-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, kiq+MrB2nSWgMAdlwZsR/e8aOTGly/tKVel8LlL2oIKr+ONWH/J2kPdR34kDYLML 5vWlMEboBYCC32Ep7SBVlQ== 0000042293-95-000007.txt : 19950530 0000042293-95-000007.hdr.sgml : 19950530 ACCESSION NUMBER: 0000042293-95-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN WEST FINANCIAL CORP /DE/ CENTRAL INDEX KEY: 0000042293 STANDARD INDUSTRIAL CLASSIFICATION: 6035 IRS NUMBER: 952080059 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04629 FILM NUMBER: 95537066 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5104663420 MAIL ADDRESS: STREET 2: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CORP DATE OF NAME CHANGE: 19760806 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CO DATE OF NAME CHANGE: 19751124 10-Q 1 GOLDEN WEST MARCH 31, 1995, LIVE 10-Q FILING WITH EXHIBIT 27 PAGE 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For Quarter Ended March 31, 1995 Commission File Number 1-4629 GOLDEN WEST FINANCIAL CORPORATION Delaware 95-2080059 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1901 Harrison Street, Oakland, California 94612 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 446-3420 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the registrant's common stock on April 30, 1995, was 58,604,405 shares. PAGE 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements of Golden West Financial Corporation and subsidiaries (the Company) for the three months ended March 31, 1995, and 1994, have been prepared from unaudited records of the Company and, in the opinion of the Company, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair statement of the results for such three month periods have been included. The operating results for the three months ended March 31, 1995, are not necessarily indicative of the results for the full year.
Golden West Financial Corporation Consolidated Statement of Financial Condition (Unaudited) ($000s Omitted) March 31 March 31 December 31 1995 1994 1994 ----------- ----------- ----------- Assets: Cash $ 183,482 $ 130,919 $ 242,441 Securities available for sale 1,288,384 1,799,561 1,488,845 Other investments 1,287,850 785,625 534,600 Mortgage-backed securities available for sale at fair value 317,430 966,085 323,339 Mortgage-backed securities held to maturity at cost 1,144,447 401,402 871,039 Loans receivable 28,115,602 24,027,203 27,071,266 Interest earned but uncollected 229,406 177,257 202,456 Investment in capital stock of Federal Home Loan Banks--at cost, which approximates fair value 350,792 328,663 332,940 Real estate held for sale or investment 73,898 64,795 72,217 Prepaid expenses and other assets 222,017 169,189 206,478 Premises and equipment--at cost less accumulated depreciation 202,100 168,594 201,875 Goodwill arising from acquisitions 140,388 136,176 136,245 ----------- ----------- ----------- $33,555,796 $29,155,469 $31,683,741 =========== =========== =========== Liabilities and Stockholders' Equity: Customer deposits $20,226,662 $17,519,321 $19,219,389 Advances from Federal Home Loan Banks 7,014,781 6,226,617 6,488,418 Securities sold under agreements to repurchase 367,081 647,533 601,821 Medium-term notes 1,863,668 676,709 1,164,079 Federal funds purchased -0- -0- 250,000 Accounts payable and accrued expenses 463,335 397,344 443,693 Taxes on income 330,177 376,418 294,508 Subordinated notes--net of discount 1,221,928 1,220,431 1,221,559 Stockholders' equity 2,068,164 2,091,096 2,000,274 ----------- ----------- ----------- $33,555,796 $29,155,469 $31,683,741 =========== =========== ===========
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Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) ($000s omitted except per share figures) Three Months Ended March 31 1995 1994 -------- -------- Interest Income: Interest on loans $489,991 $398,052 Interest on mortgage-backed securities 25,565 28,273 Interest and dividends on investments 36,339 25,370 -------- -------- 551,895 451,695 Interest Expense: Interest on customer deposits 235,905 165,367 Interest on advances 94,404 58,890 Interest on repurchase agreements 6,480 6,939 Interest on other borrowings 48,675 31,605 -------- -------- 385,464 262,801 -------- -------- Net Interest Income 166,431 188,894 Provision for loan losses 14,779 16,492 -------- -------- Net Interest Income after Provision for Loan Losses 151,652 172,402 Non-Interest Income: Fees 6,292 7,941 Gain on the sale of securities and mortgage-backed securities 18 1 Other 4,702 3,482 -------- -------- 11,012 11,424 Non-Interest Expense: General and administrative: Personnel 36,520 35,981 Occupancy 11,820 10,363 Deposit insurance 10,661 10,060 Advertising 2,628 2,435 Other 16,755 13,998 -------- -------- 78,384 72,837 Amortization of goodwill arising from acquisitions 936 578 -------- -------- 79,320 73,415 -------- -------- Earnings Before Taxes on Income 83,344 110,411 Taxes on income 32,411 45,115 -------- -------- Net Earnings $ 50,933 $ 65,296 ======== ======== Net earnings per share $ .87 $ 1.02 ======== ========
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Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) ($000s Omitted) Three Months Ended March 31 1995 1994 ----------- ----------- Cash Flows From Operating Activities: Net earnings $ 50,933 $ 65,296 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 14,779 16,492 Amortization of loan fees and discounts (4,884) (8,787) Depreciation and amortization 5,590 4,453 Loans originated for sale (2,553) (67,903) Sales of loans originated for sale 2,026 101,726 (Increase) in interest earned but uncollected (26,950) (2,177) Federal Home Loan Bank stock dividends (8,511) (6,225) (Increase) in prepaid expenses and other assets (9,973) (57,058) Increase in accounts payable and accrued expenses 19,642 41,545 Increase in taxes on income 20,032 26,109 Other, net (10,911) (4,739) ----------- ----------- Net cash provided by operating activities 49,220 108,732 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (1,751,681) (1,161,031) Real estate loans purchased (28,369) (109) Other, net (49,979) 2,369 ----------- ----------- (1,830,029) (1,158,771) Real estate loan principal payments: Monthly payments 138,561 142,210 Payoffs, net of foreclosures 263,607 721,913 Refinances 35,569 94,205 ----------- ----------- 437,737 958,328 Purchases of mortgage-backed securities available for sale (6,254) (385) Purchases of mortgage-backed securities held to maturity (1,171) (109) Sales of mortgage-backed securities available for sale 6,396 12 Repayments of mortgage-backed securities 25,079 132,818 Proceeds from sales of real estate 54,310 50,992 Purchases of securities available for sale (440,773) (1,120,600) Sales and maturities of securities available for sale 677,016 949,026 (Increase) in other investments (753,250) (247,525) Purchases of Federal Home Loan Bank stock (13,236) -0- Redemptions of Federal Home Loan Bank stock 150 -0- Additions to premises and equipment (6,685) (9,851) ----------- ----------- Net cash used in investing activities (1,850,710) (446,065)
