<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549 - 1004
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission file number 1-4075
--------------------------------------------------
GREAT WESTERN FINANCIAL CORPORATION
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-1913457
--------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9200 Oakdale Avenue, Chatsworth, California 91311
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(818) 775-3411
-------------------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------
(Former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of common stock, as of July 31, 1996: 130,946,847<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Statement of Financial Condition -
June 30, 1996, December 31, 1995 and June 30, 1995... 4
Consolidated Condensed Statement of Operations -
Three Months and Six Months Ended June 30, 1996
and 1995............................................. 5
Consolidated Condensed Statement of Cash Flows -
Three Months and Six Months Ended June 30, 1996
and 1995............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three Months and Six Months Ended June 30, 1996... 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders............................................ 34
Item 5. Other Information..................................... 35
Item 6. Exhibits and Reports on Form 8-K...................... 36
<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION
PART I - FINANCIAL INFORMATION
PERSONS FOR WHOM THE INFORMATION IS TO BE GIVEN
- -----------------------------------------------
The accompanying financial information is filed for the Registrant, Great
Western Financial Corporation, and its subsidiaries comprising a savings bank
and companies engaged in consumer lending, mortgage banking, securities
operations and certain other financial services ("GWFC" or "the Company").
PRESENTATION OF FINANCIAL INFORMATION
- -------------------------------------
The financial information has been prepared in conformity with the accounting
principles or practices reflected in the financial statements included in the
Annual Report filed with the Commission for the year ended December 31, 1995.
The information further reflects all adjustments which are, in the opinion
of management, of a normal recurring nature and necessary for a fair
presentation of the results for the interim periods.
<PAGE>
<PAGE>
Item 1. Financial Statements
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30 December 31 June 30
(Dollars in thousands) 1996 1995 1995
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and securities
Cash $ 613,064 $ 837,292 $ 813,755
Certificates of deposit, repurchase agreements
and federal funds 375,125 257,125 312,125
Securities available for sale 1,389,777 1,092,459 996,769
----------- ----------- -----------
2,377,966 2,186,876 2,122,649
Mortgage-backed securities held to maturity
(fair value $1,771,664, $1,941,918 and $8,154,155) 1,750,363 1,886,736 8,053,898
Mortgage-backed securities available for
sale 7,179,922 7,916,705 2,827,602
----------- ----------- -----------
8,930,285 9,803,441 10,881,500
Loans receivable, net of reserve for
estimated losses 29,653,954 29,401,644 28,851,335
Loans receivable available for sale 408,236 485,705 389,416
----------- ----------- -----------
30,062,190 29,887,349 29,240,751
Real estate available for sale or
development, net 221,471 217,112 195,771
Interest receivable 263,603 298,640 281,281
Investment in Federal Home Loan Banks 365,506 341,102 344,633
Premises and equipment, at cost,
net of accumulated depreciation 584,436 604,672 604,447
Other assets 609,647 923,859 501,809
Intangibles arising from acquisitions 304,854 323,713 343,892
----------- ----------- -----------
$43,719,958 $44,586,764 $44,516,733
=========== =========== ===========
LIABILITIES
Customer accounts $28,879,819 $29,234,928 $29,246,964
Securities sold under agreements to repurchase 5,367,694 6,868,296 7,429,298
Short-term borrowings 3,000,329 2,056,493 1,879,244
Other borrowings 2,514,240 2,420,845 2,355,403
Company-obligated mandatorily redeemable preferred
securities of the Company's subsidiary trust,
holding solely $103,092,800 aggregate principle
amount of 8.25% subordinated deferrable interest
notes, due 2025, of the Company 100,000 100,000 -
Other liabilities and accrued expenses 725,564 705,345 711,691
Taxes on income, principally deferred 297,587 378,381 283,658
STOCKHOLDERS' EQUITY 2,834,725 2,822,476 2,610,475
----------- ----------- -----------
$43,719,958 $44,586,764 $44,516,733
=========== =========== ===========
</TABLE>
Unaudited
<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- -----------------------
(Dollars in thousands, except per share) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Real estate loans $510,760 $490,648 $1,032,314 $ 956,175
Mortgage-backed securities 164,607 195,067 338,633 366,884
Consumer loans 101,821 99,063 206,117 196,488
Securities 17,000 13,250 31,163 25,833
Other 12,754 9,633 23,643 19,347
-------- -------- ---------- ----------
806,942 807,661 1,631,870 1,564,727
INTEREST EXPENSE
Customer accounts 290,454 307,819 593,458 586,735
Borrowings
Short-term 110,533 136,523 226,700 252,209
Long-term 54,007 52,722 107,478 108,094
-------- -------- ---------- ----------
454,994 497,064 927,636 947,038
-------- -------- ---------- ----------
NET INTEREST INCOME 351,948 310,597 704,234 617,689
Provision for loan losses 39,300 43,200 81,400 90,800
-------- -------- ---------- ----------
Net interest income after provision
for loan losses 312,648 267,397 622,834 526,889
Other operating income
Real estate services
Loan fees 6,827 5,705 13,287 11,904
Mortgage banking
Gain on mortgage sales 611 1,800 2,943 3,060
Servicing 11,386 13,876 22,839 27,674
-------- -------- ---------- ----------
18,824 21,381 39,069 42,638
Retail banking
Banking fees 43,003 37,862 84,667 73,890
Securities operations 8,008 4,286 14,218 8,253
-------- -------- ---------- ----------
51,011 42,148 98,885 82,143
Net (loss) gain on securities and investments (441) 2,411 (758) 2,877
Net insurance operations 7,613 7,146 14,978 13,873
Other 1,096 1,771 1,842 3,507
-------- -------- ---------- ----------
Total other operating income 78,103 74,857 154,016 145,038
Noninterest expense
Operating and administrative
Salaries and related personnel 117,621 114,630 234,152 231,508
Premises and occupancy 44,890 46,134 90,736 92,261
FDIC insurance premium 16,028 14,355 32,174 32,994
Advertising and promotion 9,540 9,012 18,699 17,141
Other 60,082 63,815 124,575 123,921
-------- -------- ---------- ----------
248,161 247,946 500,336 497,825
Amortization of intangibles 9,430 10,089 18,859 20,108
Real estate operations 2,589 983 8,290 (2,726)
Provision for real estate losses - - - 1,500
-------- -------- ---------- ----------
Total noninterest expense 260,180 259,018 527,485 516,707
-------- -------- ---------- ----------
EARNINGS BEFORE TAXES 130,571 83,236 249,365 155,220
Taxes on income 51,300 32,800 98,800 61,300
-------- -------- ---------- ----------
NET EARNINGS $ 79,271 $ 50,436 $ 150,565 $ 93,920
======== ======== ========== ==========
Average common shares outstanding
Without dilution 139,041,758 136,746,783 138,984,442 135,876,365
Fully diluted 145,491,403 136,746,783 145,434,087 136,242,751
Earnings per share based on average
common shares outstanding
Primary $.52 $.32 $.99 $.60
Fully diluted .52 .32 .99 .60
Cash dividend per common share .25 .23 .48 .46
</TABLE>
Unaudited<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
(Dollars in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 79,271 $ 50,436 $ 150,565 $ 93,920
Noncash adjustments to net earnings:
Provision for loan losses 39,300 43,200 81,400 90,800
Provision for real estate losses - - - 1,500
Depreciation and amortization 19,226 18,899 38,551 38,492
Amortization of intangibles 9,430 10,089 18,859 20,108
Income taxes (4,205) 25,289 (37,163) 35,616
Loss (gain) on sales of loans receivable
available for sale 2,830 (552) 4,376 (735)
Gain on sales of real estate (5,095) (5,110) (7,336) (14,287)
Gain on sales of consumer loans (107) - (645) -
Gain on sale of other investments, net (569) - (435) -
Capitalized interest (13,633) (17,479) (31,599) (23,114)
Net change in accrued interest 15,414 (2,576) 43,824 (45,316)
Other 55,304 21,187 313,956 197,517
----------- ----------- ----------- ------------
197,166 143,383 574,353 394,501
----------- ----------- ----------- ------------
Sales and repayments of loans
receivable available for sale 391,354 137,802 817,935 183,602
Originations and purchases of loans
receivable available for sale (312,987) (168,582) (731,855) (264,114)
----------- ----------- ----------- ------------
78,367 (30,780) 86,080 (80,512)
----------- ----------- ----------- ------------
Net cash provided by operating
activities 275,533 112,603 660,433 313,989
----------- ----------- ----------- ------------
FINANCING ACTIVITIES
Customer accounts
Net (decrease) in transaction accounts (148,459) (217,000) (57,330) (894,551)
Net (decrease) increase in term accounts (313,452) 163,461 (297,779) 1,440,568
----------- ----------- ----------- ------------
(461,911) (53,539) (355,109) 546,017
Borrowings
Repayments of long-term debt (5,216) (155,279) (5,445) (183,741)
Proceeds from new long-term debt 99,842 - 99,842 -
Net change in FHLB borrowings 666,188 (20,000) 1,314,219 (72,000)
Net change in securities sold under
agreements to repurchase (366,807) 464,388 (1,500,602) 1,130,243
Net change in short-term debt (2,387) 538,944 (371,385) 668,783
----------- ----------- ----------- ------------
391,620 828,053 (463,371) 1,543,285
Other financing activity
Proceeds from issuance of
common stock 3,506 18,949 6,531 29,980
Repurchases of common stock - - (5,219) -
Cash dividends paid (40,562) (37,335) (78,350) (74,482)
----------- ----------- ----------- -----------
(37,056) (18,386) (77,038) (44,502)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing
activities (107,347) 756,128 (895,518) 2,044,800
----------- ----------- ----------- -----------
/TABLE
<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -------------------------
(Dollars in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INVESTING ACTIVITIES
Investment securities
Proceeds from maturities $ 430,446 $ 445,316 $ 823,292 $ 687,416
Purchases of securities (675,731) (442,611) (1,131,836) (745,110)
----------- ----------- ----------- -----------
(245,285) 2,705 (308,544) (57,694)
Lending
Loans originated for investment (1,754,095) (2,031,146) (2,947,808) (4,844,476)
Purchases of mortgage-backed securities (21,856) - (30,367) -
Payments 1,741,032 1,251,345 3,306,521 2,391,720
Mortgage sales 3,722 - 3,722 -
Repurchases (8,961) (11,046) (16,842) (23,542)
Other 1,102 6,363 (3,721) 11,038
----------- ----------- ----------- -----------
(39,056) (784,484) 311,505 (2,465,260)
Other investing activity
Purchases and sales of premises
and equipment, net (11,388) (19,936) (20,591) (42,575)
Sales of real estate 86,704 64,508 170,968 189,716
Net change in investment in
FHLB stock (5,092) (2,495) (24,404) (38,592)
Other 3,577 39,913 (77) 32,931
----------- ----------- ----------- -----------
73,801 81,990 125,896 141,480
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities (210,540) (699,789) 128,857 (2,381,474)
------------ ----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents (42,354) 168,942 (106,228) (22,685)
Cash and cash equivalents at beginning
of period 1,030,543 956,938 1,094,417 1,148,565
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 988,189 $ 1,125,880 $ 988,189 $ 1,125,880
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for
Interest on deposits $ 279,209 $ 295,199 $ 578,348 $ 573,721
Interest on borrowings 153,117 181,638 340,501 368,277
Income taxes 50,749 6,914 96,552 23,274
Noncash investing activities
Loans transferred to foreclosed
real estate $ 107,357 $ 106,143 $ 221,424 $ 213,888
Loans originated to finance the sale
of real estate 17,433 18,940 35,081 65,361
Loans originated to refinance existing loans 84,300 52,618 191,956 109,012
Loans exchanged for mortgage-backed
securities - - - 1,997,585
</TABLE>
Unaudited
<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1996
Great Western Financial Corporation reported net earnings of $79.3
million, or $.52 per share, in the 1996 second quarter compared with net
earnings of $71.3 million, or $.47 per share, in the 1996 first quarter and
$50.4 million, or $.32 per share, in the 1995 second quarter. For the six
months ended June 30, 1996, net earnings were $151 million, or $.99 per
share, compared with $93.9 million, $.60 per share, for the same period
a year ago.
Provisions for loan losses during the 1996 second quarter were $39.3
million compared with $42.1 million in the first quarter of 1996 and $43.2
million in the second quarter of 1995. Provisions for loan and real
estate losses during the first six months of 1996 and 1995 were $81.4 million
and $92.3 million, respectively.
<PAGE>
<PAGE>
HIGHLIGHTS (Dollars in thousands, except per share)
<TABLE>
<CAPTION>
For the three months ended
June 30 1996 1995
- -------------------------- ---- ----
<S> <C> <C>
Net interest income $ 351,948 $ 310,597
Net earnings 79,271 50,436
Fully diluted earnings per common share $.52 $.32
New loan volume 2,168,815 2,271,106
(Decrease) in customer accounts (461,911) (53,539)
Mortgage sales 386,335 102,825
Interest spread
Yield on interest earning assets 7.81% 7.72%
Cost of interest bearing liabilities 4.58 4.89
---- ----
Interest spread 3.23% 2.83%
==== ====
For the six months ended
June 30
- ------------------------
Net interest income $ 704,234 $ 617,689
Net earnings 150,565 93,920
Fully diluted earnings per common share $.99 $.60
New loan volume 3,906,700 5,282,783
(Decrease) increase in customer accounts (355,109) 546,017
Mortgage sales 802,085 122,103
Interest spread
Yield on interest earning assets 7.87% 7.61%
Cost of interest bearing liabilities 4.64 4.74
---- ----
Interest spread 3.23% 2.87%
==== ====
At June 30
- -----------
Total assets $43,719,958 $44,516,733
Stockholders' equity 2,834,725 2,610,475
Stockholders' equity per common share $18.49 $17.04
</TABLE>
The Company's core business benefited from the December 1995 and
January 1996 Federal Reserve Board interest rate reductions as they affect
the net interest margin. Net interest income for both the first and second
quarters of 1996 was $352 million compared to $311 million in the second
quarter of 1995. During periods of falling interest rates, the Company's
cost of funds falls more rapidly than the yield on earning assets.
