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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended March 31, 1997
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
California 95-2575576
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
9920 South La Cienega Boulevard
Inglewood, California 90301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 417-5600
Commission file number: 0-7722
Securities registered pursuant to Section 12(g) of the Act:
Common Stock: Number of Shares of Common Stock outstanding as of March 31,
1997: 25,765,333 shares.
Debt Securities: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of March 31, 1997, $3,373,000 in principal amount of
such Notes and $1,077,000 in principal amount of such
Debentures were outstanding.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
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Imperial Bancorp And Subsidiaries
Management's Discussion And Analysis
Three Months Ended March 31, 1997
Financial Review
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes in
trends related to the financial condition of Imperial Bancorp ("the
Company") and its results of operations for the three months ended
March 31, 1997.
PERFORMANCE SUMMARY
Net income for the first quarter rose 17% to $7,953,000, or $0.30 per
share, from $6,796,000, or $0.26 per share, earned in the first
quarter of 1996. Income as measured by return on average total assets
was 0.99% for the three months ended March 31, 1997, as compared to
1.07% for the three months ended March 31, 1996. Return on average
stockholders' equity was 10.90% for the quarter ended March 31, 1997,
a decrease from the 11.70% return on average stockholders' equity for
the same period of 1996.
Net income for the first quarter 1997, excluding the impact of
donations of Imperial Credit Industries, Inc. ("ICII") stock to not-
for-profit organizations and the discontinued operation ("core net
income"), increased 25% from the first quarter of 1996. This
improvement was mainly attributable to the 23% increase in average
loans resulting in higher net interest income. Net interest income and
net interest margin were $40.2 million and 5.7%, respectively, for the
quarter ended March 31, 1997, as compared to $32.2 million and 5.8%,
respectively, for the quarter ended March 31, 1996. Another factor
that contributed to the improvement of core net income was a $1.8
million increase in core noninterest income for the first quarter of
1997. These improvements were partially offset by an increase of $6.9
million in core noninterest expenses for the first quarter of 1997.
Noninterest income for the quarter ended March 31, 1997 totaled $16.1
million, an improvement from $12.3 million for the same period of
1996. The increase was mainly due to the appreciation of ICII stock
donated to not-for-profit organizations, higher fee-based income
including item processing fees and international fees and income from
the exercise and sale of stock warrants. Partially offsetting these
increases was a reduction in the equity of net earnings in ICII.
Noninterest expenses amounted to $39.7 million for the quarter ended
March 31, 1997, as compared to $30.2 million reported for the same
period of 1996. This increase reflects the addition of personnel and
the opening of one regional and several loan production offices since
the first quarter of last year. Also contributing to higher
noninterest expenses were increases in customer service and data
processing related expenses, and charitable donations. Offsetting
these increases were reductions in real estate owned ("REO") expense
and lawsuit settlements.
At March 31, 1997, the Company's total assets were $3.7 billion, total
loans were $2.2 billion and stockholders' equity and allowance for
loan losses totaled $337 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 $274 million at March 31, 1996 and total
assets of $3.4 billion, total loans of $2.1 billion and stockholders'
equity and allowance for loan losses of $322 million at December 31,
1996.
Total deposits at March 31, 1997, amounted to $3.3 billion, which
included $1.6 billion, or 49%, of noninterest bearing demand deposits.
This compares to total deposits of $2.5 billion at March 31, 1996,
which included $1.2 billion, or 48%, of noninterest bearing demand
deposits. At December 31, 1996, total deposits were $3.0 billion,
including $1.5 billion, or 50%, in demand deposits. The Company's
average demand deposits and average stockholders' equity funded 46% of
average total assets for the quarter ended March 31, 1997, which was
the same percentage funded in the quarter ended March 31, 1996.
At March 31, 1997, the allowance for loan losses amounted to $38.6
million or 1.8% of total loans as compared to $39.2 million or 2.2% of
total loans at March 31, 1996 and $36.1 million or 1.8% of total loans
at December 31, 1996. The provision for loan losses totaled $3.3
million for the quarter ended
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March 31, 1997, as compared to $2.7 million reported for the quarter
ended March 31, 1996. Net charge-offs for the quarter ended March 31,
1997 totaled $0.7 million, a $0.2 million decrease from the level
experienced in the same quarter of 1996.
Nonaccrual loans of $17.0 million at March 31, 1997, decreased $13.8
million from March 31, 1996 and $3.4 million from year end 1996. The
allowance for loan losses coverage of nonaccrual loans at March 31,
1997 approximated 227%, up from 127% at March 31, 1996. Restructured
loans at March 31, 1997 totaled $25.4 million, down $10.6 million from
March 31, 1996 and $3.3 million from December 31, 1996. REO of $2.2
million at March 31, 1997, decreased $7.5 million from March 31, 1996
and increased $0.1 million from year end 1996.
Imperial Bank (the "Bank") is classified "Well Capitalized" with
leverage, Tier I and total capital ratios at March 31, 1997, of 8.7%,
9.5% and 10.8%, respectively, as compared to 8.5%, 9.3% and 10.5%,
respectively, at March 31, 1996.
SPIN-OFF
On February 20, 1997, the Company's Board of Directors approved a plan
to spin off to stockholders in a tax-free distribution a portion of
its specialty lending and finance businesses that focus on the
entertainment industry, as well as certain other operations. These
businesses and assets will be transferred to Imperial Financial Group,
Inc., a newly formed Delaware corporation and a wholly owned
subsidiary of the Bank ("IFG").
The Bank will contribute to IFG (i) the assets and liabilities
relating to The Lewis Horwitz Organization, a division of the Bank
that specializes in motion picture and television finance, (ii) all of
the common stock of Imperial Trust Company, a California licensed
trust company that offers a wide range of trust and investment
management services, (iii) all of the common stock of a newly formed
thrift and loan company that will hold the assets and liabilities
relating to the Bank's Small Business Administration lending group, a
division of the Bank that provides loans to small businesses, a
portion of which is guaranteed as to repayment by the U.S. Government,
and (iv) the common stock owned by the Bank (representing
approximately 24% of all outstanding common stock as of March 31,
1997) in ICII, a publicly traded, diversified specialty finance
company.
The spin-off is subject to receipt of a private letter ruling from the
Internal Revenue Service to the effect that the transaction will not
be taxable to the Company's stockholders or the Company or the Bank as
well as any necessary approval from the Company's regulators. It is
anticipated that the separation will occur in late 1997 or early 1998.
On April 17, 1997, tax legislation was introduced in Congress relating
to the tax-free nature of certain spin off transactions. It is
uncertain whether such legislation will impede the Company's ability
to effect the spin off on a basis that is not taxable to the Company,
its stockholders or the Bank. Changes to the proposed legislation are
expected which will clarify whether such proposals, if enacted in
their current form or as modified, will apply in such a manner. The
Company intends to seek to complete the spin off and is hopeful that
any tax legislation would not prevent the Company from effecting the
spin off on a tax-free basis, although there can be no assurance
thereof.
Total assets of the entities comprising IFG approximated $165 million
at March 31, 1997. Revenues of IFG, including interest income and
noninterest income would have approximated $7 million for the
quarter ended March 31, 1997.
