-----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, BGakFLRpRFB9HCqPGOuThM/MCDdvWuPD6FhzIQasRO0YIq3k8bZlQ6jnqazdNNeA zmJPoggBD8dMnR1csoeyUg== 0000043512-94-000011.txt : 19940531 0000043512-94-000011.hdr.sgml : 19940531 ACCESSION NUMBER: 0000043512-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT WESTERN FINANCIAL CORP CENTRAL INDEX KEY: 0000043512 STANDARD INDUSTRIAL CLASSIFICATION: 6035 IRS NUMBER: 951913457 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04075 FILM NUMBER: 94528017 BUSINESS ADDRESS: STREET 1: 9200 OAKDALE AVENUE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187753615 MAIL ADDRESS: STREET 1: 9200 OAKDALE AVENUE CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 1ST QTR 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 - 1004 FORM 10-Q (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-4075 GREAT WESTERN FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 95-1913457 (State or other jurisdiction of (I.R.S. Employer) incorporation or organization) Identification No.) 9200 Oakdale Avenue, Chatsworth, California 91311 (Address of principal executive offices) (Zip Code) (818) 775-3411 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of April 30, 1994: 132,980,459 GREAT WESTERN FINANCIAL CORPORATION TABLE OF CONTENTS Page ---- Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Statement of Financial Condition - March 31, 1994, December 31, 1993 and March 31, 1993..................................... 4 Consolidated Condensed Statement of Operations - Three Months Ended March 31, 1994 and 1993............. 5 Consolidated Condensed Statement of Cash Flows - Three Months Ended March 31, 1994 and 1993............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the Three Months Ended March 31, 1994......................... 8 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders.... 32 Item 5. Other Information..................................... 33 Item 6. Exhibits and Reports on Form 8-K...................... 34 GREAT WESTERN FINANCIAL CORPORATION PART I - FINANCIAL INFORMATION ------------------------------ PERSONS FOR WHOM THE INFORMATION IS TO BE GIVEN - - ----------------------------------------------- The accompanying financial information is filed for the Registrant, Great Western Financial Corporation, and its subsidiaries comprising a savings bank and companies engaged in consumer lending, mortgage banking, securities operations and certain other financial services ("GWFC" or "the Company"). PRESENTATION OF FINANCIAL INFORMATION - - ------------------------------------- The financial information has been prepared in conformity with the accounting principles or practices reflected in the financial statements included in the Annual Report filed with the Commission for the year ended December 31, 1993. The information further reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair presentation of the results for the interim periods. Item 1. Financial Statements GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
March 31 December 31 March 31 (Dollars in thousands) 1994 1993 1993 -------- ----------- -------- ASSETS Cash and securities Cash $ 551,821 $ 758,581 $ 498,338 Certificates of deposit and federal funds 300,125 217,125 125 Securities available for sale (fair value $499,680, $871,074 and $634,653) 499,680 871,074 623,381 ----------- ----------- ----------- 1,351,626 1,846,780 1,121,844 Mortgage-backed securities held to maturity (fair value $609,114 and $605,512) 628,465 618,574 - Mortgage-backed securities available for sale (fair value $2,376,905, $2,570,822 and $3,039,470) 2,376,905 2,570,822 2,972,592 ----------- ----------- ----------- 3,005,370 3,189,396 2,972,592 Loans receivable, less reserve for estimated losses 30,058,312 30,162,401 30,687,652 Loans receivable available for sale 402,652 499,002 452,684 ----------- ----------- ----------- 30,460,964 30,661,403 31,140,336 Real estate available for sale or development, net 326,924 434,077 759,616 Interest receivable 217,353 214,990 225,279 Investment in Federal Home Loan Banks 308,320 307,352 310,421 Premises and equipment, at cost, less accumulated depreciation 621,318 623,691 615,234 Other assets 714,625 638,983 457,480 Intangibles arising from acquisitions 419,924 431,688 312,465 ----------- ----------- ----------- $37,426,424 $38,348,360 $37,915,267 =========== =========== =========== LIABILITIES Customer accounts $31,066,156 $31,531,563 $29,078,171 Short-term borrowings 470,059 676,483 1,677,242 Other borrowings 2,541,964 2,802,858 3,782,969 Other liabilities and accrued expenses 682,000 729,229 699,116 Taxes on income, principally deferred 243,076 184,826 210,966 STOCKHOLDERS' EQUITY 2,423,169 2,423,401 2,466,803 ----------- ----------- ----------- $37,426,424 $38,348,360 $37,915,267 =========== =========== ===========
[FN] Unaudited GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended March 31 --------------------------- (Dollars in thousands, except per share) 1994 1993 ---- ---- INTEREST INCOME Real estate loans $481,509 $520,248 Mortgage-backed securities 44,641 50,797 Consumer loans 90,841 101,472 Securities 6,614 7,868 Other 6,387 7,414 -------- -------- 629,992 687,799 INTEREST EXPENSE Customer accounts 232,139 254,574 Borrowings Short-term 5,765 11,407 Long-term 57,844 72,225 -------- -------- 295,748 338,206 -------- -------- NET INTEREST INCOME 334,244 349,593 Provision for loan losses 51,800 62,500 -------- -------- Net interest income after provision for loan losses 282,444 287,093 Other operating income Real estate services Loan fees 7,811 9,350 Mortgage banking Gain on mortgage sales 2,288 5,036 Servicing 13,688 13,084 Real estate operations (8,644) (8,883) Provision for real estate losses (3,000) (25,500) -------- -------- 12,143 (6,913) Retail banking Banking fees 32,930 24,452 Securities operations 10,576 8,940 -------- -------- 43,506 33,392 Net gain on securities and investments 2,262 194 Net insurance operations 6,424 5,969 Other 1,486 1,310 -------- -------- Total other operating income 65,821 33,952 Operating and administrative expenses Salaries and related personnel 121,908 121,551 Premises and occupancy 51,562 44,816 FDIC insurance premium 19,147 15,736 Amortization of intangibles 11,764 8,937 Other 59,709 57,194 -------- -------- 264,090 248,234 -------- -------- EARNINGS BEFORE TAXES 84,175 72,811 Taxes on income 34,700 27,600 -------- -------- NET EARNINGS $ 49,475 $ 45,211 ======== ======== Average common shares outstanding Without dilution 133,356,647 131,602,482 Fully diluted 139,698,559 137,944,394 Earnings per share based on average common shares outstanding Primary $.32 $.30 Fully diluted .32 .30 Cash dividend per share .23 .23
[FN] Unaudited GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31 --------------------------- (Dollars in thousands) 1994 1993 ---- ---- OPERATING ACTIVITIES Net earnings $ 49,475 $ 45,211 Noncash adjustments to net earnings: Provision for loan losses 51,800 62,500 Provision for real estate losses 3,000 25,500 Depreciation and amortization 30,818 27,165 Income taxes 74,678 11,167 Capitalized interest (2,258) (6,628) Net change in accrued interest (21,083) (5,684) Other (104,036) (69,393) ----------- ------------ 82,394 89,838 ----------- ------------ Sales and repayments of loans receivable available for sale 716,257 510,708 Originations and purchases of loans receivable available for sale (619,907) (564,146) ----------- ----------- 96,350 (53,438) ----------- ----------- Net cash provided by operating activities 178,744 36,400 ----------- ----------- FINANCING ACTIVITIES Customer accounts Net increase (decrease) in transaction accounts 254,124 (116,780) Net (decrease) in term accounts (719,531) (1,747,036) ----------- ----------- (465,407) (1,863,816) Customer account acquisitions, net - 33,322 Borrowings Proceeds from new long-term debt - 1,200,000 Repayments of long-term debt (260,894) (364,398) Net change in short-term debt (206,424) 473,557 ----------- ----------- (467,318) 1,309,159 Other financing activity Proceeds from issuance of common stock 6,230 7,226 Cash dividends paid (36,772) (36,346) ----------- ---------- (30,542) (29,120) ----------- ---------- Net cash (used in) financing activities (963,267) (550,455) ----------- ---------- /TABLE GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended March 31 --------------------------- (Dollars in thousands) 1994 1993 ---- ---- INVESTING ACTIVITIES Investment securities Proceeds from maturities $ 490,718 $ 75,559 Purchases of securities (123,204) (75,034) ----------- ----------- 367,514 525 Lending Loans originated for investment (1,540,250) (1,679,581) Purchases of mortgage-backed securities (50,313) (129,308) Payments 1,765,120 1,769,355 Repurchases (20,276) (44,856) Other 14,973 8,552 ----------- ----------- 169,254 (75,838) Other investing activity Purchases and sales of premises and equipment, net (13,034) (36,330) Sales of real estate 144,587 91,366 Acquisition and disposition of assets, net - 34 Other (7,558) (3,818) ----------- ----------- 123,995 51,252 ----------- ----------- Net cash provided by (used in) investing activities 660,763 (24,061) ----------- ----------- Net (decrease) in cash and cash equivalents (123,760) (538,116) Cash and cash equivalents at beginning of period 975,706 1,036,579 ----------- ----------- Cash and cash equivalents at end of period $ 851,946 $ 498,463 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid for Interest on deposits $ 233,277 $ 255,987 Interest on borrowings 81,191 92,343 Income taxes 10,380 16,423 Noncash investing activities Loans transferred to foreclosed real estate $ 93,586 $ 200,828 Loans originated to facilitate the sale of real estate 18,749 30,084
[FN] Unaudited ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1994 Great Western Financial Corporation reported net earnings of $49.5 million, or $.32 per share, in the 1994 first quarter compared with earnings of $45.2 million, or $.30 per share, in the 1993 first quarter. Provisions for loan losses during the 1994 first quarter were $51.8 million compared with $62.5 million in the comparable period of 1993. Provisions for real estate losses were $3 million in the 1994 first quarter compared with $25.5 million in the first quarter a year earlier. The decrease in loan and real estate loss provisions reflects a slower rate of deterioration in the real estate market. The January 17, 1994 Northridge earthquake increased loan delinquencies in the first quarter and is expected to result in losses in the real estate loan portfolio in the range of $25 million to $30 million, which will be covered by existing loan loss reserves.
