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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(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, 1994
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)
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DELAWARE 95-0479700
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4900 RIVERGRADE ROAD
IRWINDALE, CALIFORNIA 91706
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 818-960-6311
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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 Pacific Stock Exchange
Cumulative Preferred Stock
Depositary Shares Each Representing a New York Stock Exchange
One-Half Interest in a Share of 9.60%
Preferred Stock, Series B
Depositary Shares Each Representing a New York Stock Exchange
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. / /
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 the New
York Stock Exchange on March 14, 1995, a date within 60 days prior to the date
of filing, was $2,080,842,299.
Common Stock, $.01 par value of registrant outstanding at March 14, 1995 --
117,099,084 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 9, 1995 are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
PART I
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ITEM 1. BUSINESS.................................................................... 1
General............................................................................. 1
Retail Banking Activities........................................................... 2
Lending Activities.................................................................. 2
General.......................................................................... 2
Interest Rates, Terms and Fees................................................... 3
Sales of Loans and MBS and Servicing Activities.................................. 5
Treasury Activities................................................................. 5
Earnings Spread..................................................................... 6
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............................................................. 8
Deposit Insurance................................................................ 8
Conversion of Deposit Insurance; Acquisitions of Savings Institutions............ 9
Classification of Assets......................................................... 9
Capital Requirements............................................................. 10
FDICIA Sanctions................................................................. 11
Enforcement and Penalties........................................................ 11
Loans and Investments............................................................ 12
Federal Home Loan Bank System.................................................... 12
Federal Reserve System........................................................... 12
Liquidity........................................................................ 12
Community Reinvestment Act....................................................... 13
Qualified Thrift Lender.......................................................... 13
Service Corporations............................................................. 13
Taxation............................................................................ 13
Federal.......................................................................... 13
State............................................................................ 13
REI Operations...................................................................... 14
Other Activities.................................................................... 14
Employees........................................................................... 14
ITEM 2. PROPERTIES.................................................................. 14
ITEM 3. LEGAL PROCEEDINGS........................................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 15
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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....................................................... 16
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............................................................... 23
Net Interest Income.............................................................. 23
Provision for Loan Losses........................................................ 25
Other Income..................................................................... 25
Gain on Sales of MBS........................................................... 25
Gain (Loss) on Sales of Loans.................................................. 26
Loan Servicing Income.......................................................... 26
Gain on Sale of Illinois Retail Deposit Branch System.......................... 26
Other Operating Income......................................................... 26
Other Expenses................................................................... 26
General and Administrative Expenses............................................ 26
Operations of REI.............................................................. 27
Operations of REO.............................................................. 27
Amortization of Goodwill and Other Intangible Assets........................... 27
Provision for Income Taxes (Benefit) and
Cumulative Effect of Accounting Change...................................... 27
Extraordinary Loss in 1993....................................................... 28
Quarterly Results of Operations.................................................. 28
Financial Condition................................................................. 29
Asset/Liability Management....................................................... 30
Asset Quality.................................................................... 33
Nonperforming Assets and Potential Problem Loans............................... 33
Allowance for Loan Losses...................................................... 37
REI............................................................................ 39
Liquidity and Capital Resources.................................................. 39
Loans Receivable............................................................... 40
MBS............................................................................ 40
Deposits....................................................................... 40
Borrowings..................................................................... 41
Capital........................................................................ 41
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.................................................................. 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......................... 43
ITEM 11. EXECUTIVE COMPENSATION...................................................... 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............. 45
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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 97% of the Company's consolidated revenues in 1994 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, 1994. 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.
In 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 savings bank
that operates as Home Savings of America, FSB. The deposits of the combined
entity are insured, in part, by the SAIF and, in part, by the BIF. The combined
entity is considered a BIF member institution. 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 ("MBS") and investment securities.
MBS include securities issued or guaranteed by government sponsored enterprises
("Agency MBS") 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 MBS, income from investment securities, gains on sales of
loans and MBS, fees earned in connection with loans and deposits, and income
earned on its portfolio of loans and MBS serviced for investors. Its principal
expense is interest incurred on interest-costing liabilities, including deposits
and borrowings. The Company's primary sources of funds are deposits, principal
and interest payments on loans and MBS, proceeds from sales of loans and MBS and
borrowings. Scheduled payments on loans and MBS are a relatively stable source
of funds, while prepayments of loans and MBS and flows in deposits vary widely.
The Company, through certain subsidiaries, engages in real estate
development and investment ("REI") activities. The operations of the REI
subsidiaries are described below under "REI Operations." The effect on
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regulatory capital of REI activities by Home Savings' subsidiaries is discussed
below under "Regulation -- Capital Requirements." For information with respect
to industry segments see Note 16 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-costing 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 MBS, and the level
of prepayments on such loans and MBS, 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 BANKING ACTIVITIES
At December 31, 1994 Home Savings' deposits totaled $40.6 billion,
substantially 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, 1994 the Company had 357 retail branch offices located in
six states and 82 loan offices lending 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. During 1994 the Company sold 26 branches in Illinois with deposits
totaling $1.6 billion and purchased 53 branches in California with deposits
totaling $2.8 billion, of which 32 branches were consolidated with existing
branches. The Company has entered into an agreement to acquire an additional 52
branches in California with deposits totaling $1.4 billion, of which
approximately 20 branches are planned for consolidation with existing branches.
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 three 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. Griffin Financial Services serves as
investment adviser and distributor for The Griffin Funds, a family of mutual
funds.
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 has not originated new residential loans secured by
multi-family structures located in states other than California since 1990 and
has not originated new commercial and industrial real estate loans since 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, Assistant Directors of Conventional Loans, Regional Loan
Managers, 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
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loan. Because loan applications declined by Home Savings may be acceptable to
other lenders, during 1993 Home Savings instituted a program to refer loan
applications 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 the security properties in an amount at least equal
to the total of the Company's loans or the replacement cost of the structure,
whichever is less. In designated flood areas, the Company also requires flood
insurance. During 1994, the Company began requiring earthquake insurance on
certain loans secured by multi-family structures. The Company does not currently
require other insurance against potential damage to the security properties.
However, in response to an announcement by FHLMC that it will discontinue
purchasing loans secured by condominium units located in designated areas unless
the condominium project is covered by earthquake insurance, the Company is
reviewing whether earthquake insurance should be required for loans secured by
condominium units.
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 loan losses relating to
specifically identified impaired 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 savings
institutions headquartered in 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 which adjust based upon changes in COFI ("COFI
ARMs") generally commence accruing interest at the newly published rate plus the
contractual factor at the payment due date next following such announcement. The
Company also offers ARMs which provide for interest rates that adjust based upon
changes in the yields of U. S. Treasury securities ("Treasury ARMs").
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 COFI ARMs provide that the minimum monthly payments to be made
by the borrower may be adjusted only annually and by not more than 7.5% of such
minimum 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's
Treasury ARMs secured by single family properties generally provide that the
interest
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rate will not be adjusted by more than two percentage points in any year but do
not otherwise limit the adjustment of the minimum monthly payments. The Company
permits the borrower to select, at the time of origination of a COFI ARM, a
repayment schedule of 15, 30 or 40 years. The Company's Treasury ARMs secured by
single family properties have a repayment schedule of 30 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. The limits on changes in payments on ARMs can result
in monthly payments that are greater or less than the amount necessary to
amortize the ARM by its maturity date at the 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 (or negative amortization) on the Company's ARMs during
1994 and 1993 were $39.0 million and $50.6 million, respectively. At December
31, 1994 the amount of interest capitalized on the Company's $46.4 billion ARM
portfolio totaled $33.6 million. Of such amount, $9.4 million represents
capitalized interest on loans with current principal balances that are less than
the original loan amounts. The remaining $24.2 million represents capitalized
interest on loans with an aggregate principal balance at December 31, 1994 of
$3.2 billion compared to an aggregate original loan balance of $3.1 billion. At
December 31, 1994 the average principal balance of such loans was 1.6% higher
than the average original loan amount. If a loan bears a high loan-to-value
ratio at origination, the default risk associated with the loan could increase
due to negative amortization on the ARM. However, the Company's management does
not believe that the default risk associated with negative amortization is
material. 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. The terms of
the Company's Treasury ARMs secured by single family properties do not result in
negative or accelerated amortization.
Substantially all the Company's ARMs also have a minimum interest rate. Due
to the general decline in COFI during the several years prior to 1994, 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.
The Company currently also offers a 30-year fixed rate mortgage loan and a
15-year fixed rate mortgage loan. The Company believes that offering 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 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 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 fixed rate mortgage loans until
market conditions become more favorable.
The Company also offers Treasury ARMs with a fixed interest rate for an
initial period currently ranging from three to ten years after which interest
rate adjustments commence. These loans with an initial fixed interest rate
period of three or five years currently are originated to be held in portfolio
and these loans with an initial fixed interest rate period of seven or ten years
currently are originated for sale.
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.
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Sales of Loans and MBS and Servicing Activities. The Company has sold
loans, Agency MBS and other MBS 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 MBS that may be sold as
available for sale. For information on the amount of loans and MBS sold, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Other Income -- Gain on Sales of MBS" and
"-- Gain (Loss) on Sales of Loans."
When loans and MBS 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 the loans.
During 1994 the Company sold servicing rights related to $2.0 billion of fixed
rate single family mortgage loans serviced for investors. These loans were lower
principal balance loans which are less efficient for the Company to service. 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 has sold certain loans and MBS 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 MBS sold, subordination of the
Company's retained interest in a pool of loans or MBS 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 MBS,
which can be used as collateral to support increases in interest-costing
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 MBS 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 may be 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 MBS pledged
as collateral. The Company also from time to time has issued senior notes,
subordinated notes, medium-term notes, mortgage-backed bonds and commercial
paper and expects in the future to issue other debt instruments. In addition,
the Company obtains funds
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through agreements to repurchase securities sold with broker-dealers, which are
deemed to be secured borrowings and typically have terms ranging from one to 365
days. See Notes 8 and 9 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 on its interest-costing
liabilities and (ii) the relative amounts of interest-earning assets and
interest-costing liabilities. When interest-earning assets equal or exceed
interest-costing liabilities, any positive spread will generate net interest
income. When the amount of interest-earning assets is less than the amount of
interest-costing liabilities, net interest expense can result even when the
spread is positive. The Company's net interest margin reflects the difference
between the average dollar amount of and yield on interest-earning 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 balance sheet management, including implementation of 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 prepares an implementation plan
intended to achieve 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
ALCO's implementation plan 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
Financial institutions experience intense competition in making real estate
loans and attracting deposits from the general public. The competition for funds
is principally among 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, other
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 is principally among 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.
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. Most
states,
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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. Legislation adopted by Congress during
1994 will permit banks to establish interstate 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.
The FDIC has proposed a change in the deposit insurance assessment rate for
BIF deposits but not for SAIF deposits. The change, if adopted, 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). See
"Regulation -- Deposit Insurance."
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
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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 at least 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.
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, 1994 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 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 91% and 9% 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 has proposed a change in the BIF assessment rates, but not the
SAIF assessment rates, based on the condition of the BIF and the SAIF. The
change, if adopted, would reduce the lowest assessment rate for BIF deposits to
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0.04% of covered deposits. The Department of the Treasury has been reported as
studying, in part due to concerns about the effects of the disparity between BIF
assessment rates and SAIF assessment rates which would result from the FDIC's
proposal, a one time special assessment of 0.80% of SAIF deposits to
recapitalize the SAIF. The FDIC has also requested comments on whether the base
to which the assessment rate is applied should be re-defined. Although the FDIC
has indicated that any change in the assessment base would be accompanied by a
corresponding change in the assessment rate designed to result in the FDIC
collecting the same aggregate amount of assessments, a change in the assessment
base could alter the amount of the assessments paid by individual institutions.
The Company paid $90.9 million and $8.9 million in deposit insurance premiums to
SAIF and BIF, respectively, in 1994 compared to $70.1 million and $13.1 million,
respectively, in 1993.
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, as is currently being proposed by the FDIC, premiums assessed
on deposits insured by the SAIF may be higher in the future 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. In order to mitigate the effects of such a competitive
disadvantage, the Company has filed applications to organize state-chartered
savings banks at which deposits would be exclusively or primarily BIF-insured.
The Company cannot predict whether the FDIC, the OTS or Congress would attempt
to prevent or restrict the Company's use of such savings banks for this purpose.
If the Company is permitted to organize and operate such savings banks,
operating multiple institutions could introduce inefficiencies and additional
expenses and the benefits of increasing BIF-insured deposits and decreasing
SAIF-insured deposits would only be realized over time.
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 of SAIF insured deposits to BIF
insurance. Subject to certain limitations, however, a savings institution may
convert to a bank charter if the fund insuring the deposits of the resulting
bank remains unchanged.
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
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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 OTS 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 internal review by the OTS, 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, 1994. 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 but excluding the net unrealized gain or loss on securities
available for sale), noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of fully consolidated
subsidiaries. Intangible assets (other than purchased mortgage servicing rights,
purchased credit card relationships and qualifying supervisory goodwill) must be
deducted from core capital. Certain deferred tax assets also must be deducted.
Core capital includes purchased mortgage servicing rights and purchased credit
card relationships, subject to certain limitations. At December 31, 1994 Home
Savings had no purchased mortgage servicing rights or purchased credit card
relationships. The amount of qualifying supervisory goodwill that may be
included in core capital by an eligible savings institution was reduced to
0.375% of adjusted total assets beginning January 1, 1994 and 0% beginning
January 1, 1995. At December 31, 1994 the amount of qualifying supervisory
goodwill included in Home Savings' core capital was $198.8 million which is
0.375% of adjusted total assets.
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 certain purchased mortgage servicing
rights.
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
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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' REI subsidiaries are its only
significant subsidiaries engaged in activities not permissible for a national
bank. At December 31, 1994 Home Savings' investments in and extensions of credit
to its REI subsidiaries aggregated $71.2 million as a result of which Home
Savings was required to deduct $32.1 million from its capital.
The regulatory capital requirements applicable to Home Savings are
continuing to become more stringent as the amount of Home Savings' supervisory
goodwill includable in capital was phased out effective January 1, 1995 and the
amount of Home Savings' investment in REI 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 phaseout
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.
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, 1994 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 CAMEL 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
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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 with respect to the stock of depository institutions.
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, as amended, requires the OTS to prescribe minimum operational and
managerial standards and standards for asset quality, earnings and stock
valuation for savings institutions. Any savings institution which fails to meet
the standards may be required to 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, 1994, 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 shortterm
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
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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 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, such 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).
A savings institution organized in stock form may be subject to recapture
taxes on its 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.
Dividends in excess of the savings institution's current and accumulated
earnings and profits as calculated for federal income tax purposes, and any
redemption or liquidation distributions, 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 and thereafter from its supplemental
reserves. The amount of the tax bad debt reserves subject to recapture under
this provision approximated $480 million at December 31, 1994. 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.
As of December 31, 1994, the Company's tax returns had been audited by the
Internal Revenue Service for all years through 1989.
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
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banks or financial institutions such as Home Savings). For calendar year
taxpayers such as Home Savings the maximum rate for the 1994 taxable year was
approximately 11.47%. 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.
The Company is also subject to New York franchise tax on an amount
approximately equal to that portion of its federal taxable income allocable to
New York. For 1994, 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 11 of Notes to
Consolidated Financial Statements.
REI OPERATIONS
Through its REI 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 REI subsidiaries, certain REI
operations previously conducted by Home Savings' subsidiaries were sold to
Ahmanson in 1992 and thereafter were conducted by direct subsidiaries of
Ahmanson.
The Company intends to continue its withdrawal from REI activities. Neither
Ahmanson's REI subsidiaries nor Home Savings' REI 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 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 1994 and are not
expected to make a significant contribution to its results of operations in
1995.
EMPLOYEES
At December 31, 1994 the Company employed approximately 8,126 full-time and
1,733 part-time employees. Fulltime 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.
14
<PAGE> 18
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
29% of the 4.1 million square feet in which its offices are located and leases
the remainder. The Company has 399 offices and other office facilities of which
137 are owned and the remainder are leased. Annual lease payments total
approximately $74 million. The net investment in premises, equipment and
leaseholds totaled $615 million at December 31, 1994 compared to $674 million at
December 31, 1993.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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>
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................................................ 20 1/4 16 3/8
Second Quarter............................................... 20 1/8 16 1/2
Third Quarter................................................ 22 3/4 18 7/8
Fourth Quarter............................................... 21 15 1/4
1995 --
First Quarter (through March 27)............................. 18 5/8 16
</TABLE>
15
<PAGE> 19
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.
<TABLE>
<S> <C>
Cash Dividends Declared and Paid
1993 --
First Quarter....................................................... $.22
Second Quarter...................................................... .22
Third Quarter....................................................... .22
Fourth Quarter...................................................... .22
1994 --
First Quarter....................................................... $.22
Second Quarter...................................................... .22
Third Quarter....................................................... .22
Fourth Quarter...................................................... .22
1995 --
First Quarter....................................................... $.22
</TABLE>
On March 21, 1995 Ahmanson declared a dividend of $.22 per share of Common
Stock payable June 1, 1995 to stockholders of record on May 10, 1995.
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
borrowings. There are significant limitations on the ability of Home Savings to
pay dividends to Ahmanson.
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 at
least 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
$497.0 million under the most restrictive of the foregoing limits without OTS
approval.
Home Savings may also become subject to a prohibition on the payment of
dividends if it is not in compliance with its capital requirements.
STOCKHOLDERS
At the close of business on March 14, 1995, 117,099,084 shares of Ahmanson
Common Stock were outstanding and were held by 7,407 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> 20
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, 1994 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 LLP, independent
certified public accountants. The consolidated financial statements as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994, and the report thereon of KPMG Peat Marwick LLP, are
included elsewhere herein.
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR CONSOLIDATED SUMMARY OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated assets:
Cash and investment
securities.................. $ 2,773,573 $ 3,906,044 $ 2,362,563 $ 1,738,561 $ 3,392,833
Mortgage-backed securities
(MBS)....................... 12,789,420 6,919,997 3,915,508 4,683,742 7,468,290
Loans receivable............... 36,001,745 37,704,368 38,962,875 37,875,795 37,466,738
Real estate.................... 475,264 623,519 1,127,271 950,532 909,864
Premises and equipment......... 614,817 673,879 686,693 699,836 688,060
Goodwill and other intangible
assets...................... 468,542 428,444 478,017 516,168 550,181
All other assets............... 602,421 614,994 607,580 761,553 725,041
----------- ----------- ----------- ----------- -----------
Total assets................ $53,725,782 $50,871,245 $48,140,507 $47,226,187 $51,201,007
=========== =========== =========== =========== ===========
Consolidated liabilities and
stockholders' equity:
Deposits....................... $40,655,016 $38,018,653 $39,273,192 $39,147,126 $38,605,538
Borrowings..................... 9,176,085 8,879,345 4,978,583 4,135,922 8,989,538
All other liabilities.......... 930,080 1,024,216 1,143,088 1,286,768 1,263,752
----------- ----------- ----------- ----------- -----------
Total liabilities........... 50,761,181 47,922,214 45,394,863 44,569,816 48,858,828
Stockholders' equity........... 2,964,601 2,949,031 2,745,644 2,656,371 2,342,179
----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity...... $53,725,782 $50,871,245 $48,140,507 $47,226,187 $51,201,007
=========== =========== =========== =========== ===========
</TABLE>
17
<PAGE> 21
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income........................... $ 3,095,375 $ 3,003,422 $ 3,428,979 $ 4,386,785 $ 4,651,769
Interest expense.......................... 1,798,454 1,666,350 2,070,413 3,114,522 3,456,976
----------- ----------- ----------- ----------- -----------
Net interest income.............. 1,296,921 1,337,072 1,358,566 1,272,263 1,194,793
Provision for loan losses................. 176,557 574,970 367,366 195,062 215,854
----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses...... 1,120,364 762,102 991,200 1,077,201 978,939
----------- ----------- ----------- ----------- -----------
Other income:
Gain (loss) on sales of loans and MBS... (16,168) 101,044 76,925 101,586 12,678
Loan servicing and other fee income..... 184,809 174,061 184,549 170,789 139,103
Gain on sale of Illinois retail deposit
branch system......................... 103,522 -- -- -- --
Other operating income.................. 13,814 42,723 5,383 5,728 4,822
----------- ----------- ----------- ----------- -----------
Total other income............... 285,977 317,828 266,857 278,103 156,603
----------- ----------- ----------- ----------- -----------
Other expenses:
General and administrative (G&A)
expenses.............................. 758,560 819,403 753,257 740,964 744,586
Operations of real estate held for
development and investment (REI)...... 97,644 229,300 58,359 72,804 30,026
Operations of real estate owned held for
sale (REO)............................ 86,011 212,130 129,153 37,125 29,731
Amortization of goodwill and other
intangible assets..................... 53,456 39,163 27,674 31,408 32,713
----------- ----------- ----------- ----------- -----------
Total other expenses............. 995,671 1,299,996 968,443 882,301 837,056
----------- ----------- ----------- ----------- -----------
Earnings (loss) before provision for
income taxes (benefit), extraordinary
loss and cumulative effect of accounting
change.................................. 410,670 (220,066) 289,614 473,003 298,486
Provision for income taxes (benefit).... 173,312 (82,034) 133,222 227,242 107,490
----------- ----------- ----------- ----------- -----------
Earnings (loss) before extraordinary loss
and cumulative effect of accounting
change.................................. 237,358 (138,032) 156,392 245,761 190,996
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)....................... $ 237,358 $ (159,639) $ 204,069 $ 245,761 $ 190,996
=========== =========== =========== =========== ===========
Per share information -- common shares:
Primary --
Earnings (loss) before extraordinary
loss and cumulative effect of
accounting change................... $ 1.59 $ (1.51) $ 1.19 $ 2.06 $ 1.64
Net earnings (loss)................... 1.59 (1.69) 1.60 2.06 1.64
Fully diluted --
Earnings (loss) before extraordinary
loss and cumulative effect of
accounting change................... 1.58 (1.51) 1.19 2.06 1.64
Net earnings (loss)................... 1.58 (1.69) 1.60 2.06 1.64
Book value at December 31............... 19.70 19.61 22.04 21.34 20.20
Dividends............................... 0.88 0.88 0.88 0.88 0.88
Weighted average number of common shares
outstanding:
Primary................................. 117,369,431 116,786,369 116,915,342 116,694,295 116,434,334
Fully diluted........................... 128,946,242 116,786,369 117,199,811 116,734,630 116,434,334
</TABLE>
18
<PAGE> 22
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR SELECTED OTHER DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992 1991 1990
----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Regulatory capital:
Tangible capital................................ 5.12% 4.97% 4.85% 4.34% 3.43%
Core capital.................................... 5.50 5.72 5.77 5.10 4.17
Risk-based capital.............................. 12.17 12.59 12.99 10.35 8.96
Ratio of nonperforming assets to total assets..... 1.57 1.89 4.61 3.74 1.76
Return on average assets.......................... 0.46 (0.32) 0.42 0.49 0.39
Return on average equity.......................... 8.00 (5.58) 7.49 9.97 8.25
Return on average tangible equity................. 11.50 (5.01) 10.42 14.35 12.84
Ratio of average equity to average assets......... 5.70 5.75 5.57 4.87 4.74
Ratio of dividends paid to net earnings (loss).... 64.62 (86.53) 58.37 43.24 49.15
Total number of offices open...................... 439 455 467 481 470
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company continued its evolution during 1994 into becoming a
full-service consumer banking organization.