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Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) ($000s Omitted) Three Months Ended March 31 1995 1994 ---------- --------- Cash Flows From Financing Activities: Customer deposit activity: Increase (decrease) in deposits, net $ 819,518 $ (36,823) Interest credited 187,755 133,660 ---------- --------- 1,007,273 96,837 Additions to Federal Home Loan Bank advances 532,290 10,000 Repayments of Federal Home Loan Bank advances (6,027) (65,139) Increase (decrease) in securities sold under agreements to repurchase (234,740) 204,659 Proceeds from medium-term notes 699,360 -0- Repayments of Federal Funds purchased (250,000) -0- Dividends on common stock (4,979) (4,799) Purchase and retirement of Company stock (646) (16,491) ---------- --------- Net cash provided by financing activities 1,742,531 225,067 ---------- --------- Net Decrease in Cash (58,959) (112,266) Cash at beginning of period 242,441 243,185 ---------- --------- Cash at end of period $ 183,482 $ 130,919 ========== ========= Supplemental cash flow information: Cash paid for: Interest $ 374,961 $ 269,350 Income taxes 11,406 19,005 Cash received for interest and dividends 524,945 449,518 Noncash investing activities: Loans transferred to foreclosed real estate 61,110 53,976 Loans securitized into MBS 287,659 -0-
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Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) ($000s omitted except per share figures) Three Months Ended March 31 1995 1994 ---------- ---------- Common Stock: Balance at January 1 $ 5,859 $ 6,393 Common stock issued upon exercise of stock options 2 9 Common stock retired upon purchase of treasury stock (2) (43) ---------- ---------- Balance at March 31 5,859 6,359 ---------- ---------- Paid-in Capital: Balance at January 1 45,689 40,899 Common stock issued upon exercise of stock options 256 1,321 ---------- ---------- Balance at March 31 45,945 42,220 ---------- ---------- Retained Earnings: Balance at January 1 1,929,740 1,933,593 Net earnings 50,933 65,296 Cash dividends on common stock (4,979) (4,799) Retirement of treasury stock (644) (16,448) ---------- ---------- Balance at March 31 1,975,050 1,977,642 ---------- ---------- Unrealized Gains on Securities Available for Sale: Balance at January 1 18,986 84,719 Change during period 22,324 (19,844) ---------- ---------- Balance at March 31 41,310 64,875 ---------- ---------- Total Stockholders' Equity at March 31 $2,068,164 $2,091,096 ========== ==========
PAGE 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis included herein covers those material changes in liquidity and capital resources that have occurred since December 31, 1994, as well as certain material changes in results of operations during the three month periods ended March 31, 1995, and 1994, respectively. The following narrative is written with the presumption that the users have read or have access to the Company's 1994 Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 1994, and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed herein. ACQUISITIONS AND DIVESTITURES During the first three months of 1995, the Company acquired a one-branch New Jersey savings bank with $48 million in deposits and sold seven Colorado branches with balances totaling $153 million. PAGE 8
Golden West Financial Corporation Financial Highlights (Unaudited) ($000s omitted except per share figures) March 31 March 31 December 31 1995 1994 1994 ----------- ----------- ----------- Assets $33,555,796 $29,155,469 $31,683,741 Loans receivable 28,115,602 24,027,203 27,071,266 Mortgage-backed securities 1,461,877 1,367,487 1,194,378 Customer deposits 20,226,662 17,519,321 19,219,389 Stockholders' equity 2,068,164 2,091,096 2,000,274 Stockholders' equity/total assets 6.16% 7.17% 6.31% Book value per common share $ 35.30 $ 32.88 $ 34.14 Common shares outstanding 58,591,005 63,591,785 58,589,955 Yield on loan portfolio 7.33% 6.69% 6.91% Yield on investments 6.00% 4.25% 5.42% Yield on earning assets 7.23% 6.47% 6.81% Cost of deposits 5.14% 3.79% 4.57% Cost of borrowings 6.26% 4.60% 5.85% Cost of funds 5.52% 4.06% 5.00% Yield on earning assets less cost of funds 1.71% 2.41% 1.81% Ratio of nonperforming assets to total assets 1.07% 1.49% 1.12% Ratio of troubled debt restructured to total assets .20%(a) .13% .23%(a) World Savings and Loan Association: Net worth $ 2,165,290 $ 2,216,190 2,090,555 Net worth/total assets 6.66% 7.81% 6.74% Regulatory capital ratios: Tangible capital 6.15% 7.38% 6.26% Core capital 6.15% 7.75% 6.64% Risk-based capital 12.92% 15.79% 13.54%
Three Months Ended March 31 1995 1994 ----------- ----------- New real estate loans originated $ 1,754,234 $ 1,228,934 Average yield on new real estate loans 7.11% 6.53% Increase in customer deposits $ 1,007,273 $ 96,837 Net earnings 50,933 65,296 Net earnings per share .87 1.02 Cash dividends on common stock .085 .075 Average common shares outstanding 58,586,488 63,934,636 Ratios:(b) Net earnings/average net worth 10.00% 12.49% Net earnings/average assets .63% 0.91% Net interest income/average assets 2.05% 2.62% General and administrative expense/average assets .96% 1.01%
(a) Included in TDR ratio is 0.06% or $20 million and 0.07% or $22 million related to the January 1994 Southern California earthquake, as of March 31, 1995, and December 31, 1994, respectively. (b) Ratios are annualized by multiplying the quarterly computation by four. Averages are computed by adding the beginning balance and each month end balance during the quarter and dividing by four. PAGE 9 FINANCIAL CONDITION The consolidated condensed balance sheet shown in the table below presents the Company's assets and liabilities in percentage terms at March 31, 1995, and 1994, and December 31, 1994. The reader is referred to page 46 of the Company's 1994 Form 10-K for similar information for the years 1991 through 1994 and a discussion of the changes in the composition of the Company's assets and liabilities in those years.
