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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-8930
H. F. AHMANSON & COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 95-0479700
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4900 Rivergrade Road
Irwindale, California 91706
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 818/960-6311
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 par value Series A New York Stock Exchange
Junior Participating Cumulative Pacific Stock Exchange
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
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(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 19, 1996, a date within 60 days prior to the date
of filing, was $2,678,230,459.
Common Stock, $.01 par value of registrant outstanding at March 19, 1996--
112,502,764 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 13, 1996 are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
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PART I
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ITEM 1. BUSINESS......................................... 1
General................................................ 1
Retail Banking Activities.............................. 2
Lending Activities..................................... 3
General.............................................. 3
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................... 8
Limitations on Acquisitions.......................... 8
Payment of Dividends................................. 8
Deposit Insurance.................................... 8
Conversion of Deposit Insurance; Acquisitions
of Savings Institutions............................. 9
Classification of Assets............................. 10
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
Proposed Legislation................................. 13
Taxation............................................... 14
Federal.............................................. 14
State................................................ 15
REI Operations......................................... 15
Other Activities....................................... 15
Employees.............................................. 15
ITEM 2. PROPERTIES....................................... 16
ITEM 3. LEGAL PROCEEDINGS................................ 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.......................................... 16
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PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS............................................... 16
Market Prices of Stock.................................................. 16
Per Share Cash Dividends Data........................................... 16
Stockholders............................................................ 17
ITEM 6. SELECTED FINANCIAL DATA.......................................... 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS......................................... 20
Overview................................................................ 20
Results of Operations................................................... 23
Net Interest Income................................................... 23
Provision for Loan Losses............................................. 25
Other Income.......................................................... 26
Gain (Loss) on Sales of MBS......................................... 26
Gain (Loss) on Sales of Loans....................................... 26
Loan Servicing Income............................................... 27
Gains on Sales of Retail Deposit Branch Systems..................... 27
Other Operating Income.............................................. 27
Other Expenses........................................................ 27
General and Administrative Expenses................................. 27
Operations of REI................................................... 28
Operations of REO................................................... 28
Amortization of Goodwill and Other Intangible Assets and Cumulative
Effect
of Change in Accounting for Goodwill............................... 28
Provision for Income Taxes (Benefit)................................ 29
Extraordinary Loss in 1993............................................ 29
Quarterly Results of Operations....................................... 30
Financial Condition..................................................... 32
Asset/Liability Management............................................ 34
Asset Quality......................................................... 37
Nonperforming Assets and Potential Problem Loans.................... 37
Allowance for Loan Losses........................................... 40
REI................................................................. 43
Liquidity and Capital Resources....................................... 43
Loans Receivable.................................................... 44
MBS................................................................. 44
Deposits............................................................ 45
Borrowings.......................................................... 45
Capital............................................................. 45
Statement of Financial Accounting Standards No. 121................... 46
Statement of Financial Accounting Standards No. 123................... 46
Subsequent Event...................................................... 47
Recapitalization of the Savings Association Insurance Fund............ 47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.............................................. 48
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................. 48
ITEM 11. EXECUTIVE COMPENSATION............................................. 50
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..... 50
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................... 50
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PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.... 51
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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 98% of the Company's consolidated revenues in 1995 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, 1995. 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 ("GSEs 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.
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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
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.
Home Savings is in the process of changing its focus from being a
traditional savings institution to being a consumer bank. One aspect of this
change in focus is that mortgage loans, which historically were originated
primarily for retention in Home Savings' portfolio, may increasingly be
originated for sale in the secondary market. This may result in a reduction in
the size of Home Savings' mortgage loan portfolio even if there is no
reduction in the level of mortgage loan originations. Another aspect of Home
Savings' change in focus is to increase the types of services and products
offered to its customers and to become more efficient in meeting customer
needs. This has been implemented in part through the creation of a Consumer
Lending Division which offers consumer lending products, such as home equity
loans, automobile loans and unsecured personal lines of credit, the expansion
of the securities and insurance products and services offered by Griffin
Financial Services, which is a subsidiary of the Company and an affiliate of
Home Savings, and the introduction of electronic banking.
The change in focus is reflected at Ahmanson by increased scrutiny of the
use of capital. Ahmanson's goal is to hold an asset or engage in an activity
only if the income generated by such asset or activity adequately compensates
the Company and its stockholders for the use of the capital necessary to hold
the asset or engage in the activity. During 1995 Ahmanson decided to return
capital to its stockholders by repurchasing up to $250 million of its common
stock.
RETAIL BANKING ACTIVITIES
At December 31, 1995 Home Savings' deposits totaled $34.2 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, 1995 the Company had 343 retail branch offices located in
four states and 121 loan offices lending in ten 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 1995 the Company sold 60 branches in New
York with deposits totaling $8.1 billion and purchased 52 branches in
California with deposits totaling $1.3 billion, of which 16 branches were
consolidated 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.
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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 for its own portfolio 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 loan. Because loan applications declined by Home
Savings may be acceptable to other lenders, Home Savings has a program to
refer loan applications which have been declined to another lender. This
program assists applicants to meet their credit needs and generates fees for
Home Savings.
The Company requires title insurance coverage 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. For higher balance loans secured by multi-family
structures which are determined by a seismic study to be subject to potential
earthquake damage, the borrower is given the option of obtaining earthquake
insurance or accepting a reduced maximum loan-to-value ratio. The Company does
not currently require other insurance against potential damage to the security
properties.
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."
In May 1995 the Company began offering consumer loans, including home equity
loans, automobile loans and unsecured personal lines of credit. During 1995
the Company originated $35.5 million of consumer loans.
Interest Rates, Terms and Fees. Most of 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
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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 since 1981 have maximum interest rates. 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 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 provide some protection to 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 1995 and 1994 were $156.4 million
and $39.0 million, respectively. At December 31, 1995 the amount of interest
capitalized on the Company's $45.9 billion ARM portfolio totaled $86.8
million. Of such amount, $12.7 million represents capitalized interest on
loans with current principal balances that are less than the original loan
amounts. The remaining $74.1 million represents capitalized interest on loans
with an aggregate principal balance at December 31, 1995 of $6.1 billion
compared to an aggregate original loan balance of $5.9 billion. At December
31, 1995 the average principal balance of such loans was 3% 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.
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 real estate
brokers and provides access to a greatly expanded potential customer base,
factors that the Company believes also result in higher ARM originations.
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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.
In addition to the interest on its loans, the Company charges fees for loan
originations, loan prepayments and modifications, late payments, changes of
property ownership and other services. Fees realized vary with the volume of
loans made and prepaid, economic conditions and other competitive conditions
in the mortgage market.
Sales of Loans and MBS and Servicing Activities. The Company has sold loans,
GSEs 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. 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 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 GSEs 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. See Note 2 of Notes to Consolidated
Financial Statements.
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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 through both short-term and longer term agreements
to repurchase securities sold with broker-dealers, which are deemed to be
secured borrowings and typically have terms ranging from one day to two years.
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 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. In January 1996 the Company introduced an electronic banking
program which enables its customers using personal computers and personal
financial management programs to electronically access their accounts.
However, competition for deposits in certain states, including California, is
particularly strong from large commercial banks because they provide a broader
range of consumer services and because of their large branch networks.
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Competition in making real estate loans is principally among savings
institutions, commercial banks, mortgage companies, insurance companies, GSEs
and real estate investment trusts. Competition in making consumer loans is
principally among savings institutions, commercial banks and finance
companies. 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, in the case of real estate loans,
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, 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 expand the ability of 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.
As of January 1, 1996 the lowest deposit insurance assessment rate for SAIF
deposits is 0.23% of covered deposits while the lowest deposit insurance
assessment rate for BIF deposits is $2,000 per institution per year. If Home
Savings' deposits during 1996 were to remain unchanged from their December 31,
1995 balances, at the lowest deposit insurance assessment rates, Home Savings
would pay $71.5 million to the SAIF and $2,000 to the BIF to insure
approximately $31.1 billion and $3.3 billion of SAIF- and BIF-insured
deposits, respectively. Institutions whose deposits are exclusively or
primarily BIF-insured (such as almost all commercial banks) therefore have
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.
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Affiliate and Insider Transactions. Under FIRREA, savings institutions are
subject to the affiliate and insider transaction rules applicable to member
banks of the Federal Reserve System set forth in Sections 23A, 23B and 22(h)
of the Federal Reserve Act, as well as additional limitations set forth in
FIRREA and as may be adopted by the OTS Director. Under FDICIA, savings
institutions are also subject to Section 22(g) of the Federal Reserve Act.
These provisions, among other things, prohibit or limit a savings institution
from extending credit to, or entering into certain transactions with, its
affiliates (which generally include holding companies such as Ahmanson and any
company under common control with the savings institution) and principal
stockholders, directors and executive officers of the savings institution and
its affiliates.
Limitations on Acquisitions. Under certain savings and loan holding company
regulations, Ahmanson is generally prohibited, either directly or indirectly,
from acquiring control of any savings association or savings and loan holding
company absent prior approval by the OTS Director and from acquiring more than
5% of any class of voting stock of any savings association or savings and loan
holding company that is not a subsidiary of Ahmanson.
Payment of Dividends. Ahmanson's principal sources of funds are cash
dividends paid to it by Home Savings and other subsidiaries, investment income
and borrowings. There are significant restrictions on the ability of Home
Savings to pay dividends to Ahmanson. Savings institution subsidiaries of
savings and loan holding companies, such as Home Savings, must notify the OTS
Director of their intent to declare dividends 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, 1995 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
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and Loan Insurance Corporation prior to the enactment of FIRREA. Home Savings
is a member of the BIF and currently pays deposit insurance assessments
ratably to the SAIF and the BIF based on 90% and 10% of total deposits,
respectively. These percentages are subject to change in the future based on
future events. The OTS Director is also authorized to impose assessments on
savings institutions to fund certain of the costs of administration of the
OTS.
The FDIC has established a risk-based system for setting deposit insurance
assessments. Under the risk-based assessment system, an institution's
insurance assessments vary depending upon the level of capital the institution
holds and the degree to which it is the subject of supervisory concern to the
FDIC. The assessment rate for 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 lowest assessment rate for BIF deposits is $2,000 per institution per
year. The Company paid $79.9 million and $4.1 million in deposit insurance
premiums to SAIF and BIF, respectively, in 1995 compared to $90.9 million and
$8.9 million, respectively, in 1994.
Under current law, the SAIF has three major obligations: 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,
premiums assessed on deposits insured by the SAIF are higher than premiums
assessed on deposits insured by the BIF. Such a premium structure provides
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 remain competitive in the marketplace, the Company
has filed applications to organize a state chartered savings bank as a wholly
owned operating subsidiary of Home Savings, the deposits of which would be BIF
insured. The Company cannot predict whether the FDIC or the OTS will approve
such applications or whether the anticipated gains from such increased
competitiveness in the marketplace will offset any additional expenses of
operating multiple institutions.
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.
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Classification of Assets. Federal regulations require savings institutions
to review their assets on a regular basis and to classify them as
"substandard," "doubtful" or "loss" if warranted. Adequate valuation
allowances for loan losses are required for assets classified as substandard
or doubtful. If an asset is classified as loss, the institution must either
establish a specific allowance for loss in the amount classified as loss or
charge off such amount. The institution's OTS District Director has the
authority to approve, disapprove or modify any asset classification and any
amounts established as allowances for loan losses.
At present, certain general allowances may be included within regulatory
capital, while specific allowances may not. If an 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, 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, 1995. 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 and purchased credit card relationships) 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, 1995 Home
Savings had no purchased mortgage servicing rights or purchased credit card
relationships.
The tangible capital requirement adopted by the OTS Director requires a
savings institution to maintain tangible capital in an amount not less than
1.5% of adjusted total assets, which is the minimum limit permitted by FIRREA.
Tangible capital generally means core capital less any intangible assets
(including supervisory goodwill), plus 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 government securities
to 100% for assets that do not qualify for preferential risk weighting as
determined by the OTS.
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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, 1995 Home Savings' investments in and
extensions of credit to its REI subsidiaries aggregated $39.8 million as a
result of which Home Savings was required to deduct $26.6 million from its
capital.
The regulatory capital requirements applicable to Home Savings are
continuing to become more stringent as 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, 1995 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 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
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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 regulation prescribing the
required safety and soundness standards. Home Savings believes that it is in
compliance with the regulation.
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 federal savings institution, Home Savings is
required to be a member of the FHLB system. Members of the FHLB system are
required to own capital stock in an FHLB at least equal to the greater of 1%
of the member's outstanding home mortgage loans and 5% of the member's
advances from the FHLB. At December 31, 1995 Home Savings' investment in FHLB
stock was $485.9 million, substantially all of which can not be withdrawn as
long as Home Savings' real estate loan portfolio remains at its current size.
Federal Reserve System. Home Savings is subject to various regulations
promulgated by the Federal Reserve Board, including, among others, Regulation
B (Equal Credit Opportunity), Regulation D (Reserves), Regulation E
(Electronic Fund Transfers), Regulation Z (Truth in Lending), Regulation CC
(Availability of Funds) and Regulation DD (Truth in Savings). As holders of
loans secured by real property, and as owners of real property, financial
institutions, including Home Savings, may be subject to potential liability
under various statutes and regulations applicable to property owners
generally, including statutes and regulations relating to the environmental
condition of the property.
Liquidity. OTS regulations require a savings institution to maintain, for
each calendar month, an average daily balance of liquid assets equal to at
least 5% of the average daily balance of its net withdrawable accounts plus
short-term borrowings during the preceding calendar month. The OTS Director
may vary the required percentage within a range of 4% to 10% and may also vary
the definition of liquid assets. OTS regulations also require a savings
institution to maintain, for each calendar month, an average daily balance of
short-term liquid assets equal to at least 1% of the average daily balance of
its net withdrawable accounts plus short-term borrowings during the preceding
calendar month. Monetary penalties may be imposed for failure to meet
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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 September 5, 1995,
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.
Home Savings believes that it is in compliance with this regulation.
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.
Proposed Legislation. During 1995 Congress considered several bills which
would have significantly altered the current banking regulatory structure and
the deposit insurance system. Although none of these bills was enacted,
including the banking provisions which were part of the Congressional balanced
budget program vetoed by President Clinton for reasons unrelated to the
banking provisions, Congress continues to consider the various proposals which
were contained in such bills. Recent reports indicate that consideration is
being given to including banking provisions in a continuing resolution to fund
the federal government in the absence of a budget, a bill to increase the
federal debt limit, a revised budget bill or an independent banking bill. The
Company cannot predict whether or when any of these proposals may be enacted
or what provisions any enacted legislation may contain.
One of the proposals is a recapitalization of SAIF by means of a special
assessment on SAIF deposits, which was estimated in 1995 to be approximately
0.80% of SAIF deposits. If a recapitalization of SAIF had been effected in
1995 as proposed by means of a special assessment equal to 0.80% of SAIF
deposits as of March 31, 1995, Home Savings would have paid a special
assessment of approximately $184 million, net of taxes. Due to potential
changes in measuring dates, the level of SAIF deposits and the level of SAIF
reserves since that estimate was made, the actual special assessment rate if
one is imposed may be higher or lower than 0.80%. The recapitalization of SAIF
was proposed as a one-time event intended to equalize BIF assessment rates,
which are as low as $2,000 per institution per year, and SAIF assessment
rates, which are no lower than 0.23% of covered deposits and according to FDIC
projections are not likely to be eligible for reduction before 2002, when it
is anticipated that the SAIF will reach its designated reserve ratio of 1.25%.
A variation of the proposal to recapitalize SAIF contemplates the merger of
BIF and SAIF after SAIF is recapitalized. In one version of this proposal, all
savings associations would be required to convert to banks prior to the merger
of the funds. In another version, state savings associations would continue to
be permitted. Whether and how long savings associations and their holding
companies could continue to engage in activities currently permitted to
savings associations and their holding companies but not banks and their
holding companies, and the conditions on the continued conduct of such
activities, was discussed but not resolved in connection with the conversion
of savings associations to banks. The conversion of savings associations to
banks could be accompanied by the elimination of the OTS and the transfer of
its responsibilities to the Office of the Comptroller of the Currency, the
FDIC or the Federal Reserve Board.
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Elimination of the OTS or elimination of the savings association charter
could result in the elimination of certain indices, such as COFI, used by the
Company to calculate interest rates on ARMs. Any ARM which does not include
contractual provisions defining an alternative index, or the means by which an
alternative index is selected, will be significantly affected by the
elimination of its index unless an alternative index is specified
legislatively. One of the bills under consideration during 1995 would have
provided for the continued publication of certain indices now compiled and
published by the OTS or for the certification of substantially similar
indices. It would also have provided for the continued compilation of certain
COFI indices now compiled and published by an FHLB.
Savings associations are currently permitted to retain a reserve for loan
losses ("Tax Bad Debt Reserve") on a basis which is not available to
commercial banks with assets in excess of $500 million. A savings association
which converts to a bank would be required to take the amount of the Tax Bad
Debt Reserve back into income and to account for future loan losses as
commercial banks do. Home Savings has not recorded any financial statement tax
liability relating to its Tax Bad Debt Reserve in accordance with Accounting
Principles Bulletin No. 23. If Home Savings were required to recapture any of
its Tax Bad Debt Reserve, the related tax liability would have an adverse
effect on the Company's net earnings. However, one of the bills under
consideration during 1995 would have limited the amount of the Tax Bad Debt
Reserve that would have to be recaptured to the amount of increases to the Tax
Bad Debt Reserve in tax years after the tax year ending December 31, 1987.
Because Home Savings does not have a post-1987 increase to its Tax Bad Debt
Reserve, no amount of its Tax Bad Debt Reserve would have been subject to
recapture if this provision had been enacted.
Another proposal would address payment of the interest on the FICO Debt in
1987 to raise funds for the Federal Savings and Loan Insurance Corporation
("FSLIC"), the predecessor to SAIF. Currently, the annual net interest cost of
the FICO Debt, approximately $780 million, is solely the responsibility of
SAIF member institutions. The proposal would share the interest cost of the
FICO Debt proportionately among both SAIF and BIF members. BIF deposits
account for approximately 75% of combined deposits.
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 $518 million
at December 31, 1995. 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' Tax Bad Debt Reserves could result in a federal
recapture tax of up to approximately 54% of the amount of such distributions.
14
<PAGE>
As of December 31, 1995, 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 banks or financial institutions such as Home Savings). For
calendar year taxpayers such as Home Savings the maximum rate for the 1995
taxable year was approximately 11.3%. 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 1995, the overall tax rate was 11.21%, 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 have been
sold to 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 1995 and are
not expected to make a significant contribution to its results of operations
in 1996.
EMPLOYEES
At December 31, 1995 the Company employed approximately 7,371 full-time and
1,973 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.
15
<PAGE>
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
25% of the 3.7 million square feet in which its offices are located and leases
the remainder. The Company has 409 offices and other office facilities of
which 133 are owned and the remainder are leased. Annual lease payments total
approximately $78 million. The net investment in premises, equipment and
leaseholds totaled $410.9 million at December 31, 1995 compared to $614.8
million at December 31, 1994.
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>
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....................... 18 5/8 16
Second Quarter...................... 23 3/4 18 1/8
Third Quarter....................... 25 3/4 20 5/8
Fourth Quarter...................... 28 3/8 24 1/8
1996--
First Quarter (through March 21).... 26 3/4 21 1/4
</TABLE>
PER SHARE CASH DIVIDENDS DATA
The following table sets forth per share cash dividends of Ahmanson as
derived from the Company's Consolidated Financial Statements included
elsewhere herein and should be read in conjunction with such Consolidated
Financial Statements and accompanying Notes.
16
<PAGE>
Cash Dividends Declared and Paid
<TABLE>
<CAPTION>
<S> <C>
1994--
First Quarter................................... $.22
Second Quarter.................................. .22
Third Quarter................................... .22
Fourth Quarter.................................. .22
1995--
First Quarter................................... $.22
Second Quarter.................................. .22
Third Quarter................................... .22
Fourth Quarter.................................. .22
1996--
First Quarter................................... $.22
</TABLE>
On March 19, 1996 Ahmanson declared a dividend of $.22 per share of Common
Stock payable June 3, 1996 to stockholders of record on May 14, 1996.
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, 1996 Home Savings could have paid dividends of approximately
$168.6 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 19, 1996, 112,502,764 shares of Ahmanson
Common Stock were outstanding and were held by 6,661 stockholders of record.
The transfer agent and registrar for the Ahmanson Common Stock is First
Chicago Trust Company of New York. First Chicago Trust Company of New York is
also the transfer agent and registrar for the Depositary Shares, each
representing a one-half interest in a share of Ahmanson's 9.60% Preferred
Stock, Series B, the Depositary Shares, each representing a one-tenth interest
in a share of Ahmanson's 8.40% Preferred Stock, Series C, and the Depositary
Shares, each representing a one-tenth interest in a share of Ahmanson's 6%
Cumulative Convertible Preferred Stock, Series D.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Five-Year
Consolidated Summary of Financial Condition" and "Five-Year Consolidated
Summary of Operations" for, and as of the end of, each of the years in the
five-year period ended December 31, 1995 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, 1995 and 1994 and for each of the years in the
three-year period ended December 31, 1995, 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,
-----------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated assets:
Cash and investment
securities.............. $ 1,645,450 $ 2,773,573 $ 3,906,044 $ 2,362,563 $ 1,738,561
Mortgage-backed
securities (MBS)..... 16,152,142 12,789,420 6,919,997 3,915,508 4,683,742
Loans receivable...... 31,255,379 36,001,745 37,704,368 38,962,875 37,875,795
Real estate........... 460,421 475,264 623,519 1,127,271 950,532
Premises and
equipment............ 410,947 614,817 673,879 686,693 699,836
Goodwill and other
intangible assets.... 147,974 468,542 428,444 478,017 516,168
All other assets...... 457,273 603,432 614,994 607,580 761,553
----------- ----------- ----------- ----------- -----------
Total assets........ $50,529,586 $53,726,793 $50,871,245 $48,140,507 $47,226,187
=========== =========== =========== =========== ===========
Consolidated liabilities
and stockholders'
equity:
Deposits.............. $34,244,481 $40,655,016 $38,018,653 $39,273,192 $39,147,126
Borrowings............ 12,236,428 9,176,085 8,879,345 4,978,583 4,135,922
All other liabilities. 991,755 931,091 1,024,216 1,143,088 1,286,768
----------- ----------- ----------- ----------- -----------
Total liabilities... 47,472,664 50,762,192 47,922,214 45,394,863 44,569,816
Stockholders' equity.. 3,056,922 2,964,601 2,949,031 2,745,644 2,656,371
----------- ----------- ----------- ----------- -----------
Total liabilities
and stockholders'
equity............. $50,529,586 $53,726,793 $50,871,245 $48,140,507 $47,226,187
=========== =========== =========== =========== ===========
</TABLE>
18
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR CONSOLIDATED SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income......... $ 3,699,091 $ 3,095,375 $ 3,003,422 $ 3,428,979 $ 4,386,785
Interest expense........ 2,472,336 1,798,454 1,666,350 2,070,413 3,114,522
------------ ------------ ------------ ------------ ------------
Net interest income... 1,226,755 1,296,921 1,337,072 1,358,566 1,272,263
Provision for loan
losses................. 119,111 176,557 574,970 367,366 195,062
------------ ------------ ------------ ------------ ------------
Net interest income
after provision for
loan losses.......... 1,107,644 1,120,364 762,102 991,200 1,077,201
------------ ------------ ------------ ------------ ------------
Other income:
Gain (loss) on sales of
loans and MBS......... 17,283 (16,168) 101,044 76,925 101,586
Loan servicing and
other fee income...... 164,116 184,809 174,061 184,549 170,789
Gain on sales of retail
deposit branch
systems............... 514,671 77,901 -- -- --
Other operating income. 2,339 13,814 42,723 5,383 5,728
------------ ------------ ------------ ------------ ------------
Total other income... 698,409 260,356 317,828 266,857 278,103
------------ ------------ ------------ ------------ ------------
Other expenses:
General and
administrative (G&A)
expenses.............. 818,579 758,560 819,403 753,257 740,964
Operations of real
estate held for
development and
investment (REI)...... 49,481 97,644 229,300 58,359 72,804
Operations of real
estate owned held for
sale (REO)............ 86,788 86,011 212,130 129,153 37,125
Amortization of
goodwill and other
intangible assets..... 26,559 27,835 39,163 27,674 31,408
------------ ------------ ------------ ------------ ------------
Total other expenses. 981,407 970,050 1,299,996 968,443 882,301
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
provision for income
taxes (benefit),
extraordinary loss and
cumulative effect of
accounting changes..... 824,646 410,670 (220,066) 289,614 473,003
Provision for income
taxes (benefit)........ 373,700 173,312 (82,034) 133,222 227,242
------------ ------------ ------------ ------------ ------------
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting changes..... 450,946 237,358 (138,032) 156,392 245,761
Extraordinary loss on
early extinguishment of
debt (net of tax
benefit)............... -- -- (21,607) -- --
Cumulative effect of
changes in accounting
for goodwill (1995) and
income taxes (1992).... (234,742) -- -- 47,677 --
------------ ------------ ------------ ------------ ------------
Net earnings (loss)..... $ 216,204 $ 237,358 $ (159,639) $ 204,069 $ 245,761
============ ============ ============ ============ ============
Per share information--
common shares:
Primary--
Earnings (loss) before
extraordinary loss
and cumulative effect
of accounting
changes.............. $ 3.39 $ 1.59 $ (1.51) $ 1.19 $ 2.06
Net earnings (loss)... 1.40 1.59 (1.69) 1.60 2.06
Fully diluted--
Earnings (loss) before
extraordinary loss
and cumulative effect
of accounting
changes.............. 3.20 1.58 (1.51) 1.19 2.06
Net earnings (loss)... 1.40 1.58 (1.69) 1.60 2.06
Book value at December
31.................... 20.75 19.70 19.61 22.04 21.34
Tangible book value at
December 31........... 19.47 15.70 15.94 17.94 16.90
Dividends.............. 0.88 0.88 0.88 0.88 0.88
Weighted average number
of common shares
outstanding:
Primary................ 118,074,091 117,369,431 116,786,369 116,915,342 116,694,295
Fully diluted.......... 130,378,061 128,946,242 116,786,369 117,199,811 116,734,630
</TABLE>
19
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
FIVE-YEAR SELECTED OTHER DATA
<TABLE>
<CAPTION>
AT OR FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Regulatory capital:
Tangible capital.............. 5.90% 5.12% 4.97 % 4.85% 4.34%
Core capital.................. 5.91 5.50 5.72 5.77 5.10
Risk-based capital............ 12.43 12.17 12.59 12.99 10.35
Ratio of nonperforming assets to
total assets.................... 1.88 1.57 1.89 4.61 3.74
Return on average assets........ 0.41 0.46 (0.32) 0.42 0.49
Return on average equity........ 7.47 8.00 (5.58) 7.49 9.97
Return on average tangible
equity.......................... 21.64 11.50 (5.01) 10.42 14.35
Ratio of average equity to
average assets.................. 5.43 5.70 5.75 5.57 4.87
Ratio of dividends paid to net
earnings (loss)................. 71.04 64.62 (86.53) 58.37 43.24
Total number of offices open.... 464 439 455 467 481
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In 1995, H. F. Ahmanson & Company accelerated its drive to become a leading,
full-service consumer bank. The Company made important progress in
transforming itself from a traditional savings and loan institution to a
consumer bank that can compete effectively in the rapidly evolving financial
services marketplace. Several key factors are in its favor. Home Savings of
America, its principal operating unit, holds an enviable customer franchise:
high name recognition in its primary markets, a reputation for integrity and
service, a strong capital position, and 343 financial service centers in
California, Florida, Texas and Arizona, as well as 121 lending offices in ten
states.
The Company is focused on being a profitable consumer bank rather than
"America's largest thrift." Home Savings' asset size may well decrease over
time as the Company repositions itself from a traditional portfolio mortgage
lender, in which virtually all adjustable rate loans were retained, to align
itself more closely with agile, highly flexible consumer banks. Residential
lending is and will continue to be a core business. Home Savings intends to
originate and sell fixed rate mortgages and lower margin adjustable rate
mortgages ("ARMs") to the secondary market while retaining only the more
profitable ARMs in the portfolio. As a result, portfolio size may be reduced
through opportunistic loan sales from its held for sale portfolio and through
loan payoffs.
The Company will continue striving to improve the fundamentals of its
business as it becomes a full-service consumer bank. The Company has
established a long-term goal of achieving a return on average equity at least
equal to 15%. This goal will not be easy to attain quickly and in order to
make substantial progress in moving from its 1995 return on average equity of
7.47%, the Company must continue to:
.Increase efficiency in meeting customer needs;
.Improve profitability by offering more consumer banking products;
.Optimize the balance sheet size and composition; and
.Manage capital effectively.
20
<PAGE>
1995 FINANCIAL RESULTS
Earnings for 1995 were $216.2 million or $1.40 per fully diluted common
share, compared to $237.4 million or $1.58 per fully diluted common share in
1994. The 1995 results include a $234.7 million charge related to an
accounting change, Statement of Financial Accounting Standards ("SFAS") No.
72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions,"
effective January 1, 1995, which eliminated goodwill in connection with
acquisitions prior to 1982. The results of operations for 1994 and 1995
include the sales of retail deposit branch systems in Illinois and New York,
respectively.
Net interest income for 1995 totaled $1.23 billion, compared to $1.30
billion earned in 1994. The net interest margin was 2.62% at December 31,
1995, compared to 2.24% at December 31, 1994. The increase in the net interest
margin reflects the benefits of declining interest rates and the repricing lag
between the Company's assets and liabilities offset by the negative effects of
an increase in its wholesale fundings during the latter part of 1995 as a
result of the sale of its New York retail deposit branch system (the "New York
sale").
For the year 1995, other income was $698.4 million, compared to $260.4
million in 1994. The increase in other income was principally due to a pre-tax
gain of $514.7 million on the New York sale in the third quarter of 1995. The
sale of the Company's Illinois retail deposit branch system in 1994 generated
a pre-tax gain of $77.9 million.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses ("G&A") were $818.6 million in 1995,
compared to $758.6 million in 1994. G&A as a percentage of average assets was
1.53% in 1995, compared to 1.46% in 1994. The rise in G&A was principally due
to startup costs for the major business initiatives and re-engineering efforts
outlined below:
Consumer Lending. The Company established its Consumer Lending Division in
late 1994 to offer traditional consumer lending products to customers,
principally through existing retail and mortgage lending channels. The Company
originated its first consumer loan in May 1995, and originated a total of
$35.5 million of consumer loans during 1995.
Mortgage Streamlining. Progress has been made on the Company's initiative,
begun in 1994, to streamline and consolidate the loan origination process.
This initiative, referred to as Project HOME Run, is expected to significantly
reduce the cost of loan originations and increase the Company's ability to
respond to market opportunities through all lending channels.
Electronic Banking. In January 1996, the Company launched its electronic
banking program which enables customers using personal computers and personal
financial management programs to electronically access Home Savings checking
and savings products, and to pay bills and use other services. Home Savings is
among a small group of financial institutions to provide electronic home
banking. This initiative is expected to further the Company's efforts to
expand checking and other core services to customers and to expedite Home
Savings' transition to a full-service consumer bank.
The Company expects that startup expenses related to these initiatives will
continue through most of 1996 and that these projects will not contribute to
earnings in 1996. The ratio of G&A to average assets may increase due to these
initiatives or if Home Savings' asset size decreases due to loan sales or for
other reasons.
REAL ESTATE HELD FOR INVESTMENT
At December 31, 1995, the Company's net investment in real estate held for
investment ("REI") was $234.9 million, a 25% decline from $313.3 million at
December 31, 1994. The reduction in net REI assets was due primarily to the
continued development and sale of ongoing residential projects and the sale of
five commercial development projects. Reserves for REI assets totaled $283.7
million or 54.7% of gross REI assets at December 31, 1995, compared to $333.8
million or 51.6% at December 31, 1994. The Company continues its plan to exit
the real estate investment business. Plans are underway for the sale of
several other properties in 1996. No new projects have been initiated since
1990.
21
<PAGE>
ASSET QUALITY
At December 31, 1995, nonperforming assets totaled $949.4 million or 1.88%
of total assets, compared to $843.0 million or 1.57% of total assets at
December 31, 1994. Troubled debt restructurings ("TDRs") amounted to $163.8
million at December 31, 1995. For additional information regarding
nonperforming assets and TDRs, see "Financial Condition--Asset Quality--
Nonperforming Assets and Potential Problem Loans." Net charge-offs for 1995
were $138.5 million, compared to $215.1 million in 1994. The net charge-offs
in 1994 included $79.2 million related to sales of nonaccrual and impaired
major loans. For additional information regarding loan charge-offs, see
"Financial Condition--Asset Quality--Allowance for Loan Losses."
The Company's expenses for operations of foreclosed real estate amounted to
$86.8 million for the year 1995, compared to $86.0 million in 1994. The
provision for loan losses in 1995 was $119.1 million, compared to $176.6
million in 1994.
LOAN ORIGINATIONS
For the year 1995, Home Savings funded $6.5 billion in residential mortgages
compared to $10.3 billion in 1994. Loan production in 1995 included 23.4% of
fixed rate originations. All fixed rate loans are originated for sale. Loans
to purchase homes as opposed to refinancing them represented 67.3% of 1995
loan production.
DEPOSITS
At year-end 1995, deposits totaled $34.2 billion compared to $40.7 billion
at year-end 1994. The $6.5 billion, or 16%, decrease reflects the acquisition
of $1.2 billion in deposits from Household Bank in June 1995, followed by the
sale of $8.1 billion of deposits in New York in September 1995. The successful
consolidation of deposit franchises into key markets has provided substantial
capital to fuel the Company's efforts to position itself as a full-service
consumer bank.
CAPITAL
At December 31, 1995, Home Savings of America's capital ratios exceeded
regulatory requirements for well-capitalized institutions, the highest
regulatory standard.
In the fourth quarter of 1995, Ahmanson purchased 2,439,000 shares of its
common stock under a stock repurchase program at an average price of $25.66
per share, compared to an average daily closing price per share traded during
the fourth quarter of $25.77. The program, approved by the Board of Directors
on October 3, 1995, seeks to return capital to stockholders by authorizing
Ahmanson to purchase up to $250 million of its common stock. At December 31,
1995, H. F. Ahmanson & Company, the parent company, had $317 million in cash,
sufficient to complete the stock repurchase program. As of March 18, 1996,
Ahmanson had repurchased 5,679,600 shares of its common stock.
At December 31, 1995, the Company's tangible book value was $19.47, an
increase of $3.77 or 24% compared to $15.70 at December 31, 1994.
22
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $1.23 billion in 1995, a decrease of $70.2 million
or 5% from 1994, and was $1.30 billion in 1994, a decrease of $40.2 million or
3% from 1993. Despite the current year decline, the net interest margin
reversed its downward trend during the first quarter of 1995 and improved
during the year. 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 deducted from interest income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------ ------------------------------ ------------------------------
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.................. $32,790,330 $2,405,820 7.34% $35,288,701 $2,265,050 6.42% $39,581,138 $2,623,139 6.63%
MBS.................... 15,911,554 1,158,077 7.28 10,844,465 686,390 6.33 3,984,806 278,908 7.00
----------- ---------- ----------- ---------- ----------- ----------
Total loans and MBS. 48,701,884 3,563,897 7.32 46,133,166 2,951,440 6.40 43,565,944 2,902,047 6.66
----------- ---------- ----------- ---------- ----------- ----------
Investment securities:
Securities purchased
under agreements to
resell............... 1,441,934 88,943 6.17 2,275,291 102,824 4.52 2,073,809 74,559 3.60
Other investments..... 777,409 46,251 5.95 677,546 41,111 6.07 437,185 26,816 6.13
----------- ---------- ----------- ---------- ----------- ----------
Total investment
securities......... 2,219,343 135,194 6.09 2,952,837 143,935 4.87 2,510,994 101,375 4.04
----------- ---------- ----------- ---------- ----------- ----------
Interest-earning
assets................ 50,921,227 3,699,091 7.26 49,086,003 3,095,375 6.31 46,076,938 3,003,422 6.52
---------- ---------- ----------
Other assets............ 2,431,229 2,988,728 3,695,219
----------- ----------- -----------
Total assets...... $53,352,456 $52,074,731 $49,772,157
=========== =========== ===========
Interest-costing
liabilities:
Deposits:
Checking accounts..... $ 2,508,768 24,833 0.99 $ 2,677,130 27,577 1.03 $ 2,560,091 34,073 1.33
Savings accounts...... 9,053,043 279,345 3.09 11,318,552 281,511 2.49 12,040,616 323,255 2.68
Term accounts......... 28,418,471 1,531,412 5.39 24,536,784 982,805 4.01 23,987,951 943,735 3.93
----------- ---------- ----------- ---------- ----------- ----------
Total deposits...... 39,980,282 1,835,590 4.59 38,532,466 1,291,893 3.35 38,588,658 1,301,063 3.37
----------- ---------- ----------- ---------- ----------- ----------
Borrowings:
Short-term............ 3,129,503 197,437 6.31 4,324,762 182,721 4.22 3,456,569 112,171 3.25
FHLB.................. 2,937,512 185,966 6.33 2,354,051 136,048 5.78 1,924,945 79,981 4.15
Other................. 3,527,068 253,343 7.18 2,799,189 187,792 6.71 1,792,535 173,135 9.66
----------- ---------- ----------- ---------- ----------- ----------
Total borrowings.... 9,594,083 636,746 6.64 9,478,002 506,561 5.34 7,174,049 365,287 5.09
----------- ---------- ----------- ---------- ----------- ----------
Interest-costing
liabilities........... 49,574,365 2,472,336 4.99 48,010,468 1,798,454 3.75 45,762,707 1,666,350 3.64
----------- ---------- ----------- ---------- ----------- ----------
Other liabilities....... 882,189 1,098,128 1,147,173
Stockholders' equity.... 2,895,902 2,966,135 2,862,277
----------- ----------- -----------
Total liabilities
and stockholders'
equity........... $53,352,456 $52,074,731 $49,772,157
=========== =========== ===========
Excess interest-earning
assets/Interest rate
spread................. $ 1,346,862 2.27 $ 1,075,535 2.56 $ 314,231 2.88
=========== =========== ===========
Net interest income/
Net interest margin.... $1,226,755 2.41 $1,296,921 2.64 $1,337,072 2.90
========== ========== ==========
</TABLE>
23
<PAGE>
The following table presents the changes for 1995 and 1994 from the
respective preceding year of the Company's interest income and expense
attributable to various categories of its assets and liabilities 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 practical 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,
--------------------------------------------------------------
1995 VERSUS 1994 1994 VERSUS 1993
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................. $(182,723) $ 323,493 $140,770 $(275,109) $(82,980) $(358,089)
MBS................... 368,713 102,974 471,687 434,178 (26,696) 407,482
Federal funds sold and
securities purchased
under agreements to
resell............... (51,437) 37,556 (13,881) 9,133 19,132 28,265
Other investments..... 6,271 (1,131) 5,140 12,487 1,808 14,295
--------- --------- -------- --------- -------- ---------
Total interest
income............. 140,824 462,892 603,716 180,689 (88,736) 91,953
--------- --------- -------- --------- -------- ---------
Interest expense on:
Deposits.............. 66,387 477,310 543,697 (1,798) (7,372) (9,170)
Short-term borrowings. (74,156) 88,872 14,716 36,838 33,712 70,550
FHLB borrowings....... 36,961 12,957 49,918 24,753 31,314 56,067
Other borrowings...... 51,826 13,725 65,551 65,747 (51,090) 14,657
--------- --------- -------- --------- -------- ---------
Total interest
expense............ 81,018 592,864 673,882 125,540 6,564 132,104
--------- --------- -------- --------- -------- ---------
Net interest income $ 59,806 $(129,972) $(70,166) $ 55,149 $(95,300) $ (40,151)
========= ========= ======== ========= ======== =========
</TABLE>
Net interest income decreased $70.2 million, or 5%, in 1995 resulting from
the decrease of 23 basis points in the net interest margin, to 2.41% for 1995
from 2.64% for 1994, partially offset by an increase of $1.8 billion in
average interest-earning assets. The decrease of $40.2 million, or 3%, in net
interest income in 1994 resulted 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 increases
in average interest-earning assets during 1995 and 1994 were primarily funded
with interest-costing liabilities. Included in net interest income were
provisions for losses of delinquent interest related to nonaccrual loans of
$46.5 million, $43.2 million and $70.9 million in 1995, 1994 and 1993,
respectively, which had the effect of reducing the net interest margin by nine
basis points in both 1995 and 1994 and 16 basis points in 1993.
The changes in 1995 and 1994 in the Company's net interest margin and net
interest income principally reflect 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, and changes in the repricing of the Company's interest-costing
liabilities.
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. In a rising market
interest rate environment, as experienced during 1994, lagging increases in
COFI and the delayed repricing of the Company's COFI ARMs could compress the
net interest margin and net interest income. The
24
<PAGE>
Company's net interest margin began to improve during the first quarter of
1995 and increased during the remainder of the year due to a significant
decline in market interest rates during the year. The net interest margin was
2.62% at December 31, 1995, an increase of 38 basis points from 2.24% at
December 31, 1994, which had decreased 71 basis points from 2.95% at December
31, 1993. The expansion of the net interest margin slowed during the fourth
quarter of 1995 principally due to the Company's funding of the New York sale
in September 1995 which increased wholesale liabilities, a higher costing
source of funds, to approximately 26% of total interest-costing liabilities at
December 31, 1995 compared to approximately 18% at December 31, 1994. As part
of the funding of the New York sale, the Company sold $2.8 billion of MBS and
retained the servicing on these MBS.
