-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ULIqU41OB7r0XT5cGuX4Zti96yptU6u7zJdsEbPUhbihqNU5JSaVF8OHOyodsAsu rqpNYonPlJwXrCd/VrjsrA== 0000042293-94-000002.txt : 19940328 0000042293-94-000002.hdr.sgml : 19940328 ACCESSION NUMBER: 0000042293-94-000002 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOLDEN WEST FINANCIAL CORP /DE/ CENTRAL INDEX KEY: 0000042293 STANDARD INDUSTRIAL CLASSIFICATION: 6035 IRS NUMBER: 952080059 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 34 SEC FILE NUMBER: 001-04629 FILM NUMBER: 94517795 BUSINESS ADDRESS: STREET 1: 1901 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 510-466-3420 MAIL ADDRESS: STREET 2: 9101 HARRISON STREET CITY: OAKLAND STATE: CA ZIP: 94612 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-K/A 1 PART B GOLDEN WEST 10-K, LIVE FILING PAGE F-1 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Golden West Financial Corporation Oakland, California We have audited the accompanying consolidated statement of financial condition of Golden West Financial Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of net earnings, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Golden West Financial Corporation and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Deloitte & Touche Oakland, California January 25, 1994 PAGE F-2 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL CONDITION (Dollars in thousands except per share figures)
ASSETS December 31 ------------------------------ 1993 1992 ----------- ----------- Cash $ 243,185 $ 228,796 Securities available for sale (1993 at fair value and 1992 at cost with a fair value of $160,935) (Note C) 1,636,586 160,883 Other investments at cost (fair value of $538,100 and $874,257) (Notes D and L) 538,100 790,189 Mortgage-backed securities available for sale at fair value (Notes E and L) 1,114,069 -0- Mortgage-backed securities held to maturity at cost (fair value of $412,243 and $1,899,512) (Notes F and L) 408,467 1,791,615 Loans receivable less allowance for loan losses of $106,698 and $70,924 (Notes G and K) 23,912,571 21,968,676 Interest earned but uncollected 175,080 157,723 Investment in capital stock of Federal Home Loan Banks, at cost which approximates fair value (Note K) 325,737 289,707 Real estate held for sale or investment (Note H) 67,156 67,762 Prepaid expenses and other assets 108,832 131,394 Premises and equipment, net (Note I) 162,751 148,303 Goodwill arising from acquisitions (Notes A and B) 136,754 155,873 ----------- ----------- $28,829,288 $25,890,921 =========== ===========
See notes to consolidated financial statements. PAGE F-3
LIABILITIES AND STOCKHOLDERS' EQUITY December 31 ------------------------------ 1993 1992 ----------- ----------- Customer deposits (Note J) $17,422,484 $16,486,246 Advances from Federal Home Loan Banks (Note K) 6,281,691 5,499,363 Securities sold under agreements to repurchase (Note L) 442,874 556,710 Medium-term notes (Note M) 676,540 81,267 Accounts payable and accrued expenses 355,799 361,126 Taxes on income (Note O) 364,235 257,110 ----------- ----------- 25,543,623 23,241,822 Subordinated notes (Note N) 1,220,061 921,701 Stockholders' equity (Notes P and Q): Preferred stock, par value $1.00: Authorized 20,000,000 shares Issued and outstanding, none Common stock, par value $.10: Authorized 200,000,000 shares Issued and outstanding 63,928,935 and 63,924,810 shares 6,393 6,392 Paid-in capital 40,899 36,186 Retained earnings - substantially restricted 1,933,593 1,684,820 ----------- ----------- 1,980,885 1,727,398 Unrealized gains on securities available for sale 84,719 -0- ----------- ----------- Total Stockholders' Equity 2,065,604 1,727,398 ----------- ----------- $28,829,288 $25,890,921 =========== ===========
PAGE F-4 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF NET EARNINGS (Dollars in thousands except per share figures)
Year Ended December 31 -------------------------------------- 1993 1992 1991 ---------- ---------- ---------- Interest Income: Interest on loans $1,637,764 $1,740,845 $1,877,955 Interest on mortgage-backed securities 138,874 178,010 210,834 Interest and dividends on investments 93,534 65,655 125,801 ---------- ---------- ---------- 1,870,172 1,984,510 2,214,590 Interest Expense: Interest on customer deposits (Note J) 705,700 844,710 1,094,383 Interest on advances 273,816 268,320 323,034 Interest on repurchase agreements 36,023 65,779 76,154 Interest on other borrowings 121,875 88,371 89,243 ---------- ---------- ---------- 1,137,414 1,267,180 1,582,814 ---------- ---------- ---------- Net Interest Income 732,758 717,330 631,776 Provision for loan losses 65,837 43,218 34,984 ---------- ---------- ---------- Net Interest Income after Provision for Loan Losses 666,921 674,112 596,792 Non-Interest Income: Fees 31,061 24,458 20,889 Gain (loss) on the sale of securities and mortgage-backed securities 22,541 4,058 (1,021) Other 8,440 12,601 7,008 ---------- ---------- ---------- 62,042 41,117 26,876 Non-Interest Expense: General and administrative: Personnel 132,472 118,553 107,759 Occupancy 40,443 38,521 35,619 Deposit insurance 35,706 37,621 34,245 Advertising 10,782 8,968 10,486 Other 53,764 47,212 47,312 ---------- ---------- ---------- 273,167 250,875 235,421 Amortization of goodwill arising from acquisitions (Note B) (1,586) 661 1,532 ---------- ---------- ---------- 271,581 251,536 236,953 ---------- ---------- ---------- Earnings Before Taxes on Income 457,382 463,693 386,715 Taxes on income (Note O) 183,528 180,155 148,116 ---------- ---------- ---------- Net Earnings $ 273,854 $ 283,538 $ 238,599 ========== ========== ========== Net earnings per share $4.28 $4.46 $3.76 ===== ===== =====
See notes to consolidated financial statements. PAGE F-5 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Dollars in thousands except per share figures)
Unrealized Gains Total Common Paid-in Retained on Securities Stockholders' Stock Capital Earnings Available For Sale Equity ------ ------- ---------- ------------------ ------------- Balance at January 1, 1991 $6,333 $24,709 $1,189,361 $1,220,403 Common stock issued upon exercise of stock options - 168,800 shares 17 2,170 -0- 2,187 Net earnings -0- -0- 238,599 238,599 Cash dividends on common stock ($.19 per share) -0- -0- (12,054) (12,054) ------ ------- ---------- ---------- Balance at December 31, 1991 6,350 26,879 1,415,906 1,449,135 Common stock issued upon exercise of stock options, including tax benefits - 425,890 shares 42 9,307 -0- 9,349 Net earnings -0- -0- 283,538 283,538 Cash dividends on common stock ($.23 per share) -0- -0- (14,624) (14,624) ------ ------- ---------- ---------- Balance at December 31, 1992 6,392 36,186 1,684,820 1,727,398 Common stock issued upon exercise of stock options, including tax benefits - 208,125 shares 21 4,713 -0- 4,734 Net earnings -0- -0- 273,854 273,854 Cash dividends on common stock ($.27 per share) -0- -0- (17,280) (17,280) Purchase and retirement of 204,000 shares of Company stock (Note P) (20) -0- (7,801) (7,821) Unrealized gains on securities available for sale -0- -0- -0- $84,719 84,719 ------ ------- ---------- ------- ---------- Balance at December 31, 1993 $6,393 $40,899 $1,933,593 $84,719 $2,065,604 ====== ======= ========== ======= ==========
See notes to consolidated financial statements. PAGE F-6 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in thousands)
Year Ended December 31 ---------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Cash Flows From Operating Activities: Net earnings $ 273,854 $ 283,538 $ 238,599 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for loan losses 65,837 43,218 34,984 Amortization of loan fees and discounts (45,666) (53,125) (43,707) Depreciation and amortization 13,978 14,990 14,728 Reduction of a valuation allowance on investments (24,000) (4,000) -0- Loans originated for sale (442,880) (278,346) (77,154) Sales of loans originated for sale 432,362 280,832 66,763 Decrease (increase) in interest earned but uncollected (17,357) 11,955 27,335 Federal Home Loan Bank stock dividends (12,744) (4,598) (17,734) Decrease (increase) in prepaid expenses and other assets 26,020 (51,777) (7,269) Increase (decrease) in accounts payable and accrued expenses (5,327) 37,860 4,782 Increase in taxes on income, excluding acquisitions 72,828 179,301 105,612 Other, net (12,806) 1,571 22,604 ----------- ----------- ----------- Net cash provided by operating activities 324,099 461,419 369,543 Cash Flows From Investing Activities: New loan activity: New real estate loans originated for portfolio (5,968,997) (6,176,744) (4,800,003) Real estate loans purchased (13,567) (4,678) (301,719) Other, net 25,836 47,390 (8,635) ----------- ----------- ----------- (5,956,728) (6,134,032) (5,110,357) Real estate loan principal payments: Monthly payments 574,459 502,431 317,624 Payoffs, net of foreclosures 2,852,722 3,230,825 2,194,383 Refinances 388,171 374,363 294,091 ----------- ----------- ----------- 3,815,352 4,107,619 2,806,098 Purchases of mortgage-backed securities (302,313) (343,736) (148,506) Sales of mortgage-backed securities 138 243 433,724 Repayments of mortgage-backed securities 645,647 552,045 200,310 Sales of real estate 206,009 145,247 65,287 Purchases of securities held for sale (4,326,544) (1,388,319) -0- Sales and maturities of securities held for sale 3,771,617 1,227,427 -0- Decrease (increase) in other investments (569,697) 257,204 1,407,070 Purchases of Federal Home Loan Bank stock (79,713) (1,440) (337) Redemptions of Federal Home Loan Bank stock 52,969 6,111 -0- Additions to premises and equipment (37,496) (15,462) (19,410) Cash from business combinations, net -0- -0- 359,903 ----------- ----------- ----------- Net cash used in investing activities (2,780,759) (1,587,093) (6,218)
