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, 1996
Commission File No. 1-4629
GOLDEN WEST FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2080059
- ------------------------------------------------ --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1901 Harrison Street, Oakland, California 94612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 446-3420
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
- -------------------------------------------- ------------------------------
Common Stock, $.10 par value New York Stock Exchange, Inc.,
Pacific Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The approximate aggregate market value of the Registrant's common stock
held by nonaffiliates of the Registrant on February 28, 1997, was
$3,882,822,892. The number of shares outstanding of the Registrant's common
stock on February 28, 1997, was 57,311,039 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference Applicable Part of Form 10-K
- ----------------------------------- ----------------------------
Proxy Statement Dated March 14, 1997, 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, FSB (WFSB), and World Savings Bank, SSB, (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 fourteen 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, 1996, 1995 and
1994, World's net earnings were $108 million, $272 million and $257 million,
respectively. World's assets totaled $21.0 billion and $30.4 billion at yearends
1996 and 1995, respectively.
During 1995, Golden West acquired Watchung Hills Bank for Savings of New
Jersey and renamed it World Savings Bank, FSB. WFSB is a federally chartered
savings bank, with deposits insured by the FDIC Bank Insurance Fund (BIF) and
its home office is in Oakland, California. As of December 31, 1996 and 1995,
WFSB had assets of $16.9 billion and $4.0 billion, respectively. WFSB had net
income of $69.2 million for the year ended December 31, 1996, and incurred a net
loss of $3.5 million for the year ended December 31, 1995.
World Savings Bank, a State Savings Bank had assets of $86 million and $46
million for the years ended December 31, 1996 and 1995, respectively. For the
years ended December 31, 1996 and 1995, WSSB had income of $511 thousand and
$241 thousand, respectively.
Golden West is operating its insured subsidiaries in a manner that enhances
customer service. In this regard, all of WFSB's and World's products are made
available in the Company's savings branches. In addition, customers of each of
Golden West's insured subsidiaries can transact most business on their accounts
at any of the Company's branch offices. Each insured subsidiary reimburses the
other for services provided in these arrangements. Interest rates set on deposit
accounts offered by the Association and WFSB are based on market conditions,
cost and funding needs.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGISTRANT (continued)
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 San Francisco. 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, 1996, the Company operated 120 savings branch offices in
California, 48 in Colorado, 24 in Florida, 19 in Texas, 12 in Arizona, 11 in New
Jersey, and ten in Kansas. The Company also operates 214 loan origination
offices of which 183 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
214 loan offices, 18 are fully-staffed offices that are located in the same
premises as savings branch offices and 96 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
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, FSB. That same month, the Company sold seven
Colorado branches with $153 million in deposits to First Security Bank of Fort
Lupton.
On May 6, 1994, the Company acquired $78 million in deposits in New Jersey
from Polifly Savings and Loan.
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 limited conditions, World and WFSB may borrow from the Federal
Reserve Bank of San Francisco to meet short-term cash needs. The availability of
these funds will vary depending 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
dividends from World, the proceeds from the issuance of debt and equity
securities, and interest on investments. 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 $1.3 billion during 1996, including interest
credited of $869 million, compared to an increase of $1.6 billion, including
interest credited of $847 million and including $153 million from a divestiture
and $48 million from an acquisition during 1995. Customer deposits increased
$1.8 billion in 1994, including $585 million of interest credited and including
$78 million from acquisitions. The mix of deposits changed during 1996,
primarily due to a new program begun in the fourth quarter. Specifically, the
balance of interest-bearing checking accounts has decreased as compared to 1995
and the balance of money market accounts has increased compared to the 1995
balance as a result of this new program which calculates the minimum amount of
funds needed to cover disbursements for each customer's checking account and
transfers the remaining funds to a money market account, reducing the Company's
required reserves at the Federal Reserve Bank. Total customer deposits increased
during 1996 and 1995 primarily due to ongoing marketing efforts and competitive
rates offered by the Company on its insured accounts. The increase in deposits
in 1996 and 1995 reflected primarily growth in deposits at WFSB. 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.
The table on the following page summarizes the Company's customer deposits
by original term to maturity at December 31.
<PAGE>
ITEM 1. BUSINESS (Continued)
CUSTOMER DEPOSIT ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 1
Customer Deposits
by Original Term to Maturity
(Dollars in thousands)
1996 1995 1994 1993 1992
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest-bearing checking . . $ 318,422 $ 750,160 $ 730,290 $ 736,767 $ 710,851
Passbook. . . . . . . . . . . 550,075 567,890 638,905 611,606 541,701
Money market deposit accounts. 1,565,682 1,291,501 1,818,426 2,378,087 2,731,338
Term certificate accounts with
original maturities of:
4 weeks to 1 year . . . . 10,144,102 9,358,705 5,159,037 4,334,208 4,762,359
1 to 2 years . . . . . .. 5,012,735 3,599,540 5,636,301 4,614,059 3,494,606
2 to 3 years. . . . . . . 1,587,068 2,128,392 1,997,826 1,448,779 1,246,978
3 to 4 years. . . . . . . 565,997 651,787 817,631 1,149,108 1,267,707
4 years and over . . . . . 1,993,983 2,065,785 2,098,984 2,021,350 1,612,784
Retail jumbo CDs . . . . . . . 360,441 430,647 312,413 109,250 94,651
All other . . . . . . . . . . 1,429 3,503 9,576 19,270 23,271
----------- ----------- ----------- ----------- -----------
Total customer deposits . . $22,099,934 $20,847,910 $19,219,389 $17,422,484 $16,486,246
=========== =========== =========== =========== ===========
</TABLE>
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
(Dollars in thousands)
1996 1995
------------- -------------
<S> <C> <C>
0.00 % -- 4.00 % . . . . . . . . . $ 2,779,651 $ 3,059,070
4.01 % -- 6.00 % . . . . . . . . . 17,133,132 13,333,303
6.01 % -- 8.00 % . . . . . . . . . 2,168,111 4,434,384
8.01 % -- 10.00 % . . . . . . . . . 4,224 6,239
10.01 % -- 12.00 % . . . . . . . . . 14,716 14,814
12.01 % -- 14.00 % . . . . . . . . . 100 100
------------- -------------
$22,099,934 $20,847,910
============= =============
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
CUSTOMER DEPOSIT ACTIVITIES (continued)
The table below shows the maturities of customer deposits at December 31,
1996 by interest rate.
<TABLE>
<CAPTION>
TABLE 3
Customer Deposit Maturities
by Interest Rate
(Dollars in thousands)
2001 and
1997(a) 1998 1999 2000 thereafter Total
------------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
0.00 % -- 4.00 % $ 2,757,072 $ 20,651 $ 1,928 $ -0- $ -0- $ 2,779,651
4.01 % -- 6.00 % 15,498,802 1,186,493 267,777 81,481 98,579 17,133,132
6.01 % -- 8.00 % 1,185,109 304,785 539,946 80,349 57,922 2,168,111
8.01 % -- 10.00 % 1,854 1,748 601 21 -0- 4,224
10.01 % -- 12.00 % 84 5,184 84 84 9,280 14,716
12.01 % -- 14.00 % 100 -0- -0- -0- -0- 100
------------- ------------- ----------- ------------- ----------- -------------
$ 19,443,021 $ 1,518,861 $ 810,336 $ 161,935 $ 165,781 $ 22,099,934
============= ============= =========== ============ =========== =============
</TABLE>
(a) Includes passbook, checking, and money market deposit accounts, which have
no stated maturity.
As of December 31, 1996 the aggregate amount outstanding of time
certificates of deposits in amounts of $100,000 or more was $2.4 billion, of
which, $360 million were jumbo CDs. The following table presents the maturity of
these time certificates of deposit at December 31, 1996.
<TABLE>
<CAPTION>
TABLE 4
Maturities of Time Certificate of Deposit Equal to or Greater than $100,000
(Dollars in thousands)
<S> <C>
3 months or less $ 976,422
Over 3 months through 6 months 537,848
Over 6 months through 12 months 540,317
Over 12 months 331,554
------------
$ 2,386,141
============
</TABLE>
During 1996 and years prior, the Company did not use brokers to acquire
certificates of deposit. Beginning in January 1997, the Company began a program
to use brokers to acquire certificates of deposit.
More information regarding customer deposits is included in Note J to the
Financial Statements included in Item 14.
<PAGE>
ITEM 1. BUSINESS (Continued)
BORROWINGS
The Company generally may borrow from the FHLB of San Francisco upon the
security of a) the capital stock of the FHLB owned by the Company, b) certain of
its residential mortgage loans or c) certain other assets (principally
obligations of, or guaranteed by, the United States Government or a federal
agency). The Company uses FHLB borrowings, also known as "advances" to
supplement cash flow and to provide funds for loan origination activities.
Advances offer strategic advantages for asset-liability management, including
long-term maturities and, in certain cases, prepayment at the Company's option.
Each advance has a specified maturity and interest rate, which may be fixed or
variable, as negotiated with the FHLBs. At December 31, 1996, the Company had
$8.8 billion in FHLB advances outstanding, compared to $6.4 billion at yearend
1995.
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. At maturity, the borrowings are repaid (by
repurchase of the same securities) and the same securities are returned to the
Company.
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 $1.9
billion at December 31, 1996, compared to $1.8 billion at yearend 1995. The $1.9
billion balance at December 31, 1996 includes $750 million in FHLB of San
Francisco MBS Reverse Repos with maturities in 1997 and 1998.
<PAGE>
ITEM 1. BUSINESS (Continued)
BORROWINGS (continued)
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. In December 1996, the FASB issued Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" (SFAS 127), which will delay the effective
date for portions of SFAS 125 for one year. The impact of SFAS 125 and SFAS 127
on the Company's financial condition and results of operations is not expected
to be material.
At December 31, 1996, Golden West, at the parent level, had principal
amounts outstanding of $1.1 billion of subordinated debt, of which $115 million
matures in 1997. As of December 31, 1996, 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.
At December 31, 1996, Golden West had on file a registration statement with
the Securities and Exchange Commission for the sale of up to $300 million of
subordinated notes.
World currently has on file a shelf registration with the OTS for the
issuance of $2.0 billion of unsecured medium-term notes, all of which was
available for issuance as of December 31, 1996. The Association had $590 million
of medium-term notes outstanding at December 31, 1996, under prior registrations
compared to $1.6 billion at yearend 1995. As of December 31, 1996, 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,
1996, was available for issuance. As of December 31, 1996, the Association had
outstanding a total of $200 million of subordinated notes, of which $100 million
matures in 1997. As of December 31, 1996, 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)
During November 1996, WFSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of December 31, 1996, WFSB's medium-term notes were
rated A1 and A+ from Moody's and S&P, respectively.
The table below sets forth the composition of the Company's borrowings at
December 31.
<TABLE>
<CAPTION>
TABLE 5
Composition of Borrowings
(Dollars in thousands)
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
FHLB advances. . . . . . . . . $ 8,798,433 $ 6,447,201 $ 6,488,418 $ 6,281,691 $ 5,499,363
Reverse repurchase agreements. 1,614,763 1,752,171 316,865 205,821 372,409
Dollar reverse repurchase
agreements. . . . . . . . 293,363 65,772 284,956 237,053 184,301
Medium-term notes . . . . . . 589,845 1,597,507 1,164,079 676,540 81,267
Federal funds purchased . . . -0- -0- 250,000 -0- -0-
Subordinated debt. . . . . . . 1,323,996 1,322,392 1,221,559 1,220,061 921,701
------------- ------------ ------------ ------------ -------------
Total borrowings. . . . . $ 12,620,400 $ 11,185,043 $ 9,725,877 $ 8,621,166 $ 7,059,041
============ ============ ============ ============ =============
Weighed average interest rate
of total borrowings . . . 5.80% 6.15% 5.85% 4.69% 5.58%
============ ============ ============ ============ =============
</TABLE>
More information concerning the borrowings of the Company is included in
Notes K, L, M, and N 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, 1996, and 1995.
The tables on the following two pages set forth the Company's loan
portfolio by state as of December 31, 1996, and 1995.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 6
Loan Portfolio by State
December 31, 1996
(Dollars in thousands)
Residential
Real Estate Commercial Loans
---------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Loans (a) Portfolio
- ------------------- ------------- ---------- -------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
California $ 19,852,265 $3,379,929 $ 253 $ 56,344 $ 23,288,791 69.28%
Illinois 1,047,867 186,720 -0- 1,799 1,236,386 3.68
Texas 1,122,383 111,652 575 1,576 1,236,186 3.68
Colorado 969,197 242,594 -0- 7,149 1,218,940 3.63
New Jersey 1,051,639 408 -0- 6,653 1,058,700 3.15
Florida 1,015,879 20,583 116 951 1,037,529 3.09
Washington 414,052 356,721 -0- 757 771,530 2.30
Arizona 618,116 50,949 -0- 585 669,650 1.99
Virginia 491,967 8,600 -0- 1,465 502,032 1.49
Pennsylvania 481,823 4,263 -0- 3,661 489,747 1.46
Connecticut 407,189 -0- -0- 23 407,212 1.21
Maryland 327,128 2,198 -0- 548 329,874 0.98
Oregon 213,484 11,117 -0- 2,735 227,336 0.68
Nevada 181,105 1,121 -0- -0- 182,226 0.54
Utah 150,048 60 -0- 1,790 151,898 0.45
Kansas 144,576 4,926 -0- 193 149,695 0.45
Minnesota 136,221 8,385 -0- -0- 144,606 0.43
Wisconsin 97,589 3,905 -0- -0- 101,494 0.30
Missouri 70,411 6,557 -0- -0- 76,968 0.23
Massachusetts 68,660 -0- -0- 20 68,680 0.20
New York 48,519 -0- -0- -0- 48,519 0.14
Washington DC 42,466 -0- -0- -0- 42,466 0.13
Georgia 35,703 -0- -0- 1,786 37,489 0.11
New Mexico 34,390 -0- -0- -0- 34,390 0.10
Idaho 25,727 -0- -0- -0- 25,727 0.08
Ohio 17,385 2,267 203 4,360 24,215 0.07
Delaware 22,683 -0- -0- -0- 22,683 0.07
North Carolina 7,812 228 -0- 500 8,540 0.03
South Dakota 6,309 -0- -0- -0- 6,309 0.02
Other 12,011 11 -0- 4,629 16,651 0.03
------------- ---------- ------- ----------- -------------- --------
Totals $ 29,114,604 $4,403,194 $ 1,147 $ 97,524 33,616,469 100.00%
============= ========== ======= =========== ========
SFAS 91 deferred loan fees (58,431)
Loan discount on purchased loans (4,331)
Undisbursed loan funds (3,920)
Allowance for loan losses (195,702)
Loans to facilitate (LTF) interest reserve (536)
Troubled debt restructured (TDR) interest reserve (6,640)
Loans on customer deposits 31,936
-------------
Total loan portfolio and loans securitized with FNMA with recourse 33,378,845
Loans securitized with FNMA with recourse (3,265,424)(b)
-------------
Total loan portfolio $ 30,113,421
=============
</TABLE>
(a) The Company has no commercial loans.
(b) During 1995 and 1996, loans amounting to $3.6 billion were securitized
with full recourse into Federal National Mortgage Association (FNMA)
mortgage-backed securities. The December 31, 1996 balances of these FNMA
mortgage-backed securities are reflected in the amounts above.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
<TABLE>
<CAPTION>
TABLE 7
Loan Portfolio by State
December 31, 1995
(Dollars in thousands)
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
============
</TABLE>
(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.
<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
(Dollars in thousands)
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Loans collateralized primarily
by first deeds of trusts:
One-to four-family units . $ 25,862,898 $24,071,421 $23,217,564 $20,197,613 $18,487,247
Over four-family units. . . 4,403,389 4,205,050 3,946,446 3,785,673 3,509,105
Commercial real estate. . . 97,852 122,396 134,189 153,396 176,900
Construction loans. . . . . -0- 1,471 -0- 580 580
Land. . . . . . . . . . . . 1,147 1,511 1,851 2,407 1,763
Loans on customer deposits . . 31,936 33,279 30,460 32,012 33,230
Less:
Undisbursed loan funds. . . 3,920 3,568 2,781 1,882 2,687
Unearned fees and discounts 69,938 88,194 105,314 112,751 109,446
Unamortized discount arising
from acquisitions . . . 14,241 20,025 27,146 37,779 57,092
Allowance for loan losses. . 195,702 141,988 124,003 106,698 70,924
------------ ----------- ----------- ----------- -----------
$ 30,113,421 $28,181,353 $27,071,266 $23,912,571 $21,968,676
============ =========== =========== =========== ===========
</TABLE>
At December 31, 1996, 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, 1996.
TABLE 9
Loans Due After One Year
(Dollars in thousands)
Adjustable Rate $27,131,330
Fixed Rate 2,924,484
-----------
$30,055,814
===========
The table on the following page sets forth information concerning new loans
made by the Company during 1996, 1995, and 1994 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
(Dollars in thousands)
1996 1995 1994
-------------------- ----------------------------- ------------------------------
No. of % of No. of % of No. of % of
Type Loans Amount Total Loans Amount Total Loans Amount Total
---------------- ------- ----------- ------ ------- ---------- ------ ------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
(one unit) 46,225 $6,268,160 89.4% 38,742 $5,274,785 88.7% 42,543 $5,769,339 86.9%
Residential
(2 to 4 units) 1,821 236,304 3.4 1,679 223,177 3.7 2,194 307,480 4.6
Residential
(5 or more units) 978 507,977 7.2 898 451,102 7.6 1,073 560,834 8.5
Commercial 1 121 0.0 -0- -0- 0.0 -0- -0- 0.0
------ ---------- ----- ------ ---------- ----- ------ ---------- -----
Totals 49,025 $7,012,562 100.0% 41,319 $5,949,064 100.0% 45,810 $6,637,653 100.0%
====== ========== ===== ====== ========== ===== ======= =========== =====
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------ ----------------------- ------ -----------------------
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 32,553 $4,607,852 65.7% 28,343 $4,046,605 68.0% 26,973 $3,941,719 59.4%
Refinance 16,472 2,404,710 34.3 12,976 1,902,459 32.0 18,837 2,695,934 40.6
------ ---------- ----- ------ ---------- ----- ------ ---------- -----
Totals 49,025 $7,012,562 100.0% 41,319 $5,949,064 100.0% 45,810 $6,637,653 100.0%
====== ========== ===== ====== ========== ===== ====== ========== =====
</TABLE>
Note: During 1996, 1995, and 1994, the Company also purchased $5 million, $31
million, and $69 million, respectively, of residential loans (not included
above) of which $3 million, $26 million, and $60 million, respectively, were on
one-unit residential properties.
