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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
___________________________
FORM 10-K
___________________________
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2001
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
___________________________
Internal Revenue Service - 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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The approximate aggregate market value of the Registrant's common stock
held by nonaffiliates of the Registrant on February 28, 2002, was
$9,902,656,421. The number of shares outstanding of the Registrant's common
stock on February 28, 2002, was 155,335,787 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated March 15, 2002, furnished to stockholders in
connection with registrant's Annual Meeting of Stockholders, is incorporated by
reference into Part III.
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GOLDEN WEST FINANCIAL CORPORATION
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I ............................................................................................................ 1
Item 1. Business ............................................................................................ 1
Registrant .............................................................................................. 1
Forward Looking Statements .............................................................................. 1
Regulatory Framework .................................................................................... 2
Office Structure ........................................................................................ 2
Operations .............................................................................................. 2
Deposit Activities ...................................................................................... 3
Borrowings .............................................................................................. 5
Loans Receivable and Mortgage-Backed Securities ......................................................... 7
Mortgage Servicing Rights ............................................................................... 18
Asset Quality ........................................................................................... 19
Investment Activities ................................................................................... 23
Stockholders' Equity .................................................................................... 24
New Accounting Pronouncements ........................................................................... 25
Earnings Per Share ...................................................................................... 27
Yield on Interest-Earning Assets/Cost of Funds .......................................................... 27
Competition and Other Matters ........................................................................... 29
Thrift Industry ......................................................................................... 30
Regulation .............................................................................................. 30
Employee Relations ...................................................................................... 39
Item 2. Properties .......................................................................................... 39
Item 3. Legal Proceedings ................................................................................... 39
Item 4. Submission of Matters to a Vote of Security Holders ................................................. 39
PART II ........................................................................................................... 40
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters ........................ 40
Market Prices of Stock .................................................................................. 40
Per Share Cash Dividends Data ........................................................................... 40
Stockholders ............................................................................................ 41
Item 6. Selected Financial Data ............................................................................. 41
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 45
Financial Condition ..................................................................................... 46
Results of Operations ................................................................................... 61
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ......................................... 68
Item 8. Financial Statements and Supplementary Data ......................................................... 68
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 68
PART III .......................................................................................................... 69
Item 10. Directors and Executive Officers of the Registrant ................................................. 69
Item 11. Executive Compensation ............................................................................. 70
Item 12. Security Ownership of Certain Beneficial Owners and Management ..................................... 70
Item 13. Certain Relationships and Related Transactions ..................................................... 70
PART IV ........................................................................................................... 71
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................................... 71
i
PART I
ITEM 1. BUSINESS
Registrant
Golden West Financial Corporation (Golden West or Company) is a savings
and loan holding company, the principal business of which is the operation of a
savings bank business through its wholly owned savings bank subsidiary, World
Savings Bank, FSB (WSB). Golden West also has two other operating subsidiaries,
Atlas Advisers, Inc. and Atlas Securities, Inc. These two companies were formed
to provide services to Atlas Assets, Inc., a registered open-end management
investment company sponsored by the Company. Atlas Advisers, Inc., is a
registered investment adviser and the investment manager of Atlas Assets, Inc.'s
fourteen portfolios (the Atlas Funds). Atlas Securities, Inc., is a registered
broker-dealer and the sole distributor of Atlas Fund shares. The Company was
incorporated in 1959 and has its headquarters in Oakland, California. References
herein to the Company or Golden West mean Golden West and its subsidiaries on a
consolidated basis, unless the context requires otherwise.
During the fourth quarter of 2000, World Savings Bank, a State Savings
Bank (WSSB), a wholly owned subsidiary of Golden West, received approval to
change from a Texas state savings bank regulated by the FDIC to a federally
chartered savings bank regulated by the OTS. WSSB's new name as a result of this
change is World Savings Bank, FSB (Texas) (WTX). On December 1, 2000, Golden
West contributed WTX to WSB and WTX became a wholly owned subsidiary of WSB. In
addition, on December 31, 2000, World Savings and Loan Association, formerly a
wholly owned subsidiary of Golden West, was merged into WSB.
WSB is a federally chartered savings bank, with deposits insured by the
Federal Deposit Insurance Corporation (FDIC). The FDIC administers two separate
deposit insurance funds, the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF). The BIF is a deposit insurance fund for
commercial banks, and certain savings banks. The SAIF is a deposit insurance
fund for most savings associations. WSB is a member of the BIF, but a portion of
WSB's deposits are insured through the SAIF. WTX's deposits are also insured by
the FDIC and WTX is a member of the BIF.
WSB's home office is in Oakland, California. As of December 31, 2001
and 2000, WSB had assets of $58.4 billion and $55.7 billion, respectively. For
the years ended December 31, 2001, 2000, and 1999, WSB had net income of $827
million, $540 million, and $479 million, respectively.
Forward Looking Statements
This report contains certain forward-looking statements which are not
historical facts and pertain to future operating results of the Company. Such
statements are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward looking statements are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond the Company's control.
In addition, these forward-looking statements are subject to change. Actual
results may differ materially from the results discussed in these
forward-looking statements for the reasons, among others, discussed under the
heading "Asset/Liability Management" in the Management's Discussion and Analysis
of Financial Condition and Results of Operations, herein under Item 7.
1
Regulatory Framework
The Company is a savings and loan holding company within the meaning of
the Home Owners' Loan Act (HOLA) and is subject to the regulation, examination,
supervision, and reporting requirements of HOLA. WSB is a member of the Federal
Home Loan Bank (FHLB) system and owns stock in the FHLB of San Francisco. WTX is
a member of the FHLB system and owns stock in the FHLB of Dallas. WSB's and
WTX's savings accounts are insured by the FDIC up to the maximum amounts
provided by law. The Company, WSB, and WTX are subject to extensive examination,
supervision, and regulation by the Office of Thrift Supervision (OTS) and the
FDIC. Applicable regulations govern, among other things, lending and investment
powers, the types of savings accounts that can be offered, the types of
businesses that can be engaged in, capital requirements, and the payment of
dividends. WSB and WTX are also subject to regulations of the FDIC and the Board
of Governors of the Federal Reserve System (Federal Reserve Board) with respect
to deposit accounts, reserve requirements, and certain other matters (see
Regulation), and regulations of other federal and state agencies concerning
consumers, lending, and securities activities.
Office Structure
As of December 31, 2001, the Company operated 121 savings branch
offices in California, 44 in Florida, 36 in Colorado, 23 in Texas, 15 in
Arizona, 11 in New Jersey, eight in Kansas, five in Illinois, and two in Nevada.
The Company also operated 330 loan origination offices of which 270 were located
in the states listed above. The remaining 60 loan origination offices were
located in Connecticut, Delaware, Georgia, Idaho, Indiana, Kentucky, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New
Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode
Island, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington,
Wisconsin, and Wyoming. Of the 330 loan offices, 21 were fully-staffed offices
that were located in the same premises as savings branch offices, and 133 others
were savings branch offices that have a single loan officer on site. The
remaining loan origination offices were located in facilities that were separate
from savings branch offices.
Operations
The principal business of the Company, through WSB and WTX, is
attracting funds from the investing public and the capital markets and investing
those funds principally in loans secured by deeds of trust or mortgages on
residential real estate, and mortgage-backed securities (MBS). WSB's principal
sources of funds are cash flows generated from earnings; deposits; loan
repayments; sales of loans; wholesale certificates of deposit; bank notes;
borrowings from the Federal Home Loan Bank of San Francisco; borrowings from its
parent; borrowings from its WTX subsidiary; and debt collateralized by
mortgages, MBS, or securities. In addition, WSB has other alternatives available
to provide liquidity or finance operations including federal funds purchased,
the issuance of medium-term notes, borrowings from public offerings of debt,
issuance of commercial paper, and borrowings from commercial banks. Furthermore,
under certain limited 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 on policies of the FHLB, the Federal Reserve Bank of San
Francisco, and the Federal Reserve Board. WTX's principal source of funds are
cash flows generated from borrowings from the FHLB of Dallas; earnings;
deposits; loan repayments; debt collateralized by mortgages or securities; and
borrowings from WSB and WSB's parent.
The principal sources of funds for the holding company, Golden West,
are dividends from subsidiaries, interest on investments, and the proceeds from
the issuance of debt and equity securities.
2
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 debt securities, capital
contributions to WSB, dividends to stockholders, the repurchase of Company
stock, and general and administrative expenses.
Deposit Activities
Deposit flows are affected by changes in general economic conditions,
changes in prevailing interest rates, and competition among depository
institutions and other investment alternatives. The Company currently offers a
number of alternatives for depositors, including passbook, checking, and money
market deposit accounts from which funds may be withdrawn at any time without
penalty, and certificate accounts with varying maturities ranging up to seven
years. All types of accounts presently offered by the Company have rates that
are set by the Company, consistent with prevailing interest rates. The Company's
certificate accounts are issued in non-negotiable form through its branch
offices. The Company uses government securities dealers to sell certificates of
deposit (CDs) to institutional investors. These are referred to in this document
as "wholesale CDs." All other deposits offered by the Company are considered
"retail deposits." The Company's deposit balance at December 31, 2000 and 1999
included $185 million and $600 million, of these wholesale CDs. There were no
outstanding wholesale CDs at December 31, 2001.
Retail deposits increased $4.6 billion during 2001, including interest
credited of $1.3 billion, compared to an increase of $2.7 billion during 2000,
including interest credited of $1.3 billion, and an increase of $896 million,
including interest credited of $1.1 billion during 1999. Retail deposits
increased in 2001 because the Company utilized effective marketing campaigns to
attract consumer funds in an environment where the public found savings to be a
more favorable investment compared with other alternatives. Retail deposits
increased in 2000 primarily due to the implementation of marketing campaigns
that took advantage of the favorable savings environment, especially in the
second half of the year. Retail deposits increased in 1999 as the Company
concentrated efforts on building the loyalty of existing depositors. At December
31, 2001, 2000, and 1999, transaction accounts (which include checking,
passbook, and money market accounts) represented 40%, 24%, and 35%,
respectively, of the total balance of deposits.
The table on the following page summarizes the Company's deposits by
original term to maturity at December 31.
3
TABLE 1
Deposits
by Original Term to Maturity
(Dollars in Thousands)
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Interest-bearing checking accounts... $ 155,799 $ 74,598 $ 128,677 $ 102,874 $ 85,343
Interest-bearing checking accounts
swept into money market deposit
accounts .......................... 4,613,087 3,059,928 3,206,240 2,706,811 1,386,398
Passbook accounts ................... 459,953 451,228 484,132 514,265 528,727
Money market deposit accounts........ 8,569,759 3,534,786 5,869,963 5,825,450 2,774,336
Time certificates of deposit with
original maturities of:
4 weeks to 1 year................ 10,852,181 12,325,768 8,554,573 5,893,772 8,996,965
1 to 2 years..................... 6,415,700 7,275,219 5,947,712 7,717,692 5,750,387
2 to 3 years..................... 1,619,868 1,367,147 1,349,180 1,417,606 1,478,756
3 to 4 years..................... 737,981 453,974 368,540 368,615 431,400
4 years and over ................ 799,025 675,120 582,275 1,150,056 1,440,434
Retail jumbo CDs /(a)/ .............. 249,088 644,962 623,286 521,478 711,010
Wholesale CDs........................ -0- 185,000 600,000 -0- 525,305
All other ........................... 144 189 332 476 656
----------- ----------- ----------- ----------- -----------
Total deposits....................... $34,472,585 $30,047,919 $27,714,910 $26,219,095 $24,109,717
=========== =========== =========== =========== ===========
(a) Retail jumbo CDs are certificates of deposit with a minimum balance of
$100,000.
The table below sets forth the Company's deposits by interest rate at
December 31.
TABLE 2
Deposits by Interest Rate
(Dollars in Thousands)
2001 2000
------------- --------------
0.00 % -- 4.00 % .............. $ 25,131,059 $ 4,107,186
4.01 % -- 6.00 % .............. 7,572,962 9,314,068
6.01 % -- 8.00 % .............. 1,759,311 16,617,334
8.01 % -- 10.00 % .............. -0- -0-
10.01 % -- 12.00 % .............. 9,253 9,331
------------- --------------
$ 34,472,585 $ 30,047,919
============= ==============
At December 31, the weighted average cost of deposits was 3.39% (2001)
and 5.52% (2000).
4
The table below shows the maturities of deposits at December 31, 2001
by interest rate.
TABLE 3
Deposit Maturities
by Interest Rate
(Dollars in Thousands)
2006 and
2002/(a)/ 2003 2004 2005 thereafter Total
------------- ------------- ----------- ----------- ------------ -------------
0.00 % -- 4.00 % $24,323,513 $ 682,873 $122,128 $ 1,717 $ 828 $25,131,059
4.01 % -- 6.00 % 6,124,473 838,589 339,025 17,776 253,099 7,572,962
6.01 % -- 8.00 % 1,244,246 228,418 14,014 262,621 10,012 1,759,311
8.01 % -- 10.00 % -0- -0- -0- -0- -0- -0-
10.01 % -- 12.00 % 89 9,164 -0- -0- -0- 9,253
------------- ------------- ----------- ----------- ------------ -------------
$31,692,321 $1,759,044 $ 475,167 $282,114 $ 263,939 $34,472,585
============= ============= =========== =========== ============ =============
(a) Includes passbook, checking, and money market deposit accounts, which have
no stated maturity.
As of December 31, 2001, the aggregate amount outstanding of time
certificates of deposit in amounts of $100,000 or more was $4.1 billion, of
which $249 million were retail jumbo CDs, the remainder were non-jumbo retail
CDs, and there were no wholesale CDs. The following table presents the maturity
of these time certificates of deposit at December 31, 2001.
TABLE 4
Maturities of Time Certificates of Deposit Equal to or Greater than
$100,000
(Dollars in Thousands)
3 months or less $ 1,712,642
Over 3 months through 6 months 1,036,826
Over 6 months through 12 months 835,482
Over 12 months 547,146
-------------
$ 4,132,096
=============
More information regarding deposits is included in Note I to the
Financial Statements included in Item 14.
Borrowings
The Company generally may borrow from the FHLB upon the security of (a)
the capital stock of the FHLB owned by the Company, (b) certain of its
residential mortgage loans and MBS, or (c) certain other assets (principally
obligations of, or guaranteed by, the United States Government or a federal
agency). The Company uses FHLB borrowings, also known as "advances," to
supplement cash flow and to provide funds for loan originations. Advances offer
strategic advantages for asset-liability management, including long-term
maturities and, in certain cases, prepayment at the Company's option. Each
advance has a specified maturity and interest rate, which may be fixed or
variable. At December 31, 2001, the Company had $18.0 billion in FHLB advances
outstanding, compared to $19.7 billion at yearend 2000.
5
The Company enters into reverse repurchase agreements with selected
major government securities dealers, large banks, or the FHLB of San Francisco
and the FHLB of Dallas. A reverse repurchase agreement involves the sale and
delivery of U.S. Government securities or mortgage-backed securities by the
Company to a counterparty coupled with an agreement to buy the securities back
at a later date. Under generally accepted accounting principles, these
transactions are accounted for as borrowings secured by securities. The Company
pays the counterparty a variable or fixed rate of interest for the use of the
funds for the period involved. At maturity, the borrowings are repaid (by
repurchase of the same securities) and the same securities are returned to the
Company.
The Company also enters into dollar reverse repurchase agreements
(dollar reverses) with selected major government securities dealers, as well as
large banks. A dollar reverse involves the sale and delivery of mortgage-backed
securities by the Company to a broker or dealer, coupled with an agreement to
purchase securities of the same type and interest coupon at a fixed price for
settlement at a later date. Under generally accepted accounting principles,
these transactions are accounted for as borrowings secured by mortgage-backed
securities. The Company pays the brokers and dealers a fixed rate of interest
for the use of the funds for the period involved, which is generally short-term.
At maturity, the secured borrowings are repaid (by purchase of similar
securities) and similar securities are delivered to the Company.
The Company monitors the level of activity with any one party in
connection with reverse repurchase agreements and dollar reverses in order to
minimize its risk exposure in these transactions. Reverse repurchase agreements
and dollar reverses amounted to $224 million at December 31, 2001, compared to
$857 million at yearend 2000.
At December 31, 2001, Golden West, at the holding company level, had a
total of $600 million of subordinated debt issued and outstanding. As of
December 31, 2001, Golden West's subordinated debt securities were rated A3 and
A- by Moody's Investors Service (Moody's) and Standard & Poor's Corporation
(S&P), respectively. In January 2002, Moody's upgraded the credit rating of
Golden West's subordinated debt to A2.
In July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of securities, including senior debt. At December 31, 2001, the Company
had issued and had outstanding $200 million of five-year senior debt in
connection with the aforementioned registration statement. As of December 31,
2001, the Company's senior debt was rated A2 and A by Moody's and S&P,
respectively. In January 2002, Moody's upgraded the credit rating for Golden
West's senior debt to A1.
During November 1996, WSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of December 31, 2001, WSB had not issued any notes
under this authority. As of December 31, 2001, WSB's long-term deposits and
other senior obligations were rated A1 and A+ by Moody's and S&P, respectively.
In January 2002, Moody's upgraded the credit rating for WSB's long-term deposits
and other senior obligations to Aa3.
6
The table below sets forth the composition of the Company's borrowings
at December 31.
TABLE 5
Composition of Borrowings
(Dollars in Thousands)
2001 2000 1999 1998 1997
----------- ----------- ----------- ---------- -----------
FHLB advances ..................... $18,037,509 $19,731,797 $ 8,915,218 $6,163,472 $ 8,516,605
Reverse repurchase agreements ..... 223,523 857,274 970,129 1,252,469 2,334,048
Dollar reverse repurchase
agreements .................... -0- -0- 75,047 -0- -0-
Medium-term notes ................. -0- -0- -0- -0- 109,992
Senior debt ....................... 198,215 -0- -0- -0- -0-
Subordinated debt ................. 599,511 598,791 812,950 911,753 1,110,488
----------- ----------- ----------- ---------- -----------
Total borrowings .............. $19,058,758 $21,187,862 $10,773,344 $8,327,694 $12,071,133
=========== =========== =========== ========== ===========
Weighted average interest rate
of total borrowings ........... 2.72% 6.66% 5.77% 5.87% 5.99%
=========== =========== =========== ========== ===========
More information concerning the borrowings of the Company is included
in Notes J, K, L and M to the Financial Statements, which are included in Item
14.
Loans Receivable and Mortgage-Backed Securities
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs).
Because the Company currently retains all of the beneficial interest in these
MBS and MBS-REMIC securitizations and because the securitizations meet all the
requirements for separate security recognition, 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. MBS, MBS-REMICs, and securitized loans are available
to be used as collateral for borrowings.
At December 31, 2001, 2000, and 1999, the balance of loans receivable
including MBS was $55.1 billion, $52.3 billion, and $39.6 billion, respectively.
Included in the $55.1 billion at December 31, 2001 was $4.7 billion of Federal
National Mortgage Association (FNMA) MBS with the underlying loans subject to
full credit recourse to the Company, $8.8 billion of MBS-REMICs, $5.2 billion of
securitized loans, and $509 million of purchased MBS. Included in the $52.3
billion at December 31, 2000 was $7.8 billion of FNMA MBS with the underlying
loans subject to full credit recourse to the Company, $10.4 billion of
MBS-REMICs, and $456 million of purchased MBS. Included in the $39.6 billion at
December 31, 1999 was $3.9 billion of FNMA MBS with the underlying loans subject
to full credit recourse to the Company, $7.2 billion of MBS-REMICs, and $514
million of purchased MBS. Under terms of full credit recourse, the Company
agrees to absorb the credit risk of the underlying loans.
New loan volume was $20.8 billion, $19.8 billion, and $12.7 billion for
the years ended December 31, 2001, 2000, and 1999, respectively. Loan portfolio
repayments, including MBS repayments, were $15.6 billion, $6.9 billion, and $7.7
billion for the years ended December 31, 2001, 2000, and 1999, respectively.
Loan sales were $2.9 billion, $350 million, and $1.2 billion for the years ended
December 31, 2001, 2000, and 1999, respectively. The loan portfolio, including
MBS, grew
7
$2.8 billion or 5% and $12.8 billion or 32% for the years ended December 31,
2001 and 2000, respectively.
Loan portfolio repayments were higher in 2001 as compared to 2000 due
to an increase in the prepayment rate as well as an increase in the balance of
the total loan portfolio outstanding. Loan portfolio repayments were lower in
2000 as compared to 1999 due to a decrease in prepayments.
Mortgage-Backed Securities
The Company classifies its MBS as either held to maturity or available
for sale. The Company has no trading MBS. MBS held to maturity are recorded at
cost because the Company has the ability and intent to hold these MBS to
maturity. Premiums and discounts on MBS are amortized or accreted using the
interest method over the estimated life of the security. At December 31, 2001,
2000, and 1999, the Company had MBS held to maturity in the amount of $13.8
billion, $18.5 billion, and $11.6 billion, respectively. During the first
quarter of 2001, the Company securitized $3.0 billion of ARMs into MBS-REMICs.
Loans securitized after March 31, 2001 were classified as securitized loans in
accordance with Statement of Financial Accounting Standards No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS 140). During 2000, the Company securitized $4.8 billion of
ARMs into FNMA MBS and securitized $4.6 billion of ARMs into MBS-REMICs. During
1999, the Company securitized $1.1 billion of ARMs into FNMA MBS and securitized
$3.7 billion of mortgage loans into MBS-REMICs. The FNMA MBS and the MBS-REMICs
are available to be used as collateral for borrowings.
MBS available for sale are reported at fair value, with unrealized
gains and losses excluded from earnings and reported net of applicable income
taxes as a separate component of stockholders' equity until realized. At
December 31, 2001, 2000, and 1999, the Company had MBS available for sale in the
amount of $233 million, $70 million, and $79 million, respectively, including
unrealized gains on MBS available for sale of $2 million, $1 million, and $1
million, respectively. Realized gains or losses on sales of MBS are 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 adjusted for any unamortized premium
or discount.
During the first quarter of 2001 and for the years ended 2000 and 1999,
the Company securitized $3.0 billion, $4.6 billion, and $3.7 billion,
respectively, of mortgage loans from its loan portfolio into Real Estate
Mortgage Investment Conduits. Classified as MBS held to maturity, MBS-REMICs are
being used as collateral for borrowings. The REMICs are not recorded as sales
because 100% of the beneficial ownership interests are retained by the Company,
including both the primary and subordinate retained interests.
Repayments of MBS during the years 2001, 2000, and 1999 amounted to
$6.4 billion, $2.5 billion, and $2.8 billion, respectively. MBS repayments were
higher in 2001 due to an increase in the prepayment rate. MBS repayments were
lower in 2000 due to a decrease in the prepayment rate.
For more information on MBS, see Notes D and E to the Financial
Statements included in Item 14.
Securitized Loans
At December 31, 2001, the Company had $5.2 billion of loans outstanding
that were securitized during the second and third quarters of 2001. These loans
are classified as loans receivable on the Statement of Financial Position in
accordance with SFAS 140 (see New Accounting Pronouncements).
8
Loans
Income from real estate loans provides the principal source of revenue
to the Company in the form of interest, loan origination fees, and other fees.
Loans made by the Company are generally secured by first liens on residential
properties. Although the Company has from time to time made commercial real
estate and construction loans, the Company is not currently active in these
segments of the lending market. The Company has the authority to originate loans
in any part of the United States. At December 31, 2001, the Company was
originating loans in Arizona, California, Colorado, Connecticut, Delaware,
Florida, Georgia, Idaho, Illinois, Indiana, Kansas, Kentucky, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire,
New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas,
Utah, Virginia, Washington, Wisconsin, and Wyoming. The Company also makes loans
to customers on the security of their deposit accounts. Deposit loans
constituted less than one percent of the Company's total loans outstanding as of
December 31, 2001 and 2000.
The following tables set forth the Company's loan portfolio by state as
of December 31, 2001 and 2000.
TABLE 6
Loan Portfolio by State
December 31, 2001
(Dollars in Thousands)
Residential Commercial Loans
Real Estate Real Total as a % of
--------------------------
State 1 - 4 5+ Land Estate Loans/(a)/ Portfolio
- -------------------- ------------ ----------- --------- ------------- ------------- -----------
Northern California $16,668,387 $1,773,468 $ 19 $ 15,156 $ 18,457,030 33.75 %
Southern California 15,136,951 1,579,418 -0- 2,871 16,719,240 30.57
Florida 2,767,388 23,931 -0- 194 2,791,513 5.10
Texas 2,159,023 82,468 169 899 2,242,559 4.10
New Jersey 1,987,905 -0- -0- 1,817 1,989,722 3.64
Washington 1,094,565 650,818 -0- -0- 1,745,383 3.19
Illinois 1,407,339 119,020 -0- -0- 1,526,359 2.79
Colorado 1,222,142 186,155 -0- 4,548 1,412,845 2.58
Arizona 990,100 25,438 -0- 13 1,015,551 1.86
Pennsylvania 1,013,702 1,150 -0- 111 1,014,963 1.86
Other/(b)/ 5,701,125 72,773 11 3,508 5,777,417 10.56
----------- ---------- --------- ---------- ------------- ----------
Totals $50,148,627 $4,514,639 $ 199 $ 29,117 54,692,582 100.00 %
=========== ========== ========= ========== ==========
Deferred loan costs 195,245
Loan discount on purchased loans (1,063)
Undisbursed loan funds (7,171)
Allowance for loan losses (261,013)
Loans to facilitate (LTF) interest reserve (182)
Troubled debt restructured (TDR) interest reserve (76)
Loans on deposits 16,672
-------------
Total loan portfolio including loans securitized into FNMA MBS with 54,634,994
recourse and MBS-REMICs
Loans securitized into FNMA MBS with recourse and MBS-REMICs (13,569,619)/(c)/
-------------
Total loans receivable $ 41,065,375
=============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the December 31, 2001 balances of loans that
were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
9
TABLE 7
Loan Portfolio by State
December 31, 2000
(Dollars in Thousands)
Residential Commercial Loans
Real Estate Real Total as a % of
--------------------------
State 1 - 4 5+ Land Estate Loans/(a)/ Portfolio
- ----------------- ------------ ----------- --------- ------------ -------------- -----------
Northern California $ 14,961,082 $ 1,796,032 $ 108 $ 20,066 $ 16,777,288 32.28%
Southern California 14,385,935 1,638,631 -0- 4,246 16,028,812 30.85
Florida 2,518,245 15,862 -0- 256 2,534,363 4.88
Texas 2,079,256 60,746 220 1,061 2,141,283 4.12
New Jersey 1,949,096 -0- -0- 2,516 1,951,612 3.76
Washington 1,075,055 574,651 -0- -0- 1,649,706 3.17
Illinois 1,520,620 121,102 -0- -0- 1,641,722 3.16
Colorado 1,290,477 185,567 -0- 4,634 1,480,678 2.85
Arizona 1,052,636 17,273 -0- 14 1,069,923 2.06
Pennsylvania 1,064,820 2,332 -0- 2,297 1,069,449 2.06
Other/(b)/ 5,559,064 55,264 19 4,720 5,619,067 10.81
------------ ----------- --------- ------------ -------------- -------
Totals $ 47,456,286 $ 4,467,460 $ 347 $ 39,810 51,963,903 100.00%
============ =========== ========= ============ =======
Deferred loan costs 147,751
Loan discount on purchased loans (1,470)
Undisbursed loan funds (6,703)
Allowance for loan losses (236,708)
Loans to facilitate (LTF) interest reserve (237)
Troubled debt restructured (TDR) interest reserve (335)
Loans on deposits 21,429
--------------
Total loan portfolio including loans securitized into FNMA MBS with
recourse and MBS-REMICs 51,887,630
Loans securitized into FNMA MBS with recourse and MBS-REMICs (18,124,987)/(c)/
--------------
Total loans receivable $ 33,762,643
==============
(a) The Company has no commercial loans other than commercial real estate
loans.
(b) Includes states with loans less than 2% of total loans.
(c) The above schedule includes the December 31, 2000 balances of loans that
were securitized and retained as FNMA MBS with recourse and MBS-REMICs.
10
The table below sets forth the composition of the Company's loan
portfolio by type of collateral at December 31.
