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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended September 30, 1995
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
California 95-2575576
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
9920 South La Cienega Boulevard
Inglewood, California 90301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 417-5600
Commission file number: 0-7722
Securities registered pursuant to Section 12(g) of the Act:
Common Stock: Number of Shares of Common Stock outstanding as of
September 30, 1995: 13,793,745 shares.
Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of September 30, 1995, $4,824,000 in principal
amount of such Notes and $1,082,000 in principal amount of
such Debentures were outstanding.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
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IMPERIAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
FINANCIAL REVIEW
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes
in trends related to the financial condition of Imperial Bancorp
("the Company") and its results of operations for the three and nine
months ended September 30, 1995.
PERFORMANCE SUMMARY
The Company continued its positive operating performance in 1995 by
reporting stronger earnings for the third quarter. Net income for
the quarter ended September 30, 1995, amounted to $5,150,000 or
$0.36 per share, a 170% improvement from $1,908,000 or $0.13 per
share for the same quarter of 1994. Net income for the first nine
months of 1995 improved 241% to $14,454,000 or $1.02 per share. For
the same period in the prior year, the Company earned $4,242,000 or
$0.31 per share. Earnings as measured by return on average total
assets was 0.85% and 0.84%, respectively, for the three and nine
months ended September 30, 1995, as compared to 0.35% and 0.25%,
respectively, for the three and nine months ended September 30,
1994. Return on average stockholders' equity was 9.70% and 9.33%,
respectively, for the third quarter and nine months ended September
30, 1995, a significant increase from the 3.96% and 2.98% return on
average stockholders' equity for the same periods of 1994.
The increase in net income was attributable to several factors: 10%
growth in average loans from the nine months ended September 30,
1994; improved net interest income; a reduction in the FDIC deposit
insurance premium; continued growth in the Company's fee based and
trading activities; and the Company's overall efforts to reduce
operating costs.
Net interest income and net interest margin were $29.6 million and
5.6%, respectively, for the quarter ended September 30, 1995, as
compared to $24.4 million and 5.3%, respectively, for the quarter
ended September 30, 1994. For the nine months ended September 30,
1995, net interest income and net interest margin were $82.6 million
and 5.5%. This compares to net interest income and net interest
margin of $73.7 million and 5.1% for the first nine months of 1994.
Noninterest income for the third quarter and first nine months of
1995 totaled $11.2 million and $28.9 million, respectively.
Excluding a $1.6 million gain from the sale of a Bank owned premises
in the third quarter of 1994, noninterest income increased $1.9
million quarter to quarter and $3.5 million year to year.
Noninterest expenses amounted to $26.6 million and $79.8 million for
the three and nine months ended September 30, 1995. This compares to
$28.8 million and $83.2 million reported for the same periods of
1994. Excluding a $1.8 million lawsuit settlement received in the
third quarter of 1995, a $1.7 million lawsuit settlement collected
in the second quarter of 1994 and a $1.6 million recovery of an
operational loss in the third quarter of 1994, noninterest expenses
for the three and nine months ended September 30, 1995, decreased
$1.9 million and $4.9 million, respectively, from the same periods
of 1994.
At September 30, 1995, the Company's total assets were $2.8 billion,
total loans were $1.6 billion and stockholders' equity and allowance
for loan losses totaled $255 million. This compares favorably to
total assets of $2.4 billion, total loans of $1.4 billion and
stockholders' equity and allowance for loan losses of $238 million
at December 31, 1994. Total deposits at September 30, 1995, were
$2.3 billion of which $1.1 billion, or 48%, represented noninterest
bearing demand deposits. At December 31, 1994, total deposits were
$2.0 billion, including $0.9 billion, or 47%, of demand deposits.
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At September 30, 1995, the allowance for loan losses amounted to
$38.3 million or 2.3% of total loans as compared to $40.1 million or
2.9% of total loans at December 31, 1994. The allowance for loan
losses coverage of nonaccrual loans at third quarter end
approximated 165%, as compared to 221% at year end 1994.
The Bank is considered well capitalized with Tier I and total
capital ratios at September 30, 1995, of 9.1% and 10.4%, as compared
to 10.4% and 11.7%, respectively, the year earlier. The Bank's
leverage ratio was 8.3% at September 30, 1995, as compared to 8.6%
at September 30, 1994 well above the 6.5% required by the Bank's
regulators.
EARNINGS PERFORMANCE
Net Interest Income: The Company's operating results depend
primarily on net interest income. A primary factor affecting the
level of net interest income is the Company's interest rate margin
between the yield earned on interest-earning assets and interest-
bearing liabilities as well as the difference between the relative
amounts of average interest-earning assets and average interest-
bearing liabilities. Net interest income was $29.6 million for the
quarter ended September 30, 1995, as compared to $24.4 million for
the quarter ended September 30, 1994. For the nine months ended
September 30, 1995, net interest income was $82.6 million. This
compares to net interest income of $73.7 million for the first nine
months of 1994.
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands) 1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Interest income.................... $45,573 $34,272 $127,828 $100,422
Interest expense................... 15,978 9,835 45,206 26,695
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Net interest income $29,595 $24,437 $82,622 $73,727
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Net interest margin 5.6% 5.3% 5.5% 5.1%
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</TABLE>
The Company's net interest margin increased to 5.6% and 5.5%,
respectively, for the third quarter and nine months of 1995 from
5.3% and 5.1%, respectively, for the same periods of 1994. The
increased spread resulted primarily from an increase in the
Company's base lending rate which rose an average of 93 basis points
since the quarter ended September 30, 1994. In addition to the
increase in interest rates, the Company's average loan portfolio for
the quarter ended September 30, 1995 grew $248 million, or 19%, from
the same quarter of 1994. For the nine months ended September 30,
1995, the average loan portfolio increased approximately $137
million, or 10%, from nine months ended September 30, 1994. As
illustrated by Tables 1 and 2, the growth in the Company's loan
portfolio significantly impacted net interest income for both the
quarter and nine months ended September 30, 1995. Concurrently, the
Company's borrowing rates have increased, resulting in part from the
Company's efforts to supplement its funding base with certificates
of deposit ("CD"). Average demand deposit levels for the nine months
ended September 30, 1995 declined approximately $124 million from
the same period in the prior year while remaining relatively flat
quarter to quarter. For the third quarter, the growth in the
Company's CD portfolio along with the stabilized demand deposit base
funded the Company's growth in average earning assets which grew
$261 million, or 14%, from the third quarter of 1994. As previously
discussed, this growth in average earning assets was primarily in
the Company's loan portfolio.
The net effect of the Company's derivative financial instruments was
a $2.1 million and $8.0 million reduction, respectively, in net
interest income for the quarter and nine months ended September 30,
1995, resulting in a 40 basis point reduction in net interest margin
for the quarter ended September 30, 1995, and a 54 basis point
reduction in net interest margin for the first nine months of 1995
(see Asset/ Liability Management). The impact of these instruments
for the quarter and nine months ended September 30, 1994 was 25 and
18 basis point reductions, respectively, in net interest margin.
In conformity with banking industry practice, payments for
accounting, courier and other deposit related services provided to
the Company's real estate related customers are recorded as
noninterest expense. If these deposits were treated as
interest-bearing and the payments reclassified as interest
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expense, the Company's reported net interest income and noninterest
expense would have been reduced by $6.2 million and $5.5 million,
respectively, for the nine months ended September 30, 1995 and 1994.
The net interest margin for each period would have been 5.1% and
4.8%, respectively.