New loan originations in 1996, 1995, and 1994 amounted to $7.0 billion,
$5.9 billion, and $6.6 billion, respectively. Refinanced loans constituted 34%
of new loan originations in 1996 compared to 32% in 1995 and 41% in 1994. The
increase in loan volume in 1996 occurred because rates on new fixed-rate
mortgages generally remained above the 8% level during 1996, while the starting
rates on ARMs, the Company's principal product, remained low and more
affordable. 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 total portfolio growth for the years ended December
31, 1996, and 1995, were $1.9 billion or 7% and $1.1 billion or 4%,
respectively. During 1996 and 1995, the Company securitized with recourse $1.3
billion and $2.3 billion, respectively, of adjustable rate mortgages into FNMA
COFI-indexed mortgage-backed securities (for further information see
mortgage-backed securities section on page 26). Had there not been $3.6 billion
of loans securitized into MBS during 1996 and 1995, the loan portfolio growth
for 1996 would have been $3.0 billion or 10% and the loan portfolio growth in
1995 would have been $3.3 billion or 12%.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
The primary source of mortgage originations is loans secured by residential
properties in California. Loans originated in California were $3.5 billion in
1996 compared to $3.1 billion in 1995 and $4.1 billion in 1994. In 1996, 50% of
total originations were on California residential property compared to 53% in
1995 and 62% in 1994. The five largest states, other than California, for
originations for the year ended December 31, 1996 were Florida, Texas, Illinois,
Colorado, 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 1996 as
compared to 1995 due to increased loan volume in markets outside of California.
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.
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 readily available to, 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 offers adjustable rate mortgages and
this type of mortgage is the Company's primary real estate loan. The portion of
the mortgage portfolio (excluding mortgage-backed securities) composed of
rate-sensitive loans was 91% at yearend 1996 compared to 90% at yearend 1995 and
89% at yearend 1994. Golden West's ARM originations constituted approximately
90% of new mortgage loans made by the Company in 1996, compared with 93% in 1995
and 1994.
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 one to 36 months. (However, the borrower must qualify
at the initial fully-indexed contract rate.)
The weighted average maximum lifetime cap rate on the Company's ARM loan
portfolio was 12.90%, or 5.64% above the actual weighted average rate at
December 31, 1996, versus 13.11%, or 5.62% above the weighted average rate at
yearend 1995.
Approximately $5.5 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, 1996, $654 million ARM loans had
reached their rate floors. The weighted average floor rate on the loans that had
reached their floor was 7.75% at yearend 1996 compared to 7.85% at yearend 1995.
Without the floor, the average yield on these loans would have been 7.10% at
December 31, 1996 and 7.35% at December 31, 1995.
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.
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
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
of single-family residences. During 1996, 1995 and 1994, 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
1996, 6% of loans originated were in excess of 80% of the appraised value of the
residence compared to 6% and 8% in 1995 and 1994, respectively. 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, 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 continues to sell most of its fixed-rate originations. Loans
originated for sale were $477 million, $169 million, and $94 million for the
years ended December 31, 1996, 1995, and 1994, respectively. The Company sold
$485 million, $142 million, and $146 million of these loans during 1996, 1995,
and 1994, respectively. The Company recognized pre-tax gains of $11.1 million in
1996 compared to $443 thousand in 1995 and $1.7 million in 1994. Included in the
$11.1 million gain in 1996 is $10.8 million due to the capitalization of
mortgage servicing rights (see page 18 for further information). The loans held
for sale portfolio had a balance of $15 million at December 31, 1996, and is
carried at the lower of cost or market. At December 31, 1996, the balance of
loans sold with recourse was $518 million and the reserve for the recourse
liability had a balance of $602 thousand.
At December 31, 1996, the Company was engaged in servicing approximately
$4.6 billion of loan participations and whole loans for others including $3.8
billion of loans serviced for FNMA with recourse. For the year ended December
31, 1996, fees received for such servicing activities totaled $13 million, or
approximately one-half of one percent of total revenues compared to $7 million
or approximately three-tenths of one percent of total revenues for the year
ended December 31, 1995.
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 1996, 1995, and 1994 amounted to $5 million, $31 million, and
$69 million, respectively.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
Loan repayments consist of monthly loan amortization, loan payoffs, and
loan refinances. During 1996, 1995, and 1994, repayments amounted to $3.1
billion, $2.3 billion, and $3.2 billion, respectively. The increase in
repayments in 1996 as compared to 1995 was due to higher mortgage payoffs and
higher refinances within the portfolio as well as an increase in the portfolio
balance. The 1996 increase would have been even higher if the Company had not
securitized $3.6 billion of loans into MBS during the 1995 and 1996. The
decrease in repayments in 1995 compared to 1994 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 1996 and 1995, 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
1996 1995 1994 1993 1992
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Weighted average interest rate on new real
estate loans originated (a) 7.59% 7.56% 6.44% 6.86% 8.06%
Weighted average loan fees received on new
real estate loans originated (a) .25% .25% .29% .59% .81%
</TABLE>
(a) excludes loans purchased
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122). SFAS
122 amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities," to require that any financial institution
participating in the secondary mortgage market recognize, as separate assets,
rights to service mortgage loans for others when those rights are acquired
through either the purchase or origination of mortgage loans which are
subsequently sold or securitized. SFAS 122 also requires that financial
institutions participating in the secondary mortgage market assess capitalized
mortgage servicing rights based on the fair value of those rights on a
disaggregated basis. For the year ended December 31, 1996, the Company
recognized gains of $11 million on the sale of loans due to the capitalization
of servicing rights under SFAS 122. After $2 million of amortization, the
balance at December 31, 1996 of the capitalized servicing rights was $9 million.
<PAGE>
ITEM 1. BUSINESS (Continued)
LENDING ACTIVITIES (continued)
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.
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.
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, 1996, 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 troubled debt restructured (TDRs) and the various ratios to total
assets at December 31.
<TABLE>
<CAPTION>
TABLE 12
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
1996 1995 1994 1993 1992
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 373,157 $ 314,086 $ 284,103 $ 330,062 $ 263,065
Real estate acquired
through foreclosure 82,075 75,158 70,981 62,724 56,642
Loans in-substance foreclosed -0- -0- -0- -0- 9,351
Real estate in judgment 416 443 390 1,366 1,030
----------- ------------ ----------- ----------- -----------
Total nonperforming assets $ 455,648 $ 389,687 $ 355,474 $ 394,152 $ 330,088
=========== ============ =========== =========== ===========
TDRs $ 84,082 $ 45,222 $ 72,827 $ 37,190 $ 13,038
=========== ============= ============ =========== ===========
Ratio of nonperforming
assets to total assets 1.21% 1.11% 1.12% 1.37% 1.27%
=========== ============ ============ =========== ===========
Ratio of TDRs to total assets .22% .13% .23% .13% .06%
=========== ============ ============ =========== ===========
Ratio of NPAs and TDRs to
total assets 1.43% 1.24% 1.35% 1.50% 1.33%
=========== ============ ============ =========== ===========
</TABLE>
The increase in NPAs during 1996 reflects the continued weakness in the
California housing market and increased bankruptcies nationwide. The level of
NPAs during 1993 through 1995 remained relatively flat even though the loan
portfolio 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 $20 million in 1996, $18 million in 1995, and $17
million in 1994.
The Company's troubled debt restructured were $84 million, or 0.22% of
assets, at December 31, 1996, compared to $45 million, or 0.13% of assets, at
yearend 1995 and $73 million, or 0.23% of assets, at yearend 1994. The Company's
TDRs are made up of loans on which delinquent payments have been capitalized or
on which temporary interest rate reductions have been made, primarily to
customers negatively impacted by adverse economic conditions. Interest foregone
on TDRs amounted to $1.7 million in 1996 compared to $1.8 million in 1995 and
$811 thousand in 1994.
The tables on the following two pages show the Company's nonperforming
assets by state at December 31, 1996, and 1995.
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
<TABLE>
<CAPTION>
TABLE 13
Nonperforming Assets by State
December 31, 1996
(Dollars in thousands)
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+ Land Real Estate NPAs(b) Loans
- ----------------- ----------- ----------- ----------- ---------- --------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California $ 287,869 $ 21,560 $ 2,385 $ 69,006 $ 9,156 $ 475 $ 2,175 $392,626 1.69%
Illinois 5,487 223 -0- 247 472 -0- -0- 6,429 0.52
Texas 5,258 -0- -0- 429 -0- -0- -0- 5,687 0.46
Colorado 1,881 -0- 3,090 -0- -0- -0- -0- 4,971 0.41
New Jersey 12,593 -0- 1,876 1,194 -0- -0- -0- 15,663 1.48
Florida 6,263 -0- 267 411 -0- -0- -0- 6,941 0.67
Washington 1,903 -0- -0- -0- -0- -0- -0- 1,903 0.25
Arizona 1,280 -0- -0- -0- -0- -0- -0- 1,280 0.19
Virginia 1,464 -0- -0- 368 -0- -0- -0- 1,832 0.36
Pennsylvania 4,606 -0- 6 203 -0- -0- -0- 4,815 0.98
Connecticut 2,864 -0- -0- 94 -0- -0- -0- 2,958 0.73
Maryland 1,956 -0- -0- 98 -0- -0- -0- 2,054 0.62
Oregon 555 -0- -0- -0- -0- -0- -0- 555 0.24
Nevada 1,348 -0- -0- -0- -0- -0- -0- 1,348 0.74
Utah 561 -0- -0- -0- -0- -0- -0- 561 0.37
Kansas 950 40 -0- -0- -0- -0- -0- 990 0.66
Minnesota 586 -0- -0- -0- -0- -0- -0- 586 0.41
Wisconsin 226 -0- -0- -0- -0- -0- -0- 226 0.22
Missouri 504 231 -0- 147 -0- -0- -0- 882 1.15
Massachusetts -0- -0- 20 -0- -0- -0- -0- 20 0.03
New York 4,057 -0- -0- 113 -0- -0- -0- 4,170 8.59
Washington DC -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Georgia 995 -0- -0- -0- -0- -0- -0- 995 2.65
New Mexico -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Idaho -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Ohio 61 -0- 58 -0- -0- -0- -0- 119 0.49
Delaware 59 -0- -0- -0- -0- -0- -0- 59 0.26
North Carolina -0- -0- -0- -0- -0- -0- -0- -0- 0.00
South Dakota -0- -0- -0- -0- -0- -0- -0- -0- 0.00
Other 75 -0- -0- -0- -0- -0- -0- 75 0.45
---------- ---------- ---------- ---------- -------- -------- ---------- -------- -------
Totals $ 343,401 $ 22,054 $ 7,702 $ 72,310 $ 9,628 $ 475 $ 2,175 $457,745 1.36
========== ========== ========== ========== ======== ======== ==========
REO general valuation allowance (2,097) (0.00)
--------- ------
$ 455,648 1.36%
========= ======
</TABLE>
(a) Non-accruals loans are 90 days or more past due and have no unpaid interest
accrued. (b) During 1995 and 1996, loans amounting to $3.6 billion were
securitized with full recourse into FNMA mortgage-backed securities. The
December 31, 1996 balance of the related nonperforming assets are reflected in
the amounts above.
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
<TABLE>
<CAPTION>
TABLE 14
Nonperforming Assets by State
December 31, 1995
(Dollars in thousands)
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%
======== =======
</TABLE>
(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.
<PAGE>
ITEM 1. BUSINESS (Continued)
ASSET QUALITY (continued)
At December 31, 1996, approximately $360 million of the Company's loans
were 30 to 89 days past due and an additional $152 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 or loans sold with
recourse, and on real estate owned when any significant and permanent decline in
value is identified. The Company also utilizes a methodology, based on trends in
the basic portfolio, for monitoring and estimating loan losses that is based on
both historical experience in the loan portfolio and factors reflecting current
economic conditions. This approach uses a 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
(Dollars in thousands)
1996 1995 1994 1993 1992
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Beginning allowance for loan losses $ 141,988 $ 124,003 $ 106,698 $ 70,924 $ 48,036
Provision charged to expense 84,256 61,190 62,966 65,837 43,218
Less loans charged off (31,239) (44,656) (46,556) (38,475) (21,227)
Add recoveries 697 1,451 895 1,145 897
Reclassification of in-substance foreclosure
allowances -0- -0- -0- 7,267 -0-
---------- ----------- ---------- ---------- -----------
Ending allowance for loan losses $ 195,702 $ 141,988 $ 124,003 $ 106,698 $ 70,924
========== =========== ========== ========== ===========
Ratio of net chargeoffs to average loans
outstanding (including MBS with recourse) .10% .15% .18% .16% .10%
========== =========== ========== ========== ===========
Ratio of allowance for loan losses to
nonperforming assets 43.0% 36.4% 34.9% 27.1% 21.5%
========== =========== ========== =========== ===========
</TABLE>
Chargeoffs decreased in 1996, as compared to 1995, as a result of decreases
in losses on REO property.
<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, United States
government obligations, 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 classifies 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, 1996, 1995, and 1994, the Company had no securities held to maturity.
Securities available for sale increase the Company's portfolio management
flexibility for investments and are reported at fair value. Net unrealized gains
and losses are excluded from earnings and reported net of applicable income
taxes as a separate component of stockholders' equity until realized.
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, 1996, 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.
At December 31, 1996, 1995, and 1994, the Company had securities available
for sale in the amount of $781 million, $902 million, and $1.5 billion,
respectively, including unrealized gains on investment securities available for
sale of $159 million, $117 million, and $23 million, respectively. Gains or
losses on sales of investment securities are realized and recorded in earnings
at the time of sale and are determined by the difference between the net sales
proceeds and the cost of the security, using specific identification, adjusted
for any unamortized premium or discount. The Company has other investments,
which are recorded at cost with any discount or premium amortized using a method
that is not materially different from the interest method.
<PAGE>
ITEM 1. BUSINESS (Continued)
INVESTMENT ACTIVITIES (continued)
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
(Dollars in thousands)
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Certificates of deposit and short-term bank notes $ 149,997 $ 50,000 $ 29,969
U.S Treasury and Government agency obligations 200,844 174,819 637,069
Collateralized mortgage obligations 169,812 407,947 668,128
Commercial paper -0- 50,974 1,269
Equity securities 260,672 218,116 152,410
----------- ----------- -----------
$ 781,325 $ 901,856 $ 1,488,845
=========== =========== ===========
</TABLE>
The weighted average yields on the securities available for sale portfolio
were 6.64%, 5.89%, and 5.24% at December 31, 1996, 1995, and 1994, respectively.
The table below sets forth the composition of the Company's other
investments at December 31.
<TABLE>
<CAPTION>
TABLE 17
Composition of Other Investments
(Dollars in thousands)
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Eurodollar time deposits, at cost $ 102,400 $ -0- $ -0-
Federal funds, at cost 324,432 490,960 152,000
Short-term repurchase agreements collateralized
by mortgage-back securities, at cost 652,000 699,200 382,600
----------- ---------- ----------
$1,078,832 $1,190,160 $ 534,600
=========== ========== ==========
</TABLE>
The weighted average yields on the other investments portfolio were 7.01%,
6.00%, and 5.92% at December 31, 1996, 1995, and 1994, respectively. As of
December 31, 1996, the entire other investments portfolio matures in 1997.
<PAGE>
ITEM 1. BUSINESS (Continued)
MORTGAGE-BACKED SECURITIES
The Company classifies 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, 1996, 1995, and 1994, the Company had mortgage-backed securities
held to maturity in the amount of $4.1 billion, $3.1 billion, and $871 million,
respectively, including $3.3 billion of FNMA MBS subject to full credit recourse
by the Company at December 31, 1996.
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,
1996, 1995, and 1994, the Company had mortgage-backed securities available for
sale in the amount of $227 million, $283 million, and $323 million,
respectively, including unrealized gains on mortgage-backed securities available
for sale of $11 million, $14 million, and $6 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. The Company has securitized certain loans from its held to maturity
portfolio into MBS with recourse which are available to be used as collateral
for borrowings. These MBS are recorded at cost if they are held to maturity and
recorded at fair value if they are available for sale.
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, 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 has been fully amortized as a yield adjustment. During 1996, the Company
transferred an additional $218 million of MBS available for sale to the MBS held
to maturity portfolio for long-term investment.
During 1996 and 1995, the Company securitized $1.3 billion and $2.3
billion, respectively, 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 1996, 1995, and 1994 amounted to $413
million, $210 million, and $311 million, respectively. MBS repayments were
higher in 1996 due to the increase in total MBS outstanding and an increase in
prepayments on underlying mortgages. The decreases in repayments on MBS in 1995
over 1994 were primarily due to decreased prepayments on the underlying
mortgages.
<PAGE>
ITEM 1. BUSINESS (Continued)
MORTGAGE-BACKED SECURITIES (continued)
For information on MBS see Notes D and E to the Financial Statements
included in Item 14.
GOODWILL
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions," (SFAS 72) for goodwill related to acquisitions made prior
to September 30, 1982. Up until 1996, the Company had applied SFAS 72 only to
acquisitions made after September 30, 1982. The adoption of SFAS 72 for goodwill
relating to acquisitions of banking or thrift institutions prior to September
30, 1982, is permitted but not required. SFAS 72 requires, among other things,
that goodwill be amortized over a period no longer than the estimated remaining
life of the acquired long-term interest-earning assets. As a result, the Company
wrote-off goodwill totaling $205.2 million as the cumulative effect of the
change in accounting for goodwill. Financial statements from periods prior to
1996 have not been restated. The Company has been accounting for acquisitions
initiated subsequent to September 30, 1982 in accordance with SFAS 72. The
remaining goodwill from acquisitions subsequent to 1982 amounting to less than
.2% of total assets is not material and has been reclassified to other assets.
The minor amount of continuing goodwill amortization no longer warrants a
separate line item on the Company's Consolidated Statement of Net Earnings and,
therefore, for 1996 and later, will be reclassified to other income.
LONG-LIVED ASSETS AND OTHER INTANGIBLES
The Company 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 1996 and
1995 consolidated financial statements.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during 1996 as a result of
retained earnings and increased market values of securities available for sale.
These increases were partially offset by the $106 million cost of the repurchase
of Company stock. 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
STOCKHOLDERS' EQUITY (continued)
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, 1994 and 1995, through three separate actions, the Company's Board
of Directors' authorized the purchase by the Company of up to 12.2 million
shares of Golden West's common stock. For the period from October 28, 1993
through December 31, 1996, 7.8 million shares had been repurchased and retired
at a cost of $332 million. During 1996, 1.9 million were purchased and retired
at a cost of $106 million. The remaining number of shares authorized for
repurchase is 4.4 million at December 31, 1996.
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.