The Company's cost of funds was seven basis points, 19 basis points and 41
basis points below the average of COFI of 5.06%, 3.94% and 4.05% during 1995,
1994 and 1993, respectively. Changes in the composition of the Company's
interest-costing liabilities will likely preclude the Company's cost of funds
from being significantly lower than COFI in the near future. Substantially all
ARMs originated since 1981 have maximum interest rates. In the event of
sustained significant increases in rates, such maximum interest rates could
also contribute to a decrease in the net interest margin. As of December 31,
1995, the interest rate on approximately 90% in outstanding principal amount
of the Company's COFI ARMs could have increased, as a result of a
corresponding increase in COFI, by at least 350 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 $119.1 million in 1995, a decrease of
$57.5 million, or 33%, from $176.6 million in 1994. The provision in 1994 was
a decrease of $398.4 million or 69% from $575.0 million in 1993. 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
reflects, among other things, provisions for losses related to the sale of
$1.2 billion of single family nonaccrual mortgage loans in 1993 rather than
holding these loans to maturity and/or foreclosure. For additional information
regarding the allowances for loan losses and nonperforming assets, see
"Financial Condition--Asset Quality."
25
<PAGE>
OTHER INCOME
Gain (Loss) on Sales of MBS. During 1995, 1994 and 1993, the Company
recognized gains (losses) on sales of MBS and weighted average retained yields
on such sales as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book value of MBS sold:
ARM MBS....................................... $2,222,349 $400,201 $904,945
Fixed rate MBS................................ 706,084 -- --
---------- -------- --------
$2,928,433 $400,201 $904,945
========== ======== ========
Pre-tax gains (losses) on sales of MBS:
ARM MBS....................................... $ 11,838 $ 4,868 $ 21,007
Fixed rate MBS................................ (13,949) -- --
---------- -------- --------
$ (2,111) $ 4,868 $ 21,007
========== ======== ========
Weighted average retained yield................. 0.64% 0.73% 0.84%
========== ======== ========
</TABLE>
During the third quarter of 1995, MBS totaling $715.7 million were sold to
partially fund the New York sale, resulting in a pre-tax loss of $14.0 million
which was included in the gain on the New York sale as a related expense.
Included in these sales were MBS originally designated as held to maturity of
$503.3 million, which were sold at a pre-tax loss of $12.2 million. For
additional information see "Financial Condition--Liquidity and Capital
Resources--MBS."
Gain (Loss) on Sales of Loans. During 1995, 1994 and 1993, 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,
--------------------------------
1995 1994 1993
---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Book value of loans sold:
Mortgage loans originated for sale.......... $1,381,672 $565,197 $2,350,341
Credit card portfolio....................... -- -- 131,254
---------- -------- ----------
$1,381,672 $565,197 $2,481,595
========== ======== ==========
Pre-tax gain (loss) on sales of loans:
Mortgage loans originated for sale.......... $ 5,364 $(21,036) $ 46,999
Credit card portfolio....................... -- -- 33,038
---------- -------- ----------
$ 5,364 $(21,036) $ 80,037
========== ======== ==========
Weighted average retained loan yield.......... 0.23% 0.26% 0.28%
========== ======== ==========
</TABLE>
The sales volume of mortgage loans originated for sale during 1995, 1994 and
1993 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 included charges totaling $18.4 million resulting
from higher credit costs attributed to loans sold with recourse prior to 1993.
In addition, during the fourth quarter of 1993 the Company sold its $131.3
million credit card portfolio for a pre-tax gain of $33.0 million. For
additional information regarding loans sold with recourse, see Note 3 of Notes
to Consolidated Financial Statements.
The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an Amendment to FASB No. 65," effective April 1, 1995. Results from periods
prior to April 1, 1995 have not been restated. In
26
<PAGE>
accordance with SFAS No. 122, the Company capitalized mortgage servicing
rights ("MSR") related to mortgage loans designated for sale. The total cost
of the mortgage loans designated for sale is allocated to the MSR and the
mortgage loans without the MSR based on their relative fair values. The MSR
are amortized over the projected servicing period as a component of net loan
servicing income.
The adoption of SFAS No. 122 resulted in MSR of $15.8, million as of
December 31, 1995, which is included in "Other assets" in the Consolidated
Statement of Financial Condition, and increased the gain on sale of loans by
$14.2 million for 1995. The MSR are periodically reviewed for impairment based
on their fair value. The fair value of the MSR, for the purposes of
impairment, is measured using a discounted cash flow analysis based on the
Company's estimated servicing costs, market prepayment rates and market-
adjusted discount rates. Impairment is measured on a disaggregated basis based
on predominant risk characteristics of the underlying mortgage loans. The risk
characteristics used by the Company for the purposes of capitalization and
impairment evaluation include loan amount, loan type, loan origination date,
loan term and collateral type. Impairment losses are recognized through a
valuation allowance.
Loan Servicing Income. Loan servicing income was $60.5 million in 1995, a
decrease of $13.9 million or 19%, and was $74.4 million in 1994, an increase
of $15.5 million or 26% from $58.9 million in 1993. For 1994, loan servicing
income included a gain of $16.8 million on the 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 higher in 1995 primarily due to a decrease
of $8.3 million in amortization of the excess servicing fee receivable
("ESFR") and an increase of six basis points in the ESFR yield to 0.73%,
partially offset by the decline of $2.1 billion, or 15%, in the average
portfolio of loans serviced for investors. The decrease in amortization of
ESFR from prior years is due to both a decline in the related asset and slower
prepayment rates. Loan servicing income decreased in 1994 from 1993, excluding
the gain on sale of servicing rights, due to a $1.7 billion or 11% decrease in
the average portfolio of loans serviced for investors, to $14.1 billion in
1994, combined with a one basis point reduction in the ESFR yield to 0.67%. At
December 31, 1995 and 1994, the portfolio of loans serviced for investors was
$13.1 billion and $11.3 billion, respectively.
Gains on Sales of Retail Deposit Branch Systems. In September 1995, the
Company sold its deposits totaling $8.1 billion and branch premises in New
York, resulting in a pre-tax gain of $514.7 million. The gain is net of the
write-off of goodwill and other intangibles of $106.9 million and other
expenses associated with the sale.
In November 1994, the Company sold its branches and deposits in Illinois,
totaling $1.6 billion, resulting in a pre-tax gain of $77.9 million. The gain
is net of the write-off of goodwill of $25.6 million and other expenses
associated with the sale.
Other Operating Income. Other operating income was $2.2 million in 1995, a
decrease of $11.4 million from $13.6 million in 1994, primarily due to
proceeds of $8.9 million received in the fourth quarter of 1994 in connection
with a settlement related to an assistance agreement with the FDIC. Other
operating income decreased $29.1 million in 1994 from $42.7 million in 1993,
reflecting proceeds received in 1993 from the settlement of a lawsuit filed by
the Company.
OTHER EXPENSES
General and Administrative Expenses. G&A expenses were $818.6 million in
1995, an increase of $60.0 million or 8% and $758.6 million in 1994, which was
a decrease of $60.8 million or 7% from $819.4 million in 1993. The increase in
1995 includes pre-tax charges during the third quarter of 1995 of $11.0
million associated with Project HOME Run and $25.7 million relating to the
proposed sale of certain premises buildings, of which one was sold in the
fourth quarter of 1995. The increase in G&A expenses during 1995 also includes
costs associated with establishing a consumer lending division, streamlining
the mortgage origination process, investing in a more proactive sales
capability and culture and developing an electronic banking program as well as
lower deferrals of loan origination costs resulting from the lower volume of
loan originations in 1995. The
27
<PAGE>
increase in G&A expenses for 1995 was partially offset by $9.0 million of FDIC
premium refunds and reductions in the premium assessment rates. Management is
committed to reviewing the Company's cost structure in order to reduce G&A
expenses as the Company transitions to a full-service consumer bank. The
decrease in 1994 from 1993 reflects broadly-based efforts to reduce operating
expenses and reductions in personnel costs related to lower levels of
nonperforming assets partially resulting from sales of such assets in 1993.
The ratio of G&A expenses to average assets was 1.53% in 1995 compared to
1.46% in 1994 and 1.65% in 1993. The increase in 1995 reflects the 8% increase
in G&A expenses, partially offset by an increase of 2% in average assets. The
decrease in 1994 reflects the 7% decrease in G&A expenses and a 5% increase in
average assets.
Operations of REI. Losses from operations of REI were $49.5 million in 1995,
a decrease of $48.1 million or 49% from $97.6 million in 1994, which was a
decrease of $131.7 million from 1993. The decrease in 1995 was primarily due
to a decrease of $36.4 million in the provision for losses and an $8.9 million
gain on sales of REI in 1995 compared to losses of $5.3 million on REI sales
in 1994. The provision for losses on REI of $49.7 million in 1995 was
primarily due to a deterioration in the value of a major commercial REI
project in California. A review in September 1995 of the project's plans led
to a change in the Company's assessment of the continued viability of such
plans.
The decrease in 1994 was primarily due to decreases of $121.9 million in the
provision for losses and $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 in 1994 based on management's review of past REI project
performance and an assessment of the risk of further reductions in NRV. 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 $86.8 million in 1995,
an increase of $0.8 million or less than 1% from $86.0 million in 1994, which
represented a decrease of $126.1 million or 59% from 1993. The increase in
1995 was due to increases in net operating expenses of $2.8 million and
provision for losses of $2.1 million, substantially offset by a decrease in
net losses on sales of $4.1 million. 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
reflected a reduction in foreclosures as a result of the sales of nonaccrual
and other impaired loans in 1994 and 1993. For additional information
regarding REO, see "Financial Condition--Asset Quality--Nonperforming Assets
and Potential Problem Loans."
Amortization of Goodwill and Other Intangible Assets and Cumulative Effect
of Change in Accounting for Goodwill. The Company adopted SFAS No. 72
effective January 1, 1995 for goodwill related to acquisitions made prior to
September 30, 1982. As a result, the Company wrote off goodwill totaling
$234.7 million as a cumulative effect of the change in accounting for
goodwill. Results from periods prior to 1995 have not been restated. SFAS No.
72 requires, among other things, that goodwill resulting from the acquisition
of banking or thrift institutions initiated after September 30, 1982 be
amortized over a period no longer than the estimated remaining life of the
acquired long-term interest-earning assets. The adoption of SFAS No. 72 for
goodwill related to acquisitions of banking or thrift institutions prior to
September 30, 1982 is permitted but not required. The Company has been
accounting for acquisitions made subsequent to September 30, 1982 in
accordance with SFAS No. 72.
28
<PAGE>
Amortization of goodwill and other intangible assets was $26.6 million in
1995, a decrease of $1.2 million or 5% compared to $27.8 million in 1994,
which was a decrease of $11.3 million or 29% from 1993. The decrease in 1995
reflects the reductions in the goodwill balance resulting from the adoption of
SFAS No. 72 and the sales of the New York and Illinois retail deposit branch
systems, partially offset by an increase in the core deposit premium related
to deposits acquired in 1994 and 1995. The decrease in 1994 reflects 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). The changes in the provision for
income taxes (benefit) primarily reflect the changes in pre-tax earnings
during each year and the 1995 write-off of $101.8 million in non-deductible
goodwill related to the New York sale. The effective tax (benefit) rates were
45.3% for 1995, 42.2% for 1994 and (37.3)% for 1993. For additional
information regarding income taxes and related provision, see Note 11 of Notes
to Consolidated Financial Statements.
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.
29
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents results of operations by quarter for 1995 and
1994:
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Total interest income........... $ 893,983 $949,565 $949,166 $906,377
Total interest expense.......... 598,739 639,390 634,722 599,485
--------- -------- -------- --------
Net interest income........... 295,244 310,175 314,444 306,892
Provision for loan losses....... 26,544 25,465 29,175 37,927
--------- -------- -------- --------
Net interest income after
provision for loan losses....... 268,700 284,710 285,269 268,965
Other income.................... 35,982 53,420 560,787 48,220
Other expenses.................. 251,832 273,741 573,058 256,476
--------- -------- -------- --------
Earnings before cumulative
effect of accounting
change......................... 52,850 64,389 272,998 60,709
Cumulative effect of change in
accounting for goodwill........ (234,742) -- -- --
--------- -------- -------- --------
Net earnings (loss)......... $(181,892) $ 64,389 $272,998 $ 60,709
========= ======== ======== ========
Net earnings (loss) per common
share:
Primary
Earnings before cumulative
effect of accounting
change....................... $ 0.34 $ 0.44 $ 2.20 $ 0.41
Cumulative effect of change in
accounting for goodwill...... (2.00) -- -- --
--------- -------- -------- --------
Net earnings (loss)......... $ (1.66) $ 0.44 $ 2.20 $ 0.41
========= ======== ======== ========
Fully diluted
Earnings before cumulative
effect of accounting
change....................... $ 0.34 $ 0.43 $ 2.03 $ 0.40
Cumulative effect of change in
accounting for goodwill...... (2.00) -- -- --
--------- -------- -------- --------
Net earnings (loss)......... $ (1.66) $ 0.43 $ 2.03 $ 0.40
========= ======== ======== ========
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 42,476 135,580
Other expenses.................. 265,159 267,150 262,426 348,627
--------- -------- -------- --------
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
========= ======== ======== ========
</TABLE>
30
<PAGE>
Other income decreased in the fourth quarter of 1995 compared to the third
quarter of 1995 due to the gain of $514.7 million on the sale of the New York
retail deposit branch system. The decrease in other income in the fourth
quarter of 1995 from the fourth quarter of 1994 primarily reflects the gain of
$77.9 million on the sale of the Illinois retail deposit branch system in the
fourth quarter of 1994. Other expenses decreased in the fourth quarter of 1995
compared to the third quarter of 1995 and the fourth quarter of 1994 primarily
due to the higher provisions for taxes associated with the gains from the
branch system sales in those quarters. Other expenses in the fourth quarter of
1994 also included the provision for losses on REI of $77.0 million. For
additional information regarding the provision for loan losses, see "Results
of Operations--Provision for Loan Losses" and "Financial Condition--Asset
Quality."
31
<PAGE>
FINANCIAL CONDITION
The Company's consolidated assets were $50.5 billion at December 31, 1995, a
decrease of $3.2 billion or 6% from $53.7 billion at December 31, 1994. The
decrease in assets is primarily due to the sale of MBS related to the funding
of the New York sale. The Company sold $8.1 billion in deposits for a premium
of approximately 8%, as well as the related branch premises. In addition,
goodwill and other intangible assets associated with the branch system,
totaling $106.9 million, were written off. The New York sale was primarily
funded with a combination of new borrowings of $4.7 billion and sales of MBS
of $2.8 billion. The Company also utilized funds generated by the acquisition
of $1.2 billion in deposits from Household Bank in the second quarter of 1995.
In addition, the adoption of SFAS No. 72, effective January 1, 1995, resulted
in a $234.7 million decline in goodwill.
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>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Single family (one to four units)................. 81% 79% 86% 90% 91%
Multi-family (five units and over)................ 19 21 14 10 9
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
In 1995, 77% of the $6.5 billion in loan originations were ARMs, compared to
95% of the $10.3 billion in loan originations in 1994. For 1995, 12% of the
Company's ARM originations were tied to U.S. Treasury securities ("Treasury
ARMs") with the remainder being COFI ARMs. In addition, the Company originated
$35.5 million in consumer loans in 1995, primarily home equity loans, as part
of its consumer lending program established in late 1994.
Included in 1995 loan originations were $80.8 million in multi-family loans
which were funded through a conduit program, in which the Company originates
loans on behalf of another highly regarded financial institution. Such conduit
loans are typically multi-family loans in excess of $1 million, and include
loans that are refinancings of loans from the Company's commercial and
industrial real estate loan portfolio and the non-California multi-family loan
portfolio. This program enables the Company to increase its presence in the
secondary market and generate additional fee income by originating and
servicing these loans with no related credit exposure.
At December 31, 1995, the Company was committed to fund mortgage loans
totaling $471.6 million, of which $262.6 million or 56% were COFI ARMs, $51.2
million or 11% were Treasury ARMs and $157.8 million or 33% were fixed rate
loans.
Approximately 66% of loan originations in 1995 were on properties located in
California compared to 70% in 1994. At December 31, 1995, approximately 97% of
the loan and MBS portfolio was secured by residential properties, including
77% secured by single family properties, and approximately 75% of the loan and
MBS portfolio was secured by properties located in California.
32
<PAGE>
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>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Single family loans:
Under 75.0%......................................... 42% 35% 54% 58% 55%
75.0% to 79.9%...................................... 10 9 15 14 14
80.0%............................................... 22 26 21 19 23
80.1% to 90.0%...................................... 17 22 10 9 8
90.1% or greater.................................... 9 8 -- -- --
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
Multi-family loans:
70.0% or less....................................... 44% 54% 69% 73% 72%
70.1% to 75.0%...................................... 49 41 25 20 23
75.1% or greater.................................... 7 5 6 7 5
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
The loan and MBS portfolio includes approximately $7.0 billion in mortgage
loans that were originated with loan to value ("LTV") ratios exceeding 80%, or
15% of the portfolio at December 31, 1995. Approximately 21% of loans
originated during 1995 had LTV ratios in excess of 80%, including 7% with LTV
ratios in excess of 90%. The majority of these higher LTV loans were on single
family properties. The additional volume of higher LTV single family loans in
1995 and 1994 was primarily due to changes in the marketplace, which was
primarily a purchase market during 1995 and 1994 as compared to the
predominant refinance market in 1991 through 1993. During 1994, 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) to meet a market
demand. The Company takes the additional risk of originating loans with LTV
ratios in excess of 80% into consideration in its loan underwriting and
pricing policies.
The following table presents the composition of the Company's loan and MBS
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Residential loans:
Single family.......... $20,684,133 $26,084,783 $28,764,402 $30,486,130 $29,616,179
Multi-family........... 9,284,131 8,518,510 7,219,708 6,543,238 5,883,615
Commercial and
industrial real estate
loans.................. 1,566,470 1,734,793 2,012,307 2,225,226 2,540,810
Other loans............. 136,330 124,922 259,354 282,786 274,455
----------- ----------- ----------- ----------- -----------
31,671,064 36,463,008 38,255,771 39,537,380 38,315,059
Deferred loan fees and
interest............... (31,439) (55,184) (90,959) (97,662) (80,618)
Unearned discounts...... (3,360) (5,847) (21,658) (42,729) (54,842)
Allowance for loan
losses................. (380,886) (400,232) (438,786) (434,114) (303,804)
----------- ----------- ----------- ----------- -----------
Loans receivable........ 31,255,379 36,001,745 37,704,368 38,962,875 37,875,795
MBS..................... 16,152,142 12,789,420 6,919,997 3,915,508 4,683,742
----------- ----------- ----------- ----------- -----------
$47,407,521 $48,791,165 $44,624,365 $42,878,383 $42,559,537
=========== =========== =========== =========== ===========
</TABLE>
33
<PAGE>
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, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1995 1994 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..................... $16,152,142 $16,291,911 $12,789,420 $12,463,383 26% 31%
Loans receivable........ 31,255,379 31,511,907 36,001,745 35,107,572 (13) (10)
Deposits--term accounts. 24,581,530 25,264,878 28,101,532 27,471,191 (13) (8)
Borrowings.............. 12,236,428 12,514,647 9,176,085 9,077,591 33 38
</TABLE>
ASSET/LIABILITY MANAGEMENT
One of the Company's primary business objectives continues to be the
management of volatility in net interest income resulting from changes in
interest rates. This is accomplished by managing the repricing characteristics
of its interest-earning assets and interest-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 ARMs for retention in the loan and
MBS portfolio, with the majority of originated ARMs indexed to COFI. During
late 1994 the Company began offering ARMs which provide for interest rates
that adjust based upon changes in the yields of U. S. Treasury securities. The
Company originated $581.1 million of these Treasury ARMs in 1995. At December
31, 1995, 96.8% of the Company's $47.4 billion loan and MBS portfolio
consisted of ARMs indexed primarily to COFI, compared to 95.1% of the $48.8
billion loan and MBS portfolio at December 31, 1994. The average factor above
COFI on the Company's COFI ARM portfolio was 247 basis points at December 31,
1995, up three basis points from 244 basis points at December 31, 1994.
Although residential lending is and will continue to be the Company's
primary business, the Company is repositioning itself to become more of a
consumer bank. The Company intends to originate and sell fixed rate mortgages
and lower margin ARMs to the secondary market while retaining only the more
profitable ARMs in its portfolio. As a result, the Company's portfolio size
may be reduced through opportunistic loan sales from its held for sale
portfolio and through loan payoffs.
During 1995 the Company securitized $7.4 billion of ARMs into MBS which
increase the Company's access to less expensive collateralized borrowings. The
Company's funding for the New York sale included short-term borrowings of
approximately $4.7 billion which increased wholesale liabilities to
approximately 26% of total interest-costing liabilities at December 31, 1995
compared to approximately 18% at December 31, 1994.
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 has included 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 includes the changing of
repricing terms and spreading of maturities on term deposits and other
interest-costing liabilities and acquiring assets more responsive to interest
rate changes, including plans to diversify away from COFI on certain interest-
earning assets. The Company manages the maturities of its borrowings to
balance changes in depositor maturity demand. The Company has adopted a pro-
active strategy to increase the percentage of customer checking accounts in
its deposit portfolio which the Company believes is a steady funding source
having less sensitivity to changes in market interest rates than other funding
sources.
34
<PAGE>
For additional information regarding these and other transactions, see
"Results of Operations--Net Interest Income" and "Financial Condition--
Liquidity and Capital Resources."
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, 1995:
<TABLE>
<CAPTION>
REPRICING PERIODS
-------------------------------------------------------------
PERCENT
OF WITHIN MONTHS 1-5 5-10 YEARS
BALANCE TOTAL 6 MONTHS 7-12 YEARS YEARS OVER 10
----------- ------- ----------- ------------ ------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities--
Cash equivalents...... $ 394,278 1% $ 394,278 $ -- $ -- $ -- $ --
Other investment
securities........... 12,356 -- 9,908 6 2,442 -- --
FHLB stock............ 485,938 1 485,938 -- -- -- --
Impact of hedging
(LIBOR-indexed
amortizing swaps)... -- -- (104,978) -- 104,978 -- --
----------- --- ----------- ------------ ------------ ---------- ----------
Total investment
securities............. 892,572 2 785,146 6 107,420 -- --
----------- --- ----------- ------------ ------------ ---------- ----------
Loans and MBS--
MBS--
ARMs................ 15,757,504 33 15,757,504 -- -- -- --
Other............... 394,638 1 -- -- 2,598 1,526 390,514
Loans--
ARMs................ 30,137,524 62 29,319,064 302,460 516,000 -- --
Other............... 1,117,855 2 248,031 92,228 352,662 224,587 200,347
Impact of hedging
(interest rate
swaps).............. -- -- 818,460 (302,460) (516,000) -- --
----------- --- ----------- ------------ ------------ ---------- ----------
Total loans and MBS..... 47,407,521 98 46,143,059 92,228 355,260 226,113 590,861
----------- --- ----------- ------------ ------------ ---------- ----------
Total interest-earning
assets............... $48,300,093 100% $46,928,205 $ 92,234 $ 462,680 $ 226,113 $ 590,861
=========== === =========== ============ ============ ========== ==========
INTEREST-COSTING
LIABILITIES:
Deposits--
Checking.............. $ 2,494,066 5% $ 2,494,066 $ -- $ -- $ -- $ --
Passbooks............. 1,379,927 3 1,379,927 -- -- -- --
Money market savings.. 5,788,958 13 5,788,958 -- -- -- --
Term accounts--
Under $100,000...... 24,139,269 52 14,422,166 6,155,587 3,550,249 11,179 88
Over $100,000....... 442,261 1 347,493 90,529 4,137 102 --
----------- --- ----------- ------------ ------------ ---------- ----------
Total deposits.......... 34,244,481 74 24,432,610 6,246,116 3,554,386 11,281 88
----------- --- ----------- ------------ ------------ ---------- ----------
Borrowings--
Repurchase agreements. 3,519,311 8 3,519,311 -- -- -- --
FHLB.................. 4,350,161 9 3,356,325 557,007 377,221 41,904 17,704
Other................. 4,366,956 9 675,368 651,060 2,653,478 387,050 --
----------- --- ----------- ------------ ------------ ---------- ----------
Total borrowings........ 12,236,428 26 7,551,004 1,208,067 3,030,699 428,954 17,704
----------- --- ----------- ------------ ------------ ---------- ----------
Total interest-costing
liabilities.......... $46,480,909 100% $31,983,614 $ 7,454,183 $ 6,585,085 $ 440,235 $ 17,792
=========== === =========== ============ ============ ========== ==========
Hedge-adjusted interest-
earning assets
more/(less) than
interest-costing
liabilities............ $ 1,819,184 $14,944,591 $(7,361,949) $(6,122,405) $(214,122) $ 573,069
=========== =========== ============ ============ ========== ==========
Cumulative interest
sensitivity gap......... $14,944,591 $ 7,582,642 $ 1,460,237 $1,246,115 $1,819,184
=========== ============ ============ ========== ==========
Percentage of hedge-
adjusted interest-
earning assets to
interest-costing
liabilities............ 103.91%
Percentage of cumulative
interest sensitivity
gap to total assets.... 3.60%
</TABLE>
35
<PAGE>
The following table presents the interest rates, spread and margin at the end
of the years indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Average yield on:
Loans...................................................... 7.52% 6.74% 6.53%
MBS........................................................ 7.59 6.63 6.33
Total loans and MBS..................................... 7.54 6.71 6.50
Investment securities:
Federal funds sold and securities purchased under
agreements to resell.................................... 6.25 6.66 3.85
Other investments........................................ 5.05 5.11 3.71
Total investment securities............................. 5.56 5.85 3.83
Interest-earning assets................................ 7.50 6.68 6.33
Average rate on:
Deposits:
Checking accounts........................................ 0.95 1.00 1.10
Savings accounts......................................... 3.14 2.75 2.47
Term accounts............................................ 5.47 4.80 3.75
Total deposits.......................................... 4.65 4.05 3.14
Borrowings:
Short-term............................................... 5.97 6.38 3.39
FHLB..................................................... 6.03 5.98 4.47
Other.................................................... 6.72 7.10 8.25
Total borrowings........................................ 6.26 6.58 4.73
Interest-costing liabilities........................... 5.07 4.52 3.44
Interest rate spread......................................... 2.43 2.16 2.89
Net interest margin.......................................... 2.62 2.24 2.95
</TABLE>
The following table presents the schedule of contractual maturities for loans
and MBS as of December 31, 1995:
<TABLE>
<CAPTION>
WITHIN 1-2 2-3 3-5 5-10 10-15 YEARS
1 YEAR YEARS YEARS YEARS YEARS YEARS OVER 15
------- ------- ------- ---------- ---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
MBS:
ARMs.................. $ -- $ -- $ -- $1,403,921 $ 835,613 $ -- $13,517,970
Other................. -- -- 7 2,591 1,526 342,219 48,295
Residential and other
loans:
ARMs.................. 1,821 3,880 10,889 89,015 1,298,454 1,855,925 25,662,048
Other................. 52 112 314 2,564 37,407 53,468 739,301
Commercial and
industrial real estate
loans:
ARMs.................. 38,021 58,856 35,325 100,766 702,786 42,894 236,844
Other................. 13,670 19,247 9,347 22,476 123,697 57,489 38,711
------- ------- ------- ---------- ---------- ---------- -----------
$53,564 $82,095 $55,882 $1,621,333 $2,999,483 $2,351,995 $40,243,169
======= ======= ======= ========== ========== ========== ===========
</TABLE>
36
<PAGE>
ASSET QUALITY
Nonperforming Assets and Potential Problem Loans. When a borrower fails to
make a required payment on a loan and does not cure the delinquency promptly,
the loan is characterized as delinquent. The procedural steps necessary for
foreclosure vary from state to state, but generally if the loan is not
reinstated within certain periods specified by statute and no other workout
arrangements satisfactory to the lender are entered into, the property
securing the loan can be acquired by the lender. Although the Company
generally relies on the underlying real property to satisfy foreclosed loans,
in certain circumstances and when permitted by law, the Company may seek to
obtain deficiency judgments against the borrowers.
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 $46.5
million in 1995, $43.2 million in 1994 and $70.9 million in 1993.
The Company reviews loans for impairment in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," 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 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), 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.
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, 1995
and 1994.
37
<PAGE>
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,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans.............. $723,791 $681,026 $780,400 $1,768,362 $1,499,473
REO........................... 225,566 161,948 179,862 452,971 267,604
Accruing loans contractually
past due 90 days or more (all
single family)................ -- -- -- 155,864 162,532
TDRs.......................... 163,844 121,365 100,751 61,400 266,656
Other impaired major loans.... 51,018 12,158 391,044 -- --
</TABLE>
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
1995 1994 (DECREASE)
-------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans:
Single family................................. $630,395 $568,808 $ 61,587
Multi-family.................................. 81,366 69,856 11,510
Commercial and industrial real estate......... 12,030 42,362 (30,332)
-------- -------- --------
723,791 681,026 42,765
-------- -------- --------
REO:
Single family................................. 193,729 135,357 58,372
Multi-family.................................. 14,139 14,181 (42)
Commercial and industrial real estate......... 17,698 12,410 5,288
-------- -------- --------
225,566 161,948 63,618
-------- -------- --------
Total nonperforming assets:
Single family................................. 824,124 704,165 119,959
Multi-family.................................. 95,505 84,037 11,468
Commercial and industrial real estate......... 29,728 54,772 (25,044)
-------- -------- --------
Total....................................... $949,357 $842,974 $106,383
======== ======== ========
TDRs:
Single family................................. $ 45,592 $ 21,885 $ 23,707
Multi-family.................................. 75,482 56,824 18,658
Commercial and industrial real estate......... 42,770 42,656 114
-------- -------- --------
Total....................................... $163,844 $121,365 $ 42,479
======== ======== ========
Other impaired major loans:
Multi-family.................................. $ 32,273 $ 10,652 $ 21,621
Commercial and industrial real estate......... 18,745 1,506 17,239
-------- -------- --------
Total....................................... $ 51,018 $ 12,158 $ 38,860
======== ======== ========
Ratio of nonperforming assets to total assets... 1.88% 1.57%
======== ========
Ratio of nonperforming assets and TDRs to total
assets.......................................... 2.20% 1.79%
======== ========
Ratio of allowances for losses on loans and REO
to nonperforming assets......................... 42.43% 50.12%
======== ========
</TABLE>
38
<PAGE>
The following table presents nonperforming assets, TDRs and other impaired
major loans by state at December 31, 1995:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
----------------------------------------------
COMMERCIAL OTHER
MULTI- AND IMPAIRED
SINGLE FAMILY FAMILY INDUSTRIAL MAJOR
RESIDENTIAL RESIDENTIAL REAL ESTATE TOTAL TDRS LOANS
------------- ----------- ----------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
California.............. $677,972 $84,221 $21,396 $783,589 $101,188 $35,783
New York................ 48,744 5,522 2,825 57,091 40,392 8,126
Florida................. 34,412 -- 188 34,600 398 --
Illinois................ 17,014 156 3,103 20,273 612 --
Texas................... 8,074 556 12 8,642 6,368 --
Other................... 37,908 5,050 2,204 45,162 14,886 7,109
-------- ------- ------- -------- -------- -------
$824,124 $95,505 $29,728 $949,357 $163,844 $51,018
======== ======= ======= ======== ======== =======
</TABLE>
Total nonperforming assets were $949.4 million at December 31, 1995, or a
ratio of nonperforming assets to total assets of 1.88%, an increase of $106.4
million or 13% during 1995 from $843.0 million, or 1.57% of total assets, at
December 31, 1994.
Single family nonperforming assets were $824.1 million at December 31, 1995,
an increase of $120.0 million or 17% from $704.1 million at December 31, 1994
primarily due to increases in California REO of $56.3 million and nonaccrual
loans secured by California and New York properties of $54.5 million and $8.0
million, respectively.
The increase in single family nonperforming assets was primarily due to
loans originated prior to 1992 and secured by California properties,
especially Southern California properties. Single family underwriting
standards were modified in 1990 and 1991 to change the focus from collateral
valuation, which is most effective when real estate values are stable or
rising, to an emphasis on the borrowers' credit history. The combination of a
weak economy and a steep decline in real estate values since 1991,
particularly in Southern California, has contributed to the large proportion
of 1995 single family nonperforming assets related to loans originated prior
to 1992. The conversion to a new loan servicing system in September 1995,
which caused a temporary disruption in the collection process, also
contributed to an increase in single family nonperforming assets. The amount
of future nonperforming assets is primarily dependent upon the strength of the
residential real estate market, particularly in Southern California.
Multi-family nonperforming assets totaled $95.5 million at December 31,
1995, an increase of $11.5 million or 14% from $84.0 million at December 31,
1994 primarily due to increases in the states of California ($5.7 million),
New Jersey ($3.3 million) and New York ($2.4 million).
Commercial and industrial nonperforming assets totaled $29.7 million at
December 31, 1995, a decrease of $25.0 million or 46% from $54.7 million at
December 31, 1994 primarily due to declines in the states of California ($16.9
million), New York ($2.9 million), New Jersey ($2.7 million) and Illinois
($2.2 million). The decline reflects the Company's decision in 1988 to
discontinue originating these loans.
TDRs totaled $163.8 million at December 31, 1995, an increase of $42.4
million or 35% during 1995 from $121.4 million at December 31, 1994 primarily
due to an increase in TDRs secured by properties in California ($41.5
million), partially offset by a decrease in TDRs secured by properties in
Illinois ($3.0 million). The increase in TDRs was also caused by a weak
California economy and residential real estate market which continued to
deteriorate during 1995, particularly in Southern California.
Other impaired major loans totaled $51.0 million at December 31, 1995, an
increase of $38.8 million from $12.2 million at December 31, 1994 primarily
due to increases of $27.9 million and $6.4 million in such loans secured by
properties in California and New York, respectively.
39
<PAGE>
The amount of the net recorded investment in impaired loans for which there
is a related specific allowance for loan losses was $129.2 million, net of an
allowance of $44.6 million, and $71.0 million, net of an allowance of $29.9
million, at December 31, 1995 and 1994, respectively. The Company's total net
recorded investment in impaired loans (excluding those loans collectively
reviewed for impairment) was $272.5 million and $204.5 million at December 31,
1995 and 1994, respectively.
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 $288.5 million of single family REO and
$91.7 million of multi-family and commercial and industrial REO in 1995. 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,
-----------------------------------------------------------
1995 1994 1993
------------------- ------------------- -------------------
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........... $143,932 0.39% $141,937 0.37% $171,778 0.48%
Multi-family............ 34,614 0.37 10,395 0.12 27,278 0.38
Commercial and
industrial real estate.. 2,648 0.17 9,540 0.55 3,706 0.18
-------- -------- --------
$181,194 0.38 $161,872 0.33 $202,762 0.45
======== ======== ========
</TABLE>
The increase in loans 60-89 days delinquent was influenced by the continued
weakness in the Southern California economy and real estate market. Single
family loans 60-89 days delinquent increased $2.0 million in 1995 primarily in
the states of California ($5.7 million) and Florida ($2.1 million), partially
offset by declines in the state of New York ($8.7 million). Multi-family loans
60-89 days delinquent increased $24.2 million in 1995 primarily in the states
of California ($17.4 million) and New York ($7.7 million). These increases
were offset by a decline of $6.9 million in commercial and industrial real
estate loans 60-89 days delinquent, primarily in California ($6.4 million).
Allowance for Loan Losses. Management believes the Company's allowance for
loan losses was adequate at December 31, 1995. 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.
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.
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
40
<PAGE>
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,
---------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
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........... $174,242 77.3% 0.47% $165,000 79.1% 0.42%
Multi-family............ 147,708 19.4 1.59 160,232 17.4 1.88
Commercial and
industrial real estate. 58,936 3.3 3.78 75,000 3.5 4.34
-------- ----- -------- -----
$380,886 100.0% 0.80 $400,232 100.0% 0.81
======== ===== ======== =====
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
1993 1992
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
PERCENT OF ALLOWANCE PERCENT OF ALLOWANCE
LOAN AND MBS TO LOAN LOAN AND MBS TO LOAN
PORTFOLIO IN AND MBS PORTFOLIO IN AND MBS
ALLOWANCE EACH CATEGORY PORTFOLIO ALLOWANCE EACH CATEGORY PORTFOLIO
--------- ------------- ---------- --------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Single family........... $155,516 79.5% 0.43% $185,343 79.5% 0.54%
Multi-family............ 145,097 16.1 2.00 120,946 15.0 1.86
Commercial and
industrial real estate. 138,173 4.4 6.90 120,962 5.1 5.47
Credit cards............ -- -- -- 6,863 0.4 4.25
-------- ----- -------- -----
$438,786 100.0% 0.97 $434,114 100.0% 1.00
======== ===== ======== =====
<CAPTION>
DECEMBER 31, 1991
----------------------------------
PERCENT OF
PERCENT OF ALLOWANCE
LOAN AND MBS TO LOAN
PORTFOLIO IN AND MBS
ALLOWANCE EACH CATEGORY PORTFOLIO
--------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Single family........... $110,366 80.1% 0.32%
Multi-family............ 78,838 13.6 1.35
Commercial and
industrial real estate. 109,293 5.9 4.32
Credit cards............ 5,307 0.4 3.30
-------- -----
$303,804 100.0% 0.71
======== =====
</TABLE>
The allocation of the allowance for loan losses by type at December 31, 1995
reflects continued reduction in the commercial and industrial real estate loan
portfolio and the increase in the level of single family nonperforming loans.
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
41
<PAGE>
industrial real estate loans. Although the single family loan portfolio
decreased $2.0 billion or 5% in 1995 due to principal payments and loan sales,
the allocation of the allowance to the single family loan portfolio increased
since December 31, 1994 in response to the increase in single family
nonperforming loans and other factors. As a result of the changes in the
composition of the Company's nonperforming assets, the ratio of allowances for
losses on loans and REO to nonperforming assets declined from 50.12% in 1994
to 42.43% in 1995. For additional information regarding the allowance for loan
losses, see "Financial Condition--Asset Quality--Nonperforming Assets and
Potential Problem Loans."
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,
-----------------------------------------------------
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
the year............... $ 400,232 $ 438,786 $ 434,114 $ 303,804 $ 213,339
Provision for loan
losses................. 119,111 176,557 574,970 367,366 195,062
Allowance for loan
losses on loans
purchased.............. -- -- 20,365 -- --
--------- --------- --------- --------- ---------
519,343 615,343 1,029,449 671,170 408,401
--------- --------- --------- --------- ---------
Charge-offs:
Single family......... (87,240) (97,865) (469,204) (114,086) (46,631)
Multi-family.......... (53,263) (114,323) (76,189) (60,956) (33,396)
Commercial and
industrial real
estate............... (22,115) (40,546) (68,135) (73,069) (44,952)
Credit cards.......... -- -- (10,207) (7,382) (5,243)
--------- --------- --------- --------- ---------
(162,618) (252,734) (623,735) (255,493) (130,222)
--------- --------- --------- --------- ---------
Recoveries:
Single family......... 14,967 14,759 18,392 9,601 8,843
Multi-family.......... 7,405 15,314 7,365 5,286 14,802
Commercial and
industrial real
estate............... 1,789 7,550 7,315 3,550 1,980
--------- --------- --------- --------- ---------
24,161 37,623 33,072 18,437 25,625
--------- --------- --------- --------- ---------
Net charge-offs..... (138,457) (215,111) (590,663) (237,056) (104,597)
--------- --------- --------- --------- ---------
Balance at end of the
year................... $ 380,886 $ 400,232 $ 438,786 $ 434,114 $ 303,804
========= ========= ========= ========= =========
Ratio of net charge-offs
to average loans and
MBS outstanding during
the year............... 0.28% 0.47% 1.36% 0.56% 0.24%
========= ========= ========= ========= =========
</TABLE>
Gross charge-offs were lower in 1995 compared to 1994 due to the sale of
nonaccrual and impaired loans during 1994. Gross charge-offs of $79.2 million
in 1994 related to sales of nonaccrual loans and impaired major loans. The
lower provision for losses in 1995 compared to 1994 reflects these loan sales
in 1994 and a $30.0 million provision in 1994 related to the estimated losses
due to the Northridge earthquake.
The majority of 1995 charge-offs related to loans originated prior to 1992
and secured by California properties, especially Southern California
properties. Approximately 84% of 1995 gross single family loan charge-offs
related to loans originated prior to 1992. Single family loans originated
prior to 1992 represented approximately 59% of the loan and MBS portfolio at
December 31, 1995. Single family underwriting standards were modified in 1990
and 1991 to change the focus from collateral valuation, which is most
effective when real estate values are stable or rising, to an emphasis on the
borrowers' credit history. The combination of a weak economy and a steep
decline in real estate values since 1991, particularly in Southern California,
has contributed to the large proportion of 1995 single family loan charge-offs
related to loans originated prior to 1992. While single family loans
originated after the modification of underwriting standards in 1990 and 1991
have performed better than such loans originated prior to the modifications,
there can be no assurance that this experience will
42
<PAGE>
continue in the future. The amount of future loan charge-offs and related
credit costs are primarily dependent upon the strength of the residential real
estate market, particularly in Southern California.