HIGHLIGHTS (Dollars in thousands, except per share) For the three months ended March 31 1994 1993 - - -------------------------- ---- ---- Net interest income $ 334,244 $ 349,593 Net earnings 49,475 45,211 Fully diluted earnings per common share $.32 $.30 New loan volume 2,178,906 2,273,811 Retail deposits acquired, net - 33,322 (Decrease) in customer accounts (465,407) (1,830,494) Mortgage sales 671,366 454,655 Average net interest margin Yield on earning assets 7.10% 7.73% Cost of funds 3.44 3.89 ---- ---- Yield on earning assets, less cost of funds 3.66% 3.84% ==== ==== At March 31 Total assets $37,426,424 $37,915,267 Stockholders' equity 2,423,169 2,466,803 Stockholders' equity per common share $16.01 $16.55
The Company's core business remains viable and is benefiting from the low interest-rate environment. Net interest income for the first quarter 1994 declined to $334 million compared with $350 million for the same period a year ago. While interest earning asset levels were relatively stable, the net interest margin decreased compared with a year ago. The Company's funding benefit relative to the cost of funds index for financial institutions comprising the 11th District Federal Home Loan Bank of San Francisco ("COFI") was lower in the 1994 first quarter resulting in a contraction of the net interest margin. The following summarizes the contribution to pretax income from the Company's principal business units:
Three Months Ended March 31 ------------------ (Dollars in thousands) 1994 1993 ---- ---- Banking operations $59,102 $50,937 Consumer finance group 25,073 21,874 ------- ------- Pretax earnings 84,175 72,811 Taxes on income 34,700 27,600 ------- ------- Net earnings $49,475 $45,211 ======= =======
INTEREST EARNING ASSETS Interest earning assets comprise real estate loans and mortgage-backed securities ("mortgages"), consumer finance loans and marketable securities. The composition of interest earning assets at March 31, 1994 and March 31, 1993 follows:
March 31 ---------------------------------- 1994 1993 -------------- -------------- (Dollars in millions) Amount % Amount % ------ --- ------ --- Loans receivable Real estate Residential Single-family $25,567 73% $25,644 72% Apartments 1,781 5 2,017 6 Commercial 1,543 4 1,852 5 Other 7 - 10 - Consumer finance 1,824 5 1,688 5 Bank card - - 235 - Other 389 1 376 1 ------- --- ------- --- 31,111 88 31,822 89 Mortgage-backed securities 3,012 9 2,981 8 Securities 740 2 565 2 Investment in FHLB stock 308 1 310 1 ------- --- ------- --- $35,171 100% $35,678 100% ======= === ======= ===
Interest earning assets decreased slightly during the 1994 first quarter compared with the 1993 first quarter. Commercial real estate loans continued to decrease as a result of the Company's decision in 1987 to discontinue commercial real estate lending except to finance the sale of foreclosed properties. The Adjustable Rate Mortgage ("ARM") for single-family residential properties ("SFRs") is the primary lending product held for investment. Many loans in the portfolio are indexed to COFI. In 1991, the Company began originating an ARM product which is indexed to the Federal Cost of Funds Index ("FCOFI"). This index is a combination of the average interest rate on the combined marketable treasury bills and the average interest rate on the combined marketable treasury notes. The FCOFI ARM has similar provisions to the COFI ARM product as to interest rate caps and payment changes. At March 31, 1994, ARMs comprised 92.9% of the mortgage portfolio. A significant portion of the ARM portfolio is subject to lifetime interest-rate caps and floors. At March 31, 1994, $8.8 billion of ARM loans with an average yield of 7%, had reached their floor rate. Without the floor, the average yield on those loans would have been 6.19%. Total new loans for the 1994 first quarter were $2.2 billion compared with $2.3 billion in the same period of 1993. New real estate loan volume was $1.7 billion in the first quarter of 1994 compared with $1.8 billion in the first quarter of 1993. The composition of real estate loan originations by quarter follows:
Three Months Ended ----------------------------------- March 31 December 31 March 31 1994 1993 1993 -------- ----------- -------- ARM COFI 52% 47% 47% FCOFI 2 2 18 T-Bill 8 5 2 Other 3 3 3 --- --- --- Total ARM 65 57 70 Fixed rate 35 43 30 --- --- --- 100% 100% 100% === === === Refinances, included above 63% 68% 59% === === ===
Fixed-rate lending, originated exclusively for sale, is influenced by the interest-rate environment. Refinance activity comprised 63% of real estate loan originations during the first quarter of 1994 compared with 59% for the same period a year ago. The portfolio of fixed-rate loans designated as available for sale has been recorded at the lower of cost or market. The Company purchases short-term hedge contracts for the commitment period to protect against rate fluctuations on its commitments to fund fixed-rate loans originated for sale. Hedge contracts are recorded at cost. Real estate loans held for investment are primarily ARMs. During the first quarter 1994, ARMs comprised 65% of total real estate loan originations compared with 70% in the same period of 1993 and 57% for the fourth quarter of 1993. COFI ARMs were the primary adjustable rate offering in 1994 and 1993. The ARM differential over the appropriate indices on new ARMs was 2.54% in the first quarter 1994 compared with 2.40% a year ago. The ARM differential on the total ARM real estate loan portfolio was 2.41% at March 31, 1994 and 2.39% at March 31, 1993. Currently, interest rates on new real estate loans favor adjustable rate products, which may enable the Company to generate asset growth in 1994. The cost of funds for Great Western Bank, a Federal Savings Bank ("GWB") relative to COFI and FCOFI is shown as follows:
GWB Cost of GWB Funds Less Than Cost of --------------- Funds COFI FCOFI COFI FCOFI ------- ---- ----- ---- ----- March 31, 1994 3.197% 3.629% 4.928% .432% 1.731% December 31, 1993 3.319 3.879 4.892 .560 1.573 March 31, 1993 3.654 4.245 5.222 .591 1.568
The contractual maturities of all loans receivable and mortgage-backed securities as of March 31, 1994 follow:
Mortgage-Backed Real Estate Loans Securities ----------------- --------------- Fixed Fixed (Dollars in millions) ARM Rate ARM Rate Consumer Total --- ----- --- ----- -------- ----- One year or less $ 564 $ 49 $ 32 $340 $ 820 $ 1,805 Over one to two years 624 56 33 234 544 1,491 Over two to three years 769 59 36 89 377 1,330 Over three to five years 1,623 135 78 58 153 2,047 Over five to ten years 3,514 461 238 147 188 4,548 Over ten to fifteen years 4,231 195 320 89 123 4,958 Over fifteen years 16,281 337 1,297 21 8 17,944 ------- ------ ------ ---- ------ ------- $27,606 $1,292 $2,034 $978 $2,213 $34,123 ======= ====== ====== ==== ====== =======
INTEREST BEARING LIABILITIES The composition of interest bearing liabilities at March 31, 1994 and March 31, 1993 follows:
March 31 ------------------------------- 1994 1993 ------------- ------------- (Dollars in millions) Amount % Amount % ------ --- ------ --- Customer accounts Retail accounts Term $16,925 50% $15,893 46% Transaction 13,661 40 12,538 36 Wholesale accounts 480 1 647 2 ------- --- ------- --- 31,066 91 29,078 84 ------- --- ------- --- Borrowings FHLB 281 1 1,285 4 Other 2,731 8 4,175 12 ------- --- ------- --- 3,012 9 5,460 16 ------- --- ------- --- Total interest bearing liabilities $34,078 100% $34,538 100% ======= === ======= ===
Borrowings totaled $3 billion at March 31, 1994, $3.5 billion at December 31, 1993 and $5.5 billion at March 31, 1993. As a percentage of interest bearing liabilities, borrowings totaled 9% at March 31, 1994 and 16% at March 31, 1993. Borrowings have decreased over these periods as a result of customer deposit acquisitions and have not been a significant factor in funding new lending. In the fourth quarter of 1993, GWB acquired $4.1 billion in deposits of HomeFed Bank, F.A. ("HomeFed") from the Resolution Trust Corporation. The following table shows the components of the change in customer account balances:
Three Months Ended March 31 ---------------------- (Dollars in millions) 1994 1993 ---- ---- Transaction Demand accounts $ 179.6 $ 7.7 Money market and other transaction accounts 103.9 (124.5) Certificates of deposit (640.7) (1,711.0) Wholesale accounts (108.2) (36.0) ------- --------- (465.4) (1,863.8) Acquisitions of deposits, net - 33.3 ------- --------- $(465.4) $(1,830.5) ======= =========
The Company concentrates its retail deposit-gathering activity in two states: California and Florida. Net certificate of deposit account withdrawals have occurred during each of the past nine quarters due to reduced rates offered, as ARM originations have not been at levels where asset growth could occur. A summary of customer certificates of deposit by interest rate and maturity as of March 31, 1994 follows:
90 Days 180 Days One Year Two Years Within to to to to Three Years March 31 December 31 March 31 (Dollars in millions) 90 Days 180 Days One Year Two Years Three Years and Over 1994 1993 1993 ------- -------- -------- --------- ----------- ----------- -------- ----------- -------- Under 4% $4,168 $3,226 $2,328 $1,114 $ 173 $ 36 $11,045 $10,998 $ 8,781 4 to 6% 296 894 1,004 994 175 1,076 4,439 4,789 4,929 6 to 8% 73 32 52 154 696 453 1,460 1,619 2,135 Over 8% 83 22 7 196 4 5 317 575 540 ------ ------ ------ ------ ------ ------ ------- ------- ------- $4,620 $4,174 $3,391 $2,458 $1,048 $1,570 $17,261 $17,981 $16,385 ====== ====== ====== ====== ====== ====== ======= ======= ======= $100,000 accounts included above $ 628 $ 200 $ 86 $ 49 $ 1 $ 7 $ 971 $ 1,060 $ 1,227 /TABLE NET INTEREST MARGIN AND NET INTEREST INCOME While average interest earning assets have remained relatively stable during the past year, the interest margin has decreased as interest rates have begun to rise. Net interest income decreased slightly to $334 million in the first quarter 1994 compared with $350 million in the first quarter 1993. The Company's net interest margin, the difference between the yield on interest earning assets (interest on mortgages, consumer loans and securities) and the cost of funds (interest on customer accounts and borrowings) was 3.97% at March 31, 1994 compared with 4.10% a year ago. The average net interest margin for the 1994 first quarter was 3.66% compared with 3.84% in the 1993 first quarter. The repricing lag on FCOFI and COFI ARMs added approximately 9 basis points in the first quarter of both 1994 and 1993 to the average net interest margin. For the fourth quarter 1993, the repricing lag accounted for approximately 5 basis points of the average net interest margin. The following table of net interest income displays the average monthly balances, interest income and expense and average rates by asset and liability component for the periods indicated:
Three Months Ended March 31 ------------------------------------------------------- 1994 1993 -------------------------- -------------------------- Average Average Average Average (Dollars in millions) Balance Interest Rate Balance Interest Rate ------- -------- ------- ------- -------- ------- Interest earning assets Securities $ 1,149 $ 13 4.52% $ 966 $ 15 6.33% Mortgage-backed securities 3,114 45 5.74 3,062 51 6.64 Loans receivable Real estate 29,015 481 6.64 29,246 520 7.12 Consumer 2,212 91 16.42 2,323 102 17.47 ------- ---- ----- ------- ---- ----- Total interest earning assets 35,490 630 7.10 35,597 688 7.73 Other assets 2,303 2,528 ------- ------- Total assets $37,793 $38,125 ======= ======= Interest bearing liabilities Customer accounts Term accounts $17,610 169 3.85 $17,222 188 4.36 Transaction accounts 13,542 63 1.85 12,788 67 2.09 ------- ---- ----- ------- ---- ----- 31,152 232 2.98 30,010 255 3.39 Borrowings FHLB 287 5 6.68 717 9 4.92 Other 2,990 59 7.87 4,018 74 7.45 ------- ---- ----- ------- ---- ----- Total interest bearing liabilities 34,429 296 3.44 34,745 338 3.89 Other liabilities 933 928 Stockholders' equity 2,431 2,452 ------- ------- Total liabilities and equity $37,793 $38,125 ======= ======= Interest rate spread 3.66% 3.84% ===== ===== Effective yield summary Interest income/earning assets $35,490 $630 7.10% $35,597 $688 7.73% Interest expense/earning assets 35,490 296 3.33 35,597 338 3.80 ---- ----- ---- ----- Net yield on earning assets $334 3.77% $350 3.93% ==== ===== ==== ===== /TABLE The average balance of loans receivable above includes nonaccrual loans and therefore the interest income and average rate, as presented, are affected by the loss of interest on such loans. Interest foregone on nonaccrual loans that were nonperforming totaled $15.9 million for the quarter ended March 31, 1994 compared with $24.7 million for the quarter ended March 31, 1993. ASSET LIABILITY MANAGEMENT The Company monitors its asset and liability structure and interest- rate/ maturity risks on a regular basis. In this process, consideration is given to interest-rate trends and funding requirements. ARMs comprised approximately 96% of the real estate loan portfolio at March 31, 1994 and 94% at March 31, 1993. At March 31, 1994, mortgages totaling $2.6 billion were available for sale, primarily mortgage-backed securities. Real estate loans available for sale are valued at the lower of cost or market, generally on an individual loan basis. As of March 31, 1994, $205 million of real estate loans, primarily fixed-rate loans, were designated as available for sale. Gains of $2.3 million in the real estate loan portfolio were realized in the first quarter of 1994. Unrealized holding gains on real estate loans available for sale totaled $6 million at March 31, 1994. Mortgage-backed securities and other securities available for sale are carried at fair value. At March 31, 1994, mortgage-backed securities available for sale included $450 million of fixed-rate loans and nearly $1.9 billion of ARMs. There were no realized gains or losses in the first quarter of 1994. Unrealized holding losses were $4 million at March 31, 1994. Unrealized holding gains were $31 million at December 31, 1993 and $67 million at March 31, 1993. Marketable securities available for sale at March 31, 1994 had an amortized cost of $496 million and a market value of $500 million. Gains realized during the 1994 first quarter totaled $477,000. Unrealized holding gains in marketable securities were $3.3 million at March 31, 1994, $7.2 million at December 31, 1993 and $11.3 million at March 31, 1993. Real estate available for sale is recorded at the lower of cost or fair value. The following table shows that the portfolio of short-term assets exceeded liabilities maturing or subject to interest adjustment within one year by $3.4 billion at March 31, 1994 compared with $3.1 billion at December 31, 1993 and $4.5 billion at March 31, 1993. In the current low interest rate environment, the Company is better protected against rising rates with an excess of interest earning assets maturing or repricing within one year.
Maturity/Rate Sensitivity ----------------------------------------------------------------- March 31, 1994 % of Within Over (Dollars in millions) Rate Balance Total 1 Year 1-5 Years 5-15 Years 15 Years ---- ------- ----- ------ --------- ---------- -------- Interest earning assets Securities 5.00% $ 740 2 $ 740 $ - $ - $ - Mortgage-backed securities 6.04 3,012 9 2,505 486 - 21 Investment in FHLB stock 4.21 308 1 - - - 308 Loans receivable Real estate Adjustable rate 6.81 27,606 78 25,738 1,868 - - Fixed rate Short-term 8.77 516 2 242 272 2 - Long-term 8.71 776 2 388 384 3 1 Consumer 16.22 2,213 6 535 1,330 269 79 ----- ------- --- ------- ------- ----- ---- 7.35 35,171 100 30,148 4,340 274 409 Interest bearing liabilities Customer accounts Regular savings 1.93 2,282 7 2,282 - - - Checking and limited access 1.69 11,379 33 11,379 - - - Wholesale transactions - 144 - 144 - - - Term accounts 3.99 17,261 51 12,184 5,052 25 - ----- ------- --- ------- ------- ----- ---- 2.98 31,066 91 25,989 5,052 25 - Borrowings FHLB 6.57 281 1 260 21 - - Other 7.59 2,731 8 584 1,424 672 51 Impact of interest-rate swaps - - - (109) 109 - - ----- ------- --- ------- ------- ----- ---- 3.38 34,078 100 26,724 6,606 697 51 ----- ------- --- ------- ------- ----- ---- Excess of interest earning assets over interest bearing liabilities at March 31, 1994 3.97% $ 1,093 $ 3,424 $(2,266) $(423) $358 ===== ======= ======= ======= ===== ==== Excess of interest earning assets over interest bearing liabilities at December 31, 1993 3.76% $ 840 $ 3,105 $(1,833) $(764) $332 ===== ======= ======= ======= ===== ==== Excess of interest earning assets over interest bearing liabilities at March 31, 1993 4.10% $ 1,140 $ 4,466 $(3,050) $(630) $354 ===== ======= ======= ======= ===== ====
March 31 ------------ 1994 1993 ---- ---- Calculation of adjusted margin Unadjusted margin 3.97% 4.10% Benefit of net interest earning assets .11 .11 ---- ---- Adjusted margin 4.08% 4.21% ==== ==== /TABLE ASSET QUALITY The Company regularly reviews its assets to determine that each category is reasonably valued. In this review process it monitors the loss exposure relating to nonperforming assets, assets adversely classified for regulatory purposes, the delinquency trend and market environment to identify potential problems. Loss reserves have been provided, where necessary in management's judgment, for interest earning assets, including residential loans and consumer loans. Valuation reserves for consumer loans are provided based upon a percentage of the loans outstanding in relation to the loss experience within the loan categories. The California real estate markets did not improve significantly in 1993 or the first three months of 1994. The economic climate, particularly in California has not been favorable. Continuing deterioration in market values has persisted in both single-family residential and income producing properties. Single-family loan values have deteriorated because of continued high unemployment rates as well as the weak economy and its effects upon the residential market. A variety of indicators suggest an improvement in California's economic outlook. The Company assesses the status of general loss reserves on real estate loans based upon its current loss experience as applied to the loan portfolio including loans that are delinquent or adversely classified because of declining collateral values. Because of the current recessionary environment, the Company's general loan loss reserves remain relatively high to give effect to current trends in this environment in valuing its loan portfolio. There appear to be regional differences in economic performance within California and among property types which are attributable to the rolling recessionary environment and its wide range effect on different economic activities within California. The economic factors affecting the office space market appear to be somewhat more favorable in Northern California than in Southern California. In particular, the vacancy rate at December 31, 1993 and December 31, 1992 was 12% in the San Francisco area. In the Los Angeles area, the vacancy rate was 20% at December 31, 1993 and December 31, 1992. The highest vacancy rate existed in San Diego County where it was 21% at December 31, 1993 compared with 23% at December 31, 1992. In the industrial space market, Northern and Southern California vacancy rates appear to be more comparable. In the San Francisco and Los Angeles areas, vacancy rates were 11% at December 31, 1993. A year ago, the vacancy rates were 12% in the San Francisco area and 11% in the Los Angeles area. Unlike the office space market, San Diego County's industrial space market had the lowest vacancy rate consisting of 4% at December 31, 1993 and 3% at December 31, 1992. In the single-family market, regional differences also exist in the economic performance of Northern, Central and Southern California. For example, the median metropolitan area sales price of existing single-family homes in the San Jose area decreased from the fourth quarter of 1992 to the fourth quarter of 1993 by 1%. During the same period, the median sales price declined 6% in the Los Angeles area and 3% in the San Diego area. As a monitoring device the Company reviews the trends of loans delinquent for periods of less than ninety days on a monthly (and within- month) basis. The following summarizes loans delinquent for periods from thirty to eighty-nine days:
March 31 December 31 March 31 (Dollars in millions) 1994 1993 1993 -------- ----------- -------- 30-59 days delinquent SFR loans $343.0 $190.9 $242.8 Other 46.4 19.0 48.0 60-89 days delinquent SFR loans 175.3 105.2 109.7 Other 21.4 8.8 31.4
Delinquencies in the thirty to eighty-nine day categories have increased during the first three months of 1994. Much of the 1994 first quarter increase is believed to be related to the Northridge earthquake in January and to the forbearance offered to customers who suffered damages from the earthquake. Two and three payment delinquencies on SFRs in the earthquake affected areas totaled $142 million and $73 million, respectively, at March 31, 1994. The effect on nonperforming assets will not be evident until later in the second quarter when the period of forbearance expires. Foreclosures continue to occur at relatively high levels. Loans delinquent over thirty days, together with restructured loans, have been included in the process to determine estimated losses. The effects of various loan characteristics such as geographic concentrations, loan purpose, negative amortization and loan to value ratios ("LTV") are considered in this review process. The following table shows the trend in single-family residential delinquencies (two or more payments delinquent) to the growth in the related portfolio.
