-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, G0g5LYuchHInzPKZhTCTmpTrXwgxQY+FTJo0mAwZ3scA47oqduEqZMiLSy98td/M dgT4hCIm4ka0WSDzkS798Q== 0000092416-94-000008.txt : 19940516 0000092416-94-000008.hdr.sgml : 19940516 ACCESSION NUMBER: 0000092416-94-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWEST GAS CORP CENTRAL INDEX KEY: 0000092416 STANDARD INDUSTRIAL CLASSIFICATION: 4923 IRS NUMBER: 880085720 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07850 FILM NUMBER: 94527742 BUSINESS ADDRESS: STREET 1: 5241 SPRING MOUNTAIN RD STREET 2: PO BOX 98510 CITY: LAS VEGAS STATE: NV ZIP: 89193 BUSINESS PHONE: 7028767252 10-Q 1 FORM 10-Q FOR THE QUARTER ENDED 03/31/94 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ 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. 3 SOUTHWEST GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Thousands of dollars) (Unaudited)
MARCH 31, DECEMBER 31, 1994 1993 ---------- ------------ 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 ========== ==========
The accompanying notes are an integral part of these statements. 4 SOUTHWEST GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, ------------------ ------------------ 1994 1993 1994 1993 -------- -------- -------- -------- 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 ======== ======== ======== ========
The accompanying notes are an integral part of these statements. 5 SOUTHWEST GAS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of dollars) (Unaudited)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, -------------------- -------------------- 1994 1993 1994 1993 --------- --------- --------- --------- 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
The accompanying notes are an integral part of these statements. 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: CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Thousands of dollars) (Unaudited)
MARCH 31, DECEMBER 31, 1994 1993 ---------- ---------- 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 7 Note 1 - Summarized Consolidated Financial Statement Data (Continued) CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Thousands of dollars) (Unaudited)
THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, ------------------ ------------------- 1994 1993 1994 1993 -------- -------- -------- --------- 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) ======== ======== ======== ========
(a) Includes after-tax allocation of costs from parent. 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. 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. 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. 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. 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. 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). 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):
March 31, 1994 December 31, 1993 ---------------------------------- ---------------------------------- Tangible Core Risk-based Tangible Core Risk-based ---------- ---------- ---------- ---------- ---------- ---------- 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 ========== ========== ========== ========== ========== ==========
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 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):
Three Months Ended March 31, ---------------------------------------------------------------------- 1994 1993 ---------------------------------- ---------------------------------- Average Average Average Average Balance Interest Yield Balance Interest Yield ---------- ---------- ---------- ---------- ---------- ---------- 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% ========== ==========
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. 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 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. 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. 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. 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. 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 -----END PRIVACY-ENHANCED MESSAGE-----