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, 1994
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
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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
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Exhibit Index appears on page: 23
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Total number of sequentially numbered pages: 24
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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, 1994: $.01 par value - 116,889,673 shares.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
The 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
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 financial statements be read
in conjunction with the 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.
2
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands)
ASSETS March 31, 1994 December 31, 1993
- - ------ -------------- -----------------
Cash and amounts due from banks $ 1,048,956 $ 843,944
Securities purchased under agreements to sell 2,299,599 2,637,677
Other short-term investments 50,269 48,507
----------- -----------
Total cash and cash equivalents 3,398,824 3,530,128
Other investment securities 39,794 11,524
Investment in stock of Federal Home
Loan Bank (FHLB) 423,185 364,392
Mortgage-backed securities (MBS)
held to maturity 7,578,052 4,064,128
MBS available for sale [amortized cost $2,451,048
(March 31, 1994) and $2,818,401 (December 31, 1993)] 2,449,358 2,855,869
Loans receivable less allowance for
possible losses of $453,137 (March 31, 1994)
and $438,786 (December 31, 1993) 34,503,208 37,529,079
Loans held for sale [amortized cost $51,474
(March 31, 1994) and market value $175,378
(December 31, 1993)] 49,398 175,289
Accrued interest receivable 191,493 166,848
Real estate held for development and
investment (REI) less allowance for possible
losses of $299,283 (March 31, 1994)
and $341,705 (December 31, 1993) 425,693 443,657
Real estate owned held for sale (REO)
less allowance for possible losses of
$63,522 (March 31, 1994) and
$66,453 (December 31, 1993) 198,785 179,862
Premises and equipment 670,990 673,879
Goodwill 422,212 428,444
Other assets 322,069 399,403
Income taxes 19,567 48,743
----------- -----------
$50,692,628 $50,871,245
=========== ===========
Liabilities and Stockholders' Equity
- - ------------------------------------
Deposits $37,736,092 $38,018,653
Short-term borrowings under agreements
to repurchase securities sold 5,001,969 4,807,767
Other short-term borrowings 474,114 169,854
FHLB and other borrowings 3,472,442 3,901,724
Other liabilities 1,063,452 1,024,216
----------- -----------
Total liabilities 47,748,069 47,922,214
Stockholders' equity 2,944,559 2,949,031
----------- -----------
$50,692,628 $50,871,245
=========== ===========
3
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(dollars in thousands except per share data)
For the Three
Months Ended March 31,
-------------------------
1994 1993
----------- -----------
Interest income:
Interest on real estate loans $ 587,143 $ 676,015
Interest on MBS 124,166 66,422
Interest and dividends on investments 27,443 23,747
----------- -----------
Total interest income 738,752 766,184
----------- -----------
Interest expense:
Deposits 291,047 339,412
Short-term borrowings 43,335 26,771
FHLB and other borrowings 53,765 60,223
----------- -----------
Total interest expense 388,147 426,406
----------- -----------
Net interest income 350,605 339,778
Provision for loan losses 75,512 66,980
----------- -----------
Net interest income after provision for loan losses 275,093 272,798
----------- -----------
Other income:
Gain on sales of MBS 4,868 -
Gain (loss) on sales of loans (3,781) 14,505
Loan servicing income 16,024 15,754
Other fee income 26,885 29,305
Operations of REI (5,517) (16,781)
Other operating income 1,425 1,555
----------- -----------
39,904 44,338
----------- -----------
Other expenses:
General and administrative expenses (G&A) 191,769 197,336
Operations of REO 27,078 52,253
Amortization of goodwill 6,231 6,702
----------- -----------
225,078 256,291
----------- -----------
Earnings before provision for income taxes 89,919 60,845
Provision for income taxes 34,564 27,989
----------- -----------
Net earnings $ 55,355 $ 32,856
=========== ===========
Earnings per common share - primary and fully diluted $ 0.36 $ 0.23
=========== ===========
Common shares outstanding, weighted average:
Primary 117,162,304 117,306,296
Fully diluted 128,976,542 117,306,296
Return on average assets 0.44% 0.27%
Return on average equity 7.49 4.62
Return on average tangible equity* 9.73 6.68
Ratio of G&A expenses to average assets 1.52 1.60
<FN>
*Net earnings excluding amortization of goodwill as a percentage of average equity excluding goodwill.
