UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
--------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
-------------------- -------------------
Commission File Number: 333-64597
-------------------------------------------------
Golden State Holdings Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4669792
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
135 Main Street, San Francisco, CA 94105
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
415-904-1100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X Yes No
- --- ---
The number of shares outstanding of registrant's $1.00 par value common
stock, as of the close of business on April 30, 2001: 1,000 shares.
Registrant meets the conditions set forth in General Instruction H (1)
(a) and (b) of Form 10-Q and is therefore filing this Form with certain reduced
disclosures, as permitted by General Instruction H (2).
Page 1
GOLDEN STATE HOLDINGS INC.
FIRST QUARTER 2001 REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
--------------------- ----
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets
March 31, 2001 and December 31, 2000........................3
Unaudited Consolidated Statements of Income
Three Months Ended March 31, 2001 and 2000..................4
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2001 and 2000..................5
Unaudited Consolidated Statement of Stockholder's Equity
Three Months Ended March 31, 2001...........................6
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000..................7
Notes to Unaudited Consolidated Financial Statements........9
Item 2. Management's Narrative Analysis of
Results of Operations......................................18
Item 3. Quantitative and Qualitative Disclosures About Market Risk..*
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings..........................................27
Item 2. Changes in Securities.......................................*
Item 3. Defaults Upon Senior Securities.............................*
Item 4. Submission of Matters to a Vote of Security Holders.........*
Item 5. Other Information..........................................29
Item 6. Exhibits and Reports on Form 8-K...........................29
Glossary of Defined Terms..............................................30
Signatures.............................................................32
* Item 3 of Part I and Items 2, 3 and 4 of Part II are not included
as per conditions met by Registrant set forth in General
Instruction H (1) (a) and (b) of Form 10-Q.
Golden State Holdings Inc. is a wholly owned subsidiary of Golden
State Bancorp Inc. For more information, refer to Golden State
Bancorp Inc.'s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2001.
Page 2
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(Unaudited)
(dollars in thousands, except per share data)
March 31, December 31,
Assets 2001 2000
------ -------------- ---------------
Cash and due from banks $ 832,457 $ 697,441
Interest-bearing deposits in other banks 98 123
Short-term investment securities 83,006 85,510
----------- -----------
Cash and cash equivalents 915,561 783,074
Securities available for sale, at fair value 482,409 637,070
Securities held to maturity 480,050 587,503
Mortgage-backed securities available for sale, at fair value 10,691,405 9,866,823
Mortgage-backed securities held to maturity 1,713,837 2,886,612
Loans held for sale, net 1,682,213 845,763
Loans receivable, net 40,893,892 39,592,814
Investment in FHLB System 1,383,740 1,361,066
Premises and equipment, net 290,270 290,899
Foreclosed real estate, net 18,451 19,080
Accrued interest receivable 355,797 364,414
Intangible assets (net of accumulated amortization of $261,090
at March 31, 2001 and $246,150 at December 31, 2000) 676,348 691,288
Mortgage servicing rights, net of valuation allowance 1,328,346 1,559,323
Derivative assets 204,663 --
Other assets 648,297 1,029,082
----------- -----------
Total assets $61,765,279 $60,514,811
=========== ===========
Liabilities, Minority Interest and Stockholder's Equity
-------------------------------------------------------
Deposits $24,475,275 $23,462,372
Securities sold under agreements to repurchase 4,060,445 4,511,309
Borrowings 29,119,920 28,800,557
Derivative liabilities 151,733 --
Other liabilities 1,092,826 942,397
----------- -----------
Total liabilities 58,900,199 57,716,635
----------- -----------
Commitments and contingencies -- --
Minority interest 500,000 500,000
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding 1 1
Additional paid-in capital 1,567,324 1,564,821
Accumulated other comprehensive loss (72,639) (91,405)
Retained earnings (substantially restricted) 870,394 824,759
----------- -----------
Total stockholder's equity 2,365,080 2,298,176
----------- -----------
Total liabilities, minority interest and stockholder's equity $61,765,279 $60,514,811
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
Page 3
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(in thousands)
Three Months Ended March 31,
-----------------------------
2001 2000
----------- --------
Interest income:
Loans receivable $ 777,790 $646,193
Mortgage-backed securities available for sale 180,983 229,062
Mortgage-backed securities held to maturity 37,411 39,379
Loans held for sale 20,127 13,318
Securities available for sale 10,780 19,093
Securities held to maturity 8,501 2,061
Interest-bearing deposits in other banks 419 401
Dividends on FHLB stock 23,046 17,147
----------- --------
Total interest income 1,059,057 966,654
----------- --------
Interest expense:
Deposits 240,837 218,792
Securities sold under agreements to repurchase 67,945 82,906
Borrowings 439,803 377,853
----------- --------
Total interest expense 748,585 679,551
----------- --------
Net interest income 310,472 287,103
Provision for loan losses -- --
----------- --------
Net interest income after provision for loan losses 310,472 287,103
----------- --------
Noninterest income:
Loan servicing fees, net (26,652) 42,792
Customer banking fees and service charges 51,261 48,659
Gain on sale, settlement and transfer of loans, net 4,924 6,662
Gain on sale of assets, net 439 419
Gain on non-monetary exchange of Star Systems common stock 20,671 --
Other income 8,588 9,566
----------- --------
Total noninterest income 59,231 108,098
----------- --------
Noninterest expense:
Compensation and employee benefits 117,735 107,754
Occupancy and equipment 37,850 37,371
Professional fees 4,848 8,756
Loan expense 4,202 3,960
Foreclosed real estate operations, net (398) (2,233)
Amortization of intangible assets 14,940 16,443
Other expense 51,961 51,198
----------- --------
Total noninterest expense 231,138 223,249
----------- --------
Income before income taxes, minority interest and extraordinary items 138,565 171,952
Income tax expense (benefit) 36,183 (82,947)
Minority interest: other 6,747 6,599
----------- --------
Income before extraordinary items 95,635 248,300
Extraordinary items - gains on early extinguishment of debt,
net of applicable taxes of $879 in 2000 -- 1,206
----------- --------
Net income $ 95,635 $249,506
=========== ========
See accompanying notes to unaudited consolidated financial statements.
Page 4
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(in thousands)
Three Months Ended March 31,
-----------------------------
2001 2000
-------- --------
Net income $ 95,635 $249,506
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period 99,215 (20,545)
Less: reclassification adjustment for (gain) loss included
in net income (82) --
-------- --------
99,133 (20,545)
Amortization of market adjustment for securities
transferred from available for sale to held to maturity 1,477 --
Transition adjustment upon adoption of SFAS No. 133 (44,647) --
Change in fair value of derivatives used for cash flow hedges,
net of applicable taxes of $25,689 (37,197) --
-------- --------
Other comprehensive income (loss) 18,766 (20,545)
-------- --------
Comprehensive income $114,401 $228,961
======== ========
See accompanying notes to unaudited consolidated financial statements.
Page 5
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
(in thousands)
Additional Accumulated Other Comprehensive Loss
Common Paid-in ------------------------------------
Stock Capital Securities Derivatives Total
----- ------- ---------- ----------- -----
Balance at December 31, 2000 $1 $1,564,821 $(91,405) $ -- $(91,405)
Net income -- -- -- -- --
Change in net unrealized holding gain (loss)
on securities available for sale -- -- 68,759 -- 68,759
Change in net unrealized holding loss
on derivatives -- -- -- (37,197) (37,197)
Amortization of unrealized holding
loss on securities held to maturity -- -- 1,477 -- 1,477
Unrealized loss on securities reclassified
to available-for-sale, net of tax -- -- 30,374 -- 30,374
Transition adjustment upon adoption
of SFAS No. 133 -- -- -- (44,647) (44,647)
Dividends to parent -- -- -- -- --
Impact of Golden State restricted
common stock -- 2,117 -- -- --
Tax benefits on exercise of stock
options -- 386 -- -- --
-- ---------- -------- --------- --------
Balance at March 31, 2001 $1 $1,567,324 $ 9,205 $(81,844) $(72,639)
== ========== ======== ========= =========
Retained
Earnings Total
(Substantially Stockholder's
Restricted) Equity
----------- ------
Balance at December 31, 2000 $824,759 $2,298,176
Net income 95,635 95,635
Change in net unrealized holding gain (loss)
on securities available for sale -- 68,759
Change in net unrealized holding loss
on derivatives -- (37,197)
Amortization of unrealized holding
loss on securities held to maturity -- 1,477
Unrealized loss on securities reclassified
to available-for-sale, net of tax -- 30,374
Transition adjustment upon adoption
of SFAS No. 133 -- (44,647)
Dividends to parent (50,000) (50,000)
Impact of Golden State restricted
common stock -- 2,117
Tax benefits on exercise of stock
options -- 386
-------- ----------
Balance at March 31, 2001 $870,394 $2,365,080
======== ==========
See accompanying notes to unaudited consolidated financial statements.
