SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended June 30, 1996 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
Delaware 95-2080059
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
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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
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The number of shares outstanding of the registrant's common stock on
July 31, 1996, was 57,682,059 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, 1996 and 1995 are unaudited. 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 three and six months ended June 30,
1996, 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)
June 30 June 30 December 31
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Assets:
Cash $ 189,724 $ 163,383 $ 218,695
Securities available for sale at fair value 495,607 1,436,905 901,856
Other investments at cost 1,210,140 985,170 1,190,160
Mortgage-backed securities available for sale without recourse at
fair value 252,712 309,201 282,881
Mortgage-backed securities available for sale with recourse at
fair value 224,466 -0- -0-
Mortgage-backed securities held to maturity without recourse at cost 832,021 841,947 893,774
Mortgage-backed securities held to maturity with recourse at cost 2,103,642 1,364,111 2,232,686
Loans receivable 29,059,953 27,939,843 28,181,353
Interest earned but uncollected 224,564 248,336 225,395
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 397,463 342,306 350,955
Real estate held for sale or investment 73,221 68,350 76,187
Prepaid expenses and other assets 366,036 238,464 222,015
Premises and equipment--at cost less accumulated depreciation 208,000 202,437 203,637
Goodwill arising from acquisitions 137,826 139,458 138,562
------------- ------------ -------------
$ 35,775,375 $34,279,911 $35,118,156
============= ============ =============
Liabilities and Stockholders' Equity:
Customer deposits $ 21,040,598 $20,738,155 $20,847,910
Advances from Federal Home Loan Banks 7,175,549 6,258,155 6,447,201
Securities sold under agreements to repurchase 2,317,258 1,171,686 1,817,943
Medium-term notes 689,662 1,863,947 1,597,507
Accounts payable and accrued expenses 513,018 435,388 450,814
Taxes on income 353,855 354,715 356,036
Subordinated notes--net of discount 1,323,189 1,321,585 1,322,392
Stockholders' equity 2,362,246 2,136,280 2,278,353
------------- ----------- ------------
$ 35,775,375 $34,279,911 $35,118,156
============= ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- -------------------------------
1996 1995 1996 1995
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $ 542,280 $ 527,221 $ 1,083,488 $ 1,017,212
Interest on mortgage-backed securities 59,861 37,939 121,534 63,504
Interest and dividends on investments 28,037 38,985 64,263 75,324
------------- ------------ ------------ ------------
630,178 604,145 1,269,285 1,156,040
Interest Expense:
Interest on customer deposits 257,912 269,890 523,282 505,795
Interest on advances 91,692 98,002 181,673 192,406
Interest on repurchase agreements 33,966 9,124 62,354 15,604
Interest on other borrowings 38,105 54,828 85,814 103,503
------------- ------------ ------------ ------------
421,675 431,844 853,123 817,308
------------- ------------ ------------ ------------
Net Interest Income 208,503 172,301 416,162 338,732
Provision for loan losses 17,236 14,651 35,758 29,430
------------- ------------ ------------ ------------
Net Interest Income after Provision
for Loan Losses 191,267 157,650 380,404 309,302
Non-Interest Income:
Fees 9,485 6,417 18,368 12,709
Gain on the sale of securities, MBS
and loans 3,147 4 7,831 22
Other 3,481 2,806 6,725 7,508
------------- ------------ ------------ ------------
16,113 9,227 32,924 20,239
Non-Interest Expense:
General and administrative:
Personnel 39,742 37,697 79,127 74,217
Occupancy 12,349 12,155 24,565 23,975
Deposit insurance 10,017 10,899 21,349 21,560
Advertising 2,509 2,826 4,757 5,454
Other 15,852 14,567 31,462 31,322
------------- ------------ ------------ ------------
80,469 78,144 161,260 156,528
Amortization of goodwill arising
from acquisitions 368 930 736 1,866
------------- ------------ ------------ ------------
80,837 79,074 161,996 158,394
------------- ------------ ------------ ------------
Earnings Before Taxes on Income 126,543 87,803 251,332 171,147
Taxes on Income 50,039 34,242 99,316 66,653
------------- ------------ ------------ ------------
Net Earnings $ 76,504 $ 53,561 $ 152,016 $ 104,494
============= ============ ============ ============
Net earnings per share $ 1.32 $ .91 $ 2.60 $ 1.78
============= ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ----------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 76,504 $ 53,561 $ 152,016 $ 104,494
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Provision for loan losses 17,236 14,651 35,758 29,430
Amortization of loan fees and discounts (6,155) (4,675) (12,681) (9,559)
Depreciation and amortization 5,203 5,598 10,364 11,188
Loans originated for sale (140,893) (7,933) (335,252) (10,486)
Sales of loans originated for sale 149,216 7,521 334,879 9,547
Decrease (increase) in interest earned but uncollected (6,217) (18,930) 831 (45,880)
Federal Home Loan Bank stock dividends (5,233) (3,609) (14,484) (12,120)
(Increase) in prepaid expenses and other assets (70,203) (18,423) (138,946) (28,396)
Increase (decrease) in accounts payable and accrued expenses 25,121 (27,947) 62,204 (8,305)
Increase (decrease) in taxes on income (36,558) 11,943 (986) 31,975
Other, net (3,641) (5,278) (9,378) (16,447)
------------ ------------ ------------ -------------
Net cash provided by operating activities 4,380 6,479 84,325 55,441
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,773,730) (1,440,927) (2,757,814) (3,192,608)
Real estate loans purchased (1,875) (1,076) (2,075) (29,445)
Other, net (5,039) (6,829) (5,515) (56,808)
------------ ------------ ------------ -------------
(1,780,644) (1,448,832) (2,765,404) (3,278,861)
Real estate loan principal payments:
Monthly payments 148,314 123,998 289,862 262,559
Payoffs, net of foreclosures 601,219 330,768 1,122,430 594,375
Refinances 73,409 40,270 140,297 75,839
------------ ------------ ------------ -------------
822,942 495,036 1,552,589 932,773
Purchases of mortgage-backed securities available for sale -0- -0- -0- (6,254)
Purchases of mortgage-backed securities held to maturity (1,456) (9) (1,518) (1,180)
Sales of mortgage-backed securities available for sale -0- -0- -0- 6,396
Repayments of mortgage-backed securities 115,379 32,511 219,938 57,590
Proceeds from sales of real estate 46,675 46,949 97,978 101,259
Purchases of securities available for sale (7,010) (1,031,412) (330,245) (1,472,185)
Sales of securities available for sale 6,182 -0- 81,133 110,610
Maturities of securities available for sale 210,674 913,058 654,871 1,479,464
Decrease (increase) in other investments (123,885) 302,680 (19,980) (450,570)
