<PAGE>PAGE 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended June 30, 1994 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Delaware 95-2080059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's common stock on
July 31, 1994, was 61,731,555 shares.
<PAGE>PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or the Company) for the three and
six months ended June 30, 1994, and 1993, have been prepared from unaudited
records of the Company and, in the opinion of the Company, all adjustments
(consisting only of normal recurring accruals) that are necessary for a
fair statement of the results for such three and six month periods have
been included. The operating results for the six months ended
June 30, 1994, are not necessarily indicative of the results for the full
year.
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
($000s Omitted)
June 30 June 30 December 31
1994 1993 1993
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Cash $ 113,570 $ 142,542 $ 243,185
Securities available for sale 1,791,087 683,788 1,636,586
Other investments 367,200 1,941,304 538,100
Mortgage-backed securities available for sale at fair value 764,197 -0- 1,114,069
Mortgage-backed securities held to maturity at cost 506,134 1,594,572 408,467
Loans receivable 24,640,665 23,272,245 23,912,571
Interest earned but uncollected 199,262 166,813 175,080
Investment in capital stock of Federal Home Loan Banks--at
cost, which approximates fair value 324,141 364,203 325,737
Real estate held for sale or investment 63,307 76,938 67,156
Prepaid expenses and other assets 188,009 146,013 108,832
Premises and equipment--at cost less accumulated depreciation 178,022 151,494 162,751
Goodwill arising from acquisitions 137,609 133,526 136,754
----------- ----------- -----------
$29,273,203 $28,673,438 $28,829,288
=========== =========== ===========
Liabilities and Stockholders' Equity:
Customer deposits $17,914,826 $17,061,224 $17,422,484
Advances from Federal Home Loan Banks 6,222,799 6,839,843 6,281,691
Securities sold under agreements to repurchase 380,396 533,347 442,874
Medium-term notes 664,028 676,194 676,540
Accounts payable and accrued expenses 423,615 378,273 355,799
Taxes on income 338,309 301,018 364,235
Subordinated notes--net of discount 1,220,804 1,021,135 1,220,061
Stockholders' equity 2,108,426 1,862,404 2,065,604
----------- ----------- -----------
$29,273,203 $28,673,438 $28,829,288
=========== =========== ===========
</TABLE>
<PAGE>PAGE 3
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
($000s omitted except per share figures)
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $395,999 $410,080 $794,051 $817,135
Interest on mortgage-backed securities 26,144 37,145 54,417 76,024
Interest and dividends on investments 35,318 24,848 60,688 41,941
-------- -------- -------- --------
457,461 472,073 909,156 935,100
Interest Expense:
Interest on customer deposits 166,629 175,990 331,996 351,813
Interest on advances 63,022 75,872 121,912 143,012
Interest on repurchase agreements 10,156 9,464 17,095 20,086
Interest on other borrowings 31,826 30,505 63,431 57,831
-------- -------- -------- --------
271,633 291,831 534,434 572,742
-------- -------- -------- --------
Net Interest Income 185,828 180,242 374,722 362,358
Provision for loan losses 17,946 13,182 34,438 24,641
-------- -------- -------- --------
Net Interest Income after Provision for
Loan Losses 167,882 167,060 340,284 337,717
Non-Interest Income:
Fees 7,739 7,096 15,680 14,123
Gain (loss) on the sale of securities and
mortgage-backed securities (34) 2,724 (33) 4,248
Other 3,730 3,608 7,212 6,964
-------- -------- -------- --------
11,435 13,428 22,859 25,335
Non-Interest Expense:
General and administrative:
Personnel 35,937 31,327 71,918 63,152
Occupancy 10,757 9,644 21,120 19,328
Deposit insurance 10,061 8,062 20,121 16,124
Advertising 2,800 3,485 5,235 5,310
Other 14,145 11,801 28,143 25,215
-------- -------- -------- --------
73,700 64,319 146,537 129,129
Amortization of goodwill arising
from acquisitions 647 (449) 1,225 (898)
-------- -------- -------- --------
74,347 63,870 147,762 128,231
-------- -------- -------- --------
Earnings Before Taxes on Income 104,970 116,618 215,381 234,821
Taxes on income 43,027 46,035 88,142 92,654
-------- -------- -------- --------
Net Earnings $ 61,943 $ 70,583 $127,239 $142,167
======== ======== ======== ========
Net earnings per share $ .98 $ 1.10 $ 2.00 $ 2.22
======== ======== ======== ========
</TABLE>
<PAGE>PAGE 4
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
($000s Omitted)
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 61,943 $ 70,583 $ 127,239 $ 142,167
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 17,946 13,182 34,438 24,641
Amortization of loan fees and discounts (8,035) (11,427) (16,822) (21,722)
Depreciation and amortization 4,519 3,322 8,972 6,523
Reduction of a valuation allowance on investments -0- (2,750) -0- (4,250)
Loans originated for sale (16,584) (130,080) (84,487) (166,552)
Sales of loans originated for sale 35,857 113,254 137,583 159,824
(Increase) in interest earned but uncollected (22,005) (3,965) (24,182) (9,090)
Federal Home Loan Bank stock dividends (4,392) (2,859) (10,617) (5,127)
(Increase) in prepaid expenses and other assets (17,681) (5,627) (74,739) (11,866)
Increase in accounts payable and accrued expenses 26,271 5,982 67,816 17,147
Increase (decrease) in taxes on income (28,749) 23,886 (2,640) 67,154
Other, net (8,383) (5,836) (13,122) (5,467)
----------- ----------- ----------- -----------
Net cash provided by operating activities 40,707 67,665 149,439 193,382
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,607,747) (1,684,272) (2,768,778) (3,098,923)
Real estate loans purchased (755) (852) (864) (1,042)
Other, net 449 9,254 2,818 17,501
----------- ----------- ----------- -----------
(1,608,053) (1,675,870) (2,766,824) (3,082,464)
Real estate loan principal payments:
Monthly payments 157,284 142,132 299,494 280,238
Payoffs, net of foreclosures 660,701 714,667 1,382,614 1,231,844
Refinances 100,099 109,338 194,304 175,458
----------- ----------- ----------- -----------
918,084 966,137 1,876,412 1,687,540
Purchases of mortgage-backed securities available for sale (196) -0- (581) -0-
Purchases of mortgage-backed securities held to maturity (20,246) -0- (20,355) (98,558)
Sales of mortgage-backed securities 119 -0- 131 138
Repayments of mortgage-backed securities 96,432 163,400 229,250 295,463
Sales of real estate 54,868 47,854 105,860 93,384
Purchases of securities available for sale (882,585) (1,381,111) (2,003,185) (2,441,791)
Sales and maturities of securities available for sale 890,881 1,087,343 1,839,907 1,923,360
Decrease (increase) in other investments 418,425 (239,869) 170,900 (1,146,865)
Redemptions of Federal Home Loan Bank stock 7,775 7,591 7,775 7,591
Purchases of Federal Home Loan Bank stock -0- (22,918) -0- (79,713)
Additions to premises and equipment (13,387) (5,381) (23,238) (14,783)
----------- ----------- ----------- -----------
Net cash used in investing activities (137,883) (1,052,824) (583,948) (2,856,698)
</TABLE>
<PAGE>PAGE 5
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
($000s Omitted)
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase in deposits, net $ 257,749 $ 424,187 $ 220,926 $ 294,927
Interest credited 137,756 141,442 271,416 280,051
---------- --------- ---------- ----------
395,505 565,629 492,342 574,978
Additions to Federal Home Loan Bank advances 13,000 505,000 23,000 1,679,200
Repayments of Federal Home Loan Bank advances (16,883) (300,000) (82,022) (338,900)
