-----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, Rmb4SukwkhxqSVt/tnJHHCZ08U6emykXAioXiQrQr0uhJ20+M15zEpVzOaiXHtXF vxPolyooWmDzK5h6zE5Slw== 0000042293-01-500034.txt : 20020410 0000042293-01-500034.hdr.sgml : 20020410 ACCESSION NUMBER: 0000042293-01-500034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN WEST FINANCIAL CORP /DE/ CENTRAL INDEX KEY: 0000042293 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 952080059 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04629 FILM NUMBER: 1787932 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5104663402 MAIL ADDRESS: STREET 1: 9101 HARRISON STREET STREET 2: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CO DATE OF NAME CHANGE: 19751124 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CORP DATE OF NAME CHANGE: 19760806 10-Q 1 gdw3q01.txt ================================================================================ 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 September 30, 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 --------------------- IRS - 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 October 31, 2001: Common Stock -- 157,619,237 shares. ================================================================================ ================================================================================ GOLDEN WEST FINANCIAL CORPORATION TABLE OF CONTENTS Page No. PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Consolidated Statement of Financial Condition - September 30, 2001 and 2000 and December 31, 2000....................................1 Consolidated Statement of Net Earnings - For the three and nine months ended September 30, 2001 and 2000......................2 Consolidated Statement of Cash Flows - For the three and nine months ended September 30, 2001 and 2000......................3 Consolidated Statement of Stockholders' Equity - For the nine months ended September 30, 2001 and 2000................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.......6 New Accounting Pronouncements.............................................................6 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.....................................................23 Securities Sold Under Agreements to Repurchase............................................23 Other Borrowings..........................................................................23 Stockholders' Equity......................................................................23 Regulatory Capital........................................................................24 Results of Operations.....................................................................26 Liquidity and Capital Resources...........................................................33 Item 3. Quantitative and Qualitative Disclosures about Market Risk.................................34 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K..........................................................35
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, 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 and nine-month periods have been included. The operating results for the three and nine months ended September 30, 2001 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 December 31 September 30 2001 2000 2000 ------------------ ----------------- ------------------ (Unaudited) (Unaudited) ------------------ ------------------ Assets Cash $ 383,927 $ 350,430 $ 213,884 Securities available for sale at fair value 725,881 392,841 310,916 Other investments at cost -0- 368,555 138,096 Purchased mortgage-backed securities available for sale 243,659 69,960 68,464 Purchased mortgage-backed securities held to maturity 309,171 385,543 397,897 Mortgage-backed securities with recourse held to maturity 15,244,959 18,124,987 14,109,347 Loans receivable 38,673,021 33,762,643 34,906,911 Interest earned but uncollected 253,328 276,306 245,175 Investment in capital stock of Federal Home Loan Banks--at cost 1,067,800 which approximates fair value 1,099,758 937,752 Foreclosed real estate 9,458 8,261 9,884 Premises and equipment--at cost less accumulated depreciation 321,593 307,652 302,027 Other assets 858,367 588,991 725,028 ------------------ ----------------- ------------------ $ 58,123,122 $55,703,969 $ 52,365,381 ================== ================= ================== Liabilities and Stockholders' Equity Deposits $ 33,133,942 $30,047,919 $ 28,249,069 Advances from Federal Home Loan Banks 17,859,941 19,731,797 18,230,468 Securities sold under agreements to repurchase 420,596 857,274 858,676 Federal funds purchased -0- -0- 50,000 Bank notes 693,976 -0- -0- Senior debt--net of discount 198,117 -0- -0- Subordinated notes--net of discount 599,329 598,791 713,589 Taxes on income 579,691 432,207 375,874 Other liabilities 422,391 348,694 398,699 Stockholders' equity 4,215,139 3,687,287 3,489,006 ------------------ ----------------- ------------------ $ 58,123,122 $55,703,969 $ 52,365,381 ================== ================= ==================
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 ------------------------------- -------------------------------- 2001 2000 2001 2000 ------------- ------------- --------------- -------------- Interest Income Interest on loans $ 683,732 $ 653,432 $ 2,061,379 $ 1,786,134 Interest on mortgage-backed securities 298,303 283,360 1,035,569 726,659 Interest and dividends on investments 46,119 77,642 163,133 186,587 ------------- ------------- --------------- -------------- 1,028,154 1,014,434 3,260,081 2,699,380 Interest Expense Interest on deposits 365,666 385,442 1,202,531 1,083,765 Interest on advances 200,752 283,681 733,760 635,096 Interest on repurchase agreements 7,265 23,827 39,491 62,460 Interest on other borrowings 39,338 33,572 103,270 79,989 ------------- ------------- --------------- -------------- 613,021 726,522 2,079,052 1,861,310 ------------- ------------- --------------- -------------- Net Interest Income 415,133 287,912 1,181,029 838,070 Provision for loan losses 3,639 1,106 12,463 5,917 ------------- ------------- --------------- -------------- Net Interest Income after Provision for Loan Losses 411,494 286,806 1,168,566 832,153 Noninterest Income Fees 37,873 19,896 111,906 54,583 Gain on the sale of securities and loans 12,630 2,765 26,390 6,036 Change in fair value of derivatives (7,923) -0- (13,837) -0- Other 13,770 18,715 42,042 54,173 ------------- ------------- --------------- -------------- 56,350 41,376 166,501 114,792 Noninterest Expense General and administrative: Personnel 77,289 62,313 217,487 177,718 Occupancy 20,517 18,426 59,806 53,033 Deposit insurance 1,466 1,444 4,270 4,298 Advertising 4,632 979 9,557 4,641 Other 28,243 23,974 83,559 69,793 ------------- ------------- --------------- -------------- 132,147 107,136 374,679 309,483 Earnings before Taxes on Income and Cumulative Effect of Accounting Change 335,697 221,046 960,388 637,462 Taxes on income 129,857 83,643 369,540 240,863 ------------- ------------- --------------- -------------- Income before Cumulative Effect of Accounting Change 205,840 137,403 590,848 396,599 Cumulative effect of accounting change, net of tax -0- -0- (6,018) -0- ------------- ------------- --------------- -------------- Net Earnings $ 205,840 $ 137,403 $ 584,830 $ 396,599 ============= ============= =============== ============== Basic Earnings Per Share before Cumulative Effect of Accounting Change $ 1.30 $ .87 $ 3.73 $ 2.50 Cumulative effect of accounting change, net of tax .00 .00 (.04) .00 ------------- ------------- --------------- -------------- Earnings Per Share $ 1.30 $ .87 $ 3.69 $ 2.50 ============= ============= =============== ============== Diluted Earnings Per Share before Cumulative Effect of Accounting Change $ 1.28 $ .86 $ 3.68 $ 2.48 Cumulative effect of accounting change, net of tax .00 .00 (.04) .00 ------------- ------------- --------------- -------------- Diluted Earnings Per Share $ 1.28 $ .86 $ 3.64 $ 2.48 ============= ============= =============== ==============
