SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended September 30, 1995 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Delaware 95-2080059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ___x___ No ______
The number of shares outstanding of the registrant's common
stock on October 31, 1995, was 58,640,879 shares.
<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 nine months
ended September 30, 1995 and 1994, have been prepared from unaudited
records of the Company and, in the opinion of the Company, all adjustments
(consisting only of normal recurring accruals) that are necessary for a fair
statement of the results for such three and nine month periods have been
included. The operating results for the nine months ended September 30,
1995, are not necessarily indicative of the results for the full year.
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
(Dollars in thousands)
September 30 September 30 December 31
1995 1994 1994
------------ ----------- -----------
<S> <C> <C> <C>
Assets:
Cash $ 173,994 $ 151,581 $ 242,441
Securities available for sale 1,249,736 1,655,133 1,488,845
Other investments 818,730 207,800 534,600
Mortgage-backed securities available for sale at fair value 298,221 716,709 323,339
Mortgage-backed securities held to maturity at cost without 917,005 522,700 871,039
recourse
Mortgage-backed securities held to maturity at cost with 1,969,697 -0- -0-
recourse
Loans receivable 27,951,161 25,670,613 27,071,266
Interest earned but uncollected 234,442 202,009 202,456
Investment in capital stock of Federal Home Loan Banks--at cost,
which approximates fair value 346,356 328,660 332,940
Real estate held for sale or investment 71,426 64,920 72,217
Prepaid expenses and other assets 225,899 213,362 206,478
Premises and equipment--at cost less accumulated depreciation 202,674 196,087 201,875
Goodwill arising from acquisitions 138,931 136,927 136,245
------------ ----------- -------------
$ 34,598,272 $30,066,501 $ 31,683,741
============ =========== =============
Liabilities and Stockholders' Equity:
Customer deposits $ 20,559,933 $18,530,133 $ 19,219,389
Advances from Federal Home Loan Banks 5,976,515 6,229,344 6,488,418
Securities sold under agreements to repurchase 1,865,172 626,687 601,821
Medium-term notes 1,864,229 664,199 1,164,079
Federal funds purchased -0- -0- 250,000
Accounts payable and accrued expenses 462,041 416,666 443,693
Taxes on income 352,232 314,718 294,508
Subordinated notes--net of discount 1,321,989 1,221,181 1,221,559
Stockholders' equity 2,196,161 2,063,573 2,000,274
------------ ----------- -------------
$ 34,598,272 $30,066,501 $ 31,683,741
============ =========== =============
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $540,154 $411,573 $1,557,366 $1,205,624
Interest on mortgage-backed securities 54,007 25,037 117,511 79,454
Interest and dividends on investments 37,611 31,551 112,935 92,239
------- ------- --------- ---------
631,772 468,161 1,787,812 1,377,317
Interest Expense:
Interest on customer deposits 274,000 180,584 779,795 512,580
Interest on advances 87,681 69,119 280,087 191,031
Interest on repurchase agreements 25,565 8,221 41,169 25,316
Interest on other borrowings 57,093 33,051 160,596 96,482
------- ------- --------- -------
444,339 290,975 1,261,647 825,409
------- ------- --------- -------
Net Interest Income 187,433 177,186 526,165 551,908
Provision for loan losses 14,622 15,996 44,052 50,434
------- ------- -------- ------
Net Interest Income after Provision
for Loan Losses 172,811 161,190 482,113 501,474
Non-Interest Income:
Fees 7,690 6,598 20,399 22,278
Loss on the sale of securities and
mortgage-backed securities (366) (73) (344) (106)
Other 3,152 3,261 10,660 10,473
------ ----- ------ ------
10,476 9,786 30,715 32,645
Non-Interest Expense:
General and administrative:
Personnel 37,692 37,221 111,909 109,139
Occupancy 12,431 11,297 36,406 32,417
Deposit insurance 11,602 10,204 33,162 30,325
Advertising 2,166 2,722 7,620 7,957
Other 14,596 13,691 45,918 41,834
--------- ------- -------- -------
78,487 75,135 235,015 221,672
Amortization of goodwill arising from acquisitions 527 682 2,393 1,907
--------- ------- -------- -------
79,014 75,817 237,408 223,579
--------- ------- -------- -------
Earnings Before Taxes on Income 104,273 95,159 275,420 310,540
Taxes on income 40,892 39,034 107,545 127,176
--------- ------- -------- -------
Net Earnings $ 63,381 $56,125 $167,875 $183,364
========= ======= ======== ========
Net earnings per share $ 1.08 $ .91 $ 2.86 $ 2.91
========= ======= ======== ========
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 63,381 $ 56,125 $ 167,875 $ 183,364
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 14,622 15,996 44,052 50,434
Amortization of loan fees and discounts (5,493) ( 6,241) (15,052) (23,063)
Depreciation and amortization 5,214 4,837 16,402 13,809
Loans originated for sale (33,002) (5,596) (43,488) (90,083)
Sales of loans originated for sale 14,435 5,413 23,982 142,996
Decrease (increase) in interest earned but uncollected 13,894 (2,747) (31,986) (26,929)
Federal Home Loan Bank stock dividends (4,659) (4,126) (16,779) (14,743)
Decrease (increase) in prepaid expenses and other assets 13,174 (22,852) (15,222) (97,591)
Increase (decrease) in accounts payable and accrued expenses 26,653 (6,949) 18,348 60,867
Increase (decrease) in taxes on income (4,203) (12,049) 27,772 (14,689)
Other, net (8,023) (5,578) (21,487) (18,700)
------ ------ ------- -------
Net cash provided by operating activities 95,993 16,233 154,417 165,672
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,342,404) (1,777,064) (4,535,012) (4,545,842)
Real estate loans purchased (478) (880) (29,923) (1,744)
Other, net (4,117) 44 (60,925) 2,862
--------- --------- --------- ---------
(1,346,999) (1,777,900) (4,625,860) (4,544,724)
Real estate loan principal payments:
Monthly payments 121,752 149,388 384,311 448,882
Payoffs, net of foreclosures 491,202 470,388 1,085,577 1,853,002
Refinances 50,693 66,835 126,532 261,139
------ ------- --------- ---------
663,647 686,611 1,596,420 2,563,023
Purchases of mortgage-backed securities available for sales -0- (919) (6,254) (1,500)
Purchases of mortgage-backed securities held to maturity (97,840) (25,724) (99,020) (46,067)
Sales of mortgage-backed securities available for sale -0- -0- 6,396 119
Repayments of mortgage-backed securities 63,708 49,903 121,298 279,153
Proceeds from sales of real estate 49,743 53,455 151,002 159,315
Purchases of securities available for sale (1,155,102) (398,094) (2,627,287) (2,401,279)
Sales and maturities of securities available for sale 1,351,080 515,510 2,941,154 2,355,417
Decrease (increase) in other investments 166,440 159,400 (284,130) 330,300
Purchases of Federal Home Loan Bank stock -0- -0- (13,486) -0-
Redemptions of Federal Home Loan Bank stock -0- -0- 12,650 7,775
Additions to premises and equipment (6,358) (23,639) (18,232) (46,877)
------- ------- --------- ---------
Net cash used in investing activities (311,681) (761,397) (2,845,349) (1,345,345)
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase (decrease) in deposits, net $ (399,563) $ 466,639 $ 713,689 $ 687,565
Interest credited 221,341 148,668 626,855 420,084
----------- ------------ ------------ ------------
(178,222) 615,307 1,340,544 1,107,649
Additions to Federal Home Loan Bank advances 25,800 14,000 575,890 37,000
