SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For Quarter Ended March 31, 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 April
30, 1997, was 56,929,364 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, 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 month periods have been included. The operating
results for the three months ended March 31, 1997, 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
1997 1996 1996
------------ ----------- ------------
<S> <C> <C> <C>
Assets:
Cash $ 132,972 $ 203,419 $ 218,719
Securities available for sale at fair value 602,667 707,755 781,325
Other investments at cost 1,538,551 1,086,255 1,078,832
Mortgage-backed securities available for sale without recourse at
fair value 216,332 269,590 227,466
Mortgage-backed securities held to maturity without recourse at
cost 785,486 859,705 800,692
Mortgage-backed securities held to maturity with recourse at cost 3,183,765 2,174,244 3,265,424
Loans receivable 30,698,538 28,388,930 30,113,421
Interest earned but uncollected 212,280 218,347 221,604
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 564,389 392,597 500,105
Real estate held for sale or investment 79,687 73,864 83,052
Prepaid expenses and other assets 292,312 231,499 226,054
Premises and equipment--at cost less accumulated depreciation 223,030 205,352 213,904
------------ ----------- ------------
$ 38,530,009 $34,811,557 $37,730,598
============ =========== ============
Liabilities and Stockholders' Equity:
Deposits $ 22,943,924 $20,990,781 $22,099,934
Advances from Federal Home Loan Banks 8,133,882 6,459,770 8,798,433
Securities sold under agreements to repurchase 2,662,179 2,139,371 1,908,126
Medium-term notes 309,903 889,570 589,845
Accounts payable and accrued expenses 482,335 487,897 452,182
Taxes on income 259,504 390,947 207,605
Subordinated notes--net of discount 1,324,390 1,322,790 1,323,996
Stockholders' equity 2,413,892 2,130,431 2,350,477
------------ ----------- ------------
$ 38,530,009 $34,811,557 $37,730,598
============ =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Net Earnings (Loss)
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended
March 31
-----------------------------
1997 1996
----------- ------------
<S> <C> <C>
Interest Income:
Interest on loans $ 565,063 $ 541,208
Interest on mortgage-backed securities 74,933 61,673
Interest and dividends on investments 34,283 36,226
----------- ------------
674,279 639,107
Interest Expense:
Interest on deposits 280,320 265,370
Interest on advances 112,608 89,981
Interest on repurchase agreements 27,898 28,388
Interest on other borrowings 34,761 47,709
----------- ------------
455,587 431,448
----------- ------------
Net Interest Income 218,692 207,659
Provision for loan losses 20,695 18,522
----------- ------------
Net Interest Income after Provision
for Loan Losses 197,997 189,137
Non-Interest Income:
Fees 10,737 8,883
Gain on the sale of securities,
MBS, and loans 1,223 4,684
Other 7,272 5,957
----------- ------------
19,232 19,524
Non-Interest Expense:
General and administrative:
Personnel 44,100 39,385
Occupancy 13,388 12,216
Deposit insurance 2,046 11,332
Advertising 2,418 2,248
Other 17,218 15,610
----------- ------------
79,170 80,791
Earnings Before Taxes on Income and
Cumulative Effect of Change in Accounting 138,059 127,870
Taxes on Income 54,685 49,277
----------- ------------
Earnings Before Cumulative Effect of Change in
Accounting for Goodwill 83,374 78,593
Cumulative Effect of Change in Accounting
for Goodwill -0- (205,242)
----------- ------------
Net Earnings (Loss) $ 83,374 $ (126,649)
=========== ============
Earnings (Loss) Per Share:
Earnings Per Share Before Cumulative Effect of
Change in Accounting for Goodwill $ 1.45 $ 1.34
Cumulative Effect of Change in Accounting
for Goodwill 0.00 (3.49)
----------- ------------
Net Earnings (Loss) Per Share $ 1.45 $ (2.15)
=========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $ 83,374 $ (126,649)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Provision for loan losses 20,695 18,522
Cumulative effect of the change in accounting for goodwill -0- 205,242
Amortization of loan fees and discounts (4,441) (6,526)
Depreciation and amortization 5,143 4,793
Loans originated for sale (53,560) (194,359)
Sales of loans originated for sale 49,508 185,663
Decrease in interest earned but uncollected 9,324 7,048
Federal Home Loan Bank stock dividends (15,722) (9,251)
(Increase) in prepaid expenses and other assets (58,581) (71,456)
Increase in accounts payable and accrued expenses 30,153 37,083
Increase in taxes on income 54,668 35,572
Other, net (4,626) (5,737)
----------- ------------
Net cash provided by operating activities 115,935 79,945
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (1,341,904) (984,084)
Real estate loans purchased (652) (200)
Other, net (8,270) (476)
----------- ------------
(1,350,826) (984,760)
Real estate loan principal payments:
Monthly payments 164,249 141,548
Payoffs, net of foreclosures 487,720 521,211
Refinances 57,383 66,888
----------- -----------
709,352 729,647
Purchases of mortgage-backed securities held to maturity -0- (62)
Repayments of mortgage-backed securities 106,025 104,559
Proceeds from sales of real estate 52,680 51,303
Purchases of securities available for sale (10) (323,235)
Sales of securities available for sale -0- 74,951
Matured securities available for sale 175,601 444,197
Decrease (increase) in other investments (459,719) 103,905
Purchases of Federal Home Loan Bank stock (56,239) (37,099)
Additions to premises and equipment (14,347) (6,939)
----------- -----------
Net cash provided by (used in) investing activities (837,483) 156,467
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended
March 31
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Financing Activities:
Deposit activity:
Increase (decrease) in deposits, net $ 618,182 $ (70,839)
Interest credited 225,808 213,710
----------- ----------
843,990 142,871
Additions to Federal Home Loan Bank advances 21,600 25,950
Repayments of Federal Home Loan Bank advances (686,199) (13,470)
Proceeds from agreements to repurchase securities 1,424,702 396,362
Repayments of agreements to repurchase securities (670,649) (74,934)
Repayments of medium-term notes (280,000) (708,135)
Proceeds from federal funds purchased -0- 575,000
Repayments of federal funds purchased -0- (575,000)
Dividends on common stock (6,301) (5,581)
Sale of stock 2,009 2,262
Purchase and retirement of Company stock (13,351) (17,013)
----------- -----------
Net cash provided by (used in) financing activities 635,801 (251,688)
----------- -----------
Net Decrease in Cash (85,747) (15,276)
Cash at beginning of period 218,719 218,695
----------- -----------
Cash at end of period $ 132,972 $ 203,419
=========== ===========
Supplemental cash flow information:
Cash paid for:
Interest $ 452,524 $ 453,630
Income taxes 611 19,871
Cash received for interest and dividends 683,603 646,155
Noncash investing activities:
Loans transferred to foreclosed real estate 50,657 52,174
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
Three Months Ended
March
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Common Stock:
Balance at January 1 $ 5,734 $ 5,887
Common stock issued upon exercise of stock options 7 8
Common stock retired upon purchase of stock (19) (33)
----------- -----------
Balance at March 31 5,722 5,862
----------- -----------
Paid-in Capital:
Balance at January 1 67,953 55,353
Common stock issued upon exercise of stock options 2,002 2,254
----------- -----------
Balance at March 31 69,955 57,607
----------- -----------
Retained Earnings:
Balance at January 1 2,177,098 2,140,883
Net earnings (loss) 83,374 (126,649)
Cash dividends on common stock (6,301) (5,581)
Retirement of stock (13,332) (16,980)
----------- ------------
Balance at March 31 2,240,839 1,991,673
----------- ------------
Unrealized Gains on Securities Available for Sale:
Balance at January 1 99,692 76,230
Change during period (2,316) (941)
----------- ------------
Balance at March 31 97,376 75,289
----------- ------------
Total Stockholders' Equity at March 31 $ 2,413,892 $ 2,130,431
=========== ============
</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, 1996,
as well as certain material changes in results of operations during the three
month periods ended March 31, 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.
