-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EcrNnuIQrn1kESJB+oBjiISnjpuGce7Cb5HmJbYrT2dB2q1n+ioASgFwILAbth8t uEowslLpnx3Uj0iWsB+NcQ== 0000898430-97-003439.txt : 19970815 0000898430-97-003439.hdr.sgml : 19970815 ACCESSION NUMBER: 0000898430-97-003439 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREAT WESTERN FINANCIAL CORP CENTRAL INDEX KEY: 0000043512 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [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: 97660288 BUSINESS ADDRESS: STREET 1: 9200 OAKDALE AVENUE CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8187753411 MAIL ADDRESS: STREET 1: 9200 OAKDALE AVENUE CITY: CHATSWORTH STATE: CA ZIP: 91311 10-Q 1 FOR THE QUARTERLY PERIOD ENDED 06/30/97 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 JUNE 30, 1997 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, 91311 CHATSWORTH, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (818) 775-3411 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 July 1, 1997: 139,674,214. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- Part I. Financial Information Item 1. Financial Statements......................................... 4 Consolidated Statement of Operations--Three months ended June 30, 1997, March 31, 1997 and June 30, 1996 and six months ended June 30, 1997 and June 30, 1996........................................ 4 Consolidated Statement of Financial Condition--June 30, 1997, March 31, 1997, December 31, 1996 and June 30, 1996..................... 5 Consolidated Statement of Changes in Stockholders' Equity--Three months ended June 30, 1997, March 31, 1997, June 30, 1996 and six months ended June 30, 1997 and June 30, 1996...................... 6 Consolidated Statement of Cash Flows--Three months and six months ended June 30, 1997 and June 30, 1996............................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for the three months and six months ended June 30, 1997 and June 30, 1996.......................... 9 Overview........................................................... 9 Highlights......................................................... 10 Merger Agreement with Washington Mutual, Inc....................... 11 Line of Business................................................... 12 Earnings Performance............................................... 15 Balance Sheet Analysis............................................. 24 Asset Liability Management......................................... 44 Liquidity Management............................................... 46 Parent Company Liquidity........................................... 46 Capital Adequacy................................................... 46 Impact of Recently Issued Accounting Standards..................... 49 Subsequent Events.................................................. 51 Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders.......... 52 Item 5. Other Information............................................ 53 Item 6. Exhibits and Reports on Form 8-K............................. 54
2 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", "the Company" or "Great Western"). 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, 1996 with the exception of the implementation of Statement of Financial Accounting Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). 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. During 1996, the Company changed its methodology to record losses on loans underlying mortgage-backed securities as a write-down on the security rather than as a charge against the reserve for loan losses. On May 9, 1997 the Company amended its 1996 Form 10-K to reflect the reclassification of these prior period charge-offs against the reserve to write-downs on the mortgage backed securities. Certain line items have been reclassified to conform with Washington Mutual, Inc.'s presentation of financial statements. (See "Part I. Financial Information, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, Merger Agreement with Washington Mutual, Inc.") 3 ITEM 1. FINANCIAL STATEMENTS GREAT WESTERN FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------ ------------------------ JUNE 30, MARCH 31, JUNE 30, JUNE 30, JUNE 30, 1997 1997 1996 1997 1996 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE) INTEREST INCOME Loans................. $ 629,829 $ 617,072 $ 612,581 $ 1,246,901 $ 1,238,431 Available-for-sale securities........... 125,573 126,458 150,873 252,031 304,865 Held-to-maturity securities........... 31,634 32,865 37,331 64,499 76,513 Cash equivalents...... 6,175 7,863 6,157 14,038 12,061 ----------- ----------- ----------- ----------- ----------- Total interest income.............. 793,211 784,258 806,942 1,577,469 1,631,870 INTEREST EXPENSE Deposits.............. 284,635 279,776 290,454 564,411 593,458 Borrowings............ 181,943 166,318 164,540 348,261 334,178 ----------- ----------- ----------- ----------- ----------- Total interest expense............. 466,578 446,094 454,994 912,672 927,636 ----------- ----------- ----------- ----------- ----------- NET INTEREST INCOME..... 326,633 338,164 351,948 664,797 704,234 Provision for loan losses................. 36,072 40,390 32,566 76,462 68,587 ----------- ----------- ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............ 290,561 297,774 319,382 588,335 635,647 OTHER INCOME Depositor fees........ 58,661 54,033 43,003 112,694 84,667 Securities and insurance commissions.......... 36,176 35,035 32,863 71,211 62,507 Loan servicing fees... 10,964 12,317 11,386 23,281 22,839 Other service fees.... 7,200 7,989 6,827 15,189 13,287 Other operating income............... 5,815 2,522 3,339 8,337 3,526 Gain on sale of loans. 1,630 2,411 2,281 4,041 5,288 Gain/(loss) on sale of other assets......... (3,917) 3,437 (7,803) (480) (14,114) ----------- ----------- ----------- ----------- ----------- Total other income... 116,529 117,744 91,896 234,273 178,000 OTHER EXPENSE Salaries and employee benefits............. 111,624 118,156 125,392 229,780 249,896 Occupancy and equipment............ 44,407 47,720 48,483 92,127 97,839 Outside telecommunications and data processing services............. 17,100 18,277 20,251 35,377 40,591 Regulatory assessments.......... 4,525 4,577 16,028 9,102 32,174 Transaction-related expenses............. 24,305 33,721 -- 58,026 -- Other operating expense.............. 63,173 63,631 56,575 126,804 114,879 Amortization of goodwill and other intangible assets.... 8,976 8,975 9,430 17,951 18,859 Real estate owned (REO) operations, inclusive of write- downs................ 2,068 5,758 4,548 7,826 10,044 ----------- ----------- ----------- ----------- ----------- Total other expense.. 276,178 300,815 280,707 576,993 564,282 ----------- ----------- ----------- ----------- ----------- INCOME BEFORE INCOME TAXES.................. 130,912 114,703 130,571 245,615 249,365 Income taxes.......... 58,579 49,000 51,300 107,579 98,800 ----------- ----------- ----------- ----------- ----------- NET EARNINGS............ $ 72,333 $ 65,703 $ 79,271 $ 138,036 $ 150,565 =========== =========== =========== =========== =========== Average common shares outstanding............ Without dilution...... 141,615,106 141,305,122 139,041,758 141,026,856 138,984,442 Fully diluted......... 142,072,221 141,595,846 145,491,403 141,783,866 145,434,087 Earnings per share based on average common shares outstanding Primary............... $ .49 $ .44 $ .52 $ .93 $ .99 Fully diluted......... .49 .44 .52 .93 .99 Cash dividend per common share.................. .25 .25 .25 .50 .48
Unaudited 4 GREAT WESTERN FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
JUNE 30, MARCH 31, DECEMBER 31, JUNE 30, 1997 1997 1996 1996 ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS Cash....................... $ 424,357 $ 339,256 $ 534,192 $ 613,064 Cash equivalents........... 300,125 550,830 300,100 375,125 Available-for-sale securities Mortgage-backed securities.............. 5,791,182 5,981,604 6,169,842 7,179,922 Investments (including FHLB)................... 1,624,774 1,558,224 1,657,229 1,755,283 Held-to-maturity securities Mortgage-backed securities.............. 1,504,656 1,554,197 1,618,709 1,750,363 Loans held in portfolio.... 32,609,199 31,319,660 31,030,701 29,983,342 Loans held-for-sale........ 155,560 211,993 106,190 409,169 Reserve for loan losses.... (316,411) (320,800) (313,699) (330,321) ----------- ----------- ----------- ----------- Net Loans................ 32,448,348 31,210,853 30,823,192 30,062,190 Real estate owned.......... 86,343 78,257 119,772 167,359 Bank premises and equipment................. 518,197 525,178 552,422 584,436 Goodwill and other intangibles arising from acquisitions.............. 268,041 277,016 285,991 304,854 Other assets............... 803,769 802,488 813,123 927,362 ----------- ----------- ----------- ----------- Total assets........... $43,769,792 $42,877,903 $42,874,572 $43,719,958 =========== =========== =========== =========== LIABILITIES Deposits Checking accounts........ $ 4,180,847 $ 4,383,937 $ 4,419,672 $ 4,515,344 Savings and money market accounts................ 7,315,201 7,231,742 6,744,210 6,506,109 Time certificates........ 16,128,618 16,392,991 17,236,632 17,468,744 Wholesale................ 160,404 149,661 186,259 389,622 ----------- ----------- ----------- ----------- Total deposits......... 27,785,070 28,158,331 28,586,773 28,879,819 Federal funds purchased and commercial paper.......... 1,290,374 1,286,942 1,101,506 945,030 Securities sold under agreements to repurchase.. 3,859,927 4,483,584 4,197,666 5,367,694 Advances from the FHLB..... 4,356,942 2,558,298 2,769,933 2,169,299 Guaranteed preferred beneficial interest in Company subordinated notes..................... 400,000 400,000 100,000 100,000 Other borrowings........... 2,337,901 2,332,335 2,432,708 2,400,240 Other liabilities.......... 1,054,200 1,073,343 1,090,786 1,023,151 ----------- ----------- ----------- ----------- Total liabilities...... 41,084,414 40,292,833 40,279,372 40,885,233 ----------- ----------- ----------- ----------- STOCKHOLDERS' EQUITY Preferred stock, par value $1.00 per share; Authorized 10,000,000 shares; Cumulative Convertible issued none, none, none and 517,500, Cumulative issued 660,000, 660,000, 660,000 and 660,000................... 165,000 165,000 165,000 294,035 Common stock, par value $1.00 per share; Authorized 200,000,000 shares; Issued 139,617,449, 137,885,310, 137,875,955, and 137,392,481............... 139,617 137,885 137,876 137,392 Capital surplus............ 730,241 677,250 680,428 715,297 Valuation reserve for available-for-sale securities................ 52,946 41,796 76,959 45,293 Retained earnings-- substantially restricted.. 1,597,574 1,563,139 1,535,264 1,644,997 Unearned compensation...... -- -- (327) (2,289) ----------- ----------- ----------- ----------- Total stockholders' equity................ 2,685,378 2,585,070 2,595,200 2,834,725 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity.. $43,769,792 $42,877,903 $42,874,572 $43,719,958 =========== =========== =========== ===========
Unaudited 5 GREAT WESTERN FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------- ---------------------- JUNE 30, MARCH 31, JUNE 30, JUNE 30, JUNE 30, 1997 1997 1996 1997 1996 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) PREFERRED STOCK Balance, beginning of period............... $ 165,000 $ 165,000 $ 294,375 $ 165,000 $ 294,375 Preferred stock converted to common stock................ -- -- (340) -- (340) ---------- ---------- ---------- ---------- ---------- Balance, end of period............... 165,000 165,000 294,035 165,000 294,035 ---------- ---------- ---------- ---------- ---------- COMMON STOCK Balance, beginning of period............... 137,885 137,876 137,205 137,876 137,279 Common stock converted from preferred stock. -- -- 17 -- 17 Common stock issued upon exercise of options.............. 1,761 988 153 2,749 289 Common stock issued under dividend reinvestment plan.... -- 22 21 22 38 Common stock acquired. (8) (1,001) (1) (1,009) (224) Restricted stock awards granted, net of cancellations..... (21) -- (3) (21) (7) ---------- ---------- ---------- ---------- ---------- Balance, end of period............... 139,617 137,885 137,392 139,617 137,392 ---------- ---------- ---------- ---------- ---------- CAPITAL SURPLUS Balance, beginning of period............... 677,250 680,428 711,770 680,428 713,889 Common stock converted from preferred stock. -- -- 323 -- 323 Common stock issued upon exercise of options.............. 52,991 27,004 2,819 79,995 5,373 Common stock issued under dividend reinvestment plan.... -- 825 460 825 840 Common stock acquired. -- (31,007) (9) (31,007) (5,005) Restricted stock awards granted, net of cancellations..... -- -- (66) -- (123) ---------- ---------- ---------- ---------- ---------- Balance, end of period............... 730,241 677,250 715,297 730,241 715,297 ---------- ---------- ---------- ---------- ---------- VALUATION RESERVE FOR AVAILABLE-FOR-SALE SECURITIES Balance, beginning of period............... 41,796 76,959 75,789 76,959 108,433 Change in unrealized net gain, net of taxes................ 11,150 (35,163) (30,496) (24,013) (63,140) ---------- ---------- ---------- ---------- ---------- Balance, end of period............... 52,946 41,796 45,293 52,946 45,293 ---------- ---------- ---------- ---------- ---------- RETAINED EARNINGS-- SUBSTANTIALLY RESTRICTED Balance, beginning of period............... 1,563,139 1,535,264 1,606,287 1,535,264 1,572,782 Net earnings.......... 72,333 65,703 79,271 138,036 150,565 Preferred stock dividends............ (3,423) (3,424) (6,242) (6,847) (12,496) Common stock dividends............ (34,475) (34,404) (34,319) (68,879) (65,854) ---------- ---------- ---------- ---------- ---------- Balance, end of period............... 1,597,574 1,563,139 1,644,997 1,597,574 1,644,997 ---------- ---------- ---------- ---------- ---------- UNEARNED COMPENSATION Balance, beginning of period............... -- (327) (3,294) (327) (4,282) Amortization of restricted stock..... -- 327 984 327 1,972 Restricted stock awards granted, net of cancellations..... -- -- 21 -- 21 ---------- ---------- ---------- ---------- ---------- Balance, end of period............... -- -- (2,289) -- (2,289) ---------- ---------- ---------- ---------- ---------- Total stockholders' equity............. $2,685,378 $2,585,070 $2,834,725 $2,685,378 $2,834,725 ========== ========== ========== ========== ==========
Unaudited 6 GREAT WESTERN FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- ------------------------ 1997 1996 1997 1996 ---------- --------- ----------- ----------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net earnings.................. $ 72,333 $ 79,271 $ 138,036 $ 150,565 Noncash adjustments to net earnings: Provision for loan losses... 36,072 32,566 76,462 68,587 Net (increase) decrease in interest receivable........ (3,987) (8,404) 2,703 23,459 Net increase (decrease) in interest payable........... 14,859 23,817 (15,778) 20,365 Depreciation and amortization............... 16,893 19,226 35,964 38,551 Amortization of goodwill and other intangibles.......... 8,975 9,430 17,951 18,859 FHLB stock dividend......... (5,613) (5,092) (11,697) (24,404) Write-downs of mortgage- backed securities.......... 4,500 6,734 8,700 12,813 Write-downs of real estate owned...................... 808 -- 2,561 -- Loss on sale of mortgage- backed securities available-for-sale......... 5 1,395 15 1,961 Loss (gain) on sale of leases..................... 5 (106) (711) (645) (Gain) on sale of real estate..................... (6,796) (5,095) (8,077) (7,336) Loss on sale of loans held- for-sale................... 5,173 2,830 7,431 4,376 Capitalized interest........ (13,988) (13,633) (27,977) (31,599) Income taxes................ (25,838) (4,205) 69,905 (37,163) Other....................... (44,676) 53,472 (125,132) 311,691 Sales and payments of loans held-for-sale................ 676,205 391,354 1,107,633 817,935 Originations and purchases of loans held-for-sale.......... (602,721) (312,987) (1,120,111) (731,855) ---------- --------- ----------- ----------- Net cash provided by operating activities................... 132,209 270,573 157,878 636,160 ---------- --------- ----------- ----------- FINANCING ACTIVITIES (Decrease) in deposits........ (373,261) (461,911) (801,703) (355,109) Borrowings Net change in federal funds purchased and commercial paper...................... 3,432 (2,388) 188,868 (371,385) Net change in securities sold under agreements to repurchase................. (623,657) (366,807) (337,739) (1,500,602) Net change in advances from the FHLB................... 1,798,644 666,188 1,587,009 1,314,219 Proceeds from issuance of other borrowings........... 5,629 99,842 5,629 99,842 Repayments of other borrowings................. (63) (5,216) (100,436) (5,445) Proceeds from issuance of Company subordinated notes. -- -- 300,000 -- Other financing activity...... Common stock issued......... 54,752 3,453 83,591 6,540 Common stock repurchased.... (29) (79) (32,037) (5,359) Payment of cash dividends on common stock............... (34,475) (34,319) (68,879) (65,854) Payment of cash dividends on preferred stock............ (3,423) (6,242) (6,847) (12,496) ---------- --------- ----------- ----------- Net cash provided by (used in) financing activities......... 827,549 (107,479) 817,456 (895,649) ---------- --------- ----------- -----------
