<PAGE>
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, 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 September
30, 1997: 25,966,307 shares.
DEBT SECURITIES: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of September 30, 1997, $2,219,000 in principal amount
of such Notes and $1,038,000 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.
<PAGE>
IMPERIAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
Except for the historical information contained herein, the following
discussion includes forward-looking information that involves risks
and uncertainties. Actual results may differ materially from those
expressed or implied by such forward-looking statements.
FINANCIAL REVIEW
The following discussion presents information about the results of
operations, financial condition, liquidity and capital resources of
Imperial Bancorp ("the Company") for the three months and nine months
ended September 30 1997. This information should be read in
conjunction with the Company's 1996 consolidated financial statements
and notes thereto, and the accompanying quarterly unaudited
consolidated financial statements and notes thereto.
PERFORMANCE SUMMARY
Net income for the third quarter of 1997 increased to $14.9 million,
or $0.54 per share, from $8.7 million, or $0.33 per share, for the
third quarter of 1996. The annualized return on average total assets
increased to 1.58% for the three months ended September 30, 1997, from
1.20% for the same period of the prior year. Return on average
shareholders' equity increased to 18.53% for the third quarter of 1997
compared to 12.81% for the third quarter of 1996.
Net income for the nine months ended September 30, 1997, was $33.8
million, or $1.26 per share, compared to $44.1 million, or $1.70 per
share, for the nine months ended September 30, 1996. The annualized
return on average assets and return on average shareholders' equity
for the first nine months of 1997 were 1.29% and 14.69%, respectively,
compared to 2.17% and 23.31%, respectively, for the first nine months
of 1996. Year-to-date net income for 1997 and 1996 includes pre-tax
gains of $2.4 million and $36.4 million, respectively, realized from
the sale of a portion of the Company's investment in Imperial Credit
Industries, Inc. ("ICII") (NASDAQ-NMS-ICII). Year-to-date income for
1996 includes $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). Net income for 1996
also includes a $5.6 million after-tax loss related to the Company's
discontinued precious metals business.
Net income excluding gains on the sale of stock and the income or loss
associated with discontinued operations ("core net income") increased
42% for the nine months ended September 30, 1997, to $32.6 million, or
$1.21 per share, from $23.0 million, or $0.89 per share, for the prior
year. From its core operations, the Company's annualized return on
average total assets approximated 1.24% for the nine months ended
September 30, 1997, and 1.13% for the comparable period for 1996. The
annualized core return on average shareholders' equity for the first
nine months of 1997 and 1996 was 14.17% and 12.15%, respectively.
Earnings per share calculations have been adjusted for a three-for-two
stock split paid on October 18, 1996, to shareholders of record on
October 11, 1996, and for a 10% stock dividend paid to shareholders'
of record on February 17, 1997.
The increase in core earnings for the third quarter and first nine
months of 1997 was largely attributable to the growth in loans.
Average loan balances increased 33% for the third quarter of 1997 over
the third quarter of 1996. Given current economic conditions, loan
growth is expected to remain strong. September 1997 year-to-date
average loan balances increased 28% over the prior year. Loan growth
and an increasing net interest margin contributed substantially to the
49% increase in net interest income for the third quarter of 1997, and
to the 37% increase in net interest income for the first nine months
of 1997 over the comparable periods of 1996. The Company's net
interest margin increased to 6.41% for the third quarter of 1997 from
5.63% for the third quarter of 1996.
2
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The provision for loan losses for the third quarter of 1997 was $7.1
million compared to $3.8 million for the third quarter of 1996. For
the first nine months of 1997, the provision for loan losses totaled
$14.8 million compared to $9.8 million for the first nine months of
1996. The increase in the provision is due to the $462.6 million
growth in the Company's loan portfolio since December 31, 1996. The
ratio of the allowance for loan losses to outstanding loans was 1.86%,
1.75% and 2.09% at September 30, 1997, December 31, 1996, and
September 30, 1996, respectively.
Noninterest income for the quarter ended September 30, 1997, totaled
$19.0 million, an increase of 51% over the $12.6 million reported for
the third quarter of 1996. Noninterest income for the nine months
ended September 30, 1997, decreased to $51.1 million from $84.5
million for the prior year. Excluding non-core income, noninterest
income grew 23% for the first nine months of 1997 over the same period
of 1996. The increase in core noninterest income for both the current
quarter and year to date is primarily due to gains on the excercise
and sale of stock warrants, gains on the sale of ICII stock and to
growth in international services income.
Noninterest expense increased to $41.9 million for the quarter ended
September 30, 1997, from $30.5 million for the third quarter of 1996.
Noninterest expense for the nine months ended September 30, 1997,
totaled $122.4 million compared to $93.7 million for the same period
of 1996. The increase in noninterest expense occurred primarily in
salary and employee benefits, customer services expense and other
expenses. The increase in salary and employee benefits expense is due
to an increase in personnel to support the Company's growth. The
increase in customer services expense can be attributed to the growth
in deposit balances generated by the Financial Services Group, that
focuses on the real estate services industry. The increase in other
expenses relates to costs to support the Company's growth.
Total assets at September 30, 1997, were $4.5 billion, an increase of
35% from total assets of $3.4 billion reported at December 31, 1996,
and a 38% increase over total assets of $3.3 billion reported at
September 30, 1996. Total loans at September 30, 1997, were $2.5
billion, a 22% increase from $2.1 billion at December 31, 1996, and a
33% increase over $1.9 billion at September 30, 1996. The growth in
the loan portfolio occurred primarily in commercial loans.
Total deposits at September 30, 1997, were $3.9 billion, an increase
of 33% over total deposits of $3.0 billion at December 31, 1996, and a
40% increase over total deposits of $2.8 billion at September 30,
1996. Noninterest-bearing demand deposits increased to $2.3 billion at
September 30, 1997, from $1.5 billion at December 31, 1996, and $1.3
billion at September 30, 1996. Noninterest-bearing demand deposits
represented 57% of total deposits at September 30, 1997.
Credit quality remains strong and continues to show improvement over
the prior year. Net charge-offs for the third quarter and first nine
months of 1997 were $2.8 million and $4.0 million, respectively,
compared to $2.8 million and $7.7 million, respectively, for the
comparable periods of 1996. Additionally, nonaccrual loans decreased
to $9.2 million at September 30, 1997, from $20.4 million at December
31, 1996, and $22.3 million at September 30, 1996. Restructured loans
decreased to $25.5 million at September 30, 1997, from $28.7 million
at December 31, 1996, and $44.8 million at September 30, 1996. All
restructured loans were performing in accordance with their modified
terms at September 30, 1997. The balance of real estate owned and
other assets, net ("OREO") was $2.5 million at September 30, 1997,
$2.1 million at December 31, 1996, and $2.7 million at September 30,
1996. No OREO properties were sold during the third quarter of 1997.
Imperial Bancorp is classified as "Well Capitalized" with leverage,
Tier I and total capital ratios at September 30, 1997, of 10.63%,
11.38% and 12.72%, respectively, compared to 9.30%, 10.51% and 11.80%,
respectively, at September 30, 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. ("IFG"), a newly formed Delaware corporation and currently a
wholly-owned subsidiary of Imperial Bank.
3
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Imperial Bank ("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 ("SBA"), 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 23.5% of all outstanding common stock as
of September 30, 1997) in ICII, a publicly traded, diversified
specialty finance company. In conjunction with the spin off, the
Company will retain certain mortgage loans and IFG will assume the
Company's obligation under certain consulting agreements.
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.
Total assets of the entities comprising IFG approximated $210.0
million at September 30, 1997. Revenues of IFG, including interest
income and noninterest income would have approximated $31.5 million
for the nine months ended September 30, 1997. The contribution
agreement calls for the Company to distribute net assets approximating
the Company's net investment in ICII plus $15 million ($53.9 million
at September 30, 1997).
CAPITAL SECURITIES
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 $75.0 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.
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 used $30.0 million of the net proceeds from the sale of
the Junior Subordinated Debentures to make an additional investment in
the Bank. The remainder of the proceeds will be used for general
corporate purposes or may be used for additional capital contributions
to the Bank or to pursue acquisition opportunities. The Capital
Securities qualify as Tier I Capital under the capital guidelines of
the Federal Reserve.
