SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the Quarter Ended June 30, 2000 Commission File Number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
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Delaware 95-2080059
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
----------------------------------------- ---------------
(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, 2000, was 157,981,083 shares.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or Company) for the three and six
months ended June 30, 2000 and 1999 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, 2000, are not necessarily indicative of the results for the full
year.
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
June 30 June 30 December 31
2000 1999 1999
------------ ------------- -------------
(Unaudited)
---------------------------
<S> <C> <C> <C>
Assets:
Cash $ 254,442 $ 240,911 $ 333,793
Securities available for sale at fair value 234,629 380,541 319,444
Other investments at cost 302,252 316,880 467,156
Purchased mortgage-backed securities available for sale 71,113 92,879 79,009
Purchased mortgage-backed securities held to maturity 410,054 476,598 434,711
Mortgage-backed securities with recourse held to maturity 13,651,191 11,433,486 11,147,901
Loans receivable 31,683,917 23,485,887 27,919,817
Interest earned but uncollected 218,351 175,806 175,351
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 783,667 534,443 541,013
Real estate held for sale or investment 12,804 24,294 13,711
Other assets 926,425 591,034 431,806
Premises and equipment--at cost less accumulated depreciation 299,039 274,214 278,493
------------ ------------- -------------
$48,847,884 $38,026,973 $42,142,205
============ ============= =============
Liabilities and Stockholders' Equity:
Deposits $27,726,782 $26,335,706 $27,714,910
Advances from Federal Home Loan Banks 15,231,522 6,111,398 8,915,218
Securities sold under agreements to repurchase 1,160,536 684,938 1,045,176
Accounts payable and accrued expenses 373,852 582,482 183,571
Taxes on income 332,104 333,282 275,526
Subordinated notes--net of discount 713,377 812,438 812,950
Stockholders' equity 3,309,711 3,166,729 3,194,854
------------ ------------- -------------
$48,847,884 $38,026,973 $42,142,205
============ ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $ 595,615 $ 445,358 $ 1,132,702 $ 921,602
Interest on mortgage-backed securities 231,982 189,363 443,299 358,114
Interest and dividends on investments 64,795 50,577 108,945 100,543
------------ ------------ ------------- ------------
892,392 685,298 1,684,946 1,380,259
Interest Expense:
Interest on deposits 358,313 306,067 698,323 613,634
Interest on advances 206,925 82,429 351,415 169,180
Interest on repurchase agreements 21,969 18,743 38,633 32,290
Interest on other borrowings 24,658 29,553 46,417 65,948
------------ ------------ ------------- ------------
611,865 436,792 1,134,788 881,052
------------ ------------ ------------- ------------
Net Interest Income 280,527 248,506 550,158 499,207
Provision for (recovery of) loan losses 3,842 (727) 4,811 (153)
------------ ------------ ------------- ------------
Net Interest Income after Provision
for (Recovery of) Loan Losses 276,685 249,233 545,347 499,360
Noninterest Income:
Fees 18,445 16,762 34,687 32,921
Gain on the sale of securities, MBS, and loans 1,833 8,249 3,271 18,312
Other 19,647 17,537 35,458 26,614
------------ ------------ ------------- ------------
39,925 42,548 73,416 77,847
Noninterest Expense:
General and administrative:
Personnel 58,125 52,418 115,405 104,216
Occupancy 17,549 16,417 34,607 32,704
Deposit insurance 1,442 1,345 2,854 2,738
Advertising 1,488 3,029 3,662 5,208
Other 23,783 22,817 45,819 44,206
------------ ------------ ------------- ------------
102,387 96,026 202,347 189,072
Earnings before Taxes on Income 214,223 195,755 416,416 388,135
Taxes on Income 80,961 73,368 157,220 145,380
------------ ------------ ------------- ------------
Net Earnings $ 133,262 $ 122,387 $ 259,196 $ 242,755
============ ============ ============= ============
Basic Earnings Per Share $ .84 $ .73 $ 1.63 $ 1.44
============ ============ ============= ============
Diluted Earnings Per Share $ .84 $ .72 $ 1.62 $ 1.43
============ ============ ============= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 133,262 $ 122,387 $ 259,196 $ 242,755
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for (recovery of) loan losses 3,842 (727) 4,811 (153)
Amortization of net loan (fees), costs, and (discounts) 1,973 (4,325) 2,944 (10,519)
Depreciation and amortization 7,333 7,029 14,367 13,966
Loans originated for sale (59,709) (316,881) (114,455) (603,945)
Sales of loans 62,787 425,419 135,296 960,763
Decrease (increase) in interest earned but uncollected (24,635) 10,955 (40,270) 33,522
Federal Home Loan Bank stock dividends (17,479) (7,985) (25,259) (28,952)
Increase in other assets (160,140) (121,119) (494,859) (227,363)
Increase in accounts payable and accrued expenses 71,254 35,279 188,609 102,134
Increase (decrease) in taxes on income (3,856) (38,213) 72,175 24,427
Other, net (5,629) (1,330) (7,063) (2,579)
------------ ------------ ------------ -------------
Net cash provided by (used in) operating activities 9,003 110,489 (4,508) 504,056
Cash Flows from Investing Activities:
New loan activity:
New real estate loans originated for portfolio (5,615,895) (2,553,140) (9,327,560) (4,344,056)
Real estate loans purchased (10) (475) (195) (935)
Other, net (67,008) (26,553) (110,354) (37,134)
------------ ------------ ------------ -------------
(5,682,913) (2,580,168) (9,438,109) (4,382,125)
Real estate loan principal payments:
Monthly payments 136,796 143,282 277,249 295,212
Payoffs, net of foreclosures 1,050,072 1,258,866 1,846,865 2,427,824
------------ ------------ ------------ -------------
1,186,868 1,402,148 2,124,114 2,723,036
Repayments of mortgage-backed securities 547,467 795,041 1,032,943 1,545,868
Proceeds from sales of real estate 11,857 27,396 24,668 67,803
Purchases of securities available for sale (1,659,473) (1,315,052) (3,087,492) (1,465,066)
Sales of securities available for sale -0- 10 -0- 19
Matured securities available for sale 1,863,030 1,271,205 3,139,046 1,425,413
Decrease in other investments 786,247 838,116 164,904 105,505
Purchases of Federal Home Loan Bank stock (140,657) -0- (262,920) -0-
Redemption of Federal Home Loan Bank stock 42,795 266,815 42,795 266,815
Additions to premises and equipment (17,613) (9,047) (36,017) (17,444)
------------ ------------ ------------ -------------
Net cash provided by (used in) investing activities (3,062,392) 696,464 (6,296,068) 269,824
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------- ------------ ----------------------------
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Net increase (decrease) in deposits $ (247,470) $ (59,734) $ 11,872 $ 116,611
Additions to Federal Home Loan Bank advances 3,515,420 4,430 7,632,070 1,513,080
Repayments of Federal Home Loan Bank advances (507,972) (7,579) (1,315,767) (1,565,152)
Proceeds from agreements to repurchase securities 2,400,087 4,000,156 3,107,074 4,000,251
Repayments of agreements to repurchase securities (2,106,600) (4,007,842) (2,991,714) (4,567,782)
Decrease in federal funds purchased -0- (475,000) -0- -0-
Repayment of subordinated debt -0- (100,000) (100,000) (100,000)
Dividends on common stock (8,288) (7,833) (16,694) (15,754)
Exercise of stock options 2,494 2,487 3,681 4,554
Purchase and retirement of Company stock (17,507) (112,101) (109,297) (169,652)
------------- ------------ ------------ ------------
Net cash provided by (used in) financing activities 3,030,164 (763,016) 6,221,225 (783,844)
------------- ------------ ------------ ------------
Net Increase (Decrease) in Cash (23,225) 43,937 (79,351) (9,964)
Cash at beginning of period 277,667 196,974 333,793 250,875
------------- ------------ ------------ ------------
Cash at end of period $ 254,442 $ 240,911 $ 254,442 $ 240,911
============= ============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 587,439 $ 443,133 $ 1,074,974 $ 878,526
Income taxes 84,818 111,618 85,165 121,104
Cash received for interest and dividends 875,027 696,253 1,641,946 1,413,781
Noncash investing activities:
Loans converted from adjustable rate to fixed-rate 8,426 299,956 16,447 471,326
Loans transferred to foreclosed real estate 9,382 18,496 21,112 38,568
Loans securitized into MBS
with recourse held to maturity 3,249,414 3,700,579 3,562,114 3,700,579
Loans repurchased from loans securitized into MBS
with recourse held to maturity 33,039 87,312 73,441 160,024
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Six Months Ended June 30, 2000
------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
---------- ----------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $ 16,136 $ 135,555 $2,885,346 $ 157,817 $ 3,194,854
Comprehensive income:
Net earnings -0- -0- 259,196 -0- 259,196 $ 259,196
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (22,029) (22,029) (22,029)
--------------
Comprehensive Income $ 237,167
==============
Common stock issued upon
exercise of stock options,
including tax benefits 26 3,655 -0- -0- 3,681
Purchase and retirement of
Company stock (367) -0- (108,930) -0- (109,297)
Cash dividends on common
stock ($.105 per share) -0- -0- (16,694) -0- (16,694)
---------- ----------- ---------- -------------- -------------
Balance at June 30, 2000 $ 15,795 $ 139,210 $3,018,918 $ 135,788 $ 3,309,711
========== =========== ========== ============== =============
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1999
------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
---------- ----------- ---------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ 5,686 $ 122,159 $2,781,925 $ 214,548 $ 3,124,318
Comprehensive income:
Net earnings -0- -0- 242,755 -0- 242,755 $ 242,755
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (18,742) (18,742) (18,742)
Reclassification adjustment
for gains included in income -0- -0- -0- (750) (750) (750)
--------------
Comprehensive Income $ 223,263
==============
Common stock issued upon
exercise of stock options,
including tax benefits 17 4,537 -0- -0- 4,554
Purchase and retirement of
Company stock (178) -0- (169,474) -0- (169,652)
Cash dividends on common
stock ($.0934 per share) -0- -0- (15,754) -0- (15,754)
---------- ----------- ---------- -------------- -------------
Balance at June 30, 1999 $ 5,525 $ 126,696 $2,839,452 $ 195,056 $ 3,166,729
========== =========== ========== ============== =============
</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, 1999, as well as certain material changes in results of operations during
the three and six month periods ended June 30, 2000 and 1999, respectively.
