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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 MARCH 31, 1996
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2575576
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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 March 31,
1996: 14,984,221 shares.
DEBT SECURITIES: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of March 31, 1996, $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 MONTHS ENDED MARCH 31, 1996
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 months ended
March 31, 1996.
PERFORMANCE SUMMARY
The Company reported significantly improved earnings for the first
quarter of 1996 over the same period in 1995. Net income for the first
quarter rose 46% to $6,796,000, or $0.43 per share, from $4,656,000,
or $0.31 per share, earned in the first quarter of 1995. Income as
measured by return on average total assets was 1.07% for the three
months ended March 31, 1996, as compared to 0.85% for the three months
ended March 31, 1995. Return on average stockholders' equity was
11.70% for the quarter ended March 31, 1996, an increase from the
9.27% return on average stockholders' equity for the same period of
1995.
The increase in net income in first quarter 1996 was attributable
mainly to the growth in average loans from the first quarter of 1995
which resulted in an improved net interest margin and increased net
interest income. Net interest income and net interest margin were
$32.8 million and 5.9%, respectively, for the quarter ended March 31,
1996, as compared to $25.1 million and 5.3%, respectively, for the
quarter ended March 31, 1995.
Noninterest income for the quarter ended March 31, 1996 totaled $13.0
million, an improvement from $8.4 million for the same period of 1995.
Equity in the net earnings of Imperial Credit Industries, Inc.
("ICII") improved $2.9 million from the same quarter of 1995. In
addition, the Company recorded an increase in gains associated with
the Company's trading activities including SBA securities trading and
foreign currency exchange. Improvements in other fee based income
including service charges on deposits and trust revenues from the
Company's trust subsidiary, Imperial Trust Company, added $1.1 million
to noninterest income in the first quarter of 1996.
Noninterest expense amounted to $31.2 million for the quarter ended
March 31, 1996 as compared to $26.4 million reported for the same
period of 1995. The increase in noninterest expense for the quarter
ended March 31, 1996 was primarily due to a $4.2 million increase in
salary and employee benefits expense over the same period in 1995.
Offsetting the increase in personnel costs were reductions in
regulatory assessments and real estate owned ("REO") expense.
Regulatory assessments for the quarter ended March 31, 1996 decreased
$1.1 million from the first quarter of 1995 due to the reduction in
the FDIC deposit insurance premium in late 1995. REO expenses declined
$0.5 million for the first quarter of 1996 to $0.7 million as levels
of REO have decreased significantly from the first quarter of 1995.
At March 31, 1996, the Company's total assets were $2.8 billion, total
loans were $1.75 billion and stockholders' equity and allowance for
loan losses totaled $274 million. This compares to total assets of
$2.8 billion, total loans of $1.70 billion and stockholders' equity
and allowance for loan losses of $266 million at December 31, 1995 and
total assets of $2.3 billion, total loans of $1.47 billion and
stockholders' equity and allowance for loan losses of $242 million at
March 31, 1995.
Total deposits at March 31, 1996, amounted to $2.5 billion which
included $1.2 billion, or 48%, of noninterest bearing demand deposits.
This favorably compares to total deposits of $2.0 billion at March 31,
1995 which included $904 million, or 45%, of noninterest bearing
demand deposits. At December 31, 1995, total deposits were $2.4
billion, including $1.1 billion, or 48%, demand deposits. The overall
funding base of the Company is enhanced by a sizable level of demand
deposits resulting from the
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2 IMPERIAL BANCORP [LOGO]
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Company's long standing relationships with the real estate services
industry. The Company's average demand deposits and average
stockholders' equity funded 46% of average total assets for the
quarter ended March 31, 1996, as compared to 44% for the quarter ended
March 31, 1995.
At March 31, 1996, the allowance for loan losses amounted to $39.2
million or 2.2% of total loans as compared to $37.4 million or 2.2% of
total loans at December 31, 1995. The provision for loan losses
totaled $2.7 million for the quarter ended March 31, 1996, as compared
to $1.4 million reported for the quarter ended March 31, 1995. Net
charge-offs for the quarter ended March 31, 1996 totaled $0.9 million,
a $1.0 million decrease from the levels experienced in the same
quarter of 1995.
Nonaccrual loans of $30.8 million at March 31, 1996, increased $12.2
million from March 31, 1995 and $1.9 million from year end 1995. The
allowance for loan losses coverage of nonaccrual loans at March 31,
1996 approximated 127%, a slight decrease from 129% at December 31,
1995. REO of $9.7 million at March 31, 1996, decreased $12.1 million
from March 31, 1995 and $0.6 million from year end 1995.
Imperial Bank is classified "Well Capitalized" under regulatory
guidelines with leverage, Tier I and total capital ratios at March 31,
1996, of 8.5%, 9.3% and 10.5%, respectively, as compared to 8.7%,
10.1% and 11.4%, respectively, the year earlier. From March 31, 1995,
the 21% growth in total assets has resulted in slightly lower
regulatory capital ratios.
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. For the quarter ended March 31, 1996, net interest income
increased to $32.8 million from $25.1 million in the same period of
1995.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Interest income................................. $48,681 $38,599
Interest expense................................ 15,869 13,535
----------------------------------------------------------------------
Net interest income........................... $32,812 $25,064
----------------------------------------------------------------------
Net interest margin............................. 5.9% 5.3%
----------------------------------------------------------------------
</TABLE>
The Company's net interest margin increased to 5.9% for the first
quarter of 1996 from 5.3% for the first quarter of 1995. The increased
net interest income and spread resulted from the $306 million growth
in average loans from the first quarter 1995 as well as the expiration
of derivative financial instruments which had a negative impact on the
Company's net interest margin in the first quarter of 1995. As
illustrated by Tables 1 and 2 (see pages 17 and 18), the growth in the
Company's loan portfolio had a greater positive impact on net interest
income for quarter ended March 31, 1996 than the change in rates.
Although the Company's base lending rate dropped approximately 40
basis points from period to period, the Company experienced an
increase in average loan rates as it was no longer negatively impacted
by its derivative financial instruments. These instruments reduced net
interest income and net interest margin $3.0 million and 63 basis
points, respectively, in the first quarter of 1995 while having no
material impact in the first quarter of 1996.