4
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EARNINGS PERFORMANCE
NET INTEREST INCOME: The Company derives a significant amount of its
earnings from net interest income. Net interest income is the
difference between interest earned on interest-earning assets and
interest paid on interest-bearing liabilities. Net interest margin is
net interest income expressed as a percentage of average interest-
earning assets. Net interest income increased to $53.8 million for the
three months ended September 30, 1997, from $36.1 million for the
prior year. The increase in net interest income was driven by the
growth in loans and by an increase in the overall yield on earning
assets to 8.85% for the current quarter from 8.50% for the third
quarter of 1996. Net interest income increased to $141.8 million for
the nine months ended September 30, 1997, from $103.2 million for the
same period of 1996. The impact of loan growth on net interest income
for the current quarter and year to date is illustrated in Table 2-
Analysis of Changes in Net Interest Income on page 23 of this Form 10-
Q.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income..................................... $74,372 $54,513 $201,601 $152,929
Interest expense.................................... 20,528 18,429 59,756 49,735
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NET INTEREST INCOME $53,844 $36,084 $141,845 $103,194
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Net interest margin 6.41% 5.63% 6.10% 5.78%
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</TABLE>
The Company's net interest margin increased to 6.41% for the third
quarter of 1997 from 5.63% for the third quarter of 1996. While loan
rates remained relatively stable during the quarter, the net interest
margin was favorably impacted by strong growth in loan fees and by a
decrease of approximately 38 basis points in the Company's cost of
interest-bearing deposits for the third quarter of 1997 compared to
the third quarter of 1996. The reduction in the cost of interest-
bearing deposits can be largely attributed to a change in the
Company's deposit mix. Lower-yielding money market accounts comprised
53% of average interest-bearing deposits for the third quarter of 1997
compared to 34% for the third quarter of 1996. The increase in money
market deposits is primarily due to the purchase of bankruptcy
deposits from Comerica Bank in June 1997. Time certificates of deposit
decreased to 46% of average interest-bearing deposits for the third
quarter of 1997 from 65% for the third quarter of 1996. A $558.4
million increase in the average balance of noninterest-bearing demand
deposits for the third quarter of 1997 compared to the prior year also
contributed to the improved net interest margin. The net interest
margin for the nine months ended September 30, 1997, was 6.10%
compared to 5.78% for the same period of the prior year. Additional
information concerning interest-earning assets and interest-bearing
liabilities and the yields and rates thereon for the three months and
nine months ended September 30, 1997, is provided in Table 1-Average
Balances, Yields and Rates Paid on page 22 of this Form 10-Q.
In conformity with banking industry practice, payments for accounting,
courier and other deposit-related services provided to the Company's
Financial Services Group depositors 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
$13.2 million and $8.3 million, respectively, for the nine months
ended September 30, 1997 and 1996. The net interest margin for the
nine months ended September 30, 1997 and 1996, would have been 5.53%
and 5.32%, respectively.
5
<PAGE>
NONINTEREST INCOME: Noninterest income increased to $19.0 million for
the three months ended September 30, 1997 from $12.6 million for the
third quarter of 1996. The table below provides the major components
of noninterest income for the periods indicated.
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Service charges on deposit accounts.................. $ 1,313 $ 1,123 $ 4,030 $ 3,617
Trust fees........................................... 2,125 2,197 5,842 6,468
Gain on origination and sale of loans................ 961 576 2,979 2,249
Equity in net earnings of Imperial Credit
Industries, Inc..................................... 3,356 3,045 8,362 16,556
Gain on sale of Imperial Credit Industries, Inc.
common stock........................................ 2,429 - 2,429 36,411
Other service charges and fees....................... 2,686 1,768 7,639 3,571
Merchant and credit card fees........................ 956 728 2,453 1,764
Gain on exercise and sale of stock warrants.......... 1,084 661 3,627 1,529
Gain (loss) on securities available for sale......... 2 (13) 359 229
International fees................................... 2,110 1,350 5,708 3,544
Gain on trading account securities................... 1,139 581 3,387 2,387
Appreciation of donated Imperial Credit Industries,
Inc. common stock................................... - 109 2,816 3,614
Other income......................................... 885 461 1,503 2,578
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Total $19,046 $12,586 $51,134 $84,517
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</TABLE>
Noninterest income for the third quarter of 1997 includes a $2.4
million gain on the sale of ICII shares. This gain is offset by
consulting expense recorded in conjunction with a settlement of a
consulting agreement between the Bank and a senior executive. Under
the consulting agreement, the Bank was obligated to pay commissions to
the executive upon the sale of ICII shares. The Company owned 9.1
million shares of ICII stock at September 30, 1997, representing a
23.5% ownership interest. Reference can be made to Note 18-Imperial
Credit Industries, Inc. of the Company's 1996 consolidated financial
statements for additional discussion. Other service charges and fees
increased to $2.7 million for the three months ended September 30,
1997, from $1.8 million for the prior year. The increase is largely
due to item processing fees. Gains on the exercise and sale of stock
warrants increased to $1.1 million for the third quarter of 1997 from
$661,000 for the third quarter of 1996. On a year-to-date basis, gains
on the excercise and sale of stock warrants increased to $3.6 million
from $1.5 million for the prior year. The Bank receives stock warrants
in conjunction with certain lending transactions made primarily by its
Emerging Growth Industries Group. The strength of the stock market has
led to the increase in gains realized on the excercise and sale of
warrants. International services income increased to $2.1 million for
the third quarter of 1997 from $1.4 million for the prior year. The
increase is primarily due to growth in international trade finance
activity. Gains on trading account securities increased to $1.1
million for the third quarter of 1997 from $581,000 for the third
quarter of 1996 due to increases in the gains generated by the
Company's wholly-owned broker-dealer subsidiary, Imperial Securities
Corp, and by the Company's foreign exchange trading unit.
Noninterest income was $51.1 million for the first nine months of 1997
compared to $84.5 million for the first nine months of 1996. Year-to-
date noninterest income for 1996 included gains on the sale of ICII
stock and other non-core transactions as discussed below. Core
noninterest income for the nine months ended September 30, 1997,
increased to $48.7 million from $39.5 million for the prior year. The
increase in core noninterest income for the nine months ended
September 30, 1997, is primarily due to growth in international fee
income, gains on the exercise and sale of stock warrants and to an
increase in gains on trading securities. These noninterest income
categories increased $2.2 million, $2.1 million and $1.0 million,
respectively, over the prior year. In addition, income related to the
origination and sale of SBA loans increased by $730,000 and merchant
fees increased $689,000 over the comparable period of 1996.
6
<PAGE>
Noninterest income for the nine months 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 part of an offering which included the sale
of approximately 2.2 million new ICII shares by ICII to the public. An
additional 563,000 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 $8.72 per share. The Company recorded an
additional $10.8 million pre-tax gain to adjust the book value of its
remaining investment in ICII based on ICII's book value on the date of
the sale. At September 30, 1996, the Company owned approximately 9.4
million shares of ICII representing a 24.8% ownership interest. 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 for the second quarter of 1996. In June 1996,
ICII sold approximately 2.0 million shares of its 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 the 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."
NONINTEREST EXPENSE: Noninterest expense totaled $41.9 million for
the quarter ended September 30, 1997, compared to $30.5 million for
the prior year. The table below provides detail of noninterest expense
by category for the periods indicated:
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salary and employee benefits....................... $20,018 $15,367 $ 61,528 $45,291
Net occupancy expense.............................. 2,267 2,356 6,788 6,821
Furniture and equipment............................ 1,674 1,288 4,662 3,707
Data processing.................................... 1,867 1,714 5,626 4,771
Customer services.................................. 5,305 3,044 13,184 8,275
Net real estate and other assets owned............. 681 321 523 1,269
Professional and legal fees........................ 2,643 1,505 6,939 4,957
Business development............................... 1,205 1,030 3,856 2,759
Charitable donations............................... 37 195 3,764 4,863
Other expense...................................... 6,189 3,700 15,523 10,957
- ------------------------------------------------------------------------------------------------------------------
Total $41,886 $30,520 $122,393 $93,670
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in noninterest expense for the three months ended
September 30, 1997 occurred primarily in salary and employee benefits,
customer services, professional fees, organization costs associated
with the pending spin off of IFG and legal. Salary and employee
benefits expense increased $4.7 million for the third quarter of 1997
compared to the third quarter of 1996. On a year-to-date basis, salary
and employee benefits expense increased $16.2 million over the prior
year. The increase in salary expense is primarily due to an increase
in personnel to support the Company's growth. The number of full-time
equivalent staff increased to 934 at September 30, 1997, from 767 at
September 30, 1996. A new loan production office was opened in
Bellevue, Washington during the second quarter of 1997, and Imperial
Bank Arizona was established in August 1997. Another factor impacting
salary and employee benefits expense was an increase in incentive
compensation tied to the Company's performance.
