SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended March 31, 1996 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
- ------------------------------------------------------------------------------
Delaware 95-2080059
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
- ----------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----------- -----------
The number of shares outstanding of the registrant's common stock on
April 30, 1996, was 58,435,959 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (the Company) for the three months ended March 31,
1996 and 1995 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, 1996, are not necessarily
indicative of the results for the full year.
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
(Dollars in thousands)
March 31 March 31 December 31
1996 1995 1995
------------ ------------- -------------
<S> <C> <C> <C>
Assets:
Cash $ 203,419 $ 183,482 $ 218,695
Securities available for sale at fair value 707,755 1,288,384 901,856
Other investments at cost 1,086,255 1,287,850 1,190,160
Mortgage-backed securities available for sale at fair value 269,590 317,430 282,881
Mortgage-backed securities held to maturity without recourse at cost 859,705 857,029 893,774
Mortgage-backed securities held to maturity with recourse at cost 2,174,244 287,418 2,232,686
Loans receivable 28,388,930 28,115,602 28,181,353
Interest earned but uncollected 218,347 229,406 225,395
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 392,597 350,792 350,955
Real estate held for sale or investment 73,864 73,898 76,187
Prepaid expenses and other assets 295,466 222,017 222,015
Premises and equipment--at cost less accumulated depreciation 205,352 202,100 203,637
Goodwill arising from acquisitions 138,194 140,388 138,562
------------ ------------- -------------
$35,013,718 $33,555,796 $35,118,156
============ ============= =============
Liabilities and Stockholders' Equity:
Customer deposits $20,990,781 $20,226,662 $20,847,910
Advances from Federal Home Loan Banks 6,459,770 7,014,781 6,447,201
Securities sold under agreements to repurchase 2,139,371 367,081 1,817,943
Medium-term notes 889,570 1,863,668 1,597,507
Accounts payable and accrued expenses 487,897 463,335 450,814
Taxes on income 390,947 330,177 356,036
Subordinated notes--net of discount 1,322,790 1,221,928 1,322,392
Stockholders' equity 2,332,592 2,068,164 2,278,353
------------ ------------- -------------
$35,013,718 $33,555,796 $35,118,156
============ ============= =============
</TABLE>
<PAGE>
<TABLE>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
<CAPTION>
Three Months Ended March 31
1996 1995
------------ -------------
<S> <C> <C>
Interest Income:
Interest on loans $ 541,208 $ 489,991
Interest on mortgage-backed securities 61,673 25,565
Interest and dividends on investments 36,226 36,339
------------ -------------
639,107 551,895
Interest Expense:
Interest on customer deposits 265,370 235,905
Interest on advances 89,981 94,404
Interest on repurchase agreements 28,388 6,480
Interest on other borrowings 47,709 48,675
------------ -------------
431,448 385,464
------------ -------------
Net Interest Income 207,659 166,431
Provision for loan losses 18,522 14,779
------------ -------------
Net Interest Income after Provision
for Loan Losses 189,137 151,652
Non-Interest Income:
Fees 8,883 6,292
Gain on the sale of securities, MBS and loans 4,684 18
Other 3,244 4,702
------------ -------------
16,811 11,012
Non-Interest Expense:
General and administrative:
Personnel 39,385 36,520
Occupancy 12,216 11,820
Deposit insurance 11,332 10,661
Advertising 2,248 2,628
Other 15,610 16,755
------------ -------------
80,791 78,384
Amortization of goodwill arising
from acquisitions 368 936
------------ -------------
81,159 79,320
------------ -------------
Earnings Before Taxes on Income 124,789 83,344
Taxes on Income 49,277 32,411
------------ -------------
Net Earnings $ 75,512 $ 50,933
============ =============
Net earnings per share $ 1.28 $ .87
============ =============
</TABLE>
<PAGE>
<TABLE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 75,512 $ 50,933
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 18,522 14,779
Amortization of loan fees and discounts (6,526) (4,884)
Depreciation and amortization 5,161 5,590
Loans originated for sale (194,359) (2,553)
Sales of loans originated for sale 185,663 2,026
Decrease (increase) in interest earned but uncollected 7,048 (26,950)
Federal Home Loan Bank stock dividends (9,251) (8,511)
(Increase) in prepaid expenses and other assets (68,743) (9,973)
Increase in accounts payable and accrued expenses 37,083 19,642
Increase in taxes on income 35,572 20,032
Other, net 10,563 (11,169)
------------ ------------
Net cash provided by operating activities 96,245 48,962
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (984,084) (1,751,681)
Real estate loans purchased (200) (28,369)
Other, net (16,776) (49,979)
------------ ------------
(1,001,060) (1,830,029)
Real estate loan principal payments:
Monthly payments 141,548 138,561
Payoffs, net of foreclosures 521,211 263,607
Refinances 66,888 35,569
------------ ------------
729,647 437,737
Purchases of mortgage-backed securities available for sale -0- (6,254)
Purchases of mortgage-backed securities held to maturity (62) (1,171)
Sales of mortgage-backed securities available for sale -0- 6,396
Repayments of mortgage-backed securities 104,559 25,079
Proceeds from sales of real estate 51,303 54,310
Purchases of securities available for sale (323,235) (440,773)
Sales of securities available for sale 74,951 110,610
Maturities of securities available for sale 444,197 566,406
Decrease (increase) in other investments 103,905 (753,250)
Purchases of Federal Home Loan Bank stock (37,099) (13,236)
Redemptions of Federal Home Loan Bank stock -0- 150
Additions to premises and equipment (6,939) (6,685)
------------ ------------
Net cash provided by (used in) investing activities 140,167 (1,850,710)
</TABLE>
<PAGE>
<TABLE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase (decrease) in deposits, net $ (70,839) $ 819,518
Interest credited 213,710 187,755
----------- -----------
142,871 1,007,273
Additions to Federal Home Loan Bank advances 25,950 532,290
Repayments of Federal Home Loan Bank advances (13,470) (6,027)
Proceeds from agreements to repurchase securities 396,362 268,810
Repayments of agreements to repurchase securities (74,934) (503,550)
Proceeds from medium-term notes -0- 699,360
Repayments of medium-term notes (708,135) -0-
Repayments of federal funds purchased -0- (250,000)
Dividends on common stock (5,581) (4,979)
Sale of stock 2,262 258
Purchase and retirement of Company Stock (17,013) (646)
----------- -----------
Net cash provided by (used in) financing activities (251,688) 1,742,789
----------- -----------
Net Decrease in Cash (15,276) (58,959)
Cash at beginning of period 218,695 242,441
----------- -----------
Cash at end of period $ 203,419 $ 183,482
=========== ===========
Supplemental cash flow information:
Cash paid for:
Interest $ 453,630 $ 374,961
Income taxes 19,871 11,406
Cash received for interest and dividends 646,155 524,945
Noncash investing activities:
Loans transferred to foreclosed real estate 52,174 61,110
Loans securitized into MBS with recourse -0- 287,659
</TABLE>
<PAGE>
<TABLE>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Common Stock:
Balance at January 1 $ 5,887 $ 5,859
Common stock issued upon exercise of stock options 8 2
Common stock retired upon purchase of stock (33) (2)
------------ -----------
Balance at March 31 5,862 5,859
------------ -----------
Paid-in Capital:
Balance at January 1 55,353 45,689
Common stock issued upon exercise of stock options 2,254 256
------------ -----------
Balance at March 31 57,607 45,945
------------ -----------
Retained Earnings:
Balance at January 1 2,140,883 1,929,740
Net earnings 75,512 50,933
Cash dividends on common stock (5,581) (4,979)
Retirement of stock (16,980) (644)
------------ -----------
Balance at March 31 2,193,834 1,975,050
------------ -----------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 76,230 18,986
Change during period (941) 22,324
------------ -----------
Balance at March 31 75,289 41,310
------------ -----------
Total Stockholders' Equity at March 31 $2,332,592 $2,068,164
============ ===========
</TABLE>
<PAGE>
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, 1995, as well as certain material changes in results of operations during
the three month periods ended March 31, 1996, and 1995, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1995 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, 1995, and for the year then ended. Therefore,
only material changes in financial condition and results of operations are
discussed herein.
