SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
For the Quarter Ended September 30, 2000 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
October 31, 2000, was 158,226,883 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 nine
months ended September 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 nine month
periods have been included. The operating results for the three and nine months
ended September 30, 2000, are not necessarily indicative of the results for the
full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30 September 30 December 31
2000 1999 1999
--------------- ------------ -----------
(Unaudited)
-----------------------------
<S> <C> <C> <C>
Assets:
Cash $ 213,884 $ 237,614 $ 333,793
Securities available for sale at fair value 310,916 346,255 319,444
Other investments at cost 138,096 678,332 467,156
Purchased mortgage-backed securities available for sale 68,464 84,540 79,009
Purchased mortgage-backed securities held to maturity 397,897 449,477 434,711
Mortgage-backed securities with recourse held to maturity 14,109,347 10,721,012 11,147,901
Loans receivable 34,906,911 25,856,148 27,919,817
Interest earned but uncollected 245,175 165,882 175,351
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 937,752 533,623 541,013
Real estate held for sale or investment 13,080 17,232 13,711
Other assets 721,832 601,352 431,806
Premises and equipment--at cost less accumulated depreciation 302,027 274,010 278,493
----------- ----------- -----------
$52,365,381 $39,965,477 $42,142,205
=========== =========== ===========
Liabilities and Stockholders' Equity:
Deposits $28,249,069 $26,549,828 $27,714,910
Advances from Federal Home Loan Banks 18,230,468 8,109,333 8,915,218
Securities sold under agreements to repurchase 858,676 772,940 1,045,176
Federal funds purchased 50,000 -0- -0-
Accounts payable and accrued expenses 398,699 312,484 183,571
Taxes on income 375,874 286,193 275,526
Subordinated notes--net of discount 713,589 812,694 812,950
Stockholders' equity 3,489,006 3,122,005 3,194,854
----------- ----------- -----------
$52,365,381 $39,965,477 $42,142,205
=========== =========== ===========
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Interest on loans $ 653,432 $ 445,576 $ 1,786,134 $ 1,367,178
Interest on mortgage-backed securities 283,360 204,444 726,659 562,558
Interest and dividends on investments 77,642 52,233 186,587 152,776
----------- ----------- ----------- -----------
1,014,434 702,253 2,699,380 2,082,512
Interest Expense:
Interest on deposits 385,442 309,640 1,083,765 923,274
Interest on advances 283,681 93,533 635,096 262,713
Interest on repurchase agreements 23,827 13,742 62,460 46,032
Interest on other borrowings 33,572 33,374 79,989 99,322
----------- ----------- ----------- -----------
726,522 450,289 1,861,310 1,331,341
----------- ----------- ----------- -----------
Net Interest Income 287,912 251,964 838,070 751,171
Provision for (recovery of) loan losses 1,106 (1,253) 5,917 (1,406)
----------- ----------- ----------- -----------
Net Interest Income after Provision
for (Recovery of) Loan Losses 286,806 253,217 832,153 752,577
Noninterest Income:
Fees 19,896 16,180 54,583 49,101
Gain on the sale of securities, MBS, and loans 2,765 3,001 6,036 21,313
Other 18,715 12,257 54,173 38,871
----------- ----------- ----------- -----------
41,376 31,438 114,792 109,285
Noninterest Expense:
General and administrative:
Personnel 62,313 54,766 177,718 158,982
Occupancy 18,426 16,861 53,033 49,565
Deposit insurance 1,444 1,310 4,298 4,048
Advertising 979 3,378 4,641 8,586
Other 23,974 19,732 69,793 63,938
----------- ----------- ----------- -----------
107,136 96,047 309,483 285,119
Earnings before Taxes on Income 221,046 188,608 637,462 576,743
Taxes on Income 83,643 70,537 240,863 215,917
----------- ----------- ----------- -----------
Net Earnings $ 137,403 $ 118,071 $ 396,599 $ 360,826
=========== =========== =========== ===========
Basic Earnings Per Share $ .87 $ .72 $ 2.50 $ 2.16
=========== =========== =========== ===========
Diluted Earnings Per Share $ .86 $ .71 $ 2.48 $ 2.14
=========== =========== =========== ===========
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 137,403 $ 118,071 $ 396,599 $ 360,826
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Provision for (recovery of) loan losses 1,106 (1,253) 5,917 (1,406)
Amortization of net loan (fees), costs, and (discounts) 1,952 (1,962) 4,896 (12,481)
Depreciation and amortization 7,547 6,926 21,914 20,892
Loans originated for sale (54,698) (113,497) (169,153) (717,442)
Sales of loans 89,923 168,310 225,219 1,129,073
Decrease (increase) in interest earned but uncollected (23,547) 9,924 (63,817) 43,446
Federal Home Loan Bank stock dividends (16,036) (8,038) (41,295) (28,993)
Decrease (increase) in other assets 203,716 (10,318) (291,143) (245,678)
Increase (decrease) in accounts payable and accrued expenses 24,409 (269,785) 213,018 (167,651)
Increase (decrease) in taxes on income 13,753 (33,547) 85,928 (9,120)
Other, net (4,443) (4,145) (11,506) (6,724)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 381,085 (139,314) 376,577 364,742
Cash Flows from Investing Activities:
New loan activity:
New real estate loans originated for portfolio (5,423,515) (3,482,228) (14,751,075) (7,826,284)
Real estate loans purchased -0- (205) (195) (1,140)
Other, net (87,983) (21,560) (198,337) (58,694)
------------ ------------ ------------ ------------
(5,511,498) (3,503,993) (14,949,607) (7,886,118)
Real estate loan principal payments:
Monthly payments 142,645 145,593 419,894 440,805
Payoffs, net of foreclosures 1,002,439 1,002,369 2,849,304 3,430,193
------------ ------------ ------------ ------------
1,145,084 1,147,962 3,269,198 3,870,998
Repayments of mortgage-backed securities 659,231 663,936 1,692,174 2,209,804
Proceeds from sales of real estate 9,361 25,438 34,029 93,241
Purchases of securities available for sale (29) (2,740,856) (3,087,521) (4,205,922)
Sales of securities available for sale -0- -0- -0- 19
Matured securities available for sale 18 2,746,870 3,139,064 4,172,283
Decrease (increase) in other investments 164,156 (361,452) 329,060 (255,947)
Purchases of Federal Home Loan Bank stock (141,326) -0- (398,139) -0-
Redemption of Federal Home Loan Bank stock -0- 8,858 36,688 275,673
Additions to premises and equipment (11,407) (8,707) (47,424) (26,151)
------------ ------------ ------------ ------------
Net cash used in investing activities (3,686,410) (2,021,944) (9,982,478) (1,752,120)
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------ ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Financing Activities:
Net increase in deposits $ 522,287 $ 214,122 $ 534,159 $ 330,733
Additions to Federal Home Loan Bank advances 3,022,180 2,005,500 10,654,250 3,518,580
Repayments of Federal Home Loan Bank advances (23,234) (7,565) (1,339,001) (1,572,717)
Proceeds from agreements to repurchase securities 1,801,836 1,548,894 4,908,910 5,549,145
