-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ChSOaFx42fzcal0Owk+HcLPoDXES7iY9wvjiJpvO5HdB3Fvg1ysgQooCrzhUrY7C 7PFhys0sg0A+Bfge2DnfBA== 0000042293-95-000010.txt : 19951201 0000042293-95-000010.hdr.sgml : 19951201 ACCESSION NUMBER: 0000042293-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95591203 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 9/30/95, LIVE 10-Q FILING SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For Quarter Ended September 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 October 31, 1995, was 58,640,879 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 nine months ended September 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 nine month periods have been included. The operating results for the nine months ended September 30, 1995, are not necessarily indicative of the results for the full year.
Golden West Financial Corporation Consolidated Statement of Financial Condition (Unaudited) (Dollars in thousands) September 30 September 30 December 31 1995 1994 1994 ------------ ----------- ----------- Assets: Cash $ 173,994 $ 151,581 $ 242,441 Securities available for sale 1,249,736 1,655,133 1,488,845 Other investments 818,730 207,800 534,600 Mortgage-backed securities available for sale at fair value 298,221 716,709 323,339 Mortgage-backed securities held to maturity at cost without 917,005 522,700 871,039 recourse Mortgage-backed securities held to maturity at cost with 1,969,697 -0- -0- recourse Loans receivable 27,951,161 25,670,613 27,071,266 Interest earned but uncollected 234,442 202,009 202,456 Investment in capital stock of Federal Home Loan Banks--at cost, which approximates fair value 346,356 328,660 332,940 Real estate held for sale or investment 71,426 64,920 72,217 Prepaid expenses and other assets 225,899 213,362 206,478 Premises and equipment--at cost less accumulated depreciation 202,674 196,087 201,875 Goodwill arising from acquisitions 138,931 136,927 136,245 ------------ ----------- ------------- $ 34,598,272 $30,066,501 $ 31,683,741 ============ =========== ============= Liabilities and Stockholders' Equity: Customer deposits $ 20,559,933 $18,530,133 $ 19,219,389 Advances from Federal Home Loan Banks 5,976,515 6,229,344 6,488,418 Securities sold under agreements to repurchase 1,865,172 626,687 601,821 Medium-term notes 1,864,229 664,199 1,164,079 Federal funds purchased -0- -0- 250,000 Accounts payable and accrued expenses 462,041 416,666 443,693 Taxes on income 352,232 314,718 294,508 Subordinated notes--net of discount 1,321,989 1,221,181 1,221,559 Stockholders' equity 2,196,161 2,063,573 2,000,274 ------------ ----------- ------------- $ 34,598,272 $30,066,501 $ 31,683,741 ============ =========== =============
Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) (Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended September 30 September 30 ------------------- -------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Interest Income: Interest on loans $540,154 $411,573 $1,557,366 $1,205,624 Interest on mortgage-backed securities 54,007 25,037 117,511 79,454 Interest and dividends on investments 37,611 31,551 112,935 92,239 ------- ------- --------- --------- 631,772 468,161 1,787,812 1,377,317 Interest Expense: Interest on customer deposits 274,000 180,584 779,795 512,580 Interest on advances 87,681 69,119 280,087 191,031 Interest on repurchase agreements 25,565 8,221 41,169 25,316 Interest on other borrowings 57,093 33,051 160,596 96,482 ------- ------- --------- ------- 444,339 290,975 1,261,647 825,409 ------- ------- --------- ------- Net Interest Income 187,433 177,186 526,165 551,908 Provision for loan losses 14,622 15,996 44,052 50,434 ------- ------- -------- ------ Net Interest Income after Provision for Loan Losses 172,811 161,190 482,113 501,474 Non-Interest Income: Fees 7,690 6,598 20,399 22,278 Loss on the sale of securities and mortgage-backed securities (366) (73) (344) (106) Other 3,152 3,261 10,660 10,473 ------ ----- ------ ------ 10,476 9,786 30,715 32,645 Non-Interest Expense: General and administrative: Personnel 37,692 37,221 111,909 109,139 Occupancy 12,431 11,297 36,406 32,417 Deposit insurance 11,602 10,204 33,162 30,325 Advertising 2,166 2,722 7,620 7,957 Other 14,596 13,691 45,918 41,834 --------- ------- -------- ------- 78,487 75,135 235,015 221,672 Amortization of goodwill arising from acquisitions 527 682 2,393 1,907 --------- ------- -------- ------- 79,014 75,817 237,408 223,579 --------- ------- -------- ------- Earnings Before Taxes on Income 104,273 95,159 275,420 310,540 Taxes on income 40,892 39,034 107,545 127,176 --------- ------- -------- ------- Net Earnings $ 63,381 $56,125 $167,875 $183,364 ========= ======= ======== ======== Net earnings per share $ 1.08 $ .91 $ 2.86 $ 2.91 ========= ======= ======== ========
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands)
Three Months Ended Nine Months Ended September 30 September 30 ------------------- ------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Cash Flows From Operating Activities: Net earnings $ 63,381 $ 56,125 $ 167,875 $ 183,364 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 14,622 15,996 44,052 50,434 Amortization of loan fees and discounts (5,493) ( 6,241) (15,052) (23,063) Depreciation and amortization 5,214 4,837 16,402 13,809 Loans originated for sale (33,002) (5,596) (43,488) (90,083) Sales of loans originated for sale 14,435 5,413 23,982 142,996 Decrease (increase) in interest earned but uncollected 13,894 (2,747) (31,986) (26,929) Federal Home Loan Bank stock dividends (4,659) (4,126) (16,779) (14,743) Decrease (increase) in prepaid expenses and other assets 13,174 (22,852) (15,222) (97,591) Increase (decrease) in accounts payable and accrued expenses 26,653 (6,949) 18,348 60,867 Increase (decrease) in taxes on income (4,203) (12,049) 27,772 (14,689) Other, net (8,023) (5,578) (21,487) (18,700) ------ ------ ------- ------- Net cash provided by operating activities 95,993 16,233 154,417 165,672 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (1,342,404) (1,777,064) (4,535,012) (4,545,842) Real estate loans purchased (478) (880) (29,923) (1,744) Other, net (4,117) 44 (60,925) 2,862 --------- --------- --------- --------- (1,346,999) (1,777,900) (4,625,860) (4,544,724) Real estate loan principal payments: Monthly payments 121,752 149,388 384,311 448,882 Payoffs, net of foreclosures 491,202 470,388 