The following narrative is written with the presumption that the users
have read or have access to the Company's 1999 Annual Report on Form 10-K,
which contains the latest audited financial statements and notes thereto,
together with Management's Discussion and Analysis of Financial Condition and
Results of Operations as of December 31, 1999, and for the year then ended.
Therefore, only material changes in financial condition and results of
operations are discussed herein.
This report contains certain forward-looking statements, which are not
historical facts and pertain to future operating results of the Company. Such
statements are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's
control. In addition, these forward-looking statements are subject to change.
Actual results may differ materially from the results discussed in these
forward-looking statements for the reasons, among others, discussed under the
heading "Asset/Liability Management" in the Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Company's
1999 Annual Report on Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This Statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivative instruments as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, the FASB issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
(SFAS 137) which delayed the effective date of SFAS 133 until fiscal years
beginning after June 15, 2000. The Company has not yet adopted SFAS 133, but if
SFAS 133 had been adopted at June 30, 2000, given the interest rate environment
at that time, it would not have had a significant effect on the Company's
financial statements or financial position.
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
June 30 June 30 December 31
2000 1999 1999
------------- ------------ --------------
<S> <C> <C> <C>
Assets $ 48,847,884 $ 38,026,973 $ 42,142,205
Loans receivable including mortgage-backed securities 45,816,275 35,488,850 39,581,438
Deposits 27,726,782 26,335,706 27,714,910
Stockholders' equity 3,309,711 3,166,729 3,194,854
Stockholders' equity/total assets 6.78% 8.33% 7.58%
Book value per common share $ 20.95 $ 19.10 $ 19.80
Common shares outstanding 157,948,933 165,757,797 161,357,833
Diluted common shares outstanding 159,750,271 167,407,317 162,607,506
Yield on loan portfolio 7.53% 7.06% 7.16%
Yield on mortgage-backed securities 7.49% 7.07% 7.17%
Yield on investments 7.76% 6.45% 5.88%
Yield on earning assets 7.52% 7.06% 7.15%
Cost of deposits 5.11% 4.50% 4.69%
Cost of borrowings 6.43% 5.59% 5.77%
Cost of funds 5.61% 4.75% 5.00%
Yield on earning assets less cost of funds 1.91% 2.31% 2.15%
Ratio of nonperforming assets to total assets .45% .69% .56%
Ratio of troubled debt restructured to total assets .01% .04% .03%
World Savings Bank, a Federal Savings Bank:
Total assets $ 44,856,959 $ 33,277,749 $ 37,835,121
Net worth 2,713,085 2,337,301 2,514,191
Net worth/total assets 6.05% 7.02% 6.65%
Regulatory capital ratios:
Core capital 6.05% 7.01% 6.64%
Risk-based capital 10.98% 12.95% 11.95%
World Savings and Loan Association:
Total assets $ 4,712,828 $ 6,010,867 $ 5,051,847
Net worth 574,462 743,145 540,224
Net worth/total assets 12.19% 12.36% 10.69%
Regulatory capital ratios:
Core capital 9.60% 9.52% 7.86%
Risk-based capital 18.62% 18.60% 15.47%
World Savings Bank, a State Savings Bank:
Total assets $ 4,516,249 $ 3,536,112 $ 3,530,548
Net worth 233,350 194,087 202,846
Net worth/total assets 5.17% 5.49% 5.75%
Regulatory capital ratios:
Tier 1 leverage capital 5.21% 5.41% 5.66%
Total risk-based capital 24.66% 26.21% 26.93%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
New real estate loans originated $ 5,675,604 $ 2,870,021 $ 9,442,015 $ 4,948,001
Fully indexed rate on new real estate loans 8.12% 7.55% 8.04% 7.57%
Current rate on new real estate loans (a) 6.15% 6.06% 6.11% 6.09%
New adjustable rate mortgages as a percentage of
new real estate loans originated 96.47% 87.98% 96.43% 84.68%
Increase (decrease)in deposits(b)(c) $ (247,470) $ (59,734) $ 11,872 $ 116,611
Net earnings 133,262 122,387 259,196 242,755
Basic earnings per share .84 .73 1.63 1.44
Diluted earnings per share .84 .72 1.62 1.43
Cash dividends on common stock .0525 .0467 .105 .0934
Average common shares outstanding 157,999,885 167,665,377 158,979,248 168,698,412
Average diluted common shares outstanding 159,593,955 169,297,215 160,227,370 170,303,505
Ratios:(d)
Net earnings/average net worth (ROE) 16.32% 15.42% 16.00% 15.37%
Net earnings/average assets (ROA) 1.13% 1.28% 1.15% 1.27%
Net interest income/average assets 2.39% 2.59% 2.44% 2.60%
General and administrative expense/average assets .87% 1.00% .90% .99%
Efficiency ratio (e) 31.95% 32.99% 32.45% 32.77%
</TABLE>
(a) The current rate reflects the actual rate being paid by the borrower at
time of origination.
(b) Includes a decrease of $750 million and $600 million of wholesale deposits
for the three and six months ended June 30, 2000, respectively.
(c) Includes the effect of the sale of three branches with a total of $119
million in deposits during the second quarter of 1999.
(d) 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.
(e) The efficiency ratio is calculated by dividing general and administrative
expense by net interest income plus other income.
<PAGE>
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,
2000 and 1999, and December 31, 1999. The reader is referred to page 53 of the
Company's 1999 Annual Report on Form 10-K for similar information for the
years 1996 through 1999 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
June 30
-------------------- December 31
2000 1999 1999
------- ------- -------------
<S> <C> <C> <C>
Assets:
Cash and investments 1.6% 2.5% 2.7%
Loans receivable including mortgage-backed
securities 93.8 93.4 93.9
Other assets 4.6 4.1 3.4
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
Liabilities and Stockholders' Equity:
Deposits 56.8% 69.3% 65.8%
Federal Home Loan Bank advances 31.2 16.1 21.2
Securities sold under agreements to repurchase 2.4 1.8 2.5
Other liabilities 1.4 2.4 1.0
Subordinated debt 1.4 2.1 1.9
Stockholders' equity 6.8 8.3 7.6
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
</TABLE>
As the above table shows, the largest asset component is the loan
portfolio (including mortgage-backed securities), which consists primarily of
long-term mortgages. Deposits represent the majority of the Company's
liabilities. The disparity between the repricing (maturity, prepayment, or
interest rate change) of deposits and borrowings and the repricing of mortgage
loans and investments can have a material impact on the Company's results of
operations. The difference between the repricing characteristics of assets and
liabilities is commonly referred to as "the gap."
<PAGE>
The following gap table shows that, as of June 30, 2000, the Company's
assets reprice sooner than its liabilities. If all repricing assets and
liabilities responded equally to changes in the interest rate environment, then
the gap analysis would suggest that the Company's earnings would rise when
interest rates increase and would fall when interest rates decrease. However,
the Company's earnings are also affected by the built-in reporting and repricing
lags inherent in the Eleventh District Cost of Funds Index (COFI), which is the
benchmark Golden West uses to determine the rate on the majority of its
adjustable rate mortgages (ARMs). The reporting lag occurs because of the time
it takes to gather the data needed to compute the index. As a result, the COFI
in effect in any month actually reflects the Eleventh District's cost of funds
at the level it was two months prior. The repricing lag occurs because COFI is
based on a portfolio of accounts, not all of which reprice immediately.
