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 September 30, 1994
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, former address and former 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 October 31, 1994: 133,790,720
GREAT WESTERN FINANCIAL CORPORATION
TABLE OF CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Statement of Financial Condition -
September 30, 1994, December 31, 1993 and September 30,
1993 4
Consolidated Condensed Statement of Operations -
Three Months and Nine Months Ended September 30,
1994 and 1993 5
Consolidated Condensed Statement of Cash Flows -
Three Months and Nine Months Ended September 30,
1994 and 1993 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Three Months and Nine Months Ended September 30,
1994 8
Part II. Other Information
Item 5. Other Information 36
Item 6. Exhibits and Reports on Form 8-K 37
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, 1993.
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.
Item 1. Financial Statements
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
September 30 December 31 September 30
(Dollars in thousands) 1994 1993 1993
------------ ----------- ------------
ASSETS
Cash and securities
Cash $ 808,234 $ 758,581 $ 701,869
Certificates of deposit and federal funds 180,125 217,125 125
Securities available for sale (fair
value $784,859, $871,074 and $617,811) 784,859 871,074 615,502
----------- ----------- -----------
1,773,218 1,846,780 1,317,496
Mortgage-backed securities held to maturity
(fair value $3,162,863 and $605,512) 3,238,034 618,574 -
Mortgage-backed securities available for
sale (fair value $2,587,630,
$2,570,822 and $2,749,691) 2,587,630 2,570,822 2,694,022
----------- ----------- -----------
5,825,664 3,189,396 2,694,022
Loans receivable, less reserve for
estimated losses 29,842,163 30,162,401 30,192,332
Loans receivable available for sale 281,638 499,002 492,594
----------- ----------- -----------
30,123,801 30,661,403 30,684,926
Real estate available for sale or
development, net 296,214 434,077 544,499
Assets available for accelerated disposition, net - - 340,000
Interest receivable 230,623 214,990 216,828
Investment in Federal Home Loan Banks 306,151 307,352 307,337
Premises and equipment, at cost,
less accumulated depreciation 640,046 623,691 630,965
Other assets 404,504 638,983 621,746
Intangibles arising from acquisitions 396,385 431,688 292,617
----------- ----------- -----------
$39,996,606 $38,348,360 $37,650,436
=========== =========== ===========
LIABILITIES
Customer accounts $29,406,989 $31,531,563 $28,063,260
Short-term borrowings 4,655,517 676,483 2,117,960
Other borrowings 2,614,226 2,802,858 4,184,625
Other liabilities and accrued expenses 668,286 729,229 658,201
Taxes on income, principally deferred 207,782 184,826 184,539
STOCKHOLDERS' EQUITY 2,443,806 2,423,401 2,441,851
----------- ----------- -----------
$39,996,606 $38,348,360 $37,650,436
=========== =========== ===========
[FN]
Unaudited
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
------------------------ -------------------------
(Dollars in thousands, except per share) 1994 1993 1994 1993
---- ---- ---- ----
INTEREST INCOME
Real estate loans $496,621 $507,584 $1,460,252 $1,543,147
Mortgage-backed securities 55,133 44,046 144,145 141,881
Consumer loans 91,911 97,773 277,660 295,247
Securities 7,156 6,238 18,875 21,656
Other 10,491 9,975 24,175 25,981
-------- -------- ---------- ----------
661,312 665,616 1,925,107 2,027,912
INTEREST EXPENSE
Customer accounts 235,440 225,870 697,157 713,783
Borrowings
Short-term 35,480 17,119 53,847 45,284
Long-term 59,624 79,113 171,368 225,602
-------- -------- ---------- ----------
330,544 322,102 922,372 984,669
-------- -------- ---------- ----------
NET INTEREST INCOME 330,768 343,514 1,002,735 1,043,243
Provision for loan losses 49,700 203,600 154,400 351,600
-------- -------- ---------- ----------
Net interest income after provision
for loan losses 281,068 139,914 848,335 691,643
Other operating income
Real estate services
Loan fees 7,002 9,502 22,520 28,857
Mortgage banking
Gain on mortgage sales 429 6,428 6,225 17,320
Servicing 12,329 12,919 39,343 38,592
-------- -------- ---------- ----------
19,760 28,849 68,088 84,769
Retail banking
Banking fees 36,313 30,292 104,975 82,210
Securities operations 9,490 9,284 31,279 28,306
-------- -------- ---------- ----------
45,803 39,576 136,254 110,516
Net gain on securities and investments 387 23,222 3,241 23,631
Net insurance operations 6,624 8,191 20,619 21,352
Other 2,149 1,693 5,364 4,677
-------- -------- ---------- ----------
Total other operating income 74,723 101,531 233,566 244,945
Noninterest expense
Operating and administrative
Salaries and related personnel 118,428 118,117 357,807 359,189
Premises and occupancy 47,774 45,690 152,415 135,387
FDIC insurance premium 19,657 12,223 57,951 39,105
Advertising and promotion 10,097 8,145 29,493 24,487
Other 50,563 52,444 148,259 154,857
-------- -------- ---------- ----------
246,519 236,619 745,925 713,025
Amortization of intangibles 11,764 10,847 35,293 28,669
Real estate operations 4,578 2,712 19,523 19,625
Provision for real estate losses 1,500 28,000 10,500 54,000
-------- -------- ---------- ----------
Total noninterest expense 264,361 278,178 811,241 815,319
-------- -------- ---------- ----------
EARNINGS (LOSS) BEFORE TAXES 91,430 (36,733) 270,660 121,269
Taxes (benefit) on income 34,200 (19,200) 108,100 41,000
-------- -------- ---------- ----------
NET EARNINGS (LOSS) $ 57,230 $(17,533) $ 162,560 $ 80,269
======== ======== ========== ==========
Average common shares outstanding
Without dilution 134,301,424 132,102,914 133,677,823 131,717,985
Fully diluted 140,643,336 138,906,583 140,221,438 138,603,135
Earnings (loss) per share based on
average common shares outstanding
Primary $.38 $(.18) $1.08 $.47
Fully diluted .38 (.18) 1.08 .47
Cash dividend per share .23 .23 .69 .69
[FN]
Unaudited
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
(Dollars in thousands) 1994 1993 1994 1993
---- ---- ---- ----
OPERATING ACTIVITIES
Net earnings (loss) $ 57,230 $ (17,533) $ 162,560 $ 80,269
Noncash adjustments to net earnings:
Provision for loan losses 49,700 203,600 154,400 351,600
Provision for real estate losses 1,500 28,000 10,500 54,000
Depreciation and amortization 31,760 29,398 94,558 83,559
Income taxes (38,210) (41,754) 60,825 (15,260)
Capitalized interest (2,395) (653) (5,714) (12,791)
Net change in accrued interest (12,325) (3,117) (23,070) 7,907
Other (10,891) (157,722) 170,738 (288,176)
----------- ----------- ----------- -----------
76,369 40,219 624,797 261,108
----------- ----------- ----------- -----------
Sales and repayments of loans
receivable available for sale 103,944 867,169 1,146,180 2,268,075
Originations and purchases of loans
receivable available for sale (104,393) (799,928) (819,176) (2,123,500)
----------- ----------- ----------- -----------
(449) 67,241 327,004 144,575
----------- ----------- ----------- -----------
Net cash provided by operating activities 75,920 107,460 951,801 405,683
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Customer accounts
Net (decrease) increase in
transaction accounts (593,097) 36,558 (602,350) (270,625)
Net (decrease) in term accounts (208,462) (572,846) (1,522,224) (2,608,102)
----------- ----------- ----------- -----------
(801,559) (536,288) (2,124,574) (2,878,727)
Customer account acquisitions, net - - - 33,322
Borrowings
Proceeds from new long-term debt 149,920 1,440,769 149,920 3,873,389
Repayments of long-term debt (115,461) (1,186,656) (438,552) (2,636,131)
Net change in short-term debt 2,279,929 (139,332) 4,079,034 914,275
----------- ----------- ----------- -----------
2,314,388 114,781 3,790,402 2,151,533
Other financing activity
Proceeds from issuance of common stock 10,154 6,702 20,567 18,228
Cash dividends paid (36,901) (36,508) (110,513) (109,295)
----------- ----------- ----------- -----------
(26,747) (29,806) (89,946) (91,067)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,486,082 (451,313) 1,575,882 (784,939)
------------ ----------- ----------- -----------
/TABLE
GREAT WESTERN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
(Dollars in thousands) 1994 1993 1994 1993
---- ---- ---- ----
INVESTING ACTIVITIES
Investment securities
Proceeds from maturities $ 198,126 $ 329,745 $ 892,958 $ 554,293
Purchases of securities (483,828) (309,442) (820,901) (545,889)
----------- ----------- ----------- -----------
(285,702) 20,303 72,057 8,404
Lending
Loans originated for investment (2,356,585) (1,823,577) (6,012,225) (5,374,925)
Purchases of mortgage-backed securities (460,003) (84,101) (1,041,290) (315,922)
Payments 1,413,837 1,800,001 4,672,168 5,218,391
Sales - 369,851 - 403,896
Repurchases (19,669) (29,689) (499,274) (156,854)
Other 5,348 (19,659) 11,580 (11,157)
----------- ----------- ----------- -----------
(1,417,072) 212,826 (2,869,041) (236,571)
Other investing activity
Purchases and sales of premises and
equipment, net (17,079) (24,410) (51,185) (88,793)
Sales of real estate 89,462 231,613 359,269 484,553
Acquisition and disposition of assets, net - - - 34
Other (13,646) (89,711) (26,130) (122,956)
----------- ----------- ----------- -----------
58,737 117,492 281,954 272,838
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities (1,644,037) 350,621 (2,515,030) 44,671
----------- ----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (82,035) 6,768 12,653 (334,585)
Cash and cash equivalents at beginning
of period 1,070,394 695,226 975,706 1,036,579
----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 988,359 $ 701,994 $ 988,359 $ 701,994
=========== =========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for
Interest on deposits $ 235,328 $ 226,781 $ 698,608 $ 716,862
Interest on borrowings 95,759 100,978 231,201 272,971
Income taxes 71,983 16,985 97,767 60,831
Noncash investing activities
Loans transferred to foreclosed real estate $ 153,107 $ 221,920 $ 404,267 $ 614,668
Loans originated to finance the sale
of real estate 31,971 35,314 73,750 76,955
Loans originated to refinance existing
loans 121,074 189,493 475,951 538,624
Loans exchanged for mortgage-backed
securities 2,290,662 - 2,290,662 2,036
[FN]
Unaudited
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1994
Great Western Financial Corporation reported improved net earnings of
$57.2 million, or $.38 per share, in the 1994 third quarter compared with
earnings of $55.9 million, or $.38 per share, in the 1994 second quarter and
a net loss of $17.5 million, or $.18 per share, in the 1993 third quarter.
