10-Q 2 gdw1q01.txt FORM 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------- FORM 10-Q --------------------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period ended March 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------- Commission file number 1-4629 GOLDEN WEST FINANCIAL CORPORATION Incorporated Pursuant to the Laws of Delaware State ----------------------- Internal Revenue Service - Employer Identification No. 95-2080059 1901 Harrison Street, Oakland, California 94612 (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 as of April 30, 2001: Common Stock -- 158,663,132 shares. ================================================================================ GOLDEN WEST FINANCIAL CORPORATION TABLE OF CONTENTS
Page No. PART I - FINANCIAL INFORMATION -------- ------------------------------ Item 1. Financial Statements Consolidated Statement of Financial Condition - March 31, 2001 and 2000 and December 31, 2000.................................................1 Consolidated Statement of Net Earnings - For the three months ended March 31, 2001 and 2000............................................2 Consolidated Statement of Cash Flows - For the three months ended March 31, 2001 and 2000............................................3 Consolidated Statement of Stockholders' Equity - For the three months ended March 31, 2001 and 2000............................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation..............6 New Accounting Pronouncements.....................................................................7 Financial Highlights..............................................................................8 Financial Condition..............................................................................10 Cash and Investments.............................................................................12 Loans Receivable and Mortgage-Backed Securities..................................................12 Mortgage Servicing Rights........................................................................18 Asset Quality....................................................................................19 Deposits.........................................................................................21 Advances from Federal Home Loan Banks............................................................22 Securities Sold Under Agreements to Repurchase...................................................23 Other Borrowings.................................................................................23 Stockholders' Equity.............................................................................23 Regulatory Capital...............................................................................24 Results of Operations............................................................................26 Liquidity and Capital Resources..................................................................31 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......................................32 PART II - OTHER INFORMATION --------------------------- Item 4. Submission of Matters to a Vote of Security Holders..............................................32 Item 6. Exhibits and Reports on Form 8-K................................................................33
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 months ended March 31, 2001 and 2000 are unaudited. In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair statement of the results for such three-month periods have been included. The operating results for the three months ended March 31, 2001 are not necessarily indicative of the results for the full year. Golden West Financial Corporation Consolidated Statement of Financial Condition (Dollars in thousands)
March 31 December 31 March 31 2001 2000 2000 ------------- -------------- ------------- (Unaudited) (Unaudited) ------------- ------------- Assets Cash $ 363,672 $ 350,430 $ 277,667 Securities available for sale at fair value 369,690 392,841 455,709 Other investments at cost 199,873 368,555 1,088,499 Purchased mortgage-backed securities available for sale 105,867 69,960 74,745 Purchased mortgage-backed securities held to maturity 369,268 385,543 423,160 Mortgage-backed securities with recourse held to maturity 20,003,219 18,124,987 10,952,263 Loans receivable 32,825,480 33,762,643 30,432,413 Interest earned but uncollected 276,699 276,306 190,986 Investment in capital stock of Federal Home Loan Banks--at cost which approximates fair value 1,084,264 1,067,800 671,056 Foreclosed real estate 7,284 8,261 11,214 Premises and equipment--at cost less accumulated depreciation 310,216 307,652 289,047 Other assets 816,477 588,991 769,481 ------------- -------------- ------------- $ 56,732,009 $ 55,703,969 $ 45,636,240 ============= ============== ============= Liabilities and Stockholders' Equity Deposits $ 31,356,959 $ 30,047,919 $ 27,974,252 Advances from Federal Home Loan Banks 18,936,789 19,731,797 12,224,073 Securities sold under agreements to repurchase 854,507 857,274 867,049 Federal funds purchased 270,000 -0- -0- Subordinated notes--net of discount 598,968 598,791 713,167 Taxes on income 520,224 432,207 344,296 Other liabilities 358,445 348,694 300,739 Stockholders' equity 3,836,117 3,687,287 3,212,664 ------------- -------------- ------------- $ 56,732,009 $ 55,703,969 $ 45,636,240 ============= ============== =============
Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) (Dollars in thousands except per share figures)
Three Months Ended March 31 -------------------------- 2001 2000 ---------- ----------- Interest Income Interest on loans $ 704,824 $ 537,087 Interest on mortgage-backed securities 365,597 211,317 Interest and dividends on investments 63,762 44,150 ---------- ----------- 1,134,183 792,554 Interest Expense Interest on deposits 430,748 340,010 Interest on advances 293,436 144,490 Interest on repurchase agreements 17,689 16,664 Interest on other borrowings 29,715 21,759 ---------- ----------- 771,588 522,923 ---------- ----------- Net Interest Income 362,595 269,631 Provision for loan losses 3,183 969 ---------- ----------- Net Interest Income after Provision for Loan Losses 359,412 268,662 Noninterest Income Fees 31,312 16,242 Gain on the sale of securities and loans 5,877 1,438 Change in fair value of derivatives (7,502) -0- Other 13,636 15,811 ---------- ----------- 43,323 33,491 Noninterest Expense General and administrative: Personnel 68,196 57,280 Occupancy 19,809 17,058 Deposit insurance 1,386 1,412 Advertising 1,877 2,174 Other 26,149 22,036 ---------- ----------- 117,417 99,960 Earnings before Taxes on Income and Cumulative Effect of Accounting Change 285,318 202,193 Taxes on Income 109,239 76,259 ---------- ----------- Income before Cumulative Effect of Accounting Change 176,079 125,934 Cumulative effect of accounting change, net of tax (6,018) -0- ---------- ----------- Net Earnings $ 170,061 $ 125,934 ========== =========== Basic Earnings Per Share before Cumulative Effect of Accounting Change $ 1.11 $ .79 Cumulative effect of accounting change, net of tax (.04) .00 ---------- ----------- Basic Earnings Per Share $ 1.07 $ .79 ========== =========== Diluted Earnings Per Share before Cumulative Effect of Accounting Change $ 1.10 $ .78 Cumulative effect of accounting change, net of tax (.04) .00 ---------- ----------- Diluted Earnings Per Share $ 1.06 $ .78 ========== ===========
