SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the Quarter Ended March 31, 1999 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
Delaware 95-2080059
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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The number of shares outstanding of the registrant's common stock on
April 30, 1999, was 56,096,399 shares.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or Company) for the three months ended
March 31, 1999 and 1998 are unaudited. In the opinion of the Company, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair statement of the results for such three month periods have been
included. The operating results for the three months ended March 31, 1999, are
not necessarily indicative of the results for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
March 31 March 31 December 31
1999 1998 1998
------------ ------------- -------------
(Unaudited)
---------------------------
Assets:
Cash $ 196,974 $ 177,913 $ 250,875
Securities available for sale at fair value 331,937 628,235 377,005
Other investments at cost 1,154,996 389,044 422,385
Purchased mortgage-backed securities available for sale
at fair value 103,290 148,740 113,585
Purchased mortgage-backed securities held to maturity
at cost 518,887 718,733 572,376
Mortgage-backed securities held to maturity with recourse at cost 3,576,300 3,424,636 3,884,347
Mortgage-backed securities REMICs held to maturity 5,008,319 -0- 5,461,657
Loans receivable 26,020,901 32,723,855 25,721,288
Interest earned but uncollected 186,761 213,590 209,328
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 790,955 599,960 780,303
Real estate held for sale or investment 30,310 48,187 45,696
Prepaid expenses and other assets 472,851 347,264 357,363
Premises and equipment--at cost less accumulated depreciation 273,612 249,263 272,521
------------ ------------- -------------
$38,666,093 $39,669,420 $38,468,729
============ ============= =============
Liabilities and Stockholders' Equity:
Deposits $26,395,440 $24,559,270 $26,219,095
Advances from Federal Home Loan Banks 6,114,548 7,645,830 6,163,472
Securities sold under agreements to repurchase 692,624 2,184,991 1,252,469
Federal funds purchased 475,000 500,000 -0-
Accounts payable and accrued expenses 544,818 512,497 468,213
Taxes on income 370,842 341,043 329,409
Subordinated notes--net of discount 912,033 1,110,828 911,753
Stockholders' equity 3,160,788 2,814,961 3,124,318
------------ ------------- -------------
$38,666,093 $39,669,420 $38,468,729
============ ============= =============
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended
March 31
----------------------------
1999 1998
------------- ------------
Interest Income:
Interest on loans $ 476,244 $ 628,878
Interest on mortgage-backed securities 168,751 72,195
Interest and dividends on investments 49,966 54,130
------------- ------------
694,961 755,203
Interest Expense:
Interest on deposits 307,567 315,210
Interest on advances 86,751 123,560
Interest on repurchase agreements 13,547 32,936
Interest on other borrowings 36,395 39,783
------------- ------------
444,260 511,489
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Net Interest Income 250,701 243,714
Provision for loan losses 574 2,965
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Net Interest Income after Provision
for Loan Losses 250,127 240,749
Non-Interest Income:
Fees 16,159 12,947
Gain on the sale of securities, MBS, and loans 10,063 2,507
Other 9,077 10,549
------------- ------------
35,299 26,003
Non-Interest Expense:
General and administrative:
Personnel 51,798 46,536
Occupancy 16,287 14,169
Deposit insurance 1,393 1,612
Advertising 2,179 2,246
Other 21,389 19,111
------------- ------------
93,046 83,674
Earnings before Taxes on Income and
Extraordinary Item 192,380 183,078
Taxes on Income 72,012 72,997
------------- ------------
Earnings before Extraordinary Item 120,368 110,081
Extraordinary Item:
Federal Home Loan Bank advance prepayment
penalty, net of tax benefit -0- (7,710)
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Net Earnings $ 120,368 $ 102,371
============= ============
Basic earnings per share before extraordinary $ 2.13 $ 1.92
item
Basic earnings per share on extraordinary
item, net of tax benefit 0.00 (.13)
------------- ------------
Basic earnings per share $ 2.13 $ 1.79
============= ============
Diluted earnings per share before extraordinary $ 2.11 $ 1.89
item
Diluted earnings per share on extraordinary item,
net of tax benefit 0.00 (.13)
------------- ------------
Diluted earnings per share $ 2.11 $ 1.76
============= ============
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
----------------------------
1999 1998
------------ -------------
Cash Flows from Operating Activities:
Net earnings $ 120,368 $ 102,371
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Extraordinary item -0- 13,035
Provision for loan losses 574 2,965
Amortization of loan fees and discounts (6,194) (5,105)
Depreciation and amortization 6,937 5,724
Loans originated for sale (287,064) (121,539)
Sales of loans 535,344 131,940
Decrease in interest earned but uncollected 22,567 3,333
Federal Home Loan Bank stock dividends (20,967) (17,383)
Increase in prepaid expenses and other assets (106,244) (91,604)
Increase in accounts payable and accrued expenses 66,855 58,824
Increase in taxes on income 62,640 63,938
Other, net (1,249) (4,427)
------------ -------------
Net cash provided by operating activities 393,567 142,072
Cash Flows from Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,790,916) (1,345,654)
Real estate loans purchased (460) (1,047)
Other, net (10,581) (10,817)
------------ -------------
(1,801,957) ( 1,357,518)
Real estate loan principal payments:
Monthly payments 151,930 174,919
Payoffs, net of foreclosures 1,168,958 1,177,369
------------ -------------
1,320,888 1,352,288
Repayments of mortgage-backed securities 750,827 148,520
Proceeds from sales of real estate 40,407 51,405
Purchases of securities available for sale (150,014) (22)
Sales of securities available for sale 9 223
Matured securities available for sale 154,208 10,042
Increase in other investments (732,611) (136,396)
Purchases of Federal Home Loan Bank stock -0- (990)
Additions to premises and equipment (8,397) (15,063)
------------ -------------
Net cash provided by (used in) investing activities (426,640) 52,489
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
--------------------------
1999 1998
----------- -----------
Cash Flows from Financing Activities:
Deposit activity:
Increase (decrease) in deposits, net $ (69,200) $ 204,135
Interest credited 245,545 245,418
----------- -----------
176,345 449,553
Additions to Federal Home Loan Bank advances 1,508,650 711,200
Repayments of Federal Home Loan Bank advances (1,557,573) (1,587,707)
Proceeds from agreements to repurchase securities 95 1,255,890
Repayments of agreements to repurchase securities (559,940) (1,404,947)
Repayments of medium-term notes -0- (110,000)
Increase in federal funds purchased 475,000 500,000
Dividends on common stock (7,921) (7,140)
Exercise of stock options 2,067 4,262
Purchase and retirement of Company stock (57,551) -0-
----------- -----------
Net cash used in financing activities (20,828) (188,889)
----------- -----------
Net Increase (Decrease) in Cash (53,901) 5,672
Cash at beginning of period 250,875 172,241
----------- -----------
Cash at end of period $ 196,974 $ 177,913
=========== ===========
Supplemental cash flow information:
Cash paid for:
Interest $ 435,393 $ 507,374
Income taxes 9,486 3,831
Cash received for interest and dividends 717,528 758,536
Noncash investing activities:
Loans converted from adjustable rate to
fixed-rate 171,370 8,374
Loans transferred to foreclosed real estate 20,072 31,561
Adjustable rate loans securitized into
mortgage-backed securities with recourse -0- 500,992
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Three Months Ended March 31, 1999
------------------------------------------------------------------------------------
Accumulated
Comprehensive
Income From
Additional Unrealized Total
Common Paid-in Retained Gains On Stockholders' Comprehensive
Stock Capital Earnings Securities Equity Income
---------- ----------- ---------- -------------- ------------- --------------
Balance at January 1, 1999 $ 5,686 $ 122,159 $2,781,925 $ 214,548 $ 3,124,318
Comprehensive income:
Net earnings -0- -0- 120,368 -0- 120,368 $ 120,368
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (20,118) (20,118) (20,118)
Reclassification adjustment
for gains included in income -0- -0- -0- (375) (375) (375)
--------------
Comprehensive Income $ 99,875
==============
Cash dividends on common
stock ($.14 per share) -0- -0- (7,921) -0- (7,921)
Common stock issued upon
exercise of stock options,
including tax benefits 7 2,060 -0- -0- 2,067
Purchase and retirement of
Company stock (62) -0- (57,489) -0- (57,551)
---------- ----------- ------------ -------------- -------------
Balance at March 31, 1999 $ 5,631 $ 124,219 $ 2,836,883 $ 194,055 $ 3,160,788
========== =========== ============ ============== =============
For the Three Months Ended March 31, 1998
------------------------------------------------------------------------------------
Accumulated
Comprehensive
Income From
Additional Unrealized Total
Common Paid-in Retained Gains On Stockholders' Comprehensive
Stock Capital Earnings Securities Equity Income
---------- ----------- ---------- -------------- ------------- --------------
Balance at January 1, 1998 $ 5,707 $ 85,532 $2,457,055 $ 149,737 $ 2,698,031
Comprehensive income:
Net earnings -0- -0- 102,371 -0- 102,371 $ 102,371
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- 17,434 17,434 17,434
Reclassification adjustment
for losses included in income -0- -0- -0- 3 3 3
--------------
Comprehensive Income $ 119,808
==============
Cash dividends on common
stock ($.125 per share) -0- -0- (7,140) -0- (7,140)
Common stock issued upon
exercise of stock options,
including tax benefits 12 4,250 -0- -0- 4,262
---------- ----------- ---------- -------------- -------------
Balance at March 31, 1998 $ 5,719 $ 89,782 $2,552,286 $ 167,174 $ 2,814,961
========== =========== ========== ============== =============
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, 1998, as well as certain material changes in results of operations during
the three month periods ended March 31, 1999, and 1998, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1998 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, 1998, and for the year then ended.