FINANCIAL PERFORMANCE
Nineteen ninety-four was a year of significant financial achievements and
major challenges. In 1994, the Company:
- Achieved earnings of $237.4 million or $1.58 per fully diluted common
share compared to a loss of $159.6 million or $1.69 per common share in
1993;
- Reduced general and administrative expenses by $60.8 million, and
achieved a ratio of G&A to average assets of 1.46% for the year, well
below the stated goal of 1.50%;
- Lowered nonperforming assets by $117.3 million, or 12.2%, to achieve a
ratio of nonperforming assets to total assets of 1.57% at December 31,
1994;
- Lowered credit costs from $787.1 million in 1993 to $262.6 million in
1994;
- Provided $86.1 million for losses related to REI to achieve an allowance
level of 51.6% of gross REI assets at December 31, 1994, and reduced the
Company's net investment in REI from $443.7 million to $313.3 million;
- Originated $10.3 billion in residential loans, 95.4% of which were ARMs;
- Increased earning assets by $3.1 billion, or 6.5%;
- Increased deposits by $2.6 billion, or 6.9%; and
- Maintained Home Savings' capital ratios in excess of regulatory
requirements for well capitalized institutions, the highest regulatory
standard.
Despite these financial achievements, the rising interest rate environment,
the slow economic recovery in California and additions to the allowance for real
estate investments dampened 1994 results. In addition, the
19
<PAGE> 23
Northridge earthquake of January 17, 1994 caused the Company to set aside an
additional $30 million in the provision for loan losses due to real property
losses sustained by borrowers.
Net interest income for 1994 totaled $1.30 billion, compared to $1.34
billion in 1993. For the year, the net interest margin was 2.64%, compared to
2.90% in 1993. The net interest margin was 2.24% at December 31, 1994, compared
to 2.95% at December 31, 1993. Net interest income and the margin declined from
the second through fourth quarters of 1994. The decline principally reflected
the combined effects of the 11th District Cost of Funds Index (COFI) repricing
lag in a period of rising rates and the narrowing of the Company's funding
advantage to COFI. Mitigating these pressures were declines in interest lost on
nonaccruing loans, growth in earning assets and increases in factors on recently
originated loans.
In 1994, the Company:
- Identified key earnings growth opportunities in the consumer lending
business;
- Coordinated distribution channels to cross-sell the products offered now
and in the future;
- Enhanced franchise value by improving retail branch efficiency through
the purchase, sale and consolidation of branch offices;
- Continued reengineering the loan servicing operation to decrease
servicing costs; and
- Began reengineering the loan origination process to reduce origination
costs.
CONVENTIONAL MORTGAGE LENDING
Conventional mortgage lending (lending on single family units) volume was
$8.2 billion in 1994, a decline from the $10.0 billion of conventional loans
originated in 1993. Loans on California single family properties of $5.1 billion
equaled 62.2% of total single family volume for the year. The average loan
amount on California single family homes was $170,700. By comparison, the
average loan size on the $3.1 billion of single family loans funded outside of
California was $109,400.
As rising rates increased demand by consumers for the Adjustable Rate
Mortgage ("ARM"), monthly ARMs accounted for 94.3% of the Company's total single
family loan volume in 1994, compared to 72.8% in 1993. In addition to the
monthly ARM tied to the 11th District Cost of Funds ("COFI ARM") and fixed rate
loan products, Home Savings began offering a family of loans tied to U.S.
Treasury securities. These Treasury ARMs were designed to complement COFI ARM
loans and provide customers with a wider selection of loan products.
Changes in pricing and in the portfolio mix contributed to higher loan
factors in the loan portfolio. The average factor over COFI on conventional
loans originated during the year was 2.76%, compared to 2.43% in 1993.
PROJECT HOME RUN
In April 1994, Home Savings embarked on a program referred to as "Project
HOME Run," to reengineer the Company's mortgage loan origination process. This
project was initiated because the Company believes that to remain competitive in
the years ahead, it will be necessary to: 1) reduce loan origination costs; 2)
improve the quality of originated loans; 3) increase the annual loan production
capability; and 4) improve customer service with quicker loan approval and
instantaneous progress reports as the application moves through the approval
process. Progress was made to achieve these objectives in 1994 and efforts will
continue in 1995 and 1996.
MULTI-FAMILY RESIDENTIAL LENDING
Multi-family mortgage loan originations totaled $2.1 billion in 1994, all
of which were ARM loans secured by properties in California. The average loan
size funded was $854,400 on projects with an average of 23 units. Of the loans
funded, 71% were refinances, 58% were on properties with less than 37 units, and
68% had a loan balance less than $2 million. Geographically, 57% of the loans
funded in 1994 were in Southern
20
<PAGE> 24
California and 43% in Northern California. The Company makes multi-family loans
only in California. Multi-family loan factors were also increased in 1994.
RETAIL BANKING
The retail branch system is the primary outlet for the Company's consumer
financial products and services, and offers numerous opportunities for
cross-selling. Several programs were initiated in 1994 to aggressively expand
the distribution channels and the array of products offered to customers through
the retail branch system. In addition, a $2.6 billion growth in deposits was
achieved at a time when many other institutions experienced deposit outflows.
In 1994, several branch acquisitions and sales were completed to improve
the efficiency of the retail system. Home Savings sold 26 branches outside of
California with deposits totaling $1.6 billion and purchased 53 branches in
California with deposits totaling $2.8 billion. Most notable among these
transactions was the sale of Home Savings' Illinois branches (26 branches with
$1.6 billion in deposits) for a premium of approximately 8% of the core deposit
base and the purchase from the Resolution Trust Corporation of Western Federal
Savings (with 23 California branches and deposits of $1.6 billion) at a core
deposit premium of approximately 4%. Of the 53 branches purchased during 1994,
32 were consolidated with existing branches resulting in average deposits per
consolidated branch of $135.0 million. Overall, the Company's average deposits
per branch were $113.9 million at December 31, 1994 compared to $104.4 million
at December 31, 1993.
On February 7, 1995, Home Savings entered into an agreement with Household
Bank, FSB to acquire its 52 retail branches in Southern California with deposits
totaling $1.4 billion. This acquisition will increase Home Savings' deposit
market share and provide an opportunity to enter 30 new locations that have been
targeted for expansion. In addition, the employees in these retail offices bring
experience in marketing both deposit and loan products. Home Savings plans to
consolidate approximately 20 of the acquired branches with existing branches.
Home Savings will continue to examine possibilities for expanding and/or
consolidating the retail branch system in its major markets.
CONSUMER LENDING
In 1995, the Company intends to begin providing consumer loan products. The
mission is to satisfy customer needs by offering a range of consumer lending
products such as secured and unsecured personal loans, home equity lines of
credit, auto and boat loans and sales finance contracts.
The Company believes that broadening its product base will:
- Enhance net interest margin through the use of higher margin loan
products;
- Make more effective use of capital;
- Increase sales per square foot in the retail branches; and
- Provide additional services for customers.
GRIFFIN FINANCIAL SERVICES
Griffin Financial Services, a wholly-owned subsidiary of Ahmanson and an
affiliate of Home Savings, provides personal financial services in the form of
investments and insurance. Fully trained and licensed insurance agents and
securities representatives offer discount brokerage services, mutual funds,
annuities, property and casualty insurance, and life/health insurance.
A proprietary family of mutual funds, The Griffin Funds, was introduced in
October of 1993, and had approximately $120 million of assets under management
at December 31, 1994.
21
<PAGE> 25
MORTGAGE SERVICING
At December 31, 1994, Home Servicing of America (the Loan Service Center),
a wholly-owned subsidiary of Ahmanson and an affiliate of Home Savings, serviced
$11.3 billion of loans for investors in addition to substantially all of Home
Savings' portfolio of loans and MBS. Loan servicing income amounted to $74.4
million in 1994. The Company expects to complete installation of a new
computer-based servicing system in the Loan Service Center in 1995. This new
technology is expected to reduce costs and improve customer service.
DEPOSIT INSURANCE PREMIUMS
During 1994 Home Savings paid deposit insurance premiums to the Federal
Deposit Insurance Corporation's Savings Association Insurance Fund ("SAIF") and
Bank Insurance Fund ("BIF") ratably based on 91% and 9% of total deposits,
respectively. The SAIF and the BIF currently assess deposit insurance premiums
at the same rate. However, the FDIC has proposed a reduction in the minimum
assessment rate applicable to BIF deposits, but not SAIF deposits, from 0.23% of
covered deposits to 0.04% of covered deposits. If this proposal is adopted, the
resulting disparity in assessment rates could place Home Savings at a
competitive disadvantage compared to institutions whose deposits are exclusively
or primarily BIF-insured (such as most commercial banks). In order to mitigate
the effects of such a competitive disadvantage, the Company has filed
applications to organize state-chartered savings banks at which deposits would
be exclusively or primarily BIF-insured. The Company cannot predict whether the
FDIC, the OTS or Congress would attempt to prevent or restrict the Company's use
of such savings banks for this purpose. If the Company is permitted to organize
and operate such savings banks, operating multiple institutions could introduce
inefficiencies and additional expenses and the benefits of increasing
BIF-insured deposits and decreasing SAIF-insured deposits would only be realized
over time.
22
<PAGE> 26
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $1.30 billion in 1994, a decrease of $40.2 million
or 3% from 1993, and $1.34 billion in 1993, a decrease of $21.5 million or 2%
from 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-costing 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, and delinquent interest on such loans has been excluded from interest
income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------
1994 1993 1992
---------------------------------- ---------------------------------- ----------------------------------
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............ $35,288,701 $2,265,050 6.42% $39,581,138 $2,623,139 6.63% $38,035,638 $2,978,267 7.83%
MBS.............. 10,844,465 686,390 6.33 3,984,806 278,908 7.00 4,205,595 336,517 8.00
----------- ---------- ----------- ---------- ----------- ----------
Total loans
and MBS.... 46,133,166 2,951,440 6.40 43,565,944 2,902,047 6.66 42,241,233 3,314,784 7.85
----------- ---------- ----------- ---------- ----------- ----------
Investment
securities:
Federal funds
sold and
securities
purchased
under
agreements to
resell....... 2,275,291 102,824 4.52 2,073,809 74,559 3.60 2,269,751 94,899 4.18
Other
investments... 677,546 41,111 6.07 437,185 26,816 6.13 484,002 19,296 3.99
----------- ---------- ----------- ---------- ----------- ----------
Total
investment
securities. 2,952,837 143,935 4.87 2,510,994 101,375 4.04 2,753,753 114,195 4.15
----------- ---------- ----------- ---------- ----------- ----------
Interest-earning
assets....... 49,086,003 3,095,375 6.31 46,076,938 3,003,422 6.52 44,994,986 3,428,979 7.62
---------- ---------- ----------
Other assets....... 2,988,728 3,695,219 3,893,982
----------- ----------- -----------
Total
assets... $52,074,731 $49,772,157 $48,888,968
=========== =========== ===========
Interest-costing
liabilities:
Deposits:
Checking
accounts..... $ 2,677,130 27,577 1.03 $ 2,560,091 34,073 1.33 $ 2,329,153 47,960 2.06
Savings
accounts..... 11,318,552 281,511 2.49 12,040,616 323,255 2.68 11,345,488 409,645 3.61
Term
accounts..... 24,536,784 982,805 4.01 23,987,951 943,735 3.93 25,773,866 1,280,742 4.97
----------- ---------- ----------- ---------- ----------- ----------
Total
deposits... 38,532,466 1,291,893 3.35 38,588,658 1,301,063 3.37 39,448,507 1,738,347 4.41
----------- ---------- ----------- ---------- ----------- ----------
Borrowings:
Short-term..... 4,324,762 182,721 4.22 3,456,569 112,171 3.25 3,209,173 122,073 3.80
FHLB........... 2,354,051 136,048 5.78 1,924,945 79,981 4.15 344,941 27,091 7.85
Other.......... 2,799,189 187,792 6.71 1,792,535 173,135 9.66 1,810,170 182,902 10.10
----------- ---------- ----------- ---------- ----------- ----------
Total
borrowings. 9,478,002 506,561 5.34 7,174,049 365,287 5.09 5,364,284 332,066 6.19
----------- ---------- ----------- ---------- ----------- ----------
Interest-costing
liabilities... 48,010,468 1,798,454 3.75 45,762,707 1,666,350 3.64 44,812,791 2,070,413 4.62
---------- ---------- ----------
Other
liabilities...... 1,098,128 1,147,173 1,351,813
Stockholders'
equity........... 2,966,135 2,862,277 2,724,364
----------- ----------- -----------
Total
liabilities
and
stockholders'
equity....... $52,074,731 $49,772,157 $48,888,968
=========== =========== ===========
Excess
interest-earning
assets/Interest
rate spread...... $ 1,075,535 2.56 $ 314,231 2.88 $ 182,195 3.00
=========== =========== ===========
Net interest
income/Net
interest margin.. $1,296,921 2.64 $1,337,072 2.90 $1,358,566 3.02
========== ========== ==========
</TABLE>
23
<PAGE> 27
The following table presents the changes for 1994 and 1993 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 current year change in
average balance multiplied by the average rate during the preceding year and the
change due to rate is calculated as the current year 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,
-------------------------------------------------------------------
1994 VERSUS 1993 1993 VERSUS 1992
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........................ $(275,109) $(82,980) $(358,089) $102,805 $(457,933) $(355,128)
MBS.......................... 434,178 (26,696) 407,482 (15,481) (42,128) (57,609)
Federal funds sold and
securities purchased under
agreements to resell...... 9,133 19,132 28,265 (7,096) (13,244) (20,340)
Other investments............ 12,487 1,808 14,295 (2,882) 10,402 7,520
--------- -------- --------- -------- --------- ---------
Total interest income... 180,689 (88,736) 91,953 77,346 (502,903) (425,557)
--------- -------- --------- -------- --------- ---------
Interest expense on:
Deposits..................... (1,798) (7,372) (9,170) (28,848) (408,436) (437,284)
Short-term borrowings........ 36,838 33,712 70,550 8,284 (18,186) (9,902)
FHLB borrowings.............. 24,753 31,314 56,067 65,673 (12,783) 52,890
Other borrowings............. 65,747 (51,090) 14,657 (1,721) (8,046) (9,767)
--------- -------- --------- -------- --------- ---------
Total interest
expense.............. 125,540 6,564 132,104 43,388 (447,451) (404,063)
--------- -------- --------- -------- --------- ---------
Net interest
income............. $ 55,149 $(95,300) $ (40,151) $ 33,958 $ (55,452) $ (21,494)
========= ======== ========= ======== ========= =========
</TABLE>
Net interest income decreased $40.2 million, or 3%, in 1994 resulting from
the decrease of 26 basis points in the net interest margin to 2.64% for 1994
from 2.90% for 1993, partially offset by the increase of $3.0 billion in average
interest-earning assets. The decrease of $21.5 million or 2%, in net interest
income in 1993 resulted from the decrease of 12 basis points in the net interest
margin to 2.90% for 1993 from 3.02% for 1992, partially offset by the increase
of $1.1 billion in average interest-earning assets. In addition, interest income
on loans and net interest income for 1993 reflected a reduction due to an
allowance of $17.8 million established for the anticipated assignment to a third
party of the Company's rights and obligations under certain interest rate swap
agreements based on the faster than anticipated prepayment of related hedged
loans. Such allowance had the effect of reducing the net interest margin for
1993 by four basis points. The increases in average interest-earning assets
during 1994 and 1993 were primarily funded with interest-costing liabilities and
sales of REO.
Market interest rates increased sharply in 1994 following the declining
rates in recent years. The compression in the net interest margin during 1994
principally reflects the lag between changes in 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") to which a
majority of the Company's interest-earning assets are tied, changes in the
repricing of the Company's interest-costing liabilities in a period of rising
interest rates and a narrowing of the Company's funding advantage relative to
COFI. The Company's cost of funds was 19 basis points, 41 basis points and 52
basis points below the average of COFI of 3.94%, 4.05% and 5.14% during 1994,
1993 and 1992, respectively.
The compression of the net interest margin was mitigated by improvements in
the credit quality of the Company's mortgage portfolio. Provisions for losses of
delinquent interest related to nonaccrual loans of
24
<PAGE> 28
$43.2 million in 1994, $70.9 million in 1993 and $106.7 million in 1992 had the
effect of reducing the net interest margin by nine basis points in 1994, 16
basis points in 1993 and 24 basis points in 1992.
The Company believes that its net interest income is somewhat insulated
from interest rate fluctuations within a fairly wide range primarily due to the
adjustable rate nature of its loan and MBS portfolio. However, additional
increases in rates could contribute to further compression of the net interest
margin. In addition, substantially all ARMs originated since 1981 have maximum
and minimum interest rates and all ARMs originated after 1987 have a maximum
interest rate. In the event of sustained significant increases in rates, such
maximum interest rates could also contribute to compression of the net interest
margin. As of December 31, 1994, the interest rate on more than 92% 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 maximum interest rate. 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 $176.6 million in 1994, compared to
$575.0 million in 1993 and $367.4 million in 1992. The provision for 1994
includes $30 million representing the Company's estimated losses from real
property damage sustained by its borrowers in the Northridge, California
earthquake in January 1994. The decline in the provision in 1994 from 1993 and
1992 also reflects, among other things, provisions for losses related to 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 continued improvements in credit quality. For additional
information regarding the allowances for loan losses and nonperforming assets,
see "Financial Condition -- Asset Quality."
OTHER INCOME
Gain on Sales of MBS. During 1994, 1993 and 1992, the Company recognized
gains on sales of MBS and weighted average retained yields on such sales as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book value of MBS sold:
ARM MBS.......................................... $400,201 $904,945 $ --
Fixed rate MBS................................... -- -- 650,191
-------- -------- --------
$400,201 $904,945 $650,191
======== ======== ========
Pre-tax gains on sales of MBS:
ARM MBS.......................................... $ 4,868 $ 21,007 $ --
Fixed rate MBS................................... -- -- 14,303
-------- -------- --------
$ 4,868 $ 21,007 $ 14,303
======== ======== ========
Weighted average retained yield.................... 0.73% 0.84% --%
======== ======== ========
</TABLE>
25
<PAGE> 29
Gain (Loss) on Sales of Loans. During 1994, 1993 and 1992, the Company
recognized gains (losses) on sales of loans, excluding the sales of nonaccrual
and other impaired loans in 1994 and 1993, and weighted average retained loan
yields as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book value of loans sold:
Mortgage loans originated for sale............ $565,197 $2,350,341 $3,903,274
Credit card portfolio......................... -- 131,254 --
-------- ---------- ----------
$565,197 $2,481,595 $3,903,274
======== ========== ==========
Pre-tax gain (loss) on sales of loans:
Mortgage loans originated for sale............ $(21,036) $ 46,999 $ 62,622
Credit card portfolio......................... -- 33,038 --
-------- ---------- ----------
$(21,036) $ 80,037 $ 62,622
======== ========== ==========
Weighted average retained loan yield............ 0.26% 0.28% 0.25%
======== ========== ==========
</TABLE>
The sales volume of mortgage loans originated for sale during 1994, 1993
and 1992 was influenced principally by borrower demand for fixed rate loans.
Most of the Company's fixed rate loans were originated for sale in the secondary
market. The loss in 1994 includes charges totaling $18.4 million applied against
gains on sales of loans sold with recourse prior to 1993. In addition, during
the fourth quarter of 1993 the Company sold its credit card portfolio totaling
$131.3 million for a pre-tax gain of $33.0 million.
Loan Servicing Income. Loan servicing income increased $15.6 million or 26%
to $74.4 million in 1994 and decreased $13.6 million or 19% to $58.9 million in
1993. The increase in 1994 was primarily due to a gain of $16.8 million in the
fourth quarter of 1994 on sale of servicing rights related to $2 billion of
fixed-rate single family loans serviced for investors. These loans were lower
principal balance loans which are less efficient for the Company to service.
