-----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, CqiNNZHQkGcvsx77i5jhth3Cz+OYfA8Xb64484Zpbsn1Xn+NtSlKBe8eJf4/qgVB VdrI+UHxAQhMOJfp4LS3Fw== 0000042293-95-000009.txt : 19950823 0000042293-95-000009.hdr.sgml : 19950823 ACCESSION NUMBER: 0000042293-95-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 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: 95562180 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 LIVE 10-Q W/EXHIBIT 27 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For Quarter Ended June 30, 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 July 31, 1995, was 58,694,255 shares. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements of Golden West Financial Corporation and subsidiaries (the Company) for the three and six months ended June 30, 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 and six month periods have been included. The operating results for the six months ended June 30, 1995, are not necessarily indicative of the results for the full year. Golden West Financial Corporation Consolidated Statement of Financial Condition (Unaudited) ($000s Omitted)
June 30 June 30 December 31 1995 1994 1994 ---- ---- ---- Assets: Cash $ 163,383 $ 113,570 $ 242,441 Securities available for sale 1,436,905 1,791,087 1,488,845 Other investments 985,170 367,200 534,600 MBS available for sale at fair value 309,201 764,197 323,339 MBS held to maturity at cost without recourse 841,947 506,134 871,039 MBS held to maturity at cost with recourse 1,364,111 -0- -0- Loans receivable 27,939,843 24,640,665 27,071,266 Interest earned but uncollected 248,336 199,262 202,456 Investment in capital stock of Federal Home Loan Banks--at cost, which approximates fair value 342,306 324,141 332,940 Real estate held for sale or investment 68,350 63,307 72,217 Prepaid expenses and other assets 238,464 188,009 206,478 Premises and equipment--at cost less accumulated depreciation 202,437 178,022 201,875 Goodwill arising from acquisitions 139,458 137,609 136,245 ------- ------- ------- $34,279,911 $29,273,203 $31,683,741 ============ =========== ========== Liabilities and Stockholders' Equity: Customer deposits $20,738,155 $17,914,826 $19,219,389 Advances from Federal Home Loan Banks 6,258,155 6,222,799 6,488,418 Securities sold under agreements to repurchase 1,171,686 380,396 601,821 Medium-term notes 1,863,947 664,028 1,164,079 Federal funds purchased -0- -0- 250,000 Accounts payable and accrued expenses 435,388 423,615 443,693 Taxes on income 354,715 338,309 294,508 Subordinated notes--net of discount 1,321,585 1,220,804 1,221,559 Stockholders' equity 2,136,280 2,108,426 2,000,274 --------- --------- --------- $34,279,911 $29,273,203 $31,683,741 ============ =========== =============
Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) ($000s omitted except per share figures)
Three Months Ended Six Months Ended June 30 June 30 ------------------- -------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Interest Income: Interest on loans $527,221 $395,999 $1,017,212 $794,051 Interest on mortgage-backed securities 37,939 26,144 63,504 54,417 Interest and dividends on investments 38,985 35,318 75,324 60,688 ------ ------ ------ ------ 604,145 457,461 1,156,040 909,156 Interest Expense: Interest on customer deposits 269,890 166,629 505,795 331,996 Interest on advances 98,002 63,022 192,406 121,912 Interest on repurchase agreements 9,124 10,156 15,604 17,095 Interest on other borrowings 54,828 31,826 103,503 63,431 ------ ------ ------- ------ 431,844 271,633 817,308 534,434 ------- ------- ------- ------- Net Interest Income 172,301 185,828 338,732 374,722 Provision for loan losses 14,651 17,946 29,430 34,438 ------ ------ ------- ------ Net Interest Income after Provision for for Loan Losses 157,650 167,882 309,302 340,284 Non-Interest Income: Fees 6,417 7,739 12,709 15,680 Gain (loss) on the sale of securities and mortgage-backed securities 4 (34) 22 (33) Other 2,806 3,730 7,508 7,212 ----- ----- ----- ----- 9,227 11,435 20,239 22,859 Non-Interest Expense: General and administrative: Personnel 37,697 35,937 74,217 71,918 Occupancy 12,155 10,757 23,975 21,120 Deposit insurance 10,899 10,061 21,560 20,121 Advertising 2,826 2,800 5,454 5,235 Other 14,567 14,145 31,322 28,143 ------ ------ ------ ------ 78,144 73,700 156,528 146,537 Amortization of goodwill arising from acquisitions 930 647 1,866 1,225 ------ ------ ------- ------- 79,074 74,347 158,394 147,762 ------ ------ ------- ------- Earnings Before Taxes on Income 87,803 104,970 171,147 215,381 Taxes on income 34,242 43,027 66,653 88,142 ------ ------ ------ ------ Net Earnings $ 53,561 $ 61,943 $ 104,494 $127,239 Net earnings per share $ .91 $ .98 $ 1.78 $ 2.00
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) ($000s Omitted)
Three Months Ended Six Months Ended June 30 June 30 ----------------- ---------------- -- 1995 1994 1995 1994 ---- ---- ---- ---- Cash Flows From Operating Activities: Net earnings $ 53,591 $ 61,943 $ 104,494 $ 127,239 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 14,651 17,946 29,430 34,438 Amortization of loan fees and discounts (4,675) (8,035) (9,559) (16,822) Depreciation and amortization 5,598 4,519 11,188 8,972 Loans originated for sale (7,933) (16,584) (10,486) (84,487) Sales of loans originated for sale 7,521 35,857 9,547 137,583 (Increase) in interest earned but uncollected (18,930) (22,005) (45,880) (24,182) Federal Home Loan Bank stock dividends (3,609) (4,392) (12,120) (10,617) (Increase) in prepaid expenses and other assets (17,274) (17,681) (27,247) (74,739) Increase (decrease) in accounts payable and accrued (27,947) 26,271 (8,305) 67,816 expenses Increase (decrease) in taxes on income 11,943 (28,749) 31,975 (2,640) Other, net (3,701) (8,383) (14,612) (13,122) ------ ------ ------- ------- Net cash provided by operating activities 9,205 40,707 58,425 149,439 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (1,440,927) (1,607,747) (3,192,608) (2,768,778) Real estate loans purchased (1,076) (755) (29,445) (864) Other, net (6,829) 449 (56,808) 2,818 --------- --------- --------- --------- (1,448,832) (1,608,053) (3,278,861) (2,766,824) Real estate loan principal payments: Monthly payments 123,998 157,284 262,559 299,494 Payoffs, net of foreclosures 330,768 660,701 594,375 1,382,614 Refinances 40,270 100,099 75,839 194,304 ------- ------- ------- --------- 495,036 918,084 932,773 1,876,412 Purchases of mortgage-backed securities available for -0- (196) (6,254) (581) sale Purchases of mortgage-backed securities held to maturity (10) (20,246) (1,181) (20,355) Sales of mortgage-backed securities available for sale -0- 119 6,396 131 Repayments of mortgage-backed securities 32,511 96,432 57,590 229,250 Proceeds from sales of real estate 46,949 54,868 101,259 105,860 Purchases of securities available for sale (1,031,412) (882,585) (1,472,185) (2,003,185) Sales and maturities of securities available for sale 913,058 890,881 1,590,074 1,839,907 Decrease (increase) in other investments 302,680 418,425 (450,570) 170,900 Purchases of Federal Home Loan Bank stock (250) -0- (13,486) -0- Redemptions of Federal Home Loan Bank stock 12,500 7,775 12,650 7,775 Additions to premises and equipment (5,189) (13,387) (11,874) (23,238) --------- ------- --------- -------- Net cash used in investing activities (682,959) (137,883) (2,533,669) (583,948)