Purchases of Federal Home Loan Bank stock -0- (250) (37,099) (13,486)
Redemptions of Federal Home Loan Bank stock -0- 12,500 -0- 12,650
Additions to premises and equipment (5,504) (5,189) (12,443) (11,874)
------------ ------------ ------------ -------------
Net cash used in investing activities (716,647) (682,958) (560,180) (2,533,668)
</TABLE>
<PAGE>
<TABLE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ---------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase (decrease) in deposits, net $ (160,817) $ 293,734 $ (231,656) $ 1,113,252
Interest credited 210,634 217,759 424,344 405,514
------------ ------------ ------------ ------------
49,817 511,493 192,688 1,518,766
Additions to Federal Home Loan Bank advances 737,500 17,800 763,450 550,090
Repayments of Federal Home Loan Bank advances (21,807) (774,540) (35,277) (780,567)
Proceeds from agreements to repurchase securities 1,619,309 1,196,185 2,015,671 1,464,995
Repayments of agreements to repurchase securities (1,441,422) (391,580) (1,516,356) (895,130)
Proceeds from medium-term notes -0- -0- -0- 699,360
Repayments of medium-term notes (200,000) -0- (908,135) -0-
Proceeds from federal funds purchased 675,000 -0- 1,250,000 -0-
Repayments of federal funds purchased (675,000) -0- (1,250,000) (250,000)
Proceeds from subordinated debt -0- 99,283 -0- 99,283
Dividends on common stock (5,514) (4,986) (11,095) (9,965)
Sale of stock 2,183 2,725 4,445 2,983
Purchase and retirement of Company stock (41,494) -0- (58,507) (646)
------------ ------------ ------------ ------------
Net cash provided by financing activities 698,572 656,380 446,884 2,399,169
------------ ------------ ------------ ------------
Net Decrease in Cash (13,695) (20,099) (28,971) (79,058)
Cash at beginning of period 203,419 183,482 218,695 242,441
------------ ------------ ------------ ------------
Cash at end of period $ 189,724 $ 163,383 $ 189,724 $ 163,383
============ ============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 412,194 $ 428,917 $ 865,824 $ 803,878
Income taxes 85,707 24,646 105,578 36,052
Cash received for interest and dividends 623,961 585,215 1,270,116 1,110,160
Noncash investing activities:
Loans transferred to foreclosed real estate 46,815 45,110 98,989 106,220
Loans securitized into MBS with recourse 226,210 1,085,491 226,210 1,373,150
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
Six Months Ended
June 30
--------------------------
1996 1995
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<S> <C> <C>
Common Stock:
Balance at January 1 $ 5,887 $ 5,859
Common stock issued upon exercise of stock options 16 12
Common stock retired upon purchase of stock (111) (2)
---------- ----------
Balance at June 30 5,792 5,869
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Paid-in Capital:
Balance at January 1 55,353 45,689
Common stock issued upon exercise of stock options 4,429 2,971
---------- ----------
Balance at June 30 59,782 48,660
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Retained Earnings:
Balance at January 1 2,140,883 1,929,740
Net earnings 152,016 104,494
Cash dividends on common stock (11,095) (9,965)
Retirement of stock (58,396) (644)
---------- ----------
Balance at June 30 2,223,408 2,023,625
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Unrealized Gains on Securities Available for Sale:
Balance at January 1 76,230 18,986
Change during period (2,966) 39,140
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Balance at June 30 73,264 58,126
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Total Stockholders' Equity at June 30 $2,362,246 $2,136,280
============ ===========
</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, 1995, as well as certain material changes in results of operations during
the three and six month periods ended June 30, 1996, and 1995, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1995 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, 1995, and for the year then ended. Therefore,
only material changes in financial condition and results of operations are
discussed herein.
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
June 30 June 30 December 31
1996 1995 1995
------------ ------------ -------------
<S> <C> <C> <C>
Assets $35,775,375 $34,279,911 $35,118,156
Loans receivable 29,059,953 27,939,843 28,181,353
Mortgage-backed securities 3,412,841 2,515,259 3,409,341
Customer deposits 21,040,598 20,738,155 20,847,910
Stockholders' equity 2,362,246 2,136,280 2,278,353
Stockholders' equity/total assets 6.60% 6.23% 6.49%
Book value per common share $ 40.78 $ 36.40 $ 38.70
Common shares outstanding 57,923,709 58,693,955 58,871,409
Yield on loan portfolio 7.46% 7.59% 7.69%
Yield on mortgage-backed securities 7.21% 7.50% 7.41%
Yield on investments 5.82% 5.97% 5.96%
Yield on earning assets 7.36% 7.47% 7.56%
Cost of deposits 4.92% 5.32% 5.15%
Cost of borrowings 5.93% 6.32% 6.15%
Cost of funds 5.28% 5.66% 5.50%
Yield on earning assets less cost of funds 2.08% 1.81% 2.06%
Ratio of nonperforming assets to total assets 1.24% 1.07% 1.11%
Ratio of troubled debt restructured to total assets .16% .21% .13%
World Savings and Loan Association:
Total assets $25,346,921 $33,022,114 $ 30,354,740
Net worth 1,939,496 2,237,942 2,128,329
Net worth/total assets 7.65% 6.78% 7.01%
Regulatory capital ratios:
Tangible capital 6.91% 6.24% 6.38%
Core capital 6.91% 6.24% 6.38%
Risk-based capital 14.84% 13.04% 13.40%
World Savings Bank, a Federal Savings Bank:
Total assets $10,281,997 $ 230,458 $ 4,017,491
Net worth 764,471 38,364 566,851
Net worth/total assets 7.44% 16.65% 14.11%
Regulatory capital ratios:
Tangible capital 7.40% 14.94% 14.01%
Core capital 7.40% 14.94% 14.01%
Risk-based capital 13.46% 29.68% 26.55%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- -----------------------------
1996 1995 1996 1995
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
New real estate loans originated $ 1,914,623 $1,448,860 $ 3,093,066 $ 3,203,094
Average yield on new real estate loans 7.62% 7.63% 7.65% 7.35%
Increase in customer deposits $ 49,817 $ 511,493 $ 192,688 $ 1,518,766
Net earnings 76,504 53,561 152,016 104,494
Net earnings per share 1.32 .91 2.60 1.78
Cash dividends on common stock .095 .085 .19 .17
Average common shares outstanding 58,283,423 58,643,735 58,536,031 58,615,270
Ratios:(a)
Net earnings/average net worth 13.03% 10.18% 13.06% 10.09%
Net earnings/average assets .87% .63% .86% .63%
Net interest income/average assets 2.36% 2.04% 2.37% 2.04%
General and administrative expense/average assets .91% .92% .92% .94%
</TABLE>
(a) 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.
<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,
1996 and 1995, and December 31, 1995. The reader is referred to page 48 of the
Company's 1995 Form 10-K for similar information for the years 1992 through
1995 and a discussion of the changes in the composition of the Company's
assets and liabilities in those years.
