SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended June 30, 1995 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Delaware 95-2080059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
The number of shares outstanding of the registrant's common stock on
July 31, 1995, was 58,694,255 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (the Company) for the three and six months ended
June 30, 1995 and 1994, have been prepared from unaudited records of the Company
and, in the opinion of the Company, all adjustments (consisting only of normal
recurring accruals) that are necessary for a fair statement of the results for
such three and six month periods have been included. The operating results for
the six months ended June 30, 1995, are not necessarily indicative of the
results for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
($000s Omitted)
<TABLE>
<CAPTION>
June 30 June 30 December 31
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Assets:
Cash $ 163,383 $ 113,570 $ 242,441
Securities available for sale 1,436,905 1,791,087 1,488,845
Other investments 985,170 367,200 534,600
MBS available for sale at fair value 309,201 764,197 323,339
MBS held to maturity at cost without recourse 841,947 506,134 871,039
MBS held to maturity at cost with recourse 1,364,111 -0- -0-
Loans receivable 27,939,843 24,640,665 27,071,266
Interest earned but uncollected 248,336 199,262 202,456
Investment in capital stock of Federal Home Loan Banks--at cost,
which approximates fair value 342,306 324,141 332,940
Real estate held for sale or investment 68,350 63,307 72,217
Prepaid expenses and other assets 238,464 188,009 206,478
Premises and equipment--at cost less accumulated depreciation 202,437 178,022 201,875
Goodwill arising from acquisitions 139,458 137,609 136,245
------- ------- -------
$34,279,911 $29,273,203 $31,683,741
============ =========== ==========
Liabilities and Stockholders' Equity:
Customer deposits $20,738,155 $17,914,826 $19,219,389
Advances from Federal Home Loan Banks 6,258,155 6,222,799 6,488,418
Securities sold under agreements to repurchase 1,171,686 380,396 601,821
Medium-term notes 1,863,947 664,028 1,164,079
Federal funds purchased -0- -0- 250,000
Accounts payable and accrued expenses 435,388 423,615 443,693
Taxes on income 354,715 338,309 294,508
Subordinated notes--net of discount 1,321,585 1,220,804 1,221,559
Stockholders' equity 2,136,280 2,108,426 2,000,274
--------- --------- ---------
$34,279,911 $29,273,203 $31,683,741
============ =========== =============
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
($000s omitted except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $527,221 $395,999 $1,017,212 $794,051
Interest on mortgage-backed securities 37,939 26,144 63,504 54,417
Interest and dividends on investments 38,985 35,318 75,324 60,688
------ ------ ------ ------
604,145 457,461 1,156,040 909,156
Interest Expense:
Interest on customer deposits 269,890 166,629 505,795 331,996
Interest on advances 98,002 63,022 192,406 121,912
Interest on repurchase agreements 9,124 10,156 15,604 17,095
Interest on other borrowings 54,828 31,826 103,503 63,431
------ ------ ------- ------
431,844 271,633 817,308 534,434
------- ------- ------- -------
Net Interest Income 172,301 185,828 338,732 374,722
Provision for loan losses 14,651 17,946 29,430 34,438
------ ------ ------- ------
Net Interest Income after Provision for
for Loan Losses 157,650 167,882 309,302 340,284
Non-Interest Income:
Fees 6,417 7,739 12,709 15,680
Gain (loss) on the sale of securities and
mortgage-backed securities 4 (34) 22 (33)
Other 2,806 3,730 7,508 7,212
----- ----- ----- -----
9,227 11,435 20,239 22,859
Non-Interest Expense:
General and administrative:
Personnel 37,697 35,937 74,217 71,918
Occupancy 12,155 10,757 23,975 21,120
Deposit insurance 10,899 10,061 21,560 20,121
Advertising 2,826 2,800 5,454 5,235
Other 14,567 14,145 31,322 28,143
------ ------ ------ ------
78,144 73,700 156,528 146,537
Amortization of goodwill arising from acquisitions 930 647 1,866 1,225
------ ------ ------- -------
79,074 74,347 158,394 147,762
------ ------ ------- -------
Earnings Before Taxes on Income 87,803 104,970 171,147 215,381
Taxes on income 34,242 43,027 66,653 88,142
------ ------ ------ ------
Net Earnings $ 53,561 $ 61,943 $ 104,494 $127,239
Net earnings per share $ .91 $ .98 $ 1.78 $ 2.00
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
($000s Omitted)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------- ---------------- --
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 53,591 $ 61,943 $ 104,494 $ 127,239
Adjustments to reconcile net earnings to net cash
provided by
operating activities:
Provision for loan losses 14,651 17,946 29,430 34,438
Amortization of loan fees and discounts (4,675) (8,035) (9,559) (16,822)
Depreciation and amortization 5,598 4,519 11,188 8,972
Loans originated for sale (7,933) (16,584) (10,486) (84,487)
Sales of loans originated for sale 7,521 35,857 9,547 137,583
(Increase) in interest earned but uncollected (18,930) (22,005) (45,880) (24,182)
Federal Home Loan Bank stock dividends (3,609) (4,392) (12,120) (10,617)
(Increase) in prepaid expenses and other assets (17,274) (17,681) (27,247) (74,739)
Increase (decrease) in accounts payable and accrued (27,947) 26,271 (8,305) 67,816
expenses
Increase (decrease) in taxes on income 11,943 (28,749) 31,975 (2,640)
Other, net (3,701) (8,383) (14,612) (13,122)
------ ------ ------- -------
Net cash provided by operating activities 9,205 40,707 58,425 149,439
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,440,927) (1,607,747) (3,192,608) (2,768,778)
Real estate loans purchased (1,076) (755) (29,445) (864)
Other, net (6,829) 449 (56,808) 2,818
--------- --------- --------- ---------
(1,448,832) (1,608,053) (3,278,861) (2,766,824)
Real estate loan principal payments:
Monthly payments 123,998 157,284 262,559 299,494
Payoffs, net of foreclosures 330,768 660,701 594,375 1,382,614
Refinances 40,270 100,099 75,839 194,304
------- ------- ------- ---------
495,036 918,084 932,773 1,876,412
Purchases of mortgage-backed securities available for -0- (196) (6,254) (581)
sale
Purchases of mortgage-backed securities held to maturity (10) (20,246) (1,181) (20,355)
Sales of mortgage-backed securities available for sale -0- 119 6,396 131
Repayments of mortgage-backed securities 32,511 96,432 57,590 229,250
Proceeds from sales of real estate 46,949 54,868 101,259 105,860
Purchases of securities available for sale (1,031,412) (882,585) (1,472,185) (2,003,185)
Sales and maturities of securities available for sale 913,058 890,881 1,590,074 1,839,907
Decrease (increase) in other investments 302,680 418,425 (450,570) 170,900
Purchases of Federal Home Loan Bank stock (250) -0- (13,486) -0-
Redemptions of Federal Home Loan Bank stock 12,500 7,775 12,650 7,775
Additions to premises and equipment (5,189) (13,387) (11,874) (23,238)
--------- ------- --------- --------
