<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 March 31, 1997
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: 34
Total number of sequentially numbered pages: 35
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 March 31, 1997: $.01 par value - 100,595,547 shares.
<PAGE>
PART I. 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 March 31, 1997 December 31, 1996
- ------ -------------- -----------------
<S> <C> <C>
Cash and amounts due from banks $ 540,831 $ 691,578
Securities purchased under agreements to resell 283,800 737,500
Other short-term investments 12,160 14,782
----------- -----------
Total cash and cash equivalents 836,791 1,443,860
Other investment securities held to
maturity [market value
$3,395 (March 31, 1997) and
$2,456 (December 31, 1996)] 3,426 2,438
Other investment securities available for
sale [amortized cost
$8,582 (March 31, 1997) and
$8,541 (December 31, 1996)] 8,982 9,159
Investment in stock of Federal Home
Loan Bank (FHLB), at cost 427,500 420,978
Mortgage-backed securities (MBS)
held to maturity [market value
$4,893,274 (March 31, 1997) and
$5,111,367 (December 31, 1996)] 4,903,351 5,066,670
MBS available for sale [amortized cost
$9,718,379 (March 31, 1997) and
$9,359,058 (December 31, 1996)] 9,513,898 9,229,842
Loans receivable less allowance for losses of
$387,688 (March 31, 1997) and
$389,135 (December 31, 1996) 30,542,140 30,723,398
Loans held for sale [market value
$379,889 (March 31, 1997) and
$1,080,046 (December 31, 1996)] 379,548 1,065,760
Accrued interest receivable 210,512 209,839
Real estate held for development and
investment (REI) less allowance for losses of
$121,318 (March 31, 1997) and
$132,432 (December 31, 1996) 147,425 147,851
Real estate owned held for sale (REO)
less allowance for losses of
$29,529 (March 31, 1997) and
$32,137 (December 31, 1996) 233,694 247,577
Premises and equipment 412,652 424,567
Goodwill and other intangible assets 298,887 308,083
Other assets 778,320 602,022
----------- -----------
$48,697,126 $49,902,044
=========== ===========
Liabilities, Capital Securities of Subsidiary Trust
- ---------------------------------------------------
and Stockholders' Equity
- ------------------------
Deposits:
Non-interest bearing $ 1,014,874 $ 985,594
Interest bearing 33,384,251 33,788,351
----------- -----------
34,399,125 34,773,945
Securities sold under agreements to repurchase 2,325,000 1,820,000
Other short-term borrowings 458,640 210,529
FHLB and other borrowings 7,847,454 9,549,992
Other liabilities 1,029,512 917,198
Income taxes 90,118 48,918
----------- -----------
Total liabilities 46,149,849 47,320,582
Company-obligated mandatorily redeemable capital securities,
Series A, of subsidiary trust holding solely Junior
Subordinated Deferrable Interest Debentures of the Company 148,335 148,413
Stockholders' equity 2,398,942 2,433,049
----------- -----------
$48,697,126 $49,902,044
=========== ===========
</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 March 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
Interest income:
Loans $ 577,533 $ 574,855
MBS 267,673 308,354
Investments 16,897 11,661
----------- -----------
Total interest income 862,103 894,870
----------- -----------
Interest expense:
Deposits 375,139 387,173
Short-term borrowings 33,120 40,230
FHLB and other borrowings 136,225 150,485
----------- -----------
Total interest expense 544,484 577,888
----------- -----------
Net interest income 317,619 316,982
Provision for loan losses 24,223 45,942
----------- -----------
Net interest income after provision for loan losses 293,396 271,040
----------- -----------
Noninterest income:
Gain on sales of loans 7,989 15,028
Loan servicing income 16,748 15,145
Banking and other retail service fees 29,334 14,223
Other fee income 16,381 12,596
Gain on sale of Arizona retail deposit branch system 15,956 -
Other operating income 2,461 3,538
----------- -----------
88,869 60,530
----------- -----------
Noninterest expense:
Compensation and other employee expenses 95,468 97,444
Occupancy expenses 26,712 29,238
Federal deposit insurance premiums and assessments 6,549 20,824
Other general and administrative expenses 58,044 45,542
----------- -----------
Total general and administrative expenses (G&A) 186,773 193,048
Operations of REI 1,859 6,743
Operations of REO 22,108 25,689
Amortization of goodwill and other intangible assets 6,390 3,994
----------- -----------
217,130 229,474
----------- -----------
Income before provision for income taxes 165,135 102,096
Provision for income taxes 62,042 37,341
----------- -----------
Net income $ 103,093 $ 64,755
=========== ===========
Net income attributable to common shares $ 94,685 $ 52,147
=========== ===========
Income per common share:
Primary $ 0.93 $ 0.45
Fully diluted 0.87 0.45
Common shares outstanding, weighted average:
Primary 102,308,938 114,781,516
Fully diluted 113,968,090 126,651,898
Return on average assets 0.84% 0.51%
Return on average equity 17.21% 8.60%
Return on average tangible equity* 19.29% 9.18%
Efficiency ratio 49.14% 53.78%
<FN>
*Net income excluding amortization of goodwill and other intangible assets (net of applicable tax) as a
percentage of average equity excluding goodwill and other intangible assets (net of applicable tax).
</FN>
</TABLE>
<PAGE>
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
For The Three
Months Ended March 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 103,093 $ 64,755
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for losses on loans and real estate 34,483 59,422
Proceeds from sales of loans held for sale 591,142 956,134
Loans originated for sale (327,695) (631,777)
Increase in other liabilities 184,168 21,009
Other, net (63,293) (54,095)
----------- -----------
Net cash provided by operating activities 521,898 415,448
----------- -----------
Cash flows from investing activities:
Principal payments on loans 738,873 466,255
Principal payments on MBS 344,385 372,830
Loans originated for investment (net of refinances) (758,923) (537,211)
Proceeds from maturities of other investment securities 165 -
Proceeds from sales of other investment securities - 77
Other investment securities purchased (1,187) -
Redemption of FHLB stock - 89,386
Proceeds from sales of REO 121,314 102,955
Other, net (143,332) (33,769)
----------- -----------
Net cash provided by investing activities 301,295 460,523
----------- -----------
Cash flows from financing activities:
Net decrease in deposits (374,820) (296,553)
Net decrease in borrowings maturing in 90 days or less (186,889) (1,015,880)
Proceeds from other borrowings 1,408,068 1,638,723
Repayment of other borrowings (2,171,008) (1,258,394)
Common stock purchased for treasury (75,117) (77,517)
Dividends to stockholders (30,496) (37,662)
----------- -----------
Net cash used in financing activities (1,430,262) (1,047,283)
----------- -----------
Net decrease in cash and cash equivalents (607,069) (171,312)
Cash and cash equivalents at beginning of period 1,443,860 1,147,156
----------- -----------
Cash and cash equivalents at end of period $ 836,791 $ 975,844
=========== ===========
</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 and consumer finance-oriented financial
services companies in the United States, and is engaged in consumer and small
business banking and related financial services 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 earned net income during the first quarter of 1997 of $103.1
million, or $0.87 per fully diluted common share, which represents a 59%
increase in net income, or 93% per fully diluted common share, compared to the
first quarter of 1996 and a 13% increase in net income, or 18% per fully
diluted common share, compared to the fourth quarter of 1996. Results for
1997 include an after-tax gain on the sale of the Company's Arizona retail
deposit branch system of $9.5 million, or $0.08 per fully diluted common
share. Return on equity was 17.2% for the first quarter of 1997, and would
have been 15.6% without the Arizona gain, compared to 8.6% for the first
quarter of 1996 and 14.7% for the fourth quarter of 1996.
Cash earnings per share are based on the number of weighted average
shares utilized in the computation of the Company's fully diluted earnings per
share, with amortization of goodwill and other intangibles (net of applicable
taxes) added back to net income. The Company's cash earnings per share are
not necessarily comparable to similarly titled measures reported by other
companies. Cash earnings per fully diluted share were $0.90 in the first
quarter of 1997, compared to $0.46 and $0.77 per fully diluted share in the
first and fourth quarters of 1996, respectively. Cash return on equity was
19.3% for the first quarter of 1997, compared to 9.2% and 16.6% for the first
and fourth quarters of 1996, respectively. Excluding the Arizona gain, the
cash return on equity would have been 17.6%.
