-----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, VBjm1C8xfljVTG2+5GNJPh5PmLsia4wB1Rx9QcaFzSYwKP05omKQtnPtPqCd/uNU ZRYSQ6m3EKOENbYNPYSnLg== 0000042293-97-000002.txt : 19970514 0000042293-97-000002.hdr.sgml : 19970514 ACCESSION NUMBER: 0000042293-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NYSE 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: 97602592 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5104663420 MAIL ADDRESS: STREET 2: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CORP DATE OF NAME CHANGE: 19760806 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CO DATE OF NAME CHANGE: 19751124 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For Quarter Ended March 31, 1997 Commission File Number 1-4629 GOLDEN WEST FINANCIAL CORPORATION - ------------------------------------------------------------------------------- Delaware 95-2080059 - --------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1901 Harrison Street, Oakland, California 94612 - ------------------------------------------ --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 446-3420 --------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ----------- The number of shares outstanding of the registrant's common stock on April 30, 1997, was 56,929,364 shares. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidated financial statements of Golden West Financial Corporation and subsidiaries (the Company) for the three months ended March 31, 1997 and 1996 are unaudited. In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair statement of the results for such three month periods have been included. The operating results for the three months ended March 31, 1997, are not necessarily indicative of the results for the full year.
Golden West Financial Corporation Consolidated Statement of Financial Condition (Unaudited) (Dollars in thousands) March 31 March 31 December 31 1997 1996 1996 ------------ ----------- ------------ Assets: Cash $ 132,972 $ 203,419 $ 218,719 Securities available for sale at fair value 602,667 707,755 781,325 Other investments at cost 1,538,551 1,086,255 1,078,832 Mortgage-backed securities available for sale without recourse at fair value 216,332 269,590 227,466 Mortgage-backed securities held to maturity without recourse at cost 785,486 859,705 800,692 Mortgage-backed securities held to maturity with recourse at cost 3,183,765 2,174,244 3,265,424 Loans receivable 30,698,538 28,388,930 30,113,421 Interest earned but uncollected 212,280 218,347 221,604 Investment in capital stock of Federal Home Loan Banks--at cost which approximates fair value 564,389 392,597 500,105 Real estate held for sale or investment 79,687 73,864 83,052 Prepaid expenses and other assets 292,312 231,499 226,054 Premises and equipment--at cost less accumulated depreciation 223,030 205,352 213,904 ------------ ----------- ------------ $ 38,530,009 $34,811,557 $37,730,598 ============ =========== ============ Liabilities and Stockholders' Equity: Deposits $ 22,943,924 $20,990,781 $22,099,934 Advances from Federal Home Loan Banks 8,133,882 6,459,770 8,798,433 Securities sold under agreements to repurchase 2,662,179 2,139,371 1,908,126 Medium-term notes 309,903 889,570 589,845 Accounts payable and accrued expenses 482,335 487,897 452,182 Taxes on income 259,504 390,947 207,605 Subordinated notes--net of discount 1,324,390 1,322,790 1,323,996 Stockholders' equity 2,413,892 2,130,431 2,350,477 ------------ ----------- ------------ $ 38,530,009 $34,811,557 $37,730,598 ============ =========== ============
Golden West Financial Corporation Consolidated Statement of Net Earnings (Loss) (Unaudited) (Dollars in thousands except per share figures) Three Months Ended March 31 ----------------------------- 1997 1996 ----------- ------------ Interest Income: Interest on loans $ 565,063 $ 541,208 Interest on mortgage-backed securities 74,933 61,673 Interest and dividends on investments 34,283 36,226 ----------- ------------ 674,279 639,107 Interest Expense: Interest on deposits 280,320 265,370 Interest on advances 112,608 89,981 Interest on repurchase agreements 27,898 28,388 Interest on other borrowings 34,761 47,709 ----------- ------------ 455,587 431,448 ----------- ------------ Net Interest Income 218,692 207,659 Provision for loan losses 20,695 18,522 ----------- ------------ Net Interest Income after Provision for Loan Losses 197,997 189,137 Non-Interest Income: Fees 10,737 8,883 Gain on the sale of securities, MBS, and loans 1,223 4,684 Other 7,272 5,957 ----------- ------------ 19,232 19,524 Non-Interest Expense: General and administrative: Personnel 44,100 39,385 Occupancy 13,388 12,216 Deposit insurance 2,046 11,332 Advertising 2,418 2,248 Other 17,218 15,610 ----------- ------------ 79,170 80,791 Earnings Before Taxes on Income and Cumulative Effect of Change in Accounting 138,059 127,870 Taxes on Income 54,685 49,277 ----------- ------------ Earnings Before Cumulative Effect of Change in Accounting for Goodwill 83,374 78,593 Cumulative Effect of Change in Accounting for Goodwill -0- (205,242) ----------- ------------ Net Earnings (Loss) $ 83,374 $ (126,649) =========== ============ Earnings (Loss) Per Share: Earnings Per Share Before Cumulative Effect of Change in Accounting for Goodwill $ 1.45 $ 1.34 Cumulative Effect of Change in Accounting for Goodwill 0.00 (3.49) ----------- ------------ Net Earnings (Loss) Per Share $ 1.45 $ (2.15) =========== ============
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands) Three Months Ended March 31 -------------------------- 1997 1996 ----------- ----------- Cash Flows From Operating Activities: Net earnings (loss) $ 83,374 $ (126,649) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Provision for loan losses 20,695 18,522 Cumulative effect of the change in accounting for goodwill -0- 205,242 Amortization of loan fees and discounts (4,441) (6,526) Depreciation and amortization 5,143 4,793 Loans originated for sale (53,560) (194,359) Sales of loans originated for sale 49,508 185,663 Decrease in interest earned but uncollected 9,324 7,048 Federal Home Loan Bank stock dividends (15,722) (9,251) (Increase) in prepaid expenses and other assets (58,581) (71,456) Increase in accounts payable and accrued expenses 30,153 37,083 Increase in taxes on income 54,668 35,572 Other, net (4,626) (5,737) ----------- ------------ Net cash provided by operating activities 115,935 79,945 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (1,341,904) (984,084) Real estate loans purchased (652) (200) Other, net (8,270) (476) ----------- ------------ (1,350,826) (984,760) Real estate loan principal payments: Monthly payments 164,249 141,548 Payoffs, net of foreclosures 487,720 521,211 Refinances 57,383 66,888 ----------- ----------- 709,352 729,647 Purchases of mortgage-backed securities held to maturity -0- (62) Repayments of mortgage-backed securities 106,025 104,559 Proceeds from sales of real estate 52,680 51,303 Purchases of securities available for sale (10) (323,235) Sales of securities available for sale -0- 74,951 Matured securities available for sale 175,601 444,197 Decrease (increase) in other investments (459,719) 103,905 Purchases of Federal Home Loan Bank stock (56,239) (37,099) Additions to premises and equipment (14,347) (6,939) ----------- ----------- Net cash provided by (used in) investing activities (837,483) 156,467
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands) Three Months Ended March 31 --------------------------- 1997 1996 ------------ ------------ Cash Flows From Financing Activities: Deposit activity: Increase (decrease) in deposits, net $ 618,182 $ (70,839) Interest credited 225,808 213,710 ----------- ---------- 843,990 142,871 Additions to Federal Home Loan Bank advances 21,600 25,950 Repayments of Federal Home Loan Bank advances (686,199) (13,470) Proceeds from agreements to repurchase securities 1,424,702 396,362 Repayments of agreements to repurchase securities (670,649) (74,934) Repayments of medium-term notes (280,000) (708,135) Proceeds from federal funds purchased -0- 575,000 Repayments of federal funds purchased -0- (575,000) Dividends on common stock (6,301) (5,581) Sale of stock 2,009 2,262 Purchase and retirement of Company stock (13,351) (17,013) ----------- ----------- Net cash provided by (used in) financing activities 635,801 (251,688) ----------- ----------- Net Decrease in Cash (85,747) (15,276) Cash at beginning of period 218,719 218,695 ----------- ----------- Cash at end of period $ 132,972 $ 203,419 =========== =========== Supplemental cash flow information: Cash paid for: Interest $ 452,524 $ 453,630 Income taxes 611 19,871 Cash received for interest and dividends 683,603 646,155 Noncash investing activities: Loans transferred to foreclosed real estate 50,657 52,174
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands) Three Months Ended March -------------------------- 1997 1996 ----------- ----------- Common Stock: Balance at January 1 $ 5,734 $ 5,887 Common stock issued upon exercise of stock options 7 8 Common stock retired upon purchase of stock (19) (33) ----------- ----------- Balance at March 31 5,722 5,862 ----------- ----------- Paid-in Capital: Balance at January 1 67,953 55,353 Common stock issued upon exercise of stock options 2,002 2,254 ----------- ----------- Balance at March 31 69,955 57,607 ----------- ----------- Retained Earnings: Balance at January 1 2,177,098 2,140,883 Net earnings (loss) 83,374 (126,649) Cash dividends on common stock (6,301) (5,581) Retirement of stock (13,332) (16,980) ----------- ------------ Balance at March 31 2,240,839 1,991,673 ----------- ------------ Unrealized Gains on Securities Available for Sale: Balance at January 1 99,692 76,230 Change during period (2,316) (941) ----------- ------------ Balance at March 31 97,376 75,289 ----------- ------------ Total Stockholders' Equity at March 31 $ 2,413,892 $ 2,130,431 =========== ============
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, 1996, as well as certain material changes in results of operations during the three month periods ended March 31, 1997, and 1996, respectively. The following narrative is written with the presumption that the users have read or have access to the Company's 1996 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, 1996, and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed herein. CHANGE IN ACCOUNTING FOR GOODWILL Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," (SFAS 72) for goodwill related to acquisitions made prior to September 30, 1982. Up until 1996, the Company had applied SFAS 72 only to acquisitions made after September 30, 1982. The adoption of SFAS 72 for goodwill relating to acquisitions of banking or thrift institutions prior to September 30, 1982, is permitted but not required. SFAS 72 requires, among other things, that goodwill be amortized over a period no longer than the estimated remaining life of the acquired long-term interest-earning assets. As a result, the Company wrote-off goodwill totaling $205 million during 1996 as the cumulative effect of the change in accounting for goodwill. The remaining goodwill from acquisitions subsequent to 1982 amounting to less than .2% of total assets is not material and has been reclassified to other assets. The minor amount of continuing goodwill amortization no longer warrants a separate line item on the Company's Consolidated Statement of Net Earnings and, therefore, for 1996 and 1997, has been included in other income. The adoption of SFAS 72 noted above resulted in the restatement of earnings previously reported of $76 million, or $1.28 per share, in the first quarter of 1996 to a loss of $127 million, or $2.15 per share. The restatement included a charge of $3.49 per share for the cumulative effect of change in accounting for goodwill and a credit of $.06 per share of goodwill amortization for the first quarter of 1996. For the three months ended March 31, 1996, earnings before the cumulative effect of the change in accounting for goodwill were $1.34 per share.
