SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the Quarter Ended March 31, 2000 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
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Delaware 95-2080059
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the registrant's common stock on
April 30, 2000, was 158,089,133 shares.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or Company) for the three months ended
March 31, 2000 and 1999 are unaudited. In the opinion of the Company, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair statement of the results for such three month periods have been
included. The operating results for the three months ended March 31, 2000, are
not necessarily indicative of the results for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
March 31 March 31 December 31
2000 1999 1999
------------ ------------- -------------
(Unaudited)
---------------------------
Assets:
Cash $ 277,667 $ 196,974 $ 333,793
Securities available for sale at fair value 455,709 331,937 319,444
Other investments at cost 1,088,499 1,154,996 467,156
Purchased mortgage-backed securities available for sale 74,745 103,290 79,009
Purchased mortgage-backed securities held to maturity 423,160 518,887 434,711
Mortgage-backed securities with recourse held to maturity 10,952,263 8,584,619 11,147,901
Loans receivable 30,432,413 26,020,901 27,919,817
Interest earned but uncollected 190,986 186,761 175,351
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 671,056 790,955 541,013
Real estate held for sale or investment 14,410 30,310 13,711
Other assets 766,285 472,851 431,806
Premises and equipment--at cost less accumulated depreciation 289,047 273,612 278,493
------------ ------------- -------------
$45,636,240 $38,666,093 $42,142,205
============ ============= =============
Liabilities and Stockholders' Equity:
Deposits $27,974,252 $26,395,440 $27,714,910
Advances from Federal Home Loan Banks 12,224,073 6,114,548 8,915,218
Securities sold under agreements to repurchase 867,049 692,624 1,045,176
Federal funds purchased -0- 475,000 -0-
Accounts payable and accrued expenses 300,739 544,818 183,571
Taxes on income 344,296 370,842 275,526
Subordinated notes--net of discount 713,167 912,033 812,950
Stockholders' equity 3,212,664 3,160,788 3,194,854
------------ ------------- -------------
$45,636,240 $38,666,093 $42,142,205
============ ============= =============
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended
March 31
----------------------------
2000 1999
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Interest Income:
Interest on loans $ 537,087 $ 476,244
Interest on mortgage-backed securities 211,317 168,751
Interest and dividends on investments 44,150 49,966
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792,554 694,961
Interest Expense:
Interest on deposits 340,010 307,567
Interest on advances 144,490 86,751
Interest on repurchase agreements 16,664 13,547
Interest on other borrowings 21,759 36,395
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522,923 444,260
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Net Interest Income 269,631 250,701
Provision for loan losses 969 574
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Net Interest Income after Provision
for Loan Losses 268,662 250,127
Noninterest Income:
Fees 16,242 16,159
Gain on the sale of securities, MBS, and loans 1,438 10,063
Other 15,811 9,077
------------- ------------
33,491 35,299
Noninterest Expense:
General and administrative:
Personnel 57,280 51,798
Occupancy 17,058 16,287
Deposit insurance 1,412 1,393
Advertising 2,174 2,179
Other 22,036 21,389
------------- ------------
99,960 93,046
Earnings before Taxes on Income 202,193 192,380
Taxes on Income 76,259 72,012
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Net Earnings $ 125,934 $ 120,368
============= ============
Basic Earnings Per Share $ .79 $ .71
============= ============
Diluted Earnings Per Share $ .78 $ .70
============= ============
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
----------------------------
2000 1999
------------ -------------
Cash Flows from Operating Activities:
Net earnings $ 125,934 $ 120,368
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for loan losses 969 574
Amortization of loan (fees), costs, and (discounts) 971 (6,194)
Depreciation and amortization 7,034 6,937
Loans originated for sale (54,746) (287,064)
Sales of loans 72,509 535,344
Decrease (increase) in interest earned butuncollected (14,958) 22,567
Federal Home Loan Bank stock dividends (8,457) (20,967)
Increase in other assets (334,719) (106,244)
Increase in accounts payable and accrued expenses 117,355 66,855
Increase in taxes on income 76,031 62,640
Other, net (1,434) (1,249)
------------ -------------
Net cash provided by (used in) operating activities (13,511) 393,567
Cash Flows from Investing Activities:
New loan activity:
New real estate loans originated for portfolio (3,711,665) (1,790,916)
Real estate loans purchased (185) (460)
Other, net (43,346) (10,581)
------------ -------------
(3,755,196) (1,801,957)
Real estate loan principal payments:
Monthly payments 140,453 151,930
Payoffs, net of foreclosures 796,793 1,168,958
------------ -------------
937,246 1,320,888
Repayments of mortgage-backed securities 485,476 750,827
Proceeds from sales of real estate 12,811 40,407
Purchases of securities available for sale (1,428,019) (150,014)
Sales of securities available for sale -0- 9
Matured securities available for sale 1,276,016 154,208
Increase in other investments (621,343) (732,611)
Purchases of Federal Home Loan Bank stock (122,263) -0-
Additions to premises and equipment (18,404) (8,397)
------------ -------------
Net cash used in investing activities (3,233,676) (426,640)
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
--------------------------
2000 1999
----------- -----------
Cash Flows from Financing Activities:
Net increase in deposits $ 259,342 $ 176,345
Additions to Federal Home Loan Bank advances 4,116,650 1,508,650
Repayments of Federal Home Loan Bank advances (807,795) (1,557,573)
Proceeds from agreements to repurchase securities 706,987 95
Repayments of agreements to repurchase securities (885,114) (559,940)
Increase in federal funds purchased -0- 475,000
Repayment of subordinated debt (100,000) -0-
Dividends on common stock (8,406) (7,921)
Exercise of stock options 1,187 2,067
Purchase and retirement of Company stock (91,790) (57,551)
----------- -----------
Net cash provided by (used in) financing activities 3,191,061 (20,828)
----------- -----------
Net Increase (Decrease) in Cash (56,126) (53,901)
Cash at beginning of period 333,793 250,875
----------- -----------
Cash at end of period $ 277,667 $ 196,974
=========== ===========
Supplemental cash flow information:
Cash paid for:
Interest $ 487,535 $ 435,393
Income taxes 347 9,486
Cash received for interest and dividends 766,919 717,528
Noncash investing activities:
Loans converted from adjustable rate to
fixed-rate 8,021 171,370
Loans transferred to foreclosed real estate 11,730 20,072
Loans securitized into mortgage-backed securities
with recourse held to maturity 312,700 -0-
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Three Months Ended March 31, 2000
------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
--------- ----------- ----------- --------------- ------------ --------------
Balance at January 1, 2000 $ 16,136 $ 135,555 $2,885,346 $ 157,817 $ 3,194,854
Comprehensive income:
Net earnings -0- -0- 125,934 -0- 125,934 $ 125,934
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (9,115) (9,115) (9,115)
--------------
Comprehensive Income $ 116,819
==============
Common stock issued upon
exercise of stock options,
including tax benefits 12 1,175 -0- -0- 1,187
Purchase and retirement of
Company stock (314) -0- (91,476) -0- (91,790)
Cash dividends on common
stock ($.0525 per share) -0- -0- (8,406) -0- (8,406)
--------- ----------- ----------- --------------- ------------
Balance at March 31, 2000 $ 15,834 $ 136,730 $2,911,398 $ 148,702 $ 3,212,664
========= =========== =========== =============== ============
For the Three Months Ended March 31, 1999
------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
--------- ----------- ----------- --------------- ------------ --------------
Balance at January 1, 1999 $ 5,686 $ 122,159 $2,781,925 $ 214,548 $ 3,124,318
Comprehensive income:
Net earnings -0- -0- 120,368 -0- 120,368 $ 120,368
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (20,118) (20,118) (20,118)
Reclassification adjustment
for gains included in income -0- -0- -0- (375) (375) (375)
--------------
Comprehensive Income $ 99,875
==============
Common stock issued upon
exercise of stock options,
including tax benefits 7 2,060 -0- -0- 2,067
Purchase and retirement of
Company stock (62) -0- (57,489) -0- (57,551)
Cash dividends on common
stock ($.0467 per share) -0- -0- (7,921) -0- (7,921)
--------- ----------- ----------- --------------- ------------
Balance at March 31, 1999 $ 5,631 $ 124,219 $2,836,883 $ 194,055 $ 3,160,788
========= =========== =========== =============== ============
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, 1999,
as well as material changes in results of operations during the three month
periods ended March 31, 2000 and 1999, respectively.