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands)
Three Months Ended March 31 ---------------------------- 2001 2000 ------------ ------------ Cash Flows from Operating Activities Net earnings $ 170,061 $ 125,934 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Provision for loan losses 3,183 969 Amortization of loan (fees), costs, and (discounts) 4,814 971 Depreciation and amortization 8,295 7,034 Loans originated for sale (222,192) (54,746) Sales of loans 274,572 72,509 Increase in interest earned but uncollected (342) (14,958) Federal Home Loan Bank stock dividends (17,108) (8,457) Increase in other assets (227,486) (334,719) Increase in accounts payable and accrued expenses 7,720 117,355 Increase in taxes on income 96,796 76,031 Other, net (7,921) (1,434) ------------ ------------ Net cash provided by (used in) operating activities 90,392 (13,511) Cash Flows from Investing Activities New loan activity: New real estate loans originated for portfolio (3,571,818) (3,711,665) Real estate loans purchased -0- (185) Other, net (73,975) (43,346) ------------ ------------ (3,645,793) (3,755,196) Real estate loan principal payments: Monthly payments 119,049 140,453 Payoffs, net of foreclosures 1,513,365 796,793 ------------ ------------ 1,632,414 937,246 Purchase of mortgage-backed securities (38,463) -0- Repayments of mortgage-backed securities 1,033,126 485,476 Proceeds from sales of real estate 9,519 12,811 Increase in securities available for sale (13) (152,003) Decrease (increase) in other investments 168,682 (621,343) Purchases of Federal Home Loan Bank stock -0- (122,263) Redemptions of Federal Home Loan Bank stock 593 -0- Additions to premises and equipment (10,805) (18,404) ------------ ------------ Net cash used in investing activities (850,740) (3,233,676)
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands)
Three Months Ended March 31 -------------------------- 2001 2000 ----------- ----------- Cash Flows from Financing Activities Net increase in deposits $ 1,309,040 $ 259,342 Additions to Federal Home Loan Bank advances 413,690 4,116,650 Repayments of Federal Home Loan Bank advances (1,208,698) (807,795) Proceeds from agreements to repurchase securities 2,300,957 706,987 Repayments of agreements to repurchase securities (2,303,724) (885,114) Increase in federal funds purchased 270,000 -0- Repayment of subordinated debt -0- (100,000) Dividends on common stock (9,904) (8,406) Exercise of stock options 2,229 1,187 Purchase and retirement of Company stock -0- (91,790) ----------- ----------- Net cash provided by financing activities 773,590 3,191,061 ----------- ----------- Net Increase (Decrease) in Cash 13,242 (56,126) Cash at beginning of period 350,430 333,793 ----------- ----------- Cash at end of period $ 363,672 $ 277,667 =========== =========== Supplemental cash flow information: Cash paid for: Interest $ 789,397 $ 487,535 Income taxes 8,756 347 Cash received for interest and dividends 1,133,790 766,919 Noncash investing activities: Loans converted from adjustable rate to fixed-rate 11,996 8,021 Loans transferred to foreclosed real estate 7,900 11,730 Loans securitized into mortgage-backed securities with recourse held to maturity 2,995,949 312,700
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands)
For the Three Months Ended March 31, 2001 ------------------------------------------------------------------------------------------------- Accumulated Additional Other Total Common Paid-in Retained Comprehensive Stockholders' Comprehensive Stock Capital Earnings Income Equity Income ----------- ------------ ------------ ------------------ ------------------------------- Balance at January 1, 2001 $ 15,841 $ 151,458 $ 3,287,325 $ 232,663 $ 3,687,287 Comprehensive income: Net earnings -0- -0- 170,061 -0- 170,061 $ 170,061 Change in unrealized gains on securities available for sale, net of tax -0- -0- -0- (13,556) (13,556) (13,556) ------------- Comprehensive Income $ 156,505 ============= Common stock issued upon exercise of stock options, including tax benefits 15 2,214 -0- -0- 2,229 Cash dividends on common stock ($.0625 per share) -0- -0- (9,904) -0- (9,904) ----------- ------------ ------------ ------------------ ----------------- Balance at March 31, 2001 $ 15,856 $ 153,672 $ 3,447,482 $ 219,107 $ 3,836,117 =========== ============ ============ ================== ================= For the Three Months Ended March 31, 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- 125,934 -0- 125,934 $ 125,934 Change in unrealized gains on securities available for sale, net of tax -0- -0- -0- (9,115) (9,115) (9,115) --------------- Comprehensive Income $ 116,819 =============== Common stock issued upon exercise of stock options, including tax benefits 12 1,175 -0- -0- 1,187 Purchase and retirement of Company stock (314) -0- (91,476) -0- (91,790) Cash dividends on common stock ($.0525 per share) -0- -0- (8,406) -0- (8,406) ---------- ------------ ------------ ------------------ -------------- Balance at March 31, 2000 $ 15,834 $ 136,730 $ 2,911,398 $ 148,702 $ 3,212,664 ========== ============ ============ ================== ==============
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, 2000, as well as material changes in results of operations during the three month periods ended March 31, 2001 and 2000, respectively. The following narrative is written with the presumption that the users have read or have access to the Company's 2000 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, 2000, 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 2000 Annual Report on Form 10-K. During the fourth quarter of 2000, World Savings Bank, a State Savings Bank (WSSB), a wholly owned subsidiary of Golden West, received approval to change from a Texas state savings bank regulated by the Federal Deposit Insurance Corporation (FDIC) to a federally chartered Savings bank regulated by the Office of Thrift Supervision (OTS). WSSB's new name as a result of this change is World Savings Bank, FSB Texas (WTX). On December 1, 2000, Golden West contributed WTX to World Savings Bank, FSB (WSB) and WTX became a wholly owned subsidiary of WSB. In addition, on December 31, 2000, World Savings and Loan Association (WSL), formerly a wholly owned subsidiary of Golden West, was merged into WSB. The reorganization of these subsidiaries had no effect on the Golden West consolidated financial statements as of December 31, 2000 or March 31, 2000. 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), with amendments issued September 2000. This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives 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 adopted SFAS 133 as of January 1, 2001 and recorded a loss of $10 million before tax, or $6 million after tax. Because the Company has elected not to use permitted hedge accounting for the derivative financial instruments in portfolio on March 31, 2001, the changes in fair value of these instruments are reflected in the Consolidated Statement of Net Earnings as "Change in Fair Value of Derivatives". 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 previously issued 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 occurring after March 31, 2001. Because the Company retains 100% of the beneficial interests in its MBS-REMIC securitizations, it does not have any effective "retained interests" requiring disclosures under FAS 140. The adoption of SFAS 140 will require the Company to classify certain newly formed MBS as loans that would have been classified as Securities Held to Maturity under SFAS 125. The implementation of SFAS 140 is not expected to have a significant impact on the Company's financial statements. Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures)
