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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended June 30, 1997
IMPERIAL BANCORP
(Exact name of registrant as specified in its charter)
California 95-2575576
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
9920 South La Cienega Boulevard
Inglewood, California 90301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 417-5600
Commission file number: 0-7722
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK: Number of Shares of Common Stock outstanding as of June 30, 1997:
25,869,753 shares.
DEBT SECURITIES: Floating Rate Notes Due 1999 and Fixed Rate Debentures Due
1999. As of June 30, 1997, $3,373,000 in principal amount of
such Notes and $1,082,000 in principal amount of such
Debentures were outstanding.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
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IMPERIAL BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
THREE AND SIX MONTHS ENDED JUNE 30, 1997
Except for the historical information contained herein, the following
discussion includes forward looking information that involves risks
and uncertainties. The Company's actual results could differ
materially from those discussed herein.
FINANCIAL REVIEW
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes in
trends related to the financial condition of Imperial Bancorp (the
"Company") and its results of operations for the three and six months
ended June 30, 1997.
PERFORMANCE SUMMARY
Net income for the second quarter decreased to $11.0 million, or $0.40
per share, from $28.7 million, or $1.10 per share, earned in the
second quarter of 1996. Income as measured by return on average total
assets was 1.24% for the three months ended June 30, 1997, as compared
to 4.29% for the three months ended June 30, 1996. Return on average
stockholders' equity was 14.3% for the quarter ended June 30, 1997, a
decrease from the 45.12% return on average stockholders' equity for
the same period of 1996. For the six months ended June 30, 1997, net
income totaled $18.9 million as compared to $35.4 million for the same
period of 1996. Return on average assets and stockholders' equity for
the first half of 1997 was 1.12% and 12.64%, respectively, as compared
to 2.72% and 29.16%, respectively, from the same period of 1996
Earnings for the second quarter of 1996 were significantly impacted by
gains realized from the sale of a portion of the Company's investment
in Imperial Credit Industries, Inc. ("ICII") (NASDAQ-NMS-ICII). In
April 1996, the Company sold 1.5 million shares of ICII as a part of
an offering which included the sale of approximately 2.2 million new
ICII shares by ICII to the public. An additional 0.5 million shares
were sold by ICII to the public in May 1996. The Company recorded a
$25.6 million pre-tax gain on the sale of its ICII shares. After the
sales of ICII shares, the book value of ICII common stock approximated
$8.72 per share. As a result, the Company recorded a $10.8 million
pre-tax gain which approximated the excess of ICII's book value per
share over the book value of the Company's remaining investment in
ICII. In addition, the Company realized a significant increase in
equity in the net earnings of ICII for the second quarter 1996. In
June 1996, ICII completed an offering in which they sold approximately
2.0 million shares of its subsidiary Southern Pacific Funding
Corporation (NYSE-SFC) to the public. In addition to the SFC shares
sold by ICII, 5.0 million new SFC shares were issued and sold to the
public. The Company's share of the pre-tax gains realized by ICII as a
result of this transaction approximated $8.6 million and is included
in "Equity in net earnings of Imperial Credit Industries, Inc."
Partially offsetting these gains was an after tax loss from
discontinued operations of $6.1 million, or $0.24 per share for the
quarter ended June 30, 1996.
Earnings, excluding the 1996 second quarter gains associated with the
Company's investment in ICII and the losses associated with the
discontinued operations for all periods presented ("core earnings"),
for the second quarter of 1997 increased to $11.1 million, or $0.41
per share from $8.8 million, or $0.34 per share for the same period in
1996. For the six months ended June 30, 1997, core earnings totaled
$19.1 million, or $0.71 per share compared to $15.5 million, or $0.60
per share for the corresponding period one year ago. From its core
operations, the Company's return on average total assets approximated
1.26% and 1.14% for the second quarter and first half of 1997,
respectively, compared to 1.32% and 1.19% for the second quarter and
first half of 1996, respectively. Core return on average stockholders'
equity for the second quarter and first half of 1997 was 14.47% and
12.78%, respectively, compared to 13.91% and 12.76%, respectively, for
the comparable periods last year. The increase in core earnings for
the second quarter and first half of 1997 was primarily attributable
to the 27% and 25% growth, respectively, in average loans from the
same periods of 1996 which resulted in
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increased net interest income. Net interest income amounted to $47.8
million and $88.0 million for the quarter and six months ended June
30, 1997, respectively, as compared to $34.9 million and $67.1 million
for the same periods of 1996.
Noninterest income for the quarter and six months ended June 30, 1997
totaled $16.0 million and $32.1 million, respectively, compared to
$59.6 million and $71.9 million for the quarter and six months ended
June 30, 1996, respectively. Excluding nonrecurring income from ICII,
noninterest income for the quarter and six months ended June 30, 1996
totaled $14.7 million and $27.0 million, respectively, an improvement
of $1.3 million and $5.1 million, respectively. The improvement was
primarily due to higher fees generated from item processing services,
gains associated with the execution and sale of stock warrants, and
international related services.
Noninterest expenses for the quarter and six months ended June 30,
1997 totaled $40.8 and $80.5 million, respectively, compared to $33.0
million and $63.2 million for the quarter and six months ended June
30, 1996. The rise in noninterest expenses for the quarter and six
months ended June 30, 1997 was primarily due to $7.4 million and $11.6
million increases, respectively, in employment expenses over the same
periods of 1996 as the Company continues to focus on an investment in
people to enhance its presence in various industry segments and expand
into new high growth regions. Also contributing to higher noninterest
expenses were increased customer service related expenses resulting
from a significant increase in deposits generated from the real estate
related services industry. This expense increased $1.5 million and
$2.6 million, respectively, for the quarter and six months ended June
30, 1997, compared to the same periods one year ago. Offsetting the
increase in personnel costs and customer service related expenses was
a reduction in real estate owned ("REO") expense and charitable
contributions. REO (income) expenses declined $0.6 million and $1.1
million, respectively, for the second quarter and first half of 1997
due to a significant drop in the level of REO from June 30, 1996 and a
$0.4 million gain realized on the sale of a REO property in the second
quarter of 1997.
At June 30, 1997, the Company's total assets were $4.1 billion, total
loans were $2.4 billion and stockholders' equity and allowance for
loan losses totaled $354 million. This compares to total assets of
$3.4 billion, total loans of $2.1 billion and stockholders' equity and
allowance for loan losses of $322 million at December 31, 1996.
Total deposits at June 30, 1997, amounted to $3.5 billion which
included $1.9 billion, or 53%, of noninterest bearing demand deposits.
This compares favorably to total deposits of $3.0 billion at December
31, 1996 which included $1.5 billion, or 50%, of noninterest bearing
demand deposits. The Company's average demand deposits and average
stockholders' equity funded 48% of average total assets for the six
months ended June 30, 1997, equal to 48% for the same period last
year.
At June 30, 1997, the allowance for loan losses amounted to $42.6
million or 1.8% of total loans as compared to $36.1 million or 1.8% of
total loans at December 31, 1996 and $38.5 million or 2.1% of total
loans at June 30, 1996. The provision for loan losses from continuing
operations for the quarter ended June 30, 1997 totaled $4.4 million as
compared to $3.4 million reported for the quarter ended June 30, 1996.
For the first half of 1997, the provision for loan losses from
continuing operations totaled $7.7 million as compared to $6.0 million
reported for the first half of 1996. The increase in the provision is
due primarily to the $507 million increase over the past twelve months
in the Company's loan portfolio.
The Company continued to experience improved credit quality for the
quarter and six months ended June 30, 1997. Net charge-offs for the
quarter and first half totaled $0.5 million and $1.3 million,
respectively, as compared to $4.0 million and $4.9 million,
respectively, for the same periods of 1996. Additionally, nonaccrual
loans of $7.9 million at June 30, 1997 decreased $12.5 million from
December 31, 1996 and $12.9 million from June 30, 1996. The allowance
for loan losses coverage of nonaccrual loans at June 30, 1997
approximated 538 percent, up from 177 percent at December 31, 1996 and
up from 185 percent at June 30, 1996. Restructured loans at June 30,
1997 totaled $24.1 million, down $4.5 million from December 31, 1996
and $20.8 million from June 30, 1996. All restructured loans at June
30, 1997 were performing in accordance with their modified terms. At
quarter-end 1997, REO, net of the valuation allowance, was $3.0
million, up from $2.1 million at December 31, 1996 and down from $7.9
million at June 30, 1996.