Unaudited 7 GREAT WESTERN FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS--(CONTINUED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 1997 1996 1997 1996 ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) INVESTING ACTIVITIES Available-for-sale securities (including FHLB) Proceeds from sales and redemptions............. $ 753,512 $ 430,446 $ 1,602,495 $ 823,292 Purchases................ (811,541) (675,731) (1,561,062) (1,131,836) Mortgage-backed securities available-for-sale Proceeds................. 1,001 3,722 1,998 3,722 Purchases................ (5,828) (21,856) (79,695) (30,367) Payments received........ 181,318 317,185 349,277 605,664 Mortgage-backed securities held-to-maturity Payments received........ 49,299 77,284 113,939 148,198 Loans held in portfolio Real estate loans Payments received...... 832,819 812,869 1,574,622 1,523,995 Loans originated for investment............ (2,027,125) (1,186,816) (3,067,308) (1,924,935) Repurchases............ (12,322) (15,695) (24,954) (29,655) Consumer Finance and other loans Loans originated for investment............ (711,756) (567,279) (1,263,570) (1,022,873) Proceeds from sales.... (5) 472 2,211 1,587 Payments received...... 566,979 540,428 1,107,058 1,041,477 Other investing activity Purchases and sales of bank premises and equipment, net.......... (10,966) (11,388) (3,462) (20,591) Proceeds from sale of real estate owned....... 55,579 86,704 133,564 170,968 Other.................... 13,674 4,207 29,743 (5,385) ----------- ----------- ----------- ----------- Net cash (used in) provided by investing activities.... (1,125,362) (205,448) (1,085,144) 153,261 ----------- ----------- ----------- ----------- Net (decrease) in cash and cash equivalents........... (165,604) (42,354) (109,810) (106,228) Cash and cash equivalents at beginning of period..... 890,086 1,030,543 834,292 1,094,417 ----------- ----------- ----------- ----------- Cash and cash equivalents at end of period........... $ 724,482 $ 988,189 $ 724,482 $ 988,189 =========== =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE Cash paid for Interest on deposits..... $ 285,904 $ 279,209 $ 567,617 $ 578,348 Interest on borrowings... 166,739 153,117 362,682 340,501 Income taxes............. 60,912 50,749 61,503 96,552 Noncash investing activities Loans transferred to real estate owned............ 75,755 107,357 133,579 221,424 Loans originated to finance the sale of real estate owned............ 15,585 17,433 25,498 35,081 Loans originated to refinance existing loans................... 136,308 84,300 237,321 191,956 Loans exchanged for mortgage-backed securities.............. 1,004 -- 2,006 --
Unaudited 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Great Western reported consolidated net earnings of $72.3 million, or $.49 per share, for the second quarter of 1997 compared to $79.3 million, or $.52 per share for the second quarter of 1996 and $65.7 million, or $.44 per share for the first quarter of 1997. For the six months ended June 30, 1997 net earnings were $138 million or $.93 per share, compared with $150.6 million or $.99 per share, for the same period a year ago. The Company's earnings for the second quarter of 1997 were reduced by $24.3 million in transaction-related expenses. Without these transaction-related expenses, operating earnings for the three months ended June 30, 1997 and the six months ended June 30, 1997 would have been $92.7 million, or $.62 per share and $181.3 million or $1.23 per share respectively. The provision for loan losses in the second quarter of 1997 declined to $36.1 million, down from $40.4 million in the first quarter of 1997 and up from $32.6 million in the second quarter of 1996. The decrease from the first quarter of 1997 was due to reduced credit costs as a result of lower levels of nonperforming assets. Nonperforming assets were $502.6 million, or 1.15% of assets at June 30, 1997, $770.3 million, or 1.76% of assets at June 30, 1996 and $547.8 million, or 1.28% of assets at March 31, 1997. Provisions for loan losses during the first six months of 1997 and 1996 were $76.5 million and $68.6 million, respectively. Net interest income was $326.6 million for the second quarter of 1997 compared with $351.9 million for the second quarter of 1996 and $338.2 million for the first quarter of 1997. The interest spread for the second quarter of 1997 was 2.97% compared with 3.23% for the second quarter of 1996 and 3.13% for the first quarter of 1997. The Company's net interest margin was 3.17% for the second quarter of 1997 compared with 3.41% for the second quarter of 1996 and 3.32% for the first quarter of 1997. Net interest income during the first six months of 1997 and 1996 was $664.8 million and $704.2 million, respectively. Other income was $116.5 million in the second quarter of 1997, $91.9 million in the second quarter of 1996 and $117.7 million in the first quarter of 1997. In the second quarter of 1997, depositor fees increased $15.7 million, securities and insurance commissions increased $3.3 million, write-downs of mortgage-backed securities declined $2.2 million and losses on mortgage-backed securities declined $1.4 million from the year ago second quarter. Other income during the first six months of 1997 and 1996 was $234.3 million and $178 million, respectively. Excluding the impact of the transaction-related expenses, other expense in the second quarter of 1997 totaled $251.9 million, compared with $280.7 million in the second quarter of 1996. Other expense for the first quarter of 1997, excluding the impact of transaction-related expenses, was $267.1 million. The decrease of $28.8 million from the second quarter of 1996 was due primarily to a decrease in salaries and employee benefits of $14.6 million and a decrease in regulatory assessments of $11.5 million. 9 HIGHLIGHTS
AT OR FOR THE THREE MONTHS ENDED ------------------------------------- JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ----------- ----------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE) Net interest income..................... $ 326,633 $ 338,164 $ 351,948 Net earnings............................ 72,333 65,703 79,271 Fully diluted earnings per common share. .49 .44 .52 New loan volume......................... 3,493,496 2,220,312 2,168,815 Real estate loans sold.................. 676,221 419,715 382,613 Return on average assets (annualized)... .67% .61% .73% Return on average equity (annualized)... 10.70% 10.06% 11.28% Interest spread Yield on interest earning assets...... 7.68% 7.69% 7.81% Cost of interest bearing liabilities.. 4.71 4.56 4.58 ----------- ----------- ----------- Interest spread....................... 2.97% 3.13% 3.23% =========== =========== =========== Total assets............................ $43,769,792 $42,877,903 $43,719,958 Stockholders' equity.................... 2,685,378 2,585,070 2,834,725 Stockholders' equity per common share... 18.05 17.55 18.49 Tangible stockholders' equity per common share.................................. 16.13 15.54 16.27
AT OR FOR THE SIX MONTHS ENDED -------------------- JUNE 30, JUNE 30, 1997 1996 --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE) Net interest income.................................. 664,797 704,234 Net earnings......................................... 138,036 150,565 Fully diluted earnings per common share.............. 0.93 0.99 New loan volume...................................... 5,713,808 3,906,700 Real estate loans sold............................... 1,095,936 798,363 Return on average assets (annualized)................ .64% .69% Return on average equity (annualized)................ 10.39% 10.70% Interest spread Yield on interest earning assets................... 7.70% 7.87% Cost of interest bearing liabilities............... 4.65% 4.64% --------- --------- Interest spread.................................... 3.05% 3.23% ========= =========
10 MERGER AGREEMENT WITH WASHINGTON MUTUAL, INC. On February 18, 1997, H.F. Ahmanson & Company ("Ahmanson") unilaterally announced a proposal for a merger between Ahmanson and Great Western pursuant to which each outstanding share of Common Stock would be converted into 1.05 shares of Ahmanson common stock. On March 6, 1997, Great Western announced that it had entered into a strategic business combination with Washington Mutual, Inc. ("Washington Mutual"). The terms of the Agreement and Plan of Merger dated as of March 5, 1997 (the "Merger Agreement") entered into by and between Great Western, Washington Mutual and New American Capital, Inc., ("NACI"), a wholly-owned subsidiary of Washington Mutual provided for a tax-free merger (the "Merger") of Great Western with and into NACI pursuant to which each outstanding share of Great Western common stock, par value $1.00 per share (the "Common Stock"), would be converted into 0.9 shares of Washington Mutual common stock, no par value, with cash being paid in lieu of fractional shares. Each outstanding share of GWFC 8.30% Preferred Stock would be converted into one share of Washington Mutual 8.30% Preferred Stock, Series F. The consummation of the Merger was subject to certain conditions, including approval by the stockholders of Great Western and Washington Mutual and the receipt of applicable regulatory approvals. The Board of Directors of Great Western ("the Board") fixed June 13, 1997 as the date for the special meeting of stockholders to vote on the approval and adoption of the Merger Agreement. On June 4, 1997, Ahmanson announced that it had withdrawn its February 18, 1997, unsolicited proposal to acquire GWFC. On June 13, 1997, the stockholders of GWFC approved and adopted the Merger Agreement with Washington Mutual, Inc. The Merger was consummated on July 1, 1997. The description of the Merger Agreement above does not purport to be complete and is qualified in its entirety by reference to the text of the Merger Agreement, which is filed as an exhibit to the Company's Annual Report on Form 10-K. 11 LINE OF BUSINESS Great Western Financial Corporation is managed along four major lines of business: Consumer Finance, Real Estate Services, Retail Banking and Treasury. The financial performance of these business lines is measured by the Company's profitability reporting system. The system uses various management accounting principles to ensure each business line's financial results reflect the underlying economics of that business. To properly assess the profitability of each business unit, charges for funds employed and credits for funds generated are assigned on a matched maturity basis to minimize interest-rate risk in the business line and centralize that exposure in the Treasury unit where it is managed for the Company as a whole. Expenses incurred in the Company's support units are assigned to business lines based on services provided to a particular business unit. Residual expenses, assets employed and other overhead costs are allocated in a manner consistent with the corporate management fee. Management fees are distributed to business lines based on service usage. Loss provision and capital are allocated based on management's assessment of the risk profile of each business line. Loans originated in the Real Estate unit are purchased by the Treasury unit at a transfer price that reflects the risk-adjusted value of the loans. Certain undistributed items have been allocated to business lines for presentation purposes. Included in this distribution are merger transaction- related expenses totaling $24.3 million for the three months ended June 30, 1997 and $58 million for the six months ended June 30, 1997. These expenses are distributed to business lines in a manner consistent with other overhead expenses that are distributed as part of the corporate management fee. As discussed above, management fees are distributed to business lines based on service usage. Adjusted ratios are provided in the tables below which exclude transaction-related expenses. Since there is no authoritative guidance for management accounting principles, the organizational structure of the institution and the allocation methodologies it employs result in business line financial results that are not necessarily comparable across companies. As such, Great Western's business line performance may not be directly comparable with similar information from other financial institutions. 12 SELECTED FINANCIAL HIGHLIGHTS BY LINE OF BUSINESS Results of line of business for the three months ended June 30, 1997 and June 30, 1996 are presented below.
REAL ESTATE CONSUMER FINANCE SERVICES RETAIL BANKING TREASURY CONSOLIDATED ------------------ -------------- -------------------- -------------------- -------------------- 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 -------- -------- ------ ------ --------- --------- --------- --------- --------- --------- (DOLLARS IN MILLIONS) Income Statement: Net interest income.... $ 62.3 $ 64.9 $ 10.0 $ 12.8 $ 155.7 $ 154.5 $ 98.6 $ 119.8 $ 326.6 $ 352.0 Provision for loan losses................ 15.6 13.6 -- -- .5 .7 20.0 18.3 36.1 32.6 Net interest income after provision....... 46.7 51.3 10.0 12.8 155.2 153.8 78.6 101.5 290.5 319.4 Other income........... 7.0 6.5 99.8 80.5 93.0 71.0 (83.3) (66.1) 116.5 91.9 Other expense.......... 32.3 25.7 40.5 65.1 176.0 191.8 3.0 (1.9) 251.8 280.7 Transaction-related expenses.............. -- -- 7.2 -- 15.8 -- 1.3 -- 24.3 -- -------- -------- ------ ------ --------- --------- --------- --------- --------- --------- Income before tax...... 21.4 32.1 62.1 28.2 56.4 33.0 (9.0) 37.3 130.9 130.6 Tax.................... 8.5 12.8 28.4 11.0 25.9 12.9 (4.2) 14.6 58.6 51.3 -------- -------- ------ ------ --------- --------- --------- --------- --------- --------- Net income........... $ 12.9 $ 19.3 $ 33.7 $ 17.2 $ 30.5 $ 20.1 $ (4.8) $ 22.7 $ 72.3 $ 79.3 ======== ======== ====== ====== ========= ========= ========= ========= ========= ========= Average Balance Sheet Data: Real estate loans...... $ -- $ -- $ -- $ -- $ -- $ -- $29,597.1 $27,707.1 $29,598.1 $28,066.9 Consumer loans......... 2,161.2 2,072.6 -- -- 296.7 555.7 -- -- 2,457.0 2,268.5 Net loans and leases... 2,161.2 2,072.6 -- -- 296.7 555.7 29,597.1 27,707.1 32,055.1 30,335.4 Assets................. 2,350.8 2,266.9 331.0 250.7 1,305.1 1,697.0 39,320.9 39,393.9 43,307.8 43,608.5 Deposits............... 144.0 157.9 -- -- 27,885.6 28,675.6 5.7 142.8 28,035.3 28,976.3 Equity................. 374.5 466.7 636.0 639.8 1,099.9 1,106.4 593.3 596.9 2,703.7 2,809.8 Performance Metrics Return on average equity................ 13.76% 16.51% 21.22% 10.72% 11.14% 7.28% -3.33% 15.23% 10.70% 11.28% Efficiency ratio....... 46.59% 36.03% 43.44% 69.83% 77.16% 85.02% 27.97% -3.54% 62.32% 63.24% Performance Metrics (excluding transaction- related expenses of $24.3 million) Return on average equity................ -- -- 26.09% -- 15.71% -- -3.13% -- 13.73% -- Efficiency ratio....... -- -- 36.87% -- 70.82% -- 19.28% -- 56.84% --
