<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 1-8198
------
HOUSEHOLD INTERNATIONAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3121988
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
2700 Sanders Road, Prospect Heights, Illinois 60070
- ------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 564-5000
--------------
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 [ ]
At July 31, 1996, there were 96,828,482 shares of registrant's common stock
outstanding.<PAGE>
<PAGE> 2
Part 1. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
Household International, Inc. and Subsidiaries
STATEMENTS OF INCOME
- --------------------
All dollar amounts except per share data are stated in millions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . $1,380.8 $1,395.2 $701.3 $713.5
Interest income from noninsurance investment securities. . . 59.3 85.1 39.0 48.8
Interest expense . . . . . . . . . . . . . . . . . . . . . . 737.1 777.5 383.7 400.1
----------------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . 703.0 702.8 356.6 362.2
Provision for credit losses on owned receivables . . . . . . 367.8 381.5 176.5 217.2
----------------------------------------------
Net interest margin after provision for credit losses. . . . 335.2 321.3 180.1 145.0
----------------------------------------------
Securitization income. . . . . . . . . . . . . . . . . . . . 559.9 432.3 280.5 219.5
Insurance premiums and contract revenues . . . . . . . . . . 122.3 174.4 58.4 86.7
Investment income. . . . . . . . . . . . . . . . . . . . . . 93.2 277.8 36.3 138.0
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 103.2 90.8 53.3 44.0
Other income . . . . . . . . . . . . . . . . . . . . . . . . 163.9 131.4 138.6 90.5
----------------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . . 1,042.5 1,106.7 567.1 578.7
----------------------------------------------
Salaries and fringe benefits . . . . . . . . . . . . . . . . 260.9 286.8 129.2 141.0
Occupancy and equipment expense. . . . . . . . . . . . . . . 115.3 116.6 62.9 57.0
Other marketing expenses . . . . . . . . . . . . . . . . . . 242.2 181.2 141.8 89.4
Other servicing and administrative expenses. . . . . . . . . 273.0 241.0 162.2 117.7
Policyholders' benefits. . . . . . . . . . . . . . . . . . . 126.4 282.9 53.2 142.7
----------------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . 1,017.8 1,108.5 549.3 547.8
----------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 359.9 319.5 197.9 175.9
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 124.8 117.2 73.3 69.6
----------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 235.1 $ 202.3 $124.6 $106.3
==============================================
Earnings per common share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 235.1 $ 202.3 $124.6 $106.3
Preferred dividends. . . . . . . . . . . . . . . . . . . . (8.3) (13.8) (4.2) (6.9)
----------------------------------------------
Earnings available to common shareholders. . . . . . . . . $ 226.8 $ 188.5 $120.4 $ 99.4
==============================================
Average common and common equivalent shares. . . . . . . . 98.5 98.9 98.4 99.2
----------------------------------------------
Fully diluted earnings per common share. . . . . . . . . . $ 2.30 $ 1.91 $ 1.22 $ 1.00
----------------------------------------------
Primary earnings per common share. . . . . . . . . . . . . 2.30 1.91 1.22 1.00
----------------------------------------------
Dividends declared per common share. . . . . . . . . . . . . .68 .63 .34 .315
----------------------------------------------
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 3
Household International, Inc. and Subsidiaries
BALANCE SHEETS
- --------------
In millions.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
June 30, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 336.7 $ 270.4
Investment securities. . . . . . . . . . . . . . . . . . . . . . 2,998.0 4,639.5
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 23,722.3 21,844.1
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . 1,025.2 578.5
Property and equipment . . . . . . . . . . . . . . . . . . . . . 342.7 391.7
Real estate owned. . . . . . . . . . . . . . . . . . . . . . . . 131.9 136.5
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,270.6 1,358.1
--------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $29,827.4 $29,218.8
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Debt:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,273.5 $ 4,708.8
Commercial paper, bank and other borrowings. . . . . . . . . . 6,656.5 6,659.4
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . . . . . . . . 14,522.2 11,227.9
--------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,452.2 22,596.1
Insurance policy and claim reserves. . . . . . . . . . . . . . . 1,589.2 2,229.3
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . 1,706.5 1,422.5
--------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . 26,747.9 26,247.9
--------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts* . . . . . . . . . . . . . . . 175.0 75.0
--------------------------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . 205.0 205.0
--------------------------
Common shareholders' equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . 115.2 115.2
Additional paid-in capital . . . . . . . . . . . . . . . . . . 392.1 383.4
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,857.3 2,696.6
Foreign currency translation adjustments . . . . . . . . . . . (128.5) (127.1)
Unrealized gain (loss) on investments, net . . . . . . . . . . (37.1) 94.3
Common stock in treasury . . . . . . . . . . . . . . . . . . . (499.5) (471.5)
--------------------------
Total common shareholders' equity. . . . . . . . . . . . . . . . 2,699.5 2,690.9
--------------------------
Common and preferred shareholders' equity. . . . . . . . . . . . 2,904.5 2,895.9
--------------------------
Total liabilities and shareholders' equity . . . . . . . . . . . $29,827.4 $29,218.8
==========================
</TABLE>
* As described in note 7 to the condensed financial statements, the sole
asset of the trusts are Junior Subordinated Deferrable Interest Notes
issued by Household International, Inc. in June 1996 and June 1995,
bearing interest at 8.70 and 8.25 percent, and with principal balances
of $103.1 and $77.3 million, respectively.
See notes to condensed financial statements.<PAGE>
<PAGE> 4
Household International, Inc. and Subsidiaries
STATEMENTS OF CASH FLOWS
- ------------------------
In millions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Six months ended June 30 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 235.1 $ 202.3
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables . . . . . . . . . . 367.8 381.5
Insurance policy and claim reserves. . . . . . . . . . . . . . . . . 50.7 197.4
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 119.7 137.9
Net realized gains from sales of assets. . . . . . . . . . . . . . . (119.2) (78.5)
Other assets and liabilities, net change . . . . . . . . . . . . . . 554.2 (42.9)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35.3) 29.9
--------------------------
Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 1,173.0 827.6
---------------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,513.6) (2,775.9)
Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486.7 957.7
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,994.2 2,100.6
Short-term investment securities, net change . . . . . . . . . . . . . (336.1) 482.9
Receivables, excluding Visa*/MasterCard*:
Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . (6,557.4) (6,309.9)
Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,837.6 3,374.0
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,489.4 1,515.5
Visa/MasterCard receivables:
Originated or collected, net . . . . . . . . . . . . . . . . . . . (10,311.6) (9,686.3)
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,434.0) -
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,312.7 9,474.9
Disposition of banking organizations:
Assets sold, net . . . . . . . . . . . . . . . . . . . . . . . . . 472.3 104.0
Deposits and other liabilities sold. . . . . . . . . . . . . . . . (2,807.8) (2,670.9)
(Acquisition) disposition of portfolios, net . . . . . . . . . . . . (620.1) 204.9
Properties and equipment purchased . . . . . . . . . . . . . . . . . (35.7) (38.4)
Properties and equipment sold. . . . . . . . . . . . . . . . . . . . 7.1 4.7
--------------------------
Cash decrease from investments in operations . . . . . . . . . . . . (5,016.3) (3,262.2)
--------------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt and demand deposits, net change. . . . . . . . . . . (58.3) 1,201.2
Time certificates accepted . . . . . . . . . . . . . . . . . . . . . 1,417.6 2,043.2
Time certificates paid . . . . . . . . . . . . . . . . . . . . . . . (872.7) (1,390.6)
Senior and senior subordinated debt issued . . . . . . . . . . . . . 4,875.1 1,898.5
Senior and senior subordinated debt retired. . . . . . . . . . . . . (1,577.1) (1,450.9)
Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . (59.1) (489.7)
Cash received from policyholders . . . . . . . . . . . . . . . . . . 188.4 481.6
Shareholders' dividends. . . . . . . . . . . . . . . . . . . . . . . (74.4) (75.3)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . (35.8) -
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . 8.0 15.6
Issuance of company obligated mandatorily redeemable
preferred securities of subsidiary trusts. . . . . . . . . . . . . 100.0 75.0
--------------------------
Cash increase from financing and capital transactions. . . . . . . . 3,911.7 2,308.6
--------------------------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . (2.1) 21.4
--------------------------
Increase (decrease) in cash. . . . . . . . . . . . . . . . . . . . . 66.3 (104.6)
Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . 270.4 541.2
--------------------------
Cash at June 30. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 336.7 $ 436.6
==========================
Supplemental cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 697.9 $ 695.8
--------------------------
Income taxes paid (received) . . . . . . . . . . . . . . . . . . . . (139.1) 131.3
--------------------------
</TABLE>
See notes to condensed financial statements.
*VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International, Incorporated respectively.<PAGE>
<PAGE> 5
Household International, Inc. and Subsidiaries
FINANCIAL HIGHLIGHTS
- --------------------
All dollar amounts are stated in millions.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . $ 235.1 $ 202.3 $ 124.6 $ 106.3
----------------------------------------------------
Revenues . . . . . . . . . . . . . . . . . . . . . 2,482.6 2,587.0 1,307.4 1,341.0
----------------------------------------------------
Return on average common shareholders'
equity <F1> <F2> . . . . . . . . . . . . . . . . 16.8% 16.0% 17.9% 16.5%
----------------------------------------------------
Return on average owned assets <F1> . . . . . . . 1.62 1.15 1.71 1.20
----------------------------------------------------
Managed basis efficiency ratio, normalized <F3> . 42.4 51.9 43.4 50.1
----------------------------------------------------
All dollar amounts are stated in millions.
- ------------------------------------------------------------------------------------------------------------
June 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,827.4 $29,218.8
------------------------------------
Total shareholders' equity as a percent of owned assets <F4> . . . 10.32% 10.17%
------------------------------------
Total shareholders' equity as a percent of managed assets <F4> . . 6.59 6.74
------------------------------------
<FN>
<F1> Annualized.
<F2> Excluding the impact of Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities",
the return on average common shareholders' equity was 17.8 and 17.0
percent for the second quarter and first six months of 1996 compared to
16.3 and 15.7 percent for the respective periods of 1995.
<F3> Ratio of operating expenses to managed net interest margin and other
revenues less policyholders' benefits. The normalized efficiency ratio
excludes certain nonrecurring items. The managed basis efficiency ratio,
including these nonrecurring items, was 46.0 and 43.8 percent for the
second quarter and first six months, compared to 46.9 and 49.9 percent
in the same year-ago periods.
<F4> Includes company obligated mandatorily redeemable preferred securities
of subsidiary trusts.
</FN>
</TABLE>
See notes to condensed financial statements.<PAGE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting policies used in preparation of the quarterly condensed
financial statements are consistent with accounting policies described
in the notes to financial statements contained in Household International,
Inc.'s (the "company") Annual Report on Form 10-K for its fiscal year
ended December 31, 1995. The information furnished herein reflects all
adjustments which are, in the opinion of management, necessary for a
fair statement of results for the interim periods. All such adjustments
are of a normal recurring nature. Certain prior period amounts have
been reclassified to conform with the current period's presentation.
2. INVESTMENT SECURITIES
---------------------
Investment securities consisted of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
In millions. June 30, 1996 December 31, 1995
----------------------------------------------------------------------------------------
Amortized Carrying Amortized Carrying
Cost Value Cost Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities . . . . . . $ 235.9 $ 231.4 $ 321.6 $ 327.1
Corporate debt securities. . . . . . . . 1,355.9 1,326.3 1,433.2 1,560.0
Government debt securities . . . . . . . 143.0 141.9 140.2 142.1
Mortgage-backed securities . . . . . . . 382.7 353.4 1,046.5 1,053.7
Policy loans . . . . . . . . . . . . . . - - 821.4 821.4
Other. . . . . . . . . . . . . . . . . . 900.5 910.4 689.7 690.9
--------------------------------------------
Subtotal . . . . . . . . . . . . . . . . 3,018.0 2,963.4 4,452.6 4,595.2
--------------------------------------------
Accrued investment income. . . . . . . . 34.6 34.6 44.3 44.3
--------------------------------------------
Total investment securities. . . . . . . $3,052.6 $2,998.0 $4,496.9 $4,639.5
============================================
</TABLE>
For available-for-sale investments, carrying value equals fair value, in
accordance with the Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
<PAGE>
<PAGE> 7
3. RECEIVABLES
-----------
Receivables consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C>
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 1,741.8 $ 2,066.9
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 3,910.7 4,148.2
Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . . 7,799.4 5,512.0
Merchant participation . . . . . . . . . . . . . . . . . . . 4,054.7 3,696.2
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 4,959.4 5,019.2
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . 1,122.7 1,289.6
--------------------------
Total owned receivables . . . . . . . . . . . . . . . . . . 23,588.7 21,732.1
Accrued finance charges. . . . . . . . . . . . . . . . . . . 396.0 381.6
Credit loss reserve for owned receivables. . . . . . . . . . (858.3) (720.4)
Unearned credit insurance premiums and claims reserves . . . (166.8) (159.9)
Amounts due and deferred from receivables sales. . . . . . . 1,355.5 1,067.7
Reserve for receivables serviced with limited recourse . . . (592.8) (457.0)
--------------------------
Total owned receivables, net . . . . . . . . . . . . . . . . 23,722.3 21,844.1
Receivables serviced with limited recourse . . . . . . . . . 16,878.0 14,884.6
--------------------------
Total managed receivables, net . . . . . . . . . . . . . . . $40,600.3 $36,728.7
==========================
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
-------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1996 1995
-------------------------------------------------------------------------------------------
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . $ 4,609.7 $ 4,661.9
Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . . 9,245.3 7,831.1
Merchant participation . . . . . . . . . . . . . . . . . . . 691.8 750.0
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 2,331.2 1,641.6
--------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,878.0 $14,884.6
==========================
The combination of receivables owned and receivables serviced with limited
recourse, which the company considers its managed portfolio, is shown below:
-------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1996 1995
-------------------------------------------------------------------------------------------
First mortgage . . . . . . . . . . . . . . . . . . . . . . . $ 1,741.8 $ 2,066.9
Home equity. . . . . . . . . . . . . . . . . . . . . . . . . 8,520.4 8,810.1
Visa/MasterCard. . . . . . . . . . . . . . . . . . . . . . . 17,044.7 13,343.1
Merchant participation . . . . . . . . . . . . . . . . . . . 4,746.5 4,446.2
Other unsecured. . . . . . . . . . . . . . . . . . . . . . . 7,290.6 6,660.8
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . 1,122.7 1,289.6
--------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $40,466.7 $36,616.7
==========================
</TABLE>
<PAGE>
<PAGE> 8
The amounts due and deferred from receivables sales of $1,355.5 million
at June 30, 1996 included unamortized excess servicing assets and funds
established pursuant to the recourse provisions and holdback reserves for
certain sales totaling $1,354.8 million. The amounts due and deferred
also included customer payments not yet remitted by the securitization
trustee to the company. In addition, the company has made guarantees
relating to certain securitizations of $191.8 million plus unpaid interest
and has subordinated interests in certain transactions, which are recorded
as receivables, for $214.0 million at June 30, 1996. The company has an
agreement with a "AAA"-rated third party who will indemnify the company
for up to $21.2 million in losses relating to certain securitization
transactions. The company maintains credit loss reserves pursuant to the
recourse provisions for receivables serviced with limited recourse which
are based on estimated probable losses under such provisions. These
reserves totaled $592.8 million at June 30, 1996 and represent the
company's best estimate of probable losses on receivables serviced with
limited recourse.
See Note 4, "Credit Loss Reserves" for an analysis of credit loss reserves
for receivables. See "Management's Discussion and Analysis" on pages 17
and 18 for additional information related to the credit quality of
receivables.
