan (other than benefit claims
made in the ordinary course); (ix) there has been no announcement or commitment
by the Company or any Subsidiary to create an additional Employee Plan, or to
amend an Employee Plan except for amendments required by applicable law; (x)
the Company and its Subsidiaries do not have any obligations for retiree health
and life benefits under any Employee Plan except as set forth in Section 3.3(o)
of the Company's Disclosure Letter, and there are no such Employee Plans that
cannot be amended or terminated without incurring any liability thereunder;
(xi) except as set forth in Section 3.3(o) of the Company Disclosure Letter,
neither the execution and delivery of this Plan nor the consummation of the
transactions contemplated herein will automatically accelerate, or give the
Company or any Subsidiary the right to accelerate, the time of payment or
vesting, or increase the amount, of compensation due to any employee; (xii)
except as specificially identified in Section 3.3(o) of the Company Disclosure
Letter, and subject to the conditions, limitations and assumptions specified
therein, neither the execution and delivery of this Plan nor the consummation
of the transactions contemplated hereby will result in any payment or series of
payments by the Company or any Subsidiary of the Company to any person which is
an "excess parachute payment" (as defined in Section 280G of the Code) under
any Employee Plan, increase or secure (by way of a trust or other vehicle) any
benefits or compensation payable under any Employee Plan, or accelerate the
time of payment or vesting of any such benefit or compensation, and (xiii) with
respect to each Employee Plan, the Company has supplied to the Acquiror a true
and correct copy, if applicable, of (A) the two most recent annual reports on
the applicable form of the Form 5500 series filed with the Internal Revenue
(the "IRS"), (B) such Employee Plan, including all amendments thereto, (C) each
trust agreement and insurance contract relating to such Employee Plan,
including all amendments thereto and the most recent financial statements
thereof, (D) the most recent summary plan description for such Employee Plan,
including all amendments thereto, if the Employee Plan is subject to Title I of
ERISA, (E) the most recent actuarial report or valuation if such Employee Plan
is a Pension Plan, (F) the most recent determination letter issued by the IRS
if such Employee Plan is a Qualified Plan and (G) the most recent financial
statements and auditor's report relating to each Employee Plan, if applicable.
(p) Title to Assets. The Company and each of its Subsidiaries has good and
marketable title to its material properties and assets (including any
intellectual property asset such as, without limitation, any trademark, service
mark, trade name or copyright) other than (i) as reflected in the Company
Reports, (ii) property as to which it is lessee and (iii) real estate owned as
a result of foreclosure, transfer in lieu of foreclosure or other transfer in
satisfaction of a debtor's obligation previously contracted.
(q) Compliance with Laws. The Company and each of its Subsidiaries:
(i) holds and has at all times held all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted, except where the failure to hold or
make any such permit, license, certificate of authority, order, approval,
filing, application or registration, as applicable, individually or in the
aggregate, would not have or be reasonably likely to have a Material
Adverse Effect on the Company; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect, and, to the
knowledge of the Company, no suspension or cancellation of any of them is
threatened; and
(ii) is in compliance, in the conduct of its business, with all applicable
federal, state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders or decrees applicable thereto or to the employees
conducting such business, including, without limitation, the Equal Credit
Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the
Home Mortgage Disclosure Act, the Americans With Disabilities Act, all
other applicable fair lending laws or other laws relating to discrimination
and the Bank Secrecy Act, except where the failure to be in compliance with
any of the foregoing would not, individually or in the aggregate, have or
be reasonably likely to have Material Adverse Effect on the Company.
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(r) Fees. Other than financial advisory services performed for the Company
by CS First Boston Corporation in an amount and pursuant to an agreement both
previously disclosed to the Acquiror, neither the Company nor any of its
Subsidiaries, nor any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for the Company, its
directors or any Subsidiary of the Company, in connection with the Plan or the
Option Agreement or the transactions contemplated hereby.
(s) Environmental Matters.
(i) Except as set forth in Section 3.3.(s) of the Company Disclosure
Letter, with respect to the Company and each of its Subsidiaries:
(A) Each of the Company and its Subsidiaries and, to the best knowledge
of the Company, the Participation Facilities (as defined below), to the
extent of the Company's or any of its Subsidiaries' direct management of
such Participation Facility, are, and have been, in substantial
compliance with all Environmental Laws (as defined below);
(B) There is no suit, claim, action, demand, executive or
administrative order, directive or proceeding pending or, to the best
knowledge of the Company, threatened, before any court, governmental
agency or board or other forum against it or any of its Subsidiaries or,
to the best knowledge of the Company, any Participation Facility
relating to the Company's or any of its Subsidiaries' direct management
of such Participation Facility (x) for alleged noncompliance with, or
liability under, any Environmental Law or (y) relating to the presence
of or release into the environment of any Hazardous Material (as defined
below), whether or not occurring at or on a site owned, leased or
operated by it or any of its Subsidiaries;
(C) To the best knowledge of the Company, the properties currently or
formerly owned or operated by the Company or any of its Subsidiaries
(including, without limitation, soil, groundwater or surface water on or
under the properties, and buildings thereon) are not and were not
contaminated with any Hazardous Material (as defined below) that would
reasonably be expected to give rise to a Material Adverse Effect on the
Company;
(D) None of it or any of its Subsidiaries has received any notice,
demand letter, executive or administrative order, directive or request
for information from any Federal, state, local or foreign Governmental
Entity or any third party indicating that it may be in violation of, or
liable under any Environmental Law.
(ii) The following definitions apply for purposes of this Section 3.3(s):
(x) "Participation Facility" means any facility in which the applicable party
(or a Subsidiary of it) participates in the management (including all property
held as trustee or in any other fiduciary capacity) and, where required by the
context, includes the owner or operator of such property; (y) "Environmental
Law" means (i) any federal, state or local law, statute, ordinance, rule,
regulation, code, license, permit, authorization, approval, consent, order,
directive, executive or administrative order, judgment, decree, injunction,
requirement or agreement with any Governmental Entity, (A) relating to the
protection, preservation or restoration of the environment (which includes,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, structures, soil, surface land, subsurface land, plant and animal
life or any other natural resource), or to human health or safety, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended. The term "Environmental Law"
includes, without limitation, the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the federal Water Pollution Control Act of 1972,
the federal Clean Air Act, the federal Clean Water Act, the federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Disposal Amendments thereto), the federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational
Safety and Health Act of 1970, the Federal Hazardous Materials Transportation
Act (including, without limitation, injunctive relief and tort doctrines such
as negligence, nuisance,
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trespass and strict liability) that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Material; and (z) "Hazardous Material" means any
substance in any concentration which is or could be detrimental to human health
or safety or to the environment, currently or hereafter listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any substance containing any such substance as a component.
Hazardous Material includes, without limitation, any toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste, industrial substance, oil or petroleum or any derivative or by-product
thereof, radon, radioactive material, asbestos, asbestos-containing material,
urea formaldehyde foam insulation, lead and polychlorinated biphenyl.
(t) Classified Loans. The Company has identified to Acquiror in writing
prior to the date hereof all non-residential loans, leases, advances, credit
enhancements, other extensions of credit, commitments and interest bearing
assets of the Company and its Subsidiaries with a current contractual balance
in excess of $500,000 (with respect to commercial loans) and $750,000 (with
respect to multi-family loans) that, as of June 30, 1996 have been criticized
or classified by it or any bank examiner as "Other Loans Specially Mentioned",
"Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans" or words of similar
import. The company and its subsidiaries shall, promptly after the end of any
quarter following the date of this Plan, inform the Acquiror of any commercial
or multifamily loan of the Company or any of its Subsidiaries with a current
contractual balance amount in excess of $500,000 or $750,000, respectively,
that becomes classified or criticized in a manner described in the previous
sentence or any non-residential loan disclosed to Acquiror pursuant to the
previous sentence the categorization of which shall have changed, and also
shall provide Acquiror with a quarterly schedule or report indicating, by
category, the aggregate amounts of all loans of the Company and its
subsidiaries so classified or criticized.
(u) Delaware Takeover Laws Inapplicable. The Board of Directors of the
Company has taken all actions required to be taken by it to provide that this
Plan and any amendment or revision thereto, and the transactions contemplated
hereby or thereby, shall be exempt from the requirements of Section 203 of the
State Corporation Law.
(v) Material Interests of Certain Persons. Except as disclosed in the
Company's Proxy Statement for its 1996 Annual Meeting of Stockholders, no
officer or director of the Company or any Subsidiary of the Company, or any
"associate" (as such term is defined in Rule 12b-2 under the Exchange Act) of
any such officer or director, has any material interest in any material
contract or property (whether real or personal, tangible or intangible) used in
or pertaining to the business of the Company or any of its Subsidiaries.
(w) Insurance. The Company and its Subsidiaries are presently insured, and
since December 31, 1993 have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business would, in accordance with prudent
banking practice, customarily be insured. All of the insurance policies and
bonds maintained by the Company and its Subsidiaries are in full force and
effect, the Company and its Subsidiaries are not in default thereunder and all
material claims thereunder have been filed in due and timely fashion. No claim
by the Company or any of its Subsidiaries on or in respect of an insurance
policy or bond has been declined or refused by the relevant insurer or
insurers. Between the date hereof and the Effective Time, the Company and its
Subsidiaries will use commercially reasonable efforts to maintain the levels of
insurance coverage in effect on the date hereof.
(x) Books and Records. The books and records of the Company and its
Subsidiaries have been, and are being, maintained in accordance with GAAP and
all applicable legal and accounting requirements.
(y) Corporate Documents. The Company has delivered to the Acquiror true and
complete copies of (i) its certificate of incorporation and by-laws and (ii)
the charter, by-laws or other similar governing documents of each of its
Subsidiaries, as each of them is in effect on the date hereof.
(z) Board Action. The Boards of Directors of each of the Company and the
Bank (at meetings duly called and held) have by the requisite vote of all
directors present (i) determined that the Merger is
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advisable and (ii) approved this Plan, the Merger and (in the case of the
Company's Board of Directors) the Option Agreement and the transactions
contemplated hereby and thereby, and at its respective meeting, the Board of
Directors of the Company has further determined that the Merger is in the best
interests of the Company and its stockholders and has directed that, subject to
the provisions of applicable law, this Plan be submitted for consideration by
the Company's stockholders at a meeting of such stockholders.
(aa) Indemnification. Except as set forth in Section 3.3 (aa) of the
Disclosure Letter, neither the Company nor any of its Subsidiaries is a party
to any indemnification agreement with any of its present or future directors,
officers, employees, agents or other persons who serve or served in any other
capacity with any other enterprise at the request of the Company (a "Covered
Person"), and to the best knowledge of the Company, there are no claims for
which any Covered Person would be entitled to indemnification under Section 4.7
if such provisions were deemed to be in effect.
Loans. Each loan, other than any commercial or other loan the principal
amount of which does not exceed $500,000 or $750,000, respectively, reflected
as an asset on the consolidated statement of financial condition of the Company
and its Subsidiaries as of March 31, 1996, and as of each date subsequent
thereto for which the Company shall have delivered financial statements to the
Acquiror pursuant to Section 4.17 hereof, (i) is evidenced by notes, agreements
or other evidences of indebtedness which are true and genuine, except where the
failure of any such loan to be so evidenced, either individually or in the
aggregate, would not have or be reasonably likely to have a Material Adverse
Effect on the Company, and (ii) is the legal, valid and binding obligation of
the obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. All such loans and extensions of credit that have been made by the
Bank and that are subject to Section 11 of HOLA comply therewith. Section
3.3(bb) of the Company's Disclosure Letter includes (i) a listing of all such
loans referred to in the first sentence of this Section 3.3(bb) the principal
of which is past due or will become due within six months or less of June 30,
1996 and (ii) a listing of each loan, commitment or other borrowing management
with any director, executive officer or ten percent stockholder of the Company
or any of its Subsidiaries, or any person, corporation or enterprise
controlling, controlled by or under common control with any of the foregoing.
(cc) Derivatives Contracts; Structured Notes; Etc. Except as set forth in
Section 3.3 (cc) of the Company's Disclosure Letter, neither the Company nor
any of its Subsidiaries is a party to or has agreed to enter into an exchange
traded or over-the-counter equity, interest rate, foreign exchange or other
swap, forward, future, option, cap, floor or collar or any other contract that
is not included on the balance sheet and is a derivative contract (including
various combinations thereof) (each a "Derivative Contract") or owns securities
that (l) are referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate mortgage
derivatives" or (2) are likely to have changes in value as a result of interest
or exchange rate changes that significantly exceed normal changes in value
attributable to interest or exchange rate changes, except for those Derivatives
Contracts and other instruments legally purchased or entered into in the
ordinary course of business, consistent with safe and sound banking practices
and regulatory guidance, and listed (as of the date hereof) in paragraph
3.3(cc) of its Disclosure Letter or disclosed in the Company Reports filed on
or prior to the date hereof. All of such Derivative Contracts or other
instruments are legal, valid and binding obligations of the Company or one of
its Subsidiaries enforceable in accordance with their terms (except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar
laws affecting creditors' rights and remedies generally), and are in full force
and effect. The Company and each of its Subsidiaries have duly performed in all
material respects all of their material obligations thereunder to the extent
that such obligations to perform have accrued; and, to the Company's knowledge,
there are no breaches, violations or defaults or allegations or assertions of
such by any party thereunder which would have or would reasonably be expected
to have a Material Adverse Effect on the Company.
(dd) Rights Agreement. The Company has taken all action (including, if
required, redeeming all of the outstanding Purchase Rights issued pursuant
to the Rights Agreement or amending or
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terminating the Rights Agreement) necessary to ensure that (i) the
execution and delivery of this Plan and the Option Agreement and the
consummation of the transactions contemplated hereby and thereby do not and
will not result in the grant of any rights to any person under the Rights
Agreement or enable or require the Purchase Rights to be exercised,
distributed or triggered, and (ii) except as disclosed in Section 3.3(dd)
of the Company's Disclosure Letter, the consummation of the Merger will
result in the expiration of the Purchase Rights.
SECTION 3.4. Representations and Warranties of the Acquiror. The Acauiror
represents and warrants to the Company that:
(a) Recitals True. The facts set forth in the Recitals of this Plan with
respect to the Acquiror and Merger Sub are true and correct in all
material respects.
(b) Corporate Qualification. Each of the Acquiror and the Merger Sub is in
good standing in its jurisdiction of organization and as a foreign
corporation in each jurisdiction where the properties owned, leased or
operated or the business conducted by it requires such qualification. Each
of the Acquiror and Merger Sub has the requisite corporate power and
authority (including all federal, state, local and foreign government
authorizations) to carry on its respective businesses as they are now being
conducted and to own its respective properties and assets.
(c) Corporate Authority.
(i) The Acquiror has the requisite corporate power and authority to
execute and deliver this Plan and, subject to the receipt of all
required regulatory approvals, consents or nonobjections, as the case
may be, to consummate the transactions contemplated hereby. The
execution and delivery of this Plan and consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporate action of the Acquiror. This Plan has been duly and
validly executed and delivered by the Acquiror and (assuming due
authorization, execution and delivery by the Company) this Plan
constitutes a valid and binding agreement of the Acquiror, enforceable
against it in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affection
creditors' rights and to general equity principles.
(ii) Merger Sub has the requisite corporate power and authority to
execute and deliver this Plan and, subject to the receipt of all
required regulatory approvals, consents or nonobjections, as the case
may be, to consummate the transactions contemplated hereby. The
execution and delivery of this Plan and consummation of the transactions
contemplated hereby have been duly and validly authorized by all
necessary corporation action of Merger Sub and of the Acquiror as sole
stockholder of Merger Sub. This Plan has been duly and validly executed
and delivered by Merger Sub and (assuming due authorization, execution
and delivery by the Company) this Plan constitutes a valid and binding
agreement of Merger Sub, enforceable against it in accordance with its
terms, subject as to enforcement to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles.
(d) No Violations. The execution, delivery and performance of this Plan by
each of the Acquiror and Merger Sub do not, and the consummation of the
transactions contemplated hereby by the Acquiror and Merger Sub will not,
constitute (i) a breach or violation of, or a default under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of the Acquiror or any
Subsidiary of the Acquiror, or to which the Acquiror or any of its
Subsidiaries (or any of their respective properties) is subject, or enable
any person to enjoin the Merger, the Bank Merger or the other transactions
contemplated hereby and thereby, (ii) a breach or violation of, or a
default under, the certificate of incorporation or by-laws or similar
organizational documents of the Acquiror or any of its Subsidiaries or
(iii) a material breach or violation of, or a material default under (or an
event which with due notice or lapse of time or both would constitute a
material default under), or result in the termination of, accelerate the
performance required by, or result in the creation of any lien, pledge,
security interest, charge or other
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encumbrance upon any of the properties or assets of the Acquiror or any of
its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, indenture, deed of trust, loan agreement or the agreement,
instrument or obligation to which the Acquiror or any of its Subsidiaries
is a party, or to which any of their respective properties or assets may be
bound or affected.
(e) Consents and Approvals. Except for (A) the filing of an application
with the OTS and approval of such application, (B) the filing with the SEC
of the Proxy Statement, (C) the filing of the Certificate of Merger, (D)
the filings required in connection with the Bank Merger, and (E) the
consents and approvals set forth on Section 3.4(e) of the Acquiror's
Disclosure Letter, no consents or approvals of or filings or registrations
with any Governmental Entity or with any third party are necessary in
connection with the execution and delivery by the Acquiror and Merger Sub
of this Plan and the consummation by the Acquiror and Merger Sub of the
Merger and the other transactions contemplated hereby or the execution and
delivery by Acquiror of the Option Agreement and the consummation by the
Acquiror of the transactions contemplated thereby, and Acquiror knows of no
reason why the Requisite Regulatory Approvals (as defined in Section
5.1(b)) should not be obtained.
(f) Access to Funds. The Acquiror has, or on the Closing Date will have,
all funds necessary to consummate the Merger and pay the aggregate cash
portion of the Merger Consideration.
(g) Board Action. The Board of Directors of the Acquiror, by the requisite
vote, has (i) determined that the Merger is advisable and in the best
interests of the Acquiror and its stockholders and (ii) approved this Plan,
the Merger and the Option Agreement and the transactions contemplated
hereby and thereby.
ARTICLE IV. COVENANTS
SECTION 4.1. Acquisition Proposals. The Company agrees that neither it nor
any of its Subsidiaries shall authorize or permit any of its officers,
directors, employees, agents or representatives (including, without limitation,
any investment banker, attorney or accountant retained by it or any of its
Subsidiaries) to directly or indirectly, initiate, solicit, encourage or
otherwise facilitate any inquiries or the making of any proposal offer
(including, without limitation, any proposal, tender offer or exchange offer to
stockholders of the Company) with respect to a merger, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets, deposits or any equity securities of, the Company or any of its
Subsidiaries (any such proposal or offer being hereinafter referred to as an
"Acquisition Proposal") or, except to the extent legally required for the
discharge by the Company's board of directors of its fiduciary duties as
advised by such board's counsel with respect to an unsolicited offer from a
third party, engage in any negotiations concerning or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisiton Proposal. The Company will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties (other than the Acquiror) conducted heretofore with respect to any of
the foregoing. The Company will take the necessary steps to inform promptly the
appropriate individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 4.1. The Company agrees that it will
notify the Acquiror immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such negotiations
or discussions are sought to be initiated or continued with the Company or any
of its Subsidiaries, and the Company shall promptly thereafter provide the
details of any such communication to the Acquiror in writing. The Company also
agrees that it promptly shall request each other person (other than the
Acquiror) that has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring the Company or any of its
Subsidiaries to return all confidential information heretofore furnished to
such person by or on behalf of the Company or any of its Subsidiaries and
enforce any such confidentiality agreements.
SECTION 4.2. Certain Policies of the Company. At the request of the
Acquiror, after the date on which all required federal depository institution
regulatory approvals are received and prior to the Effective Time, the Company
shall (i) to the extent consistent with GAAP and regulatory accounting
principles and requirements, in each case as applied to financial institutions
and not objected to by the
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Company's independent certified public accountants, modify its loan, litigation
and real estate valuation policies and practices (including modifying its loan
classifications and levels of reserves and establishing specific reserves on
loans and REO properties) and its other accounting methods or periods so as to
be consistent with those of the Acquiror, (ii) pay or accrue certain expenses,
(iii) dispose of certain assets, and (iv) take any other action as Acquiror may
reasonably request in order to facilitate and effect the transfer of
contractual and other rights to Acquiror and the integration of the businesses
and operations of the Company and Acquiror; provided, however, that the Company
shall not be required to take such action unless (A) the Acquiror agrees in
writing that all conditions to the Acquiror's obligation to consummate the
Merger set forth in Article V hereof (other than the expiration of the 30-day
statutory waiting period following approval of the Merger by the OTS) have been
satisfied or waived, (B) the Company shall have received a written, irrevocable
waiver by the Acquiror of its rights to terminate this Agreement, (C) all of
the conditions to the Company's obligation to consummate the Merger (other than
the statutory waiting period described above) shall have been satisfied, and
(D) Acquiror shall have delivered to the Company documentary evidence
reasonably satisfactory to the Company certifying that Acquiror has sufficient
cash to pay the aggregate Merger Consideration. The Company's representations,
warranties and covenants contained in this Plan shall not be deemed to be
untrue or breached in any respect for any purpose as a consequence of any
modifications or changes undertaken solely on account of this Section 4.2.
Nothing contained herein shall be deemed to relieve the Company of its
obligation to deliver the documents referred to in Section 5.2 hereof on the
Effective Date.
SECTION 4.3. Employees. Incorporated herein by this reference are the terms
of that certain letter of even date herewith from Acquiror to the Company (the
"Benefits Letter"), and in the event of any conflict between the provisions of
this Agreement and the terms of the Benefits Letter, the terms of the Benefits
Letter shall be controlling.
SECTION 4.4. Access and Information. Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of the Acquiror access, during
normal business hours during the time period from the date of this Agreement to
the Effective Time, to all its properties, books, contracts, commitments,
records, officers, employees, accountants, counsel and other representatives
and, during such period, the Company shall, and shall cause its Subsidiaries
to, make available to the Acquiror (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws or federal or
state banking laws (other than reports or documents which the Company is not
permitted to disclose under applicable law), and (ii) all other information
concerning its business, properties and personnel as the Acquiror may
reasonably request. Neither the Company nor any of its Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of the Company's customers,
jeopardize any attorney-client privilege or contravene any law, rule,
regulations, order, judgment, decree, fiduciary duty or binding agreement
entered into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. The Acquiror will hold all such
information in confidence in accordance with the provisions of the
confidentiality agreement, date July 1, 1996, between the Acquiror and the
Company (the "Confidentiality Agreement"). No investigation by Acquiror or its
representatives shall affect the representations, warranties, covenants or
agreements of the Company set forth herein.
SECTION 4.5. Regulatory Matters. (a) The parties hereto shall cooperate with
each other and use their reasonable efforts to promptly prepare and file all
necessary documentation, to effect all applications, notices, petitions and
filings, and to obtain as promptly as practicable all permits, consents,
approvals and authorizations of all third parties and governmental authorities
which are necessary or advisable to consummate the transactions contemplated by
this Plan. The Company and the Acquiror shall have the right to review in
advance, and to the extent practicable each will consult the other on, in each
case subject to applicable laws relating to the exchange of information, all
the information relating to the Company or the Acquiror, as the case may be,
and any of their respective Subsidiaries, which appear in any filing made with,
or written materials submitted to, any third party or any governmental
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authority in connection with the transactions contemplated by this Plan. In
exercising the foregoing right, each of the parties hereto shall act reasonably
and as promptly as practicable. The parties hereto agree that they will consult
with each other with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and governmental authorities
necessary or advisable to consummate the transactions contemplated by this Plan
and each party will keep the other apprised of the status of matters relating
to completion of the transactions contemplated herein.
(b) The Acquiror and the Company shall, upon request, furnish each other
with all information concerning themselves, their Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with the Proxy Statement or any other statement,
filing, notice or application made by or on behalf of the Acquiror, the Company
or any of their respective Subsidiaries to any governmental authority in
connection with the Merger and the other transactions contemplated by this
Plan.
(c) The Acquiror and the Company shall promptly furnish each other with
copies of written communications received by the Acquiror or the Company, as
the case may be, or any of their respective Subsidiaries, affiliates or
associates (as such terms are defined in Rule 12b-2 under the Exchange Act as
in effect on the date of this Plan) from, or delivered by any of the foregoing
to, any governmental authority in respect of the transactions contemplated
hereby.
SECTION 4.6. Antitakeover Statutes. The Company shall take all steps
necessary to exempt this Plan and the Option Agreement and the transactions
contemplated hereby and thereby from the requirements of any state antitakeover
law including, without limitations, Section 203 of the State Corporation Law,
by action of its board of directors or otherwise.
SECTION 4.7. Indemnification; Directors' and Officers' Insurance. (a) In the
event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Plan, or who becomes prior to the Effective Time, a director
or officer of the Company or any of its Subsidiaries (the "Indemnified
Parties") is, or is threatened to be, made a party based in whole or in part
on, or arising in whole or in part out of, or pertaining to (i) the fact that
he is or was a director, officer, or employee of the Company, any of the
Subsidiaries of the Company or any of their respective predecessors or (ii)
this Plan, the Option Agreement, or any of the transactions contemplated hereby
or thereby, including, without limitation, any actions taken in accordance with
Sections 4.2 or 4.19, whether in any case asserted or arising before or after
the Effective Time (collectively, the "Matters"), the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto.
From and after the Effective Time, through the sixth anniversary of the
Effective Date, the Acquiror agrees to indemnify and hold harmless each
Indemnified Party, against any costs or expenses (including reasonable
attorneys' fees and expenses in advance of the final disposition of any claim,
action, suit, proceeding or investigation to each Indemnified Party to the
fullest extent permitted by law upon receipt of any undertaking rerquired by
applicable law), judgments, fines, losses, claims, damages or liabilities and
amounts paid in settlement (collectively, "Costs") incurred in connection with
any threatened or actual claim, action, suite, proceeding or investigation,
whether civil, criminal, administrative or investigative, arising out of any of
the Matters, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted by applicable law. The Acquiror agrees
that it will also indemnify for a period of six years from the Effective Date
in accordance with and subject to the terms and provisions of this Section
4.7(a) and Section 4.7(b), the advisors of the Company solely for Claims
arising out of actions taken by them in accordance with Section 4.2 or 4.19 of
this Plan. Notwithstanding anything to the contrary contained herein, all
rights to indemnification in respect of any claim (a "Claim") asserted or made
within such six year period shall continue until the final disposition of such
Claim.
(b) An Indemnified Party wishing to claim indemnification under Section
4.7(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Acquiror thereof, but the failure to
so notify shall not relieve the Acquiror of any liability it may have to such
Indemnified Party except to the extent such failure to notify materially
prejudices the indemnifying party. In the event of any
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such claim, action, suit, proceeding or investigation (whether arising before
or after the Effective Time), the Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with the Acquiror; provided,
however, that (i) the Acquiror shall have the right to assume the defense
thereof and upon such assumption the Acquiror shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if the Acquiror elects not to assume such
defense or counsel for the Indemnified Parties advises that there are issues
which raise conflicts of interest between the Acquiror and the Indemnified
parties, the Indemnified Parties may retain counsel satisfactory to them, and
the Acquiror shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such matter and (iii) the Acquiror shall not be
liable for any settlement effected without its prior written consent which
consent shall not be unreasonably withheld; and provided further, that the
Acquiror shall not have any obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) Prior to the Effective Time the Company shall purchase, and for a period
of six years after the Effective Time, Acquiror shall use its commercially
reasonable efforts to maintain, directors and officers liability insurance
"tail" or "runoff" coverage with respect to wrongful acts and/or omissions
committed or allegedly committed prior to the Effective Time. Such coverage
shall have an aggregate coverage limit over the term of such policy in an
amount no less than the annual aggregate coverage limit under the Company's
existing directors and officers liability policy, and in all other respects
shall be at least comparable to such existing policy.
(d) In the event Acquiror or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of the
Acquiror assume the obligations set forth in this Section 4.7.
(e) The provisions of this Section 4.7 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs
and representatives.
SECTION 4.8. Actions. Subject to the terms and conditions herein provided,
each of the parties hereto agrees to use its reasonable efforts to take
promptly, or cause to be taken promptly, all actions and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Plan as soon as practicable, including using
efforts to obtain all necessary actions or non-actions, extensions, waivers,
consents and approvals from all applicable governmental entities, effecting all
necessary registrations, applications and filings (including, without
limitation, filings under any applicable state securities laws) and obtaining
any required contractual consents and regulatory approvals.
SECTION 4.9. Publicity. The initial press release announcing this Plan shall
be a joint press release, and thereafter, subject to the provisions of
applicable law and the rules of the New York Stock Exchange, the Company and
the Acquiror shall consult with each other prior to issuing any press releases
or otherwise making any statements, public or otherwise, with respect to the
other or the transactions contemplated hereby and in making any filings with
any governmental entity or with any national securities exchange with respect
thereto.
SECTION 4.10. Proxy Statement. Promptly, but in any event no later than 60
days following the date hereof, the Company shall prepare and file with the SEC
the Proxy Statement. Thereafter, the Company shall respond to the comments of
the staff of the SEC promptly following receipt thereof, and promptly
thereafter shall mail the Proxy Statement to all holders of record (as of the
applicable record date) of shares of Company Common Stock. The Company
represents and covenants that the Proxy Statement and any amendment or
supplement thereto, at the date of mailing to stockholders of the Company and
the date of the meeting of the Company's stockholders to be held in connection
with the Merger, will be in compliance with all relevant rules and regulations
of the SEC and will not contain any untrue statement
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of a material fact or omit to state any material fact required to be stated or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Acquiror and the
Company shall cooperate with each other in the preparation of the Proxy
Statement. If requested by the Acquiror, the Company shall employ professional
proxy solicitors to assist it in contacting stockholders in connection with the
vote on the Merger.
SECTION 4.11. Stockholders' Meeting. The Company shall take all action
necessary, in accordance with applicable law and its articles of incorporation
and by-laws, to convene a meeting of the holders of Company Common Stock as
promptly as practicable for the purpose of considering and taking action
required by this Plan. Except to the extent legally required for the discharge
by the board of directors of its fiduciary duties as advised by such board's
counsel, the board of directors of the Company shall recommend that the holders
of the Company Common Stock vote in favor of and approve the Merger and adopt
this Plan.
SECTION 4.12. Notification of Certain Matters. The Company shall give prompt
notice to the Acquiror of: (a) any notice of, or other communication relating
to, a default or event that, with notice or lapse of time or both, would become
a default, received by it or any of its Subsidiaries subsequent to the date of
this Plan and prior to the Effective Time, under any contract material to the
financial condition, properties, businesses or results of operations of the
Company and its Subsidiaries taken as a whole to which the Company or any such
Subsidiary is a party or is subject; and (b) any material adverse change in the
financial condition, properties, business or results of operations of the
Company and its Subsidiaries taken as a whole or the occurrence of any event
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in any such change. Each of the Company and the
Acquiror shall, and the Acquiror shall cause Merger Sub, when duly
incorporated, to, give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Plan. Acquiror shall give prompt notice to the Company of the occurrence
or non-occurrence of any event which would or (so far as reasonably can be
foreseen at the time of such occurrence or non-occurrence) is reasonably likely
to, prevent Acquiror from obtaining the funds necessary to consummate the
Merger and pay the aggregate Merger Consideration; provided, however, that the
delivery of any notice pursuant to this sentence shall not limit or otherwise
affect the remedies available hereunder or otherwise to the Company.
SECTION 4.13. Rights Agreement. The Company shall take all action necessary
to ensure that this Plan and the Option Agreement and the transactions
contemplated hereby and thereby do not and will not result in the grant of any
rights to any person under the Rights Agreement or enable or require the
Purchase Rights to be exercised, distributed or triggered.
