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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-8930
H. F. AHMANSON & COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-0479700
- -------------------------------------- --------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4900 Rivergrade Road
Irwindale, California 91706
- -------------------------------------- --------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
Registrant's telephone number, including area code: 818/960-6311
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $.01 par value New York Stock Exchange
Series A Junior Participating Cumulative Pacific Stock Exchange
Preferred Stock
Depositary Shares Each Representing New York Stock Exchange
a One-Half Interest in a Share of
9.60% Preferred Stock, Series B
Depositary Shares Each Representing New York Stock Exchange
a One-Tenth Interest in a Share of
8.40% Preferred Stock, Series C
Depositary Shares Each Representing a New York Stock Exchange
One-Tenth Interest in a Share of 6%
Cumulative
Convertible Preferred Stock, Series D
Securities registered pursuant to Section 12(g) of the Act:
Not Applicable
----------------
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based upon the closing sale price of its Common Stock on March 15,
1994 on the New York Stock Exchange, a date within 60 days prior to the date
of filing, was $2,016,540,715.
Common Stock, $.01 par value of registrant outstanding at March 15, 1994--
116,900,911 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Stockholders to be held
May 10, 1994 are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
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PART I
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ITEM 1. BUSINESS......................................................... 1
General................................................................ 1
Retail Activities...................................................... 2
Lending Activities..................................................... 2
General.............................................................. 2
Interest Rates, Terms and Fees....................................... 3
Sales of Loans and MBSs and Servicing Activities..................... 4
Treasury Activities.................................................... 5
Earnings Spread........................................................ 5
Asset/Liability Management............................................. 6
Competition............................................................ 6
Regulation............................................................. 7
General.............................................................. 7
FIRREA and FDICIA.................................................... 7
Savings and Loan Holding Company Regulations......................... 7
Affiliate and Insider Transactions................................... 7
Limitations on Acquisitions.......................................... 7
Payment of Dividends................................................. 7
Deposit Insurance.................................................... 8
Conversion of Deposit Insurance; Acquisitions of Savings
Institutions....................................................... 9
Classification of Assets............................................. 9
Capital Requirements................................................. 9
FDICIA Sanctions..................................................... 11
Enforcement and Penalties............................................ 11
Loans and Investments................................................ 12
Federal Home Loan Bank System........................................ 12
Federal Reserve Sysytem.............................................. 12
Liquidity............................................................ 12
Community Reinvestment Act........................................... 12
Qualified Thrift Lender.............................................. 12
Service Corporations................................................. 12
Taxation............................................................... 13
Federal.............................................................. 13
State................................................................ 13
Real Estate Operations................................................. 14
Other Activities....................................................... 14
Employees.............................................................. 14
ITEM 2. PROPERTIES....................................................... 14
ITEM 3. LEGAL PROCEEDINGS................................................ 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............. 14
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS........................................................... 15
Market Prices of Stock ................................................. 15
Per Share Cash Dividends Data........................................... 15
Stockholders............................................................ 16
ITEM 6. SELECTED FINANCIAL DATA........................................... 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................. 19
Overview................................................................ 19
Results of Operations................................................... 21
Net Interest Income................................................... 21
Provision for Loan Losses............................................. 23
Other Income.......................................................... 23
Gain on Sales of MBSs............................................... 23
Gain on Sales of Loans.............................................. 23
Loan Servicing Income............................................... 24
Other Fee Income.................................................... 24
Operations of REI................................................... 24
Other Operating Income.............................................. 24
Other Expenses........................................................ 24
General and Administrative Expenses................................. 24
Operations of REO................................................... 25
Amortization of Goodwill............................................ 25
Provision for Income Taxes (Benefit) and
Cumulative Effect of Accounting Change............................. 25
Extraordinary Loss.................................................... 25
Quarterly Results of Operations....................................... 26
Financial Condition..................................................... 27
Asset/Liability Management............................................ 28
Asset Quality......................................................... 31
Nonperforming Assets and Potential Problem Loans.................... 31
Allowance for Loan Losses........................................... 35
REI................................................................. 38
Liquidity and Capital Resources....................................... 38
Loans Receivable.................................................... 39
MBSs................................................................ 39
Deposits............................................................ 40
Borrowings.......................................................... 40
Capital............................................................. 40
Subsequent Event...................................................... 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................... 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE............................................... 41
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 42
ITEM 11. EXECUTIVE COMPENSATION........................................... 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 44
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.......................................................... 44
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SIGNATURES
INDEX TO FINANCIAL STATEMENTS
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PART I
ITEM 1. BUSINESS
GENERAL
H. F. Ahmanson & Company, a Delaware corporation, is one of the largest
residential real estate-oriented financial services companies in the United
States, owning subsidiaries principally engaged in the savings bank business
and related financial service activities. Ahmanson was originally organized in
1928 in California and changed its state of incorporation from California to
Delaware in 1985. As used herein, the "Company" means Ahmanson collectively
with its subsidiaries, and "Ahmanson" means H. F. Ahmanson & Company, a
Delaware corporation incorporated in 1984 and its predecessor California
corporation. Ahmanson's executive offices are located at 4900 Rivergrade Road,
Irwindale, California 91706, and its telephone number is (818) 960-6311.
Approximately 99% of the Company's consolidated revenues in 1993 were
derived from the operations of Home Savings of America, FSB, a federally
chartered savings bank ("Home Savings"), which is wholly-owned by Ahmanson.
Home Savings represented over 99% of the Company's consolidated assets at
December 31, 1993. Home Savings is currently the largest savings institution
in the United States. Home Savings is regulated by the Director of the Office
of Thrift Supervision ("OTS Director") and the Federal Deposit Insurance
Corporation ("FDIC") which, through the Savings Association Insurance Fund
("SAIF") and the Bank Insurance Fund ("BIF"), insures the deposit accounts of
Home Savings. Home Savings is a member of the Federal Home Loan Bank ("FHLB")
of San Francisco, which is one of the twelve regional banks for federally
insured depository institutions comprising the Federal Home Loan Bank System.
Home Savings is further subject to regulations of the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") with respect to reserves
required to be maintained against certain deposits and certain other matters.
On February 26, 1993 the Company's three FDIC-insured federal savings banks,
Home Savings, Home Savings of America, The Bowery Div., FSB ("Bowery"), and
Home Savings of America, FSB-NY ("HSB"), merged into a single federal bank
that operates as Home Savings of America, FSB. The deposits of the combined
entity are now insured, in part, by the SAIF and, in part, by the BIF. The
combined entity will be considered a BIF institution for most other purposes.
As used herein, for periods prior to the merger the term "Home Savings"
includes Bowery and HSB unless otherwise indicated and for periods after the
merger the term "Home Savings" means the combined entity Home Savings of
America, FSB resulting from the merger.
Home Savings conducts the majority of its business in California. Home
Savings currently conducts certain of its savings and lending operations under
the name "Savings of America, a division of Home Savings of America, FSB."
Home Savings also conducts certain of its lending operations through Ahmanson
Mortgage Company, a wholly-owned subsidiary.
The Company's principal business is attracting funds from the general public
and institutions and originating and investing in residential real estate
mortgage loans, mortgage-backed securities ("MBSs") and investment securities.
MBSs include securities issued or guaranteed by government sponsored
enterprises ("Agency MBSs") such as the Federal National Mortgage Association
("FNMA"), the Federal Home Loan Mortgage Corporation ("FHLMC") and the
Government National Mortgage Association ("GNMA"), mortgage pass-through
securities issued by other entities, including Home Savings, and
collateralized mortgage obligations ("CMOs"). The Company's primary sources of
revenues are interest earned on mortgage loans and MBSs, income from
investment securities, gains on sales of loans and MBSs, fees earned in
connection with loans and deposits, and income earned on its portfolio of
loans and MBSs serviced for investors. Its principal expense is interest
incurred on interest-bearing liabilities, including deposits and borrowings.
The Company's primary sources of funds are deposits, principal and interest
payments on loans and MBSs, proceeds from sales of loans and MBSs and
borrowings. Scheduled payments on loans and MBSs are a relatively stable
source of funds, while prepayments of loans and MBSs and flows in deposits
vary widely.
The Company, through certain subsidiaries, engages in real estate
development. The operations of the real estate subsidiaries are described
below under "Real Estate Operations." The effect on regulatory capital
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of real estate development and investment activities by Home Savings'
subsidiaries is discussed below under "Regulation--Capital Requirements." For
information with respect to industry segments see Note 15 of Notes to
Consolidated Financial Statements.
The Company's operations are significantly influenced by general economic
conditions, the monetary and fiscal policies of the federal government and the
regulatory policies of governmental authorities. Deposit flows and the cost of
interest-bearing liabilities ("cost of funds") to the Company are influenced by
interest rates on competing investments and general market interest rates.
Similarly, the Company's loan volume and yields on loans and MBSs, and the
level of prepayments on such loans and MBSs, are affected by market interest
rates, as well as additional factors affecting the supply of and demand for
housing and the availability of funds.
RETAIL ACTIVITIES
Home Savings is the largest savings institution in the United States. At
December 31, 1993 Home Savings' deposits totaled $38.0 billion, all of which
were retail deposits. The Company believes that retail deposits are a stable
and cost effective source of funds to support its residential mortgage lending.
At December 31, 1993 the Company had 364 retail branch offices located in
seven states and 91 loan offices located in 12 states. The Company periodically
reviews the desirability of maintaining its offices and closes those that it
determines are not sufficiently profitable or otherwise do not fit into the
Company's business plans. The Company also regularly reviews the desirability
of expanding or contracting its retail branch office network and loan office
network. Prior to closing any office, the Company reviews and considers the
potential impact of the office closing on the credit needs of the surrounding
community.
Home Savings attracts deposits by offering a wide variety of transaction and
term accounts and exceptional customer service. Examples of Home Savings'
transaction accounts include checking, passbook and money market savings
accounts. Home Savings' term accounts typically have maturities ranging from
three months to two years and generally include an interest forfeiture
provision designed to discourage withdrawals prior to maturity. Home Savings
also offers special rates for jumbo certificates of deposit.
Griffin Financial Services, a subsidiary of Ahmanson and an affiliate of Home
Savings, provides alternative investment and insurance services and products,
including mutual funds, annuities, life insurance, property and casualty
insurance, and discount brokerage to Home Savings' customers. In late 1993,
Griffin Financial Services introduced The Griffin Funds, a family of mutual
funds for which Griffin Financial Services or an affiliate serves as investment
adviser and distributor.
LENDING ACTIVITIES
General. The Company originates loans on existing residential property
through loan consultants who are employees of the Company. The value of the
property as security for a mortgage loan is determined by an appraiser, who is
generally an employee of the Company. All appraisers used by the Company meet
the requirements of applicable regulations. Salaried loan underwriters consider
the value of the property as determined by the appraiser and the potential
borrower's ability to make principal and interest payments in determining
whether to approve applications for such loans. The Company's loan consultants,
employee appraisers and loan underwriters work exclusively for the Company.
The Company discontinued originating new residential loans secured by multi-
family structures located in states other than California in 1990 and
discontinued originating new commercial and industrial real estate loans in
1988.
Home Savings' loans on single family homes must be approved by one or more
members of a single family loan committee which consists of the Director of
Conventional Loans, Loan Managers and certain Assistant Loan Managers. Loans on
multi-family real estate properties are subject to various approval
requirements depending on the size of the loan. Because many loan applications
declined by Home Savings are acceptable to other lenders, during 1993 Home
Savings instituted a program to refer loan applications
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which have been declined to other lenders. This program assists applicants to
meet their credit needs and generates fees for Home Savings.
The Company requires title insurance on all loans secured by liens on real
property and also requires that fire and extended coverage special form
casualty insurance be maintained on security properties in an amount at least
equal to the total of the Company's loans plus all prior liens on the property
or the replacement cost of the structure, whichever is less. In designated
flood areas, the Company also requires flood insurance in such amounts. Home
Savings does not require insurance against other sources of potential damage to
security properties, including earthquakes.
For additional information on the composition of the Company's loan and MBS
portfolio, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition."
The Company has established an allowance for possible loan losses to absorb
estimated future losses relating to specifically identified problem loans and
all other loans. For more information on the amount of the allowance and the
process for evaluating its adequacy, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Financial Condition--Asset
Quality--Allowance for Loan Losses."
For information on nonperforming assets and potential problem loans, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition--Asset Quality--Nonperforming Assets and
Potential Problem Loans."
Interest Rates, Terms and Fees. Substantially all the Company's adjustable
rate mortgage loans ("ARMs") provide for interest rates that adjust monthly
based on changes in the monthly weighted average cost of funds of member
institutions of the Federal Home Loan Bank System's Eleventh District, which
comprises California, Arizona and Nevada, as computed by the FHLB of San
Francisco ("COFI"). The cost of funds of Home Savings, as computed for purposes
of its Thrift Financial Reports to the OTS, represents a significant component
of COFI. COFI is currently computed and announced on the last day of the month
following the month in which such cost of funds was incurred. The Company's
ARMs generally commence accruing interest at the newly published rate plus the
contractual margin at the payment due date next following such announcement.
Federal laws and regulations restrict the nature, amount, terms and security
for real estate loans that savings institutions may originate or purchase. The
OTS and other bank regulatory agencies have adopted regulations requiring
institutions to adopt written real estate lending policies that, among other
things, are consistent with guidelines contained in the regulations. Among the
guidelines adopted are maximum loan-to-value ratios. For additional information
on the original loan-to-value ratios of loans originated by Home Savings, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition."
Certain of the Company's ARMs permit homeowners to borrow additional funds at
the existing loan's current interest rate for any purpose, but only if a
specified loan-to-value ratio, based on the appraised value of the security
property at the time of the additional borrowing, or the Company's maximum loan
amount for similar type property is not exceeded.
Substantially all ARMs originated between 1981 and 1987 and all ARMs
originated after 1987 have a maximum interest rate. In addition, substantially
all the Company's ARMs provide that the monthly payments to be made by the
borrower may be adjusted only yearly and by not more than 7.5% of such payments
in any year. However, at the end of each five year interval during the life of
the loan, the payments may be adjusted by more than 7.5% to assure that the
loan will amortize over the remaining term. The Company permits the borrower to
select, at the time of origination of an ARM, a repayment schedule of 15, 30 or
40 years.
Adjustable interest rates could cause payment increases that some borrowers
may find difficult to make. However, the limits discussed above on changes in
interest rates and monthly payments protect borrowers from unlimited interest
rate and payment increases. These protections for borrowers can result in
monthly payments that are greater or less than the amount necessary to amortize
the ARM by its maturity at the
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interest rate in effect in any particular month. In the event that a monthly
payment is not sufficient to pay the interest accruing on an ARM, the shortage
is added to the principal balance of the ARM to be repaid through future
monthly payments. The aggregate amounts of interest capitalized on the
Company's ARMs (or negative amortization) during 1993 and 1992 were $50.6
million and $80.7 million, respectively. At December 31, 1993 the amount of
interest capitalized on the Company's $41.8 billion ARM portfolio totaled
$23.4 million. Of such amount, $4.0 million represents capitalized interest on
loans with current principal balances that are less than the original loan
amounts. The remaining $19.4 million represents capitalized interest on loans
with an aggregate principal balance at December 31, 1993 of $2.4 billion
compared to an aggregate original loan balance of $2.3 billion. At December
31, 1993 the average principal balance of such loans was 2.79% higher than the
average original loan amount. If the original principal amount of a loan bears
a high loan-to-value ratio, the default risk associated with the loan could
increase significantly due to negative amortization on the ARM. However, the
Company's management does not believe that the potential for negative
amortization or the default risk associated with it is material due to the
relatively stable nature of COFI and the limitation on interest rate increases
over the term of the loans. In the event that a scheduled monthly payment
exceeds the interest and principal payment that would have been necessary to
amortize or pay the outstanding principal balance over the remaining term of
the loan, the excess (or accelerated amortization) reduces the principal
balance of the ARM and therefore the amount to be repaid through future
monthly payments.
Substantially all the Company's ARMs also have a minimum interest rate. Due
to the general decline in COFI during the past several years, the minimum
interest rates on a substantial number of the Company's ARMs were higher than
the rate which would otherwise have been applicable. During 1993, in order to
retain these borrowers, some of whom had been refinancing their loans with
other financial institutions, Home Savings permitted borrowers to reduce the
minimum interest rate applicable to their loans for a small fee.
During 1989 the Company reinstituted origination of 30-year fixed rate
mortgage loans. The Company currently also offers a 15-year fixed rate
mortgage loan. The Company believes that the origination of fixed rate
mortgage loans strengthens its marketing position with realtors and provides
access to a greatly expanded potential customer base, factors that the Company
believes also result in higher ARM originations.
Home Savings has established underwriting criteria for its 30-year fixed
rate mortgage loans such that these loans are normally readily saleable in the
secondary market. Periodically, based on existing market conditions, Home
Savings packages and sells these loans in bulk transactions. In the event
insufficient demand exists in the secondary market for such transfers or the
pricing is not attractive, Home Savings will reduce its originations of 30-
year fixed rate mortgage loans until market conditions become more favorable.
The 15-year fixed rate mortgage loans currently are partially funded with
borrowings from the FHLB of San Francisco and are intended to be held in
portfolio.
The Company also offers a loan with a fixed interest rate for the initial
three or five years after which the loan becomes an ARM. These loans are
intended to be held in portfolio and are selectively hedged during the fixed
interest rate period to result in loans that have interest rate risks similar
to the Company's existing ARMs.
In addition to the interest on its loans, the Company charges fees for loan
originations, loan prepayments and modifications, late payments, changes of
property ownership and other services. Fees realized vary with the volume of
loans made and prepaid, economic conditions and other competitive conditions
in the mortgage market.
Sales of Loans and MBSs and Servicing Activities. The Company has sold
loans, Agency MBSs and other MBSs and participations therein, which have
generated gains on sale, a stream of loan servicing revenue and cash for
lending or liquidity. The Company designates certain loans and MBSs that may
be sold as available for sale. For information on the amount of loans and MBSs
sold, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Other Income--Gain on Sales of
MBSs" and "--Gain on Sales of Loans."
When loans and MBSs representing interests in loans originated by the
Company are sold to investors, the Company generally continues to collect the
payments on the loans as they become due and otherwise to service
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the loans. For more information on the amount and components of loan servicing
income, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations--Other Income--Loan Servicing
Income" and Note 3 of Notes to Consolidated Financial Statements.
The Company sells certain loans and MBSs with different types of credit
enhancement features. Such features may include direct recourse to the Company
in the event of credit losses on the loans or MBSs sold, subordination of the
Company's retained interest in a pool of loans or MBSs to the interest of the
investor or the provision of third party guarantees, letters of credit or
insurance policies that protect investors against credit losses. For
additional information regarding the Company's recourse obligations, see Note
3 of Notes to Consolidated Financial Statements.
The Company has periodically securitized mortgage loans into Agency MBSs,
which can be used as collateral to support increases in interest-bearing
liabilities obtained from agreements to repurchase securities sold and can
also be more readily sold in the secondary market. The Company also has
securitized mortgage loans into other MBSs which can be used as collateral for
borrowings.
TREASURY ACTIVITIES
Home Savings is required by federal regulations to maintain a minimum amount
of assets which qualify as liquidity for regulatory purposes, including
specified short-term securities, and is also permitted to make certain other
securities investments. See "Regulation--Liquidity." For information
concerning interest and dividends on investments, see Note 2 of Notes to
Consolidated Financial Statements.
The Company purchases securities from broker-dealers with a concurrent
commitment to resell the securities to the broker-dealer at a specified price
on a specified future date, typically one to 90 days after the date of the
initial purchase. The amounts advanced under these agreements are subject to
regulatory limits on loans to one borrower and are reflected as cash
equivalents in the Consolidated Statements of Financial Condition. Repurchase
agreements are subject to certain risks, including the risks that the broker-
dealer will fail to perform its obligations, the value of the securities may
fall below the amount of funds disbursed to the broker-dealer and the
Company's interest in the securities is inadequately protected in the event
the broker-dealer fails to perform its obligations. The Company attempts to
reduce such risks by, among other things, entering into such agreements only
with well-capitalized broker-dealers who are primary dealers in government
securities, reviewing on a regular basis the financial status of such broker-
dealers, limiting the maximum amount of agreements permitted to be outstanding
at any time with any single broker-dealer and requiring additional securities
if the market value of the purchased securities decreases below levels
specified in such agreements. Although the Company believes that these
procedures reduce the risks of repurchase agreements, there is no assurance
that the Company would be able to obtain the purchased securities in the event
that a broker-dealer fails to perform its obligations under a repurchase
agreement. See Note 2 of Notes to Consolidated Financial Statements.
Home Savings borrows funds from the FHLB of San Francisco on the security of
the FHLB capital stock owned by it and certain mortgage loans and MBSs pledged
as collateral. Bowery similarly borrowed funds from the FHLB of New York prior
to the merger of Home Savings and Bowery. The Company also from time to time
has issued mortgage-backed bonds, other medium-term notes and commercial paper
and expects in the future to issue other debt instruments. In addition, the
Company obtains funds through agreements to repurchase securities sold with
broker-dealers, which are deemed to be secured borrowings and typically have
terms ranging from one to 270 days. See Note 8 of Notes to Consolidated
Financial Statements.
EARNINGS SPREAD
The Company's earnings primarily depend upon (i) the spread between the
yield on its interest-earning assets and the rates paid on its interest-
bearing liabilities and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. When interest-earning assets equal or exceed
interest-bearing liabilities, any positive spread will generate net interest
income. When the amount of interest-earning assets is less than the amount of
interest-bearing liabilities, net interest expense can result even when the
spread is positive. The
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Company's effective net spread takes into account the difference between the
average dollar amount of and yield on interest-bearing assets compared with
the average dollar amount and cost of funds.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Net
Interest Income."
ASSET/LIABILITY MANAGEMENT
Home Savings has an Asset/Liability Management Committee ("ALCO"), which is
responsible for implementing the interest rate risk management policy
statement adopted by Home Savings pursuant to OTS Thrift Bulletin No. 13.
Among other things, Home Savings' policy statement sets forth the limits
established by the board of directors on acceptable changes in net interest
income and the net present value of the institution's assets, liabilities and
off-balance sheet instruments (referred to as the "market value of portfolio
equity") resulting from specific changes in interest rates. ALCO regularly
reviews, among other things, economic conditions, the interest rate outlook,
the demand for loans, the availability of deposits and Home Savings' current
operating results, liquidity, capital and interest rate risk exposure. Based
on such reviews, ALCO formulates a strategy which is intended to implement the
objectives set forth in Home Savings' business plan without exceeding the
maximum acceptable declines in net interest income and market value of
portfolio equity set forth in the interest rate risk management policy
statement. On a quarterly basis, Home Savings' board of directors reviews the
strategies adopted and the effects thereof. On at least an annual basis, Home
Savings' board of directors reviews the interest rate risk management policy
statement.
For additional information, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--
Asset/Liability Management."
COMPETITION
Savings institutions experience intense competition in making real estate
loans and attracting deposits from the general public. The most direct
competition for deposits comes from other savings institutions, commercial
banks, credit unions and thrift and loan associations, corporate and
government securities and money market mutual funds. The principal basis of
competition for funds is the interest rate paid. In addition to offering
competitive rates of interest, the principal methods used by the Company to
attract deposits include advertising, readily accessible office locations and
the quality of its service to its customers. However, competition for deposits
in certain states, including California and New York, is particularly strong
from large commercial banks because they provide a broader range of consumer
services and because of their large branch networks.
Competition in making real estate loans comes principally from other savings
institutions, commercial banks, mortgage companies, insurance companies,
government agencies and real estate investment trusts. These institutions
compete for loans primarily through the interest rates and loan fees they
charge and the efficiency, convenience and quality of services they provide to
borrowers and their real estate brokers.
Most states, including California, have adopted legislation which would
permit, subject to various conditions and restrictions, banking on an
interstate basis. The right to engage in banking on an interstate basis is
often restricted to specific states or regions and often includes reciprocity
provisions. The location of the financial institution's home office is also
generally a factor in determining the extent of the right. In some instances,
the legislation applies only to banks and not to savings institutions. Bills
currently pending in Congress, if adopted, would permit banks to establish
nationwide branch systems. With the advent of regional and interstate
branching, competitors of the Company may be able to conduct extensive
interstate banking operations and thereby gain competitive advantages. In
addition, an OTS regulation, which states that it preempts any state law
purporting to address the subject of branching by a federal savings
institution, generally allows federal savings institutions, including Home
Savings, to branch freely throughout the United States to the extent allowed
by federal statutes.
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REGULATION
General. Ahmanson is a savings and loan holding company and, as such, is
subject to the OTS Director's regulations, examination, supervision and
reporting requirements. Home Savings is a federally chartered savings bank and
a member of the FHLB System, and its deposits are insured by the FDIC. It is
subject to examination and supervision by the OTS Director and the FDIC and to
regulations governing such matters as capital standards, mergers,
establishment and closing of branch offices, subsidiary investments and
activities, and general investment authority.
The descriptions of the statutes and regulations that are applicable to the
Company and the effects thereof that are set forth below and elsewhere in this
document do not purport to be a complete description of such statutes and
regulations and their effects on the Company or to identify every statute and
regulation that may apply to the Company.
FIRREA and FDICIA. Pursuant to the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 ("FIRREA"), the OTS is the Company's primary
regulator. Regulatory functions relating to deposit insurance are generally
performed by the FDIC, which may also exercise certain other regulatory powers
at its discretion. In addition, FIRREA contains provisions affecting numerous
aspects of the operation and regulation of federally insured savings
institutions and empowers the OTS and the FDIC to promulgate regulations
implementing such provisions. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") increased the authority of the OTS and FDIC
over the operation of savings institutions and their holding companies.
Savings and Loan Holding Company Regulations. Subject to certain limited
exceptions, control of a savings institution or a savings and loan holding
company may only be obtained with the approval (or in the case of an
acquisition of control by an individual, the absence of disapproval) of the
OTS, after a public comment and application review process. Any company
acquiring control of a savings institution becomes a savings and loan holding
company, must register and file periodic reports with the OTS, and is subject
to OTS examination.
Affiliate and Insider Transactions. Under FIRREA, savings institutions are
subject to the affiliate and insider transaction rules applicable to member
banks of the Federal Reserve System set forth in Sections 23A, 23B and 22(h)
of the Federal Reserve Act, as well as additional limitations set forth in
FIRREA and as may be adopted by the OTS Director. Under FDICIA, savings
institutions are also subject to Section 22(g) of the Federal Reserve Act.
These provisions, among other things, prohibit or limit a savings institution
from extending credit to, or entering into certain transactions with, its
affiliates (which generally include holding companies such as Ahmanson and any
company under common control with the savings institution) and principal
stockholders, directors and executive officers of the savings institution and
its affiliates.
Limitations on Acquisitions. Under certain savings and loan holding company
regulations, Ahmanson is generally prohibited, either directly or indirectly,
from acquiring control of any savings association or savings and loan holding
company absent prior approval by the OTS Director and from acquiring more than
5% of any class of voting stock of any savings association or savings and loan
holding company that is not a subsidiary of Ahmanson.
Payment of Dividends. Ahmanson's principal sources of funds are cash
dividends paid to it by Home Savings and other subsidiaries, investment income
and borrowings. There are significant restrictions on the ability of Home
Savings to pay dividends to Ahmanson. Savings institution subsidiaries of
savings and loan holding companies, such as Home Savings, must notify the OTS
Director of their intent to declare dividends 30 days before declaration. The
OTS Director has the authority to preclude those institutions from declaring a
dividend.
OTS regulations impose limitations upon certain "capital distributions" by
savings institutions, including dividends. The regulations establish a three-
tiered system of regulation, with the greatest flexibility being afforded to
institutions that meet or exceed the fully phased-in capital requirements.
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An institution that has capital immediately prior to, and on a pro forma
basis after giving effect to, a proposed capital distribution that is at least
equal to its fully phased-in capital requirements is considered a Tier 1
institution ("Tier 1 Institution"). At December 31, 1993 Home Savings was a
Tier 1 Institution. A Tier 1 Institution may, without the approval of but with
prior notice to the OTS, make capital distributions during a calendar year up
to the greater of (1) 100% of its net income to date during the calendar year
plus the amount that would reduce the institution's "surplus capital ratio"
(the excess over its fully phased-in risk-based capital requirement) to one-
half of its surplus capital ratio at the beginning of the calendar year or (2)
75% of the institution's net income over the most recent four quarter period.
Any additional capital distributions would require prior regulatory approval.
The OTS retains discretion to subject Tier 1 Institutions to the more stringent
capital distribution rules applicable to institutions with less capital if the
OTS determines that the institution is in need of more than normal supervision
and has provided the institution with notice to that effect. The OTS also
retains the authority to prohibit any capital distribution otherwise authorized
under the regulations if the OTS determines that the capital distribution would
constitute an unsafe or unsound practice.
Ahmanson and Home Savings have also agreed with federal regulators that Home
Savings will not pay dividends in any one year that exceed the sum of (i) 50%
of the lesser of Home Savings' net income or net operating income in such year
and (ii) the amounts that could have been, but were not, paid as dividends in
prior years pursuant to such agreement, previous similar agreements and
applicable regulations and statutes. Ahmanson has also agreed with federal
regulators to cause Home Savings' regulatory capital to be maintained at the
greater of (i) 3% of Home Savings' total liabilities, with certain adjustments,
and (ii) the level required by regulation, and to cause sufficient equity
capital to be contributed to Home Savings if necessary to effect compliance
with such agreement. In no event may dividends from Home Savings to Ahmanson
reduce Home Savings' regulatory capital below such level.
Deposit Insurance. The FDIC administers two separate deposit insurance funds,
the BIF, which insures the deposits of institutions the deposits of which were
insured by the FDIC prior to the enactment of FIRREA, and the SAIF, which
insures the deposits of institutions the deposits of which were insured by the
Federal Savings and Loan Insurance Corporation prior to the enactment of
FIRREA. Home Savings is a member of the BIF and currently pays deposit
insurance assessments ratably to the SAIF and the BIF based on 90% and 10% of
total deposits, respectively. These percentages are subject to change in the
future based on future events. The OTS Director is also authorized to impose
assessments on savings institutions to fund certain of the costs of
administration of the OTS.
The FDIC has established a risk-based system for setting deposit insurance
assessments. Under the risk-based assessment system, an institution's insurance
assessments vary depending upon the level of capital the institution holds and
the degree to which it is the subject of supervisory concern to the FDIC. The
assessment rate for both BIF deposits and SAIF deposits currently varies from
0.23% of covered deposits for well-capitalized institutions that are deemed to
have no more than a few minor weaknesses, to 0.31% of covered deposits for less
than adequately capitalized institutions that pose substantial supervisory
concern. The FDIC in the future may determine to change the assessment rates or
the parity of BIF and SAIF rates based on the condition of the BIF and the
SAIF. The Company paid $70.1 million and $13.1 million in deposit insurance
premiums to SAIF and BIF, respectively, in 1993 compared to $74.7 million and
$14.7 million, respectively, in 1992.
Under current law, the SAIF has three major obligations: beginning in 1995,
to fund losses associated with the failure of institutions with SAIF-insured
deposits; to increase its reserves to 1.25% of insured deposits over a
reasonable period of time; and to make interest payments on debt incurred to
provide funds to the former Federal Savings and Loan Insurance Corporation
("FICO debt"). The reserves of the SAIF are currently lower than the reserves
of the BIF and the BIF does not have an obligation to pay interest on the FICO
debt. Therefore, in the future, premiums assessed on deposits insured by the
SAIF may be higher than premiums assessed on deposits insured by the BIF. Such
a premium structure could provide institutions whose deposits are exclusively
or primarily BIF-insured (such as almost all commercial banks) certain
competitive advantages over institutions whose deposits are primarily SAIF-
insured (such as Home Savings). Such a competitive disadvantage could have an
adverse effect on Home Savings' results of operations.
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The FDIC may initiate a proceeding to terminate an institution's deposit
insurance after a 30-day notice period if, among other things, the institution
is in an unsafe and unsound condition to continue operations. It is the policy
of the FDIC to deem an insured institution to be in an unsafe and unsound
condition if its ratio of Tier I capital to total assets is less than 2%. Tier
I capital is similar to core capital but includes certain investments in and
extensions of credit to subsidiaries engaged in activities not permitted for
national banks. In addition, the FDIC has the new power to suspend temporarily
a savings institution's insurance on deposits received after the issuance of a
suspension order in the event that the savings institution has no tangible
capital.
Conversion of Deposit Insurance; Acquisitions of Savings Institutions. Until
the SAIF reaches its designated reserve ratio of 1.25%, there will be a
moratorium on conversion from SAIF membership to BIF membership. Subject to
certain limitations, however, a savings institution may convert to a bank
charter if the resulting bank remains a member of the SAIF.
FIRREA facilitated the acquisition of savings institutions by bank holding
companies. Bank holding companies were previously authorized to acquire
savings institutions only in connection with supervisory transactions. FIRREA
amended the Bank Holding Company Act to authorize the Federal Reserve Board to
approve such acquisitions generally. FDICIA lessens the restrictions on bank
and thrift mergers and acquisitions by allowing any insured depository
institution, regardless of whether it is chartered as a bank or thrift, to
participate in merger transactions. The merged institution will be required to
pay assessments to the BIF and the SAIF based on the relative amounts of its
deposits that were insured by the BIF and the SAIF prior to the merger.
Acquisitions of state-chartered institutions continue to be subject to any
state law restrictions.
Classification of Assets. Federal regulations require savings institutions
to review their assets on a regular basis and to classify them as
"substandard," "doubtful" or "loss" if warranted. Adequate valuation
allowances for loan losses are required for assets classified as substandard
or doubtful. If an asset is classified as loss, the institution must either
establish a specific allowance for loss in the amount classified as loss or
charge off such amount. The institution's OTS District Director has the
authority to approve, disapprove or modify any asset classification and any
amounts established as allowances for loan losses.
At present, certain general allowances may be included within regulatory
capital, while specific allowances may not. If an examiner concludes that
additional assets should be classified or that the valuation allowances
established by the savings institution are inadequate, the examiner may
determine, subject to review by the savings institution's OTS District
Director, the need for and extent of additional classification or any increase
necessary in the savings institution's general or specific valuation
allowances. An insured savings institution is also required to set aside
adequate valuation allowances to the extent that an affiliate possesses assets
posing a risk to the institution and to establish liabilities for off-balance
sheet items, such as letters of credit, when loss becomes probable and
estimable.
Capital Requirements. The OTS has adopted capital regulations ("Capital
Regulations") which establish three capital requirements--a core capital
requirement, a tangible capital requirement and a risk-based capital
requirement. The capital standards contained in the Capital Regulations
generally must be no less stringent than the capital standards applicable to
national banks. The Capital Regulations require savings institutions to
maintain core capital of at least 3% of adjusted total assets, tangible
capital of at least 1.5% of adjusted total assets, and total capital of at
least 8% of risk-weighted assets. In addition, effective July 1, 1994,
institutions whose exposure to interest-rate risk is deemed to be above normal
will be required to deduct a portion of such exposure in calculating their
risk-based capital. The OTS may establish, on a case by case basis, individual
minimum capital requirements for a savings institution that vary from the
requirements that would otherwise apply under the Capital Regulations. The OTS
has not established such individual minimum capital requirements for Home
Savings. Home Savings was in compliance with the Capital Regulations at
December 31, 1993. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition--Liquidity and
Capital Resources."
Core capital generally includes common stockholders' equity (including
retained earnings), noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of
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fully consolidated subsidiaries. Intangible assets (other than purchased
mortgage servicing rights and qualifying supervisory goodwill as described
below) must be deducted from core capital unless they meet a three-part test
relating to identifiability, marketability and liquidity in which event they
may be included in an amount up to 25% of core capital. Certain deferred tax
assets also must be deducted. Core capital includes purchased mortgage
servicing rights, subject to certain limitations. At December 31, 1993 Home
Savings had no purchased mortgage servicing rights. The amount of qualifying
supervisory goodwill that may be included in core capital by an eligible
savings institution was reduced to 0.75% of adjusted total assets beginning
January 1, 1993, 0.375% of adjusted total assets beginning January 1, 1994 and
will be reduced to 0% beginning January 1, 1995. At December 31, 1993 the
amount of qualifying supervisory goodwill included in Home Savings' core
capital was $374.2 million which is 0.75% of adjusted total assets. Effective
March 4, 1994, with a limited exception for preexisting core deposit
intangibles, the only intangible assets that may be included in core capital
(other than qualifying supervisory goodwill) are purchased mortgage servicing
rights and purchased credit card relationships.
The tangible capital requirement adopted by the OTS Director requires a
savings institution to maintain tangible capital in an amount not less than
1.5% of adjusted total assets, which is the minimum limit permitted by FIRREA.
Tangible capital generally means core capital less any intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights,
valued at the lower of the maximum percentage established by the FDIC or the
amount includable in core capital as defined under the Capital Regulations.
The risk-based capital requirements provide, among other things, that the
capital ratio applicable to an asset will be adjusted to reflect the degree of
credit risk associated with such asset. In addition, the asset base for
computing a savings institution's risk-based capital requirement includes off-
balance sheet assets, including loans and other assets sold with recourse.
Generally, the Capital Regulations require savings institutions to maintain
total capital equal to 8% of risk-weighted assets. Total capital for these
purposes consists of core capital and supplementary capital. Supplementary
capital includes, among other things, certain types of preferred stock and
subordinated debt and, subject to certain limits, general valuation loan and
lease loss allowances. A savings institution's supplementary capital may be
used to satisfy the risk-based capital requirement only to the extent of that
institution's core capital. Risk-weighted assets are determined by multiplying
each category of an institution's assets, including off balance sheet
equivalents, by a risk weight assigned by the OTS based on the credit risk
associated with those assets, and adding the resulting amounts. The risk weight
categories range from zero percent for cash and government securities to 100%
for assets that do not qualify for preferential risk weighting as determined by
the OTS.
The Capital Regulations treat asset sales with recourse as if they did not
occur, and generally require a savings institution to maintain capital against
the entire amount of assets sold with recourse, even if recourse is for less
than the full amount. However, when assets are sold with recourse and the
amount of recourse is less than the risk-based capital requirement for such
assets, the assets are not included in risk-weighted assets and capital is
required to be maintained in an amount equal to such recourse amount. A savings
institution's retention of the subordinated portion of a senior/subordinated
loan participation or package of loans is treated in the same manner as an
asset sale with recourse.
FIRREA and the Capital Regulations contain special capital rules affecting
savings institutions with certain kinds of subsidiaries. For purposes of
determining compliance with each of the capital standards, a savings
institution's investments in and extensions of credit to subsidiaries engaged
in activities not permissible for a national bank are deducted from the savings
institution's capital, net of reserves against such investment, with the
exception of the amount of investments and extensions of credit made or
committed to be made prior to April 12, 1989 which will be phased out of
regulatory capital by July 1, 1996. Home Savings' real estate development
subsidiaries are its only significant subsidiaries engaged in activities not
permissible for a national bank. At December 31, 1993 Home Savings' investments
in and extensions of credit to its real estate development subsidiaries
aggregated $147.2 million as a result of which Home Savings was required to
deduct $36.8 million from its capital.
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The regulatory capital requirements applicable to Home Savings will become
more stringent as the amount of Home Savings' supervisory goodwill includable
in capital is phased out throughout December 31, 1994 and the amount of Home
Savings' investment in real estate development subsidiaries includable in
capital is phased out through July 1, 1996. Home Savings currently meets the
requirements of the Capital Regulations assuming the present application of
the full phase-out provisions. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Financial Condition--Liquidity and Capital Resources."
FDICIA directs each bank regulatory agency and the OTS to review its capital
standards every two years to determine whether those standards require
sufficient capital to facilitate prompt corrective action to prevent or
minimize loss to the deposit insurance funds. Each of the bank regulatory
agencies and the OTS is also required to revise its risk-based capital
standards to ensure that such standards take adequate account of interest rate
risk, concentration of credit risk and the risk of non-traditional activities,
and reflect the actual performance and expected risk of loss of multi-family
mortgages.
FDICIA Sanctions. Under OTS regulations which implement the "prompt
corrective action" system mandated by FDICIA, an institution is well
capitalized if its ratio of total capital to risk-weighted assets is 10% or
more, its ratio of core capital to risk-weighted assets is 6% or more, its
ratio of core capital to total assets is 5% or more and it is not subject to
any written agreement, order or directive to meet a specified capital level.
At December 31, 1993 Home Savings met these standards. An institution which is
not well capitalized is adequately capitalized if its ratio of total capital
to risk-weighted assets is at least 8%, its ratio of core capital to risk-
adjusted assets is at least 4% and its ratio of core capital to total assets
is at least 4% (3% if the institution receives the highest rating on the OTS's
MACRO rating system). Any institution which is not adequately capitalized is
undercapitalized, significantly undercapitalized or critically
undercapitalized, depending upon its capital ratios.
An institution which is undercapitalized must submit a capital restoration
plan to the OTS. The plan may be approved only if the OTS determines it is
likely to succeed in restoring the institution's capital and will not
appreciably increase the risks to which the institution is exposed. The
institution's performance under the plan must be guaranteed by any company
which controls the institution, up to a maximum of 5% of the institution's
assets. The OTS may also require the institution to take various actions
deemed appropriate to minimize potential losses to the deposit insurance fund.
A significantly undercapitalized institution is subject to additional
sanctions and a critically undercapitalized institution generally must be
placed in receivership or conservatorship.
Enforcement and Penalties. FIRREA significantly strengthened enforcement
provisions applicable to all depository institutions, including savings
institutions, and extended agency enforcement authority to "institution-
affiliated parties," which includes, among others, directors, officers,
employees, agents and controlling stockholders of depository institutions,
including holding companies such as Ahmanson. An institution or institution-
affiliated party may be subject to a three tier penalty regime that ranges
from a maximum penalty of $5,000 per day for a simple violation to a maximum
penalty of $1 million per day for certain knowing violations including the
failure to submit or submission of incomplete, false or misleading reports. An
institution-affiliated party may also be subject to loss of voting rights.
Whenever the OTS has reasonable cause to believe that the continuation by a
savings and loan holding company of any activity or of ownership or control of
any subsidiary not insured by the FDIC constitutes a serious risk to the
financial safety, soundness or stability of a subsidiary savings institution
and is inconsistent with the sound operation of the savings institution, the
OTS may order the holding company to terminate such activities or divest such
non-insured subsidiary. The OTS, without notice or opportunity for hearing,
may also (i) limit the payment of dividends by the savings institution, (ii)
limit transactions between the savings institution and its holding company or
other affiliates and (iii) limit any activity of the savings institution which
creates a serious risk that the liabilities of the holding company and its
affiliates may be imposed upon the savings institution.
FDICIA requires the OTS to prescribe minimum operational and managerial
standards and standards for asset quality, earnings and valuation of publicly-
traded shares, for savings institutions and their holding companies. Such
standards were to be effective no later than December 1, 1993 but have not yet
been finalized.
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Any savings institution or holding company which fails to meet the standards
must submit a plan for corrective action. If a savings institution fails to
submit or implement an acceptable plan, the OTS may require the institution to
take any action the OTS determines will best carry out the purpose of prompt
corrective action. The OTS and the bank regulatory agencies have jointly
published a proposed regulation prescribing the required safety and soundness
standards. If the proposed standards had been in effect at December 31, 1993,
Home Savings believes that it would have been in compliance.
Loans and Investments. Aggregate loans to a single borrower are limited to
specified percentages of a savings institution's capital, depending upon the
existence and type of any collateral. Aggregate loans secured by non-
residential real property are limited to a specified percentage of capital.
Savings institutions generally may not invest directly in equity securities,
non-investment grade securities or real estate. Indirect investments in real
estate are permitted through subsidiaries subject to limitations based,
generally, on the institution's capital ratios. Investments in subsidiaries,
and the activities conducted through subsidiaries, are subject to regulatory
restrictions.
Federal Home Loan Bank System. The FHLBs provide a central credit facility
for member institutions. As a member of the FHLB system, Home Savings is
required to own capital stock in the FHLB of San Francisco. Home Savings is
also required to own capital stock in the FHLB of New York in connection with
advances made to Bowery prior to its merger with Home Savings.
Federal Reserve System. Home Savings is subject to various regulations
promulgated by the Federal Reserve Board, including, among others, Regulation B
(Equal Credit Opportunity), Regulation D (Reserves), Regulation E (Electronic
Fund Transfers), Regulation Z (Truth in Lending), Regulation CC (Availability
of Funds) and Regulation DD (Truth in Savings). As holders of loans secured by
real property, and as owners of real property, financial institutions,
including Home Savings, may be subject to potential liability under various
statutes and regulations applicable to property owners generally, including
statutes and regulations relating to the environmental condition of the
property.
Liquidity. OTS regulations require a savings institution to maintain, for
each calendar month, an average daily balance of liquid assets equal to at
least 5% of the average daily balance of its net withdrawable accounts plus
short-term borrowings during the preceding calendar month. The OTS Director may
vary the required percentage within a range of 4% to 10% and may also vary the
definition of liquid assets. OTS regulations also require a savings institution
to maintain, for each calendar month, an average daily balance of short-term
liquid assets equal to at least 1% of the average daily balance of its net
withdrawable accounts plus short-term borrowings during the preceding calendar
month. Monetary penalties may be imposed for failure to meet liquidity ratio
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Financial Condition--Liquidity and Capital
Resources."
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
each savings institution, as well as other depository institutions, to identify
the communities served by the institution's offices and to identify the types
of credit the institution is prepared to extend within such communities. The
CRA also requires the OTS to assess the performance of the institution in
meeting the credit needs of its community and to take such assessments into
consideration in reviewing applications for mergers, acquisitions and other
transactions. In connection with its assessment of a savings institution's CRA
performance, the OTS will assign a rating of "outstanding," "satisfactory,"
"needs to improve" or "substantial noncompliance." Based on an examination
conducted as of June 28, 1993, Home Savings was rated "outstanding."
Qualified Thrift Lender. A savings institution must invest at least 65% of
its portfolio assets in "qualified thrift investments" on a monthly average
basis in nine out of every 12 months on a rolling 12-month "look back" basis.
Service Corporations. Federal savings institutions may invest in the capital
stock, obligations or other securities of certain types of subsidiaries
(referred to as "service corporations") and may make loans to these
subsidiaries (and to projects in which they participate) in an aggregate amount
not exceeding 2% of the
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institution's assets, plus an additional 1% of assets for investments used for
community development or inner-city purposes. An institution which has
regulatory capital in an amount at least equal to minimum regulatory
requirements may make additional loans to such subsidiaries in an aggregate
amount up to 50% or 100% of regulatory capital, depending upon the extent of
the institution's ownership or control of the subsidiary.
TAXATION
Federal. Under applicable provisions of the Internal Revenue Code of 1986, as
amended ("Code"), a savings institution that meets certain definitional tests
relating to the composition of its assets and the sources of its income
("qualifying savings institution") is permitted to establish reserves for bad
debts and to make annual additions thereto under the experience method, which
generally permits an annual deduction based upon the institution's historical
loan loss experience. Alternatively, a qualifying savings institution may elect
on an annual basis to use the percentage of taxable income method to compute
its allowable addition to its bad debt reserve on qualifying real property
loans (generally, loans secured by an interest in improved real property). For
1993 Home Savings will use the experience method to compute its bad debt
reserve deduction because such method will produce a larger deduction than the
percentage of taxable income method.
A savings institution organized in stock form whose accumulated reserve for
losses on qualifying real property loans exceeds the allowable bad debt
reserves as calculated under the experience method may be subject to recapture
taxes on such reserves if it makes certain types of distributions to its
stockholders. Dividends may be paid out of retained earnings without the
imposition of any tax on the savings institution to the extent that the amounts
paid as dividends do not exceed both the savings institution's current and
accumulated earnings and profits as calculated for federal income tax purposes.
