<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended June 30, 1997 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
July 31, 1997, was 56,725,109 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (the Company) for the three and six months ended
June 30, 1997 and 1996 are unaudited. In the opinion of the Company, all
adjustments (consisting only of normal recurring accruals) that are necessary
for a fair statement of the results for such three and six month periods have
been included. The operating results for the three and six months ended June 30,
1997, are not necessarily indicative of the results for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30 June 30 December 31
1997 1996 1996
---------- ---------- ----------
<S> <C> <C> <C>
Assets:
Cash $ 130,667 $ 189,724 $ 218,719
Securities available for sale at fair value 601,278 495,607 781,325
Other investments at cost 1,044,756 1,210,140 1,078,832
Mortgage-backed securities available for sale without 206,722 252,712 227,466
recourse at fair value
Mortgage-backed securities available for sale with -0- 224,466 -0-
recourse at fair value
Mortgage-backed securities held to maturity without 768,468 832,021 800,692
recourse at cost
Mortgage-backed securities held to maturity with 3,077,534 2,103,642 3,265,424
recourse at cost
Loans receivable 31,821,887 29,059,953 30,113,421
Interest earned but uncollected 217,309 224,564 221,604
Investment in capital stock of Federal Home Loan
Banks--at cost which approximates fair value 572,157 397,463 500,105
Real estate held for sale or investment 73,436 73,221 83,052
Prepaid expenses and other assets 356,021 304,782 226,054
Premises and equipment--at cost less accumulated 224,847 208,000 213,904
depreciation
----------- ----------- -----------
$39,095,082 $35,576,295 $37,730,598
=========== =========== ===========
Liabilities and Stockholders' Equity:
Deposits $24,036,660 $21,040,598 $22,099,934
Advances from Federal Home Loan Banks 7,359,039 7,175,549 8,798,433
Securities sold under agreements to repurchase 2,954,221 2,317,258 1,908,126
Medium-term notes 309,936 689,662 589,845
Accounts payable and accrued expenses 485,805 513,018 452,182
Taxes on income 248,759 353,855 207,605
Subordinated notes--net of discount 1,209,772 1,323,189 1,323,996
Stockholders' equity 2,490,890 2,163,166 2,350,477
----------- ----------- -----------
$39,095,082 $35,576,295 $37,730,598
=========== =========== ===========
</TABLE>
2
<PAGE> 3
Golden West Financial Corporation
Consolidated Statement of Net Earnings (Loss)
(Unaudited)
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $ 583,659 $ 542,280 $ 1,148,722 $ 1,083,488
Interest on mortgage-backed 72,369 59,861 147,302 121,534
securities
Interest and dividends on 34,211 28,037 68,494 64,263
investments
----------- ----------- ----------- -----------
690,239 630,178 1,364,518 1,269,285
Interest Expense:
Interest on deposits 294,122 257,912 574,442 523,282
Interest on advances 107,781 91,692 220,389 181,673
Interest on repurchase agreements 40,470 33,966 68,368 62,354
Interest on other borrowings 31,286 38,105 66,047 85,814
----------- ----------- ----------- -----------
473,659 421,675 929,246 853,123
----------- ----------- ----------- -----------
Net Interest Income 216,580 208,503 435,272 416,162
Provision for loan losses 13,111 17,236 33,806 35,758
----------- ----------- ----------- -----------
Net Interest Income after
Provision for Loan Losses 203,469 191,267 401,466 380,404
Non-Interest Income:
Fees 11,298 9,485 22,035 18,368
Gain on the sale of securities,
MBS, and loans 3,061 3,147 4,284 7,831
Other 5,451 6,194 12,723 12,151
----------- ----------- ----------- -----------
19,810 18,826 39,042 38,350
Non-Interest Expense:
General and administrative:
Personnel 43,892 39,742 87,992 79,127
Occupancy 13,408 12,349 26,796 24,565
Deposit insurance 1,937 10,017 3,983 21,349
Advertising 2,342 2,509 4,760 4,757
Other 17,048 15,852 34,266 31,462
----------- ----------- ----------- -----------
78,627 80,469 157,797 161,260
Earnings Before Taxes on Income and
Cumulative Effect of Change in
Accounting 144,652 129,624 282,711 257,494
Taxes on Income 57,375 50,039 112,060 99,316
----------- ----------- ----------- -----------
Earnings Before Cumulative Effect of
Change in Accounting for Goodwill 87,277 79,585 170,651 158,178
Cumulative Effect of Change in
Accounting for Goodwill -0- -0- -0- (205,242)
----------- ----------- ----------- -----------
Net Earnings (Loss) $ 87,277 $ 79,585 $ 170,651 $ (47,064)
=========== =========== =========== ===========
Earnings (Loss) Per Share:
Earnings Per Share Before Cumulative
Effect of Change in Accounting
for Goodwill $ 1.54 $ 1.35 $ 2.99 $ 2.69
Cumulative Effect of Change in
Accounting for Goodwill 0.00 0.00 0.00 (3.49)
----------- ----------- ----------- -----------
Net Earnings (Loss) Per Share $ 1.54 $ 1.35 $ 2.99 $ (.80)
=========== =========== =========== ===========
</TABLE>
3
<PAGE> 4
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $ 87,277 $ 79,585 $ 170,651 $ (47,064)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Provision for loan losses 13,111 17,236 33,806 35,758
Cumulative effect of the change in -0- -0- -0- 205,242
accounting for goodwill
Amortization of loan fees and discounts (4,810) (6,155) (9,251) (12,681)
Depreciation and amortization 5,164 4,835 10,307 9,628
Loans originated for sale (45,191) (140,893) (98,751) (335,252)
Sales of loans originated for sale 48,796 149,216 98,304 334,879
Decrease (increase) in interest earned but (5,029) (6,217) 4,295 831
uncollected
Federal Home Loan Bank stock dividends (8,596) (5,233) (24,318) (14,484)
(Increase) in prepaid expenses and other (62,881) (72,916) (121,462) (144,372)
assets
Increase in accounts payable and accrued 3,470 25,121 33,623 62,204
expenses
Increase (decrease) in taxes on income (29,799) (36,558) 24,869 (986)
Other, net (3,244) (1,578) (7,870) (7,315)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating (1,732) 6,443 114,203 86,388
activities
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for (2,109,072) (1,773,730) (3,450,976) (2,757,814)
portfolio
Real estate loans purchased (608) (1,875) (1,260) (2,075)
Other, net (14,849) (5,039) (23,119) (5,515)
---------- ---------- ---------- ----------
(2,124,529) (1,780,644) (3,475,355) (2,765,404)
Real estate loan principal payments:
Monthly payments 170,310 148,314 334,559 289,862
Payoffs, net of foreclosures 699,963 601,219 1,187,683 1,122,430
Refinances 70,223 73,409 127,606 140,297
---------- ---------- ---------- ----------
940,496 822,942 1,649,848 1,552,589
Purchases of mortgage-backed securities held -0- (1,456) -0- (1,518)
to maturity
Repayments of mortgage-backed securities 132,561 115,379 238,586 219,938
Proceeds from sales of real estate 60,636 46,675 113,316 97,978
Purchases of securities available for sale (1,177) (7,010) (1,187) (330,245)
Sales of securities available for sale 961 6,182 961 81,133
Matured securities available for sale 48,452 210,674 224,053 654,871
Decrease (increase) in other investments 493,795 (123,885) 34,076 (19,980)
Purchases of Federal Home Loan Bank stock -0- -0- (56,239) (37,099)
Additions to premises and equipment (8,785) (7,567) (23,132) (14,506)
---------- ---------- ---------- ----------
Net cash used in investing activities (457,590) (718,710) (1,295,073) (562,243)
</TABLE>
4
<PAGE> 5
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows From Financing Activities:
Deposit activity:
Increase (decrease) in deposits, net $ 854,966 $ (160,817) $ 1,473,148 $ (231,656)
Interest credited 237,770 210,634 463,578 424,344
----------- ----------- ----------- -----------
1,092,736 49,817 1,936,726 192,688
Additions to Federal Home Loan Bank advances 22,600 737,500 44,200 763,450
Repayments of Federal Home Loan Bank advances (797,490) (21,807) (1,483,689) (35,277)
Proceeds from agreements to repurchase 1,011,791 1,619,309 2,436,493 2,015,671
securities
Repayments of agreements to repurchase (719,749) (1,441,422) (1,390,398) (1,516,356)
securities
Repayments of medium-term notes -0- (200,000) (280,000) (908,135)
Proceeds from federal funds purchased -0- 675,000 -0- 1,250,000
