PAGE 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended March 31, 1994 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Delaware 95-2080059
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the registrant's common stock on
April 30, 1994, was 63,389,185 shares.
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or the Company) for the three
months ended March 31, 1994, and 1993, have been prepared from unaudited
records of the Company and, in the opinion of the Company, all adjustments
(consisting only of normal recurring accruals) that are necessary for a
fair statement of the results for such three month periods have been
included. The operating results for the three months ended March 31, 1994,
are not necessarily indicative of the results for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
($000s Omitted)
March 31 March 31 December 31
1994 1993 1993
----------- ----------- -----------
Assets:
Cash $ 130,919 $ 130,768 $ 243,185
Securities available for sale 1,799,561 386,708 1,636,586
Other investments 785,625 1,698,685 538,100
Mortgage-backed securities available for sale at fair value 966,085 -0- 1,114,069
Mortgage-backed securities held to maturity at cost 401,402 1,757,972 408,467
Loans receivable 24,027,203 22,600,049 23,912,571
Interest earned but uncollected 177,257 162,848 175,080
Investment in capital stock of Federal Home Loan Banks--at
cost, which approximates fair value 328,663 346,543 325,737
Real estate held for sale or investment 64,795 67,874 67,156
Prepaid expenses and other assets 169,189 139,860 108,832
Premises and equipment--at cost less accumulated depreciation 168,594 150,836 162,751
Goodwill arising from acquisitions 136,176 133,076 136,754
----------- ----------- -----------
$29,155,469 $27,575,219 $28,829,288
=========== =========== ===========
Liabilities and Stockholders' Equity:
Customer deposits $17,519,321 $16,495,595 $17,422,484
Advances from Federal Home Loan Banks 6,226,617 6,634,751 6,281,691
Securities sold under agreements to repurchase 647,533 501,007 442,874
Medium-term notes 676,709 477,901 676,540
Accounts payable and accrued expenses 397,344 372,291 355,799
Taxes on income 376,418 277,132 364,235
Subordinated notes--net of discount 1,220,431 1,020,806 1,220,061
Stockholders' equity 2,091,096 1,795,736 2,065,604
----------- ----------- -----------
$29,155,469 $27,575,219 $28,829,288
=========== =========== ===========
PAGE 3
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
($000s omitted except per share figures)
Three Months Ended March 31
1994 1993
-------- --------
Interest Income:
Interest on loans $398,052 $407,055
Interest on mortgage-backed securities 28,273 38,879
Interest and dividends on investments 25,370 17,093
-------- --------
451,695 463,027
Interest Expense:
Interest on customer deposits 165,367 175,823
Interest on advances 58,890 67,140
Interest on repurchase agreements 6,939 10,622
Interest on other borrowings 31,605 27,326
-------- --------
262,801 280,911
-------- --------
Net Interest Income 188,894 182,116
Provision for loan losses 16,492 11,459
-------- --------
Net Interest Income after Provision for
Loan Losses 172,402 170,657
Non-Interest Income:
Fees 7,941 7,027
Gain on the sale of securities and
mortgage-backed securities 1 1,524
Other 3,482 3,356
-------- --------
11,424 11,907
Non-Interest Expense:
General and administrative:
Personnel 35,981 31,825
Occupancy 10,363 9,684
Deposit insurance 10,060 8,062
Advertising 2,435 1,825
Other 13,998 13,414
-------- --------
72,837 64,810
Amortization of goodwill arising
from acquisitions 578 (449)
-------- --------
73,415 64,361
-------- --------
Earnings Before Taxes on Income 110,411 118,203
Taxes on income 45,115 46,619
-------- --------
Net Earnings $ 65,296 $ 71,584
======== ========
Net earnings per share $ 1.02 $ 1.12
======== ========
PAGE 4
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
($000s Omitted)
Three Months Ended March 31
1994 1993
----------- -----------
Cash Flows From Operating Activities:
Net earnings $ 65,296 $ 71,584
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 16,492 11,459
Amortization of loan fees and discounts (8,787) (10,295)
Depreciation and amortization 4,453 3,201
Reduction of a valuation allowance on investments -0- (1,500)
Loans originated for sale (67,903) (36,472)
Sales of loans originated for sale 101,726 46,570
(Increase) in interest earned but uncollected (2,177) (5,125)
Federal Home Loan Bank stock dividends (6,225) (2,268)
(Increase) in prepaid expenses and other assets (57,058) (6,239)
Increase in accounts payable and accrued expenses 41,545 11,165
Increase in taxes on income 26,109 43,268
Other, net (4,739) 369
----------- -----------
Net cash provided by operating activities 108,732 125,717
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,161,031) (1,414,651)
Real estate loans purchased (109) (190)
Other, net 2,369 8,247
----------- -----------
(1,158,771) (1,406,594)
Real estate loan principal payments:
Monthly payments 142,210 138,106
Payoffs, net of foreclosures 721,913 517,177
Refinances 94,205 66,120
----------- -----------
958,328 721,403
Purchases of mortgage-backed securities (494) (98,558)
Sales of mortgage-backed securities 12 138
Repayments of mortgage-backed securities 132,818 132,063
Sales of real estate 50,992 45,530
Purchases of securities available for sale (1,120,600) (1,060,680)
Sales and maturities of securities available for sale 949,026 836,017
(Increase) in other investments (247,525) (906,996)
Purchases of Federal Home Loan Bank stock -0- (56,795)
Additions to premises and equipment (9,851) (9,402)
----------- -----------
Net cash used in investing activities (446,065) (1,803,874)
PAGE 5
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
($000s Omitted)
Three Months Ended March 31
1994 1993
---------- ---------
Cash Flows From Financing Activities:
Customer deposit activity:
Decrease in deposits, net $ (36,823) $(129,260)
Interest credited 133,660 138,609
---------- ---------
96,837 9,349
Additions to Federal Home Loan Bank advances 10,000 1,174,200
Repayments of Federal Home Loan Bank advances (65,139) (38,900)
Increase (decrease) in securities sold under agreements
to repurchase 204,659 (55,703)
Proceeds from medium-term notes -0- 409,555
Repayments of medium-term notes -0- (13,000)
Proceeds from subordinated debt -0- 98,786
Dividends on common stock (4,799) (4,158)
Purchase and retirement of Company stock (16,491) -0-
---------- ---------
Net cash provided by financing activities 225,067 1,580,129
---------- ---------
Net Decrease in Cash (112,266) (98,028)
Cash at beginning of period 243,185 228,796
---------- ---------
Cash at end of period $ 130,919 $ 130,768
========== =========
Supplemental cash flow information:
Cash paid for:
Interest $ 269,350 $ 273,630
Income taxes 19,005 5,540
Cash received for interest and dividends 449,518 457,902
Noncash investing activities:
Loans transferred to foreclosed real estate 53,976 50,302
PAGE 6
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
($000s omitted except per share figures)
Three Months Ended March 31
1994 1993
---------- ----------
Common Stock:
Balance at January 1 $ 6,393 $ 6,392
Common stock issued upon exercise of stock options -
89,750 shares (1994) and 60,200 shares (1993) 9 7
Common stock retired upon purchase of treasury stock -
426,900 shares (1994) and -0- shares (1993) (43) -0-
---------- ----------
Balance at March 31 6,359 6,399
---------- ----------
Paid-in Capital:
Balance at January 1 40,899 36,186
Common stock issued upon exercise of stock options -
89,750 shares (1994) and 60,200 shares (1993) 1,321 905
---------- ----------
Balance at March 31 42,220 37,091
---------- ----------
Retained Earnings:
Balance at January 1 1,933,593 1,684,820
Net earnings 65,296 71,584
Cash dividends on common stock - $.075 per share (1994)
and $.065 per share (1993) (4,799) (4,158)
---------- ----------
Retirement of treasury stock (16,448) -0-
Balance at March 31 1,977,642 1,752,246
---------- ----------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 84,719 -0-
Change during period (19,844) -0-
---------- ----------
Balance at March 31 64,875 -0-
---------- ----------
Total Stockholders' Equity at March 31 $2,091,096 $1,795,736
========== ==========
PAGE 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion and analysis included herein covers those material
changes in liquidity and capital resources that have occurred since
December 31, 1993, as well as certain material changes in results of
operations during the three month periods ended March 31, 1994, and 1993,
respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1993 Form 10-K, which contains
the latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 31, 1993, and for the year then ended.