Repayments of Federal Home Loan Bank advances (307,551) (7,521) (1,088,118) (89,543)
Increase in securities sold under
agreements to repurchase 693,486 246,291 1,263,351 183,813
Proceeds from medium-term notes -0- -0- 699,360 -0-
Repayments of medium-term notes -0- -0- -0- (12,865)
Repayments of Federal Funds purchased -0- -0- (250,000) -0-
Proceeds from subordinated debt -0- -0- 99,283 -0-
Dividends on common stock (4,990) (4,612) (14,955) (14,163)
Purchase and retirement of Company Stock (2,224) (80,290) (2,870) (123,822)
----------- ------------ ------------ ------------
Net cash provided by financing activities 226,299 783,175 2,622,485 1,088,069
----------- ------------ ------------ ------------
Net Increase (Decrease) in Cash 10,611 38,011 (68,447) ( 91,604)
Cash at beginning of period 163,383 113,570 242,441 243,185
----------- ------------ ------------ ------------
Cash at end of period $ 173,994 $ 151,581 $ 173,994 $ 151,581
=========== ============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 431,106 $ 288,514 $ 1,234,984 $ 828,705
Income taxes 45,716 51,362 81,768 142,144
Cash received for interest and dividends 645,666 465,414 1,755,826 1,350,388
Noncash investing activities:
Loans transferred to foreclosed real estate 56,287 60,313 162,507 174,468
Loans securitized into MBS with recourse 637,122 -0- 2,010,272 -0-
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------
1995 1994
---- ----
<S> <C> <C>
Common Stock:
Balance at January 1 $ 5,859 $ 6,393
Common stock issued upon exercise of stock options 14 14
Common stock retired upon purchase of stock (7) (311)
---------- ---------
Balance at September 30 5,866 6,096
---------- ---------
Paid-in Capital:
Balance at January 1 45,689 40,899
Common stock issued upon exercise of stock options 3,351 2,109
---------- ---------
Balance at September 30 49,040 43,008
---------- ---------
Retained Earnings:
Balance at January 1 1,929,740 1,933,593
Net earnings 167,875 183,364
Cash dividends on common stock (14,955) (14,163)
Retirement of stock (2,863) (123,511)
---------- ---------
Balance at September 30 2,079,797 1,979,283
---------- ---------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 18,986 84,719
Change during period 42,472 (49,533)
---------- ----------
Balance at September 30 61,458 35,186
---------- ----------
Total Stockholders' Equity at September 30 $2,196,161 $2,063,573
========== ==========
</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 nine month periods ended September 30, 1995 and 1994, respectively.
The following narrative is written with the presumption that the
users have read or have access to the Company's 1994 Form 10-K, which contains
the latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1994, and for the year then ended. Therefore,
only material changes in financial condition and results of operations are
discussed herein.
<PAGE>
Golden West Financial Corporation
Financial Highlights
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
September 30 September 30 December 31
1995 1994 1994
----------- ------------ ----------
<S> <C> <C> <C>
Assets $ 34,598,272 $ 30,066,501 $ 31,683,741
Loans receivable 27,951,161 25,670,613 27,071,266
Mortgage-backed securities 3,184,923 1,239,409 1,194,378
Customer deposits 20,559,933 18,530,133 19,219,389
Stockholders' equity 2,196,161 2,063,573 2,000,274
Stockholders' equity/total assets 6.35% 6.86% 6.31%
Book value per common share $ 37.44 $ 33.85 $ 34.14
Common shares outstanding 58,663,619 60,961,755 58,589,955
Yield on loan portfolio 7.68% 6.70% 6.91%
Yield on investments 6.05% 5.16% 5.42%
Yield on earning assets 7.58% 6.60% 6.81%
Cost of deposits 5.22% 4.05% 4.57%
Cost of borrowings 6.22% 5.23% 5.85%
Cost of funds 5.57% 4.42% 5.00%
Yield on earning assets less cost of funds 2.01% 2.18% 1.81%
Ratio of nonperforming assets to total assets 1.08% 1.35% 1.12%
Ratio of troubled debt restructured to total assets(a) .16% .20% .23%
World Savings and Loan Association:
Net worth $ 2,314,532 $ 2,325,607 $2,090,555
Net worth/total assets 7.08% 7.83% 6.74%
Regulatory capital ratios:
Tangible capital 6.54% 7.41% 6.26%
Core capital 6.54% 7.79% 6.64%
Risk-based capital 13.61% 15.67% 13.54%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
New real estate loans originated $ 1,375,406 $ 1,782,660 $ 4,578,500 $ 4,635,925
Average yield on new real estate loans 7.84% 6.35% 7.49% 6.37%
Increase (decrease) in customer deposits $ (178,222) $ 615,307 $ 1,340,544 $ 1,107,649
Net earnings 63,381 56,125 167,875 183,364
Net earnings per share 1.08 .91 2.86 2.91
Cash dividends on common stock .085 .075 .255 .225
Average common shares outstanding 58,681,021 61,655,775 58,637,427 62,955,404
Ratios:(b)
Net earnings/average net worth 11.71% 10.77% 10.65% 11.70%
Net earnings/average assets .74% .76% .67% .83%
Net interest income/average assets 2.18% 2.38% 2.09% 2.51%
General and administrative expense/average assets .91% 1.01% .93% 1.01%
</TABLE>
(a)Included in the TDR ratio is 0.04% or $13 million, 0.07% or
$20 million, and 0.07% or $22 million, related to the January
1994 Southern California earthquake, as of September 30, 1995
and 1994, and December 31, 1994, respectively.
(b)Ratios are annualized by multiplying the quarterly computation
by four and the nine-month computation by one and one-third.
Averages are computed by adding the beginning balance and each
monthend balance during the quarter and the nine month period and
dividing by four and ten, respectively.
<PAGE>
FINANCIAL CONDITION
The consolidated condensed balance sheet shown in the table below
presents the Company's assets and liabilities in percentage terms at
September 30, 1995 and 1994, and December 31, 1994. The reader is
referred to page 46 of the Company's 1994 Form 10-K for similar information
for the years 1991 through 1994 and a discussion of the changes in the
composition of the Company's assets and liabilities in those years.
TABLE 1
Consolidated Condensed Balance Sheet
<TABLE>
<CAPTION>
September 30 December 31
------------------ -----------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Assets:
Cash and investments 6.5% 6.7% 7.2%
Mortgage-backed securities 9.2 4.1 3.8
Loans receivable 80.8 85.4 85.4
Other assets 3.5 3.8 3.6
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Liabilities and Stockholders' Equity:
Customer deposits 59.4% 61.6% 60.7%
Federal Home Loan Bank advances 17.3 20.7 20.5
Securities sold under agreements to repurchase 5.4 2.1 1.9
Medium-term notes 5.4 2.2 3.7
Other liabilities 2.4 2.4 3.1
Subordinated debt 3.8 4.1 3.8
Stockholders' equity 6.3 6.9 6.3
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</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 September 30,
1995, the Company's assets are scheduled to reprice sooner than its
liabilities. Consequently, one would expect falling interest rates to
lower the Company's earnings and rising interest rates to increase the
Company's earnings. However, the Company's earnings are also affected by
the built-in lag inherent in the Eleventh District Cost of Funds Index (COFI),
which is the benchmark the Company uses to determine the rate on the great
majority of its adjustable rate mortgages. Consequently, the COFI reporting
lag causes assets to initially reprice two months later than liabilities,
enhancing earnings when rates are falling and holding down income when rates
rise.