13 Results of line of business for the six months ended June 30, 1997 and June 30, 1996 are presented below.
REAL ESTATE CONSUMER FINANCE SERVICES RETAIL BANKING TREASURY CONSOLIDATED ------------------ -------------- -------------------- -------------------- -------------------- 1997 1996 1997 1996 1997 1996 1997 1996 1997 1996 -------- -------- ------ ------ --------- --------- --------- --------- --------- --------- (DOLLARS IN MILLIONS) Income Statement: Net interest income.... $ 124.1 $ 132.1 $ 21.1 $ 24.6 $ 309.8 $ 306.2 $ 209.8 $ 241.3 $ 664.8 $ 704.2 Provision for loan losses................ 31.0 28.1 -- -- .6 1.3 44.9 39.2 76.5 68.6 Net interest income after provision....... 93.1 104.0 21.1 24.6 309.2 304.9 164.9 202.1 588.3 635.6 Other income........... 13.0 13.1 164.9 138.5 185.8 134.3 (129.4) (107.9) 234.3 178.0 Other expense.......... 66.9 61.8 92.2 126.0 353.7 375.4 6.2 1.0 519.0 564.2 Transaction-related expenses.............. -- -- 17.2 -- 37.6 -- 3.2 -- 58.0 -- -------- -------- ------ ------ --------- --------- --------- --------- --------- --------- Income before tax...... 39.2 55.3 76.6 37.1 103.7 63.8 26.1 93.2 245.6 249.4 Tax.................... 15.6 22.0 34.1 14.7 46.3 25.2 11.6 36.9 107.6 98.8 -------- -------- ------ ------ --------- --------- --------- --------- --------- --------- Net income............. $ 23.6 $ 33.3 $ 42.5 $ 22.4 $ 57.4 $ 38.6 $ 14.5 $ 56.3 $ 138.0 $ 150.6 ======== ======== ====== ====== ========= ========= ========= ========= ========= ========= Average Balance Sheet Data: Real estate loans...... $ -- $ -- $ -- $ -- $ -- $ -- $29,211.1 $27,695.5 $29,216.8 $28,048.8 Consumer loans......... 2,168.1 2,090.1 -- -- 269.3 546.9 -- -- 2,431.7 2,283.7 Net loans and leases... 2,168.1 2,090.1 -- -- 269.3 546.9 29,211.1 27,695.5 31,648.5 30,332.5 Assets................. 2,399.2 2,302.0 339.2 274.9 1,297.0 1,815.7 39,045.6 39,445.9 43,081.0 43,838.5 Deposits............... 169.7 159.3 -- -- 27,980.3 28,774.9 13.3 145.5 28,163.3 29,079.7 Equity................. 379.6 482.4 614.2 628.6 1,064.9 1,089.9 598.8 612.8 2,657.5 2,813.7 Performance Metrics.... Return on average equity................ 12.44% 13.80% 13.83% 7.14% 10.79% 7.06% 4.83% 18.40% 10.39% 10.70% Efficiency ratio....... 48.80% 42.55% 58.80% 77.25% 78.96% 85.25% 11.73% 0.72% 64.18% 63.96% Performance Metrics (excluding transaction- related expenses of $58 million) Return on average equity................ -- -- 18.28% -- 15.87% -- 5.85% -- 13.67% -- Efficiency ratio....... -- -- 49.54% -- 71.36% -- 7.77% -- 57.72% --
CONSUMER FINANCE The Consumer Finance line of business is made up of Blazer Financial Services, City Finance Company, First Community Industrial Bank and Great Western Thrift & Loan. These companies offer retail installment financing primarily in the Southeast and Southwest areas of the United States. REAL ESTATE SERVICES The Real Estate Services line of business houses the Company's residential mortgage origination and loan servicing businesses. Loans are originated in Great Western's nationwide retail lending offices and through the Company's wholesale origination function. Fixed rate loans are typically sold in the secondary market and adjustable loans are primarily transferred to the Treasury line of business for portfolio investment. RETAIL BANKING The Retail Banking line of business includes Great Western's branch banking franchise, direct banking business and diversified retail businesses including Sierra Capital Management and Great Western Financial Securities Corporation. Also in this business unit are Great Western's business banking and consumer lending functions which figure prominently in the Company's evolution into a full service bank. TREASURY The Treasury line of business houses the Company's mortgage loan and investment securities portfolios and meets the wholesale funding needs of the Company. Additionally, the Treasury function is responsible for hedging the Company's interest rate risk and as such, houses the funds transfer pricing mismatch unit. The mismatch unit is counterparty to the internal charges and credits for funds received by each of the other business lines. 14 EARNINGS PERFORMANCE NET INTEREST INCOME Net interest income was $326.6 million in the second quarter of 1997 compared with $351.9 million in the second quarter of 1996 and $338.2 million in the first quarter of 1997. The interest spread decreased in the second quarter of 1997 due to higher rates paid on deposits and borrowings compared with the first quarter of 1997. During the three months ended March 31, 1997 the interest spread was reduced primarily due to higher rates on borrowings and lower yields on real estate and Consumer Finance loans compared with the prior quarter. For the three months ended June 30, 1996, the interest spread benefited by approximately 6 basis points from the interest rate lag on ARM loans. The interest spread decreases in an increasing interest-rate environment as increases in COFI, to which most interest earning assets are tied, lag behind deposit and borrowing rate increases. The Company's net interest margin was 3.17% for the three months ended June 30, 1997 compared with 3.41% for the same period a year ago. The Company's net interest margin was 3.32% for the three months ended March 31, 1997. The following tables of net interest income displays the average balances, interest income and expense and average rates by asset and liability component for the periods indicated:
THREE MONTHS ENDED JUNE 30, --------------------------------------------------------------- 1997 1996 ------------------------------- ------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ----------- -------- ---------- ----------- -------- ---------- (DOLLARS IN THOUSANDS) EARNING ASSETS Cash equivalents........ $ 434,133 $ 6,175 5.63% $ 396,179 $ 6,157 6.22% Available-for-sale securities............. 1,526,934 23,250 6.09 1,481,697 23,597 6.37 Mortgage-backed securities............. 7,300,156 133,957 7.34 9,136,376 164,607 7.21 ----------- -------- ----- ----------- -------- ----- Total securities..... 9,261,223 163,382 7.05 11,014,252 194,361 7.06 Loans Loans held in portfolio............. 29,410,816 528,057 7.18 27,605,456 508,753 7.37 Loans held-for-sale.... 187,290 3,657 7.81 461,432 8,918 7.73 Consumer Finance....... 2,161,213 91,316 16.95 2,072,595 91,013 17.56 Other.................. 295,761 6,799 9.22 195,951 3,897 7.96 ----------- -------- ----- ----------- -------- ----- Total loans.......... 32,055,080 629,829 7.86 30,335,434 612,581 8.08 ----------- -------- ----- ----------- -------- ----- Total earning assets. 41,316,303 793,211 7.68 41,349,686 806,942 7.81 Other assets............ 1,991,505 2,258,804 ----------- ----------- Total assets......... 43,307,808 43,608,490 =========== =========== INTEREST BEARING LIABILITIES Deposits Checking accounts...... 4,231,622 6,464 0.61 4,486,693 8,312 0.74 Savings and money market accounts....... 7,173,344 60,326 3.37 6,510,187 48,368 2.97 Time certificates...... 16,442,610 217,777 5.31 17,571,181 230,605 5.25 Wholesale accounts..... 187,745 68 0.14 408,234 3,169 3.11 ----------- -------- ----- ----------- -------- ----- Total deposits....... 28,035,321 284,635 4.07 28,976,295 290,454 4.01 Borrowings Federal funds purchased and commercial paper.. 1,416,279 19,819 5.54 1,022,196 13,463 5.27 Securities sold under agreements to repurchase............ 4,239,074 60,203 5.62 5,639,865 76,852 5.45 Advances from FHLB..... 3,150,861 44,864 5.63 1,701,000 21,729 5.11 Guaranteed preferred beneficial interest in Company subordinated notes................. 400,000 8,217 8.22 100,000 2,063 8.25 Other borrowings....... 2,334,391 48,840 8.37 2,328,006 50,433 8.67 ----------- -------- ----- ----------- -------- ----- Total borrowings..... 11,540,605 181,943 6.26 10,791,067 164,540 6.10 ----------- -------- ----- ----------- -------- ----- Total interest bearing liabilities. 39,575,926 466,578 4.71 39,767,362 454,994 4.58 Other liabilities....... 1,028,217 1,031,294 Stockholders' equity.... 2,703,665 2,809,834 ----------- ----------- Total liabilities and equity.............. 43,307,808 43,608,490 =========== =========== Interest spread......... 2.97% 3.23% ===== ===== Effective yield Interest income/total earning assets........ $41,316,303 $793,211 7.68% $41,349,686 $806,942 7.81% Interest expense/total earning assets........ 41,316,303 466,578 4.51% 41,349,686 454,994 4.40% -------- ----- -------- ----- Net interest income/net interest margin........ $326,633 3.17% $351,948 3.41% ======== ===== ======== =====
The average balance of loans 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 decreased to $5.6 million for the quarter ended June 30, 1997 compared with $7.8 million for the quarter ended June 30, 1996. 15
THREE MONTHS ENDED MARCH 31, --------------------------------------------------------------- 1997 1996 ------------------------------- ------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ----------- -------- ---------- ----------- -------- ---------- (DOLLARS IN THOUSANDS) EARNING ASSETS Cash equivalents........ $ 580,311 $ 7,863 5.42% $ 335,346 $ 5,904 7.04% Available-for-sale securities............. 1,364,454 20,746 6.16 1,299,885 19,148 5.89 Mortgage-backed securities............. 7,624,849 138,577 7.27 9,610,728 174,026 7.24 ----------- -------- ----- ----------- -------- ----- Total securities..... 9,551,614 167,186 7.00 11,245,959 199,078 7.08 Loans Loans held in portfolio............. 28,703,770 519,106 7.23 27,489,905 517,803 7.53 Loans held-for-sale.... 130,810 1,422 4.30 521,345 10,388 7.97 Consumer Finance....... 2,171,358 91,205 16.80 2,102,546 93,888 17.86 Other.................. 232,334 5,339 9.32 191,542 3,771 7.88 ----------- -------- ----- ----------- -------- ----- Total loans.......... 31,238,272 617,072 7.90 30,305,338 625,850 8.26 ----------- -------- ----- ----------- -------- ----- Total earning assets. 40,789,886 784,258 7.69 41,551,297 824,928 7.94 Other assets............ 2,060,102 2,498,365 ----------- ----------- Total assets......... 42,849,988 44,049,662 =========== =========== INTEREST BEARING LIABILITIES Deposits Checking accounts...... 4,276,095 6,613 0.62 4,457,642 8,522 0.76 Savings and money market accounts....... 7,103,560 56,723 3.19 6,553,877 46,542 2.84 Time certificates...... 16,685,904 216,139 5.18 17,790,521 244,175 5.49 Wholesale accounts..... 222,059 301 0.54 446,566 3,765 3.37 ----------- -------- ----- ----------- -------- ----- Total deposits....... 28,287,618 279,776 3.96 29,248,606 303,004 4.14 Borrowings Federal funds purchased and commercial paper.. 1,186,580 15,905 5.36 1,155,897 17,168 5.94 Securities sold under agreements to repurchase............ 4,713,046 64,078 5.44 6,193,162 84,558 5.46 Advances from FHLB..... 2,214,225 30,453 5.50 1,167,974 15,957 5.46 Guaranteed preferred beneficial interest in Company subordinated notes................. 316,129 6,439 8.15 100,000 2,063 8.25 Other borrowings....... 2,387,320 49,443 8.25 2,305,769 49,892 8.66 ----------- -------- ----- ----------- -------- ----- Total borrowings..... 10,817,300 166,318 6.15 10,922,802 169,638 6.21 ----------- -------- ----- ----------- -------- ----- Total interest bearing liabilities. 39,104,918 446,094 4.56 40,171,408 472,642 4.71 Other liabilities....... 1,133,372 1,058,560 Stockholders' equity.... 2,611,698 2,819,694 ----------- ----------- Total liabilities and equity.............. 42,849,988 44,049,662 =========== =========== Interest spread......... 3.13% 3.23% ===== ===== Effective yield......... Interest income/total earning assets........ $40,789,886 $784,258 7.69% $41,551,297 $824,928 7.94% Interest expense/total earning assets........ 40,789,886 446,094 4.37% 41,551,297 472,642 4.55% -------- ----- -------- ----- Net interest income/net interest margin........ $338,164 3.32% $352,286 3.39% ======== ===== ======== =====
The average balance of loans 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 decreased to $7.3 million for the quarter ended March 31, 1997 compared with $8.9 million for the quarter ended March 31, 1996. 16
SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------- 1997 1996 --------------------------------- --------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE ----------- ---------- ---------- ----------- ---------- ---------- (DOLLARS IN THOUSANDS) EARNING ASSETS Cash equivalents........ $ 507,444 $ 14,038 5.50% $ 370,663 $ 12,061 6.51% Available-for-sale securities............. 1,434,435 43,996 6.13 1,392,845 42,745 6.14 Mortgage-backed securities............. 7,408,695 272,534 7.36 9,373,090 338,633 7.23 ----------- ---------- ----- ----------- ---------- ----- Total securities..... 9,350,574 330,568 7.07 11,136,598 393,439 7.07 Loans Loans held in portfolio............. 29,065,660 1,047,162 7.21 27,562,971 1,026,557 7.45 Loans held-for-sale.... 151,138 5,079 6.37 485,860 19,306 7.95 Consumer Finance....... 2,168,122 182,522 16.98 2,090,098 184,901 17.69 Other.................. 263,606 12,138 9.29 193,601 7,667 7.92 ----------- ---------- ----- ----------- ---------- ----- Total loans.......... 31,648,526 1,246,901 7.89 30,332,530 1,238,431 8.17 ----------- ---------- ----- ----------- ---------- ----- Total earning assets. 40,999,100 1,577,469 7.70 41,469,128 1,631,870 7.87 Other assets............ 2,081,881 2,369,426 ----------- ----------- Total assets......... 43,080,981 43,838,554 =========== =========== INTEREST BEARING LIABILITIES Deposits Checking accounts...... 4,255,697 13,077 0.62 4,453,180 16,834 0.76 Savings and money market accounts....... 7,138,453 117,049 3.31 6,526,837 97,228 2.98 Time certificates...... 16,564,268 433,917 5.28 17,671,537 472,462 5.35 Wholesale accounts..... 204,902 368 0.36 428,142 6,934 3.24 ----------- ---------- ----- ----------- ---------- ----- Total deposits....... 28,163,320 564,411 4.04 29,079,696 593,458 4.08 Borrowings Federal funds purchased and commercial paper.. 1,298,209 35,725 5.47 1,109,280 30,631 5.52 Securities sold under agreements to repurchase............ 4,476,060 124,281 5.52 5,942,515 161,410 5.43 Advances from FHLB..... 2,683,264 75,317 5.58 1,424,683 37,687 5.29 Guaranteed preferred beneficial interest in Company subordinated notes................. 358,065 14,656 8.19 100,000 4,125 8.25 Other borrowings....... 2,368,756 98,282 8.30 2,318,498 100,325 8.65 ----------- ---------- ----- ----------- ---------- ----- Total borrowings..... 11,184,354 348,261 6.20 10,894,976 334,178 6.13 ----------- ---------- ----- ----------- ---------- ----- Total interest bearing liabilities. 39,347,674 912,672 4.65 39,974,672 927,636 4.64 Other liabilities....... 1,075,822 1,050,170 Stockholders' equity.... 2,657,485 2,813,712 ----------- ----------- Total liabilities and equity.............. 43,080,981 43,838,554 =========== =========== Interest spread......... 3.05% 3.23% ===== ===== Effective yield Interest income/total earning assets........ $40,999,100 $1,577,469 7.70% $41,469,128 $1,631,870 7.87% Interest expense/total earning assets........ 40,999,100 912,672 4.47% 41,469,128 927,636 4.47% ---------- ----- ---------- ----- Net interest income/net interest margin........ $ 664,797 3.23% $ 704,234 3.40% ========== ===== ========== =====
The average balance of loans 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 decreased to $12.8 million for the six months ended June 30, 1997 compared with $16.7 million for the six months ended June 30, 1996. 17 The following table shows the components of the change in net interest income for the quarters ended June 30, 1997, 1996 and 1995, March 31, 1997 and 1996 and the six months ended June 30, 1997, 1996 and 1995.
THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, MARCH 31, SIX MONTHS ENDED JUNE 30, -------------------------------- ------------------ ------------------------- 1997 VS 1996 1996 VS 1995 1997 VS 1996 1997 VS 1996 1996 VS 1995 ------------- ------------- ------------------ ------------ ------------ (DOLLARS IN MILLIONS) Cash equivalents Rate(1)............... $ (1) $ -- $ (1) $ (2) $ 1 Volume(2)............. 1 1 4 4 (1) Rate/Volume(3)........ -- -- (1) (1) -- ------------- ------------- ---- ---- --- -- 1 2 1 -- ------------- ------------- ---- ---- --- Available-for-sale securities Rate(1)............... (1) 2 1 -- 1 Volume(2)............. 1 4 1 1 9 Rate/Volume(3)........ -- 1 -- -- -- ------------- ------------- ---- ---- --- -- 7 2 1 10 ------------- ------------- ---- ---- --- Mortgage-backed securities Rate(1)............... 3 3 1 6 13 Volume(2)............. (33) (33) (36) (71) (40) Rate/Volume(3)........ (1) (1) -- (1) (2) ------------- ------------- ---- ---- --- (31) (31) (35) (66) (29) ------------- ------------- ---- ---- --- Real estate loans Rate(1)............... (13) 4 (20) (33) 36 Volume(2)............. 34 16 22 57 38 Rate/Volume(3)........ (1) -- (1) (2) 2 ------------- ------------- ---- ---- --- 20 20 1 22 76 ------------- ------------- ---- ---- --- Consumer Finance Rate(1)............... (3) (3) (6) (8) (3) Volume(2)............. 4 4 3 7 9 Rate/Volume(3)........ -- -- -- -- -- ------------- ------------- ---- ---- --- 1 1 (3) (1) 6 ------------- ------------- ---- ---- --- Other loans Rate(1)............... 2 -- (2) -- 1 Volume(2)............. (5) 1 (6) (11) 3 Rate/Volume(3)........ (1) -- 1 -- -- ------------- ------------- ---- ---- --- (4) 1 (7) (11) 4 ------------- ------------- ---- ---- --- Total interest earning assets Rate.................. (13) 6 (27) (37) 49 Volume................ 2 (7) (12) (13) 18 Rate/Volume........... (3) -- (1) (4) -- ------------- ------------- ---- ---- --- (14) (1) (40) (54) 67 ------------- ------------- ---- ---- --- Deposits Rate(1)............... 4 (14) (13) (9) 3 Volume(2)............. (12) (3) (13) (25) 4 Rate/Volume(3)........ 2 -- 3 5 -- ------------- ------------- ---- ---- --- (6) (17) (23) (29) 7 ------------- ------------- ---- ---- --- Borrowings Rate(1)............... 2 (16) (7) (4) (26) Volume(2)............. 16 (33) 6 22 (39) Rate/Volume(3)........ (1) 24 (2) (4) 39 ------------- ------------- ---- ---- --- 17 (25) (3) 14 (26) ------------- ------------- ---- ---- --- Total interest bearing liabilities Rate.................. 6 (30) (20) (13) (23) Volume................ 4 (36) (7) (3) (35) Rate/Volume........... 1 24 1 1 39 ------------- ------------- ---- ---- --- 11 (42) (26) (15) (19) ------------- ------------- ---- ---- --- Change in net interest income................. $ (25) $ 41 $(14) $(39) $86 ============= ============= ==== ==== ===
- ------- (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 are included in their respective loan categories. Amortized net deferred loan fees are included in the interest income calculations. The amortization of net deferred loan fees was $3 million, $6.1 million and $9.3 million for the three months ended June 30, 1997, June 30, 1996 and June 30 1995, respectively, $4 million and $6.1 million for the three months ended March 31, 1997, and March 31, 1996, respectively, and $7 million, $12.1 million and $20.1 million for the six months ended June 30, 1997, June 30, 1996 and June 30, 1995, respectively. 18 OTHER INCOME Other income was as follows:
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- ------------------ MARCH JUNE JUNE 30, 31, 30, JUNE 30, JUNE 30, 1997 1997 1996 1997 1996 -------- -------- ------- -------- -------- (DOLLARS IN THOUSANDS) Depositor fees NSF and overdraft protection................. $ 26,905 $ 27,686 $16,894 $ 54,591 $ 32,228 Service charges-checking accounts................... 14,806 11,079 8,807 25,885 17,814 ATM transaction fees........ 7,043 7,808 6,851 14,851 13,887 Other banking fees.......... 9,907 7,460 10,451 17,367 20,738 -------- -------- ------- -------- -------- Total depositor fees...... 58,661 54,033 43,003 112,694 84,667 Securities and insurance commissions Securities.................. 23,731 23,523 20,521 47,254 38,657 Insurance................... 12,445 11,512 12,342 23,957 23,850 -------- -------- ------- -------- -------- Total securities and insurance commissions.... 36,176 35,035 32,863 71,211 62,507 Loan servicing fees........... 10,964 12,317 11,386 23,281 22,839 Other service fees............ 7,200 7,989 6,827 15,189 13,287 Other operating income Income/(loss) on affordable housing investment......... 542 (605) (822) (63) (1,787) Real estate held for investment income.......... 3,448 1,999 3,065 5,447 3,471 Other....................... 1,825 1,128 1,096 2,953 1,842 -------- -------- ------- -------- -------- Total other operating income................... 5,815 2,522 3,339 8,337 3,526 Gain on sale of loans Net gain on sale of mortgages.................. 1,559 1,742 2,006 3,301 4,904 Net gain on sale of student loans...................... 71 669 275 740 384 -------- -------- ------- -------- -------- Total gain on sale of loans.................... 1,630 2,411 2,281 4,041 5,288 Gain/(loss) on sale of other assets Net gain on sale of available-for-sale securities................. 41 -- -- 41 -- Gain on sale of bank premises and equipment..... 552 6,931 220 7,483 15 Loss on sale of mortgage- backed securities.......... (5) (10) (1,395) (15) (1,961) Write-downs of mortgage- backed securities.......... (4,500) (4,200) (6,734) (8,700) (12,813) (Loss)/gain on sale of leases..................... (5) 716 106 711 645 -------- -------- ------- -------- -------- Total gain/(loss) on sale of other assets.......... (3,917) 3,437 (7,803) (480) (14,114) -------- -------- ------- -------- -------- Total other income...... $116,529 $117,744 $91,896 $234,273 $178,000 ======== ======== ======= ======== ========
Depositor fee income increased to $58.7 million in the three months ended June 30, 1997 from $43 million in the three months ended June 30, 1996, an increase of 36.4%. The increase was due to a $10 million increase in NSF and overdraft protection and due to expanded use of fee-based products and more active management of fee collection. For the six months ended June 30, 1997, depositor fee income increased $28 million from the six months ended June 30, 1996, an increase of 33.1%. Income from securities operations was $23.7 million during the second quarter of 1997 compared to $20.5 million in the second quarter of 1996 and $23.5 million in the first quarter of 1997. The $3.2 million increase from the second quarter of 1996 was due to increased sales volume in non-proprietary annuities and mutual funds, offset by lower underwriter fee income due to the sale of Sierra's front-end mutual fund and variable annuity products. The Company managed mutual funds with assets aggregating $3.1 billion at June 30, 1997 compared with $3.4 billion at June 30, 1996. 19 Loan servicing fees totaled $11 million for the three months ended June 30, 1997 compared with $11.4 million for the three months ended June 30, 1996. At June 30, 1997, the servicing spread was 36 basis points on the $11.7 billion average servicing portfolio compared with a servicing spread of 43 basis points on an $11.1 billion average servicing portfolio at June 30, 1996. As a result of the implementation of SFAS 125 during the first quarter of 1997, the Company identified and recorded impairment on the mortgage servicing asset and liability in the amount of $28,000 and $1.1 million, respectively. During the second quarter of 1997, the Company identified and recorded a $12,000 adjustment to impairment on the mortgage servicing asset. No impairment was identified or recorded on the mortgage servicing liability in the second quarter of 1997. Other service fees were $7.2 million in the first three months of 1997 compared with $6.8 million for the same period of 1996 and $8 million in the first quarter of 1997. Loan prepayment fees included in other service fees were $1.1 million in the second quarter of this year compared with $649,000 in the second quarter of 1996 and $777,000 in the first quarter of 1997. Gain on sale of bank premises and equipment was $552,000 in the second quarter of 1997, $220,000 in the second quarter of 1996 and $6.9 million in the first quarter of 1997. The gain during the first quarter of 1997 included a $4.2 million gain on sale of corporate property and a $2.7 million gain on sale of equipment. During 1996, the Company changed its methodology to record losses on loans underlying mortgage-backed securities as a write-down on the security rather than as a charge against the reserve for loan losses. On May 9, 1997, the Company amended its 1996 Form 10-K to reflect the reclassification of these prior period charge-offs against the reserve to write-downs on the mortgage- backed securities. For the second quarter of 1997, $4.5 million was recorded to reflect impairment in the mortgage-backed securities portfolio, $6.7 million in the second quarter of 1996 and $4.2 million in the first quarter of 1997. During the fourth quarter of 1996, the Company sold its student loan business to Crestar Bank for $386.6 million. The Company sold a portfolio of $356.6 million of loans and, after expenses and costs, realized a gain of $22.5 million on the sale. At December 31, 1996, there was a balance of student loans remaining of $21.5 million. These loans have been aggressively marketed for sale, and as of June 30, 1997 the remaining balance in this portfolio was $170,000. Gain (loss) on sales of mortgages and mortgage-backed available-for-sale securities were comprised of:
FOR THE THREE MONTHS ENDED ------------------------------------------------ JUNE 30, 1997 MARCH 31, 1997 JUNE 30, 1996 ------------- -------------- ----------------- MORTGAGES MBS MORTGAGES MBS MORTGAGES MBS --------- --- --------- ---- --------- ------- (DOLLARS IN THOUSANDS) Mortgage servicing spread. $ 6,919 $-- $ 4,800 $ -- $ 2,397 $ -- Premiums (discounts), net. (7,642) (5) (2,942) (10) (3,105) (1,395) Deferred loan fees........ (260) -- (57) -- 2,066 -- Gain on servicing......... 1,758 -- 1,082 -- 569 -- Adjust to lower of cost or market................... 1,313 -- (1,156) -- 154 -- Net hedging gain (loss)... (280) -- 125 -- -- -- Miscellaneous fees........ (249) -- (110) -- (75) -- ------- --- ------- ---- ------- ------- $ 1,559 $(5) $ 1,742 $(10) $ 2,006 $(1,395) ======= === ======= ==== ======= =======
20
FOR THE SIX MONTHS ENDED ---------------------------------- JUNE 30, 1997 JUNE 30, 1996 --------------- ----------------- MORTGAGES MBS MORTGAGES MBS --------- ---- --------- ------- (DOLLARS IN THOUSANDS) Mortgage servicing spread............... $ 11,719 $ -- $ 5,345 $ -- Premiums (discounts), net............... (10,584) (15) (4,696) (1,395) Deferred loan fees...................... (317) -- 4,207 -- Gain on servicing....................... 2,840 -- 1,001 -- Adjust to lower of cost or market....... 157 -- (776) -- Net hedging gain (loss)................. (155) -- -- -- Miscellaneous fees...................... (359) -- (177) -- Other................................... -- -- -- (566) -------- ---- ------- ------- $ 3,301 $(15) $ 4,904 $(1,961) ======== ==== ======= =======
The net gain on sale of mortgages was $1.6 million in the second quarter of 1997, $2 million in the second quarter of 1996 and $1.7 million in the first quarter of 1997. Mortgage sales during the second quarter of 1997, primarily fixed-rate, totaled $676.2 million at a gain of .23% of the portfolio sold, compared to $382.6 million in the second quarter of 1996 at a gain of .52% of the portfolio sold and $419.7 million in the first quarter of 1997 at a gain of .42% of the portfolio sold. The decline in the gain as a percentage of the portfolio sold is due to the prevailing market conditions at the time of the sale. In conjunction with the sales of mortgages, capitalized servicing rights of $6.9 million were recorded in the second quarter of 1997, $2.4 million in the second quarter of 1996, and $4.8 million in the first quarter of 1997. Loss on sale of mortgage-backed available-for-sale securities was $5,000 in the second quarter of 1997 compared to a $1.4 million loss in the second quarter of 1996 and a $10,000 loss in the first quarter of 1997. Sales of mortgage-backed securities available-for-sale were $1 million in the second quarter of 1997 compared with $3.7 million in the second quarter of 1996 and $997,000 in the first quarter of 1997. 21 OTHER EXPENSE Other expenses were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- ----------------- MARCH JUNE 30, 31, JUNE 30, JUNE 30, JUNE 30, 1997 1997 1996 1997 1996 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Salaries and employee benefits Salaries........................ $ 97,994 $ 99,720 $106,352 $197,714 $208,656 Taxes, employee benefits and other.......................... 13,630 18,436 19,040 32,066 41,240 -------- -------- -------- -------- -------- Total salaries and employee benefits..................... 111,624 118,156 125,392 229,780 249,896 Occupancy and equipment Premises and occupancy.......... 28,550 30,383 30,715 58,933 62,558 Data processing................. 15,857 17,337 17,768 33,194 35,281 -------- -------- -------- -------- -------- Total occupancy and equipment. 44,407 47,720 48,483 92,127 97,839 Outside telecommunications and data processing services......... 17,100 18,277 20,251 35,377 40,591 Regulatory assessments............ 4,525 4,577 16,028 9,102 32,174 Transaction-related expenses...... 24,305 33,721 -- 58,026 -- Other operating expense Operating losses and settlements.................... 6,441 9,837 652 16,278 7,825 Professional fees............... 8,453 9,162 8,170 17,615 14,293 Postage......................... 6,237 6,772 4,628 13,009 9,433 Advertising and promotion....... 11,819 5,094 9,540 16,913 18,699 Office supplies................. 3,810 4,306 5,340 8,116 9,693 Insurance....................... 2,033 2,164 2,273 4,197 4,506 Real estate held for investment expense........................ 509 240 1,106 749 1,717 Other........................... 23,871 26,056 24,866 49,927 48,713 -------- -------- -------- -------- -------- Total other operating expense. 63,173 63,631 56,575 126,804 114,879 Amortization of goodwill and other intangible assets................ 8,976 8,975 9,430 17,951 18,859 Real estate owned (REO) operations....................... 2,068 5,758 4,548 7,826 10,044 -------- -------- -------- -------- -------- Total other expense........... $276,178 $300,815 $280,707 $576,993 $564,282 ======== ======== ======== ======== ========
Total other expense for the quarter ended June 30, 1997, excluding transaction-related costs of $24.3 million, was $251.9 million. Total other expense for the quarter ended June 30, 1996 was $280.7 million. Total other expense for the quarter ended March 31, 1997, excluding transaction costs of $33.7 million, was $267.1 million. The Company's results of operations reflect transaction-related expenses of $24.3 million in the second quarter of 1997 compared to $33.7 million in the first quarter of 1997. These transaction-related expenses include investment banking, legal and consulting fees and additional severance costs related to merger activities. The Company employed 12,582 persons at June 30, 1997, a number of which worked part-time. The full-time equivalent of employees at that date was 11,382. The Company employed 12,719 persons and 11,646 full-time equivalents at March 31, 1997 and 13,971 persons and 12,825 full-time equivalents at June 30, 1996. Salaries and employee benefits decreased $13.8 million from $125.4 million in the second quarter of 1996 to $111.6 million in the second quarter of 1997. The decrease was the result of the realization of the benefits of the comprehensive program to reengineer the Company's mortgage business and other efficiency initiatives. Regulatory assessments were $4.5 million in the second quarter of 1997 compared with $16 million in the second quarter of 1996 and $4.6 million in the first quarter of 1997. The reduction of $11.5 million from the second quarter of 1996 was due to the enactment of the Deposit Insurance Funds Act of 1996. 22 Operating losses and settlements were $6.4 million for the second quarter of 1997 compared to $652,000 in the second quarter of 1996 and $9.8 million for the first quarter of 1997. The increase from the second quarter of 1996 was primarily due to a $7.4 million recovery for fraudulently over-billed marketing costs recorded in the second quarter of 1996. The Company implemented a corporate wide restructure plan in 1996 to improve competitive position, accelerate expense reduction and enhance future revenue growth by streamlining operations, making efficient use of premises and modernizing the systems platform. Due to merger activities with Washington Mutual, Inc., some of the Company's planned restructure activities have been suspended. Consolidation of campus premises originally planned for June 1997 has been temporarily suspended, as well as $3 million related to the standardization of the Company's distributed systems platform. Reserves related to these activities have not been reversed. During the quarter ended June 30, 1997, approximately 100 additional employee separations have occurred. Severance benefits of $2.7 million were applied against the restructure liability. As of June 30, 1997, approximately 661 employees are receiving or will be eligible to receive $15.5 million in severance benefits. Additional severance costs were triggered effective February 25, 1997 upon the adoption of a broad-based, change-in-control severance plan. At March 31, 1997, the Company accrued an additional $7 million for severance benefits expected to be paid to approximately 475 employees affected by the restructuring plan and change-in-control benefits program. This increase to the fourth quarter 1996 restructuring accrual is for incremental severance charges which employees terminated after February 24, 1997 are entitled to receive under provisions of the change-in-control severance plan adopted on that date. The amount written off against the restructure liability representing premises was $4.5 million in the second quarter of 1997. This was due to the consolidation of the Company's corporate headquarters and loan origination and processing network. To date, seven regional processing centers, 102 district sales offices and one building at the corporate headquarters have been vacated. Following is an analysis of restructure reserve activity during the quarters ended June 30, 1997 and March 31, 1997:
BALANCE BALANCE BALANCE DECEMBER 31, CHANGE IN MARCH 31, JUNE 30, 1996 ACTIVITY CONTROL 1997 ACTIVITY 1997 ------------ -------- --------- --------- -------- -------- (DOLLARS IN MILLIONS) Severance............... $14.2 $(3.0) $7.0 $18.2 $(2.7) $15.5 Premises................ 29.5 (2.7) -- 26.8 (4.5) 22.3 Equipment............... 3.4 (.1) -- 3.3 (.1) 3.2 ----- ----- ---- ----- ----- ----- Total................. $47.1 $(5.8) $7.0 $48.3 $(7.3) $41.0 ===== ===== ==== ===== ===== =====
The company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. Software failures due to processing errors, potentially arising from calculations using the Year 2000 date, are a known risk. The Company is addressing this risk to the availability and integrity of financial systems and the reliability of operational systems. At this time, the Company has not yet determined the cost which will be expensed as incurred of evaluating its computer software or databases or of making any modifications required to correct any "Year 2000" problems. 23 INCOME TAX The Company's effective tax rate increased 4.18% from 39.62% in the second quarter of 1996 to 43.80% in the second quarter of 1997. This increase was primarily due to the nondeductibility of certain merger related transaction costs. Under provisions of the Small Business Job Protection Act of 1996, Great Western Bank, ("GWB" or "the Bank"), lost the use of the bad debt reserve method beginning in 1996. Since the reserve balance at June 30, 1997 of $724.5 million arose prior to 1988, it is not currently subject to federal income tax and would not be if GWB were to convert to a commercial bank or otherwise lose its tax status as a qualified thrift institution. However, it will be subject to such tax upon certain occurrences (including its distribution to shareholders), none of which are currently contemplated. Consequently, in accordance with Financial Accounting Standard No. 109 "Accounting for Income Taxes," a federal deferred tax liability of $253.6 million has not been recognized for the temporary differences relating to the tax bad debt reserve of GWB. BALANCE SHEET ANALYSIS EARNING ASSETS Average earning assets increased $526.4 million during the second quarter of 1997 compared with a decrease of $33.4 million from the second quarter of 1996. Available-for-sale Securities Available-for-sale securities are carried at fair value. Marketable securities available-for-sale at June 30, 1997 had both an amortized cost and a fair value of $1.6 billion. There were no significant gains realized during the quarters ended June 30, 1997, June 30, 1996 and March 31, 1997 and during the six months ended June 30, 1997 and 1996. In determining which security to invest in, the Company considers among other factors, relative rates, liquidity and credit quality. At June 30, 1997, June 30, 1996 and March 31, 1997 there were no investment securities issued by a single issuer (excluding the U.S. Government and its agencies) that exceeded 10% of stockholders' equity. The unrealized net gains (losses) on available-for-sale securities, net of income taxes (valuation reserve for available-for-sale securities), included as a component of stockholders' equity, were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED -------------------------- ----------------- JUNE JUNE JUNE 30, MARCH 31, 30, JUNE 30, 30, 1997 1997 1996 1997 1996 ------- --------- ------- -------- ------- (DOLLARS IN THOUSANDS) Balance at beginning of period... $(1,188) $ 2,023 $ 2,749 $ 2,023 $ 4,952 Change in unrealized net gains (losses), net of taxes.......... 1,808 (3,211) (4,203) (1,403) (6,406) ------- ------- ------- ------- ------- Balance at end of period......... $ 620 $(1,188) $(1,454) $ 620 $(1,454) ======= ======= ======= ======= =======