Increase (decrease) in securities sold under agreements
to repurchase (267,137) 32,340 (62,478) (23,363)
Proceeds from medium-term notes -0- 199,624 -0- 609,179
Repayments of medium-term notes (12,865) (1,500) (12,865) (14,500)
Proceeds from subordinated debt -0- -0- -0- 98,786
Dividends on common stock (4,752) (4,160) (9,551) (8,318)
Purchase and retirement of Company stock (27,041) -0- (43,532) -0-
---------- --------- ---------- ----------
Net cash provided by financing activities 79,827 996,933 304,894 2,577,062
---------- --------- ---------- ----------
Net Increase (Decrease) in Cash (17,349) 11,774 (129,615) (86,254)
Cash at beginning of period 130,919 130,768 243,185 228,796
---------- --------- ---------- ----------
Cash at end of period $ 113,570 $ 142,542 $ 113,570 $ 142,542
========== ========= ========== ==========
Supplemental cash flow information:
Cash paid for:
Interest $ 270,841 $ 282,879 $ 540,191 $ 556,509
Income taxes 71,777 22,157 90,782 27,697
Cash received for interest and dividends 435,456 468,108 884,974 926,010
Noncash investing activities:
Loans transferred to foreclosed real estate 60,719 61,810 114,155 112,112
</TABLE>
<PAGE>PAGE 6
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
($000s omitted except per share figures)
Six Months Ended June 30
1994 1993
---------- ----------
<S> <C> <C>
Common Stock:
Balance at January 1 $ 6,393 $ 6,392
Common stock issued upon exercise of stock options -
130,600 shares (1994) and 75,250 shares (1993) 13 8
Common stock retired upon purchase of treasury stock -
1,121,400 shares (1994) and -0- shares (1993) (112) -0-
---------- ----------
Balance at June 30 6,294 6,400
---------- ----------
Paid-in Capital:
Balance at January 1 40,899 36,186
Common stock issued upon exercise of stock options -
130,600 shares (1994) and 75,250 shares (1993) 1,833 1,149
---------- ----------
Balance at June 30 42,732 37,335
---------- ----------
Retained Earnings:
Balance at January 1 1,933,593 1,684,820
Net earnings 127,239 142,167
Cash dividends on common stock - $.15 per share (1994)
and $.13 per share (1993) (9,551) (8,318)
Retirement of treasury stock (43,420) -0-
---------- ----------
Balance at June 30 2,007,861 1,818,669
---------- ----------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 84,719 -0-
Change during period (33,180) -0-
---------- ----------
Balance at June 30 51,539 -0-
---------- ----------
Total Stockholders' Equity at June 30 $2,108,426 $1,862,404
========== ==========
</TABLE>
<PAGE>PAGE 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material
changes in liquidity and capital resources that have occurred since
December 31, 1993, as well as certain material changes in results of
operations during the three and six month periods ended June 30, 1994, and
1993, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1993 Form 10-K, which contains
the latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1993, and for the year then ended.
Therefore, only material changes in financial condition and results of
operations are discussed herein.
ACCOUNTING CHANGES
At December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for
Impairment of a Loan." FAS 114 imposes certain requirements on the
measurement of impaired loans. The Company had previously measured loan
impairment in accordance with the methods prescribed in FAS 114. As a
result, no additional loss provisions were required by early adoption of
the pronouncement. FAS 114 also requires that impaired loans for which
foreclosure is probable should be accounted for as loans. Amounts at
June 30, 1993, have not been restated.
Effective December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." FAS 115 establishes three investment
classifications: held to maturity, trading, and available for sale. In
accordance with FAS 115, the Company modified its accounting policies as of
December 31, 1993, to identify investment securities as either held to
maturity or available for sale. The Company has no trading securities.
Held to maturity securities are recorded at cost with any discount or
premium amortized using a method that is not materially different from the
interest method. Securities held to maturity are recorded at cost because
the Company has the ability to hold these securities to maturity and
because it is Management's intention to hold them to maturity. Securities
available for sale increase the Company's portfolio management flexibility
for investments and are reported at fair value. Net unrealized gains and
losses are excluded from earnings and reported net of applicable income
taxes as a separate component of stockholders' equity until realized.
<PAGE>PAGE 8
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
($000s omitted except per share figures)
June 30 June 30 December 31
1994 1993 1993
----------- ----------- -----------
<S> <C> <C> <C>
Assets $29,273,203 $28,673,438 $28,829,288
Loans receivable 24,640,665 23,272,245 23,912,571
Mortgage-backed securities 1,270,331 1,594,572 1,522,536
Customer deposits 17,914,826 17,061,224 17,422,484
Stockholders' equity 2,108,426 1,862,404 2,065,604
Stockholders' equity/total assets 7.20% 6.50% 7.16%
Book value per common share $ 33.50 $ 29.10 $ 32.31
Common shares outstanding 62,938,135 64,000,060 63,928,935
Yield on loan portfolio 6.62% 7.18% 6.84%
Yield on investments 4.96% 3.45% 3.80%
Yield on earning assets 6.50% 6.83% 6.61%
Cost of deposits 3.82% 4.16% 3.92%
Cost of borrowings 5.01% 4.98% 4.69%
Cost of funds 4.20% 4.45% 4.18%
Yield on earning assets less cost of funds 2.30% 2.38% 2.43%
Ratio of nonperforming assets to total assets 1.37% 1.37% 1.37%
Ratio of troubled debt restructured to total assets 0.20%(a) 0.07% 0.13%
World Savings and Loan Association:
Net worth $ 2,275,902 $ 1,982,715 $ 2,164,651
Net worth/total assets 7.93% 7.09% 7.72%
Regulatory capital ratios:
Tangible capital 7.49% 6.65% 7.27%
Core capital 7.86% 7.40% 8.02%
Risk-based capital(b) 15.91% 16.36% 17.42%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
New real estate loans originated $ 1,624,331 $ 1,814,352 $ 2,853,265 $ 3,265,475
Average yield on new real estate loans 6.29% 6.99% 6.39% 7.01%
Increase in customer deposits $ 395,505 $ 565,629 $ 492,342 $ 574,978
Net earnings 61,943 70,583 127,239 142,167
Net earnings per share .98 1.10 2.00 2.22
Cash dividends on common stock .075 .065 .15 .13
Average common shares outstanding 63,300,843 63,994,353 63,615,989 63,979,983
Ratios:(c)
Net earnings/average net worth 11.80% 15.43% 12.14% 15.83%
Net earnings/average assets 0.84% 1.00% 0.87% 1.03%
Net interest income/average assets 2.53% 2.55% 2.58% 2.63%
General and administrative expense/average assets 1.00% 0.91% 1.01% 0.94%
</TABLE>
(a) Included in TDR ratio is 0.07% or $19 million related to the January 1994
Southern California earthquake.
(b) The decrease in the risk-based capital ratio from December 1993 to
June 1994 was due to the March 1994 change in regulations concerning the
criteria used to determine the risk weighting for multi-family loans in the
calculation of the risk-based capital ratio. Due to uncertainty over how
the new regulations will be applied, World Savings has taken a conservative
approach and, pending further clarification from the Office of Thrift
Supervision, has weighted the Association's entire multi-family portfolio
at 100%.
(c) Ratios are annualized by multiplying the quarterly computation by four and
the semi-annual computation by two. Averages are computed by adding the
beginning balance and each month end balance during the quarter and the
six-month period and dividing by four and seven, respectively.