Effective January 1, 1996 other unsecured receivables in the United States
and Canadian consumer finance operations are charged off if an account is
nine months contractually delinquent and minimum payments have not been
received in six months. In any event, these receivables are charged off
when the accounts are 18 months contractually delinquent. Previously,
such accounts were charged off when they were nine months contractually
delinquent. Delinquency statistics will continue to be reported on a
contractual basis for these receivables. Procedures for secured and
credit card receivables were unaffected. The implementation of this new
procedure did not have a material impact on the company's financial
statements for the first six months of 1996.
4. CREDIT LOSS RESERVES
--------------------
An analysis of credit loss reserves for the six months ended June 30 was
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
In millions. 1996 1995
-------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1. . . . . $ 720.4 $ 546.0
Provision for credit losses - owned receivables. . . . . . . . . 367.8 381.5
Owned receivables charged off. . . . . . . . . . . . . . . . . . (354.1) (345.2)
Recoveries on owned receivables. . . . . . . . . . . . . . . . . 61.0 64.0
Credit loss reserves on receivables purchased, net . . . . . . . 69.1 4.7
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.9) 10.1
----------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT JUNE 30. . . 858.3 661.1
----------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1. . . . . . . . . . . . . . . . . 457.0 336.5
Provision for credit losses. . . . . . . . . . . . . . . . . . . 418.2 128.1
Chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . (293.6) (179.9)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.4 8.4
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.2) 3.0
----------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT JUNE 30. . . . . . . . . . . . . . . . . . 592.8 296.1
----------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT JUNE 30. . $1,451.1 $ 957.2
======================
</TABLE>
5. INCOME TAXES
------------
Effective tax rates for the six months ended June 30, 1996 and 1995 of
34.7 and 36.7 percent, respectively, differ from the statutory federal
income tax rate for the respective periods primarily because of the
effects of (a) domestic and foreign loss carry forwards, (b) amortization
and write-offs of intangible assets, (c) state and local income taxes,
(d) reduction of noncurrent tax requirements and (e) leveraged lease
tax benefits.<PAGE>
<PAGE> 9
6. EARNINGS PER COMMON SHARE
-------------------------
Computations of earnings per common share for the six months ended June 30
were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
1996 1995
------------------ -----------------
Fully Fully
In millions, except per share data. Primary Diluted Primary Diluted
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings:
Net income . . . . . . . . . . . . . . . . . . $235.1 $235.1 $202.3 $202.3
Preferred dividends. . . . . . . . . . . . . . (8.3) (8.3) (13.9) (13.8)
-------------------------------------------
Net income available to common shareholders. . . $226.8 $226.8 $188.4 $188.5
===========================================
Average shares:
Common . . . . . . . . . . . . . . . . . . . . 97.2 97.2 97.1 97.1
Common equivalents . . . . . . . . . . . . . . 1.2 1.3 1.6 1.8
-------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . 98.4 98.5 98.7 98.9
===========================================
Earnings per common share. . . . . . . . . . . . $ 2.30 $ 2.30 $ 1.91 $ 1.91
===========================================
</TABLE>
Common share equivalents assume exercise of stock options, if dilutive.
The fully diluted earnings per share computation for 1995 also assumes
conversion of dilutive convertible preferred stock into common
equivalents.
7. COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUSTS
-----------------------------------------
In June 1996 Household Capital Trust II ("HCT II"), a wholly-owned
subsidiary of the company, issued 4 million 8.70 percent Trust Preferred
Securities ("preferred securities") at $25 per preferred security. The
sole asset of HCT II is $103.1 million of 8.70 percent Junior Subordinated
Deferrable Interest Notes issued by the company. The junior subordinated
notes held by HCT II mature on June 30, 2036 and are redeemable by the
company in whole or in part beginning on June 30, 2001, at which time the
HCT II preferred securities are callable. Net proceeds from the issuance
of preferred securities were used for general corporate purposes.
In June 1995 Household Capital Trust I ("HCT I"), a wholly-owned
subsidiary of the company, issued 3 million 8.25 percent preferred
securities at $25 per preferred security. The sole asset of HCT I is
$77.3 million of 8.25 percent Junior Subordinated Deferrable Interest
Notes issued by the company. The junior subordinated notes held by HCT I
mature on June 30, 2025 and are redeemable by the company in whole or in
part beginning June 30, 2000, at which time the HCT I preferred securities
are callable. HCT I may elect to extend the maturity of its preferred
securities to June 30, 2044.
The obligations of the company with respect to the junior subordinated
notes, when considered together with certain undertakings of the company
with respect to HCT I and HCT II, constitute full and unconditional
guarantees by the company of HCT I's and HCT II's obligations under the
respective preferred securities. The preferred securities are classified
in the company's balance sheets as company obligated mandatorily redeemable
preferred securities of subsidiary trusts (representing the minority
interest in the trusts) at their face and redemption amount of $175
million. The preferred securities have a liquidation value of $25 per
preferred security. Dividends on the preferred securities are cumulative,
payable quarterly in arrears, and are deferable at the company's option
for up to five years from date of issuance. The company cannot pay
dividends on its preferred and common stocks during such deferments.
Dividends on the preferred securities have been classified as interest
expense in the statements of income.
8. OPERATING EXPENSES
------------------
In the second quarter of 1996, the company recorded approximately $78
million of nonrecurring charges related to the rationalization of
certain office space, the settlement of litigation and other similar
matters.<PAGE>
<PAGE> 10
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATIONS SUMMARY
------------------
Net income for the second quarter and first six months of 1996 was $124.6
and $235.1 million, up 17 and 16 percent from the respective 1995 periods.
Earnings growth in the company's core businesses exceeded these rates of
increase, as 1995 net income included earnings from businesses that were
sold or exited. Fully diluted earnings per share were $1.22 per share in
the second quarter and $2.30 per share for the first six months of 1996,
up from $1.00 and $1.91 per share in the same periods in 1995. The
company's annualized return on average common shareholders' equity for
the second quarter and first six months of 1996 was 17.9 and 16.8 percent,
respectively, compared to 16.5 and 16.0 percent in the respective year-ago
periods. The annualized return on average owned assets improved to 1.71
and 1.62 percent in the second quarter and first six months of 1996,
respectively, up from 1.20 and 1.15 percent in the same year-ago periods.
- The following is a summary of the operating results of the company's
businesses for the second quarter and first six months of 1996
compared to the corresponding prior year periods:
The domestic consumer finance business increased earnings in
the second quarter and first six months of 1996 due to improved
efficiency and higher net interest margin, driven by managed
receivable growth and wider spreads.
Earnings for the credit card business for the second quarter
of 1996 were essentially unchanged compared to the prior year
quarter, but earnings for the first six months of 1996 were
lower than a year ago. Earnings for the Visa*/MasterCard*
business for the second quarter and first six months were
lower than the prior year periods, as higher net interest
margin and fee income were offset by higher credit costs
resulting primarily from increased personal bankruptcy
filings. This business continued to benefit from the company's
association with the General Motors credit card ("GM Card")
program. The company acquired the $3.4 billion Union Privilege
Visa/MasterCard receivable portfolio in June 1996. This
program did not yet contribute to earnings.
The private-label credit card business reported higher earnings
in the second quarter and first six months compared to the
year-ago periods due to portfolio growth, which generated higher
fee income and net interest margin.
Net income increased in the United Kingdom operation primarily
due to improved efficiency, as well as higher net interest
margin and insurance premiums, driven by growth in other
unsecured and Visa/MasterCard receivables, including the GM
Card from Vauxhall.
The Canadian operation was profitable in the second quarter
and first six months of 1996, compared to losses last year,
primarily as a result of improved efficiency. Net interest
margin for the first six months of 1996 also benefited from
wider spreads and a shift in product mix toward unsecured
receivables.
The commercial business reported higher earnings in the second
quarter and first six months compared to last year primarily
due to lower credit costs and utilization of tax loss
carryforwards.
