-----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, U36WKm4qJ7ut/FpL7eFrEwKDCEsAiHfvIXB6x4SO8wq0axv4njhRRst3QJPiVXJT Cj52fXHgki3WOOKWaAk7mg== 0000042293-94-000004.txt : 19940511 0000042293-94-000004.hdr.sgml : 19940511 ACCESSION NUMBER: 0000042293-94-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940510 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: 94526975 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 510-466-3420 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, 1994 LIVE 10-Q FILING PAGE 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For Quarter Ended March 31, 1994 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, 1994, was 63,389,185 shares. PAGE 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements of Golden West Financial Corporation and subsidiaries (Golden West or the Company) for the three months ended March 31, 1994, and 1993, 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, 1994, 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 1994 1993 1993 ----------- ----------- ----------- Assets: Cash $ 130,919 $ 130,768 $ 243,185 Securities available for sale 1,799,561 386,708 1,636,586 Other investments 785,625 1,698,685 538,100 Mortgage-backed securities available for sale at fair value 966,085 -0- 1,114,069 Mortgage-backed securities held to maturity at cost 401,402 1,757,972 408,467 Loans receivable 24,027,203 22,600,049 23,912,571 Interest earned but uncollected 177,257 162,848 175,080 Investment in capital stock of Federal Home Loan Banks--at cost, which approximates fair value 328,663 346,543 325,737 Real estate held for sale or investment 64,795 67,874 67,156 Prepaid expenses and other assets 169,189 139,860 108,832 Premises and equipment--at cost less accumulated depreciation 168,594 150,836 162,751 Goodwill arising from acquisitions 136,176 133,076 136,754 ----------- ----------- ----------- $29,155,469 $27,575,219 $28,829,288 =========== =========== =========== Liabilities and Stockholders' Equity: Customer deposits $17,519,321 $16,495,595 $17,422,484 Advances from Federal Home Loan Banks 6,226,617 6,634,751 6,281,691 Securities sold under agreements to repurchase 647,533 501,007 442,874 Medium-term notes 676,709 477,901 676,540 Accounts payable and accrued expenses 397,344 372,291 355,799 Taxes on income 376,418 277,132 364,235 Subordinated notes--net of discount 1,220,431 1,020,806 1,220,061 Stockholders' equity 2,091,096 1,795,736 2,065,604 ----------- ----------- ----------- $29,155,469 $27,575,219 $28,829,288 =========== =========== ===========
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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 1994 1993 -------- -------- Interest Income: Interest on loans $398,052 $407,055 Interest on mortgage-backed securities 28,273 38,879 Interest and dividends on investments 25,370 17,093 -------- -------- 451,695 463,027 Interest Expense: Interest on customer deposits 165,367 175,823 Interest on advances 58,890 67,140 Interest on repurchase agreements 6,939 10,622 Interest on other borrowings 31,605 27,326 -------- -------- 262,801 280,911 -------- -------- Net Interest Income 188,894 182,116 Provision for loan losses 16,492 11,459 -------- -------- Net Interest Income after Provision for Loan Losses 172,402 170,657 Non-Interest Income: Fees 7,941 7,027 Gain on the sale of securities and mortgage-backed securities 1 1,524 Other 3,482 3,356 -------- -------- 11,424 11,907 Non-Interest Expense: General and administrative: Personnel 35,981 31,825 Occupancy 10,363 9,684 Deposit insurance 10,060 8,062 Advertising 2,435 1,825 Other 13,998 13,414 -------- -------- 72,837 64,810 Amortization of goodwill arising from acquisitions 578 (449) -------- -------- 73,415 64,361 -------- -------- Earnings Before Taxes on Income 110,411 118,203 Taxes on income 45,115 46,619 -------- -------- Net Earnings $ 65,296 $ 71,584 ======== ======== Net earnings per share $ 1.02 $ 1.12 ======== ========
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Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) ($000s Omitted) Three Months Ended March 31 1994 1993 ----------- ----------- Cash Flows From Operating Activities: Net earnings $ 65,296 $ 71,584 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 16,492 11,459 Amortization of loan fees and discounts (8,787) (10,295) Depreciation and amortization 4,453 3,201 Reduction of a valuation allowance on investments -0- (1,500) Loans originated for sale (67,903) (36,472) Sales of loans originated for sale 101,726 46,570 (Increase) in interest earned but uncollected (2,177) (5,125) Federal Home Loan Bank stock dividends (6,225) (2,268) (Increase) in prepaid expenses and other assets (57,058) (6,239) Increase in accounts payable and accrued expenses 41,545 11,165 Increase in taxes on income 26,109 43,268 Other, net (4,739) 369 ----------- ----------- Net cash provided by operating activities 108,732 125,717 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (1,161,031) (1,414,651) Real estate loans purchased (109) (190) Other, net 2,369 8,247 ----------- ----------- (1,158,771) (1,406,594) Real estate loan principal payments: Monthly payments 142,210 138,106 Payoffs, net of foreclosures 721,913 517,177 Refinances 94,205 66,120 ----------- ----------- 958,328 721,403 Purchases of mortgage-backed securities (494) (98,558) Sales of mortgage-backed securities 12 138 Repayments of mortgage-backed securities 132,818 132,063 Sales of real estate 50,992 45,530 Purchases of securities available for sale (1,120,600) (1,060,680) Sales and maturities of securities available for sale 949,026 836,017 (Increase) in other investments (247,525) (906,996) Purchases of Federal Home Loan Bank stock -0- (56,795) Additions to premises and equipment (9,851) (9,402) ----------- ----------- Net cash used in investing activities (446,065) (1,803,874)