Provisions for loan and real estate losses during the 1994 third quarter were
$51.2 million compared with $232 million in the same period of 1993. Third
quarter 1993 provisions for losses included $150 million established for four
bulk sales of $675 million of troubled real estate assets. The decrease in
loan and real estate loss provisions also reflects a slower rate of
deterioration in the real estate market.
For the nine months ended September 30, 1994, net earnings were $163
million, or $1.08 per share, compared with $80.3 million, or $.47 per share,
for the same period a year ago. Provisions for loan and real estate losses
during the first nine months of 1994 and 1993 were $165 million and $406
million, respectively.
HIGHLIGHTS (Dollars in thousands, except per share)
For the three months ended
September 30 1994 1993
- - -------------------------- ---- ----
Net interest income $ 330,768 $ 343,514
Net earnings (loss) 57,230 (17,533)
Fully diluted earnings (loss)
per common share $.38 $(.18)
New loan volume 2,614,023 2,848,312
(Decrease) in customer accounts (801,559) (536,288)
Mortgage sales 79,635 988,696
Average net interest margin
Yield on earning assets 7.17% 7.48%
Cost of funds 3.70 3.72
---- ----
Yield on earning assets,
less cost of funds 3.47% 3.76%
==== ====
For the nine months ended
September 30
- - -------------------------
Net interest income $ 1,002,735 $ 1,043,243
Net earnings 162,560 80,269
Fully diluted earnings per common share $1.08 $.47
New loan volume 7,381,102 8,114,004
Retail deposits acquired, net - 33,322
(Decrease) in customer accounts (2,124,574) (2,845,405)
Mortgage sales 1,066,834 2,317,006
Average net interest margin
Yield on earning assets 7.13% 7.59%
Cost of funds 3.52 3.78
---- ----
Yield on earning assets,
less cost of funds 3.61% 3.81%
==== ====
At September 30
- - ---------------
Total assets $39,996,606 $37,650,436
Stockholders' equity 2,443,806 2,441,851
Stockholders' equity per common share $16.07 $16.28
The Company's core business remained viable in the third quarter of
1994, but was adversely affected by the rising interest rate environment and
its effect on the net interest margin. Net interest income for the third
quarter 1994 declined to $331 million compared with $338 million in the
second quarter of 1994. Net interest income was $344 million in the third
quarter of 1993. While interest earning asset levels increased, the net
interest margin and net interest income decreased compared with both the 1994
second quarter and the third quarter of last year. The net interest margin
is expected to continue to decline if interest rates continue to increase.
The following summarizes the contribution to pretax income from the
Company's principal business units:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
(Dollars in thousands) 1994 1993 1994 1993
---- ---- ---- ----
Banking operations $67,358 $(59,439) $196,512 $ 54,115
Consumer finance group 24,072 22,706 74,148 67,154
------- -------- -------- --------
Pretax earnings (loss) 91,430 (36,733) 270,660 121,269
Taxes (benefit) on income 34,200 (19,200) 108,100 41,000
------- -------- -------- --------
Net earnings (loss) $57,230 $(17,533) $162,560 $ 80,269
======= ======== ========= ========
BRANCH ACQUISITIONS AND DISPOSITIONS
During the third quarter of 1994, Great Western Bank, a Federal Savings
Bank ("GWB") announced a definitive agreement for the sale of approximately
$1 billion of deposits and 31 branches located in west Florida to First Union
National Bank. The sale is expected to be completed in the fourth quarter
of 1994.
During the second quarter of 1994, GWB signed an agreement to purchase
the deposits of six branches located in San Diego County from Citibank, FSA,
totaling $52 million, for a premium of $1 million. The purchase was
completed in October 1994. The deposits were consolidated into existing GWB
branches.
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 September 30, 1994 and
September 30, 1993 follows:
September 30
---------------------------------
1994 1993
-------------- --------------
(Dollars in millions) Amount % Amount %
------- --- ------- ---
Loans receivable
Real estate
Residential
Single-family $25,240 67% $25,801 73%
Apartments 1,712 4 1,882 5
Commercial and other 1,474 4 1,718 5
Consumer finance 1,878 5 1,733 5
Other 401 1 382 1
------- --- ------- ---
30,705 81 31,516 89
Mortgage-backed securities 5,838 16 2,701 8
Securities 907 2 556 2
Investment in FHLB stock 306 1 307 1
------- --- ------- ---
$37,756 100% $35,080 100%
======= === ======= ===
Interest earning assets, primarily single-family mortgages, increased
during the 1994 third quarter compared with the 1993 third quarter. To
complement loan originations, the Company has purchased mortgage-backed
securities as part of a program designed to enhance earning assets growth with
low credit risk assets tied to the cost of funds index for financial
institutions comprising the 11th District Federal Home Loan Bank of San
Francisco ("COFI"). Purchases of mortgage-backed securities were $460
million in the third quarter of 1994, compared with $84.1 million in the
same period last year. During the nine months ended September 30, 1994,
purchases of mortgage-backed securities were $1 billion compared with $316
million in the same period a year ago. The 1994 purchases of adjustable
rate securities had an average spread of 175 basis points over COFI. During
the third quarter of 1994, GWB swapped $2.3 billion of single-family
residential Adjustable Rate Mortgage ("ARM") loans for mortgage-backed
securities to provide collateral for borrowings. These securities are
recorded in GWB's held-to-maturity portfolio and are subject to full credit
recourse.
Periodically the Company repurchases, for investment, loans which were
previously sold. The Company also repurchases delinquent loans which were sold
with recourse. Repurchased real estate loans totaled $499 million in the nine
months ended September 30, 1994, including $62 million of delinquent loans sold
with recourse and a June repurchase of $437 million of ARMs for investment.
Repurchases of delinquent loans were $157 million in the nine months ended
September 30, 1993.
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.
The ARM for single-family residential properties ("SFRs") is the primary
lending product held for investment. Approximately 74% of loans in the
portfolio are indexed to COFI. The Company also originates an ARM product
which is indexed to the Federal Cost of Funds Index ("FCOFI"). This index
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. The FCOFI ARM is similar to the COFI ARM product as to
interest-rate caps and payment changes. At September 30, 1994, ARMs
comprised 94.5% of the mortgage portfolio. A significant portion of the ARM
portfolio is subject to lifetime interest-rate caps and floors. At September
30, 1994, $7.2 billion of ARM loans with an average yield of 7.03% had
reached their floor rate. Without the floor, the average yield on these
loans would have been 6.43%. The benefit to interest income from real estate
loans which have reached their floor interest rate was approximately $13.6
million for the third quarter of 1994 compared with $12.4 million in the
third quarter of 1993.
