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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, 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 September 30,
1996: 23,073,803 shares.
Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of September 30, 1996, $3,419,000 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, 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 and nine months
ended September 30, 1996.
PERFORMANCE SUMMARY
Net income for the third quarter rose 68% to $8.7 million, or $0.36
per share, compared with net income of $5.2 million, or $0.22 per
share, for the third quarter of 1995. Earnings per share have been
adjusted for a three-for-two stock split declared on September 26,
1996 and distributed on October 18, 1996 to shareholders of record on
October 11, 1996. On a pre-split basis, earnings per share for the
third quarter of 1996 were $0.54 per share compared with $0.33 for the
same quarter of 1995. For the third quarter, return on equity was
12.8%, compared with 9.7% for the same quarter last year, and return
on assets rose to 1.2% from 0.85% in the third quarter of 1995.
For the first nine months of 1996, net income tripled to $44.1
million, or $1.87 per share on a post-split basis, compared with $14.5
million, or $0.63 per share on a post-split basis, for the same period
of 1995. Year-to-date, earnings were positively impacted by a pre-tax
gain of $36.4 million realized from the second quarter sale of a
portion of the Company's investment in Imperial Credit Industries,
Inc. (NASDAQ-NMS-ICII) plus an additional $8.6 million derived from
ICII's gain associated with its June 1996 public offering and sale of
stock in its subsidiary, Southern Pacific Funding Corporation (NYSE-
SFC). Also impacting results was a $5.6 million loss from operations,
net of tax, from a discontinued operation. Excluding the gains and the
costs associated with the discontinued operation, the Company earned
approximately $23.0 million, or $0.98 per share on a post-split basis,
for the nine month period, a 59% improvement over the comparable
period a year ago.
The increase in core net income (income excluding gains from ICII and
loss from discontinued operation) was attributable to the 18% and 19%
growth in average loans in the third quarter and nine-month period,
respectively, over the same periods of 1995. As a result, net interest
income and net interest margin for the third quarter and nine-month
period were $36.1 million and 5.7%, respectively, and $103.2 million
and 5.8%, respectively, compared with $29.0 million and 5.5%,
respectively, and $81.5 million and 5.4%, respectively, for the
comparable periods of 1995.
Noninterest income for the quarter ended September 30, 1996 totaled
$12.6 million, an improvement from $10.5 million for the same period
of 1995. For the first nine months of 1996, noninterest income totaled
$84.5 million as compared to $27.1 million for the same period of
1995. Excluding non-core business items, the most significant of which
are discussed above, noninterest income for the nine-month period was
$35.9 million.
Noninterest expenses amounted to $30.5 million and $93.7 million,
respectively, for the 1996 third quarter and nine-month period,
compared with $26.1 million and $78.7 million, respectively, reported
for the same periods in 1995. These increases for the quarter and
year-to-date are primarily related to the $3.9 million and $11.0
million respective increases in salary and employee benefits expense
over the same periods of 1995. In addition, the Company recorded
charitable donation expenses of $4.9 million in the first nine months
of 1996.
Offsetting the increase in personnel costs and charitable donations
were reductions in regulatory assessments, real estate owned ("REO")
expense and data processing costs. Regulatory assessments for the
quarter and nine months ended September 30, 1996 decreased $0.3
million and $2.6 million, respectively, from the same periods of 1995
due to the reduction in the FDIC deposit insurance
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premium in late 1995. REO expenses declined $2.6 million and $4.0
million, respectively, for the third quarter and first nine months of
1996 as levels of REO have decreased significantly from the same
periods of 1995.
At September 30, 1996, the Company's total assets were $3.3 billion,
total loans were $1.9 billion and stockholders' equity and allowance
for loan losses totaled $316 million. This compares to total assets of
$2.8 billion, total loans of $1.7 billion and stockholders' equity and
allowance for loan losses of $266 million at December 31, 1995.
Total deposits at September 30, 1996, amounted to $2.8 billion which
included $1.3 billion, or 45%, of noninterest bearing demand deposits.
This favorably compares to total deposits of $2.4 billion at December
31, 1995 which included $1.1 billion, or 48%, of noninterest bearing
demand deposits. The overall funding base of the Company is enhanced
by a sizable level of demand deposits resulting from the 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 nine months ended September
30, 1996, as compared to 45% for the nine months ended September 30,
1995.
At September 30, 1996, the allowance for loan losses amounted to $39.5
million or 2.1% of total loans as compared to $37.4 million or 2.2% of
total loans at December 31, 1995 and $38.3 million or 2.3% of total
loans at September 30, 1995. The provision for loan losses for the
quarter ended September 30, 1996 totaled $3.8 million as compared to
$6.3 million reported for the quarter ended September 30, 1995. Net
charge-offs for the quarter ended September 30, 1996 totaled $2.8
million, a $3.6 million decrease from the levels experienced in the
same quarter of 1995. The provision for loan losses for the nine
months ended September 30, 1996 totaled $9.8 million as compared to
$10.8 million reported for the same period of 1995. Net charge-offs
for the first nine months of 1996 totaled $7.7 million, a $4.8 million
decrease from the levels experienced in the same period of 1995.
Nonaccrual loans of $22.3 million at September 30, 1996, decreased
$0.9 million from September 30, 1995 and decreased $6.6 million from
year end 1995. The allowance for loan losses coverage of nonaccrual
loans at September 30, 1996 approximated 177%, an increase from 165%
at September 30, 1995 and an increase from 129% at December 31, 1995.
REO of $2.7 million at September 30, 1996, decreased $10.4 million
from September 30, 1995 and $7.7 million from year end 1995.
Imperial Bank is classified "Well Capitalized" with leverage, Tier I
and total capital ratios at September 30, 1996, of 8.7%, 9.8% and
11.0%, respectively, as compared to 8.3%, 9.1% and 10.4%,
respectively, the year earlier.
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 and nine months ended September 30, 1996,
net interest income increased to $36.1 million and $103.2 million,
respectively, from $29.0 million and $81.5 million, respectively, for
the same periods of 1995.
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
September 30, September 30,
(In Thousands) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Interest income............ $54,513 $45,014 $152,929 $126,675
Interest expense........... 18,429 15,978 49,735 45,206
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Net interest income $36,084 $29,036 $103,194 $ 81,469
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Net interest margin 5.7% 5.5% 5.8% 5.4%
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</TABLE>
The Company's net interest margin increased to 5.7% and 5.8% for the
third quarter and first nine months of 1996, respectively, from 5.5%
and 5.4%, respectively, for the same periods of 1995. The increased
net interest income and spread resulted from the $282 million and $288
million growth in
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average loans for the third quarter and first nine months of 1996,
respectively, from the comparable periods of 1995. In addition, net
interest income and net interest margin improved due to the expiration
of derivative financial instruments which had a negative impact on the
Company's net interest margin in 1995. As illustrated by Table 1 -
Average Balances, Yields and Rates Paid (see page 18) and Table 2 -
Analysis of Changes in Net Interest Margin (see page 19), the growth
in the Company's loan portfolio had a much greater impact on net
interest income for the quarter and nine months ended September 30,
1996 than the change in rates. Although the Company's average base
lending rate dropped approximately 56 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 $2.1 million and 39 basis points, respectively, in the
third quarter of 1995 and $8.0 million and 52 basis points,
respectively, in the first nine months of 1995 while having no
material impact in 1996.