Concurrently, the Company's average interest-bearing liabilities,
primarily time certificates of deposit ("CD"), have grown $162 million
from the first quarter of 1995 in order to support loan demand. In
addition, average demand deposit levels were up $154 million from the
prior year as deposit inflows from the Company's real estate related
customers have increased. Although CD rates have declined slightly
from the first quarter of 1995, total deposit costs for the quarter
ended March 31, 1996 rose 30 basis points from the prior year. This
was due to the overall increase in average interest-bearing deposits
and also to a change in the composition of the interest-bearing
deposit portfolio; higher cost CD deposits comprised 65% of average
total interest-bearing deposits in the first quarter of 1996 while
making up 54% of average total interest-bearing deposits in the same
period of the prior year.
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3 IMPERIAL BANCORP [LOGO]
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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 expense, the Company's reported net interest
income and noninterest expense would have been reduced by $2.4 million
and $2.0 million, respectively, for the quarters ended March 31, 1996
and 1995. The net interest margin for each period would have been 5.4%
and 4.9%, respectively.
NONINTEREST INCOME: Noninterest income amounted to $13.0 million for
the first quarter of 1996 as compared to $8.4 million for the same
period of 1995. The table below shows the major components of
noninterest income.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Service charges on deposit accounts............... $ 1,258 $1,002
Trust fees........................................ 2,108 1,915
Gain on origination and sale of loans............. 305 531
Equity in net earnings (loss) of Imperial Credit
Industries, Inc................................. 2,860 (66)
Other service charges and fees.................... 2,128 1,512
Merchant and credit card fees..................... 439 1,439
Gain on securities available for sale............. 229 343
Gain on trading account securities................ 1,502 707
Other income...................................... 2,154 1,053
----------------------------------------------------------------------
Total $12,983 $8,436
----------------------------------------------------------------------
</TABLE>
Equity in the net earnings of Imperial Credit Industries, Inc. for the
quarter ended March 31, 1996 increased $2.9 million from the same
period of 1995. ICII sold significantly greater volumes of loans and
servicing rights during the first quarter of 1996 as it continues to
transform its business focus from traditional mortgage banking to
specialty finance lending. These first quarter 1996 sales resulted in
net gains for ICII which grew approximately $21.2 million from the
same period of 1995. As of March 31, 1996, the Company owned
approximately 40% of the common stock of ICII. In April 1996, the
Company sold 1.5 million shares of its investment in ICII in a public
offering for $26 per share. The gross spread, or the difference
between the price paid to the seller and the price at which the shares
were sold was $1.36 per share. The book value of the Company's
investment in ICII on the date of the sale approximated $6.20 per
share.
Excluding ICII, noninterest income for the first quarter of 1996
improved $1.6 million, or 19%, from the same period of 1995. The
improvement partially results from increased gains in the Company's
various trading activities: SBA securities trading income improved
$0.6 million and foreign currency exchange income was up $0.2 million.
The improvement in SBA trading gains results from the Company's wholly
owned broker-dealer subsidiary, Imperial Securities Corp ("ISC") which
began operations in March 1995 and thus was not a contributor in early
1995. Also, the Company recorded improvements in other fee income
businesses. Trust revenues from the Company's trust subsidiary,
Imperial Trust Company, increased $0.2 million, or 10% from the first
quarter of 1995 as a result of the Trust Company's increase in assets
under management and administration from $5.8 billion at March 31,
1995 to $6.8 billion at March 31, 1996. Service charges on deposit
accounts for the first quarter of 1996 have increased $0.3 million
from the prior year primarily due to the $154 million increase in
average demand deposits from period to period. The $0.6 million
increase in other service charges and fees for the first quarter of
1996 related to various activities, most significant of which were the
following: income from leasing of precious metals improved $0.2
million, commissions related to the sale of non-proprietary mutual
funds increased $0.2 million and fees related to loan processing and
servicing were also up $0.2 million. These increases were all related
to increased volumes in their respective operations. Other income
recorded in the quarter ended March 31, 1996, improved $1.1 million
over the same period of 1995. Partially responsible was a $0.2 million
increase from period to period in income recognized from the exercise
and sale of stock warrants. Adding to this improvement in other income
was an $0.8 million appreciation of ICII stock which was contributed
to a not-for-profit
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4 IMPERIAL BANCORP [LOGO]
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organization. The appreciation represents the difference between the
market value and the book value of the ICII shares on the date they
were donated. The Company recorded a corresponding charitable
contribution expense in other expenses during the quarter (see
Noninterest Expense).
Offsetting the overall increase in noninterest income was a $1.0
million decrease in merchant and credit card fees. This decrease
results from the 1995 fourth quarter sale of a portion of the
Company's merchant card accounts.
NONINTEREST EXPENSE: Noninterest expense totaled $31.2 million for the
quarter ended March 31, 1996 as compared to $26.4 million for the same
period in the prior year. The table below shows the major components
of noninterest expense.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Salary and employee benefits...................... $15,820 $11,667
Net occupancy expense............................. 2,243 2,109
Furniture and equipment........................... 1,139 1,238
Data processing................................... 1,509 2,082
Customer services................................. 2,437 2,041
Net real estate owned expense..................... 650 1,114
Regulatory assessments............................ 187 1,270
Professional and consulting....................... 1,623 819
Business development.............................. 992 815
Other expense..................................... 4,624 3,264
----------------------------------------------------------------------
Total $31,224 $26,419
----------------------------------------------------------------------
</TABLE>
The $4.8 million increase in noninterest expenses was primarily
attributable to increased salary and benefit costs experienced in the
first quarter of 1996. In addition to opening a new regional banking
office in Fresno to serve California's Central Valley, the Company's
focus on statewide growth has centered around an investment in people
resulting in a $1.6 million increase in personnel expenses for the
first quarter of 1996 over the first quarter of 1995. Also, the
Company adopted a second deferred compensation plan on January 1, 1996
which added approximately $1.2 million to benefit costs in the first
quarter of 1996. As a result of the greater profitability realized for
the first quarter of 1996 and expected through the remainder of the
year, expenses related to incentive compensation for the quarter ended
March 31, 1996 increased $1.0 million over the same period of the
prior year. Effective January 1, 1996, the Company increased the match
on its 401-K Plan which in turn increased expenses related to this
plan by $0.2 million for the first quarter of 1996 over the same
period of 1995.
