<PAGE>PAGE 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
for the fiscal year ended December 31, 1994
Commission File No. 1-4629
GOLDEN WEST FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2080059
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1901 Harrison Street, Oakland, California 94612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.10 par value New York Stock Exchange, Inc., Pacific
Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The approximate aggregate market value of the Registrant's common
stock held by nonaffiliates of the Registrant on February 28, 1995, was
$2,233,347,441. The number of shares outstanding of the Registrant's
common stock on February 28, 1995, was 58,579,605 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference Applicable Part of Form 10-K
Proxy Statement Dated March 10, 1995, Part III
Furnished to Stockholders in Connection
with Registrant's Annual Meeting of
Stockholders.
<PAGE>PAGE 2
PART I
ITEM 1. BUSINESS
REGISTRANT
Golden West Financial Corporation (Golden West or Company) is a
savings and loan holding company, the principal business of which is the
operation of a savings and loan business through its wholly owned
subsidiary, World Savings and Loan Association, a Federal Savings and Loan
Association (World or Association). Golden West also has two other
subsidiaries, Atlas Advisers, Inc., and Atlas Securities, Inc. These
companies were formed to provide services to Atlas Assets, Inc., a series
open-end registered investment company sponsored by the Company. Atlas
Advisers, Inc., is a registered investment adviser and the investment
manager of Atlas Assets, Inc.'s twelve portfolios (the Atlas Funds). Atlas
Securities, Inc., is a registered broker-dealer and the sole distributor of
Atlas Fund shares. The Company was incorporated in 1959 and has its
headquarters in Oakland, California.
THE ASSOCIATION
World was incorporated in 1912 as a capital stock savings and loan
association and has its home office in Oakland, California. World became a
federally chartered savings and loan association in September 1981. See
Note V to the Financial Statements included in Item 14 for the contribution
of the Association to the earnings of the Company.
REGULATORY FRAMEWORK
The Company is a savings and loan holding company within the meaning
of the National Housing Act, as amended, (the Holding Company Act), and is
subject to the regulation, examination, supervision, and reporting
requirements of the Holding Company Act. The Association is a member of
the Federal Home Loan Bank System and owns stock in the Federal Home Loan
Bank (FHLB) of San Francisco. The Association's savings accounts are
insured by the Federal Deposit Insurance Corporation (FDIC) Savings
Association Insurance Fund (SAIF), up to the maximum amounts provided by
law.
The Company and the Association are subject to extensive examination,
supervision, and regulation by the Office of Thrift Supervision (OTS) and
the FDIC. Applicable regulations govern, among other things, the Associa-
tion's lending and investment powers, the types of accounts it is permitted
to offer, the types of business in which it may engage, and capital
requirements. The Association is also subject to regulations of the Board
of Governors of the Federal Reserve System (Federal Reserve Board) with
respect to reserve requirements and certain other matters (see Regulation).
<PAGE>PAGE 3
ITEM 1. BUSINESS (Continued)
OFFICE STRUCTURE
As of December 31, 1994, the Company operated 117 savings branch
offices in California, 59 in Colorado (seven of which were subsequently
sold in January 1995 with $153 million in deposits), 20 in Florida, 14 in
Texas, ten in Kansas, nine in Arizona, and eight in New Jersey. The
Company also operates 198 loan origination offices of which 170 are located
in the same states as savings branch offices. The remaining 28 loan
origination offices are located in Connecticut, Delaware, Idaho, Illinois,
Maryland, Minnesota, Missouri, Nevada, New Mexico, Oregon, Pennsylvania,
Utah, Virginia, Washington, and Wisconsin. Of the 198 offices mentioned
earlier, 17 are fully-staffed offices that are located in the same premises
as savings branch offices and 86 others are savings branch offices that
have a single loan officer on site. The remaining loan origination offices
are located in facilities that are separate from savings branch offices.
ACQUISITIONS/DIVESTITURES
On May 6, 1994, the Company acquired $78 million in deposits in New
Jersey from Polifly Savings and Loan.
On August 13, 1993, the Company acquired $320 million in deposits and
seven branches in Arizona from PriMerit Bank. On September 17, 1993, the
Company sold two branches with $133 million of deposits in Ohio to Trumbull
Savings and Loan. On October 15, 1993, the Company sold its remaining five
Ohio branches with $131 million in deposits to Fifth Third Bancorp.
During 1992, the Company sold one branch in California containing
$40 million in deposits to American Savings Bank and two branches in the
state of Washington containing $37 million in deposits to Washington Mutual
Savings Bank.
The foregoing acquisitions and divestitures are not material to the
financial position or net earnings of Golden West and pro forma information
is not deemed necessary.
OPERATIONS
The principal business of the Company, through the Association, is
attracting funds, primarily in the form of savings deposits acquired from
the general public, and investing those funds principally in loans secured
by deeds of trust or mortgages on residential and other real estate, and
mortgage-backed securities (MBS)--securities backed by pools of residential
loans that have many of the characteristics of mortgages including the
monthly payment of principal and interest. Funds for the Association's
operations are also provided through earnings, loan repayments, borrowings
from the Federal Home Loan Banks, and debt collateralized by mortgages,
MBS, or other securities. In addition, the Association has a number of
other alternatives available to provide liquidity or finance operations.
These include public offerings of debt or equity, sales of loans, issuance
of negotiable certificates of deposit, issuance of commercial paper, and
borrowings from commercial banks. Furthermore, under certain conditions,
<PAGE>PAGE 4
ITEM 1. BUSINESS (Continued)
OPERATIONS (continued):
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
on policies of the FHLB, the Federal Reserve Bank of San Francisco, and the
Federal Reserve Board.
The principal sources of funds for the holding company, Golden West,
are 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 the Association can pay. The
principal liquidity needs of Golden West are for payment of interest on
subordinated debt securities, dividends to stockholders, the purchase of
Company stock, and general and administrative expenses.
CUSTOMER DEPOSIT ACTIVITIES
Customer deposit flows are affected by changes in general economic
conditions, changes in prevailing interest rates, and competition among
depository institutions and other investment alternatives. The Company
currently offers a number of alternatives for depositors, including
passbook, checking, and money market deposit accounts from which funds may
be withdrawn at any time without penalty, and certificate accounts with
varying maturities ranging up to seven years. The Company's certificate
accounts are issued in non-negotiable form through its branch offices. All
types of accounts presently offered by the Company have rates that are set
by the Company consistent with prevailing interest rates.
<PAGE>PAGE 5
ITEM 1. BUSINESS (Continued)
CUSTOMER DEPOSIT ACTIVITIES (continued)
During 1994, customer deposits increased $1.8 billion, including
interest credited of $585 million and including $78 million from
acquisitions compared to an increase of $936 million, including interest
credited of $567 million and including $320 million from acquisitions and
$264 from divestitures during 1993. Customer deposits decreased
$332 million in 1992, including $676 million of interest credited and
including $77 million from divestitures. The increase in customer deposits
during 1994 resulted from the improvement in the savings market as interest
rates rose, as well as aggressive promotions by the Company. Consumer
funds were attracted during 1993 as a result of special promotions in the
Company's savings market. The Company experienced a net outflow of
deposits during 1992 because the Company elected to emphasize other, more
cost-effective sources of funds, primarily Federal Home Loan Bank advances.
The table below summarizes the Company's customer deposits by original
term to maturity at December 31.
<TABLE>
<CAPTION>
TABLE 1
Customer Deposits
by Original Term to Maturity
($000s Omitted)
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest-bearing
checking . . . . $ 730,290 $ 736,767 $ 710,851 $ 574,068 $ 457,532
Passbook . . . . . 638,905 611,606 541,701 391,205 332,421
Money market
deposit accounts 1,818,426 2,378,087 2,731,338 2,310,518 1,749,417
Term certificate
accounts with
original matur-
ities of:
4 weeks to 1 year 5,159,037 4,334,208 4,762,359 6,148,044 4,512,000
1 to 2 years . . 5,636,301 4,614,059 3,494,606 4,415,462 4,622,991
2 to 3 years . . 1,997,826 1,448,779 1,246,978 907,858 994,267
3 to 4 years . . 817,631 1,149,108 1,267,707 1,232,213 890,346
4 years and over 2,098,984 2,021,350 1,612,784 730,057 595,936
Retail jumbo CDs 312,413 109,250 94,651 82,331 189,397
All other. . . . . 9,576 19,270 23,271 26,754 28,177
----------- ----------- ----------- ----------- -----------
Total customer
deposits. . . . $19,219,389 $17,422,484 $16,486,246 $16,818,510 $14,372,484
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>PAGE 6
ITEM 1. BUSINESS (Continued)
CUSTOMER DEPOSIT ACTIVITIES (continued)
The table below sets forth the Company's customer deposits by interest
rate at December 31.
<TABLE>
<CAPTION>
TABLE 2
Customer Deposits by Interest Rate
($000s Omitted)
1994 1993
----------- -----------
<S> <C> <C>
0.00% - 4.00% . . . . . . . . . . $ 6,040,355 $ 9,344,231
4.01% - 6.00% . . . . . . . . . . 10,309,411 5,807,364
6.01% - 8.00% . . . . . . . . . . 2,789,033 1,935,573
8.01% - 10.00% . . . . . . . . . . 62,805 296,998
10.01% - 12.00% . . . . . . . . . . 17,685 38,018
12.01% - 14.00% . . . . . . . . . . 100 300
----------- -----------
$19,219,389 $17,422,484
=========== ===========
</TABLE>
The table below shows the maturities of customer deposits at
December 31, 1994, by interest rate.
<TABLE>
<CAPTION>
TABLE 3
Customer Deposit Maturities
by Interest Rate
($000s Omitted)
1999 and
1995(a) 1996 1997 1998 thereafter Total
----------- ---------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
0.00% - 4.00% . $ 6,011,162 $ 22,051 $ 17 $ 5,050 $ 2,075 $ 6,040,355
4.01% - 6.00% . 7,611,119 1,995,768 359,222 242,146 101,156 10,309,411
6.01% - 8.00% . 557,668 780,518 621,805 166,669 662,373 2,789,033
8.01% - 10.00% . 57,185 1,552 1,794 1,729 545 62,805
10.01% - 12.00% . 11,197 91 859 5,184 354 17,685
12.01% - 14.00% . -- -- 100 -- -- 100
----------- ---------- -------- -------- -------- -----------
$14,248,331 $2,799,980 $983,797 $420,778 $766,503 $19,219,389
=========== ========== ======== ======== ======== ===========
</TABLE>
(a) Includes passbook, checking, and money market deposit accounts, which
have no stated maturity.
<PAGE>PAGE 7
ITEM 1. BUSINESS (Continued)
CUSTOMER DEPOSIT ACTIVITIES (continued)
As of December 31, 1994, the aggregate amount outstanding of time
certificates of deposits in amounts of $100,000 or more was $1.7 billion of
which $312 million were retail jumbo CDs. The following table presents the
maturity of these time certificates of deposit at December 31, 1994.
<TABLE>
<CAPTION>
TABLE 4
Time Certificate of Deposit Maturities
($000s Omitted)
<S> <C>
3 months or less $ 397,739
Over 3 months through 6 months 316,633
Over 6 months through 12 months 435,743
Over 12 months 569,179
----------
$1,719,294
==========
</TABLE>
More information regarding customer deposits is included in Note K to
the Financial Statements, in Item 14.
BORROWINGS
The Company generally may borrow from the FHLB of San Francisco upon
the security of a) the capital stock of the FHLB owned by the Company,
b) certain of its residential mortgage loans or c) certain other assets
(principally obligations of, or guaranteed by, the United States Government
or a federal agency). The Company uses FHLB borrowings, also known as
"advances" to supplement cash flow and to provide funds for loan
origination activities. Advances offer strategic advantages for asset-
liability management, including long-term maturities and, in certain cases,
prepayment at the Company's option. Each advance has a specified maturity
and interest rate, which may be fixed or variable, as negotiated with the
FHLB. At December 31, 1994, the Company had $6.5 billion in FHLB advances
outstanding, compared to $6.3 billion at yearend 1993.
From time to time, the Company enters into reverse repurchase
agreements with selected major government securities dealers, as well as
large banks. A reverse repurchase agreement involves the sale and delivery
of U.S. Government securities or mortgage-backed securities by the Company
to a broker or dealer coupled with an agreement to buy the securities back
at a later date. Under generally accepted accounting principles, these
transactions are properly accounted for as borrowings secured by
securities. The Company pays the brokers and dealers a variable or fixed
rate of interest for the use of the funds for the period involved, usually
less than one year. At maturity, the borrowings are repaid (by repurchase
of the same securities) and the same securities are returned to the
Company. These transactions are used to take advantage of arbitrage
investment opportunities and to supplement cash flow.
<PAGE>PAGE 8
ITEM 1. BUSINESS (Continued)
BORROWINGS (continued)
The Company also enters into dollar reverse repurchase agreements
(dollar reverses) with selected major government securities dealers, as
well as large banks. A dollar reverse involves the sale and delivery of
mortgage-backed securities by the Company to a broker or dealer, coupled
with an agreement to purchase securities of the same type and interest
coupon at a fixed price for settlement at a later date. Under generally
accepted accounting principles, these transactions are properly accounted
for as borrowings secured by mortgage-backed securities. The Company pays
the brokers and dealers a fixed rate of interest for the use of the funds
for the period involved, which is generally short-term. At maturity, the
secured borrowings are repaid (by purchase of similar securities) and
similar securities are delivered to the Company. These transactions are
used to take advantage of arbitrage investment opportunities and to
supplement cash flow.
The Company monitors the level of activity with any one party in
connection with reverse repurchase agreements and dollar reverses in order
to minimize its risk exposure in these transactions. Reverse repurchase
agreements and dollar reverses with dealers and banks amounted to $602 mil-
lion at December 31, 1994, compared to $443 million at yearend 1993.
In December 1994, the Company borrowed $250 million in short-term
federal funds, due February 1, 1995, from the Federal Home Loan Bank of San
Francisco. These borrowings are convertible into either Federal Home Loan
Bank advances or repurchase agreements due in 1997. Federal funds provide
the Company an additional source of short-term unsecured borrowings. These
funds are utilized as part of the Company's normal cash management
activities.
Golden West currently has on file a registration statement with the
Securities and Exchange Commission for the sale of up to $100 million of
subordinated debt securities. The Company had issued a total of
$1.0 billion of subordinated debt at December 31, 1994. As of December 31,
1994, Golden West's subordinated debt securities were rated A3 and A- by
Moody's Investors Service (Moody's) and Standard & Poor's Corporation
(S&P), respectively.
World currently has on file a shelf registration with the OTS for the
issuance of $1.0 billion of unsecured medium-term notes. As of
December 31, 1994, $700 million was available for issuance. The
Association had $1.2 billion of medium-term notes outstanding at
December 31, 1994, under the current and prior registrations compared to
$677 million at yearend 1993. As of December 31, 1994, the Association's
medium-term notes were rated A1 and A+ from Moody's and S&P, respectively.
World also has on file a registration statement with the OTS for the
sale of up to $250 million of subordinated notes. Under a prior filing
with the OTS, $50 million of subordinated notes remain unissued. As of
December 31, 1994, the Association had outstanding a total of $199 million
<PAGE>PAGE 9
ITEM 1. BUSINESS (Continued)
BORROWINGS (continued)
of subordinated notes. As of December 31, 1994, World's subordinated notes
were rated A2 and A from Moody's and S&P, respectively. The subordinated
notes are included in the Association's risk-based regulatory capital as
supplementary capital.
The table below sets forth the composition of the Company's borrowings
at December 31.
<TABLE>
<CAPTION>
TABLE 5
Composition of Borrowings
($000s Omitted)
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FHLB advances. . . . . . . . . $6,488,418 $6,281,691 $5,499,363 $4,159,796 $3,834,755
Reverse repurchase agreements. 316,865 205,821 372,409 302,400 648,841
Dollar reverse repurchase
agreements . . . . . . . . . 284,956 237,053 184,301 349,813 691,926
Medium-term notes. . . . . . . 1,164,079 676,540 81,267 166,750 960,869
Federal funds purchased. . . . 250,000 -0- -0- -0- -0-
Other borrowings . . . . . . . -0- -0- -0- 21,395 12,415
Subordinated debt. . . . . . . 1,221,559 1,220,061 921,701 625,105 426,200
---------- ---------- ---------- ---------- ----------
Total borrowings . . . . . . $9,725,877 $8,621,166 $7,059,041 $5,625,259 $6,575,006
========== ========== ========== ========== ==========
Weighted average interest rate
of total borrowings. . . . 5.85% 4.69% 5.58% 7.48% 8.73%
===== ===== ===== ===== =====
</TABLE>
More information concerning the borrowings of the Company is included
in Notes L, M, N, and O to the Financial Statements, in Item 14.
LENDING ACTIVITIES
Income from real estate loans provides the principal source of revenue
to the Company in the form of interest, loan origination fees, and other
fees. Loans made by the Company are generally secured by first liens
primarily on residential properties. Although the Company has from time to
time made commercial real estate and construction loans, the Company is not
currently active in these segments of the lending market. The Company has
the power to originate loans in any part of the United States. The Company
is currently originating loans primarily in California, as well as in
Arizona, Colorado, Connecticut, Delaware, Florida, Idaho, Illinois, Kansas,
Maryland, Minnesota, Missouri, Nevada, New Mexico, New Jersey, Oregon,
Pennsylvania, Texas, Utah, Virginia, Washington, Washington D.C., and
Wisconsin. The Company also makes loans to customers on the security of
their deposit accounts. Customer deposit loans constituted less than one
percent of the Company's total loans outstanding as of December 31, 1994,
and 1993.
The tables on the following two pages set forth the Company's loan
portfolio by state as of December 31, 1994, and 1993.
<PAGE>PAGE 10
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 6
Loan Portfolio by State
December 31, 1994
($000s Omitted)
Residential Commercial Loans as
Real Estate Real Total a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ------------ ----------- ---------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
California $17,760,372 $3,299,657 $ 289 $ 82,917 $21,143,235 77.52%
Colorado 692,843 160,443 -0- 8,514 861,800 3.16
Illinois 639,709 161,397 -0- 2,990 804,096 2.95
New Jersey 652,257 40 -0- 151 652,448 2.39
Texas 537,218 11,732 603 1,771 551,324 2.02
Washington 289,847 255,196 -0- 817 545,860 2.00
Florida 465,573 -0- 319 1,852 467,744 1.72
Virginia 355,608 742 -0- 1,709 358,059 1.31
Arizona 280,037 24,837 -0- 1,808 306,682 1.12
Pennsylvania 270,409 -0- -0- 4,828 275,237 1.01
Connecticut 244,191 -0- -0- -0- 244,191 0.90
Maryland 217,713 -0- -0- 643 218,356 0.80
Oregon 150,078 9,094 -0- 3,923 163,095 0.60
Kansas 123,964 5,324 -0- 225 129,513 0.47
Nevada 123,414 1,321 -0- -0- 124,735 0.46
Missouri 60,758 8,252 -0- 78 69,088 0.25
Utah 60,383 70 -0- 2,170 62,623 0.23
New York 57,602 168 -0- -0- 57,770 0.21
Georgia 49,386 -0- -0- 2,479 51,865 0.19
Ohio 30,502 3,083 640 6,609 40,834 0.15
Wisconsin 30,093 3,964 -0- -0- 34,057 0.12
Washington D.C. 23,202 -0- -0- -0- 23,202 0.09
Minnesota 20,793 -0- -0- -0- 20,793 0.08
New Mexico 14,823 -0- -0- -0- 14,823 0.05
North Carolina 9,439 419 -0- 3,120 12,978 0.05
Delaware 9,690 -0- -0- -0- 9,690 0.04
Idaho 7,464 -0- -0- -0- 7,464 0.03
Other 13,876 43 -0- 7,423 21,342 0.08
----------- ---------- ------ -------- ----------- ------
Totals $23,191,244 $3,945,782 $1,851 $134,027 27,272,904 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (92,861)
Loan discount on purchased loans (6,663)
Undisbursed loan funds (2,781)
Allowance for loan losses (124,003)
LTF interest reserve (792)
TDR interest reserve (4,998)
Loans on customer deposits 30,460
-----------
Total loan portfolio $27,071,266
===========
</TABLE>
(a) The Company has no commercial loans.
<PAGE>PAGE 11
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 7
Loan Portfolio by State
December 31, 1993
($000s Omitted)
Residential Commercial Loans as
Real Estate Real Total a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ------------ ----------- ---------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
California $16,349,385 $3,277,630 $ 308 $ 89,076 $19,716,399 81.80%
Colorado 585,359 116,491 -0- 9,763 711,613 2.95
Illinois 421,926 132,602 -0- 5,311 559,839 2.32
New Jersey 536,330 41 -0- 169 536,540 2.23
Washington 215,185 215,668 -0- 843 431,696 1.79
Florida 313,146 -0- 408 2,463 316,017 1.31
Texas 244,334 2,795 615 1,855 249,599 1.04
Virginia 238,655 934 -0- 1,845 241,434 1.00
Connecticut 179,831 -0- -0- -0- 179,831 0.75
Arizona 171,201 4,323 -0- 1,885 177,409 0.74
Pennsylvania 140,034 -0- -0- 9,405 149,439 0.62
Kansas 126,134 5,464 -0- 238 131,836 0.55
Oregon 117,800 8,245 -0- 4,089 130,134 0.54
Maryland 123,447 -0- -0- 685 124,132 0.51
Nevada 90,295 1,407 -0- -0- 91,702 0.38
Missouri 62,012 9,059 -0- 80 71,151 0.29
New York 66,714 174 -0- 656 67,544 0.28
Georgia 58,607 -0- -0- 2,747 61,354 0.25
Ohio 42,550 6,153 1,076 7,557 57,336 0.24
Utah 37,399 141 -0- 2,338 39,878 0.17
Other 40,963 4,342 -0- 11,703 57,008 0.24
----------- ---------- ------ -------- ----------- ------
Totals $20,161,307 $3,785,469 $2,407 $152,708 24,101,891 100.00%
=========== ========== ====== ======== ======
FAS 91 deferred loan fees (102,184)
Loan discount on purchased loans (8,340)
Undisbursed loan funds (1,882)
Allowance for loan losses (106,698)
LTF interest reserve (914)
TDR interest reserve (1,314)
Loans on customer deposits 32,012
-----------
Total loan portfolio $23,912,571
===========
</TABLE>
(a) The Company has no commercial loans.
<PAGE>PAGE 12
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
The table below sets forth the composition of the Company's loan
portfolio (excluding mortgage-backed securities) by type of security at
December 31.
<TABLE>
<CAPTION>
TABLE 8
Loan Portfolio by Type of Security
($000s Omitted)
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans collateralized primarily
by first deeds of trust:
One-to four-family units. . . $23,217,564 $20,197,613 $18,487,247 $17,065,371 $15,060,960
Over four-family units. . . . 3,946,446 3,785,673 3,509,105 2,989,908 2,606,502
Commercial real estate. . . . 134,189 153,396 176,900 214,706 233,720
Construction loans. . . . . . -0- 580 580 580 -0-
Land. . . . . . . . . . . . . 1,851 2,407 1,763 1,989 1,212
Loans on customer deposits. . . 30,460 32,012 33,230 36,607 34,428
Less:
Undisbursed loan funds. . . . 2,781 1,882 2,687 1,924 598
Unearned fees and discounts . 105,314 112,751 109,446 92,472 81,593
Unamortized discount arising
from acquisitions . . . . . 27,146 37,779 57,092 79,297 97,385
Allowance for loan losses 124,003 106,698 70,924 48,036 26,799
----------- ----------- ----------- ----------- -----------
$27,071,266 $23,912,571 $21,968,676 $20,087,432 $17,730,447
=========== =========== =========== =========== ===========
</TABLE>
At December 31, 1994, 99% of the loans in the portfolio had remaining
terms to maturity in excess of 10 years.
The table below sets forth the amount of loans due after one year that
have predetermined interest rates and the amount that have floating
interest rates at December 31, 1994.
<TABLE>
<CAPTION>
TABLE 9
Loans Due After One Year
($000s Omitted)
<S> <C>
Adjustable Rate $23,845,982
Fixed Rate 3,173,425
-----------
$27,019,407
===========
</TABLE>
The table on the following page sets forth information concerning new
loans made by the Company during 1994, 1993, and 1992 by type and purpose
of loan.
<PAGE>PAGE 13
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 10
New Loan Originations By Type and Purpose
($000s Omitted)
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
No. of % of No. of % of No. of % of
Type Loans Amount Total Loans Amount Total Loans Amount Total
- ---------------------- ------ ---------- ------ ------ ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
(one unit) 42,543 $5,769,339 86.9% 41,999 $5,459,456 85.2% 36,756 $5,264,481 81.6%
Residential
(2 to 4 units) 2,194 307,480 4.6 2,380 351,349 5.5 2,191 382,901 5.9
Residential
(5 or more units) 1,073 560,834 8.5 1,209 598,972 9.3 1,323 807,652 12.5
Commercial real estate -0- -0- 0.0 1 2,100 0.0 1 56 0.0
------ ---------- ----- ------ ---------- ----- ------ ---------- -----
Totals 45,810 $6,637,653 100.0% 45,589 $6,411,877 100.0% 40,271 $6,455,090 100.0%
====== ========== ===== ====== ========== ===== ====== ========== =====
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
No. of % of No. of % of No. of % of
Purpose Loans Amount Total Loans Amount Total Loans Amount Total
- ---------------------- ------ ---------- ------ ------ ---------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase 26,973 $3,941,719 59.4% 18,236 $2,654,769 41.4% 18,188 $2,819,943 43.7%
Refinance 18,837 2,695,934 40.6 27,353 3,757,108 58.6 22,083 3,635,147 56.3
------ ---------- ----- ------ ---------- ----- ------ ---------- -----
Totals 45,810 $6,637,653 100.0% 45,589 $6,411,877 100.0% 40,271 $6,455,090 100.0%
====== ========== ===== ====== ========== ===== ====== ========== =====
</TABLE>
Note: During 1994, 1993, and 1992, the Company also purchased $69 million,
$14 million, and $5 million, respectively, of loans (not included above)
of which $60 million, $304 thousand, and $1 million, respectively, were
one-unit residential loans.