SECTION 4.14. [INTENTIONALLY OMITTED]
SECTION 4.15. Advice of Changes. The Company shall promptly advise the
Acquiror of any change or event having a Material Adverse Effect on the Company
and each party shall promptly advise the other of any change or event which
such party believes would or would be reasonably likely to cause or constitute
a material breach of any of its representations, warranties or covenants
contained herein. From time to time prior to the Effective Time (and on the
date prior to the Effective Date), the Company will promptly supplement or
amend the Disclosure Letter delivered to the Acquiror in connection with the
execution of this Plan to reflect any matter which, if existing, occurring or
known at the date of this Plan, would have been required to be set forth or
described in such Disclosure Letter or which is necessary to correct any
information in such Disclosure Letter which has been rendered inaccurate
thereby. No supplement or amendment to such Disclosure Letter shall have any
effect for the purpose of determining satisfaction of the conditions set forth
in Section 5.2(b), hereof, or the compliance by the Company with the covenants
and agreements made by it herein.
SECTION 4.16. Current Information. During the period from the date of this
Plan to the Effective Time, the Company will make available one or more of its
designated representatives to confer on a regular and frequent basis (not less
than monthly) with representatives of the Acquiror and to report the general
status of the ongoing operations of the Company and its Subsidiaries. The
Company will promptly
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notify the Acquiror of any material change in the normal course of business or
in the operation of the properties of the Company or any of its Subsidiaries
and of any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the
institution or the credible threat of significant litigation involving the
Company or any of its Subsidiaries, and will keep the Acquiror fully informed
of such events.
SECTION 4.17. Subsequent Interim and Annual Financial Statements. As soon as
reasonably available, but in no event more than 45 days after the end of each
fiscal quarter ending after the date of this Plan, the Company will deliver to
the Acquiror its Quarterly Report on Form 10-Q as filed with the SEC under the
Exchange Act. As soon as reasonably available, but in no event later than March
31, 1997, the Company will deliver to Acquiror its Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, as filed with the SEC under the
Exchange Act.
SECTION 4.18. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Plan, or to vest the Surviving Corporation or the Bank with full title to
all properties, assets, rights, approvals, immunities and franchises of any of
the parties to the Merger or the Bank Merger, respectively, the proper officers
and directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by, and at
the sole expense of, the Acquiror.
SECTION 4.19. Cooperation in Financings. The Company agrees to cooperate
with, and provide reasonable assistance to, Acquiror, at Acquiror's expense, in
connection with any sale or distribution of securities (whether registered or
otherwise) made by Acquiror or any of its affiliates in connection with the
consummation of the transactions contemplated hereby including, without
limitation, using its reasonable best effects to (i) making available on a
timely basis such financial information of the Company and its Subsidiaries as
may reasonably be required in connection with any such sale or distribution;
(ii) obtaining "cold comfort" letters and updates thereof from the Company's
independent certified public accountants and opinion letters from the Company's
attorneys, with such letter to be in customary form and to cover matters of the
type customarily covered by accountants and attorneys in such transactions; and
(iii) making available representatives of the Company and its accountants and
attorneys in connection with any such sale or distribution, including for
purposes of due diligence and marketing efforts related thereto.
SECTION 4.20. Goodwill Litigation. Following the Effective Time, the
Acquiror shall and shall cause the Bank (and, subject to clause (iii) hereof,
any permitted successor to the Bank), as applicable, to (i) take all actions
necessary or desirable to pursue the Bank's claims in the Goodwill Litigation,
(ii) file with applicable regulatory agencies such periodic and other reports
as are necessary to furnish and update information to holders of the
Participation Interests or Secondary Participation Interests, (iii) refrain
from taking any action that would violate the requirements of 31 U.S.C. Section
3727, including, without limitation, any action that would cause an
"assignment" (as defined therein) of the claims to the Goodwill Litigation, and
(iv) refrain from taking any action to dismiss, settle, compromise or otherwise
cease prosecution of Goodwill Litigation on terms that do not result solely in
the payment of cash or other readily monetizable consideration by or on behalf
of the United States to the Bank.
SECTION 4.21. Litigation Recovery. As soon as practicable after the receipt
of any payment from the United States in settlement of or in satisfaction of a
final judgment obtained in the Goodwill Litigation, the Acquiror shall cause
the Bank to distribute the applicable portion of such payment in a manner
consistent with the terms of the certificates governing the rights of the
holders of Participation Interests (a copy of which is attached hereto as Annex
4.21(a)) and the certificates governing the rights of the holders of the
Secondary Participation Interests (which will be issued substantially in the
form of the certificate attached hereto as Annex 4.21(b)).
SECTION 4.22. Registration Statement. Promptly, but in any event no later
than 60 days following the date hereof, the Bank shall prepare and file with
the OTS a registration statement covering the issuance and distribution of the
Secondary Participation Interests (the "Registration Statement"). Thereafter,
the Bank shall respond to the comments of the staff of the OTS promptly
following receipt thereof, and shall use its best efforts to have the
Registration Statement declared effective as soon as
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possible. The Bank represents and covenants that the Registration Statement any
amendment or supplement thereto, at the date of filing thereof, will be in
compliance with all relevant rules and regulations of the OTS and will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Acquiror shall cooperate with the Bank in the preparation of the
Registration Statement and shall have the right to review the Registration
Statement and to provide comments thereon prior to the Bank's filing of the
Registration Statement or any amendment thereto with the OTS.
SECTION 4.23. XCF Acceptance Corporation. Prior to the Effective Time, the
Company and the Bank shall, and shall cause XCF Acceptance Corporation ("XCF")
to use its best efforts to take all such actions as Acquiror may reasonably
request to ensure that after the Effective Date the 6 1/2% Subordinated Notes
are convertible solely into the Merger Consideration.
SECTION 4.24. First Citizens Bank Agreement. Promptly following the date of
this Plan, the Company shall, pursuant to its rights under the Agreement and
Plan of Merger, dated as of April 14, 1996, between the Company and First
Citizens Bank, restructure the acquisition by the Company of First Citizens
Bank as a branch purchase transaction, and take all other action necessary to
consummate such acquisition as restructured, including the amendment and/or
withdrawal, as applicable, of its pending applications with the Federal Reserve
Board and the Banking Department of the State of California with respect to
such transaction as previously structured.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. Conditions to Each Party's Obligations. The respective
obligations of the Acquiror, Merger Sub (when duly incorporated) and the
Company to effect the Merger shall be subject to the satisfaction prior to the
Effective Time of the following conditions:
(a) This Plan and Merger shall have been approved by the requisite vote of
the stockholders of the Company in accordance with applicable law.
(b) All regulatory approvals, consents and waivers required to consummate
the transactions contemplated by this Plan (including without limitation
the Merger, the Bank Merger and the registration, issuance and distribution
of the Secondary Participation Interests) shall have been obtained and
shall remain in full force and effect, and all applicable statutory waiting
periods in respect thereof shall have expired (all such approvals and the
expirations of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals").
(c) No party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger, the Bank Merger or any other transaction
contemplated by this Plan, and no litigation or proceeding shall be pending
against the
Acquiror or the Company or any of their Subsidiaries brought by any
Governmental Entity seeking to prevent consummation of the transaction
contemplated hereby.
(d) No stature, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated, interpreted, applied or enforced by any
Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger, the Bank Merger or any other transaction
contemplated by this Plan.
SECTION 5.2. Conditions to the Obligations of the Acquiror. The obligations
of the Acquiror and, when duly incorporated, Merger Sub to effect the Merger
shall be subject to the satisfaction or waiver prior to the Effective Time of
the following additional conditions:
(a) The Acquiror shall have received from KPMG Peat Marwick LLP, the
Company's independent certified public accountants, "comfort" letters,
dated (i) the date of the mailing of the Proxy Statement to the Company's
stockholders and (ii) shortly prior to the Effective Date, with respect to
certain financial information regarding the Company in the form customarily
issued by such accountants at such time in connection with transactions of
this type.
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(b) (i) The representations and warranties of the Company set forth in
Sections 3.3(a), 3.3(b), 3.3(e), 3.3(g), 3.3(l), 3.3(u), 3.3(x), 3.3(z) and
3.3(dd) of this Plan shall be true and correct in all respects as of the
date of this Plan and (except to the extent such representations and
warranties speak as of an earlier date and except to the extent modified by
actions taken in compliance with this Plan) as of the Effective Date as
though made on and as of the Effective Date and (ii) the representations
and warranties of the Company set forth in this Plan other than those
specifically enumerated in clause (i) hereof shall be true and correct in
all respects as of the date of this Plan and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Effective Date as though made on and as of the Effective Date; provided,
however, that for purposes of determining the satisfaction of the condition
contained in this clause (ii), no effect shall be given to any exception in
such representations and warranties relating to the best knowledge of the
Company, materially or a Material Adverse Effect, and provided further,
however, that, for purposes of this clause (ii), such representations and
warranties shall be deemed to be true and correct in all material respects
unless the failure or failures of such representations and warranties to be
so true and correct, individually or in the aggregate, results or would
reasonably be expected to result in a Material Adverse Effect on the
Company. The Acquiror shall have received a certificate signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer
of the Company, dated the Effective Date, to the foregoing effect.
(c) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior
to the Effective Date, and the Acquiror shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer and the
co-Principal Financial Officers of the Company, dated the Effective Date,
to the foregoing effect.
(d) The Acquiror shall have received an opinion, dated the Effective Date,
from each of Irell & Manella LLP, counsel to the Company, and Vedder,
Price, Kaufman & Kammholz, special counsel to the Company, covering the
matters set forth on Annex 2 and Annex 3, respectively, and containing in
each case, such customary assumptions, qualifications and limitations as
are reasonably acceptable to the Acquiror. As to any matter in such
opinions which involves matters of fact or matters relating to laws other
than the law of the State of California, the General Corporation Law of the
State of Delaware or federal securities or banking law, such counsel may
rely upon the certificates of officers and directors of the Company and of
public officials (as to matters of fact) and opinions of local counsel (as
to matters of law), reasonably acceptable to the Acquiror, provided a copy
of each such certificate and reliance opinion shall be attached as an
exhibit to the opinion of such counsel.
(e) Acquiror shall have received from the Company, to the extent necessary
under the relevant option or warrant agreements, the written consent, in
form and substance reasonably satisfactory to Acquiror, of all holders of
options or warrants to purchase Company Common Stock (as set forth in the
Company Disclosure Letter) to the termination of such options (to the
extent not exercised prior to the Effective Time) in accordance with the
provisions of Section 1.5 hereof.
SECTION 5.3. Conditions to the Obligation of the Company. The obligation of
the Company to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following additional conditions:
(a) The representations and warranties of the Acquiror set forth in this
Plan shall be true and correct in all material respects as of the date of
this Plan and (except to the extent such representations and warranties
speak as of an earlier date) as of the Effective Date as though made on and
as of the Effective Date. The Company shall have received a certificate
signed on behalf of the Acquiror by the Chief Executive Officer and the
Chief Financial Officer of the Acquiror, dated the Effective Date, to the
foregoing effect.
(b) The Acquiror shall have performed, in all material respects, each of
its covenants and agreements contained in this Plan. The Company shall
have received a certificate signed by the Chief
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Executive Officer and the Chief Financial Officer of the Acquiror, dated
the Effective Date, to the foregoing effect documentary evidence reasonably
satisfactory to the Company, dated the Effective Date, certifying that the
Acquiror has sufficient funds to pay the aggregate Merger Consideration.
(c) The Registration Statement shall have been declared effective by the
OTS; and the OTS shall not have issued any order preventing or suspending
the use of the Registration Statement or the delivery of the Secondary
Participation Interests to the Exchange Agent or the holders of Company
Common Stock.
(d) The Company shall have received an opinion, dated the Effective Date,
from each of Skadden Arps Slate Meagher & Flom, counsel to the Acquiror and
Merger Sub, and in-house counsel to the Acquiror, covering the matters set
forth on Annex 4 and Annex 5, respectively, and containing in each case
such customary assumptions, qualifications and limitations as are
reasonably acceptable to the Company. As to any matter in such opinions
which involves matters of fact or matters relating to laws other than the
General Corporation Law of the State of Delaware or federal securities or
banking law, such counsel may rely upon the certificates of officers and
directors of the Acquiror or Merger Sub and of public officials (as to
matters of fact) and opinions of local counsel (as to matters of law),
reasonably acceptable to the Company, provided a copy of each such reliance
certificate and opinion shall be attached as an exhibit to the opinion of
such counsel.
ARTICLE VI. TERMINATION
SECTION 6.1. Termination. This Plan may be terminated, and the Merger
abandoned, prior to the Effective Date, either before or after its approval
by the stockholders of the Company:
(a) by the mutual consent of the Acquiror and the Company in writing, if
the board of directors of each so determines by vote of a majority of the
members of its entire board;
(b) by the Acquiror or the Company by written notice to the other party if
either (i) any request or application for a Requisite Regulatory Approval
shall have been denied or (ii) any Governmental Entity of competent
jurisdiction shall have issued a final, unappealable order enjoining or
otherwise prohibiting consummation of the transactions contemplated by this
Plan;
(c) by the Acquiror or the Company, if its board of directors so
determines by vote of a majority of the members of its entire board, in the
event that the Merger is not consummated by March 31, 1997 unless failure
to so consummate by such time is due to the breach of any material
representation, warranty or covenant contained in this Plan by the party
seeking to terminate; provided, however, that in the event the Merger is
not consummated by March 31, 1997, as a result of the failure to obtain
Requisite Regulatory Approval for reasons entirely unrelated to the
financing of the transaction, the capital structure of Acquiror or Merger
Sub, the adequacy or Merger Sub's financial condition and/or the
prospective effect or such financing, structure or condition on the Bank,
the Acquiror may extend the termination date set forth herein to June 30,
1997;
(d) by the Acquiror or the Company (provided that the Company shall not be
entitled to terminate this Plan pursuant to this paragraph (d) if it shall
be in material breach of any of its obligations under Section 4.11) if any
approval of the stockholders of the Company required for the consummation
of the Merger shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of such stockholders or at
any adjournment or postponement thereof;
(e) by the Acquiiror or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the representations or warranties set forth in this Plan
on the part of the other party, which breach is not cured within thirty
days following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Effective Time, unless
such breach is waived by the non-breaching party; provided, however, that
neither party shall have the right to terminate this Plan pursuant to this
Section 6.1(e) unless the breach of representation or warranty, together
with all other such breaches, would entitle the party receiving such
representation not to consummate the transactions contemplated hereby
pursuant to Section
A-27
<PAGE>
5.2(b) (in the case of a breach of representation or warranty by the
Company) or Section 5.3(a) (in the case of a breach of representation or
warranty by the Acquiror);
(f) by the Acquiror or the Company (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material
breach of any of the covenants or agreements set forth in this Plan on the
part of the other party, which breach shall not have been cured or is
incapable of being cured within thirty days following receipt by the
breaching party of written notice of such breach from the other party
hereto; or
(g) by the Acquiror, if the Board of Directors of the Company does not
publicly recommend in the Proxy Statement that the Company's stockholders
approve and adopt this Plan or if, after recommending in the Proxy
Statement that stockholders approve and adopt this Plan, the Board of
Directors of the Company shall have withdrawn, modified or amended such
recommendation in any respect adverse to the Acquiror.
SECTION 6.2. Effect of Termination. In the event of the termination of this
Plan by either the Acquiror or the Company, as provided above, this Plan shall
thereafter become void and there shall be no liability on the part of any party
hereto or their respective officers or directors, except that (i) the next to
the last sentence of Section 4.4 and Sections 6.2, 8.2 and 8.6 shall survive
any termination of this Agreement and (ii) notwithstanding anything to the
contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damage arising out if its willful breach of any
provisions of this Plan.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. Effective Date and Effective Time. On such date as Acquiror
selects, which shall be within 30 days after the last to occur of the
expiration of all applicable waiting periods in connection with the Requisite
Regulatory Approvals and the satisfaction or waiver of all other conditions to
the consummation of this Plan (other than those conditions relating to the
receipt of officer's certificates or attorneys' opinions), or on such earlier
or later date as may be agreed in writing by the parties, the Certificate of
Merger shall be executed in accordance with all appropriate legal requirements
and shall be filed as required by law, and the Merger provided for herein shall
become effective upon such filing or on such date as may be specified in such
Certificate of Merger. The date of such filing or such later effective date is
herein called the "Effective Date". The "Effective Time" or the Merger shall be
the time of such filing or such other time as set forth in such Certificate of
Merger.
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. Interpretation. When a reference is made in this Plan to
Sections or Annexes, such reference shall be to a Section of, or Annex to, this
Plan unless otherwise indicated. The table of contents, tie sheet and headings
contained in this Plan are for ease of reference only and shall not affect the
meaning or interpretation of this Plan. Whenever the words "included", or
"including" are used in this Plan, they shall be deemed followed by the words
"without limitation". Any singular term in this Plan shall be deemed to include
the plural, and any plural term the singular.
SECTION 8.2. Survival. Only those agreements and covenants of the parties
that are by their terms applicable in whole or in part after the Effective Time
shall survive the Effective Time. All other agreements and covenants and all
representations and warranties shall be deemed to be conditions of the Plan and
shall not survive the Effective Time.
SECTION 8.3. Waiver. Prior to the Effective Time, any provision of this Plan
may be: (i) waived by the party benefited by the provision; or (ii) amended or
modified at any time by an agreement in writing between the parties hereto
approved by their respective boards of directors, except that, after the vote
by the stockholders of the Company, no amendment may be made that would
contravene any provision of the State Corporation Law.
A-28
<PAGE>
SECTION 8.4. Counterparts. This Plan may be executed in counterparts each
of which shall be deemed to constitute an original, but all of which together
shall constitute one and the same instrument.
SECTION 8.5. Governing Law. This Plan shall be governed by, and interpreted
in accordance with, the laws of the State of Delaware without regard to the
conflict of law principles thereof. The parties hereby irrevocably submit to
the jurisdiction of the courts of the State of Delaware and the Federal courts
of the United States of America located in the State of Delaware solely in
respect of the interpretation and enforcement of the provisions of this Plan,
the Option Agreement and of the documents referred to in this Plan and the
Option Agreement and in respect of the transaction contemplated herein and
therein, and hereby waive, and agree not to assert, as a defense in any action,
suit or proceeding for the interpretation or enforcement hereof or of any such
document, that is not subject thereto or that such action, suit or proceeding
may not be brought or is not maintainable in said courts or that the venue
thereof may not be appropriate or that this Plan and the Option Agreement or
any such document may not be enforced in or by such courts, and the parties
hereto irrevocably agree that all claims with respect to such action or
proceeding shall be heard and determined in such a Delaware State or Federal
court. The parties hereby consent to and grant any such court jurisdiction over
the person of such parties and over the subject matter of such dispute and
agree that mailing of process or other papers in connection with any such
action or proceeding in the manner provided in Section 8.7 or in such other
manner as may be permitted by law, shall be valid and sufficient service
thereof.
SECTION 8.6. Expenses. Without limiting or affecting the remedies available
to the parties hereunder, each party hereto will bear all expenses incurred by
it in connection with this Plan and the transactions contemplated hereby.
A-29
<PAGE>
SECTION 8.7. Notices. (All notices, requests, acknowledgements and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, telecopy, telegram or telex
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party hereto.
If to the Company or the Bank, to:
Cal Fed Bancorp Inc.
5700 Wilshire Boulevard
Los Angeles, California 90036
(213) 932-2900
(213) 932-2869 (Fax)
Attention:
Edward G. Harshfield
President and Chief Executive Officer
With copies to:
Douglas J. Wallis, Esq.
Executive Vice President, General Counsel and Secretary
Cal Fed Bancorp Inc.
5700 Wilshire Boulevard
Los Angeles, California 90036
(213) 932-2900
(213) 932-2869 (Fax)
Kenneth Heitz, Esq.
Irell & Manella LLP
1800 Avenue of the Stars, Suite 900
Los Angeles, California 90067
(312) 277-1010
(310) 203-7199 (Fax)
Robert Stucker, Esq.
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Chicago, Illinois 60601
(312) 609-7500
(312) 609-5005 (Fax)
If to the Acquiror or Merger Sub, to:
First Nationwide Bank, A Federal Savings Bank
135 Main Street, 20th Floor
San Francisco, CA 94105
(415) 904-0167
(415) 904-0190 (Fax)
Attention:
Carl B. Webb
President and Chief Operating Officer
With a copy to:
Christie S. Flanagan, Esq.
Executive Vice President and General Counsel
First Nationwide Bank, A Federal Savings Bank
200 Crescent Court, Suite 1350
Dallas, TX 75201
(214) 871-5188
(214) 871-5199 (Fax)
A-30
<PAGE>
SECTION 8.8. Entire Agreement; Binding Agreement; Third Parties. This Plan,
together with the Option Agreement, the Benefits Letter and the Disclosure
Letters and all agreements referred to herein, including the Confidentiality
Agreement, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made. All terms and provisions of
the Plan shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Except as to Section 4.7
and Section 4.20(iii), nothing in this Plan is intended to confer upon any
other person any rights or remedies of any nature whatsoever under or by reason
of this Plan.
SECTION 8.9. Assignment. This Plan may not be assigned by any party hereto
without the written consent of the other parties.
SECTION 8.10. Severability. The provisions of this Plan shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Plan, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Plan and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 8.11. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Plan and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
A-31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be executed
by their duly authorized officers as of the day and year first above written.
FIRST NATIONWIDE HOLDINGS INC.,
a Delaware corporation
By: /s/ Glenn P. Dickes
------------------------------
Name: Glenn P. Dickes
Title: Vice President
CFB HOLDINGS, INC.
By: /s/ Glenn P. Dickes
------------------------------
Name: Glenn P. Dickes
Title: Vice President
CAL FED BANCORP INC., a Delaware
corporation
By:
------------------------------
Name: Edward G. Harshfield
Title: President and Chief
Executive Officer
By:
------------------------------
Name: Douglas J. Wallis
Title: Executive Vice
President, Secretary
and General Counsel
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By:
------------------------------
Name: Edward G. Harshfield
Title: President and Chief
Executive Officer
By:
------------------------------
Name: Douglas J. Wallis
Title: Executive Vice
President, Secretary
and General Counsel
A-32
<PAGE>
SECTION 8.9. Assignment. This Plan may not be assigned by any party
hereto without the written consent of the other parties.
SECTION 8.10. Severability. The provisions of this Plan shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Plan, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Plan and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 8.11. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Plan and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be executed
by their duly authorized officers as of the day and year first above written.
FIRST NATIONWIDE HOLDINGS INC.,
a Delaware corporation
By:
------------------------------
Name: Glenn P. Dickes
Title: Vice President
CFB HOLDINGS, INC.
By:
------------------------------
Name: Glenn P. Dickes
Title: Vice President
CAL FED BANCORP INC., a Delaware
corporation
By: /s/ Edward G. Harshfield
------------------------------
Name: Edward G. Harshfield
Title: President and Chief
Executive Officer
By: /s/ Douglas J. Wallis
------------------------------
Name: Douglas J. Wallis
Title: Executive Vice
President, Secretary
and General Counsel
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By: /s/ Edward G. Harshfield
------------------------------
Name: Edward G. Harshfield
Title: President and Chief
Executive Officer
By: /s/ Douglas J. Wallis
------------------------------
Name: Douglas J. Wallis
Title: Executive Vice
President, Secretary
and General Counsel
A-33
<PAGE>
PRO FORMA FINANCIAL DATA
The following pro forma financial data gives effect to the Acquisitions, the
Branch Sales and the issuances of the Series A Preferred Shares, the Holdings
Preferred Stock, the Holdings 9 1/8% Senior Subordinated Notes and the 10 5/8%
Notes. The Branch Purchases and the Home Federal Acquisition have not been
reflected in the pro forma financial data because such transactions are not
material either individually or in the aggregate.
The following pro forma financial data as of and for the nine months ended
September 30, 1996 are based on (i) the historical consolidated statement of
financial condition of Holdings giving effect to the Cal Fed Acquisition and
the issuances of the Series A Preferred Shares and the 10 5/8% Notes as if such
transactions occurred on September 30, 1996, and (ii) the historical
consolidated statement of operations of Holdings for the nine months ended
September 30, 1996 giving effect to the Cal Fed Acquisition, the SFFed
Acquisition, the LMUSA 1996 Purchase, the Branch Sales and the issuances of the
Series A Preferred Shares, the Holdings Preferred Stock, the Holdings 9 1/8%
Senior Subordinated Notes and the 10 5/8% Notes as if such transactions
occurred on January 1, 1995. The following pro forma financial data for the
year ended December 31, 1995 is based on the historical consolidated statement
of operations of Holdings for the year ended December 31, 1995 giving effect to
the Acquisitions, the Branch Sales and the issuances of the Series A Preferred
Shares, the Holdings Preferred Stock, the Holdings 9 1/8% Senior Subordinated
Notes and the 10 5/8% Notes as if such transactions occurred on January 1,
1995. The pro forma adjustments are based on available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The Acquisitions are accounted for under the purchase method of
accounting. Under this method of accounting, the purchase price has been
allocated to the assets and liabilities acquired based on preliminary estimates
of fair value. The actual fair value is determined as of the consummation of
each of the Acquisitions. The pro forma financial data do not necessarily
reflect the results of operations or the financial position of Holdings that
actually would have resulted had the Acquisitions, the Branch Sales and the
issuances of the Series A Preferred Shares, the Holdings Preferred Stock, the
Holdings 9 1/8% Senior Subordinated Notes and the 10 5/8% Notes 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. Capitalized terms used and not defined herein have the meanings
set forth in the Glossary of Terms which begins on P-33 to this Exhibit 99.1.
P-1
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 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 . $ 271,218 $ 197,900 $ 0 $(992,839)(2) $ (794,939)
Securities ................. 572,210 1,444,400 (741)(1) (300,000)(2) 1,143,659
Mortgage-backed securities 3,360,527 2,040,800 4,768 (1) -- 2,045,568
Loans receivable, net ..... 11,307,216 10,055,100 (31,685)(1) -- 10,023,415
Office premises and
equipment, net ............ 92,088 64,000 (56,633)(1) -- 7,367
Mortgage servicing rights,
net ....................... 406,669 4,866 27,392 (1) -- 32,258
Core deposit and other
intangible assets ......... 144,782 14,580 (14,580)(1) 531,094 (1) 531,094
Other assets ............... 814,768 305,054 185,720 (1) -- 490,774
------------- ------------- --------------- -------------- -------------
Total assets ............... $16,969,478 $14,126,700 $114,241 $(761,745) $13,479,196
============= ============= =============== ============== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits ................... $ 8,799,990 $ 8,763,000 $ 3,839 (1) $ -- $ 8,766,839
Borrowings ................. 6,507,942 4,304,100 (2,043)(1) -- 4,302,057
Other liabilities .......... 431,291 232,500 5,300 (1) -- 237,800
------------- ------------- --------------- -------------- -------------
Total liabilities .......... 15,739,223 13,299,600 7,096 -- 13,306,696
------------- ------------- --------------- -------------- -------------
Minority interest .......... 309,376 172,500 -- -- 172,500
Stockholders' Equity:
Preferred Stock ........... 150,000 -- -- -- --
Common Stock .............. 1 49,400 -- (49,400)(3) --
Additional paid-in
capital .................. 47,752 841,000 -- (841,000)(3) --
Net unrealized holding
gain on securities ....... 35,087 -- -- -- --
Retained earnings
(deficit) ................ 688,039 (235,800) 107,145 (1) 128,655 (3) --
------------- ------------- --------------- -------------- -------------
Stockholders' equity .... 920,879 654,600 107,145 (761,745) --
------------- ------------- --------------- -------------- -------------
Total liabilities, minority
interest and stockholders'
equity .................... $16,969,478 $14,126,700 $114,241 $(761,745) $13,479,196
============= ============= =============== ============== =============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA
CAPITALIZATION(B) COMBINED
--------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . $ 555,000 (1) $ 31,279
Securities ................. -- 1,715,869
Mortgage-backed securities -- 5,406,095
Loans receivable, net ..... -- 21,330,631
Office premises and
equipment, net ............ -- 99,455
Mortgage servicing rights,
net ....................... -- 438,927
Core deposit and other
intangible assets ......... -- 675,876
Other assets ............... 20,000 (1) 1,325,542
--------------- -------------
Total assets ............... $ 575,000 $31,023,674
=============== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits ................... $ -- $17,566,829
Borrowings ................. (191,000)(2) 11,193,999
575,000 (1)
Other liabilities .......... 669,091
--------------- -------------
Total liabilities .......... 384,000 29,429,919
--------------- -------------
Minority interest .......... 200,000 (2) 681,876
Stockholders' Equity:
Preferred Stock ........... -- 150,000
Common Stock .............. -- 1
Additional paid-in
capital .................. (9,000)(2) 38,752
Net unrealized holding
gain on securities ....... -- 35,087
Retained earnings
(deficit) ................ -- 688,039
--------------- -------------
Stockholders' equity .... (9,000) 911,879
--------------- -------------
Total liabilities, minority
interest and stockholders'
equity .................... $ 575,000 $31,023,674
=============== =============
</TABLE>
- ------------
(A) See note (A) on page P-3.
(B) See note (B) 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 values 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.
P-2
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(A) CAL FED ACQUISITION
(1) The Cal Fed Acquisition will be accounted for using the purchase method of
accounting. The total purchase cost will be allocated first to the tangible
and identifiable intangible assets and liabilities of Cal Fed based on
their respective fair values and the remainder will be allocated to
goodwill. The aggregate purchase price was determined as follows:
<TABLE>
<CAPTION>
<S> <C>
Purchase price, as defined:
Shares outstanding at September 30, 1996 . 49,427,074
Options outstanding at September 30, 1996 1,355,140
------------
Total .................................. 50,782,214
Purchase price per share .................. $ 23.50
------------
Purchase price for outstanding shares .... $ 1,193,382
Exercise of options outstanding (a) ...... (10,800)
------------
Purchase price ............................ 1,182,582
Acquisition fees and expenses (b) ........ 110,257
------------
Total .................................. $ 1,292,839
============
</TABLE>
The following is a reconciliation of the common equity of Cal Fed to the
fair value of the net assets to be acquired by Holdings:
<TABLE>
<CAPTION>
<S> <C> <C>
Common equity of Cal Fed at September 30, 1996 .. $ 654,600
Fair value adjustments (c):
Securities ...................................... $ (741)
Mortgage-backed securities ...................... 4,768
Loans receivable, net ........................... (31,685)
Mortgage servicing rights ....................... 27,392
Office premises and equipment (d) ............... (56,633)
Litigation receivable, net (other assets) (e) .. 132,720
Other assets (f) ................................ 53,000
Deposits accounts ............................... (3,839)
Borrowings ...................................... 2,043
Other liabilities (g) ........................... (5,300)
Elimination of historical intangible assets .... (14,580)
---------- -----------
107,145 107,145
-----------
Fair value of net assets acquired ............... 761,745
Purchase cost ................................... 1,292,839
-----------
Excess of purchase cost over net assets acquired
("goodwill") ................................... $ 531,094
===========
</TABLE>
(a) Represents cash to be received by Cal Fed in settlement of stock options
and stock appreciation rights outstanding as of September 30, 1996
(1,355,140 options outstanding at an average price of $7.97 per share).
P-3
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(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 paid to six California Federal executive
officers; (iii) severance benefits paid or payable pursuant to a letter
agreement between Cal Fed and Holdings for approximately 850 employees who
are parties to separate employment agreements; and (iv) relocation benefits
for employees who have been 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 has been
developed, and employees to be terminated have been so notified. Termination
dates generally fall within six months of the consummation of the Cal Fed
Acquisition.
Pension termination costs represent lump sum distributions which are
required under Cal Fed'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 was 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 First Nationwide'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
Deposit accounts 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
SEPTEMBER 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
intangible) 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 September 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 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 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 Holdings
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 September 30, 1996 $ 11.375
CALGZ Shares Outstanding ................. 5,075,549
---------------
CALGZ Total Value ........................ $ 57,734,370
CALGZ Share of Litigation Proceeds ...... 25.37775%
---------------
Total Value, After-tax Proceeds .......... $227,499,955
Gross-up for Tax Effect (1-40.2%) ....... 59.80%
---------------
$380,434,708(i)
Subjective Discount (ii) ................. 57,065,206
---------------
Estimated Gross Proceeds ................. $323,369,502
===============
</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 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
$9.67 per share.