<PAGE>
<TABLE>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
<CAPTION>
March 31 March 31 December 31
1996 1995 1995
------------ ------------ --------------
<S> <C> <C> <C>
Assets $35,013,718 $33,555,796 $ 35,118,156
Loans receivable 28,388,930 28,115,602 28,181,353
Mortgage-backed securities 3,303,539 1,461,877 3,409,341
Customer deposits 20,990,781 20,226,662 20,847,910
Stockholders' equity 2,332,592 2,068,164 2,278,353
Stockholders' equity/total assets 6.66% 6.16% 6.49%
Book value per common share $ 39.79 $ 35.30 $ 38.70
Common shares outstanding 58,622,859 58,591,005 58,871,409
Yield on loan portfolio 7.64% 7.30% 7.69%
Yield on MBS 7.35% 8.03% 7.41%
Yield on investments 5.68% 6.00% 5.96%
Yield on earning assets 7.51% 7.23% 7.56%
Cost of deposits 5.01% 5.14% 5.15%
Cost of borrowings 5.95% 6.26% 6.15%
Cost of funds 5.33% 5.52% 5.50%
Yield on earning assets less cost of funds 2.18% 1.71% 2.06%
Ratio of nonperforming assets to total assets 1.24% 1.07% 1.11%
Ratio of troubled debt restructured to total assets .13% .20% .13%
World Savings and Loan Association:
Total assets $27,800,772 $32,518,232 $30,354,740
Net worth 2,051,277 2,165,290 2,128,329
Net worth/total assets 7.38% 6.66% 7.01%
Regulatory capital ratios:
Tangible capital 6.70% 6.15% 6.38%
Core capital 6.70% 6.15% 6.38%
Risk-based capital 14.12% 12.92% 13.40%
World Savings Bank, a Federal Savings Bank:
Total assets $ 7,127,638 $ 91,273 $ 4,017,491
Net worth 577,705 22,068 566,851
Net worth/total assets 8.11% 24.18% 14.11%
Regulatory capital ratios:
Tangible capital 8.05% 19.95% 14.01%
Core capital 8.05% 19.95% 14.01%
Risk-based capital 15.25% 29.96% 26.55%
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
New real estate loans originated $ 1,178,443 1,754,234
Average yield on new real estate loans 7.71% 7.11%
Increase in customer deposits $ 142,871 1,007,273
Net earnings 75,512 50,933
Net earnings per share 1.28 .87
Cash dividends on common stock .095 .085
Average common shares outstanding 58,788,639 58,586,488
Ratios:(a)
Net earnings/average net worth 13.09% 10.00%
Net earnings/average assets .86% .63%
Net interest income/average assets 2.37% 2.05%
General and administrative expense/average assets .92% .96%
</TABLE>
(a) 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.
<PAGE>
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,
1996 and 1995, and December 31, 1995. The reader is referred to page 48 of the
Company's 1995 Form 10-K for similar information for the years 1992 through
1995 and a discussion of the changes in the composition of the Company's
assets and liabilities in those years.
<TABLE>
TABLE 1
Consolidated Condensed Balance Sheet
In Percentage Terms
<CAPTION>
March 31
-------------------- December 31
1996 1995 1995
------- ------- ---------
<S> <C> <C> <C>
Assets:
Cash and investments 5.7% 8.2% 6.6%
Mortgage-backed securities 9.4 4.4 9.7
Loans receivable 81.1 83.8 80.2
Other assets 3.8 3.6 3.5
------- ------- ------
100.0% 100.0% 100.0%
======= ======= ======
Liabilities and Stockholders' Equity:
Customer deposits 60.0% 60.3% 59.4%
Federal Home Loan Bank advances 18.4 20.9 18.4
Securities sold under agreements to repurchase 6.1 1.1 5.2
Medium-term notes 2.5 5.5 4.5
Other liabilities 2.5 2.4 2.2
Subordinated debt 3.8 3.6 3.8
Stockholders' equity 6.7 6.2 6.5
------- ------- ------
100.0% 100.0% 100.0%
======= ======= ======
</TABLE>
As the above table shows, customer deposits represent the majority of
the Company's liabilities. The largest asset component is the loan portfolio,
which consists primarily of long-term mortgages. The disparity between the
repricing (maturity 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 gap table on the following page shows that, as of March 31, 1996, the
Company's assets mature or reprice sooner than its liabilities. Consequently,
one would expect falling interest rates to lower the Company's earnings and
rising interest rates to increase the Company's earnings. However, the Company's
earnings are also affected by the built-in lag inherent in the Eleventh District
Cost of Funds Index (COFI), which is the benchmark the Company uses to determine
the rate on the great majority of its adjustable rate mortgages. Specifically,
there is a two-month delay in reporting the COFI because of the time required to
gather the data needed to compute the index. As a result, the current COFI
actually reflects the Eleventh District's cost of funds at the level it was two
months prior. Consequently, when the interest rate environment changes, the COFI
reporting lag causes assets to initially reprice more slowly than liabilities,
enhancing earnings when rates are falling and holding down income when rates
rise. In addition to the COFI reporting lag, other elements of ARM loans also
have an impact on earnings. These elements are the interest rate adjustment
frequency of ARM loans, interest rate caps or limits on individual rate changes,
interest rate floors, and introductory rates on new ARM loans.
<PAGE>
<TABLE>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of March 31, 1996
(Dollars in Millions)
<CAPTION>
Projected Repricing(a)
------------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
---------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Investments $ 1,539 $ 4 $ 249 $ 2 $ 1,794
Mortgage-backed securities 2,291 115 432 466 3,304
Loans receivable:
Rate-sensitive 23,723 1,350 112 -0- 25,185
Fixed-rate 103 294 1,221 1,308 2,926
Other(b) 497 -0- -0- -0- 497
Impact of interest rate swaps and caps 779 (135) 22 (666) -0-
---------- ---------- ---------- ----------- ----------
Total $ 28,932 $ 1,628 $ 2,036 $ 1,110 $ 33,706
========== ========== ========== =========== ==========
Interest-Bearing Liabilities(c):
Customer deposits $ 8,812 $ 8,687 3,405 $ 87 $ 20,991
FHLB advances 4,911 984 390 175 6,460
Other borrowings 1,872 1,150 734 595 4,351
Impact of interest rate swaps 1,792 (601) (1,210) 19 -0-
---------- --------- ----------- ----------- ----------
Total $ 17,387 $ 10,220 $ 3,319 $ 876 $ 31,802
========== ========= =========== =========== ==========
Repricing gap $ 11,545 $ (8,592) $ (1,283) $ 234
========== ========= =========== ===========
Cumulative gap $ 11,545 $ 2,953 $ 1,670 $ 1,904
========== ========= =========== ===========
Cumulative gap as a percentage of
total assets 33.0% 8.4% 4.8%
=========== ======== ===========
</TABLE>
(a) Based on scheduled maturity or scheduled repricing; loans reflect
scheduled repayments and projected prepayments of principal.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Liabilities with no maturity date, such as passbook and money market
deposit accounts, are assigned zero months.
<PAGE>
CASH AND INVESTMENTS
The Office of Thrift Supervision (OTS) requires insured institutions,
such as World Savings and Loan Association (World or Association) and World
Savings Bank, a Federal Savings Bank (WFSB), to maintain a minimum amount of
cash and certain qualifying investments for liquidity purposes. The current
minimum requirement is equal to a monthly average of 5% of customer deposits and
short-term borrowings. For the months ended March 31, 1996 and 1995, and
December 31, 1995, World's average regulatory liquidity ratios were 5.5%, 7%,
and 8%, respectively, consistently exceeding the requirement. For the months
ended March 31, 1996, and December 31, 1995, WFSB's average regulatory
liquidity ratios were 6%, consistently exceeding the requirement. The
level of the Company's investments position in excess of its liquidity
requirements at any time depends on liquidity needs.
At March 31, 1996 and 1995, and December 31, 1995, the Company had
securities available for sale in the amount of $708 million, $1.3 billion, and
$902 million, respectively, including net unrealized gains on securities
available for sale of $116 million, $57 million, and $117 million, respectively.
At March 31, 1996 and 1995, and December 31, 1995, the Company had no securities
held to maturity or for trading.
Included in the securities available for sale at March 31, 1996 and
1995, and December 31, 1995, were collateralized mortgage obligations (CMOs) in
the amount of $340 million, $620 million, and $408 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, 1996, the
majority of the Company's CMOs were fixed-rate instruments with remaining terms
to maturity of five years or less, and qualified for inclusion in the regulatory
liquidity measurement.
MORTGAGE-BACKED SECURITIES
At March 31, 1996 and 1995, and December 31, 1995, the Company had
mortgage-backed securities (MBS) held to maturity in the amount of $3.0 billion,
$1.1 billion, and $3.1 billion, respectively, including $2.2 billion of Federal
National Mortgage Association (FNMA) MBS subject to full credit recourse at
March 31, 1996. At March 31, 1996 and 1995, and December 31, 1995, the Company
had mortgage-backed securities available for sale in the amount of $270 million,
$317 million, and $283 million, respectively, including net unrealized gains on
MBS available for sale of $13 million, $12 million, and $14 million,
respectively. At March 31, 1996 and 1995, and December 31, 1995, the Company had
no trading MBS.
During 1995, the Company securitized $2.3 billion of adjustable rate
mortgages (ARMs) into FNMA COFI-indexed MBS, to be used as collateral for
borrowings. These securities are subject to full credit recourse to the Company.
The Company has the ability and intent to hold these MBS until maturity.
Accordingly, these MBS are classified as held to maturity.
Repayments of MBS during the first quarter of 1996 were $105 million
compared to $25 million in the same period of 1995. The increase in repayments
on MBS during the first three months of 1996 as compared to the first three
months of 1995 was primarily due to the increase in MBS that resulted through
the securitization of ARM loans into FNMA MBS as well as an increase in
prepayments on the underlying mortgages.