Repayments of federal funds purchased -0- (675,000) -0- (1,250,000)
Repayment of subordinated debt (115,000) -0- (115,000) -0-
Dividends on common stock (6,253) (5,514) (12,554) (11,095)
Sale of stock 320 2,183 2,329 4,445
Purchase and retirement of Company stock (31,938) (41,494) (45,289) (58,507)
----------- ----------- ----------- -----------
Net cash provided by financing activities 457,017 698,572 1,092,818 446,884
----------- ----------- ----------- -----------
Net Decrease in Cash (2,305) (13,695) (88,052) (28,971)
Cash at beginning of period 132,972 203,419 218,719 218,695
----------- ----------- ----------- -----------
Cash at end of period $ 130,667 $ 189,724 $ 130,667 $ 189,724
=========== =========== =========== ===========
Supplemental cash flow information:
Cash paid for:
Interest $ 476,118 $ 412,194 $ 928,642 $ 865,824
Income taxes 87,903 85,707 88,514 105,578
Cash received for interest and dividends 685,210 623,961 1,368,813 1,270,116
Noncash investing activities:
Loans transferred to foreclosed real estate 54,069 46,815 104,726 98,989
Loans securitized into MBS with recourse -0- 226,210 -0- 226,210
</TABLE>
5
<PAGE> 6
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Common Stock:
Balance at January 1 $ 5,734 $ 5,887
Common stock issued upon exercise of stock options 9 16
Common stock retired upon purchase of stock (69) (111)
----------- -----------
Balance at June 30 5,674 5,792
----------- -----------
Paid-in Capital:
Balance at January 1 67,953 55,353
Common stock issued upon exercise of stock options 2,320 4,429
----------- -----------
Balance at June 30 70,273 59,782
----------- -----------
Retained Earnings:
Balance at January 1 2,177,098 2,140,883
Net earnings (loss) 170,651 (47,064)
Cash dividends on common stock (12,554) (11,095)
Retirement of stock (45,220) (58,396)
----------- -----------
Balance at June 30 2,289,975 2,024,328
----------- -----------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 99,692 76,230
Change during period 25,276 (2,966)
----------- -----------
Balance at June 30 124,968 73,264
----------- -----------
Total Stockholders' Equity at June 30 $ 2,490,890 $ 2,163,166
=========== ===========
</TABLE>
6
<PAGE> 7
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,
1996, as well as certain material changes in results of operations during the
three and six month periods ended June 30, 1997, and 1996, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1996 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, 1996, and for the year then ended. Therefore, only
material changes in financial condition and results of operations are discussed
herein.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), which requires that an enterprise report, by major components and as
a single total, the change in its net assets during the period from nonowner
sources; and 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. Adoption of these
statements will not impact the Company's consolidated financial position,
results of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. The Company operates as a single segment and,
therefore, SFAS 131 is expected to have no effect on the Company's financial
statements. Both statements are effective for fiscal years beginning after
December 31, 1997, with earlier application permitted.
CHANGE IN ACCOUNTING FOR GOODWILL
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions," (SFAS 72) for goodwill related to acquisitions made prior
to September 30, 1982. Up until 1996, the Company had applied SFAS 72 only to
acquisitions made after September 30, 1982. The adoption of SFAS 72 for goodwill
relating to acquisitions of banking or thrift institutions prior to September
30, 1982, is permitted but not required. SFAS 72 requires, among other things,
that goodwill be amortized over a period no longer than the estimated remaining
life of the acquired long-term interest-earning assets. As a result, the Company
wrote off goodwill totaling $205 million during 1996 as the cumulative effect of
the change in accounting for goodwill. The remaining goodwill from acquisitions
subsequent to 1982 amounting to less than .2% of total assets is not material
and has been reclassified to other assets. The minor amount of continuing
goodwill amortization no longer warrants a separate line item on the Company's
Consolidated Statement of Net Earnings and, therefore, for 1997 and 1996, has
been included in other income.
7
<PAGE> 8
The adoption of SFAS 72 noted above resulted in the restatement of
earnings previously reported of $77 million, or $1.32 per share and $152
million, or $2.60 per share for the second quarter and first half of 1996,
respectively, to earnings of $80 million, or $1.35 per share for the second
quarter of 1996 and a loss of $47 million, or $.80 per share for the first half
of 1996. The restatement included a first quarter charge of $3.49 per share for
the cumulative effect of change in accounting for goodwill and a credit of $.05
per share and $.11 per share of goodwill amortization for the second quarter and
first half of 1996, respectively. For the three and six months ended June 30,
1996, earnings before the cumulative effect of the change in accounting for
goodwill were $1.35 per share and $2.69 per share, respectively.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
June 30 June 30 December 31
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Assets $39,095,082 $35,576,295 $37,730,598
Loans receivable 31,821,887 29,059,953 30,113,421
Mortgage-backed securities 4,052,724 3,412,841 4,293,582
Deposits 24,036,660 21,040,598 22,099,934
Stockholders' equity 2,490,890 2,163,166 2,350,477
Stockholders' equity/total assets 6.37% 6.08% 6.23%
Book value per common share $ 43.90 $ 37.35 $ 40.99
Common shares outstanding 56,738,514 57,923,709 57,342,389
Yield on loan portfolio 7.42% 7.46% 7.43%
Yield on mortgage-backed securities 7.10% 7.21% 7.13%
Yield on investments 6.51% 5.82% 6.88%
Yield on earning assets 7.35% 7.36% 7.37%
Cost of deposits 5.10% 4.92% 4.98%
Cost of borrowings 5.97% 5.93% 5.80%
Cost of funds 5.38% 5.28% 5.28%
Yield on earning assets less cost of funds 1.97% 2.08% 2.09%
Ratio of nonperforming assets to total 1.11% 1.24% 1.21%
assets
Ratio of troubled debt restructured to .19% .16% .22%
total assets
World Savings and Loan Association:
Total assets $18,767,337 $25,150,776 $21,040,890
Net worth 1,260,995 1,743,351 1,427,914
\ Net worth/total assets 6.72% 6.93% 6.79%
Regulatory capital ratios:
Tangible capital 6.13% 6.65% 6.37%
Core capital 6.13% 6.65% 6.37%
Risk-based capital 13.30% 14.37% 13.91%
World Savings Bank, a Federal Savings
Bank:
Total assets $20,240,335 $10,281,997 $16,929,859
Net worth 1,341,396 764,471 1,136,717
Net worth/total assets 6.63% 7.44% 6.71%
Regulatory capital ratios:
Tangible capital 6.61% 7.40% 6.69%
Core capital 6.61% 7.40% 6.69%
Risk-based capital 13.22% 13.46% 13.14%
</TABLE>
8
<PAGE> 9
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------- ------------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
New real estate loans originated $ 2,154,263 $ 1,914,623 $ 3,549,727 $ 3,093,066
Average yield on new real estate loans 7.51% 7.62% 7.52% 7.65%
Increase in deposits (a) $ 1,092,736 $ 49,817 $ 1,936,726 $ 192,688
Earnings before cumulative effect of
change in accounting for goodwill 87,277 79,585 170,651 158,178
Net earnings (loss) 87,277 79,585 170,651 (47,064)
Earnings per share before cumulative
effect of change in accounting for
goodwill 1.54 1.35 2.99 2.69
Net earnings (loss) per share 1.54 1.35 2.99 (.80)
Cash dividends on common stock .11 .095 .22 .19
Average common shares outstanding 56,892,526 58,283,423 57,102,416 58,536,031
Ratios:(b)
Net earnings (loss)/average net worth 14.24% 14.82% 14.09% (4.37%)
(ROE)(c)
Net earnings (loss)/average assets .90% .91% .89% (.27%)
(ROA)(c)
Net interest income/average assets 2.24% 2.38% 2.27% 2.38%
General and administrative .81% .92% .82% .92%
expense/average assets
</TABLE>
(a) Includes an increase of $674 million and $1.1 billion of wholesale
deposits for the quarter and six months ended June 30, 1997, respectively.