<TABLE>
<CAPTION>
TABLE 1
Consolidated Condensed Balance Sheet
In Percentage Terms
June 30
-------------------- December 31
1996 1995 1995
------- ------- -------------
<S> <C> <C> <C>
Assets:
Cash and investments 5.3% 7.6% 6.6%
Mortgage-backed securities 9.5 7.3 9.7
Loans receivable 81.2 81.5 80.2
Other assets 4.0 3.6 3.5
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
Liabilities and Stockholders' Equity:
Customer deposits 58.8% 60.5% 59.4%
Federal Home Loan Bank advances 20.1 18.3 18.4
Securities sold under agreements to repurchase 6.5 3.4 5.2
Medium-term notes 1.9 5.4 4.5
Other liabilities 2.4 2.3 2.2
Subordinated debt 3.7 3.9 3.8
Stockholders' equity 6.6 6.2 6.5
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
</TABLE>
As the above table shows, customer deposits represent the majority of
the Company's liabilities. The largest asset component is the loan portfolio,
which consists primarily of long-term mortgages. The disparity between the
repricing (maturity or interest rate change) of deposits and borrowings and the
repricing of mortgage loans and investments 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, 1996, the
Company's assets mature or 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. Specifically,
there is a two-month delay in reporting the COFI because of the time required to
gather the data needed to compute the index. As a result, the current COFI
actually reflects the Eleventh District's cost of funds at the level it was two
months prior. Consequently, when the interest rate environment changes, 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. In addition to the COFI reporting lag, other elements of ARM loans also
have an impact on earnings. These elements are the interest rate adjustment
frequency of ARM loans, interest rate caps or limits on individual rate changes,
interest rate floors, and introductory rates on new ARM loans.
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of June 30, 1996
(Dollars in millions)
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 $ 1,515 $ 5 $ 184 $ 2 $ 1,706
Mortgage-backed securities 2,428 93 345 547 3,413
Loans receivable:
Rate-sensitive 24,183 1,612 121 -0- 25,916
Fixed-rate 78 230 980 1,572 2,860
Other(b) 508 -0- -0- -0- 508
Impact of interest rate swaps and caps 569 73 19 (661) -0-
---------- ----------- ---------- ---------- ----------
Total $ 29,281 $ 2,013 $ 1,649 $ 1,460 $ 34,403
========== =========== ========== ========== ==========
Interest-Bearing Liabilities(c):
Customer deposits $ 7,064 $ 10,965 $ 2,940 $ 71 $ 21,040
FHLB advances 4,793 1,834 340 209 7,176
Other borrowings 2,701 415 619 595 4,330
Impact of interest rate swaps 1,938 (817) (1,125) 4 -0-
---------- ----------- ---------- ---------- ----------
Total $ 16,496 $ 12,397 $ 2,774 $ 879 $ 32,546
========== =========== ========== ========== ==========
Repricing gap $ 12,785 $ (10,384) $ (1,125) $ 581
========== =========== ========== ==========
Cumulative gap $ 12,785 $ 2,401 $ 1,276 $ 1,857
========== =========== ========== ==========
Cumulative gap as a percentage of
total assets 35.7% 6.7% 3.6%
=========== =========== ==========
</TABLE>
(a) Based on scheduled maturity or scheduled repricing; loans reflect
scheduled repayments and projected prepayments of principal.
(b) Includes cash n 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 World Savings and Loan Association (World or Association) and World
Savings Bank, a Federal Savings Bank (WFSB), 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, 1996 and 1995, and December
31, 1995, World's average regulatory liquidity ratios were 7%, 6%, and 8%,
respectively, consistently exceeding the requirement. For the months ended June
30, 1996, and December 31, 1995, WFSB's average regulatory liquidity ratios were
5.4% and 6%, respectively, consistently exceeding the requirement. The level of
the Company's investments position in excess of its liquidity requirements at
any time depends on liquidity needs.
At June 30, 1996 and 1995, and December 31, 1995, the Company had
securities available for sale in the amount of $496 million, $1.4 billion, and
$902 million, respectively, including net unrealized gains on securities
available for sale of $114 million, $83 million, and $117 million, respectively.
At June 30, 1996 and 1995, and December 31, 1995, the Company had no securities
held to maturity or for trading.
Included in the securities available for sale at June 30, 1996 and
1995, and December 31, 1995, were collateralized mortgage obligations (CMOs) in
the amount of $279 million, $556 million, and $408 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, 1996, the
majority of the Company's CMOs were fixed-rate instruments with remaining terms
to maturity of five years or less, and qualified for inclusion in the regulatory
liquidity measurement.
MORTGAGE-BACKED SECURITIES
At June 30, 1996 and 1995, and December 31, 1995, the Company had
mortgage-backed securities (MBS) held to maturity in the amount of $2.9 billion,
$2.2 billion, and $3.1 billion, respectively, including $2.1 billion of Federal
National Mortgage Association (FNMA) MBS subject to full credit recourse at June
30, 1996. At June 30, 1996 and 1995, and December 31, 1995, the Company had
mortgage-backed securities available for sale in the amount of $477 million,
$309 million, and $283 million, respectively, including net unrealized gains on
MBS available for sale of $12 million, $15 million, and $14 million,
respectively, and including $224 million of FNMA MBS subject to full credit
recourse at June 30, 1996. At June 30, 1996 and 1995, and December 31, 1995, the
Company had no trading MBS.
In June 1996, the Company securitized $226 million of adjustable rate
mortgages (ARMs) into FNMA COFI-indexed MBS. These MBS are classified as
available for sale. During 1995, the Company securitized $2.3 billion of ARMs
into FNMA COFI-indexed MBS. The Company has the ability and intent to hold these
MBS until maturity. Accordingly, these MBS are classified as held to maturity.
Both the FNMA COFI-indexed MBS available for sale and the FNMA COFI-indexed MBS
held to maturity are to be used as collateral for borrowings and are subject to
full credit recourse to the Company.
<PAGE>
Repayments of MBS during the second quarter and first six months of
1996 were $115 million and $220 million, respectively, compared to $33 million
and $58 million in the same periods of 1995. The increase in repayments on MBS
during the first six months of 1996 as compared to the first half of 1995 was
primarily due to the increase in MBS that resulted from the securitization of
ARM loans into FNMA MBS and an increase in prepayments on the underlying
mortgages.
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the three and six months ended June 30, 1996,
amounted to $1.9 billion and $3.1 billion, respectively, compared to $1.4
billion and $3.2 billion for the same periods in 1995. The increase in loan
volume in the second quarter of 1996 was due to an increase in interest rates
which pushed the rate on new fixed-rate mortgages above the 8% level while the
starting rates on ARMs, the Company's principal product, remained low and more
affordable. The Company continues to sell most of its fixed-rate originations.
Loans originated for sale for the three and six months ended June 30, 1996 were
$141 million and $335 million, respectively, compared to $8 million and $10
million for the same periods in 1995. Although interest rates increased during
the second quarter of 1996, interest rates on fixed-rate loans in the first six
months of 1996 have generally been at levels below the same periods of 1995,
helping to cause an increase in activity in fixed-rate loans during 1996.
Refinanced loans constituted 36% and 38% of new loan originations for the three
and six months ended June 30, 1996, compared to 31% and 30% for the three and
six months ended June 30, 1995.
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, 1996, 51% and 52%, respectively, of
total loan originations were on residential properties in California compared to
48% and 53% for the same periods in 1995. The five largest states, other than
California, for originations for the three and six months ended June 30, 1996,
were Texas, Florida, Colorado, Illinois, and Arizona with a combined total of
29% and 28%, respectively, of total originations. The percentage of the total
loan portfolio (including mortgage-backed securities with recourse) that is
comprised of residential loans in California was 71% at June 30, 1996 compared
to 75% at June 30, 1995, and 73% at December 31, 1995.
The tables on the following two pages show the Company's loan portfolio by
state at June 30, 1996 and 1995.