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Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) ($000s Omitted) Three Months Ended March 31 1994 1993 ---------- --------- Cash Flows From Financing Activities: Customer deposit activity: Decrease in deposits, net $ (36,823) $(129,260) Interest credited 133,660 138,609 ---------- --------- 96,837 9,349 Additions to Federal Home Loan Bank advances 10,000 1,174,200 Repayments of Federal Home Loan Bank advances (65,139) (38,900) Increase (decrease) in securities sold under agreements to repurchase 204,659 (55,703) Proceeds from medium-term notes -0- 409,555 Repayments of medium-term notes -0- (13,000) Proceeds from subordinated debt -0- 98,786 Dividends on common stock (4,799) (4,158) Purchase and retirement of Company stock (16,491) -0- ---------- --------- Net cash provided by financing activities 225,067 1,580,129 ---------- --------- Net Decrease in Cash (112,266) (98,028) Cash at beginning of period 243,185 228,796 ---------- --------- Cash at end of period $ 130,919 $ 130,768 ========== ========= Supplemental cash flow information: Cash paid for: Interest $ 269,350 $ 273,630 Income taxes 19,005 5,540 Cash received for interest and dividends 449,518 457,902 Noncash investing activities: Loans transferred to foreclosed real estate 53,976 50,302
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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 1994 1993 ---------- ---------- Common Stock: Balance at January 1 $ 6,393 $ 6,392 Common stock issued upon exercise of stock options - 89,750 shares (1994) and 60,200 shares (1993) 9 7 Common stock retired upon purchase of treasury stock - 426,900 shares (1994) and -0- shares (1993) (43) -0- ---------- ---------- Balance at March 31 6,359 6,399 ---------- ---------- Paid-in Capital: Balance at January 1 40,899 36,186 Common stock issued upon exercise of stock options - 89,750 shares (1994) and 60,200 shares (1993) 1,321 905 ---------- ---------- Balance at March 31 42,220 37,091 ---------- ---------- Retained Earnings: Balance at January 1 1,933,593 1,684,820 Net earnings 65,296 71,584 Cash dividends on common stock - $.075 per share (1994) and $.065 per share (1993) (4,799) (4,158) ---------- ---------- Retirement of treasury stock (16,448) -0- Balance at March 31 1,977,642 1,752,246 ---------- ---------- Unrealized Gains on Securities Available for Sale: Balance at January 1 84,719 -0- Change during period (19,844) -0- ---------- ---------- Balance at March 31 64,875 -0- ---------- ---------- Total Stockholders' Equity at March 31 $2,091,096 $1,795,736 ========== ==========
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, 1993, as well as certain material changes in results of operations during the three month periods ended March 31, 1994, and 1993, respectively. The following narrative is written with the presumption that the users have read or have access to the Company's 1993 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, 1993, and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed herein. ACCOUNTING CHANGES At December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan". FAS 114 imposes certain requirements on the measurement of impaired loans. The Company had previously measured loan impairment in accordance with the methods prescribed in FAS 114. As a result, no additional loss provisions were required by early adoption of the pronouncement. FAS 114 also requires that impaired loans for which foreclosure is probable should be accounted for as loans. Amounts at March 31, 1993 have not been restated. Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." FAS 115 establishes three investment classifications: held to maturity, trading, and available for sale. In accordance with FAS 115, the Company modified its accounting policies as of December 31, 1993, to identify investment securities as either held to maturity or available for sale. The Company has no trading securities. Held to maturity securities are recorded at cost with any discount or premium amortized using a method that is not materially different from the interest method. Securities held to maturity are recorded at cost because the Company has the ability to hold these securities to maturity and because it is Management's intention to hold them to maturity. Securities available for sale increase the Company's portfolio management flexibility for investments and are reported at fair value. Net unrealized gains and losses are excluded from earnings and reported net of applicable income taxes as a separate component of stockholders' equity until realized. PAGE 8
Golden West Financial Corporation Financial Highlights (Unaudited) ($000s omitted except per share figures) March 31 March 31 December 31 1994 1993 1993 ----------- ----------- ----------- Assets $29,155,469 $27,575,219 $28,829,288 Loans receivable, including mortgage-backed securities 25,394,690 24,358,021 25,435,107 Customer deposits 17,519,321 16,495,595 17,422,484 Stockholders' equity 2,091,096 1,795,736 2,065,604 Stockholders' equity/total assets 7.17% 6.51% 7.16% Book value per common share $ 32.88 $ 28.06 $ 32.31 Common shares outstanding 63,591,785 63,985,010 63,928,935 Yield on loan portfolio 6.69% 7.38% 6.84% Yield on investments 4.25% 3.54% 3.80% Yield on earning assets 6.47% 7.08% 6.61% Cost of deposits 3.79% 4.25% 3.92% Cost of borrowings 4.60% 5.26% 4.69% Cost of funds 4.06% 4.60% 4.18% Yield on earning assets less cost of funds 2.41% 2.48% 2.43% Ratio of nonperforming assets to total assets(a) 1.49% 1.34% 1.37% Ratio of troubled debt restructured to total assets 0.13% 0.05% 0.13% World Savings and Loan Association: Net worth $ 2,216,190 $ 1,907,153 2,164,651 Net worth/total assets 7.81% 7.04% 7.72% Regulatory capital ratios: Tangible capital 7.38% 6.59% 7.27% Core capital 7.75% 7.34% 8.02% Risk-based capital(b) 15.79% 16.20% 17.42% Three Months Ended March 31 1994 1993 ----------- ----------- New real estate loans originated $ 1,228,934 $ 1,451,123 Average yield on new real estate loans 6.53% 7.04% Increase in customer deposits $ 96,387 $ 9,349 Net earnings 65,296 71,584 Net earnings per share 1.02 1.12 Cash dividends on common stock .075 .065 Average common shares outstanding 63,934,636 63,965,453 Ratios:(c) Net earnings/average net worth 12.49% 16.25% Net earnings/average assets 0.91% 1.07% Net interest income/average assets 2.62% 2.72% General and administrative expense/average assets 1.01% 0.97%
