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, 1995
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 (I.R.S. Employer Identification No.)
incorporation or organization)
1901 Harrison Street, Oakland, California 94612
- ------------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
----------------------
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 St
ock 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. X YES 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. [X]
The approximate aggregate market value of the Registrant's common stock held by
nonaffiliates of the Registrant on February 29, 1996, was $2,973,968,612. The
number of shares outstanding of the Registrant's common stock on February 29,
1996, was 58,745,059 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference Applicable Part of Form 10-K
- ----------------------------------- ----------------------------
Proxy Statement Dated March 15, 1996, Part III
Furnished to Stockholders in Connection
with Registrant's Annual Meeting of
Stockholders.
<PAGE>
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),
and a savings bank business through its savings bank subsidiaries, World Savings
Bank, a Federal Savings Bank (WFSB), and World Savings Bank, a State Savings
Bank, (WSSB). The Association, WFSB and WSSB are referred to collectively as the
"Insured Institutions" or "Insured Subsidiaries". Golden West also has two other
subsidiaries, Atlas Advisers, Inc., and Atlas Securities, Inc. These two
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. References herein to the Company or Golden West mean Golden West and
its subsidiaries on a consolidated basis, unless the context requires otherwise.
World, whose deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) Savings Association Insurance Fund (SAIF), 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. For the years ended December 31, 1995, 1994 and
1993, World's net earnings were $272 million, $257 million and $286 million,
respectively. World's assets totaled $30.4 billion and $31.0 billion at yearends
1995 and 1994, respectively.
During 1995, Golden West acquired Watchung Hills Bank for Savings of
New Jersey and renamed it World Savings Bank, a Federal Savings Bank. WFSB is a
federally chartered savings bank, with deposits insured by the FDIC Bank
Insurance Fund (BIF) and its home office is in Warren, New Jersey. As of
December 31, 1995, WFSB had assets of $4.0 billion. For the year ended December
31, 1995, WFSB incurred a $3.5 million loss. As a BIF-insured institution,
WFSB's FDIC insurance premiums currently are assessed at a lower rate than FDIC
insurance premiums of SAIF-insured institutions such as the Association.
Golden West is operating its insured subsidiaries in a manner that
enhances customer service, including, for example, permitting customers to earn
higher yields that reflect the benefits of lower FDIC insurance premiums and
allowing customers to maximize FDIC insurance coverage by placing deposits at
more than one insured institution. In this regard, products of WFSB are made
available through WFSB's own offices, through offices of the Association in an
arrangement where the Association acts as agent for WFSB, and through offices
shared by the Association and WFSB. As of November 30, 1995, WFSB deposit
accounts were available through all Association branches. In addition, customers
of each of Golden West's insured subsidiaries can
<PAGE>
ITEM 1. BUSINESS (Continued)
REGISTRANT (continued)
transact most business on their accounts at any insured subsidiary's branch
offices. Interest rates set on deposit accounts offered by the Association and
WFSB are based on market conditions and funding needs. Each insured subsidiary
reimburses the other for services provided in these arrangements.
REGULATORY FRAMEWORK
The Company is a savings and loan holding company within the meaning of the
Homeowners Loan Act (HOLA), and is subject to the regulation, examination,
supervision, and reporting requirements of HOLA. 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
FDIC SAIF, up to the maximum amounts provided by law. WFSB is a member of the
FHLB system and owns stock in the FHLB of New York. WFSB's savings accounts are
insured by the FDIC BIF, also up to the maximum amounts provided by law. The
Company, the Association, and WFSB are subject to extensive examination,
supervision, and regulation by the Office of Thrift Supervision (OTS) and the
FDIC. Applicable regulations govern, among other things, lending and investment
powers, the types of savings accounts that can be offered, the types of business
that can be engaged in, and capital requirements. The Association and WFSB are
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).
OFFICE STRUCTURE
As of December 31, 1995, the Company operated 118 savings branch
offices in California, 48 in Colorado, 23 in Florida, 16 in Texas, ten in
Kansas, nine in Arizona, and nine in New Jersey. The Company also operates 221
loan origination offices of which 190 are located in the states listed above.
The remaining 31 loan origination offices are located in Connecticut, Delaware,
Idaho, Illinois, Maryland, Massachusetts, Minnesota, Missouri, Nevada, New
Mexico, Oregon, Pennsylvania, South Dakota, Utah, Virginia, Washington, and
Wisconsin. Of the 221 loan offices, 18 are fully-staffed offices that are
located in the same premises as savings branch offices and 105 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 January 20, 1995, the Company acquired Watchung Hills Bank for
Savings of New Jersey with $48 million in deposits and three branches in New
Jersey and renamed it World Savings Bank, a Federal Savings Bank. That same
month, the Company sold seven Colorado branches with $153 million in deposits to
First Security Bank of Fort Lupton.
<PAGE>
ITEM 1. BUSINESS (Continued)
ACQUISITIONS/DIVESTITURES (continued)
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.
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 Insured
Subsidiaries, 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 Insured Subsidiaries 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 Insured Subsidiaries had 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, 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 of San Francisco, the Federal
Reserve Bank of San Francisco, and the Federal Reserve Board.
The principal sources of funds for the holding company, Golden West,
are interest on investments, dividends from World, and the proceeds from the
issuance of debt and equity securities. Various statutory and regulatory
restrictions and tax considerations limit the amount of dividends the
Association can pay. The principal liquidity needs of Golden West are for
payment of interest and principal on subordinated debt securities, capital
contributions to its Insured Subsidiaries, dividends to stockholders, the
purchase of Company stock, and general and administrative expenses.
<PAGE>
ITEM 1. BUSINESS (Continued)
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.
Customer deposits increased $1.6 billion during 1995, including
interest credited of $847 million and including $153 million from a divestiture,
and $48 million from an acquisition, compared to an increase of $1.8 billion,
including interest credited of $585 million and including $78 million from
acquisitions during 1994. Customer deposits increased $936 million in 1993,
including $567 million of interest credited, $320 million from acquisitions, and
$264 million of divestitures. The increase in deposits in 1995 reflected growth
in deposits at WFSB which more than offset a decline in deposits at the
Association. The increase in customer deposits during 1995 resulted from ongoing
marketing efforts and competitive rates offered by the Company on its insured
accounts in 1995. Customer funds were attracted during 1994 as a result of
aggressive promotions by the Company and by an improvement in the savings market
as interest rates rose throughout most of that year. Consumer funds were
attracted in 1993 as a result of special promotions in the Company's savings
market.
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)
1995 1994 1993 1992 1991
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Interest-bearing checking $ 750,160 $ 730,290 $ 736,767 $ 710,851 $ 574,068
Passbook. . . . . . . . . 567,890 638,905 611,606 541,701 391,205
Money market
deposit accounts. . . . 1,291,501 1,818,426 2,378,087 2,731,338 2,310,518
Term certificate accounts with
original maturities of:
4 weeks to 1 year. . . 9,358,705 5,159,037 4,334,208 4,762,359 6,148,044
1 to 2 years . . . . . 3,599,540 5,636,301 4,614,059 3,494,606 4,415,462
2 to 3 years . . . . . 2,128,392 1,997,826 1,448,779 1,246,978 907,858
3 to 4 years . . . . . 651,787 817,631 1,149,108 1,267,707 1,232,213
4 years and over . . . 2,065,785 2,098,984 2,021,350 1,612,784 730,057
Retail jumbo CDs . . . 430,647 312,413 109,250 94,651 82,331
All other . . . . . . . . 3,503 9,576 19,270 23,271 26,754
----------- ----------- ---------- ---------- -----------
Total customer deposits. . $20,847,910 $19,219,389 $17,422,484 $16,486,246 $16,818,510
============ =========== =========== =========== ===========
</TABLE>
<PAGE>
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)
1995 1994
------------ -----------
<S> <C> <C>
0.00 % -- 4.00% . . . . . . . . . $ 3,059,070 $ 6,040,355
4.01 % -- 6.00% . . . . . . . . . 13,333,303 10,309,411
6.01 % -- 8.00% . . . . . . . . . 4,434,384 2,789,033
8.01 % -- 10.00% . . . . . . . . . 6,239 62,805
10.01 % -- 12.00% . . . . . . . . . 14,814 17,685
12.01 % -- 14.00% . . . . . . . . . 100 100
------------ -----------
$ 20,847,910 $19,219,389
============ ===========
</TABLE>
The table below shows the maturities of customer deposits at December
31, 1995, by interest rate.
<TABLE>
<CAPTION>
TABLE 3
Customer Deposit Maturities
by Interest Rate
($000s Omitted)
2000 and
1996(a) 1997 1998 1999 thereafter Total
------------- ---------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
0.00 % -- 4.00 % $ 3,041,492 $ 15,733 $ -0- $ 1,845 $ -0- $ 3,059,070
4.01 % -- 6.00 % 11,730,834 1,085,251 312,236 106,502 98,480 13,333,303
6.01 % -- 8.00 % 2,321,711 1,156,331 299,084 528,965 128,293 4,434,384
8.01 % -- 10.00 % 2,083 1,829 1,738 560 29 6,239
10.01 % -- 12.00 % 92 84 5,184 354 9,100 14,814
12.01 % -- 14.00 % -0- 100 -0- -0- -0- 100
----------- ---------- -------- -------- -------- -----------
$17,096,212 $2,259,328 $618,242 $638,226 $235,902 $20,847,910
=========== ========== ======== ======== ======== ===========
<FN>
(a) Includes passbook, checking, and money market deposit accounts, which
have no stated maturity.
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
CUSTOMER DEPOSIT ACTIVITIES (continued)
As of December 31, 1995, the aggregate amount outstanding of time
certificates of deposits in amounts of $100,000 or more was $2.2 billion, of
which, $431 million were jumbo CDs. The Company does not use brokers to acquire
certificates of deposit. The following table presents the maturity of these time
certificates of deposit at December 31, 1995. <TABLE>
<CAPTION>
TABLE 4
Maturities of Time Certificate of Deposit Equal to or Greater than $100,000
($000s Omitted)
<S> <C>
3 months or less $ 800,868
Over 3 months through 6 months 510,789
Over 6 months through 12 months 430,121
Over 12 months 450,716
---------
$2,192,494
==========
</TABLE>
More information regarding customer deposits is included in Note J to
the Financial Statements included in Item 14.
BORROWINGS
The Company generally may borrow from the FHLBs of San Francisco and
New York upon the security of a) the capital stock of the FHLBs 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 FHLBs. At December 31, 1995, the Company had
$6.4 billion in FHLB advances outstanding, compared to $6.5 billion at yearend
1994.
From time to time, the Company enters into reverse repurchase
agreements with selected major government securities dealers, selected large
banks, or the FHLB of San Francisco. 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 counterparty 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.
<PAGE>
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.
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, banks, and the FHLB of San Francisco amounted
to $1.8 billion at December 31, 1995, compared to $602 million at yearend 1994.
The $1.8 billion balance at December 31, 1995 includes $1.5 billion in FHLB of
San Francisco MBS Reverse Repos with maturities ranging from 1996 to 1998.
In 1995, the Company issued $100 million of subordinated debt. The debt
will mature July 1, 2002 and has a note rate of 6.70%. At December 31, 1995,
Golden West, at the parent level, had principal amounts outstanding of $1.1
billion of subordinated debt. As of December 31, 1995, 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. On July 26,
1995, the Company filed a new shelf registration with the Securities and
Exchange Commission for the sale of up to $300 million of subordinated debt
securities.
World currently has on file a shelf registration with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes, all of which was
available for issuance as of December 31, 1995. The Association had $1.6 billion
of medium-term notes outstanding at December 31, 1995, under prior registrations
compared to $1.2 billion at yearend 1994. As of December 31, 1995, 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 $300 million of subordinated notes, all of which, as of December
31, 1995, was available for issuance. As of December 31, 1995, the Association
had outstanding a total of $200 million of subordinated notes. As of December
31, 1995, 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
BORROWINGS (continued)
The table below sets forth the composition of the Company's borrowings
at December 31.
<TABLE>
<CAPTION>
TABLE 5
Composition of Borrowings
($000s Omitted)
1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FHLB advances. . . . . . . . . $ 6,447,201 $6,488,418 $6,281,691 $5,499,363 $4,159,796
Reverse repurchase agreements 1,752,171 316,865 205,821 372,409 302,400
Dollar reverse repurchase
agreements. . . . . . . . 65,772 284,956 237,053 184,301 349,813
Medium-term notes . . . . . . 1,597,507 1,164,079 676,540 81,267 166,750
Federal funds purchased. . .. -0- 250,000 -0- -0- -0-
Other borrowings. . . . . . . -0- -0- -0- -0- 21,395
Subordinated debt. . . . . . . 1,322,392 1,221,559 1,220,061 921,701 625,105
----------- ---------- ---------- ---------- ----------
Total borrowings. . . . . $11,185,043 $9,725,877 $8,621,166 $7,059,041 $5,625,259
=========== ========== ========== ========== ==========
Weighed average interest rate
of total borrowings. . . . 6.15% 5.85% 4.69% 5.58% 7.48%
=========== ========= ========= ========== ==========
</TABLE>
More information concerning the borrowings of the Company is included
in Notes K, L, M, N, and O to the Financial Statements which are included 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 in Arizona, California, Colorado, Connecticut, Delaware,
Florida, Idaho, Illinois, Kansas, Maryland, Massachusetts, Minnesota, Missouri,
Nevada, New Mexico, New Jersey, Oregon, Pennsylvania, South Dakota, 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, 1995, and 1994.
The tables on the following two pages set forth the Company's loan
portfolio by state as of December 31, 1995, and 1994.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 6
Loan Portfolio by State
December 31, 1995
($000s Omitted)
Residential
Real Estate Commercial Loans
---------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Construction Loans(a) Portfolio
- ------------------- ----------- ----------- -------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
California $19,000,477 $3,342,510 $ 273 $ 72,321 $ -0- $22,415,581 73.22%
Colorado 836,664 210,219 -0- 7,573 -0- 1,054,456 3.44
Illinois 841,771 181,265 -0- 2,445 -0- 1,025,481 3.35
Texas 826,476 75,965 590 1,678 -0- 904,709 2.96
New Jersey 865,935 413 -0- 7,577 1,471 875,396 2.86
Florida 705,373 57 221 1,185 -0- 706,836 2.31
Washington 356,723 310,095 -0- 788 -0- 667,606 2.18
Arizona 428,584 52,695 -0- 1,723 -0- 483,002 1.58
Virginia 423,737 -0- -0- 1,592 -0- 425,329 1.39
Pennsylvania 390,564 -0- -0- 4,160 -0- 394,724 1.29
Connecticut 314,352 -0- -0- -0- -0- 314,352 1.03
Maryland 274,410 -0- -0- 598 -0- 275,008 0.90
Oregon 177,785 10,598 -0- 2,901 -0- 191,284 0.62
Nevada 158,059 1,225 -0- -0- -0- 159,284 0.52
Kansas 130,168 5,172 -0- 211 -0- 135,551 0.44
Utah 95,500 65 -0- 1,988 -0- 97,553 0.32
Minnesota 80,432 -0- -0- -0- -0- 80,432 0.26
Missouri 65,763 7,077 -0- -0- -0- 72,840 0.24
Wisconsin 59,289 4,213 -0- -0- -0- 63,502 0.21
New York 53,245 -0- -0- 23 -0- 53,268 0.17
Georgia 42,858 -0- -0- 2,090 -0- 44,948 0.15
Washington DC 35,785 -0- -0- -0- -0- 35,785 0.12
Ohio 23,932 2,601 427 5,210 -0- 32,170 0.11
New Mexico 25,398 -0- -0- -0- -0- 25,398 0.08
Delaware 19,041 -0- -0- -0- -0- 19,041 0.06
Idaho 15,034 -0- -0- -0- -0- 15,034 0.05
North Carolina 8,992 327 -0- 2,951 -0- 12,270 0.04
Other 28,726 31 -0- 4,913 -0- 33,670 0.10
----------- ---------- ------ -------- ------- ---------- ------
Totals $26,285,073 $4,204,528 $1,511 $121,927 $1,471 30,614,510 100.00%
=========== ========== ====== ======== ======= ======
SFAS 91 deferred loan fees (77,283)
Loan discount on purchased loans (6,262)
Undisbursed loan funds (3,568)
Allowance for loan losses (141,988)
Loans to facilitate (LTF) interest reserve (482)
Troubled debt restructured (TDR) interest reserve (4,167)
Loans on customer deposits 33,279
-----------
Total loan portfolio and loans securitized with FNMA with
recourse 30,414,039
Loans securitized with FNMA with recourse (2,232,686)(b)
-----------
Total loan portfolio $28,181,353
===========
<FN>
(a) The Company has no commercial loans.
(b) During 1995, loans amounting to $2.3 billion were securitized with full
recourse into Federal National Mortgage Association (FNMA)
mortgage-backed securities. The December 31, 1995 balances of these FNMA
mortgage-backed securities are reflected in the amounts above.
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 7
Loan Portfolio by State
December 31, 1994
($000s Omitted)
Residential
Real Estate Commercial Loans as
------------------------- 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%
=========== ========== ====== ======== =======
SFAS 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
===========
<FN>
(a) The Company has no commercial loans.
</FN>
</TABLE>
<PAGE>
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 collateral at
December 31.
<TABLE>
<CAPTION>
TABLE 8
Loan Portfolio by Type of Security
($000s Omitted)
1995 1994 1993 1992 1991
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Loans collateralized primarily
by first deeds of trusts:
One-to four-family units .. $24,071,421 $23,217,564 $20,197,613 $18,487,247 $17,065,371
Over four-family units. . . 4,205,050 3,946,446 3,785,673 3,509,105 2,989,908
Commercial real estate. . . 122,396 134,189 153,396 176,900 214,706
Construction loans. . . . . 1,471 -0- 580 580 580
Land. . . . . . . . . . . . 1,511 1,851 2,407 1,763 1,989
Loans on customer deposits . . 33,279 30,460 32,012 33,230 36,607
Less:
Undisbursed loan funds. . . 3,568 2,781 1,882 2,687 1,924
Unearned fees and discounts 88,194 105,314 112,751 109,446 92,472
Unamortized discount arising
from acquisitions . . . 20,025 27,146 37,779 57,092 79,297
Allowance for loan losses. . 141,988 124,003 106,698 70,924 48,036
----------- ----------- ----------- ----------- -----------
$28,181,353 $27,071,266 $23,912,571 $21,968,676 $20,087,432
=========== =========== =========== =========== ===========
</TABLE>
At December 31, 1995, 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, 1995.
