Text

Security Pacific Corp Annual Rept 1985
	ML20212F637
Person / Time
Site:	Perry
Issue date:	12/31/1985
From:	Flamson R, Moody G; SECURITY PACIFIC CORP.
To:	;
Shared Package
ML20212F471	List: ML20212F465; ML20212F541; ML20212F569; ML20212F602; ML20212F637; ML20212F660; ML20212F681; ML20212F707; ML20212F741;
References
	NUDOCS 8703050126
	Download: ML20212F637 (89)
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SECURITY PACIRC CORPORATION

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i NtGHL80 HTS Security Paajc Corporation andsubsidiaries

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1985 1981 A mount W FOR THE YEAR $ in millions Net income $ 322.8 $ 291.0 $ 31.8 11 Common dividends _ __,._ _ _ ___ _, , _ _. _96.1 87.6 _ 8.5 _ _ 10 PER COMMON SHARE et 5 me___ , ._ _ __ _ , _ __ _ _ _ _ _ _ _ , _ _ _ _ _ _

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ikmk val'uekear cnd) 2950 2585 ~~ 37)3 ii PERFORM ANCE ME ASURES Return _o_n average asset _s_ .

__ _ __ _ _ _ __ _ _ _ _ _ _ _ _0.69 %__ 0.71'E_ jo.02).W _-- _ _ _ _

Return on_ayrage com_ mon equity _. __ __ __ _ _ _ _ _ _ __ _ _15.5 __ _15.6 __ _( 0.1)__-

Return on average total equity . .

15.3 15.6 ( 0.3)_ _ _ ,

AT YEAR END $ in millisns __ _ _ __ _ _ _ __ _

Assets $ 53,503 ___ $ 16,117 __$7,386 ___16 1

Dep_osits _ _ _

._32,873__ _ 3_1,006 .

1,867 __ _ __ 6 Loans and lease financing _ _ _ _

37,064 33,011 _ _ _4,053 12 Investment securities _ _ _ _ _ _ _ _ _ _ _ _ __ __

_ _ _2,00;f __ _ 1,859 _ __ , _ _14 5_ _ _ 8 Stockholders' equity _ 2,439 1,963 476 24 l

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NET INCOME AND DIYiOENDS PER COMMON SHARE COMMON STOCK PRICE D Net incomo E Ra e O DitidenJr +E Period 19ai i9s i9s 5 19ss ivs1 i9ai 19s: i94, iva s 19n1 I

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l LETTER TO STOCKHOLDERS 1985 was a dynamic year for Security rate negotiable certi6 cates of deposit OPERATING PERFORMANCE Pacific Corporation. The organiza. were sold through the Hong Kong In Perspectives-1985, which begins tional changes and business strategies Branch of the Bank. Our Tokyo Stock on page 7, the operations and strate-we pursued during the year have Exchange listing in 1985 was an gies of the four major Security Paci6c increased the efficiency of our busi- important step in the program to operating groups-California Banking nesses and allowed us to experience expand our ties with the strong capi- and Real Estate Industries System, solid new growth as we broadened tal market within theJapanese 6 nan- Financial Services System, Capital our earnings base. Anticipating cial community. Markets System, and Security Paci6c change in the financial services indus- Aut mation Company-are fully Our successful performance and try and carefully planning for it discussed. Our programs for mvest-continued strong growth over the remams a key focus of the Corp

ment, acqmsinon, internal growth past decade have been due in large ration and has been among the and modernization in each of these part to our efforts to build balance most important reasons for our good areas will continue throughout 1986.

and diversity among our income 1985 performance, sources. We constantly examine that The California Banking and Real This was the eleventh consecutive balance and weigh the risks of our Estate Industries System exceeded our year of strong pro 6t growth for various businesses in order to achieve expectations during 1985. Total Security Paci6c, with year-end net the highest possible level of pro 6tabil- contribution to carnings from these income reaching $322.8 million, an ity consistent with prudent fmanci21 operations for the year were $140.6 11 percent increase over 1984. Impor- management. Maintaining the balance million, representing approximately tant financial performance indicators, by responding quickly to market 44 percent of the Corporation's earn-return on assets and return on changes has carned us high marks ings. Security Paci6c's retail banking common equity, were 0.69 percent from industry analysts and kept our system's market share of about and 15.5 percent, respectively. Total competitive edge in both traditional 13 percent rc6ects increasing sales of stockholders' equiry at December 31, and emerging 6nancial markets. traditional and new products and 1985, reached $2,439 million, up from services to wr 2.5 muhon Cahfomia

$1,963 milhon at the end of 1984. Although 1985 produced record prof-itability, we also experienced a high cust mer base. The dedication of our Maintaining and strengthening our staff ui the new sales environment, level of charge-offs reflecting eco-capital base continues to be a primary nomic difTiculties encountered by C". pled with our reputation for qual-objective, making certain that we our customers in certain impacted ny in products and customer service, maintain a prudent level of capital to industries. In spite of the abnormally has alh>wed us to increase our volume support our present operations as well high char f business without com romis-as our future growth. Our internal ened ouro2n fe.off loss levels, we strength-reserve throughout I"8 "' 'I "'8.us standar s of

("5' *C' 5C'C' capital growth rare of 10.7 percent is the year, ending 1985 with over one of the highest among the largest $550 million in reserves against The businesses grouped within the bank hohling companies. During future losses. Financial Services System continued 1985, to further strengthen our capi- their high earnings growth rate, tal position, we issued both new contributing $138.8 million, or common and preferred stock. approximately 43 percent, of the

'Ib increase our already broadly. based torp ration's 1985 camings. Our funding sources, guaranteed notes were sohl through Security Pacif e funking amas of cmnmerdal an Australia Limited, a Euro commercial paper program was announced, notes i denominated in U.S. dollars and in l deutschemarks were issued, and fixed l

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consumer fmance, leasing and mort- increase our 29.9 percent share in expected to further develop our gage banking as well as venture capi- Hoare Govett to over 80 percent, expertise in these specialized areas and tal and credit-related insurance, has pending regulatory approval. The become a new source of profits for been and will continue to be an underwriting and placement of securi- Security Pacific in 1986 as it pene-important growth area for ties by Hoare Govett and Security trates these growing fields.

Security Pacific. Pacific Hoare Govett Limited, our AcouismONS internati nalinvestment banking During 1985, the Capital htarkets A number of major acquisitions were subsidiary, provide a network for announced during the year which System responded to the rapidly Security Pacific customers to meet chang'ng world financial markets and bring continued growth and diversity their financing needs in any major to the entire Security Pacific organiza.

contributed $49.3 million, or approxi-market m the world. As announced,. tion. In pursuing new opportunities, mately 15 percent, of the Corpora-Secunty Pacific and Hoare Gevett will tion's camings. It continued to build we carefully invest in and purchase 5ct uP .an operation in 1986 providmg businesses which provide strong profit investment secunnes execun n and cleanng well as developbankink; capabilities in enous banking as

- ' L ndon Stock Exchange potential and positively complement opportunities in foreign markets and, , k the service lines already in place.

at the same time, strengthen our Our agreement to acquire Arizona domesuc secunnes businesses, blajor Our plans to become a primary dealer Dancwest Co oration in 1986 repre.

investments in staff and technoh>gy m U.S. overnment secunnes in 1986 sents an excel ent o ortunity to were made in these areas dunng 1985, resulte m the agreement to sell Rhij expand our retail banking activities particularly m the Merchant Banking Secunn,es Corp., a government bond within the fast growing state of Group. Building on a strong founda. mter dealer broker, to The Bank of Arizona. Arizona Bancwest is the tion of existing corporate and mtenia. New York Company, Inc. The sale arent com of The Arizona tional bankmg skills, foreign wdl be completed in 1986. Bank,thet r7 largest bank in the exchange and securities trading opera. Expanding the global reach of our state, with total assets of $3.9 billion tions, the Group has established a funds management and advisory as of December 31,1985.

range ofinvestment banking capabih. ' services, Security Pacific Investment ties as well. With these operanons During the fourth quarter of 1985, an hianagers, Inc. entered into an agree.

now functioning on a global basis, we ment with Nomura Securities Invest. "S *"'* " ' * *' *h #

are confident that profitabihty wdl Morguard Group lamited of Toronto

" ' ' " ' '"" 2"'8'*'"' C *P'"Y " under which hlorguard Bank of row in these areas as our !crets of l9 5 e share invesnnent infonnanon.

business increase. Tlu. s agreement wdl provide Secun,ty Canada, a commercial bank headquar-

, tered in Vancouver, merged with Leading Secun,ty Pacific into the Pacific with valuable economic infor.

Security Pacific Bank Canada. This international e uity markets is Hoare marion on theJapanese trust manage- merger allows us to broaden and Govett lamite , a major U.K. stock. ment market which only recently was deepen our presence in the Canadian brokmg firm. In 1986, we intend to opened to foreign companies.

market, bringing us closer to our goal in 1985, Security Pacific Automation of creating a significant indigenous Company (SPAC) moved beyond fmancial organization in Canada.

providing data processing and tele.

communications services to the llank and Corporation, and into the exter-nal marketplace. SPAC, a division of the Bank, began marketing advanced data processing and telecommunica-tions services and pnxlucts for busi.

ness customers nationwide. SPAC is fo r

C. D. Anderson & Co., a discount - In a move which further strength. ,

brokerage firm headquartered in San ened the Security Pacific management Francisco, was acquired in 1985 by team, President George F. Moody was Security Paci6c Brokers,Inc. This named Chief Executive Officer of the move increases the national account Bank in 1985, and Robert H. Smith base to more than 250,000 accounts was appointed Chief Operating Offi-

- and 20 offices. cer of the Bank, a member of the Board of Directors, and Vice Chair- >

. The 1995 acquisition of Baumeister

- Kreditbank, GmbH of Frankfurt, man f the Board of the Bank and of the Corporation. These expanded West Germany, offers Security Pacific an excellent complement to our re3Ponsibihties round out a well-balanced leadership group within the consumer finrnce actmties in West .

Oflice of the Chairman.

h Pacific Bank

..GmbH, German formerthroufy WIFAG Bank On behalf of the Directors and entire

- GmbH and Bankhaus Bohl & Co., staff of Security Pacific, we thank you both of which we acquired in 1984. for your ongoing support, and look Baumeister's principal business activi- forward to the challenges of 1986.

ties are direct consumer lending and purchasing sales finance contracts.

Lo0CiNG FORWARD ,

Looking forward, the continued

. deregulation of the banking industry [ ./' I - d$

is a number one priority at Security Pacific. We are working to see that mcHARo a.rtauson air interstate restrictions on banking are Chairman of the Board and gradually repealed, allowing for truly Chief Executive Officer equal national competition. We believe the ability of banks and bank holding compames to expand into other states and to enter new financial services businesses is absolutely imper.

ative for the health and stability of he industry.

GEORGE F. moody During a ditTicult time for many President and Chief Operating Officer banks and the banking industry, we are very proud of Security Pacific's 1985 performance. The competence, diligence and dedication of our Secu.

ticy Pacific people around the world, we believe makes the difference. Once again, we are proud to say that our pople truly are our most precious anets.

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PenspecTives 19M in today's highly sophisticated and Our people have responded enthusi-competitive financial services industry, astically to new competitive chal-success often hinges on efficiency. lenges in a successful effort to make Developing better, more cost efTective Security Pacific synonymous with systems, services and products excellence in personal c.astomer provides the competitive edge. service.

At Security Pacific, efficiency is an This emphasis on sales and service ongoing goal for our major operating compicments an ambitious ongoing groups, liy streamlining, consolidat. program to reduce operational costs ing, and climinating duplication, and expedite delivery of products to the many businesses that make up customers. Ilanking ofTice automation Security Pacific Corporation contin- has gone beyond the centralization of ually improve and update the ser- traditional back otlice work. Sophisti-vices and products offered to our cared computer systems increase the many customers. amount and accuracy ofinformation available to statT and customers, and A reorganization occurred during expedite business transactions at olli-1985 to further streamline operations '

cers desks and teller windows.

throughout all of our line units. Ily grouping businesses around common Caliprnia Business Banking Ditision:

products, markets, and delivery Clearly defming markets and concen-systems, we achieved significant econ- trating on servicing them efficiently b omics of scale and cost etliciencies. have been keys to Security Pacific's I %,

success in the California banking s in the discussion that follows, we

system. The Mecurity Pacific Ilusi-examine each major operating group, ness llanking Centers located their activities in 1985, and the throughout Calif;rnia ciahre m, les being implemented ,

l current stratehallenges savice and opportun- m medium. size business to meet the c ities of the future. '."" * * " ".d E "P" ,^ " 'FE ' -

sive automanon program due for vommua meri AND 001, f SWf mouura s s rs u u completion in 1986, Will hCip our ol}i-

, cers manage their client relationships

, The C,alifornia llanking and Real more ciliciently and effectively with l Estate Industries System, mduding convenient and timely information.

the Califomia Ilranch flanking Group with approximately 600 offices state. Bank Rdard Business Ditision: Auto-wide, the 40-otlice California Ilusiness marion has also played a key role in llanking Division, the llank.Related bmsting etliciency and profitability in Dusiness Division offering a variety of the Ilank Related llusiness Division.

financial management and trust Units in this group sell specialized services, and the newly. formed Real banking services to government enti- U"f" "* / ' " #""" '

Estate Industries Group, serves as a ties, other financial institutions and u ,,n r ru ,1 vaffsn ari./

solid foundation for Security Pxilic, businesses, as wcll as administer our fg ,g g,g,, ,

Caliprnia Bransh Ihnling Grvap: ,,f ,,,,,,, ,,, j ,, ; , u ,,j,

Productivity, cfliciency and customer service have been key elements in the "d rad'" i n ////d" continued success of our branch bank. a ,, a m ,,7 f/, ,p f,,,n ing system in California. We have maintained a tompetitive edge by l b / /* / d" / /"'"/ "'

exercising an aggressive sales strategy f/, /ja,a , 7tm f f/,

and by implementing reasonable oper.

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precious metals and trust services functions with investment bank.ing businesses. A fully automated products and services. The Capital computer system now provides ofli- Afarkets System provides an etlicient cers in Financial hianagement and and coordinated means to combine Trust Services (Fhi&TS), the largest lending and other traditional banking component of the llank Related Ilusi- products with the increasingly sophis-ness Division, with immediate, up-to- ticated fmancial products demanded date account information, enhancing by customers.

their ability to serve as true financial AlenAsnt Ilanking C+vsve Through a advisers. Fhi&TS is among the fastest round-the-clock global network growing personal asset management anchored in London, New York, and trust groups m the country.

Los Angeles and Tokyo, the hierchant RealState Induurin Grape During llanking Group teams corporate and 1985, a new Real Estate Industries investment bankers who share Group was formed, combining the common strategies and goals, and principal wholesale real estate finance provide clients with coordinated and service activities within the llank access to a mix of financial services and the Corporation into a single and markets on the most appropriate organization, and cost effectis e basis.

The importance of the real estate Security Pacific Iloare Govett market, combined with the quality of Limited, our London-based interna-the Group's organization and the effi- tional investment banking subsidiary, ciencies and coordinated strategies oversees all of out international secu.

resulting from this consolidation, rities activities and, along with floare shouhl provide the base for a Govett Limited, a major U.K. broker-strong earnings contribution to age house, will be in crumental in the Corporation. positioning Security Pacific in the CAPirAL M Anne r3 SY5rtM globalitation of thC securities market.

The Capital Af arkets S ' stem, combin.

We cunently own 29.9 nent of Hoare Gmen and, pent ing regula-ing the hierchant llan ing Group, the ,

International llanking and Invest- tory ap mal ntend to inacase wr ments Group, and the Domestic ownen ip to over 80 percent m 1986 Securities Group,is at the heart of The success of these sophisticated our merchant banking strategy. The financial products and services group was treated in mid 1981 in requires a full commitment to state-response to the rapidly changing of the art technology and operational world financial markets. etliciency. Security Pacific Financial qa, 4,j, a,f fn /,

Suatepes, Inc, suppons the inenhant The availability of new capital n ' , W. , , , . , . u, ,;)

markets finanong vehicles such a, banking styategy by unuzing apphed inathemancs and high speed /bafn i,aa,a ra ,u/

note issuance facilities and revolving underwriting (2(ilities, and the s.,./ 4,mts f,,ug, '

inacased uuge of commercial paper

"'"'""""/""""'"

and floating rate notes were progres.

cively "disintermediating" banks from ir ti n nn/. m wa their traditional role as printipal

,,, ,y finanual providers. Antiopating the elletts of this fundamental (hange, m.nla is/o m.av ><

the Corporationi (reated a new organi. 3, ,ff, j ,, ., m,,,,,,

noon, consolidning tradinonalinter-11Jtional and t'orporate banking au a[wi/> hd/nde fra!;r, al c r i-u , , ) ,13 r i,.

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computer analytics for new product are fully automated with state-of-the-development, block trading, portfolio art communications and accounting optimization and a wide range of systems. This increases the speed and 6xed income research capabilities, accuracy with which we can execute International Banking and insestments

"0 'I'* ' "'I'i *"d '"'* ' h' Gmupt Faced with the deterioration of Protection of customers assets.

traditionalinternational lending As the global markets continue to opportunities and the deregulation of change, the units of the Capital key international fmancial centers, the Markets System monitor and evaluate International Banking and Invest- their activities, fmancial instruments ments Group aggressively pursues and strategies to ef6ciently meet the indigenous commercial and merchant needs of clients around the world.

banking opportunities in selected DNANCIR SERVICES SYSTEM

("""'"**-

Financial services have moved far The group includes three principal beyond traditional banking products.

areas. First is the Indigenous 132nking The Financial Services System is Group, including The llank of comprised of Security Pacific compa-Canton, Limited; Security Paci6c nies offering a wide variety ofinnova.

Australia Limited; and Security Pacific rive banking.related 6nancial +

Bank Canada. products. By grc uping these diverse Secondly,in the trade services area, businesses int three major operating Security Paci6c Trade Finance, Inc. f"'"P'-'"***"I216 nance and leas.

g g3 and Security Pacific Trading Corpora- '"8' c nsumer services and venture capital-common customers and rion market a full spectrum of trade-markets are joined together and -

SUMMARY

incnase increase

$ Dar Compound

%"'T Ih'")- Grouth Rate !

$ in millions _ _

l985 A mount g 198i Amount 9 _ __ 1983 _ 19_82_ _ 1981 1980 1980-1983 Interest incomem $4,595.8 $ 190.5 4 $ 4,405.3 $614.4 17 $3,760.9 $4,007.2 33,843.2 32,820.6 10%

Interest expense 2,905.0 (20.6) (1) 2,925.6 501.3 21 2,424.3 2,881.5 2,873.6 1,967.6 8 Ner interest income 1,690.8 211.1 14 1,479.7 143.1 11 1,336.6 1,125.7 969.6 853.0 15 Non. interest income 1,023.8 114.7 13 909.1 286.1 46 623.0 546.9 432.1 351.7 24 ;

Less provision for credit losses 379.4 (8.3) (2) 387.7 231.8 149 155.9 162.4 72.1 78.7 37 Less other non. interest expense:

Staffexpense 907.2 124.3 16 782.9 93.9 14 689.0 610.3 539.3 454.6 15

_ Other e,xpense 850.4 153.7 22 696.7 95.7 16 601.0 485.0 400.9 326.2 21 Total 1,757.6 278.0 19 1,479.6 189.6 15 1,290.0 1.095.3 940.2 780.8 18 Income before income i taxes 577.6 56.1 11 521.5 7.8 2 513.7 414.9 389.4 345.2 11 l Less adjustmentsW 82.7 17.6 27 65.1 4.1 7 61.0 63.1 58.2 56.7 8 l

Less income taxes I72.1 6.7 4 165.4 (23.0) (12) 188.4 117.5 124.7 107.2 10 Net income $ 322.8 $ 31.8 11 $ 291.0 $ 26.7 10 $ 261.3 $ 234.3 $ 206.5 $ 181.3 129 (1) includes amounts to conurt non-taxable income,primarily securities income, to afully taxable equivalent basis and to add the pre. tax equivalent of intesiment t.u cndits on leasing activities to intenst income.

l wwuan

l FIGURE 4 RATIOS TO AVERAGE ASSETS FIGURE 5: PRIMARY AND TOTAL CAPITAL RATIOS l

_ _ _1 _ _ _ _ _ __

Basedon AdjustedTvurth Quarter Average Assets 1985 19M _ _ _1983 _ y2__ 1981 E Totalcapital, j

3.61 % 161% 3.619 3.249 3.199 E Primary capital ;

Ner interest incomem Non-interest income 2.19 2.22 1.68 1.57 1.42 - p,g ---- g,7- qp g g - ---

1. css provision for credit losses 0.81 0.95 0.42 0.46 0.24 Less other non- s*

interest expense:

Staffexpense 1.94 1.91 1.86 1.76 1.77 Other expense 1.82 1.70 1.62 1.40 1.32 6

Total 3.76 3.61 3.48 3.16 3.09 Income before income- . . _ _ . _ . . - . . . - . - . . - _ . -

taxesm 1.23 1.27 1.39 1.19 1.28 4

Net income 0.69 % 0.71 4 0.71% 0.679 0.684 (1) Fully tarable equivalent basis.

2 The Corporation's strong earnings growth in 1985 resulted in continued high returns on both assets and common stock-holders' equity-two key measures of the performance of a 0

financial institution. The rerum on assets was 0.69 percent in 4.83 4.97 5.69 6.24 7.00 1985, while the return on common equity was 15.5 percent. 6.47 6.23 6A6 7.07 7.95 Based on December averages, total earning assets were up 12 percent in 1985, compared to a 17 percent increase in 1981 FIGURE 6: CREDIT LOSS RATIOS and a five-year compound annual growth rate of 13 percent.

As in the past several years, the 1985 increase was primarily E Reserre to Loans and Leases (Har End) attributable to an increase in loans, particularly domestic ' Nd L*" '8 A"d8' L*d d'Od'"

consumer loans. Domestic business loans also contributed to 19si i982 wa3 i984 1985 the increase but grew at a much slower rate than in 1984.

Trading account assets almost tripled, while federal funds sold m --- i.60

and securities under resale agreements were essentially flat l after increa' sing significantly in 1981. j Net core deposits grew 11 percent in 1985. This compares ,

^

to a 5 percent increase in 1984 and a 13 percent average rate ! uo ofincrease over the last five years. All core deposit categories l were above 1984 levels with the largest growth rates in j interest / checking deposits and demand deposits. :

The 1985 ratio of total assets to stockholders' equity .so l

remained close to the 1984 level and primarily reflects the favorable earnings performance and th ; resulting high rate of

{

internal capital generation. The rate ofinternal capital ; ,,

growth was 10.7 percent in 1985, consistent with the levels of ;

recent years (Fig. 7). Total stockholders' equity averaged

$2,382 million in December 1985, an increase of $433 million from a year ago. In addition to internal capital generation, 0 o.2 oao oa3 o.7i w l the increase in stockholders' equity resulted from the issuance o.97 i.13 i . i, i,37 i ,o l of preferred and common stock in anticipation of acquisi-tions, principally Arizona Bancwest Corporation.

The Corpora ion's primary capital ratio of 7.00 percent is substantially abo e the regulators' minimum capital adequacy target of 5.50 percent and prior years' ratios (Fig. 5). During 1985, the primary capital ratio was improved not only by the common and preferred stock issuances, but also by the issu-ance of floating rate subordinated capital notes.

I eigl>ta n

P The ratio of the reserve for credit losses to toral loans and FIGURE 7: RELArioNSNie sETWEEN SIGNIFICANT FINANCIAL RATIOSf 4 lease fmancing was 1.50 percent at December 31,1985, 1985 1984 1983 1982 1981 compared to 1.57 percent a year ago (Fig. 6). Net credit losses 3,,,,,,,,,,, ,,,

,y ,

totaled $353.1 milhon for the year, up from $210.0 milh,on in fj,,,

1984. The increase was spread throughout most major cate- 0.69 0.71 0.71 0.67 0.68 Return on assets (%)

gories with the largest increase in domestic business loans. ,g,,/,

' Losses continued to be concentrated in the energy portfolio, Return on total equity (W) 15.3 15.6 16.1 16.8 16.7 which accounted for approximately one-third of net credit times losses in 1985. Reflecting the increase in net credit losses, the Earnings retained (%) 70 70 71 72 - 71 ratio of net credit losses to average credit outstanding rose to 'f*ali 1.04 percent from 0.71 percent in 1984. Internal capital growth (W) 10.7 10.9 11.4 12.1 11 9 Non. performing loans and leases peaked atJune 30,1985, (1) Basedan average balances.

and have since declined $185 million to $1,134 million at December 31,1985, compared to $1,123 million a year ago.

Another key aspect of overall financial condition is liquid-ity. However, for a financial institution there are no easily throughout the world. The Corporation's liquidity is quantifiable measures ofliquidity because the most important discussed in the Liquidity and Interest Rate Sensitivity element is the ability to raise funds in various money markets Management section beginning on page 27.

EARIENGS PERFORMANCE NelInterestincome Taxable equivalent net interest income totaled $1,690.8 FIGURE 9: REDUCTION OF NET INTEREST INCOME DUE TO NON-PERFORMING LOANS AND LEASES million, up 14 percent from 19M and above the 1984 growth rate (Fig. 8). The increase resulted from a 15 percent growth $ in millions in average earning assets, as the net interest margin at 4.17 I'*"/##"'Ad" #"*""##) 1985 19 8 ' 1983 prcent _was slightly below the prior-year level. The negative Domestic $101.2 $100.4 $67.8 impact of non-performing loans and leases on consolidated International 7.9 23.2 6.8 net interest income totaled $109.1 million, down from Total $ 109.1 $123.6 $74.6 Bh ic and i Per common share, after taxes $ 0.74 $ 0.84 $0.51 tional operations contributed to the growth of total net interest income in 1985. A detailed analysis of domestic and international net interest income appears on pages 56 and 57. A more detailed discussion of the trends of major earning assets and sources of funds appears on pages 26 and 27. Page 33 contains a further discussion of non-performing assets.

FIGURE 8: ANALYSIS OF NET INTERESTINCOMElO Increase increase

(

_ Decrease)_ (Decrease) 5"[I""'_ _ _ ___ _._ ___ _1985 A mo,unt _ % 19_84 A mount % 1983 Domestic Operations

! Net interest income $ 1,460.3 $ 150.4 II $1,309.9 $148.7 13 $1,161.2 Average carning assets $ 31.722 $4,117 15 $ 27,605 $3,120 13 $ 24,485 Net interest margin 4.60 % (0.15)W - 4.759 0.019 - 4.744 Intemational Operations

Net interest income $ 230.5 $ 60.7 36 $ 169.8 $ (5.6) (3) $ 175.4

Average carning assets S 8,815 $1,284 17 $ 7,531 $ 619 9 $ 6,912 Net interest margin 2.61 % 0.36 % -

2.254 (0.29)W -

2.54%

Total l ' Net interest income $1,690.8 $ 211.1 14 $1,479.7 $143.1 11 $1,336.6 Average earning assets $ 40,537 $ 5,401 15 $ 35,136 $3,739 12 $ 31,397 Net interest margin 4.17 % (0.04) % - 4.217 (0.05)% -

4.264 (1) lbily t.tvable equivalent basis.

Mitirla H

~

Domestic Net Interest income Domestic net interest income totaled $1,460.3 million, The domestic net interest margin was 4.60 percent in 1985, up 11 percent from 1981 and slightly below the 1984 growth down from 4.75 percent a year ago. As in prior years, a rate. The increase was the result of a 15 percent growth in number of factors influenced the year-over-year comparison earning assets, as the net interest margin was below a year of the domestic net interest margin. The decline was largely ago (Fig.10). due to the lower interest rates that prevailed in 1985, which Loan growth of 16 percent was primarily responsible for resulted in lower yields on those earning assets supported by the increase in domestic carning assets (Fig.12). The strong non-interest bearing sources of funds (Fig.11). Also nega-demand for consumer loans that began in recent years contin- tively affecting the margin was a greater reliance on interest ued in 1985, as average consumer loans increased 23 percent bearing sources of funds as a result of earning asser growth from 1984 compared to an average rate ofincrease of 16 exceeding the increase in demand deposits and non-interest percent over the last five years. Average domestic business bearing deposits (Fig.13). The negative impact of domestic loans increased 15 percent compared to an increase of non-performing loans and leases was essentially unchanged 11 percent in 1984, while average real estate loans increased from 1984 and, as a result, had little influence on the margin 9 percent after experiencing little growth in 19&l. Average comparison between years.

lease financing was up 22 percent and federal funds sold and securities under resale agreements increased 17 percent. Aver-age trading account assets were up 91 percent from 1984.

FIGURE 10: DOMESTIC NET INTEREST MARGIN FIGURE 11: PRIME, FEDERAL FUNDS AND IMMA RATES O Yiddon Earning Assets Quarterly Aterages O Interest Cost of Fundsfor Earning Assets E Prime Rate D Net interest Afargin E FederalFunds Rate E Insured Afoney Alarket Account Rate 1981 1982 1983 1984 1985 1981 1982 1983 1984 1985 21 % -j 21 %

N

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FIGURE 12: AVERAGE DOMESTIC EARNING ASSETS BY TYPE FIGURE 13: AVERAGE DOMESTIC INVESTABLE FUNDS BY SOURCE

$ in billions Net ofFl oat and Reserves D SecuritiesandOther $ in billions C 12ases n BorrourdFunds C Consumer Loans a Time Deposits-$100,000 andoser C RealEstate Loans E Time Deposits-under $100,000 0 Businessloans E OtherSavings Deposits n Insured Afoney Afarket Accounts E Interest lChaking Deposits n DemandDeposits 1981 1982 1983 19&4 1985 1981 1982 1983 1984 1985 I

$35 _ ,

4

$35 28 28 21 21 14 14 7 7 0 0 l

International Het interest income Net interest income from international operations increased FIGURE 14: AVERAGE INTERNATIONAL EARNING ASSETS BY TYPE

, 36 percent and totaled $230.5 million in 1985. This large $ in billions increase follows a slight decline in 1984. The shift in pattern E Placements and Other of annual growth initudes a significant change in the impact u LoansandIsafes i of non.performieg laans and ! cases between years. The nega- ,,,, ,,,, ,,,3 ,,g ,,,,

tive impact of these loans increased $16.4 million in 1984, then improved by $i5.3 million in 1985. These shifts largely ,m reflected the timing ofinterest payments on Argentine loans, siO and they accounted for approximately half of the improve- ]

7 ment in the net interest margin between 1984 and 1985.

8 The net interest margin also benefited as interest rates paid on funding sources declined more rapidly than earning 4

, asset yields. t Growth of earning assets also contributed to the growth

'O 6 l

, in international net interest income. Average earning assets increased 17 percent in 1985 compared to 9 percent in 1984 4 (Fig.14). Placement balances, lease fmancing, trading assets and securities all grew at a higher rate than loans, as manage-ment continued to shift its emphasis from sovereign country 2 credits to merchant banking activities.

p 0 l

luvil) oni

r r

IIonenterestOnessee

_ T Non. interest income totaled $1,023.8 million in 1985,- Gains on sales of equity securities were up $53.8 million in - ;

compared to $909.1 million a year ago. The 1984 total > . ; 1985 compared to a decrease of $3.0 million in 1984. Essen-- 1

- includes the pre-tax gain of $115.3 million from the sale of

.tially all of these venture capital gains resulted from sales of )

the Bank's headquarters building. Excluding this gain, non< . securities in companies that were acquired by others and not interest income increased 29 percent in 1985 compared to 27 ' by sales of securities in the open market. 1

. . percent in 1984. The increase from 1984 was significantly . Loan fees increased 24 percent, or $32.2 'million, following .

affected by growth in securities-related transaction fees and a 17 percent increase in 1984. Most of the growth was in

- venture capital gains. Most major categories were higher in domestic business loan fees which include commitment fees -

1985, but the increase was concentrated in the categories - : and standby letters of credit fees.

highlighted in Figure 15i _

Fiduciary and investment management fees increased 25 j Securities-related transaction fees, which include brokerage percent in 1985 compared to 18 percent in 1984. The faster

and various clearing fees, increased $65.7 million in 1985 and growth rate reflected the effects of successful new business

'$51.4 million in 1984.The rapid growth of these fees since development efforts aimed at generating new trust business.

1982 is due to the Corporation's expansion into the securities - Service charges on deposit accounts increased 7 percent, and brokerage business. The Corporation is now expanding primarily as a result of repricing efforts. This compares to a 19

' its securities dealer activities and plans to become a primary percent increase in 1984 and a five-year compound annual dealer of U.S. government securities. A sale of RMJ Securities growth race of 21 percent. The slower rate of growth in 1985 -

LCorp. was negotiated in late 1985 and is expected to'close in was due to lower inflationary pressures on costs -

the first quarter of 1986. A six year analysis of non. interest income appears on page 58.

FIGURE 15: ANALYSIS Ophamsans IN N006. INTEREST NGC00AE incnase . Incrrase (Decrease) (Decrease)

' $ in millions 1985 A mount % 1984- A mosnt %. '1983 Securities-related transaction fees ~ $ 192.2 $ 65.7 52- $126.5 $ 51.4 68 $ 73.1

. Service charges on deposit accounts 173.2 12.0 7 161.2 25.2 19 136.0

, Loan fees 169.0 32.2 24 136.8 '20.2 17 ' 116.6 L Fiduciary and investment management fees - 84.5 17.0 ~ 25 67.5 10.5 18 ,57.0 International fees and other income 73.1 14.0 24 59.1 12.6 - 27 46.5

, Gains on sales of equity securities 74.0 -53.8 266 20.2 (3.0) (13) '23.2

, Gain on sale of headquarters' building

.-- (115.3) . -

115.3 115.3 - -

Remaining categories 257.8' 35.3 16 222.5 53.9 32 168.6 Total $ 1,023.8 . $ 114.7 - 13 $909.1 $286.1 46 $623.0

[

5 1

fuent]-stso ;

. _ _ . - - . - . _ . _ _ . _ _ _ _ - . _ . _ . ~ . _ _ . . _ . _. .