Therefore, COFI does not initially fully reflect a change in market interest
rates. Consequently, when the interest rate environment changes, the COFI lags
cause assets to reprice more slowly than liabilities, enhancing earnings when
rates are falling and holding down income when rates rise. Additionally, the
Company originates loans that are tied to the Golden West Cost of Savings Index
(COSI). The COSI in effect in the current month reflects the actual Golden West
Cost of Savings at the end of the previous month. Therefore, there is a
one-month reporting lag for these types of loans.
<TABLE>
<CAPTION>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of June 30, 2000
(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 $ 472 $ -0- $ 17 $ 48 $ 537
Mortgage-backed securities 12,753 147 603 629 14,132
Loans receivable:
Rate-sensitive 27,754 2,249 285 -0- 30,288
Fixed-rate 36 86 377 823 1,322
Other(b) 969 -0- -0- -0- 969
Impact of interest rate swaps 395 266 (661) -0- -0-
----------- ----------- ----------- ------------ -----------
Total $ 42,379 $ 2,748 $ 621 $ 1,500 $ 47,248
=========== =========== =========== ============ ===========
Interest-Bearing Liabilities:
Deposits(c) $ 13,287 $ 11,590 $ 2,818 $ 32 $ 27,727
FHLB advances 14,615 200 109 307 15,231
Other borrowings 1,161 115 598 -0- 1,874
Impact of interest rate swaps 193 (23) (170) -0- -0-
----------- ----------- ----------- ------------ -----------
Total $ 29,256 $ 11,882 $ 3,355 $ 339 $ 44,832
=========== =========== =========== ============ ===========
Repricing gap $ 13,123 $ (9,134) $ (2,734) $ 1,161
=========== =========== =========== ============
Cumulative gap $ 13,123 $ 3,989 $ 1,255 $ 2,416
=========== =========== =========== ============
Cumulative gap as a percentage of
total assets 26.9% 8.2% 2.6%
=========== =========== ===========
</TABLE>
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect
scheduled repayments and projected prepayments of principal based on
current rates of prepayment.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Liabilities with no maturity date, such as checking, passbook and money
market deposit accounts, are assigned zero months.
<PAGE>
CASH AND INVESTMENTS
The Office of Thrift Supervision (OTS) requires insured institutions, such
as World Savings Bank, FSB (WFSB) and World Savings and Loan Association (WSL),
to maintain a minimum amount of cash and certain qualifying investments for
liquidity purposes. At June 30, 2000 and 1999 and at December 31, 1999, WFSB and
WSL had liquidity in excess of the regulatory requirements. The state of Texas
also requires insured institutions, such as World Savings Bank, SSB (WSSB), to
maintain a daily minimum amount of cash and certain qualifying investments for
liquidity purposes. WSSB met this requirement during the periods under
discussion.
At June 30, 2000 and 1999 and December 31, 1999, the Company had securities
available for sale in the amount of $235 million, $381 million, and $319
million, respectively, including unrealized gains on securities available for
sale of $223 million, $321 million, and $260 million, respectively. At June 30,
2000 and 1999 and December 31, 1999, the Company had no securities held for
trading in its investment securities portfolio.
Included in the Company's investment portfolio at June 30, 2000 and 1999
and December 31, 1999 were collateralized mortgage obligations (CMOs) in the
amount of $65 million, $166 million, and $115 million, respectively. The Company
holds CMOs on which both principal and interest are received. The Company does
not hold any interest-only or principal-only CMOs. At June 30, 2000, all of
these CMOs qualified for inclusion in the regulatory liquidity measurement.
LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs). MBS
and MBS-REMICs are available to be used as collateral for borrowings. At June
30, 2000 and 1999 and December 31, 1999, the balance of loans receivable
including mortgage-backed securities was $45.8 billion, $35.5 billion, and $39.6
billion, respectively. Included in the $45.8 billion at June 30, 2000 was $5.0
billion of Federal National Mortgage Association (FNMA) mortgage-backed
securities with the underlying loans subject to full credit recourse to the
Company, $8.6 billion of MBS-REMICs, and $481 million of purchased MBS. Included
in the $39.6 billion at December 31, 1999 was $3.9 billion of FNMA MBS with the
underlying loans subject to full credit recourse to the Company, $7.2 billion of
MBS-REMICs, and $514 million of purchased MBS. Included in the $35.5 billion at
June 30, 1999, was $3.3 billion of FNMA MBS with the underlying loans subject to
full credit recourse to the Company, $8.1 billion of MBS-REMICs, and $569
million of purchased MBS.
<PAGE>
MORTGAGE-BACKED SECURITIES
At June 30, 2000 and 1999 and December 31, 1999, the Company had MBS
held to maturity in the amount of $14.1 billion, $11.9 billion, and $11.6
billion, respectively. The increase in MBS from June 30, 1999 to June 30, 2000
was due to the securitization of $1.1 billion of adjustable rate mortgages
(ARMs) into FNMA MBS during the fourth quarter of 1999, the securitization of
$1.5 billion of ARMs into FNMA MBS during the first six months of 2000, and the
securitization of $2.0 billion of ARMs into MBS-REMICs during the second quarter
of 2000. The FNMA MBS and the MBS-REMICs are available to be used as collateral
for borrowings. The Company has the ability and intent to hold these MBS until
maturity and, accordingly, these MBS are classified as held to maturity.
At June 30, 2000 and 1999 and December 31, 1999, the Company had MBS
available for sale in the amount of $71 million, $93 million, and $79 million,
respectively, including unrealized gains on MBS available for sale of $1
million, $2 million, and $1 million, respectively. At June 30, 2000 and 1999 and
December 31, 1999, the Company had no trading MBS.
Repayments of MBS during the second quarter and first six months of
2000 were $547 million and $1.0 billion, respectively, compared to $795 million
and $1.5 billion during the same periods of 1999. MBS repayments were lower
during the first six months of 2000 as compared to the first six months of 1999
due to a decrease in the prepayment rate.
LOAN VOLUME
New loan originations for the three and six months ended June 30, 2000,
amounted to $5.7 billion and $9.4 billion, respectively, compared to $2.9
billion and $4.9 billion for the same periods in 1999. The record high volume of
originations during 2000 was due to continued strong demand for adjustable rate
loans, the Company's primary product. Refinanced loans constituted 31% and 34%
of new loan originations for the three and six months ended June 30, 2000,
compared to 43% and 46% for the three and six months ended June 30, 1999.
Loans originated for sale amounted to $60 million and $114 million for
the three and six months ended June 30, 2000, compared to $317 million and $604
million for the same periods in 1999. The reduction in loans originated for sale
in 2000 as compared to 1999 was attributable to the decrease in fixed-rate
originations due to higher rates being charged on fixed-rate loans. During the
second quarter and first six months of 2000, $8 million and $16 million of loans
were converted at the customer's request from adjustable rate to fixed-rate
compared to $300 million and $471 million for the same periods in 1999. The
Company continues to sell most of its new fixed-rate loans and for the three and
six months ended June 30, 2000 the Company sold $63 million and $135 million of
fixed-rate loans, respectively, compared to $425 million and $961 million for
the same periods of 1999.
<PAGE>
At June 30, 2000, the Company had lending operations in 30 states. The
largest source of mortgage origination is loans secured by residential
properties in California. For the three and six months ended June 30, 2000, 60%
and 61% of total loan originations were on residential properties in California
compared to 65% and 64% for the same periods in 1999. The five largest states,
other than California, for originations for the six months ended June 30, 2000
were Florida, Texas, New Jersey, Washington, and Colorado with a combined total
of 20% of total originations. The percentage of the total loan portfolio
(including MBS with recourse and MBS-REMICs) that is comprised of residential
loans in California was 63% at June 30, 2000 compared to 65% and 64% at June 30,
1999 and December 31, 1999.
Golden West originates adjustable rate mortgages tied to various
indexes, principally the Eleventh District Cost of Funds Index (COFI), the
Golden West Cost of Savings Index (COSI), and the twelve-month rolling average
of the One-Year Treasury Constant Maturity (TCM).
The following table shows the distribution of ARM originations by index
for the second quarter and first six months of 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 3
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
ARM Index 2000 1999 2000 1999
-------------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
COFI $ 1,758,896 $ 761,557 $ 2,866,783 $ 1,310,190
COSI 3,507,389 1,730,440 5,836,576 2,807,828
TCM 209,148 33,091 401,559 71,741
------------ ------------- ------------ ------------
$ 5,475,433 $ 2,525,088 $ 9,104,918 $ 4,189,759
============ ============= ============ ============
</TABLE>
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at June 30, 2000 and 1999 and December 31, 1999.