(b) Ratios are annualized by multiplying the quarterly computation by four and
the semi-annual computation by two. Averages are computed by adding the
beginning balance and each monthend balance during the quarter and
six-month period and dividing by four and seven, respectively.
(c) The year-to-date ratios as of June 30, 1996 include the $205 million
cumulative effect of the change in accounting for goodwill, which was
effective January 1, 1996. The year-to-date ratios as of June 30, 1996,
excluding the change in accounting for goodwill are: ROE 14.68% and ROA
.90%
9
<PAGE> 10
FINANCIAL CONDITION
The consolidated condensed balance sheet shown in the table below
presents the Company's assets and liabilities in percentage terms at June 30,
1997 and 1996, and December 31, 1996. The reader is referred to page 51 of the
Company's 1996 Form 10-K for similar information for the years 1993 through
1996 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
<TABLE>
<CAPTION>
June 30
------------------ December 31
1997 1996 1996
----- ----- -----
<S> <C> <C> <C>
Assets:
Cash and investments 4.5% 5.3% 5.5%
Mortgage-backed securities 10.4 9.6 11.4
Loans receivable 81.4 81.7 79.8
Other assets 3.7 3.4 3.3
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Liabilities and Stockholders' Equity:
Deposits 61.5% 59.1% 58.6%
Federal Home Loan Bank advances 18.8 20.2 23.3
Securities sold under agreements to 7.6 6.5 5.1
repurchase
Medium-term notes 0.8 1.9 1.6
Other liabilities 1.8 2.5 1.7
Subordinated debt 3.1 3.7 3.5
Stockholders' equity 6.4 6.1 6.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
As the above table shows, 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 June 30, 1997, 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 lags 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. In addition, because COFI is based on a portfolio
of accounts, not all of which mature or reprice immediately, COFI does not
initially 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
10
<PAGE> 11
rates rise. In addition to the COFI lags, other elements of ARM loans also have
an impact on earnings. These elements are the interest rate adjustment frequency
of ARM loans, interest rate limits on individual rate changes, interest rate
floors, and introductory rates on new ARM loans.
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of June 30, 1997
(Dollars in millions)
<TABLE>
<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 $ 1,358 $ 119 $ 167 $ 2 $ 1,646
Mortgage-backed securities 3,166 91 345 451 4,053
Loans receivable:
Rate-sensitive 27,314 1,526 126 -0- 28,966
Fixed-rate 79 236 994 1,282 2,591
Other(b) 670 -0- -0- -0- 670
Impact of interest rate swaps 317 430 (296) (451) -0-
------- ------- ------- ------- -------
Total $32,904 $ 2,402 $ 1,336 $ 1,284 $37,926
======= ======= ======= ======= =======
Interest-Bearing Liabilities(c):
Deposits $10,350 $10,807 $ 2,854 $ 25 $24,036
FHLB advances 5,933 800 345 281 7,359
Other borrowings 3,258 199 619 398 4,474
Impact of interest rate swaps 1,274 (709) (552) (13) -0-
------- ------- ------- ------- -------
Total $20,815 $11,097 $ 3,266 $ 691 $35,869
======= ======= ======= ======= =======
Repricing gap $12,089 $(8,695) $(1,930) $ 593
======= ======= ======= =======
Cumulative gap $12,089 $ 3,394 $ 1,464 $ 2,057
======= ======= ======= =======
Cumulative gap as a
percentage of total assets 30.9% 8.7% 3.7%
======= ======= =======
</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.
11
<PAGE> 12
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, FSB (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 deposits and short-term borrowings. For
the months ended June 30, 1997 and 1996, and December 31, 1996, World's average
regulatory liquidity ratios were 7%, 7%, and 8%, respectively. For the months
ended June 30, 1997 and 1996, and December 31, 1996, WFSB's average regulatory
liquidity ratios were 5.5%, 5.4%, and 6%, respectively. World and WFSB exceeded
the monthly 5% requirements for each of the six months ended June 30, 1997 and
all months during 1996. The level of the Company's investments position in
excess of its liquidity requirements at any time depends on liquidity needs and
available arbitrage opportunities.
At June 30, 1997 and 1996, and December 31, 1996, the Company had
securities available for sale in the amount of $601 million, $496 million, and
$781 million, respectively, including unrealized gains on securities available
for sale of $203 million, $114 million, and $159 million, respectively. At June
30, 1997 and 1996, and December 31, 1996, the Company had no securities held to
maturity or for trading.
Included in the securities available for sale at June 30, 1997 and 1996,
and December 31, 1996, were collateralized mortgage obligations (CMOs) in the
amount of $96 million, $279 million, and $170 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 June 30, 1997, the majority of the
Company's CMOs had remaining terms to maturity of five years or less, and
qualified for inclusion in the regulatory liquidity measurement.
MORTGAGE-BACKED SECURITIES
At June 30, 1997 and 1996, and December 31, 1996, the Company had
mortgage-backed securities (MBS) held to maturity in the amount of $3.8 billion,
$2.9 billion, and $4.1 billion, respectively, including $3.1 billion of Federal
National Mortgage Association (FNMA) MBS subject to full credit recourse to the
Company at June 30, 1997, $2.1 billion at June 30, 1996, and $3.3 billion at
December 31, 1996. At June 30, 1997 and 1996, and December 31, 1996, the Company
had mortgage-backed securities available for sale in the amount of $207 million,
$477 million, and $227 million, respectively, including unrealized gains on MBS
available for sale of $8 million, $12 million, and $11 million, respectively,
and including $224 million of FNMA MBS subject to full credit recourse at June
30, 1996. At June 30, 1997 and 1996 and December 31, 1996, the Company had no
trading MBS.
During 1995 and 1996, the Company securitized $2.3 billion and $1.3
billion, respectively, of adjustable rate mortgages (ARMs) into FNMA
COFI-indexed MBS, to be used as collateral for borrowings. Included in the $1.3
billion securitized during 1996, was $226 million of loans securitized into MBS
available for sale with recourse, which were subsequently transferred from the
MBS available for sale portfolio to the MBS held to maturity portfolio during
the fourth quarter of 1996. 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.
12
<PAGE> 13
Repayments of MBS during the second quarter and first six months of 1997
were $133 million and $239 million, respectively, compared to $115 million and
$220 million in the same periods of 1996. Although the balance of the MBS
portfolio is higher than it was a year ago, repayments on MBS during the first
six months of 1997 as compared to the first six months of 1996 were flat
primarily due to a decrease in prepayments on the underlying loans.
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the three and six months ended June 30, 1997,
amounted to $2.2 billion and $3.5 billion, respectively, compared to $1.9
billion and $3.1 billion for the same periods in 1996. The increase in loan
volume in 1997 over the first half of 1996 occurred because of a strong home
sales market and strong demand for ARMs, our primary product. For most of the
second quarter, rates on new fixed-rate mortgages remained near the 8% level. In
contrast, the starting rates on ARMs, the Company's principal product, remained
low and affordable. The Company continues to sell most of its fixed-rate
originations. Loans originated for sale for the three and six months ended June
30, 1997 were $45 million and $99 million, respectively, compared to $141
million and $335 million for the same periods in 1996. Refinanced loans
constituted 31% and 33% of new loan originations for the three and six months
ended June 30, 1997, compared to 36% and 38% for the three and six months ended
June 30, 1996.
The Company has lending operations in 23 states. The primary source of
mortgage origination is loans secured by residential properties in California.
For the three and six months ended June 30, 1997, 53% and 52%, respectively, of
total loan originations were on residential properties in California compared to
51% and 52% for the same periods in 1996. The five largest states, other than
California, for originations for the three and six months ended June 30, 1997,
were Florida, Texas, Illinois, Colorado, and New Jersey with a combined total of
26% of total originations for both periods. The percentage of the total loan
portfolio (excluding mortgage-backed securities with recourse) that is comprised
of residential loans in California was 67% at June 30, 1997 compared to 71% at
June 30, 1996, and 69% at December 31, 1996.
The tables on the following two pages show the Company's loan portfolio
by state at June 30, 1997 and 1996.