Although the Company believes it has a sound basis for its estimate of the
appropriate allowance for loan losses, actual charge-offs and the level of
nonperforming assets incurred in the future are highly dependent upon future
events, including the economies of the areas in which the Company lends.
Management believes that the principal risk factor which could potentially
require an increase in the allowance for loan losses is the potential further
deterioration in the residential purchase market in California, particularly
in Southern California.
REI. The Company's REI decreased $78.4 million or 25% to $234.9 million at
December 31, 1995 from $313.3 million at December 31, 1994. The allowance for
losses on REI was $283.7 million or 54.7% of gross REI at December 31, 1995,
compared to $333.8 million or 51.6% of gross REI at December 31, 1994. The
decline in net REI was primarily due to the continued development and sale of
ongoing residential projects and the sale of five commercial development
projects. In addition, the provision for losses for 1995 totaled $49.7
million, which included a $40.0 million charge during the third quarter of
1995 due largely to a deterioration in the value of a commercial REI project
in California.
The following table presents the Company's REI by type and state at December
31, 1995:
<TABLE>
<CAPTION>
GROSS ALLOWANCE FOR NET
BOOK VALUE LOSSES BOOK VALUE
---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Residential REI:
California................................ $ 53,717 $ 32,493 $ 21,224
Maryland.................................. 47,973 21,483 26,490
-------- -------- --------
101,690 53,976 47,714
Commercial and industrial REI and
undeveloped land.......................... 416,913 229,772 187,141
-------- -------- --------
Total REI.................................. $518,603 $283,748 $234,855
======== ======== ========
</TABLE>
The Company intends to continue its withdrawal from real estate development
activities. Although the Company does not intend to acquire new properties, it
intends to develop, hold and/or sell its current properties depending on
economic conditions. The Company has certain projects with long-term holding
and development periods. Plans are underway for the sale of several other
properties in 1996. 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 $2.4 billion at
43
<PAGE>
December 31, 1995, increased $227.9 million or 11% from December 31, 1994. The
increase is primarily due to MBS sales of $2.9 billion, a net increase in
borrowings of $3.1 billion and the creation of $1.4 billion of liquid-
qualifying MBS, substantially offset by a net decrease of $6.4 billion in
deposits. Regulations of the Office of Thrift Supervision ("OTS") require each
savings institution to maintain, for each calendar month, an average daily
balance of liquid assets equal to at least 5% of the average daily balance of
its net withdrawable accounts plus short-term borrowings during the preceding
calendar month. OTS regulations also require each savings institution to
maintain, for each calendar month, an average daily balance of short-term
liquid assets (generally those having maturities of 12 months or less) equal
to at least 1% of the average daily balance of its net withdrawable accounts
plus short-term borrowings during the preceding calendar month. For December
1995 the average liquidity and average short-term liquidity ratios of Home
Savings were 5.24% and 1.63%, 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 and increases in deposits. Positive cash flows
are also generated through the sale of MBS, loans and other assets for cash.
Sources of liquidity may also include borrowings 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 1995 were principal payments and prepayments on loans and
MBS, proceeds from borrowings and proceeds from sales of loans and MBS.
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.
Loans Receivable. During 1995, the Company's primary use of cash, excluding
the New York sale, was to fund $6.1 billion of internally generated mortgage
loans. Gross loan originations in 1995 of $6.5 billion included $4.3 billion
of COFI ARMs with an average factor of 272 basis points above COFI, $581.1
million of Treasury ARMs, $1.5 billion of fixed rate loans originated for sale
and $35.5 million of consumer loans. Loans receivable totaled $31.3 billion at
December 31, 1995, a decrease of $4.7 billion or 13% during 1995, primarily
due to the securitization of $7.4 billion in ARM loans. Principal payments on
loans were $1.7 billion in 1995, representing a decrease of $1.2 billion or
40% from $2.9 billion in 1994. For additional information see "Financial
Condition--Liquidity and Capital Resources--MBS."
During 1995 the Company sold loans, primarily fixed rate, totaling $1.4
billion. The Company designates certain loans as available for sale, including
most of its fixed rate originations. At December 31, 1995 the Company had
$981.9 million of loans available for sale. The loans designated for sale
include $715.0 million in COFI ARMs, $157.7 million of Treasury ARMs and
$109.2 million of fixed rate loans.
At December 31, 1995 the Company was committed to fund mortgage loans
totaling $471.6 million, of which $262.6 million or 56% were COFI ARMs, $51.2
million or 11% were Treasury ARMs and $157.8 million or 33% were fixed rate
loans. The Company expects to fund such loans from its liquidity sources.
MBS. During 1995 the Company sold $2.9 billion of MBS available for sale,
comprised of $2.2 billion of ARM MBS and $706.1 million of fixed rate MBS.
Such sales included $2.1 billion of ARM MBS and $212.4 million of fixed rate
MBS sold to fund the New York sale. As a part of the funding of the New York
sale, the Company sold $464.6 million in fixed rate MBS and $38.7 million in
ARM MBS originally classified as held to
44
<PAGE>
maturity which was necessary in order for the Company to maintain its interest
rate risk position as it existed prior to the funding transactions related to
this major disposition as permitted by SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
During the fourth quarter of 1995, the Financial Accounting Standards Board
("FASB") provided a one-time opportunity for institutions to reclassify
securities from the "held to maturity" designation to the "available for sale"
designation. Such reclassification was permitted, in a single transaction,
during the period November 15, 1995 through December 31, 1995. The Company
reclassified $10.3 billion of MBS, with an unrealized gain of $32.0 million,
during this time period. At December 31, 1995 the Company had $10.3 billion of
MBS available for sale.
In May 1995 the Company securitized $6.4 billion of COFI ARMs into Federal
Home Loan Mortgage Corporation collateralized mortgage obligations. An
additional $1.0 billion of ARMs were securitized into mortgage pass-through
securities during the first quarter of 1995. These MBS increase the Company's
access to less expensive collateralized borrowings.
Deposits. Savings deposits were $34.2 billion at December 31, 1995, a
decrease of $6.4 billion or 16% during 1995, primarily reflecting deposits
sold of $8.1 billion in the New York sale, partially offset by deposits
purchased of $1.3 billion and a net deposit inflow of $413.6 million. The net
deposit inflow reflects the Company's strategy to increase certain term
deposit accounts by offering market competitive interest rates on such
deposits and reduce certain higher costing borrowings.
On June 16, 1995, the Company completed the purchase of $1.2 billion in
deposits from Household Bank, FSB for a deposit premium of approximately 4%.
As a result of this purchase, the Company acquired 52 retail branches in
Southern California of which 16 were consolidated with existing Home Savings
branches. The Company also purchased deposits totaling $64.3 million from
three other California financial institutions, for an average deposit premium
of approximately 2% during 1995. 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, 1995, 77%, 13%, 9% and
1% of the Company's total deposits were in California, Florida, Texas and
Arizona, respectively, compared to 62%, 20%, 11% and 7%, in California, New
York, Florida and Texas, respectively, at December 31, 1994.
Borrowings. Borrowings totaled $12.2 billion at December 31, 1995, an
increase of $3.0 billion or 33% from $9.2 billion at December 31, 1994,
reflecting increases in short-term borrowings of $1.1 billion and FHLB and
other borrowings of $1.9 billion. The increase in short-term borrowings was
primarily due to the funding strategy related to the New York sale. The
funding strategy was fully incorporated into the Company's asset/liability
management process and will be fully implemented into the longer-term strategy
of extending repricing duration of the Company's interest-costing liabilities.
The Company's long-term strategy is to gradually return to a risk profile not
materially different from the risk profile in place prior to the New York
sale.
In August 1995, the Company fully paid a maturing note which had an
outstanding balance of $79.9 million and an effective interest rate of 8.38%.
In September 1995, the Company redeemed $72.5 million of 10 1/4% Subordinated
Notes at par. In December 1995, the Company fully paid two maturing notes, one
of which had an outstanding balance of $400.0 million and an effective
interest rate of 5.75%, with the other note having an outstanding balance of
$15.0 million and a contract interest rate of 7.22%.
In 1995, the Company had four issuances of medium term notes totaling $160
million. The notes will mature in three to seven years and have a weighted
average interest rate of 7.11%. Such borrowings are being used for general
corporate purposes.
Capital. Stockholders' equity totaled $3.1 billion at December 31, 1995, an
increase of $92.3 million or 3% from December 31, 1994. The increase is
primarily due to net earnings of $216.2 million and an increase of $72.5
million to the net unrealized gain on securities available for sale. The net
unrealized gain on securities
45
<PAGE>
available for sale at December 31, 1995 was $20.1 million. These increases to
stockholders' equity were partially offset by dividends paid to common and
preferred stockholders of $153.6 million and payments of $62.6 million to
purchase 2.4 million shares of the Company's common stock.
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 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 the Federal Deposit Insurance Corporation Improvement Act, 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, 1995 Home Savings exceeded 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, 1995:
<TABLE>
<CAPTION>
BALANCE RATIO
---------- -----
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Tangible capital (to adjusted total assets)................... $2,953,273 5.90%
Core capital (to adjusted total assets)....................... 2,958,611 5.91
Core capital (to risk-weighted assets) ....................... 2,958,611 9.48
Risk-based capital............................................ 3,878,554 12.43
</TABLE>
The regulatory capital requirements applicable to Home Savings are
continuing to become more stringent as the amount of Home Savings' investment
in real estate investment subsidiaries includable in capital will be phased
out through July 1, 1996. Home Savings currently meets the requirements of the
OTS assuming the present application of the full phase-out provisions. At
December 31, 1995 the capital ratios computed on this more stringent, "fully
phased-in" basis were 5.88% for tangible capital (to adjusted total assets),
5.89% for core capital (to adjusted total assets), 9.44% for core capital (to
risk-weighted assets) and 12.39% for risk-based capital.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
In March 1995 the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, SFAS No. 121 requires that long-lived assets and
certain identified intangibles to be disposed of be reported at the lower of
carrying amount or fair value less costs to sell. SFAS No. 121 must be adopted
for financial statements for fiscal years beginning after December 15, 1995.
The impact on the Company of adopting SFAS No. 121 is not expected to be
material.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
In October 1995 the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 provides a choice of accounting methods and
requires additional disclosures for stock-based employee compensation plans.
SFAS No. 123 defines a fair value based method of accounting for an employee
stock option or similar equity instrument. However, it also allows the
continued use of the intrinsic value based method of
46
<PAGE>
accounting as prescribed by Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees." Regardless of the method used
to account for stock-based compensation, SFAS No. 123 requires all financial
statements to include the fair value of such compensation and certain other
disclosures. SFAS No. 123 must be adopted for financial statements for fiscal
years beginning after December 15, 1995. The Company plans to continue
accounting for stock-based employee compensation plans in accordance with APB
No. 25 and will disclose certain fair value information as prescribed by SFAS
No. 123.
SUBSEQUENT EVENT
In March 1996, the Company redeemed at par approximately $250 million of
10.5% subordinated debt due in June 1997.
RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND
Home Savings is a BIF member institution. Home Savings' deposits are treated
in part as SAIF-insured and in part as BIF-insured. The BIF and the SAIF are
both administered by the FDIC. During 1995, Home Savings paid deposit
insurance premiums to the SAIF on its SAIF deposits and to the BIF on its BIF
deposits.
The reserves of the BIF have reached the statutorily designated reserve
ratio ("DRR"), defined as the ratio of the fund's net worth to the amount of
its total insured deposit liabilities, of 1.25%. The lowest deposit insurance
assessment rate for BIF deposits has therefore been reduced to $2,000 per
institution per year. The reserves of the SAIF have not reached its DRR of
1.25%. The lowest deposit insurance assessment rate for SAIF deposits
therefore remains 0.23% of covered deposits.
The difference between BIF and SAIF assessment rates provides institutions
whose deposits are exclusively or primarily BIF-insured, such as most
commercial banks, a competitive advantage over institutions whose deposits are
primarily SAIF-insured, such as Home Savings. In order to eliminate the
difference between BIF and SAIF assessment rates, Congress adopted a proposal
to recapitalize SAIF to its DRR by means of a special one-time assessment on
SAIF-insured deposits. The proposal, however, was included as part of the
Congressional balanced budget program which was vetoed by President Clinton
and therefore has not been implemented. Congress continues to consider the
recapitalization of SAIF although the Company cannot predict whether or when a
recapitalization will be effected. If a recapitalization of SAIF had been
effected in 1995 as proposed by means of a special assessment equal to 0.80%
of SAIF deposits as of March 31, 1995, Home Savings would have paid a special
assessment of approximately $184 million, net of taxes. An assessment of this
amount would have had a material effect on the Company's net earnings, but
would not have had a material effect on the Company's total assets or
liquidity. Such an assessment would also not have materially affected Home
Savings' capital ratios and Home Savings would still have been considered
well-capitalized.
For additional information regarding SAIF, see "Business--Regulation--
Deposit Insurance" and "--Proposed Legislation."
47
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included on page 56 and the Financial Statements which begin
on page F-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION AGE SINCE
-------- -------- --- -----
<S> <C> <C> <C>
William H. Ahmanson Director 70 1954
Byron Allumbaugh Director 64 1987
Anne-Drue M. Anderson* Executive Vice President and Treasurer 35 --
Harold A. Black Director 50 1995
Richard M. Bressler Director 65 1987
David R. Carpenter Director 57 1995
Fredric J. Forster* Director, President and Chief Operating Officer 51 1995
George G. Gregory* Executive Vice President 63 --
Madeleine A. Kleiner* Executive Vice President, General Counsel and
Secretary 44 --
E. Nancy Markle* Executive Vice President 54 --
Phillip D. Matthews Director 57 1995
George Miranda* First Vice President and
Principal Accounting Officer 48 --
Richard L. Nolan Director 55 1995
Delia M. Reyes Director 54 1992
Charles R. Rinehart* Chairman of the Board and
Chief Executive Officer 49 1990
Frank M. Sanchez Director 52 1995
Elizabeth A. Sanders Director 50 1990
Arthur W. Schmutz Director 74 1993
William D. Schulte Director 63 1991
Kevin M. Twomey* Senior Executive Vice President and Chief Financial
Officer 49 --
</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.
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 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. Black is the James F. Smith Professor of Financial Institutions at the
College of Business Administration at the University of Tennessee, Knoxville.
48
<PAGE>
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. Carpenter is a retired Chairman and Chief Executive Officer of
Transamerica Occidental Life Insurance Company and Executive Vice President of
the parent company, Transamerica Corporation. Mr. Carpenter is the Chairman of
UniHealth and a director of PacifiCare.
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.
Ms. Kleiner joined Ahmanson as Executive Vice President, General Counsel and
Secretary in May 1995. From 1977 until joining Ahmanson, Ms. Kleiner was with
the law firm of Gibson, Dunn & Crutcher where she was a partner since 1983.
Ms. Markle joined Home Savings of America, FSB as First Vice President in
July 1994 and became Executive Vice President in July 1995. Prior to joining
Home Savings of America, Ms. Markle served as President of Information
Technology Consultants since 1987.
Mr. Matthews is Chairman of the Board of Wolverine World Wide, Inc., a NYSE
footwear company, and Chairman and part owner of Reliable Company. Mr.
Matthews also serves as a director of Bell Sports and Panda Management
Company.
Mr. Nolan is the M.B.A. Class of 1942 Professor of Business Administration
at the Graduate School of Business Administration at Harvard University. Mr.
Nolan also serves as a director of Xcellenet Inc.
Ms. Reyes is President and Chief Executive Officer of Reyes Consulting
Group, a market research and consulting firm.
Mr. Sanchez is an owner and operator of eight McDonald's franchises. Mr.
Sanchez is also a director of the Los Angeles Chamber of Commerce, the Los
Angeles Amateur Athletic Foundation and California State University at Los
Angeles foundation.
Ms. Sanders is a business consultant. Ms. Sanders also serves as a director
of Flagstar Companies 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 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.
No directors or executive officers of Ahmanson are related.
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
certain officers of Ahmanson and persons who own more than ten percent of a
registered class of Ahmanson's equity securities to file with the Securities
and Exchange Commission and any national securities exchange on which
Ahmanson's equity
49
<PAGE>
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, 1995 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. De Kruif, who was Vice Chairman of the Board
until his retirement in May 1995 and who reported one transaction late during
1995.
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, 1995 and to be used in
connection with Ahmanson's Annual Meeting of Stockholders to be held on May
13, 1996 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 pursuant to Regulation 14A
within 120 days after December 31, 1995 and to be used in connection with
Ahmanson's Annual Meeting of Stockholders to be held on May 13, 1996 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, 1995
and to be used in connection with Ahmanson's Annual Meeting of Stockholders to
be held on May 13, 1996 is hereby incorporated by reference.
50
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS*
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
--------
<C> <S>
3.1 Certificate of Incorporation of H. F. Ahmanson & Company, as amended (Exhibit 3.1
to Form 10-K for year ended December 31, 1991).
3.2 By-Laws of H. F. Ahmanson & Company, as amended (Exhibit 3.2 to 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 10.2.2-10.19)
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).
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).
10.6.10 Agreement, dated November 1, 1995, between H. F. Ahmanson & Company and Robert M.
De Kruif.
10.8.1 Employment Agreement, dated December 1, 1989, between H. F. Ahmanson & Company
and Charles R. Rinehart (Exhibit 10.8.1 to Form 10-K for year ended December 31,
1989).
10.9.7.1 Supplemental Executive Retirement Plan of H. F. Ahmanson & Company, as amended
and restated.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
UMBERS N
- --------
<S> <C>
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 of H.F. Ahmanson & Company, as amended and
restated (Exhibit 19.2 to Form 10-Q for quarter ended June 30, 1991).
10.9.11.1 First Amendment to Outside Director Retirement Plan of H.F. Ahmanson & Company.
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 (Exhibit
10.9.26 to Form 10-K for year ended December 31, 1994).
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).
10.9.27.1 First Amendment to 1989 Contingent Deferred Compensation Plan of H.F. Ahmanson &
Company.
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).
10.9.28.1 First Amendment to Outside Directors' Elective Deferred Compensation Plan of H.
F. Ahmanson & Company.
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).
10.9.29.1 First Amendment to Elective Deferred Compensation Plan of H. F. Ahmanson &
Company.
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).
10.9.30.1 First Amendment to Executive Life Insurance Plan of H. F. Ahmanson & Company.
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).
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBERS
- --------
<C> <S>
10.17.1 Senior Supplemental Executive Retirement Plan of H. F. Ahmanson & Company, as amended and
restated.
10.18.1 Senior Executive Life Insurance Plan of H. F. Ahmanson & Company, as amended and restated.
10.19 H. F. Ahmanson & Company 1996 Nonemployee Directors' Stock Incentive Plan.
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 56 and the Financial Statements which begin
on page F-2.
REPORTS ON FORM 8-K
The Registrant filed with the Commission a Current Report on Form 8-K dated
September 22, 1995 with respect to the consummation of a sale of assets.
The Registrant filed with the Commission a Current Report on Form 8-K dated
October 19, 1995 with respect to its third quarter earnings.
53
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Irwindale, State of California, on the 27th day of March 1996.
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 27th day of March 1996.
/s/ William H. Ahmanson
_____________________________________
William H. Ahmanson
Director
/s/ Byron Allumbaugh
_____________________________________
Byron Allumbaugh
Director
/s/ Harold A. Black
_____________________________________
Harold A. Black
Director
/s/ Richard M. Bressler
_____________________________________
Richard M. Bressler
Director
/s/ David R. Carpenter
_____________________________________
David R. Carpenter
Director
/s/ Fredric J. Forster
_____________________________________
Fredric J. Forster
Director
/s/ Phillip D. Matthews
_____________________________________
Phillip D. Matthews
Director
54
<PAGE>
/s/ Richard L. Nolan
_____________________________________
Richard L. Nolan
Director
/s/ Delia M. Reyes
_____________________________________
Delia M. Reyes
Director
/s/ Charles R. Rinehart
_____________________________________
Charles R. Rinehart
Director
Principal Executive Officer
/s/ Frank M. Sanchez
_____________________________________
Frank M. Sanchez
Director
/s/
_____________________________________
Elizabeth A. 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
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-1
H. F. Ahmanson & Company and Subsidiaries (Consolidated):
Consolidated Statements of Financial Condition as of December 31, 1995
and 1994............................................................... F-2
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993.................................................... F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993....................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.................................................... 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.
56
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
H. F. Ahmanson & Company:
We have audited the accompanying consolidated statements of financial
condition of H. F. Ahmanson & Company and subsidiaries as of December 31, 1995
and 1994, 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, 1995. 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the Consolidated Financial Statements, the Company
changed its method of accounting for goodwill in 1995.
KPMG PEAT MARWICK LLP
Los Angeles, California
January 23, 1996
F-1
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
1995 1994
----------- -----------
<S> <C> <C>
Cash and amounts due from banks..................... $ 752,878 $ 782,678
Securities purchased under agreements to resell..... 381,000 952,000
Other short-term investments........................ 13,278 311,942
----------- -----------
Total cash and cash equivalents.............. 1,147,156 2,046,620
Other investment securities held to maturity [market
value $2,484 (1995) and $270,187 (1994)]........... 2,448 276,945
Other investment securities available for sale
[amortized cost $9,327 (1995) and $10,670 (1994)].. 9,908 10,117
Investment in stock of Federal Home Loan Bank
(FHLB), at cost.................................... 485,938 439,891
Mortgage-backed securities (MBS) held to maturity
[market value $5,965,045 (1995) and $10,013,827
(1994)]............................................ 5,825,276 10,339,864
MBS available for sale [amortized cost $10,293,537
(1995) and $2,539,504 (1994)]...................... 10,326,866 2,449,556
Loans receivable less allowance for losses of
$380,886 (1995) and $400,232 (1994)................ 30,273,514 35,992,566
Loans held for sale [market value $992,550 (1995)
and $9,192 (1994)]................................. 981,865 9,179
Accrued interest receivable......................... 228,111 212,947
Real estate held for development and investment
(REI) less allowance for losses of $283,748 (1995)
and $333,825 (1994)................................ 234,855 313,316
Real estate owned held for sale (REO) less allowance
for losses of $38,080 (1995) and $44,726 (1994).... 225,566 161,948
Premises and equipment.............................. 410,947 614,817
Goodwill and other intangible assets................ 147,974 468,542
Other assets........................................ 229,162 293,259
Income taxes........................................ -- 97,226
----------- -----------
$50,529,586 $53,726,793
=========== ===========
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits............................................ $34,244,481 $40,655,016
Short-term borrowings under agreements to repurchase
securities sold.................................... 3,519,311 2,253,805
Other short-term borrowings......................... -- 100,000
FHLB and other borrowings........................... 8,717,117 6,822,280
Other liabilities................................... 873,313 931,091
Income taxes........................................ 118,442 --
----------- -----------
Total liabilities............................ 47,472,664 50,762,192
----------- -----------
<CAPTION>
STOCKHOLDERS' EQUITY
<S> <C> <C>
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 115,610,077 shares (1995) and
117,113,231 shares (1994) after deducting
2,785,214 shares (1995) and 307,295 shares
(1994) in treasury.............................. 1,156 1,171
Additional paid-in capital.......................... 1,192,097 1,235,788
Net unrealized gain (loss) on securities available
for sale, net of taxes............................. 20,090 (52,440)
Retained earnings................................... 1,843,704 1,781,093
----------- -----------
3,057,096 2,965,661
Unearned compensation............................... (174) (1,060)
----------- -----------
Total stockholders' equity................... 3,056,922 2,964,601
----------- -----------
$50,529,586 $53,726,793
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest on loans........................ $2,405,820 $2,265,050 $2,623,139
Interest on MBS.......................... 1,158,077 686,390 278,908
Interest and dividends on investments.... 135,194 143,935 101,375
---------- ---------- ----------
Total interest income.................. 3,699,091 3,095,375 3,003,422
---------- ---------- ----------
Interest expense:
Deposits................................. 1,835,590 1,291,893 1,301,063
Short-term borrowings.................... 197,437 182,721 112,171
FHLB and other borrowings................ 439,309 323,840 253,116
---------- ---------- ----------
Total interest expense................. 2,472,336 1,798,454 1,666,350
---------- ---------- ----------
Net interest income.................... 1,226,755 1,296,921 1,337,072
Provision for loan losses.................. 119,111 176,557 574,970
---------- ---------- ----------
Net interest income after provision for
loan losses........................... 1,107,644 1,120,364 762,102
---------- ---------- ----------
Other income:
Gain on sales of MBS..................... 11,919 4,868 21,007
Gain (loss) on sales of loans............ 5,364 (21,036) 80,037
Loan servicing income.................... 60,490 74,441 58,854
Other fee income......................... 103,626 110,368 115,207
Gain on sales of retail deposit branch
systems................................. 514,671 77,901 --
Gain on sales of investment securities... 187 202 --
Other operating income................... 2,152 13,612 42,723
---------- ---------- ----------
698,409 260,356 317,828
---------- ---------- ----------
Other expenses:
Compensation and other employee expenses. 378,851 340,645 352,945
Occupancy expenses....................... 148,250 132,282 139,107
Federal deposit insurance premiums and
assessments............................. 86,909 105,238 88,403
Other general and administrative
expenses................................ 204,569 180,395 238,948
---------- ---------- ----------
Total general and administrative
expenses.............................. 818,579 758,560 819,403
Operations of REI........................ 49,481 97,644 229,300
Operations of REO........................ 86,788 86,011 212,130
Amortization of goodwill and other
intangible assets....................... 26,559 27,835 39,163
---------- ---------- ----------
981,407 970,050 1,299,996
---------- ---------- ----------
Earnings (loss) before provision for income
taxes (benefit), extraordinary loss and
cumulative effect of accounting change.... 824,646 410,670 (220,066)
Provision for income taxes (benefit)....... 373,700 173,312 (82,034)
---------- ---------- ----------
Earnings (loss) before extraordinary loss
and cumulative effect of accounting
change.................................... 450,946 237,358 (138,032)
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 goodwill.............................. (234,742) -- --
---------- ---------- ----------
Net earnings (loss)........................ $ 216,204 $ 237,358 $ (159,639)
========== ========== ==========
Earnings (loss) per common share--primary:
Earnings (loss) before extraordinary loss
and cumulative effect of accounting
change................................... $ 3.39 $ 1.59 $ (1.51)
Extraordinary loss on early
extinguishment of debt.................. -- -- (0.18)
Cumulative effect of change in accounting
for goodwill............................ (1.99) -- --
---------- ---------- ----------
Net earnings (loss)...................... $ 1.40 $ 1.59 $ (1.69)
========== ========== ==========
Earnings (loss) per common share--fully
diluted:
Earnings (loss) before extraordinary loss
and cumulative effect of accounting
change.................................. $ 3.20 $ 1.58 $ (1.51)
Extraordinary loss on early
extinguishment of debt.................. -- -- (0.18)
Cumulative effect of change in accounting
for goodwill............................ (1.80) -- --
---------- ---------- ----------
Net earnings (loss)...................... $ 1.40 $ 1.58 $ (1.69)
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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,
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)
Net earnings............ 216,204 -- -- -- -- 216,204 --
Dividends on Common
Stock ($0.88 per
share)................. (103,163) -- -- -- -- (103,163) --
Dividends on Preferred
Stock.................. (50,430) -- -- -- -- (50,430) --
Unrealized gain on
securities available
for sale, net of tax
effect of $53,360...... 72,530 -- -- -- 72,530 -- --
Restricted stock awards
granted, net of
cancellations.......... (477) -- -- (446) -- -- (31)
Unearned compensation
amortized to expense... 917 -- -- -- -- -- 917
Stock options exercised. 16,631 -- 9 16,622 -- -- --
Shares repurchased
(2,439,000 shares)..... (62,595) -- (24) (62,571) -- -- --
Tax benefits from
restricted stock awards
and stock options...... 2,704 -- -- 2,704 -- -- --
---------- --- ------ ---------- -------- ---------- -------
BALANCE, DECEMBER 31,
1995................... $3,056,922 $49 $1,156 $1,192,097 $ 20,090 $1,843,704 $ (174)
========== === ====== ========== ======== ========== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................. $ 216,204 $ 237,358 $ (159,639)
Adjustments to reconcile net
earnings (loss) to net cash provided
by operating activities:
Interest capitalized on loans
(negative amortization)......... (156,367) (39,031) (50,625)
Amortization of deferred loan
fees and interest............... (31,768) (43,103) (39,174)
Provision for losses on loans and
real estate..................... 209,969 301,761 887,957
Depreciation and amortization.... 98,539 86,833 116,402
Extraordinary loss on early
extinguishment of debt, net of
taxes........................... -- -- 21,607
Cumulative effect of change in
accounting for goodwill......... 234,742 -- --
Gain on sales of retail deposit
branch systems.................. (514,671) (77,901) --
(Increase) decrease in accrued
interest receivable............. (15,164) (46,099) 38,186
FHLB stock dividends............. (23,838) (20,609) (12,895)
Cash (gain) loss on sales of
loans........................... (9,037) 2,687 (80,037)
Increase in credit enhancement
liability....................... 3,673 18,350 6,755
Cash gain on sales of MBS........ (11,919) (4,868) (27,762)
Cash gain on sales of servicing
rights.......................... -- (16,798) --
Proceeds from sales of loans
originated for sale............. 1,390,709 562,510 2,397,341
Loans originated for sale........ (1,330,034) (350,729) (2,156,143)
Loans repurchased from investors. (72,842) (74,110) (266,688)
Proceeds from loan origination
fees............................ 5,276 20,660 62,842
Loss on sales of real estate..... 4,754 23,033 71,621
Provision for deferred income tax
(benefit)....................... 54,192 (25,339) (37,745)
Increase (decrease) in other
liabilities..................... 11,949 119,263 (137,009)
Other, net....................... 65,005 (60,473) 26,823
----------- ----------- ------------
Net cash provided by operating
activities..................... 129,372 613,395 661,817
----------- ----------- ------------
Cash flows from investing activities:
Proceeds from sales of MBS available
for sale........................... 2,433,462 405,069 932,707
Proceeds from sales of MBS held to
maturity........................... 491,100 -- --
Proceeds from sales of impaired
loans and credit card portfolio.... -- 163,557 989,199
Proceeds from sales of servicing
rights............................. -- 16,798 --
Principal payments on loans......... 1,808,515 2,916,069 4,691,522
Principal payments on MBS........... 1,282,114 1,180,403 881,894
Loans originated for investment, net
of refinances...................... (4,801,436) (9,228,503) (8,101,619)
Loans purchased..................... (44,590) (4,748) (1,062,447)
MBS purchased....................... (535) (585,955) (802,135)
Proceeds from maturities of other
investment securities.............. 258,756 56,259 1,730
Proceeds from sales of other
investment securities.............. 26,519 5,202 --
Other investment securities
purchased.......................... (8,546) (337,571) (6,052)
Net (purchases) redemption of FHLB
stock.............................. (22,209) (54,890) 48,616
Proceeds from sales of REI.......... 128,416 82,973 86,288
Proceeds from sales of REO.......... 308,284 328,756 453,318
Net (additions to) sales of premises
and equipment...................... 62,318 1,140 (50,959)
Additions to REI.................... (51,152) (47,955) (83,650)
Other, net.......................... 9,058 115,214 (5,221)
----------- ----------- ------------
Net cash provided by (used in)
investing activities........... 1,880,074 (4,988,182) (2,026,809)
----------- ----------- ------------
Cash flows from financing activities:
Net increase (decrease) in deposits. 413,597 1,418,848 (1,651,128)
Proceeds from deposits purchased.... 1,299,322 2,796,522 1,766,753
Deposits sold....................... (7,462,847) (1,456,947) (1,370,164)
Net increase (decrease) in
borrowings maturing in 90 days or
less............................... 1,565,506 (2,626,779) 2,530,073
Proceeds from other borrowings...... 4,289,070 4,533,716 16,204,071
Repayment of other borrowings....... (2,797,370) (1,620,703) (14,871,077)
Net proceeds from issuance of
Preferred Stock.................... -- -- 469,135
Common stock purchased for treasury. (62,595) -- --
Dividends to stockholders........... (153,593) (153,378) (138,133)
----------- ----------- ------------
Net cash provided by (used in)
financing activities........... (2,908,910) 2,891,279 2,939,530
----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents..................... (899,464) (1,483,508) 1,574,538
Cash and cash equivalents at beginning
of year.............................. 2,046,620 3,530,128 1,955,590
----------- ----------- ------------
Cash and cash equivalents at end of
year................................ $ 1,147,156 $ 2,046,620 $ 3,530,128
=========== =========== ============
Supplemental cash flow information:
Interest paid on deposits........... $ 1,828,836 $ 1,284,749 $ 1,294,170
Interest paid on borrowings......... 556,907 442,815 333,306
Income tax payments, net of
(refunds).......................... 208,731 107,327 (1,122)
Non-cash investing activities:
Loans securitized into MBS.......... 7,441,138 7,123,693 3,951,920
Additions to REO.................... 385,770 449,738 633,802
Loans originated to sell REO........ 58,263 103,071 313,090
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(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
consumer 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.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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, 1995 the required reserves totaled $145.9 million.
Accounting for Securities
The Company classifies 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 1995 or 1994.
During the fourth quarter of 1995, the Financial Accounting Standards Board
("FASB") permitted a one-time opportunity for institutions to reclassify
securities from the "held to maturity" designation to "available for sale."
The Company reclassified $10.3 billion of MBS during this time period. At
December 31, 1995, the unrealized gain on these securities was approximately
$32.0 million.
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 ("MPTs") and through government
sponsored enterprises ("GSEs") including Federal National Mortgage Association
F-6
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
("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, 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 reviews loans for impairment in accordance with Statement of
Accounting Standards ("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
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. 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.
F-7
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
Loan and MBS Sales and Servicing Activities
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 excess servicing fee receivable "ESFR"), is retained by the Company
and a normal servicing fee is recognized as income over the estimated life of
the loan. The ESFR on sales of loans and MBS is computed with highly
conservative assumptions. Thus, any gain or loss recorded is determined
primarily by the cash amount received, less estimated liability under credit
enhancements provided by the Company, if any. The ESFR is amortized using the
interest method over the estimated lives of the loans, with adjustments based
on actual prepayment experience. The amortization of ESFR is included in "Loan
servicing income" in the Consolidated Statements of Operations.
The Company adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights,
an Amendment to FASB No. 65," effective April 1, 1995. In accordance with SFAS
No. 122, the Company capitalizes mortgage servicing rights ("MSR") related to
mortgage loans designated for sale. The total cost of the mortgage loans
designated for sale is allocated to the MSR and the mortgage loans without the
MSR based on their relative fair values. The amount of MSR capitalized is
included in "Other assets" in the Consolidated Statements of Financial
Condition. The MSR are amortized over the projected servicing period and are
periodically reviewed for impairment based on fair value. The fair value of
the MSR, for the purposes of impairment, is measured using a discounted cash
flow analysis based on the Company's estimated servicing costs, market
prepayment rates and market-adjusted discount rates. Impairment losses are
recognized through a valuation allowance. Impairment is measured on a
disaggregated basis based on predominant risk characteristics of the
underlying mortgage loans. The risk characteristics used by the Company for
the purposes of capitalization and impairment evaluation include loan amount,
loan type, loan origination date, loan term and collateral type. The
amortization of MSR and the amount of impairment recognized, if any, are
included in "Loan servicing income" in the Consolidated Statements of
Operations.
F-8
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 gain on sale
of loans. The fair values of the Company's forward sales and options at
December 31, 1995 and 1994 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 the assignment of the Company's rights and obligations
under the swap agreement 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 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
The Company has acquired various savings deposits in California. 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
F-9
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consideration paid over the fair value of the assets acquired in connection
with these acquisitions has been included in "Goodwill and other intangible
assets" in the accompanying Consolidated Statements of Financial Condition.
Effective January 1, 1995, the Company adopted SFAS No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions" for goodwill related
to acquisitions made prior to September 30, 1982. As a result, the Company
wrote off goodwill totaling $234.7 million as a cumulative effect of the
change in accounting for goodwill. SFAS No. 72 requires, among other things,
that goodwill resulting from the acquisition of banking or thrift institutions
initiated after September 30, 1982 be amortized over a period no longer than
the estimated remaining life of the acquired long-term interest-earning
assets. The adoption of SFAS No. 72 for goodwill relating to acquisitions of
banking or thrift institutions prior to September 30, 1982 is permitted but
not required. The Company has been accounting for acquisitions initiated
subsequent to September 30, 1982 in accordance with SFAS No. 72.
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. The unamortized goodwill at December 31, 1995 aggregated $77.2
million and is being amortized over a period of 15 years.
The Company reduced its goodwill balance in the third quarter of 1995 by
$101.8 million related to the sale of the Company's New York retail branch
deposit system (the "New York sale") and in the fourth quarter of 1994 by
$25.6 million related to the sale of the Company's Illinois retail branch
deposit system.
From 1991 through 1995, 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. The Company reduced its core deposit premium in the third quarter 1995
by $5.1 million related to the New York sale. At December 31, 1995, the
unamortized core deposit premium was $70.8 million.
Statement of Financial Accounting Standards No. 121
In March 1995 the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, SFAS No. 121 requires that long-lived assets and
certain identified intangibles to be disposed of be reported at the lower of
carrying amount or fair value less costs to sell. SFAS No. 121 must be adopted
for financial statements for fiscal years beginning after December 15, 1995.
The impact on the Company of adopting SFAS No. 121 is not expected to be
material.
Statement of Financial Accounting Standards No. 123
In October 1995 the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 provides a choice of accounting methods and
requires additional disclosures for stock-based employee compensation plans.
SFAS No. 123 defines a fair value based method of accounting for an employee
stock option or similar equity instrument. However, it also allows the
continued use of the intrinsic value based method of accounting as prescribed
by Accounting Principles Board Opinion ("APB") No. 25 "Accounting for Stock
Issued to Employees." Regardless of the method used to account for stock-based
compensation, SFAS No. 123 requires all financial statements to include the
fair value of such compensation and certain other disclosures. SFAS No. 123
must be adopted for financial statements for fiscal years beginning after
December 15, 1995. The Company plans to continue accounting for stock-based
employee compensation plans in accordance with APB No. 25 and will disclose
fair value information as prescribed by SFAS No. 123.
F-10
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) INVESTMENT SECURITIES
The Company purchases securities under agreements to resell. At December 31,
1995 these agreements matured within 31 days.
Securities purchased under agreements to resell averaged $1.4 billion, $2.3
billion and $2.1 billion during 1995, 1994 and 1993, respectively, and the
maximum amounts outstanding at any month-end during 1995, 1994 and 1993 were
$2.1 billion, $2.6 billion and $2.8 billion, respectively.
Repurchase agreements are subject to certain risks. 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.
At December 31, 1995, there was no repurchase agreement outstanding with
individual brokers which exceeded ten percent of stockholders' equity.
In the first quarter of 1994 the Company entered into two amortizing
interest rate swap agreements to manage the market risks associated with
certain 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. Under these agreements, no collateral was required at December 31,
1995. The original notional amounts totaled $210.0 million, of which $105.0
million was outstanding at December 31, 1995. The swaps are scheduled to
mature in June 1998 and February 1999. The Company addresses any credit risk
associated with the payments from the counterparties by evaluating their
creditworthiness and monitoring limits and positions.
Other investment securities held to maturity at December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------------- ----------------------------------------
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 GSEs obligations... $2,442 $36 $ -- $2,478 $276,939 $ -- $(6,758) $270,181
Industrial and other
obligations............ 6 -- -- 6 6 -- -- 6
------ --- ----- ------ -------- ----- ------- --------
$2,448 $36 $ -- $2,484 $276,945 $ -- $(6,758) $270,187
====== === ===== ====== ======== ===== ======= ========
</TABLE>
Other investment securities available for sale at December 31, 1995 and 1994
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------------- ---------------------------------------
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 GSEs obligations... $ -- $ -- $ -- $ -- $ 2,477 $14 $ (14) $ 2,477
Marketable equity
securities............. 9,327 581 -- 9,908 8,193 -- (553) 7,640
------ ----- ----- ------ ------- --- ----- -------
$9,327 $ 581 $ -- $9,908 $10,670 $14 $(567) $10,117
====== ===== ===== ====== ======= === ===== =======
</TABLE>
F-11
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The contractual maturities of all debt securities owned at December 31, 1995
were as follows:
<TABLE>
<CAPTION>
HELD TO MATURITY
-------------------
AMORTIZED MARKET
COST VALUE
---------- --------
(IN THOUSANDS)
<S> <C> <C>
One year or less..................................... $ 6 $ 6
After one year through five years.................... 2,442 2,478
-------- --------
$2,448 $2,484
======== ========
</TABLE>
The following table represents proceeds from sales of debt securities,
classified as available for sale, and gross realized gains and losses on such
sales for years ended December 31, 1995 and 1994. There were no sales for the
year ended December 31, 1993. There were no sales of investment securities
classified as held to maturity in 1995 or 1994.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Proceeds from sales............................. $25,994 $5,147
============ ===========
Gross realized gains............................ $ 9 $ 147
Gross realized losses........................... (67) --
------------ -----------
Net gains (losses)............................ $ (58) $ 147
============ ===========
</TABLE>
Interest and dividends on investments are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on securities purchased under
agreements to resell......................... $ 88,943 $102,824 $ 74,559
Interest on other short-term and other
investment securities........................ 21,971 20,080 12,814
Dividends on FHLB stock....................... 23,896 20,677 13,907
Dividends on other investment securities...... 384 354 95
-------- -------- --------
$135,194 $143,935 $101,375
======== ======== ========
</TABLE>
F-12
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) LOANS, MBS, SALES AND SERVICING ACTIVITIES
Portfolio Composition
The loan and MBS portfolio is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Real estate mortgage loans:
Single family (1-4 units).......................... $19,701,734 $26,075,581
Multi-family (5 units and over).................... 9,284,131 8,518,510
Commercial and industrial.......................... 1,566,470 1,734,793
----------- -----------
30,552,335 36,328,884
Consumer loans....................................... 31,488 --
Other loans.......................................... 104,645 124,922
Deferred loan fees and interest...................... (30,708) (55,161)
Unearned discounts on loans.......................... (3,360) (5,847)
Allowance for loan losses............................ (380,886) (400,232)
----------- -----------
Loans receivable................................. 30,273,514 35,992,566
Loans held for sale, less deferred loan fees of $731
(1995) and $23 (1994)................................ 981,865 9,179
MBS held to maturity, less discount of $14,422 (1995)
and $24,698 (1994)................................... 5,825,276 10,339,864
MBS available for sale, less discount of $7,523
(1995) and $2,119 (1994)............................. 10,326,866 2,449,556
----------- -----------
Total loans receivable and MBS................... $47,407,521 $48,791,165
=========== ===========
</TABLE>
As of December 31, 1995 the Company was committed to fund ARM loans
amounting to $313.8 million and fixed rate mortgage loans amounting to $157.8
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 customer.
