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, 2002
-------------------------------------------------
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: 000-24915
--------------------------------------------------------
Golden State Holdings Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4669792
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
of incorporation or organization)
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, 2002: 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 2002 REPORT ON FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets
March 31, 2002 and December 31, 2001.............................3
Unaudited Consolidated Statements of Income
Three Months Ended March 31, 2002 and 2001.......................4
Unaudited Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2002 and 2001.......................5
Unaudited Consolidated Statement of Stockholder's Equity
Three Months Ended March 31, 2002................................6
Unaudited Consolidated Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001.......................7
Notes to Unaudited Consolidated Financial Statements.............9
Item 2. Management's Narrative Analysis of
Results of Operations...........................................26
Critical Accounting Policies....................................26
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......*
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................36
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...............................................37
Item 6. Exhibits and Reports on Form 8-K................................37
Glossary of Defined Terms................................................38
Signatures...............................................................40
* 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, 2002.
Page 2
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
(Unaudited)
(dollars in thousands, except per share data)
ASSETS MARCH 31, 2002 DECEMBER 31, 2001
------ -------------- -----------------
Cash and due from banks $ 830,520 $ 709,139
Interest-bearing deposits in other banks 100 103
Short-term investment securities 80,555 95,929
----------- -----------
Cash and cash equivalents 911,175 805,171
Securities available for sale, at fair value 118,551 116,054
Securities held to maturity 29,228 30,602
Mortgage-backed securities available for sale, at fair value 5,808,176 7,057,903
Mortgage-backed securities held to maturity 1,302,260 1,385,113
Loans held for sale, net 2,198,878 2,608,365
Loans receivable, net 38,703,762 39,335,623
Investment in FHLB System 1,368,217 1,446,607
Premises and equipment, net 273,748 276,411
Foreclosed real estate, net 16,074 18,564
Accrued interest receivable 280,906 288,308
Goodwill (net of accumulated amortization of $286,470
at both March 31, 2002 and December 31, 2001) 590,420 590,420
Other intangible assets (net of accumulated amortization of $20,708
at March 31, 2002 and $19,541 at December 31, 2001) 49,256 50,423
MSRs (net of valuation allowance of $180,452 at March 31, 2002 and
$153,345 at December 31, 2001) 1,778,651 1,623,947
Derivative assets 194,303 349,026
Other assets 493,183 536,281
----------- -----------
Total assets $54,116,788 $56,518,818
=========== ===========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDER'S EQUITY
-------------------------------------------------------
Deposits $24,907,610 $25,146,827
Securities sold under agreements to repurchase 2,160,196 2,363,945
Borrowings 22,539,615 24,444,541
Derivative liabilities 155,538 250,711
Other liabilities 1,169,420 1,188,005
----------- -----------
Total liabilities $50,932,379 53,394,029
----------- -----------
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 1,572,609 1,569,894
Accumulated other comprehensive loss, net (51,825) (63,327)
Retained earnings (substantially restricted) 1,163,624 1,118,221
----------- -----------
Total stockholder's equity 2,684,409 2,624,789
----------- -----------
Total liabilities, minority interest and stockholder's equity $54,116,788 $56,518,818
=========== ===========
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, 2002 AND 2001
(UNAUDITED)
(in thousands)
THREE MONTHS ENDED MARCH 31,
----------------------------
2002 2001
---------- ----------
Interest income:
Loans receivable $649,159 $ 777,790
Mortgage-backed securities available for sale 92,566 180,983
Mortgage-backed securities held to maturity 21,417 37,411
Loans held for sale 41,805 20,127
Securities available for sale 1,630 10,780
Securities held to maturity 147 8,501
Interest-bearing deposits in other banks 125 419
Dividends on FHLB stock 20,839 23,046
-------- ----------
Total interest income 827,688 1,059,057
-------- ----------
Interest expense:
Deposits 135,142 240,837
Securities sold under agreements to repurchase 21,350 67,945
Borrowings 302,810 439,803
Other 705 --
-------- ----------
Total interest expense 460,007 748,585
-------- ----------
Net interest income 367,681 310,472
Provision for loan losses -- --
-------- ----------
Net interest income after provision for loan losses 367,681 310,472
-------- ----------
Noninterest income:
Loan servicing fees, net (8,815) (26,652)
Customer banking fees and service charges 58,148 51,261
Gain on sale, settlement and transfer of loans, net 34,619 4,924
(Loss) gain on sale of assets, net (1,886) 439
Gain on non-monetary exchange of Star Systems common stock -- 20,671
Other income 6,228 8,588
-------- ----------
Total noninterest income 88,294 59,231
-------- ----------
Noninterest expense:
Compensation and employee benefits 124,784 117,735
Occupancy and equipment 40,235 37,850
Professional fees 7,326 4,848
Loan expense 4,156 4,202
Foreclosed real estate operations, net (832) (398)
Amortization of goodwill and other intangible assets 1,167 14,940
Other expense 55,702 51,961
-------- ----------
Total noninterest expense 232,538 231,138
-------- ----------
Income before income taxes and minority interest 223,437 138,565
Income tax expense 91,287 36,183
Minority interest 6,747 6,747
-------- ----------
Net income $125,403 $ 95,635
======== ==========
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, 2002 AND 2001
(Unaudited)
(in thousands)
Three Months Ended March 31,
--------------------------------
2002 2001
---------- ----------
Net income $125,403 $ 95,635
Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities available for sale:
Unrealized holding (loss) gain arising during the period (23,722) 99,215
Less: reclassification adjustment for gain included
in net income (767) (82)
-------- --------
(24,489) 99,133
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 $24,858 in 2002 and
$25,689 in 2001 35,991 (37,197)
-------- --------
Other comprehensive income 11,502 18,766
-------- --------
Comprehensive income $136,905 $114,401
======== ========
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, 2002
(Unaudited)
(in thousands)
Additional Accumulated Other Comprehensive (Loss) Income, Net
Common Paid-in ----------------------------------------------------
Stock Capital Securities Derivatives Total
----- ------- ---------- ----------- -----
Balance at December 31, 2001 $1 $1,569,894 $ 56,052 $(119,379) $(63,327)
Net income -- -- -- -- --
Change in net unrealized holding gain
on securities available for sale -- -- (24,489) -- (24,489)
Change in net unrealized holding loss
on derivatives -- -- -- 35,991 35,991
Dividends to parent -- -- -- -- --
Impact of Golden State restricted
common stock -- 2,159 -- -- --
Tax benefit on exercise of stock options -- 556 -- -- --
-- ---------- -------- --------- --------
Balance at March 31, 2002 $1 $1,572,609 $ 31,563 $ (83,388) $(51,825)
== ========== ======== ========= ========
(Continued)
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
(in thousands)
Retained
Earnings Total
(Substantially Stockholder's
Restricted) Equity
---------- ------
Balance at December 31, 2001 $1,118,221 $2,624,789
Net income 125,403 125,403
Change in net unrealized holding gain
on securities available for sale -- (24,489)
Change in net unrealized holding loss
on derivatives -- 35,991
Dividends to parent (80,000) (80,000)
Impact of Golden State restricted
common stock -- 2,159
Tax benefit on exercise of stock options -- 556
---------- ----------
Balance at March 31, 2002 $1,163,624 $2,684,409
========== ==========
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, 2002 AND 2001
(Unaudited)
(in thousands)
Three Months Ended March 31,
------------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 125,403 $ 95,635
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization of goodwill and other intangible assets 1,167 14,940
Amortization of purchase accounting premiums and discounts, net 3,668 1,546
Accretion of discount on borrowings 226 285
Amortization of MSRs 114,325 58,415
Loss (gain) on sale of assets, net 1,886 (439)
Gain on sale of foreclosed real estate, net (1,179) (855)
Loss on sale, settlement and transfer of loans, net 117,924 32,766
Capitalization of originated MSRs (152,543) (37,690)
Depreciation and amortization of premises and equipment 13,341 12,562
Amortization of deferred debt issuance costs 1,491 1,836
FHLB stock dividends (20,839) (23,046)
Purchases and originations of loans held for sale (6,461,450) (2,289,629)
Net proceeds from the sale of loans held for sale 6,719,741 1,420,877
Net gain on derivatives used to hedge MSRs (19,280) (2,405)
Provision for loss on MSRs 27,107 77,000
Decrease in other assets 64,207 294,716
Decrease in accrued interest receivable 7,402 8,617
(Decrease) increase in other liabilities (55,135) 216,444
Amortization of deferred compensation expense-Golden State
restricted common stock 430 479
Gain on non-monetary exchange of Star Systems common stock -- (20,671)
Reduction in net accrued tax liability -- (25,805)
Minority interest 6,747 6,747
----------- -----------
Net cash provided by (used in) operating activities 494,639 (157,675)
----------- -----------
(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, 2002 AND 2001
(Unaudited)
(in thousands)
Three Months Ended March 31,
--------------------------------
2002 2001
---- ----
Cash flows from investing activities:
Purchases of securities available for sale $ (25,539) $ (155)
Proceeds from maturities of securities available for sale 23,170 269,891
Purchases of securities held to maturity (995) (1,386)
Principal payments and proceeds from maturities
of securities held to maturity 2,369 26,353
Purchases of mortgage-backed securities available for sale (43,644) (41,198)
Principal payments on mortgage-backed securities available for sale 1,220,752 441,524
Proceeds from sales of mortgage-backed securities available for sale 29,268 --
Principal payments on mortgage-backed securities held to maturity 82,852 104,849
Proceeds from sales of loans 31,901 5,487
Loan originations and principal collections, net 2,035,111 177,330
Purchases of loans receivable (1,402,470) (1,486,453)
Purchases of FHLB stock (21,775) --
Redemption of FHLB stock 100,165 --
Purchases of premises and equipment (11,238) (12,364)
Proceeds from disposal of premises and equipment 4,236 2,546
Proceeds from sales of foreclosed real estate 9,390 7,211
Purchases of MSRs (91,816) (62,709)
Hedge receipts (payments) 19,942 (10,005)
Purchases of derivatives (416,887) (121,967)
Proceeds from sales and settlements of derivatives 475,008 133,712
------------ ------------
Net cash provided by (used in) investing activities 2,019,800 (567,334)
------------ ------------
Cash flows from financing activities:
Net (decrease) increase in deposits (239,093) 1,013,110
Proceeds from additional borrowings 30,601,848 24,400,121
Principal payments on borrowings (32,481,000) (24,048,510)
Principal payment of FN Holdings Notes (250) --
Net decrease in securities sold under agreements to repurchase (203,749) (450,864)
Dividends on common stock (80,000) (50,000)
Dividends paid to minority stockholders of subsidiary, net of taxes (6,747) (6,747)
Tax benefit on exercise of stock options 556 386
------------ ------------
Net cash (used in) provided by financing activities (2,408,435) 857,496
------------ ------------
Net change in cash and cash equivalents 106,004 132,487
Cash and cash equivalents at beginning of period 805,171 783,074
------------ ------------
Cash and cash equivalents at end of period $ 911,175 $ 915,561
============ ============
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
These financial statements are in accordance with GAAP for interim
financial information and Regulation S-X, Article 10. They are unaudited and
exclude some of the disclosures for complete financial statements. Management
believes it has made all adjustments necessary so that the financial statements
are presented fairly. The results of operations for the three months ended March
31, 2002 may not indicate future results. Certain prior period amounts have been
reclassified to conform to current presentation.