TABLE 8
Loan Portfolio by Type of Security
(Dollars in Thousands)
2001 2000 1999 1998 1997
------------ ------------- ------------ ------------- -------------
Loans collateralized primarily
by first deeds of trust:
One-to four-family units .............. $38,326,759 $ 31,353,927 $26,041,066 $ 21,639,015 $ 28,978,476
Over four-family units................. 2,766,888 2,444,832 1,979,199 4,260,631 4,462,990
Commercial real estate................. 29,117 39,810 49,149 65,865 82,888
Land. ................................. 199 347 612 798 977
Loans on deposits ....................... 16,672 21,429 20,107 25,279 28,167
Less:
Undisbursed loan funds................. 7,171 6,703 5,022 3,080 3,306
Unearned fees, (deferred costs)
and discounts ...................... (194,182) (146,281) (68,244) 15,273 41,470
LTF and TDR interest reserve .......... 258 572 1,404 2,356 4,483
Unamortized discount arising
from acquisitions .................. -0- -0- -0- 5,125 10,250
Allowance for loan losses .............. 261,013 236,708 232,134 244,466 233,280
------------ ------------- ------------ ------------- -------------
Total loans receivable ................... 41,065,375 33,762,643 27,919,817 25,721,288 33,260,709
Loans collateralized primarily
By first deeds of trust which
have been securitized into MBS:
One-to four-family units .............. 11,821,868 16,102,358 8,853,027 9,346,004 3,030,390
Over four-family units................. 1,747,751 2,022,629 2,294,874 -0- -0-
------------ ------------- ------------ ------------- -------------
Total loans securitized into MBS ......... 13,569,619 18,124,987 11,147,901 9,346,004 3,030,390
------------ ------------- ------------ ------------- -------------
Loan portfolio including MBS.............. $54,634,994 $ 51,887,630 $39,067,718 $ 35,067,292 $ 36,291,099
============ ============= ============ ============= =============
At December 31, 2001, 99% of the loans in the portfolio (including
loans securitized into MBS) had remaining terms to maturity in excess of 10
years.
The following table sets forth the amount of loans due after one year
that have fixed interest rates and the amount that have adjustable interest
rates at December 31, 2001.
TABLE 9
Loans Due After One Year
(Dollars in Thousands)
Loans
Securitized Loans
into MBS Receivable Total
-------------- -------------- --------------
Adjustable Rate $12,910,860 $38,795,047 $51,705,907
Fixed Rate 657,293 2,241,910 2,899,203
-------------- -------------- --------------
$13,568,153 $41,036,957 $54,605,110
============== ============== ==============
11
The following table sets forth information concerning new loans made by
the Company during 2001, 2000, and 1999 by type and purpose of loan.
TABLE 10
New Mortgage Loan Originations by Type and by Purpose
(Dollars in Thousands)
2001 2000 1999
------------------------------ ---------------------------------- --------------------------------
No. of % of No. of % of No. of % of
By Type Loans Amount Total Loans Amount Total Loans Amount Total
- ------------------- ------- ----------- ------ ---------- ---------- ------ ------- ----------- --------
Residential
(one unit) 97,224 $19,501,525 93.9% 108,539 $18,627,153 94.2% 77,790 $11,740,910 92.7%
Residential
(2 to 4 units) 2,495 575,585 2.8 2,238 478,297 2.4 1,907 356,340 2.8
Residential
(5 or more units) 1,105 686,127 3.3 941 677,237 3.4 865 574,961 4.5
------- ----------- ------ ---------- ----------- ------ ------- ----------- --------
Totals 100,824 $20,763,237 100.0% 111,718 $19,782,687 100.0% 80,562 $12,672,211 100.0%
======= =========== ====== ========== =========== ====== ======= =========== ========
2001 2000 1999
------------------------------ ---------------------------------- --------------------------------
No. of % of No. of % of No. of % of
By Purpose Loans Amount Total Loans Amount Total Loans Amount Total
- ------------------- ------- ----------- ------ ---------- ---------- ------ ------- ----------- --------
Purchase 45,989 $ 8,604,296 41.4% 79,038 $13,045,821 65.9% 52,685 $ 7,664,726 60.5%
Refinance 54,835 12,158,941 58.6 32,680 6,736,866 34.1 27,877 5,007,485 39.5
------- ----------- ------ ---------- ----------- ------ ------- ----------- --------
Totals 100,824 $20,763,237 100.0% 111,718 $19,782,687 100.0% 80,562 $12,672,211 100.0%
======= =========== ====== ========== =========== ====== ======= =========== ========
New mortgage loan originations in 2001, 2000, and 1999 amounted to
$20.8 billion, $19.8 billion, and $12.7 billion, respectively. The increase in
2001 was due to an increase in the market demand for loans. The increase in 2000
was due to a strong demand for adjustable rate loans, the Company's primary
product.
The largest source of mortgage originations is loans secured by
residential properties in California. Loans originated in California were $14.4
billion in 2001 compared to $12.4 billion in 2000 and $8.0 billion in 1999. In
2001, 70% of total origination volume was on California residential property
compared to 63% in 2000 and in 1999. The five largest states, other than
California, for originations for the year ended December 31, 2001, were Florida,
Texas, Colorado, New Jersey, and Washington with a combined total of 16% of
total originations. The percentage of loans originated in California has
remained consistently high during the three years under discussion due to the
strong California real estate market. The percentage of the total loan portfolio
(including MBS with recourse and MBS-REMICs) that is comprised of residential
loans in California was 64% in 2001 compared to 63% in 2000 and 64% in 1999. Of
the 64% in 2001, 52.5% were in Northern California and 47.5% were in Southern
California.
Federal regulations permit federally chartered savings banks to make or
purchase both fixed-rate loans and loans with periodic adjustments to the
interest rate. These latter types of loans are subject to the following primary
limitations: (i) the adjustments must be based on changes in a specified
interest rate index, which may be selected by the savings bank but which must be
readily available to, and independently verifiable by, the borrower; and (ii)
adjustments to the interest rate may be implemented through changes in the
monthly payment amount and/or adjustment to the outstanding principal balance or
term.
Pursuant to the aforementioned powers, the Company offers adjustable
rate mortgages, and this type of mortgage is the Company's primary real estate
loan. The portion of the mortgage portfolio
12
(including MBS) composed of rate-sensitive loans (loans with interest rates tied
to indexes that periodically adjust, primarily COSI and COFI) was 94% at yearend
2001 compared to 95% at yearend 2000 and 93% at yearend 1999. The Company's ARM
originations constituted approximately 84% of new mortgage loans made in 2001,
compared with 96% in 2000 and 91% in 1999.
In 2001, 2000, and 1999, the Company originated ARMs tied primarily to
the Golden West Cost of Savings Index (COSI) and the Eleventh District Cost of
Funds Index (COFI).
The following table shows the distribution of ARM originations by index
for the years ended December 31, 2001, 2000, and 1999.
TABLE 11
Adjustable Rate Mortgage Originations by Index
(Dollars in Thousands)
ARM Index 2001 2000 1999
---------------- ------------ ----------- ------------
COSI $7,064,962 $12,872,834 $7,996,477
COFI 9,813,174 5,701,413 3,264,773
Other 554,390 470,171 270,651
------------ ----------- ------------
$17,432,526 $19,044,418 $11,531,901
============ =========== ============
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at December 31.
TABLE 12
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS with Recourse and ARM MBS-REMICs)
(Dollars in Thousands)
ARM Index 2001 2000 1999
---------------- ------------ ----------- ------------
COSI $ 20,943,596 $20,460,242 $ 9,182,829
COFI 29,010,008 27,405,401 26,217,670
Other 1,840,796 1,640,010 1,419,011
------------ ----------- ------------
$ 51,794,400 $49,505,653 $ 36,819,510
============ =========== ============
Most of the Company's ARMs carry an interest rate that changes monthly
based on movements in certain indexes. The Company also offers a "modified" ARM,
a loan that offers an introductory rate generally below the initial fully
indexed contract rate for a specified period, normally one to 12 months.
However, the borrower must qualify at the initial fully indexed contract rate.
During the life of the 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
ARMs swapped into MBS and MBS-REMICs before any reduction for loan servicing
fees) was 12.21%, or 5.77% above the actual weighted
13
average rate at December 31, 2001, versus 12.28%, or 4.17% above the weighted
average rate at yearend 2000.
The following table shows the Company's ARM loans by lifetime cap bands
as of December 31, 2001.
TABLE 13
Adjustable Rate Mortgage Portfolio by Lifetime Cap Bands
December 31, 2001
(Dollars in Thousands)
ARM Number % of Total
Cap Bands Balance of Loans Balance
--------------------- -------------- ------------ ----------
Less than 9.00% $ 9,900 54 .0%
9.00% - 9.49% 383 2 .0%
9.50% - 9.99% 571 5 .0%
10.00% - 10.49% 1,277 10 .0%
10.50% - 10.99% 6,508 39 .0%
11.00% - 11.49% 104,678 751 .2%
11.50% - 11.99% 38,513,734 205,916 74.4%
12.00% - 12.49% 4,398,808 31,911 8.5%
12.50% - 12.99% 5,146,130 24,060 9.9%
13.00% - 13.49% 336,334 1,775 .7%
13.50% - 13.99% 1,007,852 7,528 2.0%
14.00% or greater 1,937,116 13,953 3.7%
No Cap 331,109 9,760 .6%
-------------- ------------ -----------
Total $ 51,794,400 295,764 100.0%
============== ============ ===========
Approximately $5.0 billion of the Company's ARMs (including MBS with
recourse and MBS-REMICs) have terms that state that the interest rate may not
fall below a lifetime floor, set at the time of origination or assumption. As of
December 31, 2001, $560 million of ARM loans had reached their rate floors
compared with $144 million at December 31, 2000. The weighted average floor rate
on the loans that had reached their floor was 7.15% at yearend 2001 compared to
8.01% at yearend 2000. Without the floor, the average rate on these loans would
have been 5.91% at December 31, 2001 and 7.80% at December 31, 2000.
On most of the Company's ARMs, monthly payments of principal and
interest are adjusted annually with a maximum increase or decrease of 7-1/2% of
the prior year's payment. If the contractual payment is not large enough to
cover the interest due on the loan, within parameters contained in the mortgage,
the customer has the option of paying the portion of interest not covered by the
payment or adding the interest to the balance of the loan. The portion of
interest not covered by the payment that is added to the balance of the loan is
referred to as negative amortization or deferred interest. At five-year
intervals beginning in the sixth or eleventh year, the payment may be adjusted
without limit to amortize the loan fully within the then-remaining term. Within
these five-year periods, negative amortization may occur to the extent that the
loan balance remains below 125% of the original mortgage amount, unless the
original loan to value ratio exceeded 85%, in which case the loan balance cannot
exceed 110% of the original mortgage amount.
14
On certain other ARMs, the payment and interest rate may change every
six months, with the maximum rate per change capped at one percent. These ARMs
do not allow negative amortization and, consequently, do not have the 7-1/2%
payment change limitation.
Interest rates set at the time of origination by the Company on real
estate loans are affected principally by competition, and also by the supply of
money available for lending, loan demand, and factors that are, in turn,
affected by general economic conditions, regulatory and monetary policies of the
federal government, the OTS and the Federal Reserve Board, and legislation and
other governmental action dealing with budgetary and tax matters.
The Company originates loans through offices that are staffed by
employees who primarily contact local real estate brokers, mortgage brokers, and
consumers regarding possible lending opportunities. In addition, customers may
also apply for home loans on line at www.worldsavings.com. The Company's loan
--------------------
approval process is intended to assess both the borrower's ability to repay the
loan and the adequacy of the proposed security. Documentation for all loans is
maintained in the Company's loan servicing offices in San Antonio, Texas.
The Company generally lends up to 80% of the appraised value of
residential real property. 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 Company takes steps to reduce the potential credit risk with
respect to loans with a loan to value (LTV) over 80%. Among other things, the
loan amount may not exceed 95% of the appraised value of a single-family
residence. Also, some 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 $184 million, $198 million,
and $99 million in 2001, 2000 and 1999, respectively. In addition, the Company
carries pool mortgage insurance on most seconds not sold. The cumulative losses
covered by this pool mortgage insurance are limited to 10% or 20% of the
original balance of the insured pool.
15
The following table shows mortgage originations with LTV ratios or
combined LTV ratios greater than 80% for the years ended December 31, 2001,
2000, and 1999.
TABLE 14
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater than 80%
(Dollars in Thousands)
For the Year Ended
December 31
---------------------------------------------
2001 2000 1999
------------- ----------- -----------
First mortgages with loan to value ratios
greater than 80%:
With mortgage insurance $ 225,464 $ 124,066 $ 98,141
With no mortgage insurance 123,387 229,397 233,212
------------- ----------- -----------
348,851 353,463 331,353
------------- ----------- -----------
First and second mortgages with combined
loan to value ratios greater than 80%:
With pool insurance on second mortgages 1,354,754 2,549,049 1,092,778
With no pool insurance 911,214 924,538 936,724
------------- ----------- -----------
2,265,968 3,473,587 2,029,502
------------- ----------- -----------
Total $ 2,614,819 $ 3,827,050 $ 2,360,855
============= =========== ===========
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at December 31, 2001, 2000,
and 1999.
TABLE 15
Balance of Mortgages With Loan to Value and
Combined Loan to Value Ratios Greater than 80%
(Dollars in Thousands)
As of December 31
---------------------------------------------
2001 2000 1999
------------- ----------- -----------
First mortgages with loan to value ratios
greater than 80%:
With mortgage insurance $ 431,498 $ 388,625 $ 393,580
With no mortgage insurance 548,507 823,864 844,847
------------- ----------- -----------
980,005 1,212,489 1,238,427
------------- ----------- -----------
First and second mortgages with combined
loan to value ratios greater than 80%:
With pool insurance on second mortgages 2,396,954 2,193,990 1,131,357
With no pool insurance 454,289 722,703 308,650
------------- ----------- -----------
2,851,243 2,916,693 1,440,007
------------- ----------- -----------
Total $ 3,831,248 $ 4,129,182 $ 2,678,434
============= =========== ===========
The Company requires title insurance for all mortgage loans and
requires that fire and casualty insurance be maintained on all improved
properties that are security for its loans. The
16
original contractual loan payment period for residential loans normally ranges
from 15 to 40 years with most loans having original terms of 30 years. However,
the majority of these loans remain outstanding for a shorter period of time.
To generate income and to provide additional funds for lending and
liquidity, the Company sells first mortgages to the Federal National Mortgage
Association without recourse. The Company also sells first mortgages to FNMA
with recourse, for which a recourse liability is provided. The Company continues
to collect payments on the loans sold to FNMA as they become due, and otherwise
to service the loans. The Company pays an agreed-upon yield on FNMA's portion of
the loans. This yield is usually less than the interest agreed to be paid by the
borrower, with the difference being retained by the Company as servicing fee
income. The Company also sells second mortgages without recourse privately on a
servicing released basis and to FNMA on a servicing retained basis.
First mortgages originated for sale were $2.2 billion, $114 million,
and $626 million for the years ended December 31, 2001, 2000, and 1999,
respectively. The increase in loans originated for sale in 2001 as compared to
2000 was due to an increase in fixed-rate mortgage originations. The reduction
in loans originated for sale in 2000 as compared to 1999 was attributable to the
decrease in fixed-rate originations. During 2001, 2000, and 1999, $465 million,
$29 million, and $522 million, respectively, of loans were converted at the
customer's request from adjustable rate to fixed-rate. The Company continues to
sell most of its new and converted fixed-rate loans. The Company sold $2.7
billion, $152 million, and $1.1 billion of fixed-rate first mortgage loans
during 2001, 2000, and 1999, respectively. The Company recognized pre-tax gains
on the sale of loans of $43 million in 2001 compared to $10 million in 2000 and
$22 million in 1999. Included in the gains in 2001, 2000, and 1999 was $42
million, $3 million, and $21 million, respectively, due to the capitalization of
mortgage servicing rights (see page 18 for further information). At December 31,
2001, the loans held for sale portfolio had a balance of $429 million, all of
which are carried at the lower of cost or market. At December 31, 2001, the
balance of loans sold with recourse was $2.8 billion.
In addition to the loan portfolio (including MBS with recourse and
MBS-REMICs), the Company was engaged in servicing approximately $4.8 billion of
loan participations and whole loans for others at December 31, 2001. For each of
the years ended December 31, 2001, 2000, and 1999, fees received for such
servicing activities totaled $35 million, $28 million and $21 million,
respectively.
Loan repayments consist of monthly loan amortization and loan payoffs.
During 2001, 2000, and 1999, loan repayments (excluding MBS) amounted to $9.2
billion, $4.5 billion, and $4.9 billion, respectively. The increase in
repayments in 2001 was due to an increase in loan prepayments. The decrease in
repayments in 2000 was due to a decrease in loan payoffs and due to the
securitization of loans into MBS.
In addition to interest earned on loans, the Company receives points
and fees for originating loans. The income represented by such fees varies with
the volume and types of loans made. In 2001, 2000, and 1999, the Company
responded to competition by offering more adjustable rate mortgage options to
its customers with no or low points. The Company also charges fees for loan
prepayments, loan assumptions and modifications, late payments, and other
miscellaneous services.
17
The following table sets forth information relating to interest rates and
loan points charged for the years indicated.
TABLE 16
Weighted Average Interest Rates and Points on New Loan Originations/(a)/
2001 2000 1999 1998 1997
--------- -------- --------- -------- ---------
Fully-indexed weighted average interest rate on
new real estate loans originated 7.72% 8.24% 7.60% 7.72% 7.59%
Current weighted average interest rate on new
real estate loans originated/(b)/ 5.59% 6.18% 5.97% 6.20% 6.42%
Weighted average points received on new real
estate loans originated .20% .10% .16% .26% .18%
/(a)/ Excludes loans purchased.
/(b)/ The current rate reflects the introductory rate on new loans being paid by
the borrower.
If a borrower fails to make required payments on a loan, the Company
takes steps required under applicable law to foreclose upon the security for the
loan. If a delinquency is not cured, the property is generally acquired by the
Company in a foreclosure sale or by taking a deed in lieu of foreclosure. If the
applicable period of redemption by the borrower (which varies from state to
state and by method of foreclosure pursued) has expired, the Company is free to
sell the property. The property may then be sold generally with a loan
conforming to normal loan requirements, or with a "loan to facilitate sale"
which is so designated if the loan involves terms more favorable to the borrower
than those normally permitted.
Various antideficiency and homeowner protective provisions of state
law may limit the remedies available to lenders when a purchase money
residential mortgage borrower is in default. The effect of these provisions, in
most cases, is to limit the Company to foreclosing upon, or otherwise obtaining
ownership of, the property securing the loan after default and to prevent the
Company from recovering from the borrower any deficiency between the amount
realized from the sale of the property and the amount owed by the borrower.
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 years
ended 2001, 2000, and 1999.
TABLE 17
Capitalized Mortgage Servicing Rights
(Dollars in Thousands)
2001 2000 1999
-------- -------- --------
Beginning balance of capitalized mortgage servicing rights $ 28,355 $ 37,295 $ 28,635
New capitalized mortgage servicing rights from loan sales 41,587 3,404 20,556
Amortization of capitalized mortgage servicing rights (13,886) (12,344) (11,896)
-------- -------- --------
Ending balance of capitalized mortgage servicing rights $ 56,056 $ 28,355 $ 37,295
======== ======== ========
18
The book value of the Company's servicing rights did not exceed the
fair value at December 31, 2001, 2000, or 1999 and, therefore, no write-down of
the servicing rights to their fair value was necessary.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) to total assets.
Nonperforming assets include nonaccrual loans (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 nonaccrual loans. The Company's troubled debt
restructured (TDRs) are made up of loans on which delinquent payments have been
capitalized or on which temporary interest rate reductions have been made,
primarily to customers negatively impacted by adverse economic conditions.
The following table sets forth the components of the Company's NPAs and
TDRs and the various ratios to total assets at December 31.
TABLE 18
Nonperforming Assets and Troubled Debt Restructured
(Dollars in Thousands)
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Non-accrual loans $382,510 $231,155 $225,409 $262,332 $317,550
Real estate acquired through foreclosure 10,177 8,061 10,840 42,572 61,517
Real estate in judgment 924 200 69 74 67
-------- -------- -------- -------- --------
Total nonperforming assets $393,611 $239,416 $236,318 $304,978 $379,134
======== ======== ======== ======== ========
TDRs, net of interest reserve $ 1,505 $ 1,933 $ 10,542 $ 22,774 $ 43,795
======== ======== ======== ======== ========
Ratio of NPAs to total assets .67% .43% .56% .79% .96%
======== ======== ======== ======== ========
Ratio of TDRs to total assets .00% .00% .03% .06% .11%
======== ======== ======== ======== ========
Ratio of NPAs and TDRs to total assets .67% .43% .59% .85% 1.07%
======== ======== ======== ======== ========
NPAs at yearend 2001 reflected the normal increase in delinquencies
associated with the aging of the large volume of mortgages originated during the
past two years together with the general recessionary economic trends of the
U.S. economy. The lower level of NPAs during 2000 and 1999 reflected the strong
economy and housing market in those years. The Company closely monitors all
delinquencies and takes appropriate steps to protect its interests. Interest
foregone on non-accrual loans (loans 90 days or more past due) amounted to $10
million in 2001, $4 million in 2000, and $4 million in 1999.
The Company's TDRs were $1 million or .00% of assets at December 31,
2001 compared to $2 million or .00% of assets at December 31, 2000, and $11
million or .03% of assets at yearend 1999. Interest foregone on TDRs amounted to
$46 thousand in 2001 compared to $181 thousand in 2000 and $446 thousand in
1999.
The tables on the following page show the Company's nonperforming
assets by state at December 31, 2001 and 2000.
19
TABLE 19
Nonperforming Assets by State
December 31, 2001
(Dollars in Thousands)
Non-Accrual Loans/(a)/ 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/(b)/ Loans
- ---------------------- --------- ------- ------------- ------- ------- ---------- ---------- -----------
Northern California $ 71,038 $ 496 $ 103 $ 55 $ -0- $ -0- $ 71,692 .39%
Southern California 131,975 707 611 2,399 -0- -0- 135,692 .81
Florida 32,674 -0- 23 590 -0- -0- 33,287 1.19
Texas 17,713 -0- -0- 1,795 -0- -0- 19,508 .87
New Jersey 16,663 -0- -0- 484 -0- -0- 17,147 .86
Washington 10,427 421 -0- 317 -0- -0- 11,165 .64
Illinois 16,507 -0- -0- 512 215 -0- 17,234 1.13
Colorado 3,445 -0- -0- -0- -0- -0- 3,445 .24
Arizona 6,170 -0- 13 308 -0- -0- 6,491 .64
Pennsylvania 13,524 -0- -0- 608 -0- -0- 14,132 1.39
Other/(c)/ 59,702 298 -0- 4,135 -0- -0- 64,135 1.11
---------- ------- ------------- -------- ------- --------- ---------- ----------
Totals $ 379,838 $1,922 $ 750 $ 11,203 $ 215 $ -0- 393,928 .72
========== ======= ============= ======== ======= =========
FRE general valuation allowance (317) (.00)
---------- ----------
Total nonperforming assets $ 393,611 .72%
========== ==========
(a) Non-accrual loans are 90 days or more past due and have no unpaid
interest accrued.
(b) The December 31, 2001 balances include loans that were securitized into
FNMA MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
TABLE 20
Nonperforming Assets by State
December 31, 2000
(Dollars in Thousands)
Non-Accrual Loans/(a)/ Foreclosed Real Estate
------------------------------------ ------------------------------
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/(b)/ Loans
- ---------------------- --------- ------- ------------ ------- ------- ---------- ---------- -----------
Northern California $ 40,954 $ -0- $ 240 $ 256 $ -0- $ -0- $ 41,450 .25 %
Southern California 73,665 333 570 1,541 -0- -0- 76,109 .47
Florida 22,438 -0- 26 283 -0- 73 22,820 .90
Texas 11,147 -0- -0- 586 -0- -0- 11,733 .55
New Jersey 16,169 -0- 45 447 -0- 188 16,849 .86
Washington 3,766 298 -0- 113 -0- -0- 4,177 .25
Illinois 11,118 216 -0- 384 -0- -0- 11,718 .71
Colorado 1,190 -0- -0- -0- -0- -0- 1,190 .08
Arizona 3,652 -0- -0- 657 -0- -0- 4,309 .40
Pennsylvania 12,919 -0- -0- 1,268 -0- -0- 14,187 1.33
Other/(c)/ 32,276 133 -0- 2,187 -0- 488 35,084 .62
--------- -------- ------------- -------- ------- ---------- ----------- ---------
Totals $229,294 $ 980 $ 881 $ 7,722 $ -0- $ 749 239,626 .46
========= ======== ============= ======== ======= ==========
FRE general valuation allowance (210) (.00)
---------- ---------
Total nonperforming assets $ 239,416 .46 %
========== =========
(a) Non-accrual loans are 90 days or more past due and have no unpaid
interest accrued.
(b) The December 31, 2000 balances include loans that were securitized into
FNMA MBS and MBS-REMICs.
(c) Includes states with loans less than 2% of total loans.
20
A risk profile of loans, including securitized loans, is displayed by
components in the following table as of December 31, 2001:
TABLE 21
Risk Profile of Loans and Securitized Loans
December 31, 2001
(Dollars in Thousands)
Residential
Real Estate Commercial
1 - 4 5+ Real Estate Total
------------ ----------- ------------- -------------
Nonaccural loans $ 379,838 $ 1,922 $ 750 $ 382,510
Loans 30 to 89 days past due 757,252 2,771 -0- 760,023
Loans performing under
bankruptcy protection 167,836 726 132 168,694
Troubled debt restructured -0- 1,582 -0- 1,582
Other impaired loans 371 7,525 3,329 11,225
Performing loans not
otherwise classified 37,225,286 2,752,595 24,938 40,002,819
Securitized loans not
otherwise classified 11,618,044 1,747,518 167 13,365,729
------------ ----------- ------------ -------------
Totals gross loans $ 50,148,627 $ 4,514,639 $ 29,316 54,692,582
============ =========== ============
Deferred loan costs 195,245
Loan discount on purchased loans (1,063)
Undisbursed loan funds (7,171)
Allowance for loan losses (261,013)
LTF interest reserve (182)
TDR interest reserve (76)
Loans on deposits 16,672
-------------
Total loan portfolio and loans securitized into FNMA MBS
with recourse and MBS-REMICs $ 54,634,994
=============
The Company provides specific valuation allowances for losses on
loans when impaired and a write-down on foreclosed real estate when any
significant and permanent decline in value is identified. The Company also
utilizes a methodology for monitoring and estimating probable loan losses that
is based on both the Company's historical loss experience in the loan portfolio
and factors reflecting current economic conditions. This approach uses a
database that identifies losses on loans and foreclosed real estate from past
years to the present, broken down by year of origination, type of loan, and
geographical area. Based on these historical analyses, management is then able
to estimate a range of general loss allowances by type of loan and risk category
to cover losses inherent 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, specific and general 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 by management. The review methodology and
historical analyses are reconsidered quarterly.
21
The table below shows the changes in the allowance for loan losses
for the years indicated.
TABLE 22
Changes in Allowance for Loan Losses
(Dollars in Thousands)
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Beginning allowance for loan losses $ 236,708 $ 232,134 $ 244,466 $ 233,280 $ 195,702
Provision for (recovery of) loan losses
charged to expense 22,265 9,195 (2,089) 11,260 57,609
Transfer of allowance from (to) reserve for
losses on loans sold or securitized and retained 4,114 (4,470) (12,043) -0- -0-
Less loans charged off (2,425) (623) -0- (1,387) (20,818)
Add recoveries 351 472 1,800 1,313 787
--------- --------- --------- --------- ---------
Ending allowance for loan losses $ 261,013 $ 236,708 $ 232,134 $ 244,466 $ 233,280
========= ========= ========= ========= =========
Ratio of net chargeoffs to average loans
outstanding (including MBS with
recourse and MBS-REMICs) .00% .00% (.01)% .00% .06%
========= ========= ========= ========= =========
Ratio of allowance for loan losses to
nonperforming assets 66.3% 98.9% 98.2% 80.2% 61.5%
========= ========= ========= ========= =========
Net chargeoffs were slightly higher in 2001 due to an increase in
nonperforming loans and the recessionary economy. Net chargeoffs were minimal
for the years ended 2000 and 1999 primarily due to the then strong economy and
housing market,.
The table below shows the composition of the allowance for loan losses
at December 31.