<PAGE>
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the quarter ended March 31, 1996, amounted to
$1.2 billion compared to $1.8 billion for the same period in 1995. The decline
in loan volume in the first quarter of 1996 was due to interest rate decreases
which brought down the price of new fixed-rate mortgage loans, making
competition from fixed-rate lenders more intense for adjustable rate mortgage
lenders, such as the Company. Loans originated for sale amounted to $194 million
for the first three months of 1996 compared to $3 million for the first three
months of 1995. The increase in for sale originations was driven by a higher
demand for fixed-rate mortgages. The Company continues to sell most of its
fixed-rate originations. Refinanced loans constituted 43% of new loan
originations for the quarter ended March 31, 1996, compared to 31% for the
quarter ended March 31, 1995.
The Company has lending operations in 24 states. The primary source of
mortgage origination is loans secured by residential properties in California.
For the three months ended March 31, 1996, 53% of total loan originations were
on residential properties in California compared to 55% for the same period in
1995. The five largest states, other than California, for originations for the
three months ended March 31, 1996, were Texas, Florida, Colorado, Illinois, and
Arizona with a combined total of 28% of total originations. The percentage of
the total loan portfolio (including mortgage-backed securities with recourse)
that is comprised of residential loans in California was 73% at March 31, 1996
compared to 76% at March 31, 1995, and 73% at December 31, 1995.
The tables on the following two pages show the Company's loan portfolio by
state at March 31, 1996 and 1995.
<PAGE>
<TABLE>
TABLE 3
Loan Portfolio by State
March 31, 1996
(Dollars in thousands)
<CAPTION>
Residential
Real Estate Commercial Loans as
-------------------------- Real Total a % of
State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio
- --------------- ------------ ----------- ----------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
California $18,962,350 $3,348,673 $ 268 $ 69,921 $ -0- $22,381,212 72.73%
Colorado 840,118 219,688 -0- 7,486 -0- 1,067,292 3.47
Illinois 847,231 181,987 -0- 2,301 -0- 1,031,519 3.35
Texas 859,969 87,978 586 1,653 -0- 950,186 3.09
New Jersey 886,719 412 -0- 7,478 199 894,808 2.91
Florida 747,365 2,625 196 1,090 -0- 751,276 2.44
Washington 361,530 307,278 -0- 783 -0- 669,591 2.18
Arizona 451,889 52,372 -0- 1,704 -0- 505,965 1.64
Virginia 428,668 3,000 -0- 1,562 -0- 433,230 1.41
Pennsylvania 398,270 -0- -0- 4,000 -0- 402,270 1.31
Connecticut 323,487 -0- -0- 15 -0- 323,502 1.05
Maryland 273,918 -0- -0- 586 -0- 274,504 0.89
Oregon 177,982 10,673 -0- 2,861 -0- 191,516 0.62
Nevada 157,545 1,200 -0- -0- -0- 158,745 0.52
Kansas 129,368 5,001 -0- 207 -0- 134,576 0.44
Utah 102,878 64 -0- 1,940 -0- 104,882 0.34
Minnesota 85,262 -0- -0- -0- -0- 85,262 0.28
Missouri 65,180 6,969 -0- -0- -0- 72,149 0.23
Wisconsin 63,103 4,205 -0- -0- -0- 67,308 0.22
New York 52,541 -0- -0- 22 -0- 52,563 0.17
Georgia 41,332 -0- -0- 2,016 -0- 43,348 0.14
Washington, DC 36,962 -0- -0- -0- -0- 36,962 0.12
Ohio 22,208 2,549 414 5,006 -0- 30,177 0.10
New Mexico 25,387 -0- -0- -0- -0- 25,387 0.08
Delaware 19,237 -0- -0- -0- -0- 19,237 0.06
Massachusetts 17,414 -0- -0- 20 -0- 17,434 0.06
Idaho 17,341 -0- -0- -0- -0- 17,341 0.06
North Carolina 8,698 303 -0- 533 -0- 9,534 0.03
Other 16,597 26 -0- 4,829 -0- 21,452 0.06
------------ ----------- ------------ ------------ ------------ ------------ ----------
Totals $26,420,549 $4,235,003 $ 1,464 $ 116,013 $ 199 30,773,228 100.00%
============ =========== ============ ============ ============ ==========
SFAS 91 deferred loan fees (74,160)
Loan discount on purchased loans (5,776)
Undisbursed loan funds (4,074)
Allowance for loan losses (152,360)
Loans to facilitate (LTF) interest reserve (474)
Troubled debt restructured (TDR) interest reserve (4,533)
Loans on customer deposits 31,323
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse 30,563,174
Loans securitized into FNMA MBS with recourse (2,174,244)(b)
------------
Total loan portfolio $28,388,930
============
</TABLE>
(a) The Company has no commercial loans.
(b) Loans amounting to $2.3 billion were securitized with full recourse
into Federal National Mortgage Association (FNMA) mortgage-backed securities
during 1995. The March 31, 1996 balances of these FNMA mortgage-backed
securities are reflected in the amounts above.
<PAGE>
<TABLE>
TABLE 4
Loan Portfolio by State
March 31, 1995
(Dollars in thousands)
Residential
Real Estate Commmercial Loans as
-------------------------- Real Total a % of
State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio
- --------------- ------------ ----------- ------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
California $18,343,951 $3,325,576 $ 285 $ 81,498 $ -0- $21,751,310 76.04%
Colorado 744,991 174,638 -0- 8,232 -0- 927,861 3.24
Illinois 699,054 169,795 -0- 2,858 -0- 871,707 3.05
New Jersey 750,080 -0- -0- 8,692 4,746 763,518 2.67
Texas 631,731 33,692 600 1,748 -0- 667,771 2.33
Washington 316,778 273,369 -0- 810 -0- 590,957 2.07
Florida 519,118 -0- 295 1,771 -0- 521,184 1.82
Virginia 377,709 691 -0- 1,681 -0- 380,081 1.33
Arizona 328,826 40,235 -0- 1,787 -0- 370,848 1.30
Pennsylvania 311,058 -0- -0- 4,676 -0- 315,734 1.10
Connecticut 275,478 -0- -0- -0- -0- 275,478 0.96
Maryland 245,392 -0- -0- 633 -0- 246,025 0.86
Oregon 161,027 8,199 -0- 3,879 -0- 173,105 0.61
Nevada 138,099 1,298 -0- -0- -0- 139,397 0.49
Kansas 126,637 5,303 -0- 222 -0- 132,162 0.46
Utah 72,181 69 -0- 2,126 -0- 74,376 0.26
Missouri 61,673 8,238 -0- 77 -0- 69,988 0.24
New York 56,500 -0- -0- -0- -0- 56,500 0.20
Georgia 47,787 -0- -0- 2,351 -0- 50,138 0.18
Wisconsin 38,595 3,956 -0- -0- -0- 42,551 0.15
Minnesota 42,115 -0- -0- -0- -0- 42,115 0.15
Ohio 28,731 2,708 465 5,862 -0- 37,766 0.13
Washington, DC 27,806 -0- -0- -0- -0- 27,806 0.10
New Mexico 18,094 -0- -0- -0- -0- 18,094 0.06
Delaware 14,104 -0- -0- -0- -0- 14,104 0.05
North Carolina 9,287 396 -0- 3,097 -0- 12,780 0.04
Idaho 9,369 -0- -0- -0- -0- 9,369 0.03
Other 18,632 39 -0- 5,096 -0- 23,767 0.08
----------- ---------- ------ ---------- ------- ---------- --------
Totals $24,414,803 $4,048,202 $1,645 $ 137,096 $ 4,746 28,606,492 100.00%
=========== ========== ====== ========== ======= ========
SFAS 91 deferred loan fees (89,066)
Loan discount on purchased loans (7,236)
Undisbursed loan funds (4,450)
Allowance for loan losses (128,221)
Loans to facilitate (LTF) interest reserve (775)
Troubled debt restructured (TDR) interest reserve (6,063)
Loans on customer deposits 32,580
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse 28,403,261
Loans securitized into FNMA MBS with recourse (287,659)(b)
-------------
Total loan portfolio $ 28,115,602
=============
</TABLE>
(a) The Company has no commercial loans.
(b) Loans amounting to $288 million were securitized with full recourse
into FNMA mortgage-backed securities during the first quarter of 1995. The March
31, 1995 balances of these mortgage-backed securities are reflected in the
amounts above.
<PAGE>
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 (excluding MBS) composed of rate-sensitive
loans was 90% at March 31, 1996, March 31, 1995, and December 31, 1995. Because
of increased competition from fixed-rate mortgages, the Company's ARM
originations constituted approximately 77% of new mortgage loans made in the
first quarter of 1996 compared to 99% in the first three months of 1995.
The weighted average maximum lifetime cap rate on the Company's ARM
loan portfolio (including MBS with recourse) was 13.08%, or 5.64% above the
actual weighted average rate at March 31, 1996, versus 13.25%, or 6.07%
above the weighted average rate at March 31, 1995.
Approximately $5.2 billion of the Company's loans (including MBS with
recourse) have terms that state that the interest rate may not fall below a
lifetime floor set at the time of origination. As of March 31, 1996, $632
million of these ARM loans had reached their rate floors. The weighted average
floor rate on these loans was 7.79% at March 31, 1996 and 7.74% at March 31,
1995. Without the floor, the average yield on these loans would have been 7.28%
at March 31, 1996 and 7.02% at March 31, 1995.