<PAGE>
<TABLE>
888<CAPTION>
TABLE 3
Loan Portfolio by State
June 30, 1996
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
------------------------ Real Total a % of
State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio
- --------------- ----------- ---------- ---------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
California $19,232,989 $3,362,817 $ 264 $ 67,333 $ -0- $22,663,403 71.70%
Colorado 879,922 229,322 -0- 7,448 -0- 1,116,692 3.53
Illinois 906,070 180,441 -0- 1,951 -0- 1,088,462 3.44
Texas 943,562 94,956 583 1,628 -0- 1,040,729 3.29
New Jersey 920,148 411 -0- 7,397 139 928,095 2.94
Florida 822,356 11,428 169 984 -0- 834,937 2.64
Washington 370,901 322,017 -0- 773 -0- 693,691 2.20
Arizona 510,195 52,225 -0- 1,697 -0- 564,117 1.79
Virginia 450,726 4,393 -0- 1,530 -0- 456,649 1.45
Pennsylvania 419,594 278 -0- 3,889 -0- 423,761 1.34
Connecticut 343,346 -0- -0- 14 -0- 343,360 1.09
Maryland 289,560 1,075 -0- 574 -0- 291,209 0.92
Oregon 186,326 11,067 -0- 2,820 -0- 200,213 0.63
Nevada 163,022 1,174 -0- -0- -0- 164,196 0.52
Kansas 131,706 4,977 -0- 203 -0- 136,886 0.43
Utah 116,001 63 -0- 1,891 -0- 117,955 0.37
Minnesota 99,144 2,351 -0- -0- -0- 101,495 0.32
Wisconsin 74,466 4,195 -0- -0- -0- 78,661 0.25
Missouri 65,726 6,763 -0- -0- -0- 72,489 0.23
New York 51,168 -0- -0- 20 -0- 51,188 0.16
Georgia 39,087 -0- -0- 1,941 -0- 41,028 0.13
Washington DC 37,510 -0- -0- -0- -0- 37,510 0.12
Massachusetts 31,476 -0- -0- 20 -0- 31,496 0.10
Ohio 20,558 2,486 298 4,593 -0- 27,935 0.09
New Mexico 27,880 -0- -0- -0- -0- 27,880 0.09
Idaho 20,828 -0- -0- -0- -0- 20,828 0.07
Delaware 20,065 -0- -0- -0- -0- 20,065 0.06
North Carolina 8,334 279 -0- 522 -0- 9,135 0.03
Other 17,551 22 -0- 4,765 -0- 22,338 0.07
----------- ---------- --------- ----------- ------------ ------------ ---------
Totals $27,200,217 $4,292,740 $ 1,314 $ 111,993 $ 139 31,606,403 100.00%
=========== ========== ========= =========== ============ ==========
SFAS 91 deferred loan fees (68,840)
Loan discount on purchased loans (5,582)
Undisbursed loan funds (5,443)
Allowance for loan losses (163,846)
Loans to facilitate (LTF) interest reserve (486)
Troubled debt restructured (TDR) interest reserve (5,110)
Loans on customer deposits 30,965
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse 31,388,061
Loans securitized into FNMA MBS with recourse (2,328,108)(b)
------------
Total loan portfolio $ 29,059,953
============
</TABLE>
(a) The Company has no commercial loans.
(b) Loans amounting to $2.6 billion were securitized with full recourse into
Federal National Mortgage Association mortgage-backed securities during
1995 and 1996. The June 30, 1996 balances of these FNMA mortgage-backed
securities are reflected in the amounts above.
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
Loan Portfolio by State
June 30, 1995
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
-------------------------- 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 74.86%
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 18,219 37 -0- 5,037 -0- 23,293 0.08
------------ ----------- ------- ----------- ------- ------------ -------
Totals $25,230,429 $4,134,739 $1,610 $ 134,469 $ 4,101 29,505,348 100.00%
============ =========== ======= =========== ======= =======
SFAS 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
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse 29,303,954
Loans securitized into FNMA MBS with recourse (1,364,111)(b)
------------
Total loan portfolio $ 27,939,843
============
</TABLE>
(a) The Company has no commercial loans.
(b) Loans amounting to $1.4 billion were securitized with full recourse into
FNMA mortgage-backed securities during the first half of 1995. The June
30, 1995 balances of these mortgage-backed securities are reflected in
the amounts above.
<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 91% at June 30, 1996 compared to 90% at June 30, 1995, and December
31, 1995. The Company's ARM originations constituted approximately 85% of new
mortgage loans made in the first half of 1996 compared to 97% in the first half
of 1995.
The weighted average maximum lifetime cap rate on the Company's ARM
loan portfolio (including MBS with recourse) was 13.02%, or 5.76% above the
actual weighted average rate at June 30, 1996, versus 13.21%, or 5.85% above the
weighted average rate at June 30, 1995.
Approximately $5.3 billion of the Company's loans (including MBS with
recourse) 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, 1996, $675 million
of these ARM loans had reached their rate floors. The weighted average floor
rate on these loans was 7.75% at June 30, 1996 and 7.80% at June 30, 1995.
Without the floor, the average yield on these loans would have been 7.37% at
June 30, 1996 and 7.39% at June 30, 1995.
Loan repayments consist of monthly loan amortization, loan payoffs, and
refinances. For the three and six months ended June 30, 1996, loan repayments
were $823 million and $1.6 billion, respectively, compared to $495 million and
$933 million in the same periods of 1995. The increase in loan repayments was
primarily due to higher mortgage payoffs and higher refinances within the
portfolio as well as an increase in the portfolio balance.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS
122). SFAS 122 amends Statement of Financial Accounting Standards No. 65,
"Accounting for Certain Mortgage Banking Activities," to require that any
financial institution participating in the secondary mortgage market recognize,
as separate assets, rights to service mortgage loans for others when those
rights are acquired through either the purchase or origination of mortgage loans
which are subsequently sold or securitized. SFAS 122 also requires that
financial institutions participating in the secondary mortgage market assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. For the second quarter and first half of 1996, the
Company recognized gains of $2.3 million and $7.0 million, respectively, on the
sale of loans due to the capitalization of servicing rights under SFAS 122.
After amortization, the balance at June 30, 1996 of the capitalized servicing
rights was $6.6 million.
ASSET QUALITY
One measure of the soundness of the Company's portfolio is its ratio of
nonperforming assets (NPAs) to total assets. Nonperforming assets includes
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.
<PAGE>
The following table shows the components of the Company's nonperforming
assets and TDRs, and the ratios to total assets.
