FORM 10-Q/A
AMENDMENT NO. 1
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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
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Commission File Number 1-8930
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H. F. AHMANSON & COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 95-0479700
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 Rivergrade Road, Irwindale, California 91706
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(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: 27
Total number of sequentially numbered pages: 28
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, 1995: $.01 par value - 117,110,979 shares.
EXPLANATORY NOTE
This amendment to Form 10-Q on Form 10-Q/A has been prepared to reflect
the Registrant's adoption of Statement of Financial Accounting Standards 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. The resulting revisions are applicable to Part I -
Financial Information and Exhibits 11 and 27. No other previously filed
parts or exhibits were affected.
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.
H. F. AHMANSON & COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Unaudited)
(in thousands)
Assets March 31, 1995 December 31, 1994
- ------ -------------- -----------------
Cash and amounts due from banks $ 610,028 $ 782,678
Securities purchased under agreements to resell 820,399 952,000
Other short-term investments 23,789 311,942
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Total cash and cash equivalents 1,454,216 2,046,620
Other investment securities held to
maturity [market value $269,222
(March 31, 1995) and $270,187 (December 31, 1994)] 272,813 276,945
Other investment securities available for sale
[amortized cost $10,703 (March 31, 1995) and
$10,670 (December 31, 1994)] 10,441 10,117
Investment in stock of Federal Home
Loan Bank (FHLB) 467,908 439,891
Mortgage-backed securities (MBS)
held to maturity [market value $11,100,809
(March 31, 1995) and $10,013,827
(December 31, 1994)] 11,198,413 10,339,864
MBS available for sale [amortized cost $2,343,046
(March 31, 1995) and $2,539,504 (December 31, 1994)] 2,320,466 2,449,556
Loans receivable less allowance for
losses of $391,105 (March 31, 1995)
and $400,232 (December 31, 1994) 36,092,689 35,992,566
Loans held for sale [market value $26,706
(March 31, 1995) and $9,192
(December 31, 1994)] 26,587 9,179
Accrued interest receivable 160,088 212,947
Real estate held for development and
investment (REI) less allowance for
losses of $332,382 (March 31, 1995)
and $333,825 (December 31, 1994) 323,179 313,316
Real estate owned held for sale (REO)
less allowance for losses of
$36,852 (March 31, 1995) and
$44,726 (December 31, 1994) 189,146 161,948
Premises and equipment 610,237 614,817
Goodwill and other intangible assets 228,877 468,542
Other assets 307,035 314,853
Income taxes 1,864 74,621
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$53,663,959 $53,725,782
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Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $41,669,705 $40,655,016
Short-term borrowings under agreements
to repurchase securities sold 1,826,949 2,253,805
Other short-term borrowings 5,188 100,000
FHLB and other borrowings 6,546,565 6,822,280
Other liabilities 831,698 930,080
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Total liabilities 50,880,105 50,761,181
Stockholders' equity 2,783,854 2,964,601
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$53,663,959 $53,725,782
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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,
-------------------------
1995 1994
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Interest income:
Interest on real estate loans $ 630,791 $ 587,143
Interest on MBS 220,087 124,166
Interest and dividends on investments 43,105 27,443
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Total interest income 893,983 738,752
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Interest expense:
Deposits 439,458 291,047
Short-term borrowings 49,518 43,335
FHLB and other borrowings 109,763 53,765
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Total interest expense 598,739 388,147
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Net interest income 295,244 350,605
Provision for loan losses 26,544 75,512
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Net interest income after provision for loan losses 268,700 275,093
----------- -----------
Other income:
Gain on sales of MBS 603 4,868
Gain (loss) on sales of loans 231 (3,781)
Loan servicing income 12,966 16,024
Other fee income 23,972 26,885
Gain on sales of investment securities 10 48
Other operating income (1,800) 1,377
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35,982 45,421
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Other expenses:
General and administrative expenses (G&A) 182,752 191,769
Operations of REI 1,087 5,517
Operations of REO 21,053 27,078
Amortization of goodwill and other intangible assets 6,911 6,231
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211,803 230,595
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Earnings before provision for income taxes and cumulative
effect of accounting change 92,879 89,919
Provision for income taxes 40,029 34,564
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Earnings before cumulative effect of accounting change 52,850 55,355
Cumulative effect of change in accounting for goodwill (234,742) -
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Net earnings (loss) $ (181,892) $ 55,355
=========== ===========
Earnings (loss) per common share - primary and fully diluted:
Earnings before cumulative effect of accounting change $ 0.34 $ 0.36
Cumulative effect of change in accounting for goodwill (2.00) -
----------- -----------
Net earnings (loss) $ (1.66) $ 0.36
=========== ===========
Common shares outstanding, weighted average:
Primary 117,143,614 117,162,304
Fully diluted 117,143,614 128,976,542
Return on average assets (1.33)% 0.44%
Return on average equity (25.84)% 7.49%
Return on average tangible equity* 9.26% 9.73%
Ratio of G&A expenses to average assets 1.34% 1.52%
<FN>
*Net earnings excluding amortization of goodwill and other intangible assets, and cumulative effect of the
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 Three
Months Ended March 31,
------------------------
1995 1994
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Cash flows from operating activities:
Net earnings (loss) $ (181,892) $ 55,355
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Provision for losses on loans and real estate 36,157 88,697
Cumulative effect of change in accounting for goodwill 234,742 -
Proceeds from sales of loans originated for sale 43,449 385,126
Loans originated for sale (53,511) (253,974)
Increase (decrease) in other liabilities (155,005) 39,236
Other, net 64,449 102,781
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Net cash provided by (used in) operating activities (11,611) 417,221
----------- -----------
Cash flows from investing activities:
Proceeds from sales of MBS available for sale 139,007 405,069
Principal payments on loans 430,766 924,923
Principal payments on MBS 242,153 200,367
Loans originated for investment (net of refinances) (1,570,477) (1,847,896)
Loans purchased (36,907) (824)
MBS purchased (458) (96,143)
Proceeds from sales of REO 74,546 67,838
Other, net (37,498) 53,858
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Net cash used in investing activities (758,868) (292,808)
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Cash flows from financing activities:
Net increase (decrease) in deposits 977,539 (282,561)
Net deposits purchased 37,150 -
Net increase (decrease) in borrowings maturing in 90 days or less (521,668) 496,385
Proceeds from other borrowings 7,404 647,461
Repayment of other borrowings (283,982) (1,078,677)
Dividends to stockholders (38,368) (38,325)
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Net cash provided by (used in) financing activities 178,075 (255,717)
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Net decrease in cash and cash equivalents (592,404) (131,304)
Cash and cash equivalents at beginning of period 2,046,620 3,530,128
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Cash and cash equivalents at end of period $ 1,454,216 $ 3,398,824
=========== ===========
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.