1,085,577 1,853,002 Refinances 50,693 66,835 126,532 261,139 ------ ------- --------- --------- 663,647 686,611 1,596,420 2,563,023 Purchases of mortgage-backed securities available for sales -0- (919) (6,254) (1,500) Purchases of mortgage-backed securities held to maturity (97,840) (25,724) (99,020) (46,067) Sales of mortgage-backed securities available for sale -0- -0- 6,396 119 Repayments of mortgage-backed securities 63,708 49,903 121,298 279,153 Proceeds from sales of real estate 49,743 53,455 151,002 159,315 Purchases of securities available for sale (1,155,102) (398,094) (2,627,287) (2,401,279) Sales and maturities of securities available for sale 1,351,080 515,510 2,941,154 2,355,417 Decrease (increase) in other investments 166,440 159,400 (284,130) 330,300 Purchases of Federal Home Loan Bank stock -0- -0- (13,486) -0- Redemptions of Federal Home Loan Bank stock -0- -0- 12,650 7,775 Additions to premises and equipment (6,358) (23,639) (18,232) (46,877) ------- ------- --------- --------- Net cash used in investing activities (311,681) (761,397) (2,845,349) (1,345,345)
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands)
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ 1995 1994 1995 1994 ---- ---- ---- ---- Cash Flows From Financing Activities: Customer deposit activity: Increase (decrease) in deposits, net $ (399,563) $ 466,639 $ 713,689 $ 687,565 Interest credited 221,341 148,668 626,855 420,084 ----------- ------------ ------------ ------------ (178,222) 615,307 1,340,544 1,107,649 Additions to Federal Home Loan Bank advances 25,800 14,000 575,890 37,000 Repayments of Federal Home Loan Bank advances (307,551) (7,521) (1,088,118) (89,543) Increase in securities sold under agreements to repurchase 693,486 246,291 1,263,351 183,813 Proceeds from medium-term notes -0- -0- 699,360 -0- Repayments of medium-term notes -0- -0- -0- (12,865) Repayments of Federal Funds purchased -0- -0- (250,000) -0- Proceeds from subordinated debt -0- -0- 99,283 -0- Dividends on common stock (4,990) (4,612) (14,955) (14,163) Purchase and retirement of Company Stock (2,224) (80,290) (2,870) (123,822) ----------- ------------ ------------ ------------ Net cash provided by financing activities 226,299 783,175 2,622,485 1,088,069 ----------- ------------ ------------ ------------ Net Increase (Decrease) in Cash 10,611 38,011 (68,447) ( 91,604) Cash at beginning of period 163,383 113,570 242,441 243,185 ----------- ------------ ------------ ------------ Cash at end of period $ 173,994 $ 151,581 $ 173,994 $ 151,581 =========== ============ ============ ============ Supplemental cash flow information: Cash paid for: Interest $ 431,106 $ 288,514 $ 1,234,984 $ 828,705 Income taxes 45,716 51,362 81,768 142,144 Cash received for interest and dividends 645,666 465,414 1,755,826 1,350,388 Noncash investing activities: Loans transferred to foreclosed real estate 56,287 60,313 162,507 174,468 Loans securitized into MBS with recourse 637,122 -0- 2,010,272 -0-
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands)
Nine Months Ended September 30 ------------------- 1995 1994 ---- ---- Common Stock: Balance at January 1 $ 5,859 $ 6,393 Common stock issued upon exercise of stock options 14 14 Common stock retired upon purchase of stock (7) (311) ---------- --------- Balance at September 30 5,866 6,096 ---------- --------- Paid-in Capital: Balance at January 1 45,689 40,899 Common stock issued upon exercise of stock options 3,351 2,109 ---------- --------- Balance at September 30 49,040 43,008 ---------- --------- Retained Earnings: Balance at January 1 1,929,740 1,933,593 Net earnings 167,875 183,364 Cash dividends on common stock (14,955) (14,163) Retirement of stock (2,863) (123,511) ---------- --------- Balance at September 30 2,079,797 1,979,283 ---------- --------- Unrealized Gains on Securities Available for Sale: Balance at January 1 18,986 84,719 Change during period 42,472 (49,533) ---------- ---------- Balance at September 30 61,458 35,186 ---------- ---------- Total Stockholders' Equity at September 30 $2,196,161 $2,063,573 ========== ==========
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 nine month periods ended September 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 (Dollars in thousands except per share amounts)
September 30 September 30 December 31 1995 1994 1994 ----------- ------------ ---------- Assets $ 34,598,272 $ 30,066,501 $ 31,683,741 Loans receivable 27,951,161 25,670,613 27,071,266 Mortgage-backed securities 3,184,923 1,239,409 1,194,378 Customer deposits 20,559,933 18,530,133 19,219,389 Stockholders' equity 2,196,161 2,063,573 2,000,274 Stockholders' equity/total assets 6.35% 6.86% 6.31% Book value per common share $ 37.44 $ 33.85 $ 34.14 Common shares outstanding 58,663,619 60,961,755 58,589,955 Yield on loan portfolio 7.68% 6.70% 6.91% Yield on investments 6.05% 5.16% 5.42% Yield on earning assets 7.58% 6.60% 6.81% Cost of deposits 5.22% 4.05% 4.57% Cost of borrowings 6.22% 5.23% 5.85% Cost of funds 5.57% 4.42% 5.00% Yield on earning assets less cost of funds 2.01% 2.18% 1.81% Ratio of nonperforming assets to total assets 1.08% 1.35% 1.12% Ratio of troubled debt restructured to total assets(a) .16% .20% .23% World Savings and Loan Association: Net worth $ 2,314,532 $ 2,325,607 $2,090,555 Net worth/total assets 7.08% 7.83% 6.74% Regulatory capital ratios: Tangible capital 6.54% 7.41% 6.26% Core capital 6.54% 7.79% 6.64% Risk-based capital 13.61% 15.67% 13.54%
Three Months Ended Nine Months Ended September 30 September 30 --------------------------- --------------------------- 1995 1994 1995 1994 ------------ ------------ ------------ ------------ New real estate loans originated $ 1,375,406 $ 1,782,660 $ 4,578,500 $ 4,635,925 Average yield on new real estate loans 7.84% 6.35% 7.49% 6.37% Increase (decrease) in customer deposits $ (178,222) $ 615,307 $ 1,340,544 $ 1,107,649 Net earnings 63,381 56,125 167,875 183,364 Net earnings per share 1.08 .91 2.86 2.91 Cash dividends on common stock .085 .075 .255 .225 Average common shares outstanding 58,681,021 61,655,775 58,637,427 62,955,404 Ratios:(b) Net earnings/average net worth 11.71% 10.77% 10.65% 11.70% Net earnings/average assets .74% .76% .67% .83% Net interest income/average assets 2.18% 2.38% 2.09% 2.51% General and administrative expense/average assets .91% 1.01% .93% 1.01%
