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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Incorporated Pursuant to the Laws of Delaware State
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Internal Revenue Service - Employer Identification No. 95-2080059
1901 Harrison Street, Oakland, California 94612
(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 [ ]
The number of shares outstanding of the registrant's common stock
as of July 31, 2001:
Common Stock -- 158,931,557 shares.
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GOLDEN WEST FINANCIAL CORPORATION
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION ________
______________________________
Item 1. Financial Statements
Consolidated Statement of Financial Condition -
June 30, 2001 and 2000 and December 31, 2000..........................................1
Consolidated Statement of Net Earnings -
For the three and six months ended June 30, 2001 and 2000.............................2
Consolidated Statement of Cash Flows -
For the three and six months ended June 30, 2001 and 2000.............................3
Consolidated Statement of Stockholders' Equity -
For the six months ended June 30, 2001 and 2000.......................................5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation......6
New Accounting Pronouncements.............................................................7
Financial Highlights......................................................................8
Financial Condition......................................................................10
Cash and Investments.....................................................................12
Loans Receivable and Mortgage-Backed Securities..........................................12
Mortgage Servicing Rights................................................................18
Asset Quality............................................................................19
Deposits.................................................................................21
Advances from Federal Home Loan Banks....................................................23
Securities Sold Under Agreements to Repurchase...........................................23
Other Borrowings.........................................................................23
Stockholders' Equity.....................................................................23
Regulatory Capital.......................................................................24
Results of Operations....................................................................26
Liquidity and Capital Resources..........................................................33
Item 3. Quantitative and Qualitative Disclosures about Market Risk...............................34
PART II - OTHER INFORMATION
___________________________
Item 6. Exhibits and Reports on Form 8-K........................................................35
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 and six months ended
June 30, 2001 and 2000 are unaudited. In the opinion of the Company, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair statement of the results for such three and six-month periods have
been included. The operating results for the three and six months ended June 30,
2001 are not necessarily indicative of the results for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
June 30 December 31 June 30
2001 2000 2000
------------- -------------- -------------
(Unaudited) (Unaudited)
------------- -------------
Assets
Cash $ 439,590 $ 350,430 $ 254,442
Securities available for sale at fair value 672,055 392,841 234,629
Other investments at cost 375 368,555 302,252
Purchased mortgage-backed securities available for sale 218,876 69,960 71,113
Purchased mortgage-backed securities held to maturity 337,212 385,543 410,054
Mortgage-backed securities with recourse held to maturity 17,657,738 18,124,987 13,651,191
Loans receivable 35,511,200 33,762,643 31,683,917
Interest earned but uncollected 268,954 276,306 218,351
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 1,074,756 1,067,800 783,667
Foreclosed real estate 8,472 8,261 9,608
Premises and equipment--at cost less accumulated depreciation 316,760 307,652 299,039
Other assets 925,555 588,991 929,621
------------- -------------- -------------
$ 57,431,543 $ 55,703,969 $ 48,847,884
============= ============== =============
Liabilities and Stockholders' Equity
Deposits $ 31,491,959 $ 30,047,919 $ 27,726,782
Advances from Federal Home Loan Banks 18,945,452 19,731,797 15,231,522
Securities sold under agreements to repurchase 851,197 857,274 1,160,536
Bank notes 634,951 -0- -0-
Subordinated notes--net of discount 599,148 598,791 713,377
Taxes on income 471,232 432,207 332,104
Other liabilities 385,474 348,694 373,852
Stockholders' equity 4,052,130 3,687,287 3,309,711
------------- -------------- -------------
$ 57,431,543 $ 55,703,969 $ 48,847,884
============= ============== =============
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ------------- ------------
Interest Income
Interest on loans $ 672,823 $ 595,615 $ 1,377,647 $ 1,132,702
Interest on mortgage-backed securities 371,669 231,982 737,266 443,299
Interest and dividends on investments 53,252 64,795 117,014 108,945
----------- ----------- ------------- ------------
1,097,744 892,392 2,231,927 1,684,946
Interest Expense
Interest on deposits 406,117 358,313 836,865 698,323
Interest on advances 239,572 206,925 533,008 351,415
Interest on repurchase agreements 14,537 21,969 32,226 38,633
Interest on other borrowings 34,217 24,658 63,932 46,417
----------- ----------- ------------- ------------
694,443 611,865 1,466,031 1,134,788
----------- ----------- ------------- ------------
Net Interest Income 403,301 280,527 765,896 550,158
Provision for loan losses 5,641 3,842 8,824 4,811
----------- ----------- ------------- ------------
Net Interest Income after Provision for Loan Losses 397,660 276,685 757,072 545,347
Noninterest Income
Fees 42,721 18,445 74,033 34,687
Gain on the sale of securities and loans 7,883 1,833 13,760 3,271
Change in fair value of derivatives 1,588 -0- (5,914) -0-
Other 14,636 19,647 28,272 35,458
----------- ----------- ------------- ------------
66,828 39,925 110,151 73,416
Noninterest Expense
General and administrative:
Personnel 72,002 58,125 140,198 115,405
Occupancy 19,480 17,549 39,289 34,607
Deposit insurance 1,418 1,442 2,804 2,854
Advertising 3,048 1,488 4,925 3,662
Other 29,167 23,783 55,316 45,819
----------- ----------- ------------- ------------
125,115 102,387 242,532 202,347
Earnings before Taxes on Income and
Cumulative Effect of Accounting Change 339,373 214,223 624,691 416,416
Taxes on income 130,444 80,961 239,683 157,220
----------- ----------- ------------- ------------
Income before Cumulative Effect of Accounting Change 208,929 133,262 385,008 259,196
Cumulative effect of accounting change, net of tax -0- -0- (6,018) -0-
----------- ----------- ------------- ------------
Net Earnings $ 208,929 $ 133,262 $ 378,990 $259,196
=========== =========== ============= ============
Basic Earnings Per Share before
Cumulative Effect of Accounting Change $ 1.32 $ .84 $ 2.43 $ 1.63
Cumulative effect of accounting change, net of tax .00 .00 (.04) .00
----------- ----------- ------------- ------------
Basic Earnings Per Share $ 1.32 $ .84 $ 2.39 $ 1.63
=========== =========== ============= ============
Diluted Earnings Per Share before
Cumulative Effect of Accounting Change $ 1.30 $ .84 $ 2.40 $ 1.62
Cumulative effect of accounting change, net of tax .00 .00 (.04) .00
----------- ----------- ------------- ------------
Diluted Earnings Per Share $ 1.30 $ .84 $ 2.36 $ 1.62
=========== =========== ============= ============
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- ----------------------------
2001 2000 2001 2000
------------- ----------- ------------ ------------
Cash Flows from Operating Activities
Net earnings $ 208,929 $ 133,262 $ 378,990 $ 259,196
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for loan losses 5,641 3,842 8,824 4,811
Amortization of loan (fees), costs, and (discounts) 6,276 1,973 11,090 2,944
Depreciation and amortization 7,967 7,333 16,262 14,367
Loans originated for sale (671,234) (59,709) (893,426) (114,455)
Sales of loans 712,205 62,787 986,777 135,296
Decrease (increase) in interest earned but uncollected 6,215 (24,635) 5,873 (40,270)
Federal Home Loan Bank stock dividends (15,137) (17,479) (32,245) (25,259)
Increase in other assets (109,309) (160,140) (336,795) (494,859)
Increase in accounts payable and accrued expenses 29,193 71,254 36,913 188,609
Increase (decrease) in taxes on income (55,639) (3,856) 41,157 72,175
Other, net (6,153) (5,629) (14,074) (7,063)
------------- ----------- ------------ ------------
Net cash provided by (used in) operating activities 118,954 9,003 209,346 (4,508)
Cash Flows from Investing Activities
New loan activity:
New real estate loans originated for portfolio (4,957,486) (5,615,895) (8,529,304) (9,327,560)
Real estate loans purchased -0- (10) -0- (195)
Other, net (110,010) (67,008) (183,985) (110,354)
------------- ----------- ------------ ------------
(5,067,496) (5,682,913) (8,713,289) (9,438,109)
Real estate loan principal payments:
Monthly payments 135,532 136,796 254,581 277,249
Payoffs, net of foreclosures 2,512,510 1,050,072 4,025,875 1,846,865
------------- ----------- ------------ ------------
2,648,042 1,186,868 4,280,456 2,124,114
Purchase of mortgage-backed securities (123,520) -0- (161,983) -0-
Repayments of mortgage-backed securities 2,057,621 547,467 3,090,747 1,032,943
Proceeds from sales of real estate 8,110 11,857 17,629 24,668
Decrease (increase) in securities available for sale (278,656) 203,557 (278,669) 51,554