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 1996 and 1997, has
been included in other income.
The adoption of SFAS 72 noted above resulted in the restatement of earnings
previously reported of $76 million, or $1.28 per share, in the first quarter of
1996 to a loss of $127 million, or $2.15 per share. The restatement included a
charge of $3.49 per share for the cumulative effect of change in accounting for
goodwill and a credit of $.06 per share of goodwill amortization for the first
quarter of 1996. For the three months ended March 31, 1996, earnings before the
cumulative effect of the change in accounting for goodwill were $1.34 per share.
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
March 31 March 31 December 31
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Assets $ 38,530,009 $34,811,557 $37,730,598
Loans receivable 30,698,538 28,388,930 30,113,421
Mortgage-backed securities 4,185,583 3,303,539 4,293,582
Deposits 22,943,924 20,990,781 22,099,934
Stockholders' equity 2,413,892 2,130,431 2,350,477
Stockholders' equity/total assets 6.26% 6.12% 6.23%
Book value per common share $ 42.19 $ 36.34 $ 40.99
Common shares outstanding 57,218,464 58,622,859 57,342,389
Yield on loan portfolio 7.43% 7.64% 7.43%
Yield on mortgage-backed securities 7.12% 7.35% 7.13%
Yield on investments 6.82% 5.68% 6.88%
Yield on earning assets 7.37% 7.51% 7.37%
Cost of deposits 4.98% 5.01% 4.98%
Cost of borrowings 5.82% 5.95% 5.80%
Cost of funds 5.27% 5.33% 5.28%
Yield on earning assets less cost of funds 2.10% 2.18% 2.09%
Ratio of nonperforming assets to total assets 1.22% 1.25% 1.21%
Ratio of troubled debt restructured to total assets .23% .13% .22%
World Savings and Loan Association:
Total assets $ 19,633,902 $27,601,561 $21,040,890
Net worth 1,337,107 1,852,066 1,427,914
Net worth/total assets 6.81% 6.71% 6.79%
Regulatory capital ratios:
Tangible capital 6.37% 6.70% 6.37%
Core capital 6.37% 6.70% 6.37%
Risk-based capital 13.74% 14.12% 13.91%
World Savings Bank, a Federal Savings Bank:
Total assets $ 18,465,208 $ 7,127,638 $16,929,859
Net worth 1,235,418 577,705 1,136,717
Net worth/total assets 6.69% 8.11% 6.71%
Regulatory capital ratios:
Tangible capital 6.67% 8.05% 6.69%
Core capital 6.67% 8.05% 6.69%
Risk-based capital 13.26% 15.25% 13.14%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended
March 31
--------------------------
1997 1996
------------ -----------
<S> <C> <C>
New real estate loans originated $ 1,395,464 $1,178,443
Average yield on new real estate loans 7.52% 7.71%
Increase in deposits (a) $ 843,990 $ 142,871
Earnings before cumulative effect of change in accounting for 83,374 78,593
goodwill
Net earnings (loss) 83,374 (126,649)
Earnings per share before cumulative effect
of change in accounting for goodwill 1.45 1.34
Net earnings (loss) per share 1.45 (2.15)
Cash dividends on common stock .11 .095
Average common shares outstanding 57,314,639 58,788,639
Ratios:(b)
Net earnings (loss)/average net worth (ROE)(c) 13.95% (23.50%)
Net earnings (loss)/average assets (ROA)(c) .88% (1.45%)
Net interest income/average assets 2.30% 2.38%
General and administrative expense/average assets .83% .93%
</TABLE>
(a) Includes $397 million of wholesale deposits for the quarter ended March
31, 1997.
(b) 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.
(c) The ratios for the quarter ended March 31, 1996, include the $205 million
cumulative effect of the change in accounting for goodwill, which was
effective January 1, 1996. The ratios for the quarter ended March 31,
1996, excluding the change in accounting for goodwill are: ROE 14.58% and
ROA .90%
<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, 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>
<CAPTION>
TABLE 1
Consolidated Condensed Balance Sheet
In Percentage Terms
March 31
-------------------- December 31
1997 1996 1996
------ ------- -----------
<S> <C> <C> <C>
Assets:
Cash and investments 5.9% 5.7% 5.5%
Mortgage-backed securities 10.9 9.5 11.4
Loans receivable 79.7 81.6 79.8
Other assets 3.5 3.2 3.3
------ ------ -------
100.0% 100.0% 100.0%
====== ====== =======
Liabilities and Stockholders' Equity:
Deposits 59.5% 60.3% 58.6%
Federal Home Loan Bank advances 21.1 18.6 23.3
Securities sold under agreements to repurchase 6.9 6.1 5.1
Medium-term notes 0.8 2.6 1.6
Other liabilities 2.0 2.5 1.7
Subordinated debt 3.4 3.8 3.5
Stockholders' equity 6.3 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 March 31, 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 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.