Page 6
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(in thousands)
Three Months Ended March 31,
---------------------------------
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 95,635 $ 249,506
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of intangible assets 14,940 16,443
Amortization (accretion) of purchase accounting premiums and
discounts, net 1,546 (667)
Accretion of discount on borrowings 285 265
Amortization of mortgage servicing rights 58,415 46,667
Gain on sale of assets, net (439) (419)
Gain on sale of foreclosed real estate, net (855) (4,057)
Loss on sale, settlement and transfer of loans, net 32,766 18,926
Capitalization of originated mortgage servicing rights (37,690) (25,588)
Extraordinary items - gains on early extinguishment of debt, net -- (1,206)
Depreciation and amortization of premises and equipment 12,562 11,947
Amortization of deferred debt issuance costs 1,836 1,837
FHLB stock dividends (23,046) (17,147)
Purchases and originations of loans held for sale (2,289,629) (1,037,884)
Net proceeds from the sale of loans held for sale 1,420,877 1,047,089
Change in fair value of MSRs/MSR derivatives (2,405) --
MSR valuation provision 77,000 --
Decrease (increase) in other assets 294,716 (208,943)
Decrease (increase) in accrued interest receivable 8,617 (9,183)
Increase in other liabilities 216,444 137,490
Amortization of deferred compensation expense-Golden State
restricted common stock 479 560
Gain on non-monetary exchange of Star Systems common stock (20,671) --
Reduction in accrued liability for state income taxes (25,805) --
Minority interest 6,747 6,599
----------- -----------
Net cash (used) provided by operating activities $ (157,675) $ 232,235
----------- -----------
(Continued)
See accompanying notes to unaudited consolidated financial statements.
Page 7
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
(in thousands)
Three Months Ended March 31,
--------------------------------
2001 2000
------------- ------------
Cash flows from investing activities:
Downey Acquisition $ -- $ (379,314)
Purchases of securities available for sale (155) (5,779)
Proceeds from maturities of securities available for sale 269,891 8,500
Purchases of securities held to maturity (1,386) (652)
Principal payments and proceeds from maturities
of securities held to maturity 26,353 21,323
Purchases of mortgage-backed securities available for sale (41,198) (38,850)
Principal payments on mortgage-backed securities available for sale 441,524 455,672
Principal payments on mortgage-backed securities held to maturity 104,849 98,975
Proceeds from sales of loans 5,487 2,746
Net decrease (increase) in loans receivable 177,330 (1,370,035)
Purchases of loans receivable (1,486,453) (457,486)
Purchases of FHLB stock, net -- (74,820)
Purchases of premises and equipment (12,364) (6,840)
Proceeds from disposal of premises and equipment 2,546 532
Proceeds from sales of foreclosed real estate 7,211 29,146
Purchases of mortgage servicing rights (62,709) (96,664)
Hedge receipts (10,005) (3,465)
Purchases of derivatives (121,967) (11,140)
Sales of derivatives 133,712 11,875
------------- ------------
Net cash used in investing activities (567,334) (1,816,276)
------------- ------------
Cash flows from financing activities:
Net increase in deposits 1,013,110 7,997
Proceeds from additional borrowings 24,400,121 8,656,278
Principal payments on borrowings (24,048,510) (6,892,128)
Net decrease in securities sold under agreements to repurchase (450,864) (128,145)
Dividends on common stock (50,000) (5,000)
Dividends paid to minority stockholders of subsidiary, net of taxes (6,747) (6,599)
Tax benefit on exercise of stock options 386 --
------------- ------------
Net cash provided by financing activities 857,496 1,632,403
------------- ------------
Net change in cash and cash equivalents 132,487 48,362
Cash and cash equivalents at beginning of period 783,074 592,878
------------- ------------
Cash and cash equivalents at end of period $ 915,561 $ 641,240
============= ============
See accompanying notes to unaudited consolidated financial statements.
Page 8
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and the requirements of Regulation S-X, Article 10 and
therefore do not include all disclosures necessary for complete financial
statements. In the opinion of management, all adjustments have been made that
are necessary for a fair presentation of the financial position and results of
operations and cash flows as of and for the periods presented. All such
adjustments are of a normal recurring nature. The results of operations for the
three months ended March 31, 2001 are not necessarily indicative of the results
that may be expected for the entire fiscal year or any other interim period.
Certain amounts for the three-month period in the prior year have been
reclassified to conform to the current period's presentation.
GS Holdings, a wholly owned subsidiary of Golden State, is a holding
company whose only significant asset is all of the common and preferred stock of
the Bank and therefore, activities for the consolidated entity are primarily
carried out by the Bank and its operating subsidiaries.
The accompanying unaudited consolidated financial statements include the
accounts of GS Holdings, the Bank and the Bank's wholly owned subsidiaries.
Unless the context otherwise indicates, "GS Holdings" or "Company" refers to
Golden State Holdings Inc. as the surviving entity after the consummation of the
Golden State Acquisition, and as the surviving entity in the GS Escrow Merger
for periods after the GS Escrow Merger. On September 11, 1998, Glendale Federal
merged with and into the Bank pursuant to the Glen Fed Merger. Unless the
context otherwise indicates, "California Federal" or "Bank" refers to California
Federal Bank as the surviving entity after the consummation of the Glen Fed
Merger.
Minority interest represents amounts attributable to (a) the REIT
Preferred Stock of California Federal Preferred Capital Corporation, a wholly
owned subsidiary of the Bank, and (b) that portion of stockholder's equity of
Auto One, a subsidiary of the Bank, attributable to 20% of its common stock.
All significant intercompany balances and transactions have been
eliminated in consolidation. These financial statements should be read in
conjunction with the consolidated financial statements of GS Holdings included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2000. A glossary of defined terms begins on page 30 of this document. All terms
used but not defined elsewhere herein have meanings ascribed to them in the
Company's Annual Report on Form 10-K.
As GS Holdings' common stock is wholly owned by Golden State, earnings
per share data is not presented.
(2) Acquisitions and Divestitures
-----------------------------
On February 29, 2000, Auto One acquired Downey Auto Finance Corporation,
a subsidiary of Downey Savings and Loan Association, F.A., with prime auto loans
of approximately $370 million. Intangible assets of $7.7 million were recorded
in connection with this acquisition.
(3) Reclassification of Securities
------------------------------
On January 1, 2001, the Bank reclassified $1.1 billion and $85.0 million
carrying value of mortgage-backed securities and U.S. government and agency
securities, respectively, from securities held-to-maturity to their respective
available-for-sale portfolios, as permitted upon the adoption of SFAS No. 133.
The net unrealized loss related to these securities of $30.4 million, which was
recorded in OCI upon their initial transfer to the held-to-maturity portfolio in
April 2000, was reclassified from accumulated other comprehensive loss, and the
securities were subsequently marked to market, in accordance with SFAS No. 115.
Page 9
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(4) Cash, Cash Equivalents, and Statements of Cash Flows
----------------------------------------------------
Cash paid (including interest credited) for interest on deposits and
other interest-bearing liabilities during the three months ended March 31, 2001
and 2000 was $814.5 million and $754.6 million, respectively. Net cash paid
(received) for income taxes during the three months ended March 31, 2001 and
2000 was $0.8 million and $(0.1) million, respectively.
During the three months ended March 31, 2001, noncash activity consisted
of the reclassification of $1.1 billion and $85.0 million of mortgage-backed
securities and U. S. government and agency securities, respectively, from
securities held-to-maturity to their respective available-for-sale portfolios,
as permitted upon the adoption of SFAS No. 133, a reclassification of $164.8
million from mortgage servicing rights to derivative assets ($173.6 million) and
derivative liabilities ($8.8 million) relating to the adoption of SFAS No. 133,
transfers of $4.9 million from loans held for sale (at lower of cost or market)
to loans receivable, transfers of $5.8 million from loans receivable to
foreclosed real estate and $0.2 million of loans made to facilitate sales of
real estate owned.
Noncash activity during the three months ended March 31, 2001 also
included an increase of $2.1 million in additional paid-in capital reflecting
the impact of Golden State restricted common stock under an employee incentive
plan.
During the three months ended March 31, 2000, noncash activity consisted
of transfers of $21.0 million from loans receivable to foreclosed real estate,
transfers of $13.6 million from loans held for sale (at lower of cost or market)
to loans receivable and $3.5 million of loans made to facilitate sales of real
estate owned.
Noncash activity during the three months ended March 31, 2000 also
included a $211.7 million reduction of the valuation allowance of the Company's
deferred tax asset representing pre-merger tax benefits, of which $161.7 million
was retained by the previous owners of FN Holdings and an increase of $1.8
million in additional paid-in capital reflecting the impact of 220,327 shares of
Golden State restricted common stock issued during the quarter under an employee
incentive plan.
(5) Segment Reporting
-----------------
Since the Company derives a significant portion of its revenues from
interest income, and interest expense is the most significant expense, the
segments are reported below using net interest income. Because the Company also
evaluates performance based on noninterest income and noninterest expense goals,
these measures of segment profit and loss are also presented. The Company does
not allocate income taxes to the segments.