P-5
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(A) CAL FED ACQUISITION (CONTINUED)
DISTRIBUTION OF PROCEEDS
<TABLE>
<CAPTION>
<S> <C>
Estimated Gross Proceeds .................... $ 323,370
Tax Liability, Estimated at 40.2% ........... 129,995
-----------
Total After-tax Proceeds .................... $ 193,375
===========
Distribution to Class A Certificate Holders $ 193,375
CALGZ Share of After-tax Proceeds ........... 25.37775%
-----------
Total Distribution to Class A Holders ...... $ 49,074
===========
Remaining After-tax Proceeds ................ $ 144,301
Holdings Initial Distribution ............... 125,000
-----------
Remainder for Secondary Distribution ....... $ 19,301
===========
Holdings--40% Distribution .................. $ 7,720
Class B Certificate Holders--60%
Distribution ............................... 11,581
-----------
Total Secondary Distribution ............... $ 19,301
===========
Holdings Distribution:
Initial Distribution ....................... $ 125,000
40% Secondary Distribution ................. 7,720
-----------
Total Holdings Distribution ............... $ 132,720
===========
</TABLE>
Once the allocation of purchase price has been made, Holdings 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 Litigation
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 (i) federal income tax and
interest receivable, net of California franchise tax and interest
payable, and (ii) 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 .................................................... $ 992,839
Sale of securities available for sale and proceeds from
securities purchased under agreements to resell ................. 300,000
-----------
Purchase Price ................................................. $1,292,839
===========
</TABLE>
(3) Represents the elimination of the common equity components of Cal Fed of
$761,745.
P-6
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED)
(B) CAPITALIZATION
(1) Represents the issuance of the 10 5/8% Notes:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the issuance of the 10 5/8% Notes . $575,000
Less: deferred issuance costs ................... (20,000)
----------
Net proceeds ................................... $555,000
==========
</TABLE>
(2) Represents the proceeds from the issuance of Series A Preferred Shares:
<TABLE>
<CAPTION>
<S> <C>
Proceeds from the issuance of Series A Preferred Shares .. $200,000
Less: issuance costs (additional paid-in capital) ........ (9,000)
----------
Net proceeds ............................................. $191,000
==========
Net proceeds will be used to reduce borrowings of the Bank.
</TABLE>
P-7
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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 .................. $716,523 $21,821 $ -- $579,125
Securities ........................ 24,875 1,017 -- 80,200
Mortgage-backed securities ........ 191,602 3,174 -- 127,000
Other interest income ............. 1,413 -- -- (21,792)
------------ ------------- ------------ -------------
Total interest income ............ 934,413 26,012 -- 764,533
INTEREST EXPENSE:
Deposits .......................... 323,246 12,401 -- 318,700
Borrowings ........................ 290,037 6,114 (848) 173,525
------------ ------------- ------------ -------------
Total interest expense ........... 613,283 18,515 (848) 492,225
Net interest income ............... 321,130 7,497 848 272,308
Provision for loan losses ......... 29,700 500 -- 30,800
------------ ------------- ------------ -------------
Net interest income after
provision for loan losses ........ 291,430 6,997 848 241,508
NONINTEREST INCOME:
Customer banking fees ............. 34,356 199 -- 36,300
Mortgage banking operations ...... 92,150 191 3,484 3,500
Net gain (loss) on sales of assets 414,413 (1,140) -- 1,800
Other ............................. 54,542 239 51 15,500
------------ ------------- ------------ -------------
Total noninterest income ......... 595,461 (511) 3,535 57,100
NONINTEREST EXPENSE:
Compensation and benefits ......... 155,976 1,257 2,070 50,994
Other ............................. 223,329 2,616 1,099 175,824
------------ ------------- ------------ -------------
Total noninterest expense ........ 379,305 3,873 3,169 226,818
------------ ------------- ------------ -------------
Income (loss) before income taxes
and minority interest ............ 507,586 2,613 1,214 71,790
Income tax (benefit) expense ..... (79,724) 369 120 11,439
------------ ------------- ------------ -------------
Income (loss) before minority
interest ......................... 587,310 2,244 1,094 60,351
MINORITY INTEREST ................. 34,584 -- -- 18,900
------------ ------------- ------------ -------------
Net income (loss) ................. 552,726 2,244 1,094 41,451
Holdings Preferred Stock dividends -- -- -- --
------------ ------------- ------------ -------------
Net income (loss) available to
common stockholders .............. $552,726 $ 2,244 $1,094 $ 41,451
============ ============= ============ =============
</TABLE>
<PAGE>
(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) $ -- $1,317,359
Securities ........................ -- -- 106,092
Mortgage-backed securities ........ -- -- 321,776
Other interest income ............. -- -- (20,379)
-------------- --------------- ------------
Total interest income ............ (110) -- 1,724,848
INTEREST EXPENSE:
Deposits .......................... (40,742) -- 613,605
Borrowings ........................ 44,835 (7,819)(1) 552,729
45,820 (2)
1,065 (2)
-------------- --------------- ------------
Total interest expense ........... 4,093 39,066 1,166,334
Net interest income ............... (4,203) (39,066) 558,514
Provision for loan losses ......... -- -- 61,000
-------------- --------------- ------------
Net interest income after
provision for loan losses ........ (4,203) (39,066) 497,514
NONINTEREST INCOME:
Customer banking fees ............. (3,965) -- 66,890
Mortgage banking operations ...... -- -- 99,325
Net gain (loss) on sales of assets 10 -- 415,083
Other ............................. (163) -- 70,169
-------------- --------------- ------------
Total noninterest income ......... (4,118) -- 651,467
NONINTEREST EXPENSE:
Compensation and benefits ......... (4,337) -- 205,960
Other ............................. (3,387) 2,143 (3) 401,691
67 (3)
-------------- --------------- ------------
Total noninterest expense ........ (7,724) 2,210 607,651
-------------- --------------- ------------
Income (loss) before income taxes
and minority interest ............ (597) (41,276) 541,330
Income tax (benefit) expense ..... (59) (2,615)(4) (70,470)
-------------- --------------- ------------
Income (loss) before minority
interest ......................... (538) (38,661) 611,800 (7)
MINORITY INTEREST ................. -- 12,488 (5) 65,972
-------------- --------------- ------------
Net income (loss) ................. (538) (51,149) 545,828
Holdings Preferred Stock dividends -- 13,859 (6) 13,859
-------------- --------------- ------------
Net income (loss) available to
common stockholders .............. $ (538) $(65,008) $ 531,969 (i)
============== =============== ============
</TABLE>
- ------------
(A) See note (A) on page P-9.
(B) See note (B) on page P-12.
(C) See note (C) on page P-14.
(D) See note (D) on page P-17.
(E) See note (E) on page P-19.
P-8
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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-9
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES
AND MINORITY INTEREST
(A) SFFED ACQUISITION (CONTINUED) INCREASE (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-10
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 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-11
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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-12
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
(B) LMUSA 1996 PURCHASE (CONTINUED)
(1) Represents the difference between the amortization of pro forma recorded
balance of mortgage servicing rights and the historical amortization of
mortgage servicing rights as follows:
<TABLE>
<CAPTION>
IMPACT ON INCOME BEFORE
INCOME TAXES AND
MINORITY INTEREST
INCREASE/(DECREASE)
-----------------------
<S> <C>
Pro forma amortization .... $(2,284)
Historical amortization (i) 405
-----------------------
$(1,879)
=======================
</TABLE>
(i) Represents elimination of amortization of mortgage servicing
rights of $405 included in LMUSA's historical statement of
operations for the month ended January 31, 1996.
(2) Represents a decrease in interest expense resulting from the transfer of
custodial accounts acquired to First Nationwide.
(3) Represents the impact on other noninterest expense of (i) the elimination
of historical amounts related to LMUSA operations not included in the LMUSA
1996 Purchase and (ii) the consolidation of the LMUSA 1996 Purchase into
the Bank's existing mortgage banking operations, as follows:
<TABLE>
<CAPTION>
DECREASE IN
LMUSA ESTIMATED OTHER
HISTORICAL FUTURE NONINTEREST
COSTS COSTS EXPENSE
------------ ----------- -------------
<S> <C> <C> <C>
Components of LMUSA historical noninterest
expense:
Facilities depreciation .......................... $ 128 $ -- (ii) $(128)
Data processing, document storage, administrative
services and management fees .................... 833 120 (iii) (713)
Other miscellaneous costs ........................ 979 979 --
------------ ----------- -------------
$1,940 $1,099 $(841)
============ =========== =============
</TABLE>
(ii) Represents historical amounts related to operations not included in
the LMUSA 1996 Purchase.
(iii) Represents amounts necessary to replace these services based on
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-13
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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 ................................... $567,800 $ 11,325 (1) $ -- $579,125
Securities ......................................... 80,200 -- -- 80,200
Mortgage-backed securities ......................... 109,900 17,100 (1) -- 127,000
Other interest income .............................. 3,700 -- (25,492)(3) (21,792)
------------ --------------- --------------- -------------
Total interest income ............................. 761,600 28,425 (25,492) 764,533
INTEREST EXPENSE:
Deposits ........................................... 326,200 (7,500)(1) -- 318,700
Borrowings ......................................... 174,500 (975)(1) -- 173,525
------------ --------------- --------------- -------------
Total interest expense ............................ 500,700 (8,475) -- 492,225
------------ --------------- --------------- -------------
Net interest income ................................ 260,900 36,900 (25,492) 272,308
Provision for loan losses .......................... 30,800 -- -- 30,800
------------ --------------- --------------- -------------
Net interest income after provision for loan losses 230,100 36,900 (25,492) 241,508
NONINTEREST INCOME:
Customer banking fees .............................. 36,300 -- -- 36,300
Mortgage banking operations ........................ 8,300 (4,800)(1) -- 3,500
Net loss on sales of assets ........................ 1,800 -- -- 1,800
Other .............................................. 15,500 -- -- 15,500 (6)
------------ --------------- --------------- -------------
Total noninterest income .......................... 61,900 (4,800) -- 57,100
NONINTEREST EXPENSE:
Compensation and benefits .......................... 72,300 -- (21,306)(4) 50,994
Other .............................................. 170,300 41,909 (2) (36,385)(4) 175,824
------------ --------------- --------------- -------------
Total noninterest expense ......................... 242,600 41,909 (57,691) 226,818
------------ --------------- --------------- -------------
Income (loss) before income taxes .................. 49,400 (9,809) 32,199 71,790
Federal and state income taxes ..................... 100 -- 11,339 (5) 11,439
------------ --------------- --------------- -------------
Net income (loss) .................................. 49,300 (9,809) 20,860 60,351
------------ --------------- --------------- -------------
MINORITY INTEREST .................................. 18,900 -- -- 18,900
------------ --------------- --------------- -------------
Net income (loss) available to common stockholders $ 30,400 $(9,809) $ 20,860 $ 41,451
============ =============== =============== =============
</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's operations with
Holdings' and (iii) income taxes relative to the Cal Fed Acquisition.
See further discussion at Notes (3) and (4).
P-14
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(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
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Loans receivable, net ..... $11,325
Mortgage-backed securities 17,100
Deposits ................... 7,500
Borrowings ................. 975
Mortgage servicing rights . (4,800)
</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 .................................................... $(44,465)
Elimination of amortization of Cal Fed's historical
intangible assets ........................................... 2,556
---------------------
$(41,909)
=====================
</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 nine months ended September 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 nine months ended September 30,
1996 represents a 36% 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 ........ $36,731 $36,245 $ 486
Information Technology 532 951 (419)
Commercial Real Estate 5,005 1,643 3,362
Mortgage Banking ...... 13,837 9,452 4,385
Legal ................. 1,371 618 753
Finance ............... 5,163 924 4,239
Internal Audit ........ 1,154 212 942
Executive and Other .. 4,014 243 3,771
Human Resources ....... 2,941 347 2,594
Corporate Services ... 1,571 378 1,193
------------ ------------ -------------
72,319 51,013 21,306
</TABLE>
P-15
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(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>
Occupancy & Other Expense:
Retail Banking ............... $ 48,397 $ 22,955 $ 25,442
Information Technology ...... 20,862 7,164 13,698
Commercial Real Estate ...... 2,306 381 1,925
Mortgage Banking ............. 2,809 3,363 (554)
Legal ........................ 1,919 5,145 (3,226)
Finance ...................... 4,410 570 3,840
Internal Audit ............... 317 33 284
Executive and Other .......... 4,935 458 4,477
Human Resources .............. 1,790 173 1,617
Corporate Services ........... 4,202 15,320 (11,118)
------------- ------------ -------------
91,947 55,562 36,385
SAIF Deposit Insurance Premium 75,778 75,778 --
------------- ------------ -------------
Total Noninterest Expense ... $240,044(i) $182,353 $ 57,691
============= ============ =============
</TABLE>
(i) Balance represents total historical noninterest expense of $242,600 less
historical amortization of intangible assets already adjusted in note 2
on page P-15.
(5) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the nine months ended
September 30, 1996 related to the Cal Fed Acquisition was computed as
follows:
<TABLE>
<CAPTION>
<S> <C>
Income before taxes ............................................. $ 71,790
Add back: permanent differences--amortization of goodwill ...... 44,465
----------
Taxable income .................................................. $116,255
==========
Federal AMT, reduced, to the extent of 90%, by net operating
loss carryovers ................................................ $ 2,139
State taxes, at an assumed rate of 8% ........................... 9,300
----------
$ 11,439
==========
</TABLE>
(6) Includes $12,000 gain on sale of California Federal's branches in San
Diego county.
P-16
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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-17
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 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 $130,660 $1,241,417 5.45%(i) 19 $ 3,522
================
1/12/96 New York 416,476 5,997 32,991 377,512 5.45%(i) 12 $ 676
2/23/96 New York 270,046 1,838 17,027 251,154 5.45%(i) 54 2,025
3/15/96 New York 615,572 8,083 48,933 558,514 5.45%(i) 75 6,255
3/22/96 New Jersey 501,262 6,396 35,938 458,932 5.45%(i) 82 5,619
3/22/96 New York 637,045 9,465 41,286 586,269 5.45%(i) 82 7,178
----------------
Total Northeast $21,753
================
6/28/96 Michigan 799,226 15,060 56,177 727,755 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 nine months ended September 30,
1996.
(2) Represents amount necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the nine months ended
September 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-18
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
(E) PRO FORMA ADJUSTMENTS
(1) Represents the decrease in interest expense relative to the paydown of
securities sold under agreements to repurchase with proceeds from the
issuance of Series A Preferred Shares. The reduction in interest expense
was established using an interest rate of 5.458%, the weighted average
rate of these obligations during the nine months ended September 30,
1996 using a one month LIBOR rate less five basis points.
(2) Represents interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
$575 million 10 5/8% Notes .............................. $45,820
$140 million Holdings 9 1/8% Senior Subordinated Notes
issued January 31, 1996 (expense for one month) ....... 1,065
</TABLE>
(3) Represents the amortization of:
<TABLE>
<CAPTION>
<S> <C>
$20,000 in deferred debt issuance costs over the seven year
term of the 10 5/8% Notes ...................................... $2,143
$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>
(4) Represents amounts necessary to adjust historical tax expense to the pro
forma computation. Pro forma tax expense for the nine months ended
September 30, 1996 related to the issuance of the Series A Preferred
Shares, 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 ................................. $ (789)
State taxes, at an assumed rate of 4.425% ................. (1,826)
---------
$(2,615)
=========
</TABLE>
(5) Represents preferred stock dividends on the $200,000 Series A Preferred
Shares, net of tax benefit, at an assumed rate of 9 1/4% per annum. The
tax benefit is due to the deductibility of the dividend for income tax
purposes as a result of California Federal Preferred Capital
Corporation's qualification as a real estate investment trust. Each 25
basis point change in the interest rate on the Series A Preferred
Shares would change interest expense, net of tax benefit, by $338. If
the underwriter's 15% over-allotment option is exercised in full,
dividends on the Series A Preferred Shares for that period would
increase by $1,873.
(6) Represents dividends on Holdings Preferred Stock (estimated at 12% per
annum), including the compounding effect of dividends paid-in-kind.
(7) Includes the following:
(a) gains of approximately $334.0 million (on an after-tax basis)
realized in connection with the Branch Sales consummated during the
nine months ended September 30, 1996;
(b) gain of approximately $10.8 million (on an after-tax basis)
representing California Federal's gain on branch sales consummated
during the nine months ended September 30, 1996;
(c) deferred tax benefit of the Bank of $125 million;
(d) after-tax gain on sale of Affiliated Computer Systems (ACS) common
stock of $36.4 million;
(e) expense of $106.4 million (on an after-tax basis) relating to the
Special SAIF Assessment;
(f) after-tax income of $23.0 million realized in connection with the
termination of the Assistance Agreement; and
(g) expense of $30.2 million (on an after-tax basis) relating to
management incentive plan.
P-19
<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 38,081 158,283
------------ ------------- ----------- -------------
Total noninterest expense .................. 332,553 46,037 57,581 227,691
------------ ------------- ----------- -------------
Income (loss) before income taxes and
minority interest .......................... 122,450 36,114 40,162 171,320
Income tax (benefit) expense ................ (57,185) 4,890 3,952 22,692
------------ ------------- ----------- -------------
Income (loss) before minority interest ..... 179,635 31,224 36,210 148,628
MINORITY INTEREST ........................... 34,584 -- -- 25,600
------------ ------------- ----------- -------------
Net income (loss) ........................... 145,051 31,224 36,210 123,028
Holdings Preferred Stock dividends .......... -- -- -- --
------------ ------------- ----------- -------------
Net income (loss) available to common
stockholders ............................... $ 145,051 $ 31,224 $36,210 $ 123,028
============ ============= =========== =============
</TABLE>
<PAGE>
(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 (11,475)(1) 952,526
61,094 (2)
12,775 (2)
-------------- -------------- ------------
Total interest expense ..................... 69,141 62,394 1,728,352
Net interest income ......................... (69,764) (62,394) 690,859
Provision for loan losses ................... -- -- 79,894
-------------- -------------- ------------
Net interest income after provision for loan
losses ..................................... (69,764) (62,394) 610,965
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 (3) 387,359
800 (3)
-------------- -------------- ------------
Total noninterest expense .................. (45,299) 3,657 622,220
-------------- -------------- ------------
Income (loss) before income taxes and
minority interest .......................... (47,482) (66,051) 256,513
Income tax (benefit) expense ................ (4,671) (4,186)(4) (34,508)
Income (loss) before minority interest ..... (42,811) (61,865) 291,021
MINORITY INTEREST ........................... -- 16,650 (5) 76,834
-------------- -------------- ------------
Net income (loss) ........................... (42,811) (78,515) 214,187
Holdings Preferred Stock dividends .......... -- 18,139 (6) 18,139
-------------- -------------- ------------
Net income (loss) available to common
stockholders ............................... $(42,811) $(96,654) $196,048
============== ============== ============
</TABLE>
- ------------
(A) See note (A) on page P-21.
(B) See note (B) on page P-25.
(C) See note (C) on page P-27.
(D) See note (D) on page P-30.
(E) See note (E) on page P-32.
P-20
<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 and
minority interest ........................ 1,368 (10,897) 45,643 36,114
Income tax (benefit) expense .............. 1,568 -- 3,322 (5) 4,890
------------ -------------- -------------- -------------
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-21
<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-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)
<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-22.
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)
(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-24
<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 and
minority interest .......................... (275,672) (1,442) 317,276 40,162
Income tax (benefit) expense ................ -- -- 3,952 (5) 3,952
------------- -------------- -------------- ----------------
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-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 (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-26
<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 55,811 (2) (50,328)(4) 158,283
------------ --------------- --------------- -------------
Total noninterest expense .................... 249,900 55,811 (78,020) 227,691
------------ --------------- --------------- -------------
Income (loss) before income taxes and minority
interest ..................................... 93,700 33,589 44,031 171,320
Income tax (benefit) expense .................. 100 -- 22,592 (5) 22,692
------------ --------------- --------------- -------------
Net income (loss) before minority interest ... 93,600 33,589 21,439 148,628
MINORITY INTEREST ............................. 25,600 -- -- 25,600
------------ --------------- --------------- -------------
Net income (loss) ............................. $ 68,000 $ 33,589 $ 21,439 $ 123,028
============ =============== =============== =============
</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-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 (CONTINUED)
(1) Represents amortization or accretion of fair value adjustments as
follows:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Loans receivable, net .... $15,100
Mortgage-backed securities 28,600
Deposits .................. 45,400
Borrowings ................ 9,100
Mortgage servicing rights (8,800)
</TABLE>
(2) Represents adjustments consisting of the following:
<TABLE>
<CAPTION>
IMPACT ON INCOME
BEFORE INCOME TAXES,
EXTRAORDINARY ITEM
AND MINORITY INTEREST
INCREASE/(DECREASE)
---------------------
<S> <C>
Amortization of fair value adjustment--amortization of goodwill .... $(59,287)
Elimination of amortization of Cal Fed's historical intangible
assets ............................................................. 3,476
---------------------
$(55,811)
=====================
</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-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)
<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 --
------------- ------------ -------------
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-28.
(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 ............................................. $171,320
Add back: permanent differences--amortization of goodwill ...... 59,287
----------
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-29
<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 and
minority interest ..................... (14,205) (10,566) (22,711) (47,482)
Income tax (benefit) expense ........... (1,397) (1,039) (2,235) (4,671)(2)
------------- --------------- -------------- --------------
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)
============= =============== ============== ==============
</TABLE>
- ------------
(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-30
<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>
<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-31
<PAGE>
FIRST NATIONWIDE HOLDINGS INC.
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(E) PRO FORMA ADJUSTMENTS
(1) Represents the decrease in interest expense relative to the paydown of
securities sold under agreements to repurchase with proceeds from the
issuance of Series A Preferred Shares. The reduction in interest expense
was established using an interest rate of 6.008%, the weighted average
rate of these obligations during the year ended December 31, 1995 using
a one month LIBOR rate less five basis points.
(2) Represents interest expense as follows:
<TABLE>
<CAPTION>
<S> <C>
$575 million 10 5/8% Notes ........................ $61,094
$140 million Holdings 9 1/8% Senior Subordinated
Notes ............................................ 12,775
</TABLE>
(3) Represents the amortization of:
<TABLE>
<CAPTION>
<S> <C>
$20,000 in deferred debt issuance costs over the seven year
term of the 10 5/8% 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>
(4) 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 Series A Preferred shares, the
issuace 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 ................................ $(1,263)
State taxes, at an assumed rate of 4.425 .................. (2,923)
----------
$(4,186)
==========
</TABLE>
(5) Represents preferred stock dividends on the $200,000 Series A Preferred
Shares, net of tax benefits, at an assumed rate of 9 1/4% per annum.
The tax benefit is due to the deductibility of the dividend for income
tax purposes as a result of California Federal Preferred Capital
Corporation's qualification as a real estate investment trust. Each 25
basis point change in the interest rate on the Series A Preferred
Shares would change interest expense, net of tax benefits, by $450. If
the underwriters' 15% over-allotment option is exercised in full,
dividends on the Series A Preferred Shares, net of tax benefits, for
the period would increase by $2,498.
(6) Represents dividends on Holdings Preferred Stock (estimated at 12% per
annum), including the compounding effect of dividends paid-in-kind.
P-32
<PAGE>
GLOSSARY OF TERMS
"Acquisitions" means the Cal Fed Acquisition, the SFFed Acquisition and
the LMUSA Purchases.
"AMT" means federal alternative minimum tax.
"Assistance Agreement" means the amended agreement by and among the Bank,
FSLIC Resolution Fund (as successor to the Federal Savings and Loan Insurance
Corporation), First Gibraltar Holdings Inc. and MacAndrews & Forbes Holdings
Inc.
"Bank" means First Nationwide Bank, A Federal Savings Bank.
"Branch Purchases" means the acquisitions by the Bank of (i) in April 1995
of $13 million in deposits located in Tiburon, California from East-West
Federal Bank, a federal savings bank, (ii) in August 1995 of three retail
branches located in Orange County, California with deposit accounts totalling
approximately $356 million from ITT Federal Bank, fsb and (iii) on December 8,
1995 of four retail branches located in Sonoma County, California with
associated deposit accounts of approximately $144 million from Citizens Federal
Bank, a Federal Savings Bank.
"Branch Sales" means, collectively, the Ohio Branch Sale, the Northeast
Branch Sales and the Michigan Branch Sale.
"California Federal Litigation" means the claim by California Federal
against the United States in the lawsuit, California Federal Bank v. United
States, Civil Action No. 92-138C.
"Capital Contribution" means the net proceeds from the Notes and the net
proceeds from the issuance of the Holdings Preferred Stock, totalling
approximately $700 million which will be contributed by Holdings to First
Nationwide.
"Cash Payment" means the cash payment, if any, actually received by
California Federal pursuant to a final, nonappealable judgment in final
settlement of the California Federal Litigation.
"FHLB" means the Federal Home Loan Bank.
"FN Escrow Merger" means a merger agreement, dated September 19, 1996 by and
between Holdings and FN Escrow whereby FN Escrow will be merged with and into
Holdings.
"FNMC" means First Nationwide Mortgage Corporation, the Bank's mortgage
banking subsidiary.
"Holdings 9 1/8% Senior Subordinated Notes" means the $140 million aggregate
principal amount of 9 1/8% Senior Subordinated Notes Due 2003 and issued by
Holdings.
"Home Federal Acquisition" means the acquisition on June 1, 1996 by the Bank
of Home Federal Financial Corporation and its wholly owned federally chartered
savings association subsidiary, Home Federal Savings and Loan Association of
San Francisco, which had approximately $717 million in assets and $646 million
in deposits and operated 15 branches in Northern California.
"Litigation Interests" means the Contingent Litigation Recovery
Participation Interests distributed in July 1995 by California Federal to its
common shareholders, each entitling the holder thereof to receive an amount
(the aggregate of such amounts being referred to as the "Recovery Payment")
equal to five millionths of one percent (0.00005%) of the Cash Payment after
deduction of (i) the aggregate expenses incurred by California Federal in
prosecuting the California Federal Litigation and obtaining such Cash Payment,
(ii) any income tax liability of California Federal, computed on a pro forma
basis, as a result of California Federal's receipt of such Cash Payment (net of
any income tax benefit to California Federal from making the Recovery Payment,
and disregarding for purposes of this clause (ii) the effect of any net
operating loss carryforwards of other tax attributes held by California Federal
or any of its subsidiaries or affiliated entities) and (iii) the expenses
incurred by California Federal in connection with the creation, issuance and
trading of the Litigation Interests, including without limitation, legal and
accounting fees and the fees and expenses of the certificate agent.
"LMUSA" means Lomas Mortgage USA, Inc.
P-33
<PAGE>
"LMUSA Purchases" means the LMUSA 1995 Purchase and the LMUSA 1996
Purchase.
"LMUSA 1995 Purchase" means the purchase of FNMC on October 2, 1995 from
LMUSA of a loan servicing portfolio of approximately $11.1 billion, a master
servicing portfolio of 2.9 billion and other assets.
"LMUSA 1996 Purchase" means the purchase of FNMC on January 31, 1996 from
LMUSA of its remaining loan servicing portfolio which, as of December 31, 1995,
totalled $14.1 billion, a master servicing portfolio of $2.7 billion and other
assets.
"master serving portfolio" means a portfolio of mortgage servicing rights,
which are rights to service mortgages held by others, which mortgage servicing
rights are owned by third parties who have contracted with FNMC to monitor the
performance, and consolidate the reporting, of various other services.
"Michigan Branch Sale" means the sale of the Bank's 21 retail branches in
Michigan that was consummated on June 28, 1996.
"Northeast Branch Sales" means the sales of the Bank's 30 retail branches in
New York and New Jersey that were consummated on March 22, 1996.
"Ohio Branch Sale" means the sale of the Bank's 28 retail branches in Ohio
that was consummated on January 19, 1996.
"OTS" means the Office of Thrift Supervision.
"SAIF" means the Savings Association Insurance Fund, which insures the
deposit accounts of First Nationwide, up to applicable limits.
"Secondary Litigation Interest" means a Secondary Contingent Litigation
Recovery Participation Interest which will entitle the holder thereof to
receive an amount equal to twenty millionths of one percent (0.000020%) of the
Secondary Recovery Payment, if any. Pursuant to the merger agreement regarding
the Cal Fed Acquisition, Cal Fed will distribute to common shareholders
entitled to receive the merger consideration one-tenth of a Secondary
Litigation Interest for each share of Cal Fed common stock held.
"Secondary Recovery Payment" means sixty percent (60%) of the amount
obtained from the following equation: (A) the Cash Payment, minus (B) the sum
of the following: (i) the aggregate expenses incurred by California Federal in
prosecuting the California Federal Litigation and obtaining such Cash Payment,
(ii) any income tax liability of California Federal, computed on a pro forma
basis, as a result of California Federal's receipt of such Cash Payment (net of
any income tax benefit to California Federal, computed on a pro forma basis,
from the payment of a portion of the Secondary Recovery Payment to holders of
Secondary Litigation Interests), (iii) the expenses incurred by California
Federal in connection with the creation issuance and trading of the Litigation
Interests and the Secondary Litigation Interests, including without limitation,
legal and accounting fees and the fees and expenses of the interest agent, (iv)
the payment due to holders of the Litigation Interests and (v) one hundred
twenty-five million dollars ($125,000,000). "Income tax liability of California
Federal computed on a pro forma basis" means the aggregate amount of any and
all relevant items of income, gain, loss, or deduction associated with the
receipt by California Federal of the Cash Payment multiplied by the highest,
combined marginal rate of federal, state and local income taxes in the relevant
year and disregarding for purposes of such computation the effect of any net
operation loss carryforwards or other tax attributes of California Federal or
any of its subsidiaries or affiliated entities. "Income tax benefit to
California Federal computed on a pro forma basis" means the aggregate amount of
any and all relevant items of income, gain, loss, or deduction associated with
the payment by California Federal of the Secondary Recovery Payment multiplied
by the highest, combined marginal rate of federal, state and local income taxes
in the relevant year and disregarding for purposes of such computation the
effect of any net operation loss carryforwards or other tax attributes of
California Federal or any of its subsidiaries or affiliated entities.
"Series A Preferred Shares" means the $200 million aggregate liquidation
value of par value $.01 per share Preferred Stock of California Federal
Preferred Capital Corporation.
P-34
<PAGE>
"SFFed" means SFFed Corp.
"SFFed Acquisition" means the acquisition by the Bank on February 1, 1996 of
SFFed and its wholly owned subsidiary, San Francisco Federal Savings and Loan
Association, which had approximately $4.0 billion in assets and approximately
$2.7 in deposits and operated 35 branches in the Northern California area.
"Special SAIF Assessment" means a special assessment related to the
recapitalization of the SAIF which was levied based on a rate of 65.7 cents per
$100 of SAIF-insured domestic deposits held as of March 13, 1995 as a result of
the Economic Growth and Regulatory Paperwork Reduction Act of 1996.
P-35
<PAGE>
Media Contact:
Janis Tarter, Cal Fed, (415) 904-1199
Mary Rische, Cal Fed, (415) 904-1203
Investor Contact:
Chase Mellon (800) 806-8035
FOR IMMEDIATE RELEASE
FIRST NATIONWIDE BANK COMPLETES MERGER
WITH CALIFORNIA FEDERAL BANK
COMBINED BANK KEEPS CAL FED NAME, FIRST NATIONWIDE'S HEADQUARTERS
SAN FRANCISCO, January 3, 1997 -- First Nationwide Holdings Inc., parent
company of First Nationwide Bank, today completed its purchase of Cal Fed
Bancorp Inc. and its subsidiary, California Federal Bank. The merged bank is
called California Federal Bank, A Federal Savings Bank, also known as Cal Fed.
(First Nationwide Holdings' name will not change, nor will that of the bank's
mortgage subsidiary, First Nationwide Mortgage Corporation.)
The combined institution has approximately $30 billion in assets, making it
the fourth largest thrift in the nation.
While the merger is effective today, First Nationwide Bank branches won't
adopt the Cal Fed name until the weekend of March 21, when all accounts from
both institutions will be converted to one system. Effective March 24,
customers of both the "old" California Federal Bank and the "old" First
Nationwide Bank will be able to conduct business at any of the "new" Cal Fed
locations. Prior to the conversion, customers of both institutions may make
automated teller machine (ATM) withdrawals at any First Nationwide or Cal Fed
branch without paying a "foreign" ATM fee.
Included in the Cal Fed acquisition are 119 retail branches with
approximately $9 billion in deposits. Effective March 24, three of the acquired
Cal Fed branches (in Palo Alto, Thousand Oaks and Culver City, California) will
be consolidated into nearby First Nationwide branches (renamed Cal Fed), and
four First Nationwide Bank branches (in San Rafael, Oxnard, Ventura and
Glendale, California) will be consolidated into nearby Cal Fed branches.