The weighted average yield on the Company's loan and MBS portfolio at
December 31, 1995 and 1994, computed after giving effect to amortization of
deferred loan fees and interest, discounts and premiums and effect of hedging,
was 7.54% and 6.71%, respectively.
During 1995 and 1994 the Company securitized various conventional single
family mortgages into GSEs securities of equal value. The unpaid principal
amount of loans securitized into FNMA and FHLMC securities was $7.4 billion
and $3.5 billion in 1995 and 1994, respectively. During 1994 the Company also
securitized a total of $3.6 billion in unpaid principal amounts of loans it
originated into private placement MBS of equal value. 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>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The MBS owned by the Company and classified as held to maturity at December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------------- ----------------------------------------------
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>
MPTs:
GSEs................... $ 4,124 $ 59 $ -- $ 4,183 $ 3,441,993 $84 $(136,644) $ 3,305,433
Other.................. 5,821,152 226,997 (87,287) 5,960,862 6,351,786 -- (144,559) 6,207,227
CMOs:
GSEs................... -- -- -- -- 28,877 -- (133) 28,744
Other.................. -- -- -- -- 517,208 -- (44,785) 472,423
---------- -------- -------- ---------- ----------- --- --------- -----------
$5,825,276 $227,056 $(87,287) $5,965,045 $10,339,864 $84 $(326,121) $10,013,827
========== ======== ======== ========== =========== === ========= ===========
</TABLE>
The MBS available for sale by the Company at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
--------------------------------------------- -------------------------------------------
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>
MPTs:
GSEs................... $ 4,132,844 $42,860 $ (7,665) $ 4,168,039 $2,291,759 $74 $(73,618) $2,218,215
Other.................. 31,858 1,285 -- 33,143 -- -- -- --
CMOs:
GSEs................... 6,128,835 39,656 (42,807) 6,125,684 -- -- -- --
Other.................. -- -- -- -- 247,745 -- (16,404) 231,341
----------- ------- -------- ----------- ---------- --- -------- ----------
$10,293,537 $83,801 $(50,472) $10,326,866 $2,539,504 $74 $(90,022) $2,449,556
=========== ======= ======== =========== ========== === ======== ==========
</TABLE>
The Company believes that the gross unrealized losses on MBS available for
sale at December 31, 1995 and 1994 were due to temporary market-related
conditions.
The contractual maturities of all MBS at December 31, 1995 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>
After one year through five
years........................... $ 2,598 $ 2,631 $ 1,378,494 $ 1,403,921
After five years through ten
years........................... 1,526 1,552 821,385 835,613
After ten years.................. 5,821,152 5,960,862 8,093,658 8,087,332
---------- ---------- ----------- -----------
$5,825,276 $5,965,045 $10,293,537 $10,326,866
========== ========== =========== ===========
</TABLE>
F-14
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 1995, 1994 and 1993 interest income was reduced by $25.4 million, $43.8
million and $71.2 million, respectively, as a result of these swap agreements.
Such amount in 1993 included the establishment of a $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 $1.24 billion at December 31, 1995. A summary of the
activity for the notional amounts of these interest rate swaps for the years
1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance.......................... $1,444,820 $1,982,350 $1,939,450
New agreements........................... -- -- 145,500
Rights and obligations assigned to a
third party............................. -- (283,450) --
Expired agreements....................... (200,960) (254,080) (102,600)
---------- ---------- ----------
Ending balance............................. $1,243,860 $1,444,820 $1,982,350
========== ========== ==========
</TABLE>
The interest rate swap agreements outstanding at December 31, 1995 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>
1996.................... $ 731,760 7.17% 5.12%
1997.................... 447,850 6.71 5.12
1998.................... 64,250 5.61 5.12
----------
Total................. $1,243,860 6.92 5.12
==========
</TABLE>
- --------
(1) COFI for October 1995.
F-15
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Credit Risk and Concentration
The Company's primary lending business has been to originate residential
single family loans in specific 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 for its own portfolio
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 different risks as compared to residential loans secured by existing
single family structures. Set forth below is a table which summarizes the
Company's gross mortgage portfolio and nonaccrual loans as a percentage of the
gross mortgage portfolio by state and property type at December 31, 1995:
<TABLE>
<CAPTION>
MULTI- COMMERCIAL AND
SINGLE FAMILY PROPERTIES FAMILY PROPERTIES INDUSTRIAL PROPERTIES TOTAL
---------------------------- --------------------- --------------------- ----------------------
GROSS GROSS GROSS GROSS
MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL MORTGAGE NONACCRUAL
STATE 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.............. $26,086,192 1.93% $8,613,445 0.83% $1,165,686 0.44% $35,865,323 1.62%
Florida................. 2,638,217 1.13 31,949 -- 4,371 4.30 2,674,537 1.12
New York................ 1,980,433 2.19 263,691 2.09 197,096 0.98 2,441,220 2.08
Illinois................ 1,851,745 0.80 100,522 -- 15,524 19.99 1,967,791 0.91
Texas................... 1,139,031 0.54 79,829 0.13 29,512 0.04 1,248,372 0.51
Other................... 3,145,229 1.01 239,236 1.88 154,281 1.12 3,538,746 1.07
------------ ---------- ---------- -----------
$ 36,840,847 1.71 $9,328,672 0.87 $1,566,470 0.77 $47,735,989 1.52
============ ========== ========== ===========
</TABLE>
Allowance for Loan Losses
The changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................. $400,232 $438,786 $434,114
Provision for loan losses....................... 119,111 176,557 574,970
Allowance for loan losses on loans purchased.... -- -- 20,365
Charge-offs..................................... (162,618) (252,734) (623,735)
Recoveries...................................... 24,161 37,623 33,072
-------- -------- --------
Ending balance.................................... $380,886 $400,232 $438,786
======== ======== ========
</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,
----------------------------
1995 1994 1993
-------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Nonaccrual loans................................... $723,791 $681,026 $ 780,400
TDRs............................................... 163,844 121,365 100,751
Other impaired major loans......................... 51,018 12,158 391,044
-------- -------- ----------
Total.......................................... $938,653 $814,549 $1,272,195
======== ======== ==========
</TABLE>
F-16
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994 impaired loans recognized in accordance with
SFAS No. 114, and the related specific loan loss allowances, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1995 1994
--------------------------------- --------------------------------
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........... $ 40,563 $10,318 $ 30,245 $ 55,969 $19,342 $ 36,627
Without specific
allowances........... 27,428 -- 27,428 34,314 -- 34,314
-------- ------- -------- -------- ------- --------
67,991 10,318 57,673 90,283 19,342 70,941
-------- ------- -------- -------- ------- --------
TDRs:
With specific
allowances........... 76,110 17,621 58,489 35,123 7,799 27,324
Without specific
allowances........... 105,355 -- 105,355 94,041 -- 94,041
-------- ------- -------- -------- ------- --------
181,465 17,621 163,844 129,164 7,799 121,365
-------- ------- -------- -------- ------- --------
Other impaired major
loans:
With specific
allowances........... 57,082 16,634 40,448 9,816 2,751 7,065
Without specific
allowances........... 10,570 -- 10,570 5,093 -- 5,093
-------- ------- -------- -------- ------- --------
67,652 16,634 51,018 14,909 2,751 12,158
-------- ------- -------- -------- ------- --------
Total impaired
loans.............. $317,108 $44,573 $272,535 $234,356 $29,892 $204,464
======== ======= ======== ======== ======= ========
</TABLE>
The average net recorded investment in impaired loans for the years ended
December 31, 1995, 1994 and 1993 was $236.9 million, $414.7 million and $740.8
million respectively. Interest income of $17.9 million for 1995, $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, 1995, 1994 and 1993 had
interest due but not recognized of approximately $43 million, $39 million and
$65 million, respectively. Net interest forgone related to TDRs totaled $0.5
million, $0.1 million and $0.2 million in 1995, 1994 and 1993, respectively.
Interest income recorded on TDRs for 1995, 1994 and 1993 was $14.0 million,
$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 1995, 1994 and 1993 were $2.9 billion,
$405.1 million and $932.7 million, respectively. Such sales generated gross
gains of $12.1 million, $4.9 million and $27.8 million in 1995, 1994 and 1993,
respectively, and gross losses of $14.2 million in 1995. MBS sold in 1995
include $2.8 billion in MBS which were sold as part of the funding of the New
York sale. A $14.0 million loss on the sales of $715.7 million of these MBS
was included in the gain on the New York sale as a related expense.
F-17
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The changes to MSR and ESFR, which are included in "Other assets," are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................. $ 57,812 $ 75,180 $105,354
Originated MSR.................................. 14,184 -- --
MSR attributable to loans held for sale......... 2,645 -- --
Amortization.................................... (10,436) (17,368) (30,174)
Valuation allowance adjustment on MSR........... (509) -- --
-------- -------- --------
Ending balance.................................... $ 63,696 $ 57,812 $ 75,180
======== ======== ========
</TABLE>
The changes to the valuation allowance included a charge of $0.5 million for
1995. There were no charge-offs against this valuation allowance during 1995.
The Company has sold certain loans and MBS with different types of credit
enhancement features. During 1995 and as part of the funding of the New York
sale, the Company sold $861.0 million in FNMA MBS with various credit
enhancement features. The unpaid principal balance of loans and MBS sold with
various credit enhancement features at December 31, 1995 and 1994 was $5.0
billion and $4.2 billion, respectively. The maximum exposure under the
Company's credit enhancement obligations at December 31, 1995 was
approximately $1.4 billion. Approximately $1.1 billion of this exposure is
associated with $1.1 billion of loans sold to FHLMC on which the Company is
obligated to absorb all losses associated with foreclosures. An additional
$286.4 million in exposure under credit enhancement obligations relates to
loans totaling $3.9 billion. Losses incurred by the Company on its credit
enhancement obligations totaled $14.3 million, $9.5 million and $51.4 million
in 1995, 1994 and 1993, respectively. At December 31, 1995 the total allowance
for credit enhancement obligations included in "Other liabilities" was $23.3
million. The Company does not believe that its credit enhancement obligations
subject it to material risk of loss in the future.
At December 31, 1995, 1994 and 1993 the Company was engaged in servicing for
investors $13.1 billion, $11.3 billion and $15.0 billion, respectively, in
unpaid principal amount of loan participations, whole loans and MPTs.
Set forth below is a summary by year of the components of loan servicing
income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross servicing income........................... $ 87,791 $ 92,608 $ 108,857
GSEs guarantee and other fees.................... (16,356) (17,597) (19,829)
Amortization of the ESFR and MSR................. (10,436) (17,368) (30,174)
Valuation adjustment on MSR...................... (509) -- --
Gain on sale of servicing rights................. -- 16,798 --
-------- -------- ---------
Loan servicing income.......................... $ 60,490 $ 74,441 $ 58,854
======== ======== =========
</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.
F-18
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest on:
Securities purchased under agreements to resell............ $ 193 $ 1,660
Investment securities...................................... 288 6,171
MBS........................................................ 73,806 62,331
Loans receivable........................................... 153,824 142,785
-------- --------
$228,111 $212,947
======== ========
</TABLE>
(5) OPERATIONS OF REAL ESTATE
REI
Included in other expenses are operations of REI, summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net gain (loss) on sales........................ $ 8,872 $ (5,327) $ (6,777)
Provision for losses............................ (49,660) (86,080) (207,944)
Net operating expense........................... (8,693) (6,237) (14,579)
-------- -------- ---------
Total loss.................................. $(49,481) $(97,644) $(229,300)
======== ======== =========
</TABLE>
The changes in the allowance for losses on REI are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................. $333,825 $341,705 $154,743
Provision for losses............................ 49,660 86,080 207,944
Charge-offs..................................... (99,737) (93,960) (20,982)
-------- -------- --------
Ending balance.................................... $283,748 $333,825 $341,705
======== ======== ========
</TABLE>
REO
Included in other expenses are operations of REO, summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss on sales................................ $(13,643) $(17,706) $ (64,844)
Provision for losses............................. (41,198) (39,124) (105,043)
Net operating expense............................ (31,947) (29,181) (42,243)
-------- -------- ---------
Total loss................................... $(86,788) $(86,011) $(212,130)
======== ======== =========
</TABLE>
F-19
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The changes in allowance for losses on REO are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning balance................................. $ 44,726 $ 66,453 $ 47,970
Provision for losses............................ 41,198 39,124 105,043
Charge-offs..................................... (47,844) (60,851) (86,560)
-------- -------- --------
Ending balance.................................... $ 38,080 $ 44,726 $ 66,453
======== ======== ========
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment at cost are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 105,825 $ 146,315
Buildings................................................. 185,701 356,211
Construction in progress.................................. 2,394 537
Furniture, fixtures and equipment......................... 312,920 292,980
Leasehold improvements.................................... 137,288 178,021
--------- ---------
744,128 974,064
Less accumulated depreciation and amortization............ (333,181) (359,247)
--------- ---------
$ 410,947 $ 614,817
========= =========
</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, 1995, 1994 and 1993 was $78.2 million, $74.0 million and
$79.6 million, respectively.
The following is a schedule by years of minimum future rentals on
noncancelable operating leases, related principally to premises, as of
December 31, 1995 (in thousands):
<TABLE>
<S> <C>
1996........................................................... $ 71,240
1997........................................................... 66,752
1998........................................................... 62,093
1999........................................................... 58,446
2000........................................................... 54,695
Thereafter..................................................... 488,454
--------
$801,680
========
</TABLE>
F-20
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED DECEMBER 31,
AVERAGE RATE AT ------------------------------------
DECEMBER 31, 1995 1995 1994
------------------ ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Transaction accounts:
Checking.............. 0.95% $ 2,494,066 7.3% $ 2,727,203 6.7%
Passbook.............. 1.95 1,379,927 4.0 3,788,223 9.3
Money market savings.. 3.42 5,788,958 16.9 6,038,058 14.9
----------- ----- ----------- -----
Total transaction
accounts................ 9,662,951 28.2 12,553,484 30.9
----------- ----- ----------- -----
Term accounts:
32-89 days............ 3.11 153,734 0.4 278,856 0.7
3 months to less than
6 months................ 4.77 928,745 2.7 717,378 1.8
6 months to less than
1 year.................. 5.39 12,199,944 35.6 8,318,771 20.5
1 year to less than 2
years................... 5.69 7,152,440 20.9 12,954,742 31.8
2 years to less than 3
years................... 5.32 2,586,044 7.6 4,092,648 10.1
3 years and over...... 6.14 1,118,362 3.3 1,155,480 2.8
Jumbo certificates of
deposit................. 5.38 442,261 1.3 583,657 1.4
----------- ----- ----------- -----
Total term accounts. 24,581,530 71.8 28,101,532 69.1
----------- ----- ----------- -----
$34,244,481 100.0% $40,655,016 100.0%
=========== ===== =========== =====
</TABLE>
On September 22, 1995, the Company sold its deposits totaling $8.1 billion
and branch premises in New York, resulting in a pre-tax gain of $514.7
million. The gain is net of the write-off of goodwill and other tangibles of
$106.9 million and other expenses associated with the sale. The sale was
funded with excess liquidity, including funds generated by the acquisition of
deposits in 1995, and a combination of new borrowings and sales of securities.
On November 10, 1994, the Company sold its deposits totaling $1.6 billion
and branch premises in Illinois, resulting in a pre-tax gain of $77.9 million.
The gain is net of the write-off of goodwill of $25.6 million and other
expenses associated with the sale. The sale was funded with excess liquidity.
F-21
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The aggregate amounts of term accounts by interest rate category at December
31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Term accounts:
2.5% or less......................................... $ 5,165 $ 12,484
2.501%--3.5%......................................... 149,604 3,864,851
3.501%--4.5%......................................... 1,318,602 7,803,904
4.501%--5.5%......................................... 14,434,395 9,245,144
5.501%--6.5%......................................... 7,156,262 6,323,409
6.501%--7.5%......................................... 1,464,279 717,860
7.501%--8.5%......................................... 40,985 86,961
8.501%--15.5%........................................ 12,238 46,919
----------- -----------
Total term accounts................................ $24,581,530 $28,101,532
=========== ===========
</TABLE>
The aggregate amounts of term account maturities at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
AMOUNT MATURING DURING THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1997 1998 THEREAFTER TOTAL
----------- ---------- -------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Term accounts:
2.5% or less.......... $ 3,799 $ 1,168 $ 175 $ 23 $ 5,165
2.501%--3.5%.......... 149,537 62 2 3 149,604
3.501%--4.5%.......... 1,242,373 72,752 2,271 1,206 1,318,602
4.501%--5.5%.......... 12,365,511 1,803,596 183,957 81,331 14,434,395
5.501%--6.5%.......... 6,256,845 561,950 120,971 216,496 7,156,262
6.501%--7.5%.......... 897,787 394,752 59,215 112,525 1,464,279
7.501%--8.5%.......... 33,651 2,515 1,157 3,662 40,985
8.501%--15.5%......... 2,534 2,559 1,239 5,906 12,238
----------- ---------- -------- -------- -----------
Total term accounts. $20,952,037 $2,839,354 $368,987 $421,152 $24,581,530
=========== ========== ======== ======== ===========
</TABLE>
The aggregate amounts of retail certificates of deposit in amounts of
$100,000 or more at December 31, 1995 are summarized as follows (in
thousands):
<TABLE>
<S> <C>
3 months or less................................................. $248,131
Over 3 months through 6 months................................... 99,362
Over 6 months through 12 months.................................. 90,529
Over 12 months................................................... 4,239
--------
Total........................................................ $442,261
========
</TABLE>
At December 31, 1995 and 1994 the weighted average interest rate on the
deposits, computed without the effect of compounding interest, was 4.65% and
4.05%, respectively. All government agency deposits, totaling $66 million at
December 31, 1995, were secured by certain real estate loans of the Company
amounting to $141 million.
F-22
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest expense on deposits by type of account is summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Checking...................................... $ 24,833 $ 27,577 $ 34,073
Passbook and money market savings............. 279,345 281,511 323,255
Term.......................................... 1,531,412 982,805 943,735
---------- ---------- ----------
$1,835,590 $1,291,893 $1,301,063
========== ========== ==========
</TABLE>
(8) SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Agreements to repurchase securities sold:
Balance at December 31................... $3,519,311 $2,253,805 $4,807,767
Average balance.......................... 3,122,938 4,182,802 3,143,640
Maximum amount outstanding at any month
end..................................... 5,487,682 5,311,468 4,807,767
Average interest rate:
During the year........................ 6.31% 4.24% 3.25%
At December 31......................... 5.97 6.40 3.39
Federal funds purchased:
Balance at December 31................... $ -- $ 100,000 $ 120,000
Average balance.......................... 6,565 58,411 124,644
Maximum amount outstanding at any month
end..................................... 6,096 250,000 130,000
Average interest rate:
During the year........................ 5.95% 3.79% 3.20%
At December 31......................... -- 6.00 3.30
Other short-term borrowings:
Balance at December 31................... $ -- $ -- $ 49,854
Average balance.......................... -- 83,549 188,285
Maximum amount outstanding at any month
end..................................... -- 355,000 590,000
Average interest rate:
During the year........................ -- % 3.54% 3.32%
At December 31......................... -- -- 3.56
Accrued interest on short-term borrowings
included in "Other liabilities"........... $ 58,337 $ 13,582 $ 11,662
</TABLE>
F-23
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Agreements to repurchase securities require that the Company repurchase
identical securities to those which were sold. At December 31, 1995 short-term
borrowings under agreements to repurchase securities sold are summarized as
follows:
<TABLE>
<CAPTION>
COLLATERAL
WEIGHTED ------------------------
AVERAGE FEDERAL AGENCY MBS
REPURCHASE INTEREST ------------------------
LIABILITY RATE BOOK VALUE* MARKET VALUE
---------- -------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Within 30 days..................... $ 620,008 5.62% $ 717,536 $ 711,271
30-90 days......................... 2,028,270 5.66 2,300,790 2,279,733
90-180 days........................ 871,033 5.76 911,482 912,432
---------- ---------- ----------
$3,519,311 $3,929,808 $3,903,436
========== ========== ==========
</TABLE>
- --------
* Book value includes accrued interest.
Repurchase agreement amounts outstanding with individual brokers at December
31, 1995 which exceeded ten percent of the Company's stockholders' equity
were:
<TABLE>
<CAPTION>
WEIGHTED COLLATERAL
AVERAGE ------------------------
PURCHASING PARTY MATURITY BOOK VALUE* BOOK VALUE* MARKET VALUE
---------------- --------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
C.S. First Boston Corp.. 81 days $908,553 $ 972,828 $ 964,638
FHLMC................... 46 days 954,955 1,052,390 1,032,222
FNMA.................... 39 days 954,956 1,123,362 1,124,534
Nomura Securities
International........... 92 days 498,472 514,094 514,630
</TABLE>
- --------
* Book value includes accrued interest.
F-24
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) FHLB AND OTHER BORROWINGS
These borrowings are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
FHLB advances with a weighted average interest rate of
5.67% (1995) and 5.21% (1994)........................ $1,801,914 $ 483,965
Notes payable to FHLB with a weighted average interest
rate of 6.00% (1995) and 5.75% (1994)................ 2,548,247 2,265,348
Notes payable to various brokerage firms with a
weighted average interest rate of 5.66% (1995) and
6.11% (1994)......................................... 2,784,499 1,800,000
Floating rate notes with a contract interest rate
based on three month LIBOR plus ten basis points
[contract interest rate of 5.98% (1995) and an
effective interest rate of 6.00% (1995) and a
contract interest rate of 5.91% (1994) and an
effective interest rate of 5.94% (1994)] due February
9, 1996, net of unamortized discount of $11 (1995)
and $111 (1994)...................................... 199,989 199,889
Medium term notes with an average contract interest
rate of 7.12% and an effective average interest rate
of 7.28%, net of unamortized discount of $819........ 159,181 --
Note payable to Student Loan Marketing Association
with a floating rate equal to six basis points below
three month LIBOR [effective rate of 6.32%].......... -- 400,000
Note payable to regulatory agencies with a contract
interest rate equal to COFI [contract interest rate
of 4.37% and an effective interest rate of 5.49%].... -- 280,000
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 [contract interest rate of 5.74% and
an effective interest rate of 7.88%], net of
unamortized discount of $1,015....................... -- 78,985
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
contract interest of 6.02% (1995) and 5.85% (1994)... 100,000 115,000
Senior notes with a contract interest rate of 8.25%
and effective interest rate of 8.43%, due October 1,
2002, net of unamortized discount of $2,352 (1995)
and $2,700 (1994).................................... 247,648 247,300
Subordinated notes with a weighted average contract
interest rate of 8.66% (1995) and an effective
average interest rate of 8.83% (1995), and a weighted
average contract interest rate of 8.78% (1994) and an
effective average interest rate of 8.97% (1994), net
of unamortized discount of $4,849 (1995) and $6,364
(1994)............................................... 870,151 941,151
Other, net of unamortized discount of $51 (1995) and
$81 (1994)........................................... 5,488 10,642
---------- ----------
Total FHLB and other borrowings..................... $8,717,117 $6,822,280
========== ==========
</TABLE>
At December 31, 1995 the Company had outstanding and unused secured lines of
credit totaling $129 million with the Federal Reserve Bank to cover
overdrafts. The Company also had a letter of credit of $19 million with the
Eleventh District of the FHLB to guarantee certain obligations.
F-25
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The FHLB advances and notes are secured by the stock of the FHLB totaling
$485.9 million and certain real estate loans and MBS of the Company totaling
to $4.9 billion at December 31, 1995. All FHLB advances at December 31, 1995
had prepayment penalty provisions. The notes payable to FHLB are due at
various dates through 1998.
During 1995 and 1994 the Company issued notes, all due within two years, to
various brokerage firms. The notes are secured by MBS owned by the Company
totaling $3.0 billion at December 31, 1995. These notes include a two-year
note for $200 million, with a fixed interest rate of 5.32% for the first year.
The note contains a provision that allows the brokerage firm one year after
the settlement date to change the interest rate to be equal to LIBOR less 15
basis points. If this option is not exercised, the note's fixed interest rate
will be reduced by 15 basis points.
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.
In 1995, the Company had four issuances of Medium Term Notes totaling $160
million. These Medium Term Notes will mature in three to seven years and have
a weighted average interest rate of 7.11%. These Medium Term Notes are not
redeemable prior to maturity. The discounts on these borrowings are being
amortized to interest expense over their terms using the interest method.
The aggregate amounts of principal maturities for FHLB and other borrowings,
excluding unamortized discounts, at December 31, 1995 are (dollars in
thousands):
<TABLE>
<S> <C> <C>
1996...................... $3,287,751 37.7%
1997...................... 3,617,425 41.5
1998...................... 565,405 6.5
1999...................... 303,014 3.5
2000...................... 501,141 5.7
Thereafter................ 450,463 5.1
---------- -----
$8,725,199 100.0%
========== =====
</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 determined for 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
F-26
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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
The fair value of the Company's amortizing swap agreements was an unrealized
gain of $2.6 million at December 31, 1995 and an unrealized loss of $10.3
million at December 31, 1994 which reflect the estimated amounts the Company
would have received from or paid to the counterparties if the agreements had
been terminated as of the end of 1995 and 1994, respectively.
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 of investment securities at December 31, 1995 and 1994 were
$12.4 million and $287.1 million, respectively, and the estimated fair value
of the Company's investment securities were $12.4 million and $280.3 million,
respectively.
The carrying amounts of MBS at December 31, 1995 and 1994 were $16.152
billion and $12.789 billion, respectively, and the estimated fair values were
$16.292 billion and $12.463 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 $31.255 billion and
$36.002 billion at December 31, 1995 and 1994, respectively.
The Company estimates the fair value of loans receivable to have been
$31.512 billion and $35.108 billion at December 31, 1995 and 1994,
respectively. The fair value of loans receivable has been reduced by $19.5
million and $30 million at December 31, 1995 and 1994, 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>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Servicing Rights
The fair value of MSR and ESFR 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 MSR and ESFR at December 31, 1995 and 1994
were $63.7 million and $57.8 million, respectively. The estimated fair value
of MSR and ESFR for the Company's portfolio of loans serviced for investors
was $142.6 million, net of the allowance for credit enhancement obligations of
$23.3 million, at December 31, 1995 and $171 million, net of the allowance for
credit enhancement obligations of $25.1 million, at December 31, 1994.
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, 1995 and 1994
were $24.582 billion and $28.102 billion, respectively. The estimated fair
value of the Company's term accounts at December 31, 1995 and 1994 was $25.265
billion and $27.471 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, 1995 and 1994, the Company estimates the fair value of the core
deposit intangible would have been $1.238 billion and $1.307 billion,
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
$3.519 billion and $2.354 billion at December 31, 1995 and 1994, respectively.
The estimated fair value of short-term borrowings at December 31, 1995 and
1994 were $3.599 billion and $2.351 billion, respectively. The carrying
amounts of the Company's FHLB and other borrowings were $8.717 billion and
$6.822 billion at December 31, 1995 and 1994, respectively. At December 31,
1995 and 1994, the estimated fair value of the Company's FHLB and other
borrowings was $8.915 billion and $6.727 billion, respectively. The fair value
of the FHLB and other borrowings has been reduced by $1.2 million at December
31, 1995 as a result of the option attached to the note with a brokerage firm.
(11) INCOME TAXES
The Company accounts for income taxes using SFAS No. 109, "Accounting for
Income Taxes." 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. A valuation allowance is established if a deferred tax asset is not
more likely than not to be realized. 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.
F-28
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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, 1995 do not include a
contingent tax liability of $242 million related to tax bad debt reserves,
including the base year amounts as these reserves are not expected to reverse
until indefinite future periods or may never reverse. Circumstances that would
require an accrual of a portion or all of this unrecorded tax liability are a
reduction in loan levels relative to the end of 1987, failure to meet the tax
definition of a savings institution, dividend payments in excess of both
current year and accumulated tax earnings and profits, or other distributions
in dissolution, liquidation or redemption of stock.
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,
---------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $258,105 $147,907 $(39,691)
State and local................................... 61,403 50,744 (4,598)
-------- -------- ---------
319,508 198,651 (44,289)
-------- -------- ---------
Deferred:
Federal........................................... 51,161 (16,070) (22,718)
State and local................................... 3,031 (9,269) (15,027)
-------- -------- ---------
54,192 (25,339) (37,745)
-------- -------- ---------
$373,700 $173,312 $(82,034)
======== ======== =========
</TABLE>
Total income taxes (benefit) were allocated as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations............................... $373,700 $173,312 $(82,034)
Extraordinary loss on
early extinguishment of debt....................... -- -- (16,300)
Goodwill............................................ -- (34,382) 7,794
Stockholders' equity................................ 50,656 (56,708) 15,088
Other assets or liabilities......................... 43 (773) 556
-------- -------- ---------
Total income taxes (benefit)...................... $424,399 $ 81,449 $(74,896)
======== ======== =========
</TABLE>
F-29
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Provision for losses on loans and REO.................. $ 209,044 $ 294,770
Basis differences on REI and partnerships.............. 65,856 123,313
Delinquent accrued interest............................ 5,716 6,158
State and local taxes.................................. 15,525 9,771
Purchase accounting differences........................ 24,327 17,753
Compensation differences............................... 9,500 12,949
Net operating losses................................... 18,813 8,860
Investment in subsidiary............................... 72,386 72,386
Other.................................................. 898 (5,188)
--------- ---------
Total deferred tax assets............................ 422,065 540,772
Valuation allowance.................................... (72,386) (72,386)
--------- ---------
Total deferred tax assets, net of valuation
allowance........................................... 349,679 468,386
--------- ---------
Deferred tax liabilities:
Loan fee income........................................ (205,915) (193,779)
FHLB stock dividends................................... (120,220) (114,724)
Gains on loan sales.................................... (15,477) (36,999)
Accrued interest on tax settlements.................... (17,817) (22,204)
Basis difference on premises and equipment............. (14,613) (9,538)
Recurring liabilities.................................. (20,219) (22,126)
Unrealized gains on securities......................... (4,871) (10,917)
--------- ---------
Total deferred tax liabilities....................... (399,132) (410,287)
--------- ---------
Net deferred tax asset (liability)................... $ (49,453) $ 58,099
========= =========
</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 valuation
allowance relates to the realizability of tax basis differences on
subsidiaries.
F-30
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income taxes (benefit) in the accompanying Consolidated Financial Statements
have been provided at effective tax (benefit) rates of 45.3% (1995), 42.2%
(1994) and (37.3)% (1993). These rates differ from statutory Federal income
tax rates. The differences were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Taxes (benefit) at statutory
rate......................... $288,626 35.0% $143,736 35.0% $(77,023) (35.0)%
Increases (reductions) in
taxes resulting from:
State income tax (benefit),
net of Federal income
tax benefit............. 41,882 5.1 34,690 8.5 (5,829) (2.7)
Tax basis adjustments for
assets and liabilities
of companies acquired... 38,983 4.7 16,986 4.1 1,753 0.8
Increase (reduction) of
liabilities from prior
periods................. -- -- (20,000) (4.9) 1,237 0.6
Tax rate changes........... -- -- (3,100) (0.8) -- --
Other...................... 4,209 0.5 1,000 0.3 (2,172) (1.0)
-------- ---- -------- ---- -------- -----
Provision for income taxes
(benefit)................... $373,700 45.3% $173,312 42.2% $(82,034) (37.3)%
======== ==== ======== ==== ======== =====
</TABLE>
The Company had total net operating losses of $53.8 million at December 31,
1995. Included in the total are $42.1 million of acquired net operating losses
which expire in 2001 and are subject to limitations under Internal Revenue
Code Section 382 which limit the Company's use of the losses to $16.8 million
each year. The remaining $11.7 million of net operating losses expire in 2009
and are attributable to a subsidiary that is not included in the federal
consolidated income tax return of the Company.
(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>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
(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............ $ 450,946 $ 237,358 $ (138,032)
Less accumulated dividends on
preferred stock............. (50,430) (50,430) (38,131)
-------------- -------------- --------------
Earnings (loss) attributable
to common shares before
extraordinary loss and
cumulative effect of
accounting change............ 400,516 186,928 (176,163)
Extraordinary loss on early
extinguishment of debt....... -- -- (21,607)
Cumulative effect of change in
accounting for goodwill...... (234,742) -- --
-------------- -------------- --------------
Net earnings (loss)
attributable to common
shares.................... $ 165,774 $ 186,928 $ (197,770)
============== ============== ==============
Weighted average number of
common shares outstanding.... 117,336,793 117,014,262 116,786,369
Dilutive effect of outstanding
common stock equivalents..... 737,298 355,169 --
-------------- -------------- --------------
Weighted average number of
common shares as adjusted for
calculation of primary
earnings (loss) per share.... 118,074,091 117,369,431 116,786,369
============== ============== ==============
Primary earnings (loss) per
common share before
extraordinary loss and
cumulative effect of
accounting change............ $ 3.39 $ 1.59 $ (1.51)
Extraordinary loss on early
extinguishment of debt....... -- -- (0.18)
Cumulative effect of change in
accounting for goodwill...... (1.99) -- --
-------------- -------------- --------------
Primary earnings (loss) per
common share.............. $ 1.40 1.59 $ (1.69)
============== ============== ==============
Fully diluted earnings (loss)
per common share:
Earnings (loss) before
extraordinary loss and
cumulative effect of
accounting change............ $ 450,946 $ 237,358 $ (138,032)
Less accumulated dividends on
preferred stock............. (33,180) (33,180) (38,131)
-------------- -------------- --------------
Earnings (loss) attributable
to common shares before
extraordinary loss and
cumulative effect of
accounting change............ 417,766 204,178 (176,163)
Extraordinary loss on early
extinguishment of debt....... -- -- (21,607)
Cumulative effect of change in
accounting for goodwill...... (234,742) -- --
-------------- -------------- --------------
Net earnings (loss)
attributable to common
shares.................... $ 183,024 $ 204,178 $ (197,770)
============== ============== ==============
Weighted average number of
common shares outstanding.... 117,336,793 117,014,262 116,786,369
Dilutive effect of outstanding
common stock equivalents..... 13,041,268 11,931,980 --
-------------- -------------- --------------
Weighted average number of
common shares as adjusted for
calculation of fully diluted
earnings (loss) per share.... 130,378,061 128,946,242 116,786,369
============== ============== ==============
Fully diluted earnings (loss)
per common share before
extraordinary loss and
cumulative effect of
accounting change............ $ 3.20 $ 1.58 $ (1.51)
Extraordinary loss on early
extinguishment of debt....... -- -- (0.18)
Cumulative effect of change in
accounting for goodwill...... (1.80) -- --
-------------- -------------- --------------
Fully diluted earnings
(loss) per common share... $ 1.40 $ 1.58 $ (1.69)
============== ============== ==============
</TABLE>
F-32
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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, 1995.
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, 1996 Home Savings could have paid dividends of
approximately $168.6 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>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits.............................. $198,570 $166,817
Nonvested accumulated benefits........................... 5,530 5,230
-------- --------
Total accumulated benefits............................. $204,100 $172,047
======== ========
Projected benefit obligation for service rendered to
date.................................................... $224,888 $189,278
Plan assets at fair value; primarily listed common stocks,
U.S. government obligations and corporate bonds and
debentures................................................ 253,602 198,075
-------- --------
Funded status--Plan assets in excess of projected benefit.. 28,714 8,797
Items not yet recognized in earnings:
Unrecognized net loss.................................... 13,004 14,690
Prior service cost not yet recognized in net periodic
pension cost............................................ 517 656
Unrecognized transition asset being recognized over 8.8
years................................................... (1,595) (2,647)
-------- --------
Prepaid pension cost included in "Other liabilities"... $ 40,640 $ 21,496
======== ========
</TABLE>
The net pension expense for the Plan was $5.9 million, $6.1 million and $5.8
million for the years 1995, 1994 and 1993, respectively. Net pension expense
for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period.... $ 9,006 $ 10,004 $ 8,281
Interest cost on projected benefit obligations.... 16,056 13,741 13,238
Actual return on plan assets...................... (43,221) (3,874) (21,972)
Net amortization and deferral..................... 24,015 (13,754) 6,290
-------- -------- --------
Net pension expense............................. $ 5,856 $ 6,117 $ 5,837
======== ======== ========
</TABLE>
As prescribed by SFAS No. 87, the Company uses the projected unit credit
actuarial cost method for financial reporting purposes. The discount rate and
weighted average rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligations
for the qualified plan were 7.75% and 4.75%, respectively. The expected long-
term weighted average rate of return on assets was 9.0%.
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
F-34
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the Board. Benefits under the ODRP generally are payable for a period equal to
the participant's period of service on the Board plus certain governmental
service, with a lifetime benefit payable to participants with 15 or more years
of service.
The following table sets forth the Nonqualified Plans' funded status and
liabilities accrued in the Company's Consolidated Statements of Financial
Condition at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested accumulated benefits.............................. $ 23,893 $ 21,227
Nonvested accumulated benefits........................... 165 164
-------- --------
Total accumulated benefits............................. $ 24,058 $ 21,391
======== ========
Projected benefit obligation for service rendered to
date.................................................... $ 26,176 $ 23,493
Plan assets at fair value.................................. -- --
-------- --------
Funded status--Projected benefit in excess of plan assets.. (26,176) (23,493)
Items not yet recognized in earnings:
Unrecognized net loss.................................... 4,085 1,606
Prior service cost not yet recognized in net periodic
pension cost............................................ 4,298 4,736
Unrecognized net obligation being recognized over 15
years................................................... 1,739 2,052
Adjustment required to reflect minimum liability......... (7,917) (6,292)
-------- --------
Accrued pension cost included in "Other liabilities"... $(23,971) $(21,391)
======== ========
</TABLE>
The net pension expense for the Nonqualified Plans was $3.0 million, $2.9
million and $2.7 million for the years 1995, 1994 and 1993, respectively. Net
pension expense for 1995, 1994 and 1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period............ $ 208 $ 73 $ 307
Interest cost on projected benefit obligations............ 2,001 1,825 1,640
Net amortization and deferral............................. 751 959 755
------ ------ ------
Net pension expense..................................... $2,960 $2,857 $2,702
====== ====== ======
</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 7.75% and 4.75%,
respectively as of December 31, 1995.
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 1995 were $7.2 million and in both 1994 and 1993 were $7.1
million.
F-35
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Postretirement Benefit Plans
The Company provides certain postretirement benefits, including health care,
life insurance and dental care, to qualifying retired employees. Current
employees will be immediately eligible for such postretirement benefits upon
retirement from the Company based on years of service and age at retirement.
The level of these postretirement benefits are at the discretion of the
Company. The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.75% as of December 31,
1995. The Company accounts for other post retirement benefits using SFAS No.
106, "Employers' Accounting for Post Retirement Benefits Other Than Pensions."
SFAS No. 106 requires 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 following table sets forth the accumulated postretirement benefits
obligation at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ 13,779 $ 12,547
Fully eligible active employees.......................... 1,101 1,153
Other active employees................................... 1,465 629
-------- --------
Total accumulated postretirement benefit obligation.... 16,345 14,329
Plan assets at fair value.................................. -- --
-------- --------
Funded status--Accumulated benefit obligation in excess of
plan assets............................................... (16,345) (14,329)
Unrecognized transition obligation being recognized over 20
years..................................................... 13,693 14,499
Unrecognized (gain) loss................................... 1,604 (921)
-------- --------
Accrued postretirement benefit cost.................... $ (1,048) $ (751)
======== ========
</TABLE>
The total postretirement benefit expense for the Plan was $2.4 million for
1995, 1994 and 1993, which included the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 207 $ 348 $ 317
Amortization of transition obligation..................... 806 806 806
Interest cost............................................. 1,400 1,205 1,277
------ ------ ------
Total postretirement benefit expense ................... $2,413 $2,359 $2,400
====== ====== ======
</TABLE>
Stock Compensation Plans
As of December 31, 1995 there were 6,043,752 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
F-36
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. Total compensation
expense (credit) related to SARs was $3.8 million, $(1.3) million and $0.6
million for 1995, 1994 and 1993, respectively.