Provision for Credit Losses The provision for credit losses totaled $379.4 million and was FIGURE 16: NET CREDIT LOSSES AND PROVISION FOR CREDIT LOSSES

$8.3 million below the high 1984 level that included the $150 3 in millions million special provision (Fig.16). The 1985 provision E Net Credit Losses reflected higher net credit losses. Net credit losses totaled E Pmrisionfor Crrdit Losses

$353.1 million, or 1.01 percent of average credit outstanding, ,9,, ,9,, ,9,3 ,9,4 ,93, compared to $210.0 milhon, or 0.71 percent, in 1984. The losses were concentrated in the energy portfolio, which ,

accounted for approximately one-third of net credit losses in s4*

both 1985 and 1984. The 1985 provision exceeded net credit w l losses by $26.3 million, resulting in an increase in the reserve W for credit losses to $554.4 million at December 31,1985. At year end, the ratio of the reserve for credit losses to loans and l leases outstanding was 1.50 percent compared to 1.57 [ ercent -

a year ago.

Further detail on the reserve for credit losses and net credic 200 losses is shown on pages 31 and 32.

100 0

44.2 97.0 115.3 210.0 353.1 72.I 162.4 155.9 387.7 379.4 Ctaff Expense StafTexpense increased 16 percent to $907.2 million in 1985. FIGURE 17: GROWTH OF COMPONENTS OF STAFF EXPENSE This increase is slightly higher than the increase in 1984. 'I change Average full time equivalent staffincreased 6 percent in 1985 E Arrrage Full Time Ef uiralent Staf compared with a 4 percent increase in 1984. Staff expense 8 Ar'rdE' A"8"dlCom/ensation Per Employee growth has been strongly influenced by expanded activities ,,,, ,,,, ,9,3 ,9 ,4 39,3 m the Domestic Secunties Group as well as acquisitions in other sectors of the Corporation. Excluding the effect of the Domestic Securities Group expansion and other acquisitions, 1 12

I staff expense increased 10 percent, and average full time i equivalent staffincreased 2 percent from 1984. Average 'i annual staff expense per employee rose 9 percent in 1985 9

which is comparable to the rate of growth L 1984. Figure 17 illustrates the changes in the components of stafTexpense for the last five years. The table on page 58 contains additional l detail on stafTexpense. 6 l

3 7.4 I.7 3.9 6.1 0

2.3 10.4 10.6 11.0 9.3 9.2

/u e ni} -tl,ru

~

. . . - . . - . . _ - . - ~ . _..~._________m. . . . _ _ . , _ _ . . ___ -.__ - . - . - _ _ . _

Other Empense Other expense increased 22 percent in 1985 to $850.4 million and acquisitions, other expense increased 16 percent from (Fig.18). Excluding the effect of the Domestic Securities 1984. The impact of the building sale on other expense was Group expansion and other acquisitions, other expense mostly offset by benefits of the sale, primarily increased net increased 19 percent from 1984. In addition to the expansion interest income from the cash received when the building and acquisitions, other expense was affected by the sale and was sold. A six year analysis of other expense appears on partial lease.back of the Bank's headquarters building in 1984. page 58. ,

Excluding the efTects of that transaction, as well as expansion 1 FIGURE 18: ANALYSIS OF lNCREASE IN OTHER EXPENSE __ _ _ _ __ __ _,

increase increase (Decrease) (Decrease)

$ in millions 1985 Amount % 1984 Amount % 1983 Net occupancy-premises $ 177.6 5 32.5 22 $145.1 $26.2 22 $118.9 Furniture and equipment 132.0 13.2 11 118.8 21.9 23 96.9 Telecommunications 60.8 9.9 19 50.9 13.4 36 37.5 Travel 34.3 5.9 21 28.4 6.7 31 21.7 Remaining categories _ , , _ . _ _

445.7 _

92.2 26 353.5 _

27.5 8

_ _326.0 ,

Total $850.4 $153.7 22 $696.7 $95.7 16 $601.0 income Taxes The 1985 tax provision reflected a decrease in the etTective was a higher level ofinvestment tax credits, primarily related tax rate to 34.8 percent from 36.2 percent in 1984 and 41.6 to leasing activities, and a higher level of earnings from percent in 1983. Both 1985 and 1984 had high levels of capital certain overseas subsidiaries that are taxed at lower rates.

gtins. Capital gains in 1985 included venture capital gains, For further details regarding income taxes, see Note 11 of and 1981 included the gain on the sale of the Bank's head- Notes to Financial Statements on page 51.

quarters building. Also affecting the 1985 etrective tax rate Organizational Earnings j The previous sections of the Financial Review discussed FIGURE 19: FINANCIAL SERVICES SYSTEM-PERCENTAGE CONTRIBUTION the consolidated results of the Corporation. The purpose of TO NET INCOMEm this section is to present data on the performance of the ,- g- g g ,g ---- --

Corporation s major operating groups. Organizational results are presented for the Financial Services System, the California um

.c m Banking and Real Estate Industries System, and the Capital ; 45

Markets System. The following analysis reflects this organiza-tional structure for both 1985 and 1981.

The Financial Services System was primarily responsible for M the Corporation's earnings gmwth in 1985. Net income of l' the California Banking and Real Estate Industries System also '

27 increased, while carnings of the Capital Markets System declined between years (Fig. 20).

During 1985, the contribt. tion to the Corporation's net 2 income by the Financial Scryxes System increased to 43 per-cent from 34 percent in 1984 (Fig.19). Prior to the 1985 reorganization, the 1984 contribution was 30 percent. Net ,

income generated by these subsidiaries rose 39 percent from :

the 1984 level to $138.8 million in 1985. The growth between Q l years reflects increases in all groups, with the major contribu. o j tion coming from the Venture Capital Group as a result of is 22 2s u 45 larger capital gains. For detail of activities within the System m Dataprior to 1984 Anv not eren nstated to n/ lect the 19e rrorgani:arios.

see Figures 21 and 22.

nonyliar

California Banking and Real Estate Industries System net income and other non-interest expense experienced large income increased 11 percent to $140.6 million in 1985 and increases from 1984, reflecting the Corporation's continued

. contributed 44 percent of consolidated net income. Net inter- expansion into the securities and brokerage businesses. Net est income increased due to earning asser growth, particularly interest income also increased due to earning asset growth consumer loan growth. Non-interest income was up, reflect- and a higher net interest margin. The margin benefited from ing increases in loan fees and fiduciary and investment a decline in the negative impact of non-performing loans management fees. and leases.

Capital Markets System net income declined 27 percent to The prior year's gain on the sale of the Bank's Los Angeles

$49.3 million in 1985 and contributed 15 percent of consoli- headquarters building and the $150 million special provision dated net income. The decrease was primarily the result of an for credit losses were not included in any 1984 organizational increase in the provision for credit losses.130th non-interest results and are reported in thes."Other" category.-

FIGURE 28: DISTlWSUTION OF NET INCOME SY ORGANIZATION' O Percentage Return on Net income Contribution Aser6ge Assets

$ in millions 1985 1984 1985 1984 1985 1984 California Banking and Real Estate Industries System $140.6 $126.8 44 % 44% 0.80 % 0.76W Cepital Markets System 49.3 67.4 15 23 0.24 0.39 Financial Services System 138.8 100.1 43 34 1.81 1.63 Other (5.9) (3.3) (2) (1) - -

Total $322.8 $291.0 100 % 1004 0.69 % 0.71W (1) 1984 J.sta has been rest.:ledto nflect the 1983 reorganization.

FIGURE 21: FINANCIAL SERVICES SYSTEM-NET INCOME Net iname

$ ia millions 1985 1984 Consumer services group:

Consumer finance $ 26.4 $ 24.9 Insurance se vices 13.6 13.0 Other 2.8 1.6 Total 42.8 39.5 Commercial finance & leasing group:

Leasing 38.8 35.9 Business credit 14.2 11.6 Auto finance 17.4 19.4 Housing services 1.5 (1.0)

Total 71.9 65.9 Venture capital group 40.6 9.2 Undistributed corporate expensem (16.5) (14.5)

Total $ 138.8 $100.1 (1) After-taxbasis.

FIGURE 22: FINANCIAL SERVICES SYSTEM EARNINGS

SUMMARY

Commenial Consumer Finance & Ienture Gtpit.d Services Group _ Leasing Group Group

$ la millions 1985 1984 1985 1984 1985 1984 Net interest income (expense)m $ 190.5 $175.4 $299.2 $236.2 $ (4.9) $(3.4; Non-interest income 97.3 90.5 27.4 14.8 73.8 19.9 Less provision for credit losses 28.6 19.2 63.8 29.6 I 1.8 2.3 Less other non-interest expense 179.2 171.8 119.3 89.3 10.5 5.0 Income before income taxesm 80.0 74.9 143.5 132.1 46.6 9.2 Net income $ 42.8 $ 39.5 $ 71.9 3 65.9 $40.6 $ 9.2 Total assets, December 31 $2.728 $2.734 $5,740 $ L502 $ 218 $ 158 L

(1) Indules amounts to connrt non-taxable iname,primarily securities iname, to a fully taxable equivalent basis and to aJJ thepre. tax equivalent of investment tax cndits on leasing actisities to internt imme.

tut n:y-f it e

m BALA80CE SBIEET AIIALYSIS Seuroos and Usee of Fundo Trende Changes in the balance sheet reflect a fmancialinstitution's Total earning assets grew 12 percent from December 1984 response to the general economic environment, as well as its to December 1985, following a 17 percent increase in 1984. l response to changes within the fmancial services market. Trading account assets and lease fmancing grew at a higher '

- Understanding changes in the balance sheet requires an exam- rate than loans; however, the primary use of funds continues

- ination of changes in the size and composition of the Corpo- to be to meet loan demand. In 1985, total loans were up

" ration's earning assets and sources of funds. The discussion in 11 percent compared to a 14 percent increase in 1984.

this section focuses on changes between December average All loan categories were above 1984 levels. The largest

' balances in 1985 and 1984 (Fig. 23). A comparison of Decem- growth occurred in consumer loans which increased 24 ber averages gives a clearer picture of changes in the balance percent from December 1984 to December 1985 compared to sheet during a year than a comparison of annual averages, a 16 percent increase in 1984. This reflected strong consumer which may conceal trends, or year-end balances, which may demand throughout the year, both in our consumer finance be distorted by significant one-day fluctuations. subsidiaries and in the Bank, and resulted from a combina-FIGURE 23: SOURCES ANO USES_OF FUNDS TRENOS _

December averages increase Increase December JDwnajeL_ p,,,,g,, Quasy-__ p,(,,g,,

$ in millions 1985 Amount % 1984 Amount % 1983 Eeming Aseste:

Due from banks-interest bearing $ 2,742 $ (16) (1) $ 2,758 $ 559 25 $ 2,199 Investment securities 1,932 21 1 1,911 35 2 1,876 Trading account assets 971 625 181 346 127 58 219 Federal funds sold 1,169 (13) (1) 1,182 711 151 471' Domestic loans:

Business loans 14,891 1,010 7 13,881 2,200 19 11,681 Real estate loans 5.234 209 4 5,025 427 9 4,598 Consumer loans 7,675 1,500 24 6,175 848 16 5,327 Im_e_m, ationalloans __ _ _ _ _

5,751_ _ 715 _ 14, _ _ 5,036 _ _ 326 _7__,4,710_

- Totalloans 33,551 3,434 11 30,117 3,801 14 26,316

1. case financing _ 2,553 470 23 2,083 470 29 1,613 Total earning assets $42,918 $4,521 12 $38,397 $5,703 17 $32,694 Sowces of Funds for Eeming Aasels:

Net core deposits:

Demand deposits $ 4,192 $ 580 16 $ 3.612 $ 202 6 $ 3,410 Interest / checking deposits 1,876 313 20 1,563 128 9 1,435 Insured money market accounts 4,224 393 10 3,831 (49) (1) 3,880 Other savings deposits 1,861 157 9 1,701 (129) (7) 1,833 Time deposits-under $100,000 3,449 118 4 3,331 470 -16 2,861 Totai net core deposits 15,602 1,561 11 14,041 622 5 13,419 Short-term purchased funds:

Net time deposits-3100,000 and over 4,209 (177) (4) - 4,386 953 28 3,433 Net intemational deposits (demand and time) 6,591 589 10 6,002 213 4 5,789 Federal funds purchased 3,636 (808) (I8) 4,444 1,979 80 2,465 Commercial paper 2,772 707 34 2,065 451 28 1,614 2, ___ _ _559_ _ - -55__ _ _1_,015 Other short te_rm funds borr_o_we_d_ _ _ _ - _ . _ __325_._7 5_1_48_ _ _ _ . _ _1,574 Total short-term purchased funds 19,533 1,062 6 18,471 4,155 29 14,316 Intermediate-term debt and deposits 4,126 1,117 37 3,009 254 9 2,755 Long-term debt 1,084 394 57 600 348 102 342 All other 2,573 387 18 2,186 321 17 1,862 Total sources of funds $42,918 $4,521 12 $38,397 $5,703 17 $32,694 ttwnt) dix

e tion of a favorable consumer reaction to a lower interest rate The Corporation relies primarily on core deposits and environment as well as business development activities. Busi- short term purchased funds to support its earning assets.

ness loan growth slowed to 7 percent in 1985, after increasing Net core deposits increased 11 percent in 1985 following a 5 19 percent in 1984. The majority of the business loan growth percent increase in 1984. All core deposit categories were was in non-bank subsidiaries. Approximately $0.4 billion above 1984 levels reflecting consumer reaction to a lower occurred in the Domestic Securities Group and relates to an interest rate environment in addition to successful business unusually high level of year-end clearing activity, while development activities. Demand deposits grew 16 percent approximately $0.3 billion occurred in the business finance compared to a 6 percent increase a year ago. Insured Money subsidiary. Domestic real estate loans grew 4 percent, down Market Accounts grew to percent after remaining relatively from 9 percent a year ago. Growth of the real estate loan unchanged in 1984. The growth in time deposits under portfolio in 1985 and 1984 has been concentrated in non-resi- $100,000 slowed to 4 percent from a 16 percent increase in dential property as sales of residential loans and loan payoffs 1984, reflecting the decline in 1985 of long-term deposit rates.

have offset new residential loan production. International In 1985, intermediate term debt and deposits and long-loans were up 14 percent, following a 7 percent increase in term debt increased $1,511 million compared to a $602 1984. Approximately 75 percent of the growth in interna- million increase in 1984. Most of the growth in intermediate tional loans occurred in the Corporation's international and long-term debt was used to finance non-banking and fmance subsidiary and in an indigenous Australian indigenous banking activities. The 1985 debt issues, used to merchant bank. reduce dependence on short. term borrowings, were predomi-Lease financing grew 23 percent in 1985 compared to an nately floating rate in order to maintain the cost characteris-increase of 29 percent a year ago. The increases in both years tics of short-term borrowings. In contrast, the 1984 debt were broadly based and included business lease financing, issues were mostly fixed rate.

both domestically and internationally, and consumer The growth ir, core deposits, intermediate-term debt and auto leases. deposits, and long term debt resulted in a slower growth of Federal funds sold and securities under resale agreements, short term purchased funds. The 6 percent growth in total another major use of funds, were essentially flat in 1985 after short-term purchased funds followed a 29 percent increase in more than doubling in 1984. 1984. Commercial paper, other short term funds borrowed, Trading account assets almost tripled in 1985, following a and international deposits were the primary contributors to 58 percent increase a year ago. The increase reflects the the increase, as federal funds purchased declined.

Corporation's expansion of merchant banking activities.

Liquidity and Interest Rate Sensitivity Management A fundamental aspect of the asset / liability management strat. The Corporation's principal source of asser liquidity is egy of a financial institution is adequate liquidity-the ability marketable investment securities, particularly those maturing to meet the requirements of customers for loans and deposit within one year. At December 31,1985, securities maturing eithdrawals in the most economical manner. Some liquidity within one year amounted to $677 million (Fig. 24). This is ensured by maintaining assets which may immediately be represents 34 percent of the investment securities portfolio converted into cash at minimal cost. For most financial insti- compared to 41 percent a year ago. Other potential sources of tutions, however, the most manageable sources ofliquidity asset liquidity are placements, trading account assets. federal are composed of liabilities, and the primary focus ofliquidity funds sold and maturing loans. Due from banks-interest management is on the ability to obtain funds for various bearing, which consists primarily ofinternational placements, terms in a variety of domestic and intern 2tional money markets. totaled $2.7 billion at December 31,1985, essentially The overall liquidity position of the Corporation is unchanged from the prior year end. Trading account assets enhanced by a sizable concentration of core deposits which more than doubled in 1985 and totaled $1.5 billion at year provide a relatively stable funding base. Core deposic growth end, while federal funds sold amounted to $921 million, improved in 1985 and was very close to the earning asset down 9 percent from December 31,1984. As shown in Figure growth rate. In addition, based on December averages, the 25, $19.8 billion, or an average of $1.6 billion in loans per liquidity position was further enhanced by a $1.1 billion month,is scheduled to mature in 1986. Loan sales are increase in intermediate-term debt and depo 3its and a $0.4 another source of asset liquidity. In 1985, real estate loan sales billion increase in long term debt. As a result, the Corpora- totaled $1,069 million compared to $870 million in 1984.

tion did not increase its reliance on short-term purchased funds, although they remained a significant funding source.

Management of these short-term funds, including time deposits-$100,000 and over, commercial paper and federal funds purchased, involves not only maintenance of an appm-priate maturity distnhution but also diversification of sources through money markets worldwide.

wnwn

f-E Pseune se: ANALYels Or nomsYusuf escunma.s_P0nTFOUO

' December 31,1983 N"'""N Total Within After Carrying I Wr 1-3 Yean 3-10 %n 10 Man . Valse Tad . Aserage Yieu . Yield Yieu Yieu YirU Market Matsnty

$ in millions Amt. . % A mt. % Amt. % A mt. % Amt. % hise . Yrr./Mos.

U.S Treasury $575 9.62 $595 8.93 $ 25 8.85 $- - $1,195 9.26 $1,211 2/7 Other (IS government - - - - - - 11 8.38 11 8.38 10 22/1

. State and municipalm 33 8.04 102 8.45 80 10.41 141 9.67 356 9.34 293 9/1 Other bonds, notes and debentures 69 6.65 106 11.53 8 7.80 14 8.92 197 9.48 198 2/10 Federal Reserve Bank and other stock - - - - -. - - - 245 - 263 -

TotalW $677 9.24 $803 9.21 $113 9.88 $166 9.53 $2,004 8.16 $1,975 3/4m (I) YieUs onfalsy taxable equisalent basis. Basedon a composite iname t.n rate ofapproximatdy 32penent.

(3) Exdades TwlevalResern Bank andotherstock.

Interest sensitivity is related to liquidity because cach is riouns as: LOAN MATunITY ANALYSISW affected by maturing assets and sources of funds. Interest [icember3[,1983 sensitivity, however,is also concerned with the fact that 1rithin A ter certain types of assets and liabilities may have interest rates 3 is millio*J_ __!jiar 1-3 Man 3 [ian Taal that are subject to change prior to maturity. Business loans Domestic loans:

with inte est rates tied to the prime rate and variable rate Business loans $ 12,559 $2,257 $ 894 $15,710 certificates of deposit are two examples. Real estate loans 314 519 4,388 5,221 Consumer loans 2,633 2,511 2,623 7,767 Interest rate sensitivity management, the management of .

International loans 4,269 877 638 5,784 the risk associated with changes in interest rates, has become increasingly important in recent years. Although 1985 was a Total $19,775 $6,164 $8,543 $34,482 period of relative stability la interest rates, the potential for (!) &sdspan sadddprin@ rrpayments.

mterest rate volatility has been demonstrated m recent years.

The objective ofinterest rate sensitivity management is to maintain an appropriate balance between stable growth of term changes in net interest income. Of equal importance are income and the risks associated with maximizing income the anticipated current market rates at the time the assets and through interest sensitivity imbalances. While no single the liabilities in the period being measured will mature or be number can accurately describe the impact of changes in repriced. In addition, fmancial futures contracts are also used interest rates on net interest income, one method is to to manage interest rate risk by hedging the cost or yield of measure over a variety of time periods the interest rate senst- anticipated rollovers or repricings of short. term liabilities and civity positions, or " gaps." The positions measured for short ,

assets. The impact of futures transactions has not been penods are important elements m managmg net mterest included in the analysis in Figure 26.

mcome during short. term fluctuations in interest rates. Based on a one year time period, there was an excess of However, those positions are only one of several variables interest xnsitive sources of funds over interest sensitive uses that affect changes in ner interest income in the short run, so of funds (negative gap) of $1.2 billion at December 31,1985.

these amounts must be used with care in forecasting short- This compares to a $1.9 billion negative gap for year.end 1984. Much of the decline in the negative gap position was due to a very high level of demand deposit growth at year end. Despite this negative gap position, the net interest margin has not shown wide ductuations, although interest rates have Huctuated widely over recent years. The negative interest sensitivity gap does not include the effect of fmancial futures contracts or pay. offs of consumer and real estate loans prior to maturity which increase asset sensitivity. In addition, although Insured Money Market Accounts pay interest rates which have the potential to change as short. term money market rates change, experience has shown that these rates change more slowly and to a smaller degree than other short.

term money market rates.

tw ntpigl>t

o :_ . _ _ _ _ - . _ _ _ _ _ . _ _____ _ _

Mouns as: MTenasT nate sessemWmf A06ALYSISW December 3I,1983 Dnenber31,1984

interest Sensitisity Period Interest Sensitis>ity Perid Total 0-30 31-90 91-365 irithin Ossr IVithin ' Oser

$ in billions Days _ Days Days ! liar i lear _

Total I lear i lear Total samens a ===a=-

- Due from banks-interest bearing $ 0.8 $ 0.7 $1.1 $ 2.6 $ 0.1 _ $ 2.7 $ 2.7 $ - $ 2.7 investment securities - 0.1 0.6 0.7 1.3 2.0 0.8 1.1 1.9 Trading account assets 1.5 - -

1.5 - 1.5 0.7 -

0.7 Federal funds sold 0.9 . -

0.9 -

0.9 1.0 - 1.0 Domestic loans:

Business loans - 11.6 1.1 1.3 14.0 1.7 15.7- 12.7 1.7 14.4

' Real estate loans - 0.2 0.7 0.9 4.3 5.2 0.7 4.4 5.1 Consumer loans 0.6 0.4 0.8 1.8 6.0 7.8 1.0 5.3 6.3 International loans 2.8 1.5 0.8 5.1 0.7 5.8 4.6 0.5 5.1 Total loans 15.0 3.2 3.6 21.8 12.7 34.5 19.0 11.9 30.9 Lease fmancing - 0.1 0.4 0.5 2.1 2.6 0.4 1.7 2.1 Total earning assets $ 18.2 $ 4.1 $ 5.7 $28.0 $ 16.2 $44.2 $24.6 $14.7 $39.3 seween of Punds Ist seming Aseets:

Net core deposits:

Demand deposits $ (0.5) $ - $- $ (0.5) $ 5.0 $ 4.5 $ (0.1) $ 3.7 $ 3.6 Interest / checking deposits 0.7 - - 0.7 1.3 2.0 Of 1.1 1.7

. Insured money market accounts 4.2 - - 4.2 -

4.2 4.0 -

4.0 Other savings deposits - - - -

1.9 1.9 -

1.7 1.7

_ Time deposics-under $100,000 0.4 0.7 1.4 2.5 1.0 3.5 2.4 0.9 3.3 Total net core deposits 4.8 0.7 1.4 6.9 9.2 16.1 6.9 7.4 14.3 Short-term purchased funds:

Net time deposits-$100,000 and over 2.2 1.5 1.3 5.0 - 5.0 4.9 -

4.9 Net international (demand and time) 3.3 2.0 1.0 6.3 0.3 6.6 6.8 0.2 7.0

. Federal funds purchased 4.7 - - 4.7 - 4.7 2.8 - 2.8 Commercial paper 2.0 0.7 -

2.7 - 2.7 2.3 -

2.3 Jther,shmtgeym funds borrowed __2.4_

0.2, _ _ - _ 2.6

_ _ - 2.6 1.9 -

1.9, Total short term purchased funds 14.6 4.4 2.3 21.3 0.3 21.6 18.7 ' O.2 18.9 Intermediate. term debt and deposits 0.3 0.1 0.6 1.0 2.9 3.9 0.1 3.0 3.1 1.ong-term debt 0.4 0.1 0.1 0.6 0.5 1.1 0.4 0.3 0.7 All other (0.6) - -

(0.6) 2.1 1.5 0.4 1.9 2.3

. Total sources of funds $ 19.5 $ 5.3 $4.4 $29.2 $ 15.0 $44.2 $26.5 $12.8 $39.3 Interest Sensitivity Gap $(1.3) $ (1.2) $1.3 $(1.2) $ 1.2 $ -

$(1.9) $ 1.9 $ -

(!) Indades efut ofinterest rate sways.

Capitaland Dividene.s Total stockholders' equity increased $476.1 million, or Consistent with recent years, the rate ofinternal capital 24 percent, during 1985 to $2,439.0 million at year end (Fig, generation was 10.7 percent in 1985, due in large part to a 37). The increase was the result ofinternal capital generation continued strong earnings performance as measured by the and proceeds from the fourth quarter issuance of $150 return on total stockholders' eguity of 15.3 percent.

milhon of preferred stock and $83 million of common stock. The quarterly dividend was mcreased to percent to $0.335 The stock was issued in anticipation of acquisitions, princi- per common share in the second quarter, resulting in a total <

pally Arizona Bancwest Corporation. It is anticipated that 1985 dividend of $1.31 per common share compared to additional preferred stock will be issued in 1986 in connec- $1.195 per share in 1984. Over the past five years, cash divi.

rion with the acquisition. dends per common share have increased at a 10 percent aver-age rate and have remained approximately 30 percent of net income. Management's goal is to maintain the dividend payout ratio close to the level of recent yeara. This would permit dividends to increase as earnings increase.

twnnie

1 The assessment of capital adequacy depends on a variety of - capital adequacy targets and prior years' ratios (Fig. 28).

factors, including asser quality, liquidity, stability of earnings, During 1985, the capital adequacy ranos were improved not

. changing competitive forces and economic condm, ons m only by the issuance of preferred and common stock but sho markets served, and strength of management. Regulatory by the issuance of $250 million of floating rate subordinated authorities have established minimum capital adequacy guide- capital notes. The Corporation's ratio of total capital to lines of 5.50 percent for primary capital to assets and 6.00 founh quarter average assets of 7.95 percent was also above ,

percent for total capital to assets. The Corporation's ratio of the prior years' ratios and above the guidelines defined by l

pnmary capital to fourth quarter average assets of 7.00 . the regulators.

percent was substantially above the regulators

minimum j PIOURE 3r: AgeALYSIS OF STOCIUe0LSent' EQUITY

$ is millions (exnptpar share ameants) 1985 1984 1983 1982 1981 Balance, January 1 $1,% 2.9 $1,781.6 $1,489.4 $1,323.2 $1,170.3 Net income 322.8 291.0 264.3 234.3 206.4 Added due to mergers and acquisitions - - - - 5.0 Common dividends (96.1) (87.6) (77.3) (65.7) (59.7)

- Preferred dividends (l.9) - - - -

Conversion of subordinated debentures - -

101.8 - -

Issuance of common stock (net) 86.7 0.9 7.2 4.3 1.2 Issuance of preferred stock (net) 147.4 - - - -

Net treasury stock transactions 11.9 (14.0) - - -

Translation adjustments 5.3 (9.0) (3.8) (6.7) -

Balance, December 31 $2,439.0 $1,962.9 $1,781.6 $1,489.4 $1,323.2 Book value per common share, year end S 29.90 $ 26.87 $ 24.20 $ 22.12 $ 19.78 Dividends per common share 1.31 s.195 1.09 0.98 0.895 Common dividends as a percent of net income applicable to common stock 30 % 30T 29 % 284 29%

PIOURE,38: CapfTAL ADEOUACY GAEAGURES

$ in milliess 1985 1984 1983 1982 1981 End ofperiod:

Stockholders' equity $2,439 $1.963 $1,782 $1,489 $1,323 Reserve for credit losses N 533 513 338 297 222

' Minority interest 4 1 35 37 17 Net subordinated capital notes __

489 250 - - -

Primary capital 3,465 2,727 2,155 1,823 1,562 Qualifying long term debt 467 361 294 460 531 Total capital $3,932 $3.088 $2,449 $2,283 $2,096 Ratios to fourth quarter average assets:m Stockholders

cquity 4.93 % 4.497 4.70 % 4.06% 4.09%

Primary capital 7.00 6.24 5.69 4.97 4.83 Total capital 7.95 7.07 6.46 6.23 6.47 Ratios to end of period assets:m Stockholders

cquity 4.51 % 4.219 4.38T 3.994 ? 984 Primary capital 6.41 5.85 5.29 4.89 4.70

' Totalcapital 7.28 6.62 6.01 6.12 6.13 (I) Exdades Allocard Transfer Risk Reserve.

(2) Basdon adjustdassets oss dejnedby bank vrgslators.

tI,irty

n Creet Risk Management A degree of risk taking is inherent in the extension of credit, by minimizing the adverse impact of any single event or set hianagement has instituted stringent credit policies designed of occurrences.

to minimize the levels oflosse2 and non-performing assets. Figures 29 and 34 provide several different breakdowns of These policies iequire extensive evaluation of new credit the Corporation's loans, which continue to reflect broad requests and continuing review of existing credits in order to diversification in both the domestic and international portfo.

identify early, monitor, and quantify any evidence of deterio- tios. Within the domestic portfolio, approximately 63 percent ration of quality or potential loss. The Corporation strives to of business loans were categorized as commercial and indus-pool and diversify risk with the objective of achieving high trial (Fig. 29), These loans are broadly diversified by industry, rates of retum and minimizing losses for the benefit of stock- with the only concentration being approximately $1.5 billion holders and the protection of depositors. Diversification of in energy related loans, which represent 4 percent of the total the loan portfolio by type of loan, type of borrower, and loan portfolio.

geographic distribution also tends to reduce the overall risk FIGURE 29: ANALYSIS OF LOAN PORTFOLIO Darmber 31 I985 .

3984 I983 1982 I98I

$ in millions Amoknt % Amount % Amount % Amount % Amount %

Domestic loans:

Business loans:

Commercial and industrial loans $ 9,837 29 $ 9,419 31 $ 7,807 30 $ 7,400 30 $ 6,215 28 Construction loans 1,652 5 1,312 4 1,2(>7 5 1,169 5 1,075 5 Loans for purchasing or carrying securities 2,059 6 1,513 5 916 3 653 3 455 2 Loans to fmancial institutions 557 1 722 2 731 2 609 2 545 3 Other business loans I,605 5 1,437 5 1,600 6 1,520 6 1,326 6 Total business loans 15,710 46 11,433 47 12,321 46 11,350 46 9,646 44 Real estate loans:0) 1-4 family residential properties 3,915 11 3,969 13 3,869 11 3,9 15 16 3,833 18 Other real estate loans 1,306 _ _ _ 4 1,073 3 670 3 697 3 651 3 Total real estate loans 5,221 15 5.012 16 4,539 17 4,642 19 4,487 21 Consumer loans:

Ready ReservAccount/ charge card loans 914 2 849 3 690 3 612 3 612 3 Other consumer loans 6,853 20 5,491 18 4,687 17 3,7al 14 3,138 1i Total consumer loans 7,767 22 6.310 21 5,377 20 4,316 . _ _ 17 _ 3,750 17 Total domestic loans 28,698 83 25,815 81 22,237 si 20,308 82 17,883 82 International loans:

Government and officialinstitutions 1,360 4 1,455 5 1,382 5 1,118 4 908 4 Banks and other (mancial institutions 1,689 5 1,386 4 1,410 5 1,481 6 1,117 5 Other, primarily business 2,735 8 2,228 7 1,906 7 2,001 8 1,834 _ 9 Total international loans 5,784 17 5.069 16 4,698 17 4,603

__18 _

3,859

_18 Total $34,482 100 $30,88 4 100 $26,935 100 321,911 100 $21,7 82 100 (1) Permanent lununamlbyjnt mortgages or the equiralent.

Reserve for Credit Losses The reserve for credit losses, against which loans and leases 18 percent to dotr.estic consumer loans,4 percent to Ready are charged off, was $554.4 million at year-end 1985, up from ReservAccount/ charge card loans,34 percent to international

$519.8 million a year ago (Fig. 30). The ratio of the reserve to loans, and 6 percent to lease fmancing. No significant allow-total loans and leases outstanding was 1,50 percent at Dnun- ance is made for losses on permanent real cstate loans. A ber 31,1985, down slightly from the 1984 year-end level. portion of the reserve allocated to international loans has not lixcluding permanent real estate loans secured by one to four been reflected in international net income and, therefore, is family residences, on which losses continued to be insigrifi- not included in the international reserve for credit losses cant, the ratio of the reserve for losses to loans and leases reported in Note 8 of Notes to Financial Statements on outstanding was 1.67 percent at December 31,1985. page 49.

Ilased on an evaluation ofindividual credits, historical credit losses and worldwide economic conditions, h!2nage-ment has estimated that approximately 38 percent of the reserve for credit losses is related to domestic business loans, 15'lft} L?it

~

j FIG 4JRE 30: AN ALYSIS_O_F RESERVE F_OR CREDIT LOSSES _ _ __

$ in millions 1984 1983 1982 1981 1985 _ .

13aiance, beginning of period $519.8 $339.5 $297.5 $222.3 $184.8 Provision for losses charged to expense 379.4 387.7 155.9 162.4 77 1 Othero i 8.3 2.6 1.4 9.8 9.6 Sub.cotal 907.5 729.8 454.8 394.5 266.5 Amount charged off (433.6) (262.6) (175.9) (129.6) (95.0)

Recoveries 80.5 52.6 60.6 32.6 50.8 Net credit losses (353.1) (210 0) (115.3) (97.0) (4 4.2)

Italance, end of period $ 554.4 $519.8 $ 339.5 $297.5 $222.3 End of period reserve for credit losses as percent of:

Tbtal loans and lease fmancing 1.50 % 1.577 1.194 1.13W 0.97%

Adjusted total loans and lease financingm 1.67 1.79 1.38 1.33 1.16 (1) Indudes alJitionsfrom acquisitions andfonign carrency translation adjustments.