RESULTS OF OPERATIONS
Net interest income totaled $317.6 million for the first quarter of 1997,
compared to $317.0 million in the first quarter of 1996, and $317.7 million in
the fourth quarter of 1996. The average net interest margin was 2.64% in the
first quarter of 1997, compared to 2.62% in the first quarter of 1996, and
2.65% in the fourth quarter of 1996.
In the first quarter of 1997, noninterest income, excluding the gain on
the sale of the Arizona branches, was $72.9 million, an increase of $12.4
million from $60.5 million reported in the first quarter of 1996.
The Company continues its ongoing strategy of concentrating deposit
gathering activities in its key retail markets. In March 1997, the Company
completed the sale of its Arizona deposit franchise consisting of four
branches and $252 million in deposits for a pre-tax gain of $16.0 million.
During the first quarter of 1997, the Company announced the sale of its 12
West Florida branches. That transaction is expected to close in the second
quarter of 1997.
<PAGE>
During the first quarter of 1997, fee income from the Personal Financial
Services division ("PFS") and Griffin Financial Services unit ("Griffin")
continued its improving trend. Fee income from PFS for the first quarter of
1997 was $31.1 million compared to $15.2 million in the first quarter of 1996
and $29.9 million in the fourth quarter of 1996. Griffin fee income also
improved in the first quarter of 1997, reaching $5.0 million compared to $3.7
million in the first quarter of 1996 and $4.4 million in the fourth quarter of
1996.
General and administrative expenses ("G&A") were $186.8 million in the
first quarter of 1997, compared to $193.0 million in the first quarter of 1996
and $188.2 million in the fourth quarter of 1996. The first quarter of 1997
included $6.5 million of FDIC assessments while the first and fourth quarters
of 1996 included $20.8 million and $1.3 million, respectively.
The efficiency ratio, defined by the Company as G&A expenses as a
percentage of net interest income plus loan servicing, banking and other
retail service fees and other fee income, was 49.1% in the first quarter of
1997, compared to 53.8% and 49.5% in the first and fourth quarters of 1996,
respectively.
CREDIT COSTS/ASSET QUALITY
Total credit costs (which includes the provision for loan losses and
expenses for the operations of REO) amounted to $46.3 million during the first
quarter of 1997, compared to $71.6 million in the first quarter of 1996 and
$57.0 million in the fourth quarter of 1996, representing reductions of 35%
and 19%, respectively. Credit costs for the first quarter of 1997 reflected
both lower net charge-offs and significantly lower nonperforming asset levels
compared to the first quarter of 1996. Net charge-offs for the first quarter
of 1997 totaled $25.7 million, compared to $41.5 million in the first quarter
of 1996 and $38.5 million in the fourth quarter of 1996.
During the first quarter of 1997, nonperforming assets ("NPAs"), which
consist of nonaccrual loans and REO, declined by $53.5 million from year-end
1996, reaching their lowest level since November 1990. At March 31, 1997,
NPAs totaled $792.7 million, or 1.63% of total assets, compared to $977.4
million, or 1.96%, at March 31, 1996 and $846.2 million, or 1.70%, at December
31, 1996. NPAs decreased each month during the first quarter of 1997.
At March 31, 1997, the allowances for loan losses and REO were $387.7
million and $29.5 million, respectively. The ratio of allowances for losses
to NPAs equaled 50.7% at March 31, 1997, compared to 41.7% at March 31, 1996
and 48.0% at December 31, 1996.
LOAN ORIGINATIONS
The Company originated $1.0 billion of mortgage loans in the first
quarter of 1997, compared to $1.3 billion in the first quarter of 1996. The
Company also funded $136 million in consumer loans during the first quarter of
1997, compared to $17 million in the first quarter of 1996.
<PAGE>
CAPITAL
At March 31, 1997, Home Savings' capital ratios exceeded the regulatory
requirements for a bank to be rated "well-capitalized," the highest regulatory
standard.
In the first quarter of 1997, Ahmanson purchased 2.2 million shares of
its common stock at an average price of $35.06 per share, for a total of $75.1
million. Between the initiation of the first stock purchase program in
October 1995 and March 31, 1997, Ahmanson has purchased 19.2 million common
shares, or 16% of the outstanding shares at September 30, 1995, at an average
price of $27.11.
On May 13, 1997, the Company's Board of Directors authorized a new
program to purchase an additional $250 million of the Company's common stock,
following completion of its existing program. This will be the Company's
fourth common stock purchase program. Including this new program, the Company
has authorized, since October 1995, the purchase of $900 million of common
stock and the redemption of $175 million of preferred stock.
GREAT WESTERN FINANCIAL PROPOSED MERGER
On February 17, 1997, the Company proposed a merger transaction with
Great Western Financial Corporation ("Great Western"). The merged company
would be one of the nation's leading financial institutions with combined
assets of approximately $93 billion. As originally proposed, Great Western's
stockholders would have received in a tax-free exchange 1.05 shares of
Ahmanson Common Stock for each share of common stock of Great Western. Based
on the closing price of Ahmanson Common Stock on February 14, 1997 (the last
trading day before announcement of the original proposal), the exchange ratio
would have produced a value of $42.53 for each share of the common stock of
Great Western, or a premium of 24.2% over the closing market price of Great
Western's common stock on February 14, 1997.
On March 6, 1997, Great Western announced that it had entered into an
agreement to merge with Washington Mutual, Inc. ("WAMU"), subject to approval
by the stockholders of Great Western and WAMU and by applicable regulatory
agencies.
On March 17, 1997, the Company announced that it had enhanced its
proposal by establishing a floating exchange ratio for Great Western common
shares linked to the market price for Ahmanson common shares. Under the terms
of the proposal, each share of common stock of Great Western would be
converted into that number of shares of Ahmanson Common Stock equal to (a) $50
divided by (b) the average closing price of Ahmanson Common Stock on the New
York Stock Exchange on the 20 trading days preceding approval of the proposed
merger by the Office of the Thrift Supervision ("OTS"), provided that each
share of common stock of Great Western would be converted into not less than
1.10 nor more than 1.20 shares of Ahmanson Common Stock.
On May 12, 1997, the Company announced its intent to commence an exchange
offer for all outstanding common shares of Great Western. Ahmanson intends to
commence the exchange offer as soon as the Securities and Exchange Commission
declares effective the exchange offer registration statement. Under the terms
of the exchange offer, Great Western stockholders would receive, in a tax-free
exchange, between 1.10 and 1.20 Common Shares of Ahmanson for each common
share of Great Western. Ahmanson intends, as promptly as practicable after
consummation of the exchange offer, to seek to have Great Western consummate
the proposed merger.
The aggregate value of the proposed transaction, based on the currently
estimated maximum number of shares of Ahmanson Common Stock to be issued and
the closing price of Ahmanson Common Stock on May 9, 1997, is approximately $6
billion.
<PAGE>
The Company believes its proposed merger with Great Western is
financially superior for the stockholders of Great Western and is in the best
interest of Great Western's employees and customers, the communities which
Great Western serves, and the greater Los Angeles region. The Company remains
committed to effecting its proposed merger with Great Western. However, no
assurance can be given that the merger will be consummated as proposed.
For further information on the proposed merger, stockholders are
encouraged to obtain the Registration Statement on Form S-4 (Registration No.
333-21919) filed with the Securities and Exchange Commission ("SEC") on
February 18, 1997, Amendment No. 1 thereto filed with the SEC on March 18,
1997, Amendment No. 2 thereto filed with the SEC on May 13, 1997, any
subsequent amendments thereto, the documents incorporated therein by reference
and the exhibits thereto.
