<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
------------ ------------
Commission File Number 1-8930
------------------
H. F. AHMANSON & COMPANY
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-0479700
------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 Rivergrade Road, Irwindale, California 91706
------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code. (818) 960-6311
-------------
Exhibit Index appears on page: 33
Total number of sequentially numbered pages: 34
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 and 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1996: $.01 par value - 107,188,014 shares.
<PAGE>
PART I. CONSOLIDATED FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
---------------------------------
The condensed consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of the
Registrant, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the results of operations for the periods covered
have been made. Certain information and note disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Registrant believes that the disclosures
are adequate to make the information presented not misleading.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Registrant's latest annual report on Form 10-K. The
results for the periods covered hereby are not necessarily indicative of the
operating results for a full year.
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Assets June 30, 1996 December 31, 1995
- ------ -------------- -----------------
<S> <C> <C>
Cash and amounts due from banks $ 722,581 $ 752,878
Securities purchased under agreements to resell 690,200 381,000
Other short-term investments 13,797 13,278
----------- -----------
Total cash and cash equivalents 1,426,578 1,147,156
Other investment securities held to
maturity [market value
$2,402 (June 30, 1996) and
$2,484 (December 31, 1995)] 2,443 2,448
Other investment securities available for
sale [amortized cost
$9,288 (June 30, 1996) and
$9,327 (December 31, 1995)] 9,912 9,908
Investment in stock of Federal Home
Loan Bank (FHLB), at cost 407,770 485,938
Mortgage-backed securities (MBS)
held to maturity [market value
$5,416,910 (June 30, 1996) and
$5,965,045 (December 31, 1995)] 5,436,023 5,825,276
MBS available for sale [amortized cost
$10,126,810 (June 30, 1996) and
$10,293,537 (December 31, 1995)] 9,923,982 10,326,866
Loans receivable less allowance for losses of
$382,485 (June 30, 1996) and
$380,886 (December 31, 1995) 30,375,794 30,273,514
Loans held for sale [market value
$120,745 (June 30, 1996) and
$992,550 (December 31, 1995)] 119,464 981,865
Accrued interest receivable 218,529 228,111
Real estate held for development and
investment (REI) less allowance for losses of
$144,441 (June 30, 1996)and
$283,748 (December 31, 1995) 212,561 234,855
Real estate owned held for sale (REO)
less allowance for losses of
$37,493 (June 30, 1996) and
$38,080 (December 31, 1995) 260,735 225,566
Premises and equipment 412,602 410,947
Goodwill and other intangible assets 140,022 147,974
Other assets 560,215 229,162
----------- -----------
$49,506,630 $50,529,586
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $33,281,931 $34,244,481
Securities sold under agreements to repurchase 2,689,000 3,519,311
Other short-term borrowings 200,000 -
FHLB and other borrowings 9,462,740 8,717,117
Other liabilities 1,035,557 873,313
Income taxes 60,046 118,442
----------- -----------
Total liabilities 46,729,274 47,472,664
Stockholders' equity 2,777,356 3,056,922
----------- -----------
$49,506,630 $50,529,586
=========== ===========
</TABLE>
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 559,078 $ 615,281 $ 1,133,933 $ 1,246,072
Interest on MBS 296,927 294,383 605,281 514,470
Interest and dividends on investments 11,231 39,901 22,892 83,006
----------- ----------- ----------- -----------
Total interest income 867,236 949,565 1,762,106 1,843,548
----------- ----------- ----------- -----------
Interest expense:
Deposits 372,997 484,778 760,170 924,236
Short-term borrowings 36,334 45,143 76,564 94,661
FHLB and other borrowings 146,331 109,469 296,816 219,232
----------- ----------- ----------- -----------
Total interest expense 555,662 639,390 1,133,550 1,238,129
----------- ----------- ----------- -----------
Net interest income 311,574 310,175 628,556 605,419
Provision for loan losses 33,901 25,465 79,843 52,009
----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 277,673 284,710 548,713 553,410
----------- ----------- ----------- -----------
Other income:
Gain (loss) on sales of MBS (29) 8,677 (29) 9,280
Gain on sales of loans 6,166 1,779 21,194 2,010
Servicing income 16,657 14,896 31,802 27,862
Other fee income 31,291 26,382 58,110 50,354
Gain on sales of investment securities - 102 - 112
Other operating income 1,915 1,584 5,453 (216)
----------- ----------- ----------- -----------
56,000 53,420 116,530 89,402
----------- ----------- ----------- -----------
Other expenses:
General and administrative expenses (G&A) 189,652 201,305 382,700 384,057
Operations of REI 7,535 2,621 14,278 3,708
Operations of REO 27,302 19,605 52,991 40,658
Amortization of goodwill and other
intangible assets 3,958 6,934 7,952 13,845
----------- ----------- ----------- -----------
228,447 230,465 457,921 442,268
----------- ----------- ----------- -----------
Income before provision for income taxes and
cumulative effect of accounting change 105,226 107,665 207,322 200,544
Provision for income taxes 36,492 43,276 73,833 83,305
----------- ----------- ----------- -----------
Income before cumulative effect of accounting change 68,734 64,389 133,489 117,239
Cumulative effect of change in accounting for goodwill - - - (234,742)
----------- ----------- ----------- -----------
Net income (loss) $ 68,734 $ 64,389 $ 133,489 $ (117,503)
=========== =========== =========== ===========
Income (loss) per common share - primary:
Income before cumulative effect of accounting
change $ 0.51 $ 0.44 $ 0.96 $ 0.78
Cumulative effect of change in accounting for
goodwill - - - (2.00)
----------- ----------- ----------- -----------
Net income (loss) $ 0.51 $ 0.44 $ 0.96 $ (1.22)
=========== =========== =========== ===========
Income (loss) per common share - fully diluted:
Income before cumulative effect of accounting
change $ 0.50 $ 0.43 $ 0.94 $ 0.78
Cumulative effect of change in accounting for
goodwill - - - (2.00)
----------- ----------- ----------- -----------
Net income (loss) $ 0.50 $ 0.43 $ 0.94 $ (1.22)
=========== =========== =========== ===========
Common shares outstanding, weighted average:
Primary 110,016,213 118,054,317 112,432,758 117,329,168
Fully diluted 122,098,197 129,932,055 124,585,694 117,329,168
Return on average assets 0.56% 0.47% 0.54% (0.43)%
Return on average equity 9.73% 9.17% 9.16% (8.35)%
Return on average tangible equity* 10.84% 11.05% 10.22% 10.14%
Efficiency ratio 52.75% 57.28% 53.27% 56.18%
<FN>
* Net income excluding amortization of goodwill and other intangible assets, and cumulative effect of change in accounting for
goodwill, as a percentage of average equity excluding goodwill and other intangible assets.
</FN>
</TABLE>
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For The Six
Months Ended June 30,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 133,489 $ (117,503)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for losses on loans and real estate 105,731 71,533
Depreciation and amortization 41,211 48,340
Cumulative effect of change in accounting for goodwill - 234,742
Decrease in accrued interest receivable 9,582 59,248
Proceeds from sales of loans originated for sale 1,657,817 239,438
Loans originated for sale (1,045,037) (312,334)
Loans repurchased from investors (57,689) (31,937)
Decrease in other liabilities (103,137) (224,482)
Other, net (30,153) (58,662)
----------- -----------
Net cash provided by (used in) operating activities 711,814 (91,617)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of MBS available for sale 10,219 1,575,783
Principal payments on loans 1,112,743 766,986
Principal payments on MBS 848,878 487,583
Loans originated for investment (net of refinances) (1,449,525) (2,812,001)
Loans purchased (705) (40,376)
MBS purchased (10,173) (458)
Net redemption (purchase) of FHLB stock 89,386 (22,209)
Proceeds from sales of REO 190,601 155,041
Additions to premises and equipment (30,838) (54,528)
Other, net (63,835) 20,982
----------- -----------
Net cash provided by investing activities 696,751 76,803
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits (962,550) 1,044,545
Net deposits purchased - 1,289,104
Increase (decrease) in borrowings maturing in 90 days or less 324,689 (1,823,964)
Proceeds from other borrowings 1,968,674 122,176
Repayment of other borrowings (2,179,391) (776,514)
Common stock purchased for treasury (206,578) -
Dividends to stockholders (73,987) (76,788)
----------- -----------
Net cash used in financing activities (1,129,143) (221,441)
----------- -----------
Net increase (decrease) in cash and cash equivalents 279,422 (236,255)
Cash and cash equivalents at beginning of period 1,147,156 2,046,620
----------- -----------
Cash and cash equivalents at end of period $ 1,426,578 $ 1,810,365
=========== ===========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASIS OF PRESENTATION
The preceding Condensed Consolidated Financial Statements present
financial data of H. F. Ahmanson & Company and subsidiaries. As used herein
"Ahmanson" means H. F. Ahmanson & Company, a Delaware corporation, and the
"Company" means Ahmanson and its subsidiaries. The Company is one of the
largest residential real estate-oriented financial services companies in the
United States, and is engaged in the consumer banking business and related
financial service activities. Home Savings of America, FSB ("Home Savings"),
a wholly-owned subsidiary of Ahmanson, is currently the largest savings
institution in the United States. Certain amounts in prior periods' financial
statements have been reclassified to conform to the current presentation.