Stock redemptions, dividends and other distributions made with respect to the
savings institution's stock, in excess of both the savings institution's
current and accumulated earnings and profits as calculated for federal income
tax purposes, are, however, deemed under Section 593(e) of the Code to be made
from the savings institution's tax bad debt reserves to the extent that such
reserves exceed the additions that would have been made under the experience
method. The amount of tax that would be payable upon any distribution that is
treated as having been made from the savings institution's tax bad debt
reserves is also deemed to have been paid from these reserves. As a result, any
distributions that are treated as having been made from Home Savings' bad debt
reserves could result in a federal recapture tax of up to approximately 54% of
the amount of such distributions.
In addition to the regular corporate income tax, corporations, including
qualifying savings institutions, such as Home Savings, are subject to an
alternative minimum tax. This 20% tax is computed with respect to Home Savings'
regular taxable income (with certain adjustments), as increased by its tax
preference items, and will apply if it exceeds Home Savings' regular tax
liability. The alternative minimum tax adjustments common to a savings
institution include the excess (if any) of the annual tax bad debt deduction
over the deduction that would have been available under the experience method
and 75% of the excess of "adjusted current earnings" over regular taxable
income. Home Savings did not incur any alternative minimum tax liability in
1993. However, it is possible that Home Savings could incur such liability in
future years.
As of December 31, 1993, the Company's tax returns had been audited by the
Internal Revenue Service for all years through 1984.
State. The California franchise tax applicable to savings institutions is a
variable rate tax applicable to that portion of an institution's income
allocable to California. The rate of tax is computed under a formula that
results in a rate higher than the rate applicable to non-financial corporations
because it includes an amount "in lieu" of local personal property and business
license taxes paid by such corporations (but not generally paid by banks or
financial institutions such as Home Savings). For calendar year taxpayers such
as Home Savings the maximum rate for the 1993 taxable year was approximately
11.11%. Under California regulations, bad debt deductions are available in
computing California franchise taxes by use of the reserve method. An addition
may be claimed under the experience method, which generally permits an annual
deduction based upon the institution's historical loan loss experience. The
deduction for losses may be limited by the determination of the maximum ending
reserve balance using current and prior years' loss experience of Home Savings.
In addition, if it can be established that the amount allowed under the
experience method is insufficient to absorb anticipated losses, an addition may
be claimed to the lesser extent of reserves included in the financial
statements, or one percent of the amount of loans outstanding.
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Home Savings and certain of its subsidiaries also are subject to New York
franchise tax on an amount approximately equal to that portion of their federal
taxable income allocable to New York. For 1993, the overall tax rate was
11.88%, inclusive of applicable surcharges. The Company also pays franchise or
state income taxes in a number of other jurisdictions in which it or its
subsidiaries conduct business. All of such taxes are deductible for federal
income tax purposes.
For additional information regarding taxation, see Note 10 of Notes to
Consolidated Financial Statements.
REAL ESTATE OPERATIONS
Through its real estate subsidiaries, Home Savings previously acquired,
developed and sold real property in the ordinary course of business. In
response to provisions in FIRREA which require savings institutions to maintain
100% capital against loans to and investments in their real estate development
subsidiaries, certain real estate development operations previously conducted
by Home Savings' subsidiaries were sold to Ahmanson in 1992 and thereafter
transferred to new direct subsidiaries of Ahmanson.
The Company intends to continue its withdrawal from real estate development
activities. Neither Ahmanson's real estate subsidiaries nor Home Savings' real
estate subsidiaries intend to acquire any new properties and will develop, hold
and/or sell their currently owned properties depending upon economic
conditions. The Company has retained Lowe Enterprises Realty Services, Inc., a
real estate asset management firm, to assist in the management and disposition
of most of these properties. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition--Asset
Quality--REI."
OTHER ACTIVITIES
The Company has other subsidiaries which are primarily engaged in financial
services activities related to the savings bank business, including insurance
agencies and a securities brokerage firm. These activities did not make
material contributions to the Company's results of operations in 1993 and are
not expected to make a significant contribution to its results of operations in
1994.
EMPLOYEES
At December 31, 1993 the Company employed approximately 8,775 full-time and
1,704 part-time employees. Full-time and certain part-time employees are
eligible for retirement and other benefits, including life, health and accident
and dental insurance. The management of the Company regards its employee
relations as satisfactory.
ITEM 2. PROPERTIES
The Company maintains executive offices in leased premises at 4900 Rivergrade
Road, Irwindale, California 91706 and its telephone number is (818) 960-6311.
Based on its investment in premises, the Company owns approximately 31% of the
4.5 million square feet in which its offices are located and leases the
remainder. The Company has 416 offices and other office facilities of which 149
are owned and the remainder are leased. Annual lease payments total
approximately $79.6 million. The net investment in premises, equipment and
leaseholds totaled $674 million at December 31, 1993 compared to $687 million
at December 31, 1992.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET PRICES OF STOCK
The principal market for Ahmanson's Common Stock is the New York Stock
Exchange. Ahmanson's Common Stock is also listed on the Pacific Stock Exchange
and The International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited (London). The following table set forth the high and low sale
prices of the Common Stock of Ahmanson for the periods indicated as reported on
the New York Stock Exchange Composite Tape:
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1992--
First Quarter........................................... 19 3/8 15 1/8
Second Quarter.......................................... 18 1/4 15 1/8
Third Quarter........................................... 17 3/8 13 3/8
Fourth Quarter.......................................... 19 1/2 13
1993--
First Quarter........................................... 22 1/8 17 1/4
Second Quarter.......................................... 19 7/8 16 3/4
Third Quarter........................................... 20 3/8 17 3/8
Fourth Quarter.......................................... 20 1/8 17 3/8
1994--
First Quarter (through March 25)........................ 20 1/4 16 3/8
</TABLE>
PER SHARE CASH DIVIDENDS DATA
The following table sets forth per share cash dividends of Ahmanson as
derived from the Company's Consolidated Financial Statements included elsewhere
herein and should be read in conjunction with such Consolidated Financial
Statements and accompanying Notes.
Cash Dividends Declared and Paid
<TABLE>
<CAPTION>
<S> <C>
1992--
First Quarter.......................................... $.22
Second Quarter......................................... .22
Third Quarter.......................................... .22
Fourth Quarter......................................... .22
1993--
First Quarter.......................................... $.22
Second Quarter......................................... .22
Third Quarter.......................................... .22
Fourth Quarter......................................... .22
1994--
First Quarter.......................................... $.22
</TABLE>
On March 22, 1994 Ahmanson declared a dividend of $.22 per share of Common
Stock payable June 1, 1994 to stockholders of record on May 10, 1994.
The principal sources of funds for the payment by Ahmanson of cash dividends
are cash dividends paid to it by Home Savings and, to a lesser extent, cash
dividends paid to it by other subsidiaries, investment income and short-term
borrowings. There are significant limitations on the ability of Home Savings to
pay dividends to Ahmanson.
15
<PAGE>
Home Savings may pay dividends to Ahmanson in any year without incurring tax
liability only if such dividends do not exceed both current year earnings and
profits and accumulated earnings and profits as of the beginning of the year,
as determined for federal income tax purposes. See "Business--Taxation."
OTS regulations impose restrictions on the payment of dividends by savings
institutions. Ahmanson and Home Savings have also agreed with federal
regulators to limit the payment of dividends by Home Savings. In addition,
savings institution subsidiaries of savings and loan holding companies, such as
Home Savings, must notify the OTS Director of their intent to declare dividends
30 days before declaration. The OTS Director has the authority to preclude
those institutions from declaring a dividend. See "Business--Regulation--
Payment of Dividends."
At January 1, 1994 Home Savings could have paid dividends of approximately
$491.8 million under the most restrictive of the foregoing limits without OTS
approval.
Home Savings may also become subject to a capital directive which restricts
the payment of dividends if it is not in compliance with its capital
requirements.
STOCKHOLDERS
At the close of business on March 15, 1994, 116,900,911 shares of Ahmanson
Common Stock were outstanding and were held by 7,661 stockholders of record.
The transfer agent and registrar for the Ahmanson Common Stock is First
Chicago Trust Company of New York. First Chicago Trust Company of New York is
also the transfer agent and registrar for the Depositary Shares, each
representing a one-half interest in a share of Ahmanson's 9.60% Preferred
Stock, Series B, the Depositary Shares, each representing a one-tenth interest
in a share of Ahmanson's 8.40% Preferred Stock, Series C, and the Depositary
Shares, each representing a one-tenth interest in a share of Ahmanson's 6%
Cumulative Convertible Preferred Stock, Series D.
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Five-Year
Consolidated Summary of Financial Condition" and "Five-Year Consolidated
Summary of Operations" for, and as of the end of, each of the years in the
five-year period ended December 31, 1993 are derived from the consolidated
financial statements of H. F. Ahmanson & Company and Subsidiaries, which
consolidated financial statements have been audited by KPMG Peat Marwick,
independent certified public accountants. The consolidated financial statements
as of December 31, 1993 and 1992 and for each of the years in the three-year
period ended December 31, 1993, and the report thereon of KPMG Peat Marwick,
are included elsewhere herein.
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR CONSOLIDATED SUMMARY OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated assets:
Cash and investment
securities........... $ 3,906,044 $ 2,362,563 $ 1,738,561 $ 3,392,833 $ 3,424,092
Mortgage-backed
securities (MBSs).... 6,919,997 3,915,508 4,683,742 7,468,290 6,669,926
Loans receivable...... 37,704,368 38,962,875 37,875,795 37,466,738 33,066,199
Real estate........... 623,519 1,127,271 950,532 909,864 777,341
Premises and
equipment............ 673,879 686,693 699,836 688,060 958,263
Goodwill.............. 428,444 478,017 516,168 550,181 590,357
All other assets...... 614,994 607,580 761,553 725,041 771,056
----------- ----------- ----------- ----------- -----------
Total assets........ $50,871,245 $48,140,507 $47,226,187 $51,201,007 $46,257,234
=========== =========== =========== =========== ===========
Consolidated liabilities
and stockholders'
equity:
Deposits.............. $38,018,653 $39,273,192 $39,147,126 $38,605,538 $34,236,239
Borrowings............ 8,879,345 4,978,583 4,135,922 8,989,538 8,224,320
All other liabilities. 1,024,216 1,143,088 1,286,768 1,263,752 1,555,456
----------- ----------- ----------- ----------- -----------
Total liabilities... 47,922,214 45,394,863 44,569,816 48,858,828 44,016,015
Stockholders' equity.. 2,949,031 2,745,644 2,656,371 2,342,179 2,241,219
----------- ----------- ----------- ----------- -----------
Total liabilities
and stockholders'
equity............. $50,871,245 $48,140,507 $47,226,187 $51,201,007 $46,257,234
=========== =========== =========== =========== ===========
</TABLE>
17
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income......... $ 3,003,422 $ 3,428,979 $ 4,386,785 $ 4,651,769 $ 4,311,289
Interest expense........ 1,666,350 2,070,413 3,114,522 3,456,976 3,266,236
----------- ----------- ----------- ----------- -----------
Net interest income... 1,337,072 1,358,566 1,272,263 1,194,793 1,045,053
Provision for loan loss-
es..................... 574,970 367,366 195,062 215,854 89,031
----------- ----------- ----------- ----------- -----------
Net interest income
after provision for
loan losses.......... 762,102 991,200 1,077,201 978,939 956,022
----------- ----------- ----------- ----------- -----------
Other income:
Gain on sales of loans
and MBSs, net........ 101,044 76,925 101,586 12,678 12,724
Loan servicing and
other fee income..... 184,113 184,549 170,789 139,103 131,041
Operations of real
estate held for
development and
investment (REI)..... (229,300) (58,359) (72,804) (30,026) 40,022
Other operating in-
come................. 40,730 5,383 5,728 4,822 24,203
----------- ----------- ----------- ----------- -----------
Total other income.. 96,587 208,498 205,299 126,577 207,990
----------- ----------- ----------- ----------- -----------
Other expenses:
General and
administrative
expenses............. 827,462 753,257 740,964 744,586 736,632
Operations of real
estate owned held for
sale (REO)........... 212,130 129,153 37,125 29,731 24,090
Amortization of good-
will................. 39,163 27,674 31,408 32,713 33,921
----------- ----------- ----------- ----------- -----------
Total other ex-
penses............. 1,078,755 910,084 809,497 807,030 794,643
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
provision for income
taxes (benefit),
extraordinary loss and
cumulative effect of
accounting change...... (220,066) 289,614 473,003 298,486 369,369
Provision for income
taxes (benefit)...... (82,034) 133,222 227,242 107,490 159,023
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting change...... (138,032) 156,392 245,761 190,996 210,346
Extraordinary loss on
early extinguishment of
debt (net of tax
benefit)............... (21,607) -- -- -- --
Cumulative effect of
change in accounting
for income taxes....... -- 47,677 -- -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss)..... $ (159,639) $ 204,069 $ 245,761 $ 190,996 $ 210,346
=========== =========== =========== =========== ===========
Per share information--
primary and fully
diluted common shares:
Earnings (loss) before
extraordinary loss
and cumulative effect
of accounting change. $ (1.51) $ 1.19 $ 2.06 $ 1.64 $ 1.80
Net earnings (loss)... (1.69) 1.60 2.06 1.64 1.80
Book value at December
31................... 19.61 22.04 21.34 20.20 19.39
Dividends............. 0.88 0.88 0.88 0.88 0.88
Weighted average number
of common shares out-
standing:
Primary............... 116,786,369 116,915,342 116,694,295 116,434,334 116,556,183
Fully diluted......... 116,786,369 117,199,811 116,734,630 116,434,334 116,556,183
</TABLE>
18
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR SELECTED OTHER DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1993 1992 1991 1990 1989
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Regulatory capital:
Tangible capital........................ 4.97 % 4.85% 4.34% 3.43% 3.48%
Core capital............................ 5.72 5.77 5.10 4.17 4.38
Risk-based capital...................... 12.59 12.99 10.35 8.96 7.12
Ratio of nonperforming assets to total as-
sets..................................... 1.89 4.61 3.74 1.76 1.25
Return on average assets.................. (0.32) 0.42 0.49 0.39 0.47
Return on average equity.................. (5.58) 7.49 9.97 8.25 9.67
Return on average tangible equity......... (5.01) 10.42 14.35 12.84 15.69
Ratio of average equity to average assets. 5.75 5.57 4.87 4.74 4.85
Ratio of dividends paid to net earnings
(loss).................................... (86.53) 58.37 43.24 49.15 49.90
Total number of offices open.............. 455 467 481 470 461
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company took decisive actions during 1993 aimed at improving its near and
longer-term earnings prospects.
The Company reported a net loss for 1993 of $159.6 million, or $1.69 per
fully diluted common share. This loss was largely attributable to actions taken
by the Company to position itself for the future. The Company earned $204.1
million, or $1.60 per fully diluted common share, in 1992 and $245.8 million,
or $2.06 per fully diluted common share, in 1991.
In late 1993 the Company completed its management transition. On November 1,
1993, Richard H. Deihl retired as Chief Executive Officer of Ahmanson and Home
Savings. He remained Chairman of the Board of Ahmanson. He was succeeded as
Chief Executive Officer by Charles R. Rinehart who joined the Company in
December 1989 as Chief Operating Officer. Also on November 1, Fredric J.
Forster was named Chief Operating Officer of Ahmanson and Home Savings. In June
1993 Kevin M. Twomey joined both Ahmanson and Home Savings as Chief Financial
Officer.
During 1993 management took several notable steps which affected the
statements of financial condition and operations and will have effects on
results of operations in the future. The most important of these events were
bulk sales of $1.3 billion in single family nonaccrual loans (the "bulk
sales"). Although nonperforming assets had been declining since October 1992,
giving effect to the bulk sale in July 1993 of $1.2 billion reduced the ratio
of nonperforming assets to total assets to 2.03% at June 30, 1993. Total
nonperforming assets dropped to $960.3 million or 1.89% of assets by year-end
1993.
Net loan charge-offs for 1993 totaled $590.7 million (including $378.1
million related to the bulk sales). The allowance for possible loan losses was
$438.8 million at December 31, 1993.
Throughout 1993 the Company aggressively sold its real estate owned held for
sale ("REO")--its single family REO through local loan offices; and multi-
family and commercial and industrial REO through a skilled team dedicated to
the loan workout and disposition process. Through these methods, the Company
sold $591.8 million in single family REO and $239.5 million in multi-family and
commercial REO in 1993. During the year, the Company provided $105.0 million
for possible losses on REO. At the end of 1993 the allowance for possible REO
losses was 27.0% of gross book value of REO.
19
<PAGE>
The ratio of allowances for possible losses on loans and REO to
nonperforming assets increased to 49.2% at December 31, 1993, from 21.2% at
December 31, 1992.
At December 31, 1993 real estate held for development and investment ("REI")
totaled $443.7 million, net of reserves equal to 43.5% of gross book value of
REI. In May 1993 the Company hired Lowe Enterprises Realty Services, Inc. to
manage and assist in the disposition of most of these assets.
Other balance sheet restructuring actions were also taken. The Company
extended the maturity of its non-deposit liabilities to reduce exposure to
potentially rising interest rates. In addition, these actions were taken to
improve funding flexibility and reduce overall borrowing costs. In November
1993 Home Savings retired $327.6 million of its 10 1/4% Subordinated Notes due
in 1996 and issued $250 million of seven year 6% Subordinated Notes. In the
fourth quarter of 1993, the Company established a reserve of $17.8 million for
the lifting of certain interest rate swaps due to the faster than anticipated
prepayment of related hedged loans.
Home Savings' deposit base is the largest of any savings institution in the
country. During the year, deposits decreased by $1.3 billion to $38.0 billion
at December 31, 1993. This decline in deposits was due in part to the strong
performance of the stock and bond markets, which induced depositors to
transfer funds from deposit accounts to equity and higher-yielding debt
securities. At December 31, 1993, Home Savings had 364 retail branches in
seven states.
Throughout 1993 Home Savings continued to take steps to build upon an
already strong capital position. In February, Ahmanson sold $195 million of
Preferred Stock, the net proceeds of which were contributed to Home Savings as
equity. In August, Ahmanson issued $287.5 million of Convertible Preferred
Stock, with $141 million of the proceeds contributed to Home Savings. Home
Savings exceeds all current and fully phased-in federal capital requirements.
In 1993 general and administrative expenses reached $827.5 million, or 1.66%
of average assets, up from $753.3 million or 1.54% of average assets in 1992.
Much of this increase was due to additional personnel needed throughout the
organization to handle problem assets and other personnel transition costs
incurred late in the year. Home Savings has exited markets which do not fit
into its strategic plans, such as Missouri and most of Ohio, and wrote off
$12.4 million in goodwill associated with the Ohio operations. In addition,
the Company sold its credit card portfolio for a $33 million gain. The Company
also took steps to achieve a meaningful G&A expense reduction in 1994. The
Company has a goal of reducing its G&A ratio to 1.50% in 1994.
Griffin Financial Services, a wholly-owned subsidiary of Ahmanson and an
affiliate of Home Savings, has provided investment and insurance products to
Home Savings' customers for ten years. To meet growing customer needs, to
broaden customer relationships and increase fee income, Griffin Financial
Services introduced a family of proprietary stock, bond and money market
mutual funds in late 1993.
At year-end 1993 the Company was servicing over 500,000 loans totaling $58.9
billion. Of the total servicing portfolio at year-end 1993, $49.1 billion were
ARMs and $9.8 billion were fixed rate loans. Approximately $15.0 billion of
these loans were serviced for investors. In 1993 the Company's management
committed to the installation of a new computer-based servicing system in its
loan service center by mid-1995. This new system is expected to reduce costs
and improve customer service.
20
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income decreased $21.5 million or 2% in 1993 and increased $86.3
million or 7% in 1992. The following table presents the Company's Consolidated
Summary of Average Financial Condition and net interest income for the years
indicated. Average balances on interest-earning assets and interest-bearing
liabilities are computed on a daily basis and other average balances are
computed on a monthly basis. Interest income and expense and the related
average balances include the effect of discounts or premiums. Nonaccrual loans
are included in the average balances, however, delinquent interest on such
loans has been excluded from interest income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ------------------------------ -------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans.................. $39,581,138 $2,623,139 6.63% $38,035,638 $2,978,267 7.83% $37,790,963 $3,622,465 9.59%
MBSs................... 3,984,806 278,908 7.00 4,205,595 336,517 8.00 5,402,835 528,169 9.78
----------- ---------- ----------- ---------- ----------- ----------
Total loans and MBSs. 43,565,944 2,902,047 6.66 42,241,233 3,314,784 7.85 43,193,798 4,150,634 9.61
----------- ---------- ----------- ---------- ----------- ----------
Investment securities:
Federal funds sold and
securities purchased
under agreements to
resell................ 2,073,809 74,559 3.60 2,269,751 94,899 4.18 3,020,727 192,697 6.38
Other investments...... 437,185 26,816 6.13 484,002 19,296 3.99 675,220 43,454 6.44
----------- ---------- ----------- ---------- ----------- ----------
Total investment
securities.......... 2,510,994 101,375 4.04 2,753,753 114,195 4.15 3,695,947 236,151 6.39
----------- ---------- ----------- ---------- ----------- ----------
Interest-earning as-
sets.................. 46,076,938 3,003,422 6.52 44,994,986 3,428,979 7.62 46,889,745 4,386,785 9.36
---------- ---------- ----------
Other assets............ 3,695,219 3,893,982 3,754,789
----------- ----------- -----------
Total assets....... $49,772,157 $48,888,968 $50,644,534
=========== =========== ===========
Interest-bearing liabil-
ities:
Deposits:
Checking accounts...... $ 2,560,091 $ 34,073 1.33 $ 2,329,153 $ 47,960 2.06 $ 2,055,481 $ 66,632 3.24
Savings accounts....... 12,040,616 323,255 2.68 11,345,488 409,645 3.61 9,108,914 483,530 5.31
Term accounts.......... 23,987,951 943,735 3.93 25,773,866 1,280,742 4.97 27,796,884 1,928,128 6.94
----------- ---------- ----------- ---------- ----------- ----------
Total deposits....... 38,588,658 1,301,063 3.37 39,448,507 1,738,347 4.41 38,961,279 2,478,290 6.36
----------- ---------- ----------- ---------- ----------- ----------
Borrowings:
Short-term............. 3,456,569 112,171 3.25 3,209,173 122,073 3.80 2,583,942 155,035 6.00
FHLB advances.......... 1,924,945 79,981 4.15 344,941 27,091 7.85 3,107,904 263,269 8.47
Other.................. 1,792,535 173,135 9.66 1,810,170 182,902 10.10 2,250,994 217,928 9.68
----------- ---------- ----------- ---------- ----------- ----------
Total borrowings..... 7,174,049 365,287 5.09 5,364,284 332,066 6.19 7,942,840 636,232 8.01
----------- ---------- ----------- ---------- ----------- ----------
Interest-bearing lia-
bilities.............. 45,762,707 1,666,350 3.64 44,812,791 2,070,413 4.62 46,904,119 3,114,522 6.64
---------- ---------- ----------
Other liabilities....... 1,147,173 1,351,813 1,274,956
Stockholders' equity.... 2,862,277 2,724,364 2,465,459
----------- ----------- -----------
Total liabilities
and
stockholders'
equity............ $49,772,157 $48,888,968 $50,644,534
=========== =========== ===========
Excess interest-earning
assets
(liabilities)/Earnings
spread................. $ 314,231 2.88 $ 182,195 3.00 $ (14,374) 2.72
Net interest income/ Ef-
fective net spread..... $1,337,072 2.90 $1,358,566 3.02 $1,272,263 2.71
</TABLE>
21
<PAGE>
The following table presents the changes for 1993 and 1992 from the
respective preceding year of the interest income and expense attributable to
various categories of assets and liabilities for the Company as allocated to
changes in average balances and changes in average rates. Because of numerous
and simultaneous changes in both balances and rates from year to year, it is
not possible to allocate precisely the effects thereof. For purposes of this
table, the change due to volume is initially calculated as the change in
average balance multiplied by the average rate during the current year and the
change due to rate is calculated as the change in average rate multiplied by
the average balance during the preceding year. Any change that remains
unallocated after such calculations is allocated proportionately to changes in
volume and changes in rates.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1993 VERSUS 1992 1992 VERSUS 1991
INCREASE/DECREASE DUE TO INCREASE/DECREASE DUE TO
------------------------------ --------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- --------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans.................. $102,805 $(457,933) $(355,128) $ 19,106 $(663,304) $ (644,198)
MBSs................... (15,481) (42,128) (57,609) (95,631) (96,021) (191,652)
Federal funds sold and
securities purchased
under agreements to
resell................ (7,096) (13,244) (20,340) (31,375) (66,423) (97,798)
Other investments...... (2,882) 10,402 7,520 (7,625) (16,533) (24,158)
-------- --------- --------- --------- --------- ----------
Total interest in-
come............... 77,346 (502,903) (425,557) (115,525) (842,281) (957,806)
-------- --------- --------- --------- --------- ----------
Interest expense on:
Deposits............... (28,848) (408,436) (437,284) 21,536 (761,479) (739,943)
Short-term borrowings.. 8,284 (18,186) (9,902) 23,669 (56,631) (32,962)
FHLB advances.......... 65,673 (12,783) 52,890 (216,908) (19,270) (236,178)
Other borrowings....... (1,721) (8,046) (9,767) (44,468) 9,442 (35,026)
-------- --------- --------- --------- --------- ----------
Total interest ex-
pense.............. 43,388 (447,451) (404,063) (216,171) (827,938) (1,044,109)
-------- --------- --------- --------- --------- ----------
Net interest in-
come............. $ 33,958 $ (55,452) $ (21,494) $ 100,646 $ (14,343) $ 86,303
======== ========= ========= ========= ========= ==========
</TABLE>
The declining market interest rate environment of recent years began to
subside in late 1993. The 2% decrease in net interest income in 1993 resulted
from the decrease of 12 basis points in the effective net spread to 2.90% for
1993 from 3.02% for 1992, partially offset by the increase in the average
balance of interest-earning assets funded with interest-bearing liabilities
primarily due to growth in the average loan portfolio. In addition, interest
income on loans and net interest income reflected a reduction due to a reserve
of $17.8 million established during the fourth quarter of 1993 for the lifting
of certain interest rate swaps with a notional amount of approximately $555
million based on the faster than anticipated prepayment of related hedged
loans. Such reserves had the effect of reducing the effective net spread for
1993 by four basis points. The 7% increase in net interest income in 1992
resulted from the increase of 31 basis points in the effective net spread to
3.02% for 1992 from 2.71% for 1991, partially offset by the decrease in the
average balance of interest-earning assets funded with interest-bearing
liabilities.
Provisions for losses of delinquent interest related to nonaccrual loans of
$70.9 million in 1993, $106.7 million in 1992 and $107.0 million in 1991 had
the effect of reducing the effective net spread by 16 basis points in 1993, 24
basis points in 1992 and 23 basis points in 1991.
The Company has a continuing goal of maintaining its cost of funds below the
monthly weighted average cost of funds for Federal Home Loan Bank ("FHLB")
Eleventh District savings institutions as computed by the FHLB of San
Francisco ("COFI"). The Company's cost of funds was 41 basis points, 52 basis
points and 45 basis points below the average of COFI of 4.05%, 5.14% and 7.09%
during 1993, 1992 and 1991, respectively.
The Company believes that its net interest income is largely insulated from
interest rate fluctuations within a fairly wide range primarily due to the
adjustable rate nature of its loan and MBS portfolio.
22
<PAGE>
Substantially all ARMs originated since 1981 have maximum and minimum interest
rates and all ARMs originated after 1987 have a maximum interest rate. As of
December 31, 1993 the rate on more than 94% in outstanding principal amount of
the Company's ARMs could have increased, as a result of a corresponding
increase in COFI, by at least 400 basis points without exceeding the
applicable cap. However, an increase in rates could have a negative impact on
the net interest spread due to the lag between changes in COFI to which a
majority of the Company's interest-earning assets are tied and changes in the
pricing of the Company's interest-bearing liabilities. For information
regarding the Company's strategies related to COFI and limiting its interest
rate risk, see "Financial Condition--Asset/Liability Management."
PROVISION FOR LOAN LOSSES
The provision for loan losses was $575.0 million in 1993, compared to $367.4
million in 1992 and $195.1 million in 1991. The provisions reflect, among other
things, the high level of nonperforming assets in 1992 and 1991 arising
principally from economic conditions in California and other portions of the
United States, the decision in the second quarter of 1993 to sell $1.2 billion
of single family nonaccrual mortgage loans rather than holding these loans to
maturity and/or foreclosure, as well as the Company's belief that an economic
recovery has not begun in California, where the majority of the Company's
borrowers are located, and that a recovery may be slower than previously
estimated. For additional information regarding the allowance for possible
loan losses and nonperforming assets, see "Financial Condition--Asset
Quality."
OTHER INCOME
Gain on Sales of MBSs. During 1993, 1992 and 1991, the Company recognized
gains on sales of MBSs and weighted average retained yields on such sales as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book value of MBSs sold:
ARM MBSs...................................... $904,945 $ -- $3,446,367
Fixed rate MBSs............................... -- 650,191 2,863
-------- -------- ----------
$904,945 $650,191 $3,449,230
======== ======== ==========
Pre-tax gains on sales of MBSs:
ARM MBSs...................................... $ 21,007 $ -- $ 81,188
Fixed rate MBSs............................... -- 14,303 --
-------- -------- ----------
$ 21,007 $ 14,303 $ 81,188
======== ======== ==========
Weighted average retained yield................. 0.84% -- % 1.28%
======== ======== ==========
</TABLE>
Gain on Sales of Loans. During 1993, 1992 and 1991, the Company recognized
gains on sales of loans, excluding the bulk sales in 1993, and weighted
average retained loan yields as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book value of loans sold:
Fixed rate mortgage loans................. $2,350,341 $3,903,274 $2,234,956
Credit card portfolio..................... 131,254 -- --
---------- ---------- ----------
$2,481,595 $3,903,274 $2,234,956
========== ========== ==========
Pre-tax gains on sales of loans:
Fixed rate mortgage loans................. $ 46,999 $ 62,622 $ 20,398
Credit card portfolio..................... 33,038 -- --
---------- ---------- ----------
$ 80,037 $ 62,622 $ 20,398
========== ========== ==========
Weighted average retained loan yield........ 0.28% 0.25% 0.25%
========== ========== ==========
</TABLE>
23
<PAGE>
The sales volume of fixed rate mortgage loans during 1993, 1992 and 1991 was
influenced by the level of borrower demand for fixed rate loans. Most of the
Company's fixed rate loans were originated for sale in the secondary market. In
addition, the Company sold its credit card portfolio totaling $131.3 million
for a pre-tax gain of $33.0 million during the fourth quarter of 1993.
Loan Servicing Income. Loan servicing income decreased $13.6 million or 19%
to $58.9 million in 1993 and was essentially unchanged at $72.5 million in
1992. The decrease in 1993 was primarily due to decreases of seven basis points
to 0.68% in the retained loan yield and $848.4 million or 5% in the average
portfolio of loans serviced for investors to $15.8 billion during 1993. The
decrease in the average portfolio of loans serviced for investors in 1993
reflects a decrease in sales of loans sold with servicing retained and a higher
level of loan payoffs in the portfolio during 1993. The slight increase in loan
servicing income in 1992 was primarily due to an increase of $1.4 billion or 9%
in the average portfolio of loans serviced for investors to $16.7 billion,
offset by a decrease of nine basis points to 0.75% in the retained loan yield
during 1992. The reductions in the retained loan yield during 1993 and 1992
reflect the sales volume of fixed rate loans, which typically had a retained
loan yield of 0.25%.
Other Fee Income. Other fee income increased $13.2 million or 12% to $125.3
million in 1993 and $13.8 million or 14% to $112.1 million in 1992. The
increases are primarily the result of increased commission income from
investment and insurance services, and banking fees due to fee structure
changes.
Operations of REI. Losses from operations of REI increased $170.9 million to
$229.3 million in 1993 and decreased $14.4 million to $58.4 million in 1992.
The increase in 1993 was primarily due to an increase of $157.9 million in
provision for losses and a decrease of $16.1 million in net gains on sales of
REI. The provision for losses on REI of $207.9 million in 1993 was due to
adjustments of the net realizable value ("NRV") of certain projects to reflect
the lingering effects of the recession on real estate values and sales
projections, particularly in California where most of the Company's real estate
projects are located.
The decrease in losses from operations of REI in 1992 was primarily due to an
increase of $12.1 million in net gains on sales of commercial development
properties and a decrease of $15.2 million in provision for losses, partially
offset by an increase of $11.0 million in net operating expense. The provision
for losses on REI of $50.0 million during 1992 was due to adjustments of the
NRV of several projects, including a $36.3 million writedown of a commercial
development property in downtown San Francisco, California.
For additional information regarding REI and the related allowance for
possible losses, see "Financial Condition--Asset Quality."
Other Operating Income. Other operating income increased $35.3 million to
$40.7 million in 1993, primarily due to proceeds received in the fourth quarter
of 1993 in connection with the settlement of a lawsuit previously filed by the
Company.
OTHER EXPENSES
General and Administrative Expenses. General and administrative expenses
increased $74.2 million or 10% to $827.5 million in 1993 and $12.3 million or
2% to $753.3 million in 1992. The increases in 1993 and 1992 reflected the
increased personnel costs associated with the administration of delinquent real
estate loans and the disposition of REO. In addition, the increase in 1993
reflects certain personnel transition costs and expenses related to the bulk
sales. The reduction of general and administrative expenses remains one of the
Company's top priorities. The ratio of general and administrative expenses to
average assets (the "G&A ratio") increased to 1.66% in 1993 from 1.54% in 1992
and 1.46% in 1991. The increase in 1993 reflects the 10% increase in general
and administrative expenses, partially offset by a 2% increase in average
assets. The increase in 1992 reflected a decline in average assets of 3% and
the 2% increase in general and administrative expenses. The Company has a goal
of reducing its G&A ratio to 1.50% in 1994.
The Company adopted SFAS No. 106, "Employers' Accounting for Post Retirement
Benefits Other Than Pensions," effective January 1, 1993. The principal effect
of SFAS No. 106 is to require accrual, during
24
<PAGE>
the years employees render service to earn post retirement benefits, of the
expected cost of providing the benefits to the employees, their beneficiaries
and covered dependents. The Company elected to adopt SFAS No. 106 by
recognizing the accumulated post retirement benefit obligation (the "transition
obligation"), which was approximately $16 million at January 1, 1993, over a
20-year transition period. Excluding the portion of the transition obligation
recognized in 1993, the expense for post retirement benefits other than
pensions was approximately $2 million in 1993.
Operations of REO. Losses from operations of REO increased $83.0 million to
$212.1 million in 1993 and $92.0 million to $129.1 million in 1992. The
increase in 1993 was due to increases in provision for losses of $47.4 million,
net losses on sales of $15.2 million and net operating expenses of $20.4
million. The increase in 1992 was primarily due to increases in provision for
losses of $43.0 million and net losses on sales of $44.3 million. Such
increases in provision for losses and net losses on sales of REO during 1993
and 1992 reflected the deterioration in real estate values in California and
New York since the time of initial foreclosure or subsequent valuation, and
estimated selling costs of $41.4 million, which were included in provision for
losses on REO during 1993. In April 1992 the Accounting Standards Division of
the American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 92-3 "Accounting for Foreclosed Assets." The principal effect
of SOP 92-3 is to require that foreclosed real estate held for sale be carried
at the lower of cost or fair value minus estimated selling costs. In 1992 and
1991 estimated selling costs were recorded as loan losses. For additional
information regarding REO, see "Financial Condition--Asset Quality."
Amortization of Goodwill. Amortization of goodwill increased $11.5 million or
42% to $39.2 million in 1993 and decreased $3.7 million or 12% to $27.7 million
in 1992. The increase in 1993 was primarily due to the write-off of $12.4
million in goodwill associated with the expected completion of the Company's
exit from the Ohio market.
Provision for Income Taxes (Benefit) and Cumulative Effect of Accounting
Change. The changes in the provision for income taxes (benefit) primarily
reflect the changes in pre-tax earnings during each year. The effective tax
(benefit) rates were (37.3)% for 1993, 46.0% for 1992 and 48.0% in 1991.
The Company adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 1, 1992 on a prospective basis. The cumulative effect of this change in
accounting for income taxes was a reduction of financial statement tax
liability and an increase in net earnings during 1992 of $47.7 million ($0.41
per common share). Excluding the cumulative effect of the accounting change,
the effect of adopting SFAS No. 109 was to decrease the provision for income
taxes and increase net earnings by approximately $39 million or $0.33 per
common share in 1992. See Note 10 of Notes to Consolidated Financial Statements
for further explanation of the factors which affected the Company's effective
tax rates for the years 1991 to 1993 and SFAS No. 109.
EXTRAORDINARY LOSS
During the fourth quarter of 1993 Home Savings purchased $327.6 million of
its 10 1/4% Subordinated Notes due December 1996 pursuant to a tender offer.
The repurchase resulted in an extraordinary loss on early extinguishment of
debt of $21.6 million, net of applicable income tax benefit of $16.3 million.
Home Savings replaced $250 million of the retired debt with new 6% Subordinated
Notes due November 2000.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents results of operations by quarter for 1993 and
1992:
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------
MARCH
31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
----- --------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1993:
Total interest income........... $766,184 $ 767,087 $751,596 $718,555
Total interest expense.......... 426,406 421,872 418,366 399,706
-------- --------- -------- --------
Net interest income........... 339,778 345,215 333,230 318,849
Provision for loan losses....... 66,980 437,854 22,243 47,893
-------- --------- -------- --------
Net interest income (loss) after
provision for loan losses...... 272,798 (92,639) 310,987 270,956
Other income.................... 45,989 (101,581) 67,643 84,536
Other expenses.................. 285,931 96,762 308,641 305,387
-------- --------- -------- --------
Earnings (loss) before extraor-
dinary loss.................... 32,856 (290,982) 69,989 50,105
Extraordinary loss on early ex-
tinguishment of debt, net...... -- -- -- (21,607)
-------- --------- -------- --------
Net earnings (loss)......... $ 32,856 $(290,982) $ 69,989 $ 28,498
======== ========= ======== ========
Earnings (loss) per common
share:
Earnings (loss) before ex-
traordinary loss............. $ 0.23 $ (2.55) $ 0.50 $ 0.32
Extraordinary loss on early
extinguishment of debt....... -- -- -- (0.18)
-------- --------- -------- --------
Net earnings (loss)......... $ 0.23 $ (2.55) $ 0.50 $ 0.14
======== ========= ======== ========
<CAPTION>
1992:
<S> <C> <C> <C> <C>
Total interest income........... $931,444 $ 876,237 $822,995 $798,303
Total interest expense.......... 593,526 528,153 486,751 461,983
-------- --------- -------- --------
Net interest income........... 337,918 348,084 336,244 336,320
Provision for loan losses....... 126,915 65,567 74,005 100,879
-------- --------- -------- --------
Net interest income after provi-
sion for loan losses........... 211,003 282,517 262,239 235,441
Other income.................... 35,772 53,432 49,070 70,224
Other expenses.................. 223,783 268,803 260,574 290,146
-------- --------- -------- --------
Earnings before cumulative ef-
fect of accounting change...... 22,992 67,146 50,735 15,519
Cumulative effect of change in
accounting for
income taxes................... 47,677 -- -- --
-------- --------- -------- --------
Net earnings................ $ 70,669 $ 67,146 $ 50,735 $ 15,519
======== ========= ======== ========
Earnings per common share:
Earnings before cumulative ef-
fect of accounting change.... $ 0.16 $ 0.54 $ 0.40 $ 0.10
Cumulative effect of change in
accounting for
income taxes................. 0.41 -- -- --
-------- --------- -------- --------
Net earnings................ $ 0.57 $ 0.54 $ 0.40 $ 0.10
======== ========= ======== ========
</TABLE>
Net interest income decreased in the fourth quarter of 1993 compared to the
third quarter of 1993 and the fourth quarter of 1992 primarily due to the $17.8
million reserve for lifting certain interest rate swaps. Other income increased
in the fourth quarter of 1993 compared to the third quarter of 1993 and the
fourth quarter of 1992 primarily due to the $33.0 million gain on sale of the
Company's credit card portfolio and proceeds from the settlement of a lawsuit,
partially offset by a provision for losses on REI of $34.4 million in the
fourth quarter of 1993 principally for two projects in Northern California.
26
<PAGE>
FINANCIAL CONDITION
During 1993, the Company's consolidated assets increased $2.7 billion or 6%
to $50.9 billion from $48.1 billion at December 31, 1992. The Company's primary
asset generation business continues to be the origination of loans on
residential real estate properties. The percentage of dollar volume of the
Company's loans originated by type is summarized below for the years shown:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Single family (one to four units)................. 86% 90% 91% 92% 91%
Multi-family (five units and over)................ 14 10 9 8 8
Commercial and industrial real estate............. -- -- -- -- 1
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
In 1993, 72% of the $11.6 billion in loan originations was on properties
located in California, compared to 76% of the $12.2 billion in loan
originations in 1992. In addition, in the first quarter of 1993 the Company
purchased $1.0 billion of single family ARMs from the Resolution Trust
Corporation (the "RTC") which were formerly held by HomeFed Bank. At December
31, 1993, approximately 96% of the loan and MBS portfolio was secured by
residential properties, including 80% secured by single family properties.
The loan and MBS portfolio includes approximately $5.2 billion in mortgage
loans that were originated with loan to value ("LTV") ratios exceeding 80%, or
11.6% of the portfolio at December 31, 1993. Only 9.5% of the $12.6 billion of
loans originated or purchased during 1993 had LTV ratios in excess of 80%, all
of which were loans on single family properties. The Company takes the
additional risk of originating loans with LTV ratios in excess of 80% into
consideration in its loan underwriting and pricing policies.
The following table presents the ranges of original LTV ratios as percentages
of single family loans and multi-family loans originated during the years
indicated:
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Single family loans:
<S> <C> <C> <C> <C> <C>
75.0% or less....................................... 54% 58% 55% 36% 37%
75.1% to 79.9%...................................... 15 14 14 19 16
80.0%............................................... 21 19 23 34 28
80.1% to 90.0%...................................... 10 9 8 11 19
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Multi-family loans:
70.0% or less....................................... 69% 73% 72% 49% 27%
70.1% to 75.0%...................................... 25 20 23 36 39
75.1% to 80.0%...................................... 6 7 5 15 34
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
27
<PAGE>
The following table presents the composition of the Company's loan and MBS
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential loans:
Single family (one to
four units)........... $28,764,402 $30,486,130 $29,616,179 $29,247,775 $25,162,784
Multi-family (five
units and over)....... 7,219,708 6,543,238 5,883,615 5,639,552 5,197,542
Commercial and
industrial real estate
loans.................. 2,012,307 2,225,226 2,540,810 2,669,243 2,772,139
Other loans............. 259,354 282,786 274,455 256,850 227,213
----------- ----------- ----------- ----------- -----------
38,255,771 39,537,380 38,315,059 37,813,420 33,359,678
Deferred loan fees and
interest............... (90,959) (97,662) (80,618) (61,699) (99,295)
Unearned discounts...... (21,658) (42,729) (54,842) (71,644) (88,400)
Allowance for loan loss-
es..................... (438,786) (434,114) (303,804) (213,339) (105,784)
----------- ----------- ----------- ----------- -----------
Loans receivable........ 37,704,368 38,962,875 37,875,795 37,466,738 33,066,199
MBSs.................... 6,919,997 3,915,508 4,683,742 7,468,290 6,669,926
----------- ----------- ----------- ----------- -----------
$44,624,365 $42,878,383 $42,559,537 $44,935,028 $39,736,125
=========== =========== =========== =========== ===========
</TABLE>
Effective December 31, 1992, the Company implemented SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," which requires that
the Company disclose estimated fair values for its existing on- and off-balance
sheet financial instruments. The following table presents a summary comparison
of the carrying values and estimated fair values of the Company's major
financial instruments at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1993 1992 NET CHANGE (%)
----------------------- ----------------------- -------------------
CARRYING ESTIMATED CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- ----------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
MBSs.................... $ 6,919,997 $ 7,004,000 $ 3,915,508 $ 3,973,484 77% 76%
Loans receivable........ 37,704,368 38,275,521 38,962,875 40,225,341 (3) (5)
Deposits--term accounts. 22,979,939 23,095,367 24,458,960 24,510,096 (6) (6)
Borrowings.............. 8,879,345 8,849,553 4,978,583 5,144,486 78 72
</TABLE>
ASSET/LIABILITY MANAGEMENT
One of the Company's primary business strategies continues to be the
reduction of volatility in net interest income resulting from changes in
interest rates. This is accomplished by managing the repricing characteristics
of its interest-earning assets and interest-bearing liabilities. (Interest rate
reset provisions of both assets and liabilities, whether through contractual
maturity or through contractual interest rate adjustment provisions, are
commonly referred to as "repricing terms.")
In order to manage the interest rate risk inherent in its portfolios of
interest-earning assets and interest-bearing liabilities, the Company has
emphasized the origination of COFI ARMs for retention in the loan and MBS
portfolio. At December 31, 1993, 93.6% of the Company's $44.6 billion loan and
MBS portfolio consisted of ARMs indexed to COFI, compared to 94.9% of the $42.9
billion loan and MBS portfolio at December 31, 1992. The average contractual
spread above COFI on the Company's COFI ARM portfolio was 2.38% at December 31,
1993, up one basis point from 2.37% at December 31, 1992.
Historically, the Company has maintained its cost of funds at a level below
COFI. During 1993 and 1992, the Company's cost of funds was 41 basis points and
52 basis points, respectively, below the average of COFI for the respective
years. At December 31, 1993, the Company's cost of funds was 44 basis points
below COFI. There can be no assurance that the differential between the
Company's cost of funds and COFI will
28
<PAGE>
remain at historical levels. In a period of rising market interest rates, the
favorable differential between the Company's cost of funds and COFI could
decline, which could result in compression of the Company's effective net
spread.
COFI ARMs do not immediately fully participate in current market rate
movements (referred to as the "COFI lag"). The COFI lag arises because (1) COFI
is determined based on the cost of all FHLB Eleventh District members'
interest-bearing liabilities, some of which do not reprice immediately and (2)
the Company's COFI ARMs reprice monthly based on changes in the cost of such
liabilities two months earlier. The Company's basic interest rate risk
management strategy includes a goal of having the combined repricing terms of
its interest-bearing liabilities not differ materially from those of the FHLB
Eleventh District members, in aggregate. The Company's approach to managing
interest rate risk in an environment where market interest rates are believed
to have the potential to rise includes the extension of repricing terms and the
spreading of clustered maturities of its interest-bearing liabilities, combined
with emphasis on more responsive assets, including diversification away from
COFI on some interest-earning assets.
In anticipation of potential rising interest rates, the Company initiated
several programs in 1993 to extend maturities and lengthen repricing terms on
borrowings through the issuance of new floating and fixed rate debt. For
example, the Company, in conjunction with a tender offer, repurchased fixed
rate subordinated debt due in 1996 and replaced it, in part, with lower fixed
rate subordinated debt due in 2000. Assets became more responsive to interest
rate changes through the sale of the fixed rate credit card portfolio and the
bulk sales of nonaccrual loans, with the proceeds deployed into interest-
earning assets, including LIBOR-based investments. Asset diversification
included selling a portion of its COFI MBSs from the available for sale
portfolio and the subsequent purchase of short term fixed rate collateralized
mortgage obligations ("CMOs"). Also, a reserve was established for the lifting
of certain COFI indexed interest rate swaps with notional principal balances of
$555 million as a result of the faster than anticipated prepayment of the
related hedged loans. The swap agreements were originally entered into to
create a COFI floating rate asset from loans originated with an initial fixed
interest rate. Finally, the Company continued to sell most of the 30-year fixed
rate loans it originated, while certain 15-year fixed rate single family loans
which it partially funded with tiered FHLB borrowings were originated to be
held to maturity. For additional information regarding these and other
transactions, see "Results of Operations--Net Interest Income" and "Financial
Condition--Liquidity and Capital Resources."