March 31 December 31 March 31 1994 1993 1993 -------- ----------- -------- SFR loans as a percent of total real estate loans 88.5% 88.3% 86.9% SFR delinquency as a percent of total single-family residential loans 4.4 3.2 4.6
The Company's real estate loan portfolio included approximately $3.4 billion of uninsured single-family mortgage loans at March 31, 1994, compared with $4.3 billion a year ago, which were originated with terms where the LTV exceeded 80% (but not in excess of 90%). During the first quarter 1994, losses totaled $3.7 million, or .30% (annualized), on the higher LTV mortgages. For the year 1993, losses totaled $44.8 million, or .81% of such loans, compared with $10.1 million, or .15%, for 1992. The Company began to purchase mortgage insurance on all new single-family residential mortgages originated with LTVs in excess of 80% in 1990. Therefore, this portfolio of uninsured loans is becoming more seasoned. The recorded investment in loans for which impairment has been recognized in accordance with Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" and the reserve for estimated losses related to such loans follows:
March 31 --------------------------------------------------- 1994 1993 ----------------------- ----------------------- Reserve for Reserve for Loan Estimated Loan Estimated (Dollars in thousands) Balance Losses Balance Losses ------- ----------- ------- ----------- Real estate loans Residential Single-family $ 43,864 $ 5,796 $ 39,690 $ 2,557 Apartments 113,895 17,249 188,630 2,559 Commercial Offices 47,926 9,112 99,467 8,574 Retail 28,624 3,623 55,981 2,021 Hotel/motel 107,992 5,085 152,417 - Industrial 16,676 1,989 93,036 115 Other 5,570 1,018 16,843 808 -------- -------- -------- ------- $364,547 $ 43,872 $646,064 $16,634 ======== ======== ======== =======
Single-family residential mortgage loans are generally evaluated for impairment as homogeneous pools of loans. Certain situations may arise leading to single-family residential mortgage loans being evaluated for impairment on an individual basis. A change in the fair value of an impaired loan is reported as an increase or reduction to the provision for loan losses. Certain loans meet the criteria of troubled debt restructurings ("TDRs") as defined in Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructurings." TDRs totaled $246 mil-lion at March 31, 1994 compared with $406 million at March 31, 1993. In the second quarter of 1993, Federal Banking Regulators issued a joint release regarding credit availability. Based on this release, TDRs which meet certain conditions of repayment and performance have not been included in nonperforming assets. At March 31, 1994, $43 million of TDRs were classified as performing assets. Real estate available for sale is recorded at the lower of cost or fair value and is included in a periodic review of assets to determine whether, in management's judgment, there has been any deterioration in value. Real estate held for development, also subject to the same review process, is carried at the lower of cost or net realizable value. Properties where future development is uncertain are carried at the lower of cost or fair value. Real estate is also included in the general reserve evaluation. Many foreclosed real estate properties are operating profitably after provisions for interest and depreciation and are performing assets. Nonperforming assets include loans which are delinquent ninety days or more, TDRs which do not meet certain performance criteria and certain real estate acquired through foreclosure. The following table indicates the amount of the Company's nonperforming assets and the ratio of nonperforming assets to total assets:
March 31 December 31 March 31 1994 1993 1993 ------------- ------------- ------------- (Dollars in millions) Amount % Amount % Amount % ------ --- ------ ---- ------ ---- Loans receivable Real estate Residential Single-family $ 599 1.57% $ 522 1.34% $ 836 2.16% Apartments 87 .23 70 .18 188 .48 Commercial 218 .57 225 .58 394 1.02 Consumer finance 20 .05 20 .05 21 .05 Bank card - - - - 6 .02 Other 2 .01 2 - 2 - ------ ---- ------ ---- ------ ---- 926 2.43 839 2.15 1,447 3.73 Real estate acquired through foreclosure 199 .52 293 .75 556 1.44 ------ ---- ------ ---- ------ ---- Total nonperforming assets $1,125 2.95% $1,132 2.90% $2,003 5.17% ====== ==== ====== ==== ====== ====
The geographic distribution of the real estate loan and real estate portfolios as of March 31, 1994 follows:
Oklahoma/ Maryland/ (Dollars in millions) Total California Florida Washington Arizona Texas Virginia Georgia Other ----- ---------- ------- ---------- ------- -------- -------- ------- ----- Real estate loans Residential Single-family $25,567 $18,777 $1,729 $905 $340 $557 $314 $427 $2,518 Apartments 1,781 1,421 90 7 65 33 - 57 108 Commercial Offices 438 399 9 4 8 3 1 4 10 Retail 278 231 22 9 2 - 3 4 7 Hotel/motel 280 138 5 - 3 2 92 - 40 Industrial 327 271 14 4 7 16 - 4 11 Other 227 162 22 6 13 1 1 2 20 ------- ------- ------ ---- ---- ---- ---- ---- ------ 28,898 21,399 1,891 935 438 612 411 498 2,714 ------- ------- ------ ---- ---- ---- ---- ---- ------ Real estate available for sale, net Real estate acquired through foreclosure 221 186 22 2 1 1 - - 9 Other 48 30 3 15 - - - - - Property development 86 86 - - - - - - - ------- ------- ------ ---- ---- ---- ---- ---- ------ 355 302 25 17 1 1 - - 9 ------- ------- ------ ---- ---- ---- ---- ---- ------ Total real estate loans and real estate $29,253 $21,701 $1,916 $952 $439 $613 $411 $498 $2,723 ======= ======= ====== ==== ==== ==== ==== ==== ====== Percent of total 100.0% 74.2% 6.5% 3.3% 1.5% 2.1% 1.4% 1.7% 9.3%
The geographic distribution of nonperforming real estate loans and foreclosed real estate at March 31, 1994 follows:
Oklahoma/ Maryland/ (Dollars in millions) Total California Florida Washington Arizona Texas Virginia Georgia Other ----- ---------- ------- ---------- ------- -------- -------- ------- ----- Real estate loans Residential Single-family $ 599 $512 $ 26 $ 7 $ 3 $ 7 $ 4 $ 5 $ 35 Apartments 87 68 1 1 - 13 - - 4 Commercial Offices 42 39 2 - - - 1 - - Retail 25 20 - 5 - - - - - Hotel/motel 127 35 - - - - 92 - - Industrial 16 14 1 - - 1 - - - Other 8 2 2 1 3 - - - - ------ ---- ---- ---- ---- ---- ---- ---- ---- 904 690 32 14 6 21 97 5 39 ------ ---- ---- ---- ---- ---- ---- ---- ---- Real estate Residential Single-family 91 78 3 1 1 - - - 8 Apartments 35 34 - - - 1 - - - Commercial Offices 31 21 9 1 - - - - - Retail 8 8 - - - - - - - Hotel/motel 10 8 2 - - - - - - Industrial 11 10 1 - - - - - - Other 13 11 1 - - - - - 1 ------ ---- ---- ---- ---- ---- ---- ---- ---- 199 170 16 2 1 1 - - 9 ------ ---- ---- ---- ---- ---- ---- ---- ---- Total nonperforming real estate loans and real estate $1,103 $860 $ 48 $ 16 $ 7 $ 22 $ 97 $ 5 $ 48 ====== ==== ==== ==== ==== ==== ==== ==== ==== Percent of total 100.0% 78.0% 4.4% 1.4% .6% 2.0% 8.8% .4% 4.4% /TABLE A comparison of the California real estate loan and foreclosed real estate portfolios and nonperforming real estate loans and real estate by region as of March 31, 1994 follows:
California Northern California ------------------------------- -------------------------------- (Dollars in millions) Portfolio Nonperforming % Portfolio Nonperforming % --------- ------------- --- --------- ------------- --- Real estate loans Residential Single-family $18,777 $512 2.7 $5,388 $ 96 1.8 Apartments 1,421 68 4.8 174 2 1.1 Commercial Offices 399 39 9.8 76 7 9.2 Retail 231 20 8.7 53 1 1.9 Hotel/motel 138 35 25.4 43 - - Industrial 271 14 5.2 37 2 5.4 Other 162 2 1.2 40 - - ------- ---- ----- ------ ---- ----- 21,399 690 3.2 5,811 108 1.9 ------- ---- ----- ------ ---- ----- Real estate Residential Single-family 78 78 100.0 10 10 100.0 Apartments 35 34 97.1 2 2 100.0 Commercial Offices 24 21 87.5 7 7 100.0 Retail 17 8 47.1 1 1 100.0 Hotel/motel 8 8 100.0 2 2 100.0 Industrial 12 10 83.3 1 - - Other 12 11 91.7 1 1 100.0 ------- ---- ----- ------ ---- ----- 186 170 91.4 24 23 95.8 ------- ---- ----- ------ ---- ----- Total real estate loans and real estate $21,585 $860 4.0 $5,835 $131 2.2 ======= ==== ===== ====== ==== ===== /TABLE
Central California Southern California -------------------------------- -------------------------------- (Dollars in millions) Portfolio Nonperforming % Portfolio Nonperforming % --------- ------------- --- --------- ------------- --- Real estate loans Residential Single-family $1,575 $24 1.5 $11,814 $392 3.3 Apartments 264 13 4.9 983 53 5.4 Commercial Offices 43 3 7.0 280 29 10.4 Retail 30 - - 148 19 12.8 Hotel/motel 27 2 7.4 68 33 48.5 Industrial 16 - - 218 12 5.5 Other 21 - - 101 2 2.0 ------ --- ----- ------- ---- ----- 1,976 42 2.1 13,612 540 4.0 ------ --- ----- ------- ---- ----- Real estate Residential Single-family 6 6 100.0 62 62 100.0 Apartments 3 3 100.0 30 29 96.7 Commercial Offices 2 2 100.0 15 12 80.0 Retail 8 - - 8 7 87.5 Hotel/motel - - - 6 6 100.0 Industrial 1 1 100.0 10 9 90.0 Other - - - 11 10 90.9 ------ --- ----- ------- ---- ----- 20 12 60.0 142 135 95.1 ------ --- ----- ------- ---- ----- Total real estate loans and real estate $1,996 $54 2.7 $13,754 $675 4.9 ====== === ===== ======= ==== =====
Nonperforming real estate loans and real estate decreased by $7 million during the first quarter of 1994. Total nonperforming single-family residential properties decreased $3 million in the first quarter of 1994, while single-family residential properties in California increased $5 million. The loss on single-family foreclosures sold in the first quarter of 1994 was 20.1% of the loan balances at foreclosure. Nonperforming commercial and apartment properties declined $4 million in the first quarter of 1994. In an effort to reduce nonperforming assets, the Company completed four bulk asset sales in the second half of 1993 totaling $659 million. In the first quarter of 1994, bulk sales of foreclosed single-family properties totaled $84.6 million. Auction sales have also been utilized to accelerate the disposition of foreclosed properties. The Company provides a reserve for uncollected interest which is essentially based upon loans delinquent ninety days or more or in foreclosure. These loans are considered in "nonaccrual" status. A summary of loan loss provisions, charge-offs and recoveries by loan type follows:
At or For The Three Months Ended March 31 ---------------------- (Dollars in thousands) 1994 1993 ---- ---- Beginning balance $502,269 $492,871 Provision for loss Real estate loans SFR 25,000 40,000 Other 14,993 4,500 Consumer finance 9,300 9,800 Bank card - 5,178 Other 2,507 3,022 -------- -------- 51,800 62,500 -------- -------- Charge-offs Real estate loans SFR (39,931) (30,024) Other (6,889) (9,795) Consumer finance (12,654) (12,899) Bank card - (6,568) Other (376) (286) -------- -------- (59,850) (59,572) -------- -------- Recoveries Real estate loans SFR 174 254 Other 337 579 Consumer finance 4,046 3,788 Bank card - 460 Other 95 305 -------- -------- 4,652 5,386 -------- -------- Net charge-offs Real estate loans SFR (39,757) (29,770) Other (6,552) (9,216) Consumer finance (8,608) (9,111) Bank card - (6,108) Other (281) 19 -------- -------- (55,198) (54,186) -------- -------- Ending balance $498,871 $501,185 ======== ======== Ratio of net charge-offs (annualized) to average loans Real estate loans SFR .62% .47% Other .78 .97 Consumer finance 1.88 2.14 Bank card - 9.96 Other .29 (.02) ---- ---- .71% .69% ==== ==== /TABLE The following table presents the Company's reserve for estimated losses and the reserve as a percent of the respective loans receivable portfolios:
March 31 ------------------------------------ 1994 1993 --------------- --------------- (Dollars in millions) Amount % Amount % ------ --- ------ --- Real estate loans SFR $197 .77% $174 .68% Commercial and other 233 6.99 244 6.28 Consumer finance 51 2.77 47 2.80 Bank card - - 24 10.36 Other 18 4.64 12 3.09 ---- ---- ---- ----- Total $499 1.60% $501 1.57% ==== ==== ==== =====
A summary of real estate reserve activity by real estate type follows:
At or For The Three Months Ended March 31 ------------------ (Dollars in millions) 1994 1993 ---- ---- Beginning balance SFR $ 5 $ 5 Commercial and other 119 114 ---- ---- 124 119 Provision for losses SFR 3 11 Commercial and other - 15 ---- ---- 3 26 Net charge-offs SFR (4) (2) Commercial and other (5) (12) ---- ---- (9) (14) Ending balance SFR 4 14 Commercial and other 114 117 ---- ---- $118 $131 ==== ====
OPERATIONS Net interest income totaled $334 million in the first quarter 1994 compared with $350 million in the first quarter 1993. Interest earning assets decreased slightly while margins remained relatively level. The Company continues to experience a high level of nonaccrual loans in the portfolio which results in lower interest income. The following table shows the components of the change in net interest income between periods.