(a) Nonperforming assets include non-accrual loans (loans 90 days or more past due), without reduction for loan loss allowances, and real estate acquired through foreclosure. (b) The decrease in the risk-based capital ratio from December 1993 to March 1994 was due to the March 1994 change in regulations concerning the criteria used to determine the risk weighting for multi-family loans in the calculation of the risk-based capital ratio. Due to uncertainty over how the new regulations will be applied, World Savings has taken a conservative approach and, pending further clarification from the Office of Thrift Supervision, has weighted the Association's entire multi-family portfolio at 100%. (c) 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, 1994, and 1993, and December 31, 1993. The reader is referred to page 43 of the Company's 1993 Form 10-K for similar information for the years 1990 through 1993 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 1994 1993 1993 ------ ------ ----------- Assets: Cash and investments 9.3% 8.1% 8.4% Mortgage-backed securities 4.7 6.4 5.3 Loans receivable 82.4 81.9 82.9 Other assets 3.6 3.6 3.4 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Liabilities and Stockholders' Equity: Customer deposits 60.1% 59.8% 60.4% Federal Home Loan Bank advances 21.4 24.1 21.8 Securities sold under agreements to repurchase 2.2 1.8 1.5 Medium-term notes 2.3 1.7 2.4 Other liabilities 2.6 2.4 2.5 Subordinated debt 4.2 3.7 4.2 Stockholders' equity 7.2 6.5 7.2 ----- ----- ----- 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 the repricing of the Company's assets and liabilities at March 31, 1994. PAGE 10
TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio (Dollars in Millions) March 31, 1994 Projected Repricing(a) ------------------------------------------------------ 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ------- ------- ------- ------ ------- Interest-Earning Assets: Investments $ 1,446 $ 342 $ 612 $ 185 $ 2,585 Mortgage-backed securities 154 159 462 593 1,368 Loans receivable: Rate-sensitive 17,258 2,582 697 -0- 20,537 Fixed-rate 1,193 542 547 863 3,145 Other(b) 443 -0- -0- -0- 443 ------- ------- ------- ------ ------- Total $20,494 $ 3,625 $ 2,318 $1,641 $28,078 ======= ======= ======= ====== ======= Interest-Bearing Liabilities(c): Customer deposits $ 9,805 $ 4,883 $ 2,625 $ 206 $17,519 FHLB advances 5,569 502 91 65 6,227 Other borrowings 1,028 (122) 832 808 2,546 ------- ------- ------- ------ ------- Total $16,402 $ 5,263 $ 3,548 $1,079 $26,292 ======= ======= ======= ====== ======= Repricing gap $ 4,092 $(1,638) $(1,230) $ 562 ======= ======= ======= ====== Cumulative gap $ 4,092 $ 2,454 $ 1,224 $1,786 ======= ======= ======= ====== Cumulative gap as a percentage of total assets 14.0% 8.4% 4.2% ======= ======= =======
(a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled repayments and projected prepayments of principal. (b) Includes cash in banks, FHLB stock, and loans collateralized by customer deposits. (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, 1994, and 1993, and December 31, 1993, World's average regulatory liquidity ratio was 8%, 6%, and 8%, respectively, consistently exceeding the requirement. Effective December 31, 1993, the Company adopted FAS 115, "Accounting for Certain Investments in Debt and Equity Securities." FAS 115 establishes three investment classifications: held to maturity, trading, and available for sale. At March 31, 1994, and December 31, 1993, the PAGE 11 Company had no securities held to maturity or for trading. At March 31, 1994, and December 31, 1993, the Company had securities available for sale in the amount of $1.8 billion and $1.6 billion, respectively, and unrealized gains on securities available for sale included in stockholders' equity of $35 billion and $41 million, respectively. The Company has other investments that are recorded at cost with any discount or premium amortized using a method that is not materially different from the interest method. The adoption of FAS 115 resulted in the reclassification of certain securities from the investment securities portfolio to the securities available for sale portfolio. Prior to December 31, 1993, securities were classified as either securities held for sale or investment securities. At March 31, 1993, the Company had $387 million of securities held for sale. Securities held for sale were recorded at the aggregate portfolio's lower of amortized cost or market, with any unrealized losses included in earnings. MORTGAGE-BACKED SECURITIES FAS 115 also requires the same three classifications for mortgage-backed securities (MBS): held to maturity, trading, and available for sale. In accordance with FAS 115, the Company modified its accounting policies as of December 31, 1993, to identify MBS as either held to maturity or available for sale. The Company has no trading MBS. At March 31, 1994, March 31, 1993, and December 31, 1993, the Company had mortgage-backed securities held to maturity in the amount of $401 million, $1.8 billion, and $408 million, respectively. At March 31, 1994, and December 31, 1993, the Company had mortgage-backed securities available for sale in the amount of $966 million and $1.1 billion, respectively, and unrealized gains on mortgage-backed securities included in stockholders' equity of $30 million and $44 million, respectively. Repayments of MBS during the first quarter of 1994 were $133 million compared to $132 million in the same period of 1993. The portion of the Company's loans receivable represented by MBS was 5%, 7%, and 6% at March 31, 1994, and 1993, and December 31, 1993, respectively. LOAN PORTFOLIO LOAN VOLUME New loan originations for the quarter ended March 31, 1994, amounted to $1.2 billion compared to $1.5 billion for the same period in 1993. Refinanced loans constituted 59% of new loan originations for the quarter ended March 31, 1994, compared to 58% for the quarter ended March 31, 1993. In the first quarter of 1994, the rising