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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-4629
GOLDEN WEST FINANCIAL CORPORATION
Incorporated Pursuant to the Laws of Delaware State
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IRS - Employer Identification No. 95-2080059
1901 Harrison Street, Oakland, California 94612
(510) 446-3420
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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 whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ X ] No [ ]
The number of shares outstanding of the registrant's common stock
as of July 31, 2003:
Common Stock -- 152,327,058 shares.
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GOLDEN WEST FINANCIAL CORPORATION
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Consolidated Statement of Financial Condition -
June 30, 2003 and 2002 and December 31, 2002.............................1
Consolidated Statement of Net Earnings -
For the three and six months ended June 30, 2003 and 2002................2
Consolidated Statement of Cash Flows -
For the three and six months ended June 30, 2003 and 2002................3
Consolidated Statement of Stockholders' Equity -
For the six months ended June 30, 2003 and 2002..........................5
Note to Consolidated Financial Statements - Accounting Policies ..............6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................8
Financial Highlights..........................................................9
Financial Condition..........................................................11
Cash and Investments.........................................................14
Loans Receivable, Including MBS..............................................14
Mortgage Servicing Rights....................................................22
Asset Quality................................................................23
Deposits.....................................................................25
Advances from Federal Home Loan Banks........................................26
Securities Sold Under Agreements to Repurchase...............................27
Other Borrowings.............................................................27
Stockholders' Equity.........................................................27
Regulatory Capital...........................................................28
Results of Operations........................................................30
Liquidity and Capital Resources..............................................37
Item 3. Quantitative and Qualitative Disclosures about Market Risk..........38
Item 4. Controls and Procedures.............................................38
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K...................................39
i
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Golden West Financial
Corporation and subsidiaries (Golden West or Company), including World Savings
Bank, FSB (WSB) and World Savings Bank, FSB (Texas) (WTX), for the three and six
months ended June 30, 2003 and 2002 are unaudited. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) that are
necessary for a fair statement of the results for such three- and six- month
periods have been included. The operating results for the three and six months
ended June 30, 2003 are not necessarily indicative of the results for the full
year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Dollars in thousands)
June 30 December 31 June 30
2003 2002 2002
--------------- --------------- --------------
(Unaudited) (Unaudited)
--------------- --------------
Assets
Cash $ 267,960 $ 318,914 $ 332,027
Securities available for sale at fair value 604,998 922,177 369,238
Purchased mortgage-backed securities available for sale at fair value 27,524 34,543 40,562
Purchased mortgage-backed securities held to maturity at cost 106,098 161,846 216,697
Mortgage-backed securities with recourse held to maturity 4,667,649 5,871,069 7,141,275
Loans receivable 63,690,274 58,268,899 51,624,345
Interest earned but uncollected 198,639 183,130 198,842
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 1,132,714 1,072,817 1,050,819
Foreclosed real estate 11,027 11,244 11,664
Premises and equipment--at cost less accumulated depreciation 355,042 351,942 343,620
Other assets 1,136,100 1,209,247 993,025
--------------- --------------- --------------
$ 72,198,025 $68,405,828 $62,322,114
=============== =============== ==============
Liabilities and Stockholders' Equity
Deposits $ 44,385,717 $41,038,797 $36,230,741
Advances from Federal Home Loan Banks 19,927,189 18,635,099 18,948,901
Securities sold under agreements to repurchase 21,247 522,299 21,936
Federal funds purchased 265,000 -0- 50,000
Bank notes 99,990 1,209,925 1,052,822
Senior debt--net of discount 990,467 989,690 198,407
Subordinated notes--net of discount 199,955 199,867 399,761
Taxes on income 533,122 489,252 462,940
Other liabilities 363,584 295,649 302,017
Stockholders' equity 5,411,754 5,025,250 4,654,589
--------------- --------------- --------------
$ 72,198,025 $68,405,828 $62,322,114
=============== =============== ==============
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
--------------------------- ----------------------------
2003 2002 2003 2002
------------- ----------- ------------ ------------
Interest Income
Interest on loans $ 781,855 $711,522 $1,555,684 $1,369,722
Interest on mortgage-backed securities 67,939 112,479 146,854 292,447
Interest and dividends on investments 21,529 29,788 46,219 59,856
------------- ----------- ------------ ------------
871,323 853,789 1,748,757 1,722,025
Interest Expense
Interest on deposits 236,128 263,148 486,230 539,729
Interest on advances 69,715 100,010 139,656 200,277
Interest on repurchase agreements 13 612 1,282 1,032
Interest on other borrowings 23,846 25,000 51,227 49,069
------------- ----------- ------------ ------------
329,702 388,770 678,395 790,107
------------- ----------- ------------ ------------
Net Interest Income 541,621 465,019 1,070,362 931,918
Provision for loan losses 3,501 5,186 7,980 13,725
------------- ----------- ------------ ------------
Net Interest Income after Provision for Loan Losses 538,120 459,833 1,062,382 918,193
Noninterest Income
Fees 41,920 33,369 76,431 69,872
Gain on the sale of securities, MBS and loans 21,192 6,487 36,515 20,906
Change in fair value of derivatives 2,793 (2,174) 5,646 4,957
Other 17,025 13,611 31,400 25,562
------------- ----------- ------------ ------------
82,930 51,293 149,992 121,297
Noninterest Expense
General and administrative:
Personnel 104,282 85,207 201,176 168,039
Occupancy 24,298 21,240 47,897 42,405
Deposit insurance 1,652 1,509 3,273 3,011
Advertising 5,332 3,042 11,317 6,927
Other 41,616 31,969 83,227 63,646
------------- ----------- ------------ ------------
177,180 142,967 346,890 284,028
Earnings before Taxes on Income 443,870 368,159 865,484 755,462
Taxes on income 171,397 141,791 332,946 291,013
------------- ----------- ------------ ------------
Net Earnings $ 272,473 $226,368 $ 532,538 $ 464,449
============= =========== ============ ============
Basic Earnings Per Share $ 1.79 $ 1.46 $ 3.48 $ 2.99
============= =========== ============ ============
Diluted Earnings Per Share $ 1.76 $ 1.44 $ 3.43 $ 2.95
============= =========== ============ ============
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ---------------------------
2003 2002 2003 2002
----------- ----------- ------------ -------------
Cash Flows from Operating Activities
Net earnings $ 272,473 $ 226,368 $ 532,538 $ 464,449
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 3,501 5,186 7,980 13,725
Amortization of net loan costs 24,845 13,255 41,837 20,456
Depreciation and amortization 10,402 9,138 20,657 17,923
Loans originated for sale (613,617) (248,933) (1,185,058) (702,307)
Sales of loans 894,345 339,498 1,698,886 1,110,787
Decrease (increase) in interest earned but uncollected (8,382) 9,576 (16,750) 57,978
Federal Home Loan Bank stock dividends (9,796) (12,363) (21,471) (28,048)
Increase in other assets (144,889) (17,582) (113,023) (216,128)
Increase (decrease) in other liabilities (32,738) (38,487) 67,935 (10,757)
Increase (decrease) in taxes on income (77,907) (101,949) 62,320 16,026
Other, net 865 7,653 2,609 17,534
----------- ----------- ------------ -------------
Net cash provided by operating activities 319,102 191,360 1,098,460 761,638
Cash Flows from Investing Activities
New loan activity:
New real estate loans originated for portfolio (7,430,478) (6,648,850) (13,801,794) (11,624,052)
Real estate loans purchased (970) -0- (1,070) -0-
Other, net (45,351) (225,541) (93,411) (374,360)
----------- ----------- ------------ -------------
(7,476,799) (6,874,391) (13,896,275) (11,998,412)
Real estate loan principal payments:
Monthly payments 345,082 280,147 659,010 520,685
Payoffs, net of foreclosures 4,177,111 2,616,121 7,399,418 4,895,804
----------- ----------- ------------ -------------
4,522,193 2,896,268 8,058,428 5,416,489
Sales of mortgage-backed securities available for sale -0- -0- -0- 176,063
Repayments of mortgage-backed securities 548,399 768,368 1,091,561 2,041,791
Proceeds from sales of foreclosed real estate 12,361 11,505 24,780 24,770
Decrease in securities available for sale 1,684 81,461 459,366 231,929
Purchases of Federal Home Loan Bank stock -0- -0- (37,185) -0-
Redemptions of Federal Home Loan Bank stock -0- -0- -0- 81,782
Additions to premises and equipment (10,014) (16,976) (24,891) (34,127)
----------- ----------- ------------ -------------
Net cash used in investing activities (2,402,176) (3,133,765) (4,324,216) (4,059,715)
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- ----------------------------
2003 2002 2003 2002
------------- ----------- ------------ ------------
Cash Flows from Financing Activities
Net increase in deposits $ 882,482 $ 722,389 $ 3,346,920 $ 1,758,156
Additions to Federal Home Loan Bank advances 3,557,300 2,120,000 6,607,300 3,140,000
Repayments of Federal Home Loan Bank advances (2,512,433) (711,859) (5,315,210) (2,228,608)
Proceeds from agreements to repurchase securities 1,652 501,190 101,697 509,455
Repayments of agreements to repurchase securities (2,393) (507,777) (602,749) (711,042)
Increase (decrease) in federal funds purchased 65,000 (150,000) 265,000 50,000
Increase (decrease) in bank notes purchased 99,990 1,052,822 (1,109,935) 1,052,822
Repayment of subordinated debt -0- (100,000) -0- (200,000)
Dividends on common stock (12,975) (11,230) (26,023) (22,506)
Exercise of stock options 3,499 6,168 5,625 11,925
Purchase and retirement of Company stock (37,086) (20,500) (97,823) (69,157)
------------- ----------- ------------ ------------
Net cash provided by financing activities 2,045,036 2,901,203 3,174,802 3,291,045
------------- ----------- ------------ ------------
Net Decrease in Cash (38,038) (41,202) (50,954) (7,032)
Cash at beginning of period 305,998 373,229 318,914 339,059
------------- ----------- ------------ ------------
Cash at end of period $ 267,960 $ 332,027 $ 267,960 $ 332,027
============= =========== ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 332,700 $ 381,833 $ 675,143 $ 786,746
Income taxes 249,401 243,756 270,766 275,178
Cash received for interest and dividends 864,061 863,468 1,733,248 1,778,783
Noncash investing activities:
Loans receivable and loans underlying mortgage-backed
securities converted from adjustable rate to fixed-rate 395,182 52,910 736,952 224,633
Loans transferred to foreclosed real estate 11,709 11,166 24,500 22,185
Loans securitized into mortgage-backed securities
with recourse recorded as loans
receivable per SFAS 140 4,766,064 5,351,703 4,766,064 12,194,076
Mortgage-backed securities held to maturity desecuritized
into adjustable rate loans and recorded as loans receivable -0- 2,072,618 -0- 4,147,670
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Six Months Ended June 30, 2003
-------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
----------- ----------- ------------ ----------------- --------------- ----------------
Balance at January 1, 2003 $ 15,352 $198,162 $ 4,612,529 $ 199,207 $ 5,025,250
Comprehensive income:
Net earnings -0- -0- 532,538 -0- 532,538 $ 532,538
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (27,806) (27,806) (27,806)
Reclassification adjustment for
gains included in income -0- -0- -0- (7) (7) (7)
----------------
Comprehensive Income $ 504,725
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Common stock issued upon
exercise of stock options 26 5,599 -0- -0- 5,625
Purchase and retirement of
Company stock (133) -0- (97,690) -0- (97,823)
Cash dividends on common
stock ($.17 per share) -0- -0- (26,023) -0- (26,023)
----------- ----------- ------------ ----------------- ---------------
Balance at June 30, 2003 $ 15,245 $203,761 $ 5,021,354 $ 171,394 $ 5,411,754
=========== =========== ============ ================= ===============
For the Six Months Ended June 30, 2002
-----------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
---------- ------------ ------------ ------------------ -------------- ----------------
Balance at January 1, 2002 $ 15,553 $173,500 $ 3,873,758 $ 221,379 $ 4,284,190
Comprehensive income:
Net earnings -0- -0- 464,449 -0- 464,449 $ 464,449
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (13,565) (13,565) (13,565)
Reclassification adjustment for
gains included in income -0- -0- -0- (747) (747) (747)
----------------
Comprehensive Income $ 450,137
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Common stock issued upon
exercise of stock options 52 11,873 -0- -0- 11,925
Purchase and retirement of
Company stock (109) -0- (69,048) -0- (69,157)
Cash dividends on common
stock ($.145 per share) -0- -0- (22,506) -0- (22,506)
---------- ------------ ------------ ------------------ --------------
Balance at June 30, 2002 $ 15,496 $185,373 $ 4,246,653 $ 207,067 $ 4,654,589
========== ============ ============ ================== ==============
Note to Consolidated Financial Statements -- Accounting Policies
The Company's significant accounting policies are more fully described
in Note A to the Consolidated Financial Statements included in the Form 10-K for
the fiscal year ended December 31, 2002, filed with the SEC on March 26, 2003
(SEC File No. 1-4629).