Excluding the gain on sale of servicing rights, loan servicing income was lower
in 1994 primarily due to a $1.7 billion or 11% decrease in the average portfolio
of loans serviced for investors to $14.1 billion combined with a one basis point
reduction in the retained loan yield to 0.67%. The decrease in loan servicing
income in 1993 was primarily due to a $848.4 million or 5% decrease in the
average portfolio of loans serviced for investors to $15.8 billion combined with
a decrease of seven basis points in the retained loan yield to 0.68%. The
decline in the average portfolio of loans serviced for investors reflects a
lower level of sales of loans sold with servicing retained during 1994 and 1993.
Reductions in the retained loan yield during 1994 and 1993 reflect the sales
volume of fixed rate loans, which typically have a retained loan yield of 0.25%.
Gain on Sale of Illinois Retail Deposit Branch System. In November 1994,
the Company sold its branches and deposits totaling $1.6 billion in Illinois,
resulting in a pre-tax gain of $103.5 million. The gain is net of the loss of
$18.5 million related to branch real estate. In addition, the write-off of $25.6
million in goodwill associated with these branches is included in "Amortization
of Goodwill and Other Intangible Assets" for 1994.
Other Operating Income. Other operating income decreased $29.1 million to
$13.6 million in 1994 and increased $37.3 million to $42.7 million in 1993,
primarily due to proceeds received in the fourth quarter of 1993 in connection
with the settlement of a lawsuit filed by the Company.
OTHER EXPENSES
General and Administrative Expenses. G&A expenses were $758.6 million in
1994, a decrease of $60.8 million or 7% and $819.4 million in 1993, an increase
of $66.1 million or 9%. The 7% decrease in 1994 reflects broadly-based efforts
to reduce operating expenses and reductions in personnel costs related to lower
levels of nonperforming assets. The 9% increase in 1993 reflected increased
costs associated with the administration and disposition of delinquent loans and
REO.
26
<PAGE> 30
Control of G&A expenses remains one of the Company's top priorities. The
ratio of G&A expenses to average assets decreased to 1.46% in 1994 from 1.65% in
1993 and 1.54% in 1992. The decrease in 1994 reflects the 7% decrease in G&A
expenses and a 5% increase in average assets. The increase in 1993 reflects the
9% increase in G&A expenses, partially offset by a 2% increase in average
assets.
Operations of REI. Losses from operations of REI were $97.6 million in
1994, a decrease of $131.7 million from $229.3 million in 1993, which
represented an increase of $170.9 million from 1992. The decrease in 1994 was
primarily due to a decrease of $121.9 million in the provision for losses and a
decrease of $8.3 million in net operating expenses. The provision for losses on
REI of $86.1 million in 1994 was primarily due to charges of $77.0 million in
the fourth quarter of 1994. Of these charges, $15.0 million related to a large
residential development project for which the business plan was revised in the
fourth quarter of 1994 to reflect slower and lower priced lot sales than
included in the previous plan, and $22.0 million resulted from raising the
discount rate on projected cash flows used in calculating the net realizable
value ("NRV") for each project to reflect the Company's increased cost of funds.
In addition, a $40.0 million general valuation allowance was established based
on management's review of past REI project performance and an assessment of the
risk of further reductions in NRV.
The increase in losses from operations of REI 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 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.
For additional information regarding REI and the related allowance for
losses, see "Financial Condition -- Asset Quality -- REI."
Operations of REO. Losses from operations of REO were $86.0 million in
1994, a decrease of $126.1 million or 59% from $212.1 million in 1993, which
represented an increase of $83.0 million or 64% from 1992. The decrease in 1994
was due to declines in the provision for losses of $65.9 million, net losses on
sales of $47.1 million and net operating expenses of $13.1 million. The lower
losses in 1994 reflect improving credit quality and a reduction in foreclosures
as a result of the sales of nonaccrual and other impaired loans in 1993 and
1994.
The increase in losses from operations of REO in 1993 was primarily 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 increased losses during
1993 reflected the deterioration in real estate values in California and New
York since the time of initial foreclosure or subsequent valuation.
For additional information regarding REO, see "Financial Condition -- Asset
Quality -- Nonperforming Assets and Potential Problem Loans."
Amortization of Goodwill and Other Intangible Assets. Amortization of
goodwill and other intangible assets was $53.5 million in 1994, an increase of
$14.3 million or 36% compared to $39.2 million in 1993, which was an increase of
$11.5 million or 42% from 1992. The increase in 1994 reflects the write-off of
$25.6 million in goodwill related to the Company's sale of its Illinois retail
deposit branch system, partially offset by the write-off in 1993 of $12.4
million in goodwill associated with 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 42.2% for 1994, (37.3)% for 1993 and 46.0% for 1992.
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 11 of Notes to Consolidated Financial Statements for further
27
<PAGE> 31
explanation of the factors which affected the Company's effective tax rates for
the years 1992 to 1994 and SFAS No. 109.
EXTRAORDINARY LOSS IN 1993
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.
QUARTERLY RESULTS OF OPERATIONS
The following table presents results of operations by quarter for 1994 and
1993:
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------
MARCH
31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------- --------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Total interest income...................... $738,752 $ 742,700 $782,516 $831,407
Total interest expense..................... 388,147 405,819 464,607 539,881
-------- --------- -------- --------
Net interest income.............. 350,605 336,881 317,909 291,526
Provision for loan losses.................. 75,512 33,069 29,432 38,544
-------- --------- -------- --------
Net interest income after provision for
loan losses.............................. 275,093 303,812 288,477 252,982
Other income............................... 45,421 36,879 42,476 161,201
Other expenses............................. 265,159 267,150 262,426 374,248
-------- --------- -------- --------
Net earnings..................... $ 55,355 $ 73,541 $ 68,527 $ 39,935
======== ========= ======== ========
Net earnings per common share:
Primary.................................. $ 0.36 $ 0.52 $ 0.48 $ 0.23
======== ========= ======== ========
Fully diluted............................ $ 0.36 $ 0.51 $ 0.47 $ 0.23
======== ========= ======== ========
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............................... 61,119 66,852 67,567 122,290
Other expenses............................. 301,061 265,195 308,565 343,141
-------- --------- -------- --------
Earnings (loss) before extraordinary
loss..................................... 32,856 (290,982) 69,989 50,105
Extraordinary loss on early extinguishment
of debt, net............................. -- -- -- (21,607)
-------- --------- -------- --------
Net earnings (loss).............. $ 32,856 $(290,982) $ 69,989 $ 28,498
======== ========= ======== ========
Earnings (loss) per common share -- primary
and fully diluted:
Earnings (loss) before extraordinary
loss................................ $ 0.23 $ (2.55) $ 0.50 $ 0.32
Extraordinary loss on early
extinguishment of debt, net......... -- -- -- (0.18)
-------- --------- -------- --------
Net earnings (loss).............. $ 0.23 $ (2.55) $ 0.50 $ 0.14
======== ========= ======== ========
</TABLE>
Net interest income decreased in the fourth quarter of 1994 compared to the
third quarter of 1994 and the fourth quarter of 1993 primarily due to the
decline in the net interest margin to 2.28% for the fourth quarter of 1994 from
2.56% in the third quarter of 1994 and 2.75% in the fourth quarter of 1993. In
addition, net interest
28
<PAGE> 32
income in the fourth quarter of 1993 reflected the $17.8 million allowance for
the anticipated assignment to a third party of the Company's rights and
obligations under certain interest rate swaps. Other income increased in the
fourth quarter of 1994 compared to the third quarter of 1994 and the fourth
quarter of 1993 primarily due to the gain of $103.5 million on the sale of the
Company's Illinois retail deposit branch system in the fourth quarter of 1994,
partially offset by the $33.0 million gain on sale of the Company's credit card
portfolio and proceeds from the settlement of a lawsuit in the fourth quarter of
1993. Other expenses increased in the fourth quarter of 1994 compared to the
third quarter of 1994 and the fourth quarter of 1993 primarily due to the $77.0
million provision for losses on REI and the $25.6 million goodwill write-off
related to the sale of the Company's Illinois retail deposit branch system.
Other expenses in the fourth quarter of 1993 included a provision for losses on
REI of $34.4 million.
FINANCIAL CONDITION
The Company's consolidated assets were $53.7 billion at December 31, 1994,
an increase of $2.8 billion or 6% from $50.9 billion at December 31, 1993. The
increase in total assets during 1994 reflects the growth in the loan and MBS
portfolio of $4.2 billion or 9% to $48.8 billion due to increased originations
of ARM loans and a slowing of principal prepayments due to rising interest
rates. The growth in the loan and MBS portfolio was funded mainly through an
increase in deposits of $2.6 billion or 7% to $40.6 billion and excess
liquidity.
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>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Single family (one to four units)................. 79% 86% 90% 91% 92%
Multi-family (five units and over)................ 21 14 10 9 8
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
In 1994, 95% of the $10.3 billion in loan originations were ARMs, compared
to 77% of the $11.6 billion in loan originations in 1993. The increase in the
percentage of multi-family loan originations in 1994 reflects the combination of
a decrease in single family originations to $8.2 billion in 1994 compared to
$10.0 billion in 1993 and an increase in multi-family originations to $2.1
billion in 1994 compared to $1.6 billion in 1993. Approximately 70% of loan
originations in 1994 were on properties located in California compared to 72% in
1993. At December 31, 1994, approximately 96% of the loan and MBS portfolio was
secured by residential properties, including 79% secured by single family
properties.
The loan and MBS portfolio includes approximately $6.7 billion in mortgage
loans that were originated with loan to value ("LTV") ratios exceeding 80%, or
14% of the portfolio at December 31, 1994. Approximately 24% of loans originated
during 1994 had LTV ratios in excess of 80%, all of which were loans on single
family properties, including 7% with LTV ratios in excess of 90%. The increase
in the volume of higher LTV single family loans in 1994 was primarily due to
changes in the marketplace, which was primarily a purchase market during 1994 as
compared to the predominant refinance market in 1991 through 1993. During 1994,
due to market demand, the Company began to originate single family loans under a
95% LTV program (loans with LTV ratios of 90.1% to 95.0% are categorized as 95%
LTV loans). 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.
29
<PAGE> 33
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>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Single family loans:
Under 75.0%..................................... 35% 54% 58% 55% 36%
75.0% to 79.9%.................................. 9 15 14 14 19
80.0%........................................... 26 21 19 23 34
80.1% to 90.0%.................................. 22 10 9 8 11
90.1% to 95.0%.................................. 8 -- -- -- --
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Multi-family loans:
70.0% or less................................... 54% 69% 73% 72% 49%
70.1% to 75.0%.................................. 41 25 20 23 36
75.1% to 80.0%.................................. 5 6 7 5 15
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
The following table presents the composition of the Company's loan and MBS
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential loans:
Single family............. $26,084,783 $28,764,402 $30,486,130 $29,616,179 $29,247,775
Multi-family.............. 8,518,510 7,219,708 6,543,238 5,883,615 5,639,552
Commercial and industrial
real estate loans......... 1,734,793 2,012,307 2,225,226 2,540,810 2,669,243
Other loans................. 124,922 259,354 282,786 274,455 256,850
----------- ----------- ----------- ----------- -----------
36,463,008 38,255,771 39,537,380 38,315,059 37,813,420
Deferred loan fees and
interest.................. (55,184) (90,959) (97,662) (80,618) (61,699)
Unearned discounts.......... (5,847) (21,658) (42,729) (54,842) (71,644)
Allowance for loan losses... (400,232) (438,786) (434,114) (303,804) (213,339)
----------- ----------- ----------- ----------- -----------
Loans receivable............ 36,001,745 37,704,368 38,962,875 37,875,795 37,466,738
MBS......................... 12,789,420 6,919,997 3,915,508 4,683,742 7,468,290
----------- ----------- ----------- ----------- -----------
$48,791,165 $44,624,365 $42,878,383 $42,559,537 $44,935,028
=========== =========== =========== =========== ===========
</TABLE>
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, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1994 1993 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>
MBS..................... $12,789,420 $12,463,383 $ 6,919,997 $ 7,004,000 85% 78%
Loans receivable........ 36,001,745 35,107,572 37,704,368 38,275,521 (5) (8)
Deposits -- term
accounts.............. 28,101,532 27,471,191 22,979,939 23,095,367 22 19
Borrowings.............. 9,176,085 9,077,591 8,879,345 8,849,553 3 3
</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
30
<PAGE> 34
characteristics of its interest-earning assets and interest-costing 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-costing liabilities, the Company has
historically emphasized the origination of COFI ARMs for retention in the loan
and MBS portfolio. At December 31, 1994, 95.1% of the Company's $48.8 billion
loan and MBS portfolio consisted of ARMs indexed primarily to COFI, compared to
93.6% of the $44.6 billion loan and MBS portfolio at December 31, 1993. The
average factor above COFI on the Company's COFI ARM portfolio was 2.44% at
December 31, 1994, up six basis points from 2.38% at December 31, 1993.
Historically, the Company has maintained its cost of funds at a level below
COFI. During 1994 and 1993, the Company's cost of funds was 19 basis points and
41 basis points, respectively, below the average of COFI. At December 31, 1994,
the Company's cost of funds was seven basis points below COFI. In a period of
rising market interest rates, the favorable differential between the Company's
cost of funds and COFI could decline, or become negative, which could result in
compression of the Company's net interest margin. Such a compression occurred in
the rising interest rate environment during 1994 and is expected to continue,
particularly during the first half of 1995.
COFI ARMs do not immediately reflect 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 savings institutions'
interest-costing 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 approximately two months earlier. The Company's basic interest rate
risk management strategy includes a goal of having the combined repricing terms
of its interest-costing liabilities not differ materially from those of the FHLB
Eleventh District savings institutions, 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 on term deposits and other
interest-costing liabilities, combined with emphasis on more responsive assets,
including diversification away from COFI on certain interest-earning assets.
In anticipation of potential rising interest rates, the Company initiated
several programs in 1994 to fund asset growth and to extend maturities, lengthen
repricing terms and gather less expensive sources of interest-costing
liabilities. For example, the Company increased deposits $2.6 billion and used
the proceeds to reduce short-term borrowings, since deposits are a less
expensive and more stable source of funds in a rapidly rising interest rate
environment. The Company also issued new debt, primarily fixed rate, to meet
these objectives. In addition, the Company securitized and retained $7.1 billion
of ARMs into mortgage pass-through securities to increase its access to less
expensive collateralized borrowings. Assets became more responsive to interest
rate changes through increases in originations of ARM loans and Treasury and
LIBOR-based investments and through sales of nonaccrual and other impaired
loans. Asset diversification included selling a portion of its COFI MBS from the
available for sale portfolio and the subsequent purchase of one-year
Treasury-indexed MBS and short-term fixed rate collateralized mortgage
obligations ("CMOs"). Finally, the Company continued to sell most of the fixed
rate loans it originated. For additional information regarding these and other
transactions, see the "Results of Operations -- Net Interest Income" and
"Financial Condition -- Liquidity and Capital Resources."
31
<PAGE> 35
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, 1994:
<TABLE>
<CAPTION>
REPRICING PERIODS
------------------------------------------------------------------
PERCENT WITHIN 6 MONTHS 1-5 5-10 YEARS
BALANCE OF TOTAL 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............. $ 1,263,942 2% $ 1,263,942 $ -- $ -- $ -- $ --
Other investment
securities................. 287,062 1 10,091 6 276,939 26 --
FHLB stock................... 439,891 1 439,891 -- --
Impact of hedging (LIBOR-
indexed amortizing
swaps)..................... -- -- (135,958) -- 135,958 -- --
----------- --- ----------- ----------- ----------- --------- --------
Total investment securities.... 1,990,895 4 1,577,966 6 412,897 26 --
----------- --- ----------- ----------- ----------- --------- --------
Loans and MBS --
MBS --
ARMs....................... 11,610,966 23 11,610,966 -- -- -- --
Other...................... 1,178,454 2 -- 22,839 590,943 93,763 470,909
Loans --
ARMS....................... 34,798,758 69 33,353,938 200,960 1,243,860 -- --
Other...................... 1,202,987 2 235,743 46,804 300,361 290,726 329,353
Impact of hedging (interest
rate swaps)................ -- -- 1,444,820 (200,960) (1,243,860) -- --
----------- --- ----------- ----------- ----------- --------- --------
Total loans and MBS............ 48,791,165 96 46,645,467 69,643 891,304 384,489 800,262
----------- --- ----------- ----------- ----------- --------- --------
Total interest-earning
assets..................... $50,782,060 100% $48,223,433 $ 69,649 $ 1,304,201 $ 384,515 $800,262
=========== === =========== =========== =========== ========= ========
INTEREST-COSTING LIABILITIES:
Deposits --
Checking..................... $ 2,727,203 6% $ 2,727,203 $ -- $ -- $ -- $ --
Passbooks.................... 3,788,223 8 3,788,223 -- -- -- --
Money market savings......... 6,038,058 12 6,038,058 -- -- -- --
Term accounts --
Under $100,000............. 27,517,875 55 12,228,302 9,799,806 5,474,688 14,968 111
Over $100,000.............. 583,657 1 438,041 135,127 10,489 -- --
----------- --- ----------- ----------- ----------- --------- --------
Total deposits................. 40,655,016 82 25,219,827 9,934,933 5,485,177 14,968 111
----------- --- ----------- ----------- ----------- --------- --------
Borrowings --
Repurchase agreements........ 2,253,805 4 2,253,805 -- -- -- --
FHLB......................... 2,849,313 6 2,390,348 102,500 240,600 115,750 115
Other........................ 4,072,967 8 2,879,222 1,795 572,296 619,654 --
----------- --- ----------- ----------- ----------- --------- --------
Total borrowings............... 9,176,085 18 7,523,375 104,295 812,896 735,404 115
----------- --- ----------- ----------- ----------- --------- --------
Total interest-costing
liabilities................ $49,831,101 100% $32,743,202 $10,039,228 $ 6,298,073 $ 750,372 $ 226
=========== === =========== =========== =========== ========= ========
Hedge-adjusted interest-earning
assets more/(less) than
interest-costing
liabilities.................. $ 950,959 $15,480,231 $(9,969,579) $(4,993,872) $(365,857) $800,036
=========== =========== =========== =========== ========= ========
Cumulative interest sensitivity
gap.......................... $15,480,231 $ 5,510,652 $ 516,780 $ 150,923 $950,959
=========== =========== =========== ========= ========
Percentage of hedge-adjusted
interest-earning assets to
interest-costing
liabilities.................. 101.91%
Percentage of cumulative
interest sensitivity gap to
total assets................. 1.77%
</TABLE>
32
<PAGE> 36
The following table presents the interest rates, spread and margin at the
end of the years indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Average yield on:
Loans................................................ 6.74% 6.53% 7.27%
MBS.................................................. 6.63 6.33 6.63
Total loans and MBS.................................. 6.71 6.50 7.22
Investment securities:
Federal funds sold and securities purchased under
agreements to resell............................ 6.66 3.85 3.86
Other investments................................. 5.11 3.71 2.58
Total investment securities.......................... 5.85 3.83 3.48
Interest-earning assets...................... 6.68 6.33 7.09
Average rate on:
Deposits:
Checking accounts................................. 1.00 1.10 1.56
Savings accounts.................................. 2.75 2.47 2.82
Term accounts..................................... 4.80 3.75 4.20
Total deposits....................................... 4.05 3.14 3.60
Borrowings:
Short-term........................................ 6.38 3.39 3.51
FHLB.............................................. 5.98 4.47 4.23
Other............................................. 7.10 8.25 9.81
Total borrowings..................................... 6.58(1) 4.73(1) 5.99(1)
Interest-costing liabilities................. 4.52 3.44 3.87
Interest rate spread................................... 2.16 2.89 3.22
Net interest margin.................................... 2.24 2.95 3.21
</TABLE>
---------------
(1) Includes the effect of miscellaneous borrowing costs of approximately 0.27%,
0.46%, and 0.58% as of December 31, 1994, 1993 and 1992, respectively.
The following table presents the schedule of contractual maturities for
loans and MBS as of December 31, 1994:
<TABLE>
<CAPTION>
WITHIN YEARS
1 YEAR 1-2 YEARS 2-3 YEARS 3-5 YEARS 5-10 YEARS 10-15 YEARS OVER 15
-------- --------- --------- --------- ---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
MBS:
ARMs................................ $ -- $ -- $ -- $ -- $ 28,876 $ -- $11,582,090
Other............................... 22,839 119,470 63,132 408,341 93,763 440,964 29,945
Residential and other loans:
ARMs................................ 14,544 14,009 806 13,033 68,833 379,764 33,012,613
Other............................... 110,853 5,499 17,935 5,759 61,649 309,998 335,235
Commercial and industrial real estate
loans:
ARMs................................ 9,922 -- 207,629 11,070 24,773 13,092 1,028,670
Other............................... 1,440 6,039 5,657 8,494 38,001 116,620 179,808
-------- -------- -------- -------- -------- ---------- -----------
$159,598 $145,017 $295,159 $446,697 $315,895 $1,260,438 $46,168,361
======== ======== ======== ======== ======== ========== ===========
</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
33
<PAGE> 37
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.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," effective January 1, 1993, as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures."
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 are individually reviewed based
on specific criteria, such as delinquency, debt coverage, LTV ratio and
condition of collateral property. 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 ("TDRs"), and performing
major loans and major loans less than 90 days delinquent ("other impaired major
loans") which the Company believes will be collected in full, but which the
Company believes it is probable will not be collected in accordance with the
contractual terms of the loans.
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. Cash receipts on nonaccrual loans
are used to reduce principal balances, rather than being included in income. 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 $43.2 million in
1994, $70.9 million in 1993 and $106.7 million in 1992.
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 continues to accrue interest on TDRs and other impaired
major loans since full payment of principal and interest is expected and such
loans are performing or less than 90 days delinquent and therefore do not meet
the criteria for nonaccrual status. The Company bases the measurement of loan
impairment on the fair value of the loans' collateral properties in accordance
with SFAS No. 114. 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 charged off from the allowance for loan
losses. See Note 3 of Notes to Consolidated Financial Statements for information
regarding the recorded investment in and related specific loan loss allowances
on impaired loans at December 31, 1994 and 1993.