OVERVIEW
During the first quarter of 1995, the Company recorded a net loss of
$181.9 million, or $1.66 per fully diluted common share, compared to net
earnings of $55.4 million, or $0.36 per fully diluted common share, earned in
the first quarter of 1994. The Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 72, "Accounting for Certain Acquisitions of
Banking or Thrift Institutions," as of January 1, 1995. The overall impact on
the Company's financial statements of adopting SFAS No. 72 was the elimination
of goodwill related to the Company's thrift institution acquisitions initiated
prior to September 30, 1982. The adoption resulted in the restatement of
earnings previously reported of $50.7 million, or $0.33 per fully diluted
common share, in the first quarter of 1995 to the loss of $181.9 million, or
$1.66 per fully diluted common share. The current quarter loss also reflects
lower net interest income, substantially offset by reductions in loan loss
provision and other expenses compared to the first quarter of 1994. While the
net interest margin began to improve during the quarter, on average the net
interest margin in the first quarter of 1995 was lower than the first quarter
of 1994.
Net interest income totaled $295.2 million for the first quarter of 1995
compared to $350.6 million in the first quarter of 1994. While the net
interest margin decreased in January 1995, it improved in February and March
1995. For the first quarter of 1995, the net interest margin was 2.27%,
compared to 2.96% in the first quarter of 1994 and 2.28% in the fourth quarter
of 1994. At March 31, 1995, the net interest margin was 2.36%.
ASSET QUALITY
Nonperforming assets were $878.6 million, or 1.64% of total assets, at
March 31, 1995 compared to $957.6 million, or 1.89% of total assets, at March
31, 1994 and $843.0 million, or 1.57% of total assets, at December 31, 1994.
During the first quarter of 1995, the Company provided $26.5 million for
loan losses compared to $75.5 million in the first quarter of 1994. The first
quarter of 1994 provision included $30 million for loan losses due to the
Northridge earthquake in January 1994.
At March 31, 1995, the allowance for loan losses and the allowance for
losses on foreclosed real estate were $391.1 million and $36.9 million,
respectively. The total allowances for losses on nonperforming assets equaled
46.7% of nonperforming assets at March 31, 1995, compared to 50.6% at March
31, 1994 and 50.1% at December 31, 1994.
At March 31, 1995, the Company had $189.1 million in foreclosed
properties, compared to $198.8 million at March 31, 1994 and $161.9 million at
December 31, 1994.
Real estate development assets, net of the allowance for losses, totaled
$323.2 million at March 31, 1995, compared to $425.7 million at March 31, 1994
and $313.3 million at December 31, 1994. The increase from December 31, 1994
is due to the capitalization of construction costs as the Company continues to
build out certain projects as part of the Company's disposition plan. The
allowance for losses on real estate development assets totaled $332.4 million,
or 50.7% of gross real estate assets at March 31, 1995.
OTHER EXPENSES
General and administrative expenses as a percentage of average assets
were 1.34% in the first quarter of 1995, compared to 1.52% in the first
quarter of 1994. In the first quarter of this year, the Company recorded a
$5.7 million rebate of Federal Deposit Insurance Corporation ("FDIC") premiums
for the July 1, 1994 semi-annual assessment period. Without this one-time
credit, the G&A ratio would have been 1.38%.
LOAN ORIGINATIONS
The Company originated $1.7 billion of loans in the first quarter of
1995, compared to $2.3 billion in the year-ago quarter. In the first quarter
of 1995, 76% of all originations were single family mortgages and 97% were
adjustable rate mortgage loans ("ARMs"), including $73.8 million in ARMs tied
to U.S. Treasury securities. Purchase loans accounted for 73% of the
Company's first quarter 1995 originations, compared to 48% of the Company's
first quarter 1994 originations. Single family originations in California
accounted for 56% of the Company's single family production in the first
quarter of 1995, compared to 65% in the first quarter of 1994.