<TABLE>
<CAPTION>
TABLE 9
Loans Due After One Year
($000s Omitted)
<S> <C>
Adjustable Rate $24,988,306
Fixed Rate 3,124,336
-----------
$28,112,642
===========
</TABLE>
The table on the following page sets forth information concerning new
loans made by the Company during 1995, 1994, and 1993 by type and purpose of
loan.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 10
New Loan Originations By Type and Purpose
($000s Omitted)
1995 1994 1993
----------------------------- ------------------------------ -------------------------------
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 38,742 $5,274,785 88.7% 42,543 $5,769,339 86.9% 41,999 $5,459,456 85.2%
(one unit)
Residential
(2 to 4 units) 1,679 223,177 3.7 2,194 307,480 4.6 2,380 351,349 5.5
Residential
(5or more units) 898 451,102 7.6 1,073 560,834 8.5 1,209 598,972 9.3
Commercial
real estate -0- -0- 0.0 -0- -0- 0.0 1 2,100 0.0
----- ---------- ------ ------- ---------- ------ ------- ---------- -----
Totals 41,319 $5,949,064 100.0% 45,810 $6,637,653 100.0% 45,589 $6,411,877 100.0%
====== ========== ====== ======= ========== ======= ======= ========== ======
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------- --------------------------------- --------------------------------
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 28,343 $4,046,605 68.0% 26,973 $3,941,719 59.4% 18,236 $2,654,769 41.4%
Refinance 12,976 1,902,459 32.0 18,837 2,695,934 40.6 27,353 3,757,108 58.6
------- ---------- ----- ------ ---------- ----- ------ ---------- ------
Totals 41,319 $5,949,064 100.0% 45,810 $6,637,653 100.0% 45,589 $6,411,877 100.0%
======= ========== ===== ====== ========== ====== ======= ========== ======
<FN>
Note: During 1995, 1994, and 1993, the Company also purchased $31 million, $69
million, and $14 million, respectively, of residential loans (not included
above) of which $26 million, $60 million, and $304 thousand, respectively, were
on one-unit residential properties.
</FN>
</TABLE>
New loan originations in 1995, 1994, and 1993 amounted to $5.9 billion,
$6.6 billion, and $6.4 billion, respectively. Refinanced loans constituted 32%
of new loan originations in 1995 compared to 41% in 1994 and 59% in 1993. The
decline in loan volume in 1995 was due to interest rate decreases during 1995
which brought down the price of new fixed-rate mortgage loans (FRMs), making
competition from fixed-rate lenders more intense for adjustable rate lenders,
such as the Company. However, in 1994, as interest rates rose over the levels
seen in the prior year, adjustable rate loans (ARMs) proved to be a more
affordable alternative to FRMs and the Company was able to increase market
share. The strong origination results in 1993 were due to the refinancing boom
of the early 1990s, which peaked in 1993, as many homeowners took advantage of
historically low interest rates and traded in older, higher-rate loans for less
expensive ones. The total portfolio growth for the years ended December 31,
1995, and 1994, were $1.1 billion or 4% and $3.2 billion or 13%, respectively.
Had there not been $2.3 billion of loans securitized into MBS during 1995, the
loan portfolio growth in 1995 would have been $3.3 billion or 12%, similar to
the 1994 growth.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
The primary source of mortgage origination is loans secured by
residential properties in California. The loans originated in California
decreased to $3.1 billion in 1995 from $4.1 billion in 1994 and $4.7 billion in
1993. Residential loans originated in California as a percentage of total
originations were 53% in 1995, 62% in 1994 and 73% in 1993. The five largest
states, other than California, for originations for the year ended December 31,
1995 were Texas, Illinois, Colorado, Florida and New Jersey with a combined
total of 28% of total originations. Although California originations continue to
be a large portion of total originations, the California share of total
originations decreased in 1995 as compared to 1994, primarily due to both
decreased loan volume in California and increased loan volume in markets outside
of California. The increase in total originations in 1994 as compared to 1993
was due to the increased penetration by the Company in markets outside of
California.
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 90%
at yearend 1995 compared to 89% at yearend 1994 and 87% at yearend 1993. Despite
the resurgence of fixed-rate mortgages, Golden West's ARM originations
constituted approximately 93% of new mortgage loans made by the Company in 1995
and 1994, compared with 75% in 1993.
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 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
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 13.11%, or 5.62% above the actual weighted average rate at
December 31, 1995, versus 13.36%, or 6.83% above the weighted average rate at
yearend 1994.
Approximately $5.2 billion of the Company's ARMs 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, 1995, $545 million of these ARM
loans had reached their rate floors. The weighted average floor rate on these
loans was 7.85% at yearend 1995 compared to 7.56% at yearend 1994. Without the
floor, the average yield on these loans would have been 7.35% at December 31,
1995 and 6.47% at December 31, 1994.
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
employees who primarily contact local real estate brokers regarding 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 San Antonio, Texas, for processing.
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.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
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. During 1995, 1994 and 1993, the
great majority of all loans originated in excess of 80% of the appraised value
of the property carried mortgage insurance except loans to facilitate the sale
of REO. During 1995, 6% of loans originated were in excess of 80% of the
appraised value of the residence. Approximately 8% and 3% of loans originated in
1994 and 1993, respectively, 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 securities 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 Mortgage
Corporation (FHLMC), the Federal National Mortgage Association (FNMA), and to
institutional investors. Beginning in 1995, the Company began sales to FNMA of
whole loans with recourse. The Company 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
difference being retained by the Company as servicing fee income.
The Company sold $142 million of loans during 1995 compared to $146
million and $432 million in 1994 and 1993, respectively. The Company recognized
pre-tax gains of $443 thousand in 1995 compared to $1.7 million in 1994 and $5.7
million in 1993. The Company originated $169 million of loans held for sale
during 1995 compared to $94 million in 1994 and $443 million in 1993. The loans
held for sale portfolio had a balance of $32 million at December 31, 1995, and
is carried at the lower of cost or market.
At December 31, 1995, the Company was engaged in servicing
approximately $3.1 billion of loan participations and whole loans for others
including $2.3 billion of loans serviced for FNMA with recourse. For the year
ended December 31, 1995, fees received for such servicing activities totaled $7
million, or approximately three-tenths of one percent of total revenues compared
to $3 million or approximately one-tenth of one percent of total revenues for
the year ended December 31, 1994.
The Company also purchases, on a selective basis and only after strict
underwriting review, residential mortgage whole loans in the secondary market.
Loan purchases in 1995, 1994, and 1993 amounted to $31 million, $69 million, and
$14 million, respectively.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
Loan repayments consist of monthly loan amortization, loan payoffs, and
loan refinances. During 1995, 1994, and 1993, repayments amounted to $2.3
billion, $3.2 billion, and $3.8 billion, respectively. The decrease in
repayments in 1995 compared to 1994 and 1994 as compared with 1993 was due to
lower mortgage payoffs and lower refinances within the Company's loan portfolio.
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. In 1995 and 1994, the
Company responded to increased competition from fixed-rate lenders by offering
more low and zero point adjustable rate mortgage options to its customers. The
Company also charges fees for loan prepayments, loan assumptions and
modifications, late payments and other miscellaneous services.
The table below sets forth information relating 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
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Weighted average interest rate
on new real estate loans
originated (a). . . . 7.56% 6.44% 6.86% 8.06% 9.83%
Weighted average loan fees
received on new real estate
loans originated (a). . . . .25% .29% .59% .81% .85%
<FN>
(a) excludes loans purchased
</FN>
</TABLE>
In May 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS 122). SFAS 122 amends Statement of Financial Accounting Standards
No. 65, "Accounting for Certain Mortgage Banking Activities," to require that
mortgage banking enterprises recognize, as separate assets, rights to service
mortgage loans for others when those rights are acquired through either the
purchase or origination of mortgage loans which are subsequently sold or
securitized. SFAS 122 also requires that mortgage banking enterprises assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. SFAS 122 applies to fiscal years beginning after December
15, 1995. However, if it were applied to the Company's 1995 financial
statements, the impact would not be material.
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY
If a borrower fails to make required payments on a loan, the Company
usually takes 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"
which is so designated if the loan involves terms more favorable to the borrower
than those normally permitted.
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 realized 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" (SFAS 114), as of January 1, 1993. At December 31,
1995, 1994, and 1993, loans in-substance foreclosed were included in the
Company's total loan portfolio. The Company had previously measured loan
impairment in accordance with the methods prescribed in SFAS 114; thus; the
amounts for all years shown in Table 12 on the following page are comparable. No
interest is recognized on nonaccrual loans.
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
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)
1995 1994 1993 1992 1991
-------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $314,086 $284,103 $330,062 $263,065 $232,803
Real estate acquired
through foreclosure 75,158 70,981 62,724 56,642 38,163
Loans in-substance foreclosed -0- -0- -0- 9,351 6,908
Real estate in judgment 443 390 1,366 1,030 4,049
-------- -------- -------- -------- --------
Total nonperforming assets $389,687 $355,474 $394,152 $330,088 $281,923
======== ======== ======== ======== ========
TDRs $ 45,222 $ 72,827 $ 37,190 $ 13,038 $ 18,360
======== ======== ======== ======== ========
Ratio of nonperforming
assets to total assets 1.11% 1.12% 1.37% 1.27% 1.16%
======== ======== ========= ======= ========
Ratio of TDRs to total assets .13% .23% .13% .06% .08%
======== ======== ========= ======= ========
Ratio of NPAs and TDRs to
total assets 1.24% 1.35% 1.50% 1.33% 1.24%
======= ======== ======== ======= ========
</TABLE>
The level of NPAs during the past three years has remained relatively
flat even though the loan portfolio has continued to grow. The Company continues
to closely monitor all delinquencies and takes appropriate steps to protect its
interests. Interest foregone on non-accrual loans (loans greater than 90 days
past due) is fully-reserved and amounted to $18 million in 1995, $17 million in
1994, and $20 million in 1993.
The Company's troubled debt restructured (TDRs) were $45 million, or
0.13% of assets, at December 31, 1995, compared to $73 million, or 0.23% of
assets, at yearend 1994 and $37 million, or 0.13% of assets, at yearend 1993.
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 $1.8 million in 1995 compared to $811
thousand in 1994 and $275 thousand in 1993.
The tables on the following two pages show the Company's nonperforming
assets by state at December 31, 1995, and 1994.
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
<TABLE>
<CAPTION>
TABLE 13
Nonperforming Assets by State
December 31, 1995
($000s Omitted)
Non-Accrual 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(b) Loans
- -------------- -------- ------- ---------- ---------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $265,179 $8,075 $ 808 $53,231 $16,969 $3,574 $347,836 1.55%
Colorado 1,308 64 3,069 -0- -0- -0- 4,441 0.42
Illinois 3,098 472 -0- 599 342 -0- 4,511 0.44
Texas 2,004 -0- -0- -0- -0- -0- 2,004 0.22
New Jersey 10,541 -0- 603 355 -0- -0- 11,499 1.31
Florida 2,956 -0- 149 398 -0- -0- 3,503 0.50
Washington 520 -0- -0- 319 -0- -0- 839 0.13
Arizona 1,052 -0- -0- 51 -0- -0- 1,103 0.23
Virginia 1,231 -0- -0- 604 -0- -0- 1,835 0.43
Pennsylvania 2,209 -0- -0- -0- -0- -0- 2,209 0.56
Connecticut 3,130 -0- -0- 384 -0- -0- 3,514 1.12
Maryland 796 -0- -0- -0- -0- -0- 796 0.29
Oregon 538 -0- -0- -0- -0- -0- 538 0.28
Nevada 793 -0- -0- 114 -0- -0- 907 0.57
Kansas 719 40 -0- -0- -0- -0- 759 0.56
Utah 122 -0- -0- -0- -0- -0- 122 0.13
Minnesota -0- -0- -0- -0- -0- -0- -0- 0.00
Missouri 402 171 -0- -0- -0- -0- 573 0.79
Wisconsin -0- -0- -0- -0- -0- -0- -0- 0.00
New York 2,664 -0- -0- 683 -0- -0- 3,347 6.28
Georgia 917 -0- -0- 50 -0- -0- 967 2.15
Washington DC 7 -0- -0- -0- -0- -0- 7 0.02
Ohio 71 -0- 58 1 -0- 154 284 0.88
New Mexico 1 -0- -0- -0- -0- -0- 1 0.00
Delaware -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho -0- -0- -0- -0- -0- -0- -0- 0.00
North Carolina 41 -0- -0- -0- -0- -0- 41 0.33
Other 278 -0- -0- -0- -0- -0- 278 0.83
-------- ------ ------ ------- ------- ------- -------- ----
Totals $300,577 $8,822 $4,687 $56,789 $17,311 $3,728 391,914 1.28
======== ====== ====== ======= ======= =======
REO general valuation allowance (2,227) (0.01)
-------- -----
$389,687 1.27%
======== =====
<FN>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued. (b) During 1995, loans amounting to $2.3 billion were securitized with
full recourse into FNMA mortgage-backed securities. The December 31, 1995
balance of the related nonperforming assets are reflected in the amounts above.
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
<TABLE>
<CAPTION>
TABLE 14
Nonperforming Assets by State
December 31, 1994
($000s Omitted)
Non-Accrual Loans (a)
-------------------------------- Real Estate Owned
Residential ------------------------------- NPAs as
Real Estate Commercial Residential Commerical Total a % of
State 1 - 4 5+ Real Estate 1 - 4 5+ Real Etsate NPAs Loans
- ---------------- -------- -------- ----------- -------- ------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <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%
======== ====
<FN>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued.
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
At December 31, 1995, approximately $328 million of the Company's
loans were 30 to 89 days past due and an additional $111 million of loans were
performing under bankruptcy protection. Management has included its estimate of
potential losses on these loans in the allowance for loan losses.
The Company provides specific valuation allowances for losses on
loans when impaired, including loans securitized into MBS with recourse, and on
real estate owned when any significant and permanent decline in value is
identified. The Company also utilizes a methodology, based on trends in the
basic portfolio, for monitoring and estimating loan losses that is based on both
historical experience in the loan portfolio and factors reflecting current
economic conditions. This approach uses a 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 general loss allowances to cover losses in the
portfolio. In addition, periodic reviews are made of major loans and real estate
owned, and major lending areas are regularly reviewed to determine potential
problems. Where indicated, valuation allowances are established or adjusted. In
estimating possible losses, consideration is given to the estimated sale price,
cost of refurbishing, payment of delinquent taxes, cost of disposal, and cost of
holding the property. Additions to, and reductions from the allowances are
reflected in current earnings.
The table below shows the changes in the allowance for loan losses for the
years indicated:
<TABLE>
<CAPTION>
TABLE 15
Changes in Allowance for Loan Losses
($000s Omitted)
1995 1994 1993 1992 1991
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Beginning allowance for loan losses $124,003 $106,698 $70,924 $48,036 $ 26,799
Provision charged to expense 61,190 62,966 65,837 43,218 34,984
Less loans charged off (44,656) (46,556) (38,475) (21,227) (15,274)
Add recoveries 1,451 895 1,145 897 1,527
Reclassification of in-substance
foreclosure allowances -0- -0- 7,267 -0- -0-
-------- -------- -------- ------- --------
Ending allowance for loan losses $141,988 $124,003 $106,698 $70,924 $ 48,036
======== ======== ======== ======= =========
Ratio of net chargeoffs to average loans
outstanding (including MBS with
recourse) .15% .18% .16% .10% .07%
======== ======== ======== ======= ========
Ratio of allowance for loan losses to
nonperforming assets 36.4% 34.9% 27.1% 21.5% 17.0%
======== ======== ======== ======= =========
</TABLE>
Chargeoffs decreased in 1995, as compared to 1994, as a result of the
gradually improving economy in California.
<PAGE>
ITEM 1. BUSINESS (Continued)
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. 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 accounts for its investment portfolio under Statement of
Financial Standards No 115 (SFAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." Accordingly, the Company has identified its
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, which is also known as the level
yield 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, 1995, 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 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. Transfers of securities, if any, between
available for sale and held to maturity portfolios are handled in accordance
with SFAS 115.
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, 1995, the great majority of the Company's
CMOs had remaining terms to maturity of five years or less and qualified for
inclusion in the regulatory liquidity measurement. A majority of the CMOs are
fixed-rate and are subject to prepayments and interest rate risk similar to
fixed-rate loans.
<PAGE>
ITEM 1. BUSINESS (Continued)
INVESTMENT ACTIVITIES (continued)
At December 31, 1995, 1994, and 1993, the Company had securities
available for sale in the amount of $902 million, $1.5 billion, and $1.6
billion, respectively, including net unrealized gains on investment securities
available for sale of $117 million, $23 million, and $70 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 different from the interest method.
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)
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Certificates of deposit and short-term bank notes $ 50,000 $ 29,969 $ 482,100
U.S Treasury and Government agency obligations 174,819 637,069 419,815
Collateralized mortgage obligations 407,947 668,128 275,408
Commercial paper 50,974 1,269 230,389
Bankers acceptances -0- -0- 58,395
Equity securities 218,116 152,410 170,479
-------- ---------- ----------
$901,856 $1,488,845 $1,636,586
======== ========== ==========
</TABLE>
The weighted average yields on the securities available for sale
portfolio were 5.89%, 5.24%, and 3.93% at December 31, 1995, 1994, and 1993,
respectively.