These financial statements should be read 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, 2001. A glossary of defined terms begins on page
38 of this document. All terms used but not defined in the glossary are
clarified in the Company's Annual Report on Form 10-K.
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. Activities for the consolidated entity are primarily carried out by
the Bank and its subsidiaries.
These unaudited consolidated financial statements include the accounts of
GS Holdings, the Bank and the Bank's wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Minority interest represents amounts attributable to the REIT Preferred
Stock of California Federal Preferred Capital Corporation, a wholly owned
subsidiary of the Bank.
As GS Holdings' common stock is wholly owned by Golden State, EPS data is
not presented.
(2) RECLASSIFICATION OF SECURITIES
On January 1, 2001, the Company 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
(3) CASH, CASH EQUIVALENTS, AND STATEMENTS OF CASH FLOWS
Quarter Ended March 31,
-----------------------
2002 2001
---- ----
(in thousands)
Cash paid for:
Interest $459,517 $ 814,456
Income taxes, net 3,541 767
Transfer of loans to foreclosed real estate 5,710 5,816
Loans made to facilitate the sale of real estate -- 168
Reclassification of loans from loans held for sale to loans receivable -- 4,863
Reclassification of loans receivable to loans held for sale 22,542 17,133
Impact of restricted common stock 2,159 2,117
Reclassification of mortgage-backed securities from the held-to-maturity
portfolio to the available-for-sale portfolio upon the adoption of SFAS No. 133 -- 1,067,933
Reclassification of securities from the held-to-maturity portfolio to the
available-for-sale portfolio upon the adoption of SFAS No. 133 -- 84,984
Reclassification of derivative assets ($173.6 million) and derivative liabilities
($8.8 million) related to MSRs at fair value upon the adoption of SFAS No. 133 -- 164,767
Transfer of loans receivable to claims receivable 63,898 48,514
(4) REDEMPTION OF FN HOLDINGS NOTES
On January 2, 2002, GS Holdings redeemed the remaining $250 thousand
principal of the FN Holdings 10 5/8% Senior Notes for a redemption price of $263
thousand, including accrued interest. The premium paid in connection with the
redemption was not material.
Page 10
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(5) SEGMENT REPORTING
The Company derives most of its revenues from interest income, and interest
expense is the most significant expense. Therefore, net interest income after
provision for loan losses is presented for each segment. 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
------- ------- -----
(in thousands)
Net interest income after provision for loan losses: (a)
2002 $ 347,922 $ 45,387 $ 393,309
2001 332,030 8,027 340,057
Noninterest income: (b)
2002 $ 75,590 $ 22,338 $ 97,928
2001 83,259 (15,540) 67,719
Noninterest expense: (c)
2002 $ 190,283 $ 43,415 $ 233,698
2001 194,394 37,904 232,298
Pre-tax contribution:
2002 $ 233,229 $ 24,310 $ 257,539
2001 220,895 (45,417) 175,478
Segment assets at period end: (d)
2002 $53,923,236 $5,667,673 (e) $59,590,909
2001 61,723,458 5,126,172 (e) 66,849,630
-----------------
(a) Includes $25.6 million and $29.6 million for the three months ended
March 31, 2002 and 2001, respectively, in earnings credit provided to
FNMC by the Bank, primarily for custodial bank account balances
generated by FNMC. Also includes $39.9 million and $58.2 million for
the three months ended March 31, 2002 and 2001, respectively, in
interest income and expense on intercompany loans.
(b) Includes $9.6 million and $8.5 million for the three months ended
March 31, 2002 and 2001, respectively, in intercompany servicing
fees.
(c) Includes $1.2 million for each of the three months ended March 31,
2002 and 2001 in intercompany noninterest expense.
(d) Includes $5.4 billion and $5.0 billion for 2002 and 2001,
respectively, in intercompany borrowings and $47.1 million and $44.3
million for 2002 and 2001, respectively, in intercompany deposits
maintained with the Bank.
(e) Includes $1.9 billion and $1.5 billion for 2002 and 2001,
respectively, in MSRs and the related hedge.
Page 11
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following reconciles the above table to the amounts shown on the
consolidated financial statements (in thousands):
Three Months Ended March 31,
--------------------------------
2002 2001
---- ----
Net interest income after provision for loan losses:
Total net interest income for reportable segments $ 393,309 $ 340,057
Elimination of intersegment net interest income (25,628) (29,585)
----------- -----------
Total $ 367,681 $ 310,472
=========== ===========
Noninterest income:
Total noninterest income for reportable segments $ 97,928 $ 67,719
Elimination of intersegment servicing fees (9,634) (8,488)
----------- -----------
Total $ 88,294 $ 59,231
=========== ===========
Noninterest expense:
Total noninterest expense for reportable segments $ 233,698 $ 232,298
Elimination of intersegment expense (1,160) (1,160)
----------- -----------
Total $ 232,538 $ 231,138
=========== ===========
Pre-tax contribution:
Total contributions for reportable segments $ 257,539 $ 175,478
Elimination of intersegment contributions (34,102) (36,913)
----------- -----------
Total $ 223,437 $ 138,565
=========== ===========
Total assets at period end:
Total assets for reportable segments $59,590,909 $66,849,630
Elimination of intersegment borrowings (5,427,017) (5,040,038)
Elimination of intersegment deposits (47,104) (44,313)
----------- -----------
Total $54,116,788 $61,765,279
=========== ===========
Page 12
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(6) LOANS RECEIVABLE, NET
Loans receivable, net, included the following (in thousands):
March 31, 2002 December 31, 2001
-------------- -----------------
Real estate loans:
1-4 unit residential $28,666,029 $29,546,035
Multi-family residential 4,307,206 4,130,287
Commercial real estate 2,311,530 2,354,919
Land 13,415 14,055
Construction 1,659 2,495
----------- -----------
Total real estate loans 35,299,839 36,047,791
----------- -----------
Equity-line 700,712 639,297
Other consumer loans 252,677 283,434
Auto loans, net (a) 1,968,605 1,917,591
Commercial loans 720,016 693,114
----------- -----------
Total consumer and other loans 3,642,010 3,533,436
----------- -----------
Total loans receivable 38,941,849 39,581,227
----------- -----------
Deferred loan fees, costs, discounts and premiums, net 237,737 243,120
Allowance for loan losses (482,884) (497,298)
Purchase accounting adjustments, net 7,060 8,574
----------- -----------
Total loans receivable, net $38,703,762 $39,335,623
=========== ===========
-----------
(a) $813.2 million, or 41% and $766.0 million, or 40% of this portfolio,
represents prime product as of March 31, 2002 and December 31, 2001,
respectively.
(7) INTANGIBLE ASSETS
Upon adopting SFAS No. 142, management reviewed the records from the
Company's various acquisitions. At March 31, 2002, the Company's goodwill and
other intangible assets totalled $639.7 million. Of this amount, $590.4 million
represents goodwill that is no longer being amortized as of January 1, 2002
pursuant to SFAS No. 142. The remaining $49.3 million represents other
intangible assets that continue to be amortized. In addition, the Company held
MSR balances in the amount of $1,778.7 million at March 31, 2002.