Repayments of agreements to repurchase securities (2,103,696) (1,460,892) (5,095,410) (6,028,674)
Increase in federal funds purchased 50,000 -0- 50,000 -0-
Repayment of subordinated debt -0- -0- (100,000) (100,000)
Dividends on common stock (8,297) (7,663) (24,991) (23,417)
Exercise of stock options 3,691 4,075 7,372 8,629
Purchase and retirement of Company stock -0- (138,510) (109,297) (308,162)
------------ ------------ ------------ ------------
Net cash provided by financing activities 3,264,767 2,157,961 9,485,992 1,374,117
------------ ------------ ------------ ------------
Net Decrease in Cash (40,558) (3,297) (119,909) (13,261)
Cash at beginning of period 254,442 240,911 333,793 250,875
------------ ------------ ------------ ------------
Cash at end of period $ 213,884 $ 237,614 $ 213,884 $ 237,614
============ ============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 694,079 $ 439,930 $ 1,769,053 $ 1,318,456
Income taxes 69,890 104,090 155,055 225,194
Cash received for interest and dividends 987,610 712,177 2,629,556 2,125,958
Noncash investing activities:
Loans converted from adjustable rate to fixed-rate 4,075 32,424 20,522 503,750
Loans transferred to foreclosed real estate 8,055 16,180 29,167 54,748
Loans securitized into MBS
with recourse held to maturity 1,133,656 -0- 4,695,770 3,700,579
Loans repurchased from loans securitized into MBS
with recourse held to maturity 42,919 83,067 116,360 243,091
</TABLE>
<PAGE>
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended September 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- 396,599 -0- 396,599 $ 396,599
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- 24,472 24,472 24,472
Reclassification adjustment
for gains included in income -0- -0- -0- (3) (3) (3)
---------------
Comprehensive Income $ 421,068
===============
Common stock issued upon
exercise of stock options,
including tax benefits 44 7,328 -0- -0- 7,372
Purchase and retirement of
Company stock (367) -0- (108,930) -0- (109,297)
Cash dividends on common
stock ($.1575 per share) -0- -0- (24,991) -0- (24,991)
------------ ------------ ------------- ---------------- ---------------
Balance at September 30, 2000 $ 15,813 $ 142,883 $3,148,024 $ 182,286 $ 3,489,006
============ ============ ============= ================ ===============
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended September 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- 360,826 -0- 360,826 $ 360,826
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (39,439) (39,439) (39,439)
Reclassification adjustment
for gains included in income -0- -0- -0- (750) (750) (750)
---------------
Comprehensive Income $ 320,637
===============
Common stock issued upon
exercise of stock options,
including tax benefits 35 8,594 -0- -0- 8,629
Purchase and retirement of
Company stock (322) -0- (307,840) -0- (308,162)
Cash dividends on common
stock ($.1401 per share) -0- -0- (23,417) -0- (23,417)
------------ ------------ ------------- ---------------- ---------------
Balance at September 30, 1999 $ 5,399 $ 130,753 $2,811,494 $ 174,359 $ 3,122,005
============ ============ ============= ================ ===============
</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 nine month periods ended September 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 September 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.
In September, 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces
Statement of Financial Accounting Standards No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occuring after March 31,
2001. The Company has not yet completed a full assessment of the impact of this
statement on its financial statements.
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
September 30 September 30 December 31
2000 1999 1999
-------------- --------------- ----------------
<S> <C> <C> <C>
Assets $ 52,365,381 $ 39,965,477 $ 42,142,205
Loans receivable including mortgage-backed securities 49,482,619 37,111,177 39,581,438
Deposits 28,249,069 26,549,828 27,714,910
Stockholders' equity 3,489,006 3,122,005 3,194,854
Stockholders' equity/total assets 6.66% 7.81% 7.58%
Book value per common share $ 22.06 $ 19.28 $ 19.80
Common shares outstanding 158,127,033 161,971,512 161,357,833
Diluted common shares outstanding 160,468,011 163,414,074 162,607,506
Yield on loan portfolio 7.88% 7.02% 7.16%
Yield on mortgage-backed securities 7.82% 7.07% 7.17%
Yield on investments 8.70% 6.10% 5.88%
Yield on earning assets 7.86% 7.02% 7.15%
Cost of deposits 5.28% 4.50% 4.69%
Cost of borrowings 6.58% 5.53% 5.77%
Cost of funds 5.82% 4.78% 5.00%
Yield on earning assets less cost of funds 2.04% 2.24% 2.15%
Ratio of nonperforming assets to total assets .43% .61% .56%
Ratio of troubled debt restructured to total assets .01% .04% .03%
Loans serviced for others $ 2,944,033 $ 3,132,924 $ 3,093,642
World Savings Bank, a Federal Savings Bank:
Total assets $ 48,516,389 $ 35,186,048 $ 37,835,121
Net worth 2,817,341 2,425,617 2,514,191
Net worth/total assets 5.81% 6.89% 6.65%
Regulatory capital ratios:
Core capital 5.81% 6.89% 6.64%
Risk-based capital 10.62% 12.81% 11.95%
World Savings and Loan Association:
Total assets $ 4,707,154 $ 5,468,506 $ 5,051,847
Net worth 647,736 649,136 540,224
Net worth/total assets 13.76% 11.87% 10.69%
Regulatory capital ratios:
Core capital 10.39% 9.03% 7.86%
Risk-based capital 20.32% 17.64% 15.47%
World Savings Bank, a State Savings Bank:
Total assets $ 4,518,247 $ 3,501,022 $ 3,530,548
Net worth 238,336 198,539 202,846
Net worth/total assets 5.27% 5.67% 5.75%
Regulatory capital ratios:
Tier 1 leverage capital 5.20% 5.51% 5.66%
Total risk-based capital 25.23% 26.52% 26.93%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- ------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
New real estate loans originated $ 5,478,213 $ 3,595,725 $ 14,920,228 $ 8,543,726
Fully indexed rate on new real estate loans 8.34% 7.56% 8.15% 7.57%
Current rate on new real estate loans (a) 6.32% 5.91% 6.19% 6.02%
New adjustable rate mortgages as a percentage of new
real estate loans originated 96.37% 94.53% 96.41% 88.82%
Increase in deposits (b)(c) $ 522,287 $ 214,122 $ 534,159 $ 330,733
Net earnings 137,403 118,071 396,599 360,826
Basic earnings per share .87 .72 2.50 2.16
Diluted earnings per share .86 .71 2.48 2.14
Cash dividends on common stock .0525 .0467 .1575 .1401
Average common shares outstanding 158,032,942 164,094,096 158,661,510 167,146,773
Average diluted common shares outstanding 160,095,066 165,489,180 160,214,868 168,529,020
Ratios:(d)
Net earnings/average net worth (ROE) 16.23% 15.01% 16.07% 15.25%
Net earnings/average assets (ROA) 1.08% 1.21% 1.12% 1.24%
Net interest income/average assets 2.26% 2.58% 2.38% 2.59%
General and administrative expense/average assets .84% .98% .88% .98%
Efficiency ratio (e) 32.54% 33.89% 32.48% 33.14%
</TABLE>
(a) The current rate reflects the actual rate being paid by the borrower at
time of origination.