(a)Included in the TDR ratio is 0.04% or $13 million, 0.07% or $20 million, and 0.07% or $22 million, related to the January 1994 Southern California earthquake, as of September 30, 1995 and 1994, and December 31, 1994, respectively. (b)Ratios are annualized by multiplying the quarterly computation by four and the nine-month computation by one and one-third. Averages are computed by adding the beginning balance and each monthend balance during the quarter and the nine month period and dividing by four and ten, respectively. FINANCIAL CONDITION The consolidated condensed balance sheet shown in the table below presents the Company's assets and liabilities in percentage terms at September 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
September 30 December 31 ------------------ ----------- 1995 1994 1994 ---- ---- ---- Assets: Cash and investments 6.5% 6.7% 7.2% Mortgage-backed securities 9.2 4.1 3.8 Loans receivable 80.8 85.4 85.4 Other assets 3.5 3.8 3.6 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== ===== Liabilities and Stockholders' Equity: Customer deposits 59.4% 61.6% 60.7% Federal Home Loan Bank advances 17.3 20.7 20.5 Securities sold under agreements to repurchase 5.4 2.1 1.9 Medium-term notes 5.4 2.2 3.7 Other liabilities 2.4 2.4 3.1 Subordinated debt 3.8 4.1 3.8 Stockholders' equity 6.3 6.9 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 September 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 two months later 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)
September 30, 1995 Projected Repricing(a) ------------------------------------------------------------- 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ------ ------ ----- ------ ----- Interest-Earning Assets: Investments $ 1,489 $ 188 $ 344 $ 48 $ 2,069 Mortgage-backed securities 2,085 108 472 520 3,185 Loans receivable: Rate-sensitive 23,143 1,409 166 -0- 24,718 Fixed-rate 91 264 1,240 1,415 3,010 Other(b) 452 -0- -0- -0- 452 Impact of interest rate swaps and caps 796 193 (309) (680) -0- ------- ------ ------- ------- ------- Total $28,056 $2,162 $1 ,913 $1,303 $33,434 ======= ====== ======= ======= ======= Interest-Bearing Liabilities(c): Customer deposits $ 7,279 $9,535 $ 3,652 $ 94 $20,560 FHLB advances 5,011 412 424 130 5,977 Other borrowings 2,075 1,447 819 710 5,051 Impact of interest rate swaps and caps 2,788 (1,628) (1,202) 42 -0- ----- ------ ------- ------ ------- Total $17,153 $9,766 $ 3,693 $ 976 $31,588 ======= ====== ======= ====== ======= Repricing gap $10,903 $(7,604) $(1,780) $ 327 ======= ======= ======= ====== Cumulative gap $10,903 $ 3,299 $ 1,519 $1,946 ======= ======= ======= ====== Cumulative gap as a percentageof total assets 31.5% 9.5% 4.4% ======= ======= =======
(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 September 30, 1995 and 1994, and December 31, 1994, World's average regulatory liquidity ratios were 6%, 7%, and 7%, respectively, consistently exceeding the requirement. At September 30, 1995 and 1994, and December 31, 1994, the Company had no securities held to maturity or for trading. At September 30, 1995 and 1994, and December 31,1994, the Company had securities available for sale in the amount of $1.2 billion, $1.7 billion, and $1.5 billion, respectively, and unrealized gains on securities available for sale of $89 million, $36 million, and $23 million, respectively. For the impact on stockholders' equity, see page 24. Included in the securities available for sale at September 30, 1995 and 1994, and December 31, 1994, were collateralized mortgage obligations (CMOs) in the amount of $484 million, $720 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 Septembe 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 nine months of 1995, the Company securitized $2.0 billion of adjustable rate mortgages (ARMs) into Federal National Mortgage Association (FNMA) COFI-indexed mortgage-backed securities (MBS), to be used as collateral for borrowings. These securities 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 September 30, 1995 and 1994, and December 31, 1994, were $2.9 billion, $523 million, and $871 million, respectively, including $1.97 billion of FNMA MBS subject to full credit recourse at September 30, 1995. MBS available for sale at September 30, 1995 and 1994, and December 31, 1994, were $298 million, $717 million, and $323 million, respectively. Unrealized gains on MBS available for sale at September 30, 1995 and 1994, and December 31, 1994, were $16 million, $20 million, and $6 million, respectively. For the impact on stockholders' equity, see page 23. Repayments of MBS during the third quarter and first nine months of 1995 were $64 million and $121 million, respectively, compared to $50 million and $279 million in the same periods of 1994. At September 30, 1995, $2.0 billion (64%) of the Company's total MBS portfolio were backed by ARMs. Fixed-rate mortgage-backed securities which comprise the other 36% of the total MBS portfolio, are subject to prepayment and interest rate risk similar to fixed-rate loans. 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, and, conversely, as interest rates fall, repayments on such securities tend to rise. LOAN PORTFOLIO LOAN VOLUME New loan originations for the three and nine months ended September 30, 1995 amounted to $1.4 billion and $4.6 billion, respectively, compared to $1.8 billion and $4.6 billion for the same periods in 1994. The decline in loan volume in the third quarter of 1995 was due to interest rate decreases which brought down the price of new fixed-rate mortgage loans, making competition from fixed-rate lenders more intense for adjustable rate mortgage lenders, such as the Company. Refinanced loans constituted 31% and 30% of new loan originations for the three and nine months ended September 30, 1995, respectively, compared to 33% and 44% for the three and nine months ended September 30, 1994, respectively. The Company has lending operations in 24 states. The primary source of mortgage origination is loans secured in California. For the three and nine months ended September 30, 1995, 53% of total loan originations were on residential properties in California compared to 59% and 64% for the same periods in 1994, respectively. The five largest states, other than California, for originations for the three and nine month periods ended September 30, 1995, were Texas, Illinois, New Jersey, Florida, and Colorado and these amounted to between 3.8% and 7.4% of total originations. Although California originations continue to be a large portion of total originations, the California share of total originations in 1995 decreased compared to 1994, primarily due to both decreased loan volume in California and increased loan volume in markets outside California. The percentage of the total loan portfolio that is comprised of residential loans in California was 74% at September 30, 1995, compared to 79% at September 30, 1994, and 77% at December 31, 1994. The tables on the following two pages show the Company's loan portfolio by state at September 30, 1995, and 1994. TABLE 3 Loan Portfolio by State September 30, 1995 (Dollars in thousands)