SUBSEQUENT EVENTS
On April 23, 1997, Imperial Capital Trust I (the "Trust"), a statutory
business trust and wholly-owned subsidiary of the Company, issued in a
private placement transaction $75 million of 9.98% capital securities
(the "Capital Securities") which represent undivided preferred
beneficial interests in the assets of the Trust. The Company is the
owner of all the beneficial interests represented by the common
securities of the Trust (the "Common Securities," and together with
the Capital Securities, the "Trust Securities"). The Trust exists for
the sole purpose of issuing the Trust Securities and investing the
proceeds thereof in 9.98% Junior Subordinated Deferrable Interest
Debentures (the "Junior Subordinated Debentures") issued by the
Company and engaging in certain other limited activities. The Junior
Subordinated Debentures held by the Trust will mature on December 31,
2026.
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Holders of the Capital Securities are entitled to receive cumulative
cash distributions, accumulating from April 23, 1997, the date of
original issuance, and payable semi-annually in arrears on June 30 and
December 31 of each year, commencing June 30, 1997, at an annual rate
of 9.98% of the liquidation amount of $1,000 per Trust Security. The
Company has the right under certain circumstances to defer payments of
interest on the Junior Subordinated Debentures at any time and from
time to time for a period not exceeding 10 consecutive semi-annual
periods with respect to each deferral period, provided that no
deferral period may end on a day other than an interest payment date
or extend beyond the stated maturity date of the Junior Subordinated
Debentures. If and for so long as interest payments on the Junior
Subordinated Debentures are so deferred, cash distributions on the
Trust Securities will also be deferred and the Company will not be
permitted, subject to certain exceptions, to declare or pay any cash
distributions with respect to the Company's capital stock (which
includes common and preferred stock) or to make any payment with
respect to debt securities of the Company that rank equal with or
junior to the Junior Subordinated Debentures.
The Company intends to use the net proceeds from the sale of the
Junior Subordinated Debentures for general corporate purposes, which
may include additional investments in the Bank and/or acquisition
opportunities. The Capital Securities will be eligible to qualify as
Tier I Capital under the capital guidelines of the Federal Reserve.
EARNINGS PERFORMANCE
Net Interest Income: The Company's operating results depend primarily
on net interest income. A primary factor affecting the level of net
interest income is the Company's interest rate margin between the
yield earned on interest-earning assets and interest-bearing
liabilities as well as the difference between the relative amounts of
average interest-earning assets and average interest-bearing
liabilities. For the quarter ended March 31, 1997, net interest income
increased to $40.2 million from $32.2 million in the same period of
1996. The Company's net interest margin decreased to 5.7% for the
first quarter of 1997 from 5.8% for the first quarter of 1996.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Three Months Ended
March 31,
(In Thousands) 1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Interest income........................... $ 58,733 $ 48,090
Interest expense.......................... 18,572 15,869
----------------------------------------------------------------------
Net interest income $ 40,161 $ 32,221
----------------------------------------------------------------------
Net interest margin 5.7% 5.8%
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</TABLE>
The increased net interest income resulted from the $404 million
growth, or 23% in average loans from the first quarter 1996. The
decline in spread resulted primarily from the decrease in the
Company's base lending rate which averaged 8.27% for the first quarter
1997 compared to 8.42% for same period of 1996 and from the impact of
a $157 million increase in securities available for sale that yielded
5.7% for the quarter ended March 31, 1997 as compared to a 6.5% yield
for the quarter ended March 31, 1996. As illustrated by the table
above and the Analysis of Changes in Net Interest Margin (see page
18), the growth in the Company's loan portfolio had a much greater
impact on net interest income than the decrease in rates for the
quarter ended March 31, 1997.
Average demand deposit levels for the quarter ended March 31, 1997
increased approximately $267 million from the first quarter of 1996.
The Company's average interest-bearing liabilities, primarily time
certificates of deposit, grew $266 million from the first quarter of
1996, resulting in higher interest expense, despite a slight decrease
in borrowing rates.
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 $3.6 million
and $2.4 million, respectively, for the quarters ended March 31, 1997
and 1996. The net interest margin for each period would have been 5.2%
and 5.3%, respectively.
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Noninterest Income: Noninterest income amounted to $16.1 million for
the first quarter of 1997 as compared to $12.3 million for the same
period of 1996. The table below shows the major components of
noninterest income.
<TABLE>
<CAPTION>
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Three months ended
March 31,
(In Thousands) 1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Service charges on deposit accounts..... $ 1,403 $ 1,258
Trust fees.............................. 1,977 2,108
Gain on origination and sale of loans... 514 305
Equity in net earnings of Imperial
Credit Industries, Inc................. 1,461 2,860
Other service charges and fees.......... 2,278 746
Merchant and credit card fees........... 700 439
Gain on exercise and sale of stock
warrants............................... 1,734 468
International fees...................... 1,677 1,047
Gain on securities available for sale... 234 229
Gain on trading account securities...... 1,059 1,148
Appreciation of donated Imperial Credit
Industries, Inc. common stock.......... 2,816 779
Other income............................ 276 904
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Total $16,129 $12,291
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</TABLE>
Noninterest income for the quarter ended March 31, 1997 was impacted
by the appreciation of ICII stock which was donated to not-for-profit
organizations. The $2.8 million of appreciation represents the
difference between the market value and book value of the ICII shares
on the date they were donated. The Company recorded a corresponding
charitable donation expense in noninterest expenses (see Noninterest
Expense), which reflects the market value of the shares donated of
$3.7 million.
Equity in the net earnings of ICII for the first quarter 1997
decreased $1.4 million from the same period of 1996. This decrease was
attributable to the Bank's ownership percentage in ICII decreasing
from approximately 39% at March 31, 1996 to 24% at March 31, 1997 and
to ICII recording an extraordinary loss due to the early retirement of
debt which resulted in an after tax charge of approximately $4.0
million.
Another factor that contributed to higher noninterest income for the
first quarter of 1997 was an increase of $1.3 million in the exercise
and sale of stock warrants from the first quarter of 1996. These stock
warrants are received in conjunction with loans funded in the Bank's
Special Markets Lending Division. This improvement is mainly due to an
increase in loan activity of the Special Markets Lending Division.
Excluding the donation of ICII stock, core noninterest income for the
first quarter of 1997 improved $1.8 million, or 16%, from the same
period of 1996. The improvement of $1.5 million in other service
charges was primarily a result of the Bank entering into several new
item processing agreements with other institutions since the first
quarter of 1996. Service charges on deposit accounts for the first
quarter of 1997 increased 12% to $1.4 million from the prior year
primarily as a result of the growth in average demand deposits from
period to period. The Company also recorded improvements in other fee
income businesses. International fees increased $0.6 million from the
prior year, merchant and credit card fees increased by $0.2 million,
and fees from the origination and sale of loans increased by $0.2
million. These increases were related to larger volumes in their
respective operations.
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Noninterest Expense: Noninterest expense totaled $39.7 million for the
quarter ended March 31, 1997 as compared to $30.2 million for the same
period in the prior year. The table below shows the major components
of noninterest expense.