29
<PAGE>
The following table presents the components of the Company's interest rate
sensitive asset and liability portfolios by repricing periods (contractual
maturity as adjusted for frequency of repricing) as of December 31, 1993:
<TABLE>
<CAPTION>
REPRICING PERIODS
-----------------------------------------------------------
PERCENT WITHIN MONTHS 1-5 5-10 YEARS
BALANCE OF TOTAL 6 MONTHS 7-12 YEARS YEARS OVER 10
----------- -------- ----------- ------------ ------------ --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities--
Cash equivalents....... $ 2,686,184 5% $ 2,686,184 $ -- $ -- $ -- $ --
Other investment secu-
rities................ 11,524 -- 6,019 -- 5,483 22 --
FHLB stock............. 364,392 1 364,392 -- -- -- --
----------- --- ----------- ------------ ------------ --------- --------
Total investment securi-
ties................... 3,062,100 6 3,056,595 -- 5,483 22 --
----------- --- ----------- ------------ ------------ --------- --------
Loans and MBSs--
MBSs
ARMs................. 6,126,466 13 6,126,466 -- -- -- --
Other................ 793,531 2 -- 153,880 617,389 63,393 112,749
Loans
ARMs................. 35,645,473 75 33,765,223 -- 1,726,370 -- --
Other................ 2,058,895 4 430,734 79,838 482,647 489,441 576,235
Impact of hedging (in-
terest rate swaps).... -- -- 1,880,250 (153,880) (1,726,370) -- --
----------- --- ----------- ------------ ------------ --------- --------
Total loans and MBSs.... 44,624,365 94 42,202,673 79,838 1,100,036 552,834 688,984
----------- --- ----------- ------------ ------------ --------- --------
Total interest-earning
assets................ $47,686,465 100% $45,259,268 $ 79,838 $ 1,105,519 $ 552,856 $688,984
=========== === =========== ============ ============ ========= ========
INTEREST-BEARING LIABIL-
ITIES:
Deposits--
Checking............... $ 2,764,660 6% $ 2,764,660 $ -- $ -- $ -- $ --
Passbook............... 4,481,460 9 4,481,460 -- -- -- --
Money market savings... 7,792,594 17 7,792,594 -- -- -- --
Term accounts--
Under $100,000....... 22,064,001 47 12,392,712 5,799,403 3,847,992 23,869 25
Over $100,000........ 915,938 2 773,324 137,440 4,472 702 --
----------- --- ----------- ------------ ------------ --------- --------
Total deposits.......... 38,018,653 81 28,204,750 5,936,843 3,852,464 24,571 25
----------- --- ----------- ------------ ------------ --------- --------
Borrowings--
Repurchase agreements.. 4,807,767 10 4,807,767 -- -- -- --
FHLB advances.......... 1,862,927 4 1,524,138 -- 258,389 80,400 --
Other.................. 2,208,651 5 1,137,802 3,222 323,656 743,871 100
----------- --- ----------- ------------ ------------ --------- --------
Total borrowings........ 8,879,345 19 7,469,707 3,222 582,045 824,271 100
----------- --- ----------- ------------ ------------ --------- --------
Total interest-bearing
liabilities........... $46,897,998 100% $35,674,457 $ 5,940,065 $ 4,434,509 $ 848,842 $ 125
=========== === =========== ============ ============ ========= ========
Hedge-adjusted interest-
earning assets
more/(less) than
interest-bearing
liabilities............ $ 788,467 $ 9,584,811 $(5,860,227) $(3,328,990) $(295,986) $688,859
=========== =========== ============ ============ ========= ========
Cumulative interest sen-
sitivity gap........... $ 9,584,811 $ 3,724,584 $ 395,594 $ 99,608 $788,467
=========== ============ ============ ========= ========
Percentage of hedge-
adjusted interest-
earning assets to
interest-bearing
liabilities............ 101.68%
Percentage of cumulative
interest sensitivity
gap to total assets.... 1.55%
</TABLE>
30
<PAGE>
The following table presents the interest rates and spreads at the end of the
years indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
Average yield on:
Loans............................................... 6.53% 7.27% 9.10%
MBSs................................................ 6.33 6.63 8.56
Total loans and MBSs............................. 6.50 7.22 9.04
Investment securities:
Federal funds sold and securities purchased under
agreements to resell............................. 3.85 3.86 5.82
Other investments................................. 3.71 2.58 5.31
Total investment securities...................... 3.83 3.48 5.49
Interest-earning assets......................... 6.33 7.09 8.96
Average rate paid on:
Deposits:
Checking accounts................................. 1.10 1.56 2.80
Savings accounts.................................. 2.47 2.82 4.46
Term accounts..................................... 3.75 4.20 5.96
Total deposits................................... 3.14 3.60 5.38
Borrowings:
Short-term........................................ 3.39 3.51 4.90
FHLB advances..................................... 4.47 4.23 8.73
Other............................................. 8.25 9.81 10.04
Total borrowings................................. 4.73(1) 5.99(1) 8.69(1)
Interest-bearing liabilities.................... 3.44 3.87 5.70
Earnings spread....................................... 2.89 3.22 3.26
Effective net spread.................................. 2.95 3.21 3.27
</TABLE>
- --------
(1) Includes the effect of miscellaneous borrowing costs of approximately
0.46%, 0.58%, and 0.64% as of December 31, 1993, 1992 and 1991,
respectively.
The following table presents the schedule of contractual maturities for loans
and MBSs as of December 31, 1993:
<TABLE>
<CAPTION>
WITHIN 1-2 2-3 3-5 5-10 10-15 YEARS
1 YEAR YEARS YEARS YEARS YEARS YEARS OVER 15
-------- ------- ------- ------- -------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
MBSs:
ARMs.................. $ -- $ -- $ -- $ -- $ -- $ -- $ 6,126,466
Other................. -- -- -- -- 61,242 155,182 577,107
Residential and other
loans:
ARMs.................. 39,487 25,013 14,290 509 17,531 427,868 33,724,957
Other................. 259,650 1,367 709 13,554 16,442 473,659 823,911
Commercial and indus-
trial real estate
loans:
ARMs.................. 9,370 -- 11,312 6,129 32,470 17,499 1,319,038
Other................. -- 3,937 631 62,084 7,081 8,804 387,066
-------- ------- ------- ------- -------- ---------- -----------
$308,507 $30,317 $26,942 $82,276 $134,766 $1,083,012 $42,958,545
======== ======= ======= ======= ======== ========== ===========
</TABLE>
ASSET QUALITY
Nonperforming Assets and Potential Problem Loans. When a borrower fails to
make a required payment on a loan and does not cure the delinquency promptly,
the loan is characterized as delinquent. The procedural steps necessary for
foreclosure vary from state to state, but generally if the loan is not
reinstated within certain periods specified by statute and no other workout
arrangements satisfactory to the lender are entered into, the property securing
the loan can be acquired by the lender. Although the Company generally relies
on the underlying real property to satisfy foreclosed loans, in certain
circumstances and when permitted by law, the Company may seek to obtain
deficiency judgments against the borrowers.
31
<PAGE>
A loan is generally placed on nonaccrual status when the Company becomes
aware that the borrower has entered bankruptcy proceedings and the loan is
delinquent, or when the loan is past due 90 days as to either principal or
interest. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest revenue. If management determines that
collectibility is in doubt, cash receipts on nonaccrual loans are used to
reduce principal rather than being included in interest revenue. A nonaccrual
loan may be restored to accrual basis when delinquent loan payments are
collected and the loan is expected to perform according to its contractual
terms. The amount of income that was contractually due but not recognized
because loans were placed on nonaccrual status amounted to $70.9 million in
1993, $106.7 million in 1992 and $107.0 million in 1991.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," effective January 1, 1993. SFAS No. 114 requires the measurement of
impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or the fair value of its collateral. The principal effect on the
Company of SFAS No. 114 is the elimination of the category of loans classified
as in-substance foreclosures, resulting in the reclassification of such amounts
and related specific allowances for possible losses from REO to loans
receivable and related provisions for losses from operations of REO to
provision for loan losses. SFAS No. 114 does not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment. For the Company, loans collectively reviewed for impairment include
all single family loans and performing multi-family and commercial and
industrial real estate loans ("major loans") under $2 million, excluding loans
which have entered the workout process. The adoption of SFAS No. 114 did not
result in additional provisions for losses or changes in previously reported
net earnings (loss) due to the Company's continuing policy of measuring loan
impairment based on the fair value of the loan's collateral property, which is
consistent with one of the methods prescribed in SFAS No. 114.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. The Company's impaired loans within the scope of SFAS No. 114
include nonaccrual major loans (excluding those collectively reviewed for
impairment), troubled debt restructurings, and performing major loans and major
loans less than 90 days delinquent in which full payment of principal or
interest is not expected. The Company bases the measurement of these impaired
loans on the fair value of the loans' collateral properties. Cash receipts on
impaired loans not performing according to contractual terms are used to reduce
principal balances. Impairment losses are included in the allowance for loan
losses through a charge to provision for loan losses. Adjustments to impairment
losses due to changes in the fair value of impaired loans' collateral
properties are included in provision for loan losses. Upon disposition of an
impaired loan, any related valuation allowance is reversed through a charge-off
to the allowance for loan losses. At December 31, 1993 the recorded investment
in loans for which impairment has been recognized in accordance with SFAS No.
114 totaled $746.5 million and the total allowance for possible losses related
to such loans was $81.3 million.
The following table presents the amounts of the Company's nonaccrual loans,
REO, past due loans, troubled debt restructurings and other impaired loans as
of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1993 1992 1991 1990 1989
-------- ---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.......... $780,400 $1,768,362 $1,499,473 $741,493 $438,094
REO....................... 179,862 452,971 267,604 161,795 138,022
Accruing loans contractu-
ally past due 90 days or
more (all single family). -- 155,864 162,532 105,892 46,060
Troubled debt
restructurings........... 100,751 61,400 266,656 338,799 385,521
Net recorded investment of
other impaired major
loans.................... 391,044(1) -- -- -- --
</TABLE>
- --------
(1) Net of related allowance for possible losses of $36.5 million.
32
<PAGE>
The following table presents nonperforming assets (nonaccrual loans and REO)
and troubled debt restructurings by type as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- INCREASE
1993 1992 (DECREASE)
-------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Single family........................... $568,550 $1,242,876 $ (674,326)
Multi-family............................ 139,157(1) 319,083 (179,926)
Commercial and industrial real estate... 72,693(2) 206,403 (133,710)
-------- ---------- -----------
780,400 1,768,362 (987,962)
-------- ---------- -----------
REO:
Single family........................... 99,744 325,299 (225,555)
Multi-family............................ 50,081 63,807 (13,726)
Commercial and industrial real estate... 30,037 63,865 (33,828)
-------- ---------- -----------
179,862 452,971 (273,109)
-------- ---------- -----------
Total nonperforming assets:
Single family........................... 668,294 1,568,175 (899,881)
Multi-family............................ 189,238 382,890 (193,652)
Commercial and industrial real estate... 102,730 270,268 (167,538)
-------- ---------- -----------
Total................................. $960,262 $2,221,333 $(1,261,071)
======== ========== ===========
Troubled debt restructurings:
Multi-family............................ $ 73,271 $ 28,853 $ 44,418
Commercial and industrial real estate... 27,480 32,547 (5,067)
-------- ---------- -----------
Total................................. $100,751(3) $ 61,400 $ 39,351
======== ========== ===========
Ratio of nonperforming assets to total as-
sets..................................... 1.89% 4.61%
======== ==========
Ratio of nonperforming assets and troubled
debt restructurings
to total assets.......................... 2.09% 4.74%
======== ==========
Ratio of allowances for possible losses on
loans and REO to nonperforming assets.... 49.21% 21.24%
======== ==========
</TABLE>
- --------
(1) Includes recorded investment of impaired multi-family loans under SFAS No.
114 totaling $127.6 million and the related allowance for possible losses
of $17.7 million.
(2) Includes recorded investment of impaired commercial and industrial real
estate loans under SFAS No. 114 totaling $85.7 million and the related
allowance for possible losses of $23.0 million.
(3) All the Company's troubled debt restructurings are impaired under SFAS No.
114, the balance of which is net of the related allowance for possible
losses of $4.2 million.
33
<PAGE>
The following table presents nonperforming assets and troubled debt
restructurings by state at December 31, 1993:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
--------------------------------------------------
COMMERCIAL AND
SINGLE FAMILY MULTI-FAMILY INDUSTRIAL TROUBLED DEBT
RESIDENTIAL RESIDENTIAL REAL ESTATE TOTAL RESTRUCTURINGS
------------- ------------ -------------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
California... $528,484 $148,684 $ 46,101 $723,269 $ 24,442
New York..... 40,226 19,957 34,152 94,335 13,864
Florida...... 33,339 -- 824 34,163 5,610
Illinois..... 10,954 4,155 6,683 21,792 38,731
Texas........ 7,076 4,363 133 11,572 6,892
Other........ 48,215 12,079 14,837 75,131 11,212
-------- -------- -------- -------- --------
$668,294 $189,238 $102,730 $960,262 $100,751
======== ======== ======== ======== ========
</TABLE>
Nonperforming assets decreased $1.3 billion or 57% during 1993 primarily due
to the bulk sales of single family nonaccrual loans totaling $1.3 billion and
sales of REO totaling $831.3 million. Single family nonperforming assets
decreased $899.9 million or 57% during 1993, primarily in the states of
California ($541.8 million), New York ($120.3 million), Florida ($109.4
million), Illinois ($21.1 million), Texas($17.0 million) and Georgia ($12.2
million). Multi-family nonperforming assets decreased $193.7 million or 51%
during 1993, primarily in the states of California ($87.4 million), New York
($56.5 million), Illinois ($13.2 million) and Arizona ($14.4 million).
Commercial and industrial real estate nonperforming assets decreased $167.5
million or 62% during 1993 primarily in the states of California ($54.5
million), New York ($59.5 million) and Florida ($11.1 million). Troubled debt
restructurings increased $39.4 million or 64% during 1993 primarily due to an
increase of $38.7 million in troubled debt restructurings secured by multi-
family properties in Illinois.
Other impaired major loans at December 31, 1993 are comprised of the net
recorded investment in loans from which the full payment of principal and
interest is not expected, including performing loans of $278.1 million and
loans delinquent less than 90 days of $112.9 million, primarily commercial and
industrial real estate loans in California.
The Company is continuing its efforts to reduce the amount of its
nonperforming assets by aggressively pursuing loan delinquencies through the
collection, workout and foreclosure processes and, if foreclosed, disposing
rapidly of the REO. The Company's program to dispose of single family REO
through its local lending offices resulted in sales of such REO of $591.8
million in 1993 compared to $289.2 million in 1992. The Company also sold
$239.5 million of multi-family and commercial and industrial REO in 1993
compared to $195.2 million in 1992.
The following table presents the amounts of loans which were 60-89 days
delinquent by loan type as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans 60-89 days delinquent:
Single family.................................. $171,778 $217,566 $330,597
Multi-family................................... 27,278 33,005 29,481
Commercial and industrial real estate.......... 3,706 18,132 33,209
-------- -------- --------
$202,762 $268,703 $393,287
======== ======== ========
</TABLE>
Loans 60-89 days delinquent decreased $65.9 million or 25% during 1993
resulting from decreases of $45.8 million in such single family loans, $5.7
million in multi-family loans and $14.4 million in commercial and industrial
real estate loans. Single family loans 60-89 days delinquent decreased in 1993
primarily in the
34
<PAGE>
states of California ($22.1 million), Florida ($10.1 million) and New York
($4.3 million). Multi-family loans 60-89 days delinquent decreased in 1993
primarily due to a decrease in California of $7.5 million. Commercial and
industrial real estate loans 60-89 days delinquent decreased primarily in the
states of New York($9.7 million) and Georgia ($4.1 million).
Allowance for Loan Losses. Management believes the Company's allowance for
loan losses was adequate at December 31, 1993. The Company's process for
evaluating the adequacy of the allowance for loan losses has three basic
elements: first, the identification of problem loans; second, the establishment
of appropriate loan loss allowances once individual specific problem loans are
identified; and third, a methodology for estimating loan losses based on the
inherent risk in the rest of the loan portfolio.
The identification of problem loans is achieved mainly through individual
review of all major loans over $2 million and certain major loans under $2
million based on specific criteria such as delinquency, debt coverage, LTV
ratio and location of collateral property. Loan loss allowances are established
for specifically identified problem loans based on reviews of current operating
financial information and the fair value of the underlying collateral property.
The allowance for loan losses also includes estimates based upon
consideration of actual loss experience of loans for the past several years by
loan type, year of origination, delinquency statistics, location of collateral
property and projected economic conditions and other trends. Based upon this
process, consideration of the current economic environment and other factors,
management determines what it considers to be an appropriate allowance for loan
losses. Although the Company believes it has a sound basis for this estimation,
actual charge-offs incurred in the future are highly dependent upon future
events, including the economies of the areas in which the Company lends.
Immediately upon the foreclosure of a mortgage loan, the Company obtains an
appraisal of the collateral property. In the case of a single family or
California multi-family loan, such appraisal generally is conducted by an
appraiser employed by the Company; in the case of a commercial and industrial
real estate or non-California multi-family loan, such appraisal is conducted by
an independent fee appraiser and reviewed by the Company's Appraisal Quality
Control Department. Based upon such appraisals, foreclosed loans are recorded
at the lower of fair value or net book value.
35
<PAGE>
The following tables sets forth the allocation of the Company's allowance for
loan losses by category of loans and MBSs and the percent of loans and MBSs in
each category at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1993 1992
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
PERCENT OF ALLOWANCE PERCENT OF ALLOWANCE
LOAN AND MBS TO LOAN LOAN AND MBS TO LOAN
PORTFOLIO IN AND MBS PORTFOLIO IN AND MBS
ALLOWANCE EACH CATEGORY PORTFOLIO ALLOWANCE EACH CATEGORY PORTFOLIO
--------- ------------- ---------- --------- ------------- ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single family........... $155,516 79.5% 0.43% $185,343 79.5% 0.54%
Multi-family............ 145,097 16.1 2.00 120,946 15.0 1.86
Commercial and
industrial
real estate............ 138,173 4.4 6.90 120,962 5.1 5.47
Credit cards............ -- -- -- 6,863 0.4 4.25
-------- ----- -------- -----
$438,786 100.0% 0.97 $434,114 100.0% 1.00
======== ===== ======== =====
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1991 1990
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
PERCENT OF ALLOWANCE PERCENT OF ALLOWANCE
LOAN AND MBS TO LOAN LOAN AND MBS TO LOAN
PORTFOLIO IN AND MBS PORTFOLIO IN AND MBS
ALLOWANCE EACH CATEGORY PORTFOLIO ALLOWANCE EACH CATEGORY PORTFOLIO
--------- ------------- ---------- --------- ------------- ----------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single family........... $110,366 80.1% 0.32% $ 70,231 81.5% 0.19%
Multi-family............ 78,838 13.6 1.35 62,521 12.4 1.11
Commercial and
industrial
real estate............ 109,293 5.9 4.32 77,152 5.7 2.98
Credit cards............ 5,307 0.4 3.30 3,435 0.4 2.30
-------- ----- -------- -----
$303,804 100.0% 0.71 $213,339 100.0% 0.47
======== ===== ======== =====
<CAPTION>
DECEMBER 31, 1989
----------------------------------
PERCENT OF
PERCENT OF ALLOWANCE
LOAN AND MBS TO LOAN
PORTFOLIO IN AND MBS
ALLOWANCE EACH CATEGORY PORTFOLIO
--------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Single family........... $ 47,389 80.1% 0.15%
Multi-family............ 26,875 12.8 0.53
Commercial and
industrial
real estate............ 28,047 6.8 1.03
Credit cards............ 3,473 0.3 2.58
-------- -----
$105,784 100.0% 0.27
======== =====
</TABLE>
36
<PAGE>
The following table presents the changes in the Company's allowance for loan
losses and the loss experience for the years indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
---------- --------- --------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
the period............. $ 434,114 $ 303,804 $ 213,339 $ 105,784 $ 66,972
Provision for loan loss-
es..................... 574,970 367,366 195,062 215,854 89,031
Allowance for loan
losses on loans
purchased.............. 20,365 -- -- -- --
---------- --------- --------- --------- --------
1,029,449 671,170 408,401 321,638 156,003
---------- --------- --------- --------- --------
Charge-offs:
Single family......... (469,204) (114,086) (46,631) (29,207) (23,111)
Multi-family.......... (76,189) (60,956) (33,396) (43,693) (11,386)
Commercial and indus-
trial real estate.... (68,135) (73,069) (44,952) (42,351) (12,599)
Credit cards.......... (10,207) (7,382) (5,243) (3,412) (3,123)
---------- --------- --------- --------- --------
(623,735) (255,493) (130,222) (118,663) (50,219)
Recoveries............ 33,072 18,437 25,625 10,364 --
---------- --------- --------- --------- --------
Net charge-offs..... (590,663) (237,056) (104,597) (108,299) (50,219)
---------- --------- --------- --------- --------
Balance at end of the
period................. $ 438,786 $ 434,114 $ 303,804 $ 213,339 $105,784
========== ========= ========= ========= ========
Ratio of net charge-offs
to average loans and
MBSs outstanding during
the periods............ 1.36%(1) 0.56% 0.24% 0.25% 0.13%
========== ========= ========= ========= ========
</TABLE>
- --------
(1) The exclusion of $378.1 million of charge-offs related to the bulk sales
decreases the ratio to 0.49% for 1993.
The increase in charge-offs in 1993 was primarily attributable to single
family charge-offs of $378.1 million related to the bulk sales. Excluding the
loan losses related to the bulk sales, gross charge-offs on single family loans
decreased $23.0 million primarily due to declines in losses on loans located in
most states, including Florida ($9.9 million) and New York ($7.1 million),
partially offset by increased loan losses in California ($21.9 million).
Gross charge-offs on multi-family loans increased $15.2 million in 1993
primarily due to increased loan losses in California ($29.7 million), partially
offset by a decline in loan losses in Georgia ($12.8 million).
Gross charge-offs on commercial and industrial real estate loans decreased
$4.9 million in 1993 primarily due to declines in most states, including
Illinois ($8.3 million), New Jersey ($4.3 million) and New York ($3.4 million),
partially offset by increased loan losses in California ($19.2 million). The
Company has not originated commercial and industrial real estate loans for
several years. Consequently, the Company's commercial real estate loan
portfolio is well seasoned, although it is still vulnerable to the effects of
overbuilding in many areas of the country.
It is possible that the Company's delinquent, nonaccrual and impaired loans
and REO may increase and that the Company may experience additional losses with
respect to its real estate loan portfolio. Although the Company has taken this
possibility into consideration in establishing its allowance for possible loan
losses, future events may warrant further additions to the allowance.
37
<PAGE>
REI. The Company's net book value of REI decreased to $443.7 million at
December 31, 1993 from $674.3 million at December 31, 1992. The allowance for
possible losses on REI increased to $341.7 million or 43.5% of gross book
value of REI at December 31, 1993 from $154.7 million or 18.7% of gross REI at
December 31, 1992. The following table presents the Company's REI by type and
state at December 31, 1993:
<TABLE>
<CAPTION>
ALLOWANCE
GROSS FOR
BOOK POSSIBLE NET BOOK
VALUE LOSSES VALUE
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Residential REI:
California...................................... $169,203 $104,197 $ 65,006
Florida......................................... 17,062 9,976 7,086
Maryland........................................ 67,060 11,095 55,965
-------- -------- --------
253,325 125,268 128,057
-------- -------- --------
Commercial and industrial REI and undeveloped
land:
California...................................... 523,489 207,889 315,600
Illinois........................................ 8,548 8,548 --
-------- -------- --------
532,037 216,437 315,600
-------- -------- --------
Total REI......................................... $785,362 $341,705 $443,657
======== ======== ========
</TABLE>
The Company intends to continue its withdrawal from real estate development
activities. Although the Company does not intend to acquire new properties, it
intends to develop, hold and/or sell its current properties depending on
economic conditions. In the second quarter of 1993 the Company retained Lowe
Enterprises Realty Services, Inc. ("Lowe"), a real estate asset management
firm, to assist in the management and disposition of most of these assets.
During the third and fourth quarters of 1993 the Company approved revised
business plans, mainly developed with Lowe, for most of its REI properties.
The Company carries each of its REI properties at the lower of cost or NRV,
and adjusts such values through provisions for losses recorded as additions to
the allowance for possible losses on REI. NRV is the estimated selling price,
less estimated costs to complete, hold and dispose of the property. In
computing NRV, interest holding costs are based on the Company's cost of
funds. The Company's basis for such estimates includes project business plans
monitored and approved by management, market studies and other information.
Although management believes the NRV of REI and the related allowance for
possible losses are fairly stated, declines in NRV and additions to the
allowance for possible losses could result from continued weakness in the
specific project markets, changes in economic conditions and revisions to
project business plans, which may reflect decisions by the Company to
accelerate the disposition of the properties.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity consists of cash, cash equivalents and certain marketable
securities which are not committed, pledged or required to liquidate specific
liabilities. The liquidity portfolio, totaling approximately $3.4 billion at
December 31, 1993, increased $1.6 billion or 87% from December 31, 1992
primarily due to a net increase of $3.9 billion in borrowings and net proceeds
of $469.1 million from two issuances of Ahmanson's Preferred Stock, partially
offset by a net increase in loans and MBSs of $1.7 billion and a net reduction
in deposits of $1.3 billion during 1993. Regulations of the Office of Thrift
Supervision ("OTS") require each savings institution to maintain, for each
calendar month, an average daily balance of liquid assets equal to at least 5%
of the average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month. OTS regulations also require
each savings institution to maintain, for each calendar month, an average
daily balance of short-term liquid assets (generally those having maturities
of 12 months or less) equal to at least 1% of the average daily balance of its
net withdrawable accounts plus short-term borrowings during the preceding
calendar month. For December 1993 the average liquidity and average short-term
liquidity ratios of Home Savings were 5.33% and 5.12%, respectively.
38
<PAGE>
Sources of additional liquidity consist primarily of positive cash flows
generated from operations, the collection of principal payments and prepayments
on loans and MBSs, increases in deposits and borrowings and issuances of equity
securities. Positive cash flows are also generated through the sale of MBSs,
loans and other assets for cash. Sources of borrowings may include advances
from the FHLB, commercial paper and public debt issuances, borrowings under
reverse repurchase agreements, commercial bank lines of credit and, under
certain conditions, direct borrowings from the Federal Reserve System. The
principal sources of cash inflows during 1993 were principal payments and
prepayments on loans and MBSs, proceeds from sales of loans and MBSs (including
the bulk sales), proceeds from FHLB advances, short-term and other borrowings
and proceeds from the sales of Ahmanson's Preferred Stock, Series C and Series
D.
Each of the Company's sources of liquidity is influenced by various
uncertainties beyond the control of the Company. Scheduled loan payments are a
relatively stable source of funds, while loan prepayments and deposit flows
vary widely in reaction to market conditions, primarily prevailing interest
rates. Asset sales are influenced by general market interest rates and other
unforeseeable market conditions. The Company's ability to borrow at attractive
rates is affected by its credit rating, the availability of acceptable
collateral and other market conditions.
In order to manage the uncertainty inherent in its sources of funds, the
Company continually evaluates alternate sources of funds and maintains and
develops diversity and flexibility in the number and character of such sources.
The effect of a decline in any one source of funds generally can be offset by
use of an alternate source, although potentially at a different cost to the
Company. The Company's diverse geographic presence permits it to take advantage
of favorable sources of funds prevailing on a region-by-region basis.
Loans Receivable. The Company's primary use of cash is to fund internally
generated mortgage loans. Gross loan originations decreased 5% to $11.6 billion
for 1993 from the $12.2 billion funded in 1992. During 1993 cash of $10.3
billion was used to originate loans and $1.1 billion was used to purchase loans
for investment, including $1.0 billion of single family ARMs from the RTC which
were formerly held by HomeFed Bank. Gross loan originations in 1993 included
$8.9 billion of ARMs with an average spread of 243 basis points above COFI and
$2.7 billion of fixed rate loans. Fixed rate loans originated and designated
for sale represented approximately 22% of single family loan originations in
1993. In addition, the Company began funding 15-year fixed rate single family
loans with tiered FHLB advances and originated approximately $440 million of
such loans in 1993, which are intended to be held to maturity. Of the total
loans originated 86% were single family mortgages, with the balance on multi-
family properties, and 72% were loans on properties located in California.
Principal payments on loans decreased 5% to $4.7 billion in 1993 from $4.9
billion in 1992.
During 1993 the Company sold loans totaling $3.4 billion, including loans
sold in the bulk sales, net of charge-offs, and the Company's credit card
portfolio totaling $131.3 million. The Company designates certain loans as
available for sale, including most of its fixed rate originations. At December
31, 1993 the Company had $175.3 million of loans available for sale.
At December 31, 1993 the Company was committed to fund mortgage loans
totaling $894.6 million, including $784.4 million or 88% in ARMs. The Company
expects to fund such loans from its liquidity sources. Based on current
economic conditions, including the continuing recession in California and low
interest rate environment, the Company anticipates that originations of
mortgage loans during 1994 will not vary significantly from the $11.6 billion
originated during 1993.
MBSs. During 1993 the Company sold $904.9 million of COFI MBSs and used the
proceeds to purchase $802.1 million of other MBSs, primarily short term fixed
rate CMOs. The Company designates certain MBSs as available for sale, including
virtually all ARM Agency MBSs and certain other MBSs. At December 31, 1993 the
Company had $2.9 billion of MBSs available for sale.
During 1993 the Company securitized $3.4 billion of ARMs into AAA rated
private placement mortgage pass-through securities to increase its access to
less expensive collateralized short-term borrowings. The Company has the intent
and ability to hold these MBSs until maturity.
39
<PAGE>
Deposits. Savings deposits decreased $1.3 billion or 3% during 1993
reflecting a net deposit outflow of $1.7 billion and deposits sold of $1.4
billion, partially offset by deposits purchased of $1.8 billion. The net
deposit outflow reflected the strong performance in the stock and bond markets
which induced depositors to transfer cash from deposit accounts to equity and
higher-yielding debt securities. In addition, the Company continued to reduce
the interest rates it offered on deposits, while increasing its emphasis on
short-term borrowings due to the more favorable interest rates on such
borrowings during 1993.
During 1993 the Company purchased deposits or branch systems from other
institutions in California, New York and Texas, and sold deposits in Missouri,
Ohio and Washington State, consistent with the Company's geographic market
strategy. The Company intends to continue consideration of branch purchases and
sales as opportunities to consolidate the Company's presence in its key
strategic markets. At December 31, 1993, 58%, 21%, 10% and 11% of the Company's
total deposits were in California, New York, Florida and all other states,
respectively, compared to 57%, 19%, 10% and 14%, respectively, at December 31,
1992.
Borrowings. Borrowings increased $3.9 billion or 78% during 1993 reflecting
increases in short-term borrowings of $2.7 billion, FHLB advances of $1.1
billion and other borrowings of $170.9 million. In November 1993 Home Savings
issued $250.0 million of 6% Subordinated Notes due November 1, 2000 to replace,
in part, $327.6 million of 10 1/4% Subordinated Notes due December 5, 1996 that
were retired early. In December 1993 Home Savings borrowed $400.0 million at a
floating rate from the Student Loan Marketing Association, due December 20,
1995.
Capital. Stockholders' equity increased $203.4 million or 7% during 1993
principally due to net proceeds of $469.1 million from two issuances of
Ahmanson's Preferred Stock, partially offset by the net loss of $159.6 million
and dividends paid to common and preferred stockholders of $138.1 million.
In February 1993 Ahmanson issued 7.8 million depositary shares, each
representing a one-tenth interest in one share of Ahmanson's 8.40% Preferred
Stock, Series C and received proceeds (net of underwriting discounts,
commissions and other expenses) of $188.4 million. The net proceeds were
contributed to Home Savings and have increased Home Savings' capital ratios.
In August 1993 Ahmanson issued 5.75 million depositary shares, each
representing a one-tenth interest in one share of Ahmanson's 6% Cumulative
Convertible Preferred Stock, Series D and received proceeds (net of
underwriting discounts, commissions and other expenses) of $280.7 million. The
shares are convertible into Common Stock at $24.335 per share of Common Stock,
equivalent to a conversion rate of approximately 2.05465 shares of Common Stock
per depositary share. Ahmanson contributed $141 million of the net proceeds to
Home Savings. The balance of the net proceeds were retained by Ahmanson for
general corporate purposes, including acquisitions, or may be used to make
additional capital contributions to Home Savings.
The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," effective December 31, 1993. SFAS No. 115 applies to
investment securities and MBSs, but not unsecuritized loans. At December 31,
1993, the Company recorded an aggregate unrealized gain on securities available
for sale, due to the change in accounting for securities, of $21.5 million, net
of a $16.3 million tax effect. The Company had no trading securities at
December 31, 1993.
The OTS has adopted regulations (the "Capital Regulations") that contain a
three-part capital standard requiring savings institutions to maintain core
capital of at least 3% of adjusted total assets, tangible capital of at least
1.5% of adjusted total assets and risk-based capital of at least 8% of risk-
weighted assets. Special rules govern the ability of savings institutions to
include in their capital computations supervisory goodwill and investments in
subsidiaries engaged in activities not permissible for national banks, such as
real estate development. In addition, effective July 1, 1994, institutions
whose exposure to interest-rate risk as determined by the OTS is deemed to be
above normal may be required to hold additional risk-based capital. If this
interest-rate risk component had been in effect as of December 31, 1993, Home
Savings believes it would not have had above-normal exposure to interest-rate
risk.
40
<PAGE>
Home Savings is in compliance with the Capital Regulations. The following
table shows the capital amounts and ratios of Home Savings as compared to the
requirements of the Capital Regulations at December 31, 1993:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
---------------------------------
CAPITAL
HOME SAVINGS REQUIREMENTS
---------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tangible capital....................... $2,477,726 4.97% $ 748,494 1.50%
Core capital........................... 2,851,973 5.72 1,496,988 3.00
Risk-based capital..................... 3,922,172 12.59 2,493,609 8.00
</TABLE>
The regulatory capital requirements applicable to Home Savings will become
more stringent as the amount of Home Savings' supervisory goodwill and
investment in real estate development subsidiaries includable in capital is
phased out through December 31, 1994 and July 1, 1996, respectively. Home
Savings currently meets the requirements of the Capital Regulations assuming
the present application of the full phase-out provisions. At December 31, 1993
the capital ratios computed on this more stringent, "fully phased-in" basis
were 4.76% for core and tangible capital and 11.21% for risk-based capital.
The OTS has proposed certain amendments to the Capital Regulations. The
Company is unable to predict whether, or in what form, the proposed amendments
to the Capital Regulations will ultimately be adopted. Accordingly, the Company
is unable to predict whether Home Savings would be in compliance with any
higher capital requirement resulting from such amendments.
SUBSEQUENT EVENT
The earthquake that struck Southern California on January 17, 1994 caused
damage to the real estate collateralizing some of the Company's loans. The
Company's personnel are communicating with borrowers and the Company has sent
lending personnel and appraisers into the damaged area to assess the extent of
loss. In addition, the Company is offering a variety of loan programs to assist
its borrowers in the damaged area with the restoration of their homes. Although
the Company is still assessing the extent of earthquake damage and the
financial effect on the Company, it expects to record a provision for possible
earthquake related losses in its financial results for the first quarter of
1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included on page 49 and the Financial Statements which begin
on page F-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
41
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION AGE SINCE
---- -------- --- --------
<C> <S> <C> <C>
Robert H. Ahmanson Director 67 1969
William H. Ahmanson Director 68 1954
Byron Allumbaugh Director 62 1987
Richard M. Bressler Director 63 1987
Lodwrick M. Cook Director 65 1986
Bill Daniels Director 73 1983
Richard H. Deihl Chairman of the Board 65 1968
Robert M. De Kruif Vice Chairman of the Board 75 1951
Fredric J. Forster* Senior Executive Vice President and 49 --
Chief Operating Officer
George G. Gregory* Director, Executive Vice President and 61 1989
General Counsel
David S. Hannah Director 71 1958
George Miranda* First Vice President and 46 --
Principal Accounting Officer
Delia M. Reyes Director 52 1992
Charles R. Rinehart* Director, President and 47 1990
Chief Executive Officer
Elizabeth Sanders Director 48 1990
Arthur W. Schmutz Director 72 1993
William D. Schulte Director 61 1991
Kevin M. Twomey* Executive Vice President and Chief 47 --
Financial Officer
</TABLE>
- --------
*Executive Officers. Messrs. Gregory and Miranda have been employed as officers
of Ahmanson and/or one of its affiliate companies for more than five years.
Robert H. Ahmanson is President of The Ahmanson Foundation. He served as Vice
President of Ahmanson for more than five years prior to his retirement in 1986.
William H. Ahmanson is a Trustee of The Ahmanson Foundation. He served as
Chairman of the Board of Ahmanson for more than five years prior to his
retirement in 1987.
Mr. Allumbaugh is Chairman of the Board and Chief Executive Officer of Ralphs
Grocery Company, a Los Angeles-based supermarket company. Mr. Allumbaugh also
serves as a director of El Paso Natural Gas Company and Ultramar Corp.
Mr. Bressler is a retired Chairman of the Board of El Paso Natural Gas
Company, a natural resources company. Mr. Bressler also serves as a director of
General Mills, Inc. and Rockwell International Corporation.
Mr. Cook is Chairman of the Board and Chief Executive Officer of ARCO, which
is engaged in the exploration, development, production and marketing of
petroleum. He joined ARCO in 1956, became President and Chief Executive Officer
in 1985 and was elected Chairman in 1986. Mr. Cook also serves as Chairman of
the Board of ARCO Chemical Company and a director of Lockheed Corporation.
Mr. Daniels is Chairman of Daniels Communications, Inc., a controlling
partner of Daniels & Associates, a cable television brokerage and investment
banking company. He is also a general partner of The Prime Network and
affiliated regional cable sports networks; owner of Daniels Cablevision, Inc.,
a cable television company; and majority owner of Prime Ticket Network--Los
Angeles.
Mr. Deihl served as Chairman of the Board and Chief Executive Officer of
Ahmanson for more than five years prior to his retirement as an executive
officer in 1993. Mr. Deihl also serves as a director of ARCO.
42
<PAGE>
Mr. De Kruif served as Vice Chairman of the Board for more than five years
prior to his retirement as an executive officer in 1993.
Mr. Forster joined Ahmanson as Senior Executive Vice President in February
1993 and became Chief Operating Officer of Ahmanson in November 1993. Prior to
joining Ahmanson, Mr. Forster was President of ITT Federal Bank. Mr. Forster
also serves as a director of the Federal Home Loan Bank of San Francisco.
Mr. Hannah served as Senior Vice President and Secretary of Ahmanson for more
than five years prior to his retirement in 1988.
Ms. Reyes is President and co-owner of Reyes Consulting Group, a market
research firm.
Mr. Rinehart joined Ahmanson as President in December 1989, became Chief
Operating Officer of Ahmanson in March 1990 and became Chief Executive Officer
of Ahmanson in November 1993. Prior to joining Ahmanson, Mr. Rinehart was
President and Chief Executive Officer of AVCO Financial Services.
Ms. Sanders is a business consultant. Prior to February 1990 she was Vice
President and General Manager of the Southern California division of Nordstrom,
Inc., a department store chain. Ms. Sanders also serves as a director of Karl
Karcher Enterprises, Sport Chalet, Inc., The Vons Companies, Inc. and Wal-Mart
Stores, Inc.
Mr. Schmutz is a retired partner of Gibson, Dunn & Crutcher, a law firm. Mr.
Schmutz also serves as a director of Ducommum Incorporated.
Mr. Schulte is a retired Vice Chairman of KPMG Peat Marwick, a firm of
independent certified public accountants. Mr. Schulte also serves as a director
of Leslie's Poolmart.
Mr. Twomey joined Ahmanson in his present capacity in June 1993. From
February 1993 until joining Ahmanson, he worked in corporate finance at
MacAndrews and Forbes. From July 1989 to February 1993, he was Executive Vice
President, Finance, Administration and Chief Financial Officer of First
Gibraltar Bank. Prior thereto, he was Group Chairman, Finance and
Administration and Chief Financial Officer of Deposit Insurance Bridge Bank.
Robert H. Ahmanson and William H. Ahmanson are brothers. No other directors
or executive officers of Ahmanson are related.
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
certain officers of Ahmanson and persons who own more than ten percent of a
registered class of Ahmanson's equity securities to file with the Securities
and Exchange Commission and any national securities exchange on which
Ahmanson's equity securities are registered initial reports of ownership and
reports of changes in ownership of Ahmanson Common Stock and other equity
securities of Ahmanson. Officers, directors and beneficial owners of more than
ten percent of Ahmanson's equity securities are required by regulations of the
Securities and Exchange Commission to furnish Ahmanson with copies of all
Section 16(a) forms they file.
To Ahmanson's knowledge, based solely upon a review of the copies of such
forms furnished to Ahmanson and written representations that no other reports
were required, during the fiscal year ended December 31, 1993 all Section 16(a)
filing requirements applicable to its officers, directors and beneficial owners
of more than ten percent of Ahmanson's equity securities were complied with by
such persons.
ITEM 11. EXECUTIVE COMPENSATION
That portion of Ahmanson's definitive Proxy Statement appearing under the
caption "Executive Compensation," to be filed with the Commission pursuant to
Regulation 14A within 120 days after December 31, 1993 and to be used in
connection with Ahmanson's Annual Meeting of Stockholders to be held on May 10,
1994 is hereby incorporated by reference.
43
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
That portion of Ahmanson's definitive Proxy Statement appearing under the
captions "Principal Holders of Ahmanson Common Stock" and "Security Ownership
of Management," to be filed with the Commission pursuant to Regulation 14A
within 120 days after December 31, 1993 and to be used in connection with
Ahmanson's Annual Meeting of Stockholders to be held on May 10, 1994 is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That portion of Ahmanson's definitive Proxy Statement appearing under the
caption "Executive Compensation -- Certain Transactions," to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31, 1993
and to be used in connection with Ahmanson's Annual Meeting of Stockholders to
be held on May 10, 1994 is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS*
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of H. F. Ahmanson & Company, as
amended (Exhibit 3.1 to Form 10-K for year ended December 31,
1991).
3.2 By-Laws of H. F. Ahmanson & Company, as amended (Exhibit 3.2 to
Amendment No. 1 to Form S-3, Registration No. 33-50731).
3.3 Certificate of Designations dated August 12, 1988 (Exhibit 3.1.2
to Form 10-Q for quarter ended September 30, 1988).
3.4 Certificate of Designations dated August 29, 1991 (Exhibit 4 to
Form 10-Q for quarter ended September 30, 1991).
3.5 Certificate of Designations dated February 9, 1993 (Exhibit 3.5
to Form 10-K for year ended December 31, 1992).
3.6 Certificate of Designations dated July 30, 1993 (Exhibit 4.1 to
Form 8-K for the event on July 29, 1993).
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Copies of instruments defining the rights of holders of long-
term debt of H. F. Ahmanson & Company or any of its
subsidiaries are, under Item 601(b)(4)(iii)(A) of Regulation
S-K, not required to be filed, but will be filed upon request
of the Commission.
4.3 Rights Agreement, dated July 26, 1988, between H. F. Ahmanson &
Company and Union Bank (Exhibit 4.3 to Form 8-K dated July 26,
1988).
Management Contracts and Compensatory Plans and Arrangements (Exhibits 10.2.2-
10.18)
10.2.2 H. F. Ahmanson & Company 1979 Long-Term Management Performance
Plan as amended (Exhibit 19.1 to Form 10-Q for quarter ended
June 30, 1985).
10.2.3 H. F. Ahmanson & Company 1984 Stock Incentive Plan (Exhibit
10.2.3 to Form 10-K for year ended December 31, 1984).
10.2.3.1 Amendment to H. F. Ahmanson & Company 1984 Stock Incentive Plan
(Exhibit 10.2.3.1 to Form 10-K for year ended December 31,
1989).
10.2.4 H. F. Ahmanson & Company 1993 Stock Incentive Plan.
10.4.7 Agreement, dated May 19, 1986, between H. F. Ahmanson & Company
and Robert H. Ahmanson and an amendment thereto dated June 6,
1986 (Exhibit 19.2 to Form 10-Q for quarter ended June 30,
1986).
</TABLE>
44
<PAGE>
<TABLE>
<C> <S>
10.6.1 Employment Agreement, dated March 1, 1975, between H. F.
Ahmanson & Company and Robert M. De Kruif (Exhibit 6 to Form
10-K for year ended December 31, 1975).
10.6.6 Amendment to Agreement, dated September 16, 1985, between H. F.
Ahmanson & Company and Robert M. De Kruif (Exhibit 10.6.6 to
Form 10-K for year ended December 31, 1985).
10.6.8 Amendment to Agreement, dated January 26, 1988, between H. F.
Ahmanson & Company and Robert M. De Kruif (Exhibit 10.6.8 to
Form 10-K for year ended December 31, 1987).
10.6.9 Agreement, dated November 1, 1993, between H. F. Ahmanson &
Company and Robert M. De Kruif.
10.8.1 Employment Agreement, dated December 1, 1989, between H. F.
Ahmanson & Company and Charles R. Rinehart (Exhibit 10.8.1 to
Form 10-K for year ended December 31, 1989).
10.9.7 H. F. Ahmanson & Company Supplemental Executive Retirement Plan,
as amended.
10.9.8 Executive Medical Reimbursement Plan (Exhibit 10.9.8 to Form 10-
K for year ended December 31, 1984).
10.9.8.1 Amendment to Executive Medical Reimbursement Plan adopted March
24, 1987 (Exhibit 10.9.8.1 to Form 10-K for year ended December
31, 1986).
10.9.9 Financial Counseling Plan for Executives, as amended (Exhibit
19.6 to Form 10-Q for quarter ended September 30, 1985).
10.9.9.1 Amendment to Financial Counseling Plan for Executives adopted
March 24, 1987 (reference is made to Exhibit 10.9.8.1 to Form
10-K for year ended December 31, 1986).
10.9.11 Outside Director Retirement Plan, as amended (Exhibit 19.2 to
Form 10-Q for quarter ended June 30, 1991).
10.9.18 H. F. Ahmanson & Company Retirement Plan, Sixth Compendium
Restatement (Exhibit 10.9.18 to Form 10-K for year ended
December 31, 1991).
10.9.21 H. F. Ahmanson & Company Griffin Investment Account (Exhibit
10.9.21 to Form 10-K for year ended December 31, 1989).
10.9.21.1 First Amendment to H. F. Ahmanson & Company Griffin Investment
Account (Exhibit 19.2 to Form 10-Q for quarter ended September
30, 1990).
10.9.25 H. F. Ahmanson & Company 1988 Directors' Stock Incentive Plan,
as amended (Exhibit 10.9.25 to Form 10-K for year ended
December 31, 1989).
10.9.26 H. F. Ahmanson & Company Executive Short-Term Incentive Plan, as
amended.
10.9.27 1989 Contingent Deferred Compensation Plan of H. F. Ahmanson &
Company (Exhibit 19.4 to Form 10-Q for quarter ended June 30,
1991).