(2) IDaluJnpermanent realestate loans secured by 1-4 family nsidentialproperties.

Credit Losses Net credit losses in 1985 increased to $353.1 million from FIGURE 22: NET CREDIT LOSSES

$210.0 million in 1984 (Fig. 31). The increase in net credit $ in millions losses is a reflection of problems experienced by the Corpora. E Chargeofs tion's customers in industries adjusting to lower rates of E R'coveries inflation or disinflation, such as energy and agriculture. ,,,, ,,,, ,,g ,9g ,,g Approximately one-third of net credit losses in both 1985 and 1981 were in the energy portfolio. It is not anticipated that los.es in the energy portfolio will continue at this high level. siso The increase in net credit losses between years resulted from a $171.0 million, or 65 percent, increase in gross charge-offs 3m partially offset by a $27.9 million, or 53 percent, increase in recoveries of previously chargedeficredits (Fig. 32). The ratio of net credit losses to average total loans and lease 2m financing was 1.04 percent in 1985 compared to 0.71 percent in 1984.

The increase in net credit losses between years was spread ,

throughout most major categories with the 12rge3t increase in domestic business loans. Net credit losses on domestic busi-ness loans were $217.0 million, up $105.5 million from 1984. 9o The increase in the domestic business loan category was spread throughout a number ofindustry groups with the largest concentration in the energy portfolio. 'I'he net credit

, su n6 m 52.6 as "

loss ratio for domestic busmess loans increased to 1.53 954 1291. ns.9 zu4 m FIGURE 31: ANALYSIS OF NET CREDIT LOSSES _ ___ _ _ _ _ ,_ _ . _ _ _ __ _ _ _ _ _ _ _ . __

1985 1984 1983 1982 1981

$ in millions - - - -.- .-Amount %m Amount

-. _4m - - - .Amonn!. -9m

-- ..-- .A mount

%m .-

Amoun!

9 01 _

Domestic loans:

llusiness loans $ 217.0 1,53 $.11.5 0.91 $ 60.1 0.54 $17.0 0.46 $ 9.7 0.12 Ready ReservAccount/

charge card loans 27.6 3.15 15.4 2.05 12.2 2.02 15 0 2.57 13.6 2.38 Other con umer loans 65.7 1.07 61.5 1.24 31.6 o s3 2'.1 OM2 Mo 0 85 Real estate loansm 0.5 0.01 0. 7 0.01 0.2 -

0. 3 0 01 - -

International loans _l 7.1 0.32 17.0 0.35 3.1 0.0' O.8 0 02 _, (7.2) . (0.20)

'lbtal net loan losses 327.9 1.04 206.1 0.74 110.2 0.41 90.5 0.10 42.0 0.21

1. caw financing _ 25.2 1.08 39 0 21 5.1 0 33 6.5 0.51 2.2 0.21

'lbtal net (redit losses $353.1 1.04 $210.0 0.71 $115 3 0.4 i $97.0 0.to $ l i.2 0.21 (l) sDt credit lonn as p< rcent ofattrage amoknt ontstandingfor eash category.

(2) Perw.anent loans sechmibyfirst mortgages or the equitalent.

uutty tuu

n

._n-- -.- - - - - -- -.. - - - - - - - - . - - - -

percent in 1985 from 0.91 percent in 1984. Lease fmancing 1986. Net credit losses on Ready ReservAccount/ charge card .

net credit losses increased $21.3 million in 1985 and resulted loans increased $12.2 million and caused the net credit loss in a net credic loss ratio of 1.08 percent. Approximately half ratio to increase to 3.15 percent compared to 2.05 percent in of the increase is due to increased losses on automobile leases. 1984. The increase reflects business development efferts in the

The remainder of the increase is the result of a small number latter part of 1984. It is expected that the loss ratio will of credits, and this situation is not expected to be repeated in moderate in 1986.

Non-Performing Loans and Leases; Other Problem Assets Loans ar'd leases are considered non performing when they reount sa: Aasatyses or esose-renronesseo Loases aaso Laases are placed en non-accrual status or when they are restruc- Drum 6er R ,

tured at a below-market rate ofinterest. It is Management's s in millions 1985 19M policy to discontinue the accrual ofinterest on business loans No acc Iloans and leases:

and leases when there is a reasonable doubt as to collectibility.

Interest accruals on business loans are normally discontinued Real orate related business $ 108 $ 137 whenever the payment ofinterest or principal is 90 days past Energy 194 180 due or earlier when conditions warrant. However, the accrual Agriculture 128 124 ofinterest on some business loans may continue even though Other (primarily business) 319 248

. they are more than 90 days past due if the loans are well International 218 279 secured, in the process of collection and Management deems Total r.on. accrual loans and leases 967 968 it appropriate. The accrual of interest on consumer and real Restructured loans and leases:

estate loans is normally not discontinued at 90 days as these Domestic:

loans are not carried for a long period of time before being Real estate related business 153 151 charged off. Whenever the accrual ofinterest is stopped, Other (primarily business) 14 4

. previously accrued but uncollected interest is reversed, and Internanonal - -.

mcome is recognized only when received. Total restructured loans and leases 167 155 Non. performing loans and leases peaked atJune 30,1985, if,[nonI erEorming p loardandIcases ~ l [d34 7 1,125 and have smce declined $MS milhon to $1,134 milhon at December 31,1985, up slightly from $1,123 million at the end of 1984 (Fig. 33). Total non-accrual loans and leases were essentially unchanged between year ends. Large changes eithin that category occurred in the domestic "other" cate- Other problem assets, primarily real estate acquired as a gory which was up $71 million and the intemational port. result of the work.out of problem loan situations, amounted folio chich was down $61 million from December 31,1984, to $144 million at December 31,1985, compared to $140 The most significant decline in international non. performing ' million at December 31,1984. Sales of other real estate hans was $18 million in Argentina, $32 million of which together with writedowns during the year resulted in losses was returned to accrual status in the fourth quarter. of approximately $3.3 million in 1985 and $2.7 million Restructured loans and leases increased $12 million in 1984.

between year ends.

International Lending The Corporation strives to reduce the risk inherent in the Figure 29 on page 31 presents internationalloans by type extension ofinternational credit by diversifying the credit of customer. Figure 25 on page 28 shows a maturity anhis portfolio by type of customer, type of credit and geographic ofintemational loans. At December 31,1985, approxirrately distribution. As part of the determination of an appropriate 74 percent of these loans had maturities within one year.

geographic distribution ofinternational credits, the Corpora- The geographic distribution of selected international assets tion analyres the worldwide economic and political factors is shown in Figure 34. With the exception ofloans and which bear upon the quality of a nation's economic perfor. acceptances at The Bank of Canton and Security Pacific mance. Based r"i studies made by the Corporation's econom. Australia Limited, which totaled approximately $$38 million ics staff and ry as from the Corporation's international and $461 million, respectively, and are reported in the Asia bankers located"b oughout the worhl, short run el longer- and Pacific geographic area, the remainder ofinternational term assessment e J rne future of a country's economy are loans and acceptances are substantially cross-border risks.

developed. Loans and acceptances and deposits placed with banks were above the year.ago level. The mcrease m loans and accep.

tances was concentrated in Europe, and Asia and the Pacific, partially offset by a decrease in loans and acceptances in the Middle East and Africa, and Latin America. The increase in deposits placed with banks was concentrated in the United l States and Canada, partially offset by a decrease in Asia and I the Pacific.

tin:nd m a

Figure 35 details by type of customer those countries in - riounE as: Cnoss sonoEn oursTANossos oven .7ss or TOTAL Assets which outstandings exceeded 0.75 percent of total assets. Of cmen.,nts oth,r, the countries listed in Figure 35, only Mexico and Brazil have a=J ofuial -

Primarily had debt servicing problems due to economic uncertainties 8 /* *illio*3 f*1'i'*'ia*8 Bd'AJ B83i*'52 Total and related foreign exchange liquidity problems. December 31,1985 ;

Total outstandings to Mexico at December 31,1985, were Japan $ 29 - $844 $ 70 $943 i Brazil 274 590 I approximately $520 million, of which approximately 314 2

$315 million and $205 million were to the public sector, hiexico 214 101 205 $20 which includes banks, and the private sector, respectively. United Kingdom 9 358 122 489 France 55 362 4 421 Interest payments on public sector debt were generally current. Non performing Mexican private sector loans totaled December 31,1984 spproximately $23 million at December 31,1985. ' Japan $ 23 $622 $i35 $780 During 1985, the Corporation recognized approximately Brazil 232 347 6 585

$36 million in interest income on Mexican public-sector hiexico 224 103 223 550 outstandings. The Co oration received cash payments of Un red Kingdom 3 approximately $66 mil ion on Mexican public-sector Canada 243 102 4 349 outstandings for the year. Approximately $29 milhon of the December 31,1983 cash payments represented principal and $37 million repte.

sented mterest. Japan $ 23 $661 $148 $835 The Mexican debt rescheduling agreement that resched, hiexico 175 107 268 550 B' 4 4 ules approximately $180 million of the Corporation's Mexi.

K 28 can public sector loans with 1985-1990 pnncipal maturities Italy 95 309 6 410 was signed during the year.The rescheduh,ng agreement United Kingdom 16 144 235 395 extended the matunties on these loans over a penod to 1998 at interest rates with spreads over the London Interbank Offered Rates (LIBOR), ranging from approximately 1 percent initially up to 1 % percent in later years. Although Brazilian loans totaled approximately $13 million at the original spreads on these loans varied and were subject to December 31,1985, both prime and L1BOR base races, at the time of reschedul- Negotiations, which began in 1984, continue between ing, the average spread for a majority of the loans subject to Brazilian officials and the Bank Advisory Group for restruc-the rescheduling approximated I h percent over the floating turing post.1984 maturities. Although it is not fmalized,it is prime rate. While the future relationship between LIBOR anticipated that the restructuring willinclude a seven year and the prime rate is uncertain, based on historical relation- rescheduling of certain post 1984 principal maturities and ships, it is expected that the average interest rate on resched- maintenance of certain existing short term credit facilities.

uled to:ns will be less than the current average interest rate. Such an agreement between Brazil snd the Bank Advisory Principal payments of approximately $9.6 million on loans Group would be subject to approval by the individual banks extended in 1983 were scheduled for prepayment in 1985 which comprise the lending group and finalization of defini.

under the terms of the rescheduling agreement of which $1.9 tive legal agreements. Commercial banks comprising the million has been received. The amount remaining has been lending group are expected to extend existing short-term deferred until 1986 and is likely to be refinanced. It is antici- facilities and term credit maturities while negotiations paced that Mexico will request new money commitments continue on the economic program.

m 1986. During 1985, the Corporation recognized approximately Total outstandings to Brazil at December 31,1985, were $64 million in interest income on Brazilian outstandings.

approximately $590 million, substantially all of which were The Corporation received cash payments of approximately to governmental and (mancial institutions. Non performing $68 milhon all of which represented interest payments.

FlounE 34: GEoenAPHIC DesfaloufloN oF sELECTEo INTEnNAfloNAL Assets

- U "'*0" 3l*I98' _ -

. . - _ -D"'*b3l* I984-Loans and D, posits Placed Loans and Deposits Placed

$ in millions _ _ _

Aarptanm uith Banks Total Aarytanas uith Banks _ Total _

Asia and the Pacific $2,723 $ 436 $3,159 $ 2,2 8.' $ 675 $2,957 Europe 1,624 994 2,6 t H 1.177 NM0 2,057 Latin America 1,687 23 1,710 1,822 40 1,862 l'nited sntn snd rsnsd2 623 1,039 1,662 588 6to 1,228 pjddle East and Africa _ 341 346 178 8 486

_ _ ____ _ _ _5 _ _ _ _,

Total $6,998 $2,497 $9,495 $6,H7 $2,245 $8,590 ti>irt)fm r

SUPPLEGENTARY NWILATION ADJUSTED DATA Financial disclosures prepared in accordance with generally FlOURE 36: STATEMENT OF EARNINGS AOJUSTED FOR Cpmenn PRICES accepted accounting principles report the actual dollar in mdllon~s~o/19s3,92ainMuaC~~ 1985 amounts received or expended without giving consideration se,fc~o'me $322.8 to chang:s m the purchasmg power of money. While there ns reciation and no simple or uniformly accepted approach to measuring these Adjustment to restate defor the effect of amortization expense effects, the Financial Accounting Standards Board has set generalinflationm (18.9) forth standards for reporting certain supplementary data et income adjusted for general inflation $303.9 designed to show the impact of price changes on fmancial results. They require that the efTects of changes in the value fI) The increaseddepreciation andamortization expense resultsfrom of specific assets be disclosed. Since the proportion oifixed increasing the value ofpnmises andequipment bphanges in the assets and inventories to total assets is so small for fmancial 08'**'r Pria Index. Assumedlires anddeprrciation methods arr institutions, there is no material difTerence between the #" 'd"" d' i" 'h' i'd'I'/"d""dl'#d""""" N8 d#l""""" hd*'

efTects of changes in the value of specific assets and the effects b" '"d ' ## ## #"'" ##/*I'i""' I"#"#' din #4 6asufnanaal ofgeneral inflation. As a result, only data adjusted for the f IGURE Sh FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA ADJUSTED FOR THE EFFECTS OF CHAN04NG PW9 Data adjustedforgeneralinflation are vrportedin 1983 eqawalent dollars

$ an millions, exaptfer Jhare asiants 1985 19M 1983 1982 1981 Operating income:m As reported $2,631.9 $2,323.7 $1,898.6 $1,609.5 $1,343.5 Adjusted for generalinflation 2,631.9 2,406.6 2,050.0 1,793.8 1,589.1 Net income As reported 322.8 291.0 264.3 234.3 206.5 Adjusted for generat inflationm 303.9 279.2 261.3 237.0 220.7 Per common share:

As reported 4.35 3.96 3.61 3.27 2.94 Adjusted for generalinflation 4.12 3.80 3.57 3.31 3.15 Dividends per common share:

As reported 1,31 1.195 1.09 0.98 0.895 Adjusted for gener21 inflation 1,31 1.24 1.18 1.09 1.06 Common stock market price, year end:

As reported 31.88 25.75 25.50 15.50 17.00 Adjusted for generalinflation 31,38 26.25 27.13 17.13 19.50 Total assets, year end:

As reported 53,503 46,117 40,382 36,991 32,999 Adjusted for generalinflation $ 2,939 47,359 43,181 41,113 38,208 Stockholders' equity, year end:

As reported 2,439 1,963 1,7H2 1,489 1,323 Adjusted for generalinflation 2,686 2,267 2,203 1,993 1,952 Decline in purchasing power of net monetary assets $ 28.9 $ 22.1 $ 18.3 $ 15.0 $ 38.6 Average Consumer Price Index (1967 = 100) 322.2 311.1 298 4 289.1 272.4 (I) Indsdes net interest income and non.intemt income.

(2) Indades both an adjastment to rrstate d<pmiation andamortization expensefor the efect ofgeneralinflation andan adjustment to 1983 equivalent dollars, dartyjm

,,...,..n -n-, ~,..n_-. . - - . - - . -- --- - ~ - - ~

efTects of general inflation are shown below. To adjust for care that the Corporation has had a strong growth trend over general inflation, the Consumer Price Index (CPI) has been the 6ve year period even considering the effects ofinflation.

used to adjust certain 6nancial data to the equivalent of 1985 Adjusted net income on a per common share basis increased dollars. Such a presentation is referred to as a " constant 8 percent from the adjusted 1984 level, and adjusted divi-dollar" approach. dends per common share increased 6 percent. For the entire in industries with a high proportion of 6xed assets there is 1981-1985 period, adjusted net income increased 38 percent, a potential for earnings to be inflated by understated depre- and adjusted operating income increased 66 percent. During ciation charges as well as the potential for signi6 cant under- the s2me period, adjusted total assets were up 39 percent and statement of the current value of these assets. Since most of adjusted stockholders' equity was up 38 percent. The the Corporation's assets and liabilities are monerary, resulting Corporation's 1985 adjusted common stock price was up in receipt or payment of a 6xed sum of dollars, no restate- 61 percent from the adjusted 1981 level.

ment is needed. Premises and equipment are not monetary The decline in general purchasing power of net monetary assets, however, and, as Figure 36 shows, the a Jiustment of assets is a very diflicult concept to evaluate. The nature of a these assets to average 1985 dollars would result in an increase bank holding company's operations is such that there will in depreciation and amortization expense of $18s million for always be an excess of monetary assets over monetary liabili-the year. ties, so this type of calculation will always show a decline in a Figure 37 shows a comparison of 6ve years selected 6 nan- period of price increases. Ilowever, there is no evidence that cial data adjusted to reflect changes in the purchising power this calculation has any meaning in terms of assessing the of money, as measured by the CPI, along with coniparable future trends of the Corporation's 6nancial results in an infla-data unadjusted for inflation. The adjusted earnings data indi. tionary period.

SEUiCTED QUARTERLY DATA Figure 38 contains the results of operations on a quarterly 1.ondan, and Tokyo stock exchanges (market symbol SPC).

basis for 1985 and 1981, as well as quarterly dividends per For information on dividend restrictions see Note 14 of share and stock price data. The common stock of Security Notes to Financial Statements on page 52. Page 58 contains Paci6c Corporation is hsted on the New hk, Pacific, details on the number of stockholders.

FIGURE 38: QUARTERLY RESULTS OF OPERATIONS _ _ _

$ in millions, ..

1985 . . ._ __ - . . . _

1984 exaftper share am aints l{tQtr 2nJQtr 3rJQtr 4thQtr Total istyrr 2nJQtr 3rJQtr 4thqtr 1bral Net interest inco.rie $ 373.3 $ 391.0 $402.3 $441.5 $ 1,608.1 $321.3 $ 3 62.2 $363.5 $ 381.6 $1,414.6 Non. interest income 226.7 244.4 256.6 296.1 t ,02 3.8 185.1 181.6 315.7 226.7 909.1 Provision for credit 'osses (78.8) (67.9) (83.0) (149.7) (379.4) (46 4) (49.8) (215.6) (75 9) (387.7)

Other non interest expense (405.7) (435.9) (449.8) (466.2) (1,757.6) (3&t) (355.5) (375.7) (399.3) (1,479.6)

Income taxes (42.0) . (52.4) (4 2.1) , (35.6) ( t 72. t_) ((6 0) ( (9.9) (l 3.1 ) (56A) (165.4)

Net income $ 73.5 $ 79.2 $ 84.0 $ 86.1 $ 322.8 $ 67.9 $ 68.6 $ 74.8 $ 79.7 $ 291.0 Net income applicable to common stock $ 73.5 $ 79.2 $ 84.0 $ 84.2 $ 320.9 $ 67.9 $ 68.6 $ 74 8 $ 79.7 $ 291.0 Per common share:

Net income $ 1.00 $ t.08 $ t.14 $ t.13 $ 4.35 $ o.92 $ 0.93 $ 1.02 $ 109 $ 3 96 Dividends o.305 0.335 0.335 0.335 1.31 0.2M o 305 0.305 0 305 1.195 Stosk pricem:

liigh $ 30 4 $ 31 4 $ 31'n $ 31's $ 26 $ 23 $ 26 % $ 26's 1.ow 25 % 26 % 25 % 25 4 22 % 19 % 20 4 23b End of period 28 h 30 % 25 4 31's 22's 21 % 25 25 %

(I) Bawd on dosingfrites ofcommon shares as report <J on the Composite Tape anJphiishedin the librern EJ tion of The lud/ Samtparnal.

//vt) n

PIOGA00CIAl.ItEPOftTS RAanagement Statement Index to Financial floports The accompanying (mancial statements were prepared by Security Pacific Corporation and Subsidiaries hianagement, which is responsible for the integrity and objectivity of the data presented, including amounts that Consolidated Ilalance Sheet 38 must necessarily be based on judgments and estimates. The fmancial staterrents were prepared m conformity with gener- Consolidated Statement of Earnings 39 ally accepted accounting principles, and in situations where Consolidated Statement of Changes in acceptable alternative accounting principles exist, Afanage-ment selected the method that was most appropriate in the Stockholders' Equity - - ~ - - - - --

40 circumstances. Financial information appearing throughout Consolidated Statement of Changes in this Annual Report is consistent with the fmancial Financial Position 41 statements.

blanagement depends upon the Corporation's system of

, Security Pacific National Dank and Subsidiaries internal controis m meenng its responsibilines for reliable _ _

financial statements. This system is designed to provide Consolidated Statement of Condition 42 reasonable assurance that assets are safeguarded and that - -- - - -- '

transactions are properly recorded and executed in accordance Security Pacific Corporation (Parent Company) with hianagement's authorization. Judgments are required to llalance Sheet 43 assess and balance the relative cost and expected benefits of - - - . . - - - -

these controls. As an integral part of the system ofinternal Statement of Earnings 44 controls, the Corporation maintains a professional statrof

- ~ ~ ' ~

internal auditors who conduct operational and special audits Statement of Changes m. Stockholders' Equity 40 and coordinate audit coverage with the independent certified Statement of Changes in Financial Position 45 public accountants. - - - ~ -

The financial statements have been audited by our inde. Notes to Financial Statements 46 pendent certified public accountants, Peat, hlarwick, hfitchell Re ort of Independent Certified Public Accountants h3 C Co., who render an independent professional opinion on blanagement's financial statements. Six Year Financial Summaries The Audit Committee of the Corporation's Iloard of - - -

Directors and the Examining Committee of the 112nk's lloard Consolidated Average llalance Sheet of Directors, composed solely of outside directors, meet and Related Yields and Rates 54 periodically with the independent certified public account.

Analysis of Domestic and International ants, hianagement and mternal auditors to review the work Net Interest income 56 of each and ensure that each is properly discharging its - - - - .

responsibilities. The internal auditors and the independent Consolidated Six Year Analysis of certified public accountants have free actess to the Commit- Non-Interest income and Expense and Other Statistics 58 tees, without hf anagement present, to discuss the results of _

their audit work anli their evaluations of the adequacy of Consolidated Six Year llalance Sheet, Earnings internal controls and the quality of financial reporting. Ratios and Common Stock Data 59 l[H !) u l t!!

Coll80LMATED EALA8lCE 88EET Secrity Paajc Corporation andSubsidiaries '

Dramber 31, y,,,,,,

$ in millions t985 1984 (Drcnase)

ASSETS Cash and due from banks - S 5,279 $ 3,832 $1,447 Due from banks-interest bearing _ 2,730 2.724 6 investment securitics 2,004 1,859 145

. Trading accou_n_t assets _

1,457 712 745 Federal funds sold and securities under resale agreements 921 1,007 (86) 34,482 30,884 3,598 Loans. _

Lease fmancing 2,582 2,127 455

_. Total loans and lease fmancing_ _, 37,064 33,011 4,053 Less reserve for credit losses $54 520 34 -1 Net loans and lease fmancing_ 36,510 32,491 4,019 j Premises and equipment _. 689 601 88 Customers' acceptance liability 1,218 1,282 (64)

Eamed interest receivable 459 435 24-Real estate owned 144 140 4 Other assets 2,092 1,034 1,058 Total assets $53,503 $ 16,117 $7,386 uaen, mss Demand deposits in domestic oflices $ 7,849 $ 6,633 $ t,216 Interesi/cliccEg]eposits_in_dornestic of1 ices _. _

2,299 1,921 378 Insured _ money market accounts in domestic oflices 4,244 3,997 247 Other savings deposits in domestic offices __t ,872 l,719 153 Ti_m_c deposits in domestic of1 ices-under $100,000 __ 3,465 _3,365 100 Time deposits in domestic offices-$100,000 and over 6,t i1 5,997 114 Total deposits in domestic of1 ices 25,840. 23,632 2,208 Deposits in foreign branches and international subsidiaries 7,033 7,374 (341)

Total deposits 32,873 31,006 1,867

{ederal funds purchased and securities under repurchase agreements 4,689 2,831 1,858 Com_ merci _al paper 2,687 2,270 417' Other short term funds borrowed 2,856 1,921 935 Intermediate term debt 2,406 1,760 616 Long term debt 603 446 157 Subordinated capital notes 500 250 250 Acceptances outstanding _ _ _ 1,341 1,282 59 Accrued interest, taxes and other expense __ __ _ __ _ _ __ _ _ _ 1,334 1,133 201 Other liabilities 1,775 1,255 520

_-_ Total liabilitics_ _ __ _

_ _ . _ 51,064 41,154 _ _ 6,910 S - newer Preferred stock-without par value 150 - 150 Shares authorized: 1985 and 19&t-5,000,000

_ Shares issued: 1985 ,300 _ _ __ _ _ _

Common stock-$10 par value 768 369 399 Shares authorized: 1985 - 200,000,000; 1984 - 100,000,000

. Shayes i.ss_ued: 1985 _76,788,579; 1981..--36,859,675, _

Surplus $19 _831_____(315)

Undivided profits 1,007 773 _238 2,444 1,976 468 at cost: 5 13 (8)

Less1985common stock in

- 240,985 shares; 1984treasury,334,736

- shares Total stockholders' c<guity_ 2,439 1,963 476 Total liabilities and stockholders' equity $53,503 $ 16,117 $7,386 See aaowpanying Notes to Financial Statements.

thirty-Qbt

CONSOUDATED STATERRENT OF EARNi880S Secrity Paajc Corporation and Subsidiaries Har Ended ikcemfer 3I, 3 in millions, excqtper dare amounts 1985 1984 1985 NOTERESTNIC000E Loans $ 3,748.8 $3,629.5 $ 3,087.9 15212nces due from banks 274.1 271.6 239.3 State _and rnunicipalinvestment securities 18.7 20.4 22.0 Other investment securities 149.9 147.5 141.4 Trading account assets 48.4 31.4 21.5 Lease financing 273.2 236.8 187.8 Total interest income 4,513.1 4,340.2 3,699.9 setTEREST EXPENSE Deposits 1,928.6 2,073.9 1,790.5 Federal funds purchased and securities under repurchase agreements __ .

283.4 _

316.2 _ 232.6 Commercial paper 225.7 189.7 135.0 Other short term funds borrowed 156.8 103.0 99.3 Intermediate-term debt 219.9 183.4 127.8 Longterm debt 90.6 59.4 39.1 Total interest expense 2,905.0 2,925.6 2,424.3 8 888 . ___..________._._____I.'_ 8

_ ._!d 3 __.!'

NCI jn3 crest income Jess pfovision for credit losses 1,228.7 1,026.9 1,119.7 Noss-letTEREST IIeC0 eta ~

l9I.f

~ ~ ~ ~ ~ ~

SEcu~r~ities'related Faisaction'fci

~~

126.5 " ~ 7Ti ScrvicQiaigeidrideposit accounts 173.2 161.2 136.0 Loan fees 169.0 136.8 116.6 Fiduciary and investment management fee _s. _ _ _ _ _ _

84.5 _ _ _67.5_ 57.0 Gain on sale of equity securities

_____74.0 20.2 23.2 International fees and other income

~ ~

73.1 59.1 46.5 Charge ca'r'd rnerchant]fics))~]~ ,

(( ~[~]'[][))_))h)]2[]_]Ii.3_[~~~39} _

Trading accounr profits 21.8 11.1 8.8 lnvestment securities gains 4.8 1.5 1.5 Gain on sale of lycadquarters buildings - 115.3 -

Other income 181.0 165.3 119.3 Total non. interest income 1,023.8 909.1 623.0 OT90ER N000 letTEREST EXPENSE Statfexpense Net occupancy-premises _

[___ ~ " _ _] ] _ ~ ~ ~ ^ {i~} ))9j)7,2][f8i9 ][6E0 1,77.6__ _ _ 145.1 _ _ _ _118.9 _ .

Furniture and cquipment expense _, _ _.

132.0_ _ _ _, _1 18.8_. _ _96.9 Telecommunications expense._ _ _ _ _ _

60.8 ___ 50.9 _ . . 37 5 Other operating expenw 480.0.. 381.9 347.7

_ Total other non interest expense 1,757.6 1,179.6 1,290.0 hec 0esE REFORE le0C0eIE TAMES 494.9 _

456.;l __ _.

452.7 Income taxes 172.1 f ro.4 188.4 NET eseC0eIE $ 322.8 $ 291.0 $ 264.3 Net income apphcable to common stock $ 320.9 $ 291.0 $ 264.3 leet IIeC000E PER C0eseION SNARE $ 4.35 $ 3.61

_3.96 _ $_ ,

Average common shares and share equivalents (millions) 73.9 73.5 73.6 See aaompanying Notes to FinancialSt.stements.

tlirtv::a

Secrity Ihcifc Corporation and Snbsidiaries Cm HTED STATEhlENT OF CHANGES bN STOCKHOLDERS' EQUITY Secrity Paajc Corpor: tion (Pare:t Company)

$ in millions Stuk Stuk Serplus Projts Stxk Total BALAIICE, DECatesER 31, test $ -

$280.5 $588.6 $ 620.3 $ - $1,489.4 Net income - - - 264.3 -

264.3 Common dividends - - -

(77.3) -

(77.3)

Conversion of subordinated debentures -

29.6 72.2 - -

101.8 Stock dividend-common - 56.1 168.3 (224.4)__

Issuance of common stock - 2.0 4.6 0.6 - 7.2

~

~(3~ 5j~ --

- ~ - - ~ ~ ~

Transi2tinailjErne~nis ~ ~~~-~~T -

~~l378) mALAmCE, DECEassER 33ae3 ___ _$ 7 ___ _$36s.2 _ _ $s33.7 _ $ _ 579.7__ $ ._ _ _$12816 Net income - - -

, 291.0 -

291.0

- [~ ' [

~

Common diside}n'ds ((_ [_[']

_ [_] ,[- _ ))(8V.6)]{))[ (873)

Net treasury stock transactions __ _ _ _

_ ,_ __ _____ ._(1.2). _ _ .(12.8)_ .._(14.0) _.

Issuance of common stock - 0.4 0.5 - -

0.9

~ ~ ~ ~ ~ ~ ~ ~ '

~(9T0)~ ~ ~ ~ ' ~~~'I9.0)

~

Translation adjustments ~~~ ~~ ~ - - - -

BALANCE, DECEAASER 31, jm _ _-___$ _7 _

$368 6 .

._ _ _$834.2_ _ $,,772.9_ _ $_(l 2.8). _ _ _ $ 1,962.9 _ .

Ne.t income . _ _.-- . _ _ . _ _ _ _ _ _ _ . _ _ _ _ . . _ _ _ _ _ 3 2 2.8 _ ~ . _ ._ . . _. 3 2 2.8

~ ~~

~7 - ~~ ~' ~ ~ ~ ' ' (15)

~~~ ~ '

' ' ~ ~ ~ ~ ~

Preferred'dividesds ~ ~ ~ ~ ^ ~ ~ ~

'(1.9)~~~~

~ ~~~

Stock dividen 1-coirimon ~ ~ ~

~ ~ ' ' ~ 3/d6' ~ ~ ~'(368.6)~~ ~

~

~~

Nct treasjry stoik transaction { ~ _ (( { . ] -~ _ ~ i - [ ~ _ _ _3.7

~ ~

_ [8.[] [l15 issu_ancc of prjfdred stock . __

_ 50.0._ 1

__- (2.6)_ _7_, _- l_47.4 Issuance of common stock - 30.7 _55.5 0.5 -

._86.7

~~~ ~

~ ~ ~ ' ~

Translitio i adjustnie~nts ~ ~ ~ ~ - - -

].3 -

'5.3 BALA80CE.DECER055R 31 toes $150.0 $767.9 $518.5 $ 1,007.2 $ (4.6) $ 2,439.0 See accompanying Notes to FinandalStatements.

l pn

CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION Secrity Pacifc Ccrporation andSubsidiaries Mar Ended Dweaber31, 3 in millions 1985 1984 1983 FIISANCIAL RESOURCES WERE PROVIDED BY ( APPLIED TO)

Operations:

Net income ^ ~

$ 322.8 $ 291.0 $ 264.3 )

^Cor5 mon ~ dividends ~ ~ ~ ~ ~ ~[96.1) (87.6) (77.3)

Preferred dividends (1.9) - -

224.8 203.4 187.0 beposits and other fmancing activities:

Deposits . 1,867.1 3,163.4 1,994.4 Short. term funds borrowed 3,209.5 ~

1,171.2 1,001.9 Intermediate-term deb' t and long i term'debI ][ ^~~

_ ] ] _~ i,052 8 5555 321.3

. lssuance of common stock (net) __ . _ _ . _ _

_ _ _ _,_ 86.7 _

0.9 _

7.2 issuance of preferred stock (net) 147.4 - -

Conversion of subordinated debentures - -

101.8 Net treasury stock transactions 11.9 r -

(14.0) _

6,375.4 5,139.1 , 3,429.6 ,

Other activities- '

Cash and due from banks __ . . _ _

_ _ _ _ __ _ _ _ _ __ _ _( t ,4 4 6.8)_ (733.5) (665.1)

Translation adjustments 5.3 (9.0) (3.8)

Other, net (330.8) 495.7 32.5 I~

__(1,772.3) (216.8) (636.4) r Total $4,827.9 $5.095.7 $2.980.2 INCREASE (DECRE ASE) III EARNING ASSETS Due'from banks-interest bearing _

investment securities and trading account assets

. [] _'_. _ _[ ] (($][Q]~$l24.8_889.6 71.0 ly(j (45.7)

Fed funds schi 262.1 425.9 Net loans and lease fmancing.

. _ _ _4,018.3 (86.2) ___4,237.8 2,246.4 Total $4,827.9 $5,095.7 $2.980.2 See aaompanying Notes to FinancialStatements.

y &.'

4 #

/sfi} r,W J

W emaam amaiED stAigangniOF CONDMON Secrity Paajc National Bank and Subsidiaries December 31, ' g,,,,,,,

$ in millions 1985 1984. (Dtcrease)

ASSETS

' Eash and due from banks $ 4,825 -$ 3,688 $1,137 Due from banks-interest bearing 2,397 2,252 145 Investment securities:

]U.S]. Treasugsecurities 1,184 1,145 39 iOther U.S. government securities 9 64 (55)

_ State and municipal securities 315 348 (33)

Other securities 271 128 143 !