<PAGE>PAGE 14
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
New loan originations in 1994, 1993, and 1992 amounted to
$6.6 billion, $6.4 billion, and $6.5 billion, respectively. Refinanced
loans constituted 41% of new loan originations in 1994 compared to 59% in
1993 and 56% in 1992. Higher interest rates during 1994 caused the volume
of refinance activity in the marketplace to drop considerably from the
record high levels of 1993. Refinance activity is expected to decline
further if rates remain at current high levels or continue to increase.
Higher rates have brought other market changes as well, including a renewed
consumer interest in adjustable rate mortgages, which are currently more
attractively priced than traditional fixed-rate loans. The total portfolio
growth for the years ended December 31, 1994, and 1993, were $3.2 billion
or 13% and $1.9 billion or 9%, respectively.
While the primary mortgage origination focus continues to be on
residential properties in California, the loans originated in California
decreased to $4.1 billion in 1994 from $4.7 billion in 1993 and
$5.4 billion in 1992. Residential loans originated in California as a
percentage of total originations were 62% in 1994, 73% in 1993 and 83% in
1992. The increased lending activity in 1994 over 1993 was due to the
increase in loan originations in the other 21 states in which the Company
has lending operations.
Federal regulations permit federally chartered savings and loan
associations to make or purchase both fixed-rate loans and loans with
periodic adjustments to the interest rate. These latter types of loans are
subject to the following primary limitations: (i) the adjustments must be
based on changes in a specified interest rate index, which may be selected
by the association but which must be beyond the control of the association
and readily verifiable by the borrower; and (ii) adjustments to the
interest rate may be implemented through changes in the monthly payment
amount and/or adjustment to the outstanding principal balance or terms,
except that the original loan term may not be increased to more than 40
years.
Pursuant to these powers, the Company began offering adjustable rate
mortgages (ARMs) in the early 1980s and this type of mortgage continues to
be the Company's primary real estate loan. The portion of the mortgage
portfolio (excluding mortgage-backed securities) composed of rate-sensitive
loans was 89% at yearend 1994 compared to 87% at yearends 1993 and 1992.
While rates offered on fixed-rate mortgages rose significantly during 1994,
lower rates on ARM loans made adjustable instruments more attractive in the
marketplace. Golden West's ARM originations constituted approximately 93%
of new mortgage loans made by the Company in 1994, compared with 75% in
1993 and 80% in 1992.
Most of the Company's ARMs carry an interest rate that changes monthly
based on movements in certain interest rate or cost of funds indices.
During the life of the loan, the interest rate may not be raised above a
<PAGE>PAGE 15
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
lifetime cap, set at the time of origination or assumption. Lifetime caps
on the Company's ARMs are typically between 350 and 625 basis points
(a basis point is one one-hundredth of one percent) higher than the loan's
initial fully-indexed contract rate. On most of the Company's ARMs,
monthly payments of principal and interest are adjusted annually with a
maximum increase or decrease of 7-1/2% of the prior year's payment. At
five year intervals, the payment may be adjusted without limit, to amortize
the loan fully within the then remaining term. Within these five year
periods, negative amortization (deferred interest) may occur to the extent
that the loan balance remains below 125% of the original mortgage amount,
unless the original loan to value ratio exceeded 85%, in which case the
loan balance cannot exceed 110% of the original mortgage amount.
On certain other ARMs, the payment and interest rate change every six
months, with the maximum rate per change capped at one percent. These ARMs
do not allow negative amortization and, consequently, do not have the
7-1/2% payment change limitation.
The Company also offers a "modified" ARM, a loan that usually offers a
low fixed rate from 1% to 3% below the initial fully indexed contract rate
for an initial period, normally three to 36 months. (However, the borrower
must generally qualify at the initial fully-indexed contract rate.)
The weighted average maximum lifetime cap rate on the Company's ARM
loan portfolio was 13.36%, or 6.83% above the actual weighted average rate
at December 31, 1994, versus 13.82%, or 7.39% above the weighted average
rate at yearend 1993.
Approximately $4.8 billion of the Company's loans 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 December 31, 1994,
$948 million of these ARM loans had reached their rate floors. The
weighted average floor rate on these loans was 7.56% at yearend 1994.
Without the floor, the average yield on these loans would have been 6.47%.
Interest rates charged by the Company on real estate loans are
affected principally by competition, and also by the supply of money
available for lending, loan demand, and factors that are, in turn, affected
by general economic conditions, regulatory and monetary policies of the
federal government, the OTS and the Federal Reserve Board, and legislation
and other governmental action dealing with budgetary and tax matters.
The Company originates loans through offices that are staffed by
salaried personnel who primarily contact local real estate brokers regard-
ing possible lending opportunities. All loan applications are completed,
reviewed, and approved in the loan field offices and forwarded to the
Company's central offices in Oakland, California; Costa Mesa, California;
Denver, Colorado; or San Antonio, Texas, for processing.
<PAGE>PAGE 16
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
The Company also utilizes the services of selected mortgage brokers to
obtain completed loan applications. In such cases, the Company, in
addition to the review by the mortgage broker, performs its own quality
review, including a physical inspection of the property, before processing
the application and funding the loan.
The Company's loan approval process is intended to assess both the
borrower's ability to repay the loan and the adequacy of the proposed
security. Documentation for all loans is maintained in the Company's loan
servicing offices in San Antonio, Texas.
The Company generally lends up to 80% of the appraised value of
residential real property and, under certain circumstances, up to 90% of
the appraised value of single-family residences. The great majority of all
loans originated in excess of 80% of the appraised value of the property
have mortgage insurance except loans to facilitate the sale of REO. During
1994, 8% of loans originated were in excess of 80% of the appraised value
of the residence. During 1993, and 1992, less than 3% of loans originated
were in excess of 80% of the appraised value of the residence. The Company
requires title insurance for all mortgage loans and requires that fire and
casualty insurance be maintained on all improved properties that are
security for its loans. The original contractual loan payment period for
residential loans normally ranges from 15 to 40 years with most having
original terms of 30 years. However, the majority of such loans remain
outstanding for a shorter period of time.
To generate income and to provide additional funds for lending and
liquidity, the Company has from time to time sold, without recourse, whole
loans and participations in pools of loans to the Federal Home Loan Mort-
gage Corporation (FHLMC), the Federal National Mortgage Association (FNMA),
and to institutional purchasers. Under loan participation sale agreements,
the Company usually continues to collect payments on the loans as they
become due, and otherwise to service the loans. The Company pays an agreed-
upon yield on the participant's portion of the loans. This yield is usually
less than the interest agreed to be paid by the borrower, with the differ-
ence being retained by the Company as servicing fee income. At December 31,
1994, the Company was engaged in servicing approximately $844 million of
loan participations and whole loans for others. For the year ended
December 31, 1994, fees received for such servicing activities totalled
$3 million, or approximately one-tenth of one percent of total revenues.
The Company sold $146 million of loans during 1994 compared to
$432 million and $281 million in 1993 and 1992, respectively. The Company
recognized pre-tax gains of $1.7 million in 1994 compared to $5.7 million
in 1993 and $1.7 million in 1992. The Company originated $94 million of
loans held for sale during 1994 compared to $443 million in 1993 and
$278 million in 1992. The loans held for sale portfolio had a balance of
$4 million at December 31, 1994, and is carried at the lower of cost or
market.
<PAGE>PAGE 17
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
The Company also purchases, on a selective basis and only after a
strict underwriting review, residential mortgage whole loans in the
secondary market. Loan purchases in 1994, 1993, and 1992 amounted to
$69 million, $14 million, and $5 million, respectively.
Loan repayments consist of monthly loan amortization, loan payoffs,
and loan refinances. During 1994, 1993, and 1992, repayments amounted to
$3.2 billion, $3.8 billion, and $4.1 billion, respectively. The decrease
in repayments in 1994 compared to 1993 was due to lower mortgage payoffs
and lower refinances within the Company's loan portfolio primarily as a
result of higher interest rates.
In addition to interest earned on loans, the Company receives fees for
originating loans and for making loan commitments. The income represented
by such fees varies with the volume and types of loans made. The Company
also charges fees for loan prepayments, loan assumptions and modifications,
late payments and other miscellaneous services.
The table below sets forth information relat-ing to interest rates and
loan fees charged for the years indicated.
<TABLE>
<CAPTION>
TABLE 11
Weighted Average Interest Rates and Fees on New Loan Originations
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Weighted average interest
rate on new real estate
loans originated(a) . . . . 6.44% 6.86% 8.06% 9.83% 10.64%
Weighted average loan fees
received on new real estate
loans originated(a) . . . . .29% .59% .81% .85% .71%
</TABLE>
(a) excludes loans purchased
NONPERFORMING ASSETS
If a borrower fails to make required payments on a loan, the Company
usually takes the steps required under applicable law to foreclose upon the
security for the loan. If a delinquency is not cured, the property is
generally acquired by the Company in a foreclosure sale or by taking a deed
in lieu of foreclosure. If the applicable period of redemption by the
borrower (which varies from state to state and by method of foreclosure
pursued) has expired, the Company is free to sell the property. The
property may then be sold generally with a loan conforming to normal loan
requirements, or with a "loan to facilitate sale" involving terms more
favorable to the borrower than those normally permitted.
<PAGE>PAGE 18
ITEM 1. BUSINESS (Continued)
NONPERFORMING ASSETS (continued)
Various antideficiency and homeowner protective provisions of state
law may limit the remedies available to lenders when a residential mortgage
borrower is in default. The effect of these provisions, in most cases, is
to limit the Company to foreclosing upon, or otherwise obtaining ownership
of, the property securing the loan after default and to prevent the Company
from recovering from the borrower any deficiency between the amount real-
ized from the sale of such property and the amount owed by the borrower.
One measure of the soundness of the Company's portfolio is its ratio
of nonperforming assets (NPAs) to total assets. Nonperforming assets
include nonaccrual loans (loans that are 90 days or more past due) and real
estate acquired through foreclosure. Loans in-substance foreclosed were no
longer classified as part of the real estate held for sale portfolio upon
adoption of Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114), during
December 1993. At December 31, 1994, and 1993, loans in-substance
foreclosed were included in the Company's total loan portfolio. No
interest is recognized on nonaccrual loans.
The table below sets forth the components of the Company's
nonperforming assets and the ratio of nonperforming assets to total assets
at December 31.
<TABLE>
<CAPTION>
TABLE 12
Nonperforming Assets
($000s Omitted)
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $284,103 $330,062 $263,065 $232,803 $148,884
Real estate acquired
through foreclosure 70,981 62,724 56,642 38,163 13,001
Loans in-substance
foreclosed -0- -0- 9,351 6,908 7,427
Real estate in judgement 390 1,366 1,030 4,049 4,571
-------- -------- -------- -------- --------
Total nonperforming assets $355,474 $394,152 $330,088 $281,923 $173,883
======== ======== ======== ======== ========
Ratio of nonperforming
assets to total assets 1.12% 1.37% 1.27% 1.16% .77%
===== ===== ===== ===== =====
</TABLE>
The decrease in NPAs in 1994 was primarily due to a decrease in slow
loans in the fourth quarter of 1994. We believe this improvement is a
result of the improvement in the California economy. The Company continues
to closely monitor all delinquencies and takes appropriate steps to protect
its interests. Interest foregone on nonaccrual loans amounted to
$17 million in 1994, $20 million in 1993, and $17 million in 1992.
The tables on the following two pages show the Company's nonperforming
assets by state at December 31, 1994, and 1993.
<PAGE>PAGE 19
ITEM 1. BUSINESS (Continued)
NONPERFORMING ASSETS (continued)
<TABLE>
<CAPTION>
TABLE 13
Nonperforming Assets By State
December 31, 1994
($000s Omitted)
Nonaccrual Loans (a)
------------------------------ Real Estate Owned
Residential ---------------------------- NPAs as
Real Estate Commercial Residential Commercial Total a % of
State 1-4 5+ Real Estate 1-4 5+ Real Estate NPAs Loans
- ------------ -------- ------- ----------- ------- ------ ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <CA> <C>
California $234,923 $10,795 $870 $56,690 $9,242 $3,716 $316,236 1.50%
Colorado 1,497 287 -0- 19 43 -0- 1,846 0.21%
Illinois 3,520 892 -0- 84 -0- -0- 4,496 0.56%
New Jersey 10,241 -0- -0- 1,068 -0- -0- 11,309 1.73%
Texas 1,736 -0- -0- -0- -0- -0- 1,736 0.31%
Washington 303 -0- -0- -0- -0- -0- 303 0.06%
Florida 2,794 -0- 36 182 -0- -0- 3,012 0.64%
Virginia 1,697 -0- -0- 220 -0- -0- 1,917 0.54%
Arizona 1,241 -0- -0- 59 -0- -0- 1,300 0.42%
Pennsylvania 2,433 -0- -0- 67 -0- -0- 2,500 0.91%
Connecticut 3,743 -0- -0- 94 -0- -0- 3,837 1.57%
Maryland 149 -0- -0- 724 -0- -0- 873 0.40%
Oregon 257 -0- -0- -0- -0- -0- 257 0.16%
Kansas 429 41 -0- 134 -0- -0- 604 0.47%
Nevada 614 -0- -0- -0- -0- -0- 614 0.49%
Missouri 851 69 -0- 23 -0- -0- 943 1.36%
Utah 259 -0- -0- -0- -0- -0- 259 0.41%
New York 2,985 51 -0- 508 -0- -0- 3,544 6.13%
Georgia 1,185 -0- -0- 58 -0- -0- 1,243 2.40%
Ohio 3 -0- 58 -0- 331 -0- 392 0.96%
New Mexico 4 -0- -0- -0- -0- -0- 4 0.03%
North Carolina 43 -0- -0- -0- -0- -0- 43 0.33%
Other 97 -0- -0- 8 -0- -0- 105 0.61%
-------- ------- ---- ------- ------ ------ -------- ------
Totals $271,004 $12,135 $964 $59,938 $9,616 $3,716 $357,373 1.31%
======== ======= ==== ======= ====== ======
REO general valuation allowance (1,899) 0.00%
-------- ------
$355,474 1.31%
======== ======
</TABLE>
(a) Nonaccrual loans are 90 days or more past due and have no unpaid interest
accrued.
<PAGE>PAGE 20
ITEM 1. BUSINESS (Continued)
NONPERFORMING ASSETS (continued)
<TABLE>
<CAPTION>
TABLE 14
Nonperforming Assets By State
December 31, 1993
($000s Omitted)
Nonaccrual Loans (a)
------------------------------ Real Estate Owned
Residential ---------------------------- NPAs as
Real Estate Commercial Residential Commercial Total a % of
State 1-4 5+ Real Estate 1-4 5+ Real Estate NPAs Loans
-------- ------- ----------- ------- ------ ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $270,325 $18,922 $532 $47,133 $7,169 $4,622 $348,703 1.77%
Colorado 1,560 83 -0- 346 842 261 3,092 0.43%
Illinois 2,141 340 -0- 64 -0- -0- 2,545 0.45%
New Jersey 12,491 -0- -0- 1,085 -0- -0- 13,576 2.53%
Washington 351 -0- -0- -0- -0- -0- 351 0.08%
Florida 4,463 -0- 316 1,156 -0- -0- 5,935 1.88%
Texas 1,400 -0- -0- 95 -0- -0- 1,495 0.60%
Virginia 1,437 -0- -0- 373 -0- -0- 1,810 0.75%
Connecticut 3,578 -0- -0- 566 -0- -0- 4,144 2.30%
Arizona 1,342 -0- -0- 333 -0- -0- 1,675 0.94%
Pennsylvania 1,302 -0- -0- 114 -0- -0- 1,416 0.95%
Kansas 815 40 -0- 375 -0- -0- 1,230 0.93%
Oregon 354 -0- -0- -0- -0- -0- 354 0.27%
Maryland 1,525 -0- -0- 149 -0- -0- 1,674 1.35%
Nevada 606 -0- -0- 77 -0- -0- 683 0.74%
Missouri 253 377 -0- 14 -0- -0- 644 0.91%
New York 3,738 -0- -0- 750 -0- -0- 4,488 6.64%
Georgia 1,395 -0- -0- 174 -0- -0- 1,569 2.56%
Ohio 15 -0- 55 41 -0- 80 191 0.33%
Utah 156 -0- -0- -0- -0- -0- 156 0.39%
Other 150 -0- -0- 74 -0- -0- 224 0.43%
-------- ------- ---- ------- ------ ------ -------- ------
Totals $309,397 $19,762 $903 $52,919 $8,011 $4,963 $395,955 1.64%
======== ======= ==== ======= ====== ======
REO general valuation allowance (1,803) 0.00%
-------- ------
$394,152 1.64%
======== ======
</TABLE>
(a) Nonaccrual loans are 90 days or more past due and have no unpaid interest
accrued.
The Company's troubled debt restructured (TDRs) were $73 million, or
0.23% of assets, at December 31, 1994, compared to $37 million, or 0.13% of
assets, at yearend 1993 and $13 million, or 0.06% of assets, at yearend
1992. At December 31, 1994, TDRs included $22 million or 0.07% of loans
modified as a result of the Southern California earthquake in January 1994.
The Company's TDRs are made up of loans on which delinquent loan payments
have been capitalized or on which temporary interest rate reductions have
been made, primarily to customers negatively impacted by adverse economic
conditions. Interest foregone on TDRs amounted to $811 thousand in 1994
compared to $275 thousand in 1993 and $217 thousand in 1992.
<PAGE>PAGE 21
ITEM 1. BUSINESS (Continued)
NONPERFORMING ASSETS (continued)
At December 31, 1994, approximately $229 million of the Company's
loans were 30 to 89 days past due and an additional $103 million of loans
were performing under bankruptcy protection. Management has included its
estimate of potential losses on these loans in the allowance for possible
loan losses.
The Company provides allowances for probable losses on loans and real
estate owned when any significant and permanent decline in value is
identified and based upon trends in the basic portfolio. The Company
evaluates trends in the basic portfolio by utilizing a methodology for
monitoring and estimating loan losses that is based on both historical
experience in the loan portfolio and factors reflecting current economic
conditions. This approach uses a data base 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 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 years indicated:
<TABLE>
<CAPTION>
TABLE 15
Changes in the Allowance for Loan Losses
($000s Omitted)
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Beginning allowance for loan losses $106,698 $ 70,924 $ 48,036 $ 26,799 $ 20,963
Provision charged to expense 62,966 65,837 43,218 34,984 18,701
Less loans charged off (46,556) (38,475) (21,227) (15,274) (13,165)
Add recoveries 895 1,145 897 1,527 300
Reclassification of in-substance foreclosure
allowances -0- 7,267 -0- -0- -0-
-------- -------- -------- -------- --------
Ending allowance for loan losses $124,003 $106,698 $ 70,924 $ 48,036 $ 26,799
======== ======== ======== ======== ========
Ratio of net chargeoffs to average loans
outstanding (excluding MBS) .18% .16% .10% .07% .08%
======== ======== ======== ======== ========
Ratio of allowance for loan losses to
nonperforming assets 34.9% 27.1% 21.5% 17.0% 15.4%
======== ======== ======== ======== ========
</TABLE>
<PAGE>PAGE 22
ITEM 1. BUSINESS (Continued)
NONPERFORMING ASSETS (continued)
The Company has provided for any known losses related to the January
1994 Northridge (Southern California) earthquake. The December 31, 1994,
allowance for loan losses and the 1994 provision for loan losses included
$3.7 million specifically identified for earthquake losses.
Chargeoffs increased as a result of the increase in real estate owned
and the increased losses on real estate owned primarily due to weakness in
the California economy.
INVESTMENT ACTIVITIES
Golden West's investment securities portfolio is composed primarily of
federal funds, short-term repurchase agreements collateralized by
mortgage-backed securities, short-term money market securities, and
collateralized mortgage obligations. In determining the amounts of assets
to invest in each class of investments, the Company considers relative
rates, liquidity, and credit quality. When opportunities arise, the
Company enters into arbitrage transactions with secured borrowings and
short-term investments to profit from the rate differential. 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.
The Company holds collateralized mortgage obligations (CMOs) on which
both principal and interest are received. It does not hold any
interest-only or principal-only CMOs. At December 31, 1994, the great
majority of the Company's CMOs had remaining terms to maturity of five
years or less and qualified for inclusion in regulatory liquidity
measurement. A majority of the CMOs are fixed-rate and are subject to
prepayments and interest rate risk similar to fixed-rate loans.
Effective December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." FAS 115 establishes
classifications of investments into three categories: held to maturity,
trading, and available for sale. In accordance with FAS 115, the Company
modified its accounting policies as of December 31, 1993, to identify
investment securities as either held to maturity or available for sale.
The Company has no trading securities. Held to maturity securities are
recorded at cost with any discount or premium amortized using a method that
is not materially different from the interest method. Securities held to
maturity are recorded at cost because the Company has the ability to hold
these securities to maturity and because it is Management's intention to
hold them to maturity. At December 31, 1994, and 1993, the Company had no
securities held to maturity. Securities available for sale increase the
Company's portfolio management flexibility for investments and are reported
<PAGE>PAGE 23
ITEM 1. BUSINESS (Continued)
INVESTMENT ACTIVITIES (continued)
at fair value. Net unrealized gains and losses are excluded from earnings
and reported net of applicable income taxes as a separate component of
stockholders' equity until realized. At December 31, 1994, and 1993, the
Company had securities available for sale in the amount of $1.5 billion and
$1.6 billion, respectively, and unrealized gains on investment securities
available for sale included in stockholders' equity of $13 million and
$41 million, respectively. Gains or losses on sales of investment
securities are realized and recorded in earnings at the time of sale and
are determined by the difference between the net sales proceeds and the
cost of the security, using specific identification, adjusted for any
unamortized premium or discount. The Company has other investments, which
are recorded at cost with any discount or premium amortized using a method
that is not materially different from the interest method.
Prior to December 31, 1993, securities were classified as either
securities held for sale or investment securities. Securities held for
sale were recorded at the aggregate portfolio's lower of amortized cost or
market, with the unrealized gains and losses included in earnings.
Investment securities were recorded at amortized cost.
The table below sets forth the composition of the Company's securities
available for sale at December 31.
<TABLE>
<CAPTION>
TABLE 16
Composition of Securities Available For Sale
($000s Omitted)
1994 1993
---------- ----------
<S> <C> <C>
Certificates of deposit and short-term bank notes $ 29,969 $ 482,100
U.S. Treasury and Government agency obligations 637,069 419,815
Collateralized mortgage obligations 668,128 275,408
Commercial paper 1,269 230,389
Bankers acceptances -0- 58,395
Equity securities 152,410 170,479
---------- ----------
$1,488,845 $1,636,586
========== ==========
</TABLE>
The weighted average yields on the securities available for sale
portfolio were 5.24% and 3.93% at December 31, 1994, and 1993,
respectively.
<PAGE>PAGE 24
ITEM 1. BUSINESS (Continued)
INVESTMENT ACTIVITIES (continued)
The table below sets forth the composition of the Company's other
investments at December 31. The reduction in 1993 versus 1992 resulted
from the classification required under FAS 115.
<TABLE>
<CAPTION>
TABLE 17
Composition of Other Investments
($000s Omitted)
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest-bearing deposits $152,000 $ 25,000 $245,021
U.S. Treasury and Government agencies -0- -0- 43,434
Short-term repurchase agreements collater-
alized by mortgage-backed securities 382,600 513,100 273,991
Corporate notes and bonds -0- -0- 10,001
Bankers acceptances -0- -0- 17,962
Collateralized mortgage obligations -0- -0- 94,237
Other securities -0- -0- 105,543
-------- -------- --------
$534,600 $538,100 $790,189
======== ======== ========
</TABLE>
The weighted average yield on the other investments portfolio was
5.92%, 3.42%, and 4.23% at December 31, 1994, 1993, and 1992, respectively.
As of December 31, 1994, the entire other investments portfolio matures in
1995.
MORTGAGE-BACKED SECURITIES
FAS 115 also requires the same three classifications for mortgage-
backed securities (MBS): held to maturity, trading, and available for
sale. In accordance with FAS 115, the Company modified its accounting
policies as of December 31, 1993, to identify MBS as either held to
maturity or available for sale. The Company has no trading MBS. Mortgage-
backed securities held to maturity are recorded at cost because the Company
has the ability to hold these MBS to maturity and because Management
intends to hold these securities to maturity. Premiums and discounts on
MBS are amortized or accreted using the interest method, also known as the
level yield method, over the life of the security. At December 31, 1994,
and 1993, the Company had mortgage-backed securities held to maturity in
the amount of $871 million and $408 million, respectively. MBS available
for sale are reported at fair value, with unrealized gains and losses
excluded from earnings and reported net of applicable income taxes as a
separate component of stockholders' equity until realized. At
December 31, 1994, and 1993, the Company had mortgage-backed securities
<PAGE>PAGE 25
ITEM 1. BUSINESS (Continued)
MORTGAGE-BACKED SECURITIES (continued)
available for sale in the amount of $323 million and $1.1 billion,
respectively, and unrealized gains on mortgage-backed securities included
in stockholders' equity of $6 million and $44 million, respectively. Gains
or losses on sales of MBS are realized and recorded in earnings at the time
of sale and are determined by the difference between the net sales proceeds
and the cost of the MBS, using specific identification, adjusted for any
unamortized premium or discount. Prior to December 31, 1993, all MBS were
recorded at amortized cost.