Terms of the merger call for holders of Cal Fed Bancorp's common stock to
receive $23.50 in cash for each of their shares, for a total cash consideration
of approximately $1.2 billion, plus a new security representing the right to
participate in a portion of the net cash proceeds, if any, recovered in
California Federal Bank's pending breach of contract lawsuit against the
federal government. Shareholders will receive one Secondary Contingent
Litigation Recovery Participation Interest for each ten common shares of Cal
Fed Bancorp held at the time of the closing. This new security is expected to
be quoted and traded on the national market of NASDAQ (CALGL).
Within the next few days, Chase Mellon Shareholder Services, the transfer
agent for the common shares, will send shareholders a letter describing how to
exchange their shares for the merger consideration. Questions concerning this
process should be directed to Chase Mellon Shareholder Services at (800)
806-8035. (For others who want additional information on the security, a copy
of the offering circular for the security is on file with the Office of Thrift
Supervision.)
At September 30, 1996, First Nationwide Bank's assets totaled $16.8 billion
and California Federal Bank's totaled $14.1 billion. After the branch
consolidations in March, the combined bank will have 229 retail branches: 101
in Southern California, 94 in Northern California, 24 in Florida, seven in
Nevada and three in Texas.
Based in San Francisco, the "new" California Federal Bank is a privately
held institution and an indirect subsidiary of MacAndrews and Forbes Holding
Inc. The bank and its subsidiaries employ approximately 5,500 people.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cal Fed Bancorp Inc.:
We have audited the accompanying consolidated statements of financial
condition of Cal Fed Bancorp Inc. and subsidiaries (the "Company") as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cal Fed
Bancorp Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1 of the notes to the consolidated financial
statements, the Company adopted the provisions of the Financial Accounting
Standards Board's Statements of Financial Accounting Standards No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions, in 1994,
and No. 115, Accounting for Certain Investments in Debt and Equity Securities,
in 1993.
KPMG Peat Marwick LLP
Los Angeles, California
January 18, 1996
F-1
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash ................................................................... $ 273.7 $ 292.8
Short-term liquid investments .......................................... 74.1 333.8
Securities purchased under agreements to resell ........................ 1,674.6 48.2
Securities available for sale (market value: $200.3 in 1995 and
$1,731.5 in 1994) ..................................................... 200.3 1,731.5
Securities held to maturity (market value $2,361.3 in 1995 and $2,437.2
in 1994) .............................................................. 2,366.7 2,525.1
Loans receivable held for sale (market value: $13.8 in 1995 and $1.3 in
1994) ................................................................. 13.6 1.3
Loans receivable held for investment ................................... 9,290.0 8,746.0
Federal Home Loan Bank stock ........................................... 135.7 134.1
Interest receivable .................................................... 79.5 79.6
Premises and equipment ................................................. 71.2 81.5
Real estate held for sale .............................................. 49.5 77.9
Prepaid expenses and other assets ...................................... 91.7 130.6
----------- -----------
Total Assets ....................................................... $14,320.6 $14,182.4
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ............................................................... $ 9,476.7 $ 8,360.9
Advances from Federal Home Loan Banks .................................. 2,671.0 2,526.0
Securities sold under agreements to repurchase ......................... 857.3 1,751.0
Student Loan Marketing Association advances ............................ 200.0 475.0
Subordinated debentures ................................................ 57.6 66.5
Interest payable ....................................................... 29.4 18.6
Other liabilities ...................................................... 141.1 186.1
----------- -----------
Total Liabilities .................................................. $13,433.1 $13,384.1
=========== ===========
Preferred stock of subsidiary .......................................... 266.0 266.0
Stockholders' equity
Common stock .......................................................... 49.2 49.2
Additional paid-in capital ............................................ 838.6 836.6
Net unrealized holding gains (losses) on securities available for sale -- (19.2)
Retained earnings (deficit) ........................................... (266.3) (334.3)
----------- -----------
Total Stockholders' Equity ......................................... 621.5 532.3
----------- -----------
Total Liabilities and Stockholders' Equity ......................... $14,320.6 $14,182.4
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans receivable ................................................. $ 706.9 $ 630.4 $ 756.5
Securities held to maturity ...................................... 170.3 135.5 160.9
Securities purchased under agreements to resell .................. 68.5 44.0 30.5
Securities available for sale .................................... 49.4 75.2 61.7
Short-term liquid investments .................................... 12.9 23.0 4.3
--------- ---------- ----------
Total interest income ......................................... 1,008.0 908.1 1,013.9
--------- ---------- ----------
Interest expense:
Deposits ......................................................... 441.6 390.8 516.1
Borrowings ....................................................... 254.5 175.7 95.8
--------- ---------- ----------
Total interest expense ........................................ 696.1 566.5 611.9
--------- ---------- ----------
Net interest income ........................................... 311.9 341.6 402.0
Provision for loan losses ......................................... 31.8 74.9 163.5
--------- ---------- ----------
Net interest income after provision for loan losses .......... 280.1 266.7 238.5
Other income:
Fee income ....................................................... 54.5 62.4 64.3
(Loss) gain on sales of loans .................................... (0.3) 0.5 5.4
Gain on sales of securities ...................................... 6.9 0.2 --
Gain on sale of Southeast Division ............................... -- 135.0 --
Other ............................................................ 2.4 3.1 0.5
--------- ---------- ----------
Total other income ............................................ 63.5 201.2 70.2
--------- ---------- ----------
Other expenses:
Compensation ..................................................... 97.1 118.7 133.9
Office occupancy ................................................. 39.4 47.3 50.2
Other general and administrative ................................. 79.4 89.2 102.5
Federal deposit insurance premiums and special assessments ...... 26.0 35.1 36.7
--------- ---------- ----------
Total general and administrative expenses ..................... 241.9 290.3 323.3
Operations of real estate held for sale .......................... 8.0 45.9 118.3
Loss on assets held for accelerated disposition .................. -- 274.8 --
Amortization of goodwill ......................................... -- -- 15.5
--------- ---------- ----------
Total other expenses .......................................... 249.9 611.0 457.1
--------- ---------- ----------
Earnings (loss) before income tax expense (benefit) and cumulative
effect of change in accounting for goodwill ...................... 93.7 (143.1) (148.4)
Income tax expense (benefit) ...................................... 0.1 6.3 (2.9)
--------- ---------- ----------
Earnings (loss) before cumulative effect of change in accounting
for goodwill ..................................................... 93.6 (149.4) (145.5)
Cumulative effect of change in accounting for goodwill ........... -- (273.7) --
--------- ---------- ----------
Net earnings (loss) before dividends on preferred stock of
subsidiary ................................................... 93.6 (423.1) (145.5)
Dividends on preferred stock of subsidiary ........................ 25.6 16.9 3.8
--------- ---------- ----------
Net earnings (loss) available for common stockholders ............ $ 68.0 $(440.0) $ (149.3)
========= ========== ==========
Earnings (loss) per common share before the cumulative effect of
change in accounting for goodwill ................................ $ 1.36 $ (3.82) $ (5.98)
Loss per share of the cumulative effect of change in accounting
for goodwill ..................................................... $ -- $ (6.28) $ --
Net earnings (loss) per common share .............................. $ 1.36 $(10.10) $ (5.98)
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Common stock:
Balance at beginning of year ......................................... $ 49.2 $ 25.0 $ 25.0
Issuance of shares of common stock .................................. -- 21.6 --
Exercise of common stock warrants ................................... -- 2.6 --
--------- --------- ---------
Balance at end of year ............................................... 49.2 49.2 25.0
--------- --------- ---------
Additional paid-in capital:
Balance at beginning of year ......................................... 836.6 658.2 662.6
Issuance of shares of common stock .................................. -- 161.7 --
Exercise of common stock warrants ................................... -- 20.7 --
Long-term incentive stock options ................................... 2.0 4.3 0.1
Other ............................................................... -- (8.3) (4.5)
Balance at end of year ............................................... 838.6 836.6 658.2
--------- --------- ---------
Net unrealized holding (losses) gains on securities available for sale:
Balance at beginning of year ......................................... (19.2) 8.3 (0.7)
Net unrealized holding gains (losses) ............................... 19.2 (27.5) 9.0
--------- --------- ---------
Balance at end of year ............................................... -- (19.2) 8.3
--------- --------- ---------
Retained earnings (deficit):
Balance at beginning of year ......................................... (334.3) 105.7 255.0
Net earnings (loss) available for common stockholders .............. 68.0 (440.0) (149.3)
--------- --------- ---------
Balance at end of year ............................................... (266.3) (334.3) 105.7
--------- --------- ---------
Total Stockholders' Equity ............................................ $ 621.5 $ 532.3 $ 797.2
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) available for common stockholders .......... $ 68.0 $ (440.0) $ (149.3)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Loss on assets held for accelerated disposition ................ -- 274.8 --
Cumulative effect of change in accounting principle ........... -- 273.7 --
Depreciation and amortization .................................. 13.0 14.8 33.1
Accretion of fees and discounts ................................ (13.5) (37.3) (21.0)
Provision for losses on loans receivable ....................... 31.8 74.9 163.5
(Recovery) provision for losses on real estate held for sale .. (7.4) 79.7 93.6
Loss (gain) on sales of loans .................................. 0.3 (0.5) (5.4)
Loans originated for sale ...................................... (117.2) (115.8) (648.3)
Gain on sales of securities .................................... (6.9) (0.2) --
Proceeds from sales of loans receivable held for sale ......... 183.2 1,099.4 940.1
Decrease in other assets ....................................... 39.0 7.3 46.3
(Decrease) increase in other liabilities ....................... (34.4) 17.0 (2.1)
Other items .................................................... (11.1) (20.5) (25.9)
----------- ----------- -----------
Net cash provided by operating activities ................... 144.8 1,227.3 424.6
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated for investment ................................ (2,128.9) (2,503.5) (2,020.1)
Purchases of securities available for sale ..................... (202.9) (1,519.2) (5.5)
Proceeds from sales of securities available for sale .......... 976.3 670.4 --
Proceeds from sales of loans held for investment ............... -- -- 65.1
Net (purchases) maturities of securities held to maturity ..... (54.2) 0.4 (145.7)
Principal collected on loans receivable held for investment ... 1,152.1 1,406.9 1,877.2
Principal collected on securities held to maturity ............ 435.8 533.5 597.4
Proceeds from maturities of securities ......................... 808.8 1.0 254.5
Net (increase) decrease in FHLB stock .......................... (1.6) (12.6) 29.0
Proceeds from sales of real estate held for sale, net ......... 136.8 398.2 522.7
Net (additions) dispositions of premises and equipment ........ (2.8) 8.3 2.3
Net decrease (increase) in short-term liquid investments ...... 259.7 (27.0) 123.9
Net (increase) decrease in securities purchased under
agreements to resell .......................................... (1,626.4) (18.0) 9.6
Proceeds from sale of California Thrift & Loan ................. -- -- 30.3
----------- ----------- -----------
Net cash (used) provided by investing activities ........... (247.3) (1,061.6) 1,340.7
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits ................................ 1,115.8 (4,239.9) (511.2)
Proceeds from Federal Home Loan Bank advances .................. 3,135.0 1,710.0 505.0
Payments on Federal Home Loan Bank advances .................... (2,990.0) (200.0) (1,328.7)
Net (decrease) increase in reverse repurchase agreements ...... (893.7) 1,501.2 (185.3)
Proceeds from other borrowings ................................. 3.0 202.0 317.5
Payments on other borrowings and subordinated debentures ...... (286.7) (41.4) (300.9)
Proceeds from the issuance of common shares .................... -- 210.9 --
Proceeds from the issuance of preferred shares of subsidiary .. -- 164.2 89.0
----------- ----------- -----------
Net cash provided (used) by financing activities ........... 83.4 (693.0) (1,414.6)
----------- ----------- -----------
Net (decrease) increase in cash ................................. (19.1) (527.3) 350.7
Cash at beginning of period ..................................... 292.8 820.1 469.4
----------- ----------- -----------
Cash at end of period ........................................... $ 273.7 $ 292.8 $ 820.1
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Cal Fed Bancorp Inc. was incorporated as a Delaware corporation to serve as
the holding company for California Federal Bank, F.S.B. ("California Federal")
During the 1995 fourth quarter, California Federal received both regulatory and
shareholder approval to reorganize into a holding company structure. Prior to
the effective date of the reorganization, Cal Fed Bancorp Inc. was a
wholly-owned subsidiary of California Federal. On December 22, 1995, as part of
the reorganization into a holding company structure, California Federal
contributed $22 million in capital to Cal Fed Bancorp Inc. On January 1, 1996,
the reorganization was effected whereby each share of California Federal,
common stock was converted into one share of Cal Fed Bancorp Inc. common stock.
As a result of the reorganization, California Federal, became a wholly-owned
subsidiary of Cal Fed Bancorp Inc. The other equity securities remain
outstanding securities of California Federal. However, while the 7 3/4%
noncumulative convertible preferred stock, Series A of California Federal
remains an outstanding security of California Federal, the Series A preferred
stock will be convertible into shares of Cal Fed Bancorp Inc. common stock if
converted. The Bank may call the Series A preferred stock at anytime on or
after March 31, 1996 at its par value of $25.00.
The consolidated financial statements include the accounts of Cal Fed
Bancorp Inc. and its subsidiaries ("the Bank"). The Bank maintains 125 full
service branches in California and Nevada and is one of the largest savings
associations in the United States. The Bank offers a broad range of consumer
financial services including demand and term deposits and mortgage and consumer
loans. Subsidiaries of the Bank sell insurance and investment products to the
Bank's customers, and have previously engaged in the real estate investment and
development and trust business. The Bank's deposit gathering and loan
production operations are concentrated in California, particularly in Southern
California.
It is the Bank's policy to consolidate all majority-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to the 1994 and 1993
data in order to conform to the current presentation. The preparation of the
Bank's financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the Financial Statements and the reported
operations of the Bank for the periods presented. Actual results may differ
from those estimates calculated by the Bank.
In December 1995, California Federal contributed approximately $22 million
in capital to Cal Fed Bancorp Inc. as part of the reorganization into a holding
company structure. Although the contribution did not impact California
Federal's consolidated regulatory capital at December 31, 1995, California
Federal's regulatory capital will be reduced by the amount of the contribution
in 1996.
SHORT-TERM LIQUID INVESTMENTS
The Bank's short-term liquid investments consist of federal funds sold and
certificates of deposit. These investments generally mature within 60 days. The
Bank invests in these assets as a means to maximize its return on short-term
funds that it holds for liquidity purposes.
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
The Bank invests in securities purchased under agreements to resell
("repurchase agreements") to maximize the yield on its liquid assets. The Bank
obtains collateral for these agreements, which normally consists of U.S.
treasury securities or mortgage-backed securities ("MBS") guaranteed by
agencies of the U.S. government. The collateral is held in the custody of a
trustee, who is not a party to the transaction.
F-6
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The duration of
these agreements is typically less than 30 days. The Bank deals only with
nationally recognized investment banking firms as the counterparties to these
agreements. The Bank's investment in repurchase agreements solely consisted of
securities purchased under agreements to resell identical securities.
INVESTMENTS IN SECURITIES
The Bank's investment in securities principally consists of U.S. treasury
securities and mortgage-backed securities. The Bank has created MBS when it
exchanges pools of loans for mortgage-backed securities ("securitized loans").
The Bank adopted Statement of Financial Accounting Standard No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115") at December
31, 1993. In accordance with SFAS 115, the Bank classifies its investment in
securities as held to maturity securities, trading securities and available for
sale securities as applicable. The Bank did not hold any trading securities at
December 31, 1995 or 1994.
Available for Sale Securities
The Bank has classified certain securities as "available for sale". The Bank
classifies securities as available for sale based upon a determination that
such securities may be sold at a future date or if there are foreseeable
circumstances under which the Bank would sell such securities.
Securities designated as available for sale are recorded at market value.
Changes in the market value of debt securities held for sale are included in
shareholders' equity as unrealized holding gains or losses net of the related
tax effect, if any. Unrealized losses, on available for sale securities
reflecting a decline in value judged to be other than temporary, are charged to
income in the Consolidated Statement of Operations. Realized gains or losses on
available for sale securities are computed on a specific identification basis.
Securities Held to Maturity
The Bank has classified certain securities as "held to maturity". Securities
are designated as held to maturity if the Bank has the positive intent and the
ability to hold the securities to maturity. Held to maturity securities are
carried at amortized cost, adjusted for the amortization of any related
premiums or the accretion of any related discounts into interest income using a
methodology which approximates a level yield of interest over the estimated
remaining period until maturity. Unrealized losses on held to maturity
securities, reflecting a decline in value, judged by the Bank to be other than
temporary, are charged to income and reported under the caption "Gain (loss) on
Sale of Securities" in the Consolidated Statements of Operations.
LOANS RECEIVABLE
The Bank's principal interest earning asset is loans receivable. The Bank
primarily originates loans secured by residential property of 4 units or less
("residential 1-4 loans"). Prior to 1993, the Bank was active in the
origination of loans secured by residential properties of 5 or more units
("multifamily loans") and loans secured by office buildings, shopping centers,
industrial buildings, warehouses, marinas and hotels ("commercial real estate
loans.") The Bank currently limits its originations of multifamily and
commercial real estate loans to finance the sale of real estate. Prior to 1993,
the Bank was active in the origination of loans secured by vehicles, mobile
homes, boats and unsecured personal loans ("consumer loans"). Since 1993, the
Bank has ceased originating consumer loans for its own portfolio. However, the
Bank does originate consumer loans for other financial institutions for a fee.
The Bank segregates its loan portfolio into loans held for sale and loans held
for investment. The Bank normally designates a loan as held for sale at the
time of origination. The Bank's portfolio of residential 1-4 loans, multifamily
loans and
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CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
commercial real estate loans are primarily secured by property located in
California. The Bank continues to focus its origination efforts in California,
particularly in Southern California. The Bank's ability to originate loans is
affected by economic conditions, competition and the market for real estate in
California. Likewise, the ability of the Bank's borrowers to honor their
contractual loan obligations to the Bank are also affected by the strength of
the California economy and particularly the availability of employment and the
pricing for residential housing. Should the California economy, the market for
real estate, and/or the availability of employment experience a significant
downturn over the near term, the Bank may experience a reduction in the level
of loan originations and/or an increase in loan losses.
Loans Receivable Held for Sale
The Bank has designated certain of its loans receivable as "held for sale".
In determining the level of loans held for sale, the Bank considers whether
such loans would be sold in response to liquidity needs, asset/liability
management requirements, regulatory capital needs and other factors. The Bank's
current policy is to designate substantially all originations of fixed-rate
residential 1-4 loans that conform to the underwriting criteria of Fannie Mae
("FNMA"), formerly known as the Federal National Mortgage Association or
Freddie Mac ("FHLMC"), formerly known as the Federal Home Loan Mortgage
Corporation, as held for sale.
Loans held for sale are recorded at the lower of cost or market value.
Unrealized losses are recorded as reduction in earnings and are included under
the caption "Gain (loss) on sale of loans" in the Consolidated Statements of
Operations. Realized gains and losses from the sale of loans receivable are
computed under the specific identification method.
Gains and Losses from the Sale of Loans
The Bank sells whole loans and participations in mortgage loans to
institutional and private investors. Gains and losses resulting from the sales
of loans are determined on the specific identification method and reflect the
extent that the sales proceeds exceed or are less than the Bank's investment in
the loans (which includes adjusting the unpaid principal balance of the loans
for unearned discounts, premiums and deferred fees and costs at the time of
sale). In some cases, the Bank sells loans and continues to service such loans
for the investor. In these cases, the Bank recognizes a gain or loss on the
loan sale measured by the present value of the difference between the yield on
the loans and the yield to be paid to the buyer, reduced by the normal
servicing fees, over the estimated remaining lives of those loans using market
prepayment, default and discount rate assumptions. If loans are sold with
recourse, the estimated liability under the recourse provisions is provided for
in the computation of the gain or loss. The resulting deferred discount or
premium ("excess servicing") is amortized as an addition to or deduction from
income using the interest method, adjusted for actual prepayments. The Bank
periodically reviews the remaining premium to ensure that it does not exceed
the present value of the estimated excess servicing fees, using current
estimates of market prepayments and default. In the event that actual
prepayments exceed the assumptions used in determining the gain or loss, the
deferred premium is adjusted to reflect current prepayment projections by a
charge to operations. To the extent sales of loans involve the sale of part of
a loan or a pool of loans with disproportionate credit and prepayment risks,
the cost basis is allocated based upon the relative fair market value of the
portion sold and the portion retained on the date such loans were acquired or,
if that is not determinable, the date of sale. The amount of excess servicing
recorded by the Bank was $3.9 million at both December 31, 1995 and 1994. Such
amounts were included in "Prepaid expenses and other assets" on the
Consolidated Statements of Financial Condition.
Loan Servicing
The Bank services its loan portfolio and real estate and consumer loans
which are owned by independent investors. Loans serviced by the Bank for others
are primarily the result of the Bank selling
F-8
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
loans while retaining the servicing of such loans. Loans which are serviced for
other parties are not included with loans receivable or any other asset in the
accompanying consolidated financial statements. Fees earned for servicing loans
for others are reported as income when the related loan payments are collected.
Loan servicing costs are charged to expense as incurred.
Loans Receivable Held for Investment
The Bank's loan portfolio is comprised of residential 1-4 loans, loans
secured by income producing real estate ("income property loans") and consumer
loans. Since 1993, the Bank has not actively engaged in originating income
property loans, except to finance the sale of the Bank's real estate.
Loans receivable are generally recorded at the contractual amounts owed by
borrowers, less deferrals, unearned interest, the allowance for loan losses,
undisbursed funds and purchase premiums and discounts. Interest on loans is
credited to income as earned, to the extent deemed collectible. Discounts on
loans purchased and unearned interest on consumer loans is accreted into
interest income using the interest method over the contractual lives of the
loans, adjusted for actual prepayments.
Loan Origination Fees and Costs
Loan origination fees and certain direct loan origination costs are deferred
and recognized over the lives of the related loans as an adjustment of loan
yield using the interest method. When a loan is paid off or sold, any
unamortized net deferred fee balance is credited to income. Commitment fees
received in connection with the purchase of loans are deferred and recognized
over the life of the resulting loans as an adjustment of yield, or if the
commitment expires unexercised, credited to income upon expiration of the
commitment. Any costs in connection with the purchase of loans are expensed as
incurred.
Impaired and Non-Performing Loans
In May 1993, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan ("SFAS 114"). Under SFAS 114, a loan is impaired when
it is "probable" that a creditor will be unable to collect all amounts due
(i.e., both principal and interest) according to the contractual terms of the
loan agreement. SFAS 114 excludes among other items, large groups of
smaller-balance homogenous loans that are collectively evaluated for
impairment. The Bank adopted SFAS 114 as of January 1, 1995. The Bank has
defined residential 1-4 loans, consumer loans, multifamily loans with an
outstanding balance of less than $750,000 and commercial real estate loans with
an outstanding balance of less than $500,000 as homogenous loans. All
homogenous loans that are 90 days or more delinquent or are in foreclosure are
automatically placed on non-performing status. Additionally, homogenous loans
that have had a modification of terms are individually reviewed to determine if
they meet the definition of a troubled debt restructuring. The measurement of
impairment may be based on (i) the present value of the expected future cash
flows of the impaired loan discounted at the loan's original effective interest
rate; (ii) the observable market price of the impaired loan, or (iii) the fair
value of the collateral of a collateral-dependent loan. The amount by which the
recorded investment of the loan exceeds the measure of the impaired loan is
recognized by recording a valuation allowance with a corresponding charge to
the provision for losses. For all loans secured by real estate, the Bank
measures impairment and establishes specific valuation allowances by utilizing
the fair value of the property collateralizing the loan. Additionally, SFAS 114
eliminates the requirement that a creditor account for certain loans as
foreclosed assets until the creditor has taken possession of the collateral.
SFAS 114 became effective for financial statements issued for fiscal years
beginning after December 15, 1994 and is required to be adopted prospectively.
All loans designated by the Bank as "impaired" are either placed on
non-accrual status or are designated as restructured and are included with
those loans reported as non-performing. The Bank did
F-9
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
not experience a material impact upon its financial condition or operations
from the implementation of SFAS 114. The Bank's non-performing loans consist of
loans on which the Bank has ceased the accrual of interest ("non-accrual
loans") and loans on which various concessions have been made with respect to
the interest rate or other terms due to the inability of the borrower to
service the obligation under the original terms of the agreement ("restructured
loans"). It is the Bank's policy to place a loan on non-accrual status in the
event that the borrower is 90 days or more delinquent or earlier if the timely
collection of interest and/or principal appears doubtful. When a loan is
determined to be impaired and/or placed on non-accrual status, the accrued and
unpaid interest receivable is reversed. All cash subsequently collected on
non-accrual loans are used to reduce the recorded investment in the loan until
the loan is returned to performing status. The Bank's policy allows for loans
that are contractually performing to be designated as impaired and to be placed
on non-accrual status, if the future collection of interest and or principal
appears doubtful or the risk of default is probable.
Allowance for Loan Losses
The Bank has established valuation allowances for estimated losses on
specific loans ("specific valuation allowances") and for the inherent risk in
the loan portfolio which has yet to be specifically identified ("general
valuation allowances").
The Bank maintains a loan monitoring system which provides a means for the
timely identification of impaired and potential problem loans and to permit the
evaluation of the adequacy of the allowances for losses. The Bank's loan
monitoring system has established specific policies relating to its residential
1-4, income property, commercial banking and consumer loan portfolios.
Additionally, the Bank is required by various regulatory agencies to monitor
and classify its assets as Pass, Special Mention, Substandard, Doubtful and
Loss. The Bank's monitoring system further disaggregates loans that are
determined to be Pass into four separate grades. Additionally, the Bank places
loans on a watchlist if they exhibit certain credit characteristics. These
characteristics include dollar size, tenant concentration and the timing of
maturity.
The Bank's residential 1-4 loans and consumer loans are relatively
homogenous and no single residential 1-4 or consumer loan possesses the
potential for significant risk of loss. Therefore, the Bank normally evaluates
the risk of loss on these loans by analyzing their loss experience,
performance, default rates and other indicators of risk for the portfolios as a
whole. The Bank stratifies its income property loan portfolio by size and by
type and treats performing multi-family loans with outstanding principal
balances less than $750,000 and commercial real estate loans with balances less
than $500,000 as homogenous portfolios. Income property loans that are below
the homogenous threshold are evaluated for impairment based upon their payment
status and on a pool basis. For income property loans exceeding the homogenous
threshold, the Bank conducts a periodic review of each loan in order to test
each loan for impairment. The frequency and type of review is dependent upon
the inherent risk attributed to each loan. The level of risk is measured by a
scale which evaluates each loan on a continuum of multiple grades. The
frequency and intensity of the loan review is directly proportionate to the
adversity of the loan grade. The Bank evaluates the risk of default and the
risk of loss for each loan subject to individual monitoring. During 1995, the
Bank expanded the scope of its individual loan monitoring to include commercial
real estate loans with an outstanding principal balance in excess of $500,000.
Previously, the Bank had utilized a threshold of $750,000 for all income
property loans. The Bank expanded the scope of its non-homogenous loans to
ensure that a majority of its commercial real estate loans were subject to
individual review. Non-performing income property loans and performing loans
that have been graded substandard, special mention, or watchlist are typically
reviewed on a quarterly basis. Current appraisals are generally obtained
annually as long as the loan continues to possess certain risk characteristics.
These loans are monitored throughout the year by a review of the collateral's
operating performance and the borrowers
F-10
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
indicated or demonstrated ability to continue to meet their obligations. When
necessary, the Bank utilizes operating statements of the collateral to perform
its own discounted cash flow analyses. These analyses provide the basis for
specific valuation allowances. Numerous other factors are considered in the
evaluation, including a review of certain individual borrowers' current
financial status, credit standing, available collateral, the Bank's judgment
regarding prevailing and anticipated economic conditions and other relevant
factors.
Specific valuation allowances are provided when an identified decline in the
value of an impaired loan (or the related collateral) is identified. The
determination of specific valuation allowances includes a periodic evaluation
of the financial status of certain individual borrowers or collateral relating
to loans specifically identified as containing elements of potential risk in
the loan portfolio. For loans that are impaired and secured by real estate or
other collateral, the Bank provides specific allowances based upon the excess
of the outstanding loan amount over the fair value of the related collateral
with consideration of holding and selling costs.
General valuation allowances are based upon the inherent risk in the loan
portfolio that has not been specifically identified. The general valuation
allowance is based upon a number of factors, including historical loss
experience, the level of non-performing and internally classified loans, the
composition of the loan portfolio, estimated remaining lives of the various
types of loans within the portfolio, prevailing and forecasted economic
conditions and the Bank's judgment. General allowances are provided for all
loans, regardless of any specific allowances provided. The determination of the
Bank's allowance for loan losses is based on estimates that are affected by
changes in the regional or national economy and market conditions. The Bank
believes that as of December 31, 1995 and 1994, the allowance for loan losses
is adequate based on current economic and market conditions. However, in the
course of evaluating the adequacy of the allowance for loan losses, the Bank
has assumed that the California economy and the market for real estate will
remain in the same relative condition that it was in at December 31, 1995.
Should these factors experience a downturn in the near term or if market
interest rates increase significantly in the near term, the Bank could
experience a material increase in the level of loan defaults and charge-offs.
REAL ESTATE HELD FOR SALE
Real estate held for sale consists of real estate acquired in settlement of
loans ("REO") and real estate investments ("REI"). REO generally results when
property collateralizing a loan is foreclosed upon or otherwise acquired by the
Bank in satisfaction of the loan. REO is recorded at the lower of the recorded
investment in the loan satisfied, the fair value or the disposition value of
the related assets acquired less anticipated disposition costs. The fair value
of the assets is based upon a current appraisal adjusted for estimated carrying
and selling costs. The disposition value is based upon the current market
pricing of the asset. Net cash receipts on REO are recorded as a reduction in
the basis of the asset. Net cash payments are expensed as incurred. The Bank's
REI consist of properties that the Bank, through its subsidiaries, acquired for
purposes of development. The Bank has not been actively involved in real estate
investment or development for several years. The Bank's REI consist of
properties where the Bank is actively seeking to dispose of the property in an
expeditious manner. The Bank records its REI at the lower of cost or fair value
of the properties. The Bank determines fair value by utilizing recent sales
activity and deducting for holding and disposition costs over the estimated
remaining period to sell the projects. The Bank has assumed an orderly
disposition in estimating the holding period to sale. Should the Bank be unable
to sell the project at the projected prices, or if the holding period is
substantially longer than forecast, or if the Bank's intent with respect to an
orderly disposition were to change, the fair value ultimately realized by the
Bank could be materially lower than the Bank's current forecast.
F-11
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PREMISES AND EQUIPMENT, DEPRECIATION AND CAPITALIZATION OF INTEREST
Maintenance and repairs on premises and equipment are charged to expense in
the year incurred. Depreciation and amortization of premises and equipment are
computed using the straight-line method over the estimated useful lives of the
assets. Interest incurred on amounts used to finance the construction of such
assets is capitalized and amortized over the depreciable lives of the related
assets.
GOODWILL
Goodwill, which represents the excess of cost over the fair value of
tangible and identifiable intangible net assets acquired, was amortized on a
straight-line basis over the expected periods to be benefited, ranging from 20
to 40 years. During 1994, the Bank applied Statement of Financial Accounting
Standards No. 72 Accounting for Certain Acquisitions of Banking or Thrift
Institutions ("SFAS 72") to acquisitions initiated, by the Bank, prior to
September 30, 1982. SFAS 72 requires, among other things, that to the extent,
the fair value of liabilities assumed exceeds the fair value of identifiable
assets acquired from a banking or thrift institution, the unidentifiable
intangible asset recognized (i.e., goodwill) generally shall be amortized over
a period no longer than the discount on the acquired long-term interest earning
assets. SFAS 72 was effective for acquisitions initiated after September 30,
1982 with retroactive application permitted. The Bank had been accounting for
its acquisitions initiated subsequent to September 30, 1982 in accordance with
SFAS 72. The cumulative effect of the retroactive application of SFAS 72
resulted in the acceleration of the Bank's goodwill amortization arising from
the Bank's thrift institution acquisitions initiated prior to September 30,
1982. Under generally accepted accounting principles, the cumulative effect
from the retroactive application of SFAS 72 must be reflected as of the first
day of the fiscal year in which it is implemented. To that extent, $273.7
million of remaining unamortized goodwill was eliminated effective January 1,
1994.
