-----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, CfG0/E2On7COZfq1NAnWNyGonSWA2OklAxcEpJVaameLgD+HjkUwMCyrrIY9YEMZ MgVQ8tMRjDI7Nm7CafQUHA== 0000042293-98-000003.txt : 19980515 0000042293-98-000003.hdr.sgml : 19980515 ACCESSION NUMBER: 0000042293-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 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: SEC FILE NUMBER: 001-04629 FILM NUMBER: 98621108 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, 1998 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, 1998, was 57,282,044 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, 1998 and 1997 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, 1998, 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 1998 1997 1997 ------------- ------------ ------------- Assets: Cash $ 177,913 $ 132,972 $ 172,241 Securities available for sale at fair value 628,235 602,667 608,544 Other investments at cost 389,044 1,538,551 252,648 Mortgage-backed securities available for sale without recourse at 148,740 216,332 157,327 fair value Mortgage-backed securities held to maturity without recourse at cost 718,733 785,486 752,029 Mortgage-backed securities held to maturity with recourse at cost 3,424,636 3,183,765 3,030,390 Loans receivable 32,723,855 30,698,538 33,260,709 Interest earned but uncollected 213,590 212,280 216,923 Investment in capital stock of Federal Home Loan Banks--at cost which approximates fair value 599,960 564,389 590,244 Real estate held for sale or investment 48,187 79,687 62,006 Prepaid expenses and other assets 347,264 292,312 247,003 Premises and equipment--at cost less accumulated depreciation 249,263 223,030 240,207 ------------- ------------ ------------- $ 39,669,420 $38,530,009 $ 39,590,271 ============= ============ ============= Liabilities and Stockholders' Equity: Deposits $ 24,559,270 $22,943,924 $ 24,109,717 Advances from Federal Home Loan Banks 7,645,830 8,133,882 8,516,605 Securities sold under agreements to repurchase 2,184,991 2,662,179 2,334,048 Medium-term notes -0- 309,903 109,992 Federal funds purchased 500,000 -0- -0- Accounts payable and accrued expenses 512,497 482,335 446,325 Taxes on income 341,043 259,504 265,065 Subordinated notes--net of discount 1,110,828 1,324,390 1,110,488 Stockholders' equity 2,814,961 2,413,892 2,698,031 ------------- ------------ ------------- $ 39,669,420 $38,530,009 $ 39,590,271 ============= ============ =============
Golden West Financial Corporation Consolidated Statement of Net Earnings (Unaudited) (Dollars in thousands except per share figures) Three Months Ended March 31 ----------------------------- 1998 1997 ------------ ------------ Interest Income: Interest on loans $ 628,878 $ 565,063 Interest on mortgage-backed securities 72,195 74,933 Interest and dividends on investments 54,130 34,283 ------------ ------------ 755,203 674,279 Interest Expense: Interest on deposits 315,210 280,320 Interest on advances 123,560 112,608 Interest on repurchase agreements 32,936 27,898 Interest on other borrowings 39,783 34,761 ------------ ------------ 511,489 455,587 ------------ ------------ Net Interest Income 243,714 218,692 Provision for loan losses 2,965 20,695 ------------ ------------ Net Interest Income after Provision for Loan Losses 240,749 197,997 Non-Interest Income: Fees 12,947 10,737 Gain on the sale of securities, MBS, and loans 2,507 1,223 Other 10,549 7,272 ------------ ------------ 26,003 19,232 Non-Interest Expense: General and administrative: Personnel 46,536 44,100 Occupancy 14,169 13,388 Deposit insurance 1,612 2,046 Advertising 2,246 2,418 Other 19,111 17,218 ------------ ------------ 83,674 79,170 Earnings Before Taxes on Income and Extraordinary Item 183,078 138,059 Taxes on Income 72,997 54,685 ------------ ------------ Earnings Before Extraordinary Item 110,081 83,374 Extraordinary Item: Federal Home Loan Bank advance prepayment penalty, net of tax of $5,325 (7,710) -0- ------------ ------------ Net Earnings $ 102,371 $ 83,374 ============ ============ Basic Earnings Per Share Before Extraordinary Item $ 1.92 $ 1.45 Basic Earnings Per Share on Extraordinary Item, Net of Tax (.13) -0- ------------ ------------ Basic Earnings Per Share $ 1.79 $ 1.45 ============ ============ Diluted Earnings Per Share Before Extraordinary $ 1.89 $ 1.43 Diluted Earnings Per Share on Extraordinary Item, Net of Tax (.13) -0- ------------ ------------ Diluted Earnings Per Share $ 1.76 $ 1.43 ============ ============
Golden West Financial Corporation Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands) Three Months Ended March 31 --------------------------- 1998 1997 ------------ ------------- Cash Flows From Operating Activities: Net earnings $ 102,371 $ 83,374 Adjustments to reconcile net earnings to net cash provided by operating ctivities: Extraordinary item 13,035 -0- Provision for loan losses 2,965 20,695 Amortization of loan fees and discounts (5,105) (4,441) Depreciation and amortization 5,724 5,143 Loans originated for sale (121,539) (53,560) Sales of loans originated for sale 131,940 49,508 Decrease in interest earned but uncollected 3,333 9,324 Federal Home Loan Bank stock dividends (17,383) (15,722) Increase in prepaid expenses and other assets (91,604) (58,581) Increase in accounts payable and accrued expenses 58,824 30,153 Increase in taxes on income 63,938 54,668 Other, net (4,427) (4,626) ------------ ------------- Net cash provided by operating activities 142,072 115,935 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (1,345,654) (1,341,904) Real estate loans purchased (1,047) (652) Other, net (10,817) (8,270) ------------ ------------- (1,357,518) (1,350,826) Real estate loan principal payments: Monthly payments 174,919 164,249 Payoffs, net of foreclosures 1,078,493 487,720 Refinances 98,876 57,383 ------------ ------------- 1,352,288 709,352 Repayments of mortgage-backed securities 148,520 106,025 Proceeds from sales of real estate 51,405 52,680 Purchases of securities available for sale (22) (10) Sales of securities available for sale 223 -0- Matured securities available for sale 10,042 175,601 Increase in other investments (136,396) (459,719) Purchases of Federal Home Loan Bank stock (990) (56,239) Additions to premises and equipment (15,063) (14,347) ------------ ------------- Net cash provided by (used in) investing activities 52,489 (837,483)
Golden West Financial Corporation Consolidated Statement of Cash Flows (Continued) (Unaudited) (Dollars in thousands) Three Months Ended March 31 --------------------------- 1998 1997 ------------ ------------ Cash Flows From Financing Activities: Deposit activity: Increase in deposits, net $ 204,135 $ 618,182 Interest credited 245,418 225,808 ------------ ------------ 449,553 843,990 Additions to Federal Home Loan Bank advances 711,200 21,600 Repayments of Federal Home Loan Bank advances (1,587,707) (686,199) Proceeds from agreements to repurchase securities 1,255,890 1,424,702 Repayments of agreements to repurchase securities (1,404,947) (670,649) Repayments of medium-term notes (110,000) (280,000) Proceeds from federal funds purchased 44,790,000 -0- Repayments of federal funds purchased (44,290,000) -0- Dividends on common stock (7,140) (6,301) Exercise of stock options 4,262 2,009 Purchase and retirement of Company stock -0- (13,351) ------------ ------------ Net cash provided by (used in) financing activities (188,889) 635,801 ------------ ------------ Net Increase (Decrease) in Cash 5,672 (85,747) Cash at beginning of period 172,241 218,719 ------------ ------------ Cash at end of period $ 177,913 $ 132,972 ============ ============ Supplemental cash flow information: Cash paid for: Interest $ 507,374 $ 452,524 Income taxes 3,831 611 Cash received for interest and dividends 758,536 683,603 Noncash investing activities: Loans transferred to foreclosed real estate 31,561 50,657 Loans securitized into mortgage-backed securities with recourse 500,992 -0-