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) March 31 March 31 December 31 1997 1996 1996 ------------- ------------ ------------- Assets $ 38,530,009 $34,811,557 $37,730,598 Loans receivable 30,698,538 28,388,930 30,113,421 Mortgage-backed securities 4,185,583 3,303,539 4,293,582 Deposits 22,943,924 20,990,781 22,099,934 Stockholders' equity 2,413,892 2,130,431 2,350,477 Stockholders' equity/total assets 6.26% 6.12% 6.23% Book value per common share $ 42.19 $ 36.34 $ 40.99 Common shares outstanding 57,218,464 58,622,859 57,342,389 Yield on loan portfolio 7.43% 7.64% 7.43% Yield on mortgage-backed securities 7.12% 7.35% 7.13% Yield on investments 6.82% 5.68% 6.88% Yield on earning assets 7.37% 7.51% 7.37% Cost of deposits 4.98% 5.01% 4.98% Cost of borrowings 5.82% 5.95% 5.80% Cost of funds 5.27% 5.33% 5.28% Yield on earning assets less cost of funds 2.10% 2.18% 2.09% Ratio of nonperforming assets to total assets 1.22% 1.25% 1.21% Ratio of troubled debt restructured to total assets .23% .13% .22% World Savings and Loan Association: Total assets $ 19,633,902 $27,601,561 $21,040,890 Net worth 1,337,107 1,852,066 1,427,914 Net worth/total assets 6.81% 6.71% 6.79% Regulatory capital ratios: Tangible capital 6.37% 6.70% 6.37% Core capital 6.37% 6.70% 6.37% Risk-based capital 13.74% 14.12% 13.91% World Savings Bank, a Federal Savings Bank: Total assets $ 18,465,208 $ 7,127,638 $16,929,859 Net worth 1,235,418 577,705 1,136,717 Net worth/total assets 6.69% 8.11% 6.71% Regulatory capital ratios: Tangible capital 6.67% 8.05% 6.69% Core capital 6.67% 8.05% 6.69% Risk-based capital 13.26% 15.25% 13.14%
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) Three Months Ended March 31 -------------------------- 1997 1996 ------------ ----------- New real estate loans originated $ 1,395,464 $1,178,443 Average yield on new real estate loans 7.52% 7.71% Increase in deposits (a) $ 843,990 $ 142,871 Earnings before cumulative effect of change in accounting for 83,374 78,593 goodwill Net earnings (loss) 83,374 (126,649) Earnings per share before cumulative effect of change in accounting for goodwill 1.45 1.34 Net earnings (loss) per share 1.45 (2.15) Cash dividends on common stock .11 .095 Average common shares outstanding 57,314,639 58,788,639 Ratios:(b) Net earnings (loss)/average net worth (ROE)(c) 13.95% (23.50%) Net earnings (loss)/average assets (ROA)(c) .88% (1.45%) Net interest income/average assets 2.30% 2.38% General and administrative expense/average assets .83% .93%
(a) Includes $397 million of wholesale deposits for the quarter ended March 31, 1997. (b) Ratios are annualized by multiplying the quarterly computation by four. Averages are computed by adding the beginning balance and each monthend balance during the quarter and dividing by four. (c) The ratios for the quarter ended March 31, 1996, include the $205 million cumulative effect of the change in accounting for goodwill, which was effective January 1, 1996. The ratios for the quarter ended March 31, 1996, excluding the change in accounting for goodwill are: ROE 14.58% and ROA .90% FINANCIAL CONDITION The consolidated condensed balance sheet shown in the table below presents the Company's assets and liabilities in percentage terms at March 31, 1997 and 1996, and December 31, 1996. The reader is referred to page 51 of the Company's 1996 Form 10-K for similar information for the years 1993 through 1996 and a discussion of the changes in the composition of the Company's assets and liabilities in those years.
TABLE 1 Consolidated Condensed Balance Sheet In Percentage Terms March 31 -------------------- December 31 1997 1996 1996 ------ ------- ----------- Assets: Cash and investments 5.9% 5.7% 5.5% Mortgage-backed securities 10.9 9.5 11.4 Loans receivable 79.7 81.6 79.8 Other assets 3.5 3.2 3.3 ------ ------ ------- 100.0% 100.0% 100.0% ====== ====== ======= Liabilities and Stockholders' Equity: Deposits 59.5% 60.3% 58.6% Federal Home Loan Bank advances 21.1 18.6 23.3 Securities sold under agreements to repurchase 6.9 6.1 5.1 Medium-term notes 0.8 2.6 1.6 Other liabilities 2.0 2.5 1.7 Subordinated debt 3.4 3.8 3.5 Stockholders' equity 6.3 6.1 6.2 ------ ------ ------- 100.0% 100.0% 100.0% ====== ====== =======
As the above table shows, deposits represent the majority of the Company's liabilities. The largest asset component is the loan portfolio, which consists primarily of long-term mortgages. The disparity between the repricing (maturity or interest rate change) of deposits and borrowings and the repricing of mortgage loans and investments can have a material impact on the Company's results of operations. The difference between the repricing characteristics of assets and liabilities is commonly referred to as "the gap." The gap table on the following page shows that, as of March 31, 1997, the Company's assets mature or reprice sooner than its liabilities. Consequently, one would expect falling interest rates to lower the Company's earnings and rising interest rates to increase the Company's earnings. However, the Company's earnings are also affected by the built-in lags inherent in the Eleventh District Cost of Funds Index (COFI), which is the benchmark the Company uses to determine the rate on the great majority of its adjustable rate mortgages. Specifically, there is a two-month delay in reporting the COFI because of the time required to gather the data needed to compute the index. As a result, the current COFI actually reflects the Eleventh District's cost of funds at the level it was two months prior. In addition, because COFI is based on a portfolio of accounts, not all of which mature or reprice immediately, COFI does not initially 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. In addition to the COFI lags, other elements of ARM loans also have an impact on earnings. These elements are the interest rate adjustment frequency of ARM loans, interest rate limits on individual rate changes, interest rate floors, and introductory rates on new ARM loans.
TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio As of March 31, 1997 (Dollars in millions) Projected Repricing(a) --------------------------------------------------------------------- 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total --------- ---------- ----------- ----------- ------------ Interest-Earning Assets: Investments $ 1,858 $ -0- $ 281 $ 2 $ 2,141 Mortgage-backed securities 3,272 94 350 470 4,186 Loans receivable: Rate-sensitive 26,039 1,591 119 -0- 27,749 Fixed-rate 78 236 991 1,350 2,655 Other(b) 673 -0- -0- -0- 673 Impact of interest rate swaps 632 170 (256) (546) -0- --------- ---------- --------- --------- --------- Total $ 32,552 $ 2,091 $ 1,485 $ 1,276 $ 37,404 ========= ========== ========= ========= ========= Interest-Bearing Liabilities(c): Deposits $ 8,124 $ 12,093 $ 2,699 $ 28 $ 22,944 FHLB advances 7,149 375 345 265 8,134 Other borrowings 3,080 100 619 497 4,296 Impact of interest rate swaps 1,431 (487) (931) (13) -0- --------- ----------- --------- ----------- --------- Total $ 19,784 $ 12,081 $ 2,732 $ 777 $ 35,374 ========= =========== ========= ========== ========= Repricing gap $ 12,768 $ (9,990) $ (1,247) $ 499 ========= =========== ========= ========== Cumulative gap $ 12,768 $ 2,778 $ 1,531 $ 2,030 ========= =========== ========= ========== Cumulative gap as a percentage of total assets 33.1% 7.2% 4.0% ========= =========== ===========
(a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled repayments and projected prepayments of principal. (b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock. (c) Liabilities with no maturity date, such as passbook and money market deposit accounts, are assigned zero months. CASH AND INVESTMENTS The Office of Thrift Supervision (OTS) requires insured institutions, such as World Savings and Loan Association (World or Association) and World Savings Bank, FSB (WFSB), to maintain a minimum amount of cash and certain qualifying investments for liquidity purposes. The current minimum requirement is equal to a monthly average of 5% of deposits and short-term borrowings. For the months ended March 31, 1997 and 1996, and December 31, 1996, World's average regulatory liquidity ratios were 8%, 5.5%, and 8%, respectively. For the months ended March 31, 1997 and 1996, and December 31, 1996, WFSB's average regulatory liquidity ratios were 5.3%, 6% and 6%, respectively. World and WFSB exceeded the monthly 5% requirements for each of the three months ended March 31, 1997 and all months during 1996. The level of the Company's investments position in excess of its liquidity requirements at any time depends on liquidity needs and available arbitrage opportunities. At March 31, 1997 and 1996, and December 31, 1996, the Company had securities available for sale in the amount of $603 million, $708 million, and $781 million, respectively, including unrealized gains on securities available for sale of $156 million, $116 million, and $159 million, respectively. At March 31, 1997 and 1996, and December 31, 1996, the Company had no securities held to maturity or for trading. Included in the securities available for sale at March 31, 1997 and 1996, and December 31, 1996, were collateralized mortgage obligations (CMOs) in the amount of $144 million, $340 million, and $170 million, respectively. The Company holds CMOs on which both principal and interest are received. It does not hold any interest-only or principal-only CMOs. At March 31, 1997, the majority of the Company's CMOs had remaining terms to maturity of five years or less, and qualified for inclusion in the regulatory liquidity measurement. MORTGAGE-BACKED SECURITIES At March 31, 1997 and 1996, and December 31, 1996, the Company had mortgage-backed securities (MBS) held to maturity in the amount of $4.0 billion, $3.0 billion, and $4.1 billion, respectively, including $3.2 billion of Federal National Mortgage Association (FNMA) MBS subject to full credit recourse to the Company at March 31, 1997, $2.2 billion at March 31, 1996 and $3.3 billion at December 31, 1996. At March 31, 1997 and 1996, and December 31, 1996, the Company had mortgage-backed securities available for sale in the amount of $216 million, $270 million, and $227 million, respectively, including unrealized gains on MBS available for sale of $9 million, $13 million, and $11 million, respectively. At March 31, 1997 and 1996 and December 31, 1996, the Company had no trading MBS. During 1995 and 1996, the Company securitized $2.3 billion and $1.3 billion, respectively, of adjustable rate mortgages (ARMs) into FNMA COFI-indexed MBS, to be used as collateral for borrowings. These securities are subject to full credit recourse to the Company. The Company has the ability and intent to hold these MBS until maturity. Accordingly, these MBS are classified as held to maturity. Repayments of MBS during the first quarter of 1997 were $106 million compared to $105 million in the same period of 1996. Although the balance of the MBS portfolio is higher than it was a year ago, repayments on MBS during the first quarter of 1997 as compared to the first quarter of 1996 were flat primarily due to a decrease in refinances and prepayments on the underlying loans. LOAN PORTFOLIO LOAN VOLUME New loan originations for the quarter ended March 31, 1997, amounted to $1.4 billion compared to $1.2 billion for the same period in 1996. The increase in loan volume in 1997 over the first quarter of 1996 occurred because rates on new fixed-rate mortgages were higher this year, hovering near the 8% level for most of the quarter. In contrast, the starting rates on ARMs, the Company's principal product, remained low and affordable. The Company continues to sell most of its fixed-rate originations. Loans originated for sale amounted to $54 million for the first three months of 1997 compared to $194 million for the first three months of 1996. Refinanced loans constituted 36% of new loan originations for the quarter ended March 31, 1997, compared to 43% for the quarter ended March 31, 1996. The Company has lending operations in 23 states. The primary source of mortgage origination is loans secured by residential properties in California. For the three months ended March 31, 1997, 52% of total loan originations were on residential properties in California compared to 53% for the same period in 1996. The five largest states, other than California, for originations for the three months ended March 31, 1997, were Florida, Texas, Washington, Colorado, and Illinois with a combined total of 26% total originations. The percentage of the total loan portfolio (excluding mortgage-backed securities with recourse) that is comprised of residential loans in California was 68% at March 31, 1997 compared to 73% at March 31, 1996, and 69% at December 31, 1996. The tables on the following two pages show the Company's loan portfolio by state at March 31, 1997 and 1996.
TABLE 3 Loan Portfolio by State March 31, 1997 (Dollars in thousands) Residential Real Estate Commercial Loans as ------------------------- Real Tota a % of State 1 - 4 5+ Land Estate Loans (a) Portfolio - --------------- ------------ ----------- ---------- --------------- ------------ ----------- California $19,965,421 $3,399,540 $ 250 $ 55,486 $23,420,697 68.63% Texas 1,176,028 106,963 571 1,549 1,285,111 3.77 Illinois 1,078,539 183,142 -0- 1,756 1,263,437 3.70 Colorado 993,304 236,588 -0- 7,100 1,236,992 3.62 Florida 1,085,361 20,264 88 941 1,106,654 3.24 New Jersey 1,075,776 406 -0- 6,468 1,082,650 3.17 Washington 440,186 375,010 -0- 749 815,945 2.39 Arizona 651,402 46,570 -0- 577 698,549 2.05 Pennsylvania 502,320 4,251 -0- 3,534 510,105 1.49 Virginia 499,980 8,575 -0- 1,431 509,986 1.49 Connecticut 425,616 -0- -0- 22 425,638 1.25 Maryland 335,978 2,188 -0- 535 338,701 0.99 Oregon 223,792 11,078 -0- 2,691 237,561 0.70 Nevada 186,474 1,093 -0- -0- 187,567 0.55 Utah 163,441 58 -0- 1,738 165,237 0.48 Minnesota 145,192 8,357 -0- -0- 153,549 0.45 Kansas 146,769 4,849 -0- 188 151,806 0.44 Wisconsin 105,418 3,888 -0- -0- 109,306 0.32 Massachusetts 81,373 -0- -0- 20 81,393 0.24 Missouri 72,461 6,328 -0- -0- 78,789 0.23 New York 47,504 -0- -0- -0- 47,504 0.14 Washington DC 44,396 -0- -0- -0- 44,396 0.13 New Mexico 37,312 -0- -0- -0- 37,312 0.11 Georgia 34,316 -0- -0- 1,706 36,022 0.11 Idaho 27,064 -0- -0- -0- 27,064 0.08 Delaware 23,897 -0- -0- -0- 23,897 0.07 Ohio 16,377 2,219 196 3,975 22,767 0.07 North Carolina 7,749 -0- -0- 488 8,237 0.02 South Dakota 7,227 -0- -0- -0- 7,227 0.02 Other 11,214 11 -0- 4,561 15,786 0.05 ----------- ---------- --------- ----------- ----------- -------- Totals $29,611,887 $4,421,378 $ 1,105 $ 95,515 34,129,885 100.00% =========== ========== ========= =========== ======== SFAS 91 deferred loan fees (54,130) Loan discount on purchased loans (4,207) Undisbursed loan funds (3,934) Allowance for loan losses (209,077) Loans to facilitate (LTF) interest reserve (553) Troubled debt restructured (TDR) interest reserve (6,987) Loans on deposits 31,306 ----------- Total loan portfolio and loans securitized into FNMA MBS with recourse 33,882,303 Loans securitized into FNMA MBS with recourse (3,183,765)(b) ----------- Total loan portfolio $30,698,538 ===========
(a) The Company has no commercial loans. (b) During 1995 and 1996, loans amounting to $2.3 billion and $1.3 billion, respectively, were securitized with full recourse into Federal National Mortgage Association mortgage-backed securities. The March 31, 1997 balances of these FNMA mortgage-backed securities are reflected in the amounts above.