SFAS 128 - EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS
128 replaces Primary and Fully-diluted Earnings Per Share (EPS) with "Basic EPS"
and "Diluted EPS" for fiscal years ending after December 15, 1997. Basic EPS
will be calculated by dividing net earnings for the period by the
weighted-average common shares outstanding for that period. There will be no
adjustment to the number of outstanding shares for stock options or other
dilutive items as is currently done in the calculation of Primary EPS. Diluted
EPS will take into account the effect of dilutive instruments, such as stock
options, but will use the average share price for the period in determining the
number of incremental shares that are to be added to the weighted average number
of shares outstanding. In contrast, the current, Fully-diluted EPS uses the
period-ending share price, if it exceeds the average price, in the calculation
to determine the number of incremental shares that are to be added. The impact
of SFAS 128 on the Company's financial condition and results of operations is
not expected to be material.
<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, 1996, 1995, and 1994 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, 1996, 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 and for the Years Ended December 31
(Dollars in thousands)
1996 1995 1994
---------------------------- ----------------------------- ----------------------------
End End End
of of of
Average Average Period Averages 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 $ 1,690,498 6.18% 6.88% $ 2,188,929 5.97% 5.96% $ 2,149,385 4.98% 5.42%
Mortgage-back securities 3,392,220 7.26% 7.13% 2,294,360 7.90% 7.41% 1,276,615 8.14% 8.37%
Loans receivable (a) 29,316,590 7.52% 7.43% 27,948,917 7.51% 7.69% 24,963,935 6.61% 6.85%
Invest. in capital stock of FHLB 433,819 6.23% 6.34% 345,837 5.15% 4.92% 328,998 4.89% 4.81%
----------- ----- ----------- ----- ----------- -----
$34,833,127 7.41% $32,778,043 7.41% $28,718,933 6.53%
=========== ===== =========== ===== =========== =====
LIABILITIES
Customer Deposits:
Checking accounts $ 622,011 1.21% 1.71% $ 711,460 1.30% 1.25% $ 730,956 1.30% 1.28%
Savings accounts 1,880,457 2.30% 2.38% 2,073,226 2.32% 2.90% 2,835,339 2.05% 2.92%
Term accounts 18,756,033 5.39% 5.32% 17,526,056 5.66% 5.54% 14,496,937 4.46% 4.98%
---------- ----- ----- ---------- ----- ----- ----------- ----- -----
Total customer deposits 21,258,501 4.99% 4.98% 20,310,742 5.16% 5.15% 18,063,232 3.96% 4.57%
Advances from FHLB 7,343,334 5.57% 5.47% 6,438,791 5.74% 5.70% 6,251,431 4.30% 5.21%
Reverse repurchases 2,013,427 5.86% 5.45% 1,120,860 6.31% 6.15% 574,487 6.55% 6.67%
Other borrowings 2,202,477 7.36% 7.65% 3,030,067 7.14% 7.15% 1,961,828 6.84% 7.25%
---------- ----- ---------- ----- ----------- -----
Interest-bearing liabilities $32,817,739 5.33% $30,900,460 5.52% $26,850,978 4.30%
=========== ===== =========== ===== ============ =====
Net interest margin 2.08% 1.89% 2.23%
===== ===== =====
Net interest income $ 830,960 $ 722,836 $ 721,730
=========== =========== ===========
Net yield on average interest-
earning assets 2.39% 2.21% 2.51%
===== ===== =====
</TABLE>
(a) Includes nonaccrual loans (90 days or more past due).
<PAGE>
ITEM 1. BUSINESS (Continued)
YIELD ON INTEREST-EARNING ASSETS/COST OF FUNDS (continued)
The table below presents the changes for 1996 and 1995 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
(Dollars in thousands)
Increase/Decrease in Income/Expense Due to Changes in
Due to Changes in Volume and Rate (a)
----------------------------------------------------------------
1996 1995 1994 1996 versus 1995 1995 versus 1994
---------- ---------- ---------- ------------------------------- ------------------------------
---------- ---------- ----------
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 $ 104,510 $ 130,595 $ 107,059 $ (31,018) $ 4,933 $ (26,085) $ 2,003 $ 21,533 $ 23,536
Mortgage-backed securities 246,293 181,355 103,927 78,260 (13,322) 64,938 80,356 (2,928) 77,428
Loans receivable 2,203,752 2,097,664 1,649,413 102,804 3,284 106,088 209,769 238,482 448,251
Invest. in capital stock of
Federal Home Loan Banks 27,006 17,827 16,078 5,054 4,125 9,179 845 904 1,749
---------- ---------- ----------
Total interest income 2,581,561 2,427,441 1,876,477
Interest Expense
Customer deposits
Checking accounts $ 7,536 $ 9,258 $ 9,463 $ (1,112) $ (610) $ (1,722) $ (253) $ 48 $ (205)
Savings accounts 43,261 48,033 58,163 (4,437) (335) (4,772) (19,535) 9,405 (10,130)
Term accounts 1,010,617 991,099 646,727 59,545 (40,027) 19,518 150,989 193,383 344,372
---------- ---------- ---------- ---------- -------- --------- --------- -------- --------
Total customer deposits 1,061,414 1,048,390 714,353 53,996 (40,972) 13,024 131,201 202,836 334,037
Advances from Federal Home
Loan Banks 409,040 369,239 268,952 50,004 (10,203) 39,801 8,283 92,004 100,287
Securities sold under
agreements to repurchase 117,960 70,709 37,620 51,897 (4,646) 47,251 34,415 (1,326) 33,089
Other borrowings 162,187 216,267 134,182 (61,188) 7,108 (54,080) 76,009 6,076 82,085
---------- ---------- ---------- ---------- -------- --------- --------- -------- --------
1,750,601 1,704,605 1,155,107
---------- ---------- ----------
Net interest income $ 830,960 $ 722,836 $ 721,370 $ 60,391 $ 47,733 $108,124 $ 43,065 $(41,599) $ 1,466
========== ========== ========== ========== ======== ========= ========= ======== ========
Net interest income
increase (decrease) as a
percentage of average
earning assets (c) 0.17% 0.14% 0.31% 0.13% (0.12%) 0.01%
========== ======== ========= ========= ======== ========
</TABLE>
(a) The change in volume is calculated by multiplying the difference between
the average balance of the current year and the prior year by the prior
year's average yield. The change in rate is calculated by multiplying the
difference between the average yield of the current year and the prior year
by the prior year's average balance. The mixed changes in rate/volume is
calculated by multiplying the difference between the average balance of the
current year and the prior year by the difference between the average yield
of the current year and the prior year. This amount is then allocated
proportionately to the volume and rate changes calculated previously.
(b) The effects of 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).
<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.
THRIFT INDUSTRY
The operations of the thrift industry 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, savings
banks, 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, 1996, 1995, and 1994, World's regulatory average
liquidity ratio was 8%, 8%, and 7%, respectively. WFSB's regulatory average
liquidity ratio was 6% for the months ended December 31, 1996 and 1995,
respectively. World and WFSB exceeded the monthly 5% requirement for all months
during 1996 and 1995, as did World in 1994.
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.
During 1996, federal legislation was enacted to recapitalize the Savings
Association Insurance Fund in order to bring it into parity with the FDIC's
other insurance fund, the Bank Insurance Fund. The new banking law required
members to pay a levy of $4.7 billion to bring the SAIF up to the required
reserve level of 1.25% of insured deposits, but lowered savings and loan deposit
insurance premiums starting in 1997. As a result of this legislation, Golden
West's subsidiary, World Savings and Loan Association, incurred a one-time
charge of $133 million during 1996. Beginning on January 1, 1997, the
assessments paid by the Association to the FDIC will be reduced from $2.30 per
$1,000 in savings balances to $.648 per $1,000. Included in this reduction, is
an adjustment of the assessment for deposit insurance to zero and a reduction in
the assessment for the Financing Corporation (FICO) to $.648 per $1,000 of
deposits. Also, beginning on January 1, 1997, the assessments paid by BIF
insured institutions such as WFSB, with respect to BIF-assessable deposits, will
be increased from $0.00 per $1,000 in savings balances to $.1296 per $1,000. The
increased assessment for BIF-assessable deposits is comprised solely of an
assessment for FICO.
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.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
In addition, the same 1996 federal legislation which recapitalized the
SAIF, also included a provision which directs federal banking regulators to take
appropriate actions to prevent insured depositories from encouraging and
facilitating the shifting of deposits from SAIF to BIF. The provision is the
subject of a notice of proposed rulemaking issued by the FDIC, but it is not
clear how the provision will be enforced or how the proposed rule will appear in
final form.
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 following table summarizes World's regulatory capital ratio and
compares them to the OTS requirements at December 31.
<TABLE>
<CAPTION>
TABLE 20
World Savings and Loan Association
Regulatory Capital Ratios
(Dollars in thousands)
1996 1995
-------------------------------------------------- --------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ---------------------- ----------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,334,813 6.37% $ 314,254 1.50% $ 1,924,910 6.38% $ 452,761 1.50 %
Core 1,334,813 6.37 628,507 3.00 1,924,910 6.38 905,521 3.00
Risk-based 1,655,820 13.91 952,631 8.00 2,243,519 13.40 1,339,177 8.00
</TABLE>
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The following table summarizes WFSB's regulatory capital ratio and
compares them to the OTS requirements at December 31.
<TABLE>
<CAPTION>
TABLE 21
World Savings Bank, a Federal Savings Bank
Regulatory Capital Ratios
(Dollars in thousands)
1996 1995
-------------------------------------------------- -------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
----------------------- ---------------------- ----------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- --------- ----------- --------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,133,016 6.69% $ 254,140 1.50% $ 562,788 14.01% $ 60,247 1.50%
Core 1,133,016 6.69 508,279 3.00 562,788 14.01 120,494 3.00
Risk-based 1,173,583 13.14 714,609 8.00 568,451 26.55 171,305 8.00
</TABLE>
In addition, institutions whose exposure to interest-rate risk as
determined by the OTS is deemed to be above normal may be required to hold
additional risk-based capital. The OTS has determined that World Savings and
WFSB do not have above-normal exposure to interest-rate risk.
The OTS has adopted rules based upon five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. The determination of whether an association falls
into a certain classification depends primarily on its capital ratios. The
tables on the following pages summarize 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, 1996.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
The table below shows a reconciliation of World's equity capital to
regulatory capital at December 31, 1996.
<TABLE>
<CAPTION>
TABLE 22
World Savings and Loan Association
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in thousands)
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 1,101,222
Unrealized gains on securities
available for sale 93,101
-----------
Equity capital $ 1,427,914 $1,427,914 $1,427,914 $1,427,914 $1,427,914 $1,427,914
===========
Unrealized gains on securities
available for sale (93,101) (93,101) (93,101) (93,101) (93,101)
Equity/other investments (2,591)
Subordinated debt 199,510
General valuation allowance 124,088
------------ ------------ ----------- ------------ ------------
Regulatory capital $ 1,334,813 $ 1,334,813 $ 1,334,813 $ 1,334,813 $ 1,655,820
============ ============ =========== ============ ============
Total assets $21,040,890
===========
Adjusted total assets $ 20,950,249 $ 20,950,249 $20,950,249
============ ============ ===========
Risk-weighted assets $ 11,907,883 $ 11,907,883
============ ============
CAPITAL RATIO - ACTUAL 6.79% 6.37% 6.37% 6.37% 11.21% 13.91%
============ ============ ============ =========== ============ ============
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%
============
</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, 1995.
<TABLE>
<CAPTION>
TABLE 23
World Savings and Loan Association
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in thousands)
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 (204,992) (204,992) (204,992) (204,992) (204,992)
Negative goodwill 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%
===========
</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, 1996.
<TABLE>
<CAPTION>
TABLE 24
World Savings Bank, a Federal Savings Bank
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in thousands)
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 1,070,182
Retained earnings 65,731
Unrealized gains on securities
available for sale 654
-----------
Equity capital $ 1,136,717 $1,136,717 $1,136,717 $1,136,717 $1,136,717 $1,136,717
===========
Positive goodwill (3,047) (3,047) (3,047) (3,047) (3,047)
Unrealized gains on
securities
available for sale (654) (654) (654) (654) (654)
General valuation allowance 40,567
----------- ------------ ----------- ------------ -----------
Regulatory capital $ 1,133,016 $ 1,133,016 $ 1,133,016 $ 1,133,016 $ 1,173,583
=========== ============ =========== ============ ============
Total assets $16,929,859
===========
Adjusted total assets $16,942,646 $ 16,942,646 $16,942,646
=========== ============ ===========
Risk-weighted assets $ 8,932,609 $ 8,932,609
============ ============
CAPITAL RATIO - ACTUAL 6.71% 6.69% 6.69% 6.69% 12.68% 13.14%
=========== =========== ============ =========== ============ ============
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%
===========
</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 25
World Savings Bank, a Federal Savings Bank
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in thousands)
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 (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%
===========
</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 26
World Savings and Loan Association
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
1996 1995
------------------------------------------------ -------------------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL CAPITALIZED
---------------------- ----------------------- ----------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- -------- ------------ -------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $1,334,813 6.37% $1,047,512 5.00% $1,924,910 6.38% $1,509,202 5.00%
Tier 1 risk based 1,334,813 11.21 714,473 6.00 1,924,910 11.50 1,004,383 6.00
Total risk-based 1,655,820 13.91 1,190,788 10.00 2,243,519 13.40 1,673,972 10.00
</TABLE>
The table below compares WFSB's regulatory capital to the well capitalized
classification at December 31.
<TABLE>
<CAPTION>
TABLE 27
World Savings Bank, a Federal Savings Bank
Regulatory Capital Compared to Well Capitalized Classification
(Dollars in thousands)
1996 1995
------------------------------------------------ -------------------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL CAPITALIZED
---------------------- ----------------------- ----------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
----------- -------- ------------ -------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $1,133.016 6.69% $ 847,132 5.00% $ 562,788 14.01% $ 200,824 5.00%
Tier 1 risk based 1,133,016 12.68 535,957 6.00 562,788 26.28 128,479 6.00
Total risk-based 1,173,583 13.14 893,261 10.00 568,451 26.55 214,132 10.00
</TABLE>
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.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
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. Distributions beyond these
amounts are allowed only with the specific, prior approval of the OTS, which
World obtained during 1996. 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 proposed capital distributions. For purposes of
capital distributions, the OTS has classified World and WFSB as Tier 1
institutions. World paid a total of $830 million in upstream dividends to Golden
West during 1996.
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, 1996, the maximum amount that World could have loaned to one
borrower (and related entities) was $248 million. At such date, the largest
amount of loans that World had outstanding to any one borrower was $25 million.
At December 31, 1996, the maximum that WFSB could have loaned to one borrower
was $176 million while the largest amount of loans it had to one borrower was
$29 million.
DEPOSITOR PRIORITIES. In the event of the appointment of a receiver of a
federally chartered savings association or a savings bank, 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 Insured Institutions).
Thus, in the event of a liquidation of the Insured Institutions or a similar
event, claims for deposits would have a priority over claims of holders of debt.
As of December 31, 1996, the Insured Institutions had approximately $22.1
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
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
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 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
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. 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,
1996, World and WFSB were in compliance with the QTL test.
TAXATION. 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.
<PAGE>
ITEM 1. BUSINESS (Continued)
REGULATION (continued)
In years prior to 1996, the Association was permitted by the Internal
Revenue Code to deduct from taxable income an annual addition to a reserve for
bad debts subject to certain limitations. In the event distributions (which are
subject to the regulatory restrictions described under "Regulatory Capital") 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.
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 4,028 full-time and 843 permanent part-time
employees at December 31, 1996. 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 has a 300,000 square-foot office complex on an 111-acre site in
San Antonio, Texas. This complex houses its Loan Service, Savings Operations,
and Information Systems Departments.
The Company owns 197 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.
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.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to 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, or is otherwise required to be discussed pursuant to Item 103 of
Regulation S-K.
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 1996 and 1995 were as follows:
TABLE 28
Common Stock Price Range
1996 1995
---------------------- ---------------------
First Quarter 49 - 55 7/8 34 3/4 - 39 3/4
Second Quarter 50 - 56 1/2 38 - 50 1/4
Third Quarter 51 - 58 3/8 43 3/4 - 52 1/2
Fourth Quarter 59 1/2 - 68 3/4 49 3/8 - 57 1/2
PER SHARE CASH DIVIDENDS DATA
Golden West's cash dividends paid per share for 1996 and 1995 were as
follows:
TABLE 29
Cash Dividends Per Share
1996 1995
--------- ---------
First Quarter $ .095 $ .085
Second Quarter $ .095 $ .085
Third Quarter $ .095 $ .085
Fourth Quarter $ .110 $ .095
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. Distributions
beyond these amounts are allowed only with the specific, prior approval of the
OTS.
<PAGE>
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS (Continued)
At December 31, 1996, $252 million of the Insured Institutions' retained
earnings had not been subjected to federal income taxes due to the application
of the bad debt deduction and $1.2 billion of the Insured Institutions' 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 18, 1997, 57,277,564 shares of Golden
West's Common Stock were outstanding and were held by 1,611 stockholders of
record. At the close of business on March 18, 1997, the Company's common stock
price was 67.875.
The transfer agent and registrar for the Golden West Common Stock is
ChaseMellon Shareholder Services, L.C., San Francisco, California 94101.
The Securities and Exchange Commission (Commission) maintains a web site
which contains reports, proxy and information statements and other information
pertaining to registrants that file electroncially with the Commission including
Golden West. The address is http://www.sec.gov.