See notes to consolidated financial statements PAGE F-7
Year Ended December 31 ---------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Cash Flows From Financing Activities: Customer deposit activity: Increase (decrease) in deposits, net 368,749 (1,008,304) (262,407) Interest credited 567,489 676,040 902,664 ----------- ----------- ----------- 936,238 (332,264) 640,257 Additions to Federal Home Loan Bank advances 1,701,200 2,428,850 600,000 Repayments of Federal Home Loan Bank advances (919,195) (1,088,000) (275,000) Decrease in securities sold under agreements to repurchase (113,836) (95,503) (688,554) Proceeds from medium-term notes 609,235 66,766 -0- Repayments of medium-term notes (14,500) (152,305) (794,845) Proceeds from subordinated debt 297,008 295,616 198,321 Dividends on common stock (17,280) (14,624) (12,054) Purchase and retirement of Company stock (7,821) -0- -0- ----------- ----------- ----------- Net cash provided (used) by financing activities 2,471,049 1,108,536 (331,875) ----------- ----------- ----------- Net Increase (Decrease) in Cash 14,389 (17,138) 31,450 Cash at beginning of period 228,796 245,934 214,484 ----------- ----------- ----------- Cash at end of period $ 243,185 $ 228,796 $ 245,934 =========== =========== =========== Supplemental cash flow information: Cash paid for: Interest $ 1,176,338 $ 1,253,610 $ 1,599,008 Income taxes 112,970 51,917 72,495 Cash received for interest and dividends 1,852,815 1,996,465 2,239,017 Noncash investing activities: Loans transferred to foreclosed real estate 234,149 172,920 99,626 Securities transferred to available for sale 845,786 -0- -0- Mortgage-backed securities transferred to available for sale 1,114,069 -0- -0- In connection with business combinations (Note B): Fair value of assets: Interest-bearing deposits $ -0- $ -0- $ 1,321,483 Cash received, net -0- -0- 359,903 Other -0- -0- 137,426 ----------- ----------- ----------- Fair value of liabilities, primarily customer deposits $ -0- $ -0- $ 1,818,812 =========== =========== ===========
PAGE F-8 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE A - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Golden West Financial Corporation, a Delaware corporation, and its wholly owned subsidiaries (the Company or Golden West). World Savings and Loan Association, a federally chartered association (the Association or World Savings), is the Company's principal operating subsidiary with $28 billion in assets on December 31, 1993. Intercompany accounts and transactions have been eliminated. Certain reclassifications have been made to prior year financial statements to conform to current year presentation. Cash and Investments The Association is required by regulation to maintain liquid assets in the form of cash and securities approved by federal regulations at a monthly average of not less than 5% of customer deposits and short-term borrowings. Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standards No. 115 (FAS 115), "Accounting for Certain Investments in Debt and Equity Securities." FAS 115 establishes classifications of investments into three categories: held to maturity, trading, and available for sale. In accordance with FAS 115, the Company modified its accounting policies as of December 31, 1993, to identify investment securities as either held to maturity or available for sale. The Company has no trading securities. Held to maturity securities are recorded at cost with any discount or premium amortized using a method that is not materially different from the interest method. Securities held to maturity are recorded at cost because the Company has the ability to hold these securities to maturity and because it is Management's intention to hold them to maturity. At December 31, 1993, the Company had no securities held to maturity. Securities available for sale increase the Company's portfolio management flexibility for investments and are reported at fair value. Net unrealized gains and losses are excluded from earnings and reported net of applicable income taxes as a separate component of stockholders' equity until realized. Gains or losses on sales of securities are realized and recorded in earnings at the time of sale and are determined by the difference between the net sales proceeds and the cost of the security, using specific identification, adjusted for any unamortized premium or discount. The Company has other investments which are recorded at cost with any discount or premium amortized using a method that is not materially different from the interest method. The adoption of FAS 115 resulted in the reclassification of certain securities from the investment securities portfolio to the securities available for sale portfolio. Prior to December 31, 1993, securities were classified as either securities held for sale or investment securities. Securities held for sale were recorded at the aggregate portfolio's lower of amortized cost or market, with the unrealized gains and losses included in earnings. Investment securities were recorded at amortized cost. Mortgage-Backed Securities FAS 115 also requires the same three classifications for mortgage- backed securities (MBS): held to maturity, trading, and available for sale. In accordance with FAS 115, the Company modified its accounting policies as of December 31, 1993, to identify MBS as either held to maturity or available for sale. The Company has no trading MBS. Mortgage-backed securities held to maturity are recorded at cost because the Company has the ability to hold these MBS to maturity and because management intends to hold these securities to maturity. Premiums and discounts on MBS are amortized or accreted using the interest method, also known as the level yield PAGE F-9 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) method, over the life of the security. MBS available for sale are reported at fair value, with unrealized gains and losses excluded from earnings and reported net of applicable income taxes as a separate component of stockholders' equity until realized. Gains or losses on sales of MBS are realized and recorded in earnings at the time of sale and are determined by the difference between the net sales proceeds and the cost of the MBS, using specific identification, adjusted for any unamortized premium or discount. Prior to December 31, 1993, all MBS were recorded at amortized cost. Loans Receivable The Association's real estate loan portfolio consists primarily of long-term loans collateralized by first trust deeds on single-family residences and multi-family residential property. In addition to real estate loans, the Association makes loans on the security of savings accounts. The adjustable rate mortgage (ARM) is the Association's primary real estate loan. The ARM carries an interest rate which may change as often as monthly, based on movements in certain cost of funds or other indexes. Interest rate changes and monthly payments of principal and interest may be subject to maximum increases or decreases. Negative amortization may occur during periods when payments are limited. The Association also offers "modified" ARMs, loans which offer a low fixed rate generally from 1% to 3% below the contract rate for an initial period, usually three to 36 months. The Association does make a limited number of loans that are held for sale, primarily fixed-rate loans. These loans are usually originated against firm commitments to sell. These loans are recorded at the lower of cost or market. The Company adopted Statement of Financial Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan," in the fourth quarter of 1993, retroactive to January 1, 1993. FAS 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. As a practical expedient, impairment may be measured based on the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. The valuation allowance and provision for loan losses are adjusted for changes in the present value of impaired loans for which impairment is measured based on the present value of expected future cash flows. The Company had previously measured loan impairment in accordance with the methods prescribed in FAS 114. As a result, no additional loss provisions were required by early adoption of the pronouncement. FAS 114 requires that impaired loans for which foreclosure is probable should be accounted for as loans. As a result, $16,258 of in-substance foreclosed loans, with a valuation allowance of $7,267, were reclassified from real estate held for sale to loans receivable. Prior year amounts have not