Three Months Ended March 31,
-----------------------------------------------
Community Mortgage
Banking Banking Total
------- ------- -----
Net interest income: (1)
2001 $361,614 $(21,557) $340,057
2000 331,419 (21,968) 309,451
Noninterest income: (2)
2001 $ 83,259 $(15,540) $ 67,719
2000 60,276 59,978 120,254
Noninterest expense: (3)
2001 $194,394 $ 37,904 $232,298
2000 185,682 38,727 224,409
(Continued)
Page 10
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------
(1) Includes $29.6 million and $22.3 million for the three months ended March
31, 2001 and 2000, respectively, in earnings credit provided to FNMC by
the Bank, primarily for custodial bank account balances generated by
FNMC. Also includes $58.2 million and $53.3 million for the three months
ended March 31, 2001 and 2000, respectively, in interest income and
expense on intercompany loans.
(2) Includes $8.5 million and $12.2 million for the three months ended March
31, 2001 and 2000, respectively, in intercompany servicing fees.
(3) Includes $1.2 million for each of the three months ended March 31, 2001
and 2000, in intercompany noninterest expense.
The following reconciles the above table to the amounts shown on the
consolidated financial statements for the three months ended March 31, 2001 and
2000 (in thousands):
Three Months Ended March 31,
----------------------------
2001 2000
---- ----
Net interest income:
Total net interest income for reportable segments $340,057 $309,451
Elimination of intersegment net interest income (29,585) (22,348)
-------- --------
Total $310,472 $287,103
======== ========
Noninterest income:
Total noninterest income for reportable segments $ 67,719 $120,254
Elimination of intersegment servicing fees (8,488) (12,156)
-------- --------
Total $ 59,231 $108,098
======== ========
Noninterest expense:
Total noninterest expense for reportable segments $232,298 $224,409
Elimination of intersegment expense (1,160) (1,160)
-------- --------
Total $231,138 $223,249
======== ========
(6) Accrued Termination and Facilities Costs
----------------------------------------
In connection with the Golden State Acquisition, the Company recorded
liabilities resulting from (a) branch consolidations due to duplicate
facilities; (b) employee severance and termination benefits due to a planned
reduction in force; and (c) expenses incurred under a contractual obligation to
terminate services provided by outside service providers (principally relating
to DP systems expenses). The merger and integration plan relative to the Golden
State Acquisition was in place on September 11, 1998. Certain of these costs
were included in the allocation of purchase price and others were recognized in
net income. The table below reflects a summary of the activity in the liability
for the costs related to such plan since December 31, 2000 (in thousands):
Severance and
Branch Termination Contract
Consolidations Benefits Terminations Total
-------------- -------- ------------ -----
Balance at December 31, 2000 $16,044 $12,529 $-- $28,573
Additional liabilities recorded -- -- -- --
Charges to liability account (1,524) -- -- (1,524)
------- ------- --- -------
Balance at March 31, 2001 $14,520 $12,529 $-- $27,049
======= ======= === =======
Page 11
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(7) Income Taxes
------------
During the three months ended March 31, 2001, GS Holdings recorded net
income tax expense of $36.2 million, which included a net tax benefit of $25.8
million. In prior years, an accrued liability was established for the purpose of
satisfying assessments that may result from issues arising during audits with
various state taxing authorities. As a result of the completion and settlement
of audits in various state taxing jurisdictions, additional guidance on the
deductibility of covered asset losses, and the current assessment of exposure
for tax strategies employed for prior years, management reduced its accrued
state tax liability by $39.7 million. The Company also recorded additional
Federal tax expense of $13.9 million due to the reduction of the state tax
expense.
During the three months ended March 31, 2000, GS Holdings recorded a net
income tax benefit of $82.9 million, which included a tax benefit of $161.7
million. Based on favorable resolutions of federal income tax audits of Old
California Federal and Glendale Federal, and based on the status of Mafco
Holdings', including the Company's, audits for the years 1991 through 1995,
management changed its judgment about the realizability of the Company's
deferred tax asset and reduced its valuation allowance by $211.7 million during
the three-month period ended March 31, 2000. As a result of reducing the
valuation allowance, income tax expense was reduced by $161.7 million and
goodwill was reduced by $50.0 million.
(8) Stockholder's Equity
--------------------
At March 31, 2001, there were 1,000 shares of GS Holdings common stock
issued and outstanding.
Dividends on common stock during the three months ended March 31, 2001
and 2000 totalled $50.0 million and $5.0 million, respectively.
(9) Executive and Stock Compensation
--------------------------------
In the first quarter of 2001, Golden State granted to its employees
non-qualified stock options equivalent to 851,000 shares of common stock at a
weighted average price of $25.67 per share under the Stock Plan. These shares
generally vest over three years in one-third increments on the anniversary of
the grant date. The options generally expire 10 years from the date of grant. No
compensation cost was recognized by the Company for these stock options during
the three months ended March 31, 2001, in accordance with the intrinsic value
accounting methodology prescribed in APB Opinion No. 25, whereby compensation
expense to employees is determined based upon the excess, if any, of the market
price of Golden State's common stock at the measurement date over the exercise
price of the award.
During the three months ended March 31, 2001, 63,516 options were
exercised and 17,245 options were cancelled or expired under all plans. During
the three months ended March 31, 2000, no Golden State stock options were
exercised and 19,250 options were cancelled or expired under all plans.
At March 31, 2001 and 2000, options to acquire an equivalent of 4,441,638
and 3,875,682 shares and 1,011,416 and 1,216,082 LTWTMs, respectively, remained
outstanding under all plans.
On January 22, 2001, Golden State awarded to certain of its employees
99,108 shares of restricted stock under the Golden State Bancorp Inc. Executive
Compensation Plan. The market value on the date of the award was $26.38 per
share. At March 31, 2001, a total of 236,730 restricted shares were outstanding.
These shares generally vest over two years in one-half increments on the
anniversary of the grant date, based upon the continued service of the employee.
The compensation expense based on the stock price on the date of these awards
was recognized on a straight line basis over the vesting period for each tranche
of the award with a corresponding increase to additional paid-in capital. During
the three months ended March 31, 2001, $0.5 million in compensation expense was
recognized related to such awards. These restricted shares have full voting and
dividend rights.
Page 12
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(10) Extraordinary Items
-------------------
During the first quarter of 2000, the FHLB called and the Bank prepaid
$200 million in FHLB advances, resulting in an extraordinary gain of $1.2
million, net of income taxes of $0.8 million, on the early extinguishment of
such borrowings.
Also during the first quarter of 2000, the Bank repurchased $2.5 million
outstanding principal amount of the Convertible Subordinated Debentures due
2001, resulting in an extraordinary gain of $41 thousand, net of income taxes of
$30 thousand, on the early extinguishment of debt.
(11) Derivative Instruments and Hedging Activities
---------------------------------------------
INTEREST RATE RISK MANAGEMENT - RISK MANAGEMENT POLICIES - CASH FLOW
HEDGING INSTRUMENTS AND FAIR VALUE HEDGING INSTRUMENTS
The primary focus of the Company's asset/liability management program is
to measure and monitor the sensitivity of the Company's net portfolio value and
net income under varying interest rate scenarios. On a quarterly basis, the
Company simulates the net portfolio value and net income expected to be earned
over a twelve-month period following the date of 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 and on mortgage prepayment speeds (which affect the
mortgage servicing rights asset) during the measurement period. Based upon the
outcome of the simulation analysis, the Company considers the use of derivatives
as a means of reducing the volatility of net portfolio value and projected net
income within certain ranges of projected changes in interest rates. The Company
evaluates the effectiveness of entering into any derivative instrument agreement
by measuring the cost of such an agreement in relation to the reduction in net
portfolio value and net income volatility within an assumed range of interest
rates.
INTEREST RATE RISK MANAGEMENT - CASH FLOW HEDGING INSTRUMENTS - BALANCE
SHEET HEDGES
Objectives and Context
----------------------
The Company uses variable rate debt as a source of funds for use in the
Company's lending and investment activities and other general business purposes.
It has received short-term variable-rate FHLB advances and sold Repos. These
debt obligations expose the Company to variability in interest payments due to
changes in interest rates. If interest rates increase, interest expense
increases. Conversely, if interest rates decrease, interest expense decreases.
Management believes it is prudent to limit the variability of a portion
of its interest payments. It is the Company's objective to hedge between 5 to 20
percent of its variable-rate short-term interest payments.
Strategies
----------
To meet this objective, management enters into derivative instrument
agreements to manage fluctuations in cash flows resulting from interest rate
risk. These instruments include interest rate swaps.
The interest rate swaps change the variable-rate cash flow exposure on
the short-term FHLB advances and Repos to fixed rate cash flows by entering into
receive-variable, pay-fixed interest rate swaps. Under the interest rate swaps,
the Company receives variable interest rate payments and makes fixed interest
rate payments, thereby creating fixed rate FHLB advances and Repos.