DEPOSIT ACTIVITY
At March 31, 1995, deposits totaled a record $41.7 billion, compared to
$37.7 billion at March 31, 1994 and $40.7 billion at December 31, 1994. This
$1.0 billion, or 2.5%, increase from December 31, 1994 is the result of
deposit programs initiated through the retail branch system. In addition, the
Company purchased deposits in California totaling $47.4 million and sold
deposits in Ohio totaling $10.2 million during the first quarter of 1995. The
Company intends to continue consideration of branch purchases and sales as
opportunities to consolidate the Company's presence in key strategic markets.
CAPITAL
Stockholders' equity was $2.8 billion at March 31, 1995. The adoption of
SFAS No. 72 had no effect on Home Savings' federal capital ratios, which
continue to exceed regulatory requirements for well-capitalized institutions,
the highest regulatory standard.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income was $295.2 million in the first quarter of 1995, a
decrease of $55.4 million or 16%, compared to $350.6 million in the same
period of 1994. The decrease reflects compression of the interest rate
margin, which began to improve during the first quarter of 1995.
The following table presents the Company's Consolidated Summary of
Average Financial Condition and net interest income for the periods indicated.
Average balances on interest-earning assets and interest-costing liabilities
are computed on a daily basis and other average balances are computed on a
monthly basis. Interest income and expense and the related average balances
include the effect of discounts or premiums. Nonaccrual loans are included in
the average balances, and delinquent interest on such loans has been excluded
from interest income.
Three Months Ended March 31,
-----------------------------------------------------------------
1995 1994
------------------------------- --------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
----------- ----------- ------ ----------- ---------- --------
(dollars in thousands)
Interest-earning assets:
Loans $36,199,664 $630,791 6.97% $37,146,720 $587,143 6.32%
MBS 13,066,555 220,087 6.74 7,329,272 124,166 6.78
----------- -------- ----------- --------
Total loans and MBS 49,266,219 850,878 6.91 44,475,992 711,309 6.40
Investment securities 2,832,541 43,105 6.09 2,903,126 27,443 3.78
----------- -------- ----------- --------
Interest-earning assets 52,098,760 893,983 6.86 47,379,118 738,752 6.24
-------- --------
Other assets 2,621,378 3,000,171
----------- -----------
Total assets $54,720,138 $50,379,289
=========== ===========
Interest-costing liabilities:
Deposits $41,341,968 439,458 4.25 $37,786,349 291,047 3.08
----------- -------- ----------- --------
Borrowings:
Short-term 3,157,391 49,518 6.27 5,218,915 43,335 3.32
FHLB and other 6,553,498 109,763 6.70 3,356,678 53,765 6.41
----------- -------- ----------- --------
Total borrowings 9,710,889 159,281 6.56 8,575,593 97,100 4.53
----------- -------- ----------- --------
Interest-costing liabilities 51,052,857 598,739 4.69 46,361,942 388,147 3.35
-------- --------
Other liabilities 852,158 1,060,093
Stockholders' equity 2,815,123 2,957,254
----------- -----------
Total liabilities and
stockholders' equity $54,720,138 $50,379,289
=========== ===========
Excess interest-earning assets/
Interest rate spread $ 1,045,903 2.17 $ 1,017,176 2.89
=========== ===========
Net interest income/
Net interest margin $295,244 2.27 $350,605 2.96
======== ========
The following table presents the changes for the first quarter of 1995
from the first quarter of 1994 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 from period to
period, 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 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 March 31,
1995 Versus 1994
-------------------------------
Increase/(Decrease) Due to
-------------------------------
Volume Rate Total
-------- -------- --------
(in thousands)
Interest income on:
Loans $(16,422) $ 60,070 $ 43,648
MBS 96,654 (733) 95,921
Investments (1,073) 16,735 15,662
-------- -------- --------
Total interest income 79,159 76,072 155,231
-------- -------- --------
Interest expense on:
Deposits 37,806 110,605 148,411
Short-term borrowings (32,356) 38,539 6,183
FHLB and other borrowings 53,563 2,435 55,998
-------- -------- --------
Total interest expense 59,013 151,579 210,592
-------- -------- --------
Net interest income $ 20,146 $(75,507) $(55,361)
======== ======== ========
Net interest income decreased $55.4 million, or 16%, in the first quarter
of 1995 as compared to the first quarter of 1994 due to a decrease of 69 basis
points in the net interest margin to 2.27% for the first quarter of 1995 from
2.96% for the first quarter of 1994, partially offset by an increase of $4.7
billion in average interest-earning assets. The increase in average interest-
earning assets was primarily funded with interest-costing liabilities.
The compression in the net interest margin for the first quarter of 1995
principally reflects the lag between changes in the monthly weighted average
cost of funds for Federal Home Loan Bank ("FHLB") Eleventh District savings
institutions as computed by the FHLB of San Francisco ("COFI") to which a
majority of the Company's interest-earning assets are tied and changes in the
repricing of the Company's interest-costing liabilities in a period of rising
interest rates, and narrowing of the Company's funding advantage relative to
COFI. The Company's cost of funds was 20 basis points and 33 basis points
below the average of COFI of 4.89% and 3.68% during the respective first
quarters of 1995 and 1994. In addition, provisions for losses of delinquent
interest related to nonaccrual loans of $13.1 million and $11.3 million in the
first quarter of 1995 and 1994, respectively, had the effect of reducing the
net interest margin by ten basis points in each period.