<PAGE>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing Liabilities,
Repricing Gaps, and Gap Ratio
(Dollars in millions)
<TABLE>
<CAPTION>
September 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 $ 1,489 $ 188 $ 344 $ 48 $ 2,069
Mortgage-backed securities 2,085 108 472 520 3,185
Loans receivable:
Rate-sensitive 23,143 1,409 166 -0- 24,718
Fixed-rate 91 264 1,240 1,415 3,010
Other(b) 452 -0- -0- -0- 452
Impact of interest rate swaps and caps 796 193 (309) (680) -0-
------- ------ ------- ------- -------
Total $28,056 $2,162 $1 ,913 $1,303 $33,434
======= ====== ======= ======= =======
Interest-Bearing Liabilities(c):
Customer deposits $ 7,279 $9,535 $ 3,652 $ 94 $20,560
FHLB advances 5,011 412 424 130 5,977
Other borrowings 2,075 1,447 819 710 5,051
Impact of interest rate swaps and caps 2,788 (1,628) (1,202) 42 -0-
----- ------ ------- ------ -------
Total $17,153 $9,766 $ 3,693 $ 976 $31,588
======= ====== ======= ====== =======
Repricing gap $10,903 $(7,604) $(1,780) $ 327
======= ======= ======= ======
Cumulative gap $10,903 $ 3,299 $ 1,519 $1,946
======= ======= ======= ======
Cumulative gap as a percentageof total assets 31.5% 9.5% 4.4%
======= ======= =======
</TABLE>
(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.
<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 September 30, 1995 and 1994,
and December 31, 1994, World's average regulatory liquidity ratios were 6%,
7%, and 7%, respectively, consistently exceeding the requirement.
At September 30, 1995 and 1994, and December 31, 1994, the Company
had no securities held to maturity or for trading. At September 30, 1995 and
1994, and December 31,1994, the Company had securities available for sale in
the amount of $1.2 billion, $1.7 billion, and $1.5 billion, respectively,
and unrealized gains on securities available for sale of $89 million,
$36 million, and $23 million, respectively. For the impact on stockholders'
equity, see page 24.
Included in the securities available for sale at September 30, 1995
and 1994, and December 31, 1994, were collateralized mortgage obligations
(CMOs) in the amount of $484 million, $720 million, and $668 million,
respectively. The Company holds CMOs on which both principal and interest are
received. It does not hold any interest-only or principal-only CMOs. At
Septembe 30, 1995, the majority of the Company's CMOs are fixed-rate
with remaining terms to maturity of five years or less, and these qualify
for inclusion in the regulatory liquidity measurement.
MORTGAGE-BACKED SECURITIES
During the first nine months of 1995, the Company securitized
$2.0 billion of adjustable rate mortgages (ARMs) into Federal National
Mortgage Association (FNMA) COFI-indexed mortgage-backed securities
(MBS), to be used as collateral for borrowings. These securities are
subject to full credit recourse to the Company. The Company has the
ability and intent to hold these MBS until maturity. Accordingly, these MBS
are classified as held to maturity.
MBS held to maturity at September 30, 1995 and 1994, and
December 31, 1994, were $2.9 billion, $523 million, and $871 million,
respectively, including $1.97 billion of FNMA MBS subject to full credit
recourse at September 30, 1995. MBS available for sale at September 30, 1995
and 1994, and December 31, 1994, were $298 million, $717 million, and
$323 million, respectively. Unrealized gains on MBS available for sale
at September 30, 1995 and 1994, and December 31, 1994, were $16 million,
$20 million, and $6 million, respectively. For the impact on stockholders'
equity, see page 23.
Repayments of MBS during the third quarter and first nine
months of 1995 were $64 million and $121 million, respectively, compared to
$50 million and $279 million in the same periods of 1994.
At September 30, 1995, $2.0 billion (64%) of the Company's total
MBS portfolio were backed by ARMs. Fixed-rate mortgage-backed securities
which comprise the other 36% of the total MBS portfolio, are subject to
prepayment and interest rate risk similar to fixed-rate loans. In rising
interest rate environments, the rate of repayment on fixed-rate,
pass-through mortgage-backed securities tends to decrease because of
lower repayments on the underlying mortgages, and, conversely, as interest
rates fall, repayments on such securities tend to rise.
<PAGE>
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the three and nine months ended September
30, 1995 amounted to $1.4 billion and $4.6 billion, respectively, compared
to $1.8 billion and $4.6 billion for the same periods in 1994. The decline
in loan volume in the third quarter of 1995 was due to interest rate
decreases which brought down the price of new fixed-rate mortgage loans,
making competition from fixed-rate lenders more intense for adjustable rate
mortgage lenders, such as the Company. Refinanced loans constituted 31%
and 30% of new loan originations for the three and nine months ended
September 30, 1995, respectively, compared to 33% and 44% for the three
and nine months ended September 30, 1994, respectively.
The Company has lending operations in 24 states. The primary source
of mortgage origination is loans secured in California. For the three and
nine months ended September 30, 1995, 53% of total loan originations were on
residential properties in California compared to 59% and 64% for the same
periods in 1994, respectively. The five largest states, other than California,
for originations for the three and nine month periods ended September 30, 1995,
were Texas, Illinois, New Jersey, Florida, and Colorado and these amounted
to between 3.8% and 7.4% of total originations. Although California
originations continue to be a large portion of total originations, the
California share of total originations in 1995 decreased compared to 1994,
primarily due to both decreased loan volume in California and increased
loan volume in markets outside California. The percentage of the total loan
portfolio that is comprised of residential loans in California was 74% at
September 30, 1995, compared to 79% at September 30, 1994, and 77%
at December 31, 1994.
The tables on the following two pages show the Company's
loan portfolio by state at September 30, 1995, and 1994.
<PAGE>
TABLE 3
Loan Portfolio by State
September 30, 1995
(Dollars in thousands)
<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 $18,869,206 $3,337,180 $ 277 $ 74,020 $ -0- $22,280,683 73.99%
Colorado 818,258 207,409 -0- 7,841 -0- 1,033,508 3.43
Illinois 800,456 177,024 -0- 2,586 -0- 980,066 3.25
Texas 780,265 68,344 593 1,702 -0- 850,904 2.83
New Jersey 836,725 -0- -0- 8,440 2,214 847,379 2.81
Florida 654,941 -0- 247 1,424 -0- 656,612 2.18
Washington 347,367 299,209 -0- 796 -0- 647,372 2.15
Virginia 406,260 604 -0- 1,623 -0- 408,487 1.36
Arizona 353,127 40,271 -0- 1,745 -0- 395,143 1.31
Pennsylvania 369,861 -0- -0- 4,347 -0- 374,208 1.24
Connecticut 302,964 -0- -0- -0- -0- 302,964 1.01
Maryland 267,044 -0- -0- 610 -0- 267,654 0.89
Oregon 173,120 10,618 -0- 3,789 -0- 187,527 0.62
Nevada 155,791 1,250 -0- -0- -0- 157,041 0.52
Kansas 128,558 5,193 -0- 215 -0- 133,966 0.44
Utah 86,049 66 -0- 2,035 -0- 88,150 0.29
Missouri 65,305 7,138 -0- 77 -0- 72,520 0.24
Minnesota 70,001 -0- -0- -0- -0- 70,001 0.23
Wisconsin 50,876 4,218 -0- -0- -0- 55,094 0.18
New York 54,494 -0- -0- -0- -0- 54,494 0.18
Georgia 44,914 -0- -0- 1,974 -0- 46,888 0.16
Washington, DC 34,591 -0- -0- -0- -0- 34,591 0.11
Ohio 25,677 2,839 438 5,383 -0- 34,337 0.11
New Mexico 23,325 -0- -0- -0- -0- 23,325 0.08
Delaware 17,862 -0- -0- -0- -0- 17,862 0.06
Idaho 13,626 -0- -0- -0- -0- 13,626 0.05
North Carolina 9,060 351 -0- 3,026 -0- 12,437 0.04
Other 50,455 10,893 -0- 4,974 -0- 66,322 0.24
----------- ---------- ------ -------- ------ ----------- ------
Totals $25,810,178 $4,172,607 $1,555 $126,607 $2,214 30,113,161 100.0%
FAS 91 deferred loan fees (80,366)
Loan discount on purchased loans (6,770)
Undisbursed loan funds (3,623)
Allowance for loan losses (137,377)
LTF interest reserve (512)
TDR interest reserve (5,244)
Loans on customer deposits 34,774
Consumer loans 6,815
----------
Total loan portfolio and loans securitized into FNMA MBS with recourse 29,920,858
Loans securitized into FNMA MBS with recourse (1,969,697)(b)
----------
Total loan portfolio $27,951,161
===========
</TABLE>
(a) The Company has no commercial loans.