Results
-------
Risk management results for the quarter ended March 31, 2001 related to
the balance sheet hedging of FHLB advances and Repos indicate that the hedges
were 100% effective and that there was no component of the derivative
instruments' gain or loss which was excluded from the assessment of hedge
effectiveness.
Page 13
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Changes in the fair value of interest rate swaps designated as hedging
instruments of the variability of cash flows associated with FHLB advances and
Repos are reported in OCI. These amounts subsequently are reclassified into
interest expense as a yield adjustment in the same period in which the related
interest on the FHLB advances and Repos affects earnings.
The net amount of OCI reclassified into earnings during the first quarter
was $5.5 million.
As of the date of the initial application of SFAS No. 133, January 1,
2001, approximately $18.1 million of losses reported in OCI and associated with
the transition adjustment related to the interest rate swaps, were expected to
be reclassified into interest expense as a yield adjustment of the hedged FHLB
advances and Repos during the twelve month period ending December 31, 2001.
As of March 31, 2001, approximately $36.7 million of losses reported in
OCI related to the interest rate swaps were expected to be reclassified into
interest expense as a yield adjustment of the hedged FHLB advances and Repos
during the twelve-month period ending March 31, 2002.
INTEREST RATE RISK MANAGEMENT - FAIR VALUE HEDGING INSTRUMENTS - MORTGAGE
SERVICING RIGHTS HEDGES
Objectives and Context
----------------------
The Company either purchases or originates mortgage servicing rights as a
source of fee income. These mortgage-servicing rights expose the Company to
variability in their fair value due to prepayment risk. Mortgage servicing
rights are generally recorded in the financial statements at the lesser of their
amortized cost or their fair value.
Management believes that it is prudent to limit the variability in the
fair value of a portion of its MSR asset. It is the Company's objective to hedge
the servicing rights asset associated with fixed rate, non-prepayment penalty
loans for which it has recorded mortgage servicing rights, at coverage levels
that are appropriate, given anticipated or existing interest rate levels and
other market considerations, as well as the relationship of change in this asset
to other assets of the Company.
Strategies
----------
To meet this objective, the Company utilizes interest rate swaps,
principal only swaps, interest rate floors, and swaptions as an asset/liability
management strategy to hedge against prepayment risk in its mortgage servicing
portfolio caused by declining interest rates. Although the Company hedges the
change in value of its MSRs, its hedge coverage ratio does not equate to 100%.
Interest rate swap agreements are contracts to make a series of floating
rate payments in exchange for receiving a series of fixed rate payments.
Payments related to swap contracts are made either quarterly or semi-annually by
one of the parties depending on the specific terms of the related contract. The
notional amount of the contracts, on which the payments are based, are not
exchanged.
PO swap agreements simulate the ownership of a PO strip, the value of
which is affected directly by prepayment rates themselves in an inverse manner
to the servicing rights, which act in a manner similar to IO strips. Under the
terms of the PO swap agreements, the counterparty to the transaction purchases a
PO strip and places the PO strip in a trust. The contracts executed prior to
December 31, 1998 call for the Company to pay floating interest to the
counterparty based on: (a) an index tied to one month LIBOR and (b) the
amortized notional balance of the swap. The contracts call for the Company to
receive cash from the counterparty based on the cash flows received from the PO
strip. For PO swap agreements executed after December 31, 1998, the agreement
also requires the PO swap to be marked to market value. A decrease in the market
value of the PO swap requires the Company to increase the amount paid to the
counterparty and an increase in the market value requires the counterparty to
increase their payment to the Company. The amounts to be paid and to be received
are then netted together each month. The structure of this instrument results in
increased cash flows and positive changes in the value of the swap
Page 14
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
during a declining interest rate environment. This positive change in the value
of the swap is highly correlated to prepayment activity.
Interest rate floors are interest rate protection instruments that
involve payment from the seller to the buyer of an interest differential. This
differential represents the difference between a long-term rate (e.g., 10-year
Constant Maturity Swaps), and an agreed-upon rate, the strike rate, applied to a
notional principal amount. By purchasing a floor, the Company will be paid the
differential by counterparty, should the current long-term rate fall below the
strike level of the agreement. The Company generally receives cash monthly on
purchased floors (when the current interest rate falls below the strike rate).
A swaption is an over-the-counter option that provides the right, but not
the obligation, to enter into an interest rate swap agreement at predetermined
terms at a specified time in the future. The nature and strategies associated
with swaptions are similar to the other derivative instruments described above.
Results
-------
Risk management results related to the hedging of mortgage servicing
rights for the quarter ended March 31, 2001 are summarized below and are
included in the caption entitled "Loan servicing fees, net" in the accompanying
consolidated statements of income (in thousands):
Gain on designated derivative contracts $ 33,597
Decrease in value of designated mortgage servicing rights $ (31,192)
Net hedge ineffectiveness $ 2,405
INTEREST RATE RISK MANAGEMENT - FAIR VALUE HEDGING INSTRUMENTS -
WAREHOUSE LOANS
Objectives and Context
----------------------
The Company, as part of its traditional real estate lending activities,
originates fixed-rate 1-4 unit residential loans for sale in the secondary
market. At the time of origination, management identifies 1-4 unit residential
loans that are expected to be sold in the foreseeable future. These warehoused
loans have been classified as loans held for sale, net, in the consolidated
balance sheet and are recorded at the lower of aggregate amortized cost or
market value. These loans expose the Company to variability in their fair value
due to changes in interest rates. If interest rates increase, the value of the
loans decreases. Conversely, if interest rates decrease, the value of the loans
increases.
Management believes it is prudent to limit the variability of a major
portion of its loans held for sale. It is the Company's objective to hedge
primarily all of its warehoused loans held for sale to third parties.
Strategies
----------
To meet this objective, management employs forward loan sale hedging
techniques to minimize the interest rate and pricing risks associated with the
origination and sale of such warehoused loans.
The forward loan sale hedges lock in an interest rate and price for the
sale of either the specific loans classified as held for sale or for a generic
group of loans similar to the specific loans classified as held for sale.
Page 15
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Results
-------
Risk management results related to the hedging of warehouse loans for the
quarter ended March 31, 2001 are summarized below and are included in the
caption entitled "Gain on sale, settlement and transfer of loans, net" in the
accompanying consolidated statements of income (in thousands):
Loss on designated forward loan sale commitments $ (1,680)
Increase in value of warehouse loans $ 1,405
Net hedge ineffectiveness $ (275)
DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS
Purpose - Interest Rate Lock Commitments and Forward Loan Sale
-------------------------------------------------------------------------
Commitments
-----------
The Company enters into rate lock commitments to extend credit to
borrowers for generally a 30-day period. Some of these rate lock commitments
will ultimately be denied by the Company or be declined by the borrower. During
discussions leading to the implementation of SFAS No. 133, the DIG, a committee
organized by FASB to advise it on initial implementation issues, preliminarily
concluded that rate lock commitments for mortgages that would be held for sale
should be accounted for as derivative instruments and valued, therefore, at fair
market value.
Subsequent to this finding, questions have arisen as to the method for
calculating the value of the rate lock commitments. Specifically, the questions
relate to whether the value of the servicing rights created by the sale of the
loans produced by the rate lock commitments should be included in the value of
the rate lock commitments themselves. Incorporating the value of the servicing
rights in the value of the rate lock commitments results in the acceleration of
the value which would otherwise have been recognized upon completion of a sale.
The FASB, through the DIG, is addressing this issue again. The Company
has chosen not to recognize the value of servicing rights in rate lock
commitments until the committee resolves the issue.
To the extent that a loan is ultimately granted and the borrower
ultimately accepts the terms of the loan, these rate lock commitments expose the
Company to variability in their fair value due to changes in interest rates. If
interest rates increase, the value of these rate lock commitments decreases.
Conversely, if interest rates decrease, the value of these rate lock commitments
increases.
To mitigate the effect of this interest rate risk, the Company enters
into offsetting derivative contracts, primarily forward loan sale commitments.
The forward loan sale commitments lock in an interest rate and price for the
sale of loans similar to the specific rate lock loan commitments classified as
derivatives. Both the rate lock commitments and the forward loan sale
commitments are undesignated derivatives, and accordingly are marked to market
through earnings.
Risk management results related to the undesignated hedging of interest
rate lock commitments with undesignated forward loan sale commitments for the
quarter ended March 31, 2001 are summarized below and are included in the
caption entitled "Gain on sale, settlement and transfer of loans, net" in the
consolidated statements of income (in thousands):
Loss on undesignated forward loan sale commitments recognized in income $ (976)
Gain on undesignated interest rate loan commitments recognized in income $ 113
Net loss on derivatives $ (863)
Page 16
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(12) Recent Accounting Pronouncements
--------------------------------
ACCOUNTING FOR TRANSFERS AND SERVICING FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES
On September 29, 2000, the FASB issued SFAS No. 140. SFAS No. 140
replaces SFAS No. 125, which was issued in June of 1996. It revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over most
of the provisions of SFAS No. 125 without reconsideration. In general, SFAS No.
140 is effective for transfers of financial assets occurring after March 31,
2001 and for disclosures relating to securitization transactions and collateral
for fiscal years ending after December 15, 2000.