The following is a summary of Restricted Stock Award transactions in 1995,
1994 and 1993. Final restrictions lapse in the year 2000.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
Balance beginning of year.......................... 172,514 259,702 611,984
Granted and issued............................... 9,000 -- 9,917
-------- ------- --------
181,514 259,702 621,901
Cancelled........................................ (9,911) (11,917) (34,102)
Restrictions lapsed.............................. (106,187) (75,271) (328,097)
-------- ------- --------
Balance end of year................................ 65,416 172,514 259,702
======== ======= ========
</TABLE>
Total compensation expense related to Restricted Stock Awards was $0.9
million, $1.4 million and $5.6 million for 1995, 1994 and 1993, respectively.
At December 31, 1995 options to purchase 3,361,164 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)
-------------------------------------
PER EXPIRATION SHARES
SHARES SHARE TOTAL DATE WITH SARS
--------- --------------- ----- ---------- ---------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
101,331 $ 7.74-20.38 $ 1,931 1996 53,781
119,890 16.69 2,001 1997 34,680
126,765 16.94 2,147 1998 22,500
163,617 21.56-22.25 3,577 1999 31,032
136,536 13.13-19.25 1,993 2000 68,877
160,921 13.94-18.19 2,585 2001 --
169,503 14.94 2,532 2002 --
996,752 17.13-20.06 18,355 2003 --
1,385,849 16.00-25.94 26,552 2005 --
--------- -------- -------
3,361,164 $ 61,673 210,870
========= ======== =======
</TABLE>
F-37
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options expiring through 2002 are all currently exercisable. The options
expiring in 2003 are exercisable in annual increments of 33 1/3% commencing in
November 1994 except options for 300,000 shares which were 100% exercisable in
November 1993, 400,084 shares which were 100% exercisable in May 1994 and
50,000 shares which were 100% exercisable in June 1994. The options expiring
in 2005 are exercisable in annual increments of 33 1/3% commencing in February
and July 1996, except options for 449,462 shares which are exercisable in
1995, 296,817 shares which are exercisable in 1996, 2,000 shares which are
exercisable in 1997 and 31,923 shares which are exercisable in 1998.
Option transactions under the 1979, 1984 and 1993 Plans during 1995, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Options outstanding beginning of year.......... 3,412,598 3,525,176 3,016,530
Options granted ($18.06-$25.94 per share)
Without SARs................................ 1,203,608 254,465 1,222,081
Options cancelled ($13.05-$22.25 per share)
With SARs................................... -- (510) (16,134)
Upon exercise of SARs....................... (310,915) (27,000) (290,435)
Without SARs................................ (106,153) (77,154) (149,289)
Options exercised ($13.13-$22.25 per share)
Without SARs................................ (765,524) (262,379) (200,960)
With SARs cancelled......................... (72,450) -- (56,617)
--------- --------- ---------
Options outstanding end of year................ 3,361,164 3,412,598 3,525,176
========= ========= =========
</TABLE>
(16) FINANCIAL HIGHLIGHTS BY PRINCIPAL BUSINESS OPERATIONS
Financial highlights concerning the Company's principal business operations
(industry segments) at or for the years ended December 31, 1995, 1994 and 1993
are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Savings and lending.................... $ 4,307,271 $ 3,257,689 $ 3,178,115
Mortgage banking....................... 85,419 88,873 127,509
REI.................................... 2,101 1,997 2,672
Corporate and other.................... 2,709 7,172 12,954
----------- ----------- -----------
Consolidated revenues............... $ 4,397,500 $ 3,355,731 $ 3,321,250
=========== =========== ===========
Operating income (loss) before taxes
(benefit) extraordinary loss and
cumulative effect of accounting change:
Savings and lending.................... $ 933,734 $ 527,753 $ 40,698
Mortgage banking....................... 18,299 42,747 38,544
REI.................................... (81,844) (127,068) (259,943)
Corporate and other.................... (45,543) (32,762) (39,365)
----------- ----------- -----------
Consolidated operating income (loss)
before income taxes (benefit),
extraordinary loss and cumulative
effect of accounting change........ $ 824,646 $ 410,670 $ (220,066)
=========== =========== ===========
Assets:
Savings and lending.................... $48,997,401 $53,360,067 $49,965,028
Mortgage banking....................... 1,201,055 222,705 617,111
REI.................................... 262,410 439,767 511,129
Corporate and other.................... 68,720 (295,746) (222,023)
----------- ----------- -----------
Consolidated assets................. $50,529,586 $53,726,793 $50,871,245
=========== =========== ===========
</TABLE>
F-38
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(17) PARENT COMPANY FINANCIAL INFORMATION
(See other Notes to Consolidated Financial Statements.)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CONDENSED STATEMENTS OF FINANCIAL CONDITION
Assets:
Cash and amounts due from banks......................... $ 345 $ 567
Securities purchased under agreements to resell......... 12,000 --
Short-term investments due from Home Savings............ 296,009 242,959
Other short-term investments............................ 8,554 485
---------- ----------
Total cash and cash equivalents...................... 316,908 244,011
Other investment securities held to maturity............ -- 12,189
Accounts and notes receivable from subsidiaries......... 249,560 14,498
Refundable income taxes................................. -- 13,488
Investment in Home Savings.............................. 3,147,445 3,163,659
Investment in other subsidiaries........................ 99,991 67,557
Other assets............................................ 101,931 126,318
---------- ----------
$3,915,835 $3,641,720
========== ==========
Liabilities and Stockholders' Equity:
Notes payable........................................... $ 804,688 $ 646,241
Accrued expenses and other liabilities.................. 37,403 30,878
Income taxes............................................ 16,822 --
---------- ----------
Total liabilities.................................... 858,913 677,119
Stockholders' equity.................................... 3,056,922 2,964,601
---------- ----------
$3,915,835 $3,641,720
========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF OPERATIONS
Income:
Cash dividends from Home Savings............. $ 410,000 $160,000 $ 145,000
Cash dividends from other subsidiaries....... 32,000 89,950 8,000
Interest..................................... 30,549 11,626 8,675
Other income................................. 774 694 630
--------- -------- ---------
473,323 262,270 162,305
--------- -------- ---------
Expenses:
Interest..................................... 64,123 50,210 45,759
General and administrative expenses.......... 27,197 10,647 22,635
Income tax benefit........................... (30,439) (31,939) (24,409)
--------- -------- ---------
60,881 28,918 43,985
--------- -------- ---------
Earnings before equity in undistributed net
earnings (loss) of subsidiaries............... 412,442 233,352 118,320
Equity in undistributed net earnings (loss) of
subsidiaries................................... (196,238) 4,006 (277,959)
--------- -------- ---------
Net earnings (loss)............................ $ 216,204 $237,358 $(159,639)
========= ======== =========
</TABLE>
F-39
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CONDENSED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net earnings (loss)......................... $ 216,204 $ 237,358 $(159,639)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Equity in undistributed net earnings
(loss) of subsidiaries................... 196,238 (4,006) 277,959
Other, net................................ 39,888 5,130 (52,034)
--------- --------- ---------
Net cash provided by operating
activities............................. 452,330 238,482 66,286
--------- --------- ---------
Cash flows from investing activities:
Purchase of interest in partnership from
Home Savings............................... -- -- (50,000)
Purchase of real estate subsidiaries........ (29,144) -- --
Capital contributions to Home Savings....... (54,700) (140,000) (329,857)
Capital contributions to subsidiaries....... (16,878) -- --
Net increase in notes receivable from
subsidiaries............................... (229,790) (13,700) --
Purchase of other investment securities..... (25,788) (25,000) --
Proceeds from sale of other investment
securities................................. 25,981 -- --
Maturities of other investment securities... 12,189 12,811 --
Other, net.................................. (19,281) (3,119) (1,087)
--------- --------- ---------
Net cash used in investing activities... (337,411) (169,008) (380,944)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuances of Preferred
Stock...................................... -- -- 469,135
Dividends on Common Stock ($0.88 per share). (103,163) (102,948) (102,804)
Dividends on Preferred Stock................ (50,430) (50,430) (35,329)
Common stock purchased for Treasury......... (62,595) -- --
Net proceeds from issuance of Subordinated
Debt....................................... -- 123,668 --
Net proceeds from issuance of Medium Term
Notes...................................... 159,052 -- --
Proceeds from issuance of notes payable to
subsidiaries............................... -- 6,745 20,000
Other, net.................................. 15,114 5,296 4,887
--------- --------- ---------
Net cash provided by (used in) financing
activities............................. (42,022) (17,669) 355,889
--------- --------- ---------
Net increase in cash and cash equivalents..... 72,897 51,805 41,231
Cash and cash equivalents at beginning of
year.......................................... 244,011 192,206 150,975
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 316,908 $ 244,011 $ 192,206
========= ========= =========
</TABLE>
In 1995 Ahmanson purchased the stock of two real estate subsidiaries of Home
Savings, with over $75 million of REI assets, for $29.1 million.
F-40
<PAGE>
EXHIBIT 10.6.10
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is entered into as of November 1, 1995 between
ROBERT M. DE KRUIF ("Consultant") and H. F. AHMANSON & COMPANY, a Delaware
corporation (the "Company"). In consideration of the mutual covenants set forth
herein, the parties agree as follows:
1. ENGAGEMENT. The Company hereby engages Consultant, and Consultant
hereby accepts engagement, as a consultant to the Company for a term from the
date hereof through October 31, 1996.
2. DUTIES. Consultant shall provide the Company with professional
services regarding the matters listed on Exhibit A attached hereto. Consultant
shall also provide consultation and advice to the Company and its subsidiaries
on such matters regarding government affairs as the Chief Executive Officer or
the General Counsel of the Company may from time to time request in writing.
a. REPORTING. Consultant shall report to and be subject to the
supervision and control of the Chief Executive Officer of the Company or any
person designated by the Chief Executive Officer and shall provide such officer,
at such times and in such form and detail as such officer shall require, with
reports of his performance and accomplishments and of developments and progress
in the matters and projects which he undertakes pursuant to this agreement.
Consultant shall meet with the Chief Executive Officer of the Company or his
designee
<PAGE>
at least monthly with respect to all consulting services provided by Consultant
to the Company hereunder.
b. COMPLIANCE. In performing services for the Company pursuant to
this agreement, Consultant shall use his best efforts to cause the Company to
comply with all applicable laws and regulations.
3. COMPENSATION. During the term of this agreement the Company shall pay
to Consultant as compensation in full for his services hereunder a monthly
retainer of $8,333.33, payable at the end of each month. For purposes of
Section 1 of the Employment Agreement between the Company and Consultant dated
March 1, 1975, as amended, the monthly retainer payments specified in the
foregoing sentence shall not be considered "direct compensation paid to
Executive" [as defined in the Employment Agreement] by the Company and,
therefore, shall not be aggregated in determining whether Executive has received
the minimum annual salary provided for under the Employment Agreement.
4. OFFICE SERVICES. For the purpose of enabling Consultant to render
services hereunder, the Company shall provide Consultant with an office and all
necessary business equipment and supplies needed to perform his duties under
this agreement.
5. EXPENSES. The Company shall reimburse Consultant for all reasonable
expenses necessarily incurred by Consultant in providing consulting services to
the Company. Consultant shall
2
<PAGE>
obtain prior approval of the Chief Executive Officer of the Company of any
reimbursable expense in excess of $500.
6. INDEPENDENT CONTRACTOR. Consultant is an independent contractor and
will not be treated as an employee with respect to services performed for the
Company for any purposes, including, but not limited to, federal, state or local
tax purposes, or for the purposes of worker's compensation or unemployment
benefit laws. No amounts will be withheld from fees payable to Consultant under
this agreement for the purposes of Federal Insurance Contribution Act (Social
Security), or for other federal, state or local tax withholding laws.
Consultant alone is responsible for the payment of all income and employment
taxes and estimates thereof on all fees received from the Company. Consultant
shall not have authority to (a) execute any document in the name or on behalf of
the Company, (b) enter into any oral or written commitments involving the
Company, or (c) otherwise obligate the Company in any manner whatsoever.
7. NOTICES. Any notice required or permitted hereunder shall be in
writing, shall be deemed given only upon receipt and shall be mailed or
delivered addressed as follows:
a. If to the Company:
H. F. Ahmanson & Company
4900 Rivergrade Road
Irwindale, California 91706
Attention: Chief Executive Officer
3
<PAGE>
b. If to Consultant:
Mr. Robert M. De Kruif
900 Oxford Road
San Marino, California 91108
or to such other address as either party shall provide for such purpose pursuant
to this section.
8. PERSONAL SERVICES. No rights or obligations of Consultant hereunder
may be assigned or delegated without the prior written consent of the Company.
Any attempted assignment or delegation without such consent shall be void.
9. ARBITRATION. In the event of a dispute arising over the interpretation
or enforcement of any of the provisions of this agreement, or any other
controversy or claim arising out of or relating to the agreement, Consultant and
the Company agree to submit such dispute to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Consultant and the Company agree that the arbitration shall occur in Los
Angeles, California.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Consulting Agreement
effective as of the date first set forth above.
H. F. AHMANSON & COMPANY
By /s/ Merrill S. Wall
------------------------------
Merrill S. Wall
First Vice President
/s/ Robert M. De Kruif
------------------------------
Robert M. De Kruif
5
<PAGE>
Exhibit A
AHMANSON RANCH PROJECT: Help the Company obtain entitlements and building
permits on whatever development plan is ultimately put forward.
SUTTER BAY PROJECT: Help the Company obtain entitlements and building permits
on whatever development plan is ultimately put forward.
OTHER DEVELOPMENT PROJECTS: Help the Company from time to time in working with
local governments and agencies.
CALIFORNIA STATE GOVERNMENT: Maintain and develop relationships with state
government to permit access if needed by the Company.
CALIFORNIA AND FEDERAL LEGISLATIVE BRANCHES: Arrange meetings for Company
officers with appropriate members of these bodies in pursuit of our legislative
agenda.
6
<PAGE>
EXHIBIT 10.9.7.1
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
(Amended and Restated as of July 12, 1994)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PREAMBLE 1
ARTICLE I
DEFINITIONS 2
1.1 Affiliated Company 2
1.2 Basic Plan 2
1.3 Basic Plan Benefit 2
1.4 Beneficiary 3
1.5 Board 3
1.6 Change in Control Date 3
1.7 Code 3
1.8 Committee 3
1.9 Company 3
1.10 Compensation Committee 3
1.11 Contingent Deferred Compensation Plan 3
1.12 Credited Service 3
1.13 Earnings 4
1.14 HFA Retirement Plan 5
1.15 Other Retirement Income 5
1.16 Participant 6
1.17 Plan 6
1.18 Retirement Date 6
1.19 Social Security Benefit 7
1.20 Sponsor 7
1.21 Surviving Spouse 8
1.22 Termination of Employment 8
1.23 Cumulative Service 8
ARTICLE II
ENTITLEMENT TO BENEFITS 8
2.1 Retirement Dates 8
2.2 Forfeitable or Nonforfeitable Benefits 9
ARTICLE III
AMOUNT AND FORM OF RETIREMENT BENEFIT 11
3.1 Normal Retirement Benefit 11
3.2 Early Retirement Benefit 12
3.3 Late Retirement Benefit 12
3.4 Survivor Benefits 12
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IV
PAYMENT OF RETIREMENT BENEFITS 16
4.1 Time of Payments 16
4.2 Automatic Payments; Indemnification 16
4.3 Disability 17
ARTICLE V
CHANGE IN CONTROL AND LUMP SUM DISTRIBUTIONS 17
5.1 Vesting and Credited Service 17
5.2 Lump Sum and Hardship Distributions 19
5.3 Change in Control 29
5.4 Acquired 31
5.5 Transactions 32
5.6 Cease to Be Employed 32
5.7 Amendment or Termination of Plan 32
ARTICLE VI
FUNDING 33
6.1 Grantor Trust 33
6.2 Contributions 33
6.3 Funding and Investment Policy 33
6.4 Status of Participants as Unsecured
Creditors 34
ARTICLE VII
COMMITTEE AND SPECIAL POWERS OF COMPENSATION
COMMITTEE 35
7.1 Appointment of Committee 35
7.2 Duties of Committee 35
7.3 Determinations by Committee;
Appointment of Agents; Settlement
of Claims 37
7.4 Compensation and Expenses of the
Committee 37
7.5 Resignation and Removal of Members 38
7.6 Appointment of Successors 38
7.7 Special Powers of Compensation
Committee; Hardship Distributions 38
ARTICLE VIII
DESIGNATION OF BENEFICIARY 39
8.1 Designation of Beneficiary 39
8.2 Failure to Designate Beneficiary 40
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE IX
POWERS 40
9.1 No Liability 40
9.2 Advice of Counsel 40
9.3 Distribution of Participants'
Interests When Sponsor is Unable
to Locate Distributees 41
ARTICLE X
AMENDMENT AND TERMINATION OF PLAN 41
10.1 Amendment and Termination of Plan;
Removal of Participants 41
ARTICLE XI
SPENDTHRIFT PROVISIONS 42
ARTICLE XII
MISCELLANEOUS 43
12.1 Right of Companies to Dismiss
Employees; Obligations 43
12.2 Inspection Rights 43
12.3 Withholding and Payroll Taxes 44
12.4 Payment to Guardian 44
12.5 Protective Provisions 44
12.6 Notices and Elections 44
12.7 Text to Control 45
12.8 Law Governing and Severability 45
12.9 Name 45
12.10 Gender 45
12.11 Ineligible Participant 45
SCHEDULE A
REDUCTION FACTORS FOR EARLY RETIREMENT BENEFIT
</TABLE>
(iii)
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
PREAMBLE
--------
(Amended and Restated as of July 12, 1994)
The principal objective of this amended and restated Supplemental
Executive Retirement Plan (the "Plan") is to ensure the payment of a competitive
level of retirement income in order to attract, retain and motivate selected
executives. The Plan is designed to provide a benefit which, when added to
other retirement income of the executive, will meet the objective described
above. Eligibility for participation in the Plan shall be limited to executives
selected by the Compensation Committee of the Board of Directors of the Sponsor.
The Sponsor hereby declares that its intention is to create an
unfunded Plan primarily for the purpose of providing a select group of
management or highly compensated employees of the Sponsor and its Affiliated
Companies with supplemental retirement income. It is also the intention of the
Sponsor that the Plan be an "employee pension benefit plan" as defined in
Section 3(2) of Title I of the Employee Retirement Income Security Act of 1974
("ERISA") and that the Plan be the type of plan described in Sections 201(2),
301(3) and 401(a)(1) of Title I of ERISA. The Sponsor is the "named fiduciary"
of the Plan for purposes of Section 402(a)(2) of ERISA.
This amended and restated Plan shall be effective as of July 12, 1994,
and shall apply to all Participants who terminate employment with the Company on
or after July 12, 1994. This amended and restated Plan shall have no
application to Participants who terminated employment with the Company before
<PAGE>
July 12, 1994, unless otherwise determined by the Administrator in its sole
discretion. The rights of such Participants shall continue to be determined
under the terms of the Plan as previously in effect prior to this amendment and
restatement of the Plan.
ARTICLE I
DEFINITIONS
-----------
When used herein, the following words shall have the following
meanings unless the content clearly indicates otherwise:
1.1 Affiliated Company. "Affiliated Company" means any corporation,
------------------
partnership or other organization while it is, directly or by attribution, at
least 50% controlled by the Sponsor.
1.2 Basic Plan. "Basic Plan" means, collectively, the HFA Retirement
----------
Plan and any other defined benefit pension plan maintained by a Company.
1.3 Basic Plan Benefit. "Basic Plan Benefit" means the actual annual
------------------
amount of benefit payable from the Basic Plan to a Participant at his Retirement
Date in the actual form payable under the Basic Plan; or, if the Participant
elects to have payments commence under the Basic Plan after his Retirement Date,
the annual amount of benefit which would be payable from the Basic Plan to a
Participant commencing at his Retirement Date (or earliest date when benefits
could commence under the Basic Plan, if later), in the form of a single-life
annuity if the
-2-
<PAGE>
Participant has no spouse on his Retirement Date or a 100% joint and survivor
benefit if the Participant has a spouse on his Retirement Date.
1.4 Beneficiary. "Beneficiary" means the person who under this Plan
-----------
becomes entitled to receive a Participant's survivor benefit in the event of his
death.
1.5 Board. "Board" means the Board of Directors of the Sponsor or
-----
any committee thereof acting within the scope of its authority.
1.6 Change in Control Date. "Change in Control Date" means the date
----------------------
as of which a Change in Control, as defined in Section 5.3 hereof, occurs.
1.7 Code. "Code" means the Internal Revenue Code of 1986, as it may
----
be amended from time to time.
1.8 Committee. "Committee" means the committee which has been
---------
appointed by the Board or the Compensation Committee and given authority to
administer the Plan pursuant to Article VII.
1.9 Company. "Company" means the Sponsor or an Affiliated Company.
-------
1.10 Compensation Committee. "Compensation Committee" means the
----------------------
Compensation Committee of the Board.
1.11 Contingent Deferred Compensation Plan. "Contingent Deferred
-------------------------------------
Compensation Plan" means the H. F. Ahmanson & Company 1989 Contingent Deferred
Compensation Plan, as presently constituted and as amended from time to time,
and any predecessor and successor plans.
1.12 Credited Service. "Credited Service" means Credited Service as
----------------
defined and credited under the HFA Retirement
-3-
<PAGE>
Plan, notwithstanding any termination of the HFA Retirement Plan or any
amendment to such plan after January 1, 1989 which has the effect of decreasing
or retarding the accrual of Credited Service, and shall include service
subsequent to a Participant's Normal Retirement Date.
1.13 Earnings. "Earnings" means a Participant's annual base salary,
--------
annual bonuses under the Company's Short-Term Incentive Plan or successor plan,
Contingent Deferred Compensation Plan grants made before 1995, and the dollar
value determined by the Compensation Committee of stock option grants made after
1994 in lieu of Contingent Deferred Compensation grants, excluding all bonuses
under the Company's Long-Term Incentive Plan or successor plan, other forms of
supplemental compensation and severance payments, before reductions pursuant to
any salary reduction, deferred compensation or similar plan or arrangement
maintained by the Company, averaged over the 36 consecutive months of Credited
Service in the ten years before termination of the Plan, the Participant's
Termination of Employment or the Participant's Retirement Date, whichever occurs
first, which will produce the highest average.
Annual bonuses, Contingent Deferred Compensation Plan grants, and the
dollar value of stock option grants made in lieu of Contingent Deferred
Compensation grants shall be taken into account on the date when they are duly
authorized and fixed by the Compensation Committee (or the chief executive
officer of the Sponsor, if such determinations are delegated to him by the
Compensation Committee) as to the amount of payment or grant, rather than when
they are paid to Participants at a later date,
-4-
<PAGE>
and shall be allocated ratably to the months of service for which such bonuses
or grants are awarded. Only annual bonuses and Contingent Deferred Compensation
Plan or stock option grants which are earned for the same period of 36
consecutive months may be taken into account, and any required adjustments shall
be made by the Committee.
1.14 HFA Retirement Plan. "HFA Retirement Plan" means the H. F.
-------------------
Ahmanson & Company Retirement Plan, as presently constituted and as amended from
time to time.
1.15 Other Retirement Income. "Other Retirement Income" means the
-----------------------
sum of the following annual amounts:
(a) Seventy-five percent of the annual actuarial equivalent of
retirement income payable to a Participant commencing on the Participant's
Retirement Date from the Social Security Benefit as defined in Section 1.19;
(b) One hundred percent of any Social Security disability benefits
(without actuarial adjustment) which are actually paid on or after the
Participant's Retirement Date;
(c) One hundred percent of any Company-paid long and short-term
disability benefits (without actuarial adjustment) which are actually paid on or
after the Participant's Retirement Date; and
(d) The annual actuarial equivalent of retirement income payable to a
Participant commencing on the Participant's Retirement Date in the same form as
his Basic Plan Benefit from the Company-funded portion (including Company
matching contributions, but not elective employee deferrals under Code
-5-
<PAGE>
Section 401(k)) of any distribution from a defined contribution plan of the
Company qualified under Section 401 of the Code.
The conversion of any of the foregoing benefits into an actuarially
equivalent annuity form commencing at the Participant's Retirement Date, when
applicable, shall be computed with reference to the factors (i) in the HFA
Retirement Plan applicable to benefits accruing thereunder at the time when
payments commence hereunder in respect of a Participant, or the factors in
effect at the time of the HFA Retirement Plan's termination if such termination
is prior to such payment commencement date, or (ii) of the Pension Benefit
Guaranty Corporation applicable to plans terminating on such payment
commencement date, whichever of (i) or (ii) produces the smaller amount for the
foregoing benefits.
1.16 Participant. "Participant" means those persons who fall into
-----------
the categories of persons eligible for participation in the Plan specified in
the resolutions of the Compensation Committee of November 1, 1984 or in any
resolutions subsequently adopted by the Compensation Committee, which are hereby
incorporated by reference. Such persons shall become Participants in the Plan
as of the date specified in such resolutions. Each Participant shall receive
written notification from the Sponsor that he is participating in the Plan.
Participants in this amended and restated Plan shall be limited to persons whose
employment with the Company terminates on or after July 12, 1994.
1.17 Plan. "Plan" means this Supplemental Executive Retirement Plan,
----
as amended and restated effective as of July 12,
-6-
<PAGE>
1994, as set forth in this document and as the same may be amended, administered
or interpreted from time to time.
1.18 Retirement Date. "Retirement Date" means the date specified in
---------------
Section 2.1 hereof, on or prior to which a Participant's employment has
terminated with all Companies and as of which the Participant shall commence to
receive benefits under the Plan.
1.19 Social Security Benefit. "Social Security Benefit" means the
-----------------------
Participant's annual Primary Insurance Amount (excluding any amount payable for
the Participant's spouse), estimated by the Committee at the date of the
Participant's Termination of Employment to be payable under the Federal Social
Security Act as then in effect to the Participant at age 65 or the Participant's
retirement age under the Federal Social Security Act or at the Participant's
Retirement Date, whichever is later; provided, however, that:
(a) The Social Security Benefit for a Participant whose Termination of
Employment occurs prior to age 65 or, if later, the Participant's retirement age
under the Federal Social Security Act, will be calculated assuming:
(i) The Participant will not receive any future wages which
would be treated as wages for purposes of the Federal Social Security Act
after his Termination of Employment; and
(ii) The Participant will elect to begin receiving his Social
Security Benefit as of the earliest age then allowable under the Federal
Social Security Act or, if later, at the actual date of his Termination of
Employment, and his Social Security Benefit commencing as of such date will be
based on the early
-7-
<PAGE>
commencement reduction factors used under the Federal Social Security Act.
(b) The Social Security Benefit, once calculated, will be frozen as of
the date of the Participant's death or Termination of Employment, whichever is
applicable.
1.20 Sponsor. "Sponsor" means H. F. Ahmanson & Company, a Delaware
-------
corporation, and any successor corporation or other entity formed by a
consolidation with such corporation or into which such corporation is merged or
to which all or substantially all the assets of such corporation are
transferred, directly or indirectly, and any like successor(s) to any such
successor.
1.21 Surviving Spouse. "Surviving Spouse" means an individual who is
----------------
a surviving spouse eligible for any death benefit under the HFA Retirement Plan.
1.22 Termination of Employment. "Termination of Employment" means
-------------------------
termination of a Participant's employment with all Companies.
1.23 Cumulative Service. "Cumulative Service" means Cumulative
------------------
Service as defined and credited under the HFA Retirement Plan, notwithstanding
any termination of the HFA Retirement Plan or any amendment to such plan after
July 12, 1994 which has the effect of decreasing or retarding the accrual of
Cumulative Service, and shall include service subsequent to a Participant's
Normal Retirement Date. Any additional years of Credited Service which are
granted to a Participant shall, also, count as years of Cumulative Service.
-8-
<PAGE>
ARTICLE II
ENTITLEMENT TO BENEFITS
-----------------------
2.1 Retirement Dates. Each Participant shall commence receiving
----------------
benefits under the Plan beginning on the earliest of the following applicable
Retirement Dates, provided his benefits are nonforfeitable on such date:
(a) "Normal Retirement Date," which is a Termination of Employment on
the first day of the month coinciding with or next following the Participant's
65th birthday.
(b) "Early Retirement Date," which is the first day of the month after
all the following criteria have been met, either in that month or in a prior
period: (i) the Participant has a Termination of Employment, (ii) the sum of
the Participant's age and years of Cumulative Service equals or exceeds 75, and
(iii) the Participant is age 55 or older but less than age 65. A Participant
becomes eligible for Early Retirement when both criteria (ii) and (iii) have
been met.
(c) "Postponed Retirement Date," which is the first day of the month
after the Participant has a Termination of Employment that occurs after the
Participant's 65th birthday.
2.2 Forfeitable or Nonforfeitable Benefits. A Participant's benefits
--------------------------------------
shall be forfeitable or nonforfeitable as provided in this Section 2.2.
(a) (i) A Participant's benefits hereunder shall become
nonforfeitable at the rate of ten percent (10%) for (A) each year of Cumulative
Service after becoming a Participant in this Plan and (B) every two years of
Cumulative Service before
-9-
<PAGE>
becoming a Participant in this Plan, but not exceeding a 50% nonforfeitable
interest for service before becoming a Participant in this Plan. A
Participant's benefits shall, also, become 100% nonforfeitable on his 65th
birthday, if the Participant is employed by the Company on such date.
(ii) With respect to any Participant in this Plan on July 12,
1994, such Participant's benefits hereunder may become nonforfeitable under
subparagraph (i) above and shall, also, become 100% nonforfeitable on the
earlier of his 65th birthday, if the Participant is employed by the Company on
such date, or the date on which the sum of the Participant's age and years of
Cumulative Service equals 75, irrespective of his age and notwithstanding that
payment may not actually commence until one of the Retirement Dates specified in
Section 2.1 hereof; provided that, in the case of a Participant whose employment
with all Companies or whose participation in the Plan has terminated, his age
increases after such termination may be taken into account in determining the
nonforfeitability of his benefit only if he has, as of the date of such
termination, earned at least fifteen (15) years of Cumulative Service. A
Participant's benefits under this Plan shall continue to be 100% nonforfeitable
if the Participant's benefits were 100% nonforfeitable prior to July 12, 1994.
(b) Notwithstanding the foregoing, a Participant's benefits
hereunder shall become forfeitable or cease to be nonforfeitable if:
(i) The Participant is discharged by a Company for cause as
defined in subparagraph (iii) below;
-10-
<PAGE>
provided that in no event shall a Participant discharged in connection with, or
as a result of, a Change in Control, as defined in Article V hereof, be deemed
to have been discharged for cause; or
(ii) The Participant causes material injury to the Companies,
considered in the aggregate, by:
(A) Disclosing or using any of a Company's trade
secrets or other privileged or confidential information respecting any
Company, its methods of conducting business, its business plans or its
customers, at any time before or after a Change in Control;
(B) Engaging in any unfair competition against a
Company at any time before or after a Change in Control, which may include
acts described in subparagraph (C) below where such acts constitute unfair
competition; or
(C) Soliciting, persuading or inducing, or attempting
to solicit, persuade or induce, within three years after the Participant's
Termination of Employment, any employee of a Company or any customer of a
Company, with whom such Participant has transacted business or becomes
acquainted in the course of his employment with that or any other Company, to
terminate or alter the relationship of such employee or customer with the
Company to the detriment of the Company or to commence a similar relationship
with any competitor of the Company, whether or not such acts constitute unfair
competition. This subparagraph (C) shall not apply to any Participant who has
a Termination of Employment after a Change in Control.
-11-
<PAGE>
(iii) For purposes of subparagraph (i) above, "cause" is
defined as (a) an act on the Participant's part constituting a felony and
resulting or intended to result, directly or indirectly, in substantial gain
or personal enrichment at the expense of any Company, or (b) a willful breach
by the Participant of any provisions of his Employment Agreement, if any, if
such breach results in demonstrably material injury to the Companies,
considered in the aggregate.
(c) Benefits which have become forfeitable shall not be paid. The
Committee may, in its sole discretion, reinstate forfeitable benefits if the
conduct of the Participant described in Section 2.2(b) hereof has ceased and if
such prior conduct has not caused lasting injury to any Company.
(d) The rights of the Surviving Spouse or Beneficiary of a Participant
are coextensive with, and not independent of, those of the Participant. In the
event benefits have become forfeitable under this Section 2.2 and such benefits
have not been reinstated pursuant to Section 2.2(c) prior to the Participant's
death, then notwithstanding Section 3.4 hereof, the Participant's Surviving
Spouse or Beneficiary shall not be entitled to any survivor benefits under the
Plan.
ARTICLE III
AMOUNT AND FORM OF RETIREMENT BENEFIT
-------------------------------------
3.1 Normal Retirement Benefit. The annual benefit under the Plan
-------------------------
payable to a Participant commencing at his Normal Retirement Date shall equal
four percent (4%) of his Earnings
-12-
<PAGE>
multiplied by a number, not to exceed fifteen (15), determined based on his
years of Credited Service in accordance with the following sentence (the "SERP
Benefit"), less his Basic Plan Benefit, if any, and less his Other Retirement
Income, if any. The number used to determine the SERP Benefit shall be the sum
of:
(i) Years of Cumulative Service as defined and credited under the HFA
Retirement Plan after becoming a Participant in this Plan, plus
(ii) One-half of the years of Cumulative Service as defined and
credited under the HFA Retirement Plan before becoming a Participant in this
Plan, up to a maximum number of five (5) for ten or more years of Cumulative
Service before becoming a Participant in this Plan.
The maximum SERP Benefit of a Participant shall equal sixty percent (60%) of his
Earnings, before reduction for his Basic Plan Benefit and Other Retirement
Income.
3.2 Early Retirement Benefit. The annual benefit under the Plan
------------------------
payable to a Participant commencing at his Early Retirement Date shall equal the
SERP Benefit determined in accordance with Section 3.1 reduced in accordance
with Schedule A attached hereto, less his Basic Plan Benefit, if any, and his
Other Retirement Income, if any.
3.3 Late Retirement Benefit. The annual benefit under the Plan
-----------------------
payable to a Participant commencing at his Postponed Retirement Date shall equal
the SERP Benefit determined in accordance with Section 3.1, less his Basic Plan
Benefit, if any, and his Other Retirement Income, if any.
-13-
<PAGE>
3.4 Survivor Benefits. The annual benefit determined under the Plan
-----------------
will be payable to the retired Participant during his lifetime. Survivor
benefits will be payable as follows:
(a) If an active, retired or terminated Participant dies and has no
Surviving Spouse, payments under the Plan will cease and no survivor benefits
will be payable hereunder with respect to such Participant.
(b) If a retired Participant dies on or after his Retirement Date and
has a Surviving Spouse, an annual benefit will be paid during the lifetime of
such Surviving Spouse to such Surviving Spouse or other Beneficiary designated
by the Participant. The amount of such annual benefit will be equal to the
survivor portion of a 100 percent joint and survivor annuity which is the
actuarial equivalent of the benefit that was paid to the retired Participant
during his lifetime, treating such latter benefit as a single life annuity,
calculated based on the ages of the Participant and the Surviving Spouse as of
the Participant's Retirement Date. Such actuarial equivalent shall be
determined by reference to the factors (i) in the HFA Retirement Plan applicable
to benefits accruing thereunder at the time when payments commence hereunder to
the Participant, or the factors in effect at the time of the HFA Retirement
Plan's termination if such termination is prior to such payment commencement
date, or (ii) of the Pension Benefit Guaranty Corporation applicable to plans
terminating on such payment commencement date, whichever of (i) or (ii) provides
the higher amount of survivor benefits under this Plan.
-14-
<PAGE>
The annual benefit under this Section 3.4(b) shall not be reduced to
offset any death benefit payable under the Company's Executive Life Insurance
Plan or any other Company funded life insurance policy or other Company funded
death benefit program.
(c) If a Participant dies while employed by a Company, but prior to
being 100% vested, no survivor benefit shall be payable hereunder.
(d) If a Participant dies while employed by a Company, but after being
100% vested, and has a Surviving Spouse, an annual benefit will be paid during
the lifetime of such Surviving Spouse to such Surviving Spouse or other
Beneficiary designated by the Participant commencing on the first day of the
month following the death of the Participant. The amount of such annual benefit
will be equal to the survivor portion of a 100 percent joint and survivor
annuity which is the actuarial equivalent of the benefit that would have been
payable to the Participant had he terminated employment and commenced receiving
a benefit on the first of the month following the date of his death, treating
such latter benefit as a single life annuity, calculated based on the ages of
the Participant and the Surviving Spouse as of the Participant's death.
The annual benefit under this Section 3.4(d) shall be reduced by an
offset for any death benefit payable to the Participant's beneficiary from the
Company's Executive Life Insurance Plan and any other Company funded life
insurance policy or other Company funded death benefit program (other than the
Basic Plan), irrespective of who is the actual beneficiary under
-15-
<PAGE>
such life insurance policy or death benefit program. The reduction in the
annual benefit under this Section 3.4(d) shall be determined by (i) converting
the unreduced annual benefit which is payable hereunder as the survivor portion
of the 100 percent joint and survivor annuity to a lump sum equivalent amount,
(ii) subtracting the lump sum equivalent amount of any death benefit payable to
the Participant's beneficiary from the Company's Executive Life Insurance Plan
and any other Company funded death benefit program (other than the Basic Plan),
and (iii) converting such reduced lump sum equivalent amount back to an annual
benefit which will be payable as the survivor portion of a 100 percent joint and
survivor annuity.
An actuarial equivalent for purposes of this Section 3.4(d) shall be
determined by the factors (i) in the HFA Retirement Plan applicable to benefits
accruing thereunder at the time when payments commence hereunder to the
Surviving Spouse or other Beneficiary designated by the Participant, or the
factors in effect at the time of the HFA Retirement Plan's termination if such
termination is prior to such payment commencement date, or (ii) of the Pension
Benefit Guaranty Corporation applicable to plans terminating on such payment
commencement date, whichever of (i) or (ii) provides the higher amount of
survivor benefits under this Plan.
(e) If a Participant dies after his Termination of Employment and
prior to his Retirement Date, but prior to being 100% vested, no survivor
benefit shall be payable hereunder notwithstanding that the Participant may have
a Surviving Spouse.
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<PAGE>
(f) If a Participant dies after his Termination of Employment and
prior to his Retirement Date, but after being 100% vested, and has a Surviving
Spouse, an annual benefit shall be payable hereunder equal to the annual benefit
which would be payable under Section 3.4(d), without any reduction to offset any
death benefit payable under the Company's Executive Life Insurance Plan or any
other Company funded life insurance policy or other Company funded death benefit
program.
ARTICLE IV
PAYMENT OF RETIREMENT BENEFITS
------------------------------
4.1 Time of Payments. Benefits payable in accordance with Article
----------------
III and nonforfeitable under Article II will commence on the Participant's
Retirement Date or, if payable under Section 3.4(b), (d) or (f) hereof, on the
first day of the month following the Participant's death. Benefits will
continue to be paid on the first day of each succeeding month. The last payment
will be on the first day of the month in which the retired Participant dies, or
the Surviving Spouse of the Participant dies, whichever is later. Each such
payment shall be equal to one-twelfth of the applicable annual amount determined
under Article III hereof.
4.2 Automatic Payments; Indemnification. Benefits payable under this
-----------------------------------
Article IV shall be paid automatically commencing on the Participant's
Retirement Date or, if payable under Section 3.4(b), (d) or (f) hereof, on the
first day of the month following the Participant's death. No application need
be
-17-
<PAGE>
filed by the Participant for benefits to commence; provided that the Committee
may reasonably require an application from a Surviving Spouse or Beneficiary.
The Sponsor shall indemnify and hold harmless any Participant, Surviving Spouse
or Beneficiary for any fees and expenses incurred, including fees for attorneys
and experts, to obtain or enforce any right or benefit provided to him under the
Plan, other than, in the case of a Surviving Spouse or Beneficiary, expenses
incurred in connection with the normal preparation and filing of an application.
4.3 Disability. Notwithstanding any other provision of this Plan,
----------
the payment of retirement benefits may be delayed if the Committee determines
that such payment would result in a reduction of any disability benefits payable
to the Participant under disability plans sponsored by a Company. The Committee
shall make appropriate adjustments on account of any delayed payments to ensure
that the Participant receives payments which are actuarially equivalent to the
payments which were otherwise due to him under this Plan.
ARTICLE V
CHANGE IN CONTROL AND LUMP SUM DISTRIBUTIONS
--------------------------------------------
5.1 Vesting and Credited Service. In the event of a Change in
----------------------------
Control, as defined in Section 5.3 hereof, then, notwithstanding any other
provision of the Plan to the contrary, the following shall occur:
(a) Each Participant who is employed with a Company immediately before
the Change in Control Date shall acquire
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<PAGE>
immediately before the Change in Control Date a 100 percent (100%)
nonforfeitable interest in any benefit accrued to such Participant under the
Plan through the Change in Control Date, including any additional benefit
accrued pursuant to Section 5.1(b) below, except that a Participant's benefits
hereunder may still become forfeitable or cease to be nonforfeitable pursuant to
Section 2.2(b)(ii)(A) and (B); and
(b) Each Participant who is employed with a Company immediately before
the Change in Control Date shall be credited with an additional number of years
of Credited Service equal to 0.5 times his years of Credited Service through the
Change in Control Date; provided that in determining a Participant's years of
Credited Service through the Change in Control Date, a Participant shall be
treated as having retired on the Change in Control Date so that the 1000 Hours
of Service requirement set forth in Section 2.6 of the HFA Retirement Plan (or
any successor provision) shall not apply; provided, further, that in no event
shall a Participant ever be credited with more than fifteen (15) years of
Credited Service for purposes of Article III of this Plan.