Golden West Financial Corporation Consolidated Statement of Stockholders' Equity (Unaudited) (Dollars in thousands) For the Three Months Ended March 31, 1998 ------------------------------------------------------------------------------------- Accumulated Comprehensive Income From Additional Unrealized Total Common Paid-in Retained Gains On Stockholders' Comprehensive Stock Capital Earnings Securities Equity Income ---------- ---------- ---------- -------------- ------------ --------------- Balance at January 1, 1998 $ 5,707 $ 85,532 $2,457,055 $ 149,737 $ 2,698,031 Comprehensive income: Net earnings -0- -0- 102,371 102,371 $ 102,371 Change in unrealized gains on securities available for sale, -0- -0- -0- 17,434 17,434 17,434 Reclassification adjustment for loss included inincome -0- -0- -0- 3 3 3 Cash dividends on common stock ($.125 per share) -0- -0- (7,140) (7,140) Common stock issued upon exercise of stock options, including tax benefits 12 4,250 -0- -0- 4,262 ----------- ---------- ---------- -------------- ------------ --------------- Balance at March 31, 1998 $ 5,719 $ 89,782 $2,552,286 $ 167,174 $ 2,814,961 $ 119,808 ========== ========== ========== ============== ============ ===============
For the Three Months Ended March 31, 1997 ------------------------------------------------------------------------------------- Accumulated Comprehensive Income From Additional Unrealized Total Common Paid-in Retained Gains On Stockholders' Comprehensive Stock Capital Earnings Securities Equity Income ---------- ---------- ---------- -------------- ------------ --------------- Balance at January 1, 1997 $ 5,734 $ 67,953 $2,177,098 $ 99,692 $ 2,350,477 Comprehensive income: Net earnings -0- -0- 83,374 83,374 $ 83,374 Change in unrealized gains on securities availablefor sale -0- -0- -0- (2,316) (2,316) (2,316) Cash dividends on common stock ($.11 per share) -0- -0- (6,301) (6,301) Common stock issued upon exercise of stock options, including tax benefits 7 2,002 -0- 2,009 Purchase and retirement of Company stock (19) -0- (13,332) (13,351) ---------- ---------- ---------- -------------- ------------ --------------- Balance at March 31, 1997 $ 5,722 $ 69,955 $2,240,839 $ 97,376 $ 2,413,892 $ 81,058 ========== ========== ========== ============== ============ ===============
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, 1997, as well as certain material changes in results of operations during the three month periods ended March 31, 1998, and 1997, respectively. The following narrative is written with the presumption that the users have read or have access to the Company's 1997 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, 1997, and for the year then ended. Therefore, only material changes in financial condition and results of operations are discussed herein. NEW ACCOUNTING PRONOUNCEMENT Effective January 1, 1998, Golden West adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130), which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources.
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) March 31 March 31 December 31 1998 1997 1997 ------------- ------------ ------------- Assets $ 39,669,420 $38,530,009 $ 39,590,271 Loans receivable 32,723,855 30,698,538 33,260,709 Mortgage-backed securities 4,292,109 4,185,583 3,939,746 Deposits 24,559,270 22,943,924 24,109,717 Stockholders' equity 2,814,961 2,413,892 2,698,031 Stockholders' equity/total assets 7.10% 6.26% 6.81% Book value per common share $ 49.22 $ 42.19 $ 47.28 Common shares outstanding 57,190,004 57,218,464 57,068,504 Yield on loan portfolio 7.57% 7.43% 7.53% Yield on mortgage-backed securities 7.23% 7.12% 7.23% Yield on investments 6.53% 6.82% 6.48% Yield on earning assets 7.51% 7.37% 7.48% Cost of deposits 5.02% 4.98% 5.04% Cost of borrowings 6.02% 5.82% 5.99% Cost of funds 5.33% 5.27% 5.36% Yield on earning assets less cost of funds 2.18% 2.10% 2.12% Ratio of nonperforming assets to total assets .93% 1.22% .96% Ratio of troubled debt restructured to total assets .10% .23% .11% World Savings Bank, a Federal Savings Bank: Total assets $25,820,982 $18,465,208 $24,608,701 Net worth 1,769,860 1,235,418 1,605,561 Net worth/total assets 6.85% 6.69% 6.52% Regulatory capital ratios: Core capital 6.84% 6.67% 6.51% Risk-based capital 13.51% 13.26% 12.80% World Savings and Loan Association: Total assets $14,239,835 $19,633,902 $15,446,575 Net worth 1,087,367 1,337,107 1,121,961 Net worth/total assets 7.64% 6.81% 7.26% Regulatory capital ratios: Core capital 6.62% 6.37% 6.42% Risk-based capital 13.90% 13.74% 13.64%
Golden West Financial Corporation Financial Highlights (Unaudited) (Dollars in thousands except per share figures) Three Months Ended March 31 -------------------------- 1998 1997 ------------ ----------- New real estate loans originated $ 1,467,193 $ 1,395,464 Average yield on new real estate loans 7.76% 7.52% Increase in deposits(a) $ 449,553 $ 843,990 Earnings before extraordinary item 110,081 83,374 Net earnings 102,371 83,374 Basic earnings per share before extraordinary item 1.92 1.45 Diluted earnings per share before extraordinary item 1.89 1.43 Basic earnings per share 1.79 1.45 Diluted earnings per share 1.76 1.43 Cash dividends on common stock .125 .11 Average common shares outstanding 57,126,696 57,314,639 Average diluted common shares outstanding 58,008,840 58,254,583 Ratios:(b) Net earnings/average net worth (ROE)(c) 14.83% 13.95% Net earnings/average assets (ROA)(c) 1.03% .88% Net interest income/average assets 2.45% 2.30% General and administrative expense/average assets .84% .83%
(a) Includes a decrease of $525 million and increase of $397 million of wholesale deposits for the quarters ended March 31, 1998 and 1997, respectively. (b) Ratios are annualized by multiplying the quarterly computation by four. Averages are computed by adding the beginning balance and each monthend balance during the quarter and dividing by four. (c) The ratios for the quarter ended March 31, 1998 include the extraordinary item. The ratios for the quarter ended March 31, 1998 excluding the extraordinary item are: ROE 15.95% and ROA 1.11%. 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, 1998 and 1997, and December 31, 1997. The reader is referred to page 52 of the Company's 1997 Annual Report on Form 10-K for similar information for the years 1993 through 1997 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 1998 1997 1997 ------- ------- ------------- Assets: Cash and investments 3.0% 5.9% 2.6% Mortgage-backed securities 10.8 10.9 10.0 Loans receivable 82.5 79.7 84.0 Other assets 3.7 3.5 3.4 ------- ------- ------- 100.0% 100.0% 100.0% ======= ======= ======= Liabilities and Stockholders' Equity: Deposits 61.9% 59.5% 60.9% Federal Home Loan Bank advances 19.3 21.1 21.5 Securities sold under agreements to repurchase 5.5 6.9 5.9 Medium-term notes 0.0 0.8 0.3 Federal funds purchased 1.3 0.0 0.0 Other liabilities 2.1 2.0 1.8 Subordinated debt 2.8 3.4 2.8 Stockholders' equity 7.1 6.3 6.8 ------- ------- ------- 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 following gap table shows that, as of March 31, 1998, 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 index 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.