Decrease in other investments 199,498 786,247 368,180 164,904
Purchases of Federal Home Loan Bank stock -0- (140,657) -0- (262,920)
Redemptions of Federal Home Loan Bank stock 26,175 42,795 26,768 42,795
Additions to premises and equipment (14,868) (17,613) (25,673) (36,017)
------------- ----------- ------------ ------------
Net cash used in investing activities (545,094) (3,062,392) (1,395,834) (6,296,068)
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- ----------------------------
2001 2000 2001 2000
------------- ----------- ------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in deposits (a) $ 135,000 $ (247,470) $ 1,444,040 $ 11,872
Additions to Federal Home Loan Bank advances 467,860 3,515,420 881,550 7,632,070
Repayments of Federal Home Loan Bank advances (459,197) (507,972) (1,667,895) (1,315,767)
Proceeds from agreements to repurchase securities 1,205,285 2,400,087 3,506,242 3,107,074
Repayments of agreements to repurchase securities (1,208,595) (2,106,600) (3,512,319) (2,991,714)
Decrease in federal funds purchased (270,000) -0- -0- -0-
Increase in bank notes 634,923 -0- 634,923 -0-
Repayment of subordinated debt -0- -0- -0- (100,000)
Dividends on common stock (9,920) (8,288) (19,824) (16,694)
Exercise of stock options 6,702 2,494 8,931 3,681
Purchase and retirement of Company stock -0- (17,507) -0- (109,297)
------------- ----------- ------------ ------------
Net cash provided by financing activities 502,058 3,030,164 1,275,648 6,221,225
------------- ----------- ------------ ------------
Net Increase (Decrease) in Cash 75,918 (23,225) 89,160 (79,351)
Cash at beginning of period 363,672 277,667 350,430 333,793
------------- ----------- ------------ ------------
Cash at end of period $ 439,590 $ 254,442 $ 439,590 $ 254,442
============= =========== ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 713,127 $ 587,439 $ 1,502,524 $ 1,074,974
Income taxes 186,100 84,818 194,856 85,165
Cash received for interest and dividends 1,105,489 875,027 2,239,279 1,641,946
Noncash investing activities:
Loans converted from adjustable rate to fixed-rate 190,117 8,426 202,113 16,447
Loans transferred to foreclosed real estate 8,806 9,382 16,706 21,112
Loans securitized into mortgage-backed securities
with recourse held to maturity -0- 3,249,414 2,995,949 3,562,114
Loans securitized into mortgage-backed securities
with recourse held to maturity recorded as loans
receivable per SFAS 140 3,004,577 -0- 3,004,577 -0-
(a) Includes a decrease of $626 million of wholesale deposits for the quarter
ended June 30, 2001 and a decrease of $750 million of wholesale deposits
for the quarter ended June 30, 2000. Includes a decrease of $66 million of
wholesale deposits for the six months ended June 30, 2001 and a decrease of
$600 million of wholesale deposits for the six months ended June 30, 2000.
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Six Months Ended June 30, 2001
-----------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
----------- ------------ ------------ ----------------- ----------------- -----------------
Balance at January 1, 2001 $ 15,841 $ 151,458 $ 3,287,325 $ 232,663 $ 3,687,287
Comprehensive income:
Net earnings -0- -0- 378,990 -0- 378,990 $ 378,990
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (3,254) (3,254) (3,254)
-----------------
Comprehensive Income $ 375,736
=================
Common stock issued upon
exercise of stock options 47 8,884 -0- -0- 8,931
Cash dividends on common
stock ($.125 per share) -0- -0- (19,824) -0- (19,824)
----------- ------------ ------------ ----------------- -----------------
Balance at June 30, 2001 $ 15,888 $ 160,342 $ 3,646,491 $ 229,409 $ 4,052,130
=========== ============ ============ ================= =================
For the Six Months Ended June 30, 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- 259,196 -0- 259,196 $ 259,196
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (22,029) (22,029) (22,029)
----------------
Comprehensive Income $ 237,167
================
Common stock issued upon
exercise of stock options 26 3,655 -0- -0- 3,681
Purchase and retirement of
Company stock (367) -0- (108,930) -0- (109,297)
Cash dividends on common
stock ($.105 per share) -0- -0- (16,694) -0- (16,694)
---------- ------------ ------------ ------------------ --------------
Balance at June 30, 2000 $ 15,795 $ 139,210 $ 3,018,918 $ 135,788 $ 3,309,711
========== ============ ============ ================== ==============
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, 2000,
as well as material changes in results of operations during the three and six
month periods ended June 30, 2001 and 2000, respectively.
The following narrative is written with the presumption that the users have
read or have access to the Company's 2000 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, 2000, and for the year then ended. Therefore, only
material changes in financial condition and results of operations are discussed
herein.
This report may contain 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. 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, forward-looking statements are subject to change. Actual results
may differ materially from the results discussed in 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 2000 Annual Report on Form 10-K.
During the fourth quarter of 2000, World Savings Bank, a State Savings Bank
(WSSB), a wholly owned subsidiary of Golden West, received approval to change
from a Texas state savings bank regulated by the Federal Deposit Insurance
Corporation (FDIC) to a federally chartered savings bank regulated by the Office
of Thrift Supervision (OTS). WSSB's new name as a result of this change is World
Savings Bank, FSB Texas (WTX). On December 1, 2000, Golden West contributed WTX
to World Savings Bank, FSB (WSB) and WTX became a wholly owned subsidiary of
WSB. In addition, on December 31, 2000, World Savings and Loan Association
(WSL), formerly a wholly owned subsidiary of Golden West, was merged into WSB.
The reorganization of these subsidiaries had no affect on the Golden West
consolidated financial statements as of December 31, 2000 or June 30, 2000.
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), with amendments issued September
2000. This Statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that an entity
recognize all derivatives 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 adopted SFAS
133 as of January 1, 2001 and recorded a loss of $10 million before tax, or $6
million after tax. Because the Company has elected not to use permitted hedge
accounting for the derivative financial instruments in portfolio on June 30,
2001, the changes in fair value of these instruments are reflected in the
Consolidated Statement of Net Earnings as "Change in Fair Value of Derivatives".
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces
previously issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (SFAS 125). SFAS 140 revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS 125's provisions
without reconsideration. This statement is effective for transfers and servicing
of financial assets and extinguishments of liabilities occurring after March 31,
2001. Because the Company retains 100% of the beneficial interests in its
MBS-REMIC securitizations, it does not have any effective "retained interests"
requiring disclosures under SFAS 140. In accordance with SFAS 140, the Company's
securitizations after March 31, 2001 will result in securitized loans being
recorded as loans receivable.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standards No.142, "Goodwill and Other Intangible Assets" (SFAS No.
142). SFAS 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives will
not be amortized, but will rather be tested at least annually for impairment.
The Company does not expect the adoption of SFAS 142 for its fiscal year
beginning January 1, 2002 to have a material effect on its financial statements.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
June 30 December 31 June 30
2001 2000 2000
------------- --------------- --------------
Assets $ 57,431,543 $ 55,703,969 $ 48,847,884
Loans receivable including mortgage-backed securities 53,725,026 52,343,133 45,816,275
Deposits 31,491,959 30,047,919 27,726,782
Stockholders' equity 4,052,130 3,687,287 3,309,711
Stockholders' equity/total assets 7.06% 6.62% 6.78%
Book value per common share $ 25.50 $ 23.28 $ 20.95
Common shares outstanding 158,876,757 158,410,137 157,948,933
Yield on loan portfolio 7.53% 8.05% 7.53%
Yield on mortgage-backed securities 7.54% 7.98% 7.49%
Yield on investments 5.50% 7.12% 7.76%
Yield on earning assets 7.52% 8.02% 7.52%
Cost of deposits 4.80% 5.52% 5.11%
Cost of borrowings 4.62% 6.66% 6.43%
Cost of funds 4.73% 5.99% 5.61%
Yield on earning assets less cost of funds 2.79% 2.03% 1.91%
Ratio of nonperforming assets to total assets .53% .43% .45%
Ratio of troubled debt restructured to total assets .00% .00% .01%
Loans serviced for others with recourse $ 2,124,614 $ 1,915,672 $ 1,993,278
Loans serviced for others without recourse 1,366,016 983,407 1,009,793
World Savings Bank, FSB (WSB)(a)
Total assets $ 57,423,598 $ 55,695,385 $ 44,856,959
Net worth 4,267,107 3,885,705 2,713,085
Net worth/total assets 7.43% 6.98% 6.05%
Regulatory capital ratios:(b)
Core capital 7.07% 6.60% 6.05%
Risk-based capital 13.19% 12.44% 10.98%
World Savings Bank, FSB Texas(WTX)
Total assets $ 5,733,238 $ 5,398,772 $ 4,516,249
Net worth 293,387 288,409 233,350
Net worth/total assets 5.12% 5.34% 5.17%
Regulatory capital ratios:(b)
Core capital 5.12% 5.34% --
Risk-based capital 25.57% 26.69% --
(a) Figures for WSB as of June 30, 2000 have not been restated for WSB's merger
with WSL in December 2000.