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. However, additional
increases in rates could contribute to further compression of the net interest
margin. In addition, substantially all ARMs originated since 1981 have
maximum and minimum interest rates and all ARMs originated after 1987 have a
maximum interest rate. In the event of sustained significant increases in
rates, such maximum interest rates could also contribute to compression of 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 $26.5 million in the first quarter of
1995, a decrease of $49.0 million or 65%, from the $75.5 million provision for
the first quarter of 1994 which included $30 million representing the
Company's estimated losses from real property damage sustained by its
borrowers in the Northridge, California earthquake in January 1994. 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 first quarter of 1995, MBS totaling
$138.4 million were sold for a pre-tax gain of $0.6 million compared to MBS
totaling $400.2 million sold in the first quarter of 1994 for a pre-tax gain
of $4.9 million.
GAIN (LOSS) ON SALES OF LOANS. During the first quarter of 1995, loans
originated for sale totaling $43.2 million were sold for a pre-tax gain of
$0.2 million compared to loans totaling $387.3 million sold for a pre-tax loss
of $3.8 million in the first quarter of 1994. The sales volume of mortgage
loans originated for sale during the comparative periods was principally
influenced by borrower demand for fixed rate loans, most of which the Company
designates for sale in the secondary market.
LOAN SERVICING INCOME. Loan servicing income was $13.0 million in the
first quarter of 1995, a decrease of $3.0 million or 19% from $16.0 million in
the first quarter of 1994. The decrease was primarily due to a $3.7 billion
decline in the average portfolio of loans serviced for investors, partially
offset by an increase of six basis points in the retained loan yield to 0.73%.
The decline in the average portfolio of loans serviced for investors was
primarily due to the sale of servicing rights related to $2 billion of fixed-
rate single family loans in the fourth quarter of 1994. At March 31, 1995 and
1994, the portfolio of loans serviced for investors was $11.1 billion and
$14.7 billion, respectively.
OTHER FEE INCOME. Other fee income was $24.0 million in the first
quarter of 1995, a decrease of $2.9 million or 11% from $26.9 million for the
first quarter of 1994. The decrease was primarily due to a reduction of $1.9
million in investment and insurance services commissions.
OTHER OPERATING INCOME. Other operating income was a net loss of $1.8
million in the first quarter of 1995, a decrease of $3.2 million from income
of $1.4 million for the first quarter of 1994. The decrease was primarily due
to 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 $182.8 million in the first quarter of
1995, a decrease of $9.0 million or 5% from $191.8 million in the first
quarter of 1994. The 5% decrease in the first quarter of 1995 was primarily
due to a $7.9 million decrease in FDIC premiums and assessments, including a
$5.7 million rebate of FDIC premiums recorded in the first quarter of 1995 for
the July 1, 1994 semi-annual assessment period, and broadly-based efforts to
reduce operating expenses. The ratio of G&A expenses to average assets (the
"G&A ratio") decreased to 1.34% in the first quarter of 1995 compared to 1.52%
in the first quarter of 1994, reflecting a 9% increase in average assets and
the 5% decrease in G&A expenses.
OPERATIONS OF REI. Losses from operations of REI were $1.1 million in
the first quarter of 1995, a decrease of $4.4 million or 80% from $5.5 million
in the first quarter of 1994. The decrease in losses was primarily due to
gains of $0.5 million on sales of REI in the first quarter of 1995 compared to
losses of $2.2 million on such sales in the first quarter of 1994.
The Company intends to complete its withdrawal from real estate
development activities as soon as practicable. Although the Company does not
intend to acquire new properties, it intends to develop, hold and/or sell its
current properties depending on economic conditions. The Company has certain
projects with long-term holding and development periods. No new projects have
been initiated since 1990. Although management believes the net realizable
value ("NRV") of REI and the related allowance for losses are fairly stated,
declines in NRV and additions to the allowance for losses could result from
continued weakness in the specific project markets, changes in economic
conditions, changes in the Company's cost of funds and revisions to project
business plans, which may reflect decisions by the Company to accelerate the
disposition of the properties.
OPERATIONS OF REO. Losses from operations of REO were $21.1 million in
the first quarter of 1995, a decrease of $6.0 million or 22% from $27.1
million for the first quarter of 1994. The decrease was primarily due to
declines of $3.6 million in the provision for losses and $2.6 million in net
losses on sales of REO properties. For additional information regarding REO,
see "Financial Condition--Asset Quality--Nonperforming Assets and Potential
Problem Loans."
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE. The Company adopted SFAS No. 72 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 change in accounting. The adoption of SFAS No. 72
also resulted in a reversal of $2.2 million in goodwill amortization expense
previously reported for the first quarter of 1995. Results from periods prior
to the first quarter of 1995 have not been restated. SFAS No. 72 requires,
among other things, that to the extent the fair value of liabilities assumed
exceeds the fair value of assets resulting from the acquisition of banking or
thrift institutions initiated after September 30, 1982, the resulting goodwill
recognized shall be amortized over a period no longer than the estimated
remaining life of the acquired long-term interest-earning assets. The
adoption of SFAS No. 72 for goodwill related to acquisitions of banking or
thrift institutions prior to September 30, 1982 is permissible but not
required. The Company has been accounting for acquisitions initiated
subsequent to September 30, 1982 in accordance with SFAS No. 72.