Customer services expense increased to $5.3 million for the third
quarter of 1997 from $3.0 million for the prior year. The Company pays
certain accounting and courier expenses on behalf of its Financial
Services depositors. The increase in customer services expense is
directly related to the growth in Financial Services Group demand
deposits. The average balance of these demand deposits increased
approximately $390.0 million for the three months ended September 30,
1997, and $260.6 million for the nine months ended September 30, 1997,
compared to the comparable periods for 1996.
7
<PAGE>
Professional expense increased $2.1 million for the third quarter of
1997 compared to the prior year. The increase is primarily due to a
$2.4 million charge pertaining to the settlement of a consulting
agreement. See - "Noninterest Income." The increase in professional
expense for the third quarter of 1997 was partially offset by a
reduction in legal fees compared to the prior year.
The increase in other noninterest expense for the third quarter of
1997 to $6.2 million from $3.7 million for the third quarter of 1996
is primarily due the following: a lawsuit settlement accrual of
approximately $1.8 million; costs associated with the upcoming spin
off of IFG of $342,000; and a $275,000 increase in postage primarily
related to item processing services. For the nine months ended
September 30, 1997, other noninterest expense increased to $15.5
million from $11.0 million for the prior year. On a year-to-date
basis, costs associated with the spin off were $1.7 million and
postage increased approximately $696,000 over the same period of the
prior year.
INCOME TAXES: The Company recorded income tax expense of $9.8 million
and $6.0 million, respectively, for the quarters ended September 30,
1997 and 1996. For the nine months ended September 30, 1997 and 1996,
income tax expense was $22.5 million and $34.5 million, respectively.
The Company's effective tax rates approximated 42.05% and 42.35%,
respectively, for 1997 and 1996.
DISCONTINUED OPERATION: In the second quarter of 1996, management
made the decision to discontinue the precious metals business which
had been engaged in the trading and leasing of precious metals and in
making loans secured by precious metals. The decision to exit this
line of business was made due to operational losses for which the
Company provided approximately $9.8 million, net of tax, for the year
ended December 31, 1996. During the third quarter of 1997, the Company
recovered $1.2 million pre-tax related to the precious metals
business. The Company anticipates receiving additional recoveries
relating to precious metals inventories previously written off,
although not in substantial amounts. For the nine months ended
September 30, 1997, the Company reported net income from discontinued
operations of $479,000 compared to a loss of $5.6 million for the
prior year.
LOANS
The following table provides a summary of loans by category for the
periods indicated:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 DECEMBER 30, 1996 SEPTEMBER 30, 1996
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE PERCENT BALANCE PERCENT BALANCE PERCENT
<S> <C> <C> <C> <C> <C> <C>
Commercial $2,093,711 82.90% $1,594,602 77.29% $1,427,381 75.39%
Loans secured by real estate:
Real estate term loans................... 256,130 10.14 361,426 17.52 370,618 19.57
Interim construction loans............... 151,914 6.01 86,416 4.19 76,395 4.03
Consumer loans........................... 23,874 0.95 20,604 1.00 19,072 1.01
- -----------------------------------------------------------------------------------------------------------------------------------
Gross loans............................... 2,525,629 100.00% 2,063,048 100.00% 1,893,466 100.00%
Less allowance for loan losses............ (46,871) (36,051) (39,540)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS.............................. $2,478,758 $2,026,997 $1,853,926
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The primary factors contributing to the growth in commercial loans
over the twelve month period ended September 30, 1997, are as follows:
the Company's expansion into new geographic locations through the
opening of new loan production offices in Texas and Massachusetts
during the second quarter of 1996 and Washington during the fourth
quarter of 1996; the opening of a full-service bank in Arizona; growth
in lending to entertainment and emerging growth companies; and the
improving California economy. Growth in the Company's interim
construction loan portfolio has occurred in the affordable housing
segment of the market.
8
<PAGE>
ASSET QUALITY
NONACCRUAL LOANS, RESTRUCTURED LOANS AND REAL ESTATE OWNED: Nonaccrual
loans, which includes loans 90 days or more past due, decreased to
$9.2 million at September 30, 1997, from $20.4 million at December 31,
1996, and $22.3 million at September 30, 1996. The decrease in
nonaccrual loans from year end 1996 was largely due to the sale of a
$5.7 million real estate loan, gross charge-offs totaling
approximately $6.1 million and payoffs. Loans totaling approximately
$5.0 million were placed on nonaccrual status during the nine months
ended September 30, 1997. Consistent with prior reporting periods,
there were no loans past due 90 days or more that were still accruing
interest. When a loan reaches nonaccrual status, any interest accrued
but uncollected is reversed and charged against current income.
Restructured loans, loans that have had their original terms modified,
totaled $25.5 million, $28.7 million and $44.8 million at September
30, 1997, December 31, 1996, and September 30, 1996, respectively. The
decrease in restructured loans from the third quarter of 1996 is
primarily due to a $13.9 million loan that has performed in accordance
with its modified terms for over a year and is therefore no longer
classified as restructured at September 30, 1997. In addition, a $2.5
million loan classified as restructured at September 30, 1996, paid
off during the first quarter of 1997.
Real estate and other assets owned ("OREO") include properties
acquired through foreclosure or through full or partial satisfaction
of loans. The difference between the fair value of the collateral,
less the estimated costs of disposal, and the loan balance at the time
of transfer to OREO is reflected in the allowance for loan losses as a
charge-off. Any subsequent declines in the fair value of the property
after the date of transfer are recorded through a provision for
writedowns on OREO. OREO net of valuation allowances totaled $2.5
million, $2.1 million and $2.7 million at September 30, 1997, December
31, 1996, and September 30, 1996, respectively. For the nine months
ended September 30, 1997, additions to real estate and other assets
owned totaled $864,000. Disposals of real estate owned for the same
period totaled $923,000. The increase in gross OREO from year-end 1996
occurred when the Company took title to the distribution rights for a
film that had been pledged as collateral on a loan that went into
default. The value of the film rights was subsequently written down by
$500,000. The net $256,000 increase in the valuation allowance from
December 31, 1996, is primarily due to a $350,000 increase in the
allowance related to one real estate property.
Information regarding nonaccrual loans, restructured loans and real
estate and other assets owned is presented below.
<TABLE>
<CAPTION>
SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
(IN THOUSANDS) 1997 1997 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial.................................................. $ 6,250 $ 5,782 $ 8,515 $ 9,382 $11,782
Real estate................................................. 2,685 2,136 8,479 10,760 10,526
Consumer.................................................... 301 - - 248 -
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL NONACCRUAL LOANS $ 9,236 $ 7,918 $16,994 $20,390 $22,308
- ---------------------------------------------------------------------------------------------------------------------------
RESTRUCTURED LOANS $ 25,549 $24,144 $25,395 $28,681 $44,764
- ---------------------------------------------------------------------------------------------------------------------------
Real estate and other assets owned:
Real estate and other assets owned, gross................... $ 3,547 $ 3,817 $ 2,973 $ 2,895 $ 2,986
Less valuation allowance.................................... (1,089) (833) (769) (769) (307)
- ---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE AND OTHER ASSETS OWNED, NET $ 2,458 $ 2,984 $ 2,204 $ 2,126 $ 2,679
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $ 37,243 $35,046 $44,593 $51,197 $69,751
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
All loans on nonaccrual status are considered to be impaired; however,
not all impaired loans are on nonaccrual status. Impaired loans on
accrual status must meet the following criteria: all payments must be
current and the loan underwriting must support the debt service
requirements. Factors that contribute to a performing loan being
classified as impaired include: a below market interest rate,
delinquent taxes and debts to other lenders that cannot be serviced
out of existing cash flow.