*VISA and MasterCard are registered trademarks of VISA USA, Inc. and
MasterCard International, Incorporated respectively.<PAGE>
<PAGE> 11
- During the second quarter, the company sold all of its consumer
banking operations in the metropolitan Chicago market, including
approximately $2.9 billion in deposits and $340 million of home
equity and other unsecured receivables. The company recorded an
after-tax gain of approximately $70 million after reducing acquired
intangibles and other deferred costs by approximately $110 million.
The sale is expected to have a slight positive impact on the
company's future operating results.
The company also recorded approximately $49 million, after tax, of
nonrecurring charges related to litigation, rationalization of
office space and other matters in the second quarter.
- In view of continued uncertainty regarding consumer loss trends,
including higher levels of personal bankruptcies, the company
recorded provisions for credit losses in excess of current period
chargeoffs. Approximately $40 million of the excess provision
related to owned receivables, with the remainder pertaining to
securitized loans.
- The company's normalized managed basis efficiency ratio was 43.4
and 42.4 percent for the second quarter and first six months of
1996, respectively, compared to 50.1 and 51.9 percent in 1995.
The efficiency ratio is the ratio of operating expenses to managed
net interest margin and other revenues less policyholders' benefits
(operating expenses include salaries and fringe benefits, occupancy
and equipment expense, other marketing expenses, and other servicing
and administrative expenses). The normalized efficiency ratio
excludes nonrecurring gains and losses and charges. The improvement
in the managed ratio over the prior year periods was primarily due
to lower expenses resulting from sales of less-efficient business
during 1995.
BALANCE SHEET REVIEW
--------------------
- As previously discussed, the company acquired the AFL-CIO's $3.4
billion Union Privilege Visa/MasterCard portfolio in June 1996.
This portfolio has 2.2 million cardholders. The company recorded
approximately $600 million of acquired intangibles in connection
with this purchase.
- Owned consumer receivables were $22.5 billion at June 30, 1996,
up from $19.9 billion at March 31, 1996 and $20.8 billion at
June 30, 1995. The increase from the prior periods was due to the
previously-mentioned portfolio acquisition. Also in the second
quarter of 1996, the company securitized and sold, excluding
replenishment of certificate holder interests, approximately $2.0
billion of Visa/MasterCard and home equity receivables.
- The following table summarizes the percentage increase in managed
consumer receivables (owned and serviced with limited recourse)
from March 31, 1996 (annualized) and June 30, 1995:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Quarter-over-Quarter Year-over-Year
Growth (Annualized) Growth
Managed consumer receivables <F1> <F2> <F1> <F2>
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit cards. . . . . . . . . . . 92% 16% 41% 20%
---------------------------------------
Other unsecured . . . . . . . . . 18 23 22 23
---------------------------------------
Core products <F3>. . . . . . . . 49 13 25 15
----------------------------------------
<FN>
<F1> As reported.
<F2> Excludes the acquisition of the Union Privilege Visa/MasterCard
portfolio and the sale of other unsecured and home equity
receivables in connection with the sale of the Chicago consumer
banking operations.
<F3> Includes home equity receivables. Home equity receivable growth
was essentially unchanged compared to the prior quarter and
year-ago period, after adjusting for the sale of the consumer
banking operations in Chicago. Increased new volume was offset
by high levels of prepayments.
</FN>
/TABLE
<PAGE>
<PAGE> 12
- The company continued to increase its managed credit loss reserves
due to uncertainty over consumer payment patterns, including trends
in personal bankruptcy filings, and continued growth in unsecured
products. Credit loss reserves as a percent of managed receivables
were 3.59 percent, compared to 3.53 percent at March 31, 1996 and
2.74 percent at June 30, 1995. Reserves as a percent of
nonperforming managed receivables increased to 133.4 percent from
125.4 percent at March 31, 1996 and 103.3 percent at June 30, 1995.
Consumer two-months-and-over contractual delinquency ("delinquency")
as a percent of managed consumer receivables was 3.43 percent,
compared to 3.60 percent at March 31, 1996 and 3.13 percent at
June 30, 1995. The annualized total consumer managed chargeoff
ratio in the second quarter of 1996 was 3.33 percent, compared to
3.24 percent in the prior quarter and 2.81 percent in the year-ago
quarter.
- In June 1996, a subsidiary of the company issued $100 million of
company obligated mandatorily redeemable preferred securities of
subsidiary trusts ("trust originated securities") (representing
the minority interest in the subsidiary).
- The ratio of common and preferred shareholders' equity (including
trust originated securities) to total owned assets was 10.32 percent
compared to 10.17 percent at December 31, 1995. The ratio of total
shareholders' equity to managed assets was 6.59 percent compared to
6.74 percent at December 31, 1995. The decrease in the managed ratio
from the year-end 1995 level was due to the acquisition of the $3.4
billion AFL-CIO Visa/MasterCard portfolio. This decrease was
consistent with the company's intent to grow its core businesses,
following the disposition of non-core operations in 1995.
<PAGE>
<PAGE> 13
PRO FORMA MANAGED INCOME DATA
-----------------------------
Securitizations and sales of consumer receivables have been, and will
continue to be, an important source of liquidity for the company. The
company continues to service the securitized receivables after such
receivables are sold and retains a limited recourse obligation.
Securitizations impact the classification of revenues and expenses in the
income statement. Amounts related to receivables serviced, including net
interest margin, fee income and provision for credit losses on receivables
serviced with limited recourse are reported as a net amount in
securitization income in the company's statements of income.
Management monitors the company's operations on a managed basis as well
as on the historical owned basis reflected in its statements of income.
The managed basis assumes that the receivables securitized and sold are
instead still held in the portfolio. Pro forma statements of income on
a managed basis for the second quarter and six months ended June 30, 1996
and 1995 are presented below. For purposes of this analysis, the results
do not reflect the differences between the company's accounting policies
for owned receivables and receivables serviced with limited recourse.
Accordingly, net income on the pro forma managed basis equals net income
on a historical owned basis.
Pro Forma Managed Statements of Income
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
All dollar amounts are June 30, June 30,
stated in millions. 1996 1995 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Finance income . . . . . . . $ 2,469.5 12.50%* $ 2,257.9 12.28%* $ 1,258.5 12.26%* $ 1,140.2 12.22%*
Interest income from
noninsurance investment
securities . . . . . . . . 59.3 .30 85.1 .46 39.0 .38 48.8 .53
Interest expense . . . . . . 1,191.9 6.03 1,190.4 6.47 616.2 6.00 608.0 6.52
---------------------------------------------------------------------------
Net interest margin. . . . . 1,336.9 6.77 1,152.6 6.27 681.3 6.64 581.0 6.23
Provision for credit losses 786.0 3.98 509.6 2.77 385.6 3.76 282.4 3.03
---------------------------------------------------------------------------
Net interest margin after
provision for credit losses 550.9 2.79 643.0 3.50 295.7 2.88 298.6 3.20
---------------------------------------------------------------------------
Insurance premiums and
contract revenues. . . . . 122.3 174.4 58.4 86.7
Investment income. . . . . . 93.2 277.8 36.3 138.0
Fee income . . . . . . . . . 447.4 201.4 218.2 109.9
Other income . . . . . . . . 163.9 131.4 138.6 90.5
---------------------------------------------------------------------------
Total other revenues . . . . 826.8 785.0 451.5 425.1
---------------------------------------------------------------------------
Salaries and fringe benefits 260.9 286.8 129.2 141.0
Occupancy and equipment
expense . . . . . . . . . . 115.3 116.6 62.9 57.0
Other marketing expenses . . 242.2 181.2 141.8 89.4
Other servicing and
administrative expenses. . 273.0 241.0 162.2 117.7
Policyholders'
benefits. . . . . . . . . 126.4 282.9 53.2 142.7
---------------------------------------------------------------------------
Total costs and expenses . . 1,017.8 1,108.5 549.3 547.8
---------------------------------------------------------------------------
Income before taxes. . . . . 359.9 319.5 197.9 175.9
Income taxes . . . . . . . . 124.8 117.2 73.3 69.6
---------------------------------------------------------------------------
Net income . . . . . . . . . $ 235.1 $ 202.3 $ 124.6 $ 106.3
===========================================================================
Average managed
receivables. . . . . . . . $37,420.9 $33,795.6 $38,177.1 $33,938.4
Average noninsurance
investments. . . . . . . . 2,090.8 2,980.3 2,874.3 3,379.2
---------------------------------------------------------------------------
Average managed interest
earning assets . . . . . . $39,511.7 $36,775.9 $41,051.4 $37,317.6
===========================================================================
</TABLE>
* As a percent, annualized, of average managed interest-earning assets
(excluding insurance investments).<PAGE>
<PAGE> 14
The following discussion on revenues, where applicable, and provision for
credit losses includes comparisons to amounts reported on the company's
historical statements of income ("Owned Basis") as well as on the above
pro forma statements of income ("Managed Basis").