<PAGE>
<TABLE>
<CAPTION>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of March 31, 1997
(Dollars in millions)
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 $ 1,858 $ -0- $ 281 $ 2 $ 2,141
Mortgage-backed securities 3,272 94 350 470 4,186
Loans receivable:
Rate-sensitive 26,039 1,591 119 -0- 27,749
Fixed-rate 78 236 991 1,350 2,655
Other(b) 673 -0- -0- -0- 673
Impact of interest rate swaps 632 170 (256) (546) -0-
--------- ---------- --------- --------- ---------
Total $ 32,552 $ 2,091 $ 1,485 $ 1,276 $ 37,404
========= ========== ========= ========= =========
Interest-Bearing Liabilities(c):
Deposits $ 8,124 $ 12,093 $ 2,699 $ 28 $ 22,944
FHLB advances 7,149 375 345 265 8,134
Other borrowings 3,080 100 619 497 4,296
Impact of interest rate swaps 1,431 (487) (931) (13) -0-
--------- ----------- --------- ----------- ---------
Total $ 19,784 $ 12,081 $ 2,732 $ 777 $ 35,374
========= =========== ========= ========== =========
Repricing gap $ 12,768 $ (9,990) $ (1,247) $ 499
========= =========== ========= ==========
Cumulative gap $ 12,768 $ 2,778 $ 1,531 $ 2,030
========= =========== ========= ==========
Cumulative gap as a percentage of
total assets 33.1% 7.2% 4.0%
========= =========== ===========
</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, 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 March 31, 1997 and 1996, and December 31, 1996, World's average regulatory
liquidity ratios were 8%, 5.5%, and 8%, respectively. For the months ended March
31, 1997 and 1996, and December 31, 1996, WFSB's average regulatory liquidity
ratios were 5.3%, 6% and 6%, respectively. World and WFSB exceeded the monthly
5% requirements for each of the three months ended March 31, 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 March 31, 1997 and 1996, and December 31, 1996, the Company had
securities available for sale in the amount of $603 million, $708 million, and
$781 million, respectively, including unrealized gains on securities available
for sale of $156 million, $116 million, and $159 million, respectively. At March
31, 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 March 31, 1997 and 1996,
and December 31, 1996, were collateralized mortgage obligations (CMOs) in the
amount of $144 million, $340 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 March 31, 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 March 31, 1997 and 1996, and December 31, 1996, the Company had
mortgage-backed securities (MBS) held to maturity in the amount of $4.0 billion,
$3.0 billion, and $4.1 billion, respectively, including $3.2 billion of Federal
National Mortgage Association (FNMA) MBS subject to full credit recourse to the
Company at March 31, 1997, $2.2 billion at March 31, 1996 and $3.3 billion at
December 31, 1996. At March 31, 1997 and 1996, and December 31, 1996, the
Company had mortgage-backed securities available for sale in the amount of $216
million, $270 million, and $227 million, respectively, including unrealized
gains on MBS available for sale of $9 million, $13 million, and $11 million,
respectively. At March 31, 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. 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.
<PAGE>
Repayments of MBS during the first quarter of 1997 were $106 million
compared to $105 million in the same period of 1996. Although the balance of the
MBS portfolio is higher than it was a year ago, repayments on MBS during the
first quarter of 1997 as compared to the first quarter of 1996 were flat
primarily due to a decrease in refinances and prepayments on the underlying
loans.
LOAN PORTFOLIO
LOAN VOLUME
New loan originations for the quarter ended March 31, 1997, amounted to
$1.4 billion compared to $1.2 billion for the same period in 1996. The increase
in loan volume in 1997 over the first quarter of 1996 occurred because rates on
new fixed-rate mortgages were higher this year, hovering near the 8% level for
most of the quarter. 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 amounted to $54
million for the first three months of 1997 compared to $194 million for the
first three months of 1996. Refinanced loans constituted 36% of new loan
originations for the quarter ended March 31, 1997, compared to 43% for the
quarter ended March 31, 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 months ended March 31, 1997, 52% of total loan originations were
on residential properties in California compared to 53% for the same period in
1996. The five largest states, other than California, for originations for the
three months ended March 31, 1997, were Florida, Texas, Washington, Colorado,
and Illinois with a combined total of 26% total originations. The percentage of
the total loan portfolio (excluding mortgage-backed securities with recourse)
that is comprised of residential loans in California was 68% at March 31, 1997
compared to 73% at March 31, 1996, and 69% at December 31, 1996.
The tables on the following two pages show the Company's loan portfolio by
state at March 31, 1997 and 1996.
<PAGE>
<TABLE>
<CAPTION>
TABLE 3
Loan Portfolio by State
March 31, 1997
(Dollars in thousands)
Residential
Real Estate Commercial Loans as
------------------------- Real Tota a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- --------------- ------------ ----------- ---------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
California $19,965,421 $3,399,540 $ 250 $ 55,486 $23,420,697 68.63%
Texas 1,176,028 106,963 571 1,549 1,285,111 3.77
Illinois 1,078,539 183,142 -0- 1,756 1,263,437 3.70
Colorado 993,304 236,588 -0- 7,100 1,236,992 3.62
Florida 1,085,361 20,264 88 941 1,106,654 3.24
New Jersey 1,075,776 406 -0- 6,468 1,082,650 3.17
Washington 440,186 375,010 -0- 749 815,945 2.39
Arizona 651,402 46,570 -0- 577 698,549 2.05
Pennsylvania 502,320 4,251 -0- 3,534 510,105 1.49
Virginia 499,980 8,575 -0- 1,431 509,986 1.49
Connecticut 425,616 -0- -0- 22 425,638 1.25
Maryland 335,978 2,188 -0- 535 338,701 0.99
Oregon 223,792 11,078 -0- 2,691 237,561 0.70
Nevada 186,474 1,093 -0- -0- 187,567 0.55
Utah 163,441 58 -0- 1,738 165,237 0.48
Minnesota 145,192 8,357 -0- -0- 153,549 0.45
Kansas 146,769 4,849 -0- 188 151,806 0.44
Wisconsin 105,418 3,888 -0- -0- 109,306 0.32
Massachusetts 81,373 -0- -0- 20 81,393 0.24
Missouri 72,461 6,328 -0- -0- 78,789 0.23
New York 47,504 -0- -0- -0- 47,504 0.14
Washington DC 44,396 -0- -0- -0- 44,396 0.13
New Mexico 37,312 -0- -0- -0- 37,312 0.11
Georgia 34,316 -0- -0- 1,706 36,022 0.11
Idaho 27,064 -0- -0- -0- 27,064 0.08
Delaware 23,897 -0- -0- -0- 23,897 0.07
Ohio 16,377 2,219 196 3,975 22,767 0.07
North Carolina 7,749 -0- -0- 488 8,237 0.02
South Dakota 7,227 -0- -0- -0- 7,227 0.02
Other 11,214 11 -0- 4,561 15,786 0.05
----------- ---------- --------- ----------- ----------- --------
Totals $29,611,887 $4,421,378 $ 1,105 $ 95,515 34,129,885 100.00%
=========== ========== ========= =========== ========
SFAS 91 deferred loan fees (54,130)
Loan discount on purchased loans (4,207)
Undisbursed loan funds (3,934)
Allowance for loan losses (209,077)
Loans to facilitate (LTF) interest reserve (553)
Troubled debt restructured (TDR) interest reserve (6,987)
Loans on deposits 31,306
-----------
Total loan portfolio and loans securitized into FNMA MBS with recourse 33,882,303
Loans securitized into FNMA MBS with recourse (3,183,765)(b)
-----------
Total loan portfolio $30,698,538
===========
</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 March 31, 1997
balances of these FNMA mortgage-backed securities are reflected in the
amounts above.