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) ($000s Omitted)
Three Months Ended Six Months Ended June 30 June 30 ----------------- ----------------- 1995 1994 1995 1994 ---- ---- ---- ---- Cash Flows From Financing Activities: Customer deposit activity: Increase in deposits, net $293,734 $257,749 $1,113,252 $220,926 Interest credited 217,759 137,756 405,514 271,416 ------- ------- ------- ------- 511,493 395,505 1,518,766 492,342 Additions to Federal Home Loan Bank advances 17,800 13,000 550,090 23,000 Repayments of Federal Home Loan Bank advances (774,540) (16,883) (780,567) (82,022) Increase (decrease) in securities sold under agreements to repurchase 804,605 (267,137) 569,865 (62,478) Proceeds from medium-term notes -0- -0- 699,360 -0- Repayments of medium-term notes -0- (12,865) -0- (12,865) Repayments of Federal Funds purchased -0- -0- (250,000) -0- Proceeds from subordinated debt 99,283 -0- 99,283 -0- Dividends on common stock (4,986) (4,752) (9,965) (9,551) Purchase and retirement of Company stock -0- (27,041) (646) (43,532) ------- ------- --------- ------- Net cash provided by financing activities 653,655 79,827 2,396,186 304,894 ------- ------ --------- ------- Net (Decrease) in Cash (20,099) (17,349) (79,058) (129,615) Cash at beginning of period 183,482 130,919 242,441 243,185 ------- ------- ------- ------- Cash at end of period $163,383 $113,570 $ 163,383 $113,570 ======== ======== ========== ======== Supplemental cash flow informaton: Cash paid for: Interest $ 428,917 $270,841 $ 803,878 $540,191 Income taxes 24,646 71,777 36,052 90,782 Cash received for interest and dividends 585,215 435,456 1,110,160 884,974 Noncash investing activities: Loans transferred to foreclosed real estate 45,110 60,719 106,220 114,155 Loans securitized into MBS with recourse 1,085,491 -0- 1,373,150 -0-
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) ($000s omitted except per share figures)
Six Months Ended June 30 ----------------- 1995 1994 ---- ---- Common Stock: Balance at January 1 $ 5,859 $ 6,393 Common stock issued upon exercise of stock options 12 13 Common stock retired upon purchase of stock (2) (112) ----- ----- Balance at June 30 5,869 6,294 ----- ----- Paid-in Capital: Balance at January 1 45,689 40,899 Common stock issued upon exercise of stock options 2,971 1,833 ------ ------ Balance at June 30 48,660 42,732 ------ ------ Retained Earnings: Balance at January 1 1,929,740 1,933,593 Net earnings 104,494 127,239 Cash dividends on common stock (9,965) (9,551) Retirement of stock (644) (43,420) --------- --------- Balance at June 30 2,023,625 2,007,861 --------- --------- Unrealized Gains on Securities Available for Sale: Balance at January 1 18,986 84,719 Change during period 39,140 (33,180) ------ ------ Balance at June 30 58,126 51,539 ---------- ---------- Total Stockholders' Equity at June 30 $2,136,280 $2,108,426 ========== ==========
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 and six month periods ended June 30, 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. Golden West Financial Corporation Financial Highlights ($000s omitted except per share figures)
June 30 June 30 December 31 1995 1994 1994 ---- ---- ---- Assets $ 34,279,911 $ 29,273,203 $ 31,683,741 Loans receivable 27,939,843 24,640,665 27,071,266 Mortgage-backed securities 2,515,259 1,270,331 1,194,378 Customer deposits 20,738,155 17,914,826 19,219,389 Stockholders' equity 2,136,280 2,108,426 2,000,274 Stockholders' equity/total assets 6.23% 7.20% 6.31% Book value per common share $36.40 $33.50 $34.14 Common shares outstanding 58,693,955 62,938,135 58,589,955 Yield on loan portfolio 7.59% 6.62% 6.91% Yield on investments 5.97% 4.96% 5.42% Yield on earning assets 7.47% 6.50% 6.81% Cost of deposits 5.32% 3.82% 4.57% Cost of borrowings 6.32% 5.01% 5.85% Cost of funds 5.66% 4.20% 5.00% Yield on earning assets less cost of funds 1.81% 2.30% 1.81% Ratio of nonperforming assets to total assets 1.07% 1.37% 1.12% Ratio of troubled debt restructured to total assets .21%(a) .20%(a) .23%(a) World Savings and Loan Association: Net worth $ 2,237,942 $ 2,275,902 $ 2,090.55 Net worth/total assets 6.78% 7.93% 6.74% Regulatory capital ratios: Tangible capital 6.24% 7.49% 6.26% Core capital 6.24% 7.86% 6.64% Risk-based capital 13.04% 15.91% 13.54% Three Months Ended Six Months Ended June 30 June 30 ------- ------- 1995 1994 1995 1994 ---- ---- ---- ---- New real estate loans originated $ 1,448,860 $ 1,624,331 $3,203,094 $ 2,853,265 Average yield on new real estate loans 7.63% 6.29% 7.35% 6.39% Increase in customer deposits $ 511,493 $ $395,505 $1,518,766 $ 492,342 Net earnings 53,561 61,943 104,494 127,239 Net earnings per share .91 .98 1.78 2.00 Cash dividends on common stock .085 .075 .17 .15 Average common shares outstanding 58,643,735 63,300,843 58,615,270 63,615,989 Ratios:(b) Net earnings/average net worth 10.18% 11.80% 10.09% 12.14% Net earnings/average assets .63% .84% .63% .87% Net interest income/average assets 2.04% 2.53% 2.04% 2.58% General and administrative expense/average assets .92% 1.00% .94% 1.01% (a) Included in TDR ratio is .06% or $21 million, 0.07% or $19 million, and 0.07% or $22 million, related to the January 1994 Southern California earthquake, as of June 30, 1995 and 1994, and December 31, 1994, respectively. (b) Ratios are annualized by multiplying the quarterly computation by four and the semi-annual computation by two. Averages are computed by adding the beginning balance and each monthend balance during the quarter and the six month period and dividing by four and seven, respectively.