INCOME TAXES
The Bank files a consolidated federal income tax return and a combined
California franchise tax report with its subsidiaries.
The Bank has adopted financial Accounting Standards Board Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109") and has applied the provisions of SFAS 109 retroactively to January 1,
1982. Under the asset and liability method of SFAS 109, deferred income tax
expense (benefit) is derived by establishing deferred tax assets and
liabilities as of the reporting date for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Bank's evaluation of the realizability of deferred tax
assets includes consideration of the amount and timing of future reversals of
existing temporary differences, as well as available taxable income in
carryback years. The Bank has not considered income from future operations in
evaluating the realizability of its deferred tax assets. See Note 20 Income
Taxes.
STOCKHOLDERS' EQUITY
The par value of the Bank's common stock was $1.00 per share at December 31,
1995 and at December 31, 1994. The number of shares issued and outstanding were
49,200,444 and 49,199,044 at December 31, 1995 and 1994, respectively. The
authorized number of common shares were 100,000,000 at December 31, 1995 and
1994.
F-12
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
During the 1995 fourth quarter, California Federal obtained regulatory and
shareholder approval to reorganize into a holding company structure. As a
result of the reorganization, on January 1, 1996, each share of California
Federal common stock was converted into one share of Cal Fed Bancorp Inc.
common stock. Consequently, California Federal became a wholly-owned subsidiary
of Cal Fed Bancorp Inc. The other equity securities remain outstanding
securities of California Federal. However, the 7 3/4% noncumulative convertible
preferred stock, Series A of California Federal is convertible into shares of
Cal Fed Bancorp Inc. common stock if converted.
The par value of the 7 3/4% noncumulative convertible preferred stock,
Series A of California Federal was $25.00 per share at both December 31, 1995
and December 31, 1994, respectively. The designated and outstanding number of
shares at December 31, 1995 were 3,800,000 and 3,740,000, respectively.
Preferred stock, Series A, dividends are not cumulative and are payable
quarterly when declared by the Board of Directors of California Federal
Quarterly dividend payments commenced May 15, 1993. The preferred stock, Series
A, is convertible by the holder into common stock at anytime, unless previously
redeemed by California Federal, at a conversion price of $20.16 per share of
common stock, subject to adjustment. The preferred stock, Series A, is not
redeemable prior to March 31, 1996. The preferred stock, Series A, is
redeemable solely at the option of California Federal at any time on or after
March 31, 1996, in whole or in part, at par value plus declared but unpaid
dividends.
During 1994, California Federal issued 1,725,000 shares of 10 5/8%
noncumulative perpetual preferred stock, Series B ("Preferred Stock, Series
B"). Cash dividends on the Preferred Stock, Series B, are not cumulative and
are payable quarterly when declared by the Board of Directors of California
Federal. The Preferred Stock, Series B, has a liquidation preference and par
value of $100.00 per share. The par value of the Preferred Stock, Series B was
$100.00 per share at December 31, 1995 and 1994. Both the designated and
outstanding number of shares at December 31, 1995 and 1994 were 1,725,000. The
Preferred Stock, Series B, is generally not redeemable prior to April 1, 1999.
The Preferred Stock, Series B, is redeemable at the option of California
Federal, in whole or in part, at $105.313 per share on or after April 1, 1999
and prior to April 1, 2000, and at prices decreasing annually thereafter to the
liquidation preference of $100.00 per share on or after April 1, 2003, plus
declared but unpaid dividends. In addition, the Preferred Stock, Series B, is
redeemable at the option of California Federal or its successor or any
acquiring or resulting entity with respect to California Federal on or after
April 1, 1996 and prior to April 1, 1999 in whole, but not in part, in the
event of a change of control of California Federal at $114.50 per share.
On February 28, 1993, California Federal completed a one-for-five reverse
stock split (the "Reverse Stock Split") of all classes of California Federal
common stock. The Reverse Stock Split has been reflected in the consolidated
financial statements of the Bank for and at all periods presented. Therefore,
the par value, the number of shares issued, the number of shares authorized,
the number of shares outstanding and the average number of shares at and for
all periods are presented as if the reverse stock split had occurred at the
first day of each fiscal year for all periods presented.
NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per common share is computed by dividing net earnings
(loss) available to common stockholders by the weighted average number of
common shares outstanding, including the dilutive effect, if any, of common
stock equivalents. For the years ended December 31, 1995, 1994 and 1993, the
weighted average number of shares used to calculate primary earnings (loss) per
share were 49,855,150; 43,556,167 and 24,971,836, respectively. For the years
ended December 31, 1995, 1994 and 1993 the weighted average number of shares
used to calculate fully diluted earnings (loss) per share were 50,020,218;
43,556,167 and 24,971,836, respectively.
F-13
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 107 "Disclosures about Fair Value of Financial
Instruments" ("SFAS 107").
Financial instruments are defined under SFAS 107 as cash, evidence of an
ownership in an entity, or a contract that conveys or imposes on an entity the
contractual right or obligation to either receive or deliver cash or another
financial instrument.
A significant portion of the Bank's assets and liabilities are financial
instruments as defined under SFAS 107. The Bank is also a party to financial
instruments that are not reported on the Consolidated Statements of Financial
Condition ("off balance sheet financial instruments"). Such off-balance sheet
financial instruments include: commitments to originate loans, standby letters
of credit, recourse arrangements and interest rate exchange agreements.
Risks Associated with Financial Instruments
Credit Risk
Credit risk of a financial instrument is the possibility that a loss may
result from the failure of another party to perform in accordance with the
terms of the contract. The most significant credit risk associated with the
Bank's financial instruments is concentrated in its loans receivable.
Additionally, the Bank is subject to credit risk on certain off-balance sheet
financial instruments. The Bank utilizes a loan monitoring system to evaluate
the level of credit risk on its loan portfolio and utilizes a similar process
for loans sold by the Bank with recourse and standby letters of credit. The
Bank's credit risk with respect to interest rate exchange agreements is limited
to the premium paid on interest rate cap and floor arrangements, and the amount
of interest due from the counterparty.
Market Risk
Market risk of a financial instrument is the possibility that future changes
in market prices may reduce the value of a financial instrument or increase the
contractual obligations of the Bank. The Bank's market risk is concentrated in
its portfolios of securities held for sale and loans receivable. The Bank's
securities held for sale are traded in active markets. The values of these
securities are susceptable to fluctuations in the general market. When a
borrower fails to meet the contractual requirements of his loan agreement, the
Bank is subject to the market risk of the collateral securing the loan.
Interest Rate Risk
Financial instruments are subject to interest rate risk to the extent that
they reprice on a frequency, degree or basis that varies from market repricing.
The Bank is subject to interest rate risk to the degree that its interest
earning assets reprice on a different frequency or schedule than its interest
bearing liabilities. A majority of the Bank's loans receivable and mortgage
backed securities reprice based upon the eleventh district cost of funds index
("COFI"). The repricing of COFI tends to lag market interest rates. The Bank
closely monitors the pricing sensitivity of its financial instruments and, if
deemed cost effective, utilizes hedging and other asset/liability techniques to
mitigate the impact of interest rate risk.
Concentrations of Credit Risk
The Bank's lending activities are principally conducted in California and
the Bank currently focuses on the origination of residential 1-4 loans. The
largest concentration of the Bank's loan portfolio is located
F-14
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
in the Los Angeles County area of California. The ability of the Bank's
borrowers to repay their commitments is contingent on several factors,
including the economic conditions in the borrower's geographic region,
primarily Southern California, market interest rates, and upon the individual
financial condition of the borrower.
Fair Value of Financial Instruments
SFAS 107 requires the disclosure of the fair value of financial instruments,
whether or not recognized on the statement of financial condition, for which it
is practicable to estimate the value. SFAS 107 requires that the Bank disclose
estimated fair values for its financial instruments. Fair values, estimates and
assumptions are set forth in Note 21 Fair Value of Financial Instruments.
Derivative Financial Instruments
The Bank's derivative financial instruments are primarily limited to
interest rate exchange contracts and such contracts are predominantly utilized
for hedging activities for existing assets and liabilities.
The Bank uses several types of interest rate exchange contracts as an
integral part of its asset/liability management program including: (i) interest
rate swaps, (ii) interest rate caps and (iii) interest rate floors. Interest
rate exchange agreements have been utilized primarily to reduce interest rate
risk on certain interest bearing liabilities and interest earning assets.
Interest rate swap agreements are instruments in which the Bank and another
party agree to exchange interest payments on a notional amount. When using
interest rate cap agreements, the Bank pays another party a premium in exchange
for cash payments on a notional amount in the event that a specified index
exceeds a specified rate. When utilizing interest rate floors, the Bank pays a
premium in exchange for cash payments on a notional amount in the event that a
specified index is less than a specified rate. These premiums are amortized
over the duration of the agreement. The notional amounts of interest rate
exchange agreements are not reflected in the Consolidated Statements of
Financial Condition, but are disclosed in the notes to these Consolidated
Financial Statements. The Bank records interest income and expense on the
accrual method for its interest rate exchange agreements. Changes in the value
of interest rate exchange agreements that are designated as held for a purpose
other than trading are not reflected in the Consolidated Financial Statements
unless the Bank determined that it was probable that the counterparty would
default. Interest rate exchange agreements that are designated as held for
trading purposes are evaluated at fair value, and in the event that such
evaluation indicates a net liability to the Bank, such liablility is reflected
on the Consolidated Statements of Financial Condition with corresponding charge
reflected on the Consolidated Statement of Operations. To the extent that the
Bank is in a gain position, the Bank records net cash flow as income upon
receipt and typically does not record unrealized gains as income.
NEWLY ENACTED AND PROPOSED ACCOUNTING PRONOUNCEMENTS
In October 1994, the FASB issued Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures" ("SFAS 118"). SFAS 118 amends SFAS 114 to allow a
creditor to use existing methods for recognizing interest income on an impaired
loan. Additionally, SFAS 118 requires, among other things, additional
disclosure, either in the body of the Financial Statements or in the
accompanying notes, about the recorded investment in certain impaired loans and
about how a creditor recognizes interest income related to those impaired
loans. SFAS 118 is effective for financial statements issued for fiscal years
beginning after December 15, 1994. The disclosures required by SFAS 118 are
reflected in the Notes to the Consolidated Financial Statements.
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" ("SFAS 121").
F-15
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used for long-lived assets and certain identifiable intangibles
to be disposed of. SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In the event that a
long-lived asset is determined to be impaired, an impairment loss shall be
recognized. SFAS 121 prescribes that impairment losses for long-lived assets
shall be measured as the amount by which the carrying amount of the asset
exceeds its fair value. Additionally, SFAS 121 provides that long-lived assets,
to be disposed by sale or abandonment, shall be reported at the lower of
carrying amount or fair value less cost of disposition. This statement is
effective for financial statements for fiscal years beginning after December
15, 1995, earlier application is permitted. The Bank has not yet implemented
SFAS 121 and does not believe that it will have a material adverse effect on
its financial position or results of operations.
In May 1995, the FASB issued Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), an amendment of
FASB Statement No. 65 "Accounting for Certain Mortgage Banking Activities"
("SFAS 65"). SFAS 122 amends SFAS 65 to remove the distinction in accounting
for mortgage servicing rights resulting from originated loans and those
resulting from purchased loans. Additionally, SFAS 122 requires that a mortgage
banking enterprise assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights SFAS 122 is to be applied
prospectively to fiscal years beginning after December 15, 1995, earlier
application is permitted. The Bank has not yet implemented SFAS 122 and does
not believe that it will have a material adverse effect on its financial
position or results of operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. Those plans include all arrangements by which
employees receive shares of stock or other equity instruments of the employer
or the employer incurs liabilities to employees in amounts based on the price
of the employer's stock. Examples are stock purchase plans, stock options,
restricted stock, and stock appreciation rights. This Statement also applies to
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. Those transactions must be accounted for, or at
least disclosed in the case of stock options, based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. The accounting requirements of SFAS 123
are effective for transactions entered into in fiscal years that begin after
December 15, 1995. The disclosure requirements of SFAS 123 are effective for
financial statements for fiscal years beginning after December 15, 1995, or for
an earlier fiscal year for which SFAS 123 is initially adopted for recognizing
compensation cost. The Bank has not yet implemented SFAS 123 and does not
believe that it will have a material adverse effect on its financial position
or results of operation.
In November 1995, the FASB issued a Special Report as an aid in
understanding and implementing Statement of Financial Accounting Standards No.
115. "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). The Special Report included such guidance that enabled the Bank to
reassess the appropriateness of the classifications of all securities held and
account for any resulting reclassifications at fair value in accordance with
SFAS 115. During the fourth quarter of 1995, the Bank, in accordance with the
Special Report, redesignated $17.2 million of MBS from "held to maturity" to
"available for sale". Prior to December 31, 1995, the Bank sold the MBS for a
loss of less than $0.1 million.
PROPOSED LEGISLATION
The Bank's deposits are insured by the Savings Association Insurance Fund
("SAIF") to a maximum of $100,000 for each insured depositor. The Federal
Deposit Insurance Corporation ("FDIC") administers
F-16
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
a separate Bank Insurance Fund ("BIF") applicable to commercial banks and
certain other non-SAIF insured institutions. Legislation is currently under
consideration by Congress which includes a one-time assessment for SAIF members
such as the Bank. Should legislation be enacted in its currently contemplated
form, the Bank's one-time assessment would be approximately $80 million, based
upon the Bank's insured deposits at March 31, 1995 and an assumed assessment
rate of 85 basis points. Additionally, once the SAIF has been recapitalized
through the one-time assessment, the Bank's deposit insurance premium
assessments would be reduced from the current rate. The currently proposed
legislation has evolved significantly over recent months and may continue to
change until final legislation is enacted, if ever. Moreover, there can be no
assurance that a premium reduction will occur.
Assuming the proposed one-time special assessment became law in 1996 and was
immediately charged against results of operations, the one-time assessment
would, most likely, have a material adverse effect on the Bank's 1996 results
of operations. However, the Bank believes that it has sufficient regulatory
capital to continue to be classified as "well-capitalized" following such an
assessment. In addition, the Bank would not face any liquidity issues as a
result of such a one-time assessment.
In addition, this proposed legislation would also significantly change the
federal income tax law affecting the bad debt reserves of savings institutions.
Although these proposed tax law changes are generally intended to provide
favorable tax results to savings institutions, there are unique situations,
such as in the case of the Bank, where the results may be unfavorable in
comparison to current tax law. The proposed legislation is currently under
review and may change significantly before final legislation is enacted, if
ever.
NOTE 2: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the purposes of the Consolidated Statements of Cash Flows, the Bank
defines cash as currency on hand and demand deposits with other financial
institutions.
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cash Paid (Received) During the Year for:
Interest expense ............................ $685.2 $ 557.8 $617.4
Income taxes refunded ....................... (1.6) (8.5) (41.1)
Non-Cash Investing and Financing activities:
Loan foreclosures ........................... 146.2 189.3 506.3
Loans exchanged for mortgage-backed
securities .................................. 239.7 424.0 411.9
Transfer of securities to available for sale 17.2(A) -- 578.0
Transfer of loans to held for sale(B) ....... 78.7 1,213.9 189.6
Transfer of loans to held for investment .... -- -- 127.4
</TABLE>
- ------------
(A) In November 1995, the FASB issued a Special Report as an aid to
understanding and implementing SFAS 115. During the fourth quarter of
1995, the Bank, in accordance with the Special Report, redesignated
$17.2 million of MBS from "held to maturity" to "available for sale"
and, prior to December 31, 1995, sold the MBS for a loss of less than
$0.1 million.
(B) During 1994, the Bank designated $1.2 billion of performing and
non-performing loans as assets held for accelerated disposition. This
designation was made during 1994 as an integral part of the bank's
program to improve its capital position, reduce non-performing assets
and improve its operating efficiency.
F-17
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3: SHORT-TERM LIQUID INVESTMENTS
The Bank's short-term liquid investments include certificates of deposit,
commercial paper and Federal funds sold. The amount of short-term liquid
investments held by the Bank at any point in time is a function of many factors
including: liquidity requirements, projected cash requirements and cash flows.
The following table presents the Bank's short-term liquid investments at the
dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------------------------- ----------------------------------------------
WEIGHTED AVG. WEIGHTED AVG.
CARRYING WEIGHTED AVG. MATURITY CARRYING WEIGHTED AVG. MATURITY
VALUE RATE (DAYS) VALUE RATE (DAYS)
---------- -------------- --------------- ----------- --------------- --------------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Federal funds
sold .......... $70.0 5.80% 2 $330.0 6.28% 3
Certificates of
deposit ....... 4.1 5.19 27 3.8 3.18 32
---------- -----------
$74.1 5.77 $333.8 6.25
========== ===========
</TABLE>
At both December 31, 1995 and 1994 accrued interest and dividends receivable
related to short-term liquid investments held to maturity was $0.2 million.
NOTE 4: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL
Securities purchased under agreements to resell are collateralized by
mortgage-backed securities at December 31, 1995 and by U.S. Treasury securities
at December 31, 1994. The following table provides additional information on
the agreements:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Carrying value of agreements to resell .................... $1,674.6 $ 48.2
Market value of collateral ................................ 1,704.4 48.3
Maximum amounts of outstanding agreements to resell at any
month-end ................................................ 1,704.2 48.2
Average amounts of outstanding agreements to resell for
the year ................................................. 1,144.5 1,032.9
Weighted average interest rate for the year ............... 5.99% 4.26%
Weighted average interest rate on year-end balances ...... 6.01% 5.70%
Weighted average maturity of outstanding agreements to
resell (days) ............................................ 11 3
</TABLE>
F-18
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE4: SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL (Continued)
At December 31, 1995 and 1994, the Bank held only securities purchased under
agreements to resell the identical securities. The securities collateralizing
these agreements are held in the custodial accounts of a trustee, who is not a
party to the agreement for the Bank for the duration of the agreements. The
following table presents the Bank's securities purchased under agreements to
resell, by counterparty, at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
COUNTERPARTY 1995 1994
- ------------ -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Lehman Brothers .. $ 700.7 $48.2
Nomura Securities 500.0 --
Bear Stearns ...... 473.9 --
--------- -------
$1,674.6 $48.2
========== =======
</TABLE>
Accrued interest related to securities purchased under agreements to resell
at December 31, 1995 and 1994 totaled $2.7 million and less than $0.1 million,
respectively.
NOTE 5: SECURITIES AVAILABLE FOR SALE
The carrying values, market values and weighted average rate of securities
available for sale at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED
UNREALIZED UNREALIZED HOLDING WEIGHTED
HISTORICAL CARRYING HOLDING HOLDING GAINS MARKET AVERAGE
COST VALUE GAINS LOSSES (LOSSES) VALUE RATE
------------ ---------- ------------ ------------ ------------ -------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Maturing within 1 year $150.0 $149.9 $ -- $(0.1) $(0.1) $149.9 4.00%
Maturing after 1 year
but within 5 years ... 50.3 50.4 0.1 -- 0.1 50.4 7.46
------------ ---------- ------------ ------------ ------------ --------
$200.3 $200.3 $0.1 $(0.1) $ -- $200.3 4.87%
============ ========== ============ ============ ============ ========
</TABLE>
The carrying values, market values and weighted average rate of securities
available for sale at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED UNREALIZED UNREALIZED WEIGHTED
HISTORICAL CARRYING HOLDING HOLDING HOLDING MARKET AVERAGE
COST VALUE GAINS LOSSES LOSSES VALUE RATE
------------ ---------- ------------ ------------ ------------ ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities:
Maturing within 1 year $1,001.2 $ 997.5 $-- $ (3.7) $ (3.7) $ 997.5 4.64%
Maturing after 1 year
but within 5 years .... 749.5 734.0 -- (15.5) (15.5) 734.0 6.19
------------ ---------- ------------ ------------ ------------ ----------
$1,750.7 $1,731.5 $-- $(19.2) $(19.2) $1,731.5 5.30%
============ ========== ============ ============ ============ ==========
</TABLE>
F-19
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5: SECURITIES AVAILABLE FOR SALE (Continued)
The table below presents the activity of securities available for sale for
the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, January 1, ... $1,731.5 $ 894.7 $ 546.0
Purchases .............. 202.9 1,519.2 5.5
Sales .................. (969.4) (670.2) --
Transfers .............. 17.2(A) -- 578.0(B)
Maturities(C) .......... (801.1) 22.2 (250.1)
Market value adjustment 19.2 (34.4) 15.3
---------- ---------- ----------
Balance, December 31, . $ 200.3 $1,731.5 $ 894.7
========== ========== ==========
</TABLE>
- ------------
(A) During 1995, the Bank transferred $17.2 million of mortgage-backed
securities held to maturity to securities available for sale. See Note
6 Securities Held to Maturity for further information.
(B) During 1993, the Bank adopted SFAS 115 and accordingly $578.0 million
of securities held to maturity were transferred to securities available
for sale.
(C) Maturities include amortization of premiums and accretion of discounts.
Accrued interest receivable on securities available for sale at December 31,
1995 and December 31, 1994 totaled $2.7 million and $15.0 million,
respectively.
Proceeds from sales of securities available for sale during the years ended
December 31, 1995, 1994 and 1993 were $976.3 million, $670.4 million and zero,
respectively.
The Bank has pledged certain securities, including those available for sale,
as collateral for advances from the Student Loan Mortgage Association ("SLMA")
and various other borrowings. The following table presents the outstanding
balances at the Bank's carrying value of securities pledged as collateral at
December 31, 1995 and 1994, respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Pledged as collateral for:
Repurchase agreements .. $ -- $692.6
SLMA advances .......... 124.9 287.0
Other borrowings ....... 58.8 11.9
-------- --------
$183.7 $991.5
======== ========
</TABLE>
NOTE 6: SECURITIES HELD TO MATURITY
The Bank's securities held to maturity have primarily consisted of MBS. The
Bank had an investment in a guaranteed investment contract, which matured in
1995. The Bank's portfolio of MBS consist of securities issued by agencies of
the United States, such as Fannie Mae ("FNMA"). The investments are purchased
or are obtained by exchanging pools of mortgage loans for the securities
("securitized loans").
F-20
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: SECURITIES HELD TO MATURITY (Continued)
Summarized below are securities held to maturity at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
1995 1994
-------------------------------------------------- --------------------------------------------------
GROSS GROSS GROSS GROSS
CARRYING UNREALIZED UNREALIZED MARKET CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE VALUE GAINS LOSSES VALUE
---------- ------------ ------------ ---------- ---------- ------------ ------------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities:
FNMA .................... $1,192.7 $17.9 $ (0.2) $1,210.4 $1,359.5 $0.4 $(46.4) $1,313.5
California Federal
AA-rated mortgage
pass-through securities 802.3 1.3 (5.2) 798.4 787.1 -- (21.1) 766.0
Other ................... 371.7 1.5 (20.7) 352.5 367.1 -- (20.8) 346.3
---------- ------------ ------------ ---------- ---------- ------------ ------------ ---------
2,366.7 20.7 (26.1) 2,361.3 2,513.7 0.4 (88.3) 2,425.8
---------- ------------ ------------ ---------- ---------- ------------ ------------ ---------
Guaranteed investment
contracts ................. -- -- -- -- 11.4 -- -- 11.4
---------- ------------ ------------ ---------- ---------- ------------ ------------ ---------
$2,366.7 $20.7 $(26.1) $2,361.3 $2,525.1 $0.4 $(88.3) $2,437.2
========== ============ ============ ========== ========== ============ ============ =========
</TABLE>
The weighted average interest rates of MBS held to maturity were 6.93% and
6.08% at December 31, 1995 and 1994, respectively. Accrued interest receivable
related to MBS held to maturity outstanding at December 31, 1995 and 1994
totaled $13.8 million and $12.7 million, respectively. The Bank utilizes MBS as
collateral for various borrowings. At December 31, 1995 and 1994, $1,316.3
million and $1,710.6 million, respectively, of MBS, were pledged as collateral
for various borrowings as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Pledged as collateral for:
Advances from FHLB ..... $ 255.9 $ 309.7
Repurchase agreements .. 908.9 1,080.3
SLMA advances .......... 108.6 269.9
Other obligations ...... 42.9 50.7
---------- ----------
$1,316.3 $1,710.6
========== ==========
</TABLE>
At December 31, 1995, the Bank had $1,064.5 million of securitized loans
with some form of recourse to the Bank. In the unanticipated event the
securitized loans are sold, purchasers would have varying forms of recourse to
the Bank. The recourse provisions subject the Bank to varying degrees of
liability in the event of loss. The Bank currently intends to hold its
portfolio of mortgage-backed securities until maturity. The following table
presents the composition of securitized loans with potential recourse, by
collateral type, at December 31, 1995:
<TABLE>
<CAPTION>
ORIGINAL LOAN
ORIGINAL LOAN TO VALUE RATIO
SECURITIZED LOANS ORIGINAL LOAN TO VALUE RATIO GREATER THAN
WITH RECOURSE TO VALUE RATIO GREATER THAN 80% WITHOUT
COLLATERALIZED BY LESS THAN =80% 80% WITH PMI(A) PMI(A) TOTAL
- --------------------- --------------- --------------- --------------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Residential 1-4 units $ 636.1 $51.0 $10.1 $ 697.2
Multi-family property 365.7 -- 1.6 367.3
--------------- --------------- --------------- ---------
$1,001.8 $51.0 $11.7 $1,064.5
=============== =============== =============== =========
</TABLE>
- ------------
(A) Private mortgage insurance (PMI) provides limited insurance protection
to the Bank in the event of default.
F-21
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: SECURITIES HELD TO MATURITY (Continued)
The Bank periodically reviews the credit quality of its portfolio of MBS.
In the case of securitized loans with recourse provisions, the Bank makes an
assessment of the credit quality of the underlying loans. See Note 1 Summary of
Significant Accounting Policies for a discussion of the Bank's loan monitoring
policies.
In November 1995, the FASB issued a Special Report as an aid to
understanding and implementing SFAS 115. During the fourth quarter of 1995, the
Bank, in accordance with the Special Report, redesignated $17.2 million of MBS
from "held to maturity" to "available for sale" and, prior to December 31,
1995, sold the MBS for a loss of less than $0.1 million. There were no sales of
MBS during the year ended December 31, 1994.
NOTE 7: LOANS RECEIVABLE HELD FOR SALE
In order to manage its asset size, liquidity requirements, the composition
and interest rate sensitivity of its interest earning assets and other factors;
the Bank originates certain fixed rate residential 1-4 loans for sale.
At December 31, 1995 and 1994, the historical cost bases of loans receivable
held for sale were $13.6 million and $1.3 million, respectively. At December
31, 1995 and 1994, the market value of loans receivable held for sale were
$13.8 million and $1.3 million, respectively. Market values, at December 31,
1995 and 1994, were based upon quotes of similar or identical loans.
Gross unrealized gains on loans receivable held for sale were $0.2 million
and zero at December 31, 1995 and 1994, respectively. Gross unrealized losses
on loans receivable held for sale were zero at both December 31, 1995 and 1994.
Proceeds from sales of loans receivable held for sale were $183.2 million,
$1,099.4 million and $940.1 million for the years ended December 31, 1995, 1994
and 1993, respectively.
The following table summarizes the gains and losses recorded for the periods
presented for loans receivable:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Realized gains from sales of loans receivable ............. $ 0.3 $ 1.0 $ 6.6
Realized losses from sales of loans receivable ........... (0.6) (0.5) (4.4)
Net lower of cost or market adjustment for unrealized
gains .................................................... -- -- 3.2
-------- ------- -------
Net (losses) gains ........................................ $(0.3) $ 0.5 $ 5.4
======== ======= =======
</TABLE>
F-22
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: LOANS RECEIVABLE HELD FOR INVESTMENT
Loans receivable held for investment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Loans secured by real estate:
Residential 1-4 ........................... $7,277.6 $6,543.3
Equity .................................... 64.1 79.3
---------- ----------
7,341.7 6,622.6
Income property:
Multi-family ............................. 1,346.2 1,458.1
Shopping centers ......................... 81.8 94.5
Office buildings ......................... 168.9 192.1
Other income property .................... 291.3 278.5
---------- ----------
Total income property ................... 1,888.2 2,023.2
---------- ----------
Total loans secured by real estate(A) ... 9,229.9 8,645.8
Consumer:
Mobile homes ............................. 66.3 79.6
Vehicles ................................. 21.5 49.4
Equity creditline ........................ 137.8 168.7
Unsecured ................................ 14.6 16.1
Loans secured by deposits ................ 9.4 8.8
---------- ----------
Total consumer loans .................... 249.6 322.6
---------- ----------
9,479.5 8,968.4
Loss:
Undisbursed loan funds .................... 0.1 --
Deferred loan (costs) fees ................ (13.9) (4.3)
Allowance for loan losses ................. 181.0 211.6
Unearned interest on equity/consumer loans 1.3 4.1
Discount on acquired loans ................ 7.4 9.7
---------- ----------
Total loans receivable ..................... 9,303.6 8,747.3
Less: Loans held for sale (see Note 7) .... 13.6 1.3
---------- ----------
Loans receivable held for investment ...... $9,290.0 $8,746.0
========== ==========
</TABLE>
- ------------
(A) Includes construction loans of $1.4 million at both December 31, 1995
and 1994.
Certain of the Bank's adjustable loan programs allow the borrower to make
monthly payments which are lower than the amount required to amortize the loan
until its maturity in any particular month. In the event that the monthly
payment is not sufficient to pay the interest accruing during the month, the
deficiency is added to the loan's principal balance ("negative amortization").
In the event that a loan incurs significant negative amortization, there is an
increased risk that the market value of the underlying collateral on the loan
may be insufficient to fully satisfy the outstanding principal and interest,
should the borrower default.
At December 31, 1995 and 1994, the Bank's loan portfolio included $4.7
billion and $4.6 billion, respectively, of loans with the potential to
negatively amortize, of which $1.4 billion and $1.0 billion of loans had some
amount of negative amortization.
F-23
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued) Accrued interest
receivable related to loans receivable including loans
held for sale at December 31, 1995 and 1994 totaled $60.1 million and $51.7
million, respectively.
The Bank has pledged certain loans as collateral for advances from the FHLB,
letters of credit, interest rate swaps, and capital lease obligations. The
following table presents the outstanding balance of loans pledged as collateral
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Pledged as collateral for:
Advances from FHLB ............ $3,322.1 $3,408.1
Letters of credit from FHLB .. 52.3 107.4
Interest rate swap agreements -- 6.9
Capital lease obligations .... 8.7 9.5
---------- ----------
$3,383.1 $3,531.9
========== ==========
</TABLE>
The Bank's loans are concentrated in (i) loans secured by residential
property of 1-4 units, (ii) loans with collateral located in California and
(iii) loans secured by residential property of five units or more. The
following table shows the concentrations of the gross real estate secured
portfolio by state and property type:
<TABLE>
<CAPTION>
INCOME PROPERTY
------------------------------------------
RESIDENTIAL 1-4 EQUITY MULTI-FAMILY COMMERCIAL
---------------------- ---------------- ---------------------- ------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------------- ---------------- ---------------------- ------------------
STATE 1995 1994 1995 1994 1995 1994 1995 1994
- -------------- ---------- ---------- ------- ------- ---------- ---------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California .... $6,288.9 $5,574.7 $49.5 $24.8 $1,234.6 $1,338.1 $512.7 $530.3
Florida ....... 456.4 533.3 11.3 45.8 31.5 34.5 14.8 16.7
Nevada ........ 183.4 182.9 2.9 7.1 41.7 42.8 6.3 8.0
Georgia ....... 79.6 92.0 0.1 1.4 7.9 8.1 2.0 2.1
New York ...... 34.4 30.3 -- -- 0.1 0.2 -- --
Arizona ....... 16.1 5.9 0.1 0.1 15.3 16.5 1.6 1.7
New Jersey .... 32.5 27.9 -- -- -- -- -- --
Texas ......... 24.8 19.5 -- -- 2.5 4.1 0.6 1.4
Connecticut .. 21.0 23.0 -- -- -- -- -- --
Washington .... 13.5 4.5 -- -- 4.9 5.0 -- --
Colorado ...... 16.4 3.0 -- -- -- -- 1.6 2.7
Illinois ...... 11.3 1.3 0.1 -- 1.1 1.3 -- --
Other (1) ..... 99.3 45.0 0.1 0.1 6.6 7.5 2.4 2.2
---------- ---------- ------- ------- ---------- ---------- -------- --------
$7,277.6 $6,543.3 $64.1 $79.3 $1,346.2 $1,458.1 $542.0 $565.1
========== ========== ======= ======= ========== ========== ======== ========
</TABLE>
- ------------
(1) Includes states with totals less than $11 million.