The following narrative is written with the presumption that the users have
read or have access to the Company's 1999 Annual Report on 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, 1999, and for the year then ended. Therefore, only
material changes in financial condition and results of operations are discussed
herein.
This report contains certain forward-looking statements, which are not
historical facts and pertain to future operating results of the Company. Such
statements are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's control.
In addition, these forward-looking statements are subject to change. Actual
results may differ materially from the results discussed in these
forward-looking statements for the reasons, among others, discussed under the
heading "Asset/Liability Management" in the Management's Discussion and Analysis
of Financial Condition and Results of Operations in the Company's 1999 Annual
Report on Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This Statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivative instruments as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
(SFAS 137) which delayed the effective date of SFAS 133 until fiscal years
beginning after June 15, 2000. The Company has not yet adopted SFAS 133, but if
SFAS 133 had been adopted at March 31, 2000, given the interest rate environment
at that time, it would not have had a significant effect on the Company's
financial statements or financial position.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
March 31 March 31 December 31
2000 1999 1999
------------- ------------ --------------
Assets $ 45,636,240 $ 38,666,093 $ 42,142,205
Loans receivable including mortgage-backed securities 41,882,581 35,227,697 39,581,438
Deposits 27,974,252 26,395,440 27,714,910
Stockholders' equity 3,212,664 3,160,788 3,194,854
Stockholders' equity/total assets 7.04% 8.17% 7.58%
Book value per common share $ 20.29 $ 18.71 $ 19.80
Common shares outstanding 158,340,533 168,938,397 161,357,833
Diluted common shares outstanding 159,359,785 170,649,195 162,607,506
Yield on loan portfolio 7.36% 7.25% 7.16%
Yield on mortgage-backed securities 7.36% 7.02% 7.17%
Yield on investments 6.38% 5.55% 5.88%
Yield on earning assets 7.33% 7.14% 7.15%
Cost of deposits 4.84% 4.58% 4.69%
Cost of borrowings 5.94% 5.73% 5.77%
Cost of funds 5.21% 4.85% 5.00%
Yield on earning assets less cost of funds 2.12% 2.29% 2.15%
Ratio of nonperforming assets to total assets .51% .72% .56%
Ratio of troubled debt restructured to total assets .01% .04% .03%
World Savings Bank, a Federal Savings Bank:
Total assets $ 41,525,715 $ 31,893,907 $ 37,835,121
Net worth 2,611,547 2,248,514 2,514,191
Net worth/total assets 6.29% 7.05% 6.65%
Regulatory capital ratios:
Core capital 6.29% 7.04% 6.64%
Risk-based capital 11.57% 13.18% 11.95%
World Savings and Loan Association:
Total assets $ 4,923,357 $ 6,433,946 $ 5,051,847
Net worth 559,857 701,150 540,224
Net worth/total assets 11.37% 10.90% 10.69%
Regulatory capital ratios:
Core capital 8.65% 8.21% 7.86%
Risk-based capital 16.93% 18.23% 15.47%
World Savings Bank, a State Savings Bank:
Total assets $ 4,001,810 $ 3,508,260 $ 3,530,548
Net worth 206,952 190,175 202,846
Net worth/total assets 5.17% 5.42% 5.75%
Regulatory capital ratios:
Tier 1 leverage capital 5.64% 5.35% 5.66%
Total risk-based capital 24.45% 25.81% 26.93%
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended
March 31
-------------------------
2000 1999
----------- -----------
New real estate loans originated $ 3,766,411 $ 2,077,980
Fully indexed rate on new real estate loans 7.91% 7.60%
Current rate on new real estate loans (a) 6.06% 6.14%
New adjustable rate mortgages as a percentage of
new real estate loans originated 96.37% 80.11%
Increase in deposits (b) $ 259,342 $ 176,345
Net earnings 125,934 120,368
Basic earnings per share .79 .71
Diluted earnings per share .78 .70
Cash dividends on common stock .0525 .0467
Average common shares outstanding 159,958,610 169,742,922
Average diluted common shares outstanding 160,831,775 171,437,937
Ratios:(c)
Net earnings/average net worth (ROE) 15.70% 15.31%
Net earnings/average assets (ROA) 1.16% 1.25%
Net interest income/average assets 2.49% 2.61%
General and administrative expense/average assets .92% .97%
Efficiency ratio (d) 32.98% 32.53%
(a) The current rate reflects the actual rate being paid by the borrower at
time of origination.
(b) Includes an increase of $150 million of wholesale deposits for the quarter
ended March 31, 2000.
(c) Ratios are annualized by multiplying the quarterly computation by four.
Averages are computed by adding the beginning balance and each monthend
balance during the quarter and dividing by four.
(d) The efficiency ratio is calculated by dividing general and administrative
expense by net interest income plus other income.
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,
2000 and 1999, and December 31, 1999. The reader is referred to page 53 of the
Company's 1999 Annual Report on Form 10-K for similar information for the
years 1996 through 1999 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
In Percentage Terms
March 31
-------------------- December 31
2000 1999 1999
------- ------- -------------
Assets:
Cash and investments 4.0% 4.4% 2.7%
Loans receivable including mortgage-backed
securities 91.8 91.1 93.9
Other assets 4.2 4.5 3.4
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
Liabilities and Stockholders' Equity:
Deposits 61.3% 68.3% 65.8%
Federal Home Loan Bank advances 26.8 15.8 21.2
Securities sold under agreements to repurchase 1.9 1.8 2.5
Federal funds purchased 0.0 1.2 0.0
Other liabilities 1.4 2.3 1.0
Subordinated debt 1.6 2.4 1.9
Stockholders' equity 7.0 8.2 7.6
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
As the above table shows, the largest asset component is the loan portfolio
(including mortgage-backed securities), which consists primarily of long-term
mortgages. Deposits represent the majority of the Company's liabilities. The
disparity between the repricing (maturity, prepayment, or interest rate change)
of deposits and borrowings and the repricing of mortgage loans and investments
can have a material impact on the Company's results of operations. The
difference between the repricing characteristics of assets and liabilities is
commonly referred to as "the gap."
The following gap table shows that, as of March 31, 2000, the Company's
assets reprice sooner than its liabilities. If all repricing assets and
liabilities responded equally to changes in the interest rate environment, then
the gap analysis would suggest that the Company's earnings would rise when
interest rates increase and would fall when interest rates decrease. However,
the Company's earnings are also affected by the built-in reporting and repricing
lags inherent in the Eleventh District Cost of Funds Index (COFI), which is the
benchmark Golden West uses to determine the rate on the majority of its
adjustable rate mortgages (ARMs). The reporting lag occurs because of the time
it takes to gather the data needed to compute the index. As a result, the COFI
in effect in any month actually reflects the Eleventh District's cost of funds
at the level it was two months prior. The repricing lag occurs because COFI is
based on a portfolio of accounts, not all of which reprice immediately.
Therefore, COFI does not initially fully reflect a change in market interest
rates. Consequently, when the interest rate environment changes, the COFI lags
cause assets to initially reprice more slowly than liabilities, enhancing
earnings when rates are falling and holding down income when rates rise.
Additionally, the Company originates loans that are tied to the Golden West Cost
of Savings Index (COSI). The COSI in effect in the current month reflects the
actual Golden West Cost of Savings at the end of the previous month. Therefore,
there is a one-month repricing lag for these types of loans.