The composition of new loan volume was as follows:
Three Months Ended
----------------------------------- Nine Months Ended
September 30
September 30 June 30 September 30 -----------------
(Dollars in millions) 1994 1994 1993 1994 1993
------------ ------- ------------ ---- ----
Real estate loans $2,063 $2,035 $2,275 $5,769 $6,500
Consumer loans 551 553 573 1,612 1,614
------ ------ ------ ------ ------
Total new loan volume $2,614 $2,588 $2,848 $7,381 $8,114
====== ====== ====== ====== ======
The composition of real estate loan originations by type was as follows:
Three Months Ended Nine Months Ended
----------------------------------- -----------------
September 30
September 30 June 30 September 30 -----------------
1994 1994 1993 1994 1993
------------ ------- ------------ ---- ----
ARM
COFI 90% 74% 52% 74% 48%
FCOFI 1 1 4 1 11
T-Bill 2 12 1 8 1
Other 2 3 3 2 3
--- --- --- --- ---
Total ARM 95 90 60 85 63
Fixed rate 5 10 40 15 37
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Refinances, included above 36% 45% 63% 47% 62%
=== === === === ===
/TABLE
Fixed-rate lending, originated exclusively for sale, is negatively
influenced by the rising interest-rate environment. 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 September 30,
1994, there were no open hedge contracts.
During the third quarter 1994, ARMs comprised 95% of total real estate
loan originations compared with 60% in the same period of 1993 and 90% for
the second quarter of 1994. COFI ARMs were the primary adjustable rate
offering in 1994 and 1993. The primary ARM product in the second and third
quarters of 1994 was a tiered cap loan where the interest-rate cap is
periodically increased over six years. The ARM differential over the
appropriate indices on new ARMs was 2.59% in the third quarter 1994 compared
with 2.49% a year ago. The ARM differential on the total ARM real estate
loan portfolio was 2.44% at September 30, 1994 and 2.39% at September 30,
1993. Currently, interest rates on new real estate loans favor adjustable
rate products, which has enabled the Company to generate asset growth in
1994.
The cost of funds for GWB, relative to COFI and FCOFI, is shown as
follows:
GWB Cost of
GWB Funds Less Than
Cost of ---------------
Funds COFI FCOFI COFI FCOFI
------- ---- ----- ---- -----
September 30, 1994 3.534% 4.039% 5.562% .505% 2.028%
June 30, 1994 3.263 3.804 5.238 .541 1.975
March 31, 1994 3.197 3.629 4.928 .432 1.731
December 31, 1993 3.319 3.879 4.892 .560 1.573
September 30, 1993 3.395 3.881 4.966 .486 1.571
The contractual maturities of all loans receivable and mortgage-backed
securities as of September 30, 1994 follow:
Mortgage-Backed
Real Estate Loans Securities
----------------- --------------
Fixed Fixed
(Dollars in millions) ARM Rate ARM Rate Consumer Total
--- ----- --- ----- -------- -----
One year or less $ 469 $ 43 $ 73 $261 $ 854 $ 1,700
Over one to two years 658 54 77 209 536 1,534
Over two to three years 846 55 82 75 403 1,461
Over three to five years 1,529 138 179 48 157 2,051
Over five to ten years 3,565 416 544 122 192 4,839
Over ten to fifteen years 4,319 149 701 75 135 5,379
Over fifteen years 15,950 235 3,374 18 2 19,579
------- ------ ------ ---- ------ -------
$27,336 $1,090 $5,030 $808 $2,279 $36,543
======= ====== ====== ====== ====== =======
INTEREST BEARING LIABILITIES
The composition of interest bearing liabilities at September 30, 1994
and September 30, 1993 follows:
September 30
-------------------------------
1994 1993
------------- -------------
(Dollars in millions) Amount % Amount %
------- --- ------- ---
Customer accounts
Retail accounts
Term $16,245 44% $15,048 44%
Transaction 12,801 35 12,384 36
Wholesale accounts 361 1 631 2
------- --- ------- ---
29,407 80 28,063 82
------- --- ------- ---
Borrowings
FHLB 287 1 1,405 4
Other 6,983 19 4,898 14
------- --- ------- ---
7,270 20 6,303 18
------- --- ------- ---
Total interest bearing liabilities $36,677 100% $34,366 100%
======= === ======= ===
Borrowings totaled $7.3 billion at September 30, 1994, $3.5 billion
at December 31, 1993 and $6.3 billion at September 30, 1993. As a percentage
of interest bearing liabilities, borrowings totaled 20% at September 30, 1994
and 18% at September 30, 1993. The level of borrowings is influenced by
customer account activity, deposit acquisitions and changes in assets. In
the fourth quarter of 1993, GWB acquired $4.1 billion in deposits of HomeFed
Bank, F.A. ("HomeFed") from the Resolution Trust Corporation.
The following table shows the components of the change in customer
account balances:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
(Dollars in millions) 1994 1993 1994 1993
---- ---- ---- ----
Transaction
Demand accounts $(151) $ 148 $ (34) $ 146
Money market and other
transaction accounts (457) (112) (543) (417)
Certificates of deposit (104) (422) (1,321) (2,556)
Wholesale accounts (90) (151) (227) (52)
----- ----- ------- -------
(802) (537) (2,125) (2,879)
Acquisitions of deposits, net - - - 33
----- ----- ------- -------
$(802) $(537) $(2,125) $(2,846)
===== ===== ======= =======
The Company concentrates its retail deposit-gathering activity in two
states: California and Florida.
Net certificate of deposit account withdrawals have occurred during
each of the past eleven quarters. During much of this period, retaining
certificates of deposit as a source of funds has not been essential as ARM
originations were not at levels where asset growth could occur and deposit
acquisitions provided an alternate funding source. Transaction accounts
declined in the third quarter of 1994 as transfers from money market accounts
to certificates of deposit with terms of one year and greater occurred due
to higher rates offered. In the second and third quarters of 1994,
borrowings were utilized to fund asset growth.
A summary of customer certificates of deposit by interest rate and
maturity as of September 30, 1994 follows:
90 Days 180 Days One Year Two Years
within to to to to Three Years September 30 December 31 September 30
(Dollars in millions) 90 Days 180 Days One Year Two Years Three Years and Over 1994 1993 1993
------- -------- -------- --------- ----------- ----------- ------------ ----------- ------------
Under 4% $3,090 $1,716 $1,074 $ 715 $ 29 $ 27 $ 6,651 $10,998 $ 9,776
4 to 6% 1,000 898 2,591 1,934 429 1,149 8,001 4,789 3,763
6 to 8% 38 19 61 611 838 15 1,582 1,619 1,683
Over 8% 5 2 10 194 2 12 225 575 457
------ ------ ------ ------ ------ ------ ------- ------- -------
$4,133 $2,635 $3,736 $3,454 $1,298 $1,203 $16,459 $17,981 $15,679
====== ====== ====== ====== ====== ====== ======= ======= =======
$100,000 accounts
included above $ 445 $ 101 $ 60 $ 32 $ 4 $ 14 $ 656 $ 1,060 $ 1,284
NET INTEREST MARGIN AND NET INTEREST INCOME
While average interest earning assets have increased during the past
year, the interest margin has decreased as interest rates have begun to rise.
Net interest income decreased slightly to $331 million in the third quarter
1994 compared with $338 million in the second quarter of 1994. Net interest
income was $344 million in the third quarter 1993. 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 3.47% at September 30,
1994 compared with 3.94% a year ago. The average net interest margin for the
1994 third quarter was 3.47% compared with 3.71% in the 1994 second quarter
and 3.76% in the 1993 third quarter. The average net interest margin for the
first nine months of 1994 was 3.61% compared with 3.81% in the same 1993
period. The repricing lag on COFI and FCOFI ARMs reduced the average net
interest margin by approximately 12 basis points in the third quarter of 1994
compared to a decrease of approximately 6 basis points in the second quarter
of 1994. For the third quarter 1993, the repricing lag accounted for an
increase of approximately 8 basis points to the average net interest margin.
The average net interest margin is compressed in a rising interest rate
environment as increases in COFI and FCOFI, to which most interest earning
assets are tied, lag behind deposit and borrowing rate increases.