Therefore, only material changes in financial condition and results of
operations are discussed herein.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, Golden West adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), which establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas, and major customers. The Company
operates as a single segment and, therefore, SFAS 131 had no effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This Statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivative instruments as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This Statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company is in the
process of assessing the impact of this statement on its financial statements
and results of operations.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
March 31 March 31 December 31
1999 1998 1998
------------- ------------ --------------
Assets $ 38,666,093 $ 39,669,420 $ 38,468,729
Loans receivable including mortgage-backed securities 35,227,697 37,015,964 35,753,253
Deposits 26,395,440 24,559,270 26,219,095
Stockholders' equity 3,160,788 2,814,961 3,124,318
Stockholders' equity/total assets 8.17% 7.10% 8.12%
Book value per common share $ 56.13 $ 49.22 $ 54.95
Common shares outstanding 56,312,799 57,190,004 56,861,124
Diluted common shares outstanding 56,883,065 58,108,240 57,429,914
Yield on loan portfolio 7.25% 7.57% 7.36%
Yield on mortgage-backed securities 7.02% 7.23% 7.20%
Yield on investments 5.55% 6.53% 5.53%
Yield on earning assets 7.14% 7.51% 7.30%
Cost of deposits 4.58% 5.02% 4.67%
Cost of borrowings 5.73% 6.02% 5.87%
Cost of funds 4.85% 5.33% 4.96%
Yield on earning assets less cost of funds 2.29% 2.18% 2.34%
Ratio of nonperforming assets to total assets .72% .93% .79%
Ratio of troubled debt restructured to total assets .04% .10% .06%
World Savings Bank, a Federal Savings Bank:
Total assets $ 31,893,907 $ 25,820,982 $ 31,912,264
Net worth 2,248,514 1,769,860 2,164,854
Net worth/total assets 7.05% 6.85% 6.78%
Regulatory capital ratios:
Core capital 7.04% 6.84% 6.77%
Risk-based capital 13.18% 13.51% 12.93%
World Savings and Loan Association:
Total assets $ 6,433,946 $ 25,820,982 $ 6,810,266
Net worth 701,150 1,087,367 687,778
Net worth/total assets 10.90% 7.64% 10.10%
Regulatory capital ratios:
Core capital 8.21% 6.62% 7.25%
Risk-based capital 18.23% 13.90% 16.24%
World Savings Bank, a State Savings Bank:
Total assets $ 3,508,260 $ 132,201 $ 3,519,046
Net worth 190,175 12,166 186,411
Net worth/total assets 5.42% 9.19% 5.30%
Regulatory capital ratios:
Tier 1 leverage capital 5.35% 9.43% 5.26%
Total risk-based capital 25.81% 17.49% 25.15%
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended
March 31
-------------------------
1999 1998
----------- -----------
New real estate loans originated $2,077,980 $1,467,193
Average yield on new real estate loans 7.60% 7.76%
Current average rate on new real estate loans (a) 6.14% 6.39%
Increase in deposits (b) $ 176,345 $ 449,553
Earnings before extraordinary item 120,368 110,081
Net earnings 120,368 102,371
Basic earnings per share before extraordinary item 2.13 1.92
Diluted earnings per share before extraordinary item 2.11 1.89
Basic earnings per share 2.13 1.79
Diluted earnings per share 2.11 1.76
Cash dividends on common stock .14 .125
Average common shares outstanding 56,580,974 57,126,696
Average diluted common shares outstanding 57,145,979 58,008,840
Ratios:(c)
Net earnings/average net worth (ROE)(d) 15.31% 14.83%
Net earnings/average assets (ROA)(d) 1.25% 1.03%
Net interest income/average assets 2.61% 2.45%
General and administrative expense/average assets .97% .84%
(a) The current rate reflects that the actual rate being paid by the borrower
at time of origination.
(b) Includes a decrease of $525 million of wholesale deposits for the quarter
ended March 31, 1998.
(c) Ratios are annualized by multiplying the quarterly computation by four.
Averages are computed by adding the beginning balance and each monthend
balance during the quarter and dividing by four.
(d) The ratios for the quarter ended March 31, 1998 include the extraordinary
item. The ratios for the quarter ended March 31, 1998 excluding the
extraordinary item are: ROE 15.95% and ROA 1.11%.
FINANCIAL CONDITION
The consolidated condensed balance sheet shown in the table below
presents the Company's assets and liabilities in percentage terms at March 31,
1999 and 1998, and December 31, 1998. The reader is referred to page 53 of the
Company's 1998 Annual Report on Form 10-K for similar information for the
years 1995 through 1998 and a discussion of the changes in the composition of
the Company's assets and liabilities in those years.
TABLE 1
Consolidated Condensed Balance Sheet
In Percentage Terms
March 31
-------------------- December 31
1999 1998 1998
------- ------- -------------
Assets:
Cash and investments 4.4% 3.0% 2.7%
Mortgage-backed securities 23.8 10.8 26.1
Loans receivable 67.3 82.5 66.9
Other assets 4.5 3.7 4.3
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
Liabilities and Stockholders' Equity:
Deposits 68.3% 61.9% 68.1%
Federal Home Loan Bank advances 15.8 19.3 16.0
Securities sold under agreements to repurchase 1.8 5.5 3.3
Federal funds purchased 1.2 1.3 0.0
Other liabilities 2.3 2.1 2.1
Subordinated debt 2.4 2.8 2.4
Stockholders' equity 8.2 7.1 8.1
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
During 1998, the Company securitized $8.2 billion of loans into
mortgage-backed securities which caused the percentage of mortgage-backed
securities to total assets to increase from March 31, 1998 to March 31, 1999 and
the percentage of loans receivable to total assets to decrease from March 31,
1998 to March 31, 1999. For further discussion, see pages 12 and 13.
As the above table shows, the largest asset component is the loan
portfolio (including mortgage-backed securities), which consists primarily of
long-term mortgages. Deposits represent the majority of the Company's
liabilities. The disparity between the repricing (maturity, prepayment, or
interest rate change) of deposits and borrowings and the repricing of mortgage
loans and investments can have a material impact on the Company's results of
operations. The difference between the repricing characteristics of assets and
liabilities is commonly referred to as "the gap."