Net cash used in investing activities (682,959) (137,883) (2,533,669) (583,948)
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
($000s Omitted)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase in deposits, net $293,734 $257,749 $1,113,252 $220,926
Interest credited 217,759 137,756 405,514 271,416
------- ------- ------- -------
511,493 395,505 1,518,766 492,342
Additions to Federal Home Loan Bank advances 17,800 13,000 550,090 23,000
Repayments of Federal Home Loan Bank advances (774,540) (16,883) (780,567) (82,022)
Increase (decrease) in securities sold under
agreements to repurchase 804,605 (267,137) 569,865 (62,478)
Proceeds from medium-term notes -0- -0- 699,360 -0-
Repayments of medium-term notes -0- (12,865) -0- (12,865)
Repayments of Federal Funds purchased -0- -0- (250,000) -0-
Proceeds from subordinated debt 99,283 -0- 99,283 -0-
Dividends on common stock (4,986) (4,752) (9,965) (9,551)
Purchase and retirement of Company stock -0- (27,041) (646) (43,532)
------- ------- --------- -------
Net cash provided by financing activities 653,655 79,827 2,396,186 304,894
------- ------ --------- -------
Net (Decrease) in Cash (20,099) (17,349) (79,058) (129,615)
Cash at beginning of period 183,482 130,919 242,441 243,185
------- ------- ------- -------
Cash at end of period $163,383 $113,570 $ 163,383 $113,570
======== ======== ========== ========
Supplemental cash flow informaton:
Cash paid for:
Interest $ 428,917 $270,841 $ 803,878 $540,191
Income taxes 24,646 71,777 36,052 90,782
Cash received for interest and dividends 585,215 435,456 1,110,160 884,974
Noncash investing activities:
Loans transferred to foreclosed real estate 45,110 60,719 106,220 114,155
Loans securitized into MBS with recourse 1,085,491 -0- 1,373,150 -0-
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
($000s omitted except per share figures)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------
1995 1994
---- ----
<S> <C> <C>
Common Stock:
Balance at January 1 $ 5,859 $ 6,393
Common stock issued upon exercise of stock options 12 13
Common stock retired upon purchase of stock (2) (112)
----- -----
Balance at June 30 5,869 6,294
----- -----
Paid-in Capital:
Balance at January 1 45,689 40,899
Common stock issued upon exercise of stock options 2,971 1,833
------ ------
Balance at June 30 48,660 42,732
------ ------
Retained Earnings:
Balance at January 1 1,929,740 1,933,593
Net earnings 104,494 127,239
Cash dividends on common stock (9,965) (9,551)
Retirement of stock (644) (43,420)
--------- ---------
Balance at June 30 2,023,625 2,007,861
--------- ---------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 18,986 84,719
Change during period 39,140 (33,180)
------ ------
Balance at June 30 58,126 51,539
---------- ----------
Total Stockholders' Equity at June 30 $2,136,280 $2,108,426
========== ==========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material
changes in liquidity and capital resources that have occurred since December
31, 1994, as well as certain material changes in results of operations during
the three and six month periods ended June 30, 1995 and 1994, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1994 Form 10-K, which contains the
latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1994, and for the year then ended. Therefore,
only material changes in financial condition and results of operations are
discussed herein.
<PAGE>
Golden West Financial Corporation
Financial Highlights
($000s omitted except per share figures)
<TABLE>
<CAPTION>
June 30 June 30 December 31
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Assets $ 34,279,911 $ 29,273,203 $ 31,683,741
Loans receivable 27,939,843 24,640,665 27,071,266
Mortgage-backed securities 2,515,259 1,270,331 1,194,378
Customer deposits 20,738,155 17,914,826 19,219,389
Stockholders' equity 2,136,280 2,108,426 2,000,274
Stockholders' equity/total assets 6.23% 7.20% 6.31%
Book value per common share $36.40 $33.50 $34.14
Common shares outstanding 58,693,955 62,938,135 58,589,955
Yield on loan portfolio 7.59% 6.62% 6.91%
Yield on investments 5.97% 4.96% 5.42%
Yield on earning assets 7.47% 6.50% 6.81%
Cost of deposits 5.32% 3.82% 4.57%
Cost of borrowings 6.32% 5.01% 5.85%
Cost of funds 5.66% 4.20% 5.00%
Yield on earning assets less cost of funds 1.81% 2.30% 1.81%
Ratio of nonperforming assets to total assets 1.07% 1.37% 1.12%
Ratio of troubled debt restructured to total assets .21%(a) .20%(a) .23%(a)
World Savings and Loan Association:
Net worth $ 2,237,942 $ 2,275,902 $ 2,090.55
Net worth/total assets 6.78% 7.93% 6.74%
Regulatory capital ratios:
Tangible capital 6.24% 7.49% 6.26%
Core capital 6.24% 7.86% 6.64%
Risk-based capital 13.04% 15.91% 13.54%
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
New real estate loans originated $ 1,448,860 $ 1,624,331 $3,203,094 $ 2,853,265
Average yield on new real estate loans 7.63% 6.29% 7.35% 6.39%
Increase in customer deposits $ 511,493 $ $395,505 $1,518,766 $ 492,342
Net earnings 53,561 61,943 104,494 127,239
Net earnings per share .91 .98 1.78 2.00
Cash dividends on common stock .085 .075 .17 .15
Average common shares outstanding 58,643,735 63,300,843 58,615,270 63,615,989
Ratios:(b)
Net earnings/average net worth 10.18% 11.80% 10.09% 12.14%
Net earnings/average assets .63% .84% .63% .87%
Net interest income/average assets 2.04% 2.53% 2.04% 2.58%
General and administrative expense/average assets .92% 1.00% .94% 1.01%
<FN>
(a) Included in TDR ratio is .06% or $21 million, 0.07% or $19 million, and
0.07% or $22 million, related to the January 1994 Southern California
earthquake, as of June 30, 1995 and 1994, and December 31, 1994,
respectively.
(b) 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 monthend balance during the quarter and
the six month period and dividing by four and seven, respectively.
</FN>
</TABLE>
<PAGE>
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,
1995 and 1994, and December 31, 1994. The reader is referred to page 46 of the
Company's 1994 Form 10-K for similar information for the years 1991 through
1994 and a discussion of the changes in the composition of the Company's
assets and liabilities in those years.
TABLE 1
Consolidated Condensed Balance Sheet
<TABLE>
<CAPTION>
June 30
------- December 31
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Assets:
Cash and investments 7.6% 7.8% 7.2%
Mortgage-backed securities 7.3 4.3 3.8
Loans receivable 81.5 84.2 85.4
Other assets 3.6 3.7 3.6
--- --- ---
100.0% 100.0% 100.0%
===== ===== =====
Liabilities and Stockholders' Equity:
Customer deposits 60.5% 61.2% 60.7%
Federal Home Loan Bank advances 18.3 21.2 20.5
Securities sold under agreements to repurchase 3.4 1.3 1.9
Medium-term notes 5.4 2.3 3.7
Other liabilities 2.3 2.6 3.1
Subordinated debt 3.9 4.2 3.8
Stockholders' equity 6.2 7.2 6.3
--- --- ---
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 that, as of June 30, 1995,
the Company's assets are scheduled to reprice sooner than its liabilities.