Therefore, only material changes in financial condition and results of
operations are discussed herein.
ACCOUNTING CHANGES
At December 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for
Impairment of a Loan". FAS 114 imposes certain requirements on the
measurement of impaired loans. The Company had previously measured loan
impairment in accordance with the methods prescribed in FAS 114. As a
result, no additional loss provisions were required by early adoption of
the pronouncement. FAS 114 also requires that impaired loans for which
foreclosure is probable should be accounted for as loans. Amounts at
March 31, 1993 have not been restated.
Effective December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." FAS 115 establishes three investment
classifications: held to maturity, trading, and available for sale. In
accordance with FAS 115, the Company modified its accounting policies as of
December 31, 1993, to identify investment securities as either held to
maturity or available for sale. The Company has no trading securities.
Held to maturity securities are recorded at cost with any discount or
premium amortized using a method that is not materially different from the
interest method. Securities held to maturity are recorded at cost because
the Company has the ability to hold these securities to maturity and
because it is Management's intention to hold them to maturity. Securities
available for sale increase the Company's portfolio management flexibility
for investments and are reported at fair value. Net unrealized gains and
losses are excluded from earnings and reported net of applicable income
taxes as a separate component of stockholders' equity until realized.
PAGE 8
Golden West Financial Corporation
Financial Highlights
(Unaudited)
($000s omitted except per share figures)
March 31 March 31 December 31
1994 1993 1993
----------- ----------- -----------
Assets $29,155,469 $27,575,219 $28,829,288
Loans receivable, including mortgage-backed securities 25,394,690 24,358,021 25,435,107
Customer deposits 17,519,321 16,495,595 17,422,484
Stockholders' equity 2,091,096 1,795,736 2,065,604
Stockholders' equity/total assets 7.17% 6.51% 7.16%
Book value per common share $ 32.88 $ 28.06 $ 32.31
Common shares outstanding 63,591,785 63,985,010 63,928,935
Yield on loan portfolio 6.69% 7.38% 6.84%
Yield on investments 4.25% 3.54% 3.80%
Yield on earning assets 6.47% 7.08% 6.61%
Cost of deposits 3.79% 4.25% 3.92%
Cost of borrowings 4.60% 5.26% 4.69%
Cost of funds 4.06% 4.60% 4.18%
Yield on earning assets less cost of funds 2.41% 2.48% 2.43%
Ratio of nonperforming assets to total assets(a) 1.49% 1.34% 1.37%
Ratio of troubled debt restructured to total assets 0.13% 0.05% 0.13%
World Savings and Loan Association:
Net worth $ 2,216,190 $ 1,907,153 2,164,651
Net worth/total assets 7.81% 7.04% 7.72%
Regulatory capital ratios:
Tangible capital 7.38% 6.59% 7.27%
Core capital 7.75% 7.34% 8.02%
Risk-based capital(b) 15.79% 16.20% 17.42%
Three Months Ended March 31
1994 1993
----------- -----------
New real estate loans originated $ 1,228,934 $ 1,451,123
Average yield on new real estate loans 6.53% 7.04%
Increase in customer deposits $ 96,387 $ 9,349
Net earnings 65,296 71,584
Net earnings per share 1.02 1.12
Cash dividends on common stock .075 .065
Average common shares outstanding 63,934,636 63,965,453
Ratios:(c)
Net earnings/average net worth 12.49% 16.25%
Net earnings/average assets 0.91% 1.07%
Net interest income/average assets 2.62% 2.72%
General and administrative expense/average assets 1.01% 0.97%
(a) Nonperforming assets include non-accrual loans (loans 90 days or more past
due), without reduction for loan loss allowances, and real estate acquired
through foreclosure.
(b) The decrease in the risk-based capital ratio from December 1993 to March
1994 was due to the March 1994 change in regulations concerning the
criteria used to determine the risk weighting for multi-family loans in
the calculation of the risk-based capital ratio. Due to uncertainty over
how the new regulations will be applied, World Savings has taken a
conservative approach and, pending further clarification from the Office
of Thrift Supervision, has weighted the Association's entire multi-family
portfolio at 100%.
(c) Ratios are annualized by multiplying the quarterly computation by four.
Averages are computed by adding the beginning balance and each month end
balance during the quarter and dividing by four.
PAGE 9
FINANCIAL CONDITION
The consolidated condensed balance sheet shown in the table below
presents the Company's assets and liabilities in percentage terms at
March 31, 1994, and 1993, and December 31, 1993. The reader is referred to
page 43 of the Company's 1993 Form 10-K for similar information for the
years 1990 through 1993 and a discussion of the changes in the composition
of the Company's assets and liabilities in those years.
TABLE 1
Consolidated Condensed Balance Sheet
March 31
------------------ December 31
1994 1993 1993
------ ------ -----------
Assets:
Cash and investments 9.3% 8.1% 8.4%
Mortgage-backed securities 4.7 6.4 5.3
Loans receivable 82.4 81.9 82.9
Other assets 3.6 3.6 3.4
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Liabilities and Stockholders' Equity:
Customer deposits 60.1% 59.8% 60.4%
Federal Home Loan Bank advances 21.4 24.1 21.8
Securities sold under agreements
to repurchase 2.2 1.8 1.5
Medium-term notes 2.3 1.7 2.4
Other liabilities 2.6 2.4 2.5
Subordinated debt 4.2 3.7 4.2
Stockholders' equity 7.2 6.5 7.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
As the above table shows, customer deposits represent the majority of
the Company's liabilities. On the other side of the balance sheet, the
loan portfolio, which consists primarily of long-term mortgages, is the
largest asset component. The disparity between the repricing (maturity or
interest rate change) of deposits and other liabilities and the repricing
of mortgage loans can affect the Company's liquidity and can have a
material impact on the Company's results of operations. The difference
between the repricing characteristics of assets and liabilities is commonly
referred to as the gap. The gap table on the following page shows the
repricing of the Company's assets and liabilities at March 31, 1994.