4
H.F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
For The Three
Months Ended March 31,
------------------------
1994 1993
----------- -----------
Cash flows from operating activities:
Net earnings $ 55,355 $ 32,856
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for losses on loans and real estate 88,697 104,676
Proceeds from sales of loans originated for sale 383,568 557,373
Loans originated for sale (253,974) (327,671)
Increase (decrease) in income tax liabilities 39,236 (124,809)
Other, net 104,339 (129,134)
----------- -----------
Net cash provided by operating activities 417,221 113,291
----------- -----------
Cash flows from investing activities:
Proceeds from sales of MBS available for sale 405,069 -
Principal payments on loans 924,923 917,514
Principal payments on MBS 200,367 197,878
Loans originated for investment (net of refinances) (1,847,896) (1,633,735)
MBS purchased (96,143) (119,907)
Loans purchased (824) (1,008,542)
Proceeds from sales of REO 67,838 150,372
Other, net 53,858 50,713
----------- -----------
Net cash used in investing activities (292,808) (1,445,707)
----------- -----------
Cash flows from financing activities:
Net decrease in deposits (282,561) (598,977)
Net deposits purchased - 350,131
Net increase (decrease) in borrowings maturing in 90 days or less 496,385 (172,034)
Proceeds from other borrowings 647,461 3,550,663
Repayment of other borrowings (1,078,677) (2,751,743)
Net proceeds from issuance of Preferred Stock - 188,403
Dividends to stockholders (38,325) (29,885)
----------- -----------
Net cash provided by (used in) financing activities (255,717) 536,558
----------- -----------
Net decrease in cash and cash equivalents (131,304) (795,858)
Cash and cash equivalents at beginning of period 3,530,128 1,955,590
----------- -----------
Cash and cash equivalents at end of period $ 3,398,824 $ 1,159,732
=========== ===========
5
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 principally engaged in the savings bank 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.
RESULTS OF OPERATIONS
The Company's net earnings for the first quarter of 1994 were $55.4
million, or $0.36 per fully diluted common share, a 68% increase compared to
$32.9 million, or $0.23 per fully diluted common share, earned in the first
quarter of 1993. The increase in net earnings reflects the improvement in
asset quality, lower general and administrative expenses, and benefits of
the restructuring actions which took place in 1993.
During the first quarter of 1994 the Company set aside $30 million as a
special addition to the allowance for loan losses related to estimated real
property losses sustained by its borrowers due to the Northridge, California
earthquake of January 17, 1994, or $0.14 per fully diluted common share on a
net after-tax basis. If it had not been for this special provision for loan
losses, the Company's first quarter 1994 net earnings would have been $72.2
million, or $0.50 per fully diluted common share, a 120% increase compared
to the first quarter of 1993.
NET INTEREST INCOME
Net interest income increased $10.8 million or 3% to $350.6 million in
the first quarter of 1994 compared to the same period of 1993 due mainly to
the reduction in nonperforming assets and actions the Company has taken to
reduce its borrowing costs. 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-bearing 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, however, delinquent
interest on such loans has been excluded from interest income.
6
Three Months Ended March 31,
---------------------------------------------------------------
1994 1993
------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ---------- ------- ----------- --------- -------
(dollars in thousands)
Interest-earning assets
Loans $37,146,720 $ 587,143 6.32% $39,186,422 $ 676,015 6.90%
MBS 7,329,272 124,166 6.78 3,914,743 66,422 6.79
----------- --------- ----------- ---------
Total loans and MBS 44,475,992 711,309 6.40 43,101,165 742,437 6.89
Investment securities 2,903,126 27,443 3.78 2,380,015 23,747 3.99
----------- --------- ----------- ---------
Interest-earning assets 47,379,118 738,752 6.24 45,481,180 766,184 6.74
---------- ---------
Other assets 3,000,171 3,890,780
----------- -----------
Total assets $50,379,289 $49,371,960
=========== ===========
Interest-bearing liabilities:
Deposits $37,786,349 291,047 3.08 $38,920,116 339,412 3.49
----------- --------- ----------- ---------
Borrowings:
Short-term 5,218,915 43,335 3.32 3,270,079 26,771 3.27
FHLB and other 3,356,678 53,765 6.41 3,280,714 60,223 7.34
----------- --------- ----------- ---------
Total borrowings 8,575,593 97,100 4.53 6,550,793 86,994 5.31
----------- --------- ----------- ---------
Interest-bearing liabilities 46,361,942 388,147 3.35 45,470,909 426,406 3.75
--------- ---------
Other liabilities 1,060,093 1,057,285
Stockholders' equity 2,957,254 2,843,766
----------- -----------
Total liabilities and
stockholders' equity $50,379,289 $49,371,960
=========== ===========
Excess interest-earning assets/
Interest rate spread $ 1,017,176 2.89 $ 10,271 2.99
=========== ===========
Net interest income/
Net interest margin $ 350,605 2.96 $ 339,778 2.99
========= =========
The following table presents the changes for the first quarter of 1994
from the first quarter of 1993 in the interest income and expense
attributable to various categories of assets and liabilities for the Company
as allocated to changes in average balances and changes in average rates.
Because of numerous and simultaneous changes in both balances and rates, it
is not possible to allocate precisely the effects thereof. For purposes of
this table, the change due to volume is initially calculated as the change
in average balance multiplied by the average rate during the current period
and the change due to rate is calculated as the 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.