(b) Includes a decrease of $600 million of wholesale deposits for the nine
months ended September 30, 2000.
(c) Includes the effect of the sale of three branches with a total of $119
million in deposits during the second quarter of 1999 and the sale of one
branch with $29 million in deposits during the third quarter of 1999.
(d) Ratios are annualized by multiplying the quarterly computation by four and
the nine-month computation by one and one-third. Averages are computed by
adding the beginning balance and each monthend balance during the quarter
and nine-month period and dividing by four and ten, 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 September
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
September 30
----------------------- December 31
2000 1999 1999
--------- -------- ---------------
<S> <C> <C> <C>
Assets:
Cash and investments 1.3% 3.2% 2.7%
Loans receivable including mortgage-backed
securities 94.5 92.9 93.9
Other assets 4.2 3.9 3.4
--------- -------- ---------
100.0% 100.0% 100.0%
========= ======== =========
Liabilities and Stockholders' Equity:
Deposits 53.9% 66.4% 65.8%
Federal Home Loan Bank advances 34.8 20.3 21.2
Securities sold under agreements to repurchase 1.6 1.9 2.5
Federal funds purchased 0.1 0.0 0.0
Other liabilities 1.5 1.6 1.0
Subordinated debt 1.4 2.0 1.9
Stockholders' equity 6.7 7.8 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 mortgage loans and investments and the repricing of
deposits and borrowings 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 September 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 any month reflects the actual Golden West Cost of
Savings at the level it was one month prior.
<TABLE>
<CAPTION>
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of September 30, 2000
(Dollars in millions)
Projected Repricing(a)
------------------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
------------ -------------- -------------- ------------- -------------
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C>
Investments $ 413 $ -0- $ 11 $ 25 $ 449
Mortgage-backed securities 13,241 134 575 626 14,576
Loans receivable:
Rate-sensitive 31,230 1,992 240 -0- 33,462
Fixed-rate 30 85 369 883 1,367
Other(b) 1,101 -0- -0- -0- 1,101
Impact of interest rate swaps 535 126 (661) -0- -0-
------------ -------------- -------------- ------------- -------------
Total $ 46,550 $ 2,337 $ 534 $ 1,534 $ 50,955
============ ============== ============== ============= =============
Interest-Bearing Liabilities:
Deposits(c) $ 13,727 $ 12,238 $ 2,252 $ 32 $ 28,249
FHLB advances 17,100 600 210 321 18,231
Other borrowings 1,024 -0- 598 -0- 1,622
Impact of interest rate swaps 202 (99) (103) -0- -0-
------------ -------------- -------------- ------------- -------------
Total $ 32,053 $ 12,739 $ 2,957 $ 353 $ 48,102
============ ============== ============== ============= =============
Repricing gap $ 14,497 $ (10,402) $ (2,423) $ 1,181
============ ============== ============== =============
Cumulative gap $ 14,497 $ 4,095 $ 1,672 $ 2,853
============ ============== ============== =============
Cumulative gap as a percentage of
total assets 27.7% 7.8% 3.2%
============ ============== ==============
</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 September 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 September 30, 2000 and 1999 and December 31, 1999, the Company had
securities available for sale in the amount of $311 million, $346 million, and
$319 million, respectively, including unrealized gains on securities available
for sale of $299 million, $287 million, and $260 million, respectively. At
September 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 September 30, 2000
and 1999 and December 31, 1999 were collateralized mortgage obligations (CMOs)
in the amount of $36 million, $140 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 September 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
September 30, 2000 and 1999 and December 31, 1999, the balance of loans
receivable including mortgage-backed securities was $49.5 billion, $37.1
billion, and $39.6 billion, respectively. Included in the $49.5 billion at
September 30, 2000 was $5.9 billion of Federal National Mortgage Association
(FNMA) mortgage-backed securities with the underlying loans subject to full
credit recourse to the Company, $8.2 billion of MBS-REMICs, and $466 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 $37.1 billion at September 30, 1999, was $3.0 billion of FNMA
MBS with the underlying loans subject to full credit recourse to the Company,
$7.7 billion of MBS-REMICs, and $534 million of purchased MBS.
<PAGE>
MORTGAGE-BACKED SECURITIES
At September 30, 2000 and 1999 and December 31, 1999, the Company had
MBS held to maturity in the amount of $14.5 billion, $11.2 billion, and $11.6
billion, respectively. The increase in MBS from September 30, 1999 to September
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 $2.7 billion of ARMs into FNMA MBS during the first nine
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 September 30, 2000 and 1999 and December 31, 1999, the Company had
MBS available for sale in the amount of $68 million, $85 million, and $79
million, respectively, including unrealized gains on MBS available for sale of
$1 million, $2 million, and $1 million, respectively. At September 30, 2000 and
1999 and December 31, 1999, the Company had no trading MBS.