The following table provides details on intangible assets including MSRs:
As of March 31, 2002 As of December 31, 2001
---------------------------------------- ----------------------------------------
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Value Amortization Value Value Amortization Value
----- ------------ ----- ----- ------------ -----
(dollars in thousands)
Amortizable intangible assets:
Unidentifiable intangibles $ 64,451 $ (16,106) $ 48,345 $ 64,451 $ (15,030) $ 49,421
Core deposit intangibles 5,513 (4,602) 911 5,513 (4,511) 1,002
---------- ----------- ---------- ---------- ----------- ----------
Other intangible assets 69,964 (20,708) 49,256 69,964 (19,541) 50,423
MSRs 2,997,674 (a) (1,219,023) 1,778,651 (a) 2,728,643 (a) (1,104,696) 1,623,947 (a)
Goodwill -- -- -- 876,890 (286,470) 590,420
----------- ----------- ---------- ---------- ----------- ----------
Total amortizable
intangible assets $3,067,638 $(1,239,731) $1,827,907 $3,675,497 $(1,410,707) $2,264,790
========== =========== ========== ========== =========== ==========
Unamortizable goodwill $ 876,890 $ (286,470) $ 590,420 $ -- $ -- $ --
========== =========== ========== ========== =========== ==========
(Continued)
Page 13
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- ------------
(a) After deducting $180.5 million and $153.3 million for the valuation
allowance at March 31, 2002 and December 31, 2001, respectively.
As of March 31, 2002, all of the Company's goodwill, totalling $590.4
million, is included in the community-banking reporting segment. There were no
changes in the balance of goodwill from December 31, 2001 to March 31, 2002.
Intangible acquisitions during the period were as follows:
Three Months Ended March 31,
--------------------------------------------------------------------------
2002 2001
---------------------------------- -----------------------------------
Gross Weighted Gross Weighted
Carrying Average Carrying Average
Value Maturity (in years) Value Maturity (in years)
----- ------------------- ----- -------------------
(dollars in thousands)
MSRs originated and purchased
during the period $244,354 7.1 $100,519 6.8
During the first quarter of 2002, the Company reviewed the expected present
value of future cash flows for all reporting units with recorded goodwill and
determined that the carrying value of the goodwill was not impaired. Actual and
estimated future amortization expense is as follows:
Unidentifiable Core Deposit
Intangibles Intangibles MSRs Goodwill Total
----------- ----------- ---- -------- -----
(in thousands)
Amortization expense:
Three months ended March 31, 2002 $1,076 $ 91 $114,325 $ -- $115,492
Three months ended March 31, 2001 1,076 91 58,415 13,773 73,355
Estimated amortization expense:
Nine months ending December 31, 2002 3,228 273 235,940 -- 239,441
Year ending December 31,
2003 4,304 364 223,675 -- 228,343
2004 4,304 364 193,157 -- 197,825
2005 4,304 364 165,147 -- 169,815
2006 4,304 364 140,066 -- 144,734
2007 4,304 364 119,080 -- 123,748
The impact of the adoption of SFAS No. 142 on earnings was as follows:
For the Three Months Ended March 31,
------------------------------------
2002 2001
---- ----
(in thousands)
Reported net income $125,403 $ 95,635
Add back goodwill amortization, net of tax -- 13,713
-------- --------
Adjusted net income $125,403 $109,348
======== ========
Page 14
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(8) DEPOSITS
A summary of the carrying value of deposits follows (dollars in thousands):
March 31, 2002 December 31, 2001
-------------- -----------------
Transaction Accounts:
Non-interest checking $ 2,189,140 $ 2,013,162
Interest-bearing checking 2,275,830 2,139,674
----------- -----------
Subtotal checking 4,464,970 4,152,836
Money market 4,808,135 4,614,223
Passbook savings 3,150,328 3,055,766
----------- -----------
Total transaction accounts 12,423,433 11,822,825
Certificates of deposit 10,312,058 10,618,260
----------- -----------
Total customer deposits 22,735,491 22,441,085
Custodial accounts 2,007,448 2,512,684
Accrued interest payable 39,411 46,184
Purchase accounting 221 329
----------- -----------
Total retail deposits 24,782,571 25,000,282
Brokered Deposits 125,039 146,545
----------- -----------
Total deposits $24,907,610 $25,146,827
=========== ===========
Checking deposits (including custodials) as a %
of retail deposits 26.1% 26.7%
Transaction accounts (including custodials) as a %
of retail deposits 58.2% 57.3%
Checking deposits as a % of customer deposits
(excluding custodials) 19.6% 18.5%
Transaction accounts as a % of customer deposits
(excluding custodials) 54.6% 52.7%
(9) ACCRUED TERMINATION AND FACILITIES COSTS
In connection with the Golden State Acquisition, the Company recorded
liabilities resulting from:
o branch consolidations due to duplicate facilities and
o employee severance and termination benefits due to a planned reduction
in force.
The merger and integration plan relating 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 summarizes the activity in the liability for the costs
related to the plan (in thousands):
Severance and
Branch Termination
Consolidations Benefits Total
-------------- -------- -----
Balance at December 31, 2001 $14,208 $12,500 $26,708
Charges to liability account (763) -- (763)
------- ------- -------
Balance at March 31, 2002 $13,445 $12,500 $25,945
======= ======= =======
Page 15
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(10) INCOME TAXES
During the three months ended March 31, 2002, GS Holdings recorded net
income tax expense of $91.3 million.
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 then-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.
(11) STOCKHOLDER'S EQUITY
At March 31, 2002, there were 1,000 shares of GS Holdings common stock
issued and outstanding.
Dividends on common stock during the three months ended March 31, 2002 and
2001 totalled $80.0 million and $50.0 million, respectively.
(12) EXECUTIVE AND STOCK COMPENSATION
In the first quarter of 2002 and 2001, Golden State granted to certain of
the Company's employees non-qualified stock options equivalent to 884,000 and
851,000 shares, respectively, of common stock at a weighted average price of
$27.69 and $25.67 per share, respectively, 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, 2002, 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 the Company's common stock at the measurement date over the exercise
price of the award.
During the three months ended March 31, 2002, 107,766 options were
exercised and 32,680 options were cancelled or expired under all plans. During
the three months ended March 31, 2001, 63,516 options were exercised and 17,245
options were cancelled or expired under all plans.
At March 31, 2002 and 2001, options to acquire an equivalent of 5,459,153
and 4,441,638 shares and 845,416 and 1,011,416 LTWTMs, respectively, remained
outstanding under all plans.
On January 22, 2002 and 2001, the Golden State awarded to certain of the
Company's employees 112,760 and 99,108 shares, respectively, of restricted stock
under the Golden State Bancorp Inc. Omnibus Stock Plan. The market value on the
date of the award was $27.65 and $26.38 per share, respectively. At March 31,
2002 and 2001, a total of 160,056 and 236,730 restricted shares, respectively,
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. During the three months ended March 31, 2002, 152,299
and 2,770 restricted shares were vested and cancelled, respectively. During the
three months ended March 31, 2001, 109,134 restricted shares were vested and
none was cancelled. The compensation expense based on the stock price on the
date of these awards was recognized over the vesting period for each
service-period tranche of the award on a straight line basis with a
corresponding increase to additional paid-in capital. In addition, dividends on
restricted stock are recorded as compensation expense with a corresponding
increase to additional paid-in capital. During the three months ended March 31,
2002 and 2001, $0.4 million and $0.5 million, respectively, in compensation
expense was recognized related to such awards. These restricted shares have full
voting and dividend rights.
Page 16
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(13) COMMITMENTS, CONTINGENCIES AND OTHER OFF-BALANCE SHEET ACTIVITIES
CREDIT RELATED FINANCIAL INSTRUMENTS
The Company is a party to credit related financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and commercial letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.
The Company's exposure to credit loss is represented by the contractual
amount of these commitments. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Listed below are unfunded financial instruments whose contract amounts
represent credit risk (in thousands):
Contract Amounts at
---------------------------------------
March 31, 2002 Decenber 31, 2001
-------------- -----------------
COMMITMENTS TO EXTEND CREDIT
Unutilized consumer lines $1,571,855 $1,146,625
Unutilized commercial lines of credit 291,005 263,682
Commercial and standby letters of credit 29,746 24,953
The contracts for the Company's commitments to extend credit expire as
follows (in thousands):
March 31, 2002
----------------------------------------------------------------------------------
Contract Amount Expiring in
----------------------------------------------------------------------------------
COMMITMENTS TO EXTEND CREDIT TOTAL LESS THAN 1 YEAR 1 - 3 YEARS 4 - 5 YEARS MORE THAN 5 YEARS
- ---------------------------- ----- ---------------- ----------- ----------- -----------------
Unutilized consumer lines $1,571,855 $506,602 $14,081 $11,358 $1,039,814
Unutilized commercial
lines of credit 291,005 195,569 72,374 6,889 16,173
Commercial and standby
letters of credit 29,746 29,627 119 -- --
The fair value of commitments to extend credit were not significant at
either March 31, 2002 or December 31, 2001.
Unutilized consumer lines of credit are commitments to extend credit. These
lines are either secured or nonsecured and may be cancelled by the Company if
certain conditions of the contract are not met. Many consumer line of credit
customers are not expected to fully draw down their total lines of credit and,
therefore, the total contractual amount of these lines does not necessarily
represent future cash requirements.