TABLE 1 Consolidated Condensed Balance Sheet March 31 ------------------ December 31 1995 1994 1994 ------ ------ ----------- Assets: Cash and investments 8.2% 9.3% 7.2% Mortgage-backed securities 4.4 4.7 3.8 Loans receivable 83.8 82.4 85.4 Other assets 3.6 3.6 3.6 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Liabilities and Stockholders' Equity: Customer deposits 60.3% 60.1% 60.7% Federal Home Loan Bank advances 20.9 21.4 20.5 Securities sold under agreements to repurchase 1.1 2.2 1.9 Medium-term notes 5.5 2.3 3.7 Other liabilities 2.4 2.6 3.1 Subordinated debt 3.6 4.2 3.8 Stockholders' equity 6.2 7.2 6.3 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
As the above table shows, customer deposits represent the majority of the Company's liabilities. On the other side of the balance sheet, the loan portfolio, which consists primarily of long-term mortgages, is the largest asset component. The disparity between the repricing (maturity or interest rate change) of deposits and other liabilities and the repricing of mortgage loans can affect the Company's liquidity and can have a material impact on the Company's results of operations. The difference between the repricing characteristics of assets and liabilities is commonly referred to as the gap. The gap table on the following page shows that, as of March 31, 1995, the Company's assets are scheduled to reprice sooner than its liabilities. Consequently, one would expect falling interest rates to lower the Company's earnings and rising interest rates to increase the Company's earnings. However, the Company's earnings are also affected by the built-in lag inherent in the Eleventh District Cost of Funds Index (COFI), which is the benchmark the Company uses to determine the rate on the great majority of its adjustable-rate mortgages. Consequently, the COFI reporting lag causes assets to initially reprice more slowly than liabilities, enhancing earnings when rates are falling and holding down income when rates rise. PAGE 10
TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio (Dollars in Millions) March 31, 1995 Projected Repricing(a) ------------------------------------------------------ 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ------- ------- ------- ------ ------- Interest-Earning Assets: Investments $ 1,753 $ 138 $ 635 $ 50 $ 2,576 Mortgage-backed securities 387 72 345 658 1,462 Loans receivable: Rate-sensitive 22,519 2,116 283 -0- 24,918 Fixed-rate 54 178 941 1,804 2,977 Other(b) 441 -0- -0- -0- 441 Impact of hedging 981 15 (316) (680) -0- ------- ------- ------- ------ ------- Total $26,135 $ 2,519 $ 1,888 $1,832 $32,374 ======= ======= ======= ====== ======= Interest-Bearing Liabilities(c): Customer deposits $ 6,520 $ 9,347 $ 4,235 $ 125 $20,227 FHLB advances 5,782 592 536 105 7,015 Other borrowings 1,317 507 919 709 3,452 Impact of hedging 4,167 (2,285) (1,913) 31 -0- ------- ------- ------- ------ ------- Total $17,786 $ 8,161 $ 3,777 $ 970 $30,694 ======= ======= ======= ====== ======= Repricing gap $ 8,349 $(5,642) $(1,889) $ 862 ======= ======= ======= ====== Cumulative gap $ 8,349 $ 2,707 $ 818 $1,680 ======= ======= ======= ====== Cumulative gap as a percentage of total assets 24.9% 8.1% 2.4% ======= ======= =======
(a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled repayments and projected prepayments of principal. (b) Includes cash in banks and FHLB stock. (c) Liabilities with no maturity date, such as passbook and money market deposit accounts, are assigned zero months. CASH AND INVESTMENTS The Office of Thrift Supervision (OTS) requires insured institutions, such as the Company's principal subsidiary, World Savings and Loan Association (World or Association), to maintain a minimum amount of cash and certain qualifying investments for liquidity purposes. The current minimum requirement is equal to a monthly average of 5% of customer deposits and short-term borrowings. For the months ended March 31, 1995, and 1994, and December 31, 1994, World's average regulatory liquidity ratio was 7%, 8%, and 7%, respectively, consistently exceeding the requirement. At March 31, 1995, and 1994, and December 31, 1994, the Company had no securities held to maturity or for trading. At March 31, 1995, and 1994, and December 31, 1994, the Company had securities available for sale in the PAGE 11 amount of $1.3 billion, $1.8 billion, and $1.5 billion, respectively, and unrealized gains on securities available for sale of $57 million, $59 million, and $23 million, respectively. For the impact on stockholders' equity, see page 22. Included in the securities available for sale at March 31, 1995, and 1994, and December 31, 1994, were collateralized mortgage obligations (CMOs) in the amount of $620 million, $727 million, and $668 million, respectively. The Company holds CMOs on which both principal and interest are received. It does not hold any interest-only or principal-only CMOs. At March 31, 1995, the majority of the Company's CMOs are fixed rate and had remaining terms to maturity of five years or less and qualified for inclusion in the regulatory liquidity measurement. MORTGAGE-BACKED SECURITIES During the first three months of 1995, the Company securitized $288 million of adjustable-rate mortgages (ARMs) into FNMA mortgage-backed securities (MBS), to be used as collateral for borrowings. These securities are with full recourse to the Company. The Company does not intend to sell and has the ability and intent to hold these MBS until maturity. Accordingly, these MBS are classified as held to maturity. MBS held to maturity at March 31, 1995, and 1994, and December 31, 1994, are $1.1 billion, $401 million, and $871 million, respectively. MBS available for sale at March 31, 1995, and 1994, and December 31, 1994, are $317 million, $966 million, and $323 million, respectively. Unrealized gains on MBS available for sale at March 31, 1995, and 1994, and December 31, 1994, are $12 million, $52 million, and $6 million, respectively. Repayments of MBS during the first quarter of 1995 were $25 million compared to $133 million in the same period of 1994. The portion of the Company's loans receivable represented by MBS was 5%, 5%, and 4% at March 31, 1995, and 1994, and December 31, 1994, respectively. The mortgage-backed securities held are primarily fixed-rate pass-through obligations and are subject to prepayment and interest rate risk similar to fixed-rate loans. In rising interest rate environments, the rate of repayment on this type of mortgage-backed security tends to decrease because of lower prepayments on the underlying mortgages, as exhibited in the reduction of repayments between 1995 and 1994. LOAN PORTFOLIO LOAN VOLUME New loan originations for the quarter ended March 31, 1995, amounted to $1.8 billion compared to $1.2 billion for the same period in 1994. The higher rate environment in 1995 stimulated consumer interest in ARMs, which during the quarter were more attractively priced than traditional fixed-rate loans. The increased customer preference for adjustable rate instruments combined with the Company's expanded loan origination staff PAGE 12 contributed to the 43% increase in 1995's first quarter originations as compared to the previous year. Refinanced loans constituted 31% of new loan originations for the quarter ended March 31, 1995, compared to 59% for the quarter ended March 31, 1994. Although the Company has lending operations in 22 states, the primary source of mortgage origination continues to be loans secured by residential property in California. For the three months ended March 31, 1995, 56% of total loan originations were on residential properties in California compared to 70% for the same period in 1994. Although California originations continue to be a large portion of total originations, the decrease in 1995 as compared to 1994 was due to increased activity by the Company in markets outside California. The next largest state for originations was Texas, with 7% of the total loan originations for the first quarter of 1995. The percentage of the total loan portfolio that is comprised of residential loans in California was 76% at March 31, 1995, compared to 81% at March 31, 1994, and 77% at December 31, 1994. The tables on the following two pages show the Company's loan portfolio by state at March 31, 1995, and 1994. PAGE 13