The majority of the Bank's California real estate loans are secured by
property located in Los Angeles, Orange, and San Diego counties.
At December 31, 1995, the largest amount of loans to a single borrower
totaled $39.8 million. The collateral for the loan is a 224,840 square foot
office building occupied entirely by certain of the Bank's operating and
administrative departments and subject to a lease for the life of the loan.
F-24
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued)
Impaired and Non-Performing Loans
The Bank identifies impaired loans through its loss monitoring process. See
Note 1 Summary of Significant Accounting Policies for further information about
the Bank's loan monitoring process. The Bank stratifies its review procedures
by loans that are reviewed on an individual basis, and those that are treated
as homogeneous pools. Loans that are considered to be homogeneous are evaluated
on the basis of their payment record and/or on a pool basis. All homogenous
loans that are 90 days or more delinquent or are in foreclosure are
automatically placed on non-performing status. Additionally, homogeneous loans
that have had a modification of terms are individually reviewed to determine if
they meet the definition of a troubled debt restructuring.
Loans that are individually monitored are determined to be impaired if it is
determined that it is probable that the Bank will be unable to collect the
contractual amount of principal and interest owed to the Bank. The Bank's
policy allows for a loan to be designated as impaired even if the borrower has
currently fulfilled his repayment obligations. Loans that are delinquent 90
days or more, in foreclosure or if the borrower has filed for bankruptcy are
normally designated as impaired. If a loan is designated as impaired, the loan
is either placed on non-accrual status or designated as a restructured loan and
is included as a non-performing loan. Cash collected on impaired loans on
non-accrual status is generally applied as a reduction to the carrying value of
the loan.
The Bank has identified two types of non-performing loans within its
portfolio: non-accrual loans and restructured loans. The following table
summarizes the Bank's gross non-performing loans by property type at the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------------
1995 1994
--------------------------------------- ---------------------------------------
NON-ACCRUAL RESTRUCTURED TOTAL NON-ACCRUAL RESTRUCTURED TOTAL
------------- -------------- -------- ------------- -------------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Residential 1-4 ......... $ 99.6 $3.0 $102.6 $ 97.7 $5.8 $103.5
Income property:
Multi-family ........... 86.3 0.3 86.6 55.9 -- 55.9
Shopping centers ....... 1.3 -- 1.3 2.3 -- 2.3
Office buildings ....... 8.8 -- 8.8 6.7 -- 6.7
Hotels/motels .......... -- -- -- 0.2 -- 0.2
Other income property . 6.8 -- 6.8 13.5 -- 13.5
------------- -------------- -------- ------------- -------------- --------
Total income property 103.2 0.3 103.5 78.6 -- 78.6
------------- -------------- -------- ------------- -------------- --------
Consumer ................ 3.5 -- 3.5 1.9 -- 1.9
------------- -------------- -------- ------------- -------------- --------
$206.3 $3.3 $209.6 $178.2 $5.8 $184.0
============= ============== ======== ============= ============== ========
Interest not recognized $ 10.6 $ -- $ 10.6 $ 18.0 $0.1 $ 18.1
============= ============== ======== ============= ============== ========
</TABLE>
For the years ended December 31, 1995 and 1994, interest income of less than
$0.1 million and $0.6 million, respectively, was recorded on restructured
loans. This was less than $0.1 million and $0.1 million, respectively, lower
than what would have been recorded if the restructured loans had been
performing in accordance with their original contractual terms.
F-25
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued)
The following table summarizes the Bank's concentration of gross
non-accrual and restructured loans by state as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------------
NON-ACCRUAL RESTRUCTURED
-------------------------------------- ----------------------------------
STATE 1995 1994 1995 1994
- ------------ ------------------ ------------------ ---------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California . $188.7 91.5% $162.8 91.4% $3.1 94.0% $5.8 100.0%
Florida ..... 8.5 4.1 9.7 5.4 -- -- -- --
Nevada ...... 3.5 1.7 1.5 0.8 0.2 6.0 -- --
Georgia ..... 1.2 0.6 0.9 0.5 -- -- -- --
Texas ....... 1.0 0.5 -- -- -- -- -- --
Arizona ..... 0.4 0.2 -- -- -- -- -- --
Other ....... 3.0 1.4 3.3 1.9 -- -- -- --
-------- -------- -------- -------- ------ -------- ------ --------
$206.3 100.0% $178.2 100.0% $3.3 100.0% $5.8 100.0%
======== ======== ======== ======== ====== ======== ====== ========
</TABLE>
The following table presents impaired loans with specific allowances and
impaired loans without specific allowances by property type and by the method
that impairment is determined at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------
GROSS SPECIFIC
AMOUNT ALLOWANCE NET AMOUNT
-------- ----------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Impairment Measured By Individual Review:
Impaired Loans with Specific Allowances:
Multi-family ...................................... $ 86.1 $18.7 $ 67.4
Commercial real estate:
Office buildings ................................. 8.8 2.0 6.8
Shopping centers ................................. 1.3 0.2 1.1
Industrial ....................................... 5.8 1.1 4.7
Other ............................................ 0.9 0.3 0.6
-------- ----------- ------------
Total commercial real estate ...................... 16.8 3.6 13.2
-------- ----------- ------------
Total impaired loans with specific allowances ..... 102.9 22.3 80.6
-------- ----------- ------------
Impaired Loans without Specific Allowances:
Residential 1-4 ................................... 3.0 -- 3.0
Multi-family ...................................... 0.5 -- 0.5
Commercial real estate ............................ 0.1 -- 0.1
-------- ----------- ------------
Total impaired loans without specific allowances .. 3.6 -- 3.6
-------- ----------- ------------
Total impaired loans measured by individual review 106.5 22.3 84.2
-------- ----------- ------------
Impairment Measured on a Pool Basis:
Residential 1-4 ................................... 99.6 -- 99.6
Consumer .......................................... 3.5 -- 3.5
-------- ----------- ------------
103.1 -- 103.1
-------- ----------- ------------
Total impaired loans ............................... $209.6 $22.3 $187.3
======== =========== ============
</TABLE>
F-26
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued) The Bank has
designated all impaired loans at December 31, 1995 as
non-accrual or as a troubled debt restructuring. For all impaired loans, the
Bank evaluates the need for a specific allowance by comparing the fair value of
the related collateral to the net recorded investment in the loan. For all
impaired loans where the fair value of the related collateral is less than the
net recorded investment in the loan, the Bank allocates a specific allowance
equal to the excess of the net recorded investment in the loan over the fair
value of the related collateral with consideration given to holding and selling
costs. All uncollected interest relating to impaired loans has been fully
reversed from income. At December 31, 1995, the Bank had designated $81.3
million of loans as impaired that were performing in accordance with their
contractual terms. The Bank applies cash collections from impaired loans as a
reduction of the loan's carrying amount. The average recorded investment in the
impaired loans was $89.2 million for the year ended December 31, 1995. During
the year ended December 31, 1995, the Bank did not recognize interest income on
impaired loans.
Allowance for Loan Losses
The Bank's policies for providing the appropriate level of allowance for
loan losses are discussed further in Note 1 Summary of Significant Accounting
Policies.
The following table presents an analysis of the general and specific
allowances at the dates presented:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------------- ---------------------------------
SPECIFIC GENERAL SPECIFIC GENERAL
ALLOWANCE ALLOWANCE TOTAL ALLOWANCE ALLOWANCE TOTAL
----------- ----------- -------- ----------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Real estate:
Residential 1-4 ..... $ -- $ 45.0 $ 45.0 $ 4.1 $ 44.0 $ 48.1
Income property .... 24.3 90.0 114.3 30.4 112.0 142.4
----------- ----------- -------- ----------- ----------- -------
Total real estate 24.3 135.0 159.3 34.5 156.0 190.5
Consumer ............. -- 11.7 11.7 -- 11.1 11.1
Unallocated .......... -- 10.0 10.0 -- 10.0 10.0
----------- ----------- -------- ----------- ----------- -------
Total ............. $24.3 $156.7 $181.0 $34.5 $177.1 $211.6
=========== =========== ======== =========== =========== =======
</TABLE>
F-27
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued)
Activity in the allowance for loan losses for the years ended December
31, 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, January 1, .......... $211.6 $ 254.3 $ 324.0
Provision for losses ......... 31.8 74.9 163.5
Charge-offs:
Real estate:
Residential 1-4 ............ (24.8) (19.5) (44.1)
Income property:
Multi-family .............. (30.2) (56.1) (64.9)
Shopping centers .......... (4.9) (0.9) (17.3)
Office buildings .......... (5.5) (15.2) (20.4)
Hotels/motels ............. -- (11.6) (16.0)
Other income property .... (1.6) (6.2) (4.1)
-------- --------- ---------
Total income property ... (42.2) (90.0) (122.7)
-------- --------- ---------
Total real estate .......... (67.0) (109.5) (166.8)
Commercial banking ......... -- (6.8) (61.0)
Consumer ................... (5.4) (7.0) (12.7)
-------- --------- ---------
Total Charge-offs ......... (72.4) (123.3) (240.5)
-------- --------- ---------
Recoveries:
Real estate:
Residential 1-4 ............ 3.1 0.9 1.2
Income property:
Multi-family .............. 5.2 0.9 4.7
Shopping centers .......... 0.1 -- 2.0
Office buildings .......... 0.4 0.3 3.3
Hotels/motels ............. -- -- 0.3
Other income property .... -- 0.4 0.9
-------- --------- ---------
Total income property ... 5.7 1.6 11.2
-------- --------- ---------
Total real estate ........... 8.8 2.5 12.4
Commercial banking .......... -- 2.1 0.3
Consumer .................... 1.2 1.1 1.7
-------- --------- ---------
Total recoveries ........... 10.0 5.7 14.4
-------- --------- ---------
Net charge-offs .............. (62.4) (117.6) (226.1)
-------- --------- ---------
Allowances of sold subsidiary -- -- (7.1)
-------- --------- ---------
Balance, December 31, ........ $181.0 $ 211.6 $ 254.3
======== ========= =========
</TABLE>
During the normal course of business, the Bank has securitized and/or sold
certain loans with recourse. Estimated probable loan losses and related costs
of collection and repossession are provided for at the time of such sales and
are periodically reevaluated. The Bank evaluates the credit risk of loans sold
with recourse in the same manner as it reviews its own portfolio of loans. The
Bank has accrued an allowance for potential future losses on loans sold with
recourse. Such allowance is included with "Other liabilities" on the
Consolidated Statements of Financial Condition.
F-28
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued)
A summary of the outstanding balance of loans sold with recourse at
December 31, 1995 follows:
<TABLE>
<CAPTION>
RESIDENTIAL INCOME
1-4 PROPERTY TOTAL
------------- ---------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Loans with original loan to value ratio less than or
equal to 80% ........................................... $125.4 $253.6 $379.0
Loans with original loan to value ratio greater than
80%:
With PMI ............................................... 2.2 -- 2.2
Without PMI ............................................ 28.8 26.3 55.1
------------- ---------- --------
$156.4 $279.9 $436.3
============= ========== ========
</TABLE>
The Bank has obtained credit insurance for $390.3 million of residential
loans sold with recourse not included in the amounts above. The amount of the
Bank's liability on these loans was limited to $2.8 million at December 31,
1995. The insurance was obtained to limit the Bank's risk of loss on these
loans. The fair value of the Bank's potential obligation for recourse or
guarantees on loans sold with recourse at December 31, 1995 and 1994 was
determined to approximate the value of the liability established by the Bank
for the potential cost of such obligations, which totaled $11.5 million and
$11.4 million at December 31, 1995 and December 31, 1994, respectively.
At December 31, 1995, $3.8 billion of loans owned by others were serviced by
the Bank (virtually all of which were originated by the Bank) compared to $4.5
billion and $5.3 billion at December 31, 1994 and 1993, respectively.
Loan servicing fees, which are included as a component of "Fee income" on
the Consolidated Statements of Operations, totaled $12.4 million, $14.6 million
and $18.5 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
During 1993, the Bank sold $5.9 million of loan servicing, and recorded
gains on the sales of $0.2 million. Such gains have been included with "Other
income" on the Consolidated Statements of Operations. During 1995 and 1994, the
Bank had no sales of loan servicing.
F-29
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8: LOANS RECEIVABLE HELD FOR INVESTMENT (Continued)
Fair Value of Loans Receivable
The fair value information presented below represents the Bank's estimate of
the fair value of its loans held for investment. The assumptions inherent in
these fair value estimates may be found in Note 21 Fair Value of Financial
Instruments.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------- ----------------------------
BOOK VALUE (A) FAIR VALUE BOOK VALUE (A) FAIR VALUE
-------------- ------------ -------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Residential 1-4 loans:
Fixed ........................... $ 994.1 $ 996.6 $ 688.6 $ 664.0
Adjustable ...................... 6,295.3 6,293.1 5,888.5 5,700.0
-------------- ------------ -------------- ------------
Total residential 1-4 loans ... 7,289.4 7,289.7 6,577.1 6,364.0
Multi-family loans ............... 1,269.7 1,230.6 1,336.3 1,255.8
Commercial real estate loans .... 494.3 485.0 525.3 505.2
Consumer loans ................... 236.6 240.8 307.3 305.4
-------------- ------------ -------------- ------------
Total loans held for investment $9,290.0 $9,246.1 $8,746.0 $8,430.4
============== ============ ============== ============
</TABLE>
- ------------
(A) Book value is presented net of undisbursed loan funds, discounts,
deferred items and allowances for loan losses.
NOTE 9: REAL ESTATE HELD FOR SALE
The Bank's real estate held for sale is comprised of REO and REI.
A summary of real estate held for sale, net of allowance for losses,
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Residential 1-4 ...... $47.3 $58.6
Multi-family ......... 1.5 5.1
Office buildings .... 0.3 5.6
Hotels/motels ........ -- 6.1
Other income property 0.4 2.5
------- -------
$49.5 $77.9
======= =======
</TABLE>
F-30
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: REAL ESTATE HELD FOR SALE (Continued)
The following table presents the Bank's real estate held for sale by state
and property type at December 31, 1995:
<TABLE>
<CAPTION>
RESIDENTIAL OFFICE COMMERCIAL/
1-4 UNITS MULTIFAMILY BUILDINGS INDUSTRIAL TOTAL
------------- ------------- ----------- ------------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
California . $45.6 $1.5 $0.3 $0.3 $47.7
Florida ..... 1.2 -- -- -- 1.2
Georgia ..... 0.3 -- -- -- 0.3
Nevada ...... 0.2 -- -- -- 0.2
Alabama ..... -- -- -- 0.1 0.1
------------- ------------- ----------- ------------- -------
Total ....... $47.3 $1.5 $0.3 $0.4 $49.5
============= ============= =========== ============= =======
REO ......... $20.0 $1.5 $0.3 $0.4 $22.2
REI ......... 27.3 -- -- -- 27.3
------------- ------------- ----------- ------------- -------
Total ....... $47.3 $1.5 $0.3 $0.4 $49.5
============= ============= =========== ============= =======
</TABLE>
The operating results of real estate held for sale are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
(Losses) gains from the sale of real estate and other
net operating income ................................... $(15.4) $ 33.8 $ (24.7)
Recoveries of (provision for) losses on real estate .... 7.4 (79.7) (93.6)
--------- --------- ---------
$ (8.0) $(45.9) $(118.3)
========= ========= =========
</TABLE>
During the second quarter of 1995, the Bank provided an allowance with
respect to certain litigation involving loans made in 1989 and 1990 to
California Communities, Inc. ("CCI"), a currently inactive subsidiary of the
Bank formerly engaged in real estate development activities. During the second
quarter of 1995, an Orange County California Superior Court jury rendered a
verdict in which it determined that the Bank was financially liable for two
loans made to CCI by the plaintiff on which CCI had defaulted. The jury awarded
the plaintiff $6.5 million in compensatory damages and punitive damages of
$20.0 million against the Bank and $5.0 million against CCI. The Bank has began
the process of appealing the judgment. While the Bank believes that its
liability from this litigation, if any, will be less than the amount awarded by
the jury, there can be no assurance that the ultimate outcome of this
litigation will result in an amount less than the amount determined by the jury
and it is possible that the Bank and its subsidiary could ultimately be found
liable for an amount in excess of the allowance that the Bank has established.
The provision for this allowance has been included in 1995 real estate
operations.
The following table presents the activity in the allowance for losses on
real estate held for sale:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Balance, January 1, ................. $ 95.7 $ 121.6 $ 136.6
(Recoveries of) provision for losses (7.4) 79.7 93.6
Net charge-offs ..................... (49.2) (105.6) (108.6)
-------- --------- ---------
Balance, December 31, ............... $ 39.1 $ 95.7 $ 121.6
======== ========= =========
</TABLE>
F-31
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9: REAL ESTATE HELD FOR SALE (Continued)
Amounts charged off against the allowance for losses are shown net of
recoveries. During 1995, the Bank reduced its allowance for losses on real
estate held for sale. The reduction resulted from a decrease in the Bank's
portfolio of real estate held for sale and a decrease in the level of
charge-offs during 1995. The 1994 bulk sales transactions reduced the level of
delinquent loans which has resulted in lower levels of foreclosures and losses.
The Bank did not experience a material level of recoveries during 1994 or 1993.
NOTE 10: FEDERAL HOME LOAN BANK STOCK
The Bank's investment in Federal Home Loan Bank of San Francisco ("FHLB")
stock at December 31, 1995 and 1994 was $135.7 million and $134.1 million,
respectively. The FHLB provides a central credit facility for member
institutions. As a member of the FHLB system, the Bank is required to own
capital stock in the FHLB in an amount at least equal to the greater of 1% of
the aggregate principal amount of its unpaid home loans, home purchase
contracts and similar obligations at the end of each calendar year, assuming
for such purposes that at least 30% of its assets were home mortgage loans, or
5% of its advances (borrowings) from the FHLB. The Bank was in compliance with
this requirement at December 31, 1995. The fair value of the Bank's FHLB stock
approximates book value due to the Bank's ability to redeem such stock with the
FHLB at par value.
NOTE 11: PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Land ......................... $ 12.0 $ 12.2
Buildings .................... 103.8 110.6
Furniture and equipment ..... 102.6 103.4
--------- ---------
218.4 226.2
Less accumulated depreciation (147.2) (144.7)
--------- ---------
$ 71.2 $ 81.5
========= =========
</TABLE>
The Bank has operating lease commitments on certain premises and equipment.
Lease expense, net of sublease income, totaled $25.5 million, $30.7 million and
$33.2 million for the years ended December 31, 1995, 1994 and 1993,
respectively. Sublease income totaled $9.8 million, $10.3 million and $10.5
million for the years ended December 31, 1995, 1994 and 1993, respectively.
Annual minimum lease commitments at the dates presented were:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Within one year .. $ 22.3 $ 22.6
Within two years . 21.7 22.3
Within three years 20.2 21.7
Within four years 23.4 20.5
Within five years 22.9 23.8
Thereafter ........ 160.2 194.2
-------- -------
$270.7 $305.1
======== =======
</TABLE>
F-32
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12: ACCELERATED DISPOSITION OF ASSETS
During 1994, the Bank completed the accelerated disposition of $1.3 billion
of performing and non-performing assets (the "1994 Bulk Sales"). The assets
included in the 1994 Bulk Sales included loans receivable and REO. The loans
receivable were transferred from the portfolio of loans held for investment to
"held for accelerated disposition" as an integral part of the Bank's 1994
program to raise capital, reduce non-performing assets and improve operating
efficiency. The 1994 Bulk Sales were designed to reduce the Bank's
non-performing assets and reduce the Bank's exposure to certain performing
loans with higher risk profiles than the Bank wished to retain in its
portfolio. In selecting performing loans for the 1994 Bulk Sales, the Bank
considered the credit risk inherent in the loan, the concentration that certain
loans possessed because of the geographic location of the collateral, the size
of the loan and/or the overall relationship with certain borrowers. A
substantial amount of the performing loans sold as part of the 1994 Bulk Sales
were classified as substandard or designated as special mention. The Bank
recorded a $274.8 million loss from the 1994 Bulk Sales. The Bank recorded
$60.4 million of charge-offs, relating to previously established specific
allowances, on loans receivable included in the 1994 Bulk Sales.
The table below presents the composition of the assets sold in the 1994 Bulk
Sales:
<TABLE>
<CAPTION>
PERFORMING NON-ACCRUAL RESTRUCTURED
LOANS LOANS LOANS REO TOTAL
------------ ------------- -------------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Residential 1-4 ....... $ 62.4 $121.8 $ -- $ 47.0 $ 231.2
Multi-family .......... 487.3 183.5 7.6 34.7 713.1
Commercial real estate 272.4 113.9 -- 20.6 406.9
------------ ------------- -------------- -------- ---------
$822.1 $419.2 $7.6 $102.3 $1,351.2
============ ============= ============== ======== =========
</TABLE>
During 1993, the Bank completed the sale of a pool of $232.1 million of
non-performing assets and collected $52.4 million of payoffs on non-performing
assets (the "1993 Bulk Sale"). Those transactions resulted in a $228.7 million
reduction in non-accrual loans and a $55.8 million reduction in REO. The 1993
Bulk Sale resulted in $80.0 million of charge-offs. The charge-offs related to
the 1993 Bulk Sale were primarily related to previously established specific
valuation allowance.
NOTE 13: DEPOSITS
The Bank obtains deposits primarily through a network of full service
branches located in California and Nevada. Deposits obtained by the Bank are
insured by the SAIF of the FDIC up to a maximum of $100,000 for each depositor.
F-33
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: DEPOSITS (Continued)
A summary of deposit balances and weighted average rates at the dates
indicated follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------- -------------------
BALANCE RATE BALANCE RATE
---------- ------- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Passbook accounts .............. $ 509.7 2.22% $ 578.2 2.22%
Money market and NOW accounts . 2,008.4 2.65 2,121.1 2.38
Non-interest bearing commercial 216.9 -- 184.9 --
---------- ------- ---------- -------
2,735.0 2,884.2
Certificate accounts:
2.00% to 2.99% ................ 16.5 2.86 28.9 2.86
3.00% to 3.99% ................ 22.5 3.34 861.0 3.85
4.00% to 4.99% ................ 208.2 4.61 2,352.4 4.53
5.00% to 5.99% ................ 2,545.3 5.49 1,605.3 5.51
6.00% to 6.99% ................ 3,630.4 6.26 296.9 6.70
7.00% to 7.99% ................ 293.0 7.13 322.9 7.29
8.00% to 8.99% ................ 23.3 8.45 3.4 8.15
9.00% to 9.99% ................ 2.5 9.29 4.6 9.20
10.00% to 10.99% .............. -- -- 0.8 10.51
11.00% to 11.99% .............. -- -- 0.5 11.55
---------- ------- ---------- -------
Total certificate accounts .. 6,741.7 5.95 5,476.7 4.99
---------- ----------
$9,476.7 4.87% $8,360.9 4.02%
========== ==========
</TABLE>
Deposit maturities are summarized as follows at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Maturing within one year ........................ $8,216.6 $7,392.3
Maturing after one year and within two years ... 946.6 521.7
Maturing after two years and within three years 196.2 178.9
Maturing after three years and within four years 53.6 182.8
Maturing after four years and within five years 26.6 44.4
Thereafter ...................................... 37.1 40.8
---------- ----------
$9,476.7 $8,360.9
========== ==========
</TABLE>
Jumbo certificates and other deposit accounts with balances of $100,000 or
greater included in the above table had the following remaining contractual
maturities:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1995 1994
---------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
3 months or less .................. $ 789.5 $ 681.1
Over 3 months but within 6 months 247.2 132.6
Over 6 months but within 12 months 369.9 249.3
Over 12 months .................... 112.2 70.1
---------- ---------
$1,518.8 $1,133.1
========== =========
</TABLE>
F-34
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: DEPOSITS (Continued)
At December 31, 1995, the Bank had $273.8 million of brokered deposits. At
December 31, 1994, the Bank had no brokered deposits. Accrued interest payable
on deposits at December 31, 1995 and 1994 was $10.8 million and $2.7 million,
respectively, which is included in "Interest payable" on the Consolidated
Statements of Financial Condition.
On August 4, 1994, the Bank completed the sale of 44 branches located in
Florida and Georgia ("Southeast Division"). At the time of the sale, the
Southeast Division had deposits totaling approximately $3.9 billion. The Bank
received a 4.10% deposit premium from the sale which contributed to a net gain
of $135.0 million recorded from the sale. The $135.0 million net gain from the
sale of the Southeast Division is included with "Other income" in the
Consolidated Statements of Operations for 1994.
A summary of interest expense by deposit type is summarized in the table
below for the years indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Passbook accounts ............. $ 11.1 $ 14.9 $ 18.8
Money market and NOW accounts 55.3 60.2 83.3
6-Month certificates .......... 26.2 27.8 41.0
9-Month to 1-Year certificates 133.5 113.5 154.4
Other certificates ............ 215.5 174.4 218.6
-------- -------- -------
$441.6 $390.8 $516.1
======== ======== =======
</TABLE>
Savings deposit fees, which are included as a component of "Fee income" in
the Consolidated Statements of Operations, totaled $25.4 million, $25.2 million
and $26.1 million for the years ended December 31, 1995, 1994 and 1993,
respectively.
NOTE 14: ADVANCES FROM FEDERAL HOME LOAN BANK
FHLB advances totaling $2,671.0 million at December 31, 1995 and $2,526.0
million at December 31, 1994, principally adjustable rate, fixed term, with
interest rates ranging from 5.77% to 9.71% are secured by MBS and certain
mortgage loans aggregating $3.6 billion and $3.7 billion at December 31, 1995
and 1994, respectively. The rates of the FHLB advances primarily reprice based
upon the LIBOR index and therefore are sensitive to its volatility. Accrued
interest payable on FHLB advances was $16.6 million and $9.5 million at
December 31, 1995 and 1994, respectively. The accrued interest on FHLB advances
is included with "Interest payable" on the Consolidated Statements of Financial
Condition.
A summary of maturities of FHLB advances and weighted average interest rates
at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
------------------- -------------------
AMOUNT RATE AMOUNT RATE
---------- ------- ---------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Maturing in one year .. $ 880.0 6.16% $2,015.0 6.21%
Maturing in two years . 1,780.0 5.98 500.0 6.36
Maturing in three years -- -- -- --
Maturing in four years 11.0 9.71 -- -
Maturing in five years -- -- 11.0 9.71
---------- ---------- -------
$2,671.0 6.06% $2,526.0 6.25%
========== ==========
</TABLE>
F-35
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE14: ADVANCES FROM FEDERAL HOME LOAN BANK (Continued) At December 31, 1995,
the Bank had credit availability with the FHLB
which allows borrowings up to 30% of the Bank's assets, subject to the balance
of pledged collateral, with terms up to ten years in the form of FHLB Advances
and Letters of Credit.
During 1995, $1.6 billion of the Bank's FHLB advances, utilized as a funding
source for the sale of the Southeast Division, matured. Those borrowings bore
an interest rate based upon the 1 month LIBOR plus 0.27%. When those borrowings
matured, the FHLB offered to renew them. In order to reduce the cost of those
borrowings, the Bank entered into an interest rate swap agreement which reduces
the cost of the advances to approximately the one month LIBOR plus 0.20%. The
interest rate swap agreement was established, such that the index which
determines the interest that the Bank receives is identical to the index that
the Bank pays relative to the FHLB Advances. The notional amount of the swaps
totaled $1.5 billion at December 31, 1995 and the maturity of the swaps is
identical to that of the FHLB advances. The counterparty to the interest rate
swaps is an internationally recognized broker-dealer.
NOTE 15: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The securities sold under agreements to repurchase ("reverse repurchase
agreements") were collateralized by MBS at December 31, 1995 and by MBS and
U.S. Treasury securities at December 31, 1994. The following table provides
additional information on the agreements:
<TABLE>
<CAPTION>
1995 1994
--------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Carrying value of agreements to repurchase ............... $ 857.3 $1,751.0
Carrying value of collateral ............................. 908.9 1,772.9
Market value of collateral ............................... 907.5 1,783.5
Maximum amounts of outstanding agreements
at any month-end ........................................ 1,336.8 1,751.0
Average amounts of outstanding agreements ................ 1,098.9 1,493.0
Weighted average interest rate for the year .............. 5.91% 4.52%
Weighted average interest on year-end balances .......... 5.56% 5.87%
Weighted average maturity of outstanding agreements
(days) .................................................. 148 53
</TABLE>
The securities collateralizing these agreements are held in the custodial
account of a trustee that is not a party to the agreements, until the
maturities of the agreements. For all of the agreements, the dealers have
agreed to resell the identical securities to the Bank. The following table
presents reverse repurchase agreements by counterparty:
<TABLE>
<CAPTION>
COUNTERPARTY DECEMBER 31, 1995 DECEMBER 31, 1994
- --------------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Lehman Brothers ...... $780.9 $ 674.5
Bear Stearns ......... 76.4 --
Morgan Stanley ....... -- 700.1
FHLB of San Francisco -- 326.5
Smith Barney ......... -- 49.9
----------------- -----------------
$857.3 $1,751.0
================= =================
</TABLE>
Accrued interest related to reverse repurchase agreements at December 31,
1995 and 1994 totaled $1.2 million and $4.7 million, respectively.
F-36
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16: STUDENT LOAN MARKETING ASSOCIATION ADVANCES
The advance from the Student Loan Marketing Association ("SLMA Advances")
was $200.0 million at December 31, 1995 and was secured by MBS with a carrying
value of $108.6 million and government securities with a carrying value of
$124.9 million and had a weighted average interest rate of 5.86%. At December
31, 1994, the advances totaled $475.0 million and were secured by MBS with a
carrying value of $269.9 million and government securities with a carrying
value of $287.0 million and had a weighted average interest rate of 6.43%. The
SLMA Advance outstanding at December 31, 1995 is scheduled to mature on
September 18, 1996.
Accrued interest related to SLMA Advances at December 31, 1995 and 1994
totaled $0.4 million and $0.9 million, respectively.
NOTE 17: SUBORDINATED DEBENTURES
The Bank's subordinated debentures consist of (i) a senior subordinated
note, (ii) subordinated debentures issued in connection with the 1992 corporate
restructuring and (iii) convertible subordinated debentures.
Senior Subordinated Note. The Bank has outstanding a $50.0 million, 10.68%
unsecured senior subordinated note which is scheduled to mature on December 22,
1998.
1992 Subordinated Debentures. On December 16, 1992, the Bank issued $13.6
million of 10.0% unsecured subordinated debentures due 2003. The Bank
repurchased $8.7 million of these debentures during 1995 for no material gain
or loss.
Convertible Subordinated Debentures. The debentures were issued in 1986 by
CalFed Inc., the Bank's former holding company, which as a result of the 1992
corporate restructuring was merged with and into XCF Acceptance Corporation
("XCF"), a subsidiary of the Bank. The debentures are unsecured obligations of
XCF, bear an annual interest rate of 6.5%, and, effective January 1, 1996, are
convertible into the common stock of Cal Fed Bancorp Inc. at a conversion price
of $143.95 per share. The debentures are redeemable at the option of the
holders on February 20, 2000, at 123% of their principal amount.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
DATE OF INTEREST
1995 1994 MATURITY RATE
------- ------- --------------- ----------
(DOLLARS
IN MILLIONS)
<S> <C> <C> <C> <C>
Senior Subordinated Note ........... $50.0 $50.0 Dec. 22, 1998 10.68%
1992 Subordinated Debt ............. 4.9 13.6 Jan. 3, 2003 10.00
Convertible Subordinated Debentures 2.7 2.9 Feb. 20, 2001 6.50%
------- -------
$57.6 $66.5
======= =======
</TABLE>
Accrued interest related to subordinated debentures at December 31, 1995 and
1994 totaled $0.4 million and $0.8 million, respectively.