(b) For regulatory purposes, the requirements to be considered
"well-capitalized" are 5.0% and 10.0% for core and risk-based capital,
respectively. Prior to December 2000, WTX was not regulated by the OTS and,
therefore, these ratios were not applicable.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
2001 2000 2001 2000
------------- ------------- ------------- --------------
New real estate loans originated $ 5,628,720 $ 5,675,604 $ 9,422,730 $ 9,442,015
New adjustable rate mortgages as a percentage of
new real estate loans originated 83.31% 96.47% 85.33% 96.43%
Refinances as a percentage of new real estate
loans originated 58.20% 31.14% 55.52% 33.91%
Deposits increase (decrease)(a) $ 135,000 $ (247,470) $ 1,444,040 $ 11,872
Net earnings before cumulative effect of
accounting change $ 208,929 $ 133,262 $ 385,008 $ 259,196
Net earnings 208,929 133,262 378,990 259,196
Basic earnings per share before cumulative effect
of accounting change 1.32 .84 2.43 1.63
Basic earnings per share 1.32 .84 2.39 1.63
Diluted earnings per share before cumulative effect
of accounting change 1.30 .84 2.40 1.62
Diluted earnings per share 1.30 .84 2.36 1.62
Cash dividends on common stock $ .0625 $ .0525 $ .125 $ .105
Average common shares outstanding 158,724,536 157,999,885 158,602,033 158,979,248
Average diluted common shares outstanding 160,968,179 159,593,955 160,771,429 160,227,370
Ratios:(b)
Net earnings before accounting change/
average net worth (ROE) 21.19% 16.32% 20.01% 16.00%
Net earnings before accounting change/
average assets (ROA) 1.47% 1.13% 1.36% 1.15%
Net interest income/average assets
(Net interest margin) 2.83% 2.39% 2.71% 2.44%
General and administrative expense/average assets .88% .87% .86% .90%
Efficiency ratio(c) 26.61% 31.95% 27.68% 32.45%
(a) Includes a decrease of $626 million of wholesale deposits for the quarter
ended June 30, 2001 and a decrease of $750 million of wholesale deposits
for the quarter ended June 30, 2000. Includes a decrease of $66 million of
wholesale deposits for the six months ended June 30, 2001 and a decrease of
$600 million of wholesale deposits for the six months ended June 30, 2000.
(b) Ratios are annualized by multiplying the quarterly computation by four and
the semi-annual computation by two. Averages are computed by adding the
beginning balance and each monthend balance during the quarter and
six-month period and dividing by four and seven, respectively.
(c) 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 June 30, 2001,
December 31, 2000, and June 30, 2000. The reader is referred to page 45 of the
Company's 2000 Annual Report on Form 10-K for similar information for the years
1997 through 2000 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
June 30 December 31 June 30
2001 2001 2000
----------- -------------- -----------
Assets
Cash and investments 1.9% 2.0% 1.6%
Loans receivable including mortgage-backed
securities 93.5 94.0 93.8
Other assets 4.6 4.0 4.6
----------- -------------- -----------
100.0% 100.0% 100.0%
=========== ============== ===========
Liabilities and Stockholders' Equity
Deposits 54.8% 54.0% 56.8%
Federal Home Loan Bank advances 33.0 35.4 31.2
Securities sold under agreements to repurchase 1.5 1.5 2.4
Bank notes 1.1 0.0 0.0
Subordinated debt 1.0 1.1 1.4
Other liabilities 1.5 1.4 1.4
Stockholders' equity 7.1 6.6 6.8
----------- -------------- -----------
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 mortgage loans and investments and the repricing of deposits and borrowings
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 June 30, 2001, 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 any month reflects the actual
Golden West Cost of Savings at the level it was one month prior. For more
information on how these lags effect net interest income, see page 26.
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of June 30, 2001
(Dollars in Millions)
Projected Repricing (a)
--------------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
----------- ------------- ----------- ----------- ------------
Interest-Earning Assets
Investments $ 671 $ -0- $ -0- $ 1 $ 672
Mortgage-backed securities 16,962 180 541 531 18,214
Loans receivable:
Rate-sensitive 31,092 1,910 426 -0- 33,428
Fixed-rate 55 155 589 1,145 1,944
Other(b) 1,446 -0- -0- -0- 1,446
Impact of interest rate swaps 376 75 (451) -0- -0-
----------- ------------- ----------- ----------- ------------
Total $ 50,602 $ 2,320 $ 1,105 $ 1,677 $ 55,704
=========== ============= =========== =========== ============
Interest-Bearing Liabilities
Deposits(c) $ 19,210 $ 10,216 $ 2,035 $ 31 $ 31,492
FHLB advances 17,400 1,055 104 386 18,945
Other borrowings 1,486 200 400 -0- 2,086
Impact of interest rate swaps 103 -0- (103) -0- -0-
----------- ------------- ----------- ----------- ------------
Total $ 38,199 $ 11,471 $ 2,436 $ 417 $ 52,523
=========== ============= =========== =========== ============
Repricing gap $ 12,403 $ (9,151) $ (1,331) $ 1,260
=========== ============= =========== ===========
Cumulative gap $ 12,403 $ 3,252 $ 1,921 $ 3,181
=========== ============= =========== ===========
Cumulative gap as a percentage of
total assets 21.6% 5.7% 3.3%
=========== ============= ===========
(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
At June 30, 2001, December 31, 2000, and June 30, 2000, the Company had
securities available for sale in the amount of $672 million, $393 million and
$235 million, respectively, including unrealized gains on securities available
for sale of $377 million, $382 million, and $223 million, respectively. At June
30, 2001, December 31, 2000, and June 30, 2000, the Company had no securities
held for trading in its investment securities portfolio.
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).
Because the Company currently retains all of the beneficial interest in these
MBS and MBS-REMIC securitizations and because the securitizations meet all the
requirements for separate security recognition, the securitizations formed after
March 31, 2001 are securities classified as securitized loans and included in
loans receivable in accordance with SFAS 140 (see page 7 for further
discussion). Additionally, from time to time, the Company purchases MBS. MBS,
MBS-REMICs and securitized loans are available to be used as collateral for
borrowings.
At June 30, 2001, December 31, 2000, and June 30, 2000, the balance of
loans receivable including mortgage backed securities was $53.7 billion, $52.3
billion, and $45.8 billion, respectively. Included in the $53.7 billion at June
30, 2001 was $6.4 billion of Federal National Mortgage Association (FNMA) MBS
with the underlying loans subject to full credit recourse to the Company, $11.3
billion of MBS-REMICs, $3.0 billion of securitized loans, and $556 million of
purchased MBS. Included in the $52.3 billion at December 31, 2000 was $7.8
billion of FNMA MBS with the underlying loans subject to full credit recourse to
the Company, $10.4 billion of MBS-REMICs, and $456 million of purchased MBS.
Included in the $45.8 billion at June 30, 2000 was $5.0 billion of FNMA MBS with
the underlying loans subject to full credit recourse to the Company, $8.6
billion of MBS-REMICs, and $481 million of purchased MBS.
Mortgage-Backed Securities
At June 30, 2001, December 31, 2000, and June 30, 2000, the Company had MBS
held to maturity in the amount of $18.0 billion, $18.5 billion, and $14.1
billion, respectively. The increase in MBS from June 30, 2000 to June 30, 2001
was due to the securitization of $3.3 billion of adjustable rate mortgages
(ARMs) into FNMA MBS and the securitization of $2.6 billion of ARMs into
MBS-REMICs during the last six months of 2000. In addition, the Company
securitized $3.0 billion of ARMs into MBS-REMICs during the first six months of
2001. 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 June 30, 2001, December 31, 2000, and June 30, 2000, the Company had MBS
available for sale in the amount of $219 million, $70 million, and $71 million,
respectively, including unrealized gains on MBS available for sale of $24
thousand at June 30, 2001, and $1 million at December 31, 2000 and June 30,
2000. At June 30, 2001, December 31, 2000, and June 30, 2000, the Company had no
trading MBS.