During 1994, after reviewing the opportunities to sell MBS together
with the capacity to hold MBS for investment, the Company decided to retain
a larger volume for investment. Consequently, as permitted by FAS 115,
during 1994, the Company transferred $454 million of its available for sale
portfolio of MBS to its held to maturity portfolio. The unrealized holding
gain on these securities in the amount of $7 million will be amortized as a
yield adjustment over the remaining life of these securities.
Repayments of MBS during the years 1994, 1993, and 1992 amounted to
$311 million, $646 million, and $552 million, respectively. The mortgage-
backed securities held are primarily fixed-rate pass-through obligations
and are subject to prepayment and interest rate risk similar to fixed-rate
loans. In rising interest rate environments, the rate of repayment on this
type of mortgage-backed security tends to decrease because of lower
prepayments on the underlying mortgages as exhibited in the reduction of
repayments between 1994 and 1993. The increase in repayments in 1993 over
1992 was primarily due to an increase in refinance activity as many
borrowers took advantage of lower interest rates available at that time.
GOODWILL ARISING FROM ACQUISITIONS
Positive goodwill, or the excess of the cost over the fair value of
net assets acquired resulting from acquisitions, of $223 million (1994) and
$236 million (1993) is stated net of accumulated amortization of
$200 million (1994) and $184 million (1993). Negative goodwill, or the
excess of the fair value of net assets acquired over the cost resulting
from acquisitions, of $86 million (1994) and $99 million (1993) is shown
net of accumulated amortization of $60 million (1994) and
$47 million (1993). Positive and negative goodwill are being amortized on
the straight-line method over periods ranging from 5 to 40 years.
Amortization of goodwill arising from acquisitions was an expense of
$2.6 million for the year ended 1994, income of $1.6 million for the year
ended 1993, and expense of $661 thousand for the year ended 1992. The
increase in goodwill amortization expense in 1994 was due to the addition
of positive goodwill amortization resulting from the May 1994 Polifly
acquisition and the completion as of December 1993 of the amortization of
negative goodwill that resulted from the World of Ohio acquisition.
<PAGE>PAGE 26
ITEM 1. BUSINESS (Continued)
STOCKHOLDERS' EQUITY
The Company's stockholders' equity decreased during 1994 due to the
$216 million cost of the repurchase of Company stock, the $66 million
decrease in unrealized gains on securities available for sale caused by the
decrease in market values of securities available for sale since
December 31, 1993, and $19 million of common stock dividends. These
decreases in stockholders' equity were partially offset by 1994's net
earnings. The Company increased its total stockholders' equity in 1993 and
1992 through the retention of a high percentage of net earnings. In
addition, stockholders' equity increased in 1993 by $85 million due to the
adoption of FAS 115 as of December 31, 1993.
On October 28, 1993, the Company's Board of Directors' authorized the
purchase by the Company of up to 3.2 million shares of Golden West's common
stock. On July 28, 1994, the Company's Board of Directors authorized the
purchase by the Company of an additional 3.088 million shares of Golden
West's common stock. As of December 31, 1994, 5.8 million of such shares
had been repurchased and retired at a cost of $223 million since October
28, 1993. During 1994, 5.6 million of the shares were purchased and
retired at a cost of $216 million. The repurchase of Company stock is not
intended to have a material impact on the normal liquidity of the Company.
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.
YIELD ON INTEREST-EARNING ASSETS/COST OF FUNDS
Information regarding the Company's yield on interest-earning assets
and cost of funds at December 31, 1994, 1993, and 1992 is contained in
Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations, and is incorporated herein by reference.
The gap table and related discussion included in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations,
gives information on the repricing characteristics of the Company's
interest-earning assets and interest-bearing liabilities at
December 31, 1994, and is incorporated herein by reference.
<PAGE>PAGE 27
ITEM 1. BUSINESS (Continued)
YIELD ON INTEREST-EARNING ASSETS/COST OF FUNDS (continued)
The dollar amounts of the Company's interest income and interest
expense fluctuate depending both on changes in the respective interest
rates and on changes in the respective amounts (volume) of interest-earning
assets and interest-bearing liabilities. The following table sets forth
certain information with respect to the yields earned and rates paid on the
Company's interest-earning assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
TABLE 18
Average Interest-Earning Assets and Interest-Bearing Liabilities
At or for the Years Ended December 31
($000s Omitted)
1994 1993 1992
---------------------------- ---------------------------- ----------------------------
End of End of End of
Average Average Period Average Average Period Average Average Period
Balances Yield Yield Balances Yield Yield Balances Yield Yield
----------- ------- ------ ----------- ------- ------ ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investment securities $ 2,149,385 4.98% 5.42% $ 2,178,164 3.67% 3.80% $ 1,365,679 4.41% 4.17%
Mortgage-backed securities 1,276,615 8.14% 8.37% 1,595,255 8.71% 8.67% 1,909,819 9.32% 9.30%
Loans receivable(a) 24,963,935 6.61% 6.85% 23,101,066 7.09% 6.73% 20,906,573 8.33% 7.52%
Invest. in capital stock of
FHLB 328,998 4.89% 4.81% 342,586 3.99% 3.49% 289,529 1.87% 0.43%
----------- ---- ----------- ---- ----------- ----
Interest-earning assets $28,718,933 6.53% $27,217,071 6.87% $24,471,600 8.11%
=========== ==== =========== ==== =========== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits:
Checking accounts $ 730,956 1.30% 1.28% $ 706,245 1.62% 1.35% $ 630,541 1.96% 1.91%
Savings accounts 2,835,339 2.05% 2.92% 3,069,143 2.23% 3.11% 3,081,417 3.20% 3.80%
Term accounts 14,496,937 4.46% 4.98% 13,239,960 4.73% 4.24% 12,763,873 5.75% 4.69%
----------- ---- ---- ----------- ---- ---- ----------- ---- ----
Total customer deposits 18,063,232 3.96% 4.57% 17,015,348 4.15% 3.92% 16,475,831 5.13% 4.40%
Advances from FHLB 6,251,431 4.30% 5.21% 6,416,250 4.27% 3.87% 4,852,544 5.53% 4.62%
Reverse repurchases 574,487 6.55% 6.67% 464,091 7.76% 6.06% 905,145 7.27% 8.09%
Other borrowings 1,961,828 6.84% 7.25% 1,611,046 7.56% 7.07% 949,587 9.31% 9.41%
----------- ---- ----------- ---- ----------- ----
Interest-bearing liabilities $26,850,978 4.30% $25,506,735 4.46% $23,183,107 5.47%
=========== ==== =========== ==== =========== ====
Net yield on interest-earning
assets 2.23% 2.41% 2.64%
==== ==== ====
</TABLE>
(a) Includes nonaccrual loans (90 days or more past due).
The table on the following page presents the changes for 1994 and 1993
from the respective preceding year of the interest income and expense
associated with each category of interest-bearing asset and liability as
allocated to changes in volume and changes in rates.
<PAGE>PAGE 28
ITEM 1. BUSINESS (Continued)
YIELD ON INTEREST-EARNING ASSETS/COST OF FUNDS (continued)
<TABLE>
<CAPTION>
TABLE 19
Volume and Rate Analysis of Interest Income and Interest Expense
Years Ended December 31
($000s Omitted)
Increase/Decrease in Income/Expense Due to Changes in
Due to Changes in Volume and Rate(a)
---------------------------------------------------------------
1994 1993 1992 1994 versus 1993 1993 versus 1992
---------- ---------- ---------- ------------------------------ ------------------------------
Income/ Income/ Income/
Expense(b) Expense(b) Expense(b) Volume Rate Total Volume Rate Total
---------- ---------- ---------- -------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Investments $ 107,059 $ 79,874 $ 60,231 $ (1,041) $ 28,226 $ 27,185 $ 27,407 $ (7,764) $ 19,643
Mortgage-backed securities 103,927 138,874 178,010 (26,381) (8,566) (34,947) (27,938) (11,198) (39,136)
Loans receivable 1,649,413 1,637,764 1,740,845 74,556 (62,907) 11,649 248,072 (351,153) (103,081)
Invest. in capital stock of
Federal Home Loan Banks 16,078 13,660 5,424 (516) 2,934 2,418 1,151 7,085 8,236
---------- ---------- ----------
Total interest income 1,876,477 1,870,172 1,984,510
Interest Expense:
Customer deposits
Checking accounts $ 9,463 $ 11,426 $ 12,376 $ 417 $ (2,380) $ (1,963) $ 2,049 $ (2,999) $ (950)
Savings accounts 58,163 68,382 98,538 (5,007) (5,212) (10,219) (390) (29,766) (30,156)
Term accounts 646,727 625,892 733,796 51,199 (30,364) 20,835 28,662 (136,566) (107,904)
---------- ---------- ---------- -------- --------- --------- -------- --------- ---------
Total customer deposits 714,353 705,700 844,710 46,609 (37,956) 8,653 30,321 (169,331) (139,010)
Advances from Federal Home
Loan Banks 268,952 273,816 268,320 (7,117) 2,253 (4,864) 18,836 (13,340) 5,496
Securities sold under
agreements to repurchase 37,620 36,023 65,779 4,659 (3,062) 1,597 (34,590) 4,834 (29,756)
Other borrowings 134,182 121,875 88,371 21,990 (9,683) 12,307 45,809 (12,305) 33,504
---------- ---------- ---------- -------- --------- --------- -------- --------- ---------
Total interest expense 1,155,107 1,137,414 1,267,180
---------- ---------- ----------
Net interest income $ 721,370 $ 732,758 $ 717,330 $(19,523) $ 8,135 $ (11,388) $188,316 $(172,888) $ 15,428
========== ========== ========== ======== ========= ========= ======== ========= =========
Net interest income increase
(decrease) as a percentage
of average earning assets(c) (0.07)% 0.03% (0.04)% 0.77% (0.71)% 0.06%
====== ==== ====== ==== ====== ====
</TABLE>
(a) The change in volume is calculated by multiplying the difference between
the average balance of the current year and the prior year by the prior
year's average yield. The change in rate is calculated by multiplying the
difference between the average yield of the current year and the prior
year by the prior year's average balance. The mixed changes in
rate/volume is calculated by multiplying the difference between the
average balance of the current year and the prior year by the difference
between the average yield of the current year and the prior year. This
amount is then allocated proportionately to the volume and rate changes
calculated previously.
(b) The effects of hedging activity have been included in income and expense
of the related assets and liabilities.
(c) Includes nonaccrual loans (90 days or more past due).
<PAGE>PAGE 29
ITEM 1. BUSINESS (Continued)
COMPETITION AND OTHER MATTERS
The Company experiences strong competition in both attracting customer
deposits and making real estate loans. Competition for savings deposits has
historically come from money market mutual funds, other savings associa-
tions, commercial banks, credit unions, and government and corporate debt
securities. In addition, traditional financial institutions have found
themselves in competition with other financial services entities, such as
securities dealers, insurance companies, and others. The principal methods
used by the Company to attract customer deposits, in addition to the
interest rates and terms offered, include the offering of a variety of
services and the convenience of office locations and hours of public
operation.
Competition in making real estate loans comes principally from other
savings associations, mortgage banking companies, and commercial banks.
Many of the nation's largest savings associations, mortgage banking
companies, and commercial banks are head-quartered or have a significant
number of branch offices in the areas in which the Company competes.
Changes in the government's monetary, tax, or housing financing policies
can also affect the ability of lenders to compete profitably. The primary
factors in competing for real estate loans are interest rates, loan fee
charges, underwriting standards, and the quality of service to borrowers
and their real estate brokers.
SAVINGS AND LOAN INDUSTRY
The operations of savings associations are significantly influenced by
general economic conditions, by the related monetary and fiscal policies of
the federal government, and by the policies of financial institution
regulatory authorities. Customer deposit flows and costs of funds are
impacted by interest rates on competing investments and general market
rates of interest. Lending and other investment activities are affected by
the demand for mortgage financing and for consumer and other types of
loans, which in turn are affected by the interest rates at which such
financing may be offered and other factors affecting the supply of housing
and the availability of funds.
REGULATION
FEDERAL HOME LOAN BANK SYSTEM. The FHLB system functions in a reserve
credit capacity for its members, which may include savings associations,
commercial banks and credit unions. As a member, World is required to own
capital stock of an FHLB in an amount that depends generally upon its
outstanding home mortgage loans or advances from such FHLB, and is
authorized to borrow funds from such FHLB (see Borrowings).
<PAGE>PAGE 30
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
LIQUIDITY. The OTS requires insured institutions, such as World, 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 customer deposits and short-term borrowings. For the
months ended December 31, 1994, 1993, and 1992, World's regulatory average
liquidity ratio was 7%, 8%, and 7%, respectively, consistently exceeding
the requirement.
FEDERAL DEPOSIT INSURANCE CORPORATION. The customer deposit accounts
of World are insured by the FDIC as part of the Savings Association
Insurance Fund up to the maximum amount permitted by law, currently
$100,000 per insured depositor. As a result, the Association is subject to
supervision by regulation and examination by the FDIC.
FDIC insurance is required for all federally chartered associations.
Such insurance may be terminated by the FDIC under certain circumstances
involving violations of regulations or unsound practices. The annual
premium charged for FDIC-SAIF insurance is determined by the FDIC using a
risk-based system beginning in 1993. Under the system, associations are
charged a variable rate ranging from a low of $.23 to a high of $.31 per
$100 of deposits. The amount of capital an institution maintains and its
examination scores are the most important factors determining the
assessment. World qualifies for the lowest premium assessment of $.23 per
$100 of deposits under the system.
Current law generally imposes a moratorium on conversions from SAIF
membership to Bank Insurance Fund (BIF) membership until such time as the
SAIF meets or exceeds the designated reserve ratio for such fund. However,
a savings institution may convert to a bank charter if the resulting bank
remains a member of SAIF. After expiration of the moratorium, such
conversion requires payment of an exit fee to the insurance fund that the
institution leaves and an entrance fee to the insurance fund the
institution enters. In addition, bank holding companies, which were
previously authorized to acquire savings institutions only in connection
with supervisory transactions, may now acquire savings institutions
generally.
OFFICE OF THRIFT SUPERVISION. As a federally chartered savings and
loan association, the principal regulator of World is the OTS. Under
various regulations of the OTS, savings and loan associations are required,
among other things, to pay assessments to the OTS, maintain required
regulatory capital, maintain liquid assets at levels fixed from time to
time, and to comply with various limitations on loans to one borrower and
limitations on equity investments, investments in real estate, and
investments in corporate debt securities that are not investment grade.
World is subject to examination by the OTS and is in compliance with its
current requirements.
<PAGE>PAGE 31
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
FEDERAL RESERVE SYSTEM. Federal Reserve Board regulations require
savings institutions to maintain noninterest-earning reserves against their
checking accounts. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may be used to satisfy
liquidity requirements. World is currently in compliance with all
applicable Federal Reserve Board reserve requirements.
Savings and loan associations have authority to borrow from the
Federal Reserve Bank "Discount Window," but the Federal Reserve Board
requires savings and loan associations to exhaust all FHLB sources before
borrowing from the Federal Reserve Bank.
REGULATORY CAPITAL. The OTS requires federally insured institutions
such as World to meet certain minimum capital requirements.
The table below summarizes World's regulatory capital ratios and
compares them to the OTS minimum requirements at December 31.
<TABLE>
<CAPTION>
TABLE 20
World Savings and Loan Association
Regulatory Capital Ratios
Under Current Requirements
($000s Omitted)
1994 1993
----------------------------------------- -----------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,931,375 6.26% $ 462,564 1.50% $2,030,992 7.27% $ 419,052 1.50%
Core 2,047,016 6.64 925,129 3.00 2,240,518 8.02 838,103 3.00
Risk-based 2,353,781 13.54 1,390,391 8.00 2,533,738 17.42 1,163,650 8.00
</TABLE>
During the first quarter of 1994, the OTS changed the regulations
concerning the criteria used to determine the risk weighting for
multi-family loans in the calculation of the risk-based capital ratio.
World Savings has taken a conservative approach and has weighted the
Association's entire multi-family portfolio at 100%. This change caused a
decrease in the risk-based capital ratio from December 1993 to
December 1994 and reduced our December 31, 1994, risk-based capital ratio
by approximately 100 basis points. In addition, the decrease in the
regulatory capital ratios from December 1994 to December 1993 was also due
to the payment in 1994 by World Savings of $275 million in dividends to its
parent, Golden West Financial Corporation. The main purpose for the
dividend was to fund Golden West's stock repurchase program.
<PAGE>PAGE 32
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The table below summarizes World's regulatory capital ratios and
compares them to the fully phased-in OTS minimum requirements at
December 31.
<TABLE>
<CAPTION>
TABLE 21
World Savings and Loan Association
Regulatory Capital Ratios
Under Fully Phased-In Requirements
($000s Omitted)
1994 1993
----------------------------------------- -----------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,931,375 6.26% $ 462,564 1.50% $2,030,992 7.27% $ 419,052 1.50%
Core 1,931,375 6.26 925,129 3.00 2,030,992 7.27 838,103 3.00
Risk-based 2,238,140 12.96 1,381,140 8.00 2,323,040 16.21 1,146,794 8.00
</TABLE>
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 on the following page
summarizes the capital ratios for each of the five classifications and
shows that World Savings met the "well capitalized" standard as of
December 31, 1994.
<PAGE>PAGE 33
The table below shows a reconciliation of World's equity capital to
regulatory capital at December 31, 1994.
<TABLE>
<CAPTION>
TABLE 22
Reconciliation of Equity Capital to Regulatory Capital
($000s Omitted)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common stock $ 150
Paid-in capital 233,441
Retained earnings 1,830,998
Unrealized gains on securities
available for sale 25,966
-----------
Equity capital $ 2,090,555 $ 2,090,555 $ 2,090,555 $ 2,090,555 $ 2,090,555 $ 2,090,555
===========
Positive goodwill (1) (219,493) (219,493) (219,493) (219,493) (219,493)
Negative goodwill (1) 86,279 86,279 86,279 86,279 86,279
Qualifying supervisory
positive goodwill (1) 115,641 115,641 115,641 115,641
Unrealized gains on securities
available for sale (25,966) (25,966) (25,966) (25,966) (25,966)
Equity/direct investments (2) (709)
Subordinated debt 199,089
General valuation allowances 108,385
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 1,931,375 $ 2,047,016 $ 2,047,016 $ 2,047,016 $ 2,353,781
=========== =========== =========== =========== ===========
Total assets $31,005,571
===========
Adjusted total assets $30,837,628 $30,837,628 $30,837,628
=========== =========== ===========
Risk-weighted assets $17,379,889 $17,379,889
=========== ===========
CAPITAL RATIO - ACTUAL 6.74% 6.26% 6.64% 6.64% 11.78% 13.54%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well capitalized, equal to
or greater than 5.00% 6.00% 10.00%
=========== =========== ===========
Adequately capitalized,
equal to or greater than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Significantly undercapital-
ized, less than 3.00% 3.00% 6.00%
=========== =========== ===========
Critically undercapitalized,
equal to or less than 2.00%
===========
</TABLE>
(1) Required to be deducted from core and risk-based capital on a phased-in
basis through December 1994. Goodwill must be deducted for the tangible
capital calculation. Goodwill in excess of a sliding scale limit must
also be deducted from the core and risk-based capital calculations. As of
January 1, 1995, 100% of goodwill was required to be deducted for all
three capital calculations.
(2) Equity investments were required to be deducted from risk-based capital on
a phased-in basis through June 1994.
<PAGE>PAGE 34
The table below shows a reconciliation of World's equity capital to
regulatory capital at December 31, 1993.
<TABLE>
<CAPTION>
TABLE 23
Reconciliation of Equity Capital to Regulatory Capital
($000s Omitted)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common stock $ 150
Paid-in capital 233,441
Retained earnings 1,848,761
Unrealized gains on securities
available for sale 82,299
-----------
Equity capital $ 2,164,651 $ 2,164,651 $ 2,164,651 $ 2,164,651 $ 2,164,651 $ 2,164,651
===========
Positive goodwill (1) (2) (232,758) (232,758) (232,758) (232,758) (232,758)
Negative goodwill (1) (3) 99,099 99,099 99,099 99,099 99,099
Qualifying supervisory
positive goodwill (1) (2) 209,526 209,526 209,526 209,526
Equity/other investments (4) (1,757)
Subordinated debt 198,879
General valuation allowances 96,098
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 2,030,992 $ 2,240,518 $ 2,240,518 $ 2,240,518 $ 2,533,738
=========== =========== =========== =========== ===========
Total assets $28,028,596
===========
Adjusted total assets $27,936,774 $27,936,774 $27,936,774
=========== =========== ===========
Risk-weighted assets $14,545,620 $14,545,620
=========== ===========
CAPITAL RATIO - ACTUAL 7.72% 7.27% 8.02% 8.02% 15.40% 17.42%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well capitalized, equal to
or greater than 5.00% 6.00% 10.00%
=========== =========== ===========
Adequately capitalized,
equal to or greater than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Undercapitalized, less than 1.50% 4.00% 4.00% 8.00%
=========== =========== =========== ===========
Significantly undercapital-
ized, less than 3.00% 3.00% 6.00%
=========== =========== ===========
Critically undercapitalized,
equal to or less than 2.00%
===========
</TABLE>
(1) All goodwill is required to be deducted from tangible capital. Goodwill
arising prior to April 12, 1989, in excess of a sliding scale limit (.75%
of assets at December 31, 1993), is required to be deducted from all other
capital computations on a phased-in basis through December 1994. Goodwill
arising after April 12, 1989, must be deducted from all capital
computations.
(2) All but $2,443 of the Association's positive goodwill arose prior to
April 12, 1989.
(3) The Association's negative goodwill arose after April 12, 1989.
(4) Equity and certain other investments are required to be deducted from
total risk-based capital on a phased-in basis (60% at December 31, 1993)
through June 1994.
<PAGE>PAGE 35
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The table below compares World's regulatory capital to the well
capitalized classification at December 31.
<TABLE>
<CAPTION>
TABLE 24
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
($000s Omitted)
1994 1993
---------------------------------------- ----------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL-CAPITALIZED
------------------- ------------------- ------------------- -------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $2,047,016 6.64% $1,541,881 5.00% $2,240,518 8.02% $1,396,839 5.00%
Tier 1 risk-based 2,047,016 11.78 1,042,793 6.00 2,240,518 15.40 872,737 6.00
Total risk-based 2,353,781 13.54 1,737,989 10.00 2,533,738 17.42 1,454,562 10.00
</TABLE>
World's leverage, Tier 1 risk-based, and total risk-based capital
ratios under the fully phased-in 1995 OTS minimum requirements at
December 31, 1994, were 6.26%, 11.19%, and 12.96%, respectively. World's
leverage, Tier 1 risk-based, and total risk-based capital ratios under the
fully phased-in 1995 OTS minimum requirements at December 31, 1993, were
7.27%, 14.17%, and 16.21%, respectively.
CAPITAL DISTRIBUTIONS BY SAVINGS ASSOCIATIONS. The OTS limits capital
distributions by savings associations such as World. Under these
regulations, a savings association is classified as either Tier 1, if it
meets each of its fully phased-in capital requirements immediately prior to
and after giving effect to the proposed capital distribution; Tier 2, if it
meets each of its current capital requirements but does not meet one or
more of its fully phased-in capital requirements immediately prior to or
after giving effect to the proposed capital distribution; or Tier 3, if it
does not meet its current capital requirements immediately prior to or
after giving effect to the proposed capital distribution. A savings
association that would otherwise be classified as Tier 1 is treated as Tier
2 or Tier 3 if the OTS so notifies the association based on OTS' conclusion
that the association is in need of more than normal supervision.
Under the regulations, a Tier 1 association may make capital
distributions during a calendar year up to 100% of its net income to date
during the calendar year plus up to one-half of its capital in excess of
the fully phased-in requirement at the end of the prior year. A Tier 2
association may make capital distributions from 25% to 75% of its net
income over the most recent four quarter period, with the percentage
varying based on its level of risk-based capital. Any capital
distributions by a Tier 3 association or in excess of the foregoing amounts
by a Tier 1 or Tier 2 association are subject to either prior OTS approval
or notice must be given to the OTS, which may disapprove the distribution.
However, current law prohibits capital distributions by an institution that
<PAGE>PAGE 36
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
does not meet its capital requirements. Savings associations are required
to give the OTS 30-day advance written notice of all proposed capital
distributions. For purposes of capital distributions, the OTS has
classified World as a Tier 1 association. World paid a total of
$275 million in upstream dividends to Golden West during 1994. The main
purpose for the dividend was to fund Golden West's stock repurchase
program.
LIMITATION ON LOANS TO ONE BORROWER. Current law subjects savings
associations to the same loans-to-one borrower restrictions that are
applicable to national banks with limited provisions for exceptions. In
general, the national bank standard restricts loans to a single borrower to
no more than 15% of a bank's unimpaired capital and unimpaired surplus,
plus an additional 10% if the loan is collateralized by certain readily
marketable collateral. (Real estate is not included in the definition of
"readily marketable collateral.") At December 31, 1994, the maximum amount
that World could have loaned to one borrower (and related entities) was
$314 million. At such date, the largest amount of loans that World had
outstanding to any one borrower was $39 million.
DEPOSITOR PRIORITIES. In the event of the appointment of a receiver
of a federally chartered savings association, such as the Association,
based upon the failure of the savings association to meet certain minimum
capital requirements or the existence of certain other conditions, the
Federal Deposit Insurance Act recognizes a priority in favor of holders of
withdrawable deposits (including the FDIC as subrogee or transferee) over
general creditors (including holders of debt of the Association). Thus, in
the event of a liquidation of the Association or a similar event, claims
for deposits would have a priority over claims of holders of debt. As of
December 31, 1994, the Association had approximately $19.2 billion of
deposits outstanding. At December 31, 1994, the Association owed
$250 million of debt to Golden West.