<TABLE>
<CAPTION>
TABLE 4
Adjustable Rate Mortgage Portfolio by
Index (Including ARM MBS with recourse and
ARM MBS-REMICs)
(Dollars in thousands)
June 30
-------------------------------- December 31
ARM Index 2000 1999 1999
-------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
COFI $ 26,874,901 $26,986,275 $ 26,217,670
COSI 14,428,092 4,343,877 9,182,829
TCM 1,538,953 1,210,583 1,266,541
Other 149,656 165,118 152,470
-------------- --------------- ---------------
$ 42,991,602 $32,705,853 $ 36,819,510
============== =============== ===============
</TABLE>
<PAGE>
The Company generally lends up to 80% of the appraised value of
residential real property. In some cases, a higher amount is possible through a
first mortgage loan or a combination of a first and a second mortgage loan on
the same property. During the first six months of 2000, 20% of loans originated
exceeded 80% of the appraised value of the secured property, including $213
million of firsts and $1.7 billion of combined firsts and seconds.
The Company takes steps to minimize the potential credit risk with
respect to loans with a loan to value (LTV) over 80%. Among other things, the
loan amount may not exceed 95% of the appraised value of a single-family
residence. Also, some first mortgage loans with an LTV over 80% carry mortgage
insurance which reimburses the Company for losses up to a specified percentage
per loan, thereby reducing the effective LTV to below 80%. Furthermore, the
Company sells without recourse a significant portion of its second mortgage
originations. In addition, the Company carries pool mortgage insurance on most
seconds not sold, such that the cumulative losses covered by this pool mortgage
insurance are limited to 10% of the original balance of the insured pool.
The following table shows mortgage originations with LTV ratios or
combined LTV ratios greater than 80% for the three months ended June 30, 2000
and 1999.
<TABLE>
<CAPTION>
TABLE 5
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
For the Three Months Ended For the Six Months Ended
June 30 June 30
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 28,113 $ 23,086 $ 46,050 $ 46,257
With no insurance 100,725 48,197 166,623 87,296
------------ ------------ ------------- ------------
128,838 71,283 212,673 133,553
------------ ------------ ------------- ------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 765,892 36,980 1,197,229 36,980
With no insurance 282,261 411,538 504,165 588,061
------------ ------------ ------------- ------------
1,048,153 448,518 1,701,394 625,041
------------ ------------ ------------- ------------
Total $ 1,176,991 $ 519,801 $ 1,914,067 $ 758,594
============ ============ ============= ============
</TABLE>
<PAGE>
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 6
Balance of Mortgages With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
As of June 30
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 371,260 $ 425,890
With no insurance 892,275 841,922
-------------- --------------
1,263,535 1,267,812
-------------- --------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 1,787,737 36,947
With no insurance 488,469 163,299
-------------- --------------
2,276,206 200,246
-------------- --------------
Total $ 3,539,741 $ 1,468,058
============== ==============
</TABLE>
The tables on the following two pages show the Company's loan portfolio
by state at June 30, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
Loan Portfolio by State
June 30, 2000
(Dollars in thousands)
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 $25,362,479 $3,395,439 $ 174 $ 25,248 $28,783,340 63.35%
Florida 2,176,946 14,753 -0- 415 2,192,114 4.82
Texas 1,842,343 54,591 307 1,136 1,898,377 4.18
New Jersey 1,623,540 -0- -0- 2,983 1,626,523 3.58
Illinois 1,376,204 119,021 -0- -0- 1,495,225 3.29
Washington 899,414 526,412 -0- -0- 1,425,826 3.14
Colorado 1,162,879 182,164 -0- 5,102 1,350,145 2.97
Arizona 974,528 18,236 -0- -0- 992,764 2.18
Pennsylvania 917,792 3,105 -0- 2,453 923,350 2.03
Other (b) 4,706,240 42,137 46 5,139 4,753,562 10.46
------------ ----------- ---------- ------------- ------------ ---------
Totals $41,042,365 $4,355,858 $ 527 $ 42,476 45,441,226 100.00%
============ =========== ========== ============= =========
SFAS 91 deferred loan costs 117,551
Loan discount on purchased loans (1,728)
Undisbursed loan funds (6,891)
Allowance for loan losses (234,834)
Loans to facilitate (LTF) interest reserve (258)
Troubled debt restructured (TDR) interest reserve (496)
Loans on deposits 20,538
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 45,335,108
Loans securitized into FNMA MBS with recourse and MBS-REMICs (13,651,191)(c)
------------
Total loans receivable $31,683,917
============
</TABLE>
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the June 30, 2000 balances of loans that were
securitized and retained as FNMA MBS with recourse and MBS-REMICs.
<PAGE>
<TABLE>
<CAPTION>
TABLE 8
Loan Portfolio by State
June 30, 1999
(Dollars in thousands)
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 $19,585,296 $3,306,202 $ 200 $ 34,185 $22,925,883 65.30%
Florida 1,515,516 16,661 1 508 1,532,686 4.37
Texas 1,404,240 61,801 482 1,288 1,467,811 4.18
New Jersey 1,181,787 -0- -0- 4,150 1,185,937 3.38
Illinois 1,110,849 132,960 -0- -0- 1,243,809 3.54
Washington 578,534 447,979 -0- 670 1,027,183 2.93
Colorado 895,407 175,984 -0- 5,457 1,076,848 3.07
Arizona 754,233 22,462 -0- -0- 776,695 2.21
Pennsylvania 656,849 4,125 -0- 2,775 663,749 1.89
Other (b) 3,158,073 41,450 59 8,445 3,208,027 9.13
------------ ----------- ---------- ------------- ------------ ---------
Totals $30,840,784 $4,209,624 $ 742 $ 57,478 35,108,628 100.00%
============ =========== ========== ============= =========
SFAS 91 net deferred loan costs 28,432
Loan discount on purchased loans (2,199)
Undisbursed loan funds (3,803)
Allowance for loan losses (233,471)
Loans to facilitate interest reserve (356)
Troubled debt restructured interest reserve (1,414)
Loans on deposits 23,556
------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMIC 34,919,373
Loans securitized into FNMA MBS with recourse and MBS-REMIC (11,433,486)(c)
------------
Total loans receivable $23,485,887
============
</TABLE>
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the June 30, 1999 balances of loans that were
securitized and retained as FNMA MBS with recourse and MBS-REMIC.
<PAGE>
The Company continues to emphasize ARM loans with interest rates that
change monthly in accordance with movements in specified indexes. The portion of
the mortgage portfolio (including MBS and MBS-REMICs) composed of rate-sensitive
loans was 94% at June 30, 2000, compared to 92% at June 30, 1999 and 93% at
December 31, 1999. The Company's ARM originations for the first half of 2000
constituted 96% of new mortgage loans made in 2000 compared to 85% for the first
half of 1999.
The weighted average maximum lifetime cap rate on the Company's ARM
loan portfolio (including ARMs swapped into MBS with recourse and MBS-REMICs)
was 12.35%, or 4.81% above the actual weighted average rate at June 30, 2000,
versus 12.54%, or 5.55% above the weighted average rate at June 30, 1999.
Approximately $5.0 billion of the Company's ARM loans (including MBS
with recourse and MBS-REMICs) have terms that state that the interest rate may
not fall below a lifetime floor set at the time of origination or assumption. As
of June 30, 2000, $339 million of ARM loans had reached their rate floors. The
weighted average floor rate on the loans that had reached their floor was 7.76%
at June 30, 2000 compared to 7.62% at June 30, 1999. Without the floor, the
average rate on these loans would have been 7.30% at June 30, 2000 and 7.11% at
June 30, 1999.
Loan repayments consist of monthly loan amortization and loan payoffs.
For the three and six months ended June 30, 2000, loan repayments were $1.2
billion and $2.1 billion, respectively, compared to $1.4 billion and $2.7
billion in the same periods of 1999. The decrease in loan repayments was
primarily due to a decrease in loan payoffs in the first six months of 2000.
MORTGAGE SERVICING RIGHTS
Capitalized mortgage servicing rights are included in "Other assets" on
the Consolidated Statement of Financial Condition. The following table shows the
changes in capitalized mortgage servicing rights for the three and six months
ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 9
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Beginning balance of capitalized mortgage servicing rights $ 35,096 $ 35,250 $ 37,295 $ 28,635
New capitalized mortgage servicing rights from loan sales 663 7,491 1,485 16,459
Amortization of capitalized mortgage servicing rights (3,064) (2,881) (6,085) (5,234)
----------- ----------- ----------- -----------
Ending balance of capitalized mortgage servicing rights $ 32,695 $ 39,860 $ 32,695 $ 39,860
=========== =========== =========== ===========
</TABLE>
The book value of Golden West's servicing rights did not exceed the
fair value at June 30, 2000 or 1999 and, therefore, no write-down of the
servicing rights to their fair value was necessary.
<PAGE>
ASSET QUALITY
One measure of the soundness of the Company's loan and MBS portfolio is
its ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets
include non-accrual loans (loans, including loans swapped into MBS with recourse
and loans securitized into MBS-REMICs, that are 90 days or more past due) and
real estate acquired through foreclosure. No interest is recognized on
non-accrual loans. The Company's troubled debt restructured (TDRs) are made up
of loans on which delinquent payments have been capitalized or on which
temporary interest rate reductions have been made, primarily to customers
adversely impacted by economic conditions.