1,779 1,685 94

~Totalinvestment securities Triding account assets 1,288 690 598 Federal funds sold and securities under resale agreements 1,882 1,345 537 Loans 28,066 26,228 1,838 lea $ financing 2,082 1,819 263 Total loans and lease financing _ _ 30,148 28,047 2,101 Less reserve for credit losses 431 431 -

Net loans and lease financing 29.717 27,616 2,101 Premises and equip _ ment 600 540 60 -

Customers' acceptance liability l.218 1,282 (64)

[ _

Earned interest receivable 428 408 20 119 124 (5)

' .Real estate owned _ __ __

. Other assets / 559 523 36

, 'I' oral assetse $44,812 $40,153 $4,659

' M8ILITIES -

,3 - Demand depositMn domestic offices $ 7,828 3 6,555 $1,273

, Interest /checkyg d[cposits in domestic offices __ _

2,296 1,921 375 Insured money market accounts in domestic offices 4.241 3,994 247 Other savings deposits in domestic offices 1,871 1,717 154 Time deposits in domestje offqcs--under $100,000 3,361 102

__ 3f63 Time deposits in domestic oflices-$100,000 and over 6,129 6,001 128

_ _ _ Total deposits in domestic offices 25,828 23,549 2,279 Depopts in foreign branches and international subsidiaries 7.056 7,353 (297) .

Tot.at deposits 32,884 30,902 1,982 Federal fundsjurchased and securities under repurclyase agreemen_ts _ 4,6% 2,835 1,861

, Subordinatedjong-term notes payable to parent company ______ __ 197 196 1 Subordinated opical note payable to parent company __ _

398 149 249 Other funds borrowed 1,804 1,170 631 A ep[ances,ouisyriding~ [ ][ ))[ __

I,~Mi ~ 1,282 59 Accrued interest, taxes and other, expense 1,124 1,005 119 Other habilities '

494 882 (388)

Ea~lifabilities 42,938 38,421 4,517 STotsitecteen'S seueTY ~~ ~ ~ ' ~ ~ ~~- ~ ~ ~ ~ ~ ~ ^~

Coi6sn itock-$1'0' par valie~ " 550- 550 -

Shres .nithorized and outstanding: 1985 and 1984 - 55,000,000 Surplus 1 ~~ ~

550 550 -

Undivided h'e ~ ~T 774 632 142 Tistal styIIisScr's equity; '

1,874 1,732 142

'Ibtal liabilities and stockholder's equity $44,812 $10,153 $ 1,659

~f ,

~, .r ,

See aaompanying Notes to FinandalStatements.

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Secrity Ibafc Corporation (Phrret Cosspany)

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December 3I, ,y,,,,,,

$ in millions ' N .

1985 1984 (Decrease)

AsssTs -

- % .L_

' Cash in Security Pacific National B.tnk ..

1- r $ .

$- 1

$ ~(1)

}Short term investments-at cost which approEn7tNErket val { =

284 450 (166)

> Advances to subsidiaries . . 4; 4,610 3,271 - 1,339

? Income taxes due f Er5Tubsl3iaries . -t 20 :16 4

.x (Investment in wholly ovned subsidiaries:

5PBank subsidiaries (Amount not eliminated in consolidation: . .

1985 -$26; 1984-$38) . a 1,931 1,775' 156

{7 ' Non-banlc 1985 -$3; 1984-$3) subsidiaries

- 'a( Amount not elimina[d]EEinsolidation:

4 '

-789- 595 194

. ,Othqsssets, . .

68 49 19 --

Tatal assets . $7,702 - $6,157 "$1,545 :

m UASILMES ?-

Advances fr'om non bank subsidiaries - > $ 270 $ 270 $ -

gommercial paper _

2,584 2,180 404

~

o " L Other short term funds borrowed - $

n 70 21 49 Intermediate-term debt ~7 1,426 1,203 223

'fN i1.ongerm debt i

337 .218- 119; 1 St.bordinated capital notes 3. 0 500 250 250=

'6tidtlfalsilities 76 52 24'

~i. li,Totalliabilities 5,263 4,194 1,0c9

f3 sTaearanaa a===' Eourry

4:IFe~ferred stock-without par value - .

150- -

150 Shares authorized: 1985 and 1984- 5,000,000 1 Shares issued: 1985 - 300 - -'

S Common stock-$10 par value b I 768 369 -399 Shares authorized: 1985-200,000,000; 19h4 *00,000,000 - +.

Shares issued: 1985 - 76,788,579; 1984-36,859g5 ' ,

s iSurplus

~~

a <r -

519 834 (315)

[7

~

h Uiidivided profits 1,007 773 234 2,444 1,976 468 1,'Y ! Less common stock in treasury, at cost: 5 13 1985 - 240,945 shares; 1984 '-39,736 shares '

(8)

^

Total stockholder [cquity 2,439 1,963 476 Total liabilities and stockholders' equity $7,702 $6,157 $1,545 See accompanying Notes to FinancialStatements.

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STATE 8EENT OF EAElNINGS Secrity Pacific Corporation (Parent Company)

Year Ended December 31,

$ in millions 1985 1984 1983 seCotes Dividends from subsidiaries: ~ ' ~ ~ ~

~

SCCu.P ritt ajficyjgaIEn{ $1103~ $101.6 $ ids Non-bank subsidiaries 28.4 45.2 5.9 Interest and fees received from subsidiaries 378.7 256.9 158.7 -

Other income 25.5 44.4 23.7 543.2 448.1 276.2

_T otalincome _

EXPENSE ~

~

I'nterest on advances fr'om non-banicTulsidiaric~~ s 31.8 29.3 10.0 Interest on commercial paper 215.9 168.5 101.0 Interest on other short-term funds borrowed 5.9 1.4 0.1 Interest on intermediate-term debt 139.8 118.1 85.6

~ --

Interest on long T rerm dekt _ _ _ , ._ _ ] __ ] ~] __62.3 ~33.4 _ 18.0 Provision for credit losses 5.1 - -

Service charges paid to subsidiaries 14.7 11.3 8.8 Other expense 4.9 4.8 5.3 Total expense 480.4 366.8 231.8 income before income taxes and equity in undistributed income of subsidiaries 62.8 __81.3__ 44.4 _

Allocated income tax benefit 32.3 27.8 21.8

""E ByORE Egy_INySTRlSUTED leeCOstE OF SUBSIDIARIES 95.1 109.1 66.2 Equity in undistributed income of subsidiaries:

Bank subsidiaries 144.7 151.7 151.3 Non-bank subsidiaries 83.0 30.2 46.8 NET peCoass $322.8 $291.0 $264.3 Net income applicable to common stock $320.9 $291.0 $264.3 See accompanying Notes to FinancialStatements.

~

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STATE 88ENT OF CHA98GES lN FINANC8AL FOSETHNC Secrity Paajc Corporation (Parent Company) nar Ended December 31,

$ is millions ,

1985 1984 1983 FINA00CIAL RESOURCES WERE PftOVIDED BY (APMJJD TO):

Operations: _ _ _

Net income _ $ 322.8 $ 291.0 $264.3

_pquity in_ undistributed net income of subsidiaries (227.7) (181.9) (198.1)

_fommon djvidends__,__ _

(96.1) (87.6) (77.3)

Preferred dividends (1.9) - -

(2.9) 21.5 (l1.1)

Other fmancingactivities:

Afvanges f[om non-bank subsidiaries 0.1 171.8 ( _.

, _0.1 )

Short term funds borrowed 452.3 _ 760.2 196.2 Intermediate. term debt and long-term debt 591.4 567.5 289.3 I

._ .ssuanSe of common stock (net) 86.7 0.9 7.2

_158.uance of preferred stock (net) 147.4 Conversion of subordinated debentures - -

101.8 Net treasury stock transactions 11.9 (14.0) -

1,289.8 1,486.4 591.4 Ot4eg activi_ti,es:__ _ _

Cash 0.3 (0.7) -

Translation adjustments 5.3 (9.0) (3.8)

Other, ner 3.1 11.5 3.2 8.7 1.8 (0.6)

Total $1,295.6 $1,509.7 $582.7 INCREASEjDECREA{IN EAR 000000 ASSETS ANO ltdVESTRSENTS IN SUBSIDIARIES: _

Short-term investments $ (166.1) $ (42.9) $201.3 Advances to subsidiaries 1,339.4 1,421.6 366.8 Investments in subsidiaries 122.3 131.0 14.6 Total $1,295.6 $1,509.7 $582.7 See aaompanying Notes to FinancialStatements.

I I

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+

100:3s10 FBIAIICIAL STATERIEIITS 1/sunnnery og sesninoene " -*T PoNotoo: Lease fmancing is carried net of unearned income and unam rtized investment tax credits on leveraged leases.

The accounting and orting policies of Security Pacific Leases to cusmmers fall mm two categones: (1) full p2yout JCorPoration and its s7sid' aries conform with encrally

. 8 direct fmancing leases where the assets leased are a utred accepted accounting principles. The following is a summary without additional fmancing from other sources, an

.of the sigmficant policies: (2) leveraged leases where a substantial portion of the financ-A/IASIS OF PRESENTATION k Mtt 4 ing is provided by debt VJith no recourse to the equity partici- i i

Consolidated financial statements include the accounts of pant. Income from leases in the first category is recognized Security Pacific Corporation (Corporation) and the consoli- on a basis which generally produces a level yield on the

. dated accounts of all significant majority owned subsidiaries, remaining net receivable balance. Income from Icveraged including Security Pacific National Bank (Bank), the leases is recognized over the terms of the leases based upon Corporation's principal subsidiary. Intercompany accounts the unrecovered equity mvestment.

1 and transactions are eliminated. The financial statements of Loan and lease hnancing losses are charged to the reserve Security Pacific Corporation (Parent Company) include the for credit losses and recoveries are credited to the reserve.

results of the Bank and other subsidiaries under the equity Provisions for credit losses are charged to expense and added method of accounting. to the reserve to maintain it at a level deemed appropriate by Investments representing between 20 percent and 50 management to absorb known and inherent risks in the loan percent of the investees' equity are accounted for under the and lease fmancing portfolios.

equity method. All other equity investments are carried Real estate and other assets acquired in satisfaction of at cost. indebtedness are recorded at the lower of estimated fair value Business combinations accounted for as purchases are or loan amount, and any difference between this and the loan included from the respective dates of acquisition. The excess amount is treated as a loan loss. Gains and losses from the

- of the purchase price over the net assets acquired is amortized sale of such assets as well as any subsequent write-downs are on a straight-line basis over the periods estimated to be bene- included in non-interest income.

fired, not exceeding 40 years.

o/ PREMISES AND EQUIPMENT k Ntt 7

Certain prior years, data have been reclassified to conform Premises and equipment owned are stated at cost, less accu-to the current presentation.

mulated depreciation. Property under capital leases is carried O/ INVESTMENT SEC'JRITIES AND TRADING ACCOUNT ASSETS k Mit 5 at the lower of the present value of future rental payments or Investment securities are carried at cost, increased by the fair value at the inception of the lease, less accumulated accretion of discounts and decreased by the amortization of amortization. Construction costs, including remodelings, premiums. Accreted discounts and amortized premiums are improvements and the cost of funds to finance major projects, mcluded in interest income. Gains and losses realized from are capitalized. Maintenance and repairs are charged the sale ofinvertment securitics are determined using the to expense.

specific identifi:ation method. Depreciation is charged to expense over the estimated Trading account securities and other trading assets are usefullives of the assets (buildings-15 to 45 years; equip-carried at market value. Gains and losses realized from the ment-3 to 30 years). Depreciation on buildings is computed sale of trading assets and unrealized market value adjustments using both straight-line and accelerated methods. Deprecia-are included in trading profits. tion on equipment is computed on a straight-line basis.

C/ LOANS AND LEASE FINANCING; RESERVE FOR CREDIT LOSSES Leasehgid improvements are amortized over the terms of the w m,,6 respective leases or the estimated useful lives of the improve-Loans are generally carried at amounts advanced less ments, wluchever is shorter.

payments collected. Mortgage loans held for resale by the E,tNTERN ATloN AL oPER ATtoNS k Mre 8 mortgage banking subsidiary are carried at the lower of cost Assets and liabilities denominated in foreign currencies or aggregate market value which mcludes the results of the generally are transhred to U.S. dollars using current rates valuation of related commitments to buy and sell loans and of exchange on the balance sheet date. The treatment of L forward placement and futures contracts. Unearned discount translation gains and losses is based on a determination of the on discounted loans is deducted from loans and is recognized primary operating currency (functional currency) of each in income using methods which generally produce a level foreign organization. If the functional currency is other than yield on the unpaid loan balance. On non-discounted loans,

, the U.S. dollar, translation adjustments, related hedging mterest is accrued as earned. Interest accruals on business results and applicable income taxes are accumulated in stock.

. kuns are normally discontinued whenever the payrnent of holders' equity. When foreign investments are sold or liqui-mterest or pnncipal is 90 days past due, or sooner m certain

, dated the related accumulated translation adjustment balance situations. U,nder such condinons, previously accrued but

, . is transferred to non-interest income and applicable uncollected meerest mcome is reversed, and mterest mcome is income taxes.

recognized only when received. Loan fees and finance charges which are equivalent to interest are normally deferred and amortized into interest income over the terms of the loans.

. Loan commitment fees and standby letter of credit fees are included in non-interest income over the period service is provided. Other loan fees are recognized in non-interest income when received.

forty 4x

. .- .. .. . . - . - - - - . - . - - ~~.

e

~

> N Income and expense amounts are translardd based on an - Insurance premiums received in advance ne included in -

1 < average of races prevailing during the year. Foreign exchange - ' income over the lives of the related contracts in proportionL

N trading positions are valued monthly at prevailing races of. to the amount ofinsurance in force.,

L exchange and are included in non-interest mcome. .

. J/ NET INCOME PER COMMON SHARE ' ._

[ : FictAssiricATioN oF BORRdWED FUNDS Ser Nedrs 9 mt10 . .

. Net income per common share is computt,d based on the i Long-term debt includes borrowed funds and other obliga- weighted average number of shares of common stock out-

' cions with an original maturity of seven years or more. Debt standing during each period. The weighted average number t with original maturities of one year or more but less than . of shares includes the additional common share equivalents ,

. seven years is reported as intermediate-term debt, while , from the assumed exercise of dilutive stock options and -

amounts with~ original maturities ofless than one year are incentive plan awards and from the assumed conversion of -

- considered short term. Subordinated Capital Notes represent convertible debentures during the periods which they were'-

i debt that qualifies as primary capital under current regula- outstanding. Also, for the purpose of this corrputation, net tions of the Federal Reserve Board with respect to the ' income is decreased by the amount of preferred stock '

. Corporation and Comptroller of the Currency with respect to dividends.

' the Bank.- Debt instruments which contain early redemption x/riNANCIAL FUTURES CONTRACTS

p. Lpnyde , exercisable at the option of the secunty holder, are classi Gains and losses on financial futures contracts designated as based on the earhest possible redempnon date.

hedges are deferred and amortized over the life of the hedged

] - C/ INCOME TAXES - SeeNear n . . asset or liability as an adjustment to the related interest

+

? Amounts provided for income tax expense are based on income or expense. Gains and losses; including unrealized 1

? income reported for financial statement purposes and do not market value adjustments, on futures contracts used in trad -

F n'ecessarily . represent amounts currently payable under tax - ing activities are recognized currently in non-interest income. ;

laws. Deferred taxes, which arise principally from timing ,

- differences between the period in which certain income and !

expenses are recognized for financial accounting purposes 'and. 2/8esettspevedendt i the period in which they affect taxable income, are included OnJanuary 15,1985, the Board of Directors of the in the amounts provided for income taxes. Current and - Corporation declared a two for one stock split in the form of

deferred components of the total tax provision are redeter- a 100 percent stock dividend effectiveJanuary 24,1985.

mined each year when tax retums are filed which results in a Accordingly, per share data and numbers of shares or share restatement of the previously reported components. The units related to incentive plans, including shares exercised '

provision for income taxes includes an accrual for taxes on under such plans, have been adjusted for prior periods to'give the undistributed earnings ofinvestments which arc ~ effect to the stock split.

i- ~ accounted for under the equity method, and on the undistrib-

. ' uted earnings of foreign subsidiaries except in instances

where earnings of such subsidiaries are determined to be 3/ Preferred 8toottt indefinitely reinvested. In October 1985, the Corporation issued $150 million of '

Investment tax credits are deferred and recognized as a Money Market Cumulative Preferred Stock. The dividend reductign of the provision for income taxes over the lives of rate is determined periodically based upon an auction

assets givmg nse to the credits-bidding process. The effective annualized dividend rate for i _ The Corporation files consolidated federal and, where 1985 was 5.50%

! L appropriate, combined state income tax retums. Accordingly, The preferred shares rank prior to the Common Stock

- amounts equal to tax benefits of those companies havin8 with respect to dividends and liquidation and generally have .

. taxable losses or credits are reimbursed by other companies no vormg ights. The shares were sold for $500,000 each and

.which incur tax liabilities. may be redeemed at the' option of the Corporation at prices

- H/ EMPLOYEE BENEriT AND INCENTIVE Pt.ANS See Nears M sm/ U ranging from $515,000 to $505,000 per share for the first L RThe Corporation and its subsidiaries provide a variety of three years and for $500,000 per share thereafter. The shares benefit and incentive compensation plans for cligible employ. also may be redeemed for $500,000 per share any time the ecs. Provisions for the costs of these plans are accrued end dividend rate equals or exceeds the 60-day "AA" Composite charged to expense, including charges or credits for stock Commercial Paper Rate.

l options granted with stock appreciation rights.

. l/MORToAGE LOAN SERVICING: INSURANCE PREMlUMS EARNED 4/ Amagmaamassamm/

- Lcon servicing fees are based on a stipulated percentage of .

n the outstanding loan principal balances being serviced and are During 1985, the Corporation agreed to acquire Arizona K included in income as related loan payments from mortgag- Bancwest Corporation (ABC), a bank holding company ors are collected. Costs associated with the acquisition ofloan headquartered in Phoenix with assets of approximately servicing rights through the purchase of servicing contracts $3.9 bilhon, for cash totahng approximately $480 milhon.

l L : or bulk loan purchases are deferred and amortized over the L

-lives ofloans being serviced in proportion to the estimated net loan servicing income.

jurrvetm

L The shareholders of ABC have approved the acquisition 8/ Leone and Lease Fineneings Reserve for and, subject to the approval of regulatory authorities, credit Laesee it is expected that the transaction will be completed on . The following is a summary of the major categories ofloans

-_. October 1,1986, or as soon thereafter as practicable. and lease financing:

During 1985, the Corporation agreed to expand its present 29.9% ownership interest in Hoare Govett 1.imited, a D'""l" 3

London-based stockbroker. It is anticipated that during 1986, 3 in millions 1985 1984 subject to regulatory approval, the Corporation will expand Domestic loans:

its ownership interest to approximately 80% for an additional Business loans $15,710 $14,433 purchase price of approximately $60 million. Real estate loans - 5,221 5,042 Consumer loans 7,767 6,340 During 1985, the Corporation agreed to sell RMJ Securi.

ties Corp., a New York based U.S. government securities Total domestic loans 28,698 25,815 i broker, for cash totaling approximately $53 million, subject Internationalloans 5,7M 5,069

- to certain adjustments. It is anticipated that the sale will close Totalloans $34,482 - $30,884 during the first quarter of 1986.

During 1984, the Corporation acquired a California state l*25' I'"2"(I"8; D rec $ 1,9 $ 1,$89 chartered bank, two German consumer banks and a securities ,

e industry related company whose combmed assets totaled Total lease financing . $ 2,582 $ 2,127 approximately $175 million. The acquisitions have been treated as purchases for accounting purposes and goodwill Business loans include construction loans of $1,652 million of approximately $18 million is being amortized over periods of 3 to 20 years. in 1985 and $1,342 million in 1984. Loans, carried at $1,662 In November 1984, The Bank of Canton, Hong Kong milli n at December 31,1985, were pledged to secyre trust (BOC), formerly a majority owned subsidiary, becarne a funds, public deposits and for other purposes required or wholly-owned subsidiary. BOC has been consolidated on a Permitted by 1aw. ,

The followm, g is a summary of transactions in the reserve line-by-line basis since 1981.

for credit losses:

$in millions 1985 19M 1983 s/enveemment soeursues: Balance, January 1, $519.8 $339.5 $297.5 The following is a summary of data for the major categories Provision charged to expense 379.4 387.7 155.9 ofinvestment securities: Otherm 8.3 2.6 1.4 Deceml><r 3; Sub-total 907.5 729.8 454.8 Interrst Afarket Am une charged off (433.6) (262.6) (175.9) income Gs$se i Value Recovenes 80.5 52.6 60.6

$ in millions ' ~~ ~

1985 Net credit losses (353.1) (210.0) 0 15.3)

US Treasury securities $117.1 $1,195 $1,211 Balance, December 31,m $554.4 $519.8 $339.5 Other US govemment securities 4.5 11 to State and municipai securities 18.7 356 293 (1)lndades additionsfrom acquisitions andforrigu currency translation Other securities 28.3 442 461 dd/ustments.

~~ ~ ~ ~~ - ~~ ~

(2)Indades $2!.3 million in 1983, $7.2 million in 1984 and$2.0 Total $168.6 $2,0M $1,975

,jjjj,, j, gggy 4g.akd Trang Ed Reim.

The following is a summary of non. performing loans and U. Treasury securities $116.8 $1,155 $1,167 Other US government securities 66 60 leases and related interest foregone:

9.3 State and municipal securities 20.4 394 300 Deccel><r 31, Other securities 21.4 244 244 $ in millions 198I 154" 15 Total $167.9 $1,859 $1,771 Non-accrual loans and leases $ %7 $ 968 $ 863 Restructured loans and leases 167 155 2 1983 US Treasury securities $110.7 $1,309 $ 1,307 Total $1,134 $1,123 $ 865 Other U1 government securities 14.6 118 111 g933 3933 1934 _

State and mumcipal secunties 22.0 429 327 - - - -- -

16.1 3i0 313 Contracturalinterest due $166.7 $178.8 $133.6

~ ~ ~ ~ ~ 'Other securities Interest recognized -57.6

- -.55.2- - - - - - -59.0 Total $163.4 $2,166 $2,058 --- > - - - -

Net interest foregone $109.1 $123.6 $ 74.6 Securities, uttied at $1,539 million at December 31,1985, were pledged to secure trust funds, public deposits and for other purposes required or permitted by law.

L prtpight

.hs ,

1/pvenesesenissoulemanes e/enternemenstoperamenet

The following is a summary of data for the major categories The Corporation's international operations include ac'tivities of premises and equipment: conducted through corporate subsidiaries and affiliates as well -

> ~

jy,,,,f,,;j as the Bank's overseas branches, offices, Edge Act subsidiaries, .

opmiation % ,rying International Banking Facilities located in the United States

$ in millions Cest and Amortization

~

Udne and intemational operations located in California. The inter-5d31,1985 . national banking business conducted in the United States is

- Premises, including land . substantially with customers domiciled overseas, but includes .

'of$70~ $ 318 ' $ 78 $240 immaterial activitics associated with domestic customers. The Eq;ipment : 589 270 319 nature of a fmancial institution's operations makes a precise Leasehold improvements 176 _ _ 46' 130 determination ofinternational prof tability difficult and Total $1,083 '$394 $689 necessarily involves the use of certain arbitrary allocations.

Generally' funds borrowed and loaned between domestic and I intern 8 tion 81 Perations are at market interest rates. Interna;

,e incju i gland

'of$72 $ 316 $ 73 $243 tional operations also receives an allocation of equity capital Equipment . 506 ' 229 277 funds on an m, terest. free basis. A pornon of the total reserve

' Leasehold improvements - 115' 24 81 for credit losses is allocated to international loans and lease

~

'T~l~ f n8 acing 8ad 8 Provision for credit losses is charged and

$ 937 $336 $601 added to this portion of the reserve. Overhead expenses are Premises and equipment includes immaterial amounts determined based upon internal allocations a propriate to the applicable to capital leases. Depreciation and amortization '"d.ividual acuvmes. Income tax expense is al ocated to inter-expense was $90.9 million in 1985, $794 million in 1984 and naconal and domestic operations based upon their respective

$64.7 million in 1983. Net rental payments on operating c ntnbu$ ions to income tax liabihues. Substantially all

. leases were $136.7 million in 1985, $100.8 million in 1984 and pcPosits m foreign branches and intemational subsidiaries are

' $84.1 million in 1983. These r. mounts are net of sub-lease mten beanng. , ,

- income of $2.7 million in 1985, $3.0 million in 1984 and . The followmg is a summary of consolidated domestic and

$3.3 million in 1983. internau naloperanons.

The future minimum rental commitments, primarily 3 in millions Domestic International Total .

representing non-cancelable operating leases of premises, were 1985 L as follows at December 31,1985: Operating incomem $2,321.4 $ 310.5 $2,631.9 Afinimum income before taxes $ 380.0 ' $ 114.9 $ 494.9

$ in m,_illion_s_, _._

-_ _Re_ntal_ Commit.ments_-

1986' $ 108 Net income $ 255.1 $ 67.7 $ 322.8

.1987 96 Assets, year end $ 41,652 $11,851 $ 53,503 -

1988 96 g9g4 Operating incomem - $2,087.9 $ 235.8 $2,323.7 AII! E _ _ _ -. _ _ _ . _ . _ _ 9.?5 _ _ Income before taxes $ 391.5 $ 61.9 $ 456.4 Total- $1,445 Net income $ 254.9 $ 36.1 $ 291.0

. Management expects that in the normal course of business, Assers, year end $ 36,586 $ 9,531 $ 46,117

leases that expire will be renewed or replaced by other leases. 1983 A majority of the leases provide for the payment of taxes, Operating incomem $1,672.3 $ 226.3 $ 1,H98.6

. maintenance, insurance and certain other expenscs applicable Income before taxes $ 372.0 $ 80.7 $ 452.7 to the leased premises. Many of the leases contam extension

! $ 218.4 $ 45.9 $ 264.3 provisions, escalation clauses and purchase options. There are g income

, . no restrictions on paying dividends, incurring additional debt Assets, year end $ 31,139 $ 9,243 $ 40,382 or negotiating additional leases under the terms of the pres-ent lease agreements. (I) Indades net istmst income and non.intmst income.

EA sfgnihcant portion of the future minimum rental Intemational operating income includes all foreign exchange commitments at December 31,1985, relate to the 1984 sale of income of the Corporation, which amounted to profits of

the Cor $17.8 million in 1985, $16.5 million in 1984 and $10.2 million million.poration's Los Angeles headquarters building As a part of the sale transaction, the Bank entered for $310 in'1983. Translation of certain foreign currency assets and into a lease as principal tenant of the building. Additinnally, liabilities resulted in losses of $0.7 million in 1985, the Bank also became the sole lessee of a nearby major Los $0.2 million in 1984 and $0.2 million in 1983, which were

' Angeles office building. The sale of the headquarters building included in international operating income.

l i-resulted in a pretax gain of approximately $190.5 million, of which approximately $115.3 million was recognized at the time of the sale and the remainder is being amortized over

. the initial ten year term of the lease as a reduction of

rental expense.-

pm.nine

The following is a summary of the foreign currency trans- 10/Intermodlate-Term Debt; Long Term Debt; 12 tion adjustments included in undivided profits. subordinated capital esotes:

$ in millions 1985 1984 1983 The following is a summary of the major categories ofinter-Balance, January 1, $(19.5) $(10.5) $ (6.7) mediate-term debt,long-term debt and subordinated capital Trsnslation gam (loss) 10.8 (14.0) (21.3) notes:

Hedging gain (loss) (8.4) 1.3 28.2 p,rember 31, Applicable (taxes) benefits (0.3) 3.7 (10.7) g gfjg gg3 g Disposmons 3.2 - - -

Intermediate. term debt:

i Net change 5.3 (9.0) (3.8) 8 %% to 11%% Guuanteed Notcs I Balance, December 31, $(14.2) $(19.5) $(10.5) due 1986 to 1990m $ 364 $ 175 Zero Coupon Notes due IW6 to 1987 The following is a summary of transactions in the reserve for (effective yield of 13 %% to 13.9%) 343 301 credit losses related to the Corporation's international opera. 10%% to 12h% Extendible Notes due 1996 tions. This reserve is included in the consolidated reserve for to 1999 3M 3%

credit losses (see Note 6). The summary contains only the 8 %% e 11%% Notes duc 1986 to 1989 430 325 Other domestic borrowings, 494 324 reserve derived from expense provisions charged to interna.

Other international borrowings 475 335 tional operations. As a result, the ending reserve does not represent the total reserve available for international credits. Total $2,406 $1,760 For further information on the reserve allocated to interna- 1,ong. term debr:

tional credits see page 31 of this report. 8.80% Notes due 1985 $ - $ 100 1984 1983 12% Guaranteed Notes duc 1992m 100 100

$ in millions 1985 Floating Rate Notes duc 1992 to 1995 220 -

Balance, January 1, $106.5 $ 92.6 $ 76.0 11 %% Notes due 1993 99 99 Provision chuged to expense 29.1 28.6 20.4 Other domestic borrowings 120 136 Otherm 4.8 2.3 (0.3) Other international borrowings_ 64 11 Sub-total 140.4 123.5 96.1 Total $ 603 $ 446 Amount charged off (33.1) (19.4) (12.5)

Recoveries 8.2 2.4 9.0 Subordinated Capital Notes:

Floating Rate Subordinated U CICICd5'.!"88C5 _ ___J24.9) (17.0) (3.5) Capital Notes duc 1996 and 1997 $ 500 $ 250 Balance, December 31, $115.5 $106.5 $ 92.6 (I) Obligations offorrign subsidiaries.

(1) udes tions/ nam aquisitions andforrign currency translation All Notes are either unsecured obligations of or guaranteed by the Parent Company.

The 1985,1984 and 1983 provisions charged to expense The Zero Coupon Notes due 1986 to 1987 may be include $14.1 million, $5.2 million and $2.0 million, respec- redeemed at their aggregate maturity value of $400 million at tively, to increase the Allocated Transfer Risk Reserve which any time. The 11 H% Notes due 1993 may be redeemed at totaled $21.3 million at December 31,1985. their maturity value of $100 million on or afterJuly 15,1990.

The Extendible Notes due 1996 to 1999 may be redeemed g on certain dates beginning October 1,1987 at the option of either the Corporation or the Notcholders. If the Notes are The following is a summary of the major categories of other not redeemed, their maturity will be extended for a period of short. term funds borrowed: one to five years at an interest rate not lower than 101% of Derrmber31, the " Applicable Treasury Rate," as defmed.

The Floating Rate Subordinated Capital Notes due 1996

$_i_n millions _ _ _ _ _ _ . _ _ . _- . _9851 . . _ 1984.- may be redeemed at their matunty value of $250 million Term Federal funds purchawd $ -

$ 86 beginning August D,1988, for capital securities and/or cash Demand notes due to U.S< Treasury 300 218 l under certain circumstances. The Floating Rate Subordinated t ao o ns 1, Notes due 1997 may be redeemed at their maturity value of

- - - - - - - - - - - ~ - -- --

$250 milhon begmning February 15,1986, or sooner under Total $2,856 $1,921 certain circumstances, for cash only from the sale of capital securities. Under the current regulations of the Federal At December 31,1985 and 1984, the Parent Company had , Reserve Board the Capital Notes clualify as primary capital of lines of credit. on which commitment fees are paid, with the Corporation.

various foreign and domestic banks, all of which were unused, totaling $888 million and $861 million, respectively.

The Parent Company guaranteed lines of credit for certain

, consolidated foreign subsidiaries, totaling $2,248 million at December 31,1985, of which approximately $1,093 million was m use.

Mty

~

x ,

" 1 q

%. ~

s -

'l . ;.

EThe interest rates on floating rate notes are determined : r 1984. In 1985,1984 and 1983, amortized investment tax' cred--

J periodically by formulas based on certain money market rates : its of $35.1 million, $23.9 million,'and $19.3 million, respec-l or, when 'ste, by minimum or maximum interest tively, were included _in the computation of the provimon :

- ' rates as i6e in the agreements covering the respective ' for income taxes. For tax return purposes, investment tax ,

_ ~ issues. effective interest rates on floating-race notes . credit carryovers which arose in 1985 are estimated to be ~

! ranged from 8.06% to 8.30% at December 31,1985, and was? . $48.1 million, which will be utilized in connection with prior - -

- c8.751on December 31,1984.The weighted averageinteresc . years tax retums. . .

- ? rate was 8.15% at December 31,1985. .

' The provisions for income taxes resulted in effective tax Unless noted otherwise Notes may not be redeemed prior rates that were less than the statutory federalincome tax rate

to maturity.+ for the following reasons

. . The indentures under which all the Notes were issued - 1985 -1984- 1983

. prohibit the Corporation from selling, or paying dividends in, shares of stock of the Bank unless the Bank unconditionally.

. guarantees payme,nt f o pnnci , pla and interest on the Notes.

8 "

"] ,,j goc,3 ;,,,,, ,,,

4(( '$[ '

. Tax exempt income (5.2) ~ (4.4) -~(4.3)

, The aggregacc antermediate-term debt, long-term debt and Investment tax credit- (7.1) (5.2) - ' (4.3) -

t subordinated capital notes maturities for the 6ve years 1986 . Foreign subsidiary earnings ; (2.0) ; - (t.1) ~ ~

(1.0). .

through 1990 are as follows: $479 million, $563 million, t Capital gains - (2.7) - -. (5.6)' (0 .8).

