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Forwards Addl Financial Info Re Application in Respect to Sale & Leaseback Transactions by Util.Encl Quarterly Repts to Securities Exchange Commission Provide Financial Statements for Each Equity Investor
	ML17300A327
Person / Time
Site:	Palo Verde
Issue date:	08/11/1986
From:	Toy T; MUDGE, ROSE, GUTHRIE, ALEXANDER & FERDEN
To:	Knighton G; Office of Nuclear Reactor Regulation
References
	NUDOCS 8608120354
	Download: ML17300A327 (58)
	v • d • e

REGULA~(Y I NFORNATION D1STR IBUTI O. YSTEM ( R IDS)

ACCESSION NBR: 8b08120354 DOC. DATE: 8b/08/1 NOTARIZED: NO DOCKET AUTH. NANE AUTHOR AFFILIATION 1

FACIL: STN-50-529 Palo Verde Nuclear Stationi Uni t 2i Arizona "Pub li 05000529 TQY> T. N. Nudge> Rose> Quthrie> *lexander Zc Ferden RECIP. NAME RECIPIENT AFFILIATION KNIQHTON> Q. W. PWR ProJect Directorate 7

SUBJECT:

Forwards addi financial info re application in respect to sale 5 leaseback transactions bg util. Encl quarterly repts to Securities Exchange Commission provi de financial statements for each equity investor.

DISTRIBUTION. CODE: AOOID COPIEB RECEIVED: LTR J ENCL I BIIE: "7 TITLE: QR Submittal: Qeneral Distribution NOTES: Standard i z ed p lant. 05000529 RECIPIENT COPIES RECIPIENT COPIES ID CODE/NAME LTTR ENCL ID CODE/NAME LTTR ENCL PWR-8 EB 1 P WR-8 PE I CSB 2 2 PWR-8 FOB 1 PWR-8 PD7 L* 0 PWR-8 PD7 PD 01 5 5 LICITRA~ E 1 PWR-8'EICSB 1 PWR-8 RSB

~E INTERNAL: ACRS 09 b b ADN/LFMB 0 ELD/HDS3 1 0 NRR/GRAS 0 04 1 1 RQN5 1 EXTERNAL: EQM BRUSKEz S 1 1 LPDR 03 1 1 NRC PDR 02 1 1 NSIC 05 1 1 TOTAL NUMBER OF CQP IES REQUIRED: LTTR 28 ENCL 24

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MUDGE ROSE GUTHRIE ALEXANDER Bc FERDON I60 MAIDEN LANE 212I IE STRECT, N, Wg WASHINGTON. D,C. 20037 NEW YORK, N. Y. I 0036 20'29'9355 SVITC 2020 2 I 2 5 IO 7000 333 SOVTH GRAND AVENUE CABLE ADDRESS! BALTVCHINS NEW TORK LOS ANOCLCS, CALIF. 9007I TLLCXI WV 703729; WV I27BB9 2I3 ~ BI3 ~ III2 TCLCCOPIERI 2I2 2+B ~ 2BSS l2. RVE DE LA PAIX 75002 PARIS. FRANCE 2BI 57 7I August ll F 1986 Director of Nuclear Reactor Regulation Attention: Mr. George W. Knighton, Project Director PWR Project Directorate 07 Division of Pressurized Water Reactor Licensing-B Nuclear Regulatory Commission Washington, D.C. 20555 Re: Application in Respect of Sale and Leaseback Transactions by Public Service Company of New Mexico Dated February 14, 1986 Palo Verde Nuclear Generating Station Unit 2 (Docket No. STN 50-529)

Dear Mr. Knighton:
In its "Filing by Public Service Company of New Mexico with respect to Additional Financial Information, submitted under cover of letter dated April 22, 1986 from Keleher & McLeod, P.A., Public Service Company of New Mexico undertook (at page 8) to provide the Commission with its and Bank of Boston Corporation's most recent quarterly report on Form 10-Q. Enclosed herewith are such reports.
Sb08120354 8b08i i PDR ADOCK 05000529 I PDR 6091.30.2898.07:1
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If I can be of further assistance, please do not hesitate Sincerely,
~ T~
Timothy Michael Toy Copies with enclosure to:
Edward S. Christenbury, Esq.
Assistant General Counsel for Hearings Nuclear Regulatory Commission 7735 Old Georgetown Road Bethesda, Maryland 21930 Edwin J. Reis, Esq.
Deputy Assistant General Counsel Nuclear Regulatory Commission 7735 Old Georgetown Road Bethesdai Maryland 21930 Charles L. Moore, Esq.
Keleher 8 McLeod, P.A.
414 Silver Avenue, S.W.
Albuquerque, New Mexico 87158 Arthur C. Gehr, Esq.
Snell 6 Wilmer 3100 Valley Bank Center Phoenix, Arizona 85073 6091.30.2898 07:1 F
SECURITIES AND EXCHANGE COHHISSION Mashington, D.C. 20549 PORH 10-0 QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OP THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended 86 Commission File Number ~f~ h PUBLIC SERVICE COHPANY OF NEM HEXICO (Exact name of registrant as specified in its charter) v H xi (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number)
Alvarado S uare Albu uer ue Nev Mexico 715 (A ress o! principal executive offices) (Zip Code)
Registrant's telephone number, including area code Indicate by check mark vhether the registrant (1) has filed all reports required to be. filed by Section 13 or 15 (d) of th'e Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant vas required to file such reports) and (2) has been subject to such filing requirements for cthe past 90 deye. Yee~ No the number of shares outstanding of each of the
'ndicate issuer's classes of Common Stocky as of the latest practicable date.
h 1 ss Common Stock - $ 5,00 par value 40,274,556 shares Total number of pages in document t
PUBLIC SERVICE COMPANY OF NEV HEXZCO AND SUBSIDIARIES
.,INDEX Page No.
'ART I. FINANCIAL INPORMATZON:
I Consolidated abatement of Earnings Three Honths Ended 31, 1986 and '1985.
'arch
~ ~ ~ ~ ~ ~ ~ r ~ ~ ~ ~ ~ 3 Consolidated Balance Sheets March 31, 1986 and December 31, 1985 . ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 4 Consolidated Statement of Changes 'in Financial Posit ion Three Mo~ths Ended March 31, 1986 and 1985. ~ 4 I ~ ~ t ~ ~ i 5 i
Notes to Consolidated, Financial Statements . t ~ ~ ~ e Hanagement's Discusei'on and Analysis of Financial Condition'and Resul~ts of Operations......., ~ ~ ~ 0 7 PART II. OTHER INFORMATION:
Item 5. Other Information .;...,,........;...,,, 9 Item 6. Exhibits and: Reports on'Porm 8-K ............... ~ \
1O Signatures ~ ~ ~ ~ ~ ~ t 4 ~ ~ ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ o ~ 11
PUBLIC SERVICE COMPANY OF HEM HEXICO AHD SUBSID?ARIES COHSQLIDATED STATEHEHT OF EARHIHGS (Unaudited)
Three Months Bnded'986 1
lTnt >ousan s except per share amounts)
Operating revenues$ - 4 Elec 't ri c 4 ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
$ 100) 131 $ 97,919 G as ~ ~ ~ ~ ~ ~ ~
' ~ ~ t
'r"
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Mater 4 ~ ~ ~ ~ ~ ~ i ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Total operating revenues . ~ 4 4 ~ ~ ~ ~
Operating expenses:
Fuel and purchased (over . ~ ~ ~ ~ ~ ~ 11,435 12,391 Gas purchased for resale . . ~ ~ ~ ~ ~ ~ 64)764 63)537 Other operation andjmaintenance ~ ~ ~ ~ 4 52)161 36,648 Depreciation and ambrtization ~ 4 ~ ~ ~ '
14)818 13')218 Taxes, other than iAcome taxes , . . . ~ 4 ~ 4 4 ~ 8)046 7,028 Income taxes , '. . t ~ 4 ~ ~ ~ ~ 5 877 '14 526 Total operating expenses . ~ ~ ~ ~ ~ 9
~111 301 14134K OpeLating income tI . 4 e ~ ~ ~ ~
I Other income and dedu)tions) net of taxes Allovance for equity funds used during construction . ~ ~ ~ ~ ~ ~ 10) 129 13)928 Deferred carrying cysts on uncommitted electric generating capacity. . . , . . . . . 3) 273 Equity in earnings of unconsolidated affiliates . . . ,'-
. . . 0 ~ ~ ~ ~ ~ 4 ~ ~ ~ (733) 52 Other ~ 0 ~ ~ ~ ~ 4 ~ ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ ~ ~ 752 @07)
Net other income and deductions. . . ~ ~ ~ ~ ~ ~
Income before interest charges ~ . . , , ~ ~ ~ ~ 4 ~
Interest on long-term debt . . . . ,,,
charges'nterest
~ ~ ~ 4 ~ ~ 25)959 28,085 Other interest charges . ~ ~ ~ ~ ~ ~ 980 1) 928 Allovance for borroved funds used durin construction Net interestl charges 4
. ~
~
~
~
~
~
9
~
~
~
~ +5' l earnings....;
'I Net ~ ~ ~ ~ ~ ~
32)698 30)574 Preferred stock dividend requirements, ~ ~ ~ ~ ~ ~5976 5 976 Net earnings applicable to common s'tock $~2~722 $ ~459$
Average shares Earnings per share of ,'common Dividends paid per share of I
of corn(on l
)
stock outstanding stock.......
common stock .
~39 277
~+
$ ~$
36 356 See accompanying notes to consolidated financial statements.
3
POBLIC SERVICE CONPANY OF NEM HEXKCO AND SUBSINARIRS CONSOLIDATED BALANCE SHEETS Harch 31,
~S December 31, (Unaudi ted),, (Audi ted)
(In thousands)
ASSETS Utility plant ~ ~ ~ ~ ~ ~ ~ . $ 2)631)791 $ 2)584)823 Accumulated provision for depreciat ion Net utility plant....,... ~ t
~
~
~
~
~
9
~
9
~
9 9
~
9
~
424 77)
~0~614 41
~1}~457 366)
Other property ahd investments ~ ~ ~ ~ ~ ~ ~ 256 443 230 276 i
Current assetst:
Cash ~ ~ = ~ ~ I~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 8)330 7)974 Temporary cash investments ~ 9 ~ ~ ~ ~ ~ 4 ~ 197,284 375)767 Receivables-net ~ ~ ~ 0 ~ ~ ~ ~ ~ , 103,039 112,963 ituel) materials and supplies ~ 9 ~ ~ ~ ~ 38,490 42)002 Cas in underground storage ~ ~ ~ ~ 9 ~ ~ 9 ~ 12,112 Prepaid expenses ~ ~ ~ ~ ~ ~ ~ ~ 6 778 Total currellit assets I
~ ~ ~ ~ ~ 9 ~ ~ ~ ~7596 Deferred chargek I ~58 285 5D 909
)2 885 S64 )3 0}0 238 CAPITALIZATION QD LIABZLITIBS Capitalizationt; Collllllon stock ,'9 Additional paid-in capital
~ ~ A ~ ~ ~ 9 4 ~ ~ ~ ~ ~ ~
~
~
~
' $ 201 079 644,414
$ 189)829 588)415 Retained earn)ngs 4 . ~ ~ 197 664 ~1703
'omlllon stock equity 0 ~ ~ 4 9 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~g4)y 157 ' 976; 947 Cumulative pr ferred stock:
Vithout man story redemption requirements 106) 000 106,000 Mith mandatory redemption requirements ~ ~ '115) 780 119)080 Long-term debt , less current maturities 1 101 700 ~1143 55 h~hf
~ ~ ~ ~
Total capit 1isation ~ ~ 4 ~ ~ ~ ~ ~ ~ ~ 9 2 345 382 Current liabili ice i Short-term de t ~ ~ ~ 0 ~ ~ ~ ~ 9 ~ ~ ~ ~ ~ 955 49)435 Accounts pays 1e ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ A ~ 83,895 '97,179 Current'matur ties of long-term debt ~ ~ ~ ~ ~ ~ 50)381 77,723 Accrued inter st and taxes ~ ~ ~ ~ ~ ~ 14)125 81)924 liabilities .
