<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, 1995
-------------
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 1-75
----
HOUSEHOLD FINANCE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-1239445
- ----------------------- - ------------------------------------
(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: (708) 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, 1995, there were 1,000 shares of registrant's common stock
outstanding.<PAGE>
<PAGE> 2
Part 1. FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS
Household Finance Corporation and Subsidiaries
STATEMENTS OF INCOME
- --------------------
<TABLE>
<CAPTION>
In millions.
- -----------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . . . $822.2 $714.9 $422.2 $366.9
Interest income from noninsurance investment securities. . . 19.5 18.0 10.0 8.4
Interest expense . . . . . . . . . . . . . . . . . . . . . . 396.0 271.9 203.6 148.4
-------------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . . . 445.7 461.0 228.6 226.9
Provision for credit losses on owned receivables . . . . . . 251.2 218.0 133.5 94.1
-------------------------------------------
Net interest margin after provision for credit losses. . . . 194.5 243.0 95.1 132.8
-------------------------------------------
Securitization income. . . . . . . . . . . . . . . . . . . . 197.7 141.6 103.1 62.8
Insurance premiums and contract revenues . . . . . . . . . . 141.4 135.8 69.5 66.7
Investment income. . . . . . . . . . . . . . . . . . . . . . 271.0 254.5 135.6 118.2
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . 51.4 36.3 27.9 18.2
Other income . . . . . . . . . . . . . . . . . . . . . . . . 27.1 54.5 (.1) 29.7
-------------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . . . 688.6 622.7 336.0 295.6
-------------------------------------------
Salaries and fringe benefits . . . . . . . . . . . . . . . . 113.1 119.2 54.6 61.5
Other operating expenses . . . . . . . . . . . . . . . . . . 328.7 327.6 163.6 150.7
Policyholders' benefits. . . . . . . . . . . . . . . . . . . 271.0 248.2 137.0 124.0
-------------------------------------------
Total costs and expenses . . . . . . . . . . . . . . . . . . 712.8 695.0 355.2 336.2
-------------------------------------------
Income before income taxes . . . . . . . . . . . . . . . . . 170.3 170.7 75.9 92.2
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 54.7 55.6 24.0 30.2
-------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $115.6 $115.1 $ 51.9 $ 62.0
===========================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 3
Household Finance Corporation and Subsidiaries
BALANCE SHEETS
- --------------
<TABLE>
<CAPTION>
In millions.
- ---------------------------------------------------------------------------------------------------------
June 30, December 31,
1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
- ------
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102.3 $ 97.3
Investment securities (fair value of $7,636.4 and $7,205.7). . 7,515.5 7,249.6
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . 12,464.2 10,476.3
Assets pending sale. . . . . . . . . . . . . . . . . . . . . . - 398.3
Advances to parent company and affiliates. . . . . . . . . . . 522.9 482.3
Deferred insurance policy acquisition costs. . . . . . . . . . 483.7 621.4
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . 330.5 357.2
Properties and equipment . . . . . . . . . . . . . . . . . . . 202.4 211.5
Real estate owned. . . . . . . . . . . . . . . . . . . . . . . 103.9 124.6
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 762.7 992.9
---------------------------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $22,488.1 $21,011.4
=================================
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
Debt:
Commercial paper, bank and other borrowings. . . . . . . . . $ 4,128.2 $ 3,800.6
Senior and senior subordinated debt (with original
maturities over one year). . . . . . . . . . . . . . . . . 8,248.8 7,728.3
---------------------------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . 12,377.0 11,528.9
Insurance policy and claim reserves. . . . . . . . . . . . . . 6,877.6 6,643.4
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . 1,096.7 880.0
---------------------------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . 20,351.3 19,052.3
---------------------------------
Preferred stock. . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0
---------------------------------
Common shareholder's equity:
Common stock and paid-in capital . . . . . . . . . . . . . . 691.2 691.2
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 1,352.2 1,260.2
Foreign currency translation adjustments . . . . . . . . . . (8.8) (8.9)
Unrealized gain (loss) on investments, net . . . . . . . . . 2.2 (83.4)
---------------------------------
Total common shareholder's equity. . . . . . . . . . . . . . . 2,036.8 1,859.1
---------------------------------
Total liabilities and shareholder's equity . . . . . . . . . . $22,488.1 $21,011.4
=================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 4
Household Finance Corporation and Subsidiaries
STATEMENTS OF CASH FLOWS
- ------------------------
<TABLE>
<CAPTION>
In millions.