(b) Loans amounting to $1.97 billion have been securitized with
full credit recourse into FNMA mortgage-backed securities which can be
used to collateralize borrowings. These loans have been reflected in this
schedule by state.
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
Loan Portfolio by State
September 30, 1994
(Dollars in thousands)
Residential Commercial Loans as
Real Estate Real Total a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- - ----------- --------------- ------------- - ---------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
California $17,073,781 $3,272,319 $ 293 $83,959 $20,430,352 78.98%
Colorado 637,409 151,320 -0- 8,632 797,361 3.08
Illinois 551,839 157,661 -0- 4,868 714,368 2.76
New Jersey 594,290 40 -0- 155 594,485 2.30
Washington 263,322 229,284 -0- 824 493,430 1.91
Texas 442,100 3,240 607 1,792 447,739 1.73
Florida 410,158 -0- 342 2,142 412,642 1.60
Virginia 320,910 791 -0- 1,736 323,437 1.25
Arizona 236,714 9,818 -0- 1,828 248,360 0.96
Pennsylvania 226,061 -0- -0- 4,978 231,039 0.89
Connecticut 218,598 -0- -0- -0- 218,598 0.85
Maryland 183,772 -0- -0- 654 184,426 0.71
Oregon 138,442 8,246 -0- 3,966 150,654 0.58
Kansas 121,968 5,347 -0- 230 127,545 0.49
Nevada 113,252 1,343 -0- -0- 114,595 0.44
Missouri 60,254 8,060 -0- 79 68,393 0.26
New York 58,568 169 -0- -0- 58,737 0.23
Utah 52,216 71 -0- 2,213 54,500 0.21
Georgia 50,459 -0- -0- 2,545 53,004 0.20
Ohio 32,297 3,762 835 6,508 43,402 0.17
Wisconsin 19,737 3,746 -0- -0- 23,483 0.09
Washington DC 18,612 -0- -0- -0- 18,612 0.07
New Mexico 11,708 -0- -0- -0- 11,708 0.05
Minnesota 6,192 -0- -0- -0- 6,192 0.02
Idaho 5,421 -0- -0- -0- 5,421 0.02
Delaware 5,057 -0- -0- -0- 5,057 0.02
Other 20,251 486 -0- 10,478 31,215 0.13
----------- ---------- ------ -------- ---------- ------
Totals $21,873,388 $3,855,703 $2,077 $137,587 25,868,755 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (95,173)
Loan discount on purchased loans (7,141)
Undisbursed loan funds (2,839)
Allowance for loan losses (123,262)
LTF interest reserve (809)
TDR interest reserve (3,098)
Loans on customer deposits 29,910
Consumer loans 4,270
-----------
Total loan portfolio $25,670,613
===========
</TABLE>
(a) The Company has no commercial loans.
<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 September 30, 1995, compared to 89% at
September 30, 1994 and December 31, 1994. The Company's ARM originations
constituted approximately 94% of new mortgage loans made in the first nine
months of 1995 compared to 90% in the first nine months of 1994, and 88%
and 97% for the third quarters of 1995 and 1994, respectively.
The weighted average maximum lifetime cap rate on the Company's
ARM loan portfolio was 13.16%, or 5.67% above the actual weighted average rate
at September 30, 1995, versus 13.49%, or 7.18% above the weighted average rate
at September 30, 1994.
Approximately $5.2 billion of the Company's loans have terms that
state that the interest rate may not fall below a lifetime floor set at the
time of origination. As of September 30, 1995, $561 million of these
loans were at their rate floors. The weighted average floor rate
on these loans was 7.85% at September 30, 1995. Without the floor, the
average yield on these loans would have been 7.54%.
Loan repayments, consisting of monthly loan amortization, payoffs,
and refinances, remained at very low levels during the third quarter and first
nine months of 1995. Repayments for the three and nine months ended
September 30, 1995 were $664 million and $1.6 billion, respectively,
compared to $687 million and $2.6 billion in the same periods of 1994.
The decrease in loan repayments is primarily due to the winding down of the
refinancing boom by mid 1994 and favorable rates on COFI ARMs.
ASSET QUALITY
One measure of the soundness of the Company's portfolio is its ratio
of nonperforming assets (NPAs) to total assets. Nonperforming assets
included non-accrual loans (loans that are 90 days or more past due) and real
estate acquired through foreclosure. No interest is recognized on non-accrual
loans. The Company's troubled debt restructured (TDRs) is made up of loans
on which delinquent loan payments have been capitalized or on which temporary
interest rate reductions have been made, primarily to customers negatively
impacted by adverse economic conditions.
The table on the following page shows the components of the Company's
nonperforming assets and TDRs, And the ratios to total assets.
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
September 30 December 31
1995 1994 1994
----------- ----------- ------------
<S> <C> <C> <C>
Non-accrual loans $ 301,586 $ 342,192 $ 284,103
Real estate acquired through
foreclosure, net 70,727 62,239 70,981
Real estate in judgment 107 805 390
------------ ------------ -----------
Total nonperforming assets $ 372,420 $ 405,236 $ 355,474
============ ============ ===========
TDRs(a) $ 56,493 $ 61,608 $ 78,727
============ ============ ===========
Ratio of nonperforming assets to total assets 1.08% 1.35% 1.12%
Ratio of TDRs to total assets(a) 0.16% 0.20% 0.23%
Ratio of NPAs and TDRs to total assets(a) 1.24% 1.55% 1.35%
</TABLE>
(a) At September 30, 1995 and 1994, and December 31, 1994, respectively,
$13 million or 0.04%, $20 million or 0.07%, and $22 million or 0.07% of
TDRs were related to the January 1994 Southern California earthquake.
The Company continues to closely monitor all delinquencies, and takes
appropriate steps to protect its interests. Interest on non-accrual loans,
(loans greater than 90 days past due) is fully-reserved and amounted to $5
million and $14 million in the third quarter and first nine months of 1995,
respectively, compared to $4 million and $14 million in the same periods of
1994. Interest foregone on TDRs amounted to $482 thousand and $1.5 million
for the three and nine months ended September 30, 1995, respectively,
compared to $220 thousand and $465 thousand for the three and nine months
ended September 30, 1994.
The tables on the following two pages show the Company's
nonperforming assets by state at September 30, 1995, and 1994.