TABLE 3 Loan Portfolio by State March 31, 1995 ($000s Omitted) Residential Real Estate Commercial Loans as ------------------------ Real Total a % of State 1 - 4 5+ Land Estate Construction Loans(a) Portfolio - - ------------ ----------- ---------- ------ ---------- ------------ ----------- --------- California $18,343,951 $3,325,576 $ 285 $ 81,498 $ -0- $21,751,310 76.06% Colorado 744,991 174,638 -0- 8,232 -0- 927,861 3.24 Illinois 699,054 169,795 -0- 2,858 -0- 871,707 3.05 New Jersey 750,080 -0- -0- 8,692 4,746 763,518 2.67 Texas 631,731 33,692 600 1,748 -0- 667,771 2.33 Washington 316,778 273,369 -0- 810 -0- 590,957 2.07 Florida 519,118 -0- 295 1,771 -0- 521,184 1.82 Virginia 377,709 691 -0- 1,681 -0- 380,081 1.33 Arizona 328,826 40,235 -0- 1,787 -0- 370,848 1.30 Pennsylvania 311,058 -0- -0- 4,676 -0- 315,734 1.10 Connecticut 275,478 -0- -0- -0- -0- 275,478 0.96 Maryland 245,392 -0- -0- 633 -0- 246,025 0.86 Oregon 161,027 8,199 -0- 3,879 -0- 173,105 0.61 Nevada 138,099 1,298 -0- -0- -0- 139,397 0.49 Kansas 126,637 5,303 -0- 222 -0- 132,162 0.46 Utah 72,181 69 -0- 2,126 -0- 74,376 0.26 Missouri 61,673 8,238 -0- 77 -0- 69,988 0.24 New York 56,500 -0- -0- -0- -0- 56,500 0.20 Georgia 47,787 -0- -0- 2,351 -0- 50,138 0.18 Wisconsin 38,595 3,956 -0- -0- -0- 42,551 0.15 Minnesota 42,115 -0- -0- -0- -0- 42,115 0.15 Ohio 28,731 2,708 465 5,862 -0- 37,766 0.13 Washington D.C. 27,806 -0- -0- -0- -0- 27,806 0.10 New Mexico 18,094 -0- -0- -0- -0- 18,094 0.06 Delaware 14,104 -0- -0- -0- -0- 14,104 0.05 North Carolina 9,287 396 -0- 3,097 -0- 12,780 0.04 Idaho 9,369 -0- -0- -0- -0- 9,369 0.03 Other 11,424 39 -0- 5,096 -0- 16,559 0.06 ----------- ---------- ------ -------- ------ ----------- ------ Totals $24,407,595 $4,048,202 $1,645 $137,096 $4,746 28,599,284 100.00% =========== ========== ====== ======== ====== ====== FAS 91 deferred loan fees (89,066) Loan discount on purchased loans (7,236) Undisbursed loan funds (4,450) Allowance for loan losses (128,221) LTF interest reserve (775) TDR interest reserve (6,063) Loans on customer deposits 32,580 Consumer loans 7,208 ----------- Total loan portfolio and loans securitized into FNMA MBS with recourse $28,403,261 =========== Loans securitized for FNMA with recourse (287,659)(b) ----------- Total loan portfolio $28,115,602 ===========
(a) The Company has no commercial loans. (b) Loans amounting to $288 million have been securitized with full recourse into FNMA MBS for the sole purpose of providing collateral for borrowings. These loans have been included in this schedule by state. PAGE 14
TABLE 4 Loan Portfolio by State March 31, 1994 ($000s Omitted) Residential Real Estate Commercial Loans as ------------------------ Real Total a % of State 1 - 4 5+ Land Estate Loans(a) Portfolio - - ------------ ----------- ---------- ------ ---------- ----------- --------- California $16,352,122 $3,275,926 $ 301 $ 86,024 $19,714,373 81.38% Colorado 571,205 127,183 -0- 8,768 707,156 2.92 Illinois 435,400 144,526 -0- 5,167 585,093 2.42 New Jersey 533,170 40 -0- 165 533,375 2.20 Washington 221,688 223,613 -0- 837 446,138 1.84 Florida 320,076 -0- 393 2,372 322,841 1.33 Texas 275,161 2,732 612 1,835 280,340 1.16 Virginia 253,677 887 -0- 1,789 256,353 1.06 Arizona 185,775 4,297 -0- 1,866 191,938 0.79 Connecticut 184,135 -0- -0- -0- 184,135 0.76 Pennsylvania 152,926 -0- -0- 9,183 162,109 0.67 Oregon 120,255 8,032 -0- 4,049 132,336 0.55 Maryland 130,711 -0- -0- 675 131,386 0.54 Kansas 122,686 5,396 -0- 235 128,317 0.53 Nevada 94,118 1,386 -0- -0- 95,504 0.39 Missouri 60,527 8,982 -0- 79 69,588 0.29 New York 64,900 173 -0- 648 65,721 0.27 Georgia 55,718 -0- -0- 2,678 58,396 0.24 Ohio 38,372 3,785 1,054 7,169 50,380 0.21 Utah 40,822 139 -0- 2,297 43,258 0.18 Wisconsin 5,152 3,773 -0- -0- 8,925 0.04 New Mexico 3,563 -0- -0- -0- 3,563 0.02 Idaho 793 -0- -0- -0- 793 0.00 Delaware 231 -0- -0- -0- 231 0.00 Other 39,510 543 -0- 11,622 51,675 0.21 ----------- ---------- ------ -------- ----------- ------ Totals $20,262,693 $3,811,413 $2,360 $147,458 24,223,924 100.00% =========== ========== ====== ======== ====== FAS 91 deferred loan fees (100,948) Loan discount on purchased loans (7,909) Undisbursed loan funds (2,957) Allowance for loan losses (113,497) LTF interest reserve (852) TDR interest reserve (1,341) Loans on customer deposits 30,783 ----------- Total loan portfolio $24,027,203 ===========
(a) The Company has no commercial loans. PAGE 15 The Company continues to emphasize ARMs--loans with interest rates that change periodically in accordance with movements in specified indexes. The portion of the mortgage portfolio (excluding MBS) composed of rate-sensitive loans was 91% at March 31, 1995, compared to 87% at March 31, 1994, and 89% at December 31, 1994. While rates on fixed-rate mortgages rose significantly during 1994, lower rates on ARM loans made adjustable instruments more attractive in the marketplace. The Company's ARM originations constituted approximately 99% of new mortgage loans made by the Company in the first quarter of 1995 compared to 78% in the first three months of 1994. The weighted average maximum lifetime cap rate on the Company's ARM portfolio was 13.25%, or 6.07% above the actual weighted average rate, at March 31, 1995, versus 13.74%, or 7.43% above the weighted average rate, at March 31, 1994. Approximately $5.0 billion of the Company's loans have terms that state that the interest rate may not fall below a lifetime floor set at the time of origination. As of March 31, 1995, $762.0 million of these loans were at their rate floors. The weighted average floor rate on these loans was 7.74% at March 31, 1995. Without the floor, the average yield on these loans would have been 7.09%. Loan repayments consisting of monthly loan amortization, payoffs, and refinances during the first quarter of 1995 were $438 million compared to $958 million in the same period of 1994. The decrease in loan repayments was primarily due to lower mortgage payoffs and lower refinances within our loan portfolio, as previously discussed. NONPERFORMING ASSETS One measure of the soundness of the Company's portfolio is its ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets include non-accrual loans (loans that are 90 days or more past due) and real estate acquired through foreclosure. No interest is recognized on non-accrual loans. The table on the following page shows the components of the Company's nonperforming assets and the ratio of nonperforming assets to total assets at March 31, 1995, and 1994, and December 31, 1994. PAGE 16