Three Months Ended March 31 ------------------------------ (Dollars in millions) 1994 vs 1993 1993 vs 1992 ------------ ------------ Interest on mortgage-backed securities Rate (1) $ (7) $ (13) Volume (2) 1 (9) Rate/Volume (3) - 2 ---- ----- (6) (20) ---- ----- Interest on real estate loans Rate (1) (35) (116) Volume (2) (4) (4) Rate/Volume (3) - 1 ---- ----- (39) (119) ---- ----- Income on consumer loans Rate (1) (6) (3) Volume (2) (5) (3) Rate/Volume (3) - - ---- ----- (11) (6) ---- ----- Income on securities and investments Rate (1) (4) - Volume (2) 3 (4) Rate/Volume (3) (1) - ---- ----- (2) (4) ---- ----- Interest earning assets Rate (52) (132) Volume (5) (20) Rate/Volume (1) 3 ---- ----- (58) (149) ---- ----- Customer accounts Rate (1) (31) (113) Volume (2) 9 (13) Rate/Volume (3) (1) 4 ---- ----- (23) (122) ---- ----- Borrowings Rate (1) 8 (13) Volume (2) (25) (2) Rate/Volume (3) (2) - ---- ----- (19) (15) ---- ----- Interest bearing liabilities Rate (23) (126) Volume (16) (15) Rate/Volume (3) 4 ---- ----- (42) (137) ---- ----- Change in net interest income $(16) $ (12) ==== =====
(1) The rate variance reflects the change in the average rate multiplied by the average balance outstanding during the prior period. (2) The volume variance reflects the change in the average balance outstanding multiplied by the average rate during the prior period. (3) The rate/volume variance reflects the change in the average rate multiplied by the change in the average balance outstanding. (4) Nonaccrual loans and amortized deferred loan fees are included in the interest income calculations. Real estate services income totaled $12.1 million for the three months ended March 31, 1994 compared with a net loss of $6.9 million for the three months ended March 31, 1993. This increase in income was primarily attributed to lower loss provisions on real estate. Gains on mortgage sales decreased as a result of fixed-rate mortgage sales totaling $671 million in the first three months of 1994, at a gain of .62% of mortgage sales compared with $455 million in the first three months of last year at a gain of 1.12% of mortgage sales. Servicing income increased as the net servicing spread was 42 basis points of the servicing portfolio at March 31, 1994 or 2 basis points higher than a year ago. Loans serviced for others totaled $12.2 billion at March 31, 1994 compared with $12.9 billion one year earlier. Retail banking fee and commission income increased from $33.4 million in the three months ended March 31, 1993 to $43.5 million in the three months ended March 31, 1994. Securities operations income and retail banking fees both increased because of expanding activity. Banking fees increased because of higher transaction balances and deposits acquired in acquisitions. The Company has also expanded mutual fund activity which comprises commissions and other income from mutual fund operations. Net revenue from these operations totaled $10.6 million in the three months ended March 31, 1994 compared with $8.9 mil-lion in the same period of 1993. The Company managed mutual funds with assets aggregating $3.3 billion at March 31, 1994 compared with $2.5 billion at March 31, 1993. The increase in operating and administrative expenses for the three months ended March 31, 1994, compared with the same period in 1993 resulted, in part, from the inclusion of approximately $15 million in expenses related to the HomeFed acquisition completed in December 1993 and from approximately $3 million for repairs of earthquake damage to facilities. During the fourth quarter of 1993, the Company recorded a $30 million restructuring charge, primarily associated with the cost-reduction program at the Company's administrative headquarters. Approximately $9.8 million was charged against these reserves in the first quarter of 1994, principally employee separation expenses and associated costs. Operating expenses increased 6% between the first quarters of 1994 and 1993 and increased 5% between the same periods of 1993 and 1992. The operating ratios were as follows:
Three Months Ended March 31 ------------------- 1994 1993 ---- ---- Operating and administrative expenses (annualized) As a percent of average assets Corporate 2.80% 2.60% Banking operations 2.56 2.34 As a percent of average assets and assets serviced for others Corporate 2.11 1.94 Banking operations 1.91 1.72 As a percent of average retail deposits Banking operations 3.01 2.90 As a percent of revenue Corporate 65.52 60.69 Banking operations 68.67 62.16
The Company expects to eliminate approximately 1,000 jobs by the end of 1994, or 25 percent of the administrative work force. Approximately 500 of these reductions were realized by year-end 1993 from a job-hiring freeze imposed in late summer of 1993. The cost-reduction program, which was designed to increase profits and improve efficiency, will be phased in throughout 1994. Reductions in nonpersonnel related costs will also contribute to the overall savings through renegotiation of existing vendor contracts and elimination of other administrative expenses. Anticipated savings in 1995 and beyond will exceed $100 million annually, a portion of which will be realized in 1994. Net earnings (annualized) as a percentage of average assets were .52% for the first quarter 1994 compared with .47% for the same 1993 period. The annualized return on average equity was 8.14% for the three month period ending March 31, 1994 compared with 7.37% for the same period a year ago. The Company's effective tax rate was 41.2% in the first quarter of 1994 and 37.9% in the same period of 1993. The lower rate in 1993 is attributed to a favorable settlement of certain tax issues and the reversal of certain tax liabilities no longer required. CAPITAL RESOURCES AND LIQUIDITY Capital (stockholders' equity) was $2.4 billion at March 31, 1994 versus $2.5 billion at March 31, 1993. At the end of the 1994 first quarter the ratio of capital to total assets remained unchanged from a year ago at 6.5%. GWB is subject to certain capital requirements under applicable regulations and meets all such requirements. At March 31, 1994, GWB's capital was $2.6 billion, including subordinated notes of $429 million. The following ratios, as of the most recent quarter end, compare GWB with the fully phased-in capital requirements under regulations issued by the Office of Thrift Supervision ("OTS"):
Actual OTS Benchmark -------------- ------------- Capital (Dollars in millions) Amount % Amount % Excess ------ --- ------ --- ------- Leverage/tangible ratio $1,864 5.34 $1,047 3.00 $817 Risk-based ratio 2,509 11.84 1,695 8.00 814
The OTS has amended its risk-based capital rules to incorporate interest-rate risk requirements. Effective July 1, 1994, a savings association is required to hold additional capital if it is projected to experience a 2% decline in "net portfolio value" in the event interest rates increase or decrease by two percentage points. Additional capital required is equal to one-half of the amount by which any decline in net portfolio value exceeds 2% of the savings association's total net portfolio value. The OTS has proposed to amend its capital rule on the leverage ratio requirement to reflect amendments made by the Office of the Comptroller of the Currency ("OCC") to the capital requirements for national banks. The proposal would establish a 3% leverage ratio (defined as the ratio of core capital to adjusted total assets) for savings associations in the strongest financial and managerial condition. All other savings associations would be required to main- tain leverage ratios of at least 4%. Only savings associations rated composite 1 under the OTS MACRO rating system will be permitted to operate at or near the regulatory minimum leverage ratio of 3%. For all other savings associations, the minimum core capital leverage ratio will be 3% plus at least an additional 100 to 200 basis points. In determining the amount of additional capital, the OTS will assess both the quality of risk management systems and the level of overall risk in each individual savings association through the supervisory process on a case-by-case basis. The OTS' supervisory judgment on a savings association's capital adequacy, both in terms of risk-based capital and the minimum leverage ratio, will continue to be based upon an assessment of the relevant factors present in each institution. Savings associations that do not pass the minimum capital standards established under the new core capital leverage ratio requirements will be required to submit capital plans detailing steps to be taken to reach compliance. GWB currently meets these proposed requirements. As of March 31, 1994, real estate loan commitments totaled $749 million compared with $777 million at December 31, 1993 and $814 million at March 31 a year ago. These commitments included $610 million of ARMs and $139 million at fixed rates at March 31, 1994. The high percentage of ARM commitments is indicative that the fully adjusted interest rate on ARMs is more than 200 basis points lower than the rates offered on 30-year fixed-rate loans. The Company has several sources for raising funds for lending among which are mortgage repay-ments, mortgage sales, customer deposits, Federal Home Loan Bank borrowings and other borrowings. The following table presents the debt ratings of the Company and GWB at March 31, 1994:
Moody's Investors Standard & Poor's Service ----------------- ----------------- GWFC GWB GWFC GWB ---- --- ---- --- Unsecured short-term debt A-2 P-2 Senior term debt BBB+ A- Baa2 A3 Subordinated term debt BBB+ Baa1 Preferred stock BBB- Baa3