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Imperial Bank is classified "Well Capitalized" with leverage, Tier I
and total capital ratios at June 30, 1997, of 8.2%, 9.0% and 10.2%,
respectively, as compared to 9.2%, 10.1% and 11.4%, respectively, the
year earlier.
Imperial Bancorp is classified "Well Capitalized" with leverage, Tier
I and total capital ratios at June 30, 1997 of 10.7%, 12.0% and 13.4%,
respectively, as compared to 9.6%, 10.6% and 12.0%, respectively, the
year earlier. These increases are mainly due to the issuance of $75
million of capital securities by a subsidiary of the Company in April
1997. Under the capital guidelines of the Federal Reserve, the capital
securities qualify as Tier I Capital.
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 a wholly-owned
subsidiary of the 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 trust and investment management services,
(iii) all of the common stock of a newly formed thrift and loan
company that will hold the assets and liabilities relating to the
Bank's Small Business Administration lending group, a division of the
Bank that provides loans to small businesses, a portion of which is
guaranteed as to repayment by the U.S. Government, and (iv) the common
stock owned by the Bank (representing approximately 24% of all
outstanding common stock as of June 30, 1997) in ICII, a publicly
traded, diversified specialty finance company.
The spin-off is subject to receipt of a private letter ruling from the
Internal Revenue Service to the effect that the transaction will not
be taxable to the Company's stockholders or the Company or the Bank as
well as any necessary approval from the Company's regulators. It is
anticipated that the separation will occur in late 1997 or early 1998.
On April 17, 1997, tax legislation was introduced in Congress relating
to the tax-free nature of certain spin off transactions. The proposed
legislation has since been revised and will not, in its current form,
impede the Company's ability to effect the spin off on a basis that is
not taxable to the Company, its stockholders or the Bank.
Total assets of the entities comprising IFG approximated $200 million
at June 30, 1997. Revenues of IFG, including interest income and
noninterest income would have approximated $21 million for the six
months ended June 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 million of 9.98% 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 was 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 held by the Trust will mature on
December 31, 2026.
Holders of the Capital Securities are entitled to receive cumulative
cash distributions, accruing 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
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the Junior Subordinated Debentures are so deferred, cash distributions
on the Trust Securities will also be deferred and the Company will not
be permitted, subject to certain exceptions, to declare or pay any
cash distributions with respect to the Company's capital stock (which
includes common and preferred stock) or to make any payment with
respect to debt securities of the Company that rank equal with or
junior to the Junior Subordinated Debentures.
The Company intends to use the net proceeds from the sale of the
Junior Subordinated Debentures for general corporate purposes, which
includes additional investments in the Bank and/or acquisition
opportunities. The Capital Securities are eligible to qualify as Tier
I Capital under the capital guidelines of the Federal Reserve.
EARNINGS PERFORMANCE
Net Interest Income
The Company's operating results depend primarily on net interest
income. A primary factor affecting the level of net interest income is
the Company's interest rate margin between the yield earned on
interest-earning assets and the rate paid on interest-bearing
liabilities as well as the difference between the relative amounts of
average interest-earning assets and average interest-bearing
liabilities. For the quarter and six months ended June 30, 1997, net
interest income increased to $47.8 million and $88.0 million,
respectively, from $34.9 million and $67.1 million, respectively, for
the same periods of 1996.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In Thousands) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Interest income........ $68,495 $50,326 $127,228 $98,416
Interest expense....... 20,656 15,437 39,228 31,306
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Net interest income $47,839 $34,889 $ 88,000 $67,110
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Net interest margin 6.1 % 6.0 % 5.9 % 5.9 %
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</TABLE>
The Company's net interest margin increased to 6.1% for the second
quarter of 1997 from 6.0% for the same period of 1996. For the first
half of 1997, net interest margin was 5.9%, equal to 5.9% for the
first six months of 1996. Given current economic conditions and the
asset sensitive nature of the Company's balance sheet, the Company
expects a relatively stable net interest margin over the near term.
The increased net interest income primarily resulted from the $475
million and $440 million growth in average loans for the second
quarter and first half of 1997, respectively, from the second quarter
and first half of 1996. Due primarily to the improving California
economy, the Company expects its loan portfolio to continue its growth
throughout the remainder of the year. As illustrated by the Analysis
of Changes in Net Interest Margin (see page 22), the growth in the
Company's loan portfolio had a significant impact on net interest
income for the second quarter and six months ended June 30, 1997.
Average demand deposit levels for the quarter ended June 30, 1997
increased approximately $360 million from the second quarter of 1996
due to the rise in deposits from the real estate related services
industry. During the second quarter of 1997 the Company's average
level of money market accounts grew 48% to $681 million from $459
million one year ago. This increase is primarily due to the bankruptcy
deposit portfolio purchased from Comerica Bank in June 1997. In
contrast, average time certificates of deposits for the second quarter
of 1997 grew only $90 million to $916 million from $826 million one
year ago. Despite the increase in rates for the Company's interest-
bearing deposits, the above shift of deposits from time certificates
of deposits to lower yielding money market accounts allowed the
Company's overall funding costs to remain relatively stable.
In conformity with banking industry practice, payments for accounting,
courier and other deposit related services provided to the Company's
real estate related customers are recorded as noninterest expense. If
these deposits were treated as interest-bearing and the payments
reclassified as interest expense, the Company's reported net interest
income and noninterest expense would have been reduced by $7.9 million
and $5.2 million, respectively, for the six months ended June 30, 1997
and 1996. The net interest margin for each period would have been 5.4%
and 5.4%, respectively.
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NONINTEREST INCOME: Noninterest income amounted to $16.0 million for
the second quarter of 1997 as compared to $59.6 million for the same
period of 1996. For the six months ended June 30, 1997, noninterest
income totaled $32.1 million as compared to $71.9 million in the prior
year. The table below shows the major components of noninterest
income.
<TABLE>
<CAPTION>
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Three months ended Six months ended
June 30, June 30,
(In Thousands) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Service charges on deposit accounts..... $ 1,314 $ 1,236 $ 2,717 $ 2,494
Trust fees.............................. 1,740 2,163 3,717 4,271
Gain on origination and sale of loans... 1,505 1,368 2,019 1,673
Equity in net earnings of Imperial 3,544 10,651 5,005 13,511
Credit Industries, Inc.................
Gain on sale of Imperial Credit -- 36,411 -- 36,411
Industries, Inc. common stock..........
Other service charges and fees.......... 2,675 1,058 4,953 1,803
Merchant and credit card fees........... 798 597 1,497 1,036
Gain on exercise and sale of stock 809 401 2,543 869
warrants...............................
International fees...................... 1,920 1,147 3,598 2,194
Gain on trading account securities...... 1,189 657 2,248 1,806
Appreciation of donated Imperial Credit -- 2,726 2,816 3,505
Industries, Inc. common stock..........
Other income............................ 465 1,225 975 2,358
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Total $15,959 $59,640 $32,088 $71,931
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</TABLE>
Noninterest income reported for the second quarter of 1996 was
significantly impacted by gains realized from the sale of a portion of
the Company's investment in ICII. In April 1996, the Company sold 1.5
million shares of ICII as a part of an offering which included the
sale of approximately 2.2 million new ICII shares by ICII to the
public. An additional 0.5 million shares were sold by ICII to the
public in May 1996. The Company recorded a $25.6 million pre-tax gain
on the sale of its ICII shares. After the sales of ICII shares, the
book value of ICII common stock approximated $8.72 per share. As such,
the Company recorded a $10.8 million pre-tax gain which approximated
the excess of ICII's book value per share over the book value of the
Company's remaining investment in ICII. The total gains of $36.4
million related to these transactions are reflected in the
consolidated Statement of Income as "Gain on sale of Imperial Credit
Industries, Inc. common stock."