PAGE 10
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing Liabilities,
Repricing Gaps, and Gap Ratio
(Dollars in Millions)
March 31, 1994
Projected Repricing(a)
------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
------- ------- ------- ------ -------
Interest-Earning Assets:
Investments $ 1,446 $ 342 $ 612 $ 185 $ 2,585
Mortgage-backed securities 154 159 462 593 1,368
Loans receivable:
Rate-sensitive 17,258 2,582 697 -0- 20,537
Fixed-rate 1,193 542 547 863 3,145
Other(b) 443 -0- -0- -0- 443
------- ------- ------- ------ -------
Total $20,494 $ 3,625 $ 2,318 $1,641 $28,078
======= ======= ======= ====== =======
Interest-Bearing Liabilities(c):
Customer deposits $ 9,805 $ 4,883 $ 2,625 $ 206 $17,519
FHLB advances 5,569 502 91 65 6,227
Other borrowings 1,028 (122) 832 808 2,546
------- ------- ------- ------ -------
Total $16,402 $ 5,263 $ 3,548 $1,079 $26,292
======= ======= ======= ====== =======
Repricing gap $ 4,092 $(1,638) $(1,230) $ 562
======= ======= ======= ======
Cumulative gap $ 4,092 $ 2,454 $ 1,224 $1,786
======= ======= ======= ======
Cumulative gap as a percentage of
total assets 14.0% 8.4% 4.2%
======= ======= =======
(a) Based on scheduled maturity or scheduled repricing; loans reflect
scheduled repayments and projected prepayments of principal.
(b) Includes cash in banks, FHLB stock, and loans collateralized by customer
deposits.
(c) Liabilities with no maturity date, such as passbook and money market
deposit accounts, are assigned zero months.
CASH AND INVESTMENTS
The Office of Thrift Supervision (OTS) requires insured institutions,
such as the Company's principal subsidiary, World Savings and Loan
Association (World or Association), to maintain a minimum amount of cash
and certain qualifying investments for liquidity purposes. The current
minimum requirement is equal to a monthly average of 5% of customer
deposits and short-term borrowings. For the months ended March 31, 1994,
and 1993, and December 31, 1993, World's average regulatory liquidity ratio
was 8%, 6%, and 8%, respectively, consistently exceeding the requirement.
Effective December 31, 1993, the Company adopted FAS 115, "Accounting
for Certain Investments in Debt and Equity Securities." FAS 115
establishes three investment classifications: held to maturity, trading,
and available for sale. At March 31, 1994, and December 31, 1993, the
PAGE 11
Company had no securities held to maturity or for trading. At
March 31, 1994, and December 31, 1993, the Company had securities available
for sale in the amount of $1.8 billion and $1.6 billion, respectively, and
unrealized gains on securities available for sale included in
stockholders' equity of $35 billion and $41 million, respectively. The
Company has other investments that are recorded at cost with any discount
or premium amortized using a method that is not materially different from
the interest method. The adoption of FAS 115 resulted in the
reclassification of certain securities from the investment securities
portfolio to the securities available for sale portfolio. Prior to
December 31, 1993, securities were classified as either securities held for
sale or investment securities. At March 31, 1993, the Company had
$387 million of securities held for sale. Securities held for sale were
recorded at the aggregate portfolio's lower of amortized cost or market,
with any unrealized losses included in earnings.
MORTGAGE-BACKED SECURITIES
FAS 115 also requires the same three classifications for
mortgage-backed securities (MBS): held to maturity, trading, and available
for sale. In accordance with FAS 115, the Company modified its accounting
policies as of December 31, 1993, to identify MBS as either held to
maturity or available for sale. The Company has no trading MBS. At
March 31, 1994, March 31, 1993, and December 31, 1993, the Company had
mortgage-backed securities held to maturity in the amount of $401 million,
$1.8 billion, and $408 million, respectively. At March 31, 1994, and
December 31, 1993, the Company had mortgage-backed securities available for
sale in the amount of $966 million and $1.1 billion, respectively, and
unrealized gains on mortgage-backed securities included in stockholders'
equity of $30 million and $44 million, respectively.
Repayments of MBS during the first quarter of 1994 were $133 million
compared to $132 million in the same period of 1993. The portion of the
Company's loans receivable represented by MBS was 5%, 7%, and 6% at
March 31, 1994, and 1993, and December 31, 1993, respectively.
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the quarter ended March 31, 1994, amounted
to $1.2 billion compared to $1.5 billion for the same period in 1993.
Refinanced loans constituted 59% of new loan originations for the quarter
ended March 31, 1994, compared to 58% for the quarter ended March 31, 1993.
In the first quarter of 1994, the rising cost of new fixed rate mortgages
caused the volume of refinance activity in the marketplace to drop
considerably from the high levels of 1993 with a corresponding decline in
the overall mortgage demand. As a result of rising rates and increased
competition in a smaller market, the Company's 1994 loan originations for
both purchasing residences and refinances declined as compared to 1993.
Although the Company has lending operations in 21 states, the primary
PAGE 12
mortgage origination focus continues to be on residential property in
California. For the three months ended March 31, 1994, 70% of total loan
originations were on residential properties in California compared to 78%
for the same period in 1993. Although California originations continue to
be a large portion of total originations, the decrease in 1994 as compared
to 1993 was due to increased activity by the Company in markets outside
California and the decrease of originations in California. The percentage
of the total loan portfolio that is comprised of residential loans in
California was 81% at March 31, 1994, compared to 83% at March 31, 1993,
and 81% at December 31, 1993.
The tables on the following two pages show the Company's loan
portfolio by state at March 31, 1994, and 1993.
PAGE 13
TABLE 3
Loan Portfolio by State
March 31, 1994
($000s Omitted)
Residential
Real Estate Commercial Loans as
State ------------------------ Real Total a % of
1 - 4 5+ Land Estate Loans (a) Portfolio
- ------------ ----------- ---------- ------ -------- ----------- ---------
California $16,352,122 $3,275,926 $ 301 $ 86,024 $19,714,373 81.38%
Colorado 571,205 127,183 -0- 8,768 707,156 2.92
Illinois 435,400 144,526 -0- 5,167 585,093 2.42
New Jersey 533,170 40 -0- 165 533,375 2.20
Washington 221,688 223,613 -0- 837 446,138 1.84
Florida 320,076 -0- 393 2,372 322,841 1.33
Texas 275,161 2,732 612 1,835 280,340 1.16
Virginia 253,677 887 -0- 1,789 256,353 1.06
Arizona 185,775 4,297 -0- 1,866 191,938 0.79
Connecticut 184,135 -0- -0- -0- 184,135 0.76
Pennsylvania 152,926 -0- -0- 9,183 162,109 0.67
Oregon 120,255 8,032 -0- 4,049 132,336 0.55
Maryland 130,711 -0- -0- 675 131,386 0.54
Kansas 122,686 5,396 -0- 235 128,317 0.53
Nevada 94,118 1,386 -0- -0- 95,504 0.39
Missouri 60,527 8,982 -0- 79 69,588 0.29
New York 64,900 173 -0- 648 65,721 0.27
Georgia 55,718 -0- -0- 2,678 58,396 0.24
Ohio 38,372 3,785 1,054 7,169 50,380 0.21
Utah 40,822 139 -0- 2,297 43,258 0.18
Wisconsin 5,152 3,773 -0- -0- 8,925 0.04
New Mexico 3,563 -0- -0- -0- 3,563 0.02
Idaho 793 -0- -0- -0- 793 0.00
Delaware 231 -0- -0- -0- 231 0.00
Other 39,510 543 -0- 11,622 51,675 0.21
----------- ---------- ------ -------- ----------- ------
Totals $20,262,693 $3,811,413 $2,360 $147,458 24,223,924 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (100,948)
Loan discount on purchased loans (7,909)
Undisbursed loan funds (2,957)
Allowance for loan losses (113,497)
LTF interest reserve (852)
TDR interest reserve (1,341)
Loans on customer deposits 30,783
-----------
Total loan portfolio $24,027,203
===========
(a) The Company has no commercial loans.