FINANCIAL CONDITION The consolidated condensed balance sheet shown in the table below presents the Company's assets and liabilities in percentage terms at June 30, 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
June 30 ------- December 31 1995 1994 1994 ---- ---- ---- Assets: Cash and investments 7.6% 7.8% 7.2% Mortgage-backed securities 7.3 4.3 3.8 Loans receivable 81.5 84.2 85.4 Other assets 3.6 3.7 3.6 --- --- --- 100.0% 100.0% 100.0% ===== ===== ===== Liabilities and Stockholders' Equity: Customer deposits 60.5% 61.2% 60.7% Federal Home Loan Bank advances 18.3 21.2 20.5 Securities sold under agreements to repurchase 3.4 1.3 1.9 Medium-term notes 5.4 2.3 3.7 Other liabilities 2.3 2.6 3.1 Subordinated debt 3.9 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 June 30, 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. TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio (Dollars in Millions)
June 30, 1995 Projected Repricing(a) 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total Interest-Earning Assets: Investments $ 1,690 $ 265 $ 420 $ 47 $ 2,422 Mortgage-backed securities 1,463 96 448 508 2,515 Loans receivable: Rate-sensitive 22,840 1,714 209 -0- 24,763 Fixed-rate 77 259 1,133 1,483 2,952 Other(b) 426 -0- -0- -0- 426 Impact of interest rate swaps and caps 731 263 (314) (680) -0- ------ ----- ----- ----- ------ Total $ 27,227 $ 2,597 $ 1,896 $ 1,358 $ 33,078 =========== =========== ============ =========== ============ Interest-Bearing Liabilities(c): Customer deposits $ 7,900 $ 8,739 $ 3,996 $ 103 FHLB advances 4,689 914 534 121 6,258 Other borrowings 2,165 665 719 809 4,358 Impact of interest rate swaps and caps 2,771 (1,813) (992) 34 -0- ----- ------ ----- ----- ----- Total 17,525 $ 8,505 $ 4,257 $ 1,067 $ 31,354 ====== =========== ============ =========== ============ Repricing gap $ 9,702 $ (5,908) $ (2,361) $ 291 =========== =========== ============ =========== Cumulative gap $ 9,702 $ 3,794 $ 1,433 $ 1,724 =========== =========== ============ =========== Cumulative gap as a percentage of total assets 28.3% 11.1% 4.2% ==== ==== === (a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled repayments and projected prepayments of principal. (b) Includes cash in banks and Federal Home Loan Bank (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 June 30, 1995 and 1994, and December 31, 1994, World's average regulatory liquidity ratios were 6%, 8%, and 7%, respectively, consistently exceeding the requirement. At June 30, 1995 and 1994, and December 31, 1994, the Company had no securities held to maturity or for trading. At June 30, 1995 and 1994, and December 31, 1994, the Company had securities available for sale in the amount of $1.4 billion, $1.8 billion, and $1.5 billion, respectively, and unrealized gains on securities available for sale of $83 million, $57 million, and $23 million, respectively. For the impact on stockholders' equity, see page 23. Included in the securities available for sale at June 30, 1995 and 1994, and December 31, 1994, were collateralized mortgage obligations (CMOs) in the amount of $556 million, $765 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 June 30, 1995, the majority of the Company's CMOs are fixed-rate with remaining terms to maturity of five years or less, and these qualify for inclusion in the regulatory liquidity measurement. MORTGAGE-BACKED SECURITIES During the first six months of 1995, the Company securitized $1.4 billion of adjustable rate mortgages (ARMs) into Federal National Mortgage Association (FNMA) mortgage-backed securities (MBS), to be used as collateral for repurchase agreements. These securities, which were COFI-based ARMs, are subject to full credit recourse to the Company. The Company 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 June 30, 1995 and 1994, and December 31, 1994, were $2.2 billion, $506 million, and $871 million, respectively, including $1.4 billion of FNMA MBS subject to full credit recourse at June 30, 1995. MBS available for sale at June 30, 1995 and 1994, and December 31, 1994, were $309 million, $764 million, and $323 million, respectively. Unrealized gains on MBS available for sale at June 30, 1995 and 1994, and December 31, 1994, were $15 million, $26 milion, and $6 million, respectively. For the impact on stockholders', see page 23. Repayments of MBS during the second quarter and first six months of 1995 were $33 million and $58 million, respectively, compared to $96 million and $229 million in the same periods of 1994. At June 30, 1995, 57% of the Company's total MBS portfolio was backed by ARMs. Mortgage-backed securities held that are fixed-rate pass-through obligations and subject to prepayment and interest rate risk similar to fixed-rate loans comprise the other 43% of the MBS portfolio. In rising interest rate environments, the rate of repayment on fixed-rate pass-through mortgage-backed securities tends to decrease because of lower repayments on the underlying mortgages, as exhibited in the reduction of repayments between 1995 and 1994. LOAN PORTFOLIO LOAN VOLUME New loan originations for the three and six months ended June 30, 1995 amounted to $1.4 billion and $3.2 billion, respectively, compared to $1.6 billion and $2.9 billion for the same periods in 1994. The slow real estate market, especially in California, was primarily responsible for the decline in loan volume in the second quarter of 1995. In addition, adjustable rate mortgage lenders, such as the Company, were affected by interest rate decreases in the second quarter of this year which brought down the price of new fixed-rate mortgage loans, making competition from fixed-rate lenders more intense. Accordingly, second quarter residential mortgage demand was fairly modest. Refinanced loans constituted 30.5% and 30.3% of new loan originations for the three and six months ended June 30, 1995, respectively, compared to 45% and 51% for the three and six months ended June 30, 1994, respectively. The Company has lending operations in 24 states. The primary source of mortgage origination is loans secured by residential properties in California. For the three and six months ended June 30, 1995, 48% and 53%, respectively, of total loan originations were on residential properties in California compared to 65% and 67% for the same periods in 1994, respectively. The states of Texas, Illinois, New Jersey, Florida, and Colorado each accounted for between 4.0% and 7.5% of total originations for both the three and six month periods ending June 30, 1995. No other state accounted for more than 4.0% of total originations in either period. Although California originations continue to be a large portion of total originations, the decrease in the California share of total originations in 1995 as compared to 1994 was primarily due to both decreased loan volume in California and increased activity by the Company in markets outside California. The percentage of the total loan portfolio that is comprised of residential loans in California was 75% at June 30, 1995, compared to 80% at June 30, 1994, and 77% at December 31, 1994. The tables on the following two pages show the Company's loan portfolio by state at June 30, 1995, and 1994. TABLE 3 Loan Portfolio by State June 30, 1995 ($000s Omitted)