<PAGE>
ITEM 1. BUSINESS (Continued)
INVESTMENT ACTIVITIES (continued)
The table below sets forth the composition of the Company's other
investments at December 31.
<TABLE>
<CAPTION>
TABLE 17
Composition of Other Investments
($000s Omitted)
1995 1994 1993
------------ --------- --------
<S> <C> <C> <C>
Federal funds $ 490,960 $152,000 $ 25,000
Short-term repurchase agreements collateralized
by mortgage-back securities 699,200 382,600 513,100
---------- -------- -------
$1,190,160 $534,600 $538,100
=========== ========= ========
</TABLE>
The weighted average yield on the other investments portfolio was
6.00%, 5.92%, and 3.42% at December 31, 1995, 1994, and 1993, respectively. As
of December 31, 1995, the entire other investments portfolio matures in 1996.
MORTGAGE-BACKED SECURITIES
In accordance with SFAS 115, the Company identifies its mortgage-backed
securities 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 over the estimated
life of the security. At December 31, 1995, 1994, and 1993, the Company had
mortgage-backed securities held to maturity in the amount of $3.1 billion, $871
million, and $408 million, respectively, including $2.2 billion of FNMA MBS
subject to full credit recourse at December 31, 1995. 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, 1995, 1994, and 1993, the
Company had mortgage-backed securities available for sale in the amount of $283
million, $323 million, and $1.1 billion, respectively, including net unrealized
gains on mortgage-backed securities available for sale of $14 million, $6
million, and $74 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
MORTGAGE -BACKED SECURITIES (continued)
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 SFAS 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.
During 1995, the Company securitized $2.3 billion of adjustable rate
mortgages into Federal National Mortgage Association COFI-indexed
mortgage-backed securities to be used as collateral for borrowings. These
securities are subject to full credit recourse to the Company. The Company has
the ability and intent to hold these MBS until maturity. Accordingly, these MBS
are classified as held to maturity.
Repayments of MBS during the years 1995, 1994, and 1993 amounted to
$210 million, $311 million, and $646 million, respectively. The decreases in
repayments on MBS in 1995 over 1994 and in 1994 over 1993 were primarily due to
decreased prepayments on the underlying mortgages.
For information on MBS see Notes D and E to the Financial Statements
included in Item 14.
GOODWILL ARISING FROM ACQUISITIONS
Positive goodwill, or the excess of the cost over the fair value of net
assets acquired resulting from acquisitions, of $212 million (1995) and $223
million (1994) is stated net of accumulated amortization of $215 million (1995)
and $200 million (1994). Negative goodwill, or the excess of the fair value of
net assets acquired over the cost resulting from acquisitions, of $73 million
(1995) and $86 million (1994) is shown net of accumulated amortization of $73
million (1995) and $60 million (1994). 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 $2.8
million for 1995, an expense of $2.6 million for 1994, and income of $1.6
million for 1993. The increase in goodwill amortization expense in 1995 as
compared to 1994 was due to the addition of positive goodwill amortization
resulting from the January 1995 Watchung Hills Bank for Savings of New Jersey
acquisition. The increase in goodwill amortization expense in 1994 as compared
to 1993 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 a prior acquisition.
<PAGE>
ITEM 1. BUSINESS (Continued)
LONG-LIVED ASSETS AND OTHER INTANGIBLES
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121) in 1995. SFAS 121 establishes accounting
and disclosure requirements using a fair value based method of accounting for
long-lived assets and certain identifiable intangibles whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 had no effect on the Company's 1995
consolidated financial statements.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during 1995 as a result of
retained earnings and the increase in market values of investment and
mortgage-backed securities available for sale since December 31, 1994. The
Company's stockholders' equity decreased by $65 million 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 compared to a year earlier,
and $19 million of common stock dividends. These decreases in stockholders'
equity were substantially offset by 1994's net earnings. The Company increased
its total stockholders' equity in 1993 through retained earnings and the
adoption of SFAS 115 which added $85 million to stockholders' equity at December
31, 1993.
During periods of low asset growth, the Company's capital ratios may
build to levels well in excess of the amounts necessary to meet regulatory
capital requirements. Golden West's' Board of Directors regularly reviews
alternative uses of excess capital, including faster growth and acquisitions. At
times, the Board has determined that repurchase of common stock is a wise use of
excess capital.
In 1993 and 1994, through two separate actions, the Company's Board of
Directors' authorized the purchase by the Company of up to 6.3 million shares of
Golden West's common stock. On August 1, 1995, the Company's Board of Directors
authorized the purchase by the Company of an additional 5.9 million shares of
Golden West's outstanding common stock. For the period from October 28, 1993
through December 31, 1995, 5.8 million shares had been repurchased and retired
at a cost of $226 million. During 1995, 68 thousand were purchased and retired
at a cost of $3 million. The remaining number of shares authorized for
repurchase is 6.3 million at December 31, 1995.
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 registration. The Company's preferred stock has
been preliminarily rated a2 by Moody's.
<PAGE>
ITEM 1. BUSINESS (Continued)
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, 1995, 1994, and 1993 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, 1995, and is
incorporated herein by reference.
The dollar amounts of the Company's 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)
1995 1994 1993
------------------------------ ----------------------------- ----------------------------
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 $ 2,188,929 5.97% 5.96% $ 2,149,385 4.98% 5.42% $ 2,178,164 3.67% 3.80%
Mortgage-backed 2,294,360 7.90% 7.41% 1,276,615 8.14% 8.37% 1,595,255 8.71% 8.67%
securities
Loans receivable (a) 27,948,917 7.51% 7.69% 24,963,935 6.61% 6.85% 23,101,066 7.09% 6.73%
Invest. in capital
stock of FHLB 345,837 5.15% 4.92% 328,998 4.89% 4.81% 342,586 3.99% 3.49%
----------- ----- ----------- ----- ----------- ----
Interest-earning assets $32,778,043 7.41% $28,718,933 6.53% $27,217,071 6.87%
=========== ==== =========== ==== =========== ====
LIABILITIES
Customer Deposits:
Checking accounts $ 711,460 1.30% 1.25% $ 730,956 1.30% 1.28% $ 706,245 1.62% 1.35%
Savings accounts 2,073,226 2.32% 2.90% 2,835,339 2.05% 2.92% 3,069,143 2.23% 3.11%
Term accounts 17,526,056 5.66% 5.54% 14,496,937 4.46% 4.98% 13,239,960 4.73% 4.24%
----------- ---- ---- ----------- ----- ------- ----------- ------- -------
Total customer
deposits $20,310,742 5.16% 5.15% $18,063,232 3.96% 4.57% $17,015,348 4.15% 3.92%
Advances from FHLB 6,438,791 5.74% 5.70% 6,251,431 4.30% 5.21% 6,416,250 4.27% 3.87%
Reverse repurchases 1,120,860 6.31% 6.15% 574,487 6.55% 6.67% 464,091 7.76% 6.06%
Other borrowings 3,030,067 7.14% 7.15% 1,961,828 6.84% 7.25% 1,611,046 7.56% 7.07%
----------- ---- ---------- -------- ---------- -----
Interest-bearing
liabilities $30,900,460 5.52% $26,850,978 4.30% $25,506,735 4.46%
=========== ==== =========== ==== =========== ====
Net interest margin 1.89% 2.23 % 2.41%
==== ===== ====
Net interest income $ 722,836 $ 721,730 $ 732,758
=========== =========== ===========
Net yield on average
interest-earning assets 2.21% 2.51% 2.69%
==== ==== ====
<FN>
(a) Includes nonaccrual loans (90 days or more past due).
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
YIELD ON INTEREST-EARNING ASSETS/COST OF FUNDS (continued)
The table below presents the changes for 1995 and 1994 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.
<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)
-----------------------------------------------------------------
1995 1994 1993 1995 versus 1994 1994 versus 1993
---------- ----------- ------------ -------------------------------- --------------------------------
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 $ 130,595 $ 107,059 $ 79,874 $ 2,003 $21,533 $ 23,536 $(1,041) $28,226 $ 27,185
Mortgage-backed
securities 181,355 103,927 138,874 80,356 (2,928) 77,428 (26,381) (8,566) (34,947)
Loans receivable 2,097,664 1,649,413 1,637,764 209,769 238,482 448,251 74,556 (62,907) 11,649
Invest. in capital
stock of Federal Home
Loan Banks 17,827 16,078 13,660 845 904 1,749 (516 ) 2,934 2,418
---------- ----------- ------------
Total interest
income $2,427,441 $1,876,477 $1,870,172
Interest Expense
Customer deposits
Checking accounts 9,258 9,463 11,426 (253 48 (205 417 (2,380 (1,963)
Savings accounts 48,033 58,163 68,382 (19,535) 9,405 (10,130) (5,007) (5,212) (10,219)
Term accounts 991,099 646,727 625,892 150,989 193,383 344,372 51,199 (30,364) 20,835
---------- ----------- ------------ --------- -------- --------- --------- --------- ---------
Total cusomter
deposits 1,048,390 714,353 705,700 131,201 202,836 334,037 46,609 (37,956) 8,653
Advances from
Federal Home
Loan Banks 369,239 268,952 273,816 8,283 92,004 100,287 (7,117) 2,253 (4,864)
Securities sold
under agreements
to repurchase 70,709 37,620 36,023 34,415 (1,326) 33,089 4,659 (3,062) 1,597
Other borrowings 216,267 134,182 121,875 76,009 6,076 82,085 21,990 (9,683) 12,307
--------- --------- --------- ------ ----- ------- ------- ------ ------
Total interest 1,704,605 1,155,107 1,137,414
expense --------- --------- ---------
Net interest
income $ 722,836 $ 721,370 $ 732,758 $43,065 $(41,599) $1,466 $(19,523) $8,135 (11,388)
========== ========== =========== ======== ======== ====== ======== ====== =======
Net interest income increase (decrease)
as a percentage of average earning assets (c) 0.13% (0.12)% 0.01% (0.07)% 0.03% (0.04)%
======= ======= ======== ====== ======= =======
<FN>
(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 interest rate swap and cap activity have been included in
income and expense of the related assets and liabilities.
(c) Includes nonaccrual loans (90 days or more past due).
</FN>
</TABLE>
<PAGE>
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 associations,
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 headquartered 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 members, the Insured Institutions are
required to own capital stock of an FHLB in an amount that depends generally
upon their outstanding home mortgage loans or advances from such FHLB, and are
authorized to borrow funds from such FHLB (see Borrowings).
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
LIQUIDITY. The OTS requires the institutions it regulates, including
World and WFSB, to maintain a minimum amount of cash and certain qualifying
investments for liquidity purposes. The current minimum requirement is equal to
a monthly average of 5% of customer deposits and short-term borrowings. For the
months ended December 31, 1995, 1994, and 1993, World's regulatory average
liquidity ratio was 8%, 7%, and 8%, respectively, consistently exceeding the
requirement. WFSB's regulatory average liquidity ratio was 6% for the month
ended December 31, 1995.
FEDERAL DEPOSIT INSURANCE CORPORATION. The customer deposit accounts of
World are insured by the FDIC as part of the SAIF up to the maximum amount
permitted by law, currently $100,000 per insured depositor. The customer
deposits accounts of WFSB are insured by the FDIC as part of the BIF, also up to
the same, maximum amount permitted by law. As a result, World and WFSB are
subject to supervision, regulation and examination by the FDIC.
FDIC insurance is required for all federally chartered financial
institutions such as World and WFSB. Such insurance may be terminated by the
FDIC under certain circumstances involving violations of regulations or unsound
practices. The annual premium charged for SAIF and BIF insurance is determined
by the FDIC using a risk-based system. Under the system, SAIF-insured
associations are charged a variable rate ranging from a low of $.23 to a high of
$.31 per $100 of deposits. BIF-insured institutions are charged a variable rate
ranging from a low of $.00 to a high of $.27 per $100 of deposits. The amount of
capital an institution maintains and its examination scores are the most
important factors determining the assessment. As of February 29, 1996, World and
WFSB qualify for the lowest premium assessments of $.23 and $.00 per $100 of
deposits under the system, respectively.
Legislation is currently pending in Congress which would recapitalize
the SAIF in order to bring it into parity with the FDIC's other insurance fund,
the BIF. The legislation would require an assessment of all SAIF-insured
institutions of approximately 80 basis points on their March 31, 1995, customer
deposit balances. If such legislation had been passed by December 31, 1995,
World would have been assessed approximately $95 million, on an after-tax basis.
After paying the one-time assessment, it is expected that World would pay
significantly reduced insurance premiums on its customer deposits. There is no
certainty that such legislation will become law.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
Current law generally imposes a moratorium on conversions from SAIF
membership to 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 (OTS). Because they are federally
chartered savings institutions, the principal regulator of both World and WFSB
is the OTS. Under various regulations of the OTS, savings 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.
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 and WFSB are currently in compliance with all applicable
Federal Reserve Board reserve requirements.
Savings associations have authority to borrow from the Federal Reserve
Bank but the Federal Reserve Board requires savings associations to exhaust all
FHLB sources before borrowing from the Federal Reserve Bank.
REGULATORY CAPITAL. The OTS requires federally insured institutions
such as World and WFSB to meet certain minimum capital requirements.
The table on the following page summarizes World's regulatory capital
ratio and compares them to the OTS requirements at December 31.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
<TABLE>
<CAPTION>
TABLE 20
World Savings and Loan Association
Regulatory Capital Ratios
($000s Omitted)
1995 1994
------------------------------------------ ----------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
-------------------- ------------------- -------------------- -----------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- ------- ---------- ------- ---------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,924,910 6.38% $ 452,761 1.50% $1,931,375 6.26% $ 462,564 1.50%
Core 1,924,910 6.38 905,521 3.00 2,047,016 6.64 925,129 3.00
Risk-based 2,243,519 13.40 1,339,177 8.00 2,353,781 13.54 1,390,391 8.00
</TABLE>
At December 31, 1995, WFSB had tangible, core and risk-based capital of
$562,788, $562,788, and $568,451, respectively. WFSB's respective capital ratios
at the same date were 14.01%, 14.01%, and 26.55%.
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 tables on the following page summarizes the capital ratios
for each of the five classifications and shows that World Savings and WFSB met
the "well capitalized" standard as of December 31, 1995.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The table below shows a reconciliation of World's equity capital to
regulatory capital at December 31, 1995.
<TABLE>
<CAPTION>
TABLE 21
World Savings and Loan Association
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 surplus 233,441
Retained earnings 1,822,852
Unrealized gains on
securities
available for sale 71,886
-----------
Equity capital $ 2,128,329 $ 2,128,329 $ 2,128,329 $ 2,128,329 $ 2,128,329 $ 2,128,329
===========
Positive goodwill (1) (204,992) (204,992) (204,992) (204,992) (204,992)
Negative goodwill (1) 73,459 73,459 73,459 73,459 73,459
Unrealized gains on securities
available for sale (71,886) (71,886) (71,886) (71,886) (71,886)
Equity/other investments (450)
Subordinated debt 199,299
General valuation allowance 119,760
------------ ----------- ----------- ---------- -----------
Regulatory capital $ 1,924,910 $ 1,924,910 $ 1,924,910 $ 1,924,910 $ 2,243,519
=========== =========== =========== =========== ============
Total assets $30,354,740
===========
Adjusted total assets $30,184,046 $30,184,046 $30,184,046
=========== =========== ===========
Risk-weighted assets $16,739,718 $16,739,718
=========== ===========
CAPITAL RATIO - ACTUAL 7.01% 6.38% 6.38% 6.38% 11.50% 13.40%
=========== =========== =========== =========== =========== ============
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 undercapitalized,
less than 3.00% 3.00% 6.00%
=========== =========== ============
Critically undercapitalized,
equal to or less than 2.00%
===========
<FN>
(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.
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The table below shows a reconciliation of World's equity capital to
regulatory capital at December 31, 1994.
<TABLE>
<CAPTION>
TABLE 22
World Savings and Loan Association
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 surplus 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 (25,966) (25,966) (25,966) (25,966) (25,966)
available for sale
Equity/other investments (2) (709)
Subordinated debt 199,089
General valuation allowance 108,385
----------- ----------- ----------- ------------ ------------
Regulatory capital $ 1,193,375 $ 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 undercapitalized,
less than 3.00 % 3.00 % 6.00%
============= ============= =============
Critically undercapitalized,
equal to or less than 2.00%
=============
<FN>
(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.
</FN>
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The table below shows a reconciliation of WFSB's equity capital to
regulatory capital at December 31, 1995.
<TABLE>
<CAPTION>
TABLE 23
World Savings Bank, a Federal Savings Bank
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 surplus 570,182
Retained deficit (3,481)
----------
Equity capital $ 566,851 $ 566,851 $ 566,851 $ 566,851 $ 566,851 $ 566,851
==========
Positive goodwill (1) (4,063) (4,063) (4,063) (4,063) (4,063)
General valuation allowance 5,663
--------- ---------- ---------- ---------- ----------
Regulatory capital $ 562,788 $ 562,788 562,788 $ 562,788 $ 568,451
========== ========== ========== ========== ==========
Total assets $4,017,491
==========
Adjusted total assets $4,016,477 $4,016,477 $4,016,477
========== ========== ==========
Risk-weighted assets $2,141,316 $2,141,316
========== ==========
CAPITAL RATIO - ACTUAL 14.11% 14.01% 14.01% 14.01% 26.28% 26.55%
========== ========== ========== ========== ========== ==========
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 undercapitalized,
less than 3.00% 3.00% 6.00%
=========== =========== ============
Critically undercapitalized,
equal to or less than 2.00%
============
<FN>
(1) As of January 1, 1995, 100% of goodwill was required to be deducted for
all three capital calculations.