Repayments of MBS during the third quarter and first nine months of
2000 were $659 million and $1.7 billion, respectively, compared to $664 million
and $2.2 billion during the same periods of 1999. MBS repayments were lower
during the first nine months of 2000 as compared to the first nine months of
1999 due to a decrease in the prepayment rate.
LOAN VOLUME
New loan originations for the three and nine months ended September
30, 2000, amounted to $5.5 billion and $14.9 billion, respectively, compared to
$3.6 billion and $8.5 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 33% of new loan originations for the three and nine months
ended September 30, 2000, compared to 35% and 41% for the three and nine months
ended September 30, 1999.
Loans originated for sale amounted to $55 million and $169 million
for the three and nine months ended September 30, 2000, compared to $113 million
and $717 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. During the third quarter and first nine months of 2000,
$4 million and $21 million of loans were converted at the customer's request
from adjustable rate to fixed-rate compared to $32 million and $504 million for
the same periods in 1999. The Company continues to sell most of its new and
converted fixed-rate loans and for the three and nine months ended September 30,
2000 the Company sold $90 million and $225 million of fixed-rate loans,
respectively, compared to $168 million and $1.1 billion for the same periods of
1999.
<PAGE>
At September 30, 2000, the Company had lending operations in 31
states. The largest source of mortgage origination is loans secured by
residential properties in California. For the three and nine months ended
September 30, 2000, 63% and 62% of total loan originations were on residential
properties in California compared to 62% and 64% for the same periods in 1999.
The five largest states, other than California, for originations for the nine
months ended September 30, 2000 were Florida, New Jersey, Texas, Washington, and
Illinois 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 September 30, 2000
compared to 65% and 64% at September 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 third quarter and first nine months of 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 3
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ----------------------------------
ARM Index 2000 1999 2000 1999
---------------- --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
COFI $ 1,639,846 $ 945,825 $ 4,506,629 $ 2,256,015
COSI 3,572,980 2,382,470 9,409,556 5,190,298
TCM 66,454 70,830 468,013 142,571
--------------- -------------- ---------------- --------------
$ 5,279,280 $ 3,399,125 $14,384,198 $ 7,588,884
=============== ============== ================ ==============
</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 September 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)
September 30
-------------------------------------- December 31
ARM Index 2000 1999 1999
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
COFI $ 27,369,143 $ 26,451,321 $ 26,217,670
COSI 17,552,743 6,580,191 9,182,829
TCM 1,532,717 1,209,742 1,266,541
Other 150,142 154,620 152,470
----------------- ----------------- -----------------
$ 46,604,745 $ 34,395,874 $ 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 nine months of 2000, 20% of loans originated
exceeded 80% of the appraised value of the secured property, including $293
million of firsts and $2.7 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% or 20% 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 September 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 Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
2000 1999 2000 1999
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 37,706 $ 29,339 $ 83,756 $ 75,596
With no insurance 42,889 75,775 209,512 163,071
-------------- --------------- -------------- ---------------
80,595 105,114 293,268 238,667
-------------- --------------- -------------- ---------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 761,747 492,548 1,958,975 529,528
With no insurance 226,441 137,778 730,606 725,839
-------------- --------------- -------------- ---------------
988,188 630,326 2,689,581 1,255,367
-------------- --------------- -------------- ---------------
Total $ 1,068,783 $ 735,440 $ 2,982,849 $ 1,494,034
============== =============== ============== ===============
</TABLE>
<PAGE>
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at September 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 September 30
-------------------------------------
2000 1999
---------------- -----------------
<S> <C> <C>
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 371,363 $ 407,125
With no insurance 870,215 844,048
---------------- -----------------
1,241,578 1,251,173
---------------- -----------------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 1,785,294 578,331
With no insurance 772,960 173,185
---------------- -----------------
2,558,254 751,516
---------------- -----------------
Total $ 3,799,832 $ 2,002,689
================ =================
</TABLE>
The tables on the following two pages show the Company's loan
portfolio by state at September 30, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE 7
Loan Portfolio by State
September 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 $27,507,502 $ 3,430,029 $ 167 $ 24,926 $ 30,962,624 63.07%
Florida 2,375,465 15,035 -0- 290 2,390,790 4.87
Texas 1,976,429 56,581 297 1,099 2,034,406 4.14
New Jersey 1,819,686 -0- -0- 2,588 1,822,274 3.71
Illinois 1,473,469 120,634 -0- -0- 1,594,103 3.25
Washington 986,057 551,405 -0- -0- 1,537,462 3.13
Colorado 1,239,024 185,371 -0- 4,651 1,429,046 2.91
Arizona 1,023,546 17,450 -0- -0- 1,040,996 2.12
Pennsylvania 1,010,560 2,695 -0- 2,375 1,015,630 2.07
Other (b) 5,210,037 48,084 43 5,002 5,263,166 10.73
-------------- ------------- ------------ -------------- -------------- ---------
Totals $44,621,775 $ 4,427,284 $ 507 $ 40,931 49,090,497 100.00%
============== ============= ============ ============== =========
SFAS 91 deferred loan costs 147,307
Loan discount on purchased loans (1,581)
Undisbursed loan funds (6,836)
Allowance for loan losses (235,569)
Loans to facilitate (LTF) interest reserve (237)
Troubled debt restructured (TDR) interest reserve (475)
Loans on deposits 21,558
Consumer Loans 1,594
--------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMICs 49,016,258
Loans securitized into FNMA MBS with recourse and MBS-REMICs (14,109,347)(c)
--------------
Total loans receivable $34,906,911
==============
</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 September 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
September 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 $20,482,201 $ 3,341,495 $ 193 $ 30,322 $ 23,854,211 64.91%
Florida 1,622,784 16,234 -0- 504 1,639,522 4.46
Texas 1,486,019 60,920 434 1,248 1,548,621 4.21
New Jersey 1,236,155 -0- -0- 3,883 1,240,038 3.37
Illinois 1,153,525 124,934 -0- -0- 1,278,459 3.48
Washington 633,838 463,754 -0- 656 1,098,248 2.99
Colorado 926,423 173,075 -0- 5,218 1,104,716 3.01
Arizona 791,442 18,890 -0- -0- 810,332 2.20
Pennsylvania 708,148 4,105 -0- 2,675 714,928 1.95
Other (b) 3,415,945 40,700 55 8,004 3,464,704 9.42
-------------- ------------- ------------ -------------- -------------- -----------
Totals $32,456,480 $ 4,244,107 $ 682 $ 52,510 36,753,779 100.00%
============== ============= ============ ============== ===========
SFAS 91 deferred loan costs 44,875
Loan discount on purchased loans (2,090)
Undisbursed loan funds (5,201)
Allowance for loan losses (233,277)
Loans to facilitate interest reserve (353)
Troubled debt restructured interest reserve (1,259)
Loans on deposits 20,686
--------------
Total loan portfolio and loans securitized into FNMA MBS with recourse
and MBS-REMIC 36,577,160
Loans securitized into FNMA MBS with recourse and MBS-REMIC (10,721,012)(c)
--------------
Total loans receivable $25,856,148
==============
</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 September 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 September 30, 2000, compared to 93% at September 30, 1999 and
93% at December 31, 1999. The Company's ARM originations for the first nine
months of 2000 constituted 96% of new mortgage loans made in 2000 compared to
89% for the first nine months 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 12.31%, or 4.41% above the actual weighted average rate at September 30,
2000, versus 12.49%, or 5.51% above the weighted average rate at September 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 September 30, 2000 and 1999, $202 million and $486 million, respectively, of
ARM loans had reached their rate floors. The weighted average floor rate on the
loans that had reached their floor was 7.92% at September 30, 2000 compared to
7.62% at September 30, 1999. Without the floor, the average rate on these loans
would have been 7.65% at September 30, 2000 and 6.76% at September 30, 1999.