The implementation of SFAS No. 140 on April 1, 2001 (incremental
provisions that were not previously part of SFAS No. 125) is not expected to
materially impact the Company's financial results.
RECOGNITION OF INTEREST INCOME AND IMPAIRMENT ON PURCHASED AND RETURNED
BENEFICIAL INTERESTS IN SECURITIZED FINANCIAL ASSETS
On September 21, 2000, the EITF issued EITF No. 99-20. This document,
which is effective in the second quarter of 2001, establishes guidance for (1)
recognizing interest income (including amortization of premiums or discounts) on
(a) all credit-sensitive mortgage and asset-backed securities and (b) certain
prepayment-sensitive securities including agency interest-only strips and (2)
determining when these securities must be written down to fair value because of
impairment. Existing GAAP did not provide interest recognition and impairment
guidance for securities on which cash flows change as a result of both
prepayments and credit losses and, in some cases, interest rate adjustments.
The implementation of EITF No. 99-20 is not expected to materially impact
the Company's financial results.
Page 17
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS. THIS QUARTERLY REPORT CONTAINS
FORWARD-LOOKING STATEMENTS, WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, THAT PERTAIN TO OUR FUTURE OPERATING RESULTS.
WORDS SUCH AS "ANTICIPATE," "BELIEVE," "EXPECT," "INTEND" AND OTHER SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY THESE STATEMENTS. FORWARD-LOOKING
STATEMENTS ARE NOT HISTORICAL FACTS AND ARE INHERENTLY SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND OUR CONTROL. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE IN THE FORWARD-LOOKING STATEMENTS DUE TO SUCH FACTORS AS (I) PORTFOLIO
CONCENTRATIONS; (II) INTEREST RATE CHANGES, INCLUDING CHANGES IN SHORT-TERM
INTEREST RATES, THE SHAPE OF THE YIELD CURVE AND THE TREASURY-EURODOLLAR SPREAD;
(III) CHANGES IN ASSET PREPAYMENT SPEEDS; (IV) CHANGES IN OUR COMPETITIVE AND
REGULATORY ENVIRONMENTS; AND (V) CHANGES IN THE AVAILABILITY OF NET OPERATING
LOSS CARRYOVERS AND DEFERRED TAX LIABILITIES. IN NOVEMBER 2000, GOLDEN STATE
BANCORP INC. FILED AN S-3 REGISTRATION STATEMENT WITH THE SEC THAT DISCUSSES
THESE FACTORS IN GREATER DETAIL. WE ASSUME NO OBLIGATION TO UPDATE ANY OF OUR
FORWARD-LOOKING STATEMENTS.
OVERVIEW
The principal business of GS Holdings, through California Federal,
consists of operating retail branches that provide deposit products such as
demand, transaction and savings accounts, and selling investment products such
as mutual funds, annuities and insurance. In addition, it engages in mortgage
banking activities, including originating and purchasing 1-4 unit residential
loans for sale to various investors in the secondary market or for retention in
its own portfolio, and servicing loans for itself and others. To a lesser
extent, the Company originates and/or purchases commercial real estate,
commercial and consumer loans for investment. Revenues are derived primarily
from interest earned on loans, interest received on government and agency
securities and mortgage-backed securities, gains on sales of loans and other
investments and fees received in connection with loan servicing, securities
brokerage and other customer service transactions. Expenses primarily consist of
interest on customer deposit accounts, interest on short-term and long-term
borrowings, general and administrative expenses consisting of compensation and
benefits, data processing, occupancy and equipment, communications, deposit
insurance assessments, advertising and marketing, professional fees and other
general and administrative expenses.
NET INCOME
GS Holdings reported net income for the three months ended March 31, 2001
of $95.6 million compared with net income of $249.5 million for the
corresponding period in 2000. Net income for the three months ended March 31,
2000, included a tax benefit of $161.7 million and gains on the early
extinguishment of debt, net of tax, of $1.2 million. Net income, excluding these
two items, was $86.6 million for the three months ended March 31, 2000.
FINANCIAL CONDITION
During the three months ended March 31, 2001, consolidated total assets
increased $1.3 billion, to $61.8 billion from December 31, 2000, and total
liabilities increased from $57.7 billion to $58.9 billion.
During the three months ended March 31, 2001, stockholder's equity
increased $ 66.9 million to $2.4 billion. The increase in stockholder's equity
is principally the result of $95.6 million in net income for the period, a $68.8
million improvement in net unrealized gain/loss, after tax, on securities
available for sale and $30.4 million in unrealized loss on securities
reclassified from held-to-maturity to available-for-sale, partially offset by
$50.0 million in common stock dividends, a $44.6 million transition adjustment
recorded upon the adoption of SFAS No. 133 and $37.2 million in net unrealized
losses, after tax, on derivatives.
GS Holdings' and the Bank's non-performing assets, consisting of
non-performing loans, net of purchase accounting adjustments, foreclosed real
estate, net, and repossessed assets, decreased to $140.5 million at March 31,
2001 compared with $140.9 million at December 31, 2000. Total non-performing
assets as a percentage of the Bank's total assets was 0.23% at both March 31,
2001 and December 31, 2000.
Page 18
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS ENDED MARCH 31,
2000
The following table shows the Company's consolidated average balance
sheets, with the related interest income, interest expense and the average
interest rates for the periods presented. Average balances are calculated on a
daily basis.
Three Months Ended March 31, 2001
-----------------------------------------
Average Average
Balance Interest Rate
------- -------- ----
(dollars in millions)
ASSETS
Interest-earning assets (1):
Securities and interest-bearing deposits in banks (2) $ 1,294 $ 20 6.09%
Mortgage-backed securities available for sale 10,769 181 6.72
Mortgage-backed securities held to maturity 1,740 37 8.60
Loans held for sale, net 1,136 20 7.09
Loans receivable, net:
Residential 31,645 570 7.20
Commercial real estate 6,033 128 8.51
Commercial banking 550 12 9.18
Consumer 860 22 9.95
Auto 1,637 46 11.40
------- ------
Loans receivable, net 40,725 778 7.65
FHLB stock 1,379 23 6.78
------- ------
Total interest-earning assets 57,043 1,059 7.44%
------
Noninterest-earning assets 3,463
-------
Total assets $60,506
=======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY
Interest-bearing liabilities:
Deposits $23,656 $ 241 4.13%
Securities sold under agreements to repurchase (3) 4,166 68 6.52
Borrowings (3) 28,812 440 6.16
------- ------
Total interest-bearing liabilities 56,634 749 5.34%
------
Noninterest-bearing liabilities 1,101
Minority interest 495
Stockholder's equity 2,276
-------
Total liabilities, minority interest
and stockholder's equity $60,506
=======
Net interest income $ 310
======
Interest rate spread 2.10%
=====
Net interest margin 2.14%
=====
Return on average assets 0.63%
=====
Return on average total equity 16.81%
=====
Average equity to average assets 3.76%
=====
Page 19
Three Months Ended March 31, 2000
---------------------------------
Average Average
Balance Interest Rate
------- -------- ----
(dollars in millions)
ASSETS
Interest-earning assets (1):
Securities and interest-bearing deposits in banks (2) $ 1,427 $ 22 6.04%
Mortgage-backed securities available for sale 13,870 229 6.61
Mortgage-backed securities held to maturity 2,080 39 7.57
Loans held for sale, net 714 13 7.46
Loans receivable, net:
Residential 27,761 478 6.89
Commercial real estate 5,481 112 8.14
Commercial banking 491 11 9.45
Consumer 694 17 9.76
Auto 886 28 12.55
------- ----
Loans receivable, net 35,313 646 7.32
FHLB stock 1,193 18 5.78
------- ----
Total interest-earning assets 54,597 967 7.08%
----
Noninterest-earning assets 2,763
-------
Total assets $57,360
=======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY
Interest-bearing liabilities:
Deposits $22,894 $219 3.84%
Securities sold under agreements to repurchase (3) 5,709 83 5.75
Borrowings (3) 25,773 378 5.90
------- ----
Total interest-bearing liabilities 54,376 680 5.03%
----
Noninterest-bearing liabilities 838
Minority interest 495
Stockholder's equity 1,651
-------
Total liabilities, minority interest
and stockholder's equity $57,360
=======
Net interest income $287
====
Interest rate spread 2.05%
=====
Net interest margin 2.08%
=====
Return on average assets 1.74%
=====
Return on average equity 60.47%
=====
Average equity to average assets 2.88%
=====
- ----------------
(1) Non-performing assets are included in the average balances for the
periods indicated.
(2) Includes interest-bearing deposits in other banks and securities
purchased under agreements to resell.
(3) Interest and average rate include the impact of interest rate swaps.
Page 20
The following table shows what portion of the changes in interest income
and interest expense were due to changes in rate and volume. For each category
of interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to volume (change in average outstanding
balance multiplied by the prior period's rate) and rate (change in average
interest rate multiplied by the prior period's volume). Changes attributable to
both volume and rate have been allocated proportionately.