</FN>
</TABLE>
<PAGE>
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)
1995 1994
--------------------------------------------- -------------------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL CAPITALIZED
-------------------- --------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- ------ --------- --------- ---------- ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $1,924,910 6.38% 1,509,202 5.00% 2,047,016 6.64% $1,541,881 5.00%
Tier 1 risk based 1,924,910 11.50 1,004,383 6.00 2,047,016 11.78 1,042,793 6.00
Total risk-based 2,243,519 13.40 1,673,972 10.00 2,353,781 13.54 1,737,989 10.00
</TABLE>
WFSB also meets the OTS criteria of a well-capitalized institution with
leverage, Tier 1 risk-based, and total risk-based capital of $562,788, $562,788,
and $568,451, respectively as of December 31, 1995. The respective capital
ratios at yearend for WFSB were, 14.01%, 26.28%, and 26.55%.
CAPITAL DISTRIBUTIONS BY SAVINGS ASSOCIATIONS. The OTS limits capital
distributions, including cash dividends, payments to shareholders of another
institution in a cash out merger and other distributions charged against
capital, by savings associations such as World and WFSB. Under these
regulations, a savings association is classified as either Tier 1, if it meets
each of its capital requirements before and after a capital distribution; Tier
2, if it currently meets each of its capital requirements but does not meet one
or more of its capital requirements immediately prior to or after giving effect
to the proposed capital distribution; or Tier 3, if it does not meet its 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
the 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 beginning of the calendar year. A Tier 2
association may make capital distributions up 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 given to the OTS, which may disapprove
the distribution. However, current law prohibits capital distributions by an
institution that does not meet its capital requirements. Savings associations
are required to give the OTS 30-day advance written notice of all
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
proposed capital distributions. For purposes of capital distributions, the OTS
has classified World and WFSB as Tier 1 institutions. World paid a total of $280
million in upstream dividends to Golden West during 1995.
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, 1995, the maximum amount that World could have loaned to one
borrower (and related entities) was $337 million. At such date, the largest
amount of loans that World had outstanding to any one borrower was $38 million.
At December 31, 1995 the maximum that WFSB could have loaned to one borrower was
$85 million while the largest amount of loans it had to one borrower was $14
million.
DEPOSITOR PRIORITIES. In the event of the appointment of a receiver of
a federally chartered savings association, such as the Association or WFSB,
based upon the failure of the savings associations 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 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, 1995, the
Insured Institutions had approximately $20.8 billion of deposits outstanding.
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 or WFSB, 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 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 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
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
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 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.
SAVINGS AND LOAN HOLDING COMPANY LAW. The Company is a "savings and
loan holding company" under the HomeOwners Loan Act (HOLA). 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.
As World's and WFSB's parent company, Golden West is considered an
"affiliate" of the Association and WFSB for regulatory purposes. In addition,
the Association and WFSB are considered to be affiliates of each other. 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
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 or transactions with affiliates.
QTL TEST. The HOLA requires savings institutions to meet a qualified thrift
lender (QTL) test. Under the QTL test, a savings institution is required to
maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" (primarily residential mortgages and related investments, including
certain mortgage-backed and related securities) in at least nine months out of
each 12 month period. A savings institution that fails the QTL test must either
convert to a bank charter or operate under certain restrictions. At December 31,
1995, World and WFSB were in compliance with the QTL test.
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, 1995, the 6% and 12% limitations did not restrict the bad debt
reserve deduction of World. However, World's bad debt reserve deduction could be
impacted or even eliminated in 1996 or later years by significant decreases in
the balances of outstanding deposits at any yearend as compared to one year
earlier. 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. Legislation was passed by the United
States Congress in 1995, which would eliminate the percentage of taxable income
deduction method. However, such legislation was not signed by the President and
did not become law. It is possible that similar legislation could become law in
the future.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
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.
Such accumulated reserves are also subject to taxation if a savings and loan
association converts to a commercial bank charter. The 1995 legislation would
have exempted from taxation a portion of the accumulated bad debt reserves that
would otherwise be subject to taxation merely because of a charter change.
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.
EMPLOYEE RELATIONS
The Company had a total of 3,790 full-time and 671 permanent part-time
employees at December 31, 1995. 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 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.
The Company owns 183 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 I to
the Financial Statements included in Item 14.
<PAGE>
ITEM 2. PROPERTIES (Continued)
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.
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 was certified and, after a two week trial, a judgment
was entered in favor of World. 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 one of the actions, Federal law has been
amended in a manner that precludes certification of a plaintiffs' class. 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 subsidiaries 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 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
TABLE 25
Common Stock Price Range
1995 1994
------------------ -------------------
<S> <C> <C>
First Quarter 34 3/4 - 39 3/4 37 1/2 - 46
Second Quarter 38 - 50 1/4 37 3/8 - 41 1/8
Third Quarter 43 3/4 - 52 1/2 38 5/8 - 44 1/4
Fourth Quarter 49 3/8 - 57 1/2 34 1/4 - 40 1/4
</TABLE>
<PAGE>
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 1995 and 1994 were as
follows:
<TABLE>
<CAPTION>
TABLE 26
Cash Dividends Per Share
1995 1994
--------- ---------
<S> <C> <C>
First Quarter $ .085 $ .075
Second Quarter $ .085 $ .075
Third Quarter $ .085 $ .075
Fourth Quarter $ .095 $ .085
</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 or WFSB of any proposed dividend to be paid to
the parent. Under OTS regulations, World Savings and WFSB are classified as Tier
1 associations and are, therefore, allowed to distribute dividends up to 100% of
their net income in any year plus one-half of capital in excess of the OTS fully
phased-in capital requirement as of the end of the prior year.
At December 31, 1995, $306 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 22, 1996, 58,739,159 shares of
Golden West's Common Stock were outstanding and were held by 1,702 stockholders
of record. At the close of business on March 22, 1996, the Company's common
stock price was $51.875.
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 documents incorporated
herein by reference.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 27
Five Year Consolidated Summary of Operations
($000s Omitted, Except Per Share Figures)
Year Ended December 31
----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on loans $2,097,664 $ 1,649,413 $1,637,764 $1,740,845 $1,877,955
Interest on mortgage-backed 181,355 103,927 138,874 178,010 210,834
securities
Interest on dividends and investments 148,422 123,137 93,534 65,655 125,801
---------- ----------- ------------ ---------- ----------
2,427,441 1,876,477 1,870,172 1,984,510 2,214,590
Interest Expense:
Interest on customer deposits 1,048,390 714,353 705,700 844,710 1,094,383
Interest on advances and other 656,215 440,754 431,714 422,470 488,431
borrowings
----------- ----------- ------------ ----------- -----------
1,704,605 1,155,107 1,137,414 1,267,180 1,582,814
----------- ----------- ----------- ---------- -----------
Net interest income 722,836 721,370 732,758 717,330 631,776
Provision for loan losses 61,190 62,966 65,837 43,218 34,984
----------- ------------ ------------ ----------- -----------
Net interest income after provision for
loan losses 661,646 658,404 666,921 674,112 596,792
Non-Interest Income:
Fees 29,200 28,816 31,061 24,458 20,889
Gain (loss) on the sale of
securities and
mortgage-backed securities (493) (120) 22,541 4,058 (1,021)
Other 13,833 8,790 8,440 12,601 7,008
----------- ------------ ------------ ----------- -----------
42,540 37,486 62,042 41,117 26,876
Non-interest Expense
General and administrative expenses
Personnel 151,352 150,220 132,472 118,553 107,759
Occupancy 48,737 44,472 40,443 38,521 35,619
Deposit insurance 44,993 40,220 35,706 37,621 34,245
Advertising 9,850 10,761 10,782 8,968 10,486
Other 61,260 57,246 53,764 47,212 47,312
----------- ------------ ------------ ----------- -----------
316,192 302,919 273,167 250,875 235,421
Amortization of goodwill arising from
acquisitions 2,762 2,589 (1,586) 661 1,532
----------- ----------- ------------ ----------- -----------
318,954 305,508 271,581 251,536 236,953
----------- ------------ ------------ ----------- -----------
Earnings before taxes on income 385,232 390,382 457,382 463,693 386,715
Taxes on income 150,693 159,933 183,528 180,155 148,116
----------- ------------ ------------ ----------- -----------
Net earnings $ 234,539 $230,449 $273,854 $283,538 $238,599
=========== ============ ============ =========== ===========
Net earnings per share $ 4.00 $ 3.71 $ 4.28 $ 4.46 $ 3.76
=========== ============ ============ =========== ===========
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 28
Five Year Summary of Financial Condition
($000s Omitted)
At December 31
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Assets $ 35,118,156 $ 31,683,741 $ 28,829,288 $ 25,890,921 $ 24,297,784
Cash, securities available for
sale, and other investments 2,310,711 2,265,886 2,417,871 1,179,868 1,289,327
Mortgage-backed securities 3,409,341 1,194,378 1,522,536 1,791,615 2,000,167
Loans receivable 28,181,353 27,071,266 23,912,571 21,968,676 20,087,432
Goodwill arising from acquisitions 138,562 136,245 136,754 155,873 181,733
Customer Deposits 20,847,910 19,219,389 17,422,484 16,486,246 16,818,510
Advances from FHLBs 6,447,201 6,488,418 6,281,691 5,499,363 4,159,796
Securities sold under agreements
to repurchase and other 1,817,943 601,821 1,119,414 637,977 840,358
borrowings
Medium-term notes 1,597,507 1,164,079 676,540 81,267 166,750
Subordinated debt 1,322,392 1,221,559 1,220,061 921,701 625,105
Stockholders' equity 2,278,353 2,000,274 2,065,604 1,727,398 1,449,135
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 29
Five Year Selected Other Data
($000s Omitted)
Year Ended December 31
-------------------------------------------------------------------------------
1995 1994 1993 1992 1991
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
New real estate loans originated $ 5,949,064 $ 6,637,653 $ 6,411,877 $ 6,455,090 $ 4,877,157
Average yield on new real estate loans 7.56% 6.44% 6.86% 8.06% 9.83%
Customer deposits increase
decrease ($) $ 1,628,521 $ 1,796,905 $ 936,238 $ (332,264) $ 2,446,026
Customer deposits increase (decrease) 8.5% 10.3% 5.7% (2.0)% 17.0%
(%)
Net earnings/average net worth 10.98% 11.11% 14.68% 17.86% 17.92%
Net earnings/average assets .69% .78% .98% 1.12% 1.00%
General and administrative expense to:
Total revenues 12.80% 15.83% 14.14% 12.39% 10.50%
Average assets .93% 1.02% .97% .99% .99%
Ratio of earnings to fixed charges:(a)
Including interest on customer deposits 1.23x 1.34x 1.40x 1.36x 1.24x
Excluding interest on customer deposits 1.58x 1.87x 2.05x 2.08x 1.78x
Yield on loan portfolio 7.69% 6.85% 6.73% 7.52% 9.30%
Yield on MBS 7.41% 8.37% 8.67% 9.30% 9.74%
Yield on investments 5.96% 5.42% 3.80% 4.17% 5.41%
Yield on earning assets 7.56% 6.81% 6.61% 7.52% 9.16%
Cost of deposits 5.15% 4.57% 3.92% 4.40% 6.09%
Cost of borrowings 6.15% 5.85% 4.69% 5.58% 7.48%
Cost of funds 5.50% 5.00% 4.18% 4.75% 6.44%
Spread 2.06% 1.81% 2.43% 2.77% 2.72%
Nonperforming asset/total assets (b) 1.11% 1.12% 1.37% 1.27% 1.16%
Stockholders' equity/total assets 6.49% 6.31% 7.16% 6.67% 5.96%
Average stockholders' equity/average 6.30% 6.98% 6.65% 6.27% 5.60%
assets
World Savings and Loan Association
(World) regulatory capital ratios: (c)
Tangible capital 6.38% 6.26% 7.27% 6.54% 5.79%
Core capital 6.38% 6.64% 8.02% 7.54% 6.96%
Risk-based capital 13.40% 13.54% 17.42% 16.28% 14.98%
World Savings Bank, FSB (WFSB)
regulatory capital ratios: (c)
Tangible capital 14.01% --- --- --- ---
Core capital 14.01% --- --- --- ---
Risk-based capital 26.55% --- --- --- ---
Number of savings branch offices 233 237 227 227 231
Cash dividends per share $ .35 $ .31 $ .27 $ .23 $ .19
Dividend payout ratio 8.75% 8.34% 6.31% 5.16% 5.05%
<FN>
(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 state 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, 1995, 1994 and 1993. World and WFSB currently meet their fully
phased-in capital requirement.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
For the year ended December 31, 1995, Golden West Financial Corporation
(Golden West or Company) reported net earnings of $235 million, or $4.00 per
share, compared with $230 million, or $3.71 per share, in 1994 and $274 million,
or $4.28 per share, in 1993.
Golden West's principal subsidiary, World Savings and Loan Association
(World Savings or Association) is headquartered in Oakland, California and, with
$30 billion in assets at December 31, 1995, was the third largest thrift in the
country. Golden West also conducts deposit gathering activities through World
Savings Bank, a Federal Savings Bank (WFSB), a $4.0 billion institution,
headquartered in Warren, New Jersey. At December 31, 1995, Golden West had a
savings network of 118 branches in California, 48 in Colorado, 23 in Florida, 16
in Texas, ten in Kansas, nine in Arizona, and nine in New Jersey. By virtue of
being federally chartered thrifts, World Savings and WFSB can originate
mortgages anywhere in the nation, even though they may not be authorized to
conduct deposit gathering business in those jurisdictions. In addition to the
states with savings operations referenced above, the Company has lending
operations in Connecticut, Delaware, Idaho, Illinois, Maryland, Massachusetts,
Minnesota, Missouri, Nevada, New Mexico, Oregon, Pennsylvania, South Dakota,
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 and, where appropriate, World Savings'
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 1995, 1994,
1993, and 1992. As the table shows, customer deposits represent the majority of
the Company's liabilities. The largest asset component is the loan portfolio,
which consists primarily of long-term mortgages.
<PAGE>
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
--------------------------------------------------------
1995 1994 1993 1992
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Assets:
Cash and investments 6.6% 7.2% 8.4% 4.6%
Mortgage-backed securities 9.7 3.8 5.3 6.9
Loans receivable 80.2 85.4 82.9 84.9
Other assets 3.5 3.6 3.4 3.6
------------ ----------- ------------ -----------
100.0% 100.0% 100.0% 100.0%
============ =========== ============ ===========
Liabilities and Stockholders' Equity:
Customer deposits 59.4% 60.7% 60.4% 63.7%
FHLB advances 18.4 20.5 21.8 21.2
Securities sold under
agreements to repurchase 5.2 1.9 1.5 2.2
Medium-term notes 4.5 3.7 2.4 0.3
Federal funds purchased 0.0 0.8 0.0 0.0
Other liabilities 2.2 2.3 2.5 2.3
Subordinated debt 3.8 3.8 4.2 3.6
Stockholders' equity 6.5 6.3 7.2 6.7
------------ ----------- ------------ -----------
100.0% 100.0% 100.0% 100.0%
============ =========== ============ ===========
</TABLE>
The disparity between the repricing (maturity or interest rate change)
of deposits and borrowings and the repricing of mortgage loans and investments
can have a material impact on the Company's results of operations. The
difference between the repricing of assets and liabilities is commonly referred
to as "the gap." The gap table on the following page shows that, as of December
31, 1995, the Company's assets mature or 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 month 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
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
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued
FINANCIAL CONDITION (continued)
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, 1995
(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 $ 1,612 $ 163 $ 271 $ 46 $ 2,092
Mortgage-backed securities 2,344 108 415 542 3,409
Loans receivable:
Rate-sensitive 23,459 1,395 129 -0- 24,983
Fixed-rate 88 274 1,214 1,392 2,968
Other(b) 487 -0- -0- -0- 487
Impact of interest rate swaps and caps 576 263 (164) (675) -0-
------------- ------------- ------------- ------------- -------------
Total $ 28,566 $ 2,203 $ 1,865 $ 1,305 $ 33,939
============= ============= ============= ============= =============
Interest-Bearing Liabilities(c):
Customer deposits $ 8,624 $ 8,472 $ 3,659 $ 93 $ 20,848
FHLB advances 4,494 1,392 408 153 6.447
Other borrowings 2,059 1,150 934 595 4,738
Impact of interest rate swaps 1,751 (576) (1,217) 42 -0-
------------- ------------- ------------- ------------- ------------
Total $ 16,928 $ 10,438 $ 3,784 $ 883 $ 32,033
============= ============= ============= ============= =============
Repricing gap $ 11,638 $ (8,235) $ (1,919) $ 422
============= ============= ============= =============
Cumulative gap $ 11,638 $ 3,403 $ 1,484 $ 1,906
============= ============= ============= =============
Cumulative gap as a percentage of
total assets 33.1% 9.7% 4.2%
============ ============ ============
<FN>
(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.
</FN>
</TABLE>
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 obligations. In
determining the amounts of assets to invest in each class of investments, the
Company considers relative rates, liquidity, and credit quality.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
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 1995, 1994, and 1993, World's
regulatory average liquidity ratio was 8%, 7%, and 8%, respectively,
consistently exceeding the requirement. The level of the Company's investments
position in excess of its liquidity requirements at any time depends on
liquidity needs and available arbitrage opportunities.
At December 31, 1995, and 1994, the Company had securities available
for sale in the amount of $902 million and $1.5 billion, respectively, including
unrealized gains on securities available for sale of $117 million and $23
million, respectively. At December 31, 1995, and 1994, the Company had no
securities held to maturity or for trading.
Included in the securities available for sale at December 31, 1995, and
1994, were collateralized mortgage obligations (CMOs) in the amount of $408
million and $668 million, respectively. The Company holds CMOs on which both
principal and interest are received. It does not hold any interest-only or
principal-only CMOs. At December 31, 1995, the majority of the Company's CMOs
were fixed-rate with remaining terms to maturity of five years or less and
qualified for inclusion in the regulatory liquidity measurement.
MORTGAGE-BACKED SECURITIES
At December 31, 1995, and 1994, the Company had mortgage-backed
securities held to maturity in the amount of $3.1 billion and $871 million,
respectively, including $2.2 billion of Federal National Mortgage Association
(FNMA) mortgage-backed securities (MBS) subject to full credit recourse at
December 31, 1995. At yearends 1995 and 1994, the Company had mortgage-backed
securities available for sale in the amount of $283 million and $323 million,
respectively, including unrealized gains on mortgage-backed securities available
for sale of $14 million and $6 million at December 31, 1995, and 1994,
respectively. At December 31, 1995, and 1994, the Company had no trading MBS.