POWERS OF THE FDIC IN CONNECTION WITH THE INSOLVENCY OF AN INSURED
DEPOSITORY INSTITUTION. If the FDIC is appointed a receiver or conservator
of an insured depository institution, such as the Association, the FDIC may
disaffirm or repudiate any contract or lease to which such institution is a
party, the performance of which is determined to be burdensome, and the
disaffirmance or repudiation of which is determined to promote the orderly
administration of the institution's affairs. The FDIC may contend that its
power to repudiate "contracts" extends to obligations such as the debt of
the depository institution and at least one court has held that the FDIC
can repudiate publicly-traded debt obligations. The effect of any such
repudiation should be to accelerate the maturity of debt. Such repudiation
would result in a claim by each holder of debt against the receivership.
The claim may be for principal and interest accrued through the date of the
appointment of the conservator or receiver. Alternatively, at least one
court has held that the claim would be in the amount of the fair market
<PAGE>PAGE 37
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
value of the debt as of the date of the repudiation, which amount could be
more or less than accrued principal and interest. The amount paid on the
claims of the holders of the debt would depend, among other factors, upon
the amount of receivership assets available for the payment of unsecured
claims and the priority of the claim relative to the claims of other
unsecured creditors and depositors, and may be less than the amount owed to
the holders of the debt. See "Depositor Priorities" on the previous page.
If the maturity of the debt were so accelerated, and a claim relating to
the debt paid by the receivership, the holders of the debt might not be
able, depending upon economic conditions, to reinvest any amounts paid on
the debt at a rate of interest comparable to that paid on the debt. In
addition, although the holders of the debt may have the right to accelerate
the debt in the event of the appointment of a conservator or receiver of
the depository institution, the FDIC as conservator or receiver may enforce
most types of contracts, including the debt pursuant to their terms,
notwithstanding any such acceleration provision. The FDIC as conservator
or receiver may also transfer to a new obligor any of the depository
institution's assets and liabilities, without the approval or consent of
its creditors.
In its resolutions of the problems of an insured depository
institution in default or in danger of default, the FDIC is generally
obligated to satisfy its obligations to insured depositors at the least
possible cost to the deposit insurance fund. In addition, the FDIC may not
take any action that would have the effect of increasing the losses to a
deposit insurance fund by protecting depositors for more than the insured
portion of deposits (generally $100,000) or by protecting creditors other
than depositors. Existing law authorizes the FDIC to settle all uninsured
and unsecured claims in the insolvency of an insured institution by making
a final payment after the declaration of insolvency. Such a payment would
constitute full payment and disposition of the FDIC's obligations to
claimants. Existing law provides that the rate of such final payment is to
be a percentage reflecting the FDIC's receivership recovery experience.
Similarly, the Resolution Trust Corporation may be appointed as a
receiver or conservator of an insured depository institution with powers
and duties similar to the FDIC.
SAVINGS AND LOAN HOLDING COMPANY LAW. The Company is a "savings and
loan holding company" under the National Housing Act of 1934. As such, it
has registered with the OTS and is subject to OTS regulation and OTS and
FDIC examination, supervision, and reporting requirements. Among other
things, the OTS has authority to determine that an activity of a savings
and loan holding company constitutes a serious risk to the financial
safety, soundness, or stability of its subsidiary savings institutions and
thereupon may impose, among other things, restrictions on the payment of
dividends by the subsidiary institutions and on transactions between the
subsidiary institutions, the holding company and subsidiaries or affiliates
of either.
<PAGE>PAGE 38
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
As World's parent company, Golden West is considered an "affiliate" of
the Association for regulatory purposes. Savings associations are subject
to the rules relating to transactions with affiliates and loans to insiders
generally applicable to commercial banks that are members of the Federal
Reserve System set forth in Sections 23A, 23B, and 22(h) of the Federal
Reserve Act, as well as additional limitations set forth in current law and
as adopted by the OTS. In addition, current law generally prohibits a
savings association from lending or otherwise extending credit to an
affiliate, other than the association's subsidiaries, unless the affiliate
is engaged only in activities that the Federal Reserve Board has determined
to be permissible for bank holding companies and that the OTS has not
disapproved. OTS regulations provide guidance in determining an affiliate
of a savings association and in calculating compliance with the
quantitative limitations on transactions with affiliates.
TAXATION. Savings and loan associations that meet certain definitional
tests and other conditions prescribed by the Internal Revenue Code are
allowed a bad debt reserve deduction computed as a percentage of taxable
income before such deduction. Accordingly, qualifying savings and loan
associations are subject to a lower effective federal income tax rate than
that applicable to corporations generally. The effective federal income
tax rate applicable to qualifying savings and loan associations is
approximately 32.2%.
The bad debt reserve deduction computed as a percentage of taxable
income is available only to the extent that amounts accumulated in the bad
debt reserve for certain real estate loans defined as "qualifying real
estate loans" do not exceed 6% of such loans at yearend. In addition, the
deduction is further limited to the amount by which 12% of customer
deposits at yearend exceeds the sum of surplus, undivided profits and
reserves at the beginning of the year. At December 31, 1994, the 6% and
12% limitations did not restrict the bad debt reserve deduction of World,
and it is expected that such limitations will not be restricting factors in
the future. Qualifying savings and loan associations that file income tax
returns as members of a consolidated group are required to reduce their bad
debt reserve deduction for tax losses attributable to non-savings and loan
association members of the group whose activities are functionally related
to the activities of the savings and loan association member.
If the accumulated bad debt reserves are used for any purpose other
than to absorb bad debt losses, federal income taxes may be imposed at the
then applicable rates. In addition, if such reserves are used to pay
dividends or to make other distributions with respect to a savings and loan
association stock (such as redemption or liquidation), special additional
taxes would be imposed.
<PAGE>PAGE 39
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
Although generally similar, differences exist, with respect to the
determination of taxable income, among the Internal Revenue Code and the
tax codes of the states in which the Company operates. These states do not
allow the special percentage of taxable income method of computing the bad
debt reserve, discussed above, which can cause the Company's taxable income
at the state level to be significantly different from its taxable income at
the federal level.
Golden West 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.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes." FAS 109 required a change from the deferred to the liability
method of computing deferred income taxes. The Company has applied FAS 109
prospectively. The cumulative effect of this change in accounting for
income taxes for the periods ending prior to January 1, 1993, is not
material. FAS 109 required the Company to adjust its purchase accounting
for prior business combinations by increasing deferred tax assets and
reducing goodwill by $23 million to reflect the non-taxability of purchase
accounting income. This deferred tax asset is being amortized over the
remaining lives of the related purchased assets.
EMPLOYEE RELATIONS
The Company had a total of 3,877 full-time and 682 permanent part-time
employees at December 31, 1994. None of the employees of the Company are
represented by any collective bargaining group. The management of the
Company considers employee relations to be good.
ITEM 2. PROPERTIES
Properties owned by the Company are located in Arizona, California,
Colorado, Florida, Kansas, New Jersey, and Texas. The executive offices of
the Company are located at 1901 Harrison Street, Oakland, California, in
leased facilities.
The Company continuously evaluates the suitability and adequacy of the
offices of the Company and has a program of relocating or remodeling them
as necessary to maintain efficient and attractive facilities.
The Company completed building a 300,000 square-foot office complex on
an 111-acre site in San Antonio, Texas, during 1994. This complex houses
its Loan Service, Savings Operations, and Information Systems Departments.
<PAGE>PAGE 40
ITEM 2. PROPERTIES (Continued)
The Company owns 177 of its branches, some of which are located on
leased land. For further information regarding the Company's investment in
premises and equipment and expiration dates of long-term leases, see Note J
to the Financial Statements, in Item 14.
ITEM 3. LEGAL PROCEEDINGS
Savings and loan associations and other financial institutions that
take consumer deposits and make mortgage loans in California have been
named from time to time in class action proceedings that question the
legality of certain terms of deposit and loan agreements and the
implementation of such agreements. World is named as a defendant in one
action that purports to be a class action relating to certain deposit
products of World. This action was dismissed at the trial court level,
and, upon appeal, the dismissal was affirmed in part and reversed in part.
The action was subsequently remanded to the trial court level, where a
class has been certified and a trial scheduled for the end of March 1995.
World is also named as a defendant in four actions that purport to be class
actions relating to certain loan products of World. No class has been
certified in any of these four actions, all of which are in their
preliminary stages. In the opinion of management, the result of these
actions will not have a material effect on the Company's consolidated
financial condition or results of operations. The Company and its subsid-
iaries are parties to other actions arising in the ordinary course of
business, none of which, in the opinion of management, is material to the
Company's consolidated financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
MARKET PRICES OF STOCK
Golden West's stock is listed on the New York Stock Exchange and
Pacific Stock Exchange and traded on the Boston and Midwest Stock Exchanges
under the ticker symbol GDW. The quarterly price ranges for the Company's
common stock during 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
TABLE 25
Common Stock Price Range
1994 1993
--------------- ---------------
<S> <C> <C>
First Quarter 37 1/2 - 46 41 - 50 3/8
Second Quarter 37 3/8 - 41 1/8 39 1/2 - 48 7/8
Third Quarter 38 5/8 - 44 1/4 38 3/8 - 44
Fourth Quarter 34 1/4 - 40 1/4 37 1/8 - 44 3/4
</TABLE>
<PAGE>PAGE 41
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS (Continued)
PER SHARE CASH DIVIDENDS DATA
Golden West's cash dividends paid per share for 1994 and 1993 were as
follows:
<TABLE>
<CAPTION>
TABLE 26
Cash Dividends Per Share
1994 1993
----- -----
<S> <C> <C>
First Quarter $.075 $.065
Second Quarter $.075 $.065
Third Quarter $.075 $.065
Fourth Quarter $.085 $.075
</TABLE>
The principal sources of funds for the payment by Golden West of cash
dividends are cash dividends paid to it by World Savings, investment
income, and short-term borrowings.
Under OTS regulations, the OTS must be given at least 30 days' advance
notice by the Association of any proposed dividend to be paid to the
parent. Under OTS regulations, World Savings is classified as a Tier 1
association and is, therefore, allowed to distribute dividends up to 100%
of its net income in any year plus one-half of its capital in excess of the
OTS fully phased-in capital requirement as of the end of the prior year.
At December 31, 1994, $328 million of the Association's retained
earnings had not been subjected to federal income taxes due to the
application of the bad debt deduction, and $1.8 billion of the
Association's retained earnings were available for the payment of cash
dividends without the imposition of additional federal income taxes.
STOCKHOLDERS
At the close of business on March 17, 1995, 58,591,005 shares of
Golden West's Common Stock were outstanding and were held by 1,850
stockholders of record. At the close of business on March 17, 1995, the
Company's common stock price was 37 3/4.
The transfer agent and registrar for the Golden West Common Stock is
First Interstate Bank, San Francisco, California 94104.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and
other data for Golden West for the years indicated. Such information is
qualified in its entirety by the more detailed financial information set
forth in the financial statements and notes thereto appearing in the
documents incorporated herein by reference.
<PAGE>PAGE 42
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 27
Five Year Consolidated Summary of Operations
($000s Omitted, Except Per Share Amounts)
Year Ended December 31
---------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on loans $1,649,413 $1,637,764 $1,740,845 $1,877,955 $1,730,408
Interest on MBS 103,927 138,874 178,010 210,834 209,846
Interest and dividends on investments 123,137 93,534 65,655 125,801 158,068
---------- ---------- ---------- ---------- ----------
1,876,477 1,870,172 1,984,510 2,214,590 2,098,322
Interest Expense:
Interest on customer deposits 714,353 705,700 844,710 1,094,383 1,022,706
Interest on advances and other
borrowings 440,754 431,714 422,470 488,431 578,771
---------- ---------- ---------- ---------- ----------
1,155,107 1,137,414 1,267,180 1,582,814 1,601,477
---------- ---------- ---------- ---------- ----------
Net interest income 721,370 732,758 717,330 631,776 496,845
Provision for loan losses 62,966 65,837 43,218 34,984 18,701
---------- ---------- ---------- ---------- ----------
Net interest income after provision for
loan losses 658,404 666,921 674,112 596,792 478,144
Non-Interest Income:
Fees 28,816 31,061 24,458 20,889 17,069
Gain (loss) on the sale of securities
and mortgage-backed securities (120) 22,541 4,058 (1,021) 3,127
Other 8,790 8,440 12,601 7,008 8,698
---------- ---------- ---------- ---------- ----------
37,486 62,042 41,117 26,876 28,894
Non-Interest Expense:
General and administrative:
Personnel 150,220 132,472 118,553 107,759 95,476
Occupancy 44,472 40,443 38,521 35,619 31,750
Advertising 10,761 10,782 8,968 10,486 11,017
Other 97,466 89,470 84,833 81,557 69,450
---------- ---------- ---------- ---------- ----------
302,919 273,167 250,875 235,421 207,693
Amortization of goodwill arising from
acquisitions 2,589 (1,586) 661 1,532 16,657
---------- ---------- ---------- ---------- ----------
305,508 271,581 251,536 236,953 224,350
---------- ---------- ---------- ---------- ----------
Earnings before taxes on income 390,382 457,382 463,693 386,715 282,688
Taxes on income 159,933 183,528 180,155 148,116 101,231
---------- ---------- ---------- ---------- ----------
Net earnings $ 230,449 $ 273,854 $ 283,538 $ 238,599 $ 181,457
========== ========== ========== ========== ==========
Net earnings per share $ 3.71 $ 4.28 $ 4.46 $ 3.76 $ 2.87
========== ========== ========== ========== ==========
</TABLE>
<PAGE>PAGE 43
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 28
Five Year Summary of Financial Condition
($000s Omitted)
At December 31
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets $31,683,741 $28,829,288 $25,890,921 $24,297,784 $22,562,101
Cash, securities available for sale,
and other investments 2,265,886 2,417,871 1,179,868 1,289,327 1,343,464
Mortgage-backed securities 1,194,378 1,522,536 1,791,615 2,000,167 2,485,695
Loans receivable 27,071,266 23,912,571 21,968,676 20,087,432 17,730,447
Goodwill arising from acquisitions 136,245 136,754 155,873 181,733 304,266
Customer deposits 19,219,389 17,422,484 16,486,246 16,818,510 14,372,484
Advances from Federal Home Loan Banks 6,488,418 6,281,691 5,499,363 4,159,796 3,834,755
Securities sold under agreements to
repurchase and other borrowings 601,821 1,119,414 637,977 840,358 2,314,051
Medium-term notes 1,164,079 676,540 81,267 166,750 960,869
Subordinated debt 1,221,559 1,220,061 921,701 625,105 426,200
Stockholders' equity 2,000,274 2,065,604 1,727,398 1,449,135 1,220,403
</TABLE>
<PAGE>PAGE 44
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 29
Five Year Selected Other Data
($000s Omitted)
Year Ended December 31
---------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
New real estate loans originated $6,637,653 $6,411,877 $6,455,090 $4,877,157 $4,309,494
Average yield on new real estate loans 6.44% 6.86% 8.06% 9.83% 10.64%
Customer deposits increase (decrease) ($) $1,796,905 $ 936,238 $ (332,264) $2,446,026 $2,585,100
Customer deposits increase (decrease) (%) 10.3% 5.7% (2.0)% 17.0% 21.9%
Net earnings/average net worth 11.11% 14.68% 17.86% 17.92% 15.98%
Net earnings/average assets .78% .98% 1.12% 1.00% .86%
General and administrative expense to:
Total revenues 15.83% 14.14% 12.39% 10.50% 9.76%
Average assets 1.02% .97% .99% .99% .99%
Ratio of earnings to fixed charges:(a)
Including interest on customer deposits 1.34x 1.40x 1.36x 1.24x 1.18x
Excluding interest on customer deposits 1.87x 2.05x 2.08x 1.78x 1.48x
Yield on loan portfolio 6.85% 6.73% 7.52% 9.30% 10.50%
Yield on MBS 8.37% 8.67% 9.30% 9.74% 9.81%
Yield on investments 5.42% 3.80% 4.17% 5.41% 8.11%
Yield on earning assets 6.81% 6.61% 7.52% 9.16% 10.29%
Cost of deposits 4.57% 3.92% 4.40% 6.09% 7.76%
Cost of borrowings 5.85% 4.69% 5.58% 7.48% 8.73%
Cost of funds 5.00% 4.18% 4.75% 6.44% 8.06%
Spread 1.81% 2.43% 2.77% 2.72% 2.23%
Nonperforming asset/total assets(b) 1.12% 1.37% 1.27% 1.16% .77%
Stockholders' equity/total assets 6.31% 7.16% 6.67% 5.96% 5.41%
Average stockholders' equity/average assets 6.98% 6.65% 6.27% 5.60% 5.40%
World Savings and Loan Association regulatory
capital ratios:(c)
Tangible capital 6.26% 7.27% 6.54% 5.79% 4.61%
Core capital 6.64% 8.02% 7.54% 6.96% 6.00%
Risk-based capital 13.54% 17.42% 16.28% 14.98% 13.52%
Number of savings branch offices 237 227 227 231 211
Cash dividends per share $.31 $.27 $.23 $.19 $.165
Dividend payout ratio 8.34% 6.31% 5.16% 5.05% 5.75%
</TABLE>
(a) Earnings represent income from continuing operations before income taxes
and fixed charges. Fixed charges include interest expense and
amortization of debt expense.
(b) The definition of nonperforming assets includes nonaccrual loans (loans
that are 90 days or more past due) and real estate owned acquired through
foreclosure.
(c) The requirements were 1.5%, 3.0%, and 8.0% (7.2% prior to December 31,
1992) for tangible, core, and risk-based capital, respectively, at
December 31, 1993, and 1994. World Savings and Loan Association currently
meets its fully phased-in capital requirement.
<PAGE>PAGE 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
For the year ended December 31, 1994, Golden West Financial Corporation
(Golden West or Company) reported net earnings of $230 million, or $3.71 per
share, compared with $274 million, or $4.28 per share, in 1993 and
$284 million, or $4.46 per share, in 1992.
Golden West's principal subsidiary, World Savings and Loan Association
(World Savings or Association), headquartered in Oakland, California, had 237
savings branch offices and $31 billion in assets at December 31, 1994. World
Savings is the third largest thrift in the country. At December 31, 1994,
the Association's savings network included 117 branches in California, 59 in
Colorado (seven of which were subsequently sold in January 1995 with
$153 million in deposits), 20 in Florida, 14 in Texas, ten in Kansas, nine in
Arizona, and eight in New Jersey. By virtue of being a federally chartered
thrift, World Savings can originate mortgages anywhere in the nation, even
though the Association may not be authorized to conduct deposit gathering
business in the same jurisdictions. In addition to the states with savings
operations referenced above, World Savings had lending operations in
Connecticut, Delaware, Idaho, Illinois, Maryland, Minnesota, Missouri,
Nevada, New Mexico, Oregon, Pennsylvania, Utah, Virginia, Washington, and
Wisconsin.
The following narrative focuses on the significant financial statement
changes that have taken place at Golden West over the past three years and
includes a discussion of the Company's financial condition, results of
operations, and liquidity and capital resources.
FINANCIAL CONDITION
The table on the following page summarizes the Company's major asset,
liability, and equity components in percentage terms at yearends 1994, 1993,
1992, and 1991. As the table shows, customer deposits represent the majority
of the Company's liabilities. On the other side of the balance sheet, the
loan portfolio, which consists primarily of long-term mortgages, is the
largest asset component.
<PAGE>PAGE 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
<TABLE>
<CAPTION>
TABLE 30
Asset, Liability, and Equity Components as
Percentages of the Total Balance Sheet
December 31
----------------------------
1994 1993 1992 1991
------ ------ ------ ------
<S> <C> <C> <C> <C>
Assets:
Cash and investments 7.2% 8.4% 4.6% 5.3%
Mortgage-backed securities 3.8 5.3 6.9 8.2
Loans receivable 85.4 82.9 84.9 82.7
Other assets 3.6 3.4 3.6 3.8
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Liabilities and
Stockholders' Equity:
Customer deposits 60.7% 60.4% 63.7% 69.2%
FHLB advances 20.5 21.8 21.2 17.1
Securities sold under
agreements to repurchase 1.9 1.5 2.2 2.7
Medium-term notes 3.7 2.4 0.3 0.7
Federal funds purchased 0.8 0.0 0.0 0.0
Other liabilities 2.3 2.5 2.3 1.7
Subordinated debt 3.8 4.2 3.6 2.6
Stockholders' equity 6.3 7.2 6.7 6.0
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
The disparity between the repricing (maturity or interest rate change)
of deposits and other liabilities and the repricing of mortgage loans can
affect the Company's liquidity and can have a material impact on the
Company's results of operations. The difference between the repricing of
assets and liabilities is commonly referred to as the gap. The gap table
on the following page shows that, as of December 31, 1994, the Company's
assets are scheduled to reprice sooner than its liabilities. Consequently,
one would expect falling interest rates to lower Golden West's earnings and
rising rates to increase the Company's earnings. However, Golden West's
earnings are also affected by the built-in lag 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.
Consequently, when the interest rate environment changes, the COFI
reporting lag causes assets to initially reprice more slowly than
liabilities, enhancing earnings when rates are falling and holding down
<PAGE>PAGE 47
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
income when rates rise. In addition to the COFI reporting lag, other
elements of ARM loans also have an impact on earnings. These elements are
the interest rate adjustment frequency of ARM loans, interest rate caps or
limits on individual rate changes, interest rate floors, and introductory
rates on new ARM loans.
<TABLE>
<CAPTION>
TABLE 31
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of December 31, 1994
(Dollars in Millions)
Projected Repricing(a)
-------------------------------------------
0-3 4-12 1-5 Over 5
Months Months Years Years Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Investments $ 1,144 $ 119 $ 657 $ 103 $ 2,023
Mortgage-backed securities 107 98 396 593 1,194
Loans Receivable:
Rate-sensitive 20,789 2,655 396 -0- 23,840
Fixed-rate 65 196 957 1,789 3,007
Other(b) 481 -0- -0- -0- 481
Impact of hedging 1,026 180 (521) (685) -0-
------- ------- ------- ------- -------
Total $23,612 $ 3,248 $ 1,885 $1,800 $30,545
Interest-Bearing Liabilities(c):
Customer deposits $ 6,786 $ 7,462 $ 4,823 $ 148 $19,219
FHLB advances 4,634 1,225 540 89 6,488
Other borrowings 1,292 120 1,018 808 3,238
Impact of hedging 4,086 (1,793) (2,324) 31 -0-
------- ------- ------- ------- -------
Total $16,798 $ 7,014 $ 4,057 $1,076 $28,945
------- ------- ------- ------- -------
Repricing gap $ 6,814 $(3,766) $(2,172) $ 724
======= ======= ======= ======
Cumulative gap $ 6,814 $ 3,048 $ 876 $1,600
======= ======= ======= ======
Cumulative gap as a
percentage of total assets 21.5% 9.6% 2.8%
======= ======= =======
</TABLE>
(a) Based on scheduled maturity or scheduled repricing; loans reflect
scheduled repayments and projected prepayments of principal.
(b) Includes cash in banks and FHLB stock.
(c) Liabilities with no maturity date, such as passbook and money market
deposit accounts, are assigned zero months.
CASH AND INVESTMENTS
Golden West's investment portfolio is composed primarily of federal
funds, short-term repurchase agreements collateralized by mortgage-backed
securities, short-term money market securities, and collateralized mortgage
<PAGE>PAGE 48
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
obligations. In determining the amounts of assets to invest in each class
of investments, the Company considers relative rates, liquidity, and credit
quality. When opportunities arise, the Company enters into arbitrage
transactions with secured borrowings and short-term investments to profit
from the rate differential. 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.
The Office of Thrift Supervision (OTS) requires insured institutions,
such as World Savings, 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 customer deposits and
short-term borrowings. For the months ended December 31, 1994, 1993, and
1992, World's regulatory average liquidity ratio was 7%, 8%, and 7%,
respectively, consistently exceeding the requirement.
Effective December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." FAS 115 establishes three
investment classifications: held to maturity, trading, and available for
sale. At December 31, 1994, the Company had no securities held to maturity
or for trading. At December 31, 1994, and 1993, the Company had securities
available for sale in the amount of $1.5 billion and $1.6 billion,
respectively, and unrealized gains on securities available for sale
included in stockholders' equity of $13 million and $41 million,
respectively. The Company has other investments that are recorded at cost
with any discount or premium amortized using a method that is not
materially different from the interest method.
Included in the securities available for sale at December 31, 1994,
and 1993, were collateralized mortgage obligations (CMOs) in the amount of
$668 million and $275 million, respectively. The Company holds CMOs on
which both principal and interest are received. At December 31, 1994, the
majority of the Company's CMOs had remaining terms to maturity of five
years or less and qualified for inclusion in regulatory liquidity
measurement.
MORTGAGE-BACKED SECURITIES
FAS 115 also requires the same three classifications for
mortgage-backed securities (MBS): held to maturity, trading, and available
for sale. In accordance with FAS 115, the Company modified its accounting
policies as of December 31, 1993, to identify MBS as either held to
maturity or available for sale. The Company has no trading MBS. At
December 31, 1994, and 1993, the Company had mortgage-backed securities
<PAGE>PAGE 49
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
held to maturity in the amount of $871 million and $408 million,
respectively. At December 31, 1994, and 1993, the Company had
mortgage-backed securities available for sale in the amount of $323 million
and $1.1 billion, respectively, and unrealized gains on mortgage-backed
securities included in stockholders' equity of $6 million and $44 million,
respectively.
Effective December 31, 1993, the Company adopted the provisions of
FAS 115, "Accounting for Certain Investments in Debt and Equity Securities"
and, in accordance with FAS 115, placed a portion of its MBS portfolio from
held to maturity status to its available for sale portfolio. After
reviewing the opportunities to sell MBS together with the capacity to hold
MBS for investment, the Company decided to retain a larger volume for
investment. Consequently, as permitted by FAS 115, during 1994, the
Company transferred $454 million of its available for sale portfolio of MBS
to its held to maturity portfolio. The unrealized holding gain on these
securities in the amount of $7 million will be amortized as a yield
adjustment over the remaining life of these securities.