Stock-Based Compensation
The Company has a stock-based employee compensation plan. The Company
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" (APB 25) and related interpretations in accounting for its plan.
Historically, the options have been granted at exercise prices equal to the
quoted market price at the date of the grant. Applying the intrinsic value based
method of APB 25, no compensation cost has been recognized for awards granted
under the plan. Had compensation cost been determined using the fair value based
method prescribed by SFAS 123 "Accounting for Stock Based Compensation," the
Company's net income and earnings per share would have been reduced to the pro
forma amounts indicated below:
Golden West Financial Corporation
Pro Forma Net Income and Earnings Per Share
(Dollars in thousands except per share figures)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ---------- -----------
Net income, as reported $272,473 $226,368 $532,538 $464,449
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects (2,399) (866) (3,101) (1,732)
----------- ----------- ---------- -----------
Pro forma net income $270,074 $225,502 $529,437 $462,717
=========== =========== ========== ===========
Basic earning per share
As reported $ 1.79 $ 1.46 $ 3.48 $ 2.99
Pro forma 1.77 1.46 3.46 2.98
Diluted earning per share
As reported $ 1.76 $ 1.44 $ 3.43 $ 2.95
Pro forma 1.74 1.44 3.41 2.94
New Accounting Pronouncements
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" (SFAS 149). This statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
133. This statement is effective for contracts entered into or modified after
June 30, 2003. The Company believes that SFAS 149 will not have a significant
impact on its financial statements.
In May 2003, the FASB issued SFAS 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS
150). This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company believes that SFAS 150 will not have
a significant impact on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Golden West Financial Corporation is a holding company that has as its
principal asset World Savings Bank, FSB, a federally chartered savings bank,
which is the nation's third largest savings institution. Additionally, Golden
West owns Atlas Advisers, Inc., an investment adviser to our Atlas family of
mutual funds, and Atlas Securities, Inc., the distributor of our Atlas mutual
funds and annuities.
The discussion and analysis included herein covers those material
changes in liquidity and capital resources that have occurred since December 31,
2002, as well as material changes in results of operations during the three and
six month periods ended June 30, 2003 and 2002, respectively.
We have presumed that readers have reviewed or have access to the
Company's 2002 Annual Report on Form 10-K, which contains the latest audited
financial statements and notes thereto, together with Management's Discussion
and Analysis of Financial Condition and Results of Operations as of December 31,
2002, and for the year then ended.
The Company's Internet address is www.gdw.com. Copies of the Company's
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and any amendments to such reports are available, free of charge,
through www.gdw.com as soon as reasonably practicable after their filing with
the Securities and Exchange Commission.
Forward-Looking Statements
This report may contain various forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include projections, statements of the plans and objectives of
management for future operations, statements of future economic performance,
assumptions underlying these statements and other statements that are not
statements of historical facts. Forward-looking statements are subject to
significant business, economic and competitive risks, uncertainties and
contingencies, many of which are beyond Golden West's control. Should one or
more of these risks, uncertainties or contingencies materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated. Among the key risk factors that may have a direct bearing on
Golden West's results of operations and financial condition are:
o competitive practices in the financial services industries;
o operational and systems risks;
o general economic and capital market conditions, including fluctuations
in interest rates;
o economic conditions in certain geographic areas; and
o the impact of current and future laws, governmental regulations, and
accounting and other rulings and guidelines affecting the financial
services industry in general and Golden West's operations in particular.
In addition, actual results may differ materially from the results
discussed in any forward-looking statements.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
June 30 December 31 June 30
2003 2002 2002
-------------- --------------- -------------
Assets $ 72,198,025 $ 68,405,828 $ 62,322,114
Loans receivable including mortgage-backed securities(a) 68,491,545 64,336,357 59,022,879
Adjustable rate mortgages including MBS 66,078,182 61,770,142 56,263,460
Fixed-rate mortgages held for investment including MBS 1,783,733 2,118,740 2,498,100
Fixed-rate mortgages held for sale including MBS 521,152 404,141 269,870
Deposits 44,385,717 41,038,797 36,230,741
Stockholders' equity 5,411,754 5,025,250 4,654,589
Stockholders' equity/total assets 7.50% 7.35% 7.47%
Book value per common share $ 35.50 $ 32.73 $ 30.04
Common shares outstanding 152,451,133 153,521,103 154,957,387
Yield on earning assets 4.90% 5.25% 5.59%
Cost of funds 1.94% 2.32% 2.65%
Yield on earning assets less cost
of funds (primary spread) 2.96% 2.93% 2.94%
Ratio of nonperforming assets to total assets .62% .62% .63%
Ratio of troubled debt restructured to total assets .00% .00% .01%
Loans serviced for others with recourse $ 2,993,881 $ 2,897,859 $ 2,991,206
Loans serviced for others without recourse 2,659,121 2,510,635 2,262,751
World Savings Bank, FSB:
Total assets $ 72,186,501 $ 67,967,975 $ 62,307,618
Stockholder's equity 5,876,612 5,358,440 5,111,507
Stockholder's equity/total assets 8.14% 7.88% 8.20%
Regulatory capital ratios:(b)
Tier 1 capital (core or leverage) 7.91% 7.61% 7.91%
Total risk-based capital 14.87% 14.26% 14.10%
World Savings Bank, FSB (Texas):
Total assets $ 8,089,273 $ 7,916,763 $ 7,750,886
Stockholder's equity 471,523 413,885 407,623
Stockholder's equity/total assets 5.83% 5.23% 5.26%
Regulatory capital ratios:(b)
Tier 1 capital (core or leverage) 5.83% 5.23% 5.26%
Total risk-based capital 26.06% 24.07% 24.81%
(a) Includes deferred loan costs, allowance for loan losses, and other miscellaneous reserves and discounts.
(b) For regulatory purposes, the requirements to be considered "well-capitalized" are 5.0% and 10.0% for tier 1 capital and total
risk-based capital, respectively.
Golden West Financial Corporation
Financial Highlights
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- --------------
Real estate loans originated $ 8,044,095 $ 6,897,783 $ 14,986,852 $ 12,326,359
New adjustable rate mortgages as a percentage of
real estate loans originated 91% 95% 91% 93%
Refinances as a percentage of real estate
loans originated 70% 56% 71% 59%
Deposits increase $ 882,482 $ 722,389 $ 3,346,920 $ 1,758,156
Net earnings 272,473 226,368 532,538 464,449
Basic earnings per share 1.79 1.46 3.48 2.99
Diluted earnings per share 1.76 1.44 3.43 2.95
Cash dividends on common stock $ .085 $ .0725 $ .170 $ .145
Average common shares outstanding 152,582,771 154,899,196 152,963,162 155,155,946
Average diluted common shares outstanding 155,091,780 157,078,432 155,424,954 157,269,057
Ratios:(a)
Net earnings/average stockholders' equity (ROE) 20.50% 19.85% 20.40% 20.76%
Net earnings/average assets (ROA) 1.53% 1.49% 1.51% 1.55%
Net interest margin(b) 3.13% 3.15% 3.13% 3.21%
General and administrative expense/average assets .99% .94% .99% .95%
Efficiency ratio(c) 28.37% 27.69% 28.43% 26.97%
(a) Ratios are annualized by multiplying the quarterly computation by four and the semi-annual computation by two.
Averages are computed by adding the beginning balance and each monthend balance during the quarter and six month
period and dividing by four and seven, respectively.
(b) Net interest margin is net interest income divided by average interest-earning assets.
(c) The efficiency ratio is defined as general and administrative expense divided by the sum of net interest income and
noninterest income.
Financial Condition
The consolidated condensed statement of financial condition shown in
the table below presents the Company's assets and liabilities in percentage
terms at June 30, 2003, December 31, 2002, and June 30, 2002. The reader is
referred to page 47 of the Company's 2002 Annual Report on Form 10-K for
similar information for the years 1999 through 2002 and a discussion of the
changes in the composition of the Company's assets and liabilities in those
years.
TABLE 1
Consolidated Condensed Statement of Financial Condition
In Percentage Terms
June 30 December 31 June 30
2003 2002 2002
----------- -------------- -----------
Assets
Cash and investments 1.2% 1.8% 1.1%
Loans receivable including mortgage-backed
securities 94.9 94.1 94.7
Other assets 3.9 4.1 4.2
----------- -------------- -----------
100.0% 100.0% 100.0%
=========== ============== ===========
Liabilities and Stockholders' Equity
Deposits 61.5% 60.1% 58.1%
Federal Home Loan Bank advances 27.6 27.2 30.4
Securities sold under agreements to repurchase .0 .8 .0
Federal funds purchased .4 .0 .1
Bank notes .1 1.8 1.7
Senior debt 1.4 1.4 .3
Subordinated notes .3 .3 .6
Other liabilities 1.2 1.1 1.3
Stockholders' equity 7.5 7.3 7.5
----------- -------------- -----------
100.0% 100.0% 100.0%
=========== ============== ===========
As the above table shows, deposits represent the majority of the
Company's liabilities. The largest asset component is loans receivable including
mortgage-backed securities (MBS), which consists primarily of long-term
mortgages. The Company emphasizes adjustable rate mortgages (ARMs) - loans with
interest rates that change periodically in accordance with movements in
specified indexes. Almost all of the Company's ARMs have rates that change
monthly and are tied to one of the following three indexes:
1. The Certificate of Deposit Index (CODI), which is equal to the 12-month
rolling average of the monthly average of the three-month certificate
of deposit rate as published in the Federal Reserve H-15 Statistical
Report.
2. The Eleventh District Cost of Funds Index (COFI), which is equal to the
monthly average cost of deposits and borrowings of savings institution
members of the Federal Home Loan Bank System's Eleventh District, which
is composed of California, Arizona, and Nevada.
3. The Golden West Cost of Savings Index (COSI), which is equal to the
monthend weighted average rate paid on the Company's deposits.
