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 September 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
October 31, 2003:
Common Stock -- 151,927,158 shares.
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GOLDEN WEST FINANCIAL CORPORATION
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Financial Condition -
September 30, 2003 and 2002 and December 31, 2002.........................1
Consolidated Statement of Net Earnings -
For the three and nine months ended September 30, 2003 and 2002...........2
Consolidated Statement of Cash Flows -
For the three and nine months ended September 30, 2003 and 2002...........3
Consolidated Statement of Stockholders' Equity -
For the nine months ended September 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 5. Other Information..................................................38
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
nine months ended September 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 nine-
month periods have been included. The operating results for the three and nine
months ended September 30, 2003 are not necessarily indicative of the results
for the full year.
Golden West Financial Corporation
Consolidated Statement of Financial Condition
(Unaudited)
(Dollars in thousands)
September 30 December 31 September 30
2003 2002 2002
------------------ ----------------- ------------------
Assets
Cash $ 219,000 $ 318,914 $290,578
Securities available for sale at fair value 950,329 922,177 586,329
Purchased mortgage-backed securities available for sale at fair value 24,824 34,543 37,828
Purchased mortgage-backed securities held to maturity at cost 425,741 161,846 193,747
Mortgage-backed securities with recourse held to maturity 4,078,140 5,871,069 6,539,387
Loans receivable 67,507,415 58,268,899 55,110,526
Interest earned but uncollected 179,091 183,130 203,042
Investment in capital stock of Federal Home Loan Banks--at cost
which approximates fair value 1,142,582 1,072,817 1,063,098
Foreclosed real estate 16,838 11,244 11,774
Premises and equipment--at cost less accumulated depreciation 355,955 351,942 346,476
Other assets 1,257,925 1,209,247 1,132,042
------------------ ----------------- ------------------
$ 76,157,840 $68,405,828 $ 65,514,827
================== ================= ==================
Liabilities and Stockholders' Equity
Deposits $ 46,145,048 $41,038,797 $ 38,748,938
Advances from Federal Home Loan Banks 19,689,871 18,635,099 18,577,094
Securities sold under agreements to repurchase 721,639 522,299 21,766
Federal funds purchased 300,000 -0- 200,000
Bank notes 1,489,946 1,209,925 1,134,953
Senior debt--net of discount 990,862 989,690 989,295
Subordinated notes--net of discount 200,000 199,867 199,822
Taxes on income 580,969 489,252 470,623
Other liabilities 404,258 295,649 378,730
Stockholders' equity 5,635,247 5,025,250 4,793,606
------------------ ----------------- ------------------
$ 76,157,840 $68,405,828 $ 65,514,827
================== ================= ==================
Golden West Financial Corporation
Consolidated Statement of Net Earnings
(Unaudited)
(Dollars in thousands except per share figures)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- --------------------------------
2003 2002 2003 2002
-------------- ------------- -------------- --------------
Interest Income
Interest on loans $ 795,003 $752,343 $ 2,350,687 $ 2,122,065
Interest on mortgage-backed securities 60,246 105,700 207,100 398,147
Interest and dividends on investments 21,637 30,416 67,856 90,272
-------------- ------------- -------------- --------------
876,886 888,459 2,625,643 2,610,484
Interest Expense
Interest on deposits 232,789 270,530 719,019 810,259
Interest on advances 63,181 95,403 202,837 295,680
Interest on repurchase agreements 1,878 299 3,160 1,331
Interest on other borrowings 25,708 26,527 76,935 75,596
-------------- ------------- -------------- --------------
323,556 392,759 1,001,951 1,182,866
-------------- ------------- -------------- --------------
Net Interest Income 553,330 495,700 1,623,692 1,427,618
Provision for loan losses 2,082 6,484 10,062 20,209
-------------- ------------- -------------- --------------
Net Interest Income after Provision for Loan Losses 551,248 489,216 1,613,630 1,407,409
Noninterest Income
Fees 45,692 32,280 122,123 102,152
Gain on the sale of securities, MBS and loans 25,972 5,914 62,487 26,820
Change in fair value of derivatives 2,993 (54) 8,639 4,903
Other 16,083 19,722 47,483 45,284
-------------- ------------- -------------- --------------
90,740 57,862 240,732 179,159
Noninterest Expense
General and administrative:
Personnel 108,976 92,622 310,152 260,661
Occupancy 24,404 22,922 72,301 65,327
Deposit insurance 1,732 1,521 5,005 4,532
Advertising 5,252 4,048 16,569 10,975
Other 40,689 32,654 123,916 96,300
-------------- ------------- -------------- --------------
181,053 153,767 527,943 437,795
Earnings before Taxes on Income 460,935 393,311 1,326,419 1,148,773
Taxes on income 178,029 148,852 510,975 439,865
-------------- ------------- -------------- --------------
Net Earnings $ 282,906 $244,459 $ 815,444 $ 708,908
============== ============= ============== ==============
Basic Earnings Per Share $ 1.86 $ 1.58 $ 5.34 $ 4.58
============== ============= ============== ==============
Diluted Earnings Per Share $ 1.83 $ 1.56 $ 5.25 $ 4.52
============== ============= ============== ==============
Golden West Financial Corporation
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------- -------------------------------
2003 2002 2003 2002
------------- ------------- -------------- ---------------
Cash Flows from Operating Activities
Net earnings $282,906 $244,459 $ 815,444 $ 708,908
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for loan losses 2,082 6,484 10,062 20,209
Amortization of net loan costs 30,374 16,111 72,211 36,567
Depreciation and amortization 10,300 9,698 30,957 27,621
Loans originated for sale (608,739) (367,128) (1,793,797) (1,069,435)
Sales of loans 1,117,899 329,601 2,816,785 1,440,388
Decrease (increase) in interest earned but uncollected 20,159 (3,988) 3,409 53,990
Federal Home Loan Bank stock dividends (10,479) (12,491) (31,950) (40,539)
Increase in other assets (121,825) (137,260) (234,848) (353,388)
Increase in other liabilities 40,674 76,713 108,609 65,956
Increase in taxes on income 44,345 19,458 106,665 35,484
Other, net 13,318 3,138 15,927 20,672
------------- ------------- -------------- ---------------
Net cash provided by operating activities 821,014 184,795 1,919,474 946,433
Cash Flows from Investing Activities
New loan activity:
New real estate loans originated for portfolio (9,483,460) (6,344,827) (23,285,254) (17,968,879)
Real estate loans purchased (372) -0- (1,442) -0-
Other, net (65,103) (214,111) (158,514) (588,471)
------------- ------------- -------------- ---------------
(9,548,935) (6,558,938) (23,445,210) (18,557,350)
Real estate loan principal payments:
Monthly payments 364,108 295,724 1,023,118 816,409
Payoffs, net of foreclosures 4,900,796 2,837,083 12,300,214 7,732,887
------------- ------------- -------------- ---------------
5,264,904 3,132,807 13,323,332 8,549,296
Sales of mortgage-backed securities available for sale -0- -0- -0- 176,063
Purchases of mortgage-backed securities held to maturity (354,182) -0- (354,182) -0-
Repayments of mortgage-backed securities 522,408 566,604 1,613,969 2,608,395
Proceeds from sales of foreclosed real estate 11,507 9,422 36,287 34,192
Decrease (increase) in securities available for sale (335,960) (245,685) 123,406 (13,756)
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 (12,122) (12,563) (37,013) (46,690)
------------- ------------- -------------- ---------------
Net cash used in investing activities (4,452,380) (3,108,353) (8,776,596) (7,168,068)
Golden West Financial Corporation
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------- -------------------------------
2003 2002 2003 2002
-------------- -------------- --------------- -------------
Cash Flows from Financing Activities
Net increase in deposits $ 1,759,331 $ 2,518,197 $ 5,106,251 $ 4,276,353
Additions to Federal Home Loan Bank advances 1,275,000 1,345,551 7,882,300 4,485,551