7
Three Months Ended March 31,
--------------------------------
1994 Versus 1993 -
Increase/Decrease Due to
--------------------------------
Volume Rate Total
--------- --------- --------
(in thousands)
Interest income on:
Loans $(32,164) $(56,708) $(88,872)
MBS 57,842 (98) 57,744
Investments 4,947 (1,251) 3,696
-------- -------- --------
Total interest income 30,625 (58,057) (27,432)
-------- -------- --------
Interest expense on:
Deposits (8,684) (39,681) (48,365)
Short-term borrowings 16,155 409 16,564
FHLB and other borrowings 1,226 (7,684) (6,458)
-------- -------- --------
Total interest expense 8,697 (46,956) (38,259)
-------- -------- --------
Net interest income $ 21,928 $(11,101) $ 10,827
======== ======== ========
The 3% increase in net interest income in the first quarter of 1994
resulted from the increase in the average balance of interest-earning assets
funded with interest-bearing liabilities, sales of REO and issuances of the
Company's Preferred Stock, partially offset by the decrease of three basis
points in the net interest margin to 2.96% for the first quarter of 1994
from 2.99% for the first quarter of 1993. The increase in net interest
income also reflects actions taken in the last half of 1993 and the first
quarter of 1994 to reduce the Company's funding costs and sensitivity to
upward rate movement, including extending maturities and lengthening
interest rate repricing terms on borrowings, and lowering rates paid on
certain deposits.
Provisions for losses of delinquent interest related to nonaccrual
loans of $11.3 million in the first quarter of 1994 and $24.0 million in the
first quarter of 1993 had the effect of reducing the net interest margin by
ten basis points in the first quarter of 1994 and 21 basis points in the
first quarter of 1993.
The Company has a continuing goal of maintaining its cost of funds
below 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"). The Company's cost of funds was 33 basis points and
56 basis points below the average of COFI of 3.68% and 4.31% during the
first quarters of 1994 and 1993, respectively.
The Company believes that its net interest income is largely insulated
from interest rate fluctuations within a fairly wide range primarily due to
the adjustable rate nature of its loan and MBS portfolio. Substantially all
ARMs originated since 1981 have maximum and minimum interest rates and all
ARMs originated after 1987 have a maximum interest rate. However, an
increase in rates could compress the net interest margin due to the lag
between changes in COFI to which a majority of the Company's interest-
earning assets are tied and changes in the pricing of the Company's
interest-bearing liabilities. For information regarding the Company's
strategies related to changes in interest rates, see "Financial Condition -
Asset/Liability Management."
8
PROVISION FOR LOAN LOSSES
The provision for loan losses was $75.5 million in the first quarter of
1994, compared to $67.0 million in the first quarter of 1993, an increase of
$8.5 million. The provision for loan losses for the first quarter of 1994
includes $30.0 million representing the Company's estimated losses from real
property damage sustained by its borrowers due to the Northridge, California
earthquake of January 17, 1994 and the series of significant aftershocks.
For additional information regarding the allowance for possible loan losses,
see "Financial Condition - Asset Quality - Allowance for Loan Losses."
OTHER INCOME
GAIN ON SALES OF MBS. During the first quarter of 1994, MBS totaling
$400.2 million were sold for a pre-tax gain of $4.9 million. No MBS were
sold in the first quarter of 1993.
GAIN (LOSS) ON SALES OF LOANS. During the first quarter of 1994, loans
totaling $387.3 million were sold for a pre-tax loss of $3.8 million
compared to loans totaling $542.9 million sold for a pre-tax gain of $14.5
million in the first quarter of 1993. The weighted average retained loan
yield on these loans sold was 0.29% in the first quarter of 1994 compared to
0.25% in the first quarter of 1993.
OTHER FEE INCOME. Other fee income decreased $2.4 million or 8% to
$26.9 million in the first quarter of 1994 compared to the same quarter of
1993 primarily due to reductions in credit card fees, resulting from the
sale of the Company's credit card portfolio in the fourth quarter of 1993,
and late charges reflecting decreases in loan delinquencies.
OPERATIONS OF REI. Losses from operations of REI decreased $11.3
million or 67% to $5.5 million in the first quarter of 1994 as compared to
the same quarter of 1993 primarily due to a decrease of $10.3 million in
provision for losses. The Company's net book value of REI decreased $18.0
million or 4% to $425.7 million at March 31, 1994 from $443.7 million at
December 31, 1993. The allowance for possible losses on REI was $299.3
million or 41.3% of gross book value of REI at March 31, 1994 compared to
$341.7 million or 43.5% of gross REI at December 31, 1993.
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. Although management believes the net
realizable value of REI and the related allowance for possible losses are
fairly stated, declines in net realizable value and additions to the
allowance for possible losses could result from continued weakness in
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.
OTHER EXPENSES
G&A EXPENSES. G&A expenses decreased $5.6 million or 3% to $191.8
million in the first quarter of 1994 compared to the same period of 1993,
reflecting the Company's progress in reducing G&A expenses as it pursues its
goal of decreasing the ratio of G&A expenses to average assets (the "G&A
ratio") to 1.50% in 1994. The G&A ratio decreased to 1.52% in the first
quarter of 1994 from 1.60% in the first quarter of 1993, reflecting the 3%
decrease in G&A expenses and a 2% increase in average assets.