The following table presents the amounts of the Company's nonaccrual loans,
REO, past due loans, TDRs and other impaired major loans as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans......................... $681,026 $780,400 $1,768,362 $1,499,473 $741,493
REO...................................... 161,948 179,862 452,971 267,604 161,795
Accruing loans contractually past due 90
days or more (all single family)....... -- -- 155,864 162,532 105,892
TDRs..................................... 121,365 100,751 61,400 266,656 338,799
Other impaired major loans............... 12,158 391,044 -- -- --
</TABLE>
34
<PAGE> 38
The following table presents nonperforming assets (nonaccrual loans and
REO), TDRs and other impaired major loans, net of related specific loss
allowances, by type as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- INCREASE
1994 1993 (DECREASE)
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Single family................................... $568,808 $568,550 $ 258
Multi-family.................................... 69,856 139,157 (69,301)
Commercial and industrial real estate........... 42,362 72,693 (30,331)
-------- -------- ---------
681,026 780,400 (99,374)
-------- -------- ---------
REO:
Single family................................... 135,357 99,744 35,613
Multi-family.................................... 14,181 50,081 (35,900)
Commercial and industrial real estate........... 12,410 30,037 (17,627)
-------- -------- ---------
161,948 179,862 (17,914)
-------- -------- ---------
Total nonperforming assets:
Single family................................... 704,165 668,294 35,871
Multi-family.................................... 84,037 189,238 (105,201)
Commercial and industrial real estate........... 54,772 102,730 (47,958)
-------- -------- ---------
Total................................... $842,974 $960,262 $(117,288)
======== ======== =========
TDRs:
Single family................................... $ 21,885 $ -- $ 21,885
Multi-family.................................... 56,824 73,271 (16,447)
Commercial and industrial real estate........... 42,656 27,480 15,176
-------- -------- ---------
Total................................... $121,365 $100,751 $ 20,614
======== ======== =========
Other impaired major loans:
Multi-family.................................... $ 10,652 $118,276 $(107,624)
Commercial and industrial real estate........... 1,506 272,768 (271,262)
-------- -------- ---------
Total................................... $ 12,158 $391,044 $(378,886)
======== ======== =========
Ratio of nonperforming assets to total assets..... 1.57% 1.89%
======== ========
Ratio of nonperforming assets and TDRs to total
assets.......................................... 1.79% 2.09%
======== ========
Ratio of allowances for losses on loans and REO to
nonperforming assets............................ 50.12% 49.21%
======== ========
</TABLE>
The following table presents nonperforming assets, TDRs and other impaired
major loans by state at December 31, 1994:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
---------------------------------------------------- OTHER
COMMERCIAL IMPAIRED
SINGLE FAMILY MULTI-FAMILY AND MAJOR
RESIDENTIAL RESIDENTIAL INDUSTRIAL TOTAL TDRS LOANS
------------- ------------ ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
California..................... $567,129 $78,510 $38,301 $683,940 $ 59,693 $ 7,897
New York....................... 39,986 3,158 5,702 48,846 39,933 1,724
Florida........................ 30,961 -- 722 31,683 692 --
Illinois....................... 14,395 538 5,309 20,242 3,621 --
Texas.......................... 8,161 549 -- 8,710 6,091 --
Other.......................... 43,533 1,282 4,738 49,553 11,335 2,537
-------- ------- ------- -------- -------- -------
$704,165 $84,037 $54,772 $842,974 $121,365 $12,158
======== ======= ======= ======== ======== =======
</TABLE>
35
<PAGE> 39
Total nonperforming assets were $843.0 million at December 31, 1994, or a
ratio of nonperforming assets to total assets of 1.57%, a decrease of $117.3
million or 12% during 1994 from $960.3 million, or 1.89% of total assets, at
December 31, 1993. During 1994, the Company sold nonperforming and other
impaired loans of $45.5 million secured by single family properties, $114.9
million secured by multi-family properties and $47.3 million secured by
commercial and industrial properties.
Single family nonperforming assets were $704.2 million, an increase of
$35.9 million or 5% during 1994 primarily due to an increase of $56.2 million in
California REO, partially offset by a decrease of $17.5 million in nonaccrual
loans secured by California properties. Included in California single family
nonperforming assets at December 31, 1994 were $37.7 million in nonaccrual loans
related to the Northridge earthquake.
Multi-family nonperforming assets totaled $84.0 million, a decrease of
$105.2 million or 56% during 1994 primarily due to decreases in the states of
California ($70.2 million), New York ($16.8 million) and New Jersey ($5.6
million). Commercial and industrial real estate nonperforming assets totaled
$54.8 million, a decrease of $48.0 million or 47% during 1994 primarily in the
states of California ($7.8 million) and New York ($28.5 million). Nonperforming
assets at December 31, 1994 included $13.1 million in nonaccrual multi-family
loans related to the Northridge earthquake.
TDRs totaled $121.4 million at December 31, 1994, an increase of $20.6
million or 20% during 1994 primarily due to an increase of $35.3 million in TDRs
secured by properties in California, of which $19.0 million resulted from the
Northridge earthquake. The Northridge earthquake led to single family, multi-
family and commercial and industrial TDRs of $9.9 million, $7.8 million and $1.3
million, respectively, at December 31, 1994. TDRs increased in New York by $6.4
million and $19.2 million on loans secured by multi-family properties and
commercial and industrial properties, respectively, but decreased in Illinois by
$35.5 million on loans secured by multi-family properties during 1994.
Other impaired major loans totaled $12.2 million at December 31, 1994
compared to $391.0 million at December 31, 1993. Included in other impaired
major loans at December 31, 1994 were $3.4 million in multi-family loans related
to the Northridge earthquake. The decline of $378.9 million or 97% in the net
recorded investment reflects loans included in other impaired major loans at
December 31, 1993 based on declines in the fair value of the underlying
collateral, but which were not impaired in accordance with SFAS No. 114 since
the Company expected the loans to be collected in full. Such loans were not
included in other impaired major loans at December 31, 1994.
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 sold $301.7 million of single family REO and
$147.9 million of multi-family and commercial and industrial REO in 1994. In
addition, the Company may, from time to time, offer packages of nonperforming
assets for competitive bid.
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,
---------------------------------------------------------------------
1994 1993 1992
--------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF
GROSS GROSS GROSS
MORTGAGE MORTGAGE MORTGAGE
AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single family....................... $141,937 0.37% $171,778 0.48% $217,566 0.64%
Multi-family........................ 10,395 0.12 27,278 0.38 33,005 0.52
Commercial and industrial real
estate............................ 9,540 0.55 3,706 0.18 18,132 0.86
-------- -------- --------
$161,872 0.33 $202,762 0.45 $268,703 0.63
======== ======== ========
</TABLE>
Loans 60-89 days delinquent decreased $40.9 million or 20% during 1994
resulting from declines of $29.8 million in such single family loans and $16.9
million in multi-family loans, partially offset by an increase
36
<PAGE> 40
of $5.8 million in commercial and industrial real estate loans. Single family
loans 60-89 days delinquent decreased in 1994 primarily in the states of
California ($29.9 million) and Florida ($4.7 million), partially offset by an
increase in the state of New York ($11.2 million). Approximately $13.3 million
of the decrease in multi-family loans 60-89 days delinquent occurred in
California. Commercial and industrial real estate loans 60-89 days delinquent
increased primarily in California ($6.6 million).
Allowance for Loan Losses. Management believes the Company's allowance for
loan losses was adequate at December 31, 1994. The Company's process for
evaluating the adequacy of the allowance for loan losses has three basic
elements: first, the identification of impaired loans; second, the establishment
of appropriate loan loss allowance once individual specific impaired loans are
identified; and third, a methodology for estimating loan losses based on the
inherent risk in the remainder of the loan portfolio.
The identification of impaired loans is achieved mainly through individual
review of all major loans over $2 million and certain major loans under $2
million. Loan loss allowances are established for specifically identified
impaired loans based on the fair value of the underlying collateral property.
The allowance for loan losses also includes estimates based upon
consideration of actual loss experience for loans during the past several years
by loan type, year of origination, delinquency statistics, condition 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 or prior to 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 review
department. Based upon such appraisal, foreclosed loans are recorded at fair
value less estimated selling costs.
The following tables set forth the allocation of the Company's allowance
for loan losses by category of loans and MBS and the percent of loans and MBS in
each category at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------
1994 1993
-------------------------------------- --------------------------------------
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)
<S> <C> <C> <C> <C> <C> <C>
Single family................................... $165,000 79.1% 0.42% $155,516 79.5% 0.43%
Multi-family.................................... 160,232 17.4 1.88 145,097 16.1 2.00
Commercial and industrial real estate........... 75,000 3.5 4.34 138,173 4.4 6.90
-------- ----- -------- -----
$400,232 100.0% 0.81 $438,786 100.0% 0.97
======== ===== ======== =====
</TABLE>
37
<PAGE> 41
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------------
1992 1991 1990
-------------------------------------- -------------------------------------- --------------------------------------
PERCENT OF PERCENT OF PERCENT OF
PERCENT OF ALLOWANCE PERCENT OF ALLOWANCE PERCENT OF ALLOWANCE
LOAN AND MBS TO LOAN LOAN AND MBS TO LOAN LOAN AND MBS TO LOAN
PORTFOLIO IN AND MBS PORTFOLIO IN AND MBS PORTFOLIO IN AND MBS
ALLOWANCE EACH CATEGORY PORTFOLIO ALLOWANCE EACH CATEGORY PORTFOLIO ALLOWANCE EACH CATEGORY PORTFOLIO
--------- ------------- ---------- --------- ------------- ---------- --------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single
family.... $185,343 79.5% 0.54% $110,366 80.1% 0.32% $ 70,231 81.5% 0.19%
Multi-family 120,946 15.0 1.86 78,838 13.6 1.35 62,521 12.4 1.11
Commercial
and
industrial
real
estate.... 120,962 5.1 5.47 109,293 5.9 4.32 77,152 5.7 2.98
Credit
cards....... 6,863 0.4 4.25 5,307 0.4 3.30 3,435 0.4 2.30
-------- ----- -------- ----- -------- -----
$434,114 100.0% 1.00 $303,804 100.0% 0.71 $213,339 100.0% 0.47
======== ===== ======== ===== ======== =====
</TABLE>
The allocation of the allowance for loan losses by type at December 31,
1994 reflects continued reduction in the commercial and industrial real estate
loan portfolio and the growth in the multi-family loan portfolio. The commercial
and industrial real estate portfolio has diminished in size due to loan
principal payments and the Company's decision in 1988 to discontinue originating
new commercial and industrial real estate loans. The multi-family loan portfolio
increased $1.3 billion or 18% in 1994 due to multi-family originations which the
Company provides on California properties only.
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,
-----------------------------------------------------------------
1994 1993 1992 1991 1990
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of the
year......................... $ 438,786 $ 434,114 $ 303,804 $ 213,339 $ 105,784
Provision for loan losses...... 176,557 574,970 367,366 195,062 215,854
Allowance for loan losses on
loans purchased.............. -- 20,365 -- -- --
--------- --------- --------- --------- ---------
615,343 1,029,449 671,170 408,401 321,638
--------- --------- --------- --------- ---------
Charge-offs:
Single family................ (97,865) (469,204) (114,086) (46,631) (29,207)
Multi-family................. (114,323) (76,189) (60,956) (33,396) (43,693)
Commercial and industrial
real estate............... (40,546) (68,135) (73,069) (44,952) (42,351)
Credit cards................. -- (10,207) (7,382) (5,243) (3,412)
--------- --------- --------- --------- ---------
(252,734) (623,735) (255,493) (130,222) (118,663)
Recoveries................... 37,623 33,072 18,437 25,625 10,364
--------- --------- --------- --------- ---------
Net charge-offs...... (215,111) (590,663) (237,056) (104,597) (108,299)
--------- --------- --------- --------- ---------
Balance at end of the year..... $ 400,232 $ 438,786 $ 434,114 $ 303,804 $ 213,339
========= ========= ========= ========= =========
Ratio of net charge-offs to
average loans and MBS
outstanding during the
year......................... 0.47% 1.36% 0.56% 0.24% 0.25%
========= ========= ========= ========= =========
</TABLE>
Gross charge-offs on single family loans in 1994 and 1993 related to sales
of nonaccrual loans were $6.0 million and $378.1 million, respectively. Gross
charge-offs in 1994 related to sales of impaired multi-family and commercial and
industrial real estate loans were $51.9 million and $21.5 million, respectively.
The $30.0 million provision for losses during the first quarter of 1994 related
to the Northridge earthquake was based on the Company's appraisals of its major
loan properties and an assessment of the damage to single family loan properties
in the earthquake area. This information was used in estimating the probability
of foreclosures and the ultimate cost to the Company. The Company provided
assistance to certain borrowers affected by the earthquake through deferral of
loan payments and special loan programs. The Company permitted borrowers to
defer a limited number of loan payments during 1994 on approximately 2,600
single
38
<PAGE> 42
family loans with a principal balance of $533.1 million and approximately
400 major loans with a principal balance of $307.8 million. The Company also
originated 68 loans with an outstanding principal balance at December 31, 1994
of $2.5 million through special loan programs providing repair or bridge
financing for single family borrowers in the damaged area.
It is possible that the Company's delinquent, nonaccrual, TDRs and other
impaired major 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 loan losses, future events may warrant changes to the allowance.
REI. The Company's REI decreased to $313.3 million at December 31, 1994
from $443.7 million at December 31, 1993. The allowance for losses on REI was
$333.8 million or 51.6% of gross REI at December 31, 1994, compared to $341.7
million or 43.5% of gross REI at December 31, 1993. The following table presents
the Company's REI by type and state at December 31, 1994:
<TABLE>
<CAPTION>
GROSS ALLOWANCE FOR NET
BOOK VALUE LOSSES BOOK VALUE
---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Residential REI:
California.................................... $107,135 $ 79,688 $ 27,447
Maryland...................................... 53,076 21,300 31,776
-------- -------- --------
160,211 100,988 59,223
Commercial and industrial REI and undeveloped
land, all in California....................... 486,930 232,837 254,093
-------- -------- --------
Total REI....................................... $647,141 $333,825 $313,316
======== ======== ========
</TABLE>
The Company intends to complete its withdrawal from real estate development
activities as soon as practicable. 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. The Company has certain projects
with long-term holding and development periods. No new projects have been
initiated since 1990.
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 losses on REI. NRV is the estimated selling price when the
real estate is eventually liquidated, less estimated costs to complete the
development and the costs to hold and dispose of the property. The Company's
basis for such estimates include project business plans monitored and approved
by management, market studies and other information. In computing NRV, interest
holding costs are based on the Company's cost of funds. In addition, the Company
may also establish general valuation allowances based on management's assessment
of the risk of further reductions in NRV. Although management believes the NRV
of REI and the related allowance for losses are fairly stated, declines in NRV
and additions to the allowance for losses could result from continued weakness
in the specific project markets, changes in economic conditions, changes in the
Company's cost of funds 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 $2.2 billion at
December 31, 1994, decreased $1.2 billion or 36% from December 31, 1993
primarily due to a net increase in loans and MBS of $4.2 billion, partially
offset by net increases of $2.6 billion in deposits and $296.7 million in
borrowings during 1994. 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
39
<PAGE> 43
during the preceding calendar month. For December 1994 the average liquidity and
average short-term liquidity ratios of Home Savings were 5.09% and 4.35%,
respectively.
Sources of additional liquidity consist primarily of positive cash flows
generated from operations, the collection of principal payments and prepayments
on loans and MBS, increases in deposits and borrowings and issuance of equity
securities. Positive cash flows are also generated through the sale of MBS,
loans and other assets for cash. Sources of borrowings may include advances and
notes 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 1994 were principal payments and
prepayments on loans and MBS, proceeds from sales of loans and MBS (including
sales of nonaccrual and other impaired loans), purchases of deposits, and
proceeds from FHLB and other borrowings.
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 market 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 size, credit rating, the availability of acceptable collateral
and other market-driven 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. During 1994 cash of $9.6 billion was used to originate
loans. Gross loan originations in 1994 of $10.3 billion included $9.8 billion of
ARMs with an average factor of 269 basis points above COFI and $468.7 million of
fixed rate loans. Fixed rate loans originated and designated for sale
represented approximately 4% of single family loan originations in 1994.
Principal payments on loans were $2.9 billion in 1994, a decrease of 38% from
$4.7 billion in 1993.
During 1994 the Company sold loans totaling $728.8 million, including
nonaccrual and other impaired loans, net of charge-offs. The Company designates
certain loans as available for sale, including most of its fixed rate
originations. At December 31, 1994 the Company had $9.2 million of loans
available for sale.
At December 31, 1994 the Company was committed to fund mortgage loans
totaling $772.2 million, substantially all of which were ARMs. The Company
expects to fund such loans from its liquidity sources.
MBS. During 1994 the Company sold $400.2 million of COFI and other MBS and
purchased $424.5 million of ARM MBS, primarily indexed to one-year Treasury
notes, and $161.5 million of short-term fixed rate collateralized mortgage
obligations. The Company designates certain MBS as available for sale. At
December 31, 1994 the Company had $2.4 billion of MBS available for sale.
During 1994 the Company securitized $3.6 billion of ARMs into AAA rated
private placement mortgage pass-through securities and an additional $3.5
billion of ARMs into Agency MBS to increase its access to less expensive
collateralized borrowings. The Company has the intent and ability to hold these
MBS until maturity.
Deposits. Savings deposits were $40.6 billion at December 31, 1994, an
increase of $2.6 billion or 7% during 1994, reflecting deposits purchased of
$2.8 billion and a net deposit inflow of $1.4 billion partially offset by
deposits sold of $1.6 billion. The net deposit inflow reflects the Company's
strategy in late 1994 to increase its term deposits by increasing rates offered
on such deposits and reducing higher costing short-term borrowings.
During 1994 the Company purchased deposits totaling $2.8 billion in 53
branches of six Southern California financial institutions for an average
premium of approximately 4%. In addition, the Company sold
40
<PAGE> 44
deposits totaling $1.6 billion in its 26 Illinois branches for a deposit premium
of approximately 8%. 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, 1994, 62%, 20%, 11% and 7% of the
Company's total deposits were in California, New York, Florida and all other
states, respectively, compared to 58%, 21%, 10% and 11%, respectively, at
December 31, 1993.
During February 1995 the Company announced a definitive agreement with
Household Bank, FSB to acquire its 52 retail branches in Southern California
with deposits totaling $1.4 billion. The acquisition, which is subject to
regulatory approval, is expected to become final in the second quarter of 1995.
Borrowings. Borrowings totaled $9.2 billion at December 31, 1994, an
increase of $296.7 million or 3% during 1994 reflecting an increase in FHLB and
other borrowings of $2.9 billion, partially offset by a decrease of $2.6 billion
in short-term borrowings.
During 1994, Home Savings borrowed a total of $2.3 billion in short-term
collateralized notes from the FHLB and a total of $1.8 billion from various
brokerage firms. The FHLB notes and the notes to the brokerage firms mature in
1995 through 1997. In February 1994 Home Savings issued $200.0 million of
Floating Rate Notes due February 9, 1996. In August 1994 the Company issued
$125.0 million of 7.875% Subordinated Notes due in September 2004, at a public
offering price of 99.534%. The Subordinated Notes are not redeemable prior to
maturity. Such borrowings partially offset a net decrease in FHLB advances of
$1.4 billion.
Capital. Stockholders' equity totaled $3.0 billion at December 31, 1994, an
increase of $15.6 million or 1% during 1994 principally due to net earnings of
$237.4 million, partially offset by dividends paid to common and preferred
stockholders of $153.4 million and an increase of $74.0 million in the net
unrealized loss on securities available for sale.
The OTS has adopted 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, 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. Home Savings believes it does not have above-normal exposure
to interest-rate risk.
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-based 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, 1994 Home Savings met these
standards.
Home Savings is in compliance with the OTS regulations. The following table
shows the capital amounts and ratios of Home Savings at December 31, 1994:
<TABLE>
<CAPTION>
BALANCE RATIO
---------- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Tangible capital........................................ $2,716,111 5.12%
Core capital (to adjusted total assets)................. 2,914,895 5.50
Core capital (to risk-weighted assets).................. 2,914,895 9.08
Risk-based capital...................................... 3,908,156 12.17
</TABLE>
The regulatory capital requirements applicable to Home Savings are
continuing to become more stringent as the amount of Home Savings' supervisory
goodwill includable in capital was phased out effective January 1, 1995 and
investment in real estate development subsidiaries includable in capital will be
phased out through July 1, 1996. Home Savings currently meets the requirements
of the Capital Regulations assuming the present
41
<PAGE> 45
application of the full phase-out provisions. At December 31, 1994 the capital
ratios computed on this more stringent, "fully phased-in" basis were 5.06% for
core and tangible capital and 11.53% for risk-based capital.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included on page 50 and the Financial Statements which begin
on page F-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
42
<PAGE> 46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION AGE SINCE
---- -------- --- --------
<S> <C> <C> <C>
Robert H. Ahmanson Director 68 1969
William H. Ahmanson Director 69 1954
Byron Allumbaugh Director 63 1987
Anne-Drue Anderson* Executive Vice President and Treasurer 34 --
Richard M. Bressler Director 64 1987
Lodwrick M. Cook Director 66 1986
Robert M. De Kruif Vice Chairman of the Board 76 1951
Fredric J. Forster* Director, President and Chief Operating
Officer 50 1995
George G. Gregory* Executive Vice President and General Counsel 62 --
David S. Hannah Director 72 1958
George Miranda* First Vice President and Principal
Accounting Officer 47 --
Delia M. Reyes Director 53 1992
Charles R. Rinehart* Chairman of the Board and Chief Executive
Officer 48 1990
Elizabeth A. Sanders Director 49 1990
Arthur W. Schmutz Director 73 1993
William D. Schulte Director 62 1991
Kevin M. Twomey* Senior Executive Vice President and Chief
Financial Officer 48 --
</TABLE>
---------------
* Executive Officers. Messrs. Gregory, Miranda and Rinehart 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.