10.9.28 Outside Directors' Elective Deferred Compensation Plan of H. F.
Ahmanson & Company (Exhibit 19.5 to Form 10-Q for quarter ended
June 30, 1991).
10.9.29 Elective Deferred Compensation Plan of H. F. Ahmanson & Company
(Exhibit 19.6 to Form 10-Q for quarter ended June 30, 1991).
10.9.30 Executive Life Insurance Plan of H. F. Ahmanson & Company
(Exhibit 10.9.30 to Form 10-K for year ended December 31,
1989).
10.9.31 H. F. Ahmanson & Company Supplemental Long Term Disability Plan
(Exhibit 10.9.31 to Form 10-K for year ended December 31,
1989).
10.13 Amended Form of Indemnity Agreement between H. F. Ahmanson &
Company and certain directors and officers (Exhibit 10.13 to
Form 10-K for year ended December 31, 1989).
10.13.1 Directors and executive officers with whom H. F. Ahmanson &
Company has entered into an Indemnity Agreement.
</TABLE>
45
<PAGE>
<TABLE>
<C> <S>
10.15 Form of Employment Agreement between H. F. Ahmanson & Company
and certain officers (Exhibit 10.15 to Form 10-K for year ended
December 31, 1989).
10.16 H. F. Ahmanson & Company Executive Long-Term Incentive Plan.
10.17 H. F. Ahmanson & Company Senior Supplemental Executive
Retirement Plan.
10.18 H. F. Ahmanson & Company Senior Executive Life Insurance Plan.
21 Subsidiaries of H. F. Ahmanson & Company.
23 Independent Auditors' Consent.
</TABLE>
- --------
* Exhibits followed by a parenthetical reference are incorporated by reference
herein from the documents described therein. Documents filed prior to May
1985 were filed by H. F. Ahmanson & Company, a California corporation,
Commission File No. 1-7108.
FINANCIAL STATEMENTS
See the Index included on page 49 and the Financial Statements which begin on
page F-2.
REPORTS ON FORM 8-K
Ahmanson did not file any Current Reports on Form 8-K with the Commission
during the fourth quarter of 1993.
46
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Irwindale, State of California, on the 30th day of March 1994.
H. F. AHMANSON & COMPANY
/s/ Kevin M. Twomey
By___________________________________
Kevin M. Twomey
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated below and on the 30th day of March 1994.
/s/ Robert H. Ahmanson
_____________________________________
Robert H. Ahmanson
Director
/s/ William H. Ahmanson
_____________________________________
William H. Ahmanson
Director
/s/ Byron Allumbaugh
_____________________________________
Byron Allumbaugh
Director
/s/
_____________________________________
Richard M. Bressler
Director
/s/ Lodwrick M. Cook
_____________________________________
Lodwrick M. Cook
Director
/s/ Bill Daniels
_____________________________________
Bill Daniels
Director
/s/ Richard H. Deihl
_____________________________________
Richard H. Deihl
Chairman of the Board
47
<PAGE>
/s/ Robert M. De Kruif
_____________________________________
Robert M. De Kruif
Director
/s/ George G. Gregory
_____________________________________
George G. Gregory
Director
/s/ David S. Hannah
_____________________________________
David S. Hannah
Director
/s/ Delia M. Reyes
_____________________________________
Delia M. Reyes
Director
/s/ Charles R. Rinehart
_____________________________________
Charles R. Rinehart
Director
Principal Executive Officer
/s/ Elizabeth Sanders
_____________________________________
Elizabeth Sanders
Director
/s/ Arthur W. Schmutz
_____________________________________
Arthur W. Schmutz
Director
/s/ William D. Schulte
_____________________________________
William D. Schulte
Director
/s/ Kevin M. Twomey
_____________________________________
Kevin M. Twomey
Principal Financial Officer
/s/ George Miranda
_____________________________________
George Miranda
Principal Accounting Officer
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-1
H. F. Ahmanson & Company and Subsidiaries (Consolidated):
Consolidated Statements of Financial Condition as of December 31, 1993
and 1992............................................................... F-2
Consolidated Statements of Operations for the years ended December 31,
1993, 1992 and 1991.................................................... F-3
Consolidated Statements of Stockholders' Equity for the years ended De-
cember 31, 1993, 1992 and 1991......................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1992 and 1991.................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
</TABLE>
All supplemental schedules are omitted as inapplicable or because the
required information is included in the financial statements or notes thereto.
49
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
H.F. Ahmanson & Company:
We have audited the accompanying consolidated statements of financial
condition of H.F. Ahmanson & Company and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of H.F.
Ahmanson & Company and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
changed its methods of accounting for securities in 1993 and income taxes in
1992.
KPMG PEAT MARWICK
Los Angeles, California
January 25, 1994
F-1
<PAGE>
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1993 AND 1992
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Cash and amounts due from banks.................. $ 843,944 $ 832,680
Securities purchased under agreements to resell.. 2,637,677 1,076,800
Other short-term investments..................... 48,507 46,110
----------- -----------
Total cash and cash equivalents................ 3,530,128 1,955,590
Other investment securities [amortized cost
$11,186 (1993) and market value $7,302 (1992)].. 11,524 6,860
Investment in stock of Federal Home Loan Bank
(FHLB), at cost................................. 364,392 400,113
Mortgage-backed securities (MBSs) held to matu-
rity [market value $4,148,131 (1993) and
$340,177 (1992)]................................ 4,064,128 339,963
MBSs available for sale [amortized cost
$2,818,401 (1993) and market value $3,633,307
(1992)]......................................... 2,855,869 3,575,545
Loans receivable less allowance for possible
losses of $438,786 (1993) and $434,114 (1992)... 37,529,079 38,643,300
Loans available for sale [market value $175,378
(1993) and $320,859 (1992)]..................... 175,289 319,575
Accrued interest receivable...................... 166,848 205,034
Real estate held for development and investment
(REI) less allowance for possible losses of
$341,705 (1993) and $154,743 (1992)............. 443,657 674,300
Real estate owned held for sale (REO) less allow-
ance for possible losses of $66,453 (1993) and
$47,970 (1992).................................. 179,862 452,971
Premises and equipment........................... 673,879 686,693
Goodwill less accumulated amortization of
$348,217 (1993) and $309,054 (1992)............. 428,444 478,017
Other assets..................................... 399,403 402,546
Income taxes..................................... 48,743 --
----------- -----------
$50,871,245 $48,140,507
=========== ===========
LIABILITIES
Deposits......................................... $38,018,653 $39,273,192
Short-term borrowings under agreements to repur-
chase securities sold........................... 4,807,767 2,186,262
Other short-term borrowings...................... 169,854 130,000
FHLB advances and other borrowings............... 3,901,724 2,662,321
Other liabilities................................ 1,024,216 1,118,058
Income taxes..................................... -- 25,030
----------- -----------
Total liabilities.............................. 47,922,214 45,394,863
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
10,000,000 shares:
9.60% Series B, outstanding 3,500,000 shares;
liquidation
preference $175,000............................ 35 35
8.40% Series C, outstanding 780,000 shares; liq-
uidation preference $195,000................... 8 --
6% Cumulative Convertible Series D, outstanding
575,000 shares; liquidation
preference $287,500............................ 6 --
Common stock, $.01 par value; authorized
220,000,000 shares:
Outstanding 116,879,943 shares (1993) and
116,649,459 shares (1992) after deducting
277,704 shares (1993) and 226,893 shares (1992)
in treasury.................................... 1,169 1,166
Additional paid-in capital....................... 1,231,831 758,115
Net unrealized gain on securities available for
sale............................................ 21,549 --
Retained earnings................................ 1,697,113 1,994,885
----------- -----------
2,951,711 2,754,201
Unearned compensation............................ (2,680) (8,557)
----------- -----------
Total stockholders' equity................... 2,949,031 2,745,644
----------- -----------
$50,871,245 $48,140,507
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statments.
F-2
<PAGE>
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest on real estate loans............ $2,623,139 $2,978,267 $3,622,465
Interest on MBSs......................... 278,908 336,517 528,169
Interest and dividends on investments.... 101,375 114,195 236,151
---------- ---------- ----------
Total interest income.................. 3,003,422 3,428,979 4,386,785
---------- ---------- ----------
Interest expense:
Deposits................................. 1,301,063 1,738,347 2,478,290
Short-term borrowings.................... 112,171 122,073 155,035
FHLB advances and other borrowings....... 253,116 209,993 481,197
---------- ---------- ----------
Total interest expense................. 1,666,350 2,070,413 3,114,522
---------- ---------- ----------
Net interest income.................... 1,337,072 1,358,566 1,272,263
Provision for loan losses.................. 574,970 367,366 195,062
---------- ---------- ----------
Net interest income after provision for
loan losses........................... 762,102 991,200 1,077,201
---------- ---------- ----------
Other income:
Gain on sales of MBSs.................... 21,007 14,303 81,188
Gain on sales of loans................... 80,037 62,622 20,398
Loan servicing income.................... 58,854 72,498 72,491
Other fee income......................... 125,259 112,051 98,298
Operations of REI........................ (229,300) (58,359) (72,804)
Gain (loss) on sales of investment secu-
rities.................................. -- (79) 832
Other operating income................... 40,730 5,462 4,896
---------- ---------- ----------
96,587 208,498 205,299
---------- ---------- ----------
Other expenses:
Compensation and other employee expenses. 361,004 305,935 313,603
Occupancy expenses....................... 139,107 140,644 138,734
Federal deposit insurance premiums and
assessments............................. 88,403 94,454 91,755
Other general and administrative ex-
penses.................................. 238,948 212,224 196,872
---------- ---------- ----------
Total general and administrative ex-
penses................................ 827,462 753,257 740,964
Operations of REO........................ 212,130 129,153 37,125
Amortization of goodwill................. 39,163 27,674 31,408
---------- ---------- ----------
1,078,755 910,084 809,497
---------- ---------- ----------
Earnings (loss) before provision for income
taxes (benefit), extraordinary loss and
cumulative effect of accounting change.... (220,066) 289,614 473,003
Provision for income taxes (benefit)....... (82,034) 133,222 227,242
---------- ---------- ----------
Earnings (loss) before extraordinary loss
and cumulative effect of accounting
change.................................... (138,032) 156,392 245,761
Extraordinary loss on early extinguishment
of debt (net of applicable income tax
benefit of $16,300)....................... (21,607) -- --
Cumulative effect of change in accounting
for income taxes.......................... -- 47,677 --
---------- ---------- ----------
Net earnings (loss)........................ $ (159,639) $ 204,069 $ 245,761
========== ========== ==========
Earnings (loss) per common share--primary
and fully diluted:
Earnings (loss) before extraordinary loss
and cumulative effect of accounting
change.................................. $ (1.51) $ 1.19 $ 2.06
Extraordinary loss on early extinguish-
ment of debt............................ (0.18) -- --
Cumulative effect of change in accounting
for income taxes........................ -- 0.41 --
---------- ---------- ----------
Net earnings (loss)...................... $ (1.69) $ 1.60 $ 2.06
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NET
UNREALIZED
ADDITIONAL GAIN (LOSS)
PREFERRED COMMON PAID-IN ON RETAINED UNEARNED
TOTAL STOCK STOCK CAPITAL SECURITIES EARNINGS COMPENSATION
---------- --------- ------ ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1990................... $2,342,179 $-- $1,159 $ 578,435 $(1,614) $1,770,416 $(6,217)
Net earnings............ 245,761 -- -- -- -- 245,761 --
Dividends on Common
Stock ($0.88 per
share)................. (102,056) -- -- -- -- (102,056) --
Dividends on Preferred
Stock.................. (4,200) -- -- -- -- (4,200) --
Net change in unrealized
loss on
marketable equity secu-
rities................. 1,614 -- -- -- 1,614 -- --
Issuance of 3,500,000
shares of Preferred
Stock, Series B........ 169,090 35 -- 169,055 -- -- --
Restricted stock awards
granted, net of
cancellations.......... 280 -- 2 3,943 -- -- (3,665)
Unearned compensation
amortized to expense... 3,152 -- -- -- -- -- 3,152
Stock options exercised. 483 -- 1 482 -- -- --
Tax benefit from
restricted stock awards
and stock options...... 68 -- -- 68 -- -- --
---------- ---- ------ ---------- ------- ---------- -------
BALANCE, DECEMBER 31,
1991................... 2,656,371 35 1,162 751,983 -- 1,909,921 (6,730)
Net earnings............ 204,069 -- -- -- -- 204,069 --
Dividends on Common
Stock ($0.88 per
share)................. (102,305) -- -- -- -- (102,305) --
Dividends on Preferred
Stock.................. (16,800) -- -- -- -- (16,800) --
Restricted stock awards
granted, net of
cancellations.......... (477) -- 4 4,379 -- -- (4,860)
Unearned compensation
amortized to expense... 3,033 -- -- -- -- -- 3,033
Stock options exercised. 1,164 -- -- 1,164 -- -- --
Tax benefit from
restricted stock awards
and stock options...... 589 -- -- 589 -- -- --
---------- ---- ------ ---------- ------- ---------- -------
BALANCE, DECEMBER 31,
1992................... 2,745,644 35 1,166 758,115 -- 1,994,885 (8,557)
Net loss................ (159,639) -- -- -- -- (159,639) --
Dividends on Common
Stock ($0.88 per
share)................. (102,804) -- -- -- -- (102,804) --
Dividends on Preferred
Stock.................. (35,329) -- -- -- -- (35,329) --
Issuance of 780,000
shares of Preferred
Stock, Series C........ 188,403 8 -- 188,395 -- -- --
Issuance of 575,000
shares of Cumulative
Convertible Preferred
Stock, Series D........ 280,732 6 -- 280,726 -- -- --
Unrealized gain on
securities available
for sale, net of tax
effect of $16,257...... 21,549 -- -- -- 21,549 -- --
Restricted stock awards
granted, net of
cancellations.......... (323) -- -- (622) -- -- 299
Unearned compensation
amortized to expense... 5,578 -- -- -- -- -- 5,578
Stock options exercised. 4,051 -- 3 4,048 -- -- --
Tax benefits from
restricted stock awards
and stock options...... 1,169 -- -- 1,169 -- -- --
---------- ---- ------ ---------- ------- ---------- -------
BALANCE, DECEMBER 31,
1993................... $2,949,031 $ 49 $1,169 $1,231,831 $21,549 $1,697,113 $(2,680)
========== ==== ====== ========== ======= ========== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................. $ (159,639) $ 204,069 $ 245,761
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
in) operating activities:
Interest capitalized on loans...... (50,625) (80,710) (140,693)
Amortization of deferred loan fees
and interest...................... (39,174) (24,445) (26,267)
Provision for losses on loans and
real estate....................... 887,957 475,078 274,971
Depreciation and amortization...... 116,402 92,400 97,149
Decrease in income tax liabilities. (80,173) (67,863) (21,615)
Extraordinary loss on early extin-
guishment of debt, net of taxes... 21,607 -- --
Cumulative effect of change in
accounting for income taxes. ..... -- (47,677) --
Decrease in accrued interest
receivable........................ 38,186 58,335 53,385
FHLB stock dividends............... (12,895) (5,439) (21,304)
Cash gain on sales of loans........ (80,037) (69,622) (20,398)
Cash gain on sales of MBSs......... (21,007) (14,303) (94,169)
Proceeds from sales of loans
originated for sale............... 2,397,341 3,972,896 2,255,354
Loans originated for sale.......... (2,156,143) (3,543,846) (2,720,595)
Loans repurchased from investors... (266,688) (109,723) (51,278)
Proceeds from loan origination
fees.............................. 62,842 77,501 69,156
Loss on sales of real estate....... 71,621 40,283 6,241
Increase (decrease) in other
liabilities....................... (93,842) (20,148) 45,778
Other, net......................... 26,084 125,086 (62,119)
------------ ----------- -----------
Net cash provided by (used in)
operating activities............ 661,817 1,061,872 (110,643)
------------ ----------- -----------
Cash flows from investing activities:
Proceeds from sales of MBSs available
for sale............................ 925,952 664,494 3,543,399
Proceeds from sales of nonperforming
loans and credit card portfolio..... 989,199 -- --
Principal payments on loans.......... 4,691,522 4,917,298 3,830,209
Principal payments on MBSs........... 881,894 1,083,450 1,045,983
Loans originated for investment (net
of refinances)...................... (8,101,619) (7,388,142) (5,581,330)
Loans purchased...................... (1,062,447) (4,362) (3,708)
MBSs purchased....................... (802,135) (698,123) (89,985)
Proceeds from maturities of other
investment securities............... 1,730 2,527 132,735
Proceeds from sales of other
investment securities............... -- 52,254 692
Other investment securities
purchased........................... (6,052) -- --
Net (purchases) redemption of FHLB
stock............................... 48,616 40,190 (27,769)
Proceeds from sales of REI........... 86,288 242,259 119,297
Proceeds from sales of REO........... 453,318 315,970 67,030
Additions to REI..................... (83,650) (283,759) (142,086)
Additions to premises and equipment,
net................................. (50,959) (48,890) (80,238)
Other, net........................... 1,534 (24,745) (15,004)
------------ ----------- -----------
Net cash provided by (used in)
investing activities............ (2,026,809) (1,129,579) 2,799,225
------------ ----------- -----------
Cash flows from financing activities:
Net decrease in deposits............. (1,651,128) (1,140,176) (479,177)
Net deposits purchased............... 396,589 1,266,242 1,018,908
Net increase (decrease) in borrowings
maturing in 90 days or less......... 2,530,073 1,527,419 (650,977)
Proceeds from other borrowings....... 16,204,071 977,329 85,540
Repayment of other borrowings........ (14,871,077) (1,674,256) (4,299,612)
Net proceeds from issuance of Pre-
ferred Stock........................ 469,135 -- 169,090
Dividends to stockholders............ (138,133) (119,105) (106,256)
------------ ----------- -----------
Net cash provided by (used in)
financing activities............ 2,939,530 837,453 (4,262,484)
------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... 1,574,538 769,746 (1,573,902)
Cash and cash equivalents at beginning
of year............................... 1,955,590 1,185,844 2,759,746
------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 3,530,128 $ 1,955,590 $ 1,185,844
============ =========== ===========
Supplemental cash flow information:
Interest paid on deposits............ $ 1,294,170 $ 1,739,824 $ 2,486,111
Interest paid on borrowings.......... 333,306 329,697 685,742
Income tax payments, net of (re-
funds).............................. (1,122) 201,085 248,857
Non-cash investing activities:
Loans securitized into MBSs.......... 3,951,920 223,870 1,619,721
Additions to REO..................... 633,802 701,856 279,807
Loans originated to sell REO......... 313,090 116,035 97,824
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
H.F. Ahmanson & Company ("Ahmanson") is a holding company whose principal
subsidiary, Home Savings of America, FSB ("Home Savings"), is engaged in
savings and loan operations. In addition, Ahmanson has other subsidiaries which
are engaged primarily in related financial service activities, including
residential and commercial real estate development, securities and insurance
brokerage, real estate mortgage origination and loan servicing. The
accompanying Consolidated Financial Statements include the accounts of Ahmanson
and its subsidiaries (the "Company"). All of Ahmanson's subsidiaries are
wholly-owned. All material intercompany balances and transactions have been
eliminated in consolidation. Certain amounts in prior years' financial
statements have been reclassified to conform to the current presentation.
Fair Value of Financial Instruments
Fair value estimates are based on relevant market information and information
about the various financial instruments. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular financial instrument. Because no
active market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are subjective
in nature, involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of certain assets and liabilities that are not
considered financial instruments. Other significant assets and liabilities that
are not considered financial assets or liabilities include tax assets and
liabilities, premises and equipment, REI, REO and goodwill. In addition, the
tax ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
The Company has disclosed the estimated fair value of its financial
instruments in the accompanying Notes.
Cash and Cash Equivalents
For purposes of the Consolidated Statements of Cash Flows, cash and cash
equivalents include cash and amounts due from banks, interest bearing deposits
and highly liquid debt instruments purchased with a maturity of three months or
less. Cash and cash equivalents are carried at cost which approximates fair
value due to the short-term nature of these items and because they do not
present significant credit concerns.
Home Savings is required by the Federal Reserve System to maintain non-
interest earning cash reserves against certain of its transaction accounts. At
December 31, 1993 the required reserves totalled $171.1 million.
Accounting for Securities
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
effective December 31, 1993. No restatement of prior years' financial
statements were permitted. SFAS No. 115 requires classification of debt and
equity securities, including MBSs, into one of three categories: held to
maturity, available for sale or trading securities.
F-6
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities which the Company has the intent and ability to hold to maturity are
recorded at amortized cost. Securities which the Company intends to hold for
indefinite periods of time are classified as available for sale and are
recorded at fair value, which is based on bid prices published in financial
newspapers or bid quotations received from securities dealers, with any
unrealized holding gains and losses, net of the tax effect, reported as a
separate component of stockholders' equity. Should an other than temporary
decline in the credit quality of a security classified as held to maturity or
available for sale occur, the carrying value of such security would be written
down to current market value by a charge to operations. Trading securities,
which are purchased principally to sell in the near term, are recorded at fair
value, with any unrealized gains and losses recorded as an adjustment to
earnings. At December 31, 1993 the Company recorded an aggregate unrealized
gain on securities available for sale of $21.5 million, net of a $16.3 million
tax effect, in stockholders' equity. The Company owned no trading securities at
December 31, 1993.
The Company's portfolio of MBSs includes conventional single family mortgage
loans originated by the Company and subsequently securitized primarily through
the Federal National Mortgage Association ("FNMA"), the Federal Home Loan
Mortgage Corporation ("FHLMC") and the Government National Mortgage Association
("GNMA"), and through securitization of loans into mortgage pass-through
securities. The Company also purchases collateralized mortgage obligations
("CMOs") and other MBSs.
Interest income on MBSs, including the amortization of discounts or premiums,
is recognized using the interest method over the estimated lives of the MBSs
with adjustments based on prepayment experience either faster or slower than
originally anticipated.
Loans Receivable
The Company is primarily an originator of monthly adjustable rate loans
("ARMs") for investment in its own loan portfolio. The Company designates
certain loans it originates as available for sale, including most fixed rate
loans. Loans available for sale are carried at the lower of aggregate cost or
market value. The Company has the intent and ability to hold all other loans
until maturity. Accordingly, these other loans are carried at cost, adjusted
for unamortized discounts and loan fees.
Fair values are estimated for portfolios of loans with similar individual
financial characteristics. Loans are segregated by type, such as single and
multi-family residential mortgages and commercial and industrial real estate
mortgages. Each loan category is further segmented based on whether the loans
bear fixed or adjustable rates of interest and the level of their coupon rates
compared to current market rates.
The fair value of residential mortgage loans is calculated by discounting
contractual cash flows adjusted for prepayment estimates using discount rates
based on secondary market sources adjusted to reflect differences in servicing
and credit costs.
The fair value of commercial and industrial real estate loans is calculated
by discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate risk
inherent in the loans. The estimate of maturity is based on the Company's
historical experience with payments modified, as required, by an estimate of
the effect current economic and lending conditions.
Interest income on loans, including the recognition of discounts and loan
fees, is accrued based on the outstanding principal amount of loans using the
interest method. A loan is generally placed on nonaccrual status when the
Company becomes aware that the borrower has entered bankruptcy proceedings and
the loan is delinquent, or when the loan is past due 90 days as to either
principal or interest. When a loan is placed on nonaccrual status, interest
accrued but not received is reversed against interest income. If the Company
determines that collectibility is in doubt, cash receipts on nonaccrual loans
are used to reduce principal rather than being included in interest income.
F-7
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan," effective January 1, 1993. SFAS No. 114 requires the measurement of
impaired loans based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's observable
market price or the fair value of its collateral. The principal effect on the
Company of SFAS No. 114 is the elimination of the category of loans classified
as in-substance foreclosures, resulting in the reclassification of such
amounts and related specific allowances for possible losses from REO to loans
receivable and related provisions for losses from operations of REO to
provision for loan losses. SFAS No. 114 does not apply to large groups of
smaller balance homogeneous loans that are collectively evaluated for
impairment. For the Company, loans collectively reviewed for impairment
include all single family loans and performing multi-family and commercial and
industrial real estate loans ("major loans") under $2 million, excluding loans
which have entered the workout process. The adoption of SFAS No. 114 did not
result in additional provisions for losses or changes in previously reported
net earnings (loss) due to the Company's continuing policy of measuring loan
impairment based on the fair value of the loan's collateral property, which is
consistent with one of the methods prescribed in SFAS No. 114.
The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. The Company's impaired loans within the scope of SFAS No. 114
include nonaccrual major loans (excluding those collectively reviewed for
impairment), troubled debt restructurings, and performing major loans and
major loans less than 90 days delinquent in which full payment of principal or
interest is not expected. The Company bases the measurement of these impaired
loans on the fair value of the loans' collateral properties. Cash receipts on
impaired loans not performing according to contractual terms are used to
reduce principal balances. Impairment losses are included in the allowance for
loan losses through a charge to provision for loan losses. Adjustments to
impairment losses due to changes in the fair value of impaired loans'
collateral properties are included in provision for loan losses. Upon
disposition of an impaired loan, any related valuation allowance is reversed
through a charge-off to the allowance for loan losses.
Loan Fees
Loan fees charged to borrowers together with certain direct costs of loan
origination are deferred and amortized as an adjustment to the yield (interest
income) on loans over their lives using the interest method.
Allowance for Loan Losses
The allowance for loan losses to absorb estimated future losses is
maintained by additions charged to operations as provisions for loan losses
and by loan recoveries, with actual losses charged as reductions to the
allowance. The Company's process for evaluating the adequacy of the allowance
for loan losses has three basic elements: first, the identification of problem
loans; second, the establishment of appropriate loan loss allowances once
individual specific problem loans are identified; and third, a methodology for
estimating loan losses based on the inherent risk in the rest of the loan
portfolio.
The identification of problem loans is achieved mainly through individual
review of all major loans over $2 million and certain major loans under $2
million based on specific criteria such as delinquency, debt coverage, loan-
to-value ratio and location of collateral property. Loss allowances are
established for specifically identified problem loans based on reviews of
current operating financial information and the fair value of the underlying
collateral property.
The allowance for loan losses also includes estimates based upon
consideration of actual loss experience of loans for the past several years by
loan type, year of origination, delinquency statistics, location of collateral
property and projected economic conditions and other trends. Based upon this
process, consideration of the current economic environment and other factors,
management determines what it considers to be an appropriate allowance for
loan losses. Although the Company believes it has a sound basis for this
estimation, actual charge-offs incurred in the future are highly dependent
upon future events, including the economies of the areas in which the Company
lends.
F-8
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gain on Sales of Loans and MBSs
When loans or MBSs are sold, a gain or loss is recognized to the extent that
the sales proceeds differ from the net carrying value of the loans or MBSs. In
transactions that involve sales of loans or MBSs that are backed by loans
originated by the Company, the Company generally continues to collect payments
on the loans as they become due and otherwise to service the loans. The Company
pays the purchaser a negotiated interest rate, which may be different from the
interest rate that the borrower pays. The difference, if any (the "retained
loan yield"), is retained by the Company and a normal servicing fee is
recognized as income over the estimated life of the loan. The present value of
the retained loan yield on sales of loans and MBSs is computed with highly
conservative assumptions. Thus, any gain or loss recorded is determined by
primarily the cash amount received, less estimated liability under credit
enhancements provided by the Company, if any.
The fair value of the retained loan yield and mortgage servicing rights on
the Company's portfolio of loans serviced for investors is determined based on
the estimated discounted net cash flow to be received, less the estimated cost
of servicing and credit enhancement obligations. The carrying value of the
Company's present value of retained loan yield approximates fair value.
The present value of retained loan yield on loans sold is being amortized
using the interest method over the estimated lives of the loans, with
adjustments based on prepayment experience faster than originally anticipated.
Accounting for Real Estate
REI is carried at the lower of cost or net realizable value ("NRV"). NRV is
the estimated selling price in the ordinary course of business less estimated
costs to complete, hold and dispose of the property. In computing NRV, interest
holding costs are based on the Company's cost of funds. An allowance for
possible losses on REI is established or adjusted to reflect declines in NRV
below the cost or net book value of the assets through a charge to operations.
Improvements and holding costs (including the cost of funds invested in REI, if
appropriate) are capitalized during construction.
REO (acquired in settlement of loans) is initially recorded at the lower of
cost or fair value. Fair value is the amount of cash that a property would
yield in a current sale between a willing buyer and willing seller. Initial
write-downs are charged to the allowance for loan losses. In addition, a
reserve for possible losses on REO is established for estimated disposition
costs at the time of acquisition. An additional reserve for possible losses on
REO is recorded if there is a further deterioration in fair value after
acquisition through a charge to operations. Operating costs are expensed as
incurred.
In April 1992 the Accounting Standards Division of the American Institute of
Certified Public Accountants issued Statement of Position ("SOP") 92-3
"Accounting for Foreclosed Assets." The principal effect of SOP 92-3 is to
require that REO be carried at the lower of cost or fair value minus estimated
selling costs. In 1993 estimated selling costs were included in the provision
for losses on REO, and in 1992 and 1991 estimated selling costs were included
in the provision for loan losses.
The recognition of gains from the sale of real estate is dependent on a
number of factors relating to the nature of the property sold, the terms of the
sale and the future involvement of the Company in the property sold. If a real
estate transaction does not meet established financial criteria, income
recognition is deferred and recognized under the installment or cost recovery
method or is deferred until such time as the criteria are met.
Premises and Equipment
Assets are depreciated by use of various methods (primarily the straight-line
method) over the estimated useful lives of the respective classes of assets.
Leasehold improvements are amortized over the lesser of the
F-9
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
terms of the leases or the useful lives of the improvements. Maintenance and
repairs are charged to expense in the year incurred. Material improvements are
capitalized. The cost and accumulated depreciation relating to assets retired
or otherwise disposed of are eliminated from the accounts, and any resulting
gains or losses are credited or charged to operations.
Goodwill
From 1981 through 1988 Home Savings acquired savings institutions in Texas,
Florida, Missouri, Illinois, Ohio and New York. The acquisitions were accounted
for as purchases and, accordingly, all assets and liabilities acquired were
adjusted to and recorded at their estimated fair values as of the acquisition
dates. The excess of the fair value of the liabilities assumed and the cash
consideration paid over the fair value of the assets acquired in connection
with these acquisitions aggregated $742.8 million and has been reflected in
"Goodwill" in the accompanying Consolidated Statements of Financial Condition.
Of this total amount $370.6 million is being amortized straight-line over forty
years, $53.6 million over twenty-five years, $164.5 million over twenty years,
$37.2 million over fifteen years and $5.9 million over ten years. The balance
of $111.0 million is being amortized over the estimated remaining lives of the
acquired interest-earning assets. The unamortized goodwill on these
acquisitions aggregated $408.2 million at December 31, 1993.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through undiscounted future operating cash flows of the
acquired operation.
Deposits
SFAS No. 107 prescribes that the fair value of deposits with no stated
maturity ("core deposits") be equal to the amount payable on demand. The fair
value of term accounts is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
alternative sources of funds with comparable remaining maturities.
Borrowings
The fair value of borrowings is estimated based on the discounted value of
contractual cash flows. The discount rates are estimated using rates currently
available to the Company for borrowings with similar terms and remaining
maturities.
Interest Rate Swap Agreements
Interest rate swap agreements are entered into as part of the Company's
asset/liability management program. Interest income or expense resulting from
the interest rate swaps is recorded as an adjustment to the interest income or
expense of the hedged asset or liability. Gains or losses on the early
termination of swaps are amortized over the remaining term of the original swap
agreement when the underlying assets or liabilities still exist. Otherwise,
such gains and losses are immediately expensed or recorded as income upon
termination of the agreements.
Postretirement Benefits
The Company adopted SFAS No. 106, "Employers' Accounting for Post Retirement
Benefits Other Than Pensions," effective January 1, 1993. The principal effect
of SFAS No. 106 is to require accrual, during the years employees render
service to earn the benefits, of the expected cost of providing the benefits to
the employees, their beneficiaries and covered dependents. The Company elected
to adopt SFAS No. 106 recognizing the accumulated postretirement benefit
obligation (the "transition obligation"), which was approximately $16 million
at January 1, 1993, over a 20-year transition period.
F-10
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
Effective January 1, 1992 the Company adopted SFAS No. 109, "Accounting for
Income Taxes," and has reported the cumulative effect of the change in the
method of accounting for income taxes as an increase in 1992 net earnings in
the accompanying Consolidated Statements of Operations. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in
which those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in net earnings in the period that includes
the enactment date.
(2) INVESTMENT SECURITIES
The Company purchases securities under agreements to resell. At December 31,
1993 these agreements matured within 60 days.
Securities purchased under agreements to resell averaged $2.1 billion, $2.3
billion and $3.0 billion during 1993, 1992 and 1991, respectively, and the
maximum amounts outstanding at any month-end during 1993, 1992 and 1991 were
$2.8 billion, $1.1 billion and $2.5 billion, respectively.
Repurchase agreements are subject to certain risks. Although the Company
employs certain procedures which it believes reduce the risks of repurchase
agreements, there is no assurance that the Company would be able to obtain the
purchased securities in the event that a broker-dealer fails to perform its
obligations under a repurchase agreement. Amounts outstanding with individual
brokers at December 31, 1993 which exceeded ten percent of stockholders' equity
were:
<TABLE>
<CAPTION>
MARKET VALUE OF THE
PLEDGED SECURITIES
BOOK VALUE, ----------------------------
WEIGHTED INCLUDING OTHER
AVERAGE ACCRUED MARKETABLE WHOLE
SELLING PARTY MATURITY INTEREST MBSS SECURITIES LOANS
------------- -------- ----------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Kidder Peabody & Co........... 9 days $944,703 $825,708 $ 1,038 $133,038
Bear, Stearns & Co., Inc...... 59 days 501,673 -- -- 555,590
Prudential Securities......... 3 days 400,040 298,948 105,914 --
Smith Barney H.U.............. 3 days 325,032 325,059 -- --
</TABLE>
Other investment securities, all available for sale at December 31, 1993, are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------------------------- --------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States government
and federal agency
obligations............ $ 5,133 $500 $(128) $ 5,505 $5,751 $483 $(41) $6,193
Industrial and other
obligations............ -- -- -- -- 1,109 -- -- 1,109
Marketable equity
securities............. 6,053 -- (34) 6,019 -- -- -- --
------- ---- ----- ------- ------ ---- ---- ------
$11,186 $500 $(162) $11,524 $6,860 $483 $(41) $7,302
======= ==== ===== ======= ====== ==== ==== ======
</TABLE>
F-11
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contractual maturities of debt securities available for sale at December
31, 1993 are:
<TABLE>
<CAPTION>
AMORTIZED COST MARKET VALUE
-------------- ------------
(IN THOUSANDS)
<S> <C> <C>
One year or less.................................... $ -- $ --
After one year through five years................... 4,947 5,483
After five years through ten years.................. 186 22
After ten years..................................... -- --
------ ------
$5,133 $5,505
====== ======
</TABLE>
The following table represents proceeds from sales of debt securities and
gross realized gains and losses on such sales for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1993 1992 1991
---- ------- ----
<S> <C> <C> <C>
(IN THOUSANDS)
Proceeds from sales.......................................... $-- $42,885 $692
==== ======= ====
Gross realized gains......................................... $-- $ 261 $ 2
Gross realized losses........................................ -- (594) --
---- ------- ----
Net gains (losses)......................................... $-- $ (333) $ 2
==== ======= ====
</TABLE>
Interest and dividends on investments are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on securities purchased under agreements to
resell............................................. $ 74,559 $ 94,899 $192,697
Interest on other short-term and other investment
securities......................................... 12,814 8,387 15,604
Dividends on FHLB stock............................. 13,907 10,491 26,082
Dividends on other investment securities............ 95 418 1,768
-------- -------- --------
$101,375 $114,195 $236,151
======== ======== ========
</TABLE>
F-12
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LOANS, MBSS, SALES AND SERVICING ACTIVITIES
Portfolio Composition
The loan and MBS portfolio is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1993 1992
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Conventional real estate mortgage loans:
Single family (1-4 units)........................ $28,587,900 $30,165,698
Multi-family (5 units and over).................. 7,219,708 6,543,238
Commercial and industrial real estate............ 2,012,307 2,225,226
----------- -----------
37,819,915 38,934,162
Other loans........................................ 259,354 282,786
Deferred loan fees and interest.................... (89,746) (96,805)
Unearned discounts on loans........................ (21,658) (42,729)
Allowance for possible loan losses................. (438,786) (434,114)
----------- -----------
Loans receivable............................... 37,529,079 38,643,300
Loans available for sale, less deferred loan fees
of $1,213 (1993) and $857 (1992).................. 175,289 319,575
MBSs held to maturity, less discount of $8,078
(1993)............................................ 4,064,128 339,963
MBSs available for sale, including premium of
$6,013 (1992)..................................... 2,855,869 3,575,545
----------- -----------
Total loans receivable and MBSs................ $44,624,365 $42,878,383
=========== ===========
</TABLE>
As of December 31, 1993 the Company was committed to fund ARM loans
amounting to $784.4 million and fixed rate mortgage loans amounting to $110.2
million. Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness and the value of the underlying collateral
property on a case-by-case basis. The amount of collateral obtained by the
Company upon extension of credit is based on management's credit evaluation of
the counterparty.
The Company estimates the fair value of loans receivable to have been
$38.276 billion and $40.225 billion at December 31, 1993 and 1992,
respectively. The fair value of loans receivable has been decreased by $90
million and $82 million at December 31, 1993 and 1992, respectively, as a
result of interest rate swap agreements that the Company has entered into to
adjust the interest sensitivity of a portion of its loans receivable.
The weighted average yield on the Company's loan and MBS portfolio at
December 31, 1993 and 1992, computed after giving effect to amortization of
deferred loan fees and interest, discounts and premiums and effect of hedging,
was 6.50% and 7.22%, respectively.
During 1993 the Company securitized a total of $3.4 billion in unpaid
principal amounts of loans it originated into private placement MBSs of equal
value, which the Company has the intent and ability to hold to maturity. Such
MBSs increase the Company's ability to access collateralized short-term
borrowings.
During 1993 and 1992 the Company securitized various conventional single
family mortgages into government agency securities of equal value. Virtually
all these MBSs are designated as available for sale and can be readily sold in
the secondary market. The unpaid principal amount of loans securitized into
FNMA and FHLMC securities in 1993 and 1992 were $496.5 million and $223.9
million, respectively.
F-13
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The MBSs owned by the Company and classified as held to maturity at December
31, 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------------------- -------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA.................... $ 9,771 $ -- $ (196) $ 9,575 $ -- $ -- $ -- $ --
GNMA.................... 1,838 127 -- 1,965 3,200 145 -- 3,345
Mortgage
pass-through
securities............. 3,552,588 90,200 (513) 3,642,275 128,085 -- -- 128,085
CMOs.................... 499,931 -- (5,615) 494,316 208,678 202 (133) 208,747
---------- ------- ------- ---------- ---------- ------- ----- ----------
$4,064,128 $90,327 $(6,324) $4,148,131 $ 339,963 $ 347 $(133) $ 340,177
========== ======= ======= ========== ========== ======= ===== ==========
The MBSs available for sale by the Company at December 31, 1993 and 1992
consisted of the following:
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------------------- -------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FNMA.................... $1,848,443 $22,146 $ (41) $1,870,548 $2,524,215 $41,124 $(547) $2,564,792
GNMA.................... 17,238 1,013 -- 18,251 22,210 978 -- 23,188
FHLMC................... 643,518 15,327 (4) 658,841 1,029,120 16,220 (13) 1,045,327
CMOs.................... 309,202 -- (973) 308,229 -- -- -- --
---------- ------- ------- ---------- ---------- ------- ----- ----------
$2,818,401 $38,486 $(1,018) $2,855,869 $3,575,545 $58,322 $(560) $3,633,307
========== ======= ======= ========== ========== ======= ===== ==========
</TABLE>
The contractual maturities of all MBSs at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
MBSS AVAILABLE FOR
MBSS HELD TO MATURITY SALE
--------------------- ---------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less................... $ -- $ -- $ -- $ --
After one year through five years.. -- -- -- --
After five years through ten years. 140,395 139,364 51,300 51,472
After ten years.................... 3,923,733 4,008,767 2,767,101 2,804,397
---------- ---------- ---------- ----------
$4,064,128 $4,148,131 $2,818,401 $2,855,869
========== ========== ========== ==========
</TABLE>
In 1991 the Company began offering a loan with a fixed interest rate for five
years after which the loan adjusts monthly based on the monthly cost of funds
index of the Eleventh District of the FHLB ("COFI"). In conjunction with the
origination of these loans and as part of the Company's asset and liability
management, Home Savings has entered into a series of interest rate swap
agreements that effectively cause the interest rate on these loans to change
monthly during the fixed interest rate period based on COFI. The swap
agreements, which are with the FHLB of San Francisco and certain national
banking firms, provide mutual payment of interest on the outstanding notional
amount of the swaps. The notional amounts are used to calculate the mutual
interest payments and do not represent exposure to credit loss. In accordance
with
F-14
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the swap contracts, the Company pays a fixed rate of interest and receives a
variable rate based on COFI. The Company addresses any credit risk associated
with the variable rate payments from the counterparties by evaluating their
creditworthiness and by monitoring limits and positions.
In 1993 and 1992 interest income was decreased by $71.2 million and $26.2
million, respectively, as a result of these swap agreements. Such amount in
1993 included the establishment of a $17.8 million reserve for the lifting of
interest rate swaps with a notional amount of approximately $555 million based
on the faster than expected prepayment of related hedged loans.
A summary of the activity for these interest rate swaps for the years 1993,
1992 and 1991 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance............................... $1,939,450 $ 923,500 $ --
New agreements.................................. 145,500 1,015,950 923,500
Expired agreements.............................. (102,600) -- --
---------- ---------- --------
Ending balance.................................. $1,982,350 $1,939,450 $923,500
========== ========== ========
</TABLE>
The interest rate swap agreements outstanding at December 31, 1993, not
giving effect to the anticipated lifting of certain swaps with a notional
amount of approximately $555 million, have the following maturities:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE INTEREST RATE
------------------------------------
NOTIONAL FIXED RATE VARIABLE RATE
AMOUNT PAID RECEIVED(1)
-------------- --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
1994................... $ 255,980 6.13% 3.82%
1995................... 483,810 7.10 3.82
1996................... 730,460 7.18 3.82
1997................... 447,850 6.71 3.82
1998................... 64,250 5.61 3.82
----------
Total.................. $1,982,350 6.87 3.82
==========
</TABLE>
- --------
(1) COFI for November 1993.
F-15
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Credit Risk and Concentration
The Company's primary lending business is to originate residential single
family loans in 12 states throughout the United States, primarily in
California. In addition, the Company originates loans on multi-family
structures and in the past has originated loans on commercial and industrial
real estate properties. Effective July 1, 1990 the Company discontinued
originating residential loans secured by multi-family structures located in
states other than California and in December 1988 discontinued originating new
commercial and industrial real estate loans. The Company's major loans entail
additional risks as compared to residential loans secured by existing single
family structures. Set forth below is a table which summarizes the Company's
gross mortgage portfolio and nonaccrual loans as a percentage of gross mortgage
loans by state and property type at December 31, 1993:
<TABLE>
<CAPTION>
MULTI- COMMERCIAL AND
SINGLE FAMILY PROPERTIES FAMILY PROPERTIES INDUSTRIAL PROPERTIES TOTAL
-------------------------- -------------------- --------------------- ----------------------
GROSS GROSS GROSS GROSS
MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL
STATE LOANS LOAN RATIO LOANS LOAN RATIO LOANS LOAN RATIO LOANS LOAN RATIO
----- -------------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California.............. $25,839,695 1.81% $6,303,467 1.59% $1,403,903 1.66% $33,547,065 1.76%
Florida................. 2,496,791 0.98 23,313 -- 6,952 11.85 2,527,056 1.00
New York................ 1,935,309 1.50 386,003 5.17 295,447 10.93 2,616,759 3.11
Illinois................ 1,489,151 0.67 160,326 2.59 16,168 41.33 1,665,645 1.25
Texas................... 722,249 0.69 98,766 3.07 41,941 0.26 862,956 0.94
Other................... 3,162,523 1.03 290,762 4.15 247,896 3.80 3,701,181 1.46
------------- ---------- ---------- -----------
$35,645,718 1.60 $7,262,637 1.92 $2,012,307 3.61 $44,920,662 1.74
============= ========== ========== ===========
</TABLE>
Allowance for Loan Losses
The changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.......................... $ 434,114 $ 303,804 $ 213,339
Provision for loan losses.................. 574,970 367,366 195,062
Allowance for loan losses on loans pur-
chased.................................... 20,365 -- --
Charge-offs................................ (623,735) (255,493) (130,222)
Recoveries................................. 33,072 18,437 25,625
---------- ---------- ----------
Ending balance............................. $ 438,786 $ 434,114 $ 303,804
========== ========== ==========
Nonaccrual Loans, Troubled Debt Restructurings and Other Impaired Loans
The following is a summary of nonaccrual loans, troubled debt restructurings
and other impaired major loans:
<CAPTION>
DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans........................... $ 780,400 $1,768,362 $1,499,473
Troubled debt restructurings............... 100,751 61,400 266,656
Net recorded investment in other impaired
major loans............................... 391,044 -- --
---------- ---------- ----------
Total.................................. $1,272,195 $1,829,762 $1,766,129
========== ========== ==========
</TABLE>
F-16
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1993 the recorded investment in loans for which impairment
has been recognized in accordance with SFAS No. 114 totalled $746.5 million
and the total allowance for possible losses related to such loans was $81.3
million. Other impaired major loans at December 31, 1993 are comprised of the
net recorded investment in loans from which the full payment of principal and
interest is not expected, including performing loans of $278.1 million and
loans delinquent less than 90 days of $112.9 million, primarily commercial and
industrial real estate loans in California. Performing impaired major loans
include two loans secured by a hotel and conference complex in San Diego,
California with a recorded investment of $211.6 million and related allowances
for possible losses of $10.0 million.
Loans in nonaccrual status as of December 31, 1993, 1992 and 1991 had
interest due but not recognized of approximately $65 million, $134 million and
$120 million for 1993, 1992 and 1991, respectively. Net interest forgone
related to troubled debt restructurings totaled $0.2 million, $0.9 million and
$4.2 million in 1993, 1992 and 1991, respectively. Interest income recorded on
troubled debt restructurings for 1993 was $7.7 million. The Company has no
commitments to lend additional funds to borrowers whose loans were classified
as troubled debt restructurings.
Sales and Servicing Activities
The following table represents proceeds from sales of MBSs and gross
realized gains and losses on such sales for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales................................ $925,952 $664,494 $3,543,399
======== ======== ==========
Gross realized gains............................... $ 21,007 $ 14,303 $ 81,188
Gross realized losses.............................. -- -- --
-------- -------- ----------
Net gains...................................... $ 21,007 $ 14,303 $ 81,188
======== ======== ==========
</TABLE>
The changes to the present value of retained yield on loans and MBSs sold
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.............................. $105,354 $135,388 $ 167,211
Estimated normal amortization.................. (30,172) (30,000) (31,823)
Adjustments of amortization for prepayments and
other items................................... (2) (34) --
-------- -------- ----------
Ending balance................................. $ 75,180 $105,354 $ 135,388
======== ======== ==========
</TABLE>
The Company sells certain loans and MBSs with different types of credit
enhancement features. The unpaid principal balance of loans and MBSs sold with
various credit enhancement features at December 31, 1993 and 1992 were $4.6
billion and $6.0 billion, respectively. The maximum exposure under the
Company's credit enhancement obligations at December 31, 1993 was
approximately $1.6 billion. Of this amount $1.4 billion is associated with
$1.4 billion of loans sold to FHLMC on which the Company is obligated to
absorb all losses associated with foreclosures. An additional $243 million in
exposure under credit enhancement obligations relates to loans totaling $3.2
billion. Losses incurred by the Company on its credit enhancement obligations
totaled $51.4 million, $28.3 million and $17.3 million in 1993, 1992 and 1991,
respectively. The Company does not believe that its credit enhancement
obligations subject it to material risk of loss in the future.