<PAGE>PAGE 9
FINANCIAL CONDITION
The consolidated condensed balance sheet shown in the table below
presents the Company's assets and liabilities in percentage terms at
June 30, 1994, and 1993, and December 31, 1993. The reader is referred to
page 43 of the Company's 1993 Form 10-K for similar information for the
years 1990 through 1993 and a discussion of the changes in the composition
of the Company's assets and liabilities in those years.
<TABLE>
<CAPTION>
TABLE 1
Consolidated Condensed Balance Sheet
June 30 December 31
------------------ -----------
1994 1993 1993
------ ------ -----------
<S> <C> <C> <C>
Assets:
Cash and investments 7.8% 9.7% 8.4%
Mortgage-backed securities 4.3 5.5 5.3
Loans receivable 84.2 81.2 82.9
Other assets 3.7 3.6 3.4
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
Liabilities and Stockholders' Equity:
Customer deposits 61.2% 59.5% 60.4%
Federal Home Loan Bank advances 21.2 23.8 21.8
Securities sold under agreements
to repurchase 1.3 1.9 1.5
Medium-term notes 2.3 2.3 2.4
Other liabilities 2.6 2.4 2.5
Subordinated debt 4.2 3.6 4.2
Stockholders' equity 7.2 6.5 7.2
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
As the above table shows, customer deposits represent the majority of
the Company's liabilities. On the other side of the balance sheet, the
loan portfolio, which consists primarily of long-term mortgages, is the
largest asset component. The disparity between the repricing (maturity or
interest rate change) of deposits and other liabilities and the repricing
of mortgage loans can affect the Company's liquidity and can have a
material impact on the Company's results of operations. The difference
between the repricing characteristics of assets and liabilities is commonly
referred to as the gap. The gap table on the following page shows the
repricing of the Company's assets and liabilities at June 30, 1994.
<PAGE>PAGE 10
<TABLE>
<CAPTION>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing Liabilities,
Repricing Gaps, and Gap Ratio
(Dollars in Millions)
June 30, 1994
Projected Repricing(a)
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
-------- ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Investments $ 758 $ 463 $ 801 $ 136 $ 2,158
Mortgage-backed securities 141 137 421 571 1,270
Loans receivable:
Rate-sensitive 17,933 2,695 640 -0- 21,268
Fixed-rate 1,071 530 551 936 3,088
Other(b) 390 -0- -0- -0- 390
-------- ------- ------ ------ -------
Total $ 20,293 $ 3,825 $2,413 $1,643 $28,174
======== ======= ====== ====== =======
Interest-Bearing Liabilities(c):
Customer deposits $ 9,955 $ 5,121 $2,303 $ 536 $17,915
FHLB advances 5,059 1,020 70 74 6,223
Other borrowings 693 (45) 810 808 2,266
-------- ------- ------ ------ -------
Total $ 15,707 $ 6,096 $3,183 $1,418 $26,404
======== ======= ====== ====== =======
Repricing gap $ 4,586 $(2,271) $ (770) $ 225
======== ======= ====== ======
Cumulative gap $ 4,586 $ 2,315 $1,545 $1,770
======== ======= ====== ======
Cumulative gap as a percentage of
total assets 15.7% 7.9% 5.3%
======== ======= ======
</TABLE>
(a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled
repayments and projected prepayments of principal. Includes the effect of
hedging.
(b) Includes cash in banks, FHLB stock, and loans collateralized by customer
deposits.
(c) Liabilities with no maturity date, such as passbook and money market
deposit accounts, are assigned zero months.
CASH AND INVESTMENTS
The Office of Thrift Supervision (OTS) requires insured institutions,
such as the Company's principal subsidiary, World Savings and Loan
Association (World or Association), to maintain a minimum amount of cash
and certain qualifying investments for liquidity purposes. The current
minimum requirement is equal to a monthly average of 5% of customer
deposits and short-term borrowings. For the months ended June 30, 1994,
and 1993, and December 31, 1993, World's average regulatory liquidity ratio
was 8%, 11%, and 8%, respectively, consistently exceeding the requirement.
Effective December 31, 1993, the Company adopted FAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." FAS 115
establishes three investment classifications: held to maturity, trading,
and available for sale. At June 30, 1994, and December 31, 1993, the
<PAGE>PAGE 11
Company had no securities held to maturity or for trading. At
June 30, 1994, and December 31, 1993, the Company had securities available
for sale in the amount of $1.8 billion and $1.6 billion, respectively, and
unrealized gains on securities available for sale included in
stockholders' equity of $34 million and $41 million, respectively. For the
impact on stockholders' equity, see page 22. The Company has other
investments that are recorded at cost with any discount or premium
amortized using a method that is not materially different from the interest
method. The adoption of FAS 115 resulted in the reclassification of
certain securities from the investment securities portfolio to the
securities available for sale portfolio. Prior to December 31, 1993,
securities were classified as either securities held for sale or investment
securities. At June 30, 1993, the Company had $684 million of securities
held for sale. Securities held for sale were recorded at the aggregate
portfolio's lower of amortized cost or market, with any unrealized losses
included in earnings.
MORTGAGE-BACKED SECURITIES
FAS 115 also requires the same three classifications for
mortgage-backed securities (MBS): held to maturity, trading, and available
for sale. In accordance with FAS 115, the Company modified its accounting
policies as of December 31, 1993, to identify MBS as either held to
maturity or available for sale. The Company has no trading MBS. At
June 30, 1994, June 30, 1993, and December 31, 1993, the Company had
mortgage-backed securities held to maturity in the amount of $506 million,
$1.6 billion, and $408 million, respectively. At June 30, 1994, and
December 31, 1993, the Company had mortgage-backed securities available for
sale in the amount of $764 million and $1.1 billion, respectively, and
unrealized gains on mortgage-backed securities included in stockholders'
equity of $18 million and $44 million, respectively.
Repayments of MBS during the second quarter and first six months of
1994 were $96 million and $229 million, respectively, compared to
$163 million and $295 million in the same periods of 1993.
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the quarter and six months ended
June 30, 1994, amounted to $1.6 billion and $2.9 billion, respectively,
compared to $1.8 billion and $3.3 billion for the same periods in 1993.
Refinanced loans constituted 45% and 51% of new loan originations for the
quarter and six months ended June 30, 1994, respectively, compared to 59%
for the quarter and six months ended June 30, 1993. In the first six
months of 1994, the rising cost of new fixed-rate mortgages caused the
volume of refinance activity in the marketplace to drop considerably from
the high levels of 1993 with a corresponding decline in the overall
mortgage demand. As a result of rising rates and increased competition
<PAGE>PAGE 12
in a smaller market, the Company's 1994 total loan originations declined
compared to 1993. Although the Company has lending operations in 22
states, the primary mortgage origination focus continues to be on
residential properties in California. For the quarter and six months ended
June 30, 1994, 65% and 67%, respectively, of total loan originations were
on residential properties in California compared to 75% and 76% for the
same periods in 1993. Although California originations continue to be a
large portion of total originations, the decrease in 1994 as compared to
1993 was due to increased activity by the Company in markets outside
California and the decrease of originations in California. The percentage
of the total loan portfolio that is comprised of residential loans in
California was 80% at June 30, 1994, compared to 83% at June 30, 1993, and
81% at December 31, 1993.
The tables on the following two pages show the Company's loan
portfolio by state at June 30, 1994, and 1993.