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:
Three Months Ended September 30
-------------------------------------------------------
1994 1993
-------------------------- --------------------------
Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
Interest earning assets
Securities $ 1,085 $ 17 6.51% $ 957 $ 16 6.77%
Mortgage-backed securities 3,877 55 5.69 2,758 44 6.39
Loans receivable
Real estate 29,683 497 6.69 29,605 508 6.86
Consumer 2,259 92 16.28 2,265 98 17.26
------- ---- ----- ------- ---- -----
Total interest earning assets 36,904 661 7.17 35,585 666 7.48
Other assets 2,197 2,389
------- -------
Total assets $39,101 $37,974
======= =======
Interest bearing liabilities
Customer accounts
Term accounts $16,500 177 4.29 $15,771 166 4.21
Transaction accounts 13,254 58 1.77 12,561 60 1.90
------- ---- ----- ------- ---- -----
29,754 235 3.17 28,332 226 3.19
Borrowings
FHLB 454 7 6.39 1,309 14 4.29
Other 5,545 88 6.34 4,954 82 6.64
------- ---- ----- ------- ---- -----
Total interest bearing liabilities 35,753 330 3.70 34,595 322 3.72
Other liabilities 921 909
Stockholders' equity 2,427 2,470
------- -------
Total liabilities and equity $39,101 $37,974
======= =======
Interest rate spread 3.47% 3.76%
===== =====
Effective yield summary
Interest income/earning assets $36,904 $661 7.17% $35,585 $666 7.48%
Interest expense/earning assets 36,904 330 3.58 35,585 322 3.62
---- ----- ---- -----
Net yield on earning assets $331 3.59% $344 3.86%
==== ===== ==== =====
Nine Months Ended September 30
-------------------------------------------------------
1994 1993
-------------------------- --------------------------
Average Average Average Average
(Dollars in millions) Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
Interest earning assets
Securities $ 1,073 $ 43 5.35% $ 947 $ 48 6.71%
Mortgage-backed securities 3,421 144 5.62 2,904 142 6.51
Loans receivable
Real estate 29,268 1,460 6.65 29,472 1,543 6.98
Consumer 2,233 278 16.58 2,296 295 17.14
------- ------ ----- ------- ------ -----
Total interest earning assets 35,995 1,925 7.13 35,619 2,028 7.59
Other assets 2,269 2,460
------- -------
Total assets $38,264 $38,079
======= =======
Interest bearing liabilities
Customer accounts
Term accounts $17,040 518 4.05 $16,438 525 4.26
Transaction accounts 13,441 179 1.78 12,665 189 1.99
------- ------ ----- ------- ------ -----
30,481 697 3.05 29,103 714 3.27
Borrowings
FHLB 342 15 5.91 1,078 37 4.63
Other 4,084 210 6.86 4,511 234 6.90
------- ------ ----- ------- ------ -----
Total interest bearing liabilities 34,907 922 3.52 34,692 985 3.78
Other liabilities 935 926
Stockholders' equity 2,422 2,461
------- -------
Total liabilities and equity $38,264 $38,079
======= =======
Interest rate spread 3.61% 3.81%
===== =====
Effective yield summary
Interest income/earning assets $35,995 $1,925 7.13% $35,619 $2,028 7.59%
Interest expense/earning assets 35,995 922 3.42 35,619 985 3.69
------ ----- ------ -----
Net yield on earning assets $1,003 3.71% $1,043 3.90%
====== ===== ====== =====
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 totaled $10.5 million for the
quarter ended September 30, 1994 compared with $17.5 million for the quarter
ended September 30, 1993. For the first nine months of 1994 and 1993,
nonaccrual interest was $38.8 million and $64.8 million, respectively.
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 96% of the real estate loan portfolio at September 30, 1994 and
95% at September 30, 1993.
At September 30, 1994, mortgages totaling $2.7 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 September 30, 1994 and 1993, real estate loans
available for sale, all fixed rate, were $73.9 million and $301 million,
respectively. The decrease in loans available for sale compared with the
same period a year ago resulted from reduced fixed-rate loan originations.
During the quarter and nine months ended September 30, 1994, gains from this
portfolio totaled $429,000 and $6.2 million, respectively. Unrealized
holding gains on real estate loans available for sale totaled $2.3 million
at September 30, 1994.
Mortgage-backed securities available for sale and other securities
available for sale are carried at fair value. At September 30, 1994,
mortgage-backed securities available for sale included $376 million of fixed-
rate loans and $2.2 billion of ARMs. There were no realized gains or losses
in the first nine months of 1994. Unrealized holding losses were $50.6
million at September 30, 1994. Unrealized holding gains were $31 million at
December 31, 1993 and $55.7 million at September 30, 1993.
Marketable securities available for sale at September 30, 1994 had an
amortized cost of $792 million and a fair value of $785 million. Gains
realized during the 1994 third quarter totaled $22,000 and for the first nine
months of 1994 totaled $511,000. Unrealized holding losses in marketable
securities were $7 million at September 30, 1994. Unrealized holding gains
were $7.2 million at December 31, 1993 and $2.3 million at September 30,
1993.
The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" as
of December 31, 1993. 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:
Three Months Ended Nine Months
---------------------------------- Ended
September 30 June 30 March 31 September 30
(Dollars in thousands) 1994 1994 1994 1994
------------ ------- -------- ------------
Balance at beginning of
period $(20,055) $ 2,537 $ 22,651 $ 22,651
Unrealized holding gains
(losses), net of taxes (12,351) (22,592) (20,114) (55,057)
-------- -------- -------- --------
Balance at end of period $(32,406) $(20,055) $ 2,537 $(32,406)
======== ======== ======== ========
The following table shows that the portfolio of short-term assets
exceeded liabilities maturing or subject to interest adjustment within one
year by $4.2 billion at September 30, 1994 compared with $3.1 billion at
December 31, 1993 and $4.0 billion at September 30, 1993. In the current
interest rate environment, the Company is better protected against rising
rates with an excess of interest earning assets maturing or repricing within
one year.
Maturity/Rate Sensitivity
-----------------------------------------------------------------
September 30, 1994 % of Within Over
(Dollars in millions) Rate Balance Total 1 Year 1-5 Years 5-15 Years 15 Years
---- ------- ----- ------ --------- ---------- --------
Interest earning assets
Securities 5.90% $ 907 2 $ 907 $ - $ - $ -
Mortgage-backed securities 6.07 5,838 16 5,461 377 - -
Investment in FHLB stock 5.19 306 1 - - - 306
Loans receivable
Real estate
Adjustable rate 6.79 27,336 72 25,607 1,729 - -
Fixed rate
Short-term 8.90 467 1 61 127 170 109
Long-term 8.79 623 2 116 186 218 103
Consumer 15.96 2,279 6 552 1,387 267 73
----- ------- --- ------- ------- ----- ----
7.26 37,756 100 32,704 3,806 655 591
Interest bearing liabilities
Customer accounts
Regular savings 2.03 2,187 6 2,187 - - -
Checking and limited access 1.80 10,614 29 10,614 - - -
Wholesale transaction - 147 - 147 - - -
Term accounts 4.38 16,459 45 10,504 5,943 12 -
----- ------- --- ------- ------- ----- ----
3.25 29,407 80 23,452 5,943 12 -
Borrowings
FHLB 5.19 287 1 286 1 - -
Other 6.03 6,983 19 4,862 1,348 723 50
Impact of interest rate swaps - - - (109) 109 - -
----- ------- --- ------- ------- ----- ----
5.99 7,270 20 5,039 1,458 723 50
----- ------- --- ------- ------- ----- ----
3.79 36,677 100 28,491 7,401 735 50
----- ------- --- ------- ------- ----- ----
Excess of interest earning
assets over interest bearing
liabilities at September 30, 1994 3.47% $ 1,079 $ 4,213 $(3,595) $ (80) $541
===== ======= ======= ======= ===== ====
Excess of interest earning
assets over interest bearing
liabilities at December 31, 1993 3.76% $ 840 $ 3,105 $(1,833) $(764) $332
===== ======= ======= ======= ===== ====
Excess of interest earning
assets over interest bearing
liabilities at September 30, 1993 3.94% $ 714 $ 3,982 $(2,853) $(776) $361
===== ======= ======= ======= ===== ====
September 30
-------------
1994 1993
---- ----
Calculation of adjusted margin
Unadjusted margin 3.47% 3.94%
Benefit of net interest earning assets .10 .08
---- ----
Adjusted margin 3.57% 4.02%
==== ====
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.