Amortization of goodwill and other intangible assets was $6.9 million for
the first quarter of 1995, an increase of $0.7 million or 11% from $6.2
million for the first quarter of 1994, reflecting a net increase in the core
deposit premium related to deposits acquired in late 1994 and the first
quarter of 1995, partially offset by the reduction in the goodwill balance
upon the adoption of SFAS No. 72.
PROVISION FOR INCOME TAXES. The changes in the provision for income
taxes primarily reflect the changes in pre-tax earnings between the comparable
periods. The effective tax rates for the first quarters of 1995 and 1994 were
43.1% and 38.4%, respectively, reflecting management's estimate of the
Company's full year tax provision.
FINANCIAL CONDITION
The Company's consolidated assets were $53.7 billion at March 31, 1995,
a decrease of $61.8 million or less than 1% from $53.7 billion at December 31,
1994. The loan and MBS portfolio grew $847.0 million or 2% to $49.6 billion
during the first quarter of 1995, reflecting the reduced level of principal
prepayments due to rising interest rates. The growth in the loan and MBS
portfolio was funded primarily through excess liquidity and a net increase in
interest-costing liabilities.
The Company's primary asset generation business continues to be the
origination of loans on residential real estate properties. The Company
originated $1.7 billion in loans during the first quarter of 1995 compared to
$2.3 billion during the first quarter of 1994. Loans on single family homes
(one-to-four units) accounted for 76% of the total loan origination volume in
the first quarter of 1995, with the balance on multi-family residential
properties, and 97% of total originations were ARMs.
In the first quarter of 1995, approximately 66% of loan originations were
on properties located in California. At March 31, 1995, approximately 97% 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, 1995:
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 $27,763,447 70.44% $8,100,759 91.34% $1,239,104 73.36% $37,103,310 74.25%
Florida 2,937,910 7.45 28,019 0.32 6,370 0.38 2,972,299 5.95
New York 2,175,965 5.52 292,669 3.30 210,205 12.44 2,678,839 5.36
Illinois 1,951,830 4.95 108,246 1.22 18,274 1.08 2,078,350 4.16
Texas 1,100,994 2.79 82,048 0.93 30,916 1.83 1,213,958 2.43
Other 3,485,707 8.85 257,467 2.89 184,216 10.91 3,927,390 7.85
----------- ---------- ---------- ----------- ------
$39,415,853 78.87 $8,869,208 17.75 $1,689,085 3.38 $49,974,146 100.00%
=========== ========== ========== =========== ======
The loan and MBS portfolio includes approximately $6.9 billion in
mortgage loans that were originated with loan to value ("LTV") ratios
exceeding 80%, or 14% of the portfolio at March 31, 1995. Approximately 19%
of loans originated during the first quarter of 1995 had LTV ratios in excess
of 80%, all of which were loans on single family properties, including 6% with
LTV ratios in excess of 90%. 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.
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 COFI ARMs for retention in the loan
and MBS portfolio. During late 1994 the Company began offering ARMs which
provide for interest rates that adjust based upon changes in the yields of
U.S. Treasury securities ("Treasury ARMs"). The Company originated $73.8
million of Treasury ARMs during the first quarter of 1995. At March 31, 1995,
95.3% of the Company's $49.6 billion loan and MBS portfolio consisted of ARMs
indexed primarily to COFI, compared to 95.1% of the $48.8 billion loan and MBS
portfolio at December 31, 1994. The average factor above COFI on the
Company's COFI ARM portfolio was 246 basis points at March 31, 1995, up two
basis points from 244 basis points at December 31, 1994.
Historically, the Company has maintained its cost of funds at a level
below COFI. In a period of rising market interest rates, the favorable
differential between the Company's cost of funds and COFI could decline, or
become negative, which could result in compression of the Company's interest
rate margin. Such a compression occurred in the rising interest rate
environment during 1994. The margin compression began to improve during the
first quarter of 1995.
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 in an environment where market interest rates are believed
to have the potential to rise includes the extension of repricing terms and
the spreading of clustered maturities on term deposits and other interest-
costing liabilities, combined with emphasis on more responsive assets,
including diversification away from COFI on certain interest-earning assets.