Loan repayments consist of monthly loan amortization, loan payoffs, and
refinances. For the quarter ended March 31, 1996, loan repayments were $730
million compared to $438 million in the same period of 1995. The increase in
loan repayments was primarily due to higher mortgage payoffs and higher
refinances within the portfolio.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS
122). SFAS 122 amends Statement of Financial Accounting Standards No. 65,
"Accounting for Certain Mortgage Banking Activities," to require that any
financial institution participating in the secondary mortgage market recognize,
as separate assets, rights to service mortgage loans for others when those
rights are acquired through either the purchase or origination of mortgage loans
which are subsequently sold or securitized. SFAS 122 also requires that
financial institutions participating in the secondary mortgage market assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. The Company adopted SFAS 122 on January 1, 1996. For the
first quarter of 1996, the Company has recognized a $4.7 million gain on the
sale of loans due to the capitalization of servicing rights under SFAS 122.
After amortization, the balance at March 31, 1996 of the capitalized servicing
rights was $4.6 million.
ASSET QUALITY
One measure of the soundness of the Company's portfolio is its ratio of
nonperforming assets (NPAs) to total assets. Nonperforming assets included
non-accrual loans (loans 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) is made up of loans on which
delinquent loan payments have been capitalized or on which temporary interest
rate reductions have been made, primarily to customers negatively impacted by
adverse economic conditions.
The table on the following page shows the components of the Company's
nonperforming assets and TDRs, and the ratios to total assets.
<PAGE>
<TABLE>
TABLE 5
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
<CAPTION>
March 31
-------------------------- December 31
1996 1995 1995
----------- ------------ ------------
<S> <C> <C> <C>
Non-accrual loans $ 361,376 $ 286,230 $ 314,086
Real estate acquired through foreclosure 72,487 71,708 75,158
Real estate in judgment 798 1,350 443
----------- ------------ ------------
Total nonperforming assets $ 434,661 $ 359,288 $ 389,687
=========== ============ ============
TDRs $ 46,683 $ 68,275 $ 45,222
=========== ============ ============
Ratio of NPAs to total assets 1.24% 1.07% 1.11%
=========== ============ ============
Ratio of TDRs to total assets .13% .20% .13%
=========== ============ ============
Ratio of NPAs and TDRs to total assets 1.37% 1.27% 1.24%
=========== ============ ============
</TABLE>
The increase in NPAs during 1996 reflects the continued weakness in the
California housing market and national trends toward higher home mortgage
delinquencies. The Company continues to closely monitor all delinquencies and
takes appropriate steps to protect its interests. Interest foregone on
non-accrual loans is fully-reserved and amounted to $6 million in the first
quarter of 1996 compared to $5 million in the same period of 1995. Interest
foregone on TDRs amounted to $368 thousand for the three months ended March 31,
1996, compared to $481 thousand for the three months ended March 31, 1995.
The tables on the following two pages show the Company's nonperforming
assets by state at March 31, 1996 and 1995.
<PAGE>
<TABLE>
TABLE 6
Nonperforming Assets by State
March 31, 1996
(Dollars in thousands)
<CAPTION>
Non-Accrual Loans (a) Real Estate Owned
----------------------------------- --------------------------------
Residential Commerical Commercial NPAs as
Real Estate Real Residential Real Total a % of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ----------- --------- ---------- --------- -------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $300,572 $ 12,549 $ 368 $55,304 $ 12,870 $ 3,779 $ 385,442 1.72%
Colorado 1,690 -0- 3,251 108 -0- -0- 5,049 0.47
Illinois 3,464 472 -0- 791 302 -0- 5,029 0.49
Texas 4,390 -0- -0- 53 -0- -0- 4,443 0.47
New Jersey 11,206 -0- 687 429 -0- -0- 12,322 1.38
Florida 3,536 -0- 150 221 -0- -0- 3,907 0.52
Washington 458 -0- -0- -0- -0- -0- 458 0.07
Arizona 1,152 -0- -0- 88 -0- -0- 1,240 0.25
Virginia 1,810 -0- -0- 302 -0- -0- 2,112 0.49
Pennsylvania 2,439 -0- -0- 167 -0- -0- 2,606 0.65
Connecticut 3,536 -0- -0- 417 -0- -0- 3,953 1.22
Maryland 1,805 -0- -0- -0- -0- -0- 1,805 0.66
Oregon 545 -0- -0- -0- -0- -0- 545 0.28
Nevada 473 -0- -0- 203 -0- -0- 676 0.43
Kansas 665 40 -0- 46 -0- -0- 751 0.56
Utah 122 -0- -0- -0- -0- -0- 122 0.12
Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00
Missouri 563 961 -0- 26 -0- -0- 1,550 2.15
Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00
New York 2,683 -0- -0- 81 -0- -0- 2,764 5.26
Georgia 1,448 -0- -0- 36 -0- -0- 1,484 3.42
Washington, DC 7 -0- -0- -0- -0- -0- 7 0.02
Ohio 61 -0- 58 -0- -0- 154 273 0.90
New Mexico 1 -0- -0- -0- -0- -0- 1 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- 0.00
Massachusetts -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho 68 -0- -0- -0- -0- -0- 68 0.39
North Carolina 46 -0- -0- -0- -0- -0- 46 0.48
Other 100 -0- -0- -0- -0- -0- 100 0.47
--------- ---------- --------- -------- --------- --------- ---------- ----
Totals $342,840 $ 14,022 $ 4,514 $58,272 $ 13,172 $ 3,933 436,753 1.42
========= ========== ========= ======== ========= =========
REO general valuation allowance (2,092) (0.01)
---------- -----
Total nonperforming assets $ 434,661 1.41%
========== =====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid
interest accrued.
(b) Loans amounting to $2.3 billion were securitized with full recourse
into FNMA mortgage-backed securities during 1995. The March 31, 1996 balance of
the related nonperforming assets have been reflected in the amounts above.
<PAGE>
<TABLE>
TABLE 7
Nonperforming Assets by State
March 31, 1995
(Dollars in thousands)
<CAPTION>
Non-Accrual Loans (a) Real Estate Owned
-------------------------------------------------- ------------------------------
Residential Commerical Commercial NPAs as
Real Estate Real Residential Real Total a % of
State 1 -4 5+ Estate Construction 1 - 4 5+ Estate NPAs(b) Loans
- ----------- --------- ---------- --------- ------------ -------- -------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California $238,864 $ 8,604 $ 309 $ -0- $ 58,270 $ 9,592 $3,716 $319,355 1.47%
Colorado 1,244 177 -0- -0- 231 27 -0- 1,679 0.18
Illinois 3,274 -0- -0- -0- 103 714 -0- 4,091 0.47
New Jersey 10,062 -0- 5 525 776 -0- -0- 11,368 1.49
Texas 2,176 -0- -0- -0- 21 -0- -0- 2,197 0.33
Washington 976 -0- -0- -0- -0- -0- -0- 976 0.17
Florida 2,323 -0- 36 -0- 535 -0- -0- 2,894 0.56
Virginia 2,169 -0- -0- -0- 186 -0- -0- 2,355 0.62
Arizona 1,290 -0- -0- -0- 39 -0- -0- 1,329 0.36
Pennsylvania 2,605 -0- -0- -0- 67 -0- -0- 2,672 0.85
Connecticut 4,080 -0- -0- -0- (219) -0- -0- 3,861 1.40
Maryland 280 -0- -0- -0- 187 -0- -0- 467 0.19
Oregon 478 -0- -0- -0- -0- -0- -0- 478 0.28
Nevada 614 -0- -0- -0- -0- -0- -0- 614 0.44
Kansas 458 40 -0- -0- 121 -0- -0- 619 0.47
Utah 123 -0- -0- -0- -0- -0- -0- 123 0.17
Missouri 664 69 -0- -0- -0- -0- -0- 733 1.05
New York 3,300 -0- -0- -0- 440 -0- -0- 3,740 6.62
Georgia 1,067 -0- -0- -0- -0- -0- -0- 1,067 2.13
Wisconsin -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Minnesota -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Ohio 22 -0- 211 -0- 36 239 -0- 508 1.35
Washington, DC -0- -0- -0- -0- -0- -0- -0- -0- 0.00
New Mexico 1 -0- -0- -0- -0- -0- -0- 1 0.01
Delaware -0- -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina 82 -0- -0- -0- -0- -0- -0- 82 0.64
Idaho -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Other 102 -0- -0- -0- 6 -0- -0- 108 0.45
-------- --------- --------- ------ --------- -------- ------- --------- -----
Totals $276,254 $ 8,890 $ 561 $ 525 $ 60,799 $10,572 $ 3,716 361,317 1.26
======== ========= ========= ====== ========= ======== =======
REO general valuation allowance (2,029) (0.00)
--------- -----
Total nonperforming assets $359,288 1.26%
========= =====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid
interest accrued.
(b) Loans amounting to $288 million were securitized with full recourse
into FNMA mortgage-backed securities during the first quarter of 1995. The March
31, 1995 balance of the related nonperforming assets are reflected in the
amounts above.
<PAGE>
The Company provides specific valuation allowances for losses on loans
when impaired, including loans securitized into MBS with recourse or loans
sold with recourse, and on real estate owned when any significant and
permanent decline in value is identified. The Company also utilizes a
methodology, based on trends in the basic portfolio, 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, 1996 and 1995.