been restated. Loan origination fees and certain direct loan origination costs are deferred and amortized, as an interest income yield adjustment, over the life of the related loans using the interest method. "Fees," which include fees for prepayment of loans, income for servicing loans, late charges for delinquent payments, fees from customer deposit accounts, and miscellaneous fees, are recorded when collected. Premiums and discounts on purchased loans, including premiums and discounts arising from acquisitions of other associations, are generally amortized using the interest method over the actual life of the loans. PAGE F-10 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) Nonperforming assets consist of loans 90 days or more delinquent, with balances not reduced for loan loss reserves, and real estate owned through foreclosure. For loans past due 90 days or more, all interest earned but uncollected is fully reserved. Troubled debt restructured consists of loans that have been modified by the lender to grant a concession to the borrower because of a perceived temporary weakness in the collateral and/or borrower. Real Estate Held for Sale or Investment Real estate held for sale or investment is comprised primarily of improved property acquired through foreclosure. In prior years, loans considered in-substance foreclosed were included in real estate held for sale but upon the adoption of FAS 114, are now classified with loans receivable. See Loans Receivable for further discussion. All real estate owned is recorded at the lower of cost or fair value. Costs relating to holding property, net of rental and option income, are expensed in the current period. Gains on the sale of real estate are recognized at the time of sale. Losses realized and expenses incurred in connection with the disposition of foreclosed real estate are charged to current earnings. Provision for Loan Losses The Company provides valuation allowances for probable losses on loans when impaired and on real estate owned when any significant and permanent decline in value is identified. Additions to and reductions from allowances are reflected in current earnings. Periodic reviews are made of major loans and real estate owned. Major lending areas are regularly reviewed to determine potential problems. Where indicated, valuation allowances are established or adjusted. In estimating loan losses, consideration is given to the estimated sale price, cost of refurbishing, payment of delinquent taxes, cost of disposal, and cost of holding the property. Goodwill Positive goodwill, or the excess of the cost over the fair value of net assets acquired resulting from acquisitions, of $235,853 (1993) and $271,392 (1992) is stated net of accumulated amortization of $184,284 (1993) and $169,450 (1992). Negative goodwill, or the excess of the fair value of net assets acquired over the cost resulting from acquisitions, of $99,099 (1993) and $115,519 (1992) is shown net of accumulated amortization of $47,101 (1993) and $30,681 (1992). Positive and negative goodwill are being amortized on the straight-line method over periods ranging from 5 to 40 years. See NOTE B for additional information. Securities Sold Under Agreements to Repurchase The Company enters into sales of securities under agreements to repurchase (reverse repurchase agreements) only with selected dealers. Fixed- coupon reverse repurchase agreements are treated as financings and the obligations to repurchase securities sold are reflected as a liability in the Consolidated Statement of Financial Condition. The securities underlying the agreements remain in the asset accounts. Taxes on Income The Company files consolidated federal income tax returns with its subsidiaries. The provision for federal and state taxes on income is based on taxes currently payable and taxes expected to be payable in the future as a result of events that have been recognized in the financial statements or tax returns. PAGE F-11 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) The Association is permitted by the Internal Revenue Code to deduct from taxable income an annual addition to a reserve for bad debts subject to certain limitations. An effective rate of 8% of taxable income has been used in computing the amount of the addition to the bad debt reserve. In the event distributions (which are subject to the regulatory restrictions described below) are made from these reserves, such distributions will be subject to federal income taxes at the then prevailing corporate rates. It is not contemplated that accumulated reserves will be used in a manner that will create income tax liabilities. In the first quarter of 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." FAS 109 required a change from the deferred to the liability method of computing deferred income taxes. The Company has applied FAS 109 prospectively. The cumulative effect of this change in accounting for income taxes for the periods ending prior to January 1, 1993, is not material. FAS 109 required the Company to adjust its purchase accounting for prior business combinations by increasing deferred tax assets and reducing goodwill by $23 million to reflect the non-taxability of purchase accounting income. This deferred tax asset is being amortized over the remaining lives of the related purchased assets. The consolidated financial statements presented for the years prior to 1993 reflect income taxes under the deferred method under previous accounting standards. Regulatory Capital Requirements The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) established capital standards. Under FIRREA, thrifts must have core capital equal to 3% of adjusted total assets and have tangible capital equal to 1.5% of adjusted total assets. FIRREA also established risk-based capital standards as a percentage of risk-weighted assets of 8% after December 30, 1992. At December 31, the Association had the following regulatory capital calculated in accordance with FIRREA's capital standards:
1993 1992 ----------------------------------------- --------------------------------------- ACTUAL REQUIRED ACTUAL REQUIRED ------------------- ------------------ ------------------- ------------------ Capital Ratio Capital Ratio Capital Ratio Capital Ratio ---------- ------ ---------- ----- ---------- ------ ---------- ----- Tangible $2,030,992 7.27% $ 419,052 1.50% $1,677,449 6.54% $ 384,484 1.50% Core 2,240,518 8.02 838,103 3.00 1,933,772 7.54 768,968 3.00 Risk-based 2,533,738 17.42 1,163,650 8.00 2,196,576 16.28 1,079,538 8.00
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) required each federal banking agency to implement prompt corrective actions for capital deficient institutions that it regulates. In response to this requirement, the Office of Thrift Supervision (OTS) adopted final rules, effective December 19, 1992, based upon FDICIA's five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The rules provide that a savings association is "well capitalized" if its total risk-based capital ratio is 10% or greater, its Tier 1 risk-based capital ratio is 6% or greater, its leverage ratio is 5% or greater, and the institution is not subject to a capital directive. As used herein, total risk-based capital ratio is the ratio of total capital to risk-weighted assets, Tier 1 risk-based capital ratio means the ratio of core capital to risk-weighted assets, and leverage ratio is the ratio of core capital to adjusted total assets, in each case as calculated in accordance with current OTS capital regulations. Under these regulations, World Savings is deemed to be "well capitalized." PAGE F-12 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) At December 31, the Association had the following regulatory capital calculated in accordance with FDICIA's capital standards:
1993 1992 ------------------------------------------ ---------------------------------------- ACTUAL WELL CAPITALIZED ACTUAL WELL-CAPITALIZED ------------------- ------------------- ------------------- ------------------- Capital Ratio Capital Ratio Capital Ratio Capital Ratio ---------- ------ ---------- ------ ---------- ------ ---------- ------ Leverage $2,240,518 8.02% $1,396,839 5.00% $1,933,772 7.54% $1,281,613 5.00% Tier 1 risk-based 2,240,518 15.40 872,737 6.00 1,933,772 14.33 809,653 6.00 Total risk-based 2,533,738 17.42 1,454,562 10.00 2,196,576 16.28 1,349,422 10.00