TABLE 5 Nonperforming Assets ($000s Omitted) March 31 ------------------------ December 31 1995 1994 1994 -------- -------- ----------- Non-accrual loans $286,230 $371,260 $284,103 Real estate acquired through foreclosure, net 71,708 60,643 70,981 Real estate in judgement 1,350 1,764 390 -------- -------- -------- Total nonperforming assets $359,288 $433,667 $355,474 ======== ======== ======== Ratio of nonperforming assets to total assets 1.07% 1.49% 1.12% ======== ======== ========
The strengthening California economy has favorably impacted the Company's NPA ratios during the past year. The Company continues to closely monitor all delinquencies and takes appropriate steps to protect its interests. Interest foregone on non-accrual loans in the first quarter of 1995 amounted to $5 million compared to $6 million in the same period of 1994. The tables on the following two pages show the Company's nonperforming assets by state at March 31, 1995, and 1994. PAGE 17
TABLE 6 Nonperforming Assets by State March 31, 1995 ($000s Omitted) Non-Accrual Loans(a) -------------------------------------------- Residential Real Estate Owned Real Estate ------------------------------ NPAs as ----------------- Commercial Residential Commercial Total a % of State 1-4 5+ Real Estate Construction 1-4 5+ Real Estate NPAs Loans(b) - - ------------ -------- ------- ----------- ------------ ------- ------- ----------- -------- -------- California $238,864 $ 8,604 $309 $-0- $58,270 $ 9,592 $3,716 $319,355 1.47% Colorado 1,244 177 -0- -0- 231 27 -0- 1,679 0.18 Illinois 3,274 -0- -0- -0- 103 714 -0- 4,091 0.47 New Jersey 10,062 -0- 5 525 776 -0- -0- 11,368 1.49 Texas 2,176 -0- -0- -0- 21 -0- -0- 2,197 0.33 Washington 976 -0- -0- -0- -0- -0- -0- 976 0.17 Florida 2,323 -0- 36 -0- 535 -0- -0- 2,894 0.56 Virginia 2,169 -0- -0- -0- 186 -0- -0- 2,355 0.62 Arizona 1,290 -0- -0- -0- 39 -0- -0- 1,329 0.36 Pennsylvania 2,605 -0- -0- -0- 67 -0- -0- 2,672 0.85 Connecticut 4,080 -0- -0- -0- (219) -0- -0- 3,861 1.40 Maryland 280 -0- -0- -0- 187 -0- -0- 467 0.19 Oregon 478 -0- -0- -0- -0- -0- -0- 478 0.28 Nevada 614 -0- -0- -0- -0- -0- -0- 614 0.44 Kansas 458 40 -0- -0- 121 -0- -0- 619 0.47 Utah 123 -0- -0- -0- -0- -0- -0- 123 0.17 Missouri 664 69 -0- -0- -0- -0- -0- 733 1.05 New York 3,300 -0- -0- -0- 440 -0- -0- 3,740 6.62 Georgia 1,067 -0- -0- -0- -0- -0- -0- 1,067 2.13 Wisconsin -0- -0- -0- -0- -0- -0- -0- -0- 0.00 Minnesota -0- -0- -0- -0- -0- -0- -0- -0- 0.00 Ohio 22 -0- 211 -0- 36 239 -0- 508 1.35 Washington D.C. -0- -0- -0- -0- -0- -0- -0- -0- 0.00 New Mexico 1 -0- -0- -0- -0- -0- -0- 1 0.01 Delaware -0- -0- -0- -0- -0- -0- -0- -0- 0.00 North Carolina 82 -0- -0- -0- -0- -0- -0- 82 0.64 Idaho -0- -0- -0- -0- -0- -0- -0- -0- 0.00 Other 102 -0- -0- -0- 6 -0- -0- 108 0.65 -------- ------- ---- ---- ------- ------- ------ -------- ----- Totals $276,254 $ 8,890 $561 $525 $60,799 $10,572 $3,716 361,317 1.26 ======== ======= ==== ==== ======= ======= ====== REO general valuation allowance (2,029) (0.00) -------- ----- $359,288 1.26% ======== =====
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest accrued. (b) Loans amounting to $288 million have been securitized with full recourse into FNMA MBS for the sole purpose of providing collateral for borrowings. Nonperforming loans related to this MBS have been included in this schedule by state. PAGE 18
TABLE 7 Nonperforming Assets by State March 31, 1994 ($000s Omitted) Non-Accrual Loans(a) ------------------------------ Real Estate Owned Residential ------------------------------- NPAs as Real Estate Commercial Residential Commercial Total a % of State 1-4 5+ Real Estate 1-4 5+ Real Estate NPAs Loans - - ------------ -------- ------- ----------- ------- ------ ----------- -------- ------- California $300,750 $23,780 $508 $46,135 $8,016 $4,566 $383,755 1.94% Colorado 1,397 325 -0- 262 842 261 3,087 0.44 Illinois 3,024 628 -0- 218 -0- -0- 3,870 0.66 New Jersey 13,988 -0- 3 647 -0- -0- 14,638 2.74 Washington 553 -0- -0- -0- -0- -0- 553 0.12 Florida 3,951 -0- 314 1,079 -0- -0- 5,344 1.66 Texas 1,600 -0- -0- 160 -0- -0- 1,760 0.63 Virginia 800 -0- -0- 320 -0- -0- 1,120 0.44 Arizona 1,277 -0- -0- 115 -0- -0- 1,392 0.73 Connecticut 4,732 -0- -0- 566 -0- -0- 5,298 2.88 Pennsylvania 1,932 -0- -0- -0- -0- -0- 1,932 1.19 Oregon 392 -0- -0- -0- -0- -0- 392 0.30 Maryland 1,792 -0- -0- -0- -0- -0- 1,792 1.36 Kansas 898 40 -0- 278 -0- -0- 1,216 0.95 Nevada 469 -0- -0- -0- -0- -0- 469 0.49 Missouri 427 375 -0- 19 -0- -0- 821 1.18 New York 4,687 -0- -0- 533 -0- -0- 5,220 7.94 Georgia 1,923 -0- -0- 140 -0- -0- 2,063 3.53 Ohio 7 -0- 58 -0- -0- 80 145 0.29 Utah 156 -0- -0- -0- -0- -0- 156 0.36 Wisconsin 2 -0- -0- -0- -0- -0- 2 0.02 New Mexico 18 -0- -0- -0- -0- -0- 18 0.50 Idaho -0- -0- -0- -0- -0- -0- -0- 0.00 Delaware -0- -0- -0- -0- -0- -0- -0- 0.00 Other 453 -0- -0- -0- -0- -0- 453 0.96 -------- ------- ---- ------- ------ ------ -------- ----- Totals $345,228 $25,148 $883 $50,472 $8,858 $4,907 435,496 1.80 ======== ======= ==== ======= ====== ====== REO general valuation allowance (1,829) (0.01) -------- ----- $433,667 1.79% ======== =====
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest accrued. The Company's troubled debt restructured (TDRs) were $68 million or 0.20% of assets at March 31, 1995, compared to $38 million or 0.13% of assets at March 31, 1994, and $73 million or 0.23% of assets at December 31, 1994. At March 31, 1995, and December 31, 1994, respectively, $20 million or 0.06% and $22 million or 0.07% of TDRs were related to the January 1994 Southern California earthquake. The Company's TDRs are made up of loans on which delinquent loan payments have been capitalized or on which temporary interest rate reductions have been made, primarily to customers negatively impacted by adverse economic conditions. Interest foregone on TDRs amounted to $481 thousand for the three months ended March 31, 1995, compared to $120 thousand for the quarter ended March 31, 1994. PAGE 19 The Company provides allowances for losses on loans when impaired and real estate owned when any significant and permanent decline in value is identified and based upon trends in the basic portfolio. The Company utilizes a methodology for monitoring and estimating loan losses that is based on both historical experience in the loan portfolio and factors reflecting current economic conditions. This approach uses a data base that identifies losses on loans and foreclosed real estate from past years to the present, broken down by year of origination, type of loan, and geographical area. Management is then able to estimate a range of loss allowances to cover losses in the portfolio. In addition, periodic reviews are made of major loans and real estate owned, and major lending areas are regularly reviewed to determine potential problems. Where indicated, valuation allowances are established or adjusted. In estimating loan losses, consideration is given to the estimated sale price, cost of refurbishing, payment of delinquent taxes, cost of disposal, and cost of holding the property. Additions to and reductions from the allowances are reflected in current earnings. The table below shows the changes in the allowance for loan losses for the three months ended March 31, 1995, and 1994.