<PAGE>PAGE 13
<TABLE>
<CAPTION>
TABLE 3
Loan Portfolio by State
June 30, 1994
($000s Omitted)
Residential
Real Estate Commercial Loans as
------------------------ Real Total a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- - ------------ ----------- ---------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
California $16,621,686 $3,266,714 $ 297 $ 85,099 $19,973,796 80.41%
Colorado 593,853 139,100 -0- 8,697 741,650 2.98
Illinois 483,058 149,576 -0- 5,019 637,653 2.57
New Jersey 550,192 40 -0- 161 550,393 2.21
Washington 237,792 214,798 -0- 830 453,420 1.82
Florida 358,398 -0- 364 2,282 361,044 1.45
Texas 345,005 2,728 609 1,814 350,156 1.41
Virginia 283,513 840 -0- 1,763 286,116 1.15
Arizona 209,660 4,229 -0- 1,847 215,736 0.87
Connecticut 194,056 -0- -0- -0- 194,056 0.78
Pennsylvania 181,590 -0- -0- 8,662 190,252 0.77
Maryland 152,392 -0- -0- 665 153,057 0.62
Oregon 128,767 8,275 -0- 4,008 141,050 0.57
Kansas 121,488 5,370 -0- 232 127,090 0.51
Nevada 103,241 1,365 -0- -0- 104,606 0.42
Missouri 60,070 8,912 -0- 79 69,061 0.28
New York 61,206 170 -0- 1 61,377 0.25
Georgia 51,937 -0- -0- 2,611 54,548 0.22
Utah 47,023 138 -0- 2,256 49,417 0.20
Ohio 34,857 3,659 849 6,891 46,256 0.19
Wisconsin 10,471 3,760 -0- -0- 14,231 0.06
New Mexico 7,367 -0- -0- -0- 7,367 0.03
Idaho 2,980 -0- -0- -0- 2,980 0.01
Delaware 1,453 -0- -0- -0- 1,453 0.01
Other 41,020 511 -0- 11,474 53,005 0.21
----------- ---------- ------ -------- ----------- ------
Totals $20,883,075 $3,810,185 $2,119 $144,391 24,839,770 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (97,920)
Loan discount on purchased loans (7,481)
Undisbursed loan funds (2,550)
Allowance for loan losses (118,587)
LTF interest reserve (828)
TDR interest reserve (1,991)
Loans on customer deposits 30,252
-----------
Total loan portfolio $24,640,665
===========
</TABLE>
(a) The Company has no commercial loans.
<PAGE>PAGE 14
<TABLE>
<CAPTION>
TABLE 4
Loan Portfolio by State
June 30, 1993
($000s Omitted)
Residential
Real Estate Commercial Loans as
------------------------ Real Total a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- - ------------ ----------- ---------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
California $16,114,935 $3,237,709 $ 319 $ 92,552 $19,445,515 82.97%
Colorado 581,131 94,491 -0- 7,002 682,624 2.91
New Jersey 533,264 41 -0- 305 533,610 2.28
Illinois 351,552 120,848 -0- 5,590 477,990 2.04
Washington 176,557 206,793 -0- 1,328 384,678 1.64
Florida 291,132 118 33 4,719 296,002 1.26
Virginia 203,655 -0- -0- 2,888 206,543 0.88
Connecticut 169,178 -0- -0- -0- 169,178 0.72
Texas 150,339 4,970 622 5,129 161,060 0.69
Arizona 147,426 4,372 -0- 1,920 153,718 0.66
Kansas 127,590 5,508 -0- 240 133,338 0.57
Oregon 106,239 9,587 -0- 4,166 119,992 0.51
Pennsylvania 105,088 112 -0- 10,805 116,005 0.49
Maryland 99,034 -0- -0- 3,018 102,052 0.44
Nevada 82,946 1,447 -0- -0- 84,393 0.36
New York 73,011 176 -0- 672 73,859 0.32
Missouri 63,798 8,222 -0- 81 72,101 0.31
Georgia 67,153 -0- -0- 2,885 70,038 0.30
Ohio 53,122 5,978 1,136 3,431 63,667 0.27
Utah 27,324 144 -0- 2,416 29,884 0.13
Other 38,980 5,577 -0- 14,896 59,453 0.25
----------- ---------- ------ -------- ----------- ------
Totals $19,563,454 $3,706,093 $2,110 $164,043 23,435,700 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (102,128)
Loan discount on purchased loans (10,577)
Undisbursed loan funds (3,003)
Allowance for loan losses (78,617)
LTF interest reserve (973)
TDR interest reserve (731)
Loans on customer deposits 32,574
-----------
Total loan portfolio $23,272,245
===========
</TABLE>
(a) The Company has no commercial loans.
<PAGE>PAGE 15
Golden West continues to emphasize adjustable rate mortgages
(ARMs)--loans with interest rates that change periodically in accordance
with movements in specified indexes. The portion of the mortgage portfolio
(excluding mortgage-backed securities) composed of rate-sensitive loans was
88% at June 30, 1994, compared to 87% at June 30, 1993, and
December 31, 1993. While rates on fixed-rate mortgages rose significantly
during the first half of 1994, lower rates on ARM loans made adjustable
instruments more attractive in the marketplace. Golden West's ARM
originations constituted approximately 86% of new mortgage loans made by
the Company in the first half of 1994 compared to 78% in the first six
months of 1993.
The weighted average maximum lifetime cap rate on the Association's
ARM and modified ARM loan portfolio was 13.61%, or 7.40% above the actual
weighted average rate, at June 30, 1994, versus 14.01%, or 7.25% above the
weighted average rate, at June 30, 1993.
Approximately $4.4 billion of the Association's loans have terms that
state that the interest rate may not fall below a lifetime floor set at the
time of origination. As of June 30, 1994, $1.4 billion of these loans were
at their rate floors. The weighted average floor rate on these loans was
7.23% at June 30, 1994. Without the floor, the average yield on these
loans would have been 5.98%.
Loan repayments consisting of monthly loan amortization, payoffs, and
refinances during the second quarter and first six months of 1994 were
$918 million and $1.9 billion, respectively, compared to $966 million and
$1.7 billion in the same periods of 1993. The increase in loan repayments
for the first six months of 1994 was primarily due to higher mortgage
payoffs within our loan portfolio.
The Company adopted Statement of Financial Accounting Standards
No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan," in
the fourth quarter of 1993, retroactive to January 1, 1993. See
"Accounting Changes" on page 7.
It is too early to predict with any precision all of the potential
losses to the Company resulting from the Northridge (Southern California)
earthquake in January 1994; however, based on preliminary assessments of
severity of damage, borrower equity, and levels of insurance coverage, the
Company believes that any potential loss to the Company will not be
material to the financial condition and results of operations of the
Company. The first six months of 1994 loan loss reserve and provision for
loan losses included $3.4 million in loss reserves specifically identified
as earthquake losses. In addition, at June 30, 1994, troubled debt
restructured, which are loans that have been modified due to a weakness in
the collateral and/or borrower, included $19 million of loans modified as a
result of the Southern California earthquake.
<PAGE>PAGE 16
NONPERFORMING ASSETS
One measure of the soundness of the Company's portfolio is its ratio
of nonperforming assets (NPAs) to total assets. Nonperforming assets
include non-accrual loans (loans that are 90 days or more past due) and
real estate acquired through foreclosure. Loans in-substance foreclosed
were no longer classified as part of the real estate held for sale
portfolio upon adoption of FAS 114 during December 1993 and are now
included in the Company's total loan portfolio as previously discussed. No
interest is recognized on non-accrual loans.
The table below shows the components of the Company's nonperforming
assets and the ratio of nonperforming assets to total assets at
June 30, 1994, and 1993, and December 31, 1993.