9
OPERATIONS OF REO. Losses from operations of REO decreased $25.2
million or 48% to $27.1 million in the first quarter of 1994 compared to the
same period of 1993. The decrease was due to decreases in provision for
losses of $14.2 million, net losses on sales of $9.1 million and net
operating expenses of $1.9 million, reflecting a reduction in foreclosures
as a result of the bulk sales of nonaccrual loans during 1993 and an
improving California economy. For additional information regarding REO, see
"Financial Condition - Asset Quality - Nonperforming Assets and Potential
Problem Loans."
PROVISION FOR INCOME TAXES. The increase in the provision for income
taxes primarily reflects the increase in pre-tax earnings between the
comparable periods. The effective tax rate decreased to 38.4% for the first
quarter of 1994 from 46.0% for the first quarter of 1993, reflecting
management's estimate of the Company's full year tax provision.
FINANCIAL CONDITION
During the first quarter of 1994 the Company's consolidated assets
decreased $178.6 million or less than 1% to $50.7 billion from $50.9 billion
at December 31, 1993. The Company's primary asset generation business
continues to be the origination of loans on residential real estate
properties. The Company originated $2.3 billion in loans in the first
quarter of 1994 compared to $2.1 billion in the first quarter of 1993.
Loans on single family homes (one-to-four units) accounted for 80% of the
total loan origination volume in the first quarter of 1994, with the balance
on multi-family residential properties, and 85% were adjustable rate
mortgage loans ("ARMs"). Mortgage refinances accounted for 51.8% of the
Company's first quarter 1994 originations.
In the first quarter of 1994, 72% of loan originations were on
properties located in California. At March 31, 1994, approximately 96% of
the loan and MBS portfolio was secured by residential properties, including
79% secured by single family properties.
The following table summarizes the Company's gross mortgage portfolio
by state and property type at March 31, 1994:
Single Family Multi-Family Commercial and
Properties Properties Industrial Properties Total
---------------------- ---------------------- ----------------------- -----------------------
Gross Gross Gross Gross
Mortgage % of Mortgage % of Mortgage % of Mortgage % of
State Loans Portfolio Loans Portfolio Loans Portfolio Loans Portfolio
- - ----- ----------- ---------- ----------- ---------- ------------ ---------- ----------- ----------
(dollars in thousands)
California $25,717,181 72.33% $6,700,112 88.07% $1,313,869 70.32% $33,731,162 74.90%
Florida 2,505,434 7.05 23,222 0.30 6,869 0.37 2,535,525 5.63
New York 1,917,143 5.39 359,546 4.73 255,866 13.70 2,532,555 5.62
Illinois 1,536,891 4.32 153,909 2.02 16,095 0.86 1,706,895 3.79
Texas 753,101 2.12 94,050 1.24 41,135 2.20 888,286 1.97
Other 3,127,751 8.79 277,213 3.64 234,480 12.55 3,639,444 8.09
----------- ---------- ---------- -----------
$35,557,501 78.96% $7,608,052 16.89% $1,868,314 4.15% $45,033,867 100.00%
=========== ========== ========== ===========
The loan and MBS portfolio includes approximately $5.0 billion in
mortgage loans that were originated with loan to value ("LTV") ratios
exceeding 80%, or 11.3% of the portfolio at March 31, 1994. Approximately
13% of loans originated during the first quarter of 1994 had LTV ratios in
excess of 80%, all of which were loans on single family properties. The
Company takes the additional risk of originating loans with LTV ratios in
excess of 80% into consideration in its loan underwriting and pricing
policies.
10
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-bearing
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-bearing liabilities, the Company has
emphasized the origination of COFI ARMs for retention in the loan and MBS
portfolio. At March 31, 1994, 93.9% of the Company's $44.6 billion loan and
MBS portfolio consisted of ARMs indexed to COFI, compared to 93.6% of the
$44.6 billion loan and MBS portfolio at December 31, 1993. The average
contractual spread above COFI on the Company's COFI ARM portfolio was 2.39%
at March 31, 1994, up one basis point from 2.38% at December 31, 1993.
The Company's basic interest rate risk management strategy includes a
goal of having the combined repricing terms of its interest-bearing
liabilities not differ materially from those of the FHLB Eleventh District
members, in aggregate. Historically, the Company has maintained its cost of
funds at a level below COFI. There can be no assurance that the
differential between the Company's cost of funds and COFI will remain at
historical levels. In a period of rising market interest rates, the
favorable differential between the Company's cost of funds and COFI could
decline, which could result in compression of the Company's interest rate
margin.