March 31 December 31 March 31 2001 2000 2000 -------------- --------------- ------------- Assets $ 56,732,009 $ 55,703,969 $ 45,636,240 Loans receivable including mortgage-backed securities 53,303,834 52,343,133 41,882,581 Deposits 31,356,959 30,047,919 27,974,252 Stockholders' equity 3,836,117 3,687,287 3,212,664 Stockholders' equity/total assets 6.76% 6.62% 7.04% Book value per common share $ 24.19 $ 23.28 $ 20.29 Common shares outstanding 158,563,907 158,410,137 158,340,533 Yield on loan portfolio 8.03% 8.05% 7.36% Yield on mortgage-backed securities 7.97% 7.98% 7.36% Yield on investments 7.35% 7.12% 6.38% Yield on earning assets 8.01% 8.02% 7.33% Cost of deposits 5.35% 5.52% 4.84% Cost of borrowings 5.59% 6.66% 5.94% Cost of funds 5.45% 5.99% 5.21% Yield on earning assets less cost of funds 2.56% 2.03% 2.12% Ratio of nonperforming assets to total assets .48% .43% .51% Ratio of troubled debt restructured to total assets .00% .00% .01% Loans serviced for others with recourse $ 1,944,903 $ 1,915,672 $ 2,038,339 Loans serviced for others without recourse 1,054,007 983,407 1,048,015 World Savings Bank, FSB (WSB)(a) Total assets $ 56,724,124 $ 55,695,385 $ 41,525,715 Net worth 4,045,248 3,885,705 2,611,547 Net worth/total assets 7.13% 6.98% 6.29% Regulatory capital ratios:(b) Core capital 6.78% 6.60% 6.29% Risk-based capital 12.71% 12.44% 11.57% World Savings Bank, FSB Texas(WTX) Total assets $ 5,404,069 $ 5,398,772 $ 4,001,810 Net worth 291,338 288,409 206,952 Net worth/total assets 5.39% 5.34% 5.17% Regulatory capital ratios:(b) Core capital 5.39% 5.34% -- Risk-based capital 26.94% 26.69% --
(a) Figures for WSB as of March 31, 2000 have not been restated for WSB's merger with WSL in December 2000. (b) For regulatory purposes, the requirements to be considered "well capitalized" are 5.0% and 10.0% for core and risk-based capital, respectively. Prior to December 2000, WTX was not regulated by the OTS and, therefore, these ratios were not applicable. Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures)
Three Months Ended March 31 --------------------------------- 2001 2000 -------------- -------------- New real estate loans originated $ 3,794,010 $ 3,766,411 New adjustable rate mortgages as a percentage of new real estate loans originated 88.31% 96.37% Refinances as a percentage of new real estate loans originated 51.55% 38.07% Deposits increase(a) $ 1,309,040 $ 259,342 Net earnings before cumulative effect of accounting change $ 176,079 $ 125,934 Net earnings 170,061 125,934 Basic earnings per share before cumulative effect of accounting change 1.11 .79 Basic earnings per share 1.07 .79 Diluted earnings per share before cumulative effect of accounting change 1.10 .78 Diluted earnings per share 1.06 .78 Cash dividends on common stock $ .0625 $ .0525 Average common shares outstanding 158,478,170 159,958,610 Average diluted common shares outstanding 160,694,897 160,831,775 Ratios:(b) Net earnings before accounting change/average net worth (ROE) 18.78% 15.70% Net earnings before accounting change/average assets (ROA) 1.25% 1.16% Net interest income/average assets (Net interest margin) 2.58% 2.49% General and administrative expense/average assets .84% .92% Efficiency ratio(c) 28.93% 32.98%
(a) Includes an increase of $560 million and $150 million of wholesale deposits for the quarters ended March 31, 2001 and 2000, respectively. (b) Ratios are annualized by multiplying the quarterly computation by four. Averages are computed by adding the beginning balance and each monthend balance during the quarter and dividing by four. (c) The 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 March 31, 2001, December 31, 2000, and March 31, 2000. The reader is referred to page 45 of the Company's 2000 Annual Report on Form 10-K for similar information for the years 1997 through 2000 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
March 31 December 31 March 31 2001 2001 2000 ----------- -------------- ----------- Assets Cash and investments 1.6% 2.0% 4.0% Loans receivable including mortgage-backed securities 94.0 94.0 91.8 Other assets 4.4 4.0 4.2 ----------- -------------- ----------- 100.0% 100.0% 100.0% =========== ============== =========== Liabilities and Stockholders' Equity Deposits 55.3% 54.0% 61.3% Federal Home Loan Bank advances 33.4 35.4 26.8 Securities sold under agreements to repurchase 1.5 1.5 1.9 Federal funds purchased 0.5 0.0 0.0 Subordinated debt 1.0 1.1 1.6 Other liabilities 1.5 1.4 1.4 Stockholders' equity 6.8 6.6 7.0 ----------- -------------- ----------- 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 March 31, 2001, 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 initially 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 March 31, 2001 (Dollars in Millions) Projected Repricing(a) -------------------------------------------------------------------------- 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ----------- ------------- ----------- ----------- ------------ Interest-Earning Assets Investments $ 566 $ -0- $ -0- $ 3 $ 569 Mortgage-backed securities 19,213 156 557 552 20,478 Loans receivable: Rate-sensitive 29,625 1,258 271 -0- 31,154 Fixed-rate 44 130 442 924 1,540 Other(b) 1,394 -0- -0- -0- 1,394 Impact of interest rate swaps 521 25 (546) -0- -0- ----------- ------------- ----------- ----------- ------------ Total $ 51,363 $ 1,569 $ 724 $ 1,479 $ 55,135 =========== ============= =========== =========== ============ Interest-Bearing Liabilities Deposits(c) $ 18,729 $ 10,503 $ 2,093 $ 32 $ 31,357 FHLB advances 17,450 1,055 104 328 18,937 Other borrowings 1,124 100 499 -0- 1,723 Impact of interest rate swaps 188 (85) (103) -0- -0- ----------- ------------- ----------- ----------- ------------ Total $ 37,491 $ 11,573 $ 2,593 $ 360 $ 52,017 =========== ============= =========== =========== ============ Repricing gap $ 13,872 $ (10,004) $(1,869) $ 1,119 =========== ============= =========== =========== Cumulative gap $ 13,872 $ 3,868 $ 1,999 $ 3,118 =========== ============= =========== =========== Cumulative gap as a percentage of total assets 24.5% 6.8% 3.5% =========== ============= ===========