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 30
Five Year Consolidated Summary of Operations
(Dollars in thousands except per share figures)
Year Ended December 31
---------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on loans $2,203,752 $2,097,664 $1,649,413 $1,637,764 1,740,845
Interest on mortgage-backed securities 246,293 181,355 103,927 138,874 178,010
Interest on dividends and investments 131,516 148,422 123,137 93,534 65,655
---------- ----------- ----------- ---------- -----------
2,581,561 2,427,441 1,876,477 1,870,172 1,984,510
Interest Expense:
Interest on customer deposits 1,061,414 1,048,390 714,353 705,700 844,710
Interest on advances and other borrowings 689,187 656,215 440,754 431,714 422,470
---------- ----------- ---------- ---------- -----------
1,750,601 1,704,605 1,155,107 1,137,414 1,267,180
---------- ----------- ---------- ---------- -----------
Net interest income 830,960 722,836 721,370 732,758 717,330
Provision for loan losses 84,256 61,190 62,966 65,837 43,218
---------- ----------- ---------- ---------- -----------
Net interest income after provision for
loan losses 746,704 661,646 658,404 666,921 674,112
Non-Interest Income:
Fees 38,558 29,200 28,816 31,061 24,458
Gain (loss) on the sale of securities,
mortgage-backed securities, and loans 11,954 (493) (120) 22,541 4,058
Other 24,387 13,833 8,790 8,440 12,601
---------- ----------- ---------- ---------- -----------
74,899 42,540 37,486 62,042 41,117
Non-interest Expense
General and administrative expenses
Personnel 163,243 151,352 150,220 132,472 118,553
Occupancy 50,171 48,737 44,472 40,443 38,521
Deposit insurance 167,528 44,993 40,220 35,706 37,621
Advertising 9,277 9,850 10,761 10,782 8,968
Other 63,203 61,260 57,246 53,764 47,212
----------- ------------ ----------- ----------- -----------
453,422 316,192 302,919 273,167 250,875
Amortization of goodwill arising from acquisitions -0- 2,762 2,589 (1,586) 661
----------- ------------ ----------- ---------- -----------
453,422 318,954 305,508 271,581 251,536
----------- ------------ ----------- ---------- -----------
Earnings before taxes on income 368,181 385,232 390,382 457,382 463,693
Taxes on income (1,732) 150,693 159,933 183,528 180,155
----------- ----------- ----------- ---------- -----------
Earnings before cumulative effect of change in
accounting for goodwill 369,913 234,539 230,449 273,854 283,538
Cumulative effect of change in accounting
for goodwill (205,242) -0- -0- -0- -0-
----------- ----------- ---------- ---------- -----------
Net earnings $ 164,671 $ 234,539 $ 230,449 $ 273,854 $ 283,538
=========== =========== ========== ========== ===========
Earnings per share before cumulative effect of
change in accounting for goodwill $ 6.33 $ 4.00 $ 3.71 $ 4.28 $ 4.46
Cumulative effect of change in accounting
for goodwill (3.49) 0.00 0.00 0.00 0.00
----------- ----------- ---------- ---------- -----------
Net earnings per share $ 2.84 $ 4.00 $ 3.71 $ 4.28 $ 4.46
=========== =========== ========== ========== ===========
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 31
Five Year Summary of Financial Condition
(Dollars in thousands)
At December 31
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Assets $ 37,730,598 $ 35,118,156 $ 31,683,741 $ 28,829,288 $ 25,890,921
Cash, securities available for
sale, and other investments 2,078,876 2,310,711 2,265,886 2,417,871 1,179,868
Mortgage-backed securities 4,293,582 3,409,341 1,194,378 1,522,536 1,791,615
Loans receivable 30,113,421 28,181,353 27,071,266 23,912,571 21,968,676
Goodwill arising from acquisitions (a) -0- 138,562 136,245 136,754 155,873
(a)
Customer Deposits 22,099,934 20,847,910 19,219,389 17,422,484 16,486,246
Advances from FHLBs 8,798,433 6,447,201 6,488,418 6,281,691 5,499,363
Securities sold under agreements
to repurchase and other 1,908,126 1,817,943 601,821 1,119,414 637,977
borrowings
Medium-term notes 589,845 1,597,507 1,164,079 676,540 81,267
Subordinated debt 1,323,996 1,322,392 1,221,559 1,220,061 921,701
Stockholders' equity 2,350,477 2,278,353 2,000,274 2,065,604 1,727,398
</TABLE>
(a) During 1996, the Company adopted SFAS 72 for goodwill related to
acquisitions made prior to September 30, 1982. As a result, the Company
wrote-off goodwill totaling $205 million as the cumulative effect of the
change in accounting for goodwill. The remaining goodwill from acquisitions
subsequent to 1982 amounting to less than .2% of total assets is not
material and has been reclassified to other assets.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
<TABLE>
<CAPTION>
TABLE 32
Five Year Selected Other Data
(Dollars in thousands)
Year Ended December 31
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
New real estate loans originated $ 7,012,562 $ 5,949,064 $ 6,637,653 $ 6,411,877 $ 6,455,090
Average yield on new real estate loans 7.59% 7.56% 6.44% 6.86 % 8.06%
Customer deposits increase (decrease) $ 1,252,024 $ 1,628,521 $ 1,796,905 $ 936,238 $ (332,264)
($)
Customer deposits increase (decrease) 6.0% 8.5% 10.3% 5.7% (2.0%)
(%)
Net earnings/average net worth (ROE) 7.46% (a) 10.98% 11.11% 14.68% 17.86%
Net earnings/average assets (ROA) .46% (a) .69% .78% .98% 1.12%
General and administrative expense
(G&A) to:
Total revenues 17.07% (a) 12.80% 15.83% 14.14% 12.39%
Average assets 1.26% (a) .93% 1.02% .97% .99%
Ratio of earnings to fixed charges:
(b)
Including interest on customer 1.21x 1.23x 1.34x 1.40x 1.36x
deposits
Excluding interest on customer 1.53x 1.58x 1.87x 2.05x 2.08x
deposits
Yield on loan portfolio 7.43% 7.69% 6.85% 6.73% 7.52%
Yield on MBS 7.13% 7.41% 8.37% 8.67% 9.30%
Yield on investments 6.88% 5.96% 5.42% 3.80% 4.17%
Yield on earning assets 7.37% 7.56% 6.81% 6.61% 7.52%
Cost of deposits 4.98% 5.15% 4.57% 3.92% 4.40%
Cost of borrowings 5.80% 6.15% 5.85% 4.69% 5.58%
Cost of funds 5.28% 5.50% 5.00% 4.18% 4.75%
Spread 2.09% 2.06% 1.81% 2.43% 2.77%
Nonperforming asset/total assets (c) 1.21% 1.11% 1.12% 1.37% 1.27%
Stockholders' equity/total assets 6.23% 6.49% 6.31% 7.16% 6.67%
Average stockholders' equity/average 6.15% 6.30% 6.98% 6.65% 6.27%
assets
World Savings and Loan Association
(World)
regulatory capital ratios: (d)
Tangible capital 6.37% 6.38% 6.26% 7.27% 6.54%
Core capital 6.37% 6.38% 6.64% 8.02% 7.54%
Risk-based capital 13.91% 13.40% 13.54% 17.42% 16.28%
World Savings Bank, FSB (WFSB)
regulatory capital ratios: (d)
Tangible capital 6.69% 14.01% --- --- ---
Core capital 6.69% 14.01% --- --- ---
Risk-based capital 13.14% 26.55% --- --- ---
Number of savings branch offices 244 233 237 227 227
Cash dividends per share $ .395 $ .35 $ .31 $ .27 $ .23
Dividend payout ratio 13.91% 8.75% 8.34% 6.31% 5.16%
</TABLE>
(a) The numbers for the year ended December 31, 1996 include the 1996 SAIF
assessment of $133 million, the special tax credit of $139 million, and
the $205 million cumulative effect of the change in accounting for
goodwill. The ratios for the year ended December 31, 1996, excluding the
three 1996 nonrecurring items are: ROE 13.97%, ROA .86%, G&A to total
revenues 12.08%, and G&A to average assets .89%.
(b) Earnings represent income from continuing operations before income taxes,
cumulative effect of change in accounting, and fixed charges. Fixed
charges include interest expense and amortization of debt expense.
(c) The definition of nonperforming assets includes nonaccrual loans (loans
that are 90 days or more past due) and real state owned acquired through
foreclosure.
(d) The requirements are 1.5%, 3.0%, and 8.0% for tangible, core, and
risk-based capital, respectively. World and WFSB currently meet their
fully phased-in capital requirement.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For the year ended December 31, 1996, Golden West Financial Corporation
(Golden West or Company) reported net earnings of $165 million, or $2.84 per
share, compared with $235 million, or $4.00 per share, in 1995 and $230 million,
or $3.71 per share, in 1994. Net earnings for 1996 were significantly influenced
by three nonrecurring items: the federally mandated recapitalization of the
Savings Association Insurance Fund (SAIF) which resulted in a one-time charge of
$133 million, or $1.34 per share on an after-tax basis (see Deposit Insurance
section on page 67); the recognition of $139 million, or $2.40 per share, of tax
benefits arising from a prior year acquisition (see Taxes on Income section on
page 67); and the adoption of Statement of Financial Accounting Standards No.
72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions,"
(SFAS 72) for goodwill related to the Company's acquisitions prior to September
30, 1982, which resulted in the write-off of $205 million, or $3.49 per share,
of goodwill effective January 1, 1996 (see Change in Accounting for Goodwill
section on page 58). Without the effect of these three items, net earnings for
the year ended December 31, 1996 would have been $308 million, or $5.31 per
share. If Golden West had not adopted a change in accounting for goodwill in
1996, net income would have included goodwill amortization of $12 million, or
$.21 per share, reducing earnings on a pro forma basis to $296 million, or $5.10
per share.
Golden West's principal subsidiaries are World Savings and Loan Association
(World Savings or Association), and World Savings, a Federal Savings Bank
(WFSB), which was acquired in January of 1995, (collectively, the insured
subsidiaries). World Savings and WFSB are headquartered in Oakland, California.
World Savings had $21 billion in assets at December 31, 1996, and WFSB had $17
billion in assets at the end of 1996. At December 31, 1996, Golden West had a
savings network of 120 branches in California, 48 in Colorado, 24 in Florida, 19
in Texas, 12 in Arizona, 11 in New Jersey, and ten in Kansas. By virtue of being
federally chartered, 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 subsidiary institutions had lending operations
in Connecticut, Delaware, Idaho, Illinois, Maryland, Massachusetts, Minnesota,
Missouri, Nevada, New Mexico, Oregon, Pennsylvania, South Dakota, Utah,
Virginia, Washington, and Wisconsin.
The savings accounts offered by WFSB are insured by the Bank Insurance Fund
(BIF) of the Federal Deposit Insurance Corporation (FDIC). World Savings'
accounts are insured by the Savings Association Insurance Fund of the FDIC. WFSB
and World Savings share savings branches in which all of each institution's
products are made available. Interest rates set on deposit accounts offered by
World Savings and WFSB are based on market conditions, cost and funding needs.
During 1996, World Savings sold mortgage loans to WFSB in the amount of $11
billion as well as $1 billion of mortgage-backed securities.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The following narrative focuses on the significant financial statement
changes that have taken place at Golden West over the past three years and
includes a discussion of the Company's financial condition, results of
operations, and liquidity and capital resources.
FINANCIAL CONDITION
The accompanying table summarizes the Company's major asset, liability, and
equity components in percentage terms at yearends 1996, 1995, 1994, and 1993. 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.
<TABLE>
<CAPTION>
TABLE 33
Asset, Liability, and Equity Components as
Percentages of the Total Balance Sheet
December 31
----------------------------------------------------
1996 1995 1994 1993
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and investments 5.5% 6.6% 7.2% 8.4%
Mortgage-backed securities 11.4 9.7 3.8 5.3
Loans receivable 79.8 80.2 85.4 82.9
Other assets 3.3 3.5 3.6 3.4
---------- --------- --------- ----------
100.0% 100.0% 100.0% 100.0%
========== ========= ========= ==========
Liabilities and Stockholders' Equity:
Customer deposits 58.6% 59.4% 60.7% 60.4%
FHLB advances 23.3 18.4 20.5 21.8
Securities sold under
agreements to repurchase 5.1 5.2 1.9 1.5
Medium-term notes 1.6 4.5 3.7 2.4
Other liabilities 1.7 2.2 3.1 2.5
Subordinated debt 3.5 3.8 3.8 4.2
Stockholders' equity 6.2 6.5 6.3 7.2
---------- --------- --------- ----------
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 table on the next page is the Company's gap table at December 31,
1996.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
<TABLE>
<CAPTION>
TABLE 34
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of December 31, 1996
(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 $ 1,552 $ 5 $ 301 $ 2 $ 1,860
Mortgage-backed securities 3,357 101 368 468 4,294
Loans receivable:
Rate-sensitive 25,161 1,830 122 -0- 27,113
Fixed-rate 76 242 1,020 1,384 2,722
Other(b) 594 -0- -0- -0- 594
Impact of interest rate swaps 334 363 (76) (621) -0-
------------ ------------ ----------- ----------- ----------
Total $ 31,074 $ 2,541 $ 1,735 $ 1,233 $ 36,583
============ ============ =========== =========== ==========
Interest-Bearing Liabilities(c):
Customer deposits $ 10,246 $ 9,197 $ 2,613 $ 44 $ 22,100
FHLB advances 7,354 850 340 254 8,798
Other borrowings 2,491 215 520 596 3,822
Impact of interest rate swaps 1,581 (413) (1,155) (13) -0-
------------ ------------ ----------- ----------- -----------
Total $ 21,672 $ 9,849 $ 2,318 $ 881 $ 34,720
============ ============ =========== =========== ============
Repricing gap $ 9,402 $ (7,308) $ (583) $ 352
============ ============ =========== ===========
Cumulative gap $ 9,402 $ 2,094 $ 1,511 $ 1,863
============ ============ =========== ===========
Cumulative gap as a percentage of
total assets 24.9% 5.6% 4.0%
============ ============ ============
</TABLE>
(a) Based on scheduled maturity or scheduled repricing; loans reflect scheduled
repayments and projected prepayments of principal.
(b) Includes cash in banks and FHLB stock.
(c) Liabilities with no maturity date, such as passbook and money market
deposit accounts, are assigned zero months.
The gap table shows that, as of December 31, 1996, 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
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
frequency of ARM loans, interest rate caps or limits on individual rate
changes, interest rate floors, and introductory rates on new ARM loans.
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, United States government obligations, 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 Office of Thrift Supervision (OTS) requires insured institutions, such
as World Savings 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 1996, 1995, and 1994, World
Savings' regulatory average liquidity ratio was 8%, 8%, and 7%, respectively.
WFSB's regulatory average liquidity ratio was 6% and 6% for the months ended
December 31, 1996 and 1995, respectively. World and WFSB exceeded the monthly 5%
requirement for all months during 1996 and 1995, as did World in 1994. 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, 1996, and 1995, the Company had securities available for
sale in the amount of $781 million and $902 million, respectively, including
unrealized gains on securities available for sale of $159 million and $117
million, respectively. At December 31, 1996, and 1995, the Company had no
securities held to maturity or for trading.
Included in the securities available for sale at December 31, 1996, and
1995, were collateralized mortgage obligations (CMOs) in the amount of $170
million and $408 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, 1996, the majority of the Company's CMOs
had remaining terms to maturity of five years or less and qualified for
inclusion in the regulatory liquidity measurement.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
MORTGAGE-BACKED SECURITIES
At December 31, 1996, and 1995, the Company had mortgage-backed securities
held to maturity in the amount of $4.1 billion and $3.1 billion, respectively,
including $3.3 billion of Federal National Mortgage Association (FNMA)
mortgage-backed securities (MBS) subject to full credit recourse to the Company
at December 31, 1996 and $2.2 billion at December 31, 1995. At December 31,
1996, and 1995, the Company had mortgage-backed securities available for sale in
the amount of $227 million and $283 million, respectively, including unrealized
gains on mortgage-backed securities available for sale of $11 million and $14
million at December 31, 1996, and 1995, respectively. At December 31, 1996, and
1995, the Company had no trading MBS.
During 1996, the Company securitized $1.3 billion of adjustable rate
mortgages (ARMs) into FNMA COFI-indexed MBS. During 1995, the Company
securitized $2.3 billion of ARMs into FNMA COFI-indexed MBS. The Company has the
ability and intent to hold these MBS until maturity and, accordingly, these MBS
are classified as held to maturity. The FNMA COFI-indexed MBS held to maturity
are available to be used as collateral for borrowings and are subject to full
credit recourse to the Company.
At December 31, 1996, $3.3 billion of the Company's total MBS portfolio
were backed by ARMs. The percentage of MBS backed by ARMs increased from 6% at
yearend 1994 to 67% by the end of 1995 and 77% by the end of 1996. The increase
in adjustable rate MBS in 1995 and 1996 is due to the large amount of ARM loans
securitized with recourse in 1995 and 1996. Fixed-rate mortgage-backed
securities comprise the other 23% of the total MBS portfolio.
Repayments of MBS during the years 1996, 1995, and 1994 amounted to $413
million, $210 million, and $311 million, respectively. MBS repayments were
higher in 1996 due to the increase in total MBS outstanding and an increase in
prepayments on the underlying mortgages. Repayments on MBS were relatively low
for 1995 because the high percentage of MBS ARMs caused MBS repayments to behave
more similarly to the Company's ARM loan portfolio which experienced lower
payoffs and refinances during 1995.
LOAN PORTFOLIO
New loan originations in 1996, 1995, and 1994 amounted to $7.0 billion,
$5.9 billion, and $6.6 billion, respectively. The increase in loan volume in
1996 occurred because rates on new fixed-rate mortgages generally remained above
the 8% level during 1996, while the starting rates on ARMs, the Company's
principal product, remained low and more affordable. The 1995 origination volume
declined as compared with the 1994 volume due to interest rate decreases which
brought down the price of new fixed-rate mortgage loans, making competition from
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
fixed-rate lenders more intense for adjustable rate mortgage lenders in
that year. Refinanced loans constituted 34% of new loan originations in 1996
compared to 32% in 1995 and 41% in 1994.
The Company continues to sell most of its fixed-rate originations. Loans
originated for sale were $477 million, $169 million, and $94 million for the
years ended December 31, 1996, 1995, and 1994. The Company sold $485 million,
$142 million, and $146 million of loans during 1996, 1995, and 1994,
respectively. At December 31, 1996, the balance of loans sold with recourse was
$518 million.
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 91% at yearend 1996 compared to 90% at
yearend 1995 and 89% at yearend 1994. Golden West's ARM originations constituted
approximately 90% of new mortgage loans made by the Company in 1996, compared
with 93% in 1995 and 1994.
Approximately $5.5 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, 1996, $654 million of these ARMs were at their
rate floors. The weighted average floor rate on these loans was 7.75% at
December 31, 1996 compared to 7.85% at December 31, 1995. Without the floor, the
average yield on these loans would have been 7.10% at December 31, 1996 and
7.35% at December 31, 1995.
The Company has lending operations in 24 states. The primary source of
mortgage origination is loans secured by residential properties in California.
In 1996, 50% of total loan originations were on residential properties in
California, compared to 53% and 62% in 1995 and 1994, respectively. The five
largest states, other than California, for originations for the year ended
December 31, 1996, were Florida, Texas, Illinois, Colorado, 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 1996 as compared to 1995 due to increased loan
volume in markets outside of California. 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 percentage of the total loan portfolio (excluding
mortgage-backed securities) that is comprised of residential loans in California
was 69% at December 31, 1996, 73% at December 31, 1995, and 77% at December 31,
1994. The total growth in the portfolio for the year ended December 31, 1996,
was $1.9 billion or 7% compared to $1.1 billion or 4% for the year ended
December 31, 1995. Had there not been $3.6 billion of loans securitized into MBS
during 1996 and 1995, the loan portfolio growth for 1996 would have been $3.0
billion or 10% and the loan portfolio growth in 1995 would have been $3.3
billion or 12%.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
Loan repayments consisting of monthly loan amortization, payoffs, and
refinances during the years 1996, 1995, and 1994 amounted to $3.1 billion, $2.3
billion, and $3.2 billion, respectively. The increase in repayments in 1996 was
due to higher mortgage payoffs and higher refinances within the portfolio as
well as an increase in the portfolio balance. The 1996 increase would have been
even higher if the Company had not securitized $1.3 billion of loans into MBS
during the year. The decrease in repayments in 1995 as compared to 1994 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
non-accrual loans (loans, including loans swapped into MBS with recourse, that
are 90 days or more past due) and real estate acquired through foreclosure. No
interest is recognized on nonaccrual loans. NPAs amounted to $456 million, $390
million, and $355 million at yearends 1996, 1995, and 1994, respectively.