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 ------------------------------ -------------------------------- 2001 2000 2001 2000 --------------- ------------- -------------- --------------- Cash Flows from Operating Activities Net earnings $ 205,840 $ 137,403 $ 584,830 $ 396,599 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 3,639 1,106 12,463 5,917 Amortization of loan (fees), costs, and (discounts) 5,601 1,952 16,691 4,896 Depreciation and amortization 8,484 7,547 24,746 21,914 Loans originated for sale (524,923) (54,698) (1,418,349) (169,153) Sales of loans 795,851 89,923 1,782,628 225,219 Decrease (increase) in interest earned but uncollected 14,521 (23,547) 20,394 (63,817) Federal Home Loan Bank stock dividends (13,529) (16,036) (45,774) (41,295) Decrease (increase) in other assets 66,337 203,716 (270,458) (291,143) Increase in accounts payable and accrued expenses 39,111 24,409 76,024 213,018 Increase in taxes on income 113,190 13,753 154,347 85,928 Other, net 9,487 (4,443) (4,587) (11,506) --------------- ------------- -------------- --------------- Net cash provided by operating activities 723,609 381,085 932,955 376,577 Cash Flows from Investing Activities New loan activity: New real estate loans originated for portfolio (5,075,815) (5,423,515) (13,605,119) (14,751,075) Real estate loans purchased -0- -0- -0- (195) Other, net (122,871) (87,983) (306,856) (198,337) --------------- ------------- -------------- --------------- (5,198,686) (5,511,498) (13,911,975) (14,949,607) Real estate loan principal payments: Monthly payments 157,656 142,645 412,237 419,894 Payoffs, net of foreclosures 2,217,278 1,002,439 6,243,153 2,849,304 --------------- ------------- -------------- --------------- 2,374,934 1,145,084 6,655,390 3,269,198 Purchases of mortgage-backed securities (27,528) -0- (189,511) -0- Repayments of mortgage-backed securities 1,810,759 659,231 4,901,506 1,692,174 Proceeds from sales of real estate 8,353 9,361 25,982 34,029 Decrease (increase) in securities available for sale (71,077) (11) (349,746) 51,543 Decrease in other investments 375 164,156 368,555 329,060 Purchases of Federal Home Loan Bank stock (10,480) (141,326) (10,480) (398,139) Redemptions of Federal Home Loan Bank stock 112 -0- 26,880 36,688 Additions to premises and equipment (13,347) (11,407) (39,020) (47,424) --------------- ------------- -------------- --------------- Net cash used in investing activities (1,126,585) (3,686,410) (2,522,419) (9,982,478)
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 ------------------------------ -------------------------------- 2001 2000 2001 2000 --------------- ------------- -------------- -------------- Cash Flows from Financing Activities Net increase in deposits (a) $ 1,641,983 $ 522,287 $ 3,086,023 $ 534,159 Additions to Federal Home Loan Bank advances 425,000 3,022,180 1,306,550 10,654,250 Repayments of Federal Home Loan Bank advances (1,510,511) (23,234) (3,178,406) (1,339,001) Proceeds from agreements to repurchase securities 1,301,440 1,801,836 4,807,682 4,908,910 Repayments of agreements to repurchase securities (1,732,041) (2,103,696) (5,244,360) (5,095,410) Increase in federal funds purchased -0- 50,000 -0- 50,000 Increase in bank notes 58,880 -0- 693,803 -0- Proceeds from senior debt 198,060 -0- 198,060 -0- Repayment of subordinated debt -0- -0- -0- (100,000) Dividends on common stock (9,936) (8,297) (29,760) (24,991) Exercise of stock options 3,550 3,691 12,481 7,372 Purchase and retirement of Company stock (29,112) -0- (29,112) (109,297) --------------- ------------- -------------- -------------- Net cash provided by financing activities 347,313 3,264,767 1,622,961 9,485,992 --------------- ------------- -------------- -------------- Net Increase (Decrease) in Cash (55,663) (40,558) 33,497 (119,909) Cash at beginning of period 439,590 254,442 350,430 333,793 --------------- ------------- -------------- -------------- Cash at end of period $ 383,927 $ 213,884 $ 383,927 $ 213,884 =============== ============= ============== ============== Supplemental cash flow information: Cash paid for: Interest $ 632,138 $ 694,079 $ 2,134,662 $ 1,769,053 Income taxes 16,694 69,890 211,550 155,055 Cash received for interest and dividends 1,043,780 987,610 3,283,059 2,629,556 Noncash investing activities: Loans converted from adjustable rate to fixed-rate 79,393 4,075 281,506 20,522 Loans transferred to foreclosed real estate 8,496 8,055 25,202 29,167 Loans securitized into mortgage-backed securities with recourse held to maturity -0- 1,133,656 2,995,949 4,695,770 Loans securitized into mortgage-backed securities with recourse held to maturity recorded as loans receivable per SFAS 140 3,007,296 -0- 6,011,873 -0-
(a) Includes a decrease of $119 million of wholesale deposits for the quarter ended September 30, 2001. Includes a decrease of $185 million of wholesale deposits for the nine months ended September 30, 2001 and a decrease of $600 million of wholesale deposits for the nine months ended September 30, 2000.
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands) For the Nine Months Ended September 30, 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- 584,830 -0- 584,830 $ 584,830 Change in unrealized gains on securities available for sale, net of tax -0- -0- -0- (10,587) (10,587) (10,587) ----------------- Comprehensive Income $ 574,243 ================= Common stock issued upon exercise of stock options 67 12,414 -0- -0- 12,481 Purchase and retirement of Company stock (53) -0- (29,059) -0- (29,112) Cash dividends on common stock ($.1875 per share) -0- -0- (29,760) -0- (29,760) ----------- ---------- ------------- --------------- --------------- Balance at September 30, 2001 $ 15,855 $ 163,872 $ 3,813,336 $ 222,076 $ 4,215,139 =========== =========== ============= =============== ===============
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 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 ========= ============ ============= ============= ==============
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 and nine month periods ended September 30, 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 may contain 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. 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, forward-looking statements are subject to change. Actual results may differ materially from the results discussed in 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 September 30, 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 September 30, 2001, the changes in fair value of these instruments are reported in Noninterest Income as the "Change in Fair Value of Derivatives" in the Consolidated Statement of Net Earnings. 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 SFAS 140. In accordance with SFAS 140, the Company's securitizations after March 31, 2001 have resulted in securitized loans being recorded as loans receivable (see pages 12 and 13 for further discussions). In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting Standards No.142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS 141 requires that all business combinations initiated after September 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. The Company does not expect the adoption of SFAS 142 for its fiscal year beginning January 1, 2002 to have a material effect on its financial statements.