Repayments of MBS during the years 1994, 1993, and 1992 amounted to
$311 million, $646 million, and $552 million, respectively. The
mortgage-backed securities held are primarily fixed-rate pass-through
obligations and are subject to prepayment and interest rate risk similar to
fixed-rate loans. In rising interest rate environments, the rate of
repayment on this type of mortgage-backed security tends to decrease
because of lower prepayments on the underlying mortgages as exhibited in
the reduction of repayments between 1994 and 1993. The increase in
repayments in 1993 over 1992 was primarily due to an increase in refinance
activity as many borrowers took advantage of lower interest rates available
at that time.
LOAN PORTFOLIO
New loan originations in 1994, 1993, and 1992 amounted to
$6.6 billion, $6.4 billion, and $6.5 billion, respectively. Refinanced
loans constituted 41% of new loan originations in 1994 compared to 59% in
1993 and 56% in 1992. Higher interest rates during 1994 caused the volume
of refinance activity in the marketplace to drop considerably from the
record high levels of 1993. Refinance activity is expected to decline
further if rates remain at current levels or continue to increase. Higher
rates have brought other market changes as well, including a renewed
consumer interest in adjustable rate mortgages, which are currently more
attractively priced than traditional fixed-rate loans.
<PAGE>PAGE 50
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
Golden West continues to emphasize adjustable rate mortgages
(ARMs)--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 89% at yearend 1994
compared to 87% at yearends 1993 and 1992. While rates offered on
fixed-rate mortgages rose significantly during 1994, lower rates on ARM
loans made adjustable instruments more attractive in the marketplace.
Golden West's ARM originations constituted approximately 93% of new
mortgage loans made by the Company in 1994, compared with 75% in 1993 and
80% in 1992.
Approximately $4.8 billion of the Association's ARMs have terms that
state that the interest rate may not fall below a lifetime floor set at the
time of origination. As of December 31, 1994, $948 million of these ARMs
were at their rate floors. The weighted average floor rate on these loans
was 7.56% at December 31, 1994. Without the floor, the average yield on
these loans would have been 6.47%.
Although the Company has lending operations in 22 states, the primary
mortgage origination focus continues to be on residential property in
California. In 1994, 62% of total loan originations were on residential
properties in California, compared to 73% and 83% in 1993 and 1992,
respectively. While there was a decrease in originations in California,
the increase in total originations in 1994 as compared to 1993 and 1992 was
due to increased activity by the Company in markets outside California.
The percentage of the total loan portfolio (excluding mortgage-backed
securities) that is comprised of residential loans in California was 77% at
December 31, 1994, 81% at December 31, 1993, and 83% at December 31, 1992.
The total growth in the portfolio for the year ended December 31, 1994, was
$3.2 billion or 13% compared to $1.9 billion or 9% for the year ended
December 31, 1993.
Loan repayments consisting of monthly loan amortization, payoffs, and
refinances during the years 1994, 1993, and 1992 amounted to $3.2 billion,
$3.8 billion, and $4.1 billion, respectively. The decrease in repayments
in 1994 compared with 1993 was due to lower mortgage payoffs and lower
refinances within the Company's loan portfolio.
The Company adopted Statement of Financial Accounting Standards
No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan,"
during December 1993. FAS 114 requires that impaired loans for which
foreclosure is probable should be accounted for as loans. As a result, at
December 31, 1993, $16 million of in-substance foreclosed loans, with a
valuation allowance of $7 million, were reclassified from real estate held
for sale to loans receivable.
<PAGE>PAGE 51
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
One measure of the soundness of the Company's portfolio is its ratio
of nonperforming assets (NPAs) to total assets. Nonperforming assets
include nonaccrual loans (loans that are 90 days or more past due) and real
estate acquired through foreclosure. NPAs amounted to $355 million, $394
million, and $330 million at yearends 1994, 1993, and 1992, respectively.
The decrease in NPAs in 1994 was primarily due to a decrease in slow
loans in the fourth quarter of 1994. We believe this improvement is a
result of the improvement in the California economy. The Company continues
to closely monitor all delinquencies and takes appropriate steps to protect
its interests.
The Company's troubled debt restructured (TDRs) were $73 million, or
0.23% of assets, at December 31, 1994, compared to $37 million, or 0.13% of
assets, at December 31, 1993, and $13 million, or 0.06% of assets, at
December 31, 1992. At December 31, 1994, TDRs included $22 million or
0.07% of loans modified as a result of the January 1994 Southern California
earthquake. The Company's TDRs are made up of loans on which delinquent
loan payments have been capitalized or on which temporary interest rate
reductions have been made, primarily to customers negatively impacted by
adverse economic conditions and who are expected to perform in the future.
The Company's ratio of NPAs and TDRs to total assets was 1.35% at
December 31, 1994, compared to 1.50% and 1.33% at yearends 1993 and 1992,
respectively.
The Company has other impaired loans on which specific loss reserves
have been provided that are not otherwise included in nonperforming loans
or troubled debt restructured. Other impaired loans amounted to
$41 million and $26 million at yearends 1994 and 1993.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was $124 million at
December 31, 1994, compared to $107 million and $71 million at yearends
1993 and 1992, respectively. The provision for loan losses was
$63 million, $66 million, and $43 million in 1994, 1993, and 1992,
respectively.
The Company utilizes a methodology for monitoring and estimating loan
losses that is based on both historical experience in the loan portfolio
and factors reflecting current economic conditions. This approach uses a
data base 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 loss allowances to cover losses in the portfolio.
<PAGE>PAGE 52
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The Company has provided for any known losses related to the January
1994 Northridge (Southern California) earthquake. The 1994 loan loss
reserve and provision for loan losses included $3.7 million in loss
reserves specifically identified for earthquake losses.
REAL ESTATE HELD FOR SALE
Real estate held for sale increased to $71 million at December 31,
1994, from $64 million a year earlier. The increase occurred primarily due
to the increase in nonaccrual loans in prior periods, which resulted from
the weakening in the California economy and the decrease in real estate
prices. The components of the real estate held for sale portfolio at
December 31, 1994, 1993, and 1992, are shown as follows:
<TABLE>
<CAPTION>
TABLE 32
Real Estate Held for Sale(a)
(Dollars In Thousands)
December 31
---------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Real estate acquired
through foreclosure $70,981 $62,724 $56,642
Real estate in judgement 390 1,366 1,030
Loans in-substance
foreclosed(b) -0- -0- 9,351
------- ------- -------
$71,371 $64,090 $67,023
======= ======= =======
</TABLE>
(a) All amounts are net of general valuation allowance.
(b) Loans in-substance foreclosed were reclassified to be
included in the Company's total loan portfolio. See
Note A in the audited financial statements.
CUSTOMER DEPOSITS
Customer deposits increased by $1.8 billion compared to an increase of
$936 million in 1993 and a decrease of $332 million in 1992. The increase
in customer deposits during 1994 resulted from the improvement in the
savings market as interest rates rose as well as aggressive promotions.
Consumer funds were attracted during 1993 as a result of special promotions
in the Company's savings markets. In 1994 the Company acquired three
branches in New Jersey with $78 million in deposits. In 1993, the Company
acquired seven branches in Arizona containing $320 million in deposits and
sold all seven of the Ohio branches with $264 million in deposits.
<PAGE>PAGE 53
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
ADVANCES FROM FEDERAL HOME LOAN BANKS
The Company uses Federal Home Loan Bank (FHLB) borrowings, also known
as "advances," to supplement cash flow and to provide funds for loan
origination activities. Advances offer strategic advantages for
asset-liability management including long-term maturities and, in certain
cases, prepayment at the Company's option. FHLB advances amounted to
$6.5 billion at December 31, 1994, compared to $6.3 billion and
$5.5 billion at December 31, 1993, and 1992, respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). These funds are used
to take advantage of arbitrage investment opportunities and to supplement
cash flow. Reverse Repos are entered into with selected major government
securities dealers, as well as large banks, typically using MBS from the
Company's portfolio. Reverse Repos with dealers and banks amounted to
$602 million, $443 million, and $557 million at yearends 1994, 1993, and
1992, respectively.
OTHER BORROWINGS
At December 31, 1994, Golden West had on file a registration statement
with the Securities and Exchange Commission for the sale of up to
$100 million of subordinated notes.
The Company had issued a total of $1.0 billion of subordinated debt at
December 31, 1994. As of December 31, 1994, the Company's subordinated
debt was rated A3 and A- by Moody's Investors Service (Moody's) and
Standard & Poor's Corporation (S&P), respectively.
World Savings currently has on file a shelf registration with the OTS
for the issuance of $1.0 billion of unsecured medium-term notes. As of
December 31, 1994, $700 million was available for issuance. The
Association has medium-term notes outstanding under the current and prior
registrations with principal amounts of $1.2 billion at December 31, 1994,
compared to $677 million at December 31, 1993, and $81 million at
December 31, 1992. As of December 31, 1994, the Association's medium-term
notes were rated A1 and A+ by Moody's and S&P, respectively.
World Savings also has on file a registration statement with the OTS
for the sale of up to $250 million of subordinated notes. Under a prior
filing with the OTS, $50 million of subordinated notes remain unissued. As
of December 31, 1994, World Savings had issued a total of $200 million of
subordinated notes. As of December 31, 1994, World Savings' subordinated
notes were rated A2 and A by Moody's and S&P, respectively. The
subordinated notes are included in World Savings' risk-based regulatory
capital as supplementary capital.
<PAGE>PAGE 54
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
STOCKHOLDERS' EQUITY
The Company's stockholders' equity decreased during 1994 due to the
$216 million cost of the repurchase of Company stock and the $66 million
decrease in unrealized gains on securities available for sale caused by the
decrease in market values of securities available for sale since
December 31, 1993. These decreases in stockholders' equity were partially
offset by 1994's net earnings. The Company increased its total
stockholders' equity in 1993 and 1992 through the retention of a high
percentage of net earnings. In addition, stockholders' equity increased in
1993 by $85 million due to the adoption of FAS 115 as of December 31, 1993.
On October 28, 1993, the Company's Board of Directors authorized the
purchase by the Company of up to 3.2 million shares of Golden West's common
stock. On July 28, 1994, the Company's Board of Directors authorized the
purchase by the Company of an additional 3.088 million shares of Golden
West's common stock. As of December 31, 1994, 5,765,180 of such shares had
been repurchased and retired at a cost of $223 million since October 28,
1993. During 1994, 5,561,180 of the shares were purchased and retired at a
cost of $216 million. The repurchase of Company stock is not intended to
have a material impact on the normal liquidity of the Company.
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.
The OTS requires federally insured institutions, such as World, to
meet minimum capital requirements. Under these regulations, a savings
institution is required to meet three separate capital requirements. The
first requirement is to have tangible capital of 1.5% of adjusted total
assets. At December 31, 1994, World Savings had tangible capital of
$1.9 billion, or 6.26% of adjusted total assets, $1.5 billion in excess of
the regulatory requirement.
The second requirement is to have core capital of 3% of adjusted total
assets. Core capital is defined as tangible capital plus certain allowable
amounts of supervisory goodwill and direct investments. However, the
amount of supervisory goodwill and direct investments that can be counted
as core capital was phased-down to zero at January 1, 1995. At
December 31, 1994, World Savings had core capital of $2.0 billion, or 6.64%
of adjusted total assets, $1.1 billion in excess of the regulatory
requirement.
<PAGE>PAGE 55
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The third capital requirement is to have risk-based capital equal to
8.0% of risk-weighted assets. At December 31, 1994, World Savings had
risk-based capital in the amount of $2.4 billion, or 13.54% of
risk-weighted assets, exceeding the current requirement by $964 million.
During the first quarter of 1994, the OTS changed the regulations
concerning the criteria used to determine the risk weighting for
multi-family loans in the calculation of the risk-based capital ratio.
World Savings has taken a conservative approach and has weighted the
Association's entire multi-family portfolio at 100%. This change caused a
decrease in the risk-based capital ratio from December 1993 to
December 1994 and reduced our December 31, 1994, risk-based capital ratio
by approximately 100 basis points.
It should be noted that World Savings also continues to exceed all
three capital requirements on a fully phased-in basis, which became
effective January 1, 1995.
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 on the following page
summarizes the capital ratios for each of the five classifications and
shows that World Savings met the "well capitalized" standard as of
December 31, 1994.
<PAGE>PAGE 56
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
<TABLE>
<CAPTION>
TABLE 33
Relationship of Capital Ratios to
FDIC Capital Adequacy Classifications
- --------------------------------------------------------------------------------
Ratio of
Leverage Ratio of Tier 1 Total Capital to
Capital Capital to Risk- Risk-Weighted
Ratio(a) Weighted Assets(b) Assets(c)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Well capitalized 5.0% or 6.0% or greater 10.0% or greater
greater
Adequately 4.0% or 4.0% or greater 8.0% or greater
capitalized greater
Undercapitalized 3.0% or 3.0% or greater 6.0% or greater
greater
Significantly less than
undercapitalized 3.0% less than 3.0% less than 6.0%
Critically less than 2.0%
undercapitalized on a fully
phased-in basis
- --------------------------------------------------------------------------------
World Savings' ratios
at December 31, 1994 6.64% 11.78% 13.54%
- --------------------------------------------------------------------------------
</TABLE>
(a) Core capital divided by adjusted total assets.
(b) Core capital divided by risk-weighted assets.
(c) Total capital is the same as risk-based capital and consists of common
equity, retained earnings, non-cumulative perpetual preferred stock, and
supplemental capital including such items as qualifying subordinated debt,
cumulative perpetual and intermediate-term preferred stock, certain
convertible debt securities, and general allowances for loan losses.
The OTS limits capital distributions by savings and loan associations.
For purposes of capital distributions, the OTS has classified World Savings
as a Tier 1 association; thus, the Association may pay dividends during a
calendar year of up to 100% of net earnings to date during the calendar
year plus up to one-half of capital in excess of the fully phased-in
requirement at the end of the prior year subject to thirty days' advance
notice to the OTS. World Savings paid a total of $275 million in upstream
dividends to Golden West during 1994. The main purpose for the dividend
was to fund Golden West's stock repurchase program.
RESULTS OF OPERATIONS
PROFIT MARGINS/SPREADS
An important determinant of Golden West's earnings is its primary
spread--the difference between its yield on earning assets and its cost of
funds.
<PAGE>PAGE 57
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
The following table shows the components of the Company's primary
spread at the end of the years 1992 through 1994. As shown in the
following table, the primary spread narrowed during 1994 as interest rates
have begun to rise.
<TABLE>
<CAPTION>
TABLE 34
Yield on Earning Assets, Cost of Funds, and Primary Spread
Including the Effect of Purchase Accounting
December 31
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Yield on loan portfolio 6.91% 6.84% 7.66%
Yield on investments 5.42 3.80 4.17
----- ----- -----
Yield on earning assets 6.81 6.61 7.52
----- ----- -----
Cost of customer deposits 4.57 3.92 4.40
Cost of borrowings 5.85 4.69 5.58
----- ----- -----
Cost of funds 5.00 4.18 4.75
----- ----- -----
Primary spread 1.81% 2.43% 2.77%
===== ===== =====
</TABLE>
YIELD ON EARNING ASSETS
Golden West 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 monthly in accordance with an index based on the cost of
deposits and borrowings of savings institutions that are members of the
FHLB of San Francisco (the COFI). The yield on earning assets showed a
decline throughout 1992, 1993, and the first five months of 1994 due to a
decline in interest rates during 1992 and the stable interest rate
environment in 1993 and early 1994. Interest rates began to rise in early
1994; subsequently, the yield on the Company's loan portfolio began to
increase in mid-1994 as the COFI started to respond to the rising rates.
During 1992 and 1993, the Company experienced large payoffs of high-rate
fixed loans and MBS, which also contributed to the decrease in the yield on
loans.
COST OF FUNDS
Approximately 82% of Golden West's liabilities are subject to
repricing in less than one year. Because the cost of these liabilities is
affected by short-term interest rates, a fall in the general level of
interest rates led to a decrease in the Company's cost of funds during 1993
and 1992, while the increase in the interest rates during 1994 led to an
increase in the Company's cost of funds during 1994.
<PAGE>PAGE 58
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
HEDGING ACTIVITY
The Company enters into a variety of derivative financial instruments
as part of its interest rate risk management strategy. The Company does
not hold any derivative financial instruments for trading purposes. During
1994, the most frequently used derivative products were various types of
interest rate swaps and caps.
An interest rate swap is an agreement between two parties in which one
party exchanges cash payments based on a fixed or floating rate of interest
for a counterparty's cash payment based on a floating rate of interest.
The amounts to be paid are defined by agreement and determined by applying
the specified interest rates to a notional principal amount. Interest rate
swap agreements are entered into to alter the impact of changes in interest
rates on customer deposits, mortgage loans, or on other specified assets or
borrowings. Some interest rate swaps have been entered into with starting
dates in the future. The interest rate differential paid or received on
interest rate swap agreements is recognized over the life of the
agreements, with income and expense recorded in the same category as the
related balance sheet item. The related balance sheet item is generally a
pool of similar assets or liabilities.
An interest rate cap is an agreement between two parties in which one
party pays a fee for the right to receive a payment from a counterparty
based on the excess, if any, of an open market floating rate over a base
rate applied to a notional principal amount. When interest rates increase,
the excess that may be received on interest rate cap agreements reduces the
impact of the rate increases on consumer deposit costs and enhances
mortgage loan yields. Amounts which may be received on interest rate cap
agreements and fees paid to purchase the agreements are recognized over the
life of the agreements, with income and expense recorded in the same
category as the related balance sheet item. The related balance sheet item
is generally a pool of similar assets or liabilities.
Hedging decreased net interest income by $23 million, $71 million, and
$93 million for the years ended December 31, 1994, 1993, and 1992,
respectively.
The table on the following page summarizes the unrealized gains and
losses for derivative instruments at December 31, 1994, and 1993.
<PAGE>PAGE 59
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
TABLE 35
Unrealized Gains and Losses on Derivative Products
(Dollars in Thousands)
December 31, 1994
-----------------------------------
Net
Unrealized Unrealized Unrealized
Gains Losses Gain (Loss)
---------- ---------- -----------
<S> <C> <C> <C>
Interest rate swaps $68,987 $113,134 $(44,147)
Interest rate caps 589 -0- 589
Total $69,576 $113,134 $(43,558)
======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------
Net
Unrealized Unrealized Unrealized
Gains Losses Gain (Loss)
---------- ---------- -----------
<S> <C> <C> <C>
Interest rate swaps $71,195 $160,137 $(88,942)
Interest rate caps -0- 1,422 (1,422)
Total $71,195 $161,559 $(90,364)
======= ======== =========
</TABLE>
<TABLE>
<CAPTION>
TABLE 36
Derivative Activity
(Dollars in Millions)
Receive Pay Forward Interest
Fixed Fixed Basis Starting Rate
Swaps Swaps Swaps(a) Swaps Caps
------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $2,706 $2,582 $ 600 $210 $ 437
Additions 2,575 124 200 -0- -0-
Maturities (365) (481) -0- -0- (137)
Terminations -0- -0- (600) -0- -0-
Forward starting
becoming effective 75 -0- -0- (75) -0-
------ ------ ----- ---- -----
Balance at
December 31, 1994 $4,991 $2,225 $ 200 $135 $ 300
====== ====== ===== ==== =====
</TABLE>
(a) Receives floating, pays floating.
INTEREST ON LOANS
In 1994, interest on loans increased due to an increase in the average
portfolio balance, which was partially offset by a decrease in the average
portfolio yield. In 1993, interest on loans decreased due to a decline in
<PAGE>PAGE 60
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
the average portfolio yield partially offset by an increase in the average
portfolio balance.
INTEREST ON MBS
In 1994 and 1993, interest on MBS decreased due to a decline in the
average portfolio yield and a decrease in the average portfolio balance.
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. Interest and dividends on investments was higher in 1994 than
in 1993 due to an increase in the average portfolio balance and an increase
in the average portfolio yield. Income from the Company's investments was
higher in 1993 than in 1992 due to a higher average portfolio balance and
increased FHLB dividends.
INTEREST ON CUSTOMER DEPOSITS
The major portion of the Company's customer deposit base consists of
savings accounts with remaining maturities of two years or less. Thus, the
amount of interest paid on these funds depends upon the level of short-term
interest rates and the savings balances outstanding. The increase in
interest on customer deposits in 1994 was due to an increase in the average
balance of customer deposits partially offset by a decrease in the average
cost of deposits. The decrease in interest on customer deposits in 1993
was due to a decrease in the average cost of deposits.
INTEREST ON ADVANCES
Interest paid on FHLB advances was lower in 1994 as compared to 1993
due to a decrease in the average balance of these borrowings, which was
partially offset by an increase in the average cost of these borrowings.
Interest paid on FHLB advances was higher in 1993 than in 1992 due to an
increase in the average balance of these liabilities partially offset by a
decrease in the average cost.
INTEREST ON OTHER BORROWINGS
Interest expense on other borrowings amounted to $172 million,
$158 million, and $154 million for the years ended 1994, 1993, and 1992,
respectively. The increase in the expense from 1994 over 1993 and 1993
over 1992 was due to an increase in the average balance of these
liabilities partially offset by a decrease in the average cost.
<PAGE>PAGE 61
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
PROVISION FOR LOAN LOSSES
The provision for loan losses was $63 million, $66 million, and
$43 million for the years ended 1994, 1993, and 1992, respectively. The
decrease in the provision in 1994 compared with 1993 reflected the decrease
in nonaccrual loans as a result of the improvement in the California
economy. The 1994 provision included $3.7 million in specific earthquake
loss reserves. The increase in the provision from 1993 over 1992 reflected
increased chargeoffs, the continued buildup of the loan loss reserves, and
the weak California economy.
GAIN (LOSS) ON THE SALE OF SECURITIES AND MORTGAGE-BACKED
SECURITIES
The gain (loss) on the sale of securities and mortgage-backed
securities was a loss of $120 thousand for the year ended 1994 and a gain
of $23 million and $4 million for the years ended 1993 and 1992,
respectively. The 1993 gain included a $24 million reduction of a
valuation allowance on investments charged to income in a previous year
compared to a $4 million reduction in 1992.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased during the three years
under discussion. The primary reasons for the increases in 1994 and 1993
were the expansion of loan origination capacity and savings branches,
primarily outside of California; the expenses of relocating some of our
administrative operations to San Antonio, Texas; the installation of
enhancements to data processing systems; and general inflation. General
and administrative expense as a percentage of average assets was 1.02%,
0.97%, and 0.99% for the years ended December 31, 1994, 1993, and 1992,
respectively.
TAXES ON INCOME
Golden West 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.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income
Taxes." FAS 109 required a change from the deferred method to the
liability method of computing deferred income taxes. The Company has
applied FAS 109 prospectively.
<PAGE>PAGE 62
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
The consolidated financial statements presented for the years prior to
1993 reflect income taxes under the deferred method required by previous
accounting standards.
Taxes as a percentage of earnings increased in 1993 over 1992 due to
the effect of the amortization of the deferred tax asset related to the
$23 million adjustment arising from the adoption of FAS 109, as well as the
effect of the federal legislation enacted during the third quarter of 1993
that increased the federal corporate income tax rate from 34% to 35%.
ACQUISITIONS
During 1994, the Company acquired $78 million in deposits and three
branches in New Jersey from Polifly Savings and Loan.
During 1993, the Company acquired $320 million in deposits and seven
branches in Arizona from PriMerit Bank.
DIVESTITURES
During 1993, the Company sold $133 million of savings in two Ohio
branches to Trumbull Savings and Loan and its remaining five Ohio branches
with $131 million in deposits to Fifth Third Bancorp. During 1992, the
Company sold one branch in California containing $40 million in deposits
and two branches in the state of Washington containing $37 million in
deposits.
LIQUIDITY AND CAPITAL RESOURCES
The Association's principal sources of funds are cash flows generated
from earnings; customer deposits; loan repayments; borrowings from the
FHLB; issuance of medium-term notes; and debt collateralized by mortgages,
MBS, or securities. In addition, the Association has a number of other
alternatives available to provide liquidity or finance operations. These
include public offerings of debt or equity, sales of loans, negotiable
certificates of deposit, issuances of commercial paper, and borrowings from
commercial banks. Furthermore, under certain conditions, World Savings 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.
<PAGE>PAGE 63
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
The principal sources of funds for the Association's parent, Golden
West, are dividends from World Savings and the proceeds from the issuance
of debt and equity securities. Various statutory and regulatory
restrictions and tax considerations limit the amount of dividends the
Association can pay. The principal liquidity needs of the parent Company
are for payment of interest on subordinated debt securities, dividends to
stockholders, the purchase of Company stock, and general and administrative
expenses.
COMMON STOCK
The quarterly price ranges for the Company's common stock during 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
TABLE 37
Common Stock Price Range
1994 1993
--------------- ---------------
<S> <C> <C>
First Quarter 37 1/2 - 46 41 - 50 3/8
Second Quarter 37 3/8 - 41 1/8 39 1/2 - 48 7/8
Third Quarter 38 5/8 - 44 1/4 38 3/8 - 44
Fourth Quarter 34 1/4 - 40 1/4 37 1/8 - 44 3/4
</TABLE>
<PAGE>PAGE 64
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index included on page 72 and the financial statements, which
begin on page F-1, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows
(see footnote explanations on the following page):
Name and Age Position
------------ --------
Herbert M. Sandler, 63 Chairman of the Board and
Chief Executive Officer
Marion O. Sandler, 64 Chairman of the Board and
Chief Executive Officer (a)
James T. Judd, 56 Senior Executive Vice
President (b)
Russell W. Kettell, 51 President (c)*
J. L. Helvey, 63 Group Senior Vice
President (d)
David C. Welch, 52 Group Senior Vice President
and Treasurer (e)*
Dirk S. Adams, 43 Group Senior Vice
President (f)
Robert C. Rowe, 39 Vice President and
Secretary (g)
Louis J. Galen, 69 Director
Patricia A. King, 52 Director
William D. McKee, 68 Director
Bernard A. Osher, 67 Director
Kenneth T. Rosen, 46 Director
Paul Sack, 67 Director
* At the January 31, 1995, Board of Directors' meeting, David C. Welch
resigned as Treasurer of Golden West Financial Corporation, and
Russell W. Kettell was elected to the additional title of Treasurer of
Golden West Financial Corporation.
