-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AF5XuQVpSe0NkRlCTZm1t7HH/8SbcKtGEw85D26E6w9oOGgONMkyR5UVG/TvIEOe cuhfjVd+6iYDJR2iio72AA== 0000771667-96-000027.txt : 19960816 0000771667-96-000027.hdr.sgml : 19960816 ACCESSION NUMBER: 0000771667-96-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AHMANSON H F & CO /DE/ CENTRAL INDEX KEY: 0000771667 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 950479700 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08930 FILM NUMBER: 96612963 BUSINESS ADDRESS: STREET 1: 4900 RIVERGRADE RD CITY: IRWINDALE STATE: CA ZIP: 91706 BUSINESS PHONE: 8189606311 10-Q 1 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. 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. H. F. AHMANSON & COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited) (in thousands)
Assets June 30, 1996 December 31, 1995 - ------ -------------- ----------------- 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 =========== ===========
H. F. AHMANSON & COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (dollars in thousands except per share data)
For the Three Months Ended For the Six Months Ended June 30, June 30, --------------------------- --------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- 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% * 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.
H. F. AHMANSON & COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
For The Six Months Ended June 30, ------------------------ 1996 1995 ----------- ----------- 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 =========== ===========
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." 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. 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. 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.
Under previous Under new method method of calculation of calculation --------------------- ---------------- 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
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.
Three Months Ended June 30, ----------------------------------------------------------------- 1996 1995 ------------------------------- -------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ----------- ----------- ------- ----------- ---------- -------- (dollars in thousands) 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* ======== ======== * Excludes the effect of the unrealized gain or loss on MBS available for sale.
Six Months Ended June 30, ----------------------------------------------------------------- 1996 1995 ------------------------------- -------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ----------- ----------- ------- ----------- ---------- -------- (dollars in thousands) 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* ========== ========== * Excludes the effect of the unrealized gain or loss on MBS available for sale.
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.
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) 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 ======== ======== ========= ========= ======= ========= (a) Excludes the effect of the unrealized gain or loss on MBS available for sale.
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. 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. 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. 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. 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. The following table summarizes the Company's gross mortgage portfolio by state and property type at June 30, 1996:
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) 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% =========== ========== ========== =========== ======
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. 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. 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:
Repricing Periods Percent ------------------------------------------------------------------- of Within Balance Total 6 Months Months 7-12 1-5 Years 5-10 Years Years Over 10 ----------- ------- ----------- ----------- ----------- ---------- ------------- (dollars in thousands) 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%
The following table presents the interest rates, spread and margin at the end of the periods indicated:
June 30, December 31, 1996 1995 --------- ------------ 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
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. 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:
June 30, December 31, Increase 1996 1995 (Decrease) ----------- ------------ ----------- (dollars in thousands) 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% ======== ========
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:
NPAs --------------------------------------------------- Commercial Other and Impaired Single Family Multi-Family Industrial Major Residential Residential Real Estate Total TDRs Loans ------------- ------------ ----------- -------- -------- ----------- (in thousands) 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 ======== ======= ======= ======== ======== ========
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. 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:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1996 1995 1996 1995 --------- --------- --------- --------- (dollars in thousands) 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% ==== ==== ==== ====
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:
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) 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 ======== ====== ======== ======
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. 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. 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. 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:
Balance Ratio ---------- ------- (dollars in thousands) 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
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. 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. 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:
Nominee For Withheld -------------------- ---------- ---------- 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
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:
For Against Abstentions ---------- ---------- ----------- 73,479,059 24,455,730 717,630
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. 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
EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page ------- ----------- ------------- 11 Statement of Computation of Income 34 per Share. 27 Financial Data Schedule. * * Filed electronically with the Securities and Exchange Commission.
EX-11 2 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:
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) 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) =========== =========== =========== ===========
EX-27 3
9 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. 1000 6-MOS DEC-31-1996 JUN-30-1996 722,581 0 690,200 0 9,933,894 5,438,466 5,419,312 30,495,258 382,485 49,506,630 33,281,931 2,889,000 1,095,603 9,462,740 0 0 0 2,777,356 49,506,630 1,133,933 628,173 0 1,762,106 760,170 1,133,550 628,556 79,843 (29) 457,921 207,322 207,322 0 0 133,489 0.96 0.94 2.65 692,969 0 177,977 120,122 380,886 97,244 19,000 382,485 382,485 0 0
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