TABLE 8 Changes in the Allowance for Loan Losses ($000s Omitted) Three Months Ended March 31 --------------------- 1995 1994 -------- -------- Beginning allowance for loan losses $124,003 $106,698 Provision charged to expense 14,779 16,492 Less loans charged off (11,429) (9,954) Add recoveries 868 261 -------- -------- Ending allowance for loan losses $128,221 $113,497 ======== ======== Ratio of net chargeoffs to average loans outstanding (excluding MBS without recourse) 0.15% 0.16% ======== ======= Ratio of allowance for loan losses to nonperforming assets 35.7% 26.2% ======== =======
The Company has provided for any known losses related to the January 1994 Southern California earthquake. The March 31, 1995, reserve for loan losses included $4 million in loss reserves specifically identified for earthquake losses. PAGE 20 CUSTOMER DEPOSITS Customer deposits increased during the first quarter of 1995 by $1.1 billion, including interest credited of $188 million, excluding the effect of the sale of seven Colorado branches with balances totaling $153 million and the acquisition of a one-branch New Jersey savings institution with $48 million in deposits. In the first three months of 1994, customer deposits increased by $97 million, including interest credited of $134 million. The net increase of customer deposits during the first three months of 1995 as compared to the same period for 1994 resulted primarily from higher rates offered on insured accounts. PAGE 21 The table below shows the Company's customer deposits by interest rate and by remaining maturity at March 31, 1995, and 1994.
TABLE 9 Customer Deposits (Dollars in millions) 1995 1994 ----------------- ----------------- Rate* Amount Rate* Amount ----------------- ----------------- Customer deposits by interest rate: Interest-bearing checking accounts 1.33% $ 708 1.27% $ 740 Passbook accounts 2.29 611 2.08 642 Money market deposit accounts 3.11 1,559 3.06 2,386 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.55 6,639 3.15 3,928 1 to 2 years 4.96 5,183 3.81 4,681 2 to 3 years 5.26 2,184 4.49 1,772 3 to 4 years 5.33 822 5.99 1,138 4 years and over 6.31 2,105 5.36 2,071 Retail jumbo CDs 6.02 409 4.56 144 All other 7.74 7 7.78 17 ------- ------- $20,227 $17,519 ======= ======= Customer deposits by remaining maturity: No contractual maturity $ 2,878 $ 3,768 Maturity within one year: 2nd quarter 3,643 3,805 3rd quarter 4,815 2,737 4th quarter 2,751 1,485 1st quarter 1,780 1,259 ------- ------ 12,989 9,286 1 to 2 years 2,197 2,463 2 to 3 years 1,171 482 3 to 4 years 257 807 4 years and over 735 713 ------- ------- $20,227 $17,519 ======= =======
*Weighted average interest rate, including the effect of hedging transactions. ADVANCES FROM FEDERAL HOME LOAN BANKS The Company uses borrowings from the Federal Home Loan Banks (FHLB), also known as "advances," to supplement cash flow and to provide funds for loan origination activities. Advances offer strategic advantages for asset-liability management, including long-term maturities and, in certain PAGE 22 cases, prepayment at the Company's option. FHLB advances amounted to $7.0 billion at March 31, 1995, compared to $6.2 billion and $6.5 billion at March 31, 1994, and December 31, 1994, respectively. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Company borrows funds through transactions in which securities are sold under agreements to repurchase (Reverse Repos). These funds are used to take advantage of arbitrage investment opportunities and to supplement cash flow. Reverse Repos are entered into with selected major government securities dealers, as well as large banks, typically using MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted to $367 million, $648 million, and $602 million at March 31, 1995, and 1994, and December 31, 1994, respectively. OTHER BORROWINGS The Company currently has on file a registration statement with the Securities and Exchange Commission for the sale of up to $100 million of subordinated debt securities. The Company had issued a total of $1.0 billion of subordinated debt at March 31, 1995. As of March 31, 1995, Golden West's subordinated debt securities were rated A3 and A- by Moody's Investors Service (Moody's) and Standard & Poor's Corporation (S&P), respectively. World currently has on file a shelf registration with the OTS for the issuance of $2.0 billion of unsecured medium-term notes. At March 31, 1995, $2.0 billion was available for issuance. World had medium-term notes outstanding with principal amounts of $1.9 billion at March 31, 1995, compared to $677 million at March 31, 1994, and $1.2 billion at December 31, 1994, under prior registrations. As of March 31, 1995, World's medium-term notes were rated A1 and A+ by Moody's and S&P, respectively. World also has on file a registration statement with the OTS for the sale of up to $300 million of subordinated notes. At March 31, 1995, $300 million was available for issuance. As of March 31, 1995, World had issued a total of $200 million of subordinated notes, which are rated A2 and A by Moody's and S&P, respectively. The subordinated notes are included in World's risk-based regulatory capital as Supplementary Capital. STOCKHOLDERS' EQUITY The Company's stockholders' equity increased during the first quarter of 1995 as a result of earnings and an increase in the market values of securities available for sale. Unrealized gains on securities and MBS available for sale included in stockholders' equity at March 31, 1995, and 1994, and December 31, 1994, were $40 million, $65 million, and $17 million, respectively. Also included in stockholders' equity at March 31, 1995, and 1994, and December 31, 1994, were unrealized gains on MBS transferred to held to maturity of $1 million, $-0-, and $2 million, respectively. PAGE 23 The Company's Board of Directors previously authorized the purchase by the Company up to a total of 6.3 million shares of Golden West's common stock. As of March 31, 1995, 5.8 million shares had been repurchased and retired at a cost of $224.1 million since inception of program, of which 18 thousand shares were purchased and retired at a cost of $646 thousand during the first quarter of 1995. At March 31, 1995, the total remaining shares authorized for repurchase was 505 thousand shares. If the Company were to complete the program at March 31, 1995, with a market price of $38.25 per share, the remaining authorized but unacquired shares would require $19 million to repurchase. The repurchase of Company stock is not intended to have a material impact on the normal liquidity of the Company. The Company has on file a shelf registration statement with the Securities and Exchange Commission to issue up to two million shares of its preferred stock. The preferred stock may be sold from time to time in one or more transactions for total proceeds of up to $200 million. The preferred stock may be issued in one or more series, may have varying provisions and designations, and may be represented by depository shares. The preferred stock is not convertible into common stock. No preferred stock has yet been issued under the registration. The Company's preferred stock has been preliminarily rated a2 by Moody's. REGULATORY CAPITAL The OTS requires federally insured institutions, such as World, to meet certain minimum capital requirements. The table below shows World's current regulatory capital ratios and compares them to the current OTS minimum requirements at March 31, 1995, and 1994.
