-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JkAY14K/sUmKXWBMkDe9sRDykZO4xR7flVdsNBfj7LXSLLLy5GqzNqLXXaBVLi4r RPU2+B/8LIh1qaNc+6XPqA== /in/edgar/work/20000814/0000042293-00-000022/0000042293-00-000022.txt : 20000921 0000042293-00-000022.hdr.sgml : 20000921 ACCESSION NUMBER: 0000042293-00-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN WEST FINANCIAL CORP /DE/ CENTRAL INDEX KEY: 0000042293 STANDARD INDUSTRIAL CLASSIFICATION: [6035 ] IRS NUMBER: 952080059 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04629 FILM NUMBER: 698461 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5104663420 MAIL ADDRESS: STREET 2: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CORP DATE OF NAME CHANGE: 19760806 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CO DATE OF NAME CHANGE: 19751124 10-Q 1 0001.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For the Quarter Ended June 30, 2000 Commission File Number 1-4629 GOLDEN WEST FINANCIAL CORPORATION - -------------------------------------------------------------------------------- Delaware 95-2080059 - ---------------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1901 Harrison Street, Oakland, California 94612 - ----------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 446-3420 ------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ----------- The number of shares outstanding of the registrant's common stock on July 31, 2000, was 157,981,083 shares. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements of Golden West Financial Corporation and subsidiaries (Golden West or Company) for the three and six months ended June 30, 2000 and 1999 are unaudited. In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair statement of the results for such three and six month periods have been included. The operating results for the three and six months ended June 30, 2000, are not necessarily indicative of the results for the full year.
Golden West Financial Corporation Consolidated Statement of Financial Condition (Dollars in thousands) June 30 June 30 December 31 2000 1999 1999 ------------ ------------- ------------- (Unaudited) --------------------------- Assets: Cash $ 254,442 $ 240,911 $ 333,793 Securities available for sale at fair value 234,629 380,541 319,444 Other investments at cost 302,252 316,880 467,156 Purchased mortgage-backed securities available for sale 71,113 92,879 79,009 Purchased mortgage-backed securities held to maturity 410,054 476,598 434,711 Mortgage-backed securities with recourse held to maturity 13,651,191 11,433,486 11,147,901 Loans receivable 31,683,917 23,485,887 27,919,817 Interest earned but uncollected 218,351 175,806 175,351 Investment in capital stock of Federal Home Loan Banks--at cost which approximates fair value 783,667 534,443 541,013 Real estate held for sale or investment 12,804 24,294 13,711 Other assets 926,425 591,034 431,806 Premises and equipment--at cost less accumulated depreciation 299,039 274,214 278,493 ------------ ------------- ------------- $48,847,884 $38,026,973 $42,142,205 ============ ============= ============= Liabilities and Stockholders' Equity: Deposits $27,726,782 $26,335,706 $27,714,910 Advances from Federal Home Loan Banks 15,231,522 6,111,398 8,915,218 Securities sold under agreements to repurchase 1,160,536 684,938 1,045,176 Accounts payable and accrued expenses 373,852 582,482 183,571 Taxes on income 332,104 333,282 275,526 Subordinated notes--net of discount 713,377 812,438 812,950 Stockholders' equity 3,309,711 3,166,729 3,194,854 ------------ ------------- ------------- $48,847,884 $38,026,973 $42,142,205 ============ ============= =============
Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) (Dollars in thousands except per share figures) Three Months Ended Six Months Ended June 30 June 30 ---------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------- ------------ Interest Income: Interest on loans $ 595,615 $ 445,358 $ 1,132,702 $ 921,602 Interest on mortgage-backed securities 231,982 189,363 443,299 358,114 Interest and dividends on investments 64,795 50,577 108,945 100,543 ------------ ------------ ------------- ------------ 892,392 685,298 1,684,946 1,380,259 Interest Expense: Interest on deposits 358,313 306,067 698,323 613,634 Interest on advances 206,925 82,429 351,415 169,180 Interest on repurchase agreements 21,969 18,743 38,633 32,290 Interest on other borrowings 24,658 29,553 46,417 65,948 ------------ ------------ ------------- ------------ 611,865 436,792 1,134,788 881,052 ------------ ------------ ------------- ------------ Net Interest Income 280,527 248,506 550,158 499,207 Provision for (recovery of) loan losses 3,842 (727) 4,811 (153) ------------ ------------ ------------- ------------ Net Interest Income after Provision for (Recovery of) Loan Losses 276,685 249,233 545,347 499,360 Noninterest Income: Fees 18,445 16,762 34,687 32,921 Gain on the sale of securities, MBS, and loans 1,833 8,249 3,271 18,312 Other 19,647 17,537 35,458 26,614 ------------ ------------ ------------- ------------ 39,925 42,548 73,416 77,847 Noninterest Expense: General and administrative: Personnel 58,125 52,418 115,405 104,216 Occupancy 17,549 16,417 34,607 32,704 Deposit insurance 1,442 1,345 2,854 2,738 Advertising 1,488 3,029 3,662 5,208 Other 23,783 22,817 45,819 44,206 ------------ ------------ ------------- ------------ 102,387 96,026 202,347 189,072 Earnings before Taxes on Income 214,223 195,755 416,416 388,135 Taxes on Income 80,961 73,368 157,220 145,380 ------------ ------------ ------------- ------------ Net Earnings $ 133,262 $ 122,387 $ 259,196 $ 242,755 ============ ============ ============= ============ Basic Earnings Per Share $ .84 $ .73 $ 1.63 $ 1.44 ============ ============ ============= ============ Diluted Earnings Per Share $ .84 $ .72 $ 1.62 $ 1.43 ============ ============ ============= ============
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------- Cash Flows from Operating Activities: Net earnings $ 133,262 $ 122,387 $ 259,196 $ 242,755 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Provision for (recovery of) loan losses 3,842 (727) 4,811 (153) Amortization of net loan (fees), costs, and (discounts) 1,973 (4,325) 2,944 (10,519) Depreciation and amortization 7,333 7,029 14,367 13,966 Loans originated for sale (59,709) (316,881) (114,455) (603,945) Sales of loans 62,787 425,419 135,296 960,763 Decrease (increase) in interest earned but uncollected (24,635) 10,955 (40,270) 33,522 Federal Home Loan Bank stock dividends (17,479) (7,985) (25,259) (28,952) Increase in other assets (160,140) (121,119) (494,859) (227,363) Increase in accounts payable and accrued expenses 71,254 35,279 188,609 102,134 Increase (decrease) in taxes on income (3,856) (38,213) 72,175 24,427 Other, net (5,629) (1,330) (7,063) (2,579) ------------ ------------ ------------ ------------- Net cash provided by (used in) operating activities 9,003 110,489 (4,508) 504,056 Cash Flows from Investing Activities: New loan activity: New real estate loans originated for portfolio (5,615,895) (2,553,140) (9,327,560) (4,344,056) Real estate loans purchased (10) (475) (195) (935) Other, net (67,008) (26,553) (110,354) (37,134) ------------ ------------ ------------ ------------- (5,682,913) (2,580,168) (9,438,109) (4,382,125) Real estate loan principal payments: Monthly payments 136,796 143,282 277,249 295,212 Payoffs, net of foreclosures 1,050,072 1,258,866 1,846,865 2,427,824 ------------ ------------ ------------ ------------- 1,186,868 1,402,148 2,124,114 2,723,036 Repayments of mortgage-backed securities 547,467 795,041 1,032,943 1,545,868 Proceeds from sales of real estate 11,857 27,396 24,668 67,803 Purchases of securities available for sale (1,659,473) (1,315,052) (3,087,492) (1,465,066) Sales of securities available for sale -0- 10 -0- 19 Matured securities available for sale 1,863,030 1,271,205 3,139,046 1,425,413 Decrease in other investments 786,247 838,116 164,904 105,505 Purchases of Federal Home Loan Bank stock (140,657) -0- (262,920) -0- Redemption of Federal Home Loan Bank stock 42,795 266,815 42,795 266,815 Additions to premises and equipment (17,613) (9,047) (36,017) (17,444) ------------ ------------ ------------ ------------- Net cash provided by (used in) investing activities (3,062,392) 696,464 (6,296,068) 269,824
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 ------------- ------------ ---------------------------- 2000 1999 2000 1999 ------------- ------------ ------------ ------------ Cash Flows from Financing Activities: Net increase (decrease) in deposits $ (247,470) $ (59,734) $ 11,872 $ 116,611 Additions to Federal Home Loan Bank advances 3,515,420 4,430 7,632,070 1,513,080 Repayments of Federal Home Loan Bank advances (507,972) (7,579) (1,315,767) (1,565,152) Proceeds from agreements to repurchase securities 2,400,087 4,000,156 3,107,074 4,000,251 Repayments of agreements to repurchase securities (2,106,600) (4,007,842) (2,991,714) (4,567,782) Decrease in federal funds purchased -0- (475,000) -0- -0- Repayment of subordinated debt -0- (100,000) (100,000) (100,000) Dividends on common stock (8,288) (7,833) (16,694) (15,754) Exercise of stock options 2,494 2,487 3,681 4,554 Purchase and retirement of Company stock (17,507) (112,101) (109,297) (169,652) ------------- ------------ ------------ ------------ Net cash provided by (used in) financing activities 3,030,164 (763,016) 6,221,225 (783,844) ------------- ------------ ------------ ------------ Net Increase (Decrease) in Cash (23,225) 43,937 (79,351) (9,964) Cash at beginning of period 277,667 196,974 333,793 250,875 ------------- ------------ ------------ ------------ Cash at end of period $ 254,442 $ 240,911 $ 254,442 $ 240,911 ============= ============ ============ ============ Supplemental cash flow information: Cash paid for: Interest $ 587,439 $ 443,133 $ 1,074,974 $ 878,526 Income taxes 84,818 111,618 85,165 121,104 Cash received for interest and dividends 875,027 696,253 1,641,946 1,413,781 Noncash investing activities: Loans converted from adjustable rate to fixed-rate 8,426 299,956 16,447 471,326 Loans transferred to foreclosed real estate 9,382 18,496 21,112 38,568 Loans securitized into MBS with recourse held to maturity 3,249,414 3,700,579 3,562,114 3,700,579 Loans repurchased from loans securitized into MBS with recourse held to maturity 33,039 87,312 73,441 160,024