TABLE 23
Composition of Allowance for Loan Losses
(Dollars in Thousands)
2001 2000 1999 1998 1997
--------- ---------- ---------- --------- ----------
Real Estate
1 to 4 units
General $ 240,135 $ 213,507 $ 200,499 $ 184,357 $ 178,615
Specific -0- -0- 369 363 445
--------- ---------- ---------- --------- ----------
240,135 213,507 200,868 184,720 179,060
--------- ---------- ---------- --------- ----------
5+ units and commercial
General 18,166 19,165 22,192 41,700 34,817
Specific 2,712 4,036 9,074 18,046 19,403
--------- ---------- ---------- --------- ----------
20,878 23,201 31,266 59,746 54,220
--------- ---------- ---------- --------- ----------
Total $ 261,013 $ 236,708 $ 232,134 $ 244,466 $ 233,280
========= ========== ========== ========= ==========
Ratio of allowance for loan losses
to total loans (including MBS with
recourse and MBS-REMICs) .48% .46% .59% .70% .64%
========= ========== ========== ========= ==========
The increase in the allowance account during 2001 reflected the
increase in NPAs and the recessionary economy. The impact of the favorable
economy and housing environment during 2000 and 1999 is reflected in the
components of the allowance account. The general loss allowances on one-to-
22
four unit single-family real estate loans increased from $200 million at
December 31, 1999 to $240 million at December 31, 2001 as a result of the
increase in the total loan portfolio and the weakening economic conditions in
2001.
Investment Activities
The Company classifies its investment securities as either held to
maturity or available for sale. The Company has no trading securities.
Securities held to maturity are recorded at cost with any discount or premium
amortized using the interest method. Securities held to maturity are recorded at
cost because the Company has the ability and intent to hold these securities to
maturity. Securities available for sale are reported at fair value. Net
unrealized gains and losses are excluded from earnings and reported net of
applicable income taxes in other comprehensive income and as a separate
component of stockholders' equity until realized. Realized gains or losses on
sales of securities are 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. In 2000 and 1999, the Company had Other Investments, which were
recorded at cost with any discount or premium amortized using a method that is
not materially different from the interest method. The Company had no Other
Investments outstanding at December 31, 2001.
The table below sets forth the composition of the Company's securities
available for sale at December 31.
TABLE 24
Composition of Securities Available for Sale
(Dollars in Thousands)
2001 2000 1999
--------- --------- ---------
Equity securities $ 367,548 $ 387,077 $ 264,491
U.S. Treasury and Government agency obligations 4,999 5,009 6,344
Collateralized mortgage obligations 726 755 787
Certificate of deposit -0- -0- 4,996
Commercial paper -0- -0- 19,818
Medium-term notes -0- -0- 23,008
Federal funds 49,397 -0- -0-
Eurodollar time deposits 200,000 -0- -0-
--------- --------- ---------
$ 622,670 $ 392,841 $ 319,444
========= ========= =========
Included in the balances above are net unrealized gains on investment
securities available for sale of $362 million, $382 million, and $260 million at
December 31, 2001, 2000, and 1999, respectively. The cost basis of the
securities available for sale portfolio at December 31, 2001, 2000, and 1999 was
$260 million, $11 million, and $59 million, respectively, and had weighted
average yields (based on cost) of 2.86%, 38.31%, and 12.78% at December 31,
2001, 2000, and 1999, respectively. The yields in 2000 and 1999 primarily
reflect the effect of the high yield on the Federal Home Loan Mortgage
Corporation stock because of its low cost basis.
23
The table below sets forth the composition of the Company's Other
Investments at December 31.
TABLE 25
Composition of Other Investments
(Dollars in Thousands)
2000 1999
--------- ---------
Overnight Investments:
Federal funds $ 318,736 $ 88,510
Eurodollar time deposits 40,000 197,000
Longer-Term Investments:
Bank notes -0- 25,000
Collateralized mortgage obligations 9,819 114,637
Medium-term notes -0- 42,009
--------- ---------
$ 368,555 $ 467,156
========= =========
At December 31, 2001, the Company had no Other Investments outstanding.
The weighted average yields on the Other Investments portfolio were 6.21% and
5.00% at December 31, 2000 and 1999. There were no sales of other investments
during 2001, 2000, or 1999.
Stockholders' Equity
The Company's stockholders' equity increased by $597 million during
2001 as a result of net earnings partially offset by decreased market values of
securities available for sale, the $186 million cost of the repurchase of
Company stock, and the payment of quarterly dividends to stockholders. The
Company's stockholders' equity increased by $492 million during 2000 as a result
of net earnings and increased market values of securities available for sale
partially offset by the $109 million cost of the repurchase of Company stock and
the payment of quarterly dividends to stockholders. The Company's stockholders'
equity increased by $71 million during 1999 as a result of earnings offset by
the $345 million cost of the repurchase of Company stock, decreased market
values of securities available for sale, and the payment of quarterly dividends
to stockholders.
In November 1999, the Company acted to effect a three-for-one split of
its outstanding Common Stock in the form of a 200% stock dividend. This dividend
was payable December 10, 1999, to holders of record at the close of business on
November 15, 1999. Per share amounts in this 10-K filing have been restated to
reflect this stock dividend unless otherwise noted.
Since 1993, through five separate actions, the Company's Board of
Directors has authorized the purchase by the Company of up to 60.6 million
shares of Golden West's common stock. As of December 31, 2001, 46.6 million
shares had been repurchased and retired at a cost of $1.1 billion since October
28, 1993, including 3.7 million shares purchased and retired at a cost of $186
million during 2001. Dividends from the Company's subsidiaries are expected to
continue to be the major source of funding for the stock repurchase program. The
purchase of Golden West stock is not intended to have a material impact on the
normal liquidity of the Company.
24
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as amended,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted SFAS 133 as of January 1,
2001 and recorded a loss of $10 million before tax, or $6 million after tax.
Because the Company has decided not to use permitted hedge accounting for the
derivative financial instruments in portfolio on December 31, 2001, the changes
in fair value of these instruments since adoption are reflected in the
Consolidated Statement of Net Earnings as "Change in Fair Value of Derivatives."
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions. This statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. Because the Company retains 100%
of the beneficial interests in its REMIC securitizations, it does not have any
effective "retained interests" requiring disclosure under SFAS 140. In
accordance with SFAS 140, the Company's securitizations after March 31, 2001
resulted in securities classified as securitized loans and being recorded as
loans receivable.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standards No.142, "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
142 provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives will not be amortized,
but will rather be tested at least annually for impairment. The Company does not
expect the adoption of SFAS 142 for its fiscal year beginning January 1, 2002 to
have a material effect on its financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development, and the normal operation
of a long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. This Statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of this statement to have a material
impact on its financial statements and results of operations.
25
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions. In addition, this
statement resolves implementation issues of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company does not expect the adoption of this statement to have a
material impact on its financial statements and results of operations.
Uses of Estimates
Golden West's financial statements are prepared in accordance with
generally accepted accounting principles (GAAP). Most of Golden West's assets,
liabilities, revenues, and expenses are reported using actual results for the
reporting period. However, GAAP requires that certain assets, liabilities,
revenues, and expenses be reported using estimates of fair value that are based
on a variety of assumptions, including such items as future interest rate levels
and repayment rates. As a consequence, assets, liabilities, revenues, and
expenses reported using fair value estimates may fluctuate from one reporting
period to the next because of changes in the business environment that lead to
revisions to the assumptions underlying the fair value calculations.
The following is a discussion of the most critical accounting policies
involving the use of estimates.
As of December 31, 2001, Golden West's Consolidated Statement of
Financial Condition reflected fair value estimates for equity and debt
securities available for sale and for purchased mortgage-backed securities
available for sale as follows. Equity securities available for sale amounted to
$368 million and $387 million at yearend 2001 and 2000, respectively, compared
with amortized costs of $6 million at yearends 2001 and 2000. Debt securities
available for sale amounted to $255 million and $6 million at yearend 2001 and
2000, respectively, compared with amortized costs of $255 million and $5 million
at yearends 2001 and 2000, respectively. Purchased mortgage-backed securities
available for sale amounted to $233 million and $70 million at yearend 2001 and
2000, respectively, compared with amortized costs of $232 million and $69
million at yearend 2001 and 2000, respectively.
For the year ended December 31, 2001, Golden West's Consolidated
Statement of Net Earnings reflected fair value estimates for the Company's
interest rate swap portfolio, amounting to a pre-tax loss of $9.7 million as
seen in "Change in Fair Value of Derivatives." In addition, upon the adoption of
SFAS 133 on January 1, 2001, Golden West reported a one-time pre-tax charge of
$10 million associated with the initial valuation of the Company's interest rate
swap portfolio. For the year ended December 31, 2001, these fair value changes
related to SFAS 133 were the principal fair value items affecting Golden West's
earnings.
Additionally, pursuant to GAAP, Golden West establishes Capitalized
Mortgage Servicing Rights when the Company sells mortgage loans and retains the
servicing for them. The Company periodically reviews the CMSRs for impairment
based on fair value. Golden West's CMSRs have never experienced impairment.
Golden West's CMSR balances amounted to $56 million and $28 million at yearend
2001 and 2000, respectively.
As discussed on page 21, the Company has a methodology of estimating
probable loan losses.
26
Earnings Per Share (EPS)
The Company reported Basic EPS of $5.18 (before the cumulative effect
of the accounting change) for the year ended December 31, 2001, compared to
$3.44 and $2.90 for the years ended December 31, 2000 and 1999, respectively.
The Company reported Diluted EPS of $5.11 (before the cumulative effect of the
accounting change) for the year ended December 31, 2001 as compared to $3.41 and
$2.87 for the years ended December 31, 2000 and 1999, respectively.
Yield on Interest-Earning Assets/Cost of Funds
Information regarding the Company's yield on interest-earning assets
and cost of funds at December 31, 2001, 2000, and 1999 is contained in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and is incorporated herein by reference.
The gap table and related discussion included in Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations, gives
information on the repricing characteristics of the Company's interest-earning
assets and interest-bearing liabilities at December 31, 2001, and is
incorporated herein by reference.
The dollar amounts of the Company's income and interest expense
fluctuate depending both on changes in the respective interest rates and on
changes in the respective amounts (volume) of interest-earning assets and
interest-bearing liabilities. The following table sets forth certain information
with respect to the yields earned and rates paid on the Company's
interest-earning assets and interest-bearing liabilities.
27
TABLE 26
Average Interest-Earning Assets and Interest-Bearing Liabilities
At and for the Years Ended December 31
(Dollars in Thousands)
2001 2000 1999
----------------------------- -------------------------------- --------------------------------
End of End of End of
Average Average Period Average Average Period Average Average Period
Balances Yield Yield Balances Yield Yield Balances Yield Yield
----------- --------- ------- ----------- --------- -------- ----------- --------- --------
ASSETS
Investment securities $ 3,200,407 4.30% 2.86% $ 2,966,636 6.61% 7.12% $ 3,207,032 5.35% 5.88%
Mortgage-backed securities 17,264,807 7.39 6.35 14,040,134 7.64 7.98 10,896,831 7.06 7.17
Loans receivable(a) 36,566,720 7.49 6.39 31,970,102 7.73 8.05 25,638,530 7.22 7.16
Invest. in capital stock
of FHLBs 1,084,383 5.10 3.51 788,306 7.40 6.53 617,280 5.39 5.51
----------- --------- ----------- --------- ------------ ---------
Interest-earning assets $58,116,317 7.24% $49,765,178 7.63% $40,359,673 7.00%
=========== ========= =========== ========= ============ =========
LIABILITIES
Deposits:
Checking accounts $ 122,451 2.56% 1.33% $ 134,424 2.19% 2.91% $ 110,394 2.20 3.06%
Savings accounts 9,317,765 3.28 2.50 8,376,899 3.82 3.66 9,888,073 3.93 3.92
Term accounts 23,220,480 5.23 3.99 20,622,941 5.68 6.10 17,419,254 4.94 5.12
----------- --------- -------- ----------- --------- -------- ------------ --------- --------
Total deposits 32,660,696 4.66 3.39 29,134,264 5.13 5.52 27,417,721 4.56 4.69
Advances from FHLBs 18,738,987 4.70 2.55 15,087,379 6.37 6.65 6,978,289 5.45 5.64
Reverse repurchases 917,287 4.59 1.96 1,399,580 6.18 6.56 1,189,604 5.18 5.46
Other borrowings 2,949,185 4.54 6.81 1,462,410 7.08 7.17 2,123,766 6.13 7.63
----------- --------- ----------- --------- ------------ ---------
Interest-bearing
liabilities $55,266,155 4.67% $47,083,633 5.62% $37,709,380 4.83%
=========== ========= =========== ========= ============ =========
Average net interest spread 2.57% 2.01% 2.17%
========= ========= =========
Net interest income $ 1,631,332 $ 1,151,168 $ 1,003,485
=========== =========== ============
Net yield on average
interest-earning assets 2.81% 2.31% 2.48%
========= ========= =========
(a) Includes nonaccrual loans (90 days or more past due).
28
The table below presents the changes for 2001 and 2000 from the
respective preceding year of the interest income and expense associated with
each category of interest-bearing asset and liability as allocated to changes in
volume and changes in rates.
TABLE 27
Volume and Rate Analysis of Interest Income and Interest Expense
Years Ended December 31
(Dollars in Thousands)
Increase/(Decrease) in Income/Expense
Due to Changes in Volume and Rate/(a)/
---------------------------------------------------------------
2001 2000 1999 2001 versus 2000 2000 versus 1999
------------- ------------ ------------ ------------------------------- ------------------------------
Income/ Income/ Income/
Expense/(b)/ Expense/(b)/ Expense/(b)/ Volume Rate Total Volume Rate Total
------------ ------------ ------------ --------- ----------- -------- -------- -------- ---------
Interest Income
Investments $ 137,562 $ 196,092 $ 171,498 $ 17,024 $ (75,554) $(58,530) $(11,443) $ 36,037 $ 24,594
Mortgage-backed
securities 1,276,648 1,072,559 769,314 237,170 (33,081) 204,089 236,092 67,153 303,245
Loans receivable 2,740,101 2,469,556 1,851,790 341,651 (71,106) 270,545 482,109 135,657 617,766
Invest. in capital
stock of Federal
Home Loan Banks 55,301 58,333 33,243 (17,583) 14,551 (3,032) 10,677 14,413 25,090
---------- ------------ ------------
Total interest income 4,209,612 3,796,540 2,825,845
Interest Expense
Deposits
Checking accounts 3,132 2,946 2,433 (212) 398 186 527 (14) 513
Savings accounts 305,532 319,594 388,113 55,980 (70,042) (14,062) (57,911) (10,608) (68,519)
Term accounts 1,213,664 1,171,907 859,818 114,997 (73,240) 41,757 171,259 140,830 312,089
---------- ------------ ------------ --------- ----------- -------- -------- -------- --------
Total deposits 1,522,328 1,494,447 1,250,364 170,765 (142,884) 27,881 113,875 130,208 244,083
Advances from Federal
Home Loan Banks 879,842 960,824 380,189 947,060 (1,028,042) (80,982) 506,949 73,686 580,635
Securities sold under
agreements to repurchase 42,113 86,549 61,565 (25,428) (19,008) (44,436) 11,874 13,110 24,984
Other borrowings 133,997 103,552 130,242 47,017 (16,572) 30,445 (53,017) 26,327 (26,690)
---------- ------------ ------------ --------- ----------- -------- -------- -------- --------
Total interest expense 2,578,280 2,645,372 1,822,360
---------- ------------ ------------
Net interest income $1,631,332 $ 1,151,168 $ 1,003,485 $(561,152) $ 1,041,316 $480,164 $137,754 $ 9,929 $147,683
========== ============ ============ ========= =========== ======== ======== ======== ========
Net interest income
increase (decrease)
as a percentage of
average earning assets(c) (.96%) 1.79% .83% .28% .02% .30%
========= =========== ======== ======== ======== ========
/(a)/ The change in volume is calculated by multiplying the difference between
the average balance of the current year and the prior year by the prior
year's average yield. The change in rate is calculated by multiplying the
difference between the average yield of the current year and the prior
year by the prior year's average balance. The mixed changes in rate/volume
is calculated by multiplying the difference between the average balance of
the current year and the prior year by the difference between the average
yield of the current year and the prior year. This amount is then
allocated proportionately to the volume and rate changes calculated
previously.
/(b)/ The effects of interest rate swap activity have been included in income
and expense of the related assets and liabilities.
/(c)/ Includes nonaccrual loans (90 days or more past due).
Competition and Other Matters
The Company experiences strong competition in both attracting deposits and
making real estate loans. Competition for savings deposits has historically come
from money market mutual funds, other savings institutions, commercial banks,
and issuers of government and corporate debt securities. In addition,
traditional financial institutions have found themselves in competition with
other financial services entities, such as securities dealers, insurance
companies, credit unions, and others. The principal methods used by the Company
to attract deposits, in addition to the interest rates and terms offered,
29
include the offering of a variety of services and the convenience of office
locations and hours of public operation.
Competition in making real estate loans comes principally from other
savings institutions, mortgage banking companies, and commercial banks. Many of
the nation's largest savings institutions, mortgage banking companies, and
commercial banks are headquartered or have a significant number of branch
offices in the areas in which the Company competes. Changes in the government's
monetary, tax, or housing financing policies can also affect the ability of
lenders to compete profitably. The primary factors in competing for real estate
loans are interest rates, loan fee charges, underwriting standards, and the
quality of service to borrowers and their representatives. In addition, the
Company competes indirectly with government-sponsored enterprises, notably the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
Thrift Industry
The operations of the thrift industry are significantly influenced by
general economic conditions, by the related monetary and fiscal policies of the
federal government, and by the policies of financial institution regulatory
authorities. Deposit flows and costs of funds are impacted by interest rates on
competing investments and general market rates of interest. Lending and other
investment activities are affected by the demand for mortgage financing and for
consumer and other types of loans, which in turn are affected by the interest
rates at which such financing may be offered and other factors affecting the
supply of housing and the availability of funds.
Regulation
OFFICE OF THRIFT SUPERVISION. Because they are federally chartered savings
institutions, the principal regulator of both WSB and WTX is the OTS. Under
various regulations of the OTS, savings institutions are required, among other
things, to pay assessments to the OTS, maintain required regulatory capital,
maintain a satisfactory level of liquid assets, and to comply with various
limitations on loans to one borrower, equity investments, investments in real
estate, and investments in corporate debt securities that are not investment
grade and comply with regulations governing deposits and mortgage loans.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC administers two separate
deposit insurance funds, the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF). Each fund insures deposit accounts up to the
maximum amount permitted by law, currently $100,000 per insured depositor. The
BIF is a deposit insurance fund for commercial banks, federally chartered banks,
and some state chartered banks. The SAIF is a deposit insurance fund for most
savings associations. WSB is a member of the BIF, but a portion of WSB's
deposits are insured through the SAIF. At December 31, 2001, 10% of WSB's
deposits were SAIF insured. WTX's deposits are also insured by the FDIC and WTX
is a member of the BIF. As a result, WSB and WTX are subject to supervision,
regulation, and examination by the FDIC. FDIC insurance is required for all
federally chartered financial institutions such as WSB and WTX. Such BIF
insurance may be terminated by the FDIC under certain circumstances involving
violations of regulations or unsound practices.
During 1996, federal legislation was enacted to capitalize the SAIF in
order to bring it into parity with the FDIC's other insurance fund, the BIF. The
new law required members to pay a levy of $4.7 billion to bring the SAIF up to
the required reserve level of 1.25% of insured deposits, but lowered thrift
deposit insurance premiums for SAIF members starting in 1997. As a result of
this legislation, the Company incurred a one-time charge of $133 million during
1996. The premiums paid for the years
30
1997 through 1999 were adjusted quarterly and premiums paid in 2000 were
adjusted semi-annually. As of January 1, 2001, the premium paid by WSB and WTX
to the FDIC was $.196 per $1,000.
FEDERAL RESERVE BOARD. Federal Reserve Board regulations require financial
institutions to maintain noninterest-earning reserves against their checking
accounts. The balances maintained to meet the reserve requirements imposed by
the Federal Reserve Board may be used to satisfy liquidity requirements. WSB and
WTX are currently in compliance with all applicable Federal Reserve Board
reserve requirements.
Savings institutions have authority to borrow from the Federal Reserve Bank
but the Federal Reserve Board requires savings institutions to exhaust all FHLB
sources before borrowing from the relevant Federal Reserve Bank.
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, thrifts must
have tangible capital equal to at least 1.5% of adjusted total assets, core
capital equal to at least 4% of adjusted total assets, and risk-based capital
equal to at least 8% of risk-weighted assets.
The OTS and other bank regulatory agencies have adopted rules based upon
five capital tiers: well-capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. The rules
provide that a financial 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 December
31, 2001, 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.
31
At December 31, 2001 and 2000, WSB and WTX had the following regulatory
capital calculated in accordance with FIRREA's capital standards:
TABLE 28
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of December 31, 2001
(Dollars in Thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
--------------------- --------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio
----------- ------- ---------- ------ ----------- -------
WSB and Subsidiaries
- --------------------
Tangible $4,480,834 7.71% $ 871,198 1.50 % --- ---
Tier 1 (core or leverage) 4,480,834 7.71 2,323,194 4.00 $ 2,903,992 5.00 %
Tier 1 risk-based 4,480,834 13.20 --- --- 2,037,158 6.00
Total risk-based 4,836,208 14.24 2,716,210 8.00 3,395,263 10.00
WTX
- ---
Tangible $ 401,886 5.23% $ 115,211 1.50 % --- ---
Tier 1 (core or leverage) 401,886 5.23 307,229 4.00 $ 384,036 5.00 %
Tier 1 risk-based 401,886 25.04 --- --- 96,289 6.00
Total risk-based 402,025 25.05 128,385 8.00 160,481 10.00
TABLE 29
Regulatory Capital Ratios, Minimum Capital Requirements,
and Well-Capitalized Capital Requirements
As of December 31, 2000
(Dollars in Thousands)
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
--------------------- --------------------- -----------------------
Capital Ratio Capital Ratio Capital Ratio
---------- -------- ---------- ------- ---------- -------
WSB and Subsidiaries
- --------------------
Tangible $3,653,377 6.60 % $ 830,326 1.50 % --- ---
Tier 1 (core or leverage) 3,653,377 6.60 2,214,203 4.00 $2,767,753 5.00 %
Tier 1 risk-based 3,653,377 11.41 --- --- 1,921,670 6.00
Total risk-based 3,982,988 12.44 2,562,226 8.00 3,202,783 10.00
WTX
- ---
Tangible $ 288,409 5.34 % $ 80,982 1.50 % --- ---
Tier 1 (core or leverage) 288,409 5.34 215,951 4.00 $ 269,939 5.00 %
Tier 1 risk-based 288,409 26.69 --- --- 64,824 6.00
Total risk-based 288,410 26.69 86,432 8.00 108,039 10.00
32
The table below shows a reconciliation of WSB's equity capital to
regulatory capital at December 31, 2001.
TABLE 30
World Savings Bank, FSB and Subsidiaries
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
----------- ----------- ------------ ------------ ------------- ------------
Common stock $ 300
Paid-in surplus 2,145,764
Retained earnings 2,334,770
Unrealized gain on securities after tax 221,088
-----------
Equity capital $ 4,701,922 $ 4,701,922 $ 4,701,922 $ 4,701,922 $ 4,701,922 $ 4,701,922
===========
Direct investments (2,927)
Unrealized gain on securities after tax (221,088) (221,088) (221,088) (221,088) (221,088)
General valuation allowance 258,301
Qualifying subordinated debt 100,000
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 4,480,834 $ 4,480,834 $ 4,480,834 $ 4,480,834 $ 4,836,208
=========== =========== =========== =========== ===========
Total assets $58,377,834
===========
Adjusted total assets $58,079,843 $58,079,843 $58,079,843
=========== =========== ===========
Risk-weighted assets $33,952,627 $33,952,627
=========== ===========
CAPITAL RATIO - ACTUAL 8.05% 7.71% 7.71% 7.71% 13.20% 14.24%
=========== =========== ========== ========== =========== ==========
Regulatory Capital Ratio Requirements:
Well-capitalized, equal to
or greater than 5.00% 6.00% 10.00%
=========== =========== ==========
33
The table below shows a reconciliation of WSB's equity capital to
regulatory capital at December 31, 2000.
TABLE 31
World Savings Bank, FSB and Subsidiaries
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
------------ ------------ ------------ ------------ ------------ ------------
Common stock $ 300
Paid-in surplus 2,145,764
Retained earnings 1,507,313
Unrealized gain on securities after tax 232,328
-----------
Equity capital $ 3,885,705 $ 3,885,705 $ 3,885,705 $ 3,885,705 $ 3,885,705 $ 3,885,705
===========
Direct investments (3,060)
Unrealized gain on securities after tax (232,328) (232,328) (232,328) (232,328) (232,328)
General valuation allowance 232,671
Qualifying subordinated debt 100,000
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 3,653,377 $ 3,653,377 $ 3,653,377 $ 3,653,377 $ 3,982,988
=========== =========== =========== =========== ===========
Total assets $55,695,385
===========
Adjusted total assets $55,355,063 $55,355,063 $55,355,063
=========== -========== ===========
Risk-weighted assets $ 2,027,827 $32,027,827
=========== ===========
CAPITAL RATIO - ACTUAL 6.98% 6.60% 6.60% 6.60% 11.41% 12.44%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well-capitalized, equal to
or greater than 5.00% 6.00% 10.00%
=========== =========== ===========
34
The table below shows a reconciliation of WTX's equity capital to
regulatory capital at December 31, 2001.
TABLE 32
World Savings Bank, FSB (Texas)
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
---------- ----------- ------------ ------------ ------------ ------------
Common stock $ 150
Paid-in surplus 346,575
Retained earnings 55,161
----------
Equity capital $ 401,886 $ 401,886 $ 401,886 $ 401,886 $ 401,886 $ 401,886
==========
General valuation allowance 139
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 401,886 $ 401,886 $ 401,886 $ 401,886 $ 402,025
=========== =========== =========== =========== ===========
Total assets $7,680,360
==========
Adjusted total assets $7,680,727 $7,680,727 $7,680,727
=========== =========== ===========
Risk-weighted assets $1,604,811 $1,604,811
=========== ===========
CAPITAL RATIO - ACTUAL 5.23% 5.23% 5.23% 5.23% 25.04% 25.05%
========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well-capitalized, equal to
or greater than 5.00% 6.00% 10.00%
============= =========== ===========
35
The table below shows a reconciliation of WTX's equity capital to
regulatory capital at December 31, 2000.
TABLE 33
World Savings Bank, FSB (Texas)
Reconciliation of Equity Capital to Regulatory Capital
(Dollars in Thousands)
Core/ Tier 1 Total
Equity Tangible Tangible Leverage Risk-Based Risk-Based
Capital Capital Equity Capital Capital Capital
------------ ------------ ------------- ------------ ------------ ------------
Common stock $ 150
Paid-in surplus 241,575
Retained earnings 46,684
-----------
Equity capital $ 288,409 $ 288,409 $ 288,409 $ 288,409 $ 288,409 $ 288,409
===========
General valuation allowance 1
----------- ----------- ----------- ----------- -----------
Regulatory capital $ 288,409 $ 288,409 $ 288,409 $ 288,409 $ 288,410
=========== =========== =========== =========== ===========
Total assets $5,398,772
===========
Adjusted total assets $5,398,772 $5,398,772 $5,398,772
=========== =========== ===========
Risk-weighted assets $1,080,394 $1,080,394
=========== ===========
CAPITAL RATIO - ACTUAL 5.34% 5.34% 5.34% 5.34% 26.69% 26.69%
=========== =========== =========== =========== =========== ===========
Regulatory Capital Ratio Requirements:
Well-capitalized, equal to
or greater than 5.00% 6.00% 10.00%
============ =========== ===========
36
FEDERAL HOME LOAN BANK SYSTEM. The FHLB system functions in a credit
capacity for its members, which may include savings associations, savings banks,
commercial banks, and credit unions. As members, WSB and WTX are required to own
capital stock of an FHLB in an amount that depends generally upon their
outstanding home mortgage loans or advances from such FHLB, and are authorized
to borrow funds from such FHLB (see Borrowings).
CAPITAL DISTRIBUTIONS BY SAVINGS INSTITUTIONS. See Item 5, "MARKET FOR
THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS" on page 40,
for a discussion on certain limitations imposed by the OTS on dividends paid by
savings institutions. During 2001, WSB paid no upstream dividends to Golden
West.
LIMITATION ON LOANS TO ONE BORROWER. Current law subjects savings
institutions to the same loans-to-one borrower restrictions that are applicable
to national banks with limited provisions for exceptions. In general, the
national bank standard restricts loans to a single borrower to no more than 15%
of a bank's unimpaired capital and unimpaired surplus, plus an additional 10% if
the loan is collateralized by certain readily marketable collateral. (Real
estate is not included in the definition of "readily marketable collateral".) At
December 31, 2001, the maximum that WSB could have loaned to one borrower (and
related entities) was $725 million, while the largest amount of loans it had to
one borrower was $38 million. At December 31, 2001, the maximum amount that WTX
could have loaned to one borrower (and related entities) was $60 million, while
the largest amount of loans WTX had outstanding to any one borrower was $2
million.