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
Nonperforming Assets by State
September 30, 1995
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
------------------------------- -----------------------------
Residential Commercial Commercial NPAs
Real Estate Real Residential Real Total as a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs Loans (b)
- - ---------- --------- ---------- --------- ------- ------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $251,455 $12,691 $413 $52,335 $12,650 $3,716 $333,260 1.50%
Colorado 1,658 64 -0- 49 -0- -0- 1,771 0.17
Illinois 2,531 1,078 -0- 859 400 -0- 4,868 0.50
Texas 2,301 -0- -0- 307 -0- -0- 2,608 0.31
New Jersey 10,218 -0- 2 412 -0- -0- 10,632 1.25
Florida 2,678 -0- 84 234 -0- -0- 2,996 0.46
Washington 783 -0- -0- 335 -0- -0- 1,118 0.17
Virginia 2,044 -0- -0- 326 -0- -0- 2,370 0.58
Arizona 1,138 -0- -0- -0- -0- -0- 1,138 0.29
Pennsylvania 2,222 -0- -0- -0- -0- -0- 2,222 0.59
Connecticut 3,307 -0- -0- (90) -0- -0- 3,217 1.06
Maryland 405 -0- -0- 213 -0- -0- 618 0.23
Oregon 608 -0- -0- -0- -0- -0- 608 0.32
Nevada 557 -0- -0- 113 -0- -0- 670 0.43
Kansas 561 40 -0- 21 -0- -0- 622 0.46
Utah 122 -0- -0- -0- -0- -0- 122 0.14
Missouri 407 -0- -0- 32 -0- -0- 439 0.61
Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00
Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00
New York 2,929 -0- -0- 724 -0- -0- 3,653 6.70
Georgia 1,046 -0- -0- -0- -0- -0- 1,046 2.23
Washington,DC -0- -0- -0- -0- -0- -0- -0- 0.00
Ohio -0- -0- 58 17 154 -0- 229 0.67
New Mexico 1 -0- -0- -0- -0- -0- 1 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina 80 -0- -0- -0- -0- -0- 80 0.64
Other 105 -0- -0- -0- -0- -0- 105 0.16
------- ------- ---- ------ ------- ------ ------- ----
Totals $287,156 $13,873 $557 $55,887 $13,204 $3,716 374,393 1.24
======== ======= ==== ======= ======= ====== ----
REO general valuation allowance (1,973) 0.00
-------- ----
Total nonperforming assets $372,420 1.24%
======== ====
</TABLE>
(a) Non-accrual loans are 90 days or more past due and have no unpaid
interest accrued.
(b) Loans amounting to $1.97 billion have been securitized with full
credit recourse into FNMA mortgage-backed securities which can be used to
collateralize borrowings. These loans and related nonperforming assets have
been reflected in this schedule by state.
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
Nonperforming Assets by State
September 30, 1994
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
---------------------------- --------------------------
Residential Commercial Commercial NPAs
Real Estate Real Residential Real Total as a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs Loans
- - ---------- --------- ---------- -------- -------- ------ -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $274,958 $25,550 $ 990 $47,826 $ 7,034 $ 4,471 $360,829 1.77%
Colorado 1,810 -0- 3,141 177 -0- 153 5,281 0.66
Illinois 3,145 774 -0- 244 -0- -0- 4,163 0.58
New Jersey 10,866 -0- -0- 1,676 -0- -0- 12,542 2.11
Washington 519 -0- -0- 121 -0- -0- 640 0.13
Texas 1,003 -0- -0- 351 -0- -0- 1,354 0.30
Florida 2,493 -0- 372 418 -0- -0- 3,283 0.80
Virginia 1,687 -0- -0- 147 -0- -0- 1,834 0.57
Arizona 1,608 -0- -0- -0- -0- -0- 1,608 0.65
Pennsylvania 1,899 -0- -0- 66 -0- -0- 1,965 0.85
Connecticut 3,890 -0- -0- (252) -0- -0- 3,638 1.66
Maryland 514 -0- -0- 678 -0- -0- 1,192 0.65
Oregon 324 -0- -0- -0- -0- -0- 324 0.22
Kansas 602 40 -0- 266 -0- -0- 908 0.71
Nevada 560 -0- -0- -0- -0- -0- 560 0.49
Missouri 359 44 -0- 117 287 -0- 807 1.18
New York 3,492 -0- -0- 778 -0- -0- 4,270 7.27
Utah 125 -0- -0- -0- -0- -0- 125 0.23
Georgia 1,026 -0- -0- 211 -0- -0- 1,237 2.33
Ohio 40 -0- 211 -0- -0- -0- 251 0.58
Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00
Washington DC -0- -0- -0- -0- -0- -0- -0- 0.00
New Mexico 4 -0- -0- -0- -0- -0- 4 0.03
Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- 0.00
Other 146 -0- -0- -0- -0- -0- 146 0.47
--------- ------- ------ ------- ------- ------- ------- ----
Totals $ 311,070 $26,408 $4,714 $52,824 $ 7,321 $ 4,624 406,961 1.57
========= ======= ====== ======= ======= =======
REO general valuation allowance (1,725) (0.00)
-------- ----
Total nonperforming assets $405,236 1.57%
======== ====
</TABLE>
(a) Non-accrual loans are 90 days or more past due and have no unpaid
interest accrued.
<PAGE>
The Company provides allowances for losses on impaired loans and real
estate owned when significant and permanent declines in value are identified.
The Company utilizes a methodology for monitoring and estimating loan losses
that is based on both historical experience in the loan portfolio and factors
that reflect current economic conditions. This approach uses a database
that identifies losses on loans and foreclosed real estate from past years to
the present, broken down by year of origination, type of loan, and geographical
area. Using these trends, management is able to estimate a range of loss
allowances to cover losses in the portfolio. In addition, periodic reviews
are made of major loans and real estate owned, and major lending areas are
fegularly reviewed to determine potential problems. Where indicated,
specific valuation allowances are established or adjusted. In estimating loan
losses, consideration is given to the estimated sale price, cost of
refurbishing, payment of delinquent taxes, cost of disposal, and cost of
holding the property. Additions to and reductions from the allowances are
reflected in current earnings.
The table below shows the changes in the allowance for loan losses
for the three and nine months ended September 30, 1995, and 1994.
<TABLE>
<CAPTION>
TABLE 8
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- ---------------------------
1995 1994 1995 1994
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Beginning allowance for loan losses $ 133,682 $ 118,587 $ 124,003 $ 106,698
Provision charged to expense 14,622 15,996 44,052 50,434
Less loans charged off (11,087) (11,621) (31,997) (34,646)
Add recoveries 160 300 1,319 776
------------ ------------ ------------ ------------
Ending allowance for loan losses $ 137,377 $ 123,262 $ 137,377 $ 123,262
============ ============ ============ ============
Ratio of net charge-offs to average loans
outstanding (including MBS with recourse) .15% .18% .14% .18%
=========== ============ =========== ============
Ratio of allowance for loan losses to
nonperforming assets 36.9% 30.4%
=========== ===========
</TABLE>
The Company has provided for any known losses related to the
January 1994 Southern California earthquake. The September 30, 1995
reserve for loan losses included $4 million in loss reserves specifically
identified for earthquake losses.
<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 122 amends Statement of Financial
Accounting Standard No. 65, "Accounting for Certain Mortgage Banking
Activities," to require that mortgage banking enterprises recognize, as
separate assets, rights to service mortgage loans for others, however those
mortgage servicing rights are acquired. SFAS 122 also requires that
mortgage banking enterprises assess capitalized mortgage servicing rights
based on the fair value of those rights on a disaggregated basis. SFAS 122
applies to fiscal years beginning after December 15, 1995. However, earlier
application is encouraged. Golden West has yet to determine whether to adopt
SFAS 122 early; however, if adopted during 1995, the impact on the Company's
financial condition and results of operations is not expected to be material.