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands) For the Six Months Ended June 30, 2000 ------------------------------------------------------------------------------------ Accumulated Additional Other Total Common Paid-in Retained Comprehensive Stockholders' Comprehensive Stock Capital Earnings Income Equity Income ---------- ----------- ---------- -------------- ------------- -------------- Balance at January 1, 2000 $ 16,136 $ 135,555 $2,885,346 $ 157,817 $ 3,194,854 Comprehensive income: Net earnings -0- -0- 259,196 -0- 259,196 $ 259,196 Change in unrealized gains on securities available for sale, net of tax -0- -0- -0- (22,029) (22,029) (22,029) -------------- Comprehensive Income $ 237,167 ============== Common stock issued upon exercise of stock options, including tax benefits 26 3,655 -0- -0- 3,681 Purchase and retirement of Company stock (367) -0- (108,930) -0- (109,297) Cash dividends on common stock ($.105 per share) -0- -0- (16,694) -0- (16,694) ---------- ----------- ---------- -------------- ------------- Balance at June 30, 2000 $ 15,795 $ 139,210 $3,018,918 $ 135,788 $ 3,309,711 ========== =========== ========== ============== =============
For the Six Months Ended June 30, 1999 ------------------------------------------------------------------------------------ Accumulated Additional Other Total Common Paid-in Retained Comprehensive Stockholders' Comprehensive Stock Capital Earnings Income Equity Income ---------- ----------- ---------- -------------- ------------- -------------- Balance at January 1, 1999 $ 5,686 $ 122,159 $2,781,925 $ 214,548 $ 3,124,318 Comprehensive income: Net earnings -0- -0- 242,755 -0- 242,755 $ 242,755 Change in unrealized gains on securities available for sale, net of tax -0- -0- -0- (18,742) (18,742) (18,742) Reclassification adjustment for gains included in income -0- -0- -0- (750) (750) (750) -------------- Comprehensive Income $ 223,263 ============== Common stock issued upon exercise of stock options, including tax benefits 17 4,537 -0- -0- 4,554 Purchase and retirement of Company stock (178) -0- (169,474) -0- (169,652) Cash dividends on common stock ($.0934 per share) -0- -0- (15,754) -0- (15,754) ---------- ----------- ---------- -------------- ------------- Balance at June 30, 1999 $ 5,525 $ 126,696 $2,839,452 $ 195,056 $ 3,166,729 ========== =========== ========== ============== =============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis included herein covers those material changes in liquidity and capital resources that have occurred since December 31, 1999, as well as certain material changes in results of operations during the three and six month periods ended June 30, 2000 and 1999, respectively. The following narrative is written with the presumption that the users have read or have access to the Company's 1999 Annual Report on Form 10-K, which contains the latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 1999, and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed herein. This report contains certain forward-looking statements, which are not historical facts and pertain to future operating results of the Company. Such statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond the Company's control. In addition, these forward-looking statements are subject to change. Actual results may differ materially from the results discussed in these forward-looking statements for the reasons, among others, discussed under the heading "Asset/Liability Management" in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 1999 Annual Report on Form 10-K. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value. In June 1999, the FASB issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137) which delayed the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. The Company has not yet adopted SFAS 133, but if SFAS 133 had been adopted at June 30, 2000, given the interest rate environment at that time, it would not have had a significant effect on the Company's financial statements or financial position.
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) June 30 June 30 December 31 2000 1999 1999 ------------- ------------ -------------- Assets $ 48,847,884 $ 38,026,973 $ 42,142,205 Loans receivable including mortgage-backed securities 45,816,275 35,488,850 39,581,438 Deposits 27,726,782 26,335,706 27,714,910 Stockholders' equity 3,309,711 3,166,729 3,194,854 Stockholders' equity/total assets 6.78% 8.33% 7.58% Book value per common share $ 20.95 $ 19.10 $ 19.80 Common shares outstanding 157,948,933 165,757,797 161,357,833 Diluted common shares outstanding 159,750,271 167,407,317 162,607,506 Yield on loan portfolio 7.53% 7.06% 7.16% Yield on mortgage-backed securities 7.49% 7.07% 7.17% Yield on investments 7.76% 6.45% 5.88% Yield on earning assets 7.52% 7.06% 7.15% Cost of deposits 5.11% 4.50% 4.69% Cost of borrowings 6.43% 5.59% 5.77% Cost of funds 5.61% 4.75% 5.00% Yield on earning assets less cost of funds 1.91% 2.31% 2.15% Ratio of nonperforming assets to total assets .45% .69% .56% Ratio of troubled debt restructured to total assets .01% .04% .03% World Savings Bank, a Federal Savings Bank: Total assets $ 44,856,959 $ 33,277,749 $ 37,835,121 Net worth 2,713,085 2,337,301 2,514,191 Net worth/total assets 6.05% 7.02% 6.65% Regulatory capital ratios: Core capital 6.05% 7.01% 6.64% Risk-based capital 10.98% 12.95% 11.95% World Savings and Loan Association: Total assets $ 4,712,828 $ 6,010,867 $ 5,051,847 Net worth 574,462 743,145 540,224 Net worth/total assets 12.19% 12.36% 10.69% Regulatory capital ratios: Core capital 9.60% 9.52% 7.86% Risk-based capital 18.62% 18.60% 15.47% World Savings Bank, a State Savings Bank: Total assets $ 4,516,249 $ 3,536,112 $ 3,530,548 Net worth 233,350 194,087 202,846 Net worth/total assets 5.17% 5.49% 5.75% Regulatory capital ratios: Tier 1 leverage capital 5.21% 5.41% 5.66% Total risk-based capital 24.66% 26.21% 26.93%
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) Three Months Ended Six Months Ended June 30 June 30 ------------------------- -------------------------- 2000 1999 2000 1999 ----------- ----------- ------------ ----------- New real estate loans originated $ 5,675,604 $ 2,870,021 $ 9,442,015 $ 4,948,001 Fully indexed rate on new real estate loans 8.12% 7.55% 8.04% 7.57% Current rate on new real estate loans (a) 6.15% 6.06% 6.11% 6.09% New adjustable rate mortgages as a percentage of new real estate loans originated 96.47% 87.98% 96.43% 84.68% Increase (decrease)in deposits(b)(c) $ (247,470) $ (59,734) $ 11,872 $ 116,611 Net earnings 133,262 122,387 259,196 242,755 Basic earnings per share .84 .73 1.63 1.44 Diluted earnings per share .84 .72 1.62 1.43 Cash dividends on common stock .0525 .0467 .105 .0934 Average common shares outstanding 157,999,885 167,665,377 158,979,248 168,698,412 Average diluted common shares outstanding 159,593,955 169,297,215 160,227,370 170,303,505 Ratios:(d) Net earnings/average net worth (ROE) 16.32% 15.42% 16.00% 15.37% Net earnings/average assets (ROA) 1.13% 1.28% 1.15% 1.27% Net interest income/average assets 2.39% 2.59% 2.44% 2.60% General and administrative expense/average assets .87% 1.00% .90% .99% Efficiency ratio (e) 31.95% 32.99% 32.45% 32.77%
(a) The current rate reflects the actual rate being paid by the borrower at time of origination. (b) Includes a decrease of $750 million and $600 million of wholesale deposits for the three and six months ended June 30, 2000, respectively. (c) Includes the effect of the sale of three branches with a total of $119 million in deposits during the second quarter of 1999. (d) Ratios are annualized by multiplying the quarterly computation by four and the semi-annual computation by two. Averages are computed by adding the beginning balance and each monthend balance during the quarter and six-month period and dividing by four and seven, respectively. (e) The efficiency ratio is calculated by dividing general and administrative expense by net interest income plus other income. FINANCIAL CONDITION The consolidated condensed balance sheet shown in the table below presents the Company's assets and liabilities in percentage terms at June 30, 2000 and 1999, and December 31, 1999. The reader is referred to page 53 of the Company's 1999 Annual Report on Form 10-K for similar information for the years 1996 through 1999 and a discussion of the changes in the composition of the Company's assets and liabilities in those years.