13
<PAGE> 14
TABLE 3
Loan Portfolio by State
June 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Residential
Real Estate Commercial Loans as
-------------------- Real Total a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- -------------- ---------- ---------- ----- ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
California $20,327,373 $3,397,605 $ 244 $53,442 $23,778,664 67.65%
Texas 1,268,634 105,901 567 1,521 1,376,623 3.92
Illinois 1,142,439 178,242 -0- 1,712 1,322,393 3.76
Colorado 1,043,506 233,298 -0- 7,059 1,283,863 3.65
Florida 1,187,442 20,192 59 932 1,208,625 3.44
New Jersey 1,132,637 404 -0- 5,594 1,138,635 3.24
Washington 478,018 382,828 -0- 746 861,592 2.45
Arizona 700,736 45,145 -0- 568 746,449 2.12
Pennsylvania 538,703 4,240 -0- 3,414 546,357 1.55
Virginia 516,245 8,550 -0- 1,397 526,192 1.50
Connecticut 451,883 -0- -0- 21 451,904 1.29
Maryland 351,507 2,178 -0- 521 354,206 1.01
Oregon 240,586 11,539 -0- 246 252,371 0.72
Nevada 190,579 1,064 -0- -0- 191,643 0.55
Utah 182,707 57 -0- 1,685 184,449 0.52
Minnesota 163,919 8,171 -0- -0- 172,090 0.49
Kansas 155,432 4,823 -0- 183 160,438 0.46
Wisconsin 123,442 3,879 -0- -0- 127,321 0.36
Massachusetts 101,971 -0- -0- 20 101,991 0.29
Missouri 77,011 6,276 -0- -0- 83,287 0.24
Washington DC 47,912 -0- -0- -0- 47,912 0.14
New York 46,359 -0- -0- -0- 46,359 0.13
New Mexico 41,547 -0- -0- -0- 41,547 0.12
Georgia 33,270 -0- -0- 1,637 34,907 0.10
Idaho 28,494 -0- -0- -0- 28,494 0.08
Delaware 26,548 -0- -0- -0- 26,548 0.08
Ohio 14,676 1,832 189 3,822 20,519 0.06
South Dakota 8,714 -0- -0- -0- 8,714 0.02
North Carolina 7,488 -0- -0- 476 7,964 0.02
Other 10,429 5 -0- 4,491 14,925 0.04
----------- ----------- ------ ---------- ----------- ------
Totals $30,640,207 $ 4,416,229 $1,059 $ 89,487 35,146,982 100.00%
=========== =========== ====== ========== ======
SFAS 91 deferred loan fees (48,304)
Loan discount on purchased loans (3,755)
Undisbursed loan funds (4,069)
Allowance for loan losses (216,651)
Loans to facilitate (LTF) interest reserve (668)
Troubled debt restructured (TDR) interest reserve (6,098)
Loans on deposits 31,984
-----------
Total loan portfolio and loans securitized
into FNMA MBS with recourse 34,899,421
Loans securitized into FNMA MBS with recourse (3,077,534)(b)
-----------
Total loan portfolio $31,821,887
===========
</TABLE>
(a) The Company has no commercial loans.
(b) During 1995 and 1996, loans amounting to $2.3 billion and $1.3 billion,
respectively, were securitized with full recourse into Federal National
Mortgage Association mortgage-backed securities. The June 30, 1997
balances of these FNMA mortgage-backed securities are reflected in the
amounts above.
14
<PAGE> 15
TABLE 4
Loan Portfolio by State
June 30, 1996
(Dollars in thousands)
<TABLE>
<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> <C>
California $19,232,989 $3,362,817 $ 264 $ 67,333 $ -0- $22,663,403 71.70%
Colorado 879,922 229,322 -0- 7,448 -0- 1,116,692 3.53
Illinois 906,070 180,441 -0- 1,951 -0- 1,088,462 3.44
Texas 943,562 94,956 583 1,628 -0- 1,040,729 3.29
New Jersey 920,148 411 -0- 7,397 139 928,095 2.94
Florida 822,356 11,428 169 984 -0- 834,937 2.64
Washington 370,901 322,017 -0- 773 -0- 693,691 2.20
Arizona 510,195 52,225 -0- 1,697 -0- 564,117 1.79
Virginia 450,726 4,393 -0- 1,530 -0- 456,649 1.45
Pennsylvania 419,594 278 -0- 3,889 -0- 423,761 1.34
Connecticut 343,346 -0- -0- 14 -0- 343,360 1.09
Maryland 289,560 1,075 -0- 574 -0- 291,209 0.92
Oregon 186,326 11,067 -0- 2,820 -0- 200,213 0.63
Nevada 163,022 1,174 -0- -0- -0- 164,196 0.52
Kansas 131,706 4,977 -0- 203 -0- 136,886 0.43
Utah 116,001 63 -0- 1,891 -0- 117,955 0.37
Minnesota 99,144 2,351 -0- -0- -0- 101,495 0.32
Wisconsin 74,466 4,195 -0- -0- -0- 78,661 0.25
Missouri 65,726 6,763 -0- -0- -0- 72,489 0.23
New York 51,168 -0- -0- 20 -0- 51,188 0.16
Georgia 39,087 -0- -0- 1,941 -0- 41,028 0.13
Washington, DC 37,510 -0- -0- -0- -0- 37,510 0.12
Massachusetts 31,476 -0- -0- 20 -0- 31,496 0.10
Ohio 20,558 2,486 298 4,593 -0- 27,935 0.09
New Mexico 27,880 -0- -0- -0- -0- 27,880 0.09
Idaho 20,828 -0- -0- -0- -0- 20,828 0.07
Delaware 20,065 -0- -0- -0- -0- 20,065 0.06
North Carolina 8,334 279 -0- 522 -0- 9,135 0.03
Other 17,551 22 -0- 4,765 -0- 22,338 0.07
----------- ---------- -------- ---------- ---------- ----------- ------
Totals $27,200,217 $4,292,740 $1,314 $111,993 $ 139 31,606,403 100.00%
=========== ========== ======== ========== ========== ======
SFAS 91 deferred loan fees (68,840)
Loan discount on purchased loans (5,582)
Undisbursed loan funds (5,443)
Allowance for loan losses (163,846)
Loans to facilitate (LTF) interest reserve (486)
Troubled debt restructured (TDR) interest reserve (5,110)
Loans on deposits 30,965
-----------
Total loan portfolio and loans securitized into FNMA 31,388,061
MBS with recourse
Loans securitized into FNMA MBS with recourse (2,328,108)(b)
-----------
Total loan portfolio $29,059,953
===========
</TABLE>
(a) The Company has no commercial loans.
(b) During 1995 and 1996, loans amounting to $2.3 billion and $226 million,
respectively, were securitized with full recourse into Federal National
Mortgage Association (FNMA) mortgage-backed securities. The June 30, 1996
balances of these FNMA mortgage-backed securities are reflected in the
amounts above.
15
<PAGE> 16
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 92% at June 30, 1997 compared to 91% at June 30, 1996 and December 31,
1996. The Company's ARM originations for the first half of 1997 constituted over
95% of new mortgage loans made in 1997 compared to 85% in the first half of
1996.
The weighted average maximum lifetime cap rate on the Company's ARM loan
portfolio (including MBS with recourse) was 12.81%, or 5.55% above the actual
weighted average rate at June 30, 1997, versus 13.02%, or 5.76% above the
weighted average rate at June 30, 1996.
Approximately $5.5 billion of the Company's ARM 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 or assumption. As of June 30,
1997, $615 million of ARM loans had reached their rate floors. The weighted
average floor rate on the loans that had reached their floor was 7.73% at June
30, 1997 compared to 7.75% at June 30, 1996. Without the floor, the average
yield on these loans would have been 7.09% at June 30, 1997 and 7.37% at June
30, 1996.
Loan repayments consist of monthly loan amortization, loan payoffs, and
refinances. For the three and six months ended June 30, 1997, loan repayments
were $940 million and $1.6 billion, respectively, compared to $823 million and
$1.6 billion in the same periods of 1996. Although the balance of the loan
portfolio is higher than it was a year ago, loan repayments during the first six
months of 1997 as compared to the first six months of 1996 were flat primarily
due to a decrease in refinances on the underlying loans.
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 should
evaluate and measure for impairment of capitalized mortgage servicing rights
based on the fair value of those rights on a disaggregated basis. If the book
value exceeds the fair value of the capitalized mortgage servicing rights,
financial institutions are required to write-down the servicing rights to their
fair value. The book value of Golden West's servicing rights did not exceed the
fair value at June 30, 1997 or 1996 and, therefore, no adjustment was necessary.