TABLE 2 Repricing of Interest-Earning Assets and Interest-Bearing Liabilities, Repricing Gaps, and Gap Ratio As of March 31, 1998 (Dollars in millions) Projected Repricing(a) --------------------------------------------------------------------- 0 - 3 4 - 12 1 - 5 Over 5 Months Months Years Years Total ------------ ----------- ----------- ------------ ----------- Interest-Earning Assets: Investments $ 711 $ 300 $ 4 $ 2 $ 1,017 Mortgage-backed securities 3,512 104 355 321 4,292 Loans receivable: Rate-sensitive 28,449 1,545 129 -0- 30,123 Fixed-rate 110 272 1,046 957 2,385 Other(b) 730 -0- -0- -0- 730 Impact of interest rate swaps 582 145 (471) (256) -0- ------------ ----------- ----------- ------------ ----------- Total $ 34,094 $ 2,366 $ 1,063 $ 1,024 $ 38,547 ============ =========== =========== ============ =========== Interest-Bearing Liabilities(c): Deposits $ 11,639 $ 10,508 $ 2,401 $ 11 $ 24,559 FHLB advances 6,454 775 122 295 7,646 Other borrowings 2,779 100 718 199 3,796 Impact of interest rate swaps 750 (474) (276) -0- -0- ------------ ----------- ----------- ------------ ----------- Total $ 21,622 $ 10,909 $ 2,965 $ 505 $ 36,001 =========== =========== =========== ============ =========== Repricing gap $ 12,472 $ (8,543) $ (1,902) $ 519 $ 2,546 ============ =========== =========== ============ =========== Cumulative gap $ 12,472 $ 3,929 $ 2,027 $ 2,546 ============ =========== =========== ============ Cumulative gap as a percentage of total assets 31.4% 9.9% 5.1% ============ =========== ===========
(a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled repayments and projected prepayments of principal. (b) Includes cash 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 Bank, FSB (WFSB), and World Savings and Loan Association (WSL) to maintain a minimum amount of cash and certain qualifying investments for liquidity purposes. As of December 1, 1997, the current minimum requirement was changed from a monthly to a quarterly calculation and is either equal to 4% of the quarterly average of daily balances of short-term deposits and borrowings or 4% of the prior quarter's ending balance of short-term deposits and borrowings. For all other months during 1997, the minimum liquidity requirement was calculated monthly and was equal to 5% of the monthly average of deposits and short-term borrowings. WFSB's regulatory liquidity ratios were 16% and 11% for the quarters ended March 31, 1998 and December 31, 1997, respectively. WFSB's regulatory average liquidity ratio was 5.3% for the month ended March 31, 1997. WSL's regulatory liquidity ratios were 25% and 12% for the quarters ended March 31, 1998 and December 31, 1997, respectively. WSL's regulatory average liquidity ratio was 8% for the month ended March 31, 1997. The increase in the average liquidity ratio in the first quarter of 1998, as compared to the last quarter of 1997, was due to a clarification in the new OTS liquidity regulation which expanded the assets qualifying for the calculation. At March 31, 1998 and 1997, and December 31, 1997, the Company had securities available for sale in the amount of $628 million, $603 million, and $609 million, respectively, including unrealized gains on securities available for sale of $275 million, $156 million, and $245 million, respectively. At March 31, 1998 and 1997, and December 31, 1997, the Company had no securities held to maturity or for trading in its investment securities portfolio. Included in the securities available for sale at March 31, 1998 and 1997, and December 31, 1997, were collateralized mortgage obligations (CMOs) in the amount of $61 million, $144 million, and $71 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, 1998, all CMOs qualified for inclusion in the regulatory liquidity measurement. MORTGAGE-BACKED SECURITIES At March 31, 1998 and 1997, and December 31, 1997, the Company had mortgage-backed securities (MBS) held to maturity in the amount of $4.1 billion, $4.0 billion, and $3.8 billion, respectively, including Federal National Mortgage Association (FNMA) MBS subject to full credit recourse to the Company of $3.4 billion at March 31, 1998, $3.2 billion at March 31, 1997 and $3.0 billion at December 31, 1997. At March 31, 1998 and 1997, and December 31, 1997, the Company had mortgage-backed securities available for sale in the amount of $149 million, $216 million, and $157 million, respectively, including unrealized gains on MBS available for sale of $8 million, $9 million, and $8 million, respectively. At March 31, 1998 and 1997 and December 31, 1997, the Company had no trading MBS. During the first quarter of 1998, the Company securitized $501 million of adjustable rate mortgages (ARMs) into FNMA COFI-indexed MBS. During the fourth quarter of 1997, the Company desecuritized $856 million of FNMA COFI-indexed MBS in November and securitized $1.0 billion of ARMs into FNMA COFI-indexed MBS in December. The Company has the ability and intent to hold these MBS until maturity and, accordingly, these MBS are classified as held to maturity. The FNMA MBS held to maturity are available to be used as collateral for borrowings and are subject to full credit recourse to the Company. Repayments of MBS during the first quarter of 1998 were $149 million compared to $106 million in the same period of 1997. MBS repayments were higher during the first quarter of 1998 as compared to the first quarter of 1997 due to an increase in total MBS outstanding and an increase in prepayments on the underlying mortgages. LOAN PORTFOLIO LOAN VOLUME New loan originations for the quarter ended March 31, 1998, amounted to $1.5 billion compared to $1.4 billion for the same period in 1997. The slight increase in loan volume in 1998 over the first quarter of 1997 occurred because of a continued strong housing market and lower interest rates causing more borrowers to refinance. Refinanced loans constituted 44% of new loan originations for the quarter ended March 31, 1998, compared to 36% for the quarter ended March 31, 1997. Loans originated for sale amounted to $122 million for the first three months of 1998 compared to $54 million for the first three months of 1997. The Company continues to sell most of its fixed-rate originations. The Company has lending operations in 26 states. The primary source of mortgage origination is loans secured by residential properties in California. For the three months ended March 31, 1998, 59% of total loan originations were on residential properties in California compared to 52% for the same period in 1997. The five largest states, other than California, for originations for the three months ended March 31, 1998, were Florida, Texas, Colorado, New Jersey and Illinois with a combined total of 22% of total originations. The percentage of the total loan portfolio (excluding mortgage-backed securities with recourse) that is comprised of residential loans in California was 62% at March 31, 1998 compared to 68% at March 31, 1997, and 63% at December 31, 1997. The percentage of the total loan portfolio (including mortgage-backed securities with recourse) that is comprised of residential loans in California was 66% at March 31, 1998 compared to 68% at March 31, 1997, and 66% at December 31, 1997. The tables on the following two pages show the Company's loan portfolio by state at March 31, 1998 and 1997.