TABLE 4 Loan Portfolio by State March 31, 1996 (Dollars in thousands) Residential Real Estate Commercial Loans as ------------------------- Real Total a % of State 1 - 4 5+ Land Estate Construction Loans (a) Portfolio - --------------- ------------ ----------- ---------- --------------- ------------ ------------ ----------- California $18,962,350 $3,348,673 $ 268 $ 69,921 $ -0- $22,381,212 72.73% Colorado 840,118 219,688 -0- 7,486 -0- 1,067,292 3.47 Illinois 847,231 181,987 -0- 2,301 -0- 1,031,519 3.35 Texas 859,969 87,978 586 1,653 -0- 950,186 3.09 New Jersey 886,719 412 -0- 7,478 199 894,808 2.91 Florida 747,365 2,625 196 1,090 -0- 751,276 2.44 Washington 361,530 307,278 -0- 783 -0- 669,591 2.18 Arizona 451,889 52,372 -0- 1,704 -0- 505,965 1.64 Virginia 428,668 3,000 -0- 1,562 -0- 433,230 1.41 Pennsylvania 398,270 -0- -0- 4,000 -0- 402,270 1.31 Connecticut 323,487 -0- -0- 15 -0- 323,502 1.05 Maryland 273,918 -0- -0- 586 -0- 274,504 0.89 Oregon 177,982 10,673 -0- 2,861 -0- 191,516 0.62 Nevada 157,545 1,200 -0- -0- -0- 158,745 0.52 Kansas 129,368 5,001 -0- 207 -0- 134,576 0.44 Utah 102,878 64 -0- 1,940 -0- 104,882 0.34 Minnesota 85,262 -0- -0- -0- -0- 85,262 0.28 Missouri 65,180 6,969 -0- -0- -0- 72,149 0.23 Wisconsin 63,103 4,205 -0- -0- -0- 67,308 0.22 New York 52,541 -0- -0- 22 -0- 52,563 0.17 Georgia 41,332 -0- -0- 2,016 -0- 43,348 0.14 Washington DC, 36,962 -0- -0- -0- -0- 36,962 0.12 Ohio 22,208 2,549 414 5,006 -0- 30,177 0.10 New Mexico 25,387 -0- -0- -0- -0- 25,387 0.08 Delaware 19,237 -0- -0- -0- -0- 19,237 0.06 Massachusetts 17,414 -0- -0- 20 -0- 17,434 0.06 Idaho 17,341 -0- -0- -0- -0- 17,341 0.06 North Carolina 8,698 303 -0- 533 -0- 9,534 0.03 Other 16,597 26 -0- 4,829 -0- 21,452 0.06 ----------- ---------- --------- ----------- ----------- -------- -------- Totals $26,420,549 $4,235,003 $ 1,464 $ 116,013 $ 199 30,773,228 100.00% =========== ========== ========= =========== =========== ======== SFAS 91 deferred loan fees (74,160) Loan discount on purchased loans (5,776) Undisbursed loan funds (4,074) Allowance for loan losses (152,360) Loans to facilitate (LTF) interest reserve (474) Troubled debt restructured (TDR) interest reserve (4,533) Loans on deposits 31,323 ----------- Total loan portfolio and loans securitized into FNMA MBS with recourse 30,563,174 Loans securitized into FNMA MBS with recourse (2,174,244)(b) ----------- Total loan portfolio $28,388,930 ===========
(a) The Company has no commercial loans. (b) Loans amounting to $2.3 billion were securitized with full recourse into Federal National Mortgage Association (FNMA) mortgage-backed securities during 1995. The March 31, 1996 balances of these FNMA mortgage-backed securities are reflected in the amounts above. 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 (excluding MBS) composed of rate-sensitive loans was 92% at March 31, 1997 compared to 90% at March 31, 1996, and 91% at December 31, 1996. The Company's ARM originations for the first quarter of 1997 constituted over 94% of new mortgage loans made in 1997 compared to 77% in the first three months of 1996. The weighted average maximum lifetime cap rate on the Company's ARM loan portfolio (including MBS with recourse) was 12.02%, or 5.60% above the actual weighted average rate at March 31, 1997, versus 13.08%, or 5.64% above the weighted average rate at March 31, 1996. Approximately $5.5 billion of the Company's ARM loans (including MBS with recourse) have terms that state that the interest rate may not fall below a lifetime floor set at the time of origination or assumption. As of March 31, 1997, $637 million of ARM loans had reached their rate floors. The weighted average floor rate on the loans that had reached their floor was 7.74% at March 31, 1997 compared to 7.79% at March 31, 1996. Without the floor, the average yield on these loans would have been 7.09% at March 31, 1997 and 7.28% at March 31, 1996. Loan repayments consist of monthly loan amortization, loan payoffs, and refinances. For the quarter ended March 31, 1997, loan repayments were $709 million compared to $730 million in the same period of 1996. MORTGAGE SERVICING RIGHTS On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122). SFAS 122 amends Statement of Financial Accounting Standards No. 65, "Accounting for Certain Mortgage Banking Activities," to require that any financial institution participating in the secondary mortgage market recognize, as separate assets, rights to service mortgage loans for others when those rights are acquired through either the purchase or origination of mortgage loans which are subsequently sold or securitized. SFAS 122 also requires that financial institutions participating in the secondary mortgage market should evaluate and measure for impairment of capitalized mortgage servicing rights based on the fair value of those rights on a disaggregated basis. If the book value exceeds the fair value of the capitalized mortgage servicing rights, financial institutions are required to write-down the servicing rights to their fair value. The book value of Golden West's servicing rights did not exceed the fair value at March 31, 1997 or 1996 and, therefore, no adjustment was necessary. On January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125). The accounting for mortgage servicing assets under SFAS 125 is substantially the same as the accounting for mortgage servicing assets under SFAS 122. See page 22 for further discussion on SFAS 125. For the first quarter of 1997 and 1996, the Company recognized gains of $1.0 million and $4.7 million, respectively, on the sale of loans due to the capitalization of servicing rights. After amortization, the balance at March 31, 1997 and 1996 of the capitalized servicing rights was $9.7 million and $4.6 million, respectively. ASSET QUALITY One measure of the soundness of the Company's portfolio is its ratio of nonperforming assets (NPAs) to total assets. Nonperforming assets includes non-accrual loans (loans, including loans swapped into MBS with recourse, that are 90 days or more past due) and real estate acquired through foreclosure. No interest is recognized on non-accrual loans. The Company's troubled debt restructured (TDRs) is made up of loans on which delinquent payments have been capitalized or on which temporary interest rate reductions have been made, primarily to customers adversely impacted by economic conditions. The following table shows the components of the Company's nonperforming assets and troubled debt restructured and the various ratios to total assets.
TABLE 5 Nonperforming Assets and Troubled Debt Restructured (Dollars in thousands) March 31 ------------------------- December 31 1997 1996 1996 ---------- ----------- ------------ Non-accrual loans $ 389,625 $ 361,376 $ 373,157 Real estate acquired through foreclosure 77,859 72,487 82,075 Real estate in judgment 1,274 798 416 ---------- ----------- ------------ Total nonperforming assets $ 468,758 $ 434,661 $ 455,648 ========== =========== =========== TDRs $ 86,931 $ 46,683 $ 84,082 ========== =========== =========== Ratio of NPAs to total assets 1.22% 1.25% 1.21% ========== =========== =========== Ratio of TDRs to total assets .23% .13% .22% ========== =========== =========== Ratio of NPAs and TDRs to total assets 1.45% 1.38% 1.43% ========== =========== ===========
The slight increase in NPAs during 1997 reflects the continued weakness in the Southern California housing market and increased bankruptcies nationwide. The Company continues to closely monitor all delinquencies and takes appropriate steps to protect its interests. Interest foregone on non-accrual loans is fully-reserved and amounted to $5 million in the first quarter of 1997 compared to $6 million in the same period of 1996. Interest foregone on TDRs amounted to $583 thousand for the three months ended March 31, 1997, compared to $368 thousand for the three months ended March 31, 1996. The tables on the following two pages show the Company's nonperforming assets by state at March 31, 1997 and 1996.
TABLE 6 Nonperforming Assets by State March 31, 1997 (Dollars in thousands) Non-Accrual Loans (a) Real Estate Owned ----------------------------------- -------------------------------- Residential Commercial Commercial Real Estate Real Residential Real Total a % of State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans - ----------- --------- ---------- --------- -------- -------- --------- --------- -------- California $305,760 $ 14,352 $ 2,391 $63,523 $ 9,804 $ 2,289 $398,119 1.70% Texas 5,881 -0- -0- 803 -0- -0- 6,684 0.52 Illinois 7,366 223 -0- 246 282 -0- 8,117 0.64 Colorado 2,150 -0- 3,089 269 -0- -0- 5,508 0.45 Florida 6,199 -0- 263 774 -0- -0- 7,236 0.65 New Jersey 14,029 -0- 1,544 763 -0- -0- 16,336 1.51 Washington 2,146 -0- -0- -0- -0- -0- 2,146 0.26 Arizona 1,574 -0- -0- 12 -0- -0- 1,586 0.23 Pennsylvania 5,068 -0- 5 152 -0- -0- 5,225 1.02 Virginia 1,409 -0- -0- 538 -0- -0- 1,947 0.38 Connecticut 3,870 -0- -0- 598 -0- -0- 4,468 1.05 Maryland 1,458 -0- -0- 570 -0- -0- 2,028 0.60 Oregon 601 -0- -0- -0- -0- -0- 601 0.25 Nevada 1,632 -0- -0- 219 -0- -0- 1,851 0.99 Utah 737 -0- -0- -0- -0- -0- 737 0.45 Minnesota 641 -0- -0- -0- -0- -0- 641 0.42 Kansas 724 40 -0- -0- -0- -0- 764 0.50 Wisconsin 433 -0- -0- -0- -0- -0- 433 0.40 Massachusetts 64 -0- 20 -0- -0- -0- 84 0.10 Missouri 465 42 -0- 243 17 -0- 767 0.97 New York 3,637 -0- -0- 141 -0- -0- 3,778 7.95 Washington, DC -0- -0- -0- -0- -0- -0- -0- 0.00 New Mexico -0- -0- -0- -0- -0- -0- -0- 0.00 Georgia 1,542 -0- -0- -0- -0- -0- 1,542 4.28 Idaho -0- -0- -0- -0- -0- -0- -0- 0.00 Delaware 118 -0- -0- -0- -0- -0- 118 0.49 Ohio 62 -0- 2 -0- -0- -0- 64 0.28 North Carolina 38 -0- -0- -0- -0- -0- 38 0.46 South Dakota -0- -0- -0- -0- -0- -0- -0- 0.00 Other 50 -0- -0- -0- -0- -0- 50 0.32 -------- --------- -------- ------- -------- -------- --------- ----- Totals $367,654 $ 14,657 $ 7,314 $68,851 $ 10,103 $2,289 470,868 1.38% ======== ========= ======== ======= ======== ======== REO general valuation allowance (2,110) (0.01) -------- ---- Total nonperforming assets $468,758 1.37% ========= ====
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) During 1995 and 1996, loans amounting to $2.3 billion and $1.3 billion, respectively, were securitized with full recourse into FNMA mortgage-backed securities. The March 31, 1997 balances of the related nonperforming assets are reflected in the amounts above.