The increase in NPAs during 1996 reflects the continued weakness in the
California housing market and increased bankruptcies nationwide. The Company
continues to closely monitor all delinquencies and takes appropriate steps to
protect its interests.
The Company's troubled debt restructured (TDRs) were $84 million, or .22%
of assets, at December 31, 1996, compared to $45 million, or .13% of assets, at
December 31, 1995, and $73 million, or .23% of assets, at December 31, 1994. The
Company's TDRs are made up of loans on which delinquent loan payments have been
capitalized or on which temporary interest rate reductions have been made,
primarily to customers negatively impacted by adverse economic conditions. The
Company's ratio of NPAs and TDRs to total assets increased to 1.43% at December
31, 1996 from 1.24% and 1.35% at yearends 1995 and 1994, respectively.
The Company has other impaired loans on which specific loss reserves have
been 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 $56 million, $60 million,
and $41 million at yearends 1996, 1995, and 1994, respectively.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was $196 million at December 31,
1996, compared to $142 million and $124 million at yearends 1995 and 1994,
respectively. The provision for loan losses was $84 million, $61 million, and
$63 million in 1996, 1995, and 1994, respectively. The provision for loan losses
as a percentage of the loan portfolio (including MBS with recourse) was .25% for
the year
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
ended December 31, 1996 as compare to .20% and .23% for the years ended December
31, 1995 and 1994. Net chargeoffs for the years ended December 31, 1996, 1995,
and 1994 were $31 million, $43 million, and $46 million, respectively. The ratio
of net chargeoffs to average loans outstanding (including MBS with recourse) was
.10% for the year ended December 31, 1996, as compared to .15% and .18% at
yearends 1995 and 1994, respectively.
The Company provides specific valuation allowances for losses on loans when
impaired, including loans securitized into MBS with recourse or loans sold with
recourse, and on real estate owned when any significant and permanent decline in
value is identified. The Company also utilizes a methodology, based on trends in
the basic portfolio, for monitoring and estimating loan losses that is based on
both historical experience in the loan portfolio and factors reflecting current
economic conditions. This approach uses a 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 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, 1996, the Company had real estate held for sale in the
amount of $82 million compared to $76 million a year earlier. The largest
balance of real estate held for sale continues to be one- to four-family
properties in California.
MORTGAGE SERVICING RIGHTS
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122). SFAS
122 amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities," to require that any financial institution
participating in the secondary market recognizes, 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 financial institutions participating in the
secondary mortgage market to evaluate and measure impairment of capitalized
mortgage servicing rights based on the fair value of those rights on a
disaggregated basis. For the year ended December 31, 1996, the Golden West
recognized gains of $11 million on the sale of loans due to the capitalization
of servicing rights under SFAS 122. After $2 million of amortization, the
balance at December 31, 1996 of the capitalized servicing rights was $9 million.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
CHANGE IN ACCOUNTING FOR GOODWILL
During 1996, the Company adopted SFAS 72, effective January 1, 1996, for
goodwill related to the Company's acquisitions made prior to September 30, 1982.
The adoption of SFAS 72 for goodwill related to acquisitions of banking or
thrift institutions prior to September 30, 1982, is permitted but not required.
SFAS 72 requires, among other things, that to the extent the fair value of
liabilities assumed exceeds the fair value of assets resulting from the
acquisition of banking or thrift institutions initiated after September 30,
1982, the resulting goodwill recognized shall be amortized over a period no
longer than the estimated remaining life of the acquired long-term
interest-earning assets. As a result, the Company wrote off goodwill totaling
$205.2 million as the cumulative effect of the change in accounting for
goodwill. The Company has been accounting for acquisitions initiated subsequent
to September 30, 1982, in accordance with SFAS 72. The remaining goodwill from
acquisitions subsequent to 1982 amounting to less than .2% of total assets is
not material and has been reclassified to other assets. The minor amount of
continuing goodwill amortization no longer warrants a separate line item on the
Company's Consolidated Statement of Net Earnings and, therefore, for 1996, has
been included in other income.
CUSTOMER DEPOSITS
Customer deposits increased by $1.3 billion in 1996 compared to increases
of $1.6 billion and $1.8 billion in 1995 and 1994, respectively. The mix of
deposits changed during 1996 primarily due to a new program begun in the fourth
quarter. The balance of interest-bearing checking accounts has decreased as
compared to 1995 and the balance of money market accounts has increased compared
to the 1995 balance as a result of this new program which calculates the minimum
amount of funds needed to cover disbursements for each customers' checking
account and transfers the remaining funds to a money market account, reducing
the Company's required reserves at the Federal Reserve Bank. Total customer
deposits increased during 1996 and 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. In 1995, the Company acquired a savings bank in New
Jersey with $48 million in deposits, which was subsequently renamed WFSB, 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.
<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. Advances are secured by pledges of certain loans, capital stock of
the Federal Home Loan Bank, and MBS. FHLB advances amounted to $8.8 billion at
December 31, 1996, compared to $6.4 billion and $6.5 billion at December 31,
1995, and 1994, 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 $1.9 billion, $1.8 billion, and $602 million
at yearends 1996, 1995, and 1994, respectively. The $1.9 billion balance at
December 31, 1996, includes $750 million in Federal Home Loan Bank of San
Francisco MBS Reverse Repos with maturities ranging from 1997 to 1998.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. In December 1996, the FASB issued Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective date of Certain
Provisions of FASB Statement No. 125" (SFAS 127), which will delay the effective
date for portions of SFAS 125 for one year. The impact of SFAS 125 and SFAS 127
on the Company's financial condition and results of operations is not expected
to be material.
OTHER BORROWINGS
As of December 31, 1996, Golden West, at the holding company level, had a
total of $1.1 billion of subordinated debt issued and outstanding. At yearend
1996, 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
At December 31, 1996, 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 1996. The Association has medium-term notes
outstanding under prior registrations with principal amounts of $590 million at
December 31, 1996, compared to $1.6 billion at December 31, 1995, and $1.2
billion at December 31, 1994. As of December 31, 1996, the Association's
medium-term notes were rated Al and A+ by Moody's and S&P, respectively.
World Savings also has on file a registration statement with the OTS for
the sale of up to $300 million of subordinated notes and at yearend 1996, the
full amount was available for issuance. As of December 31, 1996, 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.
During November 1996, WFSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks.
STOCKHOLDERS' EQUITY
The Company's stockholders' equity increased during 1996 as a result of
earnings and the increase in market values of securities available for sale
since December 31, 1995. These increases were partially offset by the $106
million cost of the repurchase of Company stock. The Company's stockholders'
equity increased during 1995 as a result of earnings and increased market values
of unrealized gains on securities available for sale since December 31, 1994.
The Company's stockholders' equity decreased during 1994 due to the $216 million
cost of the repurchase of Company stock and the $66 million decrease in
unrealized gains on securities available for sale caused by the decrease in
market values of securities available for sale since December 31, 1993. These
decreases in stockholders' equity were substantially offset by 1994's net
earnings.
Since 1993, through three separate actions, Golden West's Board of
Directors has authorized the purchase by the Company of up to total of 12.2
million shares of Golden West's common stock. As of December 31, 1996, 7.8
million shares had been repurchased and retired at a cost of $332 million since
October 28, 1993, of which 1.9 million shares were purchased and retired at a
cost of $106 million during 1996. Dividends from World Savings are expected to
continue to be the major source of funding for the stock repurchase program. The
purchase of Golden West stock is not intended to have a material impact on the
normal liquidity of the Company.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The Company has on file a shelf registration statement with the Securities
and Exchange Commission to issue up to two million shares of its preferred
stock. The preferred stock may be issued in one or more series, may have varying
provisions and designations, and may be represented by depository shares. The
preferred stock is not convertible into common stock. No preferred stock has yet
been issued under the registration. The Company's preferred stock has been
preliminarily rated a2 by Moody's.
The OTS requires federally insured institutions, such as World Savings and
WFSB, 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, 1996, World Savings had tangible capital of $1.3 billion, or 6.37%
of adjusted total assets, $1.0 billion in excess of the regulatory requirement.
At December 31, 1996, WFSB had tangible capital of $1.1 billion, or 6.69% of
adjusted total assets, $879 million in excess of the regulatory requirement.
The second requirement is to have core capital of 3% of adjusted total
assets. At December 31, 1996, World Savings had core capital of $1.3 billion, or
6.37% of adjusted total assets, $706 million in excess of the regulatory
requirement. At December 31, 1996, WFSB had core capital of $1.1 billion, or
6.69% of adjusted total assets, $625 million 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, 1996, World Savings had risk-based
capital in the amount of $1.7 billion, or 13.91% of risk-weighted assets,
exceeding the current requirement by $703 million. At December 31, 1996, WFSB
had risk-based capital in the amount of $1.2 billion or 13.14% of risk-weighted
assets, exceeding the current requirement by $459 million.
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. Under these regulations, the Company's insured
subsidiaries have ratios in excess of the "well capitalized" requirements.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
FINANCIAL CONDITION (continued)
The OTS limits capital distributions by savings associations. For purposes
of capital distributions, the OTS has classified World Savings as a Tier 1
association; 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 risk-based capital requirement at the end of the prior
year subject to thirty days' advance notice to the OTS. Distributions beyond
these amounts are allowed only with the specific, prior approval of the OTS.
During 1996, World Savings obtained such approval and paid a total of $830
million in dividends to Golden West during 1996.
RESULTS OF OPERATIONS
Without the three nonrecurring items, net earnings increased in 1996 as
compared to 1995. Net earnings increased in 1996 primarily due to improvements
in net interest income as a result of increases in interest earning assets and
improvements in margins; an increase in non-interest income resulting from
increased loan servicing fees and the recognition of capitalized servicing
rights: and a reduction in deposit insurance premiums. These improvements to net
earnings were partially offset by an increase in the provision for loan losses
and a slight increase in the other general and administrative expenses.
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.
The following table shows the components of the Company's primary spread at
the end of the years 1994 through 1996.
<TABLE>
<CAPTION>
TABLE 35
Yield on Earning Assets, Cost of Funds, And Primary Spread
Including the Effect of Purchase Accounting
December 31
--------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Yield on loan portfolio 7.39% 7.66% 6.91%
Yield on investments 6.88 5.96 5.42
------- -------- --------
Yield on earning assets 7.37 7.56 6.81
------- -------- --------
Cost of customer deposits 4.98 5.15 4.57
Cost of borrowings 5.80 6.15 5.85
------- -------- --------
Cost of funds 5.28 5.50 5.00
------- -------- --------
Primary spread 2.09% 2.06% 1.81%
======= ======== ========
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
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.
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, the yield on the
Company's loan portfolio began to increase in mid-1994 as the COFI started to
respond to the rising interest rate environment and continued to move upward
until mid-1995. As interest rates began to stabilize during 1995, so did the
Company's yield on the loan portfolio. Short-term interest rates were generally
declining in late 1995 and early 1996, before stabilizing and remaining
relatively flat for much of 1996. The effects of this interest rate environment
led to a decrease in the Company's yield on the loan portfolio, which ended the
1996 year at 7.39%.
COST OF FUNDS
Approximately 91% 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 interest rates led to an increase in the
Company's cost of funds during 1994 and early 1995. Lower rates paid on customer
deposit accounts led to a decrease in the Company's cost of funds during 1996.
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 $10
million, $29 million, and $23 million for the years ended December 31, 1996,
1995, and 1994, respectively.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
The table below summarizes the unrealized gains and losses for interest
rate swaps and caps at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
TABLE 36
Unrealized Gains and Losses on Interest Rate Swaps and Caps
(Dollars in Thousands)
December 31, 1996
-------------------------------------------------
Net
Unrealized Unrealized Unrealized
Gains Losses Gain (Loss)
------------- ------------- --------------
<S> <C> <C> <C>
Interest rate swaps $ 25,085 $ 40,085 $ (15,000)
============= ============= ==============
December 31, 1995
-------------------------------------------------
Net
Unrealized Unrealized Unrealized
Gains Losses Gain (Loss)
-------------- -------------- ---------------
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>
TABLE 37
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, 1995 $ 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
Additions 905 -0- -0- -0- -0-
Maturities (1,545) (435) (43) -0- (225)
------------ ----------- ------------- -------------- -------------
Balance at
December 31, 1996 $ 2,581 $ 1,340 $ -0- $ 10 $ -0-
============ ============ ============= ============= =============
</TABLE>
(a) Receives floating, pays floating.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
INTEREST ON LOANS
Interest on loans increased in 1996 due to an increase in the average
portfolio balance. In 1995, interest on loans increased due to an increase in
the average portfolio balance and an increase in the average portfolio yield.
INTEREST ON MBS
In 1996 and 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.
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 were lower in 1996 than in 1995 due to a
decrease in the average portfolio balance and a decrease in the average
portfolio yield. Interest and dividends on investments were higher in 1995 than
in 1994 due to an increase in the average portfolio balance and increase in the
average portfolio yield.
INTEREST ON CUSTOMER DEPOSITS
The major portion of the Company's customer deposit base consists of
savings accounts with remaining maturities of two years or less. Thus, the
amount of interest paid on these funds depends upon the level of short-term
interest rates and the savings balances outstanding. The increase in interest on
customer deposits in 1996 was due to an increase in the average balance of
customer deposits partially offset by a decrease in the average cost of customer
deposits. 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.
INTEREST ON ADVANCES
Interest paid on FHLB advances was higher in 1996 as compared to 1995 due
to an increase in the average balance of these borrowings, which was partially
offset by a decrease in the average cost of these borrowings. 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.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
INTEREST ON OTHER BORROWINGS
Interest expense on other borrowings, including interest on reverse
repurchase agreements, amounted to $280 million, $287 million, and $172 million
for the years ended 1996, 1995, and 1994, respectively. Interest on other
borrowings decreased in 1996 over 1995 due to a decrease in the average cost of
these borrowings which was partially offset by an increase in the average
balance. The increase in the expense in 1995 over 1994 was due to an increase in
the average balance of these liabilities partially offset by a decrease in the
average cost of other borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $84 million, $61 million, and $63 million
for the years ended 1996, 1995, and 1994, respectively. The higher provision in
1996 reflects the increase in nonaccrual loans and higher bankruptcies. The 1995
provision was comparable to the prior year.
NON-INTEREST INCOME
Non-interest income was $75 million, $43 million, and $37 million for the
years ended December 31, 1996, 1995, and 1994, respectively. The increase in
non-interest income in 1996 as compared to 1995 was due to the adoption of SFAS
122 and the recognition of capitalized mortgage servicing rights, and increased
loan servicing fee income as a result of the securitization with recourse of
$1.3 billion of loans with FNMA in 1996, which the Company continues to service.
In addition, non-interest income increased by $11 million as a result of
negative goodwill amortization being included in other income for the first time
as a result of the adoption of SFAS 72 for acquisitions prior to September 30,
1982 (previously such amounts were included under "Amortization of goodwill
arising from acquisitions" on the Consolidated Statement of Net Earnings.)
Non-interest income in 1995 was comparable to the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased during the three years under
discussion. The 1996 increase is due to the one-time SAIF assessment of $133
million. Without the one-time SAIF assessment, 1996 general and administrative
expenses increased only slightly from 1995. The 1996 general and administrative
expenses benefited from the lower deposit insurance premiums which partially
offset the increase in personnel expense. 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 were the expansions of loan origination
capacity and savings branches, primarily outside of California; the expenses of
relocating certain administrative operations to San Antonio, Texas; the
installation of enhancements to data processing systems; and general inflation.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
Without the one-time 1996 SAIF assessment, general and administrative
expenses as a percentage of average assets was .89% for the year ended December
31, 1996 compared with .93% and 1.02% for the years ended December 31, 1995 and
1994, respectively.
DEPOSIT INSURANCE
During 1996, federal legislation was enacted to recapitalize the Savings
Association Insurance Fund in order to bring it into parity with the FDIC's
other insurance fund, the Bank Insurance Fund. The new banking law required
members to pay a levy of $4.7 billion to bring the SAIF up to the required
reserve level of 1.25% of insured deposits, but lowered savings and loan deposit
insurance premiums starting in 1997. As a result of this legislation, Golden
West's subsidiary, World Savings and Loan Association, incurred a one-time
charge of $133 million during 1996. Beginning on January 1, 1997, the premium
paid by the Association to the FDIC will be reduced from $2.30 per $1,000 in
savings balances to $.648 per $1,000. Also, beginning on January 1, 1997, the
premiums paid by BIF insured institutions, such as WFSB, will be increased from
$0.00 per $1,000 in savings balances to $.1296 per $1,000.
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.
During 1996, the Company recognized $139 million of tax benefits associated
with the Company's purchase of Beach Federal Savings and Loan Association
(Beach). Specifically, in December 1988, Golden West entered into a government
approved transaction with Beach to provide management services to that
institution. As part of the agreement, Golden West obtained an option to take
title to the stock of Beach and subsequently exercised this right in July 1991.
When Golden West took title to the stock, the Company disclosed that tax
benefits were anticipated from operating losses which had been accumulated at
Beach's predecessor institution up to the time of the 1988 agreement, although
the availability and the amount of these benefits were uncertain. The
availability of the $139 million of tax benefits was confirmed during the third
quarter of 1996.
Taxes as a percentage of earnings before the cumulative effect of the
change in accounting for goodwill, and excluding the aforementioned $139 million
in tax benefits, decreased slightly in 1996 over 1995.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
RESULTS OF OPERATIONS (continued)
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 its
parent, borrowings from public offerings of debt, sales of loans, negotiable
certificates of deposit, issuances of commercial paper, and borrowings from
commercial banks. Furthermore, under certain conditions, World 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.
WFSB's principal sources of funds are the same as World Savings' except
that WFSB has not been active in the public debt markets.
The principal sources of funds for the Association's parent, Golden West,
are dividends from World Savings, the proceeds from the issuance of debt and
equity securities, and interest on investments. 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 and principal on subordinated debt securities, capital contributions to
its insured subsidiaries ($500 million in 1996 and $581 million in 1995),
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 76 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, 65 Chairman of the Board
and Chief Executive Officer
Marion O. Sandler, 66 Chairman of the Board and
Chief Executive Officer (a)
James T. Judd, 58 Senior Executive Vice President
Russell W. Kettell, 53 President and Treasurer (b)
J. L. Helvey, 65 Executive Vice President (c)
Dirk S. Adams, 45 Group Senior Vice President
Robert C. Rowe, 41 Senior Vice President and Secretary (d)
Maryellen B. Cattani, 53 Director
Louis J. Galen, 71 Director
Antonia Hernandez, 49 Director
Patricia A. King, 54 Director
William. D. McKee, 70 Director
Bernard A. Osher, 69 Director
Kenneth T. Rosen, 48 Director
Leslie Tang Schilling, 42 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:
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
(a) Marion O. Sandler was elected Chairman of the Board of the
Company in February 1993. Prior thereto, Mrs. Sandler served as
President and Chief Executive Officer since 1980.