<TABLE>
TABLE 8
Changes in Allowance for Loan Losses
(Dollars in thousands)
<CAPTION>
Three Months Ended
March 31
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Beginning allowance for loan losses $ 141,988 $ 124,003
Provision charged to expense 18,522 14,779
Less loans charged off (8,360) (11,429)
Add recoveries 210 868
----------- -----------
Ending allowance for loan losses $ 152,360 $ 128,221
=========== ===========
Ratio of net charge-offs to average loans
outstanding (including MBS with recourse) .11% .15%
============ ============
Ratio of allowance for loan losses to nonperforming assets 35.1% 35.7%
============ ============
</TABLE>
CUSTOMER DEPOSITS
Customer deposits increased during the first quarter of 1996 by $143
million, including interest credited of $214 million. In the first three months
of 1995, customer deposits increased $1.1 billion, including interest credited
of $188 million, excluding the effect of the sale of seven Colorado branches
with balances totaling $153 million and the acquisition of a one-branch New
Jersey savings institution with $48 million in deposits. During the first
quarter of 1996, rates on certificates of deposit were lower than a year ago
which led to a slowdown in the savings inflows compared to the first three
months of 1995.
<PAGE>
The table below shows the Company's customer deposits by interest rate
and by remaining maturity at March 31, 1996 and 1995.
<TABLE>
TABLE 9
Customer Deposits
(Dollars in millions)
<CAPTION>
March 31
--------------------------------------------------
1996 1995
---------------------- ----------------------
Rate* Amount Rate* Amount
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Customer deposits by interest rate:
Interest-bearing checking accounts 1.22% $ 768 1.33% $ 708
Passbook accounts 2.22 571 2.29 611
Money market deposit accounts 3.42 1,321 3.11 1,559
Term certificate accounts with original maturities
of:
4 weeks to 1 year 5.10 8,892 5.55 6,639
1 to 2 years 5.42 4,407 4.96 5,183
2 to 3 years 5.86 1,920 5.26 2,184
3 to 4 years 5.40 614 5.33 822
4 years and over 5.95 2,067 6.31 2,105
Retail jumbo CDs 5.36 428 6.02 409
All other 7.67 3 7.74 7
---------- ---------
$ 20,991 $ 20,227
========== =========
Customer deposits by remaining maturity:
No contractual maturity $ 2,660 $ 2,878
Maturity within one year:
2nd quarter 6,152 3,643
3rd quarter 3,382 4,815
4th quarter 2,480 2,751
1st quarter 2,825 1,780
---------- ----------
14,839 12,989
1 to 2 years 2,255 2,197
2 to 3 years 414 1,171
3 to 4 years 644 257
4 years and over 179 735
---------- ----------
$ 20,991 $ 20,227
========== ==========
</TABLE>
* Weighted average interest rate, including the impact of interest rate swaps.
<PAGE>
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses borrowings from the FHLB, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities. FHLB
advances amounted to $6.5 billion at March 31, 1996, compared to $7.0 billion
and $6.4 billion at March 31, 1995, and December 31, 1995, 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, 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 $2.1 billion, $367 million, and $1.8 billion at March
31, 1996 and 1995, and December 31, 1995, respectively. The $2.1 billion balance
at March 31, 1996, included $1.5 billion in Federal Home Loan Bank of San
Francisco MBS Reverse Repos with maturities ranging from 1996 to 1998.
OTHER BORROWINGS
At March 31, 1996, Golden West, at the holding company level, had a
total of $1.1 billion of subordinated debt issued and outstanding. As of March
31, 1996, 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, 1996, 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.
World currently has on file a shelf registration with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes, all of which was
available for issuance at March 31, 1996. World had medium-term notes
outstanding under prior registrations with principal amounts of $890 million at
March 31, 1996, compared to $1.9 billion at March 31, 1995, and $1.6 billion at
December 31, 1995. As of March 31, 1996, World's medium-term notes were rated A1
and A+ by Moody's and S&P, respectively.
World also has on file a registration statement with the OTS for the
sale of up to $300 million of subordinated notes and, at March 31, 1996, the
full amount was available for issuance. As of March 31, 1996, World had issued a
total of $200 million of subordinated notes, which were rated A2 and A by
Moody's and S&P, respectively. The subordinated notes are included in World's
risk-based regulatory capital as Supplementary Capital.
<PAGE>
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during the first three
months of 1996 and 1995 as a result of retained earnings. The increase was
partially offset by the $17 million cost of the repurchase of Company stock and
by a decline in market values of securities available for sale since December
31, 1995. Unrealized gains on securities and MBS available for sale included in
stockholders' equity at March 31, 1996 and 1995, and December 31, 1995, were $75
million, $41 million, and $76 million, respectively.
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123) on January 1, 1996.
SFAS 123 establishes accounting and disclosure requirements using a fair value
based method of accounting for stock based employee compensation plans. Under
SFAS 123, the Company can either adopt the new fair value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings per share as if the accounting provisions
of SFAS 123 had been adopted. The Company adopted only the disclosure
requirements of SFAS 123; therefore such adoption has no effect on the Company's
March 31, 1996 consolidated financial statements.
During periods of low asset growth, 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 regularly reviews
alternative uses of excess capital, including faster growth and acquisitions. At
times, the Board has determined that repurchase of common stock is a wise use of
excess capital.
Through three separate actions, Golden West's Board of Directors
authorized the purchase by the Company of up to 12.2 million shares of Golden
West's common stock. As of March 31, 1996, 6.2 million shares had been
repurchased and retired at a cost of $243 million since October 28, 1993, of
which 330 thousand were purchased and retired at a cost of $17 million during
the first three months of 1996. Dividends from World Savings 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.
In March 1996, World paid a $165 million dividend to Golden West.
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 yet 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 World and
WFSB, to meet certain minimum capital requirements. The table on the following
page shows World's current regulatory capital ratios and compares them to the
current OTS minimum requirements at March 31, 1996 and 1995.
<PAGE>
<TABLE>
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
<CAPTION>
March 31, 1996 March 31, 1995
--------------------------------------------------- --------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------------- ----------------------- ------------------------ ------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ ---------- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,845,592 6.70% $ 413,319 1.50% $1,987,529 6.15% $ 484,825 1.50%
Core 1,845,592 6.70 826,638 3.00 1,987,529 6.15 969,649 3.00
Risk-based 2,169,719 14.12 1,228,984 8.00 2,297,336 12.92 1,422,710 8.00
</TABLE>
The following table shows WFSB's current regulatory capital ratios and
compares them to the current OTS minimum requirements at March 31, 1996 and
1995.
<TABLE>
TABLE 11
World Savings Bank, a Federal Savings Bank
Regulatory Capital Ratios
(Dollars in thousands)
<CAPTION>
March 31, 1996 March 31, 1995
---------------------------------------------------- --------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------------- ------------------------ ----------------------- ------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ ---------- ----------- ---------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $573,896 8.05% $ 106,874 1.50% $17,243 19.95% $1,297 1.50%
Core 573,896 8.05 213,748 3.00 17,243 19.95 2,593 3.00
Risk-based 583,679 15.25 306,105 8.00 17,528 29.96 4,680 8.00
</TABLE>
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 the Association does
not have above-normal exposure to interest rate risk. The OTS has not yet
analyzed WFSB's interest rate risk exposure, although it is the Company's belief
that WFSB does not have 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. The tables on the following pages summarized the capital ratios
for each of the five classifications and shows that World and WFSB met the "well
capitalized" standard as of March 31, 1996.
<PAGE>
The table below shows a reconciliation of World's equity capital to
regulatory capital at March 31, 1996.
<TABLE>
TABLE 12
World Savings and Loan Association
Reconciliation of Equity Capital to Regulatory Capital
March 31, 1996
(Dollars in thousands)
<CAPTION>
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Common stock $ 150
Paid-in surplus 233,441
Retained earnings 1,744,752
Unrealized gains on securities
available for sale 72,934
-----------
Equity capital $ 2,051,277 $2,051,277 $2,051,277 $2,051,277 $2,051,277 $2,051,277
===========
Positive goodwill (201,689) (201,689) (201,689) (201,689) (201,689)
Negative goodwill 70,254 70,254 70,254 70,254 70,254
Unrealized gains on securities
available for sale (72,934) (72,934) (72,934) (72,934) (72,934)
Non-qualifying mortgage servicing (1,316) (1,316) (1,316) (1,316) (1,316)
rights
Equity/other investments (442)
Subordinated debt 199,351
General valuation allowance 125,218
----------- ----------- ----------- ----------- ------------
Regulatory capital $1,845,592 $1,845,592 $1,845,592 $1,845,592 $2,169,719
=========== =========== =========== =========== ============
Total assets $27,800,772
===========
Adjusted total assets $27,554,602 $27,554,602 $27,554,602
=========== =========== ============
Risk-weighted assets $15,362,295 $15,362,295
============ ============
CAPITAL RATIO - ACTUAL 7.38% 6.70% 6.70% 6.70% 12.01% 14.12%
=========== =========== ============ ============ ============ ============
Regulatory Capital Standards:
Well capitalized, equal to or greater than 5.00% 6.00% 10.00%
============ ============ ===========
Adequately capitalized, equal to or greater than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ==========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
=========== =========== ========== = ==========
Significantly undercapitalized, less than 3.00% 3.00% 6.00%
=========== =========== ==========
Critically undercapitalized, equal to or less than 2.00%
============
</TABLE>
<PAGE>
The table below shows a reconciliation of WFSB's equity capital to
regulatory capital at March 31, 1996.