CUSTOMER DEPOSITS
The Association's deposits are insured by the Savings Association
Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC) to
a maximum of $100,000 per depositor. The FDIC also administers a separate Bank
Insurance Fund (BIF) applicable to commercial banks and other non-SAIF insured
institutions. As of November 10, 1995, legislation is currently pending in
Congress which provides for a one-time assessment of approximately 0.80% of
total deposits, as of March 31, 1995, to be paid by SAIF members such
as the Association. Also, under certain circumstances, it provides for a
merger of the BIF and the SAIF. Under the legislation as currently proposed,
the Association's one-time assessment, on an after-tax basis, would be
approximately $95 million, based on total Association deposits of
approximately $20 billion as of March 31, 1995. In addition, it is expected
that, after payment of the one-time assessment by SAIF-member institutions,
the FDIC would lower the insurance premiums paid by SAIF members to a
rate equal to the rate paid by BIF members. Currently, SAIF members pay a
higher rate than BIF members. The pending legislation is subject to
change and there is no certainty that it will be enacted.
If the legislation passes in its current form and becomes law in
1995, and the one-time special assessment is charged against results of
operations, the one-time assessment would have a material impact on the
Company's 1995 results of operations. However, there would not be any effect
on the Association's status as a "well capitalized" institution, nor would
there be any material, adverse effect on the Association's
liquidity.
Customer deposits decreased during the third quarter of 1995 by
$178 million, including interest credited of $221 million, compared to an
increase of $615 million, including interest credited of $149 million,
in the third quarter of 1994. Customer deposit balances in the first
nine months of 1995 increased by $1.3 billion, including interest
credited of $627 million, compared to an increase of $1.1 billion, including
interest credited of $420 million, in the first nine months of 1994. The net
increase in customer deposits during the first nine months of 1995 resulted
primarily from ongoing marketing efforts and competitive rates offered by
the Company on its insured accounts in 1995. However, in the third quarter
of 1995, rates on new certificates of deposit trended downward causing some
customers to seek higher returns elsewhere in uninsured investments, resulting
in a net outflow for the quarter.
<PAGE>
The table below shows the Company's customer deposits by interest rate
and by remaining maturity at September 30, 1995, and 1994.
<TABLE>
<CAPTION>
TABLE 9
Customer Deposits
(Dollars in millions)
September 30
------------------------------------------------
1995 1994
----------------- -----------------------
Rate* Amount Rate* Amount
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Customer deposits by interest rate:
Interest-bearing checking accounts 1.25% $ 733 1.27% $ 726
Passbook accounts 2.23 583 2.16 667
Money market deposit accounts 3.14 1,379 2.95 2,048
Term certificate accounts with original maturities of:
4 weeks to 1 year 5.52 8,538 3.75 4,151
1 to 2 years 5.59 3,950 4.27 5,890
2 to 3 years 5.48 2,179 4.58 1,895
3 to 4 years 5.31 698 5.25 849
4 years and over 6.43 2,076 5.58 2,084
Retail jumbo CDs 5.76 420 4.81 208
All other 7.72 4 7.80 12
---------- ----------
$ 20,560 $ 18,530
========== ==========
Customer deposits by remaining maturity:
No contractual maturity $ 2,695 $
3,441
Maturity within one year:
4th quarter 4,584 3,112
1st quarter 4,628 3,174
2nd quarter 3,689 1,780
3rd quarter 1,217 1,604
--------- ---------
14,118 9,670
1 to 2 years 2,095 3,236
2 to 3 years 752 901
3 to 4 years 601 508
4 years and over 299 774
---------- ----------
$ 20,560 $ 18,530
========== ==========
</TABLE>
* Weighted average interest rate, including the effect of certain interest rate
swaps and caps used in interest rate risk management.
<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 $6.0 billion at September 30,
1995, compared to $6.2 billion and $6.5 billion at September 30, 1994,
and December 31, 1994, respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which
securities are sold under agreements to repurchase (Reverse Repos). Reverse
Repos are entered into with selected major government securities dealers,
large banks, and the FHLB, typically utilizing MBS from the Company's portfolio.
Reverse Repos with dealers, banks and the FHLB amounted to $1.9 billion,
$627 million, and $602 million at September 30, 1995 and 1994, and
December 31, 1994, respectively.
OTHER BORROWINGS
In June 1995, the Company issued $100 million of subordinated debt.
The debt will mature July 1, 2002 and has a note rate of 6.70%. At September
30, 1995 Golden West, at the parent level, had principal amounts outstanding
of $1.1 billion of subordinated debt. As of September 30, 1995, the Company's
subordinated debt securities were rated A3 and A- by Moody's Investors
Service (Moody's) and Standard & Poor's Corporation (S&P), respectively.
In 1995, the Company, filed a new shelf registration with the Securities
and Exchange Commission for the sale of up to $300 million of subordinated
debt securities, which became effective on July 28, 1995.
World currently has on file a shelf registration with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes, all of which was
available for issuance at September 30, 1995. World had medium-term notes
outstanding with principal amounts of $1.9 billion at September 30, 1995,
compared to $664 million at September 30, 1994, and $1.2 billion at December 31,
1994. As of September 30, 1995, World's medium-term notes were rated A1 and
A+ by Moody's and S&P, respectively.
World also has on file a registration statement with the OTS for
the sale of up to $300 million of subordinated notes and, at September 30,
1995, the full amount was available for issuance. As of September 30,
1995, World had issued a total of $200 million of subordinated notes, which
were rated A2 and A by Moody's and S&P, respectively. The subordinated notes
are included in World's risk-based regulatory capital as Supplementary
Capital.
<PAGE>
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during the first
nine months of 1995 as a result of earnings and increased market values of
securities available for sale. Unrealized gains on securities and MBS
available for sale included in stockholders' equity at September 30, 1995
and 1994, and December 31, 1994, were $62 million, $33 million, and $17
million, respectively. Also included in stockholders' equity at
September 30, 1995, are unrealized losses on MBS transferred to held to
maturity of $296 thousand, compared to unrealized gains of $2 million at
September 30, 1994, and December 31, 1994.
During periods of low asset growth, the Company's capital ratios may
build to levels well in excess of the amounts necessary to meet regulatory
capital requirements. Golden West's Board of Directors regularly
reviews alternative uses of excess capital, including faster growth and
acquisitions. At times, the Board has determined that repurchase of common
stock is a wise use of excess capital.
In 1993 and 1994, Golden West's Board of Directors authorized the
purchase, by the Company, of up to a total of 6.3 million shares of its
common stock. On August 1, 1995, the Company's Board authorized the
purchase of up to an additional 10%, or approximately 5.9 million shares, of
Golden West's outstanding common stock. As of September 30, 1995, 5.8 million
shares had been repurchased and retired at a cost of $226.3 million,
68 thousand of which were purchased and retired at a cost of $2.9 million
during the first nine months of 1995. The remaining number of shares authorized
for repurchase is 6.3 million as of September 30, 1995.
Dividends from World Savings are expected to continue to be the major
source of funding for the stock repurchase program. The repurchase of Golden
West stock is not intended to have a material impact on the normal liquidity of
the Company.
The Company has on file a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to two million shares
of its preferred stock. The preferred stock may be sold from time to time in
one or more transactions for total proceeds of up to $200 million. The
preferred stock may be issued in one or more series, may have varying
provisions and designations, and may be represented by depository
shares. The preferred stock is not convertible into common stock. No preferred
stock has yet been issued under the registration. The Company's preferred
stock has been preliminarily rated "a2" by Moody's.