During 1995, the Company securitized $2.3 billion of adjustable rate
mortgages (ARMs) into FNMA COFI-indexed MBS, to be used as collateral for
borrowings. These securities are subject to full credit recourse to the Company.
The Company has the ability and intent to hold these MBS until maturity.
Accordingly, these MBS are classified as held to maturity.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
Repayments of MBS during the years 1995, 1994, and 1993 amounted to
$210 million, $311 million, and $646 million, respectively. The decrease in
repayments on MBS in 1995 over 1994 and in 1994 over 1993 was primarily due to
decreased prepayments on the underlying mortgages.
At December 31, 1995 and 1994, $1.1 billion of the Company's total MBS
portfolio were fixed-rate mortgage-backed securities and were subject to
prepayment and interest rate risk similar to fixed-rate loans. In rising
interest rate environments, the rate of repayment on fixed-rate, pass-through
mortgage-backed securities tends to decrease because of lower repayments on
underlying mortgages, and, conversely, as interest rates fall, repayments on
such securities tend to rise.
LOAN PORTFOLIO
New loan originations in 1995, 1994, and 1993 amounted to $5.9 billion,
$6.6 billion, and $6.4 billion, respectively. Refinanced loans constituted 32%
of new loan originations in 1995 compared to 41% in 1994 and 59% in 1993. The
1995 origination volume declined due to interest rate decreases which brought
down the price of new fixed-rate mortgage loans, making competition from
fixed-rate lenders more intense for adjustable rate mortgage lenders.
Golden West continues to emphasize adjustable rate mortgages--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 90% at yearend 1995 compared to 89% at
yearend 1994 and 87% at yearend 1993. Despite the resurgence of fixed-rate
mortgages, Golden West's ARM originations constituted approximately 93% of new
mortgage loans made by the Company in 1995, compared with 93% in 1994 and 75% in
1993.
Approximately $5.2 billion of the Company'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, 1995, $545 million of these ARMs were at their
rate floors. The weighted average floor rate on these loans was 7.85% at
December 31, 1995 compared to 7.56% at December 31, 1994. Without the floor, the
average yield on these loans would have been 7.35% at December 31, 1995 and
6.47% at December 31, 1994.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The Company has lending operations in 24 states. The primary source of
mortgage origination is loans secured by residential properties in California.
In 1995, 53% of total loan originations were on residential properties in
California, compared to 62% and 73% in 1994 and 1993, respectively. The five
largest states, other than California, for originations for the year ended
December 31, 1995, were Texas, Illinois, Colorado, Florida and New Jersey with a
combined total of 28% of total originations. Although California originations
continue to be a large portion of total originations, the California share of
total originations decreased in 1995 as compared to 1994, primarily due to both
decreased loan volume in California and increased loan volume in markets outside
of California. The increase in total originations in 1994 as compared to 1993
was due to increased penetration 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 73% at
December 31, 1995, 77% at December 31, 1994, and 81% at December 31, 1993. The
total growth in the portfolio for the year ended December 31, 1995, was $1.1
billion or 4% compared to $3.2 billion or 13% for the year ended December 31,
1994. Had there not been $2.3 billion of loans securitized into MBS during 1995,
the loan portfolio growth in 1995 would have been $3.3 billion or 12%, similar
to the 1994 growth.
Loan repayments consisting of monthly loan amortization, payoffs, and
refinances during the years 1995, 1994, and 1993 amounted to $2.3 billion, $3.2
billion, and $3.8 billion, respectively. The decrease in repayments in 1995 as
compared to 1994 and 1994 as compared with 1993 was due to lower mortgage
payoffs and lower refinances within the Company's loan portfolio.
ASSET QUALITY
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, including loans swapped into MBS with recourse, that
are 90 days or more past due) and real estate acquired through foreclosure. No
interest is recognized on nonaccrual loans. NPAs amounted to $390 million, $355
million, and $394 million at yearends 1995, 1994, and 1993, respectively.
The level of NPAs during the past three years has remained relatively
flat even though the loan portfolio has continued to grow. The Company continues
to closely monitor all delinquencies and takes appropriate steps to protect its
interests.
The Company's troubled debt restructured (TDRs) were $45 million, or
.13% of assets, at December 31, 1995, compared to $73 million, or .23% of
assets, at December 31, 1994, and $37 million, or .13% of assets, at December
31, 1993. 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The Company's ratio of NPAs and TDRs to total assets decreased to 1.24% at
December 31, 1995, from 1.35% and 1.50% at yearends 1994 and 1993, respectively.
The Company had other impaired loans on which specific loss reserves
were provided and that were not otherwise included in nonperforming loans or
troubled debt restructured because the loans were performing in full accordance
with the loan terms. Other impaired loans amounted to $60 million, $41 million
and $26 million at yearends 1995, 1994 and 1993, respectively.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was $142 million at December
31, 1995, compared to $124 million and $107 million at yearends 1994 and 1993,
respectively. The provision for loan losses was $61 million, $63 million, and
$66 million in 1995, 1994, and 1993, respectively. While there has been little
change in the dollar amount, the provision for loan losses as a percentage of
the loan portfolio (including MBS with recourse) has decreased from .28% in 1993
to .20% in 1995. The ratio of net chargeoffs to average loans outstanding
(including MBS with recourse) was .15% for the year ended December 31, 1995, as
compared to .18% and .16% for the years ended 1994 and 1993, 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. 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 loan losses, consideration is given to
the estimated sales price, cost of refurbishing, payment of delinquent taxes,
cost of disposal and cost of holding property. Additions to, and reductions
from, the allowance are reflected in current earnings.
REAL ESTATE HELD FOR SALE
At December 31, 1995, the Company had real estate held for sale in the
amount of $76 million compared to $71 million a year earlier. The largest
balance of real estate held for sale continues to be one- to four family
properties in California.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
LONG-LIVED ASSETS AND OTHER INTANGIBLES
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121) in 1995. SFAS 121 establishes accounting
and disclosure requirements using a fair value based method of accounting for
long-lived assets and certain identifiable intangibles whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 had no effect on the Company's 1995
consolidated financial statements.
MORTGAGE SERVICING RIGHTS
In May 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS 122). SFAS 122 amends Statement of Financial Accounting
Standard No. 65, "Accounting for Certain Mortgage Banking Activities," to
require that mortgage banking enterprises recognize, as separate assets, rights
to service mortgage loans for others when those rights are acquired through
either the purchase or origination of mortgage loans which are subsequently sold
or securitized. SFAS 122 also requires that mortgage banking enterprises assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. SFAS 122 applies to fiscal years beginning after December
15, 1995. Golden West adopted SFAS 122 as of January 1, 1996. The impact on the
Company's financial condition and results of operations is not expected to be
material.
CUSTOMER DEPOSITS
Customer deposits increased by $1.6 billion in 1995 compared to
increases of $1.8 billion and $936 million in 1994 and 1993, respectively.
Customer deposits increased during 1995 primarily due to ongoing marketing
efforts and competitive rates offered by the Company on its insured accounts.
The increase in customer deposits during 1994 resulted from an improvement in
the savings market due to the rising interest rate environment as well as from
aggressive promotions. Consumer funds were attracted during 1993 as a result of
special promotions in the Company's savings markets. In 1995, the Company
acquired one branch in New Jersey with $48 million in deposits and sold seven
branches in Colorado with $153 million in deposits. 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>
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. FHLB advances amounted to $6.4 billion at December 31, 1995,
compared to $6.5 billion and $6.3 billion at December 31, 1994, and 1993,
respectively.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). Reverse Repos are entered
into with selected major government securities dealers, as well as large banks
and the Federal Home Loan Bank of San Francisco, typically using MBS from the
Company's portfolio. Reverse Repos with dealers, banks and the Federal Home Loan
Bank of San Francisco amounted to $1.8 billion, $602 million, and $443 million
at yearends 1995, 1994, and 1993, respectively. The $1.8 billion balance at
December 31, 1995, includes $1.5 billion in Federal Home Loan Bank of San
Francisco MBS Reverse Repos with maturities ranging from 1996 to 1998.
OTHER BORROWINGS
As of December 31, 1995, Golden West, at the holding company level, had
a total of $1.1 billion of subordinated debt issued and outstanding. At yearend
1995, 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.
At December 31, 1995, Golden West had on file a registration statement
with the Securities and Exchange Commission for the sale of up to $300 million
of subordinated notes.
World Savings currently has on file a shelf registration with the OTS
for the issuance of $2.0 billion of unsecured medium-term notes, all of which
was available for issuance at yearend 1995. The Association has medium-term
notes outstanding under prior registrations with principal amounts of $1.6
billion at December 31, 1995, compared to $1.2 billion at December 31, 1994, and
$677 million at December 31, 1993. As of December 31, 1995, the Association's
medium-term notes were rated Al and A+ by Moody's and S&P, respectively.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
World Savings also has on file a registration statement with the OTS
for the sale of up to $300 million of subordinated notes and at yearend 1995,
the full amount was available for issuance. As of December 31, 1995, World
Savings had issued a total of $200 million of subordinated notes which were
rated A2 and A by Moody's and S&P, respectively. The subordinated notes are
included in World Savings' risk-based regulatory capital as Supplementary
Capital.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during 1995 as a result of
retained earnings and the increase in market values of securities available for
sale since December 31, 1994. The Company's stockholders' equity decreased by
$65 million 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 substantially offset by 1994's net earnings. The Company increased
its total stockholders' equity in 1993 through retained earnings and the
adoption of Statement of Financial Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" which added $85 million to
stockholders' equity at December 31, 1993.
The Company is required to adopt Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) in 1996.
SFAS 123 establishes accounting and disclosure requirements using a fair value
based method of accounting for stock based employee compensation plans. Under
SFAS 123, the Company may either adopt the new fair value based accounting
method or continue the intrinsic value based method and provide pro forma
disclosures of net income and earnings per share as if the accounting provisions
of SFAS 123 had been adopted. The Company plans to adopt only the disclosure
requirements of SFAS 123; therefore such adoption will have no effect on the
Company's consolidated financial statements.
In 1993 and 1994, through two separate actions, Golden West's Board of
Directors authorized the purchase by the Company of up to 6.3 million shares of
Golden West's common stock. On August 1, 1995, the Company's Board of Directors
authorized the purchase by the Company of an additional 5.9 million shares of
Golden West's common stock. As of December 31, 1995, 5.8 million shares had been
repurchased and retired at a cost of $226 million since October 28, 1993, of
which 68 thousand shares were purchased and retired at a cost of $3 million
during 1995.
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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The OTS requires federally insured institutions, such as World Savings,
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, 1995, World Savings had tangible capital of $1.9 billion, or 6.38%
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. At December 31, 1995, World Savings had core capital of $1.9 billion, or
6.38% of adjusted total assets, $1.0 billion in excess of the regulatory
requirement.
The third capital requirement is to have risk-based capital equal to
8.0% of risk-weighted assets. At December 31, 1995, World Savings had risk-based
capital in the amount of $2.2 billion, or 13.40% of risk-weighted assets,
exceeding the current requirement by $904 million.
At December 31, 1995, WFSB had capital in excess of all its regulatory
capital requirements.
Under OTS regulations which implement the prompt corrective action
system mandated by the Federal Deposit Insurance Corporation Improvement Act of
1991 (FDICIA), an institution is "well capitalized" if its ratio of core capital
to total assets is 5% or more, its ratio of core capital to risk-weighted assets
is 6% or more, and its ratio of total capital to risk-weighted assets is 10% or
more and it is not subject to any written agreement, order or directive to meet
a specified capital level. The Company's insured subsidiaries qualify as well
capitalized institution under the rules applicable to them.
The OTS limits capital distributions by savings associations. For
purposes of capital distributions, the OTS has classified World Savings as a
Tier 1 associations; thus, World Savings 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 $280 million in upstream dividends to Golden West during 1995.
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>
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 1993 through 1995. <TABLE>
<CAPTION>
TABLE 32
Yield on Earning Assets, Cost of Funds, And Primary Spread
Including the Effect of Purchase Accounting
December 31
-------------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Yield on loan portfolio 7.66% 6.91% 6.84%
Yield on investments 5.96 5.42 3.80
------------ ------------ -------------
Yield on earning assets 7.56 6.81 6.61
------------ ------------ -------------
Cost of customer deposits 5.15 4.57 3.92
Cost of borrowings 6.15 5.85 4.69
------------ ------------ -------------
Cost of funds 5.50 5.00 4.18
------------ ------------ -------------
Primary spread 2.06% 1.81% 2.43%
=========== =========== ============
</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 in accordance with an index based on the cost of deposits and borrowings
of savings institutions that are members of the FHLB of San Francisco (the
COFI). Nevertheless, the Company's ARM portfolio tends to lag changes in market
interest rates because of certain loan features which restrain monthly
adjustments and because the COFI tends to trail changes in interest rates due to
the existence of a two-month reporting lag. Therefore, although interest rates
began to increase during 1994, the yield on earning assets responded slowly to
the upward trend as the COFI lags and other ARM features slowed the upward
repricing of our loan portfolio. The yield on the Company's loan portfolio began
to increase in mid-1994 and continued upward until mid-1995, in response to the
rising rates. As interest rates began to stabilize during 1995, so did the
Company's yield on the loan portfolio, which ended the year at 7.66%.
COST OF FUNDS
Approximately 85% 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, higher rates led to an increase in the Company's cost
of funds during 1994 and 1995. Falling rates led to a decrease in the Company's
cost of funds during 1993.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
INTEREST RATE SWAPS AND CAPS
The Company enters into interest rate swaps and caps as part of its
interest rate risk management strategy. Such instruments are entered into solely
to alter the repricing characteristics of designated assets and liabilities. The
Company does not hold any derivative financial instruments for trading purposes.
Interest rate swap and cap activity decreased net interest income
by $29 million, $23 million, and $71 million, for the years ended
December 31, 1995, 1994, and 1993, respectively.
The table below summarizes the unrealized gains and losses for interest
rate swaps and caps at December 31, 1995, and 1994.
<TABLE>
<CAPTION>
TABLE 33
Unrealized Gains and Losses on Interest Rate Swaps and Caps
(Dollars in Thousands)
December 31, 1995
---------------------------------------------------
Net
Unrealized Unrealized Unrealized
Gains Losses Gain (Loss)
-------------- -------------- ---------------
<S> <C> <C> <C>
Interest rate swaps $ 46,374 $ 87,403 $ (41,029)
Interest rate caps 36 -0- 36
-------------- -------------- ---------------
Total $ 46,410 $ 87,403 $ (40,993)
============== ============== ===============
</TABLE>
<TABLE>
<CAPTION>
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>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
<TABLE>
<CAPTION>
TABLE 34
Interest Rate Swap and Cap Activity
(Dollars in Millions)
Receive Pay Forward Interest
Fixed Fixed Swaps Basis Starting Rate
Swaps Swaps(a) Swaps Caps
------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 $ 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
Additions 219 -0- 43 -0- -0-
Maturities (2,114 ) (450 ) (200 ) -0- (75 )
Forward starting
becoming effective 125 -0- -0- (125 ) -0-
------------- ------------ -------------- -------------- -------------
Balance at
December 31, 1995 $ 3,221 $ 1,775 $ 43 $ 10 $ 225
============= ============ ============== ============== =============
<FN>
(a) Receives floating, pays floating.
</FN>
</TABLE>
INTEREST ON LOANS
In 1995, interest on loans increased due to an increase in the average
portfolio balance and an increase in the average portfolio yield. 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.
INTEREST ON MBS
In 1995, interest on MBS increased due to an increase in the average
portfolio balance which was partially offset by a decrease in the average
portfolio yield. In 1994, 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 1995 than in 1994 and in
1994 than in 1993 due to increases in the average portfolio balance and
increases in the average portfolio yield in 1994 and again in 1995.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
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 in
1995 was due to the increase in the average cost of customer deposits and an
increase in the average balance of customer deposits. 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 customer
deposits.
INTEREST ON ADVANCES
Interest paid on FHLB advances was higher in 1995 as compared to 1994
due to an increase in the average outstanding balance and an increase in the
average cost of these borrowings. 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 ON OTHER BORROWINGS
Interest expense on other borrowings, including interest on reverse
repurchase agreements, amounted to $287 million, $172 million, and $158 million
for the years ended 1995, 1994, and 1993, respectively. The increase in the
expense in 1995 over 1994 was due to an increase in the average balance of these
liabilities, mainly due to the increase in the average balance of reverse
repurchases, which was partially offset by a decrease in the average cost of
other borrowings. The increase in the expense in 1994 over 1993 was due to an
increase in the average balance of these liabilities partially offset by a
decrease in the average cost.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $61 million, $63 million, and $66
million for the years ended 1995, 1994 and 1993, respectively. The lower
provision in 1995 reflects lower chargeoffs. The decrease in the provision in
1994 over 1993 reflected the decrease in nonperforming assets due to the
beginning of a recovery in the California economy. The 1994 provision included
$3.7 million in specific earthquake loss reserves.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
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 $493 thousand for the year ended 1995, a loss of $120
thousand for the year ended 1994 and a gain of $23 million for the year ended
1993. The 1993 gain included a $24 million reduction of a valuation allowance on
investments charged to income in previous years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased during the three years
under discussion. The primary reasons for the increase in 1995 were the growth
in savings deposits and general inflation. 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.
Nevertheless, economies of scale were realized in 1995 as general and
administrative expenses as a percentage of average assets dropped to .93% at
yearend December 31, 1995 compared with 1.02%, and .97% for the years ended
December 31, 1994, and 1993, respectively.