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Three months ended
March 31,
(In Thousands) 1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Salary and employee benefits................ $19,671 $15,498
Net occupancy expense....................... 2,212 2,232
Furniture and equipment..................... 1,381 1,136
Data processing............................. 1,875 1,496
Customer services........................... 3,606 2,437
Net real estate owned expense............... 152 650
Professional and consulting................. 1,828 1,622
Business development........................ 897 989
Charitable donations........................ 3,676 1,040
Other expense............................... 4,416 3,062
----------------------------------------------------------------------
Total $39,714 $30,162
----------------------------------------------------------------------
</TABLE>
The $9.6 million increase in noninterest expenses was primarily
attributable to increased salary and benefit costs experienced in the
first quarter of 1997. Since the first quarter of 1996, the Company
has opened several loan production offices and has focused on
statewide growth by investing in people. These actions have resulted
in a $4.2 million increase in personnel expenses for the first quarter
of 1997 over the first quarter of 1996.
Other factors that contributed to increased noninterest expenses for
the first quarter of 1997 was the $3.7 million donation of ICII stock
to not-for-profit institutions (see Noninterest Income), and higher
customer service and data processing expenses. Customer service
expenses which include accounting, courier, and other deposit related
services rose due to a $267 million increase in average demand deposit
levels during the first quarter of 1997 as compared to the prior year
comparable quarter, as these costs are a function of deposit volume
and interest rates. Data processing expenses were higher due to an
increase in credit card processing volume.
Other expense increased $1.4 million from the first quarter of 1996
primarily due to a rise in postage, telephone, and broker commission
expenses.
Partially offsetting these increases in noninterest expense was a
decrease in REO expenses. REO expenses for the quarter ended March 31,
1997 was $0.2 million, a decline from $0.7 million for the same period
one year ago.
Income Taxes: The Company recorded income tax expense from continuing
operations of $5.3 million for the quarter ended March 31, 1997
representing an effective tax rate of approximately 39.5%. For the
same period of 1996, the Company's income tax expense from continuing
operations and effective tax rate approximated $5.0 million and 42.8%,
respectively. At March 31, 1997, the Company had a net deferred tax
liability of $1.8 million, as compared to a $1.5 million net deferred
tax liability at December 31, 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 $9.8 million, net
of tax, for the year ended December 31, 1996. As of March 31, 1997,
the activities of the precious metals business were substantially
completed.
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ASSET/LIABILITY MANAGEMENT
Liquidity: For the Company, as with most commercial banking
institutions, liquidity is the ability to roll over substantial
amounts of maturing liabilities and to acquire new liabilities at
levels consistent with management's financial targets. The key to this
on-going replacement activity is the Company's reputation in the
domestic money markets, which is based upon its financial condition
and its capital base.
The overall liquidity position of the Company has been enhanced by a
sizable base of demand deposits resulting from the Company's long
standing relationships with the real estate services industry which
have provided a relatively stable and low cost funding base. Demand
deposits averaged $1.2 billion for the quarter ended March 31, 1997 as
compared to $926 million for the same period of 1996. The Company's
average demand deposits and average stockholders' equity funded 46% of
average total assets for both quarters ended March 31, 1997 and 1996.
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 quarter
of 1997, the Company experienced a net cash outflow from its investing
activities of $419 million. This net outflow in investing activities
resulted primarily from the increase in Federal funds sold, an outflow
of $258 million and the growth in the Company's loan portfolio, a net
outflow of $88 million. The outflows were partially offset by the $349
million net cash provided by the Company's financing activities
consisting mainly of deposit inflows including $202 million in demand
deposits, money market and savings accounts and $123 million in
certificates of deposit.
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 March
31, 1997, the Company maintained a positive one year gap of
approximately $828 million as its interest rate sensitive assets
exceeded its interest rate sensitive liabilities. This positive
cumulative gap position indicates that the Company is asset sensitive
and positioned for increased net interest income during a period of
rising interest rates but also exposed to an adverse impact on net
interest income in a falling rate environment. At March 31, 1996, the
Company maintained a positive one year gap of approximately $615
million.
The Company has 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 at the time the
floors and caps are purchased.
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Based on this strategy and the general asset sensitive nature of the
balance sheet, the Company purchased $2.0 billion of exchange traded
interest rate floors in the first, second, and third quarters of 1996
to protect against a drop in interest rates. The floors mature at the
rate of $500 million per quarter beginning in the second quarter of
1997. The floors maturing in the second and third 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 of these floors approximated $19,000 at March 31,
1997. In the fourth quarter of 1996, the Company purchased an
additional $2.0 billion of exchange traded interest rate floors. The
floors mature at the rate of $1.0 billion per quarter beginning in the
second quarter of 1998. The floors provide the Company protection in
the event that the three month LIBOR drops below the strike price of
4.0%. The unrealized gain of these floors approximated $25,000 at
March 31, 1997.
In January 1996, the Company purchased exchange traded interest rate
caps with a notional value outstanding of $500 million at March 31,
1997. The caps provide protection in the event that the three month
LIBOR increases above the 6.5% strike price of the cap and matures,
unexercised during the second quarter of 1997. In the fourth quarter
of 1996, the Company purchased an additional $1.0 billion of exchange
traded caps. The caps mature at the rate of $500 million per quarter
beginning in the third quarter of 1997 and provide the Company
protection in the event that the three month LIBOR increases above the
7.5% strike price. The unrealized gain of these caps at March 31, 1997
approximated $25,000. The unamortized premiums paid for floors and
caps described above approximated $313,000 at March 31, 1997.
In the first quarter of 1997, the Company sold $27 million of ten year
certificates of deposit with a fixed rate of 7.15%. These long term
certificates of deposit are callable by the Company after one year and
semi-annually after that. To minimize the interest rate risk of paying
out a fixed rate for 10 years, the Company executed an interest rate
swap transaction with a notional value of $27 million in the first
quarter of 1997. The interest rate swap requires the Company to pay a
rate of three month LIBOR minus 10 basis points, quarterly for ten
years. Simultaneously, the Company will receive quarterly interest
payments at a fixed rate of 7.15% for ten years.
ASSET QUALITY
Nonaccrual loans, restructured loans and real estate owned: Nonaccrual
loans, which includes loans 90 days or more past due, totaled $17.0
million at March 31, 1997 as compared to $30.8 million at March 31,
1996 and $20.4 million at December 31, 1996. The decrease from year
end 1996 was mainly due to charge-offs of loans on nonaccrual status
at year end 1996 approximating $0.5 million, loans being returned to
current or paid off of $2.0 million and payments received of $0.9
million on nonaccrual loans. The decrease from March 31, 1996 related
in part to charge-offs of loans on nonaccrual status approximating
$4.6 million, loans paid off approximating $4.8 million, delinquencies
which were cured approximating $9.5 million and payments received for
nonaccrual loans approximating $1.6 million. Partially offsetting
these decreases were loans approximating $7.4 million placed on
nonaccrual during the twelve month period. 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 when collected.