PAGE 14
TABLE 4
Loan Portfolio by State
March 31, 1993
($000s Omitted)
Residential
Real Estate Commercial Loans as
State ------------------------ Real Total a % of
1 - 4 5+ Land Estate Loans (a) Portfolio
- ------------ ----------- ---------- ------ -------- ----------- ---------
California $15,693,947 $3,189,113 $ 324 $ 93,310 $18,976,694 83.39%
Colorado 584,846 83,363 -0- 7,441 675,650 2.97
New Jersey 532,292 42 -0- 310 532,644 2.34
Illinois 313,035 103,997 -0- 5,711 422,743 1.86
Washington 154,242 193,915 -0- 1,337 349,494 1.54
Florida 278,047 118 35 6,865 285,065 1.25
Virginia 188,706 -0- -0- 2,956 191,662 0.84
Connecticut 161,515 -0- -0- -0- 161,515 0.71
Arizona 134,195 4,397 -0- 1,938 140,530 0.62
Kansas 129,555 5,531 -0- 355 135,441 0.60
Texas 113,655 4,996 624 4,452 123,727 0.54
Oregon 93,246 8,863 -0- 4,203 106,312 0.47
Pennsylvania 91,450 114 -0- 11,084 102,648 0.45
Maryland 89,226 -0- -0- 3,070 92,296 0.41
Nevada 76,367 1,467 -0- -0- 77,834 0.34
New York 75,063 177 -0- 680 75,920 0.33
Georgia 71,690 -0- -0- 2,959 74,649 0.33
Missouri 65,583 8,258 -0- 82 73,923 0.32
Ohio 58,096 6,387 1,352 3,747 69,582 0.31
Utah 22,832 146 -0- 2,454 25,432 0.11
Other 40,862 6,143 -0- 15,028 62,033 0.27
----------- ---------- ------ -------- ----------- ------
Totals $18,968,450 $3,617,027 $2,335 $167,982 22,755,794 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (97,249)
Loan discount on purchased loans (11,070)
Undisbursed loan funds (3,106)
Allowance for loan losses (74,637)
LTF interest reserve (1,015)
TDR interest reserve (1,134)
Loans on customer deposits 32,466
-----------
Total loan portfolio $22,600,049
===========
(a) The Company has no commercial loans.
PAGE 15
Golden West continues to emphasize adjustable rate mortgages
(ARMs)--loans with interest rates that change periodically in accordance
with movements in specified indexes. The portion of the mortgage portfolio
(excluding mortgage-backed securities) composed of rate-sensitive loans was
87% at March 31, 1994, compared to 88% at March 31, 1993, and 87% at
December 31, 1993. Despite stiff competition from mortgage bankers who
aggressively marketed fixed-rate mortgages at the lowest rates seen in the
past 20 years, Golden West's ARM originations constituted approximately 78%
of new mortgage loans made by the Company in the first quarter of 1994
compared to 86% in the first three months of 1993.
The weighted average maximum lifetime cap rate on the Association's
ARM and modified ARM loan portfolio was 13.74%, or 7.43% above the actual
weighted average rate, at March 31, 1994, versus 14.09%, or 7.15% above the
weighted average rate, at March 31, 1993.
Approximately $4.5 billion of the Association's loans have terms that
state that the interest rate may not fall below a lifetime floor set at the
time of origination. Due to the decline in interest rates, as of
March 31, 1994, $1.4 billion of these loans had reached their rate floors.
The weighted average floor rate on these loans was 7.43% at March 31, 1994.
Loan repayments consisting of monthly loan amortization, payoffs, and
refinances during the first quarter of 1994 were $958 million compared to
$721 million in the same period of 1993. The increase in loan repayments
was primarily due to higher mortgage payoffs within our loan portfolio.
The Company adopted Statement of Financial Accounting Standards
No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan," in
the fourth quarter of 1993, retroactive to January 1, 1993. See
"Accounting Changes" on page 7.
It is too early to predict with any precision all of the potential
losses to the Company resulting from the Northridge (Southern California)
earthquake in January 1994; however, based on preliminary assessments of
severity of damage, borrower equity, and levels of insurance coverage, the
Company believes that any potential loss to the Company will not be
material to the financial condition and results of operations of the
Company. The first quarter 1994 loan loss reserve and provision for loan
losses included $3.4 million in loss reserves specifically identified as
earthquake losses.
PAGE 16
NONPERFORMING ASSETS
One measure of the soundness of the Company's portfolio is its ratio
of nonperforming assets (NPAs) to total assets. Nonperforming assets
include non-accrual loans (loans that are 90 days or more past due) and
real estate acquired through foreclosure. Loans in-substance foreclosed
were no longer classified as part of the real estate held for sale
portfolio upon adoption of FAS 114 during December 1993 and are now
included in the Company's total loan portfolio as previously discussed. No
interest is recognized on non-accrual loans.
The table below shows the components of the Company's nonperforming
assets and the ratio of nonperforming assets to total assets at
March 31, 1994, and 1993, and December 31, 1993.
TABLE 5
Nonperforming Assets
($000s Omitted)
March 31
------------------------ December 31
1994 1993 1993
-------- -------- -----------
Non-accrual loans $371,260 $301,733 $330,062
Real estate acquired
through foreclosure 60,643 57,327 62,724
Loans in-substance foreclosed -0- 9,351 -0-
Real estate in judgement 1,764 457 1,366
-------- -------- --------
Total nonperforming assets $433,667 $368,868 $394,152
======== ======== ========
Ratio of nonperforming
assets to total assets 1.49% 1.34% 1.37%
======== ======== ========
The increase in NPAs in 1994 and 1993 was primarily in single-family
loans and foreclosed real estate in California. The continued weak
California economy and high unemployment led to a slow down in the real
estate market, resulting in an increase in loan delinquencies and, in
certain areas, decreases in real estate prices. The growth in NPAs has
also been impacted by a continued high level of bankruptcy filings, which
often delay the collection process and extend the length of time a loan
remains delinquent. The Company continues to closely monitor all
delinquencies and takes appropriate steps to protect its interests.
Interest foregone on non-accrual loans amounted to $6 million in the first
quarter of both 1994 and 1993.