OVERVIEW
The Company reported net income for the second quarter of 1996 of $68.7
million, or $0.50 per fully diluted common share, compared with $64.4 million,
or $0.43 per fully diluted common share, earned in the second quarter of 1995,
and $64.8 million, or $0.45 per fully diluted common share, earned in the
first quarter of 1996. The 16% increase in income per share from the second
quarter of 1995 is the result of a 7% increase in net income plus the effects
of the Company's previously announced stock repurchase program.
For the first six months of the year, the Company had net income of
$133.5 million, or $0.94 per fully diluted common share, compared to a net
loss of $117.5 million, or $1.22 per fully diluted common share, in the first
six months of 1995. The 1995 loss was due to a charge relating to a change in
accounting for goodwill.
RESULTS OF OPERATIONS
Net interest income totaled $311.6 million in the second quarter of 1996,
compared to $310.2 million in the second quarter of 1995 and $317.0 million
for the first quarter of 1996. The decrease in net interest income from the
first quarter of 1996 is due to the decline in interest-earning assets and the
decline in the 11th District Cost of Funds Index ("COFI") to which the yield
on a majority of the Company's mortgage assets are tied. As part of the
Company's efforts to diversify its loan portfolio, the Company added two new
adjustable rate loans to its list of loan products during the second quarter
of 1996: one loan, 12-MAT, is tied to the 12-Month Average Treasury Index and
the other, LAMA, is tied to the LIBOR Annual Monthly Average. The Company has
been offering adjustable rate mortgages ("ARMs") tied to Treasury Bill indices
since January 1, 1995. In addition, the Company funded $51.7 million in fixed
rate consumer loans in the second quarter of 1996, compared to $0.5 million in
the second quarter of 1995, and $16.6 million in the first quarter of 1996.
For the second quarter of 1996, the average net interest margin was 2.66%
compared to 2.38% in the second quarter of 1995 and 2.64% in the first quarter
of 1996. At June 30, 1996, the net interest margin was 2.61%. The average
net interest margin for the periods and the net interest margin at June 30,
1996 reflect a change in the Company's method for calculating these amounts,
based upon a recommendation from the Securities and Exchange Commission
("SEC") staff to registrants regarding the different methods for addressing
the changes in reported balances of mortgage-backed securities ("MBS")
resulting from Statement of Financial Accounting Standards ("SFAS") No. 115.
For additional information regarding net interest margin, see "Results of
Operations - Net Interest Income."
<PAGE>
In the second quarter of 1996, other income was $56.0 million, compared
to $53.4 million in the second quarter of 1995 and $60.5 million in the first
quarter of 1996. Included in the respective periods were gains on sales of
loans and MBS of $6.1 million, $10.5 million and $15.0 million. Other fee
income was $31.3 million in the second quarter of 1996, compared to $26.4
million in the second quarter of 1995 and $26.8 million in the first quarter
of 1996. The increase in other fee income reflects increased sales through
the Company's Personal Financial Service Centers and through Griffin Financial
Services, which offers discount stock and bond brokerage, proprietary and
third party mutual funds, annuities, asset management, and property liability
and life/health insurance.
During the second quarter of 1996, the Company provided $33.9 million for
loan losses, compared to $25.5 million in the second quarter of 1995 and $45.9
million in the first quarter of 1996. The provision for the second quarter of
1996 reflects the recovery of $4.3 million related to loans purchased in bulk
in 1993. During the first six months of 1996, the Company provided $79.8
million for loan losses compared to $52.0 million in the first six months of
1995.
General and administrative ("G&A") expenses totaled $189.7 million in the
second quarter of 1996, compared to $201.3 million in the second quarter of
1995 and $193.0 million in the first quarter of 1996. Included in the first
quarter of 1996 were $5.0 million in severance expenses. In the second
quarter of 1996, the Company incurred $9.8 million in expenses for its major
business initiatives: Project HOME Run (the reengineering of the real estate
loan origination process), consumer lending and electronic banking. In
addition, in preparation for the previously announced acquisition of 61
California branches of First Interstate Bank, which is expected to close in
the third quarter, the Company incurred approximately $2.0 million in expenses
in the second quarter of 1996. The Company anticipates preconversion
expenses of approximately $0.06 to $0.09 per share in the third quarter of
1996.
The operating efficiency ratio, which measures G&A expenses as a
percentage of net interest income plus loan servicing and other fee income,
improved to 52.8% in the second quarter of 1996, compared to 57.3% in the
second quarter of 1995 and 53.8% in the first quarter of 1996.
Expenses for the operations of foreclosed real estate ("REO") amounted to
$27.3 million in the second quarter of 1996, compared to $19.6 million in the
second quarter of 1995 and $25.7 million in the first quarter of 1996. During
the first six months of 1996, expenses for the operations of REO amounted to
$53.0 million compared to $40.7 million in the first six months of 1995.
ASSET QUALITY
At June 30, 1996, nonperforming assets ("NPAs") totaled $953.7 million or
1.93% of total assets, compared to $898.4 million or 1.69% of total assets at
June 30, 1995, and $977.4 million or 1.96% of total assets, at March 31, 1996.
Nonaccrual loans declined by $58.5 million from the first quarter of 1996, and
REO increased by $34.8 million in the same period. Troubled debt
restructurings ("TDRs") totaled $178.0 million at June 30, 1996.
The Company's ratio of allowances for losses to NPAs was 42.4% at June
30, 1996, compared to 45.6% at June 30, 1995 and 41.7% at March 31, 1996.
<PAGE>
Net loan charge-offs for the second quarter of 1996 totaled $36.8
million, compared to $26.6 million in the second quarter of 1995 and $41.5
million in the first quarter of 1996. For the first six months of 1996, net
charge-offs totaled $78.2 million compared to $62.3 million in the first six
months of 1995.
Real estate development assets ("REI"), net of allowances, totaled $212.6
million at June 30, 1996, compared to $313.9 million at June 30, 1995 and
$230.4 million at March 31, 1996. The allowance for REI totaled $144.4
million, or 40.5% of gross real estate assets at June 30, 1996. During the
second quarter of 1996, the Company sold approximately $20 million in REI.
LOAN ORIGINATIONS
The Company funded $1.4 billion of residential mortgages in the second
quarter of 1996. Production was $1.6 billion in the second quarter of 1995,
and $1.3 billion in the first quarter of 1996. Of the second quarter 1996
production, 64% were ARMs, compared to 82% in the second quarter of 1995 and
43% in the first quarter of 1996.
Purchase loans represented 71% of the total second quarter 1996
originations, compared to 74% in the second quarter of 1995 and 56% in the
first quarter of 1996.
The Company funded $51.7 million in consumer loans during the second
quarter of 1996 compared to $16.6 million in the first quarter of 1996. The
monthly fundings in the consumer loan portfolio have increased each month
since the program began in May 1995.
CAPITAL
At June 30, 1996, Home Savings' capital ratios exceeded all regulatory
requirements for well-capitalized institutions, the highest regulatory
standard. On June 30, 1996, core capital exceeded the well-capitalized
standard by $499 million.
STOCK REPURCHASE PROGRAM
In the second quarter of 1996, the Company completed its initial stock
repurchase program. During that program, the Company purchased 10.4 million
shares or 9% of the outstanding common shares. In addition, on May 14, 1996,
the Company announced a new program to purchase an additional $150 million of
its common stock. Through June 30, 1996, under the new program, the Company
had purchased 717,000 shares of its common stock at an average price of $26.32
per share.