cost of new fixed rate mortgages caused the volume of refinance activity in the marketplace to drop considerably from the high levels of 1993 with a corresponding decline in the overall mortgage demand. As a result of rising rates and increased competition in a smaller market, the Company's 1994 loan originations for both purchasing residences and refinances declined as compared to 1993. Although the Company has lending operations in 21 states, the primary PAGE 12 mortgage origination focus continues to be on residential property in California. For the three months ended March 31, 1994, 70% of total loan originations were on residential properties in California compared to 78% for the same period in 1993. Although California originations continue to be a large portion of total originations, the decrease in 1994 as compared to 1993 was due to increased activity by the Company in markets outside California and the decrease of originations in California. The percentage of the total loan portfolio that is comprised of residential loans in California was 81% at March 31, 1994, compared to 83% at March 31, 1993, and 81% at December 31, 1993. The tables on the following two pages show the Company's loan portfolio by state at March 31, 1994, and 1993. PAGE 13
TABLE 3 Loan Portfolio by State March 31, 1994 ($000s Omitted) Residential Real Estate Commercial Loans as State ------------------------ Real Total a % of 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 14
TABLE 4 Loan Portfolio by State March 31, 1993 ($000s Omitted) Residential Real Estate Commercial Loans as State ------------------------ Real Total a % of 1 - 4 5+ Land Estate Loans (a) Portfolio - ------------ ----------- ---------- ------ -------- ----------- --------- California $15,693,947 $3,189,113 $ 324 $ 93,310 $18,976,694 83.39% Colorado 584,846 83,363 -0- 7,441 675,650 2.97 New Jersey 532,292 42 -0- 310 532,644 2.34 Illinois 313,035 103,997 -0- 5,711 422,743 1.86 Washington 154,242 193,915 -0- 1,337 349,494 1.54 Florida 278,047 118 35 6,865 285,065 1.25 Virginia 188,706 -0- -0- 2,956 191,662 0.84 Connecticut 161,515 -0- -0- -0- 161,515 0.71 Arizona 134,195 4,397 -0- 1,938 140,530 0.62 Kansas 129,555 5,531 -0- 355 135,441 0.60 Texas 113,655 4,996 624 4,452 123,727 0.54 Oregon 93,246 8,863 -0- 4,203 106,312 0.47 Pennsylvania 91,450 114 -0- 11,084 102,648 0.45 Maryland 89,226 -0- -0- 3,070 92,296 0.41 Nevada 76,367 1,467 -0- -0- 77,834 0.34 New York 75,063 177 -0- 680 75,920 0.33 Georgia 71,690 -0- -0- 2,959 74,649 0.33 Missouri 65,583 8,258 -0- 82 73,923 0.32 Ohio 58,096 6,387 1,352 3,747 69,582 0.31 Utah 22,832 146 -0- 2,454 25,432 0.11 Other 40,862 6,143 -0- 15,028 62,033 0.27 ----------- ---------- ------ -------- ----------- ------ Totals $18,968,450 $3,617,027 $2,335 $167,982 22,755,794 100.00% =========== ========== ====== ======== ====== FAS 91 deferred loan fees (97,249) Loan discount on purchased loans (11,070) Undisbursed loan funds (3,106) Allowance for loan losses (74,637) LTF interest reserve (1,015) TDR interest reserve (1,134) Loans on customer deposits 32,466 ----------- Total loan portfolio $22,600,049 ===========
(a) The Company has no commercial loans. PAGE 15 Golden West continues to emphasize adjustable rate mortgages (ARMs)--loans with interest rates that change periodically in accordance with movements in specified indexes. The portion of the mortgage portfolio (excluding mortgage-backed securities) composed of rate-sensitive loans was 87% at March 31, 1994, compared to 88% at March 31, 1993, and 87% at December 31, 1993. Despite stiff competition from mortgage bankers who aggressively marketed fixed-rate mortgages at the lowest rates seen in the past 20 years, Golden West's ARM originations constituted approximately 78% of new mortgage loans made by the Company in the first quarter of 1994 compared to 86% in the first three months of 1993. The weighted average maximum lifetime cap rate on the Association's ARM and modified ARM loan portfolio was 13.74%, or 7.43% above the actual weighted average rate, at March 31, 1994, versus 14.09%, or 7.15% above the weighted average rate, at March 31, 1993. Approximately $4.5 billion of the Association's loans have terms that state that the interest rate may not fall below a lifetime floor set at the time of origination. Due to the decline in interest rates, as of March 31, 1994, $1.4 billion of these loans had reached their rate floors. The weighted average floor rate on these loans was 7.43% at March 31, 1994. Loan repayments consisting of monthly loan amortization, payoffs, and refinances during the first quarter of 1994 were $958 million compared to $721 million in the same period of 1993. The increase in loan repayments was primarily due to higher mortgage payoffs within our loan portfolio. The Company adopted Statement of Financial Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan," in the fourth quarter of 1993, retroactive to January 1, 1993. See "Accounting Changes" on page 7. It is too early to predict with any precision all of the potential losses to the Company resulting from the Northridge (Southern California) earthquake in January 1994; however, based on preliminary assessments of severity of damage, borrower equity, and levels of insurance coverage, the Company believes that any potential loss to the Company will not be material to the financial condition and results of operations of the Company. The first quarter 1994 loan loss reserve and provision for loan losses included $3.4 million in loss reserves specifically identified as earthquake losses. PAGE 16 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. Loans in-substance foreclosed were no longer classified as part of the real estate held for sale portfolio upon adoption of FAS 114 during December 1993 and are now included in the Company's total loan portfolio as previously discussed. No interest is recognized on non-accrual loans. The table below shows the components of the Company's nonperforming assets and the ratio of nonperforming assets to total assets at March 31, 1994, and 1993, and December 31, 1993.