The following gap table shows that, as of March 31, 1999, 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.
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of March 31, 1999
(Dollars in millions)
Projected Repricing(a)
-------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
----------- ----------- ----------- ------------ -----------
Interest-Earning Assets:
Investments $ 1,158 $ 32 $ 69 $ 228 $ 1,487
Mortgage-backed securities 8,664 91 285 167 9,207
Loans receivable:
Rate-sensitive 21,656 1,952 149 -0- 23,757
Fixed-rate 130 339 1,007 663 2,139
Other(b) 949 -0- -0- -0- 949
Impact of interest rate swaps 545 135 (663) (17) -0-
----------- ----------- ----------- ------------ -----------
Total $ 33,102 $ 2,549 $ 847 $ 1,041 $ 37,539
=========== =========== =========== ============ ===========
Interest-Bearing Liabilities(c):
Deposits $ 14,477 $ 10,368 $ 1,547 $ 3 $ 26,395
FHLB advances 5,500 200 122 293 6,115
Other borrowings 1,361 7 712 -0- 2,080
Impact of interest rate swaps 234 (113) (121) -0- -0-
----------- ----------- ----------- ------------ -----------
Total $ 21,572 $ 10,462 $ 2,260 $ 296 $ 34,590
=========== =========== =========== ============ ===========
Repricing gap $ 11,530 $ (7,913) $ (1,413) $ 745
=========== =========== =========== ============
Cumulative gap $ 11,530 $ 3,617 $ 2,204 $ 2,949
=========== =========== =========== ============
Cumulative gap as a percentage of
total assets 29.8% 9.4% 5.7%
=========== =========== ===========
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect
scheduled repayments and projected prepayments of principal based on
current rates of prepayment.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Liabilities with no maturity date, such as checking, passbook and money
market deposit accounts, are assigned zero months.
CASH AND INVESTMENTS
The Office of Thrift Supervision (OTS) requires insured institutions,
such as World Savings Bank, FSB (WFSB), and World Savings and Loan Association
(WSL), to maintain a minimum amount of cash and certain qualifying investments
for liquidity purposes. At March 31, 1999 and 1998 and at December 31, 1998,
WFSB and WSL had liquidity in excess of the regulatory requirements. The state
of Texas requires insured institutions, such as World Savings Bank, SSB (WSSB),
to maintain a daily minimum amount of cash and certain qualifying investments
for liquidity purposes. WSSB met this requirement during the periods under
discussion.
At March 31, 1999 and 1998, and December 31, 1998, the Company had
securities available for sale in the amount of $332 million, $628 million, and
$377 million, respectively, including unrealized gains on securities available
for sale of $317 million, $275 million, and $358 million, respectively. At March
31, 1999 and 1998, and December 31, 1998, the Company had no securities held for
trading in its investment securities portfolio.
Included in the Company's investment portfolio at March 31, 1999 and
1998, and December 31, 1998, were collateralized mortgage obligations (CMOs) in
the amount of $194 million, $61 million, and $196 million, respectively. The
Company holds CMOs on which both principal and interest are received. It does
not hold any interest-only or principal-only CMOs. At March 31, 1999, all of
these CMOs qualified for inclusion in the regulatory liquidity measurement.
LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES
The Company invests in whole loans and mortgage-backed securities (MBS)
and, from time to time, the Company securitizes loans from its portfolio into
MBS and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs) that are
available to be used as collateral for borrowings. At March 31, 1999 and 1998,
and December 31, 1998, the balance of loans receivable including mortgage backed
securities was $35.2 billion, $37.0 billion, and $35.8 billion, respectively.
Included in the $35.2 billion at March 31, 1999, was $3.6 billion of Federal
National Mortgage Association (FNMA) mortgage-backed securities with the
underlying loans subject to full credit recourse to the Company and $5.0 billion
of MBS-REMICs. Included in the $35.8 billion at December 31, 1998, was $3.9
billion of FNMA MBS with the underlying loans subject to full credit recourse to
the Company and $5.5 billion of MBS-REMICs. Included in the $37.0 billion at
March 31, 1998, was $3.4 billion of FNMA MBS with the underlying loans subject
to full credit recourse to the Company
At March 31, 1999 and 1998, and December 31, 1998, the Company had MBS
held to maturity in the amount of $9.1 billion, $4.1 billion, and $9.9 billion,
respectively. At March 31, 1999 and 1998, and December 31, 1998, the Company had
MBS available for sale in the amount of $103 million, $149 million, and $114
million, respectively, including unrealized gains on MBS available for sale of
$4 million, $8 million, and $5 million, respectively. At March 31, 1999 and 1998
and December 31, 1998, the Company had no trading MBS.
During 1998, the Company securitized $6.4 billion of mortgage loans
into MBS-REMICs. MBS-REMICs are being used as collateral for borrowings. The
Company has the ability and intent to hold these MBS until maturity and,
accordingly, MBS-REMICs are classified as MBS held to maturity.
During 1998, the Company securitized $1.8 billion of adjustable rate
mortgages (ARMs) into FNMA COFI-indexed MBS. The Company has the ability and
intent to hold these MBS until maturity and, accordingly, these MBS are
classified as held to maturity. The FNMA MBS held to maturity are available to
be used as collateral for borrowings and the underlying loans are subject to
full credit recourse to the Company.
Repayments of MBS during the first quarter of 1999 were $751 million
compared to $149 million in the same period of 1998. MBS repayments were higher
during the first three months of 1999 as compared to the first three months of
1998 due to an increase in total MBS outstanding and an increase in the
prepayment rate of the underlying mortgages.
LOAN VOLUME
New loan originations for the three months ended March 31, 1999,
amounted to $2.1 billion compared to $1.5 billion for the same period in 1998.
The high volume of originations during 1999 was due to a continued strong demand
for home loans for both purchases and refinances. Refinanced loans constituted
49% of new loan originations for the three months ended March 31, 1999, compared
to 44% for the three months ended March 31, 1998.
Loans originated for sale amounted to $287 million for the three months
ended March 31, 1999, compared to $122 million for the same period in 1998. In
addition, during the first three months of 1999, $171 million of loans were
converted from adjustable rate to fixed rate compared to $8 million for the same
period in 1998. The Company sold $535 million and $132 million of fixed-rate
loans for the three months ended March 31, 1999 and 1998, respectively.
At March 31, 1999, the Company had lending operations in 27 states. The
largest source of mortgage origination is loans secured by residential
properties in California. For the three months ended March 31, 1999, 64% of
total loan originations were on residential properties in California compared to
59% for the same period in 1998. The five largest states, other than California,
for originations for the three months ended March 31, 1999, were Florida, Texas,
Washington, Arizona, and Illinois with a combined total of 19% of total
originations. The percentage of the total loan portfolio (including
mortgage-backed securities with recourse and MBS-REMICs) that is comprised of
residential loans in California was 65% at March 31, 1999 compared to 66% at
March 31, 1998 and December 31, 1998.
The Company originates adjustable rate mortgages tied to various
indexes, including the Eleventh District Cost of Funds Index (COFI), the Golden
West Cost of Savings Index (COSI), and the twelve-month rolling average of the
One-Year Treasury Constant Maturity (TCM).
The following table shows the distribution of ARM originations by index
for the first quarter of 1999 and 1998.
TABLE 3
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
March 31
----------------------------
ARM Index 1999 1998
- -------------------------- ------------ ------------
COFI $ 548,633 $ 989,904
COSI 1,077,388 133,248
TCM 38,650 163,975
------------ ------------
$ 1,664,671 $ 1,287,127
============ ============
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at March 31, 1999 and 1998 and December 31, 1998.