The tables on the following two pages show the Company's nonperforming
assets by state at March 31, 1994, and 1993.
PAGE 17
TABLE 6
Nonperforming Assets by State
March 31, 1994
($000s Omitted)
Non-Accrual Loans(a)
------------------------------
Real Estate Owned
Residential ------------------------------- NPAs as
Real Estate Commercial Residential Commercial Total a % of
State 1-4 5+ Real Estate 1-4 5+ Real Estate NPAs Loans
- ----------- -------- ------- ----------- ------- ------ ----------- -------- -------
California $300,750 $23,780 $508 $46,135 $8,016 $4,566 $383,755 1.94%
Colorado 1,397 325 -0- 262 842 261 3,087 0.44
Illinois 3,024 628 -0- 218 -0- -0- 3,870 0.66
New Jersey 13,988 -0- 3 647 -0- -0- 14,638 2.74
Washington 553 -0- -0- -0- -0- -0- 553 0.12
Florida 3,951 -0- 314 1,079 -0- -0- 5,344 1.66
Texas 1,600 -0- -0- 160 -0- -0- 1,760 0.63
Virginia 800 -0- -0- 320 -0- -0- 1,120 0.44
Arizona 1,277 -0- -0- 115 -0- -0- 1,392 0.73
Connecticut 4,732 -0- -0- 566 -0- -0- 5,298 2.88
Pennsylvania 1,932 -0- -0- -0- -0- -0- 1,932 1.19
Oregon 392 -0- -0- -0- -0- -0- 392 0.30
Maryland 1,792 -0- -0- -0- -0- -0- 1,792 1.36
Kansas 898 40 -0- 278 -0- -0- 1,216 0.95
Nevada 469 -0- -0- -0- -0- -0- 469 0.49
Missouri 427 375 -0- 19 -0- -0- 821 1.18
New York 4,687 -0- -0- 533 -0- -0- 5,220 7.94
Georgia 1,923 -0- -0- 140 -0- -0- 2,063 3.53
Ohio 7 -0- 58 -0- -0- 80 145 0.29
Utah 156 -0- -0- -0- -0- -0- 156 0.36
Wisconsin 2 -0- -0- -0- -0- -0- 2 0.02
New Mexico 18 -0- -0- -0- -0- -0- 18 0.50
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- 0.00
Other 453 -0- -0- -0- -0- -0- 453 0.96
-------- ------- ---- ------- ------ ------ -------- -----
Totals $345,228 $25,148 $883 $50,472 $8,858 $4,907 435,496 1.80
======== ======= ==== ======= ====== ======
REO general valuation allowance (1,829) (0.01)
-------- -----
$433,667 1.79%
======== =====
(a) Non-accrual loans are 90 days or more past due and have no unpaid
interest accrued.
PAGE 18
TABLE 7
Nonperforming Assets by State
March 31, 1993
($000s Omitted)
Non-Accrual Loans(a)
------------------------------
Real Estate Owned
Residential ------------------------------- NPAs as
Real Estate Commercial Residential Commercial Total a % of
State 1-4 5+ Real Estate 1-4 5+ Real Estate NPAs Loans
- ----------- -------- ------- ----------- ------- ------ ----------- -------- -------
California $228,507 $21,034 $ 978 $45,282 $ 1,421 $5,236 $302,458 1.59%
Colorado 2,316 530 -0- 1,649 6,198 2,641 13,334 1.97
New Jersey 14,577 -0- -0- 1,061 -0- 88 15,726 2.95
Illinois 2,084 2,618 -0- 285 -0- -0- 4,987 1.18
Washington 839 -0- -0- -0- -0- -0- 839 0.24
Florida 5,476 -0- 154 977 -0- -0- 6,607 2.32
Virginia 1,546 -0- -0- 933 -0- -0- 2,479 1.29
Connecticut 4,059 -0- -0- 348 -0- -0- 4,407 2.73
Arizona 1,707 -0- -0- 497 -0- -0- 2,204 1.57
Kansas 1,314 -0- 112 156 -0- -0- 1,582 1.17
Texas 1,949 -0- -0- 167 351 -0- 2,467 1.99
Oregon 251 -0- -0- -0- -0- -0- 251 0.24
Pennsylvania 608 -0- -0- -0- -0- -0- 608 0.59
Maryland 1,431 -0- -0- 180 -0- -0- 1,611 1.75
Nevada 521 -0- -0- -0- -0- -0- 521 0.67
New York 4,463 -0- -0- 889 -0- -0- 5,352 7.05
Georgia 2,519 -0- -0- 464 -0- -0- 2,983 4.00
Missouri 860 -0- -0- -0- 626 -0- 1,486 2.01
Ohio 68 -0- -0- 43 -0- 109 220 0.32
Utah 30 -0- -0- -0- -0- -0- 30 0.12
Other 1,182 -0- -0- 36 -0- -0- 1,218 1.96
-------- ------- ------ ------- ------- ------ -------- -----
Totals $276,307 $24,182 $1,244 $52,967 $ 8,596 $8,074 371,370 1.63
======== ======= ====== ======= ======= ======
REO general valuation allowance (2,502) (0.01)
-------- -----
$368,868 1.62%
======== =====
(a) Non-accrual loans are 90 days or more past due and have no unpaid
interest accrued.
The Company's troubled debt restructured (TDRs), which are loans that
have been modified due to a weakness in the collateral and/or borrower,
were $38 million or 0.13% of assets at March 31, 1994, compared to
$14 million or 0.05% of assets at March 31, 1993, and $37 million or 0.13%
of assets at December 31, 1993. The increase from March 1993 to March 1994
is due in part to the December 31, 1993, FAS 114 reclassification of
in-substance foreclosed loans previously discussed, which included loans
that had been modified. The great majority of the Company's TDRs have
temporary interest rate reductions and have been made primarily to
customers negatively impacted by adverse economic conditions. Interest
foregone on TDRs amounted to $120 thousand for the three months ended
March 31, 1994, compared to $60 thousand for the quarter ended
March 31, 1993.
PAGE 19
The Company provides allowances for losses on loans when impaired and
real estate owned when any significant and permanent decline in value is
identified and based upon trends in the basic portfolio. Additions to and
reductions from the allowances are reflected in current earnings. Periodic
reviews are made of major loans and real estate owned, and major lending
areas are regularly reviewed to determine potential problems. Where
indicated, valuation allowances are established or adjusted. In estimating
loan losses, consideration is given to the estimated sale price, cost of
refurbishing, payment of delinquent taxes, cost of disposal, and cost of
holding the property.
The table below shows the changes in the allowance for loan losses for
the three months ended March 31, 1994, and 1993.
TABLE 8
Changes in the Allowance for Loan Losses
($000s Omitted)
1994 1993
-------- -------
Beginning allowance for loan losses $106,698 $70,924
Provision charged to expense 16,492 11,459
Less loans charged off (9,954) (8,120)
Add recoveries 261 374
-------- -------
Ending allowance for loan losses $113,497 $74,637
======== =======
Ratio of net chargeoffs to average loans
outstanding (excluding MBS) 0.16% 0.14%
======== =======
Ratio of allowance for loan losses to
nonperforming assets 26.2% 20.2%
======== =======
The Company continues to use a methodology for monitoring and
estimating loan losses that is based on both historical experience in the
loan portfolio and factors reflecting current economic conditions. This
approach utilizes a data base that identifies losses on loans and fore-
closed real estate from past years to the present, broken down by year of
origination, type of loan and geographical area. Management is then able
to estimate a range of loss allowances to cover losses in the portfolio.