9
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------
The following table contains information for loans deemed impaired:
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET
CARRYING SPECIFIC NET
(IN THOUSANDS) VALUE ALLOWANCE BALANCE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1997
Loans with specific allowances.................................................. $ 90,350 $ (12,080) $ 78,270
Loans without specific allowances............................................... 3,679 - 3,679
- ------------------------------------------------------------------------------------------------------------------------
TOTAL $ 94,029 $ (12,080) $ 81,949
- ------------------------------------------------------------------------------------------------------------------------
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>
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current............................................................................. $84,793 $ 97,210
Nonaccrual.......................................................................... 9,236 20,390
- -------------------------------------------------------------------------------------------------------------------
TOTAL $94,029 $117,600
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Loans classified as impaired totaled $94.0 million at September 30,
1997, compared to $117.6 million at December 31, 1996. The decrease in
the balance of impaired loans can be attributed to the sale of a $5.7
million real estate loan, gross charge-offs of approximately $6.1
million and to payoffs totaling approximately $15.0 million. The
reduction in impaired loans during 1997 was offset in part by the
addition of $5.2 million of loans newly classified as impaired. The
Company's average recorded investment in impaired loans for the nine
months ended September 30, 1997, was $106.5 million. Interest income
totaling approximately $7.4 million was collected on impaired loans
during the nine months ended September 30, 1997.
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 is based upon various judgments and assumptions, including
general economic conditions (especially in California), loan growth,
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, 1997, future additions to the
allowance will be subject to continuing evaluation of inherent risk in
the loan portfolio.
At September 30, 1997, the allowance for loan losses equaled $46.9
million, or 1.86% of total loans, as compared to $36.1 million, or
1.75% of total loans, at December 31, 1996, and $39.5 million, or
2.09% of total loans, at September 30, 1996. The following table
summarizes changes in the allowance for loan losses.
10
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, BEGINNING OF YEAR $ 36,051 $ 37,402
- ------------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial......................................................................... (5,468) (5,655)
Real estate........................................................................ (1,115) (3,438)
Consumer........................................................................... (4) (19)
- ------------------------------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED OFF $ (6,587) $ (9,112)
- ------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial......................................................................... 960 1,371
Real estate........................................................................ 1,588 11
Consumer........................................................................... 17 17
- ------------------------------------------------------------------------------------------------------------------
TOTAL LOAN RECOVERIES $ 2,565 $ 1,399
- ------------------------------------------------------------------------------------------------------------------
Net loans charged off............................................................... (4,022) (7,713)
Provision for loan losses........................................................... 14,785 9,829
Provision for loan losses of discontinued operation................................. 57 22
- ------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 46,871 $ 39,540
- ------------------------------------------------------------------------------------------------------------------
LOANS OUTSTANDING, END OF PERIOD $2,525,629 $1,893,466
- ------------------------------------------------------------------------------------------------------------------
AVERAGE LOANS OUTSTANDING $2,290,275 $1,792,413
- ------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans(1)........................................ 0.23% 0.57%
Ratio of allowance for loan losses to average loans................................. 2.05 2.21
Ratio of allowance for loan losses to loans outstanding at September 30............. 1.86 2.09
Ratio of allowance for loan losses to nonaccrual loans.............................. 507 177
Ratio of provision for loan losses to net charge-offs............................... 368 127
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
The provision for loan losses totaled $7.1 million and $14.8 million,
respectively, for the quarter and nine months ended September 30,
1997, as compared to $3.8 million and $9.8 million, respectively, for
the same periods of 1996. The increase in the provision for loan
losses was related to the strong growth in the Company's loan
portfolio. Net charge-offs totaled $2.8 million and $4.0 million,
respectively, for the three and nine months ended September 30, 1997,
as compared to $2.8 million and $7.7 million, respectively, in the
same periods of 1996. As a percentage of average loans outstanding,
annualized net charge-offs were 0.45% and 0.23%, respectively, for the
three and nine months ended September 30, 1997, and 0.59% and 0.57%
for the corresponding periods a year ago.
Securities available for sale increased to $673.4 million at September
30, 1997, from $426.3 million at December 31, 1996. Federal funds
sold and securities purchased under resale agreements increased to
$680.7 million at September 30, 1997, from $357.0 million at December
30, 1996. The increase in these balances is a function of the growth
in deposits. Noninterest-bearing demand deposits increased to $2.3
billion at September 30, 1997, from $1.5 billion at December 31, 1996.
The growth in demand balances occurred primarily in real estate
services deposits which increased $625.1 million from December 31,
1996. The remaining increase in demand balances is due to growth in
commercial deposits. Money market deposits increased to $915.9
million at September 30, 1997, from $597.0 million at December 31,
1996. The increase is primarily due to the Company's purchase of
$205.9 million of money market deposits from another financial
institution in June 1997. Funds held by bankruptcy trustees comprise
the balance of the purchased money market accounts.
Short-term borrowings increased to $110.5 million at September 30,
1997, from $44.9 million at December 31, 1996. The increase is due to
a $59.2 million increase in borrowed funds backed by Treasury, Tax and
Loan ("T,T&L") balances, and to a $9.2 million increase in commercial
paper. The increases in T,T&L and commercial paper were offset in
part by a $2.7 million decrease in Federal funds purchased and reverse
repurchase balances.
11
<PAGE>
ASSET/LIABILITY MANAGEMENT
LIQUIDITY: Liquidity management involves the Company's ability to
meet the cash flow requirements of its lending and deposit businesses.
For the Company, as with most commercial banking institutions, this
involves an ongoing process of managing the cash inflows and outflows
associated with a commercial deposit base. The Company's ability to
acquire new deposits at pricing levels consistent with management's
targets is largely based upon its financial condition and capital
base.
The Company's liquid assets consist of cash and cash equivalents and
investment securities, excluding those pledged as collateral. The
majority of the Company's securities portfolio is held as available
for sale. Available -for-sale securities can be sold in response to
liquidity needs or used as collateral under reverse repurchase
agreements. It is the Company's policy to maintain a minimum
liquidity ratio (liquid assets to deposits) of 20% and to limit gross
loans to no more than 80% of deposits. At September 30, 1997, the
Company's liquidity ratio was 38% and the loan to deposit ratio was
63%.
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. Total
demand deposits averaged $1.6 billion for the quarter ended September
30, 1997 compared to $1.0 billion for the same period of 1996. At
September 30, 1997, approximately 26% of average total deposits are
from the real estate services industry. The Company's average demand
deposits and average shareholders' equity funded approximately 50% and
45%, of average total assets for the quarters ended September 30,
1997, and 1996, respectively.
These funding sources are augmented by payments of principal and
interest on loans, the routine liquidation of securities from the
trading and available-for-sale portfolios, Federal funds sold and
securities purchased under resale agreements. For the nine months
ended September 30, 1997, the Company experienced a net cash outflow
from its investing activities of approximately $1.0 billion. The net
outflow from investing activities can be attributed to growth in the
Company's loan portfolio, an outflow of $455.7 million, a net $244.3
million increase in available-for-sale securities and a $323.7 million
increase in Federal funds sold. The outflow in investing activities
was offset by the $1.1 billion net cash provided by the Company's
financing activities. Net cash inflows from financing activities for
the nine months ended September 30, 1997 included net increases in
deposits totaling $986.2 million, and $73.3 million provided by the
issuance of Capital Securities.
INTEREST RATE SENSITIVITY MANAGEMENT: The primary objective of the
asset/liability management process is to limit the Company's exposure
to interest rate fluctuations while maintaining adequate levels of
liquidity and capital. The Company adopted policies, procedures, and
guidelines that are used to manage the Company's asset/liability
position in an attempt to limit interest rate risk exposure. This is
accomplished by managing the Company's interest rate sensitive assets
and liabilities as economic conditions change. The Company's
Asset/Liability Management Committee ("ALCO") organizes strategies in
conformity with its policies to achieve an appropriate level of
interest rate sensitivity which in turn limits the volatility of net
interest income and the 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 net
interest income and the 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 these
projected rate changes may have on its entire on and off-balance sheet
position, any particular segment of the balance sheet, and overall
profitability.
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, 1997, the Company maintained a positive one year gap of
approximately $447 million; meaning 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 September 30, 1996,
the Company maintained a positive one year gap of approximately $389
million.
