<PAGE>
<PAGE> 1
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United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
/x/ Quarterly report pursuant to 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: 1-7850
SOUTHWEST GAS CORPORATION
(exact name of registrant as specified in its charter)
California 88-0085720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5241 Spring Mountain Road
Post Office Box 98510
Las Vegas, Nevada 89193-8510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 876-7237
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 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 the latest practicable date.
Common Stock, $1 Par Value 21,027,937 shares as of May 9, 1994
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein have been
prepared by Southwest Gas Corporation (the Company), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments, consisting of normal recurring items
necessary for a fair presentation of the results for the interim periods, have
been made. Certain information and footnote 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. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's 1993 Annual Report on Form 10-K.<PAGE>
<PAGE> 3
<TABLE>
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of dollars)
(Unaudited)
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 116,696 $ 121,342
Debt securities available for sale (at fair value) 583,093 595,726
Debt securities held to maturity (fair value of
$63,884 and $68,738) 64,828 69,660
Loans receivable, net of allowance for estimated losses
of $15,563 and $16,251 875,923 817,279
Loans receivable held for sale (fair value of
$3,749 and $22,109) 3,749 20,051
Receivables, less reserves for uncollectibles 70,419 98,265
Gas utility property, net of accumulated depreciation 971,037 954,488
Real estate held for sale or development 3,624 4,088
Real estate acquired through foreclosure 9,172 9,707
Other property, net of accumulated depreciation 36,237 36,495
Excess of cost over net assets acquired 68,535 69,501
Other assets 144,343 147,347
---------- ----------
$2,947,656 $2,943,949
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
Deposits $1,234,590 $1,207,852
Securities sold under agreements to repurchase 239,947 259,041
Deferred income taxes and tax credits, net 152,002 151,558
Accounts payable and other accrued liabilities 208,129 194,697
Notes payable 43,000 86,000
Long-term debt, including current maturities 702,698 692,865
---------- ----------
2,580,366 2,592,013
---------- ---------
Preferred and preference stocks, including current maturities 8,058 8,058
---------- ---------
Common stock 22,658 22,627
Additional paid-in capital 274,890 274,410
Capital stock expense (5,685) (5,685)
Unrealized gain, net of tax, on debt securities available for sale 5,139 8,761
Retained earnings 62,230 43,765
---------- ----------
359,232 343,878
---------- ----------
$2,947,656 $2,943,949
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 4
<TABLE>
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues:
Gas operating revenues $207,369 $182,449 $564,025 $529,168
Financial services interest income 28,045 35,997 124,373 154,123
Other 3,741 2,115 20,037 15,107
-------- -------- -------- --------
239,155 220,561 708,435 698,398
-------- -------- -------- --------
Operating expenses:
Net cost of gas purchased 96,996 86,740 222,547 212,013
Financial services interest expense, net 14,049 22,240 66,885 101,116
Operating expense 41,231 40,756 165,626 159,490
Maintenance expense 6,739 6,628 28,448 27,188
Provision for estimated credit losses 1,848 1,361 7,709 19,522
Depreciation, depletion and amortization 16,062 15,750 63,895 61,810
Taxes other than income taxes 6,495 6,460 24,795 23,458
Other 4,281 4,689 25,435 18,884
-------- -------- -------- --------
187,701 184,624 605,340 623,481
-------- -------- -------- --------
Operating income 51,454 35,937 103,095 74,917
-------- -------- -------- --------
Other income and (expenses):
Net interest deductions (13,615) (12,095) (51,226) (45,118)
Other income (deductions), net (218) 100 (14,569) (1,050)
-------- -------- -------- --------
(13,833) (11,995) (65,795) (46,168)
-------- -------- -------- --------
Income before income taxes 37,621 23,942 37,300 28,749
Income taxes 14,911 9,861 16,310 11,815
-------- -------- -------- --------
Net income before cumulative effect of accounting change 22,710 14,081 20,990 16,934
Cumulative effect of change in method of accounting -- 3,045 -- 3,045
-------- -------- -------- --------
Net income 22,710 17,126 20,990 19,979
Preferred/preference stock dividend requirements 139 206 674 984
-------- -------- -------- --------
Net income applicable to common stock $ 22,571 $ 16,920 $ 20,316 $ 18,995
======== ======== ======== ========
Earnings per share before cumulative effect of accounting change $ 1.07 $ 0.67 $ 0.98 $ 0.77
Earnings per share from cumulative effect of change in method
of accounting -- 0.15 -- 0.15
======== ======== ======== ========
Earnings per share of common stock $ 1.07 $ 0.82 $ 0.98 $ 0.92
======== ======== ======== ========
Dividends paid per share of common stock $ 0.195 $ 0.175 $ 0.76 $ 0.70
======== ======== ======== ========
Average number of common shares outstanding 21,023 20,598 20,833 20,598
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 5
<TABLE>
SOUTHWEST GAS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of dollars)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------- --------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 22,710 $ 17,126 $ 20,990 $ 19,979
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 16,062 15,750 63,895 61,810
Change in unrecovered purchased gas costs (1,425) (8,764) (26,232) 5,676
Change in deferred income taxes 444 16,038 11,607 6,621
Change in deferred charges and credits (2,155) (13,710) 9,000 (26,895)
Change in provision for estimated losses 1,848 1,361 7,709 19,522
Change in noncash working capital 40,773 41,808 2,465 23,827
Cumulative effect of change in method of
accounting for income taxes -- (3,045) -- (3,045)
Other (1,715) 184 9,852 (4,907)
--------- --------- --------- ---------
Net cash provided by operating activities 76,542 66,748 99,286 102,588
--------- --------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures (30,866) (24,719) (121,570) (112,627)
Purchases of debt securities (50,987) (67,190) (96,875) (600,687)