Also in the second quarter of 1996, the Company realized a significant
increase in equity in the net earnings of ICII. 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 this gain realized by ICII approximated $8.9
million pre-tax and is included in the consolidated Statement of
Income as "Equity in the net earnings of Imperial Credit Industries,
Inc."
Excluding the 1996 second quarter gains associated with the Company's
investment in ICII, noninterest income for the second quarter and
first six months of 1997 improved $1.3 million and $5.1 million,
respectively, from the same periods of 1996. The improvement for the
second quarter and six month period ended June 30, 1997 was mainly
attributable to other service charges which increased $1.6 million and
$3.2 million, respectively, as a result of the Bank entering into
several new item processing agreements with other institutions since
the first quarter of 1996 and growth in commitment fees.
The Company recorded improvements in other fee income businesses.
International fees increased $0.8 million and $1.4 million,
respectively, for the second quarter and six months of 1997 compared
to the same periods of 1996. In addition, merchant and credit card
fees generated an additional $0.2 million and $0.5 million,
respectively, to noninterest income for the quarter and six months
ended June 30, 1997. The Company recorded higher gains from the
origination and sales of SBA loans as loan volumes have increased over
the prior year. The gains on sales of SBA loans increased $0.1 million
and $0.3 million, respectively, for the quarter and six months ended
June 30, 1997.
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Another factor that contributed to higher noninterest income for the
second quarter and six months ending June 30, 1997 was an increase of
$0.4 million and $1.7 million, respectively, in the exercise and sale
of stock warrants from the comparable periods one year ago. These
stock warrants are received in conjunction with loans funded in the
Bank's Special Markets Lending Division. This improvement is mainly
due to an increase in loan activity of the Special Market Lending
Division.
Offsetting these improvements to noninterest income for the quarter
and six months ending June 30, 1997 was a reduction in the
appreciation of donated stock. The appreciation represents the
difference between the market value and the book value of the ICII
shares on the date the shares were donated. In addition, trust
revenues decreased $0.4 million and $0.6 million for the second
quarter and six months ending June 30, 1997, respectively, as the
number of nonrenewable matured accounts increased from the comparable
periods last year.
Noninterest Expense: Noninterest expense totaled $40.8 million for the
quarter ended June 30, 1997 as compared to $33.0 million for the same
period in the prior year. For the six months ended June 30, 1997,
noninterest expense was $80.5 million as compared to $63.2 million in
the first half of 1996. The table below shows the major components of
noninterest expense.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(In Thousands) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Salary and employee benefits............ $21,839 $14,426 $41,510 $29,924
Net occupancy expense................... 2,309 2,233 4,521 4,465
Furniture and equipment................. 1,607 1,283 2,988 2,419
Data processing......................... 1,884 1,561 3,759 3,057
Customer services....................... 4,273 2,794 7,879 5,231
Net real estate owned (income) expense.. (310) 298 (158) 948
Professional and consulting............. 2,468 1,830 4,296 3,452
Business development.................... 1,753 739 2,650 1,729
Charitable donations.................... 51 3,627 3,727 4,668
Other expense........................... 4,919 4,196 9,335 7,257
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Total $40,793 $32,987 $80,507 $63,150
========================================================================================================
</TABLE>
For the quarter and six months ended June 30, 1997, the rise in
noninterest expense was primarily due to $7.4 million and $11.6
million increases, respectively, in salary and benefit costs over the
same periods of 1996. Consistent with the prior year, the Company
continues to focus on an investment in people as the Company continues
to enhance its existing presence in various industry segments as well
as expand into new high growth regions. A new loan production office
in Bellevue, Washington, was opened in the second quarter of 1997.
Customer service costs paid on behalf of the Company's real estate
service industry customers increased in the second quarter and first
half of 1997 to $4.3 million and $7.9 million, respectively, from the
same periods of 1996. These services which include accounting,
courier and other deposit related services rose primarily due to $360
million and $314 million increases in average demand deposit levels
during the second quarter and first half of 1997, respectively, as
compared to the prior year comparable periods, as these costs are a
function of deposit volume and interest rates.
The Company incurred higher business development expenses during the
second quarter and first half of 1997 as compared to the same periods
last year. Advertising expenses, business publication and marketing
related costs rose as the Company expanded into new markets.
Partially offsetting the increase in noninterest expense were the
decreases in charitable donations of $3.6 million and $0.9 million,
respectively, for the quarter and six month period ended June 30,
1997, and in REO expenses of $0.6 million and $1.1 million,
respectively, for the comparable periods.
Income Taxes: The Company recorded income tax expense of $7.5 million
and $12.7 million, respectively, for the quarter and six months ended
June 30, 1997 representing effective tax rates of approximately 40.3%
and 40.0%, respectively. For the same periods of 1996, the Company's
income
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tax expense and effective tax rates approximated $23.4 million and
40.2%, respectively, and $28.4 million and 40.7%, respectively. At
June 30, 1997, the Company had a net deferred tax liability of $1.4
million, as compared to a net deferred tax liability of $1.5 million
at December 31, 1996.
Discontinued Operation: In the second quarter of 1996, management of
the Company decided to discontinue the precious metals business which
had been engaged in trading and leasing of precious metals in addition
to making loans secured by precious metals since 1993. The decision to
exit this line of business was made due to operational losses for
which the Company provided approximately $9.8 million, net of tax, for
the year ended December 31, 1996. As of June 30, 1997, the activities
of the precious metals business were substantially completed.
ASSET/LIABILITY MANAGEMENT
Liquidity:
For the Company, as with most commercial banking institutions,
liquidity is the ability to roll over substantial amounts of maturing
liabilities and to acquire new liabilities at levels consistent with
management's financial targets. The key to this on-going replacement
activity is the Company's reputation in the domestic money markets,
which is based upon its financial condition and its capital base.
The overall liquidity position of the Company has been enhanced by a
sizable base of demand deposits resulting from the Company's long
standing relationships with the real estate services industry which
have provided a relatively stable and low cost funding base. Demand
deposits averaged $1.4 billion for the three months ended June 30,
1997 as compared to $1.0 billion for the same period of 1996. The
Company's average demand deposits and average stockholders' equity
funded 48% of average total assets for the quarter ended June 30,
1997, equal to 48% for the same period last year.
These funding sources are augmented by payments of principal and
interest on loans and the routine liquidation of securities from the
trading and available for sale portfolios and Federal funds sold and
securities purchased under resale agreements. During the first half of
1997, the Company experienced a net cash outflow from its investing
activities of $707 million. This net outflow in investing activities
resulted primarily from the growth in the Company's loan portfolio, a
net outflow of $289 million and the purchase of securities available
for sale, a net outflow of $236 million. The outflow in investing
activities was offset by the $750 million net cash provided by the
Company's financing activities consisting mainly of deposit inflows
including $617 million in demand deposits, savings and money market
accounts, $77 million net cash provided by short-term borrowings, and
$73 million net cash provided by the issuance of Capital Securities.
These inflows were partially offset by $19 million of net outflows
attributable to time deposits.
Interest Rate Sensitivity Management: The primary objectives of the
asset liability management process are to provide a relatively stable
net interest margin and manage balance sheet risks. These risks
include liquidity risk, capital adequacy and overall interest rate
risk inherent in the Company's balance sheet. In order to manage its
interest rate sensitivity, the Company has adopted policies which
attempt to manage the change in pre-tax net interest income assuming
various interest rate scenarios. This is accomplished by adjusting the
repricing characteristics of the Company's assets and liabilities as
interest rates change. The Company's Asset Liability Committee
("ALCO") chooses strategies in conformance with its policies to
achieve an appropriate trade off between interest rate sensitivity and
the volatility of pre-tax net interest income and net interest margin.