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) September 30 December 31 September 30 2001 2000 2000 ------------------ ---------------- ------------------ Assets $ 58,123,122 $ 55,703,969 $ 52,365,381 Loans receivable including mortgage-backed securities 54,470,810 52,343,133 49,482,619 Deposits 33,133,942 30,047,919 28,249,069 Stockholders' equity 4,215,139 3,687,287 3,489,006 Stockholders' equity/total assets 7.25% 6.62% 6.66% Book value per common share $ 26.59 $ 23.28 $ 22.06 Common shares outstanding 158,550,637 158,410,137 158,127,033 Yield on loan portfolio 7.01% 8.05% 7.88% Yield on mortgage-backed securities 6.95% 7.98% 7.82% Yield on investments 4.34% 7.12% 8.70% Yield on earning assets 6.97% 8.02% 7.86% Cost of deposits 4.19% 5.52% 5.28% Cost of borrowings 4.05% 6.66% 6.58% Cost of funds 4.14% 5.99% 5.82% Yield on earning assets less cost of funds 2.83% 2.03% 2.04% Ratio of nonperforming assets to total assets .60% .43% .43% Ratio of troubled debt restructured to total assets .00% .00% .01% Loans serviced for others with recourse $ 2,448,472 $ 1,915,672 $ 1,947,895 Loans serviced for others without recourse 1,603,864 983,407 996,138 World Savings Bank, FSB (WSB) (a) Total assets $ 57,916,010 $ 55,695,385 $ 48,516,389 Net worth 4,469,582 3,885,705 2,817,341 Net worth/total assets 7.72% 6.98% 5.81% Regulatory capital ratios: (b) Core capital 7.38% 6.60% 5.81% Risk-based capital 13.72% 12.44% 10.62% World Savings Bank, FSB Texas (WTX) Total assets $ 5,945,315 $ 5,398,772 $ 4,518,247 Net worth 310,217 288,409 238,336 Net worth/total assets 5.22% 5.34% 5.27% Regulatory capital ratios: (b) Core capital 5.22% 5.34% -- Risk-based capital 26.08% 26.69% --
(a) Figures for WSB as of September 30, 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 Nine Months Ended September 30 September 30 ----------------------------------- ----------------------------------- 2001 2000 2001 2000 --------------- ---------------- ---------------- --------------- New real estate loans originated $ 5,600,738 $ 5,478,213 $ 15,023,468 $ 14,920,228 New adjustable rate mortgages as a percentage of new real estate loans originated 86.57% 96.37% 85.79% 96.41% Refinances as a percentage of new real estate loans originated 56.91% 30.98% 56.04% 32.83% Deposits increase (a) $ 1,641,983 $ 522,287 $ 3,086,023 $ 534,159 Net earnings before cumulative effect of accounting change $ 205,840 $ 137,403 $ 590,848 $ 396,599 Net earnings 205,840 137,403 584,830 396,599 Basic earnings per share before cumulative effect of accounting change 1.30 .87 3.73 2.50 Basic earnings per share 1.30 .87 3.69 2.50 Diluted earnings per share before cumulative effect of accounting change 1.28 .86 3.68 2.48 Diluted earnings per share 1.28 .86 3.64 2.48 Cash dividends on common stock $ .0625 $ .0525 $ .1875 $ .1575 Average common shares outstanding 158,868,462 158,032,942 158,691,819 158,661,510 Average diluted common shares outstanding 161,000,195 160,095,066 160,784,091 160,214,868 Ratios: (b) Net earnings before accounting change/ average net worth (ROE) 19.89% 16.23% 19.97% 16.07% Net earnings before accounting change/ average assets (ROA) 1.42% 1.08% 1.38% 1.12% Net interest margin (c) 2.96% 2.33% 2.84% 2.45% General and administrative expense/average assets .91% .84% .88% .88% Efficiency ratio (d) 28.03% 32.54% 27.80% 32.48%
(a) Includes a decrease of $119 million of wholesale deposits for the quarter ended September 30, 2001. Includes a decrease of $185 million of wholesale deposits for the nine months ended September 30, 2001 and a decrease of $600 million of wholesale deposits for the nine months ended September 30, 2000. (b) 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. (c) Net interest margin is net interest income divided by average interest-earnings assets. (d) 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, 2001, December 31, 2000, and September 30, 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 September 30 December 31 September 30 2001 2001 2000 ------------------ --------------- ----------------- Assets Cash and investments 1.9% 2.0% 1.3% Loans receivable including mortgage-backed securities 93.7 94.0 94.5 Other assets 4.4 4.0 4.2 ----------------- ---------------- ----------------- 100.0% 100.0% 100.0% ================== ================ ================= Liabilities and Stockholders' Equity Deposits 57.0% 54.0% 53.9% Federal Home Loan Bank advances 30.7 35.4 34.8 Securities sold under agreements to repurchase 0.7 1.5 1.6 Federal funds purchased 0.0 0.0 0.1 Bank notes 1.2 0.0 0.0 Senior debt 0.3 0.0 0.0 Subordinated debt 1.0 1.1 1.4 Other liabilities 1.8 1.4 1.5 Stockholders' equity 7.3 6.6 6.7 ------------------ ---------------- ----------------- 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, 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. For more information on how these lags affect net interest income, see page 26.
TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio As of September 30, 2001 (Dollars in Millions) Projected Repricing (a) --------------------------------------------------------------------------------------- 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ------------- --------------- -------------- -------------- -------------- Interest-Earning Assets Investments $ 725 $ -0- $ -0- $ 1 $ 726 Mortgage-backed securities: Rate-sensitive 14,536 -0- -0- -0- 14,536 Flex-rate 80 201 524 457 1,262 Loans receivable: Rate-sensitive 33,358 2,710 504 -0- 36,572 Fixed-rate 53 156 560 1,148 1,917 Other (b) 1,411 -0- -0- -0- 1,411 Impact of interest rate swaps 481 (50) (431) -0- -0- ------------- --------------- -------------- -------------- -------------- Total $ 50,644 $ 3,017 $ 1,157 $ 1,606 $ 56,424 ============= =============== ============== ============== ============== Interest-Bearing Liabilities Deposits (c) $ 19,921 $ 10,745 $ 2,448 $ 20 $ 33,134 FHLB advances 17,150 210 99 401 17,860 Other borrowings 915 600 397 -0- 1,912 Impact of interest rate swaps 103 (12) (91) -0- -0- ------------- --------------- -------------- -------------- -------------- Total $ 38,089 $ 11,543 $ 2,853 $ 421 $ 52,906 ============= =============== ============== ============== ============== Repricing gap $ 12,555 $ (8,526) $ (1,696) $ 1,185 ============= =============== ============== ============== Cumulative gap $ 12,555 $ 4,029 $ 2,333 $ 3,518 ============= =============== ============== ============== Cumulative gap as a percentage of total assets 21.6% 6.9% 4.0% ============= =============== ==============
(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 September 30, 2001, December 31, 2000, and September 30, 2000, the Company had securities available for sale in the amount of $726 million, $393 million and $311 million, respectively, including unrealized gains on securities available for sale of $360 million, $382 million, and $299 million, respectively. At September 30, 2001, December 31, 2000, and September 30, 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). Because the Company currently retains all of the beneficial interest in these MBS and MBS-REMIC securitizations and because the securitizations meet all the requirements for separate security recognition, the securitizations formed after March 31, 2001 are securities classified as securitized loans and included in loans receivable in accordance with SFAS 140 (see page 7 for further discussion). Additionally, from time to time, the Company purchases MBS. MBS, MBS-REMICs and securitized loans are available to be used as collateral for borrowings. At September 30, 2001, December 31, 2000, and September 30, 2000, the balance of loans receivable including mortgage-backed securities was $54.5 billion, $52.3 billion, and $49.5 billion, respectively. Included in the $54.5 billion at September 30, 2001 was $5.4 billion of Federal National Mortgage Association (FNMA) MBS with the underlying loans subject to full credit recourse to the Company, $9.8 billion of MBS-REMICs, $5.7 billion of securitized loans, and $553 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 $49.5 billion at September 30, 2000 was $5.9 billion of FNMA MBS with the underlying loans subject to full credit recourse to the Company, $8.2 billion of MBS-REMICs, and $466 million of purchased MBS. Mortgage-Backed Securities At September 30, 2001, December 31, 2000, and September 30, 2000, the Company had MBS held to maturity in the amount of $15.6 billion, $18.5 billion, and $14.5 billion, respectively. The increase in MBS from September 30, 2000 to September 30, 2001 was due to the securitization of $2.2 billion of adjustable rate mortgages (ARMs) into FNMA MBS and the securitization of $2.6 billion of ARMs into MBS-REMICs during the last three months of 2000. In addition, the Company securitized $3.0 billion of ARMs into MBS-REMICs in 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 September 30, 2001, December 31, 2000, and September 30, 2000, the Company had MBS available for sale in the amount of $244 million, $70 million, and $68 million, respectively, including unrealized gains on MBS available for sale of $6 million at September 30, 2001, and $1 million at December 31, 2000 and September 30, 2000. At September 30, 2001, December 31, 2000, and September 30, 2000, the Company had no trading MBS. Repayments of MBS during the third quarter and first nine months of 2001 were $1.8 billion and $4.9 billion, respectively, compared to $659 million and $1.7 billion during the same periods of 2000. MBS repayments were higher during the first nine months of 2001 as compared to the first nine months of 2000 due to an increase in the prepayment rate as well as an increase of the balance of MBS outstanding. Securitized Loans At September 30, 2001, the Company had $6.0 billion of loans that were securitized during the second and third quarters of 2001. These loans are classified as loans receivable on the statement of financial position. Loans New loan originations for the three and nine months ended September 30, 2001 amounted to $5.6 billion and $15.0 billion, respectively, compared to $5.5 billion and $14.9 billion for the same periods 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 57% and 56%, respectively, of new loan originations for the three and nine months ended September 30, 2001, compared to 31% and 33% for the three and nine months ended September 30, 2000. First mortgages originated for sale amounted to $506 million and $1.3 billion for the three and nine months ended September 30, 2001, compared to $24 million and $69 million for the same periods in 2000. During the third quarter and first nine months of 2001, $79 million and $282 million of loans were converted at the customer's request from adjustable rate to fixed-rate compared to $4 million and $21 million for the same periods in 2000. The Company continues to sell most of its new and converted fixed-rate loans. For the three and nine months ended September 30, 2001, the Company sold $756 million and $1.6 billion, respectively, of fixed-rate first mortgage loans compared to $33 million and $107 million for the same periods in 2000. At September 30, 2001, the Company had lending operations in 37 states. The largest source of mortgage origination is loans secured by residential properties in California. For the three and nine months ended September 30, 2001, 69% and 70%, respectively, of total loan originations were on residential properties in California compared to 63% and 62% for the same periods in 2000. The five largest states, other than California, for originations for the nine months ended September 30, 2001, were Florida, Texas, Colorado, New Jersey, 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 64% at September 30, 2001 compared to 63% at December 31, 2000 and at September 30, 2000. Of the 64% at September 30, 2001, 51.9% were in Northern California and 48.1% were in Southern California. Golden West originates ARMs tied primarily to the Golden West Cost of Savings Index (COSI) and the Eleventh District Cost of Funds Index (COFI). Prior to 2001, the Company also originated 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 third quarter and first nine months of 2001 and 2000.