The following table shows the components of the Company's NPAs and TDRs
and the various ratios to total assets.
<TABLE>
<CAPTION>
TABLE 10
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
June 30
-------------------------- December 31
2000 1999 1999
----------- ----------- --------------
<S> <C> <C> <C>
Non-accrual loans $ 210,127 $ 239,937 $ 225,409
Real estate acquired through foreclosure 9,156 20,805 10,840
Real estate in judgment 452 439 69
----------- ----------- ------------
Total nonperforming assets $ 219,735 $ 261,181 $ 236,318
=========== =========== ============
TDRs $ 4,053 $ 15,896 $ 10,542
=========== =========== ============
Ratio of NPAs to total assets .45% .69% .56%
=========== =========== ============
Ratio of TDRs to total assets .01% .04% .03%
=========== =========== ============
Ratio of NPAs and TDRs to total assets .46% .73% .59%
=========== =========== ============
</TABLE>
The lower NPAs at June 30, 2000 as compared to June 30, 1999 reflect
the strong economy and housing market. The Company closely monitors all
delinquencies and takes appropriate steps to protect its interests. Interest
foregone on non-accrual loans amounted to $1 million and $2 million in the
second quarter and first six months of 2000 compared to $1 million and $3
million for the same periods in 1999. Interest foregone on TDRs amounted to $46
thousand and $112 thousand for the three and six months ended June 30, 2000,
compared to $108 thousand and $243 thousand for the three and six months ended
June 30, 1999.
The tables on the following page show the Company's nonperforming
assets by state as of June 30, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE 11
Nonperforming Assets by State
June 30, 2000
(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 $114,337 $ 528 $ 668 $ 4,548 $ -0- $ -0- $120,081 .42%
Florida 16,757 -0- 178 78 -0- -0- 17,013 .78
Texas 8,759 -0- -0- 670 -0- -0- 9,429 .50
New Jersey 13,516 -0- 383 689 -0- 284 14,872 .91
Illinois 10,938 215 -0- 470 -0- -0- 11,623 .78
Washington 2,887 -0- -0- 118 -0- -0- 3,005 .21
Colorado 2,129 -0- -0- 196 -0- -0- 2,325 .17
Arizona 4,575 -0- -0- -0- -0- -0- 4,575 .46
Pennsylvania 9,682 -0- -0- 1,044 -0- -0- 10,726 1.16
Other (c) 24,491 84 -0- 1,256 -0- 508 26,339 .55
--------- --------- ----------- -------- --------- --------- ---------- -----
Totals $208,071 $ 827 $ 1,229 $ 9,069 $ -0- $ 792 219,988 .48%
========= ========= =========== ======== ========= =========
REO general valuation allowance (253) (.00)
---------- -----
Total nonperforming assets $219,735 .48%
========== =====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The June 30, 2000 balances include loans that were securitized into FNMA
MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
<TABLE>
<CAPTION>
TABLE 12
Nonperforming Assets by State
June 30, 1999
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
---------------------------------- ---------------------------------
Residential Commercial Commercial NPAs as
Real Estate Real Residential Real Total a% of
State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans
------------------ --------- --------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $148,755 $ 2,958 $ 1,787 $16,191 $ 931 $ 129 $170,751 .74%
Florida 14,346 -0- 29 755 -0- -0- 15,130 .99
Texas 7,850 -0- -0- 393 -0- -0- 8,243 .56
New Jersey 15,784 -0- 371 156 -0- -0- 16,311 1.38
Illinois 11,069 216 -0- 667 -0- -0- 11,952 .96
Washington 1,792 -0- -0- 29 -0- -0- 1,821 .18
Colorado 2,249 -0- 3 372 -0- -0- 2,624 .24
Arizona 4,323 -0- -0- 84 -0- -0- 4,407 .57
Pennsylvania 8,155 -0- -0- 267 -0- -0- 8,422 1.27
Other (c) 17,256 997 1,997 1,776 -0- -0- 22,026 .69
--------- --------- --------- -------- --------- --------- --------- -----
Totals $231,579 $ 4,171 $ 4,187 $20,690 $ 931 $ 129 261,687 .75%
========= ========= ========= ======== ========= =========
REO general valuation allowance (506) (.00)
--------- -----
Total nonperforming assets $261,181 .75%
========= =====
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The June 30, 1999 balances include loans that were securitized into FNMA
MBS and MBS-REMIC.
(c) Includes states with loans less than 2% of total loans.
<PAGE>
The Company provides specific valuation allowances for losses on loans when
impaired, and on real estate owned when any significant and permanent decline in
value is identified. The Company also utilizes a methodology for monitoring and
estimating loan losses and recourse obligations 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 additions or reductions to the allowance needed 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 the security property, payment of delinquent taxes, cost of
disposal, and cost of holding the property. Additions to and reductions from the
allowances are reflected in current earnings.
The table below shows the changes in the allowance for loan losses for
the three and six months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 13
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ -----------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning allowance for loan losses $ 233,016 $ 236,476 $ 232,134 $ 244,466
Provision for (recovery of) losses charged to expense 3,842 (727) 4,811 (153)
Net transfer of allowance (to) from reserve for losses
on loans sold or securitized and retained (1,859) (2,385) (1,672) (12,135)
Less loans charged off (269) (225) (620) -0-
Add recoveries 104 332 181 1,293
----------- ---------- ---------- ----------
Ending allowance for loan losses $ 234,834 $ 233,471 $ 234,834 $ 233,471
=========== ========== ========== ==========
Ratio of net chargeoffs (recoveries) to average loans
outstanding (including MBS with recourse) .00% .00% .00% (.01%)
=========== ========== ========== ==========
</TABLE>
As previously mentioned, the Company has securitized loans from its
portfolio into FNMA MBS with recourse and MBS-REMICs. The Company's intent is to
hold these MBS and MBS-REMICs to maturity. Because the loans underlying the MBS
and MBS-REMICs are similar to the loans in its loan portfolio, the Company
estimates its reserve on these securities in a manner similar to the method it
uses for the allowance for loan losses. The Company also sells loans with full
credit recourse and has established a reserve for potential losses on these
loans. The liability for this reserve for losses on loans sold or securitized
and retained is included in accounts payable and accrued expenses.
<PAGE>
The table below shows the changes in the reserve for losses on loans
sold or securitized and retained for the three and six months ended June 30,
2000 and 1999.
<TABLE>
<CAPTION>
TABLE 14
Changes in Reserve for Losses on Loans Sold with Recourse or Securitized and Retained
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ -----------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning balance of reserve for losses on loans
sold with recourse or securitized and retained $ 15,438 $ 12,549 $ 15,572 $ 2,256
Initial recourse liability recognized at time of sale 34 463 87 1,006
Net transfer from (to) allowance for loan losses 1,859 2,385 1,672 12,135
----------- ---------- ---------- ----------
Ending balance of reserve for losses on loans
sold with recourse or securitized and retained $ 17,331 $ 15,397 $ 17,331 $ 15,397
=========== ========== ========== ==========
</TABLE>
The ratio to nonperforming assets of the allowance for loan losses and
the reserve for losses on loans sold or securitized and retained was 114.8%
and 95.3% at June 30, 2000 and 1999, respectively. At June 30, 2000 and 1999,
the ratio to total loans (including MBS with recourse and MBS-REMICs) and
loans sold with recourse of the allowance for loan losses and the reserve for
losses on loans sold or securitized and retained was .53% and .67%,
respectively.
DEPOSITS
Retail deposits increased during the second quarter of 2000 by $503
million, including interest credited of $301 million, compared to a decrease of
$60 million, including interest credited of $265 million, in the second quarter
of 1999. Retail deposits increased during the first half of 2000 by $612
million, including interest credited of $568 million, compared to an increase of
$117 million, including interest credited of $510 million, in the first half of
1999. During the second quarter of 1999, the Company sold three branches with a
total of $119 million in deposits. Retail deposits increased during the first
half of 2000 and 1999 primarily due to interest credited. At June 30, 2000 and
1999, transaction accounts (which includes checking, passbook, and money market
accounts) represented 31% and 39%, respectively, of the total balance of
deposits.
The Company has a program to use government securities dealers to sell
certificates of deposit (CDs) to institutional investors (wholesale CDs). The
Company's deposit balance as of December 31, 1999 included $600 million of these
wholesale CDs. There were no outstanding wholesale CDs at June 30, 2000 or at
June 30, 1999.