<PAGE>
<PAGE>
The following summarizes the contribution to pretax income from the
Company's principal business units:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- ---------------------
(Dollars in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Banking operations $ 98,492 $56,101 $194,048 $104,185
Consumer finance group 32,079 27,135 55,317 51,035
-------- ------- -------- --------
Pretax earnings 130,571 83,236 249,365 155,220
Taxes on income 51,300 32,800 98,800 61,300
-------- ------- -------- --------
Net earnings $ 79,271 $50,436 $150,565 $ 93,920
======== ======= ======== ========
</TABLE>
INTEREST EARNING ASSETS
Interest earning assets comprise real estate loans and mortgage-backed
securities ("mortgages"), consumer finance loans and marketable securities.
The composition of interest earning assets at June 30, 1996 and June 30, 1995
follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
June 30
----------------------------------
1996 1995
-------------- --------------
(Dollars in millions) Amount % Amount %
------- --- ------- ---
<S> <C> <C> <C> <C>
Loans receivable
Real estate
Residential
Single-family $25,004 60% $24,156 57%
Apartments 1,554 4 1,670 4
Commercial and other 1,297 3 1,418 3
Consumer finance 2,082 5 2,004 5
Other 536 1 476 1
------- --- ------- ---
30,473 73 29,724 70
Mortgage-backed securities 8,930 22 10,903 26
Securities 1,702 4 1,249 3
Investment in FHLB stock 366 1 345 1
------- --- ------- ---
$41,471 100% $42,221 100%
======= === ======= ===
</TABLE>
Interest earning assets, primarily single-family mortgages, decreased
$318 million in the first six months of 1996 compared with an increase of
$2.7 billion in the same period of 1995 due to a shift in the mix of single-
family loan originations away from Adjustable Rate Mortgage ("ARM"). ARMs
are held in the Company's portfolio, whereas, fixed-rate loans are sold
shortly after origination. The Company also relied less on purchasing loan
originations from wholesale and correspondent lenders in 1996. In the first
six months of 1996, third party originations were $789 million, or 27.9
percent of new real estate loans, compared with $1.5 billion, or 36.2 percent
of new real estate loans in the same period of 1995. Mortgage-backed
securities consist largely of single-family residential ARM loans swapped for
mortgage-backed securities in 1994 and 1995 to provide collateral for
borrowings. These securities are subject to full credit recourse.
The Company repurchases delinquent loans which were sold with recourse.
Repurchased loans totaled $16.8 million in the six months ended June 30, 1996
compared with $23.5 million in the six months ended June 30, 1995.
Commercial real estate loans continued to decrease as a result of the
Company's decision in 1987 to discontinue commercial real estate lending
except to finance the sale of foreclosed properties.
<PAGE>
<PAGE>
The ARM for single-family residential properties ("SFRs") is the
primary lending product held for investment. At June 30, 1996, approximately
75 percent of mortgages in the portfolio were indexed to the Cost of Funds
Index for financial institutions comprising the 11th District Federal Home
Loan Bank of San Francisco ("FHLB") Cost of Funds Index ("COFI"). The
Company also originates ARM products which are indexed to one-year Treasury
bills, the prime rate and the Federal Cost of Funds Index ("FCOFI"). The
FCOFI is a combination of the average interest rate on the combined
marketable Treasury bills and the average interest rate on the combined
marketable Treasury notes. In March 1995, the Company introduced a new
product, the London Interbank Offered Rate ("LIBOR") Annual Monthly Average
("LAMA") ARM. The LAMA ARM is indexed to a 12 month average of the Federal
National Mortgage Association ("FNMA") One Month LIBOR. The FCOFI and LAMA
ARMs are similar to the COFI ARM product with respect to interest-rate caps
and payment changes. At June 30, 1996, ARMs comprised 96 percent of the
mortgage portfolio.
A summary of the Company's ARM and fixed rate mortgage portfolio
follows:
<TABLE>
<CAPTION>
June 30
------------------------------
1996 1995
------------- -------------
(Dollars in millions) Amount % Amount %
<S> <C> <C> <C> <C>
ARM
COFI $27,683 75% $29,847 78%
FCOFI 3,674 10 4,318 11
LAMA 2,514 7 531 1
Other 1,619 4 1,697 5
------- --- ------- ---
35,490 96 36,393 95
Fixed rate
Long-term 771 2 1,192 3
Short-term 524 2 562 2
------- --- ------- ---
$36,785 100% $38,147 100%
======= === ======= ===
</TABLE>
A significant portion of the ARM portfolio is subject to lifetime
interest-rate floors. At June 30, 1996, $451 million of ARM loans with an
average yield of 7.80 percent had reached their floor rate. Without the
floor, the average yield on these loans would have been 7.35 percent. The
benefit to interest income from real estate loans which have reached their
floor interest rate was approximately $841,000 for the six months ended June
30, 1996 compared with $2.3 million in the same period of last year.<PAGE>
<PAGE>
The composition of new loan volume was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- June 30
June 30 March 31 June 30 ----------------
(Dollars in millions) 1996 1996 1996 1996 1995
------- -------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate loans $1,589 $1,240 $1,700 $2,829 $4,200
Consumer loans 580 498 571 1,078 1,083
------ ------ ------ ------ ------
Total new loan volume $2,169 $1,738 $2,271 $3,907 $5,283
====== ====== ====== ====== ======
</TABLE>
The composition of real estate loan originations by type was as
follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- June 30
June 30 March 31 June 30 ----------------
(Dollars in millions) 1996 1996 1996 1996 1995
------- -------- ------- ---- ----
<S> <C> <C> <C> <C> <C>
ARM
COFI 42% 20% 55% 32% 78%
LAMA 27 39 31 33 13
FCOFI - - 1 - 1
T-Bill 7 2 - 5 -
Other 3 3 3 3 2
--- --- --- --- ---
Total ARM 79 64 90 73 94
Fixed rate 21 36 10 27 6
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Refinances, included above 43% 55% 32% 49% 32%
=== === === === ===
</TABLE>
<PAGE>
<PAGE>
Fixed-rate lending tends to increase during periods of relatively low
interest rates. Such loans are originated exclusively for sale. The
portfolio of fixed-rate loans designated as available for sale has been
recorded at the lower of cost or fair value. The Company sells loans forward
into the secondary market and purchases short-term hedge contracts for the
commitment period to protect against rate fluctuations on its commitments to
fund fixed-rate loans originated for sale. Hedge contracts are recorded at
cost. At June 30, 1996, there were no open hedge contracts due to the
relatively low level of fixed-rate commitments.
During the second quarter of 1996, ARMs comprised 79 percent of total
real estate loan originations compared with 90 percent in the same period of
1995 and 64 percent for the first quarter of 1996. The principal mortgage
instruments for the first six months of 1996 were both the COFI and LAMA
ARMs. A popular ARM product in 1996 was the LAMA ARM loan with a fixed
interest rate during the first three or five years of the loan term. The ARM
differential over the appropriate indices on new ARMs was 2.67 percent in the
second quarter of 1996 compared with 2.56 percent a year ago. The ARM
differential on the total ARM real estate loan portfolio was 2.51 percent at
June 30, 1996 and 2.48 percent at June 30, 1995.
The cost of funds for Great Western Bank, a Federal Savings Bank
("GWB"), relative to COFI, FCOFI and LAMA is shown as follows:
<TABLE>
<CAPTION>
GWB Cost of
GWB Funds Less Than
Cost of --------------------
Funds COFI FCOFI LAMA COFI FCOFI LAMA
------- ---- ----- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
June 30, 1996 4.396% 4.809% 5.935% 5.636% .413% 1.539% 1.240%
March 31, 1996 4.463 4.874 5.957 5.766 .411 1.494 1.303
December 31, 1995 4.658 5.059 6.152 5.940 .401 1.494 1.282
June 30, 1995 4.815 5.179 6.352 5.782 .364 1.537 .967
</TABLE>
The contractual maturities of all loans receivable and mortgage-
backed securities as of June 30, 1996 follow:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Mortgage-Backed
Real Estate Loans Securities
----------------- ---------------
Fixed Fixed
(Dollars in millions) ARM Rate ARM Rate Consumer Total
--- ----- --- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
One year or less $ 505 $ 37 $ 127 $151 $ 816 $ 1,636
Over one to two years 734 49 135 29 562 1,509
Over two to three years 683 44 144 24 410 1,305
Over three to five years 1,127 166 309 39 163 1,804
Over five to ten years 3,482 320 932 91 510 5,335
Over ten to fifteen years 4,402 105 1,250 32 156 5,945
Over fifteen years 16,003 198 5,657 10 1 21,869
------- ----- ------ ---- ------ -------
$26,936 $ 919 $8,554 $376 $2,618 $39,403
======= ===== ====== ==== ====== =======
</TABLE>
<PAGE>
<PAGE>
INTEREST BEARING LIABILITIES
The composition of interest bearing liabilities at June 30, 1996 and
June 30, 1995 follows:
<TABLE>
<CAPTION>
June 30
-------------------------------
1996 1995
------------- -------------
(Dollars in millions) Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Customer accounts
Retail accounts
Term $17,469 44% $17,596 43%
Transaction 11,022 27 11,086 27
Wholesale accounts 389 1 565 1
------- --- ------- ---
28,880 72 29,247 71
------- --- ------- ---
Borrowings
FHLB 2,169 6 115 -
Securities sold under
agreements to repurchase 5,368 13 7,429 19
Other 3,445 9 4,120 10
------- --- ------- ---
10,982 28 11,664 29
------- --- ------- ---
Total interest bearing liabilities $39,862 100% $40,911 100%
======= === ======= ===
</TABLE>
Borrowings at June 30, 1996 decreased $682 million compared with the
same period last year. The level of borrowings is influenced by customer
account activity, deposit acquisitions and changes in assets.
<PAGE>
<PAGE>
The following table shows the components of the change in customer
account balances:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ -------------------
(Dollars in millions) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Transaction
Demand accounts $ (90) $(105) $ 27 $ (323)
Money market and other
transaction accounts (62) (145) (83) (604)
Certificates of deposit (277) 200 (226) 1,472
Wholesale accounts (33) (4) (73) 1
----- ----- ----- -------
$(462) $ (54) $(355) $ 546
===== ===== ===== =======
</TABLE>
The Company concentrates its retail deposit-gathering activity in two
states: California and Florida.
The decrease in customer account deposits reflects the competitive
environment of banking institutions and the wide array of investment
opportunities available to consumers.
A summary of customer certificates of deposit by interest rate and
maturity as of June 30, 1996 follows:
<TABLE>
<CAPTION>
90 Days 180 Days One Year Two Years
(Dollars in Within to to to to Three Years June 30 December 31 June 30
millions) 90 Days 180 Days One Year Two Years Three Years and Over 1996 1995 1995
------- -------- -------- --------- ----------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Under 4% $ 129 $ 30 $ 18 $ 3 $ 8 $ - $ 188 $ 199 $ 795
4 to 6% 4,289 3,042 4,348 2,078 273 354 14,384 12,825 9,753
6 to 8% 877 311 1,212 246 32 428 3,106 4,763 7,213
Over 8% 2 - 1 1 3 1 8 197 210
------ ------ ------ ------ ---- ---- ------- ------- -------
$5,297 $3,383 $5,579 $2,328 $316 $783 $17,686 $17,984 $17,971
====== ====== ====== ====== ==== ==== ======= ======= =======
$100,000
accounts
included
above $1,193 $ 680 $1,054 $ 244 $ 56 $169 $ 3,396 $ 3,502 $ 3,472
</TABLE>
<PAGE>
<PAGE>
INTEREST SPREAD AND NET INTEREST INCOME
Net interest income was unchanged at $352 million in the second
quarter of 1996 compared to the first quarter of 1996. Net interest income
was $311 million in the second quarter of 1995. The interest spread for both
the 1996 first and second quarters was 3.23 percent compared with 2.83
percent in the 1995 second quarter. The repricing lag on COFI, FCOFI and
LAMA ARMs increased the interest spread by approximately 6 basis points in
the second quarter of 1996 and 9 basis points in the first quarter of 1996.
For the second quarter of 1995, the repricing lag accounted for a reduction
of approximately 10 basis points to the interest spread. The interest spread
decreases in an increasing interest-rate environment as increases in COFI,
to which most interest earning assets are tied, lag behind deposit and
borrowing rate increases. The Company's net interest margin, the difference
between the yield on interest earning assets (interest on mortgages, consumer
loans and securities) and the cost of funds (interest on customer accounts
and borrowings) was 3.32 percent at June 30, 1996 compared with 3.06 percent
a year ago.