- ---------------------------------------------------------------------------------------------------------
Six months ended June 30 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY OPERATIONS
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115.6 $ 115.1
Adjustments to reconcile net income to net cash provided by operations:
Provision for credit losses on owned receivables . . . . . . . . . . 251.2 218.0
Insurance policy and claim reserves. . . . . . . . . . . . . . . . . 199.7 138.5
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 80.5 72.5
Net realized (gains) losses from sales of assets . . . . . . . . . . 13.4 (12.5)
Deferred insurance policy acquisition costs. . . . . . . . . . . . . (42.9) (46.0)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260.8 (13.9)
---------------------------------
Cash provided by operations. . . . . . . . . . . . . . . . . . . . . . 878.3 471.7
---------------------------------
INVESTMENTS IN OPERATIONS
Investment securities:
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,107.0) (1,951.4)
Matured. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226.7 339.6
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,581.9 1,245.7
Short-term investment securities, net change . . . . . . . . . . . . . 323.9 178.0
Receivables, excluding bankcard:
Originated or purchased. . . . . . . . . . . . . . . . . . . . . . . (4,063.2) (3,379.2)
Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,836.7 2,036.4
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,252.8 889.6
Bankcard receivables:
Originated or collected, net . . . . . . . . . . . . . . . . . . . . (2,456.2) (1,006.4)
Purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6.9) (7.4)
Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,619.3 926.4
(Acquisition) disposition of businesses, net . . . . . . . . . . . . . 151.3 (138.1)
Properties and equipment purchased . . . . . . . . . . . . . . . . . . (13.1) (9.7)
Properties and equipment sold. . . . . . . . . . . . . . . . . . . . . .4 .4
Advances to parent company and affiliates. . . . . . . . . . . . . . . (40.6) (103.8)
---------------------------------
Cash decrease from investments in operations . . . . . . . . . . . . . (1,694.0) (979.9)
---------------------------------
FINANCING AND CAPITAL TRANSACTIONS
Short-term debt, net change. . . . . . . . . . . . . . . . . . . . . . 327.6 (78.0)
Senior and senior subordinated debt issued . . . . . . . . . . . . . . 1,750.4 1,539.8
Senior and senior subordinated debt retired. . . . . . . . . . . . . . (1,274.0) (1,173.9)
Policyholders' benefits paid . . . . . . . . . . . . . . . . . . . . . (432.0) (243.8)
Cash received from policyholders . . . . . . . . . . . . . . . . . . . 472.3 468.8
Dividends on preferred stock . . . . . . . . . . . . . . . . . . . . . (3.6) (3.6)
Dividends paid to parent company . . . . . . . . . . . . . . . . . . . (20.0) -
Capital contribution from parent company . . . . . . . . . . . . . . . - 45.0
---------------------------------
Cash increase from financing and capital transactions. . . . . . . . . 820.7 554.3
---------------------------------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 46.1
Cash at January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . 97.3 27.8
---------------------------------
Cash at June 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 102.3 $ 73.9
=================================
Supplemental cash flow information:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 315.0 $ 309.3
=================================
Income taxes paid (received) . . . . . . . . . . . . . . . . . . . . . $ (44.9) $ 120.8
=================================
See notes to condensed financial statements.
/TABLE
<PAGE>
<PAGE> 5
Household Finance Corporation and Subsidiaries
BUSINESS SEGMENT DATA
- ---------------------
The company reassessed the significance of its Liquidating Commercial Lines
("LCL") segment as of December 31, 1994. In recognition of the significant
1994 decline in the level of LCL assets and a reduced risk posture for
these assets, the LCL segment has been combined with the Finance and Banking
segment. To better analyze financial condition and results of operations and
related trends, prior year earnings and selected balance sheet data have been
reclassified to reflect this combination.
<TABLE>
<CAPTION>
In millions.
- -------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
- --------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . $1,188.0 $1,033.9 $597.7 $520.7
Individual Life Insurance. . . . . . . . . . . . . . . . . . . 342.3 321.7 170.5 150.2
------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,530.3 $1,355.6 $768.2 $670.9
==========================================
NET INCOME
- ----------
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . $ 91.3 $ 92.8 $ 38.8 $ 51.4
Individual Life Insurance. . . . . . . . . . . . . . . . . . . 24.3 22.3 13.1 10.6
------------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115.6 $ 115.1 $ 51.9 $ 62.0
==========================================
Return on average owned assets*. . . . . . . . . . . . . . . . 1.05% 1.13% .94% 1.20%
------------------------------------------
Return on average common shareholder's equity* . . . . . . . . 11.2% 12.9% 10.1% 13.8%
------------------------------------------
*Annualized
</TABLE>
<TABLE>
<CAPTION>
In millions.
- -----------------------------------------------------------------------------------------------------------
June 30, December 31,
Assets 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finance and Banking. . . . . . . . . . . . . . . . . . . . . . $14,677.7 $13,570.0
Individual Life Insurance. . . . . . . . . . . . . . . . . . . 7,810.4 7,441.4
---------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $22,488.1 $21,011.4
=================================
See notes to condensed financial statements.