11
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, 1994:
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 $ 2,812,847 6% $ 2,778,829 $ - $ 5,351 $ 28,667 $ -
Impact of hedging (LIBOR indexed
amortizing swaps) - - (190,951) - 190,951 - -
----------- --- ----------- ---------- ----------- ---------- ---------
Total investment securities 2,812,847 6 2,587,878 - 196,302 28,667 -
----------- --- ----------- ---------- ----------- ---------- ---------
Loans and MBS -
MBS -
ARMs 9,157,472 19 9,157,472 - - - -
Other 869,938 2 - - 676,592 101,925 91,421
Loans
ARMS 32,722,947 69 31,192,347 85,780 1,444,820 - -
Other 1,829,659 4 281,905 73,691 465,531 477,676 530,856
Impact of hedging (interest
rate swaps) - - 1,530,600 (85,780) (1,444,820) - -
----------- --- ----------- ----------- ----------- --------- --------
Total loans and MBS 44,580,016 94 42,162,324 73,691 1,142,123 579,601 622,277
----------- --- ----------- ----------- ----------- --------- --------
Total interest-earning assets $47,392,863 100% $44,750,202 $ 73,691 $ 1,338,425 $ 608,268 $622,277
=========== === =========== =========== =========== ========= ========
Interest-bearing liabilities:
Deposits -
Transaction accounts $14,975,211 32% $14,975,211 $ - $ - $ - $ -
Term accounts 22,760,881 49 13,367,402 5,255,341 4,115,485 22,628 25
----------- --- ----------- ----------- ----------- --------- --------
Total deposits 37,736,092 81 28,342,613 5,255,341 4,115,485 22,628 25
----------- --- ----------- ----------- ----------- --------- --------
Borrowings -
Short-term 5,476,083 12 5,476,083 - - - -
FHLB and other 3,472,442 7 1,704,036 17,927 877,900 872,479 100
----------- --- ----------- ----------- ----------- --------- --------
Total borrowings 8,948,525 19 7,180,119 17,927 877,900 872,479 100
----------- --- ----------- ----------- ----------- --------- --------
Total interest-bearing
liabilities $46,684,617 100% $35,522,732 $ 5,273,268 $ 4,993,385 $ 895,107 $ 125
=========== === =========== =========== =========== ========= ========
Hedge-adjusted interest-earning
assets more/(less) than
interest-bearing liabilities $ 708,246 $ 9,227,470 $(5,199,577) $(3,654,960) $(286,839) $622,152
=========== =========== =========== =========== ========= ========
Cumulative interest sensitivity gap $ 9,227,470 $ 4,027,893 $ 372,933 $ 86,094 $708,246
=========== =========== =========== ========= ========
Percentage of hedge-adjusted
interest-earning assets to
interest-bearing liabilities 101.52%
Percentage of cumulative interest
sensitivity gap to total assets 1.40%
12
The following table presents the interest rates and spreads at the end
of the periods indicated:
March 31, December 31,
1994 1993
-------- ------------
Average yield on:
Loans 6.43% 6.53%
MBS 6.35 6.33
Total loans and MBS 6.41 6.50
Investment securities 4.03 3.83
Interest-earning assets 6.27 6.33
Average rate paid on:
Deposits 3.04 3.14
Borrowings:
Short-term 3.62 3.39
FHLB and other 6.41 6.44
Total borrowings 4.70 (1) 4.73 (1)
Interest-bearing liabilities 3.36 3.44
Interest rate spread 2.91 2.89
Net interest margin 2.96 2.95
<FN>
(1) Includes the effect of miscellaneous borrowing costs of approximately
0.23% and 0.46% as of March 31, 1994 and December 31, 1993,
respectively.
ASSET QUALITY
NONPERFORMING ASSETS 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. The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan,"
effective January 1, 1993. SFAS No. 114 does not apply to loans the Company
collectively evaluates for impairment.
13
The Company's impaired loans within the scope of SFAS No. 114 include
nonaccrual multi-family and commercial and industrial real estate loans
("major loans"), excluding those collectively reviewed for impairment;
troubled debt restructurings; and performing major loans and major loans
less than 90 days delinquent in which full payment of principal and interest
is not expected. The Company bases the measurement of these impaired loans
on the fair value of the loan's collateral properties. At March 31, 1994,
the recorded investment in loans for which impairment has been recognized in
accordance with SFAS No. 114 totaled $672.4 million and the total allowance
for possible losses related to such loans was $72.7 million, compared to the
recorded investment of $746.5 million and the related allowance for possible
losses of $81.3 million at December 31, 1993.