The increase in the allowance and the provision in 1994 over 1993 was
considered prudent given the slowdown in the California housing market, the
increase in the size of the loan portfolio, and the increase in nonper-
forming assets and loan losses experienced by the Association in 1994,
including the reserve for earthquake losses previously noted.
Chargeoffs increased as a result of the increase in nonperforming
loans, the increase in the percentage of nonperforming loans that became
real estate owned, and the increased losses on real estate owned primarily
due to the weakened California housing market.
PAGE 20
CUSTOMER DEPOSITS
Customer deposits increased during the first quarter of 1994 by
$97 million, including interest credited of $134 million. In the first
three months of 1993, customer deposits increased by $9 million, including
interest credited of $139 million. The increase in the open market yields
during the first quarter of 1994 resulted in the net increase of customer
deposits compared with no growth during the same period a year ago. The
Company has no brokered deposits.
The table below shows the Company's customer deposits by interest rate
and by remaining maturity at March 31, 1994, and 1993.
TABLE 9
Customer Deposits
(Dollars in millions)
1994 1993
----------------- -----------------
Rate* Amount Rate* Amount
----------------- -----------------
Customer deposits by interest rate:
Interest-bearing checking
accounts 1.27% $ 740 1.72% $ 689
Passbook accounts 2.08 642 2.58 575
Money market deposit accounts 3.06 2,386 3.76 2,567
Term certificate accounts with
original maturities of:
4 weeks to 1 year 3.15 3,928 3.30 4,287
1 to 2 years 3.81 4,681 4.04 3,888
2 to 3 years 4.49 1,772 5.40 1,289
3 to 4 years 5.99 1,138 6.85 1,292
4 years and over 5.36 2,071 6.39 1,781
Retail jumbo CDs 4.56 144 5.60 106
All other 7.78 17 7.76 22
------- -------
$17,519 $16,496
======= =======
Customer deposits by remaining maturity:
No contractual maturity $ 3,768 $ 3,831
Maturity within one year:
2nd quarter 3,805 3,912
3rd quarter 2,737 2,628
4th quarter 1,485 1,298
1st quarter 1,259 1,397
------- -------
9,286 9,235
1 to 2 years 2,463 1,597
2 to 3 years 482 474
3 to 4 years 807 201
4 years and over 713 1,158
------- -------
$17,519 $16,496
======= =======
*Weighted average interest rate.
PAGE 21
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses FHLB borrowings, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities.
Advances offer strategic advantages for asset-liability management,
including long-term maturities and, in certain cases, prepayment at the
Company's option. FHLB advances amounted to $6.2 billion at
March 31, 1994, compared to $6.6 billion and $6.3 billion at
March 31, 1993, and December 31, 1993, respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). These funds are used
to take advantage of arbitrage investment opportunities and to supplement
cash flow. Reverse Repos are entered into with selected major government
securities dealers, as well as large banks, typically using MBS from the
Company's portfolio. Reverse Repos with dealers and banks amounted to
$583 million, $433 million, and $377 million at March 31, 1994, and 1993,
and December 31, 1993, respectively.
OTHER BORROWINGS
Golden West currently has on file a registration statement with the
Securities and Exchange Commission for the sale of up to $100 million of
subordinated debt securities. The Company had issued a total of
$1.0 billion of subordinated debt at March 31, 1994. As of March 31, 1994,
Golden West's subordinated debt securities were rated A3 and A- by Moody's
Investors Service (Moody's) and Standard & Poor's Corporation (S&P),
respectively.
World currently has on file a shelf registration with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes. At
March 31, 1994, $1.2 billion was available for issuance. The Association
had medium-term notes outstanding under the current and prior registrations
with principal amounts of $677 million at March 31, 1994, compared to
$478 million at March 31, 1993, and $677 million at December 31, 1993. As
of March 31, 1994, the Association's medium-term notes were rated A1 and
A+ by Moody's and S&P, respectively.
World also has on file a registration statement with the OTS for the
sale of up to $250 million of subordinated notes. Under a prior filing
with the OTS, $50 million of subordinated notes remain unissued. As of
March 31, 1994, the Association had issued a total of $200 million of
subordinated notes. As of March 31, 1994, World's subordinated notes were
rated A2 and A by Moody's and S&P, respectively. The subordinated notes
are included in the Association's risk-based regulatory capital as
Supplementary Capital.
PAGE 22
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased in the first three months
of 1994 and 1993 through the retention of a high percentage of net
earnings. However, the increase in stockholders' equity in 1994 was
partially offset by a $20 million decrease in unrealized gains on
securities available for sale due to the adoption of FAS 115 as of December
31, 1993 and the subsequent decrease in market values of securities
available for sale.
The Company has on file a shelf registration statement with the
Securities and Exchange Commission to issue up to two million shares of its
preferred stock. The preferred stock may be sold from time to time in one
or more transactions for total proceeds of up to $200 million. The
preferred stock may be issued in one or more series, may have varying
provisions and designations, and may be represented by depository shares.
The preferred stock is not convertible into common stock. No preferred
stock has yet been issued under the registration.
On October 28, 1993, the Company's Board of Directors authorized the
purchase by the Company of up to 3.2 million shares of Golden West's common
stock. As of March 31, 1994, 630,900 shares had been repurchased and
retired at a cost of $24.3 million, of which 426,900 shares were purchased
and retired at a cost of $16.5 million during the first quarter of 1994.
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as World, to
meet certain minimum capital requirements. The table below shows World's
current regulatory capital ratios and compares them to the current OTS
minimum requirements at March 31, 1994, and 1993.
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
Under Current Requirements
($000s Omitted)
.
1994 1993
----------------------------------------- -----------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ------ ---------- ----- ---------- -----
Tangible $2,083,093 7.38% $ 423,482 1.50% $1,777,219 6.59% $ 404,510 1.50%
Core 2,188,964 7.75 846,965 3.00 1,979,474 7.34 809,020 3.00
Risk-based 2,485,765 15.79 1,259,556 8.00 2,245,626 16.20 1,109,051 8.00
PAGE 23
During the first quarter of 1994, the Office of Thrift Supervision
changed the regulations concerning the criteria used to determine the risk
weighting for multi-family loans in the calculation of the risk-based
capital ratio. Due to uncertainty over how the new regulations will be
applied, World Savings has taken the conservative approach and pending any
further clarification from the OTS, has weighted the Association's entire
multi-family portfolio at 100%. This change caused a decrease in the
risk-based capital ratio from March 1993 to March 1994.
The table below shows World's regulatory capital ratios and compares
them to the fully phased-in 1995 OTS minimum requirements at
March 31, 1994, and 1993.
TABLE 11
World Savings and Loan Association
Regulatory Capital Ratios
Under Fully Phased-In Requirements
($000s Omitted)
.