Concurrently, the Company's average interest-bearing liabilities for
the third quarter of 1996, primarily time certificates of deposit
("CD"), have grown $272 million from the third quarter of 1995 in
order to support loan demand. In addition, average demand deposit
levels were up $133 million from the prior year third quarter as
deposit inflows from the Company's real estate related customers have
increased. As a result of lower interest rates, overall funding costs
as a percentage of total interest-bearing liabilities have been
reduced. Offsetting this decrease in rates paid was the volume
increase in CDs greater than $100,000.
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 $8.3 million
and $6.2 million, respectively, for the nine months ended September
30, 1996 and 1995. The net interest margin for each period would have
been 5.3% and 5.0%, respectively.
Noninterest Income: Noninterest income amounted to $12.6 million for
the third quarter of 1996 as compared to $10.5 million for the same
period of 1995. For the nine months ended September 30, 1996,
noninterest income totaled $84.5 million as compared to $27.1 million
in the prior year. The table below shows the major components of
noninterest income.
<TABLE>
<CAPTION>
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Three months ended Nine months ended
September 30, September 30,
(In Thousands) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Service charges on deposit
accounts.................... $ 1,123 $ 1,045 $ 3,617 $ 3,103
Trust fees................... 2,197 1,921 6,468 5,728
Gain on origination and
sale of loans............... 576 758 2,249 1,718
Equity in net earnings of
Imperial Credit Industries,
Inc......................... 3,045 1,730 16,556 2,787
Gain on sale of Imperial
Credit Industries, Inc.
common stock................ - - 36,411 -
Other service charges and
fees........................ 3,118 1,675 7,115 4,629
Merchant and credit card
fees........................ 728 1,662 1,764 4,676
(Loss) gain on securities
available for sale.......... (13) (8) 229 259
Gain on trading account
securities.................. 581 827 2,387 1,973
Appreciation of donated
Imperial Credit Industries,
Inc. common stock........... 109 - 3,614 -
Other income................. 1,122 843 4,107 2,253
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Total $12,586 $10,453 $84,517 $27,126
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</TABLE>
Noninterest income reported for the nine-month period ended September
30, 1996 was significantly impacted by gains realized from the sale of
a portion of the Company's investment in ICII. In April 1996, the
Company sold 1.5 million shares of ICII as a part of an offering which
included the sale of approximately 2.2 million new ICII shares by ICII
to the public. An additional 0.5 million shares were sold by ICII to
the public in May 1996. The Company recorded a $25.6 million pre-tax
gain on the sale of its ICII shares. After the sales of ICII shares,
the book value of ICII common stock approximated
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$8.72 per share. As such, the Company recorded a $10.8 million pre-tax
gain which approximated the excess of ICII's book value per share over
the book value of the Company's remaining investment in ICII. The
total gains of $36.4 million related to these transactions are
reflected in the consolidated Statement of Income as "Gain on sale of
Imperial Credit Industries, Inc. common stock."
In addition, the Company realized a significant increase in equity in
the net earnings of ICII in the second quarter of 1996. In June 1996,
ICII sold approximately 2.0 million shares of their subsidiary
Southern Pacific Funding Corporation (NYSE-SFC) in connection with
SFC's initial public offering of 5.0 million shares. ICII's sale of
its SFC stock resulted in a pre-tax gain to ICII of $62.0 million. The
Company's net equity in this gain realized by ICII approximated $8.6
million pre-tax and is included in the consolidated Statement of
Income as "Equity in the net earnings of Imperial Credit Industries,
Inc." Excluding the gains from the SFC transaction, the equity in net
earnings of ICII increased $1.3 million and $5.2 million for the third
quarter and first nine months of 1996 despite the reduction in
ownership percentage to 25%. These increases were attributable to
ICII's greater volume and higher profitability on loan sales executed
through securitization transactions.
Excluding ICII, noninterest income for the third quarter and first
nine months of 1996 improved $0.8 million and $7.2 million,
respectively, from the same periods of 1995. This improvement in the
nine-month period partially results from $3.6 million of appreciation
of ICII stock which was contributed to a charitable organization
during the second quarter. 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).
Also, the Company recorded improvements in fee income businesses. The
Company recorded higher gains from the origination and sales of SBA
loans as loan volumes have increased over the prior year. This line of
business generated an additional $0.5 million of noninterest income
for the nine months ended September 30, 1996. Trust revenues from the
Company's trust subsidiary, Imperial Trust Company, increased $0.3
million and $0.7 million, respectively, from the third quarter and
first nine months of 1995 as a result of the Trust Company's increase
in assets under management and administration. Service charges on
deposit accounts for the third quarter and first nine months of 1996
have increased $0.1 million and $0.5 million, respectively, from the
same periods in the prior year primarily due to the increase in
average demand deposits from period to period. The $1.4 million and
$2.5 million increase, respectively, in other service charges and fees
for the third quarter and first nine months of 1996 related to various
activities, most significant of which were the following: commissions
related to the sale of non-proprietary mutual funds increased $0.1
million and $0.4 million, respectively, and fees related to loan
processing and servicing were also up $1.0 million and $1.6 million,
respectively. These increases were all related to increased volumes in
their respective operations. Other income recorded in the quarter and
nine months ended September 30, 1996 improved $0.3 million and $1.9
million, respectively, over the same periods of 1995. Partially
responsible was a $0.1 million and $0.5 million increase,
respectively, from the same periods in 1995 from the exercise and sale
of stock warrants.
Offsetting the overall increase in noninterest income were $0.9
million and $2.9 million decreases, respectively, in merchant and
credit card fees for the quarter and nine months ended September 30,
1996 from the same periods of last year. As a result of the fourth
quarter 1995 sale of a portion of the Company's merchant card
accounts, fee income for the quarter and nine month period related to
this line of business decreased from the same periods of 1995.
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Noninterest Expense: Noninterest expense totaled $30.5 million for the
quarter ended September 30, 1996 as compared to $26.1 million for the
same period in the prior year. For the nine months ended September 30,
1996 noninterest expense was $93.7 million up from $78.7 million in the
same period in 1995. The table below shows the major components of
noninterest expense.
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(In Thousands) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Salary and employee
benefits.................. $15,367 $11,499 $45,291 $34,280
Net occupancy expense....... 2,356 2,233 6,821 6,526
Furniture and equipment..... 1,288 1,264 3,707 3,760
Data processing............. 1,714 2,048 4,771 6,048
Customer services........... 3,044 2,151 8,275 6,152
Net real estate owned
expense................... 321 2,952 1,269 5,280
Regulatory assessments...... 27 348 253 2,860
Professional and consulting 1,505 578 4,957 2,491
Business development........ 1,030 778 2,759 2,384
Lawsuit settlements......... - (1,709) - (1,516)
Charitable donations........ 195 50 4,863 115
Other expense............... 3,673 3,956 10,704 10,335
------------------------------------------------------------------------
Total $30,520 $26,148 $93,670 $78,715
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</TABLE>
For the three and nine-month period, the increase in noninterest expense
was partially attributable to the charitable donations of ICII common
stock made during the year (see Noninterest Income) and to the favorable
settlement of a lawsuit in the third quarter of 1995.