Troubled debt restructured loans totaled $25.4 million at March 31,
1997 as compared to $28.7 million at prior year end and $36.0 million
at March 31, 1996. The decrease in restructured loans from the first
quarter of 1996 resulted in part from a $13.7 million loan that was
restructured in the fourth quarter of 1995 and performed in accordance
with its modified terms during 1996. As a result, the loan was no
longer classified as restructured at March 31, 1997. The decrease in
restructured loans from year end 1996 was mainly due to a $2.4 million
loan that was restructured in the first quarter of 1996, performed in
accordance with its modified terms for one year, and was no longer
classified as restructured at March 31, 1997.
Real estate owned of $2.2 million, net of a $0.8 million valuation
allowance, at March 31, 1997 increased $0.1 million from year end 1996
and decreased $7.5 million from March 31, 1996. The significant
decline from the first quarter of 1996 is attributable to the
Company's successful disposition of thirteen properties since March
31, 1996.
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Detailed information regarding nonaccrual loans, restructured loans
and real estate owned is presented below.
<TABLE>
<CAPTION>
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Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
(In Thousands) 1997 1996 1996 1996 1996
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<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial loans....................... $ 8,515 $ 9,382 $ 11,782 $ 10,419 $ 14,766
Real estate loans...................... 8,479 10,760 10,526 10,434 16,022
Consumer loans......................... -- 248 -- -- --
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Total nonaccrual loans $ 16,994 $ 20,390 $ 22,308 $ 20,853 $ 30,788
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Restructured loans $ 25,395 $ 28,681 $ 44,764 $ 44,962 $ 35,966
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Real estate owned:
REO, gross............................. $ 2,973 $ 2,895 $ 2,986 $ 8,306 $ 10,377
Less valuation allowance............... (769) (769) (307) (366) (640)
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REO, net $ 2,204 $ 2,126 $ 2,679 $ 7,940 $ 9,737
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Total $ 44,593 $ 51,197 $ 69,751 $ 73,755 $ 76,491
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</TABLE>
The following table contains information for loans deemed impaired:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Net
Carrying Specific Net
(In Thousands) Value Allowance Balance
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1997
Loans with specific allowances......... $111,516 $(14,258) $ 97,258
Loans without specific allowances...... 4,514 -- 4,514
- --------------------------------------------------------------------------------
Total $116,030 $(14,258) $101,772
- --------------------------------------------------------------------------------
December 31, 1996
Loans with specific allowances......... $102,116 $(14,993) $ 87,123
Loans without specific allowances...... 15,484 -- 15,484
- --------------------------------------------------------------------------------
Total $117,600 $(14,993) $102,607
- --------------------------------------------------------------------------------
</TABLE>
Impaired loans were classified as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 31, December 31,
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current........................................... $ 99,167 $ 97,210
Nonaccrual........................................ 16,863 20,390
- --------------------------------------------------------------------------------
Total $ 116,030 $ 117,600
- --------------------------------------------------------------------------------
</TABLE>
Allowance and provision for loan losses: The allowance for loan losses is
maintained at a level considered appropriate by management and is based on an
ongoing assessment of the risks inherent in the loan portfolio. The allowance
for loan losses is increased by the provision for loan losses which is charged
against current period operating results, and is decreased by the amount of net
charge-offs during the period. The Company's determination of the level of the
allowance for loan losses, and correspondingly, the provision for loan losses,
rests upon various judgments and assumptions, including general economic
conditions (especially in California), loan portfolio composition and
concentrations, prior loan loss experience, collateral value, identification of
problem and potential problem loans and other relevant data to identify the
risks in the loan portfolio. While management believes that the allowance for
loan losses is adequate at March 31, 1997, future additions to the allowance
will be subject to continuing evaluation of inherent risk in the loan portfolio.
- --------------------------------------------------------------------------------
[LOGO OF IMPERIAL BANCORP APPEARS HERE]
9
<PAGE>
- --------------------------------------------------------------------------------
At March 31, 1997, the allowance for loan losses amounted to $38.6
million, or 1.8% of total loans, as compared to $36.1 million, or 1.8%
of total loans, at December 31, 1996 and $39.2 million, or 2.2% of
total loans, at March 31, 1996. The following table summarizes changes
in the allowance for loan losses.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Three months ended March 31, (In Thousands) 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 36,051 $ 37,402
--------------------------------------------------------------------------------
Loans charged off:
Commercial.................................... (835) (1,613)
Real estate................................... (70) (293)
Consumer...................................... (2) (3)
--------------------------------------------------------------------------------
Total loans charged off $ (907) $ (1,909)
--------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial.................................... 170 987
Real estate................................... -- 1
Consumer...................................... 5 4
--------------------------------------------------------------------------------
Total loan recoveries $ 175 $ 992
--------------------------------------------------------------------------------
Net loans charged off............................ (732) (917)
Provision for loan losses, including
discontinued operation.......................... 3,323 2,690
--------------------------------------------------------------------------------
Balance, end of period $ 38,642 $ 39,175
--------------------------------------------------------------------------------
Loans outstanding, end of period $2,153,492 $1,746,862
--------------------------------------------------------------------------------
Average loans outstanding $2,130,316 $1,725,902
--------------------------------------------------------------------------------
Ratio of net charge-offs to average loans........ 0.14%/(1)/ 0.21%/(1)/
Ratio of allowance for loan losses to average
loans........................................... 1.81 2.27
Ratio of allowance for loan losses to loans
outstanding at March 31......................... 1.79 2.24
Ratio of allowance for loan losses to
nonaccrual loans................................ 227 127
Ratio of provision for loan losses to net
charge-offs..................................... 454 293
--------------------------------------------------------------------------------
</TABLE>
/(1)/ Annualized
The provision for loan losses totaled $3.3 million for the quarter
ended March 31, 1997 as compared to $2.7 million for the same period
of 1996. The increase in the provision for loan losses was primarily
related to the growth in the Company's loan portfolio. Net charge-offs
totaled $0.7 million for the three months ended March 31, 1997 as
compared to $0.9 million in the same period of 1996.
CAPITAL
Retained earnings from operations has been the primary source of new
capital for the Company, with the exception of its long term debt
offering in 1979, and on a smaller scale, the exercise of employee
stock options. At March 31, 1997, shareholders' equity totaled $299
million as compared to $286 million at December 31, 1996. In the first
quarter of 1997, the Company recorded an additional $0.5 million of
shareholders' equity from the exercise of employee stock options. The
Company generally receives a tax deduction upon the exercise of
nonqualified 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 $3.5 million in the first quarter
of 1997.
On January 24, 1997, the Company declared a 10% stock dividend,
payable on February 24, 1997 to shareholders of record on February 17,
1997.
Management is committed to maintaining capital at a sufficient level
to assure shareholders, customers and regulators that the Company and
the Bank are financially sound. Risk-adjusted capital guidelines,
issued by bank regulatory agencies, assign risk weightings to assets
both on and off-balance sheet and place increased emphasis on common
equity. Under Prompt Corrective Action, institutions whose Tier I and
total capital ratios meet or exceed 6% and 10%, respectively, are
deemed to be "well capitalized". Tier I capital basically consists of
common stockholders' equity and noncumulative perpetual preferred
- --------------------------------------------------------------------------------
[LOGO OF IMPERIAL BANCORP APPEARS HERE]
10
<PAGE>
- --------------------------------------------------------------------------------
stock and minority interest of consolidated subsidiaries minus
intangible assets. Based on the guidelines, the Bank's Tier I and
total capital ratios at March 31, 1997 were 9.5% and 10.8%,
respectively, as compared to 9.3% and 10.5%, respectively, at March
31, 1996.