<TABLE>
TABLE 13
World Savings Bank, a Federal Savings Bank
Reconciliation of Equity Capital to Regulatory Capital
March 31, 1996
(Dollars in thousands)
<CAPTION>
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Common stock $ 150
Paid-in surplus 570,182
Retained deficit 7,373
-----------
Equity capital $ 577,705 $ 577,705 $ 577,705 $ 577,705 $ 577,705 $ 577,705
===========
Positive goodwill (3,809) (3,809) (3,809) (3,809) (3,809)
General valuation allowance 9,783
----------- ------------ ------------ ------------ ------------
Regulatory capital $ 573,896 $ 573,896 $ 573,896 $ 573,896 $ 583,679
=========== ============ ============ ============ ============
Total assets $7,127,638
===========
Adjusted total assets $ 7,124,923 $ 7,124,923 $ 7,124,923
=========== ============ ============
Risk-weighted assets $ 3,826,315 $ 3,826,315
============ ============
CAPITAL RATIO - ACTUAL 8.11% 8.05% 8.05% 8.05% 15.00 15.25
=========== =========== ============ ============ ============ ============
Regulatory Capital Standards:
Well capitalized, equal to or greater than 5.00% 6.00% 10.00%
=========== ============ ===========
Adequately capitalized, equal to or greater than 1.50% 4.00% 4.00% 8.00%
======== =========== ============ ===========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
======== =========== ============ ===========
Significantly undercapitalized, less than 3.00% 3.00% 6.00%
=========== ============ ===========
Critically undercapitalized, equal to or 2.00 %
less than
============
</TABLE>
<PAGE>
The table below compares World's regulatory capital to the well
capitalized classification at March 31, 1996.
<TABLE>
TABLE 14
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
<CAPTION>
ACTUAL WELL CAPITALIZED
-------------------------- --------------------------
Capital Ratio Capital Ratio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Leverage $ 1,845,592 6.70 % $ 1,377,730 5.00 %
Tier 1 risk-based 1,845,592 12.01 921,738 6.00
Total risk-based 2,169,719 14.12 1,536,230 10.00
</TABLE>
The table below compares WFSB's regulatory capital to the well
capitalized classification at March 31, 1996.
<TABLE>
TABLE 15
World Savings Bank, a Federal Savings Bank
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
<CAPTION>
ACTUAL WELL CAPITALIZED
-------------------------- --------------------------
Capital Ratio Capital Ratio
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Leverage $ 573,896 8.05% $ 356,246 5.00%
Tier 1 risk-based 573,896 15.00 229,579 6.00
Total risk-based 583,679 15.25 382,632 10.00
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
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,
1996 and 1995, and December 31, 1995.
<TABLE>
TABLE 16
Yield on Earning Assets,
Cost of Funds, and Primary Spread,
Including Effect of Purchase Accounting
<CAPTION>
March 31
--------------------------- December 31
1996 1995 1995
--------- -- ----------- -------------
<S> <C> <C> <C>
Yield on loan portfolio 7.64% 7.30% 7.69%
Yield on MBS 7.35 8.03 7.41
Yield on investments 5.68 6.00 5.96
---------- -------- ----------
Yield on earning assets 7.51 7.23 7.56
---------- -------- ----------
Cost of customer deposits 5.01 5.14 5.15
Cost of borrowings 5.95 6.26 6.15
---------- --------
----------
Cost of funds 5.33 5.52 5.50
---------- -------- ----------
Primary spread 2.18% 1.71% 2.06%
========== ======== ==========
</TABLE>
The Company's primary spread is, to some degree, dependent on changes
in interest rates because the Company's liabilities tend to respond somewhat
more rapidly to rate movements than its assets, which are primarily adjustable
rate mortgages. 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). In
general, the repricing of COFI ARM portfolios tends to lag liability interest
rate changes because of certain loan features which restrain monthly adjustments
and because the COFI tends to trail changes in liability costs due to the
existence of a two-month reporting lag. During the first quarter of 1996, the
effect of the generally declining interest rates during the second half of 1995
and early in 1996, led to a 17 basis point reduction in the Company's cost of
funds. During the same period, the yield on the loan portfolio fell by only five
basis points allowing for a 12 basis point increase in the Company's spread
since yearend 1995.
The table on the following page shows the Company's revenues and
expenses as a percentage of total revenues for the three months ended March 31,
1996 and 1995, in order to focus on the changes in interest income between years
as well as changes in other revenue and expense amounts.
<PAGE>
<TABLE>
TABLE 17
Selected Revenue and Expense Items
as Percentages of Total Revenues
<CAPTION>
Three Months Ended
March 31
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Interest on loans 82.5% 87.0%
Interest on mortgage-backed securities 9.4 4.5
Interest and dividends on investments 5.5 6.5
---------- -----------
97.4 98.0
Less:
Interest on customer deposits 40.5 41.9
Interest on advances and other borrowings 25.3 26.6
---------- -----------
65.8 68.5
Net interest income 31.6 29.5
Provision for loan losses 2.8 2.6
---------- -----------
Net interest income after provision for loan losses 28.8 26.9
Add:
Fees 1.4 1.1
Gain on the sale of securities, mortgage-backed
securities, and loans 0.7 0.0
Other non-interest income 0.5 0.8
---------- -----------
2.6 1.9
Less:
General and administrative expenses 12.3 13.9
Amortization of goodwill 0.1 0.1
Taxes on income 7.5 5.8
---------- -----------
Net earnings 11.5% 9.0%
========== ===========
</TABLE>
INTEREST RATE SWAPS AND CAPS
The Company enters into interest rate swaps and caps 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 and cap activity decreased net interest income by $4
million for the three months ended March 31, 1996, compared to a decrease of $9
million for the same period in 1995.
The table on the following page summarizes the unrealized gains and
losses for interest rate swaps and caps at March 31, 1996 and 1995.
<PAGE>
<TABLE>
TABLE 18
Schedule of Unrealized Gains and Losses on Interest Rate Swaps and Caps
(Dollars in thousands)
March 31, 1996 March 31, 1995
---------------------------------------- ----------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain (Loss) Gains Losses Gain (Loss)
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate caps $ 15 $ -0- $ 15 $ 265 $ -0- $ 265
Interest rate swaps 33,070 (54,767) (21,697) 38,551 (63,509) (24,958)
------------ ------------ ------------ ----------- ------------ ------------
Total $ 33,085 $ (54,767) $ (21,682 $ 38,816 $ (63,509) $ (24,693)
============ ============ ============ =========== ============ ============
</TABLE>
<TABLE>
TABLE 19
Schedule of Interest Rate Swaps and Caps Activity
(Notional amounts in millions)
<CAPTION>
Three Months Ended
March 31, 1996
------------------------------------------------------------------------
Receive Pay Forward Interest
Fixed Fixed Basis Starting Rate
Swaps Swaps Swaps(a) Swaps Caps
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 3,221 $ 1,775 $ 43 $ 10 $ 225
Additions 523 -0- -0- -0- -0-
Maturities (595) (40) (43) -0- (30)
Terminations -0- -0- -0- -0- -0-
Forward starting becoming effective -0- -0- -0- -0- -0-
Other -0- -0- -0- -0- -0-
------------ ------------ ------------ ------------ ------------
Balance March 31, 1996 $ 3,149 $ 1,735 $ -0- $ 10 $ 195
============ ============ ============ ============ ============
</TABLE>
(a) Receives based upon one index, pays based upon another index.
The range of floating interest rates received on swap contracts in the
first three months of 1996 was 5.14% to 6.02%, and the range of floating
interest rates paid on swap contracts was 4.98% to 6.02%. The range of fixed
interest rates received on swap contracts in the first three months of 1996 was
4.61% to 9.68% and the range of fixed interest rates paid on swap contracts was
5.38% to 9.14%.
<PAGE>
INTEREST ON LOANS
In the first quarter of 1996, interest on loans was higher than in the
comparable 1995 period by $51 million or 10.5%. The increase in the first
quarter of 1996 was due to a $719 million increase in the average portfolio
balance and a 54 basis point increase in the average portfolio yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the first quarter of 1996 interest on mortgage-backed securities was
higher than in the comparable 1995 period by $36 million or 141.2%. The 1996
increase was due primarily to a $2.1 billion increase in the average portfolio
balance, which was partially offset by a 65 basis point decrease in the average
portfolio yield. The increase in the mortgage-backed securities portfolio, and
the lower average portfolio yield were primarily the result of the
securitization of adjustable-rate loans with recourse that began in March 1995,
as discussed on page 11.
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 1996, interest and dividends on investments were $113
thousand or 0.3% lower than for the same period in 1995. The decrease was
primarily due to a 1 basis point decrease in the average portfolio yield and a
$341 million decrease in the average portfolio balance. These decreases were
partially offset by $4.4 million of interest income received on an income tax
refund in 1996.