Residential Commercial Loans as Real Estate Real Total a % of State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio - - -------------- ------------ ---------- --------- ---------- ------------ ------------ ---------- California $18,869,206 $3,337,180 $ 277 $ 74,020 $ -0- $22,280,683 73.99% Colorado 818,258 207,409 -0- 7,841 -0- 1,033,508 3.43 Illinois 800,456 177,024 -0- 2,586 -0- 980,066 3.25 Texas 780,265 68,344 593 1,702 -0- 850,904 2.83 New Jersey 836,725 -0- -0- 8,440 2,214 847,379 2.81 Florida 654,941 -0- 247 1,424 -0- 656,612 2.18 Washington 347,367 299,209 -0- 796 -0- 647,372 2.15 Virginia 406,260 604 -0- 1,623 -0- 408,487 1.36 Arizona 353,127 40,271 -0- 1,745 -0- 395,143 1.31 Pennsylvania 369,861 -0- -0- 4,347 -0- 374,208 1.24 Connecticut 302,964 -0- -0- -0- -0- 302,964 1.01 Maryland 267,044 -0- -0- 610 -0- 267,654 0.89 Oregon 173,120 10,618 -0- 3,789 -0- 187,527 0.62 Nevada 155,791 1,250 -0- -0- -0- 157,041 0.52 Kansas 128,558 5,193 -0- 215 -0- 133,966 0.44 Utah 86,049 66 -0- 2,035 -0- 88,150 0.29 Missouri 65,305 7,138 -0- 77 -0- 72,520 0.24 Minnesota 70,001 -0- -0- -0- -0- 70,001 0.23 Wisconsin 50,876 4,218 -0- -0- -0- 55,094 0.18 New York 54,494 -0- -0- -0- -0- 54,494 0.18 Georgia 44,914 -0- -0- 1,974 -0- 46,888 0.16 Washington, DC 34,591 -0- -0- -0- -0- 34,591 0.11 Ohio 25,677 2,839 438 5,383 -0- 34,337 0.11 New Mexico 23,325 -0- -0- -0- -0- 23,325 0.08 Delaware 17,862 -0- -0- -0- -0- 17,862 0.06 Idaho 13,626 -0- -0- -0- -0- 13,626 0.05 North Carolina 9,060 351 -0- 3,026 -0- 12,437 0.04 Other 50,455 10,893 -0- 4,974 -0- 66,322 0.24 ----------- ---------- ------ -------- ------ ----------- ------ Totals $25,810,178 $4,172,607 $1,555 $126,607 $2,214 30,113,161 100.0% FAS 91 deferred loan fees (80,366) Loan discount on purchased loans (6,770) Undisbursed loan funds (3,623) Allowance for loan losses (137,377) LTF interest reserve (512) TDR interest reserve (5,244) Loans on customer deposits 34,774 Consumer loans 6,815 ---------- Total loan portfolio and loans securitized into FNMA MBS with recourse 29,920,858 Loans securitized into FNMA MBS with recourse (1,969,697)(b) ---------- Total loan portfolio $27,951,161 ===========
(a) The Company has no commercial loans. (b) Loans amounting to $1.97 billion have been securitized with full credit recourse into FNMA mortgage-backed securities which can be used to collateralize borrowings. These loans have been reflected in this schedule by state.
TABLE 4 Loan Portfolio by State September 30, 1994 (Dollars in thousands) Residential Commercial Loans as Real Estate Real Total a % of State 1 - 4 5+ Land Estate Loans (a) Portfolio - - ----------- --------------- ------------- - ---------- -------------- --------------- ---------- California $17,073,781 $3,272,319 $ 293 $83,959 $20,430,352 78.98% Colorado 637,409 151,320 -0- 8,632 797,361 3.08 Illinois 551,839 157,661 -0- 4,868 714,368 2.76 New Jersey 594,290 40 -0- 155 594,485 2.30 Washington 263,322 229,284 -0- 824 493,430 1.91 Texas 442,100 3,240 607 1,792 447,739 1.73 Florida 410,158 -0- 342 2,142 412,642 1.60 Virginia 320,910 791 -0- 1,736 323,437 1.25 Arizona 236,714 9,818 -0- 1,828 248,360 0.96 Pennsylvania 226,061 -0- -0- 4,978 231,039 0.89 Connecticut 218,598 -0- -0- -0- 218,598 0.85 Maryland 183,772 -0- -0- 654 184,426 0.71 Oregon 138,442 8,246 -0- 3,966 150,654 0.58 Kansas 121,968 5,347 -0- 230 127,545 0.49 Nevada 113,252 1,343 -0- -0- 114,595 0.44 Missouri 60,254 8,060 -0- 79 68,393 0.26 New York 58,568 169 -0- -0- 58,737 0.23 Utah 52,216 71 -0- 2,213 54,500 0.21 Georgia 50,459 -0- -0- 2,545 53,004 0.20 Ohio 32,297 3,762 835 6,508 43,402 0.17 Wisconsin 19,737 3,746 -0- -0- 23,483 0.09 Washington DC 18,612 -0- -0- -0- 18,612 0.07 New Mexico 11,708 -0- -0- -0- 11,708 0.05 Minnesota 6,192 -0- -0- -0- 6,192 0.02 Idaho 5,421 -0- -0- -0- 5,421 0.02 Delaware 5,057 -0- -0- -0- 5,057 0.02 Other 20,251 486 -0- 10,478 31,215 0.13 ----------- ---------- ------ -------- ---------- ------ Totals $21,873,388 $3,855,703 $2,077 $137,587 25,868,755 100.00% =========== ========== ====== ======== ====== FAS 91 deferred loan fees (95,173) Loan discount on purchased loans (7,141) Undisbursed loan funds (2,839) Allowance for loan losses (123,262) LTF interest reserve (809) TDR interest reserve (3,098) Loans on customer deposits 29,910 Consumer loans 4,270 ----------- Total loan portfolio $25,670,613 ===========
(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 September 30, 1995, compared to 89% at September 30, 1994 and December 31, 1994. The Company's ARM originations constituted approximately 94% of new mortgage loans made in the first nine months of 1995 compared to 90% in the first nine months of 1994, and 88% and 97% for the third quarters of 1995 and 1994, respectively. The weighted average maximum lifetime cap rate on the Company's ARM loan portfolio was 13.16%, or 5.67% above the actual weighted average rate at September 30, 1995, versus 13.49%, or 7.18% above the weighted average rate at September 30, 1994. Approximately $5.2 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 September 30, 1995, $561 million of these loans were at their rate floors. The weighted average floor rate on these loans was 7.85% at September 30, 1995. Without the floor, the average yield on these loans would have been 7.54%. Loan repayments, consisting of monthly loan amortization, payoffs, and refinances, remained at very low levels during the third quarter and first nine months of 1995. Repayments for the three and nine months ended September 30, 1995 were $664 million and $1.6 billion, respectively, compared to $687 million and $2.6 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 favorable rates on COFI ARMs. 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 to total assets.
