-----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, EijsmNTB9EAs0rhJR3nXv0FnTeuWL8lT/keSd8d11pU3BbGdh0M9mqpU0dBksVV4 r7/XOQuF07J/2ikq6oIyvA== /in/edgar/work/0000042293-00-000027/0000042293-00-000027.txt : 20001110 0000042293-00-000027.hdr.sgml : 20001110 ACCESSION NUMBER: 0000042293-00-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001109 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: 757647 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5104663402 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 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. 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)
September 30 September 30 December 31 2000 1999 1999 --------------- ------------ ----------- (Unaudited) ----------------------------- 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 =========== =========== ===========
Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) (Dollars in thousands except per share figures)
Three Months Ended Nine Months Ended September 30 September 30 ------------------------- ------------------------- 2000 1999 2000 1999 ----------- ----------- ----------- --------- 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 =========== =========== =========== ===========
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands)
Three Months Ended Nine Months Ended September 30 September 30 ---------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ------------ ------------ ------------- 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)
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands)
Three Months Ended Nine Months Ended September 30 September 30 ------------ ------------ ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ 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
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands)
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 ------------ ------------ ------------- ---------------- --------------- --------------- 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 ============ ============ ============= ================ ===============
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 ------------ ------------ ------------- ---------------- --------------- --------------- 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 ============ ============ ============= ================ ===============
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.
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) September 30 September 30 December 31 2000 1999 1999 -------------- --------------- ---------------- 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%
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 -------------- -------------- -------------- ------------- 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%
(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. 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 1 Consolidated Condensed Balance Sheet In Percentage Terms September 30 ----------------------- December 31 2000 1999 1999 --------- -------- --------------- 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% ========= ======== =========
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." 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 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: 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% ============ ============== ==============
(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 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. 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. 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 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 - ---------------- --------------- -------------- ---------------- -------------- 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 =============== ============== ================ ==============
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 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 - --------------- ----------------- ----------------- ----------------- 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 ================= ================= =================
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 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 -------------- --------------- -------------- --------------- 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 ============== =============== ============== ===============
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 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 ---------------- ----------------- 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 ================ =================
The tables on the following two pages show the Company's loan portfolio by state at September 30, 2000 and 1999.
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 - ------------------- -------------- ------------- ------------ ---------------- -------------- ------------ 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 ==============
(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.
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 - ------------------- -------------- ------------- ------------ ---------------- -------------- -------------- 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 ==============
(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. 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 9 Capitalized Mortgage Servicing Rights (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------- ------------ ------------- ------------ 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 ============= ============ ============= ============
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. 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 10 Nonperforming Assets and Troubled Debt Restructured (Dollars in thousands) September 30 ------------------------------- December 31 2000 1999 1999 ------------- ------------- ---------------- 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% ============= ============= =================
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.
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 - --------------- ----------- ---------- ------------ --------- ---------- ---------- ------------ --------- 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% ============ =======
(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 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 - --------------------- ----------- ----------- ---------- ---------- ---------- ----------- ----------- 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% =========== =======
(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. 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 13 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------- ------------ ------------- ------------ 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%) ============= ============ ============= ============
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. 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 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 ------------- ------------ ------------- ------------ 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 ============= ============ ============= ============
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. The table below shows the Company's deposits by interest rate and by remaining maturity at September 30, 2000 and 1999.
TABLE 15 Deposits (Dollars in millions) September 30 ----------------------------------------------------------- 2000 1999 ---------------------------- ---------------------------- Rate* Amount Rate* Amount ----------- ------------- ---------------------------- 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 ============= =============
* 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. 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. 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 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 ------------- ---------- ------------ ---------- ------------- ---------- ------------- ---------- 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
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 ------------- ----------- ------------ ----------- ------------- ---------- ------------ ----------- 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
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. The table below shows that WFSB's regulatory capital exceeded the requirements of the well-capitalized classification at September 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 $ 2,817,341 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
The table below shows that WSL's regulatory capital exceeded the requirements of the well-capitalized classification at September 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 $ 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
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 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 ------------- ---------- ------------ ---------- ------------ ----------- ------------ ---------- 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
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 21 Yield on Earning Assets, Cost of Funds, and Primary Spread September 30 --------------------------------- December 31 2000 1999 1999 -------------- --------------- ------------ 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% ========== =========== ==========
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 September 30, 2000 September 30, 1999 ------------------------------------ ------------------------------------ Annualized End of Annualized End of Average Average Period Average Average Period Balances Yield Yield Balances Yield Yield ------------ ----------- -------- ------------ ----------- -------- 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% =========== ===========
(a) Includes nonaccrual loans (90 days or more past due).
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 ------------ ----------- -------- ------------ ----------- -------- 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% =========== ===========
(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 nine months ended September 30, 2000 and 1999.
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 ----------- ----------- ----------- ------------ 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% =========== =========== =========== ============
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 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) -------------- -------------- -------------- -------------- ------------- -------------- 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 26 Schedule of Interest Rate Swaps Activity (Notional amounts in millions) Nine Months Ended September 30, 2000 -------------------------------- Receive Pay Fixed Fixed Swaps Swaps ------------- -------------- Balance at December 31, 1999 $ 263 $ 727 Additions -0- -0- Maturities (43) (5) -------------- --------------- Balance at September 30, 2000 $ 220 $ 722 ============== ===============
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%. 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. 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. 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. 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. 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 nine 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: 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 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 Nine Months Ended September 30 September 30 ---------------------------------- ---------------------------------- 2000 1999 2000 1999 ---------------- --------------- ---------------- --------------- Net Earnings $ 137,403 $ 118,071 $ 396,599 $ 360,826 ================ =============== ================ =============== Weighted Average Shares 158,032,942 164,094,096 158,661,510 167,146,773 Add: Options outstanding at period end 6,545,529 6,226,950 6,545,529 6,226,950 Less: Shares assumed purchased back with proceeds of options exercised 4,483,405 4,831,866 4,992,171 4,844,703 ---------------- --------------- ---------------- --------------- Diluted Average Shares Outstanding 160,095,066 165,489,180 160,214,868 168,529,020 ================ =============== ================ =============== Basic Earnings Per Share $ .87 $ .72 $ 2.50 $ 2.16 ================ =============== ================ =============== Diluted Earnings Per Share $ .86 $ .71 $ 2.48 $ 2.14 ================ =============== ================ ===============
EX-27 3 0003.txt
9 9-MOS DEC-31-2000 SEP-30-2000 213,884 0 103,175 0 379,380 14,507,244 14,303,958 34,906,911 235,569 52,365,381 28,249,069 5,256,356 774,573 14,596,377 0 0 15,813 3,473,193 52,365,381 1,786,134 186,517 726,659 2,699,380 1,083,765 1,861,310 838,070 5,917 0 309,483 637,462 396,599 0 0 396,599 2.50 2.48 7.86 213,956 0 4,175 32,515 232,134 916 544 235,569 235,569 0 0
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