Loans delinquent over thirty days, together with restructured loans,
have been included in the process to determine estimated losses. The effects
of various loan characteristics such as geographic concentrations, loan
purpose, negative amortization and loan to value ratios ("LTV") are
considered in this review process.
Although the California real estate markets did not improve
significantly in 1993 or the first nine months of 1994, the economic climate
has shown some signs of recovery. Median prices of single-family residential
properties are higher than year-end 1993 in some areas of the state. Unit
sales of single-family homes increased 4.8% in August 1994 from the August
1993 level. Furthermore, the unemployment rate in California has shown an
irregular decline from 8.7% in December 1993 to 8.3% in September 1994.
The Company assesses the status of general loss reserves on real estate
loans based upon its current loss experience as applied to the loan portfolio
including loans that are delinquent or adversely classified because of
declining collateral values. The Company's general loan loss reserves remain
relatively high to give effect to current trends in the economic environment
in valuing its loan portfolio.
There appear to be regional differences in economic performance within
California and among property types which are attributable to differing
recovery rates of the wide range of economic activities within California.
The economic factors affecting the office space market appear to be
somewhat more favorable in Northern California than in Southern California.
In particular, the vacancy rate in the San Francisco area was 10% at June 30,
1994 and 12% at June 30, 1993. In the Los Angeles area, the vacancy rate was
20% at both June 30, 1994 and June 30, 1993. The vacancy rate in San Diego
County was 19% at June 30, 1994 compared with 22% at June 30, 1993.
In the industrial space market, Northern and Southern California
vacancy rates appear to be more comparable. In the San Francisco and Los
Angeles areas, vacancy rates were 10% and 9%, respectively, at June 30, 1994.
At June 30, 1993, the vacancy rates were 12% in both the San Francisco and
Los Angeles areas. San Diego County's industrial space market had the lowest
vacancy rate consisting of 4% at June 30, 1994 and 3% at June 30, 1993.
In the single-family market, regional differences also exist in the
economic performance of Northern, Central and Southern California. For
example, the median metropolitan area sales price of existing single-family
homes in the Los Angeles area decreased from the second quarter of 1993 to
the second quarter of 1994 by 4%. During the same period, the median sales
price remained stable in the San Jose and San Diego areas.
As a monitoring device the Company reviews the trends of loans
delinquent for periods of less than ninety days on a monthly (and within-
month) basis. The following summarizes loans delinquent for periods from
thirty to eighty-nine days:
September 30 June 30 December 31 September 30
(Dollars in millions) 1994 1994 1993 1993
------------ ------- ----------- ------------
30-59 days delinquent
SFR loans $205.0 $240.0 $190.9 $236.8
Other 13.8 15.3 19.0 12.0
60-89 days delinquent
SFR loans 95.3 122.6 105.2 98.9
Other 17.1 18.9 8.8 14.3
The January 17, 1994 Northridge earthquake increased loan delinquencies
and is expected to result in losses in the real estate loan portfolio in the
range of $20 million to $25 million. The expected losses are lower than
initially projected and will be covered by existing loan loss reserves. The
Company had originally identified approximately 2,800 loans, primarily SFR's,
in earthquake affected areas with outstanding principal balances of $368
million. A ninety day forbearance was offered to customers who suffered
damages during the earthquake. Subsequent to this initial program,
arrangements for repayment or for additional forbearance are being provided
on a case by case basis. These programs are intended to reduce the
possibility of foreclosure and therefore mitigate losses and costs of holding
property. Delinquencies on SFRs in the earthquake affected areas were as
follows:
September 30 June 30
(Dollars in millions) 1994 1994
------------ -------
30-59 days delinquent $20.2 $ 19.4
60-89 days delinquent 11.2 39.5
90 days or more delinquent 52.2 68.3
----- ------
$83.6 $127.2
===== ======
The decrease in these delinquencies is primarily the result of loans that
were brought current or paid off
The following table shows the trend in single-family residential
delinquencies (two or more payments delinquent) to the growth in the related
portfolio.
September 30 June 30 December 31 September 30
1994 1994 1993 1993
------------ ------- ----------- ------------
SFR loans as a percent of
total real estate loans 89.6% 89.0% 88.3% 87.8%
SFR delinquency as a percent
of total single-family
residential loans 3.0 3.7 3.2 3.5
The Company's real estate loan portfolio included approximately $3.1
billion of uninsured single-family mortgage loans at September 30, 1994,
compared with $3.7 billion a year ago, which were originated with terms where
the LTV exceeded 80% (but not in excess of 90%). During the third quarter
1994, losses on the higher LTV mortgages totaled $6.1 million, or .65%
(annualized), compared with $14.2 million, or 1.06% (annualized) for the same
period a year ago. For the year 1993, losses totaled $44.8 million, or .81%
of such loans, compared with $10.1 million, or .15%, for 1992. The Company
began to purchase mortgage insurance on all new single-family residential
mortgages originated with LTVs in excess of 80% 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:
September 30 December 31 September 30
1994 1993 1993
----------------------- ------------------------ -----------------------
Reserve for Reserve for Reserve for
Loan Estimated Loan Estimated Loan Estimated
(Dollars in thousands) Balance Losses Balance Losses Balance Losses
------- ----------- ------- ----------- ------- -----------
Real estate loans
Residential
Single-family $ 44,133 $ 4,155 $ 37,047 $ 3,396 $ 38,769 $ 4,637
Apartments 122,003 19,477 103,840 15,823 108,660 8,196
Commercial
Offices 57,589 9,940 52,553 10,067 88,085 15,806
Retail 35,150 4,033 25,817 3,201 22,962 535
Hotel/motel 84,420 3,307 108,320 5,025 123,120 2,600
Industrial 17,664 1,534 17,157 2,614 36,763 2,150
Other 7,066 1,288 3,021 441 7,357 1,250
-------- ------- -------- ------- -------- -------
$368,025 $43,734 $347,755 $40,567 $425,716 $35,174
======== ======= ======== ======= ======== =======
The impaired loan portfolio decreased at September 30, 1994 compared
with September 30, 1993. The decrease was primarily the result of the bulk
sale of $213 million of apartment and commercial real estate loans in the
fourth quarter of 1993. The Company's policy for recognizing income on
impaired loans is to accrue earnings unless a loan becomes nonperforming, at
which time the accrued earnings are reversed.
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.
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 meet the criteria of troubled debt restructurings
("TDRs") as defined in Statement of Financial Accounting Standards No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructurings." TDRs
totaled $196 million at September 30, 1994 compared with $380 million at
September 30, 1993. In the second quarter of 1993, Federal Banking
Regulators issued a joint release regarding credit availability. Based on
this release, TDRs which meet certain conditions of repayment and performance
have not been included in nonperforming assets. At September 30, 1994, $18
million of TDRs were classified as performing assets.
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 net realizable value. Properties where
future development is uncertain are carried at the lower of cost or fair
value. Real estate is also included in the general reserve evaluation.
Foreclosed real estate properties totaling $54 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 which do not meet certain performance criteria and certain real
estate owned which does not generate sufficient income to meet return on
investment criteria. As of September 30, 1994, nonperforming assets dropped
below $1 billion, a level which had not been reached since December 1988.