Ocher current Total curren t liabilities
~
~
9
~
~
~
~
~
~
~ ~ ~48 29 192 2 100 38 361 Deferred creditp 340 379 326 495 82 885 564, 83 010 238
(
See accompanpi)Ig notes to consolidated financial statements.
4
, l
vv vI vv ~ I Iv4'vr trad tus Q44 ff 244 1 %JAN.
PUB/IC SERV?CE COMPANY OP NEV MEXICO AND SUBSIDIARIES CONSOLIDATED STATEMENT OP CHANGES IN PINANCIAL POSITION (Unaudited)
Three Months Ended
.",* ac 1 In thousands)
PUNDS GENERATED INTERNALLY)
Net earnings S 32)698 S 30)574 Charges (credits) to earnings not requiring and amortization funds'epreciation 17,198 15,313 Provision for non-,'current deferred income taxes, net 22,092 11,652 Investment tax credits, net 3)126 2,545 Allovance for equity'funds'used during construction ( 10,129) ( l3)928)
Earnings of unconsolidated affiliates 1,455, 1,786 Punds derived fr!om operations 66",440'3 47,'942 Less cash dividends ) 737 32)025 Total funds generated internally 32;703'5)917 PUNDS OBTAINED PROM ((PPLIBD TO) OUTSIDE of stock SOURCES'ale common 67,249 ll)993 Proceeds from pollut~ion control revenue b'onds 1) 815 37,052 Increases in other long-term debt 38,521 114,325 Decreases in 'other 1!ong-term debt ( 82,'339) ( 71,692) lnereese (deoresse)'!in short ters-debt, net ( 48,480) 68,888 Proceeds from sale of utility plant, net 69)'806 Decrease in vorking apital, other than short-term debt 83,041 14,399 Other { '20,660) 2)995 Total funds ob tained from outside sources 39,147 247,766 Torsi funds ge!t crated $ 71,630' 263,683 CONSTRUCTION EXPENDIT S) INVESTMENTS AND ACQUISITION!
Utility plant addit - 8 42,334 5 .39)228 Increase in other pr perty and investments 29)516 11)213 Acquisition of noncu rent Neo Mexico gas utili'ty assets:
Property, plant an equipment 225,719 Other assets 5)329 Deferred credits ( 17)806)
Total construe tion es)enditures, investments and acquisit on I~~
S 71)850 S 263,683 See accompanying notes to consolidated financial statements
PUBLIC SERVICE iCOHPANY OF NEV HEXICO AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEHENTS (1) General hccou ting Policies In the opinion of management, the accompanying unaudited consolidated financf,al statements contain all adjust-ments (consisting only of normal recurring <<ccruals) necessary for af<<ir .
presentation of the financial statements. The accounting policies followed b y the Company are set forth in Note (1) to the Company's consolidated financial I
statements in the 1985 annual report to stockholders which are incor'porated by reference in the Company's annual report on Form 10-K for the year ended December 31, 1985 filed with the Securities and Exchange Commission (the"1985 Form 10-K"). I I
(2) Acquisition of Natural Gas Utility Assets I
The Company, acquired substantially all of the New Hexico gas utility <<ssete (the "New Hexico Gas Propertie's") of Souther'n Union Company on January 28p 1985.. The following unaudited pro forms information (in thousands except per share amount) for the three months ended Hatch 31, 1985, shows the results of'operations as though the purchase of the New.. Hexico Gas Properties had occurred at the beginning of the period. (See Note (P) below.)
I I
Operating Re~venues $ 226,945 Net Earnings $ 33s544 Earnings per Share $ .76 Pro forms expenses are adjusted only for the costs which are directly attr'ibutable to the acquisition. No changes to revenues or expenses have been sade to reflect the rashlts of any acdification in operation that sight have been made by the Compan . Pro forms data, as required by the Securities and Snchsnge Commission, arp provided for comparative purposes end are not neces-sarily indicative of actual results that would have been achieved hid the acquisition been at the beginning of the period, or of future results.
(3) Reclassificati, n of Souther~ Union Gathering Company--Since the January 28, 1985 acquis tion, Southern Union Gathering Company, acquired by Sunbelt Hining Companyp a wholly owned subsidiary of the Company, had been shown as utility in the consolidated financial statements. Starting in the first quarter of 1986, $ outhern Union Gathering Company has been reclassified as non-utility in the ah companying unaudited consolidated financial state-ments. All prior perio$ s included in this report, including the pro forma information presented ab ove, have been reclassified for comparabi].ity..
(4) Common Stock litsue On February 4, 1986, the Company issued 1,800,000 .
shares of common stock t o the public through underwriters. Net proceeds 'from the stock offering, vere approximately $ 53e2 million The Company is utiliaing the cash proceeds 'to fu~ d its construction program and to repay short-tire borrovings.
PUBLIC SERVICE COMPANY OF NEV HEXICO AND SUBSIDIARIES HhNACEHENT'S DISCUSSION AND ANALYSIS OP FINANCIAL CONDITION AND RESULTS OP OPERATIONS LXOIJIPXTY AND CAPITAL RESONCES The Company's detaile construction program and financing requirements have been discussed under 'IUtility Construction Program" and "Punding and Trans-actions"in the 1985 F6rm 10-K.
Generally, the Compan finances its construction program through a combination of internally generated funds and proceeds of short-term borrovin g s vhich vil1 subsequently be repaid through short-term and/or long-term financingse The.
Company's utility con)truction expenditures, including allovance for funds used during construction ("(PUDC")> are estimated at $ 224 million for 1986. The Company currently estimates the )986 external funding requirements to be approximately $ 155 million, ?n order to meet its 1986 external capital requirements, the Comp'any issued, in February 1986; 1,8 million shares of common stock elth net )coceeds to the company o! 555.2 stilton Also, the Company expects to generate $ 47 million from its stock plans and plans to uti-lize short-term borrov ngs of $ 50 million and $ 5 million of proceeds from various pollution cont ol financingse The Company proposes, in:1986, t'o enter into one or more sale nd leaseback transactions vith resp'ect to its 10.2 per-cent undivided interest in Palo verde Nuclear Generating station ("PUNGst ) Unit 2 and the, remainder of its interest in Unit l.
The Company has unused and readily available lines of credit end revolving credit arrangements am unting to $ 220 million. In addition, the Company has on file vith the Securiti s and Exchange Commission a shelf registration statement under vhich the Compan can issue an additional 2002000 shares of ccimmon stock.
The Company intends to redeem or purchase approximately $ 250'million principal amount of its first mo tgage bonds. The Company is also currently planning the redemption or purchase of up to $ 93 million stated value of its outstinding preferred stock.
The Company's capital p tructure at Narch 3), 1986 consisted of 46.5 percent long-term debt less cup rent maturities, 4.9 percent preferred stock vith man-datory redem'ption requi rements, 4.5 percent preferred stock vithout mandatory redemption requirementk and 44,1 percent common stock equity.
I RaautVS OP OrSRATZONS Earnings p'er 'share of'mmon stock for the quarter ended Harch 31I 1986 vere 68C, unchanged from th corresponding quarter of last year. Net earnings .
for the first quarter jf 1986 totaled $ 22.7 million, an increase of $ 2,1, million from the same quarter a year ago. The folloving discussion highlights the si8niftcant factorII uhich hare an impact on thi results of operations.
Glectr'tc operating rev)nues for the first quarter of 1986 increased 62.2 million from the same quarter a year <<go, due primarily to an increase in revenues from commercial customers, vhich vas partially offset by a decrease in sales to vholesale ustomers.
Gas operating revenues increased $ 7e8 million in the first quarter over the same quatter last year This increase is due to three months of operations included in the curren) quarter vhile the same quarter of 1985 included only tvo months of operation s after the acquisition of the New Hexico Gas Pro-perties on January 28, 1985. Hovever, gas operating revenues for the tvo months ended Karch.318I 1986 decreased $ 31.7 million from the comparable period of the previous year Ne to decreased consumption by .large induitrial cus-tomers, lover gas purch ase costs and mild temperatures experienced during the current quarters Other operation and me ntensnee expense for the current quartir increased $ 15.5 million over the same uarter last year. The ma)or portion of this increase vas attributable to th commercial operation of PVNCS Unit l beginning in January 1986 and lease payments incurred for the leased portion of Unit l..
'Operating income taxes for the current quarter decreased $ 8.6 million from the corresponding quarter ast year as a result of tax benefits related to PVNGS Unit 1, Allovance for equity f nds used during construction decreased $ 3.8 million in the current quarter from the same quarter a year ago, due to the commeicial operation of PVNGG Dni) 1 in January 1986. Deferred carrying coats on inventotied capacity v re $ 3.3 million in the current quarter vhile no such item vas recognised in the same quarter a year ago.
Rquity in earnings frog subsidiaries decreased $ 3 million from the.corres-ponding quarter due primarily to a greater loss from the medium-density fiberboard manufacturing plant and reduced sales by Sunbelt's gas gathering operations.
Interest charges for the current quarter decreased $ 3.l million from the same period a year ago as a Iresult of the retirement of $ 50 million of first mort-gage bonds in September'985 and $ 70 million of notes payable in January 1986.
0 I
I I PART II OTHER INFORMATION I
Other In ormetion Pa>o Verhe Nuclear Generstin Station Unit 2 License On April, 23,'986, the Nuclear Regulatory Commission ("th NRC") authorised the NRC staff to issuep sub)ect to certain a full power operating license for PUNGS Unit 2, conditio)a, thus r moving the 5 percent restriction, on generating capabili y which had been imposed earlier. The full power operatin license was subsequently issued, superseding the license p reviously issued in December 1985 which contained the low powe) limitation. Operation of Unit 2 at increasing power levels s expected to commence in May 1986, with firm power operatio anticipated to be achieved in the third quarter of 1986s (See "Electric Operotions Sources oi pousr lest Nuc plant" u der Item 1 "Susiness" in the 1985 porn I -K.
Palo Verd e Nuclear Generatin Station Audit repor ted previously (see "Recent Developments" under As Item I-" I Business" in the 1985 Form 10-K), the New Mexico ubli S rvicc Commission (the "Commission" ) has )oined with the util ty regulatory bodies of Arizona> California and Texas in apon o ring an independent audit of PVNGS management and construe ion cos'ts In 1985> the Company agreed 'to participate in.the 4 dit and to fund a portion of the audit expenses with the und rstanding that the study would be balanc'ed and objectiv The Company now believes that the orientation of the aud t has changed and that the audit will not produce balanced and obje'ctive conclusions. As a'result, the Company advised t he Commission in April 1986 that it was withdrawing from pa ticipation in and further funding of the audit.
Another PVNGS participant, El Paso Electric Company ("El Paso )s also announced its withdrawal 'rom the audit in April 19 6, Subsequently, the Commission's staff filed a petition for an order to show cause why the certificate of convenie ce and necessity granted by the Commission in 1977, which perm its the Company to participate in,PVNGS, should not be amenhe d to condition such certificate on the Company's continue participation in and funding of the audit. The Commissi n issued the order requested by the Commission's staff and sch d uled a hearing on the matter for late May. The Company nderstands that the Commission issued a similar order concerni g El Paso.