During the quarter, the Company announced that on September 3, 1996, it
will redeem its 9.60% Preferred Stock, Series B, at $25.00 per Depositary
Share, plus accrued and unpaid dividends to the redemption date. The
redemption of the Preferred Stock is expected to contribute approximately
$0.09 to annualized income per share. Although the Company does not plan to
replace the preferred issue at this time, the Company may decide to add to its
outstanding preferred stock in the future.
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $311.6 million in the second quarter of 1996, an
increase of $1.4 million or less than 1%, compared to the second quarter of
1995, and was $628.6 million in the first six months of 1996, an increase of
$23.1 million or 4%, compared to the first six months of 1995. The increases
reflect the continuous quarter-to-quarter increase in the net interest margin
which began during the first quarter of 1995. However, margin compression
began to occur during the second quarter of 1996 as increases in market
interest rates, combined with the lag in corresponding changes in the
Company's COFI-indexed asset yields, put pressure on net interest income and
the net interest margin.
In prior reports, the Company gave effect to SFAS No. 115 adjustments in
computing the yield on MBS, and therefore net interest margin, so that the
reported yield and margin would be consistent with the reported principal
balance. The SEC staff have indicated their preference for excluding SFAS No.
115 adjustments and using amortized cost for purposes of computing yields and
margins. Accordingly, the Company has elected to report net interest margin
for the periods ending June 30, 1996 and at June 30, 1996, without giving
effect to SFAS No. 115 adjustments.
For purposes of comparability, set forth below is the net interest margin
data which the Company would have reported had it been using this method of
calculation previously.
<TABLE>
<CAPTION>
Under previous Under new method
method of calculation of calculation
--------------------- ----------------
<S> <C> <C>
At:
June 30, 1995 2.45% 2.48%
September 30, 1995 2.60 2.63
December 31, 1995 2.62 2.66
March 31, 1996 2.74 2.77
June 30, 1996 N/A 2.61
For:
Three months ended June 30, 1995 2.38 2.38
Six months ended June 30, 1995 2.32 2.32
Three months ended September 30, 1995 2.47 2.47
Nine months ended September 30, 1995 2.37 2.37
Year ended December 31, 1995 2.41 2.41
Three months ended March 31, 1996 2.64 2.64
Three months ended June 30, 1996 N/A 2.66
Six months ended June 30, 1996 N/A 2.65
</TABLE>
<PAGE>
The following tables present the Company's Consolidated Summary of
Average Financial Condition and net interest income for the periods
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>
Three Months Ended June 30,
-----------------------------------------------------------------
1996 1995
------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ----------- ------- ----------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $30,373,531 $559,078 7.36% $33,185,030 $615,281 7.42%
MBS 15,645,708 296,927 7.51* 16,377,757 294,383 7.19*
----------- -------- ----------- --------
Total loans and MBS 46,019,239 856,005 7.41* 49,562,787 909,664 7.34*
Investment securities 741,627 11,231 6.06 2,617,970 39,901 6.10
----------- -------- ----------- --------
Interest-earning assets 46,760,866 867,236 7.39* 52,180,757 949,565 7.28*
-------- --------
Other assets 2,428,374 2,457,687
----------- -----------
Total assets $49,189,240 $54,638,444
=========== ===========
Interest-costing liabilities:
Deposits $33,515,453 372,997 4.45 $41,829,971 484,778 4.64
----------- -------- ----------- --------
Borrowings:
Short-term 2,452,114 36,334 5.93 2,801,128 45,143 6.45
FHLB and other 9,330,568 146,331 6.27 6,331,260 109,469 6.92
----------- -------- ----------- --------
Total borrowings 11,782,682 182,665 6.20 9,132,388 154,612 6.77
----------- -------- ----------- --------
Interest-costing liabilities 45,298,135 555,662 4.91 50,962,359 639,390 5.02
-------- --------
Other liabilities 1,066,079 867,278
Stockholders' equity 2,825,026 2,808,807
----------- -----------
Total liabilities and
stockholders' equity $49,189,240 $54,638,444
=========== ===========
Excess interest-earning assets/
Interest rate spread $ 1,462,731 2.48* $ 1,218,398 2.26*
=========== ===========
Net interest income/
Net interest margin $311,574 2.66* $310,175 2.38*
======== ========
<FN>
* Excludes the effect of the unrealized gain or loss on MBS available for sale.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------------
1996 1995
------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ----------- ------- ----------- ---------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $30,633,573 $1,133,933 7.40% $34,684,019 $1,246,072 7.19%
MBS 15,949,892 605,281 7.55* 14,731,303 514,470 6.97*
----------- ---------- ----------- ----------
Total loans and MBS 46,583,465 1,739,214 7.45* 49,415,322 1,760,542 7.12*
Investment securities 770,804 22,892 5.94 2,724,663 83,006 6.09
----------- ---------- ----------- ----------
Interest-earning assets 47,354,269 1,762,106 7.43* 52,139,985 1,843,548 7.07*
--------- ----------
Other assets 2,408,093 2,539,080
----------- -----------
Total assets $49,762,362 $54,679,065
=========== ===========
Interest-costing liabilities:
Deposits $33,719,946 760,170 4.51 $41,587,318 924,236 4.44
----------- --------- ----------- ----------
Borrowings:
Short-term 2,561,944 76,564 5.98 2,978,276 94,661 6.36
FHLB and other 9,403,631 296,816 6.31 6,441,765 219,232 6.81
----------- --------- ----------- ----------
Total borrowings 11,965,575 373,380 6.24 9,420,041 313,893 6.66
----------- --------- ----------- ----------
Interest-costing liabilities 45,685,521 1,133,550 4.96 51,007,359 1,238,129 4.85
--------- ----------
Other liabilities 1,163,778 855,725
Stockholders' equity 2,913,063 2,815,981
----------- -----------
Total liabilities and
stockholders' equity $49,762,362 $54,679,065
=========== ===========
Excess interest-earning assets/
Interest rate spread $ 1,668,748 2.47* $ 1,132,626 2.22*
=========== ===========
Net interest income/
Net interest margin $ 628,556 2.65* $ 605,419 2.32*
========== ==========
<FN>
* Excludes the effect of the unrealized gain or loss on MBS available for sale.
</FN>
</TABLE>
<PAGE>
The following table presents the changes for the second quarter and first
six months of 1996 from the respective periods of 1995 in 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 period to period, 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 period change in average balance
multiplied by the average rate during the preceding year's period and the
change due to rate is calculated as the current period change in average rate
multiplied by the average balance during the preceding year's period. Any
change that remains unallocated after such calculations is allocated
proportionately to changes in volume and changes in rates.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ----------------------------------
1996 Versus 1995 1996 Versus 1995
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 $(51,306) $ (4,897) $ (56,203) $(149,539) $37,400 $(112,139)
MBS (a) (8,455) 10,999 2,544 46,045 44,766 90,811
Investment securities (28,410) (260) (28,670) (58,118) (1,996) (60,114)
-------- -------- --------- --------- ------- ---------
Total interest income (88,171) 5,842 (82,329) (161,612) 80,170 (81,442)
-------- -------- --------- --------- ------- ---------
Interest expense on:
Deposits (92,687) (19,094) (111,781) (178,983) 14,917 (164,066)
Short-term borrowings (5,349) (3,460) (8,809) (12,678) (5,419) (18,097)
FHLB and other borrowings 45,978 (9,116) 36,862 92,327 (14,743) 77,584
-------- -------- --------- --------- ------- ---------
Total interest expense (52,058) (31,670) (83,728) (99,334) (5,245) (104,579)
-------- -------- --------- --------- ------- ---------
Net interest income $(36,113) $ 37,512 $ 1,399 $ (62,278) $85,415 $ 23,137
======== ======== ========= ========= ======= =========
<FN>
(a) Excludes the effect of the unrealized gain or loss on MBS available for sale.
</FN>
</TABLE>
Net interest income increased $1.4 million, or less than 1%, in the
second quarter of 1996 as compared to the second quarter of 1995 due to an
increase of 28 basis points in the net interest margin to 2.66% for the second
quarter of 1996 from 2.38% for the second quarter of 1995, substantially
offset by a decrease of $5.4 billion in average interest-earning assets. The
increase of $23.1 million, or 4%, in net interest income for the first six
months of 1996 as compared to the same period of 1995 reflects an increase of
33 basis points in the net interest margin to 2.65% for the 1996 period from
2.32% for the 1995 period, partially offset by a decrease of $4.8 billion in
average interest-earning assets. The declines in average interest-earning
assets for the 1996 periods compared to the 1995 periods were principally due
to the September 1995 sale of the New York retail deposit branch system (the
"New York sale"). 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.