Unutilized commitments under commercial lines of credit are commitments for
possible future extensions of credit to existing customers. These lines of
credit are uncollateralized, usually do not contain a specified maturity date
and may not be drawn upon to the total extent to which the Company is committed.
Commercial and standby letters of credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party.
Those letters of credit are primarily issued to support public and private
borrowing arrangements. All letters of credit issued have expiration dates
within three years. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company generally holds collateral supporting those commitments in an amount
deemed to be necessary.
Page 17
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OFF-BALANCE SHEET COMMITMENTS TO ORIGINATE, PURCHASE AND SELL LOANS
The following is a summary of the Company's pipeline of loans in process
and mandatory forward commitments to sell loans that have not been recorded in
the Company's balance sheet as they do not meet the definition of a derivative
financial instrument. These amounts exclude commitments to extend credit which
are summarized above. For more information on derivative instruments, see note
14.
Contract Amounts at
---------------------------------------
March 31, 2002 December 31, 2001
-------------- -----------------
(in thousands)
Commitments to originate loans $3,679,558 $3,937,422
Commitments to purchase loans 1,317,670 3,791,436
Mandatory commitments to sell loans 541,286 679,182
The Company's pipeline of loans in process includes loan applications for
both portfolio and non-portfolio loans in various stages of processing that do
not meet the definition of a derivative financial instrument. Until all required
documentation is provided and underwritten, there is no credit risk to the
Company. There is no interest rate risk until a rate commitment is extended by
the Company to a borrower. Some of these commitments will ultimately be denied
by the Company or declined by the borrower and therefore the commitment amounts
do not necessarily represent future cash requirements. On a daily basis, the
Company determines what percentage of the rate-locked pipeline of loans in
process to hedge. Both the anticipated percentage of the pipeline that is
expected to fund and the inherent risk position of the portfolio are considered
in making this determination.
Mandatory and optional delivery forward commitments to sell loans are used
by the Company to hedge its interest rate exposure from the time a loan has a
committed rate to the time the loan is sold. These instruments involve varying
degrees of credit and interest rate risk. Credit risk on these instruments is
controlled through credit approvals, limits and monitoring procedures. To the
extent that counterparties are not able to fulfill forward commitments, the
Company is at risk for any fluctuations in the market value of the mortgage
loans and locked pipeline.
OFF-BALANCE SHEET EMBEDDED DERIVATIVE OPTIONS
The Company also has off-balance sheet embedded options in borrowings as
shown in the table below (in thousands):
March 31, 2002 December 31, 2001
------------------------------------- --------------------------------------
Instruments Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value
----------- --------------- -------------------- --------------- --------------------
Interest rate caps $2,000,000 $68,695 $2,000,000 $52,163
Interest rate swaptions 1,250,000 9,741 1,250,000 9,448
The off-balance sheet embedded options in borrowings at March 31, 2002 are
scheduled to expire as shown in the table below (in thousands):
Contract Amount Expiring in:
---------------------------------------------------------------------------------
Nine Months Ending
INSTRUMENTS December 31, 2002 2003 2004 2005 Total
- ----------- ----------------- ---- ---- ---- -----
Interest rate caps $-- $400,000 $350,000 $1,250,000 $2,000,000
Interest rate swaptions -- 150,000 -- 1,100,000 1,250,000
Page 18
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS AND CONTINGENCIES
At March 31, 2002, the Bank had pledged, as collateral, securities as
detailed below (in thousands):
Mortgage-backed Mortgage-backed Commercial
Securities Securities Securities Paper
Available for Sale Available for Sale Held to Maturity Investments
------------------ ------------------ ---------------- -----------
Provide credit enhancements for certain
bond-financed real estate projects
originated by Old FNB $25,446 $ 11,409 $ 7,219 $ --
Pledged securities for principal and
interest on Bank loan securitization -- 182,320 7,077 --
Guarantee credit enhancements on
multi-family bond issues and loans
securitized by FNMA and FHLMC 1,031 122,257 26,345 --
Guarantee credit enhancements on
loans transferred as part of
securitization transactions by the Bank -- -- -- 28,946
Guarantee state and local agency
deposits, and certain deposits with the
Federal Reserve Bank 2,683 312,126 37,386 --
Cover the margin on interest rate swap
agreements -- 142,338 55,511 --
Secure various other obligations -- 2,799,843 770,078 --
At March 31, 2002, $25.0 billion in residential loans, $3.7 billion in
multifamily loans and $1.6 billion in commercial real estate loans were pledged
as collateral for FHLB advances.
At March 31, 2002, loans receivable included approximately $5.0 billion of
loans that had the potential to experience negative amortization.
Page 19
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(14) ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
INTEREST RATE RISK MANAGEMENT - RISK MANAGEMENT POLICIES - CASH FLOW
HEDGING INSTRUMENTS AND FAIR VALUE HEDGING INSTRUMENTS
The Company monitors the sensitivity of its NPV and net income under
various interest rate scenarios and manages this risk. Quarterly, the Company
simulates the NPV and net income expected to be earned over the next twelve
months. Market interest rates are projected at various levels to estimate the
impact on interest-earning assets, interest-bearing liabilities and mortgage
prepayment speeds (which affect the MSR asset). The Company may use derivatives
to reduce the volatility of NPV and net income within certain ranges of
projected changes in interest rates. The Company evaluates the effectiveness of
a derivative by measuring the cost of such an agreement in relation to the
reduction in NPV 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 including FHLB advances and Repos as a
source of funds for lending and investment activities and other general business
purposes. Interest payments on this debt may change if interest rates change. If
interest rates increase, interest expense increases. Conversely, if interest
rates decrease, interest expense decreases.
Management hedges a significant portion of its variable-rate interest
payments to limit the effect of changing interest rates.
STRATEGIES
Management enters into derivative instruments 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
Hedges of FHLB advances and Repos were 100% effective for the quarter ended
March 31, 2002. The Company hedges the entire amount of the change in fair value
of the liabilities with the entire amount of the change in fair value of the
derivative instruments.
Fair value changes in interest rate swap hedging instruments relating to
cash flows associated with FHLB advances and Repos are reported in OCI. These
amounts are then 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 interest expense during the
first quarter of 2002 and 2001, was $41.9 million and $5.5 million,
respectively.
As of March 31, 2002 and 2001, approximately $55.2 million and $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,
2003 and 2002, respectively.
Page 20
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
INTEREST RATE RISK MANAGEMENT - FAIR VALUE HEDGING INSTRUMENTS - MORTGAGE
SERVICING RIGHTS HEDGES
OBJECTIVES AND CONTEXT
The Company purchases and originates MSRs as a source of fee income. MSRs
expose the Company to the variability of their fair value due to changes in the
level of prepayments and other variables. The carrying value of MSRs are first
adjusted by the calculated change in the fair value of the MSRs being hedged and
are then recorded at the lesser of their amortized cost or fair value.
Management limits the variability in the fair value of a portion of its MSR
asset by hedging the change in fair value of the servicing rights asset
associated with fixed-rate, non-prepayment penalty loans for which it has
recorded MSRs. The Company determines appropriate coverage levels, 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
The Company utilizes interest rate swaps, PO swaps, interest rate floors,
and swaptions to hedge the change in value of the mortgage servicing portfolio
due to expected prepayment risk assumption changes. Although the Company hedges
the change in value of its MSRs, its hedge coverage ratio does not equal 100%.
The Company keeps hedge coverage ratios at acceptable risk levels, which may
vary depending on current and expected interest rate movement.
Interest rate swap agreements are contracts to exchange quarterly or
semi-annual floating rate payments for fixed-rate payments. The notional amount
of the contracts, on which the payments are based, are not exchanged. The
primary risks associated with interest rate swaps are the ability of the
counterparties to meet the terms of the contract and the possibility that swap
rates may not move in an inverse manner or in an amount equal to mortgage rate
movements.
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 a PO swap
agreement, 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 its payment to the
Company. The amounts to be paid and to be received are then netted together each
month. The nature of this instrument results in increased cash flows and
positive changes in the value of the PO swap during a declining interest rate
environment. This positive change in the value of the PO swap is highly
correlated to prepayment activity. PO swap agreements present yield curve risk
to the extent that short term interest rates (which impact the cash amount that
the Company pays on the PO swap to the counterparty) rise while long term rates
(which drive prepayment rates) stay the same. A third type of risk associated
with PO swaps is the ability of the counterparties to meet the terms of the
contract.
Page 21
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Interest rate floors are interest rate protection instruments that involve
payment from the seller to the buyer of an interest differential. This
differential is the difference between a long-term rate (E.G., 10-year Constant
Maturity Swaps in 2002 and 2001) 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 on a monthly basis by a counterparty, when the current
long-term rate falls below the strike level of the agreement. The fair value of
interest rate floor agreements is included in derivative assets or liabilities.
Interest rate floors are subject to basis risk because of differences in
movements of mortgage and LIBOR rates, market volatility and the impact of
changes in the yield curve. In addition, a credit risk associated with purchased
interest rate floor agreements is the ability of the counterparties to meet the
terms of the contract.