TABLE 4
Adjustable Rate Mortgage Portfolio by
Index (Including ARM MBS with recourse and
ARM MBS-REMICs)
(Dollars in thousands)
March 31
-------------------------------- December 31
ARM Index 1999 1998 1998
- -------------------------- -------------- --------------- ---------------
COFI $ 28,354,954 $ 33,142,963 $ 29,761,484
COSI 2,720,655 146,704 1,703,283
TCM 1,250,474 239,752 1,256,775
Other 185,290 269,948 201,756
-------------- --------------- ---------------
$ 32,511,373 $ 33,799,367 $ 32,923,298
============== =============== ===============
The tables on the following two pages show the Company's loan portfolio
by state at March 31, 1999 and 1998.
TABLE 5
Loan Portfolio by State
March 31, 1999
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
------------------------- Real Total a% of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ---------------- ------------ ----------- ---------- -------------- ----------- ------------
California $19,452,910 $3,301,332 $ 204 $ 37,569 $22,792,015 65.43%
Florida 1,473,511 17,745 2 681 1,491,939 4.28
Texas 1,385,186 63,824 488 1,310 1,450,808 4.17
Illinois 1,120,218 142,985 -0- -0- 1,263,203 3.63
New Jersey 1,187,975 -0- -0- 4,557 1,192,532 3.42
Colorado 920,537 186,859 -0- 5,510 1,112,906 3.20
Washington 553,257 433,808 -0- 677 987,742 2.84
Arizona 737,057 22,555 -0- -0- 759,612 2.18
Other (b) 3,719,381 46,293 63 12,720 3,778,457 10.85
------------ ----------- ---------- ------------- ------------ ---------
Totals $30,550,032 $4,215,401 $ 757 $ 63,024 34,829,214 100.00%
============ =========== ========== ============= =========
SFAS 91 deferred loan fees (3,647)
Loan discount on purchased loans (2,878)
Undisbursed loan funds (2,928)
Allowance for loan losses (236,476)
Loans to facilitate (LTF) interest reserve (361)
Troubled debt restructured (TDR) interest reserve (1,372)
Loans on deposits 23,968
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 34,605,520
Loans securitized into FNMA MBS with recourse and MBS-REMICs (8,584,619)(c)
------------
Total loan portfolio $26,020,901
============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the March 31, 1999 balances of loans that were
securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 6
Loan Portfolio by State
March 31, 1998
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
------------------------- Real Total a% of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ---------------- ------------ ----------- ---------- -------------- ----------- ------------
California $20,559,134 $3,441,030 $ 227 $ 46,376 $24,046,767 66.06%
Florida 1,391,624 19,980 7 825 1,412,436 3.88
Texas 1,401,536 84,865 557 1,435 1,488,393 4.09
Illinois 1,207,662 165,490 -0- 1,576 1,374,728 3.78
New Jersey 1,247,812 399 -0- 5,372 1,253,583 3.44
Colorado 1,084,163 223,494 -0- 6,992 1,314,649 3.61
Washington 530,491 410,124 -0- 712 941,327 2.59
Arizona 765,220 36,671 -0- 541 802,432 2.20
Other (b) 3,701,019 52,545 86 15,385 3,769,035 10.35
------------ ----------- ---------- ------------- ------------ ---------
Totals $31,888,661 $4,434,598 $ 877 $ 79,214 36,403,350 100.00%
============ =========== ========== ============= =========
SFAS 91 deferred loan fees (33,962)
Loan discount on purchased loans (3,689)
Undisbursed loan funds (3,579)
Allowance for loan losses (237,186)
Loans to facilitate interest reserve (570)
Troubled debt restructured interest reserve (3,042)
Loans on deposits 27,169
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse 36,148,491
Loans securitized into FNMA MBS with recourse (3,424,636)(c)
------------
Total loan portfolio $32,723,855
============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the March 31, 1998 balances of loans that were
securitized and retained as FNMA MBS with recourse.
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 93% at March 31, 1999 compared to 92% at March 31, 1998
and December 31, 1998. The Company's ARM originations for the first three months
of 1999 constituted 80% of new mortgage loans made in 1999 compared to 87% for
the first three months of 1998.
The weighted average maximum lifetime cap rate on the Company's ARM
loan portfolio (including ARMs swapped into MBS with recourse and MBS-REMICs)
was 12.59%, or 5.47% above the actual weighted average rate at March 31, 1999,
versus 12.72%, or 5.28% above the weighted average rate at March 31, 1998.
Approximately $4.5 billion of the Company's ARM loans (including MBS
with recourse and MBS-REMICs) have terms that state that the interest rate may
not fall below a lifetime floor set at the time of origination or assumption. As
of March 31, 1999, $498 million of ARM loans had reached their rate floors. The
weighted average floor rate on the loans that had reached their floor was 7.69%
at March 31, 1999 compared to 7.75% at March 31, 1998. Without the floor, the
average rate on these loans would have been 6.88% at March 31, 1999 and 7.24% at
March 31, 1998.
Loan repayments consist of monthly loan amortization and loan payoffs.
For the three months ended March 31, 1999, loan repayments were $1.3 billion
compared to $1.4 billion in the same period of 1998. Although the balance of
loans receivable was smaller due largely to the securitization of loans into
MBS, prepayments remained high due to the strong refinance and home sale
activity.
MORTGAGE SERVICING RIGHTS
The Company accounts for mortgage servicing rights in accordance with
SFAS 125. Capitalized mortgage servicing rights are included in "Prepaid
expenses and other assets" on the Consolidated Statement of Financial Condition.
The following table shows the changes in capitalized mortgage servicing rights
at March 31, 1999 and 1998.
TABLE 7
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended
March 31
---------------------------
1999 1998
------------ ------------
Beginning balance of capitalized mortgage servicing rights $ 28,635 $ 11,116
New capitalized mortgage servicing rights from loan sales 8,968 2,151
Amortization of capitalized mortgage servicing rights (2,353) (892)
------------ ------------
Ending balance of capitalized mortgage servicing rights $ 35,250 $ 12,375
============ ============
The book value of Golden West's servicing rights did not exceed the fair
value at March 31, 1999 or 1998 and, therefore, no write-down of the servicing
rights to their fair value was necessary.
ASSET QUALITY
One measure of the soundness of the Company's loan and MBS portfolio is
its ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets
include non-accrual loans (loans, including loans swapped into MBS with recourse
and loans securitized into MBS-REMICs, that are 90 days or more past due) and
real estate acquired through foreclosure. No interest is recognized on
non-accrual loans. The Company's troubled debt restructured (TDRs) are made up
of loans on which delinquent payments have been capitalized or on which
temporary interest rate reductions have been made, primarily to customers
adversely impacted by economic conditions.
The following table shows the components of the Company's NPAs and TDRs
and the various ratios to total assets.
TABLE 8
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
March 31
-------------------------- December 31
1999 1998 1998
----------- ----------- --------------
Non-accrual loans $ 252,043 $ 319,324 $ 262,332
Real estate acquired through foreclosure 27,106 47,696 42,572
Real estate in judgment 154 69 74
----------- ----------- ------------
Total nonperforming assets $ 279,303 $ 367,089 $ 304,978
=========== =========== ============
TDRs $ 16,575 $ 38,686 $ 22,774
=========== =========== ============
Ratio of NPAs to total assets .72% .93% .79%
=========== =========== ============
Ratio of TDRs to total assets .04% .10% .06%
=========== =========== ============
Ratio of NPAs and TDRs to total assets .76% 1.03% .85%
=========== =========== ============
The lower NPAs at March 31, 1999 as compared to March 31, 1998 reflect
the strong California economy and housing market. The Company continues to
closely monitor all delinquencies and takes appropriate steps to protect its
interests. Interest foregone on non-accrual loans amounted to $2 million
compared to $3 million for the same period in 1998. Interest foregone on TDRs
amounted to $135 thousand for the three months ended March 31, 1999, compared to
$286 thousand for the three months ended March 31, 1998.
The tables on the following page show the Company's nonperforming
assets by state as of March 31, 1999 and 1998.