18562 million, $494 million and $256 million.- All other-net 0.4 0.5 0.4 '

. Effective tax rate 34.8% 36.2% . .- 41.6% ,

.11/ineene Theaet I.isted below are the domestic a' n d foreign components of -

The provisions for income taxes in the consolidated state- income before income taxes:

ment of earnings include the following amounts: y j, ,jjjj,, gg3 g934 1983

. $ is silliassi Carrest Drfrrnd Total Domestic $435.7 ' $406.4 $418.2

,1985 -Foreign 59.2 50.0 ~ 34.5 Federal $ 8.8 $ 88.5 ' $ 97.3 Total $494.9 $456.4 ' $452.7 ~

State and local..

-21.1 28.4 - 49.5 NI "8 ~ .

- 25.3 --

_ 25y Taxes related to gains on the sale ofinvestment securities.

t I

- Total $ 55.2 - $116.9 $172.1 were $1.7 million in 1985, $1.0 million in 1984 and 1984_. $0.6 million in 1983.

- Federal ~ .. $ 48.1 - $ 41.9 $ 90.0 State and local ' 46.3 4.7 51.0-Foreign 24.4 - 24.4 13 / Asurement plong OSeer Poetrellroment BeneAte:

' Total = $118.8 $ 46.6 $t65.4 The Corporation maintains a funded non<ontributory trus-39g3

. teed retirement income plan for substantially all domestic

$115.5 $123.8 - employees who are employed on a full-time or part-time basis, Federal ' ~ $ 8.3 State and local -33.2 13.7 46.9 as defined in the plan.

,- Foreign 17.7 -

17.7 The following is a summary of the retirement plan's accu.

' mulated benefits and net assets:

Total - ~ $ 59.2 $129.2 $188.4

. Ja~ u -

- The following is a listing of the tentative elements of the $ is millions 1985 1984 f1985 tax deferrals and the restated 1984 and 1983 deferrals Actuarialpresent value of '

based on the tax returns as filed: accumulated plan benefits:

l 1985 1964 ' 1983 Vested $220.5 $192.7

$ is millises Nonvested ' 32.3

' Lease fmancing 1

$158.4 $163.7 $g 37.4 Provision for credit losses (22.8) Total $257.9 $225.0 D -(25.9) (87.8)

Net assets available for benefits $345.4 $302.7 dep : on 6.6 2.3 4.2

) } The total actuarial present value of accumulated plan benefits n est c die (8 ) 6 4.7 atJanuary 1,1985, increased $32.9 million over the prior .

State and local taxes (12.8) (4.0)

. l.oen fees and interest i1.2 (8.4) (9.9) year. Amendments to the plan to liberalize spousal and early

Allother-net 2.3 (3.6) 8.7 retirement benefits efl~cctiveJanuary 1,1985, increased the actuarial present value of accumulated plan benefits by

.. . Total $116.9 $ 46I $129.2 Net deferred taxes totaled $797.2 million and $680.3 million at December 31,1985 and 1984, respectively. There were unamortized deferred investment tax credits of $90.2 million at December 31,1985 and $80.1 million at December 31, sftyne

. . =. .- - ~ --,-,-- -.-.- ~ , , . - - - - - . - - , , -. ~ . . - - --. - .- ,------- - - . -

approximately $2.2 million. The remaining increase was due 14/AvellablNty of Funde front Subekliertes; to the passage of time. The assumed rate of return on invest. Reetrictione on Cash Bolences:

ments was 9.25% in 1985 and 1984.

The majority of the funds for the payment of dividends by The Corporation funds the plan using the" entry age actu-the Parent Company have been obtained from the Bank.

anal cost" method. Begmamg in 1985, past service costs are There are legal limitations on the ability of the Bank to being amortized over a 20 year period endmg in 2001 (forrr.erly a 15 year pen,od endmg in 1995). This change provide funds to the Parent Company.

Under federal banking law, dividends declared b the Bank decreased 1985 pension expense approximately $3.8 milh.on. in any calendar year may not, without the approvafor the A change in actuanal assumptions to increase the population Comptroller of the Currency, exceed its net income, as in the funding group increased 1985 pension expense approx-defmed, for that year combined with its retained net income imately $0.5 milhon. The 1985 amendments to the plan for the preceding two ears. At December 31,1985, the Bank increased 1985 pension expense approximately $1.4 milh. on.

could have declared di idends of up to approximately $453 Pl2n contributions, which are charged to expense, were $19.6 milhon for 1985, $18.6 milhon for 1984 and $23.2 milhon million without the approval of the Comptroller. The Comp-troller also has the authority to further limit the Bank's for 1983; . .

The Corporation provides certain health care and life [ayment of dividends under certain circumstances. Fede anking law also restricts the Bank from extending credit to insurance benefits for retired em loyees. Substantially all of the Corporation's domesnc emp oyees become eligible for the Parent Com ny in excess of 10% of the capital stock and f surplus, as defm , of the Bank, or approximately $288 i these bene 6ts if they have been employed for five consecutive million at December 31,1985. Any such extensions of credit 1 years immediately pnor to retirement. The cost of the bene-are subject to strict collateral requirements.

fits is charged to carnmgs when paid. In 1985 and 1984 these Federal Reserve Board regulations require that the charges totaled $3.6 milhon and $2.9 million, respectively.

Corporation's bank subsidiaries maintain certain minimum reserve balances. Cash balances maintained to meet reserve 13/ Stock Option Plan: requirements are not available for use by the Corporation's bank subsidiaries or the Corporation. During 1985, reserve The Corporation has a stock option plan which provides that balances averaged approximately $847 million.

options to purchase an aggregate of up to 3,487,833 shares of the Corporation's common stock may be granted prior to December 31,1989. Options are granted at prices at least 15/ cat n.;ies:

equal to the fair market value at the time of the grant and are In the normal course of business there are outstanding exercisable over periods of up to ten years. The plan provides various commitments and contingent liabilities, such as for the issuance ofincentive stock options and permits stock commitments to extend credit, letters of credit, foreign appreciation rights to be granted concurrently with any exchange forward contracts, fmancial futures contracts, guar-option granted under the plan. Generally, a stock apprecia-antees, uncompleted brokerage transactions, etc., which are tion nght permits a holder to receive,in heu of exercismg the not reflected in the accompanying fmancial statements.

opnon, an amount equal to the excess of the aggregate fair Afanagement does not anticipate any material loss as a result market value of the Corporanon's common stock on the of these transactions.

exercise date over the aggregate option price of the number

" Standby" letters of credit amounting to $5,473 million of shares covered by the right with such amount limited t and $4,923 million were outstanding at December 31,1985 the aggregate option pnce of the surrendered option.

and 1984, respectively. A significant portion of standby letters The followmg is a summary of the transactions under the of credit represent financial support of a variety of public and stock opnon pian:

private borrowing arrangements. These include commercial 1985 1984 paper backup lines, bond fmancings and similar transactions, Numkr Numkr primarily to the fmance, utility and real estate industries. As ofSAstrs Option Prict ofSAstrs Option Prict of December 31,1985, over 40 percent of standby letters of Options credit had maturities ofless than two years and almost 70 outstanding, percent had maturities of seun years or less. The risks associ.

January 1, 1,766,098 $ 7.62-26.00 1,391,138 $ 7.62-26.00 ated with standby letters of credit are taken into account Granted 265,092 27.00-30.75 785.006 20.31-26.00 when determining the adequacy of the overall Reserve for Exercised (405,853) 7.62-26.00 (327,270) 7.62-is.65 Credit Losses although a separate reserve for standby letters Cancelled (66,188) 14.11-30 25 (82,776) 12.29-26m of credit is not maintained.

Options Because of the nature of their activities, the Corporation outstanding, and its subsidiaries are at all times subject to numerous pend-December 31,1,559,149 $ 7.62-30.75 1,766.098 $ 7.62-26 00 ing and threatened legal actions which arise out of the At December 31,1985, non9ualified and incentive stock n rmal c utse of their business. In the opinion of Manage-ment, based u on opinions of legal counsel, the disposinon options covering 249,155 and 445,328 shares, respectively, of of all suits wil not have a material effect on the consolidated the Corporanon's common stock were exercisable, including fmancial position.

613,507 shares wah stock appreciation rights. At December 31,1985 and 1984,677,840 and 876,744 shares, respectively, were available for future grants.

fipytm

REPORT OF INDEPENDENT CERTIFIED PUEUC ACCOUNTANTS

- - . - . - . - . . - . - - - - - - . - - - . . . . - - - - . ~ - - . . . --

MT Peat, Marwick, Mitchell & Co.

"*N"'^""""""

MARWKK 725 South Figucroa Street Los Angeles, California 90017 To the Stockholders and the Board of Directors Security Pacific Corporation:

We have examined the consolidated balance sheet of Security Pacific Corporation and subsidiaries and the balance sheet of Security Pacific Corporation (Parent Company) as of December 31,1985 and 1984 and the related statements of earnings, changes in stockholders' equity and changes in fmancial position for each of the years in the three year period ended December 31,1985, and the consolidated statement of condition of Security Pacific National Bank and subsidiaries as of December 31,1985 and 1984. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the aforementioned fmancial statements present fairly the financial position of Security Pacific Corporation (both consolidated and Parent Company) at December 31,1985 and 1984 and the results of their operations and changes in their fmancial position for each of the years in the three year period ended December 31,1985, and the consolidated financial position of Security Pacific National Bank and subsidiaries at December 31,1985 and 1984,in conformity with generally accepted accounting principles applied on a consistent basis.

b .

January 23,1986

);j&thnt

CONSOLHnATED AVERAgg nas anam SOMET AND HELATED YELDS AND RATES 1985 1984 1983

$in millions Amount % Amount % Amosnt %

ASSETS Earning assets:

Due from banks-interest bearing $ 2,981 6.4 $ 2,443 6.0 $ 2,092 5.7

_ State and municipalinvestment securities 373 0.8 410 1.0 445 1.2 Other investment securities 1,543 3.3 1,505 3.7 1,461 3.9 Totalinvestment securities 1,916 4.1 1,915 4.7 1,906 5.1

_..Tradjng account assets _ _____ _ _ __ 547 _ 1.2 __ _ 307 0.7 _ 35_ _ 0.6_

2 Federal funds sold . _ _ _1,114 2.4 949 2.3_ _ _ 451 1.2 i Domestic loans: - - . . . - - . _ . . . . . . - . - . - _ . . -. . . - . - . - . - . -

Riady[lieserv cAun~t/chjrge}ca'rd_ loans] _))]87I]_1[.9]']j51[}} [1{_))603]I3))

~~ ~

Other consumer loans 6,157 13.1,_ 4,974 12.1_ 4,168 11.3 Total domestic loans , _ _ _ _ _ _ _

_.26,357_ _ 56.2. _ {2,7'3_ _55.6 ___20,548 _ 55.5_ _

- _ _ int n ti _ a oansL _ __ _ ___,-___ __ . _ _ _ _ . . . __. - _

- - . . . . .. . . - - . - - - - - . . . . ~ _ . . . - - . . . - . - . --- -. _ . . - - -- . - --

Total internationalloans 5,291 11.3 4,898 11.9 4,621 12.5

_ Jotal loans __ __ _

_ _ _ 31,648_ 67.5. _ _ __

27,671 __ .67.y__ 25,169__

_. __68.0 _

Lease fmancing __ . ._ . __ , _ _ __

_ _ 2,331_ _ _ .

50 _

1,851 4.5 _

_l,544._ _ _ , _

4.2 Less reserve for credit losses $25 1.1 388 0.9 317 0.8 Net loans and lease fmancing 33,454 71.4 29,134 71.1 26,396 71A

. . . YOfal carning assetsm _ 40,537_ 86.6 35,136 85.7 31,397 81.8 . __

Cash and due from banks _3_,237, 6.9. _ _ _ ._2,889 _ __ _ 7.1 2,657 ?.2 Other non-carning assets __ 3,593 __ .7.6 3,320 8.1 _ 3,276__ 8.8 Total assets $46,842 100.0 $ 10,957 100.0 $37,013 100.0 LIASMJTIES ANO STOCKHOLDERS' EOUlTY

__]

~~

__[

~

Non:interes}t[b'eairing deposits: [

D,omestic demand deposits._

$ 6,065

._[ _ , _ _ .

_$ 5,5:18

__]~}

13.5 .

_ . _ $ 5,286__14.3 __

[]

. . __ _ 13.0_ _ .

. _ . International deposits 256 0.5 226._ 0.6 226 0.6 Total non-intercsr bearing deposits _

6,321 _ 13.5 5,774 14.1 _

5,512 14.9_ , _

Interest bearing deposits: _

, _ lnteres't] checking deposits 2,047 4.3 1,781 4.3 _.

1,563 4.2 Insured money market accounts 3,895

. 4,241 9.1 _ _ ._

9. 5 ,__ _3,816 . _t 0._ 3_ _

Other savings deposits . _ __

_ _ .l,790 3.8 _

. 1,785 44 . _ _ .1,929 5.2 _ .

Timc deposits- under $I00,000. _ _ _ _ 3,455. 7.4 3,193 _ 7.8 ..7.0 6,025 .

5,007 12.2 .2,58 ( __ 14.1 Time deposits-$_100,000 and over

_ _ .12.

_ 9_ _ _

__ 5,207 _.

International deposits 6,469 13.8 6,336 15.5 5,287 14.3 Total interest bearing deposits 24,027 51,3 21,997 53.7 20,384 55.1 Total deposits _. _

30,348_ 64.8 27,771 67.8 .

25,896 . 70.0 __

. Federal funds purchased 3,596 _ _

7.7 _3,121 _.

7.6 2,582 7.0 Commercia1 paper _ , _ , _ ._ _

2, 558 5.5 l,78 (

4.4 1,467 4.0 Other short term funds borrowed 1,9 M_ 4.0 1,213 3.0 973 2.6__

Intermediate term debt ' t,873 4.0 .

l,505 3.7 1,048 2.8 Long term debt 909 1.9 527 1.3 367 '.0 Total interest bearing deposits and liabilities 34,867 74A 30.177 73.7 26,821 72.5 Other liabilities .

3,544 7.6 3,146 7.7 3,0 11 8.2

_ Preferred stock. ,34 0.1 - -- - -

3"*.moge 2,076 4A 1,860 4.5 1,639 4.4 Stockholders' epity_ qupy___,_____ _ _ _ _ __ __ _ _ _ __ 2,1 l 0 4.5 _l pio 4.5 1,639 4.4 Total liabilities and stockholders' equity $46,842_ _ .100.0 $40,957 100.0 $37,013_ 100.0 (I) Fully taabh equivaknt b.uis.

(3) & fore deduction of mernfor mJit iones.

pjtyfsr

F-.

Suurity hefc Corporation and SakMaries I .__ _

1982 _ .,__ , ,

1981 1980 _

_ Yiddr and_ Rates _(%)!O Aassest % A meest % Ameest % 1985 1984 1983 1982 1981 1980

$ 2,337 6.8 $ 2,007 6.6 $ 1,360 5.1 9.19 11.24 9.98 14.87 16.56 -11.93 461 1.3 497 1.7 539 2.0 9.75 9.61 9.60 9.17 8.99 8.91 1,378 4.0 1,586 5.2 1,757 6.7 9.72 9.80 9.68 10.13 9.40 9.19

5. 3 _ _ 2,083 6.9 2,2% 8.7 9.72 9.76 9.66 9J9 9.30 9.13 I'8k9 . . ..

277 0.6 180 _ 0.6 ,

135 0.5 9.81 11 A9 10.22 13.02 15.92 13.11 386 1.1 157 0.5 277 1.1 8.03 10.42 9.36 10.28 16.03 13.19 10,135 29.2 8,332 27.4 6,792 25.8 9.92 12.05 10.89 14.28 17.52 14.55 4,526 13.0 4,355 14.3 3,836 14.5 10.91 10.85 10.66 10.86 10.57 9.83 585 1.7 568 1.9 560 2.1 19.03 18.76 18.55 17.63 17.49 16.80 3,323 9.6 3,030 9.9 2,724 10.3 15,16 15.78 16.77 16.68 15.54 14A3 18,569 53.5 16,285 53.5 13,912 52.7 11.64 12.83 12.26 13.98 15.29 13.31

- g g- -3,333 30.9 2,725 10.3

~

70 N ~~ili8 11.36 14.93~ ~if71

~

ti.If 220 0.6 189 0.7 143 0.6 15.71 17.34 15.50 17.28 18.29 18.52 4,166 12.0 3,514 11.6 -2,868 10.9 11,35 12.50 11.55 15.05 17.74 14A9 22,735 65.5 19,799 65.1 16,780 63.6 11.59 12.77 12.13 14.18 15.73 13.51 1,271 3.7 1,062 3.5 859 3.3 14.04 14.84 14.33 14.07 14.06 14.78 236 0.7 206 0.7 178 0.7 - - - - - -

23,770 68.5 20,655 67.9 17,461 66.2 11.94 13.08 12.40 14.32 15.80 13.71 28,815 83.0 25,288 83.2 21,707 82.3 11.34 12.54 _ 11.98 13.89 15.19 12.99 2d88 7.2 8.3 2,698 10.2 - - - - - -

3,644 _ - . . .10.5._ _2,784 _ 2,535 9.2 2,152 8.2 - - - - - -

$34,741 100.0 $30,401 100.0 $26,379 100.0 - - - - - -

igi.'.'eweb.e.ana W e. A h . ei-,.g.w ..,4+.....mm.es4%aia. .=u.mg--e..41 .--e..m h-= ,1w-<-.-...ew-s+=w h.--.ew-w..w- w.w.==-**+M.- Nw--.e-.i.-vh-um.i **h-u.P e 20.5- ___,,___-_

-- - -. I. 4'984 $ 5,058 __16;6_$ 5,398_ 1A 241 ._._. 0.7 I4.4 324_

1.1 376 - - - - - -

5,228 15.0 5,382 17.7 5,774 21.9 - - - - - -

.-..--.-.-.--- - -.-..._.-. - . - . . . - - . . - . ~ - - - . - . . . . - . -

1,315 3.8 1,065 3.5 477 1.8 5.30 5.63 5.63 5.25 5.25 5.25 58 0.2 - - - -

6.55 8.50 8A2 21.83 - -

2,353 6.8 2,419 8.0 2,711 10.3 5.38 5.41 5.16 5.16 5.16 5.18 3,123 9.0 2,413 7.9 1,959 7A 9.62 10.62 10.56 12.43 12.45 10.21

_ .7,054_. 20.3 .

_6,271-. 20.6 . 4.600 ___ 17.5 . . _ 9.03. ._ 10.55 _ 9.60 ___ 12.81 15.62 12.56 18,917 54.5 16,486 54.1 13,714 52.0 8.03 9A3 8.78 11 A7 12.98 10 3

___-- . .bI 1 - _.69), _ .. 21,828..

2 .

71.8 ._

_ 19,4H8, ,39 _6.35 _ 7A7 _ _6.92_ , _8.99_

7 9.78 7.50 3,5 71 _.._.7 A ,

. 2,280 . -

7.5 .

1,793 6.8

. . . ., 7.88.~ ...

10.13 _ 9.01._ -12.02 _. 16.21 12.90 986 2.8 698 2.3 732 2.H 10.01 9.08 10.21 11.81 14.60 14.13 1.6 203 .. _11,74. . . 12.18 . 12.20 12.32 10.92 10.32

_ __. 561.. _.302 -- 1.0 . . .._ 0.8 . . . .- ._

_ _2_4,902._ 71.7_.

21,3_12~ ... _70 2. ..

. . . .17,725__ 67_.2__ __

8.33 9.69 9.01 11.56 . 1_3..A6 11.10

_ _3,220.~ _ .

9.3 _. _ 2.,4 37 . ..

8.0 1,783._ -

_.6.7 1,391 4.0 1,240 4.1 1,097 4.2 - - - - - -

$34,741 100.0 $30,101 100.0 $26,379 100 0 - - - - - -

pjht.n

(

ANALYSOS OF DOASESTIC A80D INTERNATIONAL NET INTEftEST INCOGAE 1985 1984 Interest Astrage Intems Average Average Iname/ Rate Astrage income / Rate

$ in millions Italance Expense % 13alance Egense %

DOteESTIC OPERATIONSt 0 ~

Earning assets: , _ . _ _ ._ . _ _. ___ _

. Loans . _ _

$26,357,.. $3,068.0. _ _ .1 f.64 ,_$22,773_ _ _ . $2,922.H_ _ _ _ 12.83

~ ~ ] Lease fmancing__ _ 247.3 _. 13.78_ _ _l,171 212.5 1;t.41 1,79_4 _ _ _ 170.9 ____819 _ 9.69 1,7M 1

_ 179.9 _ 9.89 ___

_ Investment securities _ __ _ _ _

Federal funds sold _ _

t,114 _ _ _ 86.2 _ _H.03_.. _ _ 99 . _

98.9_ ._ _

l0.42 _ _

_ Trading account assets .. ._ __ .367_ _ _ 3 3.6 __9.l5_ _ 192 _ _ .. 22.3_ __l1.61 Due from banks-interest bearing 326 25.3 7.76 398 41.9 10.52 Total carning assets 31,722 3,631.3 11.44 27,605 3.178.3 12.60 Net sources of fundsm: ._ _ _ _ _ . . ._ _ __

Demand deposits . 3,849_. __ - __ _ _ 3 l7 3f_

Interest [checlring deposits 1,711 108.6 __6.35 1,490 _100.3_ , _6.73 Insured money market accounts 4,126 .277.6 6.73 3,796 331.1 ._ ._

H.72 Other savings deposits 1,789 5.38 1,782 96.5 5.42 ,

. 96.3 _ _ .

3,456 332.5 9.62 3,191 339.0 _ ,10.62

_ Time deposits-under $100,000.

Total core deposits 14,931 H15.0 5 46 13,732 h66.9 _

6.31 .

Time deposits-$100,000 and over 5,927 543.9 _9. l H_ 1.9 11 528.2 10 69 llorrowed funds 9,I80 783.2 8.53 7.062 721.6 10.22 Funds supplied by or[(to) international operations 43 28.9 - 435 51.7 -

. . 'Ibral net deposits and borrowed funds 30,081 2,171.0 7.22 26.170 2,168.4 8.29 All other sources of funds .

1,641 __

1.-l35 - -

Total sources of funds $31,722 2,171.0 6.84 $ 27.605 2,16s.4 7.85 Domestic net interest income and margin - $ t ,460.3 4.60 - $ 1,309.9 4.75 INTERNATIONAL OPERATIONS o Earning assets: __ _ _ .

Loans $ 5,291_. $ 600.3 11.35 $ 4.M98 . $ 612.1 12.50 Due from banks-interest bearing 2,655 248.8 9.37 2,015 232.7 11.38 Lease fmancing $37 79.9 14.89 377 62.2 _ 16.50 Trading account assets 180 20.1 11.15 115 13.0 11.30 investment securities 152 15.4 10.15 90 7.0 7.52

. _,_ Total earning assets H,815 961.5 10.94 7,531 927.0 12.31 Net sources of fundsm:

Non interest bearing deposits 188 - - 172 -

Interest bearing deposits 6,462 569.7 H.82 6.51 0 678.7 10.76 Ilorrowed funds 1,660 193.2 11.64 1,118 130.2 11.65 Funds supplied lyy or (to) domestic operations

.(43) , J2H.9) - (135) ( 51.7 ) -

Total net deposits and borrowed funds H,267 734.0 H.87 7,165 757.2 10.57 All other sources of funds $4H - - 366 - -

Tot 21 sources of funds $ H,HIS 734.0 H.33 $ 7,5 31 757.2 10 06

~ ~

IAtcrnationaI net interest income ard margin - $ 230.5 1 61 -

$ Ud.8~ 2.25 ~

TOTAL DOteESTIC ANO INTERNATIONAL OPERATIONSm IIarning assets $.10,537 $ 1,595.H 11.38 $ 35,136 $1,1013 12.51

$ 10,537 2,905.0 7.17 $ 35.1 % 2.925.6 8.33 Sou. rte _s of funds

. 1.21__

Tbtal net interest income and margin - $ 1,690.8 .4.17 . -

$ld?9.7..

(I) InduJes adjustments asfullou s:

lb ans ert Non-taahle income tofully ta. table equivalent $ 32.5 $ 30.3

. Pre.ta equivalent ofinsviment ta cmhts on leasing astisitin 50.2 _

b 1;8 7btal $ H2.7 $ 611 (2) After JeJusting firut and lagal era rres.

jtllyn

Srcrity hwift Cooperatine and Sn6stherirs

--w.___.__- -~ _ _ . _ . _ _ _ _ _ . . . - _ _ _ . _ _ .

. ._ ._ _ . 398L. __ . - -

1982 _ , _ _

_ l.9, 81_, _ , , ___ _ _ __ 98_0_ 1 innerst Anrnge- inkorst Anrnge Inkurst Anrnge inkerst Anrqr

. Anrny inmer/ hk . Awesge Iwant/ bre Anrage swanrl ble Anrnge inmer/ Rnk

? Bnlence Entrent % Bnlance Enpense % Bninnts Exprest % Bninoce Enpense %

m,_.2,_.,_._- . _ . . _ _ _ . , . . . - . ~ _ _ -.. - . _ . _ _ _ _ .

~~ 6,548 $2 $dlil~If.2 $18,569 $2,595.8 13.98 $16,283 $2,490.5 15.29 $13,912 $1,852.2 - 13.31 1,249 _ ._ 175.7 '_. 14.07. - . -1,080 _ 151.2 14.28 905 127.3 14.06 748 112.3 15.00 451 40.1 9.36 386 39.7 10.28 157 25.2 16.03 . 277 36.4 13.19

~~ ' I80 17.3 9.67 277 36.1 13.02 180 28.6 1S.92 135 17.7 13.11 226 49.5 9.28 99 16.1 12.91 66 11.9 18.01 13 1.8 13.57

_ 21,485 2,978.8 12.16 22,192 3,018.5 13.60 19,613 2,871.7 14.64 17,326 2,225.5 12.85~

3,229 - - 3,008 - - 3,047 - - 3,420 - -

623T~i,il9'- 25.0^'~$7~ f 88.0 69A

. 1,329. - - - - - - - . - .. .

6.01

. ... .-953 SS.9 S.87 436_ - . . - . - - .

~.

12,739 ' '781A 6.12 9,602 590.7 6.15 8,725 481.1 S.51 8,397 364.9 4.35

_ . - - .S,095 .. 6,872 13.15. . . . . _ 6,094_., _ 979.9 16.08 4,373 _ 13.21

. 499.7_ 9.81 _ 903.5 . - . . _ . . 577.8..

~ ~ ll' 5) 9 (5.6) -

(537) (72.3) -

($17) (87.7) -

158 . 52A -

23,251- 1,817.6 7.83 21,253 2,083.5 9.61 18,773 2,051.2 10.93 16,622 1,459.4 8.78 1,234 - -

939 - - 840 - -

701 - -

$21,485 1,817.6 7A2 $22,192 2,013.5 9.21 $19,613 2,051.2 10A6 $17,326 1,459.4 8A3

~

- (1,161.2 4.74 -

$ 975.0 4.39 -

$ 820.5 4.18 -

$ 766.1 4.42~

_ _ _ . _ _ . _ - _ _ _ . _ _ . . . _ _ _ . . ~ . . _ _ _ . _ . _ _ _ _ _ . _ . - , _ _ _ _ _ . - _ . _ _ . . _ ~ _ _

. . ~ . _

1,866 -

189.8 . - -

10.17 . 2,237 . .

331.7 14.83 1,9 11 _-. 320.6 16.32

--1,347 -

160.5 11.91 .

75 6.3 8.43 59 S.3 8.96 ~ 63 S.S 8.77 SS 4A 8.09 6'912

, 782.1 11.32 6,653 988.7 14.86 f,675 971.5 17.12 4,381 595.1 1538~

_ , _ _ _ _ . _ _ . _ _ . _ __ . . . _ . . _ . . _ _ . , _ . ~ _

- . . - - . . -, . . ~ .. ... . . . . . . . . . - . . - _ . . - . -

.- -. 6,489~ 606.7 9.36 .

6,411 838.0

,13.08. S,428. 822A 15.15 4,190 508.2 12.13

~~

$ 6 9T2 605.3 8.78 $ 6,653 838.0 12.57 $ S,675 822.4 14.49 $ 4,381 $08.2 11.60

$ 175A 2.5T -

$'150.7 2.29 - 7 149.1 2.63 -

$ 86.9 1.98

~~ ~

~

" ~~ $ 31,397~~$ 3,760.'9 ~ 11$98' $28,815 ' ' $ 1,007.2 ~ 13.89 ' $25,288 ' $3,84 3.2 15.19 ~$21,707 '$2,820 6 '12.99

~

$ 31,397 2,;124.3 7.72 ^ $28)(1' 2,881.5 ~9,98 $25,28f 2,873T6~ l1.36 $21,707 ' 't ,967.6 0 06 "I$l,336.6 -[26 - $1,125.7 3.91 -

$ 969.6 3.83 -

$ 853.0 3sf L -$ ~ 3t A "

~ ~ ~

$ ' 32.2

$ 33.6 $ 31.5 p//).q r rn

l

a""TED 38X YEAR ANALYSIS OF Noti-INTEREST INCOGAE AND EXPE00SE Security laa/c Corporation andSubsidiaries

, - . . - . - - - . . - . - . - .-. . - - - - - - - . . . - . . - . . . . - . - - - _ ~ - -

$ in millions. . . - . . - . 1985 1981 1983 1982 1981 1980 10000-INTEREST NGCORIE ~ '~ ~ ~~

Domestic' loan feesh ilusiness. --- . - . . - . . . . . .- - -. $. 100.8 . -$.81.0 . . . .

$ 69.8 -

$ 64.5 ---54.9 $ . $ . 40.9 Iriternationil lo'an'(ces~ ^ ~ ~ ~ ~ ~ ~ ~ ~ ' ^ ~ ~ ' 9.4~~~~~ES~~ 5.2 ~ ~ ~ ~7 ~ 3 ~ ~ ~ d.8~~ I.i Totalloan fees 169.0 136.8 116.6 97.2 94.4 83.3

~ ~65-'~ ~ ~23

~~ '

Se'curities-related' transaction fees ~~ ' '

~~192.2 ~ ~ ~126.5' ~75.1' ' ~ ~ 323 Service charges on deposit ac}ounts _ _ _ t73.'2[ 161?2

,_ [136l0[ ' ~ 113.7] ]l.9))[67.} . , _

67.5 57.0 47.6 46.6 _ _32.5 Fiduciary and investment management fees ._.84.(

_31.8 International fees and other income _

~

~ ~~~~

73.1 59.1___. ~

46.5. ~

_ 48.3 37.2 ~

Ch'arge card merchant fees ^50.2 11 4.3 39.0 45.3 37.2 - ~ ~ ~27.5

~

8.8] fis.3i

~

Trading accoune profits . .

__ . . _ i }21.8 L t 7.1

~ [1't.;l~

18.7 16.4 16.9

((1'1'.2 )

I 5.2

[ 16.2 12.9 Mortgage loan servicing fees ~ ~ ~ ~ ~

75

~ ~

Commercial service (ces ~ ~~ ~

t 1.1 13.5 ~ ~ ' 10. 3' ~ ~ ~~10.0 9.4 Escrow fees ~ ~ ' ~

~

6.9 ' 6.7 5.7' ~ 4i "4 ' 9 ~ ~d.8 investment securities gains (losses) 4.8 '13 1.5 ' ' ~ 'OT ' 71.5) '( t.2)

Gains on sales of equity securities 74.0

~20.2

~

~23.2^ ~~~i2.3 't 0.2 ~~~ 2.8 ~

Gain on sale of headquarters buildings )._ o _ , - tl5.3' }- 50.5 ] .- ~] .,-

All other 145.9 126.1 86.9 63.0 ( 4.8 55.4 Total $ 1,023.8 $ 909.1 $ 623.0 $ 516.9 $ 432.1 $ 351.7 STAFF EXPE80SE ~ ~

Salaries and other compensation $ 774.6 $ 665.5 ' $ 5 89.6 ' $ 517.3[ ] $ 451.7[ $ 3855 Pension and other benefits 132.6 117. t 99.4 93.0 81.6 68.8

'Ibtal $ 907.2 $ 782.9 $ 689.0 $ 610.3 $ 539.3 $ 451.6 Average full tirne equivalent statf: Annual 30,358 28.613 _ .

27,527 27,058 . _

26, t 11 2 t/ot December 30,901 29,805 28,157 26.859 27,443_ ._ 25,069

~

Average annual staff expense ~

per employee $ 29,883 $27,363 $25,030 $22,555 $20,397 $18,477 OTHER EXPEIOSE ~

Net occupancy-premises $ 177.6 '$ 115.1 $ t 18.9 ~~ ~$ ~s6i0 ~$ 73.1 ~ ~$ ' '613)

Furniture and equipment t 32.0~ 1lis . [96.9~ 78.7 f61.}i_ 47.9 _

Telecommunications _60.8 _ 50.9 37.5 33.5_ 21.7

~

. 22.1 Postage and delivery ~ ~ ~ ~ 40.5 - 36.'6 '31.5 ~ ~ ~32.7 ~ 28.8 "22 5 Stationery and supplies 37.5 33.0 35.5 28 4 27.1 25.2 Advertising and promotion 36.4 , 33.8 32.9 26.1 _

2;f 2 17.5 Travel 34.3 28.4 21.7 18.1 17.5~

13.8 All other 331.3 250.1 223.1 181.5 141.1 114.9

'Ibtal $ 850.4 $ 696.7 $ 601.0 $ 485.0 $ 400.9 $ 326.2 OTHER STATISTICS (End of period)

Number of semkholders 28,281 27,218 28,627 29,050 31,233 33,318 Number of California banking locations 599 612 627 62: 612 596 Number of fmancial services system locations 548 510 531 170 ti1 509 Number ofloreign branches ' 8 9 9 9 7 7 Number ofloreign affiliates 45 35 29 21 15 14 (I)Induda gain on sale of Bank's las Angeles headquarten buiUing in 1984 andgain on sale of The Hank of Gsnton headquarten buiumg in 1982.

pjty aylt J

1 n=manans mTED SIX VEAR man anam 805E7 Secrity Panfr Corporation andSm6sidiarin

$ is mil //oss 1985 19 M 1983 1982 1981 1980 ASSETS Casti an'd iluifrom'ba'nks~ $ 5,279 $ 3,832 $ 3,099 $ 2,433 $ 2,639 $ 2,379

[ ~ ' ~ ~2,i30 2,IE)~

~

O C f' 5-interest beiririg 2,t274" l',955

~2,11[5 1,3'iii Investment securities 2,0 M 1,859 2,166 1,920 1,772 2,314

]__ _][I,45t] ~752][]3(3_1][((4[872][85

~

Tra$ng ajcst asseI _ _[_[ . .