At December 31, 1993, 1992 and 1991 the Company was engaged in servicing for
investors $15.0 billion, $16.6 billion and $16.5 billion, respectively, in
unpaid principal amount of loan participations, whole loans and mortgage pass-
through securities.
F-17
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Set forth below is a summary by year of the components of loan servicing
income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross servicing income......................... $108,855 $126,741 $ 130,076
Federal agency guarantee and other fees........ (19,829) (24,243) (25,762)
Estimated normal amortization of the present
value of retained
yield on loans sold........................... (30,172) (30,000) (31,823)
-------- -------- ----------
Loan servicing income.......................... $ 58,854 $ 72,498 $ 72,491
======== ======== ==========
</TABLE>
The estimated fair value of mortgage servicing rights, including the retained
loan yield, for the Company's portfolio of loans serviced for investors was
$169 million, net of credit enhancement obligations of $14 million, at December
31, 1993 and $168 million, net of credit enhancement obligations of $31
million, at December 31, 1992.
(4) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest on:
Securities purchased under agreements to resell............. $ 3,851 $ 116
Investment securities....................................... 159 419
MBSs........................................................ 31,317 25,539
Loans receivable............................................ 131,521 178,960
-------- --------
$166,848 $205,034
======== ========
</TABLE>
(5) OPERATIONS OF REAL ESTATE
REI
Included in other income are operations of REI, summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net gain (loss) on sales......................... $ (6,777) $ 9,335 $ (890)
Provision for losses............................. (207,944) (50,049) (65,235)
Net operating expense............................ (14,579) (17,645) (6,679)
--------- -------- --------
Total loss................................... $(229,300) $(58,359) $(72,804)
========= ======== ========
</TABLE>
The changes in the allowance for possible losses on REI are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................. $154,743 $136,181 $ 70,946
Provision for losses............................... 207,944 50,049 65,235
Charge-offs........................................ (20,982) (31,487) --
-------- -------- --------
Ending balance..................................... $341,705 $154,743 $136,181
======== ======== ========
</TABLE>
F-18
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
REO
Included in other expenses are operations of REO, summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss on sales............................... $ (64,844) $ (49,618) $ (5,351)
Provision for losses............................ (105,043) (57,663) (14,674)
Net operating expense........................... (42,243) (21,872) (17,100)
--------- --------- --------
Total expense............................... $(212,130) $(129,153) $(37,125)
========= ========= ========
</TABLE>
The changes in allowance for possible losses on REO are summarized as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
---------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.............................. $ 47,970 $ 15,041 $ 10,017
Provision for losses........................... 105,043 57,663 14,674
Charge-offs.................................... (86,560) (24,734) (9,650)
---------- --------- --------
Ending balance................................. $ 66,453 $ 47,970 $ 15,041
========== ========= ========
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment at cost are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land..................................................... $ 157,276 $ 157,069
Buildings................................................ 377,220 373,448
Construction in progress................................. 1,333 11,867
Furniture, fixtures and equipment........................ 281,908 267,183
Leasehold improvements................................... 185,152 185,155
---------- ---------
1,002,889 994,722
Less accumulated depreciation and amortization........... (329,010) (308,029)
---------- ---------
$ 673,879 $ 686,693
========== =========
</TABLE>
Total rental expense, including common area maintenance and rent escalation
costs, in the Company's Consolidated Statements of Operations for the years
ended December 31, 1993, 1992 and 1991 was $79.6 million, $80.8 million and
$79.6 million, respectively.
The following is a schedule by years of minimum future rentals on
noncancelable operating leases, related principally to premises, as of December
31, 1993 (in thousands):
<TABLE>
<S> <C>
1994............................................ $ 71,052
1995............................................ 68,474
1996............................................ 64,241
1997............................................ 59,753
1998............................................ 56,814
Thereafter...................................... 582,095
--------
$902,429
========
</TABLE>
F-19
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED DECEMBER 31,
AVERAGE RATE AT ------------------------------------
DECEMBER 31, 1993 1993 1992
----------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Transaction accounts:
Checking.............. 1.10% $ 2,764,660 7.3% $ 2,605,177 6.6%
Passbook.............. 2.48 4,481,460 11.8 4,039,711 10.3
Money market savings.. 2.46 7,792,594 20.5 8,169,344 20.8
----------- ----- ----------- -----
Total transaction
accounts........... 15,038,714 39.6 14,814,232 37.7
----------- ----- ----------- -----
Term accounts:
32-89 days............ 2.42 482,378 1.3 677,480 1.7
3 months.............. 2.67 1,224,113 3.2 1,918,716 4.9
6 months.............. 3.20 7,450,343 19.6 7,930,163 20.2
1 year................ 3.79 8,253,967 21.7 8,708,277 22.2
2 years............... 4.84 4,193,929 11.0 3,696,387 9.4
3 years and over...... 6.61 459,271 1.2 143,939 0.4
Jumbo certificates of
deposit.............. 3.27 915,938 2.4 1,383,998 3.5
----------- ----- ----------- -----
Total term accounts. 22,979,939 60.4 24,458,960 62.3
----------- ----- ----------- -----
$38,018,653 100.0% $39,273,192 100.0%
=========== ===== =========== =====
</TABLE>
The aggregate amounts of term accounts by interest rate category at December
31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1993 1992
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Term accounts:
2.5% or less.......................................... $ 486,057 $ 2,225
2.501%--3.5%.......................................... 10,726,141 8,416,011
3.501%--4.5%.......................................... 8,741,323 9,236,070
4.501%--5.5%.......................................... 2,327,724 3,877,657
5.501%--6.5%.......................................... 280,526 1,846,104
6.501%--7.5%.......................................... 160,796 466,546
7.501%--8.5%.......................................... 107,355 426,023
8.501%--17.5%......................................... 150,017 188,324
----------- -----------
Total term accounts................................. $22,979,939 $24,458,960
=========== ===========
</TABLE>
F-20
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate amounts of term account maturities at December 31, 1993 are as
follows:
<TABLE>
<CAPTION>
AMOUNT MATURING DURING THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1994 1995 1996 THEREAFTER TOTAL
----------- ---------- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Term accounts:
2.5% or less.......... $ 484,710 $ 1,030 $ 307 $ 10 $ 486,057
2.501%--3.5%.......... 10,406,706 318,694 598 143 10,726,141
3.501%--4.5%.......... 6,150,040 2,242,536 348,350 397 8,741,323
4.501%--5.5%.......... 1,573,664 332,828 238,704 182,528 2,327,724
5.501%--6.5%.......... 152,731 40,659 24,237 62,899 280,526
6.501%--7.5%.......... 93,205 9,682 33,637 24,272 160,796
7.501%--8.5%.......... 44,401 25,445 29,518 7,991 107,355
8.501%--17.5%......... 104,161 26,300 8,775 10,781 150,017
----------- ---------- -------- -------- -----------
Total term accounts. $19,009,618 $2,997,174 $684,126 $289,021 $22,979,939
=========== ========== ======== ======== ===========
</TABLE>
The aggregate amounts of retail certificates of deposit in amounts of
$100,000 or more at December 31, 1993 are summarized as follows (in thousands):
<TABLE>
<S> <C>
3 months or less................................ $556,685
Over 3 months through 6 months.................. 216,639
Over 6 months through 12 months................. 137,440
Over 12 months.................................. 5,174
--------
Total....................................... $915,938
========
</TABLE>
The estimated fair value of the Company's term accounts at December 31, 1993
and 1992 was $23.095 billion and $24.510 billion, respectively. These amounts
do not include the fair value of a core deposit intangible asset as it is not a
financial instrument as defined by SFAS No. 107. If this asset was considered
at December 31, 1993 and 1992, the Company estimates the fair value would have
been $368 million and $459 million, respectively, at those dates, which is not
reflected in the accompanying Consolidated Statements of Financial Condition.
The Company estimated the fair value ascribed to the core deposit intangible by
estimating the cost savings from the low cost of such deposits over their
estimated life and discounting the results using an incremental cost of funds
rate.
At December 31, 1993 and 1992 the weighted average interest rate on the
deposits, computed without the effect of compounding interest, was 3.14% and
3.60%, respectively. All government agency deposits are secured by certain real
estate loans of the Company amounting to $591 million at December 31, 1993.
Interest expense on deposits by type of account is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Checking...................................... $ 34,073 $ 47,960 $ 66,632
Passbook and money market savings............. 323,255 409,645 483,530
Term.......................................... 943,735 1,280,742 1,928,128
---------- ---------- ----------
$1,301,063 $1,738,347 $2,478,290
========== ========== ==========
</TABLE>
F-21
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Agreements to repurchase securities sold:
Balance at December 31................... $4,807,767 $2,186,262 $ 527,259
Average balance.......................... 3,143,640 2,974,270 2,473,915
Maximum amount outstanding at any month
end..................................... 4,807,767 2,186,262 1,355,205
Average interest rate:
During the year........................ 3.25% 3.80% 6.03%
At December 31......................... 3.39 3.52 4.81
Federal funds purchased:
Balance at December 31................... $ 120,000 $ 130,000 $ 260,000
Average balance.......................... 124,644 192,932 110,027
Maximum amount outstanding at any month
end..................................... 130,000 143,000 260,000
Average interest rate:
During the year........................ 3.20% 3.82% 5.30%
At December 31......................... 3.30 3.30 5.07
Other short-term borrowings:
Balance at December 31................... $ 49,854 $ -- $ --
Average balance.......................... 188,285 41,971 --
Maximum amount outstanding at any month
end..................................... 590,000 300,000 --
Average interest rate:
During the year........................ 3.32% 3.89% --
At December 31......................... 3.56 -- --
Accrued interest on short-term borrowings
included in "Other liabilities"........... $ 11,662 $ 2,237 $ --
</TABLE>
The estimated fair value of short-term borrowings at December 31, 1993 and
1992 were $4.831 billion and $2.314 billion, respectively.
Agreements to repurchase securities require that the Company repurchase the
identical securities as those which were sold. At December 31, 1993 short-term
borrowings under agreements to repurchase securities sold are summarized as
follows:
<TABLE>
<CAPTION>
COLLATERAL
WEIGHTED -------------------------------------------------
AVERAGE FEDERAL AGENCY MBSS OTHER MBSS
REPURCHASE INTEREST ------------------------ ------------------------
LIABILITY RATE BOOK VALUE* MARKET VALUE BOOK VALUE* MARKET VALUE
---------- -------- ----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Within 30 days.......... $2,445,999 3.39% $1,116,420 $1,126,032 $1,399,875 $1,429,078
30-90 days.............. 2,361,768 3.38 1,336,567 1,352,165 1,099,900 1,122,846
---------- ---------- ---------- ---------- ----------
$4,807,767 3.39 $2,452,987 $2,478,197 $2,499,775 $2,551,924
========== ========== ========== ========== ==========
</TABLE>
- --------
* Book value includes accrued interest.
F-22
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Repurchase agreement amounts outstanding with individual brokers at December
31, 1993 which exceeded ten percent of the Company's stockholders' equity were:
<TABLE>
<CAPTION>
WEIGHTED COLLATERAL
AVERAGE ------------------------
PURCHASING PARTY MATURITY BOOK VALUE* BOOK VALUE* MARKET VALUE
---------------- -------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB of San Francisco............. 38 days $2,364,884 $2,499,775 $2,551,924
Kidder Peabody & Co............... 44 days 1,737,644 1,748,319 1,767,393
J.P. Morgan....................... 21 days 324,205 318,509 321,884
</TABLE>
- --------
* Book value includes accrued interest.
(9) FHLB ADVANCES AND OTHER BORROWINGS
These borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
FHLB advances with a weighted average interest rate
3.93% (1993) and of 4.02% (1992), net of unamortized
discount of $123 (1993) and $537 (1992)................ $1,862,927 $ 794,463
Note payable to Student Loan Marketing Association with
a floating rate equal to six basis points below three
month LIBOR (3.23% effective rate at
December 31, 1993) due December 20, 1995............... 400,000 --
Note payable to regulatory agencies with a contract
interest rate equal to COFI (3.82% contract interest
rate and 5.10% effective interest rate at December 31,
1993 and 4.51% contract interest rate and 6.35%
effective interest rate at December 31, 1992),
net of unamortized discount of $3,347 (1993) and
$9,130 (1992).......................................... 276,653 340,870
Note payable to regulatory agencies with a contract in-
terest rate equal to the cost of certain short-term li-
abilities of the Fifth District of the FHLB, plus 1/4%
(3.49% contract interest rate and 5.49% effective
interest rate at December 31, 1993 and 3.47% contract
interest rate and 5.45% effective interest rate at
December 31, 1992), net of unamortized discount of
$2,893 (1993) and $4,985 (1992)........................ 97,107 115,015
Subordinated notes payable to FDIC with a contract
interest rate based on the average equivalent coupon-
issue yield on the U.S. Treasury's 52-week bills
(3.86% contract interest rate at December 31,
1993 and 3.73% at December 31, 1992)................... 115,000 115,000
Senior notes with a contract interest rate of 8.25% and
effective interest rate of 8.45%, due October 1, 2002,
net of unamortized discount of $3,040 (1993) and $3,265
(1992)................................................. 246,960 246,735
Subordinated notes with a weighted average contract in-
terest rate of 8.66% and an effective average interest
rate of 8.85% at December 31, 1993, and a weighted
average contract interest rate of 9.90% and an
effective average interest rate of 10.10% at
December 31, 1992, net of unamortized discount of
$6,527 (1993) and $7,233 (1992)........................ 865,988 942,767
Other, net of unamortized discount of $136 (1993) and
$218 (1992)............................................ 37,089 107,471
---------- ----------
Total FHLB advances and other borrowings.............. $3,901,724 $2,662,321
========== ==========
</TABLE>
F-23
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1993 and 1992 the estimated fair value of the Company's FHLB
advances and other borrowings were $4.019 billion and $2.830 billion,
respectively.
At December 31, 1993 the Company had an outstanding and unused line of credit
totaling $100.0 million with the Federal Reserve Bank to cover overdrafts.
The FHLB advances are secured by the stock of the FHLB and certain real
estate loans and MBSs of the Company amounting to $4.3 billion at December 31,
1993 and $4.4 billion at December 31, 1992. All FHLB advances at December 31,
1993 had prepayment penalty provisions.
The notes payable to regulatory agencies were issued in connection with
acquisitions in New York and Ohio and are secured by assets (certain real
estate loans of the Company) amounting to $407 million and $161 million,
respectively, at December 31, 1993. The discounts on the notes are being
amortized to interest expense using the interest method based upon the original
contract rate of the notes. This method results in an effective interest rate
that will vary with changes in COFI and changes in the cost of certain short-
term liabilities of the Fifth District of the FHLB.
In November 1993 Home Savings issued $250 million of 6% Subordinated Notes
due November 1, 2000 at a public offering price of 99.718%. The Subordinated
Notes are not redeemable prior to maturity. The discount is being amortized to
interest expense over the term of the notes using the interest method.
In October 1993 Home Savings purchased $327.6 million of its 10 1/4%
Subordinated Notes due December 5, 1996 resulting in a net extraordinary loss
of $21.6 million on the early extinguishment of debt.
The aggregate amounts of principal maturities for all borrowings, excluding
unamortized discounts, at December 31, 1993 are (dollars in thousands):
<TABLE>
<S> <C> <C>
1994...................... $1,574,281 40.2%
1995...................... 883,075 22.5
1996...................... 122,561 3.1
1997...................... 312,152 8.0
1998...................... 94,144 2.4
Thereafter................ 931,577 23.8
---------- -----
$3,917,790 100.0%
========== =====
</TABLE>
(10) INCOME TAXES
Home Savings has met certain requirements of the Internal Revenue Code which
permit a bad debt deduction (unrelated to the amount of losses actually
anticipated and charged to earnings) based on a percentage of taxable income
before such deduction (currently 8%). For taxable years prior to 1987 Home
Savings computed its tax bad debt deduction under the percentage of taxable
income method. In subsequent years, the deduction was computed based upon the
experience method as it resulted in the deduction of an amount in excess of
that permitted under the percentage of taxable income method. The consolidated
financial statements at December 31, 1993 do not include a contingent tax
liability of $237 million related to the base year reserve amounts as these
reserves are not expected to reverse until indefinite future periods or may
never reverse. Circumstances that would require an accrual of a portion or all
of this unrecorded tax liability are a reduction in loan levels relative to the
end of 1987, failure to meet the tax definition of a savings institution,
dividend payments in excess of both current year and accumulated tax earnings
and profits, or other distributions in dissolution, liquidation or redemption
of stock.
F-24
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company adopted SFAS No. 109 effective January 1, 1992 on a prospective
basis. The principal effect on the Company of SFAS No. 109 is to allow a tax
benefit for cumulative book loss reserves in excess of tax reserves accumulated
after December 31, 1987. The cumulative effect of this accounting change
amounted to a reduction of financial statement tax liability and an increase in
1992 net earnings of $47.7 million ($0.41 per common share). Excluding the
cumulative effect of the accounting change, the effect of adopting SFAS No. 109
was to decrease the provision for income tax expense and increase net earnings
by approximately $39 million ($0.33 per common share) in 1992.
The provision for income taxes (benefit) consists of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $(39,691) $175,459 $207,125
State and local................................. (4,598) 23,433 78,489
-------- -------- --------
(44,289) 198,892 285,614
-------- -------- --------
Deferred:
Federal......................................... (22,718) (71,558) (45,357)
State and local................................. (15,027) 5,888 (13,015)
-------- -------- --------
(37,745) (65,670) (58,372)
-------- -------- --------
$(82,034) $133,222 $227,242
======== ======== ========
</TABLE>
Not included in the provision for income tax benefit for 1993 shown above are
the tax benefit of $16.3 million on the extraordinary loss on early
extinguishment of debt and taxes of $16.3 million on the aggregate unrealized
gain on securities available for sale included in stockholders' equity.
F-25
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Provision for losses on loans and REO.................. $(148,224) $(133,271)
Provision for losses on REI............................ (124,113) (54,625)
Delinquent accrued interest............................ (19,307) (29,899)
State and local taxes.................................. (13,133) (24,208)
Purchase accounting differences........................ (13,958) (13,686)
Compensation differences............................... (14,172) (12,222)
--------- ---------
Total deferred tax assets............................ (332,907) (267,911)
--------- ---------
Deferred tax liabilities:
Loan fee income........................................ 114,631 129,044
FHLB stock dividends................................... 88,772 81,887
Gains on loan sales.................................... 38,966 23,226
Capitalized real estate development costs.............. 26,451 22,021
Accrued interest on tax settlements.................... 8,474 12,270
Basis difference on premises and equipment............. 2,579 2,961
Recurring liabilities.................................. 21,436 --
Unrealized gain on securities.......................... 16,257 --
Other.................................................. (829) 589
--------- ---------
Total deferred tax liabilities....................... 316,737 271,998
--------- ---------
Net deferred tax (asset) liability................... $ (16,170) $ 4,087
========= =========
</TABLE>
There was no valuation allowance for deferred taxes as of January 1, 1992,
and no allowance was added during the years ended December 31, 1993 and 1992
because the Company expects to realize its deferred tax assets through loss
carrybacks.
During 1992 and 1991 Home Savings utilized net operating loss carryforwards
of $16.8 million and $26.9 million, respectively, and recorded the tax benefits
as a reduction of goodwill. There were no adjustments to goodwill for net
operating losses in 1993.
F-26
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes (benefit) in the accompanying Consolidated Financial Statements
have been provided at effective tax (benefit) rates of (37.3)% (1993), 46.0%
(1992) and 48.0% (1991). These rates differ from statutory Federal income tax
rates. The differences were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1993 1992 1991
--------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Taxes (benefit) at statutory
rate....................... $(77,023) (35.0)% $ 98,469 34.0% $160,822 34.0%
Increases (reductions) in
taxes resulting from:
Bad debt deduction........ -- -- -- -- (56,946) (12.0)
Provision for losses on
loans and REO............ -- -- -- -- 71,934 15.2
State income tax
(benefit), net of Federal
income tax benefit....... (5,829) (2.7) 26,613 9.2 40,516 8.6
Tax basis adjustments for
assets and liabilities of
associations and
companies acquired....... 1,753 0.8 9,408 3.2 12,032 2.5
Increase (reduction) of
liabilities from prior
periods.................. 1,237 0.6 (918) (0.3) 449 0.1
Other..................... (2,172) (1.0) (350) (0.1) (1,565) (0.4)
-------- ----- -------- ---- -------- -----
Provision for income taxes
(benefit)................ $(82,034) (37.3)% $133,222 46.0% $227,242 48.0%
======== ===== ======== ==== ======== =====
</TABLE>
For years prior to the adoption of SFAS No. 109, the federal bad debt
deduction and provision for loan losses were permanent differences which
affected the effective tax rate. With the 1992 adoption of SFAS No. 109, these
items are elements of the deferred liability and do not result in differences
to the effective tax rate.
(11) CONTINGENT LIABILITIES
The Company is involved in litigation and may be subject to claims arising in
the normal course of business. In the opinion of management the amount of
ultimate liability with respect to these matters in the aggregate will not have
a material adverse effect on the Company.
F-27
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(12) EARNINGS PER COMMON SHARE AND STOCKHOLDER RIGHTS
Common stock equivalents identified by the Company in determining its
earnings per common share are stock options, restricted stock awards, stock
appreciation rights and the 6% Cumulative Convertible Preferred Stock, Series D
which is convertible into Common Stock at $24.335 per share of Common Stock.
The following is a summary of the calculation of earnings per common share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Earnings (loss) before extraordinary
loss and cumulative effect of
accounting change...................... $ (138,032) $ 156,392 $ 245,761
Less accumulated dividends on preferred
stock................................. (38,131) (16,800) (5,600)
----------- ----------- -----------
Earnings (loss) attributable to common
shares before extraordinary loss and
cumulative effect of accounting change. (176,163) 139,592 240,161
Extraordinary loss on early
extinguishment of debt................ (21,607) -- --
Cumulative effect of change in account-
ing for income taxes.................. -- 47,677 --
----------- ----------- -----------
Net earnings (loss) attributable to
common shares...................... $ (197,770) $ 187,269 $ 240,161
=========== =========== ===========
Primary earnings (loss) per common
share:
Weighted average number of common
shares outstanding.................... 116,786,369 116,659,602 116,230,723
Dilutive effect of outstanding common
stock equivalents..................... -- 255,740 463,572
----------- ----------- -----------
Weighted average number of common
shares as adjusted for
calculation of primary earnings (loss)
per share............................. 116,786,369 116,915,342 116,694,295
=========== =========== ===========
Primary earnings (loss) per common
share before extraordinary loss and
cumulative effect of accounting
change................................ $ (1.51) $ 1.19 $ 2.06
Extraordinary loss on early
extinguishment of debt................ (0.18) -- --
Cumulative effect of change in
accounting for income taxes........... -- 0.41 --
----------- ----------- -----------
Primary earnings (loss) per common
share.............................. $ (1.69) $ 1.60 $ 2.06
=========== =========== ===========
Fully diluted earnings (loss) per common
share:
Weighted average number of common
shares outstanding.................... 116,786,369 116,659,602 116,229,523
Dilutive effect of outstanding common
equivalents........................... -- 540,209 505,107
----------- ----------- -----------
Weighted average number of common
shares as adjusted for calculation of
fully diluted earnings (loss) per
share................................. 116,786,369 117,199,811 116,734,630
=========== =========== ===========
Fully diluted earnings (loss) per
common shares before extraordinary loss
and cumulative effect of accounting
change................................ $ (1.51) $ 1.19 $ 2.06
Extraordinary loss on early
extinguishment of debt................ (0.18) -- --
Cumulative effect of change in
accounting for income taxes........... -- 0.41 --
----------- ----------- -----------
Fully diluted earnings (loss) per
common share....................... $ (1.69) $ 1.60 $ 2.06
=========== =========== ===========
</TABLE>
F-28
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a stockholder rights plan under which the Company distributed
one common stock purchase right (a "Primary Right") and one preferred stock
purchase right (a "Secondary Right") for each share of common stock
outstanding. If any person becomes the beneficial owner of 15% or more of the
Company's outstanding common shares without first complying with a specified
procedure designed to provide fair treatment to all the Company stockholders,
then each Primary Right will entitle the holder (other than the 15%
stockholder) to purchase common shares at 20% of the then-market price of such
shares. The total number of common shares that may be purchased upon the
exercise of all Primary Rights is equal to 50% of the number of common shares
outstanding when the Primary Rights become exercisable.
Upon the occurrence of certain events that could result in the ownership of
25% or more of the outstanding common shares by any person, each Secondary
Right will entitle the holder (other than the 25% stockholder) to purchase, at
the then-current Secondary Right exercise price, a hundredth of a share of a
newly-issued series of preferred stock, which one-hundredth share is designed
to have a value approximately equal to the value of one common share. If any
person becomes a 25% stockholder, each previously unexercised Secondary Right
will entitle the holder (other than the 25% stockholder) to purchase common
stock having a market value equal to two times the then-current Secondary Right
exercise price.
(13) REGULATORY CAPITAL AND DIVIDENDS
The Office of Thrift Supervision ("OTS") has adopted regulations ("Capital
Regulations") that contain a capital standard for savings institutions. Home
Savings is in compliance with the Capital Regulations at December 31, 1993.
The payment of dividends is subject to certain Federal income tax
consequences. Specifically, Home Savings is capable of paying dividends to
Ahmanson in any year without incurring tax liability only if such dividends do
not exceed both the tax basis current year earnings and profits and accumulated
tax earnings and profits as of the beginning of the year.
Thirty days' prior notice to the OTS of the intent to declare dividends is
required for the declaration of such dividends by Home Savings. The OTS issued
a regulation in 1990 which generally allows a savings institution which meets
its fully phased-in capital requirements to distribute without OTS approval
dividends up to 100% of the institution's net income during a calendar year
plus the amount that would reduce the institution's "surplus capital ratio"
(the excess over its fully phased-in capital requirement) to one-half of its
surplus capital ratio at the beginning of the calendar year. At January 1, 1994
Home Savings could have paid dividends of approximately $491.8 million under
the most restrictive of the foregoing limits without OTS approval. However, the
OTS has the authority to preclude the declaration of any dividends or adopt
more stringent amendments to the Capital Regulations.
F-29
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) EMPLOYEE BENEFIT PLANS
Pension and Savings Plans
The Company has a trusteed, noncontributory pension plan (the "Plan")
covering eligible employees over 21 years of age who meet minimum service
requirements. The benefits are generally based on years of service and the
employee's average earnings in the last 10 years of employment. Benefits under
the Plan are reduced by a specified percentage of the employee's primary Social
Security benefits.
The following table sets forth the Plan's funded status and liabilities
accrued in the Company's Consolidated Statements of Financial Condition at
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits.................... $172,378 $135,990
Nonvested accumulated benefits................. 8,310 5,834
-------- --------
Total accumulated benefits................... $180,688 $141,824
======== ========
Projected benefit obligation for service ren-
dered to date................................. $199,903 $162,051
Plan assets at fair value; primarily listed
common stocks,
U.S. Government obligations and corporate bonds
and debentures.................................. 186,223 162,130
-------- --------
Funded status--Plan assets in excess of (less
than) projected
benefit......................................... (13,680) 79
Items not yet recognized in earnings:
Unrecognized net loss.......................... 25,000 6,154
Prior service cost not yet recognized in net
periodic pension cost......................... 796 1,572
Unrecognized transition asset being recognized
over approximately 8.8 years.................. (3,698) (4,749)
-------- --------
Prepaid pension cost included in "Other lia-
bilities"................................... $ 8,418 $ 3,056
======== ========
The total pension expense for the Plan was $5.8 million, $5.0 million and $4.5
million for the years 1993, 1992 and 1991, respectively. Net pension cost for
1993, 1992 and 1991 included the following components:
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period... $ 8,281 $ 6,763 $ 6,802
Interest cost on projected benefit obligations... 13,238 12,057 11,608
Actual return on plan assets..................... (21,972) (16,463) (25,462)
Net amortization and deferral.................... 6,290 2,663 11,590
-------- -------- --------
Net pension cost................................. $ 5,837 $ 5,020 $ 4,538
======== ======== ========
</TABLE>
As prescribed by SFAS No. 87, the Company uses the projected unit credit
actuarial cost method for financial reporting purposes. The discount rate and
weighted average rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligations
for the qualified plan were 7.5% and 5.0%, respectively. The expected long-term
weighted average rate of return on assets was 7.5%.
F-30
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a Supplemental Executive Retirement Plan ("SERP") and an
Outside Director Retirement Plan ("ODRP") which are nonqualified,
noncontributory pension plans ("Nonqualified Plans"). The Company's SERP is a
defined benefit plan under which the Company pays benefits to certain officers
of the Company designated by the Compensation Committee of the Company's Board
of Directors in an amount equal to a specified percentage of the participant's
highest average annual earnings for three consecutive years during the
participant's final 10 years of employment and are based on years of service
subject to a maximum of 15 years. Such benefits are reduced to the extent a
participant receives benefits from primary Social Security and the Plan. The
Company's ODRP is a retirement plan for directors of the Company who are not
also officers or employees of the Company. Under the ODRP, a participating
director receives annual retirement benefits equal to the director's annual fee
during the twelve-month period immediately preceding the director's retirement
from the Board. Benefits under the ODRP generally are payable for a period
equal to the participant's period of service on the Board plus certain
governmental service, with a lifetime benefit payable to participants with 15
or more years of service.
The following table sets forth the Nonqualified Plans' funded status and
liabilities accrued in the Company's Consolidated Statements of Financial
Condition at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits....................... $ 16,508 $ 7,401
Nonvested accumulated benefits.................... 3,271 8,372
-------- --------
Total accumulated benefits...................... $ 19,779 $ 15,773
======== ========
Projected benefit obligation for service rendered
to date.......................................... $ 21,369 $ 20,775
Plan assets at fair value........................... -- --
-------- --------
Funded status--Projected benefit in excess of plan
assets............................................. (21,369) (20,775)
Items not yet recognized in earnings:
Unrecognized net loss............................. 2,645 2,828
Prior service cost not yet recognized in net
periodic pension cost............................ 2,943 4,297
Unrecognized net obligation being recognized over
approximately 15 years........................... 2,364 2,678
Adjustment required to reflect minimum liability.. (6,352) (4,801)
-------- --------
Accrued pension cost included in "Other
liabilities"................................... $(19,769) $(15,773)
======== ========
The total pension expense for the Nonqualified Plans was $2.7 million, $2.6
million and $2.5 million for the years 1993, 1992 and 1991, respectively. Net
pension cost for 1993, 1992 and 1991 included the following components:
<CAPTION>
1993 1992 1991
-------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period...... $ 307 $ 428 $ 354
Interest cost on projected benefit obligations...... 1,640 1,539 1,474
Net amortization and deferral....................... 755 616 658
-------- -------- ------
Net pension cost.................................... $ 2,702 $ 2,583 $2,486
======== ======== ======
</TABLE>
F-31
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation for the Nonqualified Plans were 7.5% and 5.0%,
respectively as of December 31, 1993.
The Company has a Savings Plan for employees which allows participants to
make contributions by salary deduction equal to 15% or less of their salary
pursuant to section 401(k) of the Internal Revenue Code. Employee contributions
are matched by the Company at the rate of one dollar per dollar up to 3% of the
employee's salary. Employees vest immediately in their own contributions and
they vest in the Company's contributions based on years of service. Expenses of
the Savings Plan in 1993, 1992 and 1991 were $7.1 million, $6.5 million and
$5.7 million, respectively.
Other Postretirement Benefit Plans
The Company provides certain postretirement benefits, including health care,
life insurance and dental care, to qualifying retired employees. Current
employees will be immediately eligible for such postretirement benefits upon
retirement from the Company based on years of service and age at retirement.
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.5% as of December 31, 1993.
The following table sets forth the accumulated postretirement benefits
obligation at December 31, 1993 (in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees............................................................. $14,143
Fully eligible active employees...................................... 1,293
Other active employees............................................... 1,151
-------
Total accumulated postretirement benefit obligation................ 16,587
Plan assets at fair value.............................................. --
-------
Funded status--Accumulated benefit obligation in excess of plan assets. (16,587)
Unrecognized transition obligation..................................... 15,306
Unrecognized loss...................................................... 829
-------
Accrued postretirement benefit cost.................................. $ (452)
=======
The total postretirement benefit expense was $2.4 million for 1993, which
included the following components (in thousands):
Service cost........................................................... $ 317
Amortization of transition obligation.................................. 806
Interest cost.......................................................... 1,277
-------
$ 2,400
=======
</TABLE>
Stock Compensation Plans
As of December 31, 1993 there were 226,523 shares of the Company's Common
Stock available for awards and grants to officers and key employees of the
Company under the 1984 Stock Incentive Plan (the "1984 Plan") and 7,428,749
shares available under the 1993 Stock Incentive Plan (the "1993 Plan") which is
subject to shareholder approval. The 1993 Plan, 1984 Plan and the Long-Term
Management Performance Plan (the "1979 Plan") provide for the issuance of
Incentive and Nonqualified Stock Options and Restricted Stock Awards. No
further awards may be made under the 1979 Plan. The 1993 and 1984 Plans also
provide for the issuance of Stock Appreciation Rights ("SARs") in tandem with
Nonqualified and Incentive Stock Options. Nonqualified and Incentive Stock
Options permit participants to purchase shares of the Company's
F-32
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock at a price per share not less than the fair market value per share
on the date of grant. Restricted Stock Awards provide for the issuance of
shares of the Company's Common Stock without payment or upon payment by the
participants of up to 10% of the fair market value of the shares. SARs provide
the recipient with the right to receive payment in cash or shares of the
Company's Common Stock equal to the appreciation in value of the optioned
shares from the date of grant in lieu of exercising the related stock option.
These SARs become exercisable at the same times as the related options.
The following is a summary of Restricted Stock Award transactions in 1993,
1992 and 1991. Final restrictions lapse in 1996.
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- -------
<S> <C> <C> <C>
Balance beginning of year......................... 611,984 681,213 504,758
Granted and issued................................ 9,917 356,958 262,743
-------- --------- -------
621,901 1,038,171 767,501
Cancelled......................................... (34,102) (34,136) (9,479)
Restrictions lapsed............................... (328,097) (392,051) (76,809)
-------- --------- -------
Balance end of year............................... 259,702 611,984 681,213
======== ========= =======
</TABLE>
At December 31, 1993 options to purchase 3,525,176 shares of the Company's
Common Stock under the 1979, 1984 and 1993 Plans were outstanding as follows:
<TABLE>
<CAPTION>
OPTION PRICE (MARKET
VALUE AT DATE OF GRANT)
---------------------------------
PER EXPIRATION SHARES
SHARES SHARE TOTAL DATE WITH SARS
--------- ------------- ------- ---------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
86,960 $ 7.42 $ 645 1994 27,000
10,556 7.74 82 1996 10,556
178,405 20.38 3,636 1996 85,085
349,280 16.69 5,829 1997 157,719
2,777 13.05 36 1998 2,777
246,950 16.94 4,183 1998 26,370
256,005 21.56-22.25 5,600 1999 56,619
431,715 13.13-19.25 6,049 2000 205,619
396,049 13.94-18.19 6,253 2001 50,000
353,701 14.94 5,284 2002 --
350,000 17.13-20.06 12,049 2003 --
862,778 17.75 10,140 2003 --
--------- ------- -------
3,525,176 $59,786 621,745
========= ======= =======
</TABLE>
F-33
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options expiring through 2000 are all currently exercisable. The options
expiring in 2001 are exercisable in annual increments of 33 1/3% commencing in
November 1992 except options for 50,000 shares which were 100% exercisable in
September 1991 and 129,704 shares which were 100% exercisable in March 1992.
The options expiring in 2002 are exercisable in annual increments of 33 1/3%
commencing in November 1993 except options for 4,101 shares which were 100%
exercisable in May 1993. The options expiring in 2003 are exercisable in annual
increments of 33 1/3% commencing in November 1994 except options for 300,000
shares which are currently exercisable and 50,000 shares which are 100%
exercisable in June 1994.
Option transactions under the 1979, 1984 and 1993 Plans in 1993, 1992 and
1991 were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding beginning of year......... 3,016,530 2,933,500 2,940,158
Options granted ($14.95--$20.06 per share)
With SARs................................... -- -- 64,418
Without SARs................................ 1,222,081 387,741 434,064
Options cancelled ($7.42--$22.25 per share)
With SARs................................... (16,134) (6,420) (555)
Upon exercise of SARs....................... (290,435) (74,257) (383,159)
Without SARs................................ (149,289) (131,709) (70,862)
Options exercised ($7.42--$16.94 per share)
Without SARs................................ (200,960) (69,310) (43,119)
With SARs cancelled......................... (56,617) (23,015) (7,445)
--------- --------- ---------
Options outstanding end of year............... 3,525,176 3,016,530 2,933,500
========= ========= =========
</TABLE>
(15) FINANCIAL HIGHLIGHTS BY PRINCIPAL BUSINESS OPERATIONS
Financial highlights concerning the Company's principal business operations
(industry segments) for the years ended December 31, 1993, 1992 and 1991 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Savings and lending.................... $ 3,178,115 $ 3,542,441 $ 4,521,816
Mortgage banking....................... 127,509 160,799 121,385
Real estate............................ (226,628) (54,584) (70,689)
Corporate and other.................... 21,013 (11,179) 19,572
----------- ----------- -----------
Consolidated revenues............... $ 3,100,009 $ 3,637,477 $ 4,592,084
=========== =========== ===========
Operating income (loss) before taxes
(benefit):
Savings and lending.................... $ 40,698 $ 333,915 $ 539,531
Mortgage banking....................... 38,544 80,486 59,406
Real estate............................ (259,943) (94,332) (102,494)
Corporate and other.................... (39,365) (30,455) (23,440)
----------- ----------- -----------
Consolidated operating income (loss)
before
income taxes (benefit)............. $ (220,066) $ 289,614 $ 473,003
=========== =========== ===========
Assets:
Savings and lending.................... $49,965,028 $47,095,846 $46,074,108
Mortgage banking....................... 617,111 796,762 946,442
Real estate............................ 511,129 699,703 689,309
Corporate and other.................... (222,023) (451,804) (483,672)
----------- ----------- -----------
Consolidated assets................. $50,871,245 $48,140,507 $47,226,187
=========== =========== ===========
</TABLE>
F-34
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) PARENT COMPANY FINANCIAL INFORMATION
(See other Notes to Consolidated Financial Statements)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and amounts due from banks......................... $ 120 $ 130
Securities purchased under agreements to resell......... 189,700 149,800
Other short-term investments............................ 2,386 1,045
---------- ----------
Total cash and cash equivalents...................... 192,206 150,975
Loans receivable held to maturity....................... 334 2,756
Real estate held for investment......................... 5,192 5,195
Accounts and notes receivable from subsidiaries......... 10,086 7,821
Refundable income taxes................................. 36,940 11,158
Investment in Home Savings.............................. 2,963,556 2,826,199
Investment in other subsidiaries........................ 188,490 199,022
Other assets............................................ 106,128 86,319
---------- ----------
$3,502,932 $3,289,445
========== ==========
Liabilities and Stockholders' Equity:
Notes payable........................................... $ 515,403 $ 494,993
Accrued expenses and other liabilities.................. 38,498 48,808
---------- ----------
Total liabilities.................................... 553,901 543,801
Stockholders' equity.................................... 2,949,031 2,745,644
---------- ----------
$3,502,932 $3,289,445
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Income:
Cash dividends from Home Savings.............. $ 145,000 $160,000 $107,000
Cash dividends from other subsidiaries........ 8,000 5,100 5,127
Interest on loans and investments............. 8,675 2,542 4,148
Other income.................................. 630 (1,379) 2,022
--------- -------- --------
162,305 166,263 118,297
--------- -------- --------
Expenses:
Interest...................................... 45,759 30,140 24,860
General and administrative expenses........... 22,635 9,896 15,636
Income tax benefit............................ (24,409) (17,466) (13,867)
--------- -------- --------
43,985 22,570 26,629
--------- -------- --------
Earnings before equity in undistributed net
earnings (loss) of
subsidiaries................................... 118,320 143,693 91,668
Equity in undistributed net earnings (loss) of
subsidiaries................................... (277,959) 60,376 154,093
--------- -------- --------
Net earnings (loss)............................. $(159,639) $204,069 $245,761
========= ======== ========
</TABLE>
F-35
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net earnings (loss)......................... $(159,639) $ 204,069 $ 245,761
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Equity in undistributed net (earnings)
loss of subsidiaries..................... 277,959 (60,376) (154,093)
Other, net................................ (52,034) 8,181 1,504
--------- --------- ---------
Net cash provided by operating
activities............................. 66,286 151,874 93,172
--------- --------- ---------
Cash flows from investing activities:
Purchase of interest in partnership from
Home Savings............................... (50,000) -- --
Purchase of real estate subsidiaries........ -- (150,000) --
Capital contributions to Home Savings....... (329,857) -- (170,000)
Other, net.................................. (1,087) 1,428 310
--------- --------- ---------
Net cash used in investing activites.... (380,944) (148,572) (169,690)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuances of Preferred
Stock...................................... 469,135 -- 169,090
Dividends on Common Stock................... (102,804) (102,305) (102,056)
Dividends on Preferred Stock................ (35,329) (16,800) (4,200)
Net proceeds from issuance of Senior Debt... -- 246,680 --
Proceeds from issuance of note payable to a
subsidiary................................. 20,000 -- --
Other, net.................................. 4,887 1,858 3,043
--------- --------- ---------
Net cash provided by financing
activities............................. 355,889 129,433 65,877
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 41,231 132,735 (10,641)
Cash and cash equivalents at beginning of
year......................................... 150,975 18,240 28,881
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 192,206 $ 150,975 $ 18,240
========= ========= =========
</TABLE>
(17) SUBSEQUENT EVENT
The earthquake that struck Southern California on January 17, 1994 caused
damage to the real estate collateralizing some of the Company's loans. The
Company's personnel are communicating with borrowers and the Company has sent
lending personnel and appraisers into the damaged area to assess the extent of
loss. In addition, the Company is offering a variety of loan programs to assist
its borrowers in the damaged area with the restoration of their homes. Although
the Company is still assessing the extent of earthquake damage and the
financial effect on the Company, it expects to record a provision for possible
earthquake related losses in its financial results for the first quarter of
1994.
F-36
<PAGE>
H.F. AHMANSON & COMPANY
1993 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this 1993 Stock Incentive Plan ("Plan") of H.F. Ahmanson &
Company, a Delaware corporation (the "Company"), is to enable the Company to
attract, retain and motivate its employees by providing for or increasing the
proprietary interests of such employees in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Company, who is an employee of
the Company or any of its subsidiaries (an "Employee") shall be eligible to be
considered for the grant of Awards (as hereinafter defined) hereunder.
Section 3. AWARDS
(a) The Committee (as hereinafter defined), on behalf of the Company, is
authorized under this Plan to enter into any of the following types of
arrangement with an Employee involving shares of common stock of the Company
("Common Shares") or a value derived from the value of the Common Shares: (i)
stock options; (ii) stock appreciation rights; (iii) sales or bonuses of stock
and (iv) restricted stock. The entering into of any such arrangement is
referred to herein as the "grant" of an "Award." Awards may be made alone or
two or more in tandem or in the alternative.
(b) Awards may be issued, and Common Shares may be issued pursuant to an
Award, for any lawful consideration as determined by the Committee, including,
without limitation, services rendered by the recipient of such Award.
(c) Subject to the provisions of this Plan, the Committee, in its sole and
absolute discretion, shall determine all of the terms and conditions of each
Award granted under this Plan, which terms and conditions may include, among
other things:
(i) a provision permitting the recipient of such Award, including any
Employee recipient who is a director or officer of the Company, to pay the
purchase price of the Common Shares or other property issuable pursuant to
such Award, or such recipient's tax withholding obligation with respect to
such issuance, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
<PAGE>
(B) the delivery of other property deemed acceptable by the
Committee;
(C) the delivery of previously owned shares of capital stock of
the Company (including "pyramiding") or other property;
(D) a reduction in the amount of Common Shares or other property
otherwise issuable pursuant to such Award; or
(E) the delivery of a promissory note, the terms and conditions
of which shall be determined by the Committee;
(ii) a provision conditioning or accelerating the receipt of benefits
pursuant to such Award, either automatically or in the discretion of the
Committee, upon the occurrence of specified events, including, without
limitation, a change of control of the Company, an acquisition of a
specified percentage of the voting power of the Company, the dissolution or
liquidation of the Company, a sale of substantially all of the property and
assets of the Company or an event of the type described in Section 6
hereof; or
(iii) provisions required in order for such Award to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (an
"Incentive Stock Option").
(d) Notwithstanding Section 3(b), in the event any Award is made
while this Plan is subject to Rule 16b-3 as in effect on April 30, 1991 and
under which Common Shares are or may in the future be issued for any type of
consideration other than as a bonus without the payment of any consideration,
the amount of such consideration shall be equal to (i) the amount (such as par
value) required to be received by the Company in order to assure compliance with
applicable state law, or (ii) an amount equal to or greater than 50% of the fair
market value of such shares on the date of grant of such Award.
Section 4. STOCK SUBJECT TO PLAN
(a) Subject to adjustment as provided in Section 6 hereof, the
aggregate number of Common Shares that may be issued as restricted stock shall
not exceed 3,500,000.
(b) Subject to adjustment as provided in Section 6 hereof, the
aggregate number of Common Shares issued and issuable pursuant to all Awards
(including all Incentive Stock Options) granted under this Plan shall not exceed
8,000,000.
2
<PAGE>
(c) Subject to adjustment as provided in Section 6 hereof, the
maximum number of shares of Common Stock issuable pursuant to all Awards granted
to any Employee during any calendar year shall be 300,000.
(d) The aggregate number of Common Shares issued and issuable
pursuant to Awards granted under this Plan shall at any time be deemed to be
equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such time
pursuant to Awards granted under this Plan, other than Common Shares that
were subsequently reacquired by the Company pursuant to the terms and
conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable prior
to such time pursuant to Awards granted under this Plan, but that were
withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares that are or may be issuable
at or after such time pursuant to Awards granted under this Plan prior to
such time.
Section 5. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee (the "Committee")
of the Board of Directors of the Company (the "Board") consisting of two or more
directors, each of whom: (i) is a "disinterested person" (as such term is
defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule may be
amended from time to time), and (ii) is not (1) a current employee of the
Company, or any Parent or Subsidiary (as hereinafter defined) of the Company,
(2) a former employee of such entities who is receiving compensation therefrom
for prior services (other than qualified plan benefits), (3) a former officer of
such entities, or (4) a person receiving compensation from such entities for
personal services in any capacity other than as a director. For purposes of the
preceding sentence, "Parent" and "Subsidiary" refer to "parent corporation" and
"subsidiary corporation," respectively, as such terms are defined in Section
424(f) of the Internal Revenue Code.
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
3
<PAGE>
(i) adopt, amend and rescind rules and regulations relating to this
Plan;
(ii) determine which persons are Employees and to which of such
Employees, if any, Awards shall be granted hereunder;
(iii) grant Awards to Employees and determine the terms and conditions
thereof, including the number of Common Shares issuable pursuant thereto;
(iv) determine whether, and the extent to which adjustments are
required pursuant to Section 6 hereof; and
(v) interpret and construe this Plan and the terms and conditions of
any Award granted hereunder.