TABLE 5 Nonperforming Assets and Troubled Debt Restructured (Dollars in thousands) September 30 December 31 1995 1994 1994 ----------- ----------- ------------ Non-accrual loans $ 301,586 $ 342,192 $ 284,103 Real estate acquired through foreclosure, net 70,727 62,239 70,981 Real estate in judgment 107 805 390 ------------ ------------ ----------- Total nonperforming assets $ 372,420 $ 405,236 $ 355,474 ============ ============ =========== TDRs(a) $ 56,493 $ 61,608 $ 78,727 ============ ============ =========== Ratio of nonperforming assets to total assets 1.08% 1.35% 1.12% Ratio of TDRs to total assets(a) 0.16% 0.20% 0.23% Ratio of NPAs and TDRs to total assets(a) 1.24% 1.55% 1.35%
(a) At September 30, 1995 and 1994, and December 31, 1994, respectively, $13 million or 0.04%, $20 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 on non-accrual loans, (loans greater than 90 days past due) is fully-reserved and amounted to $5 million and $14 million in the third quarter and first nine months of 1995, respectively, compared to $4 million and $14 million in the same periods of 1994. Interest foregone on TDRs amounted to $482 thousand and $1.5 million for the three and nine months ended September 30, 1995, respectively, compared to $220 thousand and $465 thousand for the three and nine months ended September 30, 1994. The tables on the following two pages show the Company's nonperforming assets by state at September 30, 1995, and 1994.
TABLE 6 Nonperforming Assets by State September 30, 1995 (Dollars in thousands) 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 (b) - - ---------- --------- ---------- --------- ------- ------- -------- --------- ---------- California $251,455 $12,691 $413 $52,335 $12,650 $3,716 $333,260 1.50% Colorado 1,658 64 -0- 49 -0- -0- 1,771 0.17 Illinois 2,531 1,078 -0- 859 400 -0- 4,868 0.50 Texas 2,301 -0- -0- 307 -0- -0- 2,608 0.31 New Jersey 10,218 -0- 2 412 -0- -0- 10,632 1.25 Florida 2,678 -0- 84 234 -0- -0- 2,996 0.46 Washington 783 -0- -0- 335 -0- -0- 1,118 0.17 Virginia 2,044 -0- -0- 326 -0- -0- 2,370 0.58 Arizona 1,138 -0- -0- -0- -0- -0- 1,138 0.29 Pennsylvania 2,222 -0- -0- -0- -0- -0- 2,222 0.59 Connecticut 3,307 -0- -0- (90) -0- -0- 3,217 1.06 Maryland 405 -0- -0- 213 -0- -0- 618 0.23 Oregon 608 -0- -0- -0- -0- -0- 608 0.32 Nevada 557 -0- -0- 113 -0- -0- 670 0.43 Kansas 561 40 -0- 21 -0- -0- 622 0.46 Utah 122 -0- -0- -0- -0- -0- 122 0.14 Missouri 407 -0- -0- 32 -0- -0- 439 0.61 Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00 Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00 New York 2,929 -0- -0- 724 -0- -0- 3,653 6.70 Georgia 1,046 -0- -0- -0- -0- -0- 1,046 2.23 Washington,DC -0- -0- -0- -0- -0- -0- -0- 0.00 Ohio -0- -0- 58 17 154 -0- 229 0.67 New Mexico 1 -0- -0- -0- -0- -0- 1 0.00 Delaware -0- -0- -0- -0- -0- -0- -0- 0.00 Idaho -0- -0- -0- -0- -0- -0- -0- 0.00 North Carolina 80 -0- -0- -0- -0- -0- 80 0.64 Other 105 -0- -0- -0- -0- -0- 105 0.16 ------- ------- ---- ------ ------- ------ ------- ---- Totals $287,156 $13,873 $557 $55,887 $13,204 $3,716 374,393 1.24 ======== ======= ==== ======= ======= ====== ---- REO general valuation allowance (1,973) 0.00 -------- ---- Total nonperforming assets $372,420 1.24% ======== ====
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest accrued. (b) Loans amounting to $1.97 billion have been securitized with full credit recourse into FNMA mortgage-backed securities which can be used to collateralize borrowings. These loans and related nonperforming assets have been reflected in this schedule by state.