/TABLE
<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 Finance
Corporation's (the "company") Annual Report on Form 10-K for its fiscal
year ended December 31, 1994. 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
---------------------
<TABLE>
<CAPTION>
Investment securities consisted of the following:
---------------------------------------------------------------------------------------------------------
In millions. June 30, 1995 December 31, 1994
---------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRADING INVESTMENTS
Government securities and other. . . . . . . . . . . . . . - - $ 2.9 $ 2.9
--------------------------------------------
AVAILABLE-FOR-SALE INVESTMENTS
Marketable equity securities . . . . . . . . . . . . . . . $ 68.8 $ 68.8 53.9 53.9
Corporate debt securities. . . . . . . . . . . . . . . . . 2,744.6 2,744.6 2,545.9 2,545.9
Government debt securities . . . . . . . . . . . . . . . . 244.0 244.0 211.3 211.3
Mortgage-backed securities . . . . . . . . . . . . . . . . 857.4 857.4 817.9 817.9
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 23.0 23.0 62.5 62.5
--------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 3,937.8 3,937.8 3,691.5 3,691.5
--------------------------------------------
HELD-TO-MATURITY INVESTMENTS
Corporate debt securities. . . . . . . . . . . . . . . . . 1,765.7 1,877.7 1,827.4 1,818.3
Government debt securities . . . . . . . . . . . . . . . . 21.7 20.7 23.1 20.6
Mortgage-backed securities . . . . . . . . . . . . . . . . 1,122.5 1,131.9 1,063.1 1,041.9
Mortgage loans on real estate. . . . . . . . . . . . . . . 142.7 145.7 161.9 158.5
Policy loans . . . . . . . . . . . . . . . . . . . . . . . 79.1 79.1 72.7 72.7
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 334.3 331.8 298.1 290.4
--------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . 3,466.0 3,586.9 3,446.3 3,402.4
--------------------------------------------
Accrued investment income. . . . . . . . . . . . . . . . . 111.7 111.7 108.9 108.9
--------------------------------------------
Total investment securities. . . . . . . . . . . . . . . . $7,515.5 $7,636.4 $7,249.6 $7,205.7
============================================
/TABLE
<PAGE>
<PAGE> 7
3. RECEIVABLES
-----------
<TABLE>
<CAPTION>
Receivables consisted of the following:
-------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity. . . . . . . . . . . . . . . . . . . . . . . . $ 2,026.1 $ 1,570.4
Other secured. . . . . . . . . . . . . . . . . . . . . . . 172.0 141.9
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . 3,438.1 2,663.0
Merchant participation . . . . . . . . . . . . . . . . . . 2,370.0 1,843.4
Other unsecured. . . . . . . . . . . . . . . . . . . . . . 3,242.7 2,865.9
Equipment financing and other commercial . . . . . . . . . 991.7 1,066.6
---------------------------------------
Total receivables owned . . . . . . . . . . . . . . . . . 12,240.6 10,151.2
Accrued finance charges. . . . . . . . . . . . . . . . . . 202.4 176.5
Credit loss reserve for owned receivables. . . . . . . . . (484.2) (413.7)
Unearned credit insurance premiums and claims reserves . . (51.7) (45.9)
Amounts due and deferred from receivables sales. . . . . . 706.0 789.9
Reserve for receivables serviced with limited recourse . . (148.9) (181.7)
---------------------------------------
Total receivables owned, net . . . . . . . . . . . . . . . 12,464.2 10,476.3
Receivables serviced with limited recourse . . . . . . . . 7,320.3 7,808.8
---------------------------------------
Total managed receivables, net . . . . . . . . . . . . . . $19,784.5 $18,285.1
=======================================
The outstanding balance of receivables serviced with limited recourse
consisted of the following:
-------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
-------------------------------------------------------------------------------------------------------
Home equity. . . . . . . . . . . . . . . . . . . . . . . . $ 4,944.5 $ 5,074.6
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . 1,600.0 1,866.0
Merchant participation . . . . . . . . . . . . . . . . . . 775.8 868.2
---------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,320.3 $ 7,808.8
=======================================
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. 1995 1994
-------------------------------------------------------------------------------------------------------
Home equity. . . . . . . . . . . . . . . . . . . . . . . . $ 6,970.6 $ 6,645.0
Other secured. . . . . . . . . . . . . . . . . . . . . . . 172.0 141.9
Bankcard . . . . . . . . . . . . . . . . . . . . . . . . . 5,038.1 4,529.0
Merchant participation . . . . . . . . . . . . . . . . . . 3,145.8 2,711.6
Other unsecured. . . . . . . . . . . . . . . . . . . . . . 3,242.7 2,865.9
Equipment financing and other commercial . . . . . . . . . 991.7 1,066.6
---------------------------------------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $19,560.9 $17,960.0
=======================================
/TABLE
<PAGE>
<PAGE> 8
The amounts due and deferred from receivables sales of $706.0 million
at June 30, 1995 included unamortized excess servicing assets and funds
established pursuant to the recourse provisions and holdback reserves
for certain sales totaling $629.8 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 $277.3 million plus unpaid
interest and has subordinated interests in certain transactions, which
are recorded as receivables, for $85.8 million at June 30, 1995. 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 $148.9 million at June 30,
1995 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 14
through 16 for additional information related to the credit quality of
receivables.
4. CREDIT LOSS RESERVES
--------------------
<TABLE>
<CAPTION>
An analysis of credit loss reserves for the six months ended June 30 was as
follows:
---------------------------------------------------------------------------------------------------
In millions. 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit loss reserves for owned receivables at January 1. . . . . . . . $ 413.7 $ 452.7
Provision for credit losses - owned receivables. . . . . . . . . . . . 251.2 218.0
Owned receivables charged off . . . . . . . . . . . . . . . . . . . . (233.8) (267.1)
Recoveries on owned receivables . . . . . . . . . . . . . . . . . . . 39.9 37.4
Credit loss reserves on receivables purchased, net . . . . . . . . . . 4.5 -
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.7 (1.3)
------------------------
TOTAL CREDIT LOSS RESERVES FOR OWNED RECEIVABLES AT JUNE 30 484.2 439.7
------------------------
Credit loss reserves for receivables serviced with
limited recourse at January 1. . . . . . . . . . . . . . . . . . . . 181.7 134.5
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . 44.9 71.9
Chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (84.5) (74.1)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 2.2
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 (1.1)
------------------------
TOTAL CREDIT LOSS RESERVES FOR RECEIVABLES SERVICED WITH
LIMITED RECOURSE AT JUNE 30. . . . . . . . . . . . . . . . . . . . 148.9 133.4
------------------------
TOTAL CREDIT LOSS RESERVES FOR MANAGED RECEIVABLES AT JUNE 30. . . . $ 633.1 $ 573.1
========================
</TABLE>
5. INCOME TAXES
------------
Effective tax rates for the six months ended June 30, 1995 and 1994 of 32.1
and 32.6 percent, respectively, differ from the statutory federal income tax
rate for the respective periods primarily because of the effects of (a)
leveraged lease tax benefits, (b) dividends received deduction applicable to
term preferred stock, (c) amortization of intangible assets, (d) state and
local income taxes, (e) increase in 1995 and reduction in 1994 of noncurrent
tax requirements and (f) foreign loss carry forwards in 1994.