INTEREST ON CUSTOMER DEPOSITS
In the first quarter of 1996, interest on customer deposits increased
by $29 million or 12.5% from the comparable period of 1995. The first quarter
increase was due to a $1.2 billion increase in the average deposit balance and a
23 basis point increase in the average cost of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the first quarter of 1996, interest on advances and other
borrowings increased by $17 million or 11.0% from the comparable period of
1995. The first quarter increase was primarily due to a $996 million increase in
the average balance, which was partially offset by a 7 basis point decrease in
the average cost of these borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $18.5 million for the three months
ended March 31, 1996, compared to $14.8 million for the same period in 1995. The
higher provision in 1996 reflects the increase in non-accrual loans, primarily
in California.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
For the first quarter of 1996, general and administrative expenses
(G&A) increased by $2.4 million or 3.1% from the comparable period in 1995. The
primary reasons for the increases in 1996 were growth in savings offices and
general inflation. G&A as a percentage of average assets on an annualized basis
was 0.92% for the first quarter compared to 0.96% for the same period in 1995.
DEPOSIT INSURANCE
Legislation to capitalize the Savings Association Insurance Fund (SAIF)
in order to bring it into parity with the FDIC's other insurance fund, the Bank
Insurance Fund (BIF) was not signed into law even though it passed both houses
of Congress in 1995. The legislation would have required an assessment of all
SAIF-insured institutions of approximately 80 basis points on their March 31,
1995, customer deposit balances. It is not clear when the disparity between SAIF
and BIF will be resolved, therefore, the exact impact on the Company of that
resolution is unknown at this time.
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 39.5% for the first three
months of 1996 compared to 38.9% for the first three months of 1995.
LIQUIDITY AND CAPITAL RESOURCES
World's principal sources of funds are cash flows generated from
earnings; customer deposits; loan repayments; borrowings from the FHLB; issuance
of medium-term notes; and debt collateralized by mortgages, MBS, or securities.
In addition, World has a number of other alternatives available to provide
liquidity or finance operations. These include 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, World may borrow from the Federal Reserve Bank of San
Francisco to meet short-term cash needs. The availability of these funds will
vary depending upon policies of the FHLB, the Federal Reserve Bank of San
Francisco, and the Federal Reserve Board. For a discussion of World's liquidity
positions at March 31, 1996, and 1995, and December 31, 1995, see the cash and
investments section on page 11.
<PAGE>
WFSB's principal sources of funds are cash flows generated from
earnings; customer deposits; loan repayments; borrowings from the FHLB;
investments from its parent; and debt collateralized by mortgages or securities.
In addition, WFSB has a number of other alternatives available to provide
liquidity or finance operations. These include sales of loans, negotiable
certificates of deposit, and borrowings from commercial banks. For a discussion
of WFSB's liquidity positions at March 31, 1996, and 1995, and December 31,
1995, see the cash and investments section on page 11.
The principal sources of funds for Golden West (the Parent) are
interest on investments, dividends from World, and the proceeds from the
issuance of debt and equity securities. Various statutory and regulatory
restrictions and tax considerations limit the amount of dividends World 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 purchase of Golden West stock (see
stockholders' equity section on page 22), and general and administrative
expenses. At March 31, 1996 and 1995, and December 31, 1995, Golden West's total
cash and investments amounted to $857 million (including a $700 million
short-term loan to World), $910 million, and $719 million, respectively.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) April 30, 1996 - Annual Meeting
<TABLE>
<CAPTION>
Broker
For Against Withheld Abstain Non-Vote
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(b) Directors elected:
Louis J. Galen 54,366,610 247,541
Antonia Hernandez 54,104,375 509,776
Bernard A. Osher 54,369,006 245,145
(c) Approve the amendment and
restatement of the Company's
1996 Stock Option Plan
45,931,958 5,308,245 324,342 3,049,606
(d) Ratification of Auditors:
Appointment of Deloitte & Touche
LLP, independent public
accountants, for the fiscal year
1996 54,484,216 41,680 88,255
</TABLE>
Other Directors continuing in office are:
Patricia A. King, William D. McKee, Kenneth T. Rosen, Marion O. Sandler and
Herbert M. Sandler
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - 1996 Stock Option Plan as Amended
11 - Statement of Computation of Earnings Per Share
27 - Financial Data Schedule
<PAGE>
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, 1996 /s/ J. L. Helvey
-------------------------------------------
J. L. Helvey
Group Senior Vice President
(duly authorized and principal financial
officer)
<PAGE>
EXHIBIT 10.1
Golden West Financial Corporation
Amended and Restated 1996 Stock Option Plan
(As Amended and Restated February 2, 1996)
ARTICLE I
GENERAL
1. Purpose.
This 1996 Stock Option Plan (the "Plan") is intended to increase
incentive and to encourage stock ownership on the part of (i) selected key
employees of Golden West Financial Corporation (the "Company") or of other
corporations which are or become subsidiaries of the Company, and (ii) certain
consultants, advisory board members, and other independent contractors who
provide services to the Company or its subsidiaries, but who are neither
employees of the Company or its subsidiaries nor directors of the Company
("consultants"). It is also the purpose of the Plan to provide such employees
and consultants with a proprietary interest, or to increase their proprietary
interest, in the Company and its subsidiaries, and to encourage them to remain
in the employ of and/or to increase their efforts on behalf of the Company or
its subsidiaries. It is intended that certain options granted pursuant to the
Plan shall constitute incentive stock options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") ("incentive stock
options"), and that certain other options granted pursuant to the Plan shall not
constitute incentive stock options ("nonqualified stock options"). Prior to
February 2, 1996, the Plan was known as the 1987 Stock Option Plan.
2. Administration.
The Plan shall be administered by the Stock Option Committee (the
"Committee") of the Board of Directors of Golden West Financial Corporation (the
"Board"). The Committee shall from time to time at its discretion make
determinations with respect to the persons to whom options shall be granted and
the amount of such options. The Committee shall consist of not fewer than two
members of the Board. The Committee shall be comprised solely of Directors who
both are (i) "outside directors" under section 162(m) of the Code and (ii)
"disinterested persons" under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended ("Rule 16b-3").
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
3. Eligibility.
Subject to Section 2 of this Article I, the persons who shall be
eligible to receive options under the Plan shall be such persons selected by the
Committee from among the officers, key employees (including directors who are
also salaried employees of the Company) and consultants of the Company, as may
be determined by the Committee in its sole discretion. Notwithstanding any
contrary provision of the Plan, consultants shall not be eligible to receive
incentive stock options.
Except where the context otherwise requires, the term "Company," as
used herein, shall include (i) Golden West Financial Corporation and (ii) [any
corporation or any other entity (including, but not limited to, partnerships and
joint ventures) controlling, controlled by, or under common control with Golden
West Financial Corporation (each a "subsidiary corporation")], and the terms
"officers, key employees and consultants of the Company," and words of similar
import, shall include officers, key employees and consultants of each such
subsidiary corporation, as well as officers, key employees and consultants of
Golden West Financial Corporation.
4. Shares of Stock Subject to the Plan.
The shares that may be issued under the Plan shall be authorized and
unissued or reacquired shares of the Company's common stock (the "Common
Stock"). The aggregate number of shares which may be issued under the Plan shall
not exceed 7,000,000 shares of Common Stock, unless an adjustment is required in
accordance with Article III.
<PAGE>
If an option expires or is cancelled for any reason without having been
fully exercised or vested, the number of shares subject to such option which
were not purchased or did not vest prior to such expiration or cancellation may
again be made subject to an option granted hereunder (to the same person or to a
different person).
5. Amendment of the Plan.
The Board, in its sole discretion, may amend or terminate the Plan, or
any part thereof, at any time and for any reason. However, if and to the extent
required to maintain the Plan's qualification under Rule 16b-3, any such
amendment shall be subject to stockholder approval. The amendment or termination
of the Plan shall not, without the consent of the option holder, alter or impair
any rights or obligations under any option theretofore granted to such
individual.
6. Term of Plan.
The Plan, as amended and restated herein, shall remain in effect until
amended or terminated by the Board in accordance with Section 5 of Article I.
However, without further stockholder approval, no option which is intended to be
an incentive stock option may be granted under the Plan after February 1, 2006.
7. Restrictions.
All options granted under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine, in its discretion, that the
listing, registration or qualification of the shares subject to options granted
under the Plan upon any securities exchange or under any state or federal law,
or the consent or approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of such options
or the issuance, if any, or purchase of shares in connection therewith, such
options may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee. 8.
Nonassignability.
9. Withholding Taxes.
Whenever shares of Common Stock are to be issued under the Plan, the
Company shall have the right to require the optionee to remit to the Company an
amount sufficient to satisfy federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares.