Repayments of Federal Home Loan Bank advances (1,512,318) (1,717,358) (6,827,528) (3,945,966)
Proceeds from agreements to repurchase securities 1,201,810 401,855 1,303,507 911,310
Repayments of agreements to repurchase securities (501,418) (402,025) (1,104,167) (1,113,067)
Increase in federal funds purchased 35,000 150,000 300,000 200,000
Increase in bank notes 1,389,956 82,131 280,021 1,134,953
Net proceeds from senior debt -0- 790,708 -0- 790,708
Repayments of subordinated debt -0- (200,000) -0- (400,000)
Dividends on common stock (12,936) (11,159) (38,959) (33,665)
Exercise of stock options 1,388 1,284 7,013 13,209
Purchase and retirement of Company stock (53,407) (77,075) (151,230) (146,232)
-------------- -------------- --------------- -------------
Net cash provided by financing activities 3,582,406 2,882,109 6,757,208 6,173,154
-------------- -------------- --------------- -------------
Net Decrease in Cash (48,960) (41,449) (99,914) (48,481)
Cash at beginning of period 267,960 332,027 318,914 339,059
-------------- -------------- --------------- -------------
Cash at end of period $ 219,000 $ 290,578 $ 219,000 $ 290,578
============== ============== =============== =============
Supplemental cash flow information:
Cash paid for:
Interest $ 320,156 $ 396,371 $ 995,299 $ 1,183,117
Income taxes 133,684 133,261 404,450 408,439
Cash received for interest and dividends 896,434 884,259 2,629,682 2,663,042
Noncash investing activities:
Loans receivable and loans underlying mortgage-backed
securities converted from adjustable rate to fixed-rate 453,493 68,194 1,190,445 292,827
Loans transferred to foreclosed real estate 17,716 11,060 42,216 33,245
Loans securitized into mortgage-backed securities with
recourse recorded as loans receivable per SFAS 140 6,355,166 950,980 11,121,230 13,145,056
Mortgage-backed securities held to maturity desecuritized
into adjustable rate loans and recorded as loans receivable -0- -0- -0- 4,147,670
Golden West Financial Corporation
Consolidated Statement of Stockholders' Equity
(Unaudited)
(Dollars in thousands)
For the Nine Months Ended September 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- 815,444 -0- 815,444 $ 815,444
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (22,264) (22,264) (22,264)
Reclassification adjustment for
gains included in income -0- -0- -0- (7) (7) (7)
------------------
Comprehensive Income $ 793,173
==================
Common stock issued upon
exercise of stock options 33 6,980 -0- -0- 7,013
Purchase and retirement of
Company stock (195) -0- (151,035) -0- (151,230)
Cash dividends on common
stock ($.255 per share) -0- -0- (38,959) -0- (38,959)
----------- ------------ ---------- --------------- ---------------
Balance at September 30, 2003 $ 15,190 $ 205,142 $5,237,979 $ 176,936 $ 5,635,247
=========== ============ ========== =============== ===============
For the Nine Months Ended September 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- 708,908 -0- 708,908 $ 708,908
Change in unrealized gains on
securities available for sale,
net of tax -0- -0- -0- (32,057) (32,057) (32,057)
Reclassification adjustment for
gains included in income -0- -0- -0- (747) (747) (747)
------------------
Comprehensive Income $ 676,104
==================
Common stock issued upon
exercise of stock options 59 13,150 -0- -0- 13,209
Purchase and retirement of
Company stock (231) -0- (146,001) -0- (146,232)
Cash dividends on common
stock ($.2175 per share) -0- -0- (33,665) -0- (33,665)
----------- ------------ ---------- --------------- ---------------
Balance at September 30, 2002 $ 15,381 $ 186,650 $4,403,000 $ 188,575 $ 4,793,606
=========== ============ ========== =============== ===============
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 Securities
and Exchange Commission (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 Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock Based Compensation," (SFAS 123) 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 Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income, as reported $282,906 $244,459 $815,444 $708,908
Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects (2,681) (866) (5,782) (2,598)
------------- ------------- ------------- -------------
Pro forma net income $280,225 $243,593 $809,662 $706,310
============= ============= ============= =============
Basic earnings per share
As reported $ 1.86 $ 1.58 $ 5.34 $ 4.58
Pro forma 1.84 1.58 5.30 4.56
Diluted earnings per share
As reported $ 1.83 $ 1.56 $ 5.25 $ 4.52
Pro forma 1.81 1.56 5.22 4.50
Earnings Per Share
The Company calculates Basic Earnings Per Share (EPS) and Diluted EPS
in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128). The following is a summary of the calculation
of basic and diluted EPS:
Golden West Financial Corporation
Statement of Computation of Basic and Diluted Earnings Per Share
(Dollars in thousands except per share figures)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ----------------------------------
2003 2002 2003 2002
--------------- --------------- ---------------- ----------------
Net Earnings $ 282,906 $ 244,459 $ 815,444 $ 708,908
=============== =============== ================ ================
Weighted Average
Common Shares 152,180,798 154,441,454 152,699,508 154,915,165
Dilutive effect of outstanding
common stock equivalents 2,630,023 2,048,977 2,479,692 2,064,568
--------------- --------------- ---------------- ----------------
Diluted Average
Common Shares Outstanding 154,810,821 156,490,431 155,179,200 156,979,733
=============== =============== ================ ================
Basic Earnings Per Share $ 1.86 $ 1.58 $ 5.34 $ 4.58
=============== =============== ================ ================
Diluted Earnings Per Share $ 1.83 $ 1.56 $ 5.25 $ 4.52
=============== =============== ================ ================
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 adoption of SFAS 149 on July 1, 2003, did not
have a significant impact on the Company's 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 adoption of SFAS 150 on July 1, 2003, had no
impact on the Company's 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 one of the nation's largest financial institutions. 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
nine month periods ended September 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)
September 30 December 31 September 30
2003 2002 2002
------------------ ---------------- -----------------
Assets $ 76,157,840 $68,405,828 $ 65,514,827
Loans receivable including mortgage-backed securities(a) 72,036,120 64,336,357 61,881,488
Adjustable rate mortgages including MBS(b) 69,528,396 61,770,142 59,158,704
Fixed-rate mortgages held for investment including MBS(b) 2,001,538 2,118,740 2,342,301
Fixed-rate mortgages held for sale including MBS(b) 341,175 404,141 365,626
Deposits 46,145,048 41,038,797 38,748,938
Stockholders' equity 5,635,247 5,025,250 4,793,606
Stockholders' equity/total assets 7.40% 7.35% 7.32%
Book value per common share $ 37.10 $ 32.73 $ 31.17
Common shares outstanding 151,900,958 153,521,103 153,813,352
Yield on earning assets 4.70% 5.25% 5.49%
Cost of funds 1.78% 2.32% 2.56%
Yield on earning assets less cost
of funds (primary spread) 2.92% 2.93% 2.93%
Ratio of nonperforming assets to total assets .56% .62% .64%
Ratio of troubled debt restructured to total assets .00% .00% .01%
Loans serviced for others with recourse $ 3,137,330 $ 2,897,859 $ 2,866,544
Loans serviced for others without recourse 2,749,338 2,510,635 2,265,450
World Savings Bank, FSB:
Total assets $ 76,142,531 $67,967,975 $ 65,501,652
Stockholder's equity 5,971,863 5,358,440 5,091,742
Stockholder's equity/total assets 7.84% 7.88% 7.77%
Regulatory capital ratios:(c)
Tier 1 capital (core or leverage) 7.62% 7.61% 7.51%
Total risk-based capital 14.39% 14.26% 14.07%
World Savings Bank, FSB (Texas):
Total assets $ 7,682,645 $ 7,916,763 $ 7,839,006
Stockholder's equity 475,480 413,885 410,787
Stockholder's equity/total assets 6.19% 5.23% 5.24%
Regulatory capital ratios:(c)
Tier 1 capital (core or leverage) 6.19% 5.23% 5.24%
Total risk-based capital 27.08% 24.07% 24.76%
(a) Includes net deferred loan costs, allowance for loan losses, and other miscellaneous reserves and discounts.