12
<PAGE>
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. 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. $500 million of these interest rate floors matured in
each of the first three quarters of 1997. The remaining $500.0 million
floor will mature in the fourth quarter of 1997. The floor maturing in
the fourth quarter of 1997 provides protection to the Company in the
event that the three month LIBOR drops below the strike price of 4.25%
associated with the floor. The unrealized gain on the remaining floor
approximated $625 at September 30, 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 first 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 on these
floors approximated $2,500 at September 30, 1997. In the second
quarter of 1997, the Company purchased an additional $1.0 billion of
exchange traded interest rate floors that mature in the third and
fourth quarter of 1998. The floors provide the Company protection in
the event that the three month LIBOR drops below the strike price of
5.0%. The unrealized gain on these floors approximated $150,000 at
September 30, 1997. The unamortized premuim paid for the floors
described above was $298,000 at September 30, 1997.
In the fourth quarter of 1996, the Company purchased an additional
$1.0 billion of exchange traded caps. The caps expired during the
second and third quarter of 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.
In April 1997, in conjunction with the issuance of $75 million of
capital securities, the Company entered into three fixed for floating
interest rate swaps with a total notional value of $75 million in
order to convert the capital securities issuance to a floating rate.
The swaps require the Company to pay three month LIBOR and receive
7.18% on $25 million, 7.186% on $25 million and 7.187% on the
remaining $25 million. The maturity and fixed payment dates on the
swaps coincide with the call date and payment dates of the Capital
Securities.
CAPITAL
Retained earnings from operations has been the primary source of new
capital for the Company. In April 1997, the Company issued in a
private placement transaction $75.0 million of 9.98% capital
securities. See-"Capital Securities.". At September 30, 1997,
shareholders' equity totaled $328.0 million, a 14.6% increase from
$286.4 million at December 31, 1996. The Company recorded an
additional $1.4 million of shareholders' equity from the exercise of
employee stock options during the nine months ended September 30,
1997. 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 on the date of
exercise. The tax beneift associated with options exercised is
recorded as a component of shareholders' equity. A tax benefit of
approximately $5.1 million were recorded for the nine months ended
September 30, 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.
13
<PAGE>
Management is committed to maintaining capital at a sufficient level
to assure shareholders, customers and regulators that the Company and
the Bank are financially sound. Risk-adjusted capital guidelines,
issued by bank regulatory agencies, assign risk weightings to assets
both on and off-balance sheet and place increased emphasis on common
equity. Under Prompt Corrective Action, institutions whose Tier I and
total capital ratios meet or exceed 6% and 10%, respectively, are
deemed to be "well capitalized". Tier I capital basically consists of
common stockholders' equity and noncumulative perpetual preferred
stock and minority interest of consolidated subsidiaries minus
intangible assets. Based on the guidelines, the Company's Tier I and
total capital ratios at September 30, 1997 were 11.38% and 12.72%,
respectively. The Company's Tier I and total capital ratios at
September 30, 1996 were 11.80% and 10.51%, respectively.
CAPITAL RATIOS FOR IMPERIAL BANCORP AND IMPERIAL BANK(1)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997
- ---------------------------------------------------------------------------------------------------------------------
TO BE WELL CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE
(IN THOUSANDS) ACTUAL(1) PURPOSES ACTION PROVISIONS
- ---------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TO RISK-WEIGHTED ASSETS):
Company.................................. $444,394 12.72% $279,386 8.0% $349,232 10.0%
Bank..................................... 372,227 10.76 276,667 8.0 345,834 10.0
TIER I CAPITAL (TO RISK-WEIGHTED ASSETS):
Company.................................. $397,443 11.38% $139,693 4.0% $209,539 6.0%
Bank..................................... 328,955 9.51 138,333 4.0 207,500 6.0
LEVERAGE (TO AVERAGE ASSETS):
Company.................................. $397,443 10.63% $149,514 4.0% $242,963 6.5%
Bank..................................... 328,955 8.86 148,480 4.0 241,280 6.5
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes common shareholders' equity (excluding unrealized losses
on available-for-sale securities) less goodwill and other
disallowed intangibles.
NOTE: Risk-weighted assets for the Company and the Bank were $3,492
million and $3,458 million, respectively, at September 30,
1997. Average assets for the Company and the Bank were $3,738
million and $3,712 million, respectively at September 30, 1997.
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 Company's
leverage ratio was 10.63% at Sepember 30, 1997, compared to 9.30% at
September 30, 1996, well in excess of its regulatory requirement of
4.0%.
In conjunction with the spin off of IFG, Imperial Bancorp contributed
$30.0 million of the proceeds from the Company's sale of the Junior
Subordinated Debentures to the Bank as additional capital to ensure
that the Bank's risk-based capital ratios continue to meet the well
capitalized criteria. The Company will evaluate the capital needs of
the Bank following the spin off to determine whether an additional
capital investment is required.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS NO. 125 - ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL
ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," ("SFAS No. 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 SFAS No. 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. SFAS No. 125 requires that the selling
14
<PAGE>
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 SFAS No. 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. SFAS No.
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, net servicing
income. Servicing assets and liabilities are to be assessed for
impairment based on their fair value. SFAS No. 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" ("SFAS No. 127"). SFAS No. 127
defers for one year the effective date (a) of paragraph 15 of SFAS No.
125 and (b) for repurchase agreement, dollar-roll, securities lending,
and similar transactions, of paragraphs 9 - 12 and 237 (b) of SFAS No.
125. SFAS No. 127 provides additional guidance on the types of
transactions for which the effective date of SFAS No. 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 SFAS No. 125 should be applied
to that transfer. The Company adopted the applicable provisions of
SFAS No. 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 SFAS No. 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 for loans sold at par or less and 100
basis points for loans sold in excess of par 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 SFAS No. 115.
The servicing asset totaled $1.9 million at September 30, 1997 and is
included in other assets of the Company's consolidated balance sheet.
The book value of the interest-only strip was $2.2 million at
September 30, 1997 and is included in securities available for sale.
The unrealized gain on the interest-only strip was $0.3 million at the
end of the third quarter of 1997.
FASB issued Statement of Accounting Standards No. 128, "Earnings Per
Share" ("SFAS No. 128") and "Disclosure of Information about Capital
Structure" ("SFAS No. 129") in February 1997, and issued "Reporting
Comprehensive Income" ("SFAS No. 130") and "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131") in June
1997.
SFAS NO. 128 - EARNINGS PER SHARE
SFAS No. 128 simplifies the standards for computing and presenting
earnings per share ("EPS") as previously prescribed by Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS No. 128
replaces primary EPS with basic EPS and fully diluted EPS with diluted
EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted
15
<PAGE>
average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock or resulted from issuance of common stock that then
shared in earnings. SFAS No. 128 also requires dual presentation of
basic and diluted EPS on the face of the income statement and a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, and earlier application is
not permitted. If the Company had adopted SFAS No. 128 as of January
1, 1997, proforma basic EPS and proforma diluted EPS would have been
$1.32 and $1.26 for the nine months ending September 30, 1997.
SFAS NO. 129 - DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
SFAS No. 129 consolidates existing reporting standards for disclosing
information about an entity's capital structure. SFAS No. 129 also
supersedes specific requirements found in previously issued accounting
statements. SFAS No. 129 must be adopted for financial statements for
periods ending after December 15, 1997. The Company does not believe
that the adoption of SFAS No. 129 will have a material impact on its
operations and financial position.
SFAS NO. 130 - REPORTING COMPREHENSIVE INCOME
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. SFAS
No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS No. 130 does not
require a specific format for that financial statement but requires
that an enterprise display an amount representing total comprehensive
income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in
the equity section of a statement of financial position.
SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The Company does not
believe that the adoption of SFAS No. 130 will have a material impact
on its operations and financial position.
SFAS NO. 131 - DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION.
SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and
major customers. SFAS No. 131 supersedes FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise," but
retains the requirement to report information about major customers.
It amends FASB Statement No. 94, "Consolidation of All Majority-Owned
Subsidiaries," to remove the special disclosure requirements for
previously unconsolidated subsidiaries.
SFAS No. 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to
allocate resources to segments.
SFAS No. 131 requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. It requires reconciliations of
total segment revenues, total segment profit or loss, total segment
assets, and other amounts disclosed for segments to corresponding
amounts in the enterprise's general-purpose financial statements. It
requires
16
<PAGE>
that all public business enterprises report information about the
revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the
enterprise earns revenues and holds assets, and about major customers
regardless of whether that information is used in making operating
decisions. However, SFAS No. 131 does not require an enterprise to
report information that is not prepared for internal use if reporting
it would be impracticable.
