2005 Annual Report 1901 Harrison Street, Oakland, CA 94612 2 A SPECIAL SITUATION GOLDEN WEST FINANCIAL TIMES GOLDEN WEST FINANCIAL TIMES A SPECIAL SITUATION 87 News Summary Board of Directors INSIDE TABLE of CONTENTS Financial Highlights ...................................................... 3 14 LOAN OPERATIONS Profi le: The Company ................................................... 4 GARDENING n Golden West Reaps Record Mortgage Volume Editorial: Inside a Special Situation: James T. Judd, Senior Executive Vice Golden West and the Art of Risk Management .............. 5 President of Golden West, explains Special Report: the Company’s green thumb when it From the Offi ce of the Chairman .................................. comes to growing loan volume. 10 Weather: 2005 Business Climate .................................11 Loan Operations: Gardening .......................................14 Sources of Funds: Music ............................................. 20 20 SOURCES OF FUNDS Capital: Architecture.................................................... 23 MUSIC n Golden West Conducts Three-Part Symphony To Earnings: Automotive ................................................. 26 Raise Funds Community News ....................................................... 32 Marion O. Sandler, Chairman of the Board and Chief Executive Offi cer of Design Review ............................................................. 33 From left to right: Jerry Gitt, Antonia Hernandez (sitting), Patricia A. King, Marion O. Sandler, Bernard A. Osher, Leslie Golden West, reviews the Company’s Financial Funnies ........................................................ 34 sources of funds. Tang Schilling, Maryellen C. Herringer, Kenneth T. Rosen (sitting), Herbert M. Sandler Puzzles......................................................................... 35 Classifi eds ................................................... Glossary: 36 Louis J. Galen Retires Summary of Operations ............................................. 38 23 CAPITAL ARCHITECTURE n Capital: Consolidated Statements ........................................... 40 Golden West’s Solid Foundation Auditor’s Report ......................................................... 60 Russell W. Kettell, President and Chief Financial Offi cer of Golden West, Management’s Discussion ......................................... 62 discusses why capital is so important to the success of the Company. Corporate Information ............................................... 86 Board of Directors .......................................................87 With Admiration and Gratitude During the more than 50 years that Louis J. Galen devoted FROM THE EDITORS to the Board of Directors of Read the details of the Company’s many accomplishments Golden West and its predecessor EARNINGS company, he has been an 26 in this 2005 Annual Report, formatted as sections of AUTOMOTIVE n A Special important force in guiding the Golden West Financial Times, a fi ctitious newspaper Situation By Design: The our success. We shall miss his Golden West Earnings Engine created for your reading pleasure. Don’t miss our editorial wisdom, but will continue to Herbert M. Sandler, Chairman of the “Inside a Special Situation: Golden West and the Art of Risk benefi t from his legacy. Board and Chief Executive Offi cer of Management” starting on page 5. Golden West, provides an in-depth look at the Company’s high-performance Modern Tapestry, ©Estate of Roy Lichtenstein design and earnings engine. Like this distinctive tapestry on display in the boardroom of the Company’s headquarters, Golden West is a work of art among public U.S. companies. GOLDEN WEST FINANCIAL TIMES A SPECIAL SITUATION 3 Financial Highlights (Dollars in thousands except per share fi gures) At Yearend 2005 2004 Assets $124,615,163 $106,888,541 Loans receivable and mortgage-backed securities (MBS) $119,365,929 $102,669,231 Adjustable rate mortgages and MBS $116,369,564 $ 99,730,701 Deposits $ 60,158,319 $ 52,965,311 Stockholders’ equity $ 8,670,965 $ 7,274,876 Stockholders’ equity/total assets 6.96% 6.81% Common shares outstanding 308,041,776 306,524,716 Book value per common share $ 28.15 $ 23.73 Yield on interest-earning assets 6.03% 4.73% Cost of funds 3.78% 2.22% Yield on interest-earning assets less cost of funds 2.25% 2.51% Nonperforming assets and troubled debt restructured/total assets .31% .33% For the Year 2005 2004 Earnings before taxes on income $ 2,426,502 $ 2,069,001 Net earnings $ 1,486,164 $ 1,279,721 Basic earnings per share $ 4.83 $ 4.19 Diluted earnings per share $ 4.77 $ 4.13 Cash dividends on common stock $ .26 $ .21 Average common shares outstanding 307,388,071 305,470,587 Average diluted