Provision for Loan Losses: The provision for loan losses totaled
$6.3 million and $10.8 million, respectively, for the quarter and
nine months ended September 30, 1995, as compared to $3.8 million
and $11.0 million, respectively, for the same periods of 1994. Net
charge-offs amounted to $12.6 million and $13.8 million,
respectively, for the nine months ended September 30, 1995 and
1994. For the quarter ended September 30, 1995, net charge-off
totaled $6.4 million as compared to $4.2 million for the same
period of 1994. The increase in the loan loss provision for the
third quarter resulted from the increase in net charge-offs
experienced in the third quarter as management aggressively
resolved problem credits.
As a percentage of average loans outstanding, net charge-offs were
1.11% and 1.35%, respectively, for the nine months ended September
30, 1995 and 1994. The provision for loan losses reflects
management's ongoing evaluation of the risk inherent in the loan
portfolio, which includes consideration of numerous factors, such as
economic conditions, relative risks in the loan portfolio, loan loss
experience and review and monitoring of individual loans for
identification and resolution of potential problems.
Noninterest Income: Noninterest income amounted to $11.2 million and
$28.9 million for the third quarter and first nine months of 1995 as
compared to $10.8 million and $27.0 million recorded for the same
periods of 1994.
<TABLE>
<CAPTION>
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Three months ended Nine months ended
September 30, September 30,
(In Thousands) 1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Service charges on deposit accounts........................... $ 1,045 $ 1,040 $ 3,103 $ 3,619
Trust fees.................................................... 1,921 1,652 5,728 4,944
Gain on origination and sale of loans......................... 758 1,014 1,718 3,101
Equity in net earnings of Imperial Credit Industries, Inc..... 1,730 1,639 2,787 2,110
Other service charges and fees................................ 2,063 1,754 5,426 4,797
Merchant and credit card fees................................. 1,662 1,617 4,676 4,548
(Loss) gain on securities available for sale.................. (8) 17 259 (247)
Gain on trading account securities............................ 1,163 215 2,971 661
Gain on sale of real property held for sale or investment..... --- --- --- 507
Gain on sale of bank premises................................. --- 1,578 --- 1,578
Other income.................................................. 844 317 2,248 1,360
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Total $11,178 $10,843 $28,916 $26,978
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</TABLE>
Excluding a $1.6 million gain from the sale of a Bank owned premises
in the third quarter of 1994, noninterest income increased $1.9
million quarter to quarter and $3.5 million year to year. The
improvement partially results from increased gains on trading
activity in the Company's portfolio of SBA securities as well as
precious metals and foreign currencies. Combined these trading
activities resulted in a $0.9 million increase in trading income for
the third quarter of 1995 from the same quarter of 1994. Trading
income for the first nine months of 1995 was up $2.3 million from
the same period of 1994. Trust fees grew $0.3 million, or 16%, in
the third quarter of 1995 over the same period of last year while
increasing $0.8 million, or 16%, year to year. These increases
result from growth in the Company's trust subsidiary's portfolio of
assets under management as well as their strategy to target higher
margin business relationships.
Gain on origination and sale of loans for the period ended
September 30, 1995 represents earnings on Small Business
Administration ("SBA") lending activities. The decline in earnings
from the prior year related primarily to the dissolution of the
Company's mortgage banking division in the fourth quarter of 1994,
partially offset by an increase in income generated from the
origination and sale of SBA loans
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which increased 3% year to year. Service charges on deposit
accounts for the nine months ended September 30, 1995 have declined
$0.5 million from the same period in the prior year primarily due to
the decrease in average demand deposits.
Other service charges and fees grew $0.6 million for the nine months
ended September 30, 1995 from the same period of 1994. Increased
precious metals consignment activity contributed to much of this
growth by generating an additional $0.5 million in consignment fees
for the nine months ended September 30, 1995 from the same period of
1994. The increase in other income for both the quarter and nine
months ended September 30, 1995, relates primarily to $0.5 million
realized from the exercise and sale of stock warrants during the
third quarter.
Noninterest Expense: Noninterest expense totaled $26.6 million and
$79.8 million for the quarter and nine months ended September 30,
1995, as compared to $28.8 million and $83.2 million for the same
periods in the prior year.
<TABLE>
<CAPTION>
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Three months ended Nine months ended
September 30, September 30,
(In Thousands) 1995 1994 1995 1994
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<S> <C> <C> <C> <C>
Salary and employee benefits............ $11,743 $13,163 $34,864 $36,082
Net occupancy expense................... 2,242 2,473 6,554 7,208
Furniture and equipment................. 1,268 1,376 3,771 4,005
Data processing......................... 2,060 2,514 6,079 7,312
Customer services....................... 2,151 1,745 6,152 5,471
Net real estate owned expense........... 2,952 2,224 5,280 5,395
Regulatory assessments.................. 348 1,409 2,860 4,606
Professional and consulting............. 578 1,558 2,490 3,830
Business development.................... 783 599 2,397 2,541
Lawsuit settlement...................... (1,709) 206 (1,516) (1,334)
Other expense........................... 4,177 1,516 10,882 8,083
------------------------------------------------------------------------------------------
Total................................... $26,593 $28,783 $79,813 $83,199
------------------------------------------------------------------------------------------
</TABLE>
Excluding a $1.8 million lawsuit settlement received in the third
quarter of 1995, a $1.7 million lawsuit settlement collected in the
second quarter of 1994 and a $1.6 million recovery of an operational
loss in the third quarter of 1994, noninterest expenses for the
three and nine months ended September 30, 1995 decreased $1.9
million and $4.9 million, respectively, from the same periods of
1994. Included was a reduction in the Company's FDIC deposit
insurance retroactive to June 1, 1995. In September 1995, the
Company received a refund from the FDIC for excess deposit insurance
premiums paid for the second and third quarters of 1995. This
reduction alone added $0.06 per share to the third quarter of 1995.
Compensation expense was reduced for the quarter and nine months
ended September 30, 1995, primarily as a result of a $0.9 million
death benefit expense recorded in the third quarter of 1994 upon the
death of the Company's Chairman of the Board, George M. Eltinge. In
1994, the Company incurred higher data processing costs due to a
major conversion of its data processing systems which took place in
the third quarter of 1994. As a result, data processing costs were
down $0.5 million and $1.2 million, respectively, for the quarter
and nine months ended September 30, 1995.
The reduction in professional and consulting expenses for both the
quarter ended and nine months ended September 30, 1995, partially
resulted from the data processing conversion as the Company incurred
increased consulting costs related to the prior year conversion.
Also, the Company recovered $0.3 million of legal expenses in the
third quarter of 1995 when it secured a favorable lawsuit judgment.
In addition to the recovery of legal expenses, the favorable
judgment netted the Company a $1.8 million lawsuit settlement.
REO expenses totaled $3.0 million for the third quarter of 1995 and
$5.3 million for the first nine months of 1995. These expenses
increased $0.7 million quarter to quarter as the Company incurred
higher costs while disposing of $10.5 million in REO during the
third quarter of 1995.
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Other expenses increased $2.7 million for both the quarter and nine
months ended September 30, 1995. The Company incurred a $1.0 million
charge in the third quarter of 1995 to write off the balance of the
equity investment in Healthtronics, Inc., as this entity is in the
process of liquidation. The collection of a $1.6 million recovery of
an operational loss incurred in prior years resulted in a decrease
in other expenses in the third quarter of 1994. Combined these items
account for the overall increase in other expenses.