COMMUNITY REINVESTMENT COMMITMENT
On March 20, 1997, Home Savings announced a community reinvestment
commitment of $70 billion over a 10-year period. The $70 billion commitment,
among other things, encompasses four broad categories and proposed lending
targets: (1) single family and consumer lending for the underserved (including
$45 billion in home (1-4 units) financing and $12 billion in various consumer
loan products to minorities and individuals in low to moderate census tracts),
(2) financing for multi-family lending (including $3 billion in multi-family
financing of which 35% is estimated to be in low to moderate census tracts),
(3) small business lending (including $10 billion in small business loans) and
(4) philanthropic giving.
If the proposal to merge with Great Western transaction does not proceed
as anticipated, Home Savings will remain committed to the principles contained
in its commitment and will stand by a pledge commensurate with its deposit
base, assets, market share, and branch network.
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $317.6 million in the first quarter of 1997
compared to $317.0 million in the same period of 1996. The following table
presents 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. The
average loan balance for the first quarter of 1997 is presented before the
deduction of the allowance for loan losses and the average MBS balance for the
first quarter of 1997 excludes the effect of the unrealized gain or loss on
MBS available for sale. The average loan and MBS balances for the first
quarter of 1996 have been restated to be consistent with the presentation for
the first quarter of 1997. As a result of these changes the average rates on
loans, MBS, total loans and MBS, total interest-earning assets, interest rate
spread, and the net interest margin have also been restated for the first
quarter of 1996.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- -------- ------- ----------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $31,581,124 $577,533 7.31% $31,350,744 $574,855 7.33%
MBS 14,317,707 267,673 7.40 16,254,076 308,354 7.60
----------- ------- ----------- --------
Total loans and MBS 45,898,831 845,206 7.34 47,604,820 883,209 7.42
Investment securities 983,885 16,897 6.96 799,981 11,661 5.83
----------- -------- ----------- --------
Interest-earning assets 46,882,716 862,103 7.33 48,404,801 894,870 7.40
-------- --------
Other assets 2,144,878 2,005,370
----------- -----------
Total assets $49,027,594 $50,410,171
=========== ===========
Interest-costing liabilities:
Deposits $34,670,277 375,139 4.39 $33,924,439 387,173 4.57
----------- -------- ----------- --------
Borrowings:
Short-term 2,303,269 33,120 5.83 2,671,773 40,230 6.02
FHLB and other borrowings 8,598,184 133,046 6.28 9,476,696 150,485 6.35
Trust capital securities 148,362 3,179 8.53 - - -
----------- -------- ----------- --------
Total borrowings 11,049,815 169,345 6.22 12,148,469 190,715 6.28
----------- -------- ----------- --------
Interest-costing liabilities 45,720,092 544,484 4.83 46,072,908 577,888 5.02
-------- --------
Other liabilities 911,137 1,326,253
Stockholders' equity 2,396,365 3,011,010
----------- -----------
Total liabilities and
stockholders' equity $49,027,594 $50,410,171
=========== ===========
Excess interest-earning assets/
Interest rate spread $ 1,162,624 2.50 $ 2,331,893 2.38
=========== ===========
Net interest income/
Net interest margin $317,619 2.64 $316,982 2.62
======== ========
</TABLE>
<PAGE>
Net interest income was reduced by provisions for losses on delinquent
interest of $8.0 million and $15.9 million in the first quarter of 1997 and
1996 respectively, related to nonaccrual loans. The provisions had the effect
of reducing the net interest margin by 7 basis points and 13 basis points in
the respective periods.
The following table presents the changes for the first quarter of 1997
from the first quarter of 1996 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 March 31,
1997 Versus 1996
--------------------------------
Increase/(Decrease) Due to
--------------------------------
Volume Rate Total
--------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Interest income on:
Loans $ 4,260 $ (1,582) $ 2,678
MBS (32,750) (7,931) (40,681)
Investments 2,841 2,395 5,236
-------- -------- --------
Total interest income (25,649) (7,118) (32,767)
-------- -------- --------
Interest expense on:
Deposits 15,201 (27,235) (12,034)
Short-term borrowings (5,786) (1,324) (7,110)
FHLB and other borrowings (16,615) (824) (17,439)
Trust capital securities 3,179 - 3,179
-------- -------- --------
Total interest expense (4,021) (29,383) (33,404)
-------- -------- --------
Net interest income $(21,628) $ 22,265 $ 637
======== ======== ========
</TABLE>
The preceding two tables identify the components of the changes in net
interest income between the first quarter of 1997 and 1996. Net interest
income in the first quarter of 1997 increased slightly compared to the first
quarter of 1996 despite a decrease of $1.5 billion in earning assets compared
with the first quarter of 1996. The increase in net interest income and in
the net interest margin was primarily due to a decrease of 19 basis points in
the average rates paid on the Company's interest-costing liabilities,
partially offset by a decline in the yield earned on the Company's loan and
MBS portfolio.
The decrease in average rates paid on interest-costing liabilities was
primarily due to a decrease in the average cost of deposits, and an increase
in deposits as a percent of total interest-costing liabilities, both primarily
related to the Company's acquisition of the 61 former First Interstate
branches in September 1996. Yields on loans and MBS declined from the first
quarter of 1996 due to a lower average COFI index, on which the yields on a
majority of these assets are based, during the first quarter of 1997 compared
with the first quarter of 1996. Although the Company has, since the third
quarter of 1996, aggressively marketed loan products with alternative indices
which will diversify the Company's interest sensitivity profile, the effect
of these products does not yet materially alter the effect of the COFI-indexed
component of the loan and MBS portfolio.
<PAGE>
Additionally, net interest income and the net interest margin were
constrained by the fact that a higher percentage of interest-earning assets
were funded by interest-costing liabilities in the first quarter of 1997
compared to the first quarter of 1996. The resulting decrease of $1.2 billion
in excess interest-earning assets in the first quarter of 1997 compared with
the first quarter of 1996 was primarily the result of the Company's use of
operating cash flows to fund its ongoing common stock repurchases as it
redeploys its excess capital to enhance shareholder value.
The yield on a majority of the Company's interest-earning assets adjust
monthly based on changes in the monthly weighted average cost of funds of
savings institutions headquartered in the Federal Home Loan Bank System
Eleventh District, which comprises California, Arizona and Nevada, as computed
by the Federal Home Loan Bank ("FHLB") of San Francisco ("COFI"). COFI is
currently announced on the last business day of the month following the month
in which such cost of funds was incurred. The Company's adjustable rate
mortgages ("ARMs") which adjust based upon changes in COFI ("COFI ARMs")
generally commence accruing interest at the newly announced rate plus the
contractual loan factor at the next payment due date following such
announcement.
The Company believes that its net interest income is somewhat insulated
from interest rate fluctuations primarily due to the adjustable rate nature of
its loan and MBS portfolio. The Company may experience margin compression
when increases in market rates, such as the increase in the Federal Funds
discount rate announced in March 1997, are not immediately reflected in the
yields on the Company's adjustable rate assets or when market conditions cause
the Company to pay higher rates for its funds. The addition in 1996 of new
loan products tied to the London Interbank Offered Rate ("LIBOR") and yields
on U.S. Treasury securities was intended to diversify the interest sensitivity
profile of the Company's interest-earning assets. Substantially all ARMs
originated since 1981 are contractually limited as to the lifetime maximum
interest rates ("rate caps") that may be charged. In the event of sustained
significant increases in rates, such rate caps could prevent the Company from
further increasing rates on certain loans thus contributing to a decrease in
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."
CREDIT COSTS
PROVISION FOR LOAN LOSSES. The provision for loan losses was $24.2
million in the first quarter of 1997, a decrease of $21.7 million, or 47%,
from the $45.9 million provision for the first quarter of 1996. The decrease
in the provision was due to lower net charge-offs and the continuing decline
in the level of nonperforming assets. For additional information regarding
the allowance for loan losses, see "Financial Condition--Asset Quality--
Allowance for Loan Losses."