F-37
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18: INTEREST EXPENSE ON BORROWINGS
Interest expense on borrowings is comprised of the following for the years
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Securities sold under agreements to repurchase
(short-term) ............................................. $ 64.9 $ 68.5 $14.6
FHLB advances (short-term) ................................ 14.7 7.4 2.3
Other ..................................................... -- -- 0.6
-------- -------- -------
Interest expense on short-term borrowings ................ 79.6 75.9 17.5
-------- -------- -------
Securities sold under agreements to repurchase (long-term) -- -- 8.3
FHLB advances (long-term) ................................. 139.4 76.2 52.4
Medium-term notes ......................................... -- -- 0.4
Convertible subordinated debentures ....................... 0.2 0.2 0.2
Subordinated debentures ................................... 0.7 1.4 1.4
SLMA advances (long-term) ................................. 29.2 16.5 9.5
Other ..................................................... 5.4 5.5 6.1
-------- -------- -------
Interest expense on long-term borrowings ................. 174.9 99.8 78.3
-------- -------- -------
Total Interest Expense on Borrowings ...................... $254.5 $175.7 $95.8
======== ======== =======
</TABLE>
NOTE 19: DERIVATIVE FINANCIAL INSTRUMENTS
The Bank's use of derivative financial instruments is limited to interest
rate exchange agreements. The Bank utilizes interest rate exchange agreements
as an integral part of its asset/liability management program.
The primary focus of the Banks' asset/liability management program is to
measure and monitor the sensitivity of net interest income under varying
interest rate scenarios. On a quarterly basis, the Bank simulates the level of
net interest income expected to be earned over a twelve month period following
the date of the simulation. The simulation is based on a projection of market
interest rates at varying levels and estimates the impact of such market rates
on the levels of interest earning assets and interest bearing liabilities
during the measurement period. Also, any periodic or lifetime caps that
contractually limit the repricing of any interest earning asset is considered.
Based upon the outcome of the simulation analysis, the Bank may consider the
use of interest rate exchange agreements as a means of reducing the volatility
of projected net interest income within certain ranges of projected changes in
interest rates. The Bank evaluates the effectiveness of entering into any
interest rate exchange agreements by measuring the cost of such agreements in
relation to the reduction in net interest income volatility within an assumed
range of interest rates.
F-38
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
The following tables present the Bank's interest rate exchange agreements
which were designated as hedges at December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------------------------------------------------
WEIGHTED
WEIGHTED AVERAGE YIELD
TYPE OF INTEREST RATE NOTIONAL MONTHS TO AVERAGE YIELD PAYABLE BY THE DESCRIPTION OF ASSET OR
EXCHANGE AGREEMENT AMOUNT MATURITY DUE TO THE BANK BANK LIABILITY HEDGED
- ---------------------- ---------------- ---------- ---------------- --------------- ------------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C>
Interest rate swap .. $ 25.0 5 5.74% 8.77% FHLB advances
Interest rate swap .. 500.0 10 5.94 5.63 FHLB advances
Interest rate swap .. 100.0 3 5.45 5.94 2-year fixed rate CDs
Interest rate swap .. 100.0 4 7.45 5.75 18-month fixed rate CDs
Interest rate swap .. 100.0 3 6.36 5.60 1-year fixed rate CDs
Interest rate swap .. 1,540.0 15 5.83% 5.91% FHLB advances (A)
-------------------
Total .............. $2,365.0
===================
</TABLE>
- ------------
(A) Please refer to Note 14 Advances from Federal Home Loan Bank for further
information about this interest rate swap.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------------------------
WEIGHTED
WEIGHTED AVERAGE YIELD
TYPE OF INTEREST RATE NOTIONAL MONTHS TO AVERAGE YIELD PAYABLE BY THE DESCRIPTION OF ASSET OR
EXCHANGE AGREEMENT AMOUNT MATURITY DUE TO THE BANK BANK LIABILITY HEDGED
- ---------------------- ---------------- ---------- ---------------- --------------- ------------------------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C>
Interest rate swap .. $191.5 9 4.19% 8.38% Fixed rate loans
Interest rate swap .. 25.0 17 6.31 8.77 FHLB advances
Interest rate swap .. 50.0 9 5.07 6.13 2-year fixed rate CDs
Interest rate swap .. 100.0 15 5.45 6.13 2-year fixed rate CDs
Interest rate swap .. 75.0 8 3.86 6.08 FHLB advances
Interest rate swap .. 50.0 10 5.07% 6.13% 2-year fixed rate CDs
-------------------
Total .............. $491.5
===================
</TABLE>
The estimated fair value of swaps designated as hedges at December 31, 1995
and 1994 were gains (losses) of $7.1 million and $(6.6) million, respectively.
At December 31, 1995 and 1994, the Bank had an index amortizing interest
rate swap which was designated as held for trading with a notional balance of
$50.0 million, with interest payable at a variable rate determined by a
specified index (3 month LIBOR) in exchange for interest receivable at a fixed
rate. At December 31, 1995, this agreement had a weighted average rate to be
paid by the Bank of 5.94% and the weighted average rate to be received was
4.82%. At December 31, 1994, this agreement had a weighted average rate to be
paid by the Bank of 5.63% and the weighted average rate to be received was
4.82%. The agreement has an expiration date of April 1999. It is partially
collateralized by MBS and a letter of credit amounting to approximately $5.4
million at December 31, 1995. The fair value of the index amortizing swap at
December 31, 1995 was a liability of $0.3 million. Such liability has been
reflected on the Consolidated Statements of Financial Condition. The average
fair value of the index amortizing swap during 1995 was a liability of $1.0
million. The fair value of the index amortizing swap at December 31, 1994 was a
liability of $2.2 million. Such liability has been reflected on the
Consolidated Statements of Financial Condition.
F-39
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: DERIVATIVE FINANCIAL INSTRUMENTS (Continued)
At December 31, 1995 and 1994, the Bank was also a party to an interest
rate floor contract maturing September 1998. In addition, the Bank was a party
to an interest rate floor contract that matured in June 1995. The Bank paid the
counterparties premiums in exchange for cash payments in the event that a
specified index (e.g., 5-year CMT, 1-year CMT) falls below the strike price. At
December 31, 1995, the notional amount of the remaining interest rate floor was
$100.0 million, the strike price was 3.38% and the monthly floating rate was
5.29%. At December 31, 1994, the notional amount of the interest rate floors
was $150.0 million, the weighted average strike price was 4.51% and the monthly
floating rate for the interest rate floor was based on the 1-year Treasury
Constant Maturity Rate for the floor contract maturing September 1998 and the
5-year Treasury Constant Maturity Rate for the floor contract that matured in
June 1995. The unamortized premium on the interest rate floors was zero and
$0.3 million at December 31, 1995 and 1994, respectively. At December 31, 1995,
the floating rate exceeded the strike price by 1.91%. At December 31, 1994, the
floating rate exceeded the strike price by an average of 2.79%.
The Bank adheres to credit guidelines when entering into interest rate
exchange agreements in order to minimize its exposure to credit loss in the
event of non-performance by the counterparties to the agreements. In the event
that a counterparty to an interest rate swap does not perform in accordance
with the terms of the agreement, the Bank would be at risk for the amount of
the net interest receivable due from the counterparty. At December 31, 1995,
the Bank was at risk for $11.9 million of net interest receivable from its
counterparties on its aggregate interest rate exchange portfolio.
NOTE 20: INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Current Tax Expense (Benefit):
Federal ............................................ $ -- $ -- $ 2.9
State .............................................. 0.1 -- 0.5
-------- -------- --------
0.1 -- 3.4
-------- -------- --------
Deferred Tax Expense (Benefit):
Federal ............................................ 41.1 (49.0) (20.8)
State .............................................. 11.4 (12.3) (10.0)
-------- -------- --------
52.5 (61.3) (30.8)
Change in valuation allowance for deferred tax asset (52.5) 61.3 30.8
-------- -------- --------
Net change in net deferred taxes ................... -- -- --
-------- -------- --------
Total income tax expense (benefit) ................. $ 0.1 $ -- $ 3.4
======== ======== ========
Total allocated to continuing operations .......... $ 0.1 $ 6.3 ($ 2.9)
Total allocated to shareholders' equity ............ -- (6.3) 6.3
-------- -------- --------
Total tax expense (benefit) ....................... $ 0.1 $ -- $ 3.4
======== ======== ========
</TABLE>
F-40
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: INCOME TAXES (Continued)
The table below sets forth the significant components of the net deferred
tax asset/liability at December 31, 1995 and December 31, 1994 (as adjusted and
restated for 1994 and prior year tax returns filed through 1995):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
--------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Components of the deferred tax asset:
Bad debt reserve ............................... $ (87.1) $(152.8)
Real estate and partnerships ................... (38.8) (37.7)
Prior year affirmative adjustments, net ....... (48.0) (48.0)
Depreciation ................................... (10.3) (8.6)
Net operating loss carryforward ................ (30.9) (24.8)
Alternative minimum tax credit carryforward ... (27.8) (27.8)
Other .......................................... (11.7) (12.5)
--------- ----------
(254.6) (312.2)
Valuation allowance ............................ 146.3 198.8
--------- ----------
Deferred tax asset, net of valuation allowance (108.3) (113.4)
Components of the deferred tax liability:
Loan fees, interest and discount, net ......... 51.9 54.3
FHLB stock ..................................... 36.9 36.4
Accrued interest income ........................ 12.7 13.2
Prepaid expense ................................ 2.5 6.5
Other .......................................... 10.6 9.3
--------- ----------
Deferred tax liability ........................ 114.6 119.7
--------- ----------
Net deferred tax liability .................... $ 6.3 $ 6.3
========= ==========
Net state deferred tax liability ................ $ 6.3 $ 6.3
Net federal deferred tax liability .............. -- --
--------- ----------
Net deferred tax liability .................... $ 6.3 $ 6.3
========= ==========
</TABLE>
The change in the valuation allowance from December 31, 1994 relates to the
decrease in the net deductible temporary difference in 1995 that cannot be
realized through carryback to prior periods. The valuation allowance of $146.3
million at December 31, 1995 includes $11.0 million related to a $31.5 million
acquired federal net operating loss expiring in 2002 and 2003 and $19.9 million
attributable to the Bank's tax losses occurring in 1993, 1994 and 1995. In the
event the $31.5 million net operating loss is utilized, 65% of the tax benefits
may at some time be payable to the FDIC pursuant to the acquisition agreement.
Although the Bank has reported net earnings since the quarter ended June
1994, significant regulatory and tax law changes have been proposed that could
adversely affect future earnings for both financial reporting and income tax
purposes. See Proposed Legislation in Note 1 -- Summary of Significant
Accounting Policies for further information. In addition, even though the Bank
has reported net earnings for financial reporting purposes during this period,
it has continued to generate losses for income tax purposes, thus raising
uncertainty regarding the realizability of its net operating loss carryforward
and other deferred tax assets. Accordingly, the Bank has recorded a valuation
allowance equal to its net deductible temporary difference at December 31, 1995
as well as at December 31, 1994.
F-41
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: INCOME TAXES (Continued)
The Bank generated net operating losses in 1993, 1994 and 1995 for federal
income tax purposes of $5.7 million, $21.3 million and $16.5 million expiring
in 2008, 2009 and 2010, respectively. In addition, the Bank has adjusted net
operating loss carryforwards from 1993, 1994 and 1995 for California franchise
tax purposes of $16.7 million, $23.9 million and $0.8 million expiring in 1998,
1999 and 2000, respectively. The Bank also has alternative minimum tax credit
carryforwards of $19.6 million for federal income tax purposes and $8.2 million
for California franchise tax purposes which have no expiration date.
For federal income tax purposes, savings institutions that meet certain
definitional and other tests may compute a bad debt deduction based on either
the percentage of taxable income method or the experience method. For years
subsequent to 1986, the Bank has computed its deduction for qualifying real
property loans based on the experience method. The experience method allows a
deduction for an amount necessary to increase a savings institution's tax bad
debt reserve, adjusted for net charge-offs during the current year, up to the
greater of the adjusted base year reserve amount or an amount based on the
savings institution's actual 6 year moving average experience. For years
subsequent to 1987, the adjusted base year reserve amount at the end of any
year is the tax bad debt reserve amount at the end of 1987 proportionately
decreased by any reduction in the aggregate related loan base at the end of the
current year relative to the end of 1987.
The consolidated financial statements at December 31, 1995 and 1994 do not
include a potential federal income tax liability of $25.3 million and zero,
respectively, attributable to the Bank's tax bad debt reserves. Circumstances
that may require an accrual of this unrecorded tax liability are: a failure to
meet the tax definition of a savings institution and, if the currently proposed
tax law changes are enacted, dividend payments in excess of tax earnings and
profits and other distributions in dissolution, liquidation or redemption of
stock.
A reconciliation of total income tax expense (benefit) and the amount
computed by applying the statutory federal corporate income tax rate to
earnings (loss) from continuing operations before income tax expense (benefit)
follows:
<TABLE>
<CAPTION>
PERCENT OF PRETAX EARNINGS
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Statutory federal corporate income tax rate 35.0% (35.0)% (35.0)%
State tax, net of federal income tax effect 0.1 0.7 (0.5)
-------- --------- ---------
35.1 (34.3) (35.5)
Increase (decrease) resulting from:
Valuation allowance ........................ (43.9) 34.2 14.0
Bad debt deduction ......................... 0.7 3.4 14.7
Amortization of goodwill ................... -- -- 3.6
Distribution of Participation Interests ... 8.4 -- --
Rate change ................................ -- -- (1.5)
Other, net ................................. (0.2) 1.1 2.7
-------- --------- ---------
0.1% 4.4% (2.0)%
======== ========= =========
</TABLE>
The Internal Revenue Service ("IRS") and the California Franchise Tax Board
("FTB") have completed examinations of the Bank's consolidated federal income
tax returns through 1988 and combined California franchise tax reports through
1985, respectively, and have proposed certain adjustments primarily related to
timing differences as to the recognition of taxable income and expense. The
Bank previously filed formal protests with both the IRS and the FTB to take
exception to these
F-42
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20: INCOME TAXES (Continued)
proposed adjustments and has filed claims for refund to recover its payment of
the assessed federal deficiencies. The Bank currently intends to pursue most of
the positions set forth in its federal and California protests as well as in
its federal refund claims.
In addition, the IRS has completed its examination of the consolidated
federal income tax returns filed by the Bank's former life insurance company
affiliate, Beneficial Standard Life Insurance Company ("BSLIC"), through 1989
and in December 1993, assessed certain deficiencies against BSLIC. In March
1994, the Bank filed a Tax Court petition on behalf of BSLIC, and in November
1995, the Tax Court rendered its decision affirming the Bank's position on most
of the issues contested by the Bank on behalf of BSLIC.
The Bank's current income tax receivables at December 31, 1995 and 1994 were
$7.9 million and $9.6 million, respectively.
NOTE 21: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Bank's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Bank's financial
instruments, active markets do not exist. Therefore, considerable judgments
were required in estimating fair value for certain items. The subjective
factors include, among other things, the estimated timing and amount of cash
flows, risk characteristics, credit quality and interest rates, all of which
are subject to change. Since the fair value is estimated as of December 31,
1995 and December 31, 1994, the amounts that will actually be realized or paid
at settlement or maturity of the instruments could be significantly different.
Cash and Short-Term Investments
The book value of cash and short-term investments approximates the fair
value of such assets because of the short maturity of such investments.
Securities Purchased Under Agreements to Resell
The book value of securities purchased under agreements to resell
approximates the fair value of such securities due to the short term maturity
of such investments.
Securities Available for Sale and Securities Held to Maturity
The Bank has utilized market quotes for similar or identical securities in
an actively traded market, where such a market exists, or has obtained quotes
from independent security brokers or dealers to determine the fair value of its
securities available for sale and securities held to maturity.
Loans Receivable
The fair value of loans receivable was computed as follows: (i) for loans
held for sale, quotes were obtained from independent brokers or dealers; (ii)
for performing residential loans held for investment, the Bank aggregated the
loans into pools based upon secondary market requirements for mortgage-backed
securities and utilized market quotes for similar securities; (iii) for
performing consumer, commercial banking and income property, the fair value was
determined by a discounted cash flow analysis and (iv) the fair value of
impaired income property loans was determined on an individual basis, based
upon the fair value of the related collateral, reduced by an estimate of the
cost and timing of dispositions. For impaired residential 1-4 and consumer
loans, fair value was estimated based on a discounted cash flow analysis,
adjusted for the Bank's estimate of excess credit risk.
F-43
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21: FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits
The fair value of deposits was determined as follows: (i) for demand
deposits, passbook accounts, money market accounts and other deposits
immediately withdrawable, fair value was determined to approximate the amount
payable on demand and (ii) for fixed maturity deposits, the fair value was
estimated by discounting expected cash flows using an average of rates offered
by other institutions combined with the Bank's current offering rates of term
deposits with similar maturities. In accordance with SFAS 107, no value has
been assigned to the Bank's long-term relationships with its deposit customers
(core deposit intangible) since it is not a financial instrument as defined
under SFAS 107.
Borrowings
The fair value of the Bank's borrowings was determined as follows: (i) the
fair value of FHLB advances was based upon current rates for advances with
similar terms and maturities; (ii) the fair value of student loan marketing
advances was estimated to approximate the amounts due as the rates on these
borrowings fluctuate with a market index; (iii) the fair value of reverse
repurchase agreements was based upon the current pricing for such agreements
and (iv) the fair value of the Bank's various other borrowings was based upon
alternative borrowing costs.
Off-Balance Sheet Financial Instruments
The fair value of the Bank's off-balance sheet financial instruments was
determined as follows: (i) the fair value of interest rate exchange agreements
that do not have an active market was determined by computing the net present
value of the estimated interest due to the Bank as compared to the estimated
interest due to the counterparties of the interest rate exchange agreements;
(ii) the fair value of the Bank's recourse arrangements on assets sold was
determined to approximate the value of the liability currently recorded for
such recourse arrangements; and (iii) the Bank's standby letters of credit and
commitments to originate or sell loans have terms that are consistent with
current market terms. Therefore, the Bank estimates that the face amount of
these commitments approximates book value.
F-44
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21: FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
The following table presents fair value estimates and carrying amounts
for financial instruments at December 31, 1995 and December 31, 1994:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ------------ ---------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL INSTRUMENT ASSETS:
Cash ............................................ $ 273.7 $ 273.7 $ 292.8 $ 292.8
Short-term liquid investments ................... 74.1 74.1 333.8 333.8
Securities purchased under agreements to resell 1,674.6 1,674.6 48.2 48.2
Securities available for sale ................... 200.3 200.3 1,731.5 1,731.5
Securities held to maturity ..................... 2,366.7 2,361.3 2,525.1 2,437.2
Loans receivable held for sale .................. 13.6 13.8 1.3 1.3
Loans receivable held for investment(A) ........ 9,290.0 9,246.1 8,746.0 8,430.4
Accrued interest receivable and other ........... 83.4 98.4 83.5 95.5
FINANCIAL INSTRUMENT LIABILITIES:
Savings deposits(B) ............................. 9,476.7 9,534.6 8,360.9 8,425.0
Advances from federal home loan banks ........... 2,671.0 2,676.0 2,526.0 2,548.7
Securities sold under agreements to repurchase . 857.3 852.2 1,751.0 1,750.6
Student loan marketing association advances .... 200.0 193.9 475.0 461.0
Other borrowings ................................ 58.1 65.3 66.8 72.3
Interest payable ................................ 29.4 29.4 18.6 18.6
Other liabilities ............................... 140.6 140.6 185.8 185.8
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Interest rate floors(C) ......................... -- -- -- --
Interest rate swaps (designated as a hedge) .... -- 7.1 -- (6.6)
Interest rate swaps (designated as held for
trading)(C) .................................... (0.3) (0.3) (2.2) (2.2)
Loans sold with recourse(D) ..................... $ 11.5 $ 11.5 $ 11.4 $ 11.4
</TABLE>
- ------------
(A) Please see Note 8 Loans Receivable Held for Investment for additional
detail.
(B) The fair value does not include any amount that relates to core deposit
intangibles, since they are not defined as financial instruments under
SFAS 107.
(C) The estimated fair values represent either a net gain or a net (loss).
The net loss has been reflected in the Consolidated Statement of
Financial Position as a component of "other liabilities."
(D) These amounts represent the Bank's estimate of its credit exposure with
respect to loans sold with recourse.
F-45
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22: COMMITMENTS AND CONTINGENCIES
The Bank is a party to various outstanding commitments and contingent
liabilities in the normal course of business which are not reflected in the
accompanying consolidated financial statements. The following is a summary of
such commitments and contingencies:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- -------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Standby letters of credit ................. $ 57.9 $ 63.6
Commitments to sell loans ................. 15.7 1.8
Commitments to fund fixed rate loans ..... 232.0 231.6
Commitments to fund adjustable rate loans 98.3 208.2
</TABLE>
The Bank makes contractual commitments to extend credit, which are legally
binding agreements to lend money to customers at predetermined interest rates
for a specified period of time. The Bank does not anticipate any material loss
as a result of these transactions. The Bank applies the same credit standards
used in the lending process when extending these commitments, and periodically
reassesses the customers' creditworthiness through ongoing credit reviews.
The fair value of the Bank's commitments at December 31, 1995 and 1994 was
based upon (i) the contractual terms of the commitment as compared to market
terms, (ii) the period of time that the commitments could be exercised and
(iii) the inherent credit risk of the commitments. The fair value of the Bank's
commitments approximates the amount of the outstanding commitment at December
31, 1995 and 1994.
During the second quarter of 1995, the Bank provided an allowance with
respect to certain litigation involving loans made in 1989 and 1990 to
California Communities Inc. ("CCI"), a currently inactive subsidiary of the
Bank formerly engaged in real estate development activities. During the second
quarter of 1995, an Orange County, California Superior Court jury rendered a
verdict in which it determined that the Bank was financially liable for two
loans made to CCI by the plaintiff. CCI subsequently defaulted on the loans.
The jury awarded the plaintiff $6.5 million in compensatory damages and
punitive damages of $20.0 million against the Bank and $5.0 million against
CCI. The Bank has begun the process of appealing the judgment. While the Bank
believes that its liability from this litigation, if any, will be less than the
amount awarded by the jury, there can be no assurance that the ultimate outcome
of this litigation will result in an amount less than the amount determined by
the jury and it is possible that the Bank and its subsidiary could ultimately
be found liable for an amount in excess of the allowance that has been
established. The provision for this allowance has been included in 1995 real
estate operations.
The Bank is involved as a defendant in certain legal proceedings incidental
to its business. The Bank has established an accrual for its estimate of the
potential liability that it believes it may be found liable for. However, it is
possible that the Bank's actual liability may be substantially higher or lower
than the amount of the established allowance. The Bank does not believe that
the litigation to which it is a party, if adversely decided, in the aggregate
would have a material adverse effect upon the Bank's financial condition.
However, adverse decisions in such matters could have a material adverse effect
upon the Bank's results of operations for the relevant period or periods in
which they occur.
F-46
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23: STOCKHOLDERS' EQUITY, PREFERRED STOCK OF SUBSIDIARY AND REGULATORY
CAPITAL
Common Stock
The Bank's common stock at December 31, 1995 and 1994 is summarized in the
table below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Par value ............................... $ 1.00 $ 1.00
Number of shares authorized ............. 100,000,000 100,000,000
Number of shares issued and outstanding 49,200,444 49,199,044
</TABLE>
During the 1995 fourth quarter, California Federal obtained regulatory and
shareholder approval to reorganize into a holding company structure, which will
provide greater flexibility for meeting future financial and competitive needs.
As a result of the reorganization, on January 1, 1996, each share of the
California Federal's common stock was converted into one share of Cal Fed
Bancorp Inc. common stock. Consequently, California Federal became a
wholly-owned subsidiary of Cal Fed Bancorp Inc.
Preferred Stock of Subsidiary
In March 1993, California Federal issued 3,740,000 shares of 7 3/4%
noncumulative convertible preferred stock at its liquidation preference of
$25.00 per share (the "Preferred Stock, Series A"). The issuance of the
Preferred Stock, Series A, resulted in an $89.0 million increase in the equity
capital of California Federal, after deducting issue costs of $4.5 million.
Effective January 1, 1996, the Preferred Stock, Series A, is convertible by the
holders into the common stock of Cal Fed Bancorp Inc. at any time at a
conversion price of $20.16 per share, subject to adjustment. The Preferred
Stock, Series A, is not redeemable prior to March 31, 1996. At or after March
31, 1996, the Preferred Stock, Series A, is redeemable at the option of
California Federal, in whole or in part, at par value plus declared but unpaid
dividends.
In March 1994, California Federal issued 1,725,000 shares of 10 5/8%
noncumulative perpetual preferred stock at its liquidation preference of
$100.00 per share (the "Preferred Stock, Series B"). The issuance of the
Preferred Stock, Series B resulted in an $164.2 million increase in the equity
capital of California Federal, after deducting issue costs of $8.3 million. The
Preferred Stock, Series B, is generally not redeemable prior to April 1, 1999.
The Preferred Stock, Series B, is redeemable at the option of California
Federal, in whole or in part, at $105.313 per share on or after April 1, 1999
and prior to April 1, 2000, and at prices decreasing annually thereafter to the
liquidation preference of $100.00 per share on or after April 1, 2003, plus
declared but unpaid dividends. In addition, the Preferred Stock, Series B, is
redeemable at the option of California Federal or its successor or any
acquiring or resulting entity with respect to California Federal on or after
April 1, 1996 and prior to April 1, 1999 in whole, but not in part, in the
event of a change of control of California Federal at $114.50 per share. The
preferred stock of subsidiary is accounted for as a minority interest in the
accompanying financial statements. Dividends on preferred stock of subsidiary
are accounted for as expense in the audited financial statements.
Common Stock Warrants
In December 1992, California Federal issued 13,879,865 warrants to purchase
California Federal common stock during June 1994. Throughout June 1994, warrant
holders were entitled to purchase one share of the common stock of California
Federal for $9.00 and five warrants. Approximately 93% of the warrants were
exercised. Warrants not exercised by June 30, 1994 became worthless and no
longer entitled the holders to purchase any shares of the common stock of
California Federal. The exercised warrants provided California Federal with
$23.3 million of additional equity capital during 1994.
F-47
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23: STOCKHOLDERS' EQUITY, PREFERRED STOCK OF SUBSIDIARY AND REGULATORY
CAPITAL (Continued)
Participation Interests
During 1995, California Federal registered contingent litigation recovery
participation interests ("Participation Interests") to be issued to its common
shareholders. The Participation Interests represent a right to receive an
amount equal to up to 25.377745% of the cash payment, if any, actually received
by California Federal, resulting from the pending goodwill lawsuit of
California Federal against the federal government. In the lawsuit, California
Federal Bank, alleges that the United States breached certain contractual
commitments regarding the computation of its regulatory capital and deprived
California Federal of certain of its property without just compensation in
violation of the United States constitution. The claims of California Federal
arose from changes, mandated by FIRREA, with respect to the rules for computing
the regulatory capital of California Federal. The Bank's stockholders of record
on July 14, 1995, received one Participation Interest for every ten shares of
common stock owned on the record date. The Participation Interests were
distributed on July 28, 1995 and began trading on the NASDAQ Small Cap Market
under the symbol "CALGZ" on August 1, 1995.
Regulatory Capital
As a savings institution which is regulated by the OTS, California Federal
is required to comply with the capital requirements of the OTS. The regulations
of the OTS require savings institutions to maintain certain minimum levels of
regulatory capital. An institution that fails to comply with its regulatory
capital requirements must obtain OTS approval of a capital plan and can be
subject to a capital directive and certain restrictions on its operations. An
institution that fails to obtain OTS approval of its capital plan is deemed to
be in an unsafe and unsound condition and could be the subject of the
appointment of a conservator or a receiver. At December 31, 1995, the
industry-wide minimum regulatory capital requirements were:
o Tangible capital of 1.5% of adjusted total assets, consisting generally
of stockholders' equity, but excluding most intangible assets such as
goodwill.
o A leverage ratio requiring core capital of 3.0% of adjusted total
assets, consisting of tangible capital plus supervisory goodwill
(certain goodwill arising as a result of the acquisition of troubled
institutions and regulatory assisted acquisitions).
o Total risk-based capital consisting of core capital plus certain
subordinated debt and other capital instruments and general valuation
allowances on loans receivable equal to 8.0% of the value of
risk-weighted assets plus off-balance sheet items.
The table below presents the capital ratios of California Federal as
compared to the industry-wide minimum capital requirements at December 31,
1995:
<TABLE>
<CAPTION>
REGULATORY EXCESS
CALIFORNIA FEDERAL REQUIREMENT CAPITAL
------------------ ---------------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Tangible Capital . $845.3 5.91% $214.5 1.50% $630.8
Core Capital ...... $845.3 5.91% $429.0 3.00% $416.3
Risk-based Capital $961.4 12.36% $623.0 8.00% $338.4
</TABLE>
The OTS has implemented a system requiring regulatory sanctions against
institutions that are not adequately capitalized, with the sanctions growing
more severe the lower the institution's capital. The OTS has established
specific capital ratios for five separate capital categories: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized."
F-48
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23: STOCKHOLDERS' EQUITY, PREFERRED STOCK OF SUBSIDIARY AND REGULATORY
CAPITAL (Continued)
Under the OTS regulations, an institution is treated as well capitalized if
its ratio of total capital to risk-weighted assets is 10.0% or more, its ratio
of core capital to risk-weighted assets is 6.0% or more, its ratio of core
capital to total assets is 5.0% or greater and it is not subject to any order
or directive by the OTS to meet a specific capital level.
At December 31, 1995, (i) the total risk-based capital ratio of California
Federal was 12.36 percent, $183.3 million in excess of "well-capitalized"
requirements, (ii) the Tier I risk-based capital ratio of California Federal
was 10.90 percent, $380.1 million in excess of "well-capitalized" requirements,
and (iii) the leverage ratio of California Federal was 5.91 percent, $130.2
million in excess of "well-capitalized" requirements. Therefore, at December
31, 1995, California Federal met and exceeded all of the requirements of a well
capitalized institution.
An institution is undercapitalized if its ratio of total capital to
risk-weighted assets is less than 8.0%, its ratio of core capital to
risk-weighted assets is less than 4.0% or its ratio of core capital to total
assets is less than 4.0% (3.0% if the institution receives the highest rating
on the CAMEL examination rating system). An institution whose capital falls
between the well capitalized and undercapitalized levels is treated as
adequately capitalized. An institution is treated as significantly
undercapitalized if the above capital ratios are less than 6.0%, 3.0%, or 3.0%
respectively. An institution is treated as critically undercapitalized if its
ratio of tangible equity (core capital, plus cumulative preferred stock, minus
intangible assets other than qualifying supervisory goodwill and certain
purchased mortgage servicing rights) to total assets is equal to or less than
2.0%. The OTS can apply to an institution in a particular capital category the
sanctions that apply to the next lower capital category if the OTS determines,
after providing the institution notice and opportunity for a hearing, that (1)
the institution is in an unsafe and unsound condition, or (2) the institution
received, in its most recent report of examination, a less-than-satisfactory
rating for asset quality, management, earnings, or liquidity, and the
deficiency has not been corrected. The OTS cannot, however, use this authority
to require an adequately capitalized institution to file a capital restoration
plan, or to subject a significantly undercapitalized institution to the
sanctions applicable to critically undercapitalized institutions.
Following is a reconciliation of the shareholder's equity of California
Federal Bank, F.S.B. to regulatory capital as of December 31, 1995:
<TABLE>
<CAPTION>
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
-------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Shareholders' Equity of California Federal .............. $887.5 $887.5 $887.5
Non-allowable capital:
Intangible assets .................................... (17.1) (17.1) (17.1)
Investment in non-permissible subsidiaries ........... (25.1) (25.1) (25.1)
Tier II capital items:
Allowable subordinated debt .......................... -- -- 19.2
Allowable general valuation allowance on loans
receivable
(limited to 1.25% of risk-weighted assets) .......... -- -- 96.9
---------- --------- ------------
Regulatory capital of California Federal ................ 845.3 845.3 961.4
Bank's minimum regulatory capital requirement .......... 214.5 429.0 623.0
---------- --------- ------------
Excess over minimum regulatory capital requirements .. $630.8 $416.3 $338.4
========== ========= ============
</TABLE>
With certain limited exceptions, California Federal's investments in and
extensions of credit to any subsidiary engaged in activities not permissible
for a national bank ("non-includable subsidiaries") must be deducted from
capital over a phase-in period.