Income Taxes: The Company recorded income tax expense of $6.4
million for the nine months ended September 30, 1995, representing
an effective tax rate of approximately 31%. For the same period of
1994, the Company's effective tax rate approximated 34%. The
decrease in the effective tax rate principally relates to a $0.9
million reduction of tax expense to reflect the finalization of
prior years income tax issues. Excluding this reduction of income
tax expense, the Company's effective tax rate would have been 35%
for the first nine months of 1995. At September 30, 1995, the
Company had a net deferred tax receivable of $5.0 million, net of a
$0.9 million valuation allowance as compared to a $7.1 million net
deferred tax receivable, net of a $2.3 million valuation allowance
at December 31, 1994. The Company's net deferred tax receivable is
supported by carryback and carryforward provisions of the tax laws
as well as the Company's projection of taxable income for 1995. The
$1.4 million net change in the valuation allowance for deferred tax
assets from year end 1994 primarily results from actual taxable
income experienced to date which currently exceeds the Company's
original projection of taxable income for 1995.
ASSET/LIABILITY MANAGEMENT
Liquidity: For the Company, as with most commercial banking
institutions, liquidity is the ability to roll over substantial
amounts of maturing liabilities and to acquire new liabilities at
levels consistent with management's financial targets. The key to
this on-going replacement activity is the Company's reputation in
the domestic money markets, which is based upon its financial
condition and its capital base.
The overall liquidity position of the Company has been enhanced by a
sizable base of demand deposits resulting from the Company's long
standing relationships with the real estate services industry which
have provided a relatively stable and low cost funding base. Demand
deposits averaged $889 million and $817 million, respectively, for
the quarter and nine months ended September 30, 1995 as compared to
$851 million and $941 million for the same periods of 1994. The
Company's average demand deposits and average stockholders' equity
funded 46% and 45%, respectively, of average total assets for the
third quarter and first nine months of 1995, as compared to 48% and
50% for the same periods of 1994. These funding sources are
augmented by payments of principal and interest on loans and the
routine liquidation of securities from the trading and available for
sale portfolios and Federal funds sold and securities purchased
under resale agreements. During the first nine months of 1995, the
Company experienced a net cash outflow from its investing activities
of $413 million. This net outflow in investing activities resulted
from the growth in the Company's loan portfolio, an outflow of $295
million and from the investment in highly liquid short term federal
funds sold, an outflow of $249 million. The outflows were offset by
the $377 million net cash provided by the Company's financing
activities consisting mainly of deposit inflows including $257
million in certificates of deposit and $92 million in demand
deposits, savings and money market accounts.
Interest Rate Sensitivity Management: The primary objectives of the
asset liability management process are to provide a stable net
interest margin, generate net interest income to meet the Company's
earnings objectives, and manage balance sheet risks. These risks
include liquidity risk, capital adequacy and overall interest rate
risk inherent in the Company's balance sheet. In order to manage its
interest rate sensitivity, the Company has adopted policies which
attempt to limit the change in pre-tax net interest income assuming
various interest rate scenarios. This is accomplished by adjusting
the repricing characteristics of the Company's assets and
liabilities as interest rates change. The Company's Asset Liability
Committee chooses strategies in conformance with its policies to
achieve an appropriate trade off between interest rate sensitivity
and the volatility of pre-tax net interest income and net interest
margin.
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Each month the Company assesses its overall exposure to potential
changes in interest rates and the impact such changes may have on
pre-tax interest income and net interest margin by simulating
various interest rate scenarios over future time periods. Through
the use of these simulations, the Company can approximate the impact
of these projected rate changes on its entire on and off-balance
sheet position or any particular segment of the balance sheet.
Cumulative interest sensitivity gap represents the difference
between interest-earning assets and interest-bearing liabilities
maturing or repricing, whichever is earlier, at a given point in
time. At September 30, 1995, the Company maintained a positive
cumulative one year gap of approximately $728 million as its
interest rate sensitive assets exceeded its interest rate sensitive
liabilities. This positive cumulative gap positions the Company for
increased net interest income during a period of rising interest
rates but also exposes it to an adverse impact on net interest
income in a falling rate environment. The Company's asset
sensitivity, as measured by its cumulative positive one year gap,
increased from year end 1994 as it is no longer impacted by its
derivative instruments.
The Company's net interest margin is very sensitive to sudden
changes in interest rates. In addition, the Company's
interest-earning assets, primarily its loans, are tied to the Prime
Rate, an index that tends to react more slowly to changes in market
rates than other money market indices such as LIBOR (London
Interbank Offered Rate). The rates paid for the Company's
interest-bearing liabilities, especially its certificates of
deposit, do correlate with LIBOR. This mismatch creates a spread
relationship risk between the Company's Prime based assets and LIBOR
correlated liabilities. An analysis of the historic relationship
between the Prime Rate and LIBOR showed that the spread between the
indices narrows in an environment of rising interest rates and
widens in a falling rate environment. In order to provide protection
against a narrowing of the Prime rate and LIBOR spread and reduce
asset sensitivity in the event of falling interest rates, the
Company entered into a series of derivative financial contracts in
1993 and 1994 to establish a balance sheet position which would
provide some protection against a decrease in interest rates while
providing an increasing rate asset whose characteristics would meet
the objectives of the Company's asset liability policy. The purpose
of the instruments was to synthetically alter the sensitivity of a
portion of the Company's Prime based loan portfolio while retaining
some positive asset sensitivity in the event of an increase in
interest rates.
At September 30, 1995, the Company's derivative financial contracts
consisted of several instruments including interest rate swaps with
embedded options and associated written options, purchased options
and interest rate floors and caps. The interest rate swaps with
embedded options had a notional value of $200 million at September
30, 1995, and mature in the first quarter of 1996. The embedded
options with increasing strike prices of 25 basis points per quarter
capped the rate received on the interest rate swaps. The embedded
options were intended to provide a limited degree of protection
against a narrowing of the net interest margin in the event of a
decrease in short-term interest rates while providing an increasing
rate asset to retain asset sensitivity.
The interest rate swaps with linked written options had a notional
value of $300 million at September 30, 1995, and mature in the
fourth quarter of 1995 and first quarter of 1996. The associated
options had a notional value of $100 million at September 30, 1995,
including $30 million of financial futures contracts. These linked
options, in the same manner as the embedded options, were intended
to cap the rate received on the interest rate swaps at escalating
strike prices built into the options and expire during fourth
quarter of 1995.
As interest rates continued to rise more quickly than anticipated in
1994 and other market related events caused a deterioration in the
values of derivative instruments, the strike prices of the
escalating options written were exceeded by LIBOR. To prevent
further negative impact on interest income from the interest rate
swaps with both embedded and linked options, the Company purchased
options during the second half of 1994 with terms similar to the
linked options written and embedded options thus effectively capping
the Company's exposure to further losses. The notional value of the
options purchased was $300 million at September 30, 1995.
The combined economic impact of the Company's derivative financial
instruments discussed above was a $2.1 million and $8.0 million
reduction, respectively, in net interest income for the quarter and
nine months ended September 30, 1995, resulting in a 40 basis point
reduction in net interest margin for the quarter ended September 30,
1995, and a 54 basis point reduction in net interest margin for the
first
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nine months of 1995. The impact of these instruments for the quarter
and nine months ended September 30, 1994 was 25 and 18 basis point
reductions, respectively, in net interest margin. The total cost to
terminate the Company's derivative financial positions as of
September 30, 1995 would have been $0.3 million with a maximum
potential loss exposure of $0.3 million. Exclusive of the impact of
premiums received on linked options and paid for purchased options,
the cash requirement and negative impact on net interest income
associated with the derivative transactions would be $0.8 million if
interest rates remain unchanged through the final maturity of these
instruments in early 1996.
During the first quarter of 1995, the Company's asset sensitivity
was increasing as previously discussed. In response to this and the
general asset sensitive nature of the balance sheet, the Company
purchased interest rate floors whose purpose was to protect against
a drop in interest rates. The interest rate floors, with a notional
value of $500 million at September 30, 1995, mature in the third
quarter of 1996. The floors provide protection to the Company in the
event that the three month LIBOR drops below the strike price of
5.5% associated with the floor. The unrealized gain of the floors
approximated $1.9 million at September 30, 1995.