OPERATIONS OF REO. Losses from operations of REO were $22.1 million in
the first quarter of 1997, a decrease of $3.6 million, or 14% from losses of
$25.7 million for the first quarter of 1996. The decrease was primarily due
to declines of $2.2 million in the provision for REO losses and $1.3 million
in net losses on sales of REO properties. For additional information
regarding REO, see "Financial Condition--Asset Quality--NPAs and Potential
Problem Loans."
<PAGE>
NONINTEREST INCOME
GAIN ON SALES OF LOANS. During the first quarter of 1997, loans
classified as held for sale totaling $581.2 million were sold for a pre-tax
gain of $8.0 million compared to loans totaling $939.4 million sold for a pre-
tax gain of $15.0 million in the first quarter of 1996. The loans sold in the
first quarter of 1997 consisted of $240.3 million in fixed rate loans, $314.0
million in COFI ARMs and $26.9 million in Treasury ARMs. The loans sold in
the first quarter of 1996 consisted of $586.0 million in fixed rate loans,
$273.6 million in COFI ARMs, and $79.8 million in Treasury ARMs. The Company
intends to originate and sell fixed rate mortgage loans and certain ARMs in
the secondary market. The sales volume of fixed rate mortgage loans sold
during the first quarters of 1997 and 1996 was influenced principally by
borrower demand for such loans. In addition, the Company's asset size may be
reduced through loan sales as opportunities arise.
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," as amended by SFAS No.
127," "Deferral of the Effective Date of Certain Provisions of FASB No. 125,
an Amendment of FASB No. 125." 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. The
adoption of SFAS No. 125 and SFAS No. 127 had no material effect on the
Company as the Company's prior methods of accounting were generally consistent
with the provisions of these Statements.
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. MSR related to loans and MBS sold
are amortized in proportion to and over the projected servicing period as a
component of loan servicing income. MSR related to MBS available for sale are
amortized to interest income on MBS. The MSR 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, ancillary income
and market-adjusted discount rates. Impairment losses, if any, are recognized
through a valuation allowance and charged to loan servicing income.
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 current loan balance, loan type, loan origination date,
loan term, the state where the collateral is located and collateral type. MSR
totaling $12.9 million were capitalized in the first quarter of 1997. During
the first quarter of 1996, MSR of $22.3 million were capitalized. The changes
to the valuation allowance included a provision of $1.0 million and $0.6
million for the first quarter of 1997 and 1996, respectively. There were no
charge-offs against this valuation allowance during the first quarter of 1997
and 1996. The valuation allowance for MSR impairment was $2.1 million as of
March 31, 1997.
<PAGE>
LOAN SERVICING INCOME. Loan servicing income was $16.7 million in the
first quarter of 1997, an increase of $1.6 million, or 11%, from $15.1 million
in the first quarter of 1996. The increase was primarily due to a $699.0
million increase in the average portfolio of loans serviced for investors,
partially offset by a decline of five basis points in the servicing fee rate
to 0.66% and the addition of $1.0 million to the valuation allowance on MSR
during the first quarter of 1997 compared to the $0.6 million added to the
allowance in the first quarter of 1996. At March 31, 1997 and 1996, the
portfolio of loans serviced for investors was $14.0 billion and $13.6 billion,
respectively.
FEE INCOME. Total fee income, consisting of banking and other retail
service fees and other fee income, was $45.7 million in the first quarter of
1997, an increase of $18.9 million or 71%, from $26.8 million in the first
quarter of 1996. Banking and other retail service fees were $29.3 million in
the first quarter of 1997, an increase of $15.1 million, or 106%, from $14.2
million in the first quarter of 1996. The increase was primarily due to the
Company's success in building fee-based services and the acquisition of the 61
former First Interstate Bank branches in the third quarter of 1996 which
resulted in increases of $9.5 million in service charges on deposit accounts
and $1.1 million in business banking fees related to the Company's new small
business unit.
Fee income from other services was $16.4 million in the first quarter of
1997, an increase of $3.8 million, or 30%, from $12.6 million for the first
quarter of 1996. The increase was primarily due to increases of $1.3 million
in commissions on the higher volume of sales of investment and insurance
services and products and $1.6 million in other fees.
GAIN ON SALE OF RETAIL DEPOSIT BRANCH SYSTEM. In March 1997, the Company
sold deposits of $251.9 million and branch premises in Arizona resulting in a
pre-tax gain of $16.0 million. The gain is net of expenses associated with
the sale.
NONINTEREST EXPENSE
G&A EXPENSES. G&A expenses were $186.8 million in the first quarter of
1997, a decrease of $6.2 million, or 3%, from $193.0 million in the first
quarter of 1996. The components of this decline include was primarily due to
a reduction of $14.3 million in FDIC assessments as a result of the
recapitalization of the Savings Association Insurance Fund in the third
quarter of 1996 and non-recurring severance expenses of approximately $5.0
million in the first quarter of 1996. Partially offsetting these declines
were increases in branch operating expenses due to the former First Interstate
Bank branches acquired in the third quarter of 1996 and other expenses related
to the Company initiatives to offer a greater range of consumer and small
business loan products and services. The efficiency ratio was 49.1% in the
first quarter of 1997 compared to 53.8% in the first quarter of 1996.
OPERATIONS OF REI. Losses from operations of REI were $1.9 million in
the first quarter of 1997, a decrease of $4.8 million, or 72%, from losses of
$6.7 million in the first quarter of 1996. The decrease was primarily due to
declines of $2.0 million in operating expenses, $1.8 million in losses on
sales and $1.0 million in provision for losses.
At March 31, 1997, REI totaling $140.6 million were classified as long-
term, consisting of four projects located in California, and additional REI
totaling $6.8 million were classified as held for sale, which consisted of
seven projects located in California which the Company expects to sell in the
near term. There were no specific impairment allowances recognized on these
REI assets at March 31, 1997 as management believes that the general valuation
allowance is adequate to cover impairment.
<PAGE>
The Company is continuing its strategy of exiting the real estate
investment business. 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. Plans are underway for the sale of several
properties in 1997. 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 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.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. Amortization of
goodwill and other intangible assets was $6.4 million for the first quarter of
1997, an increase of $2.4 million, or 60%, from $4.0 million for the first
quarter of 1996, reflecting the amortization of goodwill resulting from the
purchase of the 61 former First Interstate Bank branches in September 1996.
PROVISION FOR INCOME TAXES. The change in the provision for income taxes
primarily reflected the change in pre-tax income between the comparable
periods. The effective tax rates for the first quarter of 1997 and 1996 were
37.6% and 36.6%, respectively, reflecting management's estimate of the
Company's full year tax provision.
<PAGE>
FINANCIAL CONDITION
The Company's consolidated assets were $48.7 billion at March 31, 1997,
a decrease of $1.2 billion, or 2%, from $49.9 billion at December 31, 1996. .
The loan and MBS portfolio decreased $748.2 million, or 2%, to $45.7 billion
during the first quarter of 1997 primarily due to sales of and payments on
loans and MBS.
The Company's gross loan and MBS portfolio was as follows (dollars in
thousands):
<TABLE>
<CAPTION>
March 31, Percent of December 31, Percent of
1997 Portfolio 1996 Portfolio
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Real estate loans:
Single-family $19,546,692 42.8% $20,520,469 44.2%
Multi-family 9,645,344 21.1 9,557,353 20.6
Commercial and industrial 1,303,143 2.8 1,338,221 2.8
----------- ----- ----------- -----
30,495,179 66.7 31,416,043 67.6
Consumer loans 761,362 1.7 707,769 1.5
Small business loans 52,835 0.1 54,481 0.1
----------- ----- ----------- -----
Total loans 31,309,376 68.5 32,178,293 69.2
MBS 14,417,249 31.5 14,296,512 30.8
----------- ----- ----------- -----
Total loans and MBS $45,726,625 100.0% $46,474,805 100.0%
=========== ===== =========== =====
</TABLE>
The Company's loan and MBS portfolio is concentrated in the state of
California with approximately 75% of the portfolio secured by properties in
the state. Only one other state, Florida, represents outstanding portfolio
balances of greater than 5% of the total. Due to the concentration of the
portfolio in California, the Company has been and will continue to be
impacted, beneficially and adversely, by economic cycles of the state. The
recent economic upturn in California has contributed to the significant
improvement in the Company's credit costs and management believes a
continuing positive economic cycle would further improve the Company's credit
costs during the remainder of the year.