The Company is subject to interest-rate risk to the extent its assets
and liabilities reprice at different times and by different amounts. The
disparity between the repricing (maturity, prepayment, or interest rate change)
of mortgage loans, including MBS, and investments and the repricing of deposits
and borrowings can have a material impact on the Company's results of
operations. The difference between the timing of the repricing of assets and
liabilities is commonly referred to as "the gap."
The gap table on the following page shows that, as of June 30, 2003,
the Company's assets reprice sooner than its liabilities. If all repricing
assets and liabilities responded equally to changes in the interest rate
environment, then the gap analysis would suggest that the Company's earnings
would rise when interest rates increase and would fall when interest rates
decrease. However, the changes in the Company's earnings are also affected by
the built-in reporting and repricing lags inherent in the adjustable rate
mortgage indexes used by the Company. Reporting lags occur because of the time
it takes to gather the data needed to compute the indexes. Repricing lags occur
because it may take a period of time before changes in interest rates are
significantly reflected in the indexes.
CODI has a one-month reporting lag. CODI also has a repricing lag,
because the index is a 12-month rolling average and consequently trails changes
in short-term market interest rates.
COFI, which is the index Golden West uses to determine the rate on $22
billion of its existing adjustable rate mortgages, has a two-month reporting
lag. As a result, the COFI in effect in any month actually reflects the Eleventh
District's cost of funds at the level it was two months prior. COFI also has a
repricing lag because COFI is based on a portfolio of liabilities, not all of
which reprice immediately. Many of these liabilities, including certificates of
deposit, do not reprice each month and, when they do reprice, may not reflect
the full change in market rates. Some liabilities, such as low-rate checking or
passbook savings accounts, may reprice by only small amounts. Still other
liabilities, such as noninterest bearing deposits, do not reprice at all.
Therefore, COFI does not fully reflect a change in market interest rates.
COSI has a one-month reporting lag. COSI also has a repricing lag,
because the rates paid on many of the deposits that make up COSI do not respond
immediately or fully to a change in market interest rates. However, the COSI
repricing lag is offset by the same repricing lag on the Company's deposits.
Partially offsetting the index reporting and repricing lags are similar
lags on a portion of the Company's liabilities.
TABLE 2
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of June 30, 2003
(Dollars in millions)
Projected Repricing(a)
-----------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
----------- ----------- ----------- ----------- -----------
Interest-Earning Assets:
Investments $ 603 $ 2 $ -0- $ -0- $ 605
MBS:
Adjustable rate 4,448 -0- -0- -0- 4,448
Fixed-rate 50 106 150 47 353
Loans receivable:
Adjustable rate 59,997 786 563 -0- 61,346
Fixed-rate 284 556 760 466 2,066
Other(b) 1,330 -0- -0- -0- 1,330
Impact of swaps 221 (221) -0- -0- -0-
----------- ----------- ----------- ----------- -----------
Total $ 66,933 $ 1,229 $ 1,473 $ 513 $ 70,148
=========== =========== =========== =========== ===========
Interest-Bearing Liabilities:
Deposits(c) $ 35,740 $ 4,923 $ 3,715 $ 8 $ 44,386
FHLB advances 18,425 500 552 450 19,927
Other borrowings 386 200 497 494 1,577
----------- ----------- ----------- ----------- -----------
Total $ 54,551 $ 5,623 $ 4,764 $ 952 $ 65,890
=========== =========== =========== =========== ===========
Repricing gap $ 12,382 $ (4,394) $ (3,291) $ (439) $ 4,258
=========== =========== =========== =========== ===========
Cumulative gap $ 12,382 $ 7,988 $ 4,697 $ 4,258
=========== =========== =========== ===========
Cumulative gap as a percentage of
total assets 17.1% 11.1% 6.5%
=========== =========== ===========
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect scheduled repayments and projected
prepayments of principal based on current rates of prepayment.
(b) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(c) Deposits with no maturity date, such as checking, passbook, and money market deposit accounts, are assigned zero months.
The Company's principal strategy to limit the sensitivity of earnings
to changes in interest rates is to originate and keep in portfolio adjustable
rate mortgages to provide interest sensitivity to the asset side of the balance
sheet. At June 30, 2003, ARMs constituted over 96% of the Company's loan and MBS
portfolio. Asset rate sensitivity is further enhanced by the use of adjustable
rate mortgages on which the rate changes monthly. At June 30, 2003, such monthly
adjustable mortgages accounted for 96% of the Company's ARM portfolio.
Additionally, the Company offers home loans tied to certain adjustable rate
mortgage indexes so that the ARM index rates and the rates on the liabilities
that fund these mortgages respond in a similar manner to changes in market
rates. Specifically, COSI-indexed ARMs track the Company's cost of deposits and
CODI-indexed ARMs follow the Company's cost of borrowings. ARMs indexed to COSI
and CODI constituted 91% of the ARM originations in the first half of 2003 and
65% of the ARM portfolio at June 30, 2003. While the index strategy has improved
the match between Golden West's adjustable rate mortgage portfolio and its
savings and borrowings, there still exist some differences in the timing of the
repricing of the Company's ARMs and liabilities, primarily due to lags in the
repricing of the indexes, particularly CODI.
Cash and Investments
At June 30, 2003, December 31, 2002, and June 30, 2002, the Company had
securities available for sale in the amount of $605 million, $922 million and
$369 million, respectively, including unrealized gains on securities available
for sale of $280 million, $326 million, and $338 million, respectively. Included
in the Company's available for sale portfolio is Federal Home Loan Mortgage
Corporation (Freddie Mac) stock with a cost basis of $6 million and a market
value of $285 million at June 30, 2003. Between December 31, 2002 and June 30,
2003, the stock price of Freddie Mac dropped from $59.05 per share to $50.77 per
share. As a result, the unrealized gain before tax on the Freddie Mac stock
decreased from $326 million at December 31, 2002 to $280 million at June 30,
2003, and is reflected in the decrease in the total unrealized gains on the
securities available for sale portfolio from December 31, 2002 to June 30, 2003.
At June 30, 2003, December 31, 2002, and June 30, 2002, the Company had no
securities held for trading in its investment securities portfolio.
Loans Receivable, Including MBS
The Company invests primarily in single-family residential real estate
loans. From time to time, the Company securitizes loans from its portfolio into
MBS and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs). Under
Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(SFAS 140), if the Company retains 100% of the beneficial interests in its MBS
securitizations, it will not have any effective "retained interests" requiring
disclosures under SFAS 140. To date, the Company has not sold any interests
requiring disclosures under SFAS 140. Because the Company currently retains all
of the beneficial interest in these MBS securitizations, the securitizations
formed after March 31, 2001 are securities classified as securitized loans and
included in loans receivable in accordance with SFAS 140. Additionally, from
time to time, the Company purchases MBS. Loans, securitized loans, and MBS are
available to be used as collateral for borrowings.
During the first half of 2002, the Company desecuritized $4.1 billion
of Federal National Mortgage Association (Fannie Mae) MBS that were classified
as MBS held to maturity with recourse and the underlying loans were reclassified
to loans receivable. This desecuritization led to a significant decrease in the
outstanding balance of MBS, which in turn contributed to lower MBS repayments
and lower interest on mortgage-backed securities. The desecuritization also
contributed to an increase in the outstanding balance of loans receivable and an
increase in interest on loans.
TABLE 3
Balance of Loans Receivable, Including MBS, by Component
(Dollars in thousands)
June 30 December 31 June 30
2003 2002 2002
-------------- -------------- --------------
Loans $43,762,348 $39,159,502 $35,973,805
Securitized loans(a)(b) 19,819,448 19,066,063 15,659,091
-------------- -------------- --------------
Total loans, excluding MBS 63,581,796 58,225,565 51,632,896
-------------- -------------- --------------
MBS-REMICs 4,667,649 5,871,069 7,141,275
Purchased MBS 133,622 196,389 257,259
-------------- -------------- --------------
Total MBS 4,801,271 6,067,458 7,398,534
-------------- -------------- --------------
Other(c) 108,478 43,334 (8,551)
-------------- -------------- --------------
Total loans receivable, including MBS $68,491,545 $64,336,357 $59,022,879
============== ============== ==============
(a) Loans securitized after March 31, 2001 are classified as securitized loans per SFAS 140.
(b) Includes $12.4 billion at June 30, 2003 of loans securitized with Fannie Mae where the underlying loans are subject to full
credit recourse to the Company.
(c) Includes deferred loan costs, allowance for loan losses, and other miscellaneous reserves and discounts.
Repayments from loans receivable, including MBS, were $5.1 billion and
$9.1 billion for the three and six months ended June 30, 2003 as compared to
$3.7 billion and $7.5 billion during the same periods in 2002. These repayments
were higher in 2003 as compared to 2002 due to an increase in the portfolio
balance and an increase in the prepayment rate.
Loans
New loan originations amounted to $8.0 billion and $15.0 billion for
the three and six months ended June 30, 2003 compared to $6.9 billion and $12.3
billion for the same periods in 2002. The volume of originations increased
during 2003 due to extremely low mortgage rates, which led to a strong demand
for home loans, including the Company's ARM products. In particular, consumers
continued to take advantage of these low interest rates to refinance their
mortgages and, as a result, refinanced loans constituted 70% and 71%,
respectively, of new loan originations for the three and six months ended June
30, 2003, compared to 56% and 59%, respectively, for the three and six months
ended June 30, 2002.
First mortgages originated for portfolio excluding equity lines of
credit (ELOCs) amounted to $7.2 billion and $13.5 billion for the three and six
months ended June 30, 2003, compared to $6.6 billion and $11.6 billion for the
same periods in 2002. First mortgages originated for sale amounted to $583
million and $1.1 billion for the three and six months ended June 30, 2003,
compared to $235 million and $675 million for the same periods in 2002. During
the second quarter and first six months of 2003, $395 million and $737 million
of loans, including MBS, were converted at the customer's request from
adjustable rate to fixed-rate compared to $53 million and $225 million for the
same periods in 2002. The Company sells most of its new and converted fixed-rate
loans. For the three and six months ended June 30, 2003, the Company sold $871
million and $1.7 billion of fixed-rate first mortgage loans compared to $302
million and $1.0 billion for the same periods in 2002.
At June 30, 2003, the Company had lending operations in 38 states. The
largest source of mortgage origination was loans secured by residential
properties in California. For the three and six months ended June 30, 2003 and
2002, 68% of total loan originations were on residential properties in
California. The five largest states, other than California, for originations for
the six months ended June 30, 2003, were Florida, New Jersey, Texas, Illinois,
and Colorado with a combined total of 17% of total originations. The percentage
of the total loan portfolio (including MBS, except purchased MBS) that was
comprised of residential loans in California was 64% at June 30, 2003, December
31, 2002 and June 30, 2002. For additional detail on the Company's loan
portfolio by state, see tables 8 and 9 on pages 20 and 21.
Golden West originates ARMs tied primarily to CODI, COFI, and COSI.
Golden West also establishes ELOCs indexed to the Prime Rate as published in the
Money Rates table in The Wall Street Journal (Central Edition). Golden West's
ARM originations constituted 91% of new mortgage volume made by the Company for
the second quarter and first half of 2003 compared to 95% and 93% for the same
periods in 2002. The following table shows the distribution of ARM originations
by index for the second quarter and first six months of 2003 and 2002.