~i3]

Federal funds sold 921 1,007 745 319 132 219 Domestic loans 28,698 25,815 22,237 20,308 17,883 15,2(M International loans 5,784 5,069 4,698 4,603 3,859 3,109 Lease fmancing 2.582 2,127 1,658 1,465 1,195 998

.J) tali ans and lease fmancing_ __ 37,064 33,011 28.593 26,376 22,937 19,313 Less reserve for credit losses 554 520 340 297 222 185 Net loans and 1 case fmancing_ _

36,510 32,491 28,253 26,079 22,715 19,128 Premises and cquipment .

689 601 652 598 613 535 Re estate owned _ _ _ _ _ _ _ _ _ _ , _ _ _

44 0_

Total assets $53,503 $ 16,117 $ 10,382 $36,991 $32,999 $27,791 L8AmeLmsS Asso SToculaaa amma'soutTY ~ - ~

[~ [~~]

~ ~ ~

Domestic $ mand deposits, ,[ ~~$_ }i,849[$ 6,6[3["$ j,9il))$ 5,225]$ j[3[i ]6[05j Dorn,estic savings and ,tirne deposits __

_ _1 7,99_1 . _16,999 _ 15,2,62 _ ,l_5/i99 _ 13,3;18_ ._ l_l,70,5 International deposits 7,033 7,374 6,650 4,924 4,701 3,414

.. _ Total deposits _ , _ _ _ _ _

3_2,873_ 3,1,0(M_ _ _27,81_3_25p18 23,446 _ 21,169 Federal funds purchased. _

4,689 2,831 2,770 2,131 2,082 1,017 Commercial paper . _ _ _ _ _

2,687. _ _ 2,270 _1_.,816 __ l,5_21

. _1_,226. _ _1_,02 8 Other short term funds borrowed 1,921 1,235 1,191 873 811 2,856 '~ 1,750 "

~ ~ ~ ~ ~ ~"~~ ~

Intermediate term ' debt"~ ~ 2,406 " 1,282

~

863 II8 252 Long-term debt _ _ (( _ [

Subordinated capital notes

_[ ._ _ '[ [6'03 500

((]16][

250 355] -

IS [ ~ [ [ f8 { [ U E Other liabilities 4,450 3,670 ~' 3,269 ~ 3,492 3,014 1,921 I

Sto'ckholder's echity))][ ~ ~ ~' 2',4 39 ' ~ ~ ~l,963 1,7'82 l [85 IS3'25 1,170 Total liabilities and stockholders' equity $53,503 $ 16,117 $ 10.382 $36,991 $ 32,999 327.791 leffER00ATIO98AL OPERATIO908 AS A PERCEseT OF TOTAL:

EARIANOS RATIOS Ratio of net income to average common equity _ , _

_f5,5 %

15.6% 16.14 16.87 16.69 16.5%

Ratio of net income to average total equity _

. 5,3 1 15.6 16.1 16.8 16.6 16.5 Ratio of net income to average assets 0.69 0.71 0.71 0.67 0.68 0.69 COA 000000 STOCK DATA

( price: _ ._ , -_ _

liigh $ ._3t h -.$ 26?s $ 27% $ 18h $ 184 . _$ 14 _ %_

Low 25 % 19h 15 10h 14 % 9h

~

Fnd of period Price to-carnings ratio

~3 l1Jn 7,33x

'25% .

25i5 __ l5h ~' '~i7 ' ~[IAA 6.50x 7.05 x 4.72x 5.78x 5.25 x Dividend yield ~ ' ' ' 4,l'1 %~ 4.617 4.27'E '6.359 ' 5.589 ' 5.'6 7'i p]tnme

p4 , .

. MM ARGENTINA' ' .

MACAO Repsenentative Once - Amraw Aires The Bank of Canton, Ltd. Mens ~

1 AUSTRALIA , MALAYSIA Securay Pacik Australia Umised S ' The Bank _of Canton, Ltd. Kade Lampor_

"#. MEXICO

. AUSTRIA Representative OEce Mrsdre Oy~~

Securay Pacik EusoFinance, Inc.

Virson MpQs CAHAMAS Manila BranchjOsshore Bankin6 ~

U"I*) Md"Ed Nassau Branch .

Neues ,,uoapong

. Security fac_ik_,'Ihnejsehemas) Linnised - Nna'"- _ _ _ _ . Singapote Branch =

. tEtoruM (Otshore Banking Unit-

' Security._Paci._k Eu._roFin_an..ce,Inc. ._ Brand _r __._ _ Asian Currency Unit) S/sgym p g Security Nfic Bank Asia Usnited _ %pm

_ Rep _sese_ntat_ive_OE_ce- _ __. --Sne ass _le_. Securay Pacific Leasing Corpormion Sieg9 err CANADA- The Bank of Canton, Ltd. Singem Security Pacific Bank Canada Vn=sewr Si.egf_e._ar_ ,_

Hoare Govett (Far E_au) Ltd.

(y, SPAIN gj,,,,,,

y,,,,,,g Represenestive Once Madrid Teren,,, Security Pacific Credit, &A. Ih mtean i

-- Security ~Pacik Lessing', &A

- - ~ - ' ~ ~ ~ ~ ~ ~ - * - Bandemn' " ~ --

. ENGLAND ,

SWITZERLAND gg y Security Pacific Bank &A. Geerts Security Pacik EuroFinance Inc. . Birminghna Security Pacific Hoste Govett Securay Pacificywnierlanf) SA. _ Jrs=_rg__

Limwed Imdse TAlWAN Security Pacific 'Itsde Finance Ltd.- Imdse Reprewntative OEce ~Taip~ei ~~ ~

Security Pacik hat Umited Amding sigo s Hoare Govett Ltd. (partially owned). Imd'" Representative OEce . Beng M Ch*ric8.T., Pulley, Umwed (penjallyfwned) ., feed"-- - The Bank of Canton, Ltd. Rang 4e4_

. . FRANCE ..

Security Pacific EuroFinance,Inc. Asris ;

Security, Pacific'Itade Fina_ncydnc. Epis

~ ~~

CERMANY ,

Frankfurt Branch Frnsk art N T_N_M L Baumeiner Kreditbank, GmbH Frns rt Cul E. Hartnack .

. Pacik Bank GmbH 0 Chairans Pan inkamo ofm&uh Abdul Asia Al.Quraishi f j- Security . Pacific EuroFinance, Inc., __

Masive ._ Mnenging Dimeer, Ali Znid A/Qernishi 6 Brethrn-Snsdi Arnein

"0"""0""

J.D. Alun. Jones e W nt , AnnetW i ( ,Ltd. I ,

. Security Pacik Capital Markets (H.K.) Ltd. Hong Kang - - - - -

Security Pacik Credit (Hong Kong) Limited Hong Kong Paulo Ayres, F.

Security Pacik Lessing tion U ng Kong Frrsident, Unimsd, Cnnialtms Auxinde S/C LTDA.-

Sn* hud*, SP, n"ad i;ioere GwenJFar Easg) l t _

_ ,-,___ _ _ yeng Kenug .

Taty Sir Ronald & Elliott Representuive Once Rear Dimser, Brn=Un Indwtrirs, Ltd & Anaisted Compain, Chnirmen

]p, (Amtrdia Burd) Insrrnntiend Cmmahtin Clonrenghnese Ltd., and i' o Branch Tibye WI N '*'l "5 ?"'*

I =$' ***50 W A*'"

~ I"-

. SPC Representative OEce . TeAw , Dr. Otmar Emminger Japan Security Pacific Finance Company Umited Tonye F.parr Gn/r*** 8f the Cerade Cretrd Be*A.- ! Fi!fer*8'J_, ,,

! Security Pacik Capital Markets Group,Inc. Ichiro Hattori !

T*kJ* Prrsidst and Chief bwntin Ofar, Srike Instruments &

R'P'c*'****ivt OhCC

.' Secunty Pacific Leasing Corporation Te&M Elatresia,Ltd. Te&ye,Jyne H.-.o..are.._Gm.e. t,t (F_ar_ Eau) _L_td. _ _ _. _ .. .. - . .T_edye- - t

, ~ . - -

Rogelio Sada c

^ # "'# # "' -

l Bran _ch_ _._ _ _ ..._ ._ . ._. _.S_een_/ _,

i- _ .

Ed(red L Shannon,Jr.

Chairman of the Burd and Girf Erwatin Ofar, Sata &

laternatiend Cerper_ntion- Alhnabrn_, Cohfr_rnin. __

I 7

~ .. _ . _ _ .

e~~

PRINCIPAL ADDRESSES t

4'

$ECUAITY PACIFIC CORPORATION SECURITY PAC!FIC FORM 10-K AND ADDITiONALINFORMATION HOUSING ! E HVIC E S, INC.

333 South flope Street por copies of Security Pacific Corporation's Los Angeles, California 90071 10680 Treena Streer, Suite 500 Form to-K Annual Report for 1985,or se CURITY PACIFIC NATION AL 8 ANN 5 E*C 9 l additional information, contact James A. K nrath, Preu. dent Jay 5, Gould, Vice President,119 50, 333 South flope Street Los Angeles, California 90071 stCuni y( g PAC,ipFqN ANCE. INC sECUniTY PACwiC NAflONAL BANK "" ^ "E*'#*' "'" I' '

10089 Willow Creek Road Northern California iIcadquarters telep a 6&

San Diego, California 92131 One Embarcadero Center Richard L lleilman, President and CEO TRANSFER AGENT AP.'O REGISTRAR San Francisco, C.!ifornia 94111 The transfer agent and registrar is

'C Robert B. Philipp INvt nglgN i AGC AS,INC. Security Pacific National Bank, Executive Vice President 300 South Grand Avenue, Suite 2200 P.O. Box 1546, Terminal Annex, stC nlTY PACiriC INTERNAllON AL DANK los Angeles, California 90071 Los Angeles, California 90051.

An Alge Act Corporation Lloyd hicAdarns, Chairman of the Board, 333 South flope Street President and CEO Los Ange!cs, California 90071 SECURITY PACiriC LErSNG CORPOAAllON Robert hf anheimer, President and CEO Four Embarcadero Center, Suite 1200 PAClhC CENTURY Gh00P San Francisco, Califomia 94111 1200 Third Avenue, Suite 1800 Norman L Chapman, Chairman of the San Diego, California 92101 Board and President Thomas). Langan, hianaging Director srCURlrY PACIFIC MORTGAGE AND RL AL ESrAT E Si nVICE S. INC.

srCURITY PACiric BHOKE RS. lNC.

155 North Lake Avenue 37017th Street, Suite 4too Pasadena, California 91109 Denvn, Colmado 80202 Richard 11011, President and CEO James R. Quandt, President

$[CURif Y PACIFIC DUSINr 5$ CREDif,1NC. MOni ,

C POnATION llo East 45th Street ncsiotNr AL Oivis ON New Wk, New Wk 10017 2460 West 26th Avenue StartinJ. Kelly, President and CEO Denver, Colorado 80211 stCunitY PACalC CRt DIT COAP. Richard Solheien, President and CEO 2660 T'wnigate Road, Suite 400 se CunirY PACisiC NE^ETY ADV'S HY SEHV'CE8 Westla Village, California 91361 Robert h,onteith, President and CEO 100 Park Avenue st CUnRY PACIFIC EUROFINANCE,INC. '

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H St. James Square tamdon SW t Y 4)U, England stcUnirY PACttiC TAADE FIN ANCE.lNC.

Lyn 2 L Ferretly, President 591 Elddison Avenue, Suite 1800 SECUnlTY PAClf IC FIN ANCE COAP '

100N9 Willow Creek Road J. Peter Robens, Pren. dent and CEO San Diego, California 92131 st Cunit Y PACIF IC inA0 LNG CORP Kenneth 11. Pnxtor, Chairman and CEO 350 South Figueroa, Suite 2to

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stCUnit P r IF HOARE GOVEf f LIMME fcgl ali esi ne and CEO London WC2R 3DF, England, Q i,Y P,AC,1C GROUP Dean I. Lundell, Chief Executive Otiitu 650 %wn Center Drive, Suite 1700 Costa htesa, California 92626 Timothy llay, Chairman SP INSUR ANCE GFnvlCES,INC.

10089 Willow Creek Road, Suite 2019 San Diego, California 9213I Robert R. h!orlan, President src srcumrir s sinvicts Cone 127 John Street New hk, New Wk 10038 Alithael V.Caggiano, Atanaging Direttor I/1/) (17s'

OPMCERS OmCons Or sEcUnity PACIFIC CORPORATION _ _ __

Richard J. Flamson !!! Chairman of the lioard and Chief Executive Officer

George F. Moody President and Chief Operating Officer

' Robert II. Smith Vice Chairman of the lloard and Administrator, Capital Markets System

' William F. Ford Vice Chairman, Financial Services System

'Roy D. Ilartmann Vice Chairman, California llanking and Real Estate Industries System George 11. Ilenter,Jr. Executive Vice President and Chief Credit Officer Nicholas 11. Ilinkley Executive Vice President, Commercial Finance and Leasing Group Walter i Fisher,Jr. Executive Vice President and Auditor Russell A. Freeman Executive Vice President and General Counsel John W. Ilancock Executive Vice President, Real Estate Industries Group Sidney lpaktthian Executive Vice President, Residential Real Estate Group j John F. Kooken Executive Vice President and Chief Financial Officer David R. Lovejoy Executive Vice President, Merchant Banking Group trying Magol Executive Vice President and Personnel Director DuWaynej. Peterson Executive Vice President, Chairman, Security Pacific Automation Company Richard A. Warnet Executive Vice President, Corporate Relations Group Kraig A. Westra Executive Vice President and Treasurer LindaJudd Foss Senior Vice President and Secretary

Member, Office of the Chairman Ut CUTIVE CGMMirTEES OF THE DOARDS OF DmECTOns OF $ECUmtY PACitiC COnPORAff0N AND SECUmTY PACirlC NAtlONAL BANK Carl E. Ilartnack, Chairman J. G. Boswell 11 Earl Clark Timm F. Crull RichardJ. Flamson 111 Camilla C. Frost George F. Moody f I

11. Russell Smith Robert II. Smith MAN AGE ME N r CoMVITTr E OF $ECURlrY PACIFIC N ATION AL B ANK Richard J. Flamson ill Chairman of the lloard George F. Momly President and Chief Executive Officer Robert it. Smith Vice Chairman of the lloard and Chief Operating Officer William F. Ford Vice Chairman, Financial Services System Roy D. Ilartmann Vice Chairman, Calif rnia llanking and Real Estate Industries System J. Nick Baker Executive Vice President, California liranch Ilanking Group George 11. Benter,Jr. Executive Vice President and Chief Credit Officer Nicholas 11. Ihnk!cy Executive Vice President, Commercial Finance and Leasing Group Robert C. Corteway Executive Vice President, Spaial Assets Department JohnJ. Duffy Executive Vice President, Staff Suppon Group Walter & Fisher,Jr. Exnutive Vice President and General Auditor Russell A. Freeman Executive Vice Prnident and General Counsel John C. Getrelman Exnutive Vice President, International llanking and Investments Group John W. llanoxk Ennutive Vice President, Real Estate Industries Group K. Courtenay llawkins,Jr. Exnutive Vice President, Capital hf arkets System Sidney lpaktchian Executive Vice President, Residential Real Estate Group Jerry W.Johnston Executive Vice Prnident, Capital Markets System John F. Kooken Executive Vice President and Chief Financial Officer David R. Lovcioy Exnutive Vice President, Merchant flanking Group trving Margol Executive Vice President, Management Services Group R. litute Owen Exnutive Vice President, Corporate llanking Group DuWayneJ. Peterson Executive Vite President, Chairman, Security Pxi6c Automation Company Rnhere 11 Philipp Executive Vice President, Northern Cahfornia lleadquarters John P. Singleton Executive Vice President, Security Pacific Automation Company Robert L Thaler Executive Vice President, Planning and Marketing Group Richard A. Warner Exnutive Vice President, Corporate Relations Group Kraig A. We tra Executive Vice President, Snurity Puific Corporation Treasury a tt the l

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l liighligids i Set uray I'ao)ic Gepowam n and Sukharus l 2 la rraw I tkt ftdW) i 3 Month EndedSeptember30 . im ins _ _ A%mni 9 1:arnings reached a record lewiin the third quarter and were j s . n .. .un n, m . .... up 19 percent for the third quarter and first nine months i Netincome

", 99 9 $ 84 0 $ 15 9 19 "I1986.

.Ihe carning impnnement continued to reflect strong Common dividends 28.5 24 6 39 16 growth m non-)mterest income and a moderate me Per common share interest income. These famrable factors were partially othet l Not income $ 1 25 $ 1.14 $ 011 10 by increases in non interest expense and a larger pnnision for Dwidends ~ ' ~ ~ "~

0370 0 335 0 035 ~ 10 credit lowes. !

j At Septemher 30,1986, stockholders' equity was $2,798, up l 9 Months EndedSeptember30 _ 31 percent from a year ago. t j i ,. %ue., ,uc 3, % ..,= On October 21.1986, the floard of Directors declared a '

I Net income $ 281.3 $ 236 7 $ 44 6 19 regular uarterly dividend of $0.37 per share to sakholders l I Common d,vidends 82.7 71 4 11 3 16 of recor at the close of businew on November 4,1986 i j Per Common sharo j Net income $ 3 55 $ 3 22 $ 0 33 10 i Dmdends 1.075 0 975 0 10 10 i I Bock vatuoJpenod end)_ 32 33 _ _ 29 12 3 21 11 l t

l At September 30 _ __

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$m n,m, 1 l Aswis $58.163 $49,594 $8.569 17 !

Deposits 33,279 32,011 1.268 4 l l l Loans and fease f.nancing 37,753 34,695 3.058 9 i investment securities 3.361 2.061 1,300 63 i Stock holders' equity 2,798 2.141 657 31 ;

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Letter CD Stockholders The record perfi>rmance by Security Pacific Corporation for 7th,in respome to numemus inquiries that it has no plam to the 1986 third quarter included a 42 percent increase in non- make a bid li>r llankAmerica Corporation. In our view, it is interest income. This gn>wth reticcts continued espansion of important that the llank of America remain an independent the units that pn> duce fee and services income, an integral organization.

part of our long-standing strategies of divenification and bal.

ance thmughout the Corporation and Security Pacific w/omww ur National llank. The merger of Arizona llancwest Corporation with Security Net income for the third quarter of 1986 was 599.9 million, Pacific Corporation was completed on October 17,1986. This an increase of 19 percent abuse the $84 0 million reported liar natural estension of the dynamic Califbrnia marketplace is a the third quarter oflast year. On October 21,1986, the lloard welcome addition to the enerall Security Pacific plans for of I)irectors declared a regular quarterly dividend of 50.37 esomsion.

per share to stockholden of record at the chne of businew on Arizona llancwest is the parent company of The Ari/ona November 4.1986 Ilank, w hich has 101 branches statewide and is the third larg-est bank in Arizona. Net income li>r the fint nine months was Quality and Control 524.1 million, up 17.3 percent from 520.6 million for the Eighty financial analysta from around the country gathered at comparable 19H5 period. Currently, total awets esceed Secunty Pacille Corporation headquarten on September 8th 54 bdlion.

and 9th to pirticipate in our fint eser onoite investor rela-tions seminar. "Quanty and Control" was the theme for the Inard'I"R UPPortunities in the International AlarAerplace which included presentatiom from senior manage- An ongoing Security Pacille strategy is to strengthen all of our meeting,hlighting ment hig recent actisities and outlining future esisting capital pfans markets capabilities and estabinh new and for Secunty Pacitte bminenet in addition to providmg valu. espanded capabihties as the market develops. I)uring the able infi>rmation to the audience, question and answer seu quarter, there were several businen desclopments initiated by siom were beneficial to both Security Pacilie management Security Pacille in the international marketplace fi>r the pur-and the analysts in attendance. pne olimplementing thh strategy.

It h anticipited that the international financial marketplace BanAing ll.itwmion will be enhanced by the "llig llang" deregulation which took 1)y namic gmw th cemmunities in California oller continued cirect October 27th in 1 ondon. As a result of our acquisition opportunities liir the operatiom of the Cahlbrnia llanking of mer 80 percent of Iloare Govett I.imited, a major U.K, and Iteal Estate Indmities System. A major espamion plan stoskbroking firm, and the estabhshment of Secunty Pacifle involves opening approsimately 50 new f ulloenice llank lloare Govett I.imited, our I.ondon based international mer-branches m Cahtorma mer the nest sescral yean in identiti. chant bank. Security Pacille h well pmitioned to take advan-able high growth arcat in addition, the acquhition of eshting tage of the recent thanges in London and b able to o!!ct a bank operauom m Cabli>rnia and other western and muth. wide range of capital markets products in major markets western states is being comidered. globally.

In line with Secunty Pacifici espamion, on September Security Pacille Corporation announced during the quarter 25th Security Pacille National llank announced its intention that it w dljoin lbur other international financial senices to purchase the Northern California based 1)iablo llank. compmics to open the fint merchant bank ta be chartered ILblo llank h headquartered in I)amille, with offices in lei ltepublic of China. Named the China Alamo and San llamon, all in Contra Omta County, a key imide the1 Peopinance Company I.imited, the International growth area in Northern Califbrnia. Ihablo llanki net underwritten by five equal partnen: Security Pacific,'I'he income ihr the fint sis months of 1986 was 5567,725 a $1 llank of China, l'.ast Asia llank. Sumitomo llank and percent gain from the fir t sis months of 1985. I he acqui i. Nomura Securitiet tion, subject to appnaal by the Comptroller of the Currency 'i he new financial imtitution, wheduled to open prior to and by the shareholden ofI)iablo llank, k espected to be year end 1986, will oller trade, merthant and investment finalized in early 1987, banking senices to Chinese gmernment organi/atiom, state.

Additionally,in the third quarter, Security Pacille Corpora. ow ned enterprhes joint sentures and ihreign bminewes in the lion obtained an option to purthase up to 9.9 percent of the PitC. 'Ihc gnm th powibditics lbr Security Pacific bmmenes common stock of Westamerica llanwrporation. a bank hold- in these presiomly untapput senice areauhould pnnide ing compmy headquartered in San Ital'a el, Cahfornia. Under challengmg opportunities on this esciting financial f rontier, the option, as of October 21. Security Pacific had acquired in a separate mme, Security Pacific Corporation 4 9 percent of Westamenca llancorporation. Security Pacille announced that it has agreed to acquire Califbrnia Pacille acquired the option primardy as an imestraent, but intends to National llank (CPNilt 'Ihh imtitution pnmarily senes the explore additional mutually aihantaycom tramattiom with Chinese wmmunity in Southern Califbrnia, emph.nl/ing Westamerica llancorporatihn. Westamerica, with 34 ollites in international trade flnance lbr middle market bminewet it sesen Northern Cahlbrnia counhes, reported $106 bdlion in has two branches in Ian Angeles one of whith h in the cit);

total awets e of June 30. and net income ihr the flr i half of Chinatow n section.

19x6 reached 53.3 million.

While these espan ion plam iblhiw the Corporationi mer-all gmwth strategy. Security Pacille announced on October 2

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) i I'ounded in 1980, CPNH's sound portfolio will enhance will be underwritten by the three insurance company affiliates Security Pacific's desclopment of west coast relationships with of SP Insurance Services inc, Those companies, already char.

the Chmese community offering the same quality senices tered in 45 states and the District of Columbia, have $1.6 1

1 offered by our major llong k>ng-based subsidiary, The Hank billion of credit life insurance in fon:e on Security Pacific con.

of Canton, Ltd. The Bank of Canton, Ltd. has branches in sumer loans.

j liong Kong Thailand, Singapore and Macao, and aho operates in Taiwan, South brea and the Philippines. It is #t8 ail #a8m* Am*888'ia8 i expected that the California l'acific acquisition, when An important strategy in Security Pacific National Bank's approved, will contribute to the attractive trade and capital efforts to decrease costs and improve the quality of customer a

loop between Asian financial centers and California, sevice has been the increasing me of automation within

! California Pacific National Bank has auets of more than retail banking operations. With the automation of primary

! $79 million and reported net income of $200,247 for the llrst back ollice activities roow completed, an ongoing partnenhip

six months of 1986. Terms of the agreement call for Security between Security Pacific Automation Company and the retail j Pacific Corporation to purchase all of California Pacific's bank system is continuing in order to pursue technological i stosk with cash. l'ederal regulatory approval is anticipated by advancements that will further reduce operating costs and year end, enhance service for Hank customers, l

in the liuropean maiket, Security Pacific !!uroFinance, Inc. Security Pacific Corporation announced during the quarter i completed the acquisition of Anglo Factoring Services Ltd. as a i from J. Rothwhild & Company Limited on October 2,1986.

that NCR Corporation has been selected to developi pilot, the $1 stems and financial workstations that wil

! Anglo Factoring is headquartered in Hrighton, lingland, and m the Hanh automated " branch of the future." NCR systems j has nuets of approximately US$40 million. Anglo Factoring have been installed in five branches in order to evaluate the 4 currently maintaim six sales ollices in major industrial areas software and hardware as well as consumer and employee a throughout I:ngland which will provide Security Pacific acceptance. Upon succenful completion of the pilot,installa.

I urol inance a further espansion ofits auct based financial tion of the system will begin Hank wide, l strategy. The electronic distribution system is intended to give i'

! Security l'acific IturoFinance, headguartered in London, Security Pacific the tools to sell products and services more l espects to develop factoring opportumtics in France and effectively by putting computer power at the point of l t Germany, capi aluing on Anglo's sophisticated computerited decision making. Automation within the branch ofilces will sptems. directly benefit cmtomers by providing quicker service and i

direct Information access.1he sales envinmment within Hank

. Ikaritic //mmrW Scrrkes Mrery Systems branches will be greatly enhanced by increased cross selling i An important component of all Security Pacille businewes is opportunities.

! a built in capacity lbr change. T hereIbre, innovation with The

branch of the future" program will bring to the 6

! methods of delivering the bmad array of financial products California consumer a new generation of banking technology offered by Security Pacific companies that make up the w hich will become the standard for retail banking to meet in I inancial Senices Sptem is one of the key strategies fbr their the 1990s.

success. Given our third quarter growth, and hmking Ibrward to the

An important step was taken in July when J.C. Penney future, we are confident that our ongoing busincu desclop.

i Company, Inc., announced that a wide range of Security ments will provide the basic quality and control elements piv.

i l'acific Corporation loan and investment products will be otal to the Security Pacific organitation. ,

i offered, as a pilot program, to cmtomen in three nationwide On behalf of the Hoard of Directors and our worldwide i I

! markets: Califbrma, I lorida and lilinois. These products will stalt, we thank you lbr your support.

j be added to JCIVnney auto, homeow ners, life, and other

! imurance pnxtucts currently offered in financial centen at 17 Sincerely, j JCPenney stores in Northern Califbtnia and through direct

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marketing programs including mail solicitatiom and addb l tional actnities. -

t During the past ) car, JCitnney has been providing variom i

Security Pacille loan pnxlucts at financial centen in lbur San Rkhard J. llamwn 111 f l Jose stores, and has been able to identify some key comumer auunun orthe had and '

l trends and pnsluct preferences. For Sec'urity Pacille, this chieri sevuine inkvr l important opportunity folh>ws our strategy to offer comumer ,

j pnxtucts through a variety of distribution channels.

i Security Pacific Imurance Services,Inc., was granted

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permiukm by the l'ederal Reserve lloard this quarter to underw nte mortgage redemption imurance. With strong

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{ esperience in credit imurance underw riting. offering mortgage George t w ay J redemption coverage is a natural next step lbr SP Imurance crewdens and chieroperaung ormer ,

i Services, Inc. '

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'Ihe imurance will be offered to comumen w ho take out mortgages from Security Pacific National llank. The policies 3

1

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Finansiellieview Third quarter 1986 carnings reached a record lewl of $99.9 0.70 percent and 0.68 percent, respectively. The return on million, an increase of 19 percent Irum $84.0 million in the average common stockholders

equity in the 1986 third third quarter of 1985. On a per common share basis, net quarter was 15.8 penent, increasing the year to-date return to income was $1.25, up 10 percent from a year igo. The lower 15.4 pertent, compared to 16.0 percent and 15.5 percent for earnings per share gnmth rate was influenecd by the Iburth the third quarter and fint nme months of 1985, respectiwh quarter 1985 issuances of preferred and common stock and Stockholden' equity was $2.798 million at September Nt, the third quarter 1986 iwuance of preferred stosk. 1986, up 31 percent from a year ago. The increase includedf ihr the tint nine months of 1986, net income totaled proceeds from the 1985 fourth quarter iwuance of $150 j ,

$281.3 million,19 percent above the $216.7 million vported million of preferred stock and $83 million of comnon sto k for the comparable 1985 period. Earnings per comr%o sharc and another $150 million of preferred stock issued m the third amounted to $3.55, up 10 percent from $3.22 in the tint i,ine iguarter of 1986. The stock iwuances were made in anticipa-months of 1985. t on of acquisitions, primarily Arizona llancwest Corpora.

Strong grtmth in non interest income and a nederate tion. This acquisition was completed in October !986. The increase in net interest income were repomible fbr the cam- primary capital ratio was 6.98 pervent at 54ptembt 30,1986, ings imprmement between third quarten. The cominued beed on period end capital and quartd.y rcrage awets, gnath in non interest income was broadly based, as sittually compared to 6.55 percent a year ago and 7.00 percent at all categories were above the prior year quarter, reflecting December 31,1985. The tot I capital n.tio an,.77 percent was camtinued espamion of the units that produce ncn interest higher than 7.07 percent a year ago and 7.95 pervent at year-end 1985, income. Net mierest income increased due to carnin6 avet growth, as the comolidated net in crest margin declined from the year ago level. Partially ollietting these lavorable fatton Nellarr$flaro*r were mercases in non interest espeme and a larger provision Taxable equivalent net interest income totaled $460.1 million fbr credit loues. in the third quarter of 1986, up 9 percent from a year ago, Organitationally, the Capital hlarkets System was primarily and up 10 percent for the first nine months. The increases respomible for the Corporation \ earnings gnmth between were attributable to carning auct gnath of 13 percent for the third quarters and nine month periodt Net income of the quarter and 12 percent for the fint nine months, as all major Capital htarkets Sptem grew 67 percent betv.*en the nine- earning auct categories, escept for low margin placements, month perh>ds, reflecting,in part, the first quarter gain on the were above the regective 1985 riodt The net interest sale of itNtJ Securitics Corp. Year to-date net income of the margins at 3.95 peteent and 4.0. percent for the 1986 third I inancial Services Sptem increased 2 peret nt, w hile carnings quarter and year tc.date, respecthcly, were behm the comrw-of the Califbrnia llanking und 1(cal litate Indmities Sptem rable 1985 margim was unchanged from 1985, lhe negative irmact of non performing loans asst kmt #

1he return on ascrage awets was 0.73 percent for the third comolidated net laterest income totaled $32.0 million (5,ui guarter, bringing the ) car to date return 100 72 pertent, up f rom the 1983 third quarter and fint nine month returns of ,

1 st.mth$ l rhkJ hytrtthe bl, 9 sjatuhs j nded h ptrmhn Im rcu ilb rrw i W re,4if..tr.nci 12rcingt Summary im W um h ram im lui Aa +m .hy.

i n m,n m.

Net interest income " $4601 $4?c 3 $ 378 9 $1,344 4 $t225 2 $119 2 to Non.Interestircomo 963 1 250C 106 5 0 089 8 7277 262 1 E Less prowsion for creart losses 98 0 63 0 15 0 18 303 3 2M 7 73 6 32 Less other nonetemst ecnso Staff eipenso 271 7 N12 40 5 18 759 3 673 9 65 4 "1 Other e s penso 259 9 211 6 41 3 19 743 3 617 5 '2S 8 M Total 5310 Ji ) U 81 8 18 1,502 0 12314 2'12 10 Income before mcome tves 193 6 i46 1 47 5 33 528 3 431 8 P5 22 Lessad i ustment " 22 2 20 0 22 11 t/ 5 f8/ ,9 11 Less incomo t nes 71 5 42 1 M4 70 ItH 5 136 S 44 3 7 Net incomo $ 99 9 $ 84 0 $ 15 9 19 $ 2913 $ 236 7 1 140 U m aanan o.m -ro..n im mox r,mnn wmm- o . n m w n er,m m, oa o .u v r.om,a nm me m wi,

,m leng aanmn o mine t owmr 4

5

,/

/

Ascrage Balances per share, aner taxes)in the 1986 third quarter, down from Sources and Usts of september Deiember increase

$34.8 million ($0.24 per share, aRer to 0 a year ago. l'or the funds Growth 1986 1985 touream first nine months of 1986, the negative itapact totaled $82.7 $ . ,mns.

rnillion ($0.54 per share, aner taxes), down from $96 8 Totalassets $56,732 $50.098 $6.634 roiLn ($0.66 per share, aRer tases)last year. Most of the Totaleaming assets 48,316 42,918 5,398 3 negative impact resulted from domestic ron performmg 15,602 Net coredeposits 17,080 1,478 e 7 credits.

1,545 1,084 r Tott.I non performing loans and leases wre 51,209 million, Long. term debt 461 or 3.2 percent of total loans and leases, at September 30, Stockholders' equity _ __ 2,779 2.382 397 1986, dowr, from $1,2 0 anillion at June 30,1986, and $ 1,315 million a icar ago. Detail of n(;n perf orming loans and leases for Qc pst 1,ve quarters is ahown in the table on page six. on sales ofloans and lower loan demand. Other significant I httd quader domestic net imerest ir.come totaled $399.0 carning asset increases were in trading account assets and millLn, an 8 percent increase bet,veen third quarters, bring- investment securities, retketing expansion of capital markets iu; me: first nme month <, total to $1,169.4 million, a 10 per- related activities.