<PAGE>
<PAGE>
The following table of net interest income displays the average monthly
balances, interest income and expense and average rates by asset and
liability component for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30
-------------------------------------------------------
1996 1995
-------------------------- --------------------------
Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
Securities $ 1,878 $ 30 6.34% $ 1,548 $ 23 5.91%
Mortgage-backed securities 9,136 164 7.21 11,014 195 7.08
Loans receivable
Real estate 27,724 511 7.37 26,830 491 7.32
Consumer 2,612 102 15.60 2,463 99 16.09
------- ---- ----- ------- ---- -----
Total interest earning assets 41,350 807 7.81 41,855 808 7.72
Other assets 2,258 2,321
------- -------
Total assets $43,608 $44,176
======= =======
Interest bearing liabilities
Customer accounts
Term accounts $17,809 236 5.30 $17,881 253 5.65
Transaction accounts 11,167 54 1.95 11,360 55 1.95
------- ---- ----- ------- ---- -----
28,976 290 4.01 29,241 308 4.21
Borrowings
FHLB 1,701 22 5.11 125 2 5.34
Other 9,090 143 6.28 11,267 187 6.66
------- ---- ----- ------- ---- -----
Total interest bearing liabilities 39,767 455 4.58 40,633 497 4.89
Other liabilities 1,031 967
Stockholders' equity 2,810 2,576
------- -------
Total liabilities and equity $43,608 $44,176
======= =======
Interest spread 3.23% 2.83%
===== =====
Effective yield summary
Interest income/interest earning assets $41,350 $807 7.81% $41,855 $808 7.72%
Interest expense/interest earning assets 41,350 455 4.40 41,855 497 4.75
---- ----- ---- -----
Net yield on interest earning assets $352 3.41% $311 2.97%
==== ===== ==== =====
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------------------------------
1996 1995
-------------------------- --------------------------
Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
Securities $ 1,763 $ 55 6.22% $ 1,498 $ 45 6.03%
Mortgage-backed securities 9,373 339 7.23 10,533 367 6.97
Loans receivable
Real estate 27,713 1,032 7.45 26,648 956 7.18
Consumer 2,620 206 15.74 2,450 197 16.04
------- ------ ----- ------- ------ -----
Total interest earning assets 41,469 1,632 7.87 41,129 1,565 7.61
Other assets 2,370 2,319
------- -------
Total assets $43,839 $43,448
======= =======
Interest bearing liabilities
Customer accounts
Term accounts $17,927 484 5.40 $17,584 478 5.44
Transaction accounts 11,153 110 1.96 11,502 109 1.89
------- ------ ----- ------- ------ -----
29,080 594 4.08 29,086 587 4.03
Borrowings
FHLB 1,425 38 5.29 143 4 5.46
Other 9,470 296 6.26 10,736 356 6.64
------- ------ ----- ------- ------ -----
Total interest bearing liabilities 39,975 928 4.64 39,965 947 4.74
Other liabilities 1,050 943
Stockholders' equity 2,814 2,540
------- -------
Total liabilities and equity $43,839 $43,448
======= =======
Interest spread 3.23% 2.87%
===== =====
Effective yield summary
Interest income/interest earning assets $41,469 $1,632 7.87% $41,129 $1,565 7.61%
Interest expense/interest earning assets 41,469 928 4.47 41,129 947 4.61
------ ----- ------ -----
Net yield on interest earning assets $ 704 3.40% $ 618 3.00%
====== ===== ====== ====
</TABLE>
The average balance of loans receivable above includes nonaccrual loans
and therefore the interest income and average rate, as presented, are
affected by the loss of interest on such loans. Interest foregone on
nonaccrual loans that were nonperforming declined to $7.8 million for the
quarter ended June 30, 1996 compared with $10.2 million for the quarter ended
June 30, 1995. For the first six months of 1996 and 1995, nonaccrual
interest was $16.7 million and $19.3 million, respectively.
<PAGE>
<PAGE>
ASSET LIABILITY MANAGEMENT
The Company monitors its asset and liability structure and interest-
rate/ maturity risks on a regular basis. In this process, consideration is
given to interest-rate trends and funding requirements. ARMs comprised
approximately 97 percent of the real estate loan portfolio at June 30, 1996
and 96 percent at June 30, 1995.
At June 30, 1996, mortgages totaling $7.2 billion were available for
sale, primarily mortgage-backed securities. Real estate loans available for
sale are valued at the lower of cost or fair value, generally on an
individual loan basis. As of June 30, 1996 and 1995, real estate loans
available for sale, primarily fixed-rate loans, were $53.3 million and $104
million, respectively. During the quarter and six months ended June 30,
1996, gains from this portfolio totaled $1.4 million and $3.9 million,
respectively, compared with $1.8 million and $3.1 million in the second
quarter and six months of 1995. Unrealized holding gains on real estate
loans available for sale totaled $704,000 at June 30, 1996 and $1.3 million
at June 30, 1995.
Mortgage-backed securities available for sale and other securities
available for sale are carried at fair value. At June 30, 1996, mortgage-
backed securities available for sale included $163 million of fixed-rate
loans and $7.0 billion of ARMs. During the second quarter and six months
ended June 30, 1996, realized losses were $1.4 and $2.0 million,
respectively. In the second quarter, the Company realized a $1.4 million
loss on the sale of a commercial mortgage note. Unrealized holding gains
were $72.6 million at June 30, 1996, compared with $173 million at December
31, 1995 and $29.3 million at June 30, 1995.
Marketable securities available for sale at June 30, 1996 had both an
amortized cost and a fair value of $1.4 billion. There were no significant
gains realized during the second quarter and six months ended June 30, 1996
and 1995. Unrealized holding losses on marketable securities were $2.9
million at June 30, 1996. Unrealized holding gains on marketable securities
were $8.3 million at December 31, 1995 and $3.7 million at June 30, 1995.
<PAGE>
<PAGE>
The unrealized holding gains and losses on securities available for
sale, net of income taxes, included as a component of stockholders' equity,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ June 30
June 30, March 31 -------------------
(Dollars in thousands) 1996 1996 1996 1995
------- -------- ------- -------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 75,789 $108,433 $108,433 $(55,084)
Unrealized holding (losses)
gains, net of taxes (30,496) (32,644) (63,140) 75,301
-------- -------- -------- --------
Balance at end of period $ 45,293 $ 75,789 $ 45,293 $ 20,217
======== ======== ======== ========
</TABLE>
The following table shows that the portfolio of short-term assets
exceeded liabilities maturing or subject to interest adjustment within one
year by $2.0 billion, or 4.7 percent of interest earning assets at June 30,
1996 compared with $3.6 billion, or 8.7 percent of interest earning assets
at December 31, 1995 and $5.4 billion, or 12.7 percent of interest earning
assets at June 30, 1995. The Company is better protected against rising
rates with an excess of interest earning assets maturing or repricing within
one year.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Maturity/Rate Sensitivity
-----------------------------------------------------------------
June 30, 1996 % of Within Over
(Dollars in millions) Rate Balance Total 1 Year 1-5 Years 5-15 Years 15 Years
---- ------- ----- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Securities 6.10% $ 1,702 4 $ 1,702 $ - $ - $ -
Mortgage-backed securities 7.12 8,930 22 8,749 86 76 19
Investment in FHLB stock 6.05 366 1 - - - 366
Loans receivable
Real estate
Adjustable rate 7.46 26,936 65 24,790 2,146 - -
Fixed rate
Short-term 8.91 453 1 16 15 35 387
Long-term 8.64 466 1 61 67 122 216
Consumer 15.54 2,618 6 658 1,564 293 103
----- ------- --- ------- ------- ----- ------
7.86 41,471 100 35,976 3,878 526 1,091
----- ------- --- ------- ------- ----- ------
Interest bearing liabilities
Customer accounts
Regular savings 1.97 1,776 5 1,776 - - -
Checking and limited access 2.04 9,246 23 9,246 - - -
Wholesale transactions - 172 - 172 - - -
Term accounts 5.24 17,686 44 14,258 3,412 16 -
----- ------- --- ------- ------- ----- ------
3.99 28,880 72 25,452 3,412 16 -
Borrowings
FHLB 5.37 2,169 6 2,169 - - -
Other 6.16 8,813 22 6,513 1,954 199 147
Impact of interest-rate swaps - - - (109) 109 - -
----- ------- --- ------- ------- ----- ------
4.54 39,862 100 34,025 5,475 215 147
----- ------- --- ------- ------- ----- ------
Excess of interest earning
assets over interest bearing
liabilities at June 30, 1996 3.32% $ 1,609 $ 1,951 $(1,597) $ 311 $944
===== ======= ======= ======= ===== ====
Excess of interest earning
assets over interest bearing
liabilities at December 31, 1995 3.30% $ 1,108 $ 3,647 $(3,366) $ 195 $632
===== ======= ======= ======= ===== ====
Excess of interest earning
assets over interest bearing
liabilities at June 30, 1995 3.06% $ 1,310 $ 5,359 $(4,738) $(133) $822
===== ======= ======= ======= ===== ====
</TABLE>
<TABLE>
<CAPTION>
June 30
------------
1996 1995
---- ----
<S> <C> <C>
Calculation of adjusted margin
Unadjusted margin 3.32% 3.06%
Benefit of net interest earning assets .18 .15
---- ----
Adjusted margin 3.50% 3.21%
==== ====
</TABLE>
<PAGE>
<PAGE>
ASSET QUALITY
The Company regularly reviews its assets to determine that each
category is reasonably valued. In this review process it monitors the loss
exposure relating to nonperforming assets, assets adversely classified for
regulatory purposes, the delinquency trend and market environment to identify
potential problems.
Loss reserves have been provided, where necessary in management's
judgment, for interest earning assets, including residential loans and
consumer loans. Valuation reserves for consumer loans are provided based
upon a percentage of the loans outstanding in relation to the loss experience
within the loan categories.
The Company assesses the status of general loss reserves on real estate
loans based upon expected future economic conditions and its current loss
experience as applied to the loan portfolio, including loans that are
delinquent or adversely classified because of declining collateral values.
The amount of the Company's general loss reserve represents management's
estimate of the amount of real estate loan losses likely to be incurred by
the Company, based upon various assumptions as to future interest rate
environments, economic trends and other conditions. As such, the general
loss reserve does not represent the amount of such losses that could be
incurred under adverse conditions that management does not consider to be the
most likely to arise. In addition, management's classification of assets and
evaluation of the adequacy of the general loss reserve is an ongoing process.
Consequently, there can be no assurance that material additions to the
Company's general loss reserve will not be necessary, thereby adversely
affecting earnings. The portfolio of commercial and apartment loans
experienced a significant decline in new nonperforming activity enabling the
Company to reduce reserve levels on that segment of the real estate loan and
real estate portfolios in 1995.
The California real estate market requires continued review. There
appear to be regional differences in economic performance within California
and among property types which are attributable to differing recovery rates
for the wide range of economic activities within California.
On a regional basis, the economic factors affecting the single-family
market appear to be somewhat more favorable in Northern California than in
Southern California. In particular, the median metropolitan area sales price
of existing single-family homes in the San Jose area increased from the first
quarter of 1995 to the first quarter of 1996 by 4 percent. During the same
period, the median sales price for the Los Angeles area declined 4 percent
while the median sales price for the San Diego area was relatively unchanged.
<PAGE>
<PAGE>
In the office space market, regional differences also exist between
Northern and Southern California. In the San Francisco area, the vacancy
rate declined to 7 percent at March 31, 1996 from 9 percent a year earlier.
In the Los Angeles area, the vacancy rate of the office space market was 19
percent at both March 31, 1996 and March 31, 1995. In San Diego County, the
vacancy rate was 17 percent at March 31, 1996 and 18 percent at March 31,
1995.
In the industrial space market, Northern and Southern California
vacancy rates have been more comparable. In the San Francisco area, the
vacancy rate decreased to 8 percent at March 31, 1996 from 9 percent a year
earlier. In the Los Angeles area, the vacancy rate of the industrial space
market remained at 8 percent at March 31, 1996 from a year earlier. San
Diego County's industrial space market had a vacancy rate of 6 percent at
March 31, 1996 and 4 percent at March 31, 1995.
Loans delinquent over 30 days, together with restructured loans, have
been included in the process to determine estimated losses. The effects of
various loan characteristics such as geography, delinquency, date of
origination, property type and loan-to-value ratios ("LTV") are considered
in this review process.
As a monitoring device, the Company reviews the trends of loans and
mortgage-backed securities with full credit recourse delinquent for periods
of less than ninety days on a monthly (and within-month) basis. The
following summarizes mortgages delinquent for periods from thirty to eighty-
nine days:
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
(Dollars in millions) 1996 1996 1995 1995
------- -------- ----------- -------
<S> <C> <C> <C> <C>
30-59 days delinquent
SFR mortgages $226.5 $218.4 $202.1 $165.2
Other 12.0 5.5 9.1 3.8
60-89 days delinquent
SFR mortgages 98.3 95.6 95.8 91.8
Other 16.5 3.3 6.3 12.7
</TABLE>
The increase in thirty to eighty-nine day delinquencies at June 30,
1996 compared with June 30, 1995 is primarily due to inflows of newly
delinquent single-family residential loans resulting from continuing weakness
in the Southern California economy.
The following table shows the trend in the single-family residential
portfolio, including mortgage-backed securities with full credit recourse,
and delinquencies (two or more payments delinquent) compared to the growth
in the related portfolio.<PAGE>
<PAGE>
<TABLE>
<CAPTION>
June 30 December 31 June 30
1996 1995 1995
------- ----------- -------
<S> <C> <C> <C>
SFRs and mortgage-backed securities
with full credit recourse as a
percent of total mortgages 91.7% 91.3% 91.0%
SFR delinquency as a percent
of total SFR mortgages 2.4 2.3 2.2
</TABLE>
The Company's real estate loan portfolio included approximately $2.6
billion of uninsured single-family mortgage loans at June 30, 1996, compared
with $2.9 billion a year ago, which were originated with terms where the LTV
exceeded 80 percent (but not in excess of 90 percent). During the second
quarter of 1996, losses on the higher LTV mortgages totaled $2.8 million, or
.37 percent (annualized), compared with $12 million, or 1.45 percent
(annualized) for the same period a year ago. For the year 1995, losses
totaled $33.4 million, or 1.00 percent of such loans, compared with $24.3
million, or .59 percent for 1994. The Company began to purchase mortgage
insurance on all new single-family residential mortgages originated with LTVs
in excess of 80 percent in 1990. Therefore, this portfolio of uninsured
loans is becoming more seasoned and the balance is declining.