Each month the Company assesses its overall exposure to potential
changes in interest rates and the impact such changes may have on pre-
tax net interest income and net interest margin by simulating various
interest rate scenarios over future time periods. Through the use of
these simulations, the Company can approximate the impact of these
projected rate changes on its entire on and off-balance sheet position
or any particular segment of the balance sheet.
Cumulative interest sensitivity gap represents the difference between
interest-earning assets and interest-bearing liabilities maturing or
repricing, whichever is earlier, at a given point in time. At June 30,
1997 the Company maintained a positive one year gap of approximately
$742 million as its interest rate sensitive assets exceeded its
interest rate sensitive liabilities. This positive cumulative gap
position
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
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 June 30, 1996, the Company maintained a
positive one year gap of approximately $610 million.
The Company has developed strategies to protect both net interest
income and net interest margin from significant movements in interest
rates both up and down. These strategies involve purchasing interest
rate floors and caps with strike prices which generally adjust
quarterly and are approximately 200 basis points below or above
(depending on the instrument) current market rates at the time the
floors and caps are purchased. 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
the second quarter of 1997. The remaining floors mature at the rate
of $500 million per quarter beginning in the third quarter of 1997.
The floor maturing in the third quarter of 1997 provides protection to
the Company in the event that the three month LIBOR drops below the
strike price of 4.0% associated with the floor while the remaining
floors have a strike price of 4.25%. The unrealized gain of the
remaining floors approximated $1,900 at June 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 second quarter of 1998. The
floors provide the Company protection in the event that the three
month LIBOR drops below the strike price of 4.0%. The unrealized gain
of these floors approximated $2,500 at June 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 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 of these floors approximated $100,000 at June 30,
1997.
In January 1996, the Company purchased exchange traded interest rate
caps with a notional value outstanding of $500 million that matured,
unexercised during the second quarter of 1997. In the fourth quarter
of 1996, the Company purchased an additional $1.0 billion of exchange
traded caps. The caps mature at the rate of $500 million per quarter
beginning in the third quarter of 1997 and provide the Company
protection in the event that the three month LIBOR increases above the
7.5% strike price. The unrealized gain of these caps at June 30, 1997
approximated $1,300. The unamortized premiums paid for floors and
caps described above approximated $359,000 at June 30, 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.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
ASSET QUALITY
Nonaccrual loans, restructured loans and real estate and other assets
owned:
Nonaccrual loans, which includes loans 90 days or more past due,
totaled $7.9 million at June 30, 1997 as compared to $20.4 million at
year end 1996 and $20.9 million at June 30, 1996. The Company expects
credit quality to remain relatively stable for the balance of the
year. The decrease from year end 1996 was mainly due to charge-offs of
loans on nonaccrual status at year end 1996 approximating $3.5
million, loans being returned to current or paid off of $5.4 million,
the selling of $5.9 million of nonaccrual loans, payments received of
$0.9 million on nonaccrual loans, and the transfer of $1.3 million of
nonaccrual loans to REO. Partially offsetting these decreases were
$4.5 million of loans being placed on nonaccrual. The decrease from
June 30, 1996 resulted from charge-offs of loans on nonaccrual status
approximating $8.4 million, loans returned to current or paid off
approximating $27.3 million, the selling of $5.9 million of nonaccrual
loans, payments received for nonaccrual loans approximating $1.4
million, and the transfer of $1.4 million of nonaccrual loans to REO.
Partially offsetting these decreases were loans approximating $31.4
million placed on nonaccrual during the twelve month period.
Consistent with prior reporting periods, there were no loans past due
90 days or more which were still accruing interest and all interest
associated with nonaccrual loans had been reversed. It has been the
Company's policy to recognize interest on nonaccrual loans only when
collected.
Troubled debt restructured loans totaled $24.1 million at June 30,
1997 as compared to $28.7 million at prior year end and $45.0 million
at June 30, 1996. The decrease in restructured loans from the second
quarter of 1996 resulted in part from a $13.9 million loan that was
restructured in the fourth quarter of 1995 and performed in accordance
with its modified terms during 1996 and a $2.6 million loan that was
restructured in the first quarter of 1996 and performed in accordance
with its modified terms for one year. As a result, these loans were no
longer classified as restructured at June 30, 1997. The decrease in
restructured loans from year end 1996 was mainly due to the same $2.6
million loan that was restructured in the first quarter of 1996,
performed in accordance with its modified terms for one year, and was
no longer classified as restructured at June 30, 1997.
Real estate and other assets owned of $3.0 million, net of a $0.8
million valuation allowance, at June 30, 1997 increased $0.9 million
from year end 1996 and decreased $5.0 million from June 30, 1996. The
significant decline from the second quarter of 1996 is attributable to
the Company's successful disposition of nine REO properties since June
30, 1996. The increase from year end 1996 was due to the Company
taking title to the distribution rights of a film whose borrower
defaulted on its loan.
Detailed information regarding nonaccrual loans, restructured loans,
and real estate and other assets owned is presented below.
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30, June 30,
(In Thousands) 1997 1997 1996 1996 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial............................. $ 5,782 $ 8,515 $ 9,382 $11,782 $10,419
Real estate............................ 2,136 8,479 10,760 10,526 10,434
Consumer............................... -- -- 248 -- --
- -----------------------------------------------------------------------------------------------------
Total nonaccrual loans $ 7,918 $16,994 $20,390 $22,308 $20,853
- -----------------------------------------------------------------------------------------------------
Restructured loans $24,144 $25,395 $28,681 $44,764 $44,962
- -----------------------------------------------------------------------------------------------------
Real estate and other assets owned:
Real estate and other assets owned, $ 3,817 $ 2,973 $ 2,895 $ 2,986 $ 8,306
gross.................................
Less valuation allowance............... (833 ) (769 ) (769 ) (307 ) (366 )
- -----------------------------------------------------------------------------------------------------
Real estate and other assets owned, $ 2,984 $ 2,204 $ 2,126 $ 2,679 $ 7,940
net
- -----------------------------------------------------------------------------------------------------
Total $35,046 $44,593 $51,197 $69,751 $73,755
- -----------------------------------------------------------------------------------------------------
</TABLE>
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10
<PAGE>
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The following table contains information for loans deemed impaired:
<TABLE>
<CAPTION>
Net Specific Net
Carrying Allowance Balance
(In Thousands) Value
- ----------------------------------------------------------------------------------
June 30, 1997
<S> <C> <C> <C>
Loans with specific allowances......... $101,342 (12,600) $ 88,742
Loans without specific allowances...... 2,790 -- 2,790
- ----------------------------------------------------------------------------------
Total $104,132 (12,600) $ 91,532
- ----------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------
Impaired loans were classified as follows:
(In Thousands) June 30, December 31,
1997 1996
- ----------------------------------------------------------------------------------
Current................................. $ 97,738 $ 97,210
Nonaccrual.............................. 6,394 20,390
- ----------------------------------------------------------------------------------
Total $ 104,132 $117,600
- ----------------------------------------------------------------------------------
</TABLE>
ALLOWANCE AND PROVISION FOR LOAN LOSSES:
The allowance for loan losses is maintained at a level considered
appropriate by management and is based on an ongoing assessment of the
risks inherent in the loan portfolio. The allowance for loan losses is
increased by the provision for loan losses which is charged against
current period operating results, and is decreased by the amount of
net charge-offs during the period. The Company's determination of the
level of the allowance for loan losses, and correspondingly, the
provision for loan losses rests upon various judgments and
assumptions, including general economic conditions (especially in
California), loan 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
June 30, 1997, future additions to the allowance will be subject to
continuing evaluation of inherent risk in the loan portfolio.