Consequently, one would expect falling interest rates to lower the Company's
earnings and rising interest rates to increase the Company's earnings. However,
the Company's earnings are also affected by the built-in lag inherent in the
Eleventh District Cost of Funds Index (COFI), which is the benchmark the Company
uses to determine the rate on the great majority of its adjustable rate
mortgages. Consequently, the COFI reporting lag causes assets to initially
reprice more slowly than liabilities, enhancing earnings when rates are falling
and holding down income when rates rise.
<PAGE>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing Liabilities,
Repricing Gaps, and Gap Ratio
(Dollars in Millions)
<TABLE>
<CAPTION>
June 30, 1995
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 $ 1,690 $ 265 $ 420 $ 47 $ 2,422
Mortgage-backed securities 1,463 96 448 508 2,515
Loans receivable:
Rate-sensitive 22,840 1,714 209 -0- 24,763
Fixed-rate 77 259 1,133 1,483 2,952
Other(b) 426 -0- -0- -0- 426
Impact of interest rate swaps and caps 731 263 (314) (680) -0-
------ ----- ----- ----- ------
Total $ 27,227 $ 2,597 $ 1,896 $ 1,358 $ 33,078
=========== =========== ============ =========== ============
Interest-Bearing Liabilities(c):
Customer deposits $ 7,900 $ 8,739 $ 3,996 $ 103
FHLB advances 4,689 914 534 121 6,258
Other borrowings 2,165 665 719 809 4,358
Impact of interest rate swaps and caps 2,771 (1,813) (992) 34 -0-
----- ------ ----- ----- -----
Total 17,525 $ 8,505 $ 4,257 $ 1,067 $ 31,354
====== =========== ============ =========== ============
Repricing gap $ 9,702 $ (5,908) $ (2,361) $ 291
=========== =========== ============ ===========
Cumulative gap $ 9,702 $ 3,794 $ 1,433 $ 1,724
=========== =========== ============ ===========
Cumulative gap as a percentage
of total assets 28.3% 11.1% 4.2%
==== ==== ===
<FN>
(a) Based on scheduled maturity or scheduled repricing; loans reflect
scheduled repayments and projected prepayments of principal.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Liabilities with no maturity date, such as passbook and money market
deposit accounts, are assigned zero months.
</FN>
</TABLE>
<PAGE>
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, 1995 and 1994, and December 31, 1994,
World's average regulatory liquidity ratios were 6%, 8%, and 7%, respectively,
consistently exceeding the requirement.
At June 30, 1995 and 1994, and December 31, 1994, the Company had no
securities held to maturity or for trading. At June 30, 1995 and 1994, and
December 31, 1994, the Company had securities available for sale in the amount
of $1.4 billion, $1.8 billion, and $1.5 billion, respectively, and unrealized
gains on securities available for sale of $83 million, $57 million, and $23
million, respectively. For the impact on stockholders' equity, see page 23.
Included in the securities available for sale at June 30, 1995 and
1994, and December 31, 1994, were collateralized mortgage obligations (CMOs) in
the amount of $556 million, $765 million, and $668 million, respectively. The
Company holds CMOs on which both principal and interest are received. It does
not hold any interest-only or principal-only CMOs. At June 30, 1995, the
majority of the Company's CMOs are fixed-rate with remaining terms to maturity
of five years or less, and these qualify for inclusion in the regulatory
liquidity measurement.
MORTGAGE-BACKED SECURITIES
During the first six months of 1995, the Company securitized $1.4
billion of adjustable rate mortgages (ARMs) into Federal National Mortgage
Association (FNMA) mortgage-backed securities (MBS), to be used as collateral
for repurchase agreements. These securities, which were COFI-based ARMs, are
subject to full credit recourse to the Company. The Company has the ability and
intent to hold these MBS until maturity. Accordingly, these MBS are classified
as held to maturity.
MBS held to maturity at June 30, 1995 and 1994, and December 31, 1994,
were $2.2 billion, $506 million, and $871 million, respectively, including $1.4
billion of FNMA MBS subject to full credit recourse at June 30, 1995. MBS
available for sale at June 30, 1995 and 1994, and December 31, 1994, were $309
million, $764 million, and $323 million, respectively. Unrealized gains on MBS
available for sale at June 30, 1995 and 1994, and December 31, 1994, were $15
million, $26 milion, and $6 million, respectively. For the impact on
stockholders', see page 23.
Repayments of MBS during the second quarter and first six months of
1995 were $33 million and $58 million, respectively, compared to $96 million and
$229 million in the same periods of 1994.
At June 30, 1995, 57% of the Company's total MBS portfolio was backed
by ARMs. Mortgage-backed securities held that are fixed-rate pass-through
obligations and subject to prepayment and interest rate risk similar to
fixed-rate loans comprise the other 43% of the MBS portfolio. In rising interest
rate environments, the rate of repayment on fixed-rate pass-through
mortgage-backed securities tends to decrease because of lower repayments on the
underlying mortgages, as exhibited in the reduction of repayments between 1995
and 1994.
<PAGE>
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the three and six months ended June 30, 1995
amounted to $1.4 billion and $3.2 billion, respectively, compared to $1.6
billion and $2.9 billion for the same periods in 1994. The slow real estate
market, especially in California, was primarily responsible for the decline in
loan volume in the second quarter of 1995. In addition, adjustable rate mortgage
lenders, such as the Company, were affected by interest rate decreases in the
second quarter of this year which brought down the price of new fixed-rate
mortgage loans, making competition from fixed-rate lenders more intense.
Accordingly, second quarter residential mortgage demand was fairly modest.
Refinanced loans constituted 30.5% and 30.3% of new loan originations for the
three and six months ended June 30, 1995, respectively, compared to 45% and 51%
for the three and six months ended June 30, 1994, respectively.
The Company has lending operations in 24 states. The primary source of
mortgage origination is loans secured by residential properties in California.
For the three and six months ended June 30, 1995, 48% and 53%, respectively, of
total loan originations were on residential properties in California compared to
65% and 67% for the same periods in 1994, respectively. The states of Texas,
Illinois, New Jersey, Florida, and Colorado each accounted for between 4.0% and
7.5% of total originations for both the three and six month periods ending June
30, 1995. No other state accounted for more than 4.0% of total originations in
either period. Although California originations continue to be a large portion
of total originations, the decrease in the California share of total
originations in 1995 as compared to 1994 was primarily due to both decreased
loan volume in California and increased activity by the Company in markets
outside California. The percentage of the total loan portfolio that is comprised
of residential loans in California was 75% at June 30, 1995, compared to 80% at
June 30, 1994, and 77% at December 31, 1994.
The tables on the following two pages show the Company's loan portfolio
by state at June 30, 1995, and 1994.