(c) If a Participant who has a nonforfeitable interest under Section
5.1(a) above dies and has a Surviving Spouse, an annual benefit will be paid
during the lifetime of such Surviving Spouse to such Surviving Spouse or other
Beneficiary designated by the Participant commencing on the first day of the
month following the death of the Participant. The amount of such annual benefit
will be equal to the survivor portion of a 100 percent joint and survivor
annuity which is the actuarial
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<PAGE>
equivalent of the benefit that was being paid to the Participant or would have
been payable to the Participant had he terminated employment and commenced
receiving a benefit on the first of the month following the date of his death,
treating such latter benefit as a single life annuity, calculated based on the
ages of the Participant and the Surviving Spouse as of the Participant's death.
An actuarial equivalent for purposes of this Section 5.1(c) shall be determined
in the same manner described in Sections 3.4(b) and (d).
If a Participant dies while employed by a Company, the annual benefit
under this Section 5.1(c) shall be reduced by an offset for any death benefit
payable to the Participant's beneficiary from the Company's Executive Life
Insurance Plan and any other Company funded life insurance policy or other
Company funded death benefit program (other than the Basic Plan) in the same
manner as described in Section 3.4(d). If a Participant dies after his
Retirement Date or Termination of Employment, the annual benefit under this
Section 5.1(c) shall not be reduced to offset any death benefit payable under
the Company's Executive Life Insurance Plan or any other Company funded life
insurance policy or other Company funded death benefit program.
5.2 Lump Sum and Hardship Distributions. Notwithstanding any other
-----------------------------------
provisions of the Plan, at any time after a Change in Control a Participant who
has a Termination of Employment, or who previously had a Termination of
Employment with a vested benefit, or the Surviving Spouse or Beneficiary of a
deceased Participant may receive or continue to receive, as the case may be,
annual benefits to which he is entitled under this
-20-
<PAGE>
Plan, or may elect to receive such benefits or remaining benefits in one lump
sum cash payment at any time (the "Commencement Date") after the later to occur
of the Change in Control Date or the date of the Participant's Termination of
Employment, irrespective of such Participant's actual age or years of Cumulative
Service at such Commencement Date. At any time before a Change in Control a
retired Participant or the Surviving Spouse or Beneficiary of a deceased
Participant may receive or continue to receive, as the case may be, annual
benefits to which he is entitled under this Plan, or may elect to receive such
benefits or remaining benefits in one lump sum cash payment at any time (the
"Commencement Date") after the Participant's Retirement Date or death. Both
before and after a Change in Control a married Participant may elect to receive
a lump sum cash payment only with the written consent of the Participant's
spouse.
Notwithstanding the foregoing, an election to receive a lump sum
payment may not be made by any Participant, Surviving Spouse or Beneficiary at
any time when the Net Worth (as hereinafter defined) of the Sponsor is less than
One Hundred Million Dollars ($100,000,000.00). As used herein, the term "Net
Worth" of the Sponsor shall mean the net worth of the Sponsor as determined (i)
by a firm of independent certified public accountants selected by the Sponsor
from among the eight largest such firms practicing in the United States and (ii)
in accordance with the generally accepted accounting principles utilized by the
Sponsor during the preceding fiscal year (or after a Change in Control, during
the fiscal year preceding the Change in Control Date), consistently applied.
Any expenses incurred in
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<PAGE>
determining the Net Worth of the Sponsor shall be paid by the Sponsor.
The lump sum payment shall be determined in accordance with the
following provisions of this Section 5.2, and then shall be reduced by a
penalty, which shall be forfeited to the Sponsor, equal to five percent (5%)
after a Change in Control or ten percent (10%) before a Change in Control of the
lump sum payment determined in accordance with such provisions. However, the
penalty shall not apply if the Committee determines, based on advice of counsel
or a final determination by the Internal Revenue Service or any court of
competent jurisdiction, that by reason of the foregoing elective provisions of
this Section 5.2 any Participant, Surviving Spouse or Beneficiary has recognized
or will recognize gross income for federal income tax purposes under this Plan
in advance of payment to him of Plan benefits. The Sponsor shall notify all
Participants (and Surviving Spouses or Beneficiaries of deceased Participants)
of any such determination. Whenever any such determination is made, the Sponsor
shall refund all penalties which were imposed hereunder on account of making
lump sum payments at any time during or after the first year to which such
determination applies (i.e., the first year when gross income is recognized for
federal income tax purposes). Interest shall be paid on any such refunds based
on an interest factor determined under Section 5.2(b) hereof. The Committee may
also reduce or eliminate the penalty if it determines that this action will not
cause any Participant, Surviving Spouse or Beneficiary to recognize gross income
for
-22-
<PAGE>
federal income tax purposes under this Plan in advance of payment to him of Plan
benefits.
Notwithstanding any other provision of this Plan, a penalty shall not
apply if a Participant makes a timely election more than 12 months before his
Termination of Employment to receive a lump sum payment on his Retirement Date
of the benefits to which he would be entitled under this Plan. Any election
which is made by the Participant less than 12 months before his Termination of
Employment will be void and will cause any prior election made by the
Participant to be reinstated, unless the Participant expressly ratifies the
later election and agrees to be subject to the full penalties described above.
Likewise, no penalty shall apply if a retired Participant or the
Surviving Spouse or Beneficiary of a deceased Participant receives a lump sum
distribution due to a financial hardship. The Compensation Committee shall
determine whether a financial hardship exists in its sole discretion, but in
good faith and on a uniform, nondiscriminatory and reasonable basis. A hardship
distribution shall be a cash payment not to exceed the amount necessary to
relieve the hardship.
(a) When annual benefit payments have not yet commenced, the lump sum
payment (prior to the five percent (5%) or ten percent (10%) reduction) shall
equal the lump sum value of the Participant's annual benefit (as defined in
Article III hereof) accrued through the Commencement Date. The amount described
in this Section 5.2(a) shall include, in addition, in the case of a Participant
who has a spouse on the Commencement Date, the lump sum value, determined as of
such date, of any
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<PAGE>
benefit payable to such spouse or other Beneficiary by reason of the
Participant's death on or after such date assuming such spouse would qualify as
a Surviving Spouse on and after such date. The lump sum amount representing the
value of the benefits described in the previous two sentences shall be computed
(i) first by reducing the amount of the Participant's annual benefit payable
under Section 3.1 hereof in accordance with Schedule A and Section 3.2 hereof,
if the Participant's Commencement Date occurs before the Participant's Normal
Retirement Date, by treating the Participant's Commencement Date as his Early
Retirement Date (irrespective of his actual age and actual years of Cumulative
Service) for purposes of Section 3.2 (as well as Sections 1.3, 1.15, 1.18 and
1.19) and Schedule A hereof, (ii) then determining the survivor benefit payable
in respect of such reduced annual benefit under Section 3.4 or Section 5.1(c),
and (iii) next commuting such benefits to their lump sum equivalent at the
Commencement Date by reference to the factors described in Section 5.2(b)
hereof. In computing the Participant's annual benefit under clause (i) of the
previous sentence, if the Commencement Date occurs before the earliest date when
the Participant may commence to receive his Basic Plan Benefit, the
Participant's Basic Plan Benefit shall be computed as the annual actuarial
equivalent of the Basic Plan Benefit which would be payable to him at the
earliest date when benefits could commence under the Basic Plan, in the form of
a single life annuity if the Participant has no spouse on his Commencement Date
or a 100% joint and survivor benefit if the Participant has a spouse on his
Commencement Date.
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<PAGE>
When annual benefit payments have previously commenced, the lump sum
payment (prior to the five percent (5%) or ten percent (10%) reduction) shall be
equal to the difference between (A) minus (B) below, determined as of the
Participant's Retirement Date, accumulated to the date of the lump sum payment
using the same interest rate which is used in calculating the amounts (A) and
(B):
(A) The lump sum value of the annual benefits payable to the
Participant (including any benefits payable to the spouse or other Beneficiary
of a married Participant) determined as of the Participant's Retirement Date in
the same manner described in the previous paragraph.
(B) The lump sum value of the annual benefits previously paid to the
Participant discounted to the Participant's Retirement Date.
When a Surviving Spouse or Beneficiary of a deceased Participant
elects to receive a lump sum payment, the amount of the lump sum payment shall
be determined by the Committee in a manner similar to that used for a
Participant, except that no additional benefit is payable under Section 3.4 or
Section 5.1(c) during the life of a surviving spouse of such Surviving Spouse or
Beneficiary. All lump sum equivalents hereunder shall be determined by
reference to the factors described in Section 5.2(b) hereof.
(b) The factors described in this Section 5.2(b) are the actuarial
equivalence factors (a) in the HFA Retirement Plan applicable to benefits
accruing thereunder at the Commencement Date, or the factors in effect at the
time of the HFA Retirement
-25-
<PAGE>
Plan's termination if such termination occurs prior to the Commencement Date, or
(b) of the Pension Benefit Guaranty Corporation applicable to plans terminating
on the Commencement Date, whichever of (a) or (b) produces the higher amount of
lump sum payment under Section 5.2(a).
(c) Example 1. At the Change in Control Date, Participant A is 65 and
---------
about to retire under both the Plan and the HFA Retirement Plan, and Participant
B is 50. At that time, Participant A has accrued a benefit under the Plan equal
to $20,000 per year payable starting at A's Normal Retirement Date, and
Participant B has also accrued a benefit under the Plan equal to $20,000 per
year payable starting at B's Normal Retirement Date. Both Participant A and
Participant B have a Termination of Employment on the Change in Control Date.
Participant B's annual benefit starting at age 50, however, would be $7,000,
reduced in accordance with Section 3.2 and Schedule A hereof. Assume solely for
the sake of this example that (i) a $20,000 annual benefit is valued under this
Section 5.2 at $200,000 on the day payments commence at a Participant's Normal
Retirement Date, (ii) a $7,000 annual benefit is valued under this Section 5.2
at $300,000 on the day payments commence when a Participant is 50, and (iii)
both A and B are single on the Change in Control Date so the lump sum valuation
need not consider the value of any death benefit. A may elect to receive a lump
sum cash payment computed as $200,000 less a penalty of $10,000 (5% of
$200,000), or $190,000. B may elect to receive a lump sum cash payment computed
as $300,000 less a penalty of $15,000 (5% of $300,000), or $285,000.
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<PAGE>
Alternatively, A or B may continue to receive annual benefits under the Plan
without any penalty.
Example 2. Assume Participant A in Example 1 above is married.
---------
Participant A has accrued a benefit under the Plan equal to $20,000 per year
payable starting at A's Normal Retirement Date. Further assume that, based on
the age of A's spouse at A's Normal Retirement Date, a 100% joint and survivor
annuity for A and his spouse which is actuarially equivalent to a $20,000 per
year lifetime annuity for A is equal to $17,000 per year. Accordingly, the
annual benefits payable to A and his spouse are equivalent to an 85% joint and
survivor annuity ($17,000/$20,000 = 85%). Assume solely for the sake of this
example that an 85% joint and survivor annuity which will pay a $20,000 annual
benefit to A during his lifetime and a $17,000 annual benefit to A's spouse
during her lifetime following A's death is valued under this Section 5.2 at
$250,000 on the day payments commence at A's Normal Retirement Date. A may
elect with the written consent of his spouse to receive a lump sum cash payment
computed at $250,000 less a penalty of $12,500 (5% of $250,000), or $237,500.
Example 3. Assume Participant A in Example 1 above is single and has
---------
previously received annual benefits of $20,000 per year under the Plan for three
years. At age 68 after a Change in Control A elects to receive a lump sum
payment. Assume solely for the sake of this example that under this Section 5.2
(i) A's $20,000 annual benefit is valued at $200,000 as of A's Normal Retirement
Date, (ii) the three annual payments of $20,000 previously made to A have a
total value of $55,000 as of A's
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<PAGE>
Normal Retirement Date, and (iii) the difference between (i) and (ii) ($200,000
- - $55,000) of $145,000 as of A's Normal Retirement Date has an accumulated lump
sum value when A elects to receive a lump sum payment at age 68 of $180,000. A
may elect to receive a lump sum cash payment computed at $180,000 less a penalty
of $9,000 (5% of $180,000), or $171,000.
Note. In each of the Examples above, the penalty would be 10% for a
lump sum payment before a Change in Control.
(d) On or after the Change in Control Date, a Participant suffering
from a financial hardship may petition the Compensation Committee to receive a
distribution as provided in this Section 5.2(d), notwithstanding that the
Participant is still employed by a Company. The Compensation Committee shall
determine whether a Participant is then suffering a financial hardship in its
sole discretion, but in good faith and on a uniform, nondiscriminatory and
reasonable basis.
(i) Such hardship distribution shall be a cash payment in an amount
necessary to relieve the hardship, but in no event to exceed the lump sum value
at the date of the hardship distribution (such lump sum value referred to
hereinafter as the "Ceiling Value") of his benefits accrued under the Plan
through the date of payment when expressed in the form described in Section 3.1
hereof (such accrued benefits referred to hereinafter as the "Ceiling Accrual")
less the actual lump sum amount of any previous hardship payments to the
Participant under the Plan.
(ii) The Ceiling Value shall be determined by commuting the
Participant's Ceiling Accrual to a lump sum amount payable at what would be the
Participant's Normal Retirement Date
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<PAGE>
and discounting such amount to its value at the date of the hardship
distribution, both such computations to be made using the factors set forth in
Section 5.2(b) hereof.
(iii) In determining a Participant's Ceiling Accrual, the date of the
hardship distribution shall be treated as the date of the Participant's
Termination of Employment for purposes of Sections 1.3, 1.15 and 1.19 hereof.
The Ceiling Accrual shall include, in the case of a Participant who has a spouse
on the distribution date, the death benefit payable by reason of the
Participant's death on or after his Normal Retirement Date assuming such spouse
would qualify as a Surviving Spouse after such date.
(iv) A Participant receiving a hardship distribution may continue to
participate in the Plan and accrue benefits hereunder through his actual
Termination of Employment. The annual benefit payable at the Participant's
Retirement Date shall be the total benefit accrued hereunder, without regard to
any hardship distributions, reduced by the actuarial equivalent of all such
hardship distributions when expressed in the same form in which, and commencing
at the same date at which, his retirement benefits hereunder are payable. The
conversion of such hardship distributions into an actuarially equivalent annuity
form commencing at the Participant's Retirement Date shall be effected by, in
the case of each hardship distribution, (i) first converting such distribution
back to its annuity form payable under Section 3.1 hereof by multiplying the
Ceiling Accrual at the time such hardship distribution was made by a fraction
the numerator of which is the hardship distribution and
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<PAGE>
the denominator of which is the Ceiling Value, and (ii) reducing such annuity,
if the Participant's Retirement Date is prior to his Normal Retirement Date, in
accordance with Section 3.2 and Schedule A hereof.
(v) The concepts of this Section 5.2(d) can be illustrated by the
following example. Two years after the Change in Control Date, Participant C,
who is age 50 and not married, is suffering from a financial hardship and
petitions the Compensation Committee for a hardship distribution. The
Compensation Committee determines that C is suffering from a hardship and that
at the projected distribution date two weeks later, C's Ceiling Accrual is a
$40,000 annual amount starting at C's Normal Retirement Date. Assume solely for
the sake of this example that the present lump sum value of such an annuity is
$150,000; therefore, C's hardship distribution cannot exceed that amount. The
Compensation Committee determines that only $70,000 is necessary to relieve C's
hardship and distributes that amount. C continues to work and terminates his
employment with all Companies on his 65th birthday and is ready to commence
payments under the Plan on his Normal Retirement Date. At that time he is still
single and his actual benefit under the Plan, without regard to the hardship
distribution, is $50,000 per year. This benefit must be reduced by the
actuarial equivalent of the $70,000 hardship distribution he already received.
Such actuarial equivalent payable in annuity form at the Participant's Normal
Retirement Date is equal to the Ceiling Accrual at the time of the hardship
distribution ($40,000) multiplied by the actual hardship distribution ($70,000)
and divided by the Ceiling
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<PAGE>
Value at the time of the hardship distribution ($150,000), or $18,667. Hence,
C's annual benefit under the Plan commencing at his Normal Retirement Date will
be $50,000 less $18,667, or $31,333.
5.3 Change in Control. For purposes of this Article V, a "Change in
-----------------
Control" shall occur:
(a) When any person (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934) becomes the beneficial owner
(as such term is used in Section 13(d)(1) of the Securities Exchange Act of
1934) directly or indirectly of securities representing at least 25% of the
combined voting power of the then outstanding securities of the Sponsor; or
(b) When during any period of thirty-six (36) consecutive months
(whether commencing before or after the effective date of the Plan), individuals
who at the beginning of such period constituted the Sponsor's Board of Directors
cease for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(c) Upon the effective date of any merger, consolidation, combination,
reorganization, sale, lease or exchange, or issuance or delivery of stock or
other securities, or reverse stock split, exchange, liquidation or dissolution
which is referred to in paragraph (b) of Article TWELFTH of the Sponsor's
Restated Certificate of Incorporation as in effect on
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<PAGE>
January 1, 1989, and notwithstanding any repeal, amendment or other modification
of said Article TWELFTH that may thereafter be made (hereinafter called a
"Transaction"), or the approval by the stockholders of the Sponsor (or if such
stockholder approval is not required, the approval by the Sponsor's Board of
Directors) of a Transaction; provided, however, that the term "Transaction"
shall not include any transaction described in either proviso set forth at the
end of said paragraph (b); and provided, further, that the last paragraph of
said Article TWELFTH is hereby incorporated herein by this reference; or
(d) Upon the effective date of approval by the stockholders of the
Sponsor of any plan or proposal for the Sponsor to be Acquired (as defined in
Section 5.4 hereof) or for the liquidation or dissolution of the Sponsor; or
(e) When, after an Affiliated Company which employs the Participant is
acquired (as defined in Section 5.4 hereof), the Participant ceases to be
employed (as defined in Section 5.6 hereof) on a full-time basis by the Sponsor
or any Company in connection with or as a result of such acquisition; provided
that a Change in Control shall occur only for such Participant under this
Section 5.3(e)
5.4 Acquired. For purposes of this Article V, the Sponsor shall be
--------
considered to be "Acquired" only if the owners of its voting securities
immediately prior to the effective date of any transaction described in Section
5.5 hereof will not own immediately thereafter, as a result of having owned such
voting securities, securities representing a majority of the combined voting
power of the then outstanding securities of the Sponsor or
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<PAGE>
the entity that then owns, directly or indirectly, the Sponsor or all or
substantially all its assets. For purposes of this Article V, a Company other
than the Sponsor shall be considered to be acquired as of the effective date of
any sale, reorganization, merger, consolidation, liquidation or similar
transaction involving the Sponsor or such Company, if as a substantial element
of such transaction (a) all or substantially all the business of such Company
will be terminated or transferred out of such Company or (b) (i) the Sponsor
will cease to own, directly or indirectly, or (ii) the owners of the Sponsor's
voting securities immediately prior to the commencement of such transaction will
cease to own, directly or indirectly, as a result of having owned such
securities, securities representing a majority of the combined voting power of
the then outstanding securities of such Company or the entity that then owns,
directly or indirectly, such Company or all or substantially all its operating
assets.
5.5 Transactions. Transactions described in this Section 5.5 include
------------
a dissolution or liquidation of the Sponsor or a reorganization, merger or
consolidation of the Sponsor with one or more corporations as a result of which
the Sponsor is not the surviving corporation or as a result of which the
Sponsor's outstanding common stock is converted into or exchanged for securities
of another issuer or cash or other property or any combination thereof, or the
sale of all or substantially all of the assets of the Sponsor.
5.6 Cease to Be Employed. For purposes of Section 5.3(e) hereof, a
--------------------
Participant shall "cease to be employed" by the
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<PAGE>
Sponsor or a Company when he has a Termination of Employment, unless he (a)
voluntarily terminates his employment without the consent of the Sponsor or the
Company employing him or (b) his employment is terminated for misconduct
(including but not limited to dishonesty, fraud or disclosure of confidential
information).
5.7 Amendment or Termination of Plan. Notwithstanding any other
--------------------------------
provision of this Plan, without the written consent of the Participant (or
Surviving Spouse or Beneficiary of a deceased Participant) affected thereby, the
Sponsor may not amend or terminate this Plan:
(a) For a period of twenty-four (24) months following a Change in
Control; or
(b) At any time thereafter, in any manner which affects any
Participant (or Surviving Spouse or Beneficiary of a Deceased Participant) who
receives benefits under this Plan or has a Termination of Employment for any
reason at any time during the period of twenty-four (24) months following the
Change in Control.
ARTICLE VI
FUNDING
-------
6.1 Grantor Trust. The Plan shall be funded by the Sponsor through a
-------------
grantor trust established with a trustee which shall be either a bank, savings
and loan association, or insurance company, the outstanding stock of which no
Company owns more than 1% and which has a net worth of at least $100 million.
-34-
<PAGE>
The assets of such grantor trust shall be subject to the claims of the Sponsor's
creditors.
6.2 Contributions. The Sponsor shall contribute sufficient funds no
-------------
less frequently than annually so that as of the end of each fiscal year of the
trust, the assets of the trust are at least equal in value to the value of
benefits accrued through such date by all Participants. In the event of any
Change in Control, as defined in Article V hereof, the Sponsor shall (i)
immediately prior to the Change in Control Date contribute sufficient funds so
that the value of trust assets immediately after such contribution are at least
equal to the value of benefits accrued through such date by all Participants,
including any additional benefits accrued pursuant to Section 5.1 hereof, and
(ii) continue after the Change in Control to contribute sufficient funds as
provided in the preceding sentence. For purposes of this Section 6.2, the value
of accrued benefits shall be determined using an interest rate of six percent
(6%) and the UP-1984 mortality table and assuming in the case of each
Participant a Retirement Date at the earliest possible age.
6.3 Funding and Investment Policy. The Committee shall establish a
-----------------------------
funding and asset investment policy for the trust taking into account such
matters as the long and short term liquidity needs, long and short term rates of
return, and the likelihood of a Change in Control. The assets of the fund shall
be invested in any media which the Committee deems appropriate and consistent
with its funding policy including, in whole or in
-35-
<PAGE>
part, accounts with and maintained by Home Savings of America, F.A.
6.4 Status of Participants as Unsecured Creditors. Notwithstanding
---------------------------------------------
anything in Sections 6.1 or 6.2 hereof to the contrary, the agreement of the
Sponsor or Company to make payments pursuant to the provisions of the Plan is
just an unsecured promise to pay. The Participants have the status of unsecured
creditors and have no security interest in the trust estate of any trust created
to provide the Sponsor with a source of funds to satisfy its obligations under
the Plan. The language of Sections 6.1 and 6.2 hereof shall not give rise to
any right in equity or under contract for Plan Participants to compel or require
the Sponsor to transfer cash or other assets to the trust.
ARTICLE VII
COMMITTEE AND SPECIAL POWERS OF COMPENSATION COMMITTEE
------------------------------------------------------
7.1 Appointment of Committee. The Committee shall consist of three
------------------------
(3) members who shall be appointed by the Board or the Compensation Committee.
Each such member shall serve as such a member until resignation, death or
removal by the Board. If at any time the Committee shall not be in existence,
or shall be unable or refuse to make a determination necessary or convenient to
the administration of this Plan, the Board or Compensation Committee shall
appoint a new member or members to the Committee.
-36-
<PAGE>
7.2 Duties of Committee. The Committee shall be charged with the
-------------------
administration of this Plan and shall decide all questions arising in the
administration, interpretation and application of the Plan, including all
questions of distributions, except as such may be expressly reserved hereunder
to the Board or the Compensation Committee. The decision of the Committee shall
be conclusive and binding on all parties, providing that the Committee has acted
in good faith and in accordance with the provisions of this Plan.
The Committee shall appoint Mullin Consulting, Inc. or a nationally
recognized actuarial firm, which shall on an annual basis and also in the event
of a Change in Control, as defined in Article V hereof, make a written report to
the Committee on the compliance of the Plan with the requirements of Section 6.2
hereof.
The Committee shall, from time to time, direct the Treasurer of the
Company concerning the payments to be made hereunder to the Participants
pursuant to this Plan and shall have such other powers respecting administration
of the Plan as may be conferred upon it hereunder or as may be delegated to it
from time to time by the Board or the Compensation Committee.
If any member of the Committee shall be a Participant hereunder, then
in any matters affecting any member of the Committee in his individual capacity
as a Participant hereunder, separate and apart from his status as a member of
the group of Participants, such interested member shall have no authority to
vote in the determination of such matters as a member of the
-37-
<PAGE>
Committee, but the Committee shall determine such matter as if said interested
member were not a member of the Committee; provided, however, that this shall
not be deemed to take from said interested member any of his rights hereunder as
a Participant. If the remaining members of the Committee should be unable to
agree on any matter so affecting an interested member because of an equal
division of voting, the Board or Compensation Committee shall appoint a
temporary member of the Committee in order to create an odd number of voting
members.
7.3 Determinations by Committee; Appointment of Agents; Settlement of
-----------------------------------------------------------------
Claims.
- ------
(a) The Committee may delegate to any agent such duties and powers,
both ministerial and discretionary, as it deems appropriate, excepting only that
all matters involving interpretation of the Plan shall be determined by the
Committee, and settlement of claims shall be determined by the Committee in
accordance with the provisions of subsection (b) hereof.
(b) Section 503 of Title I of ERISA requires that there be established
with respect to the Plan claims procedures which are in accordance with
regulations that may be promulgated under said section by the Secretary of
Labor. The Committee shall establish and maintain procedures pertaining to
claims by Participants and their Surviving Spouses and Beneficiaries for
benefits under the Plan, which shall be in compliance with the requirements of
said Section 503.
(c) Except as hereinbefore provided, any determination by a majority
of the Committee at a meeting thereof, whether in person or by telephone, or
without a meeting by a resolution or
-38-
<PAGE>
memorandum signed by all the members, shall be final and conclusive on each
Company, on all Participants and Beneficiaries claiming any right hereunder, and
on all third parties dealing with each Company.
7.4 Compensation and Expenses of the Committee. The compensation of
------------------------------------------
the members of the Committee, officers, agents, counsel or other persons
retained or employed by the Committee for services rendered in connection with
the Plan shall be fixed by the Committee, subject to the approval of the Board,
and shall be paid by the Company.
7.5 Resignation and Removal of Members. Any member of the Committee
----------------------------------
may resign at any time by giving written notice to the other members and to the
Sponsor, effective as therein stated, or otherwise upon receipt. Any member or
members of the Committee may, at any time, be removed by the Board or
Compensation Committee.
7.6 Appointment of Successors. Upon death, resignation, termination
-------------------------
or removal of any member of the Committee, the Board or Compensation Committee
shall appoint a successor.
7.7 Special Powers of Compensation Committee; Hardship Distributions.
-----------------------------------------------------------------
Notwithstanding any other provision of the Plan to the contrary, the
Compensation Committee shall have the right to do any one or more of the
following in its sole discretion: (i) increase a Participant's accrued benefit
by awarding him additional years of Credited Service for purposes of computing
his SERP Benefit under or in accordance with Section 3.1 hereof; provided that
in no event shall a Participant ever be credited
-39-
<PAGE>
with more than fifteen (15) years of Credited Service for purposes of computing
his SERP Benefit; (ii) determine the benefit under Section 3.2 or 5.2(a) hereof,
or both, in the case of a Participant who receives benefits hereunder prior to
his Normal Retirement Date either (A) without regard to Schedule A hereof or (B)
without regard to Schedule A hereof, but with regard to factors selected by the
Compensation Committee that would result in a smaller reduction than would
result by application of the factors in Schedule A; (iii) treat a Participant's
benefits hereunder as nonforfeitable at a time earlier than that specified in
Section 2.2(a) or 5.1(a) hereof; and (iv) distribute a Participant's benefits
earlier than his Retirement Date as specified in Section 2.1 hereof or more
rapidly than the manner specified in Section 3.4 hereof, or both, if the
Compensation Committee determines that the Participant is faced with an
unforeseeable emergency within the meaning of regulations under Section 457 of
the Code; provided that, notwithstanding the foregoing, a distribution as a
result of such an unforeseeable emergency made to a Participant after a Change
in Control, as defined in Section 5.3 hereof, shall not be less than the amount
prescribed by Section 5.2(d) hereof. Applications for distributions on account
of an unforeseeable emergency and determinations thereon by the Compensation
Committee shall be in writing, and a Participant may be required to furnish
written proof of the unforeseeable emergency.
-40-
<PAGE>
ARTICLE VIII
DESIGNATION OF BENEFICIARY
--------------------------
8.1 Designation of Beneficiary. Each Participant shall have the
--------------------------
right to designate a Beneficiary or Beneficiaries to receive any benefits
payable after his death during the lifetime of his Surviving Spouse. Such
designation shall be made on a form prescribed by and delivered to the Sponsor.
The Participant shall have the right to change or revoke any such designation
from time to time by filing a new designation or notice of revocation with the
Sponsor, and no notice to any Beneficiary nor consent by any Beneficiary shall
be required to effect any such change or revocation. If, however, the
Participant is married, his spouse shall be required to join any such
designation, or change or revocation thereof, to name a Beneficiary other than
the spouse.
8.2 Failure to Designate Beneficiary. If a Participant shall fail to
--------------------------------
designate a Beneficiary before his demise, or if no designated Beneficiary
survives the Participant, the Committee shall direct the Company to pay any
benefits payable after his death to his Surviving Spouse.
ARTICLE IX
POWERS
------
9.1 No Liability. The Committee and Compensation Committee and their
------------
members, the Board and its members, the Companies and their officers, employees
and agents, and any
-41-
<PAGE>
persons to whom any power or duty is delegated in connection with this Plan
shall have no liability for any action or failure to act, except for their own
gross negligence or willful misconduct, and no bond or other security shall be
required of any such person.
9.2 Advice of Counsel. The Committee and Compensation Committee may
-----------------
consult with legal counsel, who may be counsel for the Companies, or any of
them, or otherwise, with respect to the meaning or construction of this Plan, or
the Sponsor's, Committee's or Compensation Committee's obligation or duties
hereunder, and shall be fully protected from any responsibility with respect to
any action taken or omitted by the Committee or Compensation Committee in good
faith pursuant to the advice of such legal counsel.
9.3 Distribution of Participants' Interests When Sponsor is Unable to
-------------------------------------------- --------------------
Locate Distributees. In case the Sponsor is unable within three (3) years after
- -------------------
payment is due to a Participant, or within three (3) years after payment is due
to the Surviving Spouse or Beneficiary of a deceased Participant, to make such
payment to him or his Surviving Spouse or Beneficiary because it cannot
ascertain his whereabouts, or the identity or whereabouts of his Surviving
Spouse or Beneficiary, by mailing to the last known address shown on the
Company's records, and neither he, his Surviving Spouse nor his Beneficiary has
made written claim therefor before the expiration of the aforesaid time limit,
then, in such case, the amount due shall be forfeited to the Sponsor.
-42-
<PAGE>
ARTICLE X
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
10.1 Amendment and Termination of Plan; Removal of Participants. The
----------------------------------------------------------
Compensation Committee may, in its sole discretion, terminate, suspend or amend
the Plan at any time or from time to time, in whole or in part, and may remove a
Participant from future participation in the Plan. However, no amendment,
suspension, or termination of the Plan or the HFA Retirement Plan or removal of
a Participant may reduce the aggregate forfeitable or nonforfeitable benefits of
a Participant accrued under said Plans through the date of such amendment,
suspension, termination or removal or adversely affect the right or ability of a
Participant or his Surviving Spouse or Beneficiary to receive such benefits in
accordance with the terms of said Plans as in effect on the date before such
amendment, suspension, termination or removal, including but not limited to the
right to earn additional Cumulative Service after such amendment, suspension,
termination or removal for purposes of becoming fully vested under Section
2.2(a) hereof. In the case of a termination of the Plan, Section 2.2(a)(ii)
shall be applied without regard to the minimum fifteen (15) years of Cumulative
Service requirement set forth in the proviso to the first sentence thereof.
-43-
<PAGE>
ARTICLE XI
SPENDTHRIFT PROVISIONS
----------------------
The Sponsor shall, except as otherwise provided hereunder, pay all
amounts payable hereunder only to the person or persons entitled thereto
hereunder, and all such payments shall be made directly into the hands of each
such person or persons and not into the hands of any other person or corporation
whatsoever, so that said payments may not be liable for the debts, contracts or
engagements of any such designated person or persons, or taken in execution by
attachment or garnishment or by any other legal or equitable proceedings, nor
shall any such designated person or persons have any right to alienate,
arbitrate, execute, pledge, encumber, or assign any such payments or the
benefits or proceeds thereof. If the person entitled to receive payment be a
minor, or a person of unsound mind, whether or not adjudicated incompetent, the
Sponsor, upon direction of the Committee, may make such payments to such person
or persons, corporation or corporations as may be, or be acting as, parent or
legal or natural guardian of such infant or person of unsound mind. The signed
receipt of such person or corporation shall be a full and complete discharge of
the Sponsor for any such payments.
-44-
<PAGE>
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Right of Companies to Dismiss Employees; Obligations. Neither
----------------------------------------------------
the action of the Sponsor and the Companies in establishing this Plan, nor any
provisions of this Plan, shall be construed as giving any employee the right to
be retained in employment with any Company, or any right to any payment
whatsoever except to the extent of the benefits provided for by this Plan. The
Companies expressly reserve their right at any time to dismiss any employee
without any liability for any claim against the Companies, or any of them, for
any payment whatsoever except to the extent provided for in this Plan.
12.2 Inspection Rights. Each Participant shall be notified in
-----------------
writing that he or she has been selected to participate in the Plan, and the
Committee will make available for inspection by any Participant a copy of the
Plan and the rules and regulations used by the Committee in administering the
Plan.
12.3 Withholding and Payroll Taxes. The Sponsor shall withhold from
-----------------------------
payments made hereunder any taxes required to be withheld from such payments
under federal, state or local law.
12.4 Payment to Guardian. If a benefit is payable to a minor or a
-------------------
person declared incompetent or to a person incapable of handling the disposition
of his property, the Committee may direct payment of such benefit to the
guardian, legal representative or person having the care and custody of such
minor, incompetent or incapacitated person. The Committee may
-45-
<PAGE>
require proof of minority, incompetency, incapacity or guardianship as it may
deem appropriate prior to distribution of the benefit. Such distribution shall
completely discharge the Committee from all liability with respect to such
benefit.
12.5 Protective Provisions. Each Participant shall cooperate with
---------------------
the Company by furnishing any and all information requested by the Company in
order to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company.
12.6 Notices and Elections. Any notice or election required or
---------------------
permitted to be given to the Company or the Committee under the Plan shall be
sufficient if in writing on a form prescribed or accepted by the Committee and
hand delivered, or sent by registered or certified mail, to the principal office
of the Sponsor, directed to the attention of the Corporate Human Resources
Department of the Sponsor. Such notice or election shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
12.7 Text to Control. The headings of the Articles and Sections are
---------------
included solely for convenience of reference, and if there be any conflict
between such headings and the text of this Plan, the text shall control.
12.8 Law Governing and Severability. This Plan shall be construed,
------------------------------
regulated and administered under the laws of the State of Delaware.
-46-
<PAGE>
If any provisions of this Plan shall be held invalid or unenforceable
for any reason, such invalidity or unenforceability shall not affect the
remaining provisions of this Plan, and this Plan shall be deemed to be modified
to the least extent possible to make it valid and enforceable in its entirety.
12.9 Name. This amended and restated Plan may be referred to as the
----
"Supplemental Executive Retirement Plan of H. F. Ahmanson & Company."
12.10 Gender. The masculine gender shall include the feminine, and
------
the singular shall include the plural.
12.11 Ineligible Participant. Notwithstanding any other provisions of
----------------------
this Plan to the contrary, if any Participant is determined not to be a
"management or highly compensated employee" within the meaning of ERISA or
Regulations thereunder, such Participant will not be eligible to participate in
this Plan and shall receive an immediate lump sum payment which is the actuarial
equivalent of his vested benefits under this Plan. Upon such payment no
survivor benefit or other benefit shall thereafter be payable under this Plan
either to the Participant or any Surviving Spouse or Beneficiary of the
Participant.
IN WITNESS WHEREOF, the Sponsor has caused this amended
and restated Plan to be executed this 16th day of November, 1995, effective as
of July 12, 1994.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
--------------------------------
Title: Chairman of the Board and
Chief Executive Officer
-47-
<PAGE>
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
OF H. F. AHMANSON & COMPANY
SCHEDULE A
----------
REDUCTION FACTORS FOR EARLY RETIREMENT BENEFIT
----------------------------------------------
Benefits payable on an Early Retirement Date shall equal the SERP
Benefit determined under Section 3.1 hereof reduced by the following amounts for
each month the Participant commences to receive benefits prior to his Normal
Retirement Date, then further reduced by the offsets described in Section 3.2
hereof.
Number of Months Prior Percentage per
to Normal Retirement Month Reduction
---------------------- ---------------
1-60 0.250%
61 or more 0.4167%
Example: Participant commenced to receive benefits 90 months before his Normal
- -------
Retirement Date. His SERP Benefit will be reduced by 60 x 0.250% + 30 x 0.4167%
= 27.5%.
The annual reduction factors (which are equivalent to the monthly
reduction factors set forth above) are as follows:
<TABLE>
<CAPTION>
Percent of SERP Benefit
Participant's Age Participant Would Have Received
At Retirement Date If He Had Retired At Age 65
- --------------------- --------------------------------
<S> <C>
65 100%
64 97
63 94
62 91
61 88
60 85
59 80
58 75
57 70
56 65
55 60
</TABLE>
<PAGE>
EXHIBIT 10.9.11.1
FIRST AMENDMENT TO
------------------
OUTSIDE DIRECTOR RETIREMENT PLAN
--------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
The Outside Director Retirement Plan of H. F. Ahmanson & Company, as
amended and restated as of January 1, 1991 (the "Plan"), is hereby amended as
follows, effective as of January 1, 1995.
I.
-
Section 3.1 of the Plan is hereby amended to read in full as follows:
"3.1 The annual retirement benefit payable to a Retiree will be equal to a
---
Director's Pay during the 12-month period immediately preceding retirement from
the Board. The annual retirement benefit will be paid in equal monthly
installments."
II.
--
Section 4.2 of the Plan is hereby amended to read in full as follows:
"4.2 A Director or Retiree may elect to receive his retirement benefits
---
(or remaining retirement benefits) under this Plan in one lump sum cash payment.
The lump sum cash payment shall be equal to an amount which is actuarially
equivalent to the Director's or Retiree's annual retirement benefits under
Article III and survivor benefits under Article V, as determined by the
Committee using the same actuarial equivalence factors which are used for the
Supplemental Executive Retirement Plan, subject to reduction as provided below.
No survivor benefit will be payable under Article V after a lump sum cash
payment is made to a Retiree.
There will be no reduction if a Director elects to receive a lump sum cash
payment at any time which is more than 12 months preceding Termination of
Service. If an election is made at any time later than 12 months preceding
Termination of Service, the lump sum cash payment will be reduced by a penalty,
which shall be forfeited to the Company, equal to ten percent (10%) before a
Change in Control or five percent (5%) after a Change in Control of the amount
determined under the previous paragraph. However, the penalty shall not apply
if the Committee determines, based on advice of counsel or a final determination
by the Internal Revenue Service or any court of competent jurisdiction, that by
reason of the foregoing provision any Participant or Beneficiary has recognized
or will recognize gross income for federal income tax purposes under this Plan
in advance of payment to him of Plan benefits. The Company shall notify all
Participants (and Beneficiaries of deceased Participants) of any such
determination. Whenever any such determination is made, the Company shall
refund all penalties which were imposed hereunder
<PAGE>
on account of making lump sum payments at any time during or after the first
year to which such determination applies (i.e., the first year when gross income
is recognized for federal income tax purposes). Interest shall be paid on any
such refunds based on the interest factor used for this purpose under the
Supplemental Executive Retirement Plan. The Committee may also reduce or
eliminate the penalty if it determines that this action will not cause any
Participant or Beneficiary to recognize gross income for federal income tax
purposes under this Plan in advance of payment to him of Plan benefits."
III.
---
Article V of the Plan is hereby amended to add a new Section 5.5 of the
Plan, which shall read as follows:
"5.5 No survivor benefit will be payable under the Plan to the Beneficiary
---
of a deceased Director who received a lump sum cash payment under Section 4.2 or
4.3."
IN WITNESS WHEREOF, the Company has caused this First Amendment to the Plan
to be executed this 16th day of November, 1995, effective as of January 1, 1995.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
---------------------------
Title: Chairman of the Board and
Chief Executive Officer
-2-
<PAGE>
EXHIBIT 10.9.27.1
FIRST AMENDMENT TO
------------------
1989
----
CONTINGENT DEFERRED COMPENSATION PLAN
-------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
The 1989 Contingent Deferred Compensation Plan of H. F. Ahmanson & Company,
as amended and restated as of January 1, 1991 (the "Plan"), is hereby amended as
follows, effective as of January 1, 1995.
I.
-
Section 4.7 of the Plan is hereby amended to read in full as follows:
"4.7 Allocation of Forfeitures.
-------------------------
(a) Allocation of Forfeitures in 1995 and Subsequent Years from 1989 and
--------------------------------------------------------------------
Subsequent Contingent Deferred Compensation Grants. In 1995 and subsequent
- --------------------------------------------------
years any interest attributable to 1989 and subsequent Contingent Deferred
Compensation grants which is forfeited under the provisions of Sections 4.6,
5.9(b), 5.11 or 7.3 of this Plan will not be reallocated to other Participants
in the Plan, but will be forfeited to the Company.