The following table presents nonperforming assets (nonaccrual loans and
REO), troubled debt restructurings and other impaired major loans by type as
of the dates indicated:
March 31, December 31, Increase
1994 1993 (Decrease)
----------- ------------ -----------
(dollars in thousands)
Nonaccrual loans:
Single family $ 588,518 $ 568,550 $ 19,968
Multi-family 126,007(1) 139,157(1) (13,150)
Commercial and industrial
real estate 44,272(2) 72,693(2) (28,421)
--------- --------- ---------
758,797 780,400 (21,603)
--------- --------- ---------
REO:
Single family 114,537 99,744 14,793
Multi-family 57,977 50,081 7,896
Commercial and industrial
real estate 26,271 30,037 (3,766)
--------- --------- ---------
198,785 179,862 18,923
--------- --------- ---------
Total nonperforming assets:
Single family 703,055 668,294 34,761
Multi-family 183,984 189,238 (5,254)
Commercial and industrial
real estate 70,543 102,730 (32,187)
--------- --------- ---------
Total $ 957,582 $ 960,262 $ (2,680)
========= ========= =========
Troubled debt restructurings:
Multi-family $ 72,688 $ 73,271 $ (583)
Commercial and industrial
real estate 11,950 27,480 (15,530)
--------- --------- ---------
Total $ 84,638 $ 100,751 $ (16,113)
========= ========= =========
Other impaired major loans:
Multi-family $ 107,147 $ 118,276 $ (11,129)
Commercial and industrial
real estate 280,101 272,768 7,333
--------- --------- ---------
$ 387,248 $ 391,044 $ (3,796)
========= ========= =========
Ratio of nonperforming assets
to total assets 1.89% 1.89%
========= =========
Ratio of nonperforming assets
and troubled debt restructurings
to total assets 2.06% 2.09%
========= ========
Ratio of allowances for possible
losses on loans and REO to
nonperforming assets 50.60% 49.21%
========= ========
<FN>
(1) Includes net recorded investment of impaired multi-family loans under SFAS No. 114
totaling $89.6 million and $109.9 million at March 31, 1994 and December 31, 1993,
respectively.
(2) Includes net recorded investment of impaired commercial and industrial real estate
loans under SFAS No. 114 totaling $37.8 million and $62.7 million at March 31, 1994
and December 31, 1993, respectively.
15
The following table presents nonperforming assets, troubled debt
restructurings and other impaired loans by state at March 31, 1994:
Nonperforming Assets
----------------------------------------------------
Commercial
and Troubled Other
Single Family Multi-Family Industrial Debt Impaired
Residential Residential Real Estate Total Restructurings Loans
------------- ------------ ----------- --------- -------------- -----------
(in thousands)
California $567,382 $148,439 $29,420 $745,241 $20,368 $333,442
New York 35,780 15,791 20,171 71,742 13,151 34,554
Florida 32,274 - 786 33,060 5,610 -
Illinois 12,908 3,583 4,789 21,280 29,293 -
Texas 7,171 3,986 621 11,778 6,818 4,036
Other 47,540 12,185 14,756 74,481 9,398 15,216
-------- -------- ------- -------- ------- --------
$703,055 $183,984 $70,543 $957,582 $84,638 $387,248
======== ======== ======= ======== ======= ========
Total nonperforming assets decreased slightly during the first quarter
of 1994 to $957.6 million, or a ratio of nonperforming assets to total
assets of 1.89%. Single family nonperforming assets increased $34.8 million
or 5% during the first quarter of 1994 primarily due to an increase of $38.9
million in the state of California. Multi-family nonperforming assets
decreased $5.3 million or 3% during the first quarter of 1994 reflecting the
sale of nonaccrual loans in New York and New Jersey totaling $12.3 million.
Commercial and industrial real estate nonperforming assets decreased $32.2
million or 31% during the first quarter of 1994 reflecting a decrease of
$16.7 million in California and the sale of nonaccrual loans in New York and
New Jersey totaling $14.3 million. Troubled debt restructurings decreased
$16.1 million or 16% during the first quarter of 1994 primarily due to
decreases in troubled debt restructurings secured by properties in Illinois
($9.4 million) and California ($4.1 million).
The Company is continuing its efforts to reduce the amount of its
nonperforming assets by aggressively pursuing loan delinquencies through the
collection, workout and foreclosure processes and, if foreclosed, disposing
rapidly of the REO. The Company sold $66.0 million of single family REO and
$23.0 million of multi-family and commercial and industrial REO in the first
quarter of 1994.
ALLOWANCE FOR LOAN LOSSES. Management believes the Company's allowance
for loan losses is adequate at March 31, 1994. The Company's process for
evaluating the adequacy of the allowance for loan losses has three basic
elements: first, the identification of problem loans; second, the
establishment of appropriate loan loss allowances once individual specific
problem loans are identified; and third, a methodology for estimating loan
losses based on the inherent risk in the rest 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.
16
The changes in and a summary by type of the allowance for loan losses are
as follows:
Three Months Ended March 31,
----------------------------
1994 1993
-------- --------
(dollars in thousands)
Beginning balance $438,786 $434,114
Provision for loan losses 75,512 66,980
Allowance for loan losses on
loans purchased - 20,365
-------- --------
514,298 521,459
-------- --------
Charge-offs:
Single family (26,065) (76,028)(3)
Multi-family (19,160)(1) (14,840)
Commercial and industrial real estate (21,190)(2) (16,395)
Credit cards - (2,050)
-------- --------
(66,415) (109,313)
Recoveries 5,254 4,898
-------- --------
Net charge-offs (61,161) (104,415)
-------- --------
Ending balance $453,137 $417,044
======== ========
Ratio of net charge-offs to average
loans and MBS outstanding during
the periods (annualized) 0.55% 0.97%
==== ====
<FN>
(1) Includes charge-offs of $8.7 million due to the sale of nonaccrual
loans on multi-family properties located in New York and New Jersey.