TABLE 3 Loan Portfolio by State March 31, 1998 (Dollars in thousands) Residential Real Estate Commercial Loans as ------------------------- Real Total a % of State 1 - 4 5+ Land Estate Loans (a) Portfolio - --------------- ------------ ----------- ---------- --------------- ----------- ------------ California $20,559,134 $3,441,030 $ 227 $ 46,376 $24,046,767 66.06% Texas 1,401,536 84,865 557 1,435 1,488,393 4.09 Florida 1,391,624 19,980 7 825 1,412,436 3.88 Illinois 1,207,662 165,490 -0- 1,576 1,374,728 3.78 Colorado 1,084,163 223,494 -0- 6,992 1,314,649 3.61 New Jersey 1,247,812 399 -0- 5,372 1,253,583 3.44 Washington 530,491 410,124 -0- 712 941,327 2.59 Arizona 765,220 36,671 -0- 541 802,432 2.20 Pennsylvania 629,664 4,204 -0- 3,114 636,982 1.75 Virginia 527,634 8,482 -0- 1,288 537,404 1.48 Connecticut 492,840 -0- -0- 18 492,858 1.35 Maryland 365,578 2,147 -0- 478 368,203 1.01 Oregon 254,678 12,762 -0- 244 267,684 0.74 Minnesota 206,309 8,097 -0- -0- 214,406 0.59 Utah 204,426 52 -0- 1,518 205,996 0.57 Nevada 181,598 975 -0- -0- 182,573 0.50 Kansas 167,229 4,745 -0- 168 172,142 0.47 Wisconsin 160,007 3,839 -0- -0- 163,846 0.45 Massachusetts 128,725 -0- -0- 20 128,745 0.35 Missouri 85,873 5,718 -0- -0- 91,591 0.25 Washington DC 52,286 -0- -0- -0- 52,286 0.14 New Mexico 48,782 -0- -0- -0- 48,782 0.13 New York 42,011 -0- -0- -0- 42,011 0.12 Delaware 33,161 -0- -0- -0- 33,161 0.09 Idaho 31,246 -0- -0- -0- 31,246 0.09 Georgia 29,504 -0- -0- 1,384 30,888 0.08 North Carolina 17,616 -0- -0- -0- 17,616 0.05 Ohio 10,369 1,523 86 3,225 15,203 0.04 South Dakota 10,492 -0- -0- -0- 10,492 0.03 Other 20,991 1 -0- 3,928 24,920 0.07 ------------ ----------- ---------- ------------ ------------ --------- Totals $31,888,661 $4,434,598 $ 877 $ 79,214 36,403,350 100.00% ============ =========== ========== ============ ========= SFAS 91 deferred loan fees (33,962) Loan discount on purchased loans (3,689) Undisbursed loan funds (3,579) Allowance for loan losses (237,186) Loans to facilitate (LTF) interest reserve (570) Troubled debt restructured (TDR) interest reserve (3,042) Loans on deposits 27,169 ------------ Total loan portfolio and loans securitized into FNMA MBS with recourse 36,148,491 Loans securitized into FNMA MBS with recourse (3,424,636)(b) ------------ Total loan portfolio $32,723,855 ============
(a) The Company has no commercial loans. (b) The above schedule includes the March 31, 1998 balances of adjustable rate loans that were securitized with full recourse into Federal National Mortgage Association mortgage-backed securities, which can be used to collateralize reverse repurchase agreements.
TABLE 4 Loan Portfolio by State March 31, 1997 (Dollars in thousands) Residential Real Estate Commercial Loans as ------------------------- Real Total 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) The above schedule includes the March 31, 1997 balances of adjustable rate loans that were securitized with full recourse into Federal National Mortgage Association mortgage-backed securities, which can be used to collateralize reverse repurchase agreements. 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 93% at March 31, 1998 compared to 92% at March 31, 1997, and 93% at December 31, 1997. The portion of the mortgage portfolio (including MBS) composed of rate-sensitive loans was 92% at March 31, 1998 compared to 90% at March 31, 1997, and 91% at December 31, 1997. The Company's ARM originations for the first quarter of 1998 constituted over 87% of new mortgage loans made in 1998 compared to over 94% in the first three months of 1997. The weighted average maximum lifetime cap rate on the Company's ARM loan portfolio (including MBS with recourse) was 12.72%, or 5.28% above the actual weighted average rate at March 31, 1998, versus 12.02%, or 5.60% above the weighted average rate at March 31, 1997. Approximately $5.4 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, 1998, $523 million of ARM loans had reached their rate floors. The weighted average floor rate on the loans that had reached their floor was 7.75% at March 31, 1998 compared to 7.74% at March 31, 1997. Without the floor, the average yield on these loans would have been 7.24% at March 31, 1998 and 7.09% at March 31, 1997. Loan repayments consist of monthly loan amortization, loan payoffs, and refinances. For the quarter ended March 31, 1998, loan repayments were $1.4 billion compared to $709 million in the same period of 1997. The increase in prepayments for the first quarter of 1998 as compared to the first quarter of 1997 was due to an increase in the prepayment rates during 1998. MORTGAGE SERVICING RIGHTS The Company accounts for mortgage servicing rights in accordance with SFAS 122 and SFAS 125. For the first quarter of 1998 and 1997, the Company recognized gains of $2.2 million and $1.0 million, respectively, on the sale of loans due to the capitalization of servicing rights. After amortization, the balance at March 31, 1998 and 1997 of the capitalized servicing rights was $12.4 million and $9.7 million, respectively. The book value of Golden West's servicing rights did not exceed the fair value at March 31, 1998 or 1997 and, therefore, no write-down of the servicing rights to their fair value was necessary. ASSET QUALITY One measure of the soundness of the Company's 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 -------------------------- 1998 1997 1997 ----------- ------------ -------------- Non-accrual loans $ 319,324 $ 389,625 $ 317,550 Real estate acquired through foreclosure 47,696 77,859 61,517 Real estate in judgment 69 1,274 67 ----------- ------------ ------------ Total nonperforming assets $ 367,089 $ 468,758 $ 379,134 =========== ============ ============ TDRs $ 38,686 $ 86,931 $ 43,795 =========== ============ ============ Ratio of NPAs to total assets 0.93% 1.22% .96% =========== ============ ============ Ratio of TDRs to total assets 0.10% .23% .11% =========== ============ ============ Ratio of NPAs and TDRs to total assets 1.03% 1.45% 1.07% =========== ============ ============
The decrease in NPAs during 1998 reflects the improving California economy. 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 $3 million in the first quarter of 1998 compared to $5 million in the same period of 1997. Interest foregone on TDRs amounted to $286 thousand for the three months ended March 31, 1998, compared to $583 thousand for the three months ended March 31, 1997. The tables on the following two pages show the Company's nonperforming assets by state at March 31, 1998 and 1997.