TABLE 1 Consolidated Condensed Balance Sheet In Percentage Terms June 30 -------------------- December 31 2000 1999 1999 ------- ------- ------------- Assets: Cash and investments 1.6% 2.5% 2.7% Loans receivable including mortgage-backed securities 93.8 93.4 93.9 Other assets 4.6 4.1 3.4 ------- ------- ------- 100.0% 100.0% 100.0% ======= ======= ======= Liabilities and Stockholders' Equity: Deposits 56.8% 69.3% 65.8% Federal Home Loan Bank advances 31.2 16.1 21.2 Securities sold under agreements to repurchase 2.4 1.8 2.5 Other liabilities 1.4 2.4 1.0 Subordinated debt 1.4 2.1 1.9 Stockholders' equity 6.8 8.3 7.6 ------- ------- ------- 100.0% 100.0% 100.0% ======= ======= =======
As the above table shows, the largest asset component is the loan portfolio (including mortgage-backed securities), which consists primarily of long-term mortgages. Deposits represent the majority of the Company's liabilities. The disparity between the repricing (maturity, prepayment, or interest rate change) of deposits and borrowings and the repricing of mortgage loans and investments can have a material impact on the Company's results of operations. The difference between the repricing characteristics of assets and liabilities is commonly referred to as "the gap." The following gap table shows that, as of June 30, 2000, the Company's assets reprice sooner than its liabilities. If all repricing assets and liabilities responded equally to changes in the interest rate environment, then the gap analysis would suggest that the Company's earnings would rise when interest rates increase and would fall when interest rates decrease. However, the Company's earnings are also affected by the built-in reporting and repricing lags inherent in the Eleventh District Cost of Funds Index (COFI), which is the benchmark Golden West uses to determine the rate on the majority of its adjustable rate mortgages (ARMs). The reporting lag occurs because of the time it takes to gather the data needed to compute the index. As a result, the COFI in effect in any month actually reflects the Eleventh District's cost of funds at the level it was two months prior. The repricing lag occurs because COFI is based on a portfolio of accounts, not all of which reprice immediately. Therefore, COFI does not initially fully reflect a change in market interest rates. Consequently, when the interest rate environment changes, the COFI lags cause assets to reprice more slowly than liabilities, enhancing earnings when rates are falling and holding down income when rates rise. Additionally, the Company originates loans that are tied to the Golden West Cost of Savings Index (COSI). The COSI in effect in the current month reflects the actual Golden West Cost of Savings at the end of the previous month. Therefore, there is a one-month reporting lag for these types of loans.
TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio As of June 30, 2000 (Dollars in millions) Projected Repricing(a) ------------------------------------------------------------------- 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ----------- ----------- ----------- ------------ ----------- Interest-Earning Assets: Investments $ 472 $ -0- $ 17 $ 48 $ 537 Mortgage-backed securities 12,753 147 603 629 14,132 Loans receivable: Rate-sensitive 27,754 2,249 285 -0- 30,288 Fixed-rate 36 86 377 823 1,322 Other(b) 969 -0- -0- -0- 969 Impact of interest rate swaps 395 266 (661) -0- -0- ----------- ----------- ----------- ------------ ----------- Total $ 42,379 $ 2,748 $ 621 $ 1,500 $ 47,248 =========== =========== =========== ============ =========== Interest-Bearing Liabilities: Deposits(c) $ 13,287 $ 11,590 $ 2,818 $ 32 $ 27,727 FHLB advances 14,615 200 109 307 15,231 Other borrowings 1,161 115 598 -0- 1,874 Impact of interest rate swaps 193 (23) (170) -0- -0- ----------- ----------- ----------- ------------ ----------- Total $ 29,256 $ 11,882 $ 3,355 $ 339 $ 44,832 =========== =========== =========== ============ =========== Repricing gap $ 13,123 $ (9,134) $ (2,734) $ 1,161 =========== =========== =========== ============ Cumulative gap $ 13,123 $ 3,989 $ 1,255 $ 2,416 =========== =========== =========== ============ Cumulative gap as a percentage of total assets 26.9% 8.2% 2.6% =========== =========== ===========
(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. CASH AND INVESTMENTS The Office of Thrift Supervision (OTS) requires insured institutions, such as World Savings Bank, FSB (WFSB) and World Savings and Loan Association (WSL), to maintain a minimum amount of cash and certain qualifying investments for liquidity purposes. At June 30, 2000 and 1999 and at December 31, 1999, WFSB and WSL had liquidity in excess of the regulatory requirements. The state of Texas also requires insured institutions, such as World Savings Bank, SSB (WSSB), to maintain a daily minimum amount of cash and certain qualifying investments for liquidity purposes. WSSB met this requirement during the periods under discussion. At June 30, 2000 and 1999 and December 31, 1999, the Company had securities available for sale in the amount of $235 million, $381 million, and $319 million, respectively, including unrealized gains on securities available for sale of $223 million, $321 million, and $260 million, respectively. At June 30, 2000 and 1999 and December 31, 1999, the Company had no securities held for trading in its investment securities portfolio. Included in the Company's investment portfolio at June 30, 2000 and 1999 and December 31, 1999 were collateralized mortgage obligations (CMOs) in the amount of $65 million, $166 million, and $115 million, respectively. The Company holds CMOs on which both principal and interest are received. The Company does not hold any interest-only or principal-only CMOs. At June 30, 2000, all of these CMOs qualified for inclusion in the regulatory liquidity measurement. LOANS RECEIVABLE AND MORTGAGE-BACKED SECURITIES The Company invests primarily in whole loans. From time to time, the Company securitizes loans from its portfolio into mortgage-backed securities (MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs). MBS and MBS-REMICs are available to be used as collateral for borrowings. At June 30, 2000 and 1999 and December 31, 1999, the balance of loans receivable including mortgage-backed securities was $45.8 billion, $35.5 billion, and $39.6 billion, respectively. Included in the $45.8 billion at June 30, 2000 was $5.0 billion of Federal National Mortgage Association (FNMA) mortgage-backed securities with the underlying loans subject to full credit recourse to the Company, $8.6 billion of MBS-REMICs, and $481 million of purchased MBS. Included in the $39.6 billion at December 31, 1999 was $3.9 billion of FNMA MBS with the underlying loans subject to full credit recourse to the Company, $7.2 billion of MBS-REMICs, and $514 million of purchased MBS. Included in the $35.5 billion at June 30, 1999, was $3.3 billion of FNMA MBS with the underlying loans subject to full credit recourse to the Company, $8.1 billion of MBS-REMICs, and $569 million of purchased MBS. MORTGAGE-BACKED SECURITIES At June 30, 2000 and 1999 and December 31, 1999, the Company had MBS held to maturity in the amount of $14.1 billion, $11.9 billion, and $11.6 billion, respectively. The increase in MBS from June 30, 1999 to June 30, 2000 was due to the securitization of $1.1 billion of adjustable rate mortgages (ARMs) into FNMA MBS during the fourth quarter of 1999, the securitization of $1.5 billion of ARMs into FNMA MBS during the first six months of 2000, and the securitization of $2.0 billion of ARMs into MBS-REMICs during the second quarter of 2000. The FNMA MBS and the MBS-REMICs are available to be used as collateral for borrowings. The Company has the ability and intent to hold these MBS until maturity and, accordingly, these MBS are classified as held to maturity. At June 30, 2000 and 1999 and December 31, 1999, the Company had MBS available for sale in the amount of $71 million, $93 million, and $79 million, respectively, including unrealized gains on MBS available for sale of $1 million, $2 million, and $1 million, respectively. At June 30, 2000 and 1999 and December 31, 1999, the Company had no trading MBS. Repayments of MBS during the second quarter and first six months of 2000 were $547 million and $1.0 billion, respectively, compared to $795 million and $1.5 billion during the same periods of 1999. MBS repayments were lower during the first six months of 2000 as compared to the first six months of 1999 due to a decrease in the prepayment rate. LOAN VOLUME New loan originations for the three and six months ended June 30, 2000, amounted to $5.7 billion and $9.4 billion, respectively, compared to $2.9 billion and $4.9 billion for the same periods in 1999. The record high volume of originations during 2000 was due to continued strong demand for adjustable rate loans, the Company's primary product. Refinanced loans constituted 31% and 34% of new loan originations for the three and six months ended June 30, 2000, compared to 43% and 46% for the three and six months ended June 30, 1999. Loans originated for sale amounted to $60 million and $114 million for the three and six months ended June 30, 2000, compared to $317 million and $604 million for the same periods in 1999. The reduction in loans originated for sale in 2000 as compared to 1999 was attributable to the decrease in fixed-rate originations due to higher rates being charged on fixed-rate loans. During the second quarter and first six months of 2000, $8 million and $16 million of loans were converted at the customer's request from adjustable rate to fixed-rate compared to $300 million and $471 million for the same periods in 1999. The Company continues to sell most of its new fixed-rate loans and for the three and six months ended June 30, 2000 the Company sold $63 million and $135 million of fixed-rate loans, respectively, compared to $425 million and $961 million for the same periods of 1999. At June 30, 2000, the Company had lending operations in 30 states. The largest source of mortgage origination is loans secured by residential properties in California. For the three and six months ended June 30, 2000, 60% and 61% of total loan originations were on residential properties in California compared to 65% and 64% for the same periods in 1999. The five largest states, other than California, for originations for the six months ended June 30, 2000 were Florida, Texas, New Jersey, Washington, and Colorado with a combined total of 20% of total originations. The percentage of the total loan portfolio (including MBS with recourse and MBS-REMICs) that is comprised of residential loans in California was 63% at June 30, 2000 compared to 65% and 64% at June 30, 1999 and December 31, 1999. Golden West originates adjustable rate mortgages tied to various indexes, principally the Eleventh District Cost of Funds Index (COFI), the Golden West Cost of Savings Index (COSI), and the twelve-month rolling average of the One-Year Treasury Constant Maturity (TCM). The following table shows the distribution of ARM originations by index for the second quarter and first six months of 2000 and 1999.
TABLE 3 Adjustable Rate Mortgage Originations by Index (Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 ---------------------------- ---------------------------- ARM Index 2000 1999 2000 1999 - -------------------------- ------------ ------------- ------------ ------------ COFI $ 1,758,896 $ 761,557 $ 2,866,783 $ 1,310,190 COSI 3,507,389 1,730,440 5,836,576 2,807,828 TCM 209,148 33,091 401,559 71,741 ------------ ------------- ------------ ------------ $ 5,475,433 $ 2,525,088 $ 9,104,918 $ 4,189,759 ============ ============= ============ ============
The following table shows the distribution by index of the Company's outstanding balance of adjustable rate mortgages (including ARM MBS with recourse and ARM MBS-REMICs) at June 30, 2000 and 1999 and December 31, 1999.