<TABLE>
<CAPTION>
TABLE 5
Nonperforming Assets
($000s Omitted)
June 30
------------------------ December 31
1994 1993 1993
-------- -------- -----------
<S> <C> <C> <C>
Non-accrual loans $341,454 $317,954 $330,062
Real estate acquired
through foreclosure 59,430 65,068 62,724
Loans in-substance foreclosed -0- 9,410 -0-
Real estate in judgement 1,189 1,021 1,366
-------- -------- --------
Total nonperforming assets $402,073 $393,453 $394,152
======== ======== ========
Ratio of nonperforming
assets to total assets 1.37% 1.37% 1.37%
======== ======== ========
</TABLE>
The increase in NPAs in 1994 and 1993 was primarily in single-family
loans. The continued weak California economy and high unemployment
resulted in an increase in loan delinquencies and, in certain areas,
decreases in real estate prices. The growth in the total dollar amount of
NPAs has also been impacted by a continued high level of bankruptcy
filings, which often delay the collection process and extend the length of
time a loan remains delinquent. The Company continues to closely monitor
all delinquencies and takes appropriate steps to protect its interests.
Interest foregone on non-accrual loans in the second quarter and first six
months of 1994 amounted to $4 million and $10 million, respectively,
compared to $5 million and $11 million in the same periods of 1993.
The tables on the following two pages show the Company's nonperforming
assets by state at June 30, 1994, and 1993.
<PAGE>PAGE 17
<TABLE>
<CAPTI0N>
TABLE 6
Nonperforming Assets by State
June 30, 1994
($000s Omitted)
Non-Accrual Loans(a)
------------------------------ Real Estate Owned
Residential ----------------------------- NPAs as
Real Estate Commercial Residential Commercial Total a % of
State 1-4 5+ Real Estate 1-4 5+ Real Estate NPAs Loans
- - ------------ -------- ------- ----------- ------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $274,450 $23,714 $1,266 $42,428 $10,178 $4,565 $356,601 1.79%
Colorado 2,222 -0- -0- 183 -0- 261 2,666 0.36
Illinois 2,747 775 -0- 320 -0- -0- 3,842 0.60
New Jersey 11,841 40 3 614 -0- -0- 12,498 2.27
Washington 477 -0- -0- 122 -0- -0- 599 0.13
Florida 3,508 -0- 375 411 -0- -0- 4,294 1.19
Texas 1,420 -0- -0- 227 -0- -0- 1,647 0.47
Virginia 1,912 -0- -0- -0- -0- -0- 1,912 0.67
Arizona 1,608 -0- -0- 132 -0- -0- 1,740 0.81
Connecticut 4,069 -0- -0- 482 -0- -0- 4,551 2.35
Pennsylvania 2,145 -0- -0- -0- -0- -0- 2,145 1.13
Maryland 1,190 -0- -0- 533 -0- -0- 1,723 1.13
Oregon 371 -0- -0- -0- -0- -0- 371 0.26
Kansas 760 40 -0- 317 -0- -0- 1,117 0.88
Nevada 507 -0- -0- -0- -0- -0- 507 0.48
Missouri 279 375 -0- 32 -0- -0- 686 0.99
New York 3,820 -0- -0- 971 -0- -0- 4,791 7.81
Georgia 1,025 -0- -0- 612 -0- -0- 1,637 3.00
Utah 155 -0- -0- -0- -0- -0- 155 0.31
Ohio 3 -0- 58 -0- -0- -0- 61 0.13
Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00
New Mexico 4 -0- -0- -0- -0- -0- 4 0.05
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- 0.00
Other 295 -0- -0- 35 -0- -0- 330 0.62
-------- ------- ------ ------- ------- ------ -------- -----
Totals $314,808 $24,944 $1,702 $47,419 $10,178 $4,826 403,877 1.63
======== ======= ====== ======= ======= ======
REO general valuation allowance (1,804) (0.01)
-------- -----
$402,073 1.62%
======== =====
</TABLE>
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest
accrued.
<PAGE>PAGE 18
<TABLE>
<CAPTION>
TABLE 7
Nonperforming Assets by State
June 30, 1993
($000s Omitted)
Non-Accrual Loans(a)
------------------------------ Real Estate Owned
Residential ----------------------------------- NPAs as
Real Estate Commercial Residential Commercial Total a % of
State 1-4 5+ Real Estate 1-4 5+ Land Real Estate NPAs Loans
- - ------------ -------- ------- ----------- ------- ------- ---- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California $251,919 $15,939 $1,222 $47,469 $10,230 $-0- $4,374 $331,153 1.70%
Colorado 2,278 -0- -0- 1,615 6,596 -0- 2,693 13,182 1.93
New Jersey 14,461 -0- -0- 839 -0- 187 -0- 15,487 2.90
Illinois 2,492 2,108 -0- 164 -0- -0- -0- 4,764 1.00
Washington 360 -0- -0- -0- -0- -0- -0- 360 0.09
Florida 6,062 -0- 471 284 -0- -0- -0- 6,817 2.30
Virginia 1,736 -0- -0- 550 -0- -0- -0- 2,286 1.11
Connecticut 3,891 -0- -0- 536 -0- -0- -0- 4,427 2.62
Texas 1,512 -0- -0- 227 218 -0- -0- 1,957 1.22
Arizona 1,549 -0- -0- 69 -0- -0- -0- 1,618 1.05
Kansas 869 -0- -0- 485 -0- -0- -0- 1,354 1.02
Oregon 321 -0- -0- -0- -0- -0- -0- 321 0.27
Pennsylvania 968 -0- -0- -0- -0- -0- -0- 968 0.83
Maryland 1,610 -0- -0- 149 -0- -0- -0- 1,759 1.72
Nevada 243 -0- -0- -0- -0- -0- -0- 243 0.29
New York 4,396 -0- -0- 618 -0- -0- -0- 5,014 6.79
Missouri 433 -0- -0- 72 626 -0- -0- 1,131 1.57
Georgia 2,169 -0- -0- 401 -0- -0- -0- 2,570 3.67
Ohio 29 -0- 214 -0- -0- -0- 80 323 0.51
Utah 157 -0- -0- -0- -0- -0- -0- 157 0.53
Other 545 -0- -0- -0- -0- -0- -0- 545 0.92
-------- ------- ------ ------- ------- ---- ------ -------- -----
Totals $298,000 $18,047 $1,907 $53,478 $17,670 $187 $7,147 396,436 1.69
======== ======= ====== ======= ======= ==== ======
REO general valuation allowance (2,983) (0.01)
-------- -----
$393,453 1.68%
======== =====
</TABLE>
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest
accrued.
The Company's troubled debt restructured (TDRs) were $58 million or
0.20% of assets at June 30, 1994, compared to $21 million or 0.07% of
assets at June 30, 1993, and $37 million or 0.13% of assets at
December 31, 1993. The increase from June 1993 to June 1994 is due in part
to the December 31, 1993, FAS 114 reclassification of in-substance
foreclosed loans previously discussed, which included loans that had been
modified. In addition, at June 30, 1994, $19 million or 0.07% is related
to the Southern California earthquake. The Company's TDRs are made up of
loans on which delinquent loan payments have been capitalized or on which
temporary interest rate reductions have been made, primarily to customers
negatively impacted by adverse economic conditions. Interest foregone on
TDRs amounted to $125 thousand and $245 thousand for the three and six
months ended June 30, 1994, respectively, compared to $61 thousand and
$122 thousand for the quarter and six months ended June 30, 1993.
<PAGE>PAGE 19
The Company provides allowances for losses on loans when impaired and
real estate owned when any significant and permanent decline in value is
identified and based upon trends in the basic portfolio. Additions to and
reductions from the allowances are reflected in current earnings. Periodic
reviews are made of major loans and real estate owned, and major lending
areas are regularly reviewed to determine potential problems. Where
indicated, valuation allowances are established or adjusted. In estimating
loan losses, consideration is given to the estimated sale price, cost of
refurbishing, payment of delinquent taxes, cost of disposal, and cost of
holding the property.