DEPOSITOR PRIORITIES. In the event of the appointment of a receiver of
a federally chartered savings bank, such as WSB, based upon the failure of the
savings bank to meet certain minimum capital requirements or the existence of
certain other conditions, the Federal Deposit Insurance Act recognizes a
priority in favor of holders of withdrawable deposits (including the FDIC
subrogee or transferee) over general creditors (including holders of debt of
WSB). Thus, in the event of a liquidation of WSB or a similar event, claims for
deposits would have a priority over claims of holders of debt. As of December
31, 2001, WSB had approximately $34 billion of deposits outstanding.
POWERS OF THE FDIC IN CONNECTION WITH THE INSOLVENCY OF AN INSURED
DEPOSITORY INSTITUTION. If the FDIC is appointed a receiver or conservator of an
insured depository institution, such as WSB or WTX, the FDIC may disaffirm or
repudiate any contract or lease to which such institution is a party, the
performance of which is determined to be burdensome, and the disaffirmance or
repudiation of which is determined to promote the orderly administration of the
institution's affairs. The FDIC may contend that its power to repudiate
"contracts" extends to obligations such as the debt of the depository
institution, and at least one court has held that the FDIC can repudiate
publicly-traded debt obligations. The effect of any such repudiation could be to
accelerate the maturity of debt. Such repudiation would likely result in a claim
by each holder of debt against the receivership. The claim may be for principal
and interest accrued through the date of the appointment of the conservator or
receiver. Alternatively, at least one court has held that the claim would be in
the amount of the fair market value of the debt as of the date of the
repudiation, which amount could be more or less than accrued principal and
interest. The amount paid on the claims of the holders of the debt would depend,
among other factors, upon the amount of receivership assets available for the
payment of unsecured claims and the priority of the claim relative to the claims
of other unsecured creditors and depositors, and may be less than the amount
owed to the holders of the debt. See "Depositor Priorities" above. If the
maturity of the debt were so accelerated, and a claim relating to the debt paid
by the receivership, the holders of the debt might not be able, depending upon
economic conditions, to reinvest any amounts paid on the debt at a rate of
interest comparable to that paid on the debt. In addition, although the holders
of the debt may have the right to accelerate the debt in the event of the
appointment
37
of a conservator or receiver of the depository institution, the FDIC as
conservator or receiver may enforce most types of contracts, including the debt
pursuant to their terms, notwithstanding any such acceleration provision. The
FDIC as conservator or receiver may also transfer to a new obligor any of the
depository institution's assets and liabilities, without the approval or consent
of the institution's creditors.
In its resolutions of the problems of an insured depository institution
in default or in danger of default, the FDIC is generally obligated to satisfy
its obligations to insured depositors at the least possible cost to the deposit
insurance fund. In addition, the FDIC may not take any action that would have
the effect of increasing the losses to the relevant deposit insurance fund by
protecting depositors for more than the insured portion of deposits (generally
$100,000) or by protecting creditors other than depositors. Existing law
authorizes the FDIC to settle all uninsured and unsecured claims in the
insolvency of an insured institution by making a final payment after the
declaration of insolvency. Such a payment would constitute full payment and
disposition of the FDIC's obligations to claimants. Existing law provides that
the rate of such final payment is to be a percentage reflecting the FDIC's
receivership recovery experience.
SAVINGS AND LOAN HOLDING COMPANY LAW. Golden West is a "savings and
loan holding company" under the Home Owners' Loan Act (HOLA). As such, it has
registered with the OTS and is subject to OTS regulation and OTS and FDIC
examination, supervision, and reporting requirements. Among other things, the
OTS has authority to determine that an activity of a savings and loan holding
company constitutes a serious risk to the financial safety, soundness, or
stability of its subsidiary savings institutions and thereupon may impose, among
other things, restrictions on the payment of dividends by the subsidiary
institutions and on transactions between the subsidiary institutions, the
holding company, and subsidiaries or affiliates of either.
As WSB's parent company, Golden West is considered an "affiliate" of
WSB, for regulatory purposes. Savings banks are subject to the rules relating to
transactions with affiliates and loans to insiders generally applicable to
commercial banks that are members of the Federal Reserve System set forth in
Sections 23A, 23B, and 22(h) of the Federal Reserve Act, and with respect to
savings banks, as well as additional limitations set forth in current law and as
adopted by the OTS. In addition, current law generally prohibits a savings
institution from lending or otherwise extending credit to an affiliate, other
than the institution's subsidiaries, unless the affiliate is engaged only in
activities that the Federal Reserve Board has determined to be permissible for
bank or financial services holding companies and that the OTS has not
disapproved. OTS regulations provide guidance in determining affiliates of a
savings institution and in calculating compliance with the quantitative
limitations on transactions with affiliates.
QTL TEST. The HOLA requires savings institutions to meet a qualified
thrift lender (QTL) test. Under the QTL test, a savings institution is required
to maintain at least 65% of its "portfolio assets" in certain "qualified thrift
investments" (primarily residential mortgages and related investments, including
certain mortgage-backed and related securities) in at least nine months out of
each 12 month period. A savings institution that fails the QTL test must either
convert to a bank charter or operate under certain restrictions. At December 31,
2001, WSB and WTX were in compliance with the QTL test.
TAXATION. The Company files consolidated federal income tax returns
with its subsidiaries. The provision for federal and state taxes on income is
based on taxes currently payable and taxes expected to be payable in the future
as a result of events that have been recognized in the financial statements or
tax returns.
38
The Company utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses "purchase accounting" in connection
with certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Employee Relations
The Company had a total of 6,113 full-time and 1,025 permanent
part-time employees at December 31, 2001. None of the employees of the Company
are represented by any collective bargaining group. The management of the
Company considers employee relations to be good.
ITEM 2. PROPERTIES
Properties owned by the Company for the operation of its business are
located in Arizona, California, Colorado, Florida, Illinois, Kansas, Nevada, New
Jersey, and Texas. The executive offices of the Company are located at 1901
Harrison Street, Oakland, California, in leased facilities.
The Company owns a 545,000 square-foot office complex on a 111-acre
site in San Antonio, Texas. This complex houses the loan service, savings
operations, and information systems departments, and various other back-office
functions.
The Company owns 226 of its branches, some of which are located on
leased land. For further information regarding the Company's investment in
premises and equipment and expiration dates of long-term leases, see Note H to
the Financial Statements included in Item 14.
The Company continuously evaluates the suitability and adequacy of the
Company's offices and has a program of relocating or remodeling them as
necessary to maintain efficient and attractive facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to actions arising in the
ordinary course of business, none of which, in the opinion of management, is
material to the Company's consolidated financial condition or results of
operations, or is otherwise required to be discussed pursuant to Item 103 of
Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
39
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
Market Prices of Stock
Golden West's stock is listed on the New York Stock Exchange and
Pacific Stock Exchange and traded on the Boston and Chicago Stock Exchanges
under the ticker symbol GDW. The quarterly price ranges for the Company's common
stock during 2001 and 2000 were as follows:
TABLE 34
Common Stock Price Range
2001 2000
-------------------- --------------------
First Quarter $51.00 - $65.94 $27.19 - $32.50
Second Quarter $57.96 - $68.95 $30.38 - $46.00
Third Quarter $52.81 - $70.00 $41.81 - $53.63
Fourth Quarter $47.15 - $58.85 $50.50 - $69.44
Per Share Cash Dividends Data
Golden West's cash dividends paid per share for 2001 and 2000 were
as follows:
TABLE 35
Cash Dividends Per Share
2001 2000
---------- ---------
First Quarter $ .0625 $ .0525
Second Quarter $ .0625 $ .0525
Third Quarter $ .0625 $ .0525
Fourth Quarter $ .0725 $ .0625
The principal sources of funds for the payment by Golden West of cash
dividends are cash dividends paid to it by subsidiaries.
Because WSB and WTX are subsidiaries of a savings and loan holding
company, they must file a notice with the OTS prior to making capital
distributions and, in some cases, may need to file applications. The OTS may
disapprove a notice or deny an application, in whole or in part, if the OTS
finds that: (a) the insured subsidiary would be undercapitalized or worse
following the proposed capital distribution; (b) the proposed capital
distribution raises safety and soundness concerns, or (c) the proposed capital
distribution violates a prohibition contained in any statute, regulation, or
agreement with the OTS or the FDIC, or a condition imposed upon the insured
subsidiary in an OTS approved application or notice. In general, WSB and WTX
may, with prior notice to the OTS, make capital distributions during a calendar
year in an amount equal to that year's net income plus retained net income for
the preceding two years, as long as immediately after the distributions it
remains at least adequately capitalized. Capital distributions in excess of such
amount, or which would cause WSB and WTX no
40
longer to be adequately capitalized, require specific OTS approval. (See
"CAPITAL DISTRIBUTIONS BY SAVINGS ASSOCIATIONS" on page 37.)
At December 31, 2001, $2.3 billion of the WSB's retained earnings were
available for the payment of cash dividends without the imposition of additional
federal income taxes.
Stockholders
At the close of business on March 18, 2002, 155,170,837 shares of
Golden West's Common Stock were outstanding and were held by 1,241 stockholders
of record. At the close of business on March 18, 2002, the Company's common
stock price was $65.10.
The transfer agent and registrar for the Golden West common stock is
Mellon Investor Services, L.L.C., San Francisco, California 94101.
The Securities and Exchange Commission (SEC) maintains a web site,
which contains reports, proxy and information statements, and other information
pertaining to registrants that file electronically with the SEC including Golden
West. The address is: http://www.sec.gov.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and
other data for Golden West for the years indicated. This information is
qualified in its entirety by the more detailed financial information set forth
in the financial statements and notes thereto appearing in documents
incorporated herein by reference.
41
TABLE 36
Five Year Consolidated Summary of Operations
(Dollars in Thousands Except Per Share Figures)
Year Ended December 31
----------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
Interest Income:
Interest on loans $ 2,740,101 $ 2,469,556 $ 1,851,790 $ 2,254,427 $ 2,392,175
Interest on mortgage-backed securities 1,276,648 1,072,559 769,314 498,319 282,499
Interest on dividends and investments 192,863 254,425 204,741 209,807 157,823
----------- ----------- ----------- ----------- -----------
4,209,612 3,796,540 2,825,845 2,962,553 2,832,497
Interest Expense:
Interest on deposits 1,522,328 1,494,447 1,250,364 1,285,343 1,209,646
Interest on advances and other borrowings 1,055,952 1,150,925 571,996 709,888 732,356
----------- ----------- ----------- ----------- -----------
2,578,280 2,645,372 1,822,360 1,995,231 1,942,002
----------- ----------- ----------- ----------- -----------
Net interest income 1,631,332 1,151,168 1,003,485 967,322 890,495
Provision for (recovery of) loan losses 22,265 9,195 (2,089) 11,260 57,609
----------- ----------- ----------- ----------- -----------
Net interest income after provision for
(recovery of) loan losses 1,609,067 1,141,973 1,005,574 956,062 832,886
Noninterest Income:
Fees 150,675 78,016 65,456 62,820 45,910
Gain on the sale of securities,
MBS and loans 42,513 10,515 22,764 38,784 8,197
Change in fair value of derivatives (9,738) -0- -0- -0- -0-
Other 53,289 72,289 55,082 36,009 27,161
----------- ----------- ----------- ----------- -----------
236,739 160,820 143,302 137,613 81,268
Noninterest Expense
General and administrative expenses
Personnel 298,435 243,787 215,483 196,153 180,917
Occupancy 80,908 72,355 67,015 62,549 55,508
Deposit insurance 5,712 5,699 5,358 5,925 7,454
Advertising 15,114 8,450 11,928 10,412 11,525
Other 113,633 94,556 86,363 79,468 71,555
----------- ----------- ----------- ----------- -----------
513,802 424,847 386,147 354,507 326,959
----------- ----------- ----------- ----------- -----------
Earnings before taxes on income 1,332,004 877,946 762,729 739,168 587,195
Taxes on income 513,181 332,155 282,750 292,077 233,057
----------- ----------- ----------- ----------- -----------
Earnings before cumulative effect of accounting
change and extraordinary item/(a)/ 818,823 545,791 479,979 447,091 354,138
Cumulative effect of accounting change,
net of tax (6,018) -0- -0- -0- -0-
Extraordinary item, net of tax -0- -0- -0- (12,511) -0-
----------- ----------- ----------- ----------- -----------
Net earnings $ 812,805 $ 545,791 $ 479,979 $ 434,580 $ 354,138
=========== =========== =========== =========== ===========
Basic earnings per share before cumulative
effect of accounting change and
extraordinary item/(a)/ $ 5.18 $ 3.44 $ 2.90 $ 2.60 $ 2.07
Cumulative effect of accounting change,
net of tax (.04) .00 .00 .00 .00
Extraordinary item, net of tax .00 .00 .00 (.07) .00
----------- ----------- ----------- ----------- -----------
Basic earnings per share $ 5.14 $ 3.44 $ 2.90 $ 2.53 $ 2.07
=========== =========== =========== =========== ===========
Diluted earnings per share before cumulative
effect of accounting change and
extraordinary item/(a)/ $ 5.11 $ 3.41 $ 2.87 $ 2.58 $ 2.04
Cumulative effect of accounting change,
net of tax (.04) .00 .00 .00 .00
Extraordinary item, net of tax .00 .00 .00 (.07) .00
----------- ----------- ----------- ----------- -----------
Diluted earnings per share $ 5.07 $ 3.41 $ 2.87 $ 2.51 $ 2.04
=========== =========== =========== =========== ===========
(a) On January 1, 2001, the Company adopted SFAS 133 which resulted in a
one-time charge of $6 million. In 1998, the Company incurred a $13 million
one-time charge due to the prepayment of FHLB advances.
42
TABLE 37
Five Year Summary of Financial Condition
(Dollars in Thousands)
At December 31
---------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------------- --------------- --------------- --------------- ---------------
Assets $58,586,271 $55,703,969 $42,142,205 $38,468,729 $39,590,271
Cash, securities available for sale,
And other investments 961,729 1,111,826 1,120,393 1,050,265 1,033,433
Mortgage-backed securities 14,078,172 18,580,490 11,661,621 10,031,965 3,939,746
Loans receivable 41,065,375 33,762,643 27,919,817 25,721,288 33,260,709
--------------- --------------- --------------- --------------- ---------------
Total loan portfolio 55,143,547 52,343,133 39,581,438 35,753,253 37,200,455
Deposits 34,472,585 30,047,919 27,714,910 26,219,095 24,109,717
Advances from FHLBs 18,037,509 19,731,797 8,915,218 6,163,472 8,516,605
Securities sold under agreements to
repurchase and other borrowings 223,523 857,274 1,045,176 1,252,469 2,334,048
Medium-term notes -0- -0- -0- -0- 109,992
Senior debt 198,215 -0- -0- -0- -0-
Subordinated debt 599,511 598,791 812,950 911,753 1,110,488
Stockholders' equity 4,284,190 3,687,287 3,194,854 3,124,318 2,698,031
43
TABLE 38
Five Year Selected Other Data
(Dollars in Thousands Except Per Share Figures)
Year Ended December 31
---------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------ ------------ ------------ ----------- ------------
New real estate loans originated $20,763,237 $19,782,687 $12,672,211 $8,187,934 $7,482,973
Fully indexed rate on new real estate loans 7.72% 8.24% 7.60% 7.72% 7.59%
Current rate on new real estate loans/(a)/ 5.59% 6.18% 5.97% 6.20% 6.42%
New adjustable rate mortgages as a percentage 83.96% 96.27% 91.00% 82.26% 95.05%
of new real estate loans originated
Deposits increase ($) $ 4,424,666 $ 2,333,009 $ 1,495,815 $2,109,378 $2,009,783
Deposits increase (%) 14.7% 8.4% 5.7% 8.7% 9.1%
Net earnings/average net worth (ROE) 20.23%/(b)/ 16.21% 15.19% 14.94%/(c)/ 14.14%
Net earnings/average assets (ROA) 1.42%/(b)/ 1.12% 1.22% 1.11%/(c)/ .91%
General and administrative expense (G&A) to:
Net interest income plus other income 27.50% 32.38% 33.67% 32.08% 33.64%
Total revenues 11.56% 10.74% 13.01% 11.44%/(c)/ 11.22%
Average assets .90% .87% .98% .90% .84%
Ratio of earnings to fixed charges:/(d)/
Including interest on deposits 1.51x 1.33x 1.42x 1.37x 1.30x
Excluding interest on deposits 2.25x 1.76x 2.32x 2.03x 1.79x
Yield on loan portfolio 6.39% 8.05% 7.16% 7.36% 7.53%
Yield on MBS 6.35% 7.98% 7.17% 7.20% 7.23%
Yield on investments 2.86% 7.12% 5.88% 5.53% 6.48%
Yield on earning assets 6.36% 8.02% 7.15% 7.30% 7.48%
Cost of deposits 3.39% 5.52% 4.69% 4.67% 5.04%
Cost of borrowings 2.72% 6.66% 5.77% 5.87% 5.99%
Cost of funds 3.15% 5.99% 5.00% 4.96% 5.36%
Spread 3.21% 2.03% 2.15% 2.34% 2.12%
Nonperforming assets/total assets/(e)/ .67% .43% .56% .79% .96%
Stockholders' equity/total assets 7.31% 6.62% 7.58% 8.12% 6.81%
Average stockholders' equity/average assets 7.01% 6.89% 8.04% 7.41% 6.45%
World Savings Bank, FSB (WSB)
regulatory capital ratios:/(f)/
Tangible capital 7.71% 6.60% 6.64% 6.77% 6.51%
Tier 1 7.71% 6.60% 6.64% 6.77% 6.51%
Total risk-based 14.24% 12.44% 11.95% 12.93% 12.80%
World Savings Bank, FSB (Texas) (WTX)
regulatory capital ratios:/(f)/
Tangible capital 5.23% 5.34% -- -- --
Tier 1 5.23% 5.34% -- -- --
Total risk-based 25.05% 26.69% -- -- --
Number of savings branch offices 265 253 249 248 250
Cash dividends per share $ .26 $ .22 $ .193 $ .172 $ .152
Dividend payout ratio 5.02%/(b)/ 6.40% 6.64% 6.79%/(c)/ 7.32%
(a) The current rate reflects the actual rate being paid by the borrower at
time of origination.
(b) The ratios for the year ended December 31, 2001 include a pre-tax charge of
$10 million or $.04 per basic and diluted earnings per share, after tax,
associated with the adoption of SFAS 133 on January 1, 2001. Excluding this
cumulative effect of an accounting change, ROE was 20.38%, ROA was 1.43%,
and the dividend payout ratio was 5.06%.
(c) The ratios for the year ended December 31, 1998 include an extraordinary
charge of $21 million before tax, or $.07 per basic and diluted earnings
per share, net of tax benefit, associated with the prepayment of FHLB
advances and include a nonrecurring gain of $13 million before tax, or $.05
per basic and diluted earnings per share, after tax, realized when
preferred stock purchased at a discount was redeemed by the issuer at par.
Excluding the extraordinary item, ROE was 15.37%, ROA was 1.14%, and the
dividend payout ratio was 6.59%. Excluding the one-time stock gain, G&A to
total revenues was 11.48%.
(d) Earnings represent income from continuing operations before income taxes,
cumulative effect of change in accounting, extraordinary item, and fixed
charges. Fixed charges include interest expense and amortization of debt
expense.
(e) NPAs includes nonaccrual loans (loans that are 90 days or more past due)
and foreclosed real estate.
(f) For regulatory purposes, the minimum capital requirement for tangible
capital is 1.5%. The requirements to be considered "well capitalized" are
5.0% and 10.0% for tier 1 (core) and total risk-based, respectively. In
years prior to 2000, WTX was not regulated by the OTS and, therefore, these
ratios were not applicable.
44
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The table below sets forth Golden West Financial Corporation's (Golden
West or Company) net earnings for the three years ended December 31, 2001, 2000,
and 1999.
TABLE 39
Golden West Net Earnings, Basic Earnings Per Share,
and Diluted Earnings Per Share
1999-2001
(Dollars in Thousands Except Per Share Figures)
For the Year Ended December 31
---------------------------------------
2001 2000 1999
----------- ----------- -----------
Earnings before cumulative effect of accounting change/(a)/ $ 818,823 $ 545,791 $ 479,979
Cumulative effect of accounting change, net of tax/(b)/ (6,018) -0- -0-
----------- ----------- -----------
Net Earnings $ 812,805 $ 545,791 $ 479,979
=========== =========== ===========
Basic earnings per share before cumulative effect of
accounting change/(a)/ $ 5.18 $ 3.44 $ 2.90
Cumulative effect of accounting change, net of tax/(b)/ (.04) .00 .00
----------- ----------- -----------
Basic earnings per share $ 5.14 $ 3.44 $ 2.90
=========== =========== ===========
Diluted earnings per share before cumulative effect of
accounting change/(a)/ $ 5.11 $ 3.41 $ 2.87
Cumulative effect of accounting change, net of tax/(b)/ (.04) .00 .00
----------- ----------- -----------
Diluted earnings per share $ 5.07 $ 3.41 $ 2.87
=========== =========== ===========
(a)1999 includes a nonrecurring gain of $8 million or $.03 per
basic and diluted share, after tax, from the sale of four
savings branches and a nonrecurring tax benefit of $3 million
or $.02 per basic and diluted share, from the donation of land
to a non-profit organization.
(b)On January 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (SFAS 133) which resulted
in a one-time pre-tax charge of $10 million, or $.04 per share,
after tax. See "New Accounting Pronouncements" section on page
60.
Golden West's principal subsidiary is World Savings Bank, FSB (WSB).
WSB is headquartered in Oakland, California. At December 31, 2001, WSB had $58
billion in assets. At December 31, 2001, Golden West had a savings network of
121 branches in California, 44 in Florida, 36 in Colorado, 23 in Texas, 15 in
Arizona, 11 in New Jersey, eight in Kansas, five in Illinois, and two in Nevada.
By virtue of being federally chartered, WSB can originate mortgages anywhere in
the nation, even though they may not be authorized to conduct deposit gathering
business in those jurisdictions. In addition to the states with savings
operations referenced above, the Company had lending operations in Connecticut,
Delaware, Georgia, Idaho, Indiana, Kentucky, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, Nebraska, New Hampshire, New Mexico, New York, North
Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina,
South Dakota, Tennessee, Utah, Virginia, Washington, Wisconsin, and Wyoming.
The savings accounts offered by WSB are insured by the Federal Deposit
Insurance Corporation (FDIC). The FDIC administers two separate deposit
insurance funds, the Bank Insurance Fund (BIF) and the Savings Association
Insurance Fund (SAIF). The BIF is a deposit insurance fund for commercial banks,
federally chartered savings banks, and some state chartered savings banks. The
SAIF is a deposit insurance fund for most savings associations. WSB is a member
of the BIF, but a portion of WSB's deposits are insured through the SAIF.
45
WSB has a subsidiary, World Savings Bank, FSB (Texas) (WTX) that is also a
federally chartered savings bank. WTX's deposits are also insured by the FDIC
and WTX is a member of the BIF.
In addition to WSB, Golden West has two other operating subsidiaries, Atlas
Advisers, Inc., and Atlas Securities, Inc. These two companies were formed to
provide services to Atlas Assets, Inc., a series open-ended registered
investment company sponsored by the Company. Atlas Advisers, Inc., is an
investment adviser to the Atlas family of mutual funds and Atlas Securities,
Inc., is the distributor of the Atlas mutual funds and annuities.
The following narrative focuses on the significant financial statement
changes that have taken place at Golden West over the past three years and
includes a discussion of the Company's financial condition, results of
operations, and liquidity and capital resources.
Financial Condition
The following table summarizes the Company's major asset, liability, and
equity components in percentage terms at yearends 2001, 2000, 1999, and 1998. As
the table shows, the largest asset component is the loan portfolio (including
mortgage-backed securities), which consists primarily of long-term mortgages.
Deposits represent the majority of the Company's liabilities.
TABLE 40
Asset, Liability, and Equity Components as
Percentages of the Total Balance Sheet
1998 - 2001
December 31
----------------------------------------------
2001 2000 1999 1998
--------- --------- --------- ---------
Assets:
Cash and investments 1.6% 2.0% 2.7% 2.7%
Loans receivable including
mortgage-backed securities 94.2 94.0 93.9 93.0
Other assets 4.2 4.0 3.4 4.3
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
Liabilities and Stockholders'
Equity:
Deposits 58.9% 54.0% 65.8% 68.1%
FHLB advances 30.8 35.4 21.2 16.0
Securities sold under
agreements to repurchase .4 1.5 2.5 3.3
Senior debt .3 .0 .0 .0
Subordinated notes 1.0 1.1 1.9 2.4
Other liabilities 1.3 1.4 1.0 2.1
Stockholders' equity 7.3 6.6 7.6 8.1
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
Asset/Liability Management
The Company's earnings depend primarily on its net interest income, which
is the difference between the amounts it receives from interest earned on loans,
MBS, and investments and the amounts it pays in interest on deposits and
borrowings. Therefore, the Company's profitability is largely dependent
46
upon its ability to manage credit risk (see "Asset Quality" section on page 56)
and interest rate risk. The Company mitigates its credit risk through strict
underwriting standards and loan reviews. The Company manages interest rate risk
by managing the repricing of interest rate-sensitive assets and liabilities. The
Company enters into interest rate swaps as part of its interest rate risk
management strategy. Such instruments are entered into solely to alter the
repricing characteristics of designated assets and liabilities.
One measure of exposure to interest rate risk is the repricing gap, the
difference between the repricing of assets and liabilities. 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 and
investments and the repricing of deposits and borrowings can have a material
impact on the Company's results of operations. The following table shows the
Company's repricing gap at December 31, 2001:
TABLE 41
Repricing of Interest-Earning Assets and Interest-Bearing
Liabilities, Repricing Gaps, and Gap Ratio
As of December 31, 2001
(Dollars in Millions)
Projected Repricing/(a)/
---------------------------------------------------------------
0 - 3 4 - 12 1 - 5 Over 5
Months Months Years Years Total
---------- --------- ---------- --------- ---------
Interest-Earning Assets:
Investments $ 622 $ -0- $ -0- $ 1 $ 623
Mortgage-backed securities 13,032 191 480 375 14,078
Loans receivable:
Rate-sensitive 35,281 2,932 535 -0- 38,748
Fixed-rate 101 235 645 1,118 2,099
Other/(b)/ 1,396 -0- -0- -0- 1,396
Impact of interest rate swaps 301 15 (316) -0- -0-
--------- -------- --------- -------- ---------
Total $ 50,733 $ 3,373 $ 1,344 $ 1,494 $56,944
========= ======== ========= ======== =========
Interest-Bearing Liabilities:
Deposits/(c)/ $ 21,870 $ 9,823 $ 2,762 $ 18 $34,473
FHLB advances 17,305 212 92 428 18,037
Other borrowings 323 300 398 -0- 1,021
Impact of interest rate swaps 103 (12) (91) -0- -0-
--------- -------- --------- -------- ---------
Total $ 39,601 $10,323 $ 3,161 $ 446 $53,531
========= ======== ========= ======== =========
Repricing gap $ 11,132 $(6,950) $ (1,817) $ 1,048 $ 3,413
========= ======== ========= ======== =========
Cumulative gap $ 11,132 $ 4,182 $ 2,365 $ 3,413
========= ======== ========= ========
Cumulative gap as a percentage
of total assets 19.0% 7.1% 4.0%
========= ======== =========
(a) Based on scheduled maturity or scheduled repricing; loans and MBS reflect
scheduled repayments and projected prepayments of principal based on
current rates of prepayment.
(b) Includes cash in banks and FHLB stock.
(c) Liabilities with no maturity date, such as checking, passbook, and money
market deposit accounts, are assigned zero months.
The table above shows that, as of December 31, 2001, 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 Golden West's earnings would rise when
interest rates increase and would fall when interest rates decrease. However,
Golden West's earnings are also affected by the built-in reporting and repricing
lags inherent in the Eleventh District Cost of Funds Index
47
(COFI), which is the benchmark the Company uses to determine the rate on the
majority of its adjustable rate mortgages (ARMs). The reporting lag occurs
because of the time it takes to gather the data needed to compute the index. 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. The repricing lag
occurs because COFI is based on a portfolio of liability accounts, not all of
which reprice immediately. Many of these liabilities, including certificates of
deposit, don't 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, reprice very little. Still other liabilities, such as
demand deposits, do not reprice at all. Therefore, COFI does not initially fully
reflect a change in market interest rates. Consequently, when the interest rate
environment changes, the COFI lags cause assets initially to reprice more slowly
than liabilities, enhancing earnings when rates are falling and holding down
income when rates rise. Additionally, the Company originates loans that are tied
to the Golden West Cost of Savings Index (COSI). The COSI in effect in any month
reflects the actual rate on Golden West's deposits at the prior monthend.