Proceeds from sale of debt securities 3,559 12,065 352,347 286,867
Maturities and repayment of debt securities 71,905 66,836 298,857 327,951
Loan originations, net of repayments (61,567) (27,191) (220,985) (122,193)
Sales of loans and loan servicing rights 17,921 17,907 78,367 221,613
Termination of interest rate swaps -- -- -- (14,087)
Proceeds from sales of real estate held for development 134 1,607 453 10,955
Proceeds from sales of real estate acquired through foreclosure 19 475 22,460 15,160
Acquisition of real estate held for development (84) (215) (3,080) (3,874)
Proceeds from sale of Arizona assets and services -- -- 6,718 --
Other (1,816) 3,156 (7,383) 4,087
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (51,782) (17,269) 309,309 13,165
--------- --------- --------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from repurchase agreements and other borrowings (19,094) (60,741) (76,171) 131,642
Change in deposit accounts 26,738 7,444 (73,521) (115,241)
Issuance of long-term debt 11,000 -- 97,909 211,571
Retirement of long-term debt (1,167) (3,251) (46,484) (231,534)
Issuance (repayment) of notes payable (43,000) (20,000) 43,000 (54,688)
Dividends paid (4,239) (3,811) (16,567) (15,430)
Sale and assumption of Arizona deposit liabilities -- -- (320,902) --
Issuance of common stock 511 -- 7,301 --
Other (155) 21 (8,246) (7,236)
--------- --------- --------- ---------
Net cash used in financing activities (29,406) (80,338) (393,681) (80,916)
--------- --------- --------- ---------
Net change in cash and cash equivalents (4,646) (30,859) 14,914 34,837
Balance at beginning of period 121,342 132,641 101,782 66,945
--------- --------- --------- ---------
Balance at end of period $ 116,696 $ 101,782 $ 116,696 $ 101,782
========= ========= ========= =========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest, net of amounts capitalized $ 26,441 $ 21,558 $ 71,768 $ 69,258
Income taxes, net of refunds (3,650) 8,625 (1,293) 7,512
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summarized Consolidated Financial Statement Data
Summarized consolidated financial statement data for PriMerit Bank is presented
below:
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Thousands of dollars)
(Unaudited)
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 109,837 $ 119,215
Debt securities available for sale (at fair value) 583,093 595,726
Debt securities held to maturity (fair value of $63,884 and
$68,738) 64,828 69,660
Loans receivable, net of allowance for estimated credit losses
of $15,563 and $16,251 875,923 817,279
Loans receivable held for sale (fair value of $3,749 and
$22,109) 3,749 20,051
Real estate held for sale or development, net of allowance for
estimated losses of $541 and $935 3,624 4,088
Real estate acquired through foreclosure 9,172 9,707
Excess of cost over net assets acquired 68,535 69,501
FHLB stock, at cost 16,652 16,501
Other assets 32,110 29,691
---------- ----------
$1,767,523 $1,751,419
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits $1,234,590 $1,207,852
Securities sold under agreements to repurchase 239,947 259,041
Advances from FHLB 71,000 71,000
Notes payable 8,265 8,265
Other liabilities 38,211 28,318
---------- ----------
1,592,013 1,574,476
Stockholder's equity 175,510 176,943
---------- ----------
$1,767,523 $1,751,419
========== ==========
/TABLE
<PAGE>
<PAGE> 7
Note 1 - Summarized Consolidated Financial Statement Data (Continued)
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ -------------------
1994 1993 1994 1993
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Interest income $ 28,045 $ 35,997 $124,373 $154,123
Interest expense 14,049 22,240 66,885 101,116
-------- -------- -------- --------
Net interest income 13,996 13,757 57,488 53,007
Provision for estimated credit losses (1,434) (1,123) (6,523) (6,662)
-------- -------- -------- --------
Net interest income after provision
for credit losses 12,562 12,634 50,965 46,345
-------- -------- -------- --------
Income (loss) from real estate operations (71) 75 (46) 184
Provision for estimated real estate losses (414) (238) (1,186) (12,860)
-------- -------- -------- --------
Net loss from real estate operations (485) (163) (1,232) (12,676)
Gain on sale of loans 248 555 1,528 6,065
Loss on sale of loans (156) (27) (213) (1,070)
Net gain on sale of debt securities 33 176 7,830 13,454
Gain on sale of mortgage loan servicing -- -- -- 1,930
Gain (loss) on secondary marketing
hedging activity 131 (591) (246) (591)
Loss on interest rate swaps -- -- -- (14,087)
Loan related fees 237 284 978 1,898
Deposit related fees 1,495 1,412 6,480 5,718
Gain on sale of credit cards 1,690 -- 1,690 --
Loss on sale - Arizona branches -- -- (6,262) --
Other income 134 231 2,036 1,606
-------- -------- -------- --------
15,889 14,511 63,554 48,592
General and administrative expenses 10,988 11,989 47,295 47,693
Amortization of cost in excess of net
assets acquired 966 1,039 3,911 4,156
-------- -------- -------- --------
Income (loss) before income taxes 3,935 1,483 12,348 (3,257)
Income tax expense 1,746 874 7,217 1,055
-------- -------- -------- --------
Net income (loss) before cumulative effect of
accounting change 2,189 609 5,131 (4,312)
Cumulative effect of change in method of accounting -- 3,045 -- 3,045
-------- -------- -------- --------
Net income (loss) $ 2,189 $ 3,654 $ 5,131 $ (1,267)
======== ======== ======== ========
Contribution to consolidated net income (a) $ 976 $ 2,434 $ 198 $ (6,132)
======== ======== ======== ========
</TABLE>
(a) Includes after-tax allocation of costs from parent.<PAGE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is comprised of two business segments; natural gas operations and
financial services. The gas segment purchases, transports and distributes
natural gas to residential, commercial and industrial customers in
geographically diverse portions of Arizona, Nevada and California. The
financial services segment consists of PriMerit Bank (the Bank), a wholly owned
subsidiary, and is engaged in retail and commercial banking. The Bank's
principal business is to attract deposits from the general public and make
consumer and commercial loans secured by real estate and other collateral. For
the twelve months ended March 31, 1994, the natural gas operations segment
contributed $20.8 million and the financial services segment contributed
$198,000, resulting in consolidated net income of $21 million.