TABLE 4
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
----------------------------- -----------------------------
ARM Index 2003 2002 2003 2002
---------------- ------------- ------------ ------------- --------------
CODI $4,383,851 $3,316,752 $ 8,366,268 $ 4,860,400
COFI 463,069 1,126,392 917,661 2,140,049
COSI 2,279,614 2,115,656 3,976,039 4,409,535
Prime(a) 184,456 -0- 335,097 -0-
------------- ------------ ------------- --------------
$7,310,990 $ 6,558,800 $ 13,595,065 $ 11,409,984
============= ============ ============= ==============
(a) As of January 2003, includes fundings of new ELOCs indexed to the prime
rate; only amounts initially drawn are included in these fundings.
The portion of the mortgage portfolio (including securitized loans and
MBS) composed of adjustable rate loans was 96% at June 30, 2003 and December 31,
2002, compared to 95% at June 30, 2002. The following table shows the
distribution by index of the Company's outstanding balance of adjustable rate
mortgages (including ARM MBS) at June 30, 2003, December 31, 2002, and June 30,
2002.
TABLE 5
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS)
(Dollars in thousands)
June 30 December 31 June 30
ARM Index 2003 2002 2002
- ---------------------- -------------- -------------- --------------
CODI $20,570,490 $13,286,566 $ 5,346,902
COFI 21,541,854 24,755,498 27,352,241
COSI 22,122,917 22,070,692 22,130,973
Prime(a) 1,313,719 999,251 625,141
Other(b) 529,202 658,135 808,203
-------------- -------------- --------------
$66,078,182 $61,770,142 $56,263,460
============== ============== ==============
(a) ELOCs tied to the prime rate.
(b) Primarily ARMs tied to the twelve-month rolling average of the One-Year
Treasury Constant Maturity (TCM).
During the life of a typical ARM loan, the interest rate may not be
raised above a lifetime cap, set at the time of origination or assumption. The
weighted average maximum lifetime cap rate on the Company's ARM loan portfolio
(including securitized ARM loans and MBS-REMICs before any reduction for loan
servicing and guarantee fees) was 12.20% or 7.14% above the actual weighted
average rate at June 30, 2003, versus 12.13% or 6.74% above the actual weighted
average rate at December 31, 2002 and 12.17% or 6.52% above the actual weighted
average rate at June 30, 2002.
At June 30, 2003, approximately $5.2 billion of the Company's ARM loans
(including MBS with recourse held to maturity) 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 June 30, 2003, $2.5 billion of ARM loans had reached their
rate floors compared to $2.0 billion at December 31, 2002 and $2.3 billion at
June 30, 2002. The weighted average floor rate on the loans that had reached
their floor was 5.56% at June 30, 2003 compared to 5.87% at December 31, 2002
and 5.92% at June 30, 2002. Without the floor, the average rate on these loans
would have been 4.68% at June 30, 2003, 5.19% at December 31, 2002 and 5.20% at
June 30, 2002.
Most of the Company's loans are collateralized by first deeds of trust
on one-to-four family homes. The Company also originates second deeds of trust
in the form of fixed-rate loans. The Company's fixed-rate second mortgage
originations amounted to $35 million and $63 million, respectively, for the
second quarter and first six months of 2003 compared to $51 million and $95
million for the same periods in 2002. The outstanding balance of fixed-rate
seconds amounted to $173 million and $300 million at June 30, 2003 and 2002,
respectively.
The Company also establishes ELOCs indexed to the prime rate, which
are collateralized typically by second and occasionally by first deeds of trust.
The Company established new ELOCs totaling $649 million and $538 million for the
six months ended June 30, 2003 and 2002, respectively.
The outstanding balance of ELOCs was $1.3 billion and $625 million at
June 30, 2003 and 2002, respectively. The maximum total line of credit available
on the Company's ELOCs amounted to $2.0 billion and $1.0 billion at
June 30, 2003 and 2002, respectively.
The Company generally lends up to 80% of the appraised value of
residential real estate property. In some cases, a higher amount is possible
through a first mortgage loan or a combination of a first and a second mortgage
loan on the same property. The second mortgage loan may be a fixed-rate loan or
an ELOC. During the second quarter and first six months of 2003, 11% of loans
originated exceeded 80% of the appraised value of the property. For the second
quarter and first six months of 2002, 14% of loans originated were in excess of
80% of the appraised value of the property.
The Company takes steps to reduce the potential credit risk with
respect to loans with a loan to value (LTV) or a combined LTV (the sum of the
first and second loan balances as a percentage of total value) over 80%. Among
other things, the loan amount may not exceed 95% of the appraised value of a
single-family residence at the time of origination. Also, most first mortgage
loans with an LTV over 80% carry mortgage insurance, which reimburses the
Company for losses up to a specified percentage per loan, thereby reducing the
effective LTV to below 80%. Furthermore, the Company sells without recourse a
significant portion of its second mortgage originations. Sales of second
mortgages amounted to $24 million and $40 million for the second quarter and
first six months of 2003 as compared to $37 million and $72 million for the same
periods in 2002. In addition, the Company carries pool mortgage insurance on
most ELOCs and most fixed-rate seconds not sold. The cumulative losses covered
by this pool mortgage insurance are limited to 10% or 20% of the original
balance of each insured pool.
The following table shows mortgage originations with LTV ratios or
combined LTV ratios greater than 80% for the three and six months ended June 30,
2003 and 2002.
TABLE 6
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ------------
First mortgages with loan to value ratios
greater than 80%:
With mortgage insurance $ 74,674 $ 70,851 $ 142,364 $ 121,914
With no mortgage insurance 9,028 16,673 24,981 36,096
----------- ----------- ----------- ------------
83,702 87,524 167,345 158,010
----------- ----------- ----------- ------------
First and second mortgages with combined
loan to value ratios greater than 80%: (a)
With pool insurance on second mortgages 598,188 645,882 1,113,913 1,205,625
With no pool insurance 179,399 216,670 330,266 301,341
----------- ----------- ----------- ------------
777,587 862,552 1,444,179 1,506,966
----------- ----------- ----------- ------------
Total $861,289 $ 950,076 $1,611,524 $1,664,976
=========== =========== =========== ============
(a) For ELOCs, only amounts initially drawn are included in these fundings.
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at June 30, 2003 and 2002.
TABLE 7
Balance of Mortgages With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
As of June 30
----------------------------
2003 2002
------------ ------------
First mortgages with loan to value ratios
greater than 80%:
With mortgage insurance $ 596,589 $ 473,248
With no mortgage insurance 215,700 383,247
------------ ------------
812,289 856,495
------------ ------------
First and second mortgages with combined
loan to value ratios greater than 80%:
With pool insurance on second mortgages 4,134,718 2,960,853
With no pool insurance 365,891 404,283
------------ ------------
4,500,609 3,365,136
------------ ------------
Total $ 5,312,898 $ 4,221,631
============ ============
The following tables show the Company's loan portfolio by state at June
30, 2003 and 2002.
TABLE 8
Loan Portfolio by State
June 30, 2003
(Dollars in thousands)
Residential
Real Estate Commercial Loans
---------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Loans Portfolio
- ---------------------- ------------- ------------- ---------- -------------- -------------- -------------
Northern California $ 22,821,613 $1,781,209 $ -0- $ 11,644 $24,614,466 36.07%
Southern California 17,358,671 1,541,633 -0- 2,277 18,902,581 27.70
Florida 3,743,763 50,638 -0- 59 3,794,460 5.56
Texas 2,722,440 126,384 -0- 315 2,849,139 4.18
New Jersey 2,608,881 -0- -0- 886 2,609,767 3.82
Washington 1,297,354 696,725 -0- -0- 1,994,079 2.92
Illinois 1,602,571 128,801 -0- -0- 1,731,372 2.54
Colorado 1,418,047 183,057 -0- 4,052 1,605,156 2.35
Other(a) 9,972,141 161,569 1 1,828 10,135,539 14.86
------------- ------------- ---------- -------------- -------------- ----------
Totals $ 63,545,481 $4,670,016 $ 1 $ 21,061 68,236,559 100.00%
============= ============= ========== ============== ==========
Net deferred loan costs 403,117
Allowance for loan losses (287,868)
Undisbursed loan funds (6,771)
Loans on deposits 12,886
--------------
Total loan portfolio and loans securitized into MBS-REMICs 68,357,923
Loans securitized into MBS-REMICs (4,667,649)(b)
--------------
Total loans receivable $63,690,274
==============
(a) All states included in Other have total loan balances less than 2% of total loans.
(b) The above schedule includes the June 30, 2003 balances of loans that were securitized and retained as MBS-REMICs.
TABLE 9
Loan Portfolio by State
June 30, 2002
(Dollars in thousands)
Residential
Real Estate Commercial Loans
---------------------------- Real Total as a % of
State 1 - 4 5+ Land Estate Loans Portfolio
--------------------- ------------- ------------ ---------- -------------- -------------- -------------
Northern California $ 18,530,279 $ 1,754,610 $ 5 $ 14,339 $20,299,233 34.55%
Southern California 15,900,895 1,571,756 -0- 1,525 17,474,176 29.74
Florida 3,040,478 32,587 -0- 94 3,073,159 5.23
Texas 2,333,348 103,982 137 849 2,438,316 4.15
New Jersey 2,145,145 -0- -0- 1,315 2,146,460 3.65
Washington 1,191,831 674,763 -0- -0- 1,866,594 3.18
Illinois 1,433,971 127,350 -0- -0- 1,561,321 2.66
Colorado 1,268,946 186,538 -0- 4,421 1,459,905 2.48
Other(a) 8,310,757 124,961 3 3,065 8,438,786 14.36
------------- ------------ ---------- -------------- -------------- ----------
Totals $ 54,155,650 $ 4,576,547 $ 145 $ 25,608 58,757,950 100.00%
============= ============ ========== ============== ==========
Net deferred loan costs 272,473
Allowance for loan losses (273,881)
Undisbursed loan funds (7,143)
Loans on deposits 16,221
--------------
Total loan portfolio and loans securitized into MBS-REMICs 58,765,620
Loans securitized into MBS-REMICs (7,141,275)(b)
--------------
Total loans receivable $51,624,345
==============
(a) All states included in Other have total loan balances less than 2% of total loans.
(b) The above schedule includes the June 30, 2002 balances of loans that were securitized and retained as MBS-REMICs.
Loan repayments consist of monthly loan amortization and loan payoffs.
For the three and six months ended June 30, 2003, loan repayments were $4.5
billion and $8.1 billion, respectively, compared to $2.9 billion and $5.4
billion for the same periods of 2002. The increase in loan repayments was
primarily due to an increase in the balance of loans receivable and an increase
in the prepayment rate.
Securitized Loans
The Company securitized $4.8 billion of loans during the second quarter
and first six months of 2003. During the second quarter and first six months of
2002, the Company securitized $5.4 billion and $12.2 billion of loans,
respectively. These securities are classified as loans receivable on the
Consolidated Statement of Financial Condition and are available to be used as
collateral for borrowings.
Mortgage-Backed Securities
At June 30, 2003, December 31, 2002, and June 30, 2002, the Company had
MBS held to maturity in the amount of $4.8 billion, $6.0 billion, and $7.4
billion, respectively. The decrease in MBS from June 30, 2002 to June 30, 2003
was due to prepayments. MBS-REMICs are available to be used as collateral for
borrowings. The Company has the ability and intent to hold these MBS until
maturity and, accordingly, these MBS are classified as held to maturity.