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 12 MAT ARM, which is also tied to U.S. Treasury securities,
was introduced in June 1996. The Company originated $474.1 million of 12 MAT
ARMs and $38.2 million of other Treasury ARMs during the first quarter of
1997. At March 31, 1997, there were $1.5 billion of 12 MAT ARMs in the
Company's loan portfolio. Since the second quarter of 1996, the Company has
increasingly emphasized the origination of these products over its COFI ARM
products in an effort to restructure the interest sensitivity profile of its
loan portfolio. Due to the long-time emphasis on originating COFI ARMs and
their predominant balance in the current portfolio any benefits from loans
tied to other indices will be realized slowly over time.
<PAGE>
The Company's primary business continues to be the origination of loans
on residential real estate properties. The Company's loan originations are
summarized as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
1997 1996
---------- ----------
(in thousands)
<S> <C> <C>
Real estate loans:
Fixed rate $ 354,380 $ 744,267
COFI ARMs 108,665 478,450
12 MAT ARMs 474,059 -
Treasury ARMs 38,214 99,807
LAMA 8,996 -
---------- ----------
984,314 1,322,524
Consumer loans 135,514 16,550
Small business loans 14,693 -
---------- ----------
$1,134,521 $1,339,074
========== ==========
</TABLE>
At March 31, 1997, the Company was committed to fund real estate loans
totaling $316.2 million, of which $174.7 million, or 55%, were 12 MAT ARMs,
$98.7 million, or 31%, were fixed rate loans and $30.0 million, or 9%, were
COFI ARMs. Consumer and small business loan commitments were $574.7 million
and $49.0 million, respectively, at March 31, 1997. Some loan commitments are
expected to expire without being drawn upon. The Company expects to fund
loans from its liquidity sources.
In the first quarter of 1997, approximately 70% of real estate loan
originations were on properties located in California. At March 31, 1997,
approximately 97% of the real estate loan and MBS portfolio was secured by
residential properties, including 76% secured by single family properties.
The real estate loan and MBS portfolio includes approximately $6.5
billion in loans that were originated with loan-to-value ("LTV") ratios
exceeding 80%, or 14% of the portfolio at March 31, 1997. Approximately 10%
of loans originated during the first quarter of 1997 had LTV ratios in excess
of 80%, all of which were loans on single family properties, including 3% with
LTV ratios in excess of 90%. The Company takes the additional risk of
originating real estate loans with LTV ratios in excess of 80% into
consideration in its loan underwriting and pricing policies.
At March 31, 1997, the Company's loan portfolio included $761.4 million
in consumer loans and $52.8 million in small business loans. The Company is
continuing to originate consumer loans through its entire distribution network
and began originating small business loans through some of its California
branches in the fourth quarter of 1996, with anticipated rollout to all
California branches by the end of 1997. Both activities will help achieve the
Company's objective of positioning itself as a full-service consumer and small
business bank.
<PAGE>
ASSET/LIABILITY MANAGEMENT
The Company's principal objective of asset/liability management is to
maximize net interest income subject to net interest margin volatility and
liquidity constraints. Net interest margin volatility results when the rate
reset (or repricing) characteristics of the Company's assets are materially
different from those of the Company's liabilities. Liquidity risk results
from the mismatching of asset and liability cash flows.
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. The
interest rate on 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 average cost of all FHLB Eleventh District
member 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 in addition to changes in market interest rates,
such as changes in the roster of FHLB Eleventh District member 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.
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 ("Treasury ARMs"). The ARM products offered were further expanded
in June 1996 with the introduction of 12 MAT ARMs, which are tied to the 12-
month moving average of the monthly average one-year constant maturity
treasury, and LAMA loans, which are tied to LIBOR 12-month moving average of
one-month LIBOR. Since June 1996 the Company has increasingly emphasized the
origination of these products over its COFI ARMs in an effort to diversify the
interest rate sensitivity of its loan portfolio. In the first quarter of 1997
the Company originated $474.1 million of 12 MAT ARMs and $38.2 million of
other Treasury ARMs. The introduction of these new loan products and the sale
of certain COFI ARMs is intended to diversify the interest sensitivity profile
of the Company's interest-earning assets and over time reduce interest income
volatility. However, due to the long-time emphasis on originating COFI ARMs
and their predominant balance in the current portfolio, any benefits from
loans tied to other indices will be realized slowly over time. At March 31,
1997, approximately 88% of the Company's $45.7 billion loan and MBS portfolio
consisted of COFI ARMs, compared to approximately 90% of the $46.4 billion
loan and MBS portfolio at December 31, 1996.
Residential real estate lending is and will continue to be a key
component of the Company's business. The First Interstate Bank branch
acquisition in the third quarter of 1996 accelerated the Company's progress
towards originating consumer and small business loans which generally earn
higher rates of interest and have maturities shorter than residential real
estate loans.
<PAGE>
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. The Company manages the maturities of its
borrowings to balance changes in the demand for deposit maturities. 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. Checking account balances
increased $57.8 million from December 31, 1996. 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 March 31,
1997:
<TABLE>
<CAPTION>
Repricing Periods
Percent -------------------------------------------------------------------
of Within 7-12 1-5 5-10 Years
Balance Total 6 Months Months Years Years Over 10
----------- ------- ----------- ----------- ----------- ----------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities $ 735,868 2% $ 733,439 $ - $ 2,429 $ - $ -
Impact of hedging (LIBOR-indexed
amortizing swaps) - - (65,873) - 65,873 - -
----------- --- ----------- ---------- ----------- ----------- -----------
Total investment securities 735,868 2 667,566 - 68,302 - -
----------- --- ----------- ---------- ----------- ----------- -----------
Loans and MBS
MBS
ARMs 14,083,631 30 14,083,631 - - - -
Other 333,618 1 - - 2,536 38 331,044
Loans
ARMs 29,166,307 63 27,394,862 402,705 1,021,197 36,402 311,141
Other 1,755,381 4 135,386 - - - 1,619,995
Impact of hedging (interest
rate swaps) - - 149,200 (108,400) (40,800) - -
----------- --- ----------- ----------- ----------- ---------- ----------
Total loans and MBS 45,338,937 98 41,763,079 294,305 982,933 36,440 2,262,180
----------- --- ----------- ----------- ----------- ---------- ----------
Total interest-earning assets $46,074,805 100% $42,430,645 $ 294,305 $ 1,051,235 $ 36,440 $2,262,180
=========== === =========== =========== =========== =========- ==========
Interest-costing liabilities:
Deposits
Transaction accounts $11,084,845 24% $11,084,845 $ - $ - $ - $ -
Term accounts 23,314,280 52 13,498,670 5,734,357 4,071,827 9,325 101
----------- --- ----------- ----------- ----------- ---------- ----------
Total deposits 34,399,125 76 24,583,515 5,734,357 4,071,827 9,325 101
----------- --- ----------- ----------- ----------- ---------- ----------
Borrowings
Short-term 2,783,640 6 2,358,640 425,000 - - -
FHLB and other 7,847,454 18 4,538,980 1,821,013 1,052,280 391,297 43,884
Capital securities of
subsidiary trust 148,335 - - - - 148,335 -
----------- --- ----------- ----------- ----------- ---------- ----------
Total borrowings 10,779,429 24 6,897,620 2,246,013 1,052,280 539,632 43,884
----------- --- ----------- ----------- ----------- ---------- ----------
Total interest-costing
liabilities $45,178,554 100% $31,481,135 $ 7,980,370 $ 5,124,107 $ 548,957 $ 43,985
=========== === =========== =========== =========== ========== ==========
Hedge-adjusted interest-earning
assets more/(less) than
interest-costing liabilities $ 896,251 $10,949,510 $(7,686,065) $(4,072,872) $ (512,517) $2,218,195
=========== =========== =========== =========== =========== ==========
Cumulative interest sensitivity gap $10,949,510 $ 3,263,445 $ (809,427) $(1,321,944) $ 896,251
=========== =========== =========== =========== ==========
Percentage of hedge-adjusted
interest-earning assets to
interest-costing liabilities 101.98%
Percentage of cumulative interest