TABLE 4 Adjustable Rate Mortgage Portfolio by Index (Including ARM MBS with recourse and ARM MBS-REMICs) (Dollars in thousands) June 30 -------------------------------- December 31 ARM Index 2000 1999 1999 - -------------------------- -------------- --------------- --------------- COFI $ 26,874,901 $26,986,275 $ 26,217,670 COSI 14,428,092 4,343,877 9,182,829 TCM 1,538,953 1,210,583 1,266,541 Other 149,656 165,118 152,470 -------------- --------------- --------------- $ 42,991,602 $32,705,853 $ 36,819,510 ============== =============== ===============
The Company generally lends up to 80% of the appraised value of residential real property. In some cases, a higher amount is possible through a first mortgage loan or a combination of a first and a second mortgage loan on the same property. During the first six months of 2000, 20% of loans originated exceeded 80% of the appraised value of the secured property, including $213 million of firsts and $1.7 billion of combined firsts and seconds. The Company takes steps to minimize the potential credit risk with respect to loans with a loan to value (LTV) over 80%. Among other things, the loan amount may not exceed 95% of the appraised value of a single-family residence. Also, some first mortgage loans with an LTV over 80% carry mortgage insurance which reimburses the Company for losses up to a specified percentage per loan, thereby reducing the effective LTV to below 80%. Furthermore, the Company sells without recourse a significant portion of its second mortgage originations. In addition, the Company carries pool mortgage insurance on most seconds not sold, such that the cumulative losses covered by this pool mortgage insurance are limited to 10% of the original balance of the insured pool. The following table shows mortgage originations with LTV ratios or combined LTV ratios greater than 80% for the three months ended June 30, 2000 and 1999.
TABLE 5 Mortgage Originations With Loan to Value and Combined Loan to Value Ratios Greater Than 80% (Dollars in thousands) For the Three Months Ended For the Six Months Ended June 30 June 30 ------------------------------ ------------------------------ 2000 1999 2000 1999 ------------ ------------ ------------- ------------ First mortgages with loan to value ratios greater than 80%: With insurance $ 28,113 $ 23,086 $ 46,050 $ 46,257 With no insurance 100,725 48,197 166,623 87,296 ------------ ------------ ------------- ------------ 128,838 71,283 212,673 133,553 ------------ ------------ ------------- ------------ First and second mortgages with combined loan to value ratios greater than 80%: With pool insurance 765,892 36,980 1,197,229 36,980 With no insurance 282,261 411,538 504,165 588,061 ------------ ------------ ------------- ------------ 1,048,153 448,518 1,701,394 625,041 ------------ ------------ ------------- ------------ Total $ 1,176,991 $ 519,801 $ 1,914,067 $ 758,594 ============ ============ ============= ============
The following table shows the outstanding balance of mortgages with original LTV or combined LTV ratios greater than 80% at June 30, 2000 and 1999.
TABLE 6 Balance of Mortgages With Loan to Value and Combined Loan to Value Ratios Greater Than 80% (Dollars in thousands) As of June 30 -------------------------------- 2000 1999 -------------- -------------- First mortgages with loan to value ratios greater than 80%: With insurance $ 371,260 $ 425,890 With no insurance 892,275 841,922 -------------- -------------- 1,263,535 1,267,812 -------------- -------------- First and second mortgages with combined loan to value ratios greater than 80%: With pool insurance 1,787,737 36,947 With no insurance 488,469 163,299 -------------- -------------- 2,276,206 200,246 -------------- -------------- Total $ 3,539,741 $ 1,468,058 ============== ==============
The tables on the following two pages show the Company's loan portfolio by state at June 30, 2000 and 1999.
TABLE 7 Loan Portfolio by State June 30, 2000 (Dollars in thousands) Residential Real Estate Commercial Loans as ------------------------- Real Total a% of State 1 - 4 5+ Land Estate Loans (a) Portfolio - ---------------- ------------ ----------- ---------- -------------- ----------- ------------ California $25,362,479 $3,395,439 $ 174 $ 25,248 $28,783,340 63.35% Florida 2,176,946 14,753 -0- 415 2,192,114 4.82 Texas 1,842,343 54,591 307 1,136 1,898,377 4.18 New Jersey 1,623,540 -0- -0- 2,983 1,626,523 3.58 Illinois 1,376,204 119,021 -0- -0- 1,495,225 3.29 Washington 899,414 526,412 -0- -0- 1,425,826 3.14 Colorado 1,162,879 182,164 -0- 5,102 1,350,145 2.97 Arizona 974,528 18,236 -0- -0- 992,764 2.18 Pennsylvania 917,792 3,105 -0- 2,453 923,350 2.03 Other (b) 4,706,240 42,137 46 5,139 4,753,562 10.46 ------------ ----------- ---------- ------------- ------------ --------- Totals $41,042,365 $4,355,858 $ 527 $ 42,476 45,441,226 100.00% ============ =========== ========== ============= ========= SFAS 91 deferred loan costs 117,551 Loan discount on purchased loans (1,728) Undisbursed loan funds (6,891) Allowance for loan losses (234,834) Loans to facilitate (LTF) interest reserve (258) Troubled debt restructured (TDR) interest reserve (496) Loans on deposits 20,538 ------------ Total loan portfolio and loans securitized into FNMA MBS with recourse and MBS-REMICs 45,335,108 Loans securitized into FNMA MBS with recourse and MBS-REMICs (13,651,191)(c) ------------ Total loans receivable $31,683,917 ============
(a) The Company has no commercial loans other than commercial real estate loans. (b) Includes states with loans less than 2% of total loans. (c) The above schedule includes the June 30, 2000 balances of loans that were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 8 Loan Portfolio by State June 30, 1999 (Dollars in thousands) Residential Real Estate Commercial Loans as ------------------------- Real Total a% of State 1 - 4 5+ Land Estate Loans (a) Portfolio - ---------------- ------------ ----------- ---------- -------------- ----------- ------------ California $19,585,296 $3,306,202 $ 200 $ 34,185 $22,925,883 65.30% Florida 1,515,516 16,661 1 508 1,532,686 4.37 Texas 1,404,240 61,801 482 1,288 1,467,811 4.18 New Jersey 1,181,787 -0- -0- 4,150 1,185,937 3.38 Illinois 1,110,849 132,960 -0- -0- 1,243,809 3.54 Washington 578,534 447,979 -0- 670 1,027,183 2.93 Colorado 895,407 175,984 -0- 5,457 1,076,848 3.07 Arizona 754,233 22,462 -0- -0- 776,695 2.21 Pennsylvania 656,849 4,125 -0- 2,775 663,749 1.89 Other (b) 3,158,073 41,450 59 8,445 3,208,027 9.13 ------------ ----------- ---------- ------------- ------------ --------- Totals $30,840,784 $4,209,624 $ 742 $ 57,478 35,108,628 100.00% ============ =========== ========== ============= ========= SFAS 91 net deferred loan costs 28,432 Loan discount on purchased loans (2,199) Undisbursed loan funds (3,803) Allowance for loan losses (233,471) Loans to facilitate interest reserve (356) Troubled debt restructured interest reserve (1,414) Loans on deposits 23,556 ------------ Total loan portfolio and loans securitized into FNMA MBS with recourse and MBS-REMIC 34,919,373 Loans securitized into FNMA MBS with recourse and MBS-REMIC (11,433,486)(c) ------------ Total loans receivable $23,485,887 ============
(a) The Company has no commercial loans other than commercial real estate loans. (b) Includes states with loans less than 2% of total loans. (c) The above schedule includes the June 30, 1999 balances of loans that were securitized and retained as FNMA MBS with recourse and MBS-REMIC. The Company continues to emphasize ARM loans with interest rates that change monthly in accordance with movements in specified indexes. The portion of the mortgage portfolio (including MBS and MBS-REMICs) composed of rate-sensitive loans was 94% at June 30, 2000, compared to 92% at June 30, 1999 and 93% at December 31, 1999. The Company's ARM originations for the first half of 2000 constituted 96% of new mortgage loans made in 2000 compared to 85% for the first half of 1999. The weighted average maximum lifetime cap rate on the Company's ARM loan portfolio (including ARMs swapped into MBS with recourse and MBS-REMICs) was 12.35%, or 4.81% above the actual weighted average rate at June 30, 2000, versus 12.54%, or 5.55% above the weighted average rate at June 30, 1999. Approximately $5.0 billion of the Company's ARM loans (including MBS with recourse and MBS-REMICs) have terms that state that the interest rate may not fall below a lifetime floor set at the time of origination or assumption. As of June 30, 2000, $339 million of ARM loans had reached their rate floors. The weighted average floor rate on the loans that had reached their floor was 7.76% at June 30, 2000 compared to 7.62% at June 30, 1999. Without the floor, the average rate on these loans would have been 7.30% at June 30, 2000 and 7.11% at June 30, 1999. Loan repayments consist of monthly loan amortization and loan payoffs. For the three and six months ended June 30, 2000, loan repayments were $1.2 billion and $2.1 billion, respectively, compared to $1.4 billion and $2.7 billion in the same periods of 1999. The decrease in loan repayments was primarily due to a decrease in loan payoffs in the first six months of 2000. MORTGAGE SERVICING RIGHTS Capitalized mortgage servicing rights are included in "Other assets" on the Consolidated Statement of Financial Condition. The following table shows the changes in capitalized mortgage servicing rights for the three and six months ended June 30, 2000 and 1999.