The table below shows the changes in the allowance for loan losses for
the three and six months ended June 30, 1994, and 1993.
<TABLE>
<CAPTION>
TABLE 8
Changes in the Allowance for Loan Losses
($000s Omitted)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1994 1993 1994 1993
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Beginning allowance for
loan losses $113,497 $74,637 $106,698 $70,924
Provision charged to expense 17,946 13,182 34,438 24,641
Less loans charged off (13,071) (9,371) (23,025) (17,491)
Add recoveries 215 169 476 543
-------- ------- -------- -------
Ending allowance for loan
losses $118,587 $78,617 $118,587 $78,617
======== ======= ======== =======
Ratio of net chargeoffs to
average loans outstanding
(excluding MBS) 0.21% 0.16% 0.19% 0.15%
======== ======= ======== =======
Ratio of allowance for loan
losses to nonperforming
assets 29.5% 20.0%
======== =======
</TABLE>
The Company utilizes a methodology for monitoring and estimating loan
losses that is based on both historical experience in the loan portfolio
and factors reflecting current economic conditions. This approach uses a
data base that identifies losses on loans and foreclosed real estate from
past years to the present, broken down by year of origination, type of
loan, and geographical area. Management is then able to estimate a range
of loss allowances to cover losses in the portfolio. The increase in the
allowance and the provision in 1994 over 1993 was considered prudent given
the still weak California economy, the increase in the size of the loan
portfolio, and the January 1994 Southern California earthquake previously
noted.
<PAGE>PAGE 20
Chargeoffs increased as a result of the increase in nonperforming
loans, the increase in the percentage of nonperforming loans that became
real estate owned, and the increased losses on real estate owned.
CUSTOMER DEPOSITS
Customer deposits increased during the second quarter of 1994 by
$396 million, including interest credited of $138 million and the
acquisition of three branches in New Jersey containing $78 million in
deposits (two of which were subsequently consolidated with other branches),
compared to a customer deposit increase of $566 million, including interest
credited of $141 million, in the second quarter of 1993. Customer deposit
balances in the first half of 1994 increased by $492 million, including
interest credited of $271 million and the acquisition of three branches in
New Jersey containing $78 million in deposits, compared to an increase of
$575 million, including interest credited of $280 million, in the first
half of 1993. The net increase of customer deposits during the first half
of 1994 resulted from the improvement in the savings market. The increase
in 1993 was a result of special promotions in the Company's savings
markets. The Company has no brokered deposits.
<PAGE>PAGE 21
The table below shows the Company's customer deposits by interest rate
and by remaining maturity at June 30, 1994, and 1993.
<TABLE>
<CAPTION>
TABLE 9
Customer Deposits
(Dollars in millions)
1994 1993
----------------- -----------------
Rate* Amount Rate* Amount
----------------- -----------------
<S> <C> <C> <C> <C>
Customer deposits by interest rate:
Interest-bearing checking
accounts 1.27% $ 721 1.67% $ 687
Passbook accounts 2.08 674 2.38 593
Money market deposit accounts 3.04 2,240 3.59 2,424
Term certificate accounts with
original maturities of:
4 weeks to 1 year 3.21 3,656 3.31 4,337
1 to 2 years 3.95 5,487 4.00 4,482
2 to 3 years 4.48 1,882 5.20 1,315
3 to 4 years 5.68 1,040 6.68 1,251
4 years and over 5.30 2,025 6.25 1,851
Retail jumbo CDs 4.49 176 5.56 100
All other 7.79 14 7.75 21
------- -------
$17,915 $17,061
======= =======
Customer deposits by remaining maturity:
No contractual maturity $ 3,635 $ 3,704
Maturity within one year:
3rd quarter 3,510 3,749
4th quarter 2,503 2,424
1st quarter 1,843 1,884
2nd quarter 1,400 1,387
------- -------
9,256 9,444
1 to 2 years 2,868 2,087
2 to 3 years 833 408
3 to 4 years 570 468
4 years and over 753 950
------- -------
$17,915 $17,061
======= =======
</TABLE>
*Weighted average interest rate, including the effect of hedging transactions.
<PAGE>PAGE 22
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses FHLB borrowings, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities.
Advances offer strategic advantages for asset-liability management,
including long-term maturities and, in certain cases, prepayment at the
Company's option. FHLB advances amounted to $6.2 billion at June 30, 1994,
compared to $6.8 billion and $6.3 billion at June 30, 1993, and
December 31, 1993, respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). These funds are used
to take advantage of arbitrage investment opportunities and to supplement
cash flow. Reverse Repos are entered into with selected major government
securities dealers, as well as large banks, typically using MBS from the
Company's portfolio. Reverse Repos with dealers and banks amounted to
$319 million, $469 million, and $377 million at June 30, 1994, and 1993,
and December 31, 1993, respectively.
OTHER BORROWINGS
Golden West currently has on file a registration statement with the
Securities and Exchange Commission for the sale of up to $100 million of
subordinated debt securities. The Company had issued a total of
$1.0 billion of subordinated debt at June 30, 1994. As of June 30, 1994,
Golden West's subordinated debt securities were rated A3 and A- by Moody's
Investors Service (Moody's) and Standard & Poor's Corporation (S&P),
respectively.
World currently has on file shelf registrations with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes. At June 30, 1994,
$1.2 billion was available for issuance. The Association had medium-term
notes outstanding under the current and prior registrations with principal
amounts of $664 million at June 30, 1994, compared to $676 million at
June 30, 1993, and $677 million at December 31, 1993. As of June 30, 1994,
the Association's medium-term notes were rated A1 and A+ by Moody's and
S&P, respectively.
World also has on file a registration statement with the OTS for the
sale of up to $250 million of subordinated notes. Under a prior filing
with the OTS, $50 million of subordinated notes remain unissued. As of
June 30, 1994, the Association had issued a total of $200 million of
subordinated notes. As of June 30, 1994, World's subordinated notes were
rated A2 and A by Moody's and S&P, respectively. The subordinated notes
are included in the Association's risk-based regulatory capital as
Supplementary Capital.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased in the first six months
of 1994 and 1993 through the retention of a percentage of net earnings.
<PAGE>PAGE 23
However, the increase in stockholders' equity in 1994 was partially offset
by a $33 million decrease in unrealized gains on securities available for
sale due to the subsequent decrease in market values of securities
available for sale since December 31, 1993, and by $44 million due to the
purchase of Company stock.
On October 28, 1993, the Company's Board of Directors authorized the
purchase by the Company of up to 3.2 million shares of Golden West's common
stock. On July 28, 1994, the Company's Board of Directors authorized the
purchase by the Company of an additional 3.1 million shares of Golden
West's common stock. As of June 30, 1994, 1,325,400 shares had been
repurchased and retired at a cost of $51.4 million since October 28, 1993,
of which 694,500 shares were purchased and retired at a cost of
$27.0 million during the second quarter of 1994.
The Company has on file a shelf registration statement with the
Securities and Exchange Commission to issue up to two million shares of its
preferred stock. The preferred stock may be sold from time to time in one
or more transactions for total proceeds of up to $200 million. The
preferred stock may be issued in one or more series, may have varying
provisions and designations, and may be represented by depository shares.
The preferred stock is not convertible into common stock. No preferred
stock has yet been issued under the registration. The Company's preferred
stock has been preliminarily rated a2 by Moody's.
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as World, to
meet certain minimum capital requirements. The table below shows World's
current regulatory capital ratios and compares them to the current OTS
minimum requirements at June 30, 1994, and 1993.