SFAS No. 131 also requires that a public business enterprise report
descriptive information about the way that the operating segments were
determined, the products and services provided by the operating
segments, differences between the measurements used in reporting
segment information and those used in the enterprise's general-purpose
financial statements, and changes in the measurement of segment
amounts from period to period.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This
Statement need not be applied to interim financial statements in the
initial year of its application, but comparative information for
interim periods in the initial year of application is to be reported
in financial statements for interim periods in the second year of
application. The Company does not believe that the adoption of SFAS
No. 131 will have a material impact on its operations and financial
position.
SEC RULE ON DISCLOSURES ABOUT DERIVATIVES AND OTHER FINANCIAL
INSTRUMENTS
The Securities and Exchange Commission has approved rule amendments to
clarify and expand existing disclosure requirements for derivative
financial instruments. The amendments require enhanced disclosure of
accounting policies for derivative financial instruments in the
footnotes to the financial statements. In addition, the amendments
expand existing disclosure requirements to include quantitative and
qualitative information about market risk inherent in market risk
sensitive instruments. The required quantitative and qualitative
information should be disclosed outside the financial statement and
related notes thereto. The enhanced accounting policy disclosure
requirements are effective for the quarter ended June 30, 1997. As the
Company believes that the derivative financial instrument disclosures
contained within the notes to the financial statements of its 1996
Form 10-K substantially conform with the accounting policy
requirements of these amendments, no further interim period disclosure
has been provided. The rule amendments that required expanded
disclosure of quantitative and qualitative information about market
risk are effective with the 1997 Form 10-K.
17
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
IMPERIAL BANCORP AND SUBSIDIARIES (UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.................................................... $ 434,403 $ 325,014
Trading account securities................................................. 63,825 64,887
Securities available for sale.............................................. 673,413 426,336
Securities held to maturity (fair value of $4,085 and $4,193 for 1997 and
1996, respectively)....................................................... 4,085 4,193
Federal funds sold and securities purchased under resale agreements........ 680,700 357,000
Loans held for sale (market value of $5,222 and $6,058 for 1997 and 1996,
respectively)............................................................. 4,855 5,531
Loans:
Loans, net of unearned income and deferred loan fees...................... 2,525,629 2,063,048
Less allowance for loan losses............................................ (46,871) (36,051)
- -----------------------------------------------------------------------------------------------------------
TOTAL NET LOANS $2,478,758 $2,026,997
- -----------------------------------------------------------------------------------------------------------
Premises and equipment, net................................................ 21,378 18,413
Accrued interest receivable................................................ 24,220 15,547
Real estate and other assets owned, net.................................... 2,458 2,126
Income taxes receivable.................................................... - 1,893
Investment in Imperial Credit Industries, Inc.............................. 64,192 57,736
Other assets............................................................... 64,899 44,497
- -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $4,517,186 $3,350,170
- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand.................................................................... $2,257,478 $1,465,324
Savings................................................................... 34,702 17,324
Money market.............................................................. 915,907 596,967
Time-under $100,000....................................................... 80,397 169,493
Time-$100,000 and over.................................................... 648,010 701,169
- -----------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $3,936,494 $2,950,277
- -----------------------------------------------------------------------------------------------------------
Accrued interest payable................................................... 5,888 5,943
Short-term borrowings...................................................... 110,503 44,897
Long-term borrowings:
Floating rate notes and fixed rate debentures............................. 3,257 4,455
Capital securities of subsidiary trust:
Company-obligated mandatorily redeemable capital securities of
subsidiary trust holding solely junior subordinated deferrable
interest debentures of the Company, net................................ 73,299 -
Other liabilities.......................................................... 59,708 58,247
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $4,189,149 $3,063,819
- -----------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock-no par, 50,000,000 shares authorized; 25,966,307 shares at
September 30, 1997 and 23,079,715 shares at
December 31, 1996 issued and outstanding.................................. 232,618 163,748
Unrealized gain on securities available for sale, net of tax.............. 2,654 1,206
Retained earnings......................................................... 92,765 121,397
- -----------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 328,037 $ 286,351
- -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,517,186 $3,350,170
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
IMPERIAL BANCORP AND SUBSIDIARIES THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans.............................................................. $61,157 $44,531 $165,821 $127,236
Trading account securities......................................... 452 978 1,334 2,025
Securities available for sale...................................... 9,563 5,574 23,864 15,653
Securities held to maturity........................................ 73 77 219 231
Federal funds sold and securities purchased under resale
agreements........................................................ 2,914 3,220 9,806 7,424
Loans held for sale................................................ 213 133 557 360
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $74,372 $54,513 $201,601 $152,929
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits........................................................... 17,901 17,281 53,421 47,081
Short-term borrowings.............................................. 921 1,073 3,239 2,390
Long-term borrowings............................................... 1,706 75 3,096 264
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $20,528 $18,429 $ 59,756 $ 49,735
- --------------------------------------------------------------------------------------------------------------------------
Net interest income................................................ 53,844 36,084 141,845 103,194
Provision for loan losses.......................................... 7,068 3,803 14,785 9,829
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $46,776 $32,281 $127,060 $ 93,365
- --------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts................................ 1,313 $ 1,123 4,030 3,617
Trust fees......................................................... 2,125 2,197 5,842 6,468
Gain on origination and sale of loans.............................. 961 576 2,979 2,249
Equity in net earnings of Imperial Credit Industries, Inc.......... 3,356 3,045 8,362 16,556
Gain on sale of Imperial Credit Industries, Inc. common
stock............................................................. 2,429 - 2,429 36,411
Other service charges and fees..................................... 2,686 1,768 7,639 3,571
Merchant and credit card fees...................................... 956 728 2,453 1,764
Gain on exercise and sale of stock warrants........................ 1,084 661 3,627 1,529
Gain (loss) on securities available for sale....................... 2 (13) 359 229
International fees................................................. 2,110 1,350 5,708 3,544
Gain on trading account securities................................. 1,139 581 3,387 2,387
Appreciation of donated Imperial Credit Industries, Inc.