<PAGE>
The table below shows the Company's deposits by interest rate and by
remaining maturity at June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 15
Deposits
(Dollars in millions)
June 30
---------------------------------------------------
2000 1999
------------------------ ------------------------
Rate* Amount Rate* Amount
--------- ----------- ------------------------
<S> <C> <C> <C> <C>
Deposits by rate:
Interest-bearing checking accounts 2.93% $ 116 3.42% $ 109
Interest-bearing checking accounts swept
into money market deposit accounts 3.45 3,157 3.52 3,106
Passbook accounts 1.48 469 1.82 507
Money market deposit accounts 4.27 4,739 4.39 6,540
Term certificate accounts with original maturities of:
4 weeks to 1 year 5.75 9,129 4.40 5,270
1 to 2 years 5.64 6,922 4.94 7,572
2 to 3 years 5.52 1,400 5.27 1,379
3 to 4 years 5.60 431 5.21 330
4 years and over 5.90 655 5.72 950
Retail jumbo CDs 5.56 709 4.70 573
Wholesale CDs 0.00 -0- 0.00 -0-
----------- ------------
$ 27,727 $ 26,336
=========== ============
2000 1999
----------- ------------
Deposits by remaining maturity:
No contractual maturity 3.79% $ 8,481 3.99% $ 10,262
Maturity within one year 5.64 16,396 4.83 14,645
1 to 5 years 6.00 2,818 5.13 1,412
Over 5 years 5.24 32 4.82 17
----------- ------------
$ 27,727 $ 26,336
=========== ============
</TABLE>
* Weighted average interest rate, including the impact of interest rate swaps.
At June 30, the weighted average cost of deposits was 5.11% (2000) and
4.50% (1999).
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses borrowings from FHLBs, also known as "advances," to
supplement cash flow and to provide funds for loan origination activities.
Advances are secured by pledges of certain loans, MBS-REMICs, other MBS, and
capital stock of FHLBs. FHLB advances amounted to $15.2 billion at June 30,
2000, compared to $6.1 billion and $8.9 billion at June 30, 1999, and December
31, 1999, respectively.
<PAGE>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). Reverse Repos are entered
into with selected major government securities dealers and large banks,
typically using MBS from the Company's portfolio. Reverse Repos with dealers and
banks amounted to $1.2 billion, $685 million, and $1.0 billion at June 30, 2000
and 1999, and December 31, 1999, respectively.
OTHER BORROWINGS
At June 30, 2000, Golden West, at the holding company level, had a
total of $713 million of subordinated debt issued and outstanding. As of June
30, 2000, the Company's subordinated debt securities were rated A3 and A- by
Moody's Investors Service (Moody's) and Standard & Poor's (S&P), respectively.
During November 1996, WFSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of June 30, 2000, WFSB had not issued any notes
under this authority.
During July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of preferred stock and debt securities. The Company has not issued any
securities under this registration statement.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased by $115 million during the
first six months of 2000 as a result of net earnings partially offset by
decreased market values of securities available for sale, the payment of
quarterly dividends to stockholders, and the $109 million cost of the repurchase
of Company stock. The Company's stockholders' equity increased during the first
six months of 1999 by $42 million as a result of net earnings partially offset
by decreased market values of securities available for sale, the payment of
quarterly dividends to stockholders, and the $170 million cost of the repurchase
of Company stock. Unrealized gains, net of taxes, on securities and MBS
available for sale included in stockholders' equity at June 30, 2000 and 1999,
and December 31, 1999, were $136 million, $195 million, and $158 million,
respectively.
In 1999, the Company effected a three-for-one split of its outstanding
Common Stock in the form of a 200% stock dividend. This dividend was payable
December 10, 1999, to holders of record at the close of business on November 15,
1999. Per share amounts in this 10-Q filing have been restated to reflect this
stock dividend unless otherwise noted.
Since 1993, through four separate actions, Golden West's Board of
Directors has authorized the purchase by the Company of up to 44.7 million
shares of Golden West's common stock. As of June 30, 2000, 42.9 million shares
had been repurchased and retired at a cost of $915 million since October 1993,
of which 3.7 million shares were purchased and retired at a cost of $109 million
during the first six months of 2000. Dividends from subsidiaries are expected to
continue to be the major source of funding for the stock repurchase program. The
purchase of Golden West stock is not intended to have a material impact on the
normal liquidity of the Company.
<PAGE>
REGULATORY CAPITAL
The OTS requires federally insured institutions, such as WFSB and WSL,
to meet certain minimum capital requirements. The following table shows WFSB's
regulatory capital ratios and compares them to the OTS minimum requirements at
June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 16
World Savings Bank, FSB
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 2000 June 30, 1999
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ---------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $2,713,085 6.05% $ 672,890 1.50% $2,336,862 7.01% $ 499,791 1.50%
Core 2,713,085 6.05 1,794,373 4.00 2,336,862 7.01 1,332,775 4.00
Risk-based 2,877,950 10.98 2,097,301 8.00 2,483,193 12.95 1,533,886 8.00
</TABLE>
The following table shows WSL's current regulatory capital ratios and
compares them to the OTS minimum requirements at June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 17
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 2000 June 30, 1999
------------------------------------------------ ------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ---------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $ 439,198 9.60% $ 68,626 1.50% $ 548,213 9.52% $ 86,344 1.50%
Core 439,198 9.60 183,003 4.00 548,213 9.52 230,252 4.00
Risk-based 467,648 18.62 200,954 8.00 584,207 18.60 251,217 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 WFSB nor WSL
has above-normal exposure to interest rate risk.
The OTS has adopted rules based upon five capital tiers:
well-capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. The determination of whether
an association falls into a certain classification depends primarily on its
capital ratios. As of June 30, 2000, the most recent notification from the OTS
categorized both WFSB and WSL as "well-capitalized" under the current
requirements. There are no conditions or events that have occurred since that
notification that the Company believes would have an impact on the
categorization of either WFSB or WSL.
<PAGE>
The table below shows that WFSB's regulatory capital exceeded the
requirements of the well-capitalized classification at June 30, 2000.
<TABLE>
<CAPTION>
TABLE 18
World Savings Bank, FSB
Regulatory Capital Compared to Well-Capitalized Classification
(Dollars in thousands)
ACTUAL WELL-CAPITALIZED
------------------------ --------------------------
Capital Ratio Capital Ratio
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Leverage $ 2,713,085 6.05% $ 2,242,967 5.00%
Tier 1 risk-based 2,713,085 10.35 1,572,975 6.00
Total risk-based 2,877,950 10.98 2,621,626 10.00
</TABLE>
The table below shows that WSL's regulatory capital exceeded the
requirements of the well-capitalized classification at June 30, 2000.
<TABLE>
<CAPTION>
TABLE 19
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 $ 439,198 9.60% $ 228,754 5.00%
Tier 1 risk-based 439,198 17.48 150,715 6.00
Total risk-based 467,648 18.62 251,192 10.00
</TABLE>
World Savings Bank, SSB is regulated by the FDIC and the state of
Texas. At June 30, WSSB had the following regulatory capital calculated in
accordance with the FDIC's capital standards:
<TABLE>
<CAPTION>
TABLE 20
World Savings Bank, SSB
Regulatory Capital Ratios
(Dollars in thousands)
June 30, 2000 June 30, 1999
----------------------------------------------- ----------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
---------------------- ---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- -------- ----------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 leverage $ 233,350 5.21% $ 134,278 3.00% $ 194,087 5.41% $ 107,577 3.00%
Tier 1 risk-based 233,350 24.64 37,887 4.00 194,087 26.19 29,648 4.00
Total risk-based 233,553 24.66 75,774 8.00 194,301 26.21 59,296 8.00
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings for the three months ended June 30, 2000 were $133 million
compared to net earnings of $122 million for the three months ended June 30,
1999. Net earnings for the six months ended June 30, 2000 were $259 million
compared to net earnings of $243 million for the six months ended June 30, 1999.
Net earnings increased for the first six months of 2000 as compared to the same
period in 1999 as a result of increased net interest income which was partially
offset by an increase in general and administrative expenses.
SPREAD
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,
2000 and 1999 and December 31, 1999.
<TABLE>
<CAPTION>
TABLE 21
Yield on Earning Assets,
Cost of Funds, and Primary Spread
June 30
---------------------------- December 31
2000 1999 1999
------------ ------------ -------------
<S> <C> <C> <C>
Yield on loan portfolio 7.53% 7.06% 7.16%
Yield on MBS 7.49 7.07 7.17
Yield on investments 7.76 6.45 5.88
--------- --------- ---------
Yield on earning assets 7.52 7.06 7.15
--------- --------- ---------
Cost of deposits 5.11 4.50 4.69
Cost of borrowings 6.43 5.59 5.77
--------- --------- ---------
Cost of funds 5.61 4.75 5.00
--------- --------- ---------
Primary spread 1.91% 2.31% 2.15%
========= ========= =========
</TABLE>
The Company holds ARMs in order to manage the rate sensitivity of the
asset side of the balance sheet. The yield on the Company's ARM portfolio tends
to lag changes in market interest rates because of lags related to the index and
because of certain loan features. These features include introductory fixed
rates on new ARM loans, the interest rate adjustment frequency of ARM loans,
interest rate caps or limits on individual rate changes, and interest rate
floors. 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).