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as World,
to meet certain minimum capital requirements. The table on the following
page shows World's current regulatory capital ratios and compares
them to the current OTS minimum requirements at September 30, 1995 and 1994.
<PAGE>
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994
----------------------------------------- ---------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
-------------------- ------------------ ---------------------------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------- -------- -------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $2,123,471 6.54% $ 487,097 1.50% $ 2,191,727 7.41% $ 443,548 1.50%
Core 2,123,471 6.54 974,194 3.00 2,302,614 7.79 887,096 3.00
Risk-based 2,441,239 13.61 1,434,813 8.00 2,607,182 15.67 1,331,353 8.00
</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 September 30, 1995.
TABLE 11
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
September 30, 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
ACTUAL WELL CAPITALIZED
---------------------- ------------------------
Capital Ratio Capital Ratio
----------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Leverage $ 2,123,471 6.54% $ 1,623,656 5.00%
Tier 1 risk-based 2,123,471 11.84 1,076,110 6.00
Total risk-based 2,441,239 13.61 1,793,516 10.00
</TABLE>
The table on the following page shows a reconciliation of World's
equity capital to regulatory capital under these OTS regulations at
September 30, 1995.
<PAGE>
TABLE 12
World Savings and Loan Association
Reconciliation of Equity Capital to Regulatory Capital
September 30, 1995
(Dollars in thousands)
<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 2,021,511
Unrealized gains on securities
available for sale 59,430
-----------
Equity capital $ 2.314,532 $ 2,314,532 $ 2,314,532 $ 2,314,532 $2,314,532 $$ 2,314,532
===========
Positive goodwill (208,295) (208,295) (208,295) (208,295) (208,295)
Negative goodwill 76,664 76,664 76,664 76,664 76,664
Gain on securities available for sale (59,430) (59,430) (59,430) (59,430) (59,430)
Equity/other investments (456)
Subordinated debt 199,246
General valuation allowance 118,978
----------- ------------ ----------- ----------- ------------
Regulatory capital $ 2,123,471 $ 2,123,471 $ 2,123,471 $ 2,123,471 $ 2,441,239
=========== ============ =========== =========== ============
Total assets $32,668,619
===========
Adjusted total assets $32,473,118 $32,473,118 $32,473,118
=========== =========== ===========
Risk-weighted assets $17,935,162 $17,935,162
=========== ===========
CAPITAL RATIO - ACTUAL 7.08% 6.54% 6.54% 6.54% 11.84% 13.61%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Standards:
Well capitalized, equal to or greater than 5.00% 6.00% 10.00%
=========== =========== ===========
Adequately capitalized, equal to or greater than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Significantly undercapitalized, less than 3.00% 3.00% 6.00%
=========== =========== ===========
Critically undercapitalized, equal to or less than 2.00%
============
</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 September 30, 1995 and 1994, and December 31, 1994.
<PAGE>
TABLE 13
Yield on Earning Assets,
Cost of Funds, and Primary Spread,
Including Effect of Purchase Accounting
<TABLE>
<CAPTION>
September 30 December 31
-------------------- -----------
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Yield on loan portfolio 7.68% 6.70% 6.91%
Yield on investments 6.05 5.16 5.42
---- ---- ----
Yield on earning assets 7.58 6.60 6.81
---- ---- ----
Cost of customer deposits 5.22 4.05 4.57
Cost of borrowings 6.22 5.23 5.85
---- ---- ----
Cost of funds 5.57 4.42 5.00
---- ---- ----
Primary spread 2.01% 2.18% 1.81%
==== ==== ====
</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 September 30, 1995, as
compared to September 30, 1994, was caused by the lingering effects of the
significant upward trend in interest rates which occurred in 1994 and early
1995. Specifically, when interest rates rose, the cost of borrowings increased
more quickly than the yield on assets which are comprised primarily of ARMs
tied to COFI. The Company's spread declined gradually, but steadily, from
September 30, 1994, dropping to 1.71% by March 31, 1995. As interest rates
decreased in the second quarter and subsequently stabilized, the spread
increased to 2.01% by September 30, 1995.
The Company enters into interest rate swaps and caps as a part of its
interest rate risk management strategy. The Company does not hold any
derivative financial instruments for trading purposes.
Interest rate swaps and caps decreased net interest income by
$6 million and $24 million for the three and nine months ended September 30,
1995, as compared to decreases of $3 million and $18 million for the same
periods in 1994.
The table on the following page summarizes the unrealized gains and
losses for interest rate swaps and caps at September 30, 1995 and 1994.
<PAGE>
<TABLE>
<CAPTION>
TABLE 14
Supplemental Schedule of
Unrealized Gains and Losses on Interest Rate Swaps and Caps
(Dollars in thousands)
September 30, 1995 September 30, 1994
-------------------------------------- ---------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain (Loss) Gains Losses Gain (Loss)
---------- ---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest rate caps $ 84 $ -0- $ 84 $ 259 $ -0- $ 259
Interest rate swaps 27,998 (62,254) (34,256) 93,668 (79,950) 13,718
------- -------- -------- ------- -------- -------
Total $28,082 $(62,254) $(34,172) $93,927 $(79,950) $13,977
======= ======== ======== ======= ======== =======
</TABLE>
TABLE 15
Schedule of Interest Rate Swaps and Caps Activity
(Notional amounts in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 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 (1,649) (335) -0- -0- (45)
Terminations -0- -0- -0- -0- -0-
Forward starting becoming effective 125 -0- -0- (125) -0-
Other -0- -0- -0- -0- -0-
------ ------ ---- ---- ----
Balance, September 30, 1995 $3,686 $1,890 $243 $ 10 $255
====== ====== ==== ==== ====
</TABLE>
(a) Receives based upon one index, pays based upon another index.
The range of floating interest rates received on swap contracts
in the first nine months of 1995 was 5.13% to 7.02%, and the range of floating
interest rates paid on swap contracts was 4.37% to 6.69%. The range of fixed
interest rates received on swap contracts in the first nine months of 1995
was 3.91% to 9.68% and the range of fixed interest rates paid on swap contracts
was 4.09% to 9.54%.
The table on the following page shows the Company's revenues and
expenses as a percentage of total revenues for the three and nine months ended
September 30, 1995 and 1994, in order to focus on the changes in
interest income between years as well as changes in other revenue and expense
amounts.