The origination and sale of real estate loans is dependent upon general market conditions. In an active real estate market loan originations increase. In such periods mortgage sales are usually increased to fund a portion of origi-nations and to control asset growth. However, in some periods mortgage sales occur to fund customer account outflows and repay borrowings which result in asset shrinkage. Mortgage sales also occur to limit interest-rate risk and for restructuring purposes. As presented in the Consolidated Condensed Statement of Cash Flows the sources of liquidity vary between quarters. The primary sources of funds in the first quarter of 1994 were principal payments on mortgages held for investment of $1.8 billion and sales and repayments of loans available for sale of $716 million. New loans originated for investment required $1.5 billion, net customer account withdrawals totaled $465 million, and repayments of borrowings required $467 million. Operating activities provided $179 million in the current quarter. The Company continued to maintain liquidity balances each period in excess of funding and legal requirements. Cash and securities totaled $1.4 billion at March 31, 1994 and $1.1 billion at March 31, 1993. DIVIDENDS Quarterly cash dividends have been paid since 1977. At its April 1994 meeting, the Board of Directors declared a quarterly cash dividend of $.23 per common share payable in May 1994. The quarterly cash dividend has been paid at this level since the second quarter of 1992. In the first quarter of 1994 the regular quarterly dividend on the $129 million 8 3/4% cumulative convertible preferred stock, issued in May 1991, and the regular quarterly dividend on the $165 million 8.3% cumulative preferred stock, issued in September 1992, were paid. The Dividend Reinvestment and Stock Purchase Plan permits a 3% discount on stock purchased with reinvested dividends. During the first quarter 1994 reinvested dividends totaled $4.7 million. Effective March 31, 1994, Bryant Financial Corporation ("Bryant"), a property development subsidiary, became a wholly-owned direct subsidiary of the Company. This realignment was in the form of a dividend from GWB to GWFC in the amount of Bryant's book value of $38 million. The principal source of operating income of the Company on an unconsolidated basis is dividends from GWB and Aristar, Inc ("Aristar"). In the first quarter of 1994 cash dividends received from GWB and Aristar totaled $37.8 million and $6.3 million, respectively. GWB is subject to the regulations of the OTS and FDIC. The OTS regulations impose limitations upon "capital distributions" by savings associations, including cash dividends. The regulations established a three-tiered system: Tier 1 includes savings associations with capital at least equal to their fully phased-in capital requirement which have not been notified that they are in need of more than normal supervision; Tier 2 includes savings associations with capital above their minimum capital requirement but less than their fully phased-in requirement; and Tier 3 includes savings associations with capital below their minimum capital requirement. Tier 1 associations may, after prior notice but without approval of the OTS, make capital distributions up to the higher of (1) 100% of their net income during the calendar year plus the amount that would reduce by one half their "surplus capital ratio" (the excess over their fully phased-in capital requirement) at the beginning of the calendar year or (2) 75% of their net income over the most recent four- quarter period. Tier 2 associations may, after prior notice but without approval of the OTS, make capital distributions of up to 25% to 75% of their net income over the most recent four-quarter period depending upon their current risk-based capital position. Tier 3 associations may not make capital distributions without prior approval. An association subject to more stringent restrictions imposed by agreement may apply to remove the more stringent restrictions. The Company believes that GWB is a Tier 1 association. Notwithstanding the foregoing, the regulatory authorities have broad discretion to prohibit any payment of dividends and take other actions if they determine that the payment of such dividends would constitute an unsafe or unsound practice. Among the circumstances posing such risk would be a capital distribution by a Tier 1 or Tier 2 association whose capital is decreasing because of substantial losses. AVERAGE SHARES OUTSTANDING The average common shares outstanding, based upon daily amounts used in the calculation of earnings per share, are shown below:
Three Months Ended March 31 --------------------------- 1994 1993 ---- ---- Primary 133,356,647 131,602,482 Fully diluted 139,698,559 137,944,394
PART II - OTHER INFORMATION --------------------------- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - ------------------------------------------------------------ The Company's Annual Meeting of Shareholders was held on April 26, 1994. 117,990,775 shares of GWFC common stock were represented at the Annual Meeting in person or by proxy. Shareholders voted in favor of the election of four nominees for director. The voting results for each nominee were as follows:
Votes in Favor Nominee of Election Votes Withheld - - ------- -------------- -------------- John V. Giovenco 117,637,093 353,682 Firmin A. Gryp 117,637,579 353,196 James F. Montgomery 117,646,316 344,459 Alberta E. Siegel 117,625,747 365,028
In addition, the term of office of the following directors continued after the meeting: Dr. David Alexander H. Frederick Christie Stephen E. Frank Enrique Hernandez, Jr. John F. Maher Charles D. Miller Willis B. Wood, Jr. Shareholders voted to approve the Great Western Financial Corporation Annual Incentive Compensation Plan for Executive Officers. 106,185,831 shares were voted in favor of the proposal, 11,405,107 shares were voted against the proposal, and 336,470 shares abstained. There were no broker nonvotes on the matter. ITEM 5. OTHER INFORMATION - - -------------------------- The calculation of the Company's ratio of earnings to fixed charges as of the dates indicated follows:
Three Months Ended Twelve Months Ended Three Months Ended (Dollars in thousands) March 31, 1994 December 31, 1993 March 31, 1993 ------------------ ------------------- ------------------ Earnings - - -------- Net earnings $ 49,475 $ 62,047 $ 45,211 Taxes on income 34,700 30,000 27,600 -------- ---------- -------- Earnings before taxes $ 84,175 $ 92,047 $ 72,811 ======== ========== ======== Interest expense - - ---------------- Customer accounts $232,139 $ 939,081 $254,574 Borrowings 74,792 370,761 92,652 -------- ---------- -------- Total $306,931 $1,309,842 $347,226 ======== ========== ======== Rent expense - - ------------ Total $ 14,916 $ 53,638 $ 12,483 1/3 thereof 4,972 17,879 4,161 Capitalized interest $ 110 $ 777 $ 42 Preferred stock dividends $ 6,254 $ 25,015 $ 6,254 Ratio of earnings to fixed charges and preferred stock dividends - - ---------------------------------- Excluding customer accounts --------------------------- Earnings before fixed charges $163,939 $ 480,687 $169,624 Fixed charges 90,514 426,526 106,927 Ratio 1.81 1.13 1.59 Including customer accounts --------------------------- Earnings before fixed charges $396,078 $1,419,768 $424,198 Fixed charges 322,653 1,365,607 361,501 Ratio 1.23 1.04 1.17 Ratio of earnings to fixed charges - - ---------------------------------- Excluding customer accounts --------------------------- Earnings before fixed charges $163,939 $ 480,687 $169,624 Fixed charges 79,874 389,417 96,855 Ratio 2.05 1.23 1.75 Including customer accounts --------------------------- Earnings before fixed charges $396,078 $1,419,768 $424,198 Fixed charges 312,013 1,328,498 351,429 Ratio 1.27 1.07 1.21 /TABLE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - - ----------------------------------------- a. Exhibits -------- 4.1 The Company has outstanding certain long-term debt as set forth in Note 13 of the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. The Company agrees to furnish copies of the instruments representing its long-term debt to the Securities and Exchange Commission (the "SEC") upon request. 10.1 General provisions applicable to Performance Restricted Stock Awards granted under the Great Western Financial Corporation 1988 Stock Option and Incentive Plan, as amended (March 1994). 11.1 Statement re computation of per share earnings. b. Reports on Form 8-K - - ------------------- A report on Form 8-K/A dated February 15, 1994, event date December 3, 1993, was filed with the Securities and Exchange Commission providing pro forma financial statements for the acquisition by GWB of HomeFed Bank, F.A. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GREAT WESTERN FINANCIAL CORPORATION - - ----------------------------------- Registrant /s/ Carl F. Geuther - - ------------------------------------ Carl F. Geuther Executive Vice President and Chief Financial Officer /s/ Jesse L. King - - ------------------------------------- Jesse L. King Senior Vice President Controller DATE: May 11, 1994 GREAT WESTERN FINANCIAL CORPORATION EXHIBIT INDEX March 31, 1994 Exhibit Page Number Number - - ------- ------ 10.1 General provisions applicable to Performance 37 Restricted Stock Awards granted under the Great Western Financial Corporation 1988 Stock Option and Incentive Plan, as amended. 11.1 Statement re computation of per share earnings. 48 EX-1 2 1ST QTR 10Q EXHIBIT 10.1 GENERAL PROVISIONS APPLICABLE TO PERFORMANCE RESTRICTED STOCK AWARDS GRANTED UNDER THE GREAT WESTERN FINANCIAL CORPORATION 1988 STOCK OPTION AND INCENTIVE PLAN, AS AMENDED (MARCH 1994) The specific purposes of performance-based Restricted Stock Awards authorized under the Great Western Financial Corporation 1988 Stock Option and Incentive Plan, as amended (the "Plan") is to encourage and reward high levels of performance of the Company as measured by returns to shareholders and to thereby align participant interests more closely with those of share- holders. Capitalized terms not otherwise defined herein shall have the meaning assigned to such terms in the Plan or the Award Agreement, as the case may be. These General Provisions supplement the provisions of Award Agreements contemplated by the Plan and shall apply to any Restricted Stock Award granted under Section 4.3 of the Plan when incorporated by reference in the Award Agreement. 1. OWNERSHIP RIGHTS OF RESTRICTED STOCK. (a) RESTRICTIONS ON TRANSFER. Prior to the time they become vested, neither the shares of Restricted Stock comprising the Award nor any interest therein, amount payable in respect thereof, nor Restricted Property (as defined in Section 8) subject thereto, may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily, other than by will or the laws of descent and distribution. (b) DIVIDENDS; VOTING RIGHTS. After the Award Date, the Employee Participant (sometimes, "EMPLOYEE" herein) shall be entitled to cash dividends and voting rights with respect to the shares of Restricted Stock subject to the Award even though such shares are not vested, provided that such rights shall terminate immediately as to any shares of Restricted Stock which are forfeited. Any securities or other property receivable or received by the Employee as a result of any non-cash dividend or other distribution (other than a Stock Dividend), conversion or exchange of or with respect to the Restricted Stock will be subject to the restrictions and risks of forfeiture set forth in these General Provisions to the same extent as the shares of Restricted Stock to which such securities or other property relate. For purposes of these General Provisions, "STOCK DIVIDEND" means only a dividend in and of shares of common stock of the Corporation representing less than 25% of the outstanding shares of its Common Stock prior to the dividend. (c) CERTIFICATES. The Corporation shall issue a certificate or certificates for the shares of Restricted Stock subject to the Award, registered in the name of the Employee, which certificate(s) shall upon redelivery thereof to the Corporation pursuant to subsection (d) below be held by the Corporation until the restrictions on such shares shall have lapsed and the shares shall thereby have become vested or the shares represented thereby are forfeited hereunder. The certificate(s) representing shares forfeited hereunder shall be cancelled. The certificate(s) representing restricted shares shall bear a legend referring to the Award Agreement and restrictions and limitations on such shares. (d) CERTIFICATES TO BE HELD BY CORPORATION; POWER OF ATTORNEY. Concurrently with the execution and delivery of the Award Agreement, upon delivery to the Employee of the certificate(s) representing shares awarded to such Employee, the Employee shall redeliver such certificate(s) to the Corporation, together with a stock power or stock powers, in blank, with respect to such certificate(s), to be held by the Corporation pursuant to the terms hereof. The Employee, by acceptance of the Award, shall be deemed to appoint the Corporation and each of its authorized representatives as the Employee's attorney(s)-in-fact to effect any transfer of unvested forfeited shares (or shares otherwise reacquired by the Corporation hereunder) to the Corporation as may be required pursuant to the Plan, these General Provisions or the Award Agreement and to execute such documents as the Corporation or such representatives deem necessary or advisable in connection with any such transfer. 