TABLE 10 World Savings and Loan Association Regulatory Capital Ratios Under Current Requirements ($000s Omitted) 1995 1994 ----------------------------------------- ----------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ------------------- ------------------ ------------------- ------------------ Capital Ratio Capital Ratio Capital Ratio Capital Ratio ---------- ------ ---------- ----- ---------- ------ ---------- ----- Tangible $1,987,529 6.15% $ 484,825 1.50% $2,083,093 7.38% $ 423,482 1.50% Core 1,987,529 6.15 969,649 3.00 2,188,964 7.75 846,965 3.00 Risk-based 2,297,336 12.92 1,422,710 8.00 2,485,765 15.79 1,259,556 8.00
World Savings paid a total of $275 million in dividends to the Company in the fourth quarter of 1994. The main purpose for the dividends was to fund the Company's stock repurchase program. PAGE 24 The table below shows a reconciliation of World's equity capital to regulatory capital at March 31, 1995.
TABLE 11 Reconciliation of Equity Capital to Regulatory Capital ($000s Omitted) Core/ Tier 1 Total Equity Tangible Tangible Leverage Risk-Based Risk-Based Capital Capital Equity Capital Capital Capital ----------- ----------- ----------- ----------- ----------- ----------- Common stock $ 150 Paid-in surplus 233,441 Retained earnings 1,886,486 Unrealized gains on securities available for sale 45,213 ----------- Equity capital $ 2,165,290 $ 2,165,290 $ 2,165,290 $ 2,165,290 $ 2,165,290 $ 2,165,290 =========== Positive goodwill (215,622) (215,622) (215,622) (215,622) (215,622) Negative goodwill 83,074 83,074 83,074 83,074 83,074 Gain on securities available for sale (45,213) (45,213) (45,213) (45,213) (45,213) Equity/other investments (704) Subordinated debt 199,141 General valuation allowances 111,370 ----------- ----------- ----------- ----------- ----------- Regulatory capital $ 1,987,529 $ 1,987,529 $ 1,987,529 $ 1,987,529 $ 2,297,336 =========== =========== =========== =========== =========== Total assets $32,518,232 =========== Adjusted total assets $32,321,646 $32,321,646 $32,321,646 =========== =========== =========== Risk-weighted assets $17,783,872 $17,783,872 =========== =========== CAPITAL RATIO - ACTUAL 6.66% 6.15% 6.15% 6.15% 11.18% 12.92% =========== =========== =========== =========== =========== =========== Regulatory Capital Standards: Well capitalized, equal to or greater than 5.00% 6.00% 10.00% =========== =========== =========== Adequately capitalized, equal to or greater than 1.50% 4.00% 4.00% 8.00% =========== =========== =========== =========== Undercapitalized, less than 1.50% 4.00% 4.00% 8.00% =========== =========== =========== =========== Significantly undercapital- ized, less than 3.00% 3.00% 6.00% =========== =========== =========== Critically undercapitalized, equal to or less than 2.00% ===========
PAGE 25 The table below compares World's regulatory capital to the well capitalized classification at March 31, 1995.
TABLE 12 World Savings and Loan Association Regulatory Capital Compared to Well Capitalized Classification ($000s Omitted) ACTUAL WELL CAPITALIZED ------------------- ------------------- Capital Ratio Capital Ratio ---------- ------ ---------- ------ Leverage $1,987,529 6.15% $1,616,082 5.00% Tier 1 risk-based 1,987,529 11.18 1,067,032 6.00 Total risk-based 2,297,336 12.92 1,778,387 10.00
RESULTS OF OPERATIONS SPREADS An important determinant of the Company's earnings is its primary spread--the difference between its yield on earning assets and its cost of funds. The table below shows the components of the Company's spread at March 31, 1995, and 1994, and December 31, 1994.
TABLE 13 Yield on Earning Assets, Cost of Funds, and Primary Spread, Including Effect of Purchase Accounting March 31 --------------------- December 31 1995 1994 1994 ------ ------ ----------- Yield on loan portfolio 7.33% 6.69% 6.91% Yield on investments 6.00 4.25 5.42 ---- ---- ---- Yield on earning assets 7.23 6.47 6.81 ---- ---- ---- Cost of customer deposits 5.14 3.79 4.57 Cost of borrowings 6.26 4.60 5.85 ---- ---- ---- Cost of funds 5.52 4.06 5.00 ---- ---- ---- Primary spread 1.71% 2.41% 1.81% ==== ==== ====
The Company's primary spread is to some degree dependent on changes in interest rates because the Company's liabilities tend to respond somewhat more rapidly to rate movements than its assets. In the past year, interest rates rose, leading to an increase in the cost of the Company's liabilities during the first quarter of 1995 as compared to 1994. At the same time, however, the yield on the Company's major earning asset, the loan portfolio, increased more slowly because most of the Company's adjustable-rate mortgages are tied to COFI, which lags changes in market rates by several months. In addition, not all ARMs adjust each month. Consequently, at March 31, 1995, the Company's primary spread was lower than at both December 31, 1994, and March 31, 1994. PAGE 26 The Company enters into selected derivative financial instruments as a part of its interest rate risk management strategy. The Company does not hold any derivative financial instruments for trading purposes. During 1995, virtually all derivative products were various types of interest rate swaps. Derivatives decreased net interest income by $9 million for the three months ended March 31, 1995, as compared to $10 million for the same period in 1994. The table below summarizes the unrealized gains and losses for derivative instruments at March 31, 1995, and 1994.
TABLE 14 Supplemental Schedule of Unrealized Gains and Losses on Derivative Products ($000s Omitted) March 31, 1995 March 31, 1994 ------------------------------------- ------------------------------------- Net Net Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gain (Loss) Gains Losses Gain (Loss) ---------- ---------- ----------- ---------- ---------- ----------- Interest rate caps $ 265 $ -0- $ 265 $ -0- $ (626) $ (626) Interest rate swaps 38,551 (63,509) (24,958) 64,164 (90,045) (25,881) ------- -------- -------- ------- -------- --------- Total $38,816 $(63,509) $(24,693) $64,164 $(90,671) $ (26,507) ======= ======== ======== ======= ======== =========
TABLE 15 Schedule of Derivative Activity (Notional Amounts in Millions) Three Months Ended March 31, 1995 --------------------------------------------------- Receive Pay Forward Interest Fixed Fixed Basis Starting Rate Swaps Swaps Swaps(a) Swaps Caps ------- ------ ----- -------- -------- Balance at December 31, 1994 $4,991 $2,225 $200 $ 135 $300 Additions 219 -0- 43 -0- -0- Maturities/amortization (150) (175) -0- -0- (20) Terminations -0- -0- -0- -0- -0- Forward starting becoming effective 125 -0- -0- (125) -0- Other -0- -0- -0- -0- -0- ------ ------ ---- ----- ---- Balance, March 31, 1995 $5,185 $2,050 $243 $ 10 $280 ====== ====== ==== ===== ====
(a) Receives based upon one index, pays based upon another index. The range of floating interest rates received on swap contracts in the first three months of 1995 was 5.13% to 7.02%, and the range of floating interest rates paid on swap contracts was 4.37% to 6.69%. PAGE 27 The table below shows the Company's revenues and expenses as a percentage of total revenues for the three months ended March 31, 1995, and 1994, in order to focus on the changes in interest income between years as well as changes in other revenue and expense amounts.