(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 At March 31, 2001, December 31, 2000, and March 31, 2000, the Company had securities available for sale in the amount of $370 million, $393 million and $456 million, respectively, including unrealized gains on securities available for sale of $359 million, $382 million, and $244 million, respectively. At March 31, 2001, December 31, 2000, and March 31, 2000, the Company had no securities held for trading in its investment securities portfolio. 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), and purchases MBS. MBS and MBS-REMICs are available to be used as collateral for borrowings. At March 31, 2001, December 31, 2000, and March 31, 2000, the balance of loans receivable including mortgage backed securities was $53.3 billion, $52.3 billion, and $41.9 billion, respectively. Included in the $53.3 billion at March 31, 2001 was $7.3 billion of Federal National Mortgage Association (FNMA) MBS with the underlying loans subject to full credit recourse to the Company, $12.7 billion of MBS-REMICs, and $475 million of purchased MBS. Included in the $52.3 billion at December 31, 2000 was $7.8 billion of FNMA MBS with the underlying loans subject to full credit recourse to the Company, $10.4 billion of MBS-REMICs, and $456 million of purchased MBS. Included in the $41.9 billion at March 31, 2000 was $4.0 billion of FNMA MBS with the underlying loans subject to full credit recourse to the Company, $6.9 billion of MBS-REMICs, and $498 million of purchased MBS. Mortgage-Backed Securities At March 31, 2001, December 31, 2000, and March 31, 2000, the Company had MBS held to maturity in the amount of $20.4 billion, $18.5 billion, and $11.4 billion, respectively. The increase in MBS from March 31, 2000 to March 31, 2001 was due to the securitization of $4.5 billion of adjustable rate mortgages (ARMs) into FNMA MBS and the securitization of $4.6 billion of ARMs into MBS-REMICs during the last nine months of 2000. In addition, the Company securitized $3.0 billion of ARMs into MBS-REMICs during the first quarter of 2001. 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 March 31, 2001, December 31, 2000, and March 31, 2000, the Company had MBS available for sale in the amount of $106 million, $70 million, and $75 million, respectively, including unrealized gains on MBS available for sale of $1 million for each of the respective periods. At March 31, 2001, December 31, 2000, and March 31, 2000, the Company had no trading MBS. Repayments of MBS during the first quarter of 2001 were $1.0 billion compared to $485 million in the same period of 2000. MBS repayments were higher during the first three months of 2001 as compared to the first three months of 2000 due to an increase in the prepayment rate as well as an increase of the balance of MBS outstanding. Loans New loan originations for the three months ended March 31, 2001 amounted to $3.79 billion compared to $3.77 billion for the same period in 2000. The volume of originations during 2001 was comparable to the 2000 volume due to a continued strong demand for mortgage loans. The decrease in interest rates over the past 12 months led to an increase in refinance activity nationwide. Refinanced loans constituted 52% of new loan originations for the three months ended March 31, 2001, compared to 38% for the three months ended March 31, 2000. First mortgages originated for sale amounted to $200 million for the three months ended March 31, 2001, compared to $24 million for the same period in 2000. During the first three months of 2001, $12 million of loans were converted at the customer's request from adjustable rate to fixed-rate compared to $8 million for the same period in 2000. The Company continues to sell most of its new and converted fixed-rate loans. For the three months ended March 31, 2001 and 2000, the Company sold $215 million and $46 million, respectively, of fixed-rate first mortgage loans. At March 31, 2001, the Company had lending operations in 34 states. The largest source of mortgage origination is loans secured by residential properties in California. For the three months ended March 31, 2001, 70% of total loan originations were on residential properties in California compared to 62% for the same period in 2000. The five largest states, other than California, for originations for the three months ended March 31, 2001, were Florida, Texas, New Jersey, Colorado, and Washington with a combined total of 16% 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 March 31, 2001 compared to 63% at December 31, 2000 and 64% at March 31, 2000. Golden West originates ARMs tied primarily to the Golden West Cost of Savings Index (COSI) and the Eleventh District Cost of Funds Index (COFI), and occasionally originates ARMs tied to 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 first quarter of 2001 and 2000.
TABLE 3 Adjustable Rate Mortgage Originations by Index (Dollars in thousands) March 31 ----------------------------- ARM Index 2001 2000 ----------------- ------------- ------------- COSI $ 2,236,244 $ 2,329,187 COFI 1,114,239 1,107,887 TCM -0- 192,411 ------------- ------------ $ 3,350,483 $ 3,629,485 ============= ============
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 March 31, 2001, December 31, 2000, and March 31, 2000.
TABLE 4 Adjustable Rate Mortgage Portfolio by Index (Including ARM MBS with Recourse and ARM MBS-REMICs) (Dollars in thousands) ----------------------- March 31 December 31 March 31 ARM Index 2001 2000 2000 ----------------------- ------------- ---------------- ------------- COSI $ 21,745,292 $ 20,460,242 $ 11,292,632 COFI 27,045,052 27,405,401 26,282,919 TCM 1,354,833 1,457,232 1,399,167 Other 192,065 182,778 153,274 ------------- ---------------- ------------- $ 50,337,242 $ 49,505,653 $ 39,127,992 ============= ================ =============
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 three months of 2001, 12% of loans originated exceeded 80% of the appraised value of the secured property, including $56 million of firsts and $417 million of combined firsts and seconds. For the first quarter of 2000, 20% of loans originated were in excess of 80% of the appraised value of the residence. The Company takes steps to reduce 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. Sales of second mortgages amounted to $60 million and $26 million for the first quarters of 2001 and 2000, respectively. In addition, the Company carries pool mortgage insurance on most seconds not sold. The cumulative losses covered by this pool mortgage insurance are limited to 10% or 20% of the original balance of each insured pool. The following table shows mortgage originations with LTV ratios or combined LTV ratios greater than 80% for the three months ended March 31, 2001 and 2000.
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 March 31 -------------------------------- 2001 2000 -------------- -------------- First mortgages with loan to value ratios greater than 80%: With insurance $ 35,752 $ 17,937 With no insurance 19,996 65,898 -------------- -------------- 55,748 83,835 -------------- -------------- First and second mortgages with combined loan to value ratios greater than 80%: With pool insurance 234,018 431,337 With no insurance 183,316 221,904 -------------- -------------- 417,334 653,241 -------------- -------------- Total $ 473,082 $ 737,076 ============== ==============
The following table shows the outstanding balance of mortgages with original LTV or combined LTV ratios greater than 80% at March 31, 2001 and 2000.
TABLE 6 Balance of Mortgages With Loan to Value and Combined Loan to Value Ratios Greater Than 80% (Dollars in thousands) March 31 -------------------------------- 2001 2000 -------------- -------------- First mortgages with loan to value ratios greater than 80%: With insurance $ 395,009 $ 382,682 With no insurance 770,039 860,295 -------------- -------------- 1,165,048 1,242,977 -------------- -------------- First and second mortgages with combined loan to value ratios greater than 80%: With pool insurance 2,259,406 1,474,347 With no insurance 862,232 343,320 -------------- -------------- 3,121,638 1,817,667 -------------- -------------- Total $ 4,286,686 $ 3,060,644 ============== ==============
The following tables show the Company's loan portfolio by state at March 31, 2001 and 2000.