<PAGE>
TABLE 3
Loan Portfolio by State
June 30, 1995
($000s Omitted)
<TABLE>
<CAPTION>
Residential Commercial Loans as
Real Estate Real Total a % of
State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio
- --------- ---------- --------- ----------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
California $18,670,705 $3,334,878 $ 281 $ 80,303 $ -0- $22,086,167 74.87%
Colorado 784,791 197,835 -0- 7,880 -0- 990,506 3.36
Illinois 760,209 177,209 -0- 2,707 -0- 940,125 3.19
New Jersey 804,927 -0- -0- 8,564 4,101 817,592 2.77
Texas 706,619 55,933 597 1,725 -0- 764,874 2.59
Washington 338,000 288,774 -0- 803 -0- 627,577 2.13
Florida 590,562 -0- 279 1,628 -0- 592,469 2.01
Arizona 362,995 46,500 -0- 1,771 -0- 411,266 1.39
Virginia 390,969 639- -0- 1,652 -0- 393,260 1.33
Pennsylvania 343,636 -0- -0- 4.515 -0- 348,151 1.18
Connecticut 291,999 -0- -0- -0- -0- 291,999 0.99
Maryland 260,158 -0- -0- 621 -0- 260,779 0.88
Oregon 167,272 10,634 -0- 3,834 -0- 181,740 0.62
Nevada 147,344 1,274 -0- -0- -0- 148,618 0.50
Kansas 128,364 5,284 -0- 218 -0- 133,866 0.45
Utah 78,884 67 -0- 2,081 -0- 81,032 0.27
Missouri 62,979 8,176 -0- 77 -0- 71,232 0.24
Minnesota 58,220 -0- -0- -0- -0- 58,220 0.20
New York 55,858 -0- -0- -0- -0- 55,858 0.19
Wisconsin 44,474 4,220 -0- -0- -0- 48,694 0.17
Georgia 46,080 -0- -0- 2,292 -0- 48,372 0.16
Ohio 27,069 2,898 453 5,703 -0- 36,123 0.12
Washington, DC 31,880 -0- -0- -0- -0- 31,880 0.11
New Mexico 21,759 -0- -0- -0- -0- 21,759 0.08
Delaware 15,763 -0- -0- -0- -0- 15,763 0.05
North Carolina 9,166 381 -0- 3,058 -0- 12,605 0.04
Idaho 11,528 -0- -0- -0- -0- 11,528 0.04
Other 11,056 37 -0- 5,037 -0- 16,130 0.07
----------- ---------- ------ -------- ------ ----------- -----
Totals $25,223,266 $4,134,739 $1,610 $134,469 $4,101 $29,498,185 100.0%
=========== ========== ====== ======== ====== =========== =====
FAS 91 deferred loan fees (84,702)
Loan discount on purchased loans (7,001)
Undisbursed loan funds (4,131)
Allowance for loan losses (133,682)
LTF interest reserve (771)
TDR interest reserve (6,284)
Loans on customer deposits 35,177
Consumer loans 7,163
-----------
Total loan portfolio and loans securitized into FNMA MBS with recourse $29,303,954
Loans securitized for FNMA with recourse (1,364,111)(b)
-----------
Total loan portfolio $27,939,843
===========
<FN>
(a) The Company has no commercial loans.
(b) Loans amounting to $1.4 billion have been securitized with full recourse
into FNMA mortgage-backed securities which can be used to collateralize
reverse repurchase agreements. These loans have been reflected
in this schedule by state.
</FN>
</TABLE>
<PAGE>
TABLE 4
Loan Portfolio by State
June 30, 1994
($000s Omitted)
<TABLE>
<CAPTION>
Residential Commercial Loans as
Real Estate 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
============
<FN>
(a) The Company has no commercial loans.
</FN>
</TABLE>
<PAGE>
The Company continues to emphasize ARM loans with interest rates that
change periodically in accordance with movements in specified indexes. The
portion of the mortgage portfolio (excluding MBS) composed of rate-sensitive
loans was 90% at June 30, 1995, compared to 88% at June 30, 1994, and 89% at
December 31, 1994. The Company's ARM originations constituted approximately 97%
of new mortgage loans made in the first half of 1995 compared to 86% in the
first half of 1994.
The weighted average maximum lifetime cap rate on the Company's ARM
loan portfolio was 13.21%, or 5.85% above the actual weighted average rate at
June 30, 1995, versus 13.61%, or 7.40% above the weighted average rate at June
30, 1994.
Approximately $5.1 billion of the Company's loans have terms that state
that the interest rate may not fall below a lifetime floor set at the time of
origination. As of June 30, 1995, $650 million of these loans were at their rate
floors. The weighted average floor rate on these loans was 7.80% at June 30,
1995. Without the floor, the average yield on these loans would have been
7.39%.
Loan repayments, consisting of monthly loan amortization, payoffs, and
refinances, remained at very low levels during the second quarter and first six
months of 1995. Repayments for the three and six months ended June 30, 1995 were
$495 million and $933 million, respectively, compared to $918 million and $1.9
billion in the same periods of 1994. The decrease in loan repayments is
primarily due to the winding down of the refinancing boom by mid 1994, and a
generally slow real estate market in 1995.
ASSET QUALITY
One measure of the soundness of the Company's portfolio is its ratio of
nonperforming assets (NPAs) to total assets. Nonperforming assets included
non-accrual loans (loans that are 90 days or more past due) and real estate
acquired through foreclosure. No interest is recognized on non-accrual loans.
The Company's troubled debt restructured (TDRs) is made up of loans on which
delinquent loan payments have been capitalized or on which temporary interest
rate reductions have been made, primarily to customers negatively impacted by
adverse economic conditions.
The table on the following page shows the components of the Company's
nonperforming assets and TDRs, and the ratios of nonperforming assets to total
assets and TDRs to total assets at June 30, 1995 and 1994, and December 31,
1994.
<PAGE>
TABLE 5
Nonperforming Assets and Troubled Debt Restructured
($000s Omitted)
<TABLE>
<CAPTION>
June 30 December 31
--------------------- -----------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Non-accrual loans $298,394 $341,454 $284,103
Real estate acquired through
foreclosure, net 67,272 59,430 70,981
Real estate in judgment 404 1,189 390
--- ----- -------
Total nonperforming assets $366,070 $402,073 $355,474
======== ======== ========
TDRs $ 71,633(a) $57,806(a) $72,827(a)
========= ======= =========
Ratio of nonperforming assets to total assets 1.07% 1.37% 1.12%
==== ==== ====
Ratio of TDRs to total assets 0.21%(a) 0.20%(a) 0.23%(a)
==== ==== ====
Total NPAs and TDRs 1.28%(a) 1.57%(a) 1.35%(a)
==== ==== ====
<FN>
(a) At June 30, 1995 and 1994, and December 31, 1994, respectively, $21
million or 0.06%, $19 million or 0.07%, and $22 million or 0.07% of TDRs
were related to the January 1994 Southern California earthquake.
</FN>
</TABLE>
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 1995 amounted to $4 million
and $9 million, respectively, compared to $4 million and $10 million in the same
period of 1994.
Interest foregone on TDRs amounted to $508 thousand and $989
thousand for the three and six months ended June 30, 1995, respectively,
compared to $125 thousand and $245 thousand for the three and six months
ended June 30, 1994.
The tables on the following two pages show the Company's nonperforming
assets by state at June 30, 1995, and 1994.