The recorded investment in loans for which impairment has been
recognized in accordance with Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" and the reserve for
estimated losses related to such loans follows:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Impaired Loans
-------------------------------------------------------------------
Having Having
related Reserves for Net with no related
reserves estimated reserves reserves for Net of reserves
for losses losses for losses losses for losses
---------- ------------ ---------- ------------ ---------------
(Dollars in thousands) June 30, 1996
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans
Residential
Single-family $78,572 $17,682 $60,890 $44,140 $105,030
Apartments 83,500 15,940 67,560 10,018 77,578
Commercial
Offices 24,068 9,054 15,014 2,788 17,802
Retail 31,621 2,844 28,777 770 29,547
Hotel/motel 24,302 8,066 16,236 - 16,236
Industrial 16,876 4,534 12,342 3,568 15,910
Other 3,662 1,102 2,560 2,051 4,611
-------- ------- -------- ------- --------
$262,601 $59,222 $203,379 $63,335 $266,714
======== ======= ======== ======= ========
June 30, 1995
-------------------------------------------------------------------
Real estate loans
Residential
Single-family $ 30,676 $ 7,530 $ 23,146 $ 13,976 $ 37,122
Apartments 88,190 19,633 68,557 25,377 93,934
Commercial
Offices 22,638 8,045 14,593 13,137 27,730
Retail 27,974 6,240 21,734 9,019 30,753
Hotel/motel 38,889 9,296 29,593 - 29,593
Industrial 22,679 4,974 17,705 5,207 22,912
Other 3,584 648 2,936 2,100 5,036
-------- ------- -------- -------- --------
$234,630 $56,366 $178,264 $ 68,816 $247,080
======== ======= ======== ======== ========
</TABLE>
The impaired loan portfolio increased at June 30, 1996 compared with
June 30, 1995. The increase was primarily the result of a change in
procedure allowing for an accelerated identification of impaired single-
family loans. Single-family residential mortgage loans are generally
evaluated for impairment as homogeneous pools of loans. Certain situations
may arise leading to single-family residential mortgage loans being evaluated
for impairment on an individual basis.
The Company's policy for recognizing income on impaired loans is to
accrue earnings unless a loan is in foreclosure or becomes nonperforming, at
which time the accrued earnings are reversed.
A change in the fair value of an impaired loan is reported as an
increase or reduction to the provision for loan losses.
Certain loans (where GWB works with borrowers encountering economic
difficulty) meet the criteria of, and are classified as, troubled debt
restructurings ("TDRs") because of modification to loan terms. TDRs totaled
$113 million at June 30, 1996 compared with $134 million at June 30, 1995.
<PAGE>
<PAGE>
Real estate available for sale is recorded at the lower of cost or fair
value and is included in a periodic review of assets to determine whether,
in management's judgment, there has been any deterioration in value. Real
estate held for development, also subject to the same review process, is
carried at the lower of cost or fair value. Real estate is also included
in the general reserve evaluation. At June 30, 1996, foreclosed real estate
properties totaling $2.0 million are operating profitably after provisions
for interest and depreciation and are performing assets.
Nonperforming assets include loans which are delinquent ninety days or
more, TDRs and certain real estate owned which does not generate sufficient
income to meet return on investment criteria. The following table indicates
the amount of the Company's nonperforming assets and the ratio of
nonperforming assets to total assets:
<TABLE>
<CAPTION>
June 30 December 31 June 30
1996 1995 1995
------------- ------------- -------------
(Dollars in millions) Amount % Amount % Amount %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Loans receivable
Real estate
Residential
Single-family $443 1.01% $445 1.00% $433 .97%
Apartments 43 .10 41 .09 53 .12
Commercial 72 .17 81 .18 91 .21
Consumer finance 27 .06 25 .06 22 .05
Other 1 - 2 - 1 -
---- ---- ---- ---- ---- ----
586 1.34 594 1.33 600 1.35
Real estate 184 .42 174 .39 159 .36
---- ---- ---- ---- ---- ----
Total nonperforming assets $770 1.76% $768 1.72% $759 1.71%
==== ==== ==== ==== ==== ====
</TABLE>
<PAGE>
<PAGE>
The geographic distribution of the real estate loan and real estate
portfolios at June 30, 1996 follows:
<TABLE>
<CAPTION>
Connecticut/
Massachusetts/ Oregon/ Oklahoma/
(Dollars in millions) Total California Florida New York Washington Texas Georgia Arizona Other
----- ---------- ------- ------------- ---------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans
Residential
Single-family $25,004 $16,023 $1,805 $1,702 $1,483 $809 $439 $369 $2,374
Apartments 1,554 1,290 65 - 8 24 46 42 79
Commercial
Offices 383 336 15 - 16 2 5 4 5
Retail 246 208 18 - 9 - - 2 9
Hotel/motel 219 138 5 - - 2 - 3 71
Industrial 279 239 12 - 3 13 3 4 5
Other 170 125 11 - 6 1 1 11 15
------- ------- ------ ------ ----- ---- ---- --- -----
27,855 18,359 1,931 1,702 1,525 851 494 435 2,558
------- ------- ------ ------ ----- ---- ---- --- -----
Real estate available
for sale, net
Acquired through
foreclosure 183 164 7 4 - 1 - 1 6
Other 11 10 1 - - - - - -
Property development 44 44 - - - - - -
------- ------- ------ ------ ----- ---- ---- --- -----
238 218 8 4 - 1 - 1 6
------- ------- ------ ------ ----- ---- ---- --- -----
Total real estate loans
and real estate $28,093 $18,577 $1,939 $1,706 $1,525 $852 $494 $436 $2,564
======= ======= ====== ====== ====== ==== ==== ==== ======
Percent of total 100.0% 66.1% 6.9% 6.1% 5.4% 3.0% 1.8% 1.6% 9.1%
</TABLE>
<PAGE>
<PAGE>
The geographic distribution of nonperforming real estate loans and real
estate at June 30, 1996 follows:
<TABLE>
<CAPTION>
Connecticut/
Massachusetts/ Oregon/ Oklahoma/
(Dollars in millions) Total California Florida New York Washington Texas Georgia Arizona Other
----- ---------- ------- ------------- ---------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans
Residential
Single-family $443 $352 $22 $26 $ 6 $ 4 $ 5 $ 3 $25
Apartments 43 35 - - - - 4 - 4
Commercial
Offices 17 16 - - 1 - - - -
Retail 19 16 3 - - - - - -
Hotel/motel 24 24 - - - - - - -
Industrial 7 7 - - - - - - -
Other 5 3 1 - - - - 1 -
---- ---- --- --- --- --- --- --- ---
558 453 26 26 7 4 9 4 29
---- ---- --- --- --- --- --- --- ---
Real estate
Residential
Single-family 144 130 3 4 - 1 - 1 5
Apartments 22 19 3 - - - - - -
Commercial
Offices 5 4 1 - - - - - -
Retail 1 1 - - - - - - -
Industrial 3 3 - - - - - - -
Other 9 8 - - - - - - 1
---- ---- --- --- --- --- --- --- ----
184 165 7 4 - 1 - 1 6
---- ---- --- --- --- --- --- --- ----
Total nonperforming real
estate loans and real
estate $742 $618 $33 $30 $ 7 $ 5 $ 9 $ 5 $ 35
==== ==== === === === === === === ====
Percent of total 100.0% 83.3% 4.5% 4.0% .9% .7% 1.2% .7% 4.7%
</TABLE>
<PAGE>
<PAGE>
A comparison of the California real estate loan and real estate
portfolios and nonperforming real estate loans and real estate by region at
June 30, 1996 follows:
<TABLE>
<CAPTION>
California Northern California
(Dollars in millions) Portfolio Nonperforming % Portfolio Nonperforming %
--------- ------------- --- --------- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
Real estate loans
Residential
Single-family $16,023 $352 2.2 $4,990 $ 71 1.4
Apartments 1,290 35 2.7 156 3 1.9
Commercial
Offices 336 16 4.8 74 11 14.9
Retail 208 16 7.7 49 1 2.0
Hotel/motel 138 24 17.4 44 - -
Industrial 239 7 2.9 32 1 3.1
Other 125 3 2.4 36 - -
------- --- ----- ------ ---- ----
18,359 453 2.5 5,381 87 1.6
------- --- ----- ------ ---- ----
Real estate
Residential
Single-family 130 130 100.0 16 16 100.0
Apartments 19 19 100.0 1 1 100.0
Commercial
Offices 4 4 100.0 - - -
Retail 3 1 33.3 - - -
Industrial 3 3 100.0 - - -
Other 59 8 13.6 21 4 19.0
------- --- ----- ------ ---- ----
218 165 75.7 38 21 55.3
------- --- ----- ------ ---- ----
Total real estate loans
and real estate $18,577 $618 3.3 $5,419 $108 2.0
======= ==== ===== ====== ==== =====
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Central California Southern California
(Dollars in millions) Portfolio Nonperforming % Portfolio Nonperforming %
--------- ------------- --- --------- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
Real estate loans
Residential
Single-family $1,340 $20 1.5 $ 9,693 $261 2.7
Apartments 228 7 3.1 906 25 2.8
Commercial
Offices 37 - - 225 5 2.2
Retail 27 - - 132 15 11.4
Hotel/motel 25 3 12.0 69 21 30.4
Industrial 13 - - 194 6 3.1
Other 17 1 5.9 72 2 2.8
------ --- ----- ------- ---- -----
1,687 31 1.8 11,291 335 3.0
------ --- ----- ------- ---- -----
Real estate
Residential
Single-family 6 6 100.0 108 108 100.0
Apartments 8 8 100.0 10 10 100.0
Commercial
Offices - - - 4 4 100.0
Retail 1 - - 2 1 50.0
Industrial - - - 3 3 100.0
Other 12 - - 26 4 15.4
------ --- ----- ------- ---- -----
27 14 51.9 153 130 85.0
------ --- ----- ------- ---- -----
Total real estate loans
and real estate $1,714 $45 2.6 $11,444 $465 4.1
====== === ===== ======= ==== =====
</TABLE>
Nonperforming real estate loans and real estate decreased by $22
million during the second quarter of 1996. Total nonperforming single-family
residential properties decreased $1 million in the second quarter of 1996.
Single-family residential properties in California decreased $8 million while
out of state properties increased $7 million. Nonperforming commercial and
apartment properties decreased $21 million in the second quarter of 1996.
In the second quarter of 1996, bulk sales of foreclosed single-family
properties totaled $45.8 million compared with $57.8 million in the first
three months of 1996 and $57.4 million in the second quarter of 1995.
Auction sales have also been utilized to accelerate the disposition of
foreclosed properties.
The Company provides a reserve for uncollected interest which is
essentially based upon loans delinquent ninety days or more or in
foreclosure. These loans are considered in "nonaccrual" status.
<PAGE>
<PAGE>
A summary of loan loss provisions, charge-offs and recoveries by loan
type follows:
<TABLE>
<CAPTION>
At or For The At or For the
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -----------------------
(Dollars in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $347,578 $419,387 $ 362,849 $ 438,051
Provision for loss
Real estate loans
SFR 26,700 38,600 53,632 74,200
Other - 1,000 - 2,000
Consumer finance 13,600 9,200 28,100 19,800
Other (1,000) (5,600) (332) (5,200)
-------- -------- --------- ---------
39,300 43,200 81,400 90,800
-------- -------- --------- ---------
Charge-offs
Real estate loans
SFR (39,022) (52,265) (80,013) (102,630)
Other (4,726) (9,525) (7,544) (15,017)
Consumer finance (16,862) (13,832) (34,462) (28,633)
Other (827) (421) (1,185) (696)
-------- -------- --------- ---------
(61,437) (76,043) (123,204) (146,976)
-------- -------- --------- ---------
Recoveries
Real estate loans
SFR 398 406 567 878
Other 166 396 176 420
Consumer finance 4,234 4,248 8,381 8,338
Other 82 58 152 141
-------- -------- --------- ---------
4,880 5,108 9,276 9,777
-------- -------- --------- ---------
Net charge-offs
Real estate loans
SFR (38,624) (51,859) (79,446) (101,752)
Other (4,560) (9,129) (7,368) (14,597)
Consumer finance (12,628) (9,584) (26,081) (20,295)
Other (745) (363) (1,033) (555)
-------- -------- --------- ---------
(56,557) (70,935) (113,928) (137,199)
-------- -------- --------- ---------
Ending balance $330,321 $391,652 $ 330,321 $ 391,652
======== ======== ========= =========
Ratio of net charge-offs
(annualized) to average loans
Real estate loans
SFR .49% .67% .51% .67%
Other .63 1.17 .50 .94
Consumer finance 2.44 1.93 2.50 2.04
Other .55 .30 .39 .24
----- ----- ----- -----
.62% .78% .62% .77%
===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE>
Provisions for losses on the leasing portfolio, included in other loan
loss provisions, for the three and six month periods ending June 30, 1996,
decreased as a result of the reversal of $1.8 million of excess reserves.
Loan loss provisions for the same period of 1995 decreased as a result of the
reversal of a $6 million reserve originally established for expected losses
which did not materialize.