TABLE 7 Loan Portfolio by State March 31, 2001 (Dollars in thousands) Residential Real Estate Commercial Loans ----------------------------- Real Total as a% of State 1 - 4 5+ Land Estate Loans(a) Portfolio --------------------- ------------- ------------- ---------- -------------- ------------- --------------- California $30,136,430 $ 3,426,309 $ 103 $ 23,975 $ 33,586,817 63.49% Florida 2,589,922 15,205 -0- 213 2,605,340 4.92 Texas 2,103,290 60,129 208 1,022 2,164,649 4.09 New Jersey 1,981,352 -0- -0- 2,263 1,983,615 3.75 Washington 1,084,615 588,355 -0- -0- 1,672,970 3.16 Illinois 1,497,373 124,391 -0- -0- 1,621,764 3.07 Colorado 1,285,309 184,313 -0- 4,616 1,474,238 2.79 Pennsylvania 1,068,376 2,183 -0- 171 1,070,730 2.02 Arizona 1,039,360 16,644 -0- 14 1,056,018 2.00 Other(b) 5,604,269 59,763 15 4,480 5,668,527 10.71 ------------- ------------- ---------- -------------- ------------- ------------ Totals $48,390,296 $ 4,477,292 $ 326 $ 36,754 52,904,668 100.00% ============= ============= ========== ============== ============ SFAS 91 deferred loan costs 149,097 Loan discount on purchased loans (1,363) Undisbursed loan funds (5,716) Allowance for loan losses (237,964) Loans to facilitate (LTF) interest reserve (188) Troubled debt restructured (TDR) interest reserve (303) Loans on deposits 20,468 -------------- Total loan portfolio and loans securitized into FNMA MBS with recourse and MBS-REMICs 52,828,699 Loans securitized into FNMA MBS and MBS-REMICs (20,003,219)(c) -------------- Total loan portfolio $ 32,825,480 ==============
(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 March 31, 2001 balances of loans that were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 8 Loan Portfolio by State March 31, 2000 (Dollars in thousands) Residential Real Estate Commercial Loans as ---------------------------- Real Total a% of State 1 - 4 5+ Land Estate Loans(a) Portfolio ---------------- -------------- ------------- ---------- ---------------- ------------- -------------- California $23,167,754 $ 3,364,154 $ 180 $ 26,555 $ 26,558,643 63.98% Florida 1,919,802 14,815 -0- 457 1,935,074 4.66 Texas 1,673,129 57,312 366 1,172 1,731,979 4.17 New Jersey 1,446,977 -0- -0- 3,574 1,450,551 3.49 Washington 788,672 506,111 -0- -0- 1,294,783 3.12 Illinois 1,270,942 119,156 -0- -0- 1,390,098 3.35 Colorado 1,050,957 176,666 -0- 5,127 1,232,750 2.97 Pennsylvania 823,883 4,079 -0- 2,529 830,491 2.00 Arizona 896,166 18,341 -0- -0- 914,507 2.20 Other(b) 4,127,268 42,206 47 6,128 4,175,649 10.06 ------------- ------------- ---------- ---------------- ------------- ----------- Totals $37,165,550 $ 4,302,840 $ 593 $ 45,542 41,514,525 100.00% ============= ============= ========== ================ =========== SFAS 91 deferred loan costs 92,159 Loan discount on purchased loans (1,847) Undisbursed loan funds (5,761) Allowance for loan losses (233,016) LTF interest reserve (258) TDR interest reserve (677) Loans on deposits 19,551 ------------- Total loan portfolio and loans securitized into FNMA MBS with recourse and MBS-REMICs 41,384,676 Loans securitized into FNMA MBS with recourse and MBS-REMICs (10,952,263)(c) ------------- Total loan portfolio $ 30,432,413 =============
(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 March 31, 2000 balances of loans that were securitized and retained as FNMA MBS with recourse and MBS-REMICs. The Company continues to emphasize ARM loans with interest rates that change periodically in accordance with movements in specified indexes. The portion of the mortgage portfolio (including MBS and MBS-REMICs) composed of rate-sensitive loans was 95% at March 31, 2001 compared to 95% at December 31, 2000, and 94% at March 31, 2000. The Company's ARM originations constituted 88% of new mortgage loans made for the first three months of 2001 compared to 96% for the first three months of 2000. During the life of the ARM loan, the interest rate may not be raised above a lifetime cap, set at the time of origination or assumption. The weighted average maximum lifetime cap rate on the Company's ARM loan portfolio (including ARMs swapped into MBS with recourse and MBS-REMICs before any reduction for loan servicing fees) was 12.26% or 4.13% above the actual weighted average rate at March 31, 2001, versus 12.40% or 5.04% above the weighted average rate at March 31, 2000. Approximately $5.1 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 March 31, 2001, $154 million of ARM loans had reached their rate floors. The weighted average floor rate on the loans that had reached their floor was 7.99% at March 31, 2001 compared to 7.73% at March 31, 2000. Without the floor, the average rate on these loans would have been 7.73% at March 31, 2001 and 7.14% at March 31, 2000. Loan repayments consist of monthly loan amortization and loan payoffs. For the three months ended March 31, 2001, loan repayments were $1.6 billion compared to $937 million in the same period of 2000. The increase in loan repayments was primarily due to an increase in loan payoffs in the first quarter of 2001. 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 months ended March 31, 2001 and 2000.
TABLE 9 Capitalized Mortgage Servicing Rights (Dollars in thousands) Three Months Ended March 31 --------------------------- 2001 2000 ------------ ------------ Beginning balance of capitalized mortgage servicing rights $ 28,355 $ 37,295 New capitalized mortgage servicing rights from loan sales 4,290 822 Amortization of capitalized mortgage servicing rights (2,667) (3,021) ------------ ------------ Ending balance of capitalized mortgage servicing rights $ 29,978 $ 35,096 ============ ============
The book value of Golden West's servicing rights did not exceed the fair value at March 31, 2001 or 2000 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) and troubled debt restructured (TDRs) 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 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 impacted by adverse 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) March 31 December 31 March 31 2001 2000 2000 ----------- -------------- ----------- Non-accrual loans $ 267,298 $ 231,155 $ 221,070 Real estate acquired through foreclosure 7,142 8,061 11,131 Real estate in judgment 142 200 83 ----------- -------------- ----------- Total nonperforming assets $ 274,582 $ 239,416 $ 232,284 =========== ============== =========== TDRs $ 1,945 $ 1,933 $ 4,903 =========== ============== =========== Ratio of NPAs to total assets .48% .43% .51% =========== ============== =========== Ratio of TDRs to total assets .00% .00% .01% =========== ============== =========== Ratio of NPAs and TDRs to total assets .48% .43% .52% =========== ============== ===========
The increase in NPAs during the first quarter of 2001 reflected the normal increase in delinquencies associated with the aging of the large volume of mortgages originated during the past two years. The Company closely monitors all delinquencies and takes appropriate steps to protect its interests. Interest foregone on non-accrual loans (loans 90 days or more past due) amounted to $2 million for the three months ended March 31, 2001 compared to $1 million for the same period in 2000. Interest foregone on TDRs amounted to $27 thousand for the three months ended March 31, 2001, compared to $66 thousand for the three months ended March 31, 2000. The tables on the following page show the Company's nonperforming assets by state as of March 31, 2001 and 2000.