<PAGE>PAGE 65
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
Each of the above persons holds the same position with World with the
exception of James T. Judd who is President, Chief Operating Officer, and
Director of World and Russell W. Kettell who is a Senior Executive Vice
President and Director of World. Each executive officer has had the
principal occupations shown for the prior five years except as follows:
(a) Marion O. Sandler was elected Chairman of the Board of the
Company in February 1993. Prior thereto, Mrs. Sandler served as
President and Chief Executive Officer since 1980.
(b) James T. Judd was elected Senior Executive Vice President of the
Company in July 1989. Prior thereto, Mr. Judd served as
Executive Vice President since 1984 and Senior Vice President
since 1975.
(c) Russell W. Kettell was elected President of the Company in
February 1993. Prior thereto, Mr. Kettell served as Senior
Executive Vice President since 1989, Executive Vice President
since 1984, Senior Vice President since 1980, and Treasurer from
1976 until 1984.
(d) J. L. Helvey was elected Group Senior Vice President of the
Company in November 1988. Prior thereto, Mr. Helvey served as
Senior Vice President since 1973.
(e) David C. Welch was elected Group Senior Vice President and
Treasurer of the Company in -November 1988. Prior thereto,
Mr. Welch served as Senior Vice President and Treasurer since
1985, Vice President and Treasurer since 1984, and Vice President
and Assistant Treasurer since 1980.
(f) Dirk S. Adams was elected Group Senior Vice President of the
Company in November 1990. Prior thereto, Mr. Adams served as
Senior Vice President since 1987. Prior to that, Mr. Adams
served as Senior Vice President and General Counsel to the
Federal Home Loan Bank of San Francisco since 1983.
(g) Robert C. Rowe was elected Vice President and Secretary of the
Company in February 1991. Prior thereto, Mr. Rowe served as
Assistant Vice President and Secretary since 1989 and as General
Counsel since 1988. Prior to that, Mr. Rowe was a legal counsel
to the Federal Home Loan Bank of San Francisco since 1984.
For further information concerning the directors and executive
officers of the Registrant, see pages 2, 3, and 6 of the Registrant's Proxy
Statement dated March 10, 1995, which are incorporated herein by reference.
<PAGE>PAGE 66
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in Registrant's
Proxy Statement dated March 10, 1995, on pages 3 through 6 and 8 through 11
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth on pages 2, 3,
and 7 of Registrant's Proxy Statement dated March 10, 1995, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Indebtedness of Management" on page 8 of the Registrant's Proxy
statement dated March 10, 1995, which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Index to Financial Statements
See Index included on page 72 and the financial statements,
which begin on page F-1.
<PAGE>PAGE 67
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
(a) (2) Index to Financial Statement Schedules
Financial statement schedules are omitted because they are
not required or because the required information is included
in the financial statements or the notes thereto.
(3) Index To Exhibits
Exhibit No. Description
----------- -----------
3 (a) Certificate of Incorporation, as amend-
ed, and amendments thereto, are incorpo-
rated by reference from Exhibit 3(a) to
the Company's Annual Report on Form 10-K
(file No. 1-4629) for the year ended
December 31, 1990.
3 (b) By-Laws, as amended, are incorporated by
reference from Exhibit 3(b) to the
Company's Annual Report on Form 10-K
(file No. 1-4629) for the year ended
December 31, 1987.
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) 1978 Stock Option Plan, as amended,
is incorporated by reference from
Exhibit 10(a) to the Company's Annual
Report on Form 10-K (file No. 1-4629)
for the year ended December 31, 1987.
10 (b) 1987 Stock Option Plan, as amended,
is incorporated by reference from
Exhibit 10(b) to the Company's Annual
Report on Form 10-K (file No. 1-4629)
for the year ended December 31, 1991.
<PAGE>PAGE 68
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
(a) (3) Index To Exhibits (continued)
Exhibit No. Description
----------- -----------
10 (c) Deferred Compensation Agreement between
the Company and James T. Judd is
incorporated by reference from 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 from Exhibit
10(c) of the Company's Annual Report on
Form 10-K (file No. 1-4629) for the year
ended December 31, 1986.
10 (e) Deferred Compensation Agreement between
the Company and J. L. Helvey is incorpo-
rated by reference from 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 from 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 from 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 cer-
tain executive officers is incorporated
by reference from Exhibit 10(j) to the
Company's Annual Report on Form 10-K
(file No. 1-4629) for the year ended
December 31, 1990.
21 (a) Subsidiaries of the Registrant is
incorporated by reference from Exhibit
22(a) of the Company's Annual Report on
Form 10-K (file No. 1-4629) for the year
ended December 31, 1987.
23 (a) Independent Auditors' Consent.
27 Financial Data Schedule
<PAGE>PAGE 69
ITEM l4. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
(b) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a part of
section (a), Exhibits.
(c) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K with
the commission in the fourth quarter.
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of
1933, the undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into Registrant's
Registration Statements on Form S-8 Nos. 2-66913 (filed January 19, 1982)
and 33-14833 (filed June 5, 1987):
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
<PAGE>PAGE 70
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
By: /s/ Herbert M. Sandler 3/22/95
Chairman of the Board and
Chief Executive Officer
By: /s/ Marion O. Sandler 3/22/95
Chairman of the Board and
Chief Executive Officer
By: /s/ J. L. Helvey 3/22/95
Group Senior Vice President and
Chief Financial and
Accounting Officer
Dated: March 22, 1995
<PAGE>PAGE 71
Pursuant to the requirements of the Securities Exchange Act of l934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Louis J. Galen 3/22/95 /s/ Kenneth T. Rosen 3/22/95
Louis J. Galen, Kenneth T. Rosen,
Director Director
/s/ Patricia A. King 3/22/95 /s/ Paul Sack 3/22/95
Patricia A. King, Paul Sack,
Director Director
/s/ Herbert M. Sandler 3/22/95
William D. McKee, Herbert M. Sandler,
Director Director
/s/ Bernard A. Osher 3/22/95 /s/ Marion O. Sandler 3/22/95
Bernard A. Osher, Marion O. Sandler,
Director Director
<PAGE>PAGE 72
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-1
Golden West Financial Corporation and Subsidiaries:
Consolidated Statement of Financial Condition as of
December 31, 1994, and 1993 F-2
Consolidated Statement of Net Earnings for the years
ended December 31, 1994, 1993, and 1992 F-3
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1994, 1993, and 1992 F-4
Consolidated Statement of Cash Flows for the years
ended December 31, 1994, 1993, and 1992 F-5
Notes to Consolidated Financial Statements F-6
All supplemental schedules are omitted as inapplicable or because the
required information is included in the financial statements or notes
thereto.
<PAGE>PAGE F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Golden West Financial Corporation
Oakland, California
We have audited the accompanying consolidated statement of financial
condition of Golden West Financial Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of net
earnings, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1994. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Golden West Financial
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
Oakland, California
January 23, 1995
<PAGE>PAGE F-2
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
ASSETS
December 31
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Cash $ 242,441 $ 243,185
Securities available for sale at fair value (Note C) 1,488,845 1,636,586
Other investments at cost (fair value of $534,600 and
$538,100) (Notes D and M) 534,600 538,100
Mortgage-backed securities available for sale at fair
value (Notes E and M) 323,339 1,114,069
Mortgage-backed securities held to maturity at cost
(fair value of $831,436 and $412,243) (Notes F and M) 871,039 408,467
Loans receivable less allowance for loan losses of
$124,003 and $106,698 (Notes G and L) 27,071,266 23,912,571
Interest earned but uncollected (Note H) 202,456 175,080
Investment in capital stock of Federal Home Loan Bank,
at cost which approximates fair value (Note L) 332,940 325,737
Real estate held for sale or investment (Note I) 72,217 67,156
Prepaid expenses and other assets 206,478 108,832
Premises and equipment, net (Note J) 201,875 162,751
Goodwill arising from acquisitions (Notes A and B) 136,245 136,754
----------- -----------
$31,683,741 $28,829,288
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31
------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Customer deposits (Note K) $19,219,389 $17,422,484
Advances from Federal Home Loan Bank (Note L) 6,488,418 6,281,691
Securities sold under agreements to repurchase (Note M) 601,821 442,874
Medium-term notes (Note N) 1,164,079 676,540
Federal funds purchased, due 1995, at 6.4825% to 6.6075% 250,000 -0-
Accounts payable and accrued expenses 443,693 355,799
Taxes on income (Note P) 294,508 364,235
----------- -----------
28,461,908 25,543,623
Subordinated notes (Note O) 1,221,559 1,220,061
Stockholders' equity (Notes Q and R):
Preferred stock, par value $1.00:
Authorized 20,000,000 shares
Issued and outstanding, none
Common stock, par value $.10:
Authorized 200,000,000 shares
Issued and outstanding 58,589,955 and 63,928,935 shares 5,859 6,393
Paid-in capital 45,689 40,899
Retained earnings - substantially restricted 1,929,740 1,933,593
----------- -----------
1,981,288 1,980,885
Unrealized gains on securities available for sale 18,986 84,719
----------- -----------
Total Stockholders' Equity 2,000,274 2,065,604
----------- -----------
$31,683,741 $28,829,288
=========== ===========
</TABLE>
<PAGE>PAGE F-3
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET EARNINGS
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Interest Income:
Interest on loans $1,649,413 $1,637,764 $1,740,845
Interest on mortgage-backed securities 103,927 138,874 178,010
Interest and dividends on investments 123,137 93,534 65,655
---------- ---------- ----------
1,876,477 1,870,172 1,984,510
Interest Expense:
Interest on customer deposits (Note K) 714,353 705,700 844,710
Interest on advances 268,952 273,816 268,320
Interest on repurchase agreements 37,620 36,023 65,779
Interest on other borrowings 134,182 121,875 88,371
---------- ---------- ----------
1,155,107 1,137,414 1,267,180
---------- ---------- ----------
Net Interest Income 721,370 732,758 717,330
Provision for loan losses 62,966 65,837 43,218
---------- ---------- ----------
Net Interest Income after Provision for
Loan Losses 658,404 666,921 674,112
Non-Interest Income:
Fees 28,816 31,061 24,458
Gain (loss) on the sale of securities and
mortgage-backed securities (120) 22,541 4,058
Other 8,790 8,440 12,601
---------- ---------- ----------
37,486 62,042 41,117
Non-Interest Expense:
General and administrative:
Personnel 150,220 132,472 118,553
Occupancy 44,472 40,443 38,521
Deposit insurance 40,220 35,706 37,621
Advertising 10,761 10,782 8,968
Other 57,246 53,764 47,212
---------- ---------- ----------
302,919 273,167 250,875
Amortization of goodwill arising
from acquisitions (Note B) 2,589 (1,586) 661
---------- ---------- ----------
305,508 271,581 251,536
---------- ---------- ----------
Earnings Before Taxes on Income 390,382 457,382 463,693
Taxes on income (Note P) 159,933 183,528 180,155
---------- ---------- ----------
Net Earnings $ 230,449 $ 273,854 $ 283,538
========== ========== ==========
Net earnings per share $3.71 $4.28 $4.46
===== ===== =====
</TABLE>
See notes to consolidated financial statements.
<PAGE>PAGE F-4
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Unrealized Gains Total
Common Paid-in Retained on Securities Stockholders'
Stock Capital Earnings Available For Sale Equity
------- ------- ---------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992 $6,350 $26,879 $1,415,906 $1,449,135
Common stock issued upon
exercise of stock options,
including tax benefits -
425,890 shares 42 9,307 -0- 9,349
Net earnings -0- -0- 283,538 283,538
Cash dividends on common stock
($.23 per share) -0- -0- (14,624) (14,624)
------ ------- ---------- ----------
Balance at December 31, 1992 6,392 36,186 1,684,820 1,727,398
Common stock issued upon
exercise of stock options,
including tax benefits -
208,125 shares 21 4,713 -0- 4,734
Net earnings -0- -0- 273,854 273,854
Cash dividends on common stock
($.27 per share) -0- -0- (17,280) (17,280)
Purchase and retirement of 204,000
shares of Company stock (Note Q) (20) -0- (7,801) (7,821)
Unrealized gains on securities
available for sale -0- -0- -0- $ 84,719 84,719
------ ------- ---------- -------- ----------
Balance at December 31, 1993 6,393 40,899 1,933,593 84,719 2,065,604
Common stock issued upon
exercise of stock options,
including tax benefits -
222,200 shares 22 4,790 -0- 4,812
Net earnings -0- -0- 230,449 230,449
Cash dividends on common stock
($.31 per share) -0- -0- (19,220) (19,220)
Purchase and retirement of 5,561,180
shares of Company stock (Note Q) (556) -0- (215,082) (215,638)
Change in unrealized gains on
securities available for sale -0- -0- -0- (65,733) (65,733)
------ ------- ---------- -------- ----------
Balance at December 31, 1994 $5,859 $45,689 $1,929,740 $ 18,986 $2,000,274
====== ======= ========== ======== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>PAGE F-5
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 230,449 $ 273,854 $ 283,538
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 62,966 65,837 43,218
Amortization of loan fees and discounts (28,832) (45,666) (53,125)
Depreciation and amortization 19,454 13,978 14,990
Reduction of a valuation allowance on investments -0- (24,000) (4,000)
Loans originated for sale (93,951) (442,880) (278,346)
Sales of loans originated for sale 146,115 432,362 280,832
Decrease (increase) in interest earned but uncollected (27,376) (17,357) 11,955
Federal Home Loan Bank stock dividends (19,007) (12,744) (4,598)
Decrease (increase) in prepaid expenses and other assets (91,751) 26,020 (51,777)
Increase (decrease) in accounts payable and accrued
expenses 87,894 (5,327) 37,860
Increase (decrease) in taxes on income (23,448) 72,828 179,301
Other, net (20,019) (12,806) 1,571
----------- ----------- -----------
Net cash provided by operating activities 242,494 324,099 461,419
Cash Flows From Investing Activities:
New loan activity:
New real estate loans originated for portfolio (6,543,702) (5,968,997) (6,176,744)
Real estate loans purchased (68,926) (13,567) (4,678)
Other, net 3,816 25,836 47,390
----------- ----------- -----------
(6,608,812) (5,956,728) (6,134,032)
Real estate loan principal payments:
Monthly payments 600,879 574,459 502,431
Payoffs, net of foreclosures 2,232,214 2,852,722 3,230,825
Refinances 326,447 388,171 374,363
----------- ----------- -----------
3,159,540 3,815,352 4,107,619
Purchases of mortgage-backed securities available for sale (1,656) -0- -0-
Purchases of mortgage-backed securities held to maturity (47,086) (302,313) (343,736)
Sales of mortgage-backed securities available for sale 121 -0- -0-
Sales of mortgage-backed securities held to maturity -0- 138 243
Repayments of mortgage-backed securities 310,704 645,647 552,045
Proceeds from sales of real estate 217,965 206,009 145,247
Purchases of securities available for sale (2,623,315) (4,326,544) (1,388,319)
Sales and maturities of securities available for sale 2,732,562 3,771,617 1,227,427
Decrease (increase) in other investments 3,500 (569,697) 257,204
Purchases of Federal Home Loan Bank stock -0- (79,713) (1,440)
Redemptions of Federal Home Loan Bank stock 7,775 52,969 6,111
Additions to premises and equipment (58,827) (37,496) (15,462)
----------- ----------- -----------
Net cash used in investing activities (2,907,529) (2,780,759) (1,587,093)
</TABLE>
See notes to consolidated financial statements
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase (decrease) in deposits, net 1,211,544 368,749 (1,008,304)
Interest credited 585,361 567,489 676,040
1,796,905 936,238 (332,264)
Additions to Federal Home Loan Bank advances 304,500 1,701,200 2,428,850
Repayments of Federal Home Loan Bank advances (98,034) (919,195) (1,088,000)
Increase (decrease) in securities sold under agreements
to repurchase 158,947 (113,836) (95,503)
Proceeds from medium-term notes 499,696 609,235 66,766
Repayments of medium-term notes (12,865) (14,500) (152,305)
Proceeds from federal funds purchased 250,000 -0- -0-
Proceeds from subordinated debt -0- 297,008 295,616
Dividends on common stock (19,220) (17,280) (14,624)
Purchase and retirement of Company stock (215,638) (7,821) -0-
----------- ----------- -----------
Net cash provided by financing activities 2,664,291 2,471,049 1,108,536
----------- ----------- -----------
Net Increase (Decrease) in Cash (744) 14,389 (17,138)
Cash at beginning of period 243,185 228,796 245,934
----------- ----------- -----------
Cash at end of period $ 242,441 $ 243,185 $ 228,796
=========== =========== ===========
Supplemental cash flow information:
Cash paid for:
Interest $ 1,152,572 $ 1,176,338 $ 1,253,610
Income taxes 182,332 112,970 51,917
Cash received for interest and dividends 1,849,101 1,852,815 1,996,465
Noncash investing activities:
Loans transferred to foreclosed real estate 246,612 234,149 172,920
Securities transferred to available for sale -0- 845,786 -0-
Mortgage-backed securities transferred to available
for sale -0- 1,114,069 -0-
Mortgage-backed securities transferred from available
for sale to held to maturity (at fair value) 453,564 -0- -0-
</TABLE>
<PAGE>PAGE F-6
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE A - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Golden
West Financial Corporation, a Delaware corporation, and its wholly owned
subsidiaries (the Company or Golden West). World Savings and Loan Association,
a federally chartered association (the Association or World Savings), is the
Company's principal operating subsidiary with $31 billion in assets on
December 31, 1994. Intercompany accounts and transactions have been eliminated.
Cash and Investments
The Association is required by regulation to maintain liquid assets in
the form of cash and securities approved by federal regulations at a monthly
average of not less than 5% of customer deposits and short-term borrowings.
Effective December 31, 1993, the Company adopted Statement of
Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain
Investments in Debt and Equity Securities." FAS 115 establishes classifications
of investments into three categories: held to maturity, trading, and available
for sale. In accordance with FAS 115, the Company modified its accounting
policies as of December 31, 1993, to identify investment securities as either
held to maturity or available for sale. The Company has no trading securities.
Held to maturity securities are recorded at cost with any discount or premium
amortized using a method that is not materially different from the interest
method. Securities held to maturity are recorded at cost because the Company
has the ability to hold these securities to maturity and because it is
Management's intention to hold them to maturity. At December 31, 1994, the
Company had no securities held to maturity. Securities available for sale
increase the Company's portfolio management flexibility for investments and are
reported at fair value. Net unrealized gains and losses are excluded from
earnings and reported net of applicable income taxes as a separate component of
stockholders' equity until realized. Gains or losses on sales of securities are
realized and recorded in earnings at the time of sale and are determined by the
difference between the net sales proceeds and the cost of the security, using
specific identification, adjusted for any unamortized premium or discount. The
Company has other investments which are recorded at cost with any discount or
premium amortized using a method that is not materially different from the
interest method.
Mortgage-Backed Securities
FAS 115 also requires the same three classifications for mortgage-
backed securities (MBS): held to maturity, trading, and available for sale. In
accordance with FAS 115, the Company modified its accounting policies as of
December 31, 1993, to identify MBS as either held to maturity or available for
sale. The Company has no trading MBS. Mortgage-backed securities held to
maturity are recorded at cost because the Company has the ability to hold these
MBS to maturity and because management intends to hold these securities to
maturity. Premiums and discounts on MBS are amortized or accreted using the
interest method, also known as the level yield method, over the estimated life
of the security. MBS available for sale are reported at fair value, with
unrealized gains and losses excluded from earnings and reported net of
applicable income taxes as a separate component of stockholders' equity until
realized. Gains or losses on sales of MBS are realized and recorded in earnings
at the time of sale and are determined by the difference between the net sales
proceeds and the cost of MBS, using specific identification, adjusted for any
unamortized premium or discount. Prior to December 31, 1993, all MBS were
recorded at amortized cost.
<PAGE>PAGE F-7
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
Loans Receivable
The Association's real estate loan portfolio consists primarily of
long-term loans collateralized by first trust deeds on single-family residences
and multi-family residential property. In addition to real estate loans, the
Association makes loans on the security of savings accounts.
The adjustable rate mortgage (ARM) is the Association's primary real
estate loan. The ARM carries an interest rate that may change as often as
monthly, based on movements in certain cost of funds or other indexes. Interest
rate changes and monthly payments of principal and interest may be subject to
maximum increases or decreases. Negative amortization may occur during periods
when payments are limited. The Association also offers "modified" ARMs, loans
that offer a low fixed rate generally from 1% to 3% below the contract rate for
an initial period, usually three to 36 months.
The Association does make a limited number of loans that are held for
sale, primarily fixed-rate loans. These loans are usually originated against
firm commitments to sell. These loans are recorded at the lower of cost or
market.
The Company adopted Statement of Financial Accounting Standards
No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan," in the
fourth quarter of 1993, retroactive to January 1, 1993. FAS 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate. As a practical
expedient, impairment may be measured based on the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
When the measure of the impaired loan is less than the recorded investment in
the loan, the impairment is recorded through a valuation allowance. The
valuation allowance and provision for loan losses are adjusted for changes in
the present value of impaired loans for which impairment is measured based on
the present value of expected future cash flows or for the changes in the
appraised value of the loans that are collateral dependent. The Company had
previously measured loan impairment in accordance with the methods prescribed
in FAS 114. As a result, no additional loss provisions were required by early
adoption of the pronouncement.
FAS 114 requires that impaired loans for which foreclosure is probable
should be accounted for as loans. As a result, $16,258 of in-substance
foreclosed loans, with a valuation allowance of $7,267, were reclassified from
real estate held for sale to loans receivable at December 31, 1993.
In October 1994, Statement of Financial Accounting Standards No. 118
(FAS 118) was issued as an amendment of FAS 114. FAS 118 allows a creditor to
use existing methods for recognizing interest income on an impaired loan and
modifies disclosure requirements concerning impaired loans. The only effect of
FAS 118 on the Company's financial statements is the additional disclosure in
NOTE G.
Loan origination fees and certain direct loan origination costs are
deferred and amortized, as an interest income yield adjustment, over the life of
the related loans using the interest method.
"Fees," which include fees for prepayment of loans, income for
servicing loans, late charges for delinquent payments, fees from customer
deposit accounts, and miscellaneous fees, are recorded when collected.
Premiums and discounts on purchased loans, including premiums and
discounts arising from acquisitions of other associations, are generally
amortized using the interest method over the actual life of the loans.
Nonperforming assets consist of loans 90 days or more delinquent, with
balances not reduced for loan loss reserves, and real estate owned through
foreclosure. For loans past due 90 days or more, all interest earned but
uncollected is fully reserved.
<PAGE>PAGE F-8
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
Troubled debt restructured consists of loans that have been modified
by the lender to grant a concession to the borrower because of a perceived
temporary weakness in the collateral and/or borrower.
Real Estate Held for Sale or Investment
Real estate held for sale or investment is comprised primarily of
improved property acquired through foreclosure. All real estate owned is
recorded at the lower of cost or fair value. Included in the fair value is the
estimated selling price in the ordinary course of business less estimated costs
to repair, hold, and dispose of the property. Costs relating to holding
property, net of rental and option income, are expensed in the current period.
Gains on the sale of real estate are recognized at the time of sale. Losses
realized and expenses incurred in connection with the disposition of foreclosed
real estate are charged to current earnings.
Provision for Loan Losses
The Company provides valuation allowances for probable losses on loans
and on real estate owned when any significant and permanent decline in value is
identified. Additions to and reductions from allowances are reflected in
current earnings. Periodic reviews are made of major loans and real estate
owned. Major lending areas are regularly reviewed to determine potential
problems. Where indicated, valuation allowances are established or adjusted.
In estimating loan 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.
Goodwill
Positive goodwill, or the excess of the cost over the fair value of
net assets acquired resulting from acquisitions, of $222,524 (1994) and
$235,853 (1993) is stated net of accumulated amortization of $199,693 (1994) and
$184,284 (1993). Negative goodwill, or the excess of the fair value of net
assets acquired over the cost resulting from acquisitions, of $86,279 (1994) and
$99,099 (1993) is shown net of accumulated amortization of $59,921 (1994) and
$47,101 (1993). Positive and negative goodwill are being amortized on the
straight-line method over periods ranging from 5 to 40 years. See NOTE B for
additional information.
Securities Sold Under Agreements to Repurchase
The Company enters into sales of securities under agreements to
repurchase (reverse repurchase agreements) only with selected dealers. Fixed-
coupon reverse repurchase agreements are treated as financings and the
obligations to repurchase securities sold are reflected as a liability in the
Consolidated Statement of Financial Condition. The securities underlying the
agreements remain in the asset accounts.
Derivative Financial Instruments
The Company utilizes a variety of derivative financial instruments as
a part of its interest rate risk management strategy. The most frequently used
derivative products are various types of interest rate swaps. However, interest
rate caps, floors, futures, options, and forwards are also utilized. The
Company does not hold any derivative financial instruments for trading purposes.