Additionally, the Company originates loans that are tied to the Golden West Cost
of Savings Index (COSI). As previously discussed, there is a two month reporting
lag for COFI and a one month reporting lag for COSI. On balance, the index lags
and ARM structural features cause the Company's assets to reprice more slowly
than its liabilities, resulting in a temporary reduction in net interest income
when rates increase and a temporary increase in net interest income when rates
fall.
<PAGE>
<TABLE>
<CAPTION>
TABLE 22
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------------------------- -------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances Yield Yield Balances Yield Yield
---------- ---------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment Securities $ 2,956,673 6.49% 7.76% $ 3,278,465 5.19% 6.45%
Mortgage-backed securities 12,496,770 7.43% 7.49% 10,938,702 6.93% 7.07%
Loans receivable (a) 31,493,046 7.57% 7.53% 24,633,968 7.23% . 7.06%
Invest. in capital stock 703,810 9.55% 6.29% 597,545 5.38% 5.24%
of FHLBs
---------- ---------- ----------- ---------
Interest-earning assets $47,650,299 7.49% $39,448,680 6.95%
========== ========== =========== =========
LIABILITIES
Deposits:
Checking accounts $ 131,306 2.34% 2.93% $ 108,477 2.15% 3.42%
Savings accounts 8,869,768 3.78% 3.80% 10,030,827 3.85% 3.99%
Term accounts 19,744,895 5.55% 5.69% 16,977,162 4.92% 4.83%
---------- ---------- ------- ----------- --------- -------
Total deposits 28,745,969 4.98% 5.11% 27,116,466 4.51% 4.50%
Advances from FHLBs 13,535,342 6.12% 6.40% 6,112,877 5.39% 5.36%
Reverse repurchases 1,458,960 6.02% 6.16% 1,497,923 5.01% 5.15%
Other borrowings 1,389,851 7.10% 7.69% 1,963,444 6.02% 7.63%
---------- ---------- ----------- ---------
Interest-bearing liabilities $45,130,122 5.42% $36,690,710 4.76%
========== ========== =========== =========
Annualized net interest spread 2.07% 2.19%
========== =========
Net interest income $ 280,527 $ 248,506
========== ===========
Annualized net yield on
average interest-earning assets 2.35% 2.52%
========== =========
</TABLE>
(a) Includes nonaccrual loans (90 days or more past due).
<TABLE>
<CAPTION>
TABLE 23
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------------------------- -------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances Yield Yield Balances Yield Yield
---------- ---------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment Securities $ 2,659,210 6.29% 7.76% $ 3,208,154 5.12% 6.45%
Mortgage-backed securities 12,118,877 7.32% 7.49% 10,430,900 6.87% 7.07%
Loans receivable (a) 30,330,203 7.47% 7.53% 25,233,334 7.31% 7.06%
Invest. in capital stock 635,567 7.95% 6.29% 678,314 5.41% 5.24%
of FHLBs
---------- ---------- ----------- ---------
Interest-earning assets $45,743,857 7.37% $39,550,702 6.98%
========== ========== =========== =========
LIABILITIES
Deposits:
Checking accounts $ 126,493 2.31% 2.93% $ 105,216 2.13% 3.42%
Savings accounts 9,191,983 3.81% 3.80% 9,744,626 3.85% 3.99%
Term accounts 19,368,466 5.39% 5.69% 17,232,753 4.93% 4.83%
---------- ---------- ------- ----------- --------- -------
Total deposits 28,686,942 4.87% 5.11% 27,082,595 4.53% 4.50%
Advances from FHLBs 11,788,452 5.96% 6.40% 6,230,228 5.41% 5.36%
Reverse repurchases 1,324,795 5.83% 6.16% 1,344,277 4.80% 5.15%
Other borrowings 1,324,598 7.01% 7.69% 2,122,922 6.21% 7.63%
---------- ---------- ----------- ---------
Interest-bearing $43,124,787 5.26% $36,780,022 4.79%
liabilities ========== ========== =========== =========
Annualized net interest spread 2.11% 2.19%
========== =========
Net interest income $ 550,158 $ 499,207
========== ===========
Annualized net yield on
average interest-earning assets 2.41% 2.52%
========== =========
</TABLE>
(a) Includes nonaccrual loans (90 days or more past due).
<PAGE>
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, 2000
and 1999.
<TABLE>
<CAPTION>
TABLE 24
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Interest on loans 63.9% 61.2% 64.4% 63.1%
Interest on mortgage-backed securities 24.9 26.0 25.2 24.6
Interest and dividends on investments 6.9 7.0 6.2 6.9
---------- ---------- ---------- ---------
95.7 94.2 95.8 94.6
Less:
Interest on deposits 38.4 42.1 39.7 42.1
Interest on advances and other borrowings 27.2 18.0 24.8 18.3
---------- ---------- ---------- ---------
65.6 60.1 64.5 60.4
Net interest income 30.1 34.1 31.3 34.2
Provision for (recovery of) loan losses .4 (.1) .3 0.0
---------- ---------- ---------- ---------
Net interest income after provision for
(recovery of) loan losses 29.7 34.2 31.0 34.2
Add:
Fees 2.0 2.3 2.0 2.3
Gain on the sale of securities, MBS, and loans .2 1.1 .2 1.3
Other non-interest income 2.1 2.4 2.0 1.8
---------- ---------- ---------- ---------
4.3 5.8 4.2 5.4
Less:
General and administrative expenses 11.0 13.2 11.5 13.0
Taxes on income 8.7 10.0 9.0 10.0
---------- ---------- ---------- ---------
Net earnings 14.3% 16.8% 14.7% 16.6%
========== ========== ========== =========
</TABLE>
<PAGE>
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 $4.1
million and $2.9 million for the three and six months ended June 30, 2000, as
compared to decreases of $927 thousand and $3.7 million for the same periods in
1999.
The following table summarizes the unrealized gains and losses for
interest rate swaps at June 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 25
Schedule of Unrealized Gains and Losses on Interest Rate Swaps
(Dollars in thousands)
June 30, 2000 June 30, 1999
---------------------------------------- ----------------------------------------
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:
Receive fixed $ -0- $ 2,778 $ (2,778) $ 917 $ 150 $ 767
Pay fixed 8,416 3,345 5,071 3,631 15,643 (12,012)
------------ ------------ ------------ ------------ ------------ -------------
$ 8,416 $ 6,123 $ 2,293 $ 4,548 $ 15,793 $ (11,245)
============ ============ ============ ============ ============ =============
</TABLE>
<TABLE>
<CAPTION>
TABLE 26
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Six Months Ended
June 30, 2000
----------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------ ------------
<S> <C> <C>
Balance at December 31, 1999 $ 263 $ 727
Additions -0- -0-
Maturities (24) (5)
------------ ------------
Balance at June 30, 2000 $ 239 $ 722
============ ============
</TABLE>
The range of floating interest rates received on swap contracts in the
first six months of 2000 was 6.19% to 7.11%, and the range of floating interest
rates paid on swap contracts was 6.28% to 6.87%. The range of fixed interest
rates received on swap contracts in the first six months of 2000 was 5.58% to
8.85% and the range of fixed interest rates paid on swap contracts was 5.50% to
7.06%.
<PAGE>
INTEREST ON LOANS
In the second quarter of 2000, interest on loans was higher than in the
comparable 1999 period by $150 million or 33.7%. The increase in the second
quarter of 2000 was due to a $6.7 billion increase in the average portfolio and
a 41 basis point increase in the average portfolio yield. For the first half of
2000, interest on loans was higher than in the comparable 1999 period by $211
million or 22.9%. The increase was due to a $4.9 billion increase in the average
portfolio balance and a 25 basis point increase in the average portfolio yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the second quarter of 2000, interest on mortgage-backed securities was
higher than in the comparable 1999 period by $43 million or 22.5%. The 2000
increase was due primarily due to a $1.7 billion increase in the average
portfolio balance and a 43 basis point increase in the average portfolio yield.
For the first half of 2000, interest on mortgage-backed securities was higher
than in the comparable 1999 period by $85 million or 23.8% due primarily due to
a $1.9 billion increase in the average portfolio balance and a 33 basis point
increase in the average portfolio yield. The increase in the mortgage-backed
securities portfolio was primarily due to the securitization of loans into FNMA
MBS and MBS-REMICs, as discussed on pages 12 and 13.
INTEREST AND DIVIDENDS ON INVESTMENTS
The income earned on the investment portfolio fluctuates, depending upon
the volume outstanding and the yields available on short-term investments. For
the second quarter of 2000, interest and dividends on investments was higher
than in the comparable 1999 period by $14 million or 28.1%. The increase was
primarily due to a 139 basis point increase in the average portfolio yield,
which was partially offset by a $322 million decrease in the average portfolio
balance. For the first half of 2000, interest and dividends on investments was
higher than in the comparable 1999 period by $8 million or 8.4%. The increase
was primarily due to a 118 basis point increase in the average portfolio yield
which was partially offset by a $549 million decrease in the average portfolio
balance.