<TABLE>
<CAPTION>
TABLE 5
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
June 30
-------------------------- December 31
1996 1995 1995
----------- ----------- ------------
<S> <C> <C> <C>
Non-accrual loans $ 370,081 $ 298,394 $ 314,086
Real estate acquired through foreclosure 71,910 67,272 75,158
Real estate in judgment 738 404 443
---------- ----------- -----------
Total nonperforming assets $ 442,729 $ 366,070 $ 389,687
========== =========== ===========
TDRs $ 56,992 $ 71,633 $ 45,222
========== =========== ===========
Ratio of NPAs to total assets 1.24% 1.07% 1.11%
========== =========== ===========
Ratio of TDRs to total assets .16% .21% .13%
========== =========== ===========
Ratio of NPAs and TDRs to total assets 1.40% 1.28% 1.24%
========== =========== ===========
</TABLE>
The increase in NPAs during 1996 reflects the continued weakness in the
California housing market. The Company continues to closely monitor all
delinquencies and takes appropriate steps to protect its interests. Interest
foregone on non-accrual loans is fully-reserved and amounted to $4 million and
$11 million in the second quarter and first six months of 1996 compared to $4
million and $9 million for the same periods of 1995. Interest foregone on TDRs
amounted to $411 thousand and $778 thousand for the three and six months ended
June 30, 1996, compared to $508 thousand and $989 thousand for the three and six
months ended June 30, 1995.
The tables on the following two pages show the Company's nonperforming
assets by state at June 30, 1996 and 1995.
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
Nonperforming Assets by State
June 30, 1996
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
----------------------------------- --------------------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a % of
State 1 -4 5+ Estate 1 - 4 5+ Land Estate NPAs(b) Loans
- ----------- -------- ---------- --------- -------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California $292,980 $ 25,045 $ 1,229 $54,780 $13,638 $ 400 $ 2,167 $390,239 1.72 %
Colorado 1,952 -0- 3,090 148 -0- -0- -0- 5,190 0.46
Illinois 4,470 191 -0- 395 541 -0- -0- 5,597 0.51
Texas 3,274 -0- -0- 164 -0- -0- -0- 3,438 0.33
New Jersey 12,267 -0- 679 424 -0- -0- -0- 13,370 1.44
Florida 4,021 -0- 150 292 -0- -0- -0- 4,463 0.53
Washington 663 -0- -0- -0- -0- -0- -0- 663 0.10
Arizona 1,229 -0- 837 -0- -0- -0- -0- 2,066 0.37
Virginia 1,528 -0- -0- 818 -0- -0- -0- 2,346 0.51
Pennsylvania 2,633 -0- -0- 225 -0- -0- -0- 2,858 0.67
Connecticut 3,370 -0- -0- 325 -0- -0- -0- 3,695 1.08
Maryland 1,486 -0- -0- -0- -0- -0- -0- 1,486 0.51
Oregon 489 -0- -0- -0- -0- -0- -0- 489 0.24
Nevada 1,001 -0- -0- 114 -0- -0- -0- 1,115 0.68
Kansas 895 40 -0- -0- -0- -0- -0- 935 0.68
Utah 121 -0- -0- -0- -0- -0- -0- 121 0.10
Minnesota 291 -0- -0- -0- -0- -0- -0- 291 0.29
Wisconsin -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Missouri 618 43 -0- -0- -0- -0- -0- 661 0.91
New York 3,787 -0- -0- 55 -0- -0- -0- 3,842 7.51
Georgia 1,352 -0- -0- 72 -0- -0- -0- 1,424 3.47
Washington, DC 6 -0- -0- -0- -0- -0- -0- 6 0.02
Massachusetts -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Ohio 61 -0- 58 5 -0- -0- 144 268 0.96
New Mexico -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina 80 -0- -0- -0- -0- -0- -0- 80 0.88
Other 145 -0- -0- -0- -0- -0- -0- 145 0.85
-------- --------- --------- -------- ------- ------- ------- --------- ----
Totals $338,719 $ 25,319 $ 6,043 $57,817 $14,179 $ 400 $ 2,311 444,788 1.41
======== ========= ========= ======== ======= ======= =======
REO general valuation allowance (2,059) (0.01)
--------- -----
Total nonperforming assets $442,729 1.40%
========= =====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) Loans amounting to $2.6 billion were securitized with full recourse into
FNMA mortgage-backed securities during 1995 and 1996. The June 30, 1996
balance of the related nonperforming assets have been reflected in the
amounts above.
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
Nonperforming Assets by State
June 30, 1995
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
------------------------------------------------ ----------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a % of
State 1 -4 5+ Estate Construction 1 - 4 5+ Estate NPAs(b) Loans
- --------------- -------- ---------- --------- -------------- --------- --------- -------- --------- ---------
<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%
======== =====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) Loans amounting to $1.4 billion were securitized with full recourse into
FNMA mortgage-backed securities during the first six months of 1995. The
June 30, 1995 balance of the related nonperforming assets are reflected
in the amounts above.
<PAGE>
The Company provides specific valuation allowances for losses on loans
when impaired, including loans securitized into MBS with recourse or loans
sold with recourse, and on real estate owned when any significant and
permanent decline in value is identified. The Company also utilizes a
methodology, based on trends in the basic portfolio, for monitoring and
estimating loan losses that is based on both historical experience in the loan
portfolio and factors reflecting current economic conditions. This approach
uses a 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
general 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
possible 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, 1996 and 1995.
<TABLE>
<CAPTION>
TABLE 8
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
1996 1995 1996 1995
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Beginning allowance for loan losses $ 152,360 $ 128,221 $ 141,988 $ 124,003
Provision charged to expense 17,236 14,651 35,758 29,430
Less loans charged off (5,871) (9,481) (14,231) (20,910)
Add recoveries 121 291 331 1,159
--------- ---------- ----------- -----------
Ending allowance for loan losses $ 163,846 $ 133,682 $ 163,846 $ 133,682
========= ========== =========== ===========
Ratio of net charge-offs to average loans
outstanding (including MBS with recourse) .07% .13% .09% .14%
========= ========== =========== ============
Ratio of allowance for loan losses
to nonperforming assets 37.0% 36.5%
========== ============
</TABLE>
CUSTOMER DEPOSITS
Customer deposits increased during the second quarter of 1996 by $50
million, including interest credited of $211 million, compared to an increase of
$511 million, including interest credited of $218 million, in the second quarter
of 1995. Customer deposit balances in the first half of 1996 increased by $193
million, including interest credited of $424 million, compared to an increase of
$1.5 billion, including interest credited of $406 million, in the first half of
1995. During the first and second quarters of 1996, rates on certificates of
deposit were lower than a year ago which led to a slowdown in the savings
inflows compared to the first six months of 1995.
<PAGE>
The table below shows the Company's customer deposits by interest rate
and by remaining maturity at June 30, 1996 and 1995.
<TABLE>
<CAPTION>
TABLE 9
Customer Deposits
(Dollars in millions)
June 30
---------------------------------------------------
1996 1995
---------------------- -----------------------
Rate* Amount Rate* Amount
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Customer deposits by interest rate:
Interest-bearing checking accounts 1.21% $ 756 1.29% $ 702
Passbook accounts 2.22 560 2.24 596
Money market deposit accounts 3.25 1,188 3.09 1,429
Term certificate accounts with original maturities
of:
4 weeks to 1 year 4.97 8,422 5.83 7,781
1 to 2 years 5.25 5,138 5.30 4,717
2 to 3 years 5.95 1,810 5.38 2,228
3 to 4 years 5.46 616 5.30 743
4 years and over 5.82 2,062 6.29 2,094
Retail jumbo CDs 5.31 487 6.03 442
All other 7.69 2 7.74 6
========== ========
$ 21,041 $ 20,738
========== ========
Customer deposits by remaining maturity:
No contractual maturity $ 2,504 $ 2,727
Maturity within one year:
3rd quarter 4,560 5,174
4th quarter 4,835 4,205
1st quarter 3,696 3,329
2nd quarter 2,434 1,205
---------- -------
15,525 13,913
1 to 2 years 1,826 2,281
2 to 3 years 496 880
3 to 4 years 520 349
4 years and over 170 588
========== ========
$ 21,041 $ 20,738
========== ========
</TABLE>
* Weighted average interest rate, including the impact of interest rate swaps.