Palo Ver e Nuclear Generatin Station Penalt By lette dated May 5, 1986, the NRC sent a Notice of Violation and Pro osed Imposition of Civil Penalty (the "NRC Notice" )
notifyin Ariaone Public Service Company ("APS")9 the PVNGS operatin agent, that the NRC proposes to impose a $ 100,000
c ivil anal ty for violatjone categorized in th e aggregate ae a Severity Level III" problem (on a scale of I to y accordance vfth the "General Statement of Policy and Procedure for NRb Enforcement Actions pt ). The NRC Notfce I ce relates to deficiencfes noted by thee NRC d uring security fns ection PVN4S ~rom February ll to March 13, 1986. The base penalty for a Severity Level III roblem is indicatkd that thee proposedro civil penalty vae doubled. because S hsd prior notice of similar problems and be'cause se vfolatf/ns involved multiple examples. The NRC requires AP p y or to protest the cfv 1 penalty e vfthfn 30 days of the NRC N otice. ti The Company understa nde d that ApS is currently evaluatin a ng its response to the NRC Notice.
Item 6, Exhibits and Re orts on Form 8-K
('a) Exhibi ts None.
(b) Reports on Form 8-K:
During the quarter ended March 31, 1986 the Company filed, on the dates indicated, the following reports on Form
&-K'eport dated December 51, 1985, and dited on deanery ld 1986, relating to consummation o f three sale and leaseback ran ect one relating to the Company's interest in PVNGS Unit l.
Repo t dated February 24, 1986R and filed on March 3, 1986 (a) relatfng to an application filed with 'the Commis-sion seeking authority to (1) enter into one or more sale and easeback transactions with respect to the Company's undi ided ovnership interest in PVNGS Unit 2, (2) enter into a sale and leaseback transaction vith an affiliate of the ompany Mith respect to up to all of the Company's remai ing undivided ovnership interest in PVNGS Unit 1 and (3) reorganfse into a holding company structure and (b) conte ning audited consolidated financial statements 10
Pursuant to the re uiz'ements of the Securities'Erchange Act of 1934, the Registrant has dul caused this report to be signed on its behalf by the undersigned tbereu to duly authorized.
PUBLIC SERVICE COHPAhY QF NEQ'MEXICO Registrant Date: May .'3, 198 M. A. ifton Vice resident Corporate Pinancial Planning naee: Nay@, i98 I
B. D, Lac ey Vice President 4 Corpor e ontrollar (Chief Accounting Of icer) 11
88/11/1986 12'58 C. T. Administr ation~ BKB 1 61'7 434 1215 P. 81 FORM 10-Q SECURITIES AM3 EXCHANGE COMMISSION WASHINGTON, D .C. 20549 QUARTERLY REPORT UtQER SECTION D OR 15(d)
OF'HE SECURITIES EXCHANGE ACT OF 1934 For The Quarter Ended March 31, l986 Commission file number 1-6522 HANK OF HOSTON CORPORATION (Exact name of Registrant as specified in its charter)
Massachusetts 04-2471221 (State or other jurisdiction of (I.R.S. Employer incorporation or orqanization) Identification No.)
100 Federal Street., Boston, Massachusetts 02110 (Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 434-2200 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the of'934 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days, Yes x No Number of'utstanding shares of the Registrant's sole class of Common Stock 39,506,180 as of May 5, 19B6
~
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)N\F X Part I - FINANCIAL INFORMATION: Paqe C .emmary...............,,
C'oosolidahed.Financial ~ . ~ ~ ~,.....,, .:.........,
~ ~ ~ . 3 Item 1. Flnenc)a) Statements:
Bank nf Boston Corporation and Subsidiaries:
Consolidated Balance Sheet,...:...,.... ~ ~ ~ ~ ~ ~ ~ ~ a ~ ~
Consolidated Statement of lncom>>.......... ~ ~ ~ ~ ~ ~ ~ e ~ ~ ~ 6 Consolidate@Statement of Chanqes in Stockholrlers'quity,. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 7 Consolidated Statement of Changes in Financial Position.... ~ ~ ~ ~ ~ ~ ~ ~ ~ s 8
~ r Dank of Boston Corporation:
Parent Company Balance Sheet...............
~ a~
m
~ ~ e ~ ~ 9 Parent Company Statement of Income...,..... ~ ~ ~ ~ .10 I,.
tg)t
~
Parent Company Statement of Changes in Stockholders'quity...... 7
.'.fi. Parent Company Statement of Charities in Financia3 Position........ ~ ~ ~ ~ all us )
qy ~
'~ I I Notes to Cnpsolidated Financial Statements.....,..............',.......... a l2 Item 2. -.s)cnegemant's gl cus"icn and )usa)ys)s of Financial Cond)cion
~
I s
and Results of Operations.......................................le Part II - OTHER INFORteTION:
Item 1. Legal Proceed)ngs....,...,...,....................................2S q e~t
't re" Item 2. Chanqes in Securities................. .. ... ... . . .. .......29 Item c. Submission of Matters to.a Vote of Security HoLders...............30 Item 6. Exn)b)ts and Reports on Form B-K.....................s............3)
S ignatures.................,..................................,...............34
'Imsllh e,j.a
~ v'I *~ ' LIST OF TABLCS m1.om't Net Interest Revenue - First Quarter 1986 versus First Quarter 1985 and Fourth Quarter L985...,. " ............ " ..-... " -15 p AJP~) Summary of Factors Causing Chanqes i.n Net Interest Revenue..................16 International Outstandings.........,........'......,.......,.................17 8 Analysis of'hanges in Net Interest Revenue by Volume, Rate and Time.......'..........,..........,...,......,..........23 Consolidated Balance Sheet Averages - Nine Quarters....,....................24 c'aJ~'q e
Consol>dated Stat. ment of Income - Nine Quarters............- " .- -. - ""~"--25 Average Balances and Interest Rates and Interest Differential - Quarterly......... ~... ~ ~ ~ ~ ~ ~ ~ ~ -- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Reserve for Possible Credit Losses.....,..... .. " " . .- " ..
rgii i
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Consolidated Financial Summary (dollars in millions, Oept 'narc amounts) axab e equ va ent basis r ers Enoed March 3l Marcn 3}, December 31 1n eras revenue after provision for credit losses $ 219.7 177.2 $ 219. 8 Other operatinq income 138.8 96.2 117.6 Other operating expense 256,2 107.8 257.1 Net income 52.4 43.9 43,8 oans an ease inanc~ng 4> 4Z ~ s6 Total assets 28,390.0 22,615.9 28,296.3 Deposits 18,885.4 14,552.2 19,214.1 Total stockholders' uity 1,515.2 1,221,3 ',474.6 er common s are Net income; Primary $ 1.23 $ 1. 10 $ 1.03 Fully diluted 1.18 1.10 1.03 Dividends declared .30 f3ook value {at period end) 33.17 30.16 32.30 Common stock price range:
Low 29 19 7/8 22 Hi h 39 1/8 23 3/4 31 1/4 ec e ratios annua ze Return on average assets .77K . 79K Return on average common equity Primary capital 15.29X 6.67K 15.05K18'68Ã 6.80K 12.78%
6.52X Total capital 9.42K 8. 8.03K (1) All per common share amounts reflect the two-for-one stock split effective March 31, l986.
Consol jurat.ed II Ra~ce S~eo (in thOuSandS eXCept Share amauntS)
~1arch 31 pecemoer 986 Cash and uue from bank $ 1,604)447 $ 1, 859, 0".)
Interest -bearing deposits in other banks 1,699,326 2,102,0.
~ I Federal funds sold and securities purchased under agreements to resc21 149,317 199 9~~
Q ttt ~
Trading account securities (market va1ue of
~,%to $ 194,100 in 1986 and $ 630,000 in 1985) 193)131 637,31
'Jl' Investment securities:
U.S. Trea ury 921,072 856) lc
~ yt U.S. Government agencies
" rl t l and corporations 815,373 116,7.
States and political subdivisions 273)033 466,5'71 Other 559,009 0:
ssl> ~
I
\p Total investment securities (market value
.nf $2,664,000 in 1906 and $ 1,939,000 in 1985) 2,570)007 l)910,~
and lease I'oans.
financing (net of. unearned income
,. of $ 210,213 in 1986 and $ 223,437 in 1905) 20, 299, 315 19,621,3.
Reserve for possihle credit losses (Note A) (328,659) (313,6 19,970,656 19)307)6 Precious metals assets 144,147 166,5 Premises and equipment 441,970 443,8 Due from customers on acceptances 501,980 656,9 Accrued interest receivable 348,873 346,1 Other assets 686,051 667,0
%OVAL ASS"TS l%8$ %Jttl'tl%,t '%tl'< $ 28. 389 985 8 296 s '*+ t rw't t oeÃt t ~ tJTP .RE The accompanying notes are an integral part of these financial statements.
~
g
March 31 December 31 KH LDE UI Y l986 985 eposl s:
Domestic offices:
Non-interest bearing $ 3,825,038 $ 4,102,150 Interest bearing 9) 200) 254 9> 254) 496 Overseas offices:
Non-interest bearing 332,301 309,892 Interest bearinq 5,447 054 5,547,520 o a eposats 8, 85,447 19>214,058 Funds borrowed:
Federal funds purchased 2,055,291 Term federal funds purchased 306)740 Securities sold under agreements to repurchase 982)058 commercial paper.. 1)136,021.
Other funds borrowed 959)505 Acceptances outstanding 661,904 Accrued and deferred income taxes 103,753 Accrued expenses and other liabilities 797,557 Notes payable (Note C) 604 866 TOTAL LIA IL 4$
ommz men " h 'ontznqent Lxabi >tres Note 0 Stockholders 'quity:
Preferred stock without par value:
Authorized 10,000,000 shares Issued - Series A - 1,045>712 shares 52,206 52,206 Series 8 - 1,576,068 "hares 78,803 70,803 Series C 775,390 shares 77,539 77,539 Common stock:
Par value - $2.25 per share in 1986 and
$ 4.50 per share in 1985 Authorized - IOO,OOO,OQO shares in 1906 and 40,000,000 shares in 1985 Issued 39,390,990 hares in 1986 and 19,440,807 shares in 1985 88, 630 08;187 Surplus,. 216,021 211)130 Retained earnings 1,006) 830 9715450 Cumulative translation ad ustments (4,917) (4,008)
L 'CKHOLDER 'QU 5 5 192 1 4/4 587 TOTAL L,gA IL .. N3 TOCKHOLDE )
UI T Y
Consoli c'a;.cd ~cta .e . o f:become (in thousands, except share amounts)
Quarters Ended March 3.
1nteres income:
Loans and lease financing, includinq fees $ 622) 133 $ 578, securities 50'8, Tradin<) account 10,512 60!
Investment securities 61,189 61,88.
Federal funds ..old and securities purchased under agreements to resell 25,406 46) 47.
Deposits with banks 53,204 72) 22(
Precious metals 3,289
)a(,
5)(
Tota interest income 75,733 7 n cres expense:
Deposits of domestic offices 170,981 116,06'21,04
")2}. . Deposits of overseas off'ic s 170,894 Wl
~ (~ Funds borrowed 176,204 253,70 Notes payable 19 121 11,27
')'s'( Tota interest expense 53)',200 602 09 Net interest revenue 238)533 185,60
( '
Provision for credit losses (Note R) 35,000 20,00 Ne interest revenue a ter proves on
~ '(('
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for credit losses 203, 533 165,6C ther operating income:
Financial service fees 50,338 39,7C g(~
~
..'):0':;
Trust and agency fees 28,453 18,92 Trading account profits and commis ions 4,263 2,1c Investment portfolio'ains 3,981 57
'(8 Other income 51,798 34,9c Tota other ooeratino income 38,833 96,2
~ '(( Salaries 110, 137 79, 4L E}ployee benefits 25,406 19,4:.