Service costs related to demand deposits including accounting, courier
and other deposit related services increased $0.4 million from the
first quarter of 1995 due to increased average demand deposit volumes
during the first quarter of 1996 as these costs are a function of
deposit volume and interest rates. The Company incurred higher
professional and consulting fees during the first quarter of 1996.
Increased consulting expenses accounted for approximately $0.4 million
of the increase while legal fees were up $0.3 million. The Company
retained the services of a financial advisor in late 1995 as well as
outside consultants to assist in the implementation of its cost
containment and revenue enhancement programs. Other expenses for the
quarter ended March 31, 1996 increased $1.4 million over the same
period as the prior year. This increase was primarily attributable to
the $1.0 million charitable donation made in the first quarter of 1996
(see Noninterest Income). In addition, the Company realized higher
amortization expense related to the deposit premium paid in early 1995
to acquire the insured deposits of Guardian Bank. This increase
approximated $0.2 million for the first quarter of 1996 over the same
period of 1995.
Offsetting these increases in noninterest expense were decreases in
the following components of noninterest expense. Regulatory
assessments for the first quarter of 1996 decreased $1.1 million from
the same period of 1995 due to a reduction in the FDIC deposit
insurance premium in the third quarter of 1995. These premiums were
reduced again for fiscal year 1996. Also, the Company experienced
reduced data processing costs in the first quarter of 1996 which
declined $0.6 million from the same
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5 IMPERIAL BANCORP [LOGO]
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period of 1995. The reduced costs were primarily the result of the
fourth quarter 1995 sale of a portion of the Company's merchant card
accounts as the cost to service the accounts declined $0.4 million
from the quarter ended March 31, 1995. REO expenses totaled $0.7
million for the quarter ended March 31, 1996 as compared to $1.1
million in the same period of 1995. In the prior year, the Company
recorded $0.5 million in provisions for REO; no provisions for REO
were required in the first quarter of 1996.
INCOME TAXES: The Company recorded income tax expense of $5.1 million
for the quarter ended March 31, 1996, representing an effective tax
rate of approximately 42.8%. For the same period of 1995, the
Company's income tax expense and effective tax rate approximated $1.0
million and 18.3%, respectively. During the first quarter of 1995, the
Company recorded a $0.9 million reduction of tax expense to reflect
the finalization of prior years income tax issues. Also in the first
quarter of 1995, the Company reduced the valuation allowance on its
deferred tax assets by approximately $0.4 million. Excluding this
finalization of prior years tax issues and reversal of valuation
allowance, the Company's effective tax rate would have been 40.4% for
the first quarter of 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 $926 million for the quarter ended March 31, 1996 as
compared to $772 million for the same period of 1995. The Company's
average demand deposits and average stockholders' equity funded 46%
and 44%, respectively, of average total assets for the quarters ended
March 31, 1996 and 1995.
These funding sources are augmented by cash flow generated from
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 quarter of 1996, the Company
experienced a net cash outflow from its investing activities of $53
million. This net outflow in investing activities resulted primarily
from the growth in the Company's loan portfolio, an outflow of $47
million. The outflows were offset by the net $37 million provided by
the Company's financing activities consisting mainly of deposit
inflows including $75 million in certificates of deposit and $73
million in demand deposits, savings and money market accounts. These
deposit inflows were partially offset by $112 million of outflows
attributable to short-term borrowings.
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
("ALCO") 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.
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.
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6 IMPERIAL BANCORP [LOGO]
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The 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 March 31, 1996, the Company maintained a positive one year gap of
approximately $615 million as its interest rate sensitive assets
exceeded its interest rate sensitive liabilities. This positive
cumulative gap position indicates that the Company is asset sensitive
and positioned for increased net interest income during a period of
rising interest rates but also exposed to an adverse impact on net
interest income in a falling rate environment.
The Company's net interest margin is sensitive to sudden large changes
in interest rates. In addition, the Company's interest-earning assets,
primarily its loans are tied to the Prime rate, an index which 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, however, 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 shows 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.
Of the derivative financial contracts entered into in late 1993 and
1994, which included interest rate swaps with embedded options and
associated written options, and purchased options, most expired during
1995 although some were still outstanding at year end 1995. Interest
rate swaps with embedded options and a notional value of $200 million
matured in the first quarter of 1996. Interest rate swaps with linked
written options and a notional value of $100 million also matured in
the first quarter of 1996. All of the embedded and linked options
expired during 1995.
The combined economic impact of the Company's derivative financial
instruments discussed above was a $3.0 million reduction in net
interest income and a 63 basis point reduction in net interest margin
for the quarter ended March 31, 1995. The impact of these instruments
for the quarter ended March 31, 1996 was not material.
During 1995, the Company revised its approach as it related to
protecting net interest income from a narrowing of the Prime Rate and
LIBOR spread. The concerns of the spread between the two indices
narrowing diminished as the Prime Rate attained the characteristics of
a retail rate as opposed to those of a wholesale rate. This was
evidenced in the interest rate swap markets in 1995 as the spread
between Prime and LIBOR increased from approximately 217 basis points
to 250 basis points. Although the Company's balance sheet remains
asset sensitive, management had fewer concerns about potential
compression of the Company's interest rate margin in early 1995 then
it did in late 1993 and early 1994. The Company developed strategies
to protect both net interest income and net interest margin from
significant movements in interest rates both up and down. These
strategies involve purchasing interest rate floors and caps with
strike prices which generally adjust quarterly and are approximately
200 basis points below or above (depending on the instrument) current
market rates.
Based on its strategy and the general asset sensitive nature of the
balance sheet, the Company purchased over the counter interest rate
floors in the first quarter of 1995 to protect against a drop in
interest rates. The interest rate floors, with a notional value of
$500 million at March 31, 1996, mature in the first quarter of 1997.
In the first quarter of 1996, the Company purchased $750 million of
exchange traded interest rate floors. $500 million of the floors
mature in the second quarter of 1997 with the remaining $250 million
maturing in the third quarter of 1997. All of the floors provide
protection to the Company in the event that the three month LIBOR
drops below the strike price of 4.0% associated with the floor. The
unrealized gain on the floors approximated $88,000 at March 31, 1996.