MS. ANDERSON joined Ahmanson as First Vice President and Treasurer in
September 1993 and became Executive Vice President in March 1995. From April
1993 until joining Ahmanson, Ms. Anderson was Bank and Thrift Strategist at
First Boston Corporation. From September 1989 to February 1993 she was Senior
Vice President and Treasurer at First Gibraltar Bank.
MR. BRESSLER is a retired Chairman of the Board of Plum Creek Management
Company, a manufacturer of lumber and wood products, and 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 of ARCO, which is engaged in the
exploration, development, production and marketing of petroleum. Mr. Cook also
serves as Chairman of the Board of ARCO Chemical Company and a director of
Lockheed Corporation.
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.
43
<PAGE> 47
MR. FORSTER joined Ahmanson as Senior Executive Vice President in February
1993, became Chief Operating Officer of Ahmanson in November 1993 and became
President in March 1995. 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 Chief Executive Officer of Reyes Consulting
Group, a market research and consulting firm.
MS. SANDERS is a business consultant. Ms. Sanders also serves as a director
of Carl Karcher Enterprises, Sport Chalet, Inc., Wal-Mart Stores, Inc. and
Wolverine World Wide, 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 LLP, a firm of
independent certified public accountants. Mr. Schulte also serves as a director
of Leslie's Poolmart, Santa Anita Operating Company, Santa Anita Realty
Enterprises, Inc. and Vastar Resources, Inc.
MR. TWOMEY joined Ahmanson in June 1993, became Executive Vice President
and Chief Financial Officer in July 1993 and became Senior Executive Vice
President in March 1995. 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.
Robert H. Ahmanson and William H. Ahmanson are brothers. No other directors
or executive officers of Ahmanson are related.
Richard H. Deihl, age 66 and a director since 1968, retired as Chairman of
the Board effective February 1, 1995.
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, 1994 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, except Mr. Deihl who reported one transaction late during 1994.
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, 1994 and to be used in
connection with Ahmanson's Annual Meeting of Stockholders to be held on May 9,
1995 is hereby incorporated by reference.
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
44
<PAGE> 48
pursuant to Regulation 14A within 120 days after December 31, 1994 and to be
used in connection with Ahmanson's Annual Meeting of Stockholders to be held on
May 9, 1995 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, 1994
and to be used in connection with Ahmanson's Annual Meeting of Stockholders to
be held on May 9, 1995 is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
----------
<S> <C>
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 Form 10-Q for quarter ended June 30, 1994).
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 (Exhibit
10.2.4 to Form 10-K for year ended December 31, 1993).
</TABLE>
45
<PAGE> 49
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
----------
<S> <C>
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).
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 (Exhibit 10.6.9 to Form 10-K
for year ended December 31, 1993).
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 (Exhibit 10.9.7 to Form 10-K for year ended
December 31, 1993).
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.
</TABLE>
46
<PAGE> 50
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
----------
<S> <C>
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.
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
(Exhibit 10.16 to Form 10-K for year ended December 31, 1993).
10.17 H. F. Ahmanson & Company Senior Supplemental Executive
Retirement Plan (Exhibit 10.17 to Form 10-K for year ended
December 31, 1993).
10.18 H. F. Ahmanson & Company Senior Executive Life Insurance Plan
(Exhibit 10.18 to Form 10-K for year ended December 31, 1993).
21 Subsidiaries of H. F. Ahmanson & Company.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
</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 50 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 1994.
47
<PAGE> 51
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 28th day of March 1995.
H. F. AHMANSON & COMPANY
By /s/ KEVIN M. TWOMEY
--------------------------------------
Kevin M. Twomey
Senior 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 28th day of March 1995.
--------------------------------------
Robert H. Ahmanson
Director
/s/ WILLIAM H. AHMANSON
--------------------------------------
William H. Ahmanson
Director
/s/ BYRON ALLUMBAUGH
--------------------------------------
Byron Allumbaugh
Director
/s/ RICHARD M. BRESSLER
--------------------------------------
Richard M. Bressler
Director
--------------------------------------
Lodwrick M. Cook
Director
/s/ FREDRIC J. FORSTER
--------------------------------------
Fredric J. Forster
Director
/s/ ROBERT M. DE KRUIF
--------------------------------------
Robert M. De Kruif
Director
48
<PAGE> 52
/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
--------------------------------------
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
49
<PAGE> 53
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, 1994 and 1993..... F-2
Consolidated Statements of Operations for the years ended December 31, 1994, 1993
and 1992......................................................................... F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1993 and 1992.............................................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... 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.
50
<PAGE> 54
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, 1994
and 1993, 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, 1994. 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, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, 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 LLP
Los Angeles, California
January 24, 1995
F-1
<PAGE> 55
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1994 AND 1993
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash and amounts due from banks.............................................. $ 782,678 $ 843,944
Securities purchased under agreements to resell.............................. 952,000 2,637,677
Other short-term investments................................................. 311,942 48,507
----------- -----------
Total cash and cash equivalents.................................... 2,046,620 3,530,128
Other investment securities held to maturity [market value $270,187
(1994)].................................................................... 276,945 --
Other investment securities available for sale [amortized cost $10,670 (1994)
and $11,186 (1993)]........................................................ 10,117 11,524
Investment in stock of Federal Home Loan Bank (FHLB), at cost................ 439,891 364,392
Mortgage-backed securities (MBS) held to maturity [market value $10,013,827
(1994) and $4,148,131 (1993)].............................................. 10,339,864 4,064,128
MBS available for sale [amortized cost $2,539,504 (1994) and $2,818,401
(1993)].................................................................... 2,449,556 2,855,869
Loans receivable less allowance for losses of $400,232 (1994) and $438,786
(1993)..................................................................... 35,992,566 37,529,079
Loans held for sale [market value $9,192 (1994) and $175,378 (1993)]......... 9,179 175,289
Accrued interest receivable.................................................. 212,947 166,848
Real estate held for development and investment (REI) less allowance for
losses of $333,825 (1994) and $341,705 (1993).............................. 313,316 443,657
Real estate owned held for sale (REO) less allowance for losses of $44,726
(1994) and $66,453 (1993).................................................. 161,948 179,862
Premises and equipment....................................................... 614,817 673,879
Goodwill and other intangible assets......................................... 468,542 428,444
Other assets................................................................. 314,853 399,403
Income taxes................................................................. 74,621 48,743
----------- -----------
$53,725,782 $50,871,245
=========== ===========
LIABILITIES
Deposits..................................................................... $40,655,016 $38,018,653
Short-term borrowings under agreements to repurchase securities sold......... 2,253,805 4,807,767
Other short-term borrowings.................................................. 100,000 169,854
FHLB and other borrowings.................................................... 6,822,280 3,901,724
Other liabilities............................................................ 930,080 1,024,216
----------- -----------
Total liabilities.................................................. 50,761,181 47,922,214
----------- -----------
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; liquidation preference
$195,000................................................................ 8 8
6% Cumulative Convertible Series D, outstanding 575,000 shares; liquidation
preference $287,500..................................................... 6 6
Common stock, $.01 par value; authorized 220,000,000 shares:
Outstanding 117,113,231 shares (1994) and 116,879,943 shares (1993) after
deducting 307,295 shares (1994) and 277,704 shares (1993) in treasury... 1,171 1,169
Additional paid-in capital................................................... 1,235,788 1,231,831
Net unrealized gain (loss) on securities available for sale, net of taxes.... (52,440) 21,549
Retained earnings............................................................ 1,781,093 1,697,113
----------- -----------
2,965,661 2,951,711
Unearned compensation........................................................ (1,060) (2,680)
----------- -----------
Total stockholders' equity......................................... 2,964,601 2,949,031
----------- -----------
$53,725,782 $50,871,245
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE> 56
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest on real estate loans........................................ $2,265,050 $2,623,139 $2,978,267
Interest on MBS...................................................... 686,390 278,908 336,517
Interest and dividends on investments................................ 143,935 101,375 114,195
---------- ---------- ----------
Total interest income.............................................. 3,095,375 3,003,422 3,428,979
---------- ---------- ----------
Interest expense:
Deposits............................................................. 1,291,893 1,301,063 1,738,347
Short-term borrowings................................................ 182,721 112,171 122,073
FHLB and other borrowings............................................ 323,840 253,116 209,993
---------- ---------- ----------
Total interest expense............................................. 1,798,454 1,666,350 2,070,413
---------- ---------- ----------
Net interest income................................................ 1,296,921 1,337,072 1,358,566
Provision for loan losses.............................................. 176,557 574,970 367,366
---------- ---------- ----------
Net interest income after provision for loan losses................ 1,120,364 762,102 991,200
---------- ---------- ----------
Other income:
Gain on sales of MBS................................................. 4,868 21,007 14,303
Gain (loss) on sales of loans........................................ (21,036) 80,037 62,622
Loan servicing income................................................ 74,441 58,854 72,498
Other fee income..................................................... 110,368 115,207 112,051
Gain on sale of Illinois retail deposit branch system................ 103,522 -- --
Gain (loss) on sales of investment securities........................ 202 -- (79)
Other operating income............................................... 13,612 42,723 5,462
---------- ---------- ----------
285,977 317,828 266,857
---------- ---------- ----------
Other expenses:
Compensation and other employee expenses............................. 340,645 352,945 305,935
Occupancy expenses................................................... 132,282 139,107 140,644
Federal deposit insurance premiums and assessments................... 105,238 88,403 94,454
Other general and administrative expenses............................ 180,395 238,948 212,224
---------- ---------- ----------
Total general and administrative expenses.......................... 758,560 819,403 753,257
Operations of REI.................................................... 97,644 229,300 58,359
Operations of REO.................................................... 86,011 212,130 129,153
Amortization of goodwill and other intangible assets................. 53,456 39,163 27,674
---------- ---------- ----------
995,671 1,299,996 968,443
---------- ---------- ----------
Earnings (loss) before provision for income taxes (benefit),
extraordinary loss and cumulative effect of accounting change........ 410,670 (220,066) 289,614
Provision for income taxes (benefit)................................... 173,312 (82,034) 133,222
---------- ---------- ----------
Earnings (loss) before extraordinary loss and cumulative effect of
accounting change.................................................... 237,358 (138,032) 156,392
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).................................................... $ 237,358 $ (159,639) $ 204,069
========== ========== ==========
Earnings (loss) per common share -- primary:
Earnings (loss) before extraordinary loss and cumulative effect of
accounting change.................................................. $ 1.59 $ (1.51) $ 1.19
Extraordinary loss on early extinguishment of debt................... -- (0.18) --
Cumulative effect of change in accounting for income taxes........... -- -- 0.41
---------- ---------- ----------
Net earnings (loss).................................................. $ 1.59 $ (1.69) $ 1.60
========== ========== ==========
Earnings (loss) per common share -- fully diluted:
Earnings (loss) before extraordinary loss and cumulative effect of
accounting change.................................................. $ 1.58 $ (1.51) $ 1.19
Extraordinary loss on early extinguishment of debt................... -- (0.18) --
Cumulative effect of change in accounting for income taxes........... -- -- 0.41
---------- ---------- ----------
Net earnings (loss).................................................. $ 1.58 $ (1.69) $ 1.60
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 57
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(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, 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
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)
Net earnings........................ 237,358 -- -- -- -- 237,358 --
Dividends on Common Stock ($0.88 per
share)............................ (102,948) -- -- -- -- (102,948) --
Dividends on Preferred Stock........ (50,430) -- -- -- -- (50,430) --
Unrealized (loss) on securities
available for sale, net of tax
effect of $55,799................. (73,989) -- -- -- (73,989) -- --
Restricted stock awards granted, net
of cancellations.................. (332) -- -- (504) -- -- 172
Unearned compensation amortized to
expense........................... 1,448 -- -- -- -- -- 1,448
Stock options exercised............. 3,554 -- 2 3,552 -- -- --
Tax benefits from restricted stock
awards and stock options.......... 909 -- -- 909 -- -- --
---------- --- ------ ---------- -------- ---------- -------
BALANCE, DECEMBER 31, 1994.......... $2,964,601 $49 $1,171 $1,235,788 $(52,440) $1,781,093 $(1,060)
========== === ====== ========== ======== ========== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 58
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).............................................................. $ 237,358 $ (159,639) $ 204,069
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Interest capitalized on loans (negative amortization).......................... (39,031) (50,625) (80,710)
Amortization of deferred loan fees and interest................................ (43,103) (39,174) (24,445)
Provision for losses on loans and real estate.................................. 301,761 887,957 475,078
Depreciation and amortization.................................................. 112,454 116,402 92,400
Extraordinary loss on early extinguishment of debt, net of taxes............... -- 21,607 --
Cumulative effect of change in accounting for income taxes..................... -- -- (47,677)
Gain on sale of Illinois retail deposit branch system.......................... (103,522) -- --
(Increase) decrease in accrued interest receivable............................. (46,099) 38,186 58,335
FHLB stock dividends........................................................... (20,609) (12,895) (5,439)
Cash (gain) loss on sales of loans............................................. 2,687 (80,037) (69,622)
Increase in credit enhancement liability....................................... 18,350 6,755 7,000
Cash gain on sales of MBS...................................................... (4,868) (27,762) (14,303)
Cash gain on sale of servicing rights.......................................... (16,798) -- --
Proceeds from sales of loans originated for sale............................... 562,510 2,397,341 3,972,896
Loans originated for sale...................................................... (350,729) (2,156,143) (3,543,846)
Loans repurchased from investors............................................... (74,110) (266,688) (109,723)
Proceeds from loan origination fees............................................ 20,660 62,842 77,501
Loss on sales of real estate................................................... 23,033 71,621 40,283
Provision for deferred income tax (benefit).................................... (25,339) (37,745) (65,670)
Increase (decrease) in other liabilities....................................... 119,263 (137,009) (22,341)
Other, net..................................................................... (60,473) 26,823 118,086
----------- ------------ -----------
Net cash provided by operating activities.................................. 613,395 661,817 1,061,872
----------- ------------ -----------
Cash flows from investing activities:
Proceeds from sales of MBS available for sale.................................... 405,069 932,707 664,494
Proceeds from sales of impaired loans and credit card portfolio.................. 163,557 989,199 --
Proceeds from sale of servicing rights........................................... 16,798 -- --
Principal payments on loans...................................................... 2,916,069 4,691,522 4,917,298
Principal payments on MBS........................................................ 1,180,403 881,894 1,083,450
Loans originated for investment (net of refinances).............................. (9,228,503) (8,101,619) (7,388,142)
Loans purchased.................................................................. (4,748) (1,062,447) (4,362)
MBS purchased.................................................................... (585,955) (802,135) (698,123)
Proceeds from maturities of other investment securities.......................... 56,259 1,730 2,527
Proceeds from sales of other investment securities............................... 5,202 -- 52,254
Other investment securities purchased............................................ (337,571) (6,052) --
Net (purchases) redemption of FHLB stock......................................... (54,890) 48,616 40,190
Proceeds from sales of REI....................................................... 82,973 86,288 242,259
Proceeds from sales of REO....................................................... 328,756 453,318 315,970
Additions to REI................................................................. (47,955) (83,650) (283,759)
Other, net....................................................................... 116,354 (56,180) (73,635)
----------- ------------ -----------
Net cash used in investing activities...................................... (4,988,182) (2,026,809) (1,129,579)
----------- ------------ -----------
Cash flows from financing activities:
Net increase (decrease) in deposits.............................................. 1,418,848 (1,651,128) (1,140,176)
Proceeds from deposits purchased................................................. 2,796,522 1,766,753 1,476,075
Deposits sold.................................................................... (1,456,947) (1,370,164) (209,833)
Net increase (decrease) in borrowings maturing in 90 days or less................ (2,626,779) 2,530,073 1,527,419
Proceeds from other borrowings................................................... 4,533,716 16,204,071 977,329
Repayment of other borrowings.................................................... (1,620,703) (14,871,077) (1,674,256)
Net proceeds from issuance of Preferred Stock.................................... -- 469,135 --
Dividends to stockholders........................................................ (153,378) (138,133) (119,105)
----------- ------------ -----------
Net cash provided by financing activities.................................. 2,891,279 2,939,530 837,453
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents............................... (1,483,508) 1,574,538 769,746
Cash and cash equivalents at beginning of year..................................... 3,530,128 1,955,590 1,185,844
----------- ------------ -----------
Cash and cash equivalents at end of year........................................... $ 2,046,620 $ 3,530,128 $ 1,955,590
=========== ============ ===========
Supplemental cash flow information:
Interest paid on deposits........................................................ $ 1,284,749 $ 1,294,170 $ 1,739,824
Interest paid on borrowings...................................................... 442,815 333,306 329,697
Income tax payments, net of (refunds)............................................ 107,327 (1,122) 201,085
Non-cash investing activities:
Loans securitized into MBS....................................................... 7,123,693 3,951,920 223,870
Additions to REO................................................................. 449,738 633,802 701,856
Loans originated to sell REO..................................................... 103,071 313,090 116,035
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 59
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(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 banking
operations. In addition, Ahmanson has other subsidiaries which are engaged
primarily in related financial service activities, including loan servicing,
securities and insurance brokerage, real estate mortgage origination and
residential and commercial real estate development. 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.
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.
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, 1994 the required reserves totaled $169.5 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. SFAS No. 115 requires classification of debt and
equity securities, including MBS, into one of three categories: held to
maturity, available for sale or trading securities. 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, 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 fair 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 operations. The
Company owned no trading securities during 1994.
The Company's portfolio of MBS includes conventional single family mortgage
loans originated by the Company and subsequently securitized into private
placement mortgage pass-through securities and through the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") and the Government National Mortgage Association ("GNMA"). The Company
also purchases collateralized mortgage obligations ("CMOs") and other MBS.
Interest income on MBS, including the amortization of discounts or
premiums, is recognized using the interest method over the estimated lives of
the MBS 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 mortgage
loans ("ARMs") for investment in its own loan portfolio. The Company designates
certain loans it originates as held for sale,
F-6
<PAGE> 60
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
including most fixed rate loans. Loans held 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.
The Company adopted SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan," effective January 1, 1993, as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosures."
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 are individually reviewed based
on specific criteria, such as delinquency, debt coverage, LTV ratio and
condition of collateral property. 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 ("TDRs"), and performing
major loans and major loans less than 90 days delinquent ("other impaired major
loans") which the Company believes will be collected in full, but which the
Company believes it is probable will not be collected in accordance with the
contractual terms of the loans.
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. Cash receipts on
nonaccrual loans are used to reduce principal balances rather than being
included in interest income. 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 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 continues to accrue
interest on TDRs and other impaired major loans since full payment of principal
and interest is expected and such loans are performing or less than 90 days
delinquent and therefore do not meet the criteria for nonaccrual status.
The Company bases the measurement of loan impairment on the fair value of
the loans' collateral properties in accordance with SFAS No. 114. 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 charged off from 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 is maintained by additions charged to
operations as provision 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 impaired loans; second, the establishment
of appropriate loan loss allowances once individual specific impaired loans are
identified; and third, a methodology for estimating loan losses based on the
inherent risk in the remainder of the loan portfolio.
F-7
<PAGE> 61
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The identification of impaired loans is achieved mainly through individual
review of all major loans over $2 million and certain major loans under $2
million. Loss allowances are established for specifically identified impaired
loans based on the fair value of the underlying collateral property.
The allowance for loan losses also includes estimates based upon
consideration of actual loss experience for loans during the past several years
by loan type, year of origination, delinquency statistics, condition 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.
Gain on Sales of Loans and MBS
When loans or MBS 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 MBS. In
transactions that involve sales of loans or MBS 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 MBS 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 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.
Derivative Financial Instruments
The Company utilizes certain off-balance sheet financial instruments,
including forward sales of and options to sell loans and MBS to help manage its
interest rate exposure with respect to fixed rate loans (or loans with certain
periods at a fixed rate) in its portfolio and in its loan origination pipeline,
and interest rate swaps to manage interest rates, duration and other credit and
market risks. The Company does not hold or issue derivative financial
instruments for trading purposes.
The fair value of forward sales of and options to sell loans and MBS are
adjusted monthly, with the related gains and losses recognized as interest
income or expense. The fair values of the Company's forward sales and options at
December 31, 1994 and 1993 were not material. Interest income or expense
resulting from interest rate swaps is recorded as an adjustment to the interest
income of the hedged asset. Gains or losses on the early termination of a swap
agreement, or when the swap agreement remains in effect but the Company assigns
its rights and obligations to a third party, are amortized over the remaining
term of the original swap agreement when the underlying assets still exist.
Otherwise, such gains and losses are immediately expensed or recorded as income
based on the fair value of the open swap positions.
Accounting for Real Estate
REI is real estate held for development and investment. The period of
development and sale of these properties depends on economic and other
conditions and may extend over several years. REI is carried at the lower of
cost or net realizable value ("NRV"). NRV is the estimated selling price when
the real estate is
F-8
<PAGE> 62
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
eventually liquidated, less estimated costs to complete the development and the
costs to hold and dispose of the property. In computing NRV, interest holding
costs are based on the Company's cost of funds. An allowance for 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 REI operations. Improvements and holding
costs (including the cost of funds invested in REI, if appropriate) are
capitalized during construction.
REO is real estate acquired through foreclosure or in settlement of loans.