<TABLE>
<CAPTION>
Capital Ratios for Imperial Bank/(1)/
----------------------------------------------------------------------
March 31, (In Thousands) 1997 1996
----------------------------------------------------------------------
<S> <C> <C>
Tier I:
Common stockholders' equity and
preferred stock/(2)/.................. $ 273,069 $ 219,770
Disallowed assets...................... (941) (1,766)
----------------------------------------------------------------------
Tier I capital $ 272,128 $ 218,004
----------------------------------------------------------------------
Tier II:
Allowance for loan losses allowable in
Tier II............................... 35,779 29,556
----------------------------------------------------------------------
Total risk-based capital $ 307,907 $ 247,560
----------------------------------------------------------------------
Risk-weighted balance sheet assets $2,476,551 $1,993,087
----------------------------------------------------------------------
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans.. 353,626 291,808
Standby letters of credit.............. 26,775 69,717
Other.................................. 6,262 11,668
----------------------------------------------------------------------
Total risk-weighted off-balance
sheet items $ 386,663 $ 373,193
----------------------------------------------------------------------
Disallowed assets......................... (941) (1,766)
Allowance for loan losses not included
in Tier II............................... (2,656) (9,619)
----------------------------------------------------------------------
Total risk-weighted assets $2,859,617 $2,354,895
----------------------------------------------------------------------
Risk-based capital ratios:
Tier I capital......................... 9.5% 9.3%
Total capital.......................... 10.8 10.5
Leverage ratio......................... 8.7 8.5
----------------------------------------------------------------------
</TABLE>
/(1)/ As reported on the March 31, 1997 and 1996 FDIC Call Reports.
/(2)/ Excludes unrealized gain (loss) on securities available for
sale.
In addition to the risk-weighted ratios, all banks are required to
maintain leverage ratios, to be determined on an individual basis, but
not below a minimum of 3%. The ratio is defined as Tier I capital to
average total assets for the most recent quarter. The Bank's leverage
ratio was 8.7 at March 31, 1997 as compared to 8.5% at March 31, 1996
well in excess of its regulatory requirement of 6.5%.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," ("FAS 125") which establishes accounting for transfers
and servicing of financial assets and extinguishment of liabilities.
This statement specifies the following: when financial assets and
liabilities are to be removed from an entity's financial statements;
the accounting for servicing assets and liabilities; and the
accounting for assets that can be contractually prepaid in such a way
that the holder would not recover substantially all of its recorded
investment. Under FAS 125, an entity recognizes only assets it
controls and liabilities it has incurred, discontinues recognition of
assets only when control has been surrendered, and discontinues
recognition of liabilities only when they have been extinguished. FAS
125 requires that the selling entity continue to carry retained
interests relating to assets it no longer recognizes. Such retained
interests are based on the relative fair values of the retained
interests of the subject assets at the date of transfer. Transfers not
meeting the criteria for sale recognition are accounted for as a
secured borrowing with a pledge of collateral. Under FAS 125, certain
collateralized borrowings may result in assets no longer being
recognized if the assets are provided as collateral and the secured
party takes control of the collateral. This determination is based
upon whether: (1) the secured party is permitted to repledge or sell
the collateral and (2) the debtor does not have the right to redeem
the collateral on short notice. Extinguishments of liabilities are
recognized only when the debtor pays the creditor and is relieved of
its obligation for the liability, or when the debtor is legally
released from being the primary obligor under the liability, either
judicially or by the creditor. FAS 125 requires an entity to recognize
its obligation to service financial assets that are retained in a
transfer of assets in the form of a servicing asset or liability. The
servicing asset is to be amortized in proportion to, and over the
period of,
- --------------------------------------------------------------------------------
[LOGO OF IMPERIAL BANCORP APPEARS HERE]
11
<PAGE>
- --------------------------------------------------------------------------------
net servicing income. Servicing assets and liabilities are to be
assessed for impairment based on their fair value. FAS 125 modifies
the accounting for interest-only strips or retained interests in
securitizations, such as capitalized servicing fees receivable, that
can be contractually prepaid or otherwise settled in such a way that
the holder would not recover substantially all of its recorded
investment. In this case, it requires that they be classified as
available for sale or as trading securities. Interest-only strips and
retained interests are to be recorded at market value. Changes in
market value are included in operations, if classified as trading
securities, or in stockholders' equity as unrealized holding gains or
losses, net of the related tax effect, if classified as available for
sale.
During 1996, the FASB issued Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No 125" ("FAS 127"). FAS 127 defers for
one year the effective date (a) of paragraph 15 of FAS 125 and (b) for
repurchase agreement, dollar-roll, securities lending, and similar
transactions, of paragraphs 9 - 12 and 237 (b) of FAS 125. FAS 127
provides additional guidance on the types of transactions for which
the effective date of FAS 125 has been deferred. It is required that
if it is not possible to determine whether a transfer occurring during
calendar-year 1997 is part of a repurchase agreement, dollar-roll,
securities lending or similar transaction, then paragraphs 9 - 12 of
FAS 125 should be applied to that transfer. The Company adopted the
applicable provisions of FAS 125 effective January 1, 1997.
The Small Business Administration lending group, a division of the
Bank, provides loans to small businesses, sells the guaranteed portion
of the loans, and retains the servicing rights and interest-only
strips relating to those loans. Under FAS 125, the portion of the
contractually specified servicing fee that exceeds the fee that a
substitute servicer would demand to assume the servicing (which is
deemed to be 40 basis points based on the 1993 National Association
for Government Guaranteed Loans survey), on SBA loans sold after
January 1, 1997, should be recorded as a servicing asset and amortized
in proportion to the servicing income. Any cash flow expected to be
received in excess of the contractually specified servicing fees
should be recorded as an interest-only strip receivable at its
allocated carrying amount and subsequently measured at fair value as
either an available-for-sale security or trading security under FAS
115. The Company has determined that the implementation of FAS 125 did
not have a material impact on its financial statements as of March 31,
1997.