CONSOLIDATED CAPITAL RESOURCES AND LIQUIDITY
The capital requirements and resources of the Company generally are determined
independently for the natural gas operations and financial services segments.
Each segment is generally responsible for securing its own financing sources.
In May 1994, the Board of Directors declared a quarterly common stock dividend
of 20.5 cents per share payable September 1, 1994, a five percent increase from
the previous level. The increase was established in accordance with the
Company's dividend policy which states that the Company will pay common stock
dividends at a prudent level that is within the normal dividend payout range for
its respective businesses, and that the dividend will be established at a level
considered sustainable in order to minimize business risk and maintain a strong
capital structure throughout all economic cycles.
The Company's unsecured debt is rated Ba1 by Moody's Investors Service, BBB- by
Standard and Poor's Rating Group and BB+ by Duff and Phelps Credit Rating
Company.
See separate discussions of the capital resources and liquidity for each
segment.
RESULTS OF CONSOLIDATED OPERATIONS
Quarterly Analysis
- ------------------
Contribution to Consolidated Net Income
Three Months Ended March 31,
---------------------------------------
1994 1993
--------- ---------
(thousands of dollars)
Natural gas operations segment $ 21,734 $ 14,692
Financial services segment 976 (611)
Financial services segment cumulative
effect of accounting change -- 3,045
--------- ---------
Consolidated net income $ 22,710 $ 17,126
========= =========
See separate discussions of each business segment for an analysis
of these changes.<PAGE>
<PAGE> 9
Twelve Month Analysis
- ---------------------
Contribution to Consolidated Net Income
Twelve Months Ended March 31,
---------------------------------------
1994 1993
--------- ---------
(thousands of dollars)
Natural gas operations segment $ 20,792 $ 26,111
Financial services segment 198 (9,177)
Financial services segment cumulative
effect of accounting change -- 3,045
--------- ---------
Consolidated net income $ 20,990 $ 19,979
========= =========
See separate discussions of each business segment for an analysis of these
changes.
NATURAL GAS OPERATIONS SEGMENT
The Company is engaged in the business of purchasing, transporting, and
distributing natural gas in portions of Arizona, Nevada and California. Its
several service areas are geographically as well as economically diverse. The
Company is the largest distributor in Arizona, selling and transporting gas in
most of southern, central, and northwestern Arizona. The Company is also the
largest distributor and transporter of natural gas in Nevada. The Company also
distributes and transports gas in portions of California, including the Lake
Tahoe area and high desert and mountain areas in San Bernardino County.
For the twelve months ended March 31, 1994, 57 percent of operating margin was
earned in Arizona, 32 percent in Nevada and 11 percent in California. This
pattern is consistent with prior years and is expected to continue.
For the twelve months ended March 31, 1994, the Company's natural gas
construction expenditures totaled $120 million, a ten percent increase when
compared to $109 million of additions for the same period a year ago. The
increase is attributed to the investment in new distribution plant in Arizona
and southern Nevada to meet the demand from the Company's growing customer base.
CAPITAL RESOURCES AND LIQUIDITY
The Company currently estimates that construction expenditures for the gas
segment during 1994 through 1996 will be approximately $410 million, and debt
maturities and repayments, and other cash requirements are expected to
approximate $190 million. Often times there are differences between estimated
and actual results, because actual events and circumstances frequently do not
occur as expected, and those differences may be significant.
It is currently estimated that cash flow from operating activities (net of
dividends) will generate approximately 45 percent of the gas segment's total
cash requirements during 1994 through 1996. A portion of the remaining funding
requirements will be provided by $108 million of IDRB funds held in trust from
the 1993 Series A issues. The remaining cash requirements, including debt
refinancings, are expected to be provided by external financing sources. The
timing, types, and amounts of these additional external financings will be
dependent on a number of factors, including conditions in the capital markets,
timing and amounts of rate relief, and growth factors in the Company's service
areas. These external financings may include the issuance of both debt and
equity securities, bank and other short-term borrowings, and other forms of
financing.<PAGE>
<PAGE> 10
RESULTS OF NATURAL GAS OPERATIONS
Quarterly Analysis
- ------------------
Three Months Ended
March 31,
------------------------
(Thousands of dollars)
1994 1993
--------- ---------
Gas operating revenues $ 207,369 $ 182,449
Net cost of gas 96,996 86,740
--------- ---------
Operating margin 110,373 95,709
Operations and maintenance expense 42,435 41,440
Depreciation and amortization 14,048 13,524
General taxes 6,371 6,291
--------- ---------
Operating income 47,519 34,454
Other income (expense), net (218) 100
--------- ---------
Income before interest and income taxes 47,301 34,554
Net interest deductions 13,615 12,095
Income tax expense 13,165 8,987
--------- ---------
Net income before allocation to the Bank 20,521 13,472
Costs allocated to the Bank, net of tax 1,213 1,220
--------- ---------
Contribution to consolidated net income $ 21,734 $ 14,692
========= =========
Contribution to consolidated net income increased $7 million, or 48 percent,
compared to the first quarter of 1993. This was the result of increased
operating margin partially offset by increased operations and maintenance
expense, depreciation expense and net interest deductions.
Operating margin increased $14.7 million, or 15 percent, when compared to the
same period a year ago. The increase in operating margin is attributed to rate
relief, strong customer growth, particularly in Arizona and southern Nevada, and
differences in heating demand between periods.
Operations and maintenance expenses increased $995,000, or two percent,
reflecting general increases in labor and maintenance costs associated with
meeting the needs of the Company's increasing customer base.
Depreciation expense increased $524,000, or four percent, resulting from an
increase in average gas plant in service of $79.9 million, or six percent,
during the first quarter of 1994. This increase reflects ongoing capital
expenditures for the upgrade of existing operating facilities and the expansion
of the system to accommodate continued customer growth.