TABLE 11 Nonperforming Assets by State March 31, 2001 (Dollars in thousands) Non-Accrual Loans(a) Foreclosed Real Estate ------------------------------------------ ------------------------------------- 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 $135,027 $ 450 $ 684 $ 2,399 $ -0- $ -0- $138,560 .41% Florida 24,580 -0- 25 14 -0- -0- 24,619 .95 Texas 13,891 -0- -0- 302 -0- -0- 14,193 .66 New Jersey 15,938 -0- -0- 392 -0- 156 16,486 .83 Washington 5,191 -0- -0- -0- -0- -0- 5,191 .31 Illinois 10,825 215 -0- 592 -0- -0- 11,632 .72 Colorado 1,719 -0- -0- -0- -0- -0- 1,719 .12 Pennsylvania 12,105 -0- -0- 1,238 -0- -0- 13,343 1.25 Arizona 4,811 -0- -0- 564 -0- -0- 5,375 .51 Other (c) 41,753 84 -0- 1,793 -0- -0- 43,630 .08 ----------- ---------- --------------- ---------- --------- ------------ ----------- ----------- Totals $265,840 $ 749 $ 709 $ 7,294 $ -0- $ 156 274,748 .52% =========== ========== =============== ========== ========= ============ REO general valuation allowance (166) (.00) ----------- ----------- Total nonperforming assets $274,582 .52% =========== ===========
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest accrued. (b) The March 31, 2001 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 March 31, 2000 (Dollars in thousands) Non-Accrual Loans(a) Foreclosed Real Estate ----------------------------------------- --------------------------------- Residential Commercial Commercial NPAa as Real Estate Real Residential Real Total a% of State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans ----------------- ----------- --------- ------------- --------- -------- ---------- ----------- ----------- California $122,461 $ 1,249 $ 1,469 $ 6,539 $ -0- $ -0- $131,718 .50% Florida 16,193 -0- 178 309 -0- -0- 16,680 .86 Texas 8,695 -0- -0- 1,245 -0- -0- 9,940 .57 New Jersey 13,856 -0- 503 633 -0- -0- 14,992 1.03 Washington 3,400 -0- -0- -0- -0- -0- 3,400 .26 Illinois 10,495 215 -0- 898 -0- -0- 11,608 .84 Colorado 2,005 -0- -0- 147 -0- -0- 2,152 .17 Pennsylvania 10,557 -0- -0- 398 -0- -0- 10,955 1.32 Arizona 5,195 -0- -0- 222 -0- -0- 5,417 .59 Other(c) 23,771 84 744 1,059 -0- -0- 25,658 .61 ----------- --------- ------------- --------- -------- ---------- ----------- ----------- Totals $216,628 $ 1,548 $ 2,894 $ 11,450 $ -0- $ -0- 232,520 .56 =========== ========= ============= ========= ======== ========== REO general valuation allowance (236) (.00) ----------- ----------- Total nonperforming assets $232,284 .56% =========== ===========
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) The March 31, 2000 balances include loans that were securitized into FNMA MBS and MBS-REMICs. (c) Includes states with loans less than 2% of total loans. The Company provides specific valuation allowances for losses on loans when impaired, and a write-down on foreclosed real estate 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. Based on these historical analyses, management is then able to estimate a range of general loss allowances by type of loan and risk category to cover losses inherent in the portfolio. One-to-four single-family real estate loans are evaluated as a group. In addition, periodic reviews are made of major multi-family and commercial real estate loans and foreclosed real estate. Where indicated, specific and general valuation allowances are established or adjusted. In estimating probable losses inherent in the portfolio, 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 based upon quarterly reviews of the portfolio. The review methodology and historical analyses are reconsidered quarterly. The table below shows the changes in the allowance for loan losses for the three months ended March 31, 2001 and 2000.
TABLE 13 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended March 31 ----------------------- 2001 2000 ---------- ---------- Beginning allowance for loan losses $ 236,708 $ 232,134 Provision for losses charged to expense 3,183 969 Less loans charged off (29) (351) Recoveries 133 77 Net transfer of allowance (to) from recourse liability (2,031) 187 ---------- ---------- Ending allowance for loan losses $ 237,964 $ 233,016 ========== ========== Ratio of net chargeoffs (recoveries) to average loans outstanding (including MBS with recourse) .00% .00% ========== ========== Ratio of allowance for loan losses to total loans (including MBS with recourse and MBS-REMICs) .45% .56% ========== ========== Ratio of allowance for loan losses to nonperforming assets 86.7% 100.3% ========== ==========
Deposits The Company raises deposits through its retail branch system as well as through the capital markets. Retail deposits increased during the first quarter of 2001 by $749 million, including interest credited of $348 million, compared to an increase of $109 million, including interest credited of $268 million in the first quarter of 2000. Retail deposits increased during the first three months of 2001 due to customer promotions and interest credited. The increase in 2000 was primarily due to interest credited. At March 31, 2001 and 2000, transaction accounts (which include checking, passbook, and money market accounts) represented 23% and 34%, respectively, of the total balance of deposits. The Company uses government securities dealers to sell wholesale certificates of deposit (CDs) to institutional investors. The Company's deposit balance as of March 31, 2001, December 31, 2000, and March 31, 2000, included $745 million, $185 million, and $750 million, respectively, of these wholesale CDs. The table below shows the Company's deposits by interest rate and by remaining maturity at March 31, 2001 and 2000.
TABLE 14 Deposits (Dollars in Millions) March 31 --------------------------------------------------- 2001 2000 ------------------------ ------------------------ Rate* Amount Rate* Amount --------- ----------- ------------------------ Deposits by rate: Interest-bearing checking accounts 3.18% $ 90 3.10% $ 128 Interest-bearing checking accounts swept into money market deposit accounts 3.28 3,167 3.50 3,322 Passbook accounts 1.52 454 1.47 482 Money market deposit accounts 4.21 3,422 4.30 5,483 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.82 13,455 5.32 8,697 1 to 2 years 6.04 6,931 5.28 6,155 2 to 3 years 5.73 1,352 5.36 1,360 3 to 4 years 5.80 466 5.41 394 4 years and over 5.92 673 5.64 580 Retail jumbo CDs 5.73 602 5.20 623 Wholesale CDs 5.23 745 5.97 750 ----------- ------------ $ 31,357 $ 27,974 =========== ============ 2001 2000 ----------- ------------ Deposits by remaining maturity: No contractual maturity 3.61% $ 7,133 3.85% $ 9,415 Maturity within one year 5.87 22,099 5.29 16,022 1 to 5 years 5.79 2,093 5.70 2,506 Over 5 years 5.41 32 5.13 31 ----------- ------------ $ 31,357 $ 27,974 =========== ============
* Weighted average interest rate, including the impact of interest rate swaps. At March 31, the weighted average cost of deposits was 5.35% (2001) and 4.84% (2000). Advances from Federal Home Loan Banks The Company uses borrowings from FHLBs, also known as "advances," 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 $18.9 billion at March 31, 2001, compared to $19.7 billion at December 31, 2000, and $12.2 billion at March 31, 2000, 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, using MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted to $855 million, $857 million and $867 million, and at March 31, 2001, December 31, 2000, and March 31, 2000, respectively. Other Borrowings At March 31, 2001, Golden West, at the holding company level, had principal amounts outstanding of $600 million of subordinated debt issued and outstanding. As of March 31, 2001, the Company's subordinated debt securities were rated A3 and A- by Moody's Investors Service (Moody's) and Standard & Poor's Corporation (S&P), respectively. In November 1996, WSB 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 March 31, 2001, WSB had not issued any notes under this authority. In 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 securities, including senior debt. Stockholders' Equity The Company's stockholders' equity increased by $149 million during the first three months of 2001 as a result of net earnings partially offset by decreased market values of securities available for sale and by the payment of quarterly dividends to stockholders. The Company's stockholders' equity increased by $18 million during the first three months of 2000 as a result of net earnings partially offset by decreased market values of securities available for sale, the payment of quarterly dividends to stockholders, and the $92 million cost of the repurchase of Company stock. Unrealized gains, net of taxes, on securities and MBS available for sale included in stockholders' equity at March 31, 2001, December 31, 2000, and March 31, 2000, were $219 million, $233 million, and $149 million, respectively. Since 1993, through four separate actions, Golden West's Board of Directors has authorized the repurchase by the Company of up to 44.7 million shares of Golden West's common stock. During the first three months of 2001, the company did not repurchase and retire any shares. As of March 31, 2001, 42.9 million shares had been repurchased and retired at a cost of $915 million since October 1993. Dividends from WSB are expected to continue to be the major source of funding for the stock repurchase program. The repurchase 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 WSB and WTX to meet certain minimum capital requirements. The following table shows WSB's regulatory capital ratios and compares them to the OTS minimum requirements at March 31, 2001 and 2000. The March 31, 2000 numbers are as reported to the OTS and have not been restated because the OTS did not require them to be restated to reflect the reorganization that took place in 2000 as discussed on page 6.