Net interest margin
-------------------
Net interest margin on an Owned Basis was $356.6 and $703.0 million for the
second quarter and first six months of 1996, essentially unchanged compared
to $362.2 and $702.8 million in the prior year periods. Owned receivable
growth was offset by a higher proportion of home equity receivables, which
earn narrower spreads than the company's other core products, as well as
merchant participation receivables, which earned narrower spreads compared
to the prior year.
Net interest margin on a Managed Basis was $681.3 and $1,336.9 million for
the second quarter and first six months of 1996, up 17 and 16 percent,
respectively, compared to the same year-ago periods. Net interest margin
as a percent of average managed interest-earning assets, annualized, was
6.64 percent compared to 6.91 percent in the previous quarter and 6.23
percent in the year-ago quarter. The net interest margin percentage on a
Managed Basis in the second quarters of 1996 and 1995 was adversely
affected by temporary investments that were used to fund the disposition
of consumer banking deposits, as well as the acquisition of the AFL-CIO
Visa/MasterCard portfolio in June 1996. These temporary portfolios
distorted the trend in the net interest margin percentages. Excluding
the impact of these temporary investments, net interest margin as a
percent of average managed interest-earning assets, annualized, was 7.04
and 6.44 percent in the second quarter of 1996 and 1995, respectively.
Approximately two-thirds of the increase over the year-ago quarter was
due to the continued shift in product mix toward unsecured receivables,
with the remainder of the increase primarily due to lower leverage.
Provision for credit losses
---------------------------
The provision for credit losses for receivables on an Owned Basis for the
second quarter and first six months of 1996 totaled $176.5 and $367.8
million, down 19 and 4 percent from $217.2 and $381.5 million in the
comparable prior year periods. The provision as a percent of average
owned receivables, annualized, was 4.46 percent in the second quarter of
1996 compared to 4.04 percent in the second quarter of 1995. The level
of provision for credit losses on an Owned Basis may vary from quarter
to quarter, depending on the amount of securitizations and sales of
receivables in a particular period.
The provision for credit losses for receivables on a Managed Basis totaled
$385.6 and $786.0 million in the second quarter and first six months of
1996, up 37 percent from $282.4 million and 54 percent from $509.6 million
in the comparable periods of 1995. As a percent of average managed
interest-earning assets, annualized, the provision increased to 3.76
percent from 3.03 percent in the second quarter of 1995. The company
continued to provide for reserves in excess of chargeoffs on both an Owned
and Managed Basis due to continued growth and seasoning of unsecured
products and uncertainty over consumer payment patterns and increased
levels of personal bankruptcies. In addition, the Managed Basis provision
includes the over-the-life reserve requirement on securitized receivables.
These provisions are impacted by the type and amount of receivables
securitized in a given period and substantially offset the income recorded
on the securitization transactions, as discussed below. In the second
quarter of 1996, the company securitized approximately $2.0 billion of
Visa/MasterCard and home equity receivables, compared to approximately
$780 million of such receivables a year ago. For the first six months of
1996, the company securitized approximately $3.4 billion of other
unsecured, Visa/MasterCard and home equity receivables compared to
approximately $1.4 billion of Visa/MasterCard and home equity receivables
in 1995. See the credit quality section for further discussion of factors
affecting the provision for credit losses.
<PAGE>
<PAGE> 15
Other revenues
--------------
Securitization income on an Owned Basis consists of income associated with
the securitizations and sales of receivables with limited recourse,
including net interest income, fee and other income and provision for
credit losses related to those receivables. The 28 percent increase in
securitization income on an Owned Basis compared to the second quarter of
1995 was primarily due to the 27 percent increase in average securitized
receivables. Securitization income for the first six months of 1996
increased 30 percent compared to a year ago primarily due to the 23 percent
increase in average securitized receivables. In addition, securitization
income for the first six months of 1996 was favorably impacted by wider
spreads resulting from the growth in securitized Visa/MasterCard and other
unsecured receivables. The components of securitization income are
reclassified to the applicable lines in the statements of income on a
Managed Basis.
Insurance premiums and contract revenues decreased from the second quarter
and first six months of 1995 due to the sale of the individual life and
annuity lines of business in the fourth quarter of 1995. Insurance
premiums and contract revenues of the specialty and credit business
improved from the second quarter and first six months of 1995 due to
growth in the company's domestic and United Kingdom receivable base.
Investment income in the second quarter and first six months of 1996 was
below the year-ago periods primarily due to the sale of the individual
life and annuity lines of business in the fourth quarter of 1995.
Fee income on an Owned Basis includes revenues from fee-based products
such as credit cards, and consumer banking deposits. Fee income was
$53.3 and $103.2 million in the second quarter and first six months of
1996, up from $44.0 and $90.8 million in the comparable periods of the
prior year primarily due to higher interchange and other fees as a result
of the increase in the amount of owned credit card receivables compared
to the prior year. Fee income on a Managed Basis, which in addition to
the items discussed above includes fees and other income related to
receivables serviced with limited recourse, increased to $218.2 and
$447.4 million in the second quarter and first six months of 1996 from
$109.9 and $201.4 million in the same periods in 1995. The increase was
due to higher interchange and other fee income resulting from growth in
the managed credit card portfolio and increased transaction volume. In
addition, fee income in the second quarter and first six months of 1996
included higher income associated with the securitization and sale of a
larger amount of receivables compared to a year ago. Income recorded on
these securitization transactions was substantially offset by the
over-the-life reserve for estimated credit losses on the securitized
receivables, as previously discussed.
Other income increased compared to the second quarter and first six
months of 1995, as the company received a higher premium on the sale
of the consumer banking operations in Illinois in 1996 compared to the
premium received on the sales of its banking operations located in
California, Maryland and Virginia in the second quarter of 1995.
Expenses
--------
As previously discussed, in the second quarter of 1996, the company
recorded approximately $78 million on nonrecurring charges related to
the rationalization of certain office space, the settlement of litigation
and other similar matters.
Salaries and fringe benefits were $129.2 and $260.9 million compared to
$141.0 and $286.8 million in the second quarter and first six months of
1995. The improvement was primarily due to fewer employees compared to
the prior year resulting from actions taken throughout 1995 and 1996 to
improve the operating efficiency of certain businesses and to exit others.
Occupancy and equipment expense increased compared to the second quarter
of 1995 and was essentially unchanged compared to the first six months of
1995. In the second quarter of 1996, the company incurred nonrecurring
costs related to the rationalization of office space. These costs were
partially offset by lower ongoing expenses resulting from initiatives
undertaken in 1995, including the sales of businesses and reductions in
office space.
<PAGE>
<PAGE> 17
Other marketing expenses for the second quarter and first six months of
1996 totaled $141.8 and $242.2 million, up from $89.4 and $181.2 million
in the comparable prior year periods. The increase resulted from higher
expenses related to the credit card portfolio.