DEPOSIT INSURANCE
Legislation is currently pending in Congress which would recapitalize
the Savings Association Insurance Fund (SAIF) in order to bring it into parity
with the FDIC's other insurance fund, the Bank Insurance Fund (BIF). The
legislation would require an assessment of all SAIF-insured institutions of
approximately 80 basis points on their March 31, 1995, customer deposit
balances. If such legislation had been passed by December 31, 1995, World
Savings would have been assessed approximately $95 million, on an after tax
basis. After paying the one-time assessment, it is expected that World Savings
would pay significantly reduced insurance premiums on its customer deposits.
There is no certainty that such legislation will become law.
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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
Taxes as a percentage of earnings decreased in 1995 over 1994 as a
result of tax benefits from past acquisitions and the final settlement of prior
year tax audits.
LIQUIDITY AND CAPITAL RESOURCES
World Savings' 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, World Savings has a number of other alternatives available to
provide liquidity or finance operations. These include borrowings from public
offerings of debt, sales of loans, negotiable certificates of deposit, issuances
of commercial paper, and borrowings from commercial banks. Furthermore, under
certain conditions, World 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.
The principal sources of funds for the Association's parent, Golden
West, are interest on investments, 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
that World Savings can pay. The principal liquidity needs of Golden West are for
payment of interest on subordinated debt securities, capital contributions to
its insured subsidiaries, dividends to stockholders, the purchase of Golden West
stock and general and administrative expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index included on page 71 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.
<PAGE>
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, 64 Chairman of the Board
and Chief Executive Officer
Marion O. Sandler, 65 Chairman of the Board and
Chief Executive Officer (a)
James T. Judd, 57 Senior Executive Vice
President
Russell W. Kettell, 52 President and Treasurer(b)
J. L. Helvey, 64 Group Senior Vice President
Dirk S. Adams, 44 Group Senior Vice President
Robert C. Rowe, 40 Vice President and
Secretary (c)
Louis J. Galen, 70 Director
Antonia Hernandez, 47 Director
Patricia A. King, 53 Director
William D. McKee, 69 Director
Bernard A. Osher, 68 Director
Kenneth T. Rosen, 47 Director
Paul Sack, 68 Director
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.
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
(b) Russell W. Kettell was elected Treasurer of the Company in
January 1995 and has held the position of President of the
Company since 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.
(c) Robert C. Rowe was elected Senior Vice President in 1995.
Prior thereto, he served as Vice President and Secretary
of the Company since 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 5 of the Registrant's Proxy Statement
dated March 15, 1996, which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in Registrant's
Proxy Statement dated March 15, 1996, on pages 3 through 5 and 7 through 10 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, 6
and 7 of Registrant's Proxy Statement dated March 15, 1996, 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 15, 1996, 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 71 and the financial
statements, which begin on page F-1.
(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 amended,
and amendments thereto, are incorporated
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>
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 incorporated 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 certain 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>
ITEM 14. 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>
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
Herbert M. Sandler,
Chairman of the Board and
Chief Executive Officer
By: /s/ Marion O. Sandler
Marion O. Sandler,
Chairman of the Board and
Chief Executive Officer
By: /s/ J. L.Helvey
J. L. Helvey,
Group Senior Vice President
and Chief Financial and
Accounting Officer
Dated: March 27, 1996
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
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 3/27/96
Louis J. Galen, Kenneth T. Rosen,
Director Director
/s/ Antonia Hernandez 3/27/96 /s/ Paul Sack 3/27/96
Antonia Hernandez Paul Sack,
Director Director
/s/ Patricia A. King, 3/27/96 /s/ Herbert M. Sandler 3/27/96
Patricia A. King Herbert M. Sandler
Director Director
/s/ William D. McKee, 3/27/96 /s/ Marion O. Sandler, 3/27/96
William D. McKee Marion O.Sandler
Director Director
/s/ Bernard A. Osher 3/27/96
Bernard A. Osher,
Director
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
----
<S> <C>
Independent Auditors' Report F-1
Golden West Financial Corporation and Subsidiaries:
Consolidated Statement of Financial Condition as of
December 31, 1995, and 1994 F-2
Consolidated Statement of Net Earnings for the years
ended December 31, 1995, 1994, and 1993 F-3
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1995, 1994, and 1993 F-4
Consolidated Statement of Cash Flows for the years
ended December 31, 1995, 1994, and 1993 F-5
Notes to Consolidated Financial Statements F-6
</TABLE>
All supplemental schedules are omitted as inapplicable or because the required
information is included in the financial statements or notes thereto.
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 (the "Company")
as of December 31, 1995 and 1994, 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, 1995. These financial statements are the
responsibility of the Company'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, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Oakland, California
January 22, 1996
F-1
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
(Dollars in thousands except per share figures)
ASSETS
------
<TABLE>
<CAPTION>
December 31
----------------------------------
1995 1994
--------------- ----------------
<S> <C> <C>
Cash $ 218,695 $ 242,441
Securities available for sale at fair value (Notes B and L) 901,856 1,488,845
Other investments at cost (fair value of $1,190,160 and
$534,600) (Note C) 1,190,160 534,600
Mortgage-backed securities available for sale at fair value
(Notes D and L) 282,881 323,339
Mortgage-backed securities held to maturity without recourse
at cost (fair value of $922,032 and $831,436) (Notes E and L) 893,774 871,039
Mortgage-backed securities held to maturity with recourse
at cost (fair value of $2,295,203 and $-0-) (Notes E and L) 2,232,686 -0-
Loans receivable less allowance for loan losses of
$141,988 and $124,003 (Notes F and K) 28,181,353 27,071,266
Interest earned but uncollected (Note G) 225,395 202,456
Investment in capital stock of Federal Home Loan Banks,
at cost which approximates fair value (Note K) 350,955 332,940
Real estate held for sale or investment (Note H) 76,187 72,217
Prepaid expenses and other assets 222,015 206,478
Premises and equipment, net (Note I) 203,637 201,875
Goodwill arising from acquisitions (Note A) 138,562 136,245
=============== ================
$ 35,118,156 $ 31,683,741
=============== ================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31
---------------------------------------
1995 1994
----------------- ------------------
<S> <C> <C>
Customer deposits (Note J) $20,847,910 $19,219,389
Advances from Federal Home Loan Banks (Note K) 6,447,201 6,488,418
Securities sold under agreements to repurchase (Note L) 1,817,943 601,821
Medium-term notes (Note M) 1,597,507 1,164,079
Federal funds purchased (Note N) -0- 250,000
Accounts payable and accrued expenses 450,814 443,693
Taxes on income (Note P) 356,036 294,508
----------------- ------------------
31,517,411 28,461,908
Subordinated notes (Note O) 1,322,392 1,221,559
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, 58,871,409 and 58,589,955 shares 5,887 5,859
Paid-in capital 55,353 45,689
Retained earnings - substantially restricted 2,140,883 1,929,740
----------------- ------------------
2,202,123 1,981,288
Unrealized gains on securities available for sale 76,230 18,986
----------------- ------------------
Total Stockholders' Equity 2,278,353 2,000,274
----------------- ------------------
$35,118,156 $31,683,741
================= ==================
</TABLE>
F-3
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET EARNINGS
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1995 1994 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest Income:
Interest on loans $ 2,097,664 $ 1,649,413 $ 1,637,764
Interest on mortgage-backed securities 181,355 103,927 138,874
Interest and dividends on investments 148,422 123,137 93,534
----------------- ----------------- -----------------
2,427,441 1,876,477 1,870,172
Interest Expense:
Interest on customer deposits (Note J) 1,048,390 714,353 705,700
Interest on advances 369,239 268,952 273,816
Interest on repurchase agreements 70,709 37,620 36,023
Interest on other borrowings 216,267 134,182 121,875
----------------- ----------------- -----------------
1,704,605 1,155,107 1,137,414
----------------- ----------------- -----------------
Net Interest Income 722,836 721,370 732,758
Provision for loan losses 61,190 62,966 65,837
----------------- ----------------- -----------------
Net Interest Income after Provision for
Loan Losses 661,646 658,404 666,921
Non-Interest Income:
Fees 29,200 28,816 31,061
Gain (loss) on the sale of securities and
mortgage-backed securities (493) (120) 22,541
Other 13,833 8,790 8,440
----------------- ----------------- -----------------
42,540 37,486 62,042
Non-Interest Expense:
General and administrative:
Personnel 151,352 150,220 132,472
Occupancy 48,737 44,472 40,443
Deposit insurance 44,993 40,220 35,706
Advertising 9,850 10,761 10,782
Other 61,260 57,246 53,764
----------------- ----------------- -----------------
316,192 302,919 273,167
Amortization of goodwill arising from
acquisitions 2,762 2,589 (1,586)
----------------- ----------------- -----------------
318,954 305,508 271,581
----------------- ----------------- -----------------
Earnings Before Taxes on Income 385,232 390,382 457,382
Taxes on income (Note P) 150,693 159,933 183,528
----------------- ----------------- -----------------
Net Earnings $ 234,539 $ 230,449 $ 273,854
================= ================= =================
Net earnings per share $4.00 $3.71 $4.28
================= ================= =================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
Unrealized
Gains on
Securities Total
Common Paid-in Retained Available Stockholders'
Stock Capital Earnings for Sale Equity
----------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 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 ($.31 per share) -0- -0- (19,220) (19,220)
Purchase and retirement of
5,561,180 shares of Company
stock (Note Q) (556 ) -0- (215,082) (215,638)
Change in unrealized gains on
securities available for sale -0- -0- -0- (65,733) (65,733)
----------- ----------- ------------- -------------- ---------------
Balance at December 31, 1994 5,859 45,689 1,929,740 18,986 2,000,274
Common stock issued upon exercise
of stock options, including tax
benefits - 349,290 shares 35 9,664 -0- 9,699
Net earnings -0- -0- 234,539 234,539
Cash dividends on common
stock ($.35 per share) -0- -0- (20,533) (20,533)
Purchase and retirement of
67,836 shares of
Company stock (Note Q) (7) -0- (2,863) (2,870)
Change in unrealized gains on
securities available for sale -0- -0- -0- 57,244 57,244
----------- ----------- ------------- -------------- ---------------
Balance at December 31, 1995 $ 5,887 $ 55,353 $ 2,140,883 $ 76,230 $ 2,278,353
=========== =========== ============= ============== ===============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------
1995 1994 1993
---------------- ---------------- -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 234,539 $ 230,449 $ 273,854
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Provision for loan losses 61,190 62,966 65,837
Amortization of loan fees and discounts (20,746) (28,832) (45,666)
Depreciation and amortization 21,568 19,454 13,978
Reduction of a valuation allowance on investments -0- -0- (24,000)
Loans originated for sale (169,020) (93,951) (442,880)
Sales of loans originated for sale 141,648 146,115 432,362
(Increase) in interest earned but uncollected (22,939) (27,376) (17,357)
Federal Home Loan Bank stock dividends (21,511) (19,007) (12,744)
Decrease (increase) in prepaid expenses and other assets (11,205) (91,751) 26,020
Increase (decrease) in accounts payable and accrued expenses 7,121 87,894 (5,327)
Increase (decrease) in taxes on income 21,210 (23,448) 72,828
Other, net (27,426) (23,011) (15,624)
---------------- ---------------- ----------------
Net cash provided by operating activities 214,429 239,502 321,281
Cash Flows From Investing Activities:
New loan activity:
Real estate loans originated for portfolio (5,780,044) (6,543,702) (5,968,997)
Real estate loans purchased (30,837) (68,926) (13,567)
Other, net (64,754) 3,816 25,836
---------------- ---------------- ----------------
(5,875,635) (6,608,812) (5,956,728)
Real estate loan principal payments:
Monthly payments 511,710 600,879 574,459
Payoffs, net of foreclosures 1,560,485 2,232,214 2,852,722
Refinances 182,323 326,447 388,171
---------------- ---------------- ----------------
2,254,518 3,159,540 3,815,352
Purchases of mortgage-backed securities available for sale (6,254) (1,656) -0-
Purchases of mortgage-backed securities held to maturity (99,032) (47,086) (302,313)
Sales of mortgage-backed securities available for sale 6,396 121 -0-
Sales of mortgage-backed securities held to maturity -0- -0- 138
Repayments of mortgage-backed securities 210,388 310,704 645,647
Proceeds from sales of real estate 193,389 217,965 206,009
Purchases of securities available for sale (2,992,018) (2,623,315) (4,326,544)
Sales of securities available for sale 290,624 931,508 1,151,375
Matured securities available for sale 3,392,495 1,801,054 2,620,242
Decrease (increase) in other investments (655,560) 3,500 (569,697)
Purchases of Federal Home Loan Bank stock (13,486) -0- (79,713)
Redemptions of Federal Home Loan Bank stock 12,650 7,775 52,969
Additions to premises and equipment (24,099) (58,827) (37,496)
---------------- ---------------- ----------------
Net cash used in investing activities (3,305,624) (2,907,529) (2,780,759)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase in deposits, net $ 781,850 $ 1,211,544 $ 368,749
Interest credited 846,671 585,361 567,489
--------------- --------------- ---------------
1,628,521 1,796,905 936,238
Additions to Federal Home Loan Bank advances 1,051,490 304,500 1,701,200
Repayments of Federal Home Loan Bank advances (1,093,122) (98,034) (919,195)
Proceeds from agreements to repurchase securities 3,424,725 4,599,988 4,035,812
Repayments of agreements to repurchase securities (2,208,603) (4,441,041) (4,149,648)
Proceeds from medium-term notes 699,360 499,696 609,235
Repayments of medium-term notes (267,000) (12,865) (14,500)
Proceeds from federal funds purchased -0- 250,000 -0-
Repayments of federal funds purchased (250,000) -0- -0-
Proceeds from subordinated debt 99,283 -0- 297,008
Dividends on common stock (20,533) (19,220) (17,280)
Sale of stock 6,198 2,992 2,818
Purchase and retirement of Company stock (2,870) (215,638) (7,821)
--------------- --------------- ---------------
Net cash provided by financing activities 3,067,449 2,667,283 2,473,867
--------------- --------------- ---------------
Net Increase (Decrease) in Cash (23,746) (744) 14,389
Cash at beginning of period 242,441 243,185 228,796
--------------- --------------- ---------------
Cash at end of period $ 218,695 $ 242,441 $ 243,185
=============== =============== ===============
Supplemental cash flow information:
Cash paid for:
Interest $ 1,640,261 $ 1,152,572 $ 1,176,338
Income taxes 128,123 182,332 112,970
Cash received for interest and dividends 2,404,502 1,849,101 1,852,815
Noncash investing activities:
Loans transferred to foreclosed real estate 216,392 246,612 234,149
Securities transferred to available for sale -0- -0- 845,786
Mortgage-backed securities transferred to available for sale -0- -0- 1,114,069
Mortgage-backed securities transferred from available for
sale to held to maturity (at fair value) -0- 453,564 -0-
Loans securitized into mortgage-backed securities with recourse 2,325,589 -0- -0-
</TABLE>
F-7
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1995, 1994 and 1993
(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). The Company's principal operating
subsidiaries are World Savings and Loan Association, a federally chartered
association (the Association or World Savings) and World Savings Bank, a
federally chartered savings bank (WFSB), (collectively, the Insured
Institutions). At December 31, 1995, the assets of these subsidiaries were $30
billion and $4 billion, respectively. Intercompany accounts and transactions
have been eliminated.
Nature of Operations
- --------------------
Golden West Financial Corporation, through its financial institution
subsidiaries, operates 233 savings branches in seven states and 221 loan offices
in 24 states. The Company's primary source of revenue is interest from loans on
residential real estate.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Investments
- --------------------
The Insured Institutions are 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.
The Company has adopted Statement of Financial Standards No. 115 (SFAS
115), "Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, the Company has identified its 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, which is also known as the level yield 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, 1995, 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. Transfers
of securities, if any, between the available for sale and held to maturity
portfolios are handled in accordance with FAS 115. 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.
F-8
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share)
Mortgage-backed securities
- --------------------------
The Company has no trading mortgage-backed securities (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 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. The Company has securitized certain loans into MBS with recourse to be
held to maturity which are available to be used as collateral for borrowings.
Loans Receivable
- ----------------
The Company'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
Company makes loans on the security of savings accounts.
The adjustable rate mortgage (ARM) is the Company'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 Company 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 Company does make a limited number of loans that are held for sale,
primarily fixed-rate loans. These loans are usually originated against firm
sales contracts. These loans are recorded at the lower of cost or market.
Impairment is measured based on the fair value of the collateral. 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
loans that are collateral dependent.
Loan origination fees, net of certain direct loan origination costs,
are deferred and amortized as an interest income yield adjustment over the
actual 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.
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.
F-9
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
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.
Allowance for Loan Losses
- -------------------------
The Company provides specific valuation allowances for losses on loans
when impaired, including loans securitized into MBS with recourse, and on real
estate owned when any significant and permanent decline in value is identified.
The Company also utilizes a methodology, based on trends in the basic portfolio,
for monitoring and estimating loan losses that is based on both historical
experience in the loan portfolio and factors reflecting current economic
conditions. This approach uses a database that identifies losses on loans and
foreclosed real estate from past years to the present, broken down by year of
origination, type of loan, and geographical area. Management is then able to
estimate a range of general loss allowances to cover losses in the portfolio. In
addition, periodic reviews are made of major loans and real estate owned, and
major lending areas are regularly reviewed to determine potential problems.
Where indicated, valuation allowances are established or adjusted. In estimating
loan losses, consideration is given to the estimated sales 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.
Mortgage Servicing Rights
- -------------------------
In May 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" (SFAS 122). SFAS 122 amends Statement of Financial Accounting Standards
No. 65, "Accounting for Certain Mortgage Banking Activities," to require that
mortgage banking enterprises recognize, as separate assets, rights to service
mortgage loans for others when those rights are acquired through either the
purchase or origination of mortgage loans which are subsequently sold or
securitized. SFAS 122 also requires that mortgage banking enterprises assess
capitalized mortgage servicing rights based on the fair value of those rights on
a disaggregated basis. SFAS 122 applies to fiscal years beginning after December
15, 1995. However, if it were applied to the Company's 1995 financial
statements, the impact would not be material.