TABLE 15 World Savings Bank, FSB Regulatory Capital Ratios (Dollars in thousands) March 31, 2001 March 31, 2000 ----------------------------------------------- ----------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ---------------------- ---------------------- ---------------------- ---------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ---------- --------- ---------- --------- ----------- --------- ----------- --------- Tangible $3,826,199 6.78% $ 846,144 1.50% $ 2,611,550 6.29% $ 622,922 1.50% Core 3,826,199 6.78 2,256,384 4.00 2,611,550 6.29 1,661,124 4.00 Risk-based 4,157,555 12.71 2,616,279 8.00 2,770,849 11.57 1,916,541 8.00
The following table shows WTX's current regulatory capital ratios and compares them to the OTS minimum requirements at March 31, 2001.
TABLE 16 World Savings Bank, FSB Texas Regulatory Capital Ratios (Dollars in thousands) March 31, 2001 ------------------------------------------------ ACTUAL REQUIRED ----------------------- ---------------------- Capital Ratio Capital Ratio ----------- --------- ----------- --------- Tangible $ 291,338 5.39% $ 81,061 1.50% Core 291,338 5.39 216,163 4.00 Risk-based 291,339 26.94 86,510 8.00
The OTS has adopted rules based upon five capital tiers: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The determination of whether a savings bank falls into a certain classification depends primarily on its capital ratios. As of March 31, 2001, WSB and WTX exceeded the qualifications for well-capitalized institutions under the rules applicable to them. The table below shows that WSB's regulatory capital exceeded the requirements of the well-capitalized classification at March 31, 2001.
TABLE 17 World Savings Bank, FSB Regulatory Capital Compared to Well-Capitalized Classification (Dollars in thousands) ACTUAL WELL-CAPITALIZED ------------------------- ---------------------------- Capital Ratio Capital Ratio ---------- ---------- ----------- ----------- Leverage $ 3,826,199 6.78% $ 2,820,480 5.00% Tier 1 risk-based 3,826,199 11.70 1,962,209 6.00 Total risk-based 4,157,555 12.71 3,270,349 10.00
The table below shows that WTX's regulatory capital exceeded the requirements of the well-capitalized classification at March 31, 2001.
TABLE 18 World Savings Bank, FSB Texas Regulatory Capital Compared to Well-Capitalized Classification (Dollars in thousands) ACTUAL WELL-CAPITALIZED ------------------------- ---------------------------- Capital Ratio Capital Ratio ----------- ---------- ----------- ----------- Leverage $ 291,338 5.39% $ 270,203 5.00% Tier 1 risk-based 291,338 26.94 64,882 6.00 Total risk-based 291,339 26.94 108,137 10.00
Results Of Operations Net Earnings Net earnings for the three months ended March 31, 2001 were $176 million (excluding the cumulative effect of the accounting change) compared to net earnings of $126 million for the three months ended March 31, 2000. Net earnings increased in 2001 as compared to 2000 primarily as a result of increased net interest income, which was partially offset by an increase in general and administrative expenses. Net earnings for the three months ended March 31, 2001, including the cumulative effect of the accounting change, net of tax, were $170 million. 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 March 31, 2001, December 31, 2000, and March 31, 2000.
TABLE 19 Yield on Earning Assets, Cost of Funds, and Primary Spread March 31 December 31 March 31 2001 2000 2000 ------------ -------------- ------------- Yield on loan portfolio 8.03% 8.05% 7.36% Yield on MBS 7.97 7.98 7.36 Yield on investments 7.35 7.12 6.38 --------- ---------- --------- Yield on earning assets 8.01 8.02 7.33 --------- ---------- --------- Cost of deposits 5.35 5.52 4.84 Cost of borrowings 5.59 6.66 5.94 --------- ---------- --------- Cost of funds 5.45 5.99 5.21 --------- ---------- --------- Primary spread 2.56% 2.03% 2.12% ========= ========== =========
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 the COFI and a one-month reporting lag for COSI. On balance, the index lags and ARM structural features cause the Company's assets initially 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. See the Gap discussion on page 11 for further information.
TABLE 20 Average Interest-Earning Assets and Interest-Bearing Liabilities (Dollars in thousands) Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 ------------------------------------------ --------------------------------------------- Annualized End of Annualized End of Average Average Period Average Average Period Balances(a) Yield Yield Balances(a) Yield Yield --------------- ------------ ---------- --------------- ------------- ------------ ASSETS Investment Securities $ 3,164,205 5.90% 7.35% $ 2,361,747 6.05% 6.38% Mortgage-backed securities 18,315,427 7.98% 7.97% 11,596,149 7.29% 7.36% Loans receivable(b) 34,633,307 8.14% 8.03% 29,189,953 7.36% 7.36% Invest. in capital stock of FHLBs 1,078,277 6.35% 6.49% 576,984 5.86% 5.83% --------------- ------------ --------------- ------------- Interest-earning assets $57,191,216 7.93% $ 43,724,833 7.25% =============== ============ =============== ============= LIABILITIES Deposits: Checking accounts $ 137,933 2.19% 3.18% $ 121,679 2.28% 3.10% Savings accounts 6,957,652 3.55% 3.62% 9,381,502 3.89% 3.86% Term accounts 24,795,967 5.94% 5.86% 19,124,735 5.19% 5.34% --------------- ------------ ---------- --------------- ------------- ------------ Total deposits 31,891,552 5.40% 5.35% 28,627,916 4.75% 4.84% Advances from FHLBs 19,293,276 6.08% 5.56% 10,041,562 5.76% 5.87% Reverse repurchases 1,229,272 5.76% 5.15% 1,190,630 5.60% 5.57% Other borrowings 1,943,601 6.12% 6.65% 1,259,344 6.91% 7.69% --------------- ------------ --------------- ------------- $54,357,701 5.68% $ 41,119,452 5.09% =============== ============ =============== ============= Net interest spread 2.25% 2.16% ============ ============= Net interest income $ 362,595 $ 269,631 =============== =============== Net yield on average interest- earning assets 2.54% 2.47% ============ =============
(a) Averages are computed using daily balances. (b) 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 months ended March 31, 2001 and 2000.
