-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QGm6gaJHczRj3A0zhyLSITgGin/D1ViB/sNAiGrH8HnvnPR4tl6MHFJrXMtmkgNG imDwUImGE/3tFnAyG6g80w== 0000042293-03-000059.txt : 20031112 0000042293-03-000059.hdr.sgml : 20031111 20031112114005 ACCESSION NUMBER: 0000042293-03-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN WEST FINANCIAL CORP /DE/ CENTRAL INDEX KEY: 0000042293 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 952080059 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04629 FILM NUMBER: 03991921 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET STREET 2: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612-3575 BUSINESS PHONE: 510-466-3402 MAIL ADDRESS: STREET 1: 1901 HARRISON STREET STREET 2: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612-3575 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CORP DATE OF NAME CHANGE: 19760806 FORMER COMPANY: FORMER CONFORMED NAME: TRANS WORLD FINANCIAL CO DATE OF NAME CHANGE: 19751124 10-Q 1 gdw10q2003q3.txt GDW Q3 2003 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------- FORM 10-Q --------------------- [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 --------------------- Commission file number 1-4629 GOLDEN WEST FINANCIAL CORPORATION Incorporated Pursuant to the Laws of Delaware State ------------------- IRS - Employer Identification No. 95-2080059 1901 Harrison Street, Oakland, California 94612 (510) 446-3420 --------------------- 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. ================================================================================ ================================================================================ 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 -----END PRIVACY-ENHANCED MESSAGE-----