TABLE 7 Nonperforming Assets by State March 31, 1996 (Dollars in thousands) Non-Accrual Loans (a) Real Estate Owned ----------------------------------- -------------------------------- Residential Commercial Commercial NPAs as Real Estate Real Residential Real Total a % of State 1 -4 5+ Estate 1 - 4 5+ Estate NPAs(b) Loans - ----------- --------- ---------- --------- -------- -------- --------- ---------- -------- California $300,572 $ 12,549 $ 368 $55,304 $12,870 $ 3,779 $ 385,442 1.72% Colorado 1,690 -0- 3,251 108 -0- -0- 5,049 0.47 Illinois 3,464 472 -0- 791 302 -0- 5,029 0.49 Texas 4,390 -0- -0- 53 -0- -0- 4,443 0.47 New Jersey 11,206 -0- 687 429 -0- -0- 12,322 1.38 Florida 3,536 -0- 150 221 -0- -0- 3,907 0.52 Washington 458 -0- -0- -0- -0- -0- 458 0.07 Arizona 1,152 -0- -0- 88 -0- -0- 1,240 0.25 Virginia 1,810 -0- -0- 302 -0- -0- 2,112 0.49 Pennsylvania 2,439 -0- -0- 167 -0- -0- 2,606 0.65 Connecticut 3,536 -0- -0- 417 -0- -0- 3,953 1.22 Maryland 1,805 -0- -0- -0- -0- -0- 1,805 0.66 Oregon 545 -0- -0- -0- -0- -0- 545 0.28 Nevada 473 -0- -0- 203 -0- -0- 676 0.43 Kansas 665 40 -0- 46 -0- -0- 751 0.56 Utah 122 -0- -0- -0- -0- -0- 122 0.12 Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00 Missouri 563 961 -0- 26 -0- -0- 1,550 2.15 Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00 New York 2,683 -0- -0- 81 -0- -0- 2,764 5.26 Georgia 1,448 -0- -0- 36 -0- -0- 1,484 3.42 Washington, DC 7 -0- -0- -0- -0- -0- 7 0.02 Ohio 61 -0- 58 -0- -0- 154 273 0.90 New Mexico 1 -0- -0- -0- -0- -0- 1 0.00 Delaware -0- -0- -0- -0- -0- -0- -0- 0.00 Massachusetts -0- -0- -0- -0- -0- -0- -0- 0.00 Idaho 68 -0- -0- -0- -0- -0- 68 0.39 North Carolina 46 -0- -0- -0- -0- -0- 46 0.48 Other 100 -0- -0- -0- -0- -0- 100 0.47 -------- --------- ------- ------- -------- -------- --------- ---- Totals $342,840 $ 14,022 $ 4,514 $58,272 $ 13,172 $ 3,933 436,753 1.42% ======== ========= ======= ======= ======== ======= REO general valuation allowance (2,092) (0.01) --------- ---- Total nonperforming assets $ 434,661 1.41% ========== ====
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) Loans amounting to $2.3 billion were securitized with full recourse into FNMA mortgage-backed securities during 1995. The March 31, 1996 balance of the related nonperforming assets are reflected in the amounts above. The Company provides specific valuation allowances for losses on loans when impaired, including loans securitized into MBS with recourse or loans sold with recourse, and on real estate owned when any significant and permanent decline in value is identified. The Company also utilizes a methodology, based on trends in the basic portfolio, 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. Management is then able to estimate a range of general loss allowances to cover losses in the portfolio. In addition, periodic reviews are made of major loans and real estate owned, and major lending areas are regularly reviewed to determine potential problems. Where indicated, valuation allowances are established or adjusted. In estimating possible losses, consideration is given to the estimated sale price, cost of refurbishing, payment of delinquent taxes, cost of disposal, and cost of holding the property. Additions to and reductions from the allowances are reflected in current earnings. The table below shows the changes in the allowance for loan losses for the three months ended March 31, 1997 and 1996.
TABLE 8 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended March 31 -------------------------- 1997 1996 ----------- ------------ Beginning allowance for loan losses $ 195,702 $ 141,988 Provision charged to expense 20,695 18,522 Less loans charged off (7,558) (8,360) Add recoveries 238 210 ---------- ----------- Ending allowance for loan losses $ 209,077 $ 152,360 ========== =========== Ratio of net charge-offs to average loans outstanding (including MBS with recourse) .09% .11% ========== =========== Ratio of allowance for loan losses to nonperforming assets 44.6% 35.1% ========== ===========
DEPOSITS Retail deposits increased during the first quarter of 1997 by $447 million, including interest credited of $226 million compared to an increase of $143 million, including interest credited of $214 million, in the first quarter of 1996. Retail deposits increased during 1997 primarily due to ongoing marketing efforts and competitive rates offered by the Company on its insured accounts. Beginning in January 1997, the Company began a program to use brokers to sell certificates of deposit (CDs) to institutional investors. The Company's deposit balance at March 31, 1997 includes $397 million of these wholesale CDs. The mix of reported deposits changed during 1997 as compared to 1996, primarily due to a new program begun in the fourth quarter of 1996. Specifically, the reported balance of interest-bearing checking accounts has decreased as compared to 1996 and the reported balance of money market accounts has increased compared to balances reported in 1996 as a result of this new program which calculates the minimum amount of funds needed to cover disbursements for each customer's checking account and transfers the remaining funds to a money market account, reducing the Company's required reserves at the Federal Reserve Bank. The table below shows the Company's deposits by interest rate and by remaining maturity at March 31, 1997 and 1996.
TABLE 9 Deposits (Dollars in millions) March 31 --------------------------------------------------- 1997 1996 ---------------------- ----------------------- Rate* Amount Rate* Amount -------- ---------- --------- ---------- Deposits by interest rate: Interest-bearing checking accounts 1.17% $ 307 1.22% $ 768 Passbook accounts 2.22 558 2.22 571 Money market deposit accounts 2.43 1,778 3.42 1,321 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.25 11,472 5.10 8,892 1 to 2 years 5.27 4,192 5.42 4,407 2 to 3 years 5.50 1,334 5.86 1,920 3 to 4 years 5.73 554 5.40 614 4 years and over 5.69 1,941 5.95 2,067 Retail jumbo CDs 5.30 410 5.36 428 Wholesale CDs 5.40 397 0.00 -0- All other 7.66 1 7.67 3 ---------- ---------- $ 22,944 $ 20,991 ========== ========== Deposits by remaining maturity: No contractual maturity $ 2,643 $ 2,660 Maturity within one year: 2nd quarter 5,481 6,152 3rd quarter 6,113 3,382 4th quarter 4,354 2,480 1st quarter 1,626 2,825 ---------- ---------- 17,574 14,839 1 to 2 years 1,642 2,255 2 to 3 years 814 414 3 to 4 years 106 644 4 years and over 165 179 ---------- ---------- $ 22,944 $ 20,991 ========== ==========
* Weighted average interest rate, including the impact of interest rate swaps. ADVANCES FROM FEDERAL HOME LOAN BANKS The Company uses borrowings from the FHLB, also known as "advances," to supplement cash flow and to provide funds for loan origination activities. Advances are secured by pledges of certain loans, capital stock of the FHLB, and MBS. FHLB advances amounted to $8.1 billion at March 31, 1997, compared to $6.5 billion and $8.8 billion at March 31, 1996, and December 31, 1996, 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, large banks, and the Federal Home Loan Bank of San Francisco, typically using MBS from the Company's portfolio. Reverse Repos with dealers, banks and the Federal Home Loan Bank of San Francisco amounted to $2.7 billion, $2.1 billion, and $1.9 billion at March 31, 1997 and 1996, and December 31, 1996, respectively. The $2.7 billion balance at March 31, 1997, included $750 million in Federal Home Loan Bank of San Francisco MBS Reverse Repos with maturities ranging from 1997 to 1998. In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". SFAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. These standards are based on consistent application of a financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. In December 1996, the FASB issued Statement of Financial Accounting Standards No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125" (SFAS 127), which delayed the effective date for portions of SFAS 125 for one year. The impact of the SFAS 125 and SFAS 127 on the Company's financial condition and results of operations is not expected to be material. OTHER BORROWINGS At March 31, 1997, Golden West, at the holding company level, had a total of $1.1 billion of subordinated debt issued and outstanding. As of March 31, 1997, 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. At March 31, 1997, Golden West had on file a registration statement with the Securities and Exchange Commission for the sale of up to $300 million of subordinated notes. World currently has on file a shelf registration with the OTS for the issuance of $2.0 billion of unsecured medium-term notes, all of which was available for issuance at March 31, 1997. World had medium-term notes outstanding under prior registrations with principal amounts of $310 million at March 31, 1997, compared to $890 million at March 31, 1996, and $590 million at December 31, 1996. As of March 31, 1997, World's medium-term notes were rated A1 and A+ by Moody's and S&P, respectively. World also has on file a registration statement with the OTS for the sale of up to $300 million of subordinated notes and, at March 31, 1997, the full amount was available for issuance. As of March 31, 1997, World had issued a total of $200 million of subordinated notes, which were rated A2 and A by Moody's and S&P, respectively. The subordinated notes are included in World's risk-based regulatory capital as Supplementary Capital. During November 1996, WFSB received permission from the OTS to issue non-convertible medium-term notes to institutional investors under rules similar to Office of the Comptroller of the Currency rules applicable to similarly situated national banks. STOCKHOLDERS' EQUITY The Company's stockholders' equity increased by $63 million during the first three months of 1997. The increase in stockholders' equity was primarily a result of net earnings for the first three months of 1997, which were partially offset by the $13 million cost of the purchase of Company stock, the payment of $6 million in quarterly dividends to stockholders, and a $2 million decrease in market values of securities available for sale since December 31, 1996. The Company's stockholders' equity decreased during the first three months of 1996 as a result of the $127 million loss incurred during the first quarter, the $17 million cost of the purchase of Company stock and due to a $1 million decline in market values of securities available for sale since December 1995. Unrealized gains net of taxes on securities and MBS available for sale included in stockholders' equity at March 31, 1997 and 1996, and December 31, 1996, were $97 million, $75 million, and $100 million, respectively. During periods of low asset growth, the Company's capital ratios may build to levels well in excess of the amounts necessary to meet regulatory capital requirements. Golden West's Board of Directors periodically reviews alternative uses of excess capital, including faster growth and acquisitions. At times, the Board has determined that the purchase of common stock is a wise use of excess capital. Since October 1993, through three separate actions, Golden West's Board of Directors has authorized the purchase by the Company of up to 12.2 million shares of Golden West's common stock. As of March 31, 1997, 8.0 million shares had been purchased and retired at a cost of $345 million since October 1993, of which 194 thousand were purchased and retired at a cost of $13 million during the first three months of 1997. Dividends from World Savings are expected to continue to be the major source of funding for the stock repurchase program. The purchase of Golden West stock is not intended to have a material impact on the normal liquidity of the Company. World paid a $135 million dividend to Golden West in March 1997. In addition, World has received approval from the OTS to pay up to $165 million more in upstream dividends to Golden West. Also, during the first quarter of 1997, Golden West purchased from World, and subsequently contributed as capital to WFSB, $30 million in loans. The Company has on file a shelf registration statement with the Securities and Exchange Commission to issue up to two million shares of its preferred stock. The preferred stock may be issued in one or more series, may have varying provisions and designations, and may be represented by depository shares. The preferred stock is not convertible into common stock. No preferred stock has yet been issued under the registration. The Company's preferred stock has been preliminarily rated a2 by Moody's. REGULATORY CAPITAL The OTS requires federally insured institutions, such as World and WFSB, to meet certain minimum capital requirements. The adoption of SFAS 72 as of January 1, 1996 had no effect on World's or WFSB's regulatory capital ratios because goodwill is required to be deducted from regulatory capital. Both World's and WFSB's regulatory capital ratios continue to exceed regulatory requirements for well-capitalized institutions, the highest regulatory standard. The following table shows World's regulatory capital ratios and compares them to the OTS minimum requirements at March 31, 1997 and 1996.