, cent ince,w frota the comparable 1985 period. The increases Average net core deposits grew 11 percent between third for both prhts were due to earning asset growth, as the net quarters, with the largest increases occurring in interest check-inter %t margin declined tv 4.43 perceat from 4.56 percent in ing deposits, up 28 percent; savings deposits, up 19 percent:

the third q. arter cf 1985, but remained virtually unchanged and demand deposits, up 17 percent.

between rar.r month periods. As in prior quarters, a number of factors influenced the Virtually all major domestic carning arset categories were comparison of the domestic net interest margin between third above year ago lesels. Consumer loans experienced moderate quarters. The most favorable factor us an increase in invest-gnmth between thint gaarters and averaged 10 percent able demand deposits. The most significant unfavorable higher. The rate of gath has skmed over the last nine factors were a more rapid decline in earning asset yields than months, even though loan or ginations were at high levels, the decline in interest rates paid on funding sources, and a relketing an increase in refinancing activity, most notably in higher proportion of earning assets with narrower spreads.

hometm ner equity loans. Real estate loans increased 6 per- International net interest income increased 14 percent and cent fmm both the year ago quarter and the second quarter of totaled $61.1 million in the third quarter, bringing the year-to-1986, aner being flat during the first half of 1986. The third date total to $175.0 million. The increases from both periods quarter gnmth retkcied higher origination levels related to resulted from strong carning asset growth, as the net interest increased refinaneiry activity, as well as increased bookings margins declined between the comparable periods. Average

- f,T tesale in the secoulary market during the 1986 fourth international loans increased 21 pervent between third quar-j qwrter. Domestic business loans remained essentially ters, primarily retketing continued growth and acquisitions in unchanged betuen third quarters and from the second 4parter of 1986.This trend continues to retket an emphasis I ,

3 stonths I nded scpicmber 10. _ 9 st3nths I oded Sepemher V).

Incre AC Det rr ne)

~

IntresseiDetream Analgt of Nrf interest lacomc+ 1956 19e Amouni IGni 1986 19e Aman E 5rin't

$ ag m&*s l%estle Opmtions . _ _ . __

Netinforestincome _ _ _ _ .$ 309 0_$ 308 7_ _ _ _$ 30 3. _ _ _ 8_ $1,169.4 .__$1,059.7 _ __$109.7 to __

A,orago ea'ning awts $ 35.841 $32,264 $3.57/ 11 $ 34,590 $ 31.384 $3.206 10 Notinforest rnvan 4 43 % 4 56% (013)% -

451% 4 50% 0 01 % -

InurnationalOperahys _

I Net inmest inccmo . $ 61.1' $ 536 $ 75 5 ' 14 $ 175.0 $ 165 5 $ 9.5 6 horauecenrg atuts $10,711 $ 9.066 $1.645 18 $ 10,048 $ 8,570 $1.478 17 Notinforutt wg;n 2 32 % 2 36% (0 04)% -

2.32% 2 58% (0 26)% -

T.ts! ~ ~

Net,eett incomo ~$ 460.1 ' ~$ '422.3

~ $ 37 8 ~ ~ ~ 9 ~ ~$1,344 4 $1.22f2 ~ $11952 R0" A armo caming assets $46,552 $41,330 $5 222 13 $ 44.638 $ 39.054 $4.684 12 9 eintentint.rg r; 395% 4 08 % (013)% -

4 02 % 4 09 % (0 07)% -

m (4 tmNr 9% e mi S

,o,s : ^Y,v. , . ,

s.'n, KnencialkerdrwcUntinued ,V i 3yo -

t ;

s

.y

'a ', i b

1. $

. l r

[ indigenous banking' activities in Australia and Canada, as the 1986 second quarter. Year-to-date net credit losses totaled

..g. _well as in the Corporation's finance subsidiaries. , $252.9 million, up from $213.7 million in 1985, with the 4

The decline in the international pet interest margin between ircitase spread across all loan categories.

x third quarters reflected a higher proportion of inore narrowly. '

At September 30,1986, the reserve for credit losses was

' priced earning assets, primarily trading account assets and . $615.2 million, an increase of $73.6 million from a year ago.

fnvestment securities. s ' -

The ratio of the reserve for credit losses to loans and leases s 'N outstanding at September 30,1986, was 1.63 percent, com-Non Inserest Innune '

v pared to 1.56 percent at September 30,1985, and 1.50 percent Non-interest income totaled $363.1 million, a $106.5 million, at year-end.

or 42 percent, increase owr the 1985 third quarter. For the first nme months 'of 1986, non-interest income increased 0:4crNon-laterest Expense

$262.1 million, or 36 percent. Virtually all categories were Total non-interest expense for the third quarter was $531.6 abow the third quarter 1985 lewl. Significant increases millien, up 18 percent from the 1985 third quarter. For the included trading profits, t;p $26.2 million to $28.7 million; first nine months of 1986, total non-interest expense irreased gains on sales ofinwstment securities, up $19.3 million to 16 percent from the comparable 1985 period. The growth in

$19.4 million; loan fees, up $18.2 million to $63.5 million, non-interest expense continues to reflect the expansion of the reflecting higher real estate loan originations and increased business units producing non-interest income.

business loan and commitment fees; and international fees Staff expenu totaled $271.7 million, an 18 percent increase and other income, up $11.0 million to $33.2 million. The from the prior-year quarter. Average full time equivalent staff '

_ year-to-date comparison was influenced by these same cate- increased 6 percent from the year-ago quarter to 32,349 per-gories, as well as the all other income category. sons. For the first nine months, staff expense was up 13 per-

' cent from the 1985 period and totaled $759.3 million.

PmisionJhr CnUit Lasws Other expense was $259.9 million, up 19 percent from the

. The provision for credit losses totaled $98.0 million in the third quarter of 1985, about the same rate ofincrease reported 1986 third quarter, compared to $83.0 million a year ago. For for the first nine months of 1986. Most major categories of

' the first nine months, the provision totaled $303.3 millioi., other expense in the third quarter and first nine months were

. compaied to $229.7 million in 1985. - above the lewis of the comparable 1985 periods.

' Net credit losses were $77.7 million during the quarter, up

, from $70.1 million a year ago, and below the $88.5 million in 4

\

s i I%6 1985 Third Second First Founh Third

Analysis of Non-ftrforming Losas and Leases 2 Quaner . Quaner Quaner Quaner Quaner S ia '"?* . .

v _ _ _ , , _ ~ ._

7 Endofperiod: . , ___ _ _ _ _

Non-accrualloans andleases: - . - - - . . _ .

~ ~~ ~

. Realestate related business ~ _ ' $ 148_ ._ $ _.152i '$[100 [$[108[ _$[1i7

Energy._ 376 386 200 280

_ _ _ 255 _ _ _

l Agricult_ure ._ _

136_ 145_ 149 _ _128 _1_1_6 -

! . Other(primarilybusiness) . _ _ 361 363_ _ 356_ 313_ 357 3' intemational 175 182 194 218 244-Totalnon-accrualloansandleases 1,196 1,228 1,054 967 1,144

' Restructuredloansandleass _ _ _ _.

Domestic: .

gs

_ _ Realestaterelatedbusjness 10 9}. 9 15'3' ~~ j52

. Other(primari(ybusiness) 3 6 8 14 19

Totairestructuredloans Andleases 13 15: 17 167 171 Total non. performing loans agdleases $1.209 $1,243 $1,071 $1.134 $1,3I5 As a percent of total loans and ease financingm 3.20% 3.35% 2.96% 3.06% 3.79 %

_Netreductionininterestincome $ 32.0 $ 25.2 $ 25.5 $ 12.3 $ 34.8 m Based on period end twances.

l

g

~

+ .

y ',

Status ofSignificant International Credits principal and $6 million represented interest. For the first Total outstandings to Mexico at September 30,1986, were "I"C " "Ihs of 1986, the Corporation received cash payments approximately $505 million. Approximately $315 million were f approximately $26 milhon on Mexican pubhe-sector out-to the public sector, which includes banks, and $190 million standmgs. Approximately $6 million of the cash pay ments were to the private sector. Interest payments on public-sector represented pnncipal, and $20 milhon represented mterest.

debt were generally current. Non-performing Mexican private- Total outstandmgs to Brazil at September 30,1986, were sector loans totaled $ 13 million at September 30,1986, com- approximately $585 million, substantially all of which were to pared to $20 million at June 30,1986. g vernmental and financialinstitutions. Non-performing Mexico has asked its creditor banks to provide approxi. Br zilian loans were $12 million at September 30,1986, mately $6 billion in new loans for Mexico's 1986-1987 fman- unchanged from June 30,1986.

cial requirements, of which approximately $750 million will Dunng the 1986 third quarter, Brazil and its creditor banks be guaranteed by the World Bank. In addition, Mexico's cred- c mpleted the signing of the 1985-1986 financial package itor banks will be asked to provide up to $1.7 billion in con- which was approved by Brazil and its Bank Advisory Group tingency growth and imrstment support facilities. The dunng the first quarter of 1986. The terms of the 1985-1986 Corporation's share of these new loans could approximate $81 financial package provide for a $31 billion debt refinancing million, depending on a variety of factors. In addition, p ekage which will result in the Corporation refmancing approximately $44 billion in debt owing to the creditor banks approximately $297 milhon of current outstandings.The which had been restructured oser 14 years, would be repaid agreement reschedules 1985 maturities for a reriod ofseven over 20 years, with only interest due for the first seven years. years, with contractual spreads set at LIBOR plus I % percent The ne v $6 billion in loans would be paid over 12 yea'rs, with c mpared to the pnor spread of floating prime plus 1% per-only interest due the first five years. Contractual spreads for cent. The agreement also postpones 1986 principal maturities the financial package would average 'b of one percentage f r a penod of one year, and extends trade and mterbank point above the London Interbank Offered Rate (LIBOR) or credit hnes for about one year.

domestic cost of funds. The agreement is subject to final During the 1986 third quarter, the Corporation recognized approval from Mexico's creditor banks. approsnately $ 17 million in interest income on Brazilian During the 1986 third quarter, the Corporation recognized utstand!ngs, bringing the year-to-date amount recognized to approximately $6 million in interest income on Mexican $46 million. The Corporation received cash payments of public-sector outstandings, bringing the year-to-date amount bout $18 milhon on Brazilian outstandmgs for the quarter recognized to $20 million. The Corporation received cash nd $48 milhon for the nine-month period, all of which rep-payments of about $7 million on Mexican public-sector out- resented interest payments.

standings for the quarter, of which $1 million represented l* rime, Federal Funds, and Imured SIoney Starket itecount Rates Domesric Net Interest Alargin Quanctly Meups 16 %

16Y-12 12 %

) 8 I 8 g l

1 1

&l i 4 4g - -

I i i l I O 1 2 3 4 1! 21 3- 0 1 2 3! 4 1 2 3 1985 1986 1985 1986 a Prime Rate a Yield on Earning Assets a l'ederal Funds Rate a Interest Cost of Funds for Earning Assets e insured Money Market .Acount Rate a Net Interest Margin 7

Censolidated Balance Sheet Security Pacific Corpration and Sasidiaries September 30, g, 5 :n millums 1986 1955 IDecrene)

Assets Cash and due from banks $ 3,976 $ 4,737 $(761)

Due from barke-interest bearing 2,979 3,273 (294)

Investment securities 3,361 2,061 1,300 Trading account assets 3,035 862 2,173 Federal funds sold and securities under resa'e agreements ' 2,034 971 1,063 Loans 34,914 32,307 2,607 Lease financing 2.839 2,388 451 Totalloans andlease financing 37,753 34,695 3,058 Less reserve for creditlosses 615 542 73 Netloans and lease financing 37,138 34,153 2.985 Premises and equipment 732 664 68 Customers'acceptanceliability 1,234 1,102 132 Earned interest receivable 427 441 (14)

Realestate owned 173 132 41 Otherassets _ 3,074 1,198 1,676 Total assets $58,163 $49,594 $8,569 Liabilities _

Demand deposits in domestic offices $ 7,683 $ 6,885 $ 798 Interest! checking deposits in domestic offices 2,804 2,116 688 Insured money market deposits in domestic offices 4,265 4.263 2 Savings deposits in domestic offices 2,295 1,864 431 Time deposits in domestic offices -under $100,000 3,601 3.544 57 Time deposits in domestic offices- $100,000 and over 5,363 6,383 (1,020)

Totaldepositsin domestic offices 26,011 25.055 956 Deposits in foreign branches and intemational subsidiaries 7,268 6,956 312 Totaldeposits 33.279 32,011 1,268 Federal funds purchased and securities us e ,apurchaser agreements 4,534 3.669 865 Commercial paper 2,591 3.082 (491)

Other short-term funds borrowed 4,447 2.345 2,102 Intermediate-term debt 3,260 1,930 1,330 Long-term debt 1,115 334 781 Subordinated capital notes 500 500 -

Acceptances outstanding - 1,234 1,102 132 Accrued interest, taxes and other expense 1,430 1,255 175 Other liabilitics 2,975 1,225 1,750 Totalliabilities 55,365 47,453 7.912 Stockholders' Equity Preferred stock-without par value 5 300 -

300 Shares aumonzed 1986 and 1985-5 000 000 Shares issued 1956 - 600 .'

Common stock - $10 par value 773 739 34 Shares authonzed 1986 and 1935 - 200.000 000 Shares issued 1986 - 77.256 094 1985 - 73,883.775 Surplus 525 466 59 UndMded profits 1,200 943 257 2,798 2,148 650 Less common stock in treasury, at cost: -

7 (7) 1985- 362.138 shares Total stockholders' equity 2,798 2,141 657 Totalliabilit:es and stockholders' equity $58,163 $49,594 $8.569 8

M M 9f &

~ Security Pactfic Corporation and Subsidiarin 3 Months 9 Months Ended September 30 Ended September 30 1985 1985 S ia mAm. cuepi peryhm emounts_ _. _ _, _ _ _ 1986 ___ 1986 _

Interestincome Loans _ __ __. _ _. _.

.$ 92_5.4, _ $ 9_33.9_ _ .$2,812.2_ .

_ . $2.772.0 _

Balances due from banks _. _

_ 49_.3 70,3 _ _ 138.3, 210._8 State and municipal investment secunties 4.7 _ _. 4.6 ..13 4 . _

14.2 Otherinvestment securities

__ 52.3 38.5 143.5 113 6 Trading account assets _ 33.9_ . .14.4 85.1 _

30.1 Lease financing 72.5 68.4 214.4 200.4 Totalinterestincome _1,138.1- 1,130.1 3,406.9 _ 3.341.1 InterestExpense Deposits 411.0 _ _ _ 476.5 1,296.6 _1,455.0 Federal funds purchased and securities

. under repurchase agreements 60.7 _ _70.2 183.4 _ _ 220_.7 .

Commercialpaper. _ .

50.1 60.2 154.5 _

165.3 Other short-term funds borrowed 82.9 44.3 _ 200.7 109.6 Intermediate-term'd5bt 62.4 55.0 201.7 158.2 Long-term debI 33.1 21.6 92.1 65.7 Totalinterest expense 700.2 727.8 2,129.0 2.174.5 NetInterest facome 437.9 402.3 1,277.9 1,166.6

' ProvisionforCreditLosses 98.0 83.0 303.3 229.7

, Net interest income less provision for credit losses . _ __

339.9 319.3 _ 974.6 _ 936.9 ..

No -laterestIncome Loan fees .. __ 63.5_ ,45.3 162.0 _1 22.7 Service charges on deposit accounts 49.1, . 4 3.0 138.4 ._127.8 Securities-related transaction fees .

52.9 50.6_ _ 149.6 143.7

,. Fiduciary and_ investment management fees

_ _24.9 23.1 _

71.5 _ 62 9 Intemationalfees and otherincome ~

33.2 22.2 ' ~ ~

79.3 54.7 investment securities gains 19 i 0.1 43.9~ 1.4 Charge card merchant fees 19.0 13.2 - 49.8 37.0 Gain on sale of equity securities _ _ _ _ 15.6 20 3 . 42.9 45.4 .

Trading account profits 2_8.7 _. 2.5 44.2 14.3 Otherincome 56.8 36.3 208.2 117.8 Totalnon-interestincome 363.1 256.6 989.8 727.7 OtherNon-Interest Expense Staff expense 271.7 231.2 759.3 673.9 Net occupa_ncy-premises _ 51.6_ . 43.8. _ 147.6 132.7 -

Fumiture and equipment expense 44.0 34.6 121.8 95.5

. Telecommunications expense 18.5 16.6 53.6 42.9 Otheroperating expense ~~

145.8 123.6 420.3 346.4 Total other non-interest expense 531.6 449 8 1,502.6 1,291.4 ficome Before income Taxes 171.4 126.1 461.8 373.2 income taxes 71.5 42.1 180.5 136.5 Nettaczme $ 99.9 $ 84 0 $ 281.3 $ 236.7 Net income aopticable to common stock $ 96.9 $ 84.0 $ 274.6 5 236.7 NetIrcomeIVr Common Share $ 1.25 $ 1.14 $ 3.55 $ 3.22 Average common shares and share equivalents (millions) 77.6 73.8 77.4 73.6 l

i 9

CasseEhled h of thengse is Steettsiders' Equity

- Security Pact}c Corporation and Subsidiarks 9 Months Ended September 30.

. $in edimar . -

1986 1985

- Bafance,~ big ^inhi[g 6lf[pirijd~ ].. ' )) ((] ] ~ ~." ~ ~

~

~~ ^$2l,439'.d' ~ . ~ '$5,'96'2 9 Netincome ..- - ~ - - - - 281.3 - 236.7 '

g n -- -

P!qfefre_d dividends _ , _ _ _ _ (6.,7)_

Issuance _o_f pre (er_ red stoc_k_(ne_t) 1,4_7.6

. _ , _ _ _ , _ _ _ ___,_ ,__ . 1-ls,tuance of comm,on st_ock(net)_ ._ __ __ ,, __ _

1_4.4_ _ _ ; 2.9 f

. Net treasury stock transactions- 8.5

_ . _ . _ . 7._4_

Translation adjustments (2.3) 1.5

. Balance,end of period $2,798.0 $2,141.1 - ~

t . .

h Sled M-Perh l= 1986 1985 Third Second First Itunh Third Second - First Quarter - Quarter . Quarter Quaner Quarter Quarter Quarter -

. Stock pricer ":

j; High _, _ , ._ .$_ 37'4_ $ 40% .$_38% _$.31%; _ $. 31%__$_31Yo j_$_30%j

. Lo,w _ _ __ _32% ,_ _35 _ 27% .

- 25% 25% - 26%. . 25%

4 End of period 33% 36% 38% 31 % 25 % 30 % 28%

Book vafue $32.33 $31.51~ $30.69 $29.90 $29.12 $28.30 . $27.57

+

Dividend pal [ ~$~ .3 C ~$'673'7 ~ ~ $6.~355~ ^$d535-~"$55557 ~ $U.335 ~~ ~ d.~3U5I $

Dividend yieldm 4.40% 4.05 % 3.47% 4.11 % 5.33% 4.39% 4.30% ~

p Netincome _ . _ . . $ 12_5._ _$,1.191 $ _1 11_ _ $ _1.13 _$_1._14_ _ $_ _1.08__$_1.00; Price-to-earnings ratiom 7.18x 7.99x 8.66x 7.33x 5.83x . 7.28x - 7.02x l

(I) Based on closing prices as reponed on the Composite Tape and published in the Western Edition of The Wall Street Journal. ,

4 (2) Based on stock price and annualized disidend rate at end of period.

0) Based on omst recent tuelve months reported net income and end of period stock price.

Notes to Consolidated FinancialStatements V- Earnings Per Comnwn Share:

The average number of shares used in the computation of earnings per share has been adjusted for the share equivalents from the assumed exercise of dilutive stock options and incentive plan awards. Also, for the purpose of this computation, net income is decreased by the amount of preferred stock dividends.

Taxes on Im estment Securities Gains:

, For the three months ended September 30, taxes selated to investment securities gains were 59.9 in 1986. For the nine months

' ended September 30, taxes related to investment securities gains were 522.4 in 1986 and $0.7 in 1985.

Sale ofSubsidiary; In March 1986, the Corporation sold RMJ Securities Corp., a New York based U.S. government securities broker, for cash totaling approximately $54 million.The sale resulted in a pretax gain of approximately $34.7 million.

s 1

10

. .. ._m _ . ._ . . ~ __ _ _ _ _ _ _

Mh 8f M Security Pacific NationalBank andSubsidiaries ~

September 30, goc,,33,

. I. pan _ _ ,- _ ___u,,

_ .. , __. , _ _ . __ ._ _ , _ _ , _ _ _ , _ _ _ _ J98( . _ 1985 , _JDecrease)

Assets

Cash and due from banks- __

_$. 3,857 ._$_4,640_$_(783)

Duefrombanks inte_restbearing __ _. _ ._. __

_ _ _. 2,63_5_ _ _ __12,825 _ _ 190)( -

invest _m_ent se_curitie_si__ __ . _ __ _ _. _ ._ _ _ _ _ _ . _

_ _U S,Jreasury se_curities_ _ _ _ _ . _ __ _

_ _ _ _ _ _ _ _1,009_ _ _ _ _ _ . . _ _j218 _(209)

_.Qther.yS.govemrnept securities 1,074 9 .1,065

_ State and municipaisecurities

_ _ _ _ _ __ , _ 1287 _ , _.324_ ____ 37) (

1 Other securities 593 298 '295-Totalinvestment securities .

. 2,963 1,849 1,114 -

2,919 2,116 Trading account assets . .

. 803 ;

Federaj funds, sold an_d seg.urities under resale _ agreements _ _ . ._ _ _ _ _ . _

2,034 _ _ 1,246_ _ 788

[ Loans , _ __. 28,551 26,842 1,709 Lease financing 2,160 1,965. 195 i To_talloans and lease _ financing __ _ _ _ _ __ _

_ _ _. _ _ 30,7_11_ _ 228,807 _ 1,904_

Less reserve for creditlosses - 463 429 34 Netloans and lease financing 30,248 _ _ _ 28,378_ _ _ 1,870.

Premis,gs and equipment 626 582 44 j

Customers'acceptanceliabijity 1,234 1,102 ~ 132~ ,

I armdint.erest receivable

__ _ _. , ___ _ _ _382_ __ ___41_6 _ _ 3_4) (

R_eal_ estate gwned _12_9__ _ _110__ _ 19

-Other assets 964 361 603 Total assets- $47,991 $42,312 $5,679 -

l Liabilities Demand depositsin domestic offices $ 7,628 $ 6,840 $ 788 l_nterest/ghecking deposits _in. domestic offic_es. __

_ _ _2,80_3_ _ _ __ 2,1_15 _ _ _ 688 .

Inyured money market depositsin domestic offices _ _ _ _ _ _ _

. __. . __ _ _ 4,259_ _ _ 4,259_ ._-

Savings depo _sitsjn domestic offices _ _ __ _ _ _ _. _ _._ _ _ _ 2,294 ;1,863___ . 431.-

pmg _d_eposits in dom _estic offices - .under $100,000_ _ _ _ _ _ ._ __ . _ _

_. 3,599 __ 3,542 _ 57 Time deposits in domestic offices - $100,000 and over 5,397 6,398 (1,001)-

h _-Total deposi.ts in domestic _ office _s _ ___

,_25,980_ _ 25,017__ _ _ _ 963

- Deposits in foreign branches and international subsidiaries 7,304 '6,970 334 '

l

.. _ Total deposits _ _33,284 31,987- 1,297 Federal funds purchased and s_ecurities under repurchase agreements __ _

4,538__ 3,6_83 ._. ._ 855 Subordinated _long-term notes payab!e to pare,nt c_ornpany ._ _

. __ _ _ 197 __. 196_ _ _ _ _1

. Subordinated capital note.s payable _to parent _ company _

~

_ _ ._ .398_ _ _ 398 _ _. _ .

- Other funds borrowed. _ , ___ _ _ _ _4,026 _ _1,464_ _ 2,562 ,

(: Ac_ggpt_a.nces outs,tanding . ._ ____ _ _ _ _ _ _ _

_1,234_ . _ _1,102_ _ _ _132 l- ; Accrued intgr_e,s_t, taxes and other expense _ _

_ g.. _.

. _1,164_ _ 1,068 _ _ _ 96 l Otherliabilities 1,160 583 577 l Totalliabilities _ _ _ _ __ _ _ _ _._

_46,001__ _ 40,481 _ 5_,520 e Stocbider's Ejusty

j. Common stock-$10 par value j - Shares autNrized and outstanding (1986 and 1985-55.000,000 ._

550 _ 550_ _ . _ _ _ _ ---

. Surplus __ . _ . , _ _ _ _ _

553 550 3 Undivided profits 887 731 156 Totalstockholder's equity 1,990 1,831 159 Total liabilities and stockholder's equity $47,991 $42,312 $5,679 l

~

l- 11 l' ,= - - .- . _ _ _ _ . -- . _... . _ - - . -. . _ _ _ _ _ _ - _- _ _

asemmemmesmess .

Security Pacific Corporation and Subsidiaries

'l

-1986 1985 1986 1985 1 Third second - First Fourth Hird Nine Nme 5.'*U='..__...-~ _ . _ _ . _ __

maner _ .Quaner Q

_ uaner _. Q

_ uaner_ _ Q uarter ,, _ Monihn_ ; Months _

Earnings Summary Interestincome o Interest expense

)___ ._, ._ $1,1_60.3_ $1,145.8_ _ _$1,167.3 ; $1,196.1_ _S1._150.1_

-700.2 702.8 726.0

$3,473.4j z$3,399.7 2,129.0 2,174.5 730.5 727.8

Netinterestincome .

460.1 443.0 '441.3 465.6 422.3 1,344.4 1,225.2 Non-interestincom.e _._ _. . _ 363.1 _ 332.7 _ 294.0 _ 29_6.1 . ___256.6 __ .

. _ 98_9.8_._._ 727 7 Less provision forcreditlosses 98.0 89.1 116.2 149.7 _83.0_ 303.3 ,_. _ 229.7 Lpss_o_ther non_-interest expense: _ _ _ _ _ .___ _ __ __ __ ,,_ _ ___ _ ,_ _

Staff, expense _ _ _ _._271 7_ _ _ ,248.6 239.0 __2_33_3, _ __231.2

,673.9

_ 759.3 Otherexpense __ 259.9 255.3 228.1 232.9 218.6 743.3 617.5

~

Total 531.6 503.9 467.1- 466.2 449.8 1.502.6 1,291.4 income beforeincome taxes _ _, _ 193.6 _ 182.7_ _ 152.0 _ _145.8 _ 1,46.1 _ 528 3 _ 431.8 Les_s adjustmentli_ __ ._2_2.2_ _20.9 ;._ 23.4__ _24.1_ _20.0_ _ __ 66.5_ _. _ 58 6 Lessincorne taxes 71.5 68.3 40.7 35.6 42.1 180.5 136.5 '

i Net income ' $ 99.9 $ 93.5 $ 87.9 $ 66.1 $ 84.0 $ 281.3 $ 236.7

EarningsRatios*

Ratios to average assets:

Net interest incorne"E __ __ 3.35% _ 3.42% _

3.52% 3.80% _. _ _ 3.5_3% _3 43% - 3.55 %

Non: interest income _ _ . _ _ _2.65 _

2.57 __ 2.35 _ _. 2.42_ _2_15. . _ _ 2,52 2,11 Lpss provisi_on for credit los_ses_. _ . _ _0.71_ _ 0.69 _ __0 9_3_ 1 _ _1_.22 _ _0,69 _ __0.77 _ '_0;67 Lesspther_non-interest, expense: _ _ _ _ _;1.91_ _1.98 _.___ ; _1.91_ _ 1.92_

> . _ Staff expense _ ___ __ __ _ __1.94 _ , _____1.94 . _ __ 1.95 Other expense 1.90 1.97 1.82 1.90 1.83 1.89 1.79 ,

Total 3.88 3.89 3.73 3.81 3.77 - 3.83 3.74 I

Incoms beforeincomo taxes , 1.4_1 _1.41 _ _ 1.2_1_ _ _ , 1.19 _1.22_ _ . ._1.35_ _ _1.25 .

Net income - 0.73 0.72 0.70 0.70 0.70 0.72 0.68

~~

Ratio ofnetincome to:

Average common equ.ity _ . _ _ 15_.8% 15.4% _ _1_4.9% 15.5% _16 0% _. 1_5.4% _ _15.5%

Average totalequity 14.7 14.7 - 14.3 14.9 16.0 14.6 15.5 1 MM 1986 1985 i

Third Second first Fourth Third 5 5 ""H"a . . _ -- ._ . - - - - _ .@aner _ ._ Quaner _-Quaner _ Quaner . Quaner End o.f pe.rio_d: __ , .__ _ _ . _ _ _ . __,

Stockholde_rs' e_quity _ __ .$2,798 . ,_ $2,579 $2,508_ . _$_.2,439

_ _ _ _ _ _ _$ 2,141 Primary capital? 3,867 ..

3,639 .

3.561 _ _ 3,465_ 3_,167 -

Total capital

4,862 4,513 4,288 3.932 3.416 Ra.tios to quarterly aver _ age assets:*

_ _S.tockholders' equity _ _ _5.05% _ _ _ 92% 4. __ 4.95% _4.93% _4.43%

P_rimary capit.al

_ _ _ __ _ _ _6.98_ . _6.94 _

7.03 7.00_ _6.55 Totalcapital 8.77 8.61 8.46 7.95 7.07 Ratios to end_of period assets:m

.Jtockholders' equity _ . _ . . 4.76 % 4.76% .4 95%_ . . 4 51 % .427%

LPrima_rycapital _

_ ._ _ 6.58_ 6.72 7.03 , 6.41__ _

6.32 Totalcapital 8.28 8.33 8.46 7.28 6.81 (llincludes amounts to convert non-tauble income, primanly securities income, to a fully tasable equivalent basis and to add the pretax equivalent of investment tax 4 credits on leasing actis ities to interest income.

C) Ratios are based on annualued income and expense.

t 3;lncludes stockholders' cavity, the reserve for credit lowes, mandatory consertible debt and minority interest.

(4) includes primary capital and qualifying long-term debt.

[ - (5) Based on adjusted assets as defmed by bank regulators.

12

WofNhWEgene

' ~ Sectarity Pacipe Corporation andSubsidiaries .

1986 - 1985 1986 ' 1985 Third . Second First Fourth Third Nine Nine E* *3!"'** . __ ~. -. . u._.. puaner __puane( ,_ _ Quann _, Quann , , Quann Jonths }{onths -

Non Interestincome 1.oa_n feest _ _ _

. pompstjE , ,;_ _ _ -__ _ _,,,_ _ , _ , _,

._ _ _ , ,_ $. __34.8_ ,_,,._,_ $, 30.0_ , _ _ _ _.$ 26;8.._ , , _ ~ _ _ _ _$ . _$28.5

, 26.7_ _ _. _$_. ,91.6 ,__ _ ,$ 72.3 Bus _iness __ _

,;Real_e_ state _ . _ _ _ _ _ 11.5_

. _ _ _9.9 _ _ . 4.7 _ __ _ 4.6_ _4L_ _26.1_. _12.4

_C_onsumer _ _ _ ._. __

13,4 _ .1_0.8f _ 9.8 _ 10 16 . 10.9 _ _ 34% , _31,2

- International '3.8 4.0 2.5 2.6 2.8 10.3 6.8 -

1. Total _ _ __ _.,__. _ 63.5 . _ . _54.7_ 43_.8_ _ _ _461_ . 45,3__ _ 162.0 _ _ _ 122,7 S_ervice charges on deposit accounts _ _

_4 9.1. _ _ 46 3_ 43.0. . _ 45.4 _ _ 43.0_ _ 138.4_ _ __127.8 -

Securities-related transactio_n ie.es _ 5_2.9_ _ _61.2_ 35.5 48.5 _ _50L _149.6_ _ _1_43.7 1- _ __ .

~ Fiduciary andinvestment

..; magagement fees _ _ _ _ _ ,

24,9 _ _, 23.7 _ 22.9 _ 21.6 _ . 23.1 . . 71.5_ _ 6_2.9

Jntemationalfees and_.otherincome;, ____ 7.0j_ _ _ ___ . . _,13 _ 0. 1_.

Foreign _ exchange gains _

._8 _ _ _ ._.8 __ 4__ __ 7.6 _ 28.1_ _ _1_3;0

, .All other_ .

. .. __ _20.1 _ _ .

19 8 _ 11.3 _ _13.6_ 14.6_ 5_1.2_ _4_1.7 i Cha!geca[dmerchantfees _ , __ _

_19.0 _ _ _ _16.8; -14.0 _ _ 13.2 _ _ 13 2 .

_9 4 8._. 37.,0 Trading account profits _

28 7 ._ 10.9 _ .

4._

6_ . . _7.5 _ _ 2.5_ 44.2 _ 14.3 r

Mortgageloan servicing fees - _

6 4.2 __ 3.2_

._3.3 __3.2 5.2_ _ _ 1_0.7 _ _ _ 13.9

.' . Commercialservice fees. 3.9 -^ 3.9 2.8~

2.8 2.9 ~

10.6 . 8.3 Escro,wfees [

. _ _ _ . l^ ~ 1 j 2.5_

[],_9[~~[1.5 .,_ [1[8 .. _.[1[ ._ [5[.9] ~ [5.1 Imesjment se_curities gains _ . _ _ , _ _ _ _

_1_9.4,. _ _ _8.6 _15.9_ _ _ _3.4_ _ _ 0.1_._ :. 43.9_ _71 4.

' Qain_s_on safe _s of_ equity securities _ _ _ . 1_S.6 18L_

. , 8_.5_ _28 6_ _20;3 . _ _42.9_ _ 45.4 -

Allother 46.2 55.9 78.9 55.4 - 26.5 - 181.0 90.5 Total.- $ 363.1 $ 332.7 $ 294.0 . $ 296.1 $ 256.6 $ 989.8 $ 727.7

_ StgWExpense Salaries and 0ther compensation

_$ _232,9 $ 210.0_ $ _201.2 - $ 202.5 _ _. $ 198 6 _$ 644.1, _ $__572.1.