Retained Earnings Under OTS regulations, the OTS must be given at least 30 days' advance notice by the Association of any proposed dividend to be paid to the Company. Under OTS regulations, World Savings is classified as a Tier 1 association and is, therefore, allowed to distribute dividends up to 100% of its net income in any year plus one-half of its capital in excess of the OTS fully phased-in capital requirement as of the end of the prior year. At December 31, 1993, $354 million of the Association's retained earnings had not been subjected to federal income taxes due to the application of the bad debt deduction, and $1.8 billion of the Association's retained earnings were available for the payment of cash dividends without the imposition of additional federal income taxes. The Company is not subject to the same tax and reporting restrictions as is World Savings. Earnings Per Share Earnings per share have been computed by dividing net earnings by the weighted average number of common shares outstanding, 63,977,876 (1993), 63,578,168 (1992), and 63,442,345 (1991). NOTE B - Business Combinations/Divestitures On August 13, 1993, the Company acquired $320 million in deposits and seven branches in Arizona from PriMerit Bank. On September 17, 1993, the Company sold $133 million of savings in two Ohio branches to Trumbull Savings and Loan. On October 15, 1993, the Company sold its remaining Ohio branches with $131 million in deposits to Fifth Third Bancorp. On March 6, 1992, the Company sold its two Washington branches with $37 million in deposits. On July 15, 1991, the Company took title to the common stock of Beach Federal Savings and Loan Association (Beach) of Boynton Beach, Florida, and its $1.5 billion in assets. The transaction has been accounted for as a purchase, and the results of operations have been included with the Company's results of operations since July 15, 1991. As a result of the Beach acquisition, Golden West recognized, for tax purposes, certain Beach net operating losses that resulted in a $103 million benefit in 1991 and a $25 million benefit in 1992. For financial statement reporting, this benefit has been recorded as negative goodwill and is being amortized into income over ten years ($13 million in 1993 and $12 million in 1992). On March 31, 1991, World Savings and Loan Association of Ohio (World of Ohio), a wholly owned subsidiary of Golden West, was merged into World Savings. In conjunction with Golden West's acquisition of World of Ohio in 1988, the benefits of net operating loss carryforwards resulted in recording $18 million of negative goodwill in 1991. This benefit is being amortized into income over the period 1989 to 1993 ($3 million and $4 million in 1993 and 1992, respectively). PAGE F-13 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) During 1991, World Savings acquired from the Resolution Trust Corporation (RTC) a total of $355 million of deposits and 11 branches from four separate acquisitions. The acquisitions described above are not material to the financial position or net earnings of the Company and pro forma information is not deemed necessary. NOTE C - Securities Available for Sale The following is a summary of securities available for sale:
December 31, 1993 ---------------------------------------------------- Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- Certificates of deposit and short-term bank notes $ 482,069 $ 33 $ 2 $ 482,100 U.S. Treasury and Government agency obligations 419,056 821 62 419,815 Collateralized mortgage obligations 275,304 865 761 275,408 Commercial paper 230,385 4 -0- 230,389 Bankers acceptances 58,395 -0- -0- 58,395 Equity securities 101,592 68,887 -0- 170,479 ---------- ------- ---- ---------- $1,566,801 $70,610 $825 $1,636,586 ========== ======= ==== ==========
December 31, 1992 ---------------------------------------------------- Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- Interest-bearing deposits $150,989 $ 48 $-0- $151,037 Bankers acceptances 7,465 4 -0- 7,469 Other securities 2,429 -0- -0- 2,429 -------- ---- ---- $160,883 $ 52 $-0- $160,935 ======== ==== ==== ========
The weighted average portfolio yields on securities available for sale were 3.93% and 3.90% at December 31, 1993, and 1992, respectively. Sales of securities held for sale resulted in realized gains of $22 (1993) and $105 (1992) and realized losses of $13 (1993) and $65 (1992). At December 31, 1993, the securities available for sale had maturities as follows:
Amortized Fair Maturity Cost Value ------------------- ---------- ---------- No maturity $ 101,592 $ 170,479 1994 907,984 908,011 1995 through 1998 493,610 494,104 1999 through 2003 26,611 26,573 2004 and thereafter 37,004 37,419 ---------- ---------- $1,566,801 $1,636,586 ========== ==========
PAGE F-14 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE D - Other Investments At December 31, 1993, the Company held certain other investments not subject to FAS 115. The 1992 amounts were previously classified as investment securities.
December 31, 1993 -------------------------------------------------- Unrealized Unrealized Cost Gains Losses Fair Value -------- ---------- ---------- ---------- Federal funds $ 25,000 $-0- $-0- $ 25,000 Short-term repurchase agreements collateralized by mortgage-backed securities 513,100 -0- -0- 513,100 -------- ---- ---- -------- $538,100 $-0- $-0- $538,100 ======== ==== ==== ========
December 31, 1992 -------------------------------------------------- Unrealized Unrealized Cost Gains Losses Fair Value -------- ---------- ---------- ---------- Interest-bearing deposits $245,021 $ 59 $-0- $245,080 U.S. Treasury and Government agencies 43,434 352 102 43,684 Short-term repurchase agreements collateralized by mortgage-backed securities 273,991 -0- -0- 273,991 Corporate notes and bonds 10,001 3 -0- 10,004 Bankers acceptances 17,962 2 -0- 17,964 Collateralized mortgage obligations 94,237 -0- 40 94,197 Other securities 105,543 83,794 -0- 189,337 -------- ------- ---- -------- $790,189 $84,210 $142 $874,257 ======== ======= ==== ========
The weighted average portfolio yields on other investments were 3.42% and 4.23% at December 31, 1993, and 1992, respectively. Sales of other investments resulted in gains of $24,000 (1993), $4,009 (1992), and $263 (1991) and losses of $1,473 (1993), $-0- (1992), and $1,180 (1991). As of December 31, 1993, the entire other investments portfolio matures in 1994. PAGE F-15 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE E - Mortgage-Backed Securities Available for Sale Mortgage-backed securities available for sale are summarized as follows:
December 31, 1993 ----------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- FNMA $ 439,817 $25,957 $268 $ 465,506 FHLMC 326,354 24,480 27 350,807 GNMA 271,390 24,164 25 295,529 Other 2,115 112 -0- 2,227 ---------- ------- ---- ---------- $1,039,676 $74,713 $320 $1,114,069 ========== ======= ==== ==========
The weighted average portfolio yields on mortgage-backed securities available for sale were 9.35% at December 31, 1993. At December 31, 1993, mortgage-backed securities available for sale had maturities as follows:
Amortized Fair Maturity Cost Value ------------------- ---------- ---------- 1995 through 1998 $ 4,039 $ 4,222 1999 through 2003 2,309 2,478 2004 and thereafter 1,033,328 1,107,369 ---------- ---------- $1,039,676 $1,114,069 ========== ==========
NOTE F - Mortgage-Backed Securities Held to Maturity Mortgage-backed securities held to maturity are summarized as follows:
December 31, 1993 ---------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- FNMA $408,467 $7,103 $3,327 $412,243 ======== ====== ====== ========
December 31, 1992 ---------------------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- -------- FNMA $ 751,210 $ 31,030 $250 $ 781,990 FHLMC 575,298 37,824 2 613,120 GNMA 461,853 39,018 4 500,867 Other 3,254 281 -0- 3,535 ---------- -------- ---- ---------- $1,791,615 $108,153 $256 $1,899,512 ========== ======== ==== ==========
PAGE F-16 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) The weighted average portfolio yields of mortgage-backed securities held to maturity were 6.94% and 9.30% at December 31, 1993, and 1992, respectively. Principal proceeds from the sales of securities from the mortgage-backed securities portfolio were $144 (1993), $252 (1992), and $433,620 (1991) and resulted in realized gains of $7 (1993), $9 (1992), and $7,794 (1991) and realized losses of $-0- (1993), $-0- (1992), and $7,898 (1991). As of December 31, 1993, the entire mortgage-backed securities held to maturity portfolio matures in 2004 and thereafter. NOTE G - Loans Receivable
December 31 ----------------------------- 1993 1992 ----------- ----------- Loans collateralized primarily by first deeds of trust: One- to four-family dwelling units $20,197,613 $18,487,247 Over four-family dwelling units 3,785,673 3,509,105 Commercial property 153,396 176,900 Construction loans 580 580 Land 2,407 1,763 ----------- ----------- 24,139,669 22,175,595 Loans on savings accounts 32,012 33,230 ----------- ----------- 24,171,681 22,208,825 Less: Undisbursed loan funds 1,882 2,687 Unearned fees and discounts 112,751 109,446 Unamortized discount arising from acquisitions 37,779 57,092 Allowance for loan losses 106,698 70,924 ----------- ----------- $23,912,571 $21,968,676 =========== ===========
In addition to loans receivable, the Association services loans for others. At December 31, 1993, and 1992, the amount of loans serviced for others was $806,504 and $612,311, respectively. At December 31, 1993, and 1992, the Company had $56 million and $16 million, respectively, in loans held for sale, all of which are carried at the lower of cost or market. PAGE F-17 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) A summary of the changes in the allowance for loan losses is as follows:
Year Ended December 31 ------------------------------ 1993 1992 1991 -------- ------- ------- Balance at January 1 $ 70,924 $48,036 $26,799 Provision for loan losses charged to expense 65,837 43,218 34,984 Less loans charged off, net of recoveries 37,330 20,330 13,747 Reclassification of in-substance foreclosure allowances 7,267 -0- -0- -------- ------- ------- Balance at December 31 $106,698 $70,924 $48,036 ======== ======= =======
At December 31, 1993, the Company had $330 million and $37 million of nonperforming loans and troubled debt restructured, respectively. NOTE H - Real Estate Held for Sale or Investment
December 31 ------------------- 1993 1992 ------- ------- Real estate acquired through foreclosure of loans, net of allowance for losses $62,724 $56,642 Loans in-substance foreclosed, net of allowance for losses (See Note A) -0- 9,351 Real estate in judgement, net of allowance for losses 1,366 1,030 Real estate held for investment, net of allowance for losses 3,066 739 ------- ------- $67,156 $67,762 ======= =======
NOTE I - Premises and Equipment
December 31 --------------------- 1993 1992 -------- -------- Land $ 43,738 $ 41,560 Buildings and leasehold improvements 122,465 111,478 Furniture, fixtures and equipment 102,056 88,929 -------- -------- 268,259 241,967 Accumulated depreciation and amortization 105,508 93,664 -------- -------- $162,751 $148,303 ======== ========
Depreciation and amortization, computed by the straight-line method for financial statement purposes, are provided over the useful lives of the various classes of premises and equipment. The aggregate rentals under long-term operating leases on land or premises in effect on December 31, 1993, and which expire between 1994 and 2064, amounted to approximately $134,061. The approximate minimum payments during the five years ending 1998 are $13,183 (1994), $11,793 (1995), $10,864 (1996), $10,217 (1997), and $9,372 (1998). Certain of the leases provide for options to renew and for the payment of taxes, insurance, and maintenance costs. The rental expense for the year amounted to $15,579 (1993), $14,823 (1992), and $14,009 (1991). PAGE F-18 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE J - Customer Deposits
December 31 --------------------------------------- 1993 1992 ------------------ ------------------ Rate* Amount Rate* Amount ----- ----------- ----- ----------- Customer deposits by rate: Interest-bearing checking accounts 1.35% $ 736,767 1.91% $ 710,851 Passbook accounts 2.12 611,606 2.70 541,701 Money market deposit accounts 2.35 2,378,087 4.02 2,731,338 Term certificate accounts with original maturities of: 4 weeks to 1 year 3.24 4,334,208 3.47 4,762,359 1 to 2 years 3.85 4,614,059 4.21 3,494,606 2 to 3 years 4.62 1,448,779 5.64 1,246,978 3 to 4 years 6.11 1,149,108 6.99 1,267,707 4 years and over 6.72 2,021,350 6.67 1,612,784 Retail jumbo CDs 5.03 109,250 6.07 94,651 All other 7.76 19,270 7.75 23,271 ----------- ----------- $17,422,484 $16,486,246 =========== =========== *Weighted average interest rate Customer deposits by remaining maturity at year end: No contractual maturity $ 3,726,460 $ 3,983,890 Maturity within one year: 1st quarter 3,811,037 4,111,337 2nd quarter 2,991,744 2,613,350 3rd quarter 1,666,045 1,284,585 4th quarter 1,391,652 1,292,873 ----------- ----------- 9,860,478 9,302,145 1 to 2 years 1,865,989 1,635,360 2 to 3 years 460,472 446,546 3 to 4 years 651,243 159,830 Over 4 years 857,842 958,475 ----------- ----------- $17,422,484 $16,486,246 =========== ===========
At December 31, the weighted average cost of deposits was 3.92% (1993) and 4.40% (1992). Interest expense on customer deposits is summarized as follows:
Year Ended December 31 -------------------------------- 1993 1992 1991 -------- -------- ---------- Interest-bearing checking accounts $ 11,426 $ 12,376 $ 15,017 Passbook accounts 21,043 23,315 24,146 Money market deposit accounts 47,339 75,223 88,601 Term certificate accounts 625,892 733,796 966,619 -------- -------- ---------- $705,700 $844,710 $1,094,383 ======== ======== ==========
PAGE F-19 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE K - Advances from Federal Home Loan Banks Advances are secured by pledges of $10,843,941 of certain loans and capital stock of the Federal Home Loan Banks, and these borrowings have maturities and interest rates as follows:
December 31 ------------------------------------------------------------ 1993 1992 -------------------------- ----------------------------- Maturity Rate* Amount Rate* Amount - -------- ----------- ---------- ----------- ---------- 1993 6.35% $ 518,845 1994 8.05% $ 72,549 8.03 72,539 1995 2.01 325,424 2.49 325,377 1996 4.52 170,051 8.00 170,032 1997 5.11 150,524 5.13 1,250,016 1998 3.66 1,048,621 4.08 1,024,293 1999 and thereafter 3.93 4,514,522 4.11 2,138,261 ---------- ---------- $6,281,691 $5,499,363 ========== ==========
*Weighted average interest rate, including the effect of hedging transactions At December 31, the weighted average cost of advances was 3.87% (1993) and 4.62% (1992). NOTE L - Securities Sold Under Agreements to Repurchase
December 31 ------------------------ 1993 1992 -------- -------- Securities sold under agreements to repurchase with broker/dealers, due at various dates through August 1999 at coupon rates of 2.65% to 8.40% collateralized by government obligations and mortgage-backed securities with a market value of $387,286 at December 31, 1993 $376,864 $485,705 Consumer repurchase agreements due within 90 days at interest rates of 1.11% to 3.25% collateralized by mortgage-backed securities with a market value of $96,613 at December 31, 1993, which are pledged to a trustee 66,010 71,005 -------- -------- $442,874 $556,710 ======== ========
At December 31, these liabilities had a weighted average interest rate of 6.06% (1993) and 8.09% (1992). These borrowings averaged $464,091 (1993) and $905,145 (1992) and the maximum outstanding at any month end was $773,140 (1993) and $1,213,376 (1992). At the end of 1993 and 1992, respectively, $139,811 and $301,404 of the agreements to repurchase with broker/dealers were to reacquire the same securities. Agreements with broker/dealers to repurchase substantially the same securities amounted to $237,053 (1993) and $184,301 (1992). PAGE F-20 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) At December 31, 1993, securities sold under agreements to repurchase had maturities and interest rates as follows:
Maturity Rate* Amount -------- ----- -------- 1994 5.77% $383,213 1995 thru 1998 8.52 53,061 1999 and thereafter 2.98 6,600 -------- $442,874 ========
*Weighted average interest rate NOTE M - Medium-Term Notes Medium-term notes are unsecured. They have maturities and interest rates as follows:
December 31 ------------------------------------------------------------ 1993 1992 -------------------------- ----------------------------- Maturity Rate* Amount Rate* Amount - -------- ----------- ---------- ----------- ---------- 1993 8.45% $ 14,497 1995 6.03% $ 66,848 6.04 66,770 1996 4.02 609,692 -- -0- ---------- ---------- $ 676,540 $ 81,267 ========== ==========
*Weighted average interest rate NOTE N - Subordinated Notes
December 31 ----------------------------- 1993 1992 ---------- -------- Parent: Subordinated notes, unsecured, due from 1997 to 2003 at coupon rates of 6.00% to 10.25%, net of unamortized discount of $8,818 (1993) and $6,968 (1992) $1,021,182 $723,032 Association: Subordinated notes, unsecured, due from 1997 to 2000 at coupon rates of 9.90% to 10.25%, net of unamortized discount of $1,121 (1993) and $1,331 (1992) 198,879 198,669 ---------- -------- $1,220,061 $921,701 ========== ========
PAGE F-21 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) At December 31, subordinated notes had a weighted average interest rate of 8.65% (1993) and 9.35% (1992). At December 31, 1993, subordinated notes had maturities and interest rates as follows:
Maturity Rate* Amount -------- ------ ---------- 1997 10.39% $ 214,217 1998 9.06 198,906 2000 9.32 312,322 2002 8.08 296,354 2003 6.14 198,262 ---------- $1,220,061 ==========
*Weighted average interest rate NOTE O - Taxes on Income Income taxes for 1992 and 1991 have not been restated for the effect of adopting FAS 109. The cumulative effect of the change in the method of accounting for income taxes for the periods ending prior to January 1, 1993, is not material. The following is a comparative analysis of the provision for federal and state taxes on income:
Year Ended December 31 ---------------------------------- 1993 1992 1991 -------- -------- -------- Federal income tax: Current $141,016 $149,678 $112,776 Deferred 3,599 (11,622) 232 State tax: Current 42,014 47,019 35,864 Deferred (3,101) (4,920) (756) -------- -------- -------- $183,528 $180,155 $148,116 ======== ======== ========
The amounts of net deferred liability included in taxes on income in the Consolidated Statement of Financial Condition are:
December 31 --------------------- 1993 1992 -------- ------- Federal income tax $111,369 $91,155 State tax 53,460 48,037