At June 30, 2003, December 31, 2002, and June 30, 2002, the Company had
MBS available for sale in the amount of $28 million, $35 million, and $41
million, respectively, including net unrealized gains on MBS available for sale
of $143 thousand at June 30, 2003, $139 thousand at December 31, 2002, and $1
million at June 30, 2002. During the first quarter of 2002, the Company sold
$176 million of MBS available for sale, which resulted in a gain of $3 million.
Repayments of MBS during the second quarter and first six months of
2003 were $548 million and $1.1 billion compared to $768 million and $2.0
billion during the same periods of 2002. MBS repayments were lower during the
first half of 2003 as compared to the first half of 2002 due to a decrease in
the balance of MBS outstanding discussed above.
Mortgage Servicing Rights
Capitalized mortgage servicing rights (CMSRs) are included in "Other
assets" on the Consolidated Statement of Financial Condition. The following
table shows the changes in capitalized mortgage servicing rights for the three
and six months ended June 30, 2003 and 2002.
TABLE 10
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
----------------------- -----------------------
2003 2002 2003 2002
---------- --------- ---------- ----------
Beginning balance of CMSRs $74,192 $61,470 $69,448 $56,056
New CMSRs from loan sales 16,683 5,291 29,162 15,212
Amortization of CMSRs (8,815) (4,983) (16,550) (9,490)
---------- --------- ---------- ----------
Ending balance of CMSRs $82,060 $61,778 $82,060 $61,778
========== ========= ========== ==========
The estimated amortization of the June 30, 2003 balance for the
remainder of 2003 and the five years ending 2008 is $19.6 million (2003), $27.4
million (2004), $18.6 million (2005), $11.4 million (2006), $4.5 million (2007),
and $616 thousand (2008). Actual results may vary depending upon the level of
the payoffs of the loans currently serviced.
The book value of the Company's CMSRs did not exceed the fair value at
June 30, 2003 or 2002 and, therefore, no reserve was required to adjust the
servicing rights to their fair value.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) and troubled debt
restructured (TDRs) to total assets. Nonperforming assets include non-accrual
loans (that is, loans, including loans securitized into MBS with recourse and
loans securitized into MBS-REMICs, that are 90 days or more past due) and real
estate acquired through foreclosure. No interest is recognized on non-accrual
loans. The Company's 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 impacted by adverse economic conditions.
The following table sets forth the components of the Company's NPAs and
TDRs and the various ratios to total assets.
TABLE 11
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
June 30 December 31 June 30
2003 2002 2002
-------------- -------------- -------------
Non-accrual loans $ 436,595 $ 413,123 $ 382,458
Foreclosed real estate 11,027 11,244 11,664
-------------- -------------- -------------
Total nonperforming assets $ 447,622 $ 424,367 $ 394,122
============== ============== =============
TDRs, net of interest reserve $ 1,539 $ 233 $ 3,683
============== ============== =============
Ratio of NPAs to total assets .62% .62% .63%
============== ============== =============
Ratio of TDRs to total assets .00% .00% .01%
============== ============== =============
Ratio of NPAs and TDRs to total assets .62% .62% .64%
============== ============== =============
The balances of NPAs at June 30, 2003, December 31, 2002 and June 30,
2002 reflect the normal increase in delinquencies associated with the aging of
the large volume of mortgages originated during the past three years together
with the uncertain U.S. economy. The Company closely monitors all delinquencies
and takes appropriate steps to protect its interests. The Company mitigates its
credit risk through strict underwriting standards and loan reviews. Interest
foregone on non-accrual loans (loans 90 days or more past due) amounted to a
recovery of $24 thousand for the second quarter of 2003 and an expense of $2
million for the six months ended June 30, 2003 compared to a recovery of $1
million for the second quarter of 2002 and an expense of $1 million for the six
months ended June 30, 2002. Interest foregone on TDRs amounted to $6 thousand
and $7 thousand for the three and six months ended June 30, 2003, compared to $1
thousand and $6 thousand for the same periods in 2002.
The following tables show the Company's NPAs by state as of June 30,
2003 and 2002.
TABLE 12
Nonperforming Assets by State
June 30, 2003
(Dollars in thousands)
Non-Accrual Loans(a)(b) Foreclosed Real Estate (FRE)
------------------------------------- ---------------------------------
Residential Commercial Residential Commercial NPAs as
Real Estate Real Real Estate Real Total a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs Loans
- -------------------- ----------- -------- ------------- -------- ------ ------------- ---------- -----------
Northern California $115,966 $ 574 $ 6 $ 617 $ -0- $ -0- $117,163 .48%
Southern California 94,607 464 209 625 -0- -0- 95,905 .51
Florida 31,489 -0- -0- 329 -0- -0- 31,818 .84
Texas 37,234 -0- -0- 3,630 -0- 442 41,306 1.45
New Jersey 19,069 -0- 249 135 -0- -0- 19,453 .75
Washington 16,266 -0- -0- 1,092 -0- -0- 17,358 .87
Illinois 16,073 -0- -0- 474 -0- -0- 16,547 .96
Colorado 7,756 62 -0- 187 -0- -0- 8,005 .50
Other(c) 93,567 3,004 -0- 3,740 -0- -0- 100,311 .99
----------- -------- ------------- -------- ------ ------------- ---------- ----------
Totals $432,027 $4,104 $ 464 $10,829 $ -0- $ 442 447,866 .66
=========== ======== ============= ======== ====== =============
FRE general valuation allowance (244) (.00)
---------- ----------
Total nonperforming assets $447,622 .66%
========== ==========
(a) Non-accrual loans are 90 days or more past due and interest is not recognized on these loans.
(b) The June 30, 2003 balances include loans that were securitized into MBS.
(c) All states included in Other have total loan balances less than 2% of total loans.
TABLE 13
Nonperforming Assets by State
June 30, 2002
(Dollars in thousands)
Non-Accrual Loans(a)(b) Foreclosed Real Estate (FRE)
------------------------------------- ---------------------------------
Residential Commercial Residential Commercial NPAs as
Real Estate Real Real Estate Real Total a % of
State 1 - 4 5+ Estate 1 - 4 5+ Estate NPAs Loans
- -------------------- ----------- -------- ------------- -------- ------- ------------- ---------- -----------
Northern California $ 76,192 $ -0- $ 80 $ 464 $ -0- $ -0- $ 76,736 .38%
Southern California 118,514 249 309 2,977 -0- -0- 122,049 .70
Florida 34,458 -0- 22 234 -0- -0- 34,714 1.13
Texas 20,282 -0- 442 1,341 -0- -0- 22,065 .90
New Jersey 18,092 -0- 225 115 -0- -0- 18,432 .86
Washington 13,911 -0- -0- 326 -0- -0- 14,237 .76
Illinois 16,222 -0- -0- 1,556 -0- -0- 17,778 1.14
Colorado 2,909 66 -0- 69 -0- -0- 3,044 .21
Other(c) 80,426 59 -0- 4,893 -0- -0- 85,378 1.01
----------- -------- ------------- -------- ------- ------------- ---------- ----------
Totals $381,006 $ 374 $ 1,078 $11,975 $ -0- $ -0- 394,433 .67
=========== ======== ============= ======== ======= =============
FRE general valuation allowance (311) (.00)
---------- ----------
Total nonperforming assets $394,122 .67%
========== ==========
(a) Non-accruals loans are 90 days or more past due and interest is not recognized on these loans.
(b) The June 30, 2002 balances include loans that were securitized into MBS.
(c) All states included in Other have total loan balances less than 2% of total loans.
The Company provides specific valuation allowances for losses on major
loans when impaired and a write-down on foreclosed real estate when any
significant and permanent decline in value is identified. The Company also
utilizes a methodology for monitoring and estimating probable loan losses that
is based on both the Company's historical loss 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. This process also takes into consideration current trends in
economic growth, unemployment, housing market activity, and home prices for the
nation and individual geographic regions. This approach further considers the
impact of other events such as natural disasters. Based on the analysis of
historical performance, current conditions, and other risks, management
estimates a range of loss allowances by type of loan and risk category to cover
probable losses in the portfolio. One-to-four single-family real estate loans
are evaluated as a group. In addition, periodic reviews are made of major
multi-family and commercial real estate loans and foreclosed real estate. Where
indicated, valuation allowances are established or adjusted. In estimating
probable losses, consideration is given to the estimated sale price, cost of
refurbishing the security property, 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 based upon quarterly reviews of the
portfolio and the review methodology and historical analyses are reconsidered
quarterly.
The table below shows the changes in the allowance for loan losses for
the three and six months ended June 30, 2003 and 2002.
TABLE 14
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Six Months Ended
June 30 June 30
------------------------- ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Beginning allowance for loan losses $284,673 $269,327 $281,097 $261,013
Provision for losses charged to expense 3,501 5,186 7,980 13,725
Loans charged off (429) (799) (1,478) (1,120)
Recoveries 123 167 269 263
---------- ---------- ---------- ----------
Ending allowance for loan losses $287,868 $273,881 $287,868 $273,881
========== ========== ========== ==========
Ratio of net chargeoffs to average loans
outstanding (including MBS-REMICs) .00% .00% .00% .00%
========== ========== ========== ==========
Ratio of allowance for loan losses to total loans
(including MBS-REMICs) .42% .47%
========== ==========
Ratio of allowance for loan losses to NPAs 64.3% 69.5%
========== ==========
Deposits
The Company raises deposits through its retail branch system as well as
through the money markets.
Retail deposits increased during the second quarter of 2003 by $882
million, including interest credited of $219 million, compared to an increase of
$722 million, including interest credited of $234 million in the second quarter
of 2002. Retail deposits increased during the first half of 2003 by $3.3
billion, including interest credited of $430 million, compared to an increase of
$1.8 billion, including interest credited of $464 million in the first half of
2002. Retail deposits increased during the first half of 2003 because the public
found savings to be a more favorable investment compared with other
alternatives. At June 30, 2003 and 2002, transaction accounts (which include
checking, passbook, and money market deposit accounts) represented 72% and 53%,
respectively, of the total balance of deposits.
The table below shows the Company's deposits by interest rate and by
remaining maturity at June 30, 2003 and 2002.
TABLE 15
Deposits
(Dollars in millions)
June 30
---------------------------------------------------
2003 2002
------------------------ ------------------------
Rate Amount Rate* Amount
--------- ----------- --------- ------------
Deposits by rate:
Interest-bearing checking accounts 1.06% $ 172 1.55% $ 77
Interest-bearing checking accounts swept
into money market deposit accounts 1.60 4,871 1.93 4,352
Passbook accounts 0.50 463 .85 466
Money market deposit accounts 1.99 26,578 2.85 14,278
Term certificate accounts with original maturities of:
4 weeks to 1 year 1.42 4,077 2.25 7,002
1 to 2 years 1.93 3,147 3.40 5,636
2 to 3 years 3.32 1,842 4.40 1,725
3 to 4 years 4.11 1,278 4.86 1,072
4 years and over 4.94 1,883 5.22 1,491
Retail jumbo CDs 3.79 75 3.99 132
----------- ------------
$ 44,386 $ 36,231
=========== ============
Deposits by remaining maturity:
No contractual maturity 1.90% $ 32,084 2.59% $ 19,173
Maturity within one year 2.07 8,579 2.96 13,494
1 to 5 years 4.04 3,715 4.50 3,550
Over 5 years 4.42 8 5.37 14
----------- ------------
$ 44,386 $ 36,231
=========== ============
* Weighted average interest rate, including the impact of interest rate swaps.
At June 30, the weighted average cost of deposits was 2.12% (2003) and
2.92% (2002).