1994 1993
----------------------------------------- -----------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ------ ---------- ----- ---------- -----
Tangible $2,083,093 7.38% $ 423,482 1.50% $1,777,219 6.59% $ 404,510 1.50%
Core 2,083,093 7.38 846,965 3.00 1,777,219 6.59 809,020 3.00
Risk-based 2,378,993 15.21 1,251,014 8.00 2,039,673 14.93 1,092,575 8.00
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) required each federal banking agency to implement prompt
corrective actions for institutions that it regulates to resolve the
problems of insured depository institutions at the least possible long-term
loss to the deposit insurance fund. In response to this requirement, the
OTS adopted final rules as to capital adequacy, effective
December 19, 1992, based upon FDICIA's five capital tiers. The rules
provide that a savings association is "well capitalized" if its total
risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital
ratio is 6% or greater, its leverage ratio is 5% or greater, and the
institution is not subject to a capital directive. A savings association
is "adequately capitalized" if its total risk-based capital ratio is 8% or
greater, its Tier 1 risk-based capital ratio is 4% or greater, and its
leverage ratio is 4% or greater (3% or greater for one-rated institutions).
An institution is considered "undercapitalized" if its total risk-based
capital ratio is less than 8%, its Tier 1 risk-based capital ratio is less
than 4%, or its leverage ratio is less than 4% (less than 3% for one-rated
institutions). An institution is "significantly undercapitalized" if its
total risk-based capital ratio is less than 6%, its Tier 1 risk-based
capital ratio is less than 3%, or its leverage ratio is less than 3%. A
savings association is deemed to be "critically undercapitalized" if
itsratio of tangible equity to total assets is equal to, or less than, 2%.
At its discretion, the OTS may determine that an institution is in a
capitalization category that is lower than is indicated by its actual
PAGE 24
capital position. As used herein, total risk-based capital ratio means the
ratio of total capital to risk-weighted assets, Tier 1 risk-based capital
ratio means the ratio of core capital to risk-weighted assets, and leverage
ratio means the ratio of core capital to adjusted total assets, in each
case as calculated in accordance with current OTS capital regulations.
World met the "well capitalized" standard as of March 31, 1994.
PAGE 25
The table below shows a reconciliation of World's equity capital to
regulatory capital under FIRREA and FDICIA at March 31, 1994.
TABLE 12
Reconciliation of Equity Capital to Regulatory Capital
Under FIRREA and FDICIA
($000s Omitted)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ----------- ----------- ----------- -----------
Common stock $ 150
Paid-in surplus 233,441
Retained earnings 1,921,476
Unrealized gains on
securities available for sale 61,123
-----------
Equity capital $ 2,216,190 $ 2,216,190 $ 2,216,190 $ 2,216,190 $ 2,216,190 $ 2,216,190
===========
Positive goodwill (1) (2) (228,991) (228,991) (228,991) (228,991) (228,991)
Negative goodwill (1) (3) 95,894 95,894 95,894 95,894 95,894
Qualifying supervisory
positive goodwill (1) (2) 105,871 105,871 105,871 105,871
Equity/other investments (4) (1,351)
Subordinated debt 198,930
General valuation allowances 99,222
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 2,083,093 $ 2,188,964 $ 2,188,964 $ 2,188,964 $ 2,485,765
=========== =========== =========== =========== ===========
Total assets $28,358,391
===========
Adjusted total assets $28,232,164 $28,232,164 $28,232,164
=========== =========== ===========
Risk-weighted assets $15,744,452 $15,744,452
=========== ===========
CAPITAL RATIO - ACTUAL 7.81% 7.38% 7.75% 7.75% 13.90% 15.79%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well capitalized, equal to
or greater than 5.00% 6.00% 10.00%
=========== =========== ===========
Adequately capitalized,
equal to or greater than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Significantly undercapital-
ized, less than 3.00% 3.00% 6.00%
=========== =========== ===========
Critically undercapitalized,
equal to or less than 2.00%
===========
(1) All goodwill is required to be deducted from tangible capital. Goodwill
arising prior to April 12, 1989, in excess of a sliding scale limit
(0.375% of assets at March 31, 1994), is required to be deducted from all
other capital computations on a phased-in basis through December 1994.
Goodwill arising after April 12, 1989, must be deducted from all capital
computations.
(2) All but $2,296 of the Association's positive goodwill arose prior to April
12, 1989.
(3) The Association's negative goodwill arose after April 12, 1989.
(4) Equity and certain other investments are required to be deducted from
total risk-based capital on a phased-in basis (40% at March 31, 1994)
through June 1994.
PAGE 26
The table below compares World's regulatory capital to the well
capitalized classification of FDICIA's capital standards at March 31, 1994.
TABLE 13
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
($000s Omitted)
ACTUAL WELL CAPITALIZED
------------------- -------------------
Capital Ratio Capital Ratio
---------- ------ ---------- ------
Leverage $2,188,964 7.75% $1,411,608 5.00%
Tier 1 risk-based 2,188,964 13.90 944,667 6.00
Total risk-based 2,485,765 15.79 1,574,445 10.00
World's leverage, Tier 1 risk-based, and total risk-based capital
ratios under the fully phased-in 1995 OTS minimum requirements at
March 31, 1994, were 7.38%, 13.32%, and 15.21%, respectively.
RESULTS OF OPERATIONS
PROFIT MARGINS/SPREADS
An important determinant of Golden West's earnings is its profit
margin or primary spread--the difference between its yield on earning
assets and its cost of funds. The table below shows the components of the
Company's spread at March 31, 1994, and 1993, and December 31, 1993.
TABLE 14
Yield on Earning Assets,
Cost of Funds, and Primary Spread,
Including Effect of Purchase Accounting
March 31
------------------------ December 31
1994 1993 1993
------ ------ -----------
Yield on loan portfolio 6.69% 7.38% 6.84%
Yield on investments 4.25 3.54 3.80
---- ---- ----
Yield on earning assets 6.47 7.08 6.61
---- ---- ----
Cost of customer deposits 3.79 4.25 3.92
Cost of borrowings 4.60 5.26 4.69
---- ---- ----
Cost of funds 4.06 4.60 4.18
---- ---- ----
Primary spread 2.41% 2.48% 2.43%
==== ==== ====
PAGE 27
The Company's primary spread is somewhat dependent on changes in
interest rates because Golden West's liabilities tend to respond somewhat
more rapidly to rate movements than its assets. Because of the relatively
stable interest rate environment during 1993 and 1994, the benefit from
Eleventh District FHLB Cost of Funds Index (the COFI) timing lag was
significantly smaller, resulting in a lower spread than a year ago. The
yield on most of the Company's ARMs is tied to the COFI, and the COFI
responds more slowly to changes in market rates.
The table below shows the Company's revenues and expenses as a
percentage of total revenues for the three months ended March 31, 1994, and
1993, in order to focus on the changes in interest income between years as
well as changes in other revenue and expense amounts.