Repayments of MBS during the second quarter and first six months of 2001
were $2.1 billion and $3.1 billion, respectively, compared to $547 million and
$1.0 billion during the same periods of 2000. MBS repayments were higher during
the first six months of 2001 as compared to the first six months of 2000 due to
an increase in the prepayment rate as well as an increase of the balance of MBS
outstanding.
Securitized Loans
At June 30, 2001, the Company had $3.0 billion of loans that were
securitized during the second quarter of 2001. These loans are classified as
loans receivable on the statement of financial position.
Loans
New loan originations for the three and six months ended June 30, 2001
amounted to $5.6 billion and $9.42 billion, respectively, compared to $5.7
billion and $9.44 billion for the same periods in 2000. The volume of
originations during 2001 was comparable to the 2000 volume due to a continued
strong demand for mortgage loans. The decrease in interest rates over the past
12 months led to an increase in refinance activity nationwide. Refinanced loans
constituted 58% and 56%, respectively, of new loan originations for the three
and six months ended June 30, 2001, compared to 31% and 34% for the three and
six months ended June 30, 2000.
First mortgages originated for sale amounted to $640 million and $840
million for the three and six months ended June 30, 2001, compared to $21
million and $45 million for the same periods in 2000. During the second quarter
and first six months of 2001, $190 million and $202 million of loans were
converted at the customer's request from adjustable rate to fixed-rate compared
to $8 million and $16 million for the same periods in 2000. The Company
continues to sell most of its new and converted fixed-rate loans. For the three
and six months ended June 30, 2001, the Company sold $672 million and $887
million, respectively, of fixed-rate first mortgage loans compared to $27
million and $73 million for the same periods in 2000.
At June 30, 2001, the Company had lending operations in 35 states. The
largest source of mortgage origination is loans secured by residential
properties in California. For the three and six months ended June 30, 2001, 71%
of total loan originations were on residential properties in California compared
to 60% and 61% for the same periods in 2000. The five largest states, other than
California, for originations for the six months ended June 30, 2001, were
Florida, Texas, Colorado, Washington, and New Jersey with a combined total of
15% of total originations. The percentage of the total loan portfolio (including
MBS with recourse and MBS-REMICs) that is comprised of residential loans in
California was 64% at June 30, 2001 compared to 63% at December 31, 2000 and at
June 30, 2000. Of the 64% at June 30, 2001, 51.6% were in Northern California
and 48.4% were in Southern California.
Golden West originates ARMs tied primarily to the Golden West Cost of
Savings Index (COSI) and the Eleventh District Cost of Funds Index (COFI), and
occasionally originates ARMs tied to 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 second quarter and first six months of 2001 and 2000.
TABLE 3
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
ARM Index 2001 2000 2001 2000
- ---------------- ------------ ------------ ------------ ------------
COSI $ 2,435,626 $ 1,758,896 $ 4,671,870 $ 2,866,783
COFI 2,253,906 3,507,389 3,368,145 5,836,576
TCM -0- 209,148 -0- 401,559
------------ ------------ ------------ ------------
$ 4,689,532 $ 5,475,433 $ 8,040,015 $ 9,104,918
============ ============ ============ ============
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 June 30, 2001, December 31, 2000, and June 30,
2000.
TABLE 4
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS with Recourse and ARM MBS-REMICs)
(Dollars in thousands)
June 30 December 31 June 30
ARM Index 2001 2000 2000
- -------------- ------------- ---------------- -------------
COSI $ 22,205,572 $ 20,460,242 $ 14,428,092
COFI 26,736,755 27,405,401 26,874,901
TCM 1,174,994 1,457,232 1,538,953
Other 233,926 182,778 149,656
------------- ---------------- -------------
$ 50,351,247 $ 49,505,653 $ 42,991,602
============= ================ =============
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 six months of 2001, 12% of loans originated exceeded
80% of the appraised value of the secured property, including $151 million of
firsts and $1.0 billion of combined firsts and seconds. For the first six months
of 2000, 20% of loans originated were in excess of 80% of the appraised value of
the residence.
The Company takes steps to reduce 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%. Furthermore, the Company sells without
recourse a significant portion of its second mortgage originations. Sales of
second mortgages amounted to $40 million and $100 million for the second quarter
and first six months of 2001 as compared to $36 million and $62 million for the
same periods in 2000. In addition, the Company carries pool mortgage insurance
on most seconds not sold. The cumulative losses covered by this pool mortgage
insurance are limited to 10% or 20% of the original balance of each insured
pool.
The following table shows mortgage originations with LTV ratios or combined
LTV ratios greater than 80% for the three and six months ended June 30, 2001 and
2000.
TABLE 5
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- --------------------------
2001 2000 2001 2000
----------- ------------ ----------- -------------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 65,812 $ 28,113 $ 101,564 $ 46,050
With no insurance 29,369 100,725 49,365 166,623
----------- ------------ ----------- -------------
95,181 128,838 150,929 212,673
----------- ------------ ----------- -------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 300,969 765,892 534,987 1,197,229
With no insurance 297,974 282,261 481,290 504,165
----------- ------------ ----------- -------------
598,943 1,048,153 1,016,277 1,701,394
----------- ------------ ----------- -------------
Total $ 694,124 $ 1,176,991 $1,167,206 $ 1,914,067
=========== ============ =========== =============
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at June 30, 2001 and 2000.
TABLE 6
Balance of Mortgages With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
As of June 30
-----------------------------
2001 2000
------------ -------------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 404,813 $ 371,260
With no insurance 672,187 892,275
------------ -------------
1,077,000 1,263,535
------------ -------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 1,323,985 1,787,737
With no insurance 532,637 488,469
------------ -------------
1,856,622 2,276,206
------------ -------------
Total $ 2,933,622 $ 3,539,741
============ =============
The following tables show the Company's loan portfolio by state at June 30,
2001 and 2000.
TABLE 7
Loan Portfolio by State
June 30, 2001
(Dollars in thousands)
Residential
Real Estate Commercial Loans
------------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Loans(a) Portfolio
- ------------------- --------------- ------------- ---------- -------------- -------------- ---------------
California $30,640,474 $ 3,404,325 $ 99 $ 22,580 $34,067,478 63.99%
Florida 2,632,552 17,699 -0- 208 2,650,459 4.98
Texas 2,101,291 65,593 191 982 2,168,057 4.07
New Jersey 1,978,178 -0- -0- 2,111 1,980,289 3.72
Washington 1,074,793 611,148 -0- -0- 1,685,941 3.17
Illinois 1,439,747 115,959 -0- -0- 1,555,706 2.92
Colorado 1,244,450 186,905 -0- 4,596 1,435,951 2.70
Pennsylvania 1,042,117 1,250 -0- 149 1,043,516 1.96
Arizona 1,008,579 15,747 -0- 14 1,024,340 1.92
Other (b) 5,561,591 62,441 14 4,228 5,628,274 10.57
--------------- ------------- ---------- -------------- -------------- ------------
Totals $48,723,772 $ 4,481,067 $ 304 $ 34,868 53,240,011 100.00%
=============== ============= ========== ============== ============
SFAS 91 deferred loan costs 162,358
Loan discount on purchased loans (1,259)
Undisbursed loan funds (6,169)
Allowance for loan losses (245,078)
Loans to facilitate (LTF) interest reserve (183)
Troubled debt restructured (TDR) interest reserve (8)
Loans on deposits 19,266
--------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 53,168,938
Loans securitized into FNMA MBS and MBS-REMICs (17,657,738)(c)
--------------
Total loans receivable $ 35,511,200
==============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) All states included in other have total loan balances with less than 2% of
total loans.