Excluding the impact of the donations and a prior year lawsuit
settlement, noninterest expense rose $2.5 million and $8.6 million,
respectively, from the third quarter and first nine months of 1995.
Primarily responsible for the increase were the rise in salary and
benefit costs experienced in the first nine months of 1996. In addition
to opening a new banking office in Fresno, California and loan
production offices in Boston, Massachusetts; Austin, Texas; and Phoenix;
Arizona, the Company's focus on growth has centered around an investment
in people resulting in a $4.6 million increase in personnel expenses for
the first nine months of 1996 over the first nine months of 1995. Also,
the Company adopted an additional deferred compensation plan on January
1, 1996 which added approximately $2.5 million to benefit costs in the
first nine months of 1996. As a result of the greater profitability
realized for the nine month period and expected through the remainder of
the year, expenses related to incentive compensation for the nine months
ended September 30, 1996 increased $2.7 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 $0.5 million for the first nine months of 1996 over the same
period of 1995. All of these factors were also responsible for the
increase in compensation costs in the third quarter of 1996 over the
same quarter of 1995.
Customer service costs related to demand deposits including accounting
courier and other deposit related services in the third quarter and
first nine months of 1996 increased $0.9 million and $2.1 million,
respectively, from the same periods of 1995 due to increased average
demand deposits volumes during the first nine months of 1996 as these
costs are a function of deposit volume and interest rates. The Company
incurred higher professional and consulting fees during the third
quarter and nine month period ended September 30, 1996. Increased
consulting expenses in the third quarter and first nine months of 1996
accounted for approximately $0.4 million and $1.3 million, respectively,
of the increase. The Company has retained the services of outside
consultants to assist in the implementation of its cost containment and
revenue enhancement programs.
Offsetting these increases in noninterest expense were decreases in the
following components of noninterest expense. Regulatory assessments for
the quarter and nine months ended September 30, 1996 decreased $0.3
million and $2.6 million, respectively, from the same periods of 1995
due to a reduction in the FDIC deposit insurance premium in the third
quarter of 1995. Also, the Company experienced reduced data processing
costs in the third quarter and first nine months of 1996 which declined
$0.3 million and $1.3 million, respectively, from the same periods of
1995. The reduced costs
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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 and $1.2 million, respectively, from
the quarter and nine months ended September 30, 1995. REO expenses
totaled $0.3 million and $1.3 million, respectively, for the quarter
and nine months ended September 30, 1996, a decrease of $2.6 million
and $4.0 million from the same periods of 1995. In the third quarter
and first nine months of the prior year, the Company recorded $1.7
million and $2.7 million, respectively, in provisions for REO; no
provisions for REO were required in the first nine months of 1996.
Income Taxes: The Company recorded income tax expense of $6.0 million
and $34.5 million, respectively, for the quarter and nine months ended
September 30, 1996 representing effective tax rates of approximately
42.1% and 40.9%, respectively. For the same periods of 1995, the
Company's income tax expense and effective tax rate approximated $2.4
million and 34.0%, respectively, and $5.7 million and 29.7%,
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 nine months of 1995,
the Company reduced the valuation allowance on its deferred tax assets
by approximately $1.4 million. Excluding these items, the Company's
effective tax rate would have been 42.5% and 41.8%, respectively, for
the third quarter and first nine months of 1995. At September 30,
1996, the Company had a net deferred tax receivable of $1.0 million,
as compared to a $5.5 million net deferred tax receivable at December
31, 1995. The Company's net deferred tax receivable is supported by
carryback and carryforward provisions of the tax laws as well as the
Company's level of taxable income recognized in the first nine months
of 1996 and its projection of taxable income for the remainder of
1996.
Discontinued Operation: In the second quarter of 1996, management of
the Company decided to discontinue the precious metals business which
had been engaged in trading and leasing of precious metals in addition
to making loans secured by precious metals since 1993. The decision to
exit this line of business was made in the wake of several operational
losses for which the Company provided approximately $6.7 million, net
of tax, in the second quarter. No further provisions were required in
the third quarter of 1996. The provision, in addition to all of the
results of operations from this division, are reflected in the
Consolidated Statement of Income as "(Loss) income from operations of
discontinued operation, net of tax." The Company expects substantially
all of the activities of the precious metals division to be completed
by December 31, 1996.
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 its
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 $991 million for the nine months ended September 30,
1996 as compared to $817 million for the same period of 1995. The
Company's average demand deposits and average stockholders' equity
funded 46% and 45%, respectively, of average total assets for the nine
months ended September 30, 1996 and 1995.
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 1996, the Company experienced a net cash outflow from its
investing activities of $333 million. This net outflow in investing
activities resulted primarily from the growth in the Company's loan
portfolio, an outflow of $196 million. The outflows were offset by the
$415 million net cash provided by the Company's financing activities
consisting mainly of deposit inflows including $233 million in
certificates of deposit and $216 million in demand deposits, money
market and savings accounts. These deposit inflows were partially
offset by $35 million of outflows attributable to short-term
borrowings.
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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.
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, 1996, the Company maintained a positive one year gap of
approximately $629 million as its interest rate sensitive assets
exceeded its interest rate sensitive liabilities. This positive
cumulative gap 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 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 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.
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, many expired during
1995 although some were still outstanding at year end 1995. The swaps
outstanding from 1995 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 reduction in net interest income and
a net interest margin of $2.1 million and 39 basis points,
respectively, in the third quarter of 1995 and $8.0 million and 52
basis points, respectively, in the first nine months of 1995. The
impact of these instruments for the nine months ended September 30,
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 concern with the spread between the two indices
narrowing was reduced as the Prime Rate moved toward the
characteristics of a retail rate and away from those as a wholesale
rate. This was evidenced by the interest rate swap markets in 1995 as
the spread between the Prime Rate 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
- --------------------------------------------------------------------------------
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<PAGE>
- --------------------------------------------------------------------------------
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 September 30, 1996, mature in the first quarter of
1997. In the first and second quarters of 1996, the Company purchased
$2.0 billion of exchange traded interest rate floors. The floors
mature at the rate of $500 million per quarter beginning in the second
quarter of 1997. The floors maturing in the first and second quarter
of 1997 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 while the remaining floors have a strike price of 4.25%. The
unrealized gain on the floors approximated $75,000 at September 30,
1996.
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 matured in the third quarter
of 1996. The over the counter caps had a notional value of $100
million at September 30, 1996. These caps mature in December 1996.
These caps provide protection to the Company in the event that the
three month LIBOR rises above the strike price of the caps of 8.45%.