TABLE 21 Selected Revenue and Expense Items as Percentages of Total Revenues Three Months Ended March 31 ----------------------- 2001 2000 ---------- -------- Interest on loans 59.9% 65.0% Interest on mortgage-backed securities 31.0 25.6 Interest and dividends on investments 5.4 5.3 ---------- -------- 96.3 95.9 Less: Interest on deposits 36.6 41.2 Interest on advances and other borrowings 28.9 22.1 ---------- -------- 65.5 63.3 Net interest income 30.8 32.6 Provision for loan losses 0.3 0.1 ---------- -------- Net interest income after provision for loan losses 30.5 32.5 Add: Fees 2.7 2.0 Gain on the sale of securities and loans 0.5 0.2 Change in fair value of derivatives (0.7) 0.0 Other non-interest income 1.2 1.9 ---------- -------- 3.7 4.1 Less: General and administrative expenses 10.0 12.1 Taxes on income 9.3 9.2 Cumulative effect of change in accounting 0.5 0.0 ---------- -------- Net earnings 14.4% 15.3% ========== ========
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 interest rate swaps or other derivative financial instruments for trading purposes.
TABLE 22 Schedule of Interest Rate Swaps Activity (Notional amounts in millions) Three Months Ended March 31, 2001 ---------------------------- Receive Pay Fixed Fixed Swaps Swaps ------------ ------------ Balance at December 31, 2000 $ 217 $ 717 Maturities (9) (19) ------------ ------------ Balance at March 31, 2001 $ 208 $ 698 ============ ============
The range of floating interest rates received on swap contracts in the first three months of 2001 was 4.65% to 6.90%, and the range of floating interest rates paid on swap contracts was 4.87% to 6.76%. The range of fixed interest rates received on swap contracts in the first three months of 2001 was 5.81% to 7.06% and the range of fixed interest rates paid on swap contracts was 5.58% to 8.85%. Interest rate swap payment activity decreased net interest income by $1.2 million for the three months ended March 31, 2001, as compared to an increase of $1.2 million for the same period in 2000. Upon adoption of SFAS 133 on January 1, 2001 (refer to discussion on page 7), the Company reported a one-time pre-tax charge of $10 million, or $.04 after tax per diluted share. In addition to the one-time charge, the Company reported a pre-tax expense of $8 million, or $.03 after tax per diluted share, associated with the on going quarterly valuation of the Company's swaps. This additional expense occurred because the market value of Golden West's swaps declined during the first quarter of 2001 in conjunction with falling short-term rates. The changes in fair value of these swap contracts are reflected as assets or liabilities on the Consolidated Statement of Condition with offsetting amounts displayed in the Consolidated Statement of Net Earnings as "Change in Fair Value of Derivatives". Interest on Loans In the first quarter of 2001, interest on loans was higher than in the comparable 2000 period by $168 million or 31.2%. The increase in the first quarter of 2001 was due to a $5.4 billion increase in the average portfolio balance and a 78 basis point increase in the average portfolio yield. Interest on Mortgage-Backed Securities In the first quarter of 2001, interest on mortgage-backed securities was higher than in the comparable 2000 period by $154 million or 73.0%. The increase in the first quarter of 2001 was due to a $6.7 billion increase in the average portfolio balance and a 70 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 page 12. Interest and Dividends on Investments The income earned on the investment portfolio fluctuates, depending upon the volume outstanding and the yields available on short-term investments. In the first quarter of 2001, interest and dividends on investments increased by $20 million or 44.4% from the comparable period in 2000. The increase in the first quarter of 2001 was primarily due to an $802 million increase in the average portfolio balance, which was partially offset by a 15 basis point decrease in the average portfolio yield. Interest on Deposits In the first quarter of 2001, interest on deposits increased by $91 million or 26.7% from the comparable period in 2000. The increase in the first quarter of 2001 was due to a $3.3 billion increase in the average balance of deposits and a 72 basis point increase in the average cost of deposits. Interest on Advances and Other Borrowings In the first quarter of 2001, interest on advances and other borrowings increased by $158 million or 86.3% from the comparable period of 2000. The increase in the first quarter of 2001 was primarily due to a $10.0 billion increase in the average balance and a 28 basis point increase in the average cost of these borrowings. Provision for Loan Losses The provision for loan losses was $3.2 million for the three months ended March 31, 2001, compared to $969 thousand for the same period in 2000. The increase in the provision for loan losses in 2001 reflected the substantial growth in the loan portfolio over the prior year. General and Administrative Expenses For the first quarter of 2001, general and administrative expenses (G&A) were $117 million compared to $100 million for the comparable period in 2000. G&A as a percentage of average assets on an annualized basis was .84% for the first quarter of 2001 compared to .92% for the same period in 2000. G&A expenses increased in 2001 because of ongoing investments in personnel, facilities, and technology. 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 38.3% for the first quarter of 2001 compared to 37.7% for the same period a year ago. Liquidity and Capital Resources WSB'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; borrowings from its parent; and debt collateralized by mortgages, MBS, or securities. In addition, WSB has other alternatives available to provide liquidity or finance operations including federal funds purchased, the issuance of medium-term notes, borrowings from public offerings of debt, issuances of commercial paper, and borrowings from commercial banks. Furthermore, under certain conditions, WSB 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. WTX's principal sources of funds are cash flows generated from borrowings from the FHLB of Dallas; earnings; deposits; loan repayments; debt collateralized by mortgages or securities; and borrowings from affiliates. The principal sources of funds for WSB's parent, Golden West, are dividends from subsidiaries, interest on investments, and the proceeds from the issuance of debt securities. Various statutory and regulatory restrictions and tax considerations limit the amount of dividends WSB can pay. The principal liquidity needs of Golden West are for payment of interest and principal on subordinated debt securities, capital contributions to its insured subsidiaries, dividends to stockholders, the repurchase of Golden West stock (see stockholders' equity section on page 23), and general and administrative expenses. At March 31, 2001, December 31, 2000, and March 31, 2000, Golden West's total cash and investments amounted to $385 million, $387 million, and $575 million, respectively. Included in the cash and investments above are notes receivable from WSB in the amount of $500 million at March 31, 2000 and a subordinated note receivable from WSB in the amount of $100 million at December 31, 2000 and March 31, 2001. 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 26. 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 March 31, 2001, Management believes that a 200 basis point rate increase sustained over a thirty-six month period would not materially affect the Company's long-term profitability and financial strength. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) May 1, 2001 - Annual Meeting For Against Withheld Abstain ---------------- ------------ ------------ ------------ (b) Directors elected: Patricia A. King 143,437,323 652,218 Marion O. Sandler 143,633,056 456,485 Leslie Tang Schilling 143,639,382 450,159 (c) Ratification of Auditors: Appointment of Deloitte & Touche LLP, independent public accountants, for the fiscal year 2001 143,605,993 48,573 434,975
Other Directors continuing in office are: Louis J. Galen, Antonia Hernandez, Maryellen Cattani Herringer, Bernard A. Osher, Kenneth T. Rosen, and Herbert M. Sandler. 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. 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 (b) Reports on Form 8-K The Registrant filed the following report on Form 8-K with the Commission during 2001: 1. Report filed May 8, 2001. Item 7. Financial Statements and Exhibits. The report included a press release announcing the Company's first quarter financial results. Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLDEN WEST FINANCIAL CORPORATION Dated: May 10, 2001 /s/ Russell W. Kettell --------------------------------- Russell W. Kettell President and Chief Financial Officer /s/ William C. Nunan ---------------------------------- William C. Nunan Group Senior Vice President and Chief Accounting Officer