(c) The above schedule includes the June 30, 2001 balances of loans that were
securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 8
Loan Portfolio by State
June 30, 2000
(Dollars in thousands)
Residential
Real Estate Commercial Loans
------------------------------ Real Total as a % of
State 1 - 4 5+ Land Estate Loans(a) Portfolio
------------------- -------------- ------------- ---------- -------------- -------------- --------------
California $ 25,362,479 $ 3,395,439 $ 174 $ 25,248 $ 28,783,340 63.35%
Florida 2,176,946 14,753 -0- 415 2,192,114 4.82
Texas 1,842,343 54,591 307 1,136 1,898,377 4.18
New Jersey 1,623,540 -0- -0- 2,983 1,626,523 3.58
Washington 899,414 526,412 -0- -0- 1,425,826 3.14
Illinois 1,376,204 119,021 -0- -0- 1,495,225 3.29
Colorado 1,162,879 182,164 -0- 5,102 1,350,145 2.97
Pennsylvania 917,792 3,105 -0- 2,453 923,350 2.03
Arizona 974,528 18,236 -0- -0- 992,764 2.18
Other (b) 4,706,240 42,137 46 5,139 4,753,562 10.46
-------------- ------------- ---------- -------------- -------------- -----------
Totals $ 41,042,365 $ 4,355,858 $ 527 $ 42,476 45,441,226 100.00%
============== ============= ========== ============== ===========
SFAS 91 deferred loan costs 117,551
Loan discount on purchased loans (1,728)
Undisbursed loan funds (6,891)
Allowance for loan losses (234,834)
Loans to facilitate (LTF) interest reserve (258)
Troubled debt restructured (TDR) interest reserve (496)
Loans on deposits 20,538
--------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 45,335,108
Loans securitized into FNMA MBS and MBS-REMICs (13,651,191)(c)
--------------
Total loans receivable $ 31,683,917
==============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) All states included in other have total loan balance less than 2% of total
loans.
(c) The above schedule includes the June 30, 2000 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 June 30, 2001 compared to 95% at December 31,
2000, and 94% at June 30, 2000. The Company's ARM originations constituted 85%
of new mortgage loans made for the first half of 2001 compared to 96% for the
first half of 2000.
During the life of the ARM loan, the interest rate may not be raised above
a lifetime cap, set at the time of origination or assumption. The weighted
average maximum lifetime cap rate on the Company's ARM loan portfolio (including
ARMs swapped into MBS with recourse and MBS-REMICs before any reduction for loan
servicing fees) was 12.25% or 4.60% above the actual weighted average rate at
June 30, 2001, versus 12.35% or 4.81% above the weighted average rate at June
30, 2000.
Approximately $5.0 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
June 30, 2001, $323 million of ARM loans had reached their rate floors. The
weighted average floor rate on the loans that had reached their floor was 7.74%
at June 30, 2001 compared to 7.76% at June 30, 2000. Without the floor, the
average rate on these loans would have been 7.19% at June 30, 2001 and 7.30% at
June 30, 2000.
Loan repayments consist of monthly loan amortization and loan payoffs. For
the three and six months ended June 30, 2001, loan repayments were $2.6 billion
and $4.3 billion, respectively, compared to $1.2 billion and $2.1 billion in the
same periods of 2000. The increase in loan repayments was primarily due to an
increase in loan payoffs in the first half of 2001.
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 and six months
ended June 30, 2001 and 2000.
TABLE 9
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
2001 2000 2001 2000
----------- ---------- ---------- ----------
Beginning balance of capitalized mortgage servicing rights $ 29,970 $ 35,096 $ 28,355 $ 37,295
New capitalized mortgage servicing rights from loan sales 9,176 663 13,458 1,485
Amortization of capitalized mortgage servicing rights (3,037) (3,064) (5,704) (6,085)
----------- ---------- ---------- ----------
Ending balance of capitalized mortgage servicing rights $ 36,109 $ 32,695 $ 36,109 $ 32,695
=========== ========== ========== ==========
The book value of Golden West's servicing rights did not exceed the fair
value at June 30, 2001 or 2000 and, therefore, no write-down of the servicing
rights was necessary.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) and troubled debt
restructured (TDRs) 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 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 impacted by adverse 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)
June 30 December 31 June 30
2001 2000 2000
----------- -------------- -----------
Non-accrual loans $ 295,537 $ 231,155 $ 210,127
Real estate acquired through foreclosure 7,733 8,061 9,156
Real estate in judgment 739 200 452
----------- -------------- -----------
Total nonperforming assets $ 304,009 $ 239,416 $ 219,735
=========== ============== ===========
TDRs $ 127 $ 1,933 $ 4,053
=========== ============== ===========
Ratio of NPAs to total assets .53% .43% .45%
=========== ============== ===========
Ratio of TDRs to total assets .00% .00% .01%
=========== ============== ===========
Ratio of NPAs and TDRs to total assets .53% .43% .46%
=========== ============== ===========
The increase in NPAs during the first six months of 2001 reflected the
normal increase in delinquencies associated with the aging of the large volume
of mortgages originated during the past two years together with the slowing
economy. The Company closely monitors all delinquencies and takes appropriate
steps to protect its interests. Interest foregone on non-accrual loans (loans 90
days or more past due) amounted to $2 million and $5 million for the three and
six months ended June 30, 2001 compared to $1 million and $2 million for the
same periods in 2000. Interest foregone on TDRs amounted to $13 thousand and $39
thousand for the three and six months ended June 30, 2001, compared to $46
thousand and $112 thousand for the three and six months ended June 30, 2000.
The tables on the following page show the Company's nonperforming assets by
state as of June 30, 2001 and 2000.
TABLE 11
Nonperforming Assets by State
June 30, 2001
(Dollars in thousands)
Non-Accrual Loans(a) Foreclosed Real Estate
------------------------------------------ -------------------------------------
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 $ 144,941 $ 772 $ 667 $ 1,506 $ -0- $ -0- $147,886 .43%
Florida 28,437 -0- 81 265 -0- -0- 28,783 1.09
Texas 14,453 -0- -0- 974 -0- -0- 15,427 .71
New Jersey 17,662 -0- -0- 579 -0- -0- 18,241 .92
Washington 7,385 -0- -0- -0- -0- -0- 7,385 .44
Illinois 13,801 -0- -0- 420 194 -0- 14,415 .93
Colorado 3,378 -0- -0- -0- -0- -0- 3,378 .24
Pennsylvania 13,623 -0- -0- 1,388 -0- -0- 15,011 1.44
Arizona 5,522 -0- -0- 249 -0- -0- 5,771 .56
Other (c) 44,517 298 -0- 3,143 -0- -0- 47,958 .85
----------- ---------- --------------- ---------- --------- ------------ ----------- -----------
Totals $ 293,719 $ 1,070 $ 748 $ 8,524 $ 194 $ -0- 304,255 .57%
=========== ========== =============== ========== ========= ============
FRE general valuation allowance (246) (.00)
----------- -----------
Total nonperforming assets $304,009 .57%
=========== ===========
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The June 30, 2001 balances include loans that were securitized into FNMA
MBS and MBS-REMICs.
(c) All states included in other have total loan balances with less than 2% of
total loans.
TABLE 12
Nonperforming Assets by State
June 30, 2000
(Dollars in thousands)
Non-Accrual Loans (a) Foreclosed Real Estate
----------------------------------------- ---------------------------------
Residential Commercial Commercial NPAa as
Real Estate Real Residential Real Total a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ----------------- ----------- --------- ------------- --------- -------- ---------- ----------- -----------
California $ 114,337 $ 528 $ 668 $ 4,548 $ -0- $ -0- $ 120,081 .42%
Florida 16,757 -0- 178 78 -0- -0- 17,013 .78
Texas 8,759 -0- -0- 670 -0- -0- 9,429 .50
New Jersey 13,516 -0- 383 689 -0- 284 14,872 .91
Washington 2,887 -0- -0- 118 -0- -0- 3,005 .21
Illinois 10,938 215 -0- 470 -0- -0- 11,623 .78
Colorado 2,129 -0- -0- 196 -0- -0- 2,325 .17
Pennsylvania 9,682 -0- -0- 1,044 -0- -0- 10,726 1.16
Arizona 4,575 -0- -0- -0- -0- -0- 4,575 .46
Other (c) 24,491 84 -0- 1,256 -0- 508 26,339 .55
----------- --------- ------------- --------- -------- ---------- ----------- -----------
Totals $ 208,071 $ 827 $ 1,229 $ 9,069 $ -0- $ 792 219,988 .48
=========== ========= ============= ========= ======== ==========
FRE general valuation allowance (253) (.00)
----------- -----------
Total nonperforming assets $219,735 .48%
=========== ===========
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The June 30, 2000 balances include loans that were securitized into FNMA
MBS and MBS-REMICs.
(c) All states included in other have total loan balance less than 2% of total
loans.
The Company provides specific valuation allowances for losses on loans when
impaired, and a write-down on foreclosed real estate when any significant and
permanent decline in value is identified. The Company also utilizes a
methodology for monitoring and estimating loan losses that is based on both
historical experience in the loan portfolio and factors reflecting current
economic conditions. This approach 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. Based on these
historical analyses, management is then able to estimate a range of general loss
allowances by type of loan and risk category to cover losses inherent in the
portfolio. One-to-four single-family real estate loans are evaluated as a group.
In addition, periodic reviews are made of major multi-family and commercial real
estate loans and foreclosed real estate. Where indicated, specific and general
valuation allowances are established or adjusted. In estimating probable losses
inherent in the portfolio, 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 based upon quarterly reviews of the
portfolio. The review methodology and historical analyses are reconsidered
quarterly.