During the second and third quarters of 1995, the Company purchased
both exchange traded and over the counter interest rate caps to
protect its fixed rate loans from an increase in interest rates
which would narrow the Company's net interest margin. The exchange
traded interest rate caps had a notional value of $1,475 million at
September 30, 1995 and expire as follows: $275 million in the fourth
quarter of 1995, and $400 million per quarter for the first, second
and third quarter of 1996. The over the counter interest rate caps
had a notional value of $100 million at September 30, 1995. These
caps reset quarterly in March 1996, June 1996, and September 1996,
and mature in December 1996. All of the caps provide protection to
the Company in the event that the three month LIBOR rises above the
strike prices of the caps which range from 8.0% to 8.5%. The
unrealized loss of the caps approximated $170,000 at September 30,
1995.
ASSET QUALITY
Allowance for loan losses: The Company's determination of the level
of the allowance for loan losses and, correspondingly, the provision
for loan losses rests upon various judgments and assumptions,
including general economic conditions (especially in California),
loan portfolio composition, prior loan loss experience and the
Company's on-going examination process to ensure timely
identification of potential problem loans. At September 30, 1995,
the allowance for loan losses amounted to $38.3 million or 2.3% of
total loans as compared to $40.1 million or 2.9% of total loans at
December 31, 1994. While management uses available information to
analyze losses on loans, future additions to the allowance may be
considered necessary based on changes in economic conditions and
loss trends in the loan portfolio.
Nonaccrual loans, restructured loans and real estate owned:
Nonaccrual loans of $23.2 million at September 30, 1995, increased
$5.1 million from year end 1994 and $8.8 million from June 30, 1995.
The increase from June 30, 1995 was related primarily to two real
estate secured loans totaling $7.0 million. These loans were placed
on nonaccrual status during the third quarter of 1995. REO of $13.1
million at September 30, 1995, decreased $15.8 million from year end
1994 and $9.8 million from June 30, 1995. The Company disposed of
$10.5 million of REO during the third quarter of 1995.
The allowance for loan losses coverage of nonaccrual loans at third
quarter end approximated 165%, as compared to 221% at year end 1994.
Consistent with prior reporting periods, there were no loans past
due 90 days or more which were still accruing interest and all
interest associated with nonaccrual loans had been reversed. It has
been the Company's policy to recognize interest on nonaccrual loans
only as collected.
On January 1, 1995, the Company adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("FAS 114") as amended by Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure" ("FAS
118"). FAS 114 requires the measurement of impaired loans to be
based on (1) the present value of the expected future cash flows of
the impaired loan discounted at the loan's original effective
interest rate, (2) the observable market price of the impaired loan
or (3) the fair
- --------------------------------------------------------------------------------
8 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
value of the collateral of a collateral dependent loan. The adoption
of FAS 114 had no material effect on the Company's financial
position or results of operations and did not result in additional
provisions for loan losses.
The Company considers a loan to be impaired when it is "probable"
that it will be unable to collect all amounts due (i.e., both
principal and interest) according to the contractual terms of the
loan agreement. In determining impairment, the Company considers
loans with the following characteristics: nonaccrual loans,
restructured loans, and performing loans for which it is probable
the contractual terms of the original loan agreement will not be
met. The Company bases the measurement of collateral dependent
impaired loans on the fair value of the loan's collateral.
Noncollateral dependent loans are valued based on a present value
calculation of expected future cash flows discounted at the loan's
effective rate. Impairment losses are included in the allowance for
loan losses through a charge to the provision for loan losses.
Principal deemed to be uncollectible is recorded through a charge-
off to the allowance for loan losses. At September 30, 1995, the
recorded investment in loans for which impairment has been
recognized in accordance with FAS 114 totaled $37.9 million, of
which $23.2 million were on nonaccrual status. The total allowance
for potential losses related to such loans was $5.7 million. During
the first nine months of 1995, total interest recognized on the
impaired loan portfolio, on a cash basis, was $2.2 million. At
September 30, 1995, none of the impaired loans were current as to
principal and interest.
Excluding nonaccrual loans, restructured loans and impaired loans,
the Company had potential problem loans approximating $49.5 million
at September 30, 1995. The balance represented real estate loans
secured by commercial real estate. At September 30, 1995, these
loans were current as to principal and interest.
Detailed information regarding nonaccrual loans, restructured loans
and real estate owned is presented below.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
(In Thousands) 1995 1995 1995 1994 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial loans.................... $ 9,308 $ 7,358 $11,954 $10,884 $ 8,098
Real estate loans................... 13,938 7,121 6,623 7,272 2,392
---------------------------------------------------------------------------------------------------
Total nonaccrual loans $23,246 $14,479 $18,577 $18,156 $10,490
---------------------------------------------------------------------------------------------------
Restructured loans $ 4,083 $ 4,097 $ 3,238 $ 5,948 $ 4,116
---------------------------------------------------------------------------------------------------
Real estate owned:
Foreclosed assets................... $17,504 $26,272 $25,138 $35,446 $41,470
In-substance foreclosures........... --- --- --- --- 2,995
---------------------------------------------------------------------------------------------------
REO, gross.......................... $17,504 $26,272 $25,138 $35,446 $44,465
Less valuation allowance............ (4,379) (3,381) (3,312) (6,475) (5,434)
---------------------------------------------------------------------------------------------------
REO, net $13,125 $22,891 $21,826 $28,971 $39,031
---------------------------------------------------------------------------------------------------
Total $40,454 $41,467 $43,641 $53,075 $53,637
---------------------------------------------------------------------------------------------------
</TABLE>
On an on-going basis, management closely monitors the loan portfolio
in addition to evaluating the continued adequacy of the allowance
for loan losses. Loans deemed uncollectible by management are
charged to the allowance for loan losses. Recoveries on previously
charged off loans are credited to the allowance.
CAPITAL
Retained earnings from operations has been the primary source of new
capital for the Company, with the exception of its long term debt
offering in 1979, and on a smaller scale, the exercise of employee
stock options. At September 30, 1995, shareholders' equity totaled
$217 million as compared to $198 million at December 31, 1994.
- --------------------------------------------------------------------------------
9 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Management is committed to maintaining capital at a sufficient level
to assure shareholders, customers and regulators that the Company
and the Bank are financially sound. Risk-adjusted capital
guidelines, issued by bank regulatory agencies, assign risk
weightings to assets both on and off-balance sheet and place
increased emphasis on common equity. Under Prompt Corrective Action,
the guidelines require adequately capitalized institutions to
maintain a Tier I (core) capital ratio of 4% and a combined Tier I
and Tier II capital ratio of 8%. Institutions whose Tier I and total
capital ratios meet or exceed 6% and 10%, respectively, are deemed
to be well capitalized. Tier I capital basically consists of common
stockholders' equity and noncumulative perpetual preferred stock and
minority interest consolidated subsidiaries minus intangible assets.
Based on the guidelines, the Bank's Tier I and total capital ratios
at September 30, 1995 were 9.1% and 10.4%, respectively, as compared
to 10.4% and 11.7%, respectively, the year earlier. The reduction in
capital ratios related primarily to the 23% increase in total risk-
weighted assets from September 30, 1994. The increase in total risk-
weighted assets results directly from the increase in loans and
commitments to make loans.