All REO is held for prompt and orderly sale and is not held for development or
investment. REO is initially recorded at fair value. Fair value is the amount of
cash that the property would yield in a current sale between a willing buyer and
a willing seller. Initial write-downs are charged to the allowance for loan
losses. In addition, an allowance for losses on REO is established for estimated
disposition costs at the time of acquisition. An additional allowance for losses
on REO is recorded if there is a further deterioration in fair value or an
increase in estimated disposition costs after acquisition. Operating costs are
expensed as incurred.
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 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 and Other Intangible Assets
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 originally aggregated $716.9 million and has
been included in "Goodwill and Other Intangible Assets" in the accompanying
Consolidated Statements of Financial Condition. Approximately $344.7 million is
being amortized straight-line over 40 years, $53.6 million over 25 years, $164.5
million over 20 years, $37.2 million over 15 years and $5.9 million over 10
years. The balance of $111.0 million is being amortized over the estimated
remaining lives of the acquired interest-earning assets. The Company reduced its
goodwill balance in the fourth quarter of 1994 by $25.6 million related to the
sale of the Company's Illinois retail branches and deposits. The unamortized
goodwill on these acquisitions aggregated $325.6 million at December 31, 1994.
The Company has also acquired various savings institutions or deposits in
California. Approximately $16.6 million of the goodwill on these California
acquisitions is being amortized on a straight-line basis over 40 years and $58.5
million over 15 years. The remainder of $11.1 million, which relates to
acquisitions in 1970 and earlier, is not being amortized, consistent with the
accounting guidelines at that time. The unamortized goodwill on these California
acquisitions aggregated $78.3 million at December 31, 1994.
F-9
<PAGE> 63
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The Company assesses the recoverability of goodwill 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.
From 1991 through 1994, the Company purchased certain deposits from other
financial institutions, including amounts which represent the portion of the
purchase price attributable to the fair value of the depositor relationships
acquired. This "core" deposit premium is being amortized over periods up to 10
years. At December 31, 1994, the unamortized core deposit premium was $64.6
million.
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.
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, 1994 these agreements matured within 30 days.
Securities purchased under agreements to resell averaged $2.3 billion, $2.1
billion and $2.3 billion during 1994, 1993 and 1992, respectively, and the
maximum amounts outstanding at any month-end during 1994, 1993 and 1992 were
$2.6 billion, $2.8 billion and $1.1 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.
F-10
<PAGE> 64
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Amounts outstanding with individual brokers at December 31, 1994 which
exceeded ten percent of stockholders' equity were:
<TABLE>
<CAPTION>
MARKET VALUE OF THE
PLEDGED SECURITIES
BOOK VALUE, ---------------------------------------------
WEIGHTED INCLUDING OTHER U.S.
AVERAGE ACCRUED MARKETABLE WHOLE GOVERNMENT
SELLING PARTY MATURITY INTEREST MBS SECURITIES LOANS OBLIGATIONS
------------- -------- ----------- ------- ---------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Lehman Government Securities,
Inc. ............................ 3 days $380,153 $51,633 $80,967 $ -- $255,000
Bear, Stearns & Co., Inc. ......... 17 days 501,482 -- -- 552,800 --
</TABLE>
In the first quarter of 1994 the Company entered into two amortizing
interest rate swap agreements to manage the market risks associated with the
repurchase agreements secured by whole loans. The Company pays interest based on
the 1-month London Interbank Offered Rate ("LIBOR") and receives interest at a
weighted average fixed coupon rate of 5.74%. Monthly changes in LIBOR are used
to calculate the amortization of the notional amounts. The original notional
amounts totaled $210.0 million, of which $136.0 million was outstanding at
December 31, 1994. The swaps are scheduled to mature in June 1998 and February
1999.
Other investment securities held to maturity at December 31, 1994 are
summarized below. There were no other investment securities held to maturity at
December 31, 1993.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States government and federal agency
obligations................................. $276,939 $ -- $(6,758) $270,181
Industrial and other obligations.............. 6 -- -- 6
-------- ---- ------- --------
$276,945 $ -- $(6,758) $270,187
======== ==== ======= ========
</TABLE>
Other investment securities available for sale at December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
--------------------------------------------- ---------------------------------------------
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... $ 2,477 $14 $ (14) $ 2,477 $ 5,133 $500 $(128) $ 5,505
Marketable equity securities... 8,193 -- (553) 7,640 6,053 -- (34) 6,019
------- --- ----- ------- ------- ---- ----- -------
$10,670 $14 $(567) $10,117 $11,186 $500 $(162) $11,524
======= === ===== ======= ======= ==== ===== =======
</TABLE>
F-11
<PAGE> 65
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The contractual maturities of all debt securities owned at December 31,
1994 were as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
---------------------- --------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- -------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less.......................... $ 6 $ 6 $2,464 $2,450
After one year through five years......... 276,939 270,181 -- --
After five years through ten years........ -- -- 13 27
-------- -------- ------ ------
$276,945 $270,187 $2,477 $2,477
======== ======== ====== ======
</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,
-----------------------------
1994 1993 1992
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales..................................... $5,147 $ -- $42,885
====== ==== =======
Gross realized gains.................................... $ 147 $ -- $ 261
Gross realized losses................................... -- -- (594)
------ ---- -------
Net gains (losses).................................... $ 147 $ -- $ (333)
====== ==== =======
</TABLE>
Interest and dividends on investments are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on securities purchased under agreements
to resell.......................................... $102,824 $ 74,559 $ 94,899
Interest on other short-term and other investment
securities......................................... 20,080 12,814 8,387
Dividends on FHLB stock.............................. 20,677 13,907 10,491
Dividends on other investment securities............. 354 95 418
-------- -------- --------
$143,935 $101,375 $114,195
======== ======== ========
</TABLE>
F-12
<PAGE> 66
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(3) LOANS, MBS, SALES AND SERVICING ACTIVITIES
Portfolio Composition
The loan and MBS portfolio is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Real estate mortgage loans:
Single family (1-4 units)............................... $26,075,581 $28,587,900
Multi-family (5 units and over)......................... 8,518,510 7,219,708
Commercial and industrial............................... 1,734,793 2,012,307
----------- -----------
36,328,884 37,819,915
Other loans............................................... 124,922 259,354
Deferred loan fees and interest........................... (55,161) (89,746)
Unearned discounts on loans............................... (5,847) (21,658)
Allowance for loan losses................................. (400,232) (438,786)
----------- -----------
Loans receivable................................ 35,992,566 37,529,079
Loans held for sale, less deferred loan fees of $23 (1994)
and $1,213 (1993)....................................... 9,179 175,289
MBS held to maturity, less discount of $24,698 (1994) and
$8,078 (1993)........................................... 10,339,864 4,064,128
MBS available for sale, including premium (discount) of
$(2,119) (1994) and $6,013 (1993)....................... 2,449,556 2,855,869
----------- -----------
Total loans receivable and MBS.................. $48,791,165 $44,624,365
=========== ===========
</TABLE>
As of December 31, 1994 the Company was committed to fund ARM loans
amounting to $769.0 million and fixed rate mortgage loans amounting to $3.2
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 weighted average yield on the Company's loan and MBS portfolio at
December 31, 1994 and 1993, computed after giving effect to amortization of
deferred loan fees and interest, discounts and premiums and effect of hedging,
was 6.71% and 6.50%, respectively.
During 1994 and 1993 the Company securitized a total of $3.6 billion and
$3.4 billion, respectively, in unpaid principal amounts of loans it originated
into private placement MBS of equal value. In addition, the Company securitized
various conventional single family mortgages into government agency securities
of equal value. The unpaid principal amount of loans securitized into FNMA and
FHLMC securities in 1994 was $3.5 billion and in 1993 was $496.5 million. The
Company has the intent and ability to hold these MBS to maturity. Such MBS
increase the Company's ability to access collateralized borrowings. The credit
risk on all MBS securitized by the Company is provided for in the allowance for
loan losses.
F-13
<PAGE> 67
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The MBS owned by the Company and classified as held to maturity at December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
------------------------------------------------ -----------------------------------------------
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.......................... $ 3,440,641 $84 $(136,607) $ 3,304,118 $ 9,771 $ -- $ (196) $ 9,575
GNMA.......................... 1,352 -- (37) 1,315 1,838 127 -- 1,965
Mortgage pass-through
securities.................. 6,351,786 -- (144,559) 6,207,227 3,552,588 90,200 (513) 3,642,275
CMOs.......................... 546,085 -- (44,918) 501,167 499,931 -- (5,615) 494,316
----------- -- --------- ----------- ---------- ------- ------- ----------
$10,339,864 $84 $(326,121) $10,013,827 $4,064,128 $90,327 $(6,324) $4,148,131
=========== === ========= =========== ========== ======= ======= ==========
</TABLE>
The MBS available for sale by the Company at December 31, 1994 and 1993
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------------------------- ----------------------------------------------
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............................ $1,568,694 $21 $(47,318) $1,521,397 $1,848,443 $22,146 $ (41) $1,870,548
GNMA............................ 14,227 53 (362) 13,918 17,238 1,013 -- 18,251
FHLMC........................... 708,838 -- (25,938) 682,900 643,518 15,327 (4) 658,841
CMOs............................ 247,745 -- (16,404) 231,341 309,202 -- (973) 308,229
---------- --- -------- ---------- ---------- ------- ------- ----------
$2,539,504 $74 $(90,022) $2,449,556 $2,818,401 $38,486 $(1,018) $2,855,869
========== === ======== ========== ========== ======= ======= ==========
</TABLE>
The contractual maturities of all MBS at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
MBS HELD TO MATURITY MBS AVAILABLE FOR SALE
------------------------- -----------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
One year or less.................... $ 22,839 $ 20,232 $ -- $ --
After one year through five years... 359,602 327,752 247,746 231,341
After five years through ten
years............................. 116,133 106,937 6,540 6,506
After ten years..................... 9,841,290 9,558,906 2,285,218 2,211,709
----------- ----------- ---------- ----------
$10,339,864 $10,013,827 $2,539,504 $2,449,556
=========== =========== ========== ==========
</TABLE>
From 1991 through late 1993, the Company originated loans with a fixed
interest rate for five years after which the loans adjust 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 entered into a series of interest
rate swap agreements that effectively caused 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 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 1994, 1993 and 1992 interest income was decreased by $43.8 million,
$71.2 million and $26.2 million, respectively, as a result of these swap
agreements. Such amount in 1993 included the establishment of a
F-14
<PAGE> 68
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
$17.8 million allowance for the anticipated assignment to a third party of the
Company's rights and obligations under interest rate swap agreements based on
the faster than expected prepayment of related hedged loans.
The total unpaid principal amount of the hedged loans related to these
interest rate swaps was $1.45 billion at December 31, 1994. A summary of the
activity for the notional amounts of these interest rate swaps for the years
1994, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.............................. $1,982,350 $1,939,450 $ 923,500
New agreements............................... -- 145,500 1,015,950
Rights and obligations assigned to a third
party..................................... (283,450) -- --
Expired agreements........................... (254,080) (102,600) --
---------- ---------- ----------
Ending balance................................. $1,444,820 $1,982,350 $1,939,450
========== ========== ==========
</TABLE>
The interest rate swap agreements outstanding at December 31, 1994 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>
1995......................................... $ 200,960 6.80% 4.19%
1996......................................... 731,760 7.18 4.19
1997......................................... 447,850 6.71 4.19
1998......................................... 64,250 5.61 4.19
----------
Total.............................. $1,444,820 6.91 4.19
==========
</TABLE>
---------------
(1) COFI for October 1994.
Credit Risk and Concentration
The Company's primary lending business has been 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. The Company has not originated residential loans secured by
multi-family structures located in states other than California since July 1990
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
F-15
<PAGE> 69
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
portfolio and nonaccrual loans as a percentage of the gross mortgage portfolio
by state and property type at December 31, 1994:
<TABLE>
<CAPTION>
COMMERCIAL AND
SINGLE FAMILY PROPERTIES MULTI-FAMILY PROPERTIES INDUSTRIAL PROPERTIES TOTAL
------------------------ ------------------------ ----------------------- ------------------------
GROSS GROSS GROSS GROSS
MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL
STATE PORTFOLIO LOAN RATIO PORTFOLIO LOAN RATIO PORTFOLIO LOAN RATIO PORTFOLIO LOAN RATIO
----- ----------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California........... $27,557,445 1.63% $7,798,054 0.83% $1,264,360 2.23% $36,619,859 1.48%
Florida.............. 2,855,649 0.99 20,765 -- 6,546 11.03 2,882,960 1.00
New York............. 2,124,463 1.66 288,559 1.09 214,938 1.59 2,627,960 1.59
Illinois............. 1,883,420 0.70 111,253 0.48 18,267 29.06 2,012,940 0.95
Texas................ 1,028,008 0.57 78,451 -- 41,017 -- 1,147,476 0.51
Other................ 3,414,061 1.06 262,232 0.49 189,665 2.50 3,865,958 1.09
----------- ---------- ---------- -----------
$38,863,046 1.46 $8,559,314 0.82 $1,734,793 2.44 $49,157,153 1.39
=========== ========== ========== ===========
</TABLE>
Allowance for Loan Losses
The changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance............................... $ 438,786 $ 434,114 $ 303,804
Provision for loan losses..................... 176,557 574,970 367,366
Allowance for loan losses on loans
purchased.................................. -- 20,365 --
Charge-offs................................... (252,734) (623,735) (255,493)
Recoveries.................................... 37,623 33,072 18,437
--------- --------- ---------
Ending balance.................................. $ 400,232 $ 438,786 $ 434,114
========= ========= =========
</TABLE>
Nonaccrual Loans, TDRs and Other Impaired Major Loans
The following is a summary of nonaccrual loans, TDRs and other impaired
major loans:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1993 1992
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans................................ $681,026 $ 780,400 $1,768,362
TDRs............................................ 121,365 100,751 61,400
Other impaired major loans...................... 12,158 391,044 --
-------- ---------- ----------
Total................................. $814,549 $1,272,195 $1,829,762
======== ========== ==========
</TABLE>
F-16
<PAGE> 70
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
At December 31, 1994 and 1993 impaired loans recognized in accordance with
SFAS No. 114, and the related specific loan loss allowances, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------
1994 1993
----------------------------------- -----------------------------------
ALLOWANCE ALLOWANCE
RECORDED FOR NET RECORDED FOR NET
INVESTMENT LOSSES INVESTMENT INVESTMENT LOSSES INVESTMENT
---------- --------- ---------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans:
With specific allowances.......... $ 55,969 $19,342 $ 36,627 $125,612 $40,635 $ 84,977
Without specific allowances....... 34,314 -- 34,314 87,673 -- 87,673
-------- ------- -------- -------- ------- --------
90,283 19,342 70,941 213,285 40,635 172,650
-------- ------- -------- -------- ------- --------
TDRs:
With specific allowances.......... 35,123 7,799 27,324 40,461 4,173 36,288
Without specific allowances....... 94,041 -- 94,041 64,463 -- 64,463
-------- ------- -------- -------- ------- --------
129,164 7,799 121,365 104,924 4,173 100,751
-------- ------- -------- -------- ------- --------
Other impaired major loans:
With specific allowances.......... 9,816 2,751 7,065 387,257 36,462 350,795
Without specific allowances....... 5,093 -- 5,093 40,249 -- 40,249
-------- ------- -------- -------- ------- --------
14,909 2,751 12,158 427,506 36,462 391,044
-------- ------- -------- -------- ------- --------
Total impaired loans........... $234,356 $29,892 $204,464 $745,715 $81,270 $664,445
======== ======= ======== ======== ======= ========
</TABLE>
The average net recorded investment in impaired loans for the years ended
December 31, 1994 and 1993 was $415 million and $741 million, respectively.
Interest income of $6.2 million for 1994 and $29.2 million for 1993 was
recognized on impaired loans during the period of impairment.
Loans in nonaccrual status as of December 31, 1994, 1993 and 1992 had
interest due but not recognized of approximately $39 million, $65 million and
$134 million, respectively. Net interest forgone related to TDRs totaled $0.1
million, $0.2 million and $0.9 million in 1994, 1993 and 1992, respectively.
Interest income recorded on TDRs for 1994 and 1993 was $4.7 million and $5.0
million, respectively. The Company has no commitments to lend additional funds
to borrowers whose loans were classified as TDRs.
Sales and Servicing Activities
The proceeds from sales of MBS during 1994, 1993 and 1992 were $405.1
million, $932.7 million and $664.5 million, respectively. Such sales generated
gross gains of $4.9 million in 1994, $27.8 million in 1993 and $14.3 million in
1992.
The changes to the present value of retained yield on loans and MBS sold,
which is included in "Other assets," are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................... $75,180 $105,354 $135,388
Amortization....................................... (17,368) (30,174) (30,034)
------- -------- --------
Ending balance....................................... $57,812 $ 75,180 $105,354
======= ======== ========
</TABLE>
F-17
<PAGE> 71
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The Company has sold certain loans and MBS with different types of credit
enhancement features. The unpaid principal balance of loans and MBS sold with
various credit enhancement features at December 31, 1994 and 1993 was $4.2
billion and $4.6 billion, respectively. The maximum exposure under the Company's
credit enhancement obligations at December 31, 1994 was approximately $1.5
billion. Approximately $1.3 billion of this exposure is associated with $1.3
billion of loans sold to FHLMC on which the Company is obligated to absorb all
losses associated with foreclosures. An additional $241.7 million in exposure
under credit enhancement obligations relates to loans totaling $2.9 billion.
Losses incurred by the Company on its credit enhancement obligations totaled
$9.5 million, $51.4 million and $28.3 million in 1994, 1993 and 1992,
respectively. The Company does not believe that its credit enhancement
obligations subject it to material risk of loss in the future. At December 31,
1994 the total allowance for credit enhancement obligations included in "Other
liabilities" was $25.1 million.
At December 31, 1994, 1993 and 1992 the Company was engaged in servicing
for investors $11.3 billion, $15.0 billion and $16.6 billion, respectively, in
unpaid principal amount of loan participations, whole loans and mortgage
pass-through securities.
Set forth below is a summary by year of the components of loan servicing
income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross servicing income............................. $ 92,608 $108,857 $126,775
Federal agency guarantee and other fees............ (17,597) (19,829) (24,243)
Amortization of the present value of retained yield
on loans sold.................................... (17,368) (30,174) (30,034)
Gain on sale of servicing rights................... 16,798 -- --
-------- -------- --------
Loan servicing income............................ $ 74,441 $ 58,854 $ 72,498
======== ======== ========
</TABLE>
In December 1994, the Company sold servicing rights related to $2.0 billion
of fixed-rate single family loans serviced for investors for a gain of $16.8
million.
(4) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest on:
Securities purchased under agreements to resell.............. $ 1,660 $ 3,851
Investment securities........................................ 6,171 159
MBS.......................................................... 62,331 31,317
Loans receivable............................................. 142,785 131,521
-------- --------
$212,947 $166,848
======== ========
</TABLE>
F-18
<PAGE> 72
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(5) OPERATIONS OF REAL ESTATE
REI
Included in other expenses are operations of REI, summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net gain (loss) on sales.......................... $ (5,327) $ (6,777) $ 9,335
Provision for losses.............................. (86,080) (207,944) (50,049)
Net operating expense............................. (6,237) (14,579) (17,645)
-------- --------- --------
Total loss...................................... $(97,644) $(229,300) $(58,359)
======== ========= ========
</TABLE>
The changes in the allowance for losses on REI are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.................................. $341,705 $154,743 $136,181
Provision for losses............................. 86,080 207,944 50,049
Charge-offs...................................... (93,960) (20,982) (31,487)
-------- -------- --------
Ending balance..................................... $333,825 $341,705 $154,743
======== ======== ========
</TABLE>
REO
Included in other expenses are operations of REO, summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss on sales................................ $(17,706) $ (64,844) $ (49,618)
Provision for losses............................. (39,124) (105,043) (57,663)
Net operating expense............................ (29,181) (42,243) (21,872)
-------- --------- ---------
Total expense.................................. $(86,011) $(212,130) $(129,153)
======== ========= =========
</TABLE>
The changes in allowance for losses on REO are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1994 1993 1992
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................ $ 66,453 $ 47,970 $ 15,041
Provision for losses........................... 39,124 105,043 57,663
Charge-offs.................................... (60,851) (86,560) (24,734)
-------- --------- ---------
Ending balance................................... $ 44,726 $ 66,453 $ 47,970
======== ========= =========
</TABLE>
F-19
<PAGE> 73
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(6) PREMISES AND EQUIPMENT
Premises and equipment at cost are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1993
--------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 146,315 $ 157,276
Buildings................................................... 356,211 377,220
Construction in progress.................................... 537 1,333
Furniture, fixtures and equipment........................... 292,980 281,908
Leasehold improvements...................................... 178,021 185,152
--------- ----------
974,064 1,002,889
Less accumulated depreciation and amortization.............. (359,247) (329,010)
--------- ----------
$ 614,817 $ 673,879
========= ==========
</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, 1994, 1993 and 1992 was $74.0 million, $79.6 million and
$80.8 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, 1994 (in thousands):
<TABLE>
<S> <C>
1995.............................. $ 74,299
1996.............................. 69,421
1997.............................. 64,536
1998.............................. 61,513
1999.............................. 57,490
Thereafter........................ 525,398
--------
$852,657
========
</TABLE>
F-20
<PAGE> 74
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(7) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED DECEMBER 31,
AVERAGE RATE AT -----------------------------------------
DECEMBER 31, 1994 1994 1993
----------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Transaction accounts:
Checking.............................. 1.00% $ 2,727,203 6.7% $ 2,764,660 7.3%
Passbook.............................. 2.36 3,788,223 9.3 4,481,460 11.8
Money market savings.................. 3.00 6,038,058 14.9 7,792,594 20.5
----------- ----- ----------- -----
Total transaction accounts.... 12,553,484 30.9 15,038,714 39.6
----------- ----- ----------- -----
Term accounts:
32-89 days............................ 2.98 278,856 0.7 482,378 1.3
3 months to less than 6 months........ 3.39 717,378 1.8 1,224,113 3.2
6 months to less than 1 year.......... 4.56 8,318,771 20.5 7,450,343 19.6
1 year to less than 2 years........... 4.98 12,954,742 31.8 8,253,967 21.7
2 years to less than 3 years.......... 4.74 4,092,648 10.1 4,193,929 11.0
3 years and over...................... 6.12 1,155,480 2.8 459,271 1.2
Jumbo certificates of deposit......... 4.73 583,657 1.4 915,938 2.4
----------- ----- ----------- -----
Total term accounts........... 28,101,532 69.1 22,979,939 60.4
----------- ----- ----------- -----
$40,655,016 100.0% $38,018,653 100.0%
=========== ===== =========== =====
</TABLE>
The aggregate amounts of term accounts by interest rate category at
December 31, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Term accounts:
2.5% or less............................................ $ 12,484 $ 486,057
2.501% - 3.5%.......................................... 3,864,851 10,726,141
3.501% - 4.5%.......................................... 7,803,904 8,741,323
4.501% - 5.5%.......................................... 9,245,144 2,327,724
5.501% - 6.5%.......................................... 6,323,409 280,526
6.501% - 7.5%.......................................... 717,860 160,796
7.501% - 8.5%.......................................... 86,961 107,355
8.501% - 17.5%.......................................... 46,919 150,017
----------- -----------
Total term accounts............................. $28,101,532 $22,979,939
=========== ===========
</TABLE>
F-21
<PAGE> 75
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The aggregate amounts of term account maturities at December 31, 1994 are
as follows:
<TABLE>
<CAPTION>
AMOUNT MATURING DURING THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1996 1997 THEREAFTER TOTAL
----------- ---------- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Term accounts:
2.5% or less................ $ 9,919 $ 1,982 $ 564 $ 19 $ 12,484
2.501% - 3.5%.............. 3,856,442 8,048 342 19 3,864,851
3.501% - 4.5%.............. 6,742,816 947,004 110,806 3,278 7,803,904
4.501% - 5.5%.............. 8,009,127 838,966 134,299 262,752 9,245,144
5.501% - 6.5%.............. 3,712,407 2,147,737 219,636 243,629 6,323,409
6.501% - 7.5%.............. 120,460 325,060 187,553 84,787 717,860
7.501% - 8.5%.............. 42,960 33,319 5,364 5,318 86,961
8.501% - 17.5%.............. 26,894 8,983 3,778 7,264 46,919
----------- ---------- -------- -------- -----------
Total term
accounts.......... $22,521,025 $4,311,099 $662,342 $607,066 $28,101,532
=========== ========== ======== ======== ===========
</TABLE>
The aggregate amounts of retail certificates of deposit in amounts of
$100,000 or more at December 31, 1994 are summarized as follows (in thousands):
<TABLE>
<S> <C>
3 months or less.......................................................... $286,557
Over 3 months through 6 months............................................ 151,484
Over 6 months through 12 months........................................... 135,127
Over 12 months............................................................ 10,489
--------
Total........................................................... $583,657
========
</TABLE>
At December 31, 1994 and 1993 the weighted average interest rate on the
deposits, computed without the effect of compounding interest, was 4.05% and
3.14%, respectively. All government agency deposits, totaling $34 million at
December 31, 1994, were secured by certain real estate loans of the Company
amounting to $80 million.