The table below shows the changes in the allowance for loan losses for the
three and six months ended June 30, 2001 and 2000.
TABLE 13
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Beginning allowance for loan losses $ 237,964 $ 233,016 $ 236,708 $ 232,134
Provision for losses charged to expense 5,641 3,842 8,824 4,811
Less loans charged off (726) (269) (755) (620)
Recoveries 35 104 168 181
Net transfer of allowance (to) from recourse liability 2,164 (1,859) 133 (1,672)
----------- ----------- ----------- -----------
Ending allowance for loan losses $ 245,078 $ 234,834 $ 245,078 $ 234,834
=========== =========== =========== ===========
Ratio of net chargeoffs (recoveries) to average loans
outstanding (including MBS with recourse
and MBS-REMIC) .01% .00% .00% .00%
=========== =========== =========== ===========
Ratio of allowance for loan losses to total loans
(including MBS with recourse and MBS-REMICs) .46% .52%
=========== ===========
Ratio of allowance for loan losses to nonperforming assets 80.6% 106.9%
=========== ===========
Deposits
The Company raises deposits through its retail branch system as well as
through the capital markets.
Retail deposits increased during the second quarter of 2001 by $761
million, including interest credited of $334 million, compared to an increase of
$503 million, including interest credited of $301 million in the second quarter
of 2000. Retail deposits increased during the first half of 2001 by $1.5
billion, including interest credited of $682 million, compared to an increase of
$612 million, including interest credited of $568 million in the first half of
2000. Retail deposits increased during the first six months of 2001 due to
marketing efforts and interest credited. The increase in 2000 was primarily due
to interest credited. At June 30, 2001 and 2000, transaction accounts (which
include checking, passbook, and money market accounts) represented 28% and 31%,
respectively, of the total balance of deposits.
The Company uses government securities dealers to sell wholesale
certificates of deposit (CDs) to institutional investors. The Company's deposit
balance as of June 30, 2001 and December 31, 2000, included $119 million and
$185 million, respectively, of these wholesale CDs. There were no outstanding
wholesale CDs at June 30, 2000.
The table below shows the Company's deposits by interest rate and by
remaining maturity at June 30, 2001 and 2000.
TABLE 14
Deposits
(Dollars in Millions)
June 30
---------------------------------------------------
2001 2000
------------------------ ------------------------
Rate* Amount Rate* Amount
--------- ----------- ------------------------
Deposits by rate:
Interest-bearing checking accounts 3.55% $ 94 2.93% $ 116
Interest-bearing checking accounts swept
into money market deposit accounts 3.29 3,577 3.45 3,157
Passbook accounts 1.42 452 1.48 469
Money market deposit accounts 4.10 4,548 4.27 4,739
Term certificate accounts with original maturities of:
4 weeks to 1 year 4.92 13,166 5.75 9,129
1 to 2 years 5.73 6,406 5.64 6,922
2 to 3 years 5.61 1,434 5.52 1,400
3 to 4 years 5.68 537 5.60 431
4 years and over 5.88 680 5.90 655
Retail jumbo CDs 5.39 479 5.56 709
Wholesale CDs 4.70 119 0.00 -0-
----------- ------------
$ 31,492 $ 27,727
=========== ============
2001 2000
----------- ------------
Deposits by remaining maturity:
No contractual maturity 3.62% $ 8,671 3.79% $ 8,481
Maturity within one year 5.22 20,755 5.64 16,396
1 to 5 years 5.50 2,035 6.00 2,818
Over 5 years 5.48 31 5.24 32
----------- ------------
$ 31,492 $ 27,727
=========== ============
* Weighted average interest rate, including the impact of interest rate
swaps.
At June 30, the weighted average cost of deposits was 4.80% (2001) and
5.11% (2000).
Advances from Federal Home Loan Banks
The Company uses borrowings from the FHLBs, also known as "advances," to
provide funds for loan origination activities. Advances are secured by pledges
of certain loans, MBS-REMICs, other MBS, and capital stock of the FHLBs. FHLB
advances amounted to $18.9 billion at June 30, 2001, compared to $19.7 billion
at December 31, 2000, and $15.2 billion at June 30, 2000, 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, using MBS
from the Company's portfolio. Reverse Repos with dealers and banks amounted to
$851 million, $857 million, and $1.2 billion at June 30, 2001, December 31,
2000, and June 30, 2000, respectively.
Other Borrowings
At June 30, 2001, Golden West, at the holding company level, had principal
amounts outstanding of $600 million of subordinated debt issued and outstanding.
As of June 30, 2001, 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.
In July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of securities, including senior debt. In August 2001, the Company issued
$200 million of five-year senior debt in connection with the aforementioned
registration statement.
In November 1996, WSB 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 June 30, 2001, WSB had not issued any notes under
this authority.
Stockholders' Equity
The Company's stockholders' equity increased by $365 million during the
first six months of 2001 as a result of net earnings partially offset by
decreased market values of securities available for sale and by the payment of
quarterly dividends to stockholders. The Company's stockholders' equity
increased by $115 million during the first six 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 $109 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 June
30, 2001, December 31, 2000, and June 30, 2000 were $229 million, $233 million,
and $136 million, respectively.
Since 1993, through four separate actions, Golden West's Board of Directors
has authorized the repurchase by the Company of up to 44.7 million shares of
Golden West's common stock. During the first six months of 2001, the Company did
not repurchase any shares. As of June 30, 2001, 42.9 million shares had been
repurchased and retired at a cost of $915 million since October 1993. Dividends
from WSB are expected to continue to be the major source of funding for the
stock repurchase program. The repurchase 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 WSB and WTX to meet
certain minimum capital requirements. The following table shows WSB's regulatory
capital ratios and compares them to the OTS minimum requirements at June 30,
2001 and 2000. The June 30, 2000 numbers are as reported to the OTS and have not
been restated because the OTS did not require them to be restated to reflect the
reorganization that took place in 2000 as discussed on page 6.
TABLE 15
World Savings Bank, FSB
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 2001 June 30, 2000
---------------------------------------------- -----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- --------- ----------- -------- ----------- --------- ----------- ---------
Tangible $4,038,042 7.07% $ 856,399 1.50% $ 2,713,085 6.05% $ 672,890 1.50%
Core 4,038,042 7.07 2,283,732 4.00 2,713,085 6.05 1,794,373 4.00
Risk-based 4,376,473 13.19 2,653,570 8.00 2,877,950 10.98 2,097,301 8.00
The following table shows WTX's current regulatory capital ratios and
compares them to the OTS minimum requirements at June 30, 2001.
TABLE 16
World Savings Bank, FSB Texas
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 2001
------------------------------------------------
ACTUAL REQUIRED
----------------------- ----------------------
Capital Ratio Capital Ratio
----------- --------- ----------- ---------
Tangible $ 293,387 5.12% $ 86,003 1.50%
Core 293,387 5.12 229,341 4.00
Risk-based 293,388 25.57 91,799 8.00
The OTS has adopted rules based upon five capital tiers: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The determination of whether a savings bank falls
into a certain classification depends primarily on its capital ratios. As the
following two tables show, as of June 30, 2001, WSB and WTX exceeded the
qualifications for well-capitalized institutions under the rules applicable to
them.
TABLE 17
World Savings Bank, FSB
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
---------------------- ----------------------------
Capital Ratio Capital Ratio
---------- ------- ----------- -----------
Leverage $ 4,038,042 7.07% $ 2,854,665 5.00%
Tier 1 risk-based 4,038,042 12.17 1,990,178 6.00
Total risk-based 4,376,473 13.19 3,316,963 10.00
TABLE 18
World Savings Bank, FSB Texas
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
---------------------- ----------------------------
Capital Ratio Capital Ratio
----------- ------- ----------- -----------
Leverage $ 293,387 5.12% $ 286,676 5.00%
Tier 1 risk-based 293,387 25.57 68,849 6.00
Total risk-based 293,388 25.57 114,749 10.00
Results Of Operations
Net Earnings
Net earnings for the three months ended June 30, 2001 were $209 million
compared to net earnings of $133 million for the three months ended June 30,
2000. Net earnings for the six months ended June 30, 2001 were $385 million
(excluding the cumulative effect of the accounting change) compared to net
earnings of $259 million for the six months ended June 30, 2000. Net earnings
increased in 2001 as compared to 2000 primarily as a result of increased net
interest income and increased noninterest income, which were partially offset by
an increase in general and administrative expenses. Net earnings for the six
months ended June 30, 2001, including the cumulative effect of the accounting
change, net of tax, were $379 million. See page 7 for further discussion on SFAS
133 and the cumulative effect of the accounting change.