<TABLE>
<CAPTION>
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
Under Current Requirements
($000s Omitted)
1994 1993
----------------------------------------- -----------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $2,141,356 7.49% $ 428,853 1.50% $1,852,316 6.65% $ 417,860 1.50%
Core 2,248,569 7.86 857,705 3.00 2,061,246 7.40 835,719 3.00
Risk-based 2,549,328 15.91 1,282,036 8.00 2,333,410 16.36 1,141,171 8.00
</TABLE>
<PAGE>PAGE 24
During the first quarter of 1994, the Office of Thrift Supervision
changed the regulations concerning the criteria used to determine the risk
weighting for multi-family loans in the calculation of the risk-based
capital ratio. Due to uncertainty over how the new regulations will be
applied, World Savings has taken the conservative approach and pending any
further clarification from the OTS, has weighted the Association's entire
multi-family portfolio at 100%. This change caused a decrease in the
risk-based capital ratio from June 1993 to June 1994.
The table below shows World's regulatory capital ratios and compares
them to the fully phased-in 1995 OTS minimum requirements at June 30, 1994,
and 1993.
<TABLE>
<CAPTION>
TABLE 11
World Savings and Loan Association
Regulatory Capital Ratios
Under Fully Phased-In Requirements
($000s Omitted)
1994 1993
----------------------------------------- ---------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $2,141,356 7.49% $ 428,853 1.50% $1,852,316 6.65% $ 417,860 1.50%
Core 2,141,356 7.49 857,705 3.00 1,852,316 6.65 835,719 3.00
Risk-based 2,441,095 15.34 1,273,377 8.00 2,123,693 15.11 1,124,394 8.00
</TABLE>
<PAGE>PAGE 25
The table below shows a reconciliation of World's equity capital to
regulatory capital under OTS regulations at June 30, 1994.
<TABLE>
<CAPTION>
TABLE 12
Reconciliation of Equity Capital to Regulatory Capital
Under Current OTS Regulations
($000s Omitted)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common stock $ 150
Paid-in surplus 233,441
Retained earnings 1,990,548
Unrealized gains on securities
available for sale 51,763
-----------
Equity capital $ 2,275,902 $ 2,275,902 $ 2,275,902 $ 2,275,902 $ 2,275,902 $ 2,275,902
===========
Positive goodwill (1) (2) (227,235) (227,235) (227,235) (227,235) (227,235)
Negative goodwill (1) (3) 92,689 92,689 92,689 92,689 92,689
Qualifying supervisory
positive goodwill (1) (2) 107,213 107,213 107,213 107,213
Equity/other investments (4) (1,531)
Subordinated debt 198,983
General valuation allowances 103,307
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 2,141,356 $ 2,248,569 $ 2,248,569 $ 2,248,569 $ 2,549,328
=========== =========== =========== =========== ===========
Total assets $28,715,839
===========
Adjusted total assets $28,590,171 $28,590,171 $28,590,171
=========== =========== ===========
Risk-weighted assets $16,025,446 $16,025,446
=========== ===========
CAPITAL RATIO - ACTUAL 7.93% 7.49% 7.86% 7.86% 14.03% 15.91%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well capitalized, equal to
or greater than 5.00% 6.00% 10.00%
=========== =========== ===========
Adequately capitalized,
equal to or greater than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Significantly undercapital-
ized, less than 3.00% 3.00% 6.00%
=========== =========== ===========
Critically undercapitalized,
equal to or less than 2.00%
===========
</TABLE>
(1) All goodwill is required to be deducted from tangible capital. Goodwill
arising prior to April 12, 1989, in excess of a sliding scale limit (0.375%
of assets at June 30, 1994), is required to be deducted from all other
capital computations on a phased-in basis through December 1994. Goodwill
arising after April 12, 1989, must be deducted from all capital
computations.
(2) All but $4,160 of the Association's positive goodwill arose prior to
April 12, 1989.
(3) The Association's negative goodwill arose after April 12, 1989.
(4) Equity and certain other investments are required to be deducted from total
risk-based capital on a phased-in basis (60% at June 30, 1994) through
June 1994.
<PAGE>PAGE 26
The table below compares World's regulatory capital to the OTS well
capitalized classification of capital standards at June 30, 1994.
<TABLE>
<CAPTION>
TABLE 13
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
($000s Omitted)
ACTUAL WELL CAPITALIZED
------------------- -------------------
Capital Ratio Capital Ratio
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Leverage $2,248,569 7.86% $1,429,509 5.00%
Tier 1 risk-based 2,248,569 14.03 961,527 6.00
Total risk-based 2,549,328 15.91 1,602,545 10.00
World's leverage, Tier 1 risk-based, and total risk-based capital
ratios under the fully phased-in 1995 OTS minimum requirements at
June 30, 1994, were 7.49%, 13.45%, and 15.34%, respectively.
RESULTS OF OPERATIONS
PROFIT MARGINS/SPREADS
An important determinant of Golden West's earnings is its profit
margin or primary spread--the difference between its yield on earning
assets and its cost of funds. The table below shows the components of the
Company's spread at June 30, 1994, and 1993, and December 31, 1993.
</TABLE>
<TABLE>
<CAPTION>
TABLE 14
Yield on Earning Assets,
Cost of Funds, and Primary Spread,
Including Effect of Purchase Accounting
June 30
------------------------ December 31
1994 1993 1993
------ ------ -----------
<S> <C> <C> <C>
Yield on loan portfolio 6.62% 7.18% 6.84%
Yield on investments 4.96 3.45 3.80
------ ------ ------
Yield on earning assets 6.50 6.83 6.61
------ ------ ------
Cost of customer deposits 3.82 4.16 3.92
Cost of borrowings 5.01 4.98 4.69
------ ------ ------
Cost of funds 4.20 4.45 4.18
------ ------ ------
Primary spread 2.30% 2.38% 2.43%
====== ====== ======
</TABLE>
The Company's primary spread is to some degree dependent on changes in
interest rates because Golden West's liabilities tend to respond somewhat
more rapidly to rate movements than its assets. During the first six
months of 1994, interest rates began to rise, leading to an increase in the
cost of Golden West's liabilities during the second quarter. At the same
time, however, the yield on the Company's major earning asset, the loan
portfolio, continued to decline slightly because most of Golden West's
mortgages are tied to the Eleventh District FHLB Cost of Funds Index (the
<PAGE>PAGE 27
COFI), which lags changes in market rates by several months. Consequently,
at June 30, 1994, the Company's primary spread was lower than at both
December 31, 1993, and June 30, 1993.
The table below shows the Company's revenues and expenses as a
percentage of total revenues for the three and six months ended
June 30, 1994, and 1993, in order to focus on the changes in interest
income between years as well as changes in other revenue and expense
amounts.