(b) 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) J. L. Helvey was elected Executive Vice President of the Company
in 1996. Prior thereto, Mr. Helvey served as Group Senior Vice
President since 1988 and Senior Vice President since 1973.
(d) 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 and 3 of the Registrant's Proxy Statement dated
March 14, 1997, 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 14, 1997, on pages 3 through 6 and 8 through 9 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, 5 and
7 of Registrant's Proxy Statement dated March 14, 1997, 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 14, 1997, which is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) (1) Index to Financial Statements
See Index included on page 76 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) 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 (b) 1996 Stock Option Plan, as amended, is incorporated by reference
from Exhibit 10(c) to the Company's Annual Report on Form 10-K
(file No. 1-4629) for the year ended December 31, 1996.
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.
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
(a) (3) Index To Exhibits (continued)
Exhibit No. Description
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
(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.
</TABLE>
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 Statement on Form S-8
No. 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 3/25/97
Herbert M. Sandler,
Chairman of the Board and
Chief Executive Officer
By:/s/ Marion O. Sandler 3/25/97
Marion O. Sandler,
Chairman of the Board and
Chief Executive Officer
By:/s/ J. L. Helvey 3/25/97
J. L. Helvey,
Executive Vice President and
Chief Financial and Accounting
Officer
Dated: March 25, 1997
<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/ Maryellen B. Cattani 3/25/97 /s/ Bernard A. Osher 3/25/97
Maryellen Cattani Bernard A. Osher
Director Director
/s/ Kenneth T. Rosen 3/25/97
Louis J. Galen Kenneth T. Rosen
Director Director
/s/ Antonia Hernandez 3/25/97 /s/ Herbert M. Sandler 3/25/97
Antonia Hernandez Herbert M. Sandler
Director Director
/s/ Patricia A. King 3/25/97 /s/ Marion O. Sandler 3/25/97
Patricia A. King Marion O. Sandler
Director Director
/s/ William D. McKee 3/25/97 /s/ Leslie Tang Schilling 3/25/97
William D. McKee Leslie Tang Schilling
Director Director
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Golden West Financial Corporation and Subsidiaries:
Consolidated Statement of Financial Condition as of
December 31, 1996, and 1995 F-2, F-3
Consolidated Statement of Net Earnings for the years
ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1996, 1995, and 1994 F-5
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995, and 1994 F-6, F-7
Notes to Consolidated Financial Statements F-8
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for goodwill related to acquisitions
made prior to September 30, 1982, effective January 1, 1996, to conform with
Statement of Financial Accounting Standards No. 72.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Oakland, California
January 21, 1997
F-1
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
--------------- ----------------
<S> <C> <C>
Cash $ 218,719 $ 218,695
Securities available for sale at fair value
(cost of $622,182 and $785,212) (Note B) 781,325 901,856
Other investments at cost (fair value of $1,078,832 and
$1,190,160) (Note C) 1,078,832 1,190,160
Mortgage-backed securities available for sale at fair value
(cost of $216,948 and $268,778) (Notes D and L) 227,466 282,881
Mortgage-backed securities held to maturity at cost
(fair value of $4,089,066 and $3,217,235) (Notes E, K and L) 4,066,116 3,126,460
Loans receivable less allowance for loan losses of
$195,702 and $141,988 (Notes F and K) 30,113,421 28,181,353
Interest earned but uncollected (Note G) 221,604 225,395
Investment in capital stock of Federal Home Loan Banks,
at cost which approximates fair value (Note K) 500,105 350,955
Real estate held for sale or investment (Note H) 83,052 76,187
Prepaid expenses and other assets 226,054 222,015
Premises and equipment, net (Note I) 213,904 203,637
Goodwill arising from acquisitions (Note A) -0- 138,562
-------------- ---------------
$ 37,730,598 $ 35,118,156
============== ===============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
December 31
---------------------------------------
1996 1995
----------------- ------------------
<S> <C> <C>
Customer deposits (Note J) $ 22,099,934 $ 20,847,910
Advances from Federal Home Loan Banks (Note K) 8,798,433 6,447,201
Securities sold under agreements to repurchase (Note L) 1,908,126 1,817,943
Medium-term notes (Note M) 589,845 1,597,507
Accounts payable and accrued expenses 452,182 450,814
Taxes on income (Note O) 207,605 356,036
---------------- -----------------
34,056,125 31,517,411
Subordinated notes (Note N) 1,323,996 1,322,392
Stockholders' equity (Notes P and Q): 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, 57,342,389 and 58,871,409 shares 5,734 5,887
Additional paid-in capital 67,953 55,353
Retained earnings - substantially restricted 2,177,098 2,140,883
---------------- -----------------
2,250,785 2,202,123
Unrealized gains on securities available for sale, net 99,692 76,230
---------------- -----------------
Total Stockholders' Equity 2,350,477 2,278,353
---------------- -----------------
$ 37,730,598 $ 35,118,156
================ =================
</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
------------------------------------------------
1996 1995 1994
-------------- -------------- -------------
<S> <C> <C> <C>
Interest Income:
Interest on loans $ 2,203,752 $ 2,097,664 $ 1,649,413
Interest on mortgage-backed securities 246,293 181,355 103,927
Interest and dividends on investments 131,516 148,422 123,137
------------- ------------- -------------
2,581,561 2,427,441 1,876,477
Interest Expense:
Interest on customer deposits (Note J) 1,061,414 1,048,390 714,353
Interest on advances 409,040 369,239 268,952
Interest on repurchase agreements 117,960 70,709 37,620
Interest on other borrowings 162,187 216,267 134,182
------------- ------------- -------------
1,750,601 1,704,605 1,155,107
------------- ------------- -------------
Net Interest Income 830,960 722,836 721,370
Provision for loan losses 84,256 61,190 62,966
------------- ------------- -------------
Net Interest Income after Provision for
Loan Losses 746,704 661,646 658,404
Non-Interest Income:
Fees 38,558 29,200 28,816
Gain (loss) on the sale of securities,
mortgage-backed securities, and loans 11,954 (493) (120)
Other 24,387 13,833 8,790
------------- ------------- -------------
74,899 42,540 37,486
Non-Interest Expense:
General and administrative:
Personnel 163,243 151,352 150,220
Occupancy 50,171 48,737 44,472
Deposit insurance 167,528 44,993 40,220
Advertising 9,277 9,850 10,761
Other 63,203 61,260 57,246
------------- ------------- -------------
453,422 316,192 302,919
Amortization of goodwill arising from
acquisitions -0- 2,762 2,589
------------- ------------- -------------
453,422 318,954 305,508
------------- ------------- -------------
Earnings Before Taxes on Income 368,181 385,232 390,382
Taxes on income (Note O) (1,732) 150,693 159,933
------------- ------------- -------------
Earnings Before Cumulative Effect of Change in
Accounting for Goodwill 369,913 234,539 230,449
Cumulative effect of change in accounting
for goodwill (205,242) -0- -0-
------------- ------------- -------------
Net Earnings $ 164,671 $ 234,539 $ 230,449
============= ============= =============
Earnings per share before cumulative effect of
change in accounting for goodwill $ 6.33 $ 4.00 $ 3.71
Cumulative effect of change in accounting
for goodwill (3.49) -0- -0-
------------- ------------- -------------
Net earnings per share $ 2.84 $ 4.00 $ 3.71
============= ============= =============
</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
Additional Securities Total
Common Paid-in Retained Available Stockholders'
Stock Capital Earnings for Sale Equity
----------- ----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 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 ($.31 per share) -0- -0- (19,220) (19,220)
Purchase and retirement of
5,561,180 shares of Company
stock (Note P) (556) -0- (215,082) (215,638)
Change in unrealized gains on
securities available for sale -0- -0- -0- (65,733) (65,733)
----------- ----------- ------------- -------------- ---------------
Balance at December 31, 1994 5,859 45,689 1,929,740 18,986 2,000,274
Common stock issued upon exercise
of stock options, including tax
benefits - 349,290 shares 35 9,664 -0- 9,699
Net earnings -0- -0- 234,539 234,539
Cash dividends on common
stock ($.35 per share) -0- -0- (20,533) (20,533)
Purchase and retirement of
67,836 shares of Company
stock (Note P) (7) c -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
Common stock issued upon exercise
of stock options, including tax
benefits - 401,780 shares 40 12,600 -0- 12,640
Net earnings -0- -0- 164,671 164,671
Cash dividends on common
stock ($.395 per share) -0- -0- (22,893) (22,893)
Purchase and retirement of
1,930,800 shares of
Company stock (Note P) (193) -0- (105,563) (105,756)
Change in unrealized gains on
securities available for sale -0- -0- -0- 23,462 23,462
---------- ---------- ------------ ------------- --------------
Balance at December 31, 1996 $ 5,734 $ 67,953 $ 2,177,098 $ 99,692 $ 2,350,477
========== ========== ============ ============= ==============
</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
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 164,671 $ 234,539 $ 230,449
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for loan losses 84,256 61,190 62,966
Cumulative effect of change in accounting for goodwill 205,242 -0- -0-
Amortization of loan fees and discounts (23,038) (20,746) (28,832)
Depreciation and amortization 19,592 21,568 19,454
Loans originated for sale (476,589) (169,020) (93,951)
Sales of loans originated for sale 484,601 141,648 146,115
Decrease (increase) in interest earned but uncollected 3,791 (22,939) (27,376)
Federal Home Loan Bank stock dividends (29,813) (21,511) (19,007)
(Increase) in prepaid expenses and other assets (62,811) (11,205) (91,751)
Increase in accounts payable and accrued expenses 1,368 7,121 87,894
Increase (decrease) in taxes on income (164,902) 21,210 (23,448)
Other, net (14,032) (27,426) (23,011)
--------------- --------------- ----------------
Net cash provided by operating activities 192,336 214,429 239,502
Cash Flows From Investing Activities:
New loan activity:
Real estate loans originated for portfolio (6,535,973) (5,780,044) (6,543,702)
Real estate loans purchased (5,070) (30,837) (68,926)
Other, net (26,906) (64,754) 3,816
--------------- ---------------- ----------------
(6,567,949) (5,875,635) (6,608,812)
Real estate loan principal payments:
Monthly payments 624,896 511,710 600,879
Payoffs, net of foreclosures 2,176,271 1,560,485 2,232,214
Refinances 276,028 182,323 326,447
--------------- ---------------- ----------------
3,077,195 2,254,518 3,159,540
Purchases of mortgage-backed securities available for sale -0- (6,254) (1,656)
Purchases of mortgage-backed securities held to maturity (1,522) (99,032) (47,086)
Sales of mortgage-backed securities available for sale -0- 6,396 121
Repayments of mortgage-backed securities 412,576 210,388 310,704
Proceeds from sales of real estate 203,936 193,389 217,965
Purchases of securities available for sale (824,734) (2,992,018) (2,623,315)
Sales of securities available for sale 81,133 290,624 931,508
Matured securities available for sale 908,436 3,392,495 1,801,054
Decrease (increase) in other investments 111,328 (655,560) 3,500
Purchases of Federal Home Loan Bank stock (164,894) (13,486) -0-
Redemptions of Federal Home Loan Bank stock 37,649 12,650 7,775
Additions to premises and equipment (30,465) (24,099) (58,827)
--------------- ---------------- ----------------
Net cash used in investing activities (2,757,311) (3,305,624) (2,907,529)
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Customer deposit activity:
Increase in deposits, net $ 382,732 $ 781,850 $ 1,211,544
Interest credited 869,292 846,671 585,361
--------------- -------------- --------------
1,252,024 1,628,521 1,796,905
Additions to Federal Home Loan Bank advances 3,695,322 1,051,490 304,500
Repayments of Federal Home Loan Bank advances (1,344,429) (1,093,122) (98,034)
Proceeds from agreements to repurchase
securities 4,566,506 3,424,725 4,599,988
Repayments of agreements to repurchase
securities (4,476,323) (2,208,603) (4,441,041)
Proceeds from medium-term notes -0- 699,360 499,696
Repayments of medium-term notes (1,008,135) (267,000) (12,865)
Proceeds from federal funds purchased 1,250,000 -0- 250,000
Repayments of federal funds purchased (1,250,000) (250,000) -0-
Proceeds from subordinated debt -0- 99,283 -0-
Dividends on common stock (22,893) (20,533) (19,220)
Sale of stock 8,683 6,198 2,992
Purchase and retirement of Company stock (105,756) (2,870) (215,638)
-------------- -------------- --------------
Net cash provided by financing activities 2,564,999 3,067,449 2,667,283
-------------- -------------- --------------
Net Increase (Decrease) in Cash 24 (23,746) (744)
Cash at beginning of period 218,695 242,441 243,185
-------------- -------------- --------------
Cash at end of period $ 218,719 $ 218,695 $ 242,441
============== ============== ==============
Supplemental cash flow information:
Cash paid for:
Interest $ 1,789,487 $ 1,640,261 $ 1,152,572
Income taxes 165,560 128,123 182,332
Cash received for interest and dividends 2,585,352 2,404,502 1,849,101
Noncash investing activities:
Loans transferred to foreclosed real estate 220,642 216,392 246,612
Mortgage-backed securities transferred from available for
sale to held to maturity (at fair value) 217,719 -0- 453,564
Loans securitized into mortgage-backed securities with recourse 1,297,669 2,325,589 -0-
</TABLE>
F-7
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1996, 1995 and 1994
(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,
1996, the assets of these subsidiaries were $21 billion and $17 billion,
respectively. Intercompany accounts and transactions have been eliminated.
Nature of Operations
Golden West Financial Corporation, through its financial institution
subsidiaries, operates 244 savings branches in seven states and 214 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 classifies 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, 1996 and 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. 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, consisting of federal funds and
short-term repurchase agreements, 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, 1996, 1995, and 1994
(Dollars in thousands except per share)
Mortgage-Backed Securities
The Company has no mortgage-backed securities (MBS) classified as trading.
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 from its investment
portfolio into MBS with recourse which are held to maturity and 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 and are recorded at the lower of cost or market. Some of these
loans are sold with recourse and a recourse liability reserve is provided on the
sale of these loans.
A loan is impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The Company's policy is to measure
impairment based on the fair value of the collateral. When the value 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, 1996, 1995, and 1994
(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
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" (SFAS 122). SFAS
122 amends Statement of Financial Accounting Standards No. 65, "Accounting for
Certain Mortgage Banking Activities," to require that any financial institution
participating in the secondary mortgage market recognize, as separate assets,
rights to service mortgage loans for others (CMSRs) 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 any financial
institution participating in the secondary mortgage market should evaluate and
measure impairment of CMSRs based on the fair value of those rights on a
disaggregated basis. The balance of CMSRs is included in "Prepaid expenses and
other assets" in the Consolidated Statement of Financial Condition and is being
amortized over the projected servicing period. The amortization of the CMSRs is
included in "Fee income" in the Consolidated Statement of Net Earnings. CMSRs
are periodically reviewed for impairment based on fair value. The fair value of
the CMSRs, for the purposes of impairment, is measured using a discounted cash
flow analysis based on the Company's estimated annual cost of servicing, market
prepayment rates, and market discount rates. At December 31, 1996, there was no
impairment.
Goodwill
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 72, "Accounting for Certain Acquisitions of Banking or
Thrift Institutions," (SFAS 72) for goodwill related to acquisitions made prior
to September 30, 1982. Up until 1996, the Company had applied SFAS 72 only to
acquisitions made after September 30, 1982. The adoption of SFAS 72 for goodwill
relating to acquisitions of banking or thrift institutions prior to September
30, 1982, is permitted but not required. SFAS 72 requires, among other things,
that goodwill be amortized over a period no longer than the estimated remaining
life of the acquired long-term interest-earning assets. As a result, the Company
wroteoff goodwill totaling $205 million as the cumulative effect of the change
in accounting for goodwill. Financial statements for the periods prior to 1996
have not been restated. The Company has been accounting for acquisitions
initiated subsequent to September 30, 1982 in accordance with SFAS 72. The
remaining goodwill from acquisitions subsequent to 1982, amounting to less than
.2% of total assets, is not material and has been reclassified to other assets.
Amortization of goodwill in 1996 and future years is recorded on the
Consolidated Statement of Net Earnings under the section titled "Non-Interest
Income - Other."
F-10
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
Long-Lived Assets and Other Intangible Assets
The Company 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 or
1996 consolidated financial statements.
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.
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. This Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. SFAS 125 is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. In December 1996, the FASB issued Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" (SFAS 127) which will delay the effective
date for portions of SFAS 125 for one year. The impact of SFAS 125 and SFAS 127
on the Company's financial condition and results of operations is not expected
to be material.
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.
F-11
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
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.
In years prior to 1996, the Association was permitted by the Internal
Revenue Code to deduct from taxable income an annual addition to a reserve for
bad debts subject to certain limitations. In the event distributions (which are
subject to the regulatory restrictions described under "Regulatory Capital
Requirements") 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.
At December 31, World Savings had the following regulatory capital
calculated in accordance with FIRREA's capital standards:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------- ---------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------------- ------------------------- ------------------------- -------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------- -------- -------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $ 1,334,813 6.37 % $ 314,254 1.50% $1,924,910 6.38 % $ 452,761 1.50%
Core 1,334,813 6.37 628,507 3.00 1,924,910 6.38 905,521 3.00
Risk-based 1,655,820 13.91 952,631 8.00 2,243,519 13.40 1,339,177 8.00
</TABLE>
At December 31, WFSB had the following regulatory capital calculated in
accordance with FIRREA's capital standards:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------- ---------------------------------------------------
ACTUAL REQUIRED ACTUAL REQUIRED
------------------------- ------------------------- ------------------------- -------------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------- -------- -------------- -------- ------------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tangible $1,133,016 6.69% $254,140 1.50% $ 562,788 14.01% $ 60,247 1.50%
Core 1,133,016 6.69 508,279 3.00 562,788 14.01 120,494 3.00
Risk-based 1,173,583 13.14 714,609 8.00 568,451 26.55 171,305 8.00
</TABLE>
The Office of Thrift Supervision (OTS) has adopted rules based upon five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. The rules
provide that a savings association is "well capitalized" if its total risk-based
capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or
greater, its leverage ratio is 5% or greater, and the institution is not subject
to a capital directive.
F-12
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
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, have ratios in
excess of the "well capitalized" requirements.