- --------------------------------------------------------------------------------
[LOGO OF IMPERIAL BANCORP APPEARS HERE]
12
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheet
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries (Unaudited)
March 31, December 31,
(In Thousands, Except Share Data) 1997 1996
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.................................................... $ 291,574 $ 325,014
Trading account securities................................................. 28,729 64,887
Securities available for sale.............................................. 497,269 426,336
Securities held to maturity (fair value of $4,179 and $4,193 for 1997 and
1996, respectively)....................................................... 4,179 4,193
Federal funds sold and securities purchased under resale agreements........ 615,000 357,000
Loans held for sale (market value of $6,733 and $6,058 for 1997 and 1996,
respectively)............................................................. 6,138 5,531
Loans:
Loans, net of unearned income and deferred loan fees...................... 2,153,492 2,063,048
Less allowance for loan losses............................................ (38,642) (36,051)
----------------------------------------------------------------------------------------------------------------
Total net loans $2,114,850 $2,026,997
----------------------------------------------------------------------------------------------------------------
Premises and equipment, net................................................ 19,526 18,413
Accrued interest receivable................................................ 16,772 15,547
Real estate owned, net..................................................... 2,204 2,126
Income taxes receivable.................................................... -- 1,893
Investment in Imperial Credit
Industries, Inc........................................................... 58,381 57,736
Other assets............................................................... 56,425 44,497
----------------------------------------------------------------------------------------------------------------
Total assets $3,711,047 $3,350,170
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................................................... $1,616,352 $1,465,324
Savings................................................................... 39,510 17,324
Money market.............................................................. 625,703 596,967
Time-under $100,000....................................................... 175,198 169,493
Time-$100,000 and over.................................................... 818,466 701,169
----------------------------------------------------------------------------------------------------------------
Total deposits $3,275,229 $2,950,277
----------------------------------------------------------------------------------------------------------------
Accrued interest payable................................................... 7,193 5,943
Short-term borrowings...................................................... 68,623 44,897
Long-term borrowings....................................................... 4,450 4,455
Other liabilities.......................................................... 57,022 58,247
----------------------------------------------------------------------------------------------------------------
Total liabilities $3,412,517 $3,063,819
----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock--no par, 50,000,000 shares authorized; 25,765,333
shares at March 31, 1997 and 23,079,715 shares at December 31, 1996
issued and outstanding................................................... 230,163 163,748
Unrealized gain on securities available for sale, net of tax.............. 1,434 1,206
Retained earnings......................................................... 66,933 121,397
----------------------------------------------------------------------------------------------------------------
Total stockholders' equity $ 298,530 $ 286,351
----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $3,711,047 $3,350,170
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
13[LOGO OF IMPERIAL BANCORP APPEARS HERE]
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statement of Income
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries (Unaudited)
Three months ended March 31, (In Thousands, Except Per Share Data) 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Loans......................................................................... $49,170 $40,319
Trading account securities.................................................... 618 632
Securities available for sale................................................. 6,508 4,790
Securities held to maturity................................................... 73 77
Federal funds sold and securities purchased under resale agreements........... 2,241 2,200
Loans held for sale........................................................... 123 72
- --------------------------------------------------------------------------------------------------------------
Total interest income $58,733 $48,090
- --------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits...................................................................... 17,355 15,053
Short-term borrowings......................................................... 1,138 718
Long-term borrowings.......................................................... 79 98
- --------------------------------------------------------------------------------------------------------------
Total interest expense $18,572 $15,869
- --------------------------------------------------------------------------------------------------------------
Net interest income........................................................... 40,161 32,221
Provision for loan losses..................................................... 3,290 2,669
- --------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $36,871 $29,552
- --------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts........................................... 1,403 1,258
Trust fees.................................................................... 1,977 2,108
Gain on origination and sale of loans......................................... 514 305
Equity in net earnings of Imperial
Credit Industries, Inc....................................................... 1,461 2,860
Other service charges and fees................................................ 2,278 746
Merchant and credit card fees................................................. 700 439
Gain on exercise and sale of stock
warrants..................................................................... 1,734 468
International fees............................................................ 1,677 1,047
Gain on securities available for sale......................................... 234 229
Gain on trading account securities............................................ 1,059 1,148
Appreciation of donated Imperial Credit Industries, Inc. common stock......... 2,816 779
Other income.................................................................. 276 904
- --------------------------------------------------------------------------------------------------------------
Total noninterest income $16,129 $12,291
- --------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits.................................................. 19,671 15,498
Net occupancy expense......................................................... 2,212 2,232
Furniture and equipment....................................................... 1,381 1,136
Data processing............................................................... 1,875 1,496
Customer services............................................................. 3,606 2,437
Net real estate owned expense................................................. 152 650
Professional and consulting................................................... 1,828 1,622
Business development.......................................................... 897 989
Charitable donations.......................................................... 3,676 1,040
Other expense................................................................. 4,416 3,062
- --------------------------------------------------------------------------------------------------------------
Total noninterest expense $39,714 $30,162
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes.......................... 13,286 11,681
Income tax provision........................................................... 5,254 5,001
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 8,032 $ 6,680
- --------------------------------------------------------------------------------------------------------------
(Loss) income from operations of discontinued operation, net of tax............ (79) 116
- --------------------------------------------------------------------------------------------------------------
Net income $ 7,953 $ 6,796
- --------------------------------------------------------------------------------------------------------------
Income from continuing operations per share.................................... $0.30 $0.26
(Loss) income per share of discontinued operation.............................. $ -- $ --
- --------------------------------------------------------------------------------------------------------------
Net income per share $0.30 $0.26
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Imperial Bancorp and Subsidiaries (Unaudited)
Three months ended March 31, (In Thousands) 1997 1996
-------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 7,953 $ 6,796
Adjustments for noncash charges (credits):
Depreciation and amortization......................... (1,202) (591)
Accretion of purchased loan discount.................. (22) (161)
Provision for loan losses including
discontinued operation............................... 3,323 2,690
Provision for deferred taxes.......................... 312 (313)
Equity in net earnings of Imperial
Credit Industries, Inc............................... (1,461) (2,860)
Gain on sale of real estate owned..................... (5) (3)
Loss on sale of premises and
equipment............................................ 10 --
Gain on securities available for sale................. (234) (229)
Net change in trading account
securities........................................... 36,158 22,506
Net change in loans held for sale..................... (607) (3,057)
Net change in accrued interest
receivable........................................... (1,225) 708
Net change in accrued interest
payable.............................................. 1,250 (1,606)
Net change in income taxes receivable................. 4,934 907
Net change in other liabilities....................... (1,350) 1,193
Net change in other assets............................ (11,416) (942)
--------------------------------------------------------------------------------------
Net cash provided by operating activities $ 36,418 $ 25,038
======================================================================================
Cash flows from investing activities:
Proceeds from securities held to
maturity................................................ 14 7
Proceeds from sale of securities
available for sale...................................... 1,100,608 666,475
Proceeds from maturities of securities
available for sale...................................... 133,876 40,108
Purchase of securities available for
sale.................................................... (1,305,032) (737,089)
Net change in federal funds sold and
securities purchased
under resale agreements................................. (258,000) 23,716
Net change in loans...................................... (88,375) (46,524)
Capital expenditures..................................... (2,287) (877)
Proceeds from sale of real estate owned.................. 192 860
Proceeds from sale of premises and
equipment............................................... 24 --
--------------------------------------------------------------------------------------
Net cash used in investing activities $ (418,980) $ (53,324)
======================================================================================
Cash flows from financing activities:
Net change in demand deposits,
savings, and money market accounts...................... 201,950 73,362
Net change in time deposits.............................. 123,002 74,940
Net change in short-term borrowings...................... 23,726 (111,873)
Retirement of long-term borrowings....................... (5) --
Proceeds from exercise of employee
stock options........................................... 467 432
Other.................................................... (18) (18)
--------------------------------------------------------------------------------------
Net cash provided by financing activities $ 349,122 $ 36,843
--------------------------------------------------------------------------------------
Net change in cash and due from banks $ (33,440) $ 8,557
--------------------------------------------------------------------------------------
Cash and due from banks, beginning of year $ 325,014 $ 242,018
--------------------------------------------------------------------------------------
Cash and due from banks, end of period $ 291,574 $ 250,575
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
15[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, 1995, the Company owned 5,801,052 shares, or 39.8% of
the common stock of Imperial Credit Industries, Inc. (NASDAQ-NMS-ICII)
("ICII"). In February 1996, ICII declared and paid a 10% stock
dividend. On April 24, 1996, the Company sold 1,500,000 shares of ICII
in a public offering for $26 per share. The gross spread, or the
difference between the price paid to the seller and the price at which
the shares were sold was $1.36 per share. The book value of the
Company's investment in ICII on the date of the sale approximated
$6.20 per share. As a part of that same offering, ICII sold 2,252,091
new shares to the public. After the sale of ICII shares, the book
value of ICII common stock approximated $8.30 per share. As such, the
Company recorded a gain which approximated the excess of ICII's book
value per share over the book value of the Company's remaining
investment in ICII.