(b) Excludes net deferred loan costs, allowance for loan losses, and other miscellaneous reserves and discounts.
(c) 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 Nine Months Ended
September 30 September 30
----------------------------------- -----------------------------------
2003 2002 2003 2002
--------------- ---------------- ---------------- ----------------
Real estate loans originated $ 10,092,199 $ 6,711,955 $ 25,079,051 $ 19,038,314
New adjustable rate mortgages as a percentage of
real estate loans originated 93% 93% 92% 93%
Refinances as a percentage of real estate
loans originated 70% 59% 71% 59%
Deposits increase $ 1,759,331 $ 2,518,197 $ 5,106,251 $ 4,276,353
Net earnings 282,906 244,459 815,444 708,908
Basic earnings per share 1.86 1.58 5.34 4.58
Diluted earnings per share 1.83 1.56 5.25 4.52
Cash dividends on common stock $ .085 $ .0725 $ .255 $ .2175
Average common shares outstanding 152,180,798 154,441,454 152,699,508 154,915,165
Average diluted common shares outstanding 154,810,821 156,490,431 155,179,200 156,979,733
Ratios:(a)
Net earnings/average stockholders' equity (ROE) 20.48% 20.66% 20.43% 20.73%
Net earnings/average assets (ROA) 1.53% 1.52% 1.52% 1.54%
Net interest margin(b) 3.07% 3.19% 3.11% 3.20%
General and administrative expense/average assets .98% .96% .98% .95%
Efficiency ratio(c) 28.11% 27.78% 28.32% 27.25%
(a) Ratios are annualized by multiplying the quarterly computation by four and the nine-month computation by one and one-third.
Averages are computed by adding the beginning balance and each monthend balance during the quarter and nine month period and
dividing by four and ten, 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 September 30, 2003, December 31, 2002, and September 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
September 30 December 31 September 30
2003 2002 2002
------------------ ----------------- ------------------
Assets
Cash and investments 1.5% 1.8% 1.3%
Loans receivable including mortgage-backed
securities 94.6 94.1 94.5
Other assets 3.9 4.1 4.2
------------------ ----------------- ------------------
100.0% 100.0% 100.0%
================== ================= ==================
Liabilities and Stockholders' Equity
Deposits 60.6% 60.1% 59.2%
Federal Home Loan Bank advances 25.9 27.2 28.4
Securities sold under agreements to repurchase .9 .8 .0
Federal funds purchased .4 .0 .3
Bank notes 2.0 1.8 1.7
Senior debt 1.3 1.4 1.5
Subordinated notes .3 .3 .3
Other liabilities 1.2 1.1 1.3
Stockholders' equity 7.4 7.3 7.3
------------------ ----------------- ------------------
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" or "the repricing gap."
The gap table on the following page shows that, as of September 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, which is the index Golden West uses to determine the rate on
$25 billion of its existing adjustable rate mortgages, 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
$20 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, which is the index Golden West uses to determine the rate on
$23 billion of its existing adjustable rate mortgages, 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 Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of September 30, 2003
(Dollars in millions)
Projected Repricing(a)
-----------------------------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
------------- -------------- ------------- -------------- -------------
Earning Assets:
Investments $ 950 $ -0- $ -0- $ -0- $ 950
MBS:
Adjustable rate 3,910 -0- -0- -0- 3,910
Fixed-rate 52 125 275 167 619
Loans receivable:(b)
Adjustable rate 63,890 960 567 -0- 65,417
Fixed-rate held for investment 186 346 539 449 1,520
Fixed-rate held for sale 321 -0- -0- -0- 321
Other(c) 1,293 -0- -0- -0- 1,293
Impact of swaps 104 (104) -0- -0- -0-
------------- -------------- ------------- -------------- -------------
Total $ 70,706 $ 1,327 $ 1,381 $ 616 $ 74,030
============= ============== ============= ============== =============
Interest-Bearing Liabilities:
Deposits(d) $ 37,821 $ 4,717 $ 3,601 $ 6 $ 46,145
FHLB advances 17,925 500 685 580 19,690
Other borrowings 2,711 -0- 497 494 3,702
------------- -------------- ------------- -------------- -------------
Total $ 58,457 $ 5,217 $ 4,783 $ 1,080 $ 69,537
============= ============== ============= ============== =============
Repricing gap $ 12,249 $ (3,890) $ (3,402) $ (464) $ 4,493
============= ============== ============= ============== =============
Cumulative gap $ 12,249 $ 8,359 $ 4,957 $ 4,493
============= ============== ============= ==============
Cumulative gap as a percentage of
total assets 16.1% 11.0% 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) Balances exclude nonaccrual loans (90 days or more past due).
(c) Includes cash in banks and Federal Home Loan Bank (FHLB) stock.
(d) 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 September 30, 2003, ARMs constituted 97% 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 September 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 92% of the ARM originations in the first nine months of
2003 and 69% of the ARM portfolio at September 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 September 30, 2003, December 31, 2002, and September 30, 2002, the
Company had securities available for sale in the amount of $950 million, $922
million and $586 million, respectively, including unrealized gains on securities
available for sale of $289 million, $326 million, and $308 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 $294 million at September 30, 2003. Between
December 31, 2002 and September 30, 2003, the stock price of Freddie Mac dropped
from $59.05 per share to $52.35 per share. As a result, the unrealized gain
before tax on the Freddie Mac stock decreased from $326 million at December 31,
2002 to $289 million at September 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 September 30, 2003. At September 30, 2003, December 31,
2002, and September 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 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)
September 30 December 31 September 30
2003 2002 2002
------------------- ---------------- ------------------
Loans $43,940,690 $39,159,502 $39,853,568
Securitized loans(a)(b) 23,401,714 19,066,063 15,240,963
------------------- ---------------- ------------------
Total loans, excluding MBS 67,342,404 58,225,565 55,094,531
------------------- ---------------- ------------------
MBS-REMICs 4,078,140 5,871,069 6,539,387
Purchased MBS 450,565 196,389 231,575
------------------- ---------------- ------------------
Total MBS 4,528,705 6,067,458 6,770,962
------------------- ---------------- ------------------
Other(c) 165,011 43,334 15,995
------------------- ---------------- ------------------
Total loans receivable, including MBS $72,036,120 $64,336,357 $61,881,488
=================== ================ ==================
(a) Loans securitized after March 31, 2001 are classified as securitized loans per SFAS 140.
(b) Includes $13.1 billion at September 30, 2003 of loans securitized with Fannie Mae where the underlying loans are subject to
full credit recourse to the Company.
(c) Includes net deferred loan costs, allowance for loan losses, and other miscellaneous reserves and discounts.