(2) Includes charge-offs of $13.4 million due to the sale of nonaccrual
loans on commercial and industrial properties in New York and New Jersey.
(3) Includes charge-offs of $37.8 million due to the sale of nonaccrual
loans on single family properties located in New York and Connecticut.
March 31, 1994 December 31, 1993
-------------------- ---------------------
% of Loan % of Loan
and MBS and MBS
Allowance Portfolio Allowance Portfolio
--------- --------- --------- ---------
(dollars in thousands)
Single family $170,516 0.48% $155,516 0.43%
Multi-family 158,210 2.09 145,097 2.00
Commercial and
industrial
real estate 124,411 6.69 138,173 6.90
-------- ---------
$453,137 1.01 $438,786 0.97
======== =========
17
The $30.0 million provision for losses during the first quarter of 1994
related to the Northridge earthquake was based on the Company's appraisals
of its major loan properties and a review of the damage assessment of single
family loan properties in the earthquake area. This information was used in
estimating the probability of foreclosures and the ultimate cost to the
Company. The Company has approximately 32,000 single family loans and 2,800
multi-family loans in the earthquake area, and received calls for assistance
from 4,200 single family homeowners and 588 multi-family owners. The
Company was able to provide assistance to many of its affected borrowers
through deferred payments and special loan programs.
It is possible that the Company's delinquent, nonaccrual and impaired
loans and REO may increase and that the Company may experience additional
losses with respect to its real estate loan portfolio. Although the Company
has taken this possibility into consideration in establishing its allowance
for possible loan losses, future events may warrant changes to the
allowance.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity consists of cash, cash equivalents and certain marketable
securities which are not committed, pledged or required to liquidate
specific liabilities. The liquidity portfolio, totaling approximately $3.2
billion at March 31, 1994, decreased $139.9 million or 4% from December 31,
1993 primarily due to a net reduction in deposits of $282.6 million,
partially offset by a net increase of $65.2 million in borrowings during the
first quarter of 1994. Regulations of the Office of Thrift Supervision
("OTS") require each savings institution to maintain, for each calendar
month, an average daily balance of liquid assets equal to at least 5% of the
average daily balance of its net withdrawable accounts plus short-term
borrowings during the preceding calendar month. OTS regulations also
require each savings institution to maintain, for each calendar month, an
average daily balance of short-term liquid assets (generally those having
maturities of 12 months or less) equal to at least 1% of the average daily
balance of its net withdrawable accounts plus short-term borrowings during
the preceding calendar month. For March 1994 the average liquidity and
average short-term liquidity ratios of Home Savings were 5.37% and 5.14%,
respectively.
Sources of additional liquidity consist primarily of positive cash
flows generated from operations, the collection of principal payments and
prepayments on loans and MBS, increases in deposits and borrowings and
issuances of equity securities. Positive cash flows are also generated
through the sale of MBS, loans and other assets for cash. Sources of
borrowings may include 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 quarter of 1994 were principal payments and prepayments on loans
and MBS, proceeds from sales of loans and MBS and proceeds from short-term
and FHLB and other borrowings.
Each of the Company's sources of liquidity is influenced by various
uncertainties beyond the control of the Company. Scheduled loan payments
are a relatively stable source of funds, while loan prepayments and deposit
flows vary widely in reaction to market conditions, primarily prevailing
interest rates. Asset sales are influenced by general market interest rates
and other unforeseeable market conditions. The Company's ability to borrow
at attractive rates is affected by its credit rating, the availability of
acceptable collateral and other market conditions.
18
In order to manage the uncertainty inherent in its sources of funds,
the Company continually evaluates alternate sources of funds and maintains
and develops diversity and flexibility in the number and character of such
sources. The effect of a decline in any one source of funds generally can
be offset by use of an alternate source, although potentially at a different
cost to the Company. The Company's diverse geographic presence permits it
to take advantage of favorable sources of funds prevailing on a region-by-
region basis.
LOANS RECEIVABLE. The Company's primary use of cash is to fund
internally generated mortgage loans. During the first quarter of 1994 cash
of $2.1 billion was used to originate loans. Gross loan originations of
$2.3 billion in the first quarter of 1994 included approximately $2.0
billion of ARMs with an average spread of 251 basis points above COFI and
$347.2 million of fixed rate loans. Fixed rate loans originated and
designated for sale represented approximately 14% of single family loan
originations in the first quarter of 1994. In addition, during the first
quarter of 1994 the Company originated $91.5 million of 15-year fixed rate
single family loans which were funded in part with a series of FHLB
advances. These loans are intended to be held to maturity. Principal
payments on loans increased less than 1% to $924.9 million in the first
quarter of 1994 from $917.5 million in the first quarter of 1993.