Interest expense on deposits by type of account is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Checking....................................... $ 27,577 $ 34,073 $ 47,960
Passbook and money market savings.............. 281,511 323,255 409,645
Term........................................... 982,805 943,735 1,280,742
---------- ---------- ----------
$1,291,893 $1,301,063 $1,738,347
========== ========== ==========
</TABLE>
F-22
<PAGE> 76
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(8) SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Agreements to repurchase securities sold:
Balance at December 31....................... $2,253,805 $4,807,767 $2,186,262
Average balance.............................. 4,182,802 3,143,640 2,974,270
Maximum amount outstanding at any month
end....................................... 5,311,468 4,807,767 2,186,262
Average interest rate:
During the year........................... 4.24% 3.25% 3.80%
At December 31............................ 6.40 3.39 3.52
Federal funds purchased:
Balance at December 31....................... $ 100,000 $ 120,000 $ 130,000
Average balance.............................. 58,411 124,644 191,932
Maximum amount outstanding at any month
end....................................... 250,000 130,000 143,000
Average interest rate:
During the year........................... 3.79% 3.20% 3.82%
At December 31............................ 6.00 3.30 3.30
Other short-term borrowings:
Balance at December 31....................... $ -- $ 49,854 $ --
Average balance.............................. 83,549 188,285 41,971
Maximum amount outstanding at any month
end....................................... 355,000 590,000 300,000
Average interest rate:
During the year........................... 3.54% 3.32% 3.89%
At December 31............................ -- 3.56 --
Accrued interest on short-term borrowings
included in "Other liabilities".............. $ 13,582 $ 11,662 $ 2,237
</TABLE>
Agreements to repurchase securities require that the Company repurchase
identical securities to those which were sold. At December 31, 1994 short-term
borrowings under agreements to repurchase securities sold are summarized as
follows:
<TABLE>
<CAPTION>
COLLATERAL
--------------------------------------------------------------
WEIGHTED FEDERAL AGENCY MBS OTHER MBS
REPURCHASE AVERAGE ---------------------------- ----------------------------
LIABILITY INTEREST RATE BOOK VALUE* MARKET VALUE BOOK VALUE* MARKET VALUE
---------- ------------- ----------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Within 30
days......... $ 575,004 5.96% $ 52,523 $ 50,719 $672,082 $654,159
30-90 days..... 800,000 5.98 869,876 836,682 -- --
90-180 days.... 878,801 6.04 970,975 917,568 -- --
---------- ---------- ---------- -------- --------
$2,253,805 6.40 $1,893,374 $1,804,969 $672,082 $654,159
========== ========== ========== ======== ========
</TABLE>
---------------
* Book value includes accrued interest.
F-23
<PAGE> 77
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Repurchase agreement amounts outstanding with individual brokers at
December 31, 1994 which exceeded ten percent of the Company's stockholders'
equity were:
<TABLE>
<CAPTION>
COLLATERAL
WEIGHTED ----------------------------
PURCHASING PARTY AVERAGE MATURITY BOOK VALUE* BOOK VALUE* MARKET VALUE
---------------- ---------------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FHLB of San Francisco.................. 52 days $677,147 $830,818 $806,588
Salomon Brothers, Inc.................. 87 days 353,139 375,753 360,397
</TABLE>
---------------
* Book value includes accrued interest.
F-24
<PAGE> 78
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(9) FHLB AND OTHER BORROWINGS
These borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FHLB advances with a weighted average interest rate of 5.21%
(1994) and 3.93% (1993), net of unamortized
discount of $123 (1993)................................... $ 483,965 $1,862,927
Notes payable to FHLB with a weighted average interest rate
of 5.75% at December 31, 1994............................. 2,265,348 --
Notes payable to various brokerage firms with a weighted
average interest rate of 6.11% at December 31, 1994....... 1,800,000 --
Floating rate notes with a contract interest rate based on
three month LIBOR plus ten basis points (5.91% contract
interest rate and 5.94% effective interest rate at
December 31, 1994) due February 9, 1996, net of
unamortized discount of $111.............................. 199,889 --
Note payable to Student Loan Marketing Association with a
floating rate equal to six basis points below three month
LIBOR (6.32% effective rate at December 31, 1994 and 3.23%
effective rate at December 31, 1993) due December 20,
1995...................................................... 400,000 400,000
Note payable to regulatory agencies with a contract interest
rate equal to COFI (4.37% contract interest rate and 5.49%
effective interest rate at December 31, 1994 and 3.82%
contract interest rate and 5.10% effective interest rate
at December 31, 1993), net of unamortized discount of
$3,347 (1993)............................................. 280,000 276,653
Note payable to regulatory agencies with a contract interest
rate equal to the cost of certain short-term liabilities
of the Fifth District of the FHLB, plus 25 basis points
(5.74% contract interest rate and 7.88% effective interest
rate at December 31, 1994 and 3.49% contract interest rate
and 5.49% effective interest rate at December 31, 1993),
net of unamortized discount of $1,015 (1994) and $2,893
(1993).................................................... 78,985 97,107
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 (5.85% contract interest
rate at December 31, 1994 and 3.86% at December 31,
1993)..................................................... 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 $2,700 (1994) and $3,040
(1993).................................................... 247,300 246,960
Subordinated notes with a weighted average contract interest
rate of 8.78% and an effective average interest rate of
8.97% at December 31, 1994, and a weighted average
contract interest rate of 8.66% and an effective average
interest rate of 8.85% at December 31, 1993, net of
unamortized discount of $6,364 (1994) and $6,527 (1993)... 941,151 865,988
Other, net of unamortized discount of $81 (1994) and $136
(1993).................................................... 10,642 37,089
---------- ----------
Total FHLB and other borrowings................... $6,822,280 $3,901,724
========== ==========
</TABLE>
At December 31, 1994 the Company had outstanding and unused lines of credit
totaling $100 million with the Federal Reserve Bank to cover overdrafts. The
Company also had two letters of credit totaling $40 million with the Eleventh
District of the FHLB to guarantee certain obligations.
F-25
<PAGE> 79
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The FHLB advances and notes are secured by the stock of the FHLB totaling
$439.9 million and certain real estate loans and MBS of the Company amounting to
$3.6 billion at December 31, 1994. All FHLB advances at December 31, 1994 had
prepayment penalty provisions. The notes payable to FHLB are due at various
dates through April 1997.
During 1994 the Company issued notes, all due within one year, to various
brokerage firms. The notes are secured by MBS owned by the Company totaling $1.9
billion at December 31, 1994.
The notes payable to regulatory agencies were issued in connection with
acquisitions in New York and Ohio and are secured by certain real estate loans
of the Company amounting to $480 million at December 31, 1994. 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 February 1994 Home Savings issued $200 million of Floating Rate Notes
due February 9, 1996 at a public offering price of 99.95%. In addition, in
August 1994 Ahmanson issued $125 million of 7.875% Subordinated Notes due
September 1, 2004 at a public offering price of 99.534%. These Floating Rate
Notes and Subordinated Notes are not redeemable prior to maturity. The discounts
on these borrowings are being amortized to interest expense over the terms of
the respective notes using the interest method.
The aggregate amounts of principal maturities for FHLB and other
borrowings, excluding unamortized discounts, at December 31, 1994 are (dollars
in thousands):
<TABLE>
<S> <C> <C>
1995............................ $4,223,226 61.8%
1996............................ 510,089 7.5
1997............................ 855,799 12.5
1998............................ 95,143 1.4
1999............................ 302,808 4.4
Thereafter...................... 845,486 12.4
---------- -----
$6,832,551 100.0%
========== =====
</TABLE>
(10) 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, including derivative 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 intangible assets. 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.
F-26
<PAGE> 80
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate fair value
due to the short-term nature of these items and because they do not present
significant credit concerns.
Amortizing Swap Agreements
As described in Note 2 to these Consolidated Financial Statements, the
Company was a party to two amortizing interest rate swap agreements at December
31, 1994. The fair value of these agreements at December 31, 1994 was an
unrealized loss of $10.3 million, which reflects the estimated amount the
Company would have paid to the counterparties if the agreements had been
terminated as of the end of 1994.
Investment Securities and MBS
The fair value of investment securities purchased with maturities greater
than 90 days and the fair value of MBS are based on bid prices published in
financial newspapers or bid quotations received from securities dealers. The
carrying amount and estimated fair value of the Company's investment securities
were $287.1 million and $280.3 million, respectively, at December 31, 1994. The
carrying amount and estimated fair value of investment securities were both
$11.5 million at December 31, 1993 since all such investment securities were
available for sale.
The carrying amounts of MBS at December 31, 1994 and 1993 were $12.789
billion and $6.920 billion, respectively, and the estimated fair values were
$12.463 billion and $7.004 billion, respectively.
Loans Receivable
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 of current economic and lending conditions.
The carrying amount of the Company's loan portfolio was $36.002 billion and
$37.704 billion at December 31, 1994 and 1993, respectively.
The Company estimates the fair value of loans receivable to have been
$35.108 billion and $38.276 billion at December 31, 1994 and 1993, respectively.
The fair value of loans receivable has been decreased by $30 million and $90
million at December 31, 1994 and 1993, 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.
F-27
<PAGE> 81
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Mortgage Servicing Rights
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 enhancements. The carrying amounts of the Company's
present value of retained loan yield at December 31, 1994 and 1993 were $57.8
million and $75.2 million, respectively, which approximated fair value. The
Company's mortgage servicing rights excluding the present value of retained loan
yield are an off-balance sheet financial instrument. The estimated fair value of
mortgage servicing rights, including the retained loan yield, for the Company's
portfolio of loans serviced for investors was $171 million, net of the allowance
for credit enhancement obligations of $25.1 million, at December 31, 1994 and
$169 million, net of the allowance for credit enhancement obligations of $13.6
million, at December 31, 1993.
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. The carrying
amounts of the Company's term accounts at December 31, 1994 and 1993 were
$28.102 billion and $22.980 billion, respectively. The estimated fair value of
the Company's term accounts at December 31, 1994 and 1993 was $27.471 billion
and $23.095 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, 1994 and
1993, the Company estimates the fair value would have been $1.31 billion and
$368 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.
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. The carrying amounts of the Company's short-term borrowings were
$2.354 billion and $4.978 billion at December 31, 1994 and 1993, respectively.
The estimated fair value of short-term borrowings at December 31, 1994 and 1993
were $2.351 billion and $4.831 billion, respectively. The carrying amounts of
the Company's FHLB and other borrowings were $6.822 billion and $3.902 billion
at December 31, 1994 and 1993, respectively. At December 31, 1994 and 1993, the
estimated fair value of the Company's FHLB and other borrowings was $6.727
billion and $4.019 billion, respectively.
(11) INCOME TAXES
For federal income tax purposes, savings institutions may compute a bad
debt deduction based on a percentage of taxable income or using an experience
method. Subsequent to 1986, Home Savings has the ability to use qualifying real
property loans adjusted for net charge-offs during the current year, up to the
1987 reserve amount (base year amount). For years subsequent to 1987, the base
year reserve amount at the end of any year is adjusted if there has been any
reduction in qualifying loans at the end of the current year relative to the end
of 1987. There have been no adjustments to Home Savings' base year amount. The
Consolidated Financial Statements at December 31, 1994 do not include a
contingent tax liability of $237 million related to tax bad debt reserves,
including the base year reserve amounts as these reserves are not expected to
reverse
F-28
<PAGE> 82
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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.
The Company adopted SFAS No. 109 effective January 1, 1992 on a prospective
basis. The principal effect on the Company of SFAS No. 109 was 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.
During 1994 the Company entered into a final settlement with the IRS for
taxable years 1983 through 1989 which resolved disputes on various issues. The
Company adjusted its tax liability based upon this settlement.
The provision for income taxes (benefit) from continuing operations
consisted of:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $147,907 $(39,691) $175,459
State and local.................................. 50,744 (4,598) 23,433
-------- -------- --------
198,651 (44,289) 198,892
-------- -------- --------
Deferred:
Federal.......................................... (16,070) (22,718) (71,558)
State and local.................................. (9,269) (15,027) 5,888
-------- -------- --------
(25,339) (37,745) (65,670)
-------- -------- --------
$173,312 $(82,034) $133,222
======== ======== ========
</TABLE>
Total income taxes (benefit) were allocated as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations.............................. $173,312 $(82,034) $133,222
Extraordinary loss on early extinguishment of
debt............................................. -- (16,300) --
Goodwill........................................... (34,382) 7,794 (5,705)
Stockholders' equity............................... (56,708) 15,088 (589)
Change in accounting method........................ -- -- (47,677)
Other assets or liabilities........................ (773) 556 (6,182)
-------- -------- --------
Total income taxes (benefit)............. $ 81,449 $(74,896) $ 73,069
======== ======== ========
</TABLE>
F-29
<PAGE> 83
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------------
1994 1993
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Provision for losses on loans and REO...................... $ 294,770 $ 148,224
Provision for losses on REI................................ 151,681 124,113
Delinquent accrued interest................................ 6,158 19,307
State and local taxes...................................... 9,771 13,133
Purchase accounting differences............................ 8,893 13,958
Compensation differences................................... 12,949 14,172
Acquired net operating losses.............................. 8,860 20,606
Investment in subsidiary................................... 15,545 15,545
Other...................................................... 1,582 829
--------- ---------
Total deferred tax assets.......................... 510,209 369,887
Valuation allowance........................................ (15,545) (36,151)
--------- ---------
Total deferred tax assets, net of valuation
allowance........................................ 494,664 333,736
--------- ---------
Deferred tax liabilities:
Loan fee income............................................ (193,779) (114,631)
FHLB stock dividends....................................... (114,724) (88,772)
Gains on loan sales........................................ (47,916) (55,223)
Capitalized real estate development costs.................. (26,607) (26,451)
Accrued interest on tax settlements........................ (22,204) (8,474)
Basis difference on premises and equipment................. (9,538) (2,579)
Recurring liabilities...................................... (21,797) (21,436)
--------- ---------
Total deferred tax liabilities..................... (436,565) (317,566)
--------- ---------
Net deferred tax asset............................. $ 58,099 $ 16,170
========= =========
</TABLE>
The Company establishes a valuation allowance if it does not determine that
a deferred tax asset is more likely than not to be realized. The change in
valuation allowance from December 31, 1993 relates to the realizability of
acquired net operating losses, the benefit of which was used to reduce goodwill.
F-30
<PAGE> 84
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Income taxes (benefit) in the accompanying Consolidated Financial
Statements have been provided at effective tax (benefit) rates of 42.2% (1994),
(37.3)% (1993) and 46.0% (1992). These rates differ from statutory Federal
income tax rates. The differences were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Taxes (benefit) at statutory rate......... $143,736 35.0% $(77,023) (35.0)% $ 98,469 34.0%
Increases (reductions) in taxes resulting
from:
State income tax (benefit), net of
Federal income tax benefit........... 34,690 8.5 (5,829) (2.7) 26,613 9.2
Tax basis adjustments for assets and
liabilities of associations and
companies acquired................... 16,986 4.1 1,753 0.8 9,408 3.2
Increase (reduction) of liabilities from
prior periods........................ (20,000) (4.9) 1,237 0.6 (918) (0.3)
Tax rate changes........................ (3,100) (0.8) -- -- -- --
Other................................... 1,000 0.3 (2,172) (1.0) (350) (0.1)
-------- ---- -------- ----- -------- ----
Provision for income taxes (benefit)...... $173,312 42.2% $(82,034) (37.3)% $133,222 46.0%
======== ==== ======== ===== ======== ====
</TABLE>
(12) 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-31
<PAGE> 85
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(13) EARNINGS PER COMMON SHARE AND STOCKHOLDER RIGHTS
The following is a summary of the calculation of earnings per common share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Primary earnings (loss) per common share:
Earnings (loss) before extraordinary loss and
cumulative effect of accounting change............ $ 237,358 $ (138,032) $ 156,392
Less accumulated dividends on preferred stock..... (50,430) (38,131) (16,800)
----------- ----------- -----------
Earnings (loss) attributable to common shares before
extraordinary loss and cumulative effect of
accounting change................................. 186,928 (176,163) 139,592
Extraordinary loss on early extinguishment of debt... -- (21,607) --
Cumulative effect of change in accounting for income
taxes............................................. -- -- 47,677
----------- ----------- -----------
Net earnings (loss) attributable to common
shares.......................................... $ 186,928 $ (197,770) $ 187,269
=========== =========== ===========
Weighted average number of common shares
outstanding....................................... 117,014,262 116,786,369 116,659,602
Dilutive effect of outstanding common stock
equivalents....................................... 355,169 -- 255,740
----------- ----------- -----------
Weighted average number of common shares as adjusted
for calculation of primary earnings (loss) per
share............................................. 117,369,431 116,786,369 116,915,342
=========== =========== ===========
Primary earnings (loss) per common share before
extraordinary loss and cumulative effect of
accounting change................................. $ 1.59 $ (1.51) $ 1.19
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.......... $ 1.59 $ (1.69) $ 1.60
=========== =========== ===========
Fully diluted earnings (loss) per common share:
Earnings (loss) before extraordinary loss and
cumulative effect of accounting change............ $ 237,358 $ (138,032) $ 156,392
Less accumulated dividends on preferred stock..... (33,180) (38,131) (16,800)
----------- ----------- -----------
Earnings (loss) attributable to common shares before
extraordinary loss and cumulative effect of
accounting change................................. 204,178 (176,163) 139,592
Extraordinary loss on early extinguishment of debt... -- (21,607) --
Cumulative effect of change in accounting for income
taxes............................................. -- -- 47,677
----------- ----------- -----------
Net earnings (loss) attributable to common
shares.......................................... $ 204,178 $ (197,770) $ 187,269
=========== =========== ===========
Weighted average number of common shares
outstanding....................................... 117,014,262 116,786,369 116,659,602
Dilutive effect of outstanding common stock
equivalents....................................... 11,931,980 -- 540,209
----------- ----------- -----------
Weighted average number of common shares as adjusted
for calculation of fully diluted earnings (loss)
per share......................................... 128,946,242 116,786,369 117,199,811
=========== =========== ===========
Fully diluted earnings (loss) per common share before
extraordinary loss and cumulative effect of
accounting change................................. $ 1.58 $ (1.51) $ 1.19
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.... $ 1.58 $ (1.69) $ 1.60
=========== =========== ===========
</TABLE>
Common stock equivalents identified by the Company in determining its
primary earnings per common share are stock options and stock appreciation
rights. In addition, common stock equivalents used in the determination of
fully-diluted earnings per common share include the effect of the 6% Cumulative
Convertible
F-32
<PAGE> 86
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Preferred Stock, Series D, which is convertible into 11.8 million shares of
Common Stock at $24.335 per share of Common Stock.