Net interest deductions increased $1.5 million, or 13 percent, over the prior
period. The increase is primarily attributable to an additional $25 million in
average long-term debt outstanding during the period. The increase in long-term
debt resulted from the Company's use of IDRB funds held in trust for
construction expenditures. A $59 million increase in average short-term debt
during the period also contributed to the increase in net interest deductions.<PAGE>
<PAGE> 11
Twelve Month Analysis
- ---------------------
Twelve Months Ended
March 31,
------------------------
(Thousands of dollars)
1994 1993
--------- ---------
Gas operating revenues $ 564,025 $ 529,168
Net cost of gas 222,547 212,013
--------- ---------
Operating margin 341,478 317,155
Operations and maintenance expense 170,916 163,096
Depreciation and amortization 55,611 53,089
General taxes 24,204 22,796
--------- ---------
Operating income 90,747 78,174
Other income (expense), net (14,570) (1,050)
--------- ---------
Income before interest and income taxes 76,177 77,124
Net interest deductions 51,226 45,118
Income tax expense 9,092 10,760
--------- ---------
Net income before allocation to the Bank 15,859 21,246
Costs allocated to the Bank, net of tax 4,933 4,865
--------- ---------
Contribution to consolidated net income $ 20,792 $ 26,111
========= =========
Contribution to consolidated net income decreased $5.3 million, or 20 percent,
as compared to the twelve months ended March 1993. Increased operating margin
was partially offset by increased operations and maintenance expense,
depreciation expense, general taxes, and net interest deductions. The
recognition of the Arizona pipe replacement program disallowances contributed
significantly to the decline in net income.
Operating margin increased $24.3 million, or eight percent, during the twelve
months ended March 31, 1994. This increase was due to continued customer growth
in the Company's service areas, combined with rate relief in the Company's
central Arizona, California and federal rate jurisdictions.
The Company added approximately 38,000 customers, an increase of four percent,
during the twelve-month period. This growth is attributed to the healthy
economies in southern Nevada and Arizona.
Operations and maintenance expenses increased $7.8 million, or five percent,
resulting primarily from general cost increases in labor and materials over the
same period a year ago. These increases are the direct result of increased
costs to provide service to the Company's steadily growing customer base.
Depreciation expense and general taxes increased $3.9 million, or five percent.
In the last twelve months, average gas plant in service increased $100 million,
or eight percent. This was attributable to the upgrade of existing operating
facilities and the expansion of the system to accommodate the number of new
customers being added to the system.
Other expenses increased $13.5 million during the twelve months ended March 31,
1994, principally the result of a regulatory mandate to write off $15.9 million
in gross plant related to the central and southern Arizona pipe replacement
programs. The impact of these disallowances, net of accumulated depreciation,
tax benefits and other related items, was a noncash reduction to net income of
$9.3 million. See Note 17 of the Notes to Consolidated Financial Statements of
the 1993 Form 10-K for further discussion.<PAGE>
<PAGE> 12
Net interest deductions increased $6.1 million, or 14 percent, primarily the
result of a $41 million increase in average outstanding long-term debt balances.
This increase is attributed to the use of IDRB funds held in trust for
construction expenditures. A $28 million increase in average short-term debt
during the period also contributed to the increase in net interest deductions.
RATES AND REGULATORY PROCEEDINGS
CALIFORNIA
Effective January 1, 1994, the Company received approval of an attrition
allowance to increase annual margin by $1.5 million in its southern and
northern California rate jurisdictions. Pursuant to the California Public
Utilities Commission rate case processing plan, the Company filed a general rate
application in January 1994 to increase annual margin by $1.1 million in
January 1995 for its southern and northern California rate jurisdictions.
NEVADA
In March 1993, the Company filed general rate cases with the Public Service
Commission of Nevada (PSCN) seeking approval to increase revenues for its
southern and northern Nevada rate jurisdictions. The PSCN issued its rate order
in October 1993 and ordered the Company to reduce general rates by $648,000 in
southern Nevada and authorized a $799,000 increase in northern Nevada. The
Company filed a motion for reconsideration and rehearing on several issues
following the issuance of the rate order. In January 1994, the PSCN granted the
rehearing of certain rate case issues. Hearings are expected to commence in
July 1994. The resolution of these issues is not expected to have a material
effect on the Company's results of operations. A final order is expected in the
fourth quarter of 1994.
ARIZONA
In October 1993, the Company filed a rate application with the Arizona
Corporation Commission (ACC) seeking approval to increase revenues by
$10 million, or 9.3 percent, annually for its southern Arizona jurisdiction.
The Company is seeking to recover increased operating costs and capital
expenditures, and has proposed tariff restructurings which are consistent with
the tariff modifications authorized by the ACC in its August 1993 central
Arizona decision. Hearings on the application are expected to commence in
June 1994. A final rate order from the ACC is expected in the fourth quarter
of 1994.
FERC
In October 1992, Paiute filed a general rate case with the FERC requesting
approval to increase revenues by $6.8 million annually. Paiute is seeking
recovery of increased costs associated with its capacity expansion project that
was placed into service in February 1993. Interim rates reflecting the
increased revenues became effective in April 1993 and are subject to refund
until a final order is issued. Hearings are expected to commence in June 1994.
A final decision is expected in late 1994.<PAGE>
<PAGE> 13
FINANCIAL SERVICES SEGMENT
PriMerit Bank (the Bank) is a federally chartered stock savings bank conducting
business through branch offices in Nevada. The Bank's deposit accounts are
insured to the maximum extent permitted by law by the Federal Deposit Insurance
Corporation (FDIC) through the Savings Association Insurance Fund (SAIF). The
Bank is regulated by the Office of Thrift Supervision (OTS) and the FDIC, and
is a member of the Federal Home Loan Bank (FHLB) system.