':, pi.; Occupancy expense 23,583 17,2(
(
~ "i')>C I Y))a,i l'~,
(~ N" Equipment expense Other expense Tota other operating expense Provision for income taxes N. 21,994 74 961 256,.}.6 33,831 15,4). 56 2. 30,0(
) ,'4~~.
Per common share {Notes E and F): D Net income: I I Primary $ 1.23 $ l. I II
)~ Fully diluted $ 1.18 $ l.
Dividends declared $ .33 $ gag~ Averaqe common shares outstanding {Note F): Brin)ary 39,304,168 38)692)8 Fully diluted 41,611,372 38,692,c 'gP$ dj.4 The accompanying notes are an integral part of these financial statements. LXt'(4'()'t
~j+
QH>%4 u>'.>.a > w'e a,VIWr v+M > Consolidated Parent Company Statement, of ges in St.ockholdcr" Equity (in thousands) Quarters Ended March 31 986 >85 Balance, l1eginninq of period 1>474>587 l> 85>44 Net income 52>374 43,930 Common stock issued in corinection with: Dividend reinvestment plan 3> 664 3,057 Employee benefit plans 1,670 707 Cash dividends declared: Preferred stock - Series A (1,056) (1,234) Preferred stock - Series B (1,545) Preferred stock - Series C (l,hll) Common stock (12,982) (11,628) Translation ad 'ustments net of'ax (109) 1 034 Balance end of eriod 1 515 192 1 221 310 The accompanying notes are an integral part of these financial statements.
t ~ Consolidated Statemen", of Changes in F 'nancial <'osition I ~ (ln thousands)
~
t I Quarters Ended March 31 I'; Funds were provided from: Net income $ 52, 314 $ 43, 930 Nnn-cash charges included in net incomo: JJ Provision for credit losses 35)QQ0 20)000
'J Depreciation and amortization . 13,682 9)777 Deferred income taxes l,797 9 071 't) 82,778 Funds provided from operations 102)053 Increase borrowed in'unds 155)007 1,453,468 Notes payable 355)l68 349 t>gt Decrease in:
I'Ig I ~ t Cash and due from banks 174,553 377,937
. Interest bearing deposits in other banks 402 ) 704 sp L Federal funds sold and securities purchased under agreements to resell 50,048 274,175 I) ' Precious'metals assets 22,357 ',I y . Due from customers on acceptances 154,983 165,109 Issuance of common stock 5 334 3 764 4JJ J' Itt '1473 j 7 2 357 580 z r>'. I Funds were used for: !>>,)I I ~
Cash div'dends declared: Preferred stock $ 4,012 $ 1,234
'I, t),
I t)tt tI Common'tock 12,982 11,628 Increase in: t+) Interest bearing deposits in other banks 1491762 Investment and trading account ecurities 216,111 15 42 Loans and lease financing 697 995 ~ 369,068 Oecrease in: Deposits 328,629 706,088 Acceptances outstanding 159,334 172>848 li Other, net 3,944 l31 531 I 't I I
~ I The accnmpanying notes are an integral part of these financial statem nts.
I~ ~
~
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'SP~ I I
I
Parent Company Balance Shoe (in thousands) Wren 31 December 31 1985 Cash and due from banks $ 79,560 873 Treasury securities (market value of
$ 508,300 in 1986 and $ 504,500 in 1985) 499,982 -
499,982 Loans (net of reserve for possible cri!dit losses of $ 2,000 in 1986 and in 1985)" 118,817 112,000 Advances to subsidiaries: Bank subsidiaries 22)082 11,435 Nonbank subsidiaries 1,470,482 1)246,037 Investments in subsidiaries: Bank subsidiaries 1,498,724 1,463,632 Nonbank subsidiaries 237,016 228,327 Accrued interest. receivable: Subsidiaries 6,097 5,338 Other ll)981 22,667 Other assets 11,999 9,223 TOTAL ASSETS $ 3 956 740 $ 3~59~9 514 Funds borrowed $ 1,565,385 $ 1)597,881 Oividends payable 12)982 12,934 Accrued interest payable: Subsidiary 11,590 8,159 Other 9,212 ll,734 Advance from nonbank subsidiary 90,000 90)000 Notes payable 750)000 400,000 Other liabilities 2,379 4 219 TOTAL LIABILITIES 2,441,548 2,124,927 TOTAL STOCKHOLDERS'QUITY 1 515 192 1 474 587 0Ul . $ 3) 59~9 514 L1 ~ 'I The accompanying notes are an integral part of these financial statements. h
(in thousands) 986 1985 Operating mcome: Oividends from bank subsidxarxes ~9,918 $ 773 Interest income: U.S. Treasury securities 10,570... 19,990 Loans <<,029 4,605 Ativanccs to nonbank subsidiaries 29,244 21 586 Total operating income - S3,761 46,954 Operatinq expense: Interest expense: Funds borrowed 29,219 34,667 Advance from nonbank subsidiary 3,431 3,431 Notes payable 12, 909 7, 102 Other expense 8 49 Total ooeratinq expense 45,567 45,249 Income before income taxes and equity in undistributed net income of subsidiaries 8, 194 3.,705 Provision (benefit) for income taxes (864) 506 Income before equity in undistributed net income of subsidiaries 9>058 1)199 Equity in undistributed net income of subsidiaries 43 316 42 731 PENT
'Plv ~'
It@ONE'R'U lteC 4 'L', RtkERlll wlJlll 52 374 43 930 The accompanying notes are an .integral part of these financial tai:ements. 10
Parent C any 8tatement of Chances in Fin cial Position (in thousands) Quarters Ended March 31 Funds were provided from: Net income $ 52;374 $ 43,930 Less equity in undistributed net income of ubsidi aries 43 3l6 42 73l Funds provided from operations 91058 l,199 Increase in: . , Funds borrowed 773)166 Notes payable 350)000 Oecrease in loans 23,900 Issuance of common stock 5 334 3, /64 Other, net 60268
$ 370 660 802 029 Funds were used for:
Cash dividends declared: Preferred stock $ 4,012 $ 1,234 Common stock 12,982 3.1,628 Increase in: Cash and due from banks 78) 687 3,755 U,S. Treasury securities 704)943 Advances to subsidiarie 235,092 58,488 Loans 6)817 Oecrease in funds borrowed 32,496 Increase in investments in subsidiaries 574 1)034 Gther, net 20 947 II 60 $ 802 M9 Ne accompanying notes are an integral part of these financial statements. 11
A. The accompanyinq consolidated and parent. corn>);)ny f'ir)ancial slatr:>>en'.s of pan)( nf Boston Corporation (the "Corpor;)tlon") arr. vr)audiLr.d. 1n tr)e n)jnir)n of manaqement,' arj.jusLmr.nt;s (con 'stinq only of normal rr.currinq aa,just. mr)nts) nerr.ssary for a f'air prese))tation nf Lhr. in"nrmr)tion contained r)r)rnir) havr..)eu) made. Certain prior p rior) an;)unt.s t)avr: t)er:n recla if)r.'d f'r) cnAlparaLivr'. Purf)nsr.s. This> ir)f'ormaLinn should be read in conjunction wit.h Li)<: Corporat'on's 1985 Annual Report on t orm 10-K.
9. Re erve for Possible CrcdiL Losses':
An analysis of'hanges in the con olidated reserve is as follows; QuarLers Ended March 31 dtj6 l985
).r) Lnousanos Balance, beginning of'eriod $ 313 >664 f>242>384 Provision 3>,non 20>000 Credit; losses (29,228) (2],960)
Recoveries 9,22> 6.971 Net Crer)), SOSSeS 'dU,UU~) tl4,989) t3alance end nf'erind ~1 I II ~ I%
$ 32A 6>59 $ 247 595 C. Notes Payable:
On .')anvary 30, 1986, the Corporation issued z'100 million;)rincipal amount of 7 3/4X Convertible Subordinated Or.bentures matvring 3)ne 15, 201]. The Debentures are unsecured obligations of the Corporation, convert.ible at the option of the holder into common stock of the Corporation aL $ 35 1/8 per st)are, subject tn adjustment in certain events, and are rcdcr:mable at the option of the Corporation at: prices decreasing frnm 107.75% in 1986 tn 100.78% in l994 and thereafter at 100K of t: he principal amount plus, in <<ach case, accr>)ed.ir)terest. Intere t is payable semiannually nn Dune 15 and Oecember 15 of each year. On February 10, 1986, the Corporation issued $ 250 million principal amount of Subordinated Floating Rate Notes matvrinq in February 2001. Ir)terest is payable at 1/8 of Bo over the London interbank offered rates ("LIBOR") for three-month EOrodollar deposits, with such rate determined quarterly. Such interest is subject to a minimum rate of 5X per annum and a maximum rate of 19 3/4X per annum. At March 31, 1986, the interest rate was 8 3/16%. The Notes may be redee)))ed at the option of the Corporation at 100K ol" the principal amount on and after the interest payment date in Feb=uary 19"9. 12
I I C1&ll ~ l~ ~ Q 4j 44 ~ V ) / Jl Illl
~
1 V. ~ ~ ~ VV 4~ % ~ Sy J p FIJI I l ~ I
0. Commitments and Continqent Liabilities:
En the normal course of business, there are outstanding a number of commitmef its to <<xtend credit, letters of'redit, guarantees arid letters of indemnity, as well as obliqations ro3ated to bankers ac:ceptances particioat<<d to otner financial institutions and aqreements to purchase: or sell securities, foreign exctiange or interest. Certain of these commitments represent various degrees and t.ypes of risk to the Corporation including creciit, interest rate, foreiqn excharl(je rate and liquidity risk. In many cases, the c:ommitments involving interest and foreiqn exchanqe result from decisions to hedqe overall interest rate and foreign exchanqe risk. In the opinion of management, the Corporation's outstanding c:nmmitments do not represent unusual risks for the Corporation and lo >es, if any, resulting from them will not be material. The Corporation and its subsidiaries are defendants in a numlier of'eqal proceedings arising in the normal course of business. Management, after. reviewing all ac:tions and procec:dings pending against or involvinq the Corporation and its subsidiaries, considers ttiat the agqr<<gate liability or loss, if any, resultinq from the final oijtcome of ttiose proceedings will not be material. E, Net Income Per Share: Primary net income per common share is computed by dividing net income, reduced by preferred tock dividends, by the welcjtited averaqe number of common shares outstanding for each period presented.