TABLE 9 Capitalized Mortgage Servicing Rights (Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Beginning balance of capitalized mortgage servicing rights $ 35,096 $ 35,250 $ 37,295 $ 28,635 New capitalized mortgage servicing rights from loan sales 663 7,491 1,485 16,459 Amortization of capitalized mortgage servicing rights (3,064) (2,881) (6,085) (5,234) ----------- ----------- ----------- ----------- Ending balance of capitalized mortgage servicing rights $ 32,695 $ 39,860 $ 32,695 $ 39,860 =========== =========== =========== ===========
The book value of Golden West's servicing rights did not exceed the fair value at June 30, 2000 or 1999 and, therefore, no write-down of the servicing rights to their fair value was necessary. ASSET QUALITY One measure of the soundness of the Company's loan and MBS portfolio is its ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets include non-accrual loans (loans, including loans swapped into MBS with recourse and loans securitized into MBS-REMICs, that are 90 days or more past due) and real estate acquired through foreclosure. No interest is recognized on non-accrual loans. The Company's troubled debt restructured (TDRs) are made up of loans on which delinquent payments have been capitalized or on which temporary interest rate reductions have been made, primarily to customers adversely impacted by economic conditions. The following table shows the components of the Company's NPAs and TDRs and the various ratios to total assets.
TABLE 10 Nonperforming Assets and Troubled Debt Restructured (Dollars in thousands) June 30 -------------------------- December 31 2000 1999 1999 ----------- ----------- -------------- Non-accrual loans $ 210,127 $ 239,937 $ 225,409 Real estate acquired through foreclosure 9,156 20,805 10,840 Real estate in judgment 452 439 69 ----------- ----------- ------------ Total nonperforming assets $ 219,735 $ 261,181 $ 236,318 =========== =========== ============ TDRs $ 4,053 $ 15,896 $ 10,542 =========== =========== ============ Ratio of NPAs to total assets .45% .69% .56% =========== =========== ============ Ratio of TDRs to total assets .01% .04% .03% =========== =========== ============ Ratio of NPAs and TDRs to total assets .46% .73% .59% =========== =========== ============
The lower NPAs at June 30, 2000 as compared to June 30, 1999 reflect the strong economy and housing market. The Company closely monitors all delinquencies and takes appropriate steps to protect its interests. Interest foregone on non-accrual loans amounted to $1 million and $2 million in the second quarter and first six months of 2000 compared to $1 million and $3 million for the same periods in 1999. Interest foregone on TDRs amounted to $46 thousand and $112 thousand for the three and six months ended June 30, 2000, compared to $108 thousand and $243 thousand for the three and six months ended June 30, 1999. The tables on the following page show the Company's nonperforming assets by state as of June 30, 2000 and 1999.
TABLE 11 Nonperforming Assets by State June 30, 2000 (Dollars in thousands) Non-Accrual Loans (a) Real Estate Owned ------------------------------------ -------------------------------- Residential Commercial Commercial NPAs as Real Estate Real Residential Real Total a% of State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans - ------------------ --------- --------- ----------- -------- --------- --------- ---------- -------- California $114,337 $ 528 $ 668 $ 4,548 $ -0- $ -0- $120,081 .42% Florida 16,757 -0- 178 78 -0- -0- 17,013 .78 Texas 8,759 -0- -0- 670 -0- -0- 9,429 .50 New Jersey 13,516 -0- 383 689 -0- 284 14,872 .91 Illinois 10,938 215 -0- 470 -0- -0- 11,623 .78 Washington 2,887 -0- -0- 118 -0- -0- 3,005 .21 Colorado 2,129 -0- -0- 196 -0- -0- 2,325 .17 Arizona 4,575 -0- -0- -0- -0- -0- 4,575 .46 Pennsylvania 9,682 -0- -0- 1,044 -0- -0- 10,726 1.16 Other (c) 24,491 84 -0- 1,256 -0- 508 26,339 .55 --------- --------- ----------- -------- --------- --------- ---------- ----- Totals $208,071 $ 827 $ 1,229 $ 9,069 $ -0- $ 792 219,988 .48% ========= ========= =========== ======== ========= ========= REO general valuation allowance (253) (.00) ---------- ----- Total nonperforming assets $219,735 .48% ========== =====
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) The June 30, 2000 balances include loans that were securitized into FNMA MBS and MBS-REMICs. (c) Includes states with loans less than 2% of total loans.
TABLE 12 Nonperforming Assets by State June 30, 1999 (Dollars in thousands) Non-Accrual Loans (a) Real Estate Owned ---------------------------------- --------------------------------- Residential Commercial Commercial NPAs as Real Estate Real Residential Real Total a% of State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans - ------------------ --------- --------- --------- -------- --------- --------- --------- --------- California $148,755 $ 2,958 $ 1,787 $16,191 $ 931 $ 129 $170,751 .74% Florida 14,346 -0- 29 755 -0- -0- 15,130 .99 Texas 7,850 -0- -0- 393 -0- -0- 8,243 .56 New Jersey 15,784 -0- 371 156 -0- -0- 16,311 1.38 Illinois 11,069 216 -0- 667 -0- -0- 11,952 .96 Washington 1,792 -0- -0- 29 -0- -0- 1,821 .18 Colorado 2,249 -0- 3 372 -0- -0- 2,624 .24 Arizona 4,323 -0- -0- 84 -0- -0- 4,407 .57 Pennsylvania 8,155 -0- -0- 267 -0- -0- 8,422 1.27 Other (c) 17,256 997 1,997 1,776 -0- -0- 22,026 .69 --------- --------- --------- -------- --------- --------- --------- ----- Totals $231,579 $ 4,171 $ 4,187 $20,690 $ 931 $ 129 261,687 .75% ========= ========= ========= ======== ========= ========= REO general valuation allowance (506) (.00) --------- ----- Total nonperforming assets $261,181 .75% ========= =====
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) The June 30, 1999 balances include loans that were securitized into FNMA MBS and MBS-REMIC. (c) Includes states with loans less than 2% of total loans. The Company provides specific valuation allowances for losses on loans when impaired, and on real estate owned when any significant and permanent decline in value is identified. The Company also utilizes a methodology for monitoring and estimating loan losses and recourse obligations that is based on both historical experience in the loan portfolio and factors reflecting current economic conditions. This approach uses a database that identifies losses on loans and foreclosed real estate from past years to the present, broken down by year of origination, type of loan, and geographical area. Management is then able to estimate additions or reductions to the allowance needed to cover losses in the portfolio. In addition, periodic reviews are made of major loans and real estate owned, and major lending areas are regularly reviewed to determine potential problems. Where indicated, valuation allowances are established or adjusted. In estimating possible losses, consideration is given to the estimated sale price, cost of refurbishing the security property, payment of delinquent taxes, cost of disposal, and cost of holding the property. Additions to and reductions from the allowances are reflected in current earnings. The table below shows the changes in the allowance for loan losses for the three and six months ended June 30, 2000 and 1999.
TABLE 13 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------------ ----------------------- 2000 1999 2000 1999 ----------- ---------- ---------- ---------- Beginning allowance for loan losses $ 233,016 $ 236,476 $ 232,134 $ 244,466 Provision for (recovery of) losses charged to expense 3,842 (727) 4,811 (153) Net transfer of allowance (to) from reserve for losses on loans sold or securitized and retained (1,859) (2,385) (1,672) (12,135) Less loans charged off (269) (225) (620) -0- Add recoveries 104 332 181 1,293 ----------- ---------- ---------- ---------- Ending allowance for loan losses $ 234,834 $ 233,471 $ 234,834 $ 233,471 =========== ========== ========== ========== Ratio of net chargeoffs (recoveries) to average loans outstanding (including MBS with recourse) .00% .00% .00% (.01%) =========== ========== ========== ==========
As previously mentioned, the Company has securitized loans from its portfolio into FNMA MBS with recourse and MBS-REMICs. The Company's intent is to hold these MBS and MBS-REMICs to maturity. Because the loans underlying the MBS and MBS-REMICs are similar to the loans in its loan portfolio, the Company estimates its reserve on these securities in a manner similar to the method it uses for the allowance for loan losses. The Company also sells loans with full credit recourse and has established a reserve for potential losses on these loans. The liability for this reserve for losses on loans sold or securitized and retained is included in accounts payable and accrued expenses. The table below shows the changes in the reserve for losses on loans sold or securitized and retained for the three and six months ended June 30, 2000 and 1999.
TABLE 14 Changes in Reserve for Losses on Loans Sold with Recourse or Securitized and Retained (Dollars in thousands) Three Months Ended Six Months Ended June 30 June 30 ------------------------ ----------------------- 2000 1999 2000 1999 ----------- ---------- ---------- ---------- Beginning balance of reserve for losses on loans sold with recourse or securitized and retained $ 15,438 $ 12,549 $ 15,572 $ 2,256 Initial recourse liability recognized at time of sale 34 463 87 1,006 Net transfer from (to) allowance for loan losses 1,859 2,385 1,672 12,135 ----------- ---------- ---------- ---------- Ending balance of reserve for losses on loans sold with recourse or securitized and retained $ 17,331 $ 15,397 $ 17,331 $ 15,397 =========== ========== ========== ==========
The ratio to nonperforming assets of the allowance for loan losses and the reserve for losses on loans sold or securitized and retained was 114.8% and 95.3% at June 30, 2000 and 1999, respectively. At June 30, 2000 and 1999, the ratio to total loans (including MBS with recourse and MBS-REMICs) and loans sold with recourse of the allowance for loan losses and the reserve for losses on loans sold or securitized and retained was .53% and .67%, respectively. DEPOSITS Retail deposits increased during the second quarter of 2000 by $503 million, including interest credited of $301 million, compared to a decrease of $60 million, including interest credited of $265 million, in the second quarter of 1999. Retail deposits increased during the first half of 2000 by $612 million, including interest credited of $568 million, compared to an increase of $117 million, including interest credited of $510 million, in the first half of 1999. During the second quarter of 1999, the Company sold three branches with a total of $119 million in deposits. Retail deposits increased during the first half of 2000 and 1999 primarily due to interest credited. At June 30, 2000 and 1999, transaction accounts (which includes checking, passbook, and money market accounts) represented 31% and 39%, respectively, of the total balance of deposits. The Company has a program to use government securities dealers to sell certificates of deposit (CDs) to institutional investors (wholesale CDs). The Company's deposit balance as of December 31, 1999 included $600 million of these wholesale CDs. There were no outstanding wholesale CDs at June 30, 2000 or at June 30, 1999. The table below shows the Company's deposits by interest rate and by remaining maturity at June 30, 2000 and 1999.