The following table presents the Company's reserve for estimated losses
and the reserve as a percent of the respective loans receivable portfolios:
<TABLE>
<CAPTION>
June 30
-----------------------------------
1996 1995
--------------- --------------
(Dollars in millions) Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Real estate loans
SFR $130 .42% $162 .52%
Commercial and other 138 4.83 172 5.59
Consumer finance 57 2.77 53 2.63
Other 5 .86 5 1.06
---- ---- ---- ----
Total $330 .90% $392 1.06%
==== ==== ==== ====
</TABLE>
<PAGE>
<PAGE>
A summary of real estate reserve activity by real estate type follows:
<TABLE>
<CAPTION>
At or For The At or For The
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
(Dollars in millions) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance
SFR $ 1 $ 3 $ 1 $ 3
Commercial and other 54 64 56 74
--- --- --- ----
55 67 57 77
Provision for losses
Commercial and other - - - 1
Net charge-offs
SFR (1) - (1) -
Commercial and other (2) (1) (4) (12)
--- --- --- ----
(3) (1) (5) (12)
Ending balance
SFR - 3 - 3
Commercial and other 52 63 52 63
--- --- --- ----
$52 $66 $52 $ 66
=== === === ====
</TABLE>
OPERATIONS
Net interest income totaled $352 million in the second quarter of 1996
compared with $311 million in the second quarter of 1995. The following
table shows the components of the change in net interest income between
periods.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ---------------------------
(Dollars in millions) 1996 vs 1995 1995 vs 1994 1996 vs 1995 1995 vs 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Mortgage-backed securities
Rate (1) $ - $ 13 $ 14 $ 20
Volume (2) (30) 108 (40) 210
Rate/Volume (3) (1) 30 (2) 48
---- ---- ---- ----
(31) 151 (28) 278
---- ---- ---- ----
Real estate loans
Rate (1) 4 50 36 80
Volume (2) 16 (38) 38 (81)
Rate/Volume (3) - (4) 2 (7)
---- ---- ---- ----
20 8 76 (8)
---- ---- ---- ----
Consumer loans
Rate (1) (2) (5) (4) (7)
Volume (2) 5 10 13 19
Rate/Volume (3) - (1) - (1)
---- ---- ---- ----
3 4 9 11
---- ---- ---- ----
Securities and investments
Rate (1) 2 1 2 6
Volume (2) 5 8 8 11
Rate/Volume (3) - 2 - 3
---- ---- ---- ----
7 11 10 20
---- ---- ---- ----
Interest earning assets
Rate 4 59 48 99
Volume (4) 88 19 159
Rate/Volume (1) 27 - 43
---- ---- ---- ----
(1) 174 67 301
---- ---- ---- ----
Customer accounts
Rate (1) (14) 93 7 160
Volume (2) (4) (10) - (26)
Rate/Volume (3) - (5) - (9)
---- ---- ---- ----
(18) 78 7 125
---- ---- ---- ----
Borrowings
Rate (1) (17) (1) (27) (10)
Volume (2) (7) 125 1 262
Rate/Volume (3) - (1) - (22)
---- ---- ---- ----
(24) 123 (26) 230
---- ---- ---- ----
Interest bearing liabilities
Rate (31) 92 (20) 150
Volume (11) 115 1 236
Rate/Volume - (6) - (31)
---- ---- ---- ----
(42) 201 (19) 355
---- ---- ---- ----
Change in net interest income $ 41 $(27) $ 86 $(54)
==== ==== ==== ====
</TABLE>
<PAGE>
<PAGE>
(1) The rate variance reflects the change in the average rate multiplied
by the average balance outstanding during the prior period.
(2) The volume variance reflects the change in the average balance
outstanding multiplied by the average rate during the prior period.
(3) The rate/volume variance reflects the change in the average rate
multiplied by the change in the average balance outstanding.
(4) Nonaccrual loans and amortized deferred loan fees are included in
the interest income calculations.
Real estate services income totaled $39.1 million for the six months
ended June 30, 1996 compared with $42.6 million for the six months ended June
30, 1995. The decrease in income was attributed to lower servicing income
and gains on mortgage sales. Mortgage sales in the first six months of 1996,
primarily fixed rate, totaled $802 million, at a gain of .58 percent of
mortgage sales, compared with $122 million in the first six months of last
year at a gain of 1.73 percent of mortgage sales. The decrease in gains as
a percentage of mortgage sales was the result of the recent rise in long term
interest rates which affected the pricing of loans available for sale in the
first half of 1996. As a result of the adoption of FAS 122, the amount of
servicing capitalized in 1996 and included in gain on mortgage sales was $2.1
million and $4.4 million for the second quarter and six months of 1996,
respectively. At June 30, 1996, the servicing spread was 43 basis points on
the $11.1 billion servicing portfolio compared with a servicing spread of 43
basis points on a $10.6 billion portfolio at June 30, 1995. Loan prepayment
fees were $649,000 in the second quarter of this year compared with $489,000
in the first quarter of 1996 and $118,000 in the second quarter last year.
In the second quarter of 1996, the Company sold the servicing rights on $38.6
million of loans at a gain of $569,000. For the six months ended June 30,
1996, the Company sold the servicing rights on $134 million of loans at a
gain of $1 million. The portfolio of loans serviced for others is expected
to decrease if the level of fixed-rate loan originations and sales decrease.
Retail banking fee and commission income increased to $98.9 million in
the six months ended June 30, 1996 from $82.1 million in the six months ended
June 30, 1995. Banking fees increased to $84.7 million in the first six
months of 1996 compared with $73.9 million in the same period last year.
Income from mutual fund and securities brokerage operations has increased as
a result of increased sales of mutual funds and decreased redemptions. Net
revenue from these operations totaled $14.2 million in the six months ended
June 30, 1996 compared with $8.3 million in the same period of 1995. The
Company managed mutual funds with assets aggregating $3.4 billion at June 30,
1996 compared with $3.1 billion at June 30, 1995.
<PAGE>
<PAGE>
Other income was $16.1 million for the six months ended June 30, 1996
compared with $20.3 million for the same period a year ago.
Operating expenses were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(Dollars in millions) June 30 June 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Salaries and related personnel $117 $115 $234 $232
Premises and occupancy 45 46 91 92
FDIC insurance premiums 16 14 32 33
Advertising and promotion 10 9 19 17
Outside data processing 15 15 28 30
Communications 8 11 18 23
Branch losses 7 4 14 7
Office supplies 6 5 11 9
Postage 4 3 8 7
Insurance 3 3 5 6
Other 17 23 40 42
---- ---- ---- ----
$248 $248 $500 $498
==== ==== ==== ====
</TABLE>
Included in other operating expenses in the second quarter of 1996
is a $7.4 million recovery for fraudulently over-billed marketing costs which
had occurred over a number of years.<PAGE>
<PAGE>
The operating ratios were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating and administrative expenses
(annualized)
As a percent of average assets
Corporate 2.28% 2.25% 2.28% 2.29%
Banking operations 2.17 2.06 2.13 2.10
As a percent of average assets
and assets serviced for others
Corporate 1.81 1.81 1.82 1.84
Banking operations 1.71 1.64 1.68 1.67
As a percent of average retail
deposits
Banking operations 3.16 3.02 3.11 3.05
As a percent of revenue
Corporate 59.90 66.94 60.49 67.91
Banking operations 64.65 71.08 64.15 72.10
</TABLE>
The Company is implementing new technologies in its banking and lending
operations in 1996 and 1997 in order to reduce costs and remain competitive
in today's marketplace. As a result, a restructuring charge may be recorded
in the second half of 1996 to include severance costs of displaced employees
and the write-off of obsolete technology (equipment).
The following table presents net earnings (annualized) as a percent of
average assets and as a percent of average equity:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on average assets .73% .46% .69% .43%
Return on average equity 11.28 7.83 10.70 7.39
/TABLE
<PAGE>
<PAGE>
The Company's effective tax rate was 39.6 percent in the first six
months of 1996 and 39.5 percent in the same period of 1995.
CAPITAL RESOURCES AND LIQUIDITY
Capital (stockholders' equity) was $2.8 billion at June 30, 1996 and
$2.6 billion at June 30, 1995. At the end of the 1996 second quarter, the
ratio of capital to total assets was 6.5 percent compared with 5.9 percent
a year ago.
GWB is subject to certain capital requirements under applicable
regulations and meets all such requirements. At June 30, 1996, GWB's capital
was $3.0 billion, including eligible subordinated notes of $288 million.
The following ratios compare GWB with the capital requirements under
regulations issued by the Office of Thrift Supervision ("OTS"):
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------
Actual OTS Benchmark
-------------- ------------- Capital
(Dollars in millions) Amount % Amount % Excess
------ --- ------ --- -------
<S> <C> <C> <C> <C> <C>
Leverage/tangible ratio $2,453 6.00% $1,227 3.00% $1,226
Tier 1 risk-based ratio 2,448 10.07 972 4.00 1,476
Total risk-based ratio 2,918 12.01 1,945 8.00 973
</TABLE>
The OTS amended its risk-based capital rules to incorporate interest-
rate risk ("IRR") requirements to require a savings association to hold
additional capital if it is projected to experience an excessive decline in
"net portfolio value" in the event interest rates increase or decrease by two
percentage points. The additional capital required is equal to one-half of
the amount by which any decline in net portfolio value exceeds 2 percent of
the savings association's total net portfolio value. The standards are not
yet in effect. However, GWB does not expect the interest-rate risk
requirements to have a material impact on its required capital levels.
The OTS has proposed to amend its capital rule on the leverage ratio
requirement to reflect amendments made by the Office of the Comptroller of
the Currency ("OCC") to the capital requirements for national banks. The
proposal would establish a 3 percent leverage ratio (defined as the ratio of
<PAGE>
<PAGE>
core capital to adjusted total assets) for savings associations in the
strongest financial and managerial condition. All other savings
associations would be required to maintain leverage ratios of at least 4
percent. Only savings associations rated composite 1 under the OTS CAMEL
rating system will be permitted to operate at or near the regulatory minimum
leverage ratio of 3 percent. For all other savings associations, the minimum
core capital leverage ratio will be 3 percent plus an additional 100 to 200
basis points.
In determining the amount of additional capital, the OTS will assess
both the quality of risk management systems and the level of overall risk in
each individual savings association through the supervisory process on a
case-by-case basis. The OTS' supervisory judgment on a savings association's
capital adequacy, both in terms of risk-based capital and the minimum
leverage ratio, will continue to be based upon an assessment of the relevant
factors present in each institution.
Savings associations that do not pass the minimum capital standards
established under the new core capital leverage ratio requirements will be
required to submit capital plans detailing steps to be taken to reach
compliance.
GWB currently meets these proposed requirements.
As of June 30, 1996, real estate loan commitments totaled $837 million
compared with $717 million at December 31, 1995 and $865 million at June 30,
1995. These commitments included $713 million of ARMs and $124 million at
fixed rates at June 30, 1996. The Company has several sources for raising
funds for lending, among which are mortgage repayments, mortgage sales,
customer deposits, Federal Home Loan Bank borrowings and other borrowings.
The following table presents the debt ratings of the Company and GWB
at June 30, 1996:
<TABLE>
<CAPTION>
Moody's Investors
Standard & Poor's Service Fitch
----------------- ----------------- ----------
GWFC GWB GWFC GWB GWFC GWB
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Unsecured short-term debt A-2 A-2 P-2 P-1 F-1
Senior term debt BBB+ A- Baa1 A-2 A- A
Subordinated term debt BBB+ A-3 A-
Preferred stock BBB- Baa2 BBB
/TABLE
<PAGE>
<PAGE>
The origination and sale of real estate loans is dependent upon general
market conditions. In an active real estate market, loan originations
increase. In such periods, mortgage sales are usually increased to fund a
portion of originations and to control asset growth. However, in some
periods mortgage sales occur to fund customer account outflows and repay
borrowings which result in asset shrinkage. Mortgage sales also occur to
limit interest-rate risk and for restructuring purposes.
As presented in the Consolidated Condensed Statement of Cash Flows, the
sources of liquidity vary between quarters. The primary source of funds in
the second quarter of 1996 was principal payments on mortgage-backed
securities and loans held for investment of $1.7 billion. New loans
originated for investment required $1.8 billion in the second quarter of
1996. Operating activities provided $276 million in the current quarter.
The Company continued to maintain liquidity balances each period in
excess of funding and legal requirements. Cash and securities totaled $2.4
billion at June 30, 1996 and $2.1 billion at June 30, 1995.
DIVIDENDS
Quarterly cash dividends have been paid since 1977. At its April 1996
meeting, the Board of Directors increased the quarterly cash dividend from
$.23 to $.25 per common share. The quarterly cash dividend of $.23 per
common share had previously been paid at that level since the second quarter
of 1992. The dividend increase was due to the Company's improved earnings
and strong capital position.
In the first quarter of 1996 the regular quarterly dividend on the $129
million 8 3/4 percent cumulative convertible preferred stock, issued in May
1991, and the regular quarterly dividend on the $165 million 8.3 percent
cumulative preferred stock, issued in September 1992, were paid.