TABLE 10 World Savings and Loan Association Regulatory Capital Ratios (Dollars in thousands) March 31, 1997 March 31, 1996 ------------------------------------------------ ------------------------------------------------ ACTUAL REQUIRED ACTUAL REQUIRED ----------------------- ----------------------- ---------------------- ----------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- --------- ----------- --------- ----------- -------- ----------- -------- Tangible $1,245,575 6.37% $ 293,257 1.50% $ 1,845,592 6.70% $ 413,319 1.50% Core 1,245,575 6.37 586,514 3.00 1,845,592 6.70 826,638 3.00 Risk-based 1,565,900 13.74 911,568 8.00 2,169,719 14.12 1,228,984 8.00
The following table shows WFSB's current regulatory capital ratios and compares them to the current OTS minimum requirements at March 31, 1997 and 1996.
TABLE 11 World Savings Bank, a Federal Savings Bank Regulatory Capital Ratios (Dollars in thousands) March 31, 1997 March 31, 1996 ----------------------------------------------- ---------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ---------------------- ---------------------- ---------------------- ---------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- --------- ----------- --------- ---------- --------- ---------- -------- Tangible $1,232,625 6.67 % $ 277,288 1.50% $ 573,896 8.05 % $ 106,874 1.50% Core 1,232,625 6.67 554,576 3.00 573,896 8.05 213,748 3.00 Risk-based 1,287,612 13.26 777,033 8.00 583,679 15.25 306,105 8.00
In addition, institutions whose exposure to interest rate risk as determined by the OTS is deemed to be above normal may be required to hold additional risk-based capital. The OTS has determined that neither the Association nor WFSB has above-normal exposure to interest rate risk. The OTS has adopted rules based upon five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The determination of whether an association falls into a certain classification depends primarily on its capital ratios. The table below shows that World's regulatory capital exceeds the requirements of the well capitalized classification at March 31, 1997.
TABLE 12 World Savings and Loan Association Regulatory Capital Compared to Well Capitalized Classification (Dollars in thousands) ACTUAL WELL CAPITALIZED ----------------------- ------------------------ Capital Ratio Capital Ratio ----------- -------- ----------- --------- Leverage $1,245,575 6.37 % $ 977,523 5.00% Tier 1 risk-based 1,245,575 10.93 683,676 6.00 Total risk-based 1,565,900 13.74 1,139,460 10.00
The table below shows that WFSB's regulatory capital exceeds the requirements of the well capitalized classification at March 31, 1997.
TABLE 13 World Savings Bank, a Federal Savings Bank Regulatory Capital Compared to Well Capitalized Classification (Dollars in thousands) ACTUAL WELL CAPITALIZED ----------------------- ------------------------ Capital Ratio Capital Ratio ----------- -------- ----------- --------- Leverage $ 1,232,625 6.67% $ 924,294 5.00% Tier 1 risk-based 1,232,625 12.69 582,775 6.00 Total risk-based 1,287,612 13.26 971,291 10.00
RESULTS OF OPERATIONS NET EARNINGS Net earnings for the three months ended March 31, 1997 were $83 million or $1.45 per share compared to a loss of $127 million or $2.15 per share for the quarter ended March 31, 1996. Without the one-time goodwill write-off (See Accounting Change section on page 7), Golden West's earnings for the first quarter of 1996 would have been $79 million or $1.34 per share. Net earnings increased in 1997 as a result of increased net interest income and a 2% decrease in general and administrative expenses due to lower deposit premiums. SFAS 128 - EARNINGS PER SHARE In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Measurement of Earnings Per Share" (SFAS 128). SFAS 128 replaces Primary and Fully-Diluted Earnings Per Share (EPS) with "Basic EPS" and "Diluted EPS" for fiscal years ending after December 15, 1997. Basic EPS will be calculated by dividing net earnings for the period by the weighted-average common shares outstanding for that period. There will be no adjustment to the number of outstanding shares for stock options or other dilutive items as is currently done in the calculation of Primary EPS. Diluted EPS will take into account the effect of dilutive instruments, such as stock options, but will use the average share price for the period in determining the number of incremental shares that are to be added to the weighted average number of shares outstanding. In contrast, the current, Fully-diluted EPS uses the period-ending share price, if it exceeds the average price, in the calculation to determine the number of incremental shares that are to be added. If SFAS 128 had been applied for the quarter ended March 31, 1997, the Basic EPS reported would have been $1.45 and the Diluted EPS would have been $1.43. For the quarter ended March 31, 1996, before the cumulative effect of the change in accounting, Basic EPS would have been $1.34 and Diluted EPS would have been $1.32. SPREADS An important determinant of the Company's earnings is its primary spread -- the difference between its yield on earning assets and its cost of funds. The table below shows the components of the Company's spread at March 31, 1997 and 1996, and December 31, 1996.
TABLE 14 Yield on Earning Assets, Cost of Funds, and Primary Spread March 31 --------------------------- December 31 1997 1996 1996 --------- ----------- ------------- Yield on loan portfolio 7.43% 7.64% 7.43% Yield on MBS 7.12 7.35 7.13 Yield on investments 6.82 5.68 6.88 --------- ------- -------- Yield on earning assets 7.37 7.51 7.37 --------- ------- -------- Cost of deposits 4.98 5.01 4.98 Cost of borrowings 5.82 5.95 5.80 --------- ------- -------- Cost of funds 5.27 5.33 5.28 --------- ------- -------- Primary spread 2.10% 2.18% 2.09% ========= ======= ========
The Company's primary spread is, to some degree, dependent on changes in interest rates because the Company's liabilities tend to respond somewhat more rapidly to rate movements than its assets, which are primarily adjustable rate mortgages. 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). In general, the repricing of COFI ARM portfolios tends to lag liability interest rate changes because of certain loan features which restrain monthly adjustments and because the COFI tends to trail changes in liability costs due to the existence of a two-month reporting lag. Yields on short term and long-term interest rates drifted modestly downward between yearend 1996 and mid-February before rising slightly in March. The effects of this interest rate environment led to a one basis point reduction in the Company's cost of funds and no change in the yield on earning assets during the first three months of 1997, resulting in a 1 basis point increase in the Company's spread since yearend 1996. The following table shows the Company's revenues and expenses as a percentage of total revenues for the three months ended March 31, 1997 and 1996, in order to focus on the changes in interest income between years as well as changes in other revenue and expense amounts.
TABLE 15 Selected Revenue and Expense Items as Percentages of Total Revenues Three Months Ended March 31 ---------------------- 1997 1996 --------- --------- Interest on loans 81.5% 82.2% Interest on mortgage-backed securities 10.8 9.4 Interest and dividends on investments 4.9 5.4 -------- -------- 97.2 97.0 Less: Interest on deposits 40.4 40.3 Interest on advances and other borrowings 25.3 25.2 -------- -------- 65.7 65.5 Net interest income 31.5 31.5 Provision for loan losses 3.0 2.8 -------- -------- Net interest income after provision for loan losses 28.5 28.7 Add: Fees 1.5 1.4 Gain on the sale of securities, MBS, and loans 0.2 0.7 Other non-interest income 1.1 0.9 -------- -------- 2.8 3.0 Less: General and administrative expenses 11.4 12.3 Taxes on income 7.9 7.5 -------- ------- Earnings before cumulative effect of change in accounting for goodwill 12.0 11.9 Cumulative effect of change in accounting for goodwill 0.0 (31.1) -------- -------- Net earnings (loss) 12.0% (19.2)% ======== ========
INTEREST RATE SWAPS AND CAPS The Company enters into interest rate swaps and, from time to time, caps as a part of its interest rate risk management strategy. Such instruments are entered into solely to alter the repricing characteristics of designated assets and liabilities. The Company does not hold any derivative financial instruments for trading purposes. Interest rate swap and cap activity decreased net interest income by $323 thousand for the three months ended March 31, 1997, as compared to a decrease of $4 million for the same period in 1996. The following table summarizes the unrealized gains and losses for interest rate swaps and caps at March 31, 1997 and 1996.