TABLE 5 Nonperforming Assets ($000s Omitted) March 31 ------------------------ December 31 1994 1993 1993 -------- -------- ----------- Non-accrual loans $371,260 $301,733 $330,062 Real estate acquired through foreclosure 60,643 57,327 62,724 Loans in-substance foreclosed -0- 9,351 -0- Real estate in judgement 1,764 457 1,366 -------- -------- -------- Total nonperforming assets $433,667 $368,868 $394,152 ======== ======== ======== Ratio of nonperforming assets to total assets 1.49% 1.34% 1.37% ======== ======== ========
The increase in NPAs in 1994 and 1993 was primarily in single-family loans and foreclosed real estate in California. The continued weak California economy and high unemployment led to a slow down in the real estate market, resulting in an increase in loan delinquencies and, in certain areas, decreases in real estate prices. The growth in NPAs has also been impacted by a continued high level of bankruptcy filings, which often delay the collection process and extend the length of time a loan remains delinquent. The Company continues to closely monitor all delinquencies and takes appropriate steps to protect its interests. Interest foregone on non-accrual loans amounted to $6 million in the first quarter of both 1994 and 1993. The tables on the following two pages show the Company's nonperforming assets by state at March 31, 1994, and 1993. PAGE 17
TABLE 6 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. PAGE 18
TABLE 7 Nonperforming Assets by State March 31, 1993 ($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 $228,507 $21,034 $ 978 $45,282 $ 1,421 $5,236 $302,458 1.59% Colorado 2,316 530 -0- 1,649 6,198 2,641 13,334 1.97 New Jersey 14,577 -0- -0- 1,061 -0- 88 15,726 2.95 Illinois 2,084 2,618 -0- 285 -0- -0- 4,987 1.18 Washington 839 -0- -0- -0- -0- -0- 839 0.24 Florida 5,476 -0- 154 977 -0- -0- 6,607 2.32 Virginia 1,546 -0- -0- 933 -0- -0- 2,479 1.29 Connecticut 4,059 -0- -0- 348 -0- -0- 4,407 2.73 Arizona 1,707 -0- -0- 497 -0- -0- 2,204 1.57 Kansas 1,314 -0- 112 156 -0- -0- 1,582 1.17 Texas 1,949 -0- -0- 167 351 -0- 2,467 1.99 Oregon 251 -0- -0- -0- -0- -0- 251 0.24 Pennsylvania 608 -0- -0- -0- -0- -0- 608 0.59 Maryland 1,431 -0- -0- 180 -0- -0- 1,611 1.75 Nevada 521 -0- -0- -0- -0- -0- 521 0.67 New York 4,463 -0- -0- 889 -0- -0- 5,352 7.05 Georgia 2,519 -0- -0- 464 -0- -0- 2,983 4.00 Missouri 860 -0- -0- -0- 626 -0- 1,486 2.01 Ohio 68 -0- -0- 43 -0- 109 220 0.32 Utah 30 -0- -0- -0- -0- -0- 30 0.12 Other 1,182 -0- -0- 36 -0- -0- 1,218 1.96 -------- ------- ------ ------- ------- ------ -------- ----- Totals $276,307 $24,182 $1,244 $52,967 $ 8,596 $8,074 371,370 1.63 ======== ======= ====== ======= ======= ====== REO general valuation allowance (2,502) (0.01) -------- ----- $368,868 1.62% ======== =====
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest accrued. The Company's troubled debt restructured (TDRs), which are loans that have been modified due to a weakness in the collateral and/or borrower, were $38 million or 0.13% of assets at March 31, 1994, compared to $14 million or 0.05% of assets at March 31, 1993, and $37 million or 0.13% of assets at December 31, 1993. The increase from March 1993 to March 1994 is due in part to the December 31, 1993, FAS 114 reclassification of in-substance foreclosed loans previously discussed, which included loans that had been modified. The great majority of the Company's TDRs have temporary interest rate reductions and have been made primarily to customers negatively impacted by adverse economic conditions. Interest foregone on TDRs amounted to $120 thousand for the three months ended March 31, 1994, compared to $60 thousand for the quarter ended March 31, 1993. 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. Additions to and reductions from the allowances are reflected in current earnings. 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. The table below shows the changes in the allowance for loan losses for the three months ended March 31, 1994, and 1993.
TABLE 8 Changes in the Allowance for Loan Losses ($000s Omitted) 1994 1993 -------- ------- Beginning allowance for loan losses $106,698 $70,924 Provision charged to expense 16,492 11,459 Less loans charged off (9,954) (8,120) Add recoveries 261 374 -------- ------- Ending allowance for loan losses $113,497 $74,637 ======== ======= Ratio of net chargeoffs to average loans outstanding (excluding MBS) 0.16% 0.14% ======== ======= Ratio of allowance for loan losses to nonperforming assets 26.2% 20.2% ======== =======
The Company continues to use 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 utilizes a data base that identifies losses on loans and fore- closed 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. The increase in the allowance and the provision in 1994 over 1993 was considered prudent given the slowdown in the California housing market, the increase in the size of the loan portfolio, and the increase in nonper- forming assets and loan losses experienced by the Association in 1994, including the reserve for earthquake losses previously noted. Chargeoffs increased as a result of the increase in nonperforming loans, the increase in the percentage of nonperforming loans that became real estate owned, and the increased losses on real estate owned primarily due to the weakened California housing market. PAGE 20 CUSTOMER DEPOSITS Customer deposits increased during the first quarter of 1994 by $97 million, including interest credited of $134 million. In the first three months of 1993, customer deposits increased by $9 million, including interest credited of $139 million. The increase in the open market yields during the first quarter of 1994 resulted in the net increase of customer deposits compared with no growth during the same period a year ago. The Company has no brokered deposits. The table below shows the Company's customer deposits by interest rate and by remaining maturity at March 31, 1994, and 1993.