At December 31, World Savings had the following regulatory capital
calculated in accordance with FDICIA's capital standards:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------- -------------------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL CAPITALIZED
----------------------- ---------------------- ----------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ --------- ----------- -------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $ 1,334,813 6.37% $ 1,047,512 5.00% $ 1,924,910 6.38% $ 1,509,202 5.00%
Tier 1 risk-based 1,334,813 11.21 714,473 6.00 1,924,910 11.50 1,004,383 6.00
Total risk-based 1,655,820 13.91 1,190,788 10.00 2,243,519 13.40 1,673,972 10.00
</TABLE>
At December 31, WFSB had the following regulatory capital calculated in
accordance with FDICIA's capital standards:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------- -------------------------------------------------
ACTUAL WELL CAPITALIZED ACTUAL WELL CAPITALIZED
----------------------- ---------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio Capital Ratio
------------ --------- ----------- -------- ----------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leverage $ 1,133,016 6.69 % $ 847,132 5.00 % $ 562,788 14.01% $ 200,824 5.00%
Tier 1 risk-based 1,133,016 12.68 535,957 6.00 562,788 26.28 128,479 6.00
Total risk-based 1,173,583 13.14 893,261 10.00 568,451 26.55 214,132 10.00
</TABLE>
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
capital requirement as of the end of the prior year. Distributions beyond these
amounts are allowed only with the specific, prior approval of the OTS.
At December 31, 1996, $252 million of the Insured Institutions' retained
earnings had not been subjected to federal income taxes due to the application
of the bad debt deduction, and $1.2 billion of the Insured Institutions'
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 are World Savings and WFSB.
Earnings Per Share
Earnings per share have been computed by dividing net earnings by the
weighted average number of common shares outstanding, 57,989,327 (1996),
58,657,422 (1995), and 62,128,719 (1994).
Deposit Insurance
On September 30, 1996, Congress passed and the President signed legislation
to recapitalize the Savings Association Insurance Fund (SAIF) in order to bring
it into parity with the FDIC's other insurance fund, the Bank Insurance Fund
(BIF). The new banking law required members to pay a levy of $4.7 billion to
bring SAIF up to the required reserve level of 1.25% of deposits, but lowers
savings and loan deposit insurance premiums starting in 1997. As a result of
this legislation, Golden West's subsidiary, World Savings, incurred a one-time
charge of $133 million during 1996. Beginning on January 1, 1997, the premium
paid by the Association to the FDIC will be reduced from $2.30 per $1,000 in
savings balances to $.648 per $1,000. Beginning on January 1, 1997, the premiums
paid by BIF insured institutions, such as WFSB, will be increased from $0.00 per
$1,000 in savings balances to $.1296 per $1,000.
F-13
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE B - Securities Available for Sale
The following is a summary of securities available for sale:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------
Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Certificates of deposit $ 150,001 $ -0- $ 4 $ 149,997
U.S. Treasury and government agency obligations 199,727 1,117 -0- 200,844
Collateralized mortgage obligations 171,999 101 2,288 169,812
Equity securities 100,455 160,263 46 260,672
-------------- -------------- -------------- --------------
$ 622,182 $ 161,481 $ 2,338 $ 781,325
============== ============== ============== ==============
</TABLE>
<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>
The weighted average portfolio yields on securities available for sale were
6.64% and 5.89% at December 31, 1996, and 1995, respectively. Sales of
securities available for sale resulted in realized gains of $841 (1996), $10
(1995) and $83 (1994) and realized losses of $-0- (1996), $515 (1995) and $226
(1994).
At December 31, 1996, the securities available for sale had maturities as
follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
-------------------------------------- ---------------- ----------------
<S> <C> <C>
No maturity $ 99,405 $ 259,589
1997 201,091 200,877
1998 through 2001 292,092 292,118
2002 through 2006 967 1,000
2007 and thereafter 28,627 27,741
--------------- ---------------
$ 622,182 $ 781,325
=============== ===============
</TABLE>
NOTE C - Other Investments
The following is a summary of other investments:
<TABLE>
<CAPTION>
December 31
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Eurodollar time deposits, at cost $ 102,400 $ -0-
Federal funds, at cost 324,432 490,960
Short-term repurchase agreements collateralized
by mortgage-backed securities, at cost 652,000 699,200
--------------- ---------------
$ 1,078,832 $ 1,190,160
=============== ===============
</TABLE>
At December 31, 1996, and 1995, cost approximated fair market value and
there were no unrealized gains or losses.
F-14
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
The weighted average portfolio yields on other investments were 7.01% and
6.00% at December 31, 1996, and 1995, respectively. There were no sales of other
investments during 1996, 1995 or 1994.
As of December 31, 1996, the entire other investments portfolio matures
in 1997.
NOTE D - Mortgage-Backed Securities Available for Sale
Mortgage-backed securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Available for sale without recourse:
FNMA $ 97,696 $ 3,395 $ 421 $ 100,670
FHLMC 71,372 3,913 135 75,150
GNMA 47,784 3,807 40 51,551
Other 96 -0- 1 95
------------- ------------ ------------ ------------
Total available for sale $ 216,948 $ 11,115 $ 597 $ 227,466
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Available for sale without recourse:
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
------------ ------------ ------------ ------------
Total available for sale $ 268,778 $ 14,530 $ 427 $ 282,881
============ ============ ============ ============
</TABLE>
The weighted average portfolio yields on mortgage-backed securities
available for sale were 8.73% and 8.85% at December 31, 1996, and 1995,
respectively. Principal proceeds from the sales of securities from the
mortgage-backed securities available for sale portfolio were $-0- (1996), $6,409
(1995) and $120 (1994) and resulted in realized gains of $-0- (1996), $13
(1995), and $-0- (1994) and realized losses of $-0- (1996), $-0- (1995) and $1
(1994).
At December 31, 1996, mortgage-backed securities available for sale had
contractual maturities as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
------------------------------ -------------- --------------
<S> <C> <C>
1997 through 2001 $ 1,243 $ 1,259
2002 through 2006 2,425 2,515
2007 and thereafter 213,280 223,692
------------- -------------
$ 216,948 227,466
============= =============
</TABLE>
F-15
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(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, 1996
------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Held to maturity without recourse:
FNMA $ 662,584 $ 7,897 $ 9,974 $ 660,507
FHLMC 71,418 6,153 -0- 77,571
GNMA 66,690 5,030 -0- 71,720
------------ ------------ ------------ ------------
800,692 19,080 9,974 809,798
Held to maturity with recourse:
FNMA 3,265,424 13,844 -0- 3,279,268
------------ ------------ ------------ ------------
Total held to maturity $4,066,116 $ 32,924 $ 9,974 $4,089,066
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
-----------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Held to maturity 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
Held to maturity with recourse:
FNMA 2,232,686 62,517 -0- 2,295,203
------------ ------------ ------------ ------------
Total held to maturity $3,126,460 $ 93,705 $ 2,930 $ 3,217,235
============ ============ ============ ============
</TABLE>
The weighted average portfolio yields on mortgage-backed securities held to
maturity were 7.05% and 7.28% at December 31, 1996, and 1995, respectively.
There were no sales of securities from the mortgage-backed securities held to
maturity portfolio during 1996, 1995, or 1994.
At December 31, 1996, mortgage-backed securities held to maturity had
contractual maturities as follows:
<TABLE>
<CAPTION>
Amortized Fair
Maturity Cost Value
------------------------------ -------------- --------------
<S> <C> <C>
1997 through 2001 $ -0- $ -0-
2002 through 2006 57 60
2007 and thereafter 4,066,059 4,089,006
------------- -------------
$ 4,066,116 $ 4,089,066
============= =============
</TABLE>
F-16
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE F - Loans Receivable
<TABLE>
<CAPTION>
December 31
-------------------------------------
1996 1995
---------------- ---------------
<S> <C> <C>
Loans collateralized primarily by first deeds of trust:
One- to four-family dwelling units $ 25,862,898 $ 24,071,421
Over four-family dwelling units 4,403,389 4,205,050
Commercial property 97,852 122,396
Construction loans -0- 1,471
Land 1,147 1,511
---------------- ---------------
30,365,286 28,401,849
Loans on savings accounts 31,936 33,279
---------------- ---------------
30,397,222 28,435,128
Less:
Undisbursed loan funds 3,920 3,568
Unearned fees and discounts 69,938 88,194
Unamortized discount arising from acquisitions 14,241 20,025
Allowance for loan losses 195,702 141,988
--------------- ---------------
$ 30,113,421 $ 28,181,353
=============== ===============
</TABLE>
In addition to loans receivable, the Association services loans for others.
At December 31, 1996, and 1995, the amount of loans serviced for others
(non-affiliated) was $4,563,113 and $3,135,125, respectively, including $1.3
billion in 1996 and $2.3 billion in 1995 of loans that were securitized into
FNMA MBS with recourse.
At December 31, 1996, and 1995, the Company had $15 million and $32
million, respectively, in loans held for sale, all of which are carried at the
lower of cost or market. Outstanding loans sold with recourse amounted to $518
million and had a valuation liability of $602 thousand as of December 31, 1996.
The following is a summary of capitalized mortgage servicing rights:
<TABLE>
<CAPTION>
Year Ended
December 31
1996
-------------
<S> <C>
Balance at January 1 $ -0-
New capitalized mortgage servicing rights from loan sales 10,809
Amortization of capitalized mortgage servicing rights 1,484
-------------
Balance at December 31 $ 9,325
==============
</TABLE>
A summary of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Balance at January 1 $ 141,988 $ 124,003 $ 106,698
Provision for loan losses charged to expense 84,256 61,190 62,966
Less loans charged off (31,239) (44,656) (46,556)
Recoveries 697 1,451 895
------------ ------------ -----------
Balance at December 31 $ 195,702 $ 141,988 $ 124,003
============ ============ ===========
</TABLE>
The following is a summary of impaired loans:
<TABLE>
<CAPTION>
December 31
--------------------------------
1996 1995
---------------------------------
<S> <C> <C>
Nonperforming loans $ 373,157 $ 314,086
Troubled debt restructured 84,082 45,222
Other impaired loans 55,961 60,483
------------ -------------
$ 513,200 $ 419,791
============= =============
</TABLE>
F-17
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
The portion of the allowance for loan losses that was specifically provided
for impaired loans was $19,356 and $16,516 at December 31, 1996 and 1995,
respectively. The average recorded investment in total impaired loans was
$477,426 and $487,989 during 1996 and 1995, respectively. All amounts involving
impaired loans have been measured based upon the fair value of the related
collateral. The amount of interest income recognized during 1996, 1995, and 1994
on the total of impaired loans at each yearend was $25,140 (1996), $19,141
(1995), and $16,449 (1994).
NOTE G - Interest Earned But Uncollected
<TABLE>
<CAPTION>
December 31
---------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Loans receivable $ 127,534 $ 132,849
Mortgage-backed securities 22,410 23,975
Interest rate swaps 58,418 60,415
Other 13,242 8,156
------------- ------------
$ 221,604 $ 225,395
============= ============
</TABLE>
NOTE H - Real Estate Held for Sale or Investment
<TABLE>
<CAPTION>
December 31
--------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Real estate acquired through foreclosure of loans, net of
allowance for losses $ 82,075 $ 75,158
Real estate in judgement, net of allowance for losses 416 443
Real estate held for investment, net of allowance for losses 561 586
------------- -------------
$ 83,052 $ 76,187
============= =============
</TABLE>
NOTE I - Premises and Equipment
<TABLE>
<CAPTION>
December 31
----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Land $ 56,319 $ 51,002
Building and leasehold improvements 161,413 149,872
Furniture, fixtures, and equipment 139,173 127,759
------------ -------------
356,905 328,633
Accumulated depreciation and amortization 143,001 124,996
------------ -------------
$ 213,904 $ 203,637
============ =============
</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, 1996, and which expire between 1997 and 2064, amounted
to approximately $161,593. The approximate minimum payments during the five
years ending 2001 are $15,704 (1997), $14,184 (1998), $11,932 (1999), $10,261
(2000), and $6,914 (2001). 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 $18,289 (1996), $17,540 (1995), and $16,979
(1994).
F-18
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE J - Customer Deposits
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------
1996 1995
---------------------------- -----------------------------
Rate* Amount Rate* Amount
---------- --------------- ----------------------------
<S> <C> <C> <C> <C>
Customer deposits by rate:
Interest-bearing checking accounts 1.17% $ 318,422 1.25% $ $ 750,160
Passbook accounts 2.22 550,075 2.23 567,890
Money market deposit accounts 2.44 1,565,682 3.20 1,291,501
Term certificate accounts with original
maturities of:
4 weeks to 1 year 5.20 10,144,102 5.32 9,358,705
1 to 2 years 5.20 5,012,735 5.65 3,599,540
2 to 3 years 5.85 1,587,068 5.63 2,128,392
3 to 4 years 5.67 565,997 5.36 651,787
4 years and over 5.71 1,993,983 6.32 2,065,785
Retail jumbo CDs 5.23 360,441 5.57 430,647
All other 7.70 1,429 7.71 3,503
-------------- --------------
$ 22,099,934 $ 20,847,910
============== ==============
</TABLE>
*Weighted average interest rate including the impact of interest rate
swaps.
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1996 1995
----------------- ------------------
<S> <C> <C>
Customer deposits by remaining maturity at yearend:
No contractual maturity $ 2,434,179 $ 2,609,551
Maturity within one year:
1st quarter 7,811,583 6,014,410
2nd quarter 4,737,429 4,953,641
3rd quarter 3,221,586 2,096,226
4th quarter 1,238,244 1,422,384
----------------- -----------------
17,008,842 14,486,661
1 to 2 years 1,518,861 2,259,328
2 to 3 years 810,336 618,242
3 to 4 years 161,935 638,226
Over 4 years 165,781 235,902
---------------- ----------------
$ 22,099,934 $ 20,847,910
================= ================
</TABLE>
At December 31, the weighted average cost of deposits was 4.98% (1996) and
5.15% (1995).
Interest expense on customer deposits is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Interest-bearing checking accounts $ 7,536 $ 9,258 $ 9,463
Passbook accounts 17,967 17,771 19,733
Money market deposit accounts 25,294 30,262 38,430
Term certificate accounts 1,010,617 991,099 646,727
-------------- -------------- -------------
$ 1,061,414 $ 1,048,390 $ 714,353
============== ============== =============
</TABLE>
F-19
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE K - Advances from Federal Home Loan Banks
Advances are secured by pledges of $13,911,643 of certain loans, capital
stock of the Federal Home Loan Bank, and MBS with a market value of $486,284,
and these borrowings have maturities and interest rates as follows:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------------------------------------
Receive
Stated Fixed Adjusted
Maturity Amount Rate Swaps Rate*
-------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
1997 $ 2,649,000 5.56% 5.56%
1998 1,470,102 5.66 5.66
1999 568,933 4.82 4.82
2000 681,775 5.85 (0.03)% 5.82
2001 665,241 5.59 5.59
2002 and thereafter 2,763,382 5.34 (0.04) 5.30
-------------
$ 8,798,433
=============
</TABLE>
<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>
*Weighted average interest rate adjusted for impact of interest rate swaps.
At December 31, the weighted average adjusted interest rate was 5.47%
(1996) and 5.70% (1995). These borrowings averaged $7,343,334 (1996) and
$6,438,791 (1995) and the maximum outstanding at any monthend was $8,798,433
(1996) and $7,014,781 (1995).
F-20
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(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 with a market value of $1,956,455 and $1,859,652 at
December 31, 1996, and 1995, respectively.
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------------------------------------------------------
Pay Receive
Stated Fixed Fixed Adjusted
Maturity Amount Rate Swaps Swaps Rate*
----------------------- ------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1997 $ 1,335,335 5.40 % 5.40 %
1998 450,000 5.58 (0.02)% 5.56
1999 6,600 8.09 (2.88)% 5.21
2000 -0- 0.00 0.00
2001 116,191 5.58 5.58
-------------
$ 1,908,126
=============
</TABLE>
<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>
*Weighted average interest rate adjusted for impact of interest rate swaps.
At December 31, these liabilities had a weighted average adjusted interest
rate of 5.45% (1996) and 6.15% (1995). These borrowings averaged $2,013,427
(1996) and $1,120,860 (1995) and the weighted average interest rate on these
averages was 5.78% for 1996 and 6.30% for 1995. The maximum outstanding at any
monthend was $2,375,573 (1996) and $2,018,438 (1995). At the end of 1996 and
1995, respectively, $1,614,763 and $1,752,171 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 $293,363 (1996) and $65,772
(1995).
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, 1996
- ----------------------------------------------------------------------------------
Receive
Stated Fixed Adjusted
Maturity Amount Rate Swaps Rate*
- ---------------- --------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
1997 $ 479,912 6.58% (0.80)% 5.78%
1998 109,933 5.83 5.83
--------------
$ 589,845
==============
</TABLE>
F-21
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
<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>
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>
*Weighted average interest rate adjusted for impact of interest rate swaps.
At December 31, medium-term notes had a weighted average adjusted interest
rate of 5.79% (1996) and 6.04% (1995).