Capital Ratios for Imperial Bank/(1)/
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
September 30, (In Thousands) 1995 1994
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Tier I:
Common stockholders' equity and preferred stock/(2)/...... $ 202,761 $ 187,874
Disallowed assets......................................... (2,444) (1,342)
-----------------------------------------------------------------------------------------------
Tier I capital $ 200,317 $ 186,532
-----------------------------------------------------------------------------------------------
Tier II:
Allowance for loan losses allowable in Tier II............ 27,585 22,574
-----------------------------------------------------------------------------------------------
Total risk-based capital $227,902 $209,106
-----------------------------------------------------------------------------------------------
Risk-weighted balance sheet assets $1,939,841 $1,646,158
-----------------------------------------------------------------------------------------------
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans..................... 198,912 96,579
Standby letters of credit................................. 55,279 48,952
Other..................................................... 15,243 15,538
-----------------------------------------------------------------------------------------------
Total risk-weighted off-balance sheet items $ 269,434 161,069
-----------------------------------------------------------------------------------------------
Disallowed assets........................................... (2,444) (1,342)
Allowance for loan losses not included in Tier II........... (10,754) (17,447)
-----------------------------------------------------------------------------------------------
Total risk-weighted assets $2,196,077 $1,788,438
-----------------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier I capital (4.0% minimum requirement)................. 9.1% 10.4%
Total capital (8.0% minimum requirement).................. 10.4% 11.7%
Leverage ratio (6.5% minimum requirement)................. 8.3% 8.6%
-----------------------------------------------------------------------------------------------
</TABLE>
/(1)/ As reported on the September 30, 1995 and 1994 FDIC Call
Reports.
/(2)/ Excludes unrealized gain (loss) on securities available for
sale.
In addition to the risk-weighted ratios, all banks are required to
maintain leverage ratios to be determined on an individual basis,
but not below a minimum of 3%. The ratio is defined as Tier I
capital to average total assets for the most recent quarter. The
Bank's leverage ratio requirement is 6.5% as stipulated in its
Memorandum of Understanding ("MOU") with the Federal Deposit
Insurance Company ("FDIC") and the California State Banking
Department ("State") which was revised during the third quarter of
1993. The Bank's leverage ratio for September 30, 1995 was 8.3% as
compared to 8.6% the prior year. In addition to the leverage ratio
requirement, the revised MOU established levels for the reduction of
classified assets identified in the 1992 examination. No specific
targets for the reduction of classified assets were set as a result
of the 1993 examination. In addition, this MOU requires written
consent from the FDIC and the State prior to the payment of
dividends by the Bank. Management believes that the Bank was in
compliance with the terms of the MOU at September 30, 1995.
- --------------------------------------------------------------------------------
10 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
(Unaudited)
Imperial Bancorp and Subsidiaries September 30, December 31,
(In Thousands, Except Share Data) 1995 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks...................................................... $ 185,074 $ 168,626
Trading account securities................................................... 51,623 74,028
Securities available for sale (at fair value)................................ 284,379 388,249
Investment securities (fair value of $4,939 and $6,146 for 1995 and 1994,.... 4,939 6,146
respectively)
Federal funds sold and securities purchased under resale agreements.......... 525,000 276,500
Loans held for sale (fair value of $1,571 and $768 for 1995 and 1994,........ 1,388 768
respectively)
Loans:
Loans, net of unearned income and deferred loan fees....................... 1,650,876 1,375,146
Less allowance for loan losses............................................. (38,339) (40,072)
----------------------------------------------------------------------------------------------------------------
Total net loans $1,612,537 $1,335,074
----------------------------------------------------------------------------------------------------------------
Premises and equipment, net.................................................. 16,640 18,254
Accrued interest receivable.................................................. 15,962 12,769
Real estate owned, net....................................................... 13,125 28,971
Income taxes receivable...................................................... 4,826 3,573
Real property held for sale or investment.................................... --- 234
Investment in Imperial Credit Industries, Inc................................ 33,721 30,934
Other assets................................................................. 31,251 34,583
----------------------------------------------------------------------------------------------------------------
Total assets $2,780,465 $2,378,709
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand..................................................................... $1,091,000 $ 928,728
Savings.................................................................... 17,673 27,207
Money market............................................................... 430,279 491,090
Time--under $100,000....................................................... 221,333 168,044
Time--$100,000 and over.................................................... 548,153 344,641
----------------------------------------------------------------------------------------------------------------
Total deposits $2,308,438 $1,959,710
----------------------------------------------------------------------------------------------------------------
Accrued interest payable..................................................... 5,804 5,209
Short-term borrowings........................................................ 219,884 190,919
Long-term borrowings......................................................... 5,906 8,153
Other liabilities............................................................ 23,184 16,942
Minority interest in consolidated subsidiary................................. 660 ---
----------------------------------------------------------------------------------------------------------------
Total liabilities $2,563,876 $2,180,933
----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock--no par, 50,000,000 shares authorized; 13,793,745
shares at September 30, 1995 and 12,832,609 shares at December 31,
1994 issued and outstanding............................................... 129,636 117,144
Unrealized gain (loss) on securities available for sale, net of tax........ 966 (847)
Retained earnings.......................................................... 85,987 81,479
----------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 216,589 $ 197,776
----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $2,780,465 $2,378,709
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
11 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries Three months ended Nine months ended
September 30, September 30,
(In Thousands, Except Per Share Data) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans................................................... $37,347 $28,086 $104,116 $ 83,772
Trading account securities.............................. 686 490 3,005 1,709
Securities available for sale........................... 4,145 3,414 13,070 8,670
Investment securities................................... 74 72 227 269
Federal funds sold and securities purchased under
resale agreements..................................... 3,267 2,043 7,200 5,432
Loans held for sale..................................... 54 167 210 570
-----------------------------------------------------------------------------------------------------------------
Total interest income $45,573 $34,272 $127,828 $100,422
-----------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits................................................ 14,888 8,859 41,330 23,527
Short-term borrowings................................... 967 826 3,448 2,683
Long-term borrowings.................................... 123 150 428 485
-----------------------------------------------------------------------------------------------------------------
Total interest expense $15,978 $ 9,835 $ 45,206 $ 26,695
-----------------------------------------------------------------------------------------------------------------
Net interest income..................................... 29,595 24,437 82,622 73,727
Provision for loan losses............................... 6,261 3,818 10,817 11,034
-----------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses $23,334 $20,619 $ 71,805 $ 62,693
-----------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts..................... 1,045 1,040 3,103 3,619
Trust fees.............................................. 1,921 1,652 5,728 4,944
Gain on origination and sale of loans................... 758 1,014 1,718 3,101
Equity in net earnings of Imperial
Credit Industries, Inc................................. 1,730 1,639 2,787 2,110
Other service charges and fees.......................... 2,063 1,754 5,426 4,797
Merchant and credit card fees........................... 1,662 1,617 4,676 4,548
(Loss) gain on securities available for sale............ (8) 17 259 (247)
Gain on trading account securities...................... 1,163 215 2,971 661
Gain on sale of real property held
for sale or investment................................. --- --- --- 507
Gain on sale of Bank premises........................... --- 1,578 --- 1,578
Other income............................................ 844 317 2,248 1,360
-----------------------------------------------------------------------------------------------------------------
Total noninterest income $11,178 $10,843 $ 28,916 $ 26,978
-----------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits............................ 11,743 13,163 34,864 36,082
Net occupancy expense................................... 2,242 2,473 6,554 7,208
Furniture and equipment................................. 1,268 1,376 3,771 4,005
Data processing......................................... 2,060 2,514 6,079 7,312
Customer services....................................... 2,151 1,745 6,152 5,471
Net real estate owned expense........................... 2,952 2,224 5,280 5,395
Regulatory assessments.................................. 348 1,409 2,860 4,606
Professional and consulting............................. 578 1,558 2,490 3,830
Business development.................................... 783 599 2,397 2,541
Lawsuit settlement...................................... (1,709) 206 (1,516) (1,334)
Other expense........................................... 4,177 1,516 10,882 8,083
-----------------------------------------------------------------------------------------------------------------
Total noninterest expense $26,593 $28,783 $ 79,813 $ 83,199
-----------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interest.......... 7,919 2,679 20,908 6,472
Income tax provision...................................... 2,763 771 6,444 2,230
Minority interest of consolidated subsidiary.............. 6 --- 10 ---
-----------------------------------------------------------------------------------------------------------------