Loan repayments for the three and nine months ended September 30,
2000 were $1.1 billion and $3.3 billion, respectively, compared to $1.1 billion
and $3.9 billion in the same periods of 1999. The decrease in loan repayments
for the first nine months of 2000 as compared to the first nine months of 1999
was primarily due to a decrease in loan payoffs in the first nine 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 nine
months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 9
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Beginning balance of capitalized mortgage servicing rights $ 32,695 $ 39,860 $ 37,295 $ 28,635
New capitalized mortgage servicing rights from loan sales 694 2,785 2,179 19,244
Amortization of capitalized mortgage servicing rights (3,105) (3,269) (9,190) (8,503)
------------- ------------ ------------- ------------
Ending balance of capitalized mortgage servicing rights $ 30,284 $ 39,376 $ 30,284 $ 39,376
============= ============ ============= ============
</TABLE>
The book value of Golden West's servicing rights did not exceed the
fair value at September 30, 2000 or 1999 and, therefore, no write-down of the
servicing rights to their fair value was necessary.
<PAGE>
ASSET QUALITY
An important 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)
September 30
------------------------------- December 31
2000 1999 1999
------------- ------------- ----------------
<S> <C> <C> <C>
Non-accrual loans $213,956 $230,777 $ 225,409
Real estate acquired through foreclosure 9,774 14,256 10,840
Real estate in judgment 110 174 69
------------- ------------- -----------------
Total nonperforming assets $223,840 $245,207 $ 236,318
============= ============= =================
TDRs $ 4,175 $ 15,281 $ 10,542
============= ============= =================
Ratio of NPAs to total assets .43% .61% .56%
============= ============= =================
Ratio of TDRs to total assets .01% .04% .03%
============= ============= =================
Ratio of NPAs and TDRs to total assets .44% .65% .59%
============= ============= =================
</TABLE>
The lower NPAs at September 30, 2000 as compared to September 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 $885 thousand and $2 million in the
third quarter and first nine months of 2000 compared to $790 thousand and $4
million for the same periods in 1999. Interest foregone on TDRs amounted to $41
thousand and $153 thousand for the three and nine months ended September 30,
2000, compared to $107 thousand and $350 thousand for the three and nine months
ended September 30, 1999.
The tables on the following page show the Company's nonperforming
assets by state as of September 30, 2000 and 1999.
<PAGE>
<TABLE>
<CAPTION>
TABLE 11
Nonperforming Assets by State
September 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 $ 111,403 $ 985 $ 576 $ 3,649 $ -0- $ -0- $ 116,613 .38%
Florida 16,819 -0- 57 675 -0- 108 17,659 .74
Texas 10,074 -0- -0- 523 -0- -0- 10,597 .52
New Jersey 16,004 -0- 18 243 -0- 314 16,579 .91
Illinois 10,320 215 -0- 696 -0- -0- 11,231 .70
Washington 3,555 -0- -0- 113 -0- -0- 3,668 .24
Colorado 2,377 -0- -0- -0- -0- -0- 2,377 .17
Arizona 4,812 -0- -0- -0- -0- -0- 4,812 .46
Pennsylvania 10,147 -0- -0- 1,420 -0- -0- 11,567 1.14
Other (c) 26,510 84 -0- 1,875 -0- 508 28,977 .55
----------- ---------- ------------ --------- ---------- ---------- ------------ -------
Totals $ 212,021 $ 1,284 $ 651 $ 9,194 $ -0- $ 930 224,080 .46%
=========== ========== ============ ========= ========== ==========
REO general valuation allowance (240) (.00)
------------ -------
Total nonperforming assets $ 223,840 .46%
============ =======
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The September 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
September 30, 1999
(Dollars in thousands)
Non-Accrual Loans (a) Real Estate Owned
---------------------------------------- -----------------------
Residential Commercial NPAs as
Real Estate Real Residential Total a% of
State 1 - 4 5+ Estate 1 - 4 5+ NPAs(b) Loans
--------------------- ----------- ----------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
California $ 134,026 $ 3,287 $ 1,661 $10,808 $ 440 $ 150,222 .63%
Florida 16,500 -0- 179 349 -0- 17,028 1.04
Texas 9,112 -0- -0- 603 -0- 9,715 .63
New Jersey 16,463 -0- 45 131 -0- 16,639 1.34
Illinois 9,866 216 -0- 699 -0- 10,781 .84
Washington 2,344 -0- -0- -0- -0- 2,344 .21
Colorado 1,209 1,032 -0- 77 -0- 2,318 .21
Arizona 4,074 124 -0- -0- -0- 4,198 .52
Pennsylvania 8,935 -0- -0- 287 -0- 9,222 1.27
Other (c) 18,866 103 2,735 1,360 -0- 23,064 .69
----------- ----------- ---------- ---------- ---------- ----------- -------
Totals $ 221,395 $ 4,762 $ 4,620 $14,314 $ 440 245,531 .67%
=========== =========== ========== ========== ==========
REO general valuation allowance (324) (.00)
----------- -------
Total nonperforming assets $ 245,207 .67%
=========== =======
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
(b) The September 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 nine months ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 13
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Beginning allowance for loan losses $ 234,834 $ 233,471 $ 232,134 $ 244,466
Provision for (recovery of) losses charged to expense 1,106 (1,253) 5,917 (1,406)
Net transfer of allowance (to) from reserve for losses
on loans sold or securitized and retained (438) 213 (2,110) (11,922)
Less loans charged off (54) -0- (674) -0-
Add recoveries 121 846 302 2,139
------------- ------------ ------------- ------------
Ending allowance for loan losses $ 235,569 $ 233,277 $ 235,569 $ 233,277
============= ============ ============= ============
Ratio of net chargeoffs (recoveries) to average loans
outstanding (including MBS with recourse) .00% (.01%) .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 sets
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 nine months ended September
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 Nine Months Ended
September 30 September 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 $ 17,331 $ 15,397 $ 15,572 $ 2,256
Initial recourse liability recognized at time of sale 31 183 118 1,189
Net transfer from (to) allowance for loan losses 438 (213) 2,110 11,922
------------- ------------ ------------- ------------
Ending balance of reserve for losses on loans
sold with recourse or securitized and retained $ 17,800 $ 15,367 $ 17,800 $ 15,367
============= ============ ============= ============
</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
113.2% and 101.4% at September 30, 2000 and 1999, respectively. At September
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 .50% and
.64%, respectively.