<TABLE>
<CAPTION>
TABLE 15
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Six Months
Ended Ended
June 30 June 30
------------ ------------
1994 1993 1994 1993
----- ----- ----- -----
<S> <C> <C> <C> <C>
Interest on loans 84.4% 84.5% 85.2% 85.1%
Interest on mortgage-backed securities 5.6 7.6 5.8 7.9
Interest and dividends on investments 7.5 5.1 6.5 4.3
----- ----- ----- -----
97.5 97.2 97.5 97.3
Less:
Interest on customer deposits 35.5 36.2 35.6 36.6
Interest on advances and other borrowings 22.4 23.9 21.7 23.0
----- ----- ----- -----
57.9 60.1 57.3 59.6
Net interest income 39.6 37.1 40.2 37.7
Provision for loan losses 3.8 2.7 3.7 2.6
----- ----- ----- -----
Net interest income after provision for
loan losses 35.8 34.4 36.5 35.1
Add:
Fees 1.7 1.5 1.7 1.5
Gain on the sale of securities and
mortgage-backed securities 0.0 0.6 0.0 0.4
Other non-interest income 0.8 0.7 0.8 0.7
----- ----- ----- -----
2.5 2.8 2.5 2.6
Less:
General and administrative expenses 15.8 13.3 15.7 13.4
Amortization of goodwill 0.1 (0.1) 0.1 (0.1)
Taxes on income 9.2 9.5 9.5 9.6
----- ----- ----- -----
Net earnings 13.2% 14.5% 13.7% 14.8%
===== ===== ===== =====
</TABLE>
INTEREST ON LOANS
In the second quarter of 1994, interest on loans was lower than in the
comparable 1993 period by $14.1 million or 3.4%. The 1994 decrease was due
primarily to a 57 basis point decrease in the average portfolio yield,
which was partially offset by a $1.3 billion increase in the average
portfolio balance. For the first half of 1994, interest on loans was lower
than in the first six months of 1993 by $23.1 million or 2.8% due to a
60 basis point decrease in the average portfolio yield, which was partially
offset by a $1.5 billion increase in the average portfolio balance.
<PAGE>PAGE 28
INTEREST ON MORTGAGE-BACKED SECURITIES
In the second quarter of 1994, interest on mortgage-backed securities
was lower than in the comparable 1993 period by $11.0 million or 29.6%.
The 1994 decrease was due primarily to a 72 basis point decrease in the
average portfolio yield and a $388 million decrease in the average
portfolio balance. For the first half of 1994, interest on mortgage-backed
securities was lower than in the comparable 1993 period by $21.6 million or
28.4% due to a 71 basis point decrease in the average portfolio yield and a
$376 million decrease in the average portfolio balance.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term
investments. For the second quarter of 1994, interest and dividends on
investments was $10.5 million or 42.1% higher than for the same period in
1993. The increase was primarily due to a $108 million increase in the
average portfolio balance and a 102 basis point increase in the average
portfolio yield. For the first half of 1994, interest and dividends on
investments was $18.7 million or 44.7% higher than for the same period in
1993. The increase was primarily due to a $359 million increase in the
average portfolio balance and a 68 basis point increase in the average
portfolio yield.
INTEREST ON CUSTOMER DEPOSITS
The major portion of the Company's customer deposit base consists of
savings accounts with remaining maturities of less than one year. Thus,
the amount of interest paid on these funds depends upon the level of
short-term interest rates and the savings balances outstanding. In the
second quarter and first half of 1994, interest on customer deposits
decreased by $9.4 million or 5.3% and $19.8 million or 5.6%, respectively,
from the comparable periods of 1993. The second quarter decrease was
primarily due to a 45 basis point decrease in the average cost of deposits,
which was partially offset by a $1.0 billion increase in the average
deposit balance. The six month decrease was primarily due to a 45 basis
point decrease in the average cost of deposits partially offset by a
$948 million increase in the average deposit balance.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the second quarter and first half of 1994, interest on advances
and other borrowings decreased by $10.8 million or 9.4 % and $18.5 million
or 8.4%, respectively, compared to the same periods a year earlier. The
second quarter decrease was primarily due to a $272 million decrease in the
average balance of these borrowings and a 33 basis point decrease in the
average cost of these borrowings. The six month decrease was primarily due
to a 56 basis point decrease in the average cost of these borrowings, which
was partially offset by a $211 million increase in their average balance.
<PAGE>PAGE 29
PROVISION FOR LOAN LOSSES
The provision for loan losses was $17.9 million and $34.4 million,
respectively, for the three and six months ended June 30, 1994, compared to
$13.2 million and $24.6 million for the same periods in 1993. The 1994
increase in provision over 1993 reflected increased chargeoffs, increased
nonperforming assets, and the continued weak California economy. In
addition, the provision for the first six months of 1994 included
$3.4 million in specific earthquake loss reserves.
GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter and first half of 1994, general and
administrative expenses (G & A) increased by $9.4 million or 14.6% and
$17.4 million or 13.5%, respectively, from the comparable periods in 1993.
The primary reasons for the increase in 1994 were the expansion of loan
origination capacity and savings branches primarily outside California; the
expenses of relocating some of our administrative operations to San
Antonio, Texas; the installation of enhancements to data processing
systems; and general inflation. In addition, during the first six months
of 1993, the Company received a reduction in the FDIC premium due to the
settlement of the FSLIC secondary reserve. As a result, deposit insurance
expense for the first six months of 1993 included a credit of $2.8 million.
G & A as a percentage of average assets on an annualized basis was 1.00%
and 1.01% for the second quarter and first half of 1994, respectively,
compared to 0.91% and 0.94% for the same periods in 1993.
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For
financial reporting purposes only, the Company uses purchase accounting in
connection with certain assets acquired through mergers. The purchase
accounting portion of income is not subject to tax.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
FAS 109 requires a change from the deferred method to the liability method
of computing deferred income taxes. The Company has applied FAS 109
prospectively. FAS 109 required the Company to adjust its purchase
accounting for prior business combinations by increasing deferred tax
assets and reducing goodwill by $23 million to reflect the non-taxability
of purchase accounting income. This deferred tax asset is being amortized
over the remaining lives of the related purchased assets.
The corporate tax rates for the second quarter and first half of 1994
were 41.0% and 40.9%, respectively, compared to 39.5% for the same periods
a year ago. This increase is primarily due to the effect of the federal
legislation enacted during the third quarter of 1993 that increased the
federal corporate income tax rate from 34% to 35%.
<PAGE>PAGE 30
LIQUIDITY AND CAPITAL RESOURCES
The Association's principal sources of funds are cash flows generated
from earnings; customer deposits; loan repayments; borrowings from the
FHLB; issuance of medium-term notes; and debt collateralized by mortgages,
MBS, or securities. In addition, the Association has a number of other
alternatives available to provide liquidity or finance operations. These
include borrowings from public offerings of debt or equity, sales of loans,
negotiable certificates of deposit, issuances of commercial paper, and
borrowings from commercial banks. Furthermore, under certain conditions,
World may borrow from the Federal Reserve Bank of San Francisco to meet
short-term cash needs. The availability of these funds will vary depending
upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and
the Federal Reserve Board. For a discussion of the Association's liquidity
positions at June 30, 1994, and 1993, and December 31, 1993, see the cash
and investments section on page 10.
The principal sources of funds for the Association's parent, Golden
West, are dividends from World and the proceeds from the issuance of debt
and equity securities. Various statutory and regulatory restrictions and
tax considerations limit the amount of dividends the Association can pay.
The principal liquidity needs of the parent company are for payment of
interest on subordinated debt securities, dividends to stockholders, the
purchase of Company stock, and general and administrative expenses. At
June 30, 1994, and 1993, and December 31, 1993, the parent company's total
cash and investments amounted to $865 million (including a $300 million
short-term loan to the Association), $714 million, and $956 million
(including a $150 million short-term loan to the Association),
respectively.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement of Computation of Earnings Per Share
<PAGE>PAGE 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: August 9, 1994. /s/ J. L. Helvey
J. L. Helvey
Group Senior Vice President (duly
authorized and principal
financial officer)
<PAGE>PAGE 32
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings Per Share
($000s omitted except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Line 1:
Average Number of Common
Shares Outstanding 63,300,843 63,994,353 63,615,989 63,979,983
=========== =========== =========== ===========
Line 2:
Net Earnings $ 61,943 $ 70,583 $ 127,239 $ 142,167
=========== =========== =========== ===========
Line 3:
Earnings Per Common Share
(Line 2 divided by Line 1) $ .98 $1.10 $2.00 $2.22
===== ===== ===== =====