Three Months Ended March 31, 2001 vs. 2000
Increase (Decrease) Due to
------------------------------------------------
Volume Rate Net
------ ---- ---
INTEREST INCOME: (in millions)
Securities and interest-bearing deposits in banks $ (2) $-- $ (2)
Mortgage-backed securities available for sale (52) 4 (48)
Mortgage-backed securities held to maturity (12) 10 (2)
Loans held for sale, net 8 (1) 7
Loans receivable, net 102 30 132
FHLB stock 3 2 5
---- --- ----
Total 47 45 92
---- --- ----
INTEREST EXPENSE:
Deposits 6 16 22
Securities sold under agreements to repurchase (29) 14 (15)
Borrowings 45 17 62
---- --- ----
Total 22 47 69
---- --- ----
Change in net interest income $ 25 $(2) $ 23
==== === ====
INTEREST INCOME. Total interest income was $1.1 billion for the three
months ended March 31, 2001, an increase of $92.4 million from the three months
ended March 31, 2000. Total interest-earning assets for the three months ended
March 31, 2001 averaged $57.0 billion, compared to $54.6 billion for the
corresponding period in 2000, primarily as a result of increased loan volume,
partially offset by a decline in mortgage-backed securities. The yield on total
interest-earning assets during the three months ended March 31, 2001 increased
to 7.44% from 7.08% for the three months ended March 31, 2000, primarily due to
a higher percentage of loans to total earning assets and the lagging effect of
the repricing of variable-rate securities at higher rates during the year 2000.
GS Holdings earned $777.8 million of interest income on loans receivable
for the three months ended March 31, 2001, an increase of $131.6 million from
the three months ended March 31, 2000. The average balance of loans receivable
was $40.7 billion for the three months ended March 31, 2001, compared to $35.3
billion for the same period in 2000. The weighted average rate on loans
receivable increased to 7.65% for the three months ended March 31, 2001 from
7.32% for the three months ended March 31, 2000. The increase in the average
balance reflects an increase in residential loan origination activity and new
auto loan production from the Downey Acquisition. The increase in the weighted
average rate is primarily due to the lagging effect of the repricing of
variable-rate loans at higher rates during the year 2000, partially offset by
lower rates on new purchases of prime auto loans.
GS Holdings earned $20.1 million of interest income on loans held for
sale for the three months ended March 31, 2001, an increase of $6.8 million from
the three months ended March 31, 2000. The average balance of loans held for
sale was $1.1 billion for the three months ended March 31, 2001, an increase of
$0.4 billion from the comparable period in 2000, primarily attributed to
increased originations. The weighted average rate on loans held for sale
decreased to 7.09% for the three months ended March 31, 2001 from 7.46% for the
three months ended March 31, 2000, primarily due to declining market interest
rates.
Page 21
Interest income on mortgage-backed securities available for sale was
$181.0 million for the three months ended March 31, 2001, a decrease of $48.1
million from the three months ended March 31, 2000. The average portfolio
balance decreased $3.1 billion, to $10.8 billion, for the three months ended
March 31, 2001 compared to the same period in 2000. The weighted average yield
on these assets increased from 6.61% for the three months ended March 31, 2000
to 6.72% for the three months ended March 31, 2001. The decrease in the volume
is mainly attributed to payments and sales of mortgage-backed securities. The
increase in the weighted average yield is primarily due to a lagging effect of
the repricing of variable-rate securities at higher rates during the year 2000.
Interest income on mortgage-backed securities held to maturity was $37.4
million for the three months ended March 31, 2001, a decrease of $2.0 million
from the three months ended March 31, 2000. The average portfolio balance
decreased $0.3 billion, to $1.7 billion, for the three months ended March 31,
2001 compared to the same period in 2000, primarily due to the run-off of
existing portfolios. The run-off in these securities was replaced with the
origination and purchase of whole loans instead of additional mortgage-backed
securities. The weighted average rates for the three months ended March 31, 2001
and 2000 were 8.60% and 7.57% respectively. The increase in the weighted average
rate is primarily the result of a lagging effect of the repricing of
variable-rate securities at higher rates during the year 2000.
Interest income on securities and interest-bearing deposits in other
banks was $19.7 million for the three months ended March 31, 2001, a decrease of
$1.9 million from the three months ended March 31, 2000. The average portfolio
balance was $1.3 billion and $1.4 billion for the three months ended March 31,
2001 and 2000, respectively. The higher weighted average rate of 6.09% for the
three months ended March 31, 2001 compared to 6.04% for the three months ended
March 31, 2000 is primarily due to prepayment of lower rate securities.
Dividends on FHLB stock were $23.0 million for the three months ended
March 31, 2001, an increase of $5.9 million from the three months ended March
31, 2000. The average balance outstanding during the three months ended March
31, 2001 and 2000 was $1.4 billion and $1.2 billion, respectively. The weighted
average dividend on FHLB stock increased to 6.78% for the three months ended
March 31, 2001 from 5.78% for the three months ended March 31, 2000. The
increase in the average balance and weighted average yield is due to an increase
in the amount of such stock owned by the Company as a result of an increase in
borrowings under FHLB advances and an increase in the dividend rate on FHLB
stock.
INTEREST EXPENSE. Total interest expense was $748.6 million for the three
months ended March 31, 2001, an increase of $69.0 million from the three months
ended March 31, 2000. The increase is primarily the result of additional
borrowings under FHLB advances and deposits used to fund loans and offset the
reduction in securities sold under agreements to repurchase.
Interest expense on deposits, including Brokered Deposits, was $240.8
million for the three months ended March 31, 2001, an increase of $22.0 million
from the three months ended March 31, 2000. The average balance of deposits
outstanding increased from $22.9 billion for the three months ended March 31,
2000 to $23.7 billion for the three months ended March 31, 2001. The increase in
the average balance is primarily attributed to increases in the average balances
of custodial accounts, certificates of deposit, and retail customer checking and
money market accounts, partially offset by a decline in savings account
balances. The overall weighted average cost of deposits increased to 4.13% for
the three months ended March 31, 2001 from 3.84% for the three months ended
March 31, 2000, primarily due to a higher average balance of higher rate
certificates of deposit in 2001.
Interest expense on securities sold under agreements to repurchase
totalled $67.9 million for the three months ended March 31, 2001, a decrease of
$15.0 million from the three months ended March 31, 2000. The average balance of
such borrowings for the three months ended March 31, 2001 and 2000 was $4.2
billion and $5.7 billion, respectively. The weighted average interest rate on
these instruments increased to 6.52% for the three months ended March 31, 2001
from 5.75% for the three months ended March 31, 2000, primarily due to
maturities of lower rate fixed-rate borrowings during the first quarter of 2001.
Page 22
Interest expense on borrowings totalled $439.8 million for the three
months ended March 31, 2001, an increase of $62.0 million from the three months
ended March 31, 2000. The average balance outstanding for the three months ended
March 31, 2001 and 2000 was $28.8 billion and $25.8 billion, respectively. The
weighted average interest rate on these instruments increased to 6.16% for the
three months ended March 31, 2001 from 5.90% for the three months ended March
31, 2000. The changes in the average volume and weighted average rate reflect
the increase in FHLB advances at market interest rates used to fund loans and
purchases of mortgage-backed securities.
NET INTEREST INCOME. Net interest income was $310.5 million for the three
months ended March 31, 2001, an increase of $23.4 million from the three months
ended March 31, 2000. The interest rate spread increased to 2.10% for the three
months ended March 31, 2001 from 2.05% for the three months ended March 31,
2000, primarily as a result of maturities and repayments of higher rate
interest-bearing liabilities being replaced with interest-bearing liabilities
having comparatively lower rates. The effect of lower rates on liabilities was
partially offset by lower yielding assets replenishing asset run-off in a
declining rate environment and the repricing of variable-rate assets.
NONINTEREST INCOME. Total noninterest income, consisting primarily of
loan servicing fees, net, customer banking fees and gains on sales of assets,
was $59.2 million for the three months ended March 31, 2001, representing a
decrease of $48.9 million from the three months ended March 31, 2000.