Partially offsetting the impact of the index lags are similar lags on a portion
of the Company's liabilities.
In addition to the index lags, other elements of ARM loans also have an
impact on earnings. These elements are introductory fixed rates on new ARM
loans, the interest rate adjustment frequency of ARM loans, interest rate caps
or limits on individual rate changes, and interest rate floors. On balance, the
index lags and ARM structural features cause the Company's assets initially to
reprice more slowly than its liabilities, resulting in a temporary reduction in
net interest income when rates increase and a temporary increase in net interest
income when rates fall.
The table on the following page reflects the Company's expected cash
flows and applicable yields on the balances of its interest sensitive assets and
liabilities as of December 31, 2001, and takes into consideration expected
prepayments of the Company's long-term assets (primarily mortgage-backed
securities and loans receivable) and the estimated current fair value.
48
TABLE 42
Summary of Market Risk on Financial Instruments
As of December 31, 2001
(Dollars in Millions)
- ----------------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date as of December 31, 2001
---------------------------------------------------------------------------------
2007 & Total Fair
2002 2003 2004 2005 2006 Thereafter Balance Value
-------- -------- ------- -------- -------- --------- -------- --------
Interest-Sensitive Assets:
Investments $ 622 $ -0- $ -0- $ -0- $ -0- $ 1 $ 623 $ 623
Weighted average interest rate 2.85% .00% .00% .00% .00% 5.03% 2.86%
MBS
Fixed-Rate $ 165 $ 138 $ 118 $ 100 $ 86 $ 525 $ 1,132 1,157
Weighted average interest rate 7.92% 7.86% 7.82% 7.78% 7.75% 7.58% 7.72%
Variable Rate $ 2,936 $ 1,954 $1,549 $ 1,251 $ 1,010 $ 4,246 $12,946 13,057
Weighted average interest rate 6.33% 6.33% 6.33% 6.33% 6.33% 6.32% 6.33%
Loans Receivable
Fixed-Rate $ 737 $ 234 $ 193 $ 160 $ 134 $ 788 $ 2,246 2,296
Weighted average interest rate 8.43% 8.73% 8.58% 8.44% 8.32% 7.92% 8.29%
Variable Rate $ 7,475 $ 5,799 $4,713 $ 3,843 $ 3,133 $ 13,856 $38,819 38,840
Weighted average interest rate/(a)/ 6.53% 6.50% 6.50% 6.50% 6.50% 6.50% 6.42%
-------- -------- ------- -------- -------- --------- -------- --------
Total $11,935 $ 8,125 $6,573 $ 5,354 $ 4,363 $ 19,416 $55,766 $55,973
======== ======== ======= ======== ======== ========= ======== ========
Interest-Sensitive Liabilities:
Deposits/(b)/ $31,693 $ 1,759 $ 475 $ 282 $ 246 $ 18 $34,473 $34,642
Weighted average interest rate 3.27% 4.47% 4.62% 6.58% 4.81% 5.69% 3.39%
FHLB Advances
Fixed-Rate $ 61 $ 130 $ 38 $ 32 $ 29 $ 248 $ 538 560
Weighted average interest rate 6.70% 3.61% 6.38% 6.44% 6.44% 6.45% 5.79%
Variable Rate $ 5,400 $ 6,700 $1,000 $ 2,500 $ 1,900 $ -0- $17,500 17,508
Weighted average interest rate 2.11% 2.67% 2.14% 2.94% 2.15% .00% 2.45%
Other Borrowings
Fixed-Rate $ 400 $ 200 $ -0- $ -0- $ 198 $ -0- $ 798 816
Weighted average interest rate 7.69% 6.10% .00% .00% 5.75% .00% 6.81%
Variable Rate $ 224 $ -0- $ -0- $ -0- $ -0- $ -0- $ 224 224
Weighted average interest rate 1.96% .00% .00% .00% .00% .00% 1.96%
Interest Rate Swaps
Receive Fixed Swaps (notional value) $ 12 $ 91 $ -0- $ -0- $ -0- $ -0- $ 103 (4)
Weighted average receive rate 6.52% 6.39% .00% .00% .00% .00% 6.40%
Weighted average pay rate 1.93% 2.39% .00% .00% .00% .00% 2.33%
Pay Fixed Swaps $ 305 $ 212 $ 104 $ -0- $ -0- $ -0- $ 621 24
Weighted average receive rate 2.51% 2.59% 2.17% .00% .00% .00% 2.48%
Weighted average pay rate 7.54% 6.26% 6.65% .00% .00% .00% 6.95%
-------- -------- ------- -------- -------- --------- -------- --------
Total $38,095 $ 9,092 $1,617 $ 2,814 $ 2,373 $ 266 $54,257 $53,770
======== ======== ======= ======== ======== ========= ======== ========
(a) The total weighted average interest rate for variable loans receivable
reflects loans with introductory rates in effect at December 31, 2001.
Those loans are assumed to mature outside the introductory period at
fully-indexed rates (the fully-indexed rate is equal to the effective index
plus the loan margin). Consequently, the weighted average rate of all
maturing variable rate loans will not equal the weighted average rate of
total variable rate loans at December 31, 2001 as indicated in the total
balance column.
(b) Deposits with no maturity are included in the 2002 column.
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 previously
described. The simulation model projects net interest income, net
earnings, and capital ratios based on an immediate 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 certain 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 product lines offered by the Company.
Based on the information and assumptions in effect at December 31,
2001, Management believes that a 200 basis point rate increase
sustained over a thirty-six month period would not affect the
Company's long-term profitability and financial strength.
49
Cash and Investments
Golden West's investment portfolio is composed primarily of federal
funds, short-term repurchase agreements collateralized by mortgage-backed
securities, short-term money market securities, EuroDollar time deposits,
collateralized mortgage obligations, and equity securities. In determining the
amounts of assets to invest in each class of investments, the Company considers
relative rates, liquidity, and credit quality.
At December 31, 2001, and 2000, the Company had securities available
for sale in the amount of $623 million and $393 million, respectively, including
net unrealized gains on securities available for sale of $362 million and $382
million, respectively. At December 31, 2001 and 2000, the Company had no
securities held for trading in its investment securities portfolio.
Loans Receivable and Mortgage-Backed Securities
The Company invests primarily in whole loans. From time to time, the
Company securitizes loans from its portfolio into mortgage-backed securities
(MBS) and Real Estate Mortgage Investment Conduit Securities (MBS-REMICs).
Because the Company currently retains all of the beneficial interest in these
MBS and MBS-REMIC securitizations and because the securitizations meet all the
requirements for separate security recognition, the securitizations formed after
March 31, 2001 are securities classified as securitized loans and included in
loans receivable in accordance with SFAS 140 (see pages 60 and 61 for further
discussion). Additionally, from time to time, the Company purchases MBS. MBS,
MBS-REMICs, and securitized loans are available to be used as collateral for
borrowings.
At December 31, 2001 and 2000, the balance of loans receivable
including MBS was $55.1 billion and $52.3 billion, respectively. Included in the
$55.1 billion at December 31, 2001 was $4.7 billion of Federal National Mortgage
Association (FNMA) MBS with the underlying loans subject to full credit recourse
to the Company, $8.8 billion of MBS-REMICs, $5.2 billion of securitized loans,
and $509 million of purchased MBS. Included in the $52.3 billion at December 31,
2000 was $7.8 billion of FNMA MBS with the underlying loans subject to full
credit recourse to the Company, $10.4 billion of MBS-REMICs, and $456 million of
purchased MBS.
The loan portfolio, including MBS, grew $2.8 billion or 5% for the year
ended December 31, 2001. The loan portfolio, including MBS, grew $12.8 billion
or 32% for the year ended December 31, 2000. Loan portfolio repayments were
$15.6 billion, $6.9 billion, and $7.7 billion for the years ended December 31,
2001, 2000, and 1999, respectively. Loan portfolio repayments were higher in
2001 as compared to 2000 due to an increase in the prepayment rate as well as an
increase in the balance of the total loan portfolio outstanding. Loan portfolio
repayments were lower in 2000 as compared to 1999 due to a decrease in
prepayments.
Mortgage-Backed Securities
At December 31, 2001 and 2000, the Company had MBS held to maturity in
the amount of $13.8 billion and $18.5 billion, respectively. During 2001, the
Company securitized $3.0 billion of adjustable rate mortgages (ARMs) into
MBS-REMICs during the first three months. During 2000, the Company securitized
$4.8 billion of ARMs into FNMA MBS and securitized $4.6 billion of ARMs in
MBS-REMICs. The FNMA MBS and the 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.
50
At December 31, 2001 and 2000, the Company had MBS available for sale
in the amount of $233 million and $70 million, respectively, including net
unrealized gains on MBS available for sale of $2 million and $1 million,
respectively. At December 31, 2001 and 2000, the Company had no trading MBS.
At December 31, 2001, $12.9 billion of the Company's total MBS
portfolio was backed by ARMs. The percentage of MBS backed by ARMs was 92% at
yearend 2001 compared to 93% at yearend 2000 and 87% at yearend 1999.
Repayments of MBS during the years 2001, 2000, and 1999 amounted to
$6.4 billion, $2.5 billion, and $2.8 billion, respectively. MBS repayments were
higher in 2001 due to an increase in the prepayment rate. MBS repayments were
lower in 2000 due to a decrease in the prepayment rate.
Securitized Loans
At December 31, 2001, the Company had $5.2 billion of loans outstanding
that were securitized during the second and third quarters of 2001. These loans
are classified as loans receivable on the Statement of Financial Position.
Loans
New loan originations in 2001, 2000, and 1999 amounted to $20.8
billion, $19.8 billion, and $12.7 billion, respectively. The volume of
originations during 2001 increased due to an increase in the market demand for
loans. The decrease in interest rates during 2001 led to an increase in
refinance activity nationwide. The Company's refinanced loans constituted 59% of
new loan originations in 2001 compared to 34% in 2000 and 40% in 1999.
First mortgages originated for sale were $2.2 billion, $114 million,
and $626 million for the years ended December 31, 2001, 2000, and 1999,
respectively. The increase in loans originated for sale in 2001 as compared to
2000 was due to an increase in fixed-rate mortgage originations. The reduction
in loans originated for sale in 2000 as compared to 1999 was attributable to the
decrease in fixed-rate originations. During 2001, 2000, and 1999, $465 million,
$29 million, and $522 million, respectively, of loans were converted at the
customer's request from adjustable rate to fixed-rate. The Company continues to
sell most of its new and converted fixed-rate loans. The Company sold $2.7
billion, $152 million, and $1.1 billion of fixed-rate first mortgage loans
during 2001, 2000, and 1999, respectively.
At December 31, 2001, the Company had lending operations in 38 states.
The largest source of mortgage origination was loans secured by residential
properties in California. In 2001, 70% of total loan origination volume was on
residential properties in California, compared to 63% in 2000 and 1999,
respectively. The five largest states, other than California, for originations
for the year ended December 31, 2001, were Florida, Texas, Colorado, New Jersey,
and Washington with a combined total of 16% of total originations. The
percentage of the total loan portfolio (including MBS with recourse and
MBS-REMICs) that was comprised of residential loans in California was 64% at
December 31, 2001, 63% at December 31, 2000, and 64% at December 31, 1999.
Golden West continues to emphasize adjustable rate mortgages--loans
with interest rates that change monthly in accordance with movements in
specified indexes. The portion of the mortgage portfolio (including MBS and
MBS-REMICs) composed of rate-sensitive loans was 94% at yearend 2001 compared to
95% at yearend 2000 and 93% at yearend 1999. Golden West's ARM originations
51
constituted approximately 84% of new mortgage loans made by the Company in 2001,
compared with 96% in 2000 and 91% in 1999.
Golden West originates ARMs tied primarily to the Golden West Cost of
Savings Index (COSI) and the Eleventh District Cost of Funds Index (COFI). The
following table shows the distribution of ARM originations by index for the
years ended December 31, 2001, 2000 and 1999.
TABLE 43
Adjustable Rate Mortgage Originations by Index
1999 - 2001
(Dollars in Thousands)
For the year ended December 31
---------------------------------------------
ARM Index 2001 2000 1999
--------- ------------ ------------- ------------
COSI $ 7,064,962 $12,872,834 $ 7,996,477
COFI 9,813,174 5,701,413 3,264,773
Other 554,390 470,171 270,651
------------ ------------- ------------
$17,432,526 $19,044,418 $11,531,901
============ ============= ============
The following table shows the distribution by index of the Company's
outstanding balance of adjustable rate mortgages (including ARM MBS with
recourse and ARM MBS-REMICs) at December 31, 2001, 2000 and 1999.
TABLE 44
Adjustable Rate Mortgage Portfolio by Index
(Including ARM MBS with Recourse and ARM MBS-REMICs)
1999 - 2001
(Dollars in Thousands)
As of December 31
---------------------------------------------
ARM Index 2001 2000 1999
--------- ------------ ------------- ------------
COSI $ 20,943,596 $ 20,460,242 $ 9,182,829
COFI 29,010,008 27,405,401 26,217,670
Other 1,840,796 1,640,010 1,419,011
------------ ------------ ------------
$ 51,794,400 $ 49,505,653 $ 36,819,510
============ ============ ============
The Company generally lends up to 80% of the appraised value of
residential real 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 Company takes steps to reduce the potential credit risk with
respect to loans with a loan to value (LTV) over 80%. Among other things, the
loan amount may not exceed 95% of the appraised value of a single-family
residence. Also, some 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 $184 million, $198 million,
and $99 million for the years ended December 31, 2001, 2000, and 1999,
respectively. In addition, the Company carries pool mortgage insurance on most
seconds not sold. The
52
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 years ended December 31, 2001,
2000, and 1999.
TABLE 45
Mortgage Originations With Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
1999 - 2001
(Dollars in Thousands)
For the Year Ended December 31
-------------------------------------------------
2001 2000 1999
----------- ---------- ----------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 225,464 $ 124,066 $ 98,141
With no insurance 123,387 229,397 233,212
---------- ---------- ----------
348,851 353,463 331,353
---------- ---------- ----------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 1,354,754 2,549,049 1,092,778
With no insurance 911,214 924,538 936,724
---------- ---------- ----------
2,265,968 3,473,587 2,029,502
---------- ---------- ----------
Total $2,614,819 $3,827,050 $2,360,855
========== ========== ==========
53
The following table shows the outstanding balance of mortgages with
original LTV or combined LTV ratios greater than 80% at December 31, 2001, 2000
and 1999.
TABLE 46
Balance of Mortgages with Loan to Value and
Combined Loan to Value Ratios Greater Than 80%
1999 - 2001
(Dollars in Thousands)
As of December 31
------------------------------------------------
2001 2000 1999
---------- ---------- ----------
First mortgages with loan to
value ratios greater than 80%:
With insurance $ 431,498 $ 388,625 $ 393,580
With no insurance 548,507 823,864 844,847
---------- ---------- ----------
980,005 1,212,489 1,238,427
---------- ---------- ----------
First and second mortgages with
combined loan to value ratios
greater than 80%:
With pool insurance 2,396,954 2,193,990 1,131,357
With no insurance 454,289 722,703 308,650
---------- ---------- ----------
2,851,243 2,916,693 1,440,007
---------- ---------- ----------
Total $3,831,248 $4,129,182 $2,678,434
========== ========== ==========
Approximately $5.0 billion of the Company's ARMs (including MBS with
recourse and MBS-REMICs) have terms that state that the interest rate may not
fall below a lifetime floor set at the time of origination or assumption. As of
December 31, 2001, $560 million of ARMs had reached their rate floors compared
with $144 million at December 31, 2000. The weighted average floor rate on the
loans that had reached their floor was 7.15% at December 31, 2001, compared to
8.01% at December 31, 2000. Without the floor, the average rate on these loans
would have been 5.91% at December 31, 2001 and 7.80% at December 31, 2000.
Loan repayments consist of monthly loan amortization and loan payoffs.
During the years 2001, 2000, and 1999, loan repayments amounted to $9.2 billion,
$4.5 billion, and $4.9 billion, respectively. The increase in repayments in 2001
was due to an increase in loan prepayments. The decrease in repayments in 2000
was due to a decrease in loan repayments and due to the securitization of loans
into MBS.
Mortgage Servicing Rights
Capitalized mortgage servicing rights 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 years ended December
31, 2001, 2000, and 1999.
54
TABLE 47
Capitalized Mortgage Servicing Rights
1999 - 2001
(Dollars in Thousands)
2001 2000 1999
-------- -------- --------
Beginning balance of capitalized
mortgage servicing rights $ 28,355 $ 37,295 $ 28,635
New capitalized mortgage servicing
rights from loan sales 41,587 3,404 20,556
Amortization of capitalized
mortgage servicing rights (13,886) (12,344) (11,896)
-------- -------- --------
Ending balance of capitalized
mortgage servicing rights $ 56,056 $ 28,355 $ 37,295
======== ======== ========
The book value of Golden West's servicing rights did not exceed the
fair value at December 31, 2001, 2000, or 1999 and, therefore, no write-down of
the servicing rights to their fair value was necessary.
Asset Quality
An important measure of the soundness of the Company's loan and MBS
portfolio is its ratio of nonperforming assets (NPAs) to total assets.
Nonperforming assets include non-accrual loans (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. NPAs amounted to $394 million, $239
million, and $236 million at yearends 2001, 2000, and 1999, respectively. NPAs
at yearend 2001 reflected the normal increase in delinquencies associated with
the aging of the large volume of mortgages originated during the past two years
together with the recession. The lower level of NPAs during 2000 reflected the
strong economy and housing market during that year. The Company closely monitors
all delinquencies and takes appropriate steps to protect its interests.
The Company's troubled debt restructured (TDRs) are made up 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 the
borrower's ability to make scheduled payments. The Company's TDRs were $1
million or .00% of assets at December 31, 2001 compared to $2 million or .00% of
assets at December 31, 2000 and $11 million or .03% of assets at December 31,
1999.
The Company's ratio of NPAs and TDRs to total assets increased to .67%
at December 31, 2001, compared to .43% and .59% at yearends 2000 and 1999,
respectively.
The Company has other impaired loans on which specific loss reserves
have been provided and that were not included in nonperforming loans or troubled
debt restructured because the loans were performing in full accordance with the
loan terms. Other impaired loans amounted to $11 million at yearend 2001
compared to $23 million and $60 million at yearends 2000 and 1999, respectively.
55
Allowance for Loan Losses
The Company provides specific valuation allowances for losses on 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 loan losses that is based on both
historical experience in the loan portfolio and factors reflecting current
economic conditions. This approach uses a database that identifies losses on
loans and foreclosed real estate from past years to the present, broken down by
year of origination, type of loan, and geographical area. Based on these
historical analyses, management is then able to estimate a range of general loss
allowances by type of loans and risk category to cover losses inherent in the
portfolio. One-to-four single-family real estate loans are evaluated as a group.
In addition, periodic reviews are made of individual major multi-family and
commercial real estate loans and foreclosed real estate. Where indicated,
specific and general valuation allowances are established or adjusted. In
estimating probable losses inherent in the portfolio, consideration is given to
the estimated sales 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 years ended December 31, 2001, 2000, and 1999.
TABLE 48
Changes in Allowance for Loan Losses
1999 - 2001
(Dollars in Thousands)
2001 2000 1999
--------- --------- ---------
Beginning allowance for loan losses $ 236,708 $ 232,134 $ 244,466
Provision for (recovery of) losses
charged to expense 22,265 9,195 (2,089)
Less loans charged off (2,425) (623) -0-
Add recoveries 351 472 1,800
Net transfer of allowance from (to)
recourse liability 4,114 (4,470) (12,043)
--------- --------- ---------
Ending allowance for loan losses $ 261,013 $ 236,708 $ 232,134
========= ========= =========
Ratio of provision for (recovery of) loan
losses to loan portfolio (including
MBS with recourse and MBS-REMICs) .04% .02% (.01%)
========= ========= =========
Ratio of net chargeoffs (recoveries) to
average loans outstanding (including
MBS with recourse and MBS-REMICs) .00% .00% (.01%)
========= ========= =========
Ratio of allowance for loan losses to total loans
(including MBS with recourse and MBS-REMICs) .48% .46% .59%
========= ========= =========
Ratio of allowance for loan losses to NPAs 66.3% 98.9% 98.2%
========= ========= =========
56
The table below shows the composition of the allowance for loan losses
at December 31.
TABLE 49
Composition of Allowance for Loan Losses
1999 - 2001
(Dollars in Thousands)
2001 2000 1999
---------- ----------- -----------
Real Estate
1 to 4 units
General $240,135 $213,507 $200,499
Specific -0- -0- 369
---------- ----------- -----------
240,135 213,507 200,868
---------- ----------- -----------
5+ units and commercial
General 18,166 19,165 22,192
Specific 2,712 4,036 9,074
---------- ----------- -----------
20,878 23,201 31,266
---------- ----------- -----------
Total $261,013 $236,708 $232,134
========== =========== ===========
The impact of the favorable economy and housing market during 1999 and
2000 is reflected in the components of the allowance account. The increase in
the allowance account during 2001 reflected the increase in NPAs and the current
recessionary economy. The general loss allowances on one-to-four single-family
real estate loans increased from $200 million at December 31, 1999 to $240
million at December 31, 2001 as a result of the increase in the total loan
portfolio and the weakening economic conditions in 2001.
Foreclosed Real Estate
At December 31, 2001, the Company had foreclosed real estate in the
amount of $11 million, compared to $8 million a year earlier.
Deposits
The Company raises deposits through its retail branch system as well as
through capital markets.
Retail deposits increased by $4.6 billion in 2001 compared to increases
of $2.7 billion and $896 million in 2000 and 1999, respectively. Retail deposits
increased during 2001 because the public found savings to be a more favorable
investment compared with other alternatives. Retail deposits increased during
2000 primarily due to the implementation of marketing campaigns that took
advantage of a favorable savings environment, especially in the second half of
the year. At December 31, 2001, 2000, and 1999, transaction accounts (which
include checking, passbook, and money market accounts) represented 40%, 24%, and
35%, respectively, of the total balance of deposits.
The Company uses government securities dealers to sell wholesale
certificates of deposit (CDs) to institutional investors (wholesale CDs). The
Company's deposit balance at December 31, 2000 and 1999 included $185 million
and $600 million, respectively, of these wholesale CDs. There were no
outstanding wholesale CDs at December 31, 2001.
57
Advances from the Federal Home Loan Banks
The Company uses borrowings from the Federal Home Loan Banks (FHLBs),
also known as "advances," to provide funds for loan origination activities.
Advances are secured by pledges of certain loans, MBS-REMICs, other MBS, and
capital stock of the FHLBs. FHLB advances amounted to $18.0 billion at December
31, 2001, compared to $19.7 billion and $8.9 billion at December 31, 2000 and
1999, respectively.
Securities Sold Under Agreements to Repurchase
The Company borrows funds through transactions in which securities are
sold under agreements to repurchase (Reverse Repos). Reverse Repos are entered
into with selected major government securities dealers and large banks, using
MBS from the Company's portfolio. Reverse Repos with dealers and banks amounted
to $224 million, $857 million, and $1.0 billion at yearends 2001, 2000, and
1999, respectively.
Other Borrowings
As of December 31, 2001, Golden West, at the holding company level, had
a total of $600 million of subordinated debt issued and outstanding. As of
December 31, 2001, the Company's subordinated debt securities were rated A3 and
A- by Moody's Investors Service (Moody's) and Standard & Poor's Corporation
(S&P), respectively. In January 2002, Moody's upgraded the credit rating for
Golden West's subordinated debt to A2.
In July 2000, the Company filed a registration statement with the
Securities and Exchange Commission for the issuance or sale of up to $1.0
billion of securities, including senior debt. At December 31, 2001, the Company
had issued and had outstanding $200 million of five-year senior debt in
connection with the aforementioned registration statement. As of December 31,
2001, the Company's senior debt was rated A2 and A by Moody's and S&P,
respectively. In January 2002, Moody's upgraded the credit rating for Golden
West's senior debt to A1.
During 1996, WSB received permission from the OTS to issue
non-convertible medium-term notes to institutional investors under rules similar
to Office of the Comptroller of the Currency rules applicable to similarly
situated national banks. As of December 31, 2001, WSB had not issued any notes
under this authority. As of December 31, 2001, WSB's long-term deposits and
other senior obligations were rated A1 and A+ by Moody's and S&P, respectively.
In January 2002, Moody's upgraded the credit rating for WSB's long-term deposits
and other senior obligations to Aa3.
Stockholders' Equity
The Company's stockholders' equity increased by $597 million during
2001 as a result of earnings partially offset by decreased market values of
securities available for sale, the $186 million cost of the repurchase of
Company stock, and the payment of quarterly dividends to stockholders. The
Company's stockholders' equity increased by $492 million during 2000 as a result
of earnings and increased market values of securities available for sale
partially offset by the $109 million cost of the repurchase of Company stock and
the payment of quarterly dividends to stockholders. The Company's stockholders'
equity increased by $71 million during 1999 as a result of earnings offset by
the $345 million cost of the repurchase of Company stock, decreased market
values of securities available for sale, and the payment of quarterly dividends
to stockholders.
58
Since 1993, through five separate actions, the Company's Board of
Directors has authorized the purchase by the Company of up to 60.6 million
shares of Golden West's common stock. As of December 31, 2001, 46.6 million
shares had been repurchased and retired at a cost of $1.1 billion since October
28, 1993, of which 3.7 million shares were purchased and retired at a cost of
$186 million during 2001. Dividends from subsidiaries are expected to continue
to be the major source of funding for the stock repurchase program. The purchase
of Golden West stock is not intended to have a material impact on the normal
liquidity of the Company.
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, thrifts and savings banks 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 OTS and other bank regulatory agencies have adopted rules based
upon five capital tiers: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. The rules provide that a savings association is
"well-capitalized" if its 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, 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 December
31, 2001, 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 table below shows WSB's and WTX's regulatory capital calculated in
accordance with FIRREA's capital standards at December 31, 2001.
TABLE 50
Regulatory Capital Requirements
As of December 31, 2001
(Dollars in Thousands)
MINIMUM CAPITAL
ACTUAL REQUIREMENTS
---------------------------- ----------------------------
Capital Ratio Capital Ratio
-------------- ------------ -------------- -----------
WSB
---
Tangible $4,480,834 7.71% $ 871,198 1.50%
Tier 1 (core or leverage) 4,480,834 7.71 2,323,194 4.00
Tier 1 risk-based 4,480,834 13.20 --- ---
Total risk-based 4,836,208 14.24 2,716,210 8.00
WTX
---
Tangible $ 401,886 5.23% $ 115,211 1.50%
Tier 1 (core or leverage) 401,886 5.23 307,229 4.00
Tier 1 risk-based 401,886 25.04 --- ---
Total risk-based 402,025 25.05 128,385 8.00
59
Because WSB and WTX are subsidiaries of a savings and loan holding
company, they must at least file a notice with the OTS prior to making capital
distributions and, in some cases, may need to file applications. The OTS may
disapprove a notice or deny an application, in whole or in part, if the OTS
finds that: (a) the insured subsidiary would be undercapitalized or worse
following the proposed capital distribution; (b) the proposed capital
distribution raises safety and soundness concerns; or (c) the proposed capital
distribution violates a prohibition contained in any statute, regulation,
agreement with the OTS, or a condition imposed upon the insured subsidiary in an
OTS approved application or notice. In general, WSB and WTX may, with prior
notice to the OTS, make capital distributions during a calendar year in an
amount equal to that year's net income plus retained net income for the
preceding two years, as long as immediately after such distributions it remains
at least adequately capitalized. Capital distributions in excess of such amount,
or which would cause WSB and WTX to no longer be adequately capitalized, require
specific OTS approval.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as amended,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted SFAS 133 as of January 1,
2001 and recorded a loss of $10 million before tax, or $6 million after tax.
Because the Company has decided not to use permitted hedge accounting for the
derivative financial instruments in portfolio on December 31, 2001, the changes
in fair value of these instruments since adoption are reflected in the
Consolidated Statement of Net Earnings as "Changes in Fair Value of
Derivatives."
In September 2000, the FASB issued Statement of Financial Accounting
Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 140). This statement replaces
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. Because the Company retains 100% of the beneficial interests in its
MBS-REMIC securitizations, it does not have any effective "retained interests"
requiring disclosures under FAS 140. In accordance with SFAS 140, the Company's
securitizations after March 31, 2001 resulted in securities classified as
securitized loans and being recorded as loans receivable.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standards No.142, "Goodwill and Other Intangible Assets" (SFAS 142).