TABLE 16 Schedule of Unrealized Gains and Losses on Interest Rate Swaps and Caps (Dollars in thousands) March 31, 1997 March 31, 1996 ---------------------------------------- --------------------------------------- Net Net Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gain (Loss) Gains Losses Gain (Loss) ----------- ----------- ------------ ----------- ----------- ----------- Interest rate swaps $ 23,351 $ (28,797) $ (5,446) $ 33,070 $ (54,767) $ (21,697) Interest rate caps -0- -0- -0- 15 -0- 15 ----------- ----------- ------------ ----------- ------------ ------------ $ 23,351 $ (28,797) $ (5,446) $ 33,085 $ (54,767) $ (21,682) =========== =========== ============ =========== ============ ============
TABLE 17 Schedule of Interest Rate Swaps and Caps Activity (Notional amounts in millions) Three Months Ended March 31, 1997 -------------------------------------------- Receive Pay Forward Fixed Fixed Starting Swaps Swaps Swaps ------------- ------------ ------------ Balance at December 31, 1996 $ 2,581 $ 1,340 $ 10 Additions -0- -0- -0- Maturities (507) (195) -0- Forward starting becoming effective 10 -0- (10) ----------- ----------- ----------- Balance at March 31, 1997 $ 2,084 $ 1,145 $ -0- ============ =========== ===========
The range of floating interest rates received on swap contracts in the first three months of 1997 was 5.47% to 5.92%, and the range of floating interest rates paid on swap contracts was 4.82% to 5.92%. The range of fixed interest rates received on swap contracts in the first three months of 1997 was 4.62% to 8.68% and the range of fixed interest rates paid on swap contracts was 5.38% to 9.14%. INTEREST ON LOANS In the first quarter of 1997, interest on loans was higher than in the comparable 1996 period by $24 million or 4.4%. The increase in the first quarter of 1997 was due to a $2.1 billion increase in the average portfolio balance which was partially offset by a 21 basis point decrease in the average portfolio yield. INTEREST ON MORTGAGE-BACKED SECURITIES In the first quarter of 1997, interest on mortgage-backed securities was higher than in the comparable 1996 period by $13 million or 21.5%. The 1997 increase was due primarily to an $884 million increase in the average portfolio balance, which was partially offset by a 30 basis point decrease in the average portfolio yield. The increase in the mortgage-backed securities portfolio, and the lower average portfolio yield were primarily the result of the securitization of adjustable-rate loans with full credit recourse that began in 1995, 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. For the first quarter of 1997, interest and dividends on investments was lower than in the comparable 1996 period by $2 million or 5.4%. The decrease was primarily due to a $47 million decrease in the average portfolio balance which was partially offset by a 16 basis point increase in the average portfolio yield. Also, 1996 benefited from $4 million in interest on a tax refund. INTEREST ON DEPOSITS In the first quarter of 1997, interest on deposits increased by $15 million or 5.6% from the comparable period in 1996. The first quarter increase was due to a $1.8 billion increase in the average balance of deposits which was partially offset by a 9 basis point decrease in the average cost of deposits. INTEREST ON ADVANCES AND OTHER BORROWINGS For the first quarter of 1996, interest on advances and other borrowings increased by $9 million or 5.5% from the comparable period of 1996. The first quarter increase was primarily due to a $1.2 billion increase in the average balance, which was partially offset by a 23 basis point decrease in the average cost of these borrowings. PROVISION FOR LOAN LOSSES The provision for loan losses was $20.7 million for the three months ended March 31, 1997, compared to $18.5 million for the same period in 1996. The higher provision in 1997 resulted from the increase in the allowance for loan losses which reflects the increase in non-accrual loans. GENERAL AND ADMINISTRATIVE EXPENSES For the first quarter of 1997, general and administrative expenses (G&A) was $79 million compared to $81 million for the comparable period in 1996. The primary reason for the decrease in 1997 was the benefit received from reduced deposit insurance premiums paid by the Association in 1997 (See Deposit Insurance section below). Excluding the effect of the lower deposit insurance premiums, total G&A increased due to the expansion of savings branches, higher loan volume, and the installation of enhancements to data processing systems. G&A as a percentage of average assets on an annualized basis was .83% for the first quarter of 1997 compared to .93% for the same period in 1996. DEPOSIT INSURANCE During 1996, legislation was enacted to recapitalize the Savings Association Insurance Fund (SAIF) in order to bring it into parity with the FDIC's other insurance fund, the Bank Insurance Fund (BIF). The new banking law required members to pay a levy of $4.7 billion to bring SAIF up to the required reserve level of 1.25% of insured deposits, but lowered the premiums paid by SAIF-insured institutions, starting in the fourth quarter of 1996. As a result of this legislation, Golden West's subsidiary, World Savings and Loan Association, incurred a one-time charge of $133 million at the end of the third quarter of 1996. Beginning on January 1, 1997, the premium paid by the Association to the FDIC was reduced from $2.30 per $1,000 in savings balances to $.65 per $1,000. Beginning on January 1, 1997, the premiums paid by BIF insured institutions, such as WFSB, was increased from $0.00 per $1,000 in savings balances to $.13 per $1,000. 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 before the cumulative effect of the change in accounting for goodwill were 39.6% for the first quarter of 1997 compared to 38.5% for the same period a year ago. LIQUIDITY AND CAPITAL RESOURCES World's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; borrowings from the FHLB; issuance of medium-term notes; and debt collateralized by mortgages, MBS, or securities. In addition, World has a number of other alternatives available to provide liquidity or finance operations. These include borrowings from its parent, borrowings from public offerings of debt, sales of loans, negotiable certificates of deposit, issuances of commercial paper, and borrowings from commercial banks. Furthermore, under certain conditions, World may borrow from the Federal Reserve Bank of San Francisco to meet short-term cash needs. The availability of these funds will vary depending upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the Federal Reserve Board. For a discussion of World's liquidity positions at March 31, 1997, and 1996, and December 31, 1996, see the cash and investments section on page 12. WFSB's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; negotiable certificates of deposit, borrowings from the FHLB; issuance of medium-term notes; investments and borrowings from its affiliates; and debt collateralized by mortgages, MBS, or securities. In addition, WFSB has other alternatives available to provide liquidity or finance operations including borrowings from public offerings of debt, sales of loans, issuances of commercial paper, and borrowings from commercial banks. Furthermore, under certain conditions, WFSB may borrow from the Federal Reserve Bank of San Francisco to meet short-term cash needs. The availability of these funds will vary depending upon policies of the FHLB, the Federal Reserve Bank of San Francisco, and the Federal Reserve Board. For a discussion of WFSB's liquidity positions at March 31, 1997, and 1996, and December 31, 1996, see the cash and investments section on page 12. The principal sources of funds for Golden West (the Parent) are interest on investments, dividends from World, and the proceeds from the issuance of debt and equity securities. Various statutory and regulatory restrictions and tax considerations limit the amount of dividends World and WFSB can pay. The principal liquidity needs of Golden West are for payment of interest and principal on subordinated debt securities (of which $115 million matures in 1997 and $200 million in 1998), capital contributions to its insured subsidiaries (including $60 million for the three months ended March 31, 1997 and $500 million for the year ended December 31, 1996 to WFSB), dividends to stockholders, the purchase of Golden West stock (see stockholders' equity section on page 23), and general and administrative expenses. At March 31, 1997 and 1996, and December 31, 1996, Golden West's total cash and investments amounted to $978 million (including a $600 million long-term loan to WFSB), $857 million (including a $700 million short-term loan to World), and $913 million (including a $600 million long-term loan to WFSB), respectively. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) May 1, 1997 - Annual Meeting
Broker For Against Withheld Abstain Non-Vote ------------- ------------- ------------- ------------- ------------- (b) Directors elected: Maryellen B. Cattani 50,814,439 114,460 Kenneth T. Rosen 50,802,345 126,554 Herbert M. Sandler 50,800,034 128,865 (c) Approve the adoption of the Company's Annual Incentive Bonus Plan 50,362,908 454,834 111,155 2 (d) Ratification of Auditors: Appointment of Deloitte & Touche LLP, independent public accountants, for the fiscal year 1997 50,835,115 15,677 78,107