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of March 31, 2000
(Dollars in millions)
Projected Repricing(a)
-------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
----------- ------------ ----------- ----------- -----------
Interest-Earning Assets:
Investments $ 1,384 $ 50 $ 14 $ 96 $ 1,544
Mortgage-backed securities 10,021 162 644 623 11,450
Loans receivable:
Rate-sensitive 26,241 2,590 299 -0- 29,130
Fixed-rate 32 95 374 713 1,214
Other(b) 875 -0- -0- -0- 875
Impact of interest rate swaps 540 126 (666) -0- -0-
----------- ------------ ----------- ----------- -----------
Total $ 39,093 $ 3,023 $ 665 $ 1,432 $ 44,213
=========== ============ =========== =========== ===========
Interest-Bearing Liabilities:
Deposits(c) $ 16,519 $ 8,918 $ 2,506 $ 31 $ 27,974
FHLB advances 11,600 215 109 300 12,224
Other borrowings 867 115 598 -0- 1,580
Impact of interest rate swaps 223 (48) (175) -0- -0-
----------- ------------ ----------- ----------- ----------
Total $ 29,209 $ 9,200 $ 3,038 $ 331 $ 41,778
=========== ============ =========== =========== ==========
Repricing gap $ 9,884 $ (6,177) $ (2,373) $ 1,101
=========== ============ =========== ===========
Cumulative gap $ 9,884 $ 3,707 $ 1,334 $ 2,435
=========== ============ =========== ===========
Cumulative gap as a percentage of
total assets 21.7% 8.1% 2.9%
=========== ============ ===========
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect
scheduled repayments and projected prepayments of principal based on
current rates of prepayment.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Liabilities with no maturity date, such as checking, passbook and money
market deposit accounts, are assigned zero months.
CASH AND INVESTMENTS
The Office of Thrift Supervision (OTS) requires insured institutions, such
as World Savings Bank, FSB (WFSB), and World Savings and Loan Association (WSL),
to maintain a minimum amount of cash and certain qualifying investments for
liquidity purposes. At March 31, 2000 and 1999 and at December 31, 1999, WFSB
and WSL had liquidity in excess of the regulatory requirements. The state of
Texas also requires insured institutions, such as World Savings Bank, SSB
(WSSB), to maintain a daily minimum amount of cash and certain qualifying
investments for liquidity purposes. WSSB met this requirement during the periods
under discussion.
At March 31, 2000 and 1999 and December 31, 1999, the Company had
securities available for sale in the amount of $456 million, $332 million, and
$319 million, respectively, including unrealized gains on securities available
for sale of $244 million, $317 million, and $260 million, respectively. At March
31, 2000 and 1999 and December 31, 1999, the Company had no securities held for
trading in its investment securities portfolio.
Included in the Company's investment portfolio at March 31, 2000 and 1999
and December 31, 1999, were collateralized mortgage obligations (CMOs) in the
amount of $92 million, $194 million, and $115 million, respectively. The Company
holds CMOs on which both principal and interest are received. The Company does
not hold any interest-only or principal-only CMOs. At March 31, 2000, all of
these CMOs qualified for inclusion in the regulatory liquidity measurement.
LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs), and
purchases MBS. MBS and MBS-REMICs are available to be used as collateral for
borrowings. At March 31, 2000 and 1999 and December 31, 1999, the balance of
loans receivable including mortgage backed securities was $41.9 billion, $35.2
billion, and $39.6 billion, respectively. Included in the $41.9 billion at March
31, 2000 was $4.0 billion of Federal National Mortgage Association (FNMA)
mortgage-backed securities with the underlying loans subject to full credit
recourse to the Company, $6.9 billion of MBS-REMICs, and $498 million of
purchased MBS. Included in the $39.6 billion at December 31, 1999 was $3.9
billion of FNMA MBS with the underlying loans subject to full credit recourse to
the Company, $7.2 billion of MBS-REMICs, and $514 million of purchased MBS.
Included in the $35.2 billion at March 31, 1999 was $3.6 billion of FNMA MBS
with the underlying loans subject to full credit recourse to the Company, $5.0
billion of MBS-REMICs, and $622 million of purchased MBS.
MORTGAGE-BACKED SECURITIES
At March 31, 2000 and 1999 and December 31, 1999, the Company had MBS held
to maturity in the amount of $11.4 billion, $9.1 billion, and $11.6 billion,
respectively. The increase in MBS from March 31, 1999 to March 31, 2000 was due
to the securitization of $3.7 billion of mortgage loans into MBS-REMICs during
the second quarter of 1999, the securitization of $1.1 billion of adjustable
rate mortgages (ARMs) into FNMA COFI-indexed MBS during the fourth quarter of
1999, and the securitization of $313 million of ARMs into FNMA COFI-indexed MBS
in the first three months of 2000. The FNMA MBS and the MBS-REMICs are available
to be used as collateral for borrowings. The Company has the ability and intent
to hold these MBS until maturity and, accordingly, these MBS are classified as
held to maturity.
At March 31, 2000 and 1999 and December 31, 1999, the Company had MBS
available for sale in the amount of $75 million, $103 million, and $79 million,
respectively, including unrealized gains on MBS available for sale of $1
million, $4 million, and $1 million, respectively. At March 31, 2000 and 1999
and December 31, 1999, the Company had no trading MBS.
Repayments of MBS during the first quarter of 2000 were $485 million
compared to $751 million in the same period of 1999. MBS repayments were lower
during the first three months of 2000 as compared to the first three months of
1999 due to a decrease in the prepayment rate.
LOANS
New loan originations for the three months ended March 31, 2000 amounted to
$3.8 billion compared to $2.1 billion for the same period in 1999. The high
volume of originations during 2000 was due to a continued demand for adjustable
rate loans, the Company's primary product, as the cost of fixed-rate loans was
substantially higher than a year ago. Refinanced loans constituted 38% of new
loan originations for the three months ended March 31, 2000, compared to 49% for
the three months ended March 31, 1999.
Loans originated for sale amounted to $55 million for the three months
ended March 31, 2000, compared to $287 million for the same period in 1999. The
reduction in loans originated for sale in 2000 as compared to 1999 was
attributable to the decrease in fixed-rate originations due to higher rates
being charged on fixed-rate loans. During the first three months of 2000, $8
million of loans were converted from adjustable rate to fixed rate compared to
$171 million for the same period in 1999. The Company continues to sell most of
its fixed-rate loans and for the three months ended March 31, 2000 and 1999, the
Company sold $73 million and $535 million, respectively, of fixed-rate loans.
At March 31, 2000, the Company had lending operations in 29 states. The
largest source of mortgage origination is loans secured by residential
properties in California. For the three months ended March 31, 2000, 62% of
total loan originations were on residential properties in California compared to
64% for the same period in 1999. The five largest states, other than California,
for originations for the three months ended March 31, 2000, were Florida, Texas,
New Jersey, Washington, and Colorado with a combined total of 19% of total
originations. The percentage of the total loan portfolio (including
mortgage-backed securities with recourse and MBS-REMICs) that is comprised of
residential loans in California was 64% at March 31, 2000 compared to 65% and
64% at March 31, 1999 and December 31, 1999, respectively.
Golden West originates adjustable rate mortgages tied to a variety of
indexes, principally the Eleventh District Cost of Funds Index (COFI), the
Golden West Cost of Savings Index (COSI), and the twelve-month rolling average
of the One-Year Treasury Constant Maturity (TCM).
The following table shows the distribution of ARM originations by index for
the first quarter of 2000 and 1999.
TABLE 3
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
March 31
---------------------------
ARM Index 2000 1999
------------------ ------------ ------------
COFI $ 1,107,887 $ 548,633
COSI 2,329,187 1,077,388
TCM 192,411 38,650
------------ ------------
$ 3,629,485 $ 1,664,671
============ ============
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at March 31, 2000 and 1999 and December 31, 1999.