NOTE N - Subordinated Notes
<TABLE>
<CAPTION>
December 31
------------------------------------
1996 1995
---------------- ----------------
<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 $5,514 (1996) and $6,907 (1995) $ 1,124,486 $ 1,123,093
Association:
Subordinated notes, unsecured, due from 1997 to 2000 at coupon rates
of 9.90% to 10.25%, net of unamortized discount
of $490 (1996) and $701 (1995) 199,510 199,299
--------------- ---------------
$ 1,323,996 $ 1,322,392
=============== ===============
</TABLE>
At December 31, subordinated notes had a weighted average interest rate of
8.48% (1996) and 8.49% (1995). At December 31, 1996, subordinated notes had
maturities and interest rates as follows:
<TABLE>
<CAPTION>
Maturity Rate* Amount
---------------------------------- ----------- --------------
<S> <C> <C>
1997 10.36 % $ 214,885
1998 9.02 199,630
2000 9.28 313,572
2002 7.74 397,112
2003 6.13 198,797
--------------
$ 1,323,996
==============
</TABLE>
*Weighted average interest rate
F-22
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE O - 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
----------------------------------------------------
1996 1995 1994
---------------- ---------------- --------------
<S> <C> <C> <C>
Federal income tax:
Current $ (35,754) $ 108,717 $ 121,124
Deferred 1,863 6,287 1,765
State tax:
Current 33,742 36,887 39,941
Deferred (1,583) (1,198) (2,897)
--------------- --------------- --------------
$ (1,732) $ 150,693 $ 159,933
=============== =============== ==============
</TABLE>
The amounts of net deferred liability included in taxes on income in the
Consolidated Statement of Financial Condition are:
<TABLE>
<CAPTION>
December 31
----------------------------------
1996 1995
---------------- ----------------
<S> <C> <C>
Federal income tax $ 126,484 $ 112,031
State tax 50,703 48,065
</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
---------------------------------------
1996 1995
----------------- -----------------
<S> <C> <C>
Deferred tax liabilities:
Loan fees and interest income $ 81,977 $ 72,355
FHLB stock dividends 78,605 69,572
Bad debt reserve 26,836 28,355
Unrealized gains on debt and equity securities 69,968 53,500
Depreciation 14,872 14,337
Other deferred tax liabilities 5,127 4,779
---------------- ----------------
Gross deferred tax liabilities 277,385 242,898
Deferred tax assets:
Provision for losses on loans 76,704 54,577
State taxes 12,472 13,367
Loan discount primarily related to acquisitions 6,293 8,674
Other deferred tax assets 4,729 6,184
---------------- ----------------
Gross deferred tax assets 100,198 82,802
---------------- ----------------
Net deferred tax liability $ 177,187 $ 160,096
================ ================
</TABLE>
F-23
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(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
----------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Computed standard
corporate tax expense $ 128,864 35.0% $ 134,831 35.0% $ 136,634 35.0%
Increases (reductions) in
taxes resulting from:
Net financial income, not
subject to income tax,
primarily related to
acquisitions (150,963) (41.0) (6,706) (1.7) 393 0.1
State tax, net of federal
income tax benefit 22,133 6.0 24,046 6.2 24,325 6.2
Other (1,766) (0.5) (1,478) (0.4) (1,419) (0.3)
----------- ----------- ----------- ----------- ----------- -----------
$ (1,732) (0.5)% $ 150,693 39.1% $ 159,933 41.0%
============ ============ ============ ============ ============ ===========
</TABLE>
"Net financial income, not subject to income tax, primarily related to
acquisitions," includes $139 million of tax benefits realized in 1996 from
operating losses which had been accumulated at the predecessor institution of
Beach Federal Savings and Loan Association (Beach) up to the time of the
government approved transaction with Beach in 1988.
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, 1996 and 1995,
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, 1996 and 1995, was approximately $88 million. This deferred tax
liability could be recognized if certain distributions are made with respect to
the stock of the savings institution, or the bad debt reserve is used for any
purpose other than absorbing bad debt losses.
NOTE P - 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,
1996, 7,763,816 of such shares had been repurchased and retired at a cost of
$332 million since October 28, 1993. During 1996, 1,930,800 of the shares were
purchased and retired at a cost of $106 million.
F-24
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE Q - Stock Options
The Company's 1996 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. At December 31, shares available for
option amounted to 2,746,500 (1996), 2,844,200 (1995), and 3,104,200 (1994).
Outstanding options at December 31, 1996, were held by 344 employees and had
expiration dates ranging from December 1, 1997, to December 13, 2006. At
December 31, 1996, the range of exercise prices on outstanding options was from
$10.75 to $65.00 and the weighted average remaining contractual life on all
outstanding options was 4.7 years.
A summary of the transactions of the stock option plan follows:
<TABLE>
<CAPTION>
Average
Price per
Shares Share
-------------- -------------
<S> <C> <C>
Outstanding, January 1, 1994 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
Granted 116,000 $ 53.42
Exercised (401,780 ) $ 21.61
Canceled (18,300 ) $ 42.07
-------------- -------------
Outstanding, December 31, 1996 2,674,215 $ 28.51
============== =============
</TABLE>
At December 31, options exercisable amounted to 1,976,965 (1996), 2,170,745
(1995), and 2,114,335 (1994). The weighted-average fair value of options granted
during 1996 and 1995 was $15.21 per share and $13.72 per share, respectively.
The Company applies APB 25 and related interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized for the plan.
Had compensation cost for the plan been determined based on the fair value at
the grant dates for awards under the plan consistent with the method prescribed
by SFAS 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
-------------- ---------------
<S> <C> <C>
Net income
As reported $ 164,671 $ 234 539
Pro forma 163,307 234,302
Earnings per share
As reported $ 2.84 $ 4.00
Pro forma 2.82 3.99
</TABLE>
F-25
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
For these disclosure purposes, the fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants in 1996 and 1995,
respectively; dividend yield of 1.1% for both years; expected volatility of 20%
for both years; expected lives of 5.3 years for both years; and risk-free
interest rates of 6.21% (1996) and 5.36% (1995). During the initial phase-in
period, the effects of applying SFAS 123 may not be representative of the
effects on reported net income for future years because options vest over
several years and additional awards can be made each year.
NOTE R - Financial Instruments with Off-Balance-Sheet Risk and
Concentrations of Credit Risk
As of December 31, 1996, the Company's loans receivable balance was $30.1
billion. Of that $30.1 billion balance, 35% were Southern California loans, 34%
were Northern California loans, 4% were Illinois loans, 4% were Texas loans, 4%
were Colorado loans, 3% were New Jersey loans, 3% 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 counterparties.
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, 1996, and 1995, was $290 million and $258 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, 1996, and 1995.
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, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE S - 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,
1996. To the extent that rates change, variable interest rate information will
change. The basis swaps were contracts in which the Company received an amount
based on one interest rate index and paid an amount based on a different
interest rate index. 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, 1996 for interest rate swaps held by the Company by product
type.
<TABLE>
<CAPTION>
Maturities of December 31, 1996 Interest Rate Swaps
Maturity
----------------------------------------------------------------- Balance at
1997 1998 1999 2000 2001+ December 31, 1996
---------- ----------- ---------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Receive fixed generic swaps:
Notional amount $1,002,180 $1,166,295 $ 319,373 $ 45,901 $ 47,201 $2,580,950
Weighted average receive rate 6.35% 6.12% 6.65% 6.73% 6.59% 6.29%
Weighted average pay rate 5.63% 5.46% 5.64% 5.66% 5.63% 5.55%
Pay fixed generic swaps:
Notional amount $ 232,000 $ 209,000 $ 172,000 $ 10,000 $ 717,095 $1,340,095
Weighted average receive rate 5.74% 5.74% 5.80% 5.83% 5.74% 5.75%
Weighted average pay rate 6.86% 7.66% 8.26% 6.08% 7.11% 7.29%
Forward starting swaps:
Notional amount $ -0- $ -0- $ 10,000 $ -0- $ -0- $ 10,000
Weighted average receive rate 0.00% 0.00% 8.68% 0.00% 0.00% 8.68%
Weighted average pay rate 0.00% 0.00% 5.62% 0.00% 0.00% 5.62%
---------- ---------- --------- --------- -------- -----------
Total notional value $1,234,180 $1,375,295 $ 501,373 $ 55,901 $764,296 $ 3,931,045
========== ========== ========= ========= ========= ===========
Total weighted average rate on swaps:
Receive rate 6.24% 6.06% 6.40% 6.57% 5.79% 6.11%
========= ========== ========= ========== ======== ===========
Pay rate 5.86% 5.80% 6.54% 5.74% 7.02% 6.14%
========= ========== ========= ========== ======== ===========
</TABLE>
F-27
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
During 1996, the range of floating interest rates received on swap
contracts was 5.14% to 6.02% and the range of floating interest rates paid on
swap contracts was 4.81% to 6.06%. The range of fixed interest rates received on
swap contracts was 4.61% to 9.68% and the range of fixed interest rates paid on
swap contracts was 5.38% to 9.14%.
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, 1996, 1995, and 1994
(Notional amounts in millions)
Receive Pay Forward Interest
Fixed Fixed Basis Starting Rate
Swaps Swaps Swaps Swaps Caps
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance, 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, December 31, 1994 4,991 2,225 200 135 300
Additions 219 -0- 43 -0- -0-
Maturities (2,114) (450) (200) -0- (75)
Terminations -0- -0- -0- -0- -0-
Forward starting becoming effective 125 -0- -0- (125 ) -0-
----------- ----------- ------------ ------------ -----------
Balance, December 31, 1995 3,221 1,775 43 10 225
Additions 905 -0- -0- -0- -0-
Maturities (1,545) (435) (43) -0- (225)
Terminations -0- -0- -0- -0- -0-
Forward starting becoming effective -0- -0- -0- -0- -0-
----------- ----------- ------------ ------------ -----------
Balance, December 31, 1996 $ 2,581 $ 1,340 $ -0- $ 10 $ -0-
=========== =========== ============ ============ ===========
</TABLE>
Interest rate swaps and caps activity decreased net interest income by $10
million, $29 million, and $23 million for the years ended December 31, 1996,
1995, and 1994, respectively.
F-28
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE T - 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.
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, 1996,
and 1995, 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, and securities sold under
agreements to repurchase with brokers/dealers due within 90 days.
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, securities 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.
For mortgage servicing rights, the fair value is estimated using a
discounted cash flow analysis based on the Company's estimated annual
cost of servicing, market prepayment rates, and market discount rates.
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, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash $ 218,719 $ 218,719 $ 218,695 $ 218,695
Securities available for sale 781,325 781,325 901,856 901,856
Other investments 1,078,832 1,078,832 1,190,160 1,190,160
Mortgage-backed securities available for sale 227,466 227,466 282,881 282,881
Mortgage-backed securities held to maturity 4,066,116 4,089,066 3,126,460 3,217,235
Loans receivable 30,113,421 30,123,449 28,181,353 28,342,204
Interest earned but uncollected 221,604 221,604 225,395 225,395
Investment in capital stock of Federal Home
Loan Banks 500,105 500,105 350,955 350,955
Capitalized mortgage servicing rights 9,325 12,387 -0- -0-
Financial Liabilities:
Customer deposits 22,099,934 22,159,594 20,847,910 20,957,186
Advances from Federal Home Loan Banks 8,798,433 8,798,236 6,447,201 6,441,338
Securities sold under agreements to
repurchase 1,908,126 1,907,541 1,817,943 1,831,403
Medium-term notes 589,845 590,832 1,597,507 1,607,720
Subordinated notes 1,323,996 1,367,938 1,322,392 1,418,775
</TABLE>
Off-Balance Sheet Instruments (Unrealized Gains (Losses)):
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------------------------------------------
1996 1995
---------------------------------------------- ------------------------------------------------
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 $ 17,910 $ 3,436 $ 14,474 $ 45,632 $ 1,421 $ 44,211
Pay fixed 6,829 36,649 (29,820) 327 85,982 (85,655)
Forward starting 346 -0- 346 415 -0- 415
Interest rate caps -0- -0- -0- 36 -0- 36
Loan commitments 943 -0- 943 1,389 -0- 1,389
------------- -------------- ------------- ------------- ------------- -------------
Total $ 26,028 $ 40,085 $ (14,057 $ 47,799 $ 87,403 $ (39,604)
============= ============== ============= ============= ============= =============
</TABLE>
F-30
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE U - Parent Company Financial Information
Statement of Net Earnings
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Investment income $ 48,356 $ 49,893 $ 40,821
Insurance commissions and trustee
fees 1,381 1,403 1,190
Other 19 24 20
------------- ------------- -------------
49,756 51,320 42,031
Expenses:
Interest 91,943 88,662 85,906
General and administrative 3,166 3,631 2,648
------------ - ------------- -------------
95,109 92,293 88,554
------------- ------------- -------------
Loss before earnings of subsidiaries
and income tax credit (45,353) (40,973) (46,523)
Income tax credit 20,306 18,498 20,779
Earnings of subsidiaries before cumulative
effect of change in accounting for goodwill 394,960 257,014 256,193
------------- ------------- -------------
Earnings Before Cumulative Effect of Change
in Accounting for Goodwill 369,913 234,539 230,449
Cumulative effect of change in accounting
for goodwill (205,242) -0- -0-
------------- ------------- --------------
Net Earnings $ 164,671 $ 234,539 $ 230,449
============== ============== ==============
</TABLE>
Statement of Financial Condition
Assets
<TABLE>
<CAPTION>
December 31
---------------------------------------
1996 1995
------------------ ------------------
<S> <C> <C>
Cash $ 7,092 $ 2,556
Securities available for sale 153,192 199,523
Other investments 152,485 517,202
Notes receivable from subsidiary 600,000 -0-
Prepaid expenses and other assets 13,637 14,380
Investment in subsidiaries 2,580,050 2,698,237
----------------- -----------------
$ 3,506,456 $ 3,431,898
================= =================
</TABLE>
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C> <C>
Accounts payable and accrued expenses $ 31,493 $ 30,452
Subordinated notes, net 1,124,486 1,123,093
Stockholders' equity 2,350,477 2,278,353
---------------- ----------------
$ 3,506,456 3,431,898
================ ================
</TABLE>
F-31
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE U- Parent Company Financial Information (Continued)
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 164,671 $ 234,539 $ 230,449
Adjustments to reconcile net earnings
to net cash used in operating activities:
Equity in earnings of subsidiaries before
cumulative effect of change in accounting (394,960) (257,014) (256,193)
Cumulative effect of change in accounting 205,242 -0- -0-
Amortization of intangibles and
discount on subordinated debt 1,393 1,404 1,353
Other, net 4,072 (7,290) (5,086)
------------- ------------- -------------
Net cash used in operating activities (19,582) (28,361) (29,477)
Cash flows from investing activities:
Capital contributed to subsidiaries (500,225) (580,582) (625)
Dividends received from subsidiary 830,000 280,000 275,000
Purchases of securities held for sale (306,590) (2,638,824) (1,305,371)
Sales of securities available for sale 6,182 102,911 620,415
Matured securities available for sale 350,000 2,664,121 1,060,842
Decrease (increase) in other investments 364,717 (130,495) (271,993)
Notes receivable from subsidiary (2,501,500) (450,000) (650,000)
Repayments of notes receivable from
subsidiary 1,901,500 700,000 550,000
-------------- ------------- -------------
Net cash provided by (used in) investing
activities 144,084 (52,869) 278,268
Cash flows from financing activities:
(Decrease) in securities sold under
agreements to repurchase -0- -0- (24,875)
Proceeds from subordinated debt -0- 99,283 -0-
Dividends on common stock (22,893) (20,533) (19,220)
Sale of stock 8,683 6,198 2,992
Purchase and retirement of Company stock (105,756) (2,870) (215,638)
--------------- --------------- ---------------
Net cash provided by (used in) financing
activities (119,966) 82,078 (256,741)
Net increase (decrease) in cash 4,536 848 (7,950)
Cash at beginning of period 2,556 1,708 9,658
-------------- --------------- -------------
Cash at end of period $ 7,092 $ 2,556 $ 1,708
=============== =============== =============
</TABLE>
F-32
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
NOTE V - Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
Quarter Ended
------------------------------------------------------------------
March 31 June 30 September 30 (a) December 31
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Interest income $ 639,107 $ 630,178 $ 646,587 $ 665,689
Interest expense 431,448 421,675 441,640 455,838
-------------- --------------- -------------- ---------------
Net interest income 207,659 208,503 204,947 209,851
Provision for loan losses 18,522 17,236 23,498 25,000
Non-interest income 19,524 18,826 17,676 18,873
Non-interest expense (b) 80,791 80,469 211,282 80,880
-------------- --------------- -------------- ---------------
Earnings (loss) before taxes on income 127,870 129,624 (12,157 ) 122,844
Taxes on income 49,277 50,039 (147,942 ) 46,894
-------------- --------------- -------------- ---------------
Earnings before cumulative effect of
change in accounting for goodwill 78,593 79,585 135,785 75,950
Cumulative effect of change in accounting
for goodwill (b) (205,242) -0- -0- -0-
-------------- --------------- -------------- ---------------
Net earnings (loss) $ (126,649) $ 79,585 $ 135,785 $ 75,950
============== =============== ============== ===============
Earnings per share before cumulative effect
of change in accounting for goodwill $ 1.34 $ 1.35 $ 2.32 $ 1.32
Cumulative effect of change in accounting
for goodwill (b) (3.49) 0.00 0.00 0.00
-------------- --------------- -------------- ---------------
Net earnings (loss) per share $ (2.15) $ 1.35 $ 2.32 $ 1.32
============== =============== ============== ===============
Cash dividends per share $ .095 $ .095 $ .095 $ .110
============== =============== ============== ===============
</TABLE>
(a) The third quarter of 1996 was significantly influenced by two
nonrecurring items: the federally mandated recapitalization of the Savings
Association Insurance Fund which resulted in a one-time charge of $133 million,
or $1.34 per share on an after-tax basis; and the recognition of $139 million,
or $2.40 per share, of tax benefits arising from a prior year acquisition. See
discussion in Note A.
(b) During 1996, the Company adopted SFAS 72 for goodwill related to
acquisitions prior to September 30, 1982, which resulted in the write-off of
$205 million, or $3.49 per share, of goodwill effective January 1, 1996. See
discussion in Note A.
F-33
<PAGE>
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Years ended December 31, 1996, 1995, and 1994
(Dollars in thousands except per share figures)
<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
============== ============== ============== =============
F-34
</TABLE>
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 21, 1997 appearing in this Annual Report on Form 10-K of Golden
West Financial Corporation for the year ended December 31, 1996.
/s/Deloitte & Touche LLP
San Francisco, California
March 24, 1997
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-31-1996
<CASH> 218,719
<INT-BEARING-DEPOSITS> 149,997
<FED-FUNDS-SOLD> 324,432
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,008,791
<INVESTMENTS-CARRYING> 4,066,116
<INVESTMENTS-MARKET> 4,089,466
<LOANS> 30,113,421
<ALLOWANCE> 195,702
<TOTAL-ASSETS> 37,730,598
<DEPOSITS> 22,099,934
<SHORT-TERM> 4,679,132
<LIABILITIES-OTHER> 659,787
<LONG-TERM> 7,941,268
0
0
<COMMON> 5,734
<OTHER-SE> 2,344,743
<TOTAL-LIABILITIES-AND-EQUITY> 37,730,598
<INTEREST-LOAN> 2,203,752
<INTEREST-INVEST> 131,516
<INTEREST-OTHER> 246,293
<INTEREST-TOTAL> 2,581,561
<INTEREST-DEPOSIT> 1,061,414
<INTEREST-EXPENSE> 1,750,601
<INTEREST-INCOME-NET> 830,960
<LOAN-LOSSES> 84,256
<SECURITIES-GAINS> 841
<EXPENSE-OTHER> 453,422
<INCOME-PRETAX> 368,181
<INCOME-PRE-EXTRAORDINARY> 368,181
<EXTRAORDINARY> 0
<CHANGES> 205,242
<NET-INCOME> 164,671
<EPS-PRIMARY> 2.84
<EPS-DILUTED> 2.84
<YIELD-ACTUAL> 7.37
<LOANS-NON> 373,157
<LOANS-PAST> 0
<LOANS-TROUBLED> 84,082
<LOANS-PROBLEM> 55,961
<ALLOWANCE-OPEN> 141,988
<CHARGE-OFFS> 31,239
<RECOVERIES> 697
<ALLOWANCE-CLOSE> 195,702
<ALLOWANCE-DOMESTIC> 195,702
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