Net income $ 5,150 $ 1,908 $ 14,454 $ 4,242
-----------------------------------------------------------------------------------------------------------------
Net income per share $0.36 $0.13 $1.02 $0.31
-----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
12 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries
Nine months ended September 30, (In Thousands) 1995 1994
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 14,454 $ 4,242
Adjustments for noncash charges (credits):
Depreciation and amortization........................................ 375 766
Accretion of purchased loan discount................................. (1,836) ---
Provision for loan losses............................................ 10,817 11,034
Provision for real estate owned...................................... 2,664 3,408
Equity in net earnings of Imperial Credit Industries, Inc............ (2,787) (2,110)
Gain on sale of real estate owned.................................... (134) (143)
Gain on sale of real property held for sale or investment............ (75) (507)
Gain on sale of premises and equipment............................... (4) (1,467)
Writedown for impairment of equity investment........................ 1,500 503
(Gain) loss on securities available for sale......................... (259) 247
Net change in trading account securities............................. 22,405 (21,967)
Net change in loans held for sale.................................... (620) 13,121
Net change in accrued interest receivable............................ (3,193) (2,841)
Net change in accrued interest payable............................... 595 1,487
Net change in income taxes receivable................................ (1,253) 7,432
Net change in other liabilities...................................... 6,242 3,493
Net change in other assets........................................... 3,332 (8,471)
------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 52,223 $ 8,227
------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from investment securities.................................... 110 3,040
Purchase of investment securities...................................... (403) (251)
Proceeds from sale of securities available for sale.................... 1,169,859 1,650,411
Proceeds from maturities of securities available for sale.............. 464,958 545,939
Purchase of securities available for sale.............................. (1,527,940) (2,175,846)
Net change in federal funds sold and securities purchased
under resale agreements............................................... (248,500) 125,019
Net change in loans.................................................... (294,898) 114,530
Capital expenditures................................................... (3,585) (6,357)
Proceeds from sale of real estate owned................................ 27,090 21,727
Proceeds from sale of real property held for sale or investment........ 309 15,182
Proceeds from sale of premises and equipment........................... 9 2,037
------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (412,991) $ 295,431
------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits, savings, and money market accounts...... 91,927 (346,013)
Net change in time deposits............................................ 256,801 25,566
Net change in short-term borrowings.................................... 28,965 68,181
Retirement of long-term borrowings..................................... (2,247) (1,630)
Proceeds from exercise of employee stock options....................... 1,781 4,107
Other.................................................................. (11) (9)
------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $ 377,216 $ (249,798)
------------------------------------------------------------------------------------------------------------
Net change in cash and due from banks $16,448 $ 53,860
------------------------------------------------------------------------------------------------------------
Cash and due from banks, beginning of year $ 168,626 $ 158,126
------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of period $ 185,074 $ 211,986
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
13 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Imperial Bancorp and Subsidiaries
NOTE (1) BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATION
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with the instructions to Form 10-Q and
therefore do not include all footnotes as would be necessary for a
fair presentation of financial position, results of operations, and
changes in cash flows in conformity with generally accepted
accounting principles. However, these interim financial statements
reflect all normal recurring adjustments, which are, in the opinion
of the management, necessary for a fair presentation of the results
for the interim periods presented. All such adjustments were of a
normal recurring nature. The Consolidated Balance Sheet,
Consolidated Statement of Income and Consolidated Statement of Cash
Flows are presented in the same format as that used in the Company's
most recently filed Report on Form 10-K. The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries.
NOTE (2) IMPERIAL CREDIT INDUSTRIES, INC.
During 1993, the Bank sold 2,800,000 shares of the common stock of
Imperial Credit Industries, Inc. ("ICII") reducing its ownership of
ICII to 40.2%. After the 1993 sale of ICII stock, the Company no
longer exercised significant control over the operations of ICII,
and therefore, the results of ICII operations are now accounted for
in the Company's financial statements as an equity investment. The
equity investment in ICII is carried at cost adjusted for equity in
undistributed earnings.
NOTE (3) STATEMENT OF CASH FLOWS
The following information supplements the statement of cash flows.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
September 30, (In Thousands) 1995 1994
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid.......................................................... $44,611 $25,208
Taxes refunded......................................................... --- 6,499
Taxes paid............................................................. 9,350 3,837
Significant noncash transactions:
Loans transferred to real estate owned............................... 11,982 15,628
---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
14 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID
The following table sets forth the average daily balances for major
categories of assets, liabilities and stockholders' equity including
interest-earning assets and interest-bearing liabilities and the
average interest rates earned and paid thereon. The yields are not
presented on a tax equivalent basis as the effects are not material.
<TABLE>
<CAPTION>
=================================================================================================================================
Three months ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans/(1)/..................................... $1,584,749 $37,347/(2)/ 9.4% $1,336,335 $28,086/(2)/ 8.4%
Trading account securities..................... 50,053 686 5.5 31,115 490 6.3
Securities available for sale.................. 250,903 4,145 6.6 292,582 3,414 4.7
Investment securities.......................... 5,220 74 5.7 4,643 72 6.2
Federal funds sold and securities purchased
under resale agreements....................... 220,390 3,267 5.9 177,568 2,043 4.6
Loans held for sale............................ 2,126 54 10.2 9,873 167 6.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $2,113,441 $45,573 8.6% $1,852,116 $34,272 7.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses........................ (38,468) (41,185)
Cash............................................. 212,403 219,263
Other assets..................................... 125,585 137,855
---------- ----------
Total assets................................... $2,412,961 $2,168,049
========== ==========
Interest-bearing liabilities:
Savings........................................ $ 21,825 $ 137 2.5% $ 28,990 $ 178 2.5%
Money market................................... 423,529 3,128 3.0 481,796 3,049 2.5
Time - under $100,000.......................... 241,176 3,883 6.4 174,048 1,885 4.3
Time - $100,000 and over....................... 516,638 7,740 6.0 329,195 3,747 4.6
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,203,168 $14,888 4.9% $1,014,029 $ 8,859 3.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings.......................... 68,384 967 5.7 78,742 827 4.2
Long-term borrowings........................... 6,904 123 7.1 8,776 149 6.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,278,456 $15,978 5.0% $1,101,547 $ 9,835 3.6%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits.................................. 889,076 850,820
Other liabilities................................ 33,117 22,835
Stockholders' equity............................. 212,312 192,847
---------- ----------
Total liabilities and stockholders' equity..... $2,412,961 $2,168,049
========== ==========
Net interest income/net interest margin.......... $29,595 5.6% $24,437 5.3%
====================== ======================
=================================================================================================================================
<CAPTION>
=================================================================================================================================
Nine months ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans/(1)/..................................... $1,504,884 $104,116/(2)/ 9.2% $1,368,232 $ 83,772/(2)/ 8.2%
Trading account securities..................... 58,700 3,005 6.8 43,086 1,709 5.3
Securities available for sale.................. 267,525 13,070 6.5 298,746 8,670 3.9
Investment securities.......................... 5,857 227 5.2 5,947 269 6.0
Federal funds sold and securities purchased
under resale agreements....................... 161,984 7,200 5.9 186,207 5,432 3.9
Loans held for sale............................ 2,564 210 10.9 11,809 570 6.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $2,001,514 $127,828 8.5% $1,914,027 $100,422 7.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses........................ (39,796) (42,456)
Cash............................................. 204,212 233,801
Other assets..................................... 126,937 154,249
---------- ----------
Total assets................................... $2,292,867 $2,259,621
========== ==========
Interest-bearing liabilities:
Savings........................................ $ 26,487 $ 496 2.5% $ 26,953 $ 500 2.5%
Money market................................... 439,881 9,300 2.8 468,286 8,111 2.3
Time - under $100,000.......................... 238,540 11,292 6.3 177,705 5,456 4.1
Time - $100,000 and over....................... 448,704 20,242 6.0 317,842 9,460 4.0
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,153,612 $ 41,330 4.8% $ 990,786 $ 23,527 3.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings.......................... 79,413 3,448 5.8 108,077 2,683 3.3
Long-term borrowings........................... 7,716 428 7.4 9,499 485 6.8
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,240,741 $ 45,206 4.9% $1,108,362 $ 26,695 3.2%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits.................................. 816,852 941,100
Other liabilities................................ 28,747 20,137
Stockholders' equity............................. 206,527 190,022
---------- ----------
Total liabilities and stockholders' equity..... $2,292,867 $2,259,621
========== ==========
Net interest income/net interest margin.......... $ 82,622 5.5% $ 73,727 5.1%
====================== ======================
=================================================================================================================================
</TABLE>
(1) Includes nonaccrual loans.