DEPOSITS
Retail deposits increased during the third quarter of 2000 by $522
million, including interest credited of $328 million, compared to an increase
of $214 million, including interest credited of $262 million, in the third
quarter of 1999. Retail deposits increased during the first nine months of
2000 by $1.1 billion, including interest credited of $896 million, compared to
an increase of $331 million, including interest credited of $772 million, in
the first nine months of 1999. During the second quarter of 1999, the Company
sold three branches with a total of $119 million in deposits and during the
third quarter of 1999, the Company sold one branch with $36 million in
deposits. At September 30, 2000 and 1999 and at December 31, 1999, transaction
accounts (which includes checking, passbook, and money market accounts)
represented 28%, 38%, and 35%, 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 September 30,
2000 or at September 30, 1999.
<PAGE>
The table below shows the Company's deposits by interest rate and by
remaining maturity at September 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 15
Deposits
(Dollars in millions)
September 30
-----------------------------------------------------------
2000 1999
---------------------------- ----------------------------
Rate* Amount Rate* Amount
----------- ------------- ----------------------------
<S> <C> <C> <C> <C>
Deposits by rate:
Interest-bearing checking accounts 3.02% $ 74 3.06% $ 119
Interest-bearing checking accounts swept
into money market deposit accounts 3.40 3,157 3.53 3,204
Passbook accounts 1.48 463 1.80 504
Money market deposit accounts 4.24 4,217 4.35 6,354
Term certificate accounts with original maturities of:
4 weeks to 1 year 5.95 9,569 4.62 6,279
1 to 2 years 5.85 7,511 4.88 6,998
2 to 3 years 5.62 1,388 5.26 1,439
3 to 4 years 5.74 451 5.24 350
4 years and over 5.96 678 5.45 655
Retail jumbo CDs 5.81 741 4.79 648
------------- -------------
$ 28,249 $ 26,550
============= =============
2000 1999
------------- -------------
Deposits by remaining maturity:
No contractual maturity 3.73% $ 7,911 3.95% $ 10,181
Maturity within one year 5.86 18,054 4.80 14,305
1 to 5 years 6.08 2,252 5.22 2,037
Over 5 years 5.35 32 4.92 27
------------- -------------
$ 28,249 $ 26,550
============= =============
</TABLE>
* Weighted average interest rate, including the impact of interest rate swaps.
At September 30, the weighted average cost of deposits was 5.28%
(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 $18.2 billion at September 30,
2000, compared to $8.1 billion and $8.9 billion at September 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 $859 million, $773 million, and $1.0 billion at September 30,
2000 and 1999, and December 31, 1999, respectively.
OTHER BORROWINGS
At September 30, 2000, Golden West, at the holding company level, had
a total of $714 million of subordinated debt issued and outstanding. As of
September 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 September 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 debt securities and preferred stock. The Company has not issued any
securities under this registration statement.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased by $294 million during
the first nine months of 2000 as a result of net earnings and an increase in the
market values of securities available for sale, which was partially offset by
the payment of quarterly dividends to stockholders and the $109 million cost of
the repurchase of Company stock. The Company's stockholders' equity decreased
during the first nine months of 1999 by $2.3 million as a result of $308 million
cost of the repurchase of Company stock, the decrease in market values of
securities available for sale, and the payment of quarterly dividends to
stockholders. These decreases were partially offset by net earnings. Unrealized
gains, net of taxes, on securities and MBS available for sale included in
stockholders' equity at September 30, 2000 and 1999, and December 31, 1999, were
$182 million, $174 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 September 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 nine 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 September 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 16
World Savings Bank, FSB
Regulatory Capital Ratios
(Dollars in thousands)
September 30, 2000 September 30, 1999
------------------------------------------------------- ------------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
-------------------------- ------------------------- -------------------------- --------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------- ---------- ------------ ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $2,817,341 5.81% $ 727,749 1.50% $ 2,425,414 6.89% $ 528,211 1.50%
Core 2,817,341 5.81 1,940,664 4.00 2,425,414 6.89 1,408,563 4.00
Risk-based 2,985,238 10.62 2,249,282 8.00 2,576,183 12.81 1,608,362 8.00
</TABLE>
<TABLE>
<CAPTION>
The following table shows WSL's current regulatory capital ratios and
compares them to the OTS minimum requirements at September 30, 2000 and 1999.