TABLE 9
Nonperforming Assets by State
March 31, 1999
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
---------------------------------- ------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a% of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------------ --------- --------- ----------- -------- --------- --------- ---------- --------
California $161,884 $ 3,392 $ 1,808 $22,736 $ -0- $ -0- $ 189,820 .83%
Florida 16,841 -0- 78 1,134 -0- -0- 18,053 1.21
Texas 7,111 -0- -0- 491 -0- -0- 7,602 .52
Illinois 12,134 218 -0- 1,394 -0- -0- 13,746 1.09
New Jersey 15,695 -0- 373 743 -0- -0- 16,811 1.41
Colorado 1,636 -0- 3 -0- -0- -0- 1,639 .15
Washington 2,102 -0- -0- -0- -0- -0- 2,102 .21
Arizona 2,304 -0- -0- 64 -0- -0- 2,368 .31
Other (c) 26,380 84 -0- 1,268 -0- -0- 27,732 .73
--------- --------- ----------- -------- --------- --------- ---------- -----
Totals $246,087 $ 3,694 $ 2,262 $27,830 $ -0- $ -0- 279,873 .80%
========= ========= =========== ======== ========= =========
REO general valuation allowance (570) (.00)
---------- -----
Total nonperforming assets $ 279,303 .80%
========== =====
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The March 31, 1999 balances include loans that were securitized into FNMA
MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
TABLE 10
Nonperforming Assets by State
March 31, 1998
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
-------------------------------- -------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a% of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ------------------ --------- --------- --------- -------- --------- --------- --------- ---------
California $224,419 $ 7,827 $ 1,463 $42,586 $ 1,506 $ -0- $277,801 1.16%
Florida 12,565 -0- 188 482 -0- -0- 13,235 .94
Texas 8,284 -0- -0- 935 -0- -0- 9,219 .62
Illinois 11,030 221 -0- 612 -0- -0- 11,863 .86
New Jersey 18,194 -0- 201 422 -0- -0- 18,817 1.50
Colorado 1,624 114 68 77 -0- -0- 1,883 .14
Washington 1,969 -0- -0- 544 -0- -0- 2,513 .27
Arizona 1,756 -0- -0- 244 -0- -0- 2,000 .25
Other (c) 29,340 41 20 1,216 162 11 30,790 .82
--------- --------- --------- -------- --------- --------- --------- -----
Totals $309,181 $ 8,203 $ 1,940 $47,118 $ 1,668 $ 11 368,121 1.01%
========= ========= ========= ======== ========= =========
REO general valuation allowance (1,032) (.00)
--------- -----
Total nonperforming assets $367,089 1.01%
========= =====
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The March 31, 1998 balances include loans that were securitized into FNMA
MBS.
(c) Includes states with loans less than 2% of total loans.
The Company provides specific valuation allowances for losses on loans
when impaired, and on real estate owned when any significant and permanent
decline in value is identified. The Company also utilizes a methodology for
monitoring and estimating loan losses that is based on both historical
experience in the loan portfolio and factors reflecting current economic
conditions. This approach uses a database that identifies losses on loans and
foreclosed real estate from past years to the present, broken down by year of
origination, type of loan, and geographical area. Management is then able to
estimate a range of general loss allowances to cover losses in the portfolio.
In addition, periodic reviews are made of major loans and real estate owned,
and major lending areas are regularly reviewed to determine potential
problems. Where indicated, valuation allowances are established or adjusted.
In estimating possible losses, consideration is given to the estimated sale
price, cost of refurbishing, payment of delinquent taxes, cost of disposal,
and cost of holding the property. Additions to and reductions from the
allowances are reflected in current earnings.
The table below shows the changes in the allowance for loan losses for
the three months ended March 31, 1999 and 1998.
TABLE 11
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended
March 31
------------------------
1999 1998
---------- -----------
Beginning allowance for loan losses $ 244,466 $ 233,280
Provision charged to expense 574 2,965
Transfer allowance to reserve for losses
on loans sold or securitized and retained (9,750) -0-
Less loans charged off, net -0- -0-
Add recoveries 1,186 941
---------- -----------
Ending allowance for loan losses $ 236,476 $ 237,186
========== ===========
Ratio of chargeoffs net of recoveries to average loans
outstanding (including MBS with recourse and MBS-REMICs) (.01%) (.01%)
========== ===========
As previously mentioned, the Company has securitized loans with
recourse from its portfolio into MBS and MBS-REMICs. The Company's intent is to
hold these MBS and MBS-REMICs to maturity and the Company is liable for losses
on the loans underlying these securities. Because these loans underlying the MBS
and MBS-REMICs are similar in all respects to the loans in its loan portfolio,
the Company estimates its reserve on these securities in a manner similar to the
method it uses for the allowance for loan losses. The Company also sells loans
with full credit recourse and has established a reserve for potential losses on
these loans. The liability for this reserve for losses on loans sold or
securitized and retained is included in accounts payable and accrued expenses.
The table below shows the changes in the reserve for losses on loans
sold or securitized and retained for the three months ended March 31, 1999 and
1998.
TABLE 12
Changes in Reserve for Losses on Loans Sold with Recourse or Securitized
and Retained (Dollars in thousands)
Three Months Ended
March 31
------------------------
1999 1998
---------- -----------
Beginning balance of reserve for losses on loans
sold with recourse or securitized and retained $ 2,256 $ 886
Initial recourse at time of sale 543 137
Transfer from allowance for loan losses 9,750 -0-
---------- -----------
Ending balance of reserve for losses on loans
sold with recourse or securitized and retained $ 12,549 $ 1,023
========== ===========
The ratio to nonperforming assets of the allowance for loan losses and
the reserve for losses on loans sold or securitized and retained was 89.2% and
64.9% at March 31, 1999 and 1998, respectively. At March 31, 1999 and 1998,
the ratio to total loans (including MBS with recourse and MBS-REMICs) of the
allowance for loan losses and the reserve for losses on loans sold or
securitized and retained was .72% and .66%, respectively.
DEPOSITS
Retail deposits increased during the first quarter of 1999 by $176
million, including interest credited of $246 million, compared to an increase
of $975 million, including interest credited of $245 million, in the first
quarter of 1998. Retail deposits increased during the first three months of
1999 and 1998 primarily due to ongoing marketing efforts as well as active
promotions of market rate transaction accounts. At March 31, 1999 and 1998,
transaction accounts (which includes checking, passbook, and money market
accounts) represented 37% and 23%, respectively, of the total balance of
deposits.
Beginning in January 1997, the Company began a program to use
government securities dealers to sell certificates of deposit (CDs) to
institutional investors. There were no outstanding wholesale CDs at March 31,
1999 or at March 31, 1998.
The table below shows the Company's deposits by interest rate and by
remaining maturity at March 31, 1999 and 1998.
TABLE 13
Deposits
(Dollars in millions)
March 31
---------------------------------------------------
1999 1998
------------------------ ------------------------
Rate* Amount Rate* Amount
--------- ----------- ------------------------
Deposits by rate:
Interest-bearing checking accounts 2.15% $ 113 2.10% $ 81
Passbook accounts 1.82 517 2.11 527
Money market deposit accounts 4.15 9,191 4.15 5,074
Term certificate accounts with original maturities of:
4 weeks to 1 year 4.49 5,543 5.17 8,734
1 to 2 years 5.03 7,592 5.46 6,292
2 to 3 years 5.34 1,438 5.46 1,495
3 to 4 years 5.26 357 5.45 396
4 years and over 5.62 1,097 5.71 1,256
Retail jumbo CDs 4.79 547 5.45 703
Wholesale CDs 0.00 -0- 0.00 -0-
All other 0.00 -0- 7.38 1
----------- ------------
$ 26,395 $ 24,559
=========== ============
1999 1998
----------- ------------
Deposits by remaining maturity:
No contractual maturity $ 9,821 $ 5,682
Maturity within one year 15,024 16,465
1 to 5 years 1,547 2,411
Over 5 years 3 1
----------- ------------
$ 26,395 $ 24,559
=========== ============
* Weighted average interest rate, including the impact of interest rate swaps.