In addition, included in interest and dividends on investments for the
three and six months ended June 30, 2000 were $2.7 million of special dividends
from the FHLB of San Francisco and $2.8 million of special dividends from the
FHLB of Dallas for a total of $5.5 million. These dividends were received by the
Company during the second quarter of 2000.
<PAGE>
INTEREST ON DEPOSITS
In the second quarter of 2000, interest on deposits increased by $52
million or 17.1% from the comparable period in 1999. The second quarter increase
was due to a 47 basis point increase in the average cost of deposits and a $1.7
billion increase in the average balance of deposits. In the first half of 2000,
interest on deposits increased by $85 million or 13.8% from the comparable
period in 1999. The six month increase was primarily due to a 31 basis point
increase in the average cost of deposits and a $1.6 billion increase in the
average balance of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the second quarter and first half of 2000, interest on advances and
other borrowings increased by $123 million or 94.0% and $169 million or 63.2%,
respectively, from the comparable periods of 1999. The second quarter increase
was primarily due to a $6.8 billion increase in the average balance and a 73
basis point increase in the average cost of these borrowings. The six month
increase was primarily due to a $4.7 billion increase in the average balance and
a 51 basis point increase in the average cost of these borrowings.
PROVISION FOR (RECOVERY OF) LOAN LOSSES
The provision for loan losses was $4 million and $5 million, respectively,
for the three and six months ended June 30, 2000, compared to a recovery of $727
thousand and $153 thousand for the same periods in 1999. The provision in 2000
reflected the rapid growth of the loan portfolio. The recoveries in 1999
reflected declining nonperforming assets as a result of the strong housing
market and economy.
NONINTEREST INCOME
Noninterest income was $39 million and $73 million for the three and six
months ended June 30, 2000, compared to $43 million and $78 million for the same
periods in 1999. The decrease in 2000 was due primarily to lower gains on the
sale of loans. In addition, for the three and six months ended June 30, 2000,
other income included $7 million and $11 million, respectively, of income earned
on our check outsourcing program which started in September 1999. Under the new
program, interest from float on outstanding checks is reported in other income
instead of interest income as had been done previously. In the three and six
months ended June 30, 1999, other income also included gains of $7 million from
the sale of three savings offices located in markets with limited growth
potential. There were no branch sales in 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
For the second quarter and first half of 2000, general and administrative
expenses (G&A) were $102 million and $202 million, respectively, compared to $96
million and $189 million for the comparable periods in 1999. G&A as a percentage
of average assets on an annualized basis was .87% and .90%, respectively, for
the second quarter and first half of 2000 compared to 1.00% and .99%,
respectively, for the same periods in 1999. G&A expenses increased in 2000
because of ongoing investments in personnel, facilities, and technology.
However, G&A as a percentage of average assets decreased during 2000 because
assets grew faster than G&A expense.
<PAGE>
TAXES ON INCOME
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses purchase accounting in connection with
certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Taxes as a percentage of earnings were 37.8%, for the second quarter
and first half of 1999 compared to 37.5% for the same periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES
WFSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; sales of loans; wholesale certificates of
deposit; borrowings from the FHLB; investments and borrowings from its
affiliates; debt collateralized by mortgages, MBS, or securities; and the
issuance of medium-term notes. In addition, WFSB has other alternatives
available to provide liquidity or finance operations including federal funds
purchased, borrowings from public offerings of debt, issuances of commercial
paper, and borrowings from commercial banks. Furthermore, under certain
conditions, WFSB may borrow from the Federal Reserve Bank of San Francisco to
meet short-term cash needs. The availability of these funds will vary depending
upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the
Federal Reserve Board. For a discussion of WFSB's liquidity positions at June
30, 2000 and 1999, and December 31, 1999, see the Cash and Investments section
on page 12.
WSL's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; borrowings from the FHLB; and debt
collateralized by mortgages, MBS, or securities. In addition, WSL has a number
of other alternatives available to provide liquidity or finance operations.
These include federal funds purchased, borrowings from its affiliates,
borrowings from public offerings of debt, sales of loans, wholesale certificates
of deposit, issuances of commercial paper, and borrowings from commercial banks.
Furthermore, under certain conditions, WSL may borrow from the Federal Reserve
Bank of San Francisco to meet short-term cash needs. The availability of these
funds will vary depending upon policies of the FHLB, the Federal Reserve Bank of
San Francisco, and the Federal Reserve Board. For a discussion of WSL's
liquidity positions at June 30, 2000 and 1999, and December 31, 1999, see the
Cash and Investments section on page 12.
WSSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; borrowings from the FHLB Dallas; debt
collateralized by mortgages or securities; and borrowings from its affiliates.
The principal sources of funds for WFSB's, WSL's, and WSSB's parent,
Golden West, are dividends from subsidiaries, interest on investments, and the
proceeds from the issuance of debt and equity securities. Various statutory and
regulatory restrictions and tax considerations limit the amount of dividends
WFSB and WSL can pay. The principal liquidity needs of Golden West are for
payment of interest and principal on subordinated debt securities, capital
contributions to its insured subsidiaries (including $117 thousand for the year
ended December 31, 1999), dividends to stockholders, the purchase of Golden West
stock (see stockholders' equity section on page 24), and general and
administrative expenses. At June 30, 2000 and 1999, and December 31, 1999,
Golden West's total cash and investments amounted to $522 million, $725 million,
and $761 million, respectively. Included in the June 30, 2000 and 1999, and
December 31, 1999 amounts are loans to WFSB.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Golden West estimates the sensitivity of the Company's net interest
income, net earnings, and capital ratios to interest rate changes and
anticipated growth based on simulations using an asset/liability model which
takes into account the lags described on pages 11 and 28. The simulation model
projects net interest income, net earnings, and capital ratios based on an
immediate interest rate increase that is sustained for a thirty-six month
period. The model is based on the actual maturity and repricing characteristics
of interest-rate sensitive assets and liabilities. For certain assets, the model
incorporates assumptions regarding the impact of changing interest rates on
prepayment rates which are based on the Company's historical prepayment
information. The model factors in projections for anticipated activity levels by
product lines offered by the Company. Based on the information and assumptions
in effect at June 30, 2000, Management believes that a 200 basis point rate
increase sustained over a thirty-six month period would not affect the Company's
long-term profitability and financial strength.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Description
----------- -----------
3(a) Certificate of Incorporation, as amended, and
amendments thereto, are incorporated by reference to
Exhibit 3(a) to the Company's Annual Report on Form
10-K (File No. 1-4269) for the year ended December 31,
1990.
3(b) By-Laws of the Company, as amended in 1997,. are
incorporated by reference to Exhibit 3(a) to the
Company's Annual Report on Form 10-K (File No. 1-4269)
for the year ended December 31, 1997.
4(a) The Registrant agrees to furnish to the Commission,
upon request, a copy of each instrument with respect to
issues of long-term debt, the authorized principal
amount of which does not exceed 10% of the total assets
of the Company.
10(a) 1996 Stock Option Plan, as amended, is incorporated by
reference to Exhibit A of the Company's Definitive
Proxy Statement on Schedule 14A, filed on March 15,
1996, for the Company's 1996 Annual Meeting of
Stockholders.
10(b) Annual Incentive Bonus Plan is incorporated by
reference to Exhibit A of the Company's Definitive
Proxy Statement on Schedule 14A, filed on March 16,
1998, for the Company's 1998 Annual Meeting of
Stockholders.
10(c) Deferred Compensation Agreement between the Company
and James T. Judd is incorporated by reference to
Exhibit 10(b) of the Company's Annual Report on Form
10-K (File No. 1-4629) for the year ended December 31,
1986.
10(d) Deferred Compensation Agreement between the Company and
Russell W.Kettell is incorporated by reference to
Exhibit 10(c) of the Company's Annual Report on Form
10-K (File No. 1-4629) for the year ended December 31,
1986.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued)
(a) Index to Exhibits (continued)
Exhibit No. Description
----------- -----------
10(e) Form of Supplemental Retirement Agreement between the
Company and certain executive officers is incorporated
by reference to Exhibit 10(j) to the Company's Annual
Report on Form 10-K (File No. 1-4629) for the year
ended December 31, 1990.
10(f) Operating lease on Company headquarters building, 1901
Harrison Street, Oakland, California 94612, is
incorporated by reference to Exhibit 10(h) of the
Company's Quarterly Report on Form 10-Q (File No.
1-4629) for the quarter ended September 30, 1998.
11 Statement of Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K
with the Commission during the first six months of 2000.
<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: August 14, 2000 /s/ Russell W. Kettell
---------------------------------
Russell W. Kettell
President and
Chief Financial Officer
/s/ William C. Nunan
---------------------------------
William C. Nunan
Chief Accounting Officer