Advances from Federal Home Loan Banks
The Company uses borrowings from the FHLBs, also known as "advances,"
to provide funds for loan origination activities. Advances are secured by
pledges of certain loans, MBS, and capital stock of the FHLBs. FHLB advances
amounted to $19.9 billion at June 30, 2003, compared to $18.6 billion at
December 31, 2002, and $18.9 billion at June 30, 2002, 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 and large banks, using
MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted
to $21 million, $522 million, and $22 million at June 30, 2003, December 31,
2002, and June 30, 2002, respectively.
Other Borrowings
At June 30, 2003, Golden West, at the holding company level, had a
total of $200 million of subordinated debt outstanding compared to $400 million
at June 30, 2002. As of June 30, 2003, Golden West's subordinated debt
securities were rated A2 and A by Moody's Investors Service (Moody's) and
Standard & Poor's (S&P), respectively.
At June 30, 2003, Golden West, at the holding company level, had
outstanding $990 million of senior debt compared to $200 million at June 30,
2002. As of June 30, 2003, Golden West's senior debt was rated A1 and A+ by
Moody's and S&P, respectively.
WSB has a bank note program under which up to $5 billion of borrowings
can be outstanding at any point in time. At June 30, 2003, December 31, 2002 and
June 30, 2002, WSB had $100 million, $1.2 billion, and $1.1 billion,
respectively, of bank notes outstanding. As of June 30, 2003, WSB's bank notes
were rated P-1 and A-1+ by Moody's and S&P, respectively.
WSB may issue long-term wholesale deposits and long-term unsecured
senior debt. At June 30, 2003, WSB had no long-term wholesale deposits or
long-term unsecured senior debt outstanding. WSB's unsecured senior debt ratings
were Aa3 and AA- from Moody's and S&P, respectively.
Stockholders' Equity
The Company's stockholders' equity increased by $387 million during the
first half of 2003 as a result of net earnings partially offset by decreased
market values of securities available for sale, the payment of quarterly
dividends to stockholders, and the $98 million cost of the repurchase of Golden
West stock. The unrealized gains on securities available for sale, net of tax,
decreased from $199 million at December 31, 2002 to $171 million at June 30,
2003 (see page 14 for further discussion). The Company's stockholders' equity
increased by $370 million during the first six months of 2002 as a result of net
earnings partially offset by decreased market values of securities available for
sale, the payment of quarterly dividends to stockholders, and the $69 million
cost of the repurchase of Golden West stock. Unrealized gains, net of taxes, on
securities and MBS available for sale included in stockholders' equity at June
30, 2003, December 31, 2002, and June 30, 2002 were $171 million, $199 million,
and $207 million, respectively.
Since 1993, through five separate actions, the Company's Board of
Directors has authorized the repurchase by the Company of up to 60.6 million
shares of Golden West's common stock. As of June 30, 2003, 50.6 million shares
had been repurchased and retired at a cost of $1.4 billion since October 1993,
of which 1.3 million were purchased and retired at a cost of $98 million during
the first half of 2003. Earnings from WSB are expected to continue to be the
major source of funding for the stock repurchase program. The repurchase of
Golden West stock is not intended to have a material impact on the normal
liquidity of the Company.
Regulatory Capital
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) established capital standards for federally insured financial
institutions, such as WSB and WTX. Under FIRREA, savings institutions must have
tangible capital equal to at least 1.5% of adjusted total assets, have core
capital equal to at least 4% of adjusted total assets, and have risk-based
capital equal to at least 8% of risk-weighted assets.
The Office of Thrift Supervision (OTS) and other bank regulatory
agencies have established five capital tiers: well-capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. The rules provide that a savings institution is
"well-capitalized" if its leverage ratio is 5% or greater, its Tier 1 risk-based
capital ratio is 6% or greater, its total risk-based capital ratio is 10% or
greater and the institution is not subject to a capital directive.
As used herein, the total risk-based capital ratio is the ratio of
total capital to risk-weighted assets, the Tier 1 risk-based capital ratio is
the ratio of core capital to risk-weighted assets, and the Tier 1 or leverage
ratio is the ratio of core capital to adjusted total assets, in each case as
calculated in accordance with current OTS capital regulations. As of June 30,
2003, the most recent notification from the OTS categorized WSB and WTX as
"well-capitalized" under the current requirements. There are no conditions or
events that have occurred since that notification that the Company believes
would have an impact on the categorization of WSB or WTX.
The following tables show WSB's and WTX's regulatory capital ratios and
compare them to the OTS minimum requirements at June 30, 2003 and 2002.
TABLE 16
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of June 30, 2003
(Dollars in thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
-------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio
----------- ----- ------------- ------ ------------- -------
WSB and Subsidiaries
- --------------------
Tangible $5,694,511 7.91% $ 1,079,593 1.50% --- ---
Tier 1 (core or leverage) 5,694,511 7.91 2,878,916 4.00 $ 3,598,645 5.00%
Tier 1 risk-based 5,694,511 14.16 --- --- 2,412,669 6.00
Total risk-based 5,980,883 14.87 3,216,892 8.00 4,021,115 10.00
WTX
- ---
Tangible $ 471,523 5.83% $ 121,344 1.50% --- ---
Tier 1 (core or leverage) 471,523 5.83 323,584 4.00 $ 404,480 5.00%
Tier 1 risk-based 471,523 26.03 --- --- 108,706 6.00
Total risk-based 472,083 26.06 144,941 8.00 181,176 10.00
TABLE 17
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of June 30, 2002
(Dollars in thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
-------------------- ---------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio
----------- ----- ------------- ------ ------------- -------
WSB and Subsidiaries
- --------------------
Tangible $4,904,386 7.91% $ 930,048 1.50% --- ---
Tier 1 (core or leverage) 4,904,386 7.91 2,480,129 4.00 $ 3,100,161 5.00%
Tier 1 risk-based 4,904,386 13.36 --- --- 2,202,452 6.00
Total risk-based 5,174,083 14.10 2,936,603 8.00 3,670,754 10.00
WTX
- ---
Tangible $ 407,623 5.26% $ 116,263 1.50% --- ---
Tier 1 (core or leverage) 407,623 5.26 310,035 4.00 $ 387,544 5.00%
Tier 1 risk-based 407,623 24.79 --- --- 98,645 6.00
Total risk-based 407,833 24.81 131,527 8.00 164,409 10.00
Results Of Operations
Net Earnings
Net earnings for the three months ended June 30, 2003 were $272 million
compared to net earnings of $226 million for the three months ended June 30,
2002. Net earnings for the six months ended June 30, 2003 were $533 million
compared to net earnings of $464 million for the six months ended June 30, 2002.
Net earnings increased in 2003 as compared to 2002 primarily as a result of
increased net interest income and increased noninterest income which was
partially offset by an increase in general and administrative expenses.
Net Interest Income
The largest component of the Company's revenue and earnings is net
interest income, which is the difference between the interest and dividends
earned on loans and other investments and the interest paid on customer deposits
and borrowings. Long-term growth of the Company's net interest income, and hence
earnings, is related to the ability to expand the mortgage portfolio, the
Company's primary earning asset, by originating and retaining high-quality
adjustable rate home loans. Over the short term, however, net interest income
can be influenced by business conditions, especially movements in short-term
interest rates, which can temporarily increase or reduce changes in net interest
income.
Net interest income amounted to $542 million and $1.1 billion,
respectively, for the three and six months ended June 30, 2003 as compared to
$465 million and $932 million for the same periods in 2002. These amounts
represented 16% and 15% increases, respectively, over the previous year. The
growth of net interest income in 2003 compared with the prior year resulted from
the growth in the loan portfolio over the past twelve months which was partially
offset by a modest decrease in the Company's average primary spread for the six
months, which is the monthly average of the monthend difference between the
yield on loans and other investments and the rate paid on deposits and
borrowings.
Between June 30, 2002 and June 30, 2003, the Company's earning asset
balance increased by $9.7 billion or 16%. This growth resulted from strong
mortgage originations which more than offset loan repayments and loan sales.
As noted in the discussion of the gap on pages 11 and 12, the Company's
liabilities respond more rapidly to movements in short-term interest rates than
the Company's assets, most of which are adjustable rate mortgages tied to
indexes that lag changes in market interest rates. Consequently, when short-term
interest rates decline, the Company's primary spread temporarily widens, because
the index lags slow the downward movement of the yield on the Company's
adjustable rate mortgage portfolio. When interest rates stabilize after a period
of falling rates, the primary spread usually declines for a bit until the yield
on the ARM portfolio catches up to previous rate decreases. The opposite occurs
when interest rates increase. Specifically, when short-term interest rates move
up, the Company's primary spread compresses for a period of time, because the
index lags slow the upward adjustment of the yield on the Company's ARMs. When
interest rates stabilize after a period of rising rates, the primary spread
expands for a while until the ARM yield catches up to previous rate increases.
For the five years ended June 30, 2003, which included periods of both falling
and rising interest rates, the Company's primary spread averaged 2.52% with a
high of 3.21% and a low of 1.88%.
During 2001, the Federal Reserve's Open Market Committee lowered the
Federal Funds rate, a key short-term interest rate, by a total of 475 basis
points in order to stimulate the then-weak economy. Other short-term market
rates experienced similar decreases. In response to significantly lower
short-term interest rates, the Company's cost of funds declined by 284 basis
points during 2001, while the yield on the Company's assets fell by only 166
basis points. As a consequence, the Company's primary spread widened
substantially during 2001, and by yearend reached 3.21%, the highest level in
the Company's history. In 2002, the Federal Funds rate remained steady at 1.75%
until November, when the Federal Reserve's Open Market Committee lowered the
Federal Funds rate by 50 basis points to 1.25%. During 2002, the Company's cost
of funds declined by an additional 83 basis points. At the same time, the
Company's asset yield fell by 111 basis points, as the ARM indexes continued to
adjust downward in response to the large interest rate declines experienced in
2001. Because the yield on earning assets fell faster than the cost of funds in
2002, the Company's primary spread narrowed from 3.21% at December 31, 2001 to
2.93% at December 31, 2002. Reflecting the decline of short-term interest rates
at the end of 2002, the Company's cost of funds declined by 38 basis points
during the first six months of 2003, while the yield on the Company's assets
fell by 35 basis points. Consequently, the Company's primary spread widened to
2.96% at June 30, 2003. However, the average primary spread for the first half
of 2003 was 2.97% compared with 3.04% for the same period in 2002. On June 25,
2003, the Federal Reserve's Open Market Committee lowered the Federal Funds rate
by an additional 25 basis points to 1.00%. Because this action occurred near the
end of the quarter, the rate decrease had a minimal impact on Golden West's
earnings asset yield, cost of funds, and primary spread at June 30, 2003.
The table below shows the components of the Company's spread at June
30, 2003, December 31, 2002, and June 30, 2002.
TABLE 18
Yield on Earning Assets,
Cost of Funds, and Primary Spread
June 30 December 31 June 30
2003 2002 2002
------------ --------------- -----------
Yield on loan portfolio, including MBS 4.92% 5.28% 5.59%
Yield on investments 1.27 1.94 17.23(a)
------------ --------------- -----------
Yield on earning assets 4.90 5.25 5.59
------------ --------------- -----------
Cost of deposits 2.12 2.56 2.92
Cost of borrowings 1.58 1.85 2.20
------------ --------------- -----------
Cost of funds 1.94 2.32 2.65
------------ --------------- -----------
Primary spread 2.96% 2.93% 2.94%
============ =============== ===========
(a) The June 30, 2002 yield reflects WSB's high yield on the Federal Home Loan Mortgage Corporation stock combined with a smaller
outstanding balance of other lower-yielding investment securities.