6. TRANSACTIONS WITH PARENT COMPANY AND AFFILIATES
-----------------------------------------------
HFC periodically advances funds to Household International and affiliates or
receives amounts in excess of the parent company's current requirements.
Advances to parent company and affiliates were $522.9 million at June 30,
1995 compared to $482.3 million at December 31, 1994. Advances from parent
company and affiliates, which are included in other liabilities, were
$203.0 million at December 31, 1994. There were no advances from parent
company and affiliates at June 30, 1995. Net interest income on these
affiliated balances was $14.0 and $9.4 million for the six months ended
June 30, 1995 and 1994, respectively.<PAGE>
<PAGE> 9
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CONSOLIDATED OVERVIEW
Operations Summary
------------------
Net income for the second quarter and first six months of 1995 was $51.9
and $115.6 million, compared to $62.0 and $115.1 million in the respective
1994 periods. Based on a normal periodic review, the company recorded a
write-down in the 1995 second quarter related to the servicing of a
portfolio of unsecured loans. Without this write-down, the company's net
income would have been flat with the year-ago quarter and above the first
six months of 1994.
The following is a summary of the operating results of the company's
Finance and Banking businesses for the second quarter and first six
months of 1995 compared to the corresponding prior year periods:
- The consumer finance business reported higher net interest margin,
resulting from managed receivable portfolio growth, and lower credit
costs and operating expenses in the second quarter and first six
months of 1995. These improved core operating results were offset
by the previously discussed write-down related to the servicing of a
portfolio of unsecured loans.
- The credit card business had lower earnings compared to the prior year
periods due to higher earnings in the bankcard business offset by lower
earnings in the private-label credit card business. The bankcard
business increased earnings primarily due to increased net interest
margin and fee income due to portfolio growth, partially offset by
higher credit costs and operating expenses. In the second quarter of
1994, the company began issuing the General Motors credit card
("GM Card"), which previously had been issued by an affiliate of the
company. The private-label credit card business had lower earnings
primarily due to higher credit costs and net interest margin
compression.
- The commercial business reported positive operating results in the
second quarter and first six months compared to losses last year
primarily due to small gains recorded on the disposition of assets
as it liquidates its remaining portfolio.
Balance Sheet Review
--------------------
- Owned assets totaled $22.5 billion at June 30, 1995, up 7 percent from
$21.0 billion at December 31, 1994. The increase was primarily due to
growth in owned home equity and unsecured receivables.
- The company experienced good growth in its core products compared to
the previous quarter and year-ago periods. The following table
summarizes the percentage increase in managed consumer receivables
from March 31, 1995 (annualized) and June 30, 1994:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Quarter-Over-Quarter Year-Over-Year
Product Growth (Annualized) Growth
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Home equity (1). . . . . . . . . . . . . . . . . . . . 15% 7%
Credit cards . . . . . . . . . . . . . . . . . . . . . 42 30
Other unsecured. . . . . . . . . . . . . . . . . . . . 21 36
-----------------------------------------
Managed consumer receivables (2) . . . . . . . . . . . 28% 21%
=========================================
(1) Primarily attributable to growth in the company's wholesale network.
(2) Excludes other secured receivables which the company has de-emphasized.
/TABLE
<PAGE>
<PAGE> 10
- Credit loss reserves as a percent of managed receivables were 3.24
percent, compared to 3.28 percent at March 31, 1995 and 3.32 percent
at June 30, 1994. Reserves as a percent of nonperforming managed
receivables increased to 106.7 percent from 105.7 percent at
March 31, 1995 and 90.9 percent at June 30, 1994. Consumer
two-months-and-over contractual delinquency ("delinquency") as a
percent of managed consumer receivables was 3.60 percent, up from
3.50 percent at March 31, 1995 and down from 3.95 percent at
June 30, 1994. The annualized total consumer managed chargeoff
ratio in the second quarter of 1995 was 3.08 percent, compared
to 2.97 percent in the prior quarter and 3.38 percent in the year-ago
quarter.
- During the second quarter the company completed the sale of its
purchased mortgage servicing rights to a third party. The sale did
not have a material impact on the company's operating results for
the second quarter.
- The company's debt to equity ratio was 5.8 to 1 compared to 5.9 to 1 at
December 31, 1994. The December 31, 1994 ratio was affected by
Statement of Financial Accounting Standards No. 115 ("FAS No. 115")
which requires that unrealized gains or losses in certain debt and
equity securities be recorded as an adjustment to shareholder's
equity. While FAS No. 115 provides for the adjustment of certain
debt and equity securities to fair value, it does not allow for a
corresponding adjustment for a change in related liabilities.
Therefore, unrealized gains and losses do not reflect the change in
the economic value of shareholder's equity due to changes in
interest rates. The company believes that the change in fair
value of liabilities should offset a significant amount of the
change in the fair value of its investment portfolio. Excluding
the effect of the FAS No. 115 component of shareholder's equity,
the company's debt to equity ratio was 5.6 to 1 at December 31, 1994.
The June 30, 1995 debt to equity ratio was not impacted by FAS
No. 115.