In October 1996, ICII common stock was split at the ratio of two new
shares for every one share outstanding. At March 31, 1997, the Company
owned 9,261,106 shares, or approximately 24.1%. The Company does not
exercise significant control over the operations of ICII and as such
the results of operations are accounted for in the Company's financial
statements as an equity investment. The equity investment in ICII is
carried at cost adjusted for changes in ICII's shareholder equity
including undistributed income. Transactions between ICII and the
Company occur during the normal course of business. All transactions
are carried out at substantially the same terms as those prevailing at
the same time for comparable transactions with others.
NOTE (3) STATEMENT OF CASH FLOWS
The following information supplements the statement of cash flows.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
March 31, (In Thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Interest paid........................................ $17,322 $17,475
Taxes refunded....................................... 424 244
Taxes paid........................................... 375 4,300
Significant noncash transactions:
Loans transferred to real estate owned............ 265 265
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID
The following table sets forth the average daily balances for major
categories of assets, liabilities and stockholders' equity including
interest-earning assets and interest-bearing liabilities and the
annualized average interest rates earned and paid thereon. The yields
are not presented on a tax equivalent basis as the effects are not
material.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Three months ended March 31,
-------------------------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
-------------------------------------------------------------------------------------------------------------
Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans/(1)/............................. $2,130,316 $49,170/(2)/ 9.2% $1,725,902 $40,319/(2)/ 9.3%
Trading account securities............. 39,051 618 6.3 36,187 632 7.0
Securities available for sale.......... 452,874 6,508 5.7 295,927 4,790 6.5
Securities held to maturity............ 4,189 73 7.0 4,372 77 7.0
Federal funds sold and securities
purchased under resale agreements..... 167,536 2,241 5.4 162,472 2,200 5.4
Loans held for sale.................... 4,858 123 10.1 3,019 72 9.5
-------------------------------------------------------------------------------------------------------------
Total interest-earning assets $2,798,824 $58,733 8.4% $2,227,879 $48,090 8.6%
-------------------------------------------------------------------------------------------------------------
Allowance for loan losses................. (37,048) (39,211)
Cash...................................... 273,222 227,798
Other assets.............................. 163,533 127,485
----------- -------------
Total assets.......................... $3,198,531 $2,543,951
----------- -------------
Interest-bearing liabilities:
Savings............................... $ 17,612 $ 108 2.5% $ 19,866 $ 123 2.5%
Money market.......................... 594,818 4,455 3.0 434,500 3,152 2.9
Time - under $100,000................. 174,725 2,464 5.6 240,356 3,519 5.9
Time - $100,000 and over.............. 770,173 10,328 5.4 596,606 8,259 5.5
-------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,557,328 $17,355 4.5% $1,291,328 $15,053 4.7%
-------------------------------------------------------------------------------------------------------------
Short-term borrowings................. 88,536 1,138 5.1 56,318 718 5.1
Long-term borrowings.................. 4,452 79 7.1 5,906 98 6.6
-------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,650,316 $ 8,572 4.5% $1,353,552 $15,869 4.7%
-------------------------------------------------------------------------------------------------------------
Demand deposits........................... 1,192,547 925,778
Other liabilities......................... 63,889 32,368
Stockholders' equity...................... 291,779 232,253
----------- -------------
Total liabilities and stockholders'
equity.............................. $3,198,531 $2,543,951
----------- ------------
Net interest income/net interest margin... $40,161 5.7% $32,221 5.8%
------------------- ---------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonaccrual loans.
(2) Includes net loan fees of $3,044,000 and $2,004,000 for
the three months ended March 31, 1997 and 1996,
respectively.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST MARGIN
Changes in the Company's net interest income are a function of both
changes in rates and changes in volumes of interest-earning assets and
interest-bearing liabilities. The following table sets forth
information regarding changes in interest income and interest expense
for the years indicated. The total change is segmented into the change
attributable to variations in volume (changes in volume multiplied by
old rate) and the change attributable to variations in interest rates
(changes in rates multiplied by old volume). The change in interest
due to both rate and volume (changes in rate multiplied by changes in
volume) is classified as rate/volume. Nonaccrual loans are included in
average loans used to compute this table. The table is not presented
on a tax equivalent basis as the effects are not material.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Three months ended March 31,
----------------------------------------------------------------------------------------
1997 Over 1996
(In Thousands) Volume Rate Rate/Volume Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase/(decrease) in:
Loans, net of unearned income and
deferred loan fees.................. $ 9,448 $ (484) $ (113) $ 8,851
Trading account securities............ 50 (59) (5) (14)
Securities available for sale......... 2,540 (537) (285) 1,718
Securities held to maturity........... (3) (1) -- (4)
Federal funds sold and securities
purchased under resale agreements... 69 (27) (1) 41
Loans held for sale................... 44 4 3 51
----------------------------------------------------------------------------------------
Total interest income $12,148 $(1,104) $ (401) $ 10,643
----------------------------------------------------------------------------------------
Savings............................... (41) (1) 27 (15)
Money market.......................... 1,163 102 38 1,303
Time - under $100,000................. (961) (130) 35 (1,056)
Time - $100,000 and over.............. 2,403 (258) (75) 2,070
----------------------------------------------------------------------------------------
Total deposits $ 2,564 $ (287) $ 25 $ 2,302
----------------------------------------------------------------------------------------
Short-term borrowings................. 411 6 3 420
Long-term borrowings.................. (24) 7 (2) (19)
----------------------------------------------------------------------------------------
Total interest expense $ 2,951 $ (274) $ 26 $ 2,703
----------------------------------------------------------------------------------------
Changes in net interest income $ 9,197 $ (830) $ (427) $ 7,940
----------------------------------------------------------------------------------------
</TABLE>
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18
<PAGE>
- --------------------------------------------------------------------------------
TABLE 3 - SECURITIES
(a) Securities Held to Maturity
The following is a summary for the major categories of securities held
to maturity.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997
Industrial development bonds..... $ 4,179 $ -- $ -- $ 4,179
----------------------------------------------------------------------------------------
Total $ 4,179 $ -- $ -- $ 4,179
----------------------------------------------------------------------------------------
December 31, 1996
Industrial development bonds..... $ 4,193 $ -- $ -- $ 4,193
----------------------------------------------------------------------------------------
Total $ 4,193 $ -- $ -- $ 4,193
----------------------------------------------------------------------------------------
</TABLE>
(b) Securities Available for Sale
The following is a summary for the major categories of securities
available for sale.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(In Thousands) Cost Gains Losses Value
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1997
U.S. Treasury and federal
agencies..................... $421,186 $3,017 $(83) $424,120
Mutual funds.................. 64,572 -- -- 64,572
Other securities.............. 9,037 153 (613) 8,577
----------------------------------------------------------------------------------------
Total $494,795 $3,170 $(696) $497,269
----------------------------------------------------------------------------------------
December 31, 1996
U.S. Treasury and federal
agencies..................... $385,903 $1,772 $ (8) $387,667
Mutual funds.................. 31,095 -- -- 31,095
Other securities.............. 7,412 226 (64) 7,574
----------------------------------------------------------------------------------------
Total $424,410 $1,998 $(72) $426,336
----------------------------------------------------------------------------------------
</TABLE>
Gross realized gains and losses for the three months ended March 31,
1997, were $295,000 and $61,000, respectively. For the same period of
1996, these amounts were $232,000 and $3,000, respectively.