The following table indicates the amount of the Company's nonperforming
assets and the ratio of nonperforming assets to total assets:
September 30 December 31 September 30
1994 1993 1993
------------- ------------ -------------
(Dollars in millions) Amount % Amount % Amount %
------ --- ------ --- ------ ---
Loans receivable
Real estate
Residential
Single-family $539 1.33% $ 522 1.34% $ 575 1.50%
Apartments 75 .19 70 .18 99 .26
Commercial 165 .41 225 .58 285 .74
Consumer finance 22 .05 20 .05 20 .05
Other 1 - 2 - 1 -
---- ---- ------ ---- ------ ----
802 1.98 839 2.15 980 2.55
Real estate owned 176 .43 293 .75 459 1.20
---- ---- ------ ---- ------ ----
Total nonperforming assets $978 2.41% $1,132 2.90% $1,439 3.75%
==== ==== ====== ==== ====== ====
The geographic distribution of the real estate loan and real estate
portfolios at September 30, 1994 follows:
Oklahoma/ Maryland/
(Dollars in millions) Total California Florida Washington Texas Georgia Arizona Virginia Other
------- ---------- ------- ---------- -------- ------- ------- -------- -----
Real estate loans
Residential
Single-family $25,240 $17,910 $1,824 $ 980 $617 $444 $342 $322 $2,801
Apartments 1,712 1,362 87 7 33 55 63 - 105
Commercial
Offices 437 398 12 3 3 4 6 1 10
Retail 267 221 21 9 - 4 2 3 7
Hotel/motel 236 132 5 - 2 - 3 54 40
Industrial 318 264 14 4 15 4 7 - 10
Other 216 154 20 6 1 2 12 1 20
------- ------- ------ ------ ---- ---- ---- ---- ------
28,426 20,441 1,983 1,009 671 513 435 381 2,993
------- ------- ------ ------ ---- ---- ---- ---- ------
Real estate available
for sale, net
Acquired through
foreclosure 225 165 16 2 1 - - 37 4
Other 31 14 1 16 - - - - -
Property development 67 67 - - - - - - -
------- ------- ------ ------ ---- ---- ---- ---- ------
323 246 17 18 1 - - 37 4
------- ------- ------ ------ ---- ---- ---- ---- ------
Total real estate loans
and real estate $28,749 $20,687 $2,000 $1,027 $672 $513 $435 $418 $2,997
======= ======= ====== ====== ==== ==== ==== ==== ======
Percent of total 100.0% 72.0% 7.0% 3.6% 2.3% 1.8% 1.5% 1.4% 10.4%
The geographic distribution of nonperforming real estate loans and real
estate at September 30, 1994 follows:
Oklahoma/ Maryland/
(Dollars in millions) Total California Florida Washington Texas Georgia Arizona Virginia Other
----- ---------- ------- ---------- -------- ------- ------- -------- -----
Real estate loans
Residential
Single-family $539 $466 $20 $ 5 $ 5 $ 4 $ 3 $ 4 $32
Apartments 75 64 1 1 - 4 - - 5
Commercial
Offices 38 33 3 - 1 - - 1 -
Retail 23 17 1 5 - - - - -
Hotel/motel 86 32 - - - - - 54 -
Industrial 11 9 1 - 1 - - - -
Other 7 3 2 1 - - 1 - -
---- ---- --- --- --- --- --- --- ---
779 624 28 12 7 8 4 59 37
---- ---- --- --- --- --- --- --- ---
Real estate
Residential
Single-family 96 88 3 1 - - - - 4
Apartments 26 25 - - 1 - - - -
Commercial
Offices 20 10 10 - - - - - -
Retail 5 5 - - - - - - -
Hotel/motel 9 7 2 - - - - - -
Industrial 8 8 - - - - - - -
Other 12 10 2 - - - - - -
---- ---- --- --- --- --- --- --- ---
176 153 17 1 1 - - - 4
---- ---- --- --- --- --- --- --- ---
Total nonperforming real
estate loans and real
estate $955 $777 $45 $13 $ 8 $ 8 $ 4 $59 $41
==== ==== === === === === === === ===
Percent of total 100.0% 81.4% 4.7% 1.4% .8% .8% .4% 6.2% 4.3%
/TABLE
A comparison of the California real estate loan and real estate
portfolios and nonperforming real estate loans and real estate by region at
September 30, 1994 follows:
California Northern California
------------------------------- --------------------------------
(Dollars in millions) Portfolio Nonperforming % Portfolio Nonperforming %
--------- ------------- --- --------- ------------- ---
Real estate loans
Residential
Single-family $17,910 $466 2.6 $5,275 $ 81 1.5
Apartments 1,362 64 4.7 171 2 1.2
Commercial
Offices 398 33 8.3 74 13 17.6
Retail 221 17 7.7 49 - -
Hotel/motel 132 32 24.2 42 - -
Industrial 264 9 3.4 37 2 5.4
Other 154 3 1.9 40 - -
------- ---- ----- ------ ---- -----
20,441 624 3.1 5,688 98 1.7
------- ---- ----- ------ ---- -----
Real estate
Residential
Single-family 88 88 100.0 10 10 100.0
Apartments 25 25 100.0 2 2 100.0
Commercial
Offices 16 10 62.5 4 2 50.0
Retail 13 5 38.5 - - -
Hotel/motel 10 7 70.0 3 - -
Industrial 8 8 100.0 - - -
Other 86 10 11.6 23 1 4.3
------- ---- ----- ------ ---- -----
246 153 62.2 42 15 35.7
------- ---- ----- ------ ---- -----
Total real estate loans
and real estate $20,687 $777 3.8 $5,730 $113 2.0
======= ==== ===== ====== ==== ====
/TABLE
Central California Southern California
-------------------------------- --------------------------------
(Dollars in millions) Portfolio Nonperforming % Portfolio Nonperforming %
--------- ------------- --- --------- ------------- ---
Real estate loans
Residential
Single-family $1,503 $17 1.1 $11,132 $368 3.3
Apartments 241 6 2.5 950 56 5.9
Commercial
Offices 43 2 4.7 281 18 6.4
Retail 29 1 3.4 143 16 11.2
Hotel/motel 27 4 14.8 63 28 44.4
Industrial 15 - - 212 7 3.3
Other 21 1 4.8 93 2 2.2
------ --- ----- ------- ---- -----
1,879 31 1.6 12,874 495 3.8
------ --- ----- ------- ---- -----
Real estate
Residential
Single-family 4 4 100.0 74 74 100.0
Apartments 6 6 100.0 17 17 100.0
Commercial
Offices 1 1 100.0 11 7 63.6
Retail 8 1 12.5 5 4 80.0
Hotel/motel - - - 7 7 100.0
Industrial - - - 8 8 100.0
Other 11 - - 52 9 17.3
------ --- ----- ------- ---- -----
30 12 40.0 174 126 72.4
------ --- ----- ------- ---- -----
Total real estate loans
and real estate $1,909 $43 2.3 $13,048 $621 4.8
====== === ===== ======= ==== =====
Nonperforming real estate loans and real estate decreased by $150 million
during the third quarter of 1994. Total nonperforming single-family residential
properties decreased $80 million in the third quarter of 1994 due to a decrease
in new ninety day delinquencies. Single-family residential properties in
California decreased $68 million while out of state properties declined $12
million. The loss on single-family foreclosures sold in the third quarter of
1994 was 19.8% of the loan balances at foreclosure compared with 25.8% and 20.1%
in the second and first quarters of 1994, respectively. Nonperforming
commercial and apartment properties declined $70 million in the third
quarter of 1994 as sales of commercial and apartment properties outpaced new
delinquencies.
In an effort to reduce nonperforming assets, the Company completed four
bulk asset sales in the second half of 1993 totaling $659 million. In the third
quarter of 1994, bulk sales of foreclosed single-family properties totaled $69.8
million. In the first nine months of 1994, bulk sales of foreclosed single-
family properties totaled $225 million. Auction sales have also been utilized
to accelerate the disposition of foreclosed properties. Foreclosures continue
to occur at relatively high levels.
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.
A summary of loan loss provisions, charge-offs and recoveries by loan
type follows:
At or For The At or For The
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ---------------------
(Dollars in thousands) 1994 1993 1994 1993
---- ---- ---- ----
Beginning balance $ 495,804 $ 521,025 $ 502,269 $ 492,871
Provision for loss
Real estate loans
SFR 72,900 121,600 128,200 227,100
Other (34,000) 88,500 693 97,500
Consumer finance 10,400 9,100 28,100 27,800
Bank card - (16,627) - (6,146)
Other 400 1,027 (2,593) 5,346
--------- --------- --------- ---------
49,700 203,600 154,400 351,600
--------- --------- --------- ---------
Charge-offs
Real estate loans
SFR (70,515) (154,082) (148,058) (217,708)
Other (9,909) (94,765) (27,666) (123,295)
Consumer finance (13,808) (12,413) (38,522) (36,609)
Bank card - (7,547) - (20,794)
Other (786) (777) (1,829) (1,948)
--------- --------- --------- ---------
(95,018) (269,584) (216,075) (400,354)
--------- --------- --------- ---------
Recoveries
Real estate loans
SFR 460 344 1,091 703
Other 510 1,198 1,200 2,491
Consumer finance 3,791 4,047 11,883 11,745
Bank card - 585 - 1,641
Other 38 446 517 964
--------- --------- --------- ---------
4,799 6,620 14,691 17,544
--------- --------- --------- ---------
Net charge-offs
Real estate loans
SFR (70,055) (153,738) (146,967) (217,005)
Other (9,399) (93,567) (26,466) (120,804)
Consumer finance (10,017) (8,366) (26,639) (24,864)
Bank card - (6,962) - (19,153)
Other (748) (331) (1,312) (984)
--------- --------- --------- ---------
(90,219) (262,964) (201,384) (382,810)
--------- --------- --------- ---------
Ending balance $ 455,285 $ 461,661 $ 455,285 $ 461,661
========= ========= ========= =========
Ratio of net charge-offs
(annualized) to average
portfolios
Real estate loans
SFR 1.04% 2.38% .75% 1.13%
Other 1.17 10.01 1.07 4.26
Consumer finance 2.14 1.94 1.92 1.94
Bank card - 12.52 - 10.93
Other .77 .36 .45 .35
----- ----- ----- -----
1.11% 3.30% .85% 1.61%
===== ===== ===== =====
Loan loss provisions of $34 million were reallocated in the third
quarter of 1994 from Other real estate loans to SFR based on the Company's
review of reserve levels which showed an excess of commercial and apartment
loan reserves. Beginning in the third quarter of 1994 writedowns on
foreclosed real estate to estimated fair value are being recorded at
acquisition. Charge-offs on SFRs in the third quarter of 1994 included
approximately $27 million of writedowns to estimated fair value for real
estate acquired prior to the current quarter. For the nine months ended
September 30, 1994, provisions for losses on the leasing portfolio, included
in Other loan loss provisions, decreased due to the reversal of a $6 million
provision originally established for an expected loss which did not
materialize. In the third quarter of 1993, as a result of the sale of the
Bank card portfolio, reserves of $20.3 million were reversed.