The following tables set forth certain information with respect to the
yields earned and rates paid on the Company's interest-earning assets and
interest-bearing liabilities for the three and six months ended June 30, 2003
and 2002.
TABLE 19
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Three Months Ended Three Months Ended
June 30, 2003 June 30, 2002
------------------------------------------- -------------------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances(a)(b) Yield Yield Balances(a)(b) Yield Yield
-------------- ------------ ---------- ------------- ------------- ---------
ASSETS
Investment securities $ 3,259,868 1.44% 1.27% $ 3,538,827 1.97% 17.23%(c)
Loans receivable, including MBS(d) 67,437,709 5.04 4.92 57,566,526 5.73 5.59
Invest. in capital stock of FHLBs 1,125,714 3.48 3.30 1,043,235 4.74 4.32
-------------- ------------- ------------- ------------
Interest-earning assets $71,823,291 4.85% $ 62,148,588 5.50%
============== ============= ============= ============
LIABILITIES
Deposits:
Checking accounts $ 173,016 1.15% 1.06% $ 252,463 .90% 1.55%
Savings accounts 31,088,647 1.93 1.91 17,939,536 2.53 2.59
Term accounts 12,638,724 2.72 2.67 17,808,838 3.35 3.29
-------------- ------------- ---------- ------------- ------------ ---------
Total deposits 43,900,387 2.15 2.12 36,000,837 2.92 2.92
Advances from FHLBs 19,853,519 1.40 1.37 18,879,135 2.12 2.09
Reverse repurchases 21,857 .24 .29 149,925 1.63 .44
Other borrowings 3,880,227 2.46 4.23 3,946,268 2.53 3.41
-------------- ------------- ------------- ------------
Interest-bearing liabilities $67,655,990 1.95% $ 58,976,165 2.64%
============== ============= ============= ============
Average net interest spread 2.90% 2.86%
============= ============
Net interest income $ 541,621 $ 465,019
============== =============
Net yield on average interest-
earning assets 3.02% 2.99%
============= ============
(a) Averages are computed using daily balances.
(b) Includes balances of assets and liabilities that were acquired and matured within the same month.
(c) The June 30, 2002 yield reflects WSB's high yield on the Federal Home Loan Mortgage Corporation stock combined with a smaller
outstanding balance of other lower-yielding investment securities.
(d) Includes nonaccrual loans (90 days or more past due).
TABLE 20
Average Interest-Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002
------------------------------------------- -------------------------------------------
Annualized End of Annualized End of
Average Average Period Average Average Period
Balances(a)(b) Yield Yield Balances(a)(b) Yield Yield
-------------- ------------ ---------- ------------- ------------- ---------
ASSETS
Investment securities $ 3,414,989 1.45% 1.27% $ 3,221,840 1.97% 17.23%(c)
Loans receivable, including MBS(d) 66,380,530 5.13 4.92 56,486,918 5.89 5.59
Invest. in capital stock of FHLBs 1,108,960 3.87 3.30 1,049,407 5.35 4.32
-------------- ------------- ------------- ------------
Interest-earning assets $70,904,479 4.93% $ 60,758,165 5.67%
============== ============= ============= ============
LIABILITIES
Deposits:
Checking accounts $ 165,334 1.22% 1.06% $ 179,005 1.25% 1.55%
Savings accounts 29,993,540 2.03 1.91 16,496,386 2.49 2.59
Term accounts 12,981,410 2.78 2.67 18,937,203 3.52 3.29
-------------- ------------- ---------- ------------- ------------ ---------
Total deposits 43,140,284 2.25 2.12 35,612,594 3.03 2.92
Advances from FHLBs 19,158,913 1.46 1.37 18,214,902 2.20 2.09
Reverse repurchases 211,585 1.21 .29 122,720 1.68 .44
Other borrowings 4,352,255 2.35 4.23 3,669,683 2.67 3.41
-------------- ------------- ------------- ------------
Interest-bearing liabilities $66,863,037 2.03% $ 57,619,899 2.74%
============== ============= ============= ============
Average net interest spread 2.90% 2.93%
============= ============
Net interest income $ 1,070,362 $ 931,918
============== =============
Net yield on average interest-
earning assets 3.02% 3.07%
============= ============
(a) Averages are computed using daily balances.
(b) Includes balances of assets and liabilities that were acquired and matured within the same month.
(c) The June 30, 2002 yield reflects WSB's high yield on the Federal Home Loan Mortgage Corporation stock combined with a smaller
outstanding balance of other lower-yielding investment securities.
(d) Includes nonaccrual loans (90 days or more past due).
The following table shows the Company's revenues and expenses as a
percentage of total revenues for the three and six months ended June 30, 2003
and 2002.
TABLE 21
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------
2003 2002 2003 2002
---------- --------- --------- ---------
Interest on loans 81.9% 78.6% 82.0% 74.3%
Interest on mortgage-backed securities 7.1 12.4 7.7 15.9
Interest and dividends on investments 2.3 3.3 2.4 3.2
---------- --------- --------- ---------
91.3 94.3 92.1 93.4
Less:
Interest on deposits 24.7 29.1 25.6 29.3
Interest on advances and other borrowings 9.8 13.8 10.1 13.6
---------- --------- --------- ---------
34.5 42.9 35.7 42.9
Net interest income 56.8 51.4 56.4 50.5
Provision for loan losses .4 .6 .4 .7
---------- --------- --------- ---------
Net interest income after provision for loan losses 56.4 50.8 56.0 49.8
Add:
Fees 4.4 3.7 4.0 3.8
Gain on the sale of securities, MBS, and loans 2.2 .7 1.9 1.1
Change in fair value of derivatives .3 (.2) .3 .3
Other noninterest income 1.8 1.5 1.7 1.4
---------- --------- --------- ---------
8.7 5.7 7.9 6.6
Less:
General and administrative expenses 18.5 15.8 18.3 15.4
Taxes on income 18.0 15.7 17.6 15.8
---------- --------- --------- ---------
Net earnings 28.6% 25.0% 28.0% 25.2%
========== ========= ========= =========
Interest on Loans
In the second quarter of 2003, interest on loans increased by $70
million or 9.9% from the comparable period in 2002. The increase in the second
quarter of 2003 was due to a $12.6 billion increase in the average portfolio
balance, which was partially offset by a 70 basis point decrease in the average
portfolio yield. In the first six months of 2003, interest on loans increased by
$186 million or 13.6% from the comparable period in 2002. The increase in the
first half of 2003 was due to a $14.4 billion increase in the average portfolio
balance, which was partially offset by a 78 basis point decrease in the average
portfolio yield.
Interest on Mortgage-Backed Securities
In the second quarter of 2003, interest on mortgage-backed securities
decreased by $45 million or 39.6% from the comparable period in 2002. The
decrease in the second quarter of 2003 was primarily due to a $2.7 billion
decrease in the average portfolio balance and a 45 basis point decrease in the
average portfolio yield. In the first half of 2003, interest on mortgage-backed
securities decreased by $146 million or 49.8% from the comparable period in
2002. The decrease in the first half of 2003 was primarily due to a $4.5 billion
decrease in the average portfolio balance and a 47 basis point 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.
In the second quarter of 2003, interest and dividends on investments decreased
by $8 million or 27.7% from the comparable period in 2002. The decrease in the
second quarter of 2003 was due to a 53 basis point decrease in the average
portfolio yield and a $279 million decrease in the average portfolio balance. In
the first six months of 2003, interest and dividends on investments decreased by
$14 million or 22.8% from the comparable period in 2002. The decrease in the
first half of 2003 was due to a 50 basis point decrease in the average portfolio
yield partially offset by a $193 million increase in the average portfolio
balance.
Interest on Deposits
In the second quarter of 2003, interest on deposits decreased by $27
million or 10.3% from the comparable period in 2002. The decrease in the second
quarter of 2003 was due to an 80 basis point decrease in the average cost of
deposits partially offset by an $8.2 billion increase in the average balance of
deposits. In the first six months of 2003, interest on deposits decreased by $53
million or 9.9% from the comparable period in 2002. The decrease in the first
half of 2003 was due to an 80 basis point decrease in the average cost of
deposits partially offset by a $7.8 billion increase in the average balance of
deposits.
Interest on Advances and Other Borrowings
In the second quarter of 2003, interest on advances and other
borrowings decreased by $32 million or 25.5% from the comparable period of 2002.
The decrease in the second quarter of 2003 was primarily due to a 61 basis point
decrease in the average cost of these borrowings partially offset by a $780
million increase in the average balance. In the first six months of 2003,
interest on advances and other borrowings decreased by $58 million or 23.3% from
the comparable period of 2002. The decrease in the first half of 2003 was
primarily due to a 66 basis point decrease in the average cost of these
borrowings partially offset by a $1.7 billion increase in the average balance.
Interest Rate Swaps
From time to time, the Company enters into interest rate swaps as a
part of its interest rate risk management strategy. Such instruments are entered
into primarily to alter the repricing characteristics of designated assets and
liabilities. The Company does not hold any interest rate swaps or other
derivative financial instruments for trading purposes.
TABLE 22
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Six Months Ended
June 30, 2003
----------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------ ------------
Balance at December 31, 2002 $ 91 $ 591
Maturities (91) (355)
------------ ------------
Balance at June 30, 2003 $ -0- $ 236
============ ============
The range of floating interest rates received on swap contracts in the
first six months of 2003 was 1.02% to 1.83%, and the range of floating interest
rates paid on swap contracts was 1.78% to 1.84%. The range of fixed interest
rates received on swap contracts in the first six months of 2003 was 6.39% to
6.56% and the range of fixed interest rates paid on swap contracts was 2.42% to
7.53%.
Interest rate swap payment activity decreased net interest income by
$2.9 million and $6.3 million for the three and six months ended June 30, 2003
as compared to decreases of $4.9 million and $10.9 million for the same periods
in 2002.
The Company accounts for interest rate swaps under the provisions in
SFAS 133. Upon adoption of SFAS 133 on January 1, 2001, the Company reported a
one-time pre-tax charge of $10 million, or $.04 after tax per diluted share. As
a result of the ongoing valuation of the Company's swaps, the Company reported
pre-tax income of $6 million, or $.02 after tax per diluted share for the six
months ended June 30, 2003, as compared to pre-tax income of $5 million, or $.02
after tax per diluted share for the six months ended June 30, 2002. This
additional income occurred because the fair value of Golden West's swaps changed
in 2003 and 2002 as a result of interest rate movements and the maturities of
interest rate swaps. Because the Company intends to hold these interest rate
swaps to maturity, valuation gains and losses will net to zero over the lives of
the swaps. The changes in fair value of these swap contracts are reflected as a
net liability on the Consolidated Statement of Financial Condition with
corresponding amounts reported in Noninterest Income as the "Change in Fair
Value of Derivatives" in the Consolidated Statement of Net Earnings. The Company
has decided not to utilize permitted hedge accounting for the derivative
financial instruments in portfolio at June 30, 2003.
Provision for Loan Losses
The provision for loan losses was $4 million and $8 million for the
three and six months ended June 30, 2003 compared to $5 million and $14 million
for the same periods in 2002.