Net Interest Income
The largest component of the Company's revenue and earnings is net interest
income, which is the difference between the interest and dividends earned on
loans and other investments and the interest paid on customer deposits and
borrowings. Long-term growth of the Company's net interest income, and hence
earnings, is related to the ability to expand the mortgage portfolio, the
Company's primary earning asset, by originating and retaining high-quality
adjustable rate home loans. Over the short term, however, net interest income
can be influenced by business conditions, especially movements in interest
rates, which can temporarily accelerate or restrain net interest income changes.
Net interest income amounted to $403 million and $766 million,
respectively, for the three and six months ended June 30, 2001. These amounts
represented 44% and 39% increases, respectively, over the $281 million and $550
million reported during the same periods in 2000. As discussed below, the
significant growth of net interest income in 2001 compared with the prior year
resulted from two principal factors: the substantial growth of the mortgage
portfolio during 2000; and an increase in 2001 in the Company's primary spread,
which is the difference between the yield on loans and other investments and the
rate paid on deposits and borrowings.
Net interest income in 2001 benefited from the 32% growth of the mortgage
portfolio in the prior year. Specifically, in 2000, the Company originated a
record loan volume that, in combination with a moderate level of mortgage
repayments, resulted in unusually rapid growth of the Company's loans
receivable. Thus, there was a significantly larger loan portfolio at the
beginning of 2001 versus the beginning of 2000, and this contributed to the
substantial net interest income increase in 2001.
Net interest income increases in 2001 were also influenced by a temporary
widening of the Company's primary spread. As noted in the discussion of the Gap
on page 11, the Company's liabilities respond more rapidly to movements in
short-term interest rates than the Company's assets, most of which are
adjustable rate mortgages tied to indexes that lag changes in market interest
rates. Consequently, when short-term interest rates decline, the Company's
primary spread temporarily widens, and when short-term interest rates move up,
the Company's primary spread compresses for a period of time. When interest
rates stabilize, the primary spread returns to more normal levels. For the five
years ended June 30, 2001, which included periods of both falling and rising
interest rates, the Company's primary spread averaged 2.17% with a high of 2.79%
and a low of 1.88%.
During the first six months of 2001, the Federal Reserve's Open Market
Committee lowered the Federal Funds rate, a key short-term interest rate, by 275
basis points in order to stimulate the economy. Other short-term market rates
experienced similar decreases. In response to significantly lower short-term
interest rates, the Company's cost of funds declined by 126 basis points between
December 31, 2000 and June 30, 2001. This large drop occurred, in part, because
the Company used primarily adjustable market-rate borrowings to fund the rapid
expansion of the loan portfolio in 2000. As a result, a significant portion of
the Company's liabilities responded almost immediately to the sharp decrease in
market rates in 2001. While the Company's cost of funds declined considerably
during the first half of 2001, the yield on the Company's assets fell by only 50
basis points, because the indexes to which the large adjustable rate mortgage
portfolio is tied moved down more slowly. As a consequence, the Company's
primary spread widened substantially in the second quarter of 2001, reaching
2.79%, the highest point since 1992, and resulted in a temporary boost to net
interest income in the first half of 2001.
The table below shows the components of the Company's spread at June 30,
2001, December 31, 2000, and June 30, 2000.
TABLE 19
Yield on Earning Assets,
Cost of Funds, and Primary Spread
June 30 December 31 June 30
2001 2000 2000
------------ -------------- -------------
Yield on loan portfolio 7.53% 8.05% 7.53%
Yield on MBS 7.54 7.98 7.49
Yield on investments 5.50 7.12 7.76
--------- ---------- ---------
Yield on earning assets 7.52 8.02 7.52
--------- ---------- ---------
Cost of deposits 4.80 5.52 5.11
Cost of borrowings 4.62 6.66 6.43
--------- ---------- ---------
Cost of funds 4.73 5.99 5.61
--------- ---------- ---------
Primary spread 2.79% 2.03% 1.91%
========= ========== =========
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 principally because of lags related to the
indexes. 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). The
Company also 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. Additionally, certain loan
features cause the yield on the Company's ARM portfolio to lag changes in market
interest rates. 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. 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 20
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
----------------------------------------- ------------------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances(a) Yield Yield Balances(a) Yield Yield
-------------- -------------- --------- ------------- ------------- ----------
ASSETS
Investment Securities $ 3,153,417 4.84% 5.50% $ 2,956,673 6.49% 7.76%
Mortgage-backed securities 19,188,526 7.75% 7.53% 12,502,949 7.42% 7.49%
Loans receivable (b) 34,323,819 7.84% 7.52% 31,398,571 7.59% 7.53%
Invest. in capital stock of FHLBs 1,077,496 5.62% 5.53% 709,991 9.47% 6.29%
-------------- ------------- -------------- -------------
Interest-earning assets $57,743,258 7.60% $ 47,568,184 7.50%
============== ============= ============== =============
LIABILITIES
Deposits:
Checking accounts $ 134,038 2.50% 3.55% $ 131,306 2.34% 2.93%
Savings accounts 7,539,395 3.57% 3.62% 8,869,768 3.78% 3.80%
Term accounts 24,516,130 5.52% 5.24% 19,744,895 5.55% 5.69%
-------------- ------------- -------- -------------- ------------- ---------
Total deposits 32,189,563 5.05% 4.80% 28,745,969 4.98% 5.11%
Advances from FHLBs 18,995,132 5.05% 4.58% 13,535,342 6.12% 6.40%
Reverse repurchases 1,250,331 4.65% 4.25% 1,458,960 6.02% 6.16%
Other borrowings 2,605,557 5.25% 5.51% 1,389,851 7.10% 7.69%
-------------- ------------- -------------- -------------
$55,040,583 5.05% $ 45,130,122 5.42%
============== ============= ============== =============
Net interest spread 2.55% 2.08%
============= =============
Net interest income $ 403,301 $ 280,527
============== ==============
Net yield on average interest-
earning assets 2.79% 2.36%
============= =============
(a) Averages are computed using daily balances.
(b) Includes nonaccrual loans (90 days or more past due).
TABLE 21
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
----------------------------------------- ------------------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances(a) Yield Yield Balances(a) Yield Yield
-------------- -------------- --------- ------------- ------------- ----------
ASSETS
Investment Securities $ 3,158,811 5.37% 5.50% $ 2,659,210 6.29% 7.76%
Mortgage-backed securities 18,751,977 7.86% 7.53% 12,049,549 7.36% 7.49%
Loans receivable(b) 34,478,563 7.99% 7.52% 30,294,263 7.48% 7.53%
Invest. in capital stock of FHLBs 1,077,887 5.98% 5.53% 643,488 7.85% 6.29%
-------------- ------------- -------------- -------------
Interest-earning assets $57,467,238 7.77% $45,646,510 7.38%
============== ============= ============== =============
LIABILITIES
Deposits:
Checking accounts $ 128,680 2.47% 3.55% $ 126,493 2.31% 2.93%
Savings accounts 7,248,566 3.56% 3.62% 9,191,983 3.81% 3.80%
Term accounts 24,664,048 5.73% 5.24% 19,368,466 5.39% 5.69%
-------------- ------------- -------- -------------- ------------- ---------
Total deposits 32,041,294 5.22% 4.80% 28,686,942 4.87% 5.11%
Advances from FHLBs 19,144,204 5.57% 4.58% 11,788,452 5.96% 6.40%
Reverse repurchases 1,239,802 5.20% 4.25% 1,324,795 5.83% 6.16%
Other borrowings 2,274,579 5.62% 5.51% 1,324,598 7.01% 7.69%
-------------- ------------- -------------- -------------
$54,699,879 5.36% $43,124,787 5.26%
============== ============= ============== =============
Net interest spread 2.41% 2.12%
============= =============
Net interest income $ 765,896 $ 550,158
============== ==============
Net yield on average interest-
earning assets 2.67% 2.41%
============= =============
(a) Averages are computed using daily balances.
(b) 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 and six months ended June 30, 2001
and 2000.