TABLE 9 Customer Deposits (Dollars in millions) 1994 1993 ----------------- ----------------- Rate* Amount Rate* Amount ----------------- ----------------- Customer deposits by interest rate: Interest-bearing checking accounts 1.27% $ 740 1.72% $ 689 Passbook accounts 2.08 642 2.58 575 Money market deposit accounts 3.06 2,386 3.76 2,567 Term certificate accounts with original maturities of: 4 weeks to 1 year 3.15 3,928 3.30 4,287 1 to 2 years 3.81 4,681 4.04 3,888 2 to 3 years 4.49 1,772 5.40 1,289 3 to 4 years 5.99 1,138 6.85 1,292 4 years and over 5.36 2,071 6.39 1,781 Retail jumbo CDs 4.56 144 5.60 106 All other 7.78 17 7.76 22 ------- ------- $17,519 $16,496 ======= ======= Customer deposits by remaining maturity: No contractual maturity $ 3,768 $ 3,831 Maturity within one year: 2nd quarter 3,805 3,912 3rd quarter 2,737 2,628 4th quarter 1,485 1,298 1st quarter 1,259 1,397 ------- ------- 9,286 9,235 1 to 2 years 2,463 1,597 2 to 3 years 482 474 3 to 4 years 807 201 4 years and over 713 1,158 ------- ------- $17,519 $16,496 ======= =======
*Weighted average interest rate. PAGE 21 ADVANCES FROM FEDERAL HOME LOAN BANKS The Company uses FHLB borrowings, 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 $6.2 billion at March 31, 1994, compared to $6.6 billion and $6.3 billion at March 31, 1993, and December 31, 1993, 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 $583 million, $433 million, and $377 million at March 31, 1994, and 1993, and December 31, 1993, respectively. OTHER BORROWINGS Golden West 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, 1994. As of March 31, 1994, 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, 1994, $1.2 billion was available for issuance. The Association had medium-term notes outstanding under the current and prior registrations with principal amounts of $677 million at March 31, 1994, compared to $478 million at March 31, 1993, and $677 million at December 31, 1993. As of March 31, 1994, the Association'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 $250 million of subordinated notes. Under a prior filing with the OTS, $50 million of subordinated notes remain unissued. As of March 31, 1994, the Association had issued a total of $200 million of subordinated notes. As of March 31, 1994, World's subordinated notes were rated A2 and A by Moody's and S&P, respectively. The subordinated notes are included in the Association's risk-based regulatory capital as Supplementary Capital. PAGE 22 STOCKHOLDERS' EQUITY The Company's stockholders' equity increased in the first three months of 1994 and 1993 through the retention of a high percentage of net earnings. However, the increase in stockholders' equity in 1994 was partially offset by a $20 million decrease in unrealized gains on securities available for sale due to the adoption of FAS 115 as of December 31, 1993 and the subsequent decrease in market values of securities available for sale. 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. On October 28, 1993, the Company's Board of Directors authorized the purchase by the Company of up to 3.2 million shares of Golden West's common stock. As of March 31, 1994, 630,900 shares had been repurchased and retired at a cost of $24.3 million, of which 426,900 shares were purchased and retired at a cost of $16.5 million during the first quarter of 1994. 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, 1994, and 1993.
TABLE 10 World Savings and Loan Association Regulatory Capital Ratios Under Current Requirements ($000s Omitted) . 1994 1993 ----------------------------------------- ----------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ------------------- ------------------ ------------------- ------------------ Capital Ratio Capital Ratio Capital Ratio Capital Ratio ---------- ------ ---------- ------ ---------- ----- ---------- ----- Tangible $2,083,093 7.38% $ 423,482 1.50% $1,777,219 6.59% $ 404,510 1.50% Core 2,188,964 7.75 846,965 3.00 1,979,474 7.34 809,020 3.00 Risk-based 2,485,765 15.79 1,259,556 8.00 2,245,626 16.20 1,109,051 8.00
PAGE 23 During the first quarter of 1994, the Office of Thrift Supervision changed the regulations concerning the criteria used to determine the risk weighting for multi-family loans in the calculation of the risk-based capital ratio. Due to uncertainty over how the new regulations will be applied, World Savings has taken the conservative approach and pending any further clarification from the OTS, has weighted the Association's entire multi-family portfolio at 100%. This change caused a decrease in the risk-based capital ratio from March 1993 to March 1994. The table below shows World's regulatory capital ratios and compares them to the fully phased-in 1995 OTS minimum requirements at March 31, 1994, and 1993.
TABLE 11 World Savings and Loan Association Regulatory Capital Ratios Under Fully Phased-In Requirements ($000s Omitted) . 1994 1993 ----------------------------------------- ----------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ------------------- ------------------ ------------------- ------------------ Capital Ratio Capital Ratio Capital Ratio Capital Ratio ---------- ------ ---------- ------ ---------- ----- ---------- ----- Tangible $2,083,093 7.38% $ 423,482 1.50% $1,777,219 6.59% $ 404,510 1.50% Core 2,083,093 7.38 846,965 3.00 1,777,219 6.59 809,020 3.00 Risk-based 2,378,993 15.21 1,251,014 8.00 2,039,673 14.93 1,092,575 8.00
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required each federal banking agency to implement prompt corrective actions for institutions that it regulates to resolve the problems of insured depository institutions at the least possible long-term loss to the deposit insurance fund. In response to this requirement, the OTS adopted final rules as to capital adequacy, effective December 19, 1992, based upon FDICIA's five capital tiers. The rules provide that a savings association is "well capitalized" if its total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater, its leverage ratio is 5% or greater, and the institution is not subject to a capital directive. A savings association is "adequately capitalized" if its total risk-based capital ratio is 8% or greater, its Tier 1 risk-based capital ratio is 4% or greater, and its leverage ratio is 4% or greater (3% or greater for one-rated institutions). An institution is considered "undercapitalized" if its total risk-based capital ratio is less than 8%, its Tier 1 risk-based capital ratio is less than 4%, or its leverage ratio is less than 4% (less than 3% for one-rated institutions). An institution is "significantly undercapitalized" if its total risk-based capital ratio is less than 6%, its Tier 1 risk-based capital ratio is less than 3%, or its leverage ratio is less than 3%. A savings association is deemed to be "critically undercapitalized" if itsratio of tangible equity to total assets is equal to, or less than, 2%. At its discretion, the OTS may determine that an institution is in a capitalization category that is lower than is indicated by its actual PAGE 24 capital position. As used herein, total risk-based capital ratio means the ratio of total capital to risk-weighted assets, Tier 1 risk-based capital ratio means the ratio of core capital to risk-weighted assets, and leverage ratio means the ratio of core capital to adjusted total assets, in each case as calculated in accordance with current OTS capital regulations. World met the "well capitalized" standard as of March 31, 1994. PAGE 25 The table below shows a reconciliation of World's equity capital to regulatory capital under FIRREA and FDICIA at March 31, 1994.