SFAS 141 requires that all business combinations initiated after June 30, 2001
be accounted for under the purchase method and addresses the initial recognition
and measurement of goodwill and other intangible assets acquired in a business
combination. SFAS 142 addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination and the accounting
for goodwill and other intangible assets subsequent to their acquisition. SFAS
142 provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives will not be amortized,
but will rather be tested at least annually for impairment. The Company does not
expect the adoption of SFAS 142 for its fiscal year beginning January 1, 2002 to
have a material effect on its financial statements and results of operations.
60
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and the normal operation
of a long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. This Statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of this statement to have a material
impact on its financial statements and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions. In addition, this
Statement resolves implementation issues of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
This Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company does not expect the adoption of this Statement to have a
material impact on its financial statements and results of operations.
Results of Operations
Net Earnings
Net earnings increased in 2001 as compared to 2000 as a result of
increased net interest income and increased noninterest income, partially offset
by an increase in general and administrative expense. Net earnings increased in
2000 as compared to 1999 primarily due to an increase in net interest income,
partially offset by an increase in general and administrative expenses.
Earnings Per Share
The Company's Basic Earnings Per Share (EPS) was $5.18 (before the
cumulative effect of the accounting change) for the year ended December 31,
2001, compared to $3.44 and $2.90 for the years ended December 31, 2000 and
1999, respectively. The Company reported Diluted EPS of $5.11 (before the
cumulative effect of the accounting change) for the year ended December 31, 2001
as compared to $3.41 and $2.87 for the years ended December 31, 2000 and 1999,
respectively.
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 interest
rates, which can temporarily accelerate or restrain net interest income changes.
61
Net interest income amounted to $1.6 billion and $1.1 billion, for the
years ended December 30, 2001 and 2000, respectively. These amounts represented
42% and 15% increases, respectively, over the previous years. As discussed
below, the significant growth of net interest income in 2001 compared with the
prior year resulted from two principal factors: the substantial growth of the
mortgage portfolio during 2000; and an increase in 2001 in the Company's primary
spread, which is the difference between the yield on loans and other investments
and the rate paid on deposits and borrowings.
Net interest income in 2001 benefited from the 32% growth of the
mortgage portfolio in the prior year. Specifically, in 2000, the Company
originated a record loan volume that, in combination with a moderate level of
mortgage repayments, resulted in unusually rapid growth of the Company's loans
receivable. Thus, there was a significantly larger average loan balance
outstanding during 2001 versus 2000, and this contributed to the substantial net
interest income increase in 2001.
Net interest income increases in 2001 were also influenced by a
temporary widening of the Company's primary spread. As noted in the discussion
of the Gap on page 47, 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 while as the yield on the ARM portfolio
continues to catch 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 as the ARM yield continues to respond to previous rate
increases. For the five years ended December 30, 2001, which included periods of
both falling and rising interest rates, the Company's primary spread averaged
2.26% with a high of 3.21% and a low of 1.88%.
During 2001, the Federal Reserve's Open Market Committee lowered the
Federal Funds rate, a key short-term interest rate, by a total of 475 basis
points. 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 the year ended December 31, 2001. This large
drop occurred, in part, because the Company used primarily adjustable
market-rate borrowings to fund the rapid expansion of the loan portfolio in
2000. As a result, a significant portion of the Company's liabilities responded
almost immediately to the sharp decrease in market rates in 2001. While the
Company's cost of funds declined considerably during 2001, the yield on the
Company's assets fell by only 166 basis points, because the indexes to which the
large adjustable rate mortgage portfolio is tied moved down more slowly. As a
consequence, the Company's primary spread widened substantially during 2001,
reaching 3.21%, the highest in the company's history, and resulted in a
temporary boost to net interest income in 2001.
62
The following table shows the components of the Company's primary
spread at the end of the years 1999 through 2001.
TABLE 51
Yield on Earning Assets, Cost of Funds, and Primary Spread
1999 - 2001
December 31
--------------------------------
2001 2000 1999
-------- --------- ---------
Yield on loan portfolio 6.38% 8.03% 7.16%
Yield on investments 2.86 7.12 5.88
-------- --------- ---------
Yield on earning assets 6.36 8.02 7.15
-------- --------- ---------
Cost of deposits 3.39 5.52 4.69
Cost of borrowings 2.72 6.66 5.77
-------- --------- ---------
Cost of funds 3.15 5.99 5.00
-------- --------- ---------
Primary spread 3.21% 2.03% 2.15%
======== ========= =========
The Company holds ARMs in order to manage the rate sensitivity of the
asset side of the balance sheet. The yield on the Company's ARM portfolio tends
to lag changes in market interest rates principally because of lags related to
the indexes. Most of the Company's ARMs have interest rates that change in
accordance with an index based on the cost of deposits and borrowings of savings
institutions that are members of the FHLB of San Francisco (the COFI). The
Company also originates loans that are tied to the Golden West Cost of Savings
Index (COSI). As previously discussed, there is a two-month reporting lag for
the COFI and a one-month reporting lag for COSI. Additionally, certain loan
features cause the yield on the Company's ARM portfolio to lag changes in market
interest rates. These features include introductory fixed rates on new ARM
loans, the interest rate adjustment frequency of ARM loans, interest rate caps
or limits on individual rate changes, and interest rate floors. On balance, the
index lags and ARM structural features cause the Company's assets initially to
reprice more slowly than its liabilities, resulting in a temporary reduction in
net interest income when rates increase and a temporary increase in net interest
income when rates fall.
Interest Rate Swaps
The Company enters into interest rate swaps as a part of its interest
rate risk management strategy. Such instruments are entered into solely to alter
the repricing characteristics of designated assets and liabilities. The Company
does not hold any derivative financial instruments for trading purposes.
63
TABLE 52
Interest Rate Swap Activity
2000 - 2001
(Notional Amounts in Millions)
Receive Pay
Fixed Fixed
Swaps Swaps
------- -----
Balance at January 1, 2000 $ 263 $ 727
Maturities (46) (10
------- -----
Balance at December 31, 2000 217 717
Maturities (114) (96)
------- -----
Balance at December 31, 2001 $ 103 $ 621
======= =====
Interest rate swap payment activity decreased net interest income by
$13 million, $4 million, and $11 million for the years ended December 31, 2001,
2000, and 1999, respectively.
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. In
addition to the one-time charge, the Company reported pre-tax expense of $10
million, or $.04 after tax per diluted share for the year ended December 31,
2001, associated with the ongoing valuation of the Company's swaps. This
additional expense occurred because the market value of Golden West's swaps
declined during 2001 in conjunction with falling short-term rates. The changes
in fair value of these swap contracts are reflected as assets or liabilities 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 December 31, 2001.
Interest on Loans
Interest on loans was $2.7 billion, $2.5 billion, and $1.9 billion for
the years ended December 31, 2001, 2000, and 1999, respectively. The increase in
2001 was due to an increase in the average portfolio balance partially offset by
a decrease in the average portfolio yield. The increase in 2000 was due to an
increase in the average portfolio balance and an increase in the average
portfolio yield.
Interest on MBS
Interest on MBS was $1.3 billion, $1.1 billion, and $769 million for
the years ended December 31, 2001, 2000, and 1999, respectively. The increase in
2001 was due to an increase in the average portfolio balance partially offset by
a decrease in the average portfolio yield. The increase in 2000 was due to an
increase in the average portfolio balance and an increase in the average
portfolio yield. The increases in the average balance of the MBS portfolio
during 2001 and 2000 were primarily due to the securitization of loans into FNMA
MBS and MBS-REMICs, as discussed in "Loans Receivable and Mortgage-Backed
Securities" on page 50.
64
Interest and Dividends on Investments
The income earned on the investment portfolio fluctuates, depending
upon the volume outstanding and the yields available on short-term investments.
Interest and dividends on investments was $193 million, $254 million, and $205
million for the years ended December 31, 2001, 2000, and 1999, respectively. The
decrease in 2001 was primarily due to a decrease in the average portfolio yield
partially offset by an increase in the average portfolio balance. The increase
in 2000 was primarily due to an increase in the average portfolio yield
partially offset by a decrease in the average portfolio balance. In addition,
included in interest and dividends on investments for the year ended December
31, 2000 was $3.7 million of special dividends from the FHLB of San Francisco
and $2.8 million of special dividends from the FHLB of Dallas for a total of
$6.5 million.
Interest on Deposits
Interest on deposits was $1.5 billion, $1.5 billion, and $1.3 billion
for the years ended December 31, 2001, 2000, and 1999, respectively. Interest on
deposits in 2001 was comparable to 2000. The increase in 2000 was due to an
increase in the average cost of deposits and an increase in the average balance
of deposits.
Interest on Advances
Interest paid on FHLB advances was $880 million, $961 million, and $380
million for the years ended December 31, 2001, 2000, and 1999, respectively. The
decrease in 2001 was due to a decrease in the average cost of these borrowings
partially offset by an increase in the average outstanding balance. The increase
in 2000 was due to an increase in the average cost of these borrowings and an
increase in the average outstanding balance.
Interest on Other Borrowings
Interest expense on other borrowings, including interest on reverse
repurchase agreements, amounted to $176 million, $190 million, and $192 million
for the years ended 2001, 2000, and 1999, respectively. The decrease in the
expense in 2001 compared with 2000 was due to a decrease in the average cost of
these liabilities partially offset by an increase in the average balance. The
decrease in the expense in 2000 compared with 1999 was due to a decrease in the
average balance of these liabilities partially offset by an increase in the
average cost.
Provision for (Recovery of) Loan Losses
The provision for loan losses was $22 million for the year ended 2001,
compared to a provision of $9 million for the year ended 2000 and a recovery of
$2 million for the year ended 1999. The provision in 2001 and in 2000 reflected
the growth of the loan portfolio. In additional, the 2001 provision reflected
the recessionary economy.
Noninterest Income
Noninterest income was $237 million, $161 million, and $143 million for
the years ended December 31, 2001, 2000, and 1999, respectively. The increase in
2001 was primarily due to higher loan prepayment fees and increased gains on the
sale of fixed-rate mortgage. The increase in 2000 was primarily due to higher
loan fee income.
65
General and Administrative Expenses
General and administrative expenses (G&A) were $514 million, $425
million, and $386 million for the years ended 2001, 2000, and 1999,
respectively. Expenses increased in 2001 because of the costs associated with
the year's record loan and savings volumes as well as the increased activity
associated with the 52% expansion of the Company's earning assets over the prior
three years. Additionally, the company continued to make sizeable investments in
technology including an expanded Internet Web site and the expansion of computer
and network resources to handle the transmission and processing of increased
volumes of data. Expenses increased in 2000 because of the costs associated with
the growth of the loan portfolio as well as ongoing investments in personnel,
facilities, and technology.
General and administrative expenses as a percentage of average assets
was .90% for the year ended December 31, 2001 compared with .87% and .98% for
the years ended December 31, 2000 and 1999, respectively. G&A as a percentage of
average assets decreased in 2000 because average assets grew faster than G&A
expense.
Taxes on Income
Golden West utilizes the accrual method of accounting for income tax
purposes and for preparing its published financial statements. For financial
reporting purposes only, the Company uses "purchase accounting" in connection
with certain assets acquired through mergers. The purchase accounting portion of
income is not subject to tax.
Taxes as a percentage of earnings increased slightly in 2001 compared
with 2000 and increased slightly in 2000 over 1999.
Liquidity and Capital Resources
WSB's principal sources of funds are cash flows generated from
earnings; deposits; loan repayments; sales of loans; wholesale certificates of
deposit; borrowings from the FHLB of San Francisco; borrowings from its parent;
borrowings from its subsidiary; and debt collateralized by mortgages, MBS, or
securities. In addition, WSB has other alternatives available to provide
liquidity or finance operations including federal funds purchased, bank notes,
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 ($20 million in 2000), dividends to stockholders, the
repurchase of Golden West stock, and general and administrative expenses.
66
Common Stock
The quarterly price ranges for the Company's common stock during 2001
and 2000 were as follows:
TABLE 53
Common Stock Price Range
2000 - 2001
2001 2000
----------------------- ------------------------
First Quarter $51.00 - $65.94 $27.19 - $32.50
Second Quarter $57.96 - $68.95 $30.38 - $46.00
Third Quarter $52.81 - $70.00 $41.81 - $53.63
Fourth Quarter $47.15 - $58.85 $50.50 - $69.44
67
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See pages 46 through 49 in Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index included on page 75 and the financial statements, which begin
on page F-1, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
68
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows (see
footnote explanations on the following page):
Name and Age Position
------------ --------
Herbert M. Sandler, 70 Chairman of the Board and Chief
Executive Officer
Marion O. Sandler, 71 Chairman of the Board and Chief
Executive Officer
James T. Judd, 63 Senior Executive Vice President
Russell W. Kettell, 58 President, Treasurer, and Chief
Financial Officer/(a)/
Michael Roster, 56 Executive Vice President, General
Counsel, and Secretary/(b)/
Carl M. Andersen, 41 Group Senior Vice President/(c)/
William C. Nunan, 50 Group Senior Vice President and
Chief Accounting Officer/(d)/
Maryellen Cattani Herringer, 58 Director
Louis J. Galen, 76 Director
Antonia Hernandez, 54 Director
Patricia A. King, 59 Director
Bernard A. Osher, 74 Director
Kenneth T. Rosen, 53 Director
Leslie Tang Schilling, 47 Director
Each of the above persons holds the same position with WSB with the
exception of James T. Judd who is President, Chief Operating Officer, and
Director of WSB and Russell W. Kettell who is a Senior Executive Vice
President and Director of WSB. Each executive officer has had the principal
occupations shown for the prior five years except as follows:
(a) Russell W. Kettell was elected Chief Financial Officer in December 1999, was
elected Treasurer of the Company in January 1995, and has served as
President of the Company since February 1993. Prior thereto, Mr. Kettell
served as Senior Executive Vice President since 1989, Executive Vice
President since 1984, Senior Vice President since 1980, and Treasurer from
1976 until 1984.
69
(b) Michael Roster was elected Executive Vice President, General Counsel and
Secretary in February 2000. Prior thereto, Mr. Roster was General Counsel
at Stanford University.
(c) Carl M. Andersen was elected Group Senior Vice President in 1999 and
Senior Vice President of the Company in 1997. He served as Senior Vice
President with WSB and WTX since 1996. Prior thereto, he served as Vice
President of WSB since 1990.
(d) William C. Nunan was elected Chief Accounting Officer of the Company in
December 1999, was elected Group Senior Vice President in 1999, and was
elected Senior Vice President of the Company in 1997. He served as Senior
Vice President with WSB and WTX since 1995. Prior thereto, he served as
Vice President of WSB since 1985.
For further information concerning the directors and executive officers
of the Registrant, see pages 2 and 3 of the Registrant's Proxy Statement dated
March 15, 2002, which are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in Registrant's
Proxy Statement dated March 15, 2002, on pages 4 through 6 and 8 through 10 and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth on pages 2, 3, 6
and 7 of Registrant's Proxy Statement dated March 15, 2002, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Indebtedness of Management" on page 9 of the Registrant's Proxy
Statement dated March 15, 2002, which is incorporated herein by reference.
70
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Index to Financial Statements
See Index included on page 75 and the financial statements, which begin
on page F-1.
(2) Index to Financial Statement Schedules
Financial statement schedules are omitted because they are not
required or because the required information is included in the financial
statements or the notes thereto.
(3) Index to Exhibits
Exhibit No. Description
----------- -----------
3 (a) Certificate of Incorporation, as amended, and amendments thereto,
are incorporated by reference 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, as amended in 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, is incorporated by reference
to Exhibit A of the Company's Definitive Proxy Statement on
Schedule 14A, filed on March 15, 1996, for the Company's 1996
Annual Meeting of Stockholders.
10 (b) Annual Incentive Bonus Plan is incorporated by reference to
Exhibit A of the Company's Definitive Proxy Statement on Schedule
14A, filed on March 14, 1997, for the Company's 1997 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 (g) 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.
71
10 (h) Form of Supplemental Retirement Agreement between the Company and
certain executive officers is incorporated by reference to
Exhibit 10(j) to the Company's Annual Report on Form 10-K (File
No. 1-4629) for the year ended December 31, 1990.
21 (a) Subsidiaries of the Registrant.
23 (a) Independent Auditors' Consent.
(b) Financial Statement Schedules
The response to this portion of Item 14 is submitted as a part of
section (a), Exhibits.
(c) Reports on Form 8-K
The Registrant did not file any current reports on Form 8-K with the
Commission in the fourth quarter.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into Registrant's Registration Statement on Form S-8
No. 33-14833 (filed June 5, 1987):
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
72
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLDEN WEST FINANCIAL CORPORATION
By: /s/ Herbert M. Sandler
--------------------------------------------------
Herbert M. Sandler,
Chairman of the Board and Chief Executive Officer
By: /s/ Marion O. Sandler
--------------------------------------------------
Marion O. Sandler,
Chairman of the Board and Chief Executive Officer
By: /s/ Russell W. Kettell
--------------------------------------------------
Russell W. Kettell,
President and Chief Financial Officer
By: /s/ William C. Nunan
--------------------------------------------------
William C. Nunan,
Chief Accounting Officer
Dated: March 28, 2002
73
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated:
/s/ Maryellen Cattani Herringer 3/28/02 /s/ Bernard A. Osher 3/28/02
- ------------------------------------------ ------------------------------------
Maryellen Cattani Herringer Bernard A. Osher
Director Director
/s/ Louis J. Galen 3/28/02 /s/ Kenneth T. Rosen 3/28/02
- ------------------------------------------ ------------------------------------
Louis J. Galen Kenneth T. Rosen
Director Director
/s/ Antonia Hernandez 3/28/02 /s/ Herbert M. Sandler 3/28/02
- ------------------------------------------ ------------------------------------
Antonia Hernandez Herbert M. Sandler
Director Director
/s/ Patricia A. King 3/28/02 /s/ Marion O. Sandler 3/28/02
- ------------------------------------------ ------------------------------------
Patricia A. King Marion O. Sandler
Director Director
/s/ Leslie Tang Schilling 3/28/02
------------------------------------
Leslie Tang Schilling
Director
74
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ......................................... F-1
Golden West Financial Corporation and Subsidiaries:
Consolidated Statement of Financial Condition as of
December 31, 2001, and 2000 ............................ F-2
Consolidated Statement of Net Earnings for the years
ended December 31, 2001, 2000, and 1999 ................ F-3
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 2001, 2000, and 1999 .......... F-4
Consolidated Statement of Cash Flows for the years
ended December 31, 2001, 2000, and 1999 ................ F-5, F-6
Notes to Consolidated Financial Statements .................. F-7
All supplemental schedules are omitted as inapplicable or because the required
information is included in the financial statements or notes thereto.
75
Independent Auditors' Report
----------------------------
Board of Directors and Stockholders
Golden West Financial Corporation
Oakland, California
We have audited the accompanying consolidated statement of financial
condition of Golden West Financial Corporation and subsidiaries (the "Company")
as of December 31, 2001 and 2000, 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, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note A to the consolidated financial statements, the
Company changed its method of accounting for derivatives, effective January 1,
2001, to conform with Statement of Financial Accounting Standards No. 133.
/s/ Deloitte & Touche LLP
Oakland, California
January 17, 2002
F-1
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
---------------------------------------------
(Dollars in thousands except per share figures)
ASSETS
------
December 31
---------------------------
2001 2000
------------ ------------
Cash $ 339,059 $ 350,430
Securities available for sale at fair value
(cost of $260,200 and $10,784) (Note B) 622,670 392,841
Other investments at cost (fair value of $-0- and
$368,317) (Note C) -0- 368,555
Purchased mortgage-backed securities available for sale at
fair value (cost of $231,613 and $69,159) (Notes D and K) 233,403 69,960
Purchased mortgage-backed securities held to maturity at cost
(fair value of $282,366 and $389,527) (Notes E, J and K) 275,150 385,543
Mortgage-backed securities with recourse held to maturity at cost
(fair value of $13,697,951 and $18,005,387) (Notes E, J and K) 13,569,619 18,124,987
Loans receivable less allowance for loan losses of
$261,013 and $236,708 (Notes F and J) 41,065,375 33,762,643
Interest earned but uncollected (Note G) 255,600 276,306
Investment in capital stock of Federal Home Loan Banks,
at cost which approximates fair value (Note J) 1,105,773 1,067,800
Foreclosed real estate 11,101 8,261
Premises and equipment, net (Note H) 328,579 307,652
Other assets (Note F) 779,942 588,991
------------ ------------
$ 58,586,271 $ 55,703,969
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
December 31
---------------------------
2001 2000
------------ ------------
Deposits (Note I) $ 34,472,585 $ 30,047,919
Advances from Federal Home Loan Banks (Note J) 18,037,509 19,731,797
Securities sold under agreements to repurchase (Note K) 223,523 857,274
Senior debt (Note L) 198,215 -0-
Subordinated notes (Note M) 599,511 598,791
Taxes on income (Note N) 457,964 432,207
Other liabilities 312,774 348,694
------------ ------------
54,302,081 52,016,682
Stockholders' equity (Notes A, O 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, 155,531,777 and 158,410,137 shares 15,553 15,841
Additional paid-in capital 173,500 151,458
Retained earnings 3,873,758 3,287,325
------------ ------------
4,062,811 3,454,624
Accumulated other comprehensive income from unrealized gains
on securities, net of income tax of $142,881 and $150,195 221,379 232,663
------------ ------------
Total Stockholders' Equity 4,284,190 3,687,287
------------ ------------
$ 58,586,271 $ 55,703,969
============ ============
See notes to consolidated financial statements.
F-2
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET EARNINGS
--------------------------------------
(Dollars in thousands except per share figures)
Year Ended December 31
----------------------------------------
2001 2000 1999
----------- ----------- -----------
Interest Income:
Interest on loans $ 2,740,101 $ 2,469,556 $ 1,851,790
Interest on mortgage-backed securities 1,276,648 1,072,559 769,314
Interest and dividends on investments 192,863 254,425 204,741
----------- ----------- -----------
4,209,612 3,796,540 2,825,845
Interest Expense:
Interest on deposits (Note I) 1,522,328 1,494,447 1,250,364
Interest on advances 879,842 960,824 380,189
Interest on repurchase agreements 42,113 86,549 61,565
Interest on other borrowings 133,997 103,552 130,242
----------- ----------- -----------
2,578,280 2,645,372 1,822,360
----------- ----------- -----------
Net Interest Income 1,631,332 1,151,168 1,003,485
Provision for (recovery of) loan losses 22,265 9,195 (2,089)
----------- ----------- -----------
Net Interest Income after Provision for
(Recovery of) Loan Losses 1,609,067 1,141,973 1,005,574
Noninterest Income:
Fees 150,675 78,016 65,456
Gain on the sale of securities, MBS, and loans 42,513 10,515 22,764
Change in fair value of derivatives (9,738 -0- -0-
Other 53,289 72,289 55,082
----------- ----------- -----------
236,739 160,820 143,302
Noninterest Expense:
General and administrative:
Personnel 298,435 243,787 215,483
Occupancy 80,908 72,355 67,015
Deposit insurance 5,712 5,699 5,358
Advertising 15,114 8,450 11,928
Other 113,633 94,556 86,363
----------- ----------- -----------
513,802 424,847 386,147
Earnings before Taxes on Income and
Cumulative Effect of Accounting Change 1,332,004 877,946 762,729
Taxes on Income (Note N) 513,181 332,155 282,750
----------- ----------- -----------
Earnings before Cumulative Effect of Accounting Change 818,823 545,791 479,979
Cumulative Effect of Accounting Change, Net of Tax (Note A) (6,018 -0- -0-
----------- ----------- -----------
Net Earnings $ 812,805 $ 545,791 $ 479,979
=========== =========== ===========
Basic Earnings Per Share before
Cumulative Effect of Accounting Change $ 5.18 $ 3.44 $ 2.90
Cumulative Effect of Accounting Change, Net of Tax (Note A) (.04) .00 .00
----------- ----------- -----------
Basic Earnings Per Share (Note P) $ 5.14 $ 3.44 $ 2.90
=========== =========== ===========
Diluted Earnings Per Share before
Cumulative Effect of Accounting Change $ 5.11 $ 3.41 $ 2.87
Cumulative Effect of Accounting Change, Net of Tax (Note A) (.04) .00 .00
----------- ----------- -----------
Diluted Earnings Per Share (Note P) $ 5.07 $ 3.41 $ 2.87
=========== =========== ===========
See notes to consolidated financial statements.
F-3
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
(Dollars in thousands except per share figures)
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders' Comprehensive
Stock Capital Earnings Income Equity Income
-------- ---------- ---------- ------------- ------------- -------------
Balance at January 1, 1999 $ 5,686 $ 122,159 $2,781,925 $ 214,548 $ 3,124,318
Net earnings -0- -0- 479,979 -0- 479,979 $ 479,979
Change in unrealized gains on
securities available for sale -0- -0- -0- (55,981) (55,981) (55,981)
Reclassification adjustment for
gains included in income -0- -0- -0- (750) (750) (750)
----------
Comprehensive income $ 423,248
==========
Common stock issued upon exercise
of stock options, including tax
benefits - 1,508,461 shares 78 24,172 -0- -0- 24,250
Purchase and retirement of 10,734,000
shares of Company stock (Note O) (404) -0- (344,655) -0- (345,059)
Common stock split effected by
means of a 200% stock dividend
(Note O) 10,776 (10,776) -0- -0- -0-
Cash dividends on common stock
($.193 per share) -0- -0- (31,903 -0- (31,903)
-------- ---------- ---------- ----------- -----------
Balance at December 31, 1999 16,136 135,555 2,885,346 157,817 3,194,854
Net earnings -0- -0- 545,791 -0- 545,791 $ 545,791
Change in unrealized gains on
securities available for sale -0- -0- -0- 74,849 74,849 74,849
Reclassification adjustment for
gains included in income -0- -0- -0- (3) (3) (3)
----------
Comprehensive income $ 620,637
==========
Common stock issued upon exercise
of stock options, including tax
benefits - 725,004 shares 72 15,903 -0- -0- 15,975
Purchase and retirement of 3,673,300
shares of Company stock (Note O) (367) -0- (108,930) -0- (109,297)
Cash dividends on common stock
($.22 per share) -0- -0- (34,882) -0- (34,882)
-------- ---------- ---------- ----------- -----------
Balance at December 31, 2000 15,841 151,458 3,287,325 232,663 3,687,287
Net earnings -0- -0- 812,805 -0- 812,805 $ 812,805
Change in unrealized gains on
securities available for sale -0- -0- -0- (11,246) (11,246) (11,246)
Reclassification adjustment for
gains included in income -0- -0- -0- (38) (38) (38)
----------
Comprehensive income $ 801,521
==========
Common stock issued upon exercise
of stock options, including tax
benefits - 797,090 shares 80 22,042 -0- -0- 22,122
Purchase and retirement of 3,675,450
shares of Company stock (Note O) (368) -0- (185,276) -0- (185,644)
Cash dividends on common stock
($.26 per share) -0- -0- (41,096) -0- (41,096)
-------- ---------- ---------- ----------- -----------
Balance at December 31, 2001 $ 15,553 $ 173,500 $3,873,758 $ 221,379 $ 4,284,190
======== ========== ========== =========== ===========
See notes to consolidated financial statements.
F-4
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in thousands)
Year Ended December 31
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash Flows from Operating Activities:
Net earnings $ 812,805 $ 545,791 $ 479,979
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Provision for (recovery of) loan losses 22,265 9,195 (2,089)
Amortization of net loan (fees), costs, and (discounts) 23,288 7,877 (14,100)
Depreciation and amortization 33,538 30,242 28,215
Loans originated for sale (2,327,382) (240,684) (793,443)
Sales of loans 2,919,066 349,809 1,196,403
Decrease (increase) in interest earned but uncollected 14,257 (93,118) 33,977
Federal Home Loan Bank stock dividends (55,301) (58,333) (36,383)
(Increase) in other assets (193,224) (155,637) (76,669)
Increase (decrease) in other liabilities (31,806) 160,653 (296,685)
Increase (decrease) in taxes on income 33,071 109,742 (8,967)
Other, net 15,798 (16,268) 717
------------ ------------ ------------
Net cash provided by operating activities 1,266,375 649,269 510,955
Cash Flows from Investing Activities:
New loan activity:
Real estate loans originated for portfolio (18,435,855) (19,542,003) (11,878,768)
Real estate loans purchased -0- (195) (1,375)
Other, net (428,778) (276,993) (100,285)
------------ ------------ ------------
(18,864,633) (19,819,191) (11,980,428)
Real estate loan principal payments:
Monthly payments 601,623 537,989 580,428
Payoffs, net of foreclosures 8,582,589 3,926,007 4,366,672
------------ ------------ ------------
9,184,212 4,463,996 4,947,100
Purchases of mortgage-backed securities available for sale (199,314) (4,356) -0-
Sales of mortgage-backed securities available for sale 4,642 -0- -0-
Repayments of mortgage-backed securities 6,386,071 2,457,365 2,759,224
Proceeds from sales of real estate 35,166 43,537 109,165
Decrease (increase) in securities available for sale (243,761) 52,521 (31,970)
Decrease (increase) in other investments 368,555 98,601 (44,771)
Purchases of Federal Home Loan Bank stock (88,030) (512,979) -0-
Redemptions of Federal Home Loan Bank stock 111,807 36,688 275,673
Additions to premises and equipment (54,884) (62,344) (38,063)
------------ ------------ ------------
Net cash used in investing activities (3,360,169) (13,246,162) (4,004,070)
See notes to consolidated financial statements.