TABLE 4
Adjustable Rate Mortgage Portfolio by
Index (Including ARM MBS with recourse and
ARM MBS-REMICs)
(Dollars in thousands)
March 31
-------------------------------- December 31
ARM Index 2000 1999 1999
----------------- -------------- --------------- ---------------
COFI $ 26,282,919 $ 28,354,954 $ 26,217,670
COSI 11,292,632 2,720,655 9,182,829
TCM 1,399,167 1,250,474 1,266,541
Other 153,274 185,290 152,470
-------------- --------------- ---------------
$ 39,127,992 $ 32,511,373 $ 36,819,510
============== =============== ===============
The Company generally lends up to 80% of the appraised value of residential
real property. In some cases, a higher amount is possible through a first
mortgage loan or a combination of a first and a second mortgage loan on the same
property. During the first three months of 2000, 20% of loans originated
exceeded 80% of the appraised value of the secured property, including $84
million of firsts and $653 million of combined firsts and seconds.
The Company takes steps to minimize the potential credit risk with respect
to loans with a loan to value (LTV) over 80%. Among other things, the loan
amount may not exceed 95% of the appraised value of a single-family residence.
Also, some first mortgage loans with an LTV over 80% carry mortgage insurance
which reimburses the Company for losses up to a specified percentage per loan,
thereby reducing the effective LTV to below 80%. In addition, the Company
carries pool mortgage insurance on most seconds not sold, such that the
cumulative losses covered by this pool mortgage insurance are limited to 10% of
the original balance of the insured pool.
The following table shows mortgage originations with LTV ratios or combined
LTV ratios greater than 80% for the three months ended March 31, 2000 and 1999.
TABLE 5
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
For the Three Months Ended
March 31
----------------------------
2000 1999
------------ ------------
First mortgages with loan to value ratios greater than 80%:
With insurance $17,937 $ 23,171
With no insurance 65,898 39,099
------------ ------------
83,835 62,270
------------ ------------
First and second mortgages with combined loan to value ratios greater than 80%:
With pool insurance 431,337 -0-
With no insurance 221,904 176,523
------------ ------------
653,241 176,523
------------ ------------
Total $737,076 $238,793
============ ============
The following table shows the outstanding balance of mortgages with original LTV
or combined LTV ratios greater than 80% at March 31, 2000 and 1999.
TABLE 6
Balance of Mortgages With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
March 31
--------------------------------
2000 1999
-------------- --------------
First mortgages with loan to value ratios greater than 80%:
With insurance $ 382,682 $ 468,027
With no insurance 860,295 882,835
-------------- --------------
1,242,977 1,350,862
-------------- --------------
First and second mortgages with combined loan to value ratios greater than 80%:
With pool insurance 1,474,347 -0-
With no insurance 343,320 85,347
-------------- --------------
1,817,667 85,347
-------------- --------------
Total $ 3,060,644 $1,436,209
============== ==============
The tables on the following two pages show the Company's loan portfolio by
state at March 31, 2000 and 1999.
TABLE 7
Loan Portfolio by State
March 31, 2000
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
------------------------- Real Total a% of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ---------------- ------------ ----------- ---------- -------------- ----------- ------------
California $23,167,754 $3,364,154 $ 180 $ 26,555 $26,558,643 63.98%
Florida 1,919,802 14,815 -0- 457 1,935,074 4.66
Texas 1,673,129 57,312 366 1,172 1,731,979 4.17
New Jersey 1,446,977 -0- -0- 3,574 1,450,551 3.49
Illinois 1,270,942 119,156 -0- -0- 1,390,098 3.35
Washington 788,672 506,111 -0- -0- 1,294,783 3.12
Colorado 1,050,957 176,666 -0- 5,127 1,232,750 2.97
Arizona 896,166 18,341 -0- -0- 914,507 2.20
Pennsylvania 823,883 4,079 -0- 2,529 830,491 2.00
Other (b) 4,127,268 42,206 47 6,128 4,175,649 10.06
------------ ----------- ---------- ------------- ------------ ---------
Totals $37,165,550 $4,302,840 $ 593 $ 45,542 41,514,525 100.00%
============ =========== ========== ============= =========
SFAS 91 deferred loan costs 92,159
Loan discount on purchased loans (1,847)
Undisbursed loan funds (5,761)
Allowance for loan losses (233,016)
Loans to facilitate (LTF) interest reserve (258)
Troubled debt restructured (TDR) interest reserve (677)
Loans on deposits 19,551
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 41,384,676
Loans securitized into FNMA MBS with recourse and MBS-REMICs (10,952,263)(c)
------------
Total loan portfolio $30,432,413
============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the March 31, 2000 balances of loans that were
securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 8
Loan Portfolio by State
March 31, 1999
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
------------------------- Real Total a% of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ---------------- ------------ ----------- ---------- -------------- ----------- ------------
California $19,452,910 $3,301,332 $ 204 $ 37,569 $22,792,015 65.43%
Florida 1,473,511 17,745 2 681 1,491,939 4.28
Texas 1,385,186 63,824 488 1,310 1,450,808 4.17
New Jersey 1,187,975 -0- -0- 4,557 1,192,532 3.42
Illinois 1,120,218 142,985 -0- -0- 1,263,203 3.63
Washington 553,257 433,808 -0- 677 987,742 2.84
Colorado 920,537 186,859 -0- 5,510 1,112,906 3.20
Arizona 737,057 22,555 -0- -0- 759,612 2.18
Pennsylvania 640,386 4,146 -0- 2,821 647,353 1.86
Other (b) 3,078,995 42,147 63 9,899 3,131,104 8.99
------------ ----------- ---------- ------------- ------------ ---------
Totals $30,550,032 $4,215,401 $ 757 $ 63,024 34,829,214 100.00%
============ =========== ========== ============= =========
SFAS 91 deferred loan fees (3,647)
Loan discount on purchased loans (2,878)
Undisbursed loan funds (2,928)
Allowance for loan losses (236,476)
Loans to facilitate (LTF) interest reserve (361)
Troubled debt restructured (TDR) interest reserve (1,372)
Loans on deposits 23,968
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 34,605,520
Loans securitized into FNMA MBS with recourse and MBS-REMICs (8,584,619)(c)
------------
Total loan portfolio $26,020,901
============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 1.5% of total loans.
(c) The above schedule includes the March 31, 1999 balances of loans that were
securitized and retained as FNMA MBS with recourse and MBS-REMICs.
The Company continues to emphasize ARM loans with interest rates that
change periodically in accordance with movements in specified indexes. The
portion of the mortgage portfolio (including MBS and MBS-REMICs) composed of
rate-sensitive loans was 94% at March 31, 2000 compared to 93% at March 31, 1999
and December 31, 1999. The Company's ARM originations for the first three months
of 2000 constituted 96% of new mortgage loans made in 1999 compared to 80% for
the first three months of 1999.
The weighted average maximum lifetime cap rate on the Company's ARM loan
portfolio (including ARMs swapped into MBS with recourse and MBS-REMICs) was
12.40%, or 5.04% above the actual weighted average rate at March 31, 2000,
versus 12.59%, or 5.47% above the weighted average rate at March 31, 1999.
Approximately $4.9 billion of the Company's ARM loans (including MBS with
recourse and MBS-REMICs) have terms that state that the interest rate may not
fall below a lifetime floor set at the time of origination or assumption. As of
March 31, 2000, $386 million of ARM loans had reached their rate floors. The
weighted average floor rate on the loans that had reached their floor was 7.73%
at March 31, 2000 compared to 7.69% at March 31, 1999. Without the floor, the
average rate on these loans would have been 7.14% at March 31, 2000 and 6.88% at
March 31, 1999.
Loan repayments consist of monthly loan amortization and loan payoffs. For
the three months ended March 31, 2000, loan repayments were $937 million
compared to $1.3 billion in the same period of 1999. The decrease in loan
repayments was primarily due to a decrease in loan payoffs in the first quarter
of 2000.
MORTGAGE SERVICING RIGHTS
Capitalized mortgage servicing rights are included in "Other assets" on the
Consolidated Statement of Financial Condition. The following table shows the
changes in capitalized mortgage servicing rights for the three months ended
March 31, 2000 and 1999.