TABLE 7 Nonperforming Assets by State September 30, 1994 (Dollars in thousands) 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 $274,958 $25,550 $ 990 $47,826 $ 7,034 $ 4,471 $360,829 1.77% Colorado 1,810 -0- 3,141 177 -0- 153 5,281 0.66 Illinois 3,145 774 -0- 244 -0- -0- 4,163 0.58 New Jersey 10,866 -0- -0- 1,676 -0- -0- 12,542 2.11 Washington 519 -0- -0- 121 -0- -0- 640 0.13 Texas 1,003 -0- -0- 351 -0- -0- 1,354 0.30 Florida 2,493 -0- 372 418 -0- -0- 3,283 0.80 Virginia 1,687 -0- -0- 147 -0- -0- 1,834 0.57 Arizona 1,608 -0- -0- -0- -0- -0- 1,608 0.65 Pennsylvania 1,899 -0- -0- 66 -0- -0- 1,965 0.85 Connecticut 3,890 -0- -0- (252) -0- -0- 3,638 1.66 Maryland 514 -0- -0- 678 -0- -0- 1,192 0.65 Oregon 324 -0- -0- -0- -0- -0- 324 0.22 Kansas 602 40 -0- 266 -0- -0- 908 0.71 Nevada 560 -0- -0- -0- -0- -0- 560 0.49 Missouri 359 44 -0- 117 287 -0- 807 1.18 New York 3,492 -0- -0- 778 -0- -0- 4,270 7.27 Utah 125 -0- -0- -0- -0- -0- 125 0.23 Georgia 1,026 -0- -0- 211 -0- -0- 1,237 2.33 Ohio 40 -0- 211 -0- -0- -0- 251 0.58 Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00 Washington DC -0- -0- -0- -0- -0- -0- -0- 0.00 New Mexico 4 -0- -0- -0- -0- -0- 4 0.03 Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00 Idaho -0- -0- -0- -0- -0- -0- -0- 0.00 Delaware -0- -0- -0- -0- -0- -0- -0- 0.00 Other 146 -0- -0- -0- -0- -0- 146 0.47 --------- ------- ------ ------- ------- ------- ------- ---- Totals $ 311,070 $26,408 $4,714 $52,824 $ 7,321 $ 4,624 406,961 1.57 ========= ======= ====== ======= ======= ======= REO general valuation allowance (1,725) (0.00) -------- ---- Total nonperforming assets $405,236 1.57% ======== ====
(a) Non-accrual 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. 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. Using these trends, management is 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 fegularly reviewed to determine potential problems. Where indicated, specific 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 nine months ended September 30, 1995, and 1994.
TABLE 8 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 -------------------------- --------------------------- 1995 1994 1995 1994 ----------- ----------- ------------ ------------ Beginning allowance for loan losses $ 133,682 $ 118,587 $ 124,003 $ 106,698 Provision charged to expense 14,622 15,996 44,052 50,434 Less loans charged off (11,087) (11,621) (31,997) (34,646) Add recoveries 160 300 1,319 776 ------------ ------------ ------------ ------------ Ending allowance for loan losses $ 137,377 $ 123,262 $ 137,377 $ 123,262 ============ ============ ============ ============ Ratio of net charge-offs to average loans outstanding (including MBS with recourse) .15% .18% .14% .18% =========== ============ =========== ============ Ratio of allowance for loan losses to nonperforming assets 36.9% 30.4% =========== ===========
The Company has provided for any known losses related to the January 1994 Southern California earthquake. The September 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 122 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 The Association's deposits are insured by the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC) to a maximum of $100,000 per depositor. The FDIC also administers a separate Bank Insurance Fund (BIF) applicable to commercial banks and other non-SAIF insured institutions. As of November 10, 1995, legislation is currently pending in Congress which provides for a one-time assessment of approximately 0.80% of total deposits, as of March 31, 1995, to be paid by SAIF members such as the Association. Also, under certain circumstances, it provides for a merger of the BIF and the SAIF. Under the legislation as currently proposed, the Association's one-time assessment, on an after-tax basis, would be approximately $95 million, based on total Association deposits of approximately $20 billion as of March 31, 1995. In addition, it is expected that, after payment of the one-time assessment by SAIF-member institutions, the FDIC would lower the insurance premiums paid by SAIF members to a rate equal to the rate paid by BIF members. Currently, SAIF members pay a higher rate than BIF members. The pending legislation is subject to change and there is no certainty that it will be enacted. If the legislation passes in its current form and becomes law in 1995, and the one-time special assessment is charged against results of operations, the one-time assessment would have a material impact on the Company's 1995 results of operations. However, there would not be any effect on the Association's status as a "well capitalized" institution, nor would there be any material, adverse effect on the Association's liquidity. Customer deposits decreased during the third quarter of 1995 by $178 million, including interest credited of $221 million, compared to an increase of $615 million, including interest credited of $149 million, in the third quarter of 1994. Customer deposit balances in the first nine months of 1995 increased by $1.3 billion, including interest credited of $627 million, compared to an increase of $1.1 billion, including interest credited of $420 million, in the first nine months of 1994. The net increase in customer deposits during the first nine months of 1995 resulted primarily from ongoing marketing efforts and competitive rates offered by the Company on its insured accounts in 1995. However, in the third quarter of 1995, rates on new certificates of deposit trended downward causing some customers to seek higher returns elsewhere in uninsured investments, resulting in a net outflow for the quarter. The table below shows the Company's customer deposits by interest rate and by remaining maturity at September 30, 1995, and 1994.