In April 1996, the Company purchased an additional $250 million of
exchange traded interest rate floors. These floors mature in the third
quarter of 1997 and have a 4.0% strike price.
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7 IMPERIAL BANCORP [LOGO]
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During 1995, the Company also 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 caps had a notional value of $0.8
billion at March 31, 1996 and mature at the rate of $400 million per
quarter for the second and third quarters of 1996. The over the
counter caps had a notional value of $100 million at March 31, 1996.
These caps reset quarterly in June and September of 1996 and mature in
December of 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 gain of both
the exchange traded and over the counter caps approximated $525,000 at
March 31, 1996. In the first quarter of 1996, the Company purchased
additional exchange traded interest rate caps with a notional value of
$1.0 billion at March 31, 1996. The caps provide protection in the
event that the three month LIBOR increases above the 6.5% strike price
of the caps. These caps mature at the rate of $500 million per quarter
during the fourth quarter of 1996 and the first quarter of 1997. There
were no material unrealized gains or losses on these caps at March 31,
1996.
ASSET QUALITY
NONACCRUAL LOANS, RESTRUCTURED LOANS AND REAL ESTATE OWNED: Nonaccrual
loans, which includes loans 90 days or more past due, totaled $30.8
million at March 31, 1996 as compared to $28.9 million at year end
1995 and $18.6 million at March 31, 1995. The increase from year end
1995 was related primarily to one commercial loan relationship
approximating $4.4 million. The increase from March 31, 1995 primarily
represented nonaccrual real estate loans which were up $9.4 million.
Accounting for approximately 72% of this increase was a $6.8 million
term loan placed on nonaccrual status in the fourth quarter of 1995.
This loan is secured by a multi-family residential property in
Southern California. In addition, the Company placed a $3.2 million
real estate term loan secured by a single-family residential property
on nonaccrual status during 1995. In this case, the borrower filed for
bankruptcy protection under Chapter 11. As of March 31, 1996, the
Company was awaiting a resolution from the bankruptcy court.
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.
Restructured loans, loans outstanding whose original terms have been
modified, totaled $36.0 million at March 31, 1996 as compared to $33.6
million at prior year end and $3.2 million at March 31, 1995. The
increase in restructured loans from the first quarter of 1995 resulted
from the modification of two real estate secured loans totaling $29.5
million in the fourth quarter of 1995. The modified loans carried
market rates of interest but are classified as restructured because
the Company anticipates debt forgiveness on one of the loans in return
for a partial principal paydown and additional collateral and because
the Company deferred a principal reduction on the other. All
restructured loans were current as to principal and interest at March
31, 1996.
Real estate owned of $9.7 million, net of a $0.6 valuation allowance,
at March 31, 1996 decreased $0.6 million from year end 1995 and $12.1
million from March 31, 1995. The significant decline from the first
quarter of 1995 is attributable to the Company's successful
disposition of nineteen REO properties since March 31, 1995.
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Detailed information regarding nonaccrual loans, restructured loans
and real estate owned is presented below.
<TABLE>
<CAPTION>
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MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
(IN THOUSANDS) 1996 1995 1995 1995 1995
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial loans......... $14,766 $11,714 $ 9,308 $ 7,358 $11,954
Real estate loans........ 16,022 17,212 13,938 7,121 6,623
----------------------------------------------------------------------------------------
TOTAL NONACCRUAL LOANS $30,788 $28,926 $23,246 $14,479 $18,577
----------------------------------------------------------------------------------------
RESTRUCTURED LOANS $35,966 $33,608 $ 4,083 $ 4,097 $ 3,238
----------------------------------------------------------------------------------------
Real estate owned:
REO, gross............... $10,377 $15,015 $17,504 $26,272 $25,138
Less valuation allowance. (640) (4,686) (4,379) (3,381) (3,312)
----------------------------------------------------------------------------------------
REO, NET $ 9,737 $10,329 $13,125 $22,891 $21,826
----------------------------------------------------------------------------------------
TOTAL $76,491 $72,863 $40,454 $41,467 $43,641
----------------------------------------------------------------------------------------
</TABLE>
At March 31, 1996, the recorded investment in impaired loans was
$126.4 million, of which $30.8 million were on nonaccrual status and
$32.0 million were classified as restructured loans. A significant
portion, 79%, of the impaired loans were secured by real estate.
Impaired loans totaling $91.7 million required a specific allowance
for potential losses. The specific allowance for potential losses
related to such loans was $14.1 million. The remaining $34.7 million
of loans classified as impaired did not require a specific allowance
for potential losses. Impaired loans averaged $123.0 million during
the three months ended March 31, 1996. During the first quarter of
1996, total interest recognized on the impaired loan portfolio, on a
cash basis, was $2.0 million. At March 31, 1996, $95.0 million of the
impaired loans were current as to principal and interest. There were
no loans classified as potential problems at March 31, 1996.
ALLOWANCE AND PROVISION FOR LOAN LOSSES: The allowance for loan losses
is maintained at a level considered appropriate by management and is
based on an ongoing assessment of the risks inherent in the loan
portfolio. The allowance for loan losses is increased by the provision
for loan losses which is charged against current period operating
results, and is decreased by the amount of net charge-offs during the
period. 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 and
concentrations, prior loan loss experience, collateral value,
identification of problem and potential problem loans and other
relevant data to identify the risks in the loan portfolio. While
management believes that the allowance for loan losses is adequate at
March 31, 1996, future additions to the allowance will be subject to
continuing evaluation of inherent risk in the loan portfolio.
- --------------------------------------------------------------------------------
9 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
At March 31, 1996, the allowance for loan losses amounted to $39.2
million, or 2.24% of total loans, as compared to $37.4 million, or
2.20% of total loans, at December 31, 1995 and $39.6 million, or 2.69%
of total loans, at March 31, 1995. The following table summarizes
changes in the allowance for loan losses.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 1996 1995
------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 37,402 $ 40,072
------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial............................................................ (1,613) (1,366)
Real estate........................................................... (293) (800)
Consumer.............................................................. (3) (12)
------------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED OFF $ (1,909) $ (2,178)
------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial............................................................ 987 289
Real estate........................................................... 1 --
Consumer.............................................................. 4 11
------------------------------------------------------------------------------------------------------
TOTAL LOAN RECOVERIES $ 992 $ 300
------------------------------------------------------------------------------------------------------
Net loans charged off................................................... (917) (1,878)
Provision for loan losses............................................... 2,690 1,380
------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 39,175 $ 39,574
------------------------------------------------------------------------------------------------------
LOANS OUTSTANDING, END OF PERIOD $1,746,862 $1,468,491
------------------------------------------------------------------------------------------------------
AVERAGE LOANS OUTSTANDING $1,725,902 $1,419,525
------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans............................... 0.21%(1) 0.53%(1)
Ratio of allowance for loan losses to average loans..................... 2.27 2.79
Ratio of allowance for loan losses to loans outstanding at March 31..... 2.24 2.69
Ratio of allowance for loan losses to nonaccrual loans.................. 127 213
Ratio of provision for loan losses to net charge-offs................... 293 74
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
The provision for loan losses totaled $2.7 million for the quarter
ended March 31, 1996 as compared to $1.4 million for the same period
of 1995. Net charge-offs totaled $0.9 million for the three months
ended March 31, 1996 as compared to $1.9 million in the same period of
1995. As a percentage of average loans outstanding, net charge-offs
were 0.21% and 0.53%, respectively, for the quarters ended March 31,
1996 and 1995.
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 March 31, 1996, shareholders' equity totaled $235
million as compared to $228 million at December 31, 1995. In the first
quarter of 1996, the Company recorded an additional $0.4 million of
shareholders' equity from the exercise of employee stock options.
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, 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 of consolidated subsidiaries minus
intangible assets. Based on the guidelines, the Bank's Tier I and
total capital ratios at March 31, 1996 were 9.3% and 10.5%,
respectively, as compared to 10.1% and 11.4%, respectively, at March
31, 1995. The reduction in capital ratios primarily results from a 21%
increase in total assets and a 121% increase in unfunded commitments
with original maturities greater than one year from March 31, 1995.
- --------------------------------------------------------------------------------
10 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL RATIOS FOR IMPERIAL BANK(1)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
MARCH 31, (IN THOUSANDS) 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
TIER I:
Common stockholders' equity and preferred stock(2)..... $ 219,770 $ 194,380
Disallowed assets...................................... (1,766) (2,567)
------------------------------------------------------------------------------------
TIER I CAPITAL $ 218,004 $ 191,813
------------------------------------------------------------------------------------
TIER II:
Allowance for loan losses allowable in Tier II......... 29,556 23,931
------------------------------------------------------------------------------------
TOTAL RISK-BASED CAPITAL $ 247,560 $ 215,744
------------------------------------------------------------------------------------
RISK-WEIGHTED BALANCE SHEET ASSETS $1,993,087 $1,710,560
------------------------------------------------------------------------------------
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans.................. 291,808 131,801
Standby letters of credit.............................. 69,717 60,643
Other.................................................. 11,668 14,045
------------------------------------------------------------------------------------
TOTAL RISK-WEIGHTED OFF-BALANCE SHEET ITEMS $ 373,193 $ 206,489
------------------------------------------------------------------------------------
Disallowed assets........................................ (1,766) (2,567)
Allowance for loan losses not included in Tier II........ (9,619) (15,643)
------------------------------------------------------------------------------------
TOTAL RISK-WEIGHTED ASSETS $2,354,895 $1,898,839
------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier I capital......................................... 9.3% 10.1%
Total capital.......................................... 10.5 11.4
Leverage ratio......................................... 8.5 8.7
------------------------------------------------------------------------------------
</TABLE>
(1) As reported on the March 31, 1996 and 1995 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 was 8.5% at March 31, 1996 as compared to 8.7% at March 31, 1995
well in excess of regulatory requirements.
Since the third quarter of 1993, the Bank operated under a revised
Memorandum of Understanding ("MOU") with the Federal Deposit Insurance
Company ("FDIC") and the California State Banking Department ("State")
which required a reduction in classified assets, the prior written
approval of dividends of the Bank by the FDIC and the State and a
minimum leverage ratio of 6.5%. The FDIC and the State terminated the
Bank's MOU in the fourth quarter of 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS 121"). FAS 121 requires that long-
lived assets and certain identifiable intangibles held for use be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
In addition, FAS 121 requires that long-lived assets and certain
identifiable intangibles held for disposal be reported at the lower of
book value or fair value less selling costs. The Company adopted FAS
121 on January 1, 1996. The impact of adopting FAS 121 was not
material to the results of operations for the three months ended March
31, 1996.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" ("FAS
123"). FAS 123 applies to all transactions in which the Company
acquires goods or services by issuing equity instruments or by
incurring liabilities where the payment amounts are based on the
Company's common stock price, except for the Employee Stock Ownership
Plan. A new method of accounting for stock based compensation
arrangements with employees is established by FAS 123. The new method
is based on the fair value method rather than the intrinsic value
method prescribed by APB Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"). FAS 123 does not require companies to adopt
the new fair value method for purposes of preparing
- --------------------------------------------------------------------------------
11 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
their basic financial statements. Entities are allowed to either
continue to use the APB 25 method or adopt the fair value method set
forth in FAS 123. Companies that do not adopt the new fair value
method in FAS 123 for purposes of preparing their basic financial
statements are required to include pro-forma disclosures in the notes
to the basic financial statements. The pro-forma disclosures should
include the impact of the fair value method on net income and income
per share as if FAS 123 had been adopted.
The Company adopted FAS 123 on January 1, 1996 but management decided
not to adopt the fair value method set forth in FAS 123 for purposes
of accounting for its stock-based compensation.
- --------------------------------------------------------------------------------
12 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
IMPERIAL BANCORP AND SUBSIDIARIES MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.................. $ 250,575 $ 242,018
Trading account securities............... 17,544 40,050
Securities available for sale............ 326,119 295,312
Securities held to maturity (fair value
of $4,369 and $4,975 for 1996 and
1995, respectively).................... 4,369 4,975
Federal funds sold and securities
purchased under resale agreements...... 401,584 425,300
Loans held for sale (fair value of
$6,178 and $2,842 for 1996 and 1995,
respectively).......................... 5,705 2,648
Loans:
Loans, net of unearned income and
deferred loan fees................... 1,746,862 1,699,347
Less allowance for loan losses......... (39,175) (37,402)
----------------------------------------------------------------------
TOTAL NET LOANS $1,707,687 $1,661,945
----------------------------------------------------------------------
Premises and equipment, net.............. 15,916 16,003
Accrued interest receivable.............. 14,576 15,284
Real estate owned, net................... 9,737 10,329
Income taxes receivable.................. 3,414 4,008
Investment in Imperial Credit
Industries, Inc........................ 38,765 36,126
Other assets............................. 35,017 34,376
----------------------------------------------------------------------
TOTAL ASSETS $2,831,008 $2,788,374
----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand................................. $1,202,618 $1,145,720
Savings................................ 16,931 15,708
Money market........................... 450,915 435,674
Time--under $100,000................... 237,727 227,262
Time--$100,000 and over................ 603,727 539,252
----------------------------------------------------------------------
TOTAL DEPOSITS $2,511,918 $2,363,616
----------------------------------------------------------------------
Accrued interest payable................. 3,970 5,576
Short-term borrowings.................... 47,763 159,636
Long-term borrowings..................... 5,906 5,906
Other liabilities........................ 26,597 25,404
----------------------------------------------------------------------
TOTAL LIABILITIES $2,596,154 $2,560,138
----------------------------------------------------------------------
Stockholders' equity:
Common stock--no par, 50,000,000
shares authorized; 14,984,221
shares at March 31, 1996 and
13,821,125 shares at December 31,
1995 issued and outstanding.......... 158,614 130,780
Unrealized gain on securities
available for sale, net of tax....... 2,155 2,747
Retained earnings...................... 74,085 94,709
----------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 234,854 $ 228,236
----------------------------------------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,831,008 $2,788,374
----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
13 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
----------------------------------------------------------------------
IMPERIAL BANCORP AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans......................................... $40,911 $31,154
Trading account securities.................... 631 951
Securities available for sale................. 4,790 4,747
Securities held to maturity................... 77 74
Federal funds sold and securities purchased
under resale agreements..................... 2,200 1,593
Loans held for sale........................... 72 80
----------------------------------------------------------------------
TOTAL INTEREST INCOME $48,681 $38,599
----------------------------------------------------------------------
Interest expense:
Deposits...................................... 15,053 12,015
Short-term borrowings......................... 718 1,370
Long-term borrowings.......................... 98 150
----------------------------------------------------------------------
TOTAL INTEREST EXPENSE $15,869 $13,535
----------------------------------------------------------------------
Net interest income........................... 32,812 25,064
Provision for loan losses..................... 2,690 1,380
----------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $30,122 $23,684
----------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts........... 1,258 1,002
Trust fees.................................... 2,108 1,915
Gain on origination and sale of loans......... 305 531
Equity in net earnings of Imperial Credit
Industries, Inc............................. 2,860 (66)
Other service charges and fees................ 2,128 1,512
Merchant and credit card fees................. 439 1,439
Gain on securities available for sale......... 229 343
Gain on trading account securities............ 1,502 707
Other income.................................. 2,154 1,053
----------------------------------------------------------------------
TOTAL NONINTEREST INCOME $12,983 $ 8,436
----------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits.................. 15,820 11,667
Net occupancy expense......................... 2,243 2,109
Furniture and equipment....................... 1,139 1,238
Data processing............................... 1,509 2,082
Customer services............................. 2,437 2,041
Net real estate owned expense................. 650 1,114
Regulatory assessments........................ 187 1,270
Professional and consulting................... 1,623 819
Business development.......................... 992 815
Other expense................................. 4,624 3,264
----------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE $31,224 $26,419
----------------------------------------------------------------------
Income before income taxes.................... 11,881 5,701
Income tax provision.......................... 5,085 1,045
----------------------------------------------------------------------
Net income $ 6,796 $ 4,656
----------------------------------------------------------------------
Net income per share $0.43 $0.31
----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
14 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
IMPERIAL BANCORP AND SUBSIDIARIES (UNAUDITED)
THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................. $ 6,796 $ 4,656
Adjustments for noncash charges (credits):
Depreciation and amortization............ (591) 507
Accretion of purchased loan discount..... (161) (570)
Provision for loan losses................ 2,690 1,380
Provision for real estate owned.......... -- 500
Equity in net (earnings) loss of Imperial
Credit Industries, Inc................. (2,860) 66
Gain on sale of real estate owned........ (3) (45)
Gain on sale of real property held for
sale or investment..................... -- (75)
Gain on sale of premises and equipment... -- (4)
Gain on securities available for sale.... (229) (343)
Net change in trading account securities. 22,506 16,765
Net change in loans held for sale........ (3,057) (2,965)
Net change in accrued interest receivable 708 (1,333)
Net change in accrued interest payable... (1,606) 939
Net change in income taxes receivable.... 594 (3,010)
Net change in other liabilities.......... 1,193 1,141
Net change in other assets............... (942) (1,132)
----------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 25,038 $ 16,477
----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from securities held to maturity.. 7 7
Proceeds from sale of securities available
for sale................................. 666,475 405,227
Proceeds from maturities of securities
available for sale....................... 40,108 300,944
Purchase of securities available for sale.. (737,089) (616,398)
Net change in federal funds sold and
securities purchased under resale
agreements............................... 23,716 35,975
Net change in loans........................ (46,524) (98,398)
Capital expenditures....................... (877) (944)
Proceeds from sale of real estate owned.... 860 11,736
Proceeds from sale of real property held
for sale or investment................... -- 309
Proceeds from sale of premises and
equipment............................... -- 9
----------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES $ (53,324) $ 38,467
----------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits, savings,
and money market accounts................ 73,362 (81,468)
Net change in time deposits................ 74,940 134,986
Net change in short-term borrowings........ (111,873) (92,640)
Retirement of long-term borrowings......... -- (7)
Proceeds from exercise of employee stock
options.................................. 432 110
Other...................................... (18) (11)
----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES $ 36,843 $ (39,030)
----------------------------------------------------------------------
NET CHANGE IN CASH AND DUE FROM BANKS $ 8,557 $ 15,914
----------------------------------------------------------------------
CASH AND DUE FROM BANKS, BEGINNING OF
YEAR $ 242,018 $ 168,626
----------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 250,575 $ 184,540
----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
15 IMPERIAL BANCORP [LOGO]
<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.
At December 31, 1994, the Company owned 3,867,368 shares, or 40.2% of
the common stock of Imperial Credit Industries, Inc. (NASDAQ-NMS-ICII)
("ICII"). During 1995, ICII common stock was split at the ratio of
three new shares for every two shares outstanding. In February 1996,
ICII declared and paid a 10% stock dividend. Combined, these events
increased shares held by the Company to 6,381,157. The Company's
ownership percentage dropped slightly from 40.2% to 39.7% as a result
of the exercise of employee stock options at ICII. On April 24, 1996,
the Company sold 1,500,000 shares of ICII in a public offering for $26
per share. The gross spread, or the difference between the price paid
to the seller and the price at which the shares were sold was $1.36
per share. The book value of the Company's investment in ICII on the
date of the sale approximated $6.20 per share. As a part of that same
offering, ICII sold 2,252,091 new shares to the public. After the sale
of ICII shares, the book vlaue of ICII common stock approximated $8.30
per share. As such, the Company recorded a gain which approximated the
excess of ICII's book value per share over the book value of the
Company's remaining investment in ICII.
As a result of the offering, the Company's ownership percentage was
reduced to approximately 26%. The Company does not exercise
significant control over the operations of ICII and as such the
results of operations are accounted for in the Company's financial
statements as an equity investment. The equity investment in ICII is
carried at cost adjusted for changes in ICII's shareholder equity
including undistributed income. Transactions between ICII and the
Company occur during the normal course of business. All transactions
are carried out at substantially the same terms as those prevailing at
the same time for comparable transactions with others.
NOTE (3) STATEMENT OF CASH FLOWS
The following information supplements the statement of cash flows.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
MARCH 31, (IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Interest paid..................................... $17,475 $12,596
Taxes refunded.................................... 244 1,089
Taxes paid........................................ 4,300 5,340
Significant noncash transactions:
Loans transferred to real estate owned.......... 265 4,577
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
16 IMPERIAL BANCORP [LOGO]
<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
annualized 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 MARCH 31,
----------------------------------------------------------------------------------------------------------------------
1996 1995
----------------------------------------------------------------------------------------------------------------------
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)...................... $1,725,902 $ 40,911(2) 9.5% $1,419,525 $ 31,154(2) 8.8%
Trading account securities.... 46,201 631 5.5 53,782 951 7.1
Securities available for sale. 295,927 4,790 6.5 301,943 4,747 6.3
Securities held to maturity... 4,372 77 7.0 6,143 74 4.8
Federal funds sold and
securities purchased under
resale agreements........... 162,472 2,200 5.4 109,530 1,593 5.8
Loans held for sale........... 3,019 72 9.5 2,877 80 11.1
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING
ASSETS $2,237,893 $ 48,681 8.7% $1,893,800 $ 38,599 8.2%
----------------------------------------------------------------------------------------------------------------------
Allowance for loan losses....... (39,211) (40,409)
Cash............................ 227,798 203,536
Other assets.................... 117,471 131,580
---------- ----------
Total assets.................. $2,543,951 $2,188,507
---------- ----------
Interest-bearing liabilities:
Savings....................... $ 19,866 $ 123 2.5% $ 36,488 $ 225 2.5%
Money market.................. 434,500 3,152 2.9 463,710 3,109 2.7
Time - under $100,000......... 240,356 3,519 5.9 219,207 3,289 6.0
Time - $100,000 and over...... 596,606 8,259 5.5 369,032 5,392 5.8
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
DEPOSITS $1,291,328 $ 15,053 4.7% $1,088,437 $ 12,015 4.4%
----------------------------------------------------------------------------------------------------------------------
Short-term borrowings......... 56,318 718 5.1 95,095 1,370 5.8
Long-term borrowings.......... 5,906 98 6.6 8,149 150 7.4
----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING
LIABILITIES $1,353,552 $ 15,869 4.7% $1,191,681 $ 13,535 4.5%
----------------------------------------------------------------------------------------------------------------------
Demand deposits................. 925,778 771,651
Other liabilities............... 32,368 24,268
Stockholders' equity............ 232,253 200,907
---------- ----------
Total liabilities and
stockholders' equity........ $2,543,951 $2,188,507
---------- ----------
Net interest income/net
interest margin............... $ 32,812 5.9% $ 25,064 5.3%
------------------------- -----------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonaccrual loans.
(2) Includes net loan fees of $2,019,000 and $832,000 for the three
months ended March 31, 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
17 IMPERIAL BANCORP [LOGO]
<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 MARCH 31,
-----------------------------------------------------------------------------------------------------------
1996 OVER 1995
(IN THOUSANDS) VOLUME RATE(1) RATE/VOLUME TOTAL
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase/(decrease) in:
Loans, net of unearned income and deferred loan fees........ 6,740 2,419 598 9,757
Trading account securities.................................. (135) (220) 35 (320)
Securities available for sale............................... (95) 132 6 43
Securities held to maturity................................. (4) 10 (3) 3
Federal funds sold and securities purchased under
resale agreements......................................... 768 (105) (56) 607
Loans held for sale......................................... 4 (11) (1) (8)
-----------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $7,278 $2,225 $ 579 $10,082
-----------------------------------------------------------------------------------------------------------
Savings..................................................... (41) (2) (59) (102)
Money market................................................ (197) 234 6 43
Time - under $100,000....................................... 317 (79) (8) 230
Time - $100,000 and over.................................... 3,300 (242) (191) 2,867
-----------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $3,379 $ (89) $(252) $ 3,038
-----------------------------------------------------------------------------------------------------------
Short-term borrowings....................................... (562) (167) 77 (652)
Long-term borrowings........................................ (41) (16) 5 (52)
-----------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $2,776 $ (272) $(170) $ 2,334
-----------------------------------------------------------------------------------------------------------
CHANGES IN NET INTEREST INCOME $4,502 $2,497 $ 749 $ 7,748
-----------------------------------------------------------------------------------------------------------
</TABLE>
(1) The rate change for interest income includes positive net impact
of $3.0 million from derivative instruments for the three months
ended March 31, 1996 over the three months ended March 31, 1995.
- --------------------------------------------------------------------------------
18 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 3 - SECURITIES
(a) Securities Held to Maturity
The following is a summary for the major categories of securities held
to maturity.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1996
Industrial development bonds..... $ 4,369 $ -- $ -- $ 4,369
--------------------------------------------------------------------------------------
TOTAL $ 4,369 $ -- $ -- $ 4,369
--------------------------------------------------------------------------------------
December 31, 1995
Industrial development bonds..... $ 4,376 $ -- $ -- $ 4,376
Other securities................. 599 -- -- 599
--------------------------------------------------------------------------------------
TOTAL $ 4,975 $ -- $ -- $ 4,975
--------------------------------------------------------------------------------------
</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>
March 31, 1996
U.S. Treasury and federal
agencies....................... $274,864 $3,603 $(12) $278,455
Mutual funds..................... 44,504 -- -- 44,504
Other securities................. 3,007 153 -- 3,160
--------------------------------------------------------------------------------------
TOTAL $322,375 $3,756 $(12) $326,119
--------------------------------------------------------------------------------------
December 31, 1995
U.S. Treasury and federal
agencies....................... $241,649 $4,274 $ (4) $245,919
Mutual funds..................... 43,052 -- -- 43,052
Other securities................. 5,837 504 -- 6,341
--------------------------------------------------------------------------------------
TOTAL $290,538 $4,778 $ (4) $295,312
--------------------------------------------------------------------------------------
</TABLE>
Gross realized gains and losses for the three months ended March 31,
1996, were $232,000 and $3,000, respectively. For the same period of
1995, these amounts were $408,000 and $65,000, respectively.
- --------------------------------------------------------------------------------
19 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4 - REAL ESTATE OWNED
(a) REAL ESTATE OWNED BY TYPE OF PROJECT
At March 31, 1996 and December 31, 1995, real estate owned by type of
project is presented in the following table:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Acquisition and land development........... $ 2,708 $ 6,908
Multi-family residential................... -- 162
Single-family residential.................. 1,049 1,325
----------------------------------------------------------------------
TOTAL RESIDENTIAL $ 3,757 $ 8,395
----------------------------------------------------------------------
Acquisition and land development........... 5,420 5,420
Retail facilities.......................... 1,200 1,200
----------------------------------------------------------------------
TOTAL NON-RESIDENTIAL $ 6,620 $ 6,620
----------------------------------------------------------------------
REO, GROSS $10,377 $15,015
----------------------------------------------------------------------
Less valuation allowance................... (640) (4,686)
----------------------------------------------------------------------
REO, NET $ 9,737 $10,329
----------------------------------------------------------------------
</TABLE>
(b) NET REAL ESTATE OWNED EXPENSE
For the periods ended March 31, 1996 and 1995, net real estate owned
expense was comprised of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Net gain on sale of real estate owned.......... $ (3) $ (45)
Valuation adjustments charged to operations.... -- 500
Direct holding costs........................... 653 659
----------------------------------------------------------------------
Net real estate owned expense $ 650 $ 1,114
----------------------------------------------------------------------
</TABLE>
The following table sets forth information regarding the Company's
valuation allowance for REO.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
MARCH 31, DECEMBER 31,
(IN THOUSANDS) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $ 4,686 $ 6,475
Provision for REO.......................... -- 4,547
REO charged off............................ (4,046) (6,336)
----------------------------------------------------------------------
BALANCE, END OF PERIOD $ 640 $ 4,686
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
20 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 5 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Net income as a percentage of: (1)
Average stockholders' equity.................... 11.70% 9.27%
Average total assets............................ 1.07 0.85
Average earning assets.......................... 1.21 0.98
Average stockholders' equity as a percentage of:
Average assets.................................. 9.13% 9.18%
Average loans................................... 13.46 14.15
Average deposits................................ 10.48 10.80
Stockholders' equity at period end as a
percentage of:
Total assets at period end...................... 8.30% 8.64%
Total loans at period end....................... 13.44 13.80
Total deposits at period end.................... 9.35 10.07
</TABLE>
(1) Annualized
- --------------------------------------------------------------------------------
21 IMPERIAL BANCORP [LOGO]
<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 March 31, 1996 and 1995, 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 MARCH 31,
----------------------------------
1996 1995(1)
---------------- ---------------
<S> <C>
15,644,090 15,221,239
</TABLE>
(1) Adjusted for an 8% stock dividend paid in the first quarter of
1996.
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.
- --------------------------------------------------------------------------------
22 IMPERIAL BANCORP [LOGO]
<PAGE>
- --------------------------------------------------------------------------------
ITEM 5. OTHER INFORMATION
No events have transpired which would make response to this item
appropriate.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
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.
- --------------------------------------------------------------------------------
23 IMPERIAL BANCORP [LOGO]
<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: May 13, 1996 By: ROBERT M. FRANKO
----------------------------
Robert M. Franko
Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
24 IMPERIAL BANCORP [LOGO]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 250,575
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 401,584
<TRADING-ASSETS> 17,544
<INVESTMENTS-HELD-FOR-SALE> 326,119
<INVESTMENTS-CARRYING> 4,369
<INVESTMENTS-MARKET> 4,369
<LOANS> 1,746,862
<ALLOWANCE> 39,175
<TOTAL-ASSETS> 2,831,008
<DEPOSITS> 2,511,918
<SHORT-TERM> 47,763
<LIABILITIES-OTHER> 30,567
<LONG-TERM> 5,906
0
0
<COMMON> 234,854
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 2,831,008
<INTEREST-LOAN> 40,911
<INTEREST-INVEST> 5,498
<INTEREST-OTHER> 2,272
<INTEREST-TOTAL> 48,681
<INTEREST-DEPOSIT> 15,053
<INTEREST-EXPENSE> 15,869
<INTEREST-INCOME-NET> 32,812
<LOAN-LOSSES> 2,690
<SECURITIES-GAINS> 229
<EXPENSE-OTHER> 31,224
<INCOME-PRETAX> 11,881
<INCOME-PRE-EXTRAORDINARY> 6,796
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,796
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 5.9
<LOANS-NON> 30,788
<LOANS-PAST> 0
<LOANS-TROUBLED> 35,966
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,402
<CHARGE-OFFS> 1,909
<RECOVERIES> 992
<ALLOWANCE-CLOSE> 39,175
<ALLOWANCE-DOMESTIC> 39,175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