TABLE 6 Nonperforming Assets by State March 31, 1998 (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 $ 224,419 $ 7,827 $ 1,463 $ 42,586 $ 1,506 $ -0- $ 277,801 1.16% Texas 8,284 -0- -0- 935 -0- -0- 9,219 0.62 Florida 12,565 -0- 188 482 -0- -0- 13,235 0.94 Illinois 11,030 221 -0- 612 -0- -0- 11,863 0.86 Colorado 1,624 114 68 77 -0- -0- 1,883 0.14 New Jersey 18,194 -0- 201 422 -0- -0- 18,817 1.50 Washington 1,969 -0- -0- 544 -0- -0- 2,513 0.27 Arizona 1,756 -0- -0- 244 -0- -0- 2,000 0.25 Pennsylvania 8,130 -0- -0- 245 -0- -0- 8,375 1.31 Virginia 2,062 -0- -0- 150 -0- -0- 2,212 0.41 Connecticut 3,512 -0- -0- 134 -0- -0- 3,646 0.74 Maryland 2,001 -0- -0- 90 -0- -0- 2,091 0.57 Oregon 537 -0- -0- -0- -0- -0- 537 0.20 Minnesota 1,621 -0- -0- -0- -0- -0- 1,621 0.76 Utah 1,512 -0- -0- -0- -0- -0- 1,512 0.73 Nevada 2,013 -0- -0- 99 -0- -0- 2,112 1.16 Kansas 656 41 -0- 11 -0- -0- 708 0.41 Wisconsin 563 -0- -0- -0- -0- -0- 563 0.34 Massachusetts 641 -0- 20 -0- -0- -0- 661 0.51 Missouri 492 -0- -0- 55 162 -0- 709 0.77 Washington DC 173 -0- -0- -0- -0- -0- 173 0.33 New Mexico 518 -0- -0- -0- -0- -0- 518 1.06 New York 3,369 -0- -0- 175 -0- 11 3,555 8.46 Delaware 151 -0- -0- -0- -0- -0- 151 0.46 Idaho 235 -0- -0- -0- -0- -0- 235 0.75 Georgia 1,046 -0- -0- 257 -0- -0- 1,303 4.22 North Carolina -0- -0- -0- -0- -0- -0- -0- 0.00 Ohio -0- -0- -0- -0- -0- -0- -0- 0.00 South Dakota 72 -0- -0- -0- -0- -0- 72 0.69 Other 36 -0- -0- -0- -0- -0- 36 0.14 ----------- --------- --------- --------- -------- ---------- ---------- ---------- Totals $ 309,181 $ 8,203 $ 1,940 $ 47,118 $ 1,668 $ 11 368,121 1.01% =========== ========= ========= ========= ======== ========== REO general valuation allowance (1,032) 0.00 ----------- ----------- Total nonperforming assets $ 367,089 1.01% =========== ===========
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest accrued. (b) During the past four years, the Company has securitized adjustable rate loans into FNMA mortgage-backed securities with full credit recourse. The March 31, 1998 balances of the related nonperforming assets are reflected in the amounts above.
TABLE 7 Nonperforming Assets by State March 31, 1997 (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 $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, 1996, and 1997, the Company securitized adjustable rate mortgages into FNMA mortgage-backed securities with full credit recourse. The March 31, 1997 balances 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, 1998 and 1997.
TABLE 8 Changes in Allowance for Loan Losses (Dollars in thousands) Three Months Ended March 31 -------------------------- 1998 1997 ----------- ------------ Beginning allowance for loan losses $ 233,280 $ 195,702 Provision charged to expense 2,965 20,695 Less loans charged off -0- (7,558) Add recoveries 941 238 ----------- ------------ Ending allowance for loan losses $ 237,186 $ 209,077 =========== ============ Ratio of chargeoffs net of recoveries to average loans outstanding (including MBS with recourse) (.01%) .09% =========== ============ Ratio of allowance for loan losses to nonperforming assets 64.6% 44.6% =========== ============
DEPOSITS Retail deposits increased during the first quarter of 1998 by $975 million, including interest credited of $245 million, compared to an increase of $447 million, including interest credited of $226 million, in the first quarter of 1997. Retail deposits increased during the first quarters of 1998 and 1997 primarily due to ongoing marketing efforts and competitive rates offered by the Company on its insured accounts. In addition, the Company began actively promoting market rate transaction accounts during the second half of 1997, which continued during the first quarter of 1998. Beginning in January 1997, the Company began a program to use brokers to sell certificates of deposit (CDs) to institutional investors. There were no outstanding wholesale CDs at March 31, 1998 as compared to $397 million at March 31, 1997. The table below shows the Company's deposits by interest rate and by remaining maturity at March 31, 1998 and 1997.
TABLE 9 Deposits (Dollars in millions) March 31 --------------------------------------------------- 1998 1997 ---------------------- ----------------------- Rate* Amount Rate* Amount -------- ---------- --------- ---------- Deposits by interest rate: Interest-bearing checking accounts 2.10% $ 81 1.17% $ 307 Passbook accounts 2.11 527 2.22 558 Money market deposit accounts 4.15 5,074 2.43 1,778 Term certificate accounts with original maturities of: 4 weeks to 1 year 5.17 8,734 5.25 11,472 1 to 2 years 5.46 6,292 5.27 4,192 2 to 3 years 5.46 1,495 5.50 1,334 3 to 4 years 5.45 396 5.73 554 4 years and over 5.71 1,256 5.69 1,941 Retail jumbo CDs 5.45 703 5.30 410 Wholesale CDs 0.00 -0- 5.40 397 All other 7.38 1 7.66 1 ----------- ----------- $ 24,559 $ 22,944 =========== =========== Deposits by remaining maturity: No contractual maturity $ 5,682 $ 2,643 Maturity within one year: 2nd quarter 5,957 5,481 3rd quarter 5,738 6,113 4th quarter 2,702 4,354 1st quarter 2,068 1,626 ----------- ----------- 16,465 17,574 1 to 2 years 1,824 1,642 2 to 3 years 301 814 3 to 4 years 142 106 4 years and over 145 165 ----------- ----------- $ 24,559 $ 22,944 =========== ===========
* 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 and capital stock of the FHLB. FHLB advances amounted to $7.6 billion at March 31, 1998, compared to $8.1 billion and $8.5 billion at March 31, 1997, and December 31, 1997, respectively. During the first quarter of 1998, the Company notified the FHLB of San Francisco that it would pay off, before maturity, $2.9 billion of advances and, as a result, incurred a $13 million pre-tax charge during the first quarter of 1998 for the penalties associated with these prepayments. See Extraordinary Item discussion on page 30. 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 $2.2 billion, $2.7 billion, and $2.3 billion at March 31, 1998 and 1997, and December 31, 1997, respectively. The Company uses accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities in accordance with SFAS 125 and SFAS 127. The Company adopted SFAS 127 on January 1, 1998 and the adoption of SFAS 127 had no effect on the Company's financial condition and results of operations. OTHER BORROWINGS At March 31, 1998, Golden West, at the holding company level, had a total of $1.1 billion of subordinated debt issued and outstanding. As of March 31, 1998, 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, 1998, 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. At March 31, 1998, Golden West had outstanding $500 million of short-term federal funds purchased from the Federal Home Loan Bank of Dallas. WSL 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, 1998, the full amount was available for issuance. As of March 31, 1998, WSL had a total of $100 million of subordinated notes issued and outstanding, which were rated A2 and A by Moody's and S&P, respectively. The subordinated notes are included in WSL's risk-based regulatory capital as Supplementary Capital. WSL 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, 1998. WSL had no medium-term notes outstanding under prior registrations at March 31, 1998, compared to $310 million at March 31, 1997, and $110 million at December 31, 1997. As of March 31, 1998, WSL's medium-term notes had a preliminary rating of A1 and A+ by Moody's and S&P, respectively. During November 1996, WFSB received permission from the OTS to issue non-convertible medium-term notes to institutional investors under rules similar to Office of the Comptroller of the Currency rules applicable to similarly situated national banks. As of March 31, 1998, WFSB had not issued any notes under this authority. STOCKHOLDERS' EQUITY The Company's stockholders' equity increased by $117 million during the first three months of 1998. The increase in stockholders' equity was a result of net earnings for the first three months of 1998 and a $17 million increase in market values of securities available for sale since December 31, 1997, partially offset by the payment of $7 million in quarterly dividends to stockholders. 