sensitivity gap to total assets 1.84%
</TABLE>
<PAGE>
ASSET QUALITY
NPAS 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 property to satisfy foreclosed loans, in
certain circumstances and when permitted by law, the Company may seek to
obtain deficiency judgments against the borrowers. The Company 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." Impaired loans,
as defined by the Company, include nonaccrual major loans (i.e., multi-family
and commercial and industrial loans) which are not collectively reviewed for
impairment, troubled debt restructurings("TDRs") 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, TDRs and other impaired major loans,
net of related specific loss allowances, by type as of the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31, Increase
1997 1996 (Decrease)
----------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans:
Single family $511,014 $537,243 $(26,229)
Multi-family 31,281 44,972 (13,691)
Commercial and industrial real estate 14,302 14,837 (535)
Consumer 2,447 1,410 (199)
Small business - 199 1,037
-------- -------- --------
Total $559,044 $598,661 $(39,617)
======== ======== ========
REO:
Single family $197,416 $214,720 $(17,304)
Multi-family 25,055 19,239 5,816
Commercial and industrial real estate 11,223 13,618 (2,395)
-------- -------- --------
Total $233,694 $247,577 $(13,883)
======== ======== ========
Total NPAs:
Single family $708,430 $751,963 $(43,533)
Multi-family 56,336 64,211 (7,875)
Commercial and industrial real estate 25,525 28,455 (2,930)
Consumer 2,447 1,410 (199)
Small business - 199 1,037
-------- -------- --------
Total $792,738 $846,238 $(53,500)
======== ======== ========
TDRs:
Single family $123,289 $ 91,422 $ 31,867
Multi-family 50,717 58,027 (7,310)
Commercial and industrial real estate 35,955 36,186 (231)
-------- -------- --------
Total $209,961 $185,635 $ 24,326
======== ======== ========
Other impaired major loans:
Multi-family $101,498 $ 96,383 $ 5,115
Commercial and industrial real estate 17,001 17,949 (948)
-------- -------- --------
Total $118,499 $114,332 $ 4,167
======== ======== ========
Ratio of NPAs to total assets 1.63% 1.70%
======== ========
Ratio of NPAs and TDRs to total assets 2.06% 2.07%
======== ========
Ratio of allowances for losses
on loans and REO to NPAs 50.74% 47.96%
======== ========
</TABLE>
<PAGE>
The following table presents NPAs, TDRs and other impaired major loans by
state at March 31, 1997:
<TABLE>
<CAPTION>
NPAs
-----------------------------------------------------
Commercial Other
Single Multi- and Impaired
Family Family Industrial Major
Residential Residential Real Estate Consumer Total TDRs Loans
----------- ----------- ----------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
California $546,833 $53,967 $15,472 $2,419 $618,691 $157,167 $102,801
New York 45,714 1,023 311 - 47,048 31,325 9,331
Florida 40,048 - 228 - 40,276 2,073 -
Illinois 25,465 - 1,034 - 26,499 1,293 -
Texas 9,492 353 186 - 10,031 1,923 1,217
Other 40,878 993 8,294 28 50,193 16,180 5,150
-------- ------- ------- ------ -------- -------- --------
$708,430 $56,336 $25,525 $2,447 $792,738 $209,961 $118,499
======== ======= ======= ====== ======== ======== ========
</TABLE>
Total NPAs were $792.7 million at March 31, 1997, or a ratio of NPAs to
total assets of 1.63%, a decrease of $53.5 million, or 6%, during the first
quarter of 1997 from $846.2 million, or 1.70% of total assets at December 31,
1996. The major reasons for the decrease in NPAs during the first quarter of
1997 were the Company's continuing efforts to improve the collection process
and continuing improvement in the California real estate market. Single
family NPAs were $708.4 million at March 31, 1997, a decrease of $43.6
million, or 6%, during the first quarter of 1997 from $752.0 million at
December 31, 1996 primarily due to a decrease of $45.9 million in nonaccrual
loans secured by properties in California.
Multi-family NPAs totaled $56.3 million at March 31, 1997, a decrease of
$7.9 million, or 12%, during the first quarter of 1997 from $64.2 million at
December 31, 1996 primarily due to declines in California ($4.7 million) and
New York ($1.4 million). Commercial and industrial real estate NPAs totaled
$25.5 million at March 31, 1997, a decrease of $3.0 million, or 11%, during
the first quarter of 1997 from $28.5 million at December 31, 1996 primarily
due to a decrease in California of $3.7 million.
TDRs were $210.0 million at March 31, 1997, an increase of $24.4 million,
or 13%, during the first quarter of 1997 from $185.6 million at December 31,
1996 primarily due to an increase in single family TDRs, primarily in
California ($26.9 million), partially offset by a decrease in multi-family
TDRs, primarily in Texas ($4.9 million). The increase in single family TDRs
reflects, in part, the Company's efforts to improve collections on loans by
working with borrowers to modify payment plans as a preferable alternative to
nonpayment and eventual foreclosure and also due to the Company's decision in
the second quarter of 1996 to increase the length of time a TDR must perform
in accordance with the terms of the modification agreement before the Company
reclassifies the loan from a TDR to a performing loan.
The increase of $4.2 million in other impaired major loans, from $114.3
million at December 31, 1996 to $118.5 million at March 31, 1997, was
primarily due to increases of $3.4 million and $1.8 million in such loans
secured by properties in New York and California, respectively.
<PAGE>
The recorded investment in all impaired loans were as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
---------------------------------- ----------------------------------
Allowance Allowance
Recorded for Net Recorded for Net
Investment Losses Investment Investment Losses Investment
----------- --------- ---------- ----------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
With specific allowances $328,572 $61,205 $267,367 $305,321 $58,876 $246,445
Without specific allowances 82,528 - 82,528 89,491 - 89,491
-------- ------- -------- -------- ------- --------
$411,100 $61,205 $349,895 $394,812 $58,876 $335,936
======== ======= ======== ======== ======= ========
</TABLE>
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 $108.6 million of single family REO and $15.8 million of multi-
family and commercial and industrial REO in the first quarter of 1997. In the
first quarter of 1996, the Company sold $95.6 million of single family REO and
$25.4 million of multi-family and commercial and industrial REO. In addition,
the Company may, from time to time, offer packages of NPAs for competitive
bids.
ALLOWANCE FOR LOAN LOSSES. Management believes the Company's allowance
for loan losses as determined through periodic analysis of the loan portfolio
was adequate at March 31, 1997. The Company's process for evaluating the
adequacy of the allowance for loan losses includes the identification and
detailed review of impaired loans; an assessment and overall quality and
inherent risk in the loan portfolio, and consideration of loss experience and
trends in problem loans, as well as current economic conditions and trends.
Based upon this process, management determines what it considers to be an
appropriate allowance for loan losses.
<PAGE>
The changes in and a summary by type of the allowance for loan losses are
as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
-------- --------
(dollars in thousands)
<S> <C> <C>
Beginning balance $389,135 $380,886
Provision for loan losses 24,223 45,942
-------- --------
413,358 426,828
-------- --------
Charge-offs:
Single family (24,230) (29,576)
Multi-family (9,624) (17,971)
Commercial and industrial real estate (239) (576)
Consumer (762) (14)
-------- --------
(34,855) (48,137)
-------- --------
Recoveries:
Single family 7,214 4,576
Multi-family 1,689 1,483
Commercial and industrial real estate 249 617
Small business 33 -
-------- --------
9,185 6,676
-------- --------
Net charge-offs (25,670) (41,461)
-------- --------
Ending balance $387,688 $385,367
======== ========
Ratio of net charge-offs to average
loans and MBS outstanding during
the periods (annualized) 0.22% 0.35%
==== ====
</TABLE>
The decrease in the provision for loan losses and gross charge-offs in
the first quarter of 1997 is due to the declines in NPA and delinquency levels
since the first quarter of 1996. During the first quarter of 1997, NPAs
declined $53.5 million from December 31, 1996, reaching their lowest level
since November 1990. The increase in recoveries in the first quarter of 1997,
especially in single family properties, is mainly due to recoveries upon the
sales of REO properties as the Company has experienced improvement in the
sales prices of REO properties since the second half of 1996. At March 31,
1997, single family loans delinquent 60-89 days, which are a key leading
indicator of future NPAs and credit costs, were $99.6 million, the lowest
level since November 1989.