<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. FHLB
advances amounted to $7.2 billion at June 30, 1996, compared to $6.3 billion and
$6.4 billion at June 30, 1995, and December 31, 1995, 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
Federal Home Loan Bank of San Francisco, typically using MBS from the Company's
portfolio. Reverse Repos with dealers, banks and the Federal Home Loan Bank of
San Francisco amounted to $2.3 billion, $1.2 billion, and $1.8 billion at June
30, 1996 and 1995, and December 31, 1995, respectively. The $2.3 billion balance
at June 30, 1996, included $1.5 billion in Federal Home Loan Bank of San
Francisco MBS Reverse Repos with maturities ranging from 1996 to 1998.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. The impact on the Company's financial condition and results of
operations is not expected to be material.
OTHER BORROWINGS
At June 30, 1996, Golden West, at the holding company level, had a
total of $1.1 billion of subordinated debt issued and outstanding. As of June
30, 1996, 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. At June 30, 1996, Golden West had on file a registration statement
with the Securities and Exchange Commission for the sale of up to $300 million
of subordinated notes.
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, 1996. World had medium-term notes outstanding
under prior registrations with principal amounts of $690 million at June 30,
1996, compared to $1.9 billion at June 30, 1995, and $1.6 billion at December
31, 1995. As of June 30, 1996, World's medium-term notes were rated A1 and A+ by
Moody's and S&P, respectively.
<PAGE>
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, 1996, the full
amount was available for issuance. As of June 30, 1996, 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.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during the first six
months of 1996 and 1995 as a result of retained earnings. The 1996 increase was
partially offset by the $59 million cost of the purchase of Company stock and by
a $3 million decline in market values of securities available for sale since
December 31, 1995. Unrealized gains on securities and MBS available for sale
included in stockholders' equity at June 30, 1996 and 1995, and December 31,
1995, were $73 million, $58 million, and $76 million, respectively.
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) on January 1, 1996.
SFAS 123 establishes accounting and disclosure requirements using a fair value
based method of accounting for stock based employee compensation plans. Under
SFAS 123, the Company can either adopt the new fair value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings per share as if the accounting provisions
of SFAS 123 had been adopted. The Company adopted only the disclosure
requirements of SFAS 123; therefore such adoption has no effect on the Company's
June 30, 1996 consolidated financial statements.
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 the purchase of common stock is a wise use of excess
capital.
Since October 1993, through three separate actions, Golden West's Board
of Directors has authorized the purchase by the Company of up to 12.2 million
shares of Golden West's common stock. As of June 30, 1996, 7.0 million shares
had been purchased and retired at a cost of $285 million since October, 1993, of
which 1.1 million were purchased and retired at a cost of $59 million during the
first half of 1996. Dividends from World Savings are expected to continue to be
the major source of funding for the stock repurchase program. The purchase of
Golden West stock is not intended to have a material impact on the normal
liquidity of the Company.
World paid a $165 million dividend to Golden West in March 1996 and
again in June 1996 for a total of $330 million for the first half of 1996.
The Company has on file a shelf registration statement with the
Securities and Exchange Commission to issue up to two million shares of its
preferred stock. The preferred stock may be 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.
<PAGE>
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as World and
WFSB, to meet certain minimum capital requirements. The following table shows
World's current regulatory capital ratios and compares them to the current OTS
minimum requirements at June 30, 1996 and 1995.
<TABLE>
<CAPTION>
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 1996 June 30, 1995
------------------------------------------------ ------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ----------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,733,712 6.91% $ 376,445 1.50 % $2,047,553 6.24% $ 492,065 1.50%
Core 1,733,712 6.91 752,890 3.00 2,047,553 6.24 984,130 3.00
Risk-based 2,054,095 14.84 1,107,514 8.00 2,361,358 13.04 1,448,910 8.00
</TABLE>
The following table shows WFSB's current regulatory capital ratios and
compares them to the current OTS minimum requirements at June 30, 1996 and 1995.
<TABLE>
<CAPTION>
TABLE 11
World Savings Bank, a Federal Savings Bank
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 1996 June 30, 1995
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $760,916 7.40% $ 154,184 1.50% $33,793 14.94% $3,392 1.50%
Core 760,916 7.40 308,368 3.00 33,793 14.94 6,785 3.00
Risk-based 778,530 13.46 462,892 8.00 34,185 29.68 9,215 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 neither the
Association nor WFSB has above-normal exposure to interest rate risk.
The OTS has adopted rules based upon five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. The determination of whether
an association falls into a certain classification depends primarily on its
capital ratios. The tables on the following pages summarized the capital ratios
for each of the five classifications and shows that World and WFSB met the "well
capitalized" standard as of June 30, 1996.
<PAGE>
The table below shows a reconciliation of World's equity capital to
regulatory capital at June 30, 1996.
<TABLE>
<CAPTION>
TABLE 12
World Savings and Loan Association
Reconciliation of Equity Capital to Regulatory Capital
June 30, 1996
(Dollars in thousands)
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 1,633,357
Unrealized gains on securities
available for sale 72,548
----------
Equity capital $1,939,496 $1,939,496 $1,939,496 $1,939,496 $1,939,496 $1,939,496
==========
Positive goodwill (198,385) (198,385) (198,385) (198,385) (198,385)
Negative goodwill 67,049 67,049 67,049 67,049 67,049
Unrealized gains on securities
available for sale (72,548) (72,548) (72,548) (72,548) (72,548)
Non-qualifying mortgage servicing rights (1,900) (1,900) (1,900) (1,900) (1,900)
Equity/other investments (436)
Subordinated debt 199,404
General valuation allowance 121,415
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 1,733,712 $ 1,733,712 $ 1,733,712 $ 1,733,712 $ 2,054,095
=========== =========== =========== =========== ===========
Total assets $25,346,921
===========
Adjusted total assets $25,096,346 $25,096,346 $25,096,346
=========== =========== ===========
Risk-weighted assets $13,843,928 $13,843,928
=========== ===========
CAPITAL RATIO - ACTUAL 7.65% 6.91% 6.91% 6.91% 12.52% 14.84%
=========== =========== ========== =========== ========== ===========
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>
The table below shows a reconciliation of WFSB's equity capital to
regulatory capital at June 30, 1996.