/
Fully diluted net income per common share i computed by dividinq net income reduced by preferred stock dividends and increased by the interest, net of income tax, recorded on the Corporation's convertible debentures, by. the weiqhted average numbc.r of common outstanding sharc.s for each period plus amounts representing the dilutive eff'ect of out.standing stock options and tt'ie dilution which would result from conversion of ttie Corporation's convertible debentures. F. Stock Split: At the Corporation's annual meeting in March, 1986, the stocktiolders auttiorized an increase in the number of'ommon hares from 40,000,000 to 100,000,000, chanqed the par value of each authorized comnion hare from $ 4.50 to $ 2.25 and approved a two-f'r-one stock split, effective triarch 31, 1986. Average outstanding common shares and per common share data have been retroactively restated to reflect the stock split. 13
SlPMAHY QF RESU~ "S Oc OPERA I')NS The Corporation ref)nrtr'd net income for the <i<)arte. <)f $ 52.4 mili on, up 39X from $ 43.9 million r<.'r)orted in tlirt. Same period lasL year. Net. iricom p<.r common share was $ 1.23, 12K hiqher than the ',l,IQ reported iri the firs: quarter of 1905, l)oth ref}ecting the two-for-nr)o sto k split <)ffectiv<) )larcr) 31, 1986. On a fully diluted basis,.<.arnings per common share for ttie first quarter was $ 1.10 compared with $ 1.10 a year ago. Earnings per <:orL>on share is being reported on a fully dilut.cd basi" for tfie first time as a result. of issuinq $ l00 million of'onvertiblv. debentur<:s in January, 1986. Improvements were experienced iri both net. interest revenue and oth<)r operating iricome. In addition, t.he acquisitions of Colonial Ban'corp, Inc. (!'Colonial") in Ane, 1985 and RIHT Financial Corporation ("RIHT") jn Novemb<'.r, 1985 contributed i:o earninq per share. As compared with fourth quarter 198~, net income f'r first quarf.<'.r 1986 was uo by $ 8.6 million or 20K. Karninqs por common share was up $ .20 from tlie $ 1.03 reported in the fourth quarter and on.a fi)lly dilutive Oasis, earniri<;s per commnn share was up $ .15 from fourf:h quart<)r's resi)its, The increase in net incor<)e was substantially the res<)lt of'igher other op<'.rating income. In addition, hiqher "net ir)terest revenue arid lower other operatinq exoense w<)re offsr;t by a higher provision for credit losses.. NET INli REST REVENU"" - (FULLY TAXABLF. E'QUIVALFNT BASIS) The discussion of net interest revenue shoul<f he read in con.juncti<)n with th Analys's nf'hanges in'N t Interest Revenue by Volume, Rate and Time a<id the Average Balances and Interest Rates anrl Intere t Differential analysi on paqes 23 and 26. For purposes of'hi review, income that is either exempt from federal income taxes or taxed at a preferential rate has been adjustr:d to a fully taxable equivalent ba: is. The adjustm rit of income to a fully taxable equivalent basis has been calculaterj assuming a federal inr:ome tax rate of 46K and adjusting for applicable state and local income taxes, not of thc related ~ federal tax benefit.
The following table shows a nalysis of net intele t revenu y United Stat.es and International Operations f'r the First quarter of 1986 as compared with the first quarter nf 1985 and the faurth quarter Of 1985. It alSO pre..entS the ad.juStment tO refleCt net interest revenue on a fully taxable equivalent basis. Increase (Decrease) 1~
~
First Quarter 1906 Compared with Fxrst F~rst Four h Fxrst Fourth Quarter Quarter Quarter Quarter Quarter 1986 1985 1905 1985 1985 I United States Operations: Net interest revenue before provision for uncollectible income .
$ 201.6 $ 143.4 $ 183.8 $ 58.2 $ 17.8 Taxable c uivalent ad ustment 16.0 11.3 13.3 4.7 2.7 Net interest revenue before provision uncollectible income>> 'or 217.6 154.7 197.1 62.9 20.5 Less: Provision For uncollectible income 11.2 8.4 8 4 2.8 2.8 Net interest revenue>> 206.4 146.3 188.7 60.1 17.7 International Operations:
f'rinterest revenue before provision Net uncollectible inco'me 50. 4 56. 5 59.7 ,(6.1) (9.3) Taxable e uivalcnt ad ustment ~ 2 ( ~ 2) ( .1) Net'nterest revenue before provision for uncol]ectible income>> 50 5 56 8 59.9 (6.3) (9.4) Less; Provision f'r uncollectible income 2.2 5.9 3.8 (3.7) (1.6) Net interest revenue" 40.3 50.9 56.1 (2.6) (7 8) Net interest revenue consolidated+ 254.7 197.2 244.8 57.5 9.9 4~: Provision f'r credit losses 35.0 20.0 25.0 15.0 10.0 4ht interest revenue after provision 219.7 177.' 9. .+ Taxable equivalent basis. 15
jntczest revenue from Ur d States Opera roar, f,"-;~c. --r,t c~ar-.e 1986 improved $ 60.1 million 41X as compared with tne corr.. ndinq period last year. Colonial and RIHT, acouired .in June and November oW198> respectively, contributed $ 43 8 million of the increase. Exc3udiriq tne eff'ect of'he acquisitions, net .'nterest revenue was up 1]X as a resulL of higher domestic loan volume oP-$ 2.2 billion and greater domestic groan f'e.. of $ 8 million. First quarter 19M results as compared with fourth ouartc. 1905 results wa up
$ 17.7 million or 9%. RIHT, which complet,ed its first frill quarter as a subsidiary of the Corporatiori, contributed $ 12 miilion to thr: iricrr.ase. Tnr.
balance of the increase is primari1y attrit~utcd to higher dome t.ic loan volume. Net. Interest Revenue from International Operations Net interest revenu.". from International Operati'ons decreased slight:ly in the first quarter of'986 as comparr:d with the same Period last year, with a riecline of f2.6 million, the decrease wa the result of a decline in tot.al average earning assets, substantially the result of planned reductions in intere t-bearing deposits in other banks, and a 10 ba is point reduction .'n interest rate margin. Moderating these declines was a rerjuction in the provision for uncollectible income of $ 3,7 million. As a result of the Argentine govr.rnment's new economic plan implemented in June 1965, which dramaticalIy reducr.d jnterest rat.es, bot.h interest income and interest expense from International Operations declined compared with the fi.rst quarter of 1985. The ef'f'ect of t.he c reduced rates on nct interest revenue was negligible. Compared wit:h the fourth quarter 1985, net interest revenue declined $ 7.8 million or 14K, due to a decline in the jntercst rat.e margin of 47 basis points. Sumrrear of Factors Causin Chanoes in Not Interest: Revenue ncrease ecrease in verage Average Loans and Other Lease Earning Financin Assets Haroin t3as ls (in millions) (in millions) pints) ooints}; First Quarter 1986 Compared wj.th First Quarter 1985 United St.ates Operations fP5f 019 48% $ 257 11 9o 29 10 o International 0 erations 200 5 (331) (14) 38 21
)~g6X ~(76'7~,7 " 73 76 First Quarter 1986 Compared with Fourth Quarter 1985 'l United, States Operations $ 1,711 12K $ 234 lo 'X 12 International 0 erations 60 '1 34 2 (44) (17)
G ns lid ted Q 77
~ 7i
INTERNAT IQNAL OUTSTAYED INCS At March 31, 1986, international outstandings represent approximately 25X of
~
the Corporation's consolidated total assets. Included in these outstandings are deposits in other banks, resale agreements, investment and trading account securities, loans~'d lease financinq, amounts due from customers on acceptances and accrued interest receivable. Total cross-border nutstandings represent anproximately 15K of consolidated total assets at March 31, 1986. Cross-border putstandings are defined as amounts payable to the Corporation in U.S. dollars or other non-local currencies, pl(is amounts payat)le in local currency but funded with U.S. dollars or other non-local currencies. Excluded from the computation of'ross-border outstandinqs for a qiven country are (a) local currency outstandings f'unded locally and (b) U.S. dollar or other non-local currency outstandinqs reallocated as a result of external quarantees or cash collateral. Cross-border outstandinqs in countries which individually exceed .75 percent of'onsolidated total assets at March 31, 1986 are approximately as f'ollows (certain information f'r Oecember 31, 1985 is presented for comparative purposes):
>T>(rr>>(h(A'P (Ow'A (hh(Q> >>>>>T(> )L (4>)>( D >'W".r >I ~ >'e' 1 > . >>>>> ( I >4 (> ( 'i ( ) (
CNAIAV llN'a > >" Ofi>> m>>i R 4 .h 4> 19KG> (>hc>'>>>!>> f )1 >>'Ko R>>c>> JL >.<<>>i 1>(o J>o >>1 >at t>>r>$ Arha>>t(hh 51)0 5175 $ )05 $ 1)0 (.(X L.2>t 5 25 ((rw 1 1 lA'5 5 25 110 )20 1.1 L. 1 10 C>h>>>(4 (5 1<<0 GO 215 )70 .A 1.) 25 Jar>4>> " 210 50 260 190 .9 .7 >>crlco 1LO 25 110 245 245 IJ 10
>>>>>t(> KO(>(h ~
0 145 50 225 2G5 .(( .9 r,O th(thr( K(h>L>LO>4 5 LGO 425 590 G40 2.1 2.) 105 Hhst Chra>wly 75 140 295 285 1.0 L.O 10 (1) Included within public are cross-border outstandings to central qovernments and their age'ncies, central or government development banks, state and local foreign governments and non-bank commercial enterprises majority-owned by central governments. Excluded are banks owned by foreign governments that do not function as central banks or banks of issue. (2) Included within banks are cross-border outstandings to (a) private banking institutions and (b) banks owned by a f'orcign government other than central banks or banks df issue. (3} Included within commitments are letters of credit, the undisbursed portion of loan commitments and guarantees. Amounts presented are net of reallocations. 17
All of 'tn. overseas aevi'i..s of .ne Cor:iora:ion". '.~:~.: a,"ie:., a:e s,jo jec'. to tne political cond%'ons in, and economic and regul~y Dol cies 0 qOVernnrntS Of tne Cpun.rieS iri'hiCh tne aCtiVi:ieS are CcnOuCte~, inoluoinq the policies of such onvernments toward indebteoness to foreign lenders, toward private twsiness, and towara tne united States. In addition, high rates of inflation and local, req)onal and wo) ldwi(t!'. recessionary conditions of varyinq deqrees of severity affect. local economies and, governments and according]y may also affect overseas activitie . Moreover, from time t.o time, conditions in a country may be such that, due to foreign exchange liquidity problems, currency restrictions or other situations unrelated t:o rermal credit, risk, non-local currency debt service payment.. are not made as originally '"cheduled. Currently, such conditions exist in a number. of countries throuqhuut the world, including three countries whose cross-border outstandinqs individually. exceed .75K of consolidated total assets at Maicti 3l, 1986 {'Argentina,=Brazil and Mexico). ARGFNTINA Argentina is currently di cussinq 1986 financial requirements, includinq additional lending and the rescheduling of external debt maturin<t subsequent to December 31, 1985, with huth the Internati.onal Monetary Fund ("IMF") and its international lendc.rs. Approximately $ 25 million of the Corporat'on's non-trade related cross-horder outstanding mature in 1986. In connection with prior year rescheduling programs,'he Corporation has disbursed $ 44 million in financing to Argent.ina as of March 33, 3986 and is scheduled to disburse an addi.tional $ 14 million by ',~ly 1906, thereby fulfillingthe Corporation's present commitment. Furthermore, approximately $ 95 million of non-trade related cross-border out.standtngs which originated in the private sector and approximately $ )5 mi.llion of public cross-border outstandings have been re cheduled under these programs for varying t.erma ranging generally from five to ten .years. In connection with that portion of prior year re cheduling proqrams dealing with trade financing, t.he Corporation has agreed to maintain its trade 1'nes at levels approximating $ 120 million. During the first. three rmnths of 1986, $ 11 million nf interest income was recorded on cross-border outstandings to Argentina and Sll million was received in cash. Total 'Argentine loans on nonaccrual at March >1, 1986 were $9 mi3lion as compared.to $ 21 mi3.3.ion at December 51, 1985. 18
Bl<AZII. Brazil and its Bank Advi ory Committee hav>> submitted a proposal to Brazil>s international lenders which includes a plan for (a) the formal rescheduling of the Corporation's 1985 non-trade related loan mat.urities discussed below (b) the rollover~ the Corporation's 1986 non-trade related loan maturities, wt>ich approximate $ 15 million, until- March 1987, and (c) the extension to March 1987 of'pproximately $ 80 million of the Corporation's trade lines which currently extend throuqh Jun>> 1986. Jt is anticipate.'d that there will not be a need for new financinq. Approximately $ 15 million of the Corporation's non-trad>> related cross-border outstandinqs matured during 1985 and have been temporarily rcsch>>dul>>d pendinq a formal rescheduling, in accordance with the terms of th>> Pro,ject II program described below. In connection with 1903 and 1984 rescheduling programs, the Corporation disbursed $ 64 million to Brazil in medium-term financing- Furthermore, approximately'$55 million of non-trade related cro s-border outstanding>> which matured in 2983 and 1984 were re cheduled under a program known as Pro.ject II. Under this program, borrowers with dollar debt make principal pay'ments in local currency to the Central Bank which converts the local currency t.o an
, interest bearing dollar account which is payabl>> to the Corporation in payments extending to 1993. 'cheduled During the first three months of 1986, $ 7 million of int<.rest income was recorded on cross-border outstandinqs to Brazil and $ 7 million was rec>>ived in cash.