Repayments from loans receivable, including MBS, were $5.8 billion
and $14.9 billion for the three and nine months ended September 30, 2003 as
compared to $3.7 billion and $11.2 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 $10.1 billion and $25.1 billion for
the three and nine months ended September 30, 2003 compared to $6.7 billion and
$19.0 billion for the same periods in 2002. The volume of originations increased
during 2003 due to extremely low mortgage rates and the high volatility of rates
charged on fixed-rate mortgages in the third quarter of 2003, 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 nine months ended
September 30, 2003, compared to 59% for the three and nine months ended
September 30, 2002.
First mortgages originated for portfolio excluding equity lines of
credit (ELOCs) amounted to $9.2 billion and $22.7 billion for the three and nine
months ended September 30, 2003, compared to $6.3 billion and $17.9 billion for
the same periods in 2002. First mortgages originated for sale amounted to $573
million and $1.7 billion for the three and nine months ended September 30, 2003,
compared to $355 million and $1.0 billion for the same periods in 2002. During
the third quarter and first nine months of 2003, $453 million and $1.2 billion
of loans, including MBS, were converted at the customer's request from
adjustable rate to fixed-rate compared to $68 million and $293 million for the
same periods in 2002. The Company sells most of its new and converted fixed-rate
loans. For the three and nine months ended September 30, 2003, the Company sold
$1.1 billion and $2.7 billion of fixed-rate first mortgage loans compared to
$294 million and $1.3 billion for the same periods in 2002.
At September 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 nine months ended
September 30, 2003, 67% and 68%, respectively, of total loan originations were
on residential properties in California compared to 65% and 67% for the same
periods in 2002. The five largest states, other than California, for
originations for the nine months ended September 30, 2003, were Florida, New
Jersey, Texas, Illinois, and Colorado with a combined total of 16% 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
September 30, 2003, December 31, 2002 and September 30, 2002. For additional
detail on the Company's loan portfolio by state, see tables 10 and 11 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 93% and 92% of new mortgage volume made by the
Company for the third quarter and first nine months of 2003 compared to 93% for
the same periods in 2002. The following table shows the distribution of ARM
originations by index for the third quarter and first nine months of 2003 and
2002.
TABLE 4
Adjustable Rate Mortgage Originations by Index
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ----------------------------------
ARM Index 2003 2002 2003 2002
------------------- --------------- -------------- ---------------- ----------------
CODI $5,792,167 $ 3,737,727 $ 14,158,435 $ 8,598,127
COFI 376,627 689,933 1,294,288 2,829,982
COSI 2,972,061 1,823,191 6,948,100 6,232,726
Prime(a) 261,120 -0- 596,217 -0-
--------------- -------------- ---------------- ----------------
$9,401,975 $ 6,250,851 $ 22,997,040 $ 17,660,835
=============== ============== ================ ================
(a) As of January 2003, includes fundings of new ELOCs indexed to the prime rate. Only amounts drawn at the establishment of the
line of credit are included in originations.
The portion of the mortgage portfolio (including securitized loans
and MBS) composed of adjustable rate loans was 97% at September 30, 2003
compared to 96% at December 31, 2002 and September 30, 2002. The following table
shows the distribution by index of the Company's outstanding balance of
adjustable rate mortgages (including ARM MBS) at September 30, 2003, December
31, 2002, and September 30, 2002.
TABLE 5
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS)
(Dollars in thousands)
September 30 December 31 September 30
ARM Index 2003 2002 2002
- -------------------------- ------------------ ----------------- ------------------
CODI $25,205,558 $13,286,566 $ 8,955,178
COFI 19,617,024 24,755,498 26,296,529
COSI 22,695,303 22,070,692 22,363,740
Prime(a) 1,547,845 999,251 811,598
Other(b) 462,666 658,135 731,659
------------------ ----------------- ------------------
$69,528,396 $61,770,142 $59,158,704
================== ================= ==================
(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 7.29% above the actual weighted
average rate at September 30, 2003, versus 12.13% or 6.74% above the actual
weighted average rate at December 31, 2002 and 12.15% or 6.57% above the actual
weighted average rate at September 30, 2002.
At September 30, 2003, approximately $5.1 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 September 30, 2003, $2.4 billion of ARM loans
had reached their rate floors compared to $2.0 billion at December 31, 2002 and
September 30, 2002. The weighted average floor rate on the loans that had
reached their floor was 5.49% at September 30, 2003 compared to 5.87% at
December 31, 2002 and 5.95% at September 30, 2002. Without the floor, the
average rate on these loans would have been 4.49% at September 30, 2003, 5.19%
at December 31, 2002 and 5.30% at September 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 $40 million and $104 million, respectively, for the
third quarter and first nine months of 2003 compared to $34 million and $129
million for the same periods in 2002. The outstanding balance of fixed-rate
seconds amounted to $144 million and $259 million at September 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 following table shows the amounts of new ELOCs established for the third
quarter and first nine months of 2003 and 2002.
TABLE 6
New Equity Lines of Credit Established
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ----------------------------------
2003 2002 2003 2002
--------------- -------------- ---------------- ----------------
New ELOCs
established $ 499,428 $ 309,034 $ 1,148,265 $ 846,798
=============== ============== ================ ================
The following table shows the outstanding balance of ELOCs and the
maximum total line of credit available on the Company's ELOCs at September 30,
2003, December 31, 2002, and September 30, 2002.
TABLE 7
Equity Line of Credit
Outstanding Balance and Maximum Total Line of Credit Available
(Dollars in thousands)
September 30 December 31 September 30
2003 2002 2002
------------------ ----------------- ------------------
ELOC outstanding balance $1,547,845 $ 999,251 $ 811,598
================== ================= ==================
ELOC maximum total line
of credit available $2,334,822 $1,501,725 $ 1,224,512
================== ================= ==================
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 third quarter and first nine months of 2003, 11% of loans
originated exceeded 80% of the appraised value of the property. For the third
quarter and first nine months of 2002, 13% 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 $35 million and $75 million for the third quarter and
first nine months of 2003 as compared to $35 million and $107 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 nine months ended
September 30, 2003 and 2002.
TABLE 8
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
------------------------------ ------------------------------
2003 2002 2003 2002
------------- ------------- -------------- -------------
First mortgages with loan to value ratios greater
than 80%:
With mortgage insurance $ 46,355 $ 87,712 $ 188,719 $ 209,626
With no mortgage insurance 10,586 18,913 35,567 55,009
------------- ------------- -------------- -------------
56,941 106,625 224,286 264,635
------------- ------------- -------------- -------------
First and second mortgages with combined
loan to value ratios greater than 80%:(a)
With pool insurance on second mortgages 786,183 576,350 1,900,096 1,781,975
With no pool insurance 219,737 157,321 550,003 458,662
------------- ------------- -------------- -------------
1,005,920 733,671 2,450,099 2,240,637
------------- ------------- -------------- -------------
Total $1,062,861 $ 840,296 $2,674,385 $2,505,272
============= ============= ============== =============
(a) For ELOCs, only amounts drawn at the establishment of the line of credit are included in originations.
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at September 30, 2003 and
2002.
TABLE 9
Balance of Mortgages With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
(Dollars in thousands)
As of September 30
---------------------------------
2003 2002
-------------- --------------
First mortgages with loan to value ratios
greater than 80%:
With mortgage insurance $ 583,087 $ 520,691
With no mortgage insurance 174,859 344,340
-------------- --------------
757,946 865,031
-------------- --------------
First and second mortgages with combined loan to
value ratios greater than 80%:
With pool insurance on second mortgages 4,459,639 3,373,445
With no pool insurance 415,290 363,014
-------------- --------------
4,874,929 3,736,459
-------------- --------------
Total $ 5,632,875 $ 4,601,490
============== ==============
The following tables show the Company's loan portfolio by state at
September 30, 2003 and 2002.