The Company has a stockholder rights plan (the "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.
(14) 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, 1994.
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 Capital
Regulations generally allow 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. Ahmanson and Home Savings have also agreed
with federal regulators to limit the payment of dividends by Home Savings. At
January 1, 1995 Home Savings could have paid dividends of approximately $497.0
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.
(15) 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.
F-33
<PAGE> 87
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits.................................. $166,817 $172,378
Nonvested accumulated benefits............................... 5,230 8,310
-------- --------
Total accumulated benefits........................... $172,047 $180,688
======== ========
Projected benefit obligation for service rendered to date.... $189,278 $199,903
Plan assets at fair value; primarily listed common stocks, U.S.
government obligations and corporate bonds and debentures.... 198,075 186,223
-------- --------
Funded status -- Plan assets in excess of (less than) projected
benefit...................................................... 8,797 (13,680)
Items not yet recognized in earnings:
Unrecognized net loss........................................ 14,690 25,000
Prior service cost not yet recognized in net periodic pension
cost...................................................... 656 796
Unrecognized transition asset being recognized over 8.8
years..................................................... (2,647) (3,698)
-------- --------
Prepaid pension cost included in "Other liabilities"...... $ 21,496 $ 8,418
======== ========
</TABLE>
The total pension expense for the Plan was $6.1 million, $5.8 million and
$5.0 million for the years 1994, 1993 and 1992, respectively. Net pension cost
for 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period..... $ 10,004 $ 8,281 $ 6,763
Interest cost on projected benefit obligations..... 13,741 13,238 12,057
Actual return on plan assets....................... (3,874) (21,972) (16,463)
Net amortization and deferral...................... (13,754) 6,290 2,663
-------- -------- --------
Net pension cost................................. $ 6,117 $ 5,837 $ 5,020
======== ======== ========
</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 8.75% and 5.0%, respectively. The expected long-term
weighted average rate of return on assets was 8.75%.
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
F-34
<PAGE> 88
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits.................................. $ 21,227 $ 16,508
Nonvested accumulated benefits............................... 164 3,271
-------- --------
Total accumulated benefits........................... $ 21,391 $ 19,779
======== ========
Projected benefit obligation for service rendered to date.... $ 23,493 $ 21,369
Plan assets at fair value...................................... -- --
-------- --------
Funded status -- Projected benefit in excess of plan assets.... (23,493) (21,369)
Items not yet recognized in earnings:
Unrecognized net loss........................................ 1,606 2,645
Prior service cost not yet recognized in net periodic pension
cost...................................................... 4,736 2,943
Unrecognized net obligation being recognized over 15 years... 2,052 2,364
Adjustment required to reflect minimum liability............. (6,292) (6,362)
-------- --------
Accrued pension cost included in "Other liabilities"...... $(21,391) $(19,779)
======== ========
</TABLE>
The total pension expense for the Nonqualified Plans was $2.9 million, $2.7
million and $2.6 million for the years 1994, 1993 and 1992, respectively. Net
pension cost for 1994, 1993 and 1992 included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period........... $ 73 $ 307 $ 428
Interest cost on projected benefit obligations........... 1,825 1,640 1,539
Net amortization and deferral............................ 959 755 616
------ ------ ------
Net pension cost....................................... $2,857 $2,702 $2,583
====== ====== ======
</TABLE>
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 8.75% and 5%,
respectively as of December 31, 1994.
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. Total
Company contributions and administrative expenses of the Savings Plan in both
1994 and 1993 were $7.1 million and in 1992 were $6.5 million.
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
F-35
<PAGE> 89
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
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 8.75% as of December 31,
1994.
The following table sets forth the accumulated postretirement benefits
obligation at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................................... $ 12,547 $ 14,143
Fully eligible active employees.............................. 1,153 1,293
Other active employees....................................... 629 1,151
-------- --------
Total accumulated postretirement benefit obligation.......... 14,329 16,587
Plan assets at fair value...................................... -- --
-------- --------
Funded status -- Accumulated benefit obligation in excess of
plan assets.................................................. (14,329) (16,587)
Unrecognized transition obligation being recognized over 20
years........................................................ 14,499 15,306
Unrecognized (gain) loss....................................... (921) 829
-------- --------
Accrued postretirement benefit cost.......................... $ (751) $ (452)
======== ========
</TABLE>
The total postretirement benefit expense for the Plan was $2.4 million for
both 1994 and 1993, which included the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Service cost....................................................... $ 348 $ 317
Amortization of transition obligation.............................. 806 806
Interest cost...................................................... 1,205 1,277
------ ------
$2,359 $2,400
====== ======
</TABLE>
Stock Compensation Plans
As of December 31, 1994 there were 7,192,794 shares of the Company's Common
Stock available for awards and grants to officers and key employees of the
Company under the 1993 Stock Incentive Plan (the "1993 Plan"). The 1993 Plan,
the 1984 Stock Incentive Plan ("the 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 1984 and 1979 Plans. 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 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.
F-36
<PAGE> 90
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
The following is a summary of Restricted Stock Award transactions in 1994,
1993 and 1992. Final restrictions lapse in 1996.
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Balance beginning of year.......................... 259,702 611,984 681,213
Granted and issued............................... -- 9,917 356,958
------- -------- ---------
259,702 621,901 1,038,171
Cancelled........................................ (11,917) (34,102) (34,136)
Restrictions lapsed.............................. (75,271) (328,097) (392,051)
------- -------- ---------
Balance end of year................................ 172,514 259,702 611,984
======= ======== =========
</TABLE>
At December 31, 1994 options to purchase 3,412,598 shares of the Company's
Common Stock under the 1984 and 1993 Plans were outstanding as follows:
<TABLE>
<CAPTION>
OPTION PRICE (MARKET
VALUE AT DATE OF GRANT)
-------------------------- EXPIRATION SHARES
SHARES PER SHARE TOTAL DATE WITH SARS
--------- ------------ ------- ---------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
181,919 $ 7.74-20.38 $ 3,574 1996 95,131
324,494 16.69 5,415 1997 157,719
211,262 13.05-16.94 3,567 1998 29,147
243,821 21.56-22.25 5,336 1999 56,619
367,612 13.13-19.25 5,190 2000 205,619
334,284 13.94-18.19 5,320 2001 50,000
300,473 14.94 4,488 2002 --
1,194,268 17.13-20.06 21,861 2003 --
254,465 16.00 4,071 2005 --
--------- ------- -------
3,412,598 $58,822 594,235
========= ======= =======
</TABLE>
Options expiring through 2001 are all currently exercisable. 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 50,000 shares which are
100% exercisable in June 1994 and 300,000 shares which are 100% exercisable in
March 1994. The options expiring in 2005 are 100% exercisable on June 6, 1995.
F-37
<PAGE> 91
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
Option transactions under the 1979, 1984 and 1993 Plans during 1994, 1993
and 1992 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding beginning of year............. 3,525,176 3,016,530 2,933,500
Options granted ($16.00 per share)
Without SARs.................................... 254,465 1,222,081 387,741
Options cancelled ($7.42 -- $22.25 per share)
With SARs....................................... (510) (16,134) (6,420)
Upon exercise of SARs........................... (27,000) (290,435) (74,257)
Without SARs.................................... (77,154) (149,289) (131,709)
Options exercised ($7.42 -- $21.56 per share)
Without SARs.................................... (262,379) (200,960) (69,310)
With SARs cancelled............................. -- (56,617) (23,015)
--------- --------- ---------
Options outstanding end of year................... 3,412,598 3,525,176 3,016,530
========= ========= =========
</TABLE>
(16) FINANCIAL HIGHLIGHTS BY PRINCIPAL BUSINESS OPERATIONS
Financial highlights concerning the Company's principal business operations
(industry segments) for the years ended December 31, 1994, 1993 and 1992 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Savings and lending............................... $ 3,283,310 $ 3,178,115 $ 3,542,441
Mortgage banking.................................. 88,873 127,509 160,799
REI............................................... 1,997 2,672 3,775
Corporate and other............................... 7,172 12,954 (11,179)
----------- ----------- -----------
Consolidated revenues.......................... $ 3,381,352 $ 3,321,250 $ 3,695,836
=========== =========== ===========
Operating income (loss) before taxes (benefit):
Savings and lending............................... $ 527,753 $ 40,698 $ 333,915
Mortgage banking.................................. 42,747 38,544 80,486
REI............................................... (127,068) (259,943) (94,332)
Corporate and other............................... (32,762) (39,365) (30,455)
----------- ----------- -----------
Consolidated operating income (loss) before
income taxes (benefit)....................... $ 410,670 $ (220,066) $ 289,614
=========== =========== ===========
Assets:
Savings and lending............................... $53,359,056 $49,965,028 $47,095,846
Mortgage banking.................................. 222,705 617,111 796,762
REI............................................... 439,767 511,129 699,703
Corporate and other............................... (295,746) (222,023) (451,804)
----------- ----------- -----------
Consolidated assets............................ $53,725,782 $50,871,245 $48,140,507
=========== =========== ===========
</TABLE>
F-38
<PAGE> 92
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
(17) PARENT COMPANY FINANCIAL INFORMATION
(See other Notes to Consolidated Financial Statements.)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and amounts due from banks........................... $ 567 $ 120
Securities purchased under agreements to resell........... -- 189,700
Short-term investments due from Home Savings.............. 242,959 379
Other short-term investments.............................. 485 2,007
---------- ----------
Total cash and cash equivalents........................ 244,011 192,206
Other investment securities held to maturity.............. 12,189 --
Accounts and notes receivable from subsidiaries........... 14,498 10,086
Refundable income taxes................................... 12,477 36,940
Investment in Home Savings................................ 3,163,659 2,963,556
Investment in other subsidiaries.......................... 67,557 188,490
Other assets.............................................. 126,318 111,654
---------- ----------
$3,640,709 $3,502,932
========== ==========
Liabilities and Stockholders' Equity:
Notes payable............................................. $ 646,241 $ 515,403
Accrued expenses and other liabilities.................... 29,867 38,498
---------- ----------
Total liabilities...................................... 676,108 553,901
Stockholders' equity...................................... 2,964,601 2,949,031
---------- ----------
$3,640,709 $3,502,932
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Income:
Cash dividends from Home Savings................ $160,000 $ 145,000 $160,000
Cash dividends from other subsidiaries.......... 89,950 8,000 5,100
Interest........................................ 11,626 8,675 2,542
Other income.................................... 694 630 (1,379)
-------- --------- --------
262,270 162,305 166,263
-------- --------- --------
Expenses:
Interest........................................ 50,210 45,759 30,140
General and administrative expenses............. 10,647 22,635 9,896
Income tax benefit.............................. (31,939) (24,409) (17,466)
-------- --------- --------
28,918 43,985 22,570
-------- --------- --------
Earnings before equity in undistributed net
earnings (loss) of subsidiaries................. 233,352 118,320 143,693
Equity in undistributed net earnings (loss) of
subsidiaries.................................... 4,006 (277,959) 60,376
-------- --------- --------
Net earnings (loss).......................... $237,358 $(159,639) $204,069
======== ========= ========
</TABLE>
F-39
<PAGE> 93
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1994 1993 1992
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net earnings (loss)................................... $ 237,358 $(159,639) $ 204,069
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Equity in undistributed net (earnings) loss of
subsidiaries..................................... (4,006) 277,959 (60,376)
Other, net......................................... 5,130 (52,034) 8,181
--------- --------- ---------
Net cash provided by operating activities..... 238,482 66,286 151,874
--------- --------- ---------
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................. (140,000) (329,857) --
Net increase in notes receivable from subsidiaries.... (13,700) -- --
Purchase of other investment securities............... (25,000) -- --
Maturities of other investment securities............. 12,811 -- --
Other, net............................................ (3,119) (1,087) 1,428
--------- --------- ---------
Net cash used in investing activities......... (169,008) (380,944) (148,572)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuances of Preferred Stock........ -- 469,135 --
Dividends on Common Stock ($0.88 per share)........... (102,948) (102,804) (102,305)
Dividends on Preferred Stock.......................... (50,430) (35,329) (16,800)
Net proceeds from issuance of Senior Debt............. -- -- 246,680
Net proceeds from issuance of Subordinated Debt....... 123,668 -- --
Proceeds from issuance of notes payable to
subsidiaries....................................... 6,745 20,000 --
Other, net............................................ 5,296 4,887 1,858
--------- --------- ---------
Net cash provided by (used in) financing
activities.................................. (17,669) 355,889 129,433
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.... 51,805 41,231 132,735
Cash and cash equivalents at beginning of year.......... 192,206 150,975 18,240
--------- --------- ---------
Cash and cash equivalents at end of year................ $ 244,011 $ 192,206 $ 150,975
========= ========= =========
</TABLE>
F-40
<PAGE> 1
EXHIBIT 10.9.26
H.F. AHMANSON & COMPANY MARCH 21, 1995
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).
The plan permits awards intended to qualify for the
performance-based compensation exclusion from the $1
million limitation of deductible compensation under
Internal Revenue Code Section 162(m) ("tax qualified
awards") and awards that do not so qualify.
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 unless
otherwise permitted by proposed or final federal tax
regulations. Performance measures determined by the
Compensation Committee may include any or all of the
following performance criteria or any component
thereof: earnings per share (EPS), return on assets
(ROA), return on equity (ROE), general and
administrative expenses, market penetration,
stockholder return, cash flow, debt reduction, net
income, control over nonperforming assets, control
over interest margins, government regulatory ratings,
customer satisfaction and implementation of
strategies for cost reduction, income generation
and/or market penetration. 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 that are not tax qualified awards may be based
not only on the foregoing performance criteria, but
also on any other criteria related to performance
selected by the Compensation Committee.
Awards earned on the basis of Company performance may
be varied (but tax qualified awards may not be
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:
<PAGE> 2
H.F. AHMANSON & COMPANY MARCH 21, 1995
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 2
-----------------------------------
TARGET AWARD GUIDELINES
<TABLE>
<CAPTION>
TARGET AWARD AS A
GRADE LEVEL PERCENT OF BASE SALARY
----------- ----------------------
<S> <C>
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%
</TABLE>
Participants in a grade designated with a "T" will
participate at the next lower target award level.
Until further action by the Compensation Committee,
awards for grade levels 63 and higher shall be tax
qualified awards, and all other awards shall not be
tax qualified.
DEFINITION OF The salary used to determine earned awards will be
BASE SALARY the participant's annual base salary rate in effect
as of the last day of the plan year (i.e., December
31).
RANGE OF AWARD The actual size of a participant's earned tax
OPPORTUNITY qualified award may vary from 0% to 200% of the
target award according to the level of Company
performance; provided that in no event shall any
award exceed $2,000,000 for any plan year.
DETERMINATION OF AWARDS
-----------------------
AWARDS Until further action by the Compensation Committee,
awards for each plan year will be based on the
Company's EPS performance compared to budget for that
year. The maximum available tax qualified 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:
<PAGE> 3
H.F. AHMANSON & COMPANY MARCH 21, 1995
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 3
-----------------------------------
PAYOUT/PERFORMANCE TABLE
<TABLE>
<CAPTION>
EPS PERFORMANCE MAXIMUM PAYOUT AS
VERSUS BUDGET A PERCENT OF TARGET
--------------- -------------------
<S> <C>
130% or More 200%
115% 150%
100% 100%
50% 25%
Below 50% 0%
</TABLE>
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 1995 equals 90% of budget. A participant with
a target award of 45% of salary would be eligible to
receive a maximum tax qualified award (subject to
downward adjustment by the Compensation Committee) of
38.25% of salary (i.e., 85% X 45%).
POSSIBLE DOWNWARD Awards determined from the above Payout/Performance
ADJUSTMENT table may be varied (but tax qualified awards may not
be increased) at the discretion of the 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 objective performance
criteria. 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.
<PAGE> 4
H.F. AHMANSON & COMPANY MARCH 21, 1995
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 4
-----------------------------------
OTHER PROVISIONS
----------------
PAYMENT OF Awards earned under the plan normally will be paid in
EARNED AWARDS cash 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
CHANGES IN a position that would qualify for participation in
RESPONSIBILITY the plan may be added to the plan at any time at the
discretion of the Compensation Committee.
New participants added to the plan during a plan year
will be eligible to receive a pro-rata award for the
plan year, provided that the individual participates
in the plan for at least 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
EMPLOYMENT terminates for any 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.
<PAGE> 5
H.F. AHMANSON & COMPANY MARCH 21, 1995
EXECUTIVE SHORT-TERM INCENTIVE PLAN PAGE 5
-----------------------------------
ADMINISTRATION The Compensation Committee shall administer this plan
AND INTERPRETATION and shall decide all questions arising in the
administration, 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
tax qualified 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 IRC section 162(m)), the
applicable requirements of section 162(m), so that
the Company's tax deduction for remuneration in
respect of a tax qualified 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 a tax qualified
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. Nothing herein shall be
interpreted so as to preclude a participant who is or
may be a Covered Employee from receiving an award
that is not a tax qualified award.
TRANSITION FROM This plan, as amended, is effective as of January 1,
EXISTING PLAN 1996 and supersedes the Company's existing Executive
Short-Term Incentive Plan.
AMENDMENT Either the Compensation Committee or the Board of
Directors may at any time amend, suspend, or
discontinue the plan, in whole or in part. However,
no such action may, without the approval of
stockholders of the Company, be effective with
respect to any tax qualified award to any Covered
Employee if such approval is required by IRC section
162(m)(4)(C).
<PAGE> 1
EXHIBIT 10.13.1
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
Anne-Drue Anderson 09/28/93
Richard M. Bressler 01/27/87
Lodwrick M. Cook 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 A. Sanders 01/30/90
Arthur W. Schmutz 03/23/93
William D. Schulte 03/26/91
Kevin M. Twomey 07/06/93
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF H. F. AHMANSON & COMPANY
(AS OF DECEMBER 31, 1994)
<TABLE>
<CAPTION>
Jurisdiction of
Incorporation
-----------------
<S> <C>
110 East 42nd Operating Company, Inc. Delaware
244 West 10th Street, Inc. New York
ACD2 California
ACD3 California
Ahmanson Commercial Development Company California
Ahmanson Developments, Inc. California
Ahmanson Insurance, Inc. California
Ahmanson Land Company California
Ahmanson Marketing, Inc. California
Ahmanson Mortgage Company California
Ahmanson Realty Company California
Ahmanson Residential 2 California
Ahmanson Residential Development California
Ahmanson Services, Inc. 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 Administrators California
Griffin Financial Distributors California
Griffin Financial Investment Advisers California
Griffin Financial Services California
Griffin Financial Services, Inc. Pennsylvania
Griffin Financial Services Insurance Agency California
Griffin Financial Services Insurance Agency, Inc. Ohio
Griffin Financial Services Insurance Agency, Inc. Texas
Griffin Financial Services Managing General Agency, Inc. Texas
Griffin Financial Services of America, Inc. Delaware
Hamburg Development Corp. New York
Hamburg Glen Cove Development Corp. New York
Home Funding Corporation Delaware
Home Savings of America California
Home Savings of America, FSB Federal
HSA Servicing Corporation California
HSA Travel California
HSB Enterprises, Inc. New York
Ladue Service Corporation Missouri
Mesa Water Company California
Oxford Investment Corporation California
R & M on the Water, Inc. New York
Rivergrade Investment Corp. California
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
</TABLE>
<PAGE> 1
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, No. 33-28254, and No. 33-53635 on Form
S-8, and No. 33-31590, No. 33-42394, No. 33-44686, No. 33-27902, No. 33-57218,
No. 33-50731 and No. 33-57395 on Form S-3 of H.F. Ahmanson & Company of our
report dated January 24, 1995, relating to the consolidated statements of
financial condition of H.F. Ahmanson & Company as of December 31, 1994 and 1993
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,
1994, which report appears in the December 31, 1994 Annual Report on Form 10-K
of H.F. Ahmanson & Company and to the reference to our firm under the heading
"Selected Financial Data" in the Form 10-K.
Our report on the consolidated financial statements of the Company dated
January 24, 1995, contains an explanatory paragraph which states, that 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 LLP
Los Angeles, California
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K of
H. F. Ahmanson & Company for the year ended December 31, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 782,678
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 952,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,459,673
<INVESTMENTS-CARRYING> 10,616,809
<INVESTMENTS-MARKET> 10,284,014
<LOANS> 36,001,745
<ALLOWANCE> 400,232
<TOTAL-ASSETS> 53,725,782
<DEPOSITS> 40,655,016
<SHORT-TERM> 2,353,805
<LIABILITIES-OTHER> 930,080
<LONG-TERM> 6,822,280
<COMMON> 1,171
0
49
<OTHER-SE> 2,963,381
<TOTAL-LIABILITIES-AND-EQUITY> 53,725,782
<INTEREST-LOAN> 2,265,050
<INTEREST-INVEST> 830,325
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,095,375
<INTEREST-DEPOSIT> 1,291,893
<INTEREST-EXPENSE> 1,798,454
<INTEREST-INCOME-NET> 1,296,921
<LOAN-LOSSES> 176,557
<SECURITIES-GAINS> 5,070
<EXPENSE-OTHER> 995,671
<INCOME-PRETAX> 410,670
<INCOME-PRE-EXTRAORDINARY> 410,670
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 237,358
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.58
<YIELD-ACTUAL> 2.64
<LOANS-NON> 681,026
<LOANS-PAST> 0
<LOANS-TROUBLED> 121,365
<LOANS-PROBLEM> 12,158
<ALLOWANCE-OPEN> 438,786
<CHARGE-OFFS> 252,734
<RECOVERIES> 37,623
<ALLOWANCE-CLOSE> 400,232
<ALLOWANCE-DOMESTIC> 400,232
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