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. Swaptions are subject to basis risk
because of differences in movements of mortgage and LIBOR rates, market
volatility and the impact of changes in the yield curve. In addition, credit
risk associated with swaptions is the ability of the counterparties to meet the
terms of the contract.
RESULTS
Risk management results related to the hedging of MSRs are summarized below
and are included in the caption entitled "Loan servicing fees, net" in the
accompanying consolidated statements of income (in thousands). The net gain or
loss represents the ineffectiveness of the hedges.
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
(Loss) gain on designated derivative contracts $(32,497) $ 33,597
Increase (decrease) in value of designated MSRs 51,777 (31,192)
-------- --------
Net gain on derivatives used to hedge MSRs $ 19,280 $ 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 loans it plans to
sell. These warehoused loans have been classified as loans held for sale, net,
in the consolidated balance sheet and are carried at fair market value, less the
values associated with servicing (for those loans which are hedged) or at the
lower of aggregate amortized cost or fair market value (for those loans which
are not hedged). These loans expose the Company to the variability of 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 limits the variability of a major portion of the change in fair
value of its loans held for sale by hedging substantially all of its warehoused
loans held for sale to third parties.
STRATEGIES
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 sales lock in the price for the sale of either specific
loans held for sale or a generic group of loans held for sale.
Page 22
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
RESULTS
Risk management results related to the hedging of warehouse loans 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):
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
Transition adjustment upon adoption of SFAS No. 133 $ -- $ 3,834
Unrealized loss on designated forward loan sale commitments recognized (13,518) (1,680)
Increase in value of warehouse loans 18,710 1,405
-------- -------
Net hedge ineffectiveness $ 5,192 $ 3,559
======== =======
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 for the origination and/or purchase of loans. Some
of these rate lock commitments will ultimately expire without being completed.
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 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):
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
Transition adjustment upon adoption of SFAS No. 133 $ -- $(2,785)
Unrealized loss on undesignated forward loan sale commitments (1,760) (976)
recognized to income
Gain on undesignated interest rate loan commitments recognized to income 5,439 113
------- -------
Net gain (loss) on derivatives $ 3,679 $(3,648)
======= =======
Page 23
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTIONAL AMOUNTS OF DERIVATIVES
Information pertaining to the notional amounts of the Company's derivative
financial instruments utilized in both MSR and balance sheet hedging is as
follows (in thousands). The fair values of these derivative financial
instruments were recorded in the Company's balance sheet in accordance with SFAS
No. 133.
March 31, 2002 December 31, 2001
------------------------------ ------------------------------
Notional Notional
Amount Credit Risk (1) Amount Credit Risk (1)
------ --------------- ------ ---------------
Interest rate swaps - borrowings $ 4,639,670 $ -- $ 4,089,670 $ --
Interest rate swaps hedging MSRs 440,000 -- 2,462,000 7,561
PO swaps 337,669 -- 378,928 6,411
Interest rate floors 1,153,000 25,179 3,054,000 78,917
Interest rate swaptions 4,547,000 144,781 4,111,000 183,641
Forward loan sale commitments 3,266,024 21,601 3,980,863 36,879
Interest rate lock commitments 1,574,124 -- 1,870,852 --
Other 25,000 -- -- --
----------- -------- ----------- --------
Total $15,982,487 $191,561 $19,947,313 $313,409
=========== ======== =========== ========
- -------------
(1) Credit risk represents the amount of unrealized gain included in
derivative assets which is subject to counterparty credit risk. It
reflects the effect of master netting agreements and excludes $109.3
million and $95.2 million cash collateral held by the Bank at March 31,
2002 and December 31, 2001, respectively.
Derivative financial instruments used for other-than-trading purposes at
March 31, 2002 are scheduled to mature as follows (in thousands):
Notional Amounts
-----------------------------------------------------------------------------------------
Nine Months Ending
December 31, 2002 2003 2004 2005 2006 Thereafter Total
----------------- ---- ---- ---- ---- ---------- -----
Interest rate swaps -
borrowings $ 400,000 $ 715,000 $2,004,670 $ 650,000 $800,000 $ 70,000 $ 4,639,670
Interest rate swaps
hedging MSRs -- -- -- -- -- 440,000 440,000
PO swaps 99,656 31,983 87,910 -- -- 118,120 337,669
Interest rate floors -- -- -- -- 177,000 976,000 1,153,000
Interest rate swaptions -- 2,574,000 1,562,000 411,000 -- -- 4,547,000
Forward loan sale
commitments 3,266,024 -- -- -- -- -- 3,266,024
Interest rate lock
commitments 1,574,124 -- -- -- -- -- 1,574,124
Other 25,000 -- -- -- -- -- 25,000
---------- ---------- ---------- ---------- -------- ---------- -----------
Total $5,364,804 $3,320,983 $3,654,580 $1,061,000 $977,000 $1,604,120 $15,982,487
========== ========== ========== ========== ======== ========== ===========
Page 24
GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(15) RECENT ACCOUNTING PRONOUNCEMENTS
GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, the Company adopted SFAS No. 142. SFAS No. 142
supersedes APB Opinion No. 17 and establishes new accounting standards for both
identifiable and unidentifiable intangible assets acquired in a business
combination, including goodwill, but does not address internally developed
intangible assets. It requires recognition of goodwill as an asset but does not
permit amortization of goodwill as previously required by APB Opinion No. 17.
Instead, goodwill is tested for impairment at a level referred to as a reporting
unit. A reporting unit is the same level as, or one level below, an operating
segment (as that term is used in SFAS No. 131).
Goodwill is tested for impairment annually and on an interim basis if an
event or circumstance occurs between annual tests that might reduce the fair
value of a reporting unit below its carrying value. An example of such an event
or circumstance may include an adverse change in the business climate or market,
a legal factor, an action by regulators, an introduction of competition, or a
loss of key personnel. Goodwill would also be tested for impairment on an
interim basis when:
(a) a more-likely-than-not expectation exists that a reporting unit or a
significant portion of a reporting unit will be sold or otherwise
disposed of,
(b) a significant asset group within a reporting unit is tested for
recoverability under SFAS No. 121, or
(c) a subsidiary of that reporting unit has recognized a goodwill
impairment loss.
The fair value of each reporting unit would not have to be recomputed every
year if the components of the reporting unit had not changed since the previous
fair value computation, the previous fair value amount exceeded the carrying
amount of the reporting unit by a substantial margin, and no evidence exists
indicating that the current fair value of the reporting unit may be less than
its current carrying amount.
Goodwill is tested for impairment using a two-step approach. The first step
is a comparison of the fair value of a reporting unit to its carrying amount,
including goodwill. If the fair value of the reporting unit is greater than its
carrying amount, goodwill is not considered impaired and no further work is
required. If the fair value of the reporting unit is less than its carrying
amount, the second step of the impairment test must be performed. The second
step of the impairment test is a comparison of the implied fair value of
goodwill to its carrying amount. If the implied fair value of goodwill is less
than its carrying amount, goodwill is considered impaired and an impairment loss
recognized. The impairment loss would be measured as the amount by which the
carrying amount of goodwill exceeds its implied fair value.
Acquired intangible assets other than goodwill are amortized over their
useful economic lives and reviewed for impairment in accordance with SFAS No.
144.
The impact of the adoption of SFAS No. 142 increases GAAP earnings by $13.7
million per quarter in 2002.
ACCOUNTING BY CERTAIN ENTITIES (INCLUDING ENTITIES WITH TRADE RECEIVABLES)
THAT LEND TO OR FINANCE THE ACTIVITIES OF OTHERS
In December 2001, the AICPA issued SOP 01-6. SOP 01-6 is effective for
annual and interim financial statements issued for fiscal years beginning after
December 15, 2001. SOP 01-6 reconciles the specialized accounting and financial
reporting guidance established in the existing Banks and Savings Institutions
Guide, Audits of Credit Unions Guide, and Audits of Finance Companies Guide. The
SOP eliminates differences in accounting and disclosure established by the
respective guides and carries forward accounting guidance for transactions
determined to be unique to certain financial institutions. The adoption of this
pronouncement has not had a material impact on the Company's results of
operations or financial condition.
Page 25
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. SEE "BUSINESS--FACTORS THAT MAY AFFECT
FUTURE RESULTS" IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001 FOR A DISCUSSION OF THESE FACTORS IN GREATER DETAIL. WE ASSUME
NO OBLIGATION TO UPDATE ANY OF OUR FORWARD-LOOKING STATEMENTS.
CRITICAL ACCOUNTING POLICIES
In preparing its consolidated financial statements, the Company is required
to make judgments and estimates that may have a significant impact upon its
financial results. The Company's valuation of its MSRs and its determination of
the adequacy of its allowance for loan losses are particularly subject to
management's judgment and estimates. The Company's accounting policies for these
two areas are discussed at length in notes 2(m) and 2(e) of the Company's Notes
to Consolidated Financial Statements included in the Company's 2001 Annual
Report on Form 10-K.
OVERVIEW
GS Holdings, formerly FN 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.
The Company, headquartered in San Francisco, California, provides
diversified financial services to consumers and small businesses in California
and Nevada, primarily:
(a) retail branches that provide deposit products such as demand,
transaction and savings accounts, and investment products such as
mutual funds, annuities and insurance; and
(b) mortgage banking activities, including originating and purchasing 1-4
unit residential loans for sale or retention, servicing loans for
itself and others and, to a lesser extent, originating and/or
purchasing commercial real estate, commercial and consumer loans for
investment.