Goodwill
- --------
Positive goodwill, or the excess of the cost over the fair value of net
assets acquired resulting from acquisitions, of $212,021 (1995) and $222,524
(1994) is stated net of accumulated amortization of $215,275 (1995) and $199,693
(1994). Negative goodwill, or the excess of the fair value of net assets
acquired over the cost resulting from acquisitions, of $73,459 (1995) and
$86,279 (1994) is shown net of accumulated amortization of $72,741 (1995) and
$59,921 (1994). Positive and negative goodwill are being amortized on the
straight-line method over periods ranging from 5 to 40 years.
Long-Lived Assets and Other Intangible Assets
- ---------------------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121) in 1995. SFAS 121 establishes accounting
and disclosure requirements using a fair value based method of accounting for
long-lived assets and certain identifiable intangibles whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of SFAS 121 had no effect on the Company's 1995
consolidated financial statements.
F-10
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
Securities Sold Under Agreements to Repurchase
- ----------------------------------------------
The Company enters into sales of securities under agreements to
repurchase (reverse repurchase agreements) only with selected dealers and banks.
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.
Interest Rate Swaps and Caps
- ----------------------------
The Company utilizes certain derivative financial instruments,
primarily various types of interest rate swaps and caps, as a part of its
interest rate risk management strategy. Such instruments are entered into solely
to alter the repricing characteristics of designated assets and liabilities. The
Company does not hold any derivative financial instruments for trading purposes.
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 mortgage loans,
or other designated assets, customer deposits or borrowings. 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 designated balance sheet item. The designated balance sheet item
is generally a pool of assets or liabilities with similar interest rate
characteristics. Some interest rate swaps are entered into with starting dates
in the future in anticipation of future prepayments on fixed-rate assets.
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 on mortgage loans
or other designated assets. 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
designated balance sheet item.
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.
Regulatory Capital Requirements
- -------------------------------
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) established capital standards. Under FIRREA, thrifts and savings
banks must have tangible capital equal to 1.5% of adjusted total assets, have
core capital equal to 3% of adjusted total assets, and have risk-based capital
equal to 8% of risk-weighted assets.
F-11
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
At December 31, World Savings had the following regulatory capital
calculated in accordance with FIRREA's capital standards:
<TABLE>
<CAPTION>
1995 1994
--------------------------------------------------- ---------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------------- ------------------------- ------------------------- -------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------- -------- -------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,924,910 6.38% $ 452,761 1.50% 1,931,375 6.26% 462,564 1.50%
Core 1,924,910 6.38 905,521 3.00 2,047,016 6.64 925,129 3.00
Risk-based 2,243,519 13.40 1,339,177 8.00 2,353,781 13.54 1,390,391 8.00
</TABLE>
At December 31, 1995, WFSB had the following regulatory capital
calculated in accordance with FIRREA's capital standards: Tangible, $562,788 or
14.01%; Core, $562,788 or 14.01%; and Risk-based $568,451 or 26.55%.
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, the 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 the 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 and World Savings Bank, FSB, both of which are regulated by the OTS, are
deemed to be "well capitalized."
At December 31, World Savings had the following regulatory capital
calculated in accordance with FDICIA's capital standards:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------- -------------------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL CAPITALIZED
----------------------- ----------------------- ----------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ -------- ------------ --------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $1,924,910 6.38% $1,509,202 5.00% $2,047,016 6.64% $1,541,881 5.00%
Tier 1 ris based 1,924,910 11.50 1,004,383 6.00 2,047,016 11.78 1,042,793 6.00
Total risk-based 2,243,519 13.40 1,673,972 10.00 2,353,781 13.54 1,737,989 10.00
</TABLE>
At December 31, 1995, WFSB had the following regulatory capital,
calculated in accordance with FDICIA's capital standards: Leverage, $562,788 or
14.01%; Tier 1 risk-based, $562,788 or 26.28%; and Total risk-based, $568,451 or
26.55%.
Legislation is currently pending in Congress which would recapitalize
the Savings Association Insurance Fund (SAIF) in order to bring it into parity
with the FDIC's other insurance fund, the Bank Insurance Fund (BIF). The
legislation would require an assessment of all SAIF-insured institutions of
approximately 0.80% on their March 31, 1995, customer balances. If such
legislation had been passed by December 31, 1995, World Savings would have been
assessed approximately $95 million, on an after tax basis. After paying the one
time assessment, it is expected that World Savings would pay significantly
reduced insurance premiums on its customer deposits.
There is no certainty that such legislation will become law.
F-12
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
Retained Earnings
- -----------------
Under OTS regulations, the OTS must be given at least 30 days' advance
notice by the Association or WFSB of any proposed dividend to be paid to the
Company. Under OTS regulations, World Savings and WFSB are classified as Tier 1
institutions and are, therefore, allowed to distribute dividends up to 100% of
their net income in any year plus one-half of their capital in excess of the OTS
fully phased-in capital requirement as of the end of the prior year.
At December 31, 1995, $306 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, 58,657,422 (1995),
62,128,719 (1994), and 63,977,876 (1993).
NOTE B - Securities Available for Sale
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------
Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Certificates of deposit $ 49,999 $ 1 $ -0- $ 50,000
U.S. Treasury and Government agency obligations 174,783 36 -0- 174,819
Collateralized mortgage obligations 410,953 216 3,222 407,947
Commercial paper 50,932 42 -0- 50,974
Equity securities 98,545 119,597 26 218,116
---------------- --------------- --------------- ----------------
$ 785,212 $ 119,892 $ 3,248 $ 901,856
================ =============== =============== ================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
---------------------------------------------------------------------
Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Certificates of deposit $ 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>
F-13
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
The weighted average portfolio yields on securities available for sale
were 5.89% and 5.24% at December 31, 1995, and 1994, respectively. Sales of
securities available for sale resulted in realized gains of $10 (1995), $83
(1994) and $22 (1993) and realized losses of $515 (1995), $226 (1994) and $13
(1993).
At December 31, 1995, the securities available for sale had maturities
as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
-------------------------------------- ---------------- ----------------
<S> <C> <C>
No maturity $ 98,545 $ 218,116
1996 281,024 280,933
1997 through 2000 333,437 330,851
2001 through 2005 42,952 42,720
2006 and thereafter 29,254 29,236
---------------- ---------------
$ 785,212 $ 901,856
================ ===============
</TABLE>
NOTE C - Other Investments
The following is a summary of other investments not subject to Financial
Accounting Standards Board pronouncement No. 115:
<TABLE>
<CAPTION>
December 31
---------------------------------
1995 1994
---------------- --------------
<S> <C> <C>
Federal funds, at cost $ 490,960 $ 152,000
Short-term repurchase agreements collateralized
by mortgage-backed securities, at cost 699,200 382,600
================ ==============
$ 1,190,160 $ 534,600
================ ==============
</TABLE>
At December 31, 1995, and 1994, cost approximated fair market value and
there were no unrealized gains or losses.
The weighted average portfolio yields on other investments were 6.00%
and 5.92% at December 31, 1995, and 1994, respectively. Sales of other
investments resulted in gains of $-0- (1995), $-0- (1994), and $24,000 (1993),
and losses of $-0- (1995), $-0- (1994), and $1,473 (1993).
As of December 31, 1995, the entire other investments portfolio matures
in 1996.
F-14
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE D - Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
FNMA $ 114,204 $ 4,661 $ 280 $ 118,585
FHLMC 91,032 4,771 88 95,715
GNMA 62,327 5,098 59 67,366
Other 1,215 -0- -0- 1,215
=============== ============== =============== ==============
$ 268,778 $ 14,530 $ 427 $ 282,881
=============== ============== =============== ==============
</TABLE>
<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>
The weighted average portfolio yields on mortgage-backed securities
available for sale were 8.85% and 9.57% at December 31, 1995, and 1994,
respectively. Principal proceeds from the sales of securities from the
mortgage-backed securities available for sale portfolio were $6,409 (1995), $120
(1994) and $-0- (1993) and resulted in realized gains of $13 (1995), $-0-
(1994), and $-0- (1993) and realized losses of $-0- (1995), $1 (1994), and $-0-
(1993).
At December 31, 1995, mortgage-backed securities available for sale had
contractual maturities as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
----------------------------- ---------------- ----------------
<S> <C> <C>
1996 through 2000 $ 1,459 $ 1,488
2001 through 2005 2,974 3,121
2006 and thereafter 264,345 278,272
================ ================
$ 268,778 $ 282,881
================ ================
</TABLE>
F-15
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE E - Mortgage-Backed Securities Held to Maturity
Mortgage-backed securities held to maturity are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Mortgage-backed securities
without recourse:
FNMA $ 718,136 $ 19,276 $ 2,930 $ 734,482
FHLMC 91,224 6,628 -0- 97,852
GNMA 84,414 5,284 -0- 89,698
-------------- -------------- -------------- --------------
$ 893,774 $ 31,188 $ 2,930 $ 922,032
Mortgage-backed securities
with recourse:
FNMA 2,232,686 62,517 -0- 2,295,203
-------------- -------------- -------------- --------------
$ 3,126,460 $ 93,705 $ 2,930 $ 3,217,235
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Mortgage-backed securities
without recourse:
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>
The weighted average portfolio yields of mortgage-backed securities
held to maturity were 7.28% and 7.99% at December 31, 1995, and 1994,
respectively. Principal proceeds from the sales of securities from the
mortgage-backed securities held to maturity portfolio amounted to $-0- (1995),
$-0- (1994), and $144 (1993) and resulted in realized gains of $-0- (1995), $-0-
(1994), and $7 (1993) and realized losses of $-0- (1995), $-0- (1994), and $-0-
(1993).
At December 31, 1995, mortgage-backed securities held to maturity had
contractual maturities as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
------------------------------ -------------- --------------
<S> <C> <C>
1996 through 2000 $ 120 $ 123
2001 through 2005 105 111
2006 and thereafter 3,126,235 3,217,001
-------------- --------------
$ 3,126,460 $ 3,217,235
============== ==============
</TABLE>
F-16
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE F - Loans Receivable
<TABLE>
<CAPTION>
December 31
--------------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Loans collateralized primarily by first deeds of trust:
One-to four-family dwelling units $ 24,071,421 $ 23,217,564
Over four-family dwelling units 4,205,050 3,946,446
Commercial property 122,396 134,189
Construction loans 1,471 -0-
Land 1,511 1,851
---------------- ----------------
28,401,849 27,300,050
Loans on savings accounts 33,279 30,460
---------------- ----------------
28,435,128 27,330,510
Less:
Undisbursed loan funds 3,568 2,781
Unearned fees and discounts 88,194 105,314
Unamortized discount arising from acquisitions 20,025 27,146
Allowance for loan losses 141,988 124,003
---------------- ----------------
$ 28,181,353 $ 27,071,266
================ ================
</TABLE>
In addition to loans receivable, the Association services loans for
others. At December 31, 1995, and 1994, the amount of loans serviced for others
(non-affiliated) was $3,135,125 and $843,963, respectively, including $2.2
billion of loans that were securitized into FNMA MBS with recourse during 1995.
At December 31, 1995, and 1994, the Company had $32 million and $4
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
---------------------------------------------
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Balance at January 1 $ 124,003 $ 106,698 $ 70,924
Provision for loan losses charged to expense 61,190 62,966 65,837
Less loans charged off (44,656) (46,556) (38,475)
Recoveries 1,451 895 1,145
Reclassification of in-substance foreclosure allowances -0- -0- 7,267
------------- -------------- -------------
Balance at December 31 $ 141,988 $ 124,003 $ 106,698
============= ============== =============
</TABLE>
<TABLE>
<CAPTION>
The following is a summary of impaired loans:
December 31
--------------------------------
1995 1994
--------------- ----------------
<S> <C> <C>
Nonperforming loans $ 314,086 $ 284,103
Troubled debt restructured 45,222 72,827
Other impaired loans 60,483 40,504
-------------- --------------
$ 419,791 $ 397,434
============== ==============
</TABLE>
The portion of the allowance for loan losses that was specifically
provided for impaired loans was $16,516 and $15,618 at December 31, 1995, and
1994, respectively. The average recorded investment in total impaired loans was
$487,989 and $395,228 during 1995 and 1994, respectively. All amounts involving
impaired loans have been measured based upon the fair value of the related
collateral. The amount of interest income recognized on the total of impaired
loans at December 31, 1995 and 1994 was $19,141 and $16,449, respectively.
F-17
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE G - Interest Earned But Uncollected
<TABLE>
<CAPTION>
December 31
---------------------------------
1995 1994
-------------- -------------
<S> <C> <C>
Loans receivable $ 132,849 $ 108,130
Mortgage-backed securities 23,975 7,135
Interest rate swaps 60,415 81,684
Other 8,156 5,507
-------------- -------------
$ 225,395 $ 202,456
============== =============
</TABLE>
NOTE H - Real Estate Held for Sale or Investment
<TABLE>
<CAPTION>
December 31
---------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Real estate acquired through foreclosure of loans, net of
allowance for losses $ 75,158 $ 70,981
Real estate in judgement, net of allowance for losses 443 390
Real estate held for investment, net of allowance for losses 586 846
-------------- --------------
$ 76,187 $ 72,217
============== ==============
</TABLE>
NOTE I - Premises and Equipment
<TABLE>
<CAPTION>
December 31
------------------------------
1995 1994
------------- --------------
<S> <C> <C>
Land $ 51,002 $ 47,509
Building and leasehold improvements 149,872 143,065
Furniture, fixtures, and equipment 127,759 123,688
------------- --------------
328,633 314,262
Accumulated depreciation and amortization 124,996 112,387
------------- --------------
$ 203,637 $ 201,875
============= ==============
</TABLE>
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, 1995, and which expire between 1996 and 2064,
amounted to approximately $152,710. The approximate minimum payments during the
five years ending 2000 are $14,490 (1996), $13,657 (1997), $12,234 (1998),
$10,254 (1999), and $8,987 (2000). 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 $17,540 (1995), $16,979 (1994), and $15,579
(1993).
F-18
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE J - Customer Deposits
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------
1995 1994
---------------------------- -----------------------------
Rate* Amount Rate* Amount
---------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Customer deposits by rate:
Interest-bearing checking accounts 1.25% $ 750,160 1.28% $ 730,290
Passbook accounts 2.23 567,890 2.23 638,905
Money market deposit accounts 3.20 1,291,501 3.13 1,818,426
Term certificate accounts with original
maturities of:
4 weeks to 1 year 5.32 9,358,705 4.56 5,159,037
1 to 2 years 5.65 3,599,540 4.59 5,636,301
2 to 3 years 5.63 2,128,392 4.85 1,997,826
3 to 4 years 5.36 651,787 5.22 817,631
4 years and over 6.32 2,065,785 6.99 2,098,984
Retail jumbo CDs 5.57 430,647 5.44 312,413
All other 7.71 3,503 7.78 9,576
--------------- ---------------
$ 20,847,910 $ 19,219,389
=============== ===============
</TABLE>
*Weighted average interest rate including the impact of interest rate.
swaps.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1995 1994
----------------- ------------------
<S> <C> <C>
Customer deposits by remaining maturity at yearend:
No contractual maturity $ 2,609,551 $ 3,187,621
Maturity within one year:
1st quarter 6,014,410 3,598,746
2nd quarter 4,953,641 3,319,067
3rd quarter 2,096,226 2,377,766
4th quarter 1,422,384 1,765,131
----------------- -----------------
14,486,661 11,060,710
1 to 2 years 2,259,328 2,799,980
2 to 3 years 618,242 983,797
3 to 4 years 638,226 420,778
Over 4 years 235,902 766,503
----------------- -----------------
$ 20,847,910 $ 19,219,389
================= =================
</TABLE>
At December 31, the weighted average cost of deposits was 5.15% (1995)
and 4.57% (1994).
Interest expense on customer deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest-bearing checking accounts $ 9,258 $ 9,463 $ 11,426
Passbook accounts 17,771 19,733 21,043
Money market deposit accounts 30,262 38,430 47,339
Term certificate accounts 991,099 646,727 625,892
=============== =============== ===============
$ 1,048,390 $ 714,353 $ 705,700
=============== =============== ===============
</TABLE>
F-19
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE K - Advances from Federal Home Loan Banks
Advances are secured by pledges of $10,833,942 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, 1995
------------------------------------------------------------------------------------
Receive
Stated Fixed Adjusted
Maturity Amount Rate Swaps Rate*
-------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1996 $ 634,416 6.29% (0.75)% 5.54%
1997 165,479 6.55 (0.56) 5.99
1998 1,058,806 6.16 6.16
1999 558,918 5.08 5.08
2000 672,737 6.05 (0.01) 6.04
2001 and thereafter 3,356,845 5.61 (0.01) 5.60
--------------
$ 6,447,201
==============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------------------------------
Receive
Stated Fixed Adjusted
Maturity Amount Rate Swaps Rate*
----------------------- -------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1995 $ 325,469 $ 5.8% (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>
*Weighted average interest rate adjusted for impact of interest rate swaps.
At December 31, the weighted average cost of advances was 5.70% (1995) and
5.21% (1994).
F-20
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE L - Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are collateralized by
mortgage-backed securities and collateralized mortgage obligations with a market
value of $1,859,652 and $657,325 at December 31, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------------------------------------------
Pay Receive
Stated Fixed Fixed Adjusted
Maturity Amount Rate Swaps Swaps Rate*
----------------------- ------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1996 $ 1,061,343 5.64% 0.64% 6.28%
1997 500,000 5.94 5.94
1998 250,000 6.09 6.09
1999 6,600 8.09 (2.68)% 5.41
-------------
$ 1,817,943
=============
</TABLE>
<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 6,600 8.09 (3.27) 4.82
-------------
$ 601,821
=============
</TABLE>
*Weighted average interest rate adjusted for impact of interest rate swaps.