Mortgage-Backed Securities Mortgage-backed securities consist largely of single-family residential loans swapped for mortgage-backed securities in 1994 and 1995 to provide collateral for borrowings. Underlying these securities are loans that were originated by Great Western Bank. Mortgage-backed securities totaled $7.3 billion at June 30, 1997, compared with $8.9 billion at June 30, 1996 and $7.5 billion at March 31, 1997. Because the Company retained the credit risk on the loans underlying these securities, delinquent loans totaling $31 million for the quarter ended June 30, 1997, $33.3 million for the quarter ended June 30, 1996 and $40.4 million for the quarter ended March 31, 1997 were repurchased. 24 A summary of the Company's mortgage-backed securities portfolio follows:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ---------- ---------- ---------- AMOUNT % AMOUNT % AMOUNT % ------ --- ------ --- ------ --- (DOLLARS IN MILLIONS) Adjustable Rate COFI........................................ $5,498 76 $5,666 75 $6,828 77 FCOFI....................................... 1,244 17 1,281 17 1,439 16 Other....................................... 238 3 251 3 287 3 ------ --- ------ --- ------ --- Total adjustable rate mortgage-backed se- curities................................. 6,980 96 7,198 95 8,554 96 Fixed-rate Long-term................................... 178 2 197 3 305 3 Short-term.................................. 138 2 141 2 71 1 ------ --- ------ --- ------ --- Total fixed rate mortgage-backed securities............................... 316 4 338 5 376 4 ------ --- ------ --- ------ --- Total mortgage-backed securities.......... $7,296 100 $7,536 100 $8,930 100 ====== === ====== === ====== ===
At June 30, 1997, approximately 76% of mortgage-backed securities in the portfolio were indexed to the Cost of Funds Index for financial institutions comprising the 11th District Federal Home Loan Bank of San Francisco ("FHLB") Cost of Funds Index ("COFI"). The Company has also swapped products which are indexed to the Federal Cost of Funds Index ("FCOFI"). The FCOFI 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. At June 30, 1997, adjustable rate mortgage-backed securities comprised 96% of the mortgage-backed securities portfolio compared with 96% in the comparable period in 1996 and 95% at March 31, 1997. Mortgage-backed securities available-for-sale are carried at fair value. At June 30, 1997, mortgage-backed securities available-for-sale of $5.8 billion included $146.6 million of fixed-rate securities and $5.6 billion of adjustable rate securities. The contractual maturities of all mortgage-backed securities as of June 30, 1997 follow:
MORTGAGE-BACKED SECURITIES ---------------------------- ADJUSTABLE RATE FIXED RATE TOTAL ---------- ---------- ------ (DOLLARS IN MILLIONS) One year or less............................. $ 102 $ 82 $ 184 Over one to two years........................ 108 46 154 Over two to three years...................... 115 40 155 Over three to five years..................... 247 43 290 Over five to ten years....................... 740 71 811 Over ten to fifteen years.................... 991 26 1,017 Over fifteen years........................... 4,677 8 4,685 ------ ---- ------ $6,980 $316 $7,296 ====== ==== ======
25 The Company securitized and sold $1 million of mortgage-backed securities in both the first and second quarter of 1997. The unrealized net gains on mortgage-backed securities, net of income taxes (valuation reserve for available-for-sale securities), included as a component of stockholders' equity, were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------- ------------------ JUNE 30, MARCH 31, JUNE 30, JUNE 30, JUNE 30, 1997 1997 1996 1997 1996 ------- --------- -------- -------- -------- (DOLLARS IN THOUSANDS) Balance at beginning of period. $42,984 $ 74,936 $ 73,040 $ 74,936 $103,481 Change in unrealized net gains, net of taxes.................. 9,342 (31,952) (26,293) (22,610) (56,734) ------- -------- -------- -------- -------- Balance at end of period....... $52,326 $ 42,984 $ 46,747 $ 52,326 $ 46,747 ======= ======== ======== ======== ========
26 Loans The composition of real estate, Consumer Finance and other loans at June 30, 1997, March 31, 1997 and June 30, 1996 are as follows:
JUNE JUNE 30, MARCH 31, 30, 1997 1997 1996 ------- --------- ------- (DOLLARS IN MILLIONS) Real estate...................................... $30,262 $29,172 $27,838 Consumer Finance................................. 2,173 2,153 2,082 Other loans...................................... 357 248 552 ------- ------- ------- $32,792 $31,573 $30,472 ======= ======= =======
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ------------ ------------ ------------ AMOUNT % AMOUNT % AMOUNT % ------- --- ------- --- ------- --- (DOLLARS IN MILLIONS) Real Estate Single-family....................... $27,744 91 $26,600 91 $24,987 90 Apartments.......................... 1,424 5 1,447 5 1,554 5 Commercial properties............... 1,094 4 1,125 4 1,297 5 ------- --- ------- --- ------- --- Total real estate loans........... 30,262 100 29,172 100 27,838 100 ------- --- ------- --- ------- --- Consumer Finance Real estate secured loans........... 935 43 902 42 823 39 Installment loans................... 904 42 909 42 909 44 Retail installment contracts........ 334 15 342 16 350 17 ------- --- ------- --- ------- --- Total Consumer Finance loans...... 2,173 100 2,153 100 2,082 100 ------- --- ------- --- ------- --- Other Loans Lease financing..................... 68 19 69 28 72 13 Checking overdraft.................. 66 19 65 26 48 9 Savings account..................... 41 11 48 19 59 11 Small business loans................ 46 13 29 12 -- -- Home equity......................... 118 33 19 8 -- -- Mobile home loans................... 13 4 13 5 16 3 Student loans....................... -- -- 2 1 356 64 Other............................... 5 1 3 1 1 * ------- --- ------- --- ------- --- Total other loans................. 357 100 248 100 552 100 ------- --- ------- --- ------- --- Total loans....................... 32,792 31,573 30,472 ------- ------- ------- Reserve for loan losses............. (316) (321) (330) Unearned income and other........... (33) (43) (80) Loans in process.................... 5 2 -- ------- ------- ------- Total............................. (344) (362) (410) ------- ------- ------- Net loans receivable.............. $32,448 $31,211 $30,062 ======= ======= =======
- -------- * Less than one percent 27 A summary of the Company's real estate loan portfolio by product type follows:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ----------- ----------- ----------- AMOUNT % AMOUNT % AMOUNT % ------- --- ------- --- ------- --- (DOLLARS IN MILLIONS) Real Estate ARM COFI................................. $21,233 70 $20,706 71 $20,566 74 FCOFI................................ 1,856 6 1,942 7 2,229 8 LAMA................................. 4,177 14 3,744 13 2,513 9 Other................................ 2,160 7 1,877 6 1,619 6 ------- --- ------- --- ------- --- Total ARM loans.................... 29,426 97 28,269 97 26,927 97 Fixed-rate Long-term............................ 421 2 486 2 461 2 Short-term........................... 415 1 417 1 450 1 ------- --- ------- --- ------- --- Total fixed-rate loans............. 836 3 903 3 911 3 ------- --- ------- --- ------- --- Total real estate loans............ $30,262 100 $29,172 100 $27,838 100 ======= === ======= === ======= === Number of real estate loans.............. 328,552 328,076 330,291
The origination and sale of real estate loans is dependent upon general market conditions. In an active real estate market, loan originations may increase. In such periods, mortgage sales are usually increased to fund a portion of originations 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. The ARM for single-family residential properties is the primary lending product held for investment. ARMs comprised 97% of the real estate loan portfolio at June 30, 1997, June 30, 1996 and March 31, 1997. At June 30, 1997, approximately 70% of real estate loans in the portfolio were indexed to COFI. The Company also originates ARM products which are indexed to one-year Treasury bills, the prime rate and FCOFI. Fixed-rate lending tends to increase during periods of relatively low interest rates. Such loans are originated primarily for sale. The Company sells loans forward into the secondary market and 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. 28 Real estate loans held-for-sale are valued at the lower of cost or fair value. Real estate loans held-for-sale are primarily fixed-rate loans. Gains from sales of this portfolio totaled $1.6 million for the quarter ended June 30, 1997, compared to $2 million and $1.7 million, for the quarters ended June 30, 1996 and March 31, 1997, respectively. Included in the gains on real estate loan sales were gains on the sale of servicing rights of $1.8 million for the quarter ended June 30, 1997, and $569,000 and $1.1 million for the quarters ended June 30, 1996 and March 31, 1997, respectively. Unrealized gains on real estate loans held-for-sale totaled $2.7 million at June 30, 1997, compared to $703,000 and $1.5 million at June 30, 1996 and March 31, 1997, respectively. 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, or to refinance existing loans in the normal course of business. The composition of the loans held-for-sale portfolio at June 30, 1997, March 31, 1997 and June 30, 1996 follows:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 -------- --------- -------- (DOLLARS IN MILLIONS) Loans held-for-sale Real estate loans............................ $156 $210 $ 53 Student loans................................ -- 2 356 ---- ---- ---- Total loans held-for-sale.................. $156 $212 $409 ==== ==== ====
The contractual maturities of loans as of June 30, 1997 follow:
REAL ESTATE LOANS ------------- FIXED CONSUMER TOTAL ARM RATE TOTAL FINANCE OTHER LOANS ------- ----- ------- -------- ----- ------- (DOLLARS IN MILLIONS) One year or less................ $ 421 $ 39 $ 460 $ 719 $221 $ 1,400 Over one to two years........... 684 36 720 584 11 1,315 Over two to three years......... 741 52 793 416 5 1,214 Over three to five years........ 1,135 144 1,279 164 20 1,463 Over five to ten years.......... 3,723 252 3,975 198 15 4,188 Over ten to fifteen years....... 4,998 95 5,093 91 78 5,262 Over fifteen years.............. 17,724 218 17,942 1 7 17,950 ------- ---- ------- ------ ---- ------- Total......................... $29,426 $836 $30,262 $2,173 $357 $32,792 ======= ==== ======= ====== ==== =======
29 The following table summarizes the Company's loan volume with real estate loan volume composition by security type, purpose and loan type for the three months ended June 30, 1997, March 31, 1997 and June 30, 1996:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ----------- ----------- ----------- AMOUNT % AMOUNT % AMOUNT % ------ --- ------ --- ------ --- (DOLLARS IN MILLIONS) LOAN VOLUME Real estate................................ $2,781 79 $1,665 75 $1,589 73 Consumer Finance........................... 513 15 464 21 510 24 Other loans................................ 199 6 91 4 70 3 ------ --- ------ --- ------ --- Total new loan volume.................... $3,493 100 $2,220 100 $2,169 100 ====== === ====== === ====== === REAL ESTATE LOAN VOLUME Security Type Single-family.............................. $2,766 100 $1,658 100 $1,559 98 Apartments................................. 8 * 5 * 26 2 Commercial properties...................... 7 * 2 * 4 * ------ --- ------ --- ------ --- Total real estate by security type....... $2,781 100 $1,665 100 $1,589 100 ====== === ====== === ====== === Purpose Purchase of property....................... $1,443 52 $ 804 48 $ 899 57 Refinance.................................. 1,338 48 861 52 690 43 ------ --- ------ --- ------ --- Total real estate by purpose............. $2,781 100 $1,665 100 $1,589 100 ====== === ====== === ====== === Loan Type Long-term--essentially 30-40 years ARM....................................... $2,098 76 $1,079 65 $1,216 77 Fixed..................................... 452 16 382 23 223 14 Short-term--essentially 15 years or less ARM....................................... 30 1 30 2 38 2 Fixed..................................... 201 7 174 10 112 7 ------ --- ------ --- ------ --- Total real estate by loan type........... $2,781 100 $1,665 100 $1,589 100 ====== === ====== === ====== === Average new loan rate...................... 6.23% 6.46% 6.86% Average ARM differential on new ARMs....... 2.65% 2.66% 2.68% Average ARM differential on total ARM portfolio.................................. 2.54% 2.54% 2.51%
- -------- * Less than one percent For the second quarter of 1997, third party originations were $1.6 billion or 57.5% of new real estate loans, compared with $530.9 million or 33.4% and $843.1 million or 50.6% for the quarters ended June 30, 1996 and March 31, 1997, respectively. The California real estate market has shown signs of continued improvement. There appear to be regional differences in economic performance within California and among property types which are attributable to differing recovery rates for the wide range of economic activities within California. On a regional basis, the economic factors affecting the single-family market appear to be somewhat more favorable in Northern California than in Southern California. In particular, the median metropolitan area sales price of existing single-family homes in the San Jose area increased from the first quarter of 1996 to the first quarter of 1997 by approximately 9%. During the same period, the median sales price for the Los Angeles area declined 3% while the median sales price for the San Diego area increased by 2%. The Company repurchases delinquent loans which were sold with recourse. Repurchased loans totaled $7.8 million in the three months ended June 30, 1997 compared with $9 million and $8.4 million in the three 30 months ended June 30, 1996 and March 31, 1997, respectively. The balance of loans sold with recourse totaled $1.1 billion at June 30, 1997 and $1.3 billion and $1.2 billion at June 30, 1996 and March 31, 1997, respectively. The geographic distribution of the real estate loan portfolio and nonaccrual and restructured loans at June 30, 1997 follows:
CONNECTICUT MASSACHUSETTS CALIFORNIA FLORIDA NEW YORK ---------------------- ---------------------- ---------------------- RESTRUCTURED RESTRUCTURED RESTRUCTURED AND AND AND PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL --------- ------------ --------- ------------ --------- ------------ (DOLLARS IN MILLIONS) Real estate loans Single-family residential.......... $16,343 $240 $1,986 $20 $2,070 $16 Apartments............ 1,219 18 53 -- -- -- Commercial Offices............. 322 6 13 -- -- -- Industrial.......... 215 3 7 -- -- -- Retail.............. 173 1 11 1 -- -- Hotel/motel......... 85 12 5 -- -- -- Other............... 110 2 10 1 -- -- ------- ---- ------ --- ------ --- Total............. $18,467 $282 $2,085 $22 $2,070 $16 ======= ==== ====== === ====== === Percent of total loans.. 61.0% 6.9% 6.9% Nonaccrual and restructured as a % of total by state......... 1.5% 1.1% 0.8%
OREGON WASHINGTON OTHER TOTAL ---------------------- ---------------------- ---------------------- RESTRUCTURED RESTRUCTURED RESTRUCTURED AND AND AND PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL --------- ------------ --------- ------------ --------- ------------ (DOLLARS IN MILLIONS) Real estate loans Single-family residential.......... $1,676 $ 9 $5,669 $32 $27,744 $317 Apartments............ 6 1 146 6 1,424 25 Commercial Offices............. 16 -- 13 -- 364 6 Industrial.......... 1 -- 19 -- 242 3 Retail.............. 4 -- 11 -- 199 2 Hotel/motel......... -- -- 54 -- 144 12 Other............... 3 -- 22 1 145 4 ------ --- ------ --- ------- ---- Total............. $1,706 $10 $5,934 $39 $30,262 $369 ====== === ====== === ======= ==== Percent of total loans.. 5.6% 19.6% 100% Nonaccrual and restructured as a % of total by state......... 0.6% 0.7% 1.2%
31 A comparison of the California real estate loan portfolio and nonaccrual and restructured real estate loans by region as of June 30, 1997 follows:
NORTHERN CALIFORNIA CENTRAL CALIFORNIA ---------------------- ---------------------- RESTRUCTURED RESTRUCTURED AND AND PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL --------- ------------ --------- ------------ (DOLLARS IN MILLIONS) Real estate loans Single-family residential...... $4,967 $50 $1,283 $12 Apartments..................... 147 -- 216 6 Commercial Offices...................... 68 4 34 -- Industrial................... 29 -- 12 1 Retail....................... 47 1 19 -- Hotel/motel.................. 12 -- 20 2 Other........................ 31 -- 18 -- ------ --- ------ --- Total by region............ $5,301 $55 $1,602 $21 ====== === ====== === Percent of total loans........... 28.7% 8.7% Nonaccrual and restructured as a % of total by region............ 1.0% 1.3%
SOUTHERN CALIFORNIA CALIFORNIA ---------------------- ---------------------- RESTRUCTURED RESTRUCTURED AND AND PORTFOLIO NONACCRUAL PORTFOLIO NONACCRUAL --------- ------------ --------- ------------ (DOLLARS IN MILLIONS) Real estate loans Single-family residential...... $10,093 $178 $16,343 $240 Apartments..................... 856 12 1,219 18 Commercial..................... Offices...................... 220 2 322 6 Industrial................... 174 2 215 3 Retail....................... 107 -- 173 1 Hotel/motel.................. 53 10 85 12 Other........................ 61 2 110 2 ------- ---- ------- ---- Total by region............ $11,564 $206 $18,467 $282 ======= ==== ======= ==== Percent of total loans........... 62.6% 100% Nonaccrual and restructured as a % of total by region............ 1.8% 1.5%
32 Nonperforming Assets The following table summarizes nonaccrual and restructured loans and real estate:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 -------- --------- -------- (DOLLARS IN MILLIONS) Nonaccrual loans Real estate Single-family residential....................... $316 $352 $424 Apartments...................................... 12 18 11 Commercial...................................... 7 7 10 ---- ---- ---- Total nonaccrual real estate loans............ 335 377 445 Consumer Finance.................................. 45 45 27 Other............................................. 1 2 1 ---- ---- ---- Total nonaccrual loans.......................... 381 424 473 Restructured loans Single-family residential....................... 1 1 19 Apartments...................................... 13 15 32 Commercial...................................... 20 31 62 ---- ---- ---- Total restructured loans...................... 34 47 113 ---- ---- ---- Nonaccrual and restructured loans................... 415 471 586 As a percentage of total loans...................... 1.28% 1.51% 1.95% Nonperforming real estate........................... 88 77 184 ---- ---- ---- Total nonperforming assets.......................... $503 $548 $770 ==== ==== ==== As a percentage of total assets..................... 1.15% 1.28% 1.76%
Management's classification of a loan as nonaccrual or restructured does not necessarily indicate that the principal of the loan is uncollectible in whole or in part. Loans are placed on nonaccrual status when they become more than 90 days past due. Nonperforming real estate includes foreclosed and investment properties which do not generate sufficient income to meet return on investment criteria. Nonaccrual real estate loans were $335 million at June 30, 1997, a decrease of $110 million from $445 million at June 30, 1996 and a decrease of $42 million from $377 million at March 31, 1997. The decrease during the second quarter of 1997 is primarily due to improved liquidity in the California real estate market and improved collection procedures. 33 Impaired Loans 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:
JUNE 30, JUNE 30, 1997 1996 -------- -------- (DOLLARS IN MILLIONS) Nonaccrual Loans With allocated reserves..................................... $ 3 $ 46 Without allocated reserves.................................. 115 166 ---- ---- 118 212 ---- ---- TDRs With allocated reserves..................................... $ 15 $ 34 Without allocated reserves.................................. 19 79 ---- ---- 34 113 ---- ---- Other Impaired Loans With allocated reserves..................................... $ 82 $104 Without allocated reserves.................................. 42 40 ---- ---- 124 144 ---- ---- Total Impaired............................................ $276 $469 ==== ====
The significant drop in impaired loans from June 1996 to June 1997 was primarily due to a $274.9 million bulk sale of TDRs and other nonperforming real estate loans in December 1996. In addition, $22.6 million of TDRs were determined to be performing and removed from TDR status in December 1996 and $22.4 million in March 1997. All real estate loans are evaluated for impairment on an individual loan basis. 34 Delinquent Assets The Company continuously reviews the trends of loans and mortgage-backed securities with full credit risk. The following summarizes delinquent assets at June 30, 1997, March 31, 1997 and June 30, 1996 for real estate, Consumer Finance, other loans and mortgage-backed securities which are over thirty to ninety days delinquent:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 -------- --------- -------- (DOLLARS IN MILLIONS) REAL ESTATE LOANS Single-family residential Over 30 to 60 days delinquent..................... $231 $228 $216 Over 60 to 90 days delinquent..................... 76 91 90 Other Over 30 to 60 days delinquent..................... 15 10 10 Over 60 to 90 days delinquent..................... 5 9 14 ---- ---- ---- Total........................................... $327 $338 $330 ==== ==== ==== Percentage of related portfolio................. 1.08% 1.16% 1.19% CONSUMER FINANCE LOANS Over 30 to 60 days delinquent..................... $ 42 $ 40 $ 41 Over 60 to 90 days delinquent..................... 18 17 17 ---- ---- ---- Total........................................... $ 60 $ 57 $ 58 ==== ==== ==== Percentage to related portfolio................. 2.76% 2.64% 2.79% OTHER LOANS Over 30 to 60 days delinquent..................... $ 2 $ 1 $ 7 Over 60 to 90 days delinquent..................... 2 1 3 ---- ---- ---- Total........................................... $ 4 $ 2 $ 10 ==== ==== ==== Percentage to related portfolio................. 1.18% .89% 1.81% TOTAL LOANS Over 30 to 60 days delinquent..................... $290 $279 $274 Over 60 to 90 days delinquent..................... 101 118 124 ---- ---- ---- Total........................................... $391 $397 $398 ==== ==== ==== Percentage to related portfolio................. 1.19% 1.26% 1.31% MORTGAGE-BACKED SECURITIES Over 30 to 60 days delinquent..................... $ 40 $ 40 $ 27 Over 60 to 90 days delinquent..................... 12 13 12 ---- ---- ---- Total........................................... $ 52 $ 53 $ 39 ==== ==== ==== Percentage to related portfolio................. .71% .70% .44%
35 Reserve for Loan Losses Summarized below are loan balances by type, their reserve for estimated losses and the percentage the reserve balance bears to the loan balance for the periods ended June 30, 1997, March 31, 1997 and June 30, 1996.