TABLE 9
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended
March 31
---------------------------
2000 1999
------------ ------------
Beginning balance of capitalized mortgage servicing rights $ 37,295 $ 28,635
New capitalized mortgage servicing rights from loan sales 822 8,968
Amortization of capitalized mortgage servicing rights (3,021) (2,353)
------------ ------------
Ending balance of capitalized mortgage servicing rights $ 35,096 $ 35,250
============ ============
The book value of Golden West's servicing rights did not exceed the fair
value at March 31, 2000 or 1999 and, therefore, no write-down of the servicing
rights to their fair value was necessary.
ASSET QUALITY
One measure of the soundness of the Company's loan and MBS portfolio is its
ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets
include non-accrual loans (loans, including loans swapped into MBS with recourse
and loans securitized into MBS-REMICs, that are 90 days or more past due) and
real estate acquired through foreclosure. No interest is recognized on
non-accrual loans. The Company's troubled debt restructured (TDRs) are made up
of loans on which delinquent payments have been capitalized or on which
temporary interest rate reductions have been made, primarily to customers
adversely impacted by economic conditions.
The following table shows the components of the Company's NPAs and TDRs and
the various ratios to total assets.
TABLE 10
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
March 31
-------------------------- December 31
2000 1999 1999
----------- ----------- --------------
Non-accrual loans $ 221,070 $ 252,043 $ 225,409
Real estate acquired through foreclosure 11,131 27,106 10,840
Real estate in judgment 83 154 69
----------- ----------- ------------
Total nonperforming assets $ 232,284 $ 279,303 $ 236,318
=========== =========== ============
TDRs $ 4,903 $ 16,575 $ 10,542
=========== =========== ============
Ratio of NPAs to total assets .51% .72% .56%
=========== =========== ============
Ratio of TDRs to total assets .01% .04% .03%
=========== =========== ============
Ratio of NPAs and TDRs to total assets .52% .76% .59%
=========== =========== ============
The lower NPAs at March 31, 2000 as compared to March 31, 1999 reflect the
strong California economy and housing market. The Company closely monitors all
delinquencies and takes appropriate steps to protect its interests. Interest
foregone on non-accrual loans amounted to $1 million for the three months ended
March 31, 2000, compared to $2 million for the same period in 1999. Interest
foregone on TDRs amounted to $66 thousand for the three months ended March 31,
2000, compared to $135 thousand for the three months ended March 31, 1999.
The tables on the following page show the Company's nonperforming assets by
state as of March 31, 2000 and 1999.
TABLE 11
Nonperforming Assets by State
March 31, 2000
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
------------------------------------ --------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a% of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------------ --------- --------- ----------- -------- --------- --------- ---------- --------
California $122,461 $ 1,249 $ 1,469 $6,539 $ -0- $ -0- $131,718 .50%
Florida 16,193 -0- 178 309 -0- -0- 16,680 .86
Texas 8,695 -0- -0- 1,245 -0- -0- 9,940 .57
New Jersey 13,856 -0- 503 633 -0- -0- 14,992 1.03
Illinois 10,495 215 -0- 898 -0- -0- 11,608 .84
Washington 3,400 -0- -0- -0- -0- -0- 3,400 .26
Colorado 2,005 -0- -0- 147 -0- -0- 2,152 .17
Arizona 5,195 -0- -0- 222 -0- -0- 5,417 .59
Pennsylvania 10,557 -0- -0- 398 -0- -0- 10,955 1.32
Other (c) 23,771 84 744 1,059 -0- -0- 25,658 .61
--------- --------- ----------- -------- --------- --------- ---------- -------
Totals $216,628 $ 1,548 $ 2,894 $11,450 $ -0- $ -0- 232,520 .56%
========= ========= =========== ======== ========= =========
REO general valuation allowance (236) (.00)
---------- -------
Total nonperforming assets $232,284 .56%
========== =======
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The March 31, 2000 balances include loans that were securitized into FNMA
MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
TABLE 12
Nonperforming Assets by State
March 31, 1999
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
------------------------------------ --------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a% of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------------ --------- --------- ----------- -------- --------- --------- ---------- --------
California $161,884 $ 3,392 $ 1,808 $22,736 $ -0- $ -0- $189,820 .83%
Florida 16,841 -0- 78 1,134 -0- -0- 18,053 1.21
Texas 7,111 -0- -0- 491 -0- -0- 7,602 .52
New Jersey 15,695 -0- 373 743 -0- -0- 16,811 1.41
Illinois 12,134 218 -0- 1,394 -0- -0- 13,746 1.09
Washington 2,102 -0- -0- -0- -0- -0- 2,102 .21
Colorado 1,636 -0- 3 -0- -0- -0- 1,639 .15
Arizona 2,304 -0- -0- 64 -0- -0- 2,368 .31
Pennsylvania 8,334 -0- -0- 382 -0- -0- 8,716 1.35
Other (c) 18,046 84 -0- 886 -0- -0- 19,016 .61
--------- --------- --------- -------- --------- --------- --------- ------
Totals $246,087 $ 3,694 $ 2,262 $27,830 $ -0- $ -0- 279,873 .80%
========= ========= ========= ======== ========= =========
REO general valuation allowance (570) (.00)
--------- ------
Total nonperforming assets $279,303 .80%
========= ======
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The March 31, 1999 balances include loans that were securitized into FNMA
MBS.
(c) Includes states with loans less than 1.5% of total loans.
The Company provides specific valuation allowances for losses on loans when
impaired, and on real estate owned when any significant and permanent decline in
value is identified. The Company also utilizes a methodology for monitoring and
estimating loan losses and recourse obligations that is based on both historical
experience in the loan portfolio and factors reflecting current economic
conditions. This approach uses a database that identifies losses on loans and
foreclosed real estate from past years to the present, broken down by year of
origination, type of loan, and geographical area. Management is then able to
estimate a range of general loss allowances to cover losses in the portfolio. In
addition, periodic reviews are made of major loans and real estate owned, and
major lending areas are regularly reviewed to determine potential problems.
Where indicated, valuation allowances are established or adjusted. In estimating
possible losses, consideration is given to the estimated sale price, cost of
refurbishing the security property, payment of delinquent taxes, cost of
disposal, and cost of holding the property. Additions to and reductions from the
allowances are reflected in current earnings.
The table below shows the changes in the allowance for loan losses for the
three months ended March 31, 2000 and 1999.
TABLE 13
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended
March 31
------------------------
2000 1999
---------- -----------
Beginning allowance for loan losses $ 232,134 $ 244,466
Provision for losses charged to expense 969 574
Net transfer of allowance (to) from reserve for losses
on loans sold or securitized and retained 187 (9,750)
Less loans charged off (351) -0-
Add recoveries 77 1,186
---------- -----------
Ending allowance for loan losses $ 233,016 $ 236,476
========== ===========
Ratio of net chargeoffs (recoveries) to average loans
outstanding (including MBS with recourse) .00% (.01%)
As previously mentioned, the Company has securitized loans from its
portfolio into FNMA MBS with recourse and MBS-REMICs. The Company's intent is to
hold these MBS and MBS-REMICs to maturity. Because the loans underlying the MBS
and MBS-REMICs are similar to the loans in its loan portfolio, the Company
estimates its reserve on these securities in a manner similar to the method it
uses for the allowance for loan losses. The Company also sells loans with full
credit recourse and has established a reserve for potential losses on these
loans. The liability for this reserve for losses on loans sold or securitized
and retained is included in accounts payable and accrued expenses.
The table below shows the changes in the reserve for losses on loans sold
or securitized and retained for the three months ended March 31, 2000 and 1999.
TABLE 14
Changes in Reserve for Losses on Loans Sold with Recourse or Securitized and Retained
(Dollars in thousands)
Three Months Ended
March 31
------------------------
2000 1999
---------- -----------
Beginning balance of reserve for losses on loans
sold with recourse or securitized and retained $ 15,572 $ 2,256
Initial recourse liability recognized at time of sale 53 543
Net transfer from (to) allowance for loan losses (187) 9,750
---------- -----------
Ending balance of reserve for losses on loans
sold with recourse or securitized and retained $ 15,438 $ 12,549
========== ===========
The ratio to nonperforming assets of the allowance for loan losses and the
reserve for losses on loans sold or securitized and retained was 107.0% and
89.2% at March 31, 2000 and 1999, respectively. At March 31, 2000 and 1999, the
ratio to total loans (including MBS with recourse and MBS-REMICs) and loans sold
with recourse of the allowance for loan losses and the reserve for losses on
loans sold or securitized and retained was .57% and .69%, respectively.