<PAGE>
<TABLE>
<CAPTION>
TABLE 4
Loan Portfolio by State
March 31, 1996
(Dollars in thousands)
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 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>
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 March 31, 1997 compared to 90% at March 31, 1996, and 91% at
December 31, 1996. The Company's ARM originations for the first quarter of 1997
constituted over 94% of new mortgage loans made in 1997 compared to 77% in the
first three months of 1996.
The weighted average maximum lifetime cap rate on the Company's ARM loan
portfolio (including MBS with recourse) was 12.02%, or 5.60% above the actual
weighted average rate at March 31, 1997, versus 13.08%, or 5.64% above the
weighted average rate at March 31, 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 March 31,
1997, $637 million of ARM loans had reached their rate floors. The weighted
average floor rate on the loans that had reached their floor was 7.74% at March
31, 1997 compared to 7.79% at March 31, 1996. Without the floor, the average
yield on these loans would have been 7.09% at March 31, 1997 and 7.28% at March
31, 1996.
Loan repayments consist of monthly loan amortization, loan payoffs, and
refinances. For the quarter ended March 31, 1997, loan repayments were $709
million compared to $730 million in the same period of 1996.
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 March 31, 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 first quarter of 1997 and 1996, the Company recognized gains
of $1.0 million and $4.7 million, respectively, on the sale of loans due to the
capitalization of servicing rights. After amortization, the balance at March 31,
1997 and 1996 of the capitalized servicing rights was $9.7 million and $4.6
million, respectively.
<PAGE>
ASSET QUALITY
One measure of the soundness of the Company's portfolio is its ratio of
nonperforming assets (NPAs) to total assets. Nonperforming assets includes
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>
<CAPTION>
TABLE 5
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
March 31
------------------------- December 31
1997 1996 1996
---------- ----------- ------------
<S> <C> <C> <C>
Non-accrual loans $ 389,625 $ 361,376 $ 373,157
Real estate acquired through foreclosure 77,859 72,487 82,075
Real estate in judgment 1,274 798 416
---------- ----------- ------------
Total nonperforming assets $ 468,758 $ 434,661 $ 455,648
========== =========== ===========
TDRs $ 86,931 $ 46,683 $ 84,082
========== =========== ===========
Ratio of NPAs to total assets 1.22% 1.25% 1.21%
========== =========== ===========
Ratio of TDRs to total assets .23% .13% .22%
========== =========== ===========
Ratio of NPAs and TDRs to total assets 1.45% 1.38% 1.43%
========== =========== ===========
</TABLE>
The slight increase in NPAs during 1997 reflects the continued weakness in
the Southern California housing market and increased bankruptcies nationwide.
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 $5 million in the first quarter of 1997 compared
to $6 million in the same period of 1996. Interest foregone on TDRs amounted to
$583 thousand for the three months ended March 31, 1997, compared to $368
thousand for the three months ended March 31, 1996.
The tables on the following two pages show the Company's nonperforming
assets by state at March 31, 1997 and 1996.
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
Nonperforming Assets by State
March 31, 1997
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
----------------------------------- --------------------------------
Residential Commercial Commercial
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 $305,760 $ 14,352 $ 2,391 $63,523 $ 9,804 $ 2,289 $398,119 1.70%
Texas 5,881 -0- -0- 803 -0- -0- 6,684 0.52
Illinois 7,366 223 -0- 246 282 -0- 8,117 0.64
Colorado 2,150 -0- 3,089 269 -0- -0- 5,508 0.45
Florida 6,199 -0- 263 774 -0- -0- 7,236 0.65
New Jersey 14,029 -0- 1,544 763 -0- -0- 16,336 1.51
Washington 2,146 -0- -0- -0- -0- -0- 2,146 0.26
Arizona 1,574 -0- -0- 12 -0- -0- 1,586 0.23
Pennsylvania 5,068 -0- 5 152 -0- -0- 5,225 1.02
Virginia 1,409 -0- -0- 538 -0- -0- 1,947 0.38
Connecticut 3,870 -0- -0- 598 -0- -0- 4,468 1.05
Maryland 1,458 -0- -0- 570 -0- -0- 2,028 0.60
Oregon 601 -0- -0- -0- -0- -0- 601 0.25
Nevada 1,632 -0- -0- 219 -0- -0- 1,851 0.99
Utah 737 -0- -0- -0- -0- -0- 737 0.45
Minnesota 641 -0- -0- -0- -0- -0- 641 0.42
Kansas 724 40 -0- -0- -0- -0- 764 0.50
Wisconsin 433 -0- -0- -0- -0- -0- 433 0.40
Massachusetts 64 -0- 20 -0- -0- -0- 84 0.10
Missouri 465 42 -0- 243 17 -0- 767 0.97
New York 3,637 -0- -0- 141 -0- -0- 3,778 7.95
Washington, DC -0- -0- -0- -0- -0- -0- -0- 0.00
New Mexico -0- -0- -0- -0- -0- -0- -0- 0.00
Georgia 1,542 -0- -0- -0- -0- -0- 1,542 4.28
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
Delaware 118 -0- -0- -0- -0- -0- 118 0.49
Ohio 62 -0- 2 -0- -0- -0- 64 0.28
North Carolina 38 -0- -0- -0- -0- -0- 38 0.46
South Dakota -0- -0- -0- -0- -0- -0- -0- 0.00
Other 50 -0- -0- -0- -0- -0- 50 0.32
-------- --------- -------- ------- -------- -------- --------- -----
Totals $367,654 $ 14,657 $ 7,314 $68,851 $ 10,103 $2,289 470,868 1.38%
======== ========= ======== ======= ======== ========
REO general valuation allowance (2,110) (0.01)
-------- ----
Total nonperforming assets $468,758 1.37%
========= ====
</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 March 31, 1997 balances of the related
nonperforming assets are reflected in the amounts above.