JUNE 30, 1997 MARCH 31, 1997 JUNE 30, 1996 ------------------------- ------------------------- ------------------------- AMOUNT RESERVE % AMOUNT RESERVE % AMOUNT RESERVE % ----------- -------- ---- ----------- -------- ---- ----------- -------- ---- (DOLLARS IN THOUSANDS) Real estate loans SFR.................... $27,743,776 $166,009 .60 $26,599,820 $167,561 .63 $24,987,450 $130,208 .52 Commercial and other... 2,517,926 73,036 2.90 2,571,979 78,347 3.05 2,851,085 137,781 4.83 ----------- -------- ---- ----------- -------- ---- ----------- -------- ---- Total real estate loans............... 30,261,702 239,045 .79 29,171,799 245,908 .84 27,838,535 267,989 .96 Consumer Finance........ 2,173,322 70,853 3.26 2,153,429 70,345 3.27 2,081,803 57,587 2.77 Other loans............. 357,221 6,513 1.82 248,260 4,547 1.83 551,900 4,745 .86 ----------- -------- ---- ----------- -------- ---- ----------- -------- ---- Total loans............. $32,792,245 $316,411 .96 $31,573,488 $320,800 1.02 $30,472,238 $330,321 1.08 =========== ======== ==== =========== ======== ==== =========== ======== ====
At June 30, 1997, the reserve for loan losses was $316.4 million, or .96% of total loans, compared with $330.3 million, or 1.08% at June 30, 1996 and $320.8 million, or 1.02% at March 31, 1997. The provision for loan losses was $36.1 million for the quarter ended June 30, 1997, up from $32.6 million in the second quarter of 1996. Net charge-offs for single family residential real estate loans for the second quarter of 1997 were $20.4 million or .30% compared with $31.7 million or .51% for the second quarter of 1996 and $14.1 million or .21% for the first quarter of 1997. The Company has a process to determine the adequacy of the reserve for loan losses that assesses the risks and losses inherent in its portfolio. The process provides a reserve consisting of two components, general and specific. The specific component reflects inherent losses resulting from an analysis of individual loans. Beginning in the third quarter of 1996, the Company stratified the SFR portfolio based on such items as borrower performance, current credit scores and estimated current loan to value ratios ("LTV"). The purpose of the stratification was to assist the Company in its quarterly assessment of the reserve for possible loan losses. In addition, the Company modified its practice for recording charge-offs associated with full credit risk mortgage- backed securities. Charge-offs related to credit risk on the Company's mortgage-backed securities held as investments are reflected as a write-down of the mortgage-backed security. Charge-offs related to loans and securities sold with recourse are reflected in the related liability account. In addition, the Company evaluated the current economic conditions, concentrations within the portfolio and other subjective factors in assessing the adequacy of its reserve for loan losses. The change in the reserve for SFR loans from $130.2 million at June 30, 1996, or .52% of the SFR portfolio to $166 million at June 30, 1997, or .60% reflects the Company's assessment of the SFR portfolio and the current economic conditions impacting the SFR portfolio. The reserve for commercial loans is developed through specific credit allocations applying historical loss experience and loan category based on asset quality for individual loans, including impaired loans subject to SFAS 114. The reserve for commercial real estate loans has decreased from $137.8 million at June 30, 1996, or 4.83% to $73 million at June 30, 1997, or 2.90%. The reserve for commercial real estate and apartment loans was reduced by a $1.4 million credit to the provision for loan losses during the second quarter of 1997, in addition to a $9.4 million credit in the first quarter of 1997 and a $40 million credit in 1996. These reductions were primarily a result of the Company's review of required levels for the reserve of this portfolio. The commercial real estate loan portfolio has continued to decrease as a result of a decision in 1987 to discontinue commercial real estate lending except to finance the sale of foreclosed properties or to refinance existing loans in the normal course of business. The quality of the commercial real estate loan portfolio continues to improve as a result of the recovery in the commercial real estate markets nationwide and particularly in California. There has been a substantial amount of liquidity that has returned to the real estate markets. This liquidity has contributed significantly to the Company's progress in reducing this portfolio. The Company expects this portfolio to continue to decline and improve in quality. 36 The reserve for Consumer Finance loans is based upon a percentage of loans outstanding in relation to the loss experience within the loan categories generally stratified by delinquency. The reserve for Consumer Finance loans increased from $57.6 million at June 30, 1996, or 2.77% of the outstanding portfolio, to $70.9 million at June 30, 1997, or 3.26% of the outstanding portfolio, as a result of a fourth quarter 1996 policy change increasing the number of days contractually delinquent from 120 to 180, before a loan is charged-off in addition to some deterioration in credit quality. The reserve for leases, shown in other loans, was $1.3 million at June 30, 1997, unchanged from June 30, 1996. The general component includes management's judgment of the amounts necessary for concentrations, economic uncertainties and other subjective factors. Although management has allocated the reserve to specific loan categories, the adequacy of the reserve must be considered in its entirety. The Company's determination of the level of the reserve and, correspondingly, the provision for loan losses rests upon various judgments and assumptions, including general economic conditions, loan portfolio composition, prior loan loss experience and the Company's ongoing examination process and that of its regulators. The Company has an Internal Asset Review Committee ("IARC") that reports to the Board of Directors and continuously reviews loan quality. The Company also has internal staff regularly review the classification of commercial loans and also reports to the IARC. Such reviews also assist management in establishing the level of the reserve. The Bank is examined by its primary regulator, the OTS. These examinations generally occur annually and target various activities of the Bank, including specific segments of the loan portfolio. In addition to the Bank being examined by the OTS, the Company and the nonbank subsidiaries are also subject to OTS examination. The Company considers the reserve for loan losses of $316.4 million adequate to cover losses inherent in the loan and lease portfolio at June 30, 1997. However, no assurance can be given that the Company will not, in any particular period, sustain loan and lease losses that are sizable in relation to the amount reserved, or that subsequent evaluation of the loan and lease portfolio, in light of the factors then prevailing, including economic conditions and the Company's ongoing examination process and that of its regulators, will not require significant increases in the reserve for loan losses. At June 30, 1997, the Company had $1.1 billion of loans sold with recourse and a contingent liability of $8.5 million. The Company considers the contingent liability for loans sold with recourse to be adequate to cover losses in this portfolio. All of the loans sold in the second quarter of 1997 were without recourse. The Company has not sold loans with recourse since February, 1995. 37 An analysis of the changes in the reserve for loan losses including charge- offs and recoveries by loan category is presented in the following table:
REAL ESTATE LOANS -------------------- COMMERCIAL CONSUMER OTHER SFR AND OTHER FINANCE LOANS TOTAL -------- ---------- -------- ------- -------- (DOLLARS IN THOUSANDS) BALANCE AT MARCH 31, 1996. $142,123 $142,341 $ 56,615 $ 6,499 $347,578 Provision for losses...... 19,766 -- 13,600 (800) 32,566 Charge-offs............... (32,079) (4,726) (16,862) (1,036) (54,703) Recoveries................ 398 166 4,234 82 4,880 -------- -------- -------- ------- -------- BALANCE AT JUNE 30, 1996.. 130,208 137,781 57,587 4,745 330,321 Provision for losses...... 50,036 (24,915) 15,300 1,250 41,671 Charge-offs............... (32,877) (2,637) (18,290) (972) (54,776) Recoveries................ 251 30 3,988 145 4,414 -------- -------- -------- ------- -------- BALANCE AT SEPTEMBER 30, 1996...................... 147,618 110,259 58,585 5,168 321,630 Provision for losses...... 83,876 (14,993) 15,400 1,617 85,900 Charge-offs............... (84,027) (4,421) (7,768) (2,122) (98,338) Recoveries................ 441 22 3,828 216 4,507 -------- -------- -------- ------- -------- BALANCE AT DECEMBER 31, 1996...................... 147,908 90,867 70,045 4,879 313,699 Provision for losses...... 33,710 (10,184) 15,400 1,464 40,390 Charge-offs............... (14,319) (2,768) (18,934) (1,950) (37,971) Recoveries................ 262 432 3,834 154 4,682 -------- -------- -------- ------- -------- BALANCE AT MARCH 31, 1997. 167,561 78,347 70,345 4,547 320,800 Provision for losses...... 18,820 (939) 15,600 2,591 36,072 Charge-offs............... (20,589) (4,403) (18,881) (1,848) (45,721) Recoveries................ 217 31 3,789 1,223 5,260 -------- -------- -------- ------- -------- BALANCE AT JUNE 30, 1997.. $166,009 $ 73,036 $ 70,853 $ 6,513 $316,411 ======== ======== ======== ======= ========
38 The average balances and related charge-off percentages for the three months ended June 30, 1997, March 31, 1997 and June 30, 1996 and for the six months ended June 30, 1997 and June 30, 1996 follow:
AT OR FOR THE THREE MONTHS ENDED --------------------------- JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ------- --------- ------- (DOLLARS IN MILLIONS) Average balance Real estate loans SFR........................................... $27,051 $26,212 $24,816 Other......................................... 2,546 2,613 2,891 Consumer Finance................................ 2,161 2,171 2,073 Other loans..................................... 297 242 555 ------- ------- ------- $32,055 $31,238 $30,335 ======= ======= ======= Ratio of net charge-offs (annualized) to average loans Real estate loans SFR........................................... 0.30% 0.21% 0.51% Other......................................... 0.69 0.36 0.63 Consumer Finance................................ 2.79 2.78 2.44 Other loans..................................... 0.84 2.97 0.69 ------- ------- ------- 0.50% 0.43% 0.66% ======= ======= =======
AT OR FOR THE SIX MONTHS ENDED ----------------- JUNE 30, JUNE 30, 1997 1996 ------- ------- (DOLLARS IN MILLIONS) Average balance Real estate loans SFR................................................... $26,630 $24,766 Other................................................. 2,581 2,930 Consumer Finance........................................ 2,168 2,090 Other loans............................................. 269 547 ------- ------- $31,648 $30,333 ======= ======= Ratio of net charge-offs (annualized) to average loans Real estate loans SFR................................................... 0.26% 0.54% Other................................................. 0.52 0.50 Consumer Finance........................................ 2.79 2.50 Other loans............................................. 1.80 0.45 ------- ------- 0.47% 0.67% ======= =======
39 Real Estate Real estate available-for-sale or development was $117.1 million on June 30, 1997 compared to $221.5 million June 30, 1996 and $115.9 million on March 31, 1997. 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 fair value. At June 1997, foreclosed real estate properties totaling $30 million are classified as performing assets. The geographic distribution of real estate and nonperforming real estate for June 30, 1997 follows:
CALIFORNIA FLORIDA -------------------- -------------------- NON- NON- PORTFOLIO PERFORMING PORTFOLIO PERFORMING --------- ---------- --------- ---------- (DOLLARS IN MILLIONS) Real estate Single family residential.......... $ 65 $ 65 $ 2 $ 2 Apartments......................... 7 7 -- -- Commercial Property Development............. 30 -- -- -- Retail........................... 1 1 2 2 Offices.......................... 4 4 -- -- Other............................ 1 1 -- -- ---- ---- --- --- Total.......................... $108 $ 78 $ 4 $ 4 ==== ==== === === Percent of total real estate......... 91.5% 3.4% Nonperforming real estate as a % of total by state...................... 72.2% 100%
CONNECTICUT MASSACHUSETTS NEW YORK OTHER TOTAL -------------------- -------------------- -------------------- NON- NON- NON- PORTFOLIO PERFORMING PORTFOLIO PERFORMING PORTFOLIO PERFORMING --------- ---------- --------- ---------- --------- ---------- (DOLLARS IN MILLIONS) Real estate Single family residential.......... $ 1 $ 1 $ 4 $ 4 $ 72 $ 72 Apartments............ -- -- -- -- 7 7 Commercial Property Development........ -- -- -- -- 30 -- Retail.............. -- -- -- -- 3 3 Offices............. -- -- -- -- 4 4 Other............... 1 1 -- -- 2 2 --- --- --- --- ---- ---- Total............. $ 2 $ 2 $ 4 $ 4 $118 $ 88 === === === === ==== ==== Percent of total real estate................. 1.7% 3.4% 100% Nonperforming real estate as a % of total by state............... 100% 100% 74.6%
40 A comparison of California real estate and nonperforming real estate by region as of June 30, 1997, follows:
NORTHERN CALIFORNIA CENTRAL CALIFORNIA -------------------- -------------------- NON- NON- PORTFOLIO PERFORMING PORTFOLIO PERFORMING --------- ---------- --------- ---------- (DOLLARS IN MILLIONS) Real estate Single-family residential.......... $ 7 $ 7 $ 3 $ 3 Apartments......................... -- -- 4 4 Commercial Property Development............. 7 -- 14 -- Retail........................... -- -- -- -- Offices.......................... 1 1 -- -- Other............................ -- -- -- -- ---- ---- ---- ---- Total by region................ $ 15 $ 8 $ 21 $ 7 ==== ==== ==== ==== Percent of total California real estate.............................. 13.9% 19.4% Nonperforming as a % of total by region.............................. 53.3% 33.3% SOUTHERN CALIFORNIA CALIFORNIA -------------------- -------------------- NON- NON- PORTFOLIO PERFORMING PORTFOLIO PERFORMING --------- ---------- --------- ---------- (DOLLARS IN MILLIONS) Real estate Single-family residential.......... $ 55 $ 55 $ 65 $ 65 Apartments......................... 3 3 7 7 Commercial Property Development............. 9 -- 30 -- Retail........................... 1 1 1 1 Offices.......................... 3 3 4 4 Other............................ 1 1 1 1 ---- ---- ---- ---- Total by region................ $ 72 $ 63 $108 $ 78 ==== ==== ==== ==== Percent of total California real estate.............................. 66.7% 100% Nonperforming as a % of total by region.............................. 87.5% 72.2%
In the second quarter of 1997, bulk sales of foreclosed single-family properties totaled $12.7 million compared with $45.8 million in the second quarter of 1996 and $40.5 million in the first quarter of 1997. Auction sales have also been utilized to accelerate the disposition of foreclosed properties. As a result of the improving economy, it was determined that better pricing could be obtained using retail sales channels. Therefore, bulk sales of foreclosed single-family properties were discontinued effective July 10, 1997. 41 INTEREST BEARING LIABILITIES Deposits Deposits by product at June 30, 1997, March 31, 1997 and June 30, 1996 follow:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ----------- ----------- ----------- AMOUNT % AMOUNT % AMOUNT % ------- --- ------- --- ------- --- (DOLLARS IN MILLIONS) By Product Checking accounts......................... $ 4,181 15 $ 4,384 15 $ 4,516 16 Money market and other savings............ 7,203 26 7,114 25 6,392 22 Wholesale transaction..................... 158 1 142 1 172 1 Public funds.............................. 2 * 8 * 217 1 Tax-deferred accounts Deferred compensation................... 961 3 1,190 4 1,161 4 IRA/Keogh(1)............................ 2,408 9 2,445 9 2,686 9 Customer term accounts.................... 12,872 46 12,875 46 13,736 47 ------- --- ------- --- ------- --- $27,785 100 $28,158 100 $28,880 100 ======= === ======= === ======= ===
- -------- (1) Included in IRA/Keogh are money market accounts of $113 million at June 30, 1997, $117 million at March 31, 1997 and $114 million at June 30, 1996. *Less than one percent The Company concentrates its retail deposit-gathering activity in two states: California and Florida. The total decrease in deposits reflects the competitive environment of banking institutions and the wide array of investment opportunities available to consumers. An analysis of term deposits by interest rate and maturity at June 30, 1997 is presented below:
3 OVER OVER OVER OVER MONTHS 3 MONTHS 6 MONTHS 12 MONTHS 24 MONTHS JUNE 30, OR BUT WITHIN BUT WITHIN BUT WITHIN BUT WITHIN OVER --------------- LESS 6 MONTHS 12 MONTHS 24 MONTHS 36 MONTHS 36 MONTHS 1997 1996 ------ ---------- ---------- ---------- ---------- --------- ------- ------- (DOLLARS IN MILLIONS) INTEREST RATE Under 3%................ $ 36 $ -- $ -- $ -- $ -- $ -- $ 36 $ 91 3 to 3.99%.............. 53 18 12 6 -- -- 89 97 4 to 4.99%.............. 1,999 550 546 72 3 24 3,194 8,222 5 to 5.99%.............. 3,783 2,765 3,465 1,014 227 556 11,810 6,162 6 to 6.99%.............. 169 39 117 129 349 111 914 2,242 7 to 7.99%.............. 30 4 16 4 25 -- 79 863 8 to 8.99%.............. 1 -- 1 1 -- 1 4 6 9 to 9.99%.............. -- -- -- 1 -- -- 1 1 Over 10%................ -- -- -- 2 1 -- 3 2 ------ ------ ------ ------ ---- ---- ------- ------- Total................. $6,071 $3,376 $4,157 $1,229 $605 $692 $16,130 $17,686 ====== ====== ====== ====== ==== ==== ======= ======= $100,000 accounts included above(1)...... $1,015 $ 605 $ 867 $ 263 $154 $158 $ 3,062 $ 3,400