TABLE 9 Customer Deposits (Dollars in millions) September 30 ------------------------------------------------ 1995 1994 ----------------- ----------------------- Rate* Amount Rate* Amount ----- ---------- ---------- ---------- Customer deposits by interest rate: Interest-bearing checking accounts 1.25% $ 733 1.27% $ 726 Passbook accounts 2.23 583 2.16 667 Money market deposit accounts 3.14 1,379 2.95 2,048 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.52 8,538 3.75 4,151 1 to 2 years 5.59 3,950 4.27 5,890 2 to 3 years 5.48 2,179 4.58 1,895 3 to 4 years 5.31 698 5.25 849 4 years and over 6.43 2,076 5.58 2,084 Retail jumbo CDs 5.76 420 4.81 208 All other 7.72 4 7.80 12 ---------- ---------- $ 20,560 $ 18,530 ========== ========== Customer deposits by remaining maturity: No contractual maturity $ 2,695 $ 3,441 Maturity within one year: 4th quarter 4,584 3,112 1st quarter 4,628 3,174 2nd quarter 3,689 1,780 3rd quarter 1,217 1,604 --------- --------- 14,118 9,670 1 to 2 years 2,095 3,236 2 to 3 years 752 901 3 to 4 years 601 508 4 years and over 299 774 ---------- ---------- $ 20,560 $ 18,530 ========== ==========
* 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 $6.0 billion at September 30, 1995, compared to $6.2 billion and $6.5 billion at September 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). 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, banks and the FHLB amounted to $1.9 billion, $627 million, and $602 million at September 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 September 30, 1995 Golden West, at the parent level, had principal amounts outstanding of $1.1 billion of subordinated debt. As of September 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. In 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, which became effective on July 28, 1995. 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 September 30, 1995. World had medium-term notes outstanding with principal amounts of $1.9 billion at September 30, 1995, compared to $664 million at September 30, 1994, and $1.2 billion at December 31, 1994. As of September 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 September 30, 1995, the full amount was available for issuance. As of September 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 nine 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 September 30, 1995 and 1994, and December 31, 1994, were $62 million, $33 million, and $17 million, respectively. Also included in stockholders' equity at September 30, 1995, are unrealized losses on MBS transferred to held to maturity of $296 thousand, compared to unrealized gains of $2 million at September 30, 1994, and December 31, 1994. 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. 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. As of September 30, 1995, 5.8 million shares had been repurchased and retired at a cost of $226.3 million, 68 thousand of which were purchased and retired at a cost of $2.9 million during the first nine months of 1995. The remaining number of shares authorized for repurchase is 6.3 million as of September 30, 1995. 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 September 30, 1995 and 1994. TABLE 10 World Savings and Loan Association Regulatory Capital Ratios (Dollars in thousands)
September 30, 1995 September 30, 1994 ----------------------------------------- --------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED -------------------- ------------------ --------------------------------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ------- -------- -------- ----- ------- ----- ------- ----- Tangible $2,123,471 6.54% $ 487,097 1.50% $ 2,191,727 7.41% $ 443,548 1.50% Core 2,123,471 6.54 974,194 3.00 2,302,614 7.79 887,096 3.00 Risk-based 2,441,239 13.61 1,434,813 8.00 2,607,182 15.67 1,331,353 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 September 30, 1995. TABLE 11 World Savings and Loan Association Regulatory Capital Compared to Well Capitalized Classification September 30, 1995 (Dollars in thousands)
ACTUAL WELL CAPITALIZED ---------------------- ------------------------ Capital Ratio Capital Ratio ----------- --------- ---------- --------- Leverage $ 2,123,471 6.54% $ 1,623,656 5.00% Tier 1 risk-based 2,123,471 11.84 1,076,110 6.00 Total risk-based 2,441,239 13.61 1,793,516 10.00
The table on the following page shows a reconciliation of World's equity capital to regulatory capital under these OTS regulations at September 30, 1995. TABLE 12 World Savings and Loan Association Reconciliation of Equity Capital to Regulatory Capital September 30, 1995 (Dollars in thousands)
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 2,021,511 Unrealized gains on securities available for sale 59,430 ----------- Equity capital $ 2.314,532 $ 2,314,532 $ 2,314,532 $ 2,314,532 $2,314,532 $$ 2,314,532 =========== Positive goodwill (208,295) (208,295) (208,295) (208,295) (208,295) Negative goodwill 76,664 76,664 76,664 76,664 76,664 Gain on securities available for sale (59,430) (59,430) (59,430) (59,430) (59,430) Equity/other investments (456) Subordinated debt 199,246 General valuation allowance 118,978 ----------- ------------ ----------- ----------- ------------ Regulatory capital $ 2,123,471 $ 2,123,471 $ 2,123,471 $ 2,123,471 $ 2,441,239 =========== ============ =========== =========== ============ Total assets $32,668,619 =========== Adjusted total assets $32,473,118 $32,473,118 $32,473,118 =========== =========== =========== Risk-weighted assets $17,935,162 $17,935,162 =========== =========== CAPITAL RATIO - ACTUAL 7.08% 6.54% 6.54% 6.54% 11.84% 13.61% =========== =========== =========== =========== =========== =========== Regulatory Capital Standards: Well capitalized, equal to or greater than 5.00% 6.00% 10.00% =========== =========== =========== Adequately capitalized, equal to or greater than 1.50% 4.00% 4.00% 8.00% =========== =========== =========== =========== Undercapitalized, less than 1.50% 4.00% 4.00% 8.00% =========== =========== =========== =========== Significantly 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 September 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
September 30 December 31 -------------------- ----------- 1995 1994 1994 ---- ---- ---- Yield on loan portfolio 7.68% 6.70% 6.91% Yield on investments 6.05 5.16 5.42 ---- ---- ---- Yield on earning assets 7.58 6.60 6.81 ---- ---- ---- Cost of customer deposits 5.22 4.05 4.57 Cost of borrowings 6.22 5.23 5.85 ---- ---- ---- Cost of funds 5.57 4.42 5.00 ---- ---- ---- Primary spread 2.01% 2.18% 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 September 30, 1995, as compared to September 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 September 30, 1994, dropping to 1.71% by March 31, 1995. As interest rates decreased in the second quarter and subsequently stabilized, the spread increased to 2.01% by September 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 $6 million and $24 million for the three and nine months ended September 30, 1995, as compared to decreases of $3 million and $18 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 September 30, 1995 and 1994.