TABLE 3 Adjustable Rate Mortgage Originations by Index (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 --------------------------------- ---------------------------------- ARM Index 2001 2000 2001 2000 - ----------------- --------------- -------------- ---------------- ---------------- COSI $ 1,086,362 $ 3,572,980 $ 5,758,232 $ 9,409,556 COFI 3,761,926 1,639,846 7,130,071 4,506,629 TCM -0- 66,454 -0- 468,013 --------------- -------------- ---------------- ---------------- $ 4,848,288 $ 5,279,280 $ 12,888,303 $ 14,384,198 =============== ============== ================ ================
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, 2001, December 31, 2000, and September 30, 2000.
TABLE 4 Adjustable Rate Mortgage Portfolio by Index (Including ARM MBS with Recourse and ARM MBS-REMICs) (Dollars in thousands) September 30 December 31 September 30 ARM Index 2001 2000 2000 - --------------------- ------------------ ------------------ ----------------- COSI $ 21,501,188 $ 20,460,242 $ 17,552,743 COFI 28,332,486 27,405,401 27,369,143 TCM 1,038,355 1,457,232 1,532,717 Other 303,786 182,778 150,142 ------------------ ------------------ ----------------- $ 51,175,815 $ 49,505,653 $ 46,604,745 ================== ================== =================
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 2001, 13% of loans originated exceeded 80% of the appraised value of the secured property, including $259 million of firsts and $1.7 billion of combined firsts and seconds. For the first nine months 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 $40 million and $140 million for the third quarter and first nine months of 2001 as compared to $56 million and $118 million for the same periods in 2000. 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 and nine months ended September 30, 2001 and 2000.
TABLE 5 Mortgage Originations With Loan to Value and Combined Loan to Value Ratios Greater Than 80% (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 ------------------------------ ------------------------------ 2001 2000 2001 2000 ------------- ------------- -------------- -------------- First mortgages with loan to value ratios greater than 80%: With insurance $ 61,838 $ 37,706 $ 163,458 $ 83,756 With no insurance 37,826 42,889 95,565 209,512 ------------- ------------- -------------- -------------- 99,664 80,595 259,023 293,268 ------------- ------------- -------------- -------------- First and second mortgages with combined loan to value ratios greater than 80%: With pool insurance 435,052 761,747 894,530 1,958,975 With no insurance 251,141 226,441 800,651 730,606 ------------- ------------- -------------- -------------- 686,193 988,188 1,695,181 2,689,581 ------------- ------------- -------------- -------------- Total $ 785,857 $ 1,068,783 $ 1,954,204 $ 2,982,849 ============= ============= ============== ==============
The following table shows the outstanding balance of mortgages with original LTV or combined LTV ratios greater than 80% at September 30, 2001 and 2000.
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 --------------------------------- 2001 2000 --------------- --------------- First mortgages with loan to value ratios greater than 80%: With insurance $ 416,028 $ 371,363 With no insurance 612,677 870,215 --------------- --------------- 1,028,705 1,241,578 --------------- --------------- First and second mortgages with combined loan to value ratios greater than 80%: With pool insurance 2,359,929 1,785,294 With no insurance 524,951 772,960 --------------- -------------- 2,884,880 2,558,254 --------------- -------------- Total $ 3,913,585 $ 3,799,832 =============== ==============
(a) Amounts restated from prior period. The following tables show the Company's loan portfolio by state at September 30, 2001 and 2000.
TABLE 7 Loan Portfolio by State September 30, 2001 (Dollars in thousands) Residential Real Estate Commercial Loans ------------------------------------ Real Total as a % of State 1 - 4 5+ Land Estate Loans (a) Portfolio - ------------- ---------------- -------------- ------------ ------------- ---------------- ------------- California $ 31,182,293 $ 3,396,248 $ 23 $ 20,192 $ 34,598,756 64.10% Florida 2,696,823 21,319 -0- 202 2,718,344 5.04 Texas 2,128,283 72,278 182 941 2,201,684 4.08 New Jersey 1,973,278 -0- -0- 2,083 1,975,361 3.66 Washington 1,090,659 628,098 -0- -0- 1,718,757 3.18 Illinois 1,425,232 122,257 -0- -0- 1,547,489 2.87 Colorado 1,236,884 191,115 -0- 4,576 1,432,575 2.65 Pennsylvania 1,038,547 1,202 -0- 133 1,039,882 1.93 Arizona 1,004,192 17,829 -0- 14 1,022,035 1.89 Other (b) 5,649,251 68,795 14 3,745 5,721,805 10.60 ----------------- --------------- ----------- ------------- ---------------- ------------- Totals $ 49,425,442 $ 4,519,141 $ 219 $ 31,886 53,976,688 100.00% ================= =============== =========== ============= ============= SFAS 91 deferred loan costs 181,498 Loan discount on purchased loans (1,159) Undisbursed loan funds (6,951) Allowance for loan losses (250,444) Loans to facilitate (LTF) interest reserve (169) Troubled debt restructured (TDR) interest reserve (6) Loans on deposits 18,523 ---------------- Total loan portfolio and loans securitized into FNMA MBS with recourse and MBS-REMICs 53,917,980 Loans securitized into FNMA MBS and MBS-REMICs (15,244,959) (c) ---------------- Total loans receivable $ 38,673,021 ================
(a) The Company has no commercial loans other than commercial real estate loans. (b) All states included in other have total loan balances with less than 2% of total loans. (c) The above schedule includes the September 30, 2001 balances of loans that were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
TABLE 8 Loan Portfolio by State September 30, 2000 (Dollars in thousands) Residential Real Estate Commercial Loans ----------------------------------- Real Total as 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 Washington 986,057 551,405 -0- -0- 1,537,462 3.13 Illinois 1,473,469 120,634 -0- -0- 1,594,103 3.25 Colorado 1,239,024 185,371 -0- 4,651 1,429,046 2.91 Pennsylvania 1,010,560 2,695 -0- 2,375 1,015,630 2.07 Arizona 1,023,546 17,450 -0- -0- 1,040,996 2.12 Other (b) 5,211,631 48,084 43 5,002 5,264,760 10.73 ---------------- --------------- ------------- -------------- ---------------- ------------ Totals $ 44,623,369 $ 4,427,284 $ 507 $ 40,931 49,092,091 100.00% ================ =============== ============= ============== ============ 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 ---------------- Total loan portfolio and loans securitized into FNMA MBS with recourse and MBS-REMICs 49,016,258 Loans securitized into FNMA MBS 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) All states included in other have total loan balance 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. 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 94% at September 30, 2001 compared to 95% at December 31, 2000, and 94% at September 30, 2000. The Company's ARM originations constituted 86% of new mortgage loans made for the first nine months of 2001 compared to 96% for the first nine 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 12.23% or 5.16% above the actual weighted average rate at September 30, 2001, versus 12.31% or 4.41% above the weighted average rate at September 30, 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 September 30, 2001, $406 million of ARM loans had reached their rate floors. The weighted average floor rate on the loans that had reached their floor was 7.55% at September 30, 2001 compared to 7.92% at September 30, 2000. Without the floor, the average rate on these loans would have been 6.54% at September 30, 2001 and 7.65% at September 30, 2000. Loan repayments consist of monthly loan amortization and loan payoffs. For the three and nine months ended September 30, 2001, loan repayments were $2.4 billion and $6.7 billion, respectively, compared to $1.1 billion and $3.3 billion in the same periods of 2000. The increase in loan repayments was primarily due to an increase in loan payoffs in the first nine months 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 and nine months ended September 30, 2001 and 2000.