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,
1995:
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 $ 1,595,350 3% $ 1,322,543 $ - $ 272,807 $ - $ -
Impact of hedging (LIBOR-indexed
amortizing swaps) - (134,172) - 134,172 - -
----------- --- ----------- ----------- ----------- ---------- -----------
Total investment securities 1,595,350 3 1,188,371 - 406,979 - -
----------- --- ----------- ----------- ----------- ---------- -----------
Loans and MBS
MBS
ARMs 12,381,026 24 12,381,026 - - - -
Other 1,137,853 2 22,147 - 590,600 85,058 440,048
Loans
ARMs 34,922,309 68 33,526,189 378,860 1,017,260 - -
Other 1,196,967 3 231,340 46,263 299,619 290,942 328,803
Impact of hedging (interest
rate swaps) - - 1,396,120 (378,860) (1,017,260) - -
----------- --- ----------- ------------ ----------- --------- ----------
Total loans and MBS 49,638,155 97 47,556,822 46,263 890,219 376,000 768,851
----------- --- ----------- ------------ ----------- --------- ----------
Total interest-earning assets $51,233,505 100% $48,745,193 $ 46,263 $ 1,297,198 $ 376,000 $ 768,851
=========== === =========== ============ =========== ========= ==========
Interest-costing liabilities:
Deposits
Transaction accounts $12,209,355 24% $12,209,355 $ - $ - $ - $ -
Term accounts 29,460,350 59 14,260,923 10,568,753 4,619,600 11,034 40
----------- --- ----------- ------------ ----------- --------- ----------
Total deposits 41,669,705 83 26,470,278 10,568,753 4,619,600 11,034 40
----------- --- ----------- ------------ ----------- --------- ----------
Borrowings
Short-term 1,832,137 4 1,733,785 98,352 - - -
FHLB and other 6,546,565 13 4,845,949 126,707 839,074 728,050 6,785
----------- --- ----------- ------------ ----------- --------- ----------
Total borrowings 8,378,702 17 6,579,734 225,059 839,074 728,050 6,785
----------- --- ----------- ------------ ----------- --------- ----------
Total interest-costing
liabilities $50,048,407 100% $33,050,012 $ 10,793,812 $ 5,458,674 $ 739,084 $ 6,825
=========== === =========== ============ =========== ========= ==========
Hedge-adjusted interest-earning
assets more/(less) than
interest-costing liabilities $ 1,185,098 $15,695,181 $(10,747,549) $(4,161,476) $(363,084) $ 762,026
=========== =========== ============ =========== ========= ==========
Cumulative interest sensitivity gap $15,695,181 $ 4,947,632 $ 786,156 $ 423,072 $1,185,098
=========== ============ =========== ========= ==========
Percentage of hedge-adjusted
interest-earning assets to
interest-costing liabilities 102.37%
Percentage of cumulative interest
sensitivity gap to total assets 2.21%
The following table presents the interest rates, spread and margin at the
end of the periods indicated:
March 31, December 31,
1995 1994
-------- ------------
Average yield on:
Loans 7.22% 6.74%
MBS 7.11 6.63
Total loans and MBS 7.19 6.71
Investment securities 5.76 5.85
Interest-earning assets 7.15 6.68
Average rate paid on:
Deposits 4.51 4.05
Borrowings:
Short-term 6.56 6.38
FHLB and other 6.88 6.65
Total borrowings 6.81 (1) 6.58 (1)
Interest-costing liabilities 4.90 4.52
Interest rate spread 2.25 2.16
Net interest margin 2.36 2.24
<FN>
(1) Includes the effect of miscellaneous borrowing costs of approximately,
0.26% and 0.27% as of March 31, 1995 and December 31, 1994, 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.
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), troubled
debt restructurings ("TDRs"), and performing major loans and major loans less
than 90 days delinquent ("other impaired major loans") which the Company
believes will be collected in full, but which the Company believes it is
probable will not be collected in accordance with the contractual terms of the
loans.
The following table presents nonperforming assets (nonaccrual loans and
REO), TDRs and other impaired major loans, net of related specific loss
allowances, by type as of the dates indicated:
March 31, December 31, Increase
1995 1994 (Decrease)
----------- ----------- -----------
(dollars in thousands)
Nonaccrual loans:
Single family $ 578,186 $ 568,808 $ 9,378
Multi-family 79,936 69,856 10,080
Commercial and industrial
real estate 31,372 42,362 (10,990)
--------- --------- ---------
689,494 681,026 8,468
--------- --------- ---------
REO:
Single family 163,501 135,357 28,144
Multi-family 17,294 14,181 3,113
Commercial and industrial
real estate 8,351 12,410 (4,059)
--------- --------- ---------
189,146 161,948 27,198
--------- --------- ---------
Total nonperforming assets:
Single family 741,687 704,165 37,522
Multi-family 97,230 84,037 13,193
Commercial and industrial
real estate 39,723 54,772 (15,049)
--------- --------- ---------
Total $ 878,640 $ 842,974 $ 35,666
========= ========= =========
TDRs:
Single-family $ 22,988 $ 21,885 $ 1,103
Multi-family 59,536 56,824 2,712
Commercial and industrial
real estate 44,241 42,656 1,585
--------- --------- ---------
Total $ 126,765 $ 121,365 $ 5,400
========= ========= =========
Other impaired major loans:
Multi-family $ 1,725 $ 10,652 $ (8,927)
Commercial and industrial
real estate 1,507 1,506 1
--------- --------- ---------
$ 3,232 $ 12,158 $ (8,926)
========= ========= =========
Ratio of nonperforming assets
to total assets 1.64% 1.57%
========= =========
Ratio of nonperforming assets
and TDRs to total assets 1.87% 1.79%
========= ========
Ratio of allowances for
losses on loans and REO to
nonperforming assets 46.75% 50.12%
========= ========
The amount of the net recorded investment in impaired loans for which
there is a related specific allowance for losses was $80.6 million, net of an
allowance of $28.0 million, at March 31, 1995 and $71.0 million, net of an
allowance of $29.9 million, at December 31, 1994. The Company's total net
recorded investment in impaired loans (excluding those collectively reviewed
for impairment) was $203.8 million and $204.5 million at March 31, 1995 and
December 31, 1994, respectively.