At December 31, these liabilities had a weighted average interest rate
of 6.15% (1995) and 6.67% (1994). These borrowings averaged $1,120,860 (1995)
and $574,487 (1994) and the maximum outstanding at any monthend was $2,018,438
(1995) and $930,072 (1994). At the end of 1995 and 1994, respectively,
$1,752,171 and $316,865 of the agreements to repurchase with broker/dealers and
the Federal Home Loan Bank of San Francisco were to reacquire the same
securities. Agreements with broker/dealers to repurchase substantially the same
securities amounted to $65,772 (1995) and $284,956 (1994).
NOTE M - Medium-Term Notes
Medium-term notes are unsecured obligations of the Association. They have
maturities and interest rates as follows:
<TABLE>
<CAPTION>
December 31, 1995
- -----------------------------------------------------------------------------------------------------------
Pay Receive
Stated Fixed Fixed Basis Adjusted
Maturity Amount Rate Swaps Swaps Swaps Rate*
- ---------------- --------------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1996 $ 1,007,988 5.49% (0.03)% 0.50% (0.01)% 5.95%
1997 479,645 6.80 (0.65) 6.15
1998 109,874 6.21 6.21
---------------
$ 1,597,507
===============
</TABLE>
F-21
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
<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>
*Weighted average interest rate adjusted for impact of interest rate swaps.
At December 31, medium-term notes had a weighted average interest rate
of 6.04% (1995) and 6.10% (1994).
NOTE N - Federal Funds Purchased
At December 31, 1994, these liabilities had a weighted average interest
rate of 6.55%. These borrowings averaged $38,462 (1995) and $19,231 (1994) and
the maximum outstanding at any monthend was $250,000 (1995) and $250,000 (1994).
NOTE O - Subordinated Notes
<TABLE>
<CAPTION>
December 31
------------------------------------
1995 1994
---------------- ----------------
<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
$6,907 (1995) and $7,530 (1994) $ 1,123,093 $ 1,022,470
Association:
Subordinated notes, unsecured, due from
1997 to 2000 at coupon rates of 9.90% to
10.25%, net of unamortized discount of $701
(1995) and $911 (1994) 199,299 199,089
---------------- ----------------
$ 1,322,392 $ 1,221,559
================ ================
</TABLE>
At December 31, subordinated notes had a weighted average interest rate
of 8.49% (1995) and 8.64% (1994). At December 31, 1995, subordinated notes had
maturities and interest rates as follows:
<TABLE>
<CAPTION>
Maturity Rate* Amount
---------------------------------- ----------- ---------------
<S> <C> <C>
1997 10.37% $ 214,662
1998 9.04 199,388
2000 9.29 313,155
2002 7.75 396,569
2003 6.13 198,618
===============
$ 1,322,392
===============
</TABLE>
*Weighted average interest rate
F-22
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE P - Taxes on Income
The following is a comparative analysis of the provision for federal
and state taxes on income.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
<S> <C> <C> <C>
Federal income tax:
Current $ 108,717 $ 121,124 $ 141,016
Deferred 6,287 1,765 3,599
State tax:
Current 36,887 39,941 42,014
Deferred (1,198) (2,897) (3,101)
================ ================ ================
$ 150,693 $ 159,933 $ 183,528
================ ================ ================
</TABLE>
The amounts of net deferred liability included in taxes on income in
the Consolidated Statement of Financial Condition are:
<TABLE>
<CAPTION>
December 31
----------------------------------
1995 1994
---------------- ----------------
<S> <C> <C>
Federal income tax $ 112,031 $ 75,396
State tax 48,065 40,033
</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
---------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
Deferred tax liabilities:
Loan fees and interest income $ 72,355 $ 64,116
FHLB stock dividends 69,572 62,524
Bad debt reserve 28,355 39,085
Unrealized gains on debt and equity securities 53,500 13,328
Depreciation 14,337 11,282
Other deferred tax liabilities 4,779 751
----------------- -----------------
Gross deferred tax liabilities 242,898 191,086
Deferred tax assets:
Provision for losses on loans 54,577 47,869
State taxes 13,367 14,112
Loan discount primarily related to acquisitions 8,674 11,460
Other deferred tax assets 6,184 2,216
----------------- -----------------
Gross deferred tax assets 82,802 75,657
----------------- -----------------
Net deferred tax liability $ 160,096 115,429
================= =================
</TABLE>
F-23
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(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
----------------------------------------------------------------------------------
1995 1994 1993
-------------------------- -------------------------- -----------------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Computed standard
corporate tax expense $ 134,831 35.0% $ 136,634 35.0% $ 160,083 35.0%
Increases (reductions) in
taxes resulting from:
Net financial income, not
subject to income tax,
primarily related to
acquisitions (6,706) (1.7) 393 0.1 (3,293) (0.7)
State tax, net of federal
income tax benefit 24,046 6.2 24,325 6.2 27,783 6.0
Adjustment of deferred
tax liability due to tax
rate increase -0- -0- -0- -0- 1,793 0.4
Other (1,478) (0.4) (1,419) (0.3) (2,838) (0.6)
----------- ----------- ----------- ----------- ----------- -----------
$ 150,693 39.1% $ 159,933 41.0% $ 183,528 40.1%
=========== =========== =========== =========== =========== ===========
</TABLE>
In accordance with Financial Accounting Standards Board pronouncement
109, "Accounting for Income Taxes," 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,
1995 and 1994, 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, 1995 and 1994, 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.
F-24
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
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 and August 1, 1995, the Company's Board of Directors
authorized the purchase by the Company of an additional 3.1 million and 5.9
million shares, respectively, of Golden West's common stock. As of December 31,
1995, 5,833,016 of such shares had been repurchased and retired at a cost of
$226 million since October 28, 1993. During 1995, 67,836 of the shares were
purchased and retired at a cost of $3 million.
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, 1993 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
Granted 278,250 $ 51.21
Exercised (349,290) $ 17.74
Canceled (18,250) $ 35.71
-------------- -------------
Outstanding, December 31, 1995 2,978,295 $ 26.70
============== =============
</TABLE>
At December 31, shares available for option amounted to 2,844,200
(1995), 3,104,200 (1994), and 3,465,400 (1993); and shares exercisable amounted
to 2,170,745 (1995), 2,114,335 (1994), and 1,792,235 (1993). Outstanding options
at December 31, 1995, were held by 354 employees and had expiration dates
ranging from December 1, 1997, to January 12, 2006.
F-25
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE S - Financial Instruments with Off-Balance-Sheet Risk and
Concentrations of Credit Risk
As of December 31, 1995, the Company's loans receivable balance was
$28.2 billion. Of that $28.2 billion balance, 37% were Southern California
loans, 36% were Northern California loans, 3% were Colorado loans, 3% were
Illinois loans, 3% were Texas loans, 3% were New Jersey loans, 2% were Florida
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.
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, and loans; and interest rate swaps and caps. 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, 1995, and 1994, was $258 million and $412 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. The Company
had no outstanding commitments to purchase or sell mortgage-backed securities as
of December 31, 1995, and 1994.
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.
F-26
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE T - Interest Rate Swaps and Caps
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 these 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, 1995. 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 one basis swap contract on
which it makes payments based on three month LIBOR and receives an amount based
on one month LIBOR. The forward starting swap was 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 the forward
starting swap begins at a predetermined future date. The Company has a $10
million forward starting swap, which is contractually delayed until 1997.
The following table illustrates the maturities and weighted average
rates as of December 31, 1995 for interest rate swaps and caps held by the
Company by product type.
Maturities of December 31, 1995 Interest Rate Swaps and Caps
<TABLE>
<CAPTION>
Maturity Balance at
------------------------------------------------------------------------ December 31,
1996 1997 1998 1999 2000+ 1995
------------ ----------- ------------ ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed generic swaps:
Notional amount $ 1,545,000 $ 452,180 $ 952,983 $ 244,144 $ 26,667 $ 3,220,974
Weighted average receive rate 5.19% 7.05% 6.07% 6.77% 7.14% 5.85%
Weighted average pay rate 5.43% 5.93% 5.71% 5.95% 6.02% 5.63%
Pay fixed generic swaps:
Notional amount $ 435,000 $ 232,000 $ 209,000 $ 172,000 $ 727,095 $ 1,775,095
Weighted average receive rate 5.96% 6.00% 5.89% 5.99% 5.93% 5.95%
Weighted average pay rate 8.05% 6.86% 7.66% 8.26% 7.10% 7.48%
Basis swaps:
Notional amount $ 43,000 $ -0- $ -0- $ -0- $ -0- $ 43,000
Weighted average receive rate 6.03% 0.00% 0.00% 0.00% 0.00% 6.03%
Weighted average pay rate 5.89% 0.00% 0.00% 0.00% 0.00% 5.89%
Forward starting swaps:
Notional amount $ -0- $ -0- $ -0- $ 10,000 $ -0- $ 10,000
Weighted average receive rate 0.00% 0.00% 0.00% 8.68% 0.00% 8.68%
Weighted average pay rate 0.00% 0.00% 0.00% 5.53% 0.00% 5.53%
Interest rate caps:
Notional amount $ 225,000 $ -0- $ -0- $ -0- $ -0- $ 225,000
Range of cap strike rates 5.00-11.00% 5.00-11.00%
11.00
Total notional value $2,248,000 $ 684,180 $ 1,161,983 $ 426,144 $ 753,762 $ 5,274,069
============ =========== ============ ============ =========== =============
Total weighted average rate on swaps:
Receive rate 5.38% 6.69% 6.04% 6.50% 5.97% 5.89%
============ =========== ============ ============ =========== =============
Pay rate 6.01% 6.24% 6.06% 6.87% 7.06% 6.2%
============ =========== ============ ============ =========== =============
</TABLE>
F-27
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
During 1995, the range of floating interest rates received on swap
contracts was 5.13% to 7.02% and the range of floating interest rates paid on
swap contracts was 4.37% to 6.69%. The range of fixed interest rates received on
swap contracts was 3.91% to 9.68% and the range of fixed interest rates paid on
swap contracts was 4.09% to 9.54%.
Activity in interest rate swaps and caps is summarized as follows:
<TABLE>
<CAPTION>
Interest Rate Swap and Cap Activity
For the Years Ended December 31, 1995, 1994, and 1993
(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, 1993 $ 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-
Additions 219 -0- 43 -0- -0- -0-
Maturities (2,114) (450) (200) -0- (75) -0-
Terminations -0- -0- -0- -0- -0- -0-
Forward starting becoming effective 125 -0- -0- (125) -0- -0-
----------- ----------- ----------- ----------- ---------- ----------------
Balance, December 31, 1995 $ 3,221 $ 1,775 $ 43 $ 10 $ 225 $ -0-
=========== =========== =========== =========== ========== ================
</TABLE>
Interest rate swaps and caps activity decreased net interest income by $29
million, $23 million, and $71 million for the years ended December 31, 1995,
1994, and 1993, respectively.
NOTE U - Disclosure About Fair Value of Financial Instruments
The Financial Accounting Standards Board Pronouncement No. 107,
"Disclosures About Fair Value of Financial Instruments," 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.
F-28
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(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,
1995, and 1994, 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 Banks, 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, securitites sold under
agreements to repurchase with the Federal Home Loan Bank of San
Francisco and broker/dealers with terms greater than 90 days, 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 Banks, consumer repurchase agreements and medium-term notes.
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.
F-29
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 218,695 $ 218,695 $ 242,441 $ 242,441
Securities available for sale 901,856 901,856 1,488,845 1,488,845
Other investments 1,190,160 1,190,160 534,600 534,600
Mortgage-backed securities available for sale 282,881 282,881 323,339 323,339
Mortgage-backed securities held to maturity 3,126,460 3,217,235 871,039 831,436
Loans receivable 28,181,353 28,342,204 27,071,266 26,914,642
Interest earned but uncollected 225,395 225,395 202,456 202,456
Investment in capital stock of Federal Home
Loan Banks 350,955 350,955 332,940 332,940
Financial Liabilities:
Customer deposits 20,847,910 20,957,186 19,219,389 19,138,503
Advances from Federal Home Loan Banks 6,447,201 6,441,338 6,488,418 6,300,271
Securities sold under agreements to
repurchase 1,817,943 1,831,403 601,821 602,117
Medium-term notes 1,597,507 1,607,720 1,164,079 864,210
Federal funds purchased -0- -0- 250,000 250,000
Subordinated notes 1,322,392 1,418,775 1,221,559 1,053,758
Off-Balance Sheet Instruments (Unrealized Gains (Losses)):
</TABLE>
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------------------
1995 1994
---------------------------------------------- ------------------------------------------------
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 $ 45,632 $ 1,421 $ 44,211 $ 3,765 $ 104,098 $ (100,333)
Pay fixed 327 85,982 (85,655) 64,874 8,959 55,915
Basis -0- -0- -0- -0- 77 (77)
Forward starting 415 -0- 415 348 -0- 348
Interest rate caps 36 -0- 36 589 -0- 589
Loan commitments 1,389 -0- 1,389 1,698 -0- 1,698
------------- -------------- ------------- ------------- ------------- -------------
Total $ 47,799 $ 87,403 $ (39,604) $ 71,274 $ 113,134 $ (41,860)
============= ============== ============= ============= ============= =============
</TABLE>
F-30
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE V - Parent Company Financial Information
Statement of Net Earnings
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Investment income $ 49,893 $ 40,821 $ 28,047
Insurance commissions and trustee fees 1,403 1,190 1,357
Other 24 20 20
-------------- -------------- --------------
51,320 42,031 29,424
Expenses:
Interest 88,662 85,906 75,601
General and administrative 3,631 2,648 2,188
-------------- -------------- --------------
92,293 88,554 77,789
-------------- -------------- --------------
Loss before earnings of subsidiaries
and income tax credit (40,973) (46,523) (48,365)
Income tax credit 18,498 20,779 21,585
Earnings of subsidiaries 257,014 256,193 300,634
-------------- -------------- --------------
Net Earnings $ 234,539 230,449 273,854
============== ============== ==============
</TABLE>
Statement of Financial Condition
- --------------------------------
Assets
------
<TABLE>
<CAPTION>
December 31
---------------------------------------
1995 1994
------------------ ------------------
<S> <C> <C>
Cash $ 2,556 $ 1,708
Securities available for sale 199,523 299,454
Other investments 517,202 386,707
Notes receivable from subsidiary -0- 250,000
Prepaid expenses and other assets 14,380 9,273
Investment in subsidiaries 2,698,237 2,094,784
------------------ ------------------
$ 3,431,898 $ 3,041,926
================== ==================
</TABLE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Accounts payable and accrued expenses $ 30,452 $ 19,182
Subordinated notes, net 1,123,093 1,022,470
Stockholders' equity 2,278,353 2,000,274
----------------- -----------------
$ 3,431,898 $ 3,041,926
================= =================
</TABLE>
F-31
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE V- Parent Company Financial Information (Continued)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 234,539 $ 230,449 $ 273,854
Adjustments to reconcile net earnings
to net cash used in operating activities:
Equity in earnings of subsidiaries (257,014) (256,193) (300,634)
Amortization of intangibles and
discount on subordinated debt 1,404 1,353 1,209
Other, net (7,290) (5,086) 15,509
--------------- --------------- ---------------
Net cash used in operating activities (28,361) (29,477) (10,062)
Cash flows from investing activities:
Capital contributed to subsidiaries (580,582) (625) -0-
Dividends received from subsidiary 280,000 275,000 34,000
Purchases of securities held for sale (2,638,824) (1,305,371) (1,920,007)
Sales of securities available for sale 102,911 620,415 337,593
Matured securities available for sale 2,664,121 1,060,842 1,103,012
(Increase) in other investments (130,495) (271,993) (169,355)
Notes receivable from subsidiary (450,000) (650,000) (150,000)
Repayments of notes receivable from
subsidiary 700,000 550,000 475,000
--------------- --------------- ---------------
Net cash provided by (used in) investing
activities (52,869) 278,268 (289,757)
Cash flows from financing activities:
Increase(decrease)in securities sol under
agreements to repurchase -0- (24,875) 24,875
Proceeds from subordinated debt 99,283 -0- 297,008
Dividends on common stock (20,533) (19,220) (17,280)
Sale of stock 6,198 2,992 2,818
Purchase and retirement of Company stock (2,870) (215,638) (7,821)
--------------- --------------- ---------------
Net cash provided by (used in) financing
activities 82,078 (256,741) 299,600
Net increase (decrease) in cash 848 (7,950) (219)
Cash at beginning of period 1,708 9,658 9,877
--------------- --------------- ---------------
Cash at end of period $ 2,556 $ 1,708 $ 9,658
=============== =============== ===============
</TABLE>
F-32
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1995, 1994, and 1993
(Dollars in thousands except per share figures)
NOTE W - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
Quarter Ended
-----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income $ 551,895 $ 604,145 $ 631,772 $ 639,629
Interest expense 385,464 431,844 444,339 442,958
-------------- --------------- -------------- --------------
Net interest income 166,431 172,301 187,433 196,671
Provision for loan losses 14,779 14,651 14,622 17,138
Non-interest income 11,012 9,227 10,476 11,825
Non-interest expense 79,320 79,074 79,014 81,546
-------------- --------------- -------------- --------------
Earnings before taxes on income 83,344 87,803 104,273 109,812
Taxes on income 32,411 34,242 40,892 43,148
-------------- --------------- -------------- --------------
Net earnings $ 50,933 $ 53,561 $ 63,381 $ 66,664
============== =============== ============== ==============
Net earnings per share $ .87 $ .91 $ 1.08 $ 1.14
============== =============== ============== ==============
Cash dividends per share $ .085 $ .085 $ .085 $ .095
============== =============== ============== ==============
</TABLE>
<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>
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.
F-33
INDEPENDENT AUDITORS' CONSENT
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, Registration Statement No. 33-57882 on Form S-3 and
Amendment No. 1 to , Registration Statement No. 33-61293 on Form S-3 of our
report dated January 22, 1996 appearing in this Annual Report on Form 10-K of
Golden West Financial Corporation for the year ended December 31, 1995.
/s/Deloitte & Touche LLP
San Francisco, California
March 25, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
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0
0
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</TABLE>