10. Definition of "Fair Market Value."
For the purposes of this Plan, the term "Fair Market Value," when used
in reference to the date of grant of an option or the date of surrender of
Common Stock in payment for the purchase of shares pursuant to the exercise of
an option, as the case may be, shall mean the closing sale price of the Common
Stock quoted on the Composite Tape for New York Stock Exchange--Listed Stocks,
as published in "The Wall Street Journal," or if no sale price was quoted on
such date, then as of the next preceding date on which such a sale price was
quoted. If the Common Stock is not listed on the New York Stock Exchange, Fair
Market Value shall mean the mean between the highest and lowest sale prices on
the principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, as published in "The Wall
Street Journal" and determined by the Committee, or, if such stock is not listed
on any such securities exchange, the mean between the highest and lowest sale
prices or bid quotations with respect to a share of such stock on the date such
option is granted on the National Association of Securities Dealers, Inc.
Automated Quotations System or any successor system or, if no such sale prices
or quotations are available, the Fair Market Value on the date in question of a
share of such stock as determined in good faith by the Committee.
<PAGE>
ARTICLE II
STOCK OPTIONS
1. Award of Stock Options.
Awards of stock options may be made under the Plan under all the terms
and conditions contained herein. However, the aggregate Fair Market Value
(determined as of the date of grant) of the stock with respect to which
incentive stock options are exercisable for the first time by such officer or
key employee during any calendar year (under all incentive stock option plans of
the Company and its parent and subsidiary corporations) shall not exceed
$100,000. The nature of options under the foregoing sentence shall be determined
by taking options into account in the order in which they were granted. In no
event shall an option constitute an incentive stock option if, at the time such
option is granted, the terms of the option provide that it shall not constitute
an incentive stock option. The date on which any option is granted shall be the
date of the Committee's authorization of such grant or such later date as may be
determined by the Committee at the time such grant is authorized. 2. Term of
Options and Effect of Termination.
Notwithstanding any other provision of the Plan, no option granted
under the Plan shall be exercisable after the expiration of ten (10) years from
the date of its grant. In addition, notwithstanding any other provision of the
Plan, no incentive stock option granted under the Plan to a person who, at the
time such option is granted and in accordance with Section 424(d) of the Code,
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company shall be exercisable after the expiration of
five (5) years from the date of its grant. 3. Terms and Conditions of Options.
Options granted pursuant to the Plan shall be evidenced by agreements
in such form as the Committee shall from time to time determine, which
agreements shall contain such terms and conditions as determined by the
Committee in its sole discretion and which also shall comply with the following
terms and conditions.
(A) Optionee's Agreement.
Each optionee shall agree to remain in the employ of and/or to render
to the Company his or her services for a period of two (2) years from the date
of the option, but such agreement shall not impose upon the Company any
obligation to retain the optionee in its employee and/or service for any period.
(B) Number of Shares and Type of Option.
Each option agreement shall state the number of shares to which the
option pertains and whether the option is intended to be an incentive stock
option or a nonqualified stock option. During any calendar year, no individual
shall be granted options covering more than 300,000 shares. An option which is
intended to be an incentive stock option may be granted only to an individual
who on the grant date is an employee of Golden West Financial Corporation or of
a corporation which constitutes a subsidiary corporation (within the meaning of
Section 424(f) of the Code) of Golden West Financial Corporation.
(C) Option Price.
Each option agreement shall state the option price per share (or the
method by which such price shall be computed). The option price per share shall
not be less than 100% of the Fair Market Value of a share of the Common Stock on
the date such option is granted. Notwithstanding the foregoing, the option price
per share of an incentive stock option granted to a person who, on the date of
such grant and in accordance with Section 424(d) of the Code, owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company shall be not less than 110% of the Fair Market Value of a
share of the Common Stock on the date that the option is granted.
(D) Medium and Time of Payment.
The option price shall be payable upon the exercise of an option in the
legal tender of the United States or, in the discretion of the Committee, (i) by
tendering previously acquired shares having an aggregate Fair Market Value at
the time of exercise equal to the total option price, or (ii) by any other means
which the Committee, in its sole discretion, determines to both provide legal
consideration for the shares, and to be consistent with the purposes of the
Plan. Upon receipt of payment, the Company shall deliver to the optionee (or the
person entitled to exercise the option) a certificate or certificates for the
shares of Common Stock to which the option pertains.
<PAGE>
(E) Exercise of Options.
Each option shall state the time or times when it becomes exercisable,
which shall be determined by the Committee. The Committee may, in its
discretion, waive any vesting provisions contained in an option agreement.
To the extent that an option has become vested (except as provided in
Article III), and subject to the foregoing restrictions, it may be exercised in
whole or in such lesser amount as may be authorized by the option agreement;
provided, however, that no partial exercise of an option shall be for fewer than
fifty (50) shares of Common Stock. If exercised in part, the unexercised portion
of an option shall continue to be held by the optionee and may thereafter be
exercised as herein provided.
(F) Termination and Transfer of Options.
In connection with the grant of any option under the Plan, the
Committee may provide in the option agreement for the termination of all or any
portion of an option under certain circumstances, including, without limitation,
termination of the recipient's employment or service as a result of resignation,
retirement, disability or death, or for cause, and may distinguish among various
causes of termination as the Committee deems appropriate. In addition, the
Committee may provide, through an option agreement or otherwise, that in the
event an optionee's employment (or other service for the Company) is terminated,
(i) such optionee's options may be exercised (by the optionee or, if
appropriate, his or her beneficiary or personal representative) for specified
periods thereafter within the option period, or (ii) to the extent not fully
exercisable or otherwise vested on the termination date, such optionee's options
may continue to become exercisable within the option period.
ARTICLE III
RECAPITALIZATION AND REORGANIZATIONS
The number of shares of Common Stock covered by the Plan, and the
number of shares and price per share of each outstanding option shall be
proportionately adjusted for any increase or decrease in the number of issued
and outstanding shares of Common Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, or any other
increase or decrease in the number of issued and outstanding shares of Common
Stock effected without receipt of consideration by the Company.
If the Company shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain to and apply to the
securities to which a holder of the same number of shares of Common Stock that
are subject to that option would have been entitled. A dissolution or
liquidation of the Company or a merger or consolidation in which the Company is
not the surviving corporation (a "Terminating Transaction") shall cause each
outstanding option to terminate, unless the agreement of merger or consolidation
shall otherwise provide; provided, however, that each optionee in the event of a
Terminating Transaction which will cause his or her option to terminate shall
have the right immediately prior to such Terminating Transaction to exercise
such option in whole or in part, subject to every limitation on the
exercisability of such option, other than any vesting provisions not required by
the Code.
To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, binding and conclusive.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
<PAGE>
ARTICLE IV
MISCELLANEOUS PROVISIONS
1. Rights as a Stockholder.
An optionee or a transferee of an option shall have no rights as a
stockholder of the Company with respect to any shares covered by an option until
the date of the receipt of payment (including any amounts required by the
Company pursuant to Section 9 of Article I) by the Company. No adjustment shall
be made as to any option for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to such date, except as provided in Article III. 2.
Other Provisions.
The option agreements authorized under the Plan shall contain such
other provisions, including, without limitation, restrictions upon the exercise
of the option or restrictions required by any applicable securities laws, as the
Committee shall deem advisable. 3. Application of Funds.
The proceeds received by the Company from the sale of Common Stock
pursuant to the exercise of options will be used for general corporate purposes.
4. No Obligation to Exercise Option.
he granting of an option shall impose no obligation upon the optionee
or a transferee of the option to exercise such option.
GOLDEN WEST FINANCIAL CORPORATION
Dated: February 2, 1996 /s/ J. L. Helvey
-------------------------------------------
J. L. Helvey
Group Senior Vice President
(duly authorized and principal financial
officer)
<PAGE>
<TABLE>
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings Per Share
(Dollars in thousands except per share amounts)
<CAPTION>
Three Months Ended
--------------------------------
March 31
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Line 1:
Average Number of Common
Shares Outstanding 58,788,639 58,586,488
============== ==============
Line 2:
Net Earnings $ 75,512 50,933
============== ==============
Line 3:
Earnings Per Common Share
(Line 2 divided by Line 1) $ 1.28 .87
============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 203,419
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 536,655
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 977,345
<INVESTMENTS-CARRYING> 3,033,949
<INVESTMENTS-MARKET> 3,098,469
<LOANS> 28,388,930
<ALLOWANCE> 152,360
<TOTAL-ASSETS> 35,013,718
<DEPOSITS> 20,990,781
<SHORT-TERM> 2,623,420
<LIABILITIES-OTHER> 878,844
<LONG-TERM> 8,188,081
0
0
<COMMON> 5,862
<OTHER-SE> 2,326,730
<TOTAL-LIABILITIES-AND-EQUITY> 35,013,718
<INTEREST-LOAN> 541,208
<INTEREST-INVEST> 36,226
<INTEREST-OTHER> 61,673
<INTEREST-TOTAL> 639,107
<INTEREST-DEPOSIT> 265,370
<INTEREST-EXPENSE> 431,448
<INTEREST-INCOME-NET> 207,659
<LOAN-LOSSES> 18,522
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 81,159
<INCOME-PRETAX> 124,789
<INCOME-PRE-EXTRAORDINARY> 124,789
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,512
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 7.51
<LOANS-NON> 361,376
<LOANS-PAST> 0
<LOANS-TROUBLED> 46,683
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 141,988
<CHARGE-OFFS> 8,360
<RECOVERIES> 210
<ALLOWANCE-CLOSE> 152,360
<ALLOWANCE-DOMESTIC> 152,360
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