DEPOSITS
Retail deposits increased during the first quarter of 2000 by $109 million,
including interest credited of $268 million, compared to an increase of $176
million, including interest credited of $246 million, in the first quarter of
1999. Retail deposits increased during the first three months of 2000 and 1999
primarily due to interest credited. At March 31, 2000 and 1999, transaction
accounts (which includes checking, passbook, and money market accounts)
represented 34% and 37%, respectively, of the total balance of deposits.
The Company has a program to use government securities dealers to sell
certificates of deposit (CDs) to institutional investors. The Company's deposit
balance as of March 31, 2000 and December 31, 1999 included $750 million and
$600 million, respectively, of these wholesale CDs. There were no outstanding
wholesale CDs at March 31, 1999.
The table below shows the Company's deposits by interest rate and by
remaining maturity at March 31, 2000 and 1999.
TABLE 15
Deposits
(Dollars in millions)
March 31
---------------------------------------------------
2000 1999
------------------------ ------------------------
Rate* Amount Rate* Amount
--------- ----------- ------------------------
Deposits by rate:
Interest-bearing checking accounts 3.10% $ 128 2.15% $ 113
Interest-bearing checking accounts swept
into money market deposit accounts 3.50 3,322 3.56 2,918
Passbook accounts 1.47 482 1.82 517
Money market deposit accounts 4.30 5,483 4.42 6,273
Term certificate accounts with original maturities of:
4 weeks to 1 year 5.32 8,697 4.49 5,543
1 to 2 years 5.28 6,155 5.03 7,592
2 to 3 years 5.36 1,360 5.34 1,438
3 to 4 years 5.41 394 5.26 357
4 years and over 5.64 580 5.62 1,097
Retail jumbo CDs 5.20 623 4.79 547
Wholesale CDs 5.97 750 0.00 -0-
----------- ------------
$ 27,974 $ 26,395
=========== ============
2000 1999
----------- ------------
Deposits by remaining maturity:
No contractual maturity 3.85% $ 9,415 4.00% $ 9,821
Maturity within one year 5.29 16,022 4.89 15,024
1 to 5 years 5.70 2,506 5.12 1,547
Over 5 years 5.13 31 5.22 3
----------- ------------
$ 27,974 $ 26,395
=========== ============
* Weighted average interest rate, including the impact of interest rate swaps.
At March 31, the weighted average cost of deposits was 4.84% (2000) and
4.58% (1999).
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses borrowings from FHLBs, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities.
Advances are secured by pledges of certain loans, MBS-REMICs, other MBS, and
capital stock of FHLBs. FHLB advances amounted to $12.2 billion at March 31,
2000, compared to $6.1 billion and $8.9 billion at March 31, 1999, and December
31, 1999, respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are sold
under agreements to repurchase (Reverse Repos). Reverse Repos are entered into
with selected major government securities dealers and large banks, typically
using MBS from the Company's portfolio. Reverse Repos with dealers and banks
amounted to $867 million, $693 million, and $1.0 billion at March 31, 2000 and
1999, and December 31, 1999, respectively.
OTHER BORROWINGS
At March 31, 2000, Golden West, at the holding company level, had a total
of $713 million of subordinated debt issued and outstanding. As of March 31,
2000, the Company's subordinated debt securities were rated A3 and A- by Moody's
Investors Service (Moody's) and Standard & Poor's Corporation (S&P),
respectively.
During November 1996, WFSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of March 31, 2000, WFSB had not issued any notes
under this authority.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased by $18 million during the
first three months of 2000 as a result of net earnings partially offset by
decreased market values of securities available for sale, the payment of
quarterly dividends to stockholders, and the $92 million cost of the repurchase
of Company stock. The Company's stockholders' equity increased by $36 million
during the first three months of 1999 as a result of net earnings partially
offset by decreased market values of securities available for sale, the payment
of quarterly dividends to stockholders, and the $58 million cost of the
repurchase of Company stock. Unrealized gains, net of taxes, on securities and
MBS available for sale included in stockholders' equity at March 31, 2000 and
1999, and December 31, 1999, were $149 million, $194 million, and $158 million,
respectively.
In November 1999, the Company effected a three-for-one split of its
outstanding Common Stock in the form of a 200% stock dividend. This dividend was
payable December 10, 1999, to holders of record at the close of business on
November 15, 1999. Per share amounts in this 10-Q filing have been restated to
reflect this stock dividend unless otherwise noted.
Since 1993, through four separate actions, Golden West's Board of Directors
has authorized the purchase by the Company of up to 44.7 million shares of
Golden West's common stock. As of March 31, 2000, 42.4 million shares had been
repurchased and retired at a cost of $898 million since October 1993, of which
3.1 million shares were purchased and retired at a cost of $92 million during
the first three months of 2000. Dividends from subsidiaries are expected to
continue to be the major source of funding for the stock repurchase program. The
purchase of Golden West stock is not intended to have a material impact on the
normal liquidity of the Company.
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as WFSB and WSL, to
meet certain minimum capital requirements. The following table shows WFSB's
regulatory capital ratios and compares them to the OTS minimum requirements at
March 31, 2000 and 1999.
TABLE 16
World Savings Bank, FSB
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 2000 March 31, 1999
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ---------- --------- ---------- --------
Tangible $2,611,550 6.29% $ 622,922 1.50% $2,247,752 7.04% $ 479,213 1.50%
Core 2,611,550 6.29 1,661,124 4.00 2,247,752 7.04 1,277,900 4.00
Risk-based 2,770,849 11.57 1,916,541 8.00 2,391,623 13.18 1,451,557 8.00
The following table shows WSL's current regulatory capital ratios and
compares them to the OTS minimum requirements at March 31, 2000 and 1999.
TABLE 17
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 2000 March 31, 1999
------------------------------------------------- ------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ----------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ----------- -------- ----------- --------
Tangible $ 411,893 8.65% $ 71,398 1.50% $ 507,282 8.21% $ 92,662 1.50%
Core 411,893 8.65 190,394 4.00 507,282 8.21 247,099 4.00
Risk-based 441,532 16.93 208,611 8.00 648,252 18.23 284,464 8.00
In addition, institutions whose exposure to interest rate risk, as
determined by the OTS, is deemed to be above normal may be required to hold
additional risk-based capital. The OTS has determined that neither WFSB nor WSL
has above-normal exposure to interest rate risk.
The OTS has adopted rules based upon five capital tiers: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The determination of whether an association falls
into a certain classification depends primarily on its capital ratios. As of
March 31, 2000, the most recent notification from the OTS categorized both WFSB
and WSL as "well-capitalized" under the current requirements. There are no
conditions or events that have occurred since that notification that the Company
believes would have an impact on the categorization of either WFSB or WSL.
The table below shows that WFSB's regulatory capital exceeded the
requirements of the well-capitalized classification at March 31, 2000.
TABLE 18
World Savings Bank, FSB
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
------------------------ --------------------------
Capital Ratio Capital Ratio
----------- ---------- ------------ -----------
Leverage $ 2,611,550 6.29% $ 2,076,405 5.00%
Tier 1 risk-based 2,611,550 10.90 2,491,686 6.00
Total risk-based 2,770,849 11.57 2,395,677 10.00
The table below shows that WSL's regulatory capital exceeded the
requirements of the well-capitalized classification at March 31, 2000.