TABLE 10
Loan Portfolio by State
September 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 $ 24,085,633 $1,776,791 $ -0- $ 11,426 $25,873,850 36.23%
Southern California 18,180,908 1,501,242 -0- 2,147 19,684,297 27.57
Florida 3,982,586 53,830 -0- 56 4,036,472 5.65
Texas 2,736,848 135,792 -0- 290 2,872,930 4.02
New Jersey 2,767,239 -0- -0- 389 2,767,628 3.88
Washington 1,324,793 689,869 -0- -0- 2,014,662 2.82
Illinois 1,660,918 133,228 -0- -0- 1,794,146 2.51
Colorado 1,438,426 178,936 -0- 4,005 1,621,367 2.27
Other(a) 10,579,570 162,211 1 1,368 10,743,150 15.05
---------------- --------------- ------------- ---------------- ---------------- ------------
Totals $ 66,756,921 $4,631,899 $ 1 $ 19,681 71,408,502 100.00%
================ =============== ============= ================ ============
Net deferred loan costs 461,197
Allowance for loan losses (288,949)
Undisbursed loan funds (7,237)
Loans on deposits 12,042
----------------
Total loan portfolio and loans securitized into MBS-REMICs 71,585,555
Loans securitized into MBS-REMICs (4,078,140)(b)
----------------
Total loans receivable $67,507,415
================
(a) All states included in Other have total loan balances less than 2% of total loans.
(b) The above schedule includes the September 30, 2003 balances of loans that were securitized and retained as MBS-REMICs.
TABLE 11
Loan Portfolio by State
September 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 $ 19,743,499 $1,774,291 $ -0- $ 11,717 $21,529,507 34.94%
Southern California 16,351,726 1,569,829 -0- 1,493 17,923,048 29.09
Florida 3,235,635 35,823 -0- 89 3,271,547 5.31
Texas 2,474,542 111,086 122 827 2,586,577 4.20
New Jersey 2,274,294 -0- -0- 1,303 2,275,597 3.69
Washington 1,231,955 695,530 -0- -0- 1,927,485 3.13
Illinois 1,497,881 130,375 -0- -0- 1,628,256 2.64
Colorado 1,324,988 187,719 -0- 4,378 1,517,085 2.46
Other(a) 8,827,781 129,617 2 2,810 8,960,210 14.54
--------------- -------------- ------------- ---------------- ---------------- -----------
Totals $ 56,962,301 $4,634,270 $ 124 $ 22,617 61,619,312 100.00%
=============== ============== ============= ================ ===========
Net deferred loan costs 304,142
Allowance for loan losses (279,818)
Undisbursed loan funds (8,329)
Loans on deposits 14,606
----------------
Total loan portfolio and loans securitized into MBS-REMICs 61,649,913
Loans securitized into MBS-REMICs (6,539,387)(b)
----------------
Total loans receivable $55,110,526
================
(a) All states included in Other have total loan balances less than 2% of total loans.
(b) The above schedule includes the September 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 nine months ended September 30, 2003, loan repayments
were $5.3 billion and $13.3 billion, respectively, compared to $3.1 billion and
$8.5 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 $6.4 billion and $11.1 billion of loans
during the third quarter and first nine months of 2003. During the third quarter
and first nine months of 2002, the Company securitized $951 million and $13.1
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 September 30, 2003, December 31, 2002, and September 30, 2002, the
Company had MBS held to maturity in the amount of $4.5 billion, $6.0 billion,
and $6.7 billion, respectively. The decrease in MBS held to maturity from
September 30, 2002 to September 30, 2003 was due to prepayments, partially
offset by the purchase of $354 million of MBS for Community Reinvestment Act
purposes. 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 September 30, 2003, December 31, 2002, and September 30, 2002, the
Company had MBS available for sale in the amount of $25 million, $35 million,
and $38 million, respectively, including net unrealized gains on MBS available
for sale of $131 thousand at September 30, 2003, $139 thousand at December 31,
2002, and $635 thousand at September 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 third quarter and first nine months of
2003 were $522 million and $1.6 billion compared to $567 million and $2.6
billion during the same periods of 2002. MBS repayments were lower during the
first nine months of 2003 as compared to the first nine months of 2002 due to
the 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 nine months ended September 30, 2003 and 2002.
TABLE 12
Capitalized Mortgage Servicing Rights
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ----------- ------------ -----------
Beginning balance of CMSRs $82,060 $61,778 $69,448 $56,056
New CMSRs from loan sales 20,554 4,175 49,716 19,387
Amortization of CMSRs (10,516) (5,266) (27,066) (14,756)
------------ ----------- ------------ -----------
Ending balance of CMSRs $92,098 $60,687 $92,098 $60,687
============ =========== ============ ===========
The estimated amortization of the September 30, 2003 balance for the
remainder of 2003 and the five years ending 2008 is $11.4 million (2003), $33.8
million (2004), $23.6 million (2005), $15.0 million (2006), $6.8 million (2007),
and $1.5 million (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 September 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 13
Nonperforming Assets and Troubled Debt Restructured
(Dollars in thousands)
September 30 December 31 September 30
2003 2002 2002
------------------ ----------------- ------------------
Non-accrual loans $ 409,001 $ 413,123 $ 405,806
Foreclosed real estate 16,838 11,244 11,774
------------------ ----------------- ------------------
Total nonperforming assets $ 425,839 $ 424,367 $ 417,580
================== ================= ==================
TDRs, net of interest reserve $ 2,201 $ 233 $ 3,388
================== ================= ==================
Ratio of NPAs to total assets .56% .62% .64%
================== ================= ==================
Ratio of TDRs to total assets .00% .00% .01%
================== ================= ==================
Ratio of NPAs and TDRs to total assets .56% .62% .65%
================== ================= ==================
The balances of NPAs at September 30, 2003, December 31, 2002 and
September 30, 2002 reflect only nominal increases in delinquencies associated
with the aging of the large volume of mortgages originated during the past three
years. Continued economic weakness in a few geographical areas of the U.S. has
contributed to some increase in foreclosed real estate. 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. At September 30, 2003, December 31, 2002, and September 30, 2002,
non-accrual loans included real estate in judgement of $2.7 million, $3.9
million, and $5.2 million, respectively. Interest foregone on non-accrual loans
(loans 90 days or more past due) amounted to a recovery of $412 thousand for the
third quarter of 2003 and an expense of $2 million for the nine months ended
September 30, 2003 compared to an expense of $1 million and $2 million for the
three and nine months ended September 30, 2002. Interest foregone on TDRs
amounted to $4 thousand and $12 thousand for the three and nine months ended
September 30, 2003, compared to less than $1 thousand and $6 thousand for the
same periods in 2002.
The following tables show the Company's NPAs by state as of September
30, 2003 and 2002.
TABLE 14
Nonperforming Assets by State
September 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 $115,053 $ 571 $ 5 $ 3,001 $ -0- $ -0- $118,630 .46%
Southern California 79,805 1,390 209 513 -0- -0- 81,917 .42
Florida 31,626 -0- -0- 975 -0- -0- 32,601 .81
Texas 34,982 -0- -0- 5,230 -0- 292 40,504 1.41
New Jersey 19,643 -0- -0- 337 -0- -0- 19,980 .72
Washington 11,672 -0- -0- 890 -0- -0- 12,562 .62
Illinois 13,427 -0- -0- 839 -0- -0- 14,266 .80
Colorado 8,400 61 -0- -0- -0- -0- 8,461 .52
Other(c) 92,157 -0- -0- 5,119 -0- -0- 97,276 .91
------------ ---------- ------------ --------- -------- --------------- ------------- ----------
Totals $406,765 $ 2,022 $ 214 $16,904 $ -0- $ 292 426,197 .60
============ ========== ============ ========= ======== ===============
FRE general valuation allowance (358) (.00)
------------- ---------
Total nonperforming assets $ 425,839 .60%
============= =========
(a) Non-accrual loans are 90 days or more past due and interest is not recognized on these loans.