TABLE 15 Deposits (Dollars in millions) June 30 --------------------------------------------------- 2000 1999 ------------------------ ------------------------ Rate* Amount Rate* Amount --------- ----------- ------------------------ Deposits by rate: Interest-bearing checking accounts 2.93% $ 116 3.42% $ 109 Interest-bearing checking accounts swept into money market deposit accounts 3.45 3,157 3.52 3,106 Passbook accounts 1.48 469 1.82 507 Money market deposit accounts 4.27 4,739 4.39 6,540 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.75 9,129 4.40 5,270 1 to 2 years 5.64 6,922 4.94 7,572 2 to 3 years 5.52 1,400 5.27 1,379 3 to 4 years 5.60 431 5.21 330 4 years and over 5.90 655 5.72 950 Retail jumbo CDs 5.56 709 4.70 573 Wholesale CDs 0.00 -0- 0.00 -0- ----------- ------------ $ 27,727 $ 26,336 =========== ============ 2000 1999 ----------- ------------ Deposits by remaining maturity: No contractual maturity 3.79% $ 8,481 3.99% $ 10,262 Maturity within one year 5.64 16,396 4.83 14,645 1 to 5 years 6.00 2,818 5.13 1,412 Over 5 years 5.24 32 4.82 17 ----------- ------------ $ 27,727 $ 26,336 =========== ============
* Weighted average interest rate, including the impact of interest rate swaps. At June 30, the weighted average cost of deposits was 5.11% (2000) and 4.50% (1999). ADVANCES FROM FEDERAL HOME LOAN BANKS The Company uses borrowings from FHLBs, also known as "advances," to supplement cash flow and to provide funds for loan origination activities. Advances are secured by pledges of certain loans, MBS-REMICs, other MBS, and capital stock of FHLBs. FHLB advances amounted to $15.2 billion at June 30, 2000, compared to $6.1 billion and $8.9 billion at June 30, 1999, and December 31, 1999, respectively. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Company borrows funds through transactions in which securities are sold under agreements to repurchase (Reverse Repos). Reverse Repos are entered into with selected major government securities dealers and large banks, typically using MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted to $1.2 billion, $685 million, and $1.0 billion at June 30, 2000 and 1999, and December 31, 1999, respectively. OTHER BORROWINGS At June 30, 2000, Golden West, at the holding company level, had a total of $713 million of subordinated debt issued and outstanding. As of June 30, 2000, the Company's subordinated debt securities were rated A3 and A- by Moody's Investors Service (Moody's) and Standard & Poor's (S&P), respectively. During November 1996, WFSB received permission from the OTS to issue non-convertible medium-term notes to institutional investors under rules similar to Office of the Comptroller of the Currency rules applicable to similarly situated national banks. As of June 30, 2000, WFSB had not issued any notes under this authority. During July 2000, the Company filed a registration statement with the Securities and Exchange Commission for the issuance or sale of up to $1.0 billion of preferred stock and debt securities. The Company has not issued any securities under this registration statement. STOCKHOLDERS' EQUITY The Company's stockholders' equity increased by $115 million during the first six months of 2000 as a result of net earnings partially offset by decreased market values of securities available for sale, the payment of quarterly dividends to stockholders, and the $109 million cost of the repurchase of Company stock. The Company's stockholders' equity increased during the first six months of 1999 by $42 million as a result of net earnings partially offset by decreased market values of securities available for sale, the payment of quarterly dividends to stockholders, and the $170 million cost of the repurchase of Company stock. Unrealized gains, net of taxes, on securities and MBS available for sale included in stockholders' equity at June 30, 2000 and 1999, and December 31, 1999, were $136 million, $195 million, and $158 million, respectively. In 1999, the Company effected a three-for-one split of its outstanding Common Stock in the form of a 200% stock dividend. This dividend was payable December 10, 1999, to holders of record at the close of business on November 15, 1999. Per share amounts in this 10-Q filing have been restated to reflect this stock dividend unless otherwise noted. Since 1993, through four separate actions, Golden West's Board of Directors has authorized the purchase by the Company of up to 44.7 million shares of Golden West's common stock. As of June 30, 2000, 42.9 million shares had been repurchased and retired at a cost of $915 million since October 1993, of which 3.7 million shares were purchased and retired at a cost of $109 million during the first six months of 2000. Dividends from subsidiaries are expected to continue to be the major source of funding for the stock repurchase program. The purchase of Golden West stock is not intended to have a material impact on the normal liquidity of the Company. REGULATORY CAPITAL The OTS requires federally insured institutions, such as WFSB and WSL, to meet certain minimum capital requirements. The following table shows WFSB's regulatory capital ratios and compares them to the OTS minimum requirements at June 30, 2000 and 1999.
TABLE 16 World Savings Bank, FSB Regulatory Capital Ratios (Dollars in thousands) June 30, 2000 June 30, 1999 ----------------------------------------------- ---------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ---------------------- ---------------------- ---------------------- --------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- --------- ----------- --------- ---------- --------- ---------- -------- Tangible $2,713,085 6.05% $ 672,890 1.50% $2,336,862 7.01% $ 499,791 1.50% Core 2,713,085 6.05 1,794,373 4.00 2,336,862 7.01 1,332,775 4.00 Risk-based 2,877,950 10.98 2,097,301 8.00 2,483,193 12.95 1,533,886 8.00
The following table shows WSL's current regulatory capital ratios and compares them to the OTS minimum requirements at June 30, 2000 and 1999.
TABLE 17 World Savings and Loan Association Regulatory Capital Ratios (Dollars in thousands) June 30, 2000 June 30, 1999 ------------------------------------------------ ------------------------------------------------ ACTUAL REQUIRED ACTUAL REQUIRED ----------------------- ---------------------- ---------------------- ----------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- --------- ----------- --------- ----------- -------- ----------- --------- Tangible $ 439,198 9.60% $ 68,626 1.50% $ 548,213 9.52% $ 86,344 1.50% Core 439,198 9.60 183,003 4.00 548,213 9.52 230,252 4.00 Risk-based 467,648 18.62 200,954 8.00 584,207 18.60 251,217 8.00
In addition, institutions whose exposure to interest rate risk, as determined by the OTS, is deemed to be above normal may be required to hold additional risk-based capital. The OTS has determined that neither WFSB nor WSL has above-normal exposure to interest rate risk. The OTS has adopted rules based upon five capital tiers: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The determination of whether an association falls into a certain classification depends primarily on its capital ratios. As of June 30, 2000, the most recent notification from the OTS categorized both WFSB and WSL as "well-capitalized" under the current requirements. There are no conditions or events that have occurred since that notification that the Company believes would have an impact on the categorization of either WFSB or WSL. The table below shows that WFSB's regulatory capital exceeded the requirements of the well-capitalized classification at June 30, 2000.
TABLE 18 World Savings Bank, FSB Regulatory Capital Compared to Well-Capitalized Classification (Dollars in thousands) ACTUAL WELL-CAPITALIZED ------------------------ -------------------------- Capital Ratio Capital Ratio ----------- ---------- ------------ ----------- Leverage $ 2,713,085 6.05% $ 2,242,967 5.00% Tier 1 risk-based 2,713,085 10.35 1,572,975 6.00 Total risk-based 2,877,950 10.98 2,621,626 10.00
The table below shows that WSL's regulatory capital exceeded the requirements of the well-capitalized classification at June 30, 2000.
TABLE 19 World Savings and Loan Association Regulatory Capital Compared to Well-Capitalized Classification (Dollars in thousands) ACTUAL WELL-CAPITALIZED ------------------------ -------------------------- Capital Ratio Capital Ratio ----------- ---------- ------------ ----------- Leverage $ 439,198 9.60% $ 228,754 5.00% Tier 1 risk-based 439,198 17.48 150,715 6.00 Total risk-based 467,648 18.62 251,192 10.00
World Savings Bank, SSB is regulated by the FDIC and the state of Texas. At June 30, WSSB had the following regulatory capital calculated in accordance with the FDIC's capital standards:
TABLE 20 World Savings Bank, SSB Regulatory Capital Ratios (Dollars in thousands) June 30, 2000 June 30, 1999 ----------------------------------------------- ---------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ---------------------- ---------------------- ---------------------- ---------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- -------- ----------- --------- ---------- --------- ----------- --------- Tier 1 leverage $ 233,350 5.21% $ 134,278 3.00% $ 194,087 5.41% $ 107,577 3.00% Tier 1 risk-based 233,350 24.64 37,887 4.00 194,087 26.19 29,648 4.00 Total risk-based 233,553 24.66 75,774 8.00 194,301 26.21 59,296 8.00
RESULTS OF OPERATIONS NET EARNINGS Net earnings for the three months ended June 30, 2000 were $133 million compared to net earnings of $122 million for the three months ended June 30, 1999. Net earnings for the six months ended June 30, 2000 were $259 million compared to net earnings of $243 million for the six months ended June 30, 1999. Net earnings increased for the first six months of 2000 as compared to the same period in 1999 as a result of increased net interest income which was partially offset by an increase in general and administrative expenses. SPREAD An important determinant of the Company's earnings is its primary spread -- the difference between its yield on earning assets and its cost of funds. The table below shows the components of the Company's spread at June 30, 2000 and 1999 and December 31, 1999.