TABLE 19
World Savings and Loan Association
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
------------------------ --------------------------
Capital Ratio Capital Ratio
----------- ---------- ------------ -----------
Leverage $ 411,893 8.65% $ 237,993 5.00%
Tier 1 risk-based 411,893 15.80 285,591 6.00
Total risk-based 441,532 16.93 260,763 10.00
World Savings Bank, SSB is regulated by the FDIC and the state of Texas. At
March 31, WSSB had the following regulatory capital calculated in accordance
with the FDIC's capital standards:
TABLE 20
World Savings Bank, SSB
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 2000 March 31, 1999
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- -------- ----------- --------- ---------- --------- ----------- ---------
Tier 1 leverage $ 206,952 5.64% $ 110,157 3.00% $ 190,175 5.35% $ 106,643 3.00%
Tier 1 risk-based 206,952 24.42 33,895 4.00 190,175 25.78 29,505 4.00
Total risk-based 207,188 24.45 67,789 8.00 190,389 25.81 59,011 8.00
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings for the three months ended March 31, 2000 were $126 million
compared to net earnings of $120 million, for the three months ended March 31,
1999. Net earnings increased in 2000 as compared to 1999 primarily as a result
of increased net interest income which was partially offset by an increase in
general and administrative expenses.
SPREAD
An important determinant of the Company's earnings is its primary spread --
the difference between its yield on earning assets and its cost of funds. The
table below shows the components of the Company's spread at March 31, 2000 and
1999 and December 31, 1999.
TABLE 21
Yield on Earning Assets,
Cost of Funds, and Primary Spread
March 31
---------------------------- December 31
2000 1999 1999
------------ ------------ -------------
Yield on loan portfolio 7.36% 7.25% 7.16%
Yield on MBS 7.36 7.02 7.17
Yield on investments 6.38 5.55 5.88
--------- --------- ---------
Yield on earning assets 7.33 7.14 7.15
--------- --------- ---------
Cost of deposits 4.84 4.58 4.69
Cost of borrowings 5.94 5.73 5.77
--------- ---------
---------
Cost of funds 5.21 4.85 5.00
--------- --------- ---------
Primary spread 2.12% 2.29% 2.15%
========= ========= =========
The Company holds ARMs in order to manage the rate sensitivity of the asset
side of the balance sheet. The yield on the Company's ARM portfolio tends to lag
changes in market interest rates because of lags related to the index and
because of certain loan features. These features include introductory fixed
rates on new ARM loans, the interest rate adjustment frequency of ARM loans,
interest rate caps or limits on individual rate changes, and interest rate
floors. Most of the Company's ARMs have interest rates that change in accordance
with an index based on the cost of deposits and borrowings of savings
institutions that are members of the FHLB of San Francisco (the COFI).
Additionally, the Company originates loans that are tied to the Golden West Cost
of Savings Index (COSI). As previously discussed, there is a two month reporting
lag for the COFI and a one month reporting lag for COSI. On balance, the index
lags and ARM structural features cause the Company's assets initially to reprice
more slowly than its liabilities, resulting in a temporary reduction in net
interest income when rates increase and a temporary increase in net interest
income when rates fall.
TABLE 22
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
------------------------------- -------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances Yield Yield Balances Yield Yield
---------- ---------- ------- ----------- --------- -------
ASSETS
Investment Securities $ 2,361,747 6.05% 6.38% $ 3,137,843 5.05% 5.55%
Mortgage-backed securities 11,561,376 7.31% 7.36% 9,616,161 7.02% 7.02%
Loans receivable (a) 29,254,773 7.34% 7.36% 26,091,677 7.30% . 7.25%
Invest. in capital stock 576,197 5.87% 5.83% 787,243 5.25% 5.32%
of FHLBs
---------- ---------- ----------- ---------
Interest-earning assets $43,754,093 7.25% $39,632,924 7.01%
========== ========== =========== =========
LIABILITIES
Deposits:
Checking accounts $ 121,679 2.28% 3.10% $ 101,954 2.10% 2.15%
Savings accounts 9,381,502 3.89% 3.86% 9,417,551 3.87% 4.03%
Term accounts 19,124,735 5.19% 5.34% 17,529,218 4.93% 4.91%
---------- ---------- ------- ----------- --------- -------
Total deposits 28,627,916 4.75% 4.84% 27,048,723 4.55% 4.58%
Advances from FHLBs 9,971,321 5.80% 5.87% 6,139,080 5.65% 5.50%
Reverse repurchases 1,190,630 5.60% 5.57% 1,028,059 5.27% 5.31%
Other borrowings 1,259,344 6.91% 7.69% 2,444,971 5.95% 6.97%
---------- ---------- ----------- ---------
Interest-bearing $41,049,211 5.10% $36,660,833 4.85%
liabilities
========== ========== =========== =========
Annualized net interest 2.15% 2.16%
spread
========== =========
Net interest income $ 269,631 $ 250,701
========== ===========
Annualized net yield on
average interest-earning
assets 2.46% 2.53%
========== =========
(a) Includes nonaccrual loans (90 days or more past due).
The following table shows the Company's revenues and expenses as a
percentage of total revenues for the three months ended March 31, 2000 and 1999.
TABLE 23
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended
March 31
-----------------------
2000 1999
--------- ---------
Interest on loans 65.0% 65.3%
Interest on mortgage-backed securities 25.6 23.1
Interest and dividends on investments 5.3 6.8
--------- ---------
95.9 95.2
Less:
Interest on deposits 41.2 42.1
Interest on advances and other borrowings 22.1 18.7
--------- ---------
63.3 60.8
Net interest income 32.6 34.4
Provision for loan losses .1 .1
--------- ---------
Net interest income after provision for loan losses 32.5 34.3
Add:
Fees 2.0 2.2
Gain on the sale of securities, MBS, and loans 0.2 1.4
Other non-interest income 1.9 1.2
--------- ---------
4.1 4.8
Less:
General and administrative expenses 12.1 12.7
Taxes on income 9.2 9.9
--------- ---------
Net earnings 15.3% 16.5%
========= =========
INTEREST RATE SWAPS
The Company enters into interest rate swaps as a part of its interest rate
risk management strategy. Such instruments are entered into solely to alter the
repricing characteristics of designated assets and liabilities. The Company does
not hold any derivative financial instruments for trading purposes.
Interest rate swap activity increased net interest income by $1.2 million
for the three months ended March 31, 2000, as compared to a decrease of $2.7
million for the same period in 1999.
The following table summarizes the unrealized gains and losses for interest
rate swaps at March 31, 2000 and 1999.
TABLE 24
Schedule of Unrealized Gains and Losses on Interest Rate Swaps
(Dollars in thousands)
March 31, 2000 March 31, 1999
---------------------------------------- ----------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain (Loss) Gains Losses Gain (Loss)
------------ ------------ ------------ ------------ ------------ ------------
Interest rate swaps:
Receive fixed $ 6 $ (2,928) $ (2,922) $ 5,021 $ -0- $ 5,021
Pay fixed 9,239 (4,104) 5,135 108 (31,978) (31,870)
------------ ------------ ------------ ------------ ------------ -------------
$ 9,245 $ (7,032) $ 2,213 $ 5,129 $ (31,978) $ (26,849)
============ ============ ============ ============ ============ =============
TABLE 25
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Three Months Ended
March 31, 2000
----------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------ ------------
Balance at December 31, 1999 $ 263 $ 727
Additions -0- -0-
Maturities (20) (5)
------------ ------------
Balance at March 31, 2000 $ 243 $ 722
============ ============
The range of floating interest rates received on swap contracts in the
first three months of 2000 was 5.98% to 6.44%, and the range of floating
interest rates paid on swap contracts was 6.00% to 6.26%. The range of fixed
interest rates received on swap contracts in the first three months of 2000 was
5.50% to 8.85% and the range of fixed interest rates paid on swap contracts was
5.50% to 7.06%.
INTEREST ON LOANS
In the first quarter of 2000, interest on loans was higher than in the
comparable 1999 period by $61 million or 12.8%. The increase in the first
quarter of 2000 was due to a $3.1 billion increase in the average portfolio
balance and a nine basis point increase in the average portfolio yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the first quarter of 2000, interest on mortgage-backed securities was
higher than in the comparable 1999 period by $43 million or 25.2%. The 2000
increase was due primarily to a $2.0 billion increase in the average portfolio
balance and a 22 basis point increase in the average portfolio yield. The
increase in the mortgage-backed securities portfolio is primarily due to the
securitization of loans into FNMA MBS and MBS-REMICs, as discussed on page 13.