TABLE 9 Capitalized Mortgage Servicing Rights (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 --------------------------- --------------------------- 2001 2000 2001 2000 ----------- ------------ ------------ ----------- Beginning balance of capitalized mortgage servicing rights $ 36,109 $ 32,695 $ 28,355 $ 37,295 New capitalized mortgage servicing rights from loan sales 11,899 694 25,357 2,179 Amortization of capitalized mortgage servicing rights (3,652) (3,105) (9,356) (9,190) ----------- ------------ ------------ ----------- Ending balance of capitalized mortgage servicing rights $ 44,356 $ 30,284 $ 44,356 $ 30,284 =========== ============ ============ ===========
The book value of Golden West's servicing rights did not exceed the fair value at September 30, 2001 or 2000 and, therefore, no write-down of the servicing rights 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 securitized 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) September 30 December 31 September 30 2001 2000 2000 ------------------ ---------------- ------------------ Non-accrual loans $ 336,686 $ 231,155 $ 213,956 Real estate acquired through foreclosure 8,200 8,061 9,774 Real estate in judgment 1,258 200 110 ------------------ ---------------- ------------------ Total nonperforming assets $ 346,144 $ 239,416 $ 223,840 ================== ================ ================== TDRs $ 129 $ 1,933 $ 4,175 ================== ================ ================== Ratio of NPAs to total assets .60% .43% .43% ================== ================ ================== Ratio of TDRs to total assets .00% .00% .01% ================== ================ ================== Ratio of NPAs and TDRs to total assets .60% .43% .44% ================== ================ ==================
The increase in NPAs during the first nine months of 2001 reflected the normal increase in delinquencies associated with the aging of the large volume of mortgages originated during the past two years together with the slowing of the economy. 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 $3 million and $7 million for the three and nine months ended September 30, 2001 compared to $885 thousand and $2 million for the same periods in 2000. Interest foregone on TDRs amounted to $1 thousand and $40 thousand for the three and nine months ended September 30, 2001, compared to $41 thousand and $153 thousand for the three and nine months ended September 30, 2000. The tables on the following page show the Company's nonperforming assets by state as of September 30, 2001 and 2000.
TABLE 11 Nonperforming Assets by State September 30, 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 $ 172,974 $ 821 $ 667 $ 1,647 $ -0- $ -0- $ 176,109 .51% Florida 30,426 -0- 80 280 -0- -0- 30,786 1.13 Texas 17,126 -0- -0- 758 -0- -0- 17,884 .81 New Jersey 18,813 -0- -0- 573 -0- -0- 19,386 .98 Washington 8,554 -0- -0- 425 -0- -0- 8,979 .52 Illinois 14,770 -0- -0- 594 215 -0- 15,579 1.01 Colorado 2,745 -0- -0- -0- -0- -0- 2,745 .19 Pennsylvania 12,940 -0- -0- 603 -0- -0- 13,543 1.30 Arizona 5,178 -0- -0- 88 -0- -0- 5,266 .52 Other (c) 51,294 298 -0- 4,589 -0- -0- 56,181 .98 ------------ ---------- ---------- --------- ------- ------------ ------------ ------------ Totals $ 334,820 $ 1,119 $ 747 $ 9,557 $ 215 $ -0- 346,458 .64% ============ ========== ========== ========= ======= ============ FRE general valuation allowance (314) (.00) ------------ ------------ Total nonperforming assets $ 346,144 .64% ============ ============
(a) Non-accrual loans are 90 days or more past due and have no unpaid interest accrued. (b) The September 30, 2001 balances include loans that were securitized into FNMA MBS and MBS-REMICs. (c) All states included in other have total loan balance less than 2% of total loans.
TABLE 12 Nonperforming Assets by State September 30, 2000 (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 $ 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 Washington 3,555 -0- -0- 113 -0- -0- 3,668 .24 Illinois 10,320 215 -0- 696 -0- -0- 11,231 .70 Colorado 2,377 -0- -0- -0- -0- -0- 2,377 .17 Pennsylvania 10,147 -0- -0- 1,420 -0- -0- 11,567 1.14 Arizona 4,812 -0- -0- -0- -0- -0- 4,812 .46 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 ============= ========== ============ ========== ========= =========== FRE 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) All states included in other have total loan balances with 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 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 and nine months ended September 30, 2001 and 2000.
TABLE 13 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended Nine Months Ended September 30 September 30 ----------------------------- ------------------------------ 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Beginning allowance for loan losses $ 245,078 $ 234,834 $ 236,708 $ 232,134 Provision for losses charged to expense 3,639 1,106 12,463 5,917 Less loans charged off (628) (54) (1,383) (674) Recoveries 161 121 329 302 Net transfer of allowance (to) from recourse liability 2,194 (438) 2,327 (2,110) ------------- ------------- ------------- ------------- Ending allowance for loan losses $ 250,444 $ 235,569 $ 250,444 $ 235,569 ============= ============= ============= ============= Ratio of net chargeoffs (recoveries) to average loans outstanding (including MBS with recourse and MBS-REMICs) .00% .00% .00% .00% ============= ============= ============= ============= Ratio of allowance for loan losses to total loans (including MBS with recourse and MBS-REMICs) .46% .48% ============= ============= Ratio of allowance for loan losses to nonperforming assets 72.4% 105.2% ============= =============
Deposits The Company raises deposits through its retail branch system as well as through the capital markets. Retail deposits increased during the third quarter of 2001 by $1.8 billion, including interest credited of $312 million, compared to an increase of $522 million, including interest credited of $328 million in the third quarter of 2000. Retail deposits increased during the first nine months of 2001 by $3.3 billion, including interest credited of $994 million, compared to an increase of $1.1 billion, including interest credited of $896 million in the first nine months of 2000. Retail deposits increased during the first nine months of 2001 because the public found savings to be a more favorable investment compared with other alternatives. The increase in 2000 was primarily due to interest credited. At September 30, 2001 and 2000, transaction accounts (which include checking, passbook, and money market accounts) represented 34% and 28%, 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 December 31, 2000 included $185 million, respectively, of these wholesale CDs. There were no outstanding wholesale CDs at September 30, 2001 or September 30, 2000. The table below shows the Company's deposits by interest rate and by remaining maturity at September 30, 2001 and 2000.