common stock...................................................... - 109 2,816 3,614
Other income....................................................... 885 461 1,503 2,578
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME $19,046 $12,586 $ 51,134 $ 84,517
- --------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits....................................... 20,018 15,367 61,528 45,291
Net occupancy expense.............................................. 2,267 2,356 6,788 6,821
Furniture and equipment............................................ 1,674 1,288 4,662 3,707
Data processing.................................................... 1,867 1,714 5,626 4,771
Customer services.................................................. 5,305 3,044 13,184 8,275
Net real estate and other assets owned............................. 681 321 523 1,269
Professional and legal fees........................................ 2,643 1,505 6,939 4,957
Business development............................................... 1,205 1,030 3,856 2,759
Charitable donations............................................... 37 195 3,764 4,863
Other expense...................................................... 6,189 3,700 15,523 10,957
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE $41,886 $30,520 $122,393 $ 93,670
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes.............. 23,936 14,347 55,801 84,212
Income tax provision............................................... 9,753 6,044 22,494 34,462
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS $14,183 $ 8,303 $ 33,307 $ 49,750
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations of discontinued operation,
net of tax........................................................ 690 373 479 (5,625)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME $14,873 $ 8,676 $ 33,786 $ 44,125
- --------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations per share.................... $0.52 $0.32 $1.24 $ 1.92
Income (loss) per share of discontinued operations................. $0.02 $0.01 $0.02 $(0.22)
- --------------------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $0.54 $0.33 $1.26 $ 1.70
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
IMPERIAL BANCORP AND SUBSIDIARIES (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, (IN THOUSANDS) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................................ $ 33,786 $ 44,125
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization....................................................... (8,011) (2,105)
Accretion of purchased loan discount................................................ (37) (205)
Provision for loan losses........................................................... 14,785 9,829
Provision for real estate and other assets owned.................................... 320 (5)
Provision for operation losses...................................................... 57 10,615
Equity in net earnings of Imperial Credit Industries, Inc........................... (8,362) (16,556)
Gain on sale of Imperial Credit Industries, Inc. common stock....................... (2,429) (36,411)
Gain on exercise and sale of stock warrants......................................... (3,627) (1,529)
Gain (loss) on sale of real estate owned............................................ (348) 157
Loss on sale of premises and equipment.............................................. 9
Gain on securities available for sale............................................... (359) (229)
Net change in trading account securities............................................ (739) (43,058)
Net change in loans held for sale................................................... 676 (3,013)
Net change in accrued interest receivable........................................... (8,673) 570
Net change in accrued interest payable.............................................. (55) 39
Net change in income taxes receivable............................................... 7,309 48
Net change in other liabilities..................................................... (25) 11,905
Net change in other assets.......................................................... (18,651) (12,164)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 5,626 $ (37,987)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from securities held to maturity............................................. 108 132
Proceeds from sale of securities available for sale................................... 2,023,003 2,045,960
Proceeds from maturities of securities available for sale............................. 412,163 119,939
Purchase of securities available for sale............................................. (2,679,458) (2,267,221)
Proceeds from sale of Imperial Credit Industries, Inc. common stock................... 3,519 35,079
Proceeds from the exercise and sale of stock warrants................................. 3,769 1,529
Net change in Federal funds sold and securities purchased
under resale agreements.............................................................. (323,700) (74,700)
Net change in loans................................................................... (455,675) (195,535)
Capital expenditures.................................................................. (7,033) (5,140)
Proceeds from sale of real estate owned............................................... 1,483 8,120
Proceeds from sale of premises and equipment.......................................... 343 -
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $(1,021,478) $ (331,837)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits, savings, and money market accounts..................... 1,128,473 216,411
Net change in time deposits........................................................... (142,255) 232,753
Net change in short-term borrowings................................................... 65,605 (35,389)
Net change in capital securities of subsidiary........................................ 73,299 -
Retirement of long-term borrowings.................................................... (1,198) (1,405)
Proceeds from exercise of employee stock options...................................... 1,334 2,353
Other................................................................................. (17) (18)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 1,125,241 $ 414,705
- ----------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND DUE FROM BANKS $ 109,389 $ 44,881
- ----------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS, BEGINNING OF YEAR $ 325,014 $ 242,018
- ----------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $ 434,403 $ 286,899
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
20
<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 September 30, 1997, the Company owned 9,094,842 shares, or 23.5% of
the common stock of ICII. At December 31, 1996, the Company owned
9,396,106 shares, or 24.5% of the common stock of ICII. 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>
---------------------------------------------------------------------------------------------------
SEPTEMBER 30, (IN THOUSANDS) 1997 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid................................................................ $59,811 $49,696
Taxes refunded............................................................... 431 244
Taxes paid................................................................... 15,955 25,932
Significant noncash transactions:
Loans transferred to real estate owned...................................... 864 622
Donation of Imperial Credit Industries, Inc. common stock................... - 4,741
---------------------------------------------------------------------------------------------------
</TABLE>
NOTE (4) CAPITAL SECURITIES
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") at a 2% discount, which represent preferred
undivided beneficial interests in the assets of the Trust. On July 24,
1997, the Trust exchanged the privately placed capital securities for
an equal amount of 9.98% capital securities with the same
characteristics as the privately placed capital securities that were
registered under the Securities Act of 1933, as amended (the "Capital
Securities"). 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 are the sole
assets of the Trust and will mature on December 31, 2026. The Company
guarantees all obligations of the Trust.
21
<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 shareholders' 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,
- ---------------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------------
INTEREST
AVERAGE INCOME/ AVERAGE
(IN THOUSANDS) BALANCE EXPENSE(2) RATE %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets:
Loans(1)........................................................... $2,478,248 $61,157 9.87%
Trading account securities......................................... 27,140 452 6.66
Securities available for sale...................................... 639,218 9,563 5.98
Securities held to maturity........................................ 4,108 73 7.11
Federal funds sold and securities purchased under resale
agreements....................................................... 206,774 2,914 5.64
Loans held for sale................................................ 6,573 213 12.96
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS $3,362,061 $74,372 8.85%
- ---------------------------------------------------------------------------------------------------------------------
Allowance for loan losses........................................... (43,108)
Cash................................................................ 263,607
Other assets........................................................ 190,188
----------
Total assets....................................................... $3,772,748
==========
Interest-bearing liabilities:
Savings............................................................ $ 21,740 $ 137 2.52%
Money market....................................................... 876,194 7,424 3.39
Time - under $100,000.............................................. 125,930 1,789 5.68
Time - $100,000 and over........................................... 625,735 8,551 5.47
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS $1,649,599 $17,901 4.34%
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings.............................................. 66,957 921 5.50
Long-term borrowings............................................... 76,922 1,706 8.87
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES $1,793,478 $20,528 4.58%
- ---------------------------------------------------------------------------------------------------------------------
Demand deposits..................................................... 1,580,507
Other liabilities................................................... 77,628
Shareholders' equity................................................ 321,135
----------
Total liabilities and shareholders' equity......................... $3,772,748
==========
Net interest income/net interest margin............................. $53,844 6.41%
=====================
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------
INTEREST
AVERAGE INCOME/ AVERAGE
(IN THOUSANDS) BALANCE EXPENSE(2) RATE %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets:
Loans(1)........................................................... $1,866,498 $44,531 9.54%
Trading account securities......................................... 77,173 978 5.07
Securities available for sale...................................... 371,029 5,574 6.01
Securities held to maturity........................................ 4,307 77 7.15
Federal funds sold and securities purchased under resale
agreements....................................................... 240,268 3,220 5.36
Loans held for sale................................................ 4,643 133 11.46
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS $2,563,918 $54,513 8.50%
- ---------------------------------------------------------------------------------------------------------------------
Allowance for loan losses........................................... (38,786)
Cash................................................................ 241,544
Other assets........................................................ 134,904
----------
Total assets....................................................... $2,901,580
==========
Interest-bearing liabilities:
Savings............................................................ $ 18,472 $ 116 2.51%
Money market....................................................... 493,718 3,859 3.13
Time - under $100,000.............................................. 220,370 3,146 5.71
Time - $100,000 and over........................................... 731,400 10,160 5.56
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS $1,463,960 $17,281 4.72%
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings.............................................. 81,842 1,073 5.24
Long-term borrowings............................................... 4,752 75 6.31
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES $1,550,554 $18,429 4.75%
- ---------------------------------------------------------------------------------------------------------------------
Demand deposits..................................................... 1,022,109
Other liabilities................................................... 58,104
Shareholders' equity................................................ 270,813
----------
Total liabilities and shareholders' equity......................... $2,901,580
==========
Net interest income/net interest margin............................. $36,084 5.63%
=====================
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------------
INTEREST
AVERAGE INCOME/ AVERAGE
(IN THOUSANDS) BALANCE EXPENSE(2) RATE %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets:
Loans(1)........................................................... $2,290,275 $165,821 9.65%
Trading account securities......................................... 27,494 1,334 6.48
Securities available for sale...................................... 536,062 23,864 5.94
Securities held to maturity........................................ 4,153 219 7.03
Federal funds sold and securities purchased under resale
agreements....................................................... 236,769 9,806 5.52
Loans held for sale................................................ 6,739 557 11.02
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS $3,101,492 $201,601 8.67%
- ---------------------------------------------------------------------------------------------------------------------
Allowance for loan losses........................................... (39,875)
Cash................................................................ 264,592
Other assets........................................................ 175,858
----------
Total assets....................................................... $3,502,067
==========
Interest-bearing liabilities:
Savings............................................................ $ 20,230 $ 378 2.49%
Money market....................................................... 718,315 17,281 3.21
Time - under $100,000.............................................. 156,492 6,707 5.71
Time - $100,000 and over........................................... 713,573 29,055 5.43
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS $1,608,610 $ 53,421 4.43%
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings.............................................. 81,273 3,239 5.31
Long-term borrowings............................................... 47,393 3,096 8.71
- -------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES $1,737,276 $ 59,756 4.59%
- -------------------------------------------------------------------------------------------------------------------------
Demand deposits..................................................... 1,386,977
Other liabilities................................................... 71,202
Shareholders' equity................................................ 306,612
----------
Total liabilities and shareholders' equity......................... $3,502,067
==========
Net interest income/net interest margin............................. $141,845 6.10%
=====================
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------
1996
- ---------------------------------------------------------------------------------------------------------------------
INTEREST
AVERAGE INCOME/ AVERAGE
(IN THOUSANDS) BALANCE EXPENSE(2) RATE %
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets:
Loans(1)........................................................... $1,792,413 $127,236 9.46%
Trading account securities......................................... 53,270 2,025 5.07
Securities available for sale...................................... 341,259 15,653 6.12
Securities held to maturity........................................ 4,348 231 7.08
Federal funds sold and securities purchased under resale
agreements....................................................... 184,700 7,424 5.36
Loans held for sale................................................ 4,545 360 10.56
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS $2,380,535 $152,929 8.57
- ---------------------------------------------------------------------------------------------------------------------
Allowance for loan losses........................................... (39,144)
Cash................................................................ 241,413
Other assets........................................................ 122,313
----------
Total assets....................................................... $2,705,117
==========
Interest-bearing liabilities:
Savings............................................................ $ 18,681 $ 348 2.49%
Money market....................................................... 462,359 10,506 3.03
Time - under $100,000.............................................. 226,874 9,725 5.72
Time - $100,000 and over........................................... 644,917 26,502 5.48
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS $1,352,831 $ 47,081 4.64
- ---------------------------------------------------------------------------------------------------------------------
Short-term borrowings.............................................. 61,610 2,390 5.17
Long-term borrowings............................................... 5,381 264 6.54
- ---------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING LIABILITIES $1,419,822 $ 49,735 4.67%
- ---------------------------------------------------------------------------------------------------------------------
Demand deposits..................................................... 990,531
Other liabilities................................................... 42,347
Shareholders' equity................................................ 252,417
----------
Total liabilities and shareholders' equity......................... $2,705,117
==========
Net interest income/net interest margin............................. $103,194 5.78%
=====================
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonaccrual loans.