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. Unrealized gains net of taxes on securities and MBS available for sale included in stockholders' equity at March 31, 1998 and 1997, and December 31, 1997, were $167 million, $97 million, and $150 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 the Company's common stock is a wise use of excess capital. Since 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, 1998, 8.5 million shares had been purchased and retired at a cost of $380 million since October 1993. The Company did not purchase any stock during the first three months of 1998. Dividends from subsidiaries are expected to continue to be the major source of funding for the stock repurchase program. The purchase of Golden West stock is not intended to have a material impact on the normal liquidity of the Company. WSL paid a $100 million dividend to Golden West in March 1998. In addition, WSL has received approval from the OTS to pay up to $50 million more in upstream dividends to Golden West. Also, during the first quarter of 1998, Golden West purchased from WSL, and subsequently contributed as capital to WFSB, $100 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 WFSB and WSL, to meet certain minimum capital requirements. The following table shows WFSB's regulatory capital ratios and compares them to the OTS minimum requirements at March 31, 1998 and 1997.
TABLE 10 World Savings Bank, a Federal Savings Bank Regulatory Capital Ratios (Dollars in thousands) March 31, 1998 March 31, 1997 ----------------------------------------------- ---------------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ---------------------- ---------------------- ---------------------- ---------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- --------- ----------- --------- ---------- --------- ---------- -------- Tangible $1,768,105 6.84% $ 387,893 1.50% $1,232,625 6.67% $ 277,288 1.50% Core 1,768,105 6.84 1,034,382 4.00 1,232,625 6.67 554,576 3.00 Risk-based 1,863,679 13.51 1,103,194 8.00 1,287,612 13.26 777,033 8.00
The following table shows WSL's current regulatory capital ratios and compares them to the current OTS minimum requirements at March 31, 1998 and 1997.
TABLE 11 World Savings and Loan Association Regulatory Capital Ratios (Dollars in thousands) March 31, 1998 March 31, 1997 ------------------------------------------------ ------------------------------------------------ ACTUAL REQUIRED ACTUAL REQUIRED ----------------------- ----------------------- ---------------------- ----------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ----------- --------- ----------- --------- ----------- -------- ----------- -------- Tangible $ 929,084 6.62% $ 210,439 1.50% $1,245,575 6.37% $ 293,257 1.50% Core 929,084 6.62 561,171 4.00 1,245,575 6.37 586,514 3.00 Risk-based 1,130,198 13.90 650,525 8.00 1,565,900 13.74 911,568 8.00
In addition, institutions whose exposure to interest rate risk as determined by the OTS is deemed to be above normal may be required to hold additional risk-based capital. The OTS has determined that neither WFSB nor WSL has above-normal exposure to interest rate risk. The OTS has adopted rules based upon five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The determination of whether an association falls into a certain classification depends primarily on its capital ratios. As of March 31, 1998, the most recent notification from the OTS categorized both WFSB and WSL as "well capitalized" under the current requirements. There are no conditions or events that have occurred since that notification that the Company believes would have an impact on the categorization of either WFSB or WSL. The table below shows that WFSB's regulatory capital exceeds the requirements of the well capitalized classification at March 31, 1998.
TABLE 12 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 $ 1,768,105 6.84% $ 1,292,978 5.00% Tier 1 risk-based 1,768,105 12.82 827,395 6.00 Total risk-based 1,863,679 13.51 1,378,992 10.00
The table below shows that WSL's regulatory capital exceeds the requirements of the well capitalized classification at March 31, 1998.
TABLE 13 World Savings and Loan Association Regulatory Capital Compared to Well Capitalized Classification (Dollars in thousands) ACTUAL WELL CAPITALIZED ------------------------- -------------------------- Capital Ratio Capital Ratio ----------- ---------- ----------- ----------- Leverage $ 929,084 6.62% $ 701,464 5.00% Tier 1 risk-based 929,084 11.43 487,894 6.00 Total risk-based 1,130,198 13.90 813,156 10.00
RESULTS OF OPERATIONS NET EARNINGS Net earnings before an extraordinary item (see extraordinary item discussion on page 30) for the three months ended March 31, 1998 were $110 million compared to net earnings of $83 million for the quarter ended March 31, 1997. Net earnings after the extraordinary item for the three months ended March 31, 1998 were $102 million compared to net earnings of $83 million for the quarter ended March 31, 1997. Net earnings increased in the first quarter of 1998 as compared to the first quarter of 1997 as a result of increased net interest income and a decrease in the provision for loan losses. These increases to net earnings were partially offset by an increase in general and administrative expense. EARNINGS PER SHARE Golden West calculates Basic Earnings Per Share (EPS) and Diluted EPS in accordance with SFAS 128. Basic EPS is calculated by dividing net earnings for the period by the weighted-average common shares outstanding for that period. Diluted EPS takes into account the effect of dilutive instruments, such as stock options, but uses 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. The Company's Basic EPS before the extraordinary item for the quarters ended March 31, 1998 and 1997, were $1.92, and $1.45, respectively. Basic EPS after the extraordinary item for the quarters ended March 31, 1998 and 1997 were $1.79 and $1.45, respectively. The Company reported Diluted EPS before the extraordinary item of $1.89, for the quarter ended March 31, 1998, compared to $1.43, for the three months ended March 31, 1997. Diluted EPS after the extraordinary item for the quarters ended March 31, 1998 and 1997 were $1.76 and $1.43, respectively. 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, 1998 and 1997, and December 31, 1997.