The following table presents nonperforming assets, TDRs and other
impaired major loans by state at March 31, 1995:
Nonperforming Assets
----------------------------------------------------
Commercial Other
and Impaired
Single Family Multi-Family Industrial Major
Residential Residential Real Estate Total TDRs Loans
------------- ------------ ----------- --------- -------------- -----------
(in thousands)
California $603,124 $83,744 $28,497 $715,365 $ 62,312 $1,507
New York 42,496 2,784 2,512 47,792 41,559 1,725
Florida 30,242 - 178 30,420 290 -
Illinois 15,659 1,470 5,378 22,507 2,235 -
Texas 8,454 512 11 8,977 6,530 -
Other 41,712 8,720 3,147 53,579 13,839 -
-------- ------- ------- -------- -------- ------
$741,687 $97,230 $39,723 $878,640 $126,765 $3,232
======== ======= ======= ======== ======== ======
Total nonperforming assets were $878.6 million at March 31, 1995, or a
ratio of nonperforming assets to total assets of 1.64%, an increase of $35.7
million or 4% during the first quarter of 1995 from $843.0 million, or 1.57%
of total assets at December 31, 1994. Single family nonperforming assets were
$741.7 million at March 31, 1995, an increase of $37.5 million or 5% during
the first quarter of 1995 primarily due to increases in California REO of
$26.2 million and nonaccrual loans secured by California properties of $9.8
million.
Multi-family nonperforming assets totaled $97.2 million at March 31,
1995, an increase of $13.2 million or 16% during the first quarter of 1995
primarily due to increases in California ($5.2 million), Georgia ($3.8
million) and New Jersey ($1.5 million). Commercial and industrial real estate
nonperforming assets totaled $39.7 million at March 31, 1995, a decrease of
$15.0 million or 27% during the first quarter of 1995 primarily due to
decreases in California ($9.8 million), New York ($3.2 million) and New Jersey
($1.7 million).
TDRs were $126.8 million at March 31, 1995, an increase of $5.4 million
or 4% during the first quarter of 1995 from $121.4 million at December 31,
1994 primarily due to an increase in TDRs secured by properties in California
($2.6 million) and New York ($1.6 million). Other impaired major loans
totaled $3.2 million at March 31, 1995, a decline of $8.9 million or 74% from
$12.1 million at December 31, 1994 primarily due to a $6.4 million decrease in
such loans secured by properties in California.
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 $67.6 million of single family REO and
$22.3 million of multi-family and commercial and industrial REO in the first
quarter of 1995. In addition, the Company may, from time to time, offer
packages of nonperforming assets for competitive bids.
ALLOWANCE FOR LOAN LOSSES. Management believes the Company's allowance
for loan losses is adequate at March 31, 1995. The Company's process for
evaluating the adequacy of the allowance for loan losses has three basic
elements: first, the identification of impaired loans; second, the
establishment of appropriate loan loss allowances once individual specific
impaired loans are identified; and third, a methodology for estimating loan
losses based on the inherent risk in the remainder of the loan portfolio.
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 the allowance for loan losses are as follows:
Three Months Ended March 31,
----------------------------
1995 1994
-------- --------
(dollars in thousands)
Beginning balance $400,232 $438,786
Provision for loan losses 26,544 75,512
-------- --------
426,776 514,298
-------- --------
Charge-offs:
Single family (24,722) (26,065)
Multi-family (10,129) (19,160)
Commercial and industrial real estate (7,259) (21,190)
-------- --------
(42,110) (66,415)
Recoveries 6,439 5,254
-------- --------
Net charge-offs (35,671) (61,161)
-------- --------
Ending balance $391,105 $453,137
======== ========
Ratio of net charge-offs to average
loans and MBS outstanding during
the periods (annualized) 0.29% 0.55%
==== ====
Charge-offs on commercial and industrial real estate loans for the first
quarter of 1995 include $6.3 million resulting from the foreclosure of one
property in California. During the first quarter of 1994, sales of nonaccrual
loans resulted in charge-offs of $8.7 million on multi-family properties and
$13.4 million on commercial and industrial properties.
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:
March 31, 1995 December 31, 1994
-------------------- ---------------------
% of Loan % of Loan
and MBS and MBS
Allowance Portfolio Allowance Portfolio
--------- --------- --------- ---------
(dollars in thousands)
Single family $165,000 0.42% $165,000 0.42%
Multi-family 165,105 1.87 160,232 1.88
Commercial and
industrial
real estate 61,000 3.63 75,000 4.34
-------- --------
$391,105 0.78 $400,232 0.81
======== ========
It is possible that the Company's delinquent loans, nonaccrual loans,
TDRs and other impaired major 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 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 $1.6 billion at
March 31, 1995, decreased $576.0 million or 27% from December 31, 1994
primarily due to a net increase in the loan and MBS portfolio of $847.0
million and a net reduction in borrowings of $797.4 million, partially offset
by a net increase in deposits of $1.0 billion during the first quarter of
1995. 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
1995 the average liquidity and average short-term liquidity ratios of Home
Savings were 5.15% and 4.45%, respectively.
Sources of additional liquidity consist primarily of positive cash flows
generated from operations, the collection of principal payments and
prepayments on loans and MBS and increases in deposits and borrowings.
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 1995 were an increase in
deposits, principal payments and prepayments on loans and MBS and proceeds
from sales of loans and MBS.
Each of the Company's sources of liquidity is influenced by various
uncertainties beyond the control of the Company. Scheduled loan payments are
a relatively stable source of funds, while loan prepayments and deposit flows
vary widely in reaction to market conditions, primarily market interest rates.
Asset sales are influenced by general market interest rates and other
unforeseeable market conditions. The Company's ability to borrow at
attractive rates is affected by its size, credit rating, the availability of
acceptable collateral and other market-driven conditions.
In order to manage the uncertainty inherent in its sources of funds, the
Company continually evaluates alternate sources of funds and maintains and
develops diversity and flexibility in the number and character of such
sources. The effect of a decline in any one source of funds generally can be
offset by use of an alternate source, although potentially at a different cost
to the Company.