(2) Interest income on loans includes net loan fees of $12.7 million and $6.7
million for the nine months ended September 30, 1997 and 1996, respectively,
and $5.4 million and $2.3 million for the three months ended September 30,
1997 and 1996, respectively.
22
<PAGE>
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST INCOME
Changes in the Company's net interest income are a function of both
changes in interest rates and changes in the average balance 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 average balances multiplied by old rate) and the change
attributable to variations in interest rates (changes in rates
multiplied by old balances). The change in interest income and
interest expense attributable 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,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 OVER 1996 1997 OVER 1996
(IN THOUSANDS) VOLUME RATE RATE/VOLUME TOTAL VOLUME RATE RATE/VOLUME TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase/(decrease) in:
Loans, net of unearned
income and deferred
loan fees............... 14,595 1,530 501 16,626 23,561 1,692 13,332 38,585
Trading account
securities.............. (635) 307 (197) (525) (653) 373 (411) (691)
Securities available for
sale.................... 4,029 (23) (17) 3,989 5,957 (307) 2,562 8,212
Securities held to
maturity................ (4) - - (4) (7) (1) (4) (12)
Federal funds sold and
securities purchased
under resale agreements. (449) 166 (23) (306) 1,395 150 836 2,381
Loans held for sale...... 56 17 7 80 116 10 71 197
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $17,592 $1,997 $ 271 $19,860 $30,369 $1,917 $16,386 $48,672
- ------------------------------------------------------------------------------------------------------------------------------------
Savings.................. (41) - 62 21 19 - 10 29
Money market............. 2,990 324 251 3,565 3,877 412 2,487 6,776
Time - under $100,000.... (1,348) (15) 7 (1,356) (2,011) (1) (1,006) (3,018)
Time - $100,000 and over. (1,468) (165) 24 (1,609) 1,881 (162) 834 2,553
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $ 133 $ 144 $ 344 $ 621 $ 3,766 $ 249 $ 2,325 $ 6,340
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings.... (195) 53 (10) (152) 509 44 296 849
Long-term borrowings..... 1,139 30 462 1,631 1,374 58 1,400 2,832
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 1,077 $ 227 $ 796 $ 2,100 $ 5,649 $ 351 $ 4,021 $10,021
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN NET
INTEREST INCOME $16,515 $1,770 $(525) $17,760 $24,720 $1,566 $12,365 $38,651
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
TABLE 3 - SECURITIES
(a) SECURITIES HELD TO MATURITY
The amortized cost and estimated fair value of investment securities
as of September 30, 1997, and December 31, 1996, are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
September 30, 1997
Industrial development bonds................................ $4,085 $ - $ - $4,085
- -------------------------------------------------------------------------------------------------------------
TOTAL $4,085 $ - $ - $4,085
- -------------------------------------------------------------------------------------------------------------
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>
September 30, 1997
U.S. Treasury and federal agencies.......................... $593,193 $4,227 $(63) $597,357
Mutual funds................................................ 65,377 - - 65,377
Other securities............................................ 10,263 416 - 10,679
- ----------------------------------------------------------------------------------------------------------------
TOTAL $668,833 $4,643 $(63) $673,413
- ----------------------------------------------------------------------------------------------------------------
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 September
30, 1997, were $9,300 and $7,600, respectively. For the same period of
1996, these amounts were $2,000 and $15,000, respectively. For the
nine months ended September 30, 1997, gross realized gains and losses
were $428,300 and $69,600, respectively, as compared to $274,000 and
$45,000, respectively, for the same period of 1996.
24
<PAGE>
TABLE 4 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income as a percentage of: (1)
Average shareholders' equity................................ 18.53% 12.81% 14.69% 23.31%
Average total assets........................................ 1.58 1.20 1.29 2.17
Average earning assets...................................... 1.77 1.35 1.45 2.47
Income from continuing operations as a percentage of: (1)
Average shareholders' equity................................ 17.67% 12.26% 14.48% 26.28%
Average total assets........................................ 1.50 1.14 1.27 2.45
Average earning assets...................................... 1.69 1.30 1.43 2.79
Average shareholders' equity as a percentage of:
Average assets.............................................. 8.51% 9.33% 8.76% 9.33%
Average loans............................................... 12.96 14.51 13.39 14.08
Average total deposits...................................... 9.94 10.89 10.24 10.77
Shareholders' equity at period end as a percentage of:
Total assets at period end.................................. - - 7.26% 8.44%
Total loans at period end................................... - - 12.99 14.58
Total deposits at period end................................ - - 8.33 9.81
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
25
<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, 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------
1997 1996(1) 1997 1996(1)
- ------------ ------------ ------------ ------------
<S> <C> <C> <C>
27,325,508 26,372,688 26,826,935 25,908,277
</TABLE>
(1) Adjusted for a 10% stock dividend paid in the first quarter of
1997 and for a three-for-two stock split distributed on October 18,
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.
26
<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.
27
<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 14, 1997 By: /s/ Christine M. McCarthy
--------------------------
Christine M. McCarthy
Executive Vice President and
Chief Financial Officer
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 434,403
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 680,700
<TRADING-ASSETS> 63,825
<INVESTMENTS-HELD-FOR-SALE> 673,413
<INVESTMENTS-CARRYING> 4,085
<INVESTMENTS-MARKET> 4,085
<LOANS> 2,525,629
<ALLOWANCE> 46,871
<TOTAL-ASSETS> 4,517,186
<DEPOSITS> 3,936,494
<SHORT-TERM> 110,503
<LIABILITIES-OTHER> 65,596
<LONG-TERM> 76,556
0
0
<COMMON> 232,618
<OTHER-SE> 95,419
<TOTAL-LIABILITIES-AND-EQUITY> 4,517,186
<INTEREST-LOAN> 165,821
<INTEREST-INVEST> 25,417
<INTEREST-OTHER> 10,363
<INTEREST-TOTAL> 201,601
<INTEREST-DEPOSIT> 53,421
<INTEREST-EXPENSE> 59,756
<INTEREST-INCOME-NET> 141,845
<LOAN-LOSSES> 14,785
<SECURITIES-GAINS> 359
<EXPENSE-OTHER> 122,393
<INCOME-PRETAX> 55,801
<INCOME-PRE-EXTRAORDINARY> 33,307
<EXTRAORDINARY> 479
<CHANGES> 0
<NET-INCOME> 33,786
<EPS-PRIMARY> $1.26
<EPS-DILUTED> $1.26
<YIELD-ACTUAL> 6.10
<LOANS-NON> 9,236
<LOANS-PAST> 0
<LOANS-TROUBLED> 25,549
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,051
<CHARGE-OFFS> 6,587
<RECOVERIES> 2,565
<ALLOWANCE-CLOSE> 46,871
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