<PAGE>
TABLE 6
Nonperforming Assets by State
June 30, 1995
($000s Omitted)
<TABLE>
<CAPTION>
Non-Accrual Loans (a) Real Estate Owned
Residential Commercial Commercial NPAs
Real Estate Real Residential Real Total as a % of
State 1 -4 5+ Estate Construction 1 - 4 5+ Estate NPAs Loans (b)
- ---------- --------- --------- -------- ------------ ------ ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California $249,545 $10,334 $ 768 $-0- $53,774 $9,025 $3,716 $327,162 1.48%
Colorado 1,207 64 -0- -0- -0- 90 -0- 1,361 0.14
Illinois 3,359 831 -0- -0- 49 443 -0- 4,682 0.50
New Jersey 10,762 -0- 5 525 425 -0- -0- 11,717 1.43
Texas 1,737 -0- -0- -0- 241 -0- -0- 1,978 0.26
Washington 528 -0- -0- -0- -0- -0- -0- 528 0.08
Florida 2,139 -0- 36 -0- 647 -0- -0- 2,822 0.48
Arizona 991 -0- -0- -0- -0- -0- -0- 991 0.24
Virginia 2,456 -0- -0- -0- 180 -0- -0- 2,636 0.67
Pennsylvania 2,089 -0- -0- -0- -0- -0- -0- 2,089 0.60
Connecticut 3,144 -0- -0- -0- (65) -0- -0- 3,079 1.05
Maryland 356 -0- -0- -0- 212 -0- -0- 568 0.22
Oregon 486 -0- -0- -0- -0- -0- -0- 486 0.27
Nevada 662 -0- -0- -0- 114 -0- -0- 776 0.52
Kansas 603 40 -0- -0- 121 -0- -0- 764 0.57
Utah 123 -0- -0- -0- -0- -0- -0- 123 0.15
Missouri 707 -0- -0- -0- -0- 51 -0- 758 1.06
Minnesota -0- -0- -0- -0- -0- -0- -0- -0- 0.00
New York 3,188 -0- -0- -0- 400 -0- -0- 3,588 6.42
Wisconsin -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Georgia 1,295 -0- -0- -0- 53 -0- -0- 1,348 2.79
Ohio 22 -0- 211 -0- 24 -0- -0- 257 0.71
Washington, DC -0- -0- -0- -0- -0- -0- -0- -0- 0.00
New Mexico 1 -0- -0- -0- -0- -0- -0- 1 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina 47 -0- -0- -0- -0- -0- -0- 47 0.37
Idaho -0- -0- -0- -0- -0- -0- -0- 0 0.00
Other 132 -0- -0- -0- -0- -0- -0- 132 0.82
-------- ------- ------ ---- ------ ------ - -------- ----
Totals $285,579 $11,269 $1,020 $525 $56,175 $9,609 $3,716 $367,893 1.25
======== ======= ====== ==== ======= ====== ======
REO general valuation allowance (1,823) (0.01)
-------- -----
Total nonperforming assets $366,070 1.24%
======== ====
<FN>
(a) Non-accruals loans are 90 days or more past due and have no unpaid
interest accrued.
(b) Loans amounting to $1.4 billion have been securitized with full recourse
into FNMA mortgage-backed securities which can be used to collateralize
reverse repurchase agreements. These loans and related nonperforming
assets have been reflected in this schedule by state.
</FN>
</TABLE>
<PAGE>
TABLE 7
Nonperforming Assets by State
June 30, 1994
($000s Omitted)
<TABLE>
<CAPTION>
Non-Accrual Loans (a) Real Estate Owned
Residential Commercial Commercial NPAs
Real Estate Real Residential Real Total as a % of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs Loans
- ---------- --------- ---------- -------- -------- ------- ------- --------- -------
<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)
--------- -----
Total nonperforming assets $ 402,073 1.62%
========= ====
<FN>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
</FN>
</TABLE>
<PAGE>
The Company provides allowances for losses on impaired loans and real
estate owned when significant and permanent declines in value are identified
and based upon trends in the portfolio. The Company utilizes a methodology for
monitoring and estimating loan losses that is based on both historical
experience in the loan portfolio and factors that reflect current economic
conditions. This approach uses a database that identifies losses on loans and
foreclosed real estate from past years to the present, broken down by year of
origination, type of loan, and geographical area. Management is then able to
estimate a range of loss allowances to cover losses in the portfolio. In
addition, periodic reviews are made of major loans and real estate owned, and
major lending areas are 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. Additions to and reductions from the allowances are
reflected in current earnings.
The table below shows the changes in the allowance for loan losses for
the three and six months ended June 30, 1995, and 1994.
TABLE 8
Changes in Allowance for Loan Losses
($000s Omitted)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning allowance for loan losses $128,221 $113,497 $124,003 $106,698
Provision charged to expense 14,651 17,946 29,430 34,438
Less loans charged off (9,481) (13,071) (20,910) (23,025)
Add recoveries 291 215 1,159 476
-------- -------- -------- --------
Ending allowance for loan losses $133,682 $118,587 $133,682 $118,587
======== ======== ======== ========
Ratio of net charge-offs to average loans
outstanding (including MBS with recourse) .13% .21% .14% .19%
=== === === ===
Ratio of allowance for loan losses to
nonperforming assets 36.5% 29.5%
==== ====
</TABLE>
The Company has provided for any known losses related to the January
1994 Southern California earthquake. The June 30, 1995 reserve for loan losses
included $4 million in loss reserves specifically identified for earthquake
losses.
<PAGE>
MORTGAGE SERVICING RIGHTS
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS 122). SFAS amends Statement of Financial Accounting
Standard No. 65, "Accounting for Certain Mortgage Banking Activities," to
require that mortgage banking enterprises recognize, as separate assets, rights
to service mortgage loans for others, however those mortgage servicing rights
are acquired. SFAS 122 also requires that mortgage banking enterprises assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. SFAS 122 applies to fiscal years beginning after December
15, 1995, however, earlier application is encouraged. Golden West has yet to
determine whether to adopt SFAS 122 early; however, if adopted during 1995, the
impact on the Company's financial condition and results of operations is not
expected to be material.
CUSTOMER DEPOSITS
Customer deposits increased during the second quarter of 1995 by $511
million, including interest credited of $218 million, compared to an increase of
$396 million, including interest credited of $138 million, in the second quarter
of 1994. Customer deposit balances in the first half of 1995 increased by $1.5
billion, including interest credited of $406 million, compared to an increase of
$492 million, including interest credited of $271 million, in the first half of
1994. The net increase in customer deposits during the first half of 1995 over
the same period a year earlier resulted primarily from marketing efforts and
higher rates offered by the Company on most of its insured accounts in 1995 as
compared to 1994.
<PAGE>
The table below shows the Company's customer deposits by interest rate
and by remaining maturity at June 30, 1995, and 1994.