(2) Includes net loan fees of $3,573,000 and $2,966,000 for the nine
months ended September 30, 1995 and 1994, respectively, and
$1,544,000 and $624,000 for the three months ended September 30,
1995 and 1994, respectively.
- --------------------------------------------------------------------------------
15 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST MARGIN
Changes in the Company's net interest income are a function of both
changes in rates and changes in volumes of interest-earning assets
and interest-bearing liabilities. The following table sets forth
information regarding changes in interest income and interest
expense for the years indicated. The total change is segmented into
the change attributable to variations in volume (changes in volume
multiplied by old rate) and the change attributable to variations in
interest rates (changes in rates multiplied by old volume). The
change in interest due to both rate and volume (changes in rate
multiplied by changes in volume) is classified as rate/volume.
Nonaccrual loans are included in average loans used to compute this
table. The table is not presented on a tax equivalent basis as the
effects are not material.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------------
1995 Over 1994 1995 Over 1994
Rate/ Rate/
(In Thousands) Volume Rate/(1)/ Volume Total Volume Rate/(1)/ Volume Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase/(Decrease) in:
Loans, net of unearned income
and deferred loan fees........... 5,217 3,341 703 9,261 14,941 18,243 (12,840) 20,344
Trading account securities........ 298 (62) (40) 196 1,103 862 (669) 1,296
Securities available for sale..... (490) 1,390 (169) 731 (1,623) 10,356 (4,333) 4,400
Investment securities............. 9 (6) (1) 2 (7) (64) 29 (42)
Federal funds sold and
securities purchased under
resale agreements................ 493 577 154 1,224 (1,260) 4,966 (1,938) 1,768
Loans held for sale............... (132) 84 (65) (113) (789) 709 (280) (360)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income.............. $5,395 $5,324 $ 582 $11,301 $12,365 $35,072 $(20,031) $27,406
- ---------------------------------------------------------------------------------------------------------------------------------
Savings........................... (41) --- --- (41) (4) --- --- (4)
Money market...................... (364) 602 (159) 79 (871) 3,122 (1,062) 1,189
Time - under $100,000............. 721 914 363 1,998 3,326 5,212 (2,702) 5,836
Time - $100,000 and over.......... 2,156 1,152 685 3,993 6,979 8,476 (4,673) 10,782
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits.................. $2,472 $2,668 $ 889 $ 6,029 $ 9,430 $16,810 $ (8,437) $17,803
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings............. (108) 295 (47) 140 (1,261) 3,603 (1,577) 765
Long-term borrowings.............. (32) 7 (1) (26) (162) 76 29 (57)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense.......... $2,332 $2,970 $ 841 $ 6,143 $ 8,007 $20,489 $ (9,985) $18,511
- ---------------------------------------------------------------------------------------------------------------------------------
Changes in net interest
income......................... $3,063 $2,354 $(259) $ 5,158 $ 4,358 $14,583 $(10,046) $ 8,895
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The rate change for interest income includes negative net
impact of $0.9 million and $5.9 million, respectively, from
derivative instruments for the three and nine months ended
September 30, 1995 over the three and nine months ended
September 30, 1994.
- --------------------------------------------------------------------------------
16 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 3 - SECURITIES
(a) Investment Securities
The following is a summary for the major categories of investment
securities.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1995
Industrial development bonds...... $4,436 $ --- $ --- $4,436
Other securities.................. 503 --- --- 503
-----------------------------------------------------------------------------------------------
Total............................. $4,939 $ --- $ --- $4,939
-----------------------------------------------------------------------------------------------
December 31, 1994
Industrial development bonds...... $4,546 $ --- $ --- $4,546
Other securities.................. 1,600 --- --- 1,600
-----------------------------------------------------------------------------------------------
Total............................. $6,146 $ --- $ --- $6,146
-----------------------------------------------------------------------------------------------
</TABLE>
(b) Securities Available for Sale
The following is a summary for the major categories of securities
available for sale.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1995
U.S. Treasury and federal agencies.... $216,733 $1,903 $ (16) $218,620
Mutual funds.......................... 59,832 --- --- 59,832
Other securities...................... 6,136 --- (209) 5,927
------------------------------------------------------------------------------------------------
Total................................. $282,701 $1,903 $ (225) $284,379
------------------------------------------------------------------------------------------------
December 31, 1994
U.S. Treasury and federal agencies.... $321,455 $ 11 $ (517) $320,949
Mutual funds.......................... 56,915 --- --- 56,915
Other securities...................... 11,352 2 (969) 10,385
------------------------------------------------------------------------------------------------
Total................................. $389,722 $ 13 $(1,486) $388,249
------------------------------------------------------------------------------------------------
</TABLE>
Gross realized gains and losses for the three months ended
September 30, 1995, were $5,000 and $13,000, respectively. For the
same period of 1994, these amounts were $76,000 and $59,000,
respectively. Gross realized gains and losses for the nine months
ended September 30, 1995, were $422,000 and $163,000, respectively.
These amounts were $125,000 and $372,000, respectively, for the same
period in the prior year.
- --------------------------------------------------------------------------------
17 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarizes changes in the allowance for loan
losses and pertinent ratios.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Nine months ended September 30, (In Thousands) 1995 1994
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses:
Balance, beginning of year................................................ $ 40,072 $ 42,800
Loans charged off:
Commercial................................................................ (8,738) (8,530)
Real estate............................................................... (5,784) (7,707)
Consumer.................................................................. (47) (92)
----------------------------------------------------------------------------------------------------------------
Total loans charged off $ (14,569) $ (16,329)
----------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial................................................................ 1,538 2,421
Real estate............................................................... 453 46
Consumer.................................................................. 28 49
----------------------------------------------------------------------------------------------------------------
Total loan recoveries $ 2,019 $ 2,516
----------------------------------------------------------------------------------------------------------------
Net loans charged off....................................................... (12,550) (13,813)
Provision for loan losses................................................... 10,817 11,034
----------------------------------------------------------------------------------------------------------------
Balance, end of period $38,339 $ 40,021
----------------------------------------------------------------------------------------------------------------
Loans outstanding, end of period $1,650,876 $1,342,833
----------------------------------------------------------------------------------------------------------------
Average loans outstanding $1,504,884 $1,368,232
----------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans................................... 1.11%/(1)/ 1.35%/(1)/
Ratio of allowance for loan losses to average loans......................... 2.55% 2.93%
Ratio of allowance for loan losses to loans outstanding at September 30..... 2.32% 2.98%
Ratio of provision for loan losses to net charge-offs....................... 86% 80%
----------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Annualized
The Company evaluates the adequacy of its allowance for loan losses
on an overall basis rather than by specific categories of loans. In
determining the adequacy of the allowance for loan losses,
management considers such factors as historical loan loss
experience, known problem loans, evaluations made by bank regulatory
authorities, assessment of economic conditions and other appropriate
data to identify the risks in the loan portfolio.