Other servicing and administrative expenses were $162.2 and $273.0 million
compared to $117.7 and $241.0 million in the second quarter and first six
months of 1995. The higher expenses were primarily attributable to
nonrecurring charges recorded in the second quarter of 1996 related to
litigation and other matters, including the settlement of litigation with
Eljer Industries, Inc.
Policyholders' benefits were lower than the prior year periods due to the
sale of the individual life and annuity lines of business in the fourth
quarter of 1995. Policyholders' benefits of the retained specialty and
credit business were essentially flat compared to the year-ago periods.
CREDIT LOSS RESERVES
--------------------
The company's credit portfolios and credit management policies are divided
into two distinct components - consumer and commercial. For consumer
products, credit policies focus on product type and specific portfolio risk
factors. The consumer credit portfolio is diversified by product and
geographic location. The commercial credit portfolio is monitored on an
individual transaction basis and is also evaluated based on overall risk
factors. See Note 3, "Receivables" in the accompanying financial
statements for receivables by product type.
Total managed credit loss reserves, which include reserves for recourse
obligations for receivables sold, were as follows (in millions):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1996 1996 1995 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned . . . . . . . . . . . . . . . $ 858.3 $ 758.1 $ 720.4 $661.1
Serviced with limited recourse. . . 592.8 532.7 457.0 296.1
---------------------------------------------------
Total . . . . . . . . . . . . . . . $1,451.1 $1,290.8 $1,177.4 $957.2
===================================================
</TABLE>
Managed credit loss reserves were up 12 percent from March 31, 1996 and
up 52 percent from June 30, 1995. The company recorded purchased reserves
totaling approximately $60 million in connection with the acquisition of
the AFL-CIO Visa/MasterCard portfolio in June 1996. Managed credit loss
reserves as a percent of nonperforming managed receivables were 133.4
percent, up compared to 125.4 percent at March 31, 1996 and 103.3 percent
at June 30, 1995.
Total owned and managed credit loss reserves as a percent of receivables
were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1996 1996 1995 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned . . . . . . . . . . . . . . 3.64% 3.60% 3.31% 2.95%
Managed . . . . . . . . . . . . . 3.59 3.53 3.22 2.74
-----------------------------------------------
</TABLE>
The level of reserves for consumer credit losses is based on delinquency
and chargeoff experience by product and judgmental factors. The level of
reserves for commercial credit losses is based on a regular review process
for all commercial credits and management's evaluation of probable future
losses in the portfolio as a whole given its geographic and industry
diversification and historical loss experience. Management also evaluates
the potential impact of existing and anticipated national and regional
economic conditions on the managed receivable portfolio when establishing
consumer and commercial credit loss reserves. While management allocates
all reserves among the company's various products, all reserves are
considered to be available to cover total loan losses. See Note 4,
"Credit Loss Reserves" in the accompanying financial statements for
analyses of reserves.
<PAGE>
<PAGE> 17
CREDIT QUALITY
--------------
Delinquency levels in the consumer portfolio were lower than the prior
quarter but increased compared to a year-ago. Chargeoffs increased
compared to both the previous and year-ago periods. Credit quality
statistics benefited from the acquisition of the AFL-CIO Visa/MasterCard
portfolio in June 1996.
Delinquency and chargeoff levels are monitored on a managed basis which
includes both receivables owned and receivables serviced with limited
recourse. The latter portfolio is included since it is subjected to
underwriting standards comparable to the owned portfolio, is managed by
operating personnel without regard to portfolio ownership and results in
a similar credit loss exposure for the company.
In the second quarter of 1996, the company standardized the chargeoff
policy for all components of the merchant participation portfolio by
transferring all merchant participation receivables that were originated
and serviced by one of the company's credit card subsidiaries to another
subsidiary. As a result of this transfer, all private-label credit card
accounts are now charged off at 9 months contractually past due, instead
of 6 months. This change was made to gain efficiencies in administering
one chargeoff policy and to be more responsive to the needs of the
company's private-label credit card customers. For comparability of
quarterly trends, the impact of the change was excluded from reported
credit quality statistics.
Delinquency
-----------
Two-Months-and-Over Contractual Delinquency (as a percent of managed
consumer receivables):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage . . . . . . . 3.64% 3.28% 3.29% 2.16% 1.74%
Home equity. . . . . . . . . 3.35 3.20 3.24 3.14 2.78
Visa/MasterCard. . . . . . . 2.05 2.42 2.22 2.29 2.31
Merchant participation*. . . 4.54 4.74 4.51 4.25 4.00
Other unsecured. . . . . . . 5.95 5.71 5.60 5.10 5.41
--------------------------------------------------------
Total* . . . . . . . . . . . 3.43% 3.60% 3.46% 3.26% 3.13%
========================================================
</TABLE>
* In the second quarter of 1996, the chargeoff policy for different
components of the merchant participation portfolio was standardized.
For comparability of quarterly trends, second quarter 1996 amounts
exclude the impact of this change. Including the impact of this
change, merchant participation and total delinquency was 5.04 and 3.49
percent, respectively, for the second quarter of 1996.
Delinquency as a percent of managed consumer receivables declined from
the prior quarter but increased compared to a year ago. The delinquency
ratio in the second quarter of 1996 benefited from the acquisition of
the AFL-CIO Visa/MasterCard portfolio in June 1996, as new accounts were
added to the receivable base but had not yet contributed significantly
to delinquency. Excluding the impact of this portfolio acquisition, the
Visa/MasterCard delinquency ratio was 2.44 percent, and the total
delinquency ratio was 3.70 percent for the second quarter of 1996. The
increase in the delinquency ratio compared to a year ago was primarily
due to the company's shift in product mix away from traditional first
mortgages and toward unsecured products, along with the seasoning of
those products.
<PAGE>
<PAGE> 18
Net Chargeoffs of Consumer Receivables
--------------------------------------
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of
average managed consumer receivables):
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1996 1996 1995 1995 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First mortgage . . . . . . . .46% .51% .47% .32% .36%
Home equity. . . . . . . . . .89 .89 .95 1.12 1.04
Visa/MasterCard. . . . . . . 4.86 4.44 4.67 4.24 4.05
Merchant participation*. . . 3.82 4.51 5.14 4.63 4.71
Other unsecured. . . . . . . 3.58 3.91 3.46 3.45 3.21
-----------------------------------------------------------
Total* . . . . . . . . . . . 3.33% 3.24% 3.28% 2.97% 2.81%
===========================================================
</TABLE>
* In the second quarter of 1996, the chargeoff policy for different
components of the merchant participation portfolio was standardized.
For comparability of quarterly trends, second quarter 1996 amounts
exclude the impact of this change. Including the impact of this change,
merchant participation and total net chargeoffs were 1.69 and 3.07
percent, respectively, for the second quarter of 1996.
Net chargeoffs as a percent of average managed consumer receivables for
the second quarter of 1996 increased compared to both the prior and
year-ago periods. The chargeoff ratio for the second quarter of 1996
was positively impacted by the acquisition of the AFL-CIO Visa/MasterCard
portfolio, as previously discussed. Excluding the impact of this
portfolio acquisition, the Visa/MasterCard and total net chargeoff ratio
for the second quarter of 1996 were 5.26 and 3.43 percent, respectively.
The Visa/MasterCard chargeoff ratio continued to be impacted by high
levels of personal bankruptcy filings. Virtually all of the increase in
the Visa/MasterCard chargeoff ratio over the prior and year-ago quarters
was due to increased bankruptcy filings. Approximately 42 basis points,
or roughly 80 percent, of the year-over-year increase in the total
chargeoff ratio was due to increased personal bankruptcy filings.