Included in net interest income were provisions for losses of delinquent
interest related to nonaccrual loans of $12.1 million and $12.9 million in the
second quarter of 1996 and 1995, respectively, which had the effect of
reducing the net interest margin by 10 basis points in both periods. Such
provisions came to $27.9 million in the first six months of 1996 and $26.0
million the first six months of 1995, reducing the net interest margin by 12
basis points and 10 basis points, respectively.
<PAGE>
The increases for the second quarter and first six months of 1996
compared to the respective periods of 1995 in the Company's net interest
margin and net interest income include the effect of 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 the yield on a majority of the Company's
interest-earning assets are indexed, 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. During the second quarter of 1996, the Company began offering
loan products, such as the 12-MAT and LAMA loans, tied to indices other than
COFI. These new loan products are expected to reduce the effect of the COFI
lag on the net interest margin.
The Company's net interest margin began to improve during the first
quarter of 1995 due to the effect of the COFI lag in a declining interest rate
environment. The net interest margin was 2.61% at June 30, 1996, an increase
of 13 basis points from 2.48% at June 30, 1995. The net interest margin began
to decline during the second quarter of 1996. Increases in market interest
rates beginning in March 1996, combined with COFI-based asset yields which lag
changes in funding costs, have begun to put pressure on the Company's net
interest income and the net interest margin. 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 $33.9 million in the second quarter of
1996, an increase of $8.4 million or 33%, from the $25.5 million provision for
the second quarter of 1995. The provision for losses was $79.8 million in the
first six months of 1996, an increase of $27.8 million or 53% from the $52.0
million provision for the first six months of 1995. The increase in the
provision during the second quarter and the first six months of 1996 was due
to weakness in the Southern California real estate market and other factors.
For additional information regarding the allowance for loan losses, see
"Financial Condition--Asset Quality--Allowance for Loan Losses."
OTHER INCOME
GAIN ON SALES OF MBS. During the second quarter and first six months of
1996, MBS totaling $10.2 million were sold for a slight pre-tax loss compared
to a pre-tax gain of $8.7 million on sales of MBS totaling $1.4 billion in the
second quarter of 1995 and a pre-tax gain of $9.3 million on sales of MBS
totaling $1.6 billion in the first six months of 1995.
<PAGE>
GAIN ON SALES OF LOANS. During the second quarter of 1996, loans
classified as held for sale totaling $694.2 million were sold for a pre-tax
gain of $6.2 million compared to loans totaling $193.5 million sold for a pre-
tax gain of $1.8 million in the second quarter of 1995. The loans sold in the
second quarter of 1996 consisted of $607.8 million in fixed rate loans, $4.3
million in COFI ARMs, and $82.1 million in ARMs tied to U.S. Treasury
securities ("Treasury ARMs"). In the first six months of 1996, loans
originated for sale totaling $1.6 billion were sold for a pre-tax gain of
$21.2 million compared to such loans totaling $236.8 million sold for a pre-
tax gain of $2.0 million in the first six months of 1995. The loans sold for
the first six months of 1996 consisted of $1.2 billion in fixed rate loans,
$260.5 million in COFI ARMs, and $179.4 million in Treasury ARMs. The sales
volume of mortgage loans designated for sale during the comparative periods
was influenced by borrower demand for fixed rate loans, most of which the
Company designates for sale in the secondary market.
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 1995 were not restated. 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 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. MSR totaling
$26.6 million were capitalized in the first six months of 1996, including MSR
of $1.3 million on loans held for sale at June 30, 1996, and increased the
gain on sale of loans by $19.5 million for the first six months period of
1996. During the first six months of 1995, MSR of $3.2 million were
capitalized which increased the gain on sale of loans by $2.0 million for the
six months period in 1995. The valuation allowance for MSR impairment was
$1.1 million as of June 30, 1996.
SERVICING INCOME. Servicing income was $16.7 million in the second
quarter of 1996, an increase of $1.8 million or 12% from $14.9 million for the
second quarter of 1995 and was $31.8 million in the first six months of 1996,
an increase of $3.9 million or 14% from $27.9 million in the first six months
of 1995. The increase for the first six months was primarily due to a $2.1
billion increase in the average portfolio of loans serviced for investors,
partially offset by a decrease of 3 basis points in the average servicing fee
rate to 0.71% and an addition of $0.6 million to the valuation allowance on
MSR. There were no other changes in the valuation allowance during the first
six months of 1996. At June 30, 1996 and 1995, the portfolio of loans
serviced for investors was $13.6 billion and $12.1 billion, respectively.
OTHER FEE INCOME. Other fee income was $31.3 million in the second
quarter of 1996, an increase of $4.9 million or 19% from $26.4 million for the
second quarter of 1995. The increase was primarily due to increases of $2.3
million in fees generated by personal financial services and $1.5 million in
commissions on the sales of investment and insurance services and products.
Other fee income was $58.1 million for the first six months of 1996, an
increase of $7.7 million or 15% from $50.4 million for the same period of
1995. The increase was primarily due to increases of $2.9 million in
commissions on the sales of investment and insurance services and products and
$2.4 million in fees generated by personal financial services.
<PAGE>
OTHER OPERATING INCOME. Other operating income was $5.5 million for the
first six months of 1996, an increase of $5.7 million from a loss of $0.2
million for the same period of 1995. The increase was primarily due to non-
recurring refunds totaling $2.3 million recorded in the first quarter of 1996
and the loss on sale of the remaining Ohio branch amounting to $1.6 million in
the first quarter of 1995.
OTHER EXPENSES
G&A EXPENSES. G&A expenses were $189.7 million in the second quarter of
1996, a decrease of $11.6 million or 6% from $201.3 million in the second
quarter of 1995 and were $382.7 million for the first six months of 1996, a
decrease of $1.4 million or less than 1% from $384.1 million for the same
period of 1995. In the second quarter of 1996, the Company incurred
approximately $9.8 million of costs associated with major business initiatives
such as Project HOME Run, consumer lending, and electronic banking. In
addition, the Company incurred approximately $2.0 million in expenses in the
second quarter of 1996 in preparation for the acquisition of 61 California
branches of First Interstate Bank, which is expected to close in the third
quarter. The efficiency ratio, defined as G&A expenses as a percentage of net
interest income plus loan servicing and other fee income, was 52.8% for the
second quarter of 1996 compared to 57.3% in the second quarter of 1995. The
decrease reflects a 6% decrease in G&A expenses and a 2% increase in operating
income. The efficiency ratios for the first six months of 1996 and 1995 were
53.3% and 56.2%, respectively, which reflects a 5% increase in operating
income.
OPERATIONS OF REI. Losses from operations of REI were $7.5 million in
the second quarter of 1996, an increase of $4.9 million from losses of $2.6
million in the second quarter of 1995. The increase primarily reflects a net
loss on sales of $1.9 million in the second quarter of 1996 compared to gains
of $0.7 million on such sales in the second quarter of 1995, and an increase
of $1.8 million in operating expenses. Losses from operations of REI were
$14.3 million for the first six months of 1996, an increase of $10.6 million
from $3.7 million compared to the same period of 1995 primarily due to
increases in the general valuation allowance of $3.6 million and the net loss
on sales of $4.9 million. Additions to the general valuation allowance were
recorded in the first six months of 1996 based on management's assessment of
the probability of further reductions in carrying value.
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 properties with
long-term holding and development periods. Plans are underway for the sale of
certain properties in the next twelve months. No new projects have been
initiated since 1990.
The Company may establish general valuation allowances based on
management's assessment of the risk of further reductions in carrying values.
The Company's basis for such estimates include project business plans
monitored and approved by management, market studies and other information.
Although management believes the carrying values of the REI and the related
allowance for losses are fairly stated, declines in the carrying values and
additions to the allowance for losses could result from continued weakness in
the specific project markets, changes in economic conditions and revisions to
project business plans, which may reflect decisions by the Company to
accelerate the disposition of the properties.