TABLE 15
Selected Revenue and Expense Items
as Percentages of Total Revenues
1994 1993
------ ------
Interest on loans 85.9% 85.7%
Interest on mortgage-backed securities 6.1 8.2
Interest and dividends on investments 5.5 3.6
---- ----
97.5 97.5
Less:
Interest on customer deposits 35.7 37.0
Interest on advances and other borrowings 21.1 22.2
---- ----
56.8 59.2
Net interest income 40.7 38.3
Provision for loan losses 3.6 2.4
---- ----
Net interest income after provision for
loan losses 37.1 35.9
Add:
Fees 1.7 1.5
Gain on the sale of securities and
mortgage-backed securities 0.0 0.3
Other non-interest income 0.8 0.7
---- ----
2.5 2.5
Less:
General and administrative expenses 15.7 13.6
Amortization of goodwill 0.1 (0.1)
Taxes on income 9.7 9.8
---- ----
Net earnings 14.1% 15.1%
==== ====
PAGE 28
INTEREST ON LOANS
In the first quarter of 1994, interest on loans was lower than in the
comparable 1993 period by $9.0 million or 2.2%. The 1994 decrease was due
primarily to a 64 basis point decrease in the average portfolio yield,
which was partially offset off by a $1.7 billion increase in the average
portfolio balance.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the first quarter of 1994, interest on mortgage-backed securities
was lower than in the comparable 1993 period by $10.6 million or 27.3%.
The 1994 decrease was due primarily to a 70 basis point decrease in the
average portfolio yield and a $363 million decrease in the average
portfolio balance.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term
investments. For the first three months of 1994, interest and dividends on
investments was $8.3 million or 48.4% higher than for the same period in
1993. The increase was primarily due to a 25 basis point increase in the
average portfolio yield as well as a $609 million increase in the average
portfolio balance.
INTEREST ON CUSTOMER DEPOSITS
The major portion of the Company's customer deposit base consists of
savings accounts with remaining maturities of less than one year. Thus,
the amount of interest paid on these funds depends upon the level of
short-term interest rates and the savings balances outstanding. In the
first quarter of 1994, interest on customer deposits decreased by
$10.5 million or 5.9% from the comparable period in 1993. The decrease was
primarily due to a 47 basis point decrease in the average cost of deposits,
which was partially offset by an $894 million increase in the average
deposit balance.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the first three months of 1994, interest on advances and other
borrowings decreased by $7.7 million or 7.3% compared to the same period a
year earlier. The decrease was primarily due to a 72 basis point decrease
in the average cost of these borrowings, which was mostly offset by a
$694 million increase in their average balance.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $16.5 million for the three months
ended March 31, 1994, compared to $11.5 million for the same period of
PAGE 29
1993. The 1994 increase in provision over 1993 reflected increased
chargeoffs, increased nonperforming assets, and the continued weak
California economy. In addition, the provision for the first three months
of 1994 included $3.4 million in specific earthquake loss reserves.
GENERAL AND ADMINISTRATIVE EXPENSES
For the first three months of 1994, general and administrative
expenses (G & A) increased by $8.0 million or 12.4% from the comparable
period in 1993. The primary reasons for the increase were general
inflation, growth of mortgage and deposit balances, the expansion of loan
origination capacity outside California, and the installation of
enhancements to data processing systems. The increase in 1994 was also due
to the relocation of some of our administrative operations to San Antonio,
Texas. In addition, during the first six months of 1993, the Company
received a reduction in the FDIC premium due to the settlement of the FSLIC
secondary reserve. As a result, deposit insurance expense for the first
three months of 1993 included a credit of $1.4 million. G & A as a
percentage of average assets on an annualized basis was 1.01% for the first
quarter of 1994 compared to 0.97% for the same period in 1993.
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For
financial reporting purposes only, the Company uses purchase accounting in
connection with certain assets acquired through mergers. The purchase
accounting portion of income is not subject to tax.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
FAS 109 requires a change from the deferred method to the liability method
of computing deferred income taxes. The Company has applied FAS 109
prospectively. FAS 109 required the Company to adjust its purchase
accounting for prior business combinations by increasing deferred tax
assets and reducing goodwill by $23 million to reflect the non-taxability
of purchase accounting income. This deferred tax asset is being amortized
over the remaining lives of the related purchased assets.
The corporate tax rate for the first quarter of 1994 was 40.9%
comparable to 39.4% for the same period a year ago. This increase is
primarily due to the effect of the federal legislation enacted during the
third quarter of 1993 that increased the federal corporate income tax rate
from 34% to 35%.
LIQUIDITY AND CAPITAL RESOURCES
The Association's principal sources of funds are cash flows generated
from earnings; customer deposits; loan repayments; borrowings from the
FHLB; issuance of medium-term notes; and debt collateralized by mortgages,
MBS, or securities. In addition, the Association has a number of other
alternatives available to provide liquidity or finance operations. These
PAGE 30
include borrowings from public offerings of debt or equity, sales of loans,
negotiable certificates of deposit, issuances of commercial paper, and
borrowings from commercial banks. Furthermore, under certain conditions,
World may borrow from the Federal Reserve Bank of San Francisco to meet
short-term cash needs. The availability of these funds will vary depending
upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and
the Federal Reserve Board. For a discussion of the Association's liquidity
positions at March 31, 1994, and 1993, and December 31, 1993, see the cash
and investments section on page 10.
The principal sources of funds for the Association's parent, Golden
West, are dividends from World and the proceeds from the issuance of debt
and equity securities. Various statutory and regulatory restrictions and
tax considerations limit the amount of dividends the Association can pay.
The principal liquidity needs of the parent company are for payment of
interest on subordinated debt securities, dividends to stockholders, and
general and administrative expenses. At March 31, 1994, and 1993, and
December 31, 1993, the parent company's total cash and investments amounted
to $964 million (including a $150 million short-term loan to World),
$724 million (including a $220 million short-term loan to World), and
$956 million (including a $150 million short-term loan to the Association),
respectively.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) April 28, 1994 - Annual Meeting.
(b) Directors elected:
Kenneth T. Rosen
For: 56,917,791 Against: 10,710 Withheld: 466,138
William D. McKee
For: 56,916,859 Against: 11,920 Withheld: 465,860
Herbert M. Sandler
For: 56,918,305 Against: 10,724 Withheld: 465,610
Other Directors continuing in office are:
Louis J. Galen, William Patrick Kruer, Bernard A. Osher, Paul
Sack, and Marion O. Sandler
PAGE 31
(c) Ratification of the appointment of Deloitte & Touche,
independent public accountants, to examine the accounts of the
Company for the fiscal year 1994:
For: 57,302,398 Against: 29,076 Abstain: 63,165
PASSED
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement of Computation of Earnings Per Share
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: May 10, 1994. /s/ J. L. Helvey
---------------------------------
J. L. Helvey
Group Senior Vice President (duly
authorized and principal
financial officer)
PAGE 32
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings Per Share
($000s omitted except per share amounts)
Three Months Ended
March 31
------------------------
1994 1993
----------- -----------
Line 1:
Average Number of Common
Shares Outstanding 63,934,636 63,965,453
=========== ===========
Line 2:
Net Earnings $ 65,296 $ 71,584
=========== ===========
Line 3:
Earnings Per Common Share
(Line 2 divided by Line 1) $1.02 $1.12
===== =====