The following table presents the Company's reserve for estimated losses
and the reserve as a percent of the respective loans receivable portfolios:
September 30
---------------------------------
1994 1993
-------------- --------------
(Dollars in millions) Amount % Amount %
------ --- ------ ---
Real estate loans
SFR $193 .70% $174 .68%
Commercial and other 199 6.23 225 6.25
Consumer finance 51 2.73 50 2.85
Other 12 2.98 13 3.39
---- ---- ---- ----
Total $455 1.38% $462 1.46%
==== ==== ==== ====
A summary of real estate reserve activity by real estate type follows:
At or For The At or For The
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
(Dollars in millions) 1994 1993 1994 1993
---- ---- ---- ----
Beginning balance
SFR $ 5 $ 10 $ 5 $ 5
Commercial and other 100 106 119 114
---- ---- ---- ----
105 116 124 119
Provision for losses
SFR 2 28 8 39
Commercial and other - - 3 15
---- ---- ---- ----
2 28 11 54
Net charge-offs
SFR (2) (32) (8) (38)
Commercial and other (6) (9) (28) (32)
---- ---- ---- ----
(8) (41) (36) (70)
Ending balance
SFR 5 6 5 6
Commercial and other 94 97 94 97
---- ---- ---- ----
$ 99 $103 $ 99 $103
==== ==== ==== ====
/TABLE
OPERATIONS
Net interest income totaled $331 million in the third quarter 1994
compared with $344 million in the third quarter 1993. For the nine month
periods ending September 30, 1994 and 1993, net interest income totaled $1
billion. The following table shows the components of the change in net
interest income between periods.
Three Months Ended September 30 Nine Months Ended September 30
------------------------------- ------------------------------
(Dollars in millions) 1994 vs 1993 1993 vs 1992 1994 vs 1993 1993 vs 1992
------------ ------------ ------------ ------------
Mortgage-backed securities
Rate (1) $ (5) $(10) $ (19) $ (34)
Volume (2) 19 (11) 25 (31)
Rate/Volume (3) (3) 2 (4) 5
---- ---- ----- -----
11 (19) 2 (60)
---- ---- ----- -----
Real estate loans
Rate (1) (12) (67) (73) (278)
Volume (2) 2 13 (10) 24
Rate/Volume (3) (1) (2) - (4)
---- ---- ----- -----
(11) (56) (83) (258)
---- ---- ----- -----
Consumer loans
Rate (1) (7) (2) (10) (11)
Volume (2) - (3) (8) (7)
Rate/Volume (3) 1 1 1 1
---- ---- ----- -----
(6) (4) (17) (17)
---- ---- ----- -----
Securities and investments
Rate (1) (1) (5) (10) (3)
Volume (2) 2 - 6 (7)
Rate/Volume (3) - - (1) -
---- ---- ----- -----
1 (5) (5) (10)
---- ---- ----- -----
Interest earning assets
Rate (25) (84) (112) (326)
Volume 23 (1) 13 (21)
Rate/Volume (3) 1 (4) 2
---- ---- ----- -----
(5) (84) (103) (345)
---- ---- ----- -----
Customer accounts
Rate (1) (1) (72) (48) (284)
Volume (2) 10 (30) 33 (72)
Rate/Volume (3) - 7 (2) 20
---- ---- ----- -----
9 (95) (17) (336)
---- ---- ----- -----
Borrowings
Rate (1) (3) (22) 13 (55)
Volume (2) - 50 (56) 87
Rate/Volume (3) 2 (12) (3) (19)
---- ---- ----- -----
(1) 16 (46) 13
---- ---- ----- -----
Interest bearing liabilities
Rate (4) (94) (35) (339)
Volume 10 20 (23) 15
Rate/Volume 2 (5) (5) 1
---- ---- ----- -----
8 (79) (63) (323)
---- ---- ----- -----
Change in net interest income $(13) $ (5) $ (40) $ (22)
==== ==== ===== =====
(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 $68.1 million for the nine months
ended September 30, 1994 compared with $84.8 million for the nine months
ended September 30, 1993. The decrease in income was attributed to both
lower loan fees and lower gains on mortgage sales. Gains on mortgage sales
decreased as a result of lower sales activity. Mortgage sales in the first
nine months of 1994, all fixed rate, totaled $1.1 billion, at a gain of .58%
of mortgage sales, compared with $2.3 billion in the first nine months of
last year at a gain of .75% of mortgage sales. The reduced gain as a
percentage of mortgage sales is a result of lower excess servicing gains.
Servicing income increased as the net servicing spread was 43 basis points
of the servicing portfolio at September 30, 1994, or 4 basis points higher
than a year ago. Loans serviced for others totaled $11.3 billion at
September 30, 1994 compared with $12.6 billion one year earlier. The
portfolio of loans serviced for others is expected to decline as a result of
the lower level of fixed-rate loan originations and sales.
Retail banking fee and commission income increased from $111 million
in the nine months ended September 30, 1993 to $136 million in the nine
months ended September 30, 1994. Securities operations income and retail
banking fees both increased because of expanding activity. Banking fees
increased from higher transaction balances, deposits acquired in acquisitions
and higher fees charged. The Company has also expanded mutual fund activity
which comprises commissions and other income from mutual fund operations.
Net revenue from these operations totaled $31.3 million in the nine months
ended September 30, 1994 compared with $28.3 million in the same period of
1993. The Company managed mutual funds with assets aggregating $3.2 billion
at September 30, 1994 compared with $3.1 billion at September 30, 1993.
Other income was $29.2 million for the nine months ended September 30,
1994 compared with $49.7 million for the same period a year ago. For the
1994 third quarter, other income was $9.2 million compared with $33.1 million
for the 1993 third quarter. During the third quarter of 1993, GWFC completed
the sale of its $220 million credit card portfolio resulting in a net gain
of $22.9 million.
Operating expenses were $746 million for the first nine months of 1994,
compared with $713 million for the first nine months of 1993. The increase
in operating and administrative expenses for the nine months ended September
30, 1994, compared with the same period in 1993, resulted in part from the
inclusion of the operations related to the HomeFed acquisition completed in
December 1993 and from approximately $10 million resulting from repairs of
earthquake damage to the Company's administrative facilities. Operating
expenses increased 4% between the third quarters of 1994 and 1993 and
increased 5% between the same periods of 1993 and 1992. Operating expenses
increased 5% between the 1994 and 1993 nine month periods ending September
30. The operating ratios were as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Operating and administrative expenses
(annualized)
As a percent of average assets
Corporate 2.52% 2.49% 2.60% 2.50%
Banking operations 2.33 2.28 2.39 2.27
As a percent of average assets
and assets serviced for others
Corporate 1.95 1.87 1.98 1.87
Banking operations 1.78 1.68 1.80 1.68
As a percent of average retail deposits
Banking operations 2.95 2.98 2.90 2.91
As a percent of revenue
Corporate 63.70 58.61 63.19 58.62
Banking operations 66.65 59.95 65.82 59.86
During the fourth quarter of 1993, the Company recorded a $30 million
restructuring charge, primarily associated with the cost-reduction program
at the Company's administrative headquarters. The program, designed to
increase profits and improve efficiency, is being phased in throughout 1994.
Approximately $22 million was charged against this reserve in the first nine
months of 1994, principally employee separation expenses and associated
costs. An estimated 1,000 jobs, or 25% of the administrative work force, are
expected to be eliminated as a result of the cost-reduction program.