Nonperforming Assets
--------------------
Nonperforming assets consisted of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
In millions. 6/30/96 3/31/96 12/31/95 9/30/95 6/30/95
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables . . . . . $ 713.9 $ 740.1 $ 768.5 $ 711.0 $ 629.3
Accruing managed consumer receivables
90 or more days delinquent*. . . . . . 353.6 269.2 267.2 233.6 255.9
Renegotiated commercial loans. . . . . . 19.9 20.4 21.2 22.0 41.8
-----------------------------------------------------------
Total nonperforming managed
receivables. . . . . . . . . . . . . . 1,087.4 1,029.7 1,056.9 966.6 927.0
Real estate owned. . . . . . . . . . . . 131.9 123.1 136.5 148.7 157.1
-----------------------------------------------------------
Total nonperforming assets . . . . . . . $1,219.3 $1,152.8 $1,193.4 $1,115.3 $1,084.1
===========================================================
Managed credit loss reserves
as a percent of nonperforming
managed receivables. . . . . . . . . . 133.4% 125.4% 111.4% 105.2% 103.3%
-----------------------------------------------------------
</TABLE>
* In the second quarter of 1996, the chargeoff policy for different
components of the merchant participation portfolio was standardized.
For comparability of quarterly trends, second quarter 1996 amounts
exclude the impact of this change. Including the impact of this change,
accruing managed consumer receivables 90 or more days delinquent were
$378.5 million, at June 30, 1996. Managed credit loss reserves as a
percent of nonperforming managed receivables, including the impact of
this change, was 130.4 percent.<PAGE>
<PAGE> 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 3, 1996 the United States Supreme Court concluded that
federal law preempts state law prohibitions relating to fees and
charges assessed by a national bank on the holder of a credit
card account. As a result actions pending against banking
subsidiaries of the company have been dismissed by courts in
Wisconsin and Pennsylvania. The company believes that the
resolution of the remaining cases in California and Pennsylvania
will not have a material adverse effect on the financial condition
of the company.
Item 4. Submission of Matters to a Vote of Security-Holders
The Annual Meeting of Stockholders of Household International was
held on Wednesday, May 8, 1996, for the purpose of (1) electing
directors; (2) approving the Household International 1996
Long-Term Executive Incentive Compensation Plan; and (3) ratifying
the appointment of Arthur Andersen LLP as the independent auditors
for Household. The voting results were as follows:
Each of the following persons received the number of votes set
out after his or her name and were elected directors to hold
office for the ensuing year and until their successors shall be
elected and shall qualify:
FOR WITHHELD
---------- --------
W.F. Aldinger 87,641,076 245,110
R.J. Darnall 87,702,466 183,720
G.G. Dillon 87,683,134 203,053
J.A. Edwardson 87,696,009 190,177
M.J. Evans 87,682,858 203,329
D. Fishburn, M.P. 87,685,860 200,326
C.F. Freidheim, Jr. 87,696,397 189,790
L.E. Levy 87,697,624 188,563
G.A. Lorch 87,700,109 186,078
J.D. Nichols 87,694,566 191,621
J.B. Pitblado 87,696,317 189,869
S.J. Stewart 87,702,072 184,115
L.W. Sullivan, M.D. 87,684,201 201,985
R.C. Tower 87,664,488 221,699
Proposal to approve the Household International 1996 Long-Term
Executive Incentive Compensation Plan:
FOR AGAINST ABSTAIN BROKER NON-VOTE
---------- --------- ------- ---------------
81,634,928 5,584,627 666,632 0
Ratification of the appointment of Arthur Andersen LLP as the
Corporation's auditors for the year 1996:
FOR AGAINST ABSTAIN BROKER NON-VOTE
---------- ------- ------- ---------------
87,554,872 142,002 89,312 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.14 Household International 1996 Long-Term Executive Incentive
Compensation Plan (incorporated by reference to Exhibit A
of the Company's Proxy Statement dated March 26, 1996).
12 Statement of Computation of Ratio of Earnings to Fixed Charges
and to Combined Fixed Charges and Preferred Stock Dividends.
21 List of Household International subsidiaries.
27 Financial Data Schedule.
<PAGE>
<PAGE> 20
(b) Reports on Form 8-K
During the second quarter of 1996, the Registrant filed three
Current Reports on Form 8-K as follows: A report dated June 3,
1996, announced the full settlement of litigation and various
contractual disputes between Household International, Inc. and
Eljer Industries, Inc., a former subsidiary of Household; a report
dated June 17, 1996, announced the transaction through which
Household was to acquire the Union Privilege affinity card
portfolio from The Bank of New York (Delaware), including the
marketing of the Union Privilege card to the AFL-CIO membership;
and a report dated June 21, 1996, disclosed supplementary financial
information for Household International, Inc., as of and for the
years ended December 31, 1995 and 1994, and as of March 31, 1996 and
1995.<PAGE>
<PAGE> 21
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOUSEHOLD INTERNATIONAL, INC.
-----------------------------
(Registrant)
Date: August 12, 1996 By: /s/ David A. Schoenholz
--------------- ----------------------------
David A. Schoenholz,
Executive Vice President -
Chief Financial Officer
and on behalf of
Household International, Inc.
<PAGE>
<PAGE> 22
Exhibit Index
-------------
10.14 Household International 1996 Long-Term Executive Compensation Plan
(incorporated by reference to Exhibit A of the Company's Proxy
Statement dated March 26, 1996).
12 Statement of Computation of Ratio of Earnings to Fixed Charges and
to Combined Fixed Charges and Preferred Stock Dividends.
21 List of Household International subsidiaries.
27 Financial Data Schedule.
----------
EXHIBIT 12
----------
HOUSEHOLD INTERNATIONAL, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
All dollar amounts are stated in millions.
Six months ended June 30 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C>
Net income $ 235.1 $ 202.3
- --------------------------------------------------------------------------
Income taxes 124.8 117.2
- --------------------------------------------------------------------------
Fixed charges:
Interest expense <F1> 738.8 780.7
Interest portion of rentals <F2> 14.5 16.9
- --------------------------------------------------------------------------
Total fixed charges 753.3 797.6
- --------------------------------------------------------------------------
Total earnings as defined $1,113.2 $1,117.1
==========================================================================
Ratio of earnings to fixed charges 1.48 1.40
- --------------------------------------------------------------------------
Preferred stock dividends <F3> $ 12.7 $ 22.0
- --------------------------------------------------------------------------
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.45 1.36
- --------------------------------------------------------------------------
<FN>
<F1> For financial statement purposes, interest expense includes income
earned on temporary investment of excess funds, generally resulting
from over-subscriptions of commercial paper.
<F2> Represents one-third of rentals, which approximates the portion
representing interest.
<F3> Preferred stock dividends are grossed up to their pretax equivalent
based upon an effective tax rate of 34.7 and 36.7 percent for June 30,
1996 and 1995, respectively.
</FN>
</TABLE>
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF HOUSEHOLD INTERNATIONAL, INC.
- ---------------------------------------------
As of June 30, 1996, the following subsidiaries were directly or
indirectly owned by the Registrant. Certain subsidiaries which
in the aggregate do not constitute significant subsidiaries may
be omitted.
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Hamilton Investments, Inc. Delaware 100%
Craig-Hallum Corporation Delaware 100%
Craig-Hallum, Inc. Minnesota 100%
Household Bank, f.s.b U.S. 100%
HHTS, Inc. Illinois 100%
Household Home Title Services, Inc. II Maryland 100%
Household Bank (SB), N.A. U.S. 100%
Household Affinity Funding Corporation Delaware 100%
Household Service Corporation
of Illinois, Inc. Illinois 100%
Household Insurance Services, Inc. Illinois 100%
Housekey Financial Corporation Illinois 100%
Associations Service Corporation Indiana 100%
Household Mortgage Services, Inc. Delaware 100%
Security Investment Corporation Maryland 100%
Household Capital Corporation Delaware 100%
Household Commercial Canada Inc. Canada 100%
Household Finance Corporation Delaware 100%
HFC Auto Credit Corp. Delaware 100%
HFC Funding Corporation Delaware 100%
HFC Revolving Corporation Delaware 100%
HFS Funding Corporation Delaware 100%
Household Bank (Nevada), N.A. U.S. 100%
Household Card Funding Corporation Delaware 100%
Household Receivables Funding Corporation Nevada 100%
Household Receivables Funding Delaware 100%
Corporation II
Household Receivables Funding, Inc. Delaware 100%
Household Capital Markets, Inc. Delaware 100%
Household Card Services, Inc. Nevada 100%
Household Bank (Illinois), N.A. U.S. 100%
Household Consumer Loan Corporation Nevada 100%
Household Corporation Delaware 100%
Household Credit Services, Inc. Delaware 100%
Household Credit Services of Mexico, Inc. Delaware 100%
<PAGE>
<PAGE> 2
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Household Finance Receivables Corporation II Delaware 100%
Household Financial Services, Inc. Delaware 100%
Household Group, Inc. Delaware 100%
AHLIC Investment Holdings Corporation Delaware 100%
Household Insurance Agency, Inc. Michigan 100%
Household Insurance Company Michigan 100%
Household Life Insurance Co. of Arizona Arizona 100%
Household Life Insurance Company Michigan 100%
Prospect Life Insurance Company Arizona 100%
Cal-Pacific Services, Inc. California 100%
Household Business Services, Inc. Delaware 100%
Household Commercial Financial Delaware 100%
Services, Inc.