<TABLE>
<CAPTION>
TABLE 13
World Savings Bank, a Federal Savings Bank
Reconciliation of Equity Capital to Regulatory Capital
June 30, 1996
(Dollars in thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Common stock $ 150
Paid-in surplus 740,182
Retained earnings 24,139
-----------
Equity capital $ 764,471 $764,471 $764,471 $764,471 $ 764,471 $ 764,471
===========
Positive goodwill (3,555) (3,555) (3,555) (3,555) (3,555)
General valuation allowance 17,614
----------- ---------- ----------- ---------- -----------
Regulatory capital $ 760,916 $760,916 $760,916 $ 760,916 $ 778,530
=========== ========== =========== ========== ===========
Total assets $10,281,997
===========
Adjusted total assets $10,278,928 $10,278,928 $10,278,928
=========== ========== ===========
Risk-weighted assets $5,786,513 $5,786,153
========== ==========
CAPITAL RATIO - ACTUAL 7.44% 7.40% 7.40% 7.40% 13.15% 13.46%
=========== =========== ========== =========== ========== ===========
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>
The table below compares World's regulatory capital to the well
capitalized classification at June 30, 1996.
<TABLE>
<CAPTION>
TABLE 14
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
ACTUAL WELL CAPITALIZED
----------------------- -- --------------------------
Capital Ratio Capital Ratio
----------- -------- -- ----------- -----------
<S> <C> <C> <C> <C>
Leverage $ 1,733,712 6.91% $1,254,817 5.00%
Tier 1 risk-based 1,733,712 12.52 830,636 6.00
Total risk-based 2,054,095 14.84 1,384,393 10.00
</TABLE>
The table below compares WFSB's regulatory capital to the well
capitalized classification at June 30, 1996.
<TABLE>
<CAPTION>
TABLE 15
World Savings Bank, a Federal Savings Bank
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
ACTUAL WELL CAPITALIZED
----------------------- -- --------------------------
Capital Ratio Capital Ratio
----------- -------- -- ----------- -----------
<S> <C> <C> <C> <C>
Leverage $ 760,916 7.40 % $ 513,946 5.00 %
Tier 1 risk-based 760,916 13.15 347,169 6.00
Total risk-based 778,530 13.46 578,615 10.00
</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,
1996 and 1995, and December 31, 1995.
<TABLE>
<CAPTION>
TABLE 16
Yield on Earning Assets,
Cost of Funds, and Primary Spread,
Including Effect of Purchase Accounting
June 30
--------------------------- December 31
1996 1995 1995
--------- -- ----------- -------------
<S> <C> <C> <C>
Yield on loan portfolio 7.46% 7.59% 7.69%
Yield on MBS 7.21 7.50 7.41
Yield on investments 5.82 5.97 5.96
---------- -------- ----------
Yield on earning assets 7.36 7.47 7.56
---------- -------- ----------
Cost of customer deposits 4.92 5.32 5.15
Cost of borrowings 5.93 6.32 6.15
---------- -------- ----------
Cost of funds 5.28 5.66 5.50
---------- -------- ----------
Primary spread 2.08% 1.81% 2.06%
========== ======== ==========
</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, which are primarily adjustable rate
mortgages. Most of the Company's ARMs have interest rates that change in
accordance with an index based on the cost of deposits and borrowings of savings
institutions that are members of the FHLB of San Francisco (the COFI). In
general, the repricing of COFI ARM portfolios tends to lag liability interest
rate changes because of certain loan features which restrain monthly adjustments
and because the COFI tends to trail changes in liability costs due to the
existence of a two-month reporting lag. Interest rates were generally declining
during the second half of 1995 and early 1996 and began to stabilize and
slightly increase during the second quarter of 1996. The effects of this
interest rate environment led to a 22 basis point reduction in the Company's
cost of funds and a 20 basis point reduction in the yield on earning assets
during the first half of 1996, allowing for a 2 basis point increase in the
Company's spread since yearend 1995.
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, 1996 and 1995, in order to focus on the changes in interest income
between years as well as changes in other revenue and expense amounts.
<PAGE>
<TABLE>
<CAPTION>
TABLE 17
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Interest on loans 83.9% 86.0% 83.2% 86.5%
Interest on mortgage-backed securities 9.3 6.2 9.3 5.4
Interest and dividends on investments 4.3 6.3 5.0 6.4
--------- --------- -------- ---------
97.5 98.5 97.5 98.3
Less:
Interest on customer deposits 39.9 44.0 40.2 43.0
Interest on advances and other borrowings 25.3 26.4 25.3 26.5
--------- --------- -------- ---------
65.2 70.4 65.5 69.5
Net interest income 32.3 28.1 32.0 28.8
Provision for loan losses 2.7 2.4 2.8 2.5
--------- --------- -------- ---------
Net interest income after provision for loan 29.6 25.7 29.2 26.3
losses
Add:
Fees 1.5 1.0 1.4 1.1
Gain on the sale of securities, mortgage-backed
securities, and loans 0.5 0.0 0.6 0.0
Other non-interest income 0.5 0.5 0.5 0.6
--------- --------- -------- ---------
2.5 1.5 2.5 1.7
Less:
General and administrative expenses 12.5 12.7 12.3 13.3
Amortization of goodwill 0.1 0.2 0.1 0.2
Taxes on income 7.7 5.6 7.6 5.7
--------- --------- -------- ---------
Net earnings 11.8% 8.7% 11.7% 8.8%
======== ========= ========= =========
</TABLE>
INTEREST RATE SWAPS AND CAPS
The Company enters into interest rate swaps and caps as a part of its
interest rate risk management strategy. Such instruments are entered into solely
to alter the repricing characteristics of designated assets and liabilities. The
Company does not hold any derivative financial instruments for trading purposes.
Interest rate swap and cap activity decreased net interest income by $3
million and $7 million for the three and six months ended June 30, 1996, as
compared to a decrease of $9 million and $18 million for the same periods in
1995.
The table on the following page summarizes the unrealized gains and
losses for interest rate swaps and caps at June 30, 1996 and 1995.
<PAGE>
<TABLE>
<CAPTION>
TABLE 18
Schedule of Unrealized Gains and Losses on Interest Rate Swaps and Caps
(Dollars in thousands)
June 30, 1996 June 30, 1995
---------------------------------------- ----------------------------------------
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 $ -0- $ -0- $ -0- $ 106 $ -0- $ 106
Interest rate swaps 29,908 (43,730) (13,822) 30,834 (68,007) (37,173)
------------ ============ ============ ---------- ---------- ----------
Total $ 29,908 $ (43,730) $ (13,822) $ 30,940 $ (68,007) $ (37,067)
============ ============ ============= ============ ============= ===========
</TABLE>
<TABLE>
<CAPTION>
TABLE 19
Schedule of Interest Rate Swaps and Caps Activity
(Notional amounts in millions)
Six Months Ended
June 30, 1996
-----------------------------------------------------------------------
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, 1995 $ 3,221 1,775 43 10 225
Additions 790 -0- -0- -0- -0-
Maturities (1,545) (68) (43) -0- (205)
Terminations -0- -0- -0- -0- -0-
Forward starting becoming effective -0- -0- -0- -0- -0-
Other -0- -0- -0- -0- -0-
------------ ------------- ------------- ------------ -----------
Balance June 30, 1996 $ 2,466 $ 1,707 $ -0- $ 10 $ 20
============ ============= ============= ============ ===========
</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 six months of 1996 was 5.14% to 6.02%, and the range of floating interest
rates paid on swap contracts was 4.82% to 6.06%. The range of fixed interest
rates received on swap contracts in the first six months of 1996 was 4.61% to
9.68% and the range of fixed interest rates paid on swap contracts was 5.38% to
9.14%.