(b) The September 30, 2003 balances include loans that were securitized into MBS-REMICs.
(c) All states included in Other have total loan balances less than 2% of total loans.
TABLE 15
Nonperforming Assets by State
September 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 $ 94,329 $ -0- $ 6 $ 388 $ -0- $ -0- $ 94,723 .44%
Southern California 106,272 -0- 310 2,614 -0- -0- 109,196 .61
Florida 38,545 -0- 21 -0- -0- -0- 38,566 1.18
Texas 23,488 -0- 442 1,163 -0- -0- 25,093 .97
New Jersey 19,094 -0- 224 -0- -0- -0- 19,318 .85
Washington 14,998 -0- -0- 1,133 -0- -0- 16,131 .84
Illinois 16,096 -0- -0- 1,290 -0- -0- 17,386 1.07
Colorado 4,524 65 -0- 349 -0- -0- 4,938 .33
Other(c) 87,333 59 -0- 5,163 -0- -0- 92,555 1.03
------------ ---------- ------------ --------- -------- --------------- ------------- ----------
Totals $404,679 $ 124 $ 1,003 $12,100 $ -0- $ -0- 417,906 .68
============ ========== ============ ========= ======== ===============
FRE general valuation allowance (326) (.00)
------------- ---------
Total nonperforming assets $ 417,580 .68%
============= =========
(a) Non-accruals loans are 90 days or more past due and interest is not recognized on these loans.
(b) The September 30, 2002 balances include loans that were securitized into MBS-REMICs.
(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 in the
loan portfolio that is based on both the Company's historical loss experience
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. 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 nine months ended September 30, 2003 and 2002.
TABLE 16
Changes in Allowance for Loan Losses
(Dollars in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ----------- ------------ -----------
Beginning allowance for loan losses $287,868 $273,881 $281,097 $261,013
Provision for losses charged to 2,082 6,484 10,062 20,209
expense
Loans charged off (1,200) (646) (2,678) (1,766)
Recoveries 199 99 468 362
------------ ----------- ------------ -----------
Ending allowance for loan losses $288,949 $279,818 $288,949 $279,818
============ =========== ============ ===========
Ratio of net chargeoffs to average loans outstanding
(including MBS-REMICs) .01% .00% .00% .00%
============ =========== ============ ===========
Ratio of allowance for loan losses to total loans
(including MBS-REMICs) .40% .45%
============ ===========
Ratio of allowance for loan losses to NPAs 67.9% 67.0%
============ ===========
Deposits
The Company raises deposits through its retail branch system, through
the internet, and through the money markets.
Retail deposits increased during the third quarter of 2003 by $1.8
billion, including interest credited of $215 million, compared to an
increase of $2.5 billion, including interest credited of $240 million in the
third quarter of 2002. Retail deposits increased during the first nine months of
2003 by $5.1 billion, including interest credited of $645 million, compared to
an increase of $4.3 billion, including interest credited of $704 million in the
first nine months of 2002. The public found savings to be a more favorable
investment compared with other alternatives. Retail deposits increased during
the first nine months of 2003 because the Company combined significant
promotions and competitive rates on liquid accounts to generate deposit growth.
At September 30, 2003 and 2002, transaction accounts (which include checking,
passbook, and money market deposit accounts) represented 75% and 60%,
respectively, of the total balance of deposits.
The table below shows the Company's deposits by interest rate and by
remaining maturity at September 30, 2003 and 2002.
TABLE 17
Deposits
(Dollars in millions)
September 30
-----------------------------------------------------------
2003 2002
---------------------------- ----------------------------
Rate Amount Rate(a) Amount
----------- ------------- ----------- -------------
Deposits by rate:
Interest-bearing checking accounts 1.01% $ 180 1.44% $ 140
Interest-bearing checking accounts swept
into money market deposit accounts 1.46 5,152 1.94 4,220
Passbook accounts .47 471 .83 451
Money market deposit accounts 1.84 28,973 2.81 18,617
Term certificate accounts with original maturities of:
4 weeks to 1 year 1.32 3,840 2.11 5,739
1 to 2 years 1.54 2,602 2.80 4,586
2 to 3 years 2.98 1,637 4.09 1,887
3 to 4 years 3.90 1,289 4.62 1,242
4 years and over 4.87 1,939 5.13 1,752
Retail jumbo CDs 3.12 62 3.90 115
------------- -------------
$ 46,145 $ 38,749
============= =============
Deposits by remaining maturity:
No contractual maturity 1.76% $ 34,776 2.60% $ 23,428
Maturity within one year 1.85 7,762 2.71 11,372
1 to 5 years 3.95 3,601 4.31 3,937
Over 5 years 4.29 6 5.10 12
------------- -------------
$ 46,145 $ 38,749
============= =============
(a) Weighted average interest rate, including the impact of interest rate swaps.
At September 30, the weighted average cost of deposits was 1.95%
(2003) and 2.81% (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 generally pledged
with certain loans and MBS. FHLB advances amounted to $19.7 billion at September
30, 2003, compared to $18.6 billion at December 31, 2002 and September 30, 2002.
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 $722 million, $522 million, and $22 million at September 30, 2003,
December 31, 2002, and September 30, 2002, respectively.
Other Borrowings
At September 30, 2003 and 2002, Golden West, at the holding company
level, had a total of $200 million of subordinated debt outstanding. As of
September 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. In October 2003, the Company paid off the $200 million of
subordinated debt.
At September 30, 2003, Golden West, at the holding company level, had
outstanding $991 million of senior debt compared to $989 million at September
30, 2002. As of September 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 September 30, 2003,
December 31, 2002 and September 30, 2002, WSB had $1.5 billion, $1.2 billion,
and $1.1 billion, respectively, of bank notes outstanding. As of September 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 September 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 $610 million during
the first nine months 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 $151 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 $177 million at
September 30, 2003 (see page 14 for further discussion). The Company's
stockholders' equity increased by $509 million during the first nine 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 $146 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 September 30, 2003, December 31, 2002, and
September 30, 2002 were $177 million, $199 million, and $189 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 September 30, 2003, 51.3 million
shares had been repurchased and retired at a cost of $1.4 billion since October
1993, of which 2.0 million were purchased and retired at a cost of $151 million
during the first nine months 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 September
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 September 30, 2003 and 2002.