Pension and other benefits 38.8 38.6 37.8 30.8 .32.6 115.2 101.8

' Total $ 271.7 $ 248.6 $ 239.0 $ 233.3 $ 231.2 $ 759.3 $ 673.9

. Average ful,j time equivalent _ staff _ 32,349 31,893__. _ 30,595 30,380 _ 30,593_ 31,612l _ 30,35_0 _

' Averageannualstaff expense per employee $33.588 $31,186 $31,250 $30.712 $30,240 $32,026 $29.608 OtherExpense Net occupancy-premises $ 51.6 $_ 49.5 $ _46.5_ . $ 44.9_ _. _$ _43.8_ _ $ 147.6 $ _132.7 -

Fumiture and equipment. _

44.0 40 4 _ 37.2 36.5_ 34.6 121.8 95.5 Te_Iecommun,ications 18.5 _ _ _ _ _ 19.1 _ _1 6.0 1_7.9 __16.6, . 53.6, _ _42.9

, Postage and delivery _

11.6 _

10.3

_10.5. . .

10.4 .0.4 1 32.4 30.1 l Advertising and promotion 10.1 _

9.0 9.0 __ 9.0_. _ 9_.6.._ _28.1 27.4 _

. Stationery and supplies 11.1 _

9.4 10.0 _9.9 _ 9.7 ; 30.5 _

27.6 r Travel _ _ . . _. 9.4 8.8 7.8_ 9.2 _

8.9 26.0 25.1

Allother 103.6 108.6 91.1 95.1 85.0 303.3 236.2

-Total $ 259.9 $ 255.3 $ 228.1 $ 232.9 $ 218.6 $ 743.3 $ 617.5 i

l L

13

Quartefly C4980lidated E8188C8 Sh00t Secrity Pacs)ic Corporatioa and Sd>sidicties 1986 1985 5 m mJ1 ion Sepember 30, kne 30, March 31, December 31, Sepember 30, Assets Cash and due from banks $ 3,976 $ 4,567 $ 4,423 $ 5,279 $ 4,737 Due from banks-interest bearing 2,979 2,336 2,135 2,730 3,273 investment securities 3,36_1 _ 2,433 2.329 2,004 2,061 T'ading account assets 3,035 1,465 911 1,457 862 Federal funds sold and securities under resale agreements 2,034 1,148 962 921 971 Loans 34,914 34,333 33,481 34,482 32,307 Lease financing 2,839 2.771 2,710 2.582 2,388 Totalloans and lease financing 37,753 37,104 36,191 37,064 34,695 Less reserve for creditlosses 615 593 591 554 542 Net loans andlease financing 37,138 36,511 35,600 36,510 34,153 Premises and equipment 732 713 684 689 664 Customers' acceptance liability 1,234 1,079 991 1.218 1,102 Earned interest receivab!e 427 420 416 45'9 441

~

Realestate owned 173 158 158 144 132 Other assets -

3,074 2,754 1,501 2,092 '1,198

_ Totalassets $58,163 $53,584 $50,104 $53,503 $49,594 Liabilities Demand depositsin domestic offices $ 7,683 $ 8,057 $ 7,704 $ 7,849 $ 6,885 Interest / checking deposits in domestic offices 2,804 2,574 2,409 2.299 2,116 Insured money market deposits in domestic offices 4,265 4,414 4,394 4.244 '4,263 Savings deposits in domestic offices 2,295 2,075 1,906 1,872 1.864 Time deposits in domestic offices - under $100.000 3,601 3,612 3,565 3,465 3.514 Time deposits in domestic offices - $100,000 and over 5,363 5,549 6,205 '6,111 6.38'3 Totaldepositsin domestic offices 26,011 26,281 26,182 25,840 25,055 Depositsin foreign branches and international subsidiaries 7,268 6,200 6,781 7.033 6,956 Totaldeposits 33,279 32,481 32,963 32,873 32,011 Federal funds purchased and securities under repurchase agreements 4,534 3,614 2,424 4,689 3,669 Commercial paper 2,591 2,919 2,528 2.687 3,082 Other short-term funds borrowed 4,447 2,771 2,500 2,856 2,345 Intermediate-term debt 3,260 2,724 2,552 2,406 1,930 Long-term debt 1,115 999 844 603 334 Subordinated capital notes 500 500 500 500 500 Acceptances outstanding 1,234 1,079 991 1,341 1,162 Accrued interest, taxes and other expense 1,430 1,355 1,283 1,334 1,255 Otherliabilit:es 2,975 2,563 1,011 1,775 1,225 Totalliabilities 55,365 51,005 47,596 51,064 47,453 Stockholders' Equity _

Preferred stock 300 150 150 150 -

Common stock 773 771 769 768 739 Surplus 525 524 519 519 466 Undivided profits 1,200 1,134 1,070 1,007 943 2,798 2,579 2,508 2,444 2,148 Less common stock in treasury. at cost - - -

5 7 Total stockholders' equity 2,798 2.579 2,508 _2_,439 2,141

_Jo_talJiabijites a_nd stockho,!de_rs' equ.ity_ ___ _ __ _ $58,1_6_3_ __$_53.584_ $50._104 __$53_,503 __ _ $49.594

_ _ i 14

r A

@GlWW h MOWt18MOS

? Security Pacific Corporation andSubsidiaries 1986 1985

' ~ b "#" - . _ _ __ _

_ .-~.- ~ _ _ _ ._. _. . . September 30, _ Junc 30, March 31, _ December 31, _

September 30,

. Composition oflaan httfolse Dornesticloans; ____ _ _ .__ . . _ _ __ __ . _ _ , ___ _

~

^ ~

C etc al nd'i}ndu'strTaiio}n~s (([))~ $ 95.18((_]$ 9,5( ' $ 9,543_ _ ~$]9)8'37[ T "9,3[0[6 Constructionloans : .

1,917 1,753 1,703 ~~ 1,652 1,601

((j,i,8_4((. ' '1,1f )),059] ]j56 Loags fo) purchasing gr carryi_ng securities _ . _ __867[_

_ .Loaps,to f@arigjaggstitu,tions_ _ _ _ _ _ _. _ _ _823 _

__6_11__, _ 609 _ _ 557^.__ _ 549 Other businessloans 1,314 1,587 1,399 1,605 1,415 Totalbusinessloans 14,739 14,696 14,423 15,710 14.127 Realestateloans:m 1-4famijyre_sidentialproperties _ 4,170 3,805 3,875 .3,915 3,98_9

-- Other real estate loans 1,523 1,430 1,334 1,306 1,226

_ ._ _ Totaj real estate loans _ _ _ ._ 5,693 _ . 5,23_5 5,209 _ 5,221 _ 5,2_15

_Consumerloans; __ _.. ._ ._ ._ _ ,_ __ _ . _ _ _ . _ _ _ _ . __ . . . _ _ . _ _ . _ _ _ _ . _

. _ Ready ReservA_ccount/ charge card loa _n_s _

. __ ._ 852 __ _ _ __855_ _ _869_ ._ .914_ _890 Otherconsumerloans 7,207 7,150 6,953 6,853 _ 6.562

- Totalconsumerloans 8.059 8,005 7,822 7,767 7.452

._ _ _ Total _ dom _estic loans _ _. _

_ _ _ _ 28,491__ _ _27,936 ._ 27_.454 _ _ _28,698 _ _ _ 26,794 . _

Internationalloans 6,4,2? 6.397 6,027 5,784 5,513 Total $34,914 $34,333 $33,481 $34,482 $32,307 1986 1985 Third Second . First Fourth Third Analysis ofReseneforCreditlesses quaner Quaner Quarter Quaner quaner

. Balance, beginning of period _ _ .

$ 592.7 $ 591.3 _ . $ _554.4_ _ _ _ $ 541.6 $ _527.3 Provlsion for, losses charged to_e_xpense __ _98.0 . _ _89.1_ _ 116 2. _. _1,49_.7 _ 83_.0 Otherm ~ ~~

2.2 0.8 7.4 2.5~

1.4 l l Aniountcharged g[ff[ [_[ .][ (95.l4l) [ ['_('109'.1[)~ _

(101'.9) ~ i157.8)[ (89.3)

Recoveries 17.7 20.6 15.2 18.4 19.2 i ' Net credit losses - (77,7) (88.5) (86.7) (139.4) (70.1) .

Balance, end of period $ 615.2 $ 592.7 $ 591.3 $ 554.4 $ 541.6 1 End of period reserve for.. credit los_ses as percent of: _ _ . _ _ _ . ._ __

i

. TotalJoans andlease financing _ . . 1.63.% __1. 60% . . .1.63 % ..1.50 % ___1 56% .

,_.1.67

[ . Adjustcd total loans and lease financing

1.83 1.78 1.83 1.76 3 Months 9 Months I-Ended September 30 Ended September 30.

- Anelysis ofNet CreditLosses 1986 1985 1986 1985 l Domesticlo.ans:_ _ _ . . _ __ . ._

l Businessloans_ . _ . _ . _ . . _ _ .$ 33_.9 _ $ 40.1 $ 136.8_ _ _

.$ 123.9

. Ready ReservA~:ount/ charge card loans ._ _

6.8 6.8 24.2 20.7 Other consumerloans ~ ~ ~ '

21.2 14.2 57.6 48.3 l- - R'eal estate foan'sW O.2 -

0.5 ' O.3 internationalloans 10.4 5.1 17.7 9.9 p Totainetloanlosses

~ ~ ~ ~ ~ ~

72.5 66.2 236.8 203.1 L . Le'as'e financing '5.2 3.9 16.1 10.6 Totainet creditlosses $ 77.7 $ 70.1 $ 252.9 $ 213.7 (I) Permanent loans secured by first mortgages or the equivalent. ..

(2) Includes additions from acquisitions and foreign currency translation adjustments.

(3) Excludes permanent real estate loans secured by 1-4 family residential pmperties.

15 1

Consolidated Average Balance Sheet and Related Yields and Rates Security Paafic Corporation and Subsidiaries herage Balances 1986 1985 Third Second First Founh Third S in malim Quaner _ _Quaner Quaner Quaner Quaner Assels Earning assets:

Due from banks-interest bearing $ 2,700' $ 2,110 $ 2,359 $ 2,970 $ 3,091 State and municipal investment secunties 336 345 353 362 371 Otherinvestment secunties 2,515 2,068 1,885 1,550 1,600 Totalinvestment securities 2,851 2,413 2,238 1,912 1,971 Trading account assets 1,992 1,414 1,137 896 632 Federalfunds sold 1,797 1,638 1,399 1,132 1,099 Domestic loans:

Business loans 14,478 14,417 14,665 14,391 14,376 Realestate loans 5,533 5,214 5,209 5,245 5.209 Ready ReservAccount/ charge card loans 865 869 900 896 882 Other consumerloans 7,129 7,032 6,849 6.666 6,379 Tota! domestic loans 28,005 27,532 27,623 27,198 26,846 Internationalloans:

Business loans 5,645 5,448 5,313 5,140 4,832 Consumerloms 761 712 632 545 484 Tctalinternationalloans 6,406 6.160 5,945 5.685 5,316 l

-Totalloans 34,411_ 33,692 33,568 32,883 32,162 Lease finaaciag 2,801 2,729 2,664 2,488 2,375 Less reserve for credit losses _ . 593 593 560 528 535 Totai netloans and lease financing 36,619 35,828 35.672 34,843 34,002 ,

Total earning assets

46,552 43,996 43,365 42,281 41,330 Cash and due from banks 3,888 3,735 3,544 3,322 3,372 Other non-earning assets 5,020 4,700 3,789 3,876 3,638 Total assets $54,867 $51,838 $50,138 $48,951 $47,805

]

Liabilities and Stockholders' Equity Non interest bearing deposits:

Domestic demand deposits $ 7,086 $ 6,935 $ 6,487 $ 6,463 $ 6,147 International deposits 249 223 210 303 232 Total non-interest bearing deposits 7,335 7.158 6,697 6,766 6,379 interest bearing deposits:

Interest / checking deposits 2,666 2,426 2,266 2,175 2,085 Insured money market deposits 4.360 4,434 4,376 4,329 4,292 Savings deposits 2,177 1,967 1,876 1,868 1,828 Other time deposits- under $100.000 3,593 3.598 3,490 3,470 3,511 Time deposits -$100,000 and over 5,314 5,965 6,121 6,273 6,072 International deposits 7,061 6,423 6,483 6,622 6,610 Totalinterest bearing deposits 25,171 24.813 24.612 24,737 24.398 {

Total deposits 32,506 31,971 31,309 31,503 30,777 l Federal funds purchased 4,094 3.331 3,761 3,212 3,653 l Commercial paper 2,821 2.653 2,571 2,781 2,826 Other short-term funds borrowed 3,534 2,872 2,580 2,009 2,091 Intermediate-term debt 2,898 2,697 2,484 2,169 1,857 Long-term debt 1,491 1,354 1,206 1,013 883 Total interest bearing deposits and liabihties 40,009 37.720 37,214 35,921 35,708 Other liabihties 4,798 4,421 3,765 3,950 3.612 Preferred stock 273 150 150 137 -

Common equity 2,452 2,389 2,312 2,177 2,106 Stockholders' equity 2,725 2.539 2,462 2.314 2,106 Total lia'o ihties and stockholders' eouity $54.867 551.838 $50.138 $48.951 $47.805 t 1) Fully taut 4e equnalent ban Q Before dedacten of rewr e for creda kne.

Yields am! Rates M y" 1986 1905 1986 1985

~1986 1985 Nine Third Second First Founh Third Nine Nine Nine Months Quarter Quaner - Quaner Months Months

- Months Quarter Quaner

$ 2,390 $ 2,984 7.24 7.87 8.19 8.46 9.02 7,74 9.44 345 377 9.77 9.71 9.68 9.62 9.76 9.74 9.78 2,156 1,540 8.61 8.48 9.72 9.32 9.55 8.89 9.85 2,501 1,917 8.87 8.65 9.72 9.38 9.59 9.05 9.84 1,514 431 7.18 8.29 9.59 9.25 10.06 8.13 10.19 1,611 1,107 5.79 6.34 7.38 7.83 7.80 6.26 8.04 14,520 14.064 8.24 8.86 9.29 9.99 9.50 8.79 9.90 5,319 5,154 10.42 10.63 10.74 10.74 11.00 10.60 10.96 878 872 18.67 18.87 18.98 19.23 18.77 18.84 18.93 7,004 5.987 13.90 14.31 14.67 14.87 15.05 14.21 15.26 27,721 26,077 10.38 10.90 11.21 11.64 11.42 10.83 11.64

'5,468 4,737 10.27 10.22 10.83 10.90 10.22 10.43 10.95 702 423 12.87 13.89 14.09 14.87 15.41 13.05 16.04 6,170 5,160 10.40 10.64 11.17 11.28 10.69 10.73 11.37 33,891 31,237 10.38 10.86 11.21 11.57 11.30 10.81 11.60

~

2,731' 2,278 12.40 12.42 12.77 14.22 13.69 12.53 13.98 582 524 - - - -

36,040 32,991 10.70 11.15 11.50 11.94 11.64 11.11 11.94 44,638 39,954 9.92 10.43 10.88 11.24 11.06 10.40 11.37 3,722 3,209 - - - - - - -

4,503 - -

3.500 - - - -

$52,281 - - -

$46.139 - - -

$ 6,836 $ 5,933 - - - - - - -

227 240 - - - -

7,063 6,173 - - - - - - -

2,453 2,005 4.86 5.14 5.1' 8 5.22 5.23 5.05 5.33 4,390 4,211 4.88 5.59 6.09 6.12 6.13 5.52 6.69 2,007 1,764 5.18 5.39 5.38 5.38 5.37 5.31 5.37 3,560 3,449 7.81 8.40 8.83 9.08 9.49 8.34 9.81 5,800 5,942 7.47 7.89 8.43 8.54 8.69 7.94 9.20 6,656 6.419 7.06 7.42 8.25 8.29 8.46 7.56 8.98 24,866 23,790 6.48 6.96 7.49 7.60 7.75 6.97 8.18 31,929 29,963 5.02 5.40 5.89 5.96 6.14 5.43 6.49 3,729 3,724 5.89 6.45 7.45 7.73 7.63 6.58 7.93 2,679 2,484 7.05 7.72 8.40 8.61 8.46 7.71 8.90 2,998 1,868 9.94 11.32 9.97 10.20 10.43 10.48 9.89 2,693 1,775 9.99 10.68 11.23 11.39 11.84 10.60 11.88 1,350 875 8.88 9.04 9.42 9.85 9.78 9.10 10.00 38,315 34,516 6.95 7.47 7.90 8.08 8.09 7.43 8.42 4,328 3,409 - - - - - - -

191 - - -

2,384 2,041 - - - - - -

2.575 2,041 - - - - - - -

._$52.281 $46.139 _ ____ - -

17

@OMMMMMM 1986-

Security Pacife Corporation and Subsidiaries Third Quarter Second Quarter First Quarter Interest Average laterest Ascrage Intereu Ascray l

Ascrage Income / Rare Ascrage income / Rate Average locomel Rate

$inedim: Balance __ Expense _ %_ Balance _ Expense __,% _ Balance Expense 1

l, Domestic Operationto l E.aming assets:__ __ _ . .

_. _ . _$28,005_, $ 730.9 -. _ .10.38_ $27,532_ _ . $ 748.8 _ 10.90. _ _$27,623 Loans. .

11.21

[$leaseyafchjC. __ ~ ~2M ~62'O" ^ I2'.12~ ~ ~ ~ 1',965 60'.1' ^ 12 22 ~

~

1

^ ~ ',953~$ ~ 6i.1 766.3 1E52 Inves_tment securities _ _,_ 2,302 _ _ 46.4 _ 7.88 _ 1,888 _ _ 35.8 _ 7.59_ _ _1,799 .

. _ 39._4 _ 8.83 Federalfunds sold 1,797 - 26.2 5.79 1,638 25.9 6.34 1,399 23.3 7.38

, Trading account assets _ _ 1,363_ _23.3_ _6.83 _ . . ,911 _ 17.5 _ 7._67 , _ _ 7661 _17.8. , 9.30 Due from banks-interest bearing 327 6.6 6.85 247- 4.2 6.95 207 3.9 7.53 Totaleaming assets 35,841 895.4 9.93 34,181 _892.3 10.46 33,747 911.8 10.91 Net sources of funds *: .

! _ Demand deposits . . _ _ _ _4.,44 2_ _ _ _ _ _ _ _ _ _4 071 l

Interest / checking deposits _- 4_,601_ 2,228 _32.6 5.81 2,029 31.1 6.15 1

1,895__ _ 29.0 2 6.20

_Jnsured money market deposits .4,238 53.6 5.02 4,309 61.8 5.75 4,253 65.7 6.27

_ Savings deposits _ _ _ _ _ _ _ . _ 2,176_ _ _

_28.5_ 5._18. . 1,966 26.4 _ 5.40 _ 1,875 _ _ 24.9_ ___ _5.39 Other time deposits-under $100.000 3,596 70.8 7.81 3,601 75.3 8.39 3.491 76.0 8.83 Total cog deposits _ _ . . _ _ _16,839__ 1_85.5 ._ _ 4.37_ _ 16,347_ _194 6. _ 4.78__ 15,585 _ 195 6 _ _5.09 .

Time deposits-$100,000 and over 5.237 99.9 7.57 5,873 117.3 8.01 6,031 127.3 8.56

_ B_orrowe.d fund.s._ __

_ _ 11,928_ _ . 204._2 _ 6.80_ _ 10,234 188.0_ _ 7.37__ _ 10,121 199.5 , 7.99 Funds supplied by or(to) internationaloperations (13) 6.8 -

13 3.5 -

(29) 7.9 -

Total 33,991 496.4 5.79 32,467 503.4 6.22 31,708 530.3 6.78 Allother sources of funds 1,850 - -

1,714 - - 2,039 -

Totalsources of funds $35,841 496.4 5.50 $34,181 503.4 5.90 $33,747 530.3 6.37l Domestic netinterestincome and margin - $ 399.0 4.43 - $ 388.9 4.56 - $ 381.5 4.54 International 0perationth Earni_ng asse_ts: .

i oans.

l

._. _ _ . _ _ _$_6,406_ $ 167.9_ _10_.23_ . . _ _$ _6,16_0__ $ 1_6_3 6 10.64_ .$. 5,945_ $ 163.8_11.171 Due from banks _-interest bearing _ 2,373 42.7 __7.29 1,863 __ _ 37 1__ 8.00 .

_2.152_ _ _ _43 81 _ __8,25 ;

Lea _se financing _ _754 __24.8 13.17 __ _ 764 __ _ _ . _24,.7 12.91 , 23.9_ _ _13,47 j

__711 _ .

_ Trading account _ assets , ._

_ 629_ _ 12.5._ 7.92_. _ 503_ 11.8 9.3_9 _ _ _371_ _ __ . 9.4 _.1_ .

0 .20 :

Investment securities 549 17.0 12.41 525 _ 16.3 12.45 439 14.6 13.27:

Totalearning assets 10,711 264.9 9.87 9.815 253.5 10.35 9,618 255.5 10.74:

Net sources of funds *: ~

Non-interest bearing depo _sitsT '180} [ _ _ . _ . [159I i- _

f132 . _ _ . _ _

Interest _ bearing deposits 7,057 125._7_ 7.07 _ 6,418, _ 118,8 6,473

_ 7. 42_ 131.9_ _ 8.27:

Borrowed funds , 2,910 _ 84.9 11.58 2,673 84.1 12.59 2,481 ~ 71.7 11.73-Funds supplied by or(to) domestic operations 13 (6.8) -

(13) (3.5) -

29 (7.9) ;

.__ Total._ _ _ . . _ . . _ 10,160_ 203.8 . _7 96 ._ 9,237 199.4 8.65 9,115 . 195.7 8.71; Allother sources of funds _ 551 - -

578 - -

503 - i Totalsources of funds $10,711 203.8 7.55 $ 9,815 199.4 8.14 $ 9.618 195.7 8.25 Intemationalnetinterestincome and margin - $ 61,1 2.32 - $ 54.1 2.21 - $ 59.8 2.49

' Total Domestic and International O_perations n Eaming a_ss_e_!s_ . _ _

_ . $46.552_ _ $1,160.3 _ 9.92 $43,996 $1,145.8 10.43 $43,365 $1,167.3 10.88 Sources of funds $46,552 700.2 5.97 $43,996 702.8 6.40 $43,365 726.0 6.79 Totalnetinterestincome and margin - $ 460.1 3.95 - $ 443.0 4.03 - $ 441.3 4.09 (1)lncludes adjustments as follows _

Io Convert non--taxable income to fully taxase equiva!ent $ 0.0 $ 7.8 $ 10.7 Pre. tax equivaient ohnves: ment tax credits on teasing actnnties 13.2 13.1 12.7 Jtal.__ __

_ _ _ . _ . ==

$ 22.2 _

_ ___ L$ 2_0 __ . ,.

, $ ___23 4 Q) After deducting float and legai reservet

1905 1986 ItC5 Focrth Qacrter Third Querter Nine Months Nine Months laterest Average Interest Aserage Interest Average laterest Aserage Average income / Rate Average Income / Rate Average Income / Rate Aserage Income / Rate Balatre Expense % Balance Expense % Balance Expense % Balance Expense %

$27,198 $ 796.1 11.64 $26,846 11.42 $27,721 $2,246.0 10.83 $26,077 $2,271.9 11.64

$ 770.9 ~ 13.251,988

~

1,866 '66.2 14.18 1',833 60.7 183.2 12.29 1,770~ 181.1 13.64 1,685 38.3 9.05 1,798 43.7 9.64 1,997 121.6 8.07 1,790 132.6 9.89 1,132 20.7 7.83 1,099 21.1 7.80 1,611 75.4 6.26 1,107 65.5 8.04 575 13.3 9.23 389 8.5 8.77 1,013 58.6 7.71 298 20.3 9 09 278 5.4 7.63 299 5.5 7.37 260 14.7 7.59 342 19.9 7.80 32,734 940.0 11.42 32,264 910.4 11.22 34,590 2,699.5 10.43 31,384 2,691.3 11.45 4.106 - - 3,928 ' - - 4,371' - - 3,763 - -

1,818 28.6' 6:24 1,743 27.5 6.26 2,051 92.7 6.04 1,676 80.0 6.38 4,208 66.8 6.29 4,175 66.2 6.30 4,266 181.1 5.68 4,098 210.8 6.88 1,867 25.4 5.38 1,827 24.8 5.38 2,006 79.8 5.32 1,763 70.9 5.38 3,471 79.4 9.08 3.513 84.0 9.49 3,563 222.1 8.33 3.451 253.1 9.81 15.470 200.2 5.13 15,186 202.5 5.29 16,257 575.7 4.73 14,751 614.8 5.57 6,172 135.0 8.68 5,976 133.1 8.83 5,714 344.5 8.06 5,846 408.9 9.35 9,040 196.9 8.64 9,623 199.9 8.24 10,761 591,7 7.35 9,225 586.3 8 50 78 7.3 -

(34) 6.2 -

(10) 18.2 -

27 21.6 -

30,760 539.4 6.96 30,751 541.7 6.99 32,722 1,530.1 6.25 29,849 1,631.6 7.31 1,974 - - 1,513 - - 1,868 - - 1,535 - -

$32,734 539.4 6.54 $32,264 541.7 6.66 $34,590 $1,530.1 5.92 $31,384 $1,631.6 6.95

$ 400.6 4.88 -

$ 368.7 4.56 - $1,169.4 4.51 - $1,059.7 4.50 -

$ 5,685 $ 161.7 11.28 $ 5,316 $ 143.2 10.69 $ 6,170 $ 495.3 10.73 $ 5,160 $ 438.6 11.37 2,692 58.0 8.54 2,792 64.7 9.20 2,130 123.6 7.76 2.642 190.8 9.66 622 22.2 14.32 542 20.6 15.19 743 73.4 13.17 508 57,7 15.14 321 7.5 9.28 243 7.4 12.13 501 33.7 8.98 133 12.6 12.65 227 6.7 11.89 173 3.9 8.94 504 47.9 12.68 127 8.7 9.11 9,547 256.1 10.65 9,066 239.8 10.50 10.048 773.9 10.29 8,570 708.4 11.05 221 - -

167 - -

157 - -

177 - -

6.613 138.4 8.31 6,603 140.9 8.46 6,649 376.4 7.57 6,411 431.3 8.99 2.144 60 0 11.11 1,688 51.5 12.09 2,688 240.7 11.97 1,501 133.2 11.86 (78) (7.3) -

34 (6.2) _- 10 (18.2]_

(27) (21.6) -

8,900 191.1 8.52 8,492 186.2 8.70 9,504 598.9 8.43 8,062 542.9 9.00 647 - -

574 - -

544 - -

508 - -

$ 9.547 191.1 7.94 $ 9,066 186.2 8.14 $10,048 598.9 7.97 $ 8,570 542.9 8.47

$ 65.0 2.71 -

$ 53.6 2.36 -

$ 175.0 2.32 -

$ 165.5 2.58

$42,281 $1,196.1 11.24 $41,330 $1.150.2 11.06 $44,638 $3,473.4 10.40 $39,954 $3,399.7 11.37 ,

$41,330 $44,638 2,129.0 $39,954 2,174 5

$42.281 730.5 645 727.9 6.98

$1,344.4 6 38

$1,225.2 7.28

)

$ 465 6 4.39 -

$ 422.3 4.08 -

4.02 -

4.09

$ 10 0 $ 8.1 $ 27.5 $ 22.5 4 . _ _ _ _.

9 _ _ _ _ _ ._._ _ _.3 _ _ _ _

= = = = = = = = = = = = _

19

Aeolysis of lowestment Securities Portfallem Seccrity Pacufw corporation and Subsidiaries September 30.1986 Maturity Tel Within After Carrying Total Average 1 Year 1-5 Years 5-10 Years 10 Years Value Market Matunty 5 is nullums Yicid% Amt.

_. . Amt. Yich!1 . Amt_. . Yield 4 _ Amt. Yield % _ Amt. _ Yieldy Value Yrs 1Mos.

U.S. Treasury _. .. $308 7.50 $408 6.31 $301 _ 6.40 . $_ _ -_ _ _ _

$1,017 6.70 $1,008_ 2/6 Other U.S. government .-_ _- --

1,075__10.06 1.075 10.06 1,080 27/2 State and municipal 32 8.69 90 8.52 74 8.46 141 9.50 337 8.94 305 9/2 Other bonds, notes n 245 7.63 260 11.80 18 6.58

_a_ d debentures _ . 12 8.47 _ 535 9.64 536 4/3 FederalReserve Bank and other stock - - - - - - - -

397 -

416 -

_ Total

$585 7.62 $758 8.46 $393 6.80 $1,228 9.98 $3.361 7.67 $3.345 1 3/0123 Distriheties of liet laceae By Organizationm Net income Percentage Return on 9 Months Ended September 30 Contributic.n Average Assets I * ""Ih""' . . .. 1986 1985 1986 1985 1985_ 1986 _

California Banking and Real Estate Industries System $ 91.1 $ 90.8 32% 38 % 0.81 % 0.89%

Capital Markets System 91.9 _54.9 33 23 0.53

_ _0.36 FinancialServices System 99.8 97.4 35 41 1.45 1.75 Other (1.5) (6.4) -

(2) - -

Total $281.3 $236.7 100 % 100% 0.72 % 0.68 %

Financial Services System -list laceae Net incorre 9 Months Ended Sep' ember 30.

5 m millions 1986 1985 Consumer services group:

Consumer finance $22.0' $19.8 Insurance services 124 9.7 Other (1.4) (1.0)

Total _ ._ _

33.0 28.5 Commercial finance & leasing group:

Leasing 33.3 30.2 Business credit 15.1 9.6 Aut_o finance _

9.1 14.4 Housing services 3.6 0.7 Total 61.1 54.9 yenture capitalgroup 22.7 26.1 Undistributed corporate expense) (17.0) (12.1)

_ Total $99 8 $97.4 (1) Yields on fully taxable equis alent basis.

d) Excludes Federal Rewne Bank and other stock.

O) Prior data for 1935 and 1986 hase been restated to reDeet the current organization.

(4) After tax basis.

i l

l 20

l Directors Directors of Security Ikcipe Corporation and Security Ikcipe National Bank Joseph E Alibrandi Chairman of the Board and Chief Executive Officer,Whittaker Corporation (diversified health-sciences company)

Robert Anderson Chairman of the Board and Chief Executive Officer, Rockwellinternational Corporation (multi-industry company)

J. G. Boswell 11 Chairman of the Board, J. G. Boswell Company (agribusiness)

Waido H. Bumside President and Chief Operating Officer, Carter Haw!ey Hale Stores, Inc.

(cepartment and specialty retail stores)

Earl Clark Vice Chairman of the Board, Retired, Transamerica Corporation; Chairman of the Board, The Clark Agency (insurance agency)

Timm F Crull President and Chief Executive Officer, Camation Company (food and related products processor)

Richard J. Flamson 111 Chairman of the Board and Chief Executive Officer of SPC Chairman of the Board of the Bank Camiita C. Frost Chairman of the Board of Trustees, Los Angeles County Museum of Art Donald E. Guinn Chairman of the Board and Chief Executive Officer, Pacific Telesis Group (communications products and services)

Carl E. Hartnack Chairman of the Executive Committees of SPC and the Bank Chairman of the Security Pacific Intemational Board (an advisory committee to the Board of Directors of the Bank)

Frank L. Hope, Jr. Chairman, Hope Consulting Group (architectural and engineering firm) _

Lawrence O. Kitchen Chairrrtn of the Board and Chief Executive Officer, Lockheed Corporation (aerospace, electronics, shipbuilding and information services)

Howard W. Koch Independent Motion Picture Director and Producer affiliated with Paramount Pictures Corp.

Donn B Miuer Partner, O'Melveny & Myers (law firm)

George F. Moody President and Chief Operating Officer of SPC President and Chief Executive Officer of the Bank FredW O' Green Chairman of the Board and Chief Executive 0"icer, Litton industries,Inc.

(multi-industry manufacturer)

Henry T. Segerstrom Managing Partner, C. J. Segerstrom & Sons (diversified real estate partnership)

Rober1 H. Smith Vice Chairman of the Board of SPC Vice Chairman of the Board and Chief Operating Officer of the Bank Jacques S. Yeager President E. L. Yeager Construction Company, Inc. (heavy engineering construction)

James H. Zumberge President, University of Southem Cahfomia Director Change In August, H. Russe!I Smith retired from the Boards of the Bank and the Corporation. Mr. Smith served on the Boards since 1975. His contributions to the Bank and the Corporation will be deeply missed.

In Memoriam Dr. Otmar Emminger, a member of the Security Pacific intemational Board died in August. Dr. Emminger had served on the Intemational Board since 1983.

Mdton M Teague, a former member of the Boards of the Bank and the Corporation died in July. Mr. Teague served Security Pacific from 1953 to 1977, first as a director and later as an advisory dwector of the Bank.

Both will be remembered for their many significant contributions to the growth of the Bank and the Corporation.

Dividend Rein vestment and Stock Purchase Plan Or.ners of Secunty Pacific Corporation common stock may reinvest their cash dividends in additional shares of SPC common stock at a five percent discount from the market price, as well as make optional cash payments for shares. without commissions or service charges Stockholders who are not yet enrolled in the Dividend Reinvestment and Stock Purchase Plan, as well as brokers and custodians who hold common stock for chents, may obtain a prospectus and enrol l ment card by writing or calling Secunty Pacific National Bank, SPC Dividend Reinvestment and Stock Purchase Plan, P.O Box 3546 Terminal Annex, Los Angeles. Cahfornia 90051 (818) 507-2215 Form 10-K and AdditionalInformation For cop'es cf Secunty Pacific Corporation's Form 10-K Annual Report for 1985. or add,tional investor information, contact Jay S. Gould.

First Vice President. H9-50 PO Box 2097. Terminal Annex. Los Angeles. Cahfornia 90051. or te'ephone (213) 613-5568.

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SUMMARY

SUMMARY

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