TABLE 14 Deposits (Dollars in Millions) September 30 ----------------------------------------------------------- 2001 2000 ---------------------------- ---------------------------- Rate* Amount Rate* Amount ----------- ------------- ---------------------------- Deposits by rate: Interest-bearing checking accounts 1.85% $ 98 3.02% $ 74 Interest-bearing checking accounts swept into money market deposit accounts 3.06 4,317 3.40 3,157 Passbook accounts 1.20 461 1.48 463 Money market deposit accounts 3.66 6,341 4.24 4,217 Term certificate accounts with original maturities of: 4 weeks to 1 year 4.21 11,908 5.95 9,569 1 to 2 years 5.02 6,785 5.85 7,511 2 to 3 years 5.45 1,560 5.62 1,388 3 to 4 years 5.54 602 5.74 451 4 years and over 5.78 735 5.96 678 Retail jumbo CDs 4.86 327 5.81 741 ------------- ------------- $ 33,134 $ 28,249 ============= ============= 2001 2000 ------------- ------------- Deposits by remaining maturity: No contractual maturity 3.31% $ 11,217 3.73% $ 7,911 Maturity within one year 4.58 19,449 5.86 18,054 1 to 5 years 5.12 2,448 6.08 2,252 Over 5 years 5.74 20 5.35 32 ------------- ------------- $ 33,134 $ 28,249 ============= =============
* Weighted average interest rate, including the impact of interest rate swaps. At September 30, the weighted average cost of deposits was 4.19% (2001) and 5.28% (2000). Advances from Federal Home Loan Banks The Company uses borrowings from the 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 the FHLBs. FHLB advances amounted to $17.9 billion at September 30, 2001, compared to $19.7 billion at December 31, 2000, and $18.2 billion at September 30, 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 $421 million, $857 million, and $859 million at September 30, 2001, December 31, 2000, and September 30, 2000, respectively. Other Borrowings At September 30, 2001, Golden West, at the holding company level, had principal amounts of $600 million of subordinated debt issued and outstanding as compared to $715 million at September 30, 2000. As of September 30, 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 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. At September 30, 2001, the Company had issued and outstanding $200 million of five-year senior debt in connection with the aforementioned registration statement. At September 30, 2001, WSB had $694 million of bank notes outstanding. 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 September 30, 2001, WSB had not issued any notes under this authority. Stockholders' Equity The Company's stockholders' equity increased by $528 million during the first nine months of 2001 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 $29 million cost of the repurchase of Company stock. The Company's stockholders' equity increased by $294 million during the first nine months of 2000 as a result of net earnings and increased market values of securities available for sale, partially offset by the payment of quarterly dividends to stockholders and the $109 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 September 30, 2001, December 31, 2000, and September 30, 2000 were $222 million, $233 million, and $182 million, respectively. Since 1993, through five separate actions, Golden West's Board of Directors has authorized the repurchase by the Company of up to 60.6 million shares of Golden West's common stock. As of September 30, 2001, 43.4 million shares had been repurchased and retired at a cost of $944 million since October 1993, of which 529,000 were purchased and retired at a cost of $29 million during the first nine months of 2001. 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 September 30, 2001 and 2000. The September 30, 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) September 30, 2001 September 30, 2000 ----------------------------------------------------- ---------------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ------------------------- ------------------------- ------------------------- ----------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ------------- --------- ------------- --------- ------------ ---------- ------------ -------- Tangible $4,247,559 7.38% $ 863,820 1.50% $2,817,341 5.81% $ 727,749 1.50% Core 4,247,559 7.38 2,303,520 4.00 2,817,341 5.81 1,940,664 4.00 Risk-based 4,591,460 13.72 2,676,943 8.00 2,985,238 10.62 2,249,282 8.00
The following table shows WTX's current regulatory capital ratios and compares them to the OTS minimum requirements at September 30, 2001.
TABLE 16 World Savings Bank, FSB Texas Regulatory Capital Ratios (Dollars in thousands) September 30, 2001 -------------------------------------------------------- ACTUAL REQUIRED --------------------------- -------------------------- Capital Ratio Capital Ratio ------------- ----------- ------------- ---------- Tangible $ 310,217 5.22% $ 89,180 1.50% Core 310,217 5.22 237,813 4.00 Risk-based 310,218 26.08 95,167 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 the following two tables show, as of September 30, 2001, WSB and WTX exceeded the qualifications for well-capitalized institutions under the rules applicable to them.
TABLE 17 World Savings Bank, FSB Regulatory Capital Compared to Well-Capitalized Classification (Dollars in thousands) ACTUAL WELL-CAPITALIZED ---------------------------- -------------------------------- Capital Ratio Capital Ratio ------------- ---------- -------------- ------------ Leverage $ 4,247,559 7.38% $ 2,879,400 5.00% Tier 1 risk-based 4,247,559 12.69 2,007,708 6.00 Total risk-based 4,591,460 13.72 3,346,179 10.00
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 $ 310,217 5.22% $297,266 5.00% Tier 1 risk-based 310,217 26.08 71,375 6.00 Total risk-based 310,218 26.08 118,959 10.00
Results Of Operations Net Earnings Net earnings for the three months ended September 30, 2001 were $206 million compared to net earnings of $137 million for the three months ended September 30, 2000. Net earnings for the nine months ended September 30, 2001 were $591 million (excluding the cumulative effect of the accounting change) compared to net earnings of $397 million for the nine months ended September 30, 2000. Net earnings increased in 2001 as compared to 2000 primarily as a result of increased net interest income and increased noninterest income, which were partially offset by an increase in general and administrative expenses. Net earnings for the nine months ended September 30, 2001, including the cumulative effect of the accounting change, net of tax, were $585 million. See page 6 for further discussion on SFAS 133 and the cumulative effect of the accounting change. Net Interest Income The largest component of the Company's revenue and earnings is net interest income, which is the difference between the interest and dividends earned on loans and other investments and the interest paid on customer deposits and borrowings. Long-term growth of the Company's net interest income, and hence earnings, is related to the ability to expand the mortgage portfolio, the Company's primary earning asset, by originating and retaining high-quality adjustable rate home loans. Over the short term, however, net interest income can be influenced by business conditions, especially movements in interest rates, which can temporarily accelerate or restrain net interest income changes. Net interest income amounted to $415 million and $1.2 billion, respectively, for the three and nine months ended September 30, 2001. These amounts represented 44% and 41% increases, respectively, over the $288 million and $838 million reported during the same periods in 2000. As discussed below, the significant growth of net interest income in 2001 compared with the prior year resulted from two principal factors: the substantial growth of the mortgage portfolio during 2000; and an increase in 2001 in the Company's primary spread, which is the difference between the yield on loans and other investments and the rate paid on deposits and borrowings. Net interest income in 2001 benefited from the 32% growth of the mortgage portfolio in the prior year. Specifically, in 2000, the Company originated a record loan volume that, in combination with a moderate level of mortgage repayments, resulted in unusually rapid growth of the Company's loans receivable. Thus, there was a significantly larger average loan balance outstanding during 2001 versus 2000, and this contributed to the substantial net interest income increase in 2001. Net interest income increases in 2001 were also influenced by a temporary widening of the Company's primary spread. As noted in the discussion of the Gap on page 11, the Company's liabilities respond more rapidly to movements in short-term interest rates than the Company's assets, most of which are adjustable rate mortgages tied to indexes that lag changes in market interest rates. Consequently, when short-term interest rates decline, the Company's primary spread temporarily widens, and when short-term interest rates move up, the Company's primary spread compresses for a period of time. When interest rates stabilize, the primary spread returns to more normal levels. For the five years ended September 30, 2001, which included periods of both falling and rising interest rates, the Company's primary spread averaged 2.21% with a high of 2.83% and a low of 1.88%. During the first nine months of 2001, the Federal Reserve's Open Market Committee lowered the Federal Funds rate, a key short-term interest rate, by a total of 350 basis points in order to stimulate the economy. Other short-term market rates experienced similar decreases. In response to significantly lower short-term interest rates, the Company's cost of funds declined by 185 basis points between December 31, 2000 and September 30, 2001. This large drop occurred, in part, because the Company used primarily adjustable market-rate borrowings to fund the rapid expansion of the loan portfolio in 2000. As a result, a significant portion of the Company's liabilities responded almost immediately to the sharp decrease in market rates in 2001. While the Company's cost of funds declined considerably during the first nine months of 2001, the yield on the Company's assets fell by only 105 basis points, because the indexes to which the large adjustable rate mortgage portfolio is tied moved down more slowly. As a consequence, the Company's primary spread widened substantially during 2001, reaching 2.83%, the highest point since 1987, and resulted in a temporary boost to net interest income in 2001. The table below shows the components of the Company's spread at September 30, 2001, December 31, 2000, and September 30, 2000.