<PAGE>
The following table sets forth the allocation of the Company's allowance
for loan losses by loan and MBS category and the allocated allowance as a
percent of each loan and MBS category at the dates indicated:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------------- ---------------------
Allowance Allowance
as Percent as Percent
of Loan of Loan
and MBS and MBS
Allowance Category Allowance Category
--------- ---------- --------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Single family $176,108 0.52% $176,120 0.51%
Multi-family 148,910 1.54 153,933 1.60
Commercial and industrial real estate 48,183 3.70 45,065 3.37
Consumer 9,687 1.27 9,217 1.30
Small business 4,800 9.08 4,800 8.81
-------- --------
$387,688 0.85 $389,135 0.84
======== ========
</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 would be the reversal of recent improvements in
the residential purchase market in California, particularly in Southern
California, the Company's primary lending market.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the Company's ability or financial flexibility to
adjust its future cash flows to meet the demands of depositors and borrowers
and to fund operations on a timely and cost-effective basis. 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 Company actively manages its liquidity needs by selecting
asset and liability maturity mixes that best meet its projected needs and by
maintaining the ability to raise additional funds as needed.
Liquidity as defined by the Office of Thrift Supervision ("OTS") for Home
Savings consists of cash, cash equivalents and certain marketable securities
which are not committed, pledged or required to liquidate specific
liabilities. 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 March 1997 the average
liquidity and average short-term liquidity ratios of Home Savings were 5.29%
and 2.11%, respectively.
<PAGE>
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 quarter of 1997 cash of $1.1 billion
was used to originate loans. Fixed rate loans originated and designated for
sale represented approximately 39% of single family loan originations in the
first quarter of 1997. Principal payments on loans were $738.9 million in the
first quarter of 1997, an increase of $272.6 million, or 58%, from $466.3
million in the first quarter of 1996.
During the first quarter of 1997 the Company sold loans totaling $581.2
million, which consisted of $314.0 million of COFI ARMs, $240.3 million of
fixed rate loans and $26.9 million of Treasury ARMs, and securitized for sale
$571.8 million in COFI ARMs, $47.5 million in fixed rate loans and $20.4
million in Treasury ARMS. At March 31, 1997, the Company had $379.5 million
of loans held for sale. The loans designated for sale included $297.1 million
of fixed rate loans, $71.8 million of Treasury ARMs and $10.6 million in COFI
ARMs.
MBS. At March 31, 1997 the Company had $9.5 billion of MBS available for
sale, comprised of $9.2 billion of ARM MBS and $287.9 million of fixed rate
MBS. These MBS had an unrealized loss of $204.5 million at March 31, 1997.
The unrealized loss is due mainly to temporary market-related conditions and
the Company expects no significant effect on its future interest income.
DEPOSITS. Savings deposits were $34.4 billion at March 31, 1997, a
decrease of $374.8 million, or 1%, during the first quarter of 1997 from $34.8
billion at December 31, 1996, reflecting a net deposit outflow due mainly to
the Arizona branch sale which closed in March 1997. Excluding this
transaction, there was a net deposit outflow of $123.4 million primarily due
to maturities of term accounts which have more sensitivity to market interest
rates than transaction accounts. The Company manages its borrowings to
balance changes in deposits.
Including the Arizona branch sale, transaction accounts decreased $100.3
million, or 1%, during the first quarter of 1997, while term deposits
decreased $274.5 billion, or 1%, during the same period. Transaction accounts
comprised 32% of the deposit base at March 31, 1997, compared to 29% at March
31, 1996.
<PAGE>
In February 1997, the Company announced the sale of all twelve of its
West Coast Florida branches with deposits of approximately $970 million. The
sale is expected to close in the second quarter of 1997, and is subject to
regulatory approval.
At March 31, 1997 and December 31, 1996, 79% of the Company's deposits
were in California. The Company may engage in additional branch purchases and
sales to consolidate its presence in its key strategic markets.
BORROWINGS. Borrowings totaled $10.6 billion at March 31, 1997, a
decrease of $949.4 million, or 8%, during the first quarter of 1997 from $11.6
billion at December 31, 1996, reflecting a decline in FHLB and other
borrowings of $1.7 billion, partially offset by an increase in short-term
borrowings of $753.1 million.
In March 1997, the Company issued two medium term notes totaling $80
million which will mature on March 24, 1998 bearing an interest rate of 6.15%.
In April 1997, the Company issued two medium term notes totaling $100 million
which will mature within two years and bear a weighted average interest rate
of 6.26%. The funds are being used to purchase shares of common stock of
Great Western and for general corporate purposes.
CAPITAL. The Company reviews its use of capital with a goal of
maximizing stockholder value and makes decisions regarding the total amount
and alternate forms of capital to maintain. During the first quarter of 1997,
Ahmanson returned capital to stockholders by purchasing 2.2 million shares of
common stock. Stockholders' equity declined $34.1 million to $2.4 billion at
March 31, 1997 from December 31, 1996. The decrease is primarily due to
payments of $75.1 million to purchase the Company's common stock, an increase
of $47.0 million in the net unrealized loss on securities available for sale,
and dividends paid to common and preferred stockholders of $30.5 million,
partially offset by net income of $103.1 million. The net unrealized loss on
securities available for sale at March 31, 1997 was $121.1 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>
At March 31, 1997 Home Savings exceeded the regulatory standards required
to be considered well-capitalized. The following table shows the capital
amounts and ratios of Home Savings at March 31, 1997:
<TABLE>
<CAPTION>
Well-
Capital Capitalized
Amount Ratio Standard
---------- ------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Tangible capital
(to adjusted total assets) $2,763,062 5.75% N/A
Core capital
(to adjusted total assets) 2,766,941 5.76 5.00%
Core capital
(to risk-weighted assets) 2,766,941 8.95 6.00
Total risk-based capital
(to risk-weighted assets) 3,432,536 11.10 10.00
</TABLE>
ACCOUNTING DEVELOPMENTS
In February 1997 the Financial Accepting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share." SFAS No. 128 simplifies the standards for
computing and presenting earnings per share ("EPS") as previously prescribed
by Accounting Principles Board Opinion No. 15, "Earnings per Share." SFAS No.
128 replaces primary EPS with basic EPS and fully diluted EPS with diluted
EPS. Basic EPS excludes dilution and is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted from issuance of common
stock that then shared in earnings. SFAS No. 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement and
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. SFAS No. 128
is effective for financial statements issued for periods ending after December
15, 1997 and earlier application is not permitted. If the Company had adopted
SFAS No. 128 as of January 1, 1997, proforma basic EPS would have been $0.94
and proforma diluted EPS would have been $0.87 at March 31, 1997.
In February 1997 the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 consolidates existing reporting
standards for disclosing information about an entity's capital structure.
SFAS No. 129 also supersedes specific requirements found in previously issued
accounting statements. SFAS No. 129 must be adopted for financial statements
for periods ending after December 15, 1997. The impact on the Company of
adopting SFAS No. 129 is not expected to be material as the Company's existing
disclosures are generally in compliance with the disclosure requirements in
SFAS No. 129.