TABLE 21 Yield on Earning Assets, Cost of Funds, and Primary Spread June 30 ---------------------------- December 31 2000 1999 1999 ------------ ------------ ------------- Yield on loan portfolio 7.53% 7.06% 7.16% Yield on MBS 7.49 7.07 7.17 Yield on investments 7.76 6.45 5.88 --------- --------- --------- Yield on earning assets 7.52 7.06 7.15 --------- --------- --------- Cost of deposits 5.11 4.50 4.69 Cost of borrowings 6.43 5.59 5.77 --------- --------- --------- Cost of funds 5.61 4.75 5.00 --------- --------- --------- Primary spread 1.91% 2.31% 2.15% ========= ========= =========
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.
TABLE 22 Average Interest-Earning Assets and Interest-Bearing Liabilities (Dollars in thousands) Three Months Ended Three Months Ended June 30, 2000 June 30, 1999 ------------------------------- ------------------------------- Annualized End of Annualized End of Average Average Period Average Average Period Balances Yield Yield Balances Yield Yield ---------- ---------- ------- ----------- --------- ------- ASSETS Investment Securities $ 2,956,673 6.49% 7.76% $ 3,278,465 5.19% 6.45% Mortgage-backed securities 12,496,770 7.43% 7.49% 10,938,702 6.93% 7.07% Loans receivable (a) 31,493,046 7.57% 7.53% 24,633,968 7.23% . 7.06% Invest. in capital stock 703,810 9.55% 6.29% 597,545 5.38% 5.24% of FHLBs ---------- ---------- ----------- --------- Interest-earning assets $47,650,299 7.49% $39,448,680 6.95% ========== ========== =========== ========= LIABILITIES Deposits: Checking accounts $ 131,306 2.34% 2.93% $ 108,477 2.15% 3.42% Savings accounts 8,869,768 3.78% 3.80% 10,030,827 3.85% 3.99% Term accounts 19,744,895 5.55% 5.69% 16,977,162 4.92% 4.83% ---------- ---------- ------- ----------- --------- ------- Total deposits 28,745,969 4.98% 5.11% 27,116,466 4.51% 4.50% Advances from FHLBs 13,535,342 6.12% 6.40% 6,112,877 5.39% 5.36% Reverse repurchases 1,458,960 6.02% 6.16% 1,497,923 5.01% 5.15% Other borrowings 1,389,851 7.10% 7.69% 1,963,444 6.02% 7.63% ---------- ---------- ----------- --------- Interest-bearing liabilities $45,130,122 5.42% $36,690,710 4.76% ========== ========== =========== ========= Annualized net interest spread 2.07% 2.19% ========== ========= Net interest income $ 280,527 $ 248,506 ========== =========== Annualized net yield on average interest-earning assets 2.35% 2.52% ========== =========
(a) Includes nonaccrual loans (90 days or more past due).
TABLE 23 Average Interest-Earning Assets and Interest-Bearing Liabilities (Dollars in thousands) Six Months Ended Six Months Ended June 30, 2000 June 30, 1999 ------------------------------- ------------------------------- Annualized End of Annualized End of Average Average Period Average Average Period Balances Yield Yield Balances Yield Yield ---------- ---------- ------- ----------- --------- ------- ASSETS Investment Securities $ 2,659,210 6.29% 7.76% $ 3,208,154 5.12% 6.45% Mortgage-backed securities 12,118,877 7.32% 7.49% 10,430,900 6.87% 7.07% Loans receivable (a) 30,330,203 7.47% 7.53% 25,233,334 7.31% 7.06% Invest. in capital stock 635,567 7.95% 6.29% 678,314 5.41% 5.24% of FHLBs ---------- ---------- ----------- --------- Interest-earning assets $45,743,857 7.37% $39,550,702 6.98% ========== ========== =========== ========= LIABILITIES Deposits: Checking accounts $ 126,493 2.31% 2.93% $ 105,216 2.13% 3.42% Savings accounts 9,191,983 3.81% 3.80% 9,744,626 3.85% 3.99% Term accounts 19,368,466 5.39% 5.69% 17,232,753 4.93% 4.83% ---------- ---------- ------- ----------- --------- ------- Total deposits 28,686,942 4.87% 5.11% 27,082,595 4.53% 4.50% Advances from FHLBs 11,788,452 5.96% 6.40% 6,230,228 5.41% 5.36% Reverse repurchases 1,324,795 5.83% 6.16% 1,344,277 4.80% 5.15% Other borrowings 1,324,598 7.01% 7.69% 2,122,922 6.21% 7.63% ---------- ---------- ----------- --------- Interest-bearing $43,124,787 5.26% $36,780,022 4.79% liabilities ========== ========== =========== ========= Annualized net interest spread 2.11% 2.19% ========== ========= Net interest income $ 550,158 $ 499,207 ========== =========== Annualized net yield on average interest-earning assets 2.41% 2.52% ========== =========
(a) Includes nonaccrual loans (90 days or more past due). The following table shows the Company's revenues and expenses as a percentage of total revenues for the three and six months ended June 30, 2000 and 1999.
TABLE 24 Selected Revenue and Expense Items as Percentages of Total Revenues Three Months Ended Six Months Ended June 30 June 30 ----------------------- ----------------------- 2000 1999 2000 1999 ---------- ---------- ---------- --------- Interest on loans 63.9% 61.2% 64.4% 63.1% Interest on mortgage-backed securities 24.9 26.0 25.2 24.6 Interest and dividends on investments 6.9 7.0 6.2 6.9 ---------- ---------- ---------- --------- 95.7 94.2 95.8 94.6 Less: Interest on deposits 38.4 42.1 39.7 42.1 Interest on advances and other borrowings 27.2 18.0 24.8 18.3 ---------- ---------- ---------- --------- 65.6 60.1 64.5 60.4 Net interest income 30.1 34.1 31.3 34.2 Provision for (recovery of) loan losses .4 (.1) .3 0.0 ---------- ---------- ---------- --------- Net interest income after provision for (recovery of) loan losses 29.7 34.2 31.0 34.2 Add: Fees 2.0 2.3 2.0 2.3 Gain on the sale of securities, MBS, and loans .2 1.1 .2 1.3 Other non-interest income 2.1 2.4 2.0 1.8 ---------- ---------- ---------- --------- 4.3 5.8 4.2 5.4 Less: General and administrative expenses 11.0 13.2 11.5 13.0 Taxes on income 8.7 10.0 9.0 10.0 ---------- ---------- ---------- --------- Net earnings 14.3% 16.8% 14.7% 16.6% ========== ========== ========== =========
INTEREST RATE SWAPS The Company enters into interest rate swaps as a part of its interest rate risk management strategy. Such instruments are entered into solely to alter the repricing characteristics of designated assets and liabilities. The Company does not hold any derivative financial instruments for trading purposes. Interest rate swap activity decreased net interest income by $4.1 million and $2.9 million for the three and six months ended June 30, 2000, as compared to decreases of $927 thousand and $3.7 million for the same periods in 1999. The following table summarizes the unrealized gains and losses for interest rate swaps at June 30, 2000 and 1999.