<PAGE>
OPERATIONS OF REO. Losses from operations of REO were $27.3 million in
the second quarter of 1996, an increase of $7.7 million or 39% from losses of
$19.6 million for the second quarter of 1995. The increase was primarily due
to increases of $4.5 million in provision for losses and $2.7 million in net
losses on sales of REO properties. For the first six months of 1996, losses
from operations of REO were $53.0 million, an increase of $12.3 million or 30%
from $40.7 million for the same period of 1995, reflecting increases of $5.7
million in net operating expenses, $3.8 million in losses on sales of REO and
$2.8 million in the provision for losses. For additional information
regarding REO, see "Financial Condition--Asset Quality--NPAs and Potential
Problem Loans."
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE. The Company adopted SFAS No. 72, "Accounting for
Certain Acquisitions of Banking or Thrift Institutions," effective January 1,
1995 for goodwill related to acquisitions prior to September 30, 1982. As a
result, the Company wrote off goodwill totaling $234.7 million as a cumulative
effect of the accounting change. Goodwill resulting from acquisitions of
banking or thrift institutions initiated after September 30, 1982, is being
amortized in accordance with SFAS No. 72 over a period no longer than the
estimated remaining life of the acquired long-term interest-earning assets.
Amortization of goodwill and other intangible assets was $4.0 million for
the second quarter of 1996, a decrease of $2.9 million or 42% from $6.9
million for the second quarter of 1995. For the first six months of 1996
amortization of goodwill and other intangible assets was $8.0 million, a
decrease of $5.8 million or 42% from $13.8 million for the same period of
1995. The declines in amortization reflect the reduction in the goodwill
balance resulting from the New York sale.
PROVISION FOR INCOME TAXES. The changes in the provision for income
taxes primarily reflect the changes in pre-tax income between the comparable
periods and the nondeductible amortization of goodwill in the first six months
of 1995. The effective tax rates for the second quarter of 1996 and 1995 were
34.7% and 40.2%, respectively. For the comparable six month periods, the
effective tax rates were 35.6% in 1996 and 41.5% in 1995, reflecting
management's estimate of the Company's full year tax provision.
FINANCIAL CONDITION
The Company's consolidated assets were $49.5 billion at June 30, 1996, a
decrease of $1.0 billion or 2% from $50.5 billion at December 31, 1995. The
decrease primarily reflects sales of and payments on loans and MBS, partially
offset by loan originations during the first six months of 1996. The loan and
MBS portfolio decreased $1.6 billion or 3% to $45.9 billion during the first
six months of 1996 primarily due to these loan sales and repayments.
The Company's primary business continues to be the origination of loans
on residential real estate properties. The Company originated $2.8 billion in
loans during the first six months of 1996 compared to $3.3 billion during the
first six months of 1995. Loans on single family homes (one-to-four units)
accounted for 79% of the total loan origination volume in the first six months
of 1996, and 54% of total originations were ARMs. In the first six months of
1996, 15% of the Company's ARM originations were Treasury ARMs and the balance
were COFI ARMs.
In the first six months of 1996, approximately 68% of loan originations
were on properties located in California. At June 30, 1996, approximately 97%
of the loan and MBS portfolio was secured by residential properties, including
76% secured by single family properties.
<PAGE>
The following table summarizes the Company's gross mortgage portfolio by
state and property type at June 30, 1996:
<TABLE>
<CAPTION>
Single Family Multi-Family Commercial and
Properties Properties Industrial Properties Total
--------------------- --------------------- ---------------------- ----------------------
Gross Gross Gross Gross
Mortgage % of Mortgage % of Mortgage % of Mortgage % of
State Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- ----- ----------- --------- ----------- --------- ------------ --------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
California $24,659,307 70.03% $8,774,679 93.20% $1,127,344 75.80% $34,561,330 74.95%
Florida 2,566,094 7.29 31,473 0.33 3,570 0.24 2,601,137 5.64
New York 2,001,602 5.68 235,974 2.51 177,250 11.92 2,414,826 5.24
Illinois 1,804,983 5.13 90,178 0.96 9,709 0.65 1,904,870 4.13
Texas 1,142,114 3.24 74,260 0.79 26,436 1.78 1,242,810 2.70
Other 3,036,863 8.63 208,519 2.21 142,897 9.61 3,388,279 7.34
----------- ---------- ---------- ----------- ------
$35,210,963 76.36 $9,415,083 20.42 $1,487,206 3.22 $46,113,252 100.00%
=========== ========== ========== =========== ======
</TABLE>
The loan and MBS portfolio includes approximately $6.8 billion in
mortgage loans that were originated with loan to value ("LTV") ratios
exceeding 80%, or 15% of the portfolio at June 30, 1996. Approximately 14% of
loans originated during the first six months of 1996 had LTV ratios in excess
of 80%, all of which were loans on single family properties, including 5% with
LTV ratios in excess of 90%. The Company takes the additional risk of
originating mortgage loans with LTV ratios in excess of 80% into consideration
in its loan underwriting and pricing policies.
ASSET/LIABILITY MANAGEMENT
One of the Company's primary business strategies continues to be the
reduction of volatility in net interest income resulting from changes in
interest rates. This is accomplished by managing the repricing
characteristics of its interest-earning assets and interest-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. At June
30, 1996, 96.8% of the Company's $45.9 billion loan and MBS portfolio
consisted of ARMs indexed primarily to COFI, compared to 96.8% of the $47.4
billion loan and MBS portfolio at December 31, 1995. The average factor above
COFI on the Company's COFI ARM portfolio was 250 basis points at June 30,
1996, up three basis points from 247 basis points at December 31, 1995.
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 $227.5 million of these Treasury ARMs
during the first six months of 1996. At June 30, 1996 there were $603.4
million of Treasury ARMs in the Company's loan portfolio.
<PAGE>
The Company has begun offering a broader range of loan products, such as
home equity lines, which carry higher interest rates than the Company's
traditional mortgage loans. The Company funded $68.3 million in consumer
loans during the first six months of 1996. At June 30, 1996, the Company's
loan portfolio included $85.3 million in consumer loans.
The Company intends to originate and sell fixed rate mortgages and lower
margin ARMs to the secondary market while retaining only the higher margin
ARMs in its portfolio. As a result, the Company's portfolio size may be
reduced through asset sales from its held for sale portfolio as opportunities
arise and through loan payoffs. During the first six months of 1996, the
Company sold a total of $1.6 billion in loans from its held for sale
portfolio, including $1.2 billion in fixed rate loans, $260.5 million of COFI
ARMs and $179.4 million of Treasury ARMs.
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. COFI is
subject to influences which may not generally affect market interest rates,
such as changes in the roster of FHLB Eleventh District savings institutions,
the aggregate liabilities and the mix of liabilities at such institutions, and
legislative and regulatory developments which affect the business of such
institutions. Due to the unique characteristics of COFI, the secondary market
for COFI loans and MBS is not as consistently liquid as it is for various
other loans and MBS.
The Company's basic interest rate risk management strategy includes a
goal of having the combined repricing terms of its interest-costing
liabilities not differ materially from those of the FHLB Eleventh District
savings institutions, in aggregate. The Company's approach to managing
interest rate risk 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.