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11
<PAGE>
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At June 30, 1997, the allowance for loan losses amounted to $42.6
million, or 1.8% of total loans, as compared to $36.1 million, or 1.8%
of total loans, at December 31, 1996 and $38.5 million, or 2.1% of
total loans, at June 30, 1996. The following table summarizes changes
in the allowance for loan losses:
<TABLE>
<CAPTION>
Six months ended June 30, (In Thousands) 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 36,051 $ 37,402
- -------------------------------------------------------------------------
Loans charged off:
Commercial............................. (2,394) (4,651)
Real estate............................ (1,115) (1,451)
Consumer............................... (2) (13)
- -------------------------------------------------------------------------
Total loans charged off $ (3,511) $ (6,115)
- -------------------------------------------------------------------------
Recoveries of loans previously charged
off:
Commercial............................. 545 1,154
Real estate............................ 1,696 11
Consumer............................... 13 13
- -------------------------------------------------------------------------
Total loan recoveries $ 2,254 $ 1,178
- -------------------------------------------------------------------------
Net loans charged off................... (1,257) (4,937)
Provision for loan losses............... 7,717 6,026
Provision for loan losses of 56 26
discontinued operation.................
- -------------------------------------------------------------------------
Balance, end of period $ 42,567 $ 38,517
- -------------------------------------------------------------------------
Loans outstanding, end of period $2,356,263 $1,849,653
- -------------------------------------------------------------------------
Average loans outstanding $2,194,731 $1,754,963
- -------------------------------------------------------------------------
Ratio of net charge-offs to average 0.11%/1/ 0.56%/1/
loans..................................
Ratio of allowance for loan losses to 1.94 2.19
average loans..........................
Ratio of allowance for loan losses to 1.81 2.08
loans outstanding at June 30...........
Ratio of allowance for loan losses to 538 185
nonaccrual loans.......................
Ratio of provision for loan losses to 618 123
net charge-offs........................
- -------------------------------------------------------------------------
/1/ Annualized
</TABLE>
The provision for loan losses totaled $4.4 million and $7.7 million,
respectively, for the quarter and six months ended June 30, 1997 as
compared to $3.4 million and $6.0 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 $0.5 million and $1.3 million, respectively, for
the three and six months ended June 30, 1997 as compared to $4.0
million and $4.9 million, respectively, in the same periods of 1996.
As a percentage of average loans outstanding, annualized net charge-
offs were 0.10% and 0.11%, respectively, for the three and six months
ended June 30, 1997 and 0.90% and 0.56% for the corresponding periods
one year ago.
CAPITAL
Retained earnings from operations has been the primary source of new
capital for the Company, with the exception of its long term debt
offering in 1979, the issuance of the privately placed capital
securities in April 1997 (see page 4), and on a smaller scale, the
exercise of employee stock options. At June 30, 1997, shareholders'
equity totaled $311 million as compared to $286 million at December
31, 1996. In the first half of 1997, the Company recorded an
additional $0.7 million of shareholders' equity from the exercise of
employee stock options. The Company generally receives a tax deduction
upon the exercise of nonqualified stock options for the difference
between the option price and the market value of the shares issued.
The tax benefit associated with shares exercised, which is recorded as
a component of stockholders' equity, approximated $4.5 million in the
first half of 1997.
On January 24, 1997, the Company declared a 10% stock dividend,
payable on February 24, 1997 to shareholders of record on February 17,
1997.
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12
<PAGE>
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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 June 30, 1997 were 12.0% and 13.4%,
respectively, as compared to 10.6% and 12.0%, respectively, the year
earlier. The increase in capital ratios is mainly due to the issuance
of $75 million of capital securities by a subsidiary of the Company in
the capital securities qualify as Tier I Capital. The Bank's Tier I
and total capital ratios at June 30, 1997 were 9.0% and 10.2%,
respectively, as compared to 10.1% and 11.4%, respectively, at June
30, 1996. The decrease in capital ratios from the prior year is
primarily due to a 29% increase in total risk- weighted assets.
Capital Ratios for Imperial Bank(1)
<TABLE>
<CAPTION>
June 30, (In Thousands) 1997 1996
- ---------------------------------------------------------------------
<S> <C> <C>
Tier I:
Common stockholders' equity and $ 284,015 $ 248,890
preferred stock(2)....................
Disallowed assets...................... (1,205) (1,514)
- ---------------------------------------------------------------------
Tier I capital $ 282,810 $ 247,376
- ---------------------------------------------------------------------
Tier II:
Allowance for loan losses allowable in 39,432 30,646
Tier II...............................
- ---------------------------------------------------------------------
Total risk-based capital $ 322,242 $ 278,022
- ---------------------------------------------------------------------
Risk-weighted balance sheet assets $2,668,738 $2,092,578
- ---------------------------------------------------------------------
Risk-weighted off-balance sheet items:
Commitments to make or purchase loans.. 345,151 260,790
Standby letters of credit.............. 132,979 82,437
Other.................................. 7,658 15,870
- ---------------------------------------------------------------------
Total risk-weighted off-balance $ 485,788 $ 359,097
sheet items
- ---------------------------------------------------------------------
Allowance for loan losses not included (2,939) (7,871)
in Tier II.............................
- ---------------------------------------------------------------------
Total risk-weighted assets $3,151,587 $2,443,804
- ---------------------------------------------------------------------
Risk-based capital ratios:
Tier I capital......................... 9.0% 10.1%
Total capital.......................... 10.2 11.4
Leverage ratio......................... 8.2 9.2
- ---------------------------------------------------------------------
</TABLE>
(1) As reported on the June 30, 1997 and 1996 FDIC Call Reports.
(2) Excludes unrealized gain on securities available for sale.
In addition to the risk-weighted ratios, all banks are required to
maintain leverage ratios, to be determined on an individual basis, but
not below a minimum of 3%. The ratio is defined as Tier I capital to
average total assets for the most recent quarter. The Company's
leverage ratio was 10.7% at June 30, 1997 as compared to 9.6% at June
30, 1996.The Bank's leverage ratio was 8.2% at June 30, 1997 as
compared to 9.2% at June 30, 1996, well in excess of its regulatory
requirement of 6.5%.
In conjunction with the spin-off of IFG, all or a portion of the net
proceeds from the Company's sale of the Junior Subordinated Debentures
will be contributed into the Bank's capital to ensure that the Bank's
risk-based capital ratios continue to meet the well capitalized
criteria.
NEW ACCOUNTING PRONOUNCEMENTS
FAS 125 - Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," ("FAS 125") which establishes accounting for transfers
and servicing of financial assets and extinguishment of liabilities.
This statement specifies the following: when financial assets and
liabilities are to be removed from an entity's financial statements;
the accounting for servicing assets and liabilities; and the
accounting for assets that can be contractually prepaid in such a way
that the holder would not recover substantially all of its recorded
investment. Under FAS 125, an entity recognizes only assets it
controls and liabilities it has incurred, discontinues recognition of
assets only when control has been
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
surrendered, and discontinues recognition of liabilities only when
they have been extinguished. FAS 125 requires that the selling entity
continue to carry retained interests relating to assets it no longer
recognizes. Such retained interests are based on the relative fair
values of the retained interests of the subject assets at the date of
transfer. Transfers not meeting the criteria for sale recognition are
accounted for as a secured borrowing with a pledge of collateral.
Under FAS 125, certain collateralized borrowings may result in assets
no longer being recognized if the assets are provided as collateral
and the secured party takes control of the collateral. This
determination is based upon whether: (1) the secured party is
permitted to repledge or sell the collateral and (2) the debtor does
not have the right to redeem the collateral on short notice.
Extinguishments of liabilities are recognized only when the debtor
pays the creditor and is relieved of its obligation for the liability,
or when the debtor is legally released from being the primary obligor
under the liability, either judicially or by the creditor. FAS 125
requires an entity to recognize its obligation to service financial
assets that are retained in a transfer of assets in the form of a
servicing asset or liability. The servicing asset is to be amortized
in proportion to, and over the period of, net servicing income.