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 125). The accounting for mortgage
servicing assets under SFAS 125 is substantially the same as the accounting for
mortgage servicing assets under SFAS 122. See page 22 for further discussion on
SFAS 125. For the second quarter and first half of 1997, the Company recognized
gains of $1.1 million and $2.1 million, respectively, on the sale of loans due
to the capitalization of servicing rights. For the same periods in 1996, the
Company recognized gains of $2.3 million and $7.0 million, respectively. After
amortization, the balance at June 30, 1997 and 1996 of the capitalized servicing
rights was $10.0 million and $6.6 million, respectively.
16
<PAGE> 17
ASSET QUALITY
One measure of the soundness of the Company's 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, 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 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 nonperforming
assets and troubled debt restructured and the various ratios to total assets.
TABLE 5
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30
---------------------- December 31
1997 1996 1996
------- -------- ------------
<S> <C> <C> <C>
Non-accrual loans $361,860 $370,081 $373,157
Real estate acquired through 72,697 71,910 82,075
foreclosure
Real estate in judgment 191 738 416
-------- -------- --------
Total nonperforming assets $434,748 $ 442,729 $455,648
======== ========= ========
TDRs $ 75,834 $ 56,992 $ 84,082
======== ========= ========
Ratio of NPAs to total assets 1.11% 1.24% 1.21%
======== ========= ========
Ratio of TDRs to total assets .19% .16% .22%
======== ========= ========
Ratio of NPAs and TDRs to total assets 1.30% 1.40% 1.43%
======== ========= ========
</TABLE>
The decrease in NPAs during 1997 reflects the improving California
economy. 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 $4 million and $9 million in the second
quarter and first six months of 1997 compared to $4 million and $11 million for
the same periods of 1996. Interest foregone on TDRs amounted to $555 thousand
and $1.1 million for the three and six months ended June 30, 1997, compared to
$411 thousand and $778 thousand for the three and six months ended June 30,
1996.
The tables on the following two pages show the Company's nonperforming
assets by state at June 30, 1997 and 1996.
17
<PAGE> 18
TABLE 6
Nonperforming Assets by State
June 30, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
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
- ---------------------- -------- ------- ------ ------ ------ ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $280,013 $12,211 $1,123 $59,394 $8,886 $2,167 $363,794 1.53%
Texas 7,454 -0- -0- 711 -0- -0- 8,165 0.59
Illinois 8,148 223 -0- 367 -0- -0- 8,738 0.66
Colorado 1,814 -0- 3,088 -0- -0- -0- 4,902 0.38
Florida 7,008 -0- 195 515 -0- -0- 7,718 0.64
New Jersey 15,213 -0- 826 365 -0- -0- 16,404 1.44
Washington 2,525 -0- -0- -0- -0- -0- 2,525 0.29
Arizona 1,158 -0- -0- 210 -0- -0- 1,368 0.18
Pennsylvania 4,988 -0- 4 152 -0- -0- 5,144 0.94
Virginia 1,543 -0- -0- 524 -0- -0- 2,067 0.39
Connecticut 2,620 -0- -0- 590 -0- -0- 3,210 0.71
Maryland 1,627 -0- -0- 289 -0- -0- 1,916 0.54
Oregon 804 -0- -0- -0- -0- -0- 804 0.32
Nevada 1,252 -0- -0- 227 -0- -0- 1,479 0.77
Utah 375 -0- -0- -0- -0- -0- 375 0.20
Minnesota 506 -0- -0- -0- -0- -0- 506 0.29
Kansas 426 40 -0- -0- -0- -0- 466 0.29
Wisconsin 591 -0- -0- -0- -0- -0- 591 0.46
Massachusetts 160 -0- 20 -0- -0- -0- 180 0.18
Missouri 423 42 -0- 32 -0- -0- 497 0.60
Washington,DC 74 -0- -0- -0- -0- -0- 74 0.15
New York 3,412 -0- -0- 302 -0- -0- 3,714 8.01
New Mexico -0- -0- -0- -0- -0- -0- -0- 0.00
Georgia 1,784 -0- -0- -0- -0- -0- 1,784 5.11
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware 118 -0- -0- -0- -0- -0- 118 0.44
Ohio 7 -0- 2 -0- -0- -0- 9 0.04
South Dakota -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina -0- -0- -0- -0- -0- -0- -0- 0.00
Other 43 -0- -0- -0- -0- -0- 43 0.29
-------- ------- ------ ------- ------ ------ -------- ----
Totals $344,086 $12,516 $5,258 $63,678 $8,886 $2,167 436,591 1.24%
======== ======= ====== ======= ====== ======
REO general valuation allowance (1,843) (0.00)
-------- ----
Total nonperforming assets $434,748 1.24%
======== ====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) During 1995 and 1996, loans amounting to $2.3 billion and $1.3 billion,
respectively, were securitized with full recourse into FNMA mortgage-backed
securities. The June 30, 1997 balances of the related nonperforming assets
are reflected in the amounts above.
18
<PAGE> 19
TABLE 7
Nonperforming Assets by State
June 30, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Non-Accrual Loans (a) Real Estate Owned
---------------------------- -------------------------------------
Residential Commercial Commercial NPAs
Real Estate Real Residential Real Total a % of
State 1 -4 5+ Estate 1 - 4 5+ Land Estate NPAs(b) Loans
- ---------------- -------- ------- ------- ------- ------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California $292,980 $25,045 $1,229 $54,780 $13,638 $ 400 $ 2,167 $390,239 1.72%
Colorado 1,952 -0- 3,090 148 -0- -0- -0- 5,190 0.46
Illinois 4,470 191 -0- 395 541 -0- -0- 5,597 0.51
Texas 3,274 -0- -0- 164 -0- -0- -0- 3,438 0.33
New Jersey 12,267 -0- 679 424 -0- -0- -0- 13,370 1.44
Florida 4,021 -0- 150 292 -0- -0- -0- 4,463 0.53
Washington 663 -0- -0- -0- -0- -0- -0- 663 0.10
Arizona 1,229 -0- 837 -0- -0- -0- -0- 2,066 0.37
Virginia 1,528 -0- -0- 818 -0- -0- -0- 2,346 0.51
Pennsylvania 2,633 -0- -0- 225 -0- -0- -0- 2,858 0.67
Connecticut 3,370 -0- -0- 325 -0- -0- -0- 3,695 1.08
Maryland 1,486 -0- -0- -0- -0- -0- -0- 1,486 0.51
Oregon 489 -0- -0- -0- -0- -0- -0- 489 0.24
Nevada 1,001 -0- -0- 114 -0- -0- -0- 1,115 0.68
Kansas 895 40 -0- -0- -0- -0- -0- 935 0.68
Utah 121 -0- -0- -0- -0- -0- -0- 121 0.10
Minnesota 291 -0- -0- -0- -0- -0- -0- 291 0.29
Wisconsin -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Missouri 618 43 -0- -0- -0- -0- -0- 661 0.91
New York 3,787 -0- -0- 55 -0- -0- -0- 3,842 7.51
Georgia 1,352 -0- -0- 72 -0- -0- -0- 1,424 3.47
Washington,DC 6 -0- -0- -0- -0- -0- -0- 6 0.02
Massachusetts -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Ohio 61 -0- 58 5 -0- -0- 144 268 0.96
New Mexico -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina 80 -0- -0- -0- -0- -0- -0- 80 0.88
Other 145 -0- -0- -0- -0- -0- -0- 145 0.65
Totals -------- ------- ------- ------- ------- ------- ------- -------- ----
$338,719 $25,319 $ 6,043 $57,817 $14,179 $ 400 $ 2,311 444,788 1.41%
======== ======= ======= ======= ======= ======= =======
REO general valuation allowance (2,059) (0.01)
-------- ----
Total nonperforming assets $442,729 1.40%
======== ====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) During 1995 and 1996, loans amounting to $2.3 billion and $226 million,
respectively, were securitized with full recourse into FNMA mortgage-backed
securities. The June 30, 1996 balance of the related nonperforming assets
are reflected in the amounts above.
19
<PAGE> 20
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.