<PAGE>
INTEREST ON LOANS
In the second quarter of 1996, interest on loans was higher than in the
comparable 1995 period by $15 million or 2.9%. The increase in the second
quarter of 1996 was due to a $712 million increase in the average portfolio
balance and a 4 basis point increase in the average portfolio yield. For the
first half of 1996, interest on loans was higher than the comparable 1995 period
by $66 million or 6.5%. The increase was due to a $715 million increase in the
average portfolio balance and a 29 basis point increase in the average portfolio
yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the second quarter of 1996, interest on mortgage-backed securities
was higher than in the comparable 1995 period by $22 million or 57.8%. The 1996
increase was due primarily to a $1.3 billion increase in the average portfolio
balance, which was partially offset by a 40 basis point decrease in the average
portfolio yield. For the first half of 1996, interest on mortgage-backed
securities was higher than in the comparable 1995 period by $58 million or 91.4%
due to a $1.7 billion increase in the average portfolio which was partially
offset by a 48 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 that began in 1995, 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 1996, interest and dividends on investments were $11
million or 28.1% lower than for the same period in 1995. The decrease was
primarily due to a 38 basis point decrease in the average portfolio yield and a
$744 million decrease in the average portfolio balance. For the first half of
1996, interest and dividends on investments was $11 million or 14.7% lower than
for the same period in 1995. The decrease was primarily due to a $543 million
decrease in the average portfolio balance and a 20 basis point decrease in the
average portfolio yield. The decrease during the first half of 1996 was
partially offset by $4.3 million of interest income received on an income tax
refund in 1996.
INTEREST ON CUSTOMER DEPOSITS
In the second quarter of 1996, interest on customer deposits decreased
by $12 million or 4.4% from the comparable period in 1995. In the first half of
1996, interest on customer deposits increased by $17 million or 3.5% from the
comparable period of 1995. The second quarter decrease was due to a $384 million
increase in the average deposit balance which was offset by a 32 basis point
decrease in the average cost of deposits. The six month increase was primarily
due to a $796 million increase in the average balance of deposits which was
offset by a 5 basis point decrease in the average cost of deposits.
<PAGE>
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the second quarter and first half of 1996, interest on advances and
other borrowings increased by $2 million or 1.1% and $18 million or 5.9%,
respectively, from the comparable periods of 1995. The second quarter increase
was primarily due to a $728 million increase in the average balance, which was
partially offset by a 40 basis point decrease in the average cost of these
borrowings. The six month increase was primarily due to a $862 million increase
in the average balance which was offset by a 24 basis point decrease in the
average cost of these borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $17.2 million and $35.8 million,
respectively, for the three and six months ended June 30, 1996, compared to
$14.7 million and $29.4 million for the same periods in 1995. The higher
provision in 1996 reflects the increase in non-accrual loans, primarily in
California.
GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter and first half of 1996, general and
administrative expenses (G&A) increased by $2.3 million or 3.0% and $4.7 million
or 3.0%, respectively, from the comparable periods in 1995. The primary reasons
for the increases in 1996 were growth in savings offices and general inflation.
G&A as a percentage of average assets on an annualized basis was 0.91% and 0.92%
for the second quarter and first half of 1995, respectively, compared to 0.92%
and 0.94% for the same periods in 1995.
DEPOSIT INSURANCE
Legislation to capitalize the Savings Association Insurance Fund (SAIF)
in order to bring it into parity with the FDIC's other insurance fund, the Bank
Insurance Fund (BIF) was not signed into law even though it passed both houses
of Congress in 1995. The legislation would have required an assessment of all
SAIF-insured institutions of approximately 80 basis points on their March 31,
1995, customer deposit balances. It is not clear when the disparity between SAIF
and BIF will be resolved; therefore, the exact impact on the Company of that
resolution is unknown at this time.
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses purchase accounting in connection with
certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Taxes as a percentage of earnings were 39.5% for the second quarter and
first six months of 1996 compared to 39.0% and 38.9% for the same periods a year
ago.
<PAGE>
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 its parent,
borrowings from public offerings of debt, 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, 1996, and 1995, and
December 31, 1995, see the cash and investments section on page 11.
WFSB's principal sources of funds are cash flows generated from
earnings; customer deposits; loan repayments; borrowings from the FHLB;
investments and borrowings from its parent; and debt collateralized by mortgages
or securities. In addition, WFSB other alternatives available to provide
liquidity or finance operations including sales of loans. For a discussion of
WFSB's liquidity positions at June 30, 1996, and 1995, and December 31, 1995,
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 and
principal on subordinated debt securities, capital contributions to its insured
subsidiaries, dividends to stockholders, the purchase of Golden West stock (see
stockholders' equity section on page 22), and general and administrative
expenses. At June 30, 1996 and 1995, and December 31, 1995, Golden West's total
cash and investments amounted to $799 million (including a $600 million
short-term loan to World), $984 million, and $719 million, respectively.
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
<PAGE>
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
Dated: August 13, 1996 /s/ J. L. Helvey
-----------------------------------------------
J. L. Helvey
Group Senior Vice President
(duly authorized and principal financial
officer)
<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 Six Months Ended
June 30 June 30
------------------------------- -----------------------------
1996 1995 1996 1995
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Line 1:
Average Number of Common
Shares Outstanding 58,283,423 58,643,735 58,536,031 58,615,270
============ ============ ============ ============
Line 2:
Net Earnings $ 76,504 $ 53,561 $ 152,016 $ 104,494
============ ============ ============ =============
Line 3:
Earnings Per Common Share
(Line 2 divided by Line 1) $ 1.32 $ .91 $ 2.60 $ 1.78
============ ============ ============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 189,724
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,010,340
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 972,785
<INVESTMENTS-CARRYING> 2,935,663
<INVESTMENTS-MARKET> 2,942,333
<LOANS> 29,059,953
<ALLOWANCE> 163,846
<TOTAL-ASSETS> 35,775,375
<DEPOSITS> 21,040,598
<SHORT-TERM> 3,468,039
<LIABILITIES-OTHER> 866,873
<LONG-TERM> 8,037,619
0
0
<COMMON> 5,792
<OTHER-SE> 2,356,454
<TOTAL-LIABILITIES-AND-EQUITY> 35,775,375
<INTEREST-LOAN> 1,083,488
<INTEREST-INVEST> 64,263
<INTEREST-OTHER> 121,534
<INTEREST-TOTAL> 1,269,285
<INTEREST-DEPOSIT> 523,282
<INTEREST-EXPENSE> 853,123
<INTEREST-INCOME-NET> 416,162
<LOAN-LOSSES> 35,758
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 161,996
<INCOME-PRETAX> 251,332
<INCOME-PRE-EXTRAORDINARY> 251,332
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152,016
<EPS-PRIMARY> 2.60
<EPS-DILUTED> 2.60
<YIELD-ACTUAL> 7.36
<LOANS-NON> 370,081
<LOANS-PAST> 0
<LOANS-TROUBLED> 56,992
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 141,988
<CHARGE-OFFS> 14,231
<RECOVERIES> 331
<ALLOWANCE-CLOSE> 163,846
<ALLOWANCE-DOMESTIC> 163,846
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