F-5
Year Ended December 31
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash Flows from Financing Activities:
Net increase in deposits $ 4,424,666 $ 2,333,009 $ 1,495,815
Additions to Federal Home Loan Bank advances 2,945,500 13,664,250 4,332,230
Repayments of Federal Home Loan Bank advances (4,639,788) (2,847,672) (1,580,482)
Proceeds from agreements to repurchase securities 5,410,609 7,809,989 7,826,377
Repayments of agreements to repurchase securities (6,044,360) (7,997,891) (8,033,670)
Proceeds from senior debt 198,060 -0- -0-
Repayments of subordinated notes -0- (215,000) (100,000)
Dividends on common stock (41,096) (34,882) (31,903)
Exercise of stock options 14,476 11,024 12,725
Purchase and retirement of Company stock (185,644) (109,297) (345,059)
------------ ------------ ------------
Net cash provided by financing activities 2,082,423 12,613,530 3,576,033
------------ ------------ ------------
Net Increase (Decrease) in Cash (11,371) 16,637 82,918
Cash at beginning of period 350,430 333,793 250,875
------------ ------------ ------------
Cash at end of period $ 339,059 $ 350,430 $ 333,793
============ ============ ============
Supplemental cash flow information:
Cash paid for:
Interest $ 2,671,740 $ 2,543,728 $ 1,814,859
Income taxes 469,970 218,385 280,536
Cash received for interest and dividends 4,230,318 3,695,585 2,859,822
Noncash investing activities:
Loans converted from adjustable rate to fixed-rate 465,060 28,930 522,047
Loans transferred to foreclosed real estate 34,792 35,948 65,392
Loans securitized into mortgage-backed securities with
recourse held to maturity 2,995,949 9,482,904 4,773,615
Loans securitized into mortgage-backed securities with
recourse, recorded as loans receivable per SFAS 140 6,011,873 -0- -0-
F-6
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(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). Intercompany accounts and transactions have been
eliminated. World Savings Bank, FSB (WSB), is a federally chartered savings bank
and the Company's principal operating subsidiary with $58.4 billion in assets at
December 31, 2001. WSB has a wholly owned subsidiary, World Savings Bank, FSB
(Texas) (WTX) that is also a federally chartered savings bank regulated by the
OTS. WTX had $7.7 billion of assets at December 31, 2001. Certain
reclassifications have been made to prior year financial statements to conform
to current presentation.
Nature of Operations
- --------------------
Golden West Financial Corporation, through its financial institution
subsidiaries, operates 265 savings branches in nine states and 330 loan offices
in 38 states, of which 133 loan offices are located in savings branches. The
Company's primary source of revenue is interest from loans on residential real
estate and mortgage-backed securities.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash
- ----
For the purpose of presentation in the Consolidated Statement of Cash
Flows, cash is defined as cash held in office and amounts due from banks.
Securities Available for Sale and Other Investments
- ---------------------------------------------------
The Company classifies its investment securities as either held to
maturity or available for sale. The Company has no trading securities.
Securities held to maturity are recorded at cost with any discount or premium
amortized using the interest method. Securities held to maturity are recorded at
cost because the Company has the ability and intent to hold these securities to
maturity. Securities available for sale are reported at fair value. Net
unrealized gains and losses are excluded from earnings and reported net of
applicable income taxes in other comprehensive income and as a separate
component of stockholders' equity until realized. Realized gains or losses on
sales of securities are 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 had Other Investments at December 31, 2000, consisting of
overnight investments such as Eurodollar time deposits and federal funds, and
longer-term investments such collateralized mortgage obligations. These Other
Investments were recorded at cost with any discount or premium amortized using a
method that is not materially different from the interest method. The Company
had no Other Investments outstanding at December 31, 2001.
F-7
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share)
Mortgage-Backed Securities
- --------------------------
The Company has no mortgage-backed securities (MBS) classified as
trading. Mortgage-backed securities held to maturity are recorded at cost
because the Company has the ability and intent to hold these MBS to maturity.
Premiums and discounts on MBS are amortized or accreted using the interest
method over the estimated life of the security. MBS available for sale are
reported at fair value, with unrealized gains and losses excluded from earnings
and reported net of applicable income taxes as a separate component of
stockholders' equity until realized. Realized gains or losses on sales of MBS
are recorded in earnings at the time of sale and are determined by the
difference between the net sales proceeds and the cost of MBS, using specific
identification, adjusted for any unamortized premium or discount. The Company
has securitized certain loans from its held for investment loan portfolio into
MBS with recourse and into Real Estate Mortgage Investment Conduits (REMICs)
which are held to maturity and available to be used as collateral for
borrowings. The REMICs and loan securitizations are not recorded as sales
because 100% of the beneficial ownership interests are retained by the Company,
including both the primary and subordinate retained interests on REMICs. The
REMIC securities are recorded at cost and are evaluated with the other
held-to-maturity MBS for impairment based upon the characteristics of the
underlying loans.
Securitized Loans
- -----------------
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 140), securities resulting from real
estate loan securitizations formed after March 31, 2001 are included in Loans
Receivable, and are not considered investments subject to Statement of Financial
Accounting Standards Statement No. 115 classification.
Loans Receivable
- ----------------
The Company's real estate loan portfolio consists primarily of
long-term loans collateralized by first deeds of trust on single-family
residences and multi-family residential property. In addition to real estate
loans, the Company makes loans on the security of savings accounts.
The adjustable rate mortgage (ARM) is the Company's primary real estate
loan. The ARM carries an interest rate that may change as often as monthly,
based on movements in certain cost of funds or other indexes. Interest rate
changes and monthly payments of principal and interest may be subject to maximum
increases or decreases. Negative amortization may occur during periods when
payments are limited. A portion of the Company's ARMs are originated with a low,
fixed rate for an initial period, primarily one to 12 months.
The Company originates loans that are held for sale, primarily
fixed-rate loans. These loans are recorded at the lower of cost or market.
A loan is impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. The Company's policy is to measure
impairment based on the fair value of the collateral. When the value of the
impaired loan is less than the recorded investment in the loan, the impairment
is recorded through a valuation allowance. The valuation allowance and provision
for loan losses are adjusted for changes in the fair value of the collateral.
Impairment is measured on an individual loan basis for larger multi-family loans
and on a group basis for smaller single family one-to-four unit loans.
Loan origination fees, net of certain direct loan origination costs,
are deferred and amortized as an interest income yield adjustment over the
actual life of the related loans using the interest method. Loan origination
fees, net of certain direct loan origination costs, on loans originated for sale
are deferred until the loans are sold and recognized at the time of sale.
"Fees," which include fees for prepayment of loans, income for
servicing loans, late charges for delinquent payments, fees from deposit
accounts, and miscellaneous fees, are recorded when collected.
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.
F-8
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
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 the borrower's ability to make
scheduled payments.
Foreclosed Real Estate
- ----------------------
Foreclosed real estate is comprised of improved property acquired
through foreclosure. All real estate owned is recorded at the lower of cost or
fair value. Included in the fair value is the estimated selling price in the
ordinary course of business less estimated costs to repair, hold, and dispose of
the property. Costs relating to holding property, net of rental and option
income, are expensed in the current period. Gains on the sale of real estate are
recognized at the time of sale. Losses realized and expenses incurred in
connection with the disposition of foreclosed real estate are charged to current
earnings.
Allowance for Loan Losses
- -------------------------
The Company provides specific valuation allowances for losses on loans
when impaired 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 loan losses that is based on both
historical experience in the loan portfolio and factors reflecting current
economic conditions. This approach uses a database that identifies losses on
loans and foreclosed real estate from past years to the present, broken down by
year of origination, type of loan, and geographical area. Based on these
historical analyses, management is then able to estimate a range of general loss
allowances by type of loan and risk category to cover losses inherent 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, specific and general
valuation allowances are established or adjusted. In estimating probable losses,
consideration is given to the estimated sales 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.
Mortgage Servicing Rights
- -------------------------
Capitalized Mortgage Servicing Rights (CMSRs) are periodically reviewed
for impairment based on fair value. The fair value of the CMSRs, for the
purposes of impairment measurement, is determined by using a discounted cash
flow analysis based on the Company's estimated annual cost of servicing, market
prepayment rates, and market discount rates. At December 31, 2001 and 2000,
there was no impairment. The balance of CMSRs is included in "Other assets" in
the Consolidated Statement of Financial Condition and is being amortized over
the projected servicing period. The amortization of the CMSRs is included in
"Fees" in the Consolidated Statement of Net Earnings.
Securities Sold Under Agreements to Repurchase
- ----------------------------------------------
The Company enters into sales of securities under agreements to
repurchase (reverse repurchase agreements) only with selected dealers and banks.
Reverse repurchase agreements are treated as financings and the obligations to
repurchase securities sold are reflected as a liability in the Consolidated
Statement of Financial Condition. The securities underlying the agreements
remain in the asset accounts.
Interest Rate Swaps
- -------------------
The Company utilizes certain derivative financial instruments,
primarily various types of interest rate swaps, as a part of its interest rate
risk management strategy. Such instruments are entered into solely to alter the
repricing characteristics of designated assets and liabilities. The Company does
not hold any derivative financial instruments for trading purposes.
F-9
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
An interest rate swap is an agreement between two parties in which one
party exchanges cash payments based on a fixed or floating rate of interest for
a counterparty's cash payment based on a floating rate of interest. The amounts
to be paid are defined by agreement and determined by applying the specified
interest rates to a notional principal amount. Interest rate swap agreements are
entered into to limit the impact of changes in interest rates on mortgage loans,
or other designated assets, deposits or borrowings. The interest rate
differential paid or received on interest rate swap agreements is recognized
over the life of the agreements, with income and expense recorded in the same
category as the designated balance sheet item. The designated balance sheet item
is generally a pool of assets or liabilities with similar interest rate
characteristics. Some interest rate swaps are entered into with starting dates
in the future in anticipation of future prepayments on fixed-rate assets.
In accordance with Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133),
beginning January 1, 2001, the Company recognized the fair value of its interest
rate swap agreements as assets or liabilities on the Consolidated Statement of
Financial Condition. Because the Company has decided not to utilize permitted
hedge accounting for its existing swap positions, the changes in fair value of
these instruments are reflected in the Consolidated Statement of Net Earnings as
"Change in Fair Value of Derivatives".
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.
Regulatory Capital Requirements
- -------------------------------
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, thrifts and savings banks 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 OTS and other bank regulatory agencies have adopted rules based
upon five capital tiers: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. The rules provide that a savings association is
"well-capitalized" if its 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, 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 December
31, 2001, 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.
F-10
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
At December 31, 2001 and 2000, WSB and WTX had the following regulatory
capital calculated in accordance with FIRREA's capital standards:
December 31, 2000
----------------------------------------------------------------------------
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
-------------------- --------------------- ---------------------
Capital Ratio Capital Ratio Capital Ratio
----------- ------- ----------- ------- ----------- -------
WSB
- ---
Tangible $ 4,480,834 7.71 % $ 871,198 1.50 % --- ---
Tier 1 (core or leverage) 4,480,834 7.71 2,323,194 4.00 $ 2,903,992 5.00 %
Tier 1 risk-based 4,480,834 13.20 --- --- 2,037,158 6.00
Total risk-based 4,836,208 14.24 2,716,210 8.00 3,395,263 10.00
WTX
- ---
Tangible $ 401,886 5.23 % $ 115,211 1.50 % --- ---
Tier 1 (core or leverage) 401,886 5.23 307,229 4.00 $ 384,036 5.00 %
Tier 1 risk-based 401,886 25.04 --- --- 96,289 6.00
Total risk-based 402,025 25.05 128,385 8.00 160,481 10.00
December 31, 2000
----------------------------------------------------------------------------
WELL-CAPITALIZED
MINIMUM CAPITAL CAPITAL
ACTUAL REQUIREMENTS REQUIREMENTS
-------------------- --------------------- ---------------------
Capital Ratio Capital Ratio Capital Ratio
----------- ------- ----------- ------- ----------- -------
WSB
- ---
Tangible $3,653,377 6.60% $ 830,326 1.50% --- ---
Tier 1 (core or leverage) 3,653,377 6.60 2,214,203 4.00 $2,767,753 5.00%
Tier 1 risk-based 3,653,377 11.41 --- --- 1,921,670 6.00
Total risk-based 3,982,988 12.44 2,562,226 8.00 3,202,783 10.00
WTX
- ---
Tangible $ 288,409 5.34% $ 80,982 1.50% --- ---
Tier 1 (core or leverage) 288,409 5.34 215,951 4.00 $ 269,939 5.00%
Tier 1 risk-based 288,409 26.69 --- --- 64,824 6.00
Total risk-based 288,410 26.69 86,432 8.00 108,039 10.00
Retained Earnings
- -----------------
Because they are subsidiaries of a savings and loan holding company,
WSB and WTX must file a notice with the OTS prior to making capital
distributions and, in some cases, may need to file applications. The OTS may
disapprove a notice or deny an application, in whole or in part, if the OTS
finds that: (a) the insured subsidiary would be undercapitalized or worse
following the capital distribution; (b) the proposed capital distribution raises
safety and soundness concerns; or (c) the proposed capital distribution violates
a prohibition contained in any statute, regulation, agreement with the OTS, or a
condition imposed upon the insured subsidiary in an OTS approved application or
notice. In general, WSB and WTX may, with prior notice to the OTS, make capital
distributions during a calendar year in an amount equal to that year's net
income plus retained net income for the preceding two years, as long as
immediately after such distributions they remain at least adequately
capitalized. Capital distributions in excess of such amount, or which would
cause WSB or WTX to no longer be adequately capitalized, require specific OTS
approval.
At December 31, 2001, $2.3 billion of WSB'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 are WSB and WTX.
F-11
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
New Accounting Pronouncements
- -----------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as amended,
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company adopted SFAS 133 as of January 1,
2001 and recorded a loss of $10 million before tax, or $6 million after tax.
Because the Company has decided not to use permitted hedge accounting for the
derivative financial instruments in portfolio on December 31, 2001, the changes
in fair value of these instruments are reflected in the Consolidated Statement
of Net Earnings as "Change in Fair Value of Derivatives".
In September 2000, the FASB issued SFAS 140. This statement replaces
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS
125). SFAS 140 revises the standards for accounting for securitizations and
other transfers of financial assets and collateral and requires certain
disclosures, but it carries over most of SFAS 125's provisions without
reconsideration. This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after March 31,
2001. In its REMIC securitizations, the Company does not have any effective
"retained interests" requiring disclosure under SFAS 140. In accordance with
SFAS 140, the Company's securitizations after March 31, 2001 resulted in
securities classified as loans receivable.
In June 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial
Accounting Standards No.142, "Goodwill and Other Intangible Assets" (SFAS No.
142). SFAS 141 requires that all business combinations initiated after June 30,
2001 be accounted for under the purchase method and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS 142 addresses the initial recognition and
measurement of intangible assets acquired outside of a business combination and
the accounting for goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 provides that intangible assets with finite useful lives
be amortized and that goodwill and intangible assets with indefinite lives will
not be amortized, but will rather be tested at least annually for impairment.
The Company does not expect the adoption of SFAS 142 for its fiscal year
beginning January 1, 2002 to have a material effect on its financial statements.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and the normal operation
of a long-lived asset, except for certain obligations of lessees. This Statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. The associated asset retirement costs are capitalized as
part of the carrying amount of the long-lived asset. This Statement is effective
for financial statements issued for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of this statement to have a material
impact on its financial statements and results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which requires that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and broadens the presentation of
discontinued operations to include more disposal transactions. In addition, this
Statement resolves implementation issues of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This Statement is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company does not expect the adoption of this statement to have a
material impact on its financial statements and results of operations.
F-12
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE B - Securities Available for Sale
The following is a summary of securities available for sale:
December 31, 2001
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
U.S. Treasury and government agency obligations $ 4,518 $ 481 $ -0- $ 4,999
Collateralized mortgage obligations 755 -0- 29 726
Equity securities 5,530 362,018 -0- 367,548
Federal funds 49,397 -0- -0- 49,397
Eurodollar time deposits 200,000 -0- -0- 200,000
------------ ------------ ------------ -------------
$ 260,200 $ 362,499 $ 29 $ 622,670
============ ============ ============ =============
December 31, 2000
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
U.S. Treasury and government agency obligations $ 4,458 $ 551 $ -0- $ 5,009
Collateralized mortgage obligations 796 -0- 41 755
Equity securities 5,530 381,547 -0- 387,077
------------ ------------ ------------ -------------
$ 10,784 $ 382,098 $ 41 $ 392,841
============ ============ ============ =============
The weighted average portfolio yields on securities available for sale
were 2.86% and 38.31% (based on cost) at December 31, 2001 and 2000,
respectively. Principal proceeds from the sales of securities from the
securities available for sale portfolio were $-0- (2001), $14 (2000), and $1,269
(1999) and resulted in realized gains of $-0- (2001), $4 (2000), and $1,250
(1999) and realized losses of $-0- (2001), $-0- (2000), and $-0- (1999).
At December 31, 2001, the securities available for sale had maturities
as follows:
Amortized Fair
Maturity Cost Value
-------------------------------- ------------ ------------
No maturity $ 10,048 $ 372,547
2002 249,397 249,397
2003 through 2006 -0- -0-
2007 through 2011 600 580
2012 and thereafter 155 146
------------ ------------
$ 260,200 $ 622,670
============ ============
NOTE C - Other Investments
At December 31, 2001, the Company had no other investments outstanding.
December 31, 2000
---------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -------------
Overnight Investments:
Federal funds $ 318,736 $ -0- $ -0- $ 318,736
Eurodollar time deposits 40,000 -0- -0- 40,000
Longer-Term Investments:
Collateralized mortgage obligations 9,819 -0- 238 9,581
------------ ------------ ------------ -------------
$ 368,555 $ -0- $ 238 $ 368,317
============ ============ ============ =============
The weighted average portfolio yield on other investments was 6.21% at
December 31, 2000. There were no sales of other investments during 2001, 2000,
or 1999.
F-13
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE D - Purchased Mortgage-Backed Securities Available for Sale
Purchased mortgage-backed securities available for sale are summarized
as follows:
December 31, 2001
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- --------------
FNMA $ 96,700 $ 472 $ 105 $ 97,067
FHLMC 123,362 927 18 124,271
GNMA 11,551 517 3 12,065
------------- ------------- ------------- --------------
$ 231,613 $ 1,916 $ 126 $ 233,403
============= ============= ============= ==============
December 31, 2000
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- --------------
FNMA $ 30,195 $ 352 $ 122 $ 30,425
FHLMC 23,693 291 149 23,835
GNMA 15,240 452 21 15,671
Other 31 -0- 2 29
------------- ------------- ------------- --------------
$ 69,159 $ 1,095 $ 294 $ 69,960
============= ============= ============= ==============
The weighted average portfolio yields on mortgage-backed securities
available for sale were 7.11% and 8.98% at December 31, 2001, and 2000,
respectively. In 2001, the Company sold $4.6 million of mortgage-backed
securities available for sale and realized a gain of $13 thousand. There were no
sales of securities from the mortgage-backed securities available for sale
portfolio in 2000 or 1999.
At December 31, 2001, purchased mortgage-backed securities available
for sale had contractual maturities as follows:
Amortized Fair
Maturity Cost Value
------------------------ -------------- --------------
2002 through 2006 $ 265 $ 271
2007 through 2011 2,257 2,418
2012 and thereafter 229,091 230,714
-------------- --------------
$ 231,613 $ 233,403
============== ==============
F-14
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE E - Mortgage-Backed Securities Held to Maturity
Mortgage-backed securities held to maturity are summarized as follows:
December 31, 2001
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- -------------
Purchased MBS held to maturity
----------------------------------------
FNMA $ 242,739 $ 4,887 $ -0- $ 247,626
FHLMC 15,845 1,256 -0- 17,101
GNMA 16,566 1,073 -0- 17,639
-------------- ------------- ------------- -------------
Subtotal 275,150 7,216 -0- 282,366
MBS with recourse held to maturity
----------------------------------------
FNMA 4,732,779 53,018 31,495 4,754,302
REMICs 8,836,840 106,809 -0- 8,943,649
-------------- ------------- ------------- -------------
Subtotal 13,569,619 159,827 31,495 13,697,951
-------------- ------------- ------------- -------------
Total $ 13,844,769 $ 167,043 $ 31,495 $ 13,980,317
============== ============= ============= =============
December 31, 2000
-------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- ------------- ------------- -------------
Purchased MBS held to maturity
----------------------------------------
FNMA $ 342,339 $ 3,291 $ 1,638 $ 343,992
FHLMC 21,397 1,543 -0- 22,940
GNMA 21,807 788 -0- 22,595
-------------- ------------- ------------- -------------
Subtotal 385,543 5,622 1,638 389,527
MBS with recourse held to maturity
----------------------------------------
FNMA 7,758,409 12,574 92,654 7,678,329
REMICs 10,366,578 11,348 50,868 10,327,058
-------------- ------------- ------------- -------------
Subtotal 18,124,987 23,922 143,522 18,005,387
-------------- ------------- ------------- -------------
Total $ 18,510,530 $ 29,544 $ 145,160 $ 18,394,914
============== ============= ============= =============
The weighted average portfolio yields on mortgage-backed securities
held to maturity were 6.34% and 7.97% at December 31, 2001 and 2000,
respectively. There were no sales of securities from the mortgage-backed
securities held to maturity portfolio during 2001, 2000, or 1999.
At December 31, 2001, mortgage-backed securities held to maturity had
contractual maturities as follows:
Amortized Fair
Maturity Cost Value
------------------------------------ -------------- --------------
2002 through 2006 $ 11 $ 12
2007 through 2011 143 152
2012 and thereafter 13,844,615 13,980,628
-------------- --------------
$13,844,769 $13,980,792
============== ==============
F-15
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE F - Loans Receivable
December 31
-------------------------------
2001 2000
-------------- ---------------
Loans collateralized primarily by first deeds of trust:
One- to four-family dwelling units $ 38,326,759 $31,353,927
Over four-family dwelling units 2,766,888 2,444,832
Commercial property 29,117 39,810
Land 199 347
-------------- ---------------
41,122,963 33,838,916
Loans on savings accounts 16,672 21,429
-------------- ---------------
41,139,635 33,860,345
Less:
Undisbursed loan funds 7,171 6,703
Unearned fees, (deferred costs), and discounts (193,924) (145,709)
Allowance for loan losses 261,013 236,708
-------------- ---------------
$ 41,065,375 $33,762,643
============== ===============
As of December 31, 2001 and 2000, the Company had $670 million and $550
million, respectively, of second mortgages outstanding. The balance of the
second mortgages is included in the table above in the one- to four-family
dwelling units.
In addition to loans receivable and MBS with recourse held to maturity,
the Company services loans for others. At December 31, 2001 and 2000, the amount
of loans sold with servicing retained by the Company was $4,832,884 and
$2,899,079, respectively. At December 31, 2001 and 2000, the balance outstanding
of loans sold with recourse amounted to $2,797,634 and $1,915,672, respectively.
At December 31, 2001 and 2000, the Company had $429 million and $128
million, respectively, in loans held for sale, all of which are carried at the
lower of cost or market. At December 31, 2001, the Company had $5 billion of
loans that were securitized after March 31, 2001 that are securities classified
as loans receivable in accordance with SFAS 140.
Capitalized mortgage servicing rights are included in "Other assets" on
the Consolidated Statement of Financial Condition. The following is a summary of
capitalized mortgage servicing rights:
Year Ended December 31
---------------------------
2001 2000
----------- -----------
Balance at January 1 $ 28,355 $ 37,295
New capitalized mortgage servicing rights from loan sales 41,587 3,404
Amortization of capitalized mortgage servicing rights (13,886) (12,344)
----------- -----------
Balance at December 31 $ 56,056 $ 28,355
=========== ===========
A summary of the changes in the allowance for loan losses is as
follows:
Year Ended December 31
-------------------------------------------
2001 2000 1999
------------ ------------ -------------
Balance at January 1 $ 236,708 $ 232,134 $ 244,466
Provision for (recovery of) loan losses
charged to expense 22,265 9,195 (2,089)
Less loans charged off (2,425) (623) -0-
Recoveries 351 472 1,800
Net transfer of allowance (to) from recourse liability 4,114 (4,470) (12,043)
------------ ------------ -------------
Balance at December 31 $ 261,013 $ 236,708 $ 232,134
============ ============ =============
F-16
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
The following is a summary of impaired loans:
December 31
---------------------------
2001 2000
----------- ------------
Nonperforming loans $ 382,510 $ 231,155
Troubled debt restructured 1,505 1,933
Other impaired loans 11,225 22,974
----------- ------------
$ 395,240 $ 256,062
=========== ============
The portion of the allowance for loan losses that was specifically
provided for impaired loans was $2,712 and $4,036 at December 31, 2001 and 2000,
respectively. The average recorded investment in total impaired loans was
$322,844 and $264,895 during 2001 and 2000, respectively. All amounts involving
impaired loans have been measured based upon the fair value of the related
collateral. The amount of interest income recognized during the years ended
December 31, 2001, 2000, and 1999 on the total of impaired loans at each yearend
was $17,056 (2001), $11,187 (2000), and $13,912 (1999).
NOTE G - Interest Earned But Uncollected
December 31
---------------------------
2001 2000
----------- -----------
Loans receivable $154,209 $130,793
Mortgage-backed securities 91,228 127,944
Interest rate swaps 2,377 3,210
Other 7,786 14,359
----------- -----------
$255,600 $276,306
=========== ===========
NOTE H - Premises and Equipment
December 31
---------------------------
2001 2000
----------- -----------
Land $ 79,660 $ 75,420
Building and leasehold improvements 241,522 221,406
Furniture, fixtures, and equipment 242,024 216,431
----------- -----------
563,206 513,257
Accumulated depreciation and amortization 234,627 205,605
----------- -----------
$ 328,579 $307,652
=========== ===========
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 future rentals under long-term operating leases on land
or premises in effect on December 31, 2001, and which expire between 2002 and
2064, amounted to approximately $182,524. The approximate minimum payments
during the five years ending 2006 are $23,817 (2002), $22,203 (2003), $19,111
(2004), $16,832 (2005), $14,486 (2006) and $86,075 thereafter. 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 $26,381 (2001),
$24,016 (2000), and $22,233 (1999).
F-17
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE I - Deposits
December 31
--------------------------------------------------------
2001 2000
--------------------------- ---------------------------
Rate* Amount Rate* Amount
-------- -------------- --------- --------------
Deposits by rate:
Interest-bearing checking accounts 1.33% $ 155,799 2.91% $ 74,598
Interest-bearing checking accounts swept
into money market deposit accounts 2.06 4,613,087 3.33 3,059,928
Passbook accounts 0.87 459,953 1.53 451,228
Money market deposit accounts 2.82 8,569,759 4.21 3,534,786
Term certificate accounts with original
maturities of:
4 weeks to 1 year 3.37 10,852,181 6.19 12,325,768
1 to 2 years 4.39 6,415,700 6.06 7,275,219
2 to 3 years 5.11 1,619,868 5.76 1,367,147
3 to 4 years 5.23 737,981 5.80 453,974
4 years and over 5.59 799,025 5.99 675,120
Retail jumbo CDs 4.47 249,088 5.82 644,962
Wholesale CDs 0.00 -0- 6.61 185,000
All other 6.94 144 6.88 189
----------- -----------
$34,472,585 $30,047,919
=========== ===========
* Weighted average interest rate including the impact of interest rate swaps.