PAGE F-22 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) For 1993, deferred tax liability results from changes in the amounts of temporary differences between January 1, 1993, and December 31, 1993. The components of the net deferred tax liability are as follows:
December 31 January 1 1993 1993 ----------- --------- Deferred tax liabilities: Loan fees and interest income deferred for tax purposes $ 60,550 $ 58,947 FHLB stock dividends recognized as income for financial statement purposes, allocated to cost basis of stock for tax purposes 57,695 53,574 Tax depreciation expense in excess of financial statement depreciation expense 10,518 7,996 Bad debt reserve for tax purposes in excess of base year bad debt reserve 54,458 58,771 Unrealized gains on debt and equity securities reflected in equity for financial statements 59,459 -0- Other deferred tax liabilities 1,032 5,820 -------- -------- Gross deferred tax liabilities 243,712 185,108 Deferred tax assets: State tax expensed for financial statements deferred for tax purposes 15,251 15,493 Provision for loss on investment securities expensed for financial statement, deferred for tax purposes -0- 9,681 Provision for losses on loans 41,293 28,573 Loan discount primarily related to acquisitions 15,678 23,245 Other deferred tax assets 6,661 6,465 -------- -------- Gross deferred tax assets 78,883 83,457 -------- -------- Net deferred tax liability $164,829 $101,651 ======== ========
PAGE F-23 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) For 1992 and 1991, deferred tax expense under APB 11 results from timing differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of these differences and the tax effects of each are as follows:
Year Ended December 31 ------------------------------------------ 1992 1991 ------------------- ------------------ Federal State Federal State -------- ------- ------- ------- Loan fees and interest income deferred for tax purposes $ 506 $ 143 $ 3,806 $ 1,075 Revenue and expense reported on the cash basis for tax purposes (4,801) (1,355) (730) (286) Effect of allowable federal bad debt deduction applied to timing differences 1,016 -0- (159) -0- State tax expensed for financial statements, not deductible for tax purposes (10,888) -0- (6,280) -0- FHLB stock dividends recognized as income for finan- cial statements, allocated to cost basis of stock for tax purposes 2,693 760 6,030 1,702 Other (148) (4,468) (2,435) (3,247) -------- ------- ------- ------- $(11,622) $(4,920) $ 232 $ (756) ======== ======= ======= =======
PAGE F-24 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) A reconciliation of income taxes at the federal statutory corporate rate to the effective tax rate follows:
Year Ended December 31 ----------------------------------------------------------- 1993 1992 1991 ----------------- ----------------- ----------------- Percent Percent Percent of of of Pretax Pretax Pretax Amount Income Amount Income Amount Income -------- ------- -------- ------- -------- ------- Computed standard corporate tax expense $160,083 35.0% $157,655 34.0% $131,483 34.0% Increases (reduc- tions) in taxes resulting from: Bad debt deduc- tion based on a percentage of income -0- -0- 3,906 0.8 2,185 0.6 Net financial income, not subject to income tax, primarily related to acquisitions (3,293) (0.7) (7,773) (1.6) (6,938) (1.8) State tax, net of federal income tax benefit 27,783 6.0 27,785 6.0 23,171 6.0 Adjustment of deferred tax liability due to tax rate increase 1,793 0.4 -0- -0- -0- -0- Other (2,838) (0.6) (1,418) (0.3) (1,785) (0.5) -------- ---- -------- ---- -------- ---- $183,528 40.1% $180,155 38.9% $148,116 38.3% ======== ==== ======== ==== ======== ====
In 1993, the Company adopted FAS 109 and elected to apply it prospectively. The cumulative effect of this change in accounting for income taxes for the periods ending prior to January 1, 1993, is not material. FAS 109 required the Company to record a deferred tax asset of $23 million and a corresponding reduction in goodwill to reflect the benefit of certain purchase accounting income that is not subject to income tax. In accordance with FAS 109, a deferred tax liability has not been recognized for the tax bad debt reserve of World Savings and Loan Association that arose in tax years that began prior to December 31, 1987. At December 31, 1993, and 1992, the portion of the tax bad debt reserve attributable to pre-1988 tax years was PAGE F-25 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) approximately $252 million. The amount of unrecognized deferred tax liability at December 31, 1993, and 1992, was approximately $88 million and $86 million, respectively. This deferred tax liability could be recognized if, in the future, there is a change in Federal tax law, the savings institution fails to meet the definition of a "qualified savings institution," certain distributions are made with respect to the stock of the savings institution, or the bad debt reserve is used for any purpose other than absorbing bad debt losses. NOTE P - Stockholders' Equity On October 28, 1993, the Company's Board of Directors authorized the purchase by the Company of up to 3.2 million shares of Golden West's common stock. As of December 31, 1993, 204,000 shares had been repurchased and retired. NOTE Q - Stock Options The Company's 1987 stock option plan authorizes the granting of options to key employees to purchase up to 7 million shares of the Company's common stock. The plan permits the issuance of either non-qualified stock options or incentive stock options. Under terms of the plan, incentive stock options have been granted at fair market value as of the date of grant and are exercisable any time after two to six years and prior to either five or ten years from the grant date. Non-qualified options have been granted at fair market value as of the date of grant and are exercisable after two to six years and prior to ten years and one month from the grant date. A summary of the transactions of the stock option plan follows:
Average Price per Shares Share --------- --------- Outstanding, January 1, 1991 2,944,650 $14.32 Granted 228,600 $34.80 Exercised (168,800) $12.94 Canceled (11,050) $19.18 --------- ------ Outstanding, December 31, 1991 2,993,400 $15.94 Granted 278,650 $38.13 Exercised (425,890) $12.15 Canceled (9,300) $26.73 --------- ------ Outstanding, December 31, 1992 2,836,860 $18.66 Granted 329,950 $39.53 Exercised (208,125) $13.54 Canceled (30,100) $29.62 --------- ------ Outstanding, December 31, 1993 2,928,585 $21.26 ========= ======
PAGE F-26 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) At December 31, shares available for option amounted to 3,465,400 (1993), 3,765,250 (1992), and 4,034,600 (1991); and shares exercisable amounted to 1,792,235 (1993), 1,225,210 (1992), and 1,251,950 (1991). Outstanding options at December 31, 1993, were held by 326 employees and had expiration dates ranging from November 20, 1994, to January 15, 2004. NOTE R - Financial Instruments with Off-Balance-Sheet Risk and Concentrations of Credit Risk As of December 31, 1993, the Company's loans receivable balance was $23.9 billion. Of that $23.9 billion balance, 82% were California loans, 3% were Colorado loans, 2% were Illinois loans, and 2% were New Jersey loans. No other single state made up more than 2% of the total loan portfolio. The majority of these loans are secured by first deeds of trust on one- to four-family residential property. Economic conditions and real estate values in the states in which the Company lends are the key factors that affect the credit risk of the Company's loan portfolio. In order to reduce its exposure to fluctuations in interest rates, the Company is a party to financial instruments with off-balance-sheet risk entered into in the normal course of business. These financial instruments include commitments to fund loans; commitments to purchase or sell securities, mortgage- backed securities, loans, and mortgage derivative products; interest rate swaps and caps; and futures and options contracts. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statement of financial condition. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. To limit credit exposure, among other things, the Company enters into financial instrument contracts only with the Federal Home Loan Bank of San Francisco and with major banks and securities dealers selected by the Company upon the basis of their creditworthiness and other matters. Typically, the Company does not require or provide collateral or other security to support these financial instruments. Commitments to originate mortgage loans are agreements to lend to a customer providing that the customer satisfies the terms of the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Prior to entering each commitment, the Company evaluates the customer's creditworthiness. The amount of outstanding loan commitments at December 31, 1993, and 1992, was $350 million and $444 million, respectively. Most of these commitments were for adjustable rate mortgages. The Company enters into commitments to purchase or sell mortgage- backed securities and other mortgage derivative products. The commitments generally have a fixed delivery or receipt settlement date. The Company controls the credit risk of such commitments through credit evaluations, limits, and monitoring procedures. The interest rate risk of the commitment is considered by the Company and matched with the appropriate funding sources. Interest rate risk during the commitment period may also be managed by use of over-the-counter options, options on futures and futures contracts. The Company had no outstanding commitments to purchase or sell mortgage-backed securities as of December 31, 1993, and 1992. The Company has entered into interest rate swap and cap agreements with selected banks and government securities dealers. An interest rate swap is an agreement between two parties in which one party exchanges cash payments based on a fixed rate of interest for a counterparty's cash payment based on a floating rate of interest. The amounts to be paid are defined by agreement and determined by applying the specified interest rates to a notional principal amount. The interest rate differential to be paid or received on interest rate swap agreements entered into to reduce the impact of changes in interest rates of the hedged customer deposits, PAGE F-27 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) mortgage loans, or other specified assets and borrowings is recognized over the life of the agreements. At December 31, 1993, the Company paid a fixed interest rate of 3.96% to 9.54% with a weighted average of 7.10% and received a floating interest rate based upon a specified interest rate index, the London Interbank Offered Rate (LIBOR), on interest rate swap agreements. The agreements have original terms to maturity from two to ten years and remaining terms to maturity of less than one to ten years. At December 31, 1993, and 1992, the Company had notional principal balances totalling $2.6 billion, with interest payable at fixed rates. At December 31, 1993, the Company paid a floating interest rate based upon a specified interest rate index, either LIBOR or the Federal Home Loan Bank (FHLB) 11th District Cost of Funds, and received a fixed interest rate of 3.82% to 9.77% with a weighted average of 5.37% on interest rate swap agreements. The agreements have original terms to maturity from one to ten years and remaining terms to maturity of less than one to seven years. At December 31, 1993, and 1992, the Company had notional principal balances totalling $2.9 billion and $1.1 billion, respectively, with interest payable at floating rates. At December 31, 1993, the Company paid and received a floating rate of interest based upon a spread applied to a specified interest rate index, the FHLB 11th District Cost of Funds and the FHLB 6-month Discount Note Rate, respectively, on interest rate swap agreements. The agreements have original terms to maturity of five years and remaining terms to maturity of three to four years. At December 31, 1993, the Company had a notional principal balance of $600 million, with interest payable and receivable at floating rates. At December 31, 1993, and 1992, the Company had $89 million and $72 million, respectively, of net unrealized losses on outstanding interest rate swaps. An interest rate cap is an agreement between two parties in which one party pays a fee for the right to receive a payment from a counterparty based on the excess, if any, of an open market floating rate over a base rate applied to a notional principal amount. The excess which may be received on interest rate cap agreements reduces the impact of changes in interest rates and is recognized over the life of the agreements. At December 31, 1993, the Company received the excess of a specified interest rate index, LIBOR, over a fixed base interest rate of 4.25% to 11% on interest rate cap agreements. The agreements have original terms to maturity of three to seven years and remaining terms to maturity of less than one to three years. At December 31, 1993, and 1992, the Company had notional principal balances totalling $437 million and $452 million, respectively. These interest rate swaps and caps were designated as hedges against customer deposits, mortgage loans, and other specified assets and borrowings. The Company is exposed to credit risk in the event of nonperformance by the other parties to the interest rate swap and cap agreements; however, the Company does not anticipate nonperformance by the other parties. Futures contracts and long put options for futures contracts for Eurodollars, Treasury Bills, and interest rate contracts are entered into by the Company as hedges against specific liabilities or assets and not for speculation. At the time a contract is entered into, its purpose is specifically identified and documented as part of the corporate records. Gains and losses on futures contracts are deferred until the contracts are closed, at which time gains and losses are included in the cost basis of the assets and liabilities hedged and amortized, using the straight-line or level yield method, into interest income or expense over the remaining life of the asset or liability, or they are amortized over the period hedged. The possible inability of counterparties to meet the terms of their contracts exposes the Company to credit risk to the extent that gains remain unsettled on the contracts. At December 31, 1993, the Company had no short positions outstanding. At December 31, 1992, the Company had outstanding a $4.1 billion short position in various futures, which were designated as hedges against specified borrowings. At December 31, 1993, and 1992, the Company had $-0- and $598 of unrealized gains, respectively, on outstanding financial futures. At December 31, 1993, and 1992, the Company had no positions in long put options. PAGE F-28 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) The Company controls the credit risk of its futures contracts, long put options for futures contracts, interest rate swap agreements, and interest rate cap agreements through credit approvals, limits, and monitoring procedures. The contract or notional amount of these contracts does not represent exposure to credit risk; rather, credit risk relates only to unsettled amounts on contracts. NOTE S - Disclosure About Fair Value of Financial Instruments The Financial Accounting Standards Board Statement of Financial Accounting Standards No. 107 (FAS 107) requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. The statement provides for a variety of different valuation methods, levels of aggregation, and assessments of practicability of estimating fair value. Moreover, there are significant inherent weaknesses in any estimating techniques employed. Fair value estimates are not necessarily more relevant than historical cost values. Fair values may have limited usefulness in evaluating portfolios of long-term financial instrument assets and liabilities held by going concerns. Differences in the alternative methods and assumptions selected by various companies as well as differences in the methodology utilized between years may, and probably will, significantly limit comparability and usefulness of the data displayed. For these reasons, as well as others, management believes that the disclosure presented herein has limited relevance to the Company and its operations. The values presented are based upon information as of December 31, 1993, and 1992, and do not reflect any subsequent changes in fair value. Fair values may have changed significantly following the balance sheet dates. The estimates presented herein are not necessarily indicative of amounts that could be realized in a current transaction. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: The historical cost amounts approximate the fair value of the following financial instruments: cash, interest earned but uncollected, investment in capital stock of Federal Home Loan Banks, other investments, customer demand deposits, and securities sold under agreements to repurchase with brokers/dealers due within 90 days. Fair values are based on quoted market prices for securities available for sale, mortgage-backed securities available for sale, mortgage- backed securities held to maturity, medium-term notes, subordinated notes, and futures contracts. Fair values are estimated using projected cash flows present valued at replacement rates currently offered for instruments of similar remaining maturities for: customer term deposits, advances from Federal Home Loan Banks, and consumer repurchase agreements. PAGE F-29 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) For loans receivable and loan commitments, the fair value is estimated by present valuing projected future cash flows, using current rates at which similar loans would be made to borrowers and with assumed rates of prepayment. Adjustment for credit risk is estimated based upon the classification status of the loans. The fair value of interest rate caps is derived from current market prices of similar interest rate cap instruments. The fair value of interest rate swap agreements is the estimated amount the Company would receive or pay to terminate the swap agreements on the reporting date, considering current interest rates.