Loans securitized into FNMA MBS with full credit recourse are included
with the Company's loan portfolio when determining the allowance for loan
losses. For loans sold to FNMA with full credit recourse, the Company records a
separate recourse liability for any potential losses.
The table below shows the changes in the allowance for loan losses for
the three and six months ended June 30, 1997 and 1996.
TABLE 8
Changes in Allowance for Loan Losses
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ----------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning allowance for loan losses $209,077 $152,360 $ 195,702 $ 141,988
Provision charged to expense 13,111 17,236 33,806 35,758
Less loans charged off (5,747) (5,871) (13,305) (14,231)
Add recoveries 210 121 448 331
--------- --------- ---------- ----------
Ending allowance for loan losses $216,651 $163,846 $216,651 $ 163,846
========= ========= ========== ==========
Ratio of net charge-offs to average loans
outstanding (including MBS with recourse) .06% .07% .08% .09%
========= ========= ========== ==========
Ratio of allowance for loan losses to 49.8% 37.0%
nonperforming assets
========== ==========
Ratio of allowance for loan losses to total loans
(including MBS with recourse) .62% .52%
========== ==========
</TABLE>
20
<PAGE> 21
DEPOSITS
Retail deposits increased during the second quarter of 1997 by $419
million, including interest credited of $238 million, compared to an increase of
$50 million, including interest credited of $211 million, in the second quarter
of 1996. Retail deposit balances in the first half of 1997 increased by $866
million, including interest credited of $464 million, compared to an increase of
$193 million, including interest credited of $424 million, in the first half of
1996. Retail deposits increased during 1997 primarily due to ongoing marketing
efforts and competitive rates offered by the Company on its insured accounts.
Beginning in January 1997, the Company began a program to use government
securities dealers to sell large certificates of deposit (CDs) to institutional
investors. The Company's deposit balance at June 30, 1997 includes $1.1 billion
of these wholesale CDs.
The mix of reported deposits changed during 1997 as compared to 1996, in
part due to a new program begun in the fourth quarter of 1996. Specifically, the
reported balance of interest-bearing checking accounts has decreased as compared
to 1996 and the reported balance of money market accounts has increased compared
to balances reported in 1996 as a result of this new program which calculates
the minimum amount of funds needed to cover disbursements for each customer's
checking account and transfers the remaining funds to a money market account,
reducing the Company's required reserves at the Federal Reserve Bank. In
addition, during 1997 the Company has been actively promoting money market
deposit accounts.
21
<PAGE> 22
The table below shows the Company's deposits by interest rate and by
remaining maturity at June 30, 1997 and 1996.
TABLE 9
Deposits
(Dollars in millions)
<TABLE>
<CAPTION>
June 30
------------------------------------------
1997 1996
------------------ -------------------
Rate* Amount Rate* Amount
------- ------- ------- --------
<S> <C> <C> <C> <C>
Deposits by interest rate:
Interest-bearing checking accounts 1.17% $ 276 1.21% $ 756
Passbook accounts 2.22 545 2.22 560
Money market deposit accounts 3.02 1,940 3.25 1,188
Term certificate accounts with original
maturities of:
4 weeks to 1 year 5.32 12,543 4.97 8,422
1 to 2 years 5.37 3,687 5.25 5,138
2 to 3 years 5.44 1,322 5.95 1,810
3 to 4 years 5.79 489 5.46 616
4 years and over 5.87 1,648 5.82 2,062
Retail jumbo CDs 5.51 515 5.31 487
Wholesale CDs 5.64 1,071 0.00 -0-
All other 7.67 1 7.69 2
-------- --------
$ 24,037 $ 21,041
======== ========
Deposits by remaining maturity:
No contractual maturity $ 2,761 $ 2,504
Maturity within one year:
3rd quarter 7,289 4,560
4th quarter 7,237 4,835
1st quarter 2,499 3,696
2nd quarter 1,371 2,434
------- --------
18,396 15,525
1 to 2 years 1,929 1,826
2 to 3 years 679 496
3 to 4 years 110 520
4 years and over 162 170
-------- --------
$ 24,037 $ 21,041
======== ========
</TABLE>
* Weighted average interest rate, including the impact of interest rate swaps.
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.
Advances are secured by pledges of certain loans, capital stock of the FHLB, and
MBS. FHLB advances amounted to $7.4 billion at June 30, 1997, compared to $7.2
billion and $8.8 billion at June 30, 1996 and December 31, 1996, respectively.
22
<PAGE> 23
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 $3.0 billion, $2.3 billion, and $1.9 billion at June
30, 1997 and 1996, and December 31, 1996, respectively. The $3.0 billion balance
at June 30, 1997, included $750 million in Federal Home Loan Bank of San
Francisco MBS Reverse Repos with maturities ranging from 1997 to 1998.
In June 1996, the Financial Accounting Standards Board (FASB) issued
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. These standards are based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. In December 1996, the FASB issued
Statement of Financial Accounting Standards No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125" (SFAS 127), which delayed
the effective date for portions of SFAS 125 for one year. The impact of the SFAS
125 and SFAS 127 on the Company's financial condition and results of operations
is not expected to be material.
OTHER BORROWINGS
At June 30, 1997, Golden West, at the holding company level, had a total
of $1.0 billion of subordinated debt issued and outstanding. As of June 30,
1997, 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 June 30, 1997, 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 June 30, 1997. World had medium-term notes outstanding
under prior registrations with principal amounts of $310 million at June 30,
1997, compared to $690 million at June 30, 1996, and $590 million at December
31, 1996. As of June 30, 1997, 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 June 30, 1997, the full
amount was available for issuance. As of June 30, 1997, World had issued under
prior registrations 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.
23
<PAGE> 24
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.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased by $140 million during the
first six months of 1997. The increase in stockholders' equity was primarily a
result of net earnings for the first six months of 1997 and a $25 million
increase in market values of securities available for sale since December 31,
1996, which were partially offset by the $45 million cost of the purchase of
Company stock and the payment of $13 million in quarterly dividends to
stockholders. The Company's stockholders' equity decreased during the first six
months of 1996 as a result of a $47 million loss incurred during the first half
of 1996 (see Change in Accounting for Goodwill on page 7), the $59 million cost
of the purchase of Company stock during the first two quarters of 1996, and a $3
million decline in market values of securities available for sale since December
1995. Unrealized gains net of taxes on securities and MBS available for sale
included in stockholders' equity at June 30, 1997 and 1996, and December 31,
1996, were $125 million, $73 million, and $100 million, respectively.
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 periodically reviews
alternative uses of excess capital, including faster growth and acquisitions. At
times, the Board has determined that the purchase of common stock is a wise use
of excess capital.
Since October 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 June 30, 1997, 8.5 million shares
had been purchased and retired at a cost of $377 million since October 1993, of
which 689,100 were purchased and retired at a cost of $45 million during the
first half of 1997. Dividends from World Savings 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.
World paid a $135 million and a $140 million dividend to Golden West in
March and June 1997, respectively. Also, during the first quarter and second
quarter of 1997, Golden West purchased from World, and subsequently contributed
as capital to WFSB, $30 million and $18 million in loans, respectively.
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.
24
<PAGE> 25
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as World and WFSB,
to meet certain minimum capital requirements. Both World's and WFSB's regulatory
capital ratios continue to exceed regulatory requirements for well-capitalized
institutions, the highest regulatory standard. The following table shows World's
regulatory capital ratios and compares them to the OTS minimum requirements at
June 30, 1997 and 1996.
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
--------------------------------------- ---------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------ ------------------- ------------------ -------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,142,979 6.13% $279,515 1.50% $1,668,903 6.65% $376,445 1.50%
Core 1,142,979 6.13 559,030 3.00 1,668,903 6.65 752,890 3.00
Risk-based 1,458,621 13.30 877,655 8.00 1,989,286 14.37 1,107,514 8.00
</TABLE>
World's regulatory capital ratios as of June 30, 1996 have been restated
due to the adoption of SFAS 72 as discussed on page 7. The adoption of SFAS 72
had no effect on WFSB's June 30, 1996 regulatory capital ratios.
The following table shows WFSB's current regulatory capital ratios and
compares them to the current OTS minimum requirements at June 30, 1997 and 1996.