Section 6. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee shall make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Incentive Stock Options and other Awards theretofore
granted under this Plan, (b) the maximum number and type of shares or other
securities that may be issued pursuant to Incentive Stock Options and other
Awards thereafter granted under this Plan, and (c) the maximum number of Common
Shares issuable pursuant to all Awards granted to any Employee during any
calendar year.
Section 7. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner; provided, however, that no such amendment or termination shall deprive
-------- -------
the recipient of any Award theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto; provided, further, that if an amendment to the Plan would
-------- -------
increase the number of Common Shares subject to the Plan or the
4
<PAGE>
maximum number of Common Shares issuable pursuant to all Awards during any
calendar year (as adjusted under Section 6), change the class of persons
eligible to receive Awards under the Plan, or otherwise materially increase the
benefits accruing to participants in a manner not specifically contemplated
herein or affect the Plan's compliance with Rule 16b-3 under the Exchange Act or
applicable provisions of the Internal Revenue Code, the amendment shall be
approved by the Company's stockholders to the extent required to comply with
Rule 16b-3 under the Exchange Act or applicable provisions of or rules under the
Internal Revenue Code.
Section 8. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of November 23, 1993, the date upon
which it was approved by the Board; provided, however, that no Common Shares may
-------- -------
be issued under this Plan until it has been approved, directly or indirectly, by
the affirmative votes of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.
5
<PAGE>
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is entered into as of November 1, 1993 between
ROBERT M. DE KRUIF ("Consultant") and H. F. AHMANSON & COMPANY, a Delaware
corporation (the "Company"). In consideration of the mutual covenants set forth
herein, the parties agree as follows:
1. ENGAGEMENT. The Company hereby engages Consultant, and Consultant
hereby accepts engagement, as a consultant to the Company for a term from the
date hereof through October 31, 1994.
2. DUTIES. Consultant shall provide the Company with professional
services regarding the matters listed on Exhibit A attached hereto. Consultant
shall also provide consultation and advice to the Company and its subsidiaries
on such matters regarding government affairs as the Chief Executive Officer or
the General Counsel of the Company may from time to time request in writing.
a. REPORTING. Consultant shall report to and be subject to the
supervision and control of the Chief Executive Officer of the Company or any
person designated by the Chief Executive Officer and shall provide such officer,
at such times and in such form and detail as such officer shall require, with
reports of his performance and accomplishments and of developments and progress
in the matters and projects which he undertakes pursuant to this agreement.
Consultant shall meet with the Chief Executive Officer of the Company or his
designee
<PAGE>
at least monthly with respect to all consulting services provided by Consultant
to the Company hereunder.
b. COMPLIANCE. In performing services for the Company pursuant to this
agreement, Consultant shall use his best efforts to cause the Company to comply
with all applicable laws and regulations.
3. COMPENSATION. During the term of this agreement the Company shall pay
to Consultant as compensation in full for his services hereunder a monthly
retainer of $8,333.33, payable at the end of each month. For purposes of
Section 1 of the Employment Agreement between the Company and Consultant dated
March 1, 1975, as amended, the monthly retainer payments specified in the
foregoing sentence shall not be considered "direct compensation paid to
Executive" [as defined in the Employment Agreement] by the Company and,
therefore, shall not be aggregated in determining whether Executive has received
the minimum annual salary provided for under the Employment Agreement.
4. OFFICE SERVICES. For the purpose of enabling Consultant to render
services hereunder, the Company shall provide Consultant with an office and all
necessary business equipment and supplies needed to perform his duties under
this agreement.
5. EXPENSES. The Company shall reimburse Consultant for all reasonable
expenses necessarily incurred by Consultant in providing consulting services to
the Company. Consultant shall
2
<PAGE>
obtain prior approval of the Chief Executive Officer of the Company of any
reimbursable expense in excess of $500.
6. INDEPENDENT CONTRACTOR. Consultant is an independent contractor and
will not be treated as an employee with respect to services performed for the
Company for any purposes, including, but not limited to, federal, state or local
tax purposes, or for the purposes of worker's compensation or unemployment
benefit laws. No amounts will be withheld from fees payable to Consultant under
this agreement for the purposes of Federal Insurance Contribution Act (Social
Security), or for other federal, state or local tax withholding laws.
Consultant alone is responsible for the payment of all income and employment
taxes and estimates thereof on all fees received from the Company. Consultant
shall not have authority to (a) execute any document in the name or on behalf of
the Company, (b) enter into any oral or written commitments involving the
Company, or (c) otherwise obligate the Company in any manner whatsoever.
7. NOTICES. Any notice required or permitted hereunder shall be in
writing, shall be deemed given only upon receipt and shall be mailed or
delivered addressed as follows:
a. If to the Company:
H. F. Ahmanson & Company
4900 Rivergrade Road
Irwindale, California 91706
Attention: Chief Executive Officer
3
<PAGE>
b. If to Consultant:
Mr. Robert M. De Kruif
900 Oxford Road
San Marino, California 91108
or to such other address as either party shall provide for such purpose pursuant
to this section.
8. PERSONAL SERVICES. No rights or obligations of Consultant hereunder
may be assigned or delegated without the prior written consent of the Company.
Any attempted assignment or delegation without such consent shall be void.
9. ARBITRATION. In the event of a dispute arising over the interpretation
or enforcement of any of the provisions of this agreement, or any other
controversy or claim arising out of or relating to the agreement, Consultant and
the Company agree to submit such dispute to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Consultant and the Company agree that the arbitration shall occur in Los
Angeles, California.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Consulting Agreement
effective as of the date first set forth above.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
------------------------------
Charles R. Rinehart
President
/s/ Robert M. De Kruif
------------------------------
Robert M. De Kruif
5
<PAGE>
Exhibit A
AHMANSON RANCH PROJECT: Help the Company obtain entitlements and building
permits on whatever development plan is ultimately put forward.
SUTTER BAY PROJECT: Help the Company obtain entitlements and building permits
on whatever development plan is ultimately put forward.
OTHER DEVELOPMENT PROJECTS: Help the Company from time to time in working with
local governments and agencies.
CALIFORNIA STATE GOVERNMENT: Maintain and develop relationships with state
government to permit access if needed by the Company.
CALIFORNIA AND FEDERAL LEGISLATIVE BRANCHES: Arrange meetings for Company
officers with appropriate members of these bodies in pursuit of our legislative
agenda.
6
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
(Amended and Restated as of September 1, 1993)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE 1
ARTICLE I
DEFINITIONS 2
1.1 Affiliated Company 2
1.2 Basic Plan 2
1.3 Basic Plan Benefit 2
1.4 Beneficiary 3
1.5 Board 3
1.6 Change in Control Date 3
1.7 Code 3
1.8 Committee 3
1.9 Company 3
1.10 Compensation Committee 3
1.11 Contingent Deferred Compensation Plan 3
1.12 Credited Service 3
1.13 Earnings 4
1.14 HFA Retirement Plan 5
1.15 Other Retirement Income 5
1.16 Participant 6
1.17 Plan 6
1.18 Retirement Date 6
1.19 Social Security Benefit 7
1.20 Sponsor 7
1.21 Surviving Spouse 8
1.22 Termination of Employment 8
ARTICLE II
ENTITLEMENT TO BENEFITS 8
2.1 Retirement Dates 8
2.2 Forfeitable or Nonforfeitable Benefits 9
ARTICLE III
AMOUNT AND FORM OF RETIREMENT BENEFIT 11
3.1 Normal Retirement Benefit 11
3.2 Early Retirement Benefit 12
3.3 Late Retirement Benefit 12
3.4 Survivor Benefits 12
ARTICLE IV
PAYMENT OF RETIREMENT BENEFITS 16
4.1 Time of Payments 16
4.2 Automatic Payments; Indemnification 16
4.3 Disability 17
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
ARTICLE V
CHANGE IN CONTROL AND LUMP SUM DISTRIBUTIONS 17
5.1 Vesting and Credited Service 17
5.2 Lump Sum and Hardship Distributions 19
5.3 Change in Control 29
5.4 Acquired 31
5.5 Transactions 32
5.6 Cease to Be Employed 32
5.7 Amendment or Termination of Plan 32
ARTICLE VI
FUNDING 33
6.1 Grantor Trust 33
6.2 Contributions 33
6.3 Funding and Investment Policy 33
6.4 Status of Participants as Unsecured
Creditors 34
ARTICLE VII
COMMITTEE AND SPECIAL POWERS OF COMPENSATION
COMMITTEE 35
7.1 Appointment of Committee 35
7.2 Duties of Committee 35
7.3 Determinations by Committee; Appointment of
Agents; Settlement of Claims 37
7.4 Compensation and Expenses of the
Committee 37
7.5 Resignation and Removal of Members 38
7.6 Appointment of Successors 38
7.7 Special Powers of Compensation Committee;
Hardship Distributions 38
ARTICLE VIII
DESIGNATION OF BENEFICIARY 39
8.1 Designation of Beneficiary 39
8.2 Failure to Designate Beneficiary 40
ARTICLE IX
POWERS 40
9.1 No Liability 40
9.2 Advice of Counsel 40
9.3 Distribution of Participants' Interests When
Sponsor is Unable to Locate Distributees 41
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
ARTICLE X
AMENDMENT AND TERMINATION OF PLAN 41
10.1 Amendment and Termination of Plan; Removal of
Participants 41
ARTICLE XI
SPENDTHRIFT PROVISIONS 42
ARTICLE XII
MISCELLANEOUS 43
12.1 Right of Companies to Dismiss Employees;
Obligations 43
12.2 Inspection Rights 43
12.3 Withholding and Payroll Taxes 44
12.4 Payment to Guardian 44
12.5 Protective Provisions 44
12.6 Notices and Elections 44
12.7 Text to Control 45
12.8 Law Governing and Severability 45
12.9 Name 45
12.10 Gender 45
12.11 Ineligible Participant 45
SCHEDULE A
REDUCTION FACTORS FOR EARLY RETIREMENT BENEFIT
</TABLE>
(iii)
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
PREAMBLE
--------
(Amended and Restated as of September 1, 1993)
The principal objective of this amended and restated Supplemental
Executive Retirement Plan (the "Plan") is to ensure the payment of a competitive
level of retirement income in order to attract, retain and motivate selected
executives. The Plan is designed to provide a benefit which, when added to
other retirement income of the executive, will meet the objective described
above. Eligibility for participation in the Plan shall be limited to executives
selected by the Compensation Committee of the Board of Directors of the Sponsor.
The Sponsor hereby declares that its intention is to create an
unfunded Plan primarily for the purpose of providing a select group of
management or highly compensated employees of the Sponsor and its Affiliated
Companies with supplemental retirement income. It is also the intention of the
Sponsor that the Plan be an "employee pension benefit plan" as defined in
Section 3(2) of Title I of the Employee Retirement Income Security Act of 1974
("ERISA") and that the Plan be the type of plan described in Sections 201(2),
301(3) and 401(a)(1) of Title I of ERISA. The Sponsor is the "named fiduciary"
of the Plan for purposes of Section 402(a)(2) of ERISA.
This amended and restated Plan shall be effective as of September 1,
1993, and shall apply to all Participants who terminate employment with the
Company on or after September 1, 1993. This amended and restated Plan shall
have no application to Participants who terminated employment with the Company
before
1
<PAGE>
September 1, 1993, unless otherwise determined by the Administrator in its sole
discretion. The rights of such Participants shall continue to be determined
under the terms of the Plan as previously in effect prior to this amendment and
restatement of the Plan.
ARTICLE I
DEFINITIONS
-----------
When used herein, the following words shall have the following
meanings unless the content clearly indicates otherwise:
1.1 Affiliated Company. "Affiliated Company" means any corporation,
------------------
partnership or other organization while it is, directly or by attribution, at
least 50% controlled by the Sponsor.
1.2 Basic Plan. "Basic Plan" means, collectively, the HFA
----------
Retirement Plan and any other defined benefit pension plan maintained by a
Company.
1.3 Basic Plan Benefit. "Basic Plan Benefit" means the actual
------------------
annual amount of benefit payable from the Basic Plan to a Participant at his
Retirement Date in the actual form payable under the Basic Plan; or, if the
Participant elects to have payments commence under the Basic Plan after his
Retirement Date, the annual amount of benefit which would be payable from the
Basic Plan to a Participant commencing at his Retirement Date (or earliest date
when benefits could commence under the Basic Plan, if later), in the form of a
single-life annuity if the
2
<PAGE>
Participant has no spouse on his Retirement Date or a 100% joint and survivor
benefit if the Participant has a spouse on his Retirement Date.
1.4 Beneficiary. "Beneficiary" means the person who under this Plan
-----------
becomes entitled to receive a Participant's survivor benefit in the event of his
death.
1.5 Board. "Board" means the Board of Directors of the Sponsor or
-----
any committee thereof acting within the scope of its authority.
1.6 Change in Control Date. "Change in Control Date" means the date
----------------------
as of which a Change in Control, as defined in Section 5.3 hereof, occurs.
1.7 Code. "Code" means the Internal Revenue Code of 1986, as it may
----
be amended from time to time.
1.8 Committee. "Committee" means the committee which has been
---------
appointed by the Board or the Compensation Committee and given authority to
administer the Plan pursuant to Article VII.
1.9 Company. "Company" means the Sponsor or an Affiliated Company.
-------
1.10 Compensation Committee. "Compensation Committee" means the
----------------------
Compensation Committee of the Board.
1.11 Contingent Deferred Compensation Plan. "Contingent Deferred
-------------------------------------
Compensation Plan" means the H. F. Ahmanson & Company 1989 Contingent Deferred
Compensation Plan, as presently constituted and as amended from time to time,
and any predecessor and successor plans.
1.12 Credited Service. "Credited Service" means Credited Service as
----------------
defined and credited under the HFA Retirement
3
<PAGE>
Plan, notwithstanding any termination of the HFA Retirement Plan or any
amendment to such plan after January 1, 1989 which has the effect of decreasing
or retarding the accrual of Credited Service, and shall include service
subsequent to a Participant's Normal Retirement Date.
1.13 Earnings. "Earnings" means a Participant's annual base salary,
--------
annual bonuses and Contingent Deferred Compensation Plan grants, excluding all
other forms of supplemental compensation and all severance payments, before
reductions pursuant to any salary reduction, deferred compensation or similar
plan or arrangement maintained by the Company, averaged over the 36 consecutive
months of Credited Service in the ten years before termination of the Plan, the
Participant's Termination of Employment or the Participant's Retirement Date,
whichever occurs first, which will produce the highest average.
Annual bonuses and Contingent Deferred Compensation Plan grants shall
be taken into account on the date when they are duly authorized and fixed by the
Compensation Committee (or the chief executive officer of the Sponsor, if such
determinations are delegated to him by the Compensation Committee) as to the
amount of payment or grant (currently in October for bonuses and in March for
Contingent Deferred Compensation Plan grants), rather than when they are paid to
Participants at a later date. No more than three annual bonuses and Contingent
Deferred Compensation Plan grants may be taken into account in any period of 36
consecutive months, and any required adjustments shall be made by the Committee.
4
<PAGE>
1.14 HFA Retirement Plan. "HFA Retirement Plan" means the H. F.
-------------------
Ahmanson & Company Retirement Plan, as presently constituted and as amended from
time to time.
1.15 Other Retirement Income. "Other Retirement Income" means the
-----------------------
sum of the following annual amounts:
(a) Seventy-five percent of the annual actuarial equivalent of
retirement income payable to a Participant commencing on the Participant's
Retirement Date from the Social Security Benefit as defined in Section 1.19;
(b) One hundred percent of any Social Security disability benefits
(without actuarial adjustment) which are actually paid on or after the
Participant's Retirement Date;
(c) One hundred percent of any Company-paid long and short-term
disability benefits (without actuarial adjustment) which are actually paid on or
after the Participant's Retirement Date; and
(d) The annual actuarial equivalent of retirement income payable to a
Participant commencing on the Participant's Retirement Date in the same form as
his Basic Plan Benefit from the Company-funded portion (including Company
matching contributions, but not elective employee deferrals under Code Section
401(k)) of any distribution from a defined contribution plan of the Company
qualified under Section 401 of the Code.
The conversion of any of the foregoing benefits into an actuarially
equivalent annuity form commencing at the Participant's Retirement Date, when
applicable, shall be computed with reference to the factors (i) in the HFA
Retirement Plan applicable to benefits accruing thereunder at the time when
5
<PAGE>
payments commence hereunder in respect of a Participant, or the factors in
effect at the time of the HFA Retirement Plan's termination if such termination
is prior to such payment commencement date, or (ii) of the Pension Benefit
Guaranty Corporation applicable to plans terminating on such payment
commencement date, whichever of (i) or (ii) produces the smaller amount for the
foregoing benefits.
1.16 Participant. "Participant" means those persons who fall into
-----------
the categories of persons eligible for participation in the Plan specified in
the resolutions of the Compensation Committee of November 1, 1984 or in any
resolutions subsequently adopted by the Compensation Committee, which are hereby
incorporated by reference. Such persons shall become Participants in the Plan
as of the date specified in such resolutions. Each Participant shall receive
written notification from the Sponsor that he is participating in the Plan.
Participants in this amended and restated Plan shall be limited to persons whose
employment with the Company terminates on or after January 1, 1989.
1.17 Plan. "Plan" means this Supplemental Executive Retirement Plan,
----
effective January 1, 1989, as set forth in this document and as the same may be
amended, administered or interpreted from time to time.
1.18 Retirement Date. "Retirement Date" means the date specified in
---------------
Section 2.1 hereof, on or prior to which a Participant's employment has
terminated with all Companies and as of which the Participant shall commence to
receive benefits under the Plan.
6
<PAGE>
1.19 Social Security Benefit. "Social Security Benefit" means the
-----------------------
Participant's annual Primary Insurance Amount (excluding any amount payable for
the Participant's spouse), estimated by the Committee at the date of the
Participant's Termination of Employment to be payable under the Federal Social
Security Act as then in effect to the Participant at age 65 or the Participant's
retirement age under the Federal Social Security Act or at the Participant's
Retirement Date, whichever is later; provided, however, that:
(a) The Social Security Benefit for a Participant whose Termination
of Employment occurs prior to age 65 or, if later, the Participant's retirement
age under the Federal Social Security Act, will be calculated assuming:
(i) The Participant will not receive any future wages which would be
treated as wages for purposes of the Federal Social Security Act after his
Termination of Employment; and
(ii) The Participant will elect to begin receiving his Social
Security Benefit as of the earliest age then allowable under the Federal Social
Security Act or, if later, at the actual date of his Termination of Employment,
and his Social Security Benefit commencing as of such date will be based on the
early commencement reduction factors used under the Federal Social Security Act.
(b) The Social Security Benefit, once calculated, will be frozen as
of the date of the Participant's death or Termination of Employment, whichever
is applicable.
1.20 Sponsor. "Sponsor" means H. F. Ahmanson & Company, a Delaware
-------
corporation, and any successor corporation or
7
<PAGE>
other entity formed by a consolidation with such corporation or into which such
corporation is merged or to which all or substantially all the assets of such
corporation are transferred, directly or indirectly, and any like successor(s)
to any such successor.
1.21 Surviving Spouse. "Surviving Spouse" means an individual who is
----------------
a surviving spouse eligible for any death benefit under the HFA Retirement Plan.
1.22 Termination of Employment. "Termination of Employment" means
-------------------------
termination of a Participant's employment with all Companies.
ARTICLE II
ENTITLEMENT TO BENEFITS
-----------------------
2.1 Retirement Dates. Each Participant shall commence receiving
----------------
benefits under the Plan beginning on the earliest of the following applicable
Retirement Dates, provided his benefits are nonforfeitable on such date:
(a) "Normal Retirement Date," which is a Termination of Employment on
the first day of the month coinciding with or next following the Participant's
65th birthday.
(b) "Early Retirement Date," which is the first day of the month
after all the following criteria have been met, either in that month or in a
prior period: (i) the Participant has a Termination of Employment, (ii) the sum
of the Participant's age and years of Credited Service equals or exceeds 75, and
(iii) the Participant is age 55 or older but less than age 65. A
8
<PAGE>
Participant becomes eligible for Early Retirement when both criteria (ii) and
(iii) have been met.
(c) "Postponed Retirement Date," which is the first day of the month
after the Participant has a Termination of Employment that occurs after the
Participant's 65th birthday.
2.2 Forfeitable or Nonforfeitable Benefits. A Participant's benefits
--------------------------------------
shall be forfeitable or nonforfeitable as provided in this Section 2.2.
(a) A Participant's benefits hereunder shall become nonforfeitable on
the earlier of his 65th birthday or the date on which the sum of the
Participant's age and years of Credited Service equals 75, irrespective of his
age and notwithstanding that payment may not actually commence until one of the
Retirement Dates specified in Section 2.1 hereof; provided that, in the case of
a Participant whose employment with all Companies or whose participation in the
Plan has terminated, his age increases after such termination may be taken into
account in determining the nonforfeitability of his benefit only if he has, as
of the date of such termination, earned at least fifteen (15) years of Credited
Service.
(b) Notwithstanding the foregoing, a Participant's benefits hereunder
shall become forfeitable or cease to be nonforfeitable if:
(i) The Participant is discharged by a Company for cause as defined
in subparagraph (iii) below;
provided that in no event shall a Participant discharged in connection with, or
as a result of, a Change in Control, as
9
<PAGE>
defined in Article V hereof, be deemed to have been discharged for cause; or
(ii) The Participant causes material injury to the Companies,
considered in the aggregate, by:
(A) Disclosing or using any of a
Company's trade secrets or other privileged or confidential information
respecting any Company, its methods of conducting business, its business plans
or its customers, at any time before or after a Change in Control;
(B) Engaging in any unfair competition against a Company at any time
before or after a Change in Control, which may include acts described in
subparagraph (C) below where such acts constitute unfair competition; or
(C) Soliciting, persuading or inducing, or attempting to solicit,
persuade or induce, within three years after the Participant's Termination of
Employment, any employee of a Company or any customer of a Company, with whom
such Participant has transacted business or becomes acquainted in the course of
his employment with that or any other Company, to terminate or alter the
relationship of such employee or customer with the Company to the detriment of
the Company or to commence a similar relationship with any competitor of the
Company, whether or not such acts constitute unfair competition. This
subparagraph (C) shall not apply to any Participant who has a Termination of
Employment after a Change in Control.
(iii) For purposes of subparagraph (i) above, "cause" is defined as
(a) an act on the Participant's part constituting a felony and resulting or
intended to result,
10
<PAGE>
directly or indirectly, in substantial gain or personal enrichment at the
expense of any Company, or (b) a willful breach by the Participant of any
provisions of his Employment Agreement, if any, if such breach results in
demonstrably material injury to the Companies, considered in the aggregate.
(c) Benefits which have become forfeitable shall not be paid. The
Committee may, in its sole discretion, reinstate forfeitable benefits if the
conduct of the Participant described in Section 2.2(b) hereof has ceased and if
such prior conduct has not caused lasting injury to any Company.
(d) The rights of the Surviving Spouse or Beneficiary of a
Participant are coextensive with, and not independent of, those of the
Participant. In the event benefits have become forfeitable under this Section
2.2 and such benefits have not been reinstated pursuant to Section 2.2(c) prior
to the Participant's death, then notwithstanding Section 3.4 hereof, the
Participant's Surviving Spouse or Beneficiary shall not be entitled to any
survivor benefits under the Plan.
ARTICLE III
AMOUNT AND FORM OF RETIREMENT BENEFIT
-------------------------------------
3.1 Normal Retirement Benefit. The annual benefit under the Plan
-------------------------
payable to a Participant commencing at his Normal Retirement Date shall equal
four percent (4%) of his Earnings multiplied by his years of Credited Service,
not to exceed fifteen (15) (the "SERP Benefit"), less his Basic Plan Benefit, if
any, and less his Other Retirement Income, if any. The
11
<PAGE>
maximum SERP Benefit of a Participant shall equal sixty percent (60%) of his
Earnings, before reduction for his Basic Plan Benefit and Other Retirement
Income.
3.2 Early Retirement Benefit. The annual benefit under the Plan
------------------------
payable to a Participant commencing at his Early Retirement Date shall equal the
SERP Benefit determined in accordance with Section 3.1 reduced in accordance
with Schedule A attached hereto, less his Basic Plan Benefit, if any, and his
Other Retirement Income, if any.
3.3 Late Retirement Benefit. The annual benefit under the Plan
-----------------------
payable to a Participant commencing at his Postponed Retirement Date shall equal
the SERP Benefit determined in accordance with Section 3.1, less his Basic Plan
Benefit, if any, and his Other Retirement Income, if any.
3.4 Survivor Benefits. The annual benefit determined under the Plan
-----------------
will be payable to the retired Participant during his lifetime. Survivor
benefits will be payable as follows:
(a) If an active, retired or terminated Participant dies and has no
Surviving Spouse, payments under the Plan will cease and no survivor benefits
will be payable hereunder with respect to such Participant.
(b) If a retired Participant dies on or after his Retirement Date and
has a Surviving Spouse, an annual benefit will be paid during the lifetime of
such Surviving Spouse to such Surviving Spouse or other Beneficiary designated
by the Participant. The amount of such annual benefit will be equal to the
survivor portion of a 100 percent joint and survivor annuity which is the
actuarial equivalent of the benefit that was paid to
12
<PAGE>
the retired Participant during his lifetime, treating such latter benefit as a
single life annuity, calculated based on the ages of the Participant and the
Surviving Spouse as of the Participant's Retirement Date. Such actuarial
equivalent shall be determined by reference to the factors (i) in the HFA
Retirement Plan applicable to benefits accruing thereunder at the time when
payments commence hereunder to the Participant, or the factors in effect at the
time of the HFA Retirement Plan's termination if such termination is prior to
such payment commencement date, or (ii) of the Pension Benefit Guaranty
Corporation applicable to plans terminating on such payment commencement date,
whichever of (i) or (ii) provides the higher amount of survivor benefits under
this Plan.
The annual benefit under this Section 3.4(b) shall not be reduced to
offset any death benefit payable under the Company's Executive Life Insurance
Plan or any other Company funded life insurance policy or other Company funded
death benefit program.
(c) If a Participant dies while employed by a Company, but prior to
either completing 15 years of Credited Service or becoming eligible for Early
Retirement, no survivor benefit shall be payable hereunder, notwithstanding that
the Participant's benefits hereunder may have become nonforfeitable prior to his
or her death or that he may have a Surviving Spouse.
(d) If a Participant dies while employed by a Company, but after
either completing 15 years of Credited Service or becoming eligible for Early
Retirement, and has a Surviving Spouse, an annual benefit will be paid during
the lifetime of
13
<PAGE>
such Surviving Spouse to such Surviving Spouse or other Beneficiary designated
by the Participant commencing on the first day of the month following the death
of the Participant. The amount of such annual benefit will be equal to the
survivor portion of a 100 percent joint and survivor annuity which is the
actuarial equivalent of the benefit that would have been payable to the
Participant had he terminated employment and commenced receiving a benefit on
the first of the month following the date of his death, treating such latter
benefit as a single life annuity, calculated based on the ages of the
Participant and the Surviving Spouse as of the Participant's death.
The annual benefit under this Section 3.4(d) shall be reduced by an
offset for any death benefit payable to the Participant's beneficiary from the
Company's Executive Life Insurance Plan and any other Company funded life
insurance policy or other Company funded death benefit program (other than the
Basic Plan), irrespective of who is the actual beneficiary under such life
insurance policy or death benefit program. The reduction in the annual benefit
under this Section 3.4(d) shall be determined by (i) converting the unreduced
annual benefit which is payable hereunder as the survivor portion of the 100
percent joint and survivor annuity to a lump sum equivalent amount, (ii)
subtracting the lump sum equivalent amount of any death benefit payable to the
Participant's beneficiary from the Company's Executive Life Insurance Plan and
any other Company funded death benefit program (other than the Basic Plan), and
(iii) converting such reduced lump sum equivalent amount back to
14
<PAGE>
an annual benefit which will be payable as the survivor portion of a 100 percent
joint and survivor annuity.
An actuarial equivalent for purposes of this Section 3.4(d) shall be
determined by the factors (i) in the HFA Retirement Plan applicable to benefits
accruing thereunder at the time when payments commence hereunder to the
Surviving Spouse or other Beneficiary designated by the Participant, or the
factors in effect at the time of the HFA Retirement Plan's termination if such
termination is prior to such payment commencement date, or (ii) of the Pension
Benefit Guaranty Corporation applicable to plans terminating on such payment
commencement date, whichever of (i) or (ii) provides the higher amount of
survivor benefits under this Plan.
(e) If a Participant dies after his Termination of Employment and
prior to his Retirement Date, but prior to completing 15 years of Credited
Service, no survivor benefit shall be payable hereunder notwithstanding that the
Participant may have a Surviving Spouse.
(f) If a Participant dies after his Termination of Employment and
prior to his Retirement Date, but after completing 15 years of Credited Service,
and has a Surviving Spouse, an annual benefit shall be payable hereunder equal
to the annual benefit which would be payable under Section 3.4(d), without any
reduction to offset any death benefit payable under the Company's Executive Life
Insurance Plan or any other Company funded life insurance policy or other
Company funded death benefit program.
15
<PAGE>
ARTICLE IV
PAYMENT OF RETIREMENT BENEFITS
------------------------------
4.1 Time of Payments. Benefits payable in accordance with Article
----------------
III and nonforfeitable under Article II will commence on the Participant's
Retirement Date or, if payable under Section 3.4(b), (d) or (f) hereof, on the
first day of the month following the Participant's death. Benefits will
continue to be paid on the first day of each succeeding month. The last payment
will be on the first day of the month in which the retired Participant dies, or
the Surviving Spouse of the Participant dies, whichever is later. Each such
payment shall be equal to one-twelfth of the applicable annual amount determined
under Article III hereof.
4.2 Automatic Payments; Indemnification. Benefits payable under this
-----------------------------------
Article IV shall be paid automatically commencing on the Participant's
Retirement Date or, if payable under Section 3.4(b), (d) or (f) hereof, on the
first day of the month following the Participant's death. No application need
be filed by the Participant for benefits to commence; provided that the
Committee may reasonably require an application from a Surviving Spouse or
Beneficiary. The Sponsor shall indemnify and hold harmless any Participant,
Surviving Spouse or Beneficiary for any fees and expenses incurred, including
fees for attorneys and experts, to obtain or enforce any right or benefit
provided to him under the Plan, other than, in the case of a Surviving Spouse or
Beneficiary, expenses incurred in connection with the normal preparation and
filing of an application.
16
<PAGE>
4.3 Disability. Notwithstanding any other provision of this Plan, the
----------
payment of retirement benefits may be delayed if the Committee determines that
such payment would result in a reduction of any disability benefits payable to
the Participant under disability plans sponsored by a Company. The Committee
shall make appropriate adjustments on account of any delayed payments to ensure
that the Participant receives payments which are actuarially equivalent to the
payments which were otherwise due to him under this Plan.
ARTICLE V
CHANGE IN CONTROL AND LUMP SUM DISTRIBUTIONS
--------------------------------------------
5.1 Vesting and Credited Service. In the event of a Change in
----------------------------
Control, as defined in Section 5.3 hereof, then, notwithstanding any other
provision of the Plan to the contrary, the following shall occur:
(a) Each Participant who is employed with a Company immediately
before the Change in Control Date, or who previously had a Termination of
Employment with at least fifteen (15) years of Credited Service, shall acquire
immediately before the Change in Control Date a 100 percent (100%)
nonforfeitable interest in any benefit accrued to such Participant under the
Plan through the Change in Control Date, including any additional benefit
accrued pursuant to Section 5.1(b) below, except that a Participant's benefits
hereunder may still become forfeitable or cease to be nonforfeitable pursuant to
Section 2.2(b)(ii)(A) and (B); and
17
<PAGE>
(b) Each Participant who is employed with a Company immediately
before the Change in Control Date shall be credited with an additional number of
years of Credited Service equal to 0.5 times his years of Credited Service
through the Change in Control Date; provided that in determining a Participant's
years of Credited Service through the Change in Control Date, a Participant
shall be treated as having retired on the Change in Control Date so that the
1000 Hours of Service requirement set forth in Section 2.6 of the HFA Retirement
Plan (or any successor provision) shall not apply; provided, further, that in no
event shall a Participant ever be credited with more than fifteen (15) years of
Credited Service for purposes of Article III of this Plan.
(c) If a Participant who has a nonforfeitable interest under Section
5.1(a) above dies and has a Surviving Spouse, an annual benefit will be paid
during the lifetime of such Surviving Spouse to such Surviving Spouse or other
Beneficiary designated by the Participant commencing on the first day of the
month following the death of the Participant. The amount of such annual benefit
will be equal to the survivor portion of a 100 percent joint and survivor
annuity which is the actuarial equivalent of the benefit that was being paid to
the Participant or would have been payable to the Participant had he terminated
employment and commenced receiving a benefit on the first of the month following
the date of his death, treating such latter benefit as a single life annuity,
calculated based on the ages of the Participant and the Surviving Spouse as of
the Participant's death. An actuarial equivalent for purposes of this Section
18
<PAGE>
5.1(c) shall be determined in the same manner described in Sections 3.4(b) and
(d).
If a Participant dies while employed by a Company, the annual benefit
under this Section 5.1(c) shall be reduced by an offset for any death benefit
payable to the Participant's beneficiary from the Company's Executive Life
Insurance Plan and any other Company funded life insurance policy or other
Company funded death benefit program (other than the Basic Plan) in the same
manner as described in Section 3.4(d). If a Participant dies after his
Retirement Date or Termination of Employment, the annual benefit under this
Section 5.1(c) shall not be reduced to offset any death benefit payable under
the Company's Executive Life Insurance Plan or any other Company funded life
insurance policy or other Company funded death benefit program.
5.2 Lump Sum and Hardship Distributions. Notwithstanding any other
-----------------------------------
provisions of the Plan, at any time after a Change in Control a Participant who
has a Termination of Employment, or who previously had a Termination of
Employment with at least fifteen (15) years of Credited Service, or the
Surviving Spouse or Beneficiary of a deceased Participant may receive or
continue to receive, as the case may be, annual benefits to which he is entitled
under this Plan, or may elect to receive such benefits or remaining benefits in
one lump sum cash payment at any time (the "Commencement Date") after the later
to occur of the Change in Control Date or the date of the Participant's
Termination of Employment, irrespective of such Participant's actual age or
years of Credited Service at such Commencement Date. At any time before a
Change in Control a
19
<PAGE>
retired Participant or the Surviving Spouse or Beneficiary of a deceased
Participant may receive or continue to receive, as the case may be, annual
benefits to which he is entitled under this Plan, or may elect to receive such
benefits or remaining benefits in one lump sum cash payment at any time (the
"Commencement Date") after the Participant's Retirement Date or death. Both
before and after a Change in Control a married Participant may elect to receive
a lump sum cash payment only with the written consent of the Participant's
spouse.
Notwithstanding the foregoing, an election to receive a lump sum
payment may not be made by any Participant, Surviving Spouse or Beneficiary at
any time when the Net Worth (as hereinafter defined) of the Sponsor is less than
One Hundred Million Dollars ($100,000,000.00). As used herein, the term "Net
Worth" of the Sponsor shall mean the net worth of the Sponsor as determined (i)
by a firm of independent certified public accountants selected by the Sponsor
from among the eight largest such firms practicing in the United States and (ii)
in accordance with the generally accepted accounting principles utilized by the
Sponsor during the preceding fiscal year (or after a Change in Control, during
the fiscal year preceding the Change in Control Date), consistently applied.
Any expenses incurred in determining the Net Worth of the Sponsor shall be paid
by the Sponsor.
The lump sum payment shall be determined in accordance with the
following provisions of this Section 5.2, and then shall be reduced by a
penalty, which shall be forfeited to the Sponsor, equal to five percent (5%)
after a Change in Control or ten
20
<PAGE>
percent (10%) before a Change in Control of the lump sum payment determined in
accordance with such provisions. However, the penalty shall not apply if the
Committee determines, based on advice of counsel or a final determination by the
Internal Revenue Service or any court of competent jurisdiction, that by reason
of the foregoing elective provisions of this Section 5.2 any Participant,
Surviving Spouse or Beneficiary has recognized or will recognize gross income
for federal income tax purposes under this Plan in advance of payment to him of
Plan benefits. The Sponsor shall notify all Participants (and Surviving Spouses
or Beneficiaries of deceased Participants) of any such determination. Whenever
any such determination is made, the Sponsor shall refund all penalties which
were imposed hereunder on account of making lump sum payments at any time during
or after the first year to which such determination applies (i.e., the first
year when gross income is recognized for federal income tax purposes). Interest
shall be paid on any such refunds based on an interest factor determined under
Section 5.2(b) hereof. The Committee may also reduce or eliminate the penalty
if it determines that this action will not cause any Participant, Surviving
Spouse or Beneficiary to recognize gross income for federal income tax purposes
under this Plan in advance of payment to him of Plan benefits.
Notwithstanding any other provision of this Plan, a penalty shall not
apply if a Participant makes a timely election more than 12 months before his
Termination of Employment to receive a lump sum payment on his Retirement Date
of the benefits to which he would be entitled under this Plan. Any election
21
<PAGE>
which is made by the Participant less than 12 months before his Termination of
Employment will be void and will cause any prior election made by the
Participant to be reinstated, unless the Participant expressly ratifies the
later election and agrees to be subject to the full penalties described above.
Likewise, no penalty shall apply if a retired Participant or the
Surviving Spouse or Beneficiary of a deceased Participant receives a lump sum
distribution due to a financial hardship. The Compensation Committee shall
determine whether a financial hardship exists in its sole discretion, but in
good faith and on a uniform, nondiscriminatory and reasonable basis. A hardship
distribution shall be a cash payment not to exceed the amount necessary to
relieve the hardship.
(a) When annual benefit payments have not yet commenced, the lump sum
payment (prior to the five percent (5%) or ten percent (10%) reduction) shall
equal the lump sum value of the Participant's annual benefit (as defined in
Article III hereof) accrued through the Commencement Date. The amount described
in this Section 5.2(a) shall include, in addition, in the case of a Participant
who has a spouse on the Commencement Date, the lump sum value, determined as of
such date, of any benefit payable to such spouse or other Beneficiary by reason
of the Participant's death on or after such date assuming such spouse would
qualify as a Surviving Spouse on and after such date. The lump sum amount
representing the value of the benefits described in the previous two sentences
shall be computed (i) first by reducing the amount of the Participant's annual
benefit payable under Section 3.1 hereof in accordance with Schedule A
22
<PAGE>
and Section 3.2 hereof, if the Participant's Commencement Date occurs before the
Participant's Normal Retirement Date, by treating the Participant's Commencement
Date as his Early Retirement Date (irrespective of his actual age and actual
years of Credited Service) for purposes of Section 3.2 (as well as Sections 1.3,
1.15, 1.18 and 1.19) and Schedule A hereof, (ii) then determining the survivor
benefit payable in respect of such reduced annual benefit under Section 3.4 or
Section 5.1(c), and (iii) next commuting such benefits to their lump sum
equivalent at the Commencement Date by reference to the factors described in
Section 5.2(b) hereof. In computing the Participant's annual benefit under
clause (i) of the previous sentence, if the Commencement Date occurs before the
earliest date when the Participant may commence to receive his Basic Plan
Benefit, the Participant's Basic Plan Benefit shall be computed as the annual
actuarial equivalent of the Basic Plan Benefit which would be payable to him at
the earliest date when benefits could commence under the Basic Plan, in the form
of a single life annuity if the Participant has no spouse on his Commencement
Date or a 100% joint and survivor benefit if the Participant has a spouse on his
Commencement Date.
When annual benefit payments have previously commenced, the lump sum
payment (prior to the five percent (5%) or ten percent (10%) reduction) shall be
equal to the difference between (A) minus (B) below, determined as of the
Participant's Retirement Date, accumulated to the date of the lump sum payment
using the same interest rate which is used in calculating the amounts (A) and
(B):
23
<PAGE>
(A) The lump sum value of the annual benefits payable to the
Participant (including any benefits payable to the spouse or other Beneficiary
of a married Participant) determined as of the Participant's Retirement Date in
the same manner described in the previous paragraph.
(B) The lump sum value of the annual benefits previously paid to the
Participant discounted to the Participant's Retirement Date.
When a Surviving Spouse or Beneficiary of a deceased Participant
elects to receive a lump sum payment, the amount of the lump sum payment shall
be determined by the Committee in a manner similar to that used for a
Participant, except that no additional benefit is payable under Section 3.4 or
Section 5.1(c) during the life of a surviving spouse of such Surviving Spouse or
Beneficiary. All lump sum equivalents hereunder shall be determined by
reference to the factors described in Section 5.2(b) hereof.
(b) The factors described in this Section 5.2(b) are the actuarial
equivalence factors (a) in the HFA Retirement Plan applicable to benefits
accruing thereunder at the Commencement Date, or the factors in effect at the
time of the HFA Retirement Plan's termination if such termination occurs prior
to the Commencement Date, or (b) of the Pension Benefit Guaranty Corporation
applicable to plans terminating on the Commencement Date, whichever of (a) or
(b) produces the higher amount of lump sum payment under Section 5.2(a).
(c) Example 1. At the Change in Control Date, Participant A is 65
---------
and about to retire under both the Plan and
24
<PAGE>
the HFA Retirement Plan, and Participant B is 50. At that time, Participant A
has accrued a benefit under the Plan equal to $20,000 per year payable starting
at A's Normal Retirement Date, and Participant B has also accrued a benefit
under the Plan equal to $20,000 per year payable starting at B's Normal
Retirement Date. Both Participant A and Participant B have a Termination of
Employment on the Change in Control Date. Participant B's annual benefit
starting at age 50, however, would be $7,000, reduced in accordance with Section
3.2 and Schedule A hereof. Assume solely for the sake of this example that (i)
a $20,000 annual benefit is valued under this Section 5.2 at $200,000 on the day
payments commence at a Participant's Normal Retirement Date, (ii) a $7,000
annual benefit is valued under this Section 5.2 at $300,000 on the day payments
commence when a Participant is 50, and (iii) both A and B are single on the
Change in Control Date so the lump sum valuation need not consider the value of
any death benefit. A may elect to receive a lump sum cash payment computed as
$200,000 less a penalty of $10,000 (5% of $200,000), or $190,000. B may elect
to receive a lump sum cash payment computed as $300,000 less a penalty of
$15,000 (5% of $300,000), or $285,000. Alternatively, A or B may continue to
receive annual benefits under the Plan without any penalty.
Example 2. Assume Participant A in Example 1 above is married.
---------
Participant A has accrued a benefit under the Plan equal to $20,000 per year
payable starting at A's Normal Retirement Date. Further assume that, based on
the age of A's spouse at A's Normal Retirement Date, a 100% joint and survivor
annuity for A and his spouse which is actuarially equivalent to a
25
<PAGE>
$20,000 per year lifetime annuity for A is equal to $17,000 per year.
Accordingly, the annual benefits payable to A and his spouse are equivalent to
an 85% joint and survivor annuity ($17,000/$20,000 = 85%). Assume solely for
the sake of this example that an 85% joint and survivor annuity which will pay a
$20,000 annual benefit to A during his lifetime and a $17,000 annual benefit to
A's spouse during her lifetime following A's death is valued under this Section
5.2 at $250,000 on the day payments commence at A's Normal Retirement Date. A
may elect with the written consent of his spouse to receive a lump sum cash
payment computed at $250,000 less a penalty of $12,500 (5% of $250,000), or
$237,500.
Example 3. Assume Participant A in Example 1 above is single and has
---------
previously received annual benefits of $20,000 per year under the Plan for three
years. At age 68 after a Change in Control A elects to receive a lump sum
payment. Assume solely for the sake of this example that under this Section 5.2
(i) A's $20,000 annual benefit is valued at $200,000 as of A's Normal Retirement
Date, (ii) the three annual payments of $20,000 previously made to A have a
total value of $55,000 as of A's Normal Retirement Date, and (iii) the
difference between (i) and (ii) ($200,000 - $55,000) of $145,000 as of A's
Normal Retirement Date has an accumulated lump sum value when A elects to
receive a lump sum payment at age 68 of $180,000. A may elect to receive a lump
sum cash payment computed at $180,000 less a penalty of $9,000 (5% of $180,000),
or $171,000.
Note. In each of the Examples above, the penalty would be 10% for a
lump sum payment before a Change in Control.
26
<PAGE>
(d) On or after the Change in Control Date, a Participant suffering
from a financial hardship may petition the Compensation Committee to receive a
distribution as provided in this Section 5.2(d), notwithstanding that the
Participant is still employed by a Company. The Compensation Committee shall
determine whether a Participant is then suffering a financial hardship in its
sole discretion, but in good faith and on a uniform, nondiscriminatory and
reasonable basis.
(i) Such hardship distribution shall be a cash payment in an amount
necessary to relieve the hardship, but in no event to exceed the lump sum value
at the date of the hardship distribution (such lump sum value referred to
hereinafter as the "Ceiling Value") of his benefits accrued under the Plan
through the date of payment when expressed in the form described in Section 3.1
hereof (such accrued benefits referred to hereinafter as the "Ceiling Accrual")
less the actual lump sum amount of any previous hardship payments to the
Participant under the Plan.
(ii) The Ceiling Value shall be determined by commuting the
Participant's Ceiling Accrual to a lump sum amount payable at what would be the
Participant's Normal Retirement Date and discounting such amount to its value at
the date of the hardship distribution, both such computations to be made using
the factors set forth in Section 5.2(b) hereof.
(iii) In determining a Participant's Ceiling Accrual, the date of the
hardship distribution shall be treated as the date of the Participant's
Termination of Employment for purposes of Sections 1.3, 1.15 and 1.19 hereof.
The Ceiling Accrual shall include, in the case of a Participant who has a
27
<PAGE>
spouse on the distribution date, the death benefit payable by reason of the
Participant's death on or after his Normal Retirement Date assuming such spouse
would qualify as a Surviving Spouse after such date.
(iv) A Participant receiving a hardship distribution may continue to
participate in the Plan and accrue benefits hereunder through his actual
Termination of Employment. The annual benefit payable at the Participant's
Retirement Date shall be the total benefit accrued hereunder, without regard to
any hardship distributions, reduced by the actuarial equivalent of all such
hardship distributions when expressed in the same form in which, and commencing
at the same date at which, his retirement benefits hereunder are payable. The
conversion of such hardship distributions into an actuarially equivalent annuity
form commencing at the Participant's Retirement Date shall be effected by, in
the case of each hardship distribution, (i) first converting such distribution
back to its annuity form payable under Section 3.1 hereof by multiplying the
Ceiling Accrual at the time such hardship distribution was made by a fraction
the numerator of which is the hardship distribution and the denominator of which
is the Ceiling Value, and (ii) reducing such annuity, if the Participant's
Retirement Date is prior to his Normal Retirement Date, in accordance with
Section 3.2 and Schedule A hereof.
(v) The concepts of this Section 5.2(d) can be illustrated by the
following example. Two years after the Change in Control Date, Participant C,
who is age 50 and not married, is suffering from a financial hardship and
petitions the
28
<PAGE>
Compensation Committee for a hardship distribution. The Compensation Committee
determines that C is suffering from a hardship and that at the projected
distribution date two weeks later, C's Ceiling Accrual is a $40,000 annual
amount starting at C's Normal Retirement Date. Assume solely for the sake of
this example that the present lump sum value of such an annuity is $150,000;
therefore, C's hardship distribution cannot exceed that amount. The
Compensation Committee determines that only $70,000 is necessary to relieve C's
hardship and distributes that amount. C continues to work and terminates his
employment with all Companies on his 65th birthday and is ready to commence
payments under the Plan on his Normal Retirement Date. At that time he is still
single and his actual benefit under the Plan, without regard to the hardship
distribution, is $50,000 per year. This benefit must be reduced by the
actuarial equivalent of the $70,000 hardship distribution he already received.