common shares outstanding 311,790,191 310,119,746 Ratios: • Net earnings/average stockholders’ equity (ROE) 18.72% 19.45% • Net earnings/average assets (ROA) 1.27% 1.37% • Net interest income/average earning assets 2.54% 2.83% • General and administrative expense/ net interest income plus other income (Effi ciency ratio) 28.33% 28.85% • General and administrative expense/average assets .82% .90% Information in this report may contain various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include projections, statements of the plans and objectives of management for future operations, statements of future economic performance, assumptions underlying these statements and other statements that are not statements of historical facts. Forward-looking statements are subject to signifi cant business, economic and competitive risks, uncertainties and contingencies, many of which are beyond Golden West’s control. Should one or more of these risks, uncertainties or contingencies materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated. Among the key risk factors that may have a direct bearing on Golden West’s results of operations and fi nancial condition are competitive practices in the fi nancial services industries; operational and systems risks; general economic and capital market conditions, including fl uctuations in interest rates; economic conditions in certain geographic areas; and the impact of current and future laws, governmental regulations, and accounting and other rulings and guidelines affecting the fi nancial services industry in general and Golden West’s operations in particular. In addition, actual results may differ materially from the results discussed in any forward-looking statements. 4 A SPECIAL SITUATION GOLDEN WEST FINANCIAL TIMES Profi le The Company Golden West is a holding company that has residential real estate mortgages through a as its principal asset World Savings Bank, a sizable fi eld organization housed in specialized federally chartered savings bank, which is one lending centers. Internet-based services for of the nation’s largest savings institutions and deposit and home loan products are available mortgage lenders. Additionally, Golden West at www.worldsavings.com and for mutual funds owns Atlas Advisers, an investment adviser to and annuities at www.atlasfunds.com. To our Atlas family of mutual funds and annuities. develop and retain long-term relationships with Golden West conducts its deposit-gathering, its customers, Golden West emphasizes high- loan, and mutual fund activities through an quality, personal customer service, characterized extensive network of World Savings retail by courtesy, effi ciency, accuracy, and the ability branches. In addition, the Company originates to understand and respond to individual needs. New Hampshire Washington Minnesota Massachusetts Wisconsin Oregon New York South Dakota Michigan Idaho Wyoming Pennsylvania Rhode Island Iowa Connecticut Nebraska Ohio Indiana Nevada Illinois New Jersey Utah Virginia Colorado Missouri Kentucky Delaware Kansas California Maryland North Carolina Tennessee Oklahoma Arizona New Mexico Georgia South Carolina Texas Florida states with savings and lending operations states with lending operations only 520 offi ces • 39 states GOLDEN WEST FINANCIAL TIMES A SPECIAL SITUATION 5 Editorial Inside a Special Situation: Golden West and the Art of Risk Management Editor-in-Chief and Senior selected from the Golden West Corporate Art Art Critic, Ellen Reintjes is a Collection assembled for the enjoyment of our Group Senior Vice President customers and employees. Since the collection and head of the Financial itself consists mainly of reproductions and posters Planning Department. “In this as well as items acquired at auction, the risk of year’s editorial, I will punctuate depreciation in value is low while the psychic my message using tapestries returns are high.” We begin our 2005 Annual Report by again asking and answering the question we have posed for the past three years: “Why is Golden West a Special Situation?” This year, we will answer this query by spotlighting the third of nine factors that together set Golden West apart from other large, seasoned, public U.S. companies and substantiate our contention that the Company has no comparables, fi ts no mold, and has no peers. In particular, we will examine our assertion that Golden West generates “a high return using a risk-averse strategy.” 6 A SPECIAL SITUATION GOLDEN WEST FINANCIAL TIMES The Risk-Return Tapestry Crafting A generally accepted, commonsense principle of investment states that the lower the risk the Risk-Management: lower the return and the higher the risk the higher the return. Golden West