Residential Commercial Loans as Real Estate Real Total a % of State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio - --------- ---------- --------- ----------- ------------ ------------ ------------- --------- California $18,670,705 $3,334,878 $ 281 $ 80,303 $ -0- $22,086,167 74.87% Colorado 784,791 197,835 -0- 7,880 -0- 990,506 3.36 Illinois 760,209 177,209 -0- 2,707 -0- 940,125 3.19 New Jersey 804,927 -0- -0- 8,564 4,101 817,592 2.77 Texas 706,619 55,933 597 1,725 -0- 764,874 2.59 Washington 338,000 288,774 -0- 803 -0- 627,577 2.13 Florida 590,562 -0- 279 1,628 -0- 592,469 2.01 Arizona 362,995 46,500 -0- 1,771 -0- 411,266 1.39 Virginia 390,969 639- -0- 1,652 -0- 393,260 1.33 Pennsylvania 343,636 -0- -0- 4.515 -0- 348,151 1.18 Connecticut 291,999 -0- -0- -0- -0- 291,999 0.99 Maryland 260,158 -0- -0- 621 -0- 260,779 0.88 Oregon 167,272 10,634 -0- 3,834 -0- 181,740 0.62 Nevada 147,344 1,274 -0- -0- -0- 148,618 0.50 Kansas 128,364 5,284 -0- 218 -0- 133,866 0.45 Utah 78,884 67 -0- 2,081 -0- 81,032 0.27 Missouri 62,979 8,176 -0- 77 -0- 71,232 0.24 Minnesota 58,220 -0- -0- -0- -0- 58,220 0.20 New York 55,858 -0- -0- -0- -0- 55,858 0.19 Wisconsin 44,474 4,220 -0- -0- -0- 48,694 0.17 Georgia 46,080 -0- -0- 2,292 -0- 48,372 0.16 Ohio 27,069 2,898 453 5,703 -0- 36,123 0.12 Washington, DC 31,880 -0- -0- -0- -0- 31,880 0.11 New Mexico 21,759 -0- -0- -0- -0- 21,759 0.08 Delaware 15,763 -0- -0- -0- -0- 15,763 0.05 North Carolina 9,166 381 -0- 3,058 -0- 12,605 0.04 Idaho 11,528 -0- -0- -0- -0- 11,528 0.04 Other 11,056 37 -0- 5,037 -0- 16,130 0.07 ----------- ---------- ------ -------- ------ ----------- ----- Totals $25,223,266 $4,134,739 $1,610 $134,469 $4,101 $29,498,185 100.0% =========== ========== ====== ======== ====== =========== ===== FAS 91 deferred loan fees (84,702) Loan discount on purchased loans (7,001) Undisbursed loan funds (4,131) Allowance for loan losses (133,682) LTF interest reserve (771) TDR interest reserve (6,284) Loans on customer deposits 35,177 Consumer loans 7,163 ----------- Total loan portfolio and loans securitized into FNMA MBS with recourse $29,303,954 Loans securitized for FNMA with recourse (1,364,111)(b) ----------- Total loan portfolio $27,939,843 =========== (a) The Company has no commercial loans. (b) Loans amounting to $1.4 billion have been securitized with full recourse into FNMA mortgage-backed securities which can be used to collateralize reverse repurchase agreements. These loans have been reflected in this schedule by state.
TABLE 4 Loan Portfolio by State June 30, 1994 ($000s Omitted)
Residential Commercial Loans as Real Estate Real Total a % of State 1 - 4 5+ Land Estate Loans (a) Portfolio - ---------- --------------- --------------- ---------- --------------- --------------- --------- California $16,621,686 $3,266,714 $ 297 $ 85,099 $19,973,796 80.41% Colorado 593,853 139,100 -0- 8,697 741,650 2.98 Illinois 483,058 149,576 -0- 5,019 637,653 2.57 New Jersey 550,192 40 -0- 161 550,393 2.21 Washington 237,792 214,798 -0- 830 453,420 1.82 Florida 358,398 -0- 364 2,282 361,044 1.45 Texas 345,005 2,728 609 1,814 350,156 1.41 Virginia 283,513 840 -0- 1,763 286,116 1.15 Arizona 209,660 4,229 -0- 1,847 215,736 0.87 Connecticut 194,056 -0- -0- -0- 194,056 0.78 Pennsylvania 181,590 -0- -0- 8,662 190,252 0.77 Maryland 152,392 -0- -0- 665 153,057 0.62 Oregon 128,767 8,275 -0- 4,008 141,050 0.57 Kansas 121,488 5,370 -0- 232 127,090 0.51 Nevada 103,241 1,365 -0- -0- 104,606 0.42 Missouri 60,070 8,912 -0- 79 69,061 0.28 New York 61,206 170 -0- 1 61,377 0.25 Georgia 51,937 -0- -0- 2,611 54,548 0.22 Utah 47,023 138 -0- 2,256 49,417 0.20 Ohio 34,857 3,659 849 6,891 46,256 0.19 Wisconsin 10,471 3,760 -0- -0- 14,231 0.06 New Mexico 7,367 -0- -0- -0- 7,367 0.03 Idaho 2,980 -0- -0- -0- 2,980 0.01 Delaware 1,453 -0- -0- -0- 1,453 0.01 Other 41,020 511 -0- 11,474 53,005 0.21 ----------- ---------- ------ -------- ------- ------ Totals $20,883,075 $3,810,185 $2,119 $144,391 24,839,770 100.00% =========== ========== ====== ======== ====== FAS 91 deferred loan fees (97,920) Loan discount on purchased loans (7,481) Undisbursed loan funds (2,550) Allowance for loan losses (118,587) LTF interest reserve (828) TDR interest reserve (1,991) Loans on customer deposits 30,252 ----------- Total loan portfolio $24,640,665 ============ (a) The Company has no commercial loans.
The Company continues to emphasize ARM 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 90% at June 30, 1995, compared to 88% at June 30, 1994, and 89% at December 31, 1994. The Company's ARM originations constituted approximately 97% of new mortgage loans made in the first half of 1995 compared to 86% in the first half of 1994. The weighted average maximum lifetime cap rate on the Company's ARM loan portfolio was 13.21%, or 5.85% above the actual weighted average rate at June 30, 1995, versus 13.61%, or 7.40% above the weighted average rate at June 30, 1994. Approximately $5.1 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 June 30, 1995, $650 million of these loans were at their rate floors. The weighted average floor rate on these loans was 7.80% at June 30, 1995. Without the floor, the average yield on these loans would have been 7.39%. Loan repayments, consisting of monthly loan amortization, payoffs, and refinances, remained at very low levels during the second quarter and first six months of 1995. Repayments for the three and six months ended June 30, 1995 were $495 million and $933 million, respectively, compared to $918 million and $1.9 billion in the same periods of 1994. The decrease in loan repayments is primarily due to the winding down of the refinancing boom by mid 1994, and a generally slow real estate market in 1995. ASSET QUALITY One measure of the soundness of the Company's portfolio is its ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets included 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 Company's troubled debt restructured (TDRs) is 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. The table on the following page shows the components of the Company's nonperforming assets and TDRs, and the ratios of nonperforming assets to total assets and TDRs to total assets at June 30, 1995 and 1994, and December 31, 1994. TABLE 5 Nonperforming Assets and Troubled Debt Restructured ($000s Omitted)
June 30 December 31 --------------------- ----------- 1995 1994 1994 ---- ---- ---- Non-accrual loans $298,394 $341,454 $284,103 Real estate acquired through foreclosure, net 67,272 59,430 70,981 Real estate in judgment 404 1,189 390 --- ----- ------- Total nonperforming assets $366,070 $402,073 $355,474 ======== ======== ======== TDRs $ 71,633(a) $57,806(a) $72,827(a) ========= ======= ========= Ratio of nonperforming assets to total assets 1.07% 1.37% 1.12% ==== ==== ==== Ratio of TDRs to total assets 0.21%(a) 0.20%(a) 0.23%(a) ==== ==== ==== Total NPAs and TDRs 1.28%(a) 1.57%(a) 1.35%(a) ==== ==== ==== (a) At June 30, 1995 and 1994, and December 31, 1994, respectively, $21 million or 0.06%, $19 million or 0.07%, and $22 million or 0.07% of TDRs were related to the January 1994 Southern California earthquake.