Such actuarial equivalent payable in annuity form at the Participant's Normal
Retirement Date is equal to the Ceiling Accrual at the time of the hardship
distribution ($40,000) multiplied by the actual hardship distribution ($70,000)
and divided by the Ceiling Value at the time of the hardship distribution
($150,000), or $18,667. Hence, C's annual benefit under the Plan commencing at
his Normal Retirement Date will be $50,000 less $18,667, or $31,333.
5.3 Change in Control. For purposes of this Article V, a "Change in
-----------------
Control" shall occur:
(a) When any person (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934)
29
<PAGE>
becomes the beneficial owner (as such term is used in Section 13(d)(1) of the
Securities Exchange Act of 1934) directly or indirectly of securities
representing at least 25% of the combined voting power of the then outstanding
securities of the Sponsor; or
(b) When during any period of thirty-six (36) consecutive months
(whether commencing before or after the effective date of the Plan), individuals
who at the beginning of such period constituted the Sponsor's Board of Directors
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(c) Upon the effective date of any merger, consolidation,
combination, reorganization, sale, lease or exchange, or issuance or delivery of
stock or other securities, or reverse stock split, exchange, liquidation or
dissolution which is referred to in paragraph (b) of Article TWELFTH of the
Sponsor's Restated Certificate of Incorporation as in effect on January 1, 1989,
and notwithstanding any repeal, amendment or other modification of said Article
TWELFTH that may thereafter be made (hereinafter called a "Transaction"), or the
approval by the stockholders of the Sponsor (or if such stockholder approval is
not required, the approval by the Sponsor's Board of Directors) of a
Transaction; provided, however, that the term "Transaction" shall not include
any transaction described in either proviso set forth at the end of said
paragraph (b); and provided, further,
30
<PAGE>
that the last paragraph of said Article TWELFTH is hereby incorporated herein by
this reference; or
(d) Upon the effective date of approval by the stockholders of the
Sponsor of any plan or proposal for the Sponsor to be Acquired (as defined in
Section 5.4 hereof) or for the liquidation or dissolution of the Sponsor; or
(e) When, after an Affiliated Company which employs the Participant
is acquired (as defined in Section 5.4 hereof), the Participant ceases to be
employed (as defined in Section 5.6 hereof) on a full-time basis by the Sponsor
or any Company in connection with or as a result of such acquisition;
provided that a Change in Control shall occur only for such Participant under
this Section 5.3(e)
5.4 Acquired. For purposes of this Article V, the Sponsor shall be
--------
considered to be "Acquired" only if the owners of its voting securities
immediately prior to the effective date of any transaction described in Section
5.5 hereof will not own immediately thereafter, as a result of having owned such
voting securities, securities representing a majority of the combined voting
power of the then outstanding securities of the Sponsor or the entity that then
owns, directly or indirectly, the Sponsor or all or substantially all its
assets. For purposes of this Article V, a Company other than the Sponsor shall
be considered to be acquired as of the effective date of any sale,
reorganization, merger, consolidation, liquidation or similar transaction
involving the Sponsor or such Company, if as a substantial element of such
transaction (a) all or substantially all the business of such Company will be
terminated or
31
<PAGE>
transferred out of such Company or (b) (i) the Sponsor will cease to own,
directly or indirectly, or (ii) the owners of the Sponsor's voting securities
immediately prior to the commencement of such transaction will cease to own,
directly or indirectly, as a result of having owned such securities, securities
representing a majority of the combined voting power of the then outstanding
securities of such Company or the entity that then owns, directly or indirectly,
such Company or all or substantially all its operating assets.
5.5 Transactions. Transactions described in this Section 5.5 include
------------
a dissolution or liquidation of the Sponsor or a reorganization, merger or
consolidation of the Sponsor with one or more corporations as a result of which
the Sponsor is not
the surviving corporation or as a result of which the Sponsor's outstanding
common stock is converted into or exchanged for securities of another issuer or
cash or other property or any combination thereof, or the sale of all or
substantially all of the assets of the Sponsor.
5.6 Cease to Be Employed. For purposes of Section 5.3(e) hereof, a
--------------------
Participant shall "cease to be employed" by the Sponsor or a Company when he has
a Termination of Employment, unless he (a) voluntarily terminates his employment
without the consent of the Sponsor or the Company employing him or (b) his
employment is terminated for misconduct (including but not limited to
dishonesty, fraud or disclosure of confidential information).
5.7 Amendment or Termination of Plan. Notwithstanding any other
--------------------------------
provision of this Plan, without the written consent of
32
<PAGE>
the Participant (or Surviving Spouse or Beneficiary of a deceased Participant)
affected thereby, the Sponsor may not amend or terminate this Plan:
(a) For a period of twenty-four (24) months following a Change in
Control; or
(b) At any time thereafter, in any manner which affects any
Participant (or Surviving Spouse or Beneficiary of a Deceased Participant) who
receives benefits under this Plan or has a Termination of Employment for any
reason at any time during the period of twenty-four (24) months following the
Change in Control.
ARTICLE VI
FUNDING
-------
6.1 Grantor Trust. The Plan shall be funded by the Sponsor through a
-------------
grantor trust established with a trustee which shall be either a bank, savings
and loan association, or insurance company, the outstanding stock of which no
Company owns more than 1% and which has a net worth of at least $100 million.
The assets of such grantor trust shall be subject to the claims of the Sponsor's
creditors.
6.2 Contributions. The Sponsor shall contribute sufficient funds no
-------------
less frequently than annually so that as of the end of each fiscal year of the
trust, the assets of the trust are at least equal in value to the value of
benefits accrued through such date by all Participants. In the event of any
Change in Control, as defined in Article V hereof, the Sponsor
33
<PAGE>
shall (i) immediately prior to the Change in Control Date contribute sufficient
funds so that the value of trust assets immediately after such contribution are
at least equal to the value of benefits accrued through such date by all
Participants, including any additional benefits accrued pursuant to Section 5.1
hereof, and (ii) continue after the Change in Control to contribute sufficient
funds as provided in the preceding sentence. For purposes of this Section 6.2,
the value of accrued benefits shall be determined using an interest rate of six
percent (6%) and the UP-1984 mortality table and assuming in the case of each
Participant a Retirement Date at the earliest possible age.
6.3 Funding and Investment Policy. The Committee shall establish a
-----------------------------
funding and asset investment policy for the trust taking into account such
matters as the long and short term liquidity needs, long and short term rates of
return, and the likelihood of a Change in Control. The assets of the fund shall
be invested in any media which the Committee deems appropriate and consistent
with its funding policy including, in whole or in part, accounts with and
maintained by Home Savings of America, F.A.
6.4 Status of Participants as Unsecured Creditors. Notwithstanding
---------------------------------------------
anything in Sections 6.1 or 6.2 hereof to the contrary, the agreement of the
Sponsor or Company to make payments pursuant to the provisions of the Plan is
just an unsecured promise to pay. The Participants have the status of unsecured
creditors and have no security interest in the trust estate of any trust created
to provide the Sponsor with a source
34
<PAGE>
of funds to satisfy its obligations under the Plan. The language of Sections
6.1 and 6.2 hereof shall not give rise to any right in equity or under contract
for Plan Participants to compel or require the Sponsor to transfer cash or other
assets to the trust.
ARTICLE VII
COMMITTEE AND SPECIAL POWERS OF COMPENSATION COMMITTEE
------------------------------------------------------
7.1 Appointment of Committee. The Committee shall consist of three
------------------------
(3) members who shall be appointed by the Board or the Compensation Committee.
The original members shall be: Richard H. Deihl, Robert M. De Kruif and George
G. Gregory, and each such member shall serve as such a member until resignation,
death or removal by the Board. If at any time the Committee shall not be in
existence, or shall be unable or refuse to make a determination necessary or
convenient to the administration of this Plan, the Board or Compensation
Committee shall appoint a new member or members to the Committee.
7.2 Duties of Committee. The Committee shall be charged with the
-------------------
administration of this Plan and shall decide all questions arising in the
administration, interpretation and application of the Plan, including all
questions of distributions, except as such may be expressly reserved hereunder
to the Board or the Compensation Committee. The decision of the Committee shall
be conclusive and binding on all parties, providing that the Committee has acted
in good faith and in accordance with the provisions of this Plan.
35
<PAGE>
The Committee shall appoint Management Compensation Group or a
nationally recognized actuarial firm, which shall on an annual basis and also in
the event of a Change in Control, as defined in Article V hereof, make a written
report to the Committee on the compliance of the Plan with the requirements of
Section 6.2 hereof.
The Committee shall, from time to time, direct the Treasurer of the
Company concerning the payments to be made hereunder to the Participants
pursuant to this Plan and shall have such other powers respecting administration
of the Plan as may be conferred upon it hereunder or as may be delegated to it
from time to time by the Board or the Compensation Committee.
If any member of the Committee shall be a Participant hereunder, then
in any matters affecting any member of the Committee in his individual capacity
as a Participant hereunder, separate and apart from his status as a member of
the group of Participants, such interested member shall have no authority to
vote in the determination of such matters as a member of the Committee, but the
Committee shall determine such matter as if said interested member were not a
member of the Committee;
provided, however, that this shall not be deemed to take from said interested
member any of his rights hereunder as a Participant. If the remaining members
of the Committee should be unable to agree on any matter so affecting an
interested member because of an equal division of voting, the Board or
Compensation Committee shall appoint a temporary member of the Committee in
order to create an odd number of voting members.
36
<PAGE>
7.3 Determinations by Committee; Appointment of Agents; Settlement of
-----------------------------------------------------------------
Claims.
- ------
(a) The Committee may delegate to any agent such duties and powers,
both ministerial and discretionary, as it deems appropriate, excepting only that
all matters involving interpretation of the Plan shall be determined by the
Committee, and settlement of claims shall be determined by the Committee in
accordance with the provisions of subsection (b) hereof.
(b) Section 503 of Title I of ERISA requires that there be
established with respect to the Plan claims procedures which are in accordance
with regulations that may be promulgated under said section by the Secretary of
Labor. The Committee shall establish and maintain procedures pertaining to
claims by Participants and their Surviving Spouses and Beneficiaries for
benefits under the Plan, which shall be in compliance with the requirements of
said Section 503.
(c) Except as hereinbefore provided, any determination by a majority
of the Committee at a meeting thereof, whether in person or by telephone, or
without a meeting by a resolution or memorandum signed by all the members, shall
be final and conclusive on each Company, on all Participants and Beneficiaries
claiming any right hereunder, and on all third parties dealing with each
Company.
7.4 Compensation and Expenses of the Committee. The compensation of
------------------------------------------
the members of the Committee, officers, agents, counsel or other persons
retained or employed by the Committee for services rendered in connection with
the Plan shall be fixed
37
<PAGE>
by the Committee, subject to the approval of the Board, and shall be paid by the
Company.
7.5 Resignation and Removal of Members. Any member of the Committee
----------------------------------
may resign at any time by giving written notice to the other members and to the
Sponsor, effective as therein stated, or otherwise upon receipt. Any member or
members of the Committee may, at any time, be removed by the Board or
Compensation Committee.
7.6 Appointment of Successors. Upon death, resignation, termination
-------------------------
or removal of any member of the Committee, the Board or Compensation Committee
shall appoint a successor.
7.7 Special Powers of Compensation Committee; Hardship Distributions.
-----------------------------------------------------------------
Notwithstanding any other provision of the Plan to the contrary, the
Compensation Committee shall have the right to do any one or more of the
following in its sole discretion: (i) increase a Participant's accrued benefit
by awarding him additional years of Credited Service for purposes of computing
his SERP Benefit under or in accordance with Section 3.1 hereof; provided that
in no event shall a Participant ever be credited with more than fifteen (15)
years of Credited Service for purposes of computing his SERP Benefit; (ii)
determine the benefit under Section 3.2 or 5.2(a) hereof, or both, in the case
of a Participant who receives benefits hereunder prior to his Normal Retirement
Date either (A) without regard to Schedule A hereof or (B) without regard to
Schedule A hereof, but with regard to factors selected by the Compensation
Committee that would result in a smaller reduction than would result by
38
<PAGE>
application of the factors in Schedule A; (iii) treat a Participant's benefits
hereunder as nonforfeitable at a time earlier than that specified in Section
2.2(a) or 5.1(a) hereof; and (iv) distribute a Participant's benefits earlier
than his Retirement Date as specified in Section 2.1 hereof or more rapidly than
the manner specified in Section 3.4 hereof, or both, if the Compensation
Committee determines that the Participant is faced with an unforeseeable
emergency within the meaning of regulations under Section 457 of the Code;
provided that, notwithstanding the foregoing, a distribution as a result of such
an unforeseeable emergency made to a Participant after a Change in Control, as
defined in Section 5.3 hereof, shall not be less than the amount prescribed by
Section 5.2(d) hereof. Applications for distributions on account of an
unforeseeable emergency and determinations thereon by the Compensation Committee
shall be in writing, and a Participant may be required to furnish written proof
of the unforeseeable emergency.
ARTICLE VIII
DESIGNATION OF BENEFICIARY
--------------------------
8.1 Designation of Beneficiary. Each Participant shall have the
--------------------------
right to designate a Beneficiary or Beneficiaries to receive any benefits
payable after his death during the lifetime of his Surviving Spouse. Such
designation shall be made on a form prescribed by and delivered to the Sponsor.
The Participant shall have the right to change or revoke any such designation
from time to time by filing a new designation or
39
<PAGE>
notice of revocation with the Sponsor, and no notice to any Beneficiary nor
consent by any Beneficiary shall be required to effect any such change or
revocation. If, however, the Participant is married, his spouse shall be
required to join any such designation, or change or revocation thereof, to name
a Beneficiary other than the spouse.
8.2 Failure to Designate Beneficiary. If a Participant shall fail to
--------------------------------
designate a Beneficiary before his demise, or if no designated Beneficiary
survives the Participant, the Committee shall direct the Company to pay any
benefits payable after his death to his Surviving Spouse.
ARTICLE IX
POWERS
------
9.1 No Liability. The Committee and Compensation Committee and their
------------
members, the Board and its members, the Companies and their officers, employees
and agents, and any persons to whom any power or duty is delegated in connection
with this Plan shall have no liability for any action or failure to act, except
for their own gross negligence or willful misconduct, and no bond or other
security shall be required of any such person.
9.2 Advice of Counsel. The Committee and Compensation Committee may
-----------------
consult with legal counsel, who may be counsel for the Companies, or any of
them, or otherwise, with respect to the meaning or construction of this Plan, or
the Sponsor's, Committee's or Compensation Committee's obligation or duties
40
<PAGE>
hereunder, and shall be fully protected from any responsibility with respect to
any action taken or omitted by the Committee or Compensation Committee in good
faith pursuant to the advice of such legal counsel.
9.3 Distribution of Participants' Interests When Sponsor is Unable to
-------------------------------------------- --------------------
Locate Distributees. In case the Sponsor is unable within three (3) years after
- -------------------
payment is due to a Participant, or within three (3) years after payment is due
to the Surviving Spouse or Beneficiary of a deceased Participant, to make such
payment to him or his Surviving Spouse or Beneficiary because it cannot
ascertain his whereabouts, or the identity or whereabouts of his Surviving
Spouse or Beneficiary, by mailing to the last known address shown on the
Company's records, and neither he, his Surviving Spouse nor his Beneficiary has
made written claim therefor before the expiration of the aforesaid time limit,
then, in such case, the amount due shall be forfeited to the Sponsor.
ARTICLE X
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
10.1 Amendment and Termination of Plan; Removal of Participants. The
----------------------------------------------------------
Compensation Committee may, in its sole discretion, terminate, suspend or amend
the Plan at any time or from time to time, in whole or in part, and may remove a
Participant from future participation in the Plan. However, no amendment,
suspension, or termination of the Plan or the HFA Retirement Plan or removal of
a Participant may reduce the
41
<PAGE>
aggregate forfeitable or nonforfeitable benefits of a Participant accrued under
said Plans through the date of such amendment, suspension, termination or
removal or adversely affect the right or ability of a Participant or his
Surviving Spouse or Beneficiary to receive such benefits in accordance with the
terms of said Plans as in effect on the date before such amendment, suspension,
termination or removal, including but not limited to the right to earn
additional Credited Service after such amendment, suspension, termination or
removal for purposes of becoming fully vested under Section 2.2(a) hereof. In
the case of a termination of the Plan, Section 2.2(a) shall be applied without
regard to the minimum fifteen (15) years of Credited Service requirement set
forth in the proviso to the first sentence thereof.
ARTICLE XI
SPENDTHRIFT PROVISIONS
----------------------
The Sponsor shall, except as otherwise provided hereunder, pay all
amounts payable hereunder only to the person or persons entitled thereto
hereunder, and all such payments shall be made directly into the hands of each
such person or persons and not into the hands of any other person or corporation
whatsoever, so that said payments may not be liable for the debts, contracts or
engagements of any such designated person or persons, or taken in execution by
attachment or garnishment or by any other legal or equitable proceedings, nor
shall any such designated person or persons have any right to alienate,
42
<PAGE>
arbitrate, execute, pledge, encumber, or assign any such payments or the
benefits or proceeds thereof. If the person entitled to receive payment be a
minor, or a person of unsound mind, whether or not adjudicated incompetent, the
Sponsor, upon direction of the Committee, may make such payments to such person
or persons, corporation or corporations as may be, or be acting as, parent or
legal or natural guardian of such infant or person of unsound mind. The signed
receipt of such person or corporation shall be a full and complete discharge of
the Sponsor for any such payments.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Right of Companies to Dismiss Employees;
----------------------------------------
Obligations. Neither the action of the Sponsor and the Companies in
- -----------
establishing this Plan, nor any provisions of this Plan, shall be construed as
giving any employee the right to be retained in employment with any Company, or
any right to any payment whatsoever except to the extent of the benefits
provided for by this Plan. The Companies expressly reserve their right at any
time to dismiss any employee without any liability for any claim against the
Companies, or any of them, for any payment whatsoever except to the extent
provided for in this Plan.
12.2 Inspection Rights. Each Participant shall be notified in
-----------------
writing that he or she has been selected to participate in the Plan, and the
Committee will make available for inspection by any Participant a copy of the
Plan and the
43
<PAGE>
rules and regulations used by the Committee in administering the Plan.
12.3 Withholding and Payroll Taxes. The Sponsor shall withhold from
-----------------------------
payments made hereunder any taxes required to be withheld from such payments
under federal, state or local law.
12.4 Payment to Guardian. If a benefit is payable to a minor or a
-------------------
person declared incompetent or to a person incapable of handling the disposition
of his property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of such
minor, incompetent or incapacitated person. The Committee may require proof of
minority, incompetency, incapacity or guardianship as it may deem appropriate
prior to distribution of the benefit. Such distribution shall completely
discharge the Committee from all liability with respect to such benefit.
12.5 Protective Provisions. Each Participant shall cooperate with
---------------------
the Company by furnishing any and all information requested by the Company in
order to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company.
12.6 Notices and Elections. Any notice or election required or
---------------------
permitted to be given to the Company or the Committee under the Plan shall be
sufficient if in writing on a form prescribed or accepted by the Committee and
hand delivered, or sent by registered or certified mail, to the principal office
of the Sponsor, directed to the attention of the Corporate Human Resources
Department of the Sponsor. Such notice or election
44
<PAGE>
shall be deemed given as of the date of delivery or, if delivery is made by
mail, as of the date shown on the postmark on the receipt for registration or
certification.
12.7 Text to Control. The headings of the Articles and Sections are
---------------
included solely for convenience of reference, and if there be any conflict
between such headings and the text of this Plan, the text shall control.
12.8 Law Governing and Severability. This Plan shall be construed,
------------------------------
regulated and administered under the laws of the State of Delaware.
If any provisions of this Plan shall be held invalid or unenforceable
for any reason, such invalidity or unenforceability shall not affect the
remaining provisions of this Plan, and this Plan shall be deemed to be modified
to the least extent possible to make it valid and enforceable in its entirety.
12.9 Name. This amended and restated Plan may be referred to as the
----
"Supplemental Executive Retirement Plan of H. F. Ahmanson & Company."
12.10 Gender. The masculine gender shall include the feminine, and
------
the singular shall include the plural.
12.11 Ineligible Participant. Notwithstanding any other provisions of
----------------------
this Plan to the contrary, if any Participant is determined not to be a
"management or highly compensated employee" within the meaning of ERISA or
Regulations thereunder, such Participant will not be eligible to participate in
this Plan and shall receive an immediate lump sum payment which is the actuarial
equivalent of his vested benefits under this Plan. Upon such payment no
survivor benefit or other benefit shall
45
<PAGE>
thereafter be payable under this Plan either to the Participant or any Surviving
Spouse or Beneficiary of the Participant.
IN WITNESS WHEREOF, the Sponsor has caused this amended
and restated Plan to be executed this 26th day of October , 1993, effective
------ ---------
as of September 1, 1993.
H. F. AHMANSON & COMPANY
By /s/ Richard H. Deihl
-------------------------------
Title: Chief Executive Officer
46
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OF H. F. AHMANSON & COMPANY
SCHEDULE A
----------
REDUCTION FACTORS FOR EARLY RETIREMENT BENEFIT
----------------------------------------------
Benefits payable on an Early Retirement Date shall equal the SERP
Benefit determined under Section 3.1 hereof reduced by the following amounts for
each month the Participant commences to receive benefits prior to his Normal
Retirement Date, then further reduced by the offsets described in Section 3.2
hereof.
Number of Months Prior Percentage per
to Normal Retirement Month Reduction
---------------------- ---------------
1-60 0.250%
61 or more 0.4167%
Example: Participant commenced to receive benefits 90 months before his Normal
- -------
Retirement Date. His SERP Benefit will be reduced by 60 x 0.250% + 30 x 0.4167%
= 27.5%.
The annual reduction factors (which are equivalent to the monthly
reduction factors set forth above) are as follows:
Percent of SERP Benefit
Participant's Age Participant Would Have Received
At Retirement Date If He Had Retired At Age 65
- ------------------ -------------------------------
65 100%
64 97
63 94
62 91
61 88
60 85
59 80
58 75
57 70
56 65
55 60
47
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 1
=========================================
PLAN OVERVIEW
--------------------------------
The plan offers participants the opportunity to earn an annual
cash bonus based on Company performance during each plan year
(i.e., the four quarters ending on December 31 of each year).
Participation in the plan is limited to key management employees
of the Company and its subsidiaries (as determined by the
Compensation Committee of the Board of Directors) who are not
eligible to participate in any other Company-sponsored bonus
plan.
Each participant's award opportunity is based upon the Company's
performance in terms of objective, quantifiable measures. Such
measures and the relationship between maximum awards and
performance will be determined by the Compensation Committee
prior to the beginning of each plan year (except for the 1994
plan year). Performance measures determined by the Compensation
Committee may include actual Company performance compared to
budget or plan for any or all of the following performance
criteria: Earnings Per Share (EPS), Return on Assets (ROA),
Return on Equity (ROE), general and administrative expenses and
market share. For plan years ending on and after December 31,
1994 (until further action of the Compensation Committee) the
performance measures and the relationship between maximum awards
and performance will be as set forth below in this plan.
Awards earned on the basis of Company performance may be
decreased (but not increased) at the discretion of the
Compensation Committee based on the Committee's assessment of a
participant's individual performance for the plan year and other
factors.
AWARD OPPORTUNITY
--------------------------------
TARGET AWARDS Each participant is assigned a target award opportunity (i.e.,
the award level consistent with the Company achieving good
performance) expressed as a percentage of the participant's
annual base salary in accordance with the following guidelines:
TARGET AWARD GUIDELINES
TARGET AWARD AS A
GRADE LEVEL PERCENT OF BASE SALARY
----------- ------------------------------
67 80.0%
65 70.0%
60-64 55.0%
58-59 45.0%
53-57 30.0%
51-52 20.0%
48-50 12.5%
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 2
=========================================
AWARD OPPORTUNITY (CONTINUED)
--------------------------------
TARGET AWARDS Participants in a grade designated with a "T" will participate at
(CONTINUED) the next lower target award level.
DEFINITION OF The salary used to determine earned awards will be the
BASE SALARY participant's annual base salary rate in effect as of the
last day of the plan year (i.e., December 31).
RANGE OF The actual size of a participant's earned award may vary
AWARD from 0% to 200% of the target award according to the level of
OPPORTUNITY Company performance; provided that in no event shall it exceed
$2,000,000 for any plan year.
DETERMINATION OF AWARDS
--------------------------------
AWARDS Awards for each plan year will be based on the Company's EPS
performance compared to budget for that year. The maximum
available award for each participant will be equal to the
participant's target award multiplied by the payout percentage
determined by the following payout/performance table:
PAYOUT/PERFORMANCE TABLE
EPS PERFORMANCE MAXIMUM PAYOUT AS
VERSUS BUDGET A PERCENT OF TARGET
--------------- -------------------
130% or More 200%
115% 150%
100% 100%
50% 25%
Below 50% 0%
The award opportunity for performance between the discrete points
in the above table will be interpolated on a linear basis. For
example, EPS performance equal to 110% of budget will result in a
maximum potential award equal to 133 1/3% of the target award.
EXAMPLE. Assume that Company EPS performance for fiscal 1994
equals 90% of budget. A participant with a target award of 45%
of salary would be eligible to receive a maximum award (subject
to downward adjustment by the Compensation Committee) of 38.25%
of salary (i.e., 85% X 45%).
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 3
=========================================
DETERMINATION OF AWARDS (CONTINUED)
---------------------------------------
POSSIBLE Awards determined from the above Payout/Performance table
DOWNWARD may be decreased (but not increased) at the discretion of the
ADJUSTMENT Compensation Committee based upon the Committee's assessment of a
participant's individual performance for the plan year, the
performance for the plan year of the business unit or
organizational area of the Company that directly employs the
participant, and the performance for the plan year of the Company
in areas not adequately reflected in the EPS. In addition,
regardless of Company performance, no participant will be
eligible to receive an award payment for a plan year unless the
participant's individual performance for the plan year is
considered satisfactory by the Compensation Committee.
The Compensation Committee may in its discretion determine not to
pay awards under the plan if Home Savings of America's core
capital as a percent of total assets as of the end of the plan
year falls below the level mandated in Section 301 of the
Financial Institutions Reform, Recovery and Enforcement Act of
1989.
OTHER PROVISIONS
-------------------------------
PAYMENT OF Awards earned under the plan normally will be paid in cash
EARNED AWARDS as soon as possible following written certification by the
Compensation Committee of the Company's actual performance
against the objective performance criteria established by the
Committee for the plan year. The Compensation Committee reserves
the right, in its sole discretion, to pay all or part of any
awards earned under the plan in the form of nonqualified stock
options, with such options granted under the terms and conditions
of the Company's 1993 Stock Incentive Plan. In the event that any
payment under the plan is made in stock options, amounts earned
under the plan will be converted into stock options of
approximately equivalent value based on a generally-accepted
stock option valuation model approved by the Committee.
NEW HIRES/ Individuals hired or promoted during a plan year into a position
CHANGES IN that would qualify for participation in the plan may be added to
RESPONSIBILITY the plan at any time at the discretion of the Compensation
Committee.
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 4
=========================================
OTHER PROVISIONS (CONTINUED)
--------------------------------
NEW HIRES/ New participants added to the plan during a plan year will be
CHANGES IN eligible to receive a pro-rata award for the plan year, provided
RESPONSIBILITY that the individual participates in the plan for at least
(CONTINUED) three months during the plan year. Awards for individuals
moved into positions eligible for higher or lower award levels
will be prorated based on time employed in each position during
the plan year. Pro-rata awards will be determined based on the
number of full weeks that an individual participates in the plan
during the plan year, divided by 52.
TERMINATION OF If a participant's employment with the Company terminates for any
EMPLOYMENT reason other than death, permanent disability or normal
retirement prior to the payment of awards for a plan year, the
participant will be ineligible to receive an award for that plan
year. In the event that a participant's employment with the
Company terminates for reason of death, permanent disability or
normal retirement prior to the payment of awards for a plan year,
the participant, or in the event of death, the participant's
heirs, will receive, at minimum, a pro-rata award for the plan
year. Pro-rata awards for this purpose also will be determined
based on the number of full weeks that an individual participates
in the plan during the plan year, divided by 52.
Awards for individuals who terminate employment with the Company
for any reason during a plan year will be paid (if an award is
otherwise payable under the plan) at the same time that awards
are paid to other participants in the plan. For purposes of the
plan, normal retirement refers to retirement at or after age 65
in accordance the Company's executive retirement policies and
program.
ADMINISTRATION The Compensation Committee shall administer this plan and
AND shall decide all questions arising in the administration,
INTERPRETATION interpretation and application of the plan, including all
questions of awards and payments. The decision of the
Committee shall be conclusive and binding on all parties,
providing that the Committee acted in good faith.
It is the intent of the Company that this plan and Awards
hereunder satisfy, and be interpreted in a manner that satisfy,
in the case of Participants who are or may be Covered Employees
(within the meaning of Internal Revenue Code section 162(m)), the
applicable requirements of section 162(m), so that the Company's
tax deduction for remuneration in respect of an Award for
services performed by such Covered Employees is not disallowed in
whole or in part by the operation of such section. If any
provision of this plan or of any Award would otherwise frustrate
or conflict with the intent expressed herein, that provision to
the extent possible shall be interpreted and deemed amended so as
to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provisions shall
be deemed void as applicable to Covered Employees.
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 5
=========================================
OTHER PROVISIONS (CONTINUED)
--------------------------------
TRANSITION This plan is effective as of January 1, 1994 and supersedes the
EXISTING Company's existing Executive Short-Term Incentive Plan.
SHORT-PLAN
<PAGE>
The form of Indemnity Agreement filed as Exhibit 10.13 has been entered
into between H. F. Ahmanson & Company and the following directors and executive
officers of H. F. Ahmanson & Company as of the dates indicated:
<TABLE>
<CAPTION>
Name Date
- ------------------------- --------
<S> <C>
Robert H. Ahmanson 11/13/86
William H. Ahmanson 11/13/86
Byron Allumbaugh 03/24/87
Richard M. Bressler 01/27/87
Lodwrick M. Cook 11/13/86
Bill Daniels 11/13/86
Richard H. Deihl 11/13/86
Robert M. De Kruif 11/13/86
Fredric J. Forster 02/22/93
George G. Gregory 11/13/86
David S. Hannah 11/13/86
George Miranda 03/28/89
Delia M. Reyes 10/27/92
Charles R. Rinehart 12/01/89
Elizabeth Sanders 01/30/90
William D. Schulte 03/26/91
Arthur W. Schmutz 03/23/93
Kevin M. Twomey 07/06/93
</TABLE>
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 1
=========================================
PLAN OVERVIEW
--------------------------------
PLAN The plan provides for (a) annual grants of stock options and (b)
OVERVIEW annual grants of deferred cash incentive awards through which a
participant is given the opportunity to earn a cash award payment
based on the Company's performance in terms of objective,
quantifiable measures. Such measures and the relationship between
maximum awards and performance will be determined by the
Compensation Committee prior to the beginning of each three-year
performance measurement cycle (except for the three cycles ending
December 31, 1994, 1995 and 1996) beginning on January 1 and
ending on December 31 three years later. Performance measures
determined by the Compensation Committee may be based upon any or
all of the following criteria: absolute or relative total
shareholder return, absolute or relative return on tangible
equity and absolute or relative return on assets. For performance
measurement cycles ending on or after December 31, 1994 (until
further action of the Compensation Committee) the performance
measure will be Total Shareholder Return (TSR) and the
relationship between maximum awards and performance will be as
set forth below in this plan. For purposes of the plan, TSR
represents return to shareholders from both stock price
appreciation and dividends over the three-year performance
measurement cycle, assuming dividends are reinvested quarterly.
PARTICIPATION Participation in the plan is limited to selected senior
CRITERIA executives of the Company and its subsidiaries as determined
by the Compensation Committee of the Board of Directors.
AWARD OPPORTUNITY
--------------------------------
TARGET Each participant is assigned a target award opportunity (i.e.,
AWARDS the award level consistent with the Company achieving good
performance) expressed as a percentage of annual base salary and
based on the guidelines in the following table. Actual target
awards for individual participants for a given performance cycle
may vary from the following guidelines and will be determined by
the Compensation Committee.
TARGET AWARD GUIDELINES
TARGET AWARD AS A
GRADE LEVEL PERCENT OF BASE SALARY
----------- ----------------------
67 180%
65 160%
60 - 64 100% - 135%
58 - 59 85%
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 2
=========================================
AWARD OPPORTUNITY (CONTINUED)
--------------------------------
The salary and grade level used to determine the size of a
participant's stock option grant will be the participant's annual
base salary rate and grade level in effect as of the date the
options are granted by the Compensation Committee. The salary
and grade level used to determine a participant's deferred cash
incentive award payment will be the participant's annual base
salary rate and grade level in effect on the last day of the
three-year performance cycle for which the payment is made,
except in the case of pro-rata award payments (as provided under
"New Hires/Changes in Responsibility" below).
STOCK OPTIONS
--------------------------------
TIMING OF Stock options granted under the plan will be granted annually
GRANTS on a date during the period from December 1 to February 10
selected by the Compensation Committee.
SIZE OF GRANT The size of a participant's annual stock option grant will equal
one-half of the total value of the participant's target award
opportunity under the plan, for the performance measurement cycle
commencing in the January nearest to the date of grant. The
number of options granted annually to a participant will be
calculated by dividing one-half of the participant's total target
award opportunity by an estimated value of an option in the
Company's common stock determined through the following process:
(1) Increase the average closing trading price of the Company's
common stock for the most recent thirty trading days ending
on the last day of the month preceding the date of grant
(the "base price") by a compound annual growth rate of 10%
for a seven year period;
(2) Subtract the "base price" from the estimated future stock
value determined in step (1);
(3) Determine the present value of the estimated future gain
determined in step (2) using an 8% annual discount rate.
Example: (Assuming a $20 "base price")
(1) $20 X (1.10) exponential 7 = $38.97
(2) $38.97 - $20.00 = $18.97
(3) $18.97/(1.08) exponential 7 = $11.07
The number of common shares covered by an option granted in
accordance with the above process will be rounded to the nearest
whole number.
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 3
=========================================
STOCK OPTIONS (CONTINUED)
--------------------------------
FORM OF Options granted under the plan will be granted under the terms
OPTIONS and conditions of the Company's 1993 Stock Incentive Plan. Such
options will become exercisable in full six months after the date
of grant, will have a term of ten years, and will have an
exercise price equal to the average of the high and low trading
prices of the Company's common stock on the date of grant.
DEFERRED CASH INCENTIVE
--------------------------------
TSR Company TSR performance for calculating deferred cash incentive
MEASUREMENT payments earned under the plan will be determined by separately
calculating the Company's percentile ranking in TSR relative to
the TSR performance of the individual companies comprising the
S&P 500 Index (excluding the Company) and the individual
companies comprising the S&P Banking Index (excluding the
Company) for each of the twelve calendar quarters in the
performance measurement cycle. For purposes of this comparison,
the Company's relative percentile ranking will be calculated
separately for each Index. The Company's overall percentile
ranking in TSR will then be determined by calculating the
Company's average percentile ranking against the two Index
groups, with the Company's performance against each Index group
weighted equally.
EXAMPLE: If the Company's TSR ranking relative to the S&P 500
Index group for the three-year performance measurement cycle
equals the 50th percentile and its TSR ranking relative to the
S&P Banking Index group equals the 40th percentile, the Company's
overall TSR ranking for plan purposes will equal the 45th
percentile.
RANGE OF CASH The deferred cash incentive portion of a participant's target
AWARD award opportunity for each performance measurement cycle
OPPORTUNITY will equal one-half of the total value of that target award
opportunity. Actual deferred cash incentive awards earned under
the plan may range from 0% to 150% of the deferred cash incentive
half of the participant's target award opportunity; provided that
in no event shall it exceed $2,000,000 for any performance cycle.
The actual award earned within this range will be based on the
level of the Company's TSR performance for the three-year
performance cycle according to the following award/performance
table:
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 4
=========================================
DEFERRED CASH INCENTIVE (CONTINUED)
--------------------------------
RANGE OF AWARD/PERFORMANCE TABLE
CASH AWARD TSR PERFORMANCE
OPPORTUNITY
(CONTINUED) COMPANY PAYOUT AS A
PERCENTILE RANKING PERCENT OF HALF OF TARGET
------------------ -------------------------
75th and Above 150%
60th 125%
50th 100%
40th 50%
Below 40th 0%
If the TSR performance of the Company falls between the discrete
points contained in the above table, the actual award payout will
be interpolated on a linear basis. For example, Company TSR
performance equal to the 55th percentile of the peer group will
generate a payout equal to 112.5% of the deferred cash incentive
half of the target award opportunity.
OTHER The size of a participant's deferred cash incentive award
LIMITATIONS payment will be subject to a reduction of up to 20% based upon
an assessment of the participant's individual performance during
the twelve months immediately prior to the end of the three-year
performance measurement cycle. Adjustments for individual
performance will be at the discretion of the Compensation
Committee.
Also, no participant will be eligible to receive an annual stock
option grant or a cash payment under the plan unless the
participant's individual performance is considered satisfactory
by the Compensation Committee for the calendar year preceding the
grant (or if the grant is made in December, for that calendar
year), in the case of stock options, or preceding the payment, in
the case of cash payments.
The Compensation Committee may, in its discretion determine not
to pay cash incentive awards under the plan if Home Savings of
America's core capital as a percent of total assets as of the end
of the plan year falls below the level mandated in Section 301 of
the Financial Institutions Reform, Recovery and Enforcement Act
of 1989.
PAYMENT OF Subject to the limitations described in the prior paragraphs,
EARNED AWARDS earned deferred cash incentive awards will be paid in cash as
soon as possible after the end of each performance measurement
cycle, following written certification of the Company's relative
TSR performance ranking by the Compensation Committee.
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 5
=========================================
OTHER PROVISIONS
-------------------------------
NEW HIRES/ Individuals hired or promoted into a position that would qualify
CHANGES IN for participation in the plan may be added to the plan at
RESPONSIBILITY any time at the discretion of the Compensation Committee. New
participants added to the plan during a performance measurement
cycle will be eligible to receive an option grant under the plan
at the time of the next regular grant to existing plan
participants. In addition, such participants will be eligible to
receive a full deferred cash incentive award payment for that
cycle, provided that the individual participates in the plan for
at least six months during the cycle and the Committee does not
decide to pay a prorated award to such individual. Deferred cash
incentive awards for individuals moved into positions eligible
for higher or lower award levels will be prorated based on time
employed in each position during the performance cycle. Pro-rata
deferred cash incentive awards will be determined based on the
number of full months that an individual participates in the plan
(or in different award levels, as the case may be) during the
performance measurement cycle, divided by 36 unless otherwise
determined by the Compensation Committee.
TERMINATION OF If a participant's employment with the Company terminates for any
EMPLOYMENT reason other than death, permanent disability or normal
retirement prior to the payment of deferred cash incentive awards
for a performance measurement cycle, the participant will be
ineligible to receive a deferred cash incentive award payment for
that cycle. In the event that a participant's employment with the
Company terminates for reason of death, permanent disability or
normal retirement prior to the payment of deferred cash incentive
awards for a performance cycle, the participant, or in the event
of death, the participant's heirs, will receive, at minimum, a
pro-rata deferred cash incentive award for the cycle. Pro-rata
awards for this purpose will be determined based on the number of
full months that the individual participated in the plan during
the performance cycle prior to termination of employment, divided
by 36 unless otherwise determined by the Compensation Committee.
Deferred cash incentive awards for individuals who terminate
employment with the Company for any reason during a performance
measurement cycle will be paid (if an award is otherwise payable
under the terms of the plan) at the same time as deferred cash
incentive awards are paid to other participants in the plan. For
purposes of the plan, normal retirement refers to retirement at
or after age 65 in accordance the Company's executive retirement
policies and program.
Upon a participant's termination of employment from the Company
for any reason other than death, permanent disability, normal
retirement, or retirement with the consent of the Company at an
earlier date, unexercised stock options previously granted to the
participant under the plan must be exercised within a
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 6
=========================================
OTHER PROVISIONS (CONTINUED)
--------------------------------
TERMINATION OF period of 90 days following termination of employment or be
EMPLOYMENT forfeited. Upon a participant's termination of employment
(CONTINUED) from the Company for reason of death, permanent disability,
normal retirement, or retirement with the consent of the Company
at an earlier date, options previously granted to the participant
under the plan may be exercised from time to time until
expiration of the original term of such options.
TRANSITION This plan is effective as of January 1, 1994 and supersedes the
FROM EXISTING Company's Executive Long-Term Incentive Plan, subject to the
LONG-TERM PLAN transition provisions set forth below.
To the extent any cash incentive award with respect to the
performance measurement cycles ending on December 31, 1994 and
December 31, 1995, when added to the participant's expected base
salary and other applicable employee remuneration (for purposes
of Internal Revenue Code section 162(m)) for the calendar year in
which the cash incentive award is payable, would exceed $1
million, that portion of such cash incentive award shall not be
paid to the participant, but shall automatically be deferred,
earn interest and be payable on the same terms and conditions as
are contained in Articles I and II; Sections 4.1 through 4.6,
5.1, 5.8 through 5.13, 5.15 and 5.16; and Articles VI through XI
(except Section 11.8) of the Company's Elective Deferred
Compensation Plan (the "EDCP"). The form of payment shall be a
lump sum and such deferral shall be mandatory, notwithstanding
anything to the contrary in the above-mentioned Articles and
Sections of the EDCP.
For the three performance measurement cycles ending December 31,
1994, 1995 and 1996, any grants of options will be made at or
near the end of each cycle (on a date between December 1 and
February 10 selected by the Compensation Committee), and the
number of shares covered by an option granted to a participant
will be determined by dividing an amount equal to the
participant's cash incentive award by an estimated value for a
share of the Company's common stock determined through the
following process:
(1) Increase the average of the high and low trading prices of
the Company's common stock as of the first day of the three-
year performance measurement cycle (the "base price") by a
compound annual rate of 10% for a seven year period;
<PAGE>
H.F. AHMANSON & COMPANY MARCH 8, 1994
EXECUTIVE LONG-TERM INCENTIVE PLAN PAGE 7
=========================================
OTHER PROVISIONS (CONTINUED)
--------------------------------
(2) Subtract the "base price" from the estimated future stock
value determined in step (1);
(3) Determine the present value of the estimated future gain
determined in step (2) using an 8% annual discount rate;
(4) Multiply the value determined in step (3) by 75%.
The cycles ending December 31, 1994 and December 31, 1995
commenced on October 1, 1991 and October 1, 1992, respectively,
and will each consist of 39 months.
ADMINISTRATION The Compensation Committee shall administer this plan and
AND shall decide all questions arising in the administration,
INTERPRETATION interpretation and application of the plan, including all
questions of awards and payments. The decision of the Committee
shall be conclusive and binding on all parties, providing that
the Committee acted in good faith.
It is the intent of the Company that this plan and Awards
hereunder satisfy, and be interpreted in a manner that satisfy,
in the case of Participants who are or may be Covered Employees
(within the meaning of Internal Revenue Code section 162(m)), the
applicable requirements of section 162(m), so that the Company's
tax deduction for remuneration in respect of an Award for
services performed by such Covered Employees is not disallowed in
whole or in part by the operation of such section. If any
provision of this plan or of any Award would otherwise frustrate
or conflict with the intent expressed herein, that provision to
the extent possible shall be interpreted and deemed amended so as
to avoid such conflict. To the extent of any remaining
irreconcilable conflict with such intent, such provisions shall
be deemed void as applicable to Covered Employees.
<PAGE>
SENIOR
------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
(Effective as of September 1, 1993)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE 1
ARTICLE I 2
INCORPORATION OF SERP; DEFINITIONS 2
1.1 Incorporation of SERP 2
1.2 Definitions 2
ARTICLE II 3
MODIFICATIONS OF SERP 3
2.1 Retirement Benefits 3
2.2 Survivor Benefits 4
2.3 Lump Sum and Hardship Distributions 5
2.4 Policies on Life Other Than the
Participant 6
2.5 Funding 6
ARTICLE III 6
ADMINISTRATION OF PLAN AND DISPUTES 6
3.1 Administration of Plan 6
3.2 Liability of Administrator 7
3.3 Disputes 7
ARTICLE IV 13
DESIGNATION OF BENEFICIARY 13
4.1 Designation of Beneficiary 13
ARTICLE V 13
AMENDMENT AND TERMINATION OF PLAN 13
5.1 Amendment and Termination of Plan;
Removal of Participants 13
</TABLE>
i
<PAGE>
SENIOR
------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
PREAMBLE
--------
The principal objective of this Senior Supplemental Executive
Retirement Plan (the "Plan") is to ensure the payment of a competitive level of
retirement income in order to attract, retain and motivate selected senior
executives. The Plan is designed to provide a benefit which, when added to
other retirement income of the executive, will meet the objective described
above. Eligibility for participation in the Plan shall be limited to senior
executives selected by the Compensation Committee of the Board of Directors of
the Sponsor.
The Sponsor hereby declares that its intention is to create an unfunded
Plan primarily for the purpose of providing a select group of management or
highly compensated employees of the Sponsor and its Affiliated Companies with
supplemental retirement income. It is also the intention of the Sponsor that
the Plan be an "employee pension benefit plan" as defined in Section 3(2) of
Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") and
that the Plan be the type of plan described in Sections 201(2), 301(3) and
401(a)(1) of Title I of ERISA. The Sponsor is the "named fiduciary" of the Plan
for purposes of Section 402(a)(2) of ERISA.
This Plan shall be effective as of September 1, 1993 and shall apply to
all Participants who terminate employment with the
1
<PAGE>
Company on or after September 1, 1993, or otherwise are designated as
Participants in this Plan by the Administrator in its sole discretion.
ARTICLE I
INCORPORATION OF SERP; DEFINITIONS
----------------------------------
1.1 Incorporation of SERP. Except as otherwise expressly provided
---------------------
herein, the terms of this Plan shall be the same as the Supplemental Executive
Retirement Plan of H. F. Ahmanson & Company, as amended from time to time, which
is hereby incorporated herein by reference.
1.2 Definitions. When used herein, the following words shall have the
-----------
following meanings unless the context indicates otherwise:
Participant. "Participant" means a person who receives written
-----------
notification from the Sponsor that he is participating in this Plan.
Participants in this Plan shall be limited to persons who fall into the
categories of persons eligible for participation in this Plan specified in any
resolutions adopted by the Compensation Committee, which are hereby incorporated
by reference. Such persons may become Participants in the Plan as of the date
specified in such resolutions. Participants in the Plan shall be limited to
persons whose employment with the Company terminates on or after September 1,
1993, and such other persons who may be designated as Participants in this Plan
by the Administrator in its sole discretion. Any person who becomes a
Participant in this Plan shall no longer participate in the SERP.
2
<PAGE>
Plan. "Plan" means this Senior Supplemental Executive Retirement Plan,
----
effective September 1, 1993, as set forth in this document and as the same may
be amended, administered or interpreted from time to time.
Policies. "Policies" mean split-dollar life insurance policies under
--------
the Senior Executive Life Insurance Plan or other plan or arrangement sponsored
by the Company.
Senior Executive Life Insurance Plan. "Senior Executive Life Insurance
------------------------------------
Plan" means the Senior Executive Life Insurance Plan of H. F. Ahmanson &
Company, as amended from time to time.