TABLE 11
World Savings Bank, a Federal Savings Bank
Regulatory Capital Ratios
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
-------------------------------------- --------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------ ------------------ ------------------ ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ----- --------- ------- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,338,857 6.61% $304,005 1.50% $760,916 7.40% $154,184 1.50%
Core 1,338,857 6.61 608,010 3.00 760,916 7.40 308,368 3.00
Risk-based 1,406,712 13.22 851,290 8.00 778,530 13.46 462,892 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 neither the
Association nor WFSB 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.
25
<PAGE> 26
The table below shows that World's regulatory capital exceeds the
requirements of the well capitalized classification at June 30, 1997.
TABLE 12
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
<TABLE>
<CAPTION>
ACTUAL WELL CAPITALIZED
------------------ -----------------------
Capital Ratio Capital Ratio
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Leverage $1,142,979 6.13% $ 931,717 5.00 %
Tier 1 risk-based 1,142,979 10.42 658,241 6.00
Total risk-based 1,458,621 13.30 1,097,068 10.00
</TABLE>
The table below shows that WFSB's regulatory capital exceeds the
requirements of the well capitalized classification at June 30, 1997.
TABLE 13
World Savings Bank, a Federal Savings Bank
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
<TABLE>
<CAPTION>
ACTUAL WELL CAPITALIZED
--------------------- ----------------------
Capital Ratio Capital Ratio
----------- ------ ---------- --------
<S> <C> <C> <C> <C>
Leverage $ 1,338,857 6.61% $1,013,351 5.00%
Tier 1 risk-based 1,338,857 12.58 638,468 6.00
Total risk-based 1,406,712 13.22 1,064,113 10.00
</TABLE>
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings for the six months ended June 30, 1997 were $171 million or
$2.99 per share compared to a loss of $47 million or $.80 per share for the
first six months ended June 30, 1996. Without the one-time goodwill write-off
(See Accounting Change section on page 7), Golden West's earnings for the first
half of 1996 would have been $158 million or $2.69 per share. Net earnings
increased in 1997 as a result of increased net interest income, a lower
provision for loan losses, and a 2% decrease in general and administrative
expenses due to lower deposit insurance premiums.
26
<PAGE> 27
SFAS 128 - EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Measurement of Earnings Per Share"
(SFAS 128). SFAS 128 replaces Primary and Fully-Diluted Earnings Per Share (EPS)
with "Basic EPS" and "Diluted EPS" for fiscal years ending after December 15,
1997. Basic EPS will be calculated by dividing net earnings for the period by
the weighted-average common shares outstanding for that period. There will be no
adjustment to the number of outstanding shares for stock options or other
dilutive items as is currently done in the calculation of Primary EPS. Diluted
EPS will take into account the effect of dilutive instruments, such as stock
options, but will use the average share price for the period in determining the
number of incremental shares that are to be added to the weighted average number
of shares outstanding. In contrast, the current, Fully-diluted EPS uses the
period-ending share price, if it exceeds the average price, in the calculation
to determine the number of incremental shares that are to be added. If SFAS 128
had been applied for the quarter and the six months ended June 30, 1997, the
Basic EPS reported would have been $1.53 and $2.99, respectively, and the
Diluted EPS would have been $1.51 and $2.94, respectively. For the quarter and
six months ended June 30, 1996, before the cumulative effect of the change in
accounting for goodwill, Basic EPS would have been $1.37 and $2.71,
respectively, and Diluted EPS would have been $1.34 and $2.66, respectively.
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 June 30, 1997 and
1996, and December 31, 1996.
TABLE 14
<TABLE>
<CAPTION>
Yield on Earning Assets,
Cost of Funds, and Primary Spread
June 30
---------------- December 31
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Yield on loan portfolio 7.42% 7.46% 7.43%
Yield on MBS 7.10 7.21 7.13
Yield on investments 6.51 5.82 6.88
---- ---- ----
Yield on earning assets 7.35 7.36 7.37
---- ---- ----
Cost of deposits 5.10 4.92 4.98
Cost of borrowings 5.97 5.93 5.80
---- ---- ----
Cost of funds 5.38 5.28 5.28
---- ---- ----
Primary spread 1.97% 2.08% 2.09%
==== ==== ====
</TABLE>
27
<PAGE> 28
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. In addition, because COFI is based on a
portfolio of accounts, not all of which mature or reprice immediately, COFI does
not initially reflect a change in market interest rates. Yields on short term
and long-term interest rates increased in the middle of the first quarter of
1997 and drifted back downward during the second quarter of 1997. The effects of
this interest rate environment led to a ten basis point increase in the
Company's cost of funds because our liability costs responded somewhat faster to
the first quarter increase in interest rates than our earning assets. The yield
on earning assets decreased two basis points during the first half of 1997, due
mainly to the lags in the COFI index. These changes resulted in a 12 basis point
decrease in the Company's spread since yearend 1996.
The following table shows the Company's revenues and expenses as a
percentage of total revenues for the three and six months ended June 30, 1997
and 1996, in order to focus on the changes in interest income between years as
well as changes in other revenue and expense amounts.
TABLE 15
Selected Revenue and Expense Items
as Percentages of Total Revenues
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest on loans 82.2% 83.6% 81.8% 82.9%
Interest on mortgage-backed securities 10.2 9.2 10.5 9.3
Interest and dividends on investments 4.8 4.3 4.9 4.9
---- ---- ---- ----
97.2 97.1 97.2 97.1
Less:
Interest on deposits 41.4 39.8 40.9 40.0
Interest on advances and other borrowings 25.3 25.2 25.3 25.3
---- ---- ---- ----
66.7 65.0 66.2 65.3
Net interest income 30.5 32.1 31.0 31.8
Provision for loan losses 1.8 2.6 2.4 2.7
---- ---- ---- ----
Net interest income after provision for loan 28.7 29.5 28.6 29.1
losses
Add:
Fees 1.6 1.5 1.6 1.4
Gain on the sale of securities, MBS, and 0.4 0.5 0.3 0.6
loans
Other non-interest income 0.8 0.9 0.9 0.9
---- ---- ---- ----
2.8 2.9 2.8 2.9
Less:
General and administrative expenses 11.1 12.4 11.2 12.3
Taxes on income 8.1 7.7 8.0 7.6
---- ---- ---- ----
Earnings before cumulative effect of change in
accounting for goodwill 12.3 12.3 12.2 12.1
Cumulative effect of change in accounting for 0.0 0.0 0.0 (15.7)
goodwill
---- ---- ---- ----
Net earnings (loss) 12.3% 12.3% 12.2% (3.6)%
==== ==== ==== ====
</TABLE>
28
<PAGE> 29
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 $1.2
million and $1.5 million for the three and six months ended June 30, 1997, as
compared to a decrease of $3 million and $7 million for the same periods in
1996.
The following table summarizes the unrealized gains and losses for
interest rate swaps at June 30, 1997 and 1996.
TABLE 16
Schedule of Unrealized Gains and Losses on Interest Rate Swaps
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
--------------------------------- ---------------------------------
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 swaps $ 17,881 $ (31,179) $ (13,298) $ 29,908 $ (43,730) $ (13,822)
========== ========== ========== ========== ========= ==========
</TABLE>
TABLE 17
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
----------------------------------
Receive Pay Forward
Fixed Fixed Starting
Swaps Swaps Swaps
--------- -------- -------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 2,581 $ 1,340 $ 10
Additions -0- -0- -0-
Maturities (844) (197) -0-
Forward starting becoming
effective 10 -0- (10)
-------- -------- -------
Balance at June 30, 1997 $ 1,747 $ 1,143 $-0-
======== ======== =======
</TABLE>
The range of floating interest rates received on swap contracts in the
first six months of 1997 was 5.47% to 6.08%, and the range of floating interest
rates paid on swap contracts was 4.76% to 6.00%. The range of fixed interest
rates received on swap contracts in the first six months of 1997 was 4.62% to
8.68% and the range of fixed interest rates paid on swap contracts was 5.38% to
9.14%.