TABLE 17
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
September 30, 2000 September 30, 1999
--------------------------------------------------------- --------------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
--------------------------- --------------------------- -------------------------- --------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------- ----------- ------------ ----------- ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $ 465,997 10.39% $ 67,247 1.50% $ 474,911 9.03% $ 78,866 1.50%
Core 465,997 10.39 179,326 4.00 474,911 9.03 210,310 4.00
Risk-based 493,400 20.32 194,220 8.00 508,128 17.64 230,434 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 September 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 September 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 $ 2,817,341 5.81% $ 2,425,831 5.00%
Tier 1 risk-based 2,817,341 10.02 1,686,961 6.00
Total risk-based 2,985,238 10.62 2,811,602 10.00
</TABLE>
The table below shows that WSL's regulatory capital exceeded the
requirements of the well-capitalized classification at September 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 $ 465,997 10.39% $ 224,158 5.00%
Tier 1 risk-based 465,997 19.19 145,665 6.00
Total risk-based 493,400 20.32 242,775 10.00
</TABLE>
World Savings Bank, SSB is regulated by the FDIC and the state of
Texas. At September 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)
September 30, 2000 September 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 $ 238,336 5.20% $ 137,386 3.00% $ 198,539 5.51% $ 108,148 3.00%
Tier 1 risk-based 238,336 25.21 37,823 4.00 198,539 26.49 29,977 4.00
Total risk-based 238,551 25.23 75,647 8.00 198,781 26.52 59,953 8.00
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
NET EARNINGS
Net earnings for the three months ended September 30, 2000 were $137
million compared to net earnings of $118 million for the three months ended
September 30, 1999. Net earnings for the nine months ended September 30, 2000
were $397 million compared to net earnings of $361 million for the nine months
ended September 30, 1999. Net earnings increased for the first nine 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 September
30, 2000 and 1999 and December 31, 1999.
<TABLE>
<CAPTION>
TABLE 21
Yield on Earning Assets,
Cost of Funds, and Primary Spread
September 30
--------------------------------- December 31
2000 1999 1999
-------------- --------------- ------------
<S> <C> <C> <C>
Yield on loan portfolio 7.88% 7.02% 7.16%
Yield on MBS 7.82 7.07 7.17
Yield on investments 8.70 6.10 5.88
----------
----------- ----------
Yield on earning assets 7.86 7.02 7.15
---------- ----------- ----------
Cost of deposits 5.28 4.50 4.69
Cost of borrowings 6.58 5.53 5.77
---------- ----------- ----------
Cost of funds 5.82 4.78 5.00
---------- ----------- ----------
Primary spread 2.04% 2.24% 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
September 30, 2000 September 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 $ 3,600,512 6.84% 8.70% $ 3,271,302 5.51% 6.10%
Mortgage-backed securities 14,577,843 7.78% 7.82% 11,585,161 7.06% 7.07%
Loans receivable (a) 33,386,895 7.83% 7.88% 24,857,797 7.17% . 7.02%
Invest. in capital stock of FHLBs 868,329 7.39% 6.55% 530,442 5.42% 5.37%
------------ ----------- ------------ -----------
Interest-earning assets $52,433,579 7.74% $40,244,702 6.98%
============ =========== ============ ===========
LIABILITIES
Deposits:
Checking accounts $ 156,644 1.84% 3.02% $ 110,918 2.27% 3.06%
Savings accounts 8,189,258 3.76% 3.74% 10,405,105 3.95% 3.96%
Term accounts 20,820,381 5.91% 5.88% 16,944,575 4.87% 4.84%
------------ ----------- -------- ------------ ----------- --------
Total deposits 29,166,283 5.29% 5.28% 27,460,598 4.51% 4.50%
Advances from FHLBs 16,853,861 6.73% 6.55% 6,970,600 5.37% 5.36%
Reverse repurchases 1,486,301 6.41% 6.24% 1,067,588 5.15% 5.08%
Other borrowings 1,883,200 7.13% 7.63% 2,165,713 6.16% 7.63%
------------ ----------- ------------ -----------
Interest-bearing liabilities $49,389,645 5.88% $37,664,499 4.78%
============ =========== ============ ===========
Annualized net interest spread 1.86% 2.20%
=========== ===========
Net interest income $ 287,912 $ 251,964
============ ============
Annualized net yield on
average interest-earning assets 2.20% 2.50%
=========== ===========
</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)
Nine Months Ended Nine Months Ended
September 30, 2000 September 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 $ 2,972,977 6.52% 8.70% $ 3,229,203 5.25% 6.10%
Mortgage-backed securities 12,896,270 7.51% 7.82% 10,655,509 7.04% 7.07%
Loans receivable (a) 31,392,570 7.59% 7.88% 25,242,449 7.22% 7.02%
Invest. in capital stock of FHLBs 713,862 7.71% 6.55% 643,782 5.32% 5.37%
------------ ----------- ------------ -----------
Interest-earning assets $47,975,679 7.50% $39,770,943 6.98%
============ =========== ============ ===========
LIABILITIES
Deposits:
Checking accounts $ 136,543 2.13% 3.02% $ 107,116 2.18% 3.06%
Savings accounts 8,857,741 3.80% 3.74% 9,964,785 3.91% 3.96%
Term accounts 22,167,349 4.99% 5.88% 17,170,638 4.89% 4.84%
------------ ----------- -------- ------------ ----------- --------
Total deposits 31,161,633 4.64% 5.28% 27,242,539 4.52% 4.50%
Advances from FHLBs 13,325,696 6.34% 6.55% 6,477,019 5.41% 5.36%
Reverse repurchases 1,378,630 6.04% 6.24% 1,197,857 5.12% 5.08%
Other borrowings 1,510,799 7.06% 7.63% 2,191,376 6.04% 7.63%
------------ ----------- ------------ -----------
Interest-bearing liabilities $47,376,758 5.24% $37,108,791 4.78%
============ =========== ============ ===========
Annualized net interest spread 2.26% 2.20%
=========== ===========
Net interest income $ 838,070 $ 751,171
============ ============
Annualized net yield on
average interest-earning assets 2.33% 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 nine months ended September 30,
2000 and 1999.
<TABLE>
<CAPTION>
TABLE 24
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Interest on loans 61.8% 60.7% 63.5% 62.3%
Interest on mortgage-backed securities 26.8 27.9 25.8 25.7
Interest and dividends on investments 7.4 7.1 6.6 7.0
----------- ----------- ----------- ------------
96.0 95.7 95.9 95.0
Less:
Interest on deposits 36.5 42.2 38.5 42.1
Interest on advances and other borrowings 32.3 19.2 27.6 18.6
----------- ----------- ----------- ------------
68.8 61.4 66.1 60.7
Net interest income 27.2 34.3 29.8 34.3
Provision for (recovery of) loan losses .1 (.2) .2 (.1)
----------- ----------- ----------- ------------
Net interest income after provision for
(recovery of) loan losses 27.1 34.5 29.6 34.4
Add:
Fees 1.9 2.2 1.9 2.2
Gain on the sale of securities, MBS, and loans .3 .4 .2 1.0
Other non-interest income 1.8 1.7 2.0 1.8
----------- ----------- ----------- ------------
4.0 4.3 4.1 5.0
Less:
General and administrative expenses 10.2 13.1 11.0 13.0
Taxes on income 7.9 9.6 8.6 9.9
----------- ----------- ----------- ------------
Net earnings 13.0% 16.1% 14.1% 16.5%
=========== =========== =========== ============
</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 $682
thousand and $3.5 million for the three and nine months ended September 30,
2000, as compared to decreases of $511 thousand and $3.2 million for the same
periods in 1999.