Servicing assets and liabilities are to be assessed for impairment
based on their fair value. FAS 125 modifies the accounting for
interest-only strips or retained interests in securitizations, such as
capitalized servicing fees receivable, that can be contractually
prepaid or otherwise settled in such a way that the holder would not
recover substantially all of its recorded investment. In this case, it
requires that they be classified as available for sale or as trading
securities. Interest-only strips and retained interests are to be
recorded at market value. Changes in market value are included in
operations, if classified as trading securities, or in stockholders'
equity as unrealized holding gains or losses, net of the related tax
effect, if classified as available for sale. During 1996, the FASB
issued Statement of Financial Accounting Standards No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB Statement No 125"
("FAS 127"). FAS 127 defers for one year the effective date (a) of
paragraph 15 of FAS 125 and (b) for repurchase agreement, dollar-roll,
securities lending, and similar transactions, of paragraphs 9 - 12 and
237 (b) of FAS 125. FAS 127 provides additional guidance on the types
of transactions for which the effective date of FAS 125 has been
deferred. It is required that if it is not possible to determine
whether a transfer occurring during calendar-year 1997 is part of a
repurchase agreement, dollar-roll, securities lending or similar
transaction, then paragraphs 9 - 12 of FAS 125 should be applied to
that transfer. The Company adopted the applicable provisions of FAS
125 effective January 1, 1997.
The Small Business Administration lending group, a division of the
Bank, provides loans to small businesses, sells the guaranteed portion
of the loans, and retains the servicing rights and interest-only
strips relating to those loans. Under FAS 125, the portion of the
contractually specified servicing fee that exceeds the fee that a
substitute servicer would demand to assume the servicing (which is
deemed to be 40 basis points 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 FAS 115.
The servicing asset totaled $1.8 million at June 30, 1997 and is
included in other assets of the Company's consolidated balance sheet.
The book value of the interest-only strip was $2.0 million at June 30,
1997 and is included in securities available for sale. The unrealized
gain on the interest-only strip was $0.1 million at the end of the
second quarter of 1997.
The Financial Accounting Standards Board ("FASB") issued Statement of
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128") and
"Disclosure of Information about Capital Structure" ("FAS 129") in
February 1997, and issued "Reporting Comprehensive Income" ("FAS 130")
and "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131") in June 1997.
FAS 128 - Earnings Per Share
FAS 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." FAS 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 average number of
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
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.
FAS 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. FAS 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 FAS 128 as of January 1, 1997, proforma basic EPS and proforma
diluted EPS would have been $0.74 and $0.70 for the six months ending
June 30, 1997.
FAS 129 - Disclosure of Information about Capital Structure
SFAS 129 consolidates existing reporting standards for disclosing
information about an entity's capital structure. FAS 129 also
supersedes specific requirements found in previously issued accounting
statements. FAS 129 must be adopted for financial statements for
periods ending after December 15, 1997.
FAS 130 - Reporting Comprehensive Income
FAS 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. FAS 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. FAS 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.
FAS 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.
FAS 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
FAS 131 - Disclosures about Segments of an Enterprise and Related
Information.
FAS 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 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.
FAS 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.
FAS 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 disclosured for segments to corresponding amounts in the
enterprise's general-purpose financial statements. It requires 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
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
enterprise earns revenues and holds assets, and about major customers
regardless of whether that information is used in making operating
decisions. However, FAS 131 does not require an enterprise to report
information that is not prepared for internal use if reporting it
would be impracticable.
FAS 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.
FAS 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.
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.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
IMPERIAL BANCORP AND SUBSIDIARIES (UNAUDITED)
JUNE 30, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks................. $ 416,207 $ 325,014
Trading account securities.............. 28,602 64,887
Securities available for sale........... 664,252 426,336
Securities held to maturity (fair value 4,145 4,193
of $4,145 and $4,193 for 1997 and
1996, respectively)....................
Federal funds sold and securities 535,000 357,000
purchased under resale agreements......
Loans held for sale (market value of 7,085 5,531
$7,726 and $6,058 for 1997 and 1996,
respectively)..........................
Loans:
Loans, net of unearned income and 2,356,263 2,063,048
deferred loan fees....................
Less allowance for loan losses......... (42,567) (36,051)
- ----------------------------------------------------------------------
TOTAL NET LOANS $2,313,696 $2,026,997
- ----------------------------------------------------------------------
Premises and equipment, net............. 20,539 18,413
Accrued interest receivable............. 21,489 15,547
Real estate and other assets owned, net. 2,984 2,126
Income taxes receivable................. 1,384 1,893
Investment in Imperial Credit
Industries, Inc........................ 61,925 57,736
Other assets............................ 58,528 44,497
- ----------------------------------------------------------------------
TOTAL ASSETS $4,135,836 $3,350,170
- ----------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand................................. $1,878,810 $1,465,324
Savings................................ 26,127 17,324
Money market........................... 791,561 596,967
Time--under $100,000................... 138,136 169,493
Time--$100,000 and over................ 713,991 701,169
- ----------------------------------------------------------------------
TOTAL DEPOSITS $3,548,625 $2,950,277
- ----------------------------------------------------------------------
Accrued interest payable................ 7,179 5,943
Short-term borrowings................... 122,348 44,897
Long-Term Borrowings:
Floating rate notes and fixed rate 4,436 4,455
debentures............................
Capital securities of subsidiary trust:
Company-obligated mandatorily 73,284 --
redeemable capital securities of
subsidiary trust holding solely
junior subordinated deferrable
interest debentures of the Company,
net.................................
Other liabilities....................... 68,767 58,247
- ----------------------------------------------------------------------
TOTAL LIABILITIES $3,824,639 $3,063,819
- ----------------------------------------------------------------------
Stockholders' equity:
Common stock--no par, 50,000,000 231,275 163,748
shares authorized; 25,869,753 shares
at June 30, 1997 and 23,079,715
shares at December 31, 1996 issued
and outstanding.......................
Unrealized gain on securities 2,030 1,206
available for sale, net of tax........
Retained earnings...................... 77,892 121,397
- ----------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $ 311,197 $ 286,351
- ----------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' $4,135,836 $3,350,170
EQUITY
- ----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
IMPERIAL BANCORP AND SUBSIDIARIES THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1997 1996
UNAUDITED
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $55,494 $42,385 $104,663 $82,705
Trading account securities 263 416 881 1,047
Securities available for sale 7,793 5,289 14,301 10,079
Securities held to maturity 73 77 146 154
Federal funds sold and securities 4,651 2,004 6,893 4,204
purchased under resale agreements
Loans held for sale 221 155 344 227
- --------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $68,495 $50,326 $127,228 $98,416
- --------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 18,165 14,747 35,520 29,800
Short-term borrowings 1,180 599 2,318 1,317
Long-term borrowings 1,311 91 1,390 189
- --------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $20,656 $15,437 $ 39,228 $31,306
- --------------------------------------------------------------------------------------------------------
Net interest income 47,839 34,889 88,000 67,110
Provision for loan losses 4,427 3,357 7,717 6,026
- --------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses $43,412 $31,532 $ 80,283 $61,084
- --------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 1,314 1,236 2,717 2,494
Trust fees 1,740 2,163 3,717 4,271
Gain on origination and sale of loans 1,505 1,368 2,019 1,673
Equity in net earnings of Imperial 3,544 10,651 5,005 13,511
Credit Industries, Inc.
Gain on sale of Imperial Credit -- 36,411 -- 36,411
Industries, Inc. common stock
Other service charges and fees 2,675 1,058 4,953 1,803
Merchant and credit card fees 798 597 1,497 1,036
Gain on exercise and sale of stock 809 401 2,543 869
warrants
International fees 1,920 1,147 3,598 2,194
Gain on trading account securities 1,189 657 2,248 1,806
Appreciation of donated Imperial -- 2,726 2,816 3,505
Credit Industries, Inc. common stock
Other income 465 1,225 975 2,358
- --------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST INCOME $15,959 $59,640 $ 32,088 $71,931
- --------------------------------------------------------------------------------------------------------
Noninterest expense:
Salary and employee benefits 21,839 14,426 41,510 29,924
Net occupancy expense 2,309 2,233 4,521 4,465
Furniture and equipment 1,607 1,283 2,988 2,419
Data processing 1,884 1,561 3,759 3,057
Customer services 4,273 2,794 7,879 5,231
Net real estate owned (income) expense (310 ) 298 (158 ) 948
Professional and consulting 2,468 1,830 4,296 3,452
Business development 1,753 739 2,650 1,729
Charitable donations 51 3,627 3,727 4,668
Other expense 4,919 4,196 9,335 7,257
- --------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST EXPENSE $40,793 $32,987 $ 80,507 $63,150
- --------------------------------------------------------------------------------------------------------
Income from continuing operations 18,578 58,185 31,864 69,865
before income taxes
Income tax provision 7,487 23,418 12,741 28,418
- --------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS $11,091 $34,767 $ 19,123 $41,447
- --------------------------------------------------------------------------------------------------------
Loss from operations of discontinued 132 6,114 210 5,998
operation, net of tax.................