The Bank's principal business is to attract deposits from the general public
and make loans secured by real estate and other collateral to enable borrowers
to purchase, refinance, construct or improve such property. Revenues are
derived from interest on real estate loans and debt securities and, to a lesser
extent, from interest on nonmortgage loans, gains on sales of loans and debt
securities, and fees received in connection with loans and deposits. The Bank's
major expense is the interest paid on savings deposits and borrowings.
In January 1994, the Bank sold its $11.5 million credit card portfolio. The
decision to sell the portfolio was largely influenced by the Bank's inability to
compete in a cost effective manner with larger competitors in this business
segment as a result of market saturation and economies of scale. A net gain of
$1.7 million ($1.1 million after tax) was recorded in the first quarter of 1994.
As part of this sale, the Bank entered into an Agent Bank Agreement with the
purchaser of the credit card portfolio for an initial period of five years from
the date of the sale, whereby the purchaser issues and services credit cards on
behalf of the Bank. This makes the sale relatively transparent to the Bank's
customers as the Bank's name remains on the credit cards.
CAPITAL RESOURCES AND LIQUIDITY
In accordance with OTS regulations, the Bank is required to maintain an average
daily balance of liquid assets equal to at least five percent of its liquidity
base (savings deposits and borrowings due in one year or less) during the
preceding calendar month. The liquidity ratio was 15.5 percent for the month
of March 1994. The Bank's ratio is substantially higher than the requirement
due to an increased level of transaction accounts. Management considers the
Bank's liquidity position to be adequate. At March 31, 1994, the Bank
maintained in excess of $384 million of unencumbered assets which could be
borrowed against or sold to increase liquidity levels.
The Bank's deposits increased $26.7 million during the quarter. The increase
primarily consisted of a $21.5 million increase in money market transaction
accounts due to a slight increase in rates and a $2.9 million increase in
certificates of deposit.
FINANCIAL AND REGULATORY CAPITAL
The Bank exceeded all three minimum capital requirements--tangible, core and
risk-based--applicable at March 31, 1994 and all three fully phased-in capital
requirements which will be applicable at July 1, 1996 under current regulations.
During the first three months of 1994, all three of the Bank's regulatory
capital ratios declined slightly as a result of the $3.6 million decline in the
unrealized gain, net of tax, on debt securities available for sale, offset
partially by the Bank's first quarter net income of $2.2 million. The Bank's
core and risk-based capital ratios also declined as a result of the deduction
from capital of an additional $6.4 million of supervisory goodwill at March 31,
1994. The OTS requires the phase-out of supervisory goodwill includable in
capital by January 1, 1995. The includable supervisory goodwill was 0.375
percent on January 1, 1994 and will reach zero percent on January 1, 1995. The
Bank continues to be classified as "well capitalized" under the FDIC Improvement
Act of 1991 (FDICIA).<PAGE>
<PAGE> 14
A reconciliation of stockholder's equity to the three regulatory capital
standards and the Bank's resulting ratios are set forth in the table below
(thousands of dollars):
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
---------------------------------- ----------------------------------
Tangible Core Risk-based Tangible Core Risk-based
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stockholder's equity $ 175,510 $ 175,510 $ 175,510 $ 176,943 $ 176,943 $ 176,943
Capital adjustments:
Nonsupervisory goodwill (41,942) (41,942) (41,942) (42,464) (42,464) (42,464)
Supervisory goodwill (26,593) (20,220) (20,220) (27,037) (14,422) (14,422)
Real estate investments -- -- (565) -- -- (478)
General loan loss reserves -- -- 11,188 -- -- 11,008
---------- ---------- ---------- ---------- ---------- ----------
Regulatory capital 106,975 113,348 123,971 107,442 120,057 130,587
Minimum required capital 25,492 50,985 71,256 25,229 50,459 70,031
---------- ---------- ---------- ---------- ---------- ----------
Excess $ 81,483 $ 62,363 $ 52,715 $ 82,213 $ 69,598 $ 60,556
========== ========== ========== ========== ========== ==========
Regulatory capital ratio 6.29% 6.67% 13.92% 6.39% 7.14% 14.92%
Minimum required ratio 1.50 3.00 8.00 1.50 3.00 8.00
---------- ---------- ---------- ---------- ---------- ----------
Excess 4.79% 3.67% 5.92% 4.89% 4.14% 6.92%
========== ========== ========== ========== ========== ==========
Asset base $1,699,499 $1,699,499 $ 890,700 $1,681,952 $1,681,952 $ 875,387
========== ========== ========== ========== ========== ==========
</TABLE>
At March 31, 1994 under fully phased-in capital rules applicable at July 1,
1996, the Bank would have exceeded its fully phased-in tangible, core and risk-
based capital requirements by $80.8 million, $55.3 million and $41.6 million,
respectively.
The OTS has issued a regulation which adds a component to an institution's risk-
based capital calculation effective in the third quarter of 1994. The
regulation will require a reduction of an institution's risk-based capital by
50 percent of the decline in the institution's net portfolio value (NPV)
exceeding two percent of assets under a hypothetical 200 basis point increase
or decrease in market interest rates. Based upon OTS measurement of the Bank's
interest rate risk (IRR) exposure at December 31, 1993 and management's estimate
of its IRR exposure at March 31, 1994, the Bank would not be subjected to a
reduction of its risk-based capital as a result of the implementation of this
regulation. The FDIC and the Office of the Comptroller of the Currency have
also proposed similar regulations which may result in a more stringent capital
requirement for IRR than the current OTS regulations. OTS regulations can be no
less stringent than those applicable to national banks. Therefore, the impact
of this proposed regulation on the Bank is unknown at this time.