TABLE 14 Yield on Earning Assets, Cost of Funds, and Primary Spread March 31 December 31 ------------------------- 1998 1997 1997 ----------- ----------- ------------- Yield on loan portfolio 7.57% 7.43% 7.53% Yield on MBS 7.23 7.12 7.23 Yield on investments 6.53 6.82 6.48 --------- -------- ---------- Yield on earning assets 7.51 7.37 7.48 ---------- -------- ---------- Cost of deposits 5.02 4.98 5.04 Cost of borrowings 6.02 5.82 5.99 ---------- -------- ---------- Cost of funds 5.33 5.27 5.36 ---------- -------- ---------- Primary spread 2.18% 2.10% 2.12% ========== ======== ==========
The Company originates ARMs to manage the rate sensitivity of the asset side of the balance sheet. 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). Nevertheless, the yield on the Company's ARM portfolio tends to lag changes in market interest rates because of lags related to the index and because of certain loan features. These features include introductory 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, COFI 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. The following table shows the Company's revenues and expenses as a percentage of total revenues for the three months ended March 31, 1998 and 1997, 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 ---------------------- 1998 1997 --------- --------- Interest on loans 80.5% 81.5% Interest on mortgage-backed securities 9.3 10.8 Interest and dividends on investments 6.9 4.9 --------- --------- 96.7 97.2 Less: Interest on deposits 40.4 40.4 Interest on advances and other borrowings 25.1 25.3 --------- --------- 65.5 65.7 Net interest income 31.2 31.5 Provision for loan losses 0.4 3.0 --------- --------- Net interest income after provision for loan losses 30.8 28.5 Add: Fees 1.7 1.5 Gain on the sale of securities, MBS, and loans 0.3 0.2 Other non-interest income 1.3 1.1 --------- --------- 3.3 2.8 Less: General and administrative expenses 10.7 11.4 Taxes on income 9.3 7.9 --------- --------- Earnings before extraordinary item 14.1 12.0 Extraordinary item (1.0) 0.0 --------- --------- Net earnings 13.1% 12.0% ========= =========
INTEREST RATE SWAPS The Company enters into interest rate swaps as a part of its interest rate risk management strategy. Such instruments are entered into solely to alter the repricing characteristics of designated assets and liabilities. The Company does not hold any derivative financial instruments for trading purposes. Interest rate swap activity decreased net interest income by $2 million for the three months ended March 31, 1998, as compared to a decrease of $323 thousand for the same period in 1997. The following table summarizes the unrealized gains and losses for interest rate swaps at March 31, 1998 and 1997.
TABLE 16 Schedule of Unrealized Gains and Losses on Interest Rate Swaps (Dollars in thousands) March 31, 1998 March 31, 1997 ---------------------------------------- ---------------------------------------- Net Net Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Gains Losses Gain (Loss) Gains Losses Gain (Loss) ------------ ------------ ------------- ------------ ------------ ------------ Interest rate swaps $ 8,568 $ (34,537) $ (25,969) $ 23,351 $ (28,797) $ (5,446) ============ ============ ============= ============ ============= =============
TABLE 17 Schedule of Interest Rate Swaps (Notional amounts in millions) Three Months Ended March 31, 1998 ---------------------------- Receive Pay Fixed Fixed Swaps Swaps ------------- ------------ Balance at December 31, 1997 $ 1,679 $ 1,108 Additions -0- -0- Maturities (409) (70) ------------ ------------ Balance at March 31, 1998 $ 1,270 $ 1,038 ============ ============
The range of floating interest rates received on swap contracts in the first three months of 1998 was 5.62% to 6.19%, and the range of floating interest rates paid on swap contracts was 4.95% to 6.08%. The range of fixed interest rates received on swap contracts in the first three months of 1998 was 4.86% 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 1998, interest on loans was higher than in the comparable 1997 period by $64 million or 11.3%. The increase in the first quarter of 1998 was due to a $2.8 billion increase in the average portfolio balance and a 15 basis point increase in the average portfolio yield. INTEREST ON MORTGAGE-BACKED SECURITIES In the first quarter of 1998, interest on mortgage-backed securities was lower than in the comparable 1997 period by $3 million or 3.7%. The 1998 decrease was due primarily to an $210 million decrease in the average portfolio balance, which was partially offset by a 10 basis point increase in the average portfolio yield. 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 1998, interest and dividends on investments was higher than in the comparable 1997 period by $20 million or 57.9%. The increase was primarily due to a $1.3 billion increase in the average portfolio balance and a 10 basis point increase in the average portfolio yield. INTEREST ON DEPOSITS In the first quarter of 1998, interest on deposits increased by $35 million or 12.4% from the comparable period in 1997. The first quarter increase was due to a $2.6 billion increase in the average balance of deposits and a 5 basis point increase in the average cost of deposits. INTEREST ON ADVANCES AND OTHER BORROWINGS For the first quarter of 1998, interest on advances and other borrowings increased by $21 million or 12.0% from the comparable period of 1997. The first quarter increase was primarily due to a $1.1 billion increase in the average balance and an 18 basis point increase in the average cost of these borrowings. PROVISION FOR LOAN LOSSES The provision for loan losses was $3 million for the three months ended March 31, 1998, compared to $21 million for the same period in 1997. The lower provision in 1998 was due to lower chargeoffs resulting from the strong California housing market and declining nonperforming assets. GENERAL AND ADMINISTRATIVE EXPENSES For the first quarter of 1998, general and administrative expenses (G&A) was $84 million compared to $79 million for the comparable period in 1997. G&A as a percentage of average assets on an annualized basis was .84% for the first quarter of 1998 compared to .83% for the same period in 1997. Expenses are likely to rise in subsequent quarters because of the seasonal increase in mortgage activity during the spring and summer months, the ongoing expansion of our branch system, and the implementation of a variety of technology initiatives including addressing the "Year 2000 " computer issue (see Year 2000 discussion on page 31). EXTRAORDINARY ITEM During the first quarter of 1998, the Company notified the FHLB of San Francisco that it intended to retire before maturity $2.9 billion of high-cost FHLB advances. As a result, the Company incurred a $13 million pretax charge in the first quarter of 1998 for the penalties associated with the prepayments. Golden West will replace the prepaid FHLB advances with new low-cost obligations that will produce more favorable interest expense for the Company over the next five years. 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 extraordinary item were 39.9% for the first quarter of 1998 compared to 39.6% for the same period a year ago. LIQUIDITY AND CAPITAL RESOURCES WFSB's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; negotiable certificates of deposit, borrowings from the FHLB; investments and borrowings from its affiliates; debt collateralized by mortgages, MBS, or securities; and the issuance of medium-term notes. In addition, WFSB has other alternatives available to provide liquidity or finance operations including 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, 1998, and 1997, and December 31, 1997, see the cash and investments section on page 12. WSL's principal sources of funds are cash flows generated from earnings; deposits; loan repayments; borrowings from the FHLB; debt collateralized by mortgages, MBS, or securities; and the issuance of medium-term notes. In addition, WSL has a number of other alternatives available to provide liquidity or finance operations. These include borrowings from its affiliates, 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 WSL's liquidity positions at March 31, 1998, and 1997, and December 31, 1997, see the cash and investments section on page 12. The principal sources of funds for WFSB's and WSL's parent, Golden West, are dividends from subsidiaries, interest on investments, and the proceeds from the