The principal source of operating income of the Company on an
unconsolidated basis is dividends from GWB and Aristar, Inc ("Aristar"). In
the second quarter of 1996, cash dividends received from GWB and Aristar
totaled $37.8 million and $18.8 million, respectively. In the first six
months of 1996, cash dividends received include $75.7 million from GWB, $27.8
million from Aristar and $1.5 million from other subsidiaries. GWB is
subject to the regulations of the OTS and FDIC. The OTS regulations impose
limitations upon "capital distributions" by savings associations, including
cash dividends. The regulations establish a three-tiered system: Tier 1
includes savings associations with capital at least equal to their fully
phased-in capital requirement which have not been notified that they are in
need of more than normal supervision; Tier 2 includes savings associations
with capital above their minimum capital requirement but less than their
fully phased-in requirement; and Tier 3 includes savings associations with
capital below their minimum capital requirement. Tier 1 associations may,
after prior notice but without approval of the OTS, make capital
distributions up to the higher of (1) 100 percent of their net income during
<PAGE>
<PAGE>
the calendar year plus the amount that would reduce by one half their
"surplus capital ratio" (the excess over their fully phased-in capital
requirement) at the beginning of the calendar year or (2) 75 percent of their
net income over the most recent four-quarter period. Tier 2 associations
may, after prior notice but without approval of the OTS, make capital
distributions of up to 25 percent to 75 percent of their net income over the
most recent four-quarter period depending upon their current risk-based
capital position. Tier 3 associations may not make capital distributions
without prior approval. An association subject to more stringent
restrictions imposed by agreement may apply to remove the more stringent
restrictions.
The Company believes that GWB is a Tier 1 association. Notwithstanding
the foregoing, the regulatory authorities have broad discretion to prohibit
any payment of dividends and take other actions if they determine that the
payment of such dividends would constitute an unsafe or unsound practice.
Among the circumstances posing such risk would be a capital distribution by
a Tier 1 or Tier 2 association whose capital is decreasing because of
substantial losses.
RECENT DEVELOPMENTS
Stock Repurchase Program
On July 23, 1996, the Board of Directors authorized the repurchase of
up to 7.5 million shares of issued and outstanding common stock, representing
approximately 5% of the total number of shares outstanding as of June 30,
1996. The repurchases may be made from time to time through mid-1997 in the
open market or through privately negotiated transactions. In July 1996, 6.5
million shares were repurchased pursuant to this program. Funds for this
repurchase were provided by short term borrowings and a dividend from
Aristar.
Deposit Insurance Premiums
The Federal Deposit Insurance Corporation (the "FDIC") has adopted a
new Bank Insurance Fund (the "BIF") assessment schedule which virtually
eliminates the BIF deposit insurance premium assessment in the first half of
1996 for most banks, as the BIF has exceeded the required level of 1.25
percent of insured deposits. At the same time, the FDIC has continued the
current Savings Association Insurance Fund (the "SAIF") assessment schedule
of premiums which range from 23 cents per $100 of domestic deposits to 31
cents per $100 of domestic deposits, depending on risk classification,
because it is expected that the SAIF reserves will not reach the required
level for a number of years absent Congressional action to provide
additional funding. Such a deposit insurance premium disparity has placed
SAIF-insured institutions, such as GWB, at a competitive disadvantage with
commercial banks and other BIF-insured institutions. GWB expects to pay
deposit insurance premium assessments of approximately $70 million in 1996.
<PAGE>
<PAGE>
Proposals have been introduced in Congress to recapitalize the SAIF to
the required level of 1.25 percent of insured deposits by levying a one time
assessment of roughly 85 cents per $100 of domestic deposits held by SAIF-
insured institutions. The Company is unable to predict if any proposal might
be enacted into law, but if it is, the effect on GWB would be a pretax charge
of approximately $250 million, or $150 million after tax. Upon
recapitalization of the SAIF, it would be expected that the SAIF deposit
insurance premiums would be reduced from their current level.
In 1995, GWFC submitted applications to federal bank regulators seeking
the creation of two new national banks in California and Florida in the
effort to reduce the competitive disadvantage which could be caused by a
deposit insurance premium disparity. Both of the proposed national banks
would be insured by the Federal Deposit Insurance Corporation through the BIF
and would allow the Company to offer banking products and services to its
present and future customers. On August 2, 1996, the Comptroller of the
Currency granted preliminary approval of the applications. GWFC is also
required to file an application with the Federal Reserve to become a bank
holding company and must receive approval of deposit insurance for the
national banks from the FDIC. A portion of GWB's present deposit base would
voluntarily flow to the national banks when they are established or to GWB's
existing affiliated BIF-insured industrial banks.
Tax Bad Debt Reserves
Under the Internal Revenue Code, GWB, as a qualified thrift
institution, is allowed deductions for bad debts under the reserve method,
which is more favorable than bad debt deduction methods allowed to other
taxpayers. If the GWB converted to a commercial bank, or otherwise lost its
tax status as a qualified thrift institution, it would be ineligible for this
reserve method and its existing tax bad debt reserve of $724,488,000 would
possibly be subject to federal income tax.
Under provisions of the Small Business Job Protection Act of 1996
(which is expected to be signed by President Clinton), GWB will lose its
eligibility for the bad debt reserve method beginning in 1996, however the
existing reserve balance will no longer be subject to federal income tax now
or if, in the near future, GWB converts to a commercial bank status or loses
its tax status as a qualified thrift institution. The existing reserve
balance will continue to be subject to tax upon certain occurrences,
including its distribution to shareholders, none of which are currently
contemplated.
<PAGE>
<PAGE>
AVERAGE SHARES OUTSTANDING
The average common shares outstanding, based upon daily amounts used
in the calculation of earnings per share, are shown below:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary 139,041,758 136,746,783 138,984,442 135,876,365
Fully diluted 145,491,403 136,746,783 145,434,087 136,242,751
</TABLE>
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
See Item 4, Part II of the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1996 for a report on the voting at the Company's
Annual Meeting of Shareholders on April 23, 1996, which is incorporated
herein by reference.
<PAGE>
<PAGE>
ITEM 5. OTHER INFORMATION
- --------------------------
The calculation of the Company's ratio of earnings to fixed charges as
of the dates indicated follows:
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended Six Months Ended
(Dollars in thousands) June 30, 1996 December 31, 1995 June 30, 1995
---------------- ------------------- ----------------
<S> <C> <C> <C>
Earnings
Net earnings $ 150,565 $ 261,022 $ 93,920
Taxes on income 98,800 161,100 61,300
---------- ---------- ----------
Earnings before taxes $ 249,365 $ 422,122 $ 155,220
========== ========== ==========
Interest expense
Customer accounts $ 593,458 $1,217,085 $ 586,735
Borrowings 345,370 734,670 378,053
---------- ---------- ----------
Total $ 938,828 $1,951,755 $ 964,788
========== ========== ==========
Rent expense
Total $ 31,961 $ 46,433 $ 27,500
1/3 thereof 10,654 15,478 9,167
Capitalized interest $ 20 $ - $ -
Preferred stock dividends $ 12,496 $ 25,015 $ 12,508
Ratio of earnings to fixed charges
and preferred stock dividends
Excluding customer accounts
Earnings before fixed charges $ 605,389 $1,172,270 $ 542,440
Fixed charges 376,740 790,602 407,892
Ratio 1.61 1.48 1.33
Including customer accounts
Earnings before fixed charges $1,198,847 $2,389,355 $1,129,175
Fixed charges 970,198 2,007,687 994,627
Ratio 1.24 1.19 1.14
Ratio of earnings to fixed charges
Excluding customer accounts
Earnings before fixed charges $ 605,389 $1,172,270 $ 542,440
Fixed charges 356,044 750,148 387,220
Ratio 1.70 1.56 1.40
Including customer accounts
Earnings before fixed charges $1,198,847 $2,389,355 $1,129,175
Fixed charges 949,502 1,967,233 973,955
Ratio 1.26 1.21 1.16
/TABLE
<PAGE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
a. Exhibits
--------
4.1 The Company has outstanding certain long-term debt as set forth in
Note 14 of the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995. The Company agrees to furnish copies of the
instruments representing its long-term debt to the Securities and
Exchange Commission (the "SEC") upon request.
10.1 Employment Agreement between the Company and Jaynie M. Studenmund dated
as of April 15, 1996.
11.1 Statement re computation of per share earnings.
27.1 Financial Data Schedule
b. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this report
is filed.
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT WESTERN FINANCIAL CORPORATION
- -----------------------------------
Registrant
/s/ Carl F. Geuther
- ---------------------------------
Carl F. Geuther
Vice Chairman and Chief Financial
Officer
/s/ Barry R. Barkley
- -----------------------------------
Barry R. Barkley
Senior Vice President and
Controller
DATE: August 13, 1996
<PAGE>
<PAGE>
GREAT WESTERN FINANCIAL CORPORATION
EXHIBIT INDEX
June 30, 1996
Exhibit Page
Number Number
- ------- ------
10.1 Employment Agreement between the Company and
Jaynie M. Studenmund 40
11.1 Statement re computation of per share earnings 70
27.1 Financial Data Schedule 71
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
- --------------------
THIS EMPLOYMENT AGREEMENT is entered into as of April 15, 1996, by
and between GREAT WESTERN FINANCIAL CORPORATION, a Delaware corporation
("Employer"), and JAYNIE M. STUDENMUND ("Officer").
W I T N E S S E T H:
WHEREAS, Employer is a holding company that controls, among other
assets, a subsidiary, Great Western Bank, a Federal Savings Bank (the
"Bank") (together, the "Company"); and
WHEREAS, Officer has worked in the banking industry for many years
and desires to utilize her knowledge, skills, experience and abilities on
behalf of the Company; and
WHEREAS, Employer desires to obtain the benefit of Officer's
services; and
WHEREAS, the Board of Directors of Employer (the "Board") has
determined that it is in Employer's best interest and that of its
stockholders to recognize the substantial contribution that Officer is
expected to make to the Company's business and to retain her services in
the future; and
WHEREAS, Employer and Officer desire to set forth in this Agreement
the terms and conditions of Officer's employment with Employer;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. TERM. Employer shall employ Officer, and Officer shall serve
Employer, in accordance with the terms hereof, for a term of three (3)
years ending April 15, 1999 (the "Term"), unless such employment is
earlier terminated in accordance with the provisions hereof.
Notwithstanding the foregoing, if Officer's employment shall not have been
terminated in accordance with the provisions hereof effective on or before
the first anniversary of the effective date hereof, the remaining Term
shall be extended such that at each and every moment of time thereafter
the remaining Term shall be two (2) years (but in no event shall the
remaining Term extend beyond Officer's sixty-fifth (65th) birthday).
<PAGE>
<PAGE>
2. SPECIFIC POSITION; DUTIES AND RESPONSIBILITIES. Subject to the
provisions of this Agreement, Employer shall employ Officer, and Officer
shall serve Employer, in the position of Director of Retail Banking with
the title of Executive Vice President of Employer. Officer's principal
business address shall during such period be at Employer's principal
executive offices in Southern California or in such other place as with
Officer's consent such offices are relocated. Officer's duties hereunder
shall be the usual and customary duties of the office in which she shall
serve, and shall not be inconsistent with the provisions of the charter
documents of Employer (or applicable subsidiary) or applicable law.
Officer shall have such executive power and authority as shall reasonably
be required to enable her to discharge her duties in the office which she
may hold. All compensation paid to Officer by Employer or any of its
subsidiaries, and all benefits and perquisites received by Officer from
Employer or any of its subsidiaries, in accordance with the provisions
hereof shall be aggregated in determining whether Officer has been paid
the compensation and received the benefits and perquisites provided for
herein.
3. SERVICES AND EXCLUSIVITY OF SERVICES. During her employment
hereunder, Officer shall devote her full business time and energy to the
business, affairs and interests of Employer and its subsidiaries, and
matters related thereto, and shall use her best efforts and abilities to
promote Employer's and its subsidiaries' interests. Officer shall
diligently endeavor to promote the business, affairs and interests of
Employer and its subsidiaries and perform services contemplated hereby in
accordance with the policies established by the Board. Officer shall
serve without additional remuneration in such senior executive capacity
for one or more (direct or indirect) subsidiaries of Employer as the Board
may from time to time request, subject to appropriate authorization by the
subsidiary or subsidiaries involved and any limitations under applicable
law. Officer's failure to discharge an order or perform a function
because Officer reasonably and in good faith believes such would violate a
law or regulation or be dishonest shall not be deemed a breach by her of
her obligations or duties hereunder and shall not entitle Employer to
terminate Officer's employment hereunder, including without limitation
pursuant to Section 7(c) hereof.
Officer may serve as a director or in any other capacity of any
business enterprise, including an enterprise whose activities may involve
or relate to the business of the Company, provided that such service is
expressly approved by the Board. Officer may make and manage personal
business investments of her choice and serve in any capacity with any
civic, educational or charitable organization, or any governmental entity
or trade association, without seeking or obtaining approval by the Board,
provided such activities and service do not materially interfere or
conflict with the performance of her duties hereunder.
<PAGE>
<PAGE>
4. SALARY AND OTHER BENEFITS. Pursuant to the provisions of an offering
letter, Employer has previously paid Officer a commitment bonus in the
gross amount of $50,000, and previously paid Officer an additional
employment bonus in the gross amount of $50,000, the receipt of both of
which is hereby acknowledged.
Commencing as of the effective date of this Agreement, Employer shall
pay Officer an annual salary at the rate of $325,200, which shall be
payable in semi-monthly or bi-weekly installments in conformity with
Employer's policy relating to salaried employees. Officer shall also be
entitled during her employment hereunder to all rights and benefits for
which she is otherwise eligible under any bonus plan, stock option plan,
stock purchase plan, participation or extra compensation plan, pension
plan, profit-sharing plan, life and medical insurance policy or other
plans or benefits which Employer or its subsidiaries may provide for her
or, provided she is eligible to participate therein, for senior officers
generally or for employees generally (collectively, "Additional
Benefits"). This Agreement shall not affect the provisions of any other
compensation, retirement or other benefit program or plan of the Company.
As a part of these Additional Benefits, Employer will initially grant
Officer 50,000 stock options, pursuant to appropriate action by Employer's
Compensation Committee, under the 1988 Stock Option and Incentive Plan.