<PAGE>
The following table presents the components of the Company's interest
rate sensitive asset and liability portfolios by repricing periods
(contractual maturity as adjusted for frequency of repricing) as of June 30,
1996:
<TABLE>
<CAPTION>
Repricing Periods
Percent -------------------------------------------------------------------
of Within
Balance Total 6 Months Months 7-12 1-5 Years 5-10 Years Years Over 10
----------- ------- ----------- ----------- ----------- ---------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 1,124,122 2% $ 1,121,685 $ - $ 2,437 $ - $ -
Impact of hedging (LIBOR-indexed
amortizing swaps) - - (85,616) - 85,616 - -
----------- --- ----------- ---------- ----------- ---------- -----------
Total investment securities 1,124,122 2 1,036,069 - 88,053 - -
----------- --- ----------- ---------- ----------- ---------- -----------
Loans and MBS
MBS
ARMs 14,998,264 32 14,998,264 - - - -
Other 361,741 1 - - 3,331 86 358,324
Loans
ARMs 29,367,256 63 26,033,471 1,527,795 1,513,839 42,166 249,985
Other 1,128,002 2 193,812 - 15,013 - 919,177
Impact of hedging (interest
rate swaps) - - 516,000 (323,600) (192,400) - -
----------- --- ----------- ----------- ----------- --------- ----------
Total loans and MBS 45,855,263 98 41,741,547 1,204,195 1,339,783 42,252 1,527,486
----------- --- ----------- ----------- ----------- --------- ----------
Total interest-earning assets $46,979,385 100% $42,777,616 $ 1,204,195 $ 1,427,836 $ 42,252 $1,527,486
=========== === =========== =========== =========== ========= ==========
Interest-costing liabilities:
Deposits
Transaction accounts $10,093,937 22% $10,093,937 $ - $ - $ - $ -
Term accounts 23,187,994 51 13,260,106 6,938,434 2,978,775 10,607 72
----------- --- ----------- ----------- ----------- --------- ----------
Total deposits 33,281,931 73 23,354,043 6,938,434 2,978,775 10,607 72
----------- --- ----------- ----------- ----------- --------- ----------
Borrowings
Short-term 2,889,000 6 2,889,000 - - - -
FHLB and other 9,462,740 21 4,065,629 2,296,514 2,682,246 389,681 28,670
----------- --- ----------- ----------- ----------- --------- ----------
Total borrowings 12,351,740 27 6,954,629 2,296,514 2,682,246 389,681 28,670
----------- --- ----------- ----------- ----------- --------- ----------
Total interest-costing
liabilities $45,633,671 100% $30,308,672 $ 9,234,948 $ 5,661,021 $ 400,288 $ 28,742
=========== === =========== =========== =========== ========= ==========
Hedge-adjusted interest-earning
assets more/(less) than
interest-costing liabilities $ 1,345,714 $12,468,944 $(8,030,753) $(4,233,185) $(358,036) $1,498,744
=========== =========== =========== =========== ========= ==========
Cumulative interest sensitivity gap $12,468,944 $ 4,438,191 $ 205,006 $(153,030) $1,345,714
=========== =========== =========== ========= ==========
Percentage of hedge-adjusted
interest-earning assets to
interest-costing liabilities 102.95%
Percentage of cumulative interest
sensitivity gap to total assets 2.72%
</TABLE>
<PAGE>
The following table presents the interest rates, spread and margin at the
end of the periods indicated:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Average yield on:
Loans 7.35% 7.52%
MBS 7.44 7.69
Total loans and MBS 7.38 7.58
Investment securities 5.45 5.56
Interest-earning assets 7.33 7.54
Average rate on:
Deposits 4.45 4.65
Borrowings:
Short-term 5.73 5.97
FHLB and other 6.13 6.38
Total borrowings 6.04 6.26
Interest-costing liabilities 4.88 5.07
Interest rate spread 2.45 2.47
Net interest margin 2.61 2.66
</TABLE>
These rates exclude the effect of the unrealized gain or loss on MBS
available for sale.
ASSET QUALITY
NPAS AND POTENTIAL PROBLEM LOANS. A loan is generally placed on
nonaccrual status when the Company becomes aware that the borrower has entered
bankruptcy proceedings and the loan is delinquent, or when the loan is past
due 90 days as to either principal or interest. 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.
Loans are reviewed for impairment either on an individual loan-by-loan
basis or collectively on an aggregate basis with similar loans depending upon
the characteristics of the loans. For the Company, loans collectively
reviewed for impairment include all single family loans and performing multi-
family and commercial and industrial real estate loans ("major loans") under
$2 million, excluding loans which are individually reviewed based on specific
criteria, such as delinquency, debt coverage, LTV ratio and condition of
collateral property. The Company's impaired loans within the scope of such
individual review 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.
<PAGE>
The following table presents NPAs (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>
June 30, December 31, Increase
1996 1995 (Decrease)
----------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Single family $610,403 $630,395 $(19,992)
Multi-family 76,849 81,366 (4,517)
Commercial and industrial
real estate 5,717 12,030 (6,313)
-------- -------- --------
692,969 723,791 (30,822)
-------- -------- --------
REO:
Single family 221,575 193,729 27,846
Multi-family 21,881 14,139 7,742
Commercial and industrial
real estate 17,279 17,698 (419)
-------- -------- --------
260,735 225,566 35,169
-------- -------- --------
Total NPAs:
Single family 831,978 824,124 7,854
Multi-family 98,730 95,505 3,225
Commercial and industrial
real estate 22,996 29,728 (6,732)
-------- -------- --------
Total $953,704 $949,357 $ 4,347
======== ======== ========
TDRs:
Single family $ 60,573 $ 45,592 $ 14,981
Multi-family 61,559 75,482 (13,923)
Commercial and industrial
real estate 55,845 42,770 13,075
-------- -------- --------
Total $177,977 $163,844 $ 14,133
======== ======== ========
Other impaired major loans:
Multi-family $102,436 $ 32,273 $ 70,163
Commercial and industrial
real estate 17,686 18,745 (1,059)
-------- -------- --------
$120,122 $ 51,018 $ 69,104
======== ======== ========
Ratio of NPAs to total assets 1.93% 1.88%
======== ========
Ratio of NPAs and TDRs to total assets 2.29% 2.20%
======== ========
Ratio of allowances for losses
on loans and REO to NPAs 42.37% 42.43%
======== ========
</TABLE>
<PAGE>
The amount of the net recorded investment in impaired loans for which
there is a related specific allowance for losses was $225.1 million, net of an
allowance of $59.1 million, at June 30, 1996 and $129.2 million, net of an
allowance of $44.6 million, at December 31, 1995. The Company's total net
recorded investment in impaired loans (excluding those loans collectively
reviewed for impairment) was $340.5 million and $272.5 million at June 30,
1996 and December 31, 1995, respectively.
The following table presents NPAs, TDRs and other impaired major loans by
state at June 30, 1996:
<TABLE>
<CAPTION>
NPAs
---------------------------------------------------
Commercial Other
and Impaired
Single Family Multi-Family Industrial Major
Residential Residential Real Estate Total TDRs Loans
------------- ------------ ----------- -------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
California $664,777 $86,392 $18,413 $769,582 $104,601 $106,553
New York 51,491 5,807 1,838 59,136 49,942 5,906
Florida 38,466 - 190 38,656 742 -
Illinois 21,054 - 1,128 22,182 544 2,030
Texas 12,497 1,447 26 13,970 6,159 1,217
Other 43,693 5,084 1,401 50,178 15,989 4,416
-------- ------- ------- -------- -------- --------
$831,978 $98,730 $22,996 $953,704 $177,977 $120,122
======== ======= ======= ======== ======== ========
</TABLE>
Total NPAs were $953.7 million at June 30, 1996, or a ratio of NPAs to
total assets of 1.93%, an increase of $4.3 million or less than 1% during the
first six months of 1996 from $949.4 million, or 1.88% of total assets at
December 31, 1995. Single family NPAs were $832.0 million at June 30, 1996,
an increase of $7.9 million or 1% during the first six months of 1996
primarily due to increases in NPAs secured by properties in the states of
Texas ($4.4 million), Florida ($4.1 million), Illinois ($4.0 million) and New
York ($2.7 million), partially offset by a decrease in California ($13.2
million).
Multi-family NPAs totaled $98.7 million at June 30, 1996, an increase of
$3.2 million or 3% during the first six months of 1996 primarily due to an
increase in California of $2.2 million and Ohio of $1.3 million. Commercial
and industrial real estate NPAs totaled $23.0 million at June 30, 1996, a
decrease of $6.7 million or 22% during the first six months of 1996 primarily
due to declines in California of $3.0 million and Illinois of $2.0 million.
TDRs were $178.0 million at June 30, 1996, an increase of $14.2 million
or 9% during the first six months of 1996 from $163.8 million at December 31,
1995 primarily due to an increase in TDRs secured by properties in New York of
$9.6 million and in California of $3.4 million. Other impaired major loans
totaled $120.1 million at June 30, 1996, an increase of $69.1 million from
$51.0 million at December 31, 1995 primarily due to a $70.8 million increase
in such loans secured by properties in California.
The Company is continuing its efforts to reduce the amount of its NPAs by
aggressively pursuing loan delinquencies through the collection, workout and
foreclosure processes and, if foreclosed, disposing rapidly of the REO. The
Company sold $198.3 million of single family REO and $47.2 million of multi-
family and commercial and industrial REO in the first six months of 1996. In
addition, the Company may, from time to time, offer packages of NPAs for
competitive bids.
<PAGE>
ALLOWANCE FOR LOAN LOSSES. Management believes the Company's allowance
for loan losses was adequate at June 30, 1996. 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.
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.