- In July 1995 Standard & Poor's Ratings Group ("S&P") revised its
outlook on the company from stable to positive based on strong
reserve coverage and recent expense control initiatives. However,
during the same month, S&P reduced the claims-paying rating of
the company's wholly-owned insurance subsidiary, Alexander Hamilton
Life Insurance Company of America ("Alexander Hamilton"), from "AA"
(excellent) to "AA-" (excellent), citing the performance of the
individual life line of business that had not met S&P's expectations.
- In August 1995 the company signed a definitive agreement to sell the
individual life and annuity product lines of Alexander Hamilton to
Jefferson-Pilot Corporation. At June 30, Alexander Hamilton had
assets related to its individual life and annuity businesses of
approximately $6 billion. In 1994 these businesses contributed net
income of $42 million. The transaction will result in no significant
gain or loss. The transaction, which is subject to regulatory
approvals, is expected to close by year end.
<PAGE>
<PAGE> 11
FINANCE AND BANKING
-------------------
<TABLE>
<CAPTION>
Statements of Income
--------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1995 1994 1995 1994
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Finance income . . . . . . . . . . . . . . . . . . . . . $ 822.2 $ 714.9 $ 422.2 $ 366.9
Interest income from noninsurance investment securities. 19.5 18.0 10.0 8.4
Interest expense . . . . . . . . . . . . . . . . . . . . 396.0 269.7 203.6 147.3
----------------------------------------------
Net interest margin. . . . . . . . . . . . . . . . . . . 445.7 463.2 228.6 228.0
Provision for credit losses on owned receivables . . . . 251.2 218.0 133.5 94.1
----------------------------------------------
Net interest margin after provision for credit losses. . 194.5 245.2 95.1 133.9
----------------------------------------------
Securitization income. . . . . . . . . . . . . . . . . . 197.7 141.6 103.1 62.8
Insurance premiums and contract revenues . . . . . . . . 67.9 61.7 35.0 31.4
Investment income. . . . . . . . . . . . . . . . . . . . 2.2 6.9 (.4) 3.3
Fee income . . . . . . . . . . . . . . . . . . . . . . . 51.4 36.3 27.9 18.2
Other income . . . . . . . . . . . . . . . . . . . . . . 27.1 54.5 (.1) 29.7
----------------------------------------------
Total other revenues . . . . . . . . . . . . . . . . . . 346.3 301.0 165.5 145.4
----------------------------------------------
Costs and expenses:
Salaries and fringe benefits . . . . . . . . . . . . . 101.7 105.7 48.6 54.7
Other operating expenses . . . . . . . . . . . . . . . 275.6 276.1 140.9 134.7
Policyholders' benefits. . . . . . . . . . . . . . . . 30.5 28.4 15.0 14.1
Income taxes . . . . . . . . . . . . . . . . . . . . . 41.7 43.2 17.3 24.4
----------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 91.3 $ 92.8 $ 38.8 $ 51.4
==============================================
Average receivables:
Owned. . . . . . . . . . . . . . . . . . . . . . . . . $11,259.5* $10,507.1 $11,584.3 $10,695.6
Serviced with limited recourse . . . . . . . . . . . . 7,426.8 6,658.5 7,183.2 6,470.2
----------------------------------------------
Average managed receivables. . . . . . . . . . . . . . . $18,686.3* $17,165.6 $18,767.5 $17,165.8
==============================================
Return on average owned assets - annualized. . . . . . . 1.29% 1.39% 1.08% 1.52%
==============================================
* Includes average balance of Assets Pending Sale, which consisted of commercial receivables sold to a
joint venture in March 1995.
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
End-of-period receivables:
Owned. . . . . . . . . . . . . . . . . . . . . . . . . $12,240.6 $10,151.2
Serviced with limited recourse . . . . . . . . . . . . 7,320.3 7,808.8
----------------------------------------------
Managed receivables. . . . . . . . . . . . . . . . . . . $19,560.9 $17,960.0
==============================================
/TABLE
<PAGE>
<PAGE> 12
Overview
--------
Finance and Banking earnings for the second quarter and first six
months were $38.8 and $91.3 million, compared to $51.4 and $92.8 million
in the year-ago periods. See Operations Summary on page 9 for further
discussion of the operating results of the company's Finance and Banking
businesses.
Receivables
-----------
Managed consumer receivables grew 27 percent on an annualized basis
compared to March 31, 1995 and were up 19 percent compared to the
June 30, 1994 level. See Balance Sheet Review on page 9 for further
discussion. Receivables owned totaled $12.2 billion at June 30, 1995,
up from both March 31, 1995 and June 30, 1994. The level of owned
receivables may vary from quarter to quarter depending on the timing and
significance of securitization transactions in a particular period. For
the second quarter of 1995, the company completed securitizations and
sales of approximately $780 million of bankcard and home equity
receivables.
Net interest margin
-------------------
Net interest margin was $228.6 and $445.7 million for the second
quarter and first six months of 1995, flat compared to the second
quarter of 1994 but down from $463.2 million in the first six months of
1994. Net interest margin as a percent of average owned interest-earning
assets, annualized, was 7.57 percent, flat compared to 7.59 percent in
the prior quarter and down from 8.08 percent in the second quarter of
1994. The decrease compared to the prior year period was primarily
attributable to higher funding costs and compression of fixed rate
receivable spreads partially offset by a shift in product mix toward
higher-yielding unsecured receivables.
Due to the securitization of assets over the past several years, the
comparability of net interest margin between years may be affected by the
level and type of assets securitized. As receivables are securitized and
sold rather than held in portfolio, net interest income is shifted to
securitization income. Net interest margin on a managed basis, assuming
receivables securitized and sold were instead held in the portfolio, was
$349.5 and $698.1 million for the second quarter and first six months of
1995, compared to $335.1 and $691.4 million in the same year-ago periods.