Such options will vest at the rate of 25% per year thereafter, will vest
upon a "change of control" as provided elsewhere in this Agreement and
will be governed in all respects by the terms of such Stock Option and
Incentive Plan and related stock option agreements.
Officer shall also participate in Employer's Supplemental Executive
Retirement Plan, as amended (the "SERP"), which provides normal retirement
benefits equal to sixty percent (60%) of Officer's Average Monthly
Compensation (as defined therein), subject to the terms and conditions of
the SERP, including the SERP's provisions for offsets for other pension
benefits available to Officer.
The Board shall review Officer's salary and Additional Benefits then
being paid and provided to her not less frequently than annually in the
light of Officer's services for the preceding period, the responsibilities
which attend her office and duties hereunder, the profitability and
progress of Employer and its subsidiaries and current salaries and
benefits then being paid to others holding similar positions. Following
such review, Employer may increase the salary and/or Additional Benefits,
but may not decrease the salary or any of the Additional Benefits from the
then existing levels; provided, however, that Employer shall have the
right to reduce Officer's salary in conjunction with a pro rata salary
reduction applicable to all of Employer's officers and to reduce one or
more Additional Benefits in conjunction with a reduction of such benefits
<PAGE>
<PAGE>
applicable to all of Employer's officers. Employer shall not single
Officer out and discriminate against Officer in its provisions of benefits
to senior officers or full-time employees of Employer for so long as
Officer remains eligible under the terms of plans from time to time
offered by Employer, but this provision shall not require the provision of
any specific benefit to Officer.
If Officer's employment is terminated hereunder, pursuant to Section
6 hereof or pursuant to Section 7(a), 7(b) or 8 hereof, and Officer is
entitled to but is no longer eligible for Additional Benefits because of
such termination, Officer (or in the event of her death, her designated
Beneficiary (as defined in Section 7(b) hereof)) shall be entitled to and
Employer shall provide, to the extent provided in this Agreement, benefits
substantially equivalent to the Additional Benefits to which Officer was
entitled immediately prior to such termination and shall do so for the
period during which she remains entitled to receive such Additional
Benefits as provided in this Agreement.
5. PERQUISITES AND VACATION. During her employment hereunder,
Officer shall be entitled to vacation in accordance with Employer's
standard practice for senior executives but in no event to fewer than four
(4) weeks paid vacation during each calendar year of employment, prorated
for any period which is less than one calendar year. Vacation time shall
accrue during each calendar year (but at no time shall the aggregate of
accrued but unused vacation time exceed eight (8) weeks), and, upon
termination of her employment for any reason and in addition to any other
rights granted to Officer by this Agreement, Officer shall be entitled to
be paid an amount based upon her salary at the rate applicable immediately
prior to such termination for any accrued but unused vacation time.
6. TERMINATION BY EMPLOYER WITHOUT "CAUSE"; TERMINATION BY
OFFICER. Employer shall have the right, at its election to be made in
writing and delivered to Officer within sixty (60) days prior to the
effective date thereof, to terminate Officer's employment hereunder
without "cause" (as defined in Section 7(c) below). Officer shall have
the right, at her election to be made in writing and delivered to Employer
within sixty (60) days after such event, to terminate her employment
hereunder if a material breach of this Agreement by Employer occurs which
Employer fails to cure within fifteen (15) days after receipt of notice of
such breach. In the event of a termination for either of the reasons
enumerated in this paragraph, Officer shall be entitled to the following:
(a) for the remaining Term, salary at the rate applicable
immediately prior to such election;
<PAGE>
<PAGE>
(b) concurrently with the receipt of bonuses by Employer's other
senior executives with respect to the year in which such termination
occurs, a bonus, prorated on an actual day basis for the year in which
such termination occurs if such termination shall occur within the first
six (6) months of such year but otherwise not prorated, in an amount not
less than a percentage of Officer's salary, at the rate of salary
applicable immediately prior to such election, equal to the percentage of
the aggregate salaries of the Executive Management Committee members
during such year, other than Officer, Employer's Chief Executive Officer,
Employer's Chief Operating Officer and any Executive Management Committee
members whose employment by Employer is terminated during such year,
received in the aggregate by such members as bonuses.
(c) for the remaining Term, health and welfare type Additional
Benefits (including without limitation hospital, surgical, major medical,
life and disability insurance, qualified pension (or, if prohibited under
then applicable tax law, a specially-designed non-qualified supplemental
pension to provide Officer with benefits equivalent to those to which she
would have been entitled if such prohibition did not pertain) and
non-qualified supplemental pension) to which Officer may be entitled
pursuant to Section 4 hereof as the same shall exist immediately prior to
such election (including continued accrual of years of service under
Employer's Retirement Plan as in effect immediately prior to such election
(or, if prohibited under then applicable tax law, a specially-designed
non-qualified supplemental pension to provide Officer with benefits
equivalent to those to which she would have been entitled if such
prohibition did not pertain) but excluding Employer matching contributions
under Employer's 401(k) plan or any successor plan thereto), each such
benefit to be continued in a manner no less favorable to Officer than the
benefit to which she was entitled immediately prior to such election
unless a benefit reduction is attributable to a reduction applicable to
all of Employer's officers; and
(d) for a one-year period commencing with the effective date of such
termination, a continuation at Employer's expense of the use of any
automobile provided by Employer immediately prior to such election to
facilitate the performance of Officer's duties and responsibilities
hereunder, subject to Officer's right at any time during such one-year
period to purchase such automobile at the higher of its depreciated book
value or its wholesale cash value.
<PAGE>
<PAGE>
In the event of a termination pursuant to this Section 6, Officer
shall have no duty to seek other employment; provided, however, that fifty
percent (50%) of any salary, bonus or grant of stock received by Officer
during or with respect to the remaining Term and attributable to services
rendered by Officer to persons or entities other than Employer shall be
applied to reduce Employer's obligation to make payments hereunder and
that any benefits of the kind referred to in subsection (c) of this
Section 6 received by Officer during or with respect to the remaining Term
and attributable to services rendered by Officer to persons or entities
other than Employer shall be applied to reduce Employer's obligation to
provide such benefits hereunder. With respect to and notwithstanding
anything to the contrary provided by the foregoing, only fifty percent
(50%) of the amount of defined benefit pension benefits or non-qualified
supplemental retirement benefits actually received by Officer with respect
to the remaining Term from one or more other persons or entities shall be
applied to reduce Employer's obligation to provide such benefits hereunder
and such amount shall be determined on a "benefit/years of service" or
comparable formula basis. Not less frequently than annually (by March
31st of each year), Officer shall account to Employer as to the amount of
such salary, bonus, stock and pension benefits; if Employer has paid
amounts in excess of those to which Officer was entitled (after giving
effect to the offsets provided above), Officer shall reimburse Employer
for such excess by April 1 of such year.
7. OTHER EVENTS OF TERMINATION. Other than a termination pursuant
to Section 6 or 8 hereof, Officer's employment hereunder shall be
terminated only as provided for below in this Section 7:
(a) DISABILITY. In the event that Officer shall fail, because of
illness, injury or similar incapacity ("disability"), to render for six
(6) consecutive calendar months, or for shorter periods aggregating one
hundred thirty (130) or more business days in any twelve (12)-month
period, services contemplated by this Agreement, Officer's employment
hereunder may be terminated, by written notice of termination from
Employer to Officer; thereafter, Employer shall continue, until Officer's
death, or until Officer's sixty-fifth (65th) birthday, whichever first
occurs, but in no event for longer than ten (10) years, to pay
compensation to Officer at a rate and in an amount (payable at the times
and in the manner theretofore applicable to Officer's salary) equal to (i)
50% of the sum of (A) the rate of annual salary payable to her immediately
prior to such termination and (B) the average annual bonus received by her
for services rendered in the immediately preceding three (3) full calendar
years or such lesser number of full calendar years that Officer has been
employed by Employer, minus (ii) the amount of any cash payments to which
she would have been entitled under the terms of Employer's disability
insurance plan upon the assumption that she had elected the fifty percent
<PAGE>
<PAGE>
(50%) "normal" benefits under Employer's Plus Pay Plan; to afford all of
the medical, dental and life insurance benefits to which she is entitled
pursuant to Section 4 hereof at the times and in the manner otherwise
afforded hereunder; and to continue accrual of years of service under
Employer's Retirement Plan as in effect at the time of such disability.
(b) DEATH. Officer's employment hereunder shall be terminated upon
Officer's death. One hundred percent (100%) of Officer's salary at the
rate of such salary in effect immediately prior to Officer's death (or, if
Officer's death occurs while she is receiving payments under Section 7(a)
hereof, at the rate of such salary in effect immediately prior to
Officer's disability) shall be paid until the first anniversary of
Officer's death at the times and in the manner otherwise payable
hereunder, to such person or persons as Officer shall have directed in
writing or, in the absence of a designation, to her estate (the
"Beneficiary"). In addition to the Beneficiary's rights hereunder to be
paid Officer's salary, hospital, surgical, major medical and dental
benefits to which members of Officer's family were entitled immediately
prior to Officer's death shall be continued to the same extent after
Officer's death until the first anniversary of Officer's death. This
Agreement in all other respects shall terminate upon the death of Officer.
(c) FOR CAUSE. Officer's employment hereunder shall be terminated
and all of her rights to receive salary, bonus, Additional Benefits
(subject to the terms of any plans relating thereto) and perquisites shall
terminate upon the occurrence of (i) a material breach of this Agreement
by Officer, (ii) Officer's conviction by a court of competent jurisdiction
of a felony or (iii) entry of an order duly issued by the Office of Thrift
Supervision or the Federal Deposit Insurance Corporation removing Officer
from the office of Employer or the Bank or permanently prohibiting her
from participating in the conduct of the affairs of Employer or the Bank.
Notwithstanding the foregoing, Officer's employment hereunder shall not be
subject to termination under subsection (c)(i) hereof without (A)
reasonable notice to Officer setting forth the reasons for Employer's
intention to terminate, (B) an opportunity for Officer to cure any such
breach within fifteen (15) days after receipt of such notice and (C)
delivery to Officer of a notice of termination stating that a majority of
the authorized number of Employer's directors has found that Officer was
guilty of the conduct set forth above and specifying the particulars
thereof in detail. If Officer shall be suspended from office and/or
temporarily prohibited from participating in the conduct of Employer's or
the Bank's affairs by any regulatory authority having jurisdiction in the
premises, Employer's obligations shall be automatically suspended, subject
to reinstatement in full if the charges resulting in such suspension or
prohibition are finally dismissed. Such reinstatement shall provide
Officer with the salary, other benefits and perquisites to which she would
<PAGE>
<PAGE>
have been entitled absent such suspension or prohibition to the same
effect and extent as though such suspension or prohibition had not
occurred, including without limitation reinstatement in full of vesting
and years of service accruals, where applicable, for the suspension period
and accrued interest at the rate then payable on judgments on all amounts
thereupon paid to Officer and attributable to the suspension period.
In the event of any termination or suspension by Employer pursuant to
any of the provisions of Section 7(a) or 7(c) hereof, Employer shall
immediately so notify Officer.
8. CHANGE IN CONTROL.
(a) If there should occur a change in control of Employer (as
defined below), and if thereafter Employer materially breaches this
Agreement and fails to cure such breach within fifteen (15) days after
receipt of notice thereof; or if there would have occurred a change in
control of Employer (as defined below) if the references in Section 8(b)
hereof to "more than fifty percent (50%)" were in lieu thereof references
to "twenty-five percent (25%) or more," and if thereafter Employer
materially breaches this Agreement, Employer's Chairman and Chief
Executive Officer fails to acquiesce in the action or omission giving rise
to such breach and Employer fails to cure such breach within fifteen (15)
days after receipt of notice thereof, then, in either such event, Officer,
without limitation on any other rights she may have hereunder, may, within
one (1) year after she first has knowledge of such breach, elect to
terminate her employment hereunder and to treat such termination as a
termination pursuant to Section 6 hereof, subject, however, to the
following modifications to Officer's rights as set forth in said Section
6, any one or more of which modifications Officer may elect to waive:
(i) Employer shall not be entitled to reduce any Additional Benefits
to which Officer shall thereafter be entitled even in connection with a
reduction in such benefits applicable to all of Employer's officers.
(ii) All restricted shares or stock options then unvested shall
immediately vest.
(iii) Officer's pro rata entitlement to an award under any then
existing long-term incentive performance plan shall be calculated upon the
assumption that the performance under such plan is then "on plan."
(iv) The remaining Term shall be deemed to be three (3) years (but
in no event shall the remaining Term be deemed to extend beyond Officer's
sixty-fifth (65th) birthday).
<PAGE>
<PAGE>
Notwithstanding Officer's entitlements as set forth in this paragraph, if
the value of those of such aggregate entitlements constituting "parachute
payments" under Section 280G of the Code, after giving effect to
Employer's right of offset as provided for in the next succeeding
sentence, is less than the maximum amount Officer is entitled to receive
without incurring a liability under Section 280G of the Code for any
reason, including that some or all of such entitlements constitute
reasonable compensation for services rendered or to be rendered (and do
not, therefore, constitute "parachute payments"), then, in such event,
Officer shall be entitled to receive such maximum amount. In the event of
a termination pursuant to this paragraph, Officer may, concurrently with
her election to terminate her employment hereunder, elect either (i) to
impose a duty upon herself to seek other employment or to become self
employed, in which event (A) fifty percent (50%) of any salary, bonus,
grant of stock and defined benefit pension benefits or non-qualified
supplemental retirement benefits received by Officer during or with
respect to the remaining Term and attributable to services rendered by
Officer to persons or entities other than Employer and fifty percent (50%)
of any net income realized by Officer by reason of self employment during
or with respect to the remaining Term shall be applied to reduce
Employer's obligation to make payments hereunder and (B) any benefits of
the kind referred to in Section 6(c) hereof received by Officer during or
with respect to the remaining Term and attributable to services rendered
by Officer to persons or entities other than Employer shall be applied to
reduce Employer's obligation to provide such benefits hereunder, or (ii)
to be free of any duty to seek other employment or to become self
employed, in which event (C) one hundred percent (100%) of any salary,
bonus, grant of stock and defined benefit pension benefits or
non-qualified supplemental retirement benefits received by Officer during
or with respect to the remaining Term and attributable to services
rendered by Officer to persons or entities other than Employer and one
hundred percent (100%) of any net income realized by Officer by reason of
self employment during or with respect to the remaining Term shall be
applied to reduce Employer's obligation to make payments hereunder and (D)
any benefits of the kind referred to in Section 6(c) hereof received by
Officer during or with respect to the remaining Term and attributable to
services rendered by Officer to persons or entities other than Employer
shall be applied to reduce Employer's obligation to provide such benefits
hereunder.