TABLE 18
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of September 30, 2003
(Dollars in thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
------------------------- -------------------------- ---------------------------
Capital Ratio Capital Ratio Capital Ratio
-------------- ------- ---------------- ------- ---------------- -------
WSB and Subsidiaries
Tangible $5,785,917 7.62% $ 1,138,820 1.50% --- ---
Tier 1 (core or leverage) 5,785,917 7.62 3,036,852 4.00 $ 3,796,065 5.00%
Tier 1 risk-based 5,785,917 13.71 --- --- 2,532,271 6.00
Total risk-based 6,073,121 14.39 3,376,361 8.00 4,220,452 10.00
WTX
Tangible $ 475,480 6.19% $ 115,240 1.50% --- ---
Tier 1 (core or leverage) 475,480 6.19 307,306 4.00 $ 384,132 5.00%
Tier 1 risk-based 475,480 27.05 --- --- 105,469 6.00
Total risk-based 476,097 27.08 140,625 8.00 175,782 10.00
TABLE 19
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of September 30, 2002
(Dollars in thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
------------------------- -------------------------- ---------------------------
Capital Ratio Capital Ratio Capital Ratio
-------------- ------- ---------------- ------- ---------------- -------
WSB and Subsidiaries
Tangible $4,899,824 7.51% $ 978,899 1.50% --- ---
Tier 1 (core or leverage) 4,899,824 7.51 2,610,398 4.00 $ 3,262,997 5.00%
Tier 1 risk-based 4,899,824 13.32 --- --- 2,207,546 6.00
Total risk-based 5,178,292 14.07 2,943,395 8.00 3,679,244 10.00
WTX
Tangible $ 410,787 5.24% $ 117,585 1.50% --- ---
Tier 1 (core or leverage) 410,787 5.24 313,560 4.00 $ 391,950 5.00%
Tier 1 risk-based 410,787 24.75 --- --- 99,599 6.00
Total risk-based 411,011 24.76 132,799 8.00 165,998 10.00
Results Of Operations
Net Earnings
Net earnings for the three months ended September 30, 2003 were $283
million compared to net earnings of $244 million for the three months ended
September 30, 2002. Net earnings for the nine months ended September 30, 2003
were $815 million compared to net earnings of $709 million for the nine months
ended September 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 $553 million and $1.6 billion,
respectively, for the three and nine months ended September 30, 2003 as compared
to $496 million and $1.4 billion for the same periods in 2002. These amounts
represented 12% and 14% 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 nine
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 September 30, 2002 and September 30, 2003, the Company's
earning asset balance increased by $10.5 billion or 17%. 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 12 and 13, 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 September 30, 2003, which
included periods of both falling and rising interest rates, the Company's
primary spread averaged 2.56%.
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. 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%. Reflecting the decline of short-term interest rates at the end of 2002
and the rate decrease in June, the Company's cost of funds declined by 54 basis
points during the first nine months of 2003, while the yield on the Company's
assets fell by 55 basis points. Consequently, the Company's primary spread was
2.92% at September 30, 2003. However, the average primary spread for the first
nine months of 2003 was 2.95% compared with 3.01% for the same period in 2002.
The table below shows the components of the Company's spread at
September 30, 2003, December 31, 2002, and September 30, 2002.
TABLE 20
Yield on Earning Assets,
Cost of Funds, and Primary Spread
September 30 December 31 September 30
2003 2002 2002
----------------- ------------------ ------------------
Yield on loan portfolio, including MBS 4.73% 5.28% 5.50%
Yield on investments 1.10 1.94 3.50
----------------- ------------------ ------------------
Yield on earning assets 4.70 5.25 5.49
----------------- ------------------ ------------------
Cost of deposits 1.95 2.56 2.81
Cost of borrowings 1.45 1.85 2.10
----------------- ------------------ ------------------
Cost of funds 1.78 2.32 2.56
----------------- ------------------ ------------------
Primary spread 2.92% 2.93% 2.93%
================= ================== ==================
The following tables set forth certain information with respect to
the yields earned and rates paid on the Company's earning assets and
interest-bearing liabilities for the three and nine months ended September 30,
2003 and 2002.
TABLE 21
Average Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Three Months Ended Three Months Ended
September 30, 2003 September 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 $ 3,733,040 1.20% 1.10%(c) $ 3,306,584 2.17% 3.50%
Loans receivable, including MBS(d) 69,897,066 4.89 4.73 60,575,698 5.67 5.50
Invest. in capital stock of FHLBs 1,136,356 3.69 n/a(e) 1,055,276 4.73 n/a(e)
---------------- ------------ --------------- ------------
Earning assets $74,766,462 4.69% $ 64,937,558 5.47%
================ ============ =============== ============
LIABILITIES
Deposits:
Checking accounts $ 176,468 1.07% 1.01% $ 125,031 1.76% 1.44%
Savings accounts 33,386,274 1.86 1.76 21,170,685 2.62 2.61
Term accounts 11,804,362 2.60 2.52 16,309,182 3.22 3.12
---------------- ------------ ----------- --------------- ------------ ----------
Total deposits 45,367,104 2.05 1.95 37,604,898 2.88 2.81
Advances from FHLBs 19,389,401 1.30 1.27 19,073,771 2.00 1.93
Reverse repurchases 706,184 1.06 1.06 82,965 1.44 .41
Other borrowings 4,995,642 2.06 2.70 4,641,925 2.29 3.36
---------------- ------------ --------------- ------------
Interest-bearing liabilities $70,458,331 1.84% $ 61,403,559 2.56%
================ ============ =============== ============
Average net interest spread 2.85% 2.91%
============ ============
Net interest income $ 553,330 $ 495,700
================ ===============
Net yield on average
earning assets 2.96% 3.05%
============ ============
(a) Averages are computed using daily balances.
(b) Includes balances of assets and liabilities that were acquired and matured within the same month.
(c) Freddie Mac stock is excluded from the end of period yield calculation, effective January 1, 2003.
(d) Balance includes nonaccrual loans (90 days or more past due).
(e) FHLB stock pays dividends; no end of period interest yield applies.
TABLE 22
Average Earning Assets and Interest-Bearing Liabilities
(Dollars in thousands)
Nine Months Ended Nine Months Ended
September 30, 2003 September 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 $ 3,521,006 1.36% 1.10%(c) $ 3,250,088 2.04% 3.50%
Loans receivable, including MBS(d) 67,552,708 5.05 4.73 57,849,845 5.81 5.50
Invest. in capital stock of FHLBs 1,118,092 3.81 n/a(e) 1,051,363 5.14 n/a(e)
---------------- ------------ --------------- ------------
Earning assets $72,191,806 4.85% $ 62,151,296 5.60%
================ ============ =============== ============
LIABILITIES
Deposits:
Checking accounts $ 169,044 1.17% 1.01% $ 161,013 1.38% 1.44%
Savings accounts 31,124,452 1.97 1.76 18,054,485 2.54 2.61
Term accounts 12,589,061 2.72 2.52 18,061,197 3.43 3.12
---------------- ------------ ----------- --------------- ------------ ---------
Total deposits 43,882,557 2.18 1.95 36,276,695 2.98 2.81
Advances from FHLBs 19,235,742 1.41 1.27 18,501,192 2.13 1.93
Reverse repurchases 376,451 1.12 1.06 109,468 1.62 .41
Other borrowings 4,566,717 2.25 2.70 3,993,764 2.52 3.36
---------------- ------------ --------------- ------------
Interest-bearing liabilities $68,061,467 1.96% $ 58,881,119 2.68%
================ ============ =============== ============
Average net interest spread 2.89% 2.92%
============ ============
Net interest income $ 1,623,692 $ 1,427,618
================ ===============
Net yield on average
earning assets 3.00% 3.06%
============ ============
(a) Averages are computed using daily balances.
(b) Includes balances of assets and liabilities that were acquired and matured within the same month.
(c) Freddie Mac stock is excluded from the end of period calculation, effective January 1, 2003.
(d) Balance includes nonaccrual loans (90 days or more past due).
(e) FHLB stock pays dividends; no end of period interest yield applies.
The following table shows the Company's revenues and expenses as a
percentage of total revenues for the three and nine months ended September 30,
2003 and 2002.