TABLE 16 Selected Revenue and Expense Items as Percentages of Total Revenues 1995 1994 ------ ------ Interest on loans 87.0% 85.9% Interest on mortgage-backed securities 4.5 6.1 Interest and dividends on investments 6.5 5.5 ---- ---- 98.0 97.5 Less: Interest on customer deposits 41.9 35.7 Interest on advances and other borrowings 26.6 21.1 ---- ---- 68.5 56.8 Net interest income 29.5 40.7 Provision for loan losses 2.6 3.6 ---- ---- Net interest income after provision for loan losses 26.9 37.1 Add: Fees 1.1 1.7 Gain on the sale of securities and mortgage-backed securities 0.0 0.0 Other non-interest income 0.8 0.8 ---- ---- 1.9 2.5 Less: General and administrative expenses 13.9 15.7 Amortization of goodwill 0.1 0.1 Taxes on income 5.8 9.7 ---- ---- Net earnings 9.0% 14.1% ==== ====
INTEREST ON LOANS In the first quarter of 1995, interest on loans was higher than in the comparable 1994 period by $91.9 million or 23.1%. The increase in 1995 was due to a 49 basis point increase in the average portfolio yield and a $3.7 billion increase in the average portfolio balance. INTEREST ON MORTGAGE-BACKED SECURITIES In the first quarter of 1995, interest on mortgage-backed securities was lower than in the comparable 1994 period by $2.7 million or 9.6%. The decrease in 1995 was due primarily to a 28 basis point decrease in the average portfolio yield and a $86.7 million decrease in the average portfolio balance. PAGE 28 INTEREST AND DIVIDENDS ON INVESTMENTS For the first three months of 1995, interest and dividends on investments was $10.9 million or 43.2% higher than for the same period in 1994. The increase was primarily due to a 180 basis point increase in the average portfolio yield as well as a $9.6 million increase in the average portfolio balance. INTEREST ON CUSTOMER DEPOSITS In the first quarter of 1995, interest on customer deposits increased by $70.5 million or 42.7% from the comparable period of 1994. The increase was primarily due to a 100 basis point increase in the average cost of deposits and a $2.3 billion increase in the average deposit balance. INTEREST ON ADVANCES AND OTHER BORROWINGS For the first three months of 1995, interest on advances and other borrowings was $52.1 million or 53.5% higher than in the same period in 1994. The increase was primarily due to a 142 basis point increase in the average cost of these borrowings and a $1.5 billion increase in the average balance of these borrowings. PROVISION FOR LOAN LOSSES The provision for loan losses was $14.8 million for the three months ended March 31, 1995, compared to $16.5 million for the same period of 1994. The lower provision in 1995 reflected the slowly improving California economy. GENERAL AND ADMINISTRATIVE EXPENSES For the first three months of 1995, general and administrative expenses (G & A) increased by $5.5 million or 7.6% from the comparable period in 1994. The primary reasons for the increase were the expansion of loan origination capacity, increased loan volume, growth in savings deposits, and miscellaneous operating expenses. G & A as a percentage of average assets on an annualized basis was 0.96% for the first quarter of 1995 compared to 1.01% for the same period in 1994. TAXES ON INCOME The Company utilizes the accrual method of accounting for income tax purposes and for preparing its published financial statements. For financial reporting purposes only, the Company uses purchase accounting in connection with certain assets acquired through mergers. The purchase accounting portion of income is not subject to tax. The corporate tax rate for the first quarter of 1995 was 38.9% comparable to 40.9% for the same period a year ago. The decrease in the first quarter 1995 tax rate is the result of tax benefits from the final settlement of prior year tax audits. PAGE 29 LIQUIDITY AND CAPITAL RESOURCES World's principal sources of funds are cash flows generated from earnings; customer deposits; loan repayments; borrowings from the FHLB; issuance of medium-term notes; and debt collateralized by mortgages, MBS, or securities. In addition, World has a number of other alternatives available to provide liquidity or finance operations. These include borrowings from public offerings of debt or equity, sales of loans, negotiable certificates of deposit, issuances of commercial paper, and borrowings from commercial banks. Furthermore, under certain conditions, World may borrow from the Federal Reserve Bank of San Francisco to meet short-term cash needs. The availability of these funds will vary depending upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the Federal Reserve Board. For a discussion of World's liquidity positions at March 31, 1995, and 1994, and December 31, 1994, see the cash and investments section on page 10. The principal sources of funds for Golden West (the Parent) are dividends from World and the proceeds from the issuance of debt and equity securities. Various statutory and regulatory restrictions and tax considerations limit the amount of dividends World can pay. The principal liquidity needs of Golden West are for payment of interest on subordinated debt securities, dividends to stockholders, the purchase of Golden West stock (see the stockholders' equity section on page 23), and general and administrative expenses. At March 31, 1995, and 1994, and December 31, 1994, Golden West's total cash and investments amounted to $910 million, $964 million (including a $150 million short-term loan to World), and $938 million (including a $250 million short-term loan to World), respectively. PAGE 30 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) May 2, 1995 - Annual Meeting.
Broker For Against Withheld Abstain No Votes ---------- ------- -------- ------- -------- (b) Directors elected: Patricia A. King 51,586,775 222,774 Marion O. Sandler 51,771,224 98,325 Paul Sack 51,711,206 98,343 (c) Ratification of Auditors: Appointment of Deloitte & Touche, independent public accountants, for the fiscal year 1995 51,750,903 14,155 44,491
Other Directors continuing in office are: Louis J. Galen, William D. McKee, Bernard A. Osher, Kenneth T. Rosen, and Herbert M. Sandler ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 - Statement of Computation of Earnings Per Share PAGE 31 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLDEN WEST FINANCIAL CORPORATION Dated: May 11, 1995. /s/ J. L. Helvey --------------------------------- J. L. Helvey Group Senior Vice President (duly authorized and principal financial officer) PAGE 32
EXHIBIT 11 Golden West Financial Corporation Statement of Computation of Earnings Per Share ($000s omitted except per share amounts) Three Months Ended March 31 ------------------------ 1995 1994 ----------- ----------- Line 1: Average Number of Common Shares Outstanding 58,586,488 63,934,636 =========== =========== Line 2: Net Earnings $ 50,933 $ 65,296 =========== =========== Line 3: Earnings Per Common Share (Line 2 divided by Line 1) $ .87 $1.02 ===== =====
EX-27 2
9 3-MOS DEC-31-1994 MAR-31-1995 183482 10001 622050 0 1605814 1144447 0 281115602 128221 33555796 20226662 367081 793512 10100377 5859 0 0 2062305 33555796 489991 36339 25656 551895 235905 385464 166431 14779 18 79320 83344 83344 0 0 50933 .87 .87 7.23 286230 0 68275 0 124003 11429 868 128221 128221 0 0
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