- --------------------------------------------------------------------------------------------------------
NET INCOME $10,959 $28,653 $ 18,913 $35,449
- --------------------------------------------------------------------------------------------------------
Net income from continuing operations $0.41 $1.34 $0.71 $1.60
per share.............................
Loss per share of discontinued $0.01 $0.24 $0.01 $0.23
operations............................
- --------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE $0.40 $1.10 $0.70 $1.37
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
18
<PAGE>
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
IMPERIAL BANCORP AND SUBSIDIARIES (UNAUDITED)
SIX MONTHS ENDED JUNE 30, (IN THOUSANDS) 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................ $ 18,913 $ 35,449
Adjustments for noncash charges
(credits):
Depreciation and amortization........... (3,828) (1,367)
Accretion of purchased loan discount.... (37) (183)
Provision for loan losses............... 7,717 6,026
Provision for real estate owned......... 64 (5)
Provision for operation losses.......... 56 10,615
Equity in net earnings of Imperial
Credit Industries, Inc................. (5,005) (13,511)
Gain on sale of Imperial Credit
Industries, Inc. common stock.......... -- (36,411)
Gain on sale of real estate owned....... (364) (23)
Loss on sale of premises and
equipment.............................. 9 --
Gain on securities available for sale... (356) (242)
Net change in trading account
securities............................. 36,285 (33,415)
Net change in loans held for sale....... (1,554) (2,665)
Net change in accrued interest
receivable............................. (5,942) 51
Net change in accrued interest
payable................................ 1,236 (2,117)
Net change in income taxes receivable... 4,206 11,657
Net change in other liabilities......... 10,520 4,590
Net change in other assets.............. (13,822) (5,465)
- -----------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $ 48,098 $ (27,016)
- -----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from securities held to
maturity................................. 48 14
Proceeds from sale of securities
available for sale....................... 2,159,857 1,432,242
Proceeds from maturities of securities
available for sale....................... 285,981 79,307
Purchase of securities available for
sale..................................... (2,682,050) (1,582,858)
Proceeds from sale of Imperial Credit
Industries, Inc. common stock............ -- 35,079
Net change in federal funds sold and
securities purchased
under resale agreements.................. (178,000) 145,000
Net change in loans....................... (288,612) (151,216)
Capital expenditures...................... (4,492) (2,805)
Proceeds from sale of real estate owned... 508 2,961
Proceeds from sale of premises and
equipment................................ 133 --
- -----------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES $ (706,627) $ (42,276)
- -----------------------------------------------------------------------
Cash flows from financing activities:
Net change in demand deposits,
savings, and money market accounts....... 616,883 222,312
Net change in time deposits............... (18,535) 69,813
Net change in short-term borrowings....... 77,451 (56,753)
Net change in capital securities of
subsidiary............................... 73,284 --
Retirement of long-term borrowings........ (19) (657)
Proceeds from exercise of employee
stock options............................ 676 1,489
Other..................................... (18) (18)
- -----------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES $ 749,722 $ 236,186
- -----------------------------------------------------------------------
NET CHANGE IN CASH AND DUE FROM BANKS $ 91,193 $ 166,894
- -----------------------------------------------------------------------
CASH AND DUE FROM BANKS, BEGINNING
OF YEAR $ 325,014 $ 242,018
- -----------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF
PERIOD $ 416,207 $ 408,912
- -----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- -------------------------------------------------------------------------------
19
<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 June 30, 1997, the Company owned 9,261,106 shares, or 23.9% 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>
- --------------------------------------------------------------
June 30, (In Thousands) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Interest paid............................ $37,992 $33,423
Taxes refunded........................... 424 244
Taxes paid............................... 8,791 10,240
Significant noncash transactions:
Loans transferred to real estate owned.. 1,482 544
Donation of Imperial Credit
Industries, Inc. common stock.......... 3,362 4,576
- --------------------------------------------------------------
</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
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 was 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.
- --------------------------------------------------------------------------------
20
<PAGE>
TABLE 1 - AVERAGE BALANCES, YIELDS AND RATES PAID
The following table sets forth the average daily balances for major
categories of assets, liabilities and stockholders' equity including
interest-earning assets and interest-bearing liabilities and the
average interest rates earned and paid thereon. The yields are not
presented on a tax equivalent basis as the effects are not material.
<TABLE>
<CAPTION>
Three months ended June 30,
- -------------------------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans(1)...................................... $2,258,437 $55,494 9.8% $1,783,815 $42,385/(2)/ 9.5%
Trading account securities.................... 16,422 263 6.4 27,454 416 6.1
Securities available for sale................. 514,046 7,793 6.1 356,493 5,289 5.9
Securities held to maturity................... 4,163 73 7.0 4,365 77 7.1
Federal funds sold and securities purchased
under resale agreements...................... 335,566 4,651 5.5 153,223 2,004 5.2
Loans held for sale........................... 8,769 221 10.1 5,970 155 10.4
- --------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $3,137,403 $68,495 8.7% $2,331,320 $50,326 8.6%
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses...................... (39,404) (39,438)
Cash........................................... 257,053 254,896
Other assets................................... 174,239 127,398
---------- ----------
Total assets.................................. $3,529,291 $2,674,176
---------- ----------
Interest-bearing liabilities:
Savings....................................... $ 21,292 $ 133 2.5% $ 17,708 $ 109 2.5%
Money market.................................. 680,841 5,402 3.2 458,514 3,494 3.0
Time - under $100,000......................... 169,356 2,454 5.8 219,968 3,061 5.6
Time - $100,000 and over...................... 746,400 10,176 5.5 605,795 8,083 5.3
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,617,889 $18,165 4.5% $1,301,985 $14,747 4.5%
- --------------------------------------------------------------------------------------------------------------------------
Short-term borrowings......................... 88,564 1,180 5.3 48,920 599 4.9
Long-term borrowings.......................... 60,008 1,311 8.7 5,490 91 6.6
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,766,461 $20,656 4.7% $1,356,395 $15,437 4.6%
- --------------------------------------------------------------------------------------------------------------------------
Demand deposits................................ 1,383,614 1,023,150
Other liabilities.............................. 72,616 40,629
Stockholders' equity........................... 306,600 254,002
---------- ----------
Total liabilities and stockholders' equity.... $3,529,291 $2,674,176
---------- ----------
Net interest income/net interest margin........ $47,839 6.1% $34,889 6.0%
------------------ ------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Six months ended June 30,
- --------------------------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
(In Thousands) Balance Expense Rate % Balance Expense Rate %
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans(1)...................................... $2,194,731 $104,663 9.5% $1,754,963 $82,705/(2)/ 9.4%
Trading account securities.................... 27,674 881 6.4 31,821 1,047 6.6
Securities available for sale................. 483,629 14,301 5.9 326,210 10,079 6.2
Securities held to maturity................... 4,176 146 7.0 4,369 154 7.0
Federal funds sold and securities purchased
under resale agreements...................... 252,015 6,893 5.5 157,847 4,204 5.3
Loans held for sale........................... 6,824 344 10.1 4,495 227 10.1
- --------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $2,969,049 $127,228 8.6% $2,279,705 $98,416 8.6%
- --------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses...................... (38,232) (39,324)
Cash........................................... 265,092 241,347
Other assets................................... 168,916 125,799
---------- ----------
Total assets.................................. $3,364,825 $2,607,527
---------- ----------
Interest-bearing liabilities:
Savings....................................... $ 19,462 $ 241 2.5% $ 18,787 $ 232 2.5%
Money market.................................. 638,067 9,857 3.1 446,507 6,646 3.0
Time - under $100,000......................... 172,026 4,918 5.7 230,162 6,580 5.7
Time - $100,000 and over...................... 758,221 20,504 5.4 601,201 16,342 5.4
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits $1,587,776 $ 35,520 4.5% $1,296,657 $29,800 4.6%
- --------------------------------------------------------------------------------------------------------------------------
Short-term borrowings......................... 88,550 2,318 5.2 52,619 1,317 5.0
Long-term borrowings.......................... 32,383 1,390 8.6 5,698 189 6.6
- --------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $1,708,709 $ 39,228 4.6% $1,354,974 $31,306 4.6%
- --------------------------------------------------------------------------------------------------------------------------
Demand deposits................................ 1,288,609 974,569
Other liabilities.............................. 68,277 34,848
Stockholders' equity........................... 299,230 243,136
---------- ----------
Total liabilities and stockholders' equity.... $3,364,825 $2,607,527
---------- ----------
Net interest income/net interest margin........ $ 88,000 5.9% $67,110 5.9%
------------------- ------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes nonaccrual loans.