Approximately 900 positions have been eliminated as of September 30, 1994
through layoffs and attrition. Reductions in nonpersonnel related costs will
also contribute to the overall savings through renegotiation of existing
vendor contracts and elimination of other administrative expenses.
Anticipated savings in 1995 and beyond will exceed $100 million annually.
Approximately $60 million of savings will be realized in 1994.
The following table presents net earnings (annualized) as a percent of
average assets and as a percent of average equity:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
Return on average assets .59% (.18)% .57% .28%
Return on average equity 9.43 (2.84) 8.95 4.35
The Company's effective tax rate for the third quarter of 1994
decreased due to the reversal of certain tax liabilities no longer required.
As a result, the Company's effective tax rate was 39.9% in the first nine
months of 1994 and 33.8% in the same period of 1993. The lower rate in 1993
is attributed to a favorable settlement of certain tax issues and the
reversal of certain tax liabilities no longer required.
DEPOSIT INSURANCE PREMIUMS
Under current law, the Federal Deposit Insurance Corporation (the
"FDIC") is required to increase the reserves of both the Bank Insurance Fund
(the "BIF") and the Savings Association Insurance Fund (the "SAIF") to 1.25%
of insured deposits over a reasonable period of time and thereafter to
maintain such reserves at not less than that level. Based on current
experience, it is generally anticipated that the BIF will reach the required
reserve level in the near future. However, it is expected that the SAIF
reserves will not reach the required level for a number of years without
Congressional action to provide additional funding or merge the separate
insurance funds in some fashion. Accordingly, it is possible that, absent
such Congressional action, future deposit insurance premiums of SAIF-insured
institutions may be assessed at higher rates than the corresponding premium
assessment rates for BIF-insured institutions. Such a deposit insurance
premium disparity could place SAIF-insured institutions, such as GWB, at a
competitive disadvantage with commercial banks and other BIF-insured
institutions.
CAPITAL RESOURCES AND LIQUIDITY
Capital (stockholders' equity) was $2.4 billion at September 30, 1994
and September 30, 1993. At the end of the 1994 third quarter the ratio of
capital to total assets was 6.1% compared with 6.5% a year ago.
GWB is subject to certain capital requirements under applicable
regulations and meets all such requirements. At September 30, 1994, GWB's
capital was $2.6 billion, including subordinated notes of $429 million.
The following ratios, as of the most recent quarter end, compare GWB
with the fully phased-in capital requirements under regulations issued by the
Office of Thrift Supervision ("OTS"):
Actual OTS Benchmark
-------------- ------------- Capital
(Dollars in millions) Amount % Amount % Excess
------ --- ------ --- -------
Leverage/tangible ratio $1,894 5.05 $1,124 3.00 $ 770
Risk-based ratio 2,561 11.53 1,777 8.00 784
The OTS has amended its risk-based capital rules to incorporate
interest-rate risk requirements. Effective July 1, 1994, a savings
association is required to hold additional capital if it is projected to
experience a 2% decline in "net portfolio value" in the event interest rates
increase or decrease by two percentage points. Additional capital required
is equal to one-half of the amount by which any decline in net portfolio
value exceeds 2% of the savings association's total net portfolio value. 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% leverage ratio (defined as the ratio of 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%. 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%.
For all other savings associations, the minimum core capital leverage ratio
will be 3% plus at least 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 September 30, 1994, real estate loan commitments totaled $846
million compared with $777 million at December 31, 1993 and $925 million at
September 30, 1993. These commitments included $810 million of ARMs and $36
million at fixed rates at September 30, 1994. The high percentage of ARM
commitments is indicative of a fully adjusted interest rate on COFI ARMs that
is more than 200 basis points lower than the rates offered on 30-year fixed-
rate loans. 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 September 30, 1994:
Moody's Investors
Standard & Poor's Service
----------------- -----------------
GWFC GWB GWFC GWB
---- --- ---- ---
Unsecured short-term debt A-2 P-2
Senior term debt BBB+ A- Baa2 A3
Subordinated term debt BBB+ Baa1
Preferred stock BBB- Baa3
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 sources of funds in
the third quarter of 1994 were principal payments on mortgages held for
investment of $1.4 billion and an increase in borrowings, both short term and
long term, of $2.3 billion. New loans originated for investment required
$2.4 billion and net customer account withdrawals totaled $802 million.
Operating activities provided $75.9 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 $1.8
billion at September 30, 1994 and $1.3 billion at September 30, 1993.
DIVIDENDS
Quarterly cash dividends have been paid since 1977. At its October
1994 meeting, the Board of Directors declared a quarterly cash dividend of
$.23 per common share. The quarterly cash dividend has been paid at this
level since the second quarter of 1992.
In the third quarter of 1994 the regular quarterly dividend on the $129
million 8 3/4% cumulative convertible preferred stock, issued in May 1991,
and the regular quarterly dividend on the $165 million 8.3% cumulative
preferred stock, issued in September 1992, were paid.
The Dividend Reinvestment and Stock Purchase Plan permits a 3% discount
on stock purchased with reinvested dividends. During the third quarter 1994
reinvested dividends totaled $7.9 million.
Effective March 31, 1994, Bryant Financial Corporation ("Bryant"), a
property development subsidiary, became a wholly-owned direct subsidiary of
the Company. This realignment was in the form of a dividend from GWB to GWFC
in the amount of Bryant's book value of $38 million.
The principal source of operating income of the Company on an
unconsolidated basis is dividends from GWB and Aristar, Inc ("Aristar"). In
the third quarter of 1994, cash dividends received from GWB and Aristar
totaled $22.8 million and $6.3 million, respectively. 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% of their net income during 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% 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% to 75% 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.
AVERAGE SHARES OUTSTANDING
The average common shares outstanding, based upon daily amounts used
in the calculation of earnings per share, are shown below:
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
1994 1993 1994 1993
---- ---- ---- ----
Primary 134,301,424 132,102,914 133,677,823 131,717,985
Fully diluted 140,643,336 138,906,583 140,221,438 138,603,135
PART II - OTHER INFORMATION
---------------------------
ITEM 5. OTHER INFORMATION
- - --------------------------
The calculation of the Company's ratio of earnings to fixed charges as
of the dates indicated follows:
Nine Months Ended Twelve Months Ended Nine Months Ended
(Dollars in thousands) September 30, 1994 December 31, 1993 September 30, 1993
------------------ ------------------- ------------------
Earnings
Net earnings $ 162,560 $ 62,047 $ 80,269
Taxes on income 108,100 30,000 41,000
---------- ---------- ----------
Earnings before taxes $ 270,660 $ 92,047 $ 121,269
========== ========== ==========
Interest expense
Customer accounts $ 697,157 $ 939,081 $ 713,783
Borrowings 237,629 370,761 285,186
---------- ---------- ----------
Total $ 934,786 $1,309,842 $ 998,969
========== ========== ==========
Rent expense
Total $ 41,369 $ 53,638 $ 39,277
1/3 thereof 13,790 17,879 13,092
Capitalized interest $ 153 $ 777 $ 928
Preferred stock dividends $ 18,761 $ 25,015 $ 18,761
Ratio of earnings to fixed charges
and preferred stock dividends
Excluding customer accounts
Earnings before fixed charges $ 522,079 $ 480,687 $ 419,547
Fixed charges 282,809 424,526 327,550
Ratio 1.85 1.13 1.28
Including customer accounts
Earnings before fixed charges $1,219,236 $1,419,768 $1,133,330
Fixed charges 979,966 1,365,607 1,041,333
Ratio 1.24 1.04 1.09
Ratio of earnings to fixed charges
Excluding customer accounts
Earnings before fixed charges $ 522,079 $ 480,687 $ 419,547
Fixed charges 251,572 389,417 299,206
Ratio 2.08 1.23 1.40
Including customer accounts
Earnings before fixed charges $1,219,236 $1,419,768 $1,133,330
Fixed charges 948,729 1,328,498 1,012,989
Ratio 1.29 1.07 1.12
/TABLE
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
13 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, 1993. 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 1988 Stock Option and Incentive Plan as amended.
11.1 Statement re computation of per share earnings.
27 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.
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
Executive Vice President and Chief
Financial Officer
/s/ Jesse L. King
- - -----------------------------------
Jesse L. King
Senior Vice President
Controller
DATE: November 14, 1994
GREAT WESTERN FINANCIAL CORPORATION
EXHIBIT INDEX
September 30, 1994
Exhibit Page
Number Number
- - ------- ------
10.1 1988 Stock Option and Incentive Plan as amended 40
11.1 Statement re computation of per share earnings. 67
27 Financial Data Schedule 68