TABLE 14 Supplemental Schedule of Unrealized Gains and Losses on Interest Rate Swaps and Caps (Dollars in thousands) September 30, 1995 September 30, 1994 -------------------------------------- --------------------------------------- Net Net Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gain (Loss) Gains Losses Gain (Loss) ---------- ---------- ----------- ------------ ----------- ----------- Interest rate caps $ 84 $ -0- $ 84 $ 259 $ -0- $ 259 Interest rate swaps 27,998 (62,254) (34,256) 93,668 (79,950) 13,718 ------- -------- -------- ------- -------- ------- Total $28,082 $(62,254) $(34,172) $93,927 $(79,950) $13,977 ======= ======== ======== ======= ======== =======
TABLE 15 Schedule of Interest Rate Swaps and Caps Activity (Notional amounts in millions)
Nine Months Ended September 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 (1,649) (335) -0- -0- (45) Terminations -0- -0- -0- -0- -0- Forward starting becoming effective 125 -0- -0- (125) -0- Other -0- -0- -0- -0- -0- ------ ------ ---- ---- ---- Balance, September 30, 1995 $3,686 $1,890 $243 $ 10 $255 ====== ====== ==== ==== ====
(a) Receives based upon one index, pays based upon another index. The range of floating interest rates received on swap contracts in the first nine 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 nine 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 nine months ended September 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 Nine Months Ended September 30 September 30 ------------------ ------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Interest on loans 84.1% 86.1% 85.6% 85.5% Interest on mortgage-backed securities 8.4 5.3 6.5 5.6 Interest and dividends on investments 5.9 6.6 6.2 6.6 --- --- --- --- 98.4 98.0 98.3 97.7 Less: Interest on customer deposits 42.7 37.8 42.9 36.4 Interest on advances and other borrowings 26.5 23.1 26.5 22.2 ---- ---- ---- ---- 69.2 60.9 69.4 58.6 Net interest income 29.2 37.1 28.9 39.1 Provision for loan losses 2.3 3.4 2.4 3.6 --- --- --- --- Net interest income after provision for loan losses 26.9 33.7 26.5 35.5 Add: Fees 1.2 1.3 1.1 1.6 Loss on the sale of securities and mortgage-backed securities (0.1) 0.0 0.0 0.0 Other non-interest income 0.5 0.7 0.6 0.7 --- --- --- --- 1.6 2.0 1.7 2.3 Less: General and administrative expenses 12.2 15.7 13.0 15.7 Amortization of goodwill 0.1 0.1 0.1 0.1 Taxes on income 6.3 8.2 5.9 9.0 --- --- --- --- Net earnings 9.9% 11.7% 9.2% 13.0% === ==== === ====
INTEREST ON LOANS In the third quarter of 1995, interest on loans was higher than in the comparable 1994 period by $129 million or 31.2%. The increase in the third quarter of 1995 was due to a $2.8 billion increase in the average portfolio balance and a 118 basis point increase in the average portfolio yield. For the first nine months of 1995 interest on loans was higher than the comparable 1994 period by $352 million or 29.2%. The increase was due to a $3.4 billion increase in the average portfolio balance and a 89 basis point increase in the average portfolio yield. INTEREST ON MORTGAGE-BACKED SECURITIES In the third quarter of 1995 interest on mortgage-backed securities was higher than in the comparable 1994 period by $29 million or 115.7%. The 1995 increase was due primarily to a $1.6 billion increase in the average portfolio balance, which was partially offset by a 63 basis point decrease in the average portfolio yield. For the first nine months of 1995, interest on mortgage-backed securities was higher than in the comparable 1994 period by $38 million or 47.9% due to a $753 million increase in the average portfolio balance, which was partially offset by a 56 basis point decrease in the average portfolio yield. The increase in the mortgage-backed securities portfolio, and the lower average portfolio yield were primarily the result of the securitization of adjustable-rate loans with full credit 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 third quarter of 1995, interest and dividends on investments were $6 million or 19.2% higher than for the same period in 1994. The increase was primarily due to a 104 basis point increase in the average portfolio yield and a $12 million increase in the average portfolio balance. For the first nine months of 1995,interest and dividends on investments was $21 million or 22.4% higher than for the same period in 1994. The increase was primarily due to a 145 basis point increase in the average portfolio yield, which was partially offset by a $103 million decrease in the average portfolio balance. INTEREST ON CUSTOMER DEPOSITS In the third quarter of 1995, interest on customer deposits increased by $93 million or 51.7% from the comparable period of 1994. The third quarter increase was due to a $2.3 billion increase in the average deposit balance and a 135 basis point increase in the average costof deposits. For the first nine months of 1995, interest on customer deposits was $267 million or 52.1% higher than for the same period of 1994. The nine month increase was primarily due to a 129 basis point increase in the average cost of deposits and a $2.5 billion increase in the average balance of deposits. INTEREST ON ADVANCES AND OTHER BORROWINGS For the third quarter and first nine months of 1995, interest on advances and other borrowings increased by $60 million or 54.3% and $169 million or 54.0%, respectively, from the comparable periods of 1994. The third quarter increase was primarily due to a $2.2 billion increase in the average balance and a 112 basis point increase in the average cost of these borrowings. The nine month increase was primarily due to a $1.7 billion increase in the average balance and a 134 basis point increase in the average cost of these borrowings. PROVISION FOR LOAN LOSSES The provision for loan losses was $14.6 million and $44.1 million, respectively, for the three and nine months ended September 30, 1995, compared to $16.0 million and $50.4 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 third quarter and first nine months of 1995, general and administrative expenses (G&A) increased by $3.4 million or 4.5% and $13.3 million or 6.0%, respectively, from the comparable periods in 1994. The primary reasons for the increases in 1995 were the growth in savings deposits and general inflation. G&A as a percentage of average assets on an annualized basis was 0.91% and 0.93% for the third quarter and first nine months of 1995, respectively, compared to 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 third quarter and first nine months of 1995 were 39.2% and 39.0%, respectively, compared to 41.0% for the same periods a year ago. The decrease in the third quarter and first nine months of 1995 tax rate is the result of tax benefits from past acquisitions and the final settlement ofprior 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 September 30, 1995, and 1994, and December 31, 1994, see the cash and investments section on page 12. 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 24), and general and administrative expenses. At September 30, 1995 and 1994, and December 31, 1994, Golden West's total cash and investments amounted to $802 million, $771 million (including a $400 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: November 13, 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 (Dollars in thousands except per share amounts) Three Months Ended Nine Months Ended September 30 September 30 --------------------- --------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Line 1: Average Number of Common Shares Outstanding 58,681,021 61,655,775 58,637,427 62,955,404 ========== =========== ========== ========== Line 2: Net Earnings $ 63,381 $ 56,125 $ 167,875 $ 183,364 ========== =========== ========== ========= Line 3: Earnings Per Common Share (Line 2 divided by Line 1) $ 1.08 $ .91 $ 2.86 $ 2.91 ========== ========== ========== =========
EX-27 2
9 9-MOS DEC-31-1995 SEP-30-1995 173,994 164,001 425,730 0 1,547,957 3,705,432 3,756,303 27,951,161 137,377 34,598,272 20,559,933 1,865,172 814,273 9,162,733 5,866 0 0 2,190,295 34,598,272 1,557,366 112,935 117,511 1,787,812 779,795 1,261,647 526,165 44,052 0 237,408 275,420 275,420 0 0 167,875 2.86 2.86 7.58 301,586 0 56,493 0 124,003 31,997 1,319 137,377 137,377 0 0
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