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
Nonperforming Assets by State
March 31, 1996
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
----------------------------------- --------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a % of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
- ----------- --------- ---------- --------- -------- -------- --------- ---------- --------
<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 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, 1997 and 1996.
<TABLE>
<CAPTION>
TABLE 8
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended
March 31
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
Beginning allowance for loan losses $ 195,702 $ 141,988
Provision charged to expense 20,695 18,522
Less loans charged off (7,558) (8,360)
Add recoveries 238 210
---------- -----------
Ending allowance for loan losses $ 209,077 $ 152,360
========== ===========
Ratio of net charge-offs to average loans
outstanding (including MBS with recourse) .09% .11%
========== ===========
Ratio of allowance for loan losses to nonperforming assets 44.6% 35.1%
========== ===========
</TABLE>
DEPOSITS
Retail deposits increased during the first quarter of 1997 by $447 million,
including interest credited of $226 million compared to an increase of $143
million, including interest credited of $214 million, in the first quarter 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 brokers to
sell certificates of deposit (CDs) to institutional investors. The Company's
deposit balance at March 31, 1997 includes $397 million of these wholesale CDs.
<PAGE>
The mix of reported deposits changed during 1997 as compared to 1996,
primarily 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.
The table below shows the Company's deposits by interest rate and by
remaining maturity at March 31, 1997 and 1996.
<TABLE>
<CAPTION>
TABLE 9
Deposits
(Dollars in millions)
March 31
---------------------------------------------------
1997 1996
---------------------- -----------------------
Rate* Amount Rate* Amount
-------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Deposits by interest rate:
Interest-bearing checking accounts 1.17% $ 307 1.22% $ 768
Passbook accounts 2.22 558 2.22 571
Money market deposit accounts 2.43 1,778 3.42 1,321
Term certificate accounts with original maturities
of:
4 weeks to 1 year 5.25 11,472 5.10 8,892
1 to 2 years 5.27 4,192 5.42 4,407
2 to 3 years 5.50 1,334 5.86 1,920
3 to 4 years 5.73 554 5.40 614
4 years and over 5.69 1,941 5.95 2,067
Retail jumbo CDs 5.30 410 5.36 428
Wholesale CDs 5.40 397 0.00 -0-
All other 7.66 1 7.67 3
---------- ----------
$ 22,944 $ 20,991
========== ==========
Deposits by remaining maturity:
No contractual maturity $ 2,643 $ 2,660
Maturity within one year:
2nd quarter 5,481 6,152
3rd quarter 6,113 3,382
4th quarter 4,354 2,480
1st quarter 1,626 2,825
---------- ----------
17,574 14,839
1 to 2 years 1,642 2,255
2 to 3 years 814 414
3 to 4 years 106 644
4 years and over 165 179
---------- ----------
$ 22,944 $ 20,991
========== ==========
</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.
Advances are secured by pledges of certain loans, capital stock of the FHLB, and
MBS. FHLB advances amounted to $8.1 billion at March 31, 1997, compared to $6.5
billion and $8.8 billion at March 31, 1996, and December 31, 1996, 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 $2.7 billion, $2.1 billion, and $1.9 billion at March
31, 1997 and 1996, and December 31, 1996, respectively. The $2.7 billion balance
at March 31, 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 March 31, 1997, Golden West, at the holding company level, had a total
of $1.1 billion of subordinated debt issued and outstanding. As of March 31,
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 March 31, 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 March 31, 1997. World had medium-term notes
outstanding under prior registrations with principal amounts of $310 million at
March 31, 1997, compared to $890 million at March 31, 1996, and $590 million at
December 31, 1996. As of March 31, 1997, World's medium-term notes were rated A1
and A+ by Moody's and S&P, respectively.
<PAGE>
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, 1997, the full
amount was available for issuance. As of March 31, 1997, 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.
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 $63 million during the
first three months of 1997. The increase in stockholders' equity was primarily a
result of net earnings for the first three months of 1997, which were partially
offset by the $13 million cost of the purchase of Company stock, the payment of
$6 million in quarterly dividends to stockholders, and a $2 million decrease in
market values of securities available for sale since December 31, 1996. The
Company's stockholders' equity decreased during the first three months of 1996
as a result of the $127 million loss incurred during the first quarter, the $17
million cost of the purchase of Company stock and due to a $1 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 March 31, 1997 and 1996, and December 31, 1996, were $97
million, $75 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 March 31, 1997, 8.0 million shares
had been purchased and retired at a cost of $345 million since October 1993, of
which 194 thousand were purchased and retired at a cost of $13 million during
the first three months 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 dividend to Golden West in March 1997. In
addition, World has received approval from the OTS to pay up to $165 million
more in upstream dividends to Golden West. Also, during the first quarter of
1997, Golden West purchased from World, and subsequently contributed as capital
to WFSB, $30 million in loans.
<PAGE>
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 adoption of SFAS 72 as of January
1, 1996 had no effect on World's or WFSB's regulatory capital ratios because
goodwill is required to be deducted from regulatory capital. 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 March 31, 1997 and 1996.
<TABLE>
<CAPTION>
TABLE 10
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 1997 March 31, 1996
------------------------------------------------ ------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ----------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,245,575 6.37% $ 293,257 1.50% $ 1,845,592 6.70% $ 413,319 1.50%
Core 1,245,575 6.37 586,514 3.00 1,845,592 6.70 826,638 3.00
Risk-based 1,565,900 13.74 911,568 8.00 2,169,719 14.12 1,228,984 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, 1997 and
1996.
<TABLE>
<CAPTION>
TABLE 11
World Savings Bank, a Federal Savings Bank
Regulatory Capital Ratios
(Dollars in thousands)
March 31, 1997 March 31, 1996
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,232,625 6.67 % $ 277,288 1.50% $ 573,896 8.05 % $ 106,874 1.50%
Core 1,232,625 6.67 554,576 3.00 573,896 8.05 213,748 3.00
Risk-based 1,287,612 13.26 777,033 8.00 583,679 15.25 306,105 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.
<PAGE>
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 table below shows that World's regulatory capital exceeds the
requirements of the well capitalized classification at March 31, 1997.