TABLE 19 Yield on Earning Assets, Cost of Funds, and Primary Spread September 30 December 31 September 30 2001 2000 2000 --------------- ---------------- ---------------- Yield on loan portfolio 7.01% 8.05% 7.88% Yield on MBS 6.95 7.98 7.82 Yield on investments 4.34 7.12 8.70 ------------- ------------ ------------- Yield on earning assets 6.97 8.02 7.86 ------------- ------------ ------------- Cost of deposits 4.19 5.52 5.28 Cost of borrowings 4.05 6.66 6.58 ------------- ------------ ------------- Cost of funds 4.14 5.99 5.82 ------------- ------------ ------------- Primary spread 2.83% 2.03% 2.04% ============= ============ =============
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 principally because of lags related to the indexes. 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). The Company also 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. Additionally, certain loan features cause the yield on the Company's ARM portfolio to lag changes in market interest rates. 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. 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.
TABLE 20 Average Interest-Earning Assets and Interest-Bearing Liabilities (Dollars in thousands) Three Months Ended Three Months Ended September 30, 2001 September 30, 2000 --------------------------------------------- ----------------------------------------------- Annualized End of Annualized End of Average Average Yield Period Average Average Period Balances (a) Yield Balances (a) Yield Yield -------------- ---------------- ---------- ---------------- -------------- ----------- ASSETS Investment securities $ 3,184,270 4.09% 4.34% $ 3,600,512 6.84% 8.70% Mortgage-backed securities 16,797,464 7.10% 6.95% 14,791,819 7.66% 7.82% Loans receivable (b) 37,237,843 7.34% 7.01% 33,067,747 7.90% 7.88% Invest. in capital stock of FHLBs 1,091,375 4.96% 4.97% 886,441 7.24% 6.55% -------------- --------------- ---------------- -------------- Interest-earning assets $ 58,310,952 7.05% $ 52,346,519 7.75% ============== =============== ================ ============== LIABILITIES Deposits: Checking accounts $ 120,250 2.77% 1.85% $ 156,644 1.84% 3.02% Savings accounts 10,115,826 3.45% 3.32% 8,189,258 3.76% 3.74% Term accounts 22,255,697 4.99% 4.65% 20,820,381 5.91% 5.88% --------------- --------------- ---------- ---------------- --------------- ----------- Total deposits 32,491,773 4.50% 4.19% 29,166,283 5.29% 5.28% Advances from FHLBs 18,681,114 4.30% 4.00% 17,250,092 6.58% 6.55% Reverse repurchases 758,561 3.83% 3.01% 1,486,301 6.41% 6.24% Other borrowings 3,545,252 4.44% 4.95% 1,883,200 7.13% 7.63% --------------- -------------- ---------------- --------------- Interest-bearing liabilities $ 55,476,700 4.42% $ 49,785,876 5.84% =============== ============== ================ =============== Net interest spread 2.63% 1.91% ============== =============== Net interest income $ 415,132 $ 287,912 =============== ================ Net yield on average interest- earning assets 2.85% 2.20% ============== ===============
(a) Averages are computed using daily balances. (b) Includes nonaccrual loans (90 days or more past due).
TABLE 21 Average Interest-Earning Assets and Interest-Bearing Liabilities (Dollars in thousands) Nine Months Ended Nine Months Ended September 30, 2001 September 30, 2000 ----------------------------------------------- -------------------------------------------- Annualized End of Annualized End of Average Average Yield Period Average Average Period Balances (a) Yield Balances (a) Yield Yield ---------------- ---------------- --------- ---------------- -------------- ---------- ASSETS Investment securities $ 3,167,297 4.94% 4.34% $ 2,972,977 6.52% 8.70% Mortgage-backed securities 18,100,472 7.63% 6.95% 12,963,639 7.47% 7.82% Loans receivable (b) 35,398,324 7.77% 7.01% 31,218,757 7.63% 7.88% Invest. in capital stock of FHLBs 1,082,383 5.64% 4.97% 724,472 7.60% 6.55% --------------- --------------- ---------------- -------------- Interest-earning assets $ 57,748,476 7.53% $ 47,879,845 7.52% =============== =============== ================ ============== LIABILITIES Deposits: Checking accounts $ 125,870 2.57% 1.85% $ 136,543 2.13% 3.02% Savings accounts 8,204,319 3.51% 3.32% 8,857,741 3.80% 3.74% Term accounts 23,861,265 5.50% 4.65% 22,167,349 4.99% 5.88% --------------- --------------- --------- ---------------- --------------- -------- Total deposits 32,191,454 4.98% 4.19% 31,161,633 4.64% 5.28% Advances from FHLBs 18,989,841 5.15% 4.00% 13,608,999 6.22% 6.55% Reverse repurchases 1,079,398 4.88% 3.01% 1,378,630 6.04% 6.24% Other borrowings 2,698,127 5.10% 4.95% 1,510,799 7.06% 7.63% --------------- --------------- ---------------- --------------- Interest-bearing liabilities $ 54,958,820 5.04% $ 47,660,061 5.21% =============== =============== ================ =============== Net interest spread 2.49% 2.31% =============== =============== Net interest income $ 1,181,028 $ 838,071 =============== ================ Net yield on average interest- earning assets 2.73% 2.33% =============== ===============
(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 and nine months ended September 30, 2001 and 2000.