TABLE 9
Customer Deposits
(Dollars in millions)
<TABLE>
<CAPTION>
June 30
----------------------------------------------
1995 1994
Rate* Amount Rate* Amount
---- ------ ---- ------
<S> <C> <C> <C> <C>
Customer deposits by interest rate:
Interest-bearing checking accounts 1.29% $ 702 $ 1.27% $ 721
Passbook accounts 2.24 596 2.08 674
Money market deposit accounts 3.09 1,429 3.04 2,240
Term certificate accounts with original maturities of:
4 weeks to 1 year 5.83 7,781 3.21 3,656
1 to 2 years 5.30 4,717 3.95 5,487
2 to 3 years 5.38 2,228 4.48 1,882
3 to 4 years 5.30 743 5.68 1,040
4 years and over 6.29 2,094 5.30 2,025
Retail jumbo CDs 6.03 442 4.49 176
All other 7.74 6 7.79 14
- --
$20,738 $17,915
======= =======
Customer deposits by remaining maturity:
No contractual maturity $ 2,727 $ 3,635
Maturity within one year:
3rd quarter 5,174 3,510
4th quarter 4,205 2,503
1st quarter 3,329 1,843
2nd quarter 1,205 1,400
------- -----
$13,913 9,256
1 to 2 years 2,281 2,868
2 to 3 years 880 833
3 to 4 years 349 570
4 years and over 588 753
------- -------
$20,738 $17,915
======= =======
<FN>
* Weighted average interest rate, including the effect of certain interest rate
swaps and caps used in interest rate risk management.
</FN>
</TABLE>
<PAGE>
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses borrowings from the FHLB, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities.
Advances offer strategic advantages for asset-liability management, including
long-term maturities and, in certain cases, prepayment at the Company's option.
FHLB advances amounted to $6.3 billion at June 30, 1995, compared to $6.2
billion and $6.5 billion at June 30, 1994, and December 31, 1994, respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). These funds are used to
supplement cash flow. Reverse Repos are entered into with selected major
government securities dealers, large banks, and the FHLB, typically utilizing
MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted
to $1.2 billion, $380 million, and $602 million at June 30, 1995 and 1994, and
December 31, 1994, respectively.
OTHER BORROWINGS
In June 1995, the Company issued $100 million of subordinated debt. The
debt will mature July 1, 2002 and has a note rate of 6.70%. At June 30, 1995
Golden West, at the parent level, had principal amounts outstanding of $1.1
billion of subordinated debt. As of June 30, 1995, the Company's subordinated
debt securities were rated A3 and A- by Moody's Investors Service (Moody's) and
Standard & Poor's Corporation (S&P), respectively. On July 26, 1995, the Company
filed a new shelf registration with the Securities and Exchange Commission for
the sale of up to $300 million of subordinated debt securities.
World currently has on file a shelf registration with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes, all of which was
available for issuance at June 30, 1995. World had medium-term notes outstanding
with principal amounts of $1.9 billion at June 30, 1995, compared to $664
million at June 30 1994, and $1.2 billion at December 31, 1994. As of June 30,
1995, World's medium-term notes were rated A1 and A+ by Moody's and S&P,
respectively.
World also has on file a registration statement with the OTS for the
sale of up to $300 million of subordinated notes and, at June 30, 1995, the full
amount was available for issuance. As of June 30, 1995, World had issued a total
of $200 million of subordinated notes, which were rated A2 and A by Moody's and
S&P, respectively. The subordinated notes are included in World's risk-based
regulatory capital as Supplementary Capital.
<PAGE>
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during the first six
months of 1995 as a result of earnings and increased market values of securities
available for sale. Unrealized gains on securities and MBS available for sale
included in stockholders' equity at June 30, 1995 and 1994, and December 31,
1994, were $58 million, $49 million, and $17 million, respectively. Also
included in stockholders' equity at June 30, 1995 and 1994, and December 31,
1994, are unrealized gains on MBS transferred to held to maturity of $170
thousand, $3 million, and $2 million, respectively.
During periods of low asset growth, the Company's capital ratios may
build to levels well in excess of the amounts necessary to meet regulatory
capital requirements. Golden West's Board of Directors regularly reviews
alternative uses of excess capital, including faster growth and acquisitions. At
times, the Board has determined that repurchase of common stock is a wise use of
excess capital.
In 1993 and 1994, Golden West's Board of Directors authorized the
purchase, by the Company, of up to a total of 6.3 million shares of its common
stock. As of June 30, 1995, 5.8 million shares had been repurchased and retired
at a cost of $224 million, 18 thousand of which were purchased and retired at a
cost of $646 thousand during the first six months of 1995. On August 1, 1995,
the Company's Board authorized the purchase of up to an additional 10%, or
approximately 5.9 million shares of Golden West's outstanding common stock,
bringing the total remaining repurchase authorization to approximately 6.4
million shares.
Dividends from World Savings are expected to continue to be the major
source of funding for the stock repurchase program. The repurchase of Golden
West stock is not intended to have a material impact on the normal liquidity of
the Company.
The Company has on file a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to two million shares
of its preferred stock. The preferred stock may be sold from time to time in one
or more transactions for total proceeds of up to $200 million. The preferred
stock may be issued in one or more series, may have varying provisions and
designations, and may be represented by depository shares. The preferred stock
is not convertible into common stock. No preferred stock has yet been issued
under the registration. The Company's preferred stock has been preliminarily
rated "a2" by Moody's.
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as World, to meet
certain minimum capital requirements. The table on the following page shows
World's current regulatory capital ratios and compares them to the current OTS
minimum requirements at June 30, 1995 and 1994.
<PAGE>
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
($000s Omitted)
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
ACTUAL REQUIRED ACTUAL REQUIRED
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ ----- --------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $2,047,553 6.24% $ 492,065 1.50% $2,141,356 7.49% $ 428,853 1.50%
Core 2,047,553 6.24 984,130 3.00 2,248,569 7.86 857,705 3.00
Risk-based 2,361,358 13.04 1,448,910 8.00 2,549,328 15.91 1,282,036 8.00
</TABLE>
In addition, institutions whose exposure to interest rate risk as
determined by the OTS is deemed to be above normal may be required to hold
additional risk-based capital. The OTS has determined that the Association does
not have above-normal exposure to interest rate risk.
Under OTS regulations which implement the prompt corrective action
system mandated by the Federal Deposit Insurance Corporation Improvement Act, an
institution is well capitalized if its ratio of total capital to risk-weighted
assets is 10% or more, its ratio of core capital to risk-weighted assets is 6%
or more, its ratio of core capital to total assets is 5% or more and it is not
subject to any written agreement, order or directive to meet a specified capital
level.
The table below compares World's regulatory capital to the well
capitalized classification of capital standards at June 30, 1995.
TABLE 11
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
June 30, 1995
($000s Omitted)
<TABLE>
<CAPTION>
ACTUAL WELL CAPITALIZED
-------------------- ---------------------
Capital Ratio Capital Ratio
------- ----- ------- -----
<S> <C> <C> <C> <C>
Leverage $2,047,553 6.24% $1,640,217 5.00%
Tier 1 risk-based 2,047,553 11.31 1,086,682 6.00
Total risk-based 2,361,358 13.04 1,811,137 10.00
</TABLE>
The table on the following page shows a reconciliation of World's
equity capital to regulatory capital under these OTS regulations at June 30,
1995.