TABLE 25 Schedule of Unrealized Gains and Losses on Interest Rate Swaps (Dollars in thousands) June 30, 2000 June 30, 1999 ---------------------------------------- ---------------------------------------- Net Net Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gain(Loss) Gains Losses Gain(Loss) ------------ ------------ ------------ ------------ ------------ ------------ Interest rate swaps: Receive fixed $ -0- $ 2,778 $ (2,778) $ 917 $ 150 $ 767 Pay fixed 8,416 3,345 5,071 3,631 15,643 (12,012) ------------ ------------ ------------ ------------ ------------ ------------- $ 8,416 $ 6,123 $ 2,293 $ 4,548 $ 15,793 $ (11,245) ============ ============ ============ ============ ============ =============
TABLE 26 Schedule of Interest Rate Swaps Activity (Notional amounts in millions) Six Months Ended June 30, 2000 ---------------------------- Receive Pay Fixed Fixed Swaps Swaps ------------ ------------ Balance at December 31, 1999 $ 263 $ 727 Additions -0- -0- Maturities (24) (5) ------------ ------------ Balance at June 30, 2000 $ 239 $ 722 ============ ============
The range of floating interest rates received on swap contracts in the first six months of 2000 was 6.19% to 7.11%, and the range of floating interest rates paid on swap contracts was 6.28% to 6.87%. The range of fixed interest rates received on swap contracts in the first six months of 2000 was 5.58% to 8.85% and the range of fixed interest rates paid on swap contracts was 5.50% to 7.06%. INTEREST ON LOANS In the second quarter of 2000, interest on loans was higher than in the comparable 1999 period by $150 million or 33.7%. The increase in the second quarter of 2000 was due to a $6.7 billion increase in the average portfolio and a 41 basis point increase in the average portfolio yield. For the first half of 2000, interest on loans was higher than in the comparable 1999 period by $211 million or 22.9%. The increase was due to a $4.9 billion increase in the average portfolio balance and a 25 basis point increase in the average portfolio yield. INTEREST ON MORTGAGE-BACKED SECURITIES In the second quarter of 2000, interest on mortgage-backed securities was higher than in the comparable 1999 period by $43 million or 22.5%. The 2000 increase was due primarily due to a $1.7 billion increase in the average portfolio balance and a 43 basis point increase in the average portfolio yield. For the first half of 2000, interest on mortgage-backed securities was higher than in the comparable 1999 period by $85 million or 23.8% due primarily due to a $1.9 billion increase in the average portfolio balance and a 33 basis point increase in the average portfolio yield. The increase in the mortgage-backed securities portfolio was primarily due to the securitization of loans into FNMA MBS and MBS-REMICs, as discussed on pages 12 and 13. INTEREST AND DIVIDENDS ON INVESTMENTS The income earned on the investment portfolio fluctuates, depending upon the volume outstanding and the yields available on short-term investments. For the second quarter of 2000, interest and dividends on investments was higher than in the comparable 1999 period by $14 million or 28.1%. The increase was primarily due to a 139 basis point increase in the average portfolio yield, which was partially offset by a $322 million decrease in the average portfolio balance. For the first half of 2000, interest and dividends on investments was higher than in the comparable 1999 period by $8 million or 8.4%. The increase was primarily due to a 118 basis point increase in the average portfolio yield which was partially offset by a $549 million decrease in the average portfolio balance. In addition, included in interest and dividends on investments for the three and six months ended June 30, 2000 were $2.7 million of special dividends from the FHLB of San Francisco and $2.8 million of special dividends from the FHLB of Dallas for a total of $5.5 million. These dividends were received by the Company during the second quarter of 2000. INTEREST ON DEPOSITS In the second quarter of 2000, interest on deposits increased by $52 million or 17.1% from the comparable period in 1999. The second quarter increase was due to a 47 basis point increase in the average cost of deposits and a $1.7 billion increase in the average balance of deposits. In the first half of 2000, interest on deposits increased by $85 million or 13.8% from the comparable period in 1999. The six month increase was primarily due to a 31 basis point increase in the average cost of deposits and a $1.6 billion increase in the average balance of deposits. INTEREST ON ADVANCES AND OTHER BORROWINGS For the second quarter and first half of 2000, interest on advances and other borrowings increased by $123 million or 94.0% and $169 million or 63.2%, respectively, from the comparable periods of 1999. The second quarter increase was primarily due to a $6.8 billion increase in the average balance and a 73 basis point increase in the average cost of these borrowings. The six month increase was primarily due to a $4.7 billion increase in the average balance and a 51 basis point increase in the average cost of these borrowings. PROVISION FOR (RECOVERY OF) LOAN LOSSES The provision for loan losses was $4 million and $5 million, respectively, for the three and six months ended June 30, 2000, compared to a recovery of $727 thousand and $153 thousand for the same periods in 1999. The provision in 2000 reflected the rapid growth of the loan portfolio. The recoveries in 1999 reflected declining nonperforming assets as a result of the strong housing market and economy. NONINTEREST INCOME Noninterest income was $39 million and $73 million for the three and six months ended June 30, 2000, compared to $43 million and $78 million for the same periods in 1999. The decrease in 2000 was due primarily to lower gains on the sale of loans. In addition, for the three and six months ended June 30, 2000, other income included $7 million and $11 million, respectively, of income earned on our check outsourcing program which started in September 1999. Under the new program, interest from float on outstanding checks is reported in other income instead of interest income as had been done previously. In the three and six months ended June 30, 1999, other income also included gains of $7 million from the sale of three savings offices located in markets with limited growth potential. There were no branch sales in 2000. GENERAL AND ADMINISTRATIVE EXPENSES For the second quarter and first half of 2000, general and administrative expenses (G&A) were $102 million and $202 million, respectively, compared to $96 million and $189 million for the comparable periods in 1999. G&A as a percentage of average assets on an annualized basis was .87% and .90%, respectively, for the second quarter and first half of 2000 compared to 1.00% and .99%, respectively, for the same periods in 1999. G&A expenses increased in 2000 because of ongoing investments in personnel, facilities, and technology. However, G&A as a percentage of average assets decreased during 2000 because assets grew faster than G&A expense. TAXES ON INCOME The Company utilizes the accrual method of accounting for income tax purposes and for preparing its published financial statements. For financial reporting purposes only, the Company uses purchase accounting in connection with certain assets acquired through mergers. The purchase accounting portion of income is not subject to tax. Taxes as a percentage of earnings were 37.8%, for the second quarter and first half of 1999 compared to 37.5% for the same periods a year ago. LIQUIDITY AND CAPITAL RESOURCES WFSB's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; sales of loans; wholesale certificates of deposit; borrowings from the FHLB; investments and borrowings from its affiliates; debt collateralized by mortgages, MBS, or securities; and the issuance of medium-term notes. In addition, WFSB has other alternatives available to provide liquidity or finance operations including federal funds purchased, borrowings from public offerings of debt, issuances of commercial paper, and borrowings from commercial banks. Furthermore, under certain conditions, WFSB may borrow from the Federal Reserve Bank of San Francisco to meet short-term cash needs. The availability of these funds will vary depending upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the Federal Reserve Board. For a discussion of WFSB's liquidity positions at June 30, 2000 and 1999, and December 31, 1999, see the Cash and Investments section on page 12. WSL's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; borrowings from the FHLB; and debt collateralized by mortgages, MBS, or securities. In addition, WSL has a number of other alternatives available to provide liquidity or finance operations. These include federal funds purchased, borrowings from its affiliates, borrowings from public offerings of debt, sales of loans, wholesale certificates of deposit, issuances of commercial paper, and borrowings from commercial banks. Furthermore, under certain conditions, WSL may borrow from the Federal Reserve Bank of San Francisco to meet short-term cash needs. The availability of these funds will vary depending upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the Federal Reserve Board. For a discussion of WSL's liquidity positions at June 30, 2000 and 1999, and December 31, 1999, see the Cash and Investments section on page 12. WSSB's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; borrowings from the FHLB Dallas; debt collateralized by mortgages or securities; and borrowings from its affiliates. The principal sources of funds for WFSB's, WSL's, and WSSB's parent, Golden West, are dividends from subsidiaries, interest on investments, and the proceeds from the issuance of debt and equity securities. Various statutory and regulatory restrictions and tax considerations limit the amount of dividends WFSB and WSL can pay. The principal liquidity needs of Golden West are for payment of interest and principal on subordinated debt securities, capital contributions to its insured subsidiaries (including $117 thousand for the year ended December 31, 1999), dividends to stockholders, the purchase of Golden West stock (see stockholders' equity section on page 24), and general and administrative expenses. At June 30, 2000 and 1999, and December 31, 1999, Golden West's total cash and investments amounted to $522 million, $725 million, and $761 million, respectively. Included in the June 30, 2000 and 1999, and December 31, 1999 amounts are loans to WFSB. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Golden West estimates the sensitivity of the Company's net interest income, net earnings, and capital ratios to interest rate changes and anticipated growth based on simulations using an asset/liability model which takes into account the lags described on pages 11 and 28. The simulation model projects net interest income, net earnings, and capital ratios based on an immediate interest rate increase that is sustained for a thirty-six month period. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. For certain assets, the model incorporates assumptions regarding the impact of changing interest rates on prepayment rates which are based on the Company's historical prepayment information. The model factors in projections for anticipated activity levels by product lines offered by the Company. Based on the information and assumptions in effect at June 30, 2000, Management believes that a 200 basis point rate increase sustained over a thirty-six month period would not affect the Company's long-term profitability and financial strength. 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued) (a) Index to Exhibits (continued) Exhibit No. Description ----------- ----------- 10(e) Form of Supplemental Retirement Agreement between the Company and certain executive officers is incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K (File No. 1-4629) for the year ended December 31, 1990. 10(f) Operating lease on Company headquarters building, 1901 Harrison Street, Oakland, California 94612, is incorporated by reference to Exhibit 10(h) of the Company's Quarterly Report on Form 10-Q (File No. 1-4629) for the quarter ended September 30, 1998. 11 Statement of Computation of Earnings Per Share 27 Financial Data Schedule (b) Reports on Form 8-K The Registrant did not file any current reports on Form 8-K with the Commission during the first six months of 2000. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLDEN WEST FINANCIAL CORPORATION Dated: August 14, 2000 /s/ Russell W. Kettell --------------------------------- Russell W. Kettell President and Chief Financial Officer /s/ William C. Nunan --------------------------------- William C. Nunan Chief Accounting Officer EX-11 2 0002.txt
EXHIBIT 11 Golden West Financial Corporation Statement of Computation of Basic and Diluted Earnings Per Share (Dollars in thousands except per share figures) Three Months Ended Six Months Ended June 30 June 30 ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Net Earnings $ 133,262 $ 122,387 $ 259,196 $ 242,755 ============= ============= ============= ============= Weighted Average Shares 157,999,885 167,665,377 158,979,248 168,698,412 Add: Options outstanding at period end 6,735,779 5,526,915 6,735,779 5,526,915 Less: Shares assumed purchased back with proceeds of options exercised 5,141,709 3,895,077 5,487,657 3,921,822 ------------- ------------- ------------- ------------- Diluted Average Shares Outstanding 159,593,955 169,297,215 160,227,370 170,303,505 ============= ============= ============= ============= Basic Earnings Per Share $ .84 $ .73 $ 1.63 $ 1.44 ============= ============= ============= ============= Diluted Earnings Per Share $ .84 $ .72 $ 1.62 $ 1.43 ============= ============= ============= =============
EX-27 3 0003.txt
9 6-MOS MAR-31-2000 JUN-30-2000 254,442 0 0 0 305,742 14,061,245 13,748,463 31,683,917 234,834 48,847,884 27,726,782 3,583,855 705,956 13,521,580 0 0 15,795 3,293,916 48,847,884 1,132,702 108,945 443,299 1,684,946 698,323 1,134,788 550,158 4,811 0 202,347 416,416 259,196 0 0 259,196 1.63 1.62 7.52 210,127 0 4,053 39,128 232,134 620 181 234,834 234,834 0 0
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