The Company's revenues are derived from:
(a) interest earned on loans and securities;
(b) gains on sales of loans and other investments, fees received in
connection with loan servicing and securities brokerage; and
(c) other customer service transactions.
Expenses primarily consist of interest on customer deposit accounts and
borrowings, and general and administrative expenses including compensation and
benefits, occupancy and equipment, professional fees and other general
administrative expenses.
Page 26
NET INCOME
GS Holdings reported net income for the three months ended March 31, 2002
of $125.4 million, compared with net income of $95.6 million for the
corresponding period in 2001. The Bank's efficiency ratio was 47.61% for the
three months ended March 31, 2002, compared to 52.93% for the comparable period
in 2001.
The Company adopted SFAS No. 142 effective January 1, 2002, which requires
that goodwill no longer be amortized. The effect of the adoption was to reduce
goodwill amortization by $13.8 million for the three months ended March 31, 2002
compared to the same period a year ago. Excluding the effect of the adoption of
SFAS No. 142, net income for the three months ended March 31, 2001 was $109.3
million.
FINANCIAL CONDITION
During the three months ended March 31, 2002, consolidated total assets
decreased to $54.1 billion from $56.5 billion and total liabilities decreased to
$50.9 billion from $53.4 billion at December 31, 2001. Mortgage-backed
securities, loans receivable and loans held for sale declined $1.3 billion,
$631.9 million and $409.5 million, respectively, during the three month period,
while securities increased $1.1 million during the same period. This shift in
loans and mortgage-backed securities is primarily due to high repayment rates in
light of the declining interest rate environment. Deposits decreased $239.2
million during the three months ended March 31, 2002, including decreases of
$505.2 million in custodial accounts, $306.2 million in CDs and $21.5 million in
Brokered Deposits, offset by a $600.6 million increase in transaction accounts.
Total borrowings, including securities sold under agreements to repurchase, FHLB
advances and other borrowings, declined $2.1 billion during the three months
ended March 31, 2002.
During the three months ended March 31, 2002, stockholder's equity
increased $59.6 million to $2.7 billion. The increase in stockholder's equity is
principally the result of $125.4 million in net income for the period and $36.0
million in net unrealized gains, after tax, on derivatives. These amounts are
partially offset by $80.0 million of common stock dividends and $24.5 million in
net unrealized losses, after tax, on securities available for sale.
GS Holdings' non-performing assets, consisting of non-performing loans, net
of purchase accounting adjustments, foreclosed real estate, net, and repossessed
assets, decreased to $117.2 million at March 31, 2002 compared with $124.1
million at December 31, 2001. Total non-performing assets as a percentage of the
Bank's total assets was 0.22% at both March 31, 2002 and December 31, 2001.
Page 27
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 VERSUS THREE MONTHS ENDED MARCH 31, 2001
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, 2002
---------------------------------------
Average Average
Balance Interest Rate
------- -------- ----
(dollars in millions)
ASSETS
Interest-earning assets (1):
Securities and interest-bearing deposits in banks (2) $ 262 $ 2 2.91%
Mortgage-backed securities available for sale 6,109 93 6.06
Mortgage-backed securities held to maturity 1,329 21 6.45
Loans held for sale, net 2,698 42 6.20
Loans receivable, net:
Residential 29,014 448 6.18
Commercial real estate 6,469 116 7.21
Consumer 945 15 6.30
Automobile 1,939 60 12.56
Commercial banking 701 10 5.72
------- ----
Loans receivable, net 39,068 649 6.66
FHLB stock 1,390 21 6.08
------- ----
Total interest-earning assets 50,856 828 6.52%
----
Noninterest-earning assets 4,259
-------
Total assets $55,115
=======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY
Interest-bearing liabilities:
Deposits $24,811 $135 2.21%
Securities sold under agreements to repurchase (3) 2,235 21 3.82
Borrowings (3) 23,620 303 5.17
Other 161 1 1.75
------- ----
Total interest-bearing liabilities 50,827 460 3.65%
----
Noninterest-bearing liabilities 1,176
Minority interest 495
Stockholder's equity 2,617
-------
Total liabilities, minority interest
and stockholder's equity $55,115
=======
Net interest income $368
====
Interest rate spread (4) 2.87%
=====
Net interest margin 2.87%
=====
Return on average assets 0.91%
=====
Return on average common equity 19.17%
=====
Return on tangible common equity 25.61%
=====
Average equity to average assets 4.75%
=====
Page 28
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
Consumer 860 22 9.95
Automobile 1,637 46 11.40
Commercial banking 550 12 9.18
------- ------
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 (4) 2.10%
=====
Net interest margin 2.14%
=====
Return on average assets 0.63%
=====
Return on average common equity 16.81%
=====
Return on tangible common equity 27.77%
=====
Average equity to average assets 3.76%
=====
- ----------------
(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.
(4) Interest rate spread represents the difference between the average rates of
total interest-earning assets and total interest-bearing liabilities.
Page 29
The following table shows the changes in interest income and expense 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, 2002 vs. 2001
Increase (Decrease) Due to
----------------------------------------------
Volume Rate Net
------ ---- ---
INTEREST INCOME: (in millions)
Securities and interest-bearing deposits in banks $ (9) $ (9) $ (18)
Mortgage-backed securities available for sale (72) (16) (88)
Mortgage-backed securities held to maturity (8) (8) (16)
Loans held for sale, net 24 (2) 22
Loans receivable, net (17) (112) (129)
FHLB stock -- (2) (2)
----- ----- -----
Total (82) (149) (231)
----- ----- -----
INTEREST EXPENSE:
Deposits 362 (468) (106)
Securities sold under agreements to repurchase (26) (21) (47)
Borrowings (69) (68) (137)
Other 1 -- 1
----- ----- -----
Total 268 (557) (289)
----- ----- -----
Change in net interest income $(350) $ 408 $ 58
===== ===== =====
INTEREST INCOME. Total interest income was $827.7 million for the three
months ended March 31, 2002, a decrease of $231.4 million from the three months
ended March 31, 2001. Total interest-earning assets for the three months ended
March 31, 2002 averaged $50.9 billion, compared to $57.0 billion for the
corresponding period in 2001. The decrease in interest-earning assets is
primarily a result of a decline in mortgage-backed securities, principally due
to management's decision to sharply reduce purchases, and net loan run off, as
well as decreased securities volume. These decreases were partially offset by an
increase in loans held for sale due to heightened borrower refinancing activity
in the declining interest rate environment. The yield on total interest-earning
assets during the three months ended March 31, 2002 decreased to 6.52% from
7.44% for the three months ended March 31, 2001, primarily due to the repricing
of loans and mortgage-backed securities available for sale at lower rates. At
March 31, 2002, 12% of the Company's portfolio loans were tied to COFI indices,
13% to Treasury-based indices and 48% were "hybrid" ARMs - fixed for three to
ten years and then adjusting annually. Twenty-three percent of the portfolio was
fixed. The remaining 4% of the portfolio was in other adjustable-rate products.
GS Holdings earned $649.2 million of interest income on loans receivable
for the three months ended March 31, 2002, a decrease of $128.6 million from the
three months ended March 31, 2001. The average balance of loans receivable was
$39.1 billion for three months ended March 31, 2002, compared to $40.7 billion
for the same period in 2001. The weighted average yield on loans receivable
decreased to 6.66% for the three months ended March 31, 2002 from 7.65% for the
three months ended March 31, 2001. The decrease in the average balance reflects
the sharp run off of residential loans during a period of high refinancing
activity. The decrease in the weighted average yield reflects the repricing of
variable-rate loans, a decrease in the prime rate on commercial banking loans
and comparatively lower market interest rates during the three months ended
March 31, 2002, partially offset by a higher yield on auto loans purchased after
July 1, 2001, which are recorded on a gross-coupon basis, rather than a
credit-adjusted yield basis. The impact of this change on net interest income
during the three months ended March 31, 2002 was to increase interest income by
$8.8 million.
Page 30
Loan production is detailed in the table below (in thousands):
For the Quarter Ended March 31,
-------------------------------
2002 2001
---- ----
Loans funded:
Residential real estate loans:
Adjustable-rate $1,929,931 $1,600,331
Fixed-rate 6,295,662 2,491,377
---------- ----------
Total residential real estate loans 8,225,593 4,091,708
Commercial real estate loans 440,572 331,380
Commercial loans 295,885 226,243
Consumer nonmortgage loans 236,817 178,274
Auto loans (a) 280,503 325,428
---------- ----------
Total loans funded $9,479,370 $5,153,033
========== ==========
Residential real estate loans purchased $1,127,607 $1,165,495
========== ==========
------------
(a) Approximately 50% and 46% of this volume was in prime product; 50% and
54% in sub-prime product for the three months ended March 31, 2002 and
2001, respectively.