F-49
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23: STOCKHOLDERS' EQUITY, PREFERRED STOCK OF SUBSIDIARY AND REGULATORY
CAPITAL (Continued)
The table below presents the amount of investments in and extensions of
credit to non-includable subsidiaries which may be included in regulatory
capital for the periods indicated:
<TABLE>
<CAPTION>
AMOUNT WHICH
MAY BE INCLUDED
FOR THE PERIOD IN CAPITAL
- --------------------------------- -------------------
<S> <C>
July 1, 1994 to June 30, 1995 ... 60%
July 1, 1995 to June 30, 1996 ... 40%
After June 30, 1996 .............. 0%
</TABLE>
At December 31, 1995, California Federal had $16.7 million included in the
regulatory capital relating to such investments and extensions of credit.
Restriction on Shareholder's Equity and Dividends
The payment of dividends, stock repurchases, and other capital distributions
by California Federal are subject to regulation by the OTS. The OTS requires 30
days' prior notice of any capital distribution. On December 5, 1994, the OTS
proposed various amendments to its rules on capital distributions to conform
them to the prompt corrective action system established by the Federal Deposit
Insurance Corporation Improvement Act of 1991. Under the proposed regulation,
those institutions that have the CAMEL ratings of 1 or 2 and are not controlled
by a holding company would no longer be required to notify OTS before capital
distributions. Most other savings institutions could make capital distributions
upon giving notice to OTS provided that, following the distribution, the
institution would remain at least adequately capitalized as defined by the
prompt corrective action system. The proposed amendments are pending.
Pursuant to statutes, savings institutions that do not meet their current
capital requirements generally may not make any capital distributions.
Tax Bad Debt Reserves
For federal income tax purposes, savings institutions meeting certain
definitional and other tests are allowed special bad debt reserve deductions.
If amounts appropriated to these tax bad debt reserves in excess of an
allowable offset computed under the experience method ("excess tax bad debt
reserves") are used for the payment of nontaxable dividends or other
distributions to stockholders (including distributions in dissolution,
liquidation or redemption of stock), an amount will generally be includable in
taxable income. The amount includable in taxable income is equal to the
distribution plus the federal income tax attributable thereto, up to the
aggregate amount of excess tax bad debt reserves. At December 31, 1995, the
Bank's total tax bad debt reserves of approximately $76 million did not include
any amount which may represent excess tax bad debt reserves.
NOTE 24: EMPLOYEE RETIREMENT BENEFIT PLANS
Retirement Plans
The Bank has two defined benefit plans: one covering its employees
("retirement income plan") and one for the non-employee directors ("outside
directors plan"). Prior to 1995, the bank had two outside directors plans.
During 1995, one of the outside directors plans was terminated and subsequently
liquidated. Effective May 31, 1993, the retirement income plan was frozen and
all accrued benefits were automatically 100% vested. The plan froze all accrued
benefits, however; credited service will continue to accrue for purposes of
determining eligibility for early retirement (and the applicable early
retirement reduction factors).
F-50
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24: EMPLOYEE RETIREMENT BENEFIT PLANS (Continued)
The Bank's funding policy for the retirement income plan is to contribute
an amount equal to the minimum required contribution under the Employee
Retirement Income Security Act of 1974. The Bank from time to time may increase
its contribution beyond the minimum reflecting the tax and cash position of the
Bank and the funded status of the plan. The outside directors plan is unfunded.
Additionally, the Bank had a supplemental defined benefit retirement plan for
key employees (the "supplemental plan") which was terminated on December 31,
1993. The Bank has recorded a liability of $0.1 million as of December 31, 1995
related to the supplemental plan.
The following tables set forth the pension plan's funded status and amounts
recognized in the Bank's consolidated statements for the years indicated:
<TABLE>
<CAPTION>
RETIREMENT INCOME PLAN
-------------------------------------------
ASSETS ASSETS ASSETS
EXCEED EXCEED EXCEED
ACCUMULATED ACCUMULATED ACCUMULATED
BENEFITS BENEFITS BENEFITS
------------- ------------- -------------
1995 1994 1993
------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $34.4 million in
1995, $30.9 million in 1994, $39.1
million in 1993 ........................................... $35.3 $30.1 $39.0
============= ============= =============
Projected benefit obligation for service rendered to date . $35.3 $30.1 $39.0
Plan assets at fair value, primarily listed stock and fixed
income securities ......................................... 35.5 33.3 40.5
------------- ------------- -------------
Excess of projected benefit obligation under plan assets .. (0.2) (3.2) (1.5)
Unrecognized net gain (loss) from past experience different
from that assumed ......................................... (7.7) (3.3) (4.5)
Transition amount from initial application of SFAS 87 ..... -- -- --
Unrecognized prior service cost ............................ -- -- --
Adjustment required to recognize minimum liability ........ -- -- -
------------- ------------- -------------
Pension (asset) included in other liabilities ............... $(7.9) $(6.5) $(6.0)
============= ============= =============
Net pension expense included the following components:
Service cost -benefits earned during the period .......... $ -- $ -- $ 2.0
Interest cost on projected benefit obligation ............... 2.0 2.4 2.9
Actual return on plan assets ................................ (5.7) (1.5) (3.2)
Other, net .................................................. 3.3 (1.3) 0.5
------------- ------------- -------------
Net periodic pension (income) expense ....................... $(0.4) $(0.4) $ 2.2
============= ============= =============
</TABLE>
F-51
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24: EMPLOYEE RETIREMENT BENEFIT PLANS (Continued)
<TABLE>
<CAPTION>
ACCUMULATED ACCUMULATED ACCUMULATED
BENEFITS BENEFITS BENEFITS
EXCEED EXCEED EXCEED
ASSETS ASSETS ASSETS
------------- ------------- -------------
1995(A) 1994(A) 1993(B)
------------- ------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $34.4 million in
1995, $30.9 million in 1994, $39.1
million in 1993 ........................................... $0.1 $ 2.3 $ 2.7
============= ============= =============
Projected benefit obligation for service rendered to date . $0.1 $ 2.3 $ 2.7
Plan assets at fair value, primarily listed stock and fixed
income securities ......................................... -- -- --
------------- ------------- -------------
Excess of projected benefit obligation over plan assets ... 0.1 2.3 2.7
Unrecognized net gain (loss) from past experience different
from that assumed ......................................... -- (0.9) (1.2)
Transition amount from initial application of SFAS 87 ..... -- (0.2) (0.2)
Unrecognized prior service cost ............................ -- -- --
Adjustment required to recognize minimum liability ........ -- 1.1 1.4
------------- ------------- -------------
Pension (asset) liability included in other liabilities .... $0.1 $ 2.3 $ 2.7
============= ============= =============
Net pension expense included the following components:
Service cost -benefits earned during the period .......... $ -- $ 0.1 $ 0.1
Interest cost on projected benefit obligation ............... -- 0.2 0.2
Actual return on plan assets ................................ -- -- --
Other, net .................................................. -- 0.1 0.1
------------- ------------- -------------
Net periodic pension expense ................................ $ -- $ 0.4 $ 0.4
============= ============= =============
</TABLE>
(A) These amounts relate to both the supplemental plan and the outside
directors plan.
(B) These amounts relate to the outside directors plan.
Average assumptions used for all plans were:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate .................................. 7.25% 8.00% 7.25%
Rate of increase in compensation levels ....... N/A(C) N/A(C) N/A(C)
Expected long-term rate of return on assets ... 8.50% 8.50% 8.50%
</TABLE>
(C) Not applicable due to a freeze in accrued benefits of the plan.
The FASB has issued Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS
106"). SFAS 106 became effective for fiscal years beginning after December 15,
1992. SFAS 106 establishes accounting standards for all employers'
postretirement benefits other than pensions; however, it focuses on
postretirement health care benefits. SFAS 106 changes the current practice of
accounting for postretirement benefits on a cash basis by accruing the cost of
these benefits during the years the employee renders the necessary service. The
Bank has a defined benefit postretirement plan which provides for
postretirement medical benefits to eligible retired employees.
F-52
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24: EMPLOYEE RETIREMENT BENEFIT PLANS (Continued)
The following table sets forth the postretirement benefits plans funded
status and amount recognized in the Bank's consolidated statements for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS
IN MILLIONS)
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Current Retirees ........................................................ $ 2.1 $ 2.2
Current Actives ......................................................... 1.0 1.5
------- -------
$ 3.1 $ 3.7
======= =======
Accumulated Postretirement Benefit Obligation ............................ $ 3.1 $ 3.7
Plan assets at fair value ................................................ -- --
------- -------
Excess of accumulated postretirement benefit obligations under plan
assets .................................................................. 3.1 3.7
Unrecognized transition obligation ....................................... (4.0) (4.3)
Unrecognized net gain .................................................... 3.1 2.4
------- -------
Net postretirement benefit liability included in other liabilities ..... $ 2.2 $ 1.8
======= =======
Net Periodic Postretirement Benefit Cost:
Service cost ............................................................ $ 0.2 $ 0.3
Interest cost ........................................................... 0.3 0.4
Amortization of transition obligation ................................... 0.2 0.3
Other, net .............................................................. (0.2) 0.4
------- -------
Net periodic postretirement benefit cost ............................... $ 0.5 $ 1.4
======= =======
Effect of one percent increase in trend rates:
Service and interest cost ............................................... $ 0.1 $ 0.1
======= =======
Accumulated postretirement benefit obligation ........................... $ 0.4 $ 0.5
======= =======
</TABLE>
The cost of inflation for health care and medical costs of plan participants
(the "health care trend rate") was assumed to start at 11.5% and gradually
trend downward over 11 years to 6%. The assumed discount rate, in determining
postretirement benefits, was 7.25% and 8.00% at December 31, 1995 and 1994,
respectively. At December 31, 1995 and 1994, there were no plan assets related
to this plan.
F-53
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 24: EMPLOYEE RETIREMENT BENEFIT PLANS (Continued)
Investment Plus Plan
The Investment Plus Plan (the "Plan") is a defined contribution plan that is
available to substantially all employees. The Plan is a qualified plan under
Section 401(k) of the Internal Revenue Code. Employee contributions are
voluntary, as employees may elect to defer from one to ten percent of
compensation, exclusive of overtime, bonuses or other special payments
("qualifying compensation"). Participants vest immediately in their own
contributions and they vest in the Bank's contributions based on years of
service. Up to 4% of participants' contributions are matched by the Bank on a
schedule that is determined by the participants' years of service with the
Bank. The table below presents the Bank's matching contributions as determined
by the participants' years of service.
<TABLE>
<CAPTION>
BANK'S MATCHING
OF PARTICIPANTS' PARTICIPANTS'
CONTRIBUTIONS UP VESTING IN THE
TO 4% OF QUALIFIED BANK'S
YEARS OF SERVICE COMPENSATION CONTRIBUTION
- ---------------------------------------- ------------------ --------------
<S> <C> <C>
Less than 1 year ........................ 0% 0%
At least 1 year but less than 2 years .. 125 0
At least 2 years but less than 3 years . 125 25
At least 3 years but less than 4 years . 125 50
At least 4 years but less than 5 years . 125 75
At least 5 years, but less than 10 years 150 100
10 or more years ........................ 200% 100%
</TABLE>
The Bank's contributions may be made without regard to current or
accumulated profits, provided that the Plan is designed to qualify as a profit
sharing plan for purposes of Section 401(a), et seq. of the Internal Revenue
Code. For the years ended December 31, 1995, 1994 and 1993, the Bank's pre-tax
plan expense was $3.9 million, $4.2 million and $3.3 million, respectively.
NOTE 25: STOCK INCENTIVE PLANS
In December 1995, the Bank's stockholders approved the 1995 Employee Stock
Incentive Plan for Cal Fed Bancorp Inc. Under the 1995 Employee Stock Incentive
Plan, 2,000,000 shares of common stock of Cal Fed Bancorp Inc. may be issued
pursuant to grants of options or other stock based awards, subject to certain
adjustments to prevent dilution. The 1995 Employee Stock Incentive Plan became
effective upon its adoption by the stockholders. As of December 31, 1995, no
options were granted or exercised under the 1995 Employee Stock Incentive Plan.
In addition, in December 1995, the stockholders also approved the 1995
Non-Employee Director Stock Option Plan for Cal Fed Bancorp Inc. Under the 1995
Non-Employee Director Stock Option Plan, 170,000 shares of common stock of Cal
Fed Bancorp Inc. may be issued pursuant to grants of options, subject to
certain adjustments to prevent dilution. The 1995 Non-Employee Director Stock
Option Plan became effective upon its adoption by the stockholders and these
options generally became exercisable over a twenty year period from the date of
grant. The first date of grant is the day after the 1997 Annual Meeting of
Stockholders of Cal Fed Bancorp Inc. As of December 31, 1995, no options of the
1995 Non-Employee Directors Plan were granted or exercised.
In 1983, the Bank's stockholders approved the 1983 Stock Incentive Plan
under which 1,500,000 shares of common stock could have been granted as options
or sold as restricted stock to eligible employees. Those options generally
became exercisable over a four year period from the date of grant. All options
granted under the 1983 Stock Incentive Plan were vested on December 16, 1992.
Option
F-54
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 25: STOCK INCENTIVE PLANS (Continued)
activity, giving effect for the one-for-five reverse stock split which occurred
on February 28, 1993, during 1995, 1994 and 1993 follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- ---------------------------- ----------------------------
NUMBER NUMBER NUMBER
OF RANGE OF OF RANGE OF OF RANGE OF
SHARES OPTION PRICES SHARES OPTION PRICES SHARES OPTION PRICES
--------- ---------------- ---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1 . 1,200 $15.63-$172.50 43,200 $15.63-$172.50 104,554 $15.63-$172.50
Granted ............. -- -- -- -- -- --
Canceled or expired (1,200) 86.875 (42,000) 21.25- 163.75 (61,354) 15.63- 172.50
Exercised ........... -- -- -- -- -- --
--------- ---------------- ---------- ---------------- ---------- ----------------
Balance, December 31 -- --- -- 1,200 $15.63-$172.50 43,200 $15.63-$172.50
========= ================ ========== ================ ========== ================
</TABLE>
There were no 1983 Stock Incentive Plan options exercised during 1995, 1994
or 1993.
In 1993, the Bank's stockholders approved the 1993 Employee Stock Incentive
Plan under which 1,600,000 shares of common stock may be granted subject to
certain adjustments to prevent dilution. Option activity during 1995 and 1994
follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------- ----------------------------- -----------------------------
NUMBER NUMBER NUMBER
OF RANGE OF OF RANGE OF OF RANGE OF
SHARES OPTION PRICES SHARES OPTION PRICES SHARES OPTION PRICES
----------- ---------------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1 . 1,411,450 $ 1.000-$15.875 1,318,500 $1.000-$15.875 -- --
Granted ............. 35,000 9.875- 12.750 287,200 9.375- 13.625 1,655,900 $ 1.000-$15.875
Canceled or expired (12,850) 12.125- 15.750 (194,250) 7.300- 15.750 (337,400) 13.875- 15.875
Exercised ........... (1,400) 12.125 -- -- -- --
----------- ---------------- ----------- ---------------- ----------- ----------------
Balance, December 31 1,432,200 $ 1.000-$15.875 1,411,450 $1.000-$15.875 1,318,500 $ 1.000-$15.875
=========== ================ =========== ================ =========== ================
</TABLE>
At December 31, 1995, there were 166,400 shares available for future grant.
At December 31, 1995, the weighted average option prices for shares under
option and for shares exercisable were $7.21 and $6.51, respectively. The
weighted average option prices of shares exercised was $12.125 at December 31,
1995. On the date of the 1993 grant, the market price of the Bank's common
stock exceeded the exercise price such that $8.0 million of deferred
compensation expense was recorded at the date of grant. These options generally
vest and become exercisable to the participants over a 36 month period. During
1995 and 1994, approximately $2.0 million and $4.3 million, respectively, was
charged to compensation expense. The Bank has a total of $1.7 million of
deferred compensation expense scheduled to be recorded between January 1, 1996
and December 31, 1996.
In 1994, the Bank's stockholders approved the 1994 Non-Employee Director
Stock Option Plan under which 161,000 shares of common stock may be granted
subject to certain adjustments to prevent dilution.
Option activity for the 1994 Non-Employee Director Stock Option Plan
follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
NUMBER OF RANGE OF NUMBER OF RANGE OF
SHARES OPTION PRICES SHARES OPTION PRICES
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Balance, January 1 ...... 120,000 $10.00 -- $ --
Granted ................. -- -- 120,000 10.00
Canceled or expired .... -- -- -- --
Exercised ............... -- -- -- --
------------- ----------------- ------------- -----------------
Balance, December 31 ... 120,000 $10.00 120,000 $10.00
============= ================= ============= =================
</TABLE>
F-55
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 25: STOCK INCENTIVE PLANS (CONTINUED)
At December 31, 1995, there were 41,000 shares available for future grant.
The weighted average exercise price for shares under option was $10.00 at
December 31, 1995.
NOTE 26: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
---------- --------- -------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income ............................... $245.6 $252.1 $249.9 $260.4
Interest expense .............................. 172.8 175.7 170.0 177.6
----------- ---------- --------------- --------------
Net interest income ........................... 72.8 76.4 79.9 82.8
Provision for loan losses ..................... 8.3 8.6 7.6 7.3
Other income .................................. 14.5 14.3 21.5(A) 13.2
Other expenses ................................ 64.3 60.3 61.9 63.4
Income tax expenses ........................... -- 0.1 -- --
Dividends on Preferred Stock of Subsidiary ... 6.4 6.4 6.4 6.4
----------- ---------- --------------- --------------
Net earnings available for common stockholders $ 8.3 $ 15.3 $ 25.5 $ 18.9
=========== ========== =============== ==============
Net earnings per share ........................ $ 0.17 $ 0.31 $ 0.50 $ 0.38
=========== ========== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
---------- --------- -------------- -------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income ................................ $ 224.1 $229.6 $222.3 $232.1
Interest expense ............................... 133.1 139.0 139.6 154.8
----------- ---------- --------------- --------------
Net interest income ............................ 91.0 90.6 82.7 77.3
Provision for loan losses ...................... 43.9 11.4 11.2 8.4
Other income ................................... 17.4 17.5 151.4(B) 14.9
Other expenses ................................. 381.1(C) 85.7 73.4(D) 70.8
Income tax expense ............................. 5.8 0.5 -- --
Dividends on Preferred Stock of Subsidiary .... 1.8 2.3 6.4 6.4
----------- ---------- --------------- --------------
(Loss) earnings before the cumulative effect of
change in accounting for goodwill ............. (324.2) 8.2 143.1 6.6
Cumulative effect of change in accounting for
goodwill ...................................... (273.7) -- -- --
----------- ---------- --------------- --------------
Net (loss) earnings available for common
stockholders .................................. $(597.9) $ 8.2 $143.1 $ 6.6
=========== ========== =============== ==============
Net (loss) earnings per share before the
cumulative effect of change in accounting for
goodwill ...................................... $(11.39) $ 0.17 $ 2.87 $ 0.13
Net (loss) earnings per share of the cumulative
effect of change in accounting for goodwill .. (9.62) -- -- --
----------- ---------- --------------- --------------
Net (loss) earnings per share .................. $(21.01) $ 0.17 $ 2.87 $ 0.13
=========== ========== =============== ==============
</TABLE>
- ------------
(A) Includes a $6.8 million gain on the sale of $729.3 million of Treasury
securities.
(B) Includes $135.0 million gain from the sale of Southeast Division.
(C) Includes $280.0 million provision for estimated losses on assets held
for accelerated disposition.
(D) Includes $5.2 million recovery upon consummation of the sale of assets
held for accelerated disposition.
F-56
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 27: PARENT COMPANY FINANCIAL INFORMATION
The following financial statements are for Cal Fed Bancorp Inc., the parent
company, on a stand-alone basis. These financial statements should be read in
conjunction with the other Notes to the consolidated financial statements.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash ............................. $ 22.1 $ --
Investment in California Federal 599.4 532.3
-------- --------
$621.5 $532.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities ................ $ -- $ --
-------- --------
Total stockholders' equity ...... 621.5 532.3
-------- --------
$621.5 $532.3
======== ========
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
------- ---------- ----------
<S> <C> <C> <C>
Equity in undistributed net earnings (loss) of
subsidiaries available for common stockholders .......... $68.0 $(440.0) $(149.3)
------- ---------- ----------
Net earnings (loss) available to common stockholders ..... $68.0 $(440.0) $(149.3)
======= ========== ==========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
-------- ---------- ----------
<S> <C> <C> <C>
Net Cash Flows from Operating Activities:
Net earnings (loss) available to common stockholders ..... $ 68.0 $(440.0) $(149.3)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Equity in undistributed net (earnings) loss of
subsidiaries available for common stockholders ........ (68.0) 440.0 149.3
-------- ---------- ----------
Net cash provided by operating activities .............. -- -- --
Cash Flows from Investing Activities: ..................... -- -- --
-------- ---------- ----------
Cash Flows from Financing Activities:
Proceeds from initial capitalization ..................... 22.1 -- --
-------- ---------- ----------
Net increase in cash ...................................... $ 22.1 $ -- $ --
Cash at beginning of year ................................. -- -- --
-------- ---------- ----------
Cash at end of year ....................................... $ 22.1 $ -- $ --
======== ========== ==========
</TABLE>
F-57
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- --------------
<S> <C> <C>
ASSETS
Cash ......................................................... $ 197.9 $ 273.7
Short-term liquid investments ................................ -- 74.1
Securities purchased under agreements to resell .............. 1,438.4 1,674.6
Securities available for sale ................................ 6.0 200.3
Securities held to maturity .................................. 2,040.8 2,366.7
Loans receivable held for sale ............................... 32.2 13.6
Loans receivable held for investment ......................... 10,022.9 9,290.0
Federal Home Loan Bank stock ................................. 164.3 135.7
Interest receivable .......................................... 74.9 79.5
Premises and equipment ....................................... 64.0 71.2
Real estate held for sale .................................... 15.2 49.5
Prepaid expenses and other assets ............................ 70.1 91.7
--------------- --------------
Total Assets ............................................... $14,126.7 $14,320.6
=============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits ..................................................... $ 8,763.0 $ 9,476.7
Advances from Federal Home Loan Banks ........................ 3,261.0 2,671.0
Securities sold under agreements to repurchase ............... 962.7 857.3
Student Loan Marketing Association advances .................. -- 200.0
Subordinated debentures ...................................... 57.0 57.6
Interest payable ............................................. 23.4 29.4
Other liabilities ............................................ 232.5 141.1
--------------- --------------
Total Liabilities .......................................... 13,299.6 13,433.1
--------------- --------------
Preferred stock of subsidiary ................................ 172.5 266.0
Stockholders' equity
Common stock ................................................ 49.4 49.2
Additional paid-in capital .................................. 841.0 838.6
Net unrealized holding gains (losses) on securities
available for sale .......................................... -- --
Retained (deficit) .......................................... (235.8) (266.3)
--------------- --------------
Total Stockholders' Equity ................................. 654.6 621.5
--------------- --------------
Total Liabilities and Stockholders' Equity ................. $14,126.7 $14,320.6
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Interest income:
Loans receivable ........................................... $567.8 $520.7
Securities held to maturity ................................ 109.9 128.3
Securities purchased under agreements to resell ........... 71.0 41.8
Securities available for sale .............................. 9.2 46.0
Short-term liquid investments .............................. 3.7 10.8
-------- --------
Total interest income ..................................... 761.6 747.6
-------- --------
Interest expense:
Deposits ................................................... 326.2 322.8
Borrowings ................................................. 174.5 195.7
-------- --------
Total interest expense .................................... 500.7 518.5
-------- --------
Net interest income ....................................... 260.9 229.1
Provision for loan losses ................................... 30.8 24.5
-------- --------
Net interest income after provision for loan losses ...... 230.1 204.6
Other income:
Fee income ................................................. 44.6 40.3
Gain (loss) on sales of loans .............................. 0.7 (0.3)
Gain on sales of securities held for sale .................. 1.1 6.8
Other ...................................................... 15.5 3.5
-------- --------
Total other income ........................................ 61.9 50.3
-------- --------
Other expenses:
Compensation ............................................... 72.3 72.8
Office occupancy ........................................... 27.9 29.5
Other general and administrative ........................... 58.6 57.5
Federal deposit insurance premiums ......................... 17.7 19.4
-------- --------
Total general and administrative expenses ................. 176.5 179.2
Savings Association Insurance Fund special assessment ..... 58.1 --
Operations of real estate held for sale .................... 8.0 7.3
-------- --------
Total other expenses ...................................... 242.6 186.5
-------- --------
Earnings before income tax expense .......................... 49.4 68.4
Income tax expense .......................................... 0.1 0.1
-------- --------
Earnings before dividends on preferred stock of subsidiary 49.3 68.3
Dividends on preferred stock of subsidiary .................. 18.9 19.2
-------- --------
Net earnings available for common stockholders .............. $ 30.4 $ 49.1
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-59
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings before dividends on preferred stock of subsidiary ................ $ 49.3 $ 68.3
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization ............................................ 8.7 9.8
Accretion of fees and discounts .......................................... (0.9) (12.8)
Provision for losses on loans receivable ................................. 30.8 24.5
Provision for losses (recoveries) on real esate held for sale ........... 5.0 (7.2)
Savings Association Insurance Fund special assessment .................... 58.1 --
(Gain) loss on sales of loans ............................................ (0.7) 0.3
Loans originated for sale ................................................ (191.5) (81.5)
Gain on sales of securities .............................................. (1.1) (6.8)
Proceeds from sales of loans receivable held for sale .................... 219.8 149.1
Decrease in other assets ................................................. 26.2 23.8
Increase (decrease) in other liabilities ................................. 27.6 (13.1)
Other items .............................................................. (12.5) 0.7
----------- -----------
Net cash provided by operating activities ............................... 218.8 155.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans originated for investment .......................................... (1,894.6) (1,634.6)
Purchases of securities available for sale ............................... (211.0) (152.5)
Proceeds from sales of securities available for sale ..................... 250.4 952.2
Purchases of mortgage-backed securities held to maturity ................. -- (65.7)
Principal collected on loans receivable held for investment ............. 1,026.9 804.5
Principal collected on securities held to maturity ....................... 325.1 310.2
Proceeds from maturities of securities ................................... 156.0 807.8
Net (increase) decrease in FHLB stock .................................... (28.6) 13.1
Proceeds from sales of real estate held for sale, net .................... 103.7 91.3
Net additions of premises and equipment .................................. (1.3) (1.3)
Net decrease in short-term liquid investments ............................ 74.1 99.7
Net decrease (increase) in securities purchased under agreements to
resell ................................................................... 236.2 (1,382.4)
----------- -----------
Net cash provided (used) by investing activities ........................ 36.9 (157.7)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in deposits .......................................... (713.7) 1,077.1
Proceeds from Federal Home Loan Bank advances ............................ 2,030.0 1,235.0
Payments on Federal Home Loan Bank advances .............................. (1,440.0) (1,385.0)
Net increase (decrease) in reverse repurchase agreements ................. 105.4 (949.7)
Proceeds from other borrowings ........................................... 0.3 3.0
Payments on other borrowings and subordinated debentures ................. (201.1) (9.7)
Redemption of preferred stock of subsidiary .............................. (93.5) --
Payment of dividends on preferred stock of subsidiary .................... (18.9) (19.2)
----------- -----------
Net cash (used) by financing activities ................................. (331.5) (48.5)
----------- -----------
Net (decrease) in cash .................................................... (75.8) (51.1)
----------- -----------
Cash at beginning of period ............................................... 273.7 292.8
----------- -----------
Cash at end of period ..................................................... $ 197.9 $ 241.7
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-60
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) PRESENTATION OF FINANCIAL INFORMATION
In the opinion of Cal Fed Bancorp Inc. and its subsidiaries (the "Company"),
the accompanying unaudited consolidated financial statements, prepared from the
Company's books and records, contain all adjustments (consisting of only normal
recurring accruals) necessary for a fair presentation of the Company's
financial condition as of September 30, 1996 and December 31, 1995, and the
results of operations and statements of cash flows for the nine months ended
September 30, 1996 and 1995.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes necessary to present the financial
position, results of operations and statements of cash flows in conformity with
generally accepted accounting principles.
Included in the preparation of such statements are certain material
estimates related to determining the allowances for potential losses on loans,
real estate and the impairment of other assets. Additionally, the Company has
made certain estimates relating to various legal proceedings in which the
Company has been named as a defendant and has established allowances in
accordance with its estimates. In the event that actual losses materially
exceed the allowances established, the Company may realize a material adverse
impact on its financial condition and results of operations.
During the 1995 fourth quarter, California Federal Bank, F.S.B. (the "Bank")
obtained regulatory and shareholder approval to reorganize into a holding
company structure to provide greater flexibility for meeting future financial
and competitive needs. As a result of the reorganization, on January 1, 1996,
each share of the Bank's common stock was converted into one share of Cal Fed
Bancorp Inc. common stock and the Bank became a wholly-owned subsidiary of Cal
Fed Bancorp Inc. In order to present comparative financial statements and other
financial information, the Company's financial statements and other financial
information reported herein for periods prior to the reorganization into a
holding company structure are presented on an "as if" pooling-of-interests
basis.
In March 1993, the Bank issued 3,740,000 shares of 7 3/4% noncumulative
convertible preferred stock at a liquidation preference of $25.00 per share
(the "Preferred Stock, Series A"). Effective January 1, 1996, the Preferred
Stock, Series A, was convertible by the holders into the common stock of Cal
Fed Bancorp Inc. at any time at a conversion price of $20.16 per share, subject
to adjustment.
During the second quarter of 1996, the Bank called for redemption all
3,740,000 shares of the Preferred Stock, Series A. Except for the conversion of
18,820 shares into 23,336 shares of the Company's common stock, the Series A
shares were redeemed effective June 14, 1996 at a redemption price of $25.00
per share, plus a dividend of $0.398264 per share.
In March 1994, the Bank issued 1,725,000 shares of 10.625% noncumulative
perpetual preferred stock at its liquidation preference of $100.00 per share
(the "Preferred Stock, Series B"). The issuance of the Preferred Stock, Series
B is generally not redeemable prior to April 1, 1999. The Preferred Stock,
Series B, is redeemable at the option of the Bank, in whole or in part, at
$105.313 per share on or after April 1, 1999 and prior to April 1, 2000, and at
prices decreasing annually thereafter to the liquidation preference of $100.00
per share on or after April 1, 2003, plus declared but unpaid dividends. In
addition, the Preferred Stock, Series B, is redeemable at the option of the
Bank or its successor or any acquiring or resulting entity with respect to the
Bank on or after April 1, 1996 and prior to April 1, 1999 in whole, but not in
part, in the event of a change of control of the Bank at $114.50 per share.
The Preferred Stock, Series A and Series B are presented on the Company's
Consolidated Statements of Financial Condition as "Preferred stock of
subsidiary."
The following material under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is written with the
presumption that the users of the interim
F-61
<PAGE>
CAL FED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
financial statements have read or have access to the most recent report on Form
10-K which contains the latest audited financial statements and notes thereto,
together with the Management's Discussion and Analysis of Financial Condition
and Results of Operations as of December 31, 1995 and for the year then ended.
(2) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the purposes of the Consolidated Statements of Cash Flows, the Company
defines cash as currency on hand and demand deposits with other financial
institutions.
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPTEMBER 30,
1996 1995
-------- --------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Cash Paid (Received) During the Period for:
Interest expense .............................................. $506.7 $514.7
Income taxes .................................................. (11.4) (1.6)
Non-Cash Investing and Financing Activities:
Additions to real estate acquired in settlement of loans ..... 97.0 110.0
Loans exchanged for mortgage-backed securities ................ -- 239.7
Change in unrealized gain on securities available for sale ... -- 18.5
Transfers (from) to loans held for sale (to) from loans held
for investment ............................................... $ 47.1 $ 78.5
</TABLE>
F-62