Loan servicing fees for the Company, net of amortization of MSRs,
pass-through interest expense and net unrealized losses on MSR derivatives, were
$26.7 million of net expense for the three months ended March 31, 2001, compared
to $42.8 million in income for the three months ended March 31, 2000. The
following table details the components of loan servicing fees, net (in
thousands):
For the Quarter Ended March 31,
-------------------------------
2001 2000
---- ----
Components of loan servicing fees, net:
Loan servicing fees $113,242 $91,542
Amortization of mortgage servicing rights (58,415) (46,667)
Pass-through interest expense (6,884) (2,083)
SFAS No. 133 net gain on MSRs/MSR derivatives 2,405 --
SFAS No. 140 MSR valuation provision (77,000) --
-------- -------
Total loan servicing fees, net $(26,652) $42,792
======== =======
As the table reflects, loan servicing fees on an absolute basis increased
$21.7 million from year-ago levels, which is primarily attributable to the
growth of the Company's servicing portfolio and higher ancillary fees, partially
offset by the impact of higher repayment rates. The single-family residential
loan servicing portfolio, excluding loans serviced for the Bank, increased from
$76.2 billion at March 31, 2000 to $83.4 billion at March 31, 2001. The
annualized runoff rate on the Company's portfolio of mortgages serviced for
others was 20.8% in the first quarter of 2001 compared to 10.8% during the same
period in 2000. This runoff rate also influences MSR amortization, which
increased $11.8 million in the first quarter of 2001 over the same period in
2000; the MSR amortization rate averaged 16.8% during the first quarter ended
March 31, 2001 compared to 13.9% during the same period in 2000. MSR
amortization was also affected by a higher average MSR basis during the first
quarter ended March 31, 2001. Pass-through interest expense increased $4.8
million (230%) year over year, also influenced by higher runoff rates. Servicing
fee income includes a $2.4 million pre-tax gain from the impact of SFAS No. 133
pertaining to the MSR fair value hedges. Finally, the Company's estimated fair
value in four of its ten MSR tranches was below book value as of March 31, 2001.
As a result, a $77 million pre-tax valuation provision was recorded. On an
aggregate basis, at March 31, 2001 after recording the provision, the fair value
of the MSRs is $43.3 million higher than book value. This compares to $81.5
million in aggregate excess value at December 31, 2000.
Page 23
Customer banking fees were $51.3 million for the three months ended March
31, 2001 compared to $48.7 million for the three months ended March 31, 2000.
The increase is primarily attributed to increased emphasis by management on
transaction account growth.
Gain on sale, settlement and transfer of loans, net totalled $4.9 million
for the three months ended March 31, 2001, a decrease of $1.7 million from the
three months ended March 31, 2000. Gains attributed to early payoffs and
settlement of commercial loans with unamortized discounts were $0.5 million
lower in 2001 compared to 2000. During the three months ended March 31, 2001,
California Federal sold $1.5 billion in single-family mortgage loans originated
for sale with servicing rights retained as part of its ongoing mortgage banking
operations compared to $1.1 billion of such sales for the corresponding period
in 2000. The overall reduction in the rate of gain on sale relates to channel
and product mix differences during the two periods.
Gain on the non-monetary exchange of Star Systems common stock for
Concord EFS common stock occurred in the first quarter of 2001 as a result of
Concord's acquisition of Star. The Star stock had no cost basis on the Company's
balance sheet, giving rise to the gain upon the exchange. The stock is now
carried as an available for sale security.
NONINTEREST EXPENSE. Total noninterest expense was $231.1 million for the
three months ended March 31, 2001, an increase of $7.9 million compared to the
three months ended March 31, 2000. Noninterest expense for the three months
ended March 31, 2001 included increases of $10.0 million in compensation
expense, $1.8 million in foreclosed real estate operations, net and $0.5 million
in occupancy and equipment expense. These increases were partially offset by
decreases of $3.9 million in professional fees and $1.5 million in amortization
of intangible assets.
Compensation and employee benefits expense was $117.7 million for the
three months ended March 31, 2001, an increase of $10.0 million from the three
months ended March 31, 2000. The increase is primarily attributed to normal
salary adjustments, coupled with a slight increase in FTE year over year. In
addition, the Company has experienced an increase in group insurance and other
benefit costs that it has elected not to pass on to its employees.
Occupancy and equipment expense was $37.9 million for the three months
ended March 31, 2001, an increase of $0.5 million from the three months ended
March 31, 2000, primarily due to an increase in depreciation expense related to
additional computer equipment and furniture, as well as increased electricity
rates and higher contract maintenance fees.
Professional fees were $4.8 million for the three months ended March 31,
2001, a decrease of $3.9 million from the three months ended March 31, 2000,
primarily due to an overall reduction in consulting and legal expenses for the
Company.
Foreclosed real estate operations, net totalled $0.4 million in income
for the three months ended March 31, 2001, compared to $2.2 million during the
comparable period in 2000, primarily due to fewer gains on sale of REO
properties during 2001.
Amortization of intangible assets was $14.9 million for the three months
ended March 31, 2001, a decrease of $1.5 million from the three months ended
March 31, 2000, primarily attributed to a reduction in the goodwill balance due
to the reversal of Old California Federal state deferred taxes.
PROVISION FOR INCOME TAX. During the three months ended March 31, 2001,
GS Holdings recorded net income tax expense of $36.2 million, which included a
net tax benefit of $25.8 million. In prior years, an accrued liability was
established for the purpose of satisfying assessments that may result from
issues arising during audits with various state taxing authorities. As a result
of the completion and settlement of audits in various state taxing
jurisdictions, additional guidance on the deductibility of covered asset losses,
and the current assessment of exposure for tax strategies employed for prior
years, management reduced its accrued state tax liability by $39.7 million. The
Company also recorded additional Federal tax expense of $13.9 million due to the
reduction of the state tax expense.
Page 24
During the three months ended March 31, 2000, GS Holdings recorded gross
income tax expense of $78.8 million, which was more than offset by a tax benefit
of $161.7 million, for a net income tax benefit of $82.9 million. Based on
favorable resolutions of federal income tax audits of Old California Federal and
Glendale Federal, and the current status of Mafco Holdings', including the
Company's, audits for the years 1991 through 1995, management changed its
judgment about the realizability of the Company's deferred tax asset and reduced
its valuation allowance by $211.7 million during the three-month period ended
March 31, 2000. As a result of reducing the valuation allowance, income tax
expense was reduced by $161.7 million and goodwill was reduced by $50.0 million.
GS Holdings' effective federal tax rate was 48% during the three months
ended March 31, 2001 and (56)% during the three months ended March 31, 2000,
while its federal statutory tax rate was 35% during both periods. In 2001, the
difference between the effective and statutory rate was primarily the result of
additional federal tax liability recorded in conjunction with a reduction in the
accrued state tax liability, and non-deductible goodwill amortization. In 2000,
the difference between the effective and statutory rates was the result of the
reduction in the deferred tax asset valuation allowance, partially offset by
nondeductible goodwill amortization. GS Holdings' effective state tax rate was
(22)% and 8% during the three months ended March 31, 2001 and 2000,
respectively. The effective state tax rate declined during 2001 as a result of a
reduction in the accrued state tax liability.
MINORITY INTEREST. Dividends on the REIT Preferred Stock totalling $11.4
million were recorded during each of the three months ended March 31, 2001 and
2000. Minority interest expense for the three months ended March 31, 2001 and
2000 relative to the REIT Preferred Stock is reflected net of related income tax
benefit of $4.7 million and $4.8 million, respectively, which will inure to the
Company as a result of the deductibility of such dividends for income tax
purposes.
Page 25
IMPACT OF SFAS NO. 133. On January 1, 2001, the Company adopted SFAS No.
133. In connection with the adoption of this pronouncement, the Company
reclassified $1.2 billion in securities from held-to-maturity to
available-for-sale, which had the effect of improving the OCI component of
stockholder's equity by $30.4 million. The pronouncement impacted several other
areas of the financial statements, as summarized below (debit/(credit); in
thousands):
Assets Liabilities and Equity Pre-tax Earnings
----------------------------- ----------------------------- ---------------------
Loans Taxes- Loan (Gain)/Loss
Held Residential Derivative Derivative Other Servicing on Sale of
for Sale MSRs Assets Liabilities Liabilities OCI Fees, net Loans
-------- ---- ------ ----------- ----------- --- --------- -----
Transfer hedge component
of MSR balance $ -- $ (95,013) $ 95,013 $ -- $ -- $ -- $ -- $ --
Transition adjustment (record
initial fair values):
MSRs and MSR hedges -- (69,754) 78,610 (8,856) -- -- -- --
Warehouse loans and
pipeline hedges 3,834 -- 2,911 (5,696) -- -- -- (1,049)
Cash flow (balance sheet)
hedges - swaps -- -- -- (75,482) 30,835 44,647 -- --
------------------------------------------------------------------------------------------
JANUARY 1, 2001
TRANSITION ENTRIES 3,834 (164,767) 176,534 (90,034) 30,835 44,647 -- (1,049)
Fair value adjustments:
MSRs and MSR hedges -- (31,192) 25,324 8,273 -- -- (2,405) --
Warehouse loans and
pipeline hedges 1,405 -- 113 (2,656) -- -- -- 1,138
Cash flow (balance sheet)
hedges - swaps -- -- -- (62,885) 25,688 37,197 -- --
------------------------------------------------------------------------------------------
FAIR VALUE ADJUSTMENTS -
FIRST QUARTER 2001 1,405 (31,192) 25,437 (57,268) 25,688 37,197 (2,405) 1,138
Other First Quarter 2001
Activity:
MSR hedge additions -- -- 121,967 -- -- -- -- --
MSR hedge sales and
maturities -- -- (133,712) -- -- -- -- --
MSR hedge receipts
and payments -- (121) 14,437 (4,431) -- -- -- --
------------------------------------------------------------------------------------------
OTHER ACTIVITY -
FIRST QUARTER 2001 -- (121) 2,692 (4,431) -- -- -- --
------------------------------------------------------------------------------------------
TOTAL IMPACT FROM
SFAS NO. 133 -
FIRST QUARTER 2001 $5,239 $(196,080) $204,663 $(151,733) $56,523 $81,844 $(2,405) $ 89
==========================================================================================
Page 26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
CALIFORNIA FEDERAL GOODWILL LITIGATION
The Bank is the plaintiff in a lawsuit against the Government, the
California Federal Goodwill Litigation. In the California Federal Goodwill
Litigation, the Bank alleged, among other things, that the Government breached
certain contractual commitments regarding the computation of its regulatory
capital for which the Bank sought damages and restitution. The Bank's claims
arose from changes, mandated by FIRREA, with respect to the rules for computing
Old California Federal's regulatory capital.