The Company continues to closely monitor all delinquencies, and takes appropriate steps to protect its interests. Interest foregone on non-accrual loans in the second quarter and first six months of 1995 amounted to $4 million and $9 million, respectively, compared to $4 million and $10 million in the same period of 1994. Interest foregone on TDRs amounted to $508 thousand and $989 thousand for the three and six months ended June 30, 1995, respectively, compared to $125 thousand and $245 thousand for the three and six months ended June 30, 1994. The tables on the following two pages show the Company's nonperforming assets by state at June 30, 1995, and 1994. TABLE 6 Nonperforming Assets by State June 30, 1995 ($000s Omitted)
Non-Accrual Loans (a) Real Estate Owned Residential Commercial Commercial NPAs Real Estate Real Residential Real Total as a % of State 1 -4 5+ Estate Construction 1 - 4 5+ Estate NPAs Loans (b) - ---------- --------- --------- -------- ------------ ------ ------ -------- -------- --------- California $249,545 $10,334 $ 768 $-0- $53,774 $9,025 $3,716 $327,162 1.48% Colorado 1,207 64 -0- -0- -0- 90 -0- 1,361 0.14 Illinois 3,359 831 -0- -0- 49 443 -0- 4,682 0.50 New Jersey 10,762 -0- 5 525 425 -0- -0- 11,717 1.43 Texas 1,737 -0- -0- -0- 241 -0- -0- 1,978 0.26 Washington 528 -0- -0- -0- -0- -0- -0- 528 0.08 Florida 2,139 -0- 36 -0- 647 -0- -0- 2,822 0.48 Arizona 991 -0- -0- -0- -0- -0- -0- 991 0.24 Virginia 2,456 -0- -0- -0- 180 -0- -0- 2,636 0.67 Pennsylvania 2,089 -0- -0- -0- -0- -0- -0- 2,089 0.60 Connecticut 3,144 -0- -0- -0- (65) -0- -0- 3,079 1.05 Maryland 356 -0- -0- -0- 212 -0- -0- 568 0.22 Oregon 486 -0- -0- -0- -0- -0- -0- 486 0.27 Nevada 662 -0- -0- -0- 114 -0- -0- 776 0.52 Kansas 603 40 -0- -0- 121 -0- -0- 764 0.57 Utah 123 -0- -0- -0- -0- -0- -0- 123 0.15 Missouri 707 -0- -0- -0- -0- 51 -0- 758 1.06 Minnesota -0- -0- -0- -0- -0- -0- -0- -0- 0.00 New York 3,188 -0- -0- -0- 400 -0- -0- 3,588 6.42 Wisconsin -0- -0- -0- -0- -0- -0- -0- -0- 0.00 Georgia 1,295 -0- -0- -0- 53 -0- -0- 1,348 2.79 Ohio 22 -0- 211 -0- 24 -0- -0- 257 0.71 Washington, DC -0- -0- -0- -0- -0- -0- -0- -0- 0.00 New Mexico 1 -0- -0- -0- -0- -0- -0- 1 0.00 Delaware -0- -0- -0- -0- -0- -0- -0- -0- 0.00 North Carolina 47 -0- -0- -0- -0- -0- -0- 47 0.37 Idaho -0- -0- -0- -0- -0- -0- -0- 0 0.00 Other 132 -0- -0- -0- -0- -0- -0- 132 0.82 -------- ------- ------ ---- ------ ------ - -------- ---- Totals $285,579 $11,269 $1,020 $525 $56,175 $9,609 $3,716 $367,893 1.25 ======== ======= ====== ==== ======= ====== ====== REO general valuation allowance (1,823) (0.01) -------- ----- Total nonperforming assets $366,070 1.24% ======== ==== (a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) Loans amounting to $1.4 billion have been securitized with full recourse into FNMA mortgage-backed securities which can be used to collateralize reverse repurchase agreements. These loans and related nonperforming assets have been reflected in this schedule by state.
TABLE 7 Nonperforming Assets by State June 30, 1994 ($000s Omitted)
Non-Accrual Loans (a) Real Estate Owned Residential Commercial Commercial NPAs Real Estate Real Residential Real Total as a % of State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs Loans - ---------- --------- ---------- -------- -------- ------- ------- --------- ------- California $274,450 $23,714 $1,266 $42,428 $10,178 $4,565 $356,601 1.79% Colorado 2,222 -0- -0- 183 -0- 261 2,666 0.36 Illinois 2,747 775 -0- 320 -0- -0- 3,842 0.60 New Jersey 11,841 40 3 614 -0- -0- 12,498 2.27 Washington 477 -0- -0- 122 -0- -0- 599 0.13 Florida 3,508 -0- 375 411 -0- -0- 4,294 1.19 Texas 1,420 -0- -0- 227 -0- -0- 1,647 0.47 Virginia 1,912 -0- -0- -0- -0- -0- 1,912 0.67 Arizona 1,608 -0- -0- 132 -0- -0- 1,740 0.81 Connecticut 4,069 -0- -0- 482 -0- -0- 4,551 2.35 Pennsylvania 2,145 -0- -0- -0- -0- -0- 2,145 1.13 Maryland 1,190 -0- -0- 533 -0- -0- 1,723 1.13 Oregon 371 -0- -0- -0- -0- -0- 371 0.26 Kansas 760 40 -0- 317 -0- -0- 1,117 0.88 Nevada 507 -0- -0- -0- -0- -0- 507 0.48 Missouri 279 375 -0- 32 -0- -0- 686 0.99 New York 3,820 -0- -0- 971 -0- -0- 4,791 7.81 Georgia 1,025 -0- -0- 612 -0- -0- 1,637 3.00 Utah 155 -0- -0- -0- -0- -0- 155 0.31 Ohio 3 -0- 58 -0- -0- -0- 61 0.13 Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00 New Mexico 4 -0- -0- -0- -0- -0- 4 0.05 Idaho -0- -0- -0- -0- -0- -0- -0- 0.00 Delaware -0- -0- -0- -0- -0- -0- -0- 0.00 Other 295 -0- -0- 35 -0- -0- 330 0.62 -------- ------- ------ ------- ------- ------ ------- ---- Totals $314,808 $24,944 $1,702 $47,419 $10,178 $4,826 403,877 1.63 ======== ======= ====== ======= ======= ====== REO general valuation allowance (1,804) (0.01) --------- ----- Total nonperforming assets $ 402,073 1.62% ========= ==== (a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued.