GS Holdings earned $41.8 million of interest income on loans held for sale
for the three months ended March 31, 2002, an increase of $21.7 million from the
three months ended March 31, 2001. The average balance of loans held for sale
was $2.7 billion for the three months ended March 31, 2002, an increase of $1.6
billion from the comparable period in 2001, primarily attributed to increased
originations of residential fixed-rate loans as a result of heightened borrower
refinancing activity in the declining interest rate environment. Fixed-rate
production for sale totalled $6.2 billion during the three months ended March
31, 2002, an increase of 173% over the $2.3 billion originated during the
comparable period in 2001. The weighted average yield on loans held for sale
decreased to 6.20% for the three months ended March 31, 2002 from 7.09% for the
three months ended March 31, 2001, primarily due to declining market interest
rates.
Interest income on mortgage-backed securities available for sale was $92.6
million for the three months ended March 31, 2002, a decrease of $88.4 million
from the three months ended March 31, 2001. The average portfolio balance
decreased $4.7 billion, to $6.1 billion for the three months ended March 31,
2002 compared to the same period in 2001. The weighted average yield on these
assets decreased from 6.72% for the three months ended March 31, 2001 to 6.06%
for the three months ended March 31, 2002. The decrease in the volume is
primarily attributed to management's decision to sharply reduce purchases,
coupled with high repayments and sales of mortgage-backed securities. The
decrease in the weighted average yield primarily reflects the repricing of
variable-rate securities at lower rates.
Interest income on mortgage-backed securities held to maturity was $21.4
million for the three months ended March 31, 2002, a decrease of $16.0 million
from the three months ended March 31, 2001. The average portfolio balance
decreased $0.4 billion, to $1.3 billion for the three months ended March 31,
2002 compared to the same period in 2001, primarily due to repayments. The
weighted average yields for the three months ended March 31, 2002 and 2001 were
6.45% and 8.60%, respectively. The decrease in the weighted average yield is
primarily the result of the repricing of variable-rate securities at lower
rates.
Interest income on securities and interest-bearing deposits in other banks
was $1.9 million for the three months ended March 31, 2002, a decrease of $17.8
million from the three months ended March 31, 2001. The average portfolio
balance was $0.3 billion and $1.3 billion for the three months ended March 31,
2002 and 2001, respectively. The decrease in the volume is primarily attributed
to payments and maturities of securities. The lower weighted average yield of
2.91% for the three months ended March 31, 2002 compared to 6.09% for the three
months ended March 31, 2001 reflects the repricing of securities at lower rates.
Page 31
Dividends on FHLB stock were $20.8 million for the three months ended March
31, 2002, a decrease of $2.2 million from the three months ended March 31, 2001.
The average balance outstanding was $1.4 billion for each of the three months
ended March 31, 2002 and 2001. The weighted average dividend on FHLB stock
declined to 6.08% for the three months ended March 31, 2002 from 6.78% for the
three months ended March 31, 2001.
INTEREST EXPENSE. Total interest expense was $460.0 million for the three
months ended March 31, 2002, a decrease of $288.6 million from the three months
ended March 31, 2001. The decrease is primarily due to declining market interest
rates and a reduction in borrowings under FHLB advances and securities sold
under agreements to repurchase, partially offset by additional deposits.
Interest expense on deposits, including Brokered Deposits, was $135.1
million for the three months ended March 31, 2002, a decrease of $105.7 million
from the three months ended March 31, 2001. The average balance of deposits
outstanding increased from $23.7 billion for the three months ended March 31,
2001 to $24.8 billion for the three months ended March 31, 2002. The increase in
the average balance is primarily attributed to increases in the average balances
of money market accounts, custodial accounts, retail customer checking accounts
and savings account balances, partially offset by a decline in CDs. The overall
weighted average cost of deposits decreased to 2.21% for the three months ended
March 31, 2002 from 4.13% for the three months ended March 31, 2001, primarily
due to declining market interest rates and a shift in the mix of deposits, with
higher average balances of lower rate money market, custodial, checking and
savings accounts, and a lower average balance of higher rate CDs during the
first quarter of 2002.
Interest expense on securities sold under agreements to repurchase totalled
$21.4 million for the three months ended March 31, 2002, a decrease of $46.6
million from the three months ended March 31, 2001. The average balance of such
borrowings for the three months ended March 31, 2002 and 2001 was $2.2 billion
and $4.2 billion, respectively. The decrease in the average balance is primarily
the result of maturities. The weighted average interest rate on these
instruments decreased to 3.82% for the three months ended March 31, 2002 from
6.52% for the three months ended March 31, 2001, primarily due to maturities of
higher fixed-rate borrowings and the repricing of variable-rate borrowings at
lower rates.
Interest expense on borrowings totalled $302.8 million for the three months
ended March 31, 2002, a decrease of $137.0 million from the three months ended
March 31, 2001. The average balance outstanding for the three months ended March
31, 2002 and 2001 was $23.6 billion and $28.8 billion, respectively. The
weighted average interest rate on these instruments decreased to 5.17% for the
three months ended March 31, 2002 from 6.16% for the three months ended March
31, 2001. The decrease in the average volume is primarily the result of
maturities, while the decrease in the weighted average rate is primarily due to
declining market interest rates.
NET INTEREST INCOME. Net interest income was $367.7 million for the three
months ended March 31, 2002, an increase of $57.2 million from the three months
ended March 31, 2001. The interest rate spread increased to 2.87% for the three
months ended March 31, 2002 from 2.10% for the three months ended March 31,
2001, primarily as a result of declining market interest rates reducing costs of
liabilities at a faster rate than the decline in the yield on assets.
Lower-costing liabilities were the result of the replacement of higher-rate
borrowings and deposits with lower-rate borrowings and deposits as these
instruments came due or were repaid. The net interest margin increased to 2.87%
for the three months ended March 31, 2002, up 73 bps from the 2.14% reported
during the first quarter of 2001.
NONINTEREST INCOME. Total noninterest income, consisting primarily of loan
servicing fees, customer banking fees, gain on sale, settlement and transfer of
loans, net, gain on sale of assets, net and other income was $88.3 million for
the three months ended March 31, 2002, representing an increase of $29.1 million
from the three months ended March 31, 2001.
Page 32
Loan servicing fees for the Company, were $(8.8) million for the three
months ended March 31, 2002, compared to $(26.7) million the three months ended
March 31, 2001. The following table details the components of loan servicing
fees, net (in thousands):
For the Quarter Ended March 31,
-----------------------------------
2002 2001
---- ----
Components of loan servicing fees, net:
Loan servicing fees $125,372 $113,242
Amortization of MSRs (114,325) (58,415)
Pass-through Interest Expense (12,035) (6,884)
Net gain on MSRs/MSR derivatives (SFAS No. 133) 19,280 2,405
MSR valuation provision (27,107) (77,000)
-------- --------
Total loan servicing fees, net $ (8,815) $(26,652)
======== ========
Portfolio run off rate (residential portfolio only) 33.9% 20.8%
MSR value run off rate (residential portfolio only) 23.9 16.6
MSR amortization rate (residential portfolio only) 25.3 16.8
As the table reflects, gross loan servicing fees increased $12.1 million
from year-ago levels, which is primarily attributable to the growth of the
Company's servicing portfolio and higher ancillary fees. The single-family
residential loan servicing portfolio, excluding loans serviced for the Bank,
increased from $83.4 billion at March 31, 2001 to $88.5 billion at March 31,
2002. The portfolio runoff rate, representing the percentage of the residential
portfolio that has been paid off during the year, influences MSR amortization,
which increased $55.9 million in the first quarter of 2002 over the same period
in 2001. MSR amortization was also affected by a higher average MSR balance for
the three months ended March 31, 2002 compared to the same period in 2001.
Pass-through Interest Expense increased $5.2 million or 75% year over year, also
influenced by higher runoff rates. Servicing fee income for the first quarter of
2002 and 2001 includes net pre-tax gains of $19.3 million and $2.4 million,
respectively, from the impact of SFAS No. 133 pertaining to the MSR fair value
hedges. After recording these gains in accordance with SFAS No. 133, the Company
determined that the fair value of the MSR asset was less than its carrying value
and recorded pre-tax valuation provisions on the MSRs of $27.1 million and $77.0
million during the three months ended March 31, 2002 and 2001, respectively. See
"--Impact of SFAS No. 133" for further discussion.
Customer banking fees were $58.1 million for the three months ended March
31, 2002 compared to $51.3 million for the three months ended March 31, 2001.
The following table details the components of customer banking fees and service
charges (in thousands):
For the Quarter Ended March 31,
-------------------------------
2002 2001
---- ----
Components of customer banking fees and service charges:
Transaction account fees $37,583 $33,109
Other retail customer fees 712 621
Investment sales income 17,380 14,762
Insurance commissions 2,473 2,769
------- -------
Total customer banking fees and service charges $58,148 $51,261
======= =======
The increase is primarily attributed to increased emphasis by management on
transaction account growth and higher fee income on mutual fund, annuity and
other investment and insurance product sales through CFI. 2002 also includes an
$0.8 million reclassification to reflect gross revenues from customer check
printing fees rather than net revenues. Transaction accounts (including
custodial accounts) as a percentage of retail deposits increased to 58.2% at
March 31, 2002, from 49.9% at March 31, 2001.