(b) Allocation of Forfeitures in 1995 and Subsequent Years from Pre-1989
--------------------------------------------------------------------
Contingent Deferred Compensation Grants. In 1995 and subsequent years any
- ---------------------------------------
interest attributable to pre-1989 Contingent Deferred Compensation grants which
is forfeited under the provisions of Sections 4.6, 5.9(b), 5.11 or 7.3 of this
Plan shall be allocated quarterly on the last day of each calendar quarter (and
upon any Change in Control listed in subsections (i) through (iv) of Section
5.9(c)) to the active Participants who are in employment with an Employer on the
last day of the calendar quarter (or upon such Change in Control) who have Prior
Accounts for pre-1989 Contingent Deferred Compensation grants, excluding all
such Participants who have terminated employment for any reason prior to such
date. Forfeitures shall be allocated ratably to all Prior Accounts of such
active Participants based on such Participants' balances in all Prior Accounts
on the last day of the calendar quarter (or upon such Change in Control), in the
ratio which the dollar value of each such Participant's balance in each Prior
Account bears to the dollar value of all such Participants' balances in all
Prior Accounts as of such date.
(c) Allocation of Forfeitures Prior to 1995. Prior to 1995 any interest
---------------------------------------
forfeited under the provisions of Sections 4.6, 5.9(b), 5.11 or 7.3 of this Plan
shall be allocated quarterly on the last day of each calendar quarter (and upon
any Change in Control listed in subsections (i) through (iv) of Section 5.9(c))
to the active Participants who are in employment with an Employer on the last
day of the calendar quarter (or upon such Change in Control), excluding all
Participants who have
<PAGE>
terminated employment for any reason prior to such date. Forfeitures shall be
allocated ratably to all Accounts of such active Participants based on such
Participants' balances in all Accounts on the last day of the calendar quarter
(or upon such Change in Control), in the ratio which the dollar value of each
such Participant's balance in each Account bears to the dollar value of all such
Participants' balances in all Accounts as of such date."
II.
--
Section 5.2 of the Plan is hereby amended to revise the first two
paragraphs thereof to read as follows:
"5.2 Form of Retirement Benefit Payment. Retirement benefits payable
----------------------------------
following Normal or Early Retirement will be paid in accordance with the form
elected by the Participant for each Deferral Unit on an election form prescribed
by the Committee for designation of form of payment. However, notwithstanding
any election made by the Participant, any benefits payable following Early
Retirement will not commence until one year after Early Retirement, unless the
Committee determines in its sole discretion to commence payment of such benefits
on an earlier date. If the Committee elects to withhold distributions of any
Account for one year following Early Retirement, the Committee, in its sole
discretion, may cease to credit such Account with any earnings or may credit
such Account with earnings based on the CD Rate rather than the Variable Rate.
A Participant may change his election of the form of retirement benefit
payments by filing a new election at any time which is more than 12 months
preceding Normal or Early Retirement. Retirement benefits for a Deferral Unit
will be paid in accordance with the most recent timely election made for that
Deferral Unit. Any election which is not timely made will be void. Thereafter,
a Participant's election will be irrevocable, except that a Participant who has
elected payments in installments may request payment in a lump sum, at any time
after Normal or Early Retirement, of the amount of his Account for any Deferral
Unit which is reasonably necessary to meet the Participant's requirements due to
a Financial Hardship."
III.
---
Section 5.5 of the Plan is hereby amended to add a new paragraph at the end
thereof to read as follows:
"If a Participant has a Termination of Employment prior to the Early
Distribution date which the Participant has elected for a Deferral Unit, his
Vested Interest in his Account for the Deferral Unit will be paid in a lump sum
one year after Termination of Employment, unless the Committee determines in its
sole discretion to make such payment on an earlier date; provided, however, if
Termination of Employment is due to Normal or Early Retirement, his Vested
Interest in his Account for the
-2-
<PAGE>
Deferral Unit will be paid in accordance with the form of retirement benefit
payment which the Participant has elected for the Deferral Unit, if any, or
otherwise in a lump sum upon Normal Retirement or one year after Early
Retirement, unless the Committee determines in its sole discretion to make such
payment on an earlier date."
IN WITNESS WHEREOF, the Company has caused this First Amendment to the Plan
to be executed this 16th day of November, 1995, effective as of January 1, 1995.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
---------------------------
Title: Chairman of the Board and
Chief Executive Officer
-3-
<PAGE>
EXHIBIT 10.9.28.1
FIRST AMENDMENT TO
------------------
OUTSIDE DIRECTORS'
------------------
ELECTIVE DEFERRED COMPENSATION PLAN
-----------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
The Outside Directors' Elective Deferred Compensation Plan of H. F.
Ahmanson & Company, as amended and restated as of January 1, 1991 (the "Plan"),
is hereby amended as follows, effective as of January 1, 1995.
I.
-
Section 5.2 of the Plan is hereby amended to revise the first paragraph
thereof to read as follows:
"5.2 Form of Retirement Benefit Payment. Benefits payable following
----------------------------------
Termination of Service will be paid in accordance with the form of retirement
benefit elected by the Participant for each Deferral Unit on an election form
prescribed by the Committee for designation of form of payment. A Participant
may change this election by filing a new election at any time which is more than
12 months preceding Termination of Service. Retirement benefits for a Deferral
Unit will be paid in accordance with the most recent timely election made for
that Deferral Unit. Any election which is not timely made will be void.
Thereafter, a Participant's election will be irrevocable, except that a
Participant who has elected payments in installments may request in writing
payment in a lump sum, at any time after Termination of Service, of the amount
of his Account for any Deferral Unit which is reasonably necessary to meet the
Participant's requirements due to a Financial Hardship."
II.
--
Section 5.4 of the Plan is hereby amended to add a new paragraph at the end
thereof to read as follows:
"If a Participant has a Termination of Service prior to the Early
Distribution date which the Participant has elected for a Deferral Unit, his
Account balance for the Deferral Unit will be paid in accordance with the form
of retirement benefit payment which the Participant has elected for the Deferral
Unit, if any, or otherwise in a lump sum upon Termination of Service."
IN WITNESS WHEREOF, the Company has caused this First Amendment to the Plan
to be executed this 16th day of November, 1995, effective as of January 1, 1995.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
---------------------------
Title: Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT 10.9.29.1
FIRST AMENDMENT TO
------------------
ELECTIVE DEFERRED COMPENSATION PLAN
-----------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
The Elective Deferred Compensation Plan of H. F. Ahmanson & Company, as
amended and restated as of January 1, 1991 (the "Plan"), is hereby amended as
follows, effective as of January 1, 1995.
I.
-
Section 4.7 of the Plan is hereby amended to revise paragraph (b) thereof
to read as follows:
"(b) The Company shall pay the supplemental pension benefit to the
Participant in a lump sum upon the Participant's Termination of Employment or,
if the lump sum amount is more than $50,000, when the Participant's benefit
commences under the HFA Retirement Plan ("Commencement Date"). The lump sum
amount shall be calculated using the actuarial equivalence factors in the HFA
Retirement Plan applicable to benefits accruing thereunder at the Commencement
Date, or the factors in effect at the time of the HFA Retirement Plan's
termination if such termination occurs prior to the Commencement Date."
II.
--
Section 5.2 of the Plan is hereby amended to revise the first paragraph
thereof to read as follows:
"5.2 Form of Retirement Benefit Payment. Retirement benefits payable
----------------------------------
following Normal or Early Retirement will be paid in accordance with the form of
retirement benefit elected by the Participant for each Deferral Unit on an
election form prescribed by the Committee for designation of form of payment. A
Participant may change this election by filing a new election at any time which
is more than 12 months preceding Normal or Early Retirement. Retirement
benefits for a Deferral Unit will be paid in accordance with the most recent
timely election made for that Deferral Unit. Any election which is not timely
made will be void. Thereafter, a Participant's election will be irrevocable,
except that a Participant who has elected payments in installments may request
in writing payment in a lump sum, at any time after Normal or Early Retirement,
of the amount of his Account for any Deferral Unit which is reasonably necessary
to meet the Participant's requirements due to a Financial Hardship."
III.
---
Section 5.5 of the Plan is hereby amended to add a new paragraph at the end
thereof to read as follows:
"If a Participant has a Termination of Employment prior to the Early
Distribution date which the Participant has elected for a Deferral Unit, his
Account balance for the Deferral Unit
<PAGE>
will be paid in a lump sum upon Termination of Employment; provided, however, if
Termination of Employment is due to Normal or Early Retirement, his Account
balance for the Deferral Unit will be paid in accordance with the form of
retirement benefit payment which the Participant has elected for the Deferral
Unit, if any, or otherwise in a lump sum upon Normal or Early Retirement."
IN WITNESS WHEREOF, the Company has caused this First Amendment to the Plan
to be executed this 16th day of November, 1995, effective as of January 1, 1995.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
---------------------------
Title: Chairman of the Board and
Chief Executive Officer
-2-
<PAGE>
EXHIBIT 10.9.30.1
FIRST AMENDMENT TO
------------------
EXECUTIVE LIFE INSURANCE PLAN
-----------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
The Executive Life Insurance Plan of H. F. Ahmanson & Company, adopted
effective as of January 1, 1989 (the "Plan"), is hereby amended as follows,
effective as of January 1, 1994.
I.
-
Section 3.1 of the Plan is hereby amended to revise paragraph (a) thereof
to read as follows:
"(a) During Employment. While employed with the Company, a Participant
-----------------
will have life insurance coverage equal to:
(i) three (3) times his Annual Base Salary, if the Participant was hired as
an Employee prior to 1994, or
(ii) one (1) times his Annual Base Salary, if the Participant was hired as
an Employee on or after January 1, 1994."
IN WITNESS WHEREOF, the Company has caused this First Amendment to the
Plan to be executed this 16th day of November, 1995, effective as of January 1,
1994.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
---------------------------
Title: Chairman of the Board and
Chief Executive Officer
<PAGE>
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>
William H. Ahmanson 11/13/86
Byron Allumbaugh 03/24/87
Anne-Drue Anderson 09/28/93
Harold A. Black 07/11/95
Richard M. Bressler 01/27/87
David R. Carpenter 07/11/95
Fredric J. Forster 02/22/93
George G. Gregory 11/13/86
Madeleine A. Kleiner 05/08/95
E. Nancy Markle 05/10/94
Phillip D. Matthews 07/11/95
George Miranda 03/28/89
Richard L. Nolan 11/03/95
Delia M. Reyes 10/27/92
Charles R. Rinehart 12/01/89
Frank M. Sanchez 11/01/95
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>
EXHIBIT 10.17.1
SENIOR
------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
(Amended and Restated as of July 12, 1994)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PREAMBLE 1
ARTICLE I 2
INCORPORATION OF SERP; DEFINITIONS 2
1.1 Incorporation of SERP 2
1.2 Definitions 2
ARTICLE II 4
MODIFICATIONS OF SERP 4
2.1 Retirement Benefits 4
2.2 Survivor Benefits 5
2.3 Lump Sum and Hardship Distributions 5
2.4 Policy on Life Other Than the
Participant 6
2.5 Funding 6
ARTICLE III 7
ADMINISTRATION OF PLAN AND DISPUTES 7
3.1 Administration of Plan 7
3.2 Liability of Administrator 7
3.3 Disputes 7
ARTICLE IV 13
DESIGNATION OF BENEFICIARY 13
4.1 Designation of Beneficiary 13
ARTICLE V 13
AMENDMENT AND TERMINATION OF PLAN 13
5.1 Amendment and Termination of Plan;
Removal of Participants 13
</TABLE>
-i-
<PAGE>
SENIOR
------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
PREAMBLE
--------
The principal objective of this Senior Supplemental Executive
Retirement Plan (the "Plan") is to ensure the payment of a competitive level of
retirement income in order to attract, retain and motivate selected senior
executives. The Plan is designed to provide a benefit which, when added to
other retirement income of the executive, will meet the objective described
above. Eligibility for participation in the Plan shall be limited to senior
executives selected by the Compensation Committee of the Board of Directors of
the Sponsor.
The Sponsor hereby declares that its intention is to create an unfunded
Plan primarily for the purpose of providing a select group of management or
highly compensated employees of the Sponsor and its Affiliated Companies with
supplemental retirement income. It is also the intention of the Sponsor that
the Plan be an "employee pension benefit plan" as defined in Section 3(2) of
Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") and
that the Plan be the type of plan described in Sections 201(2), 301(3) and
401(a)(1) of Title I of ERISA. The Sponsor is the "named fiduciary" of the Plan
for purposes of Section 402(a)(2) of ERISA.
This Plan shall be effective as of September 1, 1993 and shall apply to
all Participants who terminate employment with the Company on or after September
1, 1993, or otherwise are
-1-
<PAGE>
designated as Participants in this Plan by the Administrator in its sole
discretion.
ARTICLE I
INCORPORATION OF SERP; DEFINITIONS
----------------------------------
1.1 Incorporation of SERP. Except as otherwise expressly provided
---------------------
herein, the terms of this Plan shall be the same as the Supplemental Executive
Retirement Plan of H. F. Ahmanson & Company, as amended from time to time, which
is hereby incorporated herein by reference; provided, however, that amendments
which are made after a Participant terminates employment with the Company shall
be disregarded, unless otherwise determined by the Administrator in its sole
discretion.
1.2 Definitions. When used herein, the following words shall have the
-----------
following meanings unless the context indicates otherwise:
Participant. "Participant" means a person who receives written
-----------
notification from the Sponsor that he is participating in this Plan.
Participants in this Plan shall be limited to persons who fall into the
categories of persons eligible for participation in this Plan specified in any
resolutions adopted by the Compensation Committee, which are hereby incorporated
by reference. Such persons may become Participants in the Plan as of the date
specified in such resolutions. Participants in the Plan shall be limited to
persons whose employment with the Company terminates on or after September 1,
1993, and such other persons who may be designated as Participants in this Plan
by the
-2-
<PAGE>
Administrator in its sole discretion. Any person who becomes a Participant in
this Plan shall no longer participate in the SERP.
Plan. "Plan" means this Senior Supplemental Executive Retirement Plan,
----
effective September 1, 1993, as set forth in this document and as the same may
be amended, administered or interpreted from time to time.
Policies. "Policies" mean split-dollar life insurance policies under
--------
the Senior Executive Life Insurance Plan or other plan or arrangement sponsored
by the Company.
Senior Executive Life Insurance Plan. "Senior Executive Life Insurance
------------------------------------
Plan" means the Senior Executive Life Insurance Plan of H. F. Ahmanson &
Company, as amended from time to time; provided, however, that amendments which
are made after a Participant terminates employment with the Company shall be
disregarded, unless otherwise determined by the Administrator in its sole
discretion.
SERP. "SERP" means the Supplemental Executive Retirement Plan of H. F.
----
Ahmanson & Company, as amended from time to time; provided, however, that
amendments which are made after a Participant terminates employment with the
Company shall be disregarded, unless otherwise determined by the Administrator
in its sole discretion.
Other capitalized terms used in this Plan shall have the same meaning
as in the SERP.
-3-
<PAGE>
ARTICLE II
MODIFICATIONS OF SERP
---------------------
2.1 Retirement Benefits. The normal, early or late retirement
-------------------
benefit, as described in Sections 3.1, 3.2 and 3.3 of the SERP, which will be
payable under this Plan shall be reduced by an offset for the Participant's
interest in cash value on his Retirement Date in Policies under the Company's
Senior Executive Life Insurance Plan or other plan or arrangement sponsored by
the Company.
This reduction in the annual retirement benefit shall be determined by
(i) converting the unreduced annual retirement benefit which is payable
hereunder based on Section 3.1, 3.2 or 3.3 of the SERP to a lump sum equivalent
amount, (ii) subtracting the Participant's interest in cash value on his
Retirement Date in Policies, and (iii) converting such reduced lump sum
equivalent amount back to an annual retirement benefit which will be payable
under this Plan during the lifetime of the Participant.
An actuarial equivalent for this purpose shall be determined by the
factors (i) in the HFA Retirement Plan applicable to benefits accruing
thereunder at the time when payments commence hereunder, or the factors in
effect at the time of the HFA Retirement Plan's termination if such termination
is prior to such payment commencement date, or (ii) of the Pension Benefit
Guaranty Corporation applicable to plans terminating on such payment
commencement date, whichever of (i) or (ii) provides the higher amount of
retirement benefits under this Plan. The same factors must be used for all
steps in determining the
-4-
<PAGE>
reduction in the annual retirement benefit under the preceding paragraph.
2.2 Survivor Benefits. The survivor benefits, as described in Section
-----------------
3.4 of the SERP, which will be payable under this Plan will be modified as
described herein.
(a) The annual benefit payable under Section 3.4(b) or (f) of the SERP
shall be reduced by an offset for the additional death benefit, if any, payable
under Section 2.2(c) of the Company's Senior Executive Life Insurance Plan, but
not for any other death benefits which are payable under that plan or any other
Company funded death benefit program, irrespective of who is the Participant's
beneficiary under such plan. This reduction in the annual benefit shall be
determined in the manner described in Section 3.4(d) of the SERP.
(b) The annual benefit payable under Section 3.4(d) of the SERP shall
be reduced by an offset for any death benefit payable to the Participant's
beneficiary from the Company's Senior Executive Life Insurance Plan,
irrespective of who is the Participant's beneficiary under such plan. This
reduction in the annual benefit shall be determined in the manner described in
Section 3.4(d) of the SERP.
(c) The annual benefit payable under Section 5.1(c) of the SERP shall
be reduced in the manner described above for reductions under Sections 3.4(b)
and (d) of the SERP.
2.3 Lump Sum and Hardship Distributions. The lump sum or hardship
-----------------------------------
distributions, as described in Section 5.2 of the SERP, which will be payable
under this Plan will be modified as described herein. The annual benefits to
which a Participant is
-5-
<PAGE>
entitled under this Plan shall be reduced as described in Section 2.1 hereof.
In addition, notwithstanding Section 5.2(a), 5.2(d)(iii) or any other
provision of the SERP, in the case of a Participant who has a spouse on the
Commencement Date, the lump sum or hardship distribution payable to a
Participant under this Plan shall only include the lump sum value of the annual
benefit payable to the Participant during his or her lifetime, and shall not
include the lump sum value of any benefit payable to such spouse or other
Beneficiary by reason of the Participant's death. Such benefits shall be
payable following the Participant's death in the same manner as if the
Participant had not received a hardship or lump sum distribution.
2.4 Policy on Life Other Than the Participant. If a Participant owns
-----------------------------------------
a Policy which is on a life other than the Participant, the Committee shall
determine the appropriate offsets to be made in computing retirement, survivor
or other benefits payable under this Plan on account of the Participant's
interest in cash value and death benefits payable under such Policy.
2.5 Funding. Article VI of the SERP, which relates to "funding,"
-------
shall have no application to this Plan. For purposes of this Plan, Article VI
of the SERP shall be treated as if it were deleted. Likewise, the second
paragraph of Section 7.2 of the SERP, relating to written reports on compliance
with funding requirements, shall be treated as if it were deleted.
-6-
<PAGE>
ARTICLE III
ADMINISTRATION OF PLAN AND DISPUTES
-----------------------------------
3.1 Administration of Plan. This Plan shall be administered by the
----------------------
Committee, Compensation Committee and the Board (herein referred to collectively
as the "Administrator") in accordance with Article VII of the SERP, except as
provided herein. However, notwithstanding any provision of the SERP to the
contrary, the Administrator's authority to interpret this Plan shall not cause
the Administrator's decisions in this regard to be entitled to a deferential
standard of review in the event that a Participant, Surviving Spouse or
Beneficiary seeks review of the Administrator's decision as described below.
3.2 Liability of Administrator. Neither the Administrator nor its
--------------------------
designee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Plan.
3.3 Disputes
--------
(a) Right to Arbitration. Time is of the essence in the resolution of
--------------------
any and all disputes which may arise under this Plan and the determination of
whether any payments are due hereunder or the amount or timing thereof. A
Participant (or following his or her death, his or her Surviving Spouse or
Beneficiary), but not the Company, may, but need not, submit any such dispute,
disagreement or claim for payment hereunder to arbitration as provided herein.
The right to select arbitration shall be solely that of the Participant
(or Surviving Spouse or Beneficiary) in his or her sole discretion. Arbitration
is not mandatory on the
-7-
<PAGE>
Participant (or Surviving Spouse or Beneficiary), and the Participant (or
Surviving Spouse or Beneficiary) may choose in lieu thereof to bring an action
in an appropriate civil court. However, once an arbitration is commenced by the
Participant (or Surviving Spouse or Beneficiary), it may not be discontinued
without the mutual consent of all parties to the arbitration. During the
lifetime of the Participant, only the Participant can initiate an arbitration
proceeding under this Section.
In the event that the Company commences an action or proceeding in any
court against a Participant (or Surviving Spouse or Beneficiary), whether with
respect to a dispute, disagreement or claim for payment under this Plan or
otherwise, the Participant (or Surviving Spouse or Beneficiary) may, but need
not, apply to a court of competent jurisdiction, within ninety (90) days
following receipt of service of a summons and complaint or the equivalent
thereof, for an order dismissing or staying (pending the final completion of
arbitration as provided in this Section) all or so much of such action or
proceeding as affects or relates to a dispute, disagreement or claim for payment
under this Plan or relieving the Participant (or Surviving Spouse or
Beneficiary) of any obligation to file an affirmative defense or counterclaim in
such action or proceeding to the extent the same affects or relates to a
dispute, disagreement or claim for payment under this Plan.
The Company hereby consents to the issuance of such an order, upon such
application, with respect to any aspect of the action, proceeding, defense or
counterclaim which the Participant (or Surviving Spouse or Beneficiary)
demonstrates to the court's
-8-
<PAGE>
satisfaction may reasonably affect or relate to any dispute, disagreement or
claim for payment under this Plan. Any such order may be conditioned upon the
prompt initiation of arbitration by the Participant (or Surviving Spouse or
Beneficiary) in accordance with this Section.
(b) Initiation of Arbitration. A Participant (or Surviving Spouse or
-------------------------
Beneficiary) who intends to initiate arbitration hereunder shall first deliver
to the Committee which administers the Plan a claim in writing for payment under
the Plan setting forth in reasonable detail the basis for and calculation of the
claim or a proposed resolution of any other dispute or disagreement that may
exist.
If the Company does not pay the full amount of the claim for payment,
or does not deliver a written, unconditional acceptance of the proposed
resolution, within sixty days following delivery of the claim for payment or
proposed resolution, or upon entry of an order of a court as provided in Section
3.3(a) hereof, the Participant (or Surviving Spouse or Beneficiary) may deliver
to the Company a written list of five proposed arbitrators, each of whom must be
either (i) a member of the National Academy of Arbitrators residing in the State
of California, or (2) a retired judge of the California Superior Court, Court of
Appeals or Supreme Court or the United States District Court for the Central or
Southern Districts of California or the United States Court of Appeals for the
Ninth Circuit, provided, however, that any such judge must then reside in the
State of California.
-9-
<PAGE>
Within seven days following delivery of such list, the Company shall
select one of the proposed arbitrators as the arbitrator for the dispute,
disagreement or claim for payment in question and shall, within said seven day
period, deliver written notice of such selection to the Participant (or
Surviving Spouse or Beneficiary). If the Company fails to deliver such written
notice within said period, the Participant (or Surviving Spouse or Beneficiary)
shall select one of the proposed arbitrators, promptly deliver written notice
thereof to the Company, and such selection shall be binding upon the Company.
(c) Conduct of Arbitration. The arbitration proceeding shall commence
----------------------
within seven days following selection of the arbitrator, or as soon thereafter
as possible, and shall proceed with all due diligence. No continuance or
postponement of the arbitration shall be granted to the Company without the
consent of the Participant (or Surviving Spouse or Beneficiary). Absence from or
the failure to participate in any hearing or session of the arbitration by the
Company shall not prevent the issuance of an award. Without the consent of the
Participant or Beneficiary, no arbitration hearing or session shall be conducted
outside the County of Los Angeles.
The arbitration shall be conducted in accordance with such rules and
procedures as may be determined by the arbitrator. The arbitrator may determine
when sufficient evidence has been submitted to permit the issuance of an award.
The arbitrator's award shall be issued in writing as expeditiously as possible
and in no event more than thirty days following the close of the hearing. The
arbitrator may, if he or she deems it necessary to
-10-
<PAGE>
the issuance of an award, engage the services of an accountant, actuary or other
expert to advise and assist in the arbitration.
Notwithstanding the right of the Administrator to administer and
interpret this Plan, no decision by the Administrator in this regard shall be
entitled to any deference in such arbitration.
(d) Arbitration Award. The arbitrator may order the Company to take,
-----------------
or to refrain from taking, any action and may make a monetary award to the
Participant (or Surviving Spouse or Beneficiary).
The Company acknowledges that, in the event it should breach the
provisions of the Plan, it will be extremely difficult, if not impossible, to
calculate the amount of consequential or extracontractual damages suffered by a
Participant (or Surviving Spouse or Beneficiary). Consequently, the Company
agrees that (1) if the arbitrator makes a monetary award of any amount to the
Participant (or Surviving Spouse or Beneficiary), the arbitrator shall also
award the Participant (or Surviving Spouse or Beneficiary) an additional amount
equal to fifty percent (50%) of the monetary award, but in no event less than
ten thousand dollars ($10,000), and (2) if the arbitrator does not make a
monetary award to the Participant (or Surviving Spouse or Beneficiary), but
makes an affirmative finding that the Company has breached the provisions of the
Plan or orders the Company to take, or to refrain from taking, any action, the
arbitrator shall award the Participant (or Surviving Spouse or Beneficiary) ten
thousand dollars ($10,000). All amounts so awarded shall constitute additional
benefits under this Plan.
-11-
<PAGE>
Any monetary award and any additional awards shall bear interest at a
rate determined by the arbitrator from the date, as determined by the
arbitrator, that any payment should have been made by the Company to the
Participant (or Surviving Spouse or Beneficiary).
(e) Costs of Arbitration. The arbitrator shall order the losing party
--------------------
in the arbitration (1) to pay for the costs of the arbitration, including,
without limitation, the arbitrator's fees and expenses and the fees of a
stenographic reporter if employed, and (2) to reimburse the prevailing party for
all costs of the arbitration which have previously been paid by the prevailing
party. Each party shall pay for its own fees and expenses in connection with
the arbitration, including, without limitation, its fees and expenses of
counsel, accountants, actuaries and other experts.
The Participant (or Surviving Spouse or Beneficiary) shall be deemed to
be the prevailing party if the arbitrator (1) finds that the Company has
breached the provisions of the Plan or orders the Company to take, or to refrain
from taking, any action or (2) makes a monetary award of any amount to the
Participant (or Surviving Spouse or Beneficiary).
The arbitration award, the additional award, interest, and the costs of
the arbitration shall be due and payable within five days following the issuance
of the award.
(f) Enforcement of the Award. The award of the arbitrator shall be
------------------------
final, binding and conclusive upon the parties and shall not be subject to
judicial review except as set forth in Sections 1286.2 and 1286.6 of the
California Code of
-12-
<PAGE>
Civil Procedure or any successor statute thereto. Any party may apply to a
court of competent jurisdiction for confirmation or enforcement of such award.
ARTICLE IV
DESIGNATION OF BENEFICIARY
--------------------------
4.1 Designation of Beneficiary. Each Participant shall have the right
--------------------------
to designate a Beneficiary or Beneficiaries to receive any benefits payable
after his or her death during the lifetime of his or her Surviving Spouse. A
Beneficiary may be designated in the manner provided in Article VIII of the
SERP. The most recent Beneficiary designated by a Participant under the SERP
shall be treated as the Participant's Beneficiary under this Plan until the
Participant designates a new Beneficiary under this Plan.
ARTICLE V
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
5.1 Amendment and Termination of Plan; Removal of Participants. The
----------------------------------------------------------
provisions of Article X and Section 5.7 of the SERP, relating to amendment and
termination of the Plan and removal of Participants, shall apply to this Plan as
if set forth herein.
-13-
<PAGE>
IN WITNESS WHEREOF, the Sponsor has caused this amended and restated
Plan to be executed this 16th day of November, 1995, effective as of July 12,
1994.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
--------------------------------
Title: Chairman of the Board and
Chief Executive Officer
-14-
<PAGE>
EXHIBIT 10.18.1
SENIOR
------
EXECUTIVE LIFE INSURANCE PLAN
-----------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
(Amended and Restated as of July 12, 1994)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PREAMBLE 1
ARTICLE 1 1
INCORPORATION OF EXECUTIVE LIFE INSURANCE PLAN;
DEFINITIONS 1
1.1 Incorporation of Executive Life Insurance Plan 1
1.2 Definitions 1
ARTICLE 2 4
MODIFICATIONS OF EXECUTIVE LIFE INSURANCE PLAN 4
2.1 Participation 4
2.2 Life Insurance Coverage 5
2.3 Disability 7
2.4 Insurance Contract (Policy) and Collateral
Assignment 7
2.5 Interests In Cash Value 9
2.6 Policy Withdrawals and Loans 12
2.7 Surrender or Cancellation of Policy 13
2.8 Continuation or Split of Policy after
Retirement or Termination of Employment 13
2.9 No Assignment 14
2.10 Payment of Premiums and Contributions 15
2.11 Form of Death Benefit 15
2.12 Option to Purchase Insurance Policy on
Termination of Employment 16
2.13 Option to Purchase Insurance Policy in
Certain Events 16
2.14 Transfer of Policy to Company 16
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 3 17
BENEFICIARY DESIGNATION 17
3.1 Designation of Beneficiary 17
ARTICLE 4 17
ADMINISTRATION OF PLAN AND DISPUTES 17
4.1 Administration of Plan 17
4.2 Liability of Administrator 18
4.3 Disputes 18
ARTICLE 5 23
AMENDMENT AND TERMINATION OF PLAN 23
5.1 Amendment and Termination of Plan 23
ARTICLE 6 24
MISCELLANEOUS 24
6.1 Restriction on Assignment 24
6.2 Participants Who Terminated Employment With
the Company Before July 12, 1994 24
</TABLE>
-ii-
<PAGE>
SENIOR
------
EXECUTIVE LIFE INSURANCE PLAN
-----------------------------
OF H. F. AHMANSON & COMPANY
---------------------------
PREAMBLE
--------
The purpose of this Senior Executive Life Insurance Plan (the "Plan")
is to provide life insurance coverage for eligible senior executive employees of
H. F. Ahmanson & Company and Affiliated Companies. The Plan was effective as of
September 1, 1993.
ARTICLE 1
INCORPORATION OF EXECUTIVE LIFE INSURANCE PLAN; DEFINITIONS
-----------------------------------------------------------
1.1 Incorporation of Executive Life Insurance Plan. Except as
----------------------------------------------
otherwise expressly provided herein, the terms of this Plan shall be the same as
the Executive Life Insurance Plan of H. F. Ahmanson & Company, as amended from
time to time, which is hereby incorporated herein by reference; provided,
however, that amendments which are made after a Participant terminates
employment with the Company shall be disregarded, unless otherwise determined by
the Administrator in its sole discretion.
1.2 Definitions. When used herein, the following words shall have the
-----------
following meanings unless the context indicates otherwise:
Agreement. "Agreement" means a Senior Executive Life Insurance Plan
---------
Agreement entered into by the Company and the
-1-
<PAGE>
Participant to provide for participation by the Participant in the Plan.
Change in Control. "Change in Control" means a "Change in Control" as
-----------------
used in the SSERP and the SERP.
Credited Service. "Credited Service" means "Credited Service" as such
----------------
term is used in the SSERP and the SERP.
Effective Date. "Effective Date" means September 1, 1993.
--------------
Eligible Employee. "Eligible Employee" means an employee who is a
-----------------
participant in the SSERP.
Executive Life Insurance Plan. "Executive Life Insurance Plan" means
-----------------------------
the Executive Life Insurance Plan of H. F. Ahmanson & Company, as amended from
time to time.
Insurance Company. "Insurance Company" means an insurance company
-----------------
selected by the Company to provide coverage for Participants pursuant to the
terms of the Plan.
Participant. "Participant" means an Eligible Employee who has
-----------
completed the underwriting requirements of the insurance company and who is
notified in writing by the Company that he or she is participating in this Plan.
Any person who becomes a Participant in this Plan shall no longer participate in
the Executive Life Insurance Plan, except as expressly provided for in this
Plan.
Plan. "Plan" means this Senior Executive Life Insurance Plan, as set
----
forth in this document and as the same may be
-2-
<PAGE>
amended, administered or interpreted from time to time, and includes any
Policies hereunder.
Policy. "Policy" means a policy or policies providing life insurance
------
coverage under this Plan.
Retirement Date or Retirement. "Retirement Date" or "Retirement" means
-----------------------------
a "Retirement Date" or "Retirement" as such terms are used in the SSERP and the
SERP, on which the Participant commences to receive retirement benefits under
the SSERP.
Senior Supplemental Executive Retirement Plan or SSERP. "Senior
------------------------------------------------------
Supplemental Executive Retirement Plan" or "SSERP" means the Senior Supplemental
Executive Retirement Plan of H. F. Ahmanson & Company, as amended from time to
time; provided, however, that amendments which are made after a Participant
terminates employment with the Company shall be disregarded, unless otherwise
determined by the Administrator in its sole discretion.
Supplemental Executive Retirement Plan or SERP. "Supplemental
----------------------------------------------
Executive Retirement Plan" or "SERP" means the Supplemental Executive Retirement
Plan of H. F. Ahmanson & Company, as amended from time to time; provided,
however, that amendments which are made after a Participant terminates
employment with the Company shall be disregarded, unless otherwise determined by
the Administrator in its sole discretion.
Surviving Spouse. "Surviving Spouse" means an individual who is a
----------------
surviving spouse eligible for any death benefit under the HFA Retirement Plan.
-3-
<PAGE>
Termination of Employment. "Termination of Employment" means a
-------------------------
"Termination of Employment" as such term is used in the SSERP and the SERP.
Other capitalized terms used in this Plan shall have the same meaning
as in the Executive Life Insurance Plan.
ARTICLE 2
MODIFICATIONS OF EXECUTIVE LIFE INSURANCE PLAN
----------------------------------------------
2.1 Participation. Except as provided herein, the provisions of
-------------
Article II of the Executive Life Insurance Plan shall apply to participation in
this Plan.
(a) Participation. Any Eligible Employee may enroll in this Plan
-------------
by completing the underwriting requirements of the insurance company and any
other enrollment steps required by the Company for coverage to begin. An
Eligible Employee shall become a Participant in the Plan when he or she enters
into a Senior Executive Life Insurance Plan Agreement with the Company which
provides for his or her participation in the Plan, and files an election under
Section 83(b) of the Code with the Internal Revenue Service and California
Franchise Tax Board. Coverage under this Plan shall not commence, and no
transfer of any Policy to the Participant shall be effective, until the
Participant files such election.
(b) Insurability. Eligible Employees are not automatically
------------
entitled to all insurance coverage offered under the Plan. Each Eligible
Employee will be covered up to the amount of guarantee issue determined by the
Insurance Company,
-4-
<PAGE>
but must satisfy the Insurance Company's requirements for obtaining additional
insurance before he or she becomes covered for additional amounts under the
Plan.
(c) Commencement of Coverage. Subject to the limitations of this
------------------------
Section 2.1, (i) an Employee who is an Eligible Employee on September 1, 1993
will be covered under the Plan as of September 1, 1993, and (ii) any other
Eligible Employee will be covered under the Plan when coverage is approved by
the Insurance Company.
(d) Increases in Coverage. When a Participant's Annual Base
---------------------
Salary is increased, the amount of his or her life insurance coverage under this
Plan will automatically increase immediately, except as provided in this Section
2.1(d). A Participant who (i) is age sixty (60) or over or (ii) receives an
increase of more than ten percent (10%) in Annual Base Salary in any Plan Year
may be required to satisfy the Insurance Company's requirements for obtaining
additional insurance before he or she becomes covered for an additional amount
of insurance under the Plan. In such event, a Participant's coverage under the
Plan will be limited to the coverage issued by the Insurance Company.
(e) Declining Coverage. An Eligible Employee may decline
------------------
coverage under the Plan. However, any such Eligible Employee will be required to
satisfy the Insurance Company's requirements for obtaining insurance before he
or she may become covered under the Plan at a later date.
2.2 Life Insurance Coverage. Section 3.1 of the Executive Life
-----------------------
Insurance Plan is modified as provided herein.
-5-
<PAGE>
(a) Amount of Insurance Under Executive Life Insurance Plan During
--------------------------------------------------------------
Employment. The Participant will have the same amount of life insurance
- ----------
coverage which is payable under Section 3.1(a) of the Executive Life Insurance
Plan. No additional death benefit will be payable on account of any interest of
the Participant in the cash value of the Policy in the event of the
Participant's death during employment with the Company.
(b) Amount of Insurance Under Executive Life Insurance Plan After
-------------------------------------------------------------
Retirement or Termination of Employment After Completing 10 Years of Credited
- -----------------------------------------------------------------------------
Service. After his or her Retirement Date (or following Termination of
- -------
Employment after completing 10 years of Credited Service), the Participant will
have the same amount of life insurance coverage which is payable under Section
3.1(b) of the Executive Life Insurance Plan.
(c) Additional Amount of Insurance Based On Formula After Retirement
----------------------------------------------------------------
Date or Termination of Employment After Completing 10 Years of Credited Service.
- -------------------------------------------------------------------------------
After his or her Retirement Date (or following Termination of Employment after
completing 10 years of Credited Service), a Participant will have additional
life insurance coverage determined based on Schedule A to his Agreement under
this Plan. This additional amount of life insurance will only be payable if a
Participant dies after his or her Retirement Date (or following Termination of
Employment after completing 10 years of Credited Service) and has a Surviving
Spouse.
-6-
<PAGE>
(d) Additional Amount of Insurance Based On Participant's Cash Value
----------------------------------------------------------------
After Retirement Date or Termination of Employment After Completing 10 Years of
- -------------------------------------------------------------------------------
Credited Service. After his or her Retirement Date (or following Termination of
- ----------------
Employment after completing 10 years of Credited Service), a Participant will
have additional life insurance coverage equal to the Participant's remaining
interest in cash value (which has not previously been withdrawn) at the time of
his or her death in Policies under this Plan (as determined under Section
2.5(b)(I) hereof).
2.3 Disability. Section 3.2 of the Executive Life Insurance Plan is
----------
modified as provided herein. If a Participant suffers a Disability, the
Participant's pre-retirement life insurance coverage under Section 3.1(a) of the
Executive Life Insurance Plan will be continued by the Company during the period
of Disability until the Participant reaches age 65. All premiums for this
coverage will be paid by the Company. When a disabled Participant reaches age
65, the Participant will continue to have life insurance coverage equal to one
(1) times his or her final Annual Base Salary on the date of his or her
Disability, as if he or she had retired from employment with the Company after
attaining age 65.
2.4 Insurance Contract (Policy) and Collateral Assignment. Section
-----------------------------------------------------
3.3 of the Executive Life Insurance Plan is modified as provided herein. To
provide the insurance coverage under the Plan, the Company shall acquire one or
more insurance policies ("Policies") on the life of each Participant. Except as
-7-
<PAGE>
otherwise specifically provided in this Plan, the Participant will be the owner
and hold all incidents of ownership in each Policy for which he or she is
designated the owner pursuant to a split dollar life insurance agreement entered
into by the Participant and the Company.
In consideration of the Company's payment of the premiums on the Policy
pursuant to Section 3.9 of this Plan, the Participant will assign the Policy to
the Company as collateral under the form of collateral assignment prescribed by
the Committee consistent with the terms of the Plan.
The Participant may specify in writing to the Company the Beneficiary
or Beneficiaries for his or her life insurance coverage under this Plan. Upon
receipt of a written request from the Participant, the Company will immediately
take such action as shall be necessary to implement such Beneficiary
designation. Any death benefits under Policies on the life of the Participant
that exceed the amount payable to the Participant's Beneficiary under this Plan
shall be payable to the Company.
Any death benefits payable under this Plan that exceed the amount of
life insurance coverage under the Policies on the life of the Participant which
are held under this Plan may be paid from policies held under the Executive Life
Insurance Plan. Any death benefit which is paid under the Executive Life
Insurance Plan will be offset against the death benefit which is payable under
this Plan.
-8-
<PAGE>
2.5 Interests In Cash Value. The respective interests of the Company
-----------------------
and the Participant in the cash value of Policies which are owned by the
Participant shall be as follows:
(a) During Employment.
-----------------
(I) Company's Interest In Cash Value During Employment or Disability.
----------------------------------------------------------------
While the Participant is employed with the Company, or is suffering from a
Disability prior to attaining age 65, the Company's interest in the cash value
of any Policy shall be limited to (A) the greater of the cash value of the
Policy or the cumulative premiums on the Policy paid by the Company on the date
when the Policy is transferred by the Company to the Participant, plus (B) the
cumulative premiums on the Policy thereafter paid by the Company. The Company
shall further be entitled to increases in cash value in an amount equal to any
mortality or other expenses incurred for the benefit of the Company which are
charged against cash value of the Policy, and any such charges shall, in turn,
be deducted from the Company's interest in cash value of the Policy. The
Company shall also be entitled to any interest in cash value which is forfeited
by the Participant, as provided below. A Participant who is suffering from a
Disability prior to attaining age 65 shall be treated as if he or she were still
employed with the Company.