RESULTS OF FINANCIAL SERVICES OPERATIONS
Quarterly Analysis
- ------------------
The Bank recorded net income of $2.2 million for the first quarter of 1994
compared to net income of $3.7 million for the first quarter of 1993. The
Bank's 1994 first quarter net income was comprised of $2.4 million, after tax,
from core banking operations, and a $1.7 million gain ($1.1 million after tax)
from the sale of the Bank's credit card portfolio, offset partially by
$1 million, after tax, of goodwill amortization expense and a $316,000 after
tax loss from real estate operations. The Bank's 1993 first quarter net income
was comprised of $1.8 million, after tax, from core banking operations, and a
$3 million gain as the result of the cumulative effect of a change in method of<PAGE>
<PAGE> 15
accounting for income taxes, partially offset by $1 million, after tax, of
goodwill amortization expense and a $107,000 after tax loss from real estate
operations.
Average interest-earning assets declined by approximately $395 million compared
to 1993 as a result of the Bank's strategy to reduce its total asset size. The
net decrease in interest-earning assets resulted primarily from the sale of the
Arizona branch network in the third quarter of 1993, and sales and principal
repayments of debt securities exceeding purchases. The funds received from
these transactions were principally used to repay securities sold under
agreements to repurchase, unsecured senior notes, and deposits.
The following table sets forth information with respect to interest rate spread
for the periods shown (thousands of dollars):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
1994 1993
---------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Yield Balance Interest Yield
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Cash equivalents $ 69,656 $ 553 3.18% $ 46,786 $ 393 3.36%
Debt securities held
to maturity 67,776 1,101 6.50 1,174,911 17,169 5.85
Debt securities available
for sale 587,984 8,424 5.73 -- -- --
Loans receivable 855,184 17,815 8.33 753,325 18,351 9.74
FHLB stock 16,621 153 3.68 16,714 84 2.01
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets $1,597,221 28,046 7.02 $1,991,736 35,997 7.23
========== ---------- ---------- ========== ---------- ----------
Interest-bearing liabilities:
Deposits $1,207,023 10,333 3.47 $1,602,047 17,275 4.37
Securities sold under
agreements to repurchase 256,547 2,711 4.29 357,227 3,780 4.29
Advances from FHLB 71,000 822 4.70 16,000 349 8.85
Notes payable 8,265 154 7.56 18,640 393 8.55
Unsecured senior notes -- -- -- 25,000 470 7.62
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing
liabilities $1,542,835 14,020 3.69 $2,018,914 22,267 4.47
========== ---------- ---------- ========== ---------- ----------
Cost of hedging activities 37 0.01 -- --
---------- ---------- ---------- ----------
Cost of funds 14,057 3.70 22,267 4.47
---------- ---------- ---------- ----------
Capitalized and
transferred interest (7) -- (27) (.01)
---------- ---------- ---------- ----------
Net interest income $ 13,996 3.32% $ 13,757 2.77%
========== ========== ========== ==========
Net yield on interest-
earning assets 3.51% 2.76%
========== ==========
</TABLE>
The increase in net interest margin, from 2.76 percent to 3.51 percent, was
principally the result of the Bank's sale of $321 million in Arizona deposits
which earned higher yields. The transfer of these deposits was funded by the
sale of $334 million in mortgage-backed securities (MBS).
Despite a decrease in average earning assets of approximately $395 million in
the first quarter of 1994 compared to the first quarter of 1993, net interest
income increased slightly as a result of the increased net interest margin
offset by the decline in interest income resulting from the sale of MBS.
The net gain on secondary marketing hedging activities related to gains
resulting from pair-offs of forward sale commitments used to hedge secondary
marketing activities occurring during the first quarter of 1994. A net loss
from similar activity was recorded for the same period in 1993.<PAGE>
<PAGE> 16
In January 1994, the Bank sold its $11.5 million credit card portfolio. A net
gain of $1.7 million was recorded during the first quarter of 1994.
In January 1993, the Bank implemented SFAS No. 109, "Accounting for Income
Taxes." The cumulative effect of this change in method of accounting resulted
in a $3 million gain.
General and administrative expenses decreased in the first three months of 1994
compared to 1993 due primarily to the effects of the sale of the Arizona
branches during the third quarter of 1993 and implementation of expense control
strategies.
Twelve Month Analysis
- ---------------------
The Bank recorded net income of $5.1 million for the twelve months ended
March 31, 1994 compared to a net loss of $1.3 million for the twelve months
ended March 31, 1993. The Bank's net income for the twelve months ended
March 31, 1994 was comprised of $8.5 million, after tax, from core banking
operations, a $1.7 million gain ($1.1 million after tax) from the sale of the
Bank's credit card portfolio, and a $1.2 million gain from a legal settlement
and a change in tax rate, offset partially by an after tax loss of $1 million
on the sale of the Arizona branch network, an after tax loss of $786,000 from
real estate operations, and $3.9 million of goodwill amortization expense. The
Bank's net loss for the twelve months ended March 31, 1993 was comprised of an
$8.2 million after tax loss from real estate operations, and $4.1 million, after
tax, of goodwill amortization expense, partially offset by income of
$5.7 million, after tax, from core banking operations, a $3 million gain as the
result of the cumulative effect of a change in method of accounting for income
taxes, and after tax gains of $1.3 million and $1 million on the sale of
servicing rights and balance sheet restructuring, respectively.
Net interest income increased $4.5 million due to the following factors:
(i) Total interest income decreased $29.8 million, or 19 percent, due to a
decrease in interest income on debt securities of $22.1 million, or
31 percent, caused by a 65 basis point decrease in the average yield; and,
a decrease in interest on loans of $8.1 million, or 10 percent, due to a
107 basis point decrease in the average yield partially offset by an
increase of $6 million in the average portfolio balance. In May 1993,
$638 million of MBS were designated as MBS held for sale in connection with
the sale of the Arizona branches and in anticipation of implementation of
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," thus causing changes in the average balances of the held for
sale and held for investment categories. The net decrease in total MBS was
due primarily to the sale of $334 million of MBS sold during August 1993 to
fund the transfer of the Arizona-based deposit liabilities. In addition,
interest income from cash equivalents and dividends from FHLB stock
increased $416,000, or 24 percent, due to an increase of 52 basis points
in the yield and an increase of $2.9 million in the average portfolio
balance.