The following table summarizes the unrealized gains and losses for
interest rate swaps at September 30, 2000 and 1999.
<TABLE>
<CAPTION>
TABLE 25
Schedule of Unrealized Gains and Losses on Interest Rate Swaps
(Dollars in thousands)
September 30, 2000 September 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 $ 13 $ 964 $ (951) $ 647 $ 67 $ 580
Pay fixed 3,730 5,543 (1,813) 3,312 13,862 (10,550)
-------------- -------------- -------------- -------------- ------------- --------------
$ 3,743 $ 6,507 $ (2,764) $ 3,959 $ 13,929 $ (9,970)
============== ============== ============== ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
TABLE 26
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Nine Months Ended
September 30, 2000
--------------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------- --------------
<S> <C> <C>
Balance at December 31, 1999 $ 263 $ 727
Additions -0- -0-
Maturities (43) (5)
-------------- ---------------
Balance at September 30, 2000 $ 220 $ 722
============== ===============
</TABLE>
The range of floating interest rates received on swap contracts in
the first nine months of 2000 was 5.98% to 7.11%, and the range of floating
interest rates paid on swap contracts was 6.00% to 6.87%. The range of fixed
interest rates received on swap contracts in the first nine months of 2000 was
5.50% to 7.06% and the range of fixed interest rates paid on swap contracts was
5.58% to 8.85%.
<PAGE>
INTEREST ON LOANS
In the third quarter of 2000, interest on loans was higher than in
the comparable 1999 period by $208 million or 46.6%. The increase in the third
quarter of 2000 was due to a $8.2 billion increase in the average portfolio and
a 75 basis point increase in the average portfolio yield. For the first nine
months of 2000, interest on loans was higher than in the comparable 1999 period
by $419 million or 30.6%. The increase was due to a $6.0 billion increase in the
average portfolio balance and a 43 basis point increase in the average portfolio
yield.
INTEREST ON MORTGAGE-BACKED SECURITIES
In the third quarter of 2000, interest on mortgage-backed securities
was higher than in the comparable 1999 period by $79 million or 38.6%. The 2000
increase was due primarily due to a $3.2 billion increase in the average
portfolio balance and a 60 basis point increase in the average portfolio yield.
For the first nine months of 2000, interest on mortgage-backed securities was
higher than in the comparable 1999 period by $164 million or 29.2% due primarily
due to a $2.3 billion increase in the average portfolio balance and a 43 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 third quarter of 2000, interest and dividends on investments was higher
than in the comparable 1999 period by $25 million or 48.6%. The increase was
primarily due to a 135 basis point increase in the average portfolio yield and a
$329 million increase in the average portfolio balance. For the first nine
months of 2000, interest and dividends on investments was higher than in the
comparable 1999 period by $34 million or 22.1%. The increase was primarily due
to a 126 basis point increase in the average portfolio yield which was partially
offset by a $256 million decrease in the average portfolio balance.
In addition, included in interest and dividends on investments for
the three months ended September 30, 2000 was $1.0 million in special dividends
from the FHLB of San Francisco. Included in interest and dividends on
investments for the nine months ended September 30, 2000 were $3.7 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 $6.5 million.
<PAGE>
INTEREST ON DEPOSITS
In the third quarter of 2000, interest on deposits increased by $76
million or 24.5% from the comparable period in 1999. The third quarter increase
was due to a 75 basis point increase in the average cost of deposits and a $1.8
billion increase in the average balance of deposits. In the first nine months of
2000, interest on deposits increased by $160 million or 17.4% from the
comparable period in 1999. The nine month increase was primarily due to a 44
basis point increase in the average cost of deposits and a $1.7 billion increase
in the average balance of deposits.
INTEREST ON ADVANCES AND OTHER BORROWINGS
For the third quarter and first nine months of 2000, interest on
advances and other borrowings increased by $200 million or 142.5% and $369
million or 90.5%, respectively, from the comparable periods of 1999. The third
quarter increase was primarily due to a $10.4 billion increase in the average
balance and a 218 basis point increase in the average cost of these borrowings.
The nine month increase was primarily due to a $6.6 billion increase in the
average balance and a 160 basis point increase in the average cost of these
borrowings.
PROVISION FOR (RECOVERY OF) LOAN LOSSES
The provision for loan losses was $1.1 million and $5.9 million,
respectively, for the three and nine months ended September 30, 2000, compared
to a recovery of $1.3 million and $1.4 million 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 $41 million and $115 million for the three and
nine months ended September 30, 2000, compared to $31 million and $109 million
for the same periods in 1999. The increase in 2000 was partially due to higher
loan fee income. In addition, for the three and nine months ended September 30,
2000, other income included $6 million and $17 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 nine
months ended September 30, 1999, other income also included gains of $8 million
from the sale of four savings offices located in markets with limited growth
potential. There were no branch sales in 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
For the third quarter and first nine months of 2000, general and
administrative expenses (G&A) were $107 million and $309 million, respectively,
compared to $96 million and $285 million for the comparable periods in 1999. G&A
as a percentage of average assets on an annualized basis was .84% and .88%,
respectively, for the third quarter and first nine months of 2000 compared to
.98% 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 third quarter and
first nine months of 1999 compared to 37.4% 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 September 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 September 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 subsidiaries (including $117 thousand for the year ended
December 31, 1999 and $20 million for the nine months ended September 30, 2000),
dividends to stockholders, the purchase of Golden West stock (see stockholders'
equity section on page 25), and general and administrative expenses. At
September 30, 2000 and 1999 and December 31, 1999, Golden West's total cash and
investments amounted to $516 million, $680 million, and $761 million,
respectively. Included in the September 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 29. 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 September 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 nine 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: November 9, 2000 /s/ Russell W. Kettell
----------------------------
Russell W. Kettell
President and
Chief Financial Officer
/s/ William C. Nunan
----------------------------
William C. Nunan
Chief Accounting Officer