The changes in and a summary by type of the allowance for loan losses are
as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
Beginning balance $385,367 $391,105 $380,886 $400,232
Provision for loan losses 33,901 25,465 79,843 52,009
-------- -------- -------- --------
419,268 416,570 460,729 452,241
-------- -------- -------- --------
Charge-offs:
Single family (28,936) (19,441) (58,512) (44,163)
Multi-family (15,458) (13,211) (33,429) (23,340)
Commercial and industrial
real estate (4,707) (1,090) (5,283) (8,349)
Consumer (6) - (20) -
-------- -------- -------- --------
(49,107) (33,742) (97,244) (75,852)
-------- -------- -------- --------
Recoveries:
Single family 10,278 4,095 14,854 8,180
Multi family 2,019 2,073 3,502 3,859
Commercial and industrial
real estate 27 931 644 1,499
-------- -------- -------- --------
12,324 7,099 19,000 13,538
-------- -------- -------- --------
Net charge-offs (36,783) (26,643) (78,244) (62,314)
-------- -------- -------- --------
Ending balance $382,485 $389,927 $382,485 $389,927
======== ======== ======== ========
Ratio of net charge-offs to average
loans and MBS outstanding during
the periods (annualized) 0.32% 0.22% 0.34% 0.25%
==== ==== ==== ====
</TABLE>
<PAGE>
The increases in the provision for loan losses and gross charge-offs for
the second quarter and first six months of 1996 compared to the respective
periods in 1995 is due mainly to the weakness in the Southern California real
estate market.
The following table sets forth the allocation of the Company's allowance
for loan losses by the percent of loans and MBS in each category at the dates
indicated:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------------------------- -----------------------------------
% of Loan % of Loan
and MBS % of Loan and MBS % of 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 76.3 0.49% $174,242 77.2% 0.47%
Multi-family 151,328 20.3 1.61 147,708 19.4 1.59
Commercial and industrial real estate 56,237 3.2 3.80 58,936 3.3 3.78
Consumer 678 0.2 0.79 - 0.1 -
-------- ------ -------- ------
$382,485 100.0% 0.83 $380,886 100.0% 0.80
======== ====== ======== ======
</TABLE>
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
NPAs 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.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity as defined by the Office of Thrift Supervision ("OTS") consists
of cash, cash equivalents and certain marketable securities which are not
committed, pledged or required to liquidate specific liabilities. Sources of
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 the first six
months of 1996 were principal payments and prepayments on loans and MBS and
proceeds from sales of loans. The liquidity portfolio, totaling approximately
$2.6 billion at June 30, 1996, increased $223.8 million or 9% from December
31, 1995. The increase is primarily due to a net decrease in the loan and MBS
portfolio of $1.6 billion mainly due to sales and payments during the first
six months of 1996. These fund sources were partially offset by the net
change in deposits, which declined $962.6 million from December 31, 1995. In
addition, the Company repurchased a total of $206.6 million of its own common
stock.
<PAGE>
Regulations of the 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 June 1996 the average liquidity and average
short-term liquidity ratios of Home Savings were 5.10% and 1.64%,
respectively.
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 market
conditions beyond the control of the Company. 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.
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 the first six months of 1996 cash of $2.5
billion was used to originate loans. Gross loan originations, which include
refinanced loans, in the first six months of 1996 of $2.8 billion included
$1.3 billion of COFI ARMs with an average factor of 268 basis points above
COFI, $1.2 billion of fixed rate loans, $227.5 million of Treasury ARMs and
$68.3 million of consumer loans. Fixed rate loans originated and designated
for sale represented approximately 43% of single family loan originations in
the first six months of 1996. Principal payments on loans were $1.1 billion
in the first six months of 1996, an increase of $345.0 million or 45% from
$767.0 million in the first six months of 1995.
During the first six months of 1996 the Company sold loans totaling $1.6
billion. The Company designates certain loans as held for sale, including
most of its fixed rate originations. At June 30, 1996, the Company had $119.5
million of loans held for sale. The loans designated for sale included $101.6
million of fixed rate loans, $10.3 million of Treasury ARMs and $7.6 million
in COFI ARMs.
At June 30, 1996 the Company was committed to fund mortgage loans
totaling $501.0 million, of which $326.0 million or 65% were COFI ARMs, $92.5
million or 19% were fixed rate loans and $82.5 million or 16% were Treasury
ARMs. The Company expects to fund such loans from its liquidity sources.
MBS. During the first six months of 1996, the Company sold $10.2 million
of fixed rate MBS available for sale for a slight loss. The Company
designates certain MBS as available for sale. At June 30, 1996 the Company
had $9.9 billion of MBS available for sale, comprised of $9.6 billion of ARM
MBS and $312.1 million of fixed rate MBS. These MBS have an unrealized loss
of $202.8 million. The unrealized loss is due mainly to temporary market-
related conditions and the Company expects no significant effect on its future
interest income.
<PAGE>
DEPOSITS. Savings deposits were $33.3 billion at June 30, 1996, a
decrease of $962.6 million or 3% during the first six months of 1996,
reflecting a net deposit outflow. The net deposit outflow was primarily due
to reductions in term accounts, which have more sensitivity to market interest
rates. The Company manages its borrowings to balance changes in deposits.
At June 30, 1996, 78% of the Company's deposits were in California,
compared to 77% at December 31, 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.
BORROWINGS. Borrowings totaled $12.4 billion at June 30, 1996, an
increase of $115.3 million or less than 1% during the second quarter of 1996
reflecting an increase in FHLB and other borrowings of $745.6 million,
partially offset by a net reduction in short-term borrowings of $630.3
million.
In the first six months of 1996, the Company issued term notes totaling
$1.7 billion to various brokerage firms. The notes will mature in one to two
years and have a weighted average interest rate of 4.86%. Such borrowings are
being used for general corporate purposes.
In February 1996, $200 million of the Company's medium term notes with a
coupon interest rate of 5.98% matured. In March 1996, the Company paid $300
million of maturing term notes, at an effective interest rate of 4.46%, and
redeemed at par its 10.5% subordinated notes totaling $250 million.
CAPITAL. Stockholders' equity was $2.8 billion at June 30, 1996, a
decrease of $279.6 million or 9% from December 31, 1995. The decrease is
primarily due to payments of $206.6 million to purchase 8.7 million shares of
the Company's common stock, a net change of $136.6 million to a net unrealized
loss on securities available for sale, and dividends paid to common and
preferred stockholders of $74.0 million, partially offset by net income of
$133.5 million. The net unrealized loss on securities available for sale at
June 30, 1996 was $116.5 million.
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.
<PAGE>
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-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 June 30, 1996 Home Savings met these standards.
Home Savings is in compliance with the OTS capital regulations. The
following table shows the capital amounts and ratios (fully phased-in) of Home
Savings at June 30, 1996:
<TABLE>
<CAPTION>
Balance Ratio
---------- -------
(dollars in thousands)
<S> <C> <C>
Tangible capital (to adjusted total assets) $2,967,527 6.03%
Core capital (to adjusted total assets) 2,976,216 6.04
Core capital (to risk-weighted assets) 2,976,216 9.69
Total risk-based capital 3,636,402 11.85
</TABLE>
<PAGE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
The Company adopted SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" as of January 1,
1996. The Company's long-lived assets affected by the adoption of SFAS No. 121
include premises and equipment and REI. In accordance with SFAS No. 121, the
Company reviews a long-lived asset for impairment whenever events or changes
in circumstances indicate that the carrying amount of the long-lived asset may
not be recoverable. Impairment exists for a long-lived asset when the
estimated undiscounted cash flows from the property are less than its carrying
value. An impairment loss, if any, is recognized as the amount by which the
carrying value of a long-lived asset exceeds its fair value. The Company
carries a long-lived asset held for sale at the lower of the carrying value or
fair value less costs to sell. An impairment loss, if any, is recognized as
the amount by which the carrying value of the long-lived asset held for sale
exceeds its fair value less costs to sell. The adoption of SFAS No. 121 did
not have a material effect on the Company's financial condition or results of
operations.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" as of January 1, 1996. SFAS No. 123 permits 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 that the fair
value of such compensation and certain other disclosures be included in the
Company's annual report. 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 in its
1996 annual report.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 125
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on control. Under
this approach, after a transfer of financial assets, the Company will
recognize the financial and servicing assets it controls and the liabilities
incurred, and derecognize financial assets when control has been surrendered
and liabilities when extinguished. SFAS No. 125 provides standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. It also requires that cash flows received in
excess of contractually specified servicing fees be classified as an interest-
only receivable. SFAS No. 125 must be adopted for financial statements for
fiscal years beginning after December 31, 1996. The impact on the Company of
adopting SFAS No. 125 is not expected to be material as the Company's existing
procedures are generally in compliance with the provisions of SFAS No. 125.