(ii) Total interest expense decreased $34.2 million, or 34 percent, due to a
decrease in interest on deposits of $28 million, or 36 percent, caused by a
decrease of 98 basis points in the average interest rate, and a decrease of
$313 million in the average balance outstanding as a result of the Arizona
sale; and, a decrease in interest on borrowings of $4.4 million, or
21 percent, due to a decrease in the average balance outstanding of
$16.3 million, and a 153 basis point decrease in the average borrowing
rate. Cost of hedging decreased $2.3 million due to termination of the
interest rate swap activity in the third quarter of 1992. Capitalized and
transferred interest decreased $522,000 due to the decline in the real
estate portfolio.
Net loss from real estate operations was $1.2 million for the twelve months
ended March 31, 1994 compared to a net loss of $12.7 million for the same period
in 1993. The loss for the twelve-month period ended March 31, 1993 was
primarily attributable to the establishment of $12.9 million in provisions for
estimated losses on the Bank's real estate investment, compared to provisions of
$1.2 million for the current twelve-month period. The provisions for the
twelve-month period ended March 31, 1993 were primarily the result of the<PAGE>
<PAGE> 17
Bank's valuation allowances and charge-offs of real estate required as a result
of the slow sales activity and the decline in real estate values in the
California market. Similar levels of provisions and charge-offs did not occur
in the twelve months ended March 31, 1994.
Net gains on the sale of loans decreased $3.7 million for the twelve months
ended March 31, 1994 compared to the same period ended March 31, 1993,
principally due to a greater volume of loan sales during 1993 compared to 1994
as part of the Bank's balance sheet restructuring.
Net gains on the sale of MBS for the twelve months ended March 31, 1994 were
$7.8 million. The MBS were sold primarily to fund the sale of the Arizona-based
deposit liabilities to World Savings during the period. Net gains on the sale
of MBS for the twelve months ended March 31, 1993 were $13.4 million. This gain
and the related interest rate swap loss of $14.1 million were primarily the
result of the Bank's balance sheet restructuring.
Loan related fees decreased $920,000 due to a lower level of loans serviced for
others as a result of the sale of mortgage loan servicing rights and payoffs
within the loan servicing portfolio. Deposit related fees and other income
increased by $1.2 million due to a higher deposit fee structure and the
increased level of transaction accounts subject to fee assessment.
In January 1993, the Bank implemented SFAS No. 109, "Accounting for Income
Taxes." The cumulative effect of this change in method of accounting resulted
in a $3 million gain.
Asset Quality
- -------------
NONPERFORMING ASSETS. Nonperforming assets are comprised of nonaccrual assets,
restructured loans and real estate acquired through foreclosure. Nonaccrual
assets are those on which management believes the timely collection of interest
is doubtful. Loans are transferred to nonaccrual status when payments of
interest or principal are 90 days past due or if, in management's opinion, the
accrual of interest should be ceased sooner. There were no loans on accrual
status which were over 90 days delinquent or past maturity as of March 31, 1994.
Interest income for loans on nonaccrual status is generally recorded on a cash
basis.
The following table summarizes nonperforming assets as of the dates indicated
(thousands of dollars):
March 31, December 31,
1994 1993
------------ ------------
Nonaccrual loans past due 90 days or more:
Mortgage loans:
Construction and land $ 1,316 $ 1,233
Permanent single-family residences 6,490 6,636
Other mortgage loans 6,717 6,728
------------ ------------
14,523 14,597
Nonmortgage loans 322 184
Restructured loans 2,800 2,842
------------ ------------
Total nonperforming loans 17,645 17,623
Real estate acquired through foreclosure 9,172 9,707
------------ ------------
Total nonperforming assets $ 26,817 $ 27,330
============ ============
Allowance for estimated credit losses $ 15,563 $ 16,251
============ ============
Allowance for estimated credit losses as a
percentage of nonperforming loans 88.20% 92.21%
============ ============
Allowance for estimated credit losses as a
percentage of nonperforming assets 58.03% 59.46%
============ ============
The decrease in real estate acquired through foreclosure of $535,000 is due
primarily to charge-offs and pay-downs of two single-family residential
construction loans in California.<PAGE>
<PAGE> 18
CLASSIFIED ASSETS. OTS regulations require the Bank to classify certain assets
and establish prudent valuation allowances. Classified assets are categorized
as "substandard," "doubtful" and "loss." In addition, the Bank can designate
an asset as "special mention."
The following table sets forth the amounts of the Bank's classified assets and
ratio of classified assets to total assets, net of allowances and charge-offs,
as of the dates indicated (thousands of dollars):
March 31, 1994 December 31, 1993
----------------- -----------------
% of % of
Total Total
Balance Assets Balance Assets
-------- ------ -------- ------
Substandard assets:
Loans:
Single family residential $ 7,190 0.41% $ 7,339 0.42%
Consumer 275 0.02 134 0.01
Commercial and multi-family mortgage 23,047 1.29 25,522 1.47
Construction and land 3,842 0.22 4,581 0.26
Other 47 -- 310 0.02
Foreclosed real estate (net) 9,172 0.52 9,707 0.55
Real estate held for investment 3,552 0.20 2,166 0.12
Investments 28,078 1.59 29,509 1.68
Doubtful assets -- -- -- --
Loss assets -- -- -- --
-------- ------ -------- ------
Total $ 75,203 4.25% $ 79,268 4.53%
======== ====== ======== ======
Classified assets decreased $4.1 million from December 31, 1993 to March 31,
1994 primarily as a result of the upgrade of a $2.1 million shopping center
loan, pay-downs of $1.4 million of investments and a $535,000 decrease in
foreclosed real estate. The security classified as substandard represents a
privately issued MBS collateralized by apartments, office buildings, town homes,
shopping centers and day care centers located in various states along the
southeastern seaboard and is further supported by a credit enhancement feature.