- -------- (1) Includes wholesale term accounts of $2 million at June 30, 1997 and $217 million at June 30, 1996. 42 Borrowings The following summarizes borrowings at June 30, 1997, March 31, 1997 and June 30, 1996:
JUNE 30, MARCH 31, JUNE 30, 1997 1997 1996 ------------ ------------ ------------ AMOUNT % AMOUNT % AMOUNT % ------- ---- ------- ---- ------- ---- (DOLLARS IN MILLIONS) Federal funds purchased and commercial paper.................... $ 1,290 11% $ 1,287 12% $ 945 8% Securities sold under agreements to repurchase.......................... 3,860 32 4,484 40 5,368 49 Advances from the FHLB............... 4,357 35 2,558 23 2,169 20 Guaranteed preferred beneficial interest in Company subordinated notes............................... 400 3 400 4 100 1 Other borrowings..................... 2,338 19 2,332 21 2,400 22 ------- ---- ------- ---- ------- ---- Total borrowings..................... $12,245 100% $11,061 100% $10,982 100% ======= ==== ======= ==== ======= ==== Interest rate on borrowings at quarter end......................... 6.15% 6.13% 6.00%
The following summarizes borrowings by date of maturity as of June 30, 1997:
LESS THAN 1-2 2-5 5-10 AFTER 10 TOTAL ONE YEAR YEARS YEARS YEARS YEARS ------- --------- ----- ------ ----- -------- (DOLLARS IN MILLIONS) Federal funds purchased and commercial paper.............. $ 1,290 $1,290 $ -- $ -- $ -- $ -- Securities sold under agreements to repurchase...... 3,860 3,366 192 302 -- -- Advances from the FHLB......... 4,357 4,129 -- 228 -- -- Guaranteed preferred beneficial interest in Company subordinated notes............ 400 -- -- -- -- 400 Other borrowings............... 2,338 402 713 1,173 -- 50 ------- ------ ---- ------ ---- ---- Total borrowings............... $12,245 $9,187 $905 $1,703 $ -- $450 ======= ====== ==== ====== ==== ==== Average interest rate on borrowings by maturity........ 6.15% 5.75% 7.36% 7.09% --% 8.49%
Total borrowings increased $1.1 billion from $11.1 billion at March 31, 1997 and $1.2 billion from $11 billion at June 30, 1996 to $12.2 billion at June 30, 1997. The Company reduced its percentage of total borrowings from securities sold under agreements to repurchase by 17% from 49% at June 30, 1996 to 32% at June 30, 1997, and increased its advances from FHLB, as a percentage of total borrowings to 35% at June 30, 1997. Advances from the FHLB increased to $4.4 billion at June 30, 1997 from $2.6 billion at March 31, 1997 and increased from $2.2 billion at June 30, 1996. Borrowings from securities sold under agreements to repurchase decreased to $3.9 billion at June 30, 1997 from $4.5 billion at March 31, 1997 and decreased from $5.4 billion at June 30, 1996. Federal funds purchased and commercial paper increased $3 million from $1.3 billion at March 31, 1997 and $345 million from $945 million at June 30, 1996 to $1.3 billion at June 30, 1997. Guaranteed preferred beneficial interest in company subordinated notes increased $300 million from $100 million at June 30, 1996 to $400 million at June 30, 1997. Other borrowings increased $6 million from $2.3 billion at March 31, 1997 and decreased $62 million from $2.4 billion at June 30, 1996 to $2.3 billion at June 30, 1997. On January 27, 1997, Great Western Financial Trust II (the "subsidiary trust II"), a wholly-owned subsidiary of Great Western Financial Corporation, issued $300 million of 8.206% Trust Originated Preferred Securities (the "preferred securities II"). In connection with subsidiary trust II's issuance of the preferred securities II, Great Western Financial Corporation issued to subsidiary trust II $309 million principal amount of its 8.206% subordinated deferrable interest notes, due 2027 (the "subordinated notes II"). The sole assets of subsidiary trust II are and will be the subordinated notes II. Great Western Financial Corporation's obligations under the subordinated notes II and related agreements, taken together, constitute a full and unconditional guarantee by the Company of subsidiary trust II's obligations under the preferred securities II. 43 In December 1995, Great Western Financial Trust I (the "subsidiary trust I"), a wholly-owned subsidiary of Great Western Financial Corporation, issued $100 million of 8.25% Trust Originated Preferred Securities (the "preferred securities I"). In connection with subsidiary trust I's issuance of the preferred securities I, Great Western Financial Corporation issued to subsidiary trust I $103 million principal amount of its 8.25% subordinated deferrable interest notes, due 2025 (the "subordinated notes I"). The sole assets of subsidiary trust I are and will be the subordinated notes I. Great Western Financial Corporation's obligations under subordinated notes I and related agreements, taken together, constitute a full and unconditional guarantee by the Company of subsidiary trust I's obligations under the preferred securities I. ASSET LIABILITY MANAGEMENT The Company's principal ongoing objectives in managing its assets and liabilities are to maintain and increase the spread that exists between the return received on its interest-earning assets and the price paid on liabilities to fund such assets, to reduce the volatility caused by changes in interest rates, to ensure risk-taking is calculated and not excessive, and to provide sufficient liquidity at all times. The Company employs numerous strategies and strict policies to accomplish and maintain these objectives. As the Company's main earning assets are loans and mortgage-backed securities, it primarily makes or invests in ARM loans or securities. In so doing, it reduces the extreme volatility and loss in value that would result by owning low fixed-rate loans during a period of rapidly rising interest rates. Although it costs the Company during the "lag" that exists between the time loan rates rise and when loan rates are adjusted upwards, the Company benefits in the same measure from the lag when rates fall. Other financial risks exist in the Company's operation and balance sheet. These main risks, including basis, repricing, options, and yield curve twists, are more difficult to quantify and manage. The cost of funds for GWB, relative to COFI, FCOFI and LAMA is shown as follows:
GWB COST OF GWB FUNDS LESS THAN COST OF ------------------ FUNDS COFI FCOFI LAMA COFI FCOFI LAMA ------- ----- ----- ----- ---- ----- ----- June 30, 1997............... 4.538% 4.853% 5.984% 5.551% .315% 1.446% 1.013% March 31, 1997.............. 4.387% 4.780% 5.943% 5.495% .393% 1.556% 1.108% June 30, 1996............... 4.396% 4.809% 5.935% 5.636% .413% 1.539% 1.240%
To accomplish its objectives, the Company stabilizes its balance sheet primarily by matching various characteristics of the assets purchased with the liabilities incurred. It also sells the low margin fixed rate loans and ARMs it originates into the secondary market while retaining more profitable ARMs. When necessary, off-balance sheet instruments allow the Company to pursue marketing strategies consistent with customer needs while compensating for the risk these strategies create. The most frequently used instruments are various types of interest rate swaps, caps, floors, and futures. To protect against rate fluctuations for items before they are put on the balance sheet, items such as commitments to fund fixed-rate loans originated for sale, the Company from time to time uses off balance sheet instruments including interest rate forwards, caps, floors, and future contracts as asset/liability management tools. They are used to reduce the Company's exposure to interest rate fluctuations and provide more stable spreads between asset yields and the rates on their funding sources. To evaluate the Company's current interest-rate position, it is necessary to analyze the amount and proportionate share of each of its major earning assets, including each major type of short-term or long-term real estate loan, and the amount and proportionate share of each major category of short-term or long-term deposits and borrowings. The Company utilizes a variety of analytical tools including static gap, duration gap, risk point reports, net interest income simulation and market value of equity sensitivity analysis. The standard static gap report appears below. 44 The following table shows that the portfolio of short-term assets exceeded liabilities maturing or subject to interest adjustment within one year by $2.5 billion, or 6.1% of total earning assets at June 30, 1997 compared with $2.3 billion, or 5.5% of total earning assets at March 31, 1997 and $2 billion, or 4.7% of total earning assets at June 30, 1996. The Company is better protected against rising rates with an excess of interest earning assets maturing or repricing within one year.
INTEREST/RATE SENSITIVITY ------------------------------------------- JUNE 30, 1997 ------------------------------------------- OVER WITHIN 1-5 5-15 15 % OF 1 YEAR YEARS YEARS YEARS TOTAL TOTAL ------- ------- ----- ----- ------- ----- (DOLLARS IN MILLIONS) EARNING ASSETS Cash equivalents................... $ 300 $ -- $ -- $ -- $ 300 1% Available-for-sale securities...... Mortgage-backed securities....... 5,791 -- -- -- 5,791 14 Investments(including FHLB)...... 1,208 -- -- 355 1,563 4 Held to maturity securities Mortgage-backed securities....... 1,353 54 65 33 1,505 3 Loans Loans held in portfolio.......... 27,049 2,455 119 483 30,106 72 Loans held-for-sale.............. 156 -- -- -- 156 * Consumer Finance................. 719 1,164 289 1 2,173 5 Other............................ 297 55 1 4 357 1 ------- ------- ---- ---- ------- --- Total loans.................... 28,221 3,674 409 488 32,792 78 ------- ------- ---- ---- ------- --- Total earning assets......... 36,873 3,728 474 876 41,951 100% INTEREST BEARING LIABILITIES Deposits Checking accounts................ 4,181 -- -- -- 4,181 10 Savings and money market accounts........................ 7,316 -- -- -- 7,316 18 Time certificates................ 13,602 2,512 14 -- 16,128 40 Wholesale accounts............... 160 -- -- -- 160 1 ------- ------- ---- ---- ------- --- Total deposits................. 25,259 2,512 14 -- 27,785 69 Borrowings Federal funds purchased and commercial paper................ 1,290 -- -- -- 1,290 3 Securities sold under agreement to repurchase................... 3,366 494 -- -- 3,860 10 Advances from Federal Home Loan Banks........................... 4,129 228 -- -- 4,357 11 Guaranteed preferred beneficial interest in Company subordinated notes...... -- -- -- 400 400 1 Other borrowings................... 402 1,886 -- 50 2,338 6 Impact of interest-rate swaps.... (109) 109 -- -- -- -- ------- ------- ---- ---- ------- --- Total borrowings............... 9,078 2,717 -- 450 12,245 31 ------- ------- ---- ---- ------- --- Total interest bearing liabilities................. 34,337 5,229 14 450 40,030 100% ------- ------- ---- ---- ------- === Earning assets over (under) interest bearing liabilities at June 30, 1997..................... $ 2,536 $(1,501) $460 $426 $ 1,921 ======= ======= ==== ==== =======
- -------- * Less than one percent 45 LIQUIDITY MANAGEMENT Liquidity refers to the capability of a company to fund its operations and meet its obligations and commitments on both a timely and cost-effective basis out of its cash flow. Customer deposits provide the Company with a sizable source of stable low- cost funds. Customer deposits and stockholders' equity funded 71.0% and 72.9% of its average total assets in the second quarter of 1997 and the second quarter of 1996, respectively. The remaining funding is provided by a combination of wholesale short-term funding sources including reverse repurchase agreements and intermediate-term sources including senior debt. The Company's real estate loans totaled $30.3 billion at June 30, 1997. Of this amount, $460 million matures within one year and $2.8 billion matures within one to five years on a contractual basis. GWB, at June 30, 1997 had excess borrowing capacity at the FHLB of approximately $8 billion which includes overnight borrowing capacity. Other sources of liquidity include federal funds, commercial paper and reverse repurchase agreements and/or the sale of assets. As presented in the Consolidated Statement of Cash Flows, the sources of liquidity vary between years. The primary sources of funds in the second quarter were sales and principal payments on mortgage-backed securities and loans held for investment of $1.6 billion. New loans originated for investment required $2.7 billion in the second quarter of 1997. Operating activities provided $132.2 million in the second quarter. GWB maintains liquidity balances each period in excess of funding and legal requirements. Cash, certificates of deposit, repurchase agreements, federal funds and available-for-sale securities totaled $2 billion at June 30, 1997 and $2.4 billion at June 30, 1996. GWB had funds in excess of required liquidity levels. The amounts over those required for regulatory purposes will fluctuate between periods and are a source of short-term funding. PARENT COMPANY LIQUIDITY GWFC, the parent company, derives substantially all of its cash income from dividends received from its subsidiaries. During the second quarter, it received cash dividends in the amount of $46.3 million. Of that amount, $37.8 million was received from GWB, $6.5 million was received from Aristar and $2 million from other subsidiaries. In July, 1996, GWFC renewed its July, 1994 $200 million syndicated multi- year credit facility with 21 banks. This is a revolving line of credit which is a contingent source of liquidity. This line is used to backup commercial paper for the Company's issuances. To date, there have been no borrowings under this agreement. Short-term liquidity can also be generated by the Company's ability to raise funds in a number of capital and money markets as well as by liquidating short-term investments. CAPITAL ADEQUACY Capital (stockholders' equity) was $2.7 billion at June 30, 1997 and $2.8 billion at June 30, 1996. At June 30, 1997, the ratio of capital to total assets was 6.1% compared with 6.5% a year ago. On July 23, 1996, the Board of Directors authorized the repurchase of up to 7.5 million shares of outstanding common stock, representing approximately 5% of the total number of shares outstanding as of June 30, 1996. On July 29, 1996, 6.5 million shares were repurchased at a weighted average price of $26.85 per share. By February 20, 1997, the remaining balance of 1.0 million shares had been repurchased at a weighted average price of $31.91 per share. 46 On January 28, 1997, the Board of Directors authorized the repurchase of up to 5 million shares of outstanding common stock, representing approximately 3.6% of the total number of outstanding shares at December 31, 1996. As of February 28, 1997, there had been no repurchases under this program. On March 5, 1997 the Board of Directors voted to discontinue the repurchase program. The Company's capital surplus increased by $53 million during the second quarter of 1997 primarily as a result of stock options exercised. At June 30, 1997 preferred stock totaled $165 million compared with $294 million at June 30, 1996. In September 1996, the Company called for the redemption of its $129 million, 8.75% Cumulative Convertible Preferred Stock. The holders had the option to redeem their shares or convert them into shares of the Company's Common Stock. 2,561,642 shares were converted into 6,278,421 common shares, while 19,058 shares were redeemed for cash payments of $994,589. In the second quarter of 1996, shares of preferred stock totaling $340,000 were converted to common stock at the holder's option. GWB is subject to certain capital requirements under applicable regulations and meets all such requirements. GWB's total risk-based capital was $2.7 billion, including eligible subordinated notes of $115 million at June 30, 1997 and $2.9 billion, including eligible subordinated notes of $288 million at June 30, 1996. The following ratios compare GWB with the capital requirements under regulations issued by the OTS:
JUNE 30, 1997 JUNE 30, 1996 --------------------------- --------------------------- ACTUAL OTS BENCHMARK ACTUAL OTS BENCHMARK ------------ ------------- ------------ ------------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % ------ ----- ------------- ------ ----- ------------- (DOLLARS IN MILLIONS) Leverage/tangible ratio. $2,439 6.00% $ 1,220 3.00% $2,453 6.00% $ 1,227 3.00% Tier 1 risk-based ratio. 2,434 10.09 965 4.00 2,448 10.07 972 4.00 Total risk-based ratio.. 2,748 11.39 1,930 8.00 2,918 12.01 1,945 8.00
The OTS previously 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 maintain leverage ratios of at least 4%. Only savings associations rated composite 1 under the OTS CAMELS 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 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. 47 The following table presents the debt ratings of the Company and GWB at June 30, 1997:
MOODY'S STANDARD INVESTORS & POOR'S SERVICES FITCH --------- ---------- -------- GWFC GWB GWFC GWB GWFC GWB ---- ---- ----- ---- ---- --- Unsecured short-term debt......................... A-2 A-2 P-2 P-1 F-1 Senior term debt.................................. BBB+ A- Baa1 A-2 A- A Subordinated term debt............................ BBB+ A-3 A- Preferred stock................................... BBB- Baa2 BBB