Any duty imposed upon Officer by this Section 8 to seek other
employment shall in no event require Officer to accept any position with
any entity other than a financial institution nor to accept any position
which would be inconsistent with the dignity, importance and scope of her
former position as Executive Vice President of Employer.
<PAGE>
<PAGE>
(b) For purposes of the foregoing provisions, a "change in control"
means, and shall be deemed to have taken place if: (i) any person or
entity (or group of affiliated persons or entities) (including a group
which is deemed a "person" by Section 13(d)(3) of the Securities Exchange
Act of 1934) acquires in one or more transactions, whether before or after
the date of this Agreement, ownership of more than fifty percent (50%) of
the outstanding shares of stock entitled to vote in the election of
directors of Employer, and (ii) as a result of, or in connection with, any
such acquisition or any related proxy contest, cash tender or exchange
offer, merger or other business combination, sale of assets or any
combination of the foregoing transactions, the persons who were directors
of Employer immediately before such acquisition shall cease to constitute
five-sixths of the membership of the Board or of the board of directors of
any successor to Employer after such transaction (but not more than twelve
(12) months after such transaction). "Ownership" means ownership,
directly or indirectly, of more than fifty percent (50%) of such
outstanding voting stock of Employer other than (A) by a person owning
such shares merely of record (such as a member of a securities exchange, a
nominee or a securities depositary system), (B) by a person as a bona fide
pledgee of shares prior to a default and determination to exercise powers
as an owner of the shares, (C) by a person who is not required to file
statements on Schedule 13D by virtue of Rule 13d-l(b) of the Securities
and Exchange Commission under the Securities Exchange Act of 1934 or (D)
by a person who owns or holds shares as an underwriter acquired in
connection with an underwritten offering pending and for purposes of their
resale. Without limitation, the right to acquire ownership shall not of
itself constitute ownership of shares.
(c) In the event that any payment, coverage or benefit provided
under this Agreement or otherwise provided to Officer by or on behalf of
Employer would, in the opinion of counsel for Employer, not be deemed to
be deductible in whole or in part in the calculation of the Federal income
tax of Employer, or any other person making such payment or providing such
coverage or benefit, by reason of Section 280G of the Code, the aggregate
payments, coverages or benefits provided hereunder shall be reduced so
that no portion of such amount which is paid to Officer is not deductible
for tax purposes by reason of Section 280G of the Code. Employer shall
hold such portions not paid to Officer in escrow. At the end of each
calendar quarter during the term of such escrow, Employer shall deposit
into escrow an amount equal to interest accrued during such calendar
quarter on the amount held in escrow during such calendar quarter at a
rate equal to the rate then payable on judgments in California. If it
shall be determined at any point in time, by a counsel selected by
Employer and Officer, that it is more likely than not that the payment to
Officer of any or all of such amount held in escrow would be deductible
for tax purposes, such amount shall be paid out of escrow to Officer. In
the event of a final determination by the Internal Revenue Service or of a
<PAGE>
<PAGE>
final non-appealable judicial decision that any such amount held in escrow
could never be deductible for tax purposes if paid to Officer, or if it
shall be determined at any point in time, by a counsel selected by
Employer and Officer, that it is more likely than not that the payment to
Officer of any such amount held in escrow would never be deductible for
tax purposes, such amount shall be paid out of escrow to Employer. For
purposes of this paragraph, the value of any non-cash benefit or coverage
or any deferred or contingent payment or benefit shall be conclusively
determined by the independent auditors of Employer in accordance with the
principles of Section 280G of the Code.
9. REIMBURSEMENT OF BUSINESS EXPENSES. During Officer's employment
hereunder, to the extent that such expenditures are substantiated by
Officer as required by the policies of Employer, Employer shall reimburse
Officer promptly for all expenditures (including travel, entertainment,
parking, business meetings and the monthly costs (including dues) of
maintaining memberships at appropriate clubs) made in accordance with
rules and policies established from time to time by the Board in pursuance
and furtherance of Employer's business and goodwill.
10. INDEMNITY. To the extent permitted by applicable law and the
By-Laws of Employer (as from time to time in effect) and without in any
way impairing or affecting any rights to indemnification that Officer has
by reason of any agreement to which she is party as of the date hereof,
Employer shall indemnify Officer and hold her harmless for any acts or
decisions made by her in good faith while performing services for
Employer, and shall use reasonable efforts to obtain coverage for her
under liability insurance policies now in force or hereafter obtained
during her employment hereunder covering the other officers or directors
of Employer. To the same extent, Employer shall pay all expenses,
including reasonable attorneys' fees and the amounts of court approved
settlements, actually incurred by Officer in connection with the defense
of any action, suit or proceeding, and in connection with any appeal
thereon, which has been and/or may be brought against Officer by reason of
Officer's services as an officer or agent of Employer or of a subsidiary
of Employer.
11. MISCELLANEOUS.
(a) SUCCESSION. This Agreement shall inure to the benefit of and
shall be binding upon Employer, its successors and assigns, but without
the prior written consent of Officer this Agreement may not be assigned
other than in connection with a merger or sale of substantially all the
assets of the Company or similar transaction in which the successor or
assignee assumes (whether by operation of law or express assumption) all
obligations of the Company hereunder (including without limitation those
in Section 8 hereof). The obligations and duties of Officer hereunder
shall be personal and not assignable.<PAGE>
<PAGE>
(b) NOTICES. Any notices provided for in this Agreement shall be
sent to Employer at 9200 Oakdale Avenue, Chatsworth, California 91311,
Attention: Executive Vice President--Legal, with a copy to the Chairman of
the Compensation Committee of the Board at the same address, or to such
other address as Employer may from time to time in writing designate, and
to Officer at such address as she may from time to time in writing
designate (or her business address of record in the absence of such
designation). All notices shall be deemed to have been given two (2)
business days after they have been deposited as certified mail, return
receipt requested, postage paid, or one (1) business day after they have
been deposited as overnight mail, in either event properly addressed to
the designated address of the party to receive the notice, or shall be
deemed to have been given at the time receipt is acknowledged if given by
any form of electronic communication.
(c) ENTIRE AGREEMENT. This instrument contains the entire agreement
of the parties relating to the subject matter hereof, and it replaces and
supersedes any prior agreements between the parties relating to said
subject matter. No modifications of this Agreement shall be valid unless
made in writing and signed by the parties hereto.
(d) WAIVER. The waiver of the breach of any term or of any
condition of this Agreement shall not be deemed to constitute the waiver
of any other breach of the same or any other term or condition.
(e) CALIFORNIA LAW. This Agreement shall be construed and
interpreted in accordance with the laws of California, to the extent
controllable by stipulation of the parties.
(f) ATTORNEYS' FEES IN ACTION ON CONTRACT. If any litigation or
arbitration shall occur between the Officer and Employer, which litigation
or arbitration arises out of or as a result of this Agreement or the acts
of the parties hereto pursuant to this Agreement, or which seeks an
interpretation of this Agreement, the prevailing party in such litigation
or arbitration, in addition to any other judgment or award, shall be
entitled to receive such sums as the court or arbitrator(s) hearing the
matter shall find to be reasonable as and for the attorneys' fees of the
prevailing party.
<PAGE>
<PAGE>
(g) CONFIDENTIALITY AND COMPETITION. Officer shall not divulge or
otherwise disclose, directly or indirectly, any trade secret or other
confidential information concerning the business or policies of the
Company or any of its affiliates which she may have learned as a result of
her employment hereunder or prior thereto as an employee, officer or
director of the Company or any of its affiliates, except to the extent
such use or disclosure is (i) necessary to the performance of this
Agreement and in furtherance of the Company's best interests, (ii)
required by applicable law, (iii) lawfully obtainable from other sources
or (iv) authorized by the Company. The provisions of this subsection
shall survive the suspension or termination, for any reason, of Officer's
employment hereunder.
During the course of Officer's employment hereunder, Officer shall
not compete, directly or indirectly, with the Company in the businesses
then conducted by the Company.
(h) REMEDIES OF EMPLOYER. Officer acknowledges that the services
she is obligated to render under the provisions of this Agreement are of a
special, unique, unusual, extraordinary and intellectual character, which
gives this Agreement peculiar value to Employer, and that the loss of
these services cannot be reasonably or adequately compensated in damages
in an action at law and it would be difficult (if not impossible) to
replace such services. By reason thereof, if Officer violates any of the
material provisions of this Agreement, Employer, in addition to any other
rights and remedies available under this Agreement or under applicable
law, shall be entitled to seek injunctive relief, from a tribunal of
competent jurisdiction, restraining Officer from committing or continuing
any violation of this Agreement, or from the performance of services to
any other business entity, or both.
(i) SEVERABILITY. If this Agreement shall for any reason be or
become unenforceable by either party, this Agreement shall thereupon
terminate and become unenforceable by the other party as well. In all
other respects, if any provision of this Agreement is held invalid or
unenforceable, the remainder of this Agreement shall nevertheless remain
in full force and effect, and, if any provision is held invalid or
unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
GREAT WESTERN FINANCIAL CORPORATION
By_________________________________
Title______________________________
OFFICER
___________________________________
JAYNIE M. STUDENMUND<PAGE>
<PAGE>
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
Soft Solution Network ID: WLA-83051.1 Type: MISC
<PAGE>
Exhibit 11.1
GREAT WESTERN FINANCIAL CORPORATION
Computation of Net Income Per Common Share
Primary and Fully Diluted
<TABLE>
<CAPTION>
Three Months Ended Six Monthes Ended
June 30 June 30
------------------ -----------------
(Dollars in thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $79,271 $50,436 $150,565 $ 93,920
Preferred stock dividends -
convertible and nonconvertible (6,241) (6,254) (12,496) (12,508)
------- ------- -------- --------
Net income for computing earnings
per Common share - primary 73,030 44,182 138,069 81,412
Preferred stock dividends -
convertible 2,818 - 5,649 -
------- ------- -------- --------
Net income for computing earnings
per Common share - fully diluted $75,848 $44,182 $143,718 $ 81,412
======= ======= ======== ========
</TABLE>
Computation of Average Number of
Common Shares Outstanding on Primary and Fully Diluted Basis
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
(In thousands, except per share amounts) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average number of Common shares
outstanding during each period -
without dilution 137,306 135,360 137,249 134,948
Common share equivalents outstanding
at the end of each period 1,735 1,387 1,735 928
------- -------- -------- --------
Average number of Common shares and
Common share equivalents outstanding
during each period on a primary
basis 139,041 136,747 138,984 135,876
Common share equivalents outstanding
at the end of each period on a fully
diluted basis 125 - 125 367
Addition from assumed conversion as
of the beginning of each period of
the convertible preferred stock
outstanding at the end of each
period 6,325 - 6,325 -
------- ------- ------- -------
Average number of Common shares
outstanding during each period
on a fully diluted basis 145,491 136,747 145,434 136,243
======= ======= ======= =======
Net income per Common share
Primary $.52 $.32 $.99 $.60
Fully diluted .52 .32 .99 .60
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-96
<PERIOD-END> JUN-30-96
<CASH> 613,064
<INT-BEARING-DEPOSITS> 125
<FED-FUNDS-SOLD> 375,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 8,569,699
<INVESTMENTS-CARRYING> 1,750,363
<INVESTMENTS-MARKET> 1,771,664
<LOANS> 30,392,511
<ALLOWANCE> 330,321
<TOTAL-ASSETS> 43,719,958
<DEPOSITS> 28,879,819
<SHORT-TERM> 8,368,023
<LIABILITIES-OTHER> 1,023,151
<LONG-TERM> 2,614,240
0
294,035
<COMMON> 137,392
<OTHER-SE> 2,403,298
<TOTAL-LIABILITIES-AND-EQUITY> 43,719,958
<INTEREST-LOAN> 1,251,718
<INTEREST-INVEST> 369,796
<INTEREST-OTHER> 23,643
<INTEREST-TOTAL> 1,645,157
<INTEREST-DEPOSIT> 593,458
<INTEREST-EXPENSE> 927,636
<INTEREST-INCOME-NET> 717,521
<LOAN-LOSSES> 81,400
<SECURITIES-GAINS> (758)
<EXPENSE-OTHER> 527,485
<INCOME-PRETAX> 249,365
<INCOME-PRE-EXTRAORDINARY> 150,565
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,565
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
<YIELD-ACTUAL> 3.32
<LOANS-NON> 473,764
<LOANS-PAST> 0
<LOANS-TROUBLED> 112,885
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 362,849
<CHARGE-OFFS> 123,204
<RECOVERIES> 9,276
<ALLOWANCE-CLOSE> 330,321
<ALLOWANCE-DOMESTIC> 330,321
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