During the first quarter of 1994 the Company sold loans totaling $387.3
million. The Company designates certain loans as held for sale, including
most of its fixed rate originations. At March 31, 1994 the Company had
$49.4 million of loans available for sale.
At March 31, 1994 the Company was committed to fund mortgage loans
totaling $777.4 million, including $726.4 million or 93% in ARMs. The
Company expects to fund such loans from its liquidity sources.
MBS. During the first quarter of 1994 the Company sold $400.2 million
of COFI MBS and purchased $96.1 million of short-term fixed rate
collateralized mortgage obligations. The Company designates certain MBS as
available for sale, including virtually all ARM MBS issued or guaranteed by
government sponsored enterprises and certain other MBS. At December 31,
1993 the Company had $2.4 billion of MBS available for sale.
During the first quarter of 1994 the Company securitized $3.7 billion
of ARMs into AAA rated private placement mortgage pass-through securities
which can be used as collateral for borrowings. The Company has the intent
and ability to hold these MBS until maturity.
DEPOSITS. Savings deposits decreased $282.6 million or less than 1% to
$37.7 billion during the first quarter of 1994 reflecting a net deposit
outflow.
The Company intends to continue consideration of branch purchases and
sales as opportunities to consolidate the Company's presence in its key
strategic markets. At March 31, 1994, 58% of the Company's total deposits
were in California, unchanged from December 31, 1993.
BORROWINGS. Borrowings increased $65.2 million or less than 1% to $8.9
billion during the first quarter of 1994 reflecting increases in short-term
borrowings of $498.5 million, partially offset by a decrease in FHLB and
other borrowings of $429.3 million.
19
In February 1994 Home Savings issued $200 million of Floating Rate
Notes due February 9, 1996. In addition, Home Savings borrowed a total of
$302.6 million in February 1994 from the FHLB. These floating rate FHLB
Notes are due in February 1997. Such borrowings partially offset a decrease
in FHLB advances of $929.2 million in the first quarter of 1994.
CAPITAL. Stockholders' equity decreased $4.5 million or less than 1%
during the first quarter of 1994 principally due to dividends paid to common
and preferred stockholders of $38.3 million and a net decrease of $22.5
million in the net unrealized gain on securities available for sale,
partially offset by net earnings of $55.4 million. The aggregate unrealized
loss at March 31, 1994 was $1.0 million.
The OTS has adopted regulations (the "Capital Regulations") that
contain a three-part capital standard requiring savings institutions to
maintain "core" capital of at least 3% of adjusted total assets, tangible
capital of at least 1.5% of adjusted total assets and risk-based capital of
at least 8% of risk-weighted assets. Special rules govern the ability of
savings institutions to include in their capital computations supervisory
goodwill and investments in subsidiaries engaged in activities not
permissible for national banks, such as real estate development. In
addition, effective July 1, 1994, 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. If this interest-rate risk
component had been in effect as of March 31, 1994, Home Savings believes it
would not have had above-normal exposure to interest-rate risk.
Home Savings is in compliance with the Capital Regulations. The
following table shows the capital amounts and ratios of Home Savings as
compared to the requirements of the Capital Regulations at March 31, 1994:
March 31, 1994
-------------------------------------------------
Home Savings Capital Requirements
-------------------- --------------------
(dollars in thousands)
Tangible capital $2,485,521 5.00% $ 746,149 1.50%
Core capital $2,672,058 5.37% $1,492,298 3.00%
Risk-based capital $3,758,562 12.82% $2,348,359 8.00%
The regulatory capital requirements applicable to Home Savings will
become more stringent as the amount of Home Savings' supervisory goodwill
and investment in real estate development subsidiaries includable in capital
is phased out through December 31, 1994 and July 1, 1996, respectively.
Home Savings currently meets the requirements of the Capital Regulations
assuming the present application of the full phase-out provisions. At March
31, 1994 the capital ratios computed on this more stringent, "fully phased-
in" basis were 4.78% for core and tangible capital and 11.91% for risk-based
capital.
The OTS has proposed certain amendments to the Capital Regulations.
The Company is unable to predict whether, or in what form, the proposed
amendments to the Capital Regulations will ultimately be adopted.
Accordingly, the Company is unable to predict whether Home Savings would be
in compliance with any higher capital requirement resulting from such
amendments.
20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
11 Statement of Computation of Earnings per Share.
(b) Reports on Form 8-K.
The Registrant filed with the Commission a Current Report
on Form 8-K dated February 9, 1994 with respect to the
Registrant's earnings for the quarter and year ended
December 31, 1993.
21
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: , 1994 H. F. Ahmanson & Company
-----------
/s/ Kevin M. Twomey
----------------------------
Kevin M. Twomey
Executive Vice President and
Chief Financial Officer
(Authorized Signer)
/s/ George Miranda
----------------------------
George Miranda
First Vice President and
Principal Accounting Officer
22
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
------- ----------- -------------
11 Statement of Computation of Earnings
per Share. 24
23