<PAGE>
RECAPITALIZATION OF THE SAVINGS ASSOCIATION INSURANCE FUND
Home Savings' deposits are insured in part by the Savings Association
Insurance Fund (the "SAIF") and in part by the Bank Insurance Fund (the
"BIF"). 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 in late 1995 to recapitalize SAIF to its DRR by means of a
special one-time assessment on SAIF-insured deposits. The proposal was
included as part of the Congressional balanced budget program which was then
vetoed by President Clinton and therefore has not been implemented. The
budget for fiscal 1996 which was ultimately adopted by Congress and signed by
President Clinton in early 1996 omitted the proposal. 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, the Company 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 income, 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.
In order to remain competitive in the market place by addressing the
significant disparity in assessment rates, the Company has filed applications
to organize a state-chartered savings bank as a wholly-owned subsidiary of
Home Savings, the deposits of which would be BIF-insured. The Company cannot
predict whether the anticipated gains from such increased competitiveness in
the market place will offset any additional expenses of operating multiple
institutions.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Annual Meeting of Stockholders of Registrant was held
on May 13, 1996.
Proxies for the meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934,
there was no solicitation in opposition to management's
nominees as listed in the proxy statement and all of such
nominees were elected, except for one nominee who, in
conjunction with the termination of his employment with the
Registrant, withdrew his name from consideration. There
were no directors, other than those elected at the meeting,
whose term of office continued after the meeting. The votes
cast for and withheld with respect to each nominee were
as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
-------------------- ---------- ----------
<S> <C> <C>
Byron Allumbaugh 96,364,374 2,200,045
Harold A. Black 96,313,318 2,339,101
Richard M. Bressler 96,352,638 2,299,781
David R. Carpenter 96,346,424 2,305,995
Phillip D. Matthews 96,368,224 2,284,195
Richard L. Nolan 96,309,517 2,342,902
Delia M. Reyes 96,313,894 2,338,525
Charles R. Rinehart 96,315,725 2,336,694
Frank M. Sanchez 96,315,875 2,336,544
Elizabeth A. Sanders 96,363,362 2,289,057
Arthur W. Schmutz 96,209,804 2,442,615
William D. Schulte 95,538,589 3,113,830
</TABLE>
The votes cast for and against approval of the Registrant's
1996 Nonemployee Directors' Stock Incentive Plan, and the
number of abstentions, were as follows:
<TABLE>
<CAPTION>
For Against Abstentions
---------- ---------- -----------
<S> <C> <C>
73,479,059 24,455,730 717,630
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
11 Statement of Computation of Income per Share.
27 Financial Data Schedule. *
(b) Reports on Form 8-K.
The Registrant filed with the Commission a Current Report
on Form 8-K, dated April 16, 1996, with respect to its
first quarter earnings.
The Registrant filed with the Commission a Current Report
on Form 8-K, dated May 14, 1996, with respect to the
completion of its $250 million stock repurchase program,
commencement of an additional $150 million stock
repurchase program and redemption of its 9.60% Preferred
Stock, Series B.
The Registrant filed with the Commission a Current Report on Form
8-K, dated June 26, 1996, with respect to the Registrant's
issuance of medium term notes.
* Filed electronically with the Securities and Exchange Commission.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 1996 H. F. Ahmanson & Company
/s/ Kevin M. Twomey
-------------------------------
Kevin M. Twomey
Senior Executive Vice President
and Chief Financial Officer
(Authorized Signer)
/s/ George Miranda
-------------------------------
George Miranda
First Vice President and
Principal Accounting Officer
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
------- ----------- -------------
<S> <C> <C>
11 Statement of Computation of Income 34
per Share.
27 Financial Data Schedule. *
<FN>
* Filed electronically with the Securities and Exchange Commission.
</FN>
</TABLE>
<PAGE>
H. F. Ahmanson & Company and Subsidiaries
Statement of Computation of Income Per Share
Exhibit 11
Common stock equivalents identified by the Company in determining its
primary income per common share are stock options and stock appreciation
rights. In addition, common stock equivalents used in the determination of
fully diluted income per common share include the effect, when such effect
is not anti-dilutive, 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 following is a summary of the
calculation of income per common share:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Primary income (loss) per common share:
Income before cumulative effect of accounting
change $ 68,734 $ 64,389 $ 133,489 $ 117,239
Less accumulated dividends on preferred stock (12,607) (12,607) (25,215) (25,215)
----------- ----------- ----------- -----------
Income attributable to common shares before
cumulative effect of accounting change 56,127 51,782 108,274 92,024
Cumulative effect of change in accounting for
goodwill - - - (234,742)
----------- ----------- ----------- -----------
Net income (loss) attributable to common
shares $ 56,127 $ 51,782 $ 108,274 $ (142,718)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 109,117,915 117,296,534 115,586,508 117,329,168
Dilutive effect of outstanding common stock
equivalents 898,298 757,783 846,250 -
----------- ----------- ----------- -----------
Weighted average number of common shares as
adjusted for calculation of primary
income (loss) per share 110,016,213 118,054,317 112,432,758 117,329,168
=========== =========== =========== ===========
Primary income per common share before
cumulative effect of accounting change $ 0.51 $ 0.44 $ 0.96 $ 0.78
Cumulative effect of change in accounting for
goodwill - - - (2.00)
----------- ----------- ----------- -----------
Primary income (loss) per common share $ 0.51 $ 0.44 $ 0.96 $ (1.22)
=========== ============ ============ ============
Fully diluted income (loss) per common share:
Income before cumulative effect of accounting
change $ 68,734 $ 64,389 $ 133,489 $ 117,239
Less accumulated dividends on preferred
stock (8,295) (8,295) (16,590) (25,215)
----------- ----------- ----------- -----------
Income attributable to common shares before
cumulative effect of accounting change 60,439 56,094 116,899 92,024
Cumulative effect of change in accounting for
goodwill - - - (234,742)
----------- ----------- ----------- -----------
Net income (loss) attributable to common
shares $ 60,439 $ 56,094 $ 116,899 $ (142,718)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 109,117,915 117,296,534 111,586,508 117,329,168
Dilutive effect of outstanding common stock
equivalents 12,980,282 12,635,521 12,999,186 -
----------- ----------- ----------- -----------
Weighted average number of common shares as
adjusted for calculation of fully diluted
income (loss) per share 122,098,197 129,932,055 124,585,694 117,329,168
=========== =========== =========== ===========
Fully diluted income per common share before
cumulative effect of accounting change $ 0.50 $ 0.43 $ 0.94 $ 0.78
Cumulative effect of change in accounting for
goodwill - - - (2.00)
----------- ----------- ----------- -----------
Fully diluted income (loss) per common
share $ 0.50 $ 0.43 $ 0.94 $ (1.22)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q of H. F.
Ahmanson & Company for the six months ended June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 722,581
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 690,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,933,894
<INVESTMENTS-CARRYING> 5,438,466
<INVESTMENTS-MARKET> 5,419,312
<LOANS> 30,495,258
<ALLOWANCE> 382,485
<TOTAL-ASSETS> 49,506,630
<DEPOSITS> 33,281,931
<SHORT-TERM> 2,889,000
<LIABILITIES-OTHER> 1,095,603
<LONG-TERM> 9,462,740
<COMMON> 0
0
0
<OTHER-SE> 2,777,356
<TOTAL-LIABILITIES-AND-EQUITY> 49,506,630
<INTEREST-LOAN> 1,133,933
<INTEREST-INVEST> 628,173
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,762,106
<INTEREST-DEPOSIT> 760,170
<INTEREST-EXPENSE> 1,133,550
<INTEREST-INCOME-NET> 628,556
<LOAN-LOSSES> 79,843
<SECURITIES-GAINS> (29)
<EXPENSE-OTHER> 457,921
<INCOME-PRETAX> 207,322
<INCOME-PRE-EXTRAORDINARY> 207,322
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,489
<EPS-PRIMARY> 0.96
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 2.65
<LOANS-NON> 692,969
<LOANS-PAST> 0
<LOANS-TROUBLED> 177,977
<LOANS-PROBLEM> 120,122
<ALLOWANCE-OPEN> 380,886
<CHARGE-OFFS> 97,244
<RECOVERIES> 19,000
<ALLOWANCE-CLOSE> 382,485
<ALLOWANCE-DOMESTIC> 382,485
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