<PAGE>
TAX CONTINGENCY
The Company's financial statements do not contain any benefit related to
the Company's determination in 1996 that it is entitled to the deduction of
the tax bases in certain state branching rights when the Company sells its
deposit branch businesses, thereby abandoning such branching rights in those
states. The Company's position is that the tax bases result from the tax
treatment of property received as assistance from the Federal Savings and Loan
Insurance Corporation ("FSLIC") in conjunction with FSLIC-assisted
transactions. From 1981 through 1985, the Company acquired thrift
institutions in six states through FSLIC-assisted transactions. The Company's
position is that assistance received from the FSLIC included out-of-state
branching rights valued at approximately $740 million. As of March 31, 1997,
the Company had sold its deposit branching businesses and abandoned such
branching rights in four of these states, the first of which was Missouri in
1993. The potential tax benefit related to these abandonments as of March 31,
1997 could approach $167 million. The potential deferred tax benefit related
to branching rights not abandoned could approach $130 million.
The Internal Revenue Service ("IRS") is currently examining the Company's
federal income tax returns for the years 1990 through 1993, including the
Company's proposed adjustment related to the abandonment of its Missouri
branching rights. The Company, after consultation with its tax advisors,
believes that its position with respect to the tax treatment of these rights
is the correct interpretation under the tax and regulatory law. However, the
Company also believes that its position has never been directly addressed by
any judicial or administrative authority. It is therefore impossible to
predict either the IRS response to the Company's position, or if the IRS
contests the Company's position, the ultimate outcome of litigation that the
Company is prepared to pursue. Because of these uncertainties, the Company
cannot presently determine if any of the above described tax benefits will
ever be realized and there is no assurance to that effect. Therefore, in
accordance with generally accepted accounting principles, the Company does not
believe it is appropriate at this time to reflect these tax benefits in its
financial statements. This position will be reviewed by the Company from time
to time as these uncertainties are resolved.
<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.
Date of Report Items Reported
January 15, 1997 ITEM 5. OTHER EVENTS.
On January 15, 1997, H. F. Ahmanson & Company
(the "Registrant") issued a press release
reporting its results of operations during the
quarter and year ended December 31, 1996.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press release dated January 15, 1997
reporting results of operations during the
quarter and year ended December 31, 1996.
February 17, 1997 ITEM 5. OTHER EVENTS.
On February 17, 1997, the Registrant submitted a
written proposal to Great Western Financial
Corporation, a Delaware corporation ("GWF"), for
a tax-free merger of the two companies (the
"Original Ahmanson Proposal").
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press release dated February 18, 1997
announcing the Original Ahmanson Proposal.
99.2 Investor presentation materials used by the
Registrant at a presentation for analysts and
investors which took place on February 18, 1997
relating to the Original Ahmanson Proposal.
February 21, 1997 ITEM 5. OTHER EVENTS.
On February 21, 1997, the Registrant submitted a
letter to GWF relating to the integration of
employees in the proposed merger of the two
corporations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press release dated February 21, 1997.
<PAGE>
February 25, 1997 ITEM 5. OTHER EVENTS.
On February 25, 1997, the Registrant issued a
press release responding to announcements made by
GWF concerning the Registrant's proposal to merge
the two corporations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press release dated February 25, 1997.
March 10, 1997 ITEM 5. OTHER EVENTS.
On March 10, 1997, the Registrant gave a
presentation for analysts and investors relating
to the Registrant's proposal for a tax-free
merger of the Registrant and GWF and a competing
proposal for a merger of Washington Mutual, Inc.,
a Washington Corporation, with GWF.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Investor presentation materials used by the
Registrant at a presentation for analysts and
investors which took place on March 10, 1997
relating to the Original Ahmanson Proposal.
March 17, 1997 ITEM 5. OTHER EVENTS.
On March 17, 1997, the Registrant announced that
it had submitted to GWF an enhanced proposal for
a tax-free merger between the two companies (the
"Ahmanson Proposal").
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
99.1 Press release, dated March 17, 1997,
announcing the Ahmanson Proposal.
99.2 Presentation materials used by the
Registrant in connection with meetings held with
analysts and investors to discuss the Ahmanson
Proposal.
March 19, 1997 ITEM 5. OTHER EVENTS.
The Registrant contemplates additional uses of
proceeds from the sales of its Medium Term Notes,
Series A.
March 19, 1997 ITEM 5. OTHER EVENTS.
On March 19, 1997, the Registrant executed a
Purchase Agreement with each of Bear, Stearns &
Co., Inc. and Credit Suisse First Boston
Corporation relating to the issuance of the
Registrant's Medium-Term Notes, Series A.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
1.1 Purchase Agreement, dated March 19, 1997,
relating to Medium-Term Notes, Series A, by and
between the Registrant and Bear, Stearns & Co.,
Inc.
1.2 Purchase Agreement, dated March 19, 1997,
relating to Medium-Term Notes, Series A, by and
between the Registrant and Credit Suisse First
Boston Corporation.
March 26, 1997 ITEM 5. OTHER EVENTS.
On March 26, 1997, the Registrant executed a
Purchase Agreement with each of Bear, Stearns &
Co. Inc. and Credit Suisse First Boston
Corporation relating to the issuance of the
Registrant's Medium-Term Notes, Series A.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
1.1 Purchase Agreement, dated March 26, 1997,
relating to Medium-Term Notes, Series A, by and
between the Registrant and Bear, Stearns & Co.
Inc.
1.2 Purchase Agreement, dated March 26, 1997,
relating to Medium-Term Notes, Series A, by and
between the Registrant and Credit Suisse First
Boston Corporation.
* 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: May 13, 1997 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 per Share. 35
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>
Three Months Ended March 31,
-----------------------------
1997 1996
------------ -------------
(dollars in thousands,
except per share data)
<S> <C> <C>
Primary income per common share:
Net income $ 103,093 $ 64,755
Less accumulated dividends on preferred stock (8,408) (12,608)
----------- ------------
Net income attributable to common shares $ 94,685 $ 52,147
=========== ============
Weighted average number of common shares outstanding 100,729,719 113,992,699
Dilutive effect of outstanding common stock equivalents 1,579,219 788,817
----------- ------------
Weighted average number of common shares as adjusted for
calculation of primary income per share 102,308,938 114,781,516
=========== ============
Primary income per common share $ 0.93 $ 0.45
=========== ============
Fully diluted income per common share:
Net income $ 103,093 $ 64,755
Less accumulated dividends on preferred stock (4,095) (8,295)
----------- ------------
Net income attributable to common shares $ 98,998 $ 56,460
=========== ============
Weighted average number of common shares outstanding 100,729,719 113,992,699
Dilutive effect of outstanding common stock equivalents 13,238,371 12,659,199
----------- ------------
Weighted average number of common shares as adjusted for
calculation of fully diluted income per share 113,968,090 126,651,898
=========== ============
Fully diluted income per common share $ 0.87 $ 0.45
=========== ============
</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 three months ended March 31,1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CAPTION>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 540,831
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 283,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,522,880
<INVESTMENTS-CARRYING> 5,053,609
<INVESTMENTS-MARKET> 5,023,600
<LOANS> 30,921,688
<ALLOWANCE> 387,688
<TOTAL-ASSETS> 48,697,126
<DEPOSITS> 34,399,125
<SHORT-TERM> 2,783,640
<LIABILITIES-OTHER> 1,119,630
<LONG-TERM> 7,847,454
<COMMON> 0
0
0
<OTHER-SE> 2,398,942
<TOTAL-LIABILITIES-AND-EQUITY> 48,697,126
<INTEREST-LOAN> 577,533
<INTEREST-INVEST> 284,570
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 862,103
<INTEREST-DEPOSIT> 375,139
<INTEREST-EXPENSE> 544,484
<INTEREST-INCOME-NET> 317,619
<LOAN-LOSSES> 24,223
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 217,130
<INCOME-PRETAX> 165,135
<INCOME-PRE-EXTRAORDINARY> 103,093
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,093
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.87
<YIELD-ACTUAL> 2.64
<LOANS-NON> 559,044
<LOANS-PAST> 0
<LOANS-TROUBLED> 209,961
<LOANS-PROBLEM> 118,499
<ALLOWANCE-OPEN> 389,135
<CHARGE-OFFS> 34,855
<RECOVERIES> 9,185
<ALLOWANCE-CLOSE> 387,688
<ALLOWANCE-DOMESTIC> 387,688
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