<PAGE>
TABLE 12
World Savings and Loan Association
Reconciliation of Equity Capital to Regulatory Capital
June 30, 1995
($000s Omitted)
<TABLE>
<CAPTION>
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 1,945,851
Unrealized gains on securities
available for sale 58,500
-----------
Equity capital $ 2,237,942 $2,237,942 $2,237,942 $2,237,942 $2,237,942 $2,237,942
===========
Positive goodwill (211,758) (211,758) (211,758) (211,758) (211,758)
Negative goodwill 79,869 79,869 79,869 79,869 79,869
Gain on securities available for sale (58,500) (58,500) (58,500) (58,500) (58,500)
Equity/other investments (536)
Subordinated debt 199,193
General valuation allowance 115,148
---------- ---------- ---------- ---------- ----------
Regulatory capital $2,047,553 $2,047,553 $2,047,553 $2,047,553 $2,361,358
========== ========== ========== ========== ==========
Total assets $33,022,114
===========
Adjusted total assets $32,804,344 $ 32,804,344 $32,804,344
=========== ============ ===========
Risk-weighted assets $18,111,370 $18,111,370
=========== ===========
CAPITAL RATIO - ACTUAL 6.78% 6.24% 6.24% 6.24% 11.31% 13.04%
==== ==== ==== ==== ===== =====
Regulatory Capital Standards:
Well capitalized, equal to or greater than 5.00% 6.00% 10.00%
==== ==== =====
Adequately capitalized, equal to or 1.50% 4.00% 4.00% 8.00%
greater than ==== ==== ==== ====
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
==== ==== ==== ====
Significantly undercapitalized, less than 3.00% 3.00% 6.00%
Critically undercapitalized, equal to or
less than 2.00%
====
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
SPREADS
An important determinant of the Company's earnings is its primary
spread -- the difference between its yield on earning assets and its cost of
funds. The table below shows the components of the Company's spread at June 30,
1995 and 1994, and December 31, 1994.
TABLE 13
Yield on Earning Assets,
Cost of Funds, and Primary Spread,
Including Effect of Purchase Accounting
<TABLE>
<CAPTION>
June 30 December 31
-------------------- -----------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Yield on loan portfolio 7.59% 6.62% 6.91%
Yield on investments 5.97 4.96 5.42
---- ---- ----
Yield on earning assets 7.47 6.50 6.81
---- ---- ----
Cost of customer deposits 5.32 3.82 4.57
Cost of borrowings 6.32 5.01 5.85
---- ---- ----
Cost of funds 5.66 4.20 5.00
---- ---- ----
Primary spread 1.81% 2.30% 1.81%
==== ==== ====
</TABLE>
The Company's primary spread, is to some degree, dependent on changes
in interest rates because the Company's liabilities tend to respond somewhat
more rapidly to rate movements than its assets. In general, the repricing of ARM
portfolios tends to lag market interest rate changes because of certain loan
features which restrain monthly adjustments. Additionally, yield changes on COFI
ARMs are also held back by the lags built into the index. Interest rate changes,
including both the recent declines and the prior upward trend experienced in
1994 and early 1995, had important influences on the Company's primary spread.
The lower spread at June 30, 1995, as compared to June 30, 1994, was caused by
the lingering effects of the significant upward trend in interest rates which
occurred in 1994 and early 1995. Specifically, when interest rates rose, the
cost of borrowings increased more quickly than the yield on assets which are
comprised primarily of ARMs tied to COFI. The Company's spread declined
gradually, but steadily from June 30 1994, dropping to 1.71% by March 31, 1995,
before rising to 1.81% by June 30, 1995.
The Company enters into interest rate swaps and caps as a part of its
interest rate risk management strategy. The Company does not hold any derivative
financial instruments for trading purposes.
Interest rate swaps and caps decreased net interest income by $9
million and $18 million for the three and six months ended June 30, 1995, as
compared to $5 million and $15 million for the same periods in 1994.
The table on the following page summarizes the unrealized gains and
losses for interest rate swaps and caps at June 30, 1995 and 1994.
<PAGE>
TABLE 14
Supplemental Schedule of Unrealized Gains and Losses on
Interest Rate Swaps and Caps
($000s Omitted)
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
------------------------------------- -------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain (Loss) Gains Losses Gain (Loss)
---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest rate caps $ 106 $ -0- $ 106 $ 20 $ -0- $ 20
Interest rate swaps 30,834 (68,007) (37,173) 76,471 (87,485) (11,014)
------ -------- -------- ------- -------- --------
Total $30,940 $(68,007) $(37,067) $76,491 $(87,485) $(10,994)
======= ======== ======== ======= ======== ========
</TABLE>
TABLE 15
Schedule of Interest Rate Swaps and Caps Activity
(Notional Amounts in Millions)
Six Months Ended
June 30, 1995
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1995
Receive Pay Forward Interest
Fixed Fixed Basis Starting Rate
Swaps Swaps Swaps(a) Swaps Caps
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $4,991 $2,225 $200 $135 $300
Additions 219 -0- 43 -0- -0-
Maturities/amortization (735) (255) -0- -0- (40)
Terminations -0- -0- -0- -0- -0-
Forward starting becoming effective 125 -0- -0- (125) -0-
Other -0- -0- -0- -0- -0-
------ ------ ---- ---- ----
Balance, June 30, 1995 $4,600 $1,970 $243 $ 10 $260
====== ====== ==== ==== ====
<FN>
(a) Receives based upon one index, pays based upon another index.
</FN>
</TABLE>
The range of floating interest rates received on swap contracts in the
first six months of 1995 was 5.13% to 7.02%, and the range of floating interest
rates paid on swap contracts was 4.37% to 6.69%. The range of fixed interest
rates received on swap contracts in the first six months of 1995 was 3.91% to
9.68% and the range of fixed interest rates paid on swap contracts was 4.09% to
9.54%.
The table on the following page shows the Company's revenues and
expenses as a percentage of total revenues for the three and six months ended
June 30, 1995 and 1994, in order to focus on the changes in interest income
between years as well as changes in other revenue and expense amounts.
<PAGE>
TABLE 16
Selected Revenue and Expense Items
as Percentages of Total Revenues
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest on loans 86.0% 84.5% 86.5% 85.2%
Interest on mortgage-backed securities 6.2 5.6 5.4 5.8
Interest and dividends on investments 6.3 7.5 6.4 6.5
--- --- --- ---
98.5 97.6 98.3 97.5
---- ---- ---- ----
Less:
Interest on customer deposits 44.0 35.5 43.0 35.6
Interest on advances and other borrowings 26.4 22.4 26.5 21.7
---- ---- ---- ----
70.4 57.9 69.5 57.3
Net interest income 28.1 39.6 28.8 40.2
Provision for loan losses 2.4 3.8 2.5 3.7
---- --- --- ---
Net interest income after provision for loan losses 25.7 35.8 26.3 36.5
Add:
Fees 1.0 1.7 1.1 1.7
Gain (loss) on the sale of securities and
mortgage-backed securities 0.0 0.0 0.0 0.0
Other non-interest income 0.5 0.7 0.6 0.8
--- --- --- ---
1.5 2.4 1.7 2.5
Less:
General and administrative expenses 12.7 15.7 13.3 15.7
Amortization of goodwill 0.2 0.1 0.2 0.1
Taxes on income 5.6 9.2 5.7 9.5
--- --- --- ---
Net earnings 8.7% 13.2% 8.8% 13.7%
==== ==== ==== ====
</TABLE>
<PAGE>
INTEREST ON LOANS
In the second quarter of 1995, interest on loans was higher than in the
comparable 1994 period by $131 million or 33.1%. The increase in the second
quarter of 1995 was due to a $3.8 million increase in the average portfolio
balance and a 100 basis point increase in the average portfolio yield. For the
first half of 1995 interest on loans was higher than the comparable 1994 period
by $223 million or 28.1%. The increase was due to a $3.7 billion increase in the
average portfolio balance and a 75 basis point increase in the average portfolio
yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the second quarter of 1995 interest on mortgage-backed securities
was higher than in the comparable 1994 period by $11.8 million or 45.1%. The
1995 increase was due primarily to a $708 million increase in the average
portfolio balance, which was partially offset by a 57 basis point decrease in
the average portfolio yield. For the first half of 1995, interest on
mortgage-backed securities was higher than in the comparable 1994 period by $9.1
million or 16.7% due to a $311 million increase in the average portfolio
balance, which was partially offset by a 47 basis point decrease in the average
portfolio yield. The increase in the mortgage-backed securities portfolio, and
the lower average balance was primarily the result of the securitization of
loans with recourse this year as discussed on page 11.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term investments.