The single A credit rating of this security was withdrawn in the first quarter
of 1993, due to a large number of delinquencies underlying the security. Based
on extensive credit reviews, the Bank determined that only a portion of the
underlying loans met the criteria for substandard classification. However, the
entire security is classified as substandard because the OTS does not have a
policy for the "split rating" of a security. The security may be upgraded once
improvement in the level of delinquencies in the loans underlying the security
occurs.
Substandard loans decreased $3.5 million due to the upgrade of a $2.1 million
shopping center loan in Nevada. The largest substandard loan at March 31, 1994
was an $8.4 million multi-family real estate loan in Nevada. The Bank had
seven substandard loans at March 31, 1994 in excess of $1 million: two multi-
family real estate loans in Nevada, three commercial real estate loans in
Nevada and two single-family residential construction loans in California.
The largest foreclosed real estate asset owned by the Bank at March 31, 1994 was
a $2.4 million multi-family real estate parcel in California. The Bank also
owned two parcels of foreclosed real estate at March 31, 1994 with book values
in excess of $1 million: one multi-family property located in Nevada, and one
land parcel located in California.<PAGE>
<PAGE> 19
The Bank's two largest investments in real estate classified as substandard at
March 31, 1994, were two former bank branches in Arizona with current book
values of $1.6 million and $913,000. The Bank's other real estate development
projects classified as substandard have current book values of $657,000,
$195,000 and $140,000.
Special mention assets increased from $27.6 million at December 31, 1993 to
$30.2 million at March 31, 1994, primarily due to the upgrade from substandard
of a $2.1 million shopping center loan. The geographic concentration of the
Bank's classified assets at March 31, 1994 was 43.4 percent in Nevada,
13.8 percent in California, 5.4 percent in Arizona, and 37.4 percent in the
southeastern seaboard states.
It is the Bank's practice to charge off all assets or portions thereof which it
considers to be "loss." As a result, none of the Bank's assets, net of charge-
offs, were classified as "loss" at March 31, 1994.
The following tables set forth the Bank's charge-off experience for loans
receivable and real estate acquired through foreclosure by loan type (thousands
of dollars):
Net
Charge-Offs Recoveries Charge-Offs
----------- ------------ -----------
Three Months Ended March 1994:
- -----------------------------
Single-family residential $ 404 $ (68) $ 336
Commercial and multi-family mortgage 539 (3) 536
Construction/land 665 (6) 659
Nonmortgage 753 (162) 591
----------- ----------- -----------
Total net charge-offs $ 2,361 $ (239) $ 2,122
=========== =========== ===========
Three Months Ended March 1993:
- -----------------------------
Single-family residential $ 178 $ (1) $ 177
Commercial and multi-family mortgage 312 (8) 304
Construction/land 568 (159) 409
Nonmortgage 600 (161) 439
----------- ----------- -----------
Total net charge-offs $ 1,658 $ (329) $ 1,329
=========== =========== ===========
PROVISIONS AND ALLOWANCES FOR LOAN AND REAL ESTATE LOSSES. On a regular basis,
management evaluates the adequacy of the allowances for estimated losses on
loans, investments, and real estate and establishes additions to the allowances
through provisions to expense. The Bank utilizes a comprehensive internal asset
review system and general valuation allowance methodology. General valuation
allowances are established for each of the loan, investment, and real estate
portfolios for unforeseen losses. A number of factors are taken into account in
determining the adequacy of the level of allowances including management's
review of the extent of existing risks in the portfolios and of prevailing and
anticipated economic conditions, actual loss experience, delinquencies, regular
reviews of the quality of the Bank's loan, investment, and real estate
portfolios by the Risk Management Committee and examinations by regulatory
authorities.
Charge-offs are recorded on particular assets when it is determined that the
fair or net realizable value of an asset is below the carrying value. When a
loan is foreclosed, the asset is written down to fair value based on a current
appraisal of the subject property.<PAGE>
<PAGE> 20
Activity in the allowances for losses on loans and investments in real estate is
summarized as follows (thousands of dollars):
Total
Loans and Investments
Foreclosed in
Real Estate Real Estate Total
----------- ----------- -----------
Balance at December 31, 1993 $ 16,251 $ 935 $ 17,186
Provisions for estimated losses 1,434 414 1,848
Charge-offs, net of recoveries (2,122) (808) (2,930)
----------- ----------- -----------
Balance at March 31, 1994 $ 15,563 $ 541 $ 16,104
=========== =========== ===========
Balance at December 31, 1992 $ 17,228 $ 1,463 $ 18,691
Provisions for estimated losses 1,123 238 1,361
Charge-offs, net of recoveries (1,329) (631) (1,960)
----------- ----------- -----------
Balance at March 31, 1993 $ 17,022 $ 1,070 $ 18,092
=========== =========== ===========
The Bank recorded loan charge-offs of $2.1 million and real estate write-downs
of $808,000 during the first quarter of 1994 as a result of the analysis of the
adequacy of its allowances for estimated credit and real estate losses. The
loan and foreclosed real estate charge-offs were primarily attributable to the
partial charge-off of an apartment complex loan in Nevada, and two single-family
residential construction properties located in California. The Bank's quarterly
analysis required no significant change in the allowance for estimated credit
losses at March 31, 1994 from December 31, 1993.
Included in the real estate write-downs were $799,000 related to the Bank's two
previous branches in Arizona which were subsequently transferred to investments
in real estate from premises and equipment in conjunction with the sale of the
Arizona branch network in the second quarter of 1993.
PART II - OTHER INFORMATION
---------------------------
Items 1-5 None
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated February 25, 1994,
reporting on the Arizona Court of Appeals Division Two
Mandate related to the write-off of Arizona pipe replacement
program costs.<PAGE>
<PAGE> 21
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.
Southwest Gas Corporation
------------------------------------------------------
(Registrant)
Date: May 12, 1994
/s/ Jeffrey W. Shaw
------------------------------------------------------
Jeffrey W. Shaw
Vice President/Controller and Chief Accounting Officer