2. VESTING; LAPSE OF RESTRICTIONS. (a) VESTING. The Award shall vest, and restrictions (other than those set forth in Section 10 (Compliance)) shall lapse, on the close of business on the day before the 10th anniversary of the Award Date, PROVIDED that the Employee remains then employed by the Company, unless (i) the Award has earlier vested or has been accelerated, as provided in Section 3(c) (Certain Events), Section 4 (Retirement), Section 5 (Disability or Death), Section 6 (Acceleration for Performance) or Section 8 (Adjustments), or has been otherwise accelerated pursuant to the Plan, or (ii) the Administrator has taken other action with respect to the Award pursuant to Section 6.3 of the Plan. (b) DELIVERY OF CERTIFICATES. Promptly after the lapse or other release of restrictions, a certificate or certificates evidencing the number of shares of Common Stock as to which the restrictions have lapsed or been released or such lesser number as may be permitted pursuant to Section 11 (Tax Withholding) shall be delivered to the Employee or other person entitled under the Plan to receive the shares. The Employee or such other person shall deliver to the Corporation any representations or other documents or assurances required pursuant to Section 10 (Compliance). The shares so delivered shall no longer be restricted shares hereunder. (c) MAXIMUM VESTING. The maximum number of restricted shares that may vest on any occasion or event shall not exceed the number of shares that then remain restricted hereunder. 3. EFEECT OF TERMINATION OF EMPLOYMENT. (a) FORFEITURE AFTER CERTAIN EVENTS. Except as provided in Section 3(c) (Termination Without Cause after Certain Events), Section 4 (Retirement) and Section 5 (Disability or Death), the Employee's shares of Restricted Stock shall be forfeited to the extent such shares have not become vested upon the date an Employee Participant is no longer employed by the Company for any reason, whether with or without cause, voluntarily or involuntarily. If an entity ceases to be a Subsidiary, such action shall be deemed to be a termination of employment of all employees of that entity, but the Administrator may make provision in such circumstances for accelerated vesting of some or all of the remaining restricted shares under any Awards held by such Employees, effective immediately prior to such event. (b) RETURN OF SHARES. Upon the occurrence of any forfeiture of shares of Restricted Stock hereunder, such unvested, forfeited shares shall, without payment of any consideration by the Corporation for such transfer, be automatically transferred to the Corporation, without any other action by the Employee, or the Employee's Beneficiary or Personal Representative, as the case may be. The Corporation may exercise its powers under Section 1(d) and take any other action necessary or advisable to evidence such transfer. The Employee, or the Employee's Beneficiary or Personal Representative, as the case may be, shall deliver any additional documents of transfer that the Corporation may request to confirm the transfer of such unvested, forfeited shares to the Corporation. (c) TERMINATION WITHOUT CAUSE FOLLOWING CERTAIN EVENTS. If following an Event described in Section 7.19 of the Plan, the Employee's employment by the Company is involuntarily terminated by the Company other than for cause, as determined by the Administrator in its sole and absolute discretion, then any portion of his or her Award that has not previously vested shall thereupon vest, subject to the provisions of Section 9. 4. EFFECT OF RETIREMENT. If the Employee retires in accordance with the terms of and under the Great Western Retirement Plan or the Company's policies, as from time to time in effect, and if the Administrator determines that such an event has occurred and approves the acceleration of vesting (subject to the provisions of Section 9), the Award shall vest to the following extent as of the date of such approval: (x) 15% of the original Award, multiplied by the number of anniversaries of the Award Date elapsed since the Award Date, minus (y) the percentage of the Award previously vested for performance pursuant to Section 6. Any remaining restricted shares under the Award thereupon shall be forfeited, unless the Administrator provides at such time for additional vesting (subject to the provisions of Section 9) in the circumstances. The Administrator will make its decision regarding such matters no later than 30 days after the date of termination. 5. EFFECT OF DISABILITY OR DEATH. If the Employee incurs a Disability or dies while employed by the Company, the Employee's Award shall vest to the following extent: (x) 20% of the original Award, multiplied by the number of anniversaries of the Award Date elapsed since the Award Date, minus (y) the percentage of the Award previously vested for Performance. Any restricted shares remaining under the Award shall be forfeited, except to the extent that the Administrator prior to the date of vesting (or within 30 days after the date of death, as the case may be) provides that some or all of any remaining restricted shares shall also vest on or as of such date. 6. ACCELERATION FOR PERFORMANCE. (a) GENERAL; DEFINED TERMS. After the third anniversary of the Award Date, the Administrator shall determine the performance of the Corporation and each member of the applicable Peer Group over the Applicable Performance Period in accordance with the provisions of subsection (b). The performance of the Corporation shall then be ranked on a percentile basis in accordance with the provisions of subsection (c). If and to the extent the Corporation's performance results in a percentile ranking of 50% or more, all or part of the Employee's Award as of the applicable Determination Date shall be subject to accelerated vesting as of such date in accordance with the provisions of subsection (d). To the extent that an Award is not subject to accelerated vesting as of any particular Determination Date by reason of performance, the Award shall remain eligible for accelerated vesting as of each subsequent Determination Date (prior to the forfeiture or other vesting of the Award) based upon the Corporation's performance during each such subsequent Applicable Performance Period. Terms used in this Section 6 have the following meanings, subject to the Administrator's authority hereunder and under the Plan. "APPLICABLE PERFORMANCE PERIOD" shall mean the three-year period commencing January 1, 1992 and ending December 31, 1994, or any full three- year period ending on each June 30 and December 31 thereafter within the term of the Award, as the case may be. "DETERMINATION DATE" shall mean the date as of which the Administrator makes its determination of Total Shareholder Return of the Corporation and of the other companies in the Peer Group for the Applicable Performance Period and other decisions essential to the calculation of the extent (if any) to which Restricted Stock Awards governed by these General Provisions shall vest. "FAIR MARKET VALUE" shall mean Fair Market Value (as defined in the Plan) except that Common Stock (as used in such definition) shall mean the common stock of the Corporation or the applicable member of the Peer Group, as the case may be. "PEER GROUP" shall mean the not more than 40 nor less than 20 (excluding the Corporation) financial institutions and/or financial services companies designated by the Administrator as the Peer Group for the Applicable Performance Period, initially those 32 institutions listed on Schedule 1, in all cases subject to the provisions of Section 15 hereof. "TOTAL SHAREHOLDER RETURN" refers to the compound annual rate of return over the Applicable Performance Period for the Corporation and each other company in the Peer Group from changes in the trading price of each company's common stock and any dividends and other distributions paid by the company on its common stock during the Applicable Performance Period, calculated by (a) assuming that one share of each company's common stock is purchased on the first day of the Applicable Performance Period at a price equal the average Fair Market Value for the 30 trading days immediately prior thereto, (b) assuming that additional shares (or portions of shares) of such company's common stock are purchased with any dividends paid on the initial share and on shares accumulated through the assumed reinvestment of dividends and other distributions, with such purchase being made on the dividend or distribution payment date at a price equal to the Fair Market Value of such company's common stock on that date, (c) calculating the aggregate number of shares of each company's common stock that would be accumulated over the Applicable Performance Period, (d) multiplying this number by the average Fair Market Value of such company's common stock for the 30 trading days immediately prior to the last day of the Applicable Performance Period, and (e) determining the annual compound rate of growth over the Applicable Performance Period between the assumed purchase price set forth in clause (a) and the value resulting from the computation in clause (d). (b) PERFORMANCE MEASURE AND DETERMINATION. The measurement of performance of the Corporation and each member of the Peer Group shall be based upon the Total Shareholder Return for the Corporation and each member of the Peer Group. (c) PERCENTILE RNAKING. After the Total Shareholder Return of the Corporation and each member of the Peer Group has been determined, the Administrator shall determine the percentile ranking in Total Shareholder Return of the Corporation relative to all other companies in the applicable Peer Group for the Applicable Performance Period in accordance with Schedule 2 hereto. (d) VESTING PERCENTAGES. The number of shares of Restricted Stock subject to accelerated vesting by virtue of performance as of any Determination Date shall be determined by multiplying (x) the acceleration percentage that corresponds to the Corporation's percentile ranking for the Applicable Performance Period in the following table, times (y) the number of shares subject to the original Award.