The Company provides allowances for losses on impaired loans and real estate owned when significant and permanent declines in value are identified and based upon trends in the 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 that reflect current economic conditions. This approach uses a database 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 and six months ended June 30, 1995, and 1994. TABLE 8 Changes in Allowance for Loan Losses ($000s Omitted)
Three Months Ended Six Months Ended June 30 June 30 ----------------- -------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Beginning allowance for loan losses $128,221 $113,497 $124,003 $106,698 Provision charged to expense 14,651 17,946 29,430 34,438 Less loans charged off (9,481) (13,071) (20,910) (23,025) Add recoveries 291 215 1,159 476 -------- -------- -------- -------- Ending allowance for loan losses $133,682 $118,587 $133,682 $118,587 ======== ======== ======== ======== Ratio of net charge-offs to average loans outstanding (including MBS with recourse) .13% .21% .14% .19% === === === === Ratio of allowance for loan losses to nonperforming assets 36.5% 29.5% ==== ====
The Company has provided for any known losses related to the January 1994 Southern California earthquake. The June 30, 1995 reserve for loan losses included $4 million in loss reserves specifically identified for earthquake losses. MORTGAGE SERVICING RIGHTS In May 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122). SFAS amends Statement of Financial Accounting Standard No. 65, "Accounting for Certain Mortgage Banking Activities," to require that mortgage banking enterprises recognize, as separate assets, rights to service mortgage loans for others, however those mortgage servicing rights are acquired. SFAS 122 also requires that mortgage banking enterprises assess capitalized mortgage servicing rights based on the fair value of those rights on a disaggregated basis. SFAS 122 applies to fiscal years beginning after December 15, 1995, however, earlier application is encouraged. Golden West has yet to determine whether to adopt SFAS 122 early; however, if adopted during 1995, the impact on the Company's financial condition and results of operations is not expected to be material. CUSTOMER DEPOSITS Customer deposits increased during the second quarter of 1995 by $511 million, including interest credited of $218 million, compared to an increase of $396 million, including interest credited of $138 million, in the second quarter of 1994. Customer deposit balances in the first half of 1995 increased by $1.5 billion, including interest credited of $406 million, compared to an increase of $492 million, including interest credited of $271 million, in the first half of 1994. The net increase in customer deposits during the first half of 1995 over the same period a year earlier resulted primarily from marketing efforts and higher rates offered by the Company on most of its insured accounts in 1995 as compared to 1994. The table below shows the Company's customer deposits by interest rate and by remaining maturity at June 30, 1995, and 1994. TABLE 9 Customer Deposits (Dollars in millions)
June 30 ---------------------------------------------- 1995 1994 Rate* Amount Rate* Amount ---- ------ ---- ------ Customer deposits by interest rate: Interest-bearing checking accounts 1.29% $ 702 $ 1.27% $ 721 Passbook accounts 2.24 596 2.08 674 Money market deposit accounts 3.09 1,429 3.04 2,240 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.83 7,781 3.21 3,656 1 to 2 years 5.30 4,717 3.95 5,487 2 to 3 years 5.38 2,228 4.48 1,882 3 to 4 years 5.30 743 5.68 1,040 4 years and over 6.29 2,094 5.30 2,025 Retail jumbo CDs 6.03 442 4.49 176 All other 7.74 6 7.79 14 - -- $20,738 $17,915 ======= ======= Customer deposits by remaining maturity: No contractual maturity $ 2,727 $ 3,635 Maturity within one year: 3rd quarter 5,174 3,510 4th quarter 4,205 2,503 1st quarter 3,329 1,843 2nd quarter 1,205 1,400 ------- ----- $13,913 9,256 1 to 2 years 2,281 2,868 2 to 3 years 880 833 3 to 4 years 349 570 4 years and over 588 753 ------- ------- $20,738 $17,915 ======= ======= * Weighted average interest rate, including the effect of certain interest rate swaps and caps used in interest rate risk management.
ADVANCES FROM FEDERAL HOME LOAN BANKS The Company uses borrowings from the 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 cases, prepayment at the Company's option. FHLB advances amounted to $6.3 billion at June 30, 1995, compared to $6.2 billion and $6.5 billion at June 30, 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 supplement cash flow. Reverse Repos are entered into with selected major government securities dealers, large banks, and the FHLB, typically utilizing MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted to $1.2 billion, $380 million, and $602 million at June 30, 1995 and 1994, and December 31, 1994, respectively. OTHER BORROWINGS In June 1995, the Company issued $100 million of subordinated debt. The debt will mature July 1, 2002 and has a note rate of 6.70%. At June 30, 1995 Golden West, at the parent level, had principal amounts outstanding of $1.1 billion of subordinated debt. As of June 30, 1995, the Company's subordinated debt securities were rated A3 and A- by Moody's Investors Service (Moody's) and Standard & Poor's Corporation (S&P), respectively. On July 26, 1995, the Company filed a new shelf registration with the Securities and Exchange Commission for the sale of up to $300 million of subordinated debt securities. World currently has on file a shelf registration with the OTS for the issuance of $2.0 billion of unsecured medium-term notes, all of which was available for issuance at June 30, 1995. World had medium-term notes outstanding with principal amounts of $1.9 billion at June 30, 1995, compared to $664 million at June 30 1994, and $1.2 billion at December 31, 1994. As of June 30, 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 and, at June 30, 1995, the full amount was available for issuance. As of June 30, 1995, World had issued a total of $200 million of subordinated notes, which were 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 six months of 1995 as a result of earnings and increased market values of securities available for sale. Unrealized gains on securities and MBS available for sale included in stockholders' equity at June 30, 1995 and 1994, and December 31, 1994, were $58 million, $49 million, and $17 million, respectively. Also included in stockholders' equity at June 30, 1995 and 1994, and December 31, 1994, are unrealized gains on MBS transferred to held to maturity of $170 thousand, $3 million, and $2 million, respectively. During periods of low asset growth, the Company's capital ratios may build to levels well in excess of the amounts necessary to meet regulatory capital requirements. Golden West's Board of Directors regularly reviews alternative uses of excess capital, including faster growth and acquisitions. At times, the Board has determined that repurchase of common stock is a wise use of excess capital. In 1993 and 1994, Golden West's Board of Directors authorized the purchase, by the Company, of up to a total of 6.3 million shares of its common stock. As of June 30, 1995, 5.8 million shares had been repurchased and retired at a cost of $224 million, 18 thousand of which were purchased and retired at a cost of $646 thousand during the first six months of 1995. On August 1, 1995, the Company's Board authorized the purchase of up to an additional 10%, or approximately 5.9 million shares of Golden West's outstanding common stock, bringing the total remaining repurchase authorization to approximately 6.4 million shares. Dividends from World Savings are expected to continue to be the major source of funding for the stock repurchase program. The repurchase of Golden West 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 for the issuance of 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 on the following page shows World's current regulatory capital ratios and compares them to the current OTS minimum requirements at June 30, 1995 and 1994. TABLE 10 World Savings and Loan Association Regulatory Capital Ratios ($000s Omitted)