At March 31, the weighted average cost of deposits was 4.58% (1999) and
5.02% (1998).
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses borrowings from FHLBs, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities.
Advances are secured by pledges of certain loans, MBS-REMICs, other MBS, and
capital stock of FHLBs. FHLB advances amounted to $6.1 billion at March 31,
1999, compared to $7.6 billion and $6.2 billion at March 31, 1998, and December
31, 1998, respectively. During 1998, the Company paid off, before maturity, $4.4
billion of high-cost FHLB of San Francisco advances and, as a result, incurred a
$21 million pre-tax charge for the penalties associated with these prepayments.
See Extraordinary Item discussion on page 31.
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, large banks, and the
Federal Home Loan Bank of San Francisco, typically using MBS from the Company's
portfolio. Reverse Repos with dealers, banks and the Federal Home Loan Bank of
San Francisco amounted to $693 million, $2.2 billion, and $1.3 billion at March
31, 1999 and 1998, and December 31, 1998, respectively.
The Company uses accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities in accordance
with SFAS 125 and SFAS 127.
OTHER BORROWINGS
At March 31, 1999, Golden West, at the holding company level, had a
total of $812 million of subordinated debt issued and outstanding. As of March
31, 1999, 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. At March 31, 1999, Golden West had on file a registration
statement with the Securities and Exchange Commission for the sale of up to $300
million of subordinated notes.
As of March 31, 1999, WSL had a total of $100 million of subordinated
notes issued and outstanding, which were rated A2 and A by Moody's and S&P,
respectively. Although these notes had a maturity of July 1, 2000, WSL exercised
its right to call the notes on April 1, 1999.
During November 1996, WFSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of March 31, 1999, WFSB had not issued any notes
under this authority.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during the first three
months of 1999 as a result of net earnings partially offset by decreased market
values of securities available for sale, the payment of quarterly dividends to
stockholders, and the $58 million cost of the repurchase of Company stock. The
Company's stockholders' equity increased during the first three months of 1998
as a result of net earnings and increased market values of securities available
for sale. Unrealized gains, net of taxes, on securities and MBS available for
sale included in stockholders' equity at March 31, 1999 and 1998, and December
31, 1998, were $194 million, $167 million, and $215 million, respectively.
From time to time, the Company's capital ratios may build to levels
well in excess of the amounts necessary to meet regulatory capital requirements.
Golden West's Board of Directors periodically reviews alternative uses of excess
capital, including faster growth and acquisitions. At times, the Board has
determined that the purchase of the Company's common stock is a wise use of
excess capital.
Since 1993, through three separate actions, Golden West's Board of
Directors has authorized the purchase by the Company of up to 12.2 million
shares of Golden West's common stock. As of March 31, 1999, 10.1 million shares
had been repurchased and retired at a cost of $518 million since October 1993,
of which 613,800 shares were purchased and retired at a cost of $58 million
during the first three months of 1999. Dividends from subsidiaries are expected
to continue to be the major source of funding for the stock repurchase program.
The purchase of Golden West stock is not intended to have a material impact on
the normal liquidity of the Company.
The Company has on file a shelf registration statement with the
Securities and Exchange Commission to issue up to two million shares of its
preferred stock. The preferred stock may be issued in one or more series, may
have varying provisions and designations, and may be represented by depository
shares. The preferred stock is not convertible into common stock. No preferred
stock has been issued under the registration. The Company's preferred stock has
been preliminarily rated a2 by Moody's.
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as WFSB and WSL,
to meet certain minimum capital requirements. The following table shows WFSB's
regulatory capital ratios and compares them to the OTS minimum requirements at
March 31, 1999 and 1998.
TABLE 14
World Savings Bank, FSB
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 1999 March 31, 1998
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ---------- --------- ---------- --------
Tangible $2,247,752 7.04% $ 479,213 1.50% $1,768,105 6.84% $ 387,893 1.50%
Core 2,247,752 7.04 1,277,900 4.00 1,768,105 6.84 1,034,382 4.00
Risk-based 2,391,623 13.18 1,451,557 8.00 1,863,679 13.51 1,103,194 8.00
The following table shows WSL's current regulatory capital ratios and
compares them to the OTS minimum requirements at March 31, 1999 and 1998.
TABLE 15
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 1999 March 31, 1998
------------------------------------------------ ------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ----------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ----------- -------- ----------- --------
Tangible $ 507,282 8.21% $ 92,662 1.50% $ 929,084 6.62% $ 210,439 1.50%
Core 507,282 8.21 247,099 4.00 929,084 6.62 561,171 4.00
Risk-based 648,252 18.23 284,464 8.00 1,130,198 13.90 650,525 8.00
In addition, institutions whose exposure to interest rate risk, as
determined by the OTS, is deemed to be above normal may be required to hold
additional risk-based capital. The OTS has determined that neither WFSB nor WSL
has above-normal exposure to interest rate risk.
The OTS has adopted rules based upon five capital tiers:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. The determination of whether
an association falls into a certain classification depends primarily on its
capital ratios. As of March 31, 1999, the most recent notification from the OTS
categorized both WFSB and WSL as "well-capitalized" under the current
requirements. There are no conditions or events that have occurred since that
notification that the Company believes would have an impact on the
categorization of either WFSB or WSL.
The table below shows that WFSB's regulatory capital exceeds the
requirements of the well-capitalized classification at March 31, 1999.
TABLE 16
World Savings Bank, FSB
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
------------------------ --------------------------
Capital Ratio Capital Ratio
----------- ---------- ------------ -----------
Leverage $ 2,247,752 7.04% $ 1,597,376 5.00%
Tier 1 risk-based 2,247,752 12.39 1,916,851 6.00
Total risk-based 2,391,623 13.18 1,814,446 10.00
The table below shows that WSL's regulatory capital exceeds the
requirements of the well-capitalized classification at March 31, 1999.
TABLE 17
World Savings and Loan Association
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
---------------------- --------------------------
Capital Ratio Capital Ratio
----------- -------- ------------ -----------
Leverage $ 507,282 8.21% $ 308,874 5.00%
Tier 1 risk-based 507,282 14.27 370,648 6.00
Total risk-based 648,252 18.23 355,580 10.00
World Savings Bank, SSB is regulated by the FDIC and the state of
Texas. At March 31, WSSB had the following regulatory capital calculated in
accordance with the FDIC's capital standards:
TABLE 18
World Savings Bank, SSB
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 1999 March 31, 1998
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- -------- ----------- --------- ---------- --------- ----------- ---------
Tier 1 Leverage $ 190,175 5.35% $ 106,643 3.00% $ 12,166 9.43% $ 3,870 3.00%
Tier 1 risk-based 190,175 25.78 29,505 4.00 12,166 17.23 2.825 4.00
Total risk-based 190,389 25.81 59,011 8.00 12,348 17.49 5,649 8.00
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings for the three months ended March 31, 1999 were $120
million compared to net earnings of $110 million, before an extraordinary item
(see extraordinary item discussion on page 31), for the three months ended March
31, 1998 Net earnings increased in 1999 as compared 1998 as a result of
increased net interest income, a decrease in the provision for loan losses, an
increase in non-interest income, and a lower effective tax rate. These increases
to net earnings were partially offset by an increase in general and
administrative expenses.
SPREADS
An important determinant of the Company's earnings is its primary
spread -- the difference between its yield on earning assets and its cost of
funds. The table below shows the components of the Company's spread at March 31,
1999 and 1998, and December 31, 1998.
TABLE 19
Yield on Earning Assets,
Cost of Funds, and Primary Spread
March 31 December 31
----------------------------
1999 1998 1998
------------ ------------ -------------
Yield on loan portfolio 7.25% 7.57% 7.36%
Yield on MBS 7.02 7.23 7.20
Yield on investments 5.55 6.53 5.53
--------- --------- ---------
Yield on earning assets 7.14 7.51 7.30
--------- --------- ---------
Cost of deposits 4.58 5.02 4.67
Cost of borrowings 5.73 6.02 5.87
--------- ---------
---------
Cost of funds 4.85 5.33 4.96
--------- --------- ---------
Primary spread 2.29% 2.18% 2.34%
========= ========= =========
The Company holds ARMs to manage the rate sensitivity of the asset side
of the balance sheet. 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).