Net interest margin on a managed basis as a percent of average managed
interest-earning assets, annualized, was 7.26 percent compared to 7.30
percent in the previous quarter and 7.55 percent in the year-ago quarter.
Net interest margin on an owned basis was greater than on a managed basis
because home equity receivables, which have lower spreads, were a larger
proportion of the portfolio serviced with limited recourse than of the
owned portfolio.
Provision for credit losses
---------------------------
The provision for credit losses for receivables totaled $133.5 and $251.2
million for the second quarter and first six months of 1995, up 42 and 15
percent from $94.1 and $218.0 million, respectively, in the comparable
prior year periods. The level of provision for credit losses may vary
from quarter to quarter, depending on the amount of securitizations and
sales of receivables in a particular period. The increase in the
provision in 1995 was primarily due to continued growth in unsecured
products and economic uncertainty about the second half of 1995, as
evidenced by key statistics such as unemployment and consumer spending
and the Federal Reserve's recent actions regarding interest rates.
See the credit quality section for further discussion of factors
affecting the provision for credit losses.
Other revenues
--------------
Securitization income consists of income associated with the
securitizations and sales of receivables with limited recourse, including
net interest income, fee income and provision for credit losses related
to those receivables. The increase in securitization income compared to
the same year-ago periods was primarily due to higher levels of
securitized receivables outstanding and a shift in the mix of the
serviced portfolio toward higher-yielding, fee-based credit card
receivables. In addition, growth in interchange and other credit card
fee income outpaced the growth in the securitized bankcard portfolio
due to an increase in the number of credit cards issued and greater
transaction volume.
<PAGE>
<PAGE> 13
Fee income includes revenues from fee-based products such as bankcards
and private-label credit cards. Fee income was $27.9 and $51.4 million
in the second quarter and first six months of 1995, up from $18.2 and
$36.3 million in the comparable periods of the prior year primarily due
to interchange and other fees related to growth in owned credit card
receivables.
Other income primarily consists of servicing fee income and gains and
losses on asset sales. Other income decreased compared to the second
quarter and first six months of 1994 primarily due to lower servicing
income attributable to lower balances of an unsecured loan portfolio
serviced with no recourse compared to prior periods and a write-down
related to the servicing of this portfolio.
Expenses
--------
Salaries and fringe benefits were $48.6 and $101.7 million compared to
$54.7 and $105.7 million in the second quarter and first six months of
1994. Other operating expenses were $140.9 and $275.6 million in the
second quarter and first six months of 1995, up slightly from the second
quarter of 1994 but flat compared to the first six months of 1994.
The effective tax rate for the Finance and Banking segment was 30.8
and 31.4 percent, compared to 32.2 and 31.8 percent in the second quarter
and first six months of 1994.
Credit Loss Reserves
--------------------
The company's credit portfolios and credit management policies have
historically been 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.
<TABLE>
<CAPTION>
Total managed credit loss reserves, which include reserves for recourse
obligations for receivables sold, were as follows (in millions):
-------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1995 1995 1994 1994
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned. . . . . . . . . . . . . . . . . . . $484.2 $446.2 $413.7 $439.7
Serviced with limited recourse . . . . . . 148.9 159.4 181.7 133.4
--------------------------------------------------------
Total. . . . . . . . . . . . . . . . . . . $633.1 $605.6 $595.4 $573.1
========================================================
</TABLE>
Managed credit loss reserves were up 5 percent from March 31, 1995 and
up 10 percent from June 30, 1994. Managed credit loss reserves as a
percent of nonperforming managed receivables were 106.7 percent,
essentially unchanged compared to 105.7 percent at March 31, 1995 and up
from 90.9 percent at June 30, 1994.
<TABLE>
<CAPTION>
Total owned and managed credit loss reserves as a percent of receivables were
as follows:
--------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, June 30,
1995 1995 1994 1994
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned. . . . . . . . . . . . . . . . . . . 3.96% 4.02% 4.08% 4.22%
Managed. . . . . . . . . . . . . . . . . . 3.24 3.28 3.32 3.32
------------------------------------------------------
</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 quarterly 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<PAGE>
<PAGE> 14
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.
Credit Quality
--------------
Delinquency and chargeoff levels in the Finance and Banking portfolio were
up compared to the prior quarter but were below the year-ago quarter.
Delinquency
-----------
Delinquency 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.
<TABLE>
<CAPTION>
Two-Months-and-Over Contractual Delinquency (as a percent of managed consumer receivables):
-----------------------------------------------------------------------------------------------
6/30/95 3/31/95 12/31/94 9/30/94 6/30/94
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity. . . . . . . . . . . . . . 2.87% 2.81% 2.80% 2.83% 2.97%
Other secured. . . . . . . . . . . . . 4.21 1.09 1.23 4.00 5.01
Bankcard . . . . . . . . . . . . . . . 2.64 2.71 2.88 3.18 3.40
Merchant participation . . . . . . . . 4.07 4.67 4.87 5.02 4.55
Other unsecured. . . . . . . . . . . . 6.19 5.34 5.40 6.27 6.76
------------------------------------------------------
Total. . . . . . . . . . . . . . . . . 3.60% 3.50% 3.58% 3.85% 3.95%
======================================================
</TABLE>
Delinquency as a percent of managed consumer receivables increased from
the prior quarter but declined compared to the prior year level. The
delinquency level for other secured receivables increased during the
quarter, but did not impact total delinquency due to the small size of
the portfolio. Delinquency in other unsecured receivables increased as
expected during the second quarter primarily due to the maturation of
the portfolio, which experienced significant growth over the past
eighteen months. The merchant participation delinquency ratio benefited
from significant portfolio growth in the second quarter.