June 30, 1995 June 30, 1994 ACTUAL REQUIRED ACTUAL REQUIRED Capital Ratio Capital Ratio Capital Ratio Capital Ratio ------------ ----- --------- ----- ----------- ----- ----------- ----- Tangible $2,047,553 6.24% $ 492,065 1.50% $2,141,356 7.49% $ 428,853 1.50% Core 2,047,553 6.24 984,130 3.00 2,248,569 7.86 857,705 3.00 Risk-based 2,361,358 13.04 1,448,910 8.00 2,549,328 15.91 1,282,036 8.00
In addition, institutions whose exposure to interest rate risk as determined by the OTS is deemed to be above normal may be required to hold additional risk-based capital. The OTS has determined that the Association does not have above-normal exposure to interest rate risk. Under OTS regulations which implement the prompt corrective action system mandated by the Federal Deposit Insurance Corporation Improvement Act, an institution is well capitalized if its ratio of total capital to risk-weighted assets is 10% or more, its ratio of core capital to risk-weighted assets is 6% or more, its ratio of core capital to total assets is 5% or more and it is not subject to any written agreement, order or directive to meet a specified capital level. The table below compares World's regulatory capital to the well capitalized classification of capital standards at June 30, 1995. TABLE 11 World Savings and Loan Association Regulatory Capital Compared to Well Capitalized Classification June 30, 1995 ($000s Omitted)
ACTUAL WELL CAPITALIZED -------------------- --------------------- Capital Ratio Capital Ratio ------- ----- ------- ----- Leverage $2,047,553 6.24% $1,640,217 5.00% Tier 1 risk-based 2,047,553 11.31 1,086,682 6.00 Total risk-based 2,361,358 13.04 1,811,137 10.00
The table on the following page shows a reconciliation of World's equity capital to regulatory capital under these OTS regulations at June 30, 1995. TABLE 12 World Savings and Loan Association Reconciliation of Equity Capital to Regulatory Capital June 30, 1995 ($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 1,945,851 Unrealized gains on securities available for sale 58,500 ----------- Equity capital $ 2,237,942 $2,237,942 $2,237,942 $2,237,942 $2,237,942 $2,237,942 =========== Positive goodwill (211,758) (211,758) (211,758) (211,758) (211,758) Negative goodwill 79,869 79,869 79,869 79,869 79,869 Gain on securities available for sale (58,500) (58,500) (58,500) (58,500) (58,500) Equity/other investments (536) Subordinated debt 199,193 General valuation allowance 115,148 ---------- ---------- ---------- ---------- ---------- Regulatory capital $2,047,553 $2,047,553 $2,047,553 $2,047,553 $2,361,358 ========== ========== ========== ========== ========== Total assets $33,022,114 =========== Adjusted total assets $32,804,344 $ 32,804,344 $32,804,344 =========== ============ =========== Risk-weighted assets $18,111,370 $18,111,370 =========== =========== CAPITAL RATIO - ACTUAL 6.78% 6.24% 6.24% 6.24% 11.31% 13.04% ==== ==== ==== ==== ===== ===== Regulatory Capital Standards: Well capitalized, equal to or greater than 5.00% 6.00% 10.00% ==== ==== ===== Adequately capitalized, equal to or 1.50% 4.00% 4.00% 8.00% greater than ==== ==== ==== ==== Undercapitalized, less than 1.50% 4.00% 4.00% 8.00% ==== ==== ==== ==== Significantly undercapitalized, less than 3.00% 3.00% 6.00% Critically undercapitalized, equal to or less than 2.00% ====
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 June 30, 1995 and 1994, and December 31, 1994. TABLE 13 Yield on Earning Assets, Cost of Funds, and Primary Spread, Including Effect of Purchase Accounting
June 30 December 31 -------------------- ----------- 1995 1994 1994 ---- ---- ---- Yield on loan portfolio 7.59% 6.62% 6.91% Yield on investments 5.97 4.96 5.42 ---- ---- ---- Yield on earning assets 7.47 6.50 6.81 ---- ---- ---- Cost of customer deposits 5.32 3.82 4.57 Cost of borrowings 6.32 5.01 5.85 ---- ---- ---- Cost of funds 5.66 4.20 5.00 ---- ---- ---- Primary spread 1.81% 2.30% 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 general, the repricing of ARM portfolios tends to lag market interest rate changes because of certain loan features which restrain monthly adjustments. Additionally, yield changes on COFI ARMs are also held back by the lags built into the index. Interest rate changes, including both the recent declines and the prior upward trend experienced in 1994 and early 1995, had important influences on the Company's primary spread. The lower spread at June 30, 1995, as compared to June 30, 1994, was caused by the lingering effects of the significant upward trend in interest rates which occurred in 1994 and early 1995. Specifically, when interest rates rose, the cost of borrowings increased more quickly than the yield on assets which are comprised primarily of ARMs tied to COFI. The Company's spread declined gradually, but steadily from June 30 1994, dropping to 1.71% by March 31, 1995, before rising to 1.81% by June 30, 1995. The Company enters into interest rate swaps and caps as a part of its interest rate risk management strategy. The Company does not hold any derivative financial instruments for trading purposes. Interest rate swaps and caps decreased net interest income by $9 million and $18 million for the three and six months ended June 30, 1995, as compared to $5 million and $15 million for the same periods in 1994. The table on the following page summarizes the unrealized gains and losses for interest rate swaps and caps at June 30, 1995 and 1994. TABLE 14 Supplemental Schedule of Unrealized Gains and Losses on Interest Rate Swaps and Caps ($000s Omitted)
June 30, 1995 June 30, 1994 ------------------------------------- ------------------------------------- Net Net Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gain (Loss) Gains Losses Gain (Loss) ---------- ---------- ---------- ---------- ---------- ----------- Interest rate caps $ 106 $ -0- $ 106 $ 20 $ -0- $ 20 Interest rate swaps 30,834 (68,007) (37,173) 76,471 (87,485) (11,014) ------ -------- -------- ------- -------- -------- Total $30,940 $(68,007) $(37,067) $76,491 $(87,485) $(10,994) ======= ======== ======== ======= ======== ========
TABLE 15 Schedule of Interest Rate Swaps and Caps Activity (Notional Amounts in Millions) Six Months Ended June 30, 1995
Six Months Ended June 30, 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 (735) (255) -0- -0- (40) Terminations -0- -0- -0- -0- -0- Forward starting becoming effective 125 -0- -0- (125) -0- Other -0- -0- -0- -0- -0- ------ ------ ---- ---- ---- Balance, June 30, 1995 $4,600 $1,970 $243 $ 10 $260 ====== ====== ==== ==== ==== (a) Receives based upon one index, pays based upon another index.