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 quarter of 2000, interest and dividends on investments was lower than
in the comparable 1999 period by $6 million or 11.6%. The decrease was primarily
due to a $776 million decrease in the average portfolio balance, which was
partially offset by a 93 basis point increase in the average portfolio yield.
INTEREST ON DEPOSITS
In the first quarter of 2000, interest on deposits increased by $32 million
or 10.5% from the comparable period in 1999. The first quarter increase was due
to a $1.6 billion increase in the average balance of deposits and a 14 basis
point increase in the average cost of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the first quarter of 2000, interest on advances and other borrowings
increased by $46 million or 33.8% from the comparable period of 1999. The first
quarter increase was primarily due to a $2.7 billion increase in the average
balance and a 24 basis point increase in the average cost of these borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $969 thousand for the three months ended
March 31, 2000, compared to $574 thousand for the same period in 1999. The low
provisions in 2000 and 1999 were due to declining nonperforming assets as a
result of the strong housing market and economy.
GENERAL AND ADMINISTRATIVE EXPENSES
For the first quarter of 2000, general and administrative expenses (G&A)
were $100 million compared to $93 million for the comparable period in 1999. G&A
as a percentage of average assets on an annualized basis was .92% for the first
quarter of 2000 compared to .97% for the same period in 1999. G&A expenses
increased in 2000 because of ongoing investments in personnel, facilities, and
technology.
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses purchase accounting in connection with
certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Taxes as a percentage of earnings were 37.7% for the first quarter of 2000
compared to 37.4% for the same period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
WFSB's principal sources of funds are cash flows generated from earnings;
deposits; loan repayments; sales of loans; wholesale certificates of deposit;
borrowings from the FHLB; investments and borrowings from its affiliates; debt
collateralized by mortgages, MBS, or securities; and the issuance of medium-term
notes. In addition, WFSB has other alternatives available to provide liquidity
or finance operations including federal funds purchased, borrowings from public
offerings of debt, issuances of commercial paper, and borrowings from commercial
banks. Furthermore, under certain conditions, WFSB 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 WFSB's
liquidity positions at March 31, 2000, and 1999, and December 31, 1999, see the
Cash and Investments section on page 12.
WSL's principal sources of funds are cash flows generated from earnings;
deposits; loan repayments; borrowings from the FHLB; and debt collateralized by
mortgages, MBS, or securities. In addition, WSL has a number of other
alternatives available to provide liquidity or finance operations. These include
federal funds purchased, borrowings from its affiliates, borrowings from public
offerings of debt, sales of loans, wholesale certificates of deposit, issuances
of commercial paper, and borrowings from commercial banks. Furthermore, under
certain conditions, WSL 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 WSL's liquidity
positions at March 31, 2000, and 1999, and December 31, 1999, see the Cash and
Investments section on page 12.
WSSB's principal sources of funds are cash flows generated from earnings;
deposits; loan repayments; borrowings from the FHLB Dallas; debt collateralized
by mortgages or securities; and borrowings from affiliates.
The principal sources of funds for WFSB's, WSL's, and WSSB's parent, Golden
West, are dividends from subsidiaries, interest on investments, and the proceeds
from the issuance of debt and equity securities. Various statutory and
regulatory restrictions and tax considerations limit the amount of dividends
WFSB and WSL can pay. The principal liquidity needs of Golden West are for
payment of interest and principal on subordinated debt securities, capital
contributions to its insured subsidiaries (including $117 thousand for the year
ended December 31, 1999), dividends to stockholders, the purchase of Golden West
stock (see stockholders' equity section on page 24), and general and
administrative expenses. At March 31, 2000 and 1999, and December 31, 1999,
Golden West's total cash and investments amounted to $575 million, $848 million,
and $761 million, respectively. Included in the cash and investments above are
notes receivable from WFSB in the amounts of $500 million at March 31, 2000,
$600 million at March 31, 1999, and $604 million at December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Golden West estimates the sensitivity of the Company's net interest income,
net earnings, and capital ratios to interest rate changes and anticipated growth
based on simulations using an asset/liability model which takes into account the
lags described on pages 11 and 28. The simulation model projects net interest
income, net earnings, and capital ratios based on an immediate interest rate
increase that is sustained for a thirty-six month period. The model is based on
the actual maturity and repricing characteristics of interest-rate sensitive
assets and liabilities. For certain assets, the model incorporates assumptions
regarding the impact of changing interest rates on prepayment rates which are
based on the Company's historical prepayment information. The model factors in
projections for anticipated activity levels by product lines offered by the
Company. Based on the information and assumptions in effect at March 31, 2000,
Management believes that a 200 basis point rate increase sustained over a
thirty-six month period would not affect the Company's long-term profitability
and financial strength.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) May 2, 2000 - Annual Meeting
Broker
For Against Withheld Abstain Non-Vote
---------------- ------------ ------------ ------------ ------------
(b) Directors elected:
Maryellen B. Cattani 145,651,076 751,737
Kenneth T. Rosen 145,650,176 752,637
Herbert M. Sandler 145,651,376 751,437
(c) Ratification of Auditors:
Appointment of Deloitte & Touche
LLP, independent public accountants,
for the fiscal year 2000 145,992,329 52,803 357,681
Other Directors continuing in office are:
Louis J. Galen, Antonia Hernandez, Patricia A. King, Bernard A. Osher, Marion O.
Sandler, and Leslie Tang Schilling
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Description
----------- ------------
3(a) Certificate of Incorporation, as amended, and amendments
thereto, are incorporated by reference to Exhibit 3(a) to
the Company's Annual Report on Form 10-K (File No. 1-4269)
for the year ended December 31, 1990.
3(b) By-Laws of the Company, as amended in 1997, are incorporated
by reference to Exhibit 3(a) to the Company's Annual Report
on Form 10-K (File No. 1-4269) for the year ended December
31, 1997.
4(a) The Registrant agrees to furnish to the Commission, upon
request, a copy of each instrument with respect to issues of
long-term debt, the authorized principal amount of which
does not exceed 10% of the total assets of the Company.
10(a)1996 Stock Option Plan, as amended, is incorporated by
reference to Exhibit A of the Company's Definitive Proxy
Statement on Schedule 14A, filed on March 15, 1996, for the
Company's 1996 Annual Meeting of Stockholders.
10(b)Annual Incentive Bonus Plan is incorporated by reference to
Exhibit A of the Company's Definitive Proxy Statement on
Schedule 14A, filed on March 16, 1998, for the Company's
1998 Annual Meeting of Stockholders.
10(c)Deferred Compensation Agreement between the Company and
James T. Judd is incorporated by reference to Exhibit 10(b)
of the Company's Annual Report on Form 10-K (File No.
1-4629) for the year ended December 31, 1986.
10(d)Deferred Compensation Agreement between the Company and
Russell W. Kettell is incorporated by reference to Exhibit
10(c) of the Company's Annual Report on Form 10-K (File No.
1-4629) for the year ended December 31, 1986.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
(a) Index To Exhibits (continued)
Exhibit No. Description
---------- -----------
10(e)Form of Supplemental Retirement Agreement between the
Company and certain executive officers is incorporated by
reference to Exhibit 10(j) to the Company's Annual Report on
Form 10-K (File No. 1-4629) for the year ended December 31,
1990.
10(f)Operating lease on Company headquarters building, 1901
Harrison Street, Oakland, California 94612, is incorporated
by reference to Exhibit 10(h) of the Company's Quarterly
Report on Form 10-Q (File No. 1-4629) for the quarter ended
September 30, 1998.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K with the
Commission during the first three months of 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: May 15, 2000 /s/ Russell W. Kettell
----------------------------------------
Russell W. Kettell
President and
Chief Financial Officer
/s/ William C. Nunan
----------------------------------------
William C. Nunan
Chief Accounting Officer