Percentile Ranking Percent of Award Versus Peer Group That Accelerates ------------------ ---------------- Below 50th 0% At or above 50th but less than 60th 25% At or above 60th but less than 70th 50% At or above 70th but less than 80th 75% At or above 80th 100%
7. CONTINUANCE OF EMPLOYMENT. The grant of an Award shall NOT confer upon the Employee any right with respect to the continuation of his or her employment by the Corporation or any Subsidiary or alter or interfere in any way with the right of the Corporation or of any Subsidiary at any time to terminate such employment or to change the compensation of the Employee or other terms of his or her employment; and neither shall these terms alter or in any way affect the rights of the Company or the Employee under any other written employment agreement between them, except as expressly provided herein. 8. ADJUSTMENTS UPON SPECIFIED EVENTS. Upon the occurrence of certain events relating to the Corporation's stock contemplated by Section 6.2 of the Plan (other than a Stock Dividend), the Administrator shall make adjustments if appropriate in the number and kind of securities that may become vested under an Award. If any adjustment shall be made under Section 6.2 of the Plan or an Event described in Section 7.19(ii) of the Plan shall occur and the shares of Restricted Stock are not fully vested upon such Event or prior thereto, the restrictions applicable to such shares of Restricted Stock shall continue in effect with respect to any consideration or other securities (the "RESTRICTED PROPERTY"), other than a Stock Dividend, received in respect of such Restricted Stock. Such Restricted Property shall vest at such times and in such proportion as the shares of Restricted Stock to which the Restricted Property is attributable vest, or would have vested pursuant to the terms hereof if such shares of Restricted Stock had remained outstanding. To the extent that the Restricted Property includes any cash, such cash shall be invested, pursuant to policies established by the Administrator, in interest bearing, FDIC-insured (subject to applicable insurance limits) deposits of Great Western Bank or another depository institution selected by the Administrator, the earnings on which shall be added to and become a part of the Restricted Property. 9. LIMINATIONS ON ACCELERATION AND REDUCTION IN BENEFITS IN EVENT OF TAX LIMITATIONS. (a) LIMITATION ON ACCELERATION. Notwithstanding anything contained herein or in the Plan or the terms of any employment agreement to the contrary, in no event shall the vesting of any share of Restricted Stock be accelerated pursuant to Section 6.3 of the Plan or Section 3(c) hereof or the terms of any employment agreement if the Corporation would not be allowed a federal income tax deduction for such vesting because of Section 280G of the Code and, in such circumstances, the restricted shares not subject to acceleration will continue to vest in accordance with the other provisions hereof. (b) REDUCTION IN BENEFITS. If the Employee would be entitled to benefits, payments or coverage hereunder and under any other plan, program or agreement which would constitute "parachute payments," then notwithstanding any other provision hereof or of any other existing agreement to the contrary, the Employee Participant may by written notice to the Secretary of the Corporation designate the order in which such "parachute payments" shall be reduced or modified so that the Corporation is not denied federal income tax deductions for any "parachute payments" because of Section 280G of the Code. (c) DETERMINATION OF LIMITATIONS. The term "parachute payments" shall have the meaning set forth in and be determined in accordance with Section 280G of the Code and regulations issued thereunder. All determinations required by this Section 9, including without limitation the determination of whether any benefit, payment or coverage would constitute a parachute payment, the calculation of the value of any parachute payment and the determination of the extent to which any parachute payment would be nondeductible for federal income tax purposes because of Section 280G of the Code, shall be made by an independent accounting firm (other than the Corporation's outside auditing firm) having nationally recognized expertise in such matters selected by the Administrator. Any such determination by such accounting firm shall be binding on the Corporation and the Employee Participant. 10. COMPLIANCE; APPLICATION OF SECURITIES LAWS. No shares of Common Stock shall be delivered, no restricted shares shall vest, and (subsequent to vesting) no shares shall be offered for sale by the holder unless and until any then applicable requirements of the Securities and Exchange Commission (the "COMMISSION") or any other regulatory agency having jurisdiction and any exchanges upon which the Common Stock may be listed shall have been fully satisfied. Upon the Corporation's request, the Participant, or any other person entitled to such shares of Common Stock pursuant to the Award, shall provide a written assurance of compliance (or representations reasonably requested by the Corporation to assure such compliance) satisfactory to the Corporation. The Administrator may impose such additional conditions on the Award or on its acceleration or vesting or on the payment of any related tax or withholding obligation as in its sole discretion may be required or advisable to satisfy any applicable legal or regulatory requirements, including, without limitation, provisions necessary to avoid liability under Section 16 of the Exchange Act or to secure benefits of Rule 16b-3 (or any successor rule) promulgated by the Commission pursuant to the Exchange Act. 11. TAX WITHHOLDING. The Corporation shall be entitled to require deduction from other compensation payable to the Employee of any sums required by federal, state or local tax law to be withheld with respect to the vesting of any Award, but, in the alternative, (i) the Corporation may require the Employee or other person in whom the Award may vest to advance such sums in cash, or (ii) the Corporation may allow the Employee or other person in whom the Award vests to irrevocably elect, in such manner and at such time or times prior to any applicable Tax Date as may be permitted or required under Section 6.6 of the Plan and rules established by the Administrator, to have the Company withhold and reacquire shares of Restricted Stock at the time of vesting to satisfy any withholding obligations of the Company employing the Employee with respect to such vesting. An election to have shares so held back and reacquired shall be subject to approval of the Administrator and shall not be available if the Employee has made an election pursuant to Section 83(b) of the Code with respect to such Award. 12. DELIVERY OF SHARES. Vested shares and any amounts deliverable pursuant to the Award shall be delivered and paid only to the Employee or the Employee's Beneficiary or Personal Representative, as the case may be. 13. EMPLOYMENT BY SUBSIDIARIES. Employment by any Subsidiary shall be considered as the equivalent of employment by the Corporation for all purposes hereunder. 14. NOTICES. Any notice to be given under the terms of the Plan, these General Provisions or an Award Agreement shall be in writing and addressed to the Corporation at its principal executive office, to the attention of the Corporate Secretary and to the Employee at the address given beneath the Employee's signature to the Award Agreement, or at such other address as either party may thereafter designate in writing to the other. 15. ADMINISTRATION OF AWARDS. (a) POWERS OF ADMINISTRATION. The Administrator's authority under Article II of the Plan to interpret and make decisions affecting all Awards extends to these General Provisions and all Awards that incorporate them by reference. Without limiting the generality of the foregoing, but subject to the limitations of the Plan, the Administrator shall have the responsibility for carrying out the intents and purposes of these General Provisions and related Restricted Stock Awards and shall have all powers necessary to accomplish those purposes, including, but not by way of limitation, the following: (i) to construe, interpret and administer the General Provisions and Award Agreements; (ii) to make all determinations required by these General Provisions; (iii) to collect and interpret such reported results of and other information regarding Peer Group entities and the Corporation as the Administrator may deem advisable or appropriate, or to utilize such other readily available information as it may deem advisable or appropriate, with respect to determinations made hereunder; (iv) to determine, compute and certify the extent of vesting and the amount of any other benefits payable to Employee Participants hereunder; (v) to delete, add or substitute any member(s) of the Peer Group in such circumstances as the Administrator deems advisable during any Applicable Performance Period or from one Applicable Performance Period to another, if, in the case of a removal, the Administrator determines that any member's circumstances are such, or an event has occurred, that makes it inappropriate or impractical to retain the entity as a member of the Peer Group or, in the case of an addition or substitution, the Administrator determines that the new member is similar in stature, financial performance, financial condition or other qualities to those companies previously included in the Peer Group, provided, however, that if a Peer Group member has initiated or become the subject of a material announced merger, takeover or other change in control proposal that in the opinion of the Administrator has or may have a material effect upon the determination of such member's Total Shareholder Return for any Applicable Performance Period, the Administrator shall remove such member from the Peer Group, subject to reinstatement of such member to the Peer Group if such proposed transaction is not consummated or if in the discretion of the Administrator any price distortion created by such announcement has abated; and (vi) to, in determining the performance of each relevant entity, make such adjustments as it deems appropriate and equitable in its discretion to reflect changes in capitalization and similar corporate changes affecting the Corporation or any Peer Group entity. In making any discretionary changes or other adjustments hereunder or under the Plan, the Administrator need not make the same adjustments or confer the same benefits on all holders of Restricted Stock. (b) NO LIABILITY OF ADMINISTRATOR. The determination of the Administrator in good faith as to any disputed question or controversy shall be binding and conclusive. In performing its duties, the Administrator shall be entitled to rely on information, opinions, reports or statements prepared or presented by: (i) officers or employees of the Company whom the Administrator believes to be reliable and competent as to such matters; and (ii) counsel (who may be employees of the Company), accountants and other persons as to matters which the Administrator believes to be within such persons' professional or expert competence. The Administrator shall be fully protected with respect to any action taken or omitted by it in good faith pursuant to the advice of such persons. Neither the Company, the Administrator nor any member of the Administrator or the Board of Directors shall be liable to any Employee Participant for any act or omission of any member or for any act or omission on its, his or her own part, excepting only for its, his or her own willful misconduct. INITIAL PEER GROUP COMPANIES Savings & Loans Banks - - ------------------------- ----------------------------- [C] [C] 1 Coast Savings Financial 1 Banc One Corp 2 Dime Savings Bank of NY 2 Bank of Boston Corp 3 Firstfed Michigan Corp 3 Bank of New York Co. 4 Golden West Financial Corp 4 Bankamerica (incl. Sec Pac) 5 H. F. Ahmanson 5 Bankers Trust New York Corp 6 Barnett Banks 7 Chase Manhattan Corporation 8 Chemical Banking Corp (incl. Man Han) 9 Citicorp 10 Continental Bank Corp 11 First Bank System 12 First Chicago Corp 13 First Fidelity Bancorp 14 First Interstate Bancorp 15 First Union Corp 16 First Wachovia Corp 17 Fleet/Norstar Financial Corp 18 J. P. Morgan & Co. 19 Mellon Bank Corp 20 MNC Financial 21 NationsBank Corp (NCNB & C&S/Sovran) 22 NBD Bancorp 23 Northwest Bancorp 24 PNC Financial Corp 25 Republic NY Corp 26 Suntrust Banks 27 Wells Fargo & Co. SCHEDULE 1 EX-2 3 1ST QTR 10Q Exhibit 11.1 GREAT WESTERN FINANCIAL CORPORATION Computation of Net Income Per Common Share Primary and Fully Diluted
Three Months Ended March 31 ------------------ (Dollars in thousands) 1994 1993 ---- ---- Net income $49,475 $45,211 Preferred stock dividends - convertible and nonconvertible (6,254) (6,254) ------- ------- Net income for computing earnings per Common share - primary 43,221 38,957 Preferred stock dividends - convertible 2,830 2,830 ------- ------- Net income for computing earnings per Common share - fully diluted $46,051 $41,787 ======= =======
Computation of Average Number of Common Shares Outstanding on Primary and Fully Diluted Basis (In thousands, except per share amounts)
Three Months Ended March 31 ------------------ (Dollars in thousands) 1994 1993 ---- ---- Average number of Common shares outstanding during each period - without dilution 132,779 130,986 Common share equivalents outstanding at the end of each period 578 616 ------- ------- Average number of Common shares and Common share equivalents outstanding during each period on a primary basis 133,357 131,602 Common share equivalents outstanding at the end of each period on a fully diluted basis - - Addition from assumed conversion as of the beginning of each period of the convertible preferred stock outstanding at the end of each period 6,342 6,342 ------- ------- Average number of Common shares outstanding during each period on a fully diluted basis 139,699 137,944 ======= ======= Net income per Common share Primary $.32 $.30 Fully diluted .32 .30
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