(II) Participant's Interest In Cash Value During Employment or
---------------------------------------------------------
Disability. While the Participant is employed with the Company, or is suffering
- ----------
from a Disability prior to attaining age 65, the Participant's interest in the
cash value of any Policy shall be the balance of the cash value of the Policy in
-9-
<PAGE>
excess of the Company's interest in cash value pursuant to Section 2.5(a)(I)
above. A Participant who is suffering from a Disability shall be treated as if
he or she retired from the Company upon attaining age 65; provided that, if the
Participant recovers from the Disability on an earlier date and does not return
to work with the Company, the Participant will be treated as if he or she
retired or terminated employment upon recovery from the Disability.
The Participant shall at all times be 100% vested in cash value under a
Policy in an amount equal to his or her cumulative reported imputed income or
reimbursements to the Company for the Economic Benefit of his or her coverage.
The Participant will become vested in the Participant's additional cash value
under a Policy after completing 10 years of Credited Service or on the
Participant's Normal Retirement Date, whichever occurs first. A Participant who
is employed with the Company immediately prior to a Change in Control will,
also, become vested in the Participant's additional cash value under a Policy
which has accrued to the Participant through the Change in Control effective
immediately before the Change in Control.
(b) After Retirement or Termination of Employment After Completing
--------------------------------------------------------------
10 Years of Credited Service.
- ----------------------------
(I) Participant's Interest In Cash Value After Retirement or
--------------------------------------------------------
Termination of Employment After Completing 10 Years of Credited Service. The
- -----------------------------------------------------------------------
Participant's interest in the cash value of any Policy will increase on a pro-
rata basis following his or her Retirement Date (or following Termination of
-10-
<PAGE>
Employment after completing 10 years of Credited Service). After either of
these events, all future net increases in cash value of the Policy during any
year will be allocated between the Participant and the Company on a pro-rata
basis in proportion to their respective interests in the cash value of the
Policy during such year. Any withdrawals of cash value from the Policy by the
Participant will reduce the Participant's interest in the cash value of the
Policy. Net increases in cash value shall be determined after deducting
mortality and other expenses which are charged against cash value of the Policy.
(II) Company's Interest In Cash Value after Retirement or Termination
----------------------------------------------------------------
of Employment After Completing 10 Years of Credited Service. After a
- -----------------------------------------------------------
Participant's Retirement Date (or following Termination of Employment after
completing 10 Years of Credited Service), the Company's interest in the cash
value of any Policy shall be the balance of the cash value of the Policy in
excess of the Participant's interest in cash value pursuant to Section 2.5(b)(I)
above, including the Company's portion of increases in cash value after the
Participant's Retirement or Termination of Employment. The Company shall also
be entitled to increases in cash value in an amount equal to any mortality or
other expenses incurred for the benefit of the Company which are charged against
cash value of the Policy, and any such charges shall, in turn, be deducted from
the Company's interest in cash value of the Policy.
-11-
<PAGE>
(c) After Other Termination of Employment.
-------------------------------------
(I) Participant's Interest in Cash Value after Other Termination of
---------------------------------------------------------------
Employment. If the Participant terminates employment with the Company before
- ----------
Retirement and prior to completing 10 years of Credited Service, the Participant
shall forfeit his or her entire interest in the cash value of each Policy which
is owned by the Participant except for an amount equal to the Participant's
cumulative reimbursements to the Company for the Economic Benefit of his or her
coverage.
(II) Company's Interest in Cash Value after Other Termination of
-----------------------------------------------------------
Employment. If the Participant terminates employment with the Company before
- ----------
Retirement and prior to completing 10 years of Credited Service, the Company's
interest in the cash value of any Policy shall be the balance of the cash value
of the Policy in excess of the Participant's interest in cash value pursuant to
Section 2.5(c)(I) above, including the portion of the cash value of the Policy
which is forfeited by the Participant.
(d) Minimum Company Interest in Cash Value. Notwithstanding any other
--------------------------------------
provision of this Plan to the contrary, at no time shall the Company's interest
in the cash value of any Policy ever be less than the cash value of the Policy
on the date when the Policy is transferred by the Company to the Participant.
This is a restriction which by its terms will never lapse.
2.6 Policy Withdrawals and Loans.
----------------------------
(a) Policy Withdrawals and Loans by Company. The Company shall have
---------------------------------------
no right to make withdrawals of cash value or
-12-
<PAGE>
prepaid premiums or obtain loans from any Policy which is owned by a Participant
at any time during the Participant's lifetime, without the prior written consent
of the Participant.
(b) Policy Withdrawals and Loans by Participant. A Participant shall
-------------------------------------------
have no right to make withdrawals or obtain loans from any Policy before his or
her Retirement Date. After Retirement a Participant shall have the right to
make withdrawals of his or her interest in the cash value of any Policy (or
obtain loans from the Participant's interest in the cash value of any Policy,
provided interest is paid on such loans on an annual basis). The Participant's
death benefit under any Policy shall be reduced by withdrawals (and the unpaid
principal and interest on any loans) under the Policy taken by the Participant.
2.7 Surrender or Cancellation of Policy. In the event of the
-----------------------------------
surrender or cancellation of a Policy which is owned by a Participant, the
Participant shall be entitled to receive a portion of the cash surrender value
equal to his or her vested interest in the cash value of the Policy, unless the
Company substitutes another Policy which is satisfactory to the Participant.
The balance of the cash surrender value, if any, shall belong to the Company.
2.8 Continuation or Split of Policy after Retirement or Termination of
------------------------------------------------------------------
Employment. Section 3.4 of the Executive Life Insurance Plan is modified as
- ----------
provided herein. The Company shall continue the life insurance coverage for the
Participant after his or her Retirement (or following termination of employment
after completing 10 years of Credited Service) in the same form
-13-
<PAGE>
and subject to the provisions of this Plan as if he or she remained employed
with the Company, except that the total amount of coverage for the Participant
shall not exceed the amounts specified in Sections 2.2(b), (c) and (d) of this
Plan. With the Participant's consent, the Company may arrange to split the
Policy or Policies insuring the Participant after Retirement (or following
termination of employment after completing 10 years of Credited Service) so that
the Company and Participant receive one or more separate life insurance
policies. In such event, the Participant shall receive a policy on his or her
life with a death benefit equal to the amounts specified in Sections 2.2(b), (c)
and (d) of this Plan, unless otherwise permitted by the Administrator in its
sole discretion.
If a Participant's employment with the Company terminates before
Retirement, and with less than 10 years of Credited Service, the Participant's
coverage under this Plan shall cease, and the Company shall have no further
legal or equitable obligations of any kind to the Participant under this Plan.
The Participant shall automatically, by operation of the terms hereof, transfer
all incidents of ownership in each Policy providing his or her coverage under
this Plan to the Company effective on the last day of employment with the
Company, and the Company shall pay to the Participant an amount equal to the
Participant's vested interest in the cash value of the Policy (as determined
under Section 2.5(c)(I) hereof).
2.9 No Assignment. Section 3.5 of the Executive Life Insurance Plan
-------------
is modified as provided herein. A Participant may
-14-
<PAGE>
not assign any part of his or her right, title, claim, interest, benefit or any
other incidents of ownership which he or she may have in any Policies providing
life insurance coverage under this Plan, unless permitted by the Administrator
in its sole discretion.
2.10 Payment of Premiums and Contributions. Section 3.6 of the
-------------------------------------
Executive Life Insurance Plan is modified as provided herein.
(a) During Employment. All premiums for life insurance coverage
-----------------
under this Plan while a Participant is employed with the Company will be paid by
the Company. The Participant will be required each year to include in income for
income tax purposes, or reimburse to the Company, an amount equivalent to the
Economic Benefit of this coverage.
(b) After Retirement or Termination of Employment After Completing
--------------------------------------------------------------
10 Years of Credited Service. All premiums for life insurance coverage under
- ----------------------------
this Plan for a Participant after his or her Retirement Date (or following
Termination of Employment after completing 10 years of Credited Service) will be
paid by the Company. The Participant will be required each year to include in
income for income tax purposes, or reimburse to the Company, an amount
equivalent to the Economic Benefit of this coverage, or otherwise may realize
taxable income if the Company distributes a policy to the Participant pursuant
to Section 2.8 of this Plan.
2.11 Form of Death Benefit. Section 3.7 of the Executive Life
---------------------
Insurance Plan is modified as provided herein.
-15-
<PAGE>
All death benefits under this Plan will be payable under the Lump Sum Payment
Option (as described in Section 3.8 of the Executive Life Insurance Plan.) No
Salary Continuation Option (as described in Section 3.9 of the Executive Life
Insurance Plan) will be available under this Plan.
2.12 Option to Purchase Insurance Policy on Termination of Employment.
----------------------------------------------------------------
If a Participant terminates employment with the Company before Retirement and
prior to completing 10 years of Credited Service, the Participant shall have the
option to purchase an insurance policy on the terms provided in Article IV of
the Executive Life Insurance Plan. Such insurance policy shall provide the
amount of life insurance coverage which is then in effect for the Participant
under Section 2.2(a) of this Plan.
2.13 Option to Purchase Insurance Policy in Certain Events. Upon the
-----------------------------------------------------
occurrence of an event described in Sections 5.2 or 5.3 of the Executive Life
Insurance Plan, a Participant shall have the option to purchase an insurance
policy on the terms provided in Article V of the Executive Life Insurance Plan.
2.14 Transfer of Policy to Company. If the Participant terminates
-----------------------------
employment with the Company before Retirement and prior to completing 10 years
of Credited Service, the Participant shall, automatically, by operation of the
terms hereof, transfer the Policy (including his or her entire interest therein)
to the Company effective on the last day of employment with the Company, and the
Company shall pay to the Participant an amount equal to the Participant's vested
interest in the cash value of the Policy (as determined under Section 2.5(c)(I)
hereof). Upon such
-16-
<PAGE>
Termination of Employment, the Participant shall no longer have any life
insurance coverage under this Plan, and the Participant and his or her
Beneficiary shall have no further interest in or rights under the Policy.
ARTICLE 3
BENEFICIARY DESIGNATION
-----------------------
3.1 Designation of Beneficiary. Each Participant shall have the right
--------------------------
to designate a Beneficiary or Beneficiaries to whom payment under this Plan
shall be made in the event of the Participant's death. A Beneficiary may be
designated in the manner provided in Article VI of the Executive Life Insurance
Plan. The most recent Beneficiary designated by a Participant under the
Executive Life Insurance Plan shall be treated as the Participant's Beneficiary
under this Plan until the Participant designates a new Beneficiary under this
Plan.
ARTICLE 4
ADMINISTRATION OF PLAN AND DISPUTES
-----------------------------------
4.1 Administration of Plan. This Plan shall be administered by the
----------------------
Committee and the Board (herein referred to collectively as the "Administrator")
in accordance with Article VII of the Executive Life Insurance Plan, except as
provided herein. However, notwithstanding any provision of the Executive Life
Insurance Plan to the contrary, the Administrator's authority to interpret this
Plan shall not cause the Administrator's decisions in this regard to be entitled
to a
-17-
<PAGE>
deferential standard of review in the event that a Participant or Beneficiary
seeks review of the Administrator's decision as described below.
4.2 Liability of Administrator. Neither the Administrator nor its
--------------------------
designee shall be liable to any person for any action taken or omitted in
connection with the interpretation and administration of this Plan.
4.3 Disputes
--------
(a) Right to Arbitration. Time is of the essence in the
--------------------
resolution of any and all disputes which may arise under this Plan and the
determination of whether any payments are due hereunder or the amount or timing
thereof. A Participant (or following his or her death, his or her Beneficiary),
but not the Company, may, but need not, submit any such dispute, disagreement or
claim for payment hereunder to arbitration as provided herein.
The right to select arbitration shall be solely that of the Participant
or Beneficiary in his or her sole discretion. Arbitration is not mandatory on
the Participant or Beneficiary, and the Participant or Beneficiary may choose in
lieu thereof to bring an action in an appropriate civil court. However, once an
arbitration is commenced by the Participant or Beneficiary, it may not be
discontinued without the mutual consent of all parties to the arbitration.
During the lifetime of the Participant, only the Participant can initiate an
arbitration proceeding under this Section.
In the event that the Company commences an action or proceeding in any
court against a Participant or Beneficiary,
-18-
<PAGE>
whether with respect to a dispute, disagreement or claim for payment under this
Plan or otherwise, the Participant or Beneficiary may, but need not, apply to a
court of competent jurisdiction, within ninety (90) days following receipt of
service of a summons and complaint or the equivalent thereof, for an order
dismissing or staying (pending the final completion of arbitration as provided
in this Section) all or so much of such action or proceeding as affects or
relates to a dispute, disagreement or claim for payment under this Plan or
relieving the Participant or Beneficiary of any obligation to file an
affirmative defense or counterclaim in such action or proceeding to the extent
the same affects or relates to a dispute, disagreement or claim for payment
under this Plan.
The Company hereby consents to the issuance of such an order, upon such
application, with respect to any aspect of the action, proceeding, defense or
counterclaim which the Participant or Beneficiary demonstrates to the court's
satisfaction may reasonably affect or relate to any dispute, disagreement or
claim for payment under this Plan. Any such order may be conditioned upon the
prompt initiation of arbitration by the Participant or Beneficiary in accordance
with this Section.
(b) Initiation of Arbitration. A Participant or Beneficiary who
-------------------------
intends to initiate arbitration hereunder shall first deliver to the Committee
which administers the Plan a claim in writing for payment under the Plan setting
forth in reasonable detail the basis for and calculation of the claim or a
proposed resolution of any other dispute or disagreement that may exist.
-19-
<PAGE>
If the Company does not pay the full amount of the claim for payment,
or does not deliver a written, unconditional acceptance of the proposed
resolution, within sixty days following delivery of the claim for payment or
proposed resolution, or upon entry of an order of a court as provided in Section
3.3(a) hereof, the Participant or Beneficiary may deliver to the Company a
written list of five proposed arbitrators, each of whom must be either (i) a
member of the National Academy of Arbitrators residing in the State of
California, or (2) a retired judge of the California Superior Court, Court of
Appeals or Supreme Court or the United States District Court for the Central or
Southern Districts of California or the United States Court of Appeals for the
Ninth Circuit, provided, however, that any such judge must then reside in the
State of California.
Within seven days following delivery of such list, the Company shall
select one of the proposed arbitrators as the arbitrator for the dispute,
disagreement or claim for payment in question and shall, within said seven day
period, deliver written notice of such selection to the Participant or
Beneficiary. If the Company fails to deliver such written notice within said
period, the Participant or Beneficiary shall select one of the proposed
arbitrators, promptly deliver written notice thereof to the Company, and such
selection shall be binding upon the Company.
(c) Conduct of Arbitration. The arbitration proceeding shall
----------------------
commence within seven days following selection of the arbitrator, or as soon
thereafter as possible, and shall
-20-
<PAGE>
proceed with all due diligence. No continuance or postponement of the
arbitration shall be granted to the Company without the consent of the
Participant or Beneficiary. Absence from or the failure to participate in any
hearing or session of the arbitration by the Company shall not prevent the
issuance of an award. Without the consent of the Participant or Beneficiary, no
arbitration hearing or session shall be conducted outside the County of Los
Angeles.
The arbitration shall be conducted in accordance with such rules and
procedures as may be determined by the arbitrator. The arbitrator may determine
when sufficient evidence has been submitted to permit the issuance of an award.
The arbitrator's award shall be issued in writing as expeditiously as possible
and in no event more than thirty days following the close of the hearing. The
arbitrator may, if he or she deems it necessary to the issuance of an award,
engage the services of an accountant, actuary or other expert to advise and
assist in the arbitration.
Notwithstanding the right of the Administrator to administer and
interpret this Plan, no decision by the Administrator in this regard shall be
entitled to any deference in such arbitration.
(d) Arbitration Award. The arbitrator may order the Company to
-----------------
take, or to refrain from taking, any action and may make a monetary award to the
Participant or Beneficiary.
The Company acknowledges that, in the event it should breach the
provisions of the Plan, it will be extremely difficult, if not impossible, to
calculate the amount of
-21-
<PAGE>
consequential or extracontractual damages suffered by a Participant or
Beneficiary. Consequently, the Company agrees that (1) if the arbitrator makes
a monetary award of any amount to the Participant or Beneficiary, the arbitrator
shall also award the Participant or Beneficiary an additional amount equal to
fifty percent (50%) of the monetary award, but in no event less than ten
thousand dollars ($10,000), and (2) if the arbitrator does not make a monetary
award to the Participant or Beneficiary, but makes an affirmative finding that
the Company has breached the provisions of the Plan or orders the Company to
take, or to refrain from taking, any action, the arbitrator shall award the
Participant or Beneficiary ten thousand dollars ($10,000). All amounts so
awarded shall constitute additional benefits under this Plan.
Any monetary award and any additional awards shall bear interest at a
rate determined by the arbitrator from the date, as determined by the
arbitrator, that any payment should have been made by the Company to the
Participant or Beneficiary.
(e) Costs of Arbitration. The arbitrator shall order the losing party
--------------------
in the arbitration (1) to pay for the costs of the arbitration, including,
without limitation, the arbitrator's fees and expenses and the fees of a
stenographic reporter if employed, and (2) to reimburse the prevailing party for
all costs of the arbitration which have previously been paid by the prevailing
party. Each party shall pay for its own fees and expenses in connection with
the arbitration, including, without
-22-
<PAGE>
limitation, its fees and expenses of counsel, accountants, actuaries and other
experts.
The Participant or Beneficiary shall be deemed to be the prevailing
party if the arbitrator (1) finds that the Company has breached the provisions
of the Plan or orders the Company to take, or to refrain from taking, any action
or (2) makes a monetary award of any amount to the Participant or Beneficiary.
The arbitration award, the additional award, interest, and the costs of
the arbitration shall be due and payable within five days following the issuance
of the award.
(f) Enforcement of the Award. The award of the arbitrator shall
------------------------
be final, binding and conclusive upon the parties and shall not be subject to
judicial review except as set forth in Sections 1286.2 and 1286.6 of the
California Code of Civil Procedure or any successor statute thereto. Any party
may apply to a court of competent jurisdiction for confirmation or enforcement
of such award.
ARTICLE 5
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
5.1 Amendment and Termination of Plan. The provisions of Article VIII
---------------------------------
and Section 2.5 of the Executive Life Insurance Plan, relating to amendment and
termination of the Plan, shall apply to this Plan as if set forth herein.
-23-
<PAGE>
ARTICLE 6
MISCELLANEOUS
-------------
6.1 Restriction on Assignment. The Participant may not assign any
-------------------------
part of his or her right, title, claim, interest, benefit or any other incidents
of ownership which he or she may have in any Policies or life insurance coverage
under this Plan, unless permitted by the Administrator in its sole discretion.
The provisions of Sections 9.1 (other than the first sentence) and 9.2
of the Executive Life Insurance Plan shall have no application to this Plan and
shall be treated as if they were deleted.
6.2 Participants Who Terminated Employment With the Company Before
--------------------------------------------------------------
July 12, 1994. Wherever this Plan refers to 10 years of Credited Service, 15
- -------------
years of Credited Service shall apply in the case of Participants who terminated
employment with the Company before July 12, 1994, unless otherwise determined by
the Administrator in its sole discretion.
IN WITNESS WHEREOF, the Sponsor has caused this amended and restated
Plan to be executed this 16th day of November, 1995, effective as of July 12,
1994.
H. F. AHMANSON & COMPANY
By /s/ Charles R. Rinehart
--------------------------------
Title: Chairman of the Board and
Chief Executive Officer
-24-
<PAGE>
EXHIBIT 10.19
H. F. AHMANSON & COMPANY
1996 NONEMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN
1. Purpose of the Plan.
The purpose of the 1996 Nonemployee Directors' Stock Incentive Plan of
H. F. Ahmanson & Company is to provide incentives that will attract and retain
highly competent persons as nonemployee directors of the Company by providing
them with opportunities to acquire a proprietary interest in the Company by the
grant to such persons of nonqualified Stock Options which may result in their
ownership of Common Stock of the Company.
2. Definitions.
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Administrator" shall mean the Board or, if and to the extent the
Board delegates any of its authority hereunder in accordance with Section 4(b)
hereof, the Committee.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means a committee appointed by the Board to administer
the Plan pursuant to Section 4(b) hereof.
(e) "Common Stock" means the common stock, $0.01 par value, of the
Company.
(f) "Company" means H. F. Ahmanson & Company
(g) "Date of Grant" means the date determined as set forth in Section
6 or 7 hereof, as the case may be.
(h) "Disability" means any medically determinable physical or mental
impairment of a Participant, as determined by the Administrator, in its complete
and sole discretion, which is expected to last for a period of at least 180
days, as a result of which such Participant is unable to engage in any
substantial gainful activity. All determinations as to a Participant's disabled
status or the date and extent of any disability shall be made by the
Administrator upon the basis of such information as it deems necessary or
desirable.
(i) "Eligible Participant" means a Nonemployee Director.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" on a given date means (i) the mean between the
highest and lowest reported sales prices for the Common Stock on that date (or,
if there were no such sales on that date, on the next most recent date on which
there were such sales) as reported by the New York Stock Exchange (or, if the
Common Stock is not then listed on the New York Stock Exchange, such other
national securities exchange on which the Common
<PAGE>
Stock is then listed), (ii) if the Common Stock is not then listed on a national
securities exchange, the mean between the closing bid and asked price quotations
for the Common Stock on that date (or if none on that date, on the next most
recent date) as reported by The Nasdaq National Market or any successor thereto,
or (iii) if the Common Stock is not then listed on a national securities
exchange or The Nasdaq National Market, the mean between the closing bid and
asked price quotations for the Common Stock on that date (or if none on that
date, on the next most recent date) as reported by the National Association of
Securities Dealers Automatic Quotation System or any successor thereto.
(l) "Nonemployee Director" means a member of the Board who is not an
officer or employee of the Company or any of its parent or subsidiary
corporations at the time of determination.
(m) "Normal Board Retirement" means, in conjunction with termination
of a Participant's services as a member of the Board for any reason other than
death or Disability, the determination of the Administrator or the Nominating
Committee of the Board that such termination constitutes Normal Board
Retirement. In the absence of such a determination, termination of a
Participant's services as a member of the Board shall be deemed to be for
reasons other than Normal Board Retirement.
(n) "Option" or "Stock Option" means a stock option that does not
qualify as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
(o) "Option Agreement" means an option agreement signed by the Company
and the Participant in such form and including such terms and conditions not
inconsistent with the Plan as the Administrator may in its discretion from time
to time determine.
(p) "Participant" means any Eligible Participant who elects to receive
Options pursuant to Section 6 or 7 hereof.
(q) "Plan" means the 1996 Nonemployee Directors' Stock Incentive Plan
as set forth herein, and as it may be amended from time to time.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Section 3(c) and Section 9 of the
Plan, the aggregate number of shares of Common Stock that may be issued or
transferred or exercised pursuant to Options granted under the Plan will not
exceed 400,000.
(b) The shares to be delivered under the Plan will be made available,
at the discretion of the Administrator, either from authorized but unissued
shares of Common Stock or from previously issued shares of Common Stock
reacquired by the Company, including shares purchased on the open market.
(c) Shares of Common Stock subject to an unexercised portion of any
Stock Option granted under the Plan which expires or terminates or is canceled
will again become available for the grant of further Options hereunder.
2
<PAGE>
4. Administration of the Plan.
(a) The Plan shall, to the extent possible, be self-effectuating. The
Plan will be administered by the Board. The Board is authorized and empowered
to administer the Plan, which administration shall include (but is not limited
to) authority to (i) construe and interpret the Plan and any agreements defining
the rights and obligations of the Company and Participants under the Plan; (ii)
prescribe, amend and rescind rules and regulations relating to the Plan; (iii)
further define the terms used in the Plan; (iv) determine the rights and
obligations of Participants under the Plan; and (v) make all other
determinations necessary or advisable for the administration of the Plan. Each
Option granted under the Plan shall be evidenced by an Option Agreement.
(b) The Board of Directors may, in its discretion, delegate any or all
of its authority under the Plan to a committee consisting of three or more
directors of the Company each of whom has not been eligible at any time within
one year before appointment to such committee to receive an Option under the
Plan, except the Board may not delegate the powers set forth in Section 9,
11(a), or 12 hereof or powers which, under applicable law, are nondelegable.
(c) No member of the Board or the Committee will be liable for any
action or determination made in good faith by the Board or the Committee with
respect to the Plan or any Option under it, including, without limitation,
adjustments pursuant to Section 9. In making determinations under the Plan, the
Board or the Committee may obtain and may rely upon the advice of independent
counsel and accountants and other advisors to the Company. No member of the
Board or the Committee, nor an officer of the Company shall be liable for any
such action or determination taken or made in good faith with respect to the
Plan or any Option granted hereunder.
5. Participation.
Options shall be granted to each Nonemployee Director exclusively in
accordance with the provisions set forth in Section 6 and 7 hereof.
6. Automatic Option Grants.
(a) Whenever any person shall become a Nonemployee Director, there
shall be granted automatically (without any action by the Administrator) a Stock
Option (the Date of Grant of which shall be the date such person shall have
become a Nonemployee Director) to such person to purchase 2,000 shares of Common
Stock (subject to adjustment pursuant to Section 9 hereof).
(b) On January 2 (or if January 2 is not a business day, on the next
succeeding business day) in each calendar year after 1995 during the term of the
Plan, there shall be granted automatically (without any action by the
Administrator) a Stock Option (the Date of Grant of which shall be such date in
January) to each Nonemployee Director then in office to purchase 2,000 shares of
Common Stock (subject to adjustment pursuant to Section 9 hereof).
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
Nonemployee Director shall receive more than one Stock Option under this Section
6 in any calendar year.
3
<PAGE>
7. Deferred Fees.
(a) Grants. Subject to Section 12 hereof, Stock Options shall be
granted automatically (without any action by the Administrator) on January 2 (or
if January 2 is not a business day on the next succeeding business day in each
calendar year) to any Nonemployee Director who irrevocably elects, in accordance
with this Section 7, to receive all or a specified percentage of all annual
retainer fees to be earned in all future years in the form of a Stock Option.
The Date of Grant of each such Stock Option shall be the applicable date in
January. Such Stock Option shall be awarded pursuant to such irrevocable
election in lieu of all or a specified percentage of the annual retainer fees to
be earned in each succeeding calendar year ("Plan Year") after the date of such
election. Any Nonemployee Director wishing to make such an irrevocable election
shall file such election with the Secretary of the Company on or before such
date as the Company or its counsel determines is necessary to comply with
applicable laws and regulations. Such elections, including the percentage, if
any, of annual retainer fees specified therein, shall be irrevocable for the
entire term served by each Nonemployee Director; provided that such election
shall be irrevocable only to the extent required under Rule 16b-3 under the
Exchange Act.
(b) Option Formula. Subject to adjustment pursuant to Section 9
hereof, the number of shares of Common Stock subject to the Stock Option granted
to such electing Nonemployee Director shall be equal to the nearest number of
whole shares determined in accordance with the following formula:
Annual Retainer or percentage thereof = Number of Shares
- ----------------------------------------
50% of Fair Market Value
"Annual Retainer" means the amount of fixed fees which the Nonemployee Director
of the Company will be entitled to receive for serving as a director of the
Company in the relevant Plan Year, assuming no change in such compensation from
that in effect as of the date in January on which the Stock Option is granted,
and shall not include fees for attendance at meetings of the Board or any
committee of the Board or for any other services to be provided to the Company.
Fair Market Value shall be determined as of the Date of Grant.
8. Terms and Conditions of Stock Options.
(a) Purchase Price. The purchase price of Common Stock under each
Stock Option granted under Section 6 will be equal to the Fair Market Value of
the Common Stock on the Date of Grant. The purchase price per share of Common
Stock under each Stock Option granted under Section 7 will be equal to 50% of
the Fair Market Value of the Common Stock on the Date of Grant.
(b) Exercise Period. Stock Options may be exercised from time to time
in accordance with the terms of the applicable Option Agreement and this Section
8. No Stock Option granted pursuant to Section 6 hereof shall be exercised
prior to the first anniversary of its Date of Grant. No Option granted pursuant
to Section 7 hereof shall be exercised prior to six months after its Date of
Grant. Notwithstanding anything to the contrary in the Plan or
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<PAGE>
any Option Agreement hereunder, no Option granted hereunder shall be exercised
after ten years and one month from its Date of Grant.
(c) Payment of Purchase Price. Upon the exercise of a Stock Option,
the purchase price will be payable in full in cash or its equivalent acceptable
to the Company. In the discretion of the Administrator, the purchase price may
be paid by the assignment and delivery to the Company of shares of Common Stock
or a combination of cash and such shares equal in value to the exercise price.
Any shares so assigned and delivered to the Company in payment or partial
payment of the purchase price will be valued at their Fair Market Value on the
exercise date.
(d) No Fractional Shares. No fractional shares will be issued
pursuant to the exercise of a Stock Option nor will any cash payments be made in
lieu of fractional shares.
(e) Exercisability. Except as provided in the Option Agreement for
any Option granted hereunder or subsection (f) or (g) hereof, a Participant may
not, until the end of the second year after the Date of Grant of an Option
granted under Section 6 hereof or until the end of the first year after the Date
of Grant of an Option granted under Section 7 hereof, purchase by exercise of
such Option an aggregate of more than 50% of the total number of shares subject
to such Option. At any time on or after the second anniversary of such Date of
Grant with respect to Options granted under Section 6 hereof or the first
anniversary of the Date of Grant with respect to Options granted under Section 7
hereof until such Option expires or terminates, a Participant may purchase all
or any part of the shares that he theretofore failed to purchase under such
Option Agreement.
(f) Termination of Directorship. If a Participant's services as a
member of the Board terminate by reason of death, Disability or Normal Board
Retirement, an Option granted hereunder held by such Participant shall be
automatically accelerated with respect to its exercisability and shall become
immediately exercisable in full for the remaining number of shares of Common
Stock subject to such Option for three years after the date of such termination
or until the expiration of the stated term of such Option, whichever period is
shorter, and thereafter such Option shall terminate; provided, however, that if
a Participant dies or suffers a Disability during said three-year period after
Normal Board Retirement such Option shall remain exercisable in full for a
period of three years after the date of such death or Disability or until the
expiration of the stated term of such Option, whichever period is shorter, and
thereafter such Option shall terminate. If a Participant's services as a member
of the Board terminate for any other reason, any portion of an Option granted
hereunder held by such Participant which is not then exercisable shall terminate
and any portion of such Option which is then exercisable may be exercised for
three months after the date of such termination or until the expiration of the
stated term of such Option, whichever period is shorter, and thereafter such
Option shall terminate provided, however, that if a participant dies or suffers
a Disability during such three-month period, such Option may be exercised for a
period of one year after the date of such Participant's death or Disability or
until the expiration of the stated term of such Option, whichever period is
shorter, in accordance with its terms, but only to the extent exercisable on the
date of the Participant's death or Disability.
(g) Change in Control. Notwithstanding any other provisions of the
Plan, upon any Change in Control (as hereinafter defined in this Section 8) the
unexercised portion of a Stock Option granted hereunder shall be automatically
accelerated with respect to its exercisability and shall become immediately
exercisable in full during the remainder of its term without regard to any
limitations of time or amount otherwise contained in the Plan. The term "Change
in Control" shall mean
5
<PAGE>
(i) any person (as such term is used in Sections 3(a)(9) and
13(d)(3) of the Exchange Act) becomes the beneficial owner (as such term is
used in Section 13(d)(1) of the Exchange Act) directly or indirectly of
securities representing at least 25% of the combined voting power of the
then outstanding securities of the Company; or
(ii) during any period of thirty-six (36) consecutive months
(whether commencing before or after the effective date of this Plan),
individuals who at the beginning of such period constituted the Board cease
for any reason to constitute at least a majority thereof, unless the
election, or the nomination for election, of each new director was approved
by a vote of a least two-thirds of the directors then still in office who
were directors at the beginning of the period; or
(iii) any merger, consolidation, combination, reorganization,
sale, lease or exchange or issuance or delivery of stock or other
securities, or reverse stock split, exchange, liquidation or dissolution
which is referred to in paragraph (b) of Article TWELFTH of the Company's
Restated Certificate of Incorporation as in effect on the effective date of
the Plan and notwithstanding any repeal, amendment or other modification of
said Article TWELFTH that may hereafter be made (hereinafter called a
"Transaction"), or the approval by the stockholders of the Company (or if
such stockholder approval is not required, the approval by the Board) of a
Transaction; provided, however, that the term "Transaction" shall not
include any transaction described in either proviso set forth at the end of
said paragraph (b); and provided further, that the last paragraph of said
Article TWELFTH is hereby incorporated herein by this reference; or
(iv) the approval by the stockholders of the Company of any plan
or proposal for the Company to be Acquired (as defined below) or for the
liquidation or dissolution of the Company.
For purposes of this Section 8, the Company shall be considered to be "Acquired"
only if the owners of its voting securities immediately prior to the effective
date of any transaction referred to in Section 9(b) below will not own
immediately thereafter, as a result of having owned such voting securities,
securities representing a majority of the combined voting power of the then
outstanding securities of the Company or the entity that then owns, directly or
indirectly, the Company or all or substantially all its assets.
9. Adjustment Provisions
(a) Subject to Section 9(b), if the outstanding shares of Common Stock
of the Company are increased, decreased or exchanged for a different number or
kind of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment shall be made in (i) the maximum number
and kind of shares or other securities provided in Section 3(a), (ii) the number
and kind of shares or other securities subject to the then-outstanding Stock
Options, (iii) the price for each share or other unit of any other securities
subject to then-outstanding Stock Options without change in the aggregate
purchase price or value as to which such Stock Options remain exercisable and
6
<PAGE>
(iv) the number, kind and price of shares or other securities to be granted
pursuant to Section 6 and 7 hereof.
(b) Notwithstanding the provisions of Section 9(a) and subject to the
provisions of Section 8(g) hereof, upon dissolution or liquidation of the
Company or upon a reorganization, merger or consolidation of the Company with
one or more corporations as a result of which the Company is not the surviving
corporation or as a result of which the outstanding Common Stock is converted
into or exchanged for cash or securities of another issuer or both, or upon the
sale of all or substantially all the assets of the Company, all restrictions
applicable to the exercise of outstanding Stock Options shall continue in full
force and effect and provision shall be made in connection with such transaction
for the continuance of the Plan and the assumption of the outstanding Stock
Options by or the substitution for such Stock Options of new options covering
the stock of the successor corporation, or a parent or subsidiary thereof or the
Company, with appropriate and proportionate adjustment in (i) the number and
kind of shares or other securities or cash or other property subject to such
Stock Options and (ii) the price for each share or other unit of any other
securities or cash or other property subject to such Stock Options without
change in the aggregate purchase price or value as to which such Stock Options
remain exercisable; provided, however, that if no public market exists for the
Common Stock or the other securities or property which would be subject to such
Stock Options after consummation of such transaction, such Stock Options shall
be converted into the right to receive, upon exercise thereof, an amount of each
equal to the amount determined by the Administrator to be the fair market value
on the effective date of such transaction of the stock, other securities, cash
and other property that a share of Common Stock is entitled to receive, or into
which it is converted, pursuant to such transaction.
(c) Adjustments under Sections 9(a) and 9(b) will be made by the
Administrator, whose determination as to what adjustments will be made and the
extent thereof will be final, binding and conclusive in the absence of manifest
error or arbitrary action. No fractional interest will be issued under the Plan
on account of any such adjustments.
10. General Provisions.
(a) The grant of any Stock Option under the Plan may also be subject
to such other provisions (whether or not applicable to the Stock Option awarded
to any other Participant) as the Administrator determines appropriate including,
without limitation, provisions to assist the Participant in financing the
purchase of Common Stock through the exercise of Stock Options, provisions for
the forfeiture of or restrictions on resale or other disposition of shares
acquired under any form of benefit, provisions giving the Company the right to
repurchase shares acquired under any form of benefit in the event the
Participant elects to dispose of such shares, provisions to comply with Federal
and state securities laws and Federal and state income tax withholding
requirements and to such approvals by any regulatory or governmental agency
which may be necessary or advisable in connection therewith.
In connection with the administration of the Plan or the grant of any
Award, the Administrator may impose such further limitations or conditions as in
its opinion may be required or advisable to satisfy, or secure the benefits of,
applicable regulatory requirements (including those rules promulgated under
Section 16 of the Exchange Act or those rules that facilitate exemption from or
compliance with the Act or the Exchange Act), the requirements
7
<PAGE>
of any stock exchange upon which such shares or shares of the same class are
then listed, and any blue sky or other securities laws applicable to such
shares.
(b) No person shall be entitled to the privileges of stock ownership
in respect of shares of stock which are subject to Options hereunder until such
person shall have become the holder of record of such shares.
(c) No fewer than fifty shares may be purchased at one time pursuant
to any Stock Option unless the number purchased is the total number at the time
available for purchase under the Stock Option.
(d) Options shall not be transferable by the Participants other than
by will or the laws of descent and distribution, and during the lifetime of a
Participant shall be exercisable only by such Participant, except that to the
extent permitted by applicable law, and Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act, the Administrator may permit a
Participant to designate in writing during his lifetime a beneficiary to receive
and exercise Options in the event of such Participant's death. Following the
death of a Participant, Options held by such Participant shall be exercisable,
in accordance with their terms, by such designated beneficiary or, if no such
beneficiary has been designated, by the Participant's estate or by the person or
persons who acquire the right to exercise it by bequest or inheritance. Any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of, or to
subject to execution, attachment or similar process, an Option granted
hereunder, contrary to the provisions hereof, shall be void and ineffective,
shall give no rights to the purported transferee, and shall at the sole
discretion of the Administrator result in forfeiture of such Option with respect
to the shares involved in such attempt.
(e) The Plan and all Stock Options granted under the Plan and the
documents evidencing Stock Options shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
11. Amendment and Termination.
(a) The Board will have the power, in its discretion, to amend,
suspend or terminate the Plan at any time. No such amendment will, without
approval of the stockholders of the Company, except as provided in Section 9 of
the Plan:
(i) Change the class of persons eligible to receive Stock Options
under the Plan; or
(ii) Increase the number of shares of Common Stock subject to the
Plan.
(b) No amendment, suspension or termination of the Plan will, without
the consent of the Participant, alter, terminate, impair or adversely affect any
right or obligation under any Stock Option previously granted under the Plan.
12. Effective Date of Plan and Duration of Plan.
This Plan will become effective upon the adoption by the Board subject
to approval by the holders of a majority of the outstanding shares of Common
Stock present in person or by proxy and entitled to vote at a meeting of
stockholders of the Company held after such Board adoption. Any Options granted
hereunder prior to approval of the Plan by
8
<PAGE>
the stockholders shall be granted subject to such approval and may not be
exercised or realized, nor may Common Stock be irrevocably transferred to any
Participant, until and unless such approval has occurred and the provisions of
Section 10(a) have been satisfied. Unless previously terminated, the Plan will
terminate ten years and one month after adoption by the Board, but such
termination shall not affect any Stock Option previously made or granted.
9
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF H. F. AHMANSON & COMPANY
(AS OF DECEMBER 31, 1995)
Jurisdiction
of Incorporation
----------------
110 East 42nd Operating Company, Inc. Delaware
244 West 10th Street, Inc. New York
1905 Agency Incorporated Delaware
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 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
Home Servicing of America California
HSA Travel California
HSB Enterprises, Inc. New York
Ladue Service Corporation Missouri
Mesa Water Company California
Oxford Ranch, Inc. 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
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board Of Directors
H.F. Ahmanson & Company:
We consent to incorporation by reference in the Registration Statements
No. 33-20076, No. 33-00063, No. 33-65247, 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 and
subsidiaries of our report dated January 23, 1996, relating to the consolidated
statements of financial condition of H.F. Ahmanson & Company and subsidiaries as
of December 31, 1995 and 1994, 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, 1995, which report appears in the
December 31, 1995 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
23, 1996, contains an explanatory paragraph which states, that as discussed in
Note 1 to the consolidated financial statements, the Company changed its method
of accounting for goodwill in 1995.
KPMG Peat Marwick LLP
Los Angeles, California
March 27, 1996
<TABLE> <S> <C>
<PAGE>
<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, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 752,878
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 381,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,336,774
<INVESTMENTS-CARRYING> 5,827,724
<INVESTMENTS-MARKET> 5,967,529
<LOANS> 31,255,379
<ALLOWANCE> 380,886
<TOTAL-ASSETS> 50,529,586
<DEPOSITS> 34,244,481
<SHORT-TERM> 3,519,311
<LIABILITIES-OTHER> 991,755
<LONG-TERM> 8,717,117
0
49
<COMMON> 1,156
<OTHER-SE> 3,055,717
<TOTAL-LIABILITIES-AND-EQUITY> 50,529,586
<INTEREST-LOAN> 2,405,820
<INTEREST-INVEST> 1,293,271
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,699,091
<INTEREST-DEPOSIT> 1,835,590
<INTEREST-EXPENSE> 2,472,336
<INTEREST-INCOME-NET> 1,226,755
<LOAN-LOSSES> 119,111
<SECURITIES-GAINS> 12,106
<EXPENSE-OTHER> 981,407
<INCOME-PRETAX> 824,646
<INCOME-PRE-EXTRAORDINARY> 824,646
<EXTRAORDINARY> 0
<CHANGES> (234,742)
<NET-INCOME> 216,204
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 2.41
<LOANS-NON> 723,791
<LOANS-PAST> 0
<LOANS-TROUBLED> 163,844
<LOANS-PROBLEM> 51,018
<ALLOWANCE-OPEN> 400,232
<CHARGE-OFFS> 162,618
<RECOVERIES> 24,161
<ALLOWANCE-CLOSE> 380,886
<ALLOWANCE-DOMESTIC> 380,886
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