- --------------------------------------------------------------------------------
18 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 5 - REAL ESTATE OWNED
(a) Real Estate Owned by Type of Project
At September 30, 1995 and December 31, 1994, real estate owned by
type of project is presented in the following table:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
September 30, December 31,
(In Thousands) 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C>
Acquisition and land development.................. $ 8,754 $15,010
Multi-family residential.......................... 162 ---
Single-family residential......................... 2,313 14,579
--------------------------------------------------------------------------------------
Total residential $11,229 $29,589
--------------------------------------------------------------------------------------
Acquisition and land development.................. 5,420 255
Retail facilities................................. --- 2,214
Office............................................ 855 3,388
--------------------------------------------------------------------------------------
Total nonresidential $ 6,275 $ 5,857
--------------------------------------------------------------------------------------
REO, gross $17,504 $35,446
--------------------------------------------------------------------------------------
Less valuation allowance.......................... (4,379) (6,475)
--------------------------------------------------------------------------------------
REO, net $13,125 $28,971
--------------------------------------------------------------------------------------
</TABLE>
(b) Net Real Estate Owned Expense
For the periods ended September 30, 1995 and 1994, net real estate
owned expense was comprised of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(In Thousands) 1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss (gain) on sale of real estate owned...... $ (94) $ (140) $ (134) $ (143)
Valuation adjustments charged to operations....... 1,675 1,600 2,664 3,408
Direct holding costs.............................. 1,371 764 2,750 2,130
----------------------------------------------------------------------------------------------------------
Net real estate owned expense $2,952 $2,224 $5,280 $5,395
----------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth information regarding the Company's
valuation allowance for REO.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
September 30, December 31,
(In Thousands) 1995 1994
--------------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period..................... $ 6,475 $ 3,084
Provision for REO................................ 2,664 5,291
REO charged off.................................. (4,760) (1,900)
--------------------------------------------------------------------------------------
Balance, end of period $ 4,379 $ 6,475
--------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 6 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income as a percentage of: /(1)/
Average stockholders' equity........................... 9.70% 3.96% 9.33% 2.98%
Average total assets................................... 0.85 0.35 0.84 0.25
Average earning assets................................. 0.97 0.41 0.96 0.30
Average stockholders' equity as a percentage of:
Average assets......................................... 8.80% 8.89% 9.01% 8.41%
Average loans.......................................... 13.40 14.43 13.72 13.89
Average deposits....................................... 10.15 10.34 10.48 9.84
Stockholders' equity at period end as a percentage of:
Total assets at period end............................. --- --- 7.79% 7.64%
Total loans at period end.............................. --- --- 13.12 14.53
Total deposits at period end........................... --- --- 9.38 9.44
------------------------------------------------------------------------------------------------------------------
</TABLE>
/(1)/ Annualized
- --------------------------------------------------------------------------------
20 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
EXHIBITS
PART I
COMPUTATION OF EARNINGS PER SHARE
Imperial Bancorp (the "Company") has outstanding certain employee
stock options, which options have been determined to be common stock
equivalents for purposes of computing earnings per share.
During the periods ended September 30, 1995 and 1994, the market
price of the Company's common stock exceeded the exercise price of
certain of these common stock equivalents. Under the treasury stock
method, the following weighted average shares of common stock and
common stock equivalents outstanding were used in the respective
earnings per share computations.
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-----------------------------------------------------------------------------
1995 1994 1995 1994
---------- ------------------------------------ ---------------
<S> <C> <C> <C>
14,251,595 13,958,511/(1)/ 14,123,634 13,618,870/(1)/
</TABLE>
/(1)/ Adjusted for a 5% stock dividend paid in the first quarter of
1995.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
Due to the nature of the businesses, the Company and its
subsidiaries are subject to numerous legal actions, threatened
or filed, arising in the normal course of business. Certain of
the actions currently pending seek punitive damages, in addition
to other relief. The Company is of the opinion that the eventual
outcome of all currently pending legal proceedings will not be
materially adverse to the Company, nor has the resolution of any
proceeding since the Company's last filing with the Commission
materially adversely affected the registrant or any subsidiary
thereof.
ITEM 2. Changes in Securities
No events have transpired which would make response to this item
appropriate.
ITEM 3. Defaults upon Senior Securities
No events have transpired which would make response to this item
appropriate.
ITEM 4. Submission of Matters to a Vote of Securities Holders
No events have transpired which would make response to this item
appropriate.
- --------------------------------------------------------------------------------
21 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
ITEM 5. Other Information
During the third quarter of 1993, the Bank entered into a
revised Memorandum of Understanding ("MOU") with the Federal
Deposit Insurance Corporation ("FDIC") and the California State
Banking Department ("State"). The revised MOU established a new
level for the reduction of classified assets. The MOU continued
the prior written approval of dividends of the Bank by the FDIC
and the State and a minimum leverage ratio of 6.5% which began
with the first quarter of 1993. At September 30, 1995, the
Bank's leverage ratio was 8.3%. Management believes the Bank was
in compliance with the terms of the MOU as of September 30,
1995.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Index
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
All other material referenced in this report which is
required to be filed as an exhibit hereto has previously
been submitted.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the period, and no events have occurred which would
require one to be filed.
- --------------------------------------------------------------------------------
22 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
IMPERIAL BANCORP
Dated: November 13, 1995 By: Robert M. Franko
--------------------------------
Robert M. Franko
Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
23 [LOGO OF IMPERIAL BANCORP APPEARS HERE]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 185,074
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 525,000
<TRADING-ASSETS> 51,623
<INVESTMENTS-HELD-FOR-SALE> 284,379
<INVESTMENTS-CARRYING> 4,939
<INVESTMENTS-MARKET> 4,939
<LOANS> 1,650,876
<ALLOWANCE> 38,339
<TOTAL-ASSETS> 2,780,465
<DEPOSITS> 2,308,438
<SHORT-TERM> 219,884
<LIABILITIES-OTHER> 29,648
<LONG-TERM> 5,906
<COMMON> 129,636
0
0
<OTHER-SE> 86,953
<TOTAL-LIABILITIES-AND-EQUITY> 2,780,465
<INTEREST-LOAN> 104,116
<INTEREST-INVEST> 16,302
<INTEREST-OTHER> 7,410
<INTEREST-TOTAL> 127,828
<INTEREST-DEPOSIT> 41,330
<INTEREST-EXPENSE> 45,206
<INTEREST-INCOME-NET> 82,622
<LOAN-LOSSES> 10,817
<SECURITIES-GAINS> 259
<EXPENSE-OTHER> 79,813
<INCOME-PRETAX> 20,898
<INCOME-PRE-EXTRAORDINARY> 14,454
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,454
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 0.056
<LOANS-NON> 23,246
<LOANS-PAST> 0
<LOANS-TROUBLED> 4,083
<LOANS-PROBLEM> 49,480
<ALLOWANCE-OPEN> 40,072
<CHARGE-OFFS> 14,569
<RECOVERIES> 2,019
<ALLOWANCE-CLOSE> 38,339
<ALLOWANCE-DOMESTIC> 38,339
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