An interest rate swap is an agreement between two parties in which one
party exchanges cash payments based on a fixed or floating rate of interest for
a counterparty's cash payment based on a floating rate of interest. The amounts
to be paid are defined by agreement and determined by applying the specified
interest rates to a notional principal amount. Interest rate swap agreements
are entered into to limit the impact of changes in interest rates on customer
deposits, mortgage loans, or other specified assets or borrowings. Some
<PAGE>PAGE F-9
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
interest rate swaps are entered into with starting dates in the future in
anticipation of future prepayments on fixed-rate assets. The interest rate
differential paid or received on interest rate swap agreements is recognized
over the life of the agreements, with income and expense recorded in the same
category as the related balance sheet item. The related balance sheet item is
generally a pool of assets or liabilities with similar interest rate
characteristics.
An interest rate cap is an agreement between two parties in which one
party pays a fee for the right to receive a payment from a counterparty based on
the excess, if any, of an open market floating rate over a base rate applied to
a notional principal amount. The excess that may be received on interest rate
cap agreements limits the impact of changes in interest rates. Amounts that may
be received on interest rate cap agreements and fees paid to purchase the
agreements are recognized over the life of the agreements, with income and
expense recorded in the same category as the related balance sheet item. The
related balance sheet item is generally a pool of assets or liabilities with
similar interest rate characteristics.
Futures and option contracts are either an obligation or right,
respectively, to buy or sell an interest in a financial commodity on a specific
day for a preset price. Futures contracts and long put options for futures
contracts for Eurodollars, Treasury Bills, and interest rate contracts may be
entered into by the Company to limit the Company's sensitivity to changes in
interest rates. Gains and losses on futures contracts are deferred until the
contracts are closed, at which time gains and losses are included in the cost
basis of the related assets and liabilities and amortized, using the straight-
line or level yield method, into interest income or expense over the remaining
life of the asset or liability.
Taxes on Income
The Company files consolidated federal income tax returns with its
subsidiaries. The provision for federal and state taxes on income is based on
taxes currently payable and taxes expected to be payable in the future as a
result of events that have been recognized in the financial statements or tax
returns.
The Association is permitted by the Internal Revenue Code to deduct
from taxable income an annual addition to a reserve for bad debts subject to
certain limitations. An effective rate of 8% of taxable income has been used in
computing the amount of the addition to the bad debt reserve. In the event
distributions (which are subject to the regulatory restrictions described
below) are made from these reserves, such distributions will be subject to
federal income taxes at the then prevailing corporate rates. It is not
contemplated that accumulated reserves will be used in a manner that will create
income tax liabilities.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes."
FAS 109 required a change from the deferred to the liability method of computing
deferred income taxes. The Company has applied FAS 109 prospectively. The
consolidated financial statements presented for the years prior to 1993 reflect
income taxes under the deferred method under previous accounting standards.
Regulatory Capital Requirements
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) established capital standards. Under FIRREA, thrifts must have
core capital equal to 3% of adjusted total assets and have tangible capital
equal to 1.5% of adjusted total assets. FIRREA also established risk-based
capital standards as a percentage of risk-weighted assets of 8% after
December 30, 1992.
<PAGE>PAGE F-10
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
At December 31, the Association had the following regulatory capital
calculated in accordance with FIRREA's capital standards:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------- ---------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------- ------------------ ------------------- ------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ----- ---------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,931,375 6.26% $ 462,564 1.50% $2,030,992 7.27% $ 419,052 1.50%
Core 2,047,016 6.64 925,129 3.00 2,240,518 8.02 838,103 3.00
Risk-based 2,353,781 13.54 1,390,391 8.00 2,533,738 17.42 1,163,650 8.00
</TABLE>
The Office of Thrift Supervision (OTS) has adopted rules based upon
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. The rules
provide that a savings association is "well capitalized" if its total risk-based
capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or
greater, its leverage ratio is 5% or greater, and the institution is not subject
to a capital directive.
As used herein, total risk-based capital ratio is the ratio of total
capital to risk-weighted assets, Tier 1 risk-based capital ratio means the ratio
of core capital to risk-weighted assets, and leverage ratio is the ratio of core
capital to adjusted total assets, in each case as calculated in accordance with
current OTS capital regulations. Under these regulations, World Savings is
deemed to be "well capitalized."
At December 31, the Association had the following regulatory capital
calculated in accordance with FDICIA's capital standards:
<TABLE>
<CAPTION>
1994 1993
------------------------------------------ ----------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL-CAPITALIZED
------------------- ------------------- ------------------- -------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
---------- ------ ---------- ------ ---------- ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $2,047,016 6.64% $1,541,881 5.00% $2,240,518 8.02% $1,396,839 5.00%
Tier 1 risk-based 2,047,016 11.78 1,042,793 6.00 2,240,518 15.40 872,737 6.00
Total risk-based 2,353,781 13.54 1,737,989 10.00 2,533,738 17.42 1,454,562 10.00
</TABLE>
Retained Earnings
Under OTS regulations, the OTS must be given at least 30 days' advance
notice by the Association of any proposed dividend to be paid to the Company.
Under OTS regulations, World Savings is classified as a Tier 1 association and
is, therefore, allowed to distribute dividends up to 100% of its net income in
any year plus one-half of its capital in excess of the OTS fully phased-in
capital requirement as of the end of the prior year.
At December 31, 1994, $328 million of the Association's retained
earnings had not been subjected to federal income taxes due to the application
of the bad debt deduction, and $1.8 billion of the Association's retained
earnings were available for the payment of cash dividends without the imposition
of additional federal income taxes. The Company is not subject to the same tax
and reporting restrictions as is World Savings.
Earnings Per Share
Earnings per share have been computed by dividing net earnings by the
weighted average number of common shares outstanding, 62,128,719 (1994),
63,977,876 (1993), and 63,578,168 (1992).
<PAGE>PAGE F-11
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE B - Business Combinations/Divestitures
On May 6, 1994, the Company acquired $78 million in deposits in
New Jersey from Polifly Savings and Loan.
On August 13, 1993, the Company acquired $320 million in deposits and
seven branches in Arizona from PriMerit Bank. On September 17, 1993, the
Company sold $133 million of savings in two Ohio branches to Trumbull Savings
and Loan. On October 15, 1993, the Company sold its remaining Ohio branches
with $131 million in deposits to Fifth Third Bancorp.
On March 6, 1992, the Company sold its two Washington branches with
$37 million in deposits.
The acquisitions described above are not material to the financial
position or net earnings of the Company and pro forma information is not
deemed necessary.
NOTE C - Securities Available for Sale
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------
Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Certificates of deposit and short-term bank notes $ 30,004 $ -0- $ 35 $ 29,969
U.S. Treasury and Government agency obligations 644,279 275 7,485 637,069
Collateralized mortgage obligations 692,065 -0- 23,937 668,128
Commercial paper 1,076 193 -0- 1,269
Equity securities 98,504 66,172 12,266 152,410
---------- ------- ------- ----------
$1,465,928 $66,640 $43,723 $1,488,845
========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------
Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Certificates of deposit and short-term bank notes $ 482,069 $ 33 $ 2 $ 482,100
U.S. Treasury and Government agency obligations 419,056 821 62 419,815
Collateralized mortgage obligations 275,304 865 761 275,408
Commercial paper 230,385 4 -0- 230,389
Bankers acceptances 58,395 -0- -0- 58,395
Equity securities 101,592 68,887 -0- 170,479
---------- ------- ---- ----------
$1,566,801 $70,610 $825 $1,636,586
========== ======= ==== ==========
</TABLE>
The weighted average portfolio yields on securities available for sale
were 5.24% and 3.93% at December 31, 1994, and 1993, respectively. Sales of
securities held for sale resulted in realized gains of $83 (1994) and $22 (1993)
and realized losses of $226 (1994) and $13 (1993).
<PAGE>PAGE F-12
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
At December 31, 1994, the securities available for sale had maturities
as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
------------------- ---------- ----------
<S> <C> <C>
No maturity $ 98,504 $ 152,410
1995 499,138 496,554
1996 through 1999 737,604 715,091
2000 through 2004 96,195 92,204
2005 and thereafter 34,487 32,586
---------- ----------
$1,465,928 $1,488,845
========== ==========
</TABLE>
NOTE D - Other Investments
At following is a summary of other investments not subject to FAS 115:
<TABLE>
<CAPTION>
December 31
-----------------------
1994 1993
Cost Cost
-------- --------
<S> <C> <C>
Federal funds $152,000 $ 25,000
Short-term repurchase agreements collateralized
by mortgage-backed securities 382,600 513,100
-------- --------
$534,600 $538,100
======== ========
</TABLE>
At December 31, 1994, and 1993, cost approximated fair market value
and there were no unrealized gains or losses.
The weighted average portfolio yields on other investments were 5.92%
and 3.42% at December 31, 1994, and 1993, respectively. Sales of other
investments resulted in gains of $-0- (1994), $24,000 (1993), and $4,009 (1992)
and losses of $-0- (1994), $1,473 (1993), and $-0- (1992).
As of December 31, 1994, the entire other investments portfolio
matures in 1995.
NOTE E - Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
FNMA $130,528 $2,580 $2,658 $130,450
FHLMC 108,676 2,900 669 110,907
GNMA 76,323 4,282 101 80,504
Other 1,485 41 48 1,478
-------- ------ ------ --------
$317,012 $9,803 $3,476 $323,339
======== ====== ====== ========
</TABLE>
<PAGE>PAGE F-13
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
December 31, 1993
-----------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
FNMA $ 439,817 $25,957 $268 $ 465,506
FHLMC 326,354 24,480 27 350,807
GNMA 271,390 24,164 25 295,529
Other 2,115 112 -0- 2,227
---------- ------- ---- ----------
$1,039,676 $74,713 $320 $1,114,069
========== ======= ==== ==========
</TABLE>
The weighted average portfolio yields on mortgage-backed securities
available for sale were 9.57% and 9.35% at December 31, 1994, and 1993,
respectively. Principal proceeds from the sales of securities from the
mortgage-backed securities available for sale portfolio were $120 (1994) and
$-0- (1993) and resulted in realized gains of $-0- (1994) and $-0- (1993) and
realized losses of $1 (1994) and $-0- (1993).
At December 31, 1994, mortgage-backed securities available for sale
had contractual maturities as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
------------------- --------- --------
<S> <C> <C>
1996 through 1999 $ 2,137 $ 2,144
2000 through 2004 1,803 1,860
2005 and thereafter 313,072 319,335
-------- --------
$317,012 $323,339
======== ========
</TABLE>
NOTE F - Mortgage-Backed Securities Held to Maturity
Mortgage-backed securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
FNMA $656,142 $ 95 $39,779 $616,458
FHLMC 113,977 249 342 113,884
GNMA 100,920 199 25 101,094
-------- ---- ------- --------
$871,039 $543 $40,146 $831,436
======== ==== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
FNMA $408,467 $7,103 $3,327 $412,243
======== ====== ====== ========
</TABLE>
The weighted average portfolio yields of mortgage-backed securities
held to maturity were 7.99% and 6.94% at December 31, 1994, and 1993,
respectively. Principal proceeds from the sales of securities from the
mortgage-backed securities held to maturity portfolio amounted to $-0- (1994),
$144 (1993), and $252 (1992) and resulted in realized gains of $-0- (1994),
$7 (1993), and $9 (1992) and realized losses of $-0- (1994), $-0- (1993), and
$-0- (1992).
<PAGE>PAGE F-14
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
At December 31, 1994, mortgage-backed securities held to maturity had
contractual maturities as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
------------------- --------- --------
<S> <C> <C>
1996 through 1999 $ 146 $ 145
2000 through 2004 40 41
2005 and thereafter 870,853 831,250
-------- --------
$871,039 $831,436
======== ========
</TABLE>
NOTE G - Loans Receivable
<TABLE>
<CAPTION>
December 31
-----------------------------
1994 1993
----------- -----------
<S> <C> <C>
Loans collateralized primarily by first deeds of trust:
One- to four-family dwelling units $23,217,564 $20,197,613
Over four-family dwelling units 3,946,446 3,785,673
Commercial property 134,189 153,396
Construction loans -0- 580
Land 1,851 2,407
----------- -----------
27,300,050 24,139,669
Loans on savings accounts 30,460 32,012
----------- -----------
27,330,510 24,171,681
Less:
Undisbursed loan funds 2,781 1,882
Unearned fees and discounts 105,314 112,751
Unamortized discount arising from acquisitions 27,146 37,779
Allowance for loan losses 124,003 106,698
----------- -----------
$27,071,266 $23,912,571
=========== ===========
</TABLE>
In addition to loans receivable, the Association services loans for
others. At December 31, 1994, and 1993, the amount of loans serviced for others
was $843,963 and $806,504, respectively.
At December 31, 1994, and 1993, the Company had $4 million and
$56 million, respectively, in loans held for sale, all of which are carried at
the lower of cost or market.
A summary of the changes in the allowance for loan losses is as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
Balance at January 1 $106,698 $ 70,924 $48,036
Provision for loan losses charged to expense 62,966 65,837 43,218
Less loans charged off (46,556) (38,475) (21,227)
Recoveries 895 1,145 897
Reclassification of in-substance foreclosure allowances -0- 7,267 -0-
-------- -------- -------
Balance at December 31 $124,003 $106,698 $70,924
======== ======== =======
</TABLE>
<PAGE>PAGE F-15
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
The following is a summary of nonperforming loans, troubled debt
restructured, and other impaired loans:
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
-------- --------
<S> <C> <C>
Nonperforming loans $284,103 $330,062
Troubled debt restructured 72,827 37,190
Other impaired loans 40,504 25,769
-------- --------
$397,434 $393,021
======== ========
</TABLE>
The portion of the allowance for loan losses that was provided for
impaired loans was $15,618 and $10,600 at December 31, 1994, and 1993,
respectively. The average recorded investment in total impaired loans was
$395,228 and $339,338 during 1994 and 1993, respectively. The amount of
interest income recognized on total impaired loans was $16,449 and $15,124
during 1994 and 1993, respectively.
NOTE H - Interest Earned But Uncollected
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
-------- --------
<S> <C> <C>
Loans receivable $108,130 $ 99,657
Mortgage-backed securities 7,135 10,368
Interest rate swaps 81,684 53,358
Other 5,507 11,697
-------- --------
$202,456 $175,080
======== ========
</TABLE>
NOTE I - Real Estate Held for Sale or Investment
<TABLE>
<CAPTION>
December 31
-------------------
1994 1993
------- -------
<S> <C> <C>
Real estate acquired through foreclosure of loans, net of
allowance for losses $70,981 $62,724
Real estate in judgement, net of allowance for losses 390 1,366
Real estate held for investment, net of allowance for
losses 846 3,066
------- -------
$72,217 $67,156
======= =======
</TABLE>
NOTE J - Premises and Equipment
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
-------- --------
<S> <C> <C>
Land $ 47,509 $ 43,738
Buildings and leasehold improvements 143,065 122,465
Furniture, fixtures and equipment 123,688 102,056
-------- --------
314,262 268,259
Accumulated depreciation and amortization 112,387 105,508
-------- --------
$201,875 $162,751
======== ========
</TABLE>
<PAGE>PAGE F-16
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
Depreciation and amortization, computed by the straight-line method
for financial statement purposes, are provided over the useful lives of the
various classes of premises and equipment.
The aggregate rentals under long-term operating leases on land or
premises in effect on December 31, 1994, and which expire between 1995 and 2064,
amounted to approximately $134,927. The approximate minimum payments during the
five years ending 1999 are $13,916 (1995), $13,527 (1996), $12,482 (1997),
$11,204 (1998), and $9,592 (1999). Certain of the leases provide for options to
renew and for the payment of taxes, insurance, and maintenance costs. The
rental expense for the year amounted to $16,979 (1994), $15,579 (1993), and
$14,823 (1992).
NOTE K - Customer Deposits
<TABLE>
<CAPTION>
December 31
---------------------------------------
1994 1993
------------------ ------------------
Rate* Amount Rate* Amount
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Customer deposits by rate:
Interest-bearing checking accounts 1.28% $ 730,290 1.35% $ 736,767
Passbook accounts 2.23 638,905 2.12 611,606
Money market deposit accounts 3.13 1,818,426 2.35 2,378,087
Term certificate accounts with original
maturities of:
4 weeks to 1 year 4.56 5,159,037 3.24 4,334,208
1 to 2 years 4.59 5,636,301 3.85 4,614,059
2 to 3 years 4.85 1,997,826 4.62 1,448,779
3 to 4 years 5.22 817,631 6.11 1,149,108
4 years and over 6.99 2,098,984 6.72 2,021,350
Retail jumbo CDs 5.44 312,413 5.03 109,250
All other 7.78 9,576 7.76 19,270
----------- -----------
$19,219,389 $17,422,484
=========== ===========
</TABLE>
*Weighted average interest rate including the impact of hedging
<TABLE>
<CAPTION>
December 31
--------------------------------
1994 1993
----------- -----------
<S> <C> <C>
Customer deposits by remaining maturity
at year end:
No contractual maturity $ 3,187,621 $ 3,726,460
Maturity within one year:
1st quarter 3,598,746 3,811,037
2nd quarter 3,319,067 2,991,744
3rd quarter 2,377,766 1,666,045
4th quarter 1,765,131 1,391,652
----------- -----------
11,060,710 9,860,478
1 to 2 years 2,799,980 1,865,989
2 to 3 years 983,797 460,472
3 to 4 years 420,778 651,243
Over 4 years 766,503 857,842
----------- -----------
$19,219,389 $17,422,484
=========== ===========
</TABLE>
At December 31, the weighted average cost of deposits was 4.57% (1994)
and 3.92% (1993).
<PAGE>PAGE F-17
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
Interest expense on customer deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Interest-bearing checking accounts $ 9,463 $ 11,426 $ 12,376
Passbook accounts 19,733 21,043 23,315
Money market deposit accounts 38,430 47,339 75,223
Term certificate accounts 646,727 625,892 733,796
-------- -------- --------
$714,353 $705,700 $844,710
======== ======== ========
</TABLE>
NOTE L - Advances from Federal Home Loan Bank
Advances are secured by pledges of $11,085,361 of certain loans and
capital stock of the Federal Home Loan Bank, and these borrowings have
maturities and interest rates as follows:
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------------------------------------------------
Receive
Stated Fixed Adjusted
Maturity Amount Rate Swaps Rate*
------------------- ---------- ------ ------- --------
<S> <C> <C> <C> <C>
1995 $ 325,469 5.82% (1.45)% 4.37%
1996 170,070 7.93 (1.28) 6.65
1997 400,532 6.38 (0.09) 6.29
1998 1,048,750 5.87 5.87
1999 550,000 4.10 4.10
2000 and thereafter 3,993,597 5.18 (0.09) 5.09
----------
$6,488,418
==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------------------------------------------------------------
Treasury Bill
Receive and Eurodollar
Stated Fixed Basis Futures Adjusted
Maturity Amount Rate Swaps Swaps Contracts Rate*
------------------- ---------- ------ ------- ----- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
1994 $ 72,549 8.05% 8.05%
1995 325,424 5.83 (3.70)% (0.12)% 2.01
1996 170,051 7.89 (3.27) (0.10) 4.52
1997 150,524 5.73 (0.62) 5.11
1998 1,048,621 3.63 0.03 3.66
1999 and thereafter 4,514,522 3.96 (0.10) 0.04% 0.03 3.93
----------
$6,281,691
==========
</TABLE>
*Weighted average interest rate adjusted for hedging
At December 31, the weighted average cost of advances was 5.21% (1994)
and 3.87% (1993).
<PAGE>PAGE F-18
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE M - Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are collateralized by
government obligations and mortgage-backed securities with a market value of
$657,325 and $483,899 at December 31, 1994, and 1993, respectively.
<TABLE>
<CAPTION>
December 31, 1994
-------------------------------------------------------------------------------------------------------
Pay Receive
Stated Fixed Fixed Adjusted
Maturity Amount Rate Swaps Swaps Rate*
------------------- -------- ------ ----- ------ --------
<S> <C> <C> <C> <C> <C>
1995 $595,221 5.29% 1.38% 0.02% 6.69%
1999 and thereafter 6,600 8.09 (3.27) 4.82
--------
$601,821
========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
-------------------------------------------------------------------------------------------------------
Treasury Bill
Pay Receive and Eurodollar
Stated Fixed Fixed Futures Adjusted
Maturity Amount Rate Swaps Swaps Contracts Rate*
------------------- -------- ------ ----- ------ -------------- --------
<S> <C> <C> <C> <C> <C> <C>
1994 $383,213 1.87% 4.15% (0.27)% 0.02% 5.77%
1995 53,061 8.52 8.52
1999 and thereafter 6,600 8.09 (5.11) 2.98
--------
$442,874
========
</TABLE>
*Weighted average interest rate adjusted for hedging
At December 31, these liabilities had a weighted average interest rate
of 6.67% (1994) and 6.06% (1993). These borrowings averaged $574,487 (1994) and
$464,091 (1993) and the maximum outstanding at any monthend was $930,072 (1994)
and $773,140 (1993). At the end of 1994 and 1993, respectively, $316,865 and
$205,821 of the agreements to repurchase with broker/dealers were to reacquire
the same securities. Agreements with broker/dealers to repurchase substantially
the same securities amounted to $284,956 (1994) and $237,053 (1993).
<PAGE>PAGE F-19
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE N - Medium-Term Notes
Medium-term notes are unsecured obligations of the Association. They
have maturities and interest rates as follows:
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------------------------------------
Pay Receive
Stated Fixed Fixed Basis Adjusted
Maturity Amount Rate Swaps Swaps Swaps Rate*
-------- ---------- ------ ------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
1995 $ 266,926 5.90% 0.47% 6.37%
1996 697,362 5.38 (0.05)% 0.68% 6.01
1997 199,791 6.05 6.05
----------
$1,164,079
==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
------------------------------------------------------------------------------------------
Pay Receive
Stated Fixed Fixed Adjusted
Maturity Amount Rate Swaps Swaps Rate*
-------- -------- ------ ----- ------- --------
<S> <C> <C> <C> <C> <C>
1995 $ 66,848 6.03% 6.03%
1996 609,692 5.17 0.15% (1.30)% 4.02
--------
$676,540
========
</TABLE>
*Weighted average interest rate adjusted for hedging
<PAGE>PAGE F-20
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE O - Subordinated Notes
<TABLE>
<CAPTION>
December 31
-----------------------------
1994 1993
---------- ----------
<S> <C> <C>
Parent:
Subordinated notes, unsecured, due from
1997 to 2003 at coupon rates of 6.00%
to 10.25%, net of unamortized discount
of $7,530 (1994) and $8,818 (1993) $1,022,470 $1,021,182
Association:
Subordinated notes, unsecured, due from
1997 to 2000 at coupon rates of 9.90%
to 10.25%, net of unamortized discount
of $911 (1994) and $1,121 (1993) 199,089 198,879
---------- ----------
$1,221,559 $1,220,061
========== ==========
</TABLE>
At December 31, subordinated notes had a weighted average interest
rate of 8.64% (1994) and 8.65% (1993). At December 31, 1994, subordinated notes
had maturities and interest rates as follows:
<TABLE>
<CAPTION>
Maturity Rate* Amount
-------- ------ ----------
<S> <C> <C>
1997 10.38% $ 214,439
1998 9.05 199,148
2000 9.31 312,738
2002 8.07 296,794
2003 6.14 198,440
----------
$1,221,559
==========
</TABLE>
*Weighted average interest rate
NOTE P - Taxes on Income
The following is a comparative analysis of the provision for federal
and state taxes on income. Income taxes for 1992 have not been restated for
the effect of adopting FAS 109.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Federal income tax:
Current $121,124 $141,016 $149,678
Deferred 1,765 3,599 (11,622)
State tax:
Current 39,941 42,014 47,019
Deferred (2,897) (3,101) (4,920)
-------- -------- --------
$159,933 $183,528 $180,155
======== ======== ========
</TABLE>
<PAGE>PAGE F-21
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
The amounts of net deferred liability included in taxes on income in
the Consolidated Statement of Financial Condition are:
<TABLE>
<CAPTION>
December 31
---------------------
1994 1993
------- --------
<S> <C> <C>
Federal income tax $75,396 $111,369
State tax 40,033 53,460
</TABLE>
The deferred tax liability results from changes in the amounts of
temporary differences during the year. The components of the net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Loan fees and interest income $ 64,116 $ 60,550
FHLB stock dividends 62,524 57,695
Bad debt reserve 39,085 54,458
Unrealized gains on debt and equity securities 13,328 59,459
Depreciation 11,282 10,518
Other deferred tax liabilities 751 1,032
-------- --------
Gross deferred tax liabilities 191,086 243,712
Deferred tax assets:
Provision for losses on loans 47,869 41,293
State taxes 14,112 15,251
Loan discount primarily related to acquisitions 11,460 15,678
Other deferred tax assets 2,216 6,661
-------- --------
Gross deferred tax assets 75,657 78,883
-------- --------
Net deferred tax liability $115,429 $164,829
======== ========
</TABLE>
For 1992, deferred tax expense under APB 11 results from timing
differences in the recognition of revenue and expense for tax and financial
statement purposes. The sources of these differences and the tax effects of
each are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1992
----------------------------
Federal State
-------- -------
<S> <C> <C>
Loan fees and interest income $ 506 $ 143
Revenue and expense reported on the
cash basis (4,801) (1,355)
Effect of allowable federal bad debt
deduction applied to timing differences 1,016 -0-
State tax (10,888) -0-
FHLB stock dividends 2,693 760
Other (148) (4,468)
-------- -------
$(11,622) $(4,920)
======== =======
</TABLE>
<PAGE>PAGE F-22
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
A reconciliation of income taxes at the federal statutory corporate
rate to the effective tax rate follows:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------
1994 1993 1992
----------------- ----------------- -----------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Computed standard
corporate tax expense $136,634 35.0% $160,083 35.0% $157,655 34.0%
Increases (reductions) in
taxes resulting from:
Bad debt deduction based
on a percentage of
income -0- -0- -0- -0- 3,906 0.8
Net financial income,
not subject to income
tax, primarily related
to acquisitions 393 0.1 (3,293) (0.7) (7,773) (1.6)
State tax, net of federal
income tax benefit 24,325 6.2 27,783 6.0 27,785 6.0
Adjustment of deferred
tax liability due to
tax rate increase -0- -0- 1,793 0.4 -0- -0-
Other (1,419) (0.3) (2,838) (0.6) (1,418) (0.3)
-------- ---- -------- ---- -------- ----
$159,933 41.0% $183,528 40.1% $180,155 38.9%
======== ==== ======== ==== ======== ====
</TABLE>
In 1993, the Company adopted FAS 109 and elected to apply it
prospectively. In accordance with FAS 109, a deferred tax liability has not
been recognized for the tax bad debt reserve of World Savings and Loan
Association that arose in tax years that began prior to December 31, 1987. At
December 31, 1994, and 1993, the portion of the tax bad debt reserve
attributable to pre-1988 tax years was approximately $252 million. The amount
of unrecognized deferred tax liability at December 31, 1994, and 1993, was
approximately $88 million. This deferred tax liability could be recognized if,
in the future, there is a change in Federal tax law, the savings institution
fails to meet the definition of a "qualified savings institution," certain
distributions are made with respect to the stock of the savings institution,
or the bad debt reserve is used for any purpose other than absorbing bad debt
losses.