TABLE 12 Reconciliation of Equity Capital to Regulatory Capital Under FIRREA and FDICIA ($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 1,921,476 Unrealized gains on securities available for sale 61,123 ----------- Equity capital $ 2,216,190 $ 2,216,190 $ 2,216,190 $ 2,216,190 $ 2,216,190 $ 2,216,190 =========== Positive goodwill (1) (2) (228,991) (228,991) (228,991) (228,991) (228,991) Negative goodwill (1) (3) 95,894 95,894 95,894 95,894 95,894 Qualifying supervisory positive goodwill (1) (2) 105,871 105,871 105,871 105,871 Equity/other investments (4) (1,351) Subordinated debt 198,930 General valuation allowances 99,222 ----------- ----------- ----------- ----------- ----------- Regulatory capital $ 2,083,093 $ 2,188,964 $ 2,188,964 $ 2,188,964 $ 2,485,765 =========== =========== =========== =========== =========== Total assets $28,358,391 =========== Adjusted total assets $28,232,164 $28,232,164 $28,232,164 =========== =========== =========== Risk-weighted assets $15,744,452 $15,744,452 =========== =========== CAPITAL RATIO - ACTUAL 7.81% 7.38% 7.75% 7.75% 13.90% 15.79% =========== =========== =========== =========== =========== =========== Regulatory Capital Ratio Requirements: 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% ===========
(1) All goodwill is required to be deducted from tangible capital. Goodwill arising prior to April 12, 1989, in excess of a sliding scale limit (0.375% of assets at March 31, 1994), is required to be deducted from all other capital computations on a phased-in basis through December 1994. Goodwill arising after April 12, 1989, must be deducted from all capital computations. (2) All but $2,296 of the Association's positive goodwill arose prior to April 12, 1989. (3) The Association's negative goodwill arose after April 12, 1989. (4) Equity and certain other investments are required to be deducted from total risk-based capital on a phased-in basis (40% at March 31, 1994) through June 1994. PAGE 26 The table below compares World's regulatory capital to the well capitalized classification of FDICIA's capital standards at March 31, 1994.
TABLE 13 World Savings and Loan Association Regulatory Capital Compared to Well Capitalized Classification ($000s Omitted) ACTUAL WELL CAPITALIZED ------------------- ------------------- Capital Ratio Capital Ratio ---------- ------ ---------- ------ Leverage $2,188,964 7.75% $1,411,608 5.00% Tier 1 risk-based 2,188,964 13.90 944,667 6.00 Total risk-based 2,485,765 15.79 1,574,445 10.00
World's leverage, Tier 1 risk-based, and total risk-based capital ratios under the fully phased-in 1995 OTS minimum requirements at March 31, 1994, were 7.38%, 13.32%, and 15.21%, respectively. RESULTS OF OPERATIONS PROFIT MARGINS/SPREADS An important determinant of Golden West's earnings is its profit margin or 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, 1994, and 1993, and December 31, 1993.
TABLE 14 Yield on Earning Assets, Cost of Funds, and Primary Spread, Including Effect of Purchase Accounting March 31 ------------------------ December 31 1994 1993 1993 ------ ------ ----------- Yield on loan portfolio 6.69% 7.38% 6.84% Yield on investments 4.25 3.54 3.80 ---- ---- ---- Yield on earning assets 6.47 7.08 6.61 ---- ---- ---- Cost of customer deposits 3.79 4.25 3.92 Cost of borrowings 4.60 5.26 4.69 ---- ---- ---- Cost of funds 4.06 4.60 4.18 ---- ---- ---- Primary spread 2.41% 2.48% 2.43% ==== ==== ====
PAGE 27 The Company's primary spread is somewhat dependent on changes in interest rates because Golden West's liabilities tend to respond somewhat more rapidly to rate movements than its assets. Because of the relatively stable interest rate environment during 1993 and 1994, the benefit from Eleventh District FHLB Cost of Funds Index (the COFI) timing lag was significantly smaller, resulting in a lower spread than a year ago. The yield on most of the Company's ARMs is tied to the COFI, and the COFI responds more slowly to changes in market rates. The table below shows the Company's revenues and expenses as a percentage of total revenues for the three months ended March 31, 1994, and 1993, in order to focus on the changes in interest income between years as well as changes in other revenue and expense amounts.