Bankcard delinquency decreased from March 1995 and June 1994. The
delinquency ratio benefited from the issuance of GM Card receivables
since June 1994. This product positively impacted the delinquency
percent, as new accounts were added to the receivables base but had
only a minimal impact on delinquency. The non-GM Card portfolio also
continued to show improvement in the second quarter of 1995. Excluding
the impact of the GM Card program, bankcard and total delinquency at
June 30, 1995 would have still been below the prior year levels.
<PAGE>
<PAGE> 15
Net Chargeoffs of Consumer Receivables
--------------------------------------
<TABLE>
<CAPTION>
Net Chargeoffs of Consumer Receivables (as a percent, annualized, of average managed consumer receivables):
---------------------------------------------------------------------------------------------------
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1995 1995 1994 1994 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Home equity. . . . . . . . . . . . . . 1.04% .82% .93% 1.02% 1.42%
Other secured. . . . . . . . . . . . . .01 - 1.42 1.86 1.95
Bankcard . . . . . . . . . . . . . . . 4.34 4.73 4.89 4.78 5.26
Merchant participation . . . . . . . . 5.30 4.85 4.26 3.87 3.81
Other unsecured. . . . . . . . . . . . 3.76 3.54 4.11 4.76 5.57
-------------------------------------------------------
Total. . . . . . . . . . . . . . . . . 3.08% 2.97% 3.00% 3.02% 3.38%
=======================================================
</TABLE>
Net chargeoffs as a percent of average managed consumer receivables for the
second quarter of 1995 increased compared to the first quarter of 1995 and
were lower than the year-ago quarter. Increased merchant participation
chargeoffs were primarily related to merchant programs the company has
decided to exit. Home equity receivable chargeoffs increased as expected
but were below the prior year. The chargeoff ratio for the other unsecured
portfolio increased compared to the prior quarter, but was below the
year-ago quarter, consistent with the trend in delinquency over the past
year. Bankcard chargeoffs continued to decline, primarily due to
improvement in the non-GM Card portfolio. The bankcard chargeoff ratio
also continued to benefit from the GM Card receivables, as new accounts
were added to the receivable base but only contributed minimal chargeoffs.
Excluding the impact of the GM Card program, bankcard and total
chargeoffs for the quarter would still have declined.
Chargeoffs are a lagging indicator of credit quality and generally reflect
prior delinquency trends. However, growth associated with credit card and
other unsecured receivables has resulted in a shift in product mix toward
unsecured receivables, which have higher chargeoff rates than secured
receivables. Future changes in the overall chargeoff trend may result
from the shift in product mix to unsecured receivables, changes in
economic conditions and other factors.
Nonperforming Assets
--------------------
<TABLE>
<CAPTION>
Nonperforming assets consisted of the following:
-----------------------------------------------------------------------------------------------
In millions. 6/30/95 3/31/95 12/31/94 9/30/94 6/30/94
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual managed receivables . . . . $404.6 $355.6 $395.5 $424.5 $468.7
Accruing managed consumer receivables
90 or more days delinquent . . . . . 147.1 131.7 138.2 135.3 133.5
Renegotiated commercial loans. . . . . 41.8 85.9 41.8 44.9 28.5
-----------------------------------------------------
Total nonperforming managed receivables 593.5 573.2 575.5 604.7 630.7
Real estate owned. . . . . . . . . . . 103.9 129.3 124.6 318.3 317.0
-----------------------------------------------------
Total nonperforming assets . . . . . . $697.4 $702.5 $700.1 $923.0 $947.7
=====================================================
Managed credit loss reserves as a percent
of nonperforming managed receivables 106.7% 105.7% 103.5% 97.1% 90.9%
-----------------------------------------------------
</TABLE>
<PAGE>
<PAGE> 16
Effective January 1, 1995 the company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("FAS No. 114"), as amended by Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosure." FAS No. 114 requires that a
loan be recognized as impaired when it is probable that all contractual
amounts due will not be repaid. FAS No. 114 specifically excludes groups
of individually small dollar, homogenous loans where collectibility is
evaluated collectively, such as the company's consumer receivable portfolio.
At June 30, 1995 impaired commercial loans included in the above table
were not significant and their ultimate disposition is not expected to have
a material impact on the company's results of operations. The adoption
of FAS No. 114 had no impact on the company's results of operations for
the six months ended June 30, 1995. Credit loss reserves for impaired
loans are included in reserves for managed receivables described on
pages 13 and 14.
<PAGE>
<PAGE> 17
INDIVIDUAL LIFE INSURANCE
-------------------------
Individual Life Insurance net income was $13.1 and $24.3 million, compared
to $10.6 and $22.3 million in the prior year periods.