December 31
---------------------------------------------------
2001 2000
----------------------- ------------------------
Rate* Amount Rate* Amount
------ ------------- -------- -------------
Deposits by remaining maturity
at yearend:
No contractual maturity 2.49% $ 13,798,598 3.65% $ 7,120,540
Maturity within one year 3.87 17,893,723 6.10 20,723,095
After one but within two years 4.47 1,759,044 6.04 1,478,292
After two but within three years 4.62 475,167 6.15 365,124
After three but within four years 6.58 282,114 5.40 68,960
After four but within five years 4.81 245,504 6.67 260,181
Over five years 5.69 18,435 5.40 31,727
------------- -------------
$ 34,472,585 $ 30,047,919
============= =============
* Weighted average interest rate including the impact of interest rate swaps.
At December 31, the weighted average cost of deposits was 3.39% (2001) and 5.52% (2000).
Interest expense on deposits is summarized as follows:
Year Ended December 31
---------------------------------------------
2001 2000 1999
------------ ------------- -------------
Interest-bearing checking accounts $ 3,132 $ 2,946 $ 2,433
Interest-bearing checking accounts swept
into money market deposit accounts 111,748 109,492 108,577
Passbook accounts 5,917 8,837 11,761
Money market deposit accounts 187,867 201,265 267,775
Term certificate accounts 1,213,664 1,171,907 859,818
------------ ------------- -------------
$ 1,522,328 $1,494,447 $1,250,364
============ ============= =============
F-18
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE J - Advances from Federal Home Loan Banks
Advances are secured by pledges of certain loans, securitized loans,
MBS-REMIC principal, capital stock of the Federal Home Loan Banks, and other
MBS. These borrowings have maturities and interest rates as follows:
December 31, 2001
------------------------------------------------------
Stated
Maturity Amount Rate
------------------- ------------ ------
2002 $ 5,461,178 2.16%
2003 6,829,909 2.69
2004 1,038,304 2.29
2005 2,532,043 2.98
2006 1,928,818 2.21
2007 and thereafter 247,257 6.45
------------
$ 18,037,509
============
December 31, 2000
------------------------------------------------------
Stated
Maturity Amount Rate
------------------- ------------ ------
2001 $ 4,632,945 6.63%
2002 5,046,172 6.71
2003 6,816,453 6.63
2004 1,026,246 6.70
2005 1,521,235 6.54
2006 and thereafter 688,746 6.74
------------
$ 19,731,797
============
At December 31, the weighted average adjusted interest rate was 2.55%
(2001) and 6.65% (2000). These borrowings averaged $18,674,849 (2001) and
$14,761,217 (2000) and the maximum outstanding at any monthend was $19,633,825
(2001) and $19,731,797 (2000). Of the advances outstanding at December 31, 2001,
$17.2 billion were tied to a LIBOR index and were scheduled to reprice within 90
days.
F-19
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE K - Securities Sold Under Agreements to Repurchase
Securities sold under agreements to repurchase are collateralized by
mortgage-backed securities with a market value of $224,546 and $948,664 at
December 31, 2001 and 2000, respectively.
December 31, 2001
------------------------------------------------------
Stated
Maturity Amount Rate
------------------------ ------------- ---------
2002 $ 223,523 1.96 %
=============
December 31, 2000
------------------------------------------------------
Stated
Maturity Amount Rate
------------------------ ------------- ---------
2001 $ 657,274 6.52 %
2002 200,000 6.71
-------------
$ 857,274
=============
At December 31, these liabilities had a weighted average adjusted
interest rate of 1.96% (2001) and 6.56% (2000). These borrowings averaged
$641,651 (2001) and $966,255 (2000) and the weighted average interest rate on
these averages was 4.83% for 2001 and 5.99% for 2000. The maximum outstanding at
any monthend was $1,156,079 (2001) and $1,160,536 (2000). At the end of 2001 and
2000, all of the agreements to repurchase with brokers/dealers were to reacquire
the same securities.
F-20
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE L - Senior Debt
December 31
----------------------------
2001 2000
----------- -----------
Golden West Financial Corporation
senior debt, unsecured, due 2006
at coupon rate of 5.50%
net of unamortized discount of $1,785 (2001) $198,215 $ -0-
=========== ===========
At December 31, 2001, the senior debt had a weighted average interest
rate of 5.75%.
NOTE M - Subordinated Notes
December 31
----------------------------
2001 2000
----------- -----------
Golden West Financial Corporation
subordinated notes, unsecured, due from
2002 to 2003, at coupon rates of 6.00%
to 8.375%, net of unamortized discount
of $489 (2001) and $1,209 (2000) $599,511 $598,791
=========== ===========
At December 31, subordinated notes had a weighted average interest rate of
7.16% (2001) and 7.17% (2000). At December 31, 2001, subordinated notes had
maturities and interest rates as follows:
Stated
Maturity Rate Amount
------------------------------------ ---------- --------------
2002 7.69 % $ 399,823
2003 6.10 199,688
--------------
$ 599,511
==============
NOTE N - Taxes on Income
The following is a comparative analysis of the provision for federal and
state taxes on income.
Year Ended December 31
--------------------------------------------
2001 2000 1999
----------- ------------ ------------
Federal income tax:
Current $ 454,381 $ 218,874 $ 228,292
Deferred (21,791) 65,261 19,153
State tax:
Current 81,235 34,449 30,689
Deferred (644) 13,571 4,616
----------- ------------ ------------
$ 513,181 $ 332,155 $ 282,750
=========== ============ ============
The amounts of net deferred liability included in taxes on income in the
Consolidated Statement of Financial Condition are as follows:
December 31
---------------------------
2001 2000
----------- ------------
Federal income tax $ 267,099 $ 294,748
State tax 70,490 72,105
F-21
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
The deferred tax liability results from changes in the amounts of
temporary differences during the year. The components of the net deferred tax
liability are as follows:
December 31
----------------------------
2001 2000
------------ ------------
Deferred tax liabilities:
Loan fees and interest income $ 208,559 $ 186,900
Unrealized gains on debt and equity securities 142,881 150,176
FHLB stock dividends 142,255 120,550
Depreciation 17,402 17,187
Bad debt reserve 14,039 17,084
Other deferred tax liabilities 41 28
----------- -----------
Gross deferred tax liabilities 525,177 491,925
Deferred tax assets:
Provision for losses on loans 106,413 98,068
State taxes 30,333 14,946
Other deferred tax assets 50,842 12,058
----------- -----------
Gross deferred tax assets 187,588 125,072
----------- -----------
Net deferred tax liability $ 337,589 $ 366,853
=========== ===========
A reconciliation of income taxes at the federal statutory corporate
rate to the effective tax rate follows:
Year Ended December 31
----------------------------------------------------------------------------------
2001 2000 1999
------------------------- -------------------------- -------------------------
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
----------- ----------- ----------- ----------- ----------- ----------
Computed standard
corporate tax expense $ 466,201 35.0% $ 307,281 35.0% $ 266,955 35.0%
Increases (reductions) in
taxes resulting from:
State tax, net of federal
income tax benefit 55,915 4.2 36,579 4.2 33,877 4.5
Net financial income, not
subject to income tax,
primarily related to
acquisitions (8,105) (.6) (9,309) (1.1) (8,953) (1.2)
Other (830) (.1) (2,396) (.3) (9,129) (1.2)
---------- ----------- ---------- ---------- ---------- ----------
$ 513,181 38.5% $ 332,155 37.8% $ 282,750 37.1%
========== =========== ========== ========== ========== ==========
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," a deferred tax liability has not been recognized
for the tax bad debt reserve of WSB that arose in tax years that began prior to
December 31, 1987. At December 31, 2001 and 2000, the portion of the tax bad
debt reserve attributable to pre-1988 tax years was approximately $252 million.
The amount of unrecognized deferred tax liability at December 31, 2001 and 2000,
was approximately $88 million. This deferred tax liability could be recognized
if certain distributions are made with respect to the stock of WSB, or the bad
debt reserve is used for any purpose other than absorbing bad debt losses.
F-22
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE O - Stockholders' Equity
The Company's Board of Directors, through five separate actions
beginning in 1993, authorized the repurchase by the Company of up to 60.6
million shares of Golden West's common stock. As of December 31, 2001,
46,572,598 of such shares had been repurchased and retired at a cost of $1.1
billion since October 28, 1993. During 2001, 3,675,450 of the shares were
purchased and retired at a cost of $186 million.
In November 1999, the Company's Board of Directors authorized a
three-for-one stock split of the outstanding common stock of the Company by
declaring a 200 percent stock dividend. The stock split became effective on
December 10, 1999. All references in the consolidated financial statements to
the number of shares of common stock, prices per share, earnings and dividends
per share, and other per share amounts have been restated to reflect the stock
split.
NOTE P - Earnings Per Share
The Company calculates Basic Earnings Per Share (EPS) and Diluted EPS
in accordance with SFAS 128. Basic EPS is calculated by dividing net earnings
for the period by the weighted average common shares outstanding for that
period. Diluted EPS takes into account the effect of dilutive instruments, such
as stock options, but uses the average share price for the period in determining
the number of incremental shares that are to be added to the weighted average
number of shares outstanding.
The following is a summary of the calculation of basic and diluted EPS:
Year Ended December 31
---------------------------------------------
2001 2000 1999
------------ ------------- ------------
Earnings before cumulative effect of accounting change $ 818,823 $ 545,791 $ 479,979
Cumulative effect of accounting change, net of tax (6,018) -0- -0-
------------ ------------ ------------
Net earnings $ 812,805 $ 545,791 $ 479,979
============ ============ ============
Weighted average shares 158,262,474 158,559,273 165,767,526
Dilutive effect of outstanding common stock equivalents 2,096,011 1,718,724 1,183,940
------------ ------------ ------------
Diluted average shares outstanding 160,358,485 160,277,997 166,951,466
============ ============ ============
Basic Earnings Per Share Calculation:
Basic earnings per share before
cumulative effect of accounting change $ 5.18 $ 3.44 $ 2.90
Cumulative effect of accounting change, net of tax (.04) .00 .00
------------ ------------ ------------
Basic earnings per share $ 5.14 $ 3.44 $ 2.90
============ ============ ============
Diluted Earnings Per Share Calculation:
Diluted earnings per share before
cumulative effect of accounting change $ 5.11 $ 3.41 $ 2.87
Cumulative effect of accounting change, net of tax (.04) .00 .00
------------ ------------ ------------
Diluted earnings per share $ 5.07 $ 3.41 $ 2.87
============ ============ ============
F-23
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE Q - Stock Options
The Company's 1996 stock option plan authorizes the granting of options
to key employees to purchase up to 21 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 five years and prior to 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 five years and prior to ten years and one
month from the grant date. At December 31, shares available to be granted under
options amounted to 3,088,500 (2001), 4,002,650 (2000), and 5,348,250 (1999).
Outstanding options at December 31, 2001, were held by 544 employees and had
expiration dates ranging from February 24, 2002, to December 3, 2011.
The following table sets forth the range of exercise prices on outstanding
options at December 31, 2001:
Weighted Weighted
Average Average
Range of Number of Exercise Remaining
Exercise Price Options Price Contractual Life
------------------- -------------- ------------------ ------------------
$11.50 - $17.83 1,635,460 $ 14.49 2.9 years
$27.60 - $38.75 3,814,875 30.46 7.7 years
$47.15 - $64.24 938,150 47.57 9.8 years
--------------
6,388,485
==============
All of the options in the range from $11.50 to $17.83 are exercisable.
Of the options in the range from $27.60 to $38.75, 1,277,975 are exercisable.
None of the options in the range from $47.15 to $64.24 are exercisable.
A summary of the transactions of the stock option plan follows:
Average
Exercise
Price per
Shares Share
------------- -----------
Outstanding, January 1, 1999 5,086,890 $ 14.37
Granted 2,177,850 31.27
Exercised (1,508,461) 8.44
Canceled (105,450) 30.37
------------- -----------
Outstanding, December 31, 1999 5,650,829 $ 22.17
Granted 1,375,150 30.59
Exercised (725,004) 15.21
Canceled (29,550) 30.25
------------- -----------
Outstanding, December 31, 2000 6,271,425 $ 24.78
Granted 931,650 47.52
Exercised (797,090) 18.16
Canceled (17,500) 37.94
------------- -----------
Outstanding, December 31, 2001 6,388,485 $ 28.89
============= ===========
At December 31, options exercisable amounted to 2,913,435 (2001),
2,818,325 (2000), and 2,736,929 (1999).
The weighted-average fair value per share of options granted during
2001 was $14.14 per share, $8.88 per share for those granted during 2000, and
$9.93 per share for those granted during 1999. For these disclosure purposes,
the fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2001, 2000 and 1999, respectively; dividend yield
of 0.8% (2001), 1.1% (2000) and 0.9% (1999); expected volatility of 26% (2001),
25% (2000) and 23% (1999); expected lives of 5.3 years for all years; and
risk-free interest rates of 4.30% (2001), 4.97% (2000) and 6.28% (1999).
F-24
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
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. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the plan been determined
based on the fair value at the grant dates for awards under the plan consistent
with the method prescribed by SFAS 123 "Accounting for Stock Based
Compensation," the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
Year Ended December 31
-----------------------------------------
2001 2000 1999
------------ ----------- -----------
Net income
As reported $ 812,805 $ 545,791 $ 479,979
Pro forma 807,997 539,802 477,235
Basic earnings per share
As reported $ 5.14 $ 3.44 $ 2.90
Pro forma 5.11 3.40 2.88
Diluted earning per share
As reported $ 5.07 $ 3.41 $ 2.87
Pro forma 5.04 3.37 2.86
NOTE R - Concentrations of Credit Risk and Derivatives
As of December 31, 2001, the balance of the Company's loans receivable
and MBS with recourse held to maturity was $55 billion. Of that $55 billion
balance, 34% were Northern California loans, 31% were Southern California loans,
5% were Florida loans, 4% were Texas loans, 4% were New Jersey loans, 3% were
Washington loans, 3% were Illinois loans, and 3% were Colorado 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 certain derivative instruments entered into in the normal
course of business. These financial instruments include commitments to fund
loans; commitments to purchase or sell securities, mortgage-backed securities,
and loans; and interest rate swaps. 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 and with major banks and
securities dealers selected by the Company upon the basis of their
creditworthiness and other matters. The Company initially has not required
collateral or other security to support these financial instruments because of
the creditworthiness of the counterparties.
Commitments to originate mortgage loans are agreements to lend to a
customer providing that the customer satisfies the terms of the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Prior to entering each commitment, the Company
evaluates the customer's creditworthiness. The amount of outstanding loan
commitments at December 31, 2001 and 2000 was $984 million and $596 million,
respectively. Most of these commitments were for adjustable rate mortgages.
The Company enters into commitments to purchase or sell mortgage-backed
securities and other mortgage derivative products. The commitments generally
have a fixed delivery or receipt settlement date. The Company controls the
credit risk of such commitments through credit evaluations, limits, and
monitoring procedures. The interest rate risk of the commitment is considered by
the Company and may be matched with the appropriate funding sources. The Company
had no significant outstanding commitments to purchase or sell mortgage-backed
securities as of December 31, 2001 or 2000.
Interest rate swaps are utilized to limit the Company's sensitivity to
interest rate changes. The Company is exposed to credit risk in the event of
nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the other parties.
F-25
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE S - Interest Rate Swaps
The Company has entered into interest rate swap agreements with
selected banks and government security dealers to reduce its exposure to
fluctuations in interest rates. The possible inability of counterparties to
satisfy the terms of these contracts exposes the Company to credit risk to the
extent of the net difference between the calculated pay and receive amounts on
each transaction. Net differences of that amount are generally settled
quarterly. The Company has not experienced any credit losses from interest rate
swaps.
The information presented below is based on interest rates at December
31, 2001. To the extent that rates change, variable interest rate information
will change.
The following table illustrates the maturities and weighted average
rates as of December 31, 2001 for interest rate swaps held by the Company by
product type.
Maturities of Interest Rate Swaps at December 31, 2001
-------------------------------------------------------------------------------------------------------
Maturity Balance at
-------------------------------------
2002 2003 2004 December 31, 2001
---------- ----------- ----------- -----------------
Receive fixed generic swaps:
Notional amount $ 11,500 $ 91,300 $ -0- $ 102,800
Weighted average receive rate 6.52% 6.39% 0.00% 6.40%
Weighted average pay rate 1.93% 2.39% 0.00% 2.33%
Pay fixed generic swaps:
Notional amount $ 305,000 $ 212,000 $ 103,600 $ 620,600
Weighted average receive rate 2.51% 2.59% 2.17% 2.48%
Weighted average pay rate 7.54% 6.26% 6.65% 6.95%
---------- ----------- ----------- -----------
Total notional value $ 316,500 $ 303,300 $ 103,600 $ 723,400
========== =========== =========== ===========
Total weighted average rate on swaps:
Receive rate 2.66% 3.73% 2.17% 3.04%
========== =========== =========== ===========
Pay rate 7.34% 5.09% 6.65% 6.29%
========== =========== =========== ===========
During 2001, the range of floating interest rates received on swap
contracts was 1.87% to 6.90% and the range of floating interest rates paid on
swap contracts was 1.90% to 6.76%. The range of fixed interest rates received on
swap contracts was 5.81% to 7.06% and the range of fixed interest rates paid on
swap contracts was 5.58% to 8.85%.
Activity in interest rate swaps is summarized as follows:
Interest Rate Swap Activity
For the years ended December 31, 2001, 2000, and 1999
(Notional amounts in millions)
Receive Pay
Fixed Fixed
Swaps Swaps
--------- --------
Balance, January 1, 1999 $ 512 $ 899
Additions 80 -0-
Maturities (329) (172)
--------- --------
Balance, December 31, 1999 263 727
Maturities (46) (10)
--------- --------
Balance, December 31, 2000 217 717
Maturities (114) (96)
--------- --------
Balance, December 31, 2001 $ 103 $ 621
========= ========
Interest rate swap payment activity decreased net interest income by
$13 million, $4 million, and $11 million for the years ended December 31, 2001,
2000, and 1999, respectively.
F-26
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 2001, 2000, and 1999
(Dollars in thousands except per share figures)
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. In
addition to the one-time pre-tax charge, the Company reported pre-tax expense of
$10 million, or $.04 after tax per diluted share for the year ended December 31,
2001, associated with the on going quarterly valuation of the Company's swaps.
This additional expense occurred because the market value of Golden West's swaps
declined during the year in conjunction with falling interest rates. The changes
in fair value of these swap contracts are reflected as assets or liabilities on
the Consolidated Statement of Condition with corresponding amounts displayed in
the Consolidated Statement of Net Earnings as "Change in Fair Value of
Derivatives."
NOTE T - Disclosure About Fair Value of Financial Instruments
The Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments," requires disclosure of the fair
value of financial instruments for which it is practicable to estimate that
value. The statement provides for a variety of different valuation methods,
levels of aggregation, and assessments of practicability of estimating fair
value.
Fair value estimates are not necessarily more relevant than historical
cost values. Fair values may have limited usefulness in evaluating portfolios of
long-term financial instrument assets and liabilities held by going concerns.
Moreover, there are significant inherent weaknesses in any estimating techniques
employed. Differences in the alternative methods and assumptions selected by
various companies as well as differences in the methodology utilized between
years may, and probably will, significantly limit comparability and usefulness
of the data displayed. For these reasons, as well as others, management believes
that the disclosure presented herein has limited relevance to the Company and
its operations.
The values presented are based upon information as of December 31, 2001
and 2000, 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 overnight
investments, 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, other long-term investments, mortgage-backed securities
available for sale, mortgage-backed securities held to maturity,
securities sold under agreements to repurchase with brokers/dealers
with terms greater than 90 days, senior debt, subordinated notes and
interest rate swaps.
Fair values are estimated using projected cash flows present valued at
replacement rates currently offered for instruments of similar
remaining maturities for: term deposits, advances from Federal Home
Loan Banks, and consumer repurchase agreements.
For loans receivable and loan commitments for investment portfolio, the
fair value is estimated by present valuing projected future cash flows,
using current rates at which similar loans would be made to borrowers
and with assumed rates of prepayment. Adjustment for credit risk is
estimated based upon the classification status of the loans.
For mortgage servicing rights, the fair value is estimated using a
discounted cash flow analysis based on the Company's estimated annual
cost of servicing, market prepayment rates, and market discount rates.
F-27
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
The table below discloses the carrying value and the fair value of
Golden West's financial instruments as of December 31.
December 31
---------------------------------------------------------
2001 2000
-------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ------------- ------------
Financial Assets:
Cash $ 339,059 $ 339,059 $ 350,430 $ 350,430
Securities available for sale 622,670 622,670 392,841 392,841
Other investments -0- -0- 368,555 368,317
Mortgage-backed securities available for sale 233,403 233,403 69,960 69,960
Mortgage-backed securities held to maturity 13,844,769 13,980,317 18,510,530 18,394,914
Loans receivable 41,065,375 41,136,294 33,762,643 33,830,104
Interest earned but uncollected 255,600 255,600 276,306 276,306
Investment in capital stock of Federal Home
Loan Banks 1,105,773 1,105,773 1,067,800 1,067,800
Capitalized mortgage servicing rights 56,056 69,520 28,355 58,162
Financial Liabilities:
Deposits 34,472,585 34,642,385 30,047,919 30,158,096
Advances from Federal Home Loan Banks 18,037,509 18,067,815 19,731,797 19,897,503
Securities sold under agreements to
Repurchase 223,523 223,562 857,274 857,430
Senior debt 198,215 200,662 -0- -0-
Subordinated notes 599,511 614,909 598,791 601,094
Interest rate swaps 19,641 19,641 -0- 9,903
Off-Balance Sheet Instruments (based on estimated fair value at December 31):
----------------------------------------------------------------------------------
December 31
----------------------------------------------------------------------------------
2001 2000
---------------------------------------- ---------------------------------------
Net Net
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gain Gains Losses Gain
----------- ----------- ------------- ----------- ----------- ------------
Loan commitments for
investment portfolio $ 9,394 $ -0- $ 9,394 $ 7,552 $ -0- $ 7,552
=========== =========== ============= =========== =========== ============
F-28
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE U - Parent Company Financial Information
Statement of Net Earnings
- -------------------------
Year Ended December 31
--------------------------------------------
2001 2000 1999
------------ ------------- -------------
Revenues:
Investment income $ 20,106 $ 31,306 $ 42,580
Insurance commissions 1,600 1,389 1,453
------------ ------------- -------------
21,706 32,695 44,033
Expenses:
Interest 47,445 54,119 60,358
General and administrative 4,235 4,617 4,338
------------ ------------- -------------
51,680 58,736 64,696
------------ ------------- -------------
Loss before earnings of subsidiaries
and income tax credit (29,974) (26,041) (20,663)
Income tax credit 11,693 10,140 8,091
Earnings of subsidiaries 831,086 561,692 492,551
------------ ------------- -------------
Net Earnings $ 812,805 $ 545,791 $ 479,979
============ ============= =============
Statement of Financial Condition
- --------------------------------
Assets
------
December 31
--------------------------------
2001 2000
-------------- --------------
Cash $ 10,924 $ 4,255
Securities available for sale 203,177 3,246
Overnight note receivable from subsidiary 50,161 279,012
Other investments with subsidiary 100 97
Subordinated note receivable from subsidiary 100,000 100,000
Investment in subsidiaries 4,712,241 3,894,618
Other assets 24,966 20,014
--------------- --------------
$ 5,101,569 $ 4,301,242
=============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Senior debt $ 198,215 $ -0-
Subordinated notes, net 599,511 598,791
Other liabilities 19,653 15,164
Stockholders' equity 4,284,190 3,687,287
-------------- --------------
$ 5,101,569 $ 4,301,242
============== ==============
F-29
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE U- Parent Company Financial Information (Continued)
Statement of Cash Flows
- -----------------------
Year Ended December 31
-----------------------------------
2001 2000 1999
--------- --------- ---------
Cash flows from operating activities:
Net earnings $ 812,805 $ 545,791 $ 479,979
Adjustments to reconcile net earnings to net cash
used in operating activities:
Earnings of subsidiaries (831,086) (561,692) (492,551)
Amortization of discount on senior debt and
subordinated notes 875 841 1,015
Other, net 7,211 4,114 10,388
--------- --------- ---------
Net cash used in operating activities (10,195) (10,946) (1,169)
Cash flows from investing activities:
Capital contributed to subsidiaries -0- (20,000) (117)
Dividends received from subsidiaries 2,222 4,746 228,267
(Increase) in securities available for sale (200,002) (13) (16)
Decrease (increase) in overnight notes receivable
from subsidiary 228,851 (275,050) 69,015
Decrease (increase) in other investments
with subsidiary (3) 146,998 (147,005)
Issuances of notes receivable from subsidiary -0- -0- (600,000)
Issuance of subordinated note receivable
from subsidiary -0- (100,000) -0-
Repayments of notes receivable from subsidiary -0- 600,000 800,000
--------- --------- ---------
Net cash provided by investing activities 31,068 356,681 350,144
Cash flows from financing activities:
Proceeds from senior debt 198,060 -0- -0-
Repayment of subordinated notes -0- (215,000) -0-
Dividends on common stock (41,096) (34,882) (31,903)
Exercise of stock options 14,476 11,024 12,725
Purchase and retirement of Company stock (185,644) (109,297) (345,059)
--------- --------- ---------
Net cash used in financing activities (14,204) (348,155) (364,237)
Net increase (decrease) in cash 6,669 (2,420) (15,262)
Cash at beginning of period 4,255 6,675 21,937
--------- --------- ---------
Cash at end of period $ 10,924 $ 4,255 $ 6,675
========= ========= =========
F-30
GOLDEN WEST FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
------------------------------------------------------
Years ended December 31, 2001, 2000, and 1999
(Dollars in thousands except per share figures)
NOTE V - Selected Quarterly Financial Data (Unaudited)
2001
------------------------------------------------------
Quarter Ended
------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
Interest income $ 1,134,183 $ 1,097,744 $ 1,028,154 $ 949,531
Interest expense 771,588 694,443 613,021 499,228
----------- ----------- ----------- -----------
Net interest income 362,595 403,301 415,133 450,303
Provision for loan losses 3,183 5,641 3,639 9,802
Noninterest income 43,323 66,828 56,350 70,238
Noninterest expense 117,417 125,115 132,147 139,123
----------- ----------- ----------- -----------
Earnings before taxes on income and
cumulative effect of accounting change 285,318 339,373 335,697 371,616
Taxes on income 109,239 130,444 129,857 143,641
----------- ----------- ----------- -----------
Earnings before cumulative effect of
accounting change 176,079 208,929 205,840 227,975
Cumulative effect of accounting change,
net of tax (6,018) -0- -0- -0-
----------- ----------- ----------- -----------
Net earnings $ 170,061 $ 208,929 $ 205,840 $ 227,975
=========== =========== =========== ===========
Basic earnings per share before
cumulative effect of accounting change $ 1.11 $ 1.32 $ 1.30 $ 1.45
Cumulative effect of accounting change,
net of tax (.04) .00 .00 .00
----------- ----------- ----------- -----------
Basic earnings per share $ 1.07 $ 1.32 $ 1.30 $ 1.45
=========== =========== =========== ===========
Diluted earnings per share before
cumulative effect of accounting change $ 1.10 $ 1.30 $ 1.28 $ 1.44
Cumulative effect of accounting change,
net of tax (.04) .00 .00 .00
----------- ----------- ----------- -----------
Diluted earnings per share $ 1.06 $ 1.30 $ 1.28 $ 1.44
=========== =========== =========== ===========
Cash dividends per share $ .0625 $ .0625 $ .0625 $ .0725
=========== =========== =========== ===========
2000
------------------------------------------------------
Quarter Ended
------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ -----------
Interest income $ 792,554 $ 892,392 $ 1,014,434 $ 1,097,160
Interest expense 522,923 611,865 726,522 784,062
----------- ----------- ----------- -----------
Net interest income 269,631 280,527 287,912 313,098
Provision for loan losses 969 3,842 1,106 3,278
Noninterest income 33,491 39,925 41,376 46,028
Noninterest expense 99,960 102,387 107,136 115,364
----------- ----------- ----------- -----------
Earnings before taxes on income 202,193 214,223 221,046 240,484
Taxes on income 76,259 80,961 83,643 91,292
----------- ----------- ----------- -----------
Net earnings $ 125,934 $ 133,262 $ 137,403 $ 149,192
=========== =========== =========== ===========
Basic earnings per share $ .79 $ .84 $ .87 $ .94
=========== =========== =========== ===========
Diluted earnings per share $ .78 $ .84 $ .86 $ .93
=========== =========== =========== ===========
Cash dividends per share $ .0525 $ .0525 $ .0525 $ .0625
=========== =========== =========== ===========
F-31