December 31 ---------------------------------------------------------- 1993 1992 --------------------------- --------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ----------- ----------- ----------- ----------- Financial Assets: Cash $ 243,185 $ 243,185 $ 228,796 $ 228,796 Securities available for sale 1,636,586 1,636,586 160,883 160,935 Other investments 538,100 538,100 790,189 874,257 Mortgage-backed securities available for sale 1,114,069 1,114,069 -0- -0- Mortgage-backed securities held to maturity 408,467 412,243 1,791,615 1,899,512 Loans receivable 23,912,571 24,166,244 21,968,676 22,227,635 Interest earned but uncollected 175,080 175,080 157,723 157,723 Investment in capital stock of Federal Home Loan Banks 325,737 325,737 289,707 289,707 Financial Liabilities: Customer deposits 17,422,484 17,564,644 16,486,246 16,608,720 Advances from Federal Home Loan Banks 6,281,691 6,035,503 5,499,363 5,376,785 Securities sold under agreements to repurchase 442,874 447,163 556,710 562,948 Medium-term notes 676,540 686,581 81,267 81,806 Subordinated notes 1,220,061 1,349,037 921,701 1,010,937 Off-Balance Sheet Instruments (Unrealized Gains (Losses)): Interest rate caps (1,422) (4,058) Interest rate swaps (88,942) (72,073) Futures contracts -0- 598 Loan commitments (68) 505
PAGE F-30 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE T - Parent Company Financial Information
Statement of Net Earnings Year Ended December 31 -------------------------------- 1993 1992 1991 -------- -------- -------- Revenues: Investment income $ 28,047 $ 22,542 $ 13,126 Insurance commissions and trustee fees 1,357 2,978 3,275 Other 20 25 (27) -------- -------- -------- 29,424 25,545 16,374 Expenses: Interest 75,601 58,313 40,040 General and administrative 2,188 2,088 1,972 Other -0- -0- 415 -------- -------- -------- 77,789 60,401 42,427 -------- -------- -------- Loss before earnings of subsidiaries and income tax credit (48,365) (34,856) (26,053) Income tax credit 21,585 15,279 10,399 Earnings of subsidiaries 300,634 303,115 254,253 -------- -------- -------- Net Earnings $273,854 $283,538 $238,599 ======== ======== ========
Statement of Financial Condition Assets December 31 ------------------------- 1993 1992 ---------- ---------- Cash $ 9,658 $ 9,877 Securities available for sale 681,935 2,024 Other investments 114,714 130,876 Note receivable from subsidiary 150,000 475,000 Prepaid expenses and other assets 7,008 22,233 Investment in subsidiaries 2,169,364 1,825,036 ---------- ---------- $3,132,679 $2,465,046 ========== ==========
Liabilities and Stockholders' Equity Securities sold under agreements to repurchase $ 24,875 $ -0- Accounts payable and accrued expenses 21,018 14,616 Subordinated notes, net 1,021,182 723,032 Stockholders' equity 2,065,604 1,727,398 ---------- ---------- $3,132,679 $2,465,046 ========== ==========
PAGE F-31 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE T - Parent Company Financial Information (Continued)
Statement of Cash Flows Year Ended December 31 ------------------------------------ 1993 1992 1991 ----------- --------- -------- Cash flows from operating activities: Net earnings $ 273,854 $ 283,538 $238,599 Adjustments to reconcile net earnings to net cash used in operating activities: Equity in earnings of subsidiaries (300,634) (303,115) (254,253) Amortization of intangibles and discount on subordinated debt 1,209 837 863 Decrease (increase) in income taxes receivable 9,318 (7,808) (3,714) Other, net 6,191 4,911 1,331 ----------- --------- -------- Net cash used in operating activities (10,062) (21,637) (17,174) Cash flows from investing activities: Repayment of subordinated note -0- -0- 38,000 Capital contributed to subsidiaries -0- -0- (102,350) Dividends received from subsidiary 34,000 40,000 121,500 Purchases of securities held for sale (1,920,007) (434,738) -0- Sales of securities held for sale 1,440,605 432,685 -0- Decrease (increase) in other investments (169,355) 175,703 (155,016) Notes receivable from subsidiary (150,000) (695,000) -0- Repayments of notes receivable from subsidiary 475,000 220,000 -0- ----------- --------- -------- Net cash used in investing activities (289,757) (261,350) (97,866) Cash flows from financing activities: Repayments of borrowings from subsidiary -0- -0- (75,000) Increase in securities sold under agreements to repurchase 24,875 -0- -0- Proceeds from subordinated debt 297,008 295,616 198,312 Dividends on common stock (17,280) (14,624) (12,054) Sale of stock 2,818 5,153 2,187 Purchase and retirement of Company stock (7,821) -0- -0- ----------- --------- -------- Net cash provided by financing activities 299,600 286,145 113,445 Net increase (decrease) in cash (219) 3,158 (1,595) Cash at beginning of period 9,877 6,719 8,314 ----------- --------- -------- Cash at end of period $ 9,658 $ 9,877 $ 6,719 =========== ========= ======== Supplemental cash flow information: Debt forgiven by subsidiary $ -0- $ -0- $(90,000) Reduction in investment in subsidiaries -0- -0- 90,000
PAGE F-32 GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Years ended December 31, 1993, 1992, and 1991 (Dollars in thousands except per share figures) NOTE U - Selected Quarterly Financial Data (Unaudited)
1993 ------------------------------------------------------------ Quarter Ended ------------------------------------------------------------ March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- Interest income $463,027 $472,073 $473,813 $461,259 Interest expense 280,911 291,831 288,550 276,122 Net interest income 182,116 180,242 185,263 185,137 Provision for loan losses 11,459 13,182 16,196 25,000 Non-interest income 11,907 13,428 14,444 22,263 Non-interest expense 64,361 63,870 70,077 73,273 -------- -------- -------- -------- Earnings before taxes on income 118,203 116,618 113,434 109,127 Taxes on income 46,619 46,035 49,666 41,208 -------- -------- -------- -------- Net earnings $ 71,584 $ 70,583 $ 63,768 $ 67,919 ======== ======== ======== ======== Net earnings per share $ 1.12 $ 1.10 $ 1.00 $ 1.06 ======== ======== ======== ======== Cash dividends per share $ .065 $ .065 $ .065 $ .075 ======== ======== ======== ========
Non-interest income in the fourth quarter of 1993 includes a $17 million reduction of a valuation allowance on investments charged to income in a previous year.
1992 ------------------------------------------------------------ Quarter Ended ------------------------------------------------------------ March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- Interest income $520,541 $504,214 $487,541 $472,214 Interest expense 344,721 320,485 311,518 290,456 Net interest income 175,820 183,729 176,023 181,758 Provision for loan losses 9,750 11,040 10,944 11,484 Non-interest income 10,085 9,939 10,205 10,888 Non-interest expense 62,403 62,123 61,278 65,732 -------- -------- -------- -------- Earnings before taxes on income 113,752 120,505 114,006 115,430 Taxes on income 43,759 46,581 44,298 45,517 -------- -------- -------- -------- Net earnings $ 69,993 $ 73,924 $ 69,708 $ 69,913 ======== ======== ======== ======== Net earnings per share $ 1.10 $ 1.16 $ 1.10 $ 1.10 ======== ======== ======== ======== Cash dividends per share $ .055 $ .055 $ .055 $ .065 ======== ======== ======== ========
PAGE 67 EXHIBIT 23(a) INDEPENDENT AUDITORS' CONSENT Board of Directors and Stockholders Golden West Financial Corporation Oakland, California We consent to the incorporation by reference in Post-Effective Amendment No. 2 to Registration Statement No. 2-66913 on Form S-8, Registration Statement No. 33-14833 on Form S-8, Registration Statement No. 33-29286 on Form S-3, Registration Statement No. 33-40572 on Form S-8, Registration Statement No. 33-48976 on Form S-3, and Registration Statement No. 33-57882 on Form S-3 of our report dated January 25, 1994 appearing in this Annual Report on Form 10-K of Golden West Financial Corporation for the year ended December 31, 1993. Deloitte & Touche Oakland, California March 23, 1994 -----END PRIVACY-ENHANCED MESSAGE-----