Other Directors continuing in office are: Louis J. Galen, Antonia Hernandez, Patricia A. King, Bernard A. Osher, Marion O. Sandler and Leslie Tang Schilling ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1 - Annual Incentive Bonus Plan 11 - Statement of Computation of Earnings Per Share 27 - Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GOLDEN WEST FINANCIAL CORPORATION Dated: May 13, 1997 /s/ J. L. Helvey -------------------------------------- J. L. Helvey Executive Vice President (duly authorized and principal financial officer) EXHIBIT 10.1 Golden West Financial Corporation Annual Incentive Bonus Plan (Effective January 1, 1997) Section 1. Establishment and Purpose 1.1 Purpose. Golden West Financial Corporation (the "Company") hereby establishes the Golden West Financial Corporation Incentive Bonus Plan (the "Plan"), effective as of January 1, 1997. The Plan is designed to preserve the deductibility to the Company of certain compensation paid to executive officers of the Company. Further, the Plan is intended to offer the additional benefit of having a portion of executive compensation directly linked to the Company's performance. 1.2 Effective Date. The Plan is effective as of January 1, 1997, subject to the approval by an affirmative vote, at the 1997 Annual Meeting of Stockholders, or any adjournment thereof, of the holders of a majority of the outstanding shares of the common stock of the Company, present in person or by proxy and entitled to vote at such meeting. Section 2. Definitions 2.1 Defined Terms. When used in the Plan, the following terms shall have the meanings specified below: 2.1.1 "Board" means the Company's Board of Directors. 2.1.2 "Committee" means the Compensation Committee of the Board of Directors of the Company. 2.1.3 "Earnings Per Share" means the number derived by dividing net earnings after taxes available to common shareholders for the Plan Year by the weighted-average number of common shares outstanding (calculated using daily averages, based on actual days during the year) for the Plan year. 2.1.4 "General and Administrative Expenses to Average Assets" means the ratio derived by dividing non-interest expense (excluding FDIC insurance premiums and expenses related to mutual funds) for the Plan Year by average assets for the Plan Year. For the purposes of this definition, average assets is computed by adding the beginning balance and each monthend balance during the year and dividing by 13. 2.1.5 "Maximum Award" means the maximum award pursuant to this Plan to any individual Participant for any one Plan Year, which shall be $750,000. 2.1.6 "Non-Performing Assets to Total Assets" means the ratio derived by dividing the sum of real estate acquired through foreclosure plus loans 90 days or more past due by the total assets of the Company as of the end of the Plan Year. 2.1.7 "Participant" means as to any Plan Year a key executive of the Company who is likely to have a significant impact on the performance of the Company. An employee must be approved as a Participant by the Committee. 2.1.8 "Performance Measures" means one or more of the following: Return on Average Assets; Return on Average Equity; Earnings Per Share; General and Administrative Expenses to Average Assets; and Non-Performing Assets to Total Assets. 2.1.9 "Plan Year" means the 1997 calendar year and each succeeding calendar year, through 2002. 2.1.10 "Return on Average Assets" means the percentage derived by dividing the Company's net earnings after taxes for the Plan Year by the average assets for the Plan Year. For the purposes of this definition, average assets is computed by adding the beginning balance and each monthend balance during the Plan Year and dividing by 13. 2.1.11 "Return on Average Equity" means the percentage derived by dividing the Company's net earnings after taxes for the Plan Year by the average stockholders' common equity for the Plan Year. For the purposes of this definition average stockholders' common equity is calculated by adding the beginning balance and each monthend balance during the Plan Year and dividing by 13. 2.1.12 "Target Award" means the target incentive opportunity for an individual, expressed as a dollar amount payable for the attainment of a target level of performance. The schedule of individual Target Awards shall be determined by the Committee in accordance with Section 3.1. Section 3. Awards and Committee Determinations 3.1 Opportunity. The Committee shall approve participation in the Plan and establish a Target Award for each Participant, based on his or her role and responsibilities, within the first 90 days of the applicable Plan Year. 3.2 Awards. Payment under this Plan will be based on a payout table adopted by the Committee (in its sole discretion) in writing within the first 90 days of the Plan Year. The Committee reserves the right (in its sole discretion) to modify the table from year to year, provided that such modification is done within the first 90 days of the applicable Plan Year. The payout table will provide 100% of a Participant's Target Award if a certain level of performance, as determined using the Performance Measures, is achieved and greater or lesser awards for performance that exceeds or is less than, respectively, the level at which 100% of Target Awards are paid. No participant's award under this Plan may exceed 1.5 times his or her Target Award, and in no event may a Participant's award under this Plan exceed the Maximum Award. 3.3 Reduction Prior to Payment. The Committee, in its sole discretion, may reduce (but not increase) the award for any Participant below the award that would otherwise be payable in accordance with the Plan. 3.4 Determination. The Committee shall determine, in writing, the level of performance achieved and the respective percentage of Target Awards earned for the Plan Year prior to payment of awards. Section 4. Payment of Awards 4.1 Right to Receive Payment. Any award that may become due under this Plan shall be made solely from the general assets of the Company, normally on or before the March 20th next following the end of the Plan Year during which the award was earned. Nothing in this Plan shall be construed to create a trust or to establish or evidence any Participant's claim of any right other than as an unsecured general creditor with respect to any payment to which he or she may be entitled. 4.1.1 Employment for Plan Year. If a Participant's employment with the Company continues for the entire Plan Year, the Participant shall be entitled to receive full payment of the award amount determined under Section 3 for such Plan Year in accordance with the terms of the Plan. 4.1.2 Resignation, Disability or Death. In the event of the death, disability or resignation of a Participant during a Plan Year, the Committee (in its sole discretion) will determine the amount of the partial award (if any) to be paid to such Participant for such Plan Year. Payments will be made in cash at the same time as other awards to Participants are made for the same Plan Year. 4.1.3 Discharge. If during a Plan Year, a Participant's employment with the Company terminates by reason of discharge, then the Participant will not be eligible for and shall forfeit any award under this Plan for the Plan Year. 4.2 Form of Payment. Awards under this Plan will be made in cash. 4.3 Beneficiaries. Each Participant may designate, in writing and on such form as the Company may prescribe, one or more beneficiaries to receive any amount that is payable after the individual's death. In the event of a Participant's death, any award that is payable to such Participant shall be paid to his or her beneficiary or, in the event that no beneficiary has been designated, to his or her estate. Section 5. Administration 5.1 Committee. The Plan shall be administered by the Committee. 5.2 Rules and Interpretation. The Committee shall be vested with all discretion and authority as it deems necessary or appropriate to administer the Plan and to interpret the provisions of the Plan. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all persons and shall be given the maximum deference permitted by law. 5.3 Records. The records of the Committee with respect to the Plan shall be conclusive on all Participants and their beneficiaries and on all other persons. 5.4 Tax Withholding. The Company shall withhold all applicable taxes required by law from any payment, including any federal, FICA, state and local taxes. Section 6. General Provisions 6.1 Nonassignability. Prior to the time of any payment under the Plan, a Participant shall have no right by way of anticipation or otherwise to assign or transfer any interest under this Plan. 6.2 Employment Rights/Participation. The establishment and subsequent operation of the Plan, including eligibility as a Participant, shall not be construed as conferring any legal or other rights upon any Participant or any other individual for the continuation of his or her employment for any Plan Year or any other period. The Company expressly reserves the right, which may be exercised at any time and without regard to when during a Plan Year or other accounting period such exercise occurs, to discharge any individual and/or treat him or her without regard to the effect which such treatment might have upon him or her as a Participant in this Plan. Being a Participant in any one Plan Year does not confer any right to be named as a Participant for any succeeding Plan Year. 6.3 No Individual Liability. No member of the Committee or the Board, or any officer of the Company, shall be liable for any determination, decision or action made in good faith with respect to the Plan or any award made under the Plan. 6.4 Severability; Governing Law. If any particular provision of this Plan is found to be invalid or unenforceable, such provision shall not affect the other provisions of the Plan, but the Plan shall be construed in all respects as if such invalid provision had been omitted. The provisions of the Plan shall be governed by and construed in accordance with the laws of the State of California. 6.5 Affiliates of the Company. Requirements referring to employment with the Company or payment of awards can be performed through the Company or any affiliate of the Company, as determined by the Committee. 6.6 1997 Plan Year. For Plan Year 1997, all actions that would otherwise be required to be taken prior to the beginning of a Plan Year shall be taken prior to April 1, 1997. Section 7. Amendment and Termination The Committee may prospectively amend or terminate the Plan at any time and for any reason. GOLDEN WEST FINANCIAL CORPORATION Dated: January 1, 1997 /s/ J. L. Helvey -------------------------------------------- J. L. Helvey Executive Vice President (duly authorized and principal financial officer)
EXHIBIT 11 Golden West Financial Corporation Statement of Computation of Earnings (Loss) Per Share (Dollars in thousands except per share figures) Three Months Ended March 31 ----------------------------- 1997 1996 ------------- ------------- Earnings Before Cumulative Effect of Change in Accounting for Goodwill $ 83,374 $ 78,593 Cumulative Effect of Change in Accounting for Goodwill -0- (205,242) ------------- ------------- Net Earnings (Loss) $ 83,374 $ (126,649) ============= ============= Average Number of Common Shares Outstanding 57,314,639 58,788,639 ============= ============= Earnings Per Share Before Cumulative Effect of Change in Accounting for Goodwill $ 1.45 $ 1.34 Cumulative Effect of Change in Accounting for Goodwill 0.00 (3.49) ------------- ------------- Earnings (Loss) Per Common Share $ 1.45 $ (2.15) ============= =============
EX-27 2
9 3-MOS DEC-31-1996 MAR-31-1997 132,972 0 780,551 0 818,999 3,969,251 3,943,076 30,698,538 209,077 38,530,009 22,943,924 4,764,477 741,839 7,665,877 0 0 5,722 2,408,170 38,530,009 565,063 34,283 74,933 674,279 280,320 455,587 218,692 20,695 0 79,170 138,059 138,059 0 0 83,374 1.45 1.45 7.37 389,625 0 86,931 58,243 195,702 7,558 238 209,077 209,077 0 0
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