(2) Includes net loan fees of $7.3 million and $4.4 million for the six months
ended June 30, 1997 and 1996, respectively, and $4.3 million and $2.4
million for the three months ended June 30, 1997 and 1996, respectively.
21
<PAGE>
- --------------------------------------------------------------------------------
TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST MARGIN
Changes in the Company's net interest income are a function of both
changes in rates and changes in volumes of interest-earning assets and
interest-bearing liabilities. The following table sets forth
information regarding changes in interest income and interest expense
for the years indicated. The total change is segmented into the change
attributable to variations in volume (changes in volume multiplied by
old rate) and the change attributable to variations in interest rates
(changes in rates multiplied by old volume). The change in interest
due to both rate and volume (changes in rate multiplied by changes in
volume) is classified as rate/volume. Nonaccrual loans are included in
average loans used to compute this table. The table is not presented
on a tax equivalent basis as the effects are not material.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 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....................... 11,275 1,449 385 13,109 20,725 986 247 21,958
Trading account securities.. (167) 24 (10) (153) (136) (34) 4 (166)
Securities available for
sale....................... 2,337 115 52 2,504 4,864 (433) (209) 4,222
Securities held to maturity. (4) -- -- (4) (7) (1) -- (8)
Federal funds sold and
securities purchased under
resale agreements.......... 2,385 120 142 2,647 2,508 113 68 2,689
Loans held for sale......... 73 (4) (3) 66 117 -- -- 117
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $15,899 $1,704 $ 566 $18,169 $ 28,071 $ 631 $ 110 $ 28,812
- ------------------------------------------------------------------------------------------------------------------------------------
Savings..................... (41) 1 63 23 9 -- -- 9
Money market................ 1,694 144 70 1,908 2,851 252 108 3,211
Time - under $100,000....... (704) 127 (29) (606) (1,662) -- -- (1,662)
Time - $100,000 and over.... 1,876 176 41 2,093 4,268 (84) (22) 4,162
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $ 2,825 $ 448 $ 145 $ 3,418 $ 5,466 $ 168 $ 86 $ 5,720
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings....... 485 53 43 581 899 60 42 1,001
Long-term borrowings........ 904 29 287 1,220 885 56 260 1,201
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 4,214 $ 530 $ 475 $ 5,219 $ 7,250 $ 284 $ 388 $ 7,922
- ------------------------------------------------------------------------------------------------------------------------------------
CHANGES IN NET INTEREST
INCOME $11,685 $1,174 $ 91 $12,950 $ 20,821 $ 347 (278) $ 20,890
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
22
<PAGE>
- -------------------------------------------------------------------------------
TABLE 3 - SECURITIES
(a) SECURITIES HELD TO MATURITY
The following is a summary for the major categories of securities held
to maturity.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1997
Industrial development bonds........... $ 4,145 $ -- $ -- $ 4,145
- -------------------------------------------------------------------------------------------
TOTAL $ 4,145 $ -- $ -- $ --
- -------------------------------------------------------------------------------------------
December 31, 1996
Industrial development bonds........... $ 4,193 $ -- $ -- $ 4,193
- -------------------------------------------------------------------------------------------
TOTAL $ 4,193 $ -- $ -- $ 4,193
- -------------------------------------------------------------------------------------------
(b) SECURITIES AVAILABLE FOR SALE
The following is a summary for the major categories of securities available for sale.
- -------------------------------------------------------------------------------------------
GROSS GROSS
(IN THOUSANDS) AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------
June 30, 1997
U.S. Treasury and federal agencies..... $569,863 $3,504 $(59) $573,308
Mutual funds........................... 80,282 -- -- 80,282
Other securities....................... 8,570 208 (278) 8,500
- -------------------------------------------------------------------------------------------
TOTAL $658,715 $3,712 (337) $662,090
- -------------------------------------------------------------------------------------------
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 June 30,
1997, were $124,000 and $1,000, respectively. For the same period of
1996, these amounts were $39,000 and $26,000, respectively. For the
six months ended June 30, 1997, gross realized gains and losses were
$419,000 and $62,000, respectively, as compared to $272,000 and
$30,000, respectively, for the same period of 1996.
- --------------------------------------------------------------------------------
23
<PAGE>
- -------------------------------------------------------------------------------
TABLE 4 - FINANCIAL RATIOS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income as a percentage of: (1)
Average stockholders' equity 14.30% 45.12% 12.64% 29.16%
Average total assets 1.24 4.29 1.12 2.72
Average earning assets 1.40 4.92 1.27 3.11
Core net income as a percentage of: (1)
Average stockholders' equity 14.47% 13.91% 12.78% 12.76%
Average total assets 1.26 1.32 1.14 1.19
Average earning assets 1.41 1.52 1.29 1.36
Average stockholders' equity as a
percentage of:
Average assets 8.69% 9.50% 8.89% 9.32%
Average loans 13.58 14.24 13.63 13.85
Average deposits 10.21 10.92 10.40 10.71
Stockholders' equity at period end as a
percentage of:
Total assets at period end -- -- 7.52% 8.61%
Total loans at period end -- -- 13.20 14.33
Total deposits at period end -- -- 8.77 9.98
</TABLE>
- --------------------------------------------------------------------------------
/1/ Annualized
- --------------------------------------------------------------------------------
24
<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 June 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 June 30, Six months ended June 30,
- -------------------------------------------------------------------------------------
1997 1996/(1)/ 1997 1996/(1)/
- ------------ ------------------ ---------------- -----------------------
<S> <C> <C> <C>
27,116,997 25,973,544 26,965,405 25,847,003
</TABLE>
/(1)/ Adjusted for a three-for-two stock split distributed in the third
quarter of 1996 and a 10% stock dividend paid in the first quarter of
1997.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Due to the nature of the businesses, the Company and its
subsidiaries are subject to numerous legal actions, threatened or
filed, arising in the normal course of business. Certain of the
actions currently pending seek punitive damages, in addition to
other relief. The Company is of the opinion that the eventual
outcome of all currently pending legal proceedings will not be
materially adverse to the Company, nor has the resolution of any
proceeding since the Company's last filing with the Commission
materially adversely affected the registrant or any subsidiary
thereof.
ITEM 2. CHANGES IN SECURITIES
No events have transpired which would make response to this item
appropriate.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No events have transpired which would make response to this item
appropriate.
ITEM 4. SUBMISSION OF MATTERS TO a VOTE OF SECURITIES HOLDERS
No events have transpired which would make response to this item
appropriate.
- -------------------------------------------------------------------------------
25
<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.
- --------------------------------------------------------------------------------
26
<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: August 14, 1997 By: Christine M. McCarthy
----------------------------
Christine M. McCarthy
Executive Vice President and
Chief Financial Officer
- --------------------------------------------------------------------------------
27
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<S> <C>
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