Total Brazilian loans on nonaccrual at March 31, 1986 were $6 million as compared to $ 7 million at December 31, 1985. C MEXICO Mexico is currently discussing 1986 financial requirements, including additional l,endinq, with the IMF and its international lenders. In connection with prior year rescheduling programs, t.h>> Corporation disbursed
$ 31 million to Mexico in medium-term fina~cing over the past three years.
There have been no disbursements of additional funds nor principal paym>>nts received on any public cross-border outstandings during the first three months of 1986. Furthermore, during 1985 approximately $ 75 million, including a portion of the vadium-term financing mentioned above, of the Corporation's i)ub]ic cross-border outstandings were re chcduled for varying terms. The following summarizes the effects which this program has on the Corporation's public cross-border outstandings. 19
Amoin'~rior inning] io Af:er Pl R IL~CV] i'i .r. li. (poller., >n millions) (1) Second res~i~] ing of loans oriqinally maturinq bet.ween August 1902
'and December 1904 Primi.' 1.7X LIQQR + 1.2X P ~
(2) 1983 Medium- ~5
'term loan $ 19 Prime + 2.]R Prime + l.lM =~ ~
(3) F irst rescheduling of loans oriqinally mat:uring between 1905 and 1990 .$ 8 LABOR + .9~ L1BUR + 1.2X R )R APproximate]y $ 25 mi1lion of the'orpnration's'ro -border -outstaridinqs in Mexico represent loans to Mexican hanks. These out tandinqs cont.inuc t.o be renewed under..short-term arranqement.s at marl<et rates of interi.st. M XiCO has established a program, knovni as FICORCA, whereby principal amounts due from Private borrowers will general]y be reoaid iiver terms ranqinq from six to eight years. Substantially all of the Corporation's private cross-border outstandinqs are covered by this proqram. During the first three months of 1986, $6 milli,on of intere t income, iricludinq.$2 million re]ated to public cross-border outstandings, was recorded on cross-border outstandings to Mexico, and $6 million, $ 3 milliori related to Public cross-,border outstandinqs, was received in cash. Total Vexican loans on nonaccrual at March 31, 1986 and December. 33., 1985 ware $ 13 million, all of which related to private outst.andings. VFN=2UELA Although not included in the .75K and higher oiitstandings, cross-border outstandinqs to Venezuela at March 31,=]906 were approximately $ 90 million, of which aPProximate]y $ 25 million was to Public borrowers, $ 20 mi]lion was to banks, and $ 45 million was to other borrowers. Additionally, cross-border letters of credit amounted to approximately $ 5 milli.on at March 31, 1986. Payments of principal on the Corporation's public and bank cross-border outstandings have been deferred until May 28, 1986 as t: he Venezuelan government and its international lcnders continue t:o work on the finalizati.on of' rescheduling program for this debt. ThCorpo;ation's pub]ic and ba~k borrowers remain substantially current with respect to interest payments at March 31, 1986. 20
Alt.houqh all details an qot3ations havr: riot. been fina~a, venezuela has established a reschedulinq proqram for private debt. PrrMc.ntly, those borrowers continye to experience difficulties in obtainirig foreign exchange and a portion of private sector loan principal and interest has fallen pasL due. Total Venezuelan Tnans on nonaccrual at March >1, 1986 were $ 40 millinri as compared to $ 48 million at Oecember 31, 1985. Jn management's opinion, the conditions described above will riot ultimately have a material adverse effect on the Corporation. However, in light of continui'ng uncertainties within countries experiencinq difficulties meeting non-local, currency debt service, it is likely that from time to time addit.ional loans will be placed on nonaccrual, 21
iV. '/ " pi qPti ~ fail C g ~., ~ ~ The provision for c:edit losses for trlf.'irst ouarter nf i d6 wa'5 r3'illon, compared witn $ 20 million in the cor.esoondina ncriod last yrrar. This inc-ease reflect,s hiqrier net cnarqe-of of $ 5 mil}.ion in the quarter and an HmOurit necessary to main~ th>> reserve for credit lo scs at Bn <<ppropriat level. Loons and lease financing portfolio growth also contriputed to tnr. $ 30 million incrr.ase in th,. provision for tne first. quart.<:r of 1906 GS comPared <<itn the fourth quarter of 1905. OTHER OPERATING INCOME Other operating income was up by $ 42.6 million or 44K for thr: first quarter of,. 1986 as compared with the first quarter of l985. Forty-five percent of this increase was due to the acquisitions of Colonial and RlHT in 1905. The acquisitions contributed most siqnificantly to the increases iri financial service tees and trust and agency fees. Of t.he $ 10. 6 million increase in financial service fees and the $ 9.5 million increase i.n trust and aqcncy fees, the acquisitions accounted for $ 4,7 million and $ 7.8 million rear)>>cti vely; Exr:lusive of the acquisi.tions, there wore increases in financial service fees of'1.4 million from higher demand deposit fees and $ 1.2 million from higher standby 1etter of credit: fee . Alsn reoorted in the quarter was a qain of $ 7.1 million connected with th>> sale of a ubsidiary's buildiriq, a $ 3.3 million increase from the sale of mort. gage", as vrell as higher. credit card fee income nf $ 2.4 million. Also contributinq to this quarter's imprr>ved results vrerr. hiqher "investment portfolio gains of'3.5 million, due principally to the sale nf GNMA securities and higher trading account profit.s of $ 2.1 million. Cairns of approximately $ 13 million from sales of stock acquired in an earlier loan restructurinq and venture capital investments werc approximately equal to those of the sama period last year. Other operat.ing income increased $ 21.2 mil'linn or 18% when compared with t: he fourth quarter of 1985. Much of this increase is attributablr. to gains on the sale of securities acquired in a prior debt restructuring of $ 9.7 inillion, the previously mentioned $ 7.1 million gain or> the sale of a subsidiary's building, and higher venture capital gains of $ 4.5 million. OTHER Q~ERATING EXPENSE Other operating expense f'r t;he first quarter of 1986 was $256.2 million, a 36K increase from the $ 187.8 million reported a year ago. Excluding the effect of the , aequi.sitions of Colonial and RIGHT, this increase was lNo. Acquisitions accounted for more than 65% of the incr>>ase in>>mployee cost, 71% of'he increase in other expense and approximately.50K of the increase in the remaining categor'es of other operating expense. Omitting the r:ffect of the acquisitions, r'.mployee co ts rose by $ 13 mxllion, primarily reflecting merit increases and incent,ive programs. increases in occupancy and equipment expense of $ 6 million mainly reflect increased rental expense, depreciation and maintenance costs. Other exp nse was m by $ 5.3 million, largely due to increased advertising and marketing programs as well as increases in general operating costs, Other operatir~q expense for the first quarter of 1986 when compa>ed>>th the fourth quarter of 1985 remained relatively unchanged and, exc1udinq th effec Gf the acquisition of R1HT, declined 5X. This decline reflects lower general operating cost:s in the first quarter of 1986, which more than offset 'ncr ases in empXoyee costs. 22 TOTAL P 83
Orth(ra 2'>VV:Cfnr I>4 Cnj>jx '5 rn 2'Ct interest jrde>>JP <! JIJVJI<<r; e>>yajP>>I @ah!hi 'trr Ir> V)ifumu .<<Xr fata >r JS r> ~ r)u*V. I frSL OJarter f986 <Pmaarea V<1th rfrSL <}u>> ter }985 - (In mll finnS) cu.i oui ~i>) ~ '2 2'4L rr>i .~r
'l'I 4~Ii l)i to Cnan c In Out tn (T>J>tur fn <rue to <:nevjc rn I'llCl TS>2 rchre O>ur 4 lc>ltxt 4 <rath Crtsr>r 2~ Vll Kacnlrtr) Assetsr I.Oani arcs lease ffns>relng $ 139 F 8 $ (L9.6) $ }20.2 S <05.0) S (75.9) $ 165.8 S(171.5) $ 44 ~ 3 Atlrcr hhrnfna assetS 6.0 <3 ~ 8) 2.2 ()6.8} (37 2) (54.0) (2 6) ~ (4942) (51 BI IL1 lust%:ttt I} <2.1 2' ).>r (I.S). I~P).9) fnchrhst fncnmh <43 ~ 7 (21.'I} 122.4 l>,2) 2).l) )2V.9) I fir. I (17n. 6) < 7. S)
Total Intecesc. Oearlng fur>as Interest hxor lsh 83.2 (20.9} !7.'3 < I.Z. I ) < Ir 7.,)) 11).4 (I jn.n) <65.<I) rrp I tpfpE 4 vh&)p 0 5
~ .4 fl 1.0 9>3.7 S 3.8 5 S7 5 f'lr!t 4-le~
guar<re 19j<6 correhre>I rjitn rourcn orarcet'985 (In mf) I fo>rs) h 4 r>S ur;rtso nJ<eo
!@chase he<cash ~e)ca)4 0 Cn tanh fn ouh tu Cha P In OJh to 024<< 4 In r
VOI ~ 44le Olla ell I VOI 4 lle II Ivt
\ I .'ll) l).~O' t>>>rrfng Rsscts: <.cans ana Lease ffnancfng $ 47.'7 $ (.0) $ (8 ~ 6) $ 38.3 $ 2.'I S(6.7) S<4.5) S(8 5)~ $ 5643 5<D.4) $ (13.1) $ 2'9.8 Otl>cr ehrnfrtg aitets 5. 5 .9 (1.2) 5.2 1.7 11.6 (2eO). 11.3 9.5 10.1 (3.L) 16.5 4>I ust<<ant (I) (.2) (.4)
In<crest fncoyh 53.0 .3 (948) !,3.5 4.4 4.9 (f.5) 7.8 - f G;2 <7.7) (If,.2} 46 ~ 3 TOtal In<crest Scaring funas-- "" Intprest expense'0. 7 7 (5.6) It,2 ~I> ).IO.O el Vt.4 .I:O.lll )4 * !>PI lrlthrcsL flay~we (I) jtrl]us<ment to ref)hct tnh effect on total volume ann rata ma>toes,of t>>c oiffhlcrtcas fn Lnc rnlou:tent olx of cerning ussets oetvchn ahr lads. (2) l}ra char>ah ca>e to tne valrvmj/rate varln>rcc nas peen allocated to vo)txse.