Nevertheless, the yield on the Company's ARM portfolio tends to lag changes in
market interest rates because of lags related to the index and because of
certain loan features. These features include introductory 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, COFI
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.
The following table shows the Company's revenues and expenses as a
percentage of total revenues for the three months ended March 31, 1999 and 1998,
in order to focus on the changes in interest income between years as well as
changes in other revenue and expense amounts.
TABLE 20
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended
March 31
-----------------------
1999 1998
--------- ---------
Interest on loans (a) 65.3% 80.5%
Interest on mortgage-backed securities (a) 23.1 9.3
Interest and dividends on investments 6.8 6.9
--------- ---------
95.2 96.7
Less:
Interest on deposits 42.1 40.4
Interest on advances and other borrowings 18.7 25.1
--------- ---------
60.8 65.5
Net interest income 34.4 31.2
Provision for loan losses .1 .4
--------- ---------
Net interest income after provision for loan losses 34.3 30.8
Add:
Fees 2.2 1.7
Gain on the sale of securities, MBS, and loans 1.4 .3
Other non-interest income 1.2 1.3
--------- ---------
4.8 3.3
Less:
General and administrative expenses 12.7 10.7
Taxes on income 9.9 9.3
--------- ---------
Earnings before extraordinary item 16.5 14.1
Extraordinary item 0.0 (1.0)
--------- ---------
Net earnings 16.5% 13.1%
========= =========
(a) During 1998, the Company securitized $8.2 billion of loans into MBS which
caused the percentage of interest on mortgage-backed securities to total
revenues to increase from March 31, 1998 to March 31, 1999 and the
percentage of interest on loans to total revenues to decrease from March
31, 1998 to March 31, 1999. For further discussion, see pages 12 and 13.
INTEREST RATE SWAPS
The Company enters into interest rate swaps as a part of its interest
rate risk management strategy. Such instruments are entered into solely to alter
the repricing characteristics of designated assets and liabilities. The Company
does not hold any derivative financial instruments for trading purposes.
Interest rate swap activity decreased net interest income by $2.7
million for the three months ended March 31, 1999, as compared to a decrease of
$2 million for the same period in 1998.
The following table summarizes the unrealized gains and losses for
interest rate swaps at March 31, 1999 and 1998.
TABLE 21
Schedule of Unrealized Gains and Losses on Interest Rate Swaps
(Dollars in thousands)
March 31, 1999 March 31, 1998
---------------------------------------- ----------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses (Loss) Gains Losses (Loss)
------------ ------------ ------------ ------------ ------------ ------------
Interest rate swaps:
Receive fixed $ 5,021 $ -0- $ 5,021 $ 7,635 $ (626) $ 7,009
Pay fixed 108 (31,978) (31,870) 933 (33,911) (32,978)
------------ ------------ ------------ ------------ ------------ -------------
$ 5,129 $ (31,978) $ (26,849) $ 8,568 $ (34,537) $ (25,969)
============ ============ ============ ============ ============ =============
TABLE 22
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Three Months Ended
March 31, 1999
----------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------ ------------
Balance at December 31, 1998 $ 512 $ 899
Additions -0- -0-
Maturities (104) (40)
------------ ------------
Balance at March 31, 1999 $ 408 $ 859
============ ============
The range of floating interest rates received on swap contracts in the
first three months of 1999 was 4.94% to 5.82%, and the range of floating
interest rates paid on swap contracts was 4.97% to 5.82%. The range of fixed
interest rates received on swap contracts in the first three months of 1999 was
5.17% to 8.68% and the range of fixed interest rates paid on swap contracts was
5.58% to 9.14%.
INTEREST ON LOANS
In the first quarter of 1999, interest on loans was lower than in the
comparable 1998 period by $153 million or 24.3%. The decrease in the first
quarter of 1999 was due to a $7.4 billion decrease in the average portfolio
balance and a 23 basis point decrease in the average portfolio yield. The
decrease in the average loan portfolio balance was primarily due to the
securitization of loans into FNMA MBS and MBS-REMICs (see page 13).
INTEREST ON MORTGAGE-BACKED SECURITIES
In the first quarter of 1999, interest on mortgage-backed securities
was higher than in the comparable 1998 period by $97 million or 133.7%. The 1999
increase was due primarily to a $5.6 billion increase in the average portfolio
balance which was partially offset by a 14 basis point decrease in the average
portfolio yield. The increase in the mortgage-backed securities portfolio is
primarily due to the securitization of loans into FNMA MBS and MBS-REMICs, as
discussed on page 13.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term investments.
For the first quarter of 1999, interest and dividends on investments was lower
than in the comparable 1998 period by $4 million or 7.7%. The decrease was
primarily due to a 71 basis point decrease in the average portfolio yield which
was partially offset by a $27 million increase in the average portfolio balance.
INTEREST ON DEPOSITS
In the first quarter of 1999, interest on deposits decreased by $8
million or 2.4% from the comparable period in 1998. The first quarter decrease
was due to a 43 basis point decrease in the average cost of deposits, which was
partially offset by a $1.7 billion increase in the average balance of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the first quarter of 1999, interest on advances and other
borrowings decreased by $60 million or 30.4% from the comparable period of 1998.
The first quarter decrease was primarily due to a $3.4 billion decrease in the
average balance and a 37 basis point decrease in the average cost of these
borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $574 thousand for the three months
ended March 31, 1999, compared to $3 million for the same period in 1998. The
lower provision in 1999 was due to declining nonperforming assets as a result of
the strong California housing market and economy.
GENERAL AND ADMINISTRATIVE EXPENSES
For the first quarter of 1999, general and administrative expenses
(G&A) were $93 million compared to $84 million for the comparable period in
1998. G&A as a percentage of average assets on an annualized basis was .97% for
the first quarter of 1999 compared to .84% for the same period in 1998. G&A
expenses increased in 1999 because of the expansion of the loan origination
program and higher depreciation and operating expenses associated with the
completion of the roll-out of new computers and automated teller machines to our
branch network.
EXTRAORDINARY ITEM
During the first quarter of 1998, the Company paid off, before
maturity, $2.9 billion of high-cost FHLB of San Francisco advances. As a result,
the Company incurred a $13 million pretax charge in the first quarter of 1998
for the penalties associated with the prepayments. In addition, in the third
quarter of 1998, the Company paid off, before maturity, an additional $1.5
billion of high-cost FHLB advances. As a result, the Company incurred an $8
million pretax charge in the third quarter of 1998 for the penalties associated
with the prepayments.
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 before the extraordinary item were
37.4% for the first quarter of 1999 compared to 39.9% for the same period a year
ago. The decrease in the tax rate in 1999 as compared to 1998 was due to a lower
overall state tax rate due to the expansion of business in lower taxing states.
LIQUIDITY AND CAPITAL RESOURCES
WFSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; sales of loans; negotiable certificates of
deposit; borrowings from the FHLB; investments and borrowings from its
affiliates; debt collateralized by mortgages, MBS, or securities; and the
issuance of medium-term notes. In addition, WFSB has other alternatives
available to provide liquidity or finance operations including federal funds
purchased, borrowings from public offerings of debt, issuances of commercial
paper, and borrowings from commercial banks. Furthermore, under certain
conditions, WFSB may borrow from the Federal Reserve Bank of San Francisco to
meet short-term cash needs. The availability of these funds will vary depending
upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the
Federal Reserve Board. For a discussion of WFSB's liquidity positions at March
31, 1999, and 1998, and December 31, 1998, see the Cash and Investments section
on page 12.