29
<PAGE> 30
INTEREST ON LOANS
In the second quarter of 1997, interest on loans was higher than in the
comparable 1996 period by $41 million or 7.6%. The increase in the second
quarter of 1997 was due to a $2.6 billion increase in the average portfolio
balance which was partially offset by an 8 basis point decrease in the average
portfolio yield. For the first half of 1997, interest on loans was higher than
the comparable 1996 period by $65 million or 6.0%. The increase was due to a
$2.3 billion increase in the average portfolio balance which was partially
offset by a 14 basis point decrease in the average portfolio yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the second quarter of 1997, interest on mortgage-backed securities
was higher than in the comparable 1996 period by $13 million or 20.9%. The 1997
increase was due primarily to a $802 million increase in the average portfolio
balance which was partially offset by a 21 basis point decrease in the average
portfolio yield. For the first half of 1997, interest on mortgage-backed
securities was higher than in the comparable 1996 period by $26 million or 21.2%
due to a $843 million increase in the average portfolio balance which was
partially offset by a 26 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 full credit recourse that began in 1995, as discussed
on page 12.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending upon
the volume outstanding and the yields available on short-term investments. For
the second quarter of 1997, interest and dividends on investments were higher
than in the comparable 1996 period by $6 million or 22.0%. The increase was
primarily due to a $147 million increase in the average portfolio balance and a
35 basis point increase in the average portfolio yield. For the first half of
1997, interest and dividends on investments was $4 million or 6.6% higher than
for the same period in 1996. The increase was primarily due to a $50 million
increase in the average portfolio balance and a 25 basis point increase in the
average portfolio yield.
INTEREST ON DEPOSITS
In the second quarter of 1997, interest on deposits increased by $36
million or 14.0% from the comparable period in 1996. In the first half of 1997,
interest on deposits increased by $51 million or 9.8% from the comparable period
in 1996. The second quarter increase was due to a $2.4 billion increase in the
average balance of deposits and an 11 basis point increase in the average cost
of deposits. The six month increase was primarily due to a $2.1 billion increase
in the average balance of deposits and a one basis point increase in the average
cost of deposits.
30
<PAGE> 31
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the second quarter and first half of 1997, interest on advances and
other borrowings increased by $16 million or 9.6% and $25 million or 7.6%,
respectively, from the comparable periods of 1996. The second quarter increase
was primarily due to a $1.1 billion increase in the average balance, which was
partially offset by a two basis point decrease in the average cost of these
borrowings. The six month increase was primarily due to a $1.2 billion increase
in the average balance which was offset by a 13 basis point decrease in the
average cost of these borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $13 million and $34 million,
respectively, for the three and six months ended June 30, 1997, compared to $17
million and $36 million for the same periods in 1996. The lower provision in
1997 reflects the decrease in non-accrual loans and the improving California
economy.
GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter and first half of 1997, general and
administrative expenses (G&A) were $79 million and $158 million, respectively,
compared to $80 million and $161 million for the comparable periods in 1996. The
primary reason for the decrease in 1997 was the benefit received from reduced
deposit insurance premiums paid by the Association in 1997 (See Deposit
Insurance section below). Excluding the effect of the lower deposit insurance
premiums, total G&A increased due to the expansion of savings branches, higher
loan volume, and the installation of enhancements to data processing systems.
G&A as a percentage of average assets on an annualized basis was .81% and .82%,
respectively, for the second quarter and first half of 1997 compared to .92% for
the same periods in 1996.
DEPOSIT INSURANCE
During 1996, legislation was enacted to recapitalize 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). The new banking law
required members to pay a levy of $4.7 billion to bring SAIF up to the required
reserve level of 1.25% of insured deposits, but lowered the premiums paid by
SAIF-insured institutions, starting in the fourth quarter of 1996. As a result
of this legislation, Golden West's subsidiary, World Savings and Loan
Association, incurred a one-time charge of $133 million at the end of the third
quarter of 1996. Beginning on January 1, 1997, the premium paid by the
Association to the FDIC was reduced from $2.30 per $1,000 in savings balances to
$.65 per $1,000. Beginning on January 1, 1997, the premiums paid by BIF insured
institutions, such as WFSB, was increased from $0.00 per $1,000 in savings
balances to $.13 per $1,000.
31
<PAGE> 32
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 cumulative effect of the
change in accounting for goodwill were 39.7% and 39.6%, respectively, for the
second quarter and first half of 1997 compared to 38.6% for the same periods a
year ago.
LIQUIDITY AND CAPITAL RESOURCES
World's principal sources of funds are cash flows generated from
earnings; 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 its parent,
borrowings from public offerings of debt, sales of loans, sales of 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 June 30, 1997, and 1996, and
December 31, 1996, see the cash and investments section on page 12.
WFSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; negotiable certificates of deposit,
borrowings from the FHLB; issuance of medium-term notes; investments and
borrowings from its affiliates; and debt collateralized by mortgages, MBS, or
securities. In addition, WFSB has other alternatives available to provide
liquidity or finance operations including borrowings from public offerings of
debt, sales of loans, 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 June 30, 1997, and 1996, and
December 31, 1996, see the cash and investments section on page 12.
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 and WFSB can pay. The
principal liquidity needs of Golden West are for payment of interest and
principal on subordinated debt securities (of which $200 million matures in
1998), capital contributions to its insured subsidiaries (including $125 million
for the six months ended June 30, 1997 and $500 million for the year ended
December 31, 1996 to WFSB), dividends to stockholders, the purchase of Golden
West stock (see stockholders' equity section on page 23), and general and
administrative expenses. At June 30, 1997 and 1996, and December 31, 1996,
Golden West's total cash and investments amounted to $900 million (including a
$600 million long-term loan to WFSB), $799 million (including a $600 million
short-term loan to World), and $913 million (including a $600 million long-term
loan to WFSB), respectively.
32
<PAGE> 33
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 - Statement of Computation of Earnings Per Share
27 - Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: August 13, 1997 /s/ J. L. Helvey
----------------------------------------------
J. L. Helvey
Executive Vice President
(duly authorized and principal financial
officer)
33
<PAGE> 1
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings (Loss) Per Share
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings Before Cumulative Effect of
Change in Accounting for Goodwill $ 87,277 $ 79,585 $ 170,651 $ 158,178
Cumulative Effect of Change in
Accounting for Goodwill -0- -0- -0- (205,242)
----------- ---------- ---------- -----------
Net Earnings (Loss) $ 87,277 $ 79,585 $ 170,651 $ (47,064)
=========== ========== ========== ===========
Average Number of Common
Shares Outstanding 56,892,526 58,283,423 57,102,416 58,536,031
=========== ========== ========== ===========
Earnings Per Share Before Cumulative
Effect of Change in Accounting for
Goodwill $ 1.54 $ 1.35 $ 2.99 $ 2.69
Cumulative Effect of Change in
Accounting for Goodwill 0.00 0.00 0.00 (3.49)
----------- ---------- ---------- -----------
Earnings (Loss) Per Common Share $ 1.54 $ 1.35 $ 2.99 $ (.80)
=========== ========== =========== ===========
</TABLE>
34
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 130,667
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 856,456
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 808,000
<INVESTMENTS-CARRYING> 3,846,002
<INVESTMENTS-MARKET> 3,846,110
<LOANS> 31,821,887
<ALLOWANCE> 216,651
<TOTAL-ASSETS> 39,095,082
<DEPOSITS> 24,036,660
<SHORT-TERM> 4,431,565
<LIABILITIES-OTHER> 734,564
<LONG-TERM> 7,401,403
0
0
<COMMON> 5,674
<OTHER-SE> 2,485,216
<TOTAL-LIABILITIES-AND-EQUITY> 39,095,082
<INTEREST-LOAN> 1,148,722
<INTEREST-INVEST> 68,494
<INTEREST-OTHER> 147,302
<INTEREST-TOTAL> 1,364,518
<INTEREST-DEPOSIT> 574,442
<INTEREST-EXPENSE> 929,246
<INTEREST-INCOME-NET> 435,272
<LOAN-LOSSES> 33,806
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 157,797
<INCOME-PRETAX> 282,711
<INCOME-PRE-EXTRAORDINARY> 282,711
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,651
<EPS-PRIMARY> 2.99
<EPS-DILUTED> 2.99
<YIELD-ACTUAL> 7.35
<LOANS-NON> 361,860
<LOANS-PAST> 0
<LOANS-TROUBLED> 75,834
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 195,702
<CHARGE-OFFS> 13,305
<RECOVERIES> 448
<ALLOWANCE-CLOSE> 216,651
<ALLOWANCE-DOMESTIC> 216,651
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