cnnso)idated M)ance Sheet Avefaoer by Q,)arters - tin million'
)r(64 S.) 0 ).)))4 Las r>>ne uuarters 4 i Assets )nterest bearing deposits in other banks $ 2) 375 $ 29527 $ 7) 469 $ 2,3) ), $ 2923> $ 2,276 $ 2,059 $ 1,979 $ 1,84l . Precious metals asset,s 83 157 Federal funds sold and resale aqreements 195 344 282 323 2Sl 23G 184 209 222 Trad)na account securities 4I)8 401 330 474 490 273 323 3')0 338 Investment securities 1,139 1,009 963 964 1,591 1,795 2,26(I l G4(i 1) 965 Loans and )eas>> f)r)anc) 11 889 13 078 13 728 )4 )18 )44640 )4,989 16,620 )S,OSS )9,859 ')ota) earning assetr 16)046 )7)3>9 )7 772 l8,190 19,237 19,569 2),450 22,343 24,38? ),
II Other assets 3,394 3,4)97 3,4)53 ~3 NY 3 192 3 194 3 033 3 )9? 3 188 1 'ta 4)s ts 1 70 .?0 ff)6 ~?I 72.'?) 793 2 4?9 .?7 763 )?4 4ff) ?3 .'3'?7 470 t.)abilities and Stockholders' uit Deposits: Domestic Offices:
&n-interest nearing $ 2'S7 if 2 720 ~ $ 2) 787 $ 2 987 $ 2) 857 $ 2 976 9 $ 3 254 $ 3) 480 $ 3 490 Int.crest bearing 49025 4)896 5)404 5 ~ 930 5,798 6,114 7)360 8 601 99654 Overseas Offices:
ten-)nterest bearing 222 210 306 272 191 195 205 178 215 Interest bearin 5,743 5,S84 5,82) 5,542 59473 5,435 5,1)9 5,026 5,065
'total deposits 12 477 13 710 14) 318 14 )681 lr) ) 319 )4 720 1> 938 ~ 17 285 lS ~ 424 Federal funds purchased and repurchase agreement 2,432 2, 357 2,221 2,374 3,257 3,)34 3,476 3,052 3, 536 Ott)er fundS bdrrdwed ),509 ),576 ))582 )9546 1,615 1,788 ),952 1,8)9 1,968 Other liabil)l,les 1,573 1,712 1,5tjo ),6) 7 ),fi)2 1,442 1,361 ),356 1,320
~ t(otes payable 3&i 415 . 415 425 ri24 434 410 601 827 Stockho)ders) eauit ),0) 5 1.086 1, 109 1 152 1,202 ) 245 ) .348 1 422 ~)495 TOtal ) iahi)) tiaS t)nd Stockholders'nuit $ ) 9,370 $ 20 856 $ 71 725 $ 7)~795 ~I~ ~479 ~22~763 5?4) 485 ~<25>> S>35
0 Consolidated Statement of Incore by crs - (in millions, except share amount Last N rx. rters Interest irccrre: Loans and lease financing, including fees $ 469.4 $ 556.1 $ 609. 1 $ 618. 5, $ 578. 5 $ 592. 5 $ 543.9 $ 593.6 $ 622.2 Trading accrxrnt securities 17.6 17 ' 20.4 23.7 28.6 23o7 15.6 30.2 10.5 Invesbrent securities 31.2 29.3 35.9 40.0 6l.9 63.1 70,1 33.2 61.2
~
Federal funds sold and securities purchased under agreements to resell 20.1 23.2 22.6 40.2 46. 5 22 4 l5.8 21.0
~ 25 4~
OepOSitS with barbra 61.7 98o5 97.4 9E2 72 t2 90o2 53.7 52.2 53.2 precious metals 1.9 Taxable ivalent ad ustment 11.3 12. 8 12.7 13.6 11.6 11.7 10.7 13.5 l6,1 o a n ares ncorxr Interest expense: Oeposits 287.6. 373,0 415.0 400,7 337.1 371.1 296.4 311.7 341.9 Federal Funds purchased and securities sold under agreements to repurchase 90>7 89.7 101.6 120<8 164.0 136. 5 110.3 109.3 118.1 Funds borrowed Notes pa able 71.7 10.0 78.6 85.3 '1.6 89m 7 69.9 61.7 64.6 58.1 11.7 12.0 12.5 11.3 11.8 11.4 15.2 19.1 ota nterest ex ense 460.0 553.0 6 3.9 625,6 602. 479. 500. 5.~ Net interest reverxre 151 o3 184.2 184.2
200.6 197.2 214.3 2Mo0 244' 254.7 Provision for credit losses 13. 5 16.0 16.0 134. 5. 20.0 20.0 50.0 25.0 35.0 n eras revenue a er prov s on for credit losses 137.8 168.2 168.2 66.1 177.2 194.3 180.0 219.8 2)9.7 Other operating incorre:
Financial service fees 36.1 39.1 42.3 44e3 39.7 42.1 44.4 51.8 50.3 Trust and agency fees 17.9 18.5 16,2 18.7 18.9 19.7 . 22.0 26-1 28.4 Trading secant profits and corrrrrissions .9 (3.9) 3,2 7.0 2.2 3.8 1,4 4.1 4.3 Investment oortfolio gains (losses) (1.4) ~ 4 .1 .4 ~
.5 (.1) 13.1 5.0 4'0 Cain on sale of headquarters building 177.1 Other inccrre 19.9 20.3 17.5 5.2 34.9 26.7 3A.Q M.6 51.8 o a o er o ra n ncome T3KS OCher operating expcnser Salaries 71.4 77.0 78.5 83.0 79.4 82.7 91.1 103.6 110.1 Geloyee benefits 0:cupancy expense 15.8 20 ~ I 19.2 19.5 19.4 20.6 19.7 20.0 25.5 12.0 13.5 14.0 14.5 17.2 18.1 19. 3 22.3 23.6 Eouipmeht expense 12.0 14.1 13.3 17.6 15.5 16.4 17.4 21. 0 22.0 Other expense 49.4 54.7 69.4 56.3 64 ' 64 7~ 90.2 75.0 o a o er ooerat ex ense .4 ,~O ~
Income before incaw taxes 50.6 63.2 69.3 114.8 85.6 84.3 80.3 102.3 rov s on or ncorc axes ~SRF Taxable equivalent adJustment 11.3 12.8 12.7 13.6 11.6 11.7 )0.7 13.5 16 ~ 1 25.7 32.3 35.6 40.2 40.2 6,5 49.7 ~N n cme 4.9 30.9 33.7 74. 4 ~ 9 9.5 4 . 4 Per comm share (1) t Net income Prirasry $ $ .77 $ .84 $ 1.90 $ 1.10 $ .98 $ 1.12 $ 1.03 $ 1.23 Fully diluted $ a 66 $ .77 $ .84 $ 1 90 $ 1.10 $ .98 $ 1.12 $ 1.03 $ 1.18 cash dividends declared $ .29 $ .29 $ .29 $ .30 $ o30 $ .30 $ .30 $ ~ 33 $ .33 tl) All comrcn share amounts reflect the two-for~ stock split effective March 31, 1986. 25
s v4 J J.hi 'i ill mal i jofla )
' ' ' ' <' ate n"' o'>ai '">'""<'on~( 1 werage interest ~ver e Ave age <>LUI'es'veraqe Balance (2) Hate Ha1ance (2) Ra'.e sse s ~
interest bearinq deoZsits in other banks $ 302 6.7 9.00% $ 1,539 $ 47.0 12.3+ Precious metals assets 157 3.3 8.52 Federal funds sold and resale agreements 154 2.7 7 11
~ 68 22.7 135.38 Tradinq account securities 241 5 4 ~ 9.09 97 6.4 26 76 Investment securities:
U.S. Treasury 887 .19. 5 Q. 92 U.S. Government agencies and corporations 182 4.5 10.03 States and political subdivisions 372-- . 11.5- 12.54 Other 213 5.0 9.52 311 26. 2 34 17
~
Loans and lease financinq 15,507 <<32.0 11.30 199.0 18.54 o a earning esse s
- interest income 18,015 490.6 11.04 6,367 301.3 19.19 as an( oue rom ban s )DZ Other non-earning assets 1 0614 602 $ 20 408 ~~~ e-e~uu~~~4. $7 1C)2 ~
Liabilities and Stockholders'quity Deposits: Savinqs $ 4,820 $ 70.8 6.79X Time 4,834 100.7 8.52 International Operat.ions $ 5,065 $ 162.4 13.00K Federal funds purchased and
. repurchase aqreements 3,335 63.1 7.67 201 55 0 110.97 Other funds borrowed ],427 29.4 8.51 541 28.7 21.51 Notes payable 629 13.1 8 45 198 6.0 12.29 Intersegment funding net (35) (.9) (10.43) 35 .9 10.43 ota in crest bearing uncs interest expense (3) 15 010 284.2'. 77 6,040 253. 0 16. 99 Demand and other non-interes bearing deposits:
United States Operations 30490 International Operations 215 Other liabilities 750 570 ~li Net Stockholders 'quity Total liabilities and stockholders'
~l nterest Revenue Interest Rata Spread (4)
Interest Rate Harqin (5) uit STD,W vr 1,158
$g20 408 3.27%
4.65K 337 162~, O'N't~l,'p' 7le'tL~ lj f 'WWg 'PPJ%$ 2.2(N 3.08K (1) Assets and .'ncom have been included in United States Operations or international Operations based upon the domicile of the customer ur borrower; additionally, an adjustment has been made to liabilities and expenses in support of these asset and income classifications using intersegment fundinq allocations. (2) This data is shown with income on a fully taxable equivalent basis. 26
Lrs .,cJGr er'86 i irst charter 19 5 Fourtn Quarter 1985 onso i d ~onso z(a onso loac>> veraqe n eres v<< e Averaqe 1n crest* Average Average lnt.crest Average Balance (2) Rate Balance (2} Rate Balance (2) Rate
$ 1,841 $ 53.7= 11.83$ $ 2,235 $ , p2,8 l,3.21K $ 1,979 $ 53.5 10,73X 157 3.3 8.52 83 1.9 9.08 222 25.4 46.40 281 46. 5 67. 11 209 21.0 39.86 338 11,0 14,16 490 29.8 24.66 340 31.7 36.99 19 5 8.92 l,ill 28.6 10.44 20,8 8.79 182 4.5 10.03 1.5 12.67 118 3.0 10.10 372 }1 r5 12. 54 21 .6 11.59. 162 5.l 12. 49 524 31. 2 24.15 411 32.9 32.46 425 7.4 7.06 19,859 631.0 12.89 14,640 5S6.6 16.25 18 008 601.2 13.19 24 382 791.9 13.17 19 237 799.3 16.85 22 343 745.6 13.24 1,522 l,451 ,5 4 1,666 1 741 1 658 P7 570 22 429 '25 535 $ 4, 820 $ 78. 8 6. 79K $ 2,907 $ 54.1 7.. 68K 2r59 $ 71,6 6.84'5 4,834 100.7 8.52 2,891 68.5 9,71 4,342 93.8 5,065 162.4 13.00 5,473 214.5 15.89 5 026 146.3 11.55 3,536 118. 1 13.55 3,257 1<4 0 20 42 3 i 052 109.3 14.21 11968 58.1 12.13 1,615 89. 7 23,16 ],,819 64,6 14.43 827 19.1 9.37 424 11. 3 10. 81 601 15.2 10.03 .21 05o 537.2 10.44 16 567 602;l 14.85 19,099 500.8 10.50 3g490 20857 3,480 215 191 =
178 1,320 1,612 1,356 1,495 1 2oZ 1 422
$27 570 44.8 2.73K 2.00K 2.74K 4.24K 4.16% 4.35K Averaqe rates for interest bearing funds in United States Operations have been calculated after deducting applicable reserve requirements from the averag balances shown in the table.