TABLE 22
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2001 2000 2001 2000
---------- --------- --------- ---------
Interest on loans 57.8% 63.9% 58.8% 64.4%
Interest on mortgage-backed securities 31.9 24.9 31.5 25.2
Interest and dividends on investments 4.6 6.9 5.0 6.2
---------- --------- --------- ---------
94.3 95.7 95.3 95.8
Less:
Interest on deposits 34.9 38.4 35.7 39.7
Interest on advances and other borrowings 24.8 27.2 26.9 24.8
---------- --------- --------- ---------
59.7 65.6 62.6 64.5
Net interest income 34.6 30.1 32.7 31.3
Provision for loan losses .5 .4 .4 .3
---------- --------- --------- ---------
Net interest income after provision for loan losses 34.1 29.7 32.3 31.0
Add:
Fees 3.7 2.0 3.2 2.0
Gain on the sale of securities and loans .7 .2 .6 .2
Change in fair value of derivatives .1 0.0 (.3) 0.0
Other non-interest income 1.2 2.1 1.2 2.0
---------- --------- --------- ---------
5.7 4.3 4.7 4.2
Less:
General and administrative expenses 10.7 11.0 10.3 11.5
Taxes on income 11.2 8.7 10.2 9.0
Cumulative effect of accounting change 0.0 0.0 .3 0.0
---------- --------- --------- ---------
Net earnings 17.9% 14.3% 16.2% 14.7%
========== ========= ========= =========
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 interest rate swaps or other derivative financial instruments for
trading purposes.
TABLE 23
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Six Months Ended
June 30, 2001
----------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------ ------------
Balance at December 31, 2000 $ 217 $ 717
Maturities (29) (39)
------------ ------------
Balance at June 30, 2001 $ 188 $ 678
============ ============
The range of floating interest rates received on swap contracts in the
first six months of 2001 was 3.71% to 6.90%, and the range of floating interest
rates paid on swap contracts was 3.74% to 6.76%. The range of fixed interest
rates received on swap contracts in the first six months of 2001 was 5.81% to
7.06% and the range of fixed interest rates paid on swap contracts was 5.58% to
8.85%.
Interest rate swap payment activity decreased net interest income by $2.5
million and $3.7 million for the three and six months ended June 30, 2001, as
compared to decreases of $4.1 million and $2.9 million for the same periods in
2000.
Upon adoption of SFAS 133 on January 1, 2001 (refer to discussion on page
7), the Company reported a one-time pre-tax charge of $10 million, or $.04 after
tax per diluted share. In addition to the one-time charge, the Company reported
pre-tax income of $2 million, or $.01 after tax per diluted share for the three
months ended June 30, 2001, associated with the on going quarterly valuation of
the Company's swaps and pre-tax expense of $6 million, or $.02 after tax per
diluted share for the six months ended June 30, 2001. This additional expense
occurred because the market value of Golden West's swaps increased during the
second quarter and declined during the first six months of 2001 in conjunction
with falling short-term rates. The changes in fair value of these swap contracts
are reflected as assets or liabilities on the Consolidated Statement of
Condition with corresponding amounts displayed in the Consolidated Statement of
Net Earnings as "Change in Fair Value of Derivatives."
Interest on Loans
In the second quarter of 2001, interest on loans was higher than in the
comparable 2000 period by $77 million or 13.0%. The increase in the second
quarter of 2001 was due to a $2.9 billion increase in the average portfolio
balance and a 25 basis point increase in the average portfolio yield. In the
first six months of 2001, interest on loans was higher than in the comparable
2000 period by $245 million or 21.6%. The increase in the first six months of
2001 was due to a $4.2 billion increase in the average portfolio balance and a
51 basis point increase in the average portfolio yield.
Interest on Mortgage-Backed Securities
In the second quarter of 2001, interest on mortgage-backed securities was
higher than in the comparable 2000 period by $140 million or 60.2%. The increase
in the second quarter of 2001 was due to a $6.7 billion increase in the average
portfolio balance and a 33 basis point increase in the average portfolio yield.
In the first six months of 2001, interest on mortgage-backed securities was
higher than in the comparable 2000 period by $294 million or 66.3%. The increase
in the first six months of 2001 was due to a $6.7 billion increase in the
average portfolio balance and a 51 basis point increase in the average portfolio
yield. The increase in the mortgage-backed securities portfolio was primarily
due to the securitization of loans into FNMA MBS and MBS-REMICs, as discussed on
page 12.
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. In
the second quarter of 2001, interest and dividends on investments decreased by
$12 million or 17.8% from the comparable period in 2000. The decrease in the
second quarter of 2001 was primarily due to a 184 basis point decrease in the
average portfolio yield which was partially offset by a $197 million increase in
the average portfolio balance. In the first six months of 2001, interest and
dividends on investments increased by $8 million or 7.4% from the comparable
period in 2000. The increase in the first six months of 2001 was primarily due
to a $500 million increase in the average portfolio balance, which was partially
offset by a 103 basis point decrease in the average portfolio yield.
Interest on Deposits
In the second quarter of 2001, interest on deposits increased by $48
million or 13.3% from the comparable period in 2000. The increase in the second
quarter of 2001 was due to a $3.3 billion increase in the average balance of
deposits and an 8 basis point increase in the average cost of deposits. In the
first six months of 2001, interest on deposits increased by $139 million or
19.8% from the comparable period in 2000. The increase in the first six months
of 2001 was due to a $3.3 billion increase in the average balance of deposits
and a 40 basis point increase in the average cost of deposits.
Interest on Advances and Other Borrowings
In the second quarter of 2001, interest on advances and other borrowings
increased by $35 million or 13.7% from the comparable period of 2000. The
increase in the second quarter of 2001 was primarily due to a $6.5 billion
increase in the average balance, which was partially offset by a 115 basis point
decrease in the average cost of these borrowings. In the first six months of
2001, interest on advances and other borrowings increased by $193 million or
44.2% from the comparable period of 2000. The increase in the first six months
of 2001 was primarily due to an $8.2 billion increase in the average balance,
which was partially offset by a 47 basis point decrease in the average cost of
these borrowings.
Provision for Loan Losses
The provision for loan losses was $6 million and $9 million for the three
and six months ended June 30, 2001, compared to $4 million and $5 million for
the same periods in 2000. The increase in the provision for loan losses in 2001
reflected the growth in the loan portfolio over the prior year and the increase
in nonperforming assets.
General and Administrative Expenses
For the second quarter and first six months of 2001, general and
administrative expenses (G&A) were $125 million and $243 million compared to
$102 million and $202 million for the comparable periods in 2000. G&A as a
percentage of average assets on an annualized basis was .88% and .86% for the
second quarter and first six months of 2001 compared to .87% and .90% for the
same periods in 2000. G&A expenses increased in 2001 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 38.4% for the second quarter and
first six months of 2001 compared to 37.8% for the same periods a year ago.
Liquidity and Capital Resources
WSB'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 of San Francisco; borrowings from its parent; and debt
collateralized by mortgages, MBS, or securities. In addition, WSB has other
alternatives available to provide liquidity or finance operations including
federal funds purchased, the issuance of medium-term notes and bank notes,
borrowings from public offerings of debt, issuances of commercial paper, and
borrowings from commercial banks. Furthermore, under certain conditions, WSB 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.
WTX's principal sources of funds are cash flows generated from borrowings
from the FHLB of Dallas; earnings; deposits; loan repayments; debt
collateralized by mortgages or securities; and borrowings from affiliates.
The principal sources of funds for WSB's parent, Golden West, are dividends
from subsidiaries, interest on investments, and the proceeds from the issuance
of debt securities. Various statutory and regulatory restrictions and tax
considerations limit the amount of dividends WSB can pay. The principal
liquidity needs of Golden West are for payment of interest and principal on
subordinated debt securities, capital contributions to its insured subsidiaries,
dividends to stockholders, the repurchase of Golden West stock (see
stockholders' equity section on page 23), and general and administrative
expenses. At June 30, 2001, December 31, 2000, and June 30, 2000, Golden West's
total cash and investments amounted to $379 million, $387 million, and $522
million, respectively. Included in the cash and investments above are a
subordinated note receivable from WSB in the amount of $100 million at June 30,
2001 and December 31, 2000 and a notes receivable from WSB in the amount of $400
million at June 30, 2000.
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 26. 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 June 30,
2001, Management believes that a 200 basis point rate increase sustained over a
thirty-six month period would not materially affect the Company's long-term
profitability and financial strength.
PART II. OTHER INFORMATION
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.
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
(b) Reports on Form 8-K
The Registrant filed the following report on Form 8-K with the Commission
during the quarter for which the report is filed:
1. Report filed May 8, 2001. Item 7. Financial Statements and Exhibits.
The report included a press release announcing the Company's first
quarter financial results.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: August 14, 2001
/s/ Russell W. Kettell
---------------------------------
Russell W. Kettell
President and Chief Financial Officer
/s/ William C. Nunan
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William C. Nunan
Group Senior Vice President and
Chief Accounting Officer