NOTE Q - Stockholders' Equity
On October 28, 1993, the Company's Board of Directors authorized the
purchase by the Company of up to 3.2 million shares of Golden West's common
stock. On July 28, 1994, the Company's Board of Directors authorized the
purchase by the Company of an additional 3.1 million shares of Golden West's
common stock. As of December 31, 1994, 5,765,180 of such shares had been
repurchased and retired at a cost of $223 million since October 28, 1993.
During 1994, 5,561,180 of the shares were purchased and retired at a cost of
$216 million.
<PAGE>PAGE F-23
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE R - Stock Options
The Company's 1987 stock option plan authorizes the granting of
options to key employees to purchase up to 7 million shares of the Company's
common stock.
The plan permits the issuance of either non-qualified stock options or
incentive stock options. Under terms of the plan, incentive stock options have
been granted at fair market value as of the date of grant and are exercisable
any time after two to six years and prior to either five or ten years from the
grant date. Non-qualified options have been granted at fair market value as of
the date of grant and are exercisable after two to six years and prior to ten
years and one month from the grant date.
A summary of the transactions of the stock option plan follows:
<TABLE>
<CAPTION>
Average
Price per
Shares Share
--------- ---------
<S> <C> <C>
Outstanding, January 1, 1992 2,993,400 $15.94
Granted 278,650 $38.13
Exercised (425,890) $12.15
Canceled (9,300) $26.73
--------- ------
Outstanding, December 31, 1992 2,836,860 $18.66
Granted 329,950 $39.53
Exercised (208,125) $13.54
Canceled (30,100) $29.62
--------- ------
Outstanding, December 31, 1993 2,928,585 $21.26
Granted 381,000 $35.67
Exercised (222,200) $13.46
Canceled (19,800) $37.30
--------- ------
Outstanding, December 31, 1994 3,067,585 $23.51
========= ======
</TABLE>
At December 31, shares available for option amounted to
3,104,200 (1994), 3,465,400 (1993), and 3,765,250 (1992); and shares exercisable
amounted to 2,114,335 (1994), 1,792,235 (1993), and 1,225,210 (1992).
Outstanding options at December 31, 1994, were held by 347 employees and had
expiration dates ranging from July 29, 1995, to January 9, 2005.
NOTE S - Financial Instruments with Off-Balance-Sheet Risk and Concentrations of
Credit Risk
As of December 31, 1994, the Company's loans receivable balance was
$27.1 billion. Of that $27.1 billion balance, 78% were California loans, 3%
were Colorado loans, 3% were Illinois loans, 2% were New Jersey loans, 2% were
Texas loans, and 2% were Washington loans. No other single state made up more
than 2% of the total loan portfolio. The majority of these loans are secured by
first deeds of trust on one- to four-family residential property. Economic
conditions and real estate values in the states in which the Company lends are
the key factors that affect the credit risk of the Company's loan portfolio.
<PAGE>PAGE F-24
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
In order to reduce its exposure to fluctuations in interest rates, the
Company is a party to financial instruments with off-balance-sheet risk entered
into in the normal course of business. These financial instruments include
commitments to fund loans; commitments to purchase or sell securities, mortgage-
backed securities, loans, and mortgage derivative products; interest rate swaps
and caps; and futures and options contracts. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the consolidated statement of financial condition. The
contract or notional amounts of these instruments reflect the extent of
involvement the Company has in particular classes of financial instruments. To
limit credit exposure, among other things, the Company enters into financial
instrument contracts only with the Federal Home Loan Bank of San Francisco and
with major banks and securities dealers selected by the Company upon the basis
of their creditworthiness and other matters. The Company initially has not
required collateral or other security to support these financial instruments
because of the creditworthiness of the contra parties.
Commitments to originate mortgage loans are agreements to lend to a
customer providing that the customer satisfies the terms of the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Prior to entering each commitment, the
Company evaluates the customer's creditworthiness. The amount of outstanding
loan commitments at December 31, 1994, and 1993, was $412 million and
$350 million, respectively. Most of these commitments were for adjustable rate
mortgages.
The Company enters into commitments to purchase or sell
mortgage-backed securities and other mortgage derivative products. The
commitments generally have a fixed delivery or receipt settlement date. The
Company controls the credit risk of such commitments through credit evaluations,
limits, and monitoring procedures. The interest rate risk of the commitment is
considered by the Company and may be matched with the appropriate funding
sources. Interest rate risk during the commitment period may also be managed
by use of over-the-counter options, options on futures and futures contracts.
The Company had no outstanding commitments to purchase or sell mortgage-backed
securities as of December 31, 1994, and 1993.
Interest rate swaps and caps are utilized to limit the Company's
sensitivity to interest rate changes. The Company is exposed to credit risk in
the event of nonperformance by the other parties to the interest rate swap and
cap agreements; however, the Company does not anticipate nonperformance by the
other parties.
The Company manages the credit risk of its futures contracts, long put
options for futures contracts, interest rate swap agreements, and interest rate
cap agreements through credit approvals, limits, and monitoring procedures. The
contract or notional amount of these contracts does not represent exposure to
credit risk; rather, credit risk relates only to unsettled amounts on contracts.
NOTE T - Derivative Financial Instruments
The Company has entered into interest rate swap and cap agreements
with selected banks and government security dealers to reduce its exposure to
fluctuations in interest rates. The possible inability of counterparties to
satisfy the terms of the contracts exposes the Company to credit risk to the
extent of the net difference between the calculated pay and receive amounts on
each transaction. Net differences of that amount are generally settled
quarterly. The Company has not experienced any credit losses from interest rate
swaps or caps.
The information presented below is based on interest rates at
December 31, 1994. To the extent that rates change, variable interest rate
information will change. The basis swaps are contracts in which the Company
receives an amount based on one interest rate index and pays an amount based on
a different interest rate index. The Company has entered into two basis swap
contracts on which it makes payments based on three
<PAGE>PAGE F-25
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
month LIBOR and in one case receives an amount based on the average Federal
Funds rate published by the Federal Reserve and in the other case receives an
amount based on the Bank Prime Loan rate published by the Federal Reserve. The
forward starting swaps were entered into to convert floating rate assets to
fixed-rate in the future in anticipation of future prepayments of matched fixed-
rate assets. Accrual of interest on forward starting swaps begins at a
predetermined future date. The Company has $125 million and $10 million of
forward starting swaps, which are contractually delayed until 1995 and 1997,
respectively.
The following table illustrates the maturities and weighted average
rates of 1994 derivative financial instruments held by the Company by product
type.
<TABLE>
<CAPTION>
MATURITIES OF 1994 DERIVATIVE FINANCIAL INSTRUMENTS
Maturity
-------------------------------------------------------- Balance at
1995 1996 1997 1998 1999+ December 31, 1994
---------- ---------- -------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed generic swaps:
Notional value $2,114,000 $1,545,000 $252,180 $ 827,983 $ 251,837 $4,991,000
Weighted average receive rate 5.07% 5.19% 6.68% 5.72% 6.70% 5.38%
Weighted average pay rate 5.98% 4.81% 6.18% 5.27% 5.99% 5.51%
Pay fixed generic swaps:
Notional value $ 450,000 $ 435,000 $232,000 $ 209,000 $ 899,095 $2,225,095
Weighted average receive rate 5.78% 5.77% 5.57% 6.16% 5.97% 5.87%
Weighted average pay rate 6.00% 8.05% 6.86% 7.66% 7.32% 7.18%
Basis swaps:
Notional value $ 200,000 $ -0- $ -0- $ -0- $ -0- $ 200,000
Weighted average receive rate 5.84% 0.00% 0.00% 0.00% 0.00% 5.84%
Weighted average pay rate 6.46% 0.00% 0.00% 0.00% 0.00% 6.46%
Forward starting swaps:
Notional value $ -0- $ -0- $ -0- $ 125,000 $ 10,000 $ 135,000
Weighted average receive rate 0.00% 0.00% 0.00% 8.35% 8.68% 8.37%
Weighted average pay rate 0.00% 0.00% 0.00% 6.80% 7.00% 6.81%
Interest rate caps:
Notional value $ 75,000 $ 225,000 $ -0- $ -0- $ -0- $ 300,000
---------- ---------- -------- ---------- ---------- ----------
Total notional value $2,839,000 $2,205,000 $484,180 $1,161,983 $1,160,932 $7,851,095
========== ========== ======== ========== ========== ==========
Total weighted average rate on swaps:
Receive rate 5.24% 5.32% 6.15% 6.08% 6.15% 5.59%
========== ========== ======== ========== ========== ==========
Pay rate 6.02% 5.52% 6.51% 5.86% 7.03% 6.05%
========== ========== ======== ========== ========== ==========
</TABLE>
<PAGE>PAGE F-26
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
Activity in derivative financial instruments in summarized as follows:
<TABLE>
<CAPTION>
DERIVATIVE ACTIVITY
For the Years Ended December 31, 1994, 1993, and 1992
(Notional amounts in millions)
Treasury Bill
Receive Pay Forward Interest and Eurodollar
Fixed Fixed Basis Starting Rate Futures
Swaps Swaps Swaps Swaps Caps Contracts
------- ------ ----- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ 406 $1,983 $ -0- $-0- $ 504 $ 4,700
Additions 677 1,175 200 210 87 17,714
Maturities (155) (527) -0- -0- (139) -0-
Terminations -0- -0- -0- -0- -0- (18,314)
Forward starting becoming effective -0- -0- -0- -0- -0- -0-
------ ------ ----- ---- ----- --------
Balance, December 31, 1992 928 2,631 200 210 452 4,100
Additions 1,807 332 400 -0- 15 9,455
Maturities (29) (381) -0- -0- (30) -0-
Terminations -0- -0- -0- -0- -0- (13,555)
Forward starting becoming effective -0- -0- -0- -0- -0- -0-
------ ------ ----- ---- ----- --------
Balance, December 31, 1993 2,706 2,582 600 210 437 -0-
Additions 2,575 124 200 -0- -0- -0-
Maturities (365) (481) -0- -0- (137) -0-
Terminations -0- -0- (600) -0- -0- -0-
Forward starting becoming effective 75 -0- -0- (75) -0- -0-
------ ------ ----- ---- ----- --------
Balance, December 31, 1994 $4,991 $2,225 $ 200 $135 $ 300 $ -0-
====== ====== ===== ==== ===== ========
</TABLE>
Derivatives decreased net interest income by $23 million, $71 million,
and $93 million for the years ended December 31, 1994, 1993, and 1992,
respectively.
NOTE U - Disclosure About Fair Value of Financial Instruments
The Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 107 (FAS 107) requires disclosure of the fair value of
financial instruments for which it is practicable to estimate that value. The
statement provides for a variety of different valuation methods, levels of
aggregation, and assessments of practicability of estimating fair value.
<PAGE>PAGE F-27
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
Fair value estimates are not necessarily more relevant than historical
cost values. Fair values may have limited usefulness in evaluating portfolios
of long-term financial instrument assets and liabilities held by going concerns.
Moreover, there are significant inherent weaknesses in any estimating techniques
employed. Differences in the alternative methods and assumptions selected by
various companies as well as differences in the methodology utilized between
years may, and probably will, significantly limit comparability and usefulness
of the data displayed. For these reasons, as well as others, management
believes that the disclosure presented herein has limited relevance to the
Company and its operations.
The values presented are based upon information as of December 31,
1994, and 1993, and do not reflect any subsequent changes in fair value. Fair
values may have changed significantly following the balance sheet dates. The
estimates presented herein are not necessarily indicative of amounts that could
be realized in a current transaction.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
The historical cost amounts approximate the fair value of the
following financial instruments: cash, interest earned but
uncollected, investment in capital stock of Federal Home Loan Bank,
other investments, customer demand deposits, securities sold under
agreements to repurchase with brokers/dealers due within 90 days,
and federal funds purchased.
Fair values are based on quoted market prices for securities
available for sale, mortgage-backed securities available for sale,
mortgage-backed securities held to maturity, medium-term notes, and
subordinated notes.
Fair values are estimated using projected cash flows present valued
at replacement rates currently offered for instruments of similar
remaining maturities for: customer term deposits, advances from
Federal Home Loan Bank, and consumer repurchase agreements.
For loans receivable and loan commitments, the fair value is
estimated by present valuing projected future cash flows, using
current rates at which similar loans would be made to borrowers and
with assumed rates of prepayment. Adjustment for credit risk is
estimated based upon the classification status of the loans.
The fair value of interest rate caps is derived from current market
prices of similar interest rate cap instruments. The fair value of
interest rate swap agreements is the estimated amount the Company
would receive or pay to terminate the swap agreements on the
reporting date, considering current interest rates.
<PAGE>PAGE F-28
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------
1994 1993
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 242,441 $ 242,441 $ 243,185 $ 243,185
Securities available for sale 1,488,845 1,488,845 1,636,586 1,636,586
Other investments 534,600 534,600 538,100 538,100
Mortgage-backed securities available for sale 323,339 323,339 1,114,069 1,114 069
Mortgage-backed securities held to maturity 871,039 831,436 408,467 412,243
Loans receivable 27,071,266 26,914,642 23,912,571 24,166,244
Interest earned but uncollected 202,456 202,456 175,080 175,080
Investment in capital stock of Federal Home
Loan Bank 332,940 332,940 325,737 325,737
Financial Liabilities:
Customer deposits 19,219,389 19,138,503 17,422,484 17,564,644
Advances from Federal Home Loan Bank 6,488,418 6,300,271 6,281,691 6,035,503
Securities sold under agreements to
repurchase 601,821 602,117 442,874 447,163
Medium-term notes 1,164,079 864,210 676,540 686,581
Federal funds purchased 250,000 250,000 -0- -0-
Subordinated notes 1,221,559 1,053,758 1,220,061 1,349,037
</TABLE>
<TABLE>
<CAPTION>
Off-Balance Sheet Instruments (Unrealized Gains (Losses)):
December 31
------------------------------------------------------------------------------
1994 1993
------------------------------------- -------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain (Loss) Gains Losses Gain (Loss)
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps:
Receive fixed $ 3,765 $104,098 $(100,333) $64,561 $ 566 $ 63,995
Pay fixed 64,874 8,959 55,915 -0- 159,571 (159,571)
Basis -0- 77 (77) 6,634 -0- 6,634
Forward starting 348 -0- 348 -0- -0- -0-
Interest rate caps 589 -0- 589 -0- 1,422 (1,422)
Loan commitments 1,698 -0- 1,698 -0- 68 (68)
------- -------- --------- ------- -------- ---------
Total $71,274 $113,134 $ (41,860) $71,195 $161,627 $ (90,432)
======= ======== ========= ======= ======== =========
</TABLE>
<PAGE>PAGE F-29
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE V - Parent Company Financial Information
<TABLE>
<CAPTION>
Statement of Net Earnings
Year Ended December 31
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Investment income $ 40,821 $ 28,047 $ 22,542
Insurance commissions and trustee
fees 1,190 1,357 2,978
Other 20 20 25
-------- -------- --------
42,031 29,424 25,545
Expenses:
Interest 85,906 75,601 58,313
General and administrative 2,648 2,188 2,088
-------- -------- --------
88,554 77,789 60,401
-------- -------- --------
Loss before earnings of subsidiaries
and income tax credit (46,523) (48,365) (34,856)
Income tax credit 20,779 21,585 15,279
Earnings of subsidiaries 256,193 300,634 303,115
-------- -------- --------
Net Earnings $230,449 $273,854 $283,538
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Statement of Financial Condition
Assets
December 31
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Cash $ 1,708 $ 9,658
Securities available for sale 299,454 681,935
Other investments 386,707 114,714
Notes receivable from subsidiary 250,000 150,000
Prepaid expenses and other assets 9,273 7,008
Investment in subsidiaries 2,094,784 2,169,364
---------- ----------
$3,041,926 $3,132,679
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
<S> <C> <C>
Securities sold under agreements to repurchase $ -0- $ 24,875
Accounts payable and accrued expenses 19,182 21,018
Subordinated notes, net 1,022,470 1,021,182
Stockholders' equity 2,000,274 2,065,604
---------- ----------
$3,041,926 $3,132,679
========== ==========
</TABLE>
<PAGE>PAGE F-30
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE V - Parent Company Financial Information (Continued)
<TABLE>
<CAPTION>
Statement of Cash Flows
Year Ended December 31
-------------------------------------
1994 1993 1992
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 230,449 $ 273,854 $ 283,538
Adjustments to reconcile net earnings to
net cash used in operating activities:
Equity in earnings of subsidiaries (256,193) (300,634) (303,115)
Amortization of intangibles and
discount on subordinated debt 1,353 1,209 837
Other, net (5,086) 15,509 (2,897)
----------- --------- ---------
Net cash used in operating activities (29,477) (10,062) (21,637)
Cash flows from investing activities:
Capital contributed to subsidiaries (625) -0- -0-
Dividends received from subsidiary 275,000 34,000 40,000
Purchases of securities held for sale (1,305,371) (1,920,007) (434,738)
Sales and maturities of securities available
for sale 1,681,257 1,440,605 432,685
Decrease (increase) in other investments (271,993) (169,355) 175,703
Notes receivable from subsidiary (650,000) (150,000) (695,000)
Repayments of notes receivable from
subsidiary 550,000 475,000 220,000
----------- --------- ---------
Net cash provided (used) in investing
activities 278,268 (289,757) (261,350)
Cash flows from financing activities:
Increase (decrease) in securities sold under
agreements to repurchase (24,875) 24,875 -0-
Proceeds from subordinated debt -0- 297,008 295,616
Dividends on common stock (19,220) (17,280) (14,624)
Sale of stock 2,992 2,818 5,153
Purchase and retirement of Company stock (215,638) (7,821) -0-
----------- --------- ---------
Net cash provided (used) by financing
activities (256,741) 299,600 286,145
Net increase (decrease) in cash (7,950) (219) 3,158
Cash at beginning of period 9,658 9,877 6,719
----------- --------- ---------
Cash at end of period $ 1,708 $ 9,658 $ 9,877
=========== ========= =========
</TABLE>
<PAGE>PAGE F-31
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands except per share figures)
NOTE W - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1994
------------------------------------------------------------
Quarter Ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income $451,695 $457,461 $468,161 $499,160
Interest expense 262,801 271,633 290,975 329,698
Net interest income 188,894 185,828 177,186 169,462
Provision for loan losses 16,492 17,946 15,996 12,532
Non-interest income 11,424 11,435 9,786 4,841
Non-interest expense 73,415 74,347 75,817 81,929
-------- -------- -------- --------
Earnings before taxes on income 110,411 104,970 95,159 79,842
Taxes on income 45,115 43,027 39,034 32,757
-------- -------- -------- --------
Net earnings $ 65,296 $ 61,943 $ 56,125 $ 47,085
======== ======== ======== ========
Net earnings per share $ 1.02 $ .98 $ .91 $ .79
======== ======== ======== ========
Cash dividends per share $ .075 $ .075 $ .075 $ .085
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
1993
------------------------------------------------------------
Quarter Ended
------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Interest income $463,027 $472,073 $473,813 $461,259
Interest expense 280,911 291,831 288,550 276,122
-------- -------- -------- --------
Net interest income 182,116 180,242 185,263 185,137
Provision for loan losses 11,459 13,182 16,196 25,000
Non-interest income 11,907 13,428 14,444 22,263
Non-interest expense 64,361 63,870 70,077 73,273
-------- -------- -------- --------
Earnings before taxes on income 118,203 116,618 113,434 109,127
Taxes on income 46,619 46,035 49,666 41,208
-------- -------- -------- --------
Net earnings $ 71,584 $ 70,583 $ 63,768 $ 67,919
======== ======== ======== ========
Net earnings per share $ 1.12 $ 1.10 $ 1.00 $ 1.06
======== ======== ======== ========
Cash dividends per share $ .065 $ .065 $ .065 $ .075
======== ======== ======== ========
</TABLE>
Due to the effect of stock repurchases on the fourth quarter earnings
per share calculation, the year-to-date earnings per share for 1994 do not equal
the sum of the quarterly earnings per share amounts. In addition, non-interest
income in the fourth quarter of 1993 includes a $17 million reduction of a
valuation allowance on investments charged to income in a previous year.
<PAGE>PAGE 73
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders
Golden West Financial Corporation
Oakland, California
We consent to the incorporation by reference in Post-Effective
Amendment No. 2 to Registration Statement No. 2-66913 on Form S-8, Registration
Statement No. 33-14833 on Form S-8, Registration Statement No. 33-29286 on Form
S-3, Registration Statement No. 33-40572 on Form S-8, Registration Statement
No. 33-48976 on Form S-3, and Registration Statement No. 33-57882 on Form S-3
of our report dated January 25, 1994 appearing in this Annual Report on
Form 10-K of Golden West Financial Corporation for the year ended December 31,
1994.
Oakland, California
March 22, 1995
<PAGE>PAGE 74
<TABLE>
<CAPTION>
EXHIBIT 27
Golden West Financial Corporation
Financial Data Schedule
($000s omitted except per share amounts)
For the Year Ended
December 31, 1994
------------------
<S> <C>
Cash due from banks $ 242,441
Interest-bearing deposits 29,969
Federal funds sold - purchased securities for resale 152,000
Trading account assets -0-
Investments and mortgage-backed securities available for sale 1,812,184
Investments and mortgage-backed securities held to maturity -
carrying value 871,039
Investments and mortgage-backed securities held to maturity -
market value 831,436
Loans 27,071,266
Allowance for losses 124,003
Total assets 31,683,741
Deposits 19,219,389
Short-term borrowings 851,821
Other liabilities 738,201
Long-term debt 8,874,056
Preferred stock - mandatory redemption -0-
Preferred stock - no mandatory redemption -0-
Common stocks 5,859
Other stockholders' equity 1,994,415
Total liability and stockholders' equity 31,683,741
Interest and fees on loans 1,649,413
Interest and dividends on investments 123,137
Other interest income 103,927
Total interest income 1,876,477
Interest on deposits 714,353
Total interest expense 1,155,107
Net interest income 721,370
Provision for loan losses 62,966
Investment securities losses (120)
Other expenses 305,508
Income before income tax 390,382
Income before extraordinary items 390,382
Extraordinary items, less tax -0-
Cumulative change in accounting principles -0-
Net income 230,449
Earnings per share - primary 3.71
Earnings per share - fully diluted 3.71
Net yield - interest earning assets - actual 6.81%
Loans on nonaccrual 284,103
Accruing loans past due 90 days or more -0-
Troubled debt restructuring 72,827
Potential problem loans -0-
Allowance for loan loss - beginning of period 106,698
Total chargeoffs 46,556
Total recoveries 895
Allowance for loan loss - end of period 124,003
Loan loss allowance allocated to domestic loans 124,003
Loan loss allowance allocated to foreign loans -0-
Loan loss allowance - unallocated -0-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 242,441
<INT-BEARING-DEPOSITS> 29,969
<FED-FUNDS-SOLD> 152,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,812,184
<INVESTMENTS-CARRYING> 871,039
<INVESTMENTS-MARKET> 831,436
<LOANS> 27,071,266
<ALLOWANCE> 124,003
<TOTAL-ASSETS> 31,683,741
<DEPOSITS> 19,219,389
<SHORT-TERM> 601,821
<LIABILITIES-OTHER> 738,201
<LONG-TERM> 9,124,056
<COMMON> 0
0
5,859
<OTHER-SE> 1,994,415
<TOTAL-LIABILITIES-AND-EQUITY> 31,683,741
<INTEREST-LOAN> 1,649,413
<INTEREST-INVEST> 123,137
<INTEREST-OTHER> 103,454
<INTEREST-TOTAL> 1,876,477
<INTEREST-DEPOSIT> 714,353
<INTEREST-EXPENSE> 1,155,107
<INTEREST-INCOME-NET> 721,370
<LOAN-LOSSES> 62,966
<SECURITIES-GAINS> (120)
<EXPENSE-OTHER> 305,508
<INCOME-PRETAX> 390,382
<INCOME-PRE-EXTRAORDINARY> 390,382
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 230,449
<EPS-PRIMARY> 3.71
<EPS-DILUTED> 3.71
<YIELD-ACTUAL> 6.81
<LOANS-NON> 284,103
<LOANS-PAST> 0
<LOANS-TROUBLED> 72,827
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 106,698
<CHARGE-OFFS> 46,556
<RECOVERIES> 895
<ALLOWANCE-CLOSE> 124,003
<ALLOWANCE-DOMESTIC> 124,003
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