In late 1997, a Claims Court Judge ruled in favor of the Bank's motion
for partial summary judgment as to the Government's liability to the Bank for
breach of contract, and a formal order in that regard was subsequently issued.
In late 1998, a second Claims Court Judge ruled that California Federal could
not meet its burden for proving lost profit damages and ordered that the case
proceed to trial on the damage issue of restitution and reliance.
On April 16, 1999, the Claims Court issued its decision on the damages
claim against the Government in the California Federal Goodwill Litigation,
ruling that the Government must compensate the Bank in the sum of $23.4 million.
The summary judgment liability decision by the first Claims Court Judge was
appealed by the Government, and the damage award by the second Claims Court
Judge was appealed by the Bank.
On April 3, 2001, the Court of Appeals for the Federal Circuit upheld the
summary judgment liability decision and ruled that California Federal be allowed
to present evidence regarding damages incurred under the lost profits theory.
The Bank intends to vigorously pursue its claim against the Government.
GLENDALE GOODWILL LITIGATION
By virtue of the Glen Fed Merger, the Bank is also a plaintiff in a claim
against the United States in a second lawsuit, the Glendale Goodwill Litigation.
In the Glendale Goodwill Litigation, Glendale Federal sued the Government
contending that FIRREA's treatment of supervisory goodwill constituted a breach
by the Government of its 1981 contract with the Bank, under which the Bank had
merged with a Florida thrift and was permitted to include the goodwill resulting
from the merger in its regulatory capital. In 1992, the Claims Court found in
favor of Glendale Federal's position, ruling that the Government breached its
express contractual commitment to permit Glendale Federal to include supervisory
goodwill in its regulatory capital and that Glendale Federal is entitled to seek
financial compensation.
The trial began in February 1997 and concluded in September 1998. On
April 9, 1999, the Claims Court issued its decision in the Glendale Goodwill
Litigation, ruling that the Government must compensate the Bank in the sum of
$908.9 million. This decision was appealed by the Government and the Bank.
On February 16, 2001 the Court of Appeals for the Federal Circuit vacated
the trial court's award of damages and remanded the case back to the trial court
for determination of total reliance damages to which the Bank might be entitled.
Oral argument before the trial court on that issue is scheduled to take place on
June 21, 2001. The Bank continues to vigorously pursue its case for damages
against the Government.
Page 27
BARTOLD V. GLENDALE FEDERAL BANK ET AL
On September 18, 1995, four plaintiffs commenced an action in Superior
Court of California, County of Orange, alleging that the defendants Glendale
Federal, to which the Bank is a successor by merger, and Verdugo, a wholly owned
subsidiary of the Bank, failed timely to record their release of the mortgage
interest following payoffs of residential mortgage loans and, in at least some
instances, improperly required borrowers to pay fees for these releases. The
plaintiffs' complaint seeks relief for the named plaintiffs, as well as
purportedly for all others similarly situated in California and throughout the
United States and the general public, on causes of action for violation of
California Civil Code Section 2941 and California Business and Professions Code
Section 17200, breach of contract, fraud and unjust enrichment. The plaintiffs
seek statutory damages of $300 for each supposed, separate violation of Section
2941 by Glendale Federal and Verdugo, restitution, punitive damages, injunctive
relief and attorney's fees, among other things.
In October 1997, the trial court granted summary judgment for the
defendants. In June 2000, the California Court of Appeals reversed this decision
and remanded for further proceedings, including further development of class
certification issues. On March 2, 2001, the trial court held that a California
class had been certified. The Bank believes that it has meritorious defenses to
the claim and intends to continue to contest it vigorously.
OTHER LITIGATION
In addition to the matters described above, GS Holdings and its
subsidiaries are involved in other legal proceedings and claims incidental to
the normal conduct of their business. Although it is impossible to predict the
outcome of any outstanding legal proceedings, management believes that such
legal proceedings and claims, individually or in the aggregate, will not have a
material effect on GS Holdings or the Bank.
Page 28
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3.1 Certificate of Incorporation of the Registrant, as amended.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.)
3.2 By-laws of the Registrant, as amended. (Incorporated by
reference to Exhibit 3.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998.)
(b) Reports on Form 8-K:
None.
Page 29
GLOSSARY OF DEFINED TERMS
APB - Accounting Principles Board
APB OPINION NO. 25 - Accounting for Stock Issued to Employees
AUTO ONE - Auto One Acceptance Corporation
BANK - California Federal Bank
BROKERED DEPOSITS - Issued certificates of deposit through direct placement
programs and national investment banking firms
CALFED ACQUISITION - Agreement and Plan of Merger among FN Holdings, Cal Fed
Bancorp Inc. and California Federal Bank, A Federal Savings Bank. FN
Holdings acquired 100% of the outstanding stock of Cal Fed and Old
California Federal, and First Nationwide merged with and into Old
California Federal in January 1997
CALIFORNIA FEDERAL - California Federal Bank
CALIFORNIA FEDERAL GOODWILL LITIGATION - California Federal Bank v. United
States, Civil Action 92-138
CLAIMS COURT - United States Court of Federal Claims
COMPANY - Golden State Holdings Inc.
CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001 - In 1986, Cal Fed Inc., Old
California Federal's former parent company, issued $125 million of 6.5%
convertible subordinated debentures due February 20, 2001
DIG - Derivatives Implementation Group
DOWNEY ACQUISITION - Auto One's acquisition of the Downey Auto Finance
Corporation in February, 2000
EITF - Emerging Issues Task Force
EITF NO. 99-20 - Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial Assets
FASB - Financial Accounting Standards Board
FHLB - Federal Home Loan Bank
FHLB System - Federal Home Loan Bank System
FIRREA - Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
its implementing regulations
FN HOLDINGS - First Nationwide Holdings Inc.
FN HOLDINGS ASSET TRANSFER - FN Holdings contributed all of its assets
(including all of the common stock of the Bank) to GS Holdings in September
1998
FNMC - First Nationwide Mortgage Corporation
FTE - Full-time equivalent staff
GAAP - generally accepted accounting principles
GLENDALE FEDERAL - Glendale Federal Bank, Federal Savings Bank
GLENDALE GOODWILL LITIGATION - Glendale Federal Bank v. United States, No.
90-772C
GLEN FED MERGER - Glendale Federal Bank merged with and into the Bank
GOLDEN STATE - Golden State Bancorp Inc.
GOLDEN STATE ACQUISITION - FN Holdings Asset Transfer, Holding Company Mergers
and Glen Fed Merger, collectively
GOVERNMENT - United States Government
GS ESCROW MERGER - GS Escrow was merged with and into GS Holdings, pursuant to
a merger agreement by and between GS Escrow and GS Holdings in September
1998
GS HOLDINGS - Golden State Holdings Inc.
HOLDING COMPANY MERGERS - FN Holdings merged with and into Golden State
Financial Corporation, which owned all of the common stock of Glendale
Federal
IO - Interest only
LIBOR - London Interbank Offered Rate
LTW - Litigation Tracking Warrant
MAFCO HOLDINGS - Mafco Holdings Inc.
MSR - Mortgage servicing rights
Page 30
OLD CALIFORNIA FEDERAL - California Federal Bank, A Federal Savings Bank prior
to the Cal Fed Acquisition
OCI - Other comprehensive income
PO - Principal only
REIT PREFERRED STOCK - 9 1/8% Noncumulative Exchangeable Preferred Stock, Series
A, issued by California Federal Preferred Capital Corporation in January
1996
REPOS - short-term securities sold under agreements to repurchase
SFAS - Statement of Financial Accounting Standards
SFAS NO. 125 - Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities
SFAS NO. 133 - Accounting for Derivative Instruments and Hedging Activities
SFAS NO. 140 - Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
STOCK PLAN - Golden State Bancorp Inc. Omnibus Stock Plan
VERDUGO - Verdugo Trustee Service Corporation
Page 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Golden State Holdings Inc.
/s/ Richard H. Terzian
--------------------------------------------
By: Richard H. Terzian
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
/s/ Renee Nichols Tucei
--------------------------------------------
By: Renee Nichols Tucei
Executive Vice President and Controller
(Principal Accounting Officer)
May 9, 2001
Page 32