Page 33
Gain on sale, settlement and transfer of loans, net totalled $34.6 million
for the three months ended March 31, 2002, an increase of $29.7 million from the
three months ended March 31, 2001. During the three months ended March 31, 2002,
California Federal sold $6.9 billion in single-family mortgage loans with
servicing rights retained as part of its ongoing mortgage banking operations at
gains of $21.6 million compared to $1.5 billion of such sales for the
corresponding period in 2001 at gains of $3.5 million. The overall increase in
the volume of loans sold and the related gain is a result of the significant
increase in fixed-rate loan originations as a result of the overall decline in
market interest rates and increased mortgage refinancing. The results in 2002
include an $8.9 million unrealized gain on the derivative rate locks, forward
loan sale commitments and closed loan inventory from the application of SFAS No.
133.
Noninterest income for the three months ended March 31, 2001 included a
gain of $20.7 million on the non-monetary exchange of Star Systems common stock
for 634,520 shares of Concord EFS common stock as a result of Concord's
acquisition of Star Systems in February 2001.
NONINTEREST EXPENSE. Total noninterest expense was $232.5 million for the
three months ended March 31, 2002, an increase of $1.4 million compared to the
three months ended March 31, 2001. Excluding the amortization of goodwill and
other intangible assets, noninterest expense for the three months ended March
31, 2002 was $231.4 million, an increase of $15.2 million over the same period
in the prior year. Noninterest expense for the three months ended March 31, 2002
included increases of $7.0 million in compensation expense, $3.7 million in
other noninterest expense, $2.5 million in professional fees and $2.4 million in
occupancy and equipment expense. These increases were partially offset by
decreases of $13.8 million in amortization of intangible assets and $.4 million
in foreclosed real estate operations, net.
Compensation and employee benefits expense was $124.8 million for the three
months ended March 31, 2002, an increase of $7.0 million from the three months
ended March 31, 2001. The increase is primarily attributed to an increase in
staff (from 7,797 FTE at March 31, 2001 to 8,192 at March 31, 2002) and
temporary personnel, primarily in volume-related operating groups, as well as
normal salary adjustments.
Professional fees were $7.3 million for the three months ended March 31,
2002, an increase of $2.5 million from the three months ended March 31, 2001,
primarily due to an overall increase in legal fees related to various legal
cases.
Amortization of intangible assets was $1.2 million for the three months
ended March 31, 2002, a decrease of $13.8 million from the three months ended
March 31, 2001, due to the adoption of SFAS No. 142 on January 1, 2002, which
requires that goodwill no longer be amortized.
Other noninterest expense was $55.7 million in 2002 compared to $52.0
million in 2001. The increase in expenses relates to increases in a number of
operating expense categories, including retail back office operations,
marketing, data processing systems expense, courier service, bank charges and
insurance expense.
PROVISION FOR INCOME TAX. During the three months ended March 31, 2002, GS
Holdings recorded net income tax expense of $91.3 million.
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 then-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 34
GS Holdings' effective gross federal tax rate was 35% during the three
months ended March 31, 2002 and 48% during the three months ended March 31,
2001, while its federal statutory tax rate was 35% during both periods. In 2001,
the difference between the effective and statutory rates 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. GS Holdings' effective state tax rate was 6% and (22)% during the
three months ended March 31, 2002 and 2001, respectively. The effective state
tax rate decreased during 2001 as a result of a reduction in the accrued state
tax liability.
MINORITY INTEREST. During each of the three months ended March 31, 2002 and
2001, dividends on the REIT Preferred Stock were recorded totalling $6.7
million, net of income tax benefit, which will inure to the Company as a result
of the deductibility of such dividends for income tax purposes.
IMPACT OF SFAS NO. 133. On January 1, 2001, the Company adopted SFAS No.
133. The pronouncement impacted several other areas of the financial statements.
The table summarizes the activity during the first quarter of 2002 and 2001
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
-------- ---- ------ ----------- ----------- --- --------- -----
Fair value adjustments:
MSRs and MSR hedges $ -- $ 51,777 $ (29,319) $ (3,178) $ -- $ -- $(19,280) $ --
Warehouse loans and
pipeline hedges 18,710 -- (15,278) 5,439 -- -- -- (8,871)
Cash flow (balance sheet)
hedges - swaps -- -- -- 60,849 (24,858) (35,991) -- --
------- --------- --------- --------- -------- -------- -------- -------
Fair Value Adjustments -
First Quarter 2002 18,710 51,777 (44,597) 63,110 (24,858) (35,991) (19,280) (8,871)
Other First Quarter 2002
activity:
MSR hedge additions -- -- 416,887 -- -- -- -- --
MSR hedge sales and
maturities -- -- (508,630) 33,622 -- -- -- --
MSR hedge receipts
and payments -- -- (18,383) (1,559) -- -- -- --
------- --------- --------- --------- -------- -------- -------- -------
Other Activity -
First Quarter 2002 -- -- (110,126) 32,063 -- -- -- --
------- --------- --------- --------- -------- -------- -------- -------
Total Impact from
SFAS No. 133 -
First Quarter 2002 $18,710 $ 51,777 $(154,723) $ 95,173 $(24,858) $(35,991) $(19,280) $(8,871)
======= ========= ========= ========= ======== ======== ======== =======
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 35
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 profits 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 case has been remanded back to the Claims Court for a damages trial under
the lost profits theory, and trial is currently expected to begin in the first
week of September 2002. 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 took place on June 26, 2001,
and the Bank is awaiting the Claims Court's decision. The Bank continues to
vigorously pursue its case for damages against the Government.
Page 36
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 September 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. On June 7, 2001, the trial court dismissed
two of the four causes of action against the Bank, holding that the OTS
pre-empted the California courts from regulating the Bank's procedures for
reconveying deeds. The Bank believes that it has additional meritorious defenses
to plaintiffs' claims and intends to continue to contest the remaining claims in
the lawsuit 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.
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 37
GLOSSARY OF DEFINED TERMS
AICPA - American Institute of Certified Public Accountants
APB - Accounting Principles Board
APB OPINION NO. 17 - Intangible Assets
APB OPINION NO. 25 - Accounting for Stock Issued to Employees
ARM - Adjustable-rate mortgage
BANK - California Federal Bank
bps - basis points
BROKERED DEPOSITS - Issued CDs through direct placement programs and national
investment banking firms
CAL FED 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
CD - Certificate of deposit
CFI - Cal Fed Investments
CLAIMS COURT - United States Court of Federal Claims
COFI - Cost of Funds Index (tied to the FHLB's 11th District cost of funds)
COMPANY - Golden State Holdings Inc.
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
EPS - earnings per share
FASB - Financial Accounting Standards Board
FDICIA - Federal Deposit Insurance Corporation Improvement Act
FHLB - Federal Home Loan Bank of San Francisco
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.
FN HOLDINGS NOTES - FN Holdings 12 1/4% Senior Notes, the FN Holdings 9 1/8%
Senior Sub Notes and the FN Holdings 10 5/8% Notes, collectively
FNMC - First Nationwide Mortgage Corporation
FTE - Full-time equivalent staff
GAAP - accounting principles generally accepted in the United States of America
GLEN FED MERGER - Glendale Federal Bank merged with and into the Bank
GLENDALE FEDERAL - Glendale Federal Bank, Federal Savings Bank
GLENDALE GOODWILL LITIGATION - Glendale Federal Bank v. United States, No.
90-772C
GNMA - Government National Mortgage Association
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 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.
HUNTER'S GLEN - Hunter's Glen/Ford, Ltd.
IO - Interest only
IRS - Internal Revenue Service
LIBOR - London Interbank Offered Rate
LTWTM - Litigation Tracking Warrants
MSR - Mortgage servicing rights
Page 38
GLOSSARY OF DEFINED TERMS (CONTINUED)
NOTIONAL AMOUNT - the amount on which calculations, payments, and the value of a
derivative is based. Notional amounts do not represent direct credit
exposures.
NPV - Net portfolio value
OCI - Other comprehensive income
OLD CALIFORNIA FEDERAL - California Federal Bank, A Federal Savings Bank prior
to the Cal Fed Acquisition.
OTS - Office of Thrift Supervision
PASS-THROUGH INTEREST EXPENSE - represents interest that FNMC pays to the
investor(s) for loans serviced by FNMC, which are paid off by the
borrower(s) before the end of the month. FNMC picks up the shortfall of
interest on the respective loans as a result of the contractual agreement
between the servicer (FNMC) and the investor(s) (I. E., GNMA)
PO - Principal only
PREFERRED CAPITAL CORPORATION - California Federal Preferred Capital Corporation
REIT - Real Estate Investment Trust
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
SEC - Securities and Exchange Commission
SFAS - Statement of Financial Accounting Standards
SFAS NO. 115 - Accounting for Certain Investments in Debt and Equity Securities
SFAS NO. 121 - Accounting for the Impairment of Long-lived Assets and for Long-
lived Assets to be Disposed of
SFAS NO. 131 - Disclosures about Segments of an Enterprise and Related
Information
SFAS NO. 133 - Accounting for Derivative Instruments and Hedging Activities
SFAS NO. 142 - Accounting for Goodwill and Intangible Assets
SFAS NO. 144 - Accounting for the Impairment or Disposal of Long-Lived Assets
SOP - Statement of Position
SOP 01-6 - Accounting by Certain Entities (Including Entities With Trade
Receivables) That Lend to or Finance the Activities of Others
STOCK PLAN - Golden State Bancorp Inc. Omnibus Stock Plan
VERDUGO - Verdugo Trustee Service Corporation
Page 39
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 8, 2002