DIVIDENDS Quarterly cash dividends have been paid since 1977. At its April 1996 meeting, the Board of Directors increased the quarterly cash dividend from $.23 to $.25 per common share. The quarterly cash dividend of $.23 per common share had previously been paid at that level since the second quarter of 1992. The dividend increase was due to the Company's improved earnings and strong capital position. In the second quarter of 1997 the regular quarterly dividend on the $165 million 8.3% cumulative preferred stock, issued in September 1992, was paid. The principal source of operating income of the Company on an unconsolidated basis is dividends from GWB and Aristar. In the second quarter of 1997, dividends from GWB and Aristar totaled $37.8 million and $6.5 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 establish 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 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. As of June 30, 1997, GWB's dividend limitation for 1997 is approximately $561 million. Therefore, after taking into consideration dividends declared and paid in the six months ending June 30, 1997, GWB may declare dividends or make other capital distributions of approximately $485 million, without obtaining prior regulatory approval. The limitation for 1997 will increase by net income earned after June 30, 1997. 48 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS SFAS 128 In February, 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," ("SFAS 128"). SFAS 128 establishes standards for computing and presenting earnings per share (EPS) by replacing the presentation of primary EPS with a presentation of basic EPS. Primary EPS included common stock equivalents while basic EPS excludes them. This change simplifies the computation of EPS, while making the computation in the United States more compatible to the standards of other countries and the International Accounting Standards Committee, ("IASC"). It also requires dual presentation of basic and fully diluted EPS on the face of the income statement for all entities with complex capital structures. Washington Mutual, Inc. (see Part I. Financial Information, Item 2. "Management's Discussion and Analysis of Financial Condition, Subsequent Events"), will adopt SFAS 128 effective December 31, 1997. It is anticipated that the adoption of SFAS 128 will not have a material impact on Washington Mutual, Inc.'s financial statements. SFAS 129 In February 1997, the FASB issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure," ("SFAS 129"). SFAS 129 establishes disclosure requirements regarding pertinent rights and privileges of outstanding securities. Examples of disclosure items regarding securities include items such as dividend and liquidation preferences, participation rights, call prices and dates, conversion or exercise prices and rates. The number of shares issued upon conversion, exercise or satisfaction of required conditions during at least the most recent annual fiscal period and any subsequent interim period must also be disclosed. Disclosure of liquidation preferences of preferred stock in the equity section of the statement of financial condition is also required. Issuers of redeemable stock must disclose the amount of redemption requirements for all issues of capital stock that are redeemable at fixed or determinable prices on fixed or determinable dates in each of the five years following the date of the latest statement of financial position presented. Washington Mutual, Inc. (see Part I. Financial Information, Item 2. "Management's Discussion and Analysis of Financial Condition, Subsequent Events"), will adopt SFAS 129 effective December 31, 1997. It is anticipated that the adoption of SFAS 129 will not have a material impact on Washington Mutual, Inc.'s financial statements. SFAS 130 In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130"). SFAS 130 establishes standards for disclosure of comprehensive income and its components. Certain transactions which result in changes in assets and liabilities, such as unrecognized gains or losses in available-for-sale securities, have historically bypassed the income statement and have been recorded directly as a component of stockholders' equity, net of taxes. The FASB has described comprehensive income as "the change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners." SFAS 130 defines comprehensive income as the total of all components of comprehensive income, including net income. It then defines other comprehensive income to include revenues, gains and losses that may be included in comprehensive income, but excluded from net income, e.g. recorded directly as a component of stockholders' equity. 49 SFAS 130 requires that the components of other comprehensive income be included with an enterprise's financial statements. Other comprehensive income may be disclosed either in a separate financial statement (two statement approach) or after net income on the income statement (one statement approach) or within the statement of changes in stockholders' equity. Washington Mutual, Inc. (see Part I, Financial Information, Item 2, "Management's Discussion and Analysis of Financial Condition, Subsequent Events"), will adopt SFAS 130, effective January 1, 1998, and will restate comparative periods as required by this pronouncement. As SFAS 130 is specifically disclosure related, it is anticipated that the adoption of this statement will not have a material impact on Washington Mutual, Inc.'s financial position or results of operation. SFAS 131 In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement requires that registrants report results of operations, and other reportable information, such as products and services, geographic areas of operation and major customers of reportable operating segments. This statement establishes a basis by which users of financial statement may better understand an enterprise's performance, assess the potential for future cash flows, and make more informed judgments about the enterprise as a whole through analyzing key operating segments of the organization. In this statement, the FASB identifies an operating segment as a component of an enterprise "that engages in business activities from which it may earn revenues and incur expenses (including revenue and expenses relating to transactions with other components of the same enterprise); whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and for which discrete financial information is available." Required disclosures for each reportable segment include, though are not limited to, the following items: Information About Profit or Loss and Assets . profit or loss . internal (e.g. intercompany) and external revenues and expenses . interest income and expense . depreciation, depletion and amortization expense . unusual items . equity in the net income of investees accounted for by the equity method . income tax expense or benefit . extraordinary items . significant noncash items other than depreciation, depletion and amortization expense . asset volumes and measurement . basis of accounting for transactions between reportable segments (i.e. intercompany) . expenditures for certain long-lived assets 50 Other Information . products and services . distribution and production processes . regulatory environment . customer base . amount of investment in equity method investees . differences in measurements of reportable segments' profits, losses and assets . prior period measurement changes . nature and effect of asymmetrical allocations to segments (e.g. allocation of depreciation expense to a segment without related assets(s)) The Company has historically provided information on its lines of business, (see Line of Business under Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations. . . .") Washington Mutual, Inc. (see Part I. Financial Information, Item 2. "Management's Discussion and Analysis of Financial Condition, Subsequent Events"), will adopt SFAS 131, effective January 1, 1998. As SFAS 131 is specifically disclosure related, it is anticipated that the adoption of this statement will not have a material impact on Washington Mutual, Inc.'s financial position or results of operation. SUBSEQUENT EVENTS Pursuant to the Agreement and Plan of Merger dated March 5, 1997 by and among the Company, NACI, and Washington Mutual, Inc., the Company merged with and into NACI on July 1, 1997. NACI is a wholly owned subsidiary of Washington Mutual, Inc. As consideration for the Merger, holders of Great Western common stock received in exchange for each share of Great Western common stock held the right to receive 0.9 shares of the Washington Mutual common stock, with cash being paid in lieu of fractional shares. Holders of Great Western's 8.30% Cumulative Preferred Stock received in exchange for each share of Great Western Preferred Stock one share of Washington Mutual's 8.30% Cumulative Preferred Stock, Series F. The terms of the Series F Preferred Stock are substantially the same as the terms of the Great Western Preferred Stock. As a result of the Merger, Washington Mutual issued 125,649,551 shares of its common stock and 660,000 shares of the Series F Preferred Stock. As a result of the merger agreement and exchange of common stock, Washington Mutual, Inc. filed Form 8-K with the Securities and Exchange Commission to dismiss Price Waterhouse LLP as the independent auditors for Great Western and to engage Deloitte & Touche LLP as its independent auditors for Great Western effective July 1, 1997. Washington Mutual, Inc. is anticipating the recording of restructuring charges and severance related to the merger in the third quarter of 1997, a portion of which may be recorded at Great Western Bank. This may impact the Bank's payment of dividends to its parent. 51 PART II--OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS CONSENT OF STOCKHOLDERS Pursuant to a consent solicitation by H. F. Ahmanson & Company, the following proposals were consented to by stockholders as of April 10, 1997:
CONSENTING ---------- . A By-law amendment proposed by H. F. Ahmanson & Company ("Ahmanson") compelling the annual meeting of stockholders to be held each year on the fourth Tuesday in April, or on a date within 14 days thereof. 69,455,578 . A By-law amendment preventing the presiding officer from adjourning any stockholder meeting at which quorum is present unless all business properly brought before such meeting has been acted upon by stockholders. 68,373,259 . A By-law amendment providing that any of the By-law amendments pursuant to Ahmanson's Consent Solicitation may not be subsequently amended without the majority approval of Great Western's stockholders. 68,372,660
SPECIAL MEETING OF STOCKHOLDERS On June 13, 1997, the stockholders of GWFC approved the merger agreement among Washington Mutual, Inc., New American Capital, Inc. and GWFC at the Special Meeting of Stockholders. The vote was 103,519,142 for, 1,554,091 against and 215,956 withheld. ANNUAL MEETING OF STOCKHOLDERS The annual meeting of stockholders (the "Annual Meeting") of Great Western Financial Corporation (the "Company") was held at the Company's Employee Center at 19809 Prairie Street, Chatsworth, California 91311, on June 13, 1997, at 2:00 p.m., local time, to vote on the following:
VOTES CAST ------------------------------- FOR AGAINST WITHHELD ---------- ---------- --------- . The election of four members to the Board of Directors for a term of three years Bradford M. Freeman..................... 97,973,561 N/A 1,061,989 Firmin A. Gryp.......................... 97,935,681 N/A 1,099,869 James F. Montgomery..................... 97,976,561 N/A 1,058,989 Alberta E. Siegel....................... 97,968,066 N/A 1,067,484 . A non-binding advisory stockholder resolution relating to the sale of uninsured investment products by Great Western Bank............................ 5,052,541 84,005,396 7,828,515
52 ITEM 5. OTHER INFORMATION The calculation of the Company's ratio of earnings to fixed charges as of the dates indicated follows:
SIX MONTHS TWELVE MONTHS SIX MONTHS ENDED ENDED ENDED JUNE 30, DECEMBER 31, JUNE 30, 1997 1996 1996 ---------- ------------- ---------- (DOLLARS IN THOUSANDS) Earnings Net earnings............................ $ 138,036 $ 115,822 $ 150,565 Taxes on income......................... 107,579 70,800 98,800 ---------- ---------- ---------- Earnings before taxes................... $ 245,615 $ 186,622 $ 249,365 ---------- ---------- ---------- Interest expense Deposits................................ $ 564,411 $1,179,479 $ 593,458 Borrowings.............................. 362,433 688,134 345,370 ---------- ---------- ---------- Total................................. $ 926,844 $1,867,613 $ 938,828 ---------- ---------- ---------- Rent expense Total................................... $ 26,794 $ 63,980 $ 31,961 1/3 thereof............................. 8,931 21,327 10,654 Capitalized interest...................... $ 2,187 $ 33 $ 20 Preferred stock dividends................. $ 6,847 $ 20,295 $ 12,496 Ratio of earnings to fixed charges and preferred stock dividends Excluding deposits...................... Earnings before fixed charges......... $ 616,979 $ 896,083 $ 605,389 Fixed charges......................... 385,734 742,195 376,740 Ratio................................. 1.60 1.21 1.61 Including deposits Earnings before fixed charges......... $1,181,390 $2,075,562 $1,198,847 Fixed charges......................... 950,145 1,921,674 970,198 Ratio................................. 1.24 1.08 1.24 Ratio of earnings to fixed charges Excluding deposits Earnings before fixed charges......... $ 616,979 $ 896,083 $ 605,389 Fixed charges......................... 373,551 709,494 356,044 Ratio................................. 1.65 1.26 1.70 Including deposits Earnings before fixed charges......... $1,181,390 $2,075,562 $1,198,847 Fixed charges......................... 937,962 1,888,973 949,502 Ratio................................. 1.26 1.10 1.26
53 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 15 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, 1996. 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 Agreement and Plan of Merger By and Among Washington Mutual, Inc., New American Capital, Inc., and Great Western Financial Corporation, dated as of March 5, 1997 (filed as an exhibit to GWFC's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and incorporated herein by reference). 11.1 Statement re computation of per share earnings. 27.1 Financial Data Schedule
b. Reports on Form 8-K A Current Report on Form 8-K dated May 22, 1997 was filed with the SEC, which contains as an exhibit materials used in presentations to the investment analysts. A Current Report on Form 8-K dated May 5, 1997 was filed with the SEC, which contained as an exhibit materials used in presentations to the investment analysts. A Current Report on Form 8-K dated April 30, 1997 was filed with the SEC, which contained as an exhibit materials used in presentations to the investment analysts. A Current Report on Form 8-K dated April 28, 1997 was filed with the SEC, which contained as an exhibit materials used in presentations to the investment analysts. A Current Report on Form 8-K dated April 10, 1997 was filed with the SEC, which contained as an exhibit materials used in presentations to the investment analysts. A Current Report on Form 8-K dated April 3, 1997 was filed with the SEC, which contained as an exhibit materials used in presentations to the investment analysts. A Current Report on Form 8-K/A dated May 27, 1997 was filed with the SEC, which contains as an exhibit a revised slide to the presentation to the investment analysts filed with the Form 8-K filed on May 22, 1997. 54 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. New American Capital, Inc. (Successor to Great Western Financial Corporation) Registrant /s/ Kerry K. Killinger By: _________________________________ Kerry K. Killinger President Chief Executive Officer /s/ William A. Longbrake By: _________________________________ William A. Longbrake Senior Executive Vice President Chief Financial Officer DATE: August 13, 1997 55 EX-11.1 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS GREAT WESTERN FINANCIAL CORPORATION Computation of Net Income Per Common Primary and Fully Diluted
THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------------- ---------------------- June 30, March 31, June 30, June 30, June 30, 1997 1997 1996 1997 1996 ---------- --------- --------- -------- --------- (DOLLARS IN THOUSANDS) Net income $72,333 $65,703 $79,271 $138,036 $150,565 Preferred stock dividends - convertible and nonconvertible (3,423) (3,424) (6,242) (6,847) (12,496) -------- ------ ------- -------- -------- Net income for computing earnings per Common share - primary 68,910 62,279 73,029 131,189 138,069 Preferred stock dividends - convertible - - 2,819 - 5,649 -------- ------ ------- -------- -------- Common share - fully diluted $68,910 $62,279 $75,848 $131,189 $143,718 ======= ======= ======= ======== ======== Computation of Average Number of Common Shares Outstanding on Primary and Fully Diluted Basis (In thousands, except per share amounts) THREE MONTHS ENDED SIX MONTHS ENDED ---------------------------------------- ----------------------- June 30, March 31, June 30, June 30, June 30, 1997 1997 1996 1997 1996 ---------- -------- ---------- --------- ---------- (DOLLARS IN THOUSANDS) Average number of Common shares outstanding during each period - without dilution 138,292 137,715 137,306 138,004 137,249 Common share equivalents outstanding at the end of each period 3,323 3,590 1,736 3,023 1,735 ------- ------- ------- ------- ------- Average number of common shares and Common share equivalents outstanding during each period on a primary basis 141,615 141,305 139,042 141,027 138,984 Common share equivalents outstanding at the end of each period on a fully diluted basis 457 291 125 757 125 Addition from assumed conversion as of the beginning of each period of the convertible preferred stock outstanding at the end of each period - - 6,324 - 6,325 ------- ------ ------- ------- ------- Average number of Common shares outstanding during each period on a fully diluted basis 142,072 141,596 145,491 141,784 145,434 ======= ======= ======= ======= ======= Net income per Common share Primary $ 0.49 $ 0.44 $ 0.52 $ 0.93 $ 0.99 Fully diluted $ 0.49 $ 0.44 $ 0.52 $ 0.93 $ 0.99
EX-27.1 3 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY THE REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1997 APR-01-1997 JUN-30-1997 424,357 125 300,000 0 7,415,956 1,504,656 1,522,126 32,764,759 316,411 43,769,792 27,785,070 8,725,743 1,054,200 3,519,401 0 165,000 139,617 2,380,761 43,769,792 637,029 157,207 6,175 800,411 284,635 466,578 333,833 36,072 36 276,178 130,912 72,333 0 0 72,333 0.49 0.49 3.01 381,161 0 33,768 0 320,800 45,721 5,260 316,411 316,411 0 0
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