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19
<PAGE>
- --------------------------------------------------------------------------------
TABLE 4 - REAL ESTATE OWNED
(a) Real Estate Owned by Type of Project
At March 31, 1997 and December 31, 1996, real estate owned by type
of project is presented in the following table:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
March 31, December 31,
(In Thousands) 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Acquisition and land development................ $ 2,708 $ 2,708
Multi-family residential........................ -- --
Single-family residential....................... 265 187
--------------------------------------------------------------------------------
Total residential $ 2,973 $ 2,895
--------------------------------------------------------------------------------
Acquisition and land development................ -- --
Retail facilities............................... -- --
--------------------------------------------------------------------------------
Total non-residential $ -- $ --
--------------------------------------------------------------------------------
REO, gross $ 2,973 $ 2,895
--------------------------------------------------------------------------------
Less valuation allowance........................ (769) (769)
--------------------------------------------------------------------------------
REO, net $ 2,204 $ 2,126
--------------------------------------------------------------------------------
</TABLE>
(b) Net Real Estate Owned Expense
For the periods ended March 31, 1997 and 1996, net real estate owned
expense was comprised of the following:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Three months ended
March 31,
(In Thousands) 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Net gain on sale of real estate owned........... $ (5) $ (3)
Valuation adjustments charged to
operations..................................... -- --
Direct holding costs............................ 157 653
--------------------------------------------------------------------------------
Net real estate owned expense $ 152 $ 650
--------------------------------------------------------------------------------
</TABLE>
The following table sets forth information regarding the Company's
valuation allowance for REO.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
March 31, December 31,
(In Thousands) 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period.................... $ 769 $ 4,686
Provision for REO............................... -- 476
REO charged off................................. -- (4,393)
--------------------------------------------------------------------------------
Balance, end of period $ 769 $ 769
--------------------------------------------------------------------------------
</TABLE>
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20
<PAGE>
- --------------------------------------------------------------------------------
TABLE 5 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
------------------------------------------------------------------------
Three months ended
March 31,
----------------------
1997 1996
------------------------------------------------------------------------
<S> <C> <C>
Net income as a percentage of: /(1)/
Average stockholders' equity.................... 10.90% 11.70%
Average total assets............................ 0.99 1.07
Average earning assets.......................... 1.14 1.21
Average stockholders' equity as a percentage of:
Average assets.................................. 9.12% 9.13%
Average loans................................... 13.70 13.46
Average deposits................................ 10.61 10.48
Stockholders' equity at period end as a
percentage of:
Total assets at period end...................... 8.04% 8.30%
Total loans at period end....................... 13.86 13.44
Total deposits at period end.................... 9.11 9.35
------------------------------------------------------------------------
</TABLE>
/(1)/ Annualized
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21
<PAGE>
- --------------------------------------------------------------------------------
Exhibits
Part I
COMPUTATION OF EARNINGS PER SHARE
Imperial Bancorp (the "Company") has outstanding certain employee
stock options, which options have been determined to be common stock
equivalents for purposes of computing earnings per share.
During the periods ended March 31, 1997 and 1996, the market price of
the Company's common stock exceeded the exercise price of certain of
these common stock equivalents. Under the treasury stock method, the
following weighted average shares of common stock and common stock
equivalents outstanding were used in the respective earnings per share
computations.
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------------
1997 1996/(1)/
------------------- --------------------
<S> <C>
26,870,245 25,812,749
</TABLE>
/(1)/Adjusted for a three-for-two stock split distributed in the third
quarter of 1996 and a 10% stock dividend paid in the first quarter of
1997.
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.
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22
<PAGE>
- --------------------------------------------------------------------------------
ITEM 5. Other Information
No events have transpired which would make response to this item
appropriate.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Index
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
All other material referenced in this report which is
required to be filed as an exhibit hereto has previously
been submitted.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the period, and no events have occurred which would
require one to be filed.
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23
<PAGE>
- --------------------------------------------------------------------------------
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
IMPERIAL BANCORP
Dated: May 14, 1997 By: Christine M. McCarthy
----------------------------
Christine M. McCarthy
Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
24[LOGO OF IMPERIAL BANCORP APPEARS HERE]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 291,574
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 615,000
<TRADING-ASSETS> 28,729
<INVESTMENTS-HELD-FOR-SALE> 497,269
<INVESTMENTS-CARRYING> 4,179
<INVESTMENTS-MARKET> 4,179
<LOANS> 2,153,492
<ALLOWANCE> 38,642
<TOTAL-ASSETS> 3,711,047
<DEPOSITS> 3,275,229
<SHORT-TERM> 68,623
<LIABILITIES-OTHER> 64,215
<LONG-TERM> 4,450
0
0
<COMMON> 230,163
<OTHER-SE> 68,367
<TOTAL-LIABILITIES-AND-EQUITY> 3,711,047
<INTEREST-LOAN> 49,170
<INTEREST-INVEST> 7,199
<INTEREST-OTHER> 2,364
<INTEREST-TOTAL> 58,733
<INTEREST-DEPOSIT> 17,355
<INTEREST-EXPENSE> 18,572
<INTEREST-INCOME-NET> 40,161
<LOAN-LOSSES> 3,290
<SECURITIES-GAINS> 234
<EXPENSE-OTHER> 39,714
<INCOME-PRETAX> 13,286
<INCOME-PRE-EXTRAORDINARY> 8,032
<EXTRAORDINARY> (79)
<CHANGES> 0
<NET-INCOME> 7,953
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 5.7
<LOANS-NON> 16,994
<LOANS-PAST> 0
<LOANS-TROUBLED> 25,395
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,051
<CHARGE-OFFS> 933
<RECOVERIES> 201
<ALLOWANCE-CLOSE> 38,642
<ALLOWANCE-DOMESTIC> 38,642
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,838
</TABLE>