TABLE 15 Selected Revenue and Expense Items as Percentages of Total Revenues 1994 1993 ------ ------ Interest on loans 85.9% 85.7% Interest on mortgage-backed securities 6.1 8.2 Interest and dividends on investments 5.5 3.6 ---- ---- 97.5 97.5 Less: Interest on customer deposits 35.7 37.0 Interest on advances and other borrowings 21.1 22.2 ---- ---- 56.8 59.2 Net interest income 40.7 38.3 Provision for loan losses 3.6 2.4 ---- ---- Net interest income after provision for loan losses 37.1 35.9 Add: Fees 1.7 1.5 Gain on the sale of securities and mortgage-backed securities 0.0 0.3 Other non-interest income 0.8 0.7 ---- ---- 2.5 2.5 Less: General and administrative expenses 15.7 13.6 Amortization of goodwill 0.1 (0.1) Taxes on income 9.7 9.8 ---- ---- Net earnings 14.1% 15.1% ==== ====
PAGE 28 INTEREST ON LOANS In the first quarter of 1994, interest on loans was lower than in the comparable 1993 period by $9.0 million or 2.2%. The 1994 decrease was due primarily to a 64 basis point decrease in the average portfolio yield, which was partially offset off by a $1.7 billion increase in the average portfolio balance. INTEREST ON MORTGAGE-BACKED SECURITIES In the first quarter of 1994, interest on mortgage-backed securities was lower than in the comparable 1993 period by $10.6 million or 27.3%. The 1994 decrease was due primarily to a 70 basis point decrease in the average portfolio yield and a $363 million decrease in the average portfolio balance. 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 first three months of 1994, interest and dividends on investments was $8.3 million or 48.4% higher than for the same period in 1993. The increase was primarily due to a 25 basis point increase in the average portfolio yield as well as a $609 million increase in the average portfolio balance. INTEREST ON CUSTOMER DEPOSITS The major portion of the Company's customer deposit base consists of savings accounts with remaining maturities of less than one year. Thus, the amount of interest paid on these funds depends upon the level of short-term interest rates and the savings balances outstanding. In the first quarter of 1994, interest on customer deposits decreased by $10.5 million or 5.9% from the comparable period in 1993. The decrease was primarily due to a 47 basis point decrease in the average cost of deposits, which was partially offset by an $894 million increase in the average deposit balance. INTEREST ON ADVANCES AND OTHER BORROWINGS For the first three months of 1994, interest on advances and other borrowings decreased by $7.7 million or 7.3% compared to the same period a year earlier. The decrease was primarily due to a 72 basis point decrease in the average cost of these borrowings, which was mostly offset by a $694 million increase in their average balance. PROVISION FOR LOAN LOSSES The provision for loan losses was $16.5 million for the three months ended March 31, 1994, compared to $11.5 million for the same period of PAGE 29 1993. The 1994 increase in provision over 1993 reflected increased chargeoffs, increased nonperforming assets, and the continued weak California economy. In addition, the provision for the first three months of 1994 included $3.4 million in specific earthquake loss reserves. GENERAL AND ADMINISTRATIVE EXPENSES For the first three months of 1994, general and administrative expenses (G & A) increased by $8.0 million or 12.4% from the comparable period in 1993. The primary reasons for the increase were general inflation, growth of mortgage and deposit balances, the expansion of loan origination capacity outside California, and the installation of enhancements to data processing systems. The increase in 1994 was also due to the relocation of some of our administrative operations to San Antonio, Texas. In addition, during the first six months of 1993, the Company received a reduction in the FDIC premium due to the settlement of the FSLIC secondary reserve. As a result, deposit insurance expense for the first three months of 1993 included a credit of $1.4 million. G & A as a percentage of average assets on an annualized basis was 1.01% for the first quarter of 1994 compared to 0.97% for the same period in 1993. 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. In the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." FAS 109 requires a change from the deferred method to the liability method of computing deferred income taxes. The Company has applied FAS 109 prospectively. FAS 109 required the Company to adjust its purchase accounting for prior business combinations by increasing deferred tax assets and reducing goodwill by $23 million to reflect the non-taxability of purchase accounting income. This deferred tax asset is being amortized over the remaining lives of the related purchased assets. The corporate tax rate for the first quarter of 1994 was 40.9% comparable to 39.4% for the same period a year ago. This increase is primarily due to the effect of the federal legislation enacted during the third quarter of 1993 that increased the federal corporate income tax rate from 34% to 35%. LIQUIDITY AND CAPITAL RESOURCES The Association'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, the Association has a number of other alternatives available to provide liquidity or finance operations. These PAGE 30 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 the Association's liquidity positions at March 31, 1994, and 1993, and December 31, 1993, see the cash and investments section on page 10. The principal sources of funds for the Association's parent, Golden West, 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 the Association can pay. The principal liquidity needs of the parent company are for payment of interest on subordinated debt securities, dividends to stockholders, and general and administrative expenses. At March 31, 1994, and 1993, and December 31, 1993, the parent company's total cash and investments amounted to $964 million (including a $150 million short-term loan to World), $724 million (including a $220 million short-term loan to World), and $956 million (including a $150 million short-term loan to the Association), respectively. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) April 28, 1994 - Annual Meeting. (b) Directors elected: Kenneth T. Rosen For: 56,917,791 Against: 10,710 Withheld: 466,138 William D. McKee For: 56,916,859 Against: 11,920 Withheld: 465,860 Herbert M. Sandler For: 56,918,305 Against: 10,724 Withheld: 465,610 Other Directors continuing in office are: Louis J. Galen, William Patrick Kruer, Bernard A. Osher, Paul Sack, and Marion O. Sandler PAGE 31 (c) Ratification of the appointment of Deloitte & Touche, independent public accountants, to examine the accounts of the Company for the fiscal year 1994: For: 57,302,398 Against: 29,076 Abstain: 63,165 PASSED ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 - Statement of Computation of Earnings Per Share 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 10, 1994. /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 ------------------------ 1994 1993 ----------- ----------- Line 1: Average Number of Common Shares Outstanding 63,934,636 63,965,453 =========== =========== Line 2: Net Earnings $ 65,296 $ 71,584 =========== =========== Line 3: Earnings Per Common Share (Line 2 divided by Line 1) $1.02 $1.12 ===== =====
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