<TABLE>
<CAPTION>
TABLE 12
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
ACTUAL WELL CAPITALIZED
----------------------- ------------------------
Capital Ratio Capital Ratio
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Leverage $1,245,575 6.37 % $ 977,523 5.00%
Tier 1 risk-based 1,245,575 10.93 683,676 6.00
Total risk-based 1,565,900 13.74 1,139,460 10.00
</TABLE>
The table below shows that WFSB's regulatory capital exceeds the
requirements of the well capitalized classification at March 31, 1997.
<TABLE>
<CAPTION>
TABLE 13
World Savings Bank, a Federal Savings Bank
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
ACTUAL WELL CAPITALIZED
----------------------- ------------------------
Capital Ratio Capital Ratio
----------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Leverage $ 1,232,625 6.67% $ 924,294 5.00%
Tier 1 risk-based 1,232,625 12.69 582,775 6.00
Total risk-based 1,287,612 13.26 971,291 10.00
</TABLE>
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings for the three months ended March 31, 1997 were $83 million or
$1.45 per share compared to a loss of $127 million or $2.15 per share for the
quarter ended March 31, 1996. Without the one-time goodwill write-off (See
Accounting Change section on page 7), Golden West's earnings for the first
quarter of 1996 would have been $79 million or $1.34 per share. Net earnings
increased in 1997 as a result of increased net interest income and a 2% decrease
in general and administrative expenses due to lower deposit premiums.
<PAGE>
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 ended March 31, 1997, the Basic EPS reported
would have been $1.45 and the Diluted EPS would have been $1.43. For the quarter
ended March 31, 1996, before the cumulative effect of the change in accounting,
Basic EPS would have been $1.34 and Diluted EPS would have been $1.32.
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, 1997 and
1996, and December 31, 1996.
<TABLE>
<CAPTION>
TABLE 14
Yield on Earning Assets,
Cost of Funds, and Primary Spread
March 31
--------------------------- December 31
1997 1996 1996
--------- ----------- -------------
<S> <C> <C> <C>
Yield on loan portfolio 7.43% 7.64% 7.43%
Yield on MBS 7.12 7.35 7.13
Yield on investments 6.82 5.68 6.88
--------- ------- --------
Yield on earning assets 7.37 7.51 7.37
--------- ------- --------
Cost of deposits 4.98 5.01 4.98
Cost of borrowings 5.82 5.95 5.80
--------- ------- --------
Cost of funds 5.27 5.33 5.28
--------- ------- --------
Primary spread 2.10% 2.18% 2.09%
========= ======= ========
</TABLE>
<PAGE>
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. Yields on short term and long-term
interest rates drifted modestly downward between yearend 1996 and mid-February
before rising slightly in March. The effects of this interest rate environment
led to a one basis point reduction in the Company's cost of funds and no change
in the yield on earning assets during the first three months of 1997, resulting
in a 1 basis point increase 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 months ended March 31, 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>
<CAPTION>
TABLE 15
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended
March 31
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Interest on loans 81.5% 82.2%
Interest on mortgage-backed securities 10.8 9.4
Interest and dividends on investments 4.9 5.4
-------- --------
97.2 97.0
Less:
Interest on deposits 40.4 40.3
Interest on advances and other borrowings 25.3 25.2
-------- --------
65.7 65.5
Net interest income 31.5 31.5
Provision for loan losses 3.0 2.8
-------- --------
Net interest income after provision for loan losses 28.5 28.7
Add:
Fees 1.5 1.4
Gain on the sale of securities, MBS, and loans 0.2 0.7
Other non-interest income 1.1 0.9
-------- --------
2.8 3.0
Less:
General and administrative expenses 11.4 12.3
Taxes on income 7.9 7.5
-------- -------
Earnings before cumulative effect of change in
accounting for goodwill 12.0 11.9
Cumulative effect of change in accounting for goodwill 0.0 (31.1)
-------- --------
Net earnings (loss) 12.0% (19.2)%
======== ========
</TABLE>
<PAGE>
INTEREST RATE SWAPS AND CAPS
The Company enters into interest rate swaps and, from time to time, 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 $323
thousand for the three months ended March 31, 1997, as compared to a decrease of
$4 million for the same period in 1996.
The following table summarizes the unrealized gains and losses for interest
rate swaps and caps at March 31, 1997 and 1996.
<TABLE>
<CAPTION>
TABLE 16
Schedule of Unrealized Gains and Losses on Interest Rate Swaps and Caps
(Dollars in thousands)
March 31, 1997 March 31, 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 $ 23,351 $ (28,797) $ (5,446) $ 33,070 $ (54,767) $ (21,697)
Interest rate caps -0- -0- -0- 15 -0- 15
----------- ----------- ------------ ----------- ------------ ------------
$ 23,351 $ (28,797) $ (5,446) $ 33,085 $ (54,767) $ (21,682)
=========== =========== ============ =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
TABLE 17
Schedule of Interest Rate Swaps and Caps Activity
(Notional amounts in millions)
Three Months Ended
March 31, 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 (507) (195) -0-
Forward starting becoming effective 10 -0- (10)
----------- ----------- -----------
Balance at March 31, 1997 $ 2,084 $ 1,145 $ -0-
============ =========== ===========
</TABLE>
The range of floating interest rates received on swap contracts in the
first three months of 1997 was 5.47% to 5.92%, and the range of floating
interest rates paid on swap contracts was 4.82% to 5.92%. The range of fixed
interest rates received on swap contracts in the first three 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%.
<PAGE>
INTEREST ON LOANS
In the first quarter of 1997, interest on loans was higher than in the
comparable 1996 period by $24 million or 4.4%. The increase in the first quarter
of 1997 was due to a $2.1 billion increase in the average portfolio balance
which was partially offset by a 21 basis point decrease in the average portfolio
yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the first quarter of 1997, interest on mortgage-backed securities was
higher than in the comparable 1996 period by $13 million or 21.5%. The 1997
increase was due primarily to an $884 million increase in the average portfolio
balance, which was partially offset by a 30 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 first quarter of 1997, interest and dividends on investments was lower than
in the comparable 1996 period by $2 million or 5.4%. The decrease was primarily
due to a $47 million decrease in the average portfolio balance which was
partially offset by a 16 basis point increase in the average portfolio yield.
Also, 1996 benefited from $4 million in interest on a tax refund.
INTEREST ON DEPOSITS
In the first quarter of 1997, interest on deposits increased by $15 million
or 5.6% from the comparable period in 1996. The first quarter increase was due
to a $1.8 billion increase in the average balance of deposits which was
partially offset by a 9 basis point decrease 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 $9 million or 5.5% from the comparable period of 1996. The first
quarter increase was primarily due to a $1.2 billion increase in the average
balance, which was partially offset by a 23 basis point decrease in the average
cost of these borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $20.7 million for the three months ended
March 31, 1997, compared to $18.5 million for the same period in 1996. The
higher provision in 1997 resulted from the increase in the allowance for loan
losses which reflects the increase in non-accrual loans.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
For the first quarter of 1997, general and administrative expenses (G&A)
was $79 million compared to $81 million for the comparable period 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 .83% for the
first quarter of 1997 compared to .93% for the same period 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.