Noninterest Income
Noninterest income was $83 million and $150 million for the three and
six months ended June 30, 2003 compared to $51 million and $121 million for the
same periods in 2002. The increase in 2003 as compared to 2002 resulted
primarily from the increase in income associated with the gain on sale of loans
and higher loan prepayment fees.
General and Administrative Expenses
For the second quarter and first six months of 2003, general and
administrative expenses (G&A) were $177 million and $347 million compared to
$143 million and $284 million for the comparable periods in 2002. G&A as a
percentage of average assets on an annualized basis was .99% for both the second
quarter and first six months of 2003 compared to .94% and .95% for the same
periods in 2002. G&A expenses increased in 2003 because of the large increase in
activity on both the loan and savings sides of the business, as well as the
continued investment in resources to support future expansion of the Company.
G&A as a percentage of net interest income plus noninterest income (the
"efficiency ratio") amounted to 28.37% and 28.43% for the second quarter and
first six months of 2003 compared to 27.69% and 26.97% for the same periods in
2002.
Taxes on Income
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. Taxes as a
percentage of earnings were 38.6% and 38.5% for the second quarter and first six
months of 2003 compared to 38.5% for the comparable periods in 2002.
Liquidity and Capital Resources
WSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; borrowings from the FHLB of San Francisco;
bank notes; borrowings from its parent; borrowings from its WTX subsidiary; debt
collateralized by mortgages, MBS, or securities; and sales of loans. In
addition, WSB has other alternatives available to provide liquidity or finance
operations including wholesale certificates of deposit, federal funds purchased,
the issuance of medium-term notes, borrowings from public offerings of debt,
issuances of commercial paper, and borrowings from commercial banks.
Furthermore, under certain conditions, WSB 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.
WTX's principal sources of funds are cash flows generated from
borrowings from the FHLB Dallas, earnings, deposits, loan repayments, debt
collateralized by mortgages or securities, and borrowings from affiliates.
The principal sources of funds for WSB's parent, Golden West, are
dividends from subsidiaries, interest on investments, and the proceeds from the
issuance of debt securities. Various statutory and regulatory restrictions and
tax considerations limit the amount of dividends WSB can pay. The principal
liquidity needs of Golden West are for payment of interest and principal on
senior debt and subordinated debt securities, capital contributions to its
insured subsidiaries, dividends to stockholders, the repurchase of Golden West
stock (see stockholders' equity section on page 27), and general and
administrative expenses. At June 30, 2003, December 31, 2002, and June 30, 2002,
Golden West's total cash and investments amounted to $710 million, $830 million,
and $129 million, respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Golden West estimates the sensitivity of the Company's net interest
income, net earnings, and capital ratios to interest rate changes and
anticipated growth based on simulations using an asset/liability model which
takes into account the lags described on pages 11, 12, 30, and 31. The
simulation model projects net interest income, net earnings, and capital ratios
based on a significant interest rate increase that is sustained for a thirty-six
month period. The model is based on the actual maturity and repricing
characteristics of interest-rate sensitive assets and liabilities. For mortgage
assets, the model incorporates assumptions regarding the impact of changing
interest rates on prepayment rates, which are based on the Company's historical
prepayment information. The model factors in projections for anticipated
activity levels by products offered by the Company. Based on the information and
assumptions in effect at June 30, 2003, management believes that a 200 basis
point rate increase sustained over a thirty-six month period would not
materially affect the Company's long-term profitability and financial strength.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officers, Chief Financial Officer, and
other personnel continually review the effectiveness and timeliness of the
Company's disclosure controls and procedures. As required by Exchange Act rules,
the Chief Executive Officers and Chief Financial Officer also conduct an
evaluation at the end of each quarter to further assure the effectiveness of the
Company's disclosure controls and procedures. Based on this quarterly
evaluation, the Chief Executive Officers and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic reports. The
Company has not changed anything during the last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
Exhibit No. Description
3 (a) Certificate of Incorporation, as amended, and amendments thereto,
are incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K (File No. 1-4269) for the year ended
December 31, 1990.
3 (b) By-Laws of the Company, as amended in 1997, are incorporated by
reference to Exhibit 3(b) to the Company's Annual Report on Form
10-K (File No. 1-4269) for the year ended December 31, 1997.
4 (a) The Registrant agrees to furnish to the Commission, upon request,
a copy of each instrument with respect to issues of long-term
debt, the authorized principal amount of which does not exceed 10%
of the total assets of the Company.
10 (a) 1996 Stock Option Plan, as amended and restated February 2, 1996,
and as further amended May 2, 2001, is incorporated by reference
to Exhibit 10 (a) of the Company's Annual Report on Form 10-K
(File No. 1-4269) for the year ended December 31, 2002.
10 (b) Incentive Bonus Plan, as amended and restated, is incorporated by
reference to Exhibit A of the Company's Definitive Proxy Statement
on Schedule 14A, filed on March 15, 2002, for the Company's 2002
Annual Meeting of Stockholders.
10 (c) Deferred Compensation Agreement between the Company and
James T. Judd is incorporated by reference to Exhibit 10(b) of the
Company's Annual Report on Form 10-K (File No. 1-4629) for the
year ended December 31, 1986.
10 (d) Deferred Compensation Agreement between the Company and
Russell W. Kettell is incorporated by reference to Exhibit 10(c)
of the Company's Annual Report on Form 10-K (File No. 1-4629) for
the year ended December 31, 1986.
10 (e) Deferred Compensation Agreement between the Company and
Michael Roster is incorporated by reference to Exhibit 10(e) of
the Company's Annual Report on Form 10-K (File No. 1-4629) for the
year ended December 31, 2002.
10 (f) Operating lease on Company headquarters building, 1901 Harrison
Street, Oakland, California 94612, is incorporated by reference to
Exhibit 10(h) of the Company's Quarterly Report on Form 10-Q
(File No. 1-4629) for the quarter ended September 30, 1998.
10 (g) Form of Supplemental Retirement Agreement between the Company and
certain executive officers is incorporated by reference to Exhibit
10(g) to the Company's Annual Report on Form 10-K
(File No. 1-4629) for the year ended December 31, 2002.
10 (h) Form of Indemnification Agreement for use by the Company with its
directors is incorporated by reference to Exhibit 10(h) of the
Company's Quarterly Report on Form 10-Q (File No. 1-4629) for the
quarter ended March 31, 2003.
11 Statement of Computation of Earnings Per Share
(a) Index to Exhibits (continued)
Exhibit No. Description
31.1 Section 302 Certification of Principal Executive Officer.
31.2 Section 302 Certification of Principal Executive Officer.
31.3 Section 302 Certification of Principal Financial Officer.
32 Section 906 Certification of Principal Executive Officers and
Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
(b) Reports on Form 8-K
The Registrant filed one current report on Form 8-K with the Commission
during the second quarter of 2003 and has since filed one more report
on Form 8-K with the Commission:
1. Report filed April 18, 2003. Item 7. Exhibits. The report dated
April 17, 2003 included the Golden West First Quarter 2003
Earnings Press Release and the Golden West June 30, 2003 Thirteen
Month Statistical Data Press Release.
2. Report filed July 22, 2003. Item 7. Exhibits. The report dated
July 21, 2003 included the Golden West Second Quarter 2003
Earnings Press Release and the Golden West June 30, 2003 Thirteen
Month Statistical Data Press Release.
Signatures
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
Dated: August 13, 2003
/s/ Russell W. Kettell
________________________________________________________
Russell W. Kettell
President and Chief Financial Officer
/s/ William C. Nunan
________________________________________________________
William C. Nunan
Group Senior Vice President and Chief Accounting Officer
EXHIBIT 11
Golden West Financial Corporation
Statement of Computation of Basic and
Diluted Earnings Per Share
(Dollars in thousands except per share
figures)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net Earnings $ 272,473 $ 226,368 $ 532,538 $ 464,449
============= ============= ============= =============
Weighted Average
Common Shares 152,582,771 154,899,196 152,963,162 155,155,946
Dilutive effect of outstanding
common stock equivalents 2,509,009 2,179,236 2,461,792 2,113,111
------------- ------------- ------------- -------------
Diluted Average
Common Shares Outstanding 155,091,780 157,078,432 155,424,954 157,269,057
============= ============= ============= =============
Basic Earnings Per Share $ 1.79 $ 1.46 $ 3.48 $ 2.99
============= ============= ============= =============
Diluted Earnings Per Share $ 1.76 $ 1.44 $ 3.43 $ 2.95
============= ============= ============= =============
EXHIBIT 31.1
SECTION 302 CERTIFICATION
I, Herbert M. Sandler, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Golden West
Financial Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the Company's internal
control over financial reporting that occurred during the Company's
most recent fiscal quarter (the Company's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the Audit Committee of the
Company's Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the Company's internal control
over financial reporting.
August 13, 2003 /s/ Herbert M. Sandler
- ----------------------------------- ---------------------------------
Date Herbert M. Sandler
Chairman of the Board and
Chief Executive Officer
Golden West Financial Corporation
EXHIBIT 31.2
SECTION 302 CERTIFICATION
I, Marion O. Sandler, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Golden West
Financial Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the Company's internal
control over financial reporting that occurred during the Company's
most recent fiscal quarter (the Company's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the Audit Committee of the
Company's Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the Company's internal control
over financial reporting.
August 13, 2003 /s/ Marion O. Sandler
- ----------------------------------- ---------------------------------
Date Marion O. Sandler
Chairman of the Board and
Chief Executive Officer
Golden West Financial Corporation
EXHIBIT 31.3
SECTION 302 CERTIFICATION
I, Russell W. Kettell, certify that:
1) I have reviewed this quarterly report on Form 10-Q of Golden West
Financial Corporation;
2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;
4) The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Company and
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures, and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this quarterly report based on such
evaluation; and
c) disclosed in this quarterly report any change in the Company's internal
control over financial reporting that occurred during the Company's
most recent fiscal quarter (the Company's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the Company's internal control
over financial reporting; and
5) The Company's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial
reporting, to the Company's auditors and the Audit Committee of the
Company's Board of Directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company's ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the Company's internal control
over financial reporting.
August 13, 2003 /s/ Russell W. Kettell
- ----------------------------------- -------------------------------------
Date Russell W. Kettell
President and Chief Financial Officer
Golden West Financial Corporation
EXHIBIT 32
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERS AND
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying Form 10-Q of Golden West Financial
Corporation for the quarterly period ended June 30, 2003, each of the
undersigned, hereby certifies pursuant to 18 U.S.C. ss. 1350, as adopted
pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
1) such Form 10-Q of Golden West Financial Corporation for the quarterly
period ended June 30, 2003 fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2) the information contained in such Form 10-Q of Golden West Financial
Corporation for the quarterly period ended June 30, 2003 fairly
presents, in all material respects, the financial condition and results
of operations of Golden West Financial Corporation.
August 13, 2003 /s/ Herbert M. Sandler
- ----------------------------------- -------------------------------------
Date Herbert M. Sandler
Chairman of the Board and
Chief Executive Officer
Golden West Financial Corporation
August 13, 2003 /s/ Marion O. Sandler
- ----------------------------------- -------------------------------------
Date Marion O. Sandler
Chairman of the Board and
Chief Executive Officer
Golden West Financial Corporation
August 13, 2003 /s/ Russell W. Kettell
- ----------------------------------- -------------------------------------
Date Russell W. Kettell
President and Chief Financial Officer
Golden West Financial Corporation
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Golden West Financial Corporation
and will be retained by Golden West Financial Corporation and furnished to the
Securities and Exchange Commission or its staff upon request.