LOANS RECEIVABLE. The Company's primary use of cash is to fund
internally generated mortgage loans. During the first quarter of 1995 cash of
$1.6 billion was used to originate loans. Gross loan originations in the
first quarter of 1995 of $1.7 billion included $1.6 billion of COFI ARMs with
an average factor of 278 basis points above COFI, $73.8 million of Treasury
ARMs and $57.1 million of fixed rate loans. Fixed rate loans originated and
designated for sale represented approximately 3% of single family loan
originations in the first quarter of 1995. Principal payments on loans were
$430.8 million in the first quarter of 1995, a decrease of $494.2 million or
53% from $924.9 million in the first quarter of 1994.
During the first quarter of 1995 the Company sold loans totaling $43.2
million. The Company designates certain loans as held for sale, including
most of its fixed rate originations. At March 31, 1995, the Company had $26.6
million of loans held for sale.
At March 31, 1995 the Company was committed to fund mortgage loans
totaling $603.4 million, including $569.9 million or 94% in ARMs. The Company
expects to fund such loans from its liquidity sources.
MBS. During the first quarter of 1995 the Company sold $138.4 million of
MBS, comprised of $27.9 million of fixed rate MBS and $110.5 million of ARM
MBS. The Company designates certain MBS as available for sale. At March 31,
1995 the Company had $2.3 billion of MBS available for sale.
During the first quarter of 1995 the Company securitized $1.0 billion of
ARMs into private placement mortgage pass-through securities. The Company has
the intent and ability to hold these MBS until maturity.
DEPOSITS. Savings deposits were $41.7 billion at March 31, 1995, an
increase of $1.0 billion or 2% during the first quarter of 1995, primarily
reflecting a deposit inflow of $977.5 million. The deposit inflow reflects
the Company's strategy to increase its term deposits by increasing rates
offered on such deposits and reducing higher costing short-term borrowings.
In addition, the Company purchased deposits totaling $47.4 million from two
California financial and sold deposits totaling $10.2 million in its remaining
Ohio branch during the first quarter of 1995.
During February 1995 the Company announced a definitive agreement with
Household Bank, FSB to acquire its 52 retail branches in Southern California
with deposits totaling $1.4 billion. The Company plans to consolidate 16 of
the acquired branches with existing Home Savings branches. The acquisition is
expected to be completed in the second quarter of 1995.
The Company intends to continue consideration of branch purchases and
sales as opportunities to consolidate the Company's presence in its key
strategic markets. At March 31, 1995, 62% of the Company's deposits were in
California, unchanged from December 31, 1994.
BORROWINGS. Borrowings totaled $8.4 billion at March 31, 1995, a
decrease of $797.4 million or 9% during the first quarter of 1995 reflecting
reductions in short-term borrowings of $521.7 million and FHLB and other
borrowings of $275.7 million.
In April 1995, the Company had two issuances of medium term notes
totaling $90 million. The notes will mature in five to seven years and have a
weighted average interest rate of 7.67%. Such borrowings will be used for
general corporate purposes.
CAPITAL. Stockholders' equity was $2.8 billion at March 31, 1995, a
decrease of $180.7 million or 6% from December 31, 1994. The decrease is
primarily due to the net loss of $181.9 million, including the write-off of
$234.7 million in goodwill upon adopting SFAS No. 72, and dividends paid to
common and preferred stockholders of $38.4 million, partially offset by a
decrease of $39.2 million in the net unrealized loss on securities available
for sale. The aggregate unrealized loss on securities available for sale at
March 31, 1995 was $13.2 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 March 31, 1995 Home Savings met these standards.
Home Savings is in compliance with the OTS regulations. The following
table shows the capital amounts and ratios of Home Savings at March 31, 1995:
Balance Ratio
---------- -------
(dollars in thousands)
Tangible/core capital (to adjusted total assets) $2,759,263 5.19%
Core capital (to risk-weighted assets) 2,759,263 8.56
Total risk-based capital 3,758,697 11.66
The regulatory capital requirements applicable to Home Savings are
continuing to become more stringent as the amount of Home Savings' investment
in real estate development subsidiaries includable in capital is phased out
through July 1, 1996. Home Savings currently meets the requirements of the
OTS regulations assuming the present application of the full phase-out
provisions. At March 31, 1995 the capital ratios computed on this more
stringent, "fully phased-in" basis were 5.12% for core and tangible capital
and 11.57% for risk-based capital.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121
In March 1995 the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain identified intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. As a result of this review, impaired assets would be
adjusted to fair value. In addition, SFAS No. 121 requires that long-lived
assets and certain identified intangibles held for disposal be reported at the
lower of carrying amount or fair value less selling costs. SFAS No. 121 must
be adopted for financial statements for fiscal years beginning after December
15, 1995. The impact on the Company of adopting SFAS No. 121 is not expected
to be material.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits.
11 Statement of Computation of Earnings 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 on April 5, 1995 with the respect to the
commencement of the Registrant's medium term note program.
The Registrant filed with the Commission a Current Report
on Form 8-K on April 14, 1995 with respect to the Registrant's
issuance of medium term notes.
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: October 27, 1995 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 Earnings
per Share. 28
27 Financial Data Schedule. *
<FN>
* Filed electronically with the Securities and Exchange Commission.