WSL's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; borrowings from the FHLB; debt
collateralized by mortgages, MBS, or securities; and the issuance of medium-term
notes. In addition, WSL has a number of other alternatives available to provide
liquidity or finance operations. These include federal funds purchased,
borrowings from its affiliates, borrowings from public offerings of debt, sales
of loans, negotiable certificates of deposit, issuances of commercial paper, and
borrowings from commercial banks. Furthermore, under certain conditions, WSL may
borrow from the Federal Reserve Bank of San Francisco to meet short-term cash
needs. The availability of these funds will vary depending upon policies of the
FHLB, the Federal Reserve Bank of San Francisco, and the Federal Reserve Board.
For a discussion of WSL's liquidity positions at March 31, 1999, and 1998, and
December 31, 1998, see the Cash and Investments section on page 12.
WSSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; borrowings from the FHLB; debt
collateralized by mortgages or securities; and borrowings from its affiliates.
The principal sources of funds for WFSB's, WSL's and WSSB's parent,
Golden West, are dividends from subsidiaries, interest on investments, and the
proceeds from the issuance of debt and equity securities. Various statutory and
regulatory restrictions and tax considerations limit the amount of dividends
WFSB and WSL can pay. The principal liquidity needs of Golden West are for
payment of interest and principal on subordinated debt securities, capital
contributions to its insured subsidiaries (including $489 million for the year
ended December 31, 1998 and $100 million for the three months ended March 31,
1998), dividends to stockholders, the purchase of Golden West stock (see
stockholders' equity section on page 23), and general and administrative
expenses. At March 31, 1999 and 1998, and December 31, 1998, Golden West's total
cash and investments amounted to $848 million, $964 million, and $898 million,
respectively. Included in the March 31, 1999 and 1998, and December 31, 1998
amounts are loans to WFSB.
YEAR 2000
The Company is aware of the system challenges that the Year 2000 has
created and currently has a plan in place (Year 2000 Project) to insure that all
of the Company's mission critical systems will be Year 2000 compliant by
mid-1999. The plan has been developed in accordance with guidance set forth by
federal banking regulators in a series of jointly-issued policy statements.
Federal banking regulators regularly monitor the Company's progress in meeting
the requirements of such policy statements. The Company has completed an
inventory and assessment of all systems. The Company is currently in the process
of testing and modifying or replacing systems that may be affected by these Year
2000 compliance issues. Included in this process are both information technology
systems and other systems (e.g. elevators, doorlocks) that could be affected by
Year 2000 issues. The Company has placed priority on information technology
systems affecting its core business of deposit-taking and lending. The
evaluation, correction and testing of these core business systems is now
complete, and these systems are now Year 2000 compliant. During the first
quarter of 1999, the Company commenced integrated testing to ascertain that all
systems function together.
While the Company believes it is doing everything technologically
possible to assure Year 2000 compliance, the success of the Year 2000 Project is
to some extent dependent upon vendor cooperation. The Company is requiring its
computer systems and software vendors to represent that the products provided
are or will be Year 2000 compliant and has planned a program of testing for
compliance. Such testing is included in the testing previously described in this
section. To date, the Company has no indication that its principal vendors or
their systems will adversely affect the Company's Year 2000 compliance efforts.
The Company currently estimates that it will cost approximately $18
million to make all of its computer systems Year 2000 compliant. The Company
will expense all costs associated with the Year 2000 Project and expects to fund
such costs through operating cash flows. The Year 2000 Project expense incurred
during 1998 was $8 million and $3 million was incurred for the quarter ended
March 31, 1999. Included in the $18 million are estimates for compensation of
employees dedicated to the Year 2000 Project, consultants, hardware and software
expense and depreciation of the equipment purchased as part of this process.
However, the Company's Year 2000 expenses are not expected to result in a dollar
for dollar increase in the Company's overall information systems expenditures
because the Company has dedicated a number of its existing resources solely to
the Year 2000 Project.
The Company believes that its Year 2000 Project will result in the
Company's systems functioning normally, without adverse consequences. While the
systems of others, with whom and through which the Company conducts business,
are not within the Company's control, the Year 2000 Project is intended to
provide the Company with sufficient advance warning that such systems will not
perform. In the unlikely event of a problem with the Company's systems or the
systems of others which relate to the Company's core business, the Company has
developed contingency plans to address the potential that one or more systems
might fail, despite efforts to the contrary. Although the Company has no reason
to believe that such contingency plans will not effectively avoid or mitigate
any adverse consequences of such system failures, no assurances are given that
such plans will be effective.
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 27. The simulation model
projects net interest income, net earnings, and capital ratios based on an
immediate interest rate increase that is sustained for a thirty-six month
period. The model is based on the actual maturity and repricing characteristics
of interest-rate sensitive assets and liabilities. For certain assets, the model
incorporates assumptions regarding the impact of changing interest rates on
prepayment rates which are based on the Company's historical prepayment
information. The model factors in projections for anticipated activity levels by
product lines offered by the Company. Based on the information and assumptions
in effect at March 31, 1999, Management believes that a 200 basis point rate
increase sustained over a thirty-six month period would not affect the Company's
long-term profitability and financial strength.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) April 27, 1999 - Annual Meeting
Broker
For Against Withheld Abstain Non-Vote
-------------- ------------- ------------- ------------- -------------
(b) Directors elected:
Louis J. Galen 51,709,162 580,440
Antonia Hernandez 51,717,787 571,815
Bernard A. Osher 51,710,504 579,098
(c) Ratification of Auditors:
Appointment of Deloitte & Touche 52,175,938 18,714 94,950
LLP, independent public
accountants, for the fiscal year
1999
Other Directors continuing in office are:
Maryellen B. Cattani, Patricia A. King, Bernard A. Osher, Kenneth T. Rosen,
Herbert M. Sandler, Marion O. Sandler, and Leslie Tang Schilling
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Description
3(a) Certificate of Incorporation, as amended, and
amendments thereto, are incorporated by reference to
Exhibit 3(a) to the Company's Annual Report on Form
10-K (File No. 1-4269) for the year ended December 31,
1990.
3(b) By-Laws of the Company, as amended in 1997,. are
incorporated by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K (File No. 1-4269)
for the year ended December 31, 1997.
4(a) The Registrant agrees to furnish to the Commission,
upon request, a copy of each instrument with respect to
issues of long-term debt, the authorized principal
amount of which does not exceed 10% of the total assets
of the Company.
10(a) 1996 Stock Option Plan, as amended, is incorporated by
reference to Exhibit A of the Company's Definitive
Proxy Statement on Schedule 14A, filed on March 15,
1996, for the Company's 1996 Annual Meeting of
Stockholders.
10(b) Annual Incentive Bonus Plan is incorporated by
reference to Exhibit A of the Company's Definitive
Proxy Statement on Schedule 14A, filed on March 14,
1998, for the Company's 1998 Annual Meeting of
Stockholders.
10(c) Deferred Compensation Agreement between the Company and
James T. Judd is incorporated by reference to Exhibit
10(b) of the Company's Annual Report on Form 10-K (File
No. 1-4629) for the year ended December 31, 1986.
10(d) Deferred Compensation Agreement between the Company
and Russell W. Kettell is incorporated by reference to
Exhibit 10(c) of the Company's Annual Report on Form
10-K (File No. 1-4629) for the year ended December 31,
1986.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
(a) Index To Exhibits (continued)
Exhibit No. Description
10(e) Deferred Compensation Agreement between the Company and
J. L. Helvey is incorporated by reference to Exhibit
10(d) of the Company's Annual Report on Form 10-K (File
No. 1-4629) for the year ended December 31, 1986.
10(f) 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(g) Operating lease on Company headquarters building, 1901
Harrison Street, Oakland, California 94612, is
incorporated by reference to Exhibit 10(h) of the
Company's Quarterly Report on Form 10-Q (File No.
1-4629) for the quarter ended September 30, 1998.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K
with the Commission during the first three months of 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: May 13, 1999 /s/ J. L. Helvey
------------------------------
J. L. Helvey
Executive Vice President
(duly authorized and principal
financial officer)