Business Realty Inc. Delaware 100%
Business Lakeview, Inc. Delaware 100%
Capital Graphics, Inc. Delaware 100%
Color Prelude Inc. Delaware 100%
HCFS Business Equipment Corporation Delaware 100%
HCFS Corporate Finance Venture, Inc. Delaware 100%
HFC Commercial Realty, Inc. Delaware 100%
G.C. Center, Inc. Delaware 100%
Cast Iron Building Corporation Delaware 100%
Com Realty, Inc. Delaware 100%
Lighthouse Property Corporation Delaware 100%
MRP General, Inc. Delaware 100%
Household OPEB I, Inc. Illinois 100%
Land of Lincoln Builders, Inc. Illinois 100%
PPSG Corporation Delaware 100%
Steward's Glenn Corporation Delaware 100%
HFC Leasing, Inc. Delaware 100%
First HFC Leasing Corporation Delaware 100%
Second HFC Leasing Corporation Delaware 100%
Valley Properties Corporation Tennessee 100%
Fifth HFC Leasing Corporation Delaware 100%
Sixth HFC Leasing Corporation Delaware 100%
Seventh HFC Leasing Corporation Delaware 100%
Eighth HFC Leasing Corporation Delaware 100%
Tenth HFC Leasing Corporation Delaware 100%
Eleventh HFC Leasing Corporation Delaware 100%
Thirteenth HFC Leasing Corporation Delaware 100%
Fourteenth HFC Leasing Corporation Delaware 100%
Seventeenth HFC Leasing Corporation Delaware 100%
Nineteenth HFC Leasing Corporation Delaware 100%
Twenty-second HFC Leasing Corporation Delaware 100%
Twenty-sixth HFC Leasing Corporation Delaware 100%<PAGE>
<PAGE> 3
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Beaver Valley, Inc. Delaware 100%
Hull 752 Corporation Delaware 100%
Hull 753 Corporation Delaware 100%
Third HFC Leasing Corporation Delaware 100%
Macray Corporation California 100%
Fourth HFC Leasing Corporation Delaware 100%
Pargen Corporation California 100%
Fifteenth HFC Leasing Corporation Delaware 100%
Hull Fifty Corporation Delaware 100%
Household Capital Investment Corporation Delaware 100%
B&K Corporation Michigan 94%
Household Commercial of California, Inc. California 100%
Household Real Estate Equities, Inc. Delaware 100%
SPG General, Inc. Delaware 100%
OLC, Inc. Rhode Island 100%
OPI, Inc. Virginia 100%
Household Finance Consumer Discount Company Pennsylvania 100%
Overseas Leasing Two FSC, Ltd. Bermuda 99%
Household Finance Corporation II Delaware 100%
Household Finance Corporation of Alabama Alabama 100%
Household Finance Corporation of California Delaware 100%
Household Finance Corporation of Nevada Delaware 100%
Household Finance Realty Corporation of Delaware 100%
New York
Household Finance Industrial Loan Company Iowa 100%
of Iowa
Household Finance Realty Corporation of Delaware 100%
Nevada
Household Finance Corporation III Delaware 100%
Amstelveen FSC, Ltd. Bermuda 99%
HFC Agency of Connecticut, Inc. Connecticut 100%
HFC Agency of Michigan, Inc. Michigan 100%
Night Watch FSC, Ltd. Bermuda 99%
Household Realty Corporation Delaware 100%
Overseas Leasing One FSC, Ltd. Bermuda 100%
Overseas Leasing Four FSC, Ltd. Bermuda 99%
Overseas Leasing Five FSC, Ltd. Bermuda 99%
Household Retail Services, Inc. Delaware 100%
HRSI Funding, Inc. Nevada 100%
Household Financial Center Inc. Tennessee 100%
Household Industrial Finance Company Minnesota 100%
Household Industrial Loan Co. of Kentucky Kentucky 100%
Household Insurance Agency, Inc. Nevada 100%
Household Receivables Acquisition Company Delaware 100%
Household Recovery Services Corporation Delaware 100%<PAGE>
<PAGE> 4
%
Voting
Stock
Organized Owned
Under By
Names of Subsidiaries Laws of: Parent
- --------------------- --------- ------
Household Relocation Management, Inc. Illinois 100%
Mortgage One Corporation Delaware 100%
Mortgage Two Corporation Delaware 100%
Sixty-First HFC Leasing Corporation Delaware 100%
Household Financial Group, Ltd. Delaware 100%
Household Global Funding, Inc. Delaware 78%
Household International (U.K.) Limited England 100%
D.L.R.S. Limited Cheshire 100%
HFC Bank plc England 100%
Hamilton Financial Planning Services
Limited England 100%
Hamilton Insurance Company Limited England 100%
Hamilton Life Assurance Co. Limited England 100%
HFC Pension Plan Limited England 100%
Household Funding Limited England 100%
Household Investments Limited England/Wales 100%
Household Leasing Limited England 100%
Household Management Corporation Limited England/Wales 100%
Household Overseas Limited England 100%
Household International Netherlands, B.V. Netherlands 100%
Household Financial Corporation Limited Ontario 100%
Household Finance Corporation of Canada Canada 100%
Household Realty Corporation Limited Ontario 100%
Household Trust Company Canada 100%
Merchant Retail Services Limited Ontario 100%
Household Mexico, Inc. Delaware 100%
Household Reinsurance Ltd. Bermuda 100%
U:\LAW\EDGAR\IEX21.WP1 (8/6/96)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FOLLOWING SUMMARY FINANCIAL INFORMATION OF THE COMPANY AND ITS
SUBSIDIARIES IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
AND FINANCIAL STATEMENTS PREVIOUSLY FILED WITH THE SECURITIES &
EXCHANGE COMMISSION.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 336,700
<SECURITIES> 2,998,000
<RECEIVABLES> 23,588,700
<ALLOWANCES> 1,451,100
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 758,700
<DEPRECIATION> 416,000
<TOTAL-ASSETS> 29,827,400
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 14,522,200
<COMMON> 115,200
0
205,000
<OTHER-SE> 2,759,300
<TOTAL-LIABILITY-AND-EQUITY> 29,827,400
<SALES> 0
<TOTAL-REVENUES> 2,482,600
<CGS> 0
<TOTAL-COSTS> 1,017,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 367,800
<INTEREST-EXPENSE> 737,100
<INCOME-PRETAX> 359,900
<INCOME-TAX> 124,800
<INCOME-CONTINUING> 235,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,100
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.30
<FN>
<F1>FINANCIAL STATEMENTS OF THE COMPANY WERE PREPARED IN ACCORDANCE WITH
FINANCIAL INSTITUTION INDUSTRY STANDARDS. ACCORDINGLY, THE COMPANY'S
BALANCE SHEETS WERE NON-CLASSIFIED.
</FN>
</TABLE>