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 39.6% for the first quarter of 1997
compared to 38.5% for the same period 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, 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, 1997, and 1996, and December 31, 1996, see the
cash and investments section on page 12.
<PAGE>
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 March 31, 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 $115 million matures in 1997
and $200 million in 1998), capital contributions to its insured subsidiaries
(including $60 million for the three months ended March 31, 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 March 31, 1997
and 1996, and December 31, 1996, Golden West's total cash and investments
amounted to $978 million (including a $600 million long-term loan to WFSB), $857
million (including a $700 million short-term loan to World), and $913 million
(including a $600 million long-term loan to WFSB), respectively.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) May 1, 1997 - Annual Meeting
<TABLE>
<CAPTION>
Broker
For Against Withheld Abstain Non-Vote
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(b) Directors elected:
Maryellen B. Cattani 50,814,439 114,460
Kenneth T. Rosen 50,802,345 126,554
Herbert M. Sandler 50,800,034 128,865
(c) Approve the adoption of the
Company's Annual Incentive Bonus
Plan 50,362,908 454,834 111,155 2
(d) Ratification of Auditors:
Appointment of Deloitte & Touche
LLP, independent public
accountants, for the fiscal year
1997 50,835,115 15,677 78,107
</TABLE>
Other Directors continuing in office are:
Louis J. Galen, Antonia Hernandez, Patricia A. King, Bernard A. Osher,
Marion O. Sandler and Leslie Tang Schilling
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 - Annual Incentive Bonus Plan
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, 1997 /s/ J. L. Helvey
--------------------------------------
J. L. Helvey
Executive Vice President
(duly authorized and principal
financial officer)
<PAGE>
EXHIBIT 10.1
Golden West Financial Corporation
Annual Incentive Bonus Plan
(Effective January 1, 1997)
Section 1. Establishment and Purpose
1.1 Purpose. Golden West Financial Corporation (the "Company") hereby
establishes the Golden West Financial Corporation Incentive Bonus Plan (the
"Plan"), effective as of January 1, 1997. The Plan is designed to preserve the
deductibility to the Company of certain compensation paid to executive officers
of the Company. Further, the Plan is intended to offer the additional benefit of
having a portion of executive compensation directly linked to the Company's
performance.
1.2 Effective Date. The Plan is effective as of January 1, 1997, subject to
the approval by an affirmative vote, at the 1997 Annual Meeting of Stockholders,
or any adjournment thereof, of the holders of a majority of the outstanding
shares of the common stock of the Company, present in person or by proxy and
entitled to vote at such meeting.
Section 2. Definitions
2.1 Defined Terms. When used in the Plan, the following terms shall have
the meanings specified below: 2.1.1 "Board" means the Company's Board of
Directors.
2.1.2 "Committee" means the Compensation Committee of the Board of
Directors of the Company.
2.1.3 "Earnings Per Share" means the number derived by dividing net
earnings after taxes available to common shareholders for the Plan Year by the
weighted-average number of common shares outstanding (calculated using daily
averages, based on actual days during the year) for the Plan year.
2.1.4 "General and Administrative Expenses to Average Assets" means the
ratio derived by dividing non-interest expense (excluding FDIC insurance
premiums and expenses related to mutual funds) for the Plan Year by average
assets for the Plan Year. For the purposes of this definition, average assets is
computed by adding the beginning balance and each monthend balance during the
year and dividing by 13.
2.1.5 "Maximum Award" means the maximum award pursuant to this Plan to any
individual Participant for any one Plan Year, which shall be $750,000.
2.1.6 "Non-Performing Assets to Total Assets" means the ratio derived by
dividing the sum of real estate acquired through foreclosure plus loans 90 days
or more past due by the total assets of the Company as of the end of the Plan
Year.
2.1.7 "Participant" means as to any Plan Year a key executive of the
Company who is likely to have a significant impact on the performance of the
Company. An employee must be approved as a Participant by the Committee.
2.1.8 "Performance Measures" means one or more of the following: Return on
Average Assets; Return on Average Equity; Earnings Per Share; General and
Administrative Expenses to Average Assets; and Non-Performing Assets to Total
Assets.
2.1.9 "Plan Year" means the 1997 calendar year and each succeeding calendar
year, through 2002.
2.1.10 "Return on Average Assets" means the percentage derived by dividing
the Company's net earnings after taxes for the Plan Year by the average assets
for the Plan Year. For the purposes of this definition, average assets is
computed by adding the beginning balance and each monthend balance during the
Plan Year and dividing by 13.
<PAGE>
2.1.11 "Return on Average Equity" means the percentage derived by dividing
the Company's net earnings after taxes for the Plan Year by the average
stockholders' common equity for the Plan Year. For the purposes of this
definition average stockholders' common equity is calculated by adding the
beginning balance and each monthend balance during the Plan Year and dividing by
13.
2.1.12 "Target Award" means the target incentive opportunity for an
individual, expressed as a dollar amount payable for the attainment of a target
level of performance. The schedule of individual Target Awards shall be
determined by the Committee in accordance with Section 3.1.
Section 3. Awards and Committee Determinations
3.1 Opportunity. The Committee shall approve participation in the Plan and
establish a Target Award for each Participant, based on his or her role and
responsibilities, within the first 90 days of the applicable Plan Year.
3.2 Awards. Payment under this Plan will be based on a payout table adopted
by the Committee (in its sole discretion) in writing within the first 90 days of
the Plan Year. The Committee reserves the right (in its sole discretion) to
modify the table from year to year, provided that such modification is done
within the first 90 days of the applicable Plan Year. The payout table will
provide 100% of a Participant's Target Award if a certain level of performance,
as determined using the Performance Measures, is achieved and greater or lesser
awards for performance that exceeds or is less than, respectively, the level at
which 100% of Target Awards are paid. No participant's award under this Plan may
exceed 1.5 times his or her Target Award, and in no event may a Participant's
award under this Plan exceed the Maximum Award.
3.3 Reduction Prior to Payment. The Committee, in its sole discretion, may
reduce (but not increase) the award for any Participant below the award that
would otherwise be payable in accordance with the Plan.