The range of floating interest rates received on swap contracts in the first six 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%. The range of fixed interest rates received on swap contracts in the first six months of 1995 was 3.91% to 9.68% and the range of fixed interest rates paid on swap contracts was 4.09% to 9.54%. The table on the following page shows the Company's revenues and expenses as a percentage of total revenues for the three and six months ended June 30, 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
Three Months Ended Six Months Ended June 30 June 30 ------------------- ------------------ 1995 1994 1995 1994 ---- ---- ---- ---- Interest on loans 86.0% 84.5% 86.5% 85.2% Interest on mortgage-backed securities 6.2 5.6 5.4 5.8 Interest and dividends on investments 6.3 7.5 6.4 6.5 --- --- --- --- 98.5 97.6 98.3 97.5 ---- ---- ---- ---- Less: Interest on customer deposits 44.0 35.5 43.0 35.6 Interest on advances and other borrowings 26.4 22.4 26.5 21.7 ---- ---- ---- ---- 70.4 57.9 69.5 57.3 Net interest income 28.1 39.6 28.8 40.2 Provision for loan losses 2.4 3.8 2.5 3.7 ---- --- --- --- Net interest income after provision for loan losses 25.7 35.8 26.3 36.5 Add: Fees 1.0 1.7 1.1 1.7 Gain (loss) on the sale of securities and mortgage-backed securities 0.0 0.0 0.0 0.0 Other non-interest income 0.5 0.7 0.6 0.8 --- --- --- --- 1.5 2.4 1.7 2.5 Less: General and administrative expenses 12.7 15.7 13.3 15.7 Amortization of goodwill 0.2 0.1 0.2 0.1 Taxes on income 5.6 9.2 5.7 9.5 --- --- --- --- Net earnings 8.7% 13.2% 8.8% 13.7% ==== ==== ==== ====
INTEREST ON LOANS In the second quarter of 1995, interest on loans was higher than in the comparable 1994 period by $131 million or 33.1%. The increase in the second quarter of 1995 was due to a $3.8 million increase in the average portfolio balance and a 100 basis point increase in the average portfolio yield. For the first half of 1995 interest on loans was higher than the comparable 1994 period by $223 million or 28.1%. The increase was due to a $3.7 billion increase in the average portfolio balance and a 75 basis point increase in the average portfolio yield. INTEREST ON MORTGAGE-BACKED SECURITIES In the second quarter of 1995 interest on mortgage-backed securities was higher than in the comparable 1994 period by $11.8 million or 45.1%. The 1995 increase was due primarily to a $708 million increase in the average portfolio balance, which was partially offset by a 57 basis point decrease in the average portfolio yield. For the first half of 1995, interest on mortgage-backed securities was higher than in the comparable 1994 period by $9.1 million or 16.7% due to a $311 million increase in the average portfolio balance, which was partially offset by a 47 basis point decrease in the average portfolio yield. The increase in the mortgage-backed securities portfolio, and the lower average balance was primarily the result of the securitization of loans with recourse this year as discussed on page 11. INTEREST AND DIVIDENDS ON INVESTMENTS The income earned on the investment portfolio fluctuates, depending upon the volume outstanding and the yields available on short-term investments. For the second quarter of 1995, interest and dividends on investments were $3.7 million or 10.4% higher than for the same period in 1994. The increase was primarily due to a 150 basis point increase in the average portfolio yield, which was partially offset by a $330 million decrease in the average portfolio balance. For the first half of 1995, interest and dividends on investments was $14.6 million or 24.1% higher than for the same period in 1994. The increase was primarily due to a 163 basis point increase in the average portfolio yield, which was partially offset by a $160 million decrease in the average portfolio balance. INTEREST ON CUSTOMER DEPOSITS In the second quarter and first half of 1995, interest on customer deposits increased by $103 million or 62% and $174 million or 52.3%, respectively, from the comparable periods of 1994. The second quarter increase was due to a $2.8 billion increase in the average deposit balance and a 150 basis point increase in the average cost of deposits. The six month increase was primarily due to a 126 basis point increase in the average cost of deposits and a $2.6 billion increase in the average balance of deposits. INTEREST ON ADVANCES AND OTHER BORROWINGS For the second quarter and first half of 1995, interest on advances and other borrowings increased by $57 million or 54.2% and $109 million or 53.9%, respectively, from the comparable periods of 1994. The second quarter increase was primarily due to a $1.5 billion increase in the average balance and a 149 basis point increase in the average cost of these borrowings. The six month increase was primarily due to a $1.5 billion increase in the average balance and a 147 basis point increase in the average cost of these borrowings. PROVISION FOR LOAN LOSSES The provision for loan losses was $14.7 million and $29.4 million, respectively, for the three and six months ended June 30, 1995, compared to $17.9 million and $34.4 million for the same periods in 1994. The lower provisions in 1995 reflect lower charge-offs and the slowly improving economy in California . GENERAL AND ADMINISTRATIVE EXPENSES For the second quarter and first half of 1995, general and administrative expenses (G&A) increased by $4.4 million or 6.0% and $10 million or 6.8%, respectively, from the comparable periods in 1994. The primary reasons for the increases in 1995 were the expansion of loan origination capacity, growth in savings deposits and increased loan volume in the first quarter. G&A as a percentage of average assets on an annualized basis was 0.92% and 0.94% for the second quarter and first half of 1995, respectively, compared to 1.00% and 1.01% for the same periods 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 acquisitions. The purchase accounting portion of income is not subject to tax. The corporate tax rates for the second quarter and first half of 1995 were 39.0% and 38.9%, respectively, compared to 41.0% and 40.9% for the same periods a year ago. The decrease in the second quarter and first six months of 1995 tax rate is the result of tax benefits from the final settlement of prior year tax audits. 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 June 30, 1995, and 1994, and December 31, 1994, see the cash and investments section on page 11. The principal sources of funds for Golden West (the Parent) are interest on investments, 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 stockholders' equity section on page 23), and general and administrative expenses. At June 30, 1995 and 1994, and December 31, 1994, Golden West's total cash and investments amounted to $984 million, $865 million (including a $300 million short-term loan to the Association), and $938 million (including a $250 million short-term loan to World), respectively. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 - Statement of Computation of Earnings Per Share 27 - Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities and 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: August , 1995. J. L. Helvey J. L. Helvey Group Senior Vice President (duly authorized and principal financial officer)
EXHIBIT 11 Golden West Financial Corporation Statement of Computation of Earnings Per Share ($000s omitted except per share amounts)
Three Months Ended Six Months Ended June 30 June 30 --------------------- --------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Line 1: Average Number of Common Shares Outstanding 58,643,735 63,300,843 58,615,270 63,615,989 ========== ========== ========== ========== Line 2: Net Earnings $53,561 $61,943 $104,494 $127,239 ======= ======= ======== ======== Line 3: Earnings Per Common Share (Line 2 divided by Line 1) $.91 $.98 $1.78 $2.00 ==== ==== ===== =====
EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 1,000 6-MOS DEC-31-1994 JUN-30-1995 163383 107000 475150 0 1746106 3191228 3204133 27939843 133682 34279911 20738155 1171686 790103 9443687 5869 0 0 2130411 34279911 1017212 75324 63504 1156040 505795 817308 338732 29430 22 158394 171147 171147 0 0 104494 1.78 1.78 7.47 298394 0 71633 0 124003 20910 1159 133682 133682 0 0
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