For the second quarter of 1995, interest and dividends on investments were $3.7
million or 10.4% higher than for the same period in 1994. The increase was
primarily due to a 150 basis point increase in the average portfolio yield,
which was partially offset by a $330 million decrease in the average portfolio
balance. For the first half of 1995, interest and dividends on investments was
$14.6 million or 24.1% higher than for the same period in 1994. The increase was
primarily due to a 163 basis point increase in the average portfolio yield,
which was partially offset by a $160 million decrease in the average portfolio
balance.
INTEREST ON CUSTOMER DEPOSITS
In the second quarter and first half of 1995, interest on customer
deposits increased by $103 million or 62% and $174 million or 52.3%,
respectively, from the comparable periods of 1994. The second quarter increase
was due to a $2.8 billion increase in the average deposit balance and a 150
basis point increase in the average cost of deposits. The six month increase was
primarily due to a 126 basis point increase in the average cost of deposits and
a $2.6 billion increase in the average balance of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the second quarter and first half of 1995, interest on advances and
other borrowings increased by $57 million or 54.2% and $109 million or 53.9%,
respectively, from the comparable periods of 1994. The second quarter increase
was primarily due to a $1.5 billion increase in the average balance and a 149
basis point increase in the average cost of these borrowings. The six month
increase was primarily due to a $1.5 billion increase in the average balance and
a 147 basis point increase in the average cost of these borrowings.
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $14.7 million and $29.4 million,
respectively, for the three and six months ended June 30, 1995, compared to
$17.9 million and $34.4 million for the same periods in 1994. The lower
provisions in 1995 reflect lower charge-offs and the slowly improving economy in
California .
GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter and first half of 1995, general and
administrative expenses (G&A) increased by $4.4 million or 6.0% and $10 million
or 6.8%, respectively, from the comparable periods in 1994. The primary reasons
for the increases in 1995 were the expansion of loan origination capacity,
growth in savings deposits and increased loan volume in the first quarter. G&A
as a percentage of average assets on an annualized basis was 0.92% and 0.94% for
the second quarter and first half of 1995, respectively, compared to 1.00% and
1.01% for the same periods in 1994.
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses purchase accounting in connection with
certain acquisitions. The purchase accounting portion of income is not subject
to tax.
The corporate tax rates for the second quarter and first half of 1995
were 39.0% and 38.9%, respectively, compared to 41.0% and 40.9% for the same
periods a year ago. The decrease in the second quarter and first six months of
1995 tax rate is the result of tax benefits from the final settlement of prior
year tax audits.
LIQUIDITY AND CAPITAL RESOURCES
World's principal sources of funds are cash flows generated from
earnings; customer deposits; loan repayments; borrowings from the FHLB; issuance
of medium-term notes; and debt collateralized by mortgages, MBS, or securities.
In addition, World has a number of other alternatives available to provide
liquidity or finance operations. These include borrowings from public offerings
of debt or equity, sales of loans, negotiable certificates of deposit, issuances
of commercial paper, and borrowings from commercial banks. Furthermore, under
certain conditions, World may borrow from the Federal Reserve Bank of San
Francisco to meet short-term cash needs. The availability of these funds will
vary depending upon policies of the FHLB, the Federal Reserve Bank of San
Francisco, and the Federal Reserve Board. For a discussion of World's liquidity
positions at June 30, 1995, and 1994, and December 31, 1994, see the cash and
investments section on page 11.
The principal sources of funds for Golden West (the Parent) are
interest on investments, dividends from World, and the proceeds from the
issuance of debt and equity securities. Various statutory and regulatory
restrictions and tax considerations limit the amount of dividends World can pay.
The principal liquidity needs of Golden West are for payment of interest on
subordinated debt securities, dividends to stockholders, the purchase of Golden
West stock (see stockholders' equity section on page 23), and general and
administrative expenses. At June 30, 1995 and 1994, and December 31, 1994,
Golden West's total cash and investments amounted to $984 million, $865 million
(including a $300 million short-term loan to the Association), and $938 million
(including a $250 million short-term loan to World), respectively.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement of Computation of Earnings Per Share
27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
<TABLE>
<CAPTION>
<S> <C>
Dated: August , 1995. J. L. Helvey
J. L. Helvey
Group Senior Vice President
(duly authorized and principal financial
officer)
</TABLE>
<PAGE>
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings Per Share
($000s omitted except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Line 1:
Average Number of Common
Shares Outstanding 58,643,735 63,300,843 58,615,270 63,615,989
========== ========== ========== ==========
Line 2:
Net Earnings $53,561 $61,943 $104,494 $127,239
======= ======= ======== ========
Line 3:
Earnings Per Common Share
(Line 2 divided by Line 1) $.91 $.98 $1.78 $2.00
==== ==== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 163383
<INT-BEARING-DEPOSITS> 107000
<FED-FUNDS-SOLD> 475150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1746106
<INVESTMENTS-CARRYING> 3191228
<INVESTMENTS-MARKET> 3204133
<LOANS> 27939843
<ALLOWANCE> 133682
<TOTAL-ASSETS> 34279911
<DEPOSITS> 20738155
<SHORT-TERM> 1171686
<LIABILITIES-OTHER> 790103
<LONG-TERM> 9443687
<COMMON> 5869
0
0
<OTHER-SE> 2130411
<TOTAL-LIABILITIES-AND-EQUITY> 34279911
<INTEREST-LOAN> 1017212
<INTEREST-INVEST> 75324
<INTEREST-OTHER> 63504
<INTEREST-TOTAL> 1156040
<INTEREST-DEPOSIT> 505795
<INTEREST-EXPENSE> 817308
<INTEREST-INCOME-NET> 338732
<LOAN-LOSSES> 29430
<SECURITIES-GAINS> 22
<EXPENSE-OTHER> 158394
<INCOME-PRETAX> 171147
<INCOME-PRE-EXTRAORDINARY> 171147
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104494
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 7.47
<LOANS-NON> 298394
<LOANS-PAST> 0
<LOANS-TROUBLED> 71633
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 124003
<CHARGE-OFFS> 20910
<RECOVERIES> 1159
<ALLOWANCE-CLOSE> 133682
<ALLOWANCE-DOMESTIC> 133682
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