TABLE 23
Selected Revenue and Expense Items
as Percentages of Total Revenues
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- -------------------------
2003 2002 2003 2002
------------ ---------- ---------- ----------
Interest on loans 82.2% 79.5% 82.0% 76.1%
Interest on mortgage-backed securities 6.2 11.2 7.2 14.3
Interest and dividends on investments 2.2 3.2 2.4 3.2
------------ ---------- ---------- ----------
90.6 93.9 91.6 93.6
Less:
Interest on deposits 24.0 28.6 25.1 29.0
Interest on advances and other borrowings 9.4 12.9 9.9 13.4
------------ ---------- ---------- ----------
33.4 41.5 35.0 42.4
Net interest income 57.2 52.4 56.6 51.2
Provision for loan losses .2 .7 .4 .7
------------ ---------- ---------- ----------
Net interest income after provision for loan losses 57.0 51.7 56.2 50.5
Add:
Fees 4.7 3.4 4.3 3.7
Gain on the sale of securities, MBS, and loans 2.7 .6 2.2 .9
Change in fair value of derivatives .3 .0 .3 .2
Other noninterest income 1.7 2.1 1.6 1.6
------------ ---------- ---------- ----------
9.4 6.1 8.4 6.4
Less:
General and administrative expenses 18.8 16.3 18.4 15.7
Taxes on income 18.4 15.7 17.8 15.8
------------ ---------- ---------- ----------
Net earnings 29.2% 25.8% 28.4% 25.4%
============ ========== ========== ==========
Interest on Loans
In the third quarter of 2003, interest on loans increased by $43
million or 5.7% from the comparable period in 2002. The increase in the third
quarter of 2003 was due to an $11.8 billion increase in the average portfolio
balance, which was partially offset by a 75 basis point decrease in the average
portfolio yield. In the first nine months of 2003, interest on loans increased
by $229 million or 10.8% from the comparable period in 2002. The increase in the
first nine months of 2003 was due to a $13.5 billion increase in the average
portfolio balance, which was partially offset by a 77 basis point decrease in
the average portfolio yield.
Interest on Mortgage-Backed Securities
In the third quarter of 2003, interest on mortgage-backed securities
decreased by $45 million or 43.0% from the comparable period in 2002. The
decrease in the third quarter of 2003 was primarily due to a $2.4 billion
decrease in the average portfolio balance and a 78 basis point decrease in the
average portfolio yield. In the first nine months of 2003, interest on
mortgage-backed securities decreased by $191 million or 48.0% from the
comparable period in 2002. The decrease in the first nine months of 2003 was
primarily due to a $3.8 billion decrease in the average portfolio balance and a
56 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 third quarter of 2003, interest and dividends on investments decreased by
$9 million or 28.9% from the comparable period in 2002. The decrease in the
third quarter of 2003 was due to a 96 basis point decrease in the average
portfolio yield partially offset by a $426 million increase in the average
portfolio balance. In the first nine months of 2003, interest and dividends on
investments decreased by $22 million or 24.8% from the comparable period in
2002. The decrease in the first nine months of 2003 was due to a 68 basis point
decrease in the average portfolio yield partially offset by a $271 million
increase in the average portfolio balance.
Interest on Deposits
In the third quarter of 2003, interest on deposits decreased by $38
million or 14.0% from the comparable period in 2002. The decrease in the third
quarter of 2003 was due to an 83 basis point decrease in the average cost of
deposits partially offset by a $7.9 billion increase in the average balance of
deposits. In the first nine months of 2003, interest on deposits decreased by
$91 million or 11.3% from the comparable period in 2002. The decrease in the
first nine months of 2003 was due to an 81 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 third quarter of 2003, interest on advances and other
borrowings decreased by $31 million or 25.7% from the comparable period of 2002.
The decrease in the third quarter of 2003 was primarily due to a 60 basis point
decrease in the average cost of these borrowings partially offset by a $1.3
billion increase in the average balance. In the first nine months of 2003,
interest on advances and other borrowings decreased by $90 million or 24.1% from
the comparable period of 2002. The decrease in the first nine months of 2003 was
primarily due to a 64 basis point decrease in the average cost of these
borrowings partially offset by a $1.6 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 24
Schedule of Interest Rate Swaps Activity
(Notional amounts in millions)
Nine Months Ended
September 30, 2003
--------------------------------
Receive Pay
Fixed Fixed
Swaps Swaps
------------- --------------
Balance at December 31, 2002 $ 91 $ 591
Maturities (91) (355)
-------------- ---------------
Balance at September 30, 2003 $ -0- $ 236
============== ===============
The range of floating interest rates received on swap contracts in
the first nine 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 nine 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
$3.0 million and $9.3 million for the three and nine months ended September 30,
2003 as compared to decreases of $4.3 million and $15.2 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 $9 million, or $.03 after tax per diluted share for the nine
months ended September 30, 2003, as compared to pre-tax income of $5 million, or
$.02 after tax per diluted share for the nine months ended September 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 September 30, 2003.
Provision for Loan Losses
The provision for loan losses was $2 million and $10 million for the
three and nine months ended September 30, 2003 compared to $6 million and $20
million for the same periods in 2002.
Noninterest Income
Noninterest income was $91 million and $241 million for the three and
nine months ended September 30, 2003 compared to $58 million and $179 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 larger volume of loan
sales and higher loan prepayment fees.
General and Administrative Expenses
For the third quarter and first nine months of 2003, general and
administrative expenses (G&A) were $181 million and $528 million compared to
$154 million and $438 million for the comparable periods in 2002. G&A as a
percentage of average assets on an annualized basis was .98% for the third
quarter and first nine months of 2003, respectively, compared to .96% 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 28.11% and 28.32% for the third quarter and
first nine months of 2003 compared to 27.78% and 27.25% 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 third quarter and first nine
months of 2003 compared to 37.8% and 38.3% 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 September 30, 2003, December 31, 2002, and September
30, 2002, Golden West's total cash and investments amounted to $835 million,
$830 million, and $870 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 12, 13, 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 September 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 5. OTHER INFORMATION
On July 31, 2003, pursuant to Section 10A of the Securities Exchange
Act of 1934, as amended, the Audit Committee of the Board of Directors of the
Company approved the engagement of Deloitte & Touche LLP to perform auditing
services and certain non-audit services for the Company. The non-audit services
include tax compliance and planning, tax return reviews, other tax related
services, and attestations confirming the calculation of COSI, CODI, and TCM for
mortgage loan purposes.
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.
(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 third quarter of 2003 and has since filed one more report on
Form 8-K with the Commission:
1. 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 September 30, 2003 Thirteen Month
Statistical Data Press Release.
2. Report filed October 22, 2003. Item 7. Exhibits. The report dated
October 21, 2003 included the Golden West Third Quarter 2003 Earnings
Press Release and the Golden West September 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: November 11, 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 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 a significant role in the Company's
internal control over financial reporting.
November 11, 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 a significant role in the Company's
internal control over financial reporting.
November 11, 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 a significant role in the Company's
internal control over financial reporting.
November 11, 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 September 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 September 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 September 30, 2003 fairly
presents, in all material respects, the financial condition and results
of operations of Golden West Financial Corporation.
November 11, 2003 /s/ Herbert M. Sandler
- ------------------ -------------------------------------
Date Herbert M. Sandler
Chairman of the Board and
Chief Executive Officer
Golden West Financial Corporation
November 11, 2003 /s/ Marion O. Sandler
- ------------------ -------------------------------------
Date Marion O. Sandler
Chairman of the Board and
Chief Executive Officer
Golden West Financial Corporation
November 11, 2003 /s/ Russell W. Kettell
- ------------------ -------------------------------------
Date Russell W. Kettell
President and Chief Financial Officer
Golden West Financial Corporation