SERP. "SERP" means the Supplemental Executive Retirement Plan of H. F.
----
Ahmanson & Company, as amended from time to time.
Other capitalized terms used in this Plan shall have the same meaning
as in the SERP.
ARTICLE II
MODIFICATIONS OF SERP
---------------------
2.1 Retirement Benefits. The normal, early or late retirement
-------------------
benefit, as described in Sections 3.1, 3.2 and 3.3 of the SERP, which will be
payable under this Plan shall be reduced by an offset for the Participant's
interest in cash value on his Retirement Date in Policies under the Company's
Senior Executive Life Insurance Plan or other plan or arrangement sponsored by
the Company.
This reduction in the annual retirement benefit shall be determined by
(i) converting the unreduced annual retirement
3
<PAGE>
benefit which is payable hereunder based on Section 3.1, 3.2 or 3.3 of the SERP
to a lump sum equivalent amount, (ii) subtracting the Participant's interest in
cash value on his Retirement Date in Policies, and (iii) converting such reduced
lump sum equivalent amount back to an annual retirement benefit which will be
payable under this Plan during the lifetime of the Participant.
An actuarial equivalent for this purpose shall be determined by the
factors (i) in the HFA Retirement Plan applicable to benefits accruing
thereunder at the time when payments commence hereunder, or the factors in
effect at the time of the HFA Retirement Plan's termination if such termination
is prior to such payment commencement date, or (ii) of the Pension Benefit
Guaranty Corporation applicable to plans terminating on such payment
commencement date, whichever of (i) or (ii) provides the higher amount of
retirement benefits under this Plan. The same factors must be used for all
steps in determining the reduction in the annual retirement benefit under the
preceding paragraph.
2.2 Survivor Benefits. The survivor benefits, as described in Section
-----------------
3.4 of the SERP, which will be payable under this Plan will be modified as
described herein.
(a) The annual benefit payable under Section 3.4(b) or (f) of the
SERP shall be reduced by an offset for the additional death benefit, if any,
payable under Section 2.2(c) of the Company's Senior Executive Life Insurance
Plan, but not for any other death benefits which are payable under that plan or
any
4
<PAGE>
other Company funded death benefit program, irrespective of who is the
Participant's beneficiary under such plan. This reduction in the annual benefit
shall be determined in the manner described in Section 3.4(d) of the SERP.
(b) The annual benefit payable under Section 3.4(d) of the SERP
shall be reduced by an offset for any death benefit payable to the Participant's
beneficiary from the Company's Senior Executive Life Insurance Plan,
irrespective of who is the Participant's beneficiary under such plan. This
reduction in the annual benefit shall be determined in the manner described in
Section 3.4(d) of the SERP.
(c) The annual benefit payable under Section 5.1(c) of the SERP
shall be reduced in the manner described above for reductions under Sections
3.4(b) and (d) of the SERP.
2.3 Lump Sum and Hardship Distributions. The lump sum or hardship
-----------------------------------
distributions, as described in Section 5.2 of the SERP, which will be payable
under this Plan will be modified as described herein. The annual benefits to
which a Participant is entitled under this Plan shall be reduced as described in
Section 2.1 hereof.
In addition, notwithstanding Section 5.2(a), 5.2(d)(iii) or any other
provision of the SERP, in the case of a Participant who has a spouse on the
Commencement Date, the lump sum or hardship distribution payable to a
Participant under this Plan shall only include the lump sum value of the annual
benefit payable to the Participant during his or her lifetime, and shall not
include the lump sum value of any benefit payable to such
5
<PAGE>
spouse or other Beneficiary by reason of the Participant's death. Such benefits
shall be payable following the Participant's death in the same manner as if the
Participant had not received a hardship or lump sum distribution.
2.4 Policy on Life Other Than the Participant. If a Participant owns
-----------------------------------------
a Policy which is on a life other than the Participant, the Committee shall
determine the appropriate offsets to be made in computing retirement, survivor
or other benefits payable under this Plan on account of the Participant's
interest in cash value and death benefits payable under such Policy.
2.5 Funding. Article VI of the SERP, which relates to "funding,"
-------
shall have no application to this Plan. For purposes of this Plan, Article VI
of the SERP shall be treated as if it were deleted. Likewise, the second
paragraph of Section 7.2 of the SERP, relating to written reports on compliance
with funding requirements, shall be treated as if it were deleted.
ARTICLE III
ADMINISTRATION OF PLAN AND DISPUTES
-----------------------------------
3.1 Administration of Plan. This Plan shall be administered by the
----------------------
Committee, Compensation Committee and the Board (herein referred to collectively
as the "Administrator") in accordance with Article VII of the SERP, except as
provided herein. However, notwithstanding any provision of the SERP to the
contrary, the Administrator's authority to interpret this Plan shall not cause
the Administrator's decisions in this regard
6
<PAGE>
to be entitled to a deferential standard of review in the event that a
Participant, Surviving Spouse or Beneficiary seeks review of the Administrator's
decision as described below.
3.2 Liability of Administrator. Neither the Administrator nor its
--------------------------
designee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Plan.
3.3 Disputes
--------
(a) Right to Arbitration. Time is of the essence in the
--------------------
resolution of any and all disputes which may arise under this Plan and the
determination of whether any payments are due hereunder or the amount or timing
thereof. A Participant (or following his or her death, his or her Surviving
Spouse or Beneficiary), but not the Company, may, but need not, submit any such
dispute, disagreement or claim for payment hereunder to arbitration as provided
herein.
The right to select arbitration shall be solely that of the Participant
(or Surviving Spouse or Beneficiary) in his or her sole discretion. Arbitration
is not mandatory on the Participant (or Surviving Spouse or Beneficiary), and
the Participant (or Surviving Spouse or Beneficiary) may choose in lieu thereof
to bring an action in an appropriate civil court. However, once an arbitration
is commenced by the Participant (or Surviving Spouse or Beneficiary), it may not
be discontinued without the mutual consent of all parties to the arbitration.
During the lifetime of the Participant, only the Participant can initiate an
arbitration proceeding under this Section.
7
<PAGE>
In the event that the Company commences an action or proceeding in any
court against a Participant (or Surviving Spouse or Beneficiary), whether with
respect to a dispute, disagreement or claim for payment under this Plan or
otherwise, the Participant (or Surviving Spouse or Beneficiary) may, but need
not, apply to a court of competent jurisdiction, within ninety (90) days
following receipt of service of a summons and complaint or the equivalent
thereof, for an order dismissing or staying (pending the final completion of
arbitration as provided in this Section) all or so much of such action or
proceeding as affects or relates to a dispute, disagreement or claim for payment
under this Plan or relieving the Participant (or Surviving Spouse or
Beneficiary) of any obligation to file an affirmative defense or counterclaim in
such action or proceeding to the extent the same affects or relates to a
dispute, disagreement or claim for payment under this Plan.
The Company hereby consents to the issuance of such an order, upon such
application, with respect to any aspect of the action, proceeding, defense or
counterclaim which the Participant (or Surviving Spouse or Beneficiary)
demonstrates to the court's satisfaction may reasonably affect or relate to any
dispute, disagreement or claim for payment under this Plan. Any such order may
be conditioned upon the prompt initiation of arbitration by the Participant (or
Surviving Spouse or Beneficiary) in accordance with this Section.
(b) Initiation of Arbitration. A Participant (or Surviving Spouse or
-------------------------
Beneficiary) who intends to initiate
8
<PAGE>
arbitration hereunder shall first deliver to the Committee which administers the
Plan a claim in writing for payment under the Plan setting forth in reasonable
detail the basis for and calculation of the claim or a proposed resolution of
any other dispute or disagreement that may exist.
If the Company does not pay the full amount of the claim for payment,
or does not deliver a written, unconditional acceptance of the proposed
resolution, within sixty days following delivery of the claim for payment or
proposed resolution, or upon entry of an order of a court as provided in Section
3.3(a) hereof, the Participant (or Surviving Spouse or Beneficiary) may deliver
to the Company a written list of five proposed arbitrators, each of whom must be
either (i) a member of the National Academy of Arbitrators residing in the State
of California, or (2) a retired judge of the California Superior Court, Court of
Appeals or Supreme Court or the United States District Court for the Central or
Southern Districts of California or the United States Court of Appeals for the
Ninth Circuit, provided, however, that any such judge must then reside in the
State of California.
Within seven days following delivery of such list, the Company shall
select one of the proposed arbitrators as the arbitrator for the dispute,
disagreement or claim for payment in question and shall, within said seven day
period, deliver written notice of such selection to the Participant (or
Surviving Spouse or Beneficiary). If the Company fails to deliver such written
notice within said period, the Participant (or Surviving Spouse
9
<PAGE>
or Beneficiary) shall select one of the proposed arbitrators, promptly deliver
written notice thereof to the Company, and such selection shall be binding upon
the Company.
(c) Conduct of Arbitration. The arbitration proceeding shall
----------------------
commence within seven days following selection of the arbitrator, or as soon
thereafter as possible, and shall proceed with all due diligence. No
continuance or postponement of the arbitration shall be granted to the Company
without the consent of the Participant (or Surviving Spouse or Beneficiary).
Absence from or the failure to participate in any hearing or session of the
arbitration by the Company shall not prevent the issuance of an award. Without
the consent of the Participant or Beneficiary, no arbitration hearing or session
shall be conducted outside the County of Los Angeles.
The arbitration shall be conducted in accordance with such rules and
procedures as may be determined by the arbitrator. The arbitrator may determine
when sufficient evidence has been submitted to permit the issuance of an award.
The arbitrator's award shall be issued in writing as expeditiously as possible
and in no event more than thirty days following the close of the hearing. The
arbitrator may, if he or she deems it necessary to the issuance of an award,
engage the services of an accountant, actuary or other expert to advise and
assist in the arbitration.
Notwithstanding the right of the Administrator to administer and
interpret this Plan, no decision by the Administrator in this regard shall be
entitled to any deference in such arbitration.
10
<PAGE>
(d) Arbitration Award. The arbitrator may order the Company to take,
-----------------
or to refrain from taking, any action and may make a monetary award to the
Participant (or Surviving Spouse or Beneficiary).
The Company acknowledges that, in the event it should breach the
provisions of the Plan, it will be extremely difficult, if not impossible, to
calculate the amount of consequential or extracontractual damages suffered by a
Participant (or Surviving Spouse or Beneficiary). Consequently, the Company
agrees that (1) if the arbitrator makes a monetary award of any amount to the
Participant (or Surviving Spouse or Beneficiary), the arbitrator shall also
award the Participant (or Surviving Spouse or Beneficiary) an additional amount
equal to fifty percent (50%) of the monetary award, but in no event less than
ten thousand dollars ($10,000), and (2) if the arbitrator does not make a
monetary award to the Participant (or Surviving Spouse or Beneficiary), but
makes an affirmative finding that the Company has breached the provisions of the
Plan or orders the Company to take, or to refrain from taking, any action, the
arbitrator shall award the Participant (or Surviving Spouse or Beneficiary) ten
thousand dollars ($10,000). All amounts so awarded shall constitute additional
benefits under this Plan.
Any monetary award and any additional awards shall bear interest at a
rate determined by the arbitrator from the date, as determined by the
arbitrator, that any payment should have been made by the Company to the
Participant (or Surviving Spouse or Beneficiary).
11
<PAGE>
(e) Costs of Arbitration. The arbitrator shall order the losing party
--------------------
in the arbitration (1) to pay for the costs of the arbitration, including,
without limitation, the arbitrator's fees and expenses and the fees of a
stenographic reporter if employed, and (2) to reimburse the prevailing party for
all costs of the arbitration which have previously been paid by the prevailing
party. Each party shall pay for its own fees and expenses in connection with
the arbitration, including, without limitation, its fees and expenses of
counsel, accountants, actuaries and other experts.
The Participant (or Surviving Spouse or Beneficiary) shall be deemed to
be the prevailing party if the arbitrator (1) finds that the Company has
breached the provisions of the Plan or orders the Company to take, or to refrain
from taking, any action or (2) makes a monetary award of any amount to the
Participant (or Surviving Spouse or Beneficiary).
The arbitration award, the additional award, interest, and the costs of
the arbitration shall be due and payable within five days following the issuance
of the award.
(f) Enforcement of the Award. The award of the arbitrator shall
------------------------
be final, binding and conclusive upon the parties and shall not be subject to
judicial review except as set forth in Sections 1286.2 and 1286.6 of the
California Code of Civil Procedure or any successor statute thereto. Any party
may apply to a court of competent jurisdiction for confirmation or enforcement
of such award.
12
<PAGE>
ARTICLE IV
DESIGNATION OF BENEFICIARY
--------------------------
4.1 Designation of Beneficiary. Each Participant shall have the right
--------------------------
to designate a Beneficiary or Beneficiaries to receive any benefits payable
after his or her death during the lifetime of his or her Surviving Spouse. A
Beneficiary may be designated in the manner provided in Article VIII of the
SERP. The most recent Beneficiary designated by a Participant under the SERP
shall be treated as the Participant's Beneficiary under this Plan until the
Participant designates a new Beneficiary under this Plan.
ARTICLE V
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
5.1 Amendment and Termination of Plan; Removal of Participants. The
----------------------------------------------------------
provisions of Article X and Section 5.7 of the SERP, relating to amendment and
termination of the Plan and removal of Participants, shall apply to this Plan as
if set forth herein.
IN WITNESS WHEREOF, the Sponsor has caused this Plan to be executed
this 26th day of October , 1993, effective as of September 1, 1993.
-------- -----------
H. F. AHMANSON & COMPANY
By /s/ Richard H. Deihl
-------------------------------
Title: Chief Executive Officer
13
<PAGE>
SENIOR
------
EXECUTIVE LIFE INSURANCE PLAN
-----------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
(Effective as of September 1, 1993)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PREAMBLE 1
ARTICLE 1 1
INCORPORATION OF EXECUTIVE LIFE INSURANCE PLAN;
DEFINITIONS 1
1.1 Incorporation of Executive Life Insurance Plan 1
1.2 Definitions 1
ARTICLE 2 3
MODIFICATIONS OF EXECUTIVE LIFE INSURANCE PLAN 3
2.1 Participation 3
2.2 Life Insurance Coverage 5
2.3 Disability 6
2.4 Insurance Contract (Policy) and Collateral
Assignment 7
2.5 Interests In Cash Value 8
2.6 Policy Withdrawals and Loans 12
2.7 Surrender or Cancellation of Policy 12
2.8 Continuation or Split of Policy at Retirement 13
2.9 Assignment 14
2.10 Payment of Premiums and Contributions 14
2.11 Form of Death Benefit 15
2.12 Option to Purchase Insurance Policy on
Termination of Employment 15
2.13 Option to Purchase Insurance Policy in Certain
Events 15
2.14 Transfer of Policy to Company 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 3 16
BENEFICIARY DESIGNATION 16
3.1 Designation of Beneficiary 16
ARTICLE 4 17
ADMINISTRATION OF PLAN AND DISPUTES 17
4.1 Administration of Plan 17
4.2 Liability of Administrator 17
4.3 Disputes 17
ARTICLE 5 23
AMENDMENT AND TERMINATION OF PLAN 23
5.1 Amendment and Termination of Plan 23
ARTICLE 6 23
MISCELLANEOUS 23
6.1 Restriction on Assignment 23
</TABLE>
ii
<PAGE>
Exhibit 10.18
SENIOR
------
EXECUTIVE LIFE INSURANCE PLAN
-----------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
PREAMBLE
--------
The purpose of this Senior Executive Life Insurance Plan (the "Plan")
is to provide life insurance coverage for eligible senior executive employees of
H. F. Ahmanson & Company and Affiliated Companies. The Plan will be effective
as of September 1, 1993.
ARTICLE 1
INCORPORATION OF EXECUTIVE LIFE INSURANCE PLAN; DEFINITIONS
-----------------------------------------------------------
1.1 Incorporation of Executive Life Insurance Plan. Except as
----------------------------------------------
otherwise expressly provided herein, the terms of this Plan shall be the same as
the Executive Life Insurance Plan of H. F. Ahmanson & Company, as amended from
time to time, which is hereby incorporated herein by reference.
1.2 Definitions. When used herein, the following words shall have the
-----------
following meanings unless the context indicates otherwise:
Agreement. "Agreement" means a Senior Executive Life Insurance Plan
---------
Agreement entered into by the Company and the Participant to provide for
participation by the Participant in the Plan.
Change in Control. "Change in Control" means a "Change in Control" as
-----------------
used in the SSERP and the SERP.
1
<PAGE>
Credited Service. "Credited Service" means "Credited Service" as such
----------------
term is used in the SSERP and the SERP.
Effective Date. "Effective Date" means September 1, 1993.
--------------
Eligible Employee. "Eligible Employee" means an employee who is a
-----------------
participant in the SSERP.
Executive Life Insurance Plan. "Executive Life Insurance Plan" means
-----------------------------
the Executive Life Insurance Plan of H. F. Ahmanson & Company, as amended from
time to time.
Insurance Company. "Insurance Company" means an insurance company
-----------------
selected by the Company to provide coverage for Participants pursuant to the
terms of the Plan.
Participant. "Participant" means an Eligible Employee who has
-----------
completed the underwriting requirements of the insurance company and who is
notified in writing by the Company that he or she is participating in this Plan.
Any person who becomes a Participant in this Plan shall no longer participate in
the Executive Life Insurance Plan, except as expressly provided for in this
Plan.
Plan. "Plan" means this Senior Executive Life Insurance Plan, as set
----
forth in this document and as the same may be amended, administered or
interpreted from time to time, and includes any Policies hereunder.
Policy. "Policy" means a policy or policies providing life insurance
------
coverage under this Plan.
Retirement Date or Retirement. "Retirement Date" or "Retirement" means
-----------------------------
a "Retirement Date" or "Retirement" as such
2
<PAGE>
terms are used in the SSERP and the SERP, on which the Participant commences to
receive retirement benefits under the SSERP.
Senior Supplemental Executive Retirement Plan or SSERP. "Senior
------------------------------------------------------
Supplemental Executive Retirement Plan" or "SSERP" means the Senior Supplemental
Executive Retirement Plan of H. F. Ahmanson & Company, as amended from time to
time.
Supplemental Executive Retirement Plan or SERP. "Supplemental
----------------------------------------------
Executive Retirement Plan" or "SERP" means the Supplemental Executive Retirement
Plan of H. F. Ahmanson & Company, as amended from time to time.
Surviving Spouse. "Surviving Spouse" means an individual who is a
----------------
surviving spouse eligible for any death benefit under the HFA Retirement Plan.
Termination of Employment. "Termination of Employment" means a
-------------------------
"Termination of Employment" as such term is used in the SSERP and the SERP.
Other capitalized terms used in this Plan shall have the same meaning
as in the Executive Life Insurance Plan.
ARTICLE 2
MODIFICATIONS OF EXECUTIVE LIFE INSURANCE PLAN
----------------------------------------------
2.1 Participation. Except as provided herein, the provisions of
-------------
Article II of the Executive Life Insurance Plan shall apply to participation in
this Plan.
(a) Participation. Any Eligible Employee may enroll in this Plan by
-------------
completing the underwriting requirements
3
<PAGE>
of the insurance company and any other enrollment steps required by the Company
for coverage to begin. An Eligible Employee shall become a Participant in the
Plan when he or she enters into a Senior Executive Life Insurance Plan Agreement
with the Company which provides for his or her participation in the Plan, and
files an election under Section 83(b) of the Code with the Internal Revenue
Service and California Franchise Tax Board. Coverage under this Plan shall not
commence, and no transfer of any Policy to the Participant shall be effective,
until the Participant files such election.
(b) Insurability. Eligible Employees are not automatically entitled
------------
to all insurance coverage offered under the Plan. Each Eligible Employee will
be covered up to the amount of guarantee issue determined by the Insurance
Company, but must satisfy the Insurance Company's requirements for obtaining
additional insurance before he or she becomes covered for additional amounts
under the Plan.
(c) Commencement of Coverage. Subject to the limitations of this
------------------------
Section 2.1, (i) an Employee who is an Eligible Employee on September 1, 1993
will be covered under the Plan as of September 1, 1993, and (ii) any other
Eligible Employee will be covered under the Plan when coverage is approved by
the Insurance Company.
(d) Increases in Coverage. When a Participant's Annual Base Salary
---------------------
is increased, the amount of his or her life insurance coverage under this Plan
will automatically increase immediately, except as provided in this Section
2.1(d). A
4
<PAGE>
Participant who (i) is age sixty (60) or over or (ii) receives an increase of
more than ten percent (10%) in Annual Base Salary in any Plan Year may be
required to satisfy the Insurance Company's requirements for obtaining
additional insurance before he or she becomes covered for an additional amount
of insurance under the Plan. In such event, a Participant's coverage under the
Plan will be limited to the coverage issued by the Insurance Company.
(e) Declining Coverage. An Eligible Employee may decline coverage
------------------
under the Plan. However, any such Eligible Employee will be required to satisfy
the Insurance Company's requirements for obtaining insurance before he or she
may become covered under the Plan at a later date.
2.2 Life Insurance Coverage. Section 3.1 of the Executive Life
-----------------------
Insurance Plan is modified as provided herein.
(a) Amount of Insurance Under Executive Life Insurance Plan
-------------------------------------------------------
During Employment. The Participant will have the same amount of life insurance
- -----------------
coverage which is payable under Section 3.1(a) of the Executive Life Insurance
Plan. No additional death benefit will be payable on account of any interest of
the Participant in the cash value of the Policy in the event of the
Participant's death during employment with the Company.
(b) Amount of Insurance Under Executive Life Insurance Plan After
-------------------------------------------------------------
Retirement or Termination of Employment After Completing 15 Years of Credited
- -----------------------------------------------------------------------------
Service. After his or her Retirement Date (or following Termination of
- -------
Employment after completing 15 years of Credited Service), the Participant will
5
<PAGE>
have the same amount of life insurance coverage which is payable under Section
3.1(b) of the Executive Life Insurance Plan.
(c) Additional Amount of Insurance Based On Formula After
-----------------------------------------------------
Retirement Date or Termination of Employment After Completing 15 Years of
- -------------------------------------------------------------------------
Credited Service. After his or her Retirement Date (or following Termination of
- ----------------
Employment after completing 15 years of Credited Service), a Participant will
have additional life insurance coverage determined based on Schedule A to his
Agreement under this Plan. This additional amount of life insurance will only
be payable if a Participant dies after his or her Retirement Date (or following
Termination of Employment after completing 15 years of Credited Service) and has
a Surviving Spouse.
(d) Additional Amount of Insurance Based On Participant's Cash
----------------------------------------------------------
Value After Retirement Date or Termination of Employment After Completing 15
- ----------------------------------------------------------------------------
Years of Credited Service. After his or her Retirement Date (or following
- -------------------------
Termination of Employment after completing 15 years of Credited Service), a
Participant will have additional life insurance coverage equal to the
Participant's remaining interest in cash value (which has not previously been
withdrawn) at the time of his or her death in Policies under this Plan (as
determined under Section 2.5(b)(I) hereof).
2.3 Disability. Section 3.2 of the Executive Life Insurance Plan is
----------
modified as provided herein. If a Participant suffers a Disability, the
Participant's pre-retirement life insurance coverage under Section 3.1(a) of the
Executive Life
6
<PAGE>
Insurance Plan will be continued by the Company during the period of Disability
until the Participant reaches age 65. All premiums for this coverage will be
paid by the Company. When a disabled Participant reaches age 65, the
Participant will continue to have life insurance coverage equal to one (1) times
his or her final Annual Base Salary on the date of his or her Disability, as if
he or she had retired from employment with the Company after attaining age 65.
2.4 Insurance Contract (Policy) and Collateral Assignment. Section
-----------------------------------------------------
3.3 of the Executive Life Insurance Plan is modified as provided herein. To
provide the insurance coverage under the Plan, the Company shall acquire one or
more insurance policies ("Policies") on the life of each Participant. Except as
otherwise specifically provided in this Plan, the Participant will be the owner
and hold all incidents of ownership in each Policy for which he or she is
designated the owner pursuant to a split dollar life insurance agreement entered
into by the Participant and the Company.
In consideration of the Company's payment of the premiums on the Policy
pursuant to Section 3.9 of this Plan, the Participant will assign the Policy to
the Company as collateral under the form of collateral assignment prescribed by
the Committee consistent with the terms of the Plan.
The Participant may specify in writing to the Company the Beneficiary
or Beneficiaries for his or her life insurance coverage under this Plan. Upon
receipt of a written request from the Participant, the Company will immediately
take such action as
7
<PAGE>
shall be necessary to implement such Beneficiary designation. Any death
benefits under Policies on the life of the Participant that exceed the amount
payable to the Participant's Beneficiary under this Plan shall be payable to the
Company.
Any death benefits payable under this Plan that exceed the amount of
life insurance coverage under the Policies on the life of the Participant which
are held under this Plan may be paid from policies held under the Executive Life
Insurance Plan. Any death benefit which is paid under the Executive Life
Insurance Plan will be offset against the death benefit which is payable under
this Plan.
2.5 Interests In Cash Value. The respective interests of the
-----------------------
Company and the Participant in the cash value of Policies which are owned by the
Participant shall be as follows:
(a) During Employment.
-----------------
(I) Company's Interest In Cash Value During Employment or
-----------------------------------------------------
Disability. While the Participant is employed with the Company, or is suffering
- ----------
from a Disability prior to attaining age 65, the Company's interest in the cash
value of any Policy shall be limited to (A) the greater of the cash value of the
Policy or the cumulative premiums on the Policy paid by the Company on the date
when the Policy is transferred by the Company to the Participant, plus (B) the
cumulative premiums on the Policy thereafter paid by the Company. The Company
shall further be entitled to increases in cash value in an amount equal to any
mortality or other expenses incurred for the benefit of the Company which are
charged against cash value of the Policy, and
8
<PAGE>
any such charges shall, in turn, be deducted from the Company's interest in cash
value of the Policy. The Company shall also be entitled to any interest in cash
value which is forfeited by the Participant, as provided below. A Participant
who is suffering from a Disability prior to attaining age 65 shall be treated as
if he or she were still employed with the Company.
(II) Participant's Interest In Cash Value During Employment or
---------------------------------------------------------
Disability. While the Participant is employed with the Company, or is suffering
- ----------
from a Disability prior to attaining age 65, the Participant's interest in the
cash value of any Policy shall be the balance of the cash value of the Policy in
excess of the Company's interest in cash value pursuant to Section 2.5(a)(I)
above. A Participant who is suffering from a Disability shall be treated as if
he or she retired from the Company upon attaining age 65; provided that, if the
Participant recovers from the Disability on an earlier date and does not return
to work with the Company, the Participant will be treated as if he or she
retired or terminated employment upon recovery from the Disability.
The Participant shall at all times be 100% vested in cash value under a
Policy in an amount equal to his or her cumulative reported imputed income or
reimbursements to the Company for the Economic Benefit of his or her coverage.
The Participant will become vested in the Participant's additional cash value
under a Policy after completing 15 years of Credited Service or on the
Participant's Normal Retirement Date, whichever occurs first. A Participant who
is employed with the Company
9
<PAGE>
immediately prior to a Change in Control will, also, become vested in the
Participant's additional cash value under a Policy which has accrued to the
Participant through the Change in Control effective immediately before the
Change in Control.
(b) After Retirement or Termination of Employment After
---------------------------------------------------
Completing 15 Years of Credited Service.
- ---------------------------------------
(I) Participant's Interest In Cash Value After Retirement or
--------------------------------------------------------
Termination of Employment After Completing 15 Years of Credited Service. The
- -----------------------------------------------------------------------
Participant's interest in the cash value of any Policy will increase on a pro-
rata basis following his or her Retirement Date (or following Termination of
Employment after completing 15 years of Credited Service). After either of
these events, all future net increases in cash value of the Policy during any
year will be allocated between the Participant and the Company on a pro-rata
basis in proportion to their respective interests in the cash value of the
Policy during such year. Any withdrawals of cash value from the Policy by the
Participant will reduce the Participant's interest in the cash value of the
Policy. Net increases in cash value shall be determined after deducting
mortality and other expenses which are charged against cash value of the Policy.
(II) Company's Interest In Cash Value after Retirement or
----------------------------------------------------
Termination of Employment After Completing 15 Years of Credited Service. After
- -----------------------------------------------------------------------
a Participant's Retirement Date (or following Termination of Employment after
completing 15 Years of Credited Service), the Company's interest in the cash
value of any Policy shall be the balance of the cash value of the Policy
10
<PAGE>
in excess of the Participant's interest in cash value pursuant to Section
2.5(b)(I) above, including the Company's portion of increases in cash value
after the Participant's Retirement or Termination of Employment. The Company
shall also be entitled to increases in cash value in an amount equal to any
mortality or other expenses incurred for the benefit of the Company which are
charged against cash value of the Policy, and any such charges shall, in turn,
be deducted from the Company's interest in cash value of the Policy.
(c) After Other Termination of Employment.
--- -------------------------------------
(I) Participant's Interest in Cash Value after Other Termination
------------------------------------------------------------
of Employment. If the Participant terminates employment with the Company before
- -------------
Retirement and prior to completing 15 years of Credited Service, the Participant
shall forfeit his or her entire interest in the cash value of each Policy which
is owned by the Participant except for an amount equal to the Participant's
cumulative reimbursements to the Company for the Economic Benefit of his or her
coverage.
(II) Company's Interest in Cash Value after Other Termination of
-----------------------------------------------------------
Employment. If the Participant terminates employment with the Company before
- ----------
Retirement and prior to completing 15 years of Credited Service, the Company's
interest in the cash value of any Policy shall be the balance of the cash value
of the Policy in excess of the Participant's interest in cash value pursuant to
Section 2.5(c)(I) above, including the portion of the cash value of the Policy
which is forfeited by the Participant.
11
<PAGE>
(d) Minimum Company Interest in Cash Value. Notwithstanding any other
--------------------------------------
provision of this Plan to the contrary, at no time shall the Company's interest
in the cash value of any Policy ever be less than the cash value of the Policy
on the date when the Policy is transferred by the Company to the Participant.
This is a restriction which by its terms will never lapse.
2.6 Policy Withdrawals and Loans.
----------------------------
(a) Policy Withdrawals and Loans by Company. The Company shall
---------------------------------------
have no right to make withdrawals of cash value or prepaid premiums or obtain
loans from any Policy which is owned by a Participant at any time during the
Participant's lifetime, without the prior written consent of the Participant.
(b) Policy Withdrawals and Loans by Participant. A Participant
-------------------------------------------
shall have no right to make withdrawals or obtain loans from any Policy before
his or her Retirement Date. After Retirement a Participant shall have the right
to make withdrawals of his or her interest in the cash value of any Policy (or
obtain loans from the Participant's interest in the cash value of any Policy,
provided interest is paid on such loans on an annual basis). The Participant's
death benefit under any Policy shall be reduced by withdrawals (and the unpaid
principal and interest on any loans) under the Policy taken by the Participant.
2.7 Surrender or Cancellation of Policy. In the event of the
-----------------------------------
surrender or cancellation of a Policy which is owned by a Participant, the
Participant shall be entitled to receive a portion of the cash surrender value
equal to his or her vested interest in the cash value of the Policy, unless the
Company
12
<PAGE>
substitutes another Policy which is satisfactory to the Participant. The
balance of the cash surrender value, if any, shall belong to the Company.
2.8 Continuation or Split of Policy after Retirement or Termination of
------------------------------------------------------------------
Employment. Section 3.4 of the Executive Life Insurance Plan is modified as
- ----------
provided herein. The Company shall continue the life insurance coverage for the
Participant after his or her Retirement (or following termination of employment
after completing 15 years of Credited Service) in the same form and subject to
the provisions of this Plan as if he or she remained employed with the Company,
except that the total amount of coverage for the Participant shall not exceed
the amounts specified in Sections 2.2(b), (c) and (d) of this Plan. With the
Participant's consent, the Company may arrange to split the Policy or Policies
insuring the Participant after Retirement (or following termination of
employment after completing 15 years of Credited Service) so that the Company
and Participant receive one or more separate life insurance policies. In such
event, the Participant shall receive a policy on his or her life with a death
benefit equal to the amounts specified in Sections 2.2(b), (c) and (d) of this
Plan, unless otherwise permitted by the Administrator in its sole discretion.
If a Participant's employment with the Company terminates before
Retirement, and with less than 15 years of Credited Service, the Participant's
coverage under this Plan shall cease, and the Company shall have no further
legal or equitable obligations of any kind to the Participant under this
13
<PAGE>
Plan. The Participant shall automatically, by operation of the terms hereof,
transfer all incidents of ownership in each Policy providing his or her coverage
under this Plan to the Company effective on the last day of employment with the
Company, and the Company shall pay to the Participant an amount equal to the
Participant's vested interest in the cash value of the Policy (as determined
under Section 2.5(c)(I) hereof).
2.9 No Assignment. Section 3.5 of the Executive Life Insurance Plan
-------------
is modified as provided herein. A Participant may not assign any part of his or
her right, title, claim, interest, benefit or any other incidents of ownership
which he or she may have in any Policies providing life insurance coverage under
this Plan, unless permitted by the Administrator in its sole discretion.
2.10 Payment of Premiums and Contributions. Section 3.6 of the
-------------------------------------
Executive Life Insurance Plan is modified as provided herein.
(a) During Employment. All premiums for life insurance coverage
-----------------
under this Plan while a Participant is employed with the Company will be paid by
the Company. The Participant will be required each year to include in income
for income tax purposes, or reimburse to the Company, an amount equivalent to
the Economic Benefit of this coverage.
(b) After Retirement or Termination of Employment After
---------------------------------------------------
Completing 15 Years of Credited Service. All premiums for life insurance
- ---------------------------------------
coverage under this Plan for a Participant after his or her Retirement Date (or
following Termination of
14
<PAGE>
Employment after completing 15 years of Credited Service) will be paid by the
Company. The Participant will be required each year to include in income for
income tax purposes, or reimburse to the Company, an amount equivalent to the
Economic Benefit of this coverage, or otherwise may realize taxable income if
the Company distributes a policy to the Participant pursuant to Section 2.8 of
this Plan.
2.11 Form of Death Benefit. Section 3.7 of the Executive Life
---------------------
Insurance Plan is modified as provided herein. All death benefits under this
Plan will be payable under the Lump Sum Payment Option (as described in Section
3.8 of the Executive Life Insurance Plan.) No Salary Continuation Option (as
described in Section 3.9 of the Executive Life Insurance Plan) will be available
under this Plan.
2.12 Option to Purchase Insurance Policy on Termination of Employment.
----------------------------------------------------------------
If a Participant terminates employment with the Company before Retirement and
prior to completing 15 years of Credited Service, the Participant shall have the
option to purchase an insurance policy on the terms provided in Article IV of
the Executive Life Insurance Plan. Such insurance policy shall provide the
amount of life insurance coverage which is then in effect for the Participant
under Section 2.2(a) of this Plan.
2.13 Option to Purchase Insurance Policy in Certain Events. Upon the
-----------------------------------------------------
occurrence of an event described in Sections 5.2 or 5.3 of the Executive Life
Insurance Plan, a Participant shall have the option to purchase an insurance
policy on the terms provided in Article V of the Executive Life Insurance Plan.
15
<PAGE>
2.14 Transfer of Policy to Company. If the Participant terminates
-----------------------------
employment with the Company before Retirement and prior to completing 15 years
of Credited Service, the Participant shall, automatically, by operation of the
terms hereof, transfer the Policy (including his or her entire interest therein)
to the Company effective on the last day of employment with the Company, and the
Company shall pay to the Participant an amount equal to the Participant's vested
interest in the cash value of the Policy (as determined under Section 2.5(c)(I)
hereof). Upon such Termination of Employment, the Participant shall no longer
have any life insurance coverage under this Plan, and the Participant and his or
her Beneficiary shall have no further interest in or rights under the Policy.
ARTICLE 3
BENEFICIARY DESIGNATION
-----------------------
3.1 Designation of Beneficiary. Each Participant shall have the right
--------------------------
to designate a Beneficiary or Beneficiaries to whom payment under this Plan
shall be made in the event of the Participant's death. A Beneficiary may be
designated in the manner provided in Article VI of the Executive Life Insurance
Plan. The most recent Beneficiary designated by a Participant under the
Executive Life Insurance Plan shall be treated as the Participant's Beneficiary
under this Plan until the Participant designates a new Beneficiary under this
Plan.
16
<PAGE>
ARTICLE 4
ADMINISTRATION OF PLAN AND DISPUTES
-----------------------------------
4.1 Administration of Plan. This Plan shall be administered by the
----------------------
Committee and the Board (herein referred to collectively as the "Administrator")
in accordance with Article VII of the Executive Life Insurance Plan, except as
provided herein. However, notwithstanding any provision of the Executive Life
Insurance Plan to the contrary, the Administrator's authority to interpret this
Plan shall not cause the Administrator's decisions in this regard to be entitled
to a deferential standard of review in the event that a Participant or
Beneficiary seeks review of the Administrator's decision as described below.
4.2 Liability of Administrator. Neither the Administrator nor its
--------------------------
designee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Plan.
4.3 Disputes
--------
(a) Right to Arbitration. Time is of the essence in the
--------------------
resolution of any and all disputes which may arise under this Plan and the
determination of whether any payments are due hereunder or the amount or timing
thereof. A Participant (or following his or her death, his or her Beneficiary),
but not the Company, may, but need not, submit any such dispute, disagreement or
claim for payment hereunder to arbitration as provided herein.
The right to select arbitration shall be solely that of the Participant
or Beneficiary in his or her sole discretion.
17
<PAGE>
Arbitration is not mandatory on the Participant or Beneficiary, and the
Participant or Beneficiary may choose in lieu thereof to bring an action in an
appropriate civil court. However, once an arbitration is commenced by the
Participant or Beneficiary, it may not be discontinued without the mutual
consent of all parties to the arbitration. During the lifetime of the
Participant, only the Participant can initiate an arbitration proceeding under
this Section.
In the event that the Company commences an action or proceeding in any
court against a Participant or Beneficiary, whether with respect to a dispute,
disagreement or claim for payment under this Plan or otherwise, the Participant
or Beneficiary may, but need not, apply to a court of competent jurisdiction,
within ninety (90) days following receipt of service of a summons and complaint
or the equivalent thereof, for an order dismissing or staying (pending the final
completion of arbitration as provided in this Section) all or so much of such
action or proceeding as affects or relates to a dispute, disagreement or claim
for payment under this Plan or relieving the Participant or Beneficiary of any
obligation to file an affirmative defense or counterclaim in such action or
proceeding to the extent the same affects or relates to a dispute, disagreement
or claim for payment under this Plan.
The Company hereby consents to the issuance of such an order, upon such
application, with respect to any aspect of the action, proceeding, defense or
counterclaim which the Participant or Beneficiary demonstrates to the court's
satisfaction may
18
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reasonably affect or relate to any dispute, disagreement or claim for payment
under this Plan. Any such order may be conditioned upon the prompt initiation
of arbitration by the Participant or Beneficiary in accordance with this
Section.
(b) Initiation of Arbitration. A Participant or Beneficiary who
-------------------------
intends to initiate arbitration hereunder shall first deliver to the Committee
which administers the Plan a claim in writing for payment under the Plan setting
forth in reasonable detail the basis for and calculation of the claim or a
proposed resolution of any other dispute or disagreement that may exist.
If the Company does not pay the full amount of the claim for payment,
or does not deliver a written, unconditional acceptance of the proposed
resolution, within sixty days following delivery of the claim for payment or
proposed resolution, or upon entry of an order of a court as provided in Section
3.3(a) hereof, the Participant or Beneficiary may deliver to the Company a
written list of five proposed arbitrators, each of whom must be either (i) a
member of the National Academy of Arbitrators residing in the State of
California, or (2) a retired judge of the California Superior Court, Court of
Appeals or Supreme Court or the United States District Court for the Central or
Southern Districts of California or the United States Court of Appeals for the
Ninth Circuit, provided, however, that any such judge must then reside in the
State of California.
Within seven days following delivery of such list, the Company shall
select one of the proposed arbitrators as the arbitrator for the dispute,
disagreement or claim for payment in
19
<PAGE>
question and shall, within said seven day period, deliver written notice of such
selection to the Participant or Beneficiary. If the Company fails to deliver
such written notice within said period, the Participant or Beneficiary shall
select one of the proposed arbitrators, promptly deliver written notice thereof
to the Company, and such selection shall be binding upon the Company.
(c) Conduct of Arbitration. The arbitration proceeding shall
----------------------
commence within seven days following selection of the arbitrator, or as soon
thereafter as possible, and shall proceed with all due diligence. No
continuance or postponement of the arbitration shall be granted to the Company
without the consent of the Participant or Beneficiary. Absence from or the
failure to participate in any hearing or session of the arbitration by the
Company shall not prevent the issuance of an award. Without the consent of the
Participant or Beneficiary, no arbitration hearing or session shall be conducted
outside the County of Los Angeles.
The arbitration shall be conducted in accordance with such rules and
procedures as may be determined by the arbitrator. The arbitrator may determine
when sufficient evidence has been submitted to permit the issuance of an award.
The arbitrator's award shall be issued in writing as expeditiously as possible
and in no event more than thirty days following the close of the hearing. The
arbitrator may, if he or she deems it necessary to the issuance of an award,
engage the services of an accountant, actuary or other expert to advise and
assist in the arbitration.
20
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Notwithstanding the right of the Administrator to administer and
interpret this Plan, no decision by the Administrator in this regard shall be
entitled to any deference in such arbitration.
(d) Arbitration Award. The arbitrator may order the Company to
-----------------
take, or to refrain from taking, any action and may make a monetary award to the
Participant or Beneficiary.
The Company acknowledges that, in the event it should breach the
provisions of the Plan, it will be extremely difficult, if not impossible, to
calculate the amount of consequential or extracontractual damages suffered by a
Participant or Beneficiary. Consequently, the Company agrees that (1) if the
arbitrator makes a monetary award of any amount to the Participant or
Beneficiary, the arbitrator shall also award the Participant or Beneficiary an
additional amount equal to fifty percent (50%) of the monetary award, but in no
event less than ten thousand dollars ($10,000), and (2) if the arbitrator does
not make a monetary award to the Participant or Beneficiary, but makes an
affirmative finding that the Company has breached the provisions of the Plan or
orders the Company to take, or to refrain from taking, any action, the
arbitrator shall award the Participant or Beneficiary ten thousand dollars
($10,000). All amounts so awarded shall constitute additional benefits under
this Plan.
Any monetary award and any additional awards shall bear interest at a
rate determined by the arbitrator from the date, as
21
<PAGE>
determined by the arbitrator, that any payment should have been made by the
Company to the Participant or Beneficiary.
(e) Costs of Arbitration. The arbitrator shall order the losing party
--------------------
in the arbitration (1) to pay for the costs of the arbitration, including,
without limitation, the arbitrator's fees and expenses and the fees of a
stenographic reporter if employed, and (2) to reimburse the prevailing party for
all costs of the arbitration which have previously been paid by the prevailing
party. Each party shall pay for its own fees and expenses in connection with
the arbitration, including, without limitation, its fees and expenses of
counsel, accountants, actuaries and other experts.
The Participant or Beneficiary shall be deemed to be the prevailing
party if the arbitrator (1) finds that the Company has breached the provisions
of the Plan or orders the Company to take, or to refrain from taking, any action
or (2) makes a monetary award of any amount to the Participant or Beneficiary.
The arbitration award, the additional award, interest, and the costs of
the arbitration shall be due and payable within five days following the issuance
of the award.
(f) Enforcement of the Award. The award of the arbitrator shall
------------------------
be final, binding and conclusive upon the parties and shall not be subject to
judicial review except as set forth in Sections 1286.2 and 1286.6 of the
California Code of Civil Procedure or any successor statute thereto. Any party
may apply to a court of competent jurisdiction for confirmation or enforcement
of such award.
22
<PAGE>
ARTICLE 5
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
5.1 Amendment and Termination of Plan. The provisions of Article VIII
---------------------------------
and Section 2.5 of the Executive Life Insurance Plan, relating to amendment and
termination of the Plan, shall apply to this Plan as if set forth herein.
ARTICLE 6
MISCELLANEOUS
-------------
6.1 Restriction on Assignment. The Participant may not assign any
-------------------------
part of his or her right, title, claim, interest, benefit or any other incidents
of ownership which he or she may have in any Policies or life insurance coverage
under this Plan, unless permitted by the Administrator in its sole discretion.
The provisions of Sections 9.1 (other than the first sentence) and 9.2
of the Executive Life Insurance Plan shall have no application to this Plan and
shall be treated as if they were deleted.
IN WITNESS WHEREOF, the Sponsor has caused this Plan to be executed
this 26th day of October , 1993, effective as of September 1, 1993.
-------- -----------
H. F. AHMANSON & COMPANY
By /s/ Richard H. Deihl
-------------------------------
Title: Chief Executive Officer
23
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SUBSIDIARIES OF H. F. AHMANSON & COMPANY
(AS OF DECEMBER 31, 1993)
Jurisdiction of
of Incorporation
----------------
110 East 42nd Operating Company, Inc. Delaware
244 West 10th Street, Inc. New York
ACD2 California
Ahmanson Marketing, Inc. California
Ahmanson Residential Development California
Ahmanson Insurance, Inc. California
Ahmanson Services, Inc. California
Ahmanson Land Company California
Ahmanson Realty Company California
Ahmanson Commercial Development Company California
Ahmanson Developments, Inc. California
Ahmanson Mortgage Company California
Bowery Advisors, Inc. Delaware
Commerce Service Corporation California
CPSB Service Corp. New York
Exchange Enterprises, Inc. Texas
Financial Services of Illinois, Inc. Illinois
Griffin Financial Services of America, Inc. Delaware
Griffin Financial Investment Advisers California
Griffin Financial Services Managing General Agency, Inc. Texas
Griffin Financial Administrators California
Griffin Financial Services, Inc. Pennsylvania
Griffin Financial Services Insurance Agency, Inc. Ohio
Griffin Financial Services Insurance Agency, Inc. Texas
Griffin Financial Services California
Griffin Financial Distributors California
Griffin Financial Services Insurance Agency California
Hamburg Glen Cove Development Corp. New York
Hamburg Development Corp. New York
Home Savings of America California
Home Funding Corporation Delaware
Home Savings of America, FSB Federal
HSA Servicing Corporation California
HSB Enterprises, Inc. New York
Ladue Service Corporation Missouri
Mesa Water Company California
Oxford Travel Service, Inc. (dba Travel of America) California
Oxford Investment Corporation California
R & M on the Water, Inc. New York
Raritan Property Holding Corp. Delaware
Savings of America, Inc. California
Serrano Reconveyance Company California
Seville Realty, Inc. Texas
Silver Granite Investment Corp. California
Tamarack, Inc. Texas
West Side Condo Corp. New York
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
H.F. Ahmanson & Company
We consent to incorporation by reference in the Registration Statements No.
33-20076, No. 33-00063, No. 33-65247, and No. 33-28254 on Form S-8, and No.
33-31590, No. 33-42394, No. 33-44686, No. 33-27902, No. 33-57218, and No.
33-50731 on Form S-3 of H.F. Ahmanson & Company of our report dated January 25,
1994, relating to the consolidated statements of financial condition of H.F.
Ahmanson & Company as of December 31, 1993 and 1992 and the related consolidated
statements of operations, stockholder's equity and cash flows for each of the
years in the three-year period ended December 31, 1993, which report appears in
the December 31, 1993 Annual Report on Form 10-K of H.F. Ahmanson & Company and
to the reference to our firm under the headings "Selected Financial Data" in the
Form 10-K. Our report refers to a change in the method of accounting for
securities in 1993 and income taxes in 1992.
/s/ KPMG PEAT MARWICK
Los Angeles, California
March 29, 1994