3.4 Determination. The Committee shall determine, in writing, the level of
performance achieved and the respective percentage of Target Awards earned for
the Plan Year prior to payment of awards.
Section 4. Payment of Awards
4.1 Right to Receive Payment. Any award that may become due under this Plan
shall be made solely from the general assets of the Company, normally on or
before the March 20th next following the end of the Plan Year during which the
award was earned. Nothing in this Plan shall be construed to create a trust or
to establish or evidence any Participant's claim of any right other than as an
unsecured general creditor with respect to any payment to which he or she may be
entitled.
4.1.1 Employment for Plan Year. If a Participant's employment with the
Company continues for the entire Plan Year, the Participant shall be entitled to
receive full payment of the award amount determined under Section 3 for such
Plan Year in accordance with the terms of the Plan.
4.1.2 Resignation, Disability or Death. In the event of the death,
disability or resignation of a Participant during a Plan Year, the Committee (in
its sole discretion) will determine the amount of the partial award (if any) to
be paid to such Participant for such Plan Year. Payments will be made in cash at
the same time as other awards to Participants are made for the same Plan Year.
4.1.3 Discharge. If during a Plan Year, a Participant's employment with the
Company terminates by reason of discharge, then the Participant will not be
eligible for and shall forfeit any award under this Plan for the Plan Year.
4.2 Form of Payment. Awards under this Plan will be made in cash.
4.3 Beneficiaries. Each Participant may designate, in writing and on such
form as the Company may prescribe, one or more beneficiaries to receive any
amount that is payable after the individual's death. In the event of a
Participant's death, any award that is payable to such Participant shall be paid
to his or her beneficiary or, in the event that no beneficiary has been
designated, to his or her estate.
<PAGE>
Section 5. Administration
5.1 Committee. The Plan shall be administered by the Committee.
5.2 Rules and Interpretation. The Committee shall be vested with all
discretion and authority as it deems necessary or appropriate to administer the
Plan and to interpret the provisions of the Plan. Any determination, decision or
action of the Committee in connection with the construction, interpretation,
administration or application of the Plan shall be final, conclusive and binding
upon all persons and shall be given the maximum deference permitted by law.
5.3 Records. The records of the Committee with respect to the Plan shall be
conclusive on all Participants and their beneficiaries and on all other persons.
5.4 Tax Withholding. The Company shall withhold all applicable taxes
required by law from any payment, including any federal, FICA, state and local
taxes.
Section 6. General Provisions
6.1 Nonassignability. Prior to the time of any payment under the Plan, a
Participant shall have no right by way of anticipation or otherwise to assign or
transfer any interest under this Plan.
6.2 Employment Rights/Participation. The establishment and subsequent
operation of the Plan, including eligibility as a Participant, shall not be
construed as conferring any legal or other rights upon any Participant or any
other individual for the continuation of his or her employment for any Plan Year
or any other period. The Company expressly reserves the right, which may be
exercised at any time and without regard to when during a Plan Year or other
accounting period such exercise occurs, to discharge any individual and/or treat
him or her without regard to the effect which such treatment might have upon him
or her as a Participant in this Plan. Being a Participant in any one Plan Year
does not confer any right to be named as a Participant for any succeeding Plan
Year.
6.3 No Individual Liability. No member of the Committee or the Board, or
any officer of the Company, shall be liable for any determination, decision or
action made in good faith with respect to the Plan or any award made under the
Plan.
6.4 Severability; Governing Law. If any particular provision of this Plan
is found to be invalid or unenforceable, such provision shall not affect the
other provisions of the Plan, but the Plan shall be construed in all respects as
if such invalid provision had been omitted. The provisions of the Plan shall be
governed by and construed in accordance with the laws of the State of
California.
6.5 Affiliates of the Company. Requirements referring to employment with
the Company or payment of awards can be performed through the Company or any
affiliate of the Company, as determined by the Committee.
6.6 1997 Plan Year. For Plan Year 1997, all actions that would otherwise be
required to be taken prior to the beginning of a Plan Year shall be taken prior
to April 1, 1997.
Section 7. Amendment and Termination
The Committee may prospectively amend or terminate the Plan at any time and
for any reason.
GOLDEN WEST FINANCIAL CORPORATION
Dated: January 1, 1997 /s/ J. L. Helvey
--------------------------------------------
J. L. Helvey
Executive Vice President
(duly authorized and principal financial
officer)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Earnings (Loss) Per Share
(Dollars in thousands except per share figures)
Three Months Ended
March 31
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Earnings Before Cumulative Effect of
Change in Accounting for Goodwill $ 83,374 $ 78,593
Cumulative Effect of Change in
Accounting for Goodwill -0- (205,242)
------------- -------------
Net Earnings (Loss) $ 83,374 $ (126,649)
============= =============
Average Number of Common Shares Outstanding 57,314,639 58,788,639
============= =============
Earnings Per Share Before Cumulative Effect
of Change in Accounting for Goodwill $ 1.45 $ 1.34
Cumulative Effect of Change in Accounting
for Goodwill 0.00 (3.49)
------------- -------------
Earnings (Loss) Per Common Share $ 1.45 $ (2.15)
============= =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 132,972
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 780,551
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 818,999
<INVESTMENTS-CARRYING> 3,969,251
<INVESTMENTS-MARKET> 3,943,076
<LOANS> 30,698,538
<ALLOWANCE> 209,077
<TOTAL-ASSETS> 38,530,009
<DEPOSITS> 22,943,924
<SHORT-TERM> 4,764,477
<LIABILITIES-OTHER> 741,839
<LONG-TERM> 7,665,877
0
0
<COMMON> 5,722
<OTHER-SE> 2,408,170
<TOTAL-LIABILITIES-AND-EQUITY> 38,530,009
<INTEREST-LOAN> 565,063
<INTEREST-INVEST> 34,283
<INTEREST-OTHER> 74,933
<INTEREST-TOTAL> 674,279
<INTEREST-DEPOSIT> 280,320
<INTEREST-EXPENSE> 455,587
<INTEREST-INCOME-NET> 218,692
<LOAN-LOSSES> 20,695
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 79,170
<INCOME-PRETAX> 138,059
<INCOME-PRE-EXTRAORDINARY> 138,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,374
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 7.37
<LOANS-NON> 389,625
<LOANS-PAST> 0
<LOANS-TROUBLED> 86,931
<LOANS-PROBLEM> 58,243
<ALLOWANCE-OPEN> 195,702
<CHARGE-OFFS> 7,558
<RECOVERIES> 238
<ALLOWANCE-CLOSE> 209,077
<ALLOWANCE-DOMESTIC> 209,077
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