issuance of debt and equity securities. Various statutory and regulatory restrictions and tax considerations limit the amount of dividends WFSB and WSL can pay. The principal liquidity needs of Golden West are for payment of interest and principal on subordinated debt securities (of which $200 million mature in 1998), capital contributions to its insured subsidiaries (including $100 million for the three months ended March 31, 1998 and $284 million for the year ended December 31, 1997 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, 1998 and 1997, and December 31, 1997, Golden West's total cash and investments amounted to $964 million (including a $600 million long-term loan to WFSB), $978 million (including a $600 million long-term loan to WFSB), and $965 million (including a $600 million long-term loan to WFSB), respectively. YEAR 2000 Golden West is aware of the system challenges that the year 2000 has created and currently has a plan in place to insure that all of the Company's systems will be year 2000 compliant by the beginning of the year 1999. The Company is currently in the process of identifying, prioritizing and modifying or replacing systems that may be affected by these year 2000 compliance issues (Year 2000 Project.) While Golden West believes it is doing everything technologically possible to assure year 2000 compliance, the success of the Year 2000 Project is to some extent dependent upon vendor cooperation. The Company is requiring its computer systems and software vendors to represent that the products provided are or will be year 2000 compliant and has planned a program of testing for compliance. The Company currently estimates that over the next two years, it will cost approximately $14 million to make all of its computer systems year 2000 compliant. The Company will expense all costs associated with the Year 2000 Project and expects to fund such costs through operating cash flows. The Year 2000 Project expense incurred during the first quarter of 1998 was $1 million. Included in the $14 million are estimates for compensation of employees dedicated to the Year 2000 Project, consultants, hardware and software expense and depreciation of the equipment purchased as part of this process. However, the Company's year 2000 expenses are not expected to result in a dollar for dollar increase in the Company's overall information systems expenditures because the Company is likely to dedicate a number of its existing resources solely to the Year 2000 Project. 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 based on simulations using an asset/liability model which takes into account the lags described above. The simulation model projects net interest income, net earnings, and capital ratios based on an immediate interest rate increase that is sustained for a thirty-six month period. The model is based on the actual maturity and repricing characteristics of interest-rate sensitive assets and liabilities. For certain assets, the model incorporates assumptions regarding the impact of changing interest rates on prepayment rates which are based on the Company's historical prepayment information. The model factors in projections for anticipated activity levels by product lines offered by the Company. Based on the information and assumptions in effect at March 31, 1998, Management believes that a 200 basis point rate increase sustained over a thirty-six month period would not affect the Company's long-term profitability and financial strength.
PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) May 5, 1998 - Annual Meeting Broker For Against Withheld Abstain Non-Vote ------------- ------------- ------------- ------------- ------------- (b) Directors elected: Patricia A. King 49,968,414 371,871 Marion O. Sandler 50,035,544 304,741 Leslie Tang Schilling 49,976,038 364,247 (c) Ratification of Auditors: Appointment of Deloitte & Touche LLP, independent public accountants, for the fiscal year 1998 50,307,067 12,555 20,663
Other Directors continuing in office are: Maryellen B. Cattani, Louis J. Galen, Antonia Hernandez, Bernard A. Osher, Kenneth T. Rosen, and Herbert M. Sandler ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Index to Exhibits Exhibit No. Description 3(a) Certificate of Incorporation, as amended, and amendments thereto, are incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K (File No. 1-4269) for the year ended December 31, 1990. 3(b) By-Laws of the Company, as amended in 1997,. are incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K (File No. 1-4269) for the year ended December 31, 1997. 4(a) The Registrant agrees to furnish to the Commission, upon request, a copy of each instrument with respect to issues of long-term debt, the authorized principal amount of which does not exceed 10% of the total assets of the Company. 10(a) 1996 Stock Option Plan, as amended, is incorporated by reference to Exhibit A of the Company's Definitive Proxy Statement on Schedule 14A, filed on March 15, 1996, for the Company's 1996 Annual Meeting of Stockholders. 10(b) Annual Incentive Bonus Plan is incorporated by reference to Exhibit A of the Company's Definitive Proxy Statement on Schedule 14A, filed on March 14, 1997, for the Company's 1997 Annual Meeting of Stockholders. 10(c) Deferred Compensation Agreement between the Company and James T. Judd is incorporated by reference to Exhibit 10(b) of the Company's Annual Report on Form 10-K (File No. 1-4629) for the year ended December 31, 1986. 10(d) Deferred Compensation Agreement between the Company and Russell W. Kettell is incorporated by reference to Exhibit 10(c) of the Company's Annual Report on Form 10-K (File No. 1-4629) for the year ended December 31, 1986. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Continued) (a) Index To Exhibits (continued) Exhibit No. Description 10(e) Deferred Compensation Agreement between the Company and J. L. Helvey is incorporated by reference to Exhibit 10(d) of the Company's Annual Report on Form 10-K (File No. 1-4629) for the year ended December 31, 1986. 10(f) Deferred Compensation Agreement between the Company and David C. Welch is incorporated by reference to Exhibit 10(f) of the Company's Annual Report on Form 10-K (File No. 1-4629) for the year ended December 31, 1987. 10(g) Operating lease on Company headquarters building, 1901 Harrison Street, Oakland, California 94612, is incorporated by reference to Exhibit 10(e) of the Company's Annual Report on Form 10-K (File No. 1-4629) for the year ended December 31, 1986. 10(h) 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. 11 Statement of Computation of Earnings Per Share 27 Financial Data Schedule (b) Reports on Form 8-K The Registrant did not file any current reports on Form 8-K with the Commission in the first quarter. 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, 1998 /s/ J. L. Helvey --------------------------------- J. L. Helvey Executive Vice President (duly authorized and principal financial officer) EX-11 2
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 March 31 ----------------------------- 1998 1997 ------------- ------------- Earnings Before Extraordinary Item $ 110,081 $ 83,374 Extraordinary Item, Net of Tax (7,710) -0- ------------- ------------- Net Earnings $ 102,371 $ 83,374 ============= ============= Weighted Average Shares 57,126,696 57,314,639 Add: Options outstanding at quarterend 2,374,600 2,602,290 Less: Shares assumed purchased back with proceeds of options 1,492,456 1,662,346 ------------- ------------- Diluted Average Shares Outstanding 58,008,840 58,254,583 ============= ============= Basic Earnings Per Share Calculation: Basic Earnings Per Share Before Extraordinary Item $ 1.92 $ 1.45 Extraordinary Item, Net of Tax (.13) 0.00 ------------- ------------- Basic Earnings Per Share $ 1.79 $ 1.45 ============= ============= Diluted Earnings Per Share Calculation: Diluted Earnings Per Share Before Extraordinary Item $ 1.89 $ 1.43 Extraordinary Item, Net of Tax (.13) 0.00 ------------- ------------- Diluted Earnings Per Share $ 1.76 $ 1.43 ============= =============
EX-27 3
9 9-MOS DEC-31-1997 MAR-31-1998 177,913 0 136,714 0 776,975 4,143,369 4,232,789 32,723,855 237,186 39,669,420 24,559,270 3,495,623 853,540 7,946,026 0 0 5,719 2,809,242 39,669,420 628,878 54,130 72,195 755,203 315,210 511,489 243,714 2,965 7 83,674 183,078 183,078 7,710 0 102,371 1.79 1.76 7.51 319,324 0 38,686 67,857 233,280 0 941 237,186 237,186 0 0
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