<TABLE>
<CAPTION>
Statements of Income
-----------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
All dollar amounts are stated in millions. 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income. . . . . . . . . . . . . . . . . . . $268.8 $247.6 $136.0 $114.9
Insurance premiums and contract revenues . . . . . . . 73.5 74.1 34.5 35.3
-------------------------------------------
Total revenues . . . . . . . . . . . . . . . . . . . . 342.3 321.7 170.5 150.2
Costs and expenses:
Policyholders' benefits. . . . . . . . . . . . . . . 240.5 219.8 122.0 109.9
Operating expenses . . . . . . . . . . . . . . . . . 64.5 67.2 28.7 23.9
Income taxes . . . . . . . . . . . . . . . . . . . . 13.0 12.4 6.7 5.8
-------------------------------------------
Net income . . . . . . . . . . . . . . . . . . . . . . $ 24.3 $ 22.3 $ 13.1 $ 10.6
===========================================
Return on average assets - annualized. . . . . . . . . .64% .65% .68% .60%
===========================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
June 30, December 31,
In millions. 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment securities. . . . . . . . . . . . . . . . . $ 7,016.0 $ 6,669.9
Life insurance in-force. . . . . . . . . . . . . . . . 37,963.1 36,560.4
==================================
</TABLE>
Investment securities for the Individual Life Insurance segment totaled
$7.0 billion, up from $6.8 billion at March 31, 1995 and $6.7 billion at
December 31, 1994. The Individual Life Insurance portfolio represented
approximately 93 percent of the company's total investment portfolio at
June 30, 1995. Higher-risk securities, which include non-investment
grade bonds, common and preferred stocks, commercial mortgage loans and
real estate, represented 6.9 percent of the insurance investment
portfolio at June 30, 1995, compared to 7.2 percent at March 31, 1995
and 6.9 percent at December 31, 1994.
At June 30, 1995 the market value for the insurance held-to-maturity
investment portfolio was 104 percent of the carrying value compared to
102 percent at March 31, 1995 and 99 percent at December 31, 1994.
The increase in market value over book value during the first six months
of 1995 was mainly the result of lower long-term interest rates. The
company continuously monitors the fair value of its available-for-sale
investment portfolio in light of market interest rate conditions and
may sell securities in an attempt to maximize its capital position.
Investment income includes both interest income on investment securities
and realized gains and losses on the sale of available-for-sale
investments. Investment income in the second quarter and first six
months of 1995 was $136.0 and $268.8 million, up compared with the
year-ago periods due to higher interest income resulting from higher
yields and a larger investment portfolio. Higher interest income was
partially offset by losses on sales of available-for-sale investments
compared to gains in the second quarter and first six months of 1994.
Policyholders' benefits in the second quarter and first six months of
1995 were $122.0 and $240.5 million, up from $109.9 and $219.8 million
in the same periods in 1994 primarily due to higher interest credited
to policyholders caused by higher interest rates and life insurance
in-force.
Operating expenses in the second quarter were up compared to prior year
primarily due to higher levels of deferred insurance policy acquisition
cost ("DAC") amortization associated with higher investment income.
Operating expenses in the first six months of 1995 were down compared
to the year-ago period primarily due to lower salaries and fringe
benefits and commission expense.
<PAGE>
<PAGE> 18
The effective tax rate was 33.8 and 34.9 percent for the second quarter
and first six months of 1995, compared to 35.4 and 35.7 percent in the
respective periods of 1994.<PAGE>
<PAGE> 19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statement of Computation of Ratio of Earnings to Fixed Charges
and to Combined Fixed Charges and Preferred Stock Dividends.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the second quarter of 1995, the Registrant did not file any
Current Report on Form 8-K.
<PAGE>
<PAGE> 20
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 FINANCE CORPORATION
-----------------------------
(Registrant)
Date: August 11, 1995 By: /s/ David A. Schoenholz
--------------- ----------------------------
David A. Schoenholz,
Vice President, Chief Accounting Officer
and Chief Financial Officer, Director
and on behalf of
Household Finance Corporation
<PAGE>
<PAGE> 21
Exhibit Index
-------------
12 Statement of Computation of Ratio of Earnings to Fixed Charges and to
Combined Fixed Charges and Preferred Stock Dividends.
27 Financial Data Schedule.
EXHIBIT 12
----------
HOUSEHOLD FINANCE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
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All dollar amounts are stated in millions.
Six months ended June 30 1995 1994
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Net income $115.6 $115.1
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Income taxes 54.7 55.6
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Fixed charges:
Interest expense (1) 424.2 284.9
Interest portion of rentals (2) 4.1 4.1
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Total fixed charges 428.3 289.0
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Total earnings as defined $598.6 $459.7
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Ratio of earnings to fixed charges 1.40 1.59
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Preferred stock dividends (3) $ 5.3 $ 5.3
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Ratio of earnings to combined fixed charges
and preferred stock dividends 1.38 1.56
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(1) For financial statement purposes, interest expense includes income earned
on temporary investment of excess funds, generally resulting from over-
subscriptions of commercial paper.
(2) Represents one-third of rentals, which approximates the portion
representing interest.
(3) Preferred stock dividends are grossed up to their pretax equivalent based
upon an effective tax rate of 32.1 and 32.6 percent for June 30, 1995 and
1994, respectively.
<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> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 102,300
<SECURITIES> 7,515,500
<RECEIVABLES> 12,240,600
<ALLOWANCES> 633,100
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 459,000
<DEPRECIATION> 256,600
<TOTAL-ASSETS> 22,488,100
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,248,800
<COMMON> 1
0
100,000
<OTHER-SE> 2,036,799
<TOTAL-LIABILITY-AND-EQUITY> 22,488,100
<SALES> 0
<TOTAL-REVENUES> 1,530,300
<CGS> 0
<TOTAL-COSTS> 712,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 251,200
<INTEREST-EXPENSE> 396,000
<INCOME-PRETAX> 170,300
<INCOME-TAX> 54,700
<INCOME-CONTINUING> 115,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,600
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<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>