Interest rate spread is calculated by subtracting the average rate paid for interest bearinq funds from the average rate earned on average total earning assets. (5) Interest rate margin is calculated by dividing annualized net interest revenue by average total earning assets. 27
19.'l6 198."> 00 s ln Allot'Ons) United States Onerati 8 ginning balance $ 219.4 Sl>4.9 5192.8 Reserves of acquired companies 24.1 Pmvision 2l.o 3.9 20.5 Commercia), industrial and financial: Credit losses (6.4) (16. 7) Recoverips 2.1 (14.6) Real estate - construction: Credit losses (1.O) (.3) Recoverios
.3)
Heal estate - other: Credit losses (.4) Recoveries .5 Consumer installment loans: Credit losse (6.0) (1.9) (4.1) Recoveries 1.0 .7 ~
,8
(>. ) Lease financing: Credit losses (.1) Recoveries .2 Net cred1t osses end~no Ba ance P
. IZ33. l5P~@) 9. 4 Enternational Operations:
Beginning balance $ 94.3 5 87.5 5 98.0 Reserve of acquired company 3.7 Provision 14.0 5 Credit losses (16.7) (18. l ) (16.7) Recoveries 4.0 2' 4.8 et cre zt osses ill. i Consolidated: Beginning balance D13.7 $ 242.4 5290.0 Reserve of acquired companies 27.8 Provision 35.0 20,0 25.0 Credit losses (29.2) (22.0) (38.3) Recoveries 9.2 7.0 8.4 e crea1t osses 20.0 15. 0 (29.9) Ra tlno>no os. a ance 8 sexve for possible .credit losses to Dans and lease financing 1.62X ] .66~a 1,60X Net credit losses to average loans and lease financing .1OX .10X .17X Net credit losses to provision fox credit lo ses 57.16X 74.95X, 119. 83X
Item 1, Legal Proc n s, As reported in Part I, Item 3 of the Corporation's Annual Report to the Securities and Fxchange Commission (the "Commission" ) on form 10-K fog-the year ended December 31, 1984 and in ririor reports to the Commission cited therein, complaints against the Corporation's principal subsidiary, The Fir t National Bank of Boston (the "Bank" ), were filed by Daniel H. Overmyer ("Overmyer") and companies controlled by him in the United States Qankruptcy Court for the Northern District of Ohio (the "Barrkruptcy Court" ) in 1981. (These complaints state claims identical to those alleged in the 1976 counterclaim by Overmyer against the Qank, which was made in a suit originally brought by the Bank in the Superior Court of Suffolk County, Massachusetts against Overmyer.) The complaints filed in the Bankruptcy Court were dismissed with prejudice by that court during the trial in 1982 on those complaints and other matters. Overmyer and companies controlled by him sought an appeal from those dismissals. On July ll, 1984, the United States Di trict Court for the Northern District of Ohio (the "Dist:rict Court" ) affirmed the Bankruptcy Court order dismissing those complaints. Overmyer and companies controlled by him appealed that District Court dr:cision to the United States Court of Appeals for tha Sixth Circuit (the "Sixth Circuit"). On March 7, 1986, the Sixth Circuit entered an order affi.rming t.he District Court decision, arid on May 6, 1986, it denied Overmyer's petition for rehearing. Item 2. Chan es in Securities. (b)(i) On November 14, 1985, the Corporation issued 775,390 shares of its Adjustable Rate Cumulative Preferred Stock, Series C, liquidation preference $ 100 per share (the "Series C Stock" ), in connection with the merqer of RIHT Financial Corporation ("RIHT") into a wholly-owned subsidiary of'he Corporation. The Series C Stock is the third series of the Corporationrs preferred stock to be issued. In-1984, the Corporation issued 1,045,712 hares of its Adjrrstable Rate Cumulative Pref'erred Stock, Series A; liquidation preference $50 per share (the "Series A Stock" ), and in the second quarter, 1985, the Corporation issued 1,576,068 shares of its Adjustable Rate Cumulative Preferred Stock, Series 8, liquidation preference $ 50 per share (the "Series 8 Stock" ). The Series C Stock, the Series B Stock and the Series A Stock rank on a parity as to dividend payments and to distributions or payments upon liquidation.
%e rights of the holders of the common stock of the Corporation, par value $ 2.25 per share (the "Common Stock" ), are junior to 29
o ~y"'e '-s <<n'I o ."..;si.'QL."'.'on,', o- o~vn r>'-'. uuoi '"0"')<<. aoo'.ion,~u .'ohq a any aha "es of "n>> ae'M - Stoc< are outstand~, thv. Corporation nai) not rr:~, purchase Qr othrrrwise acquire t'or consirferation any shares of tne Common Stock unless all dividends payable to the t>olders of the Shares of tne Series C St.ock have been paid or a sum sufficient for uch payment ha been set aside-- (t))(ii) On January 30, 1906, the Corporation issued $ 100 million principal amount of '7 3/4X Convertible Subordinatert Debentures Due 2011 (tt>c "Deter.ntures"), lhe right.s of tt~e holders r>f the Debcnt.ures to receive distributions or payments in the event of the Corporation's liquidation are: (a) senior to the riqhts of holder of ttie Corporation's Common Stock and the, Series A, B and C Stock, (b) on a parity with the rights of holder of t tie Corporatiiiri's svbordinat.ed notes and (c) subordinate to the rirjtits of holders of the Corporation's senior notes as well as all other urisecured arid unsubnrdinatcd indebteriness for borrowed money of,ttie Corporation. The rights o1 holders of the Common Stock into which ttle Debentures are convertible, with respect to receiving distributions or payment" in ttse event of the Corporation's liquidation, are: (a) on a parity with the riqhts of all otter holders of the Cornoration's Common Stock and (b) subordinate tn the, rights of holders of the Sr:ries A, B and C Stock and the holders. of any of the Corporation's notes as well as all other indebtedness for borrowed money of tl>c Corporation. (b)(iii) On February 10, 1986, thr. Corporation issued $ 250 million principal amount of Subordinated Floating Rate Nates Due 2001 (tlute "Notes" ). The riqhts of the holders of the Notes te receive distributions or payments in tlute event pf the Corporation's liquidation are: (a) senior to the rights of holders of ttio Corporation's Common Stock and the Series A, B and C Stock, (b) on a parity wit.ti the rights of holders of'he Corporation's subordinated notes and (c) subordinate to the rights of holders of ttie Corporation'enior note as wel.l a all other unsecured and-.unsubordinated indebtedness for t)orrowed money of the Corporation. Item 4. Submission of Matters to a Vote of 'Security Holders. (a) The Annual Meeting of Stockholders of the Corporation was held on March 27, 1986. In addition to the election of Directors and ratification of the selection of independent auditors, the following matters were submitted to a vote of the Stockholders of the Corporation:
~ +uvres sw <[Llql I i [ I ~ I +I I', 1' ~ ~ ~r"" I< ~ %t s I I IC J[ / qQ[ c[gf g Articies of'rganization to increase and cnanqe tne authorized shares of the Co~ration's Common Stock from 40,jgj},000 shares, par value $ 4.50 pe~~are, to 100,000,000 hares, pa'~alue $ 2,25 ner share, and tn chanqe each outst.anding share of'ommon Stock, par value f4,50 ner share, into two shares of Common Stock, par value $ 2.25 per share, in order to effect a two-for-one "tock split..
Affirmative votes representinq 14,960,224 shares Negative votes representing 263,033 hares Abstentions representing 227,012 shares (ii) Management proposal to approve tho 1986 Stock Option Plan 'of the Corporation and its subsidiaries. Affirmative votes representing 14,939,960 shares Negative votes representing 229,006 shares Abstentions representing 280,103 shares (iii) Management proposal to approve the amended and restated Bank of Boston Corporation and Its Subsidiaries Management Incentive Plan. Affirmative votes representing 14,947,230 shares Negative votes representing 213,392 shares Abstentions representing 288,447 shares (iv) Stockholder proposal, opposed by tho Board of Directors, to have Stockholders recommend that the Board take the necessary steps so that future outside'Directors shall not serve for more than six years. Affirmative votes representinq 544,563 shares Negative votes representing 13,938,557 shares Abstentions representinq 965,949 shares Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 4(a) - Certificate Ot'ote Of Directors Establi hing A Series Of A Class Of'tock, filed November 14, 1985 by the Corporation with the Office of'he Massachusetts Secretary of State with respect to the Series C Stock. 4(b) - Form of Stock Certificate representing the Series C Stock, 4(c) - Indenture relating to the Debentures, dated as of January 15, 1986, between the Corporation and Bankers Trust Company.
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Comout.ation of Earning Per Share. Current Reports on Form 6-K. Since the commencement. of the first quarter of 1966, the Corooration has filed or amended the following Current Retiarts <in Form 8-K: On January >, 1986, the Corporation amended a Current. Report. on form B-K, dated November 25, 1965 an(1 filed pursuant t.o the Securities Exchange Act of'934 (thti "Exchange Act") for the purpose of filinq. with thc Commission certain information concerning the Corporation's acquisition of HLHT. This Current Report contained information pursuant to It.ems 2 and 7 of Form 6-K. The following financial statament of RIHT were filed: Consolidated Statcrnents of Condition - December 3},
.1984 and 1983, Consolidated Statements of Incom - Years Ended December 31, 1984, 1983 and 1982, Consolidated Statements of Changes in F'inancial Position - Years Ended December 31, 1984, l983 and 1982, Consolidated Statements of Changes in St:ockho}ders'quit;y - Years Ended December 31, 1984, 1983 and 1982, Consolidated Statement of Condition - Sept.ember 30, 1985, Con olidated St:atemcnts of Income - Nine Months Ended September 30, 1985 and 1984, Consolidated Statements of Changes in Financial Position - Nine Mont:hs Ended September 30, 1985 and 1984, and Consolidated Statements of. Changas in Stockholders'quity - Nina Months Ended September 30, 1985 and 1904. The following pro forma financial statements werc filed: Pro Forma Analysis of the Effects of Projected Purchase Valuations and Adjustments on Net Income of the Corporation for the Three Months Endi.ng December 31, 1985 and the Five Years Ending December 33., 1990, Pro Forma Combined Condensed Balance Sheet as of September 30, 1905, and Pro Forma Combined Condensed Statements of Income for the Year Ended December 31, 1984 and the Nine Months Fnded September 30, 1985.
(ii) On january 23, 1986, the Corporat:ion filed a Current Report on Form 8-K pursuant to the Exchange Act for the purpase of filing with the Commission certain historical financial information for the year ended December 31, 1965. This Current Report contained information pursuant to Item 7 of Form 8-K. The following financial st:atements and consolidated statistical information of the Corporation were filed: Financial Highlights Years and Quarters Ended December 31, 1985 and 1984, Consolidated Balance Sheet - December 31, 1985 and l.984, Consolidated Statement of Income - Years and Quarters Ended December 31, 1985 and 1984, Consolidated abatement of Changes in Financial Position - Years Ended December 31, 1985 and 1984, and Consolidated Statement of Changes in Stockholders'quit:y - Years and Quarters Ended December 31, 1985 and 1984.
vn <" drvn zu i vHh l.ne ( ozpo Gallon i loco a (.urrenc ~epor'c on F'orm 0-< pursuant to the Exchange Act for the purpose of f~g with the Commission cert.ain~ forma financial inWormation concerning the Corporation's acquisitions of RIHT and Colonial Bancorp, Inc. This Current Report contained information pursuant to item 7- of Form 8-K. The following pro 'forma'inancial statements were f'.iled: Pro Forma Analysis of the Effects of Projected Purchase -Yalvations and Adjustments on Net Income of the Corporation for the F'<ve Years Ending 0ece&er >1, 1990 and Pro Forma Comhined Condensed Statement of Income for the Year Ended Decemher Dl, 19S5.
Pursuant to th<<reaui ent.~ ot'.>ie recur!'! e": 'x'"i'ir>o hes duly cpu ~. this Reoort to '3 thereunto duly authorized. t'N'i+', 1F BQ. 1<JN {:ORP(jRATIQN
/s/will lorn L. Lhrown H]1 l iom I., dr<own Cha irmcan /"./Alnn L. t4:Kinnon Bn L ~ MCKlnnon Executive vide President,,
ComPt.ro11cr and Treasurer Ma 10 1986 ate TOTAL P.27
0 1 (0 0 E}}

v t e Letter Sequence Request
TAC:64071, (Open)
Initiation Request, Request Acceptance... Administration Questions Answers Results Approval... Other:
MONTHYEAR1986-11-06 [Table View]

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