<PAGE>
TABLE 16
Selected Revenue and Expense Items
as Percentages of Total Revenues
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest on loans 84.1% 86.1% 85.6% 85.5%
Interest on mortgage-backed securities 8.4 5.3 6.5 5.6
Interest and dividends on investments 5.9 6.6 6.2 6.6
--- --- --- ---
98.4 98.0 98.3 97.7
Less:
Interest on customer deposits 42.7 37.8 42.9 36.4
Interest on advances and other borrowings 26.5 23.1 26.5 22.2
---- ---- ---- ----
69.2 60.9 69.4 58.6
Net interest income 29.2 37.1 28.9 39.1
Provision for loan losses 2.3 3.4 2.4 3.6
--- --- --- ---
Net interest income after provision for loan losses 26.9 33.7 26.5 35.5
Add:
Fees 1.2 1.3 1.1 1.6
Loss on the sale of securities and
mortgage-backed securities (0.1) 0.0 0.0 0.0
Other non-interest income 0.5 0.7 0.6 0.7
--- --- --- ---
1.6 2.0 1.7 2.3
Less:
General and administrative expenses 12.2 15.7 13.0 15.7
Amortization of goodwill 0.1 0.1 0.1 0.1
Taxes on income 6.3 8.2 5.9 9.0
--- --- --- ---
Net earnings 9.9% 11.7% 9.2% 13.0%
=== ==== === ====
</TABLE>
<PAGE>
INTEREST ON LOANS
In the third quarter of 1995, interest on loans was higher than in the
comparable 1994 period by $129 million or 31.2%. The increase in the third
quarter of 1995 was due to a $2.8 billion increase in the average portfolio
balance and a 118 basis point increase in the average portfolio yield. For
the first nine months of 1995 interest on loans was higher than the comparable
1994 period by $352 million or 29.2%. The increase was due to a $3.4 billion
increase in the average portfolio balance and a 89 basis point increase in
the average portfolio yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the third quarter of 1995 interest on mortgage-backed securities
was higher than in the comparable 1994 period by $29 million or 115.7%. The
1995 increase was due primarily to a $1.6 billion increase in the average
portfolio balance, which was partially offset by a 63 basis point decrease
in the average portfolio yield. For the first nine months of 1995, interest on
mortgage-backed securities was higher than in the comparable 1994 period by
$38 million or 47.9% due to a $753 million increase in the average portfolio
balance, which was partially offset by a 56 basis point decrease in the average
portfolio yield. The increase in the mortgage-backed securities portfolio,
and the lower average portfolio yield were primarily the result of the
securitization of adjustable-rate loans with full credit recourse this year
as discussed on page 11.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term investments.
For the third quarter of 1995, interest and dividends on investments were
$6 million or 19.2% higher than for the same period in 1994. The increase was
primarily due to a 104 basis point increase in the average portfolio yield and
a $12 million increase in the average portfolio balance. For the first nine
months of 1995,interest and dividends on investments was $21 million or 22.4%
higher than for the same period in 1994. The increase was primarily due to a
145 basis point increase in the average portfolio yield, which was partially
offset by a $103 million decrease in the average portfolio balance.
INTEREST ON CUSTOMER DEPOSITS
In the third quarter of 1995, interest on customer deposits increased
by $93 million or 51.7% from the comparable period of 1994. The third quarter
increase was due to a $2.3 billion increase in the average deposit balance
and a 135 basis point increase in the average costof deposits. For the first
nine months of 1995, interest on customer deposits was $267 million or 52.1%
higher than for the same period of 1994. The nine month increase was primarily
due to a 129 basis point increase in the average cost of deposits and a
$2.5 billion increase in the average balance of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the third quarter and first nine months of 1995, interest on
advances and other borrowings increased by $60 million or 54.3% and $169
million or 54.0%, respectively, from the comparable periods of 1994. The third
quarter increase was primarily due to a $2.2 billion increase in the average
balance and a 112 basis point increase in the average cost of these borrowings.
The nine month increase was primarily due to a $1.7 billion increase in the
average balance and a 134 basis point increase in the average cost of these
borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $14.6 million and $44.1 million,
respectively, for the three and nine months ended September 30, 1995, compared
to $16.0 million and $50.4 million for the same periods in 1994. The lower
provisions in 1995 reflect lower charge-offs and the slowly improving economy
in California.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
For the third quarter and first nine months of 1995, general and
administrative expenses (G&A) increased by $3.4 million or 4.5% and $13.3
million or 6.0%, respectively, from the comparable periods in 1994. The
primary reasons for the increases in 1995 were the growth in savings deposits
and general inflation. G&A as a percentage of average assets on an annualized
basis was 0.91% and 0.93% for the third quarter and first nine months of 1995,
respectively, compared to 1.01% for the same periods in 1994.
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses purchase accounting in connection
with certain acquisitions. The purchase accounting portion of income is not
subject to tax.
The corporate tax rates for the third quarter and first nine months
of 1995 were 39.2% and 39.0%, respectively, compared to 41.0% for the same
periods a year ago. The decrease in the third quarter and first nine months
of 1995 tax rate is the result of tax benefits from past acquisitions and the
final settlement ofprior year tax audits.
LIQUIDITY AND CAPITAL RESOURCES
World's principal sources of funds are cash flows generated from
earnings; customer deposits; loan repayments; borrowings from the FHLB;
issuance of medium-term notes; and debt collateralized by mortgages, MBS,
or securities. In addition, World has a number of other alternatives available
to provide liquidity or finance operations. These include borrowings from
public offerings of debt or equity, sales of loans, negotiable certificates
of deposit, issuances of commercial paper, and borrowings from commercial
banks. Furthermore, under certain conditions, World may borrow from the Federal
Reserve Bank of San Francisco to meet short-term cash needs. The availability
of these funds will vary depending upon policies of the FHLB, the Federal
Reserve Bank of San Francisco, and the Federal Reserve Board. For a discussion
of World's liquidity positions at September 30, 1995, and 1994, and
December 31, 1994, see the cash and investments section on page 12.
The principal sources of funds for Golden West (the Parent) are
interest on investments, dividends from World, and the proceeds from the
issuance of debt and equity securities. Various statutory and regulatory
restrictions and tax considerations limit the amount of dividends World can pay.
The principal liquidity needs of Golden West are for payment of interest on
subordinated debt securities, dividends to stockholders, the purchase of Golden
West stock (see stockholders' equity section on page 24), and general and
administrative expenses. At September 30, 1995 and 1994, and December 31,
1994, Golden West's total cash and investments amounted to $802 million, $771
million (including a $400 million short-term loan to the Association), and
$938 million (including a $250 million short-term loan to World), respectively.
<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: November 13, 1995. J. L. Helvey
J. L. Helvey
Group Senior Vice President
(duly authorized and principal financial
officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings Per Share
(Dollars in thousands except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Line 1:
Average Number of Common
Shares Outstanding 58,681,021 61,655,775 58,637,427 62,955,404
========== =========== ========== ==========
Line 2:
Net Earnings $ 63,381 $ 56,125 $ 167,875 $ 183,364
========== =========== ========== =========
Line 3:
Earnings Per Common Share
(Line 2 divided by Line 1) $ 1.08 $ .91 $ 2.86 $ 2.91
========== ========== ========== =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 173,994
<INT-BEARING-DEPOSITS> 164,001
<FED-FUNDS-SOLD> 425,730
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,547,957
<INVESTMENTS-CARRYING> 3,705,432
<INVESTMENTS-MARKET> 3,756,303
<LOANS> 27,951,161
<ALLOWANCE> 137,377
<TOTAL-ASSETS> 34,598,272
<DEPOSITS> 20,559,933
<SHORT-TERM> 1,865,172
<LIABILITIES-OTHER> 814,273
<LONG-TERM> 9,162,733
<COMMON> 5,866
0
0
<OTHER-SE> 2,190,295
<TOTAL-LIABILITIES-AND-EQUITY> 34,598,272
<INTEREST-LOAN> 1,557,366
<INTEREST-INVEST> 112,935
<INTEREST-OTHER> 117,511
<INTEREST-TOTAL> 1,787,812
<INTEREST-DEPOSIT> 779,795
<INTEREST-EXPENSE> 1,261,647
<INTEREST-INCOME-NET> 526,165
<LOAN-LOSSES> 44,052
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 237,408
<INCOME-PRETAX> 275,420
<INCOME-PRE-EXTRAORDINARY> 275,420
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,875
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 2.86
<YIELD-ACTUAL> 7.58
<LOANS-NON> 301,586
<LOANS-PAST> 0
<LOANS-TROUBLED> 56,493
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 124,003
<CHARGE-OFFS> 31,997
<RECOVERIES> 1,319
<ALLOWANCE-CLOSE> 137,377
<ALLOWANCE-DOMESTIC> 137,377
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