TABLE 22 Selected Revenue and Expense Items as Percentages of Total Revenues Three Months Ended Nine Months Ended September 30 September 30 --------------------------- ------------------------- 2001 2000 2001 2000 ------------ ---------- ---------- ---------- Interest on loans 63.0% 61.8% 60.1% 63.5% Interest on mortgage-backed securities 27.5 26.8 30.2 25.8 Interest and dividends on investments 4.3 7.4 4.8 6.6 ------------ ---------- ---------- ---------- 94.8 96.0 95.1 95.9 Less: Interest on deposits 33.7 36.5 35.1 38.5 Interest on advances and other borrowings 22.8 32.3 25.5 27.6 ------------ ---------- ---------- ---------- 56.5 68.8 60.6 66.1 Net interest income 38.3 27.2 34.5 29.8 Provision for loan losses .3 .1 .4 .2 ------------ ---------- ---------- ---------- Net interest income after provision for loan losses 38.0 27.1 34.1 29.6 Add: Fees 3.5 1.9 3.3 1.9 Gain on the sale of securities and loans 1.2 .3 .8 .2 Change in fair value of derivatives (.7) 0.0 (.4) 0.0 Other non-interest income 1.2 1.8 1.2 2.0 ------------ ---------- ---------- ---------- 5.2 4.0 4.9 4.1 Less: General and administrative expenses 12.2 10.2 10.9 11.0 Taxes on income 12.0 7.9 10.8 8.6 Cumulative effect of accounting change 0.0 0.0 .2 0.0 ------------ ---------- ---------- ---------- Net earnings 19.0% 13.0% 17.1% 14.1% ============ ========== ========== ==========
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 23 Schedule of Interest Rate Swaps Activity (Notional amounts in millions) Nine Months Ended September 30, 2001 -------------------------------- Receive Pay Fixed Fixed Swaps Swaps ------------- -------------- Balance at December 31, 2000 $ 217 $ 717 Maturities (114) (56) -------------- --------------- Balance at September 30, 2001 $ 103 $ 661 ============== ===============
The range of floating interest rates received on swap contracts in the first nine months of 2001 was 2.58% to 6.90%, and the range of floating interest rates paid on swap contracts was 3.36% to 6.76%. The range of fixed interest rates received on swap contracts in the first nine 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 $3.8 million and $7.5 million for the three and nine months ended September 30, 2001, as compared to decreases of $682 thousand and $3.5 million for the same periods in 2000. Upon adoption of SFAS 133 on January 1, 2001 (refer to discussion on page 6), 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 pre-tax expense of $8 million, or $.03 after tax per diluted share for the three months ended September 30, 2001, associated with the on going quarterly valuation of the Company's swaps and pre-tax expense of $14 million, or $.05 after tax per diluted share for the nine months ended September 30, 2001. This additional expense occurred because the market value of Golden West's swaps declined during the third quarter and the first nine months 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 corresponding amounts reported in Noninterest Income as the "Change in Fair Value of Derivatives" in the Consolidated Statement of Net Earnings. The Company has elected not to use permitted hedge accounting for the derivative financial instruments in portfolio at September 30, 2001. Interest on Loans In the third quarter of 2001, interest on loans was higher than in the comparable 2000 period by $30 million or 4.6%. The increase in the third quarter of 2001 was due to a $4.2 billion increase in the average portfolio balance, which was partially offset by a 56 basis point decrease in the average portfolio yield. In the first nine months of 2001, interest on loans was higher than in the comparable 2000 period by $275 million or 15.4%. The increase in the first nine months of 2001 was due to a $4.2 billion increase in the average portfolio balance and a 14 basis point increase in the average portfolio yield. Interest on Mortgage-Backed Securities In the third quarter of 2001, interest on mortgage-backed securities was higher than in the comparable 2000 period by $15 million or 5.3%. The increase in the third quarter of 2001 was primary due to a $2.0 billion increase in the average portfolio balance, which was partially offset by a 56 basis point decrease in the average portfolio yield. In the first nine months of 2001, interest on mortgage-backed securities was higher than in the comparable 2000 period by $309 million or 42.5%. The increase in the first nine months of 2001 was due to a $5.1 billion increase in the average portfolio balance and a 16 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 third quarter of 2001, interest and dividends on investments decreased by $32 million or 40.6% from the comparable period in 2000. The decrease in the third quarter of 2001 was due to a $416 million decrease in the average portfolio balance and a 289 basis point decrease in the average portfolio yield. In the first nine months of 2001, interest and dividends on investments decreased by $23 million or 12.6% from the comparable period in 2000. The decrease in the first nine months of 2001 was primarily due to a 170 basis point decrease in the average portfolio yield, which was partially offset by a $194 million increase in the average portfolio balance. Interest on Deposits In the third quarter of 2001, interest on deposits decreased by $20 million or 5.1% from the comparable period in 2000. The decrease in the third quarter of 2001 was due to a 76 basis point decrease in the average cost of deposits partially offset by a $3.2 billion increase in the average balance of deposits. In the first nine months of 2001, interest on deposits increased by $119 million or 11.0% from the comparable period in 2000. The increase in the first nine months of 2001 was due to a $3.3 billion increase in the average balance of deposits. Interest on Advances and Other Borrowings In the third quarter of 2001, interest on advances and other borrowings decreased by $94 million or 27.5% from the comparable period of 2000. The decrease in the third quarter of 2001 was primarily due to a 229 basis point decrease in the average cost of these borrowings partially offset by a $2.4 billion increase in the average balance. In the first nine months of 2001, interest on advances and other borrowings increased by $99 million or 12.7% from the comparable period of 2000. The increase in the first nine months of 2001 was primarily due to a $6.3 billion increase in the average balance, which was partially offset by a 115 basis point decrease in the average cost of these borrowings. Provision for Loan Losses The provision for loan losses was $4 million and $12 million for the three and nine months ended September 30, 2001, compared to $1 million and $6 million for the same periods in 2000. The increase in the provision for loan losses in 2001 reflected the growth in the loan portfolio over the prior year and the increase in nonperforming assets. Noninterest Income Noninterest income was $56 million and $167 million, respectively, for the three and nine months ended September 30, 2001, compared to $41 million and $115 million for the same periods in 2000. The increases in 2001 as compared to 2000 resulted primarily from a higher amount of prepayment fees and increased gains on the sale of fixed-rate mortgages. General and Administrative Expenses For the third quarter and first nine months of 2001, general and administrative expenses (G&A) were $132 million and $375 million compared to $107 million and $309 million for the comparable periods in 2000. G&A as a percentage of average assets on an annualized basis was .91% and .88% for the third quarter and first nine months of 2001 compared to .84% and .88% for the same periods in 2000. G&A expenses increased in 2001 because of the costs associated with the 32% growth of the mortgage portfolio in the prior year as well as 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 38.7% and 38.5%for the third quarter and first nine months of 2001, respectively, compared to 37.8% for both the third quarter and first nine months of 2000. 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 of San Francisco; 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 and bank 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 senior debt and 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 September 30, 2001, December 31, 2000, and September 30, 2000, Golden West's total cash and investments amounted to $532 million, $387 million, and $516 million, respectively. Included in the cash and investments above are a subordinated note receivable from WSB in the amount of $100 million at September 30, 2001 and December 31, 2000. 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 27. 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, 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 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 the quarter for which the report is filed: 1. Report filed July 27, 2001. Item 7. Financial Statements and Exhibits. The report included a press release announcing the Company's second quarter financial results. 2. Report filed August 3, 2001. Item 7. Financial Statements and Exhibits. This report included a Statement of Eligibility on Form T-1 of Bankers Trust Company, as trustee under the Company's Senior Debt Indenture dated as of August 8, 2001. 3. Report filed August 8, 2001. Item 7. Financial Statements and Exhibits. This report included the final form of the Company's Senior Debt Indenture dated as of August 8, 2001 with Bankers Trust Company, as trustee, as well as the form of the 5 1/2% Senior Note due August 8, 2006 issued by the Company on August 8, 2001. 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 14, 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 EX-11 2 gdw3q01exhibit.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 --------------------------------- ---------------------------------- 2001 2000 2001 2000 --------------- --------------- ---------------- ---------------- Income before Cumulative Effect of Accounting Change $ 205,840 $ 137,403 $ 590,848 $ 396,599 Cumulative effect of accounting change, net of tax -0- -0- (6,018) -0- --------------- --------------- ---------------- ---------------- Net Earnings $ 205,840 $ 137,403 $ 584,830 $ 396,599 =============== =============== ================ ================ Weighted Average Shares 158,868,462 158,032,942 158,691,819 158,661,510 Add: Options outstanding at period end 5,604,525 6,545,529 5,603,525 6,545,529 Less: Shares assumed purchased back with proceeds of options exercised 3,472,792 4,483,405 3,511,253 4,992,171 --------------- --------------- ---------------- ---------------- Diluted Average Shares Outstanding 161,000,195 160,095,066 160,784,091 160,214,868 =============== =============== ================ ================ Basic Earnings Per Share before Cumulative Effect of Accounting Change $ 1.30 $ .87 $ 3.73 $ 2.50 Cumulative effect of accounting change, net of tax .00 .00 (.04) .00 --------------- --------------- ---------------- ---------------- Basic Earnings Per Share $ 1.30 $ .87 $ 3.69 $ 2.50 =============== =============== ================ ================ Diluted Earnings Per Share before Cumulative Effect of Accounting Change $ 1.28 $ .86 $ 3.68 $ 2.48 Cumulative effect of accounting change, net of tax .00 .00 (.04) .00 --------------- --------------- ---------------- ---------------- Diluted Earnings Per Share $ 1.28 $ .86 $ 3.64 $ 2.48 =============== =============== ================ ================
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