There were no material unrealized gains or losses on these caps at
September 30, 1996. In the first and second quarters of 1996, the
Company purchased additional exchange traded interest rate caps with a
notional value of $1.0 billion at September 30, 1996. The caps provide
protection in the event that the three month LIBOR increases above the
6.5% strike price of the caps and mature at the rate of $500 million
per quarter during the fourth quarter of 1996 and the first quarter of
1997. The unrealized gain on both the exchange traded and over the
counter caps approximated $112,500 at September 30, 1996.
ASSET QUALITY
Nonaccrual loans, restructured loans and real estate owned: Nonaccrual
loans, which includes loans 90 days or more past due, totaled $22.3
million at September 30, 1996 as compared to $28.9 million at year end
1995 and $23.2 million at September 30, 1995. The decrease from year
end 1995 was related in part to charge-offs of loans on nonaccrual
status at year end 1995, approximately $3.0 million, paydowns
approximating $8.1 million and delinquencies which were cured,
approximately $4.5 million. Offsetting these decreases from year end
1995 were several commercial loans totaling approximately $8.3 million
which were placed on nonaccrual during 1996. 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 $44.8 million at September 30, 1996 compared with
$33.6 million at year end 1995 and $4.1 million at September 30, 1995.
The increase in restructured loans from the third 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 September 30, 1996.
Real estate owned of $2.7 million, net of a $0.3 valuation allowance,
at September 30, 1996 decreased $7.7 million from year end 1995 and
$10.4 million from September 30, 1995. The significant decline from
year end 1995 is attributable to the Company's disposition of
seventeen REO properties since December 31, 1995. The largest, a $5.0
million piece of commercial land, was sold in the third quarter of
1996.
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- --------------------------------------------------------------------------------
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) 1996 1996 1996 1995 1995
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial loans.......... $11,782 $10,419 $14,766 $ 11,714 $ 9,308
Real estate loans......... 10,526 10,434 16,022 17,212 13,938
------------------------------------------------------------------------------------
Total nonaccrual loans $22,308 $20,853 $30,788 $ 28,926 $ 23,246
------------------------------------------------------------------------------------
Restructured loans $44,764 $44,962 $35,966 $ 33,608 $ 4,083
------------------------------------------------------------------------------------
Real estate owned:
REO, gross................ $ 2,986 $ 8,306 $10,377 $ 15,015 $ 17,504
Less valuation allowance.. (307) (366) (640) (4,686) (4,379)
------------------------------------------------------------------------------------
REO, net $ 2,679 $ 7,940 $ 9,737 $ 10,329 $ 13,125
------------------------------------------------------------------------------------
Total $69,751 $73,755 $76,491 $ 72,863 $ 40,454
------------------------------------------------------------------------------------
</TABLE>
At September 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with FAS 114 totaled
$139.0 million, of which $22.3 million were on nonaccrual status and
$41.2 million were classified as restructured loans. A significant
portion, $107.6 million, of the impaired loans were secured by real
estate. Impaired loans totaling $103.0 million required a specific
allowance for potential losses. The specific allowance for potential
losses related to such loans was $14.0 million. The remaining $36.0
million of loans classified as impaired did not require a specific
allowance for potential losses. Impaired loans averaged $130.8 million
during the nine months ended September 30, 1996. During the first nine
months of 1996, total interest recognized on the impaired loan
portfolio, on a cash basis, was $7.8 million. At September 30, 1996,
$116.7 million of the impaired loans were current as to principal and
interest. There were no loans classified as potential problems at
September 30, 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
September 30, 1996, future additions to the allowance will be subject
to continuing evaluation of inherent risk in the loan portfolio.
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At September 30, 1996, the allowance for loan losses amounted to $39.5
million, or 2.09% of total loans, as compared to $37.4 million, or
2.20% of total loans, at December 31, 1995 and $38.3 million, or 2.32%
of total loans, at September 30, 1995. The following table summarizes
changes in the allowance for loan losses.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine months ended September 30, (In Thousands) 1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------
Balance, beginning of year $ 37,402 $ 40,072
- --------------------------------------------------------------------------------
Loans charged off:
Commercial............................. (5,655) (8,738)
Real estate............................ (3,438) (5,784)
Consumer............................... (19) (47)
- --------------------------------------------------------------------------------
Total loans charged off $ (9,112) $ (14,569)
- --------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial............................. 1,371 1,538
Real estate............................ 11 453
Consumer............................... 17 28
- --------------------------------------------------------------------------------
Total loan recoveries $ 1,399 $ 2,019
- --------------------------------------------------------------------------------
Net loans charged off................... (7,713) (12,550)
Provision for loan losses............... 9,829 10,817
Provision for loan losses of
discontinued operation................. 22 -
- --------------------------------------------------------------------------------
Balance, end of period $ 39,540 $ 38,339
- --------------------------------------------------------------------------------
Loans outstanding, end of period $1,893,466 $1,650,876
- --------------------------------------------------------------------------------
Average loans outstanding $1,792,413 $1,504,884
- --------------------------------------------------------------------------------
Ratio of net charge-offs to average
loans.................................. 0.57%/(1)/ 1.11%/(1)/
Ratio of allowance for loan losses to
average loans.......................... 2.21 2.55
Ratio of allowance for loan losses to
loans outstanding at September 30...... 2.09 2.32
Ratio of allowance for loan losses to
nonaccrual loans....................... 177 165
Ratio of provision for loan losses to
net charge-offs........................ 128 86
- --------------------------------------------------------------------------------
</TABLE>
/(1)/ Annualized
The provision for loan losses totaled $3.8 million and $9.8 million,
respectively, for the quarter and nine months ended September 30, 1996
as compared to $6.3 million and $10.8 million, respectively, for the
same periods of 1995. Net charge-offs totaled $2.8 million and $7.7
million, respectively, for the three months and nine months ended
September 30, 1996 as compared to $6.4 million and $12.6 million,
respectively, in the same periods of 1995. As a percentage of average
loans outstanding, annualized net charge-offs were 0.59% and 0.57%,
respectively, for the three and nine months ended September 30, 1996
compared with 1.62% and 1.11%, respectively, for the same periods in
the prior year.
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, 1996, shareholders' equity totaled
$276 million as compared to $228 million at December 31, 1995. In the
first nine months of 1996, the Company recorded an additional $2.4
million of shareholders' equity from the exercise of employee stock
options. The Company receives a tax deduction from the exercise of
non-qualified stock options for the difference between the option
price and the market value of the shares issued. The tax benefit
associated with shares exercised, which is recorded as a component of
stockholders' equity, approximated $3.2 million during the first nine
months of 1996.
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
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- --------------------------------------------------------------------------------
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 September 30, 1996 were 9.8% and 11.0%, respectively, as
compared to 9.1% and 10.4%, respectively, at September 30, 1995.
Capital Ratios for Imperial Bank/(1)/
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
September 30, (In Thousands) 1996 1995
--------------------------------------------------------------------------
<S> <C> <C>
Tier I:
Common stockholders' equity and
preferred stock/(2)/........................ $ 253,918 $ 202,761
Disallowed assets............................ (1,204) (2,444)
--------------------------------------------------------------------------
Tier I capital $ 252,714 $ 200,317
--------------------------------------------------------------------------
Tier II:
Allowance for loan losses allowable in
Tier II..................................... 32,409 27,585
--------------------------------------------------------------------------
Total risk-based capital $ 285,123 $ 227,902
--------------------------------------------------------------------------
Risk-weighted balance sheet assets $2,202,445 $1,939,841
--------------------------------------------------------------------------
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans........ 279,912 198,912
Standby letters of credit.................... 95,533 55,279
Other........................................ 14,861 15,243
--------------------------------------------------------------------------
Total risk-weighted off-balance
sheet items $ 390,306 $ 269,434
--------------------------------------------------------------------------
Disallowed assets............................. (1,204) (2,444)
Allowance for loan losses not included
in Tier II................................... (7,131) (10,754)
--------------------------------------------------------------------------
Total risk-weighted assets $2,584,416 $2,196,077
--------------------------------------------------------------------------
Risk-based capital ratios:
Tier I capital............................... 9.8% 9.1%
Total capital................................ 11.0 10.4
Leverage ratio............................... 8.7 8.3
--------------------------------------------------------------------------
</TABLE>
/(1)/ As reported on the September 30, 1996 and 1995 FDIC Call Reports.
/(2)/ Excludes unrealized gain 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
8.8% at September 30, 1996 as compared to 8.3% at September 30, 1995 well
in excess of its regulatory requirement.
NEW ACCOUNTING/REGULATORY 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 nine months ended
September 30, 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 Employee Stock Ownership Plans. 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
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25"). FAS 123 does not require companies to adopt the new fair value
method for purposes of preparing their basic financial statements.
Companies 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
has decided not to adopt the fair value method set forth in FAS 123
for purposes of accounting for its stock-based compensation.
In June 1996, the Financial Accounting Standards Board issued
Statement of Accounting Standards No. 125, "Accounting for
Liabilities" ("FAS 125"). FAS 125 provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on
consistent application of a financial components approach that focuses
on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes liabilities when
extinguished. FAS 125 provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
secured borrowings. FAS 125 requires that liabilities and derivatives
incurred or obtained by transferors as part of a transfer of financial
assets be initially measured at fair value, if practicable. It also
requires that servicing assets and other retained interests in the
transferred assets be measured by allocating the previous carrying
amount between the assets sold, if any, and retained interest, if any,
based on their relative fair values at the date of the transfers. FAS
125 includes specific provisions to deal with servicing assets or
liabilities. FAS 125 will be effective for transactions occurring
after December 31, 1996. It is not anticipated that the financial
impact of this statement will have material effect on the Company.
On September 30, 1996, the Omnibus Federal Spending Bill was signed
into law. This bill included a comprehensive legislative package on
BIF-SAIF. The package included the following provisions which impact
the Company: 1) a FICO premium assessment on BIF-insured deposits at
one-fifth the premium rate imposed on SAIF-insured deposits for the
three year period beginning in 1997. One-fifth of the SAIF premium
approximates a 1.3 basis point FICO premium assessment for BIF-insured
deposits. In the year 2000, the bill requires BIF-insured institutions
to share in the payment of the FICO obligations on a pro-rata basis
with all thrift institutions, with annual assessments expected to
equal approximately 2.4 basis points until the year 2017, and to be
completely phased out by 2019; 2) a merger of the BIF and SAIF on
January 1, 1999, if no thrift institutions exist on that date; 3) the
FDIC is prohibited from setting insurance premiums above the amount
which would result in the deposit insurance fund exceeding its
designated reserve ratio - currently 1.25%; and 4) the FDIC was given
the authority to refund assessments paid to it in excess of amounts
due.
- --------------------------------------------------------------------------------
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Consolidated Balance Sheet
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
(Unaudited)
Imperial Bancorp and Subsidiaries September 30, December 31,
(In Thousands, Except Share Data) 1996 1995
-----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks................. $ 286,899 $ 242,018
Trading account securities.............. 83,108 40,050
Securities available for sale........... 399,170 295,312
Securities held to maturity (fair value
of $4,244 and $4,975 for 1996 and
1995, respectively).................... 4,244 4,975
Federal funds sold and securities
purchased under resale agreements...... 500,000 425,300
Loans held for sale (fair value of
$6,519 and $2,842 for 1996 and 1995,
respectively).......................... 5,661 2,648
Loans:
Loans, net of unearned income and
deferred loan fees.................... 1,893,466 1,699,347
Less allowance for loan losses......... (39,540) (37,402)
-----------------------------------------------------------------------------
Total net loans $1,853,926 $1,661,945
-----------------------------------------------------------------------------
Premises and equipment, net............. 18,184 16,003
Accrued interest receivable............. 14,714 15,284
Real estate owned, net.................. 2,679 10,329
Income taxes receivable................. 3,960 4,008
Investment in Imperial Credit
Industries, Inc........................ 52,887 36,126
Other assets............................ 45,625 34,376
-----------------------------------------------------------------------------
Total assets $3,271,057 $2,788,374
-----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand................................. $1,274,025 $1,145,720
Savings................................ 16,448 15,708
Money market........................... 523,040 435,674
Time-under $100,000.................... 207,696 227,262
Time-$100,000 and over................. 791,571 539,252
-----------------------------------------------------------------------------
Total deposits $2,812,780 $2,363,616
-----------------------------------------------------------------------------
Accrued interest payable................ 5,615 5,576
Short-term borrowings................... 124,247 159,636
Long-term borrowings.................... 4,501 5,906
Other liabilities....................... 47,924 25,404
-----------------------------------------------------------------------------
Total liabilities $2,995,067 $2,560,138
-----------------------------------------------------------------------------
Stockholders' equity:
Common stock-no par, 50,000,000 shares
authorized; 23,073,803 shares at
September 30, 1996 and 22,390,223
shares at December 31, 1995 issued
and outstanding....................... 163,727 130,780
Unrealized gain on securities
available for sale, net of tax........ 849 2,747
Retained earnings...................... 111,414 94,709
-----------------------------------------------------------------------------
Total stockholders' equity $ 275,990 $ 228,236
-----------------------------------------------------------------------------
Total liabilities and stockholders'
equity $3,271,057 $2,788,374
-----------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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Consolidated Statement of Income
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
Imperial Bancorp and Subsidiaries September 30, September 30,
(In Thousands, Except Per Share Data) Unaudited 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans................................................. $44,531 $ 36,788 $127,236 $102,963
Trading account securities............................ 978 686 2,025 3,005
Securities available for sale......................... 5,574 4,145 15,653 13,070
Securities held to maturity........................... 77 74 231 227
Federal funds sold and securities purchased
under resale agreements.............................. 3,220 3,267 7,424 7,200
Loans held for sale................................... 133 54 360 210
- -----------------------------------------------------------------------------------------------------------
Total interest income $54,513 $ 45,014 $152,929 $126,675
- -----------------------------------------------------------------------------------------------------------
Interest expense:
Deposits.............................................. 17,281 14,888 47,081 41,330
Short-term borrowings................................. 1,073 967 2,390 3,448
Long-term borrowings.................................. 75 123 264 428
- -----------------------------------------------------------------------------------------------------------
Total interest expense $18,429 $ 15,978 $ 49,735 $ 45,206
- -----------------------------------------------------------------------------------------------------------
Net interest income................................... 36,084 29,036 103,194 81,469
Provision for loan losses............................. 3,803 6,261 9,829 10,817
- -----------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses $32,281 $ 22,775 $ 93,365 $ 70,652
- -----------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts................... 1,123 1,045 3,617 3,103
Trust fees............................................ 2,197 1,921 6,468 5,728
Gain on origination and sale of loans................. 576 758 2,249 1,718
Equity in net earnings of Imperial Credit
Industries, Inc...................................... 3,045 1,730 16,556 2,787
Gain on sale of Imperial Credit Industries, Inc.
common stock......................................... - - 36,411 -
Other service charges and fees........................ 3,118 1,675 7,115 4,629
Merchant and credit card fees......................... 728 1,662 1,764 4,676
(Loss) gain on securities available for sale.......... (13) (8) 229 259
Gain on trading account securities.................... 581 827 2,387 1,973
Appreciation of donated Imperial Credit
Industries, Inc. common stock........................ 109 -- 3,614 --
Other income.......................................... 1,122 843 4,107 2,253
- -----------------------------------------------------------------------------------------------------------
Total noninterest income $12,586 $ 10,453 $ 84,517 $ 27,126
- -----------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits.......................... 15,367 11,499 45,291 34,280
Net occupancy expense................................. 2,356 2,233 6,821 6,526
Furniture and equipment............................... 1,288 1,264 3,707 3,760
Data processing....................................... 1,714 2,048 4,771 6,048
Customer services..................................... 3,044 2,151 8,275 6,152
Net real estate owned expense......................... 321 2,952 1,269 5,280
Regulatory assessments................................ 27 348 253 2,860
Professional and consulting........................... 1,505 578 4,957 2,491
Business development.................................. 1,030 778 2,759 2,384
Lawsuit settlements................................... -- (1,709) -- (1,516)
Charitable donations.................................. 195 50 4,863 115
Other expense......................................... 3,673 3,956 10,704 10,335
- -----------------------------------------------------------------------------------------------------------
Total noninterest expense $30,520 $ 26,148 $ 93,670 $ 78,715
- -----------------------------------------------------------------------------------------------------------
Income from continuing operations before income
taxes................................................ 14,347 7,080 84,212 19,063
Income tax provision.................................. 6,044 2,410 34,462 5,667
- -----------------------------------------------------------------------------------------------------------
Net income from continuing operations $ 8,303 $ 4,670 $ 49,750 $ 13,396
- -----------------------------------------------------------------------------------------------------------
Income (loss) from operations of
discontinued operation, net of tax................... 373 480 (5,625) 1,058
- -----------------------------------------------------------------------------------------------------------
Net income $ 8,676 $ 5,150 $ 44,125 $ 14,454
- -----------------------------------------------------------------------------------------------------------
Net income from continuing operations
per share............................................ $0.35 $0.20 $2.11 $0.59
Income (loss) per share of discontinued
operations........................................... $0.01 $0.02 $(0.24) $0.05
- -----------------------------------------------------------------------------------------------------------
Net income per share $0.36 $0.22 $1.87 $0.63
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries (Unaudited)
Nine months ended September 30, (In Thousands) 1996 1995
- --------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income..........................................$ 44,125 $ 14,454
Adjustments for noncash charges (credits):
Depreciation and amortization..................... (2,105) 375
Accretion of purchased loan discount.............. (205) (1,836)
Provision for loan losses......................... 9,829 10,817
(Reversal) provision for real estate owned........ (5) 2,664
Provision for operational losses in
discontinued operation........................... 10,615 -
Equity in net earnings of Imperial
Credit Industries, Inc........................... (16,556) (2,787)
Gain on sale of Imperial Credit
Industries, Inc. common stock.................... (36,411) -
Loss (gain) on sale of real estate owned.......... 157 (134)
Gain on sale of real property held
for sale or investment........................... - (75)
Gain on sale of premises and equipment............ - (4)
Writedown for impairment of equity investment..... - 1,500
Gain on securities available for sale............. (229) (259)
Net change in trading account securities.......... (43,058) 22,405
Net change in loans held for sale................. (3,013) (620)
Net change in accrued interest receivable......... 570 (3,193)
Net change in accrued interest payable............ 39 595
Net change in income taxes receivable............. 48 (1,253)
Net change in other liabilities................... 11,905 6,242
Net change in other assets........................ (12,164) 3,332
- --------------------------------------------------------------------------------
Net cash (used in) provided by
operating activities $ (36,458) $ 52,223
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from securities held to
maturity........................................... 132 110
Purchase of securities held to maturity............. - (403)
Proceeds from sale of securities
available for sale................................. 2,045,960 1,169,859
Proceeds from maturities of securities
available for sale................................. 119,939 464,958
Purchase of securities available for
sale............................................... (2,267,221) (1,527,940)
Proceeds from sale of Imperial Credit
Industries, Inc. common stock...................... 35,079 -
Net change in Federal funds sold and
securities purchased under resale agreements....... (74,700) (248,500)
Net change in loans................................. (195,535) (294,898)
Capital expenditures................................ (5,140) (3,585)
Proceeds from sale of real estate owned............. 8,120 27,090
Proceeds from sale of real property
held for sale or investment........................ - 309
Proceeds from sale of premises and
equipment.......................................... - 9
- --------------------------------------------------------------------------------
Net cash used in investing activities $(333,366) $(412,991)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits,
savings, and money market accounts................. 216,411 91,927
Net change in time deposits......................... 232,753 256,801
Net change in short-term borrowings................. (35,389) 28,965
Retirement of long-term borrowings.................. (1,405) (2,247)
Proceeds from exercise of employee
stock options...................................... 2,353 1,781
Other............................................... (18) (11)
- --------------------------------------------------------------------------------
Net cash provided by financing activities $414,705 $377,216
- --------------------------------------------------------------------------------
Net change in cash and due from banks $ 44,881 $ 16,448
- --------------------------------------------------------------------------------
Cash and due from banks, beginning of year $242,018 $168,626
- --------------------------------------------------------------------------------
Cash and due from banks, end of period $286,899 $185,074
- --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
16 Imperial Bancorp [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.
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. In April 1996, the
Company sold 1,500,000 shares of ICII in a public offering for $26 per
share. As a part of that same offering, ICII sold 2,252,091 new shares
to the public. In May 1996, ICII sold an additional 562,813 new shares
to the public. Additionally, during 1996, the Company donated 179,604
shares of its ICII stock to qualifying not-for-profit organizations.
In October 1996, ICII declared a two-for-one stock split which brought
the Company's total shares of ICII common stock to 9,403,106.
As a result of the second quarter sale and offerings, the Company's
ownership percentage was reduced to approximately 25%. 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.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") restricts the ability of state chartered banks, such as the
Company's principal subsidiary, Imperial Bank (the "Bank"), to hold
equity securities and requires impermissible investments to be
disposed of before December 19, 1996. The equity investment in ICII
held by the Bank, as noted in the prospectus relating to the second
quarter sale of ICII common stock, may be subject to divestiture under
FDICIA. The Bank has requested approval from the FDIC to retain its
investment in ICII. The response to the request is currently pending
following delivery of further information concerning ICII required by
the FDIC.
NOTE (3) STATEMENT OF CASH FLOWS
The following information supplements the statement of cash flows.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
September 30, (In Thousands) 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Interest paid................................... $49,696 $44,611
Taxes refunded.................................. 244 -
Taxes paid...................................... 25,932 9,350
Significant noncash transactions:
Loans transferred to real estate owned......... 622 11,982
Donation of Imperial Credit
Industries, Inc. common stock................. 4,741 -
----------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
17 Imperial Bancorp [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,
- ---------------------------------------------------------------------------------------------------------------------------------
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)/............................. $ 1,866,498 $ 44,531 9.5% $ 1,584,749 $ 36,788 9.3%
Trading account securities............. 77,173 978 5.1 50,053 686 5.5
Securities available for sale.......... 371,029 5,574 6.0 250,903 4,145 6.6
Securities held to maturity............ 4,307 77 7.2 5,220 74 5.7
Federal funds sold and securites
purchased under resale agreements..... 240,268 3,220 5.4 220,390 3,267 5.9
Loans held for sale.................... 4,643 133 11.5 2,126 54 10.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets....... $ 2,563,918 $ 54,513 8.5% $ 2,113,441 $ 45,014 8.5%
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses................. (38,786) (38,468)
Cash...................................... 241,544 212,403
Other assets.............................. 134,904 125,585
--------------- ---------------
Total assets........................ $ 2,901,580 $ 2,412,961
=============== ===============
Interest-bearing liabilities:
Savings................................ $ 18,472 $ 116 2.5% $ 21,825 $ 137 2.5%
Money market........................... 493,718 3,859 3.1 423,529 3,128 3.0
Time - under $100,000.................. 220,370 3,146 5.7 241,176 3,883 6.4
Time - $100,000 and over............... 731,400 10,160 5.6 516,638 7,740 6.0
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits..... $ 1,463,960 $ 17,281 4.7% $ 1,203,168 $ 14,888 4.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings.................. 81,842 1,073 5.2 68,384 967 5.7
Long-term borrowings................... 4,752 75 6.3 6,904 123 7.1
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities.. $ 1,550,554 $ 18,429 4.8% $ 1,278,456 $ 15,978 5.0%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits........................... 1,022,109 889,076
Other liabilities......................... 58,104 33,117
Stockholders' equity...................... 270,813 212,312
--------------- ---------------
Total liabilities and
stockholders' equity............... $ 2,901,580 $ 2,412,961
=============== ===============
Net interest income/net interest margin... $ 36,084 5.7% $ 29,036 5.5%
============================= ========================
=================================================================================================================================
<CAPTION>
=================================================================================================================================
Nine months ended September 30,
- ---------------------------------------------------------------------------------------------------------------------------------
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)/............................. $ 1,792,413 $ 127,236 9.5% $ 1,504,884 $ 102,963 9.1%
Trading account securities............. 53,270 2,025 5.1 58,700 3,005 6.8
Securities available for sale.......... 341,259 15,653 6.1 267,525 13,070 6.5
Securities held to maturity............ 4,348 231 7.1 5,857 227 5.2
Federal funds sold and securities
purchased under resale agreements..... 184,700 7,424 5.4 161,984 7,200 5.9
Loans held for sale.................... 4,545 360 10.6 2,564 210 10.9
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets....... $ 2,380,535 $ 152,929 8.6% $ 2,001,514 $ 126,675 8.4%
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses................. (39,144) (39,796)
Cash...................................... 241,413 204,212
Other assets.............................. 122,313 126,937
--------------- ---------------
Total assets........................ $ 2,705,117 $ 2,292,867
=============== ===============
Interest-bearing liabilities:
Savings................................ $ 18,681 $ 348 2.5% $ 26,487 $ 496 2.5%
Money market........................... 462,359 10,506 3.0 439,881 9,300 2.8
Time - under $100,000.................. 226,874 9,725 5.7 238,540 11,292 6.3
Time - $100,000 and over............... 644,917 26,502 5.5 448,704 20,242 6.0
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits..... $ 1,352,831 $ 47,081 4.6% $ 1,153,612 $ 41,330 4.8%
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings................. 61,610 2,390 5.2 79,413 3,448 5.8
Long-term borrowings.................. 5,381 264 6.5 7,716 428 7.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities.. $ 1,419,822 $ 49,735 4.7% $ 1,240,741 $ 45,206 4.9%
- ---------------------------------------------------------------------------------------------------------------------------------
Demand deposits........................... 990,531 816,852
Other liabilities......................... 42,347 28,747
Stockholders' equity...................... 252,417 206,527
--------------- ---------------
Total liabilities and
stockholders' equity............... $ 2,705,117 $ 2,292,867
=============== ===============
Net interest income/net interest margin... 103,194 5.8% $ 81,469 5.4%
============================ ========================
=================================================================================================================================
</TABLE>
/(1)/ Includes nonaccrual loans.
/(2)/ Includes net loan fees of $6.7 million and $3.6 million for the nine
months ended September 30, 1996 and 1995, respectively, and $2.3 million
and $1.5 million for the three months ended September 30, 1996 and 1995,
respectively.
- --------------------------------------------------------------------------------
18 Imperial Bancorp [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,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 Over 1995 1996 Over 1995
(In Thousands) Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase/(decrease) in:
Loans, net of unearned
income and deferred loan
fees..................... 6,551 964 228 7,743 19,624 4,117 532 24,273
Trading account securities 373 (54) (27) 292 (277) (762) 59 (980)
Securities available for
sale..................... 1,982 (371) (182) 1,429 3,595 (771) (241) 2,583
Securities held to
maturity................. (13) 19 (3) 3 (59) 83 (20) 4
Federal funds sold and
securities purchased
under resale agreements.. 293 (297) (43) (47) 1,005 (657) (124) 224
Loans held for sale....... 64 7 8 79 162 (7) (5) 150
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest income $ 9,250 $ 268 $ (19) $ 9,499 $ 24,050 $ 2,003 $ 201 $ 26,254
- -----------------------------------------------------------------------------------------------------------------------------------
Savings................... (41) 1 19 (21) (146) (3) 1 (148)
Money market.............. 526 134 71 731 472 758 (24) 1,206
Time - under $100,000..... (333) (416) 12 (737) (551) (1,046) 30 (1,567)
Time - $100,000 and over.. 3,222 (573) (229) 2,420 8,830 (1,753) (817) 6,260
- -----------------------------------------------------------------------------------------------------------------------------------
Total deposits $ 3,374 $ (854) $ (127) $ 2,393 $ 8,605 $ (2,044) $ (810) $ 5,751
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings..... 192 (78) (8) 106 (774) (374) 90 (1,058)
Long-term borrowings...... (38) (14) 4 (48) (130) (50) 16 (164)
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense $ 3,528 $ (946) $ (131) $ 2,451 $ 7,701 $ (2,468) $ (704) $ 4,529
- -----------------------------------------------------------------------------------------------------------------------------------
Changes in net interest
income $ 5,722 $ 1,214 $ 112 $ 7,048 $16,349 $ 4,471 $ 905 $ 21,725
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
19 IMPERIAL BANCORP [LETTERHEAD OF
IMPERIAL BANCORP
APPEARS HERE]
<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
---------------------------------------------------------------------------------------------------------------------------
September 30, 1996
<S> <C> <C> <C> <C>
Industrial development bonds................. $ 4,244 $ -- $ -- $ 4,244
---------------------------------------------------------------------------------------------------------------------------
Total $ 4,244 $ -- $ -- $ 4,244
---------------------------------------------------------------------------------------------------------------------------
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>
---------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1996
U.S. Treasury and federal agencies........... $ 326,671 $ 1,421 $ (20) $ 328,072
Mutual funds................................. 66,809 -- -- 66,809
Other securities............................. 4,218 71 -- 4,289
---------------------------------------------------------------------------------------------------------------------------
Total $ 397,698 $ 1,492 $ (20) $ 399,170
---------------------------------------------------------------------------------------------------------------------------
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 September 30,
1996, were $2,000 and $15,000, respectively. For the same period of
1995, these amounts were $5,000 and $13,000, respectively. For the nine
months ended September 30, 1996, gross realized gains and losses were
$274,000 and $45,000, respectively, as compared to $422,000 and
$163,000, respectively, for the same period of 1995.
- --------------------------------------------------------------------------------
20 IMPERIAL BANCORP [LETTERHEAD OF
IMPERIAL BANCORP
APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4 - REAL ESTATE OWNED
(a) Real Estate Owned by Type of Project
At September 30, 1996 and December 31, 1995, real estate owned by type
of project is presented in the following table:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
September 30, December 31,
(In Thousands) 1996 1995
------------------------------------------------------------------------
<S> <C> <C>
Acquisition and land development........ $2,708 $ 6,908
Multi-family residential................ -- 162
Single-family residential............... 78 1,325
------------------------------------------------------------------------
Total residential $2,786 $ 8,395
------------------------------------------------------------------------
Acquisition and land development........ 200 5,420
Retail facilities....................... -- 1,200
------------------------------------------------------------------------
Total non-residential $ 200 $ 6,620
------------------------------------------------------------------------
REO, gross $2,986 $ 15,015
------------------------------------------------------------------------
Less valuation allowance................ (307) (4,686)
------------------------------------------------------------------------
REO, net $2,679 $ 10,329
------------------------------------------------------------------------
</TABLE>
(b) Net Real Estate Owned Expense
For the three and nine months ended September 30, 1996 and 1995, net
real estate owned expense was comprised of the following:
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(In Thousands) 1996 1995 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss (gain) on sale of
real estate owned......... $ 180 $ (94) $ 157 $ (134)
Valuation adjustments
charged to operations..... - 1,675 (5) 2,664
Direct holding costs....... 141 1,371 1,117 2,750
------------------------------------------------------------------------
Net real estate owned expense $ 321 $ 2,952 $1,269 5,280
------------------------------------------------------------------------
<CAPTION>
The following table sets forth information regarding the Company's
valuation allowance for REO.
------------------------------------------------------------------------
September 30, December 31,
(In Thousands) 1996 1995
------------------------------------------------------------------------
Balance, beginning of year.............. $ 4,686 $ 6,475
(Reversal) provision for REO............ (5) 4,547
REO charged off......................... (4,374) (6,336)
------------------------------------------------------------------------
Balance, end of period $ 307 $ 4,686
------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
21 IMPERIAL BANCORP [LETTERHEAD OF
IMPERIAL BANCORP
APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
TABLE 5 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income as a percentage of:(1)
Average stockholders' equity 12.81% 9.70% 23.31% 9.33%
Average total assets 1.20 0.85 2.17 0.84
Average earning assets 1.35 0.97 2.47 0.96
Average stockholders' equity as a percentage of:
Average assets 9.33% 8.80% 9.33% 9.00%
Average loans 14.51 13.40 14.08 13.72
Average deposits 10.89 10.15 10.77 10.48
Stockholders' equity at period end as a percentage of:
Total assets at period end -- -- 8.44% 7.79%
Total loans at period end -- -- 14.58 13.12
Total deposits at period end -- -- 9.81 9.38
------------------------------------------------------------------------
(1) Annualized
</TABLE>
- --------------------------------------------------------------------------------
22 IMPERIAL BANCORP [LETTERHEAD 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, 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 September 30, Nine months ended September 30,
----------------------------------------------------------------------
1996 1995(1) 1996 1995(1)
--------------- ---------------------------------- ---------------
<S> <C> <C> <C>
23,975,171 23,087,584 23,552,979 22,880,287
</TABLE>
On September 26, 1996, the Company declared a three-for-two stock
split which was distributed on October 18, 1996 to shareholders of
record on October 11, 1996. The weighted average shares above reflect
the impact of this stock split.
(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.
- --------------------------------------------------------------------------------
23 IMPERIAL BANCORP [LETTERHEAD OF
IMPERIAL BANCORP
APPEARS HERE]
<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
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.
- --------------------------------------------------------------------------------
24 IMPERIAL BANCORP [LETTERHEAD 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 12, 1996 By: /s/ Robert M. Franko
----------------------------
Robert M. Franko
Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
25
IMPERIAL BANCORP [LETTERHEAD OF
IMPERIAL BANCORP
APPEARS HERE]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 286,899
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 500,000
<TRADING-ASSETS> 83,108
<INVESTMENTS-HELD-FOR-SALE> 399,170
<INVESTMENTS-CARRYING> 4,244
<INVESTMENTS-MARKET> 4,244
<LOANS> 1,893,466
<ALLOWANCE> 39,540
<TOTAL-ASSETS> 3,271,057
<DEPOSITS> 2,812,780
<SHORT-TERM> 124,247
<LIABILITIES-OTHER> 53,539
<LONG-TERM> 4,501
0
0
<COMMON> 163,727
<OTHER-SE> 112,263
<TOTAL-LIABILITIES-AND-EQUITY> 3,271,057
<INTEREST-LOAN> 127,236
<INTEREST-INVEST> 17,909
<INTEREST-OTHER> 7,784
<INTEREST-TOTAL> 152,929
<INTEREST-DEPOSIT> 47,081
<INTEREST-EXPENSE> 49,735
<INTEREST-INCOME-NET> 103,194
<LOAN-LOSSES> 9,829
<SECURITIES-GAINS> 229
<EXPENSE-OTHER> 93,670
<INCOME-PRETAX> 84,212
<INCOME-PRE-EXTRAORDINARY> 49,750
<EXTRAORDINARY> (5,625)
<CHANGES> 0
<NET-INCOME> 44,125
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
<YIELD-ACTUAL> .058
<LOANS-NON> 22,308
<LOANS-PAST> 0
<LOANS-TROUBLED> 44,764
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 37,402
<CHARGE-OFFS> 9,112
<RECOVERIES> 1,399
<ALLOWANCE